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The following is an excerpt from a 10-K/A SEC Filing, filed by BORDEN CHEMICALS & PLASTICS LIMITED PARTNERSHIP /DE/ on 11/21/2001.
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BORDEN CHEMICALS & PLASTICS LIMITED PARTNERSHIP /DE/ - 10-K/A - 20011121 - PART_I

PART I

Item I. Business

General

Borden Chemicals and Plastics Limited Partnership (the "Company" or "Partnership") is a limited partnership formed in 1987 to acquire, own and operate polyvinyl chloride resins ("PVC"), methanol and other chemical plants located in Geismar, Louisiana, and Illiopolis, Illinois, that were previously owned and operated by Borden, Inc. ("Borden"). In 1995, the Company, through its subsidiary operating partnership Borden Chemicals and Plastics Operating Partnership (the "Operating Partnership"), purchased a PVC resin manufacturing facility, from Occidental Chemical Corporation ("OxyChem"), located in Addis, Louisiana ("Addis Facility"). Historically, the Company's principal product groups were PVC Polymers Products, which consist of PVC resins and feedstocks (such as vinyl chloride monomer ("VCM") and acetylene), Methanol and Derivatives, which consist of methanol and formaldehyde, and Nitrogen Products, which consist of ammonia and urea. As discussed below, the Company made the decision in 2000 to exit the Methanol and Derivatives and Nitrogen Products businesses. On April 3, 2001, the Operating Partnership and its subsidiary, BCP Finance Corporation, (collectively, the "Debtors") filed voluntary petitions for protection under Chapter 11 of the Bankruptcy Code, 11 U.S.C. Sections 101 - 1330 (the "Bankruptcy Code"), in the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court") under case number 01-1268(RRM) and 01-1269 (RRM) ("the Chapter 11 Cases"), respectively.

The Company's production complex at Geismar, Louisiana, its plant at Illiopolis, Illinois, and the Addis Facility produce products for the following applications:

 Products                       Location                   Principal Applications
 --------                       --------                   ----------------------
PVC POLYMERS PRODUCTS
 PVC                     Geismar                       Water distribution pipe, residential
                         Illiopolis                    siding, wallcoverings, vinyl flooring

                         Addis

 VCM                     Geismar                       Raw material for the Company's
                                                       PVC operations

The Company's plants generally can be operated at rates in excess of stated capacity to take advantage of market opportunities without undue adverse effects. References to capacity assume normal operating conditions, including downtime and maintenance. The Company's objective is to operate the Geismar, Illiopolis and Addis plants at or near full capacity because of the reduced operating costs per unit of output at full operation.

The integrated design of the Company's plants provides it with a high degree of flexibility to shift production volumes according to market conditions and efficiently utilize by-product streams. The Company's products are produced through the highly integrated lines described below.

Restatement of Financial Statements

The accompanying consolidated financial statements, listed in the index on page 23, have been revised. Other portions of this Form 10-K have also been revised to reflect the changes in the financial statements. See note 2 to the consolidated financial statements for further information.

PVC Polymers Products

PVC Resins - PVC is the second largest volume plastic material produced in the world. The Company produces general purpose and specialty purpose PVC resins at three plants - one located at the Geismar complex, one at Illiopolis and another at Addis - with stated annual capacities of 550 million, 400 million and 600 million pounds of PVC resins, respectively. The PVC resin plants operated at approximately 78% and 80% of combined capacity in 2000 and 1999, respectively. Although there have been year-to-year fluctuations in product mix, the Company has over time concentrated on

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the higher margin grades of PVC resin and reduced its dependence on commodity pipe grade PVC resins, which have historically experienced lower margins. Based on data from the Society of the Plastics Industry, the Company believes its production currently accounts for approximately 9% of total industry domestic capacity of PVC resins.

The PVC industry in both the United States and Europe has entered a consolidation and rationalization phase, evidenced by the mergers of OxyChem and Geon, Georgia Gulf and Condea Vista, BASF and Solvay, EVA and BSU Schkopag and Shin-Etso, Shell and Rovin in recent years.

Production Process. PVC resins are produced through the polymerization of VCM, an ethylene and chlorine intermediate material internally produced by the Company. The Company's production of certain specialty PVC resin grades also involves the consumption of purchased vinyl acetate monomer. The Company purchases vinyl acetate monomer from unrelated third parties.

All the VCM used by the Company's Geismar PVC resin plant and most of the VCM used by the Company's Illiopolis PVC resin plants is obtained from the Company's two Geismar VCM plants discussed below. Substantially all of the production of these VCM plants is consumed by the Company's PVC resins plants at Geismar and Illiopolis. The Geismar PVC resin plants obtain VCM from the Company's adjacent VCM plants in the Geismar complex and the Illiopolis PVC resin plant obtains VCM from the Company's Geismar plant via rail. The VCM requirement at the Addis Facility is currently supplied by OxyChem which has arranged for physical delivery to the Addis Facility by pipeline via exchange, but which may also be supplied by rail car from OxyChem's plant in Deer Park, Texas or from OxyChem's joint venture facility ("OxyMar") in Corpus Christi, Texas.

VCM is principally used in the production of PVC resins. The Company has the capability of producing VCM by two processes: an ethylene process and an acetylene process. The finished product of both of these processes is essentially identical but the production costs vary depending on the cost of raw materials and energy. The ability to produce VCM by either process allows the Company the flexibility of favoring the process that results in the lower cost at any particular time.

Ethylene-Based VCM. Ethylene-based VCM ("VCM-E") is produced by the Company at a 650 million pound stated annual capacity plant at the Geismar complex. The plant operated at approximately 86% and 79% of capacity during 2000 and 1999, respectively. All of the production of the VCM-E plant is consumed by the Company's PVC resin plants at the Geismar complex and Illiopolis.

Ethylene and chlorine constitute the principal feedstocks used in the production of VCM-E. Both feedstocks are purchased by the Geismar plant from outside sources.

Acetylene-Based VCM. Acetylene-based VCM ("VCM-A") is produced at a 320 million pound stated annual capacity plant at the Geismar complex. During 2000 and 1999, the plant operated at approximately 72% and 63% of capacity respectively. All of the VCM-A produced at the Geismar complex is consumed by the PVC resin plants at Geismar and Illiopolis.

As discussed below under acetylene, the VCM-A plant was idled in December 2000 due to the high cost of raw material feedstock.

Acetylene. Acetylene is primarily used as a feedstock for VCM-A and for other chemical intermediates. Until January 2000, the Company had a 50% interest in a 200 million pound stated annual capacity acetylene plant at the Geismar complex, with the remaining 50% interest held by BASF Corporation ("BASF"). In January 2000, the Partnership purchased BASF's interest in the acetylene plant. During 2000 and 1999, the plant operated at approximately 69% and 83%, respectively, of capacity, with all production being consumed by either the Company or BASF.

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The principal feedstocks used in the production of acetylene are natural gas and oxygen. Oxygen is obtained from certain air separation units and related air compression systems, which are jointly owned by the Company, BASF (through December 31, 1999) and Air Liquide America Corporation. For a description of the Company's arrangements for the purchase of natural gas, see "Raw Materials".

Due to the dramatic increase in the cost of natural gas during 2000, the acetylene and VCM-A production processes became uneconomical to operate. In December 2000, these units were idled, and the Partnership does not intend to operate these units unless and until natural gas returns to economically acceptable levels. Subject to the orders of the Bankruptcy Court in the Chapter 11 Cases, the Partnership plans to increase its purchases of VCM and its production of VCM-E to replace the idled VCM-A capacity.

The Company's principal competitors in the sale of PVC include Shintech, Formosa Plastics, Oxyvinyl, L.P. and Georgia Gulf.

Discontinued Operations

In January 2000, the Partnership announced its intention to evolve into a focused PVC company and to explore ways to realize maximum value in the near term for its non-PVC businesses. On June 27, 2000, the Partnership announced its decision to exit the methanol and derivatives and nitrogen products business segments, as part of a process that included the sale of its formaldehyde and certain other assets for $48.5 million to a subsidiary of Borden. The sale of those assets was completed on July 28, 2000, with the Partnership receiving $38.8 million in cash and an interest-bearing note for $9.7 million which was paid in January 2001. The nitrogen products facilities were closed in July 2000, and the methanol production ceased in December 2000.

Raw Materials

A principal purchased raw material used historically in the Company's operations is natural gas. In 2000, the Company purchased 54.2 million BTUs of natural gas for feedstock and as an energy source. Natural gas can be supplied by pipeline to the Geismar complex by six major natural gas pipelines. The Company purchases the majority of its natural gas under fixed-term, market sensitive supply contracts. In 2000, the cost of purchasing natural gas increased to unprecedented levels, with natural gas increasing from an average of $2.25 per million BTU in 1999 to over $3.73 per million BTU, with monthly prices exceeding $6 per million BTU in December and $10 per million BTU in January 2001. As a consequence, the Company has idled or shutdown its production units that consume natural gas as a feedstock and currently is consuming gas only as an energy source. In this operating mode, annual consumption is approximately 12 million BTUs, and natural gas is currently being purchased from one supplier. There can be no assurance that the Company will in the future be able to purchase adequate supplies of natural gas at acceptable price levels to again utilize natural gas as a feedstock.

The Company purchases other raw materials for its operations, principally ethylene and chlorine. Ethylene is currently supplied by pipeline to the Geismar facility by several suppliers. Chlorine is supplied by rail car and pipeline to the Geismar complex by various suppliers. The major raw material for the Illiopolis PVC plant, VCM, is supplied by rail car from the Geismar facility. In addition, in connection with the production of certain specialty grades of PVC resins, the Company purchases certain quantities of vinyl acetate monomer. See "PVC Polymers Products-Production Process". The Company purchases its VCM requirements for the Addis Facility under a VCM supply agreement entered into with Oxyvinyl, LP.

Because raw materials have accounted for a high percentage of the Company's total

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production costs, and are expected to continue to represent a high percentage of such costs for the Company, the Company's ability to pass on increases in costs of these raw material feedstocks will have a significant impact on operating results. The ability to pass on increases in feedstock and fuel costs is, to a large extent, dependent on the then existing market conditions. If the Company is unable to pass on increases in these costs, it could materially adversely affect the Company's income and cash flow from operations and its ability to service its debt obligations.

Insurance

The Company maintains property, business interruption and casualty insurance which it believes is in accordance with customary industry practices, but it is not fully insured against all potential hazards incident to its business. The Company also maintains pollution legal liability insurance coverage. However, because of the complex nature of environmental insurance coverage and the rapidly developing case law concerning such coverage, no assurance can be given concerning the extent to which its pollution legal liability insurance, or any other insurance that the Company has, may cover environmental claims against the Company. Insurance, however, generally does not cover penalties or the costs of obtaining permits. See "Item 3 - Legal Proceedings".

Under its risk retention program, the Company maintains property damage and liability insurance deductibles of $2.5 million, $1.0 million and $1.0 million per occurrence for property and related damages at the Geismar, Illiopolis and Addis facilities, respectively, and deductibles ranging from $0.1 million to $2.0 million per event for liability insurance. In addition the Company is included in Borden's master excess insurance program.

Marketing and Sales

Marketing and sales activities are conducted by PVC sales and marketing department.

This group is comprised of 16 people, including a Vice President of Sales and Marketing, a Director of Sales, two Product Managers, seven Regional Sales personnel, and three Service managers, along with a small, office support staff.

The group is headquartered in Baton Rouge, LA with professional sales personnel geographically positioned throughout the United States.

The Company's sales activities are based on frequent customer contact to secure and maintain long-term supply relationships. A substantial portion of the Company's sales are made under contracts with annual renegotiation provisions. The majority of the Company's sales are made in the United States, and a small portion in Canada. The Company has not historically participated in the export market, but retains access to these markets through third party specialists.

Utilities

The Geismar complex operates three high thermal efficiency co-generation units providing the site with low cost electricity and steam. Each unit is composed of a natural gas burning turbine/generator unit combined with a steam producing heat recovery system (i.e., the "co-generation" of electricity and steam).

The co-generation units are designed to provide a significant portion of the electricity and steam, and a portion of the reformer combustion air requirements of the Geismar complex at full production levels. These units have electrical outputs of 20, 35 and 35 megawatts, respectively. The electricity is supplied by the units through a substation owned by Monochem, Inc. ("Monochem"), a corporation of which the Partnership

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owns 50% of the capital stock. The Company's interest in Monochem is subject to certain rights of first refusal and limitations on transfer.

Water requirements at the Geismar complex are obtained through Monochem from the Mississippi River. At Illiopolis, a municipal water company supplies the facility with its water requirements. Because the Illiopolis facility represents a significant portion of the demand for water supply from the municipal water company, the Company manages the operations of the water company on a cost-reimbursed basis. The Addis Facility obtains its electricity and water requirements from local public utilities. Natural gas can be supplied by pipeline from various suppliers.

Purchase and Processing Agreements

In connection with the formation of the Company in 1987, Borden entered into certain purchase agreements ("Purchase Agreements") and processing agreements ("Processing Agreements") with the Company covering the following products: PVC resins, methanol, ammonia, urea, formaldehyde and urea-formaldehyde concentrate. These agreements were transferred to Borden Chemical, Inc. ("BCI") in 1997 and the agreement to purchase PVC resins was assigned to and renegotiated with a third party in connection with the sale of certain businesses by Borden in 1996 and 1997.

The Purchase Agreements and Processing Agreements with BCI were terminated in 2000 as part of the agreement for the Company to sell its formaldehyde and related assets to BCI. The agreements called for BCI to purchase most of its requirements for the applicable products based on pricing formulas. The Company believes that the pricing formulas set forth in the Purchase and Processing Agreements in the past provided aggregate prices and processing charges that BCI would have been able to obtain from unaffiliated suppliers, considering the magnitude of BCI's purchases, the long-term nature of such agreements and other factors.

Competition

The business in which the Company operates is highly competitive. The Company competes with major chemical manufacturers and diversified companies, a number of which have revenues and capital resources exceeding those of the Company. Because of the commodity nature of the Company's products, the Company is not in a position to protect its position by product differentiation and is not able to pass on cost increases to its customers to the extent its competitors do not pass on such costs. In addition to price, other significant factors in the marketing of the products are delivery, quality and, in the case of PVC resins, technical service.

Borden has agreed that, so long as BCP Management, Inc. ("BCPM") is the general partner of the Company, Borden will not engage in the manufacture or sale in the United States of acetylene, VCM or PVC resins. However, if BCPM (i) is removed as general partner by the Unitholders under circumstances where cause exists or (ii) withdraws as general partner under circumstances where such withdrawal violates the existing partnership agreements ("Partnership Agreements"), Borden has agreed not to engage in such manufacture or sale for a period of two years from the date of such removal or withdrawal. If Borden were to sell any of its manufacturing facilities to an unaffiliated purchaser that is not a successor to Borden, the purchasers of such facilities would be free to compete with the Company.

Trademarks

The Company entered into a Use of Name and Trademark License Agreement ("Use of Name and Trademark License Agreement") with Borden pursuant to which the Company is

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permitted to use in its name the Borden name and logo. The Use of Name and Trademark License Agreement and the right to use the Borden name and logo terminate in the event that BCPM ceases to be the General Partner.

Management

The General Partner, BCPM, manages and controls the activities of the Company and the Operating Partnership and the General Partner's activities are limited to such management and control. Unitholders do not participate in the management or control of the Company or the Operating Partnership. The General Partner has fiduciary duties to Unitholders, subject to the provisions of the Partnership Agreement. The General Partner is liable, as general partner, for all the debts of the Company (to the extent not paid by the Company) other than any debt incurred by the Company that is made specifically nonrecourse to the General Partner.

The Company does not directly employ any of the persons responsible for managing or operating the business of the Company, but instead relies on the officers and employees of the General Partner and of Borden who provide support to or perform services for the General Partner and reimburses the General Partner or Borden (on its own or on the General Partner's behalf) for their services.

Environmental and Safety Regulations

General. The Company's operations are subject to federal, state and local environmental, health and safety laws and regulations, including laws relating to air quality, hazardous and solid wastes, chemical management and water quality. The Company has expended substantial resources, both financial and managerial, to comply with environmental regulations and permitting requirements, and anticipates that it will continue to do so in the future. Although the Company believes that its operations are in material compliance with these requirements, there can be no assurance that significant costs, civil and criminal penalties, and liabilities will not be incurred. The Company holds various environmental permits for operations at each of its plants. In the event a governmental agency were to deny a permit application or permit renewal, or revoke or substantially modify an existing permit, such agency action could have a material adverse effect on the Company's ability to continue the affected plant operations. Plant expansions are subject to securing necessary environmental permits. Environmental laws and regulations have changed in the past, and the Company anticipates continuing changes. Increasingly strict environmental regulations have resulted in increased operating costs for the Company, and it is possible that the costs of compliance with environmental, health and safety laws and regulations will continue to increase.

The Company maintains an environmental and industrial safety and health compliance program and conducts internal regulatory audits at its Geismar, Illiopolis and Addis plants. The Company's plants have had a history of involvement in regulatory, enforcement and variance proceedings in connection with safety, health and environmental matters. Risks of substantial costs and liabilities are inherent in plant operations and products found at and produced by the plants, as they are with other enterprises engaged in the chemical business, and there can be no assurance that significant costs and liabilities will not be incurred.

Air Quality. The Geismar, Illiopolis and Addis plants emit air contaminants and are subject to the requirements of the Clean Air Act and comparable state statutes. Many of the existing requirements under these laws are embodied in permits issued to the plants by state environmental agencies. The Company believes that the Geismar, Illiopolis and Addis plants generally are in material compliance with these requirements.

The 1990 Amendments to the Clean Air Act (the "1990 Clean Air Act Amendments")

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require stringent controls on volatile organic compounds ("VOC") emissions in ozone non-attainment areas and also require, subject to certain exceptions, the control of nitrogen oxide ("NOx") emissions in such areas. The Geismar and Addis plants are located in "nonattainment areas" for ozone under the 1990 Clean Air Act Amendments. Additional capital expenditures may be required at the Geismar and Addis plants in order to upgrade existing pollution control equipment and/or install additional control equipment to comply with the stringent regulations for VOC and NOx.

The 1990 Clean Air Act Amendments and state laws and regulations also require certain sources to control emissions of hazardous air pollutants, including vinyl chloride. Additional capital expenditures may be necessary to comply with these control standards.

The 1990 Clean Air Act Amendment further requires "enhanced monitoring" of the emissions from certain pieces of equipment. Although monitoring systems are already in place at the Geismar, Illiopolis and Addis plants, capital expenditures may be necessary to comply with the "enhanced monitoring" requirements.

In late 1996 the Illiopolis plant discovered through emission stack testing that the actual emissions from a specific dryer were higher than calculated using emissions factors and engineering estimates. These new emission numbers were reported to the Illinois Environmental Protection Agency, and an air pollution control devise known as a baghouse was installed on the unit in 1998 at a cost of $1.3 million.

Based on information currently available to the Company, the Company does not believe that the capital expenditures that may be required at the Geismar, Illiopolis and Addis plants to comply with the 1990 Clean Air Act Amendments and corresponding state regulations will be material. However, because the Company is continuing to evaluate the impact of such amendments on it, there can be no assurance that the actual costs will not exceed the Company's estimates.

In March 1998, the United States Department of Justice ("DOJ") and the Company signed a consent decree (the "Consent Decree") to resolve an enforcement proceeding brought against the Company and BCPM, for alleged violations of the Clean Air Act and other environmental statutes at the Geismar facility. In June 1998, the U.S. District Court for the Middle District of Louisiana accepted the Consent Decree into record, and the proceedings were closed. See "Item 3 - Legal Proceedings".

OSHA and Community Right to Know. The Geismar, Illiopolis and Addis plants are subject to the requirements of the federal Occupational Safety and Health Act ("OSHA") and comparable state statutes. The Company believes that the Geismar, Illiopolis, and Addis plants are in material compliance with OSHA requirements, including general industry standards, vinyl chloride exposure requirements, recordkeeping requirements and chemical process safety standards. It is possible that changes in safety and health regulations, or a finding of noncompliance with current regulations, could result in additional capital expenditures or operating expenses for the Geismar, Illiopolis and Addis plants.

The OSHA hazard communication standard and the EPA community right-to-know regulations under the Emergency Planning and Community Right-to-Know Act ("EPCRA") require the Company to organize information about the hazardous materials in the plants and to communicate that information to employees and certain governmental authorities. The Company has a hazard communication program in place and will continue this program as a part of its industrial safety and health compliance program. The Company believes that it generally is in material compliance with EPCRA.

Solid and Hazardous Waste. The Geismar, Illiopolis and Addis plants generate hazardous and nonhazardous solid waste and are subject to the requirements of the Resource Conservation and Recovery Act ("RCRA") and comparable state statutes. The Company believes that the Geismar, Illiopolis and Addis plants are in material

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compliance with RCRA. However, see "Item 3 - Legal Proceedings".

A primary trigger for RCRA requirements is the designation of a substance as a "hazardous waste". It is anticipated that additional substances will in the future be designated as "hazardous waste", which likely would result in additional capital expenditures or operating expenses for the Company.

In accordance with the Consent Decree, the Company has applied for a RCRA permit for its valorization of chlorinated residuals ("VCR") unit. In addition, the settlement provides guidelines for future investigation and possible remediation of groundwater contamination. See "Item 3 - Legal Proceedings".

Superfund. The Comprehensive Environmental Response Compensation and Liability Act ("CERCLA"), also known as the "Superfund" law, imposes liability, without regard to fault or the legality of the original conduct, on classes of persons that are considered to have contributed to the release of a "hazardous substance" into the environment. These persons include the owner or operator of the disposal site or sites where the release occurred and the companies that disposed, or arranged for the disposal of, the hazardous substances found at the site. Persons who are or were responsible for releases of hazardous substances under CERCLA may be subject to joint and several liability for the costs of cleaning up the hazardous substances and for damages to natural resources. In the ordinary course of the Company's operations, substances are generated that fall within the CERCLA definition of "hazardous substance". If such wastes have been disposed of at sites which are targeted for cleanup by federal or state regulatory authorities, the Company may be among those responsible under CERCLA or analogous state laws for all or part of the costs of such cleanup. The Geismar, Illiopolis and Addis plants have in the past and are expected to continue to generate hazardous substances and dispose of such hazardous substances at various offsite disposal sites.

The Consent Decree signed by DOJ and the Company in March 1998 resolved an enforcement proceeding against the Company and BCPM for alleged violation of CERCLA's reporting and other environmental requirements at the Geismar facility. See "Item 3 - Legal Proceedings".

Toxic Substances Control Act. The Company is subject to the Toxic Substances Control Act ("TSCA"), which regulates the development, manufacture, processing, distribution, importation, use, and disposal of thousands of chemicals. Among other requirements, TSCA provides that a chemical cannot be manufactured, processed, imported or distributed in the United States until it has been included on the TSCA Chemical Inventory. Other important TSCA requirements govern recordkeeping and reporting. For example, TSCA requires a company to maintain records of allegations of significant adverse reactions to health or the environment caused by chemicals or chemical processes. The Company believes that it generally is in material compliance with TSCA. Violations of TSCA can result in significant penalties.

Water Quality. The Geismar, Illiopolis and Addis plants maintain wastewater discharge permits for their facilities pursuant to the Federal Water Pollution Control Act of 1972 and comparable state laws. Where required, the Company also applied for and received permits to discharge stormwater. The Company believes that the Geismar, Illiopolis and Addis plants are in material compliance with the Federal Water Pollution Act of 1972 and comparable state laws. In cases where there are excursions from the permit requirements, the Geismar and Illiopolis plants are taking action to achieve compliance, are working in cooperation with the appropriate agency to achieve compliance or are in good faith pursuing their procedural rights in the permitting process.

The EPA has issued effluent regulations specifying amounts of pollutants allowable in direct discharges and in discharges to publicly owned treatment works. The Geismar, Illiopolis and Addis plants manufacture or use as raw materials a number of

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chemicals subject to additional regulation. Both federal and state authorities continue to develop legislation and regulations to control the discharge of certain toxic water pollutants. Passage of such legislation or regulations could necessitate additional capital expenditures to reduce discharges of these substances into the environment either during routine or episodic events. The Company does not believe that these legislative developments would have a material adverse impact on the Company's operations.

Areas of groundwater contamination have been identified at the Company's plants. It is the Company's policy, where possible and appropriate, to address and resolve groundwater contamination. The Company believes that environmental indemnities available to it would cover all, or a substantial portion of, known groundwater contamination. The Company does not believe that the known contamination will have a material adverse impact on the Company's operations. The Company believes that the Geismar, Illiopolis and Addis plants generally are in material compliance with all laws with respect to known groundwater contamination. At the Geismar complex, Borden and the Company have complied with the Settlement Agreement with the state of Louisiana and the Company is complying with the Consent Decree with DOJ, for groundwater remediation. See "Item 3 - Legal Proceedings".

Present and Future Environmental Capital Expenditures. Although it is the Company's policy to comply with all applicable environmental, health and safety laws and regulations, all of the implementing regulations have not been finalized. Even where regulations or standards have been adopted, they are subject to varying and conflicting interpretations and implementation. In many cases, compliance with environmental regulations or standards can only be achieved by capital expenditures, some of which may be significant. Capital expenditures for environmental control facilities were approximately $3.1 million in 2000 and $2.8 million in 1999. Capital expenditures for environmental control facilities are expected to total approximately $2.0 million in 2001 (although such estimate could vary substantially depending on the outcome of the various proceedings and matters discussed herein, and no assurance can be given that greater expenditures on the part of the Company will not be required as to matters not covered by the environmental indemnity from Borden).

Borden Environmental Indemnity

Under the Environmental Indemnity Agreement, subject to certain conditions, Borden has agreed to indemnify the Company in respect of environmental liabilities arising from facts or circumstances that existed and requirements in effect prior to November 30, 1987, the date of the initial sale by Borden of the Geismar and Illiopolis plants to the Company (the "Transfer Date"). See "Item 3
- Legal Proceedings".

Addis Environmental Indemnity

OxyChem has indemnified the Company for environmental liabilities arising from the manufacture, generation, treatment, storage, handling, processing, disposal, discharge, loss, leak, escape or spillage of any product, waste or substance generated or handled by OxyChem prior to the closing of the acquisition of the Addis facility from OxyChem in 1995, any condition resulting therefrom relating to acts, omissions or operations of OxyChem prior to such date, and any duty, obligation or responsibility imposed on OxyChem prior to such date under environmental laws in effect prior to such date to address such condition. However, except with regard to claims arising from OxyChem's disposal of waste at sites other than the Addis Facility, OxyChem has no indemnification obligation if the claim for indemnification is the result of a change in applicable law after the closing of the Acquisition. OxyChem's obligation to indemnify the Company for environmental liabilities is subject to certain limitations. There can be no assurance that the indemnification provided by OxyChem will be sufficient to cover all environmental liabilities existing or arising at the Addis Facility.

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Product Liability and Regulation

As a result of the Company's manufacture, distribution and use of different chemicals, the Company is, and in the future may be, subject to various lawsuits and claims, such as product liability and toxic tort claims, which arise in the ordinary course of business and which seek compensation for physical injury, pain and suffering, costs of medical monitoring, property damage, and other alleged harms. New or different types of claims arising from the Company's various chemical operations may be made in the future.

Employees

The Partnership does not directly employ any of the persons responsible for managing and operating the Partnership, but instead reimburses BCPM for their services. On December 31, 2000, BCPM employed approximately 650 individuals.

Proceedings Under Chapter 11 of the Bankruptcy Code

On April 3, 2001, the Debtors filed voluntary petitions for protection under Chapter 11 of the Bankruptcy Code. The Chapter 11 Cases have been procedurally consolidated for administrative purposes only. The Debtors are currently acting as debtors-in-possession pursuant to the Bankruptcy Code.

Subsequent to the commencement of the Chapter 11 Cases, the Debtors sought and obtained several orders from the Bankruptcy Court which were intended to stabilize and continue business operations. The most significant of these orders
(i) approved an amendment to the Operating Partnership's Credit Agreement dated as of March 31, 2000, (the "Year 2000 Revolving Credit Facility") with Fleet Capital Corporation ("Fleet") as agent for itself and other lenders party thereto (the "DIP Lenders"). The amendment (the "DIP Loan Agreement")provides up to $100 million debtor-in-possession financing, (ii) permits continued operation of their consolidated cash management system during the Chapter 11 Cases in substantially the same manner as it was operated prior to the commencement of the Chapter 11 Cases, and (iii) authorized payment of pre- petition wages, vacation pay and employee benefits and reimbursement of employee business expenses.

The DIP Loan Agreement provides the Operating Partnership with a revolving line of credit in an aggregate amount not to exceed $100 million, subject to borrowing base limitations. The aggregate borrowing limit can be increased to an amount not to exceed $120 million at the discretion of the DIP Lenders. The Operating Partnership will use amounts borrowed under the DIP Loan Agreement for its ongoing working capital needs and for certain other purposes of the Operating Partnership as permitted by the DIP Loan Agreement. The Operating Partnership granted a security interest to the DIP Lenders in substantially all of the Operating Partnership's assets as security for its obligations under the DIP Loan Agreement. All obligations under the DIP Loan Agreement will be afforded "super-priority" administrative expense status in the Chapter 11 Cases.

Cash Distributions

Pursuant to its Amended and Restated Agreement of Limited Partnership, the Operating Partnership is required to distribute 100% of its Available Cash as of the end of each quarter on or about 45 days after the end of such quarter to Unitholders of record as of the applicable record date and to the General Partner. "Available Cash" means generally, with respect to any quarter, the sum of all cash receipts of the Partnership plus net reductions to reserves established in prior quarters, less cash disbursements and net additions to reserves in such quarter. The General Partner has broad discretion in establishing reserves, and its decisions regarding reserves could have a significant impact on the amount of Available Cash. The timing and

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amounts of additions and reductions to reserves may impact the amount of incentive distributions, if any, payable to the General Partner. As a result, distributions to Unitholders may over time be reduced from levels which would have been distributed if the General Partner were not able to control the timing of additions and reductions to reserves.

Since 1998, adverse business conditions have considerably reduced revenues and operating margins and caused the Company to incur net losses. Consequently, no cash distributions have been declared since the fourth quarter of 1997. It is also highly unlikely that the Company will declare any cash distributions in the future during the Chapter 11 process or upon its resolution.

Forward-Looking Statements

Certain statements in this Form 10-K, in particular, certain statements under "Item 1. Business", "Item 3. Legal proceedings" and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation", are forward-looking. These can be identified by the use of forward-looking words or phrases such as "believe", "expect", "anticipate", "should", "plan", "estimate", "intend" and "potential" among others. The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for such forward-looking statements. While these forward-looking statements are based on the Partnership's reasonable current expectations, a variety of risks, uncertainties and other factors, including many which are outside the control of the Partnership, could cause the Partnership's actual results to differ materially from the anticipated results or expectations expressed or implied in such forward-looking statements. The risks, uncertainties and other factors that may affect the operations, performance, development and results of the Partnership include changes in the demand or pricing of its commodity products, changes in industry production capacities, changes in the supply of and costs of natural gas and other significant raw materials, loss of business from major customers, continuing availability of post-petition financing, negative market and credit impact from the Chapter 11 filing, unanticipated expenses, substantial changes in the financial markets, labor unrest, foreign competition, major equipment failure, unanticipated results in pending legal proceedings, changes in applicable environmental, health and safety laws and regulations and other factors.

Item 2. Properties

Construction of the Geismar complex began over thirty years ago. Acetylene, methanol and VCM-A plants were completed in the early 1960s and ammonia and urea plants were added during the period 1965 to 1967. A VCM-E plant and a formaldehyde plant were added in the mid 1970s, a second formaldehyde plant was brought on stream in 1986, and a third formaldehyde plant was brought on stream in 1991. In 1983 Borden completed construction of a PVC resin plant at the Geismar complex. During the early 1980s, the methanol, ammonia, and urea plants were modernized, which reduced energy consumption and expanded capacity. The urea plant was further modified to produce granular rather than prill product in 1993. The PVC resin facility at Illiopolis became operational in 1962, and was significantly upgraded in the late 1980s. The Addis Facility began operations in 1979.

The Geismar complex is located on approximately 490 acres in Ascension Parish, Louisiana, adjacent to the Mississippi River between Baton Rouge and New Orleans. The Illiopolis PVC resin facility is located on approximately 45 acres in central Illinois between Springfield and Decatur. The Addis Facility is located on approximately 40 acres of a 220 acre site adjacent to the Mississippi River, approximately 20 miles from the Geismar complex.

In 2000, the three formaldehyde plants were sold to BCI, the acetylene and
VCM-A

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plants were idled, and the methanol, ammonia and urea plants were shut- down.

The following table sets forth the approximate annual capacity of each of the principal manufacturing plants at the Geismar complex and the PVC plants at Illiopolis and Addis, all of which are owned by the Company except as noted.

                                                         Annual Stated Capacity
Plants                                                     (stated in millions)
------                                                    ---------------------

Geismar, LA:
  PVC Resins ............................................        550 lbs.
  Acetylene-based VCM ...................................        320 lbs.
  Ethylene-based VCM ....................................        650 lbs.
Acetylene ...............................................        200 lbs.
Illiopolis, IL:
  PVC Resins ............................................        400 lbs.
Addis, LA:
  PVC Resins ............................................        600 lbs.

Item 3. Legal Proceedings

Federal Environmental Enforcement Proceeding

On March 11, 1998, the Company and the DOJ signed a Consent Decree to resolve the enforcement action brought by the DOJ against the Company in October 1994. In June 1998, the U.S. District Court for the Middle District of Louisiana accepted the Consent Decree into record, which closed the proceedings.

The Consent Decree provided for a specific and detailed program of groundwater and other remediation at the Geismar facility that is consistent with various actions undertaken previously, currently being undertaken, and planned to be undertaken in the future, by the Company. Under certain circumstances, the EPA and the LDEQ may require investigation and remediation beyond the specific terms of the Consent Decree. The Company, however, believes that the technical information and knowledge regarding the nature of contamination at the site, and the need for remediation, make it unlikely that investigation and remediation beyond that which the Company has already planned for and is contemplated by the Consent Decree will be required. Remediation costs incurred under the Consent Decree, which is expected to be several million dollars, will continue to be paid by Borden.

In April 1996 and November 1997, adjoining landowners filed separate tort actions in state court asserting personal injury and property value diminution as a result of releases of hazardous materials from the Geismar complex. The Company has reached a tentative settlement with the adjoining landowners in the amount of $0.8 million.

Because of the complex nature of environmental insurance coverage and the rapidly developing case law concerning such coverage, no assurance can be given concerning the extent to which insurance may cover environmental claims against the Company.

Borden Environmental Indemnity

Under the Environmental Indemnity Agreement ("EIA"), subject to certain conditions, Borden has agreed to indemnify the Company in respect of environmental liabilities arising from facts or circumstances that existed and requirements in effect prior to November 30, 1987, the date of the initial sale of the Geismar and Illiopolis plants to the Company (the "Transfer Date"). The Company is responsible for environmental liabilities arising from facts or circumstances that existed and

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requirements in effect on or after the Transfer Date. With respect to certain environmental liabilities that may arise from facts or circumstances that existed and requirements in effect both prior to and after the Transfer Date, Borden and the Company will share liabilities on an equitable basis considering all of the facts and circumstances including, but not limited to, the relative contribution of each to the matter and the amount of time each has operated the asset in question (to the extent relevant). No claims can be made under the EIA after November 30, 2002.

Chapter 11 Cases

The Debtors commenced the Chapter 11 Cases on April 3, 2001. Additional information relating to the Chapter 11 Cases is set forth in Part 1, Item 1 of this Form 10-K under the caption "Proceedings under Chapter 11 of the Bankruptcy Code" and in Note 3 of the Notes to Consolidated Financial Statements under the caption "Proceedings under Chapter 11". Such information is incorporated herein by reference. Unsecured claims may be satisfied at less than 100% of their face value. It is impossible at this time to predict the actual recovery, if any, to which creditors of the company may be entitled. Management believes it is unlikely that the equity interests in the Company held by unitholders will have any value following resolution of the Chapter 11 process.

Other Legal Proceedings

The Company manufactures, distributes and uses many different chemicals in its business. As a result of its chemical operations the Company is subject to various lawsuits in the ordinary course of business which seek compensation for physical injury, pain and suffering, costs of medical monitoring, property damage and other alleged harm. New or different damage claims arising from the Company's various chemical operations may be made in the future.

In addition, the Company is subject to various other legal proceedings and claims which arise in the ordinary course of business. The management of the Company believes, based upon the information it presently possesses, that the realistic range of liability to the Company of these other matters, taking into account the Company's insurance coverage, including its risk retention program, and the Indemnity Agreement with Borden, would not have a material adverse effect on the financial position or results of operations of the Company. Many of the claims that are asserted in these other legal proceedings are subject to the automatic stay provided in the Bankruptcy Code and may eventually be resolved as part of the Chapter 11 Cases.

Item 4. Submission of Matters to a Vote of Security Holders

No matter was submitted during the fourth quarter of 2000 to a vote of security holders, through the solicitation of proxies or otherwise.

BROKERAGE PARTNERS