<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
Commission File No. 1-9699
BORDEN CHEMICALS AND PLASTICS
LIMITED PARTNERSHIP
Delaware 31-1269627
(State of organization) (I.R.S. Employer Identification No.)
Highway 73, Geismar, Louisiana 70734 504-673-6121
(Address of principal executive offices) (Registrant's telephone number)
---------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days Yes X No .
--- ---
Number of Common Units outstanding as of the close of business on August
10, 1995: 36,750,000.
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<PAGE>
BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
(In thousands except per Unit data) June 30, 1995 June 24, 1994
------------- -------------
<S> <C> <C>
Revenues
Net trade sales $157,043 $119,661
Net affiliated sales 30,620 30,010
-------- --------
Total revenues 187,663 149,671
-------- --------
Expenses
Cost of goods sold
Trade 106,867 88,831
Affiliated 22,612 22,906
Marketing, general and administrative expenses 5,588 5,059
Interest expense 4,716 4,108
Incentive distribution to General Partner 9,818 2,654
Other (income) and expense, including
minority interest 1,308 849
-------- --------
Total expenses 150,909 124,407
-------- --------
Income before extraordinary item 36,754 25,264
Extraordinary loss on early extinguishment of
debt (6,912) 0
-------- --------
Net income $ 29,842 $ 25,264
======== ========
PER UNIT DATA, NET OF 1% GENERAL PARTNER INTEREST:
Income per Unit before extraordinary loss $ 0.99 $ 0.68
Extraordinary loss per Unit (0.19) 0.00
-------- --------
Net income per Unit $ 0.80 $ 0.68
======== ========
Average # of Units outstanding during the period 36,750 36,750
======== ========
Cash distributions declared per Unit $ 1.42 $ 0.65
======== ========
</TABLE>
<PAGE>
BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
(In thousands except per Unit data) June 30, 1995 June 24, 1994
------------- -------------
<S> <C> <C>
Revenues
Net trade sales $319,531 $214,482
Net affiliated sales 82,938 54,170
-------- --------
Total revenues 402,469 268,652
-------- --------
Expenses
Cost of goods sold
Trade 189,035 175,321
Affiliated 48,935 43,321
Marketing, general and administrative expenses 11,119 9,565
Interest expense 8,801 7,902
Incentive distribution to General Partner 22,893 2,654
Other (income) and expense, including
minority interest 1,445 997
-------- --------
Total expenses 282,228 239,760
-------- --------
Income before extraordinary item 120,241 28,892
Extraordinary loss on early extinguishment of
debt (6,912) 0
-------- --------
Net income $113,329 $ 28,892
======== ========
PER UNIT DATA, NET OF 1% GENERAL PARTNER INTEREST:
Income per Unit before extraordinary loss $ 3.24 $ 0.78
Extraordinary loss per Unit (0.19) 0.00
-------- --------
Net income per Unit $ 3.05 $ 0.78
======== ========
Average # of Units outstanding during the
period 36,750 36,750
======== ========
Cash distributions declared per Unit $ 3.19 $ 0.86
======== ========
</TABLE>
<PAGE>
BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
(In thousands) June 30, 1995 June 24, 1994
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATIONS
Net Income $113,329 $ 28,892
Adjustments to reconcile net income to net
cash provided by operating activities:
Extraordinary loss on early extinguishment
of debt 6,912 0
Depreciation 23,447 21,845
Decrease (increase) in receivables 10,660 (17,989)
(Increase) decrease in inventories, net of
effect from acquired business (14,406) 2,122
Increase in payables 1,125 4,059
(Decrease) increase in incentive distribution
payable (2,047) 2,654
Increase (decrease) in accrued interest 1,322 (270)
Other, net 878 2,804
-------- --------
141,220 44,117
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for acquisition (100,376) 0
Capital expenditures (5,822) (9,451)
-------- --------
(106,198) (9,451)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuance of long-term debt 200,000 0
Proceeds from short-term borrowings 65,000 0
Payment of debt issuance costs (7,466) 0
Repayment of long-term debt, including
prepayment penalty (156,912) 0
Cash distributions paid (126,835) (14,478)
-------- --------
(26,213) (14,478)
-------- --------
Increase in cash and equivalents 8,809 20,188
Cash and equivalents at beginning of period 74,126 9,054
-------- --------
Cash and equivalents at end of period $ 82,935 $ 29,242
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid during the period $ 7,479 $ 8,172
======== ========
</TABLE>
<PAGE>
BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31
(In thousands) 1995 1995
------------- -------------
<S> <C> <C>
ASSETS
Cash and equivalents $ 82,935 $ 74,126
Accounts receivable
Trade 90,016 84,330
Affiliated 20,955 37,301
Inventories
Finished goods 37,669 19,591
Raw materials 9,197 8,540
Other current assets 1,783 2,831
-------- --------
Total current assets $242,555 $226,719
-------- --------
Investments in and advances to affiliated companies 4,074 3,772
Other assets 37,624 29,094
-------- --------
41,698 32,866
-------- --------
Land 16,370 12,051
Buildings 45,894 37,931
Machinery and equipment 608,942 523,517
-------- --------
671,206 573,499
Less accumulated depreciation (311,874) (290,180)
-------- --------
359,332 283,319
-------- --------
$643,585 $542,904
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Accounts and drafts payable $ 51,831 $ 50,706
Cash distributions payable 52,811 60,999
Short-term borrowing 65,000 0
Current portion of long-term debt 0 30,000
Incentive distribution payable to General Partner 9,818 11,865
Accrued interest 3,167 1,845
Other accrued liabilities 12,973 14,330
-------- --------
Total current liabilities 195,600 169,745
-------- --------
Long-term debt 200,000 120,000
Minority interest in consolidated subsidiary 1,899 1,953
Other long-term liabilities 5,669 5,471
-------- --------
207,568 127,424
-------- --------
Partners' capital
Common Unitholders 239,407 244,443
General Partner 1,010 1,292
-------- --------
Total partner's capital 240,417 245,735
-------- --------
$643,585 $542,904
======== ========
</TABLE>
<PAGE>
BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
(Unaudited)
<TABLE>
<CAPTION>
(In thousands)
LIMITED GENERAL
PARTNERS PARTNER TOTAL
-------- ------- ---------
<S> <C> <C> <C>
Balances December 31, 1993 $ 228,862 $ 1,343 $ 230,205
Net income 28,603 289 28,892
Cash distributions declared (31,605) (346) (31,951)
--------- -------- ---------
Balances June 24, 1994 $ 225,860 $ 1,286 $ 227,146
========= ======== =========
Balances December 31, 1994 $ 244,443 $ 1,292 $ 245,735
Net income 112,196 1,133 113,329
Cash distributions declared (117,232) (1,415) (118,647)
--------- -------- ---------
Balances June 30, 1995 $ 239,407 $ 1,010 $ 240,417
========= ======== =========
</TABLE>
<PAGE>
BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands except Unit and per Unit data)
1. Interim Financial Statements
The accompanying unaudited interim consolidated financial statements
contain all adjustments, consisting only of normal recurring adjustments, which
in the opinion of Borden Chemicals and Plastics Management, Inc. (the "General
Partner") are necessary for a fair statement of the results for the interim
periods. Results for the interim periods are not necessarily indicative of the
results for the full year.
Per Unit data in the accompanying financial statements is derived by
subtracting the General Partner's 1% interest from the income captions and
dividing the results by the Average Units Outstanding.
2. Acquisition and Financing
On May 2, 1995, the Partnership, through its subsidiary operating
partnership ("the Operating Partnership"), completed the purchase of Occidental
Chemical Corporation's ("OxyChem") Addis, Louisiana PVC manufacturing facility
and related assets. The Addis Facility has an annual proven production capacity
of 450 million pounds per year, which will increase the Operating Partnership's
stated annual capacity for PVC resin production by approximately 50%. The cash
purchase price for the Addis assets was $100,376, subject to certain customary
post closing adjustments.
On May 1, 1995 the Operating Partnership issued $200,000 aggregate
principal amount of senior unsecured notes (the Senior Notes). The net proceeds
from this offering were used to prepay the previously outstanding $150,000
aggregate principal amount of existing notes plus related prepayment premium of
$6,912 reflected as an extraordinary loss in the second quarter of 1995, and
accrued interest. The remaining proceeds were used to fund a portion of the
purchase price of the Addis Facility.
A $100 million revolving credit facility was obtained during the
quarter. Borrowings under this facility were $65 million at June 30, 1995.
The following pro forma financial information gives effect to the
transactions discussed above on the results of operations for the six months
ended June 30, 1995 and June 24, 1994 as if the transactions occurred on
January 1, 1994.
<TABLE>
<CAPTION>
Six Months Ended
-------------------------------
June 30, 1995 June 24, 1994
------------- -------------
<S> <C> <C>
Total Revenues $457,275 $333,316
Income before extraordinary item:
Income $124,602 $ 28,940
Income per Unit $ 3.36 $ 0.78
</TABLE>
3. Environmental and Legal Proceedings
On October 27, 1994, the U.S. Department of Justice (DOJ), at the
request of the U.S. Environmental Protection Agency (the EPA), filed an action
against the Partnership and the General Partner in the U.S. District Court for
the Middle District of Louisiana. The complaint seeks facility-wide corrective
action and civil penalties for alleged violations of the federal Resource,
Conservation and Recovery Act (RCRA), the federal Comprehensive Environmental
Response, Compensation and Liability Act (CERCLA), and the Clean Air Act at the
Geismar
<PAGE>
complex. If the Partnership is unsuccessful in this proceeding, or otherwise
subject to RCRA permit requirements, it may be subject to three types of costs:
(i) corrective action; (ii) penalties; and (iii) costs needed to obtain a RCRA
permit. Portions of such costs could be subject to the Environmental Indemnity
Agreement (EIA) discussed below.
The Partnership is subject to extensive federal, state and local
environmental laws and regulations which impose limitations on the discharge of
pollutants into the air and water, establish standards for the treatment,
storage, transportation and disposal of solid and hazardous wastes, and impose
obligations to investigate and remediate contamination in certain circumstances.
The Partnership has expended substantial resources, both financial and
managerial, and it anticipates that it will continue to do so in the future.
Failure to comply with the extensive federal, state and local environmental laws
and regulations could result in significant civil or criminal penalties, and
remedation costs.
Under the EIA, Borden has agreed, subject to certain specified
limitations, to indemnify the Partnership 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 Partnership. The Partnership is responsible for
environmental liabilities arising from facts or circumstances that existed and
requirements that become effective on or after such 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 such date,
Borden and the Partnership will share liabilities on an equitable basis
considering all of the facts and circumstances including, but not limited to,
the relative contribution of each of the matter and the amount of time each has
operated the assets in question (to the extent relevant). No claims can be made
under the EIA after November 30, 2002, and no claim can, with certain
exceptions, be made with respect to the first $500 of liabilities which Borden
would otherwise be responsible for thereunder in any year, but such excluded
amounts shall not exceed $3,500 in the aggregate. Excluded amounts under the
EIA have aggregated approximately $2,700 through June 30, 1995.
In connection with potential environmental matters, a $4,000 provision
was included in the Partnership's third quarter 1994 operating results. Because
of various factors (including the nature of any settlement with appropriate
regulatory authorities or the outcome of any proceeding, actual environmental
conditions, the scope of the application of the EIA and the timing of actions,
if any, required to be taken by the Partnership), the Partnership cannot
reasonably estimate the full range of costs it might incur with respect to the
environmental matters discussed herein. The costs incurred in any quarter or
year could be material to the Partnership's results of operations for such
quarter or year, although, on the basis of the relevant facts and circumstances,
management believes this to be unlikely. However, management believes that such
costs should not have a material adverse effect on the Partnership's financial
position.
In addition, the Partnership is subject to various other legal
proceedings and claims which arise in the ordinary course of business. In the
opinion of the management of the Partnership, based upon the information it
presently possesses, the amount of the ultimate liability for these proceedings
and claims taking into account its insurance coverage, including its risk
retention program and the EIA with Borden, would not materially affect the
financial position or results of operations of the Partnership.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-------------------------------------------------------------------------------
OF OPERATIONS
-------------
RESULTS OF OPERATIONS
QUARTER ENDED JUNE 30, 1995 COMPARED TO QUARTER ENDED JUNE 24, 1994
Total Revenues
Total revenues during the second quarter of 1995 increased $38.0 million
or 25.4% to $187.7 million from $149.7 million in the second quarter of 1994.
This increase was the net result of a $41.5 million increase in PVC Polymers
Products revenues, an $8.3 million decrease in Methanol and Derivatives and a
$4.8 million increase in Nitrogen Products revenues.
Total revenues for PVC Polymers increased 49.5% as a result of a 19%
increase in selling prices and a 26% increase in sales volumes. These increases
were due to the purchase of the Addis facility and the increased demand for PVC
resins resulting from strength in the construction and automotive industries, as
well as other industries.
Total revenues for Methanol and Derivatives decreased 17.6% as a result
of a 12% decrease in selling prices and a 7% decrease in sales volumes. The
decreases in price and volume were due to a significant drop in demand for MTBE,
a downstream application of methanol as a gasoline additive.
Total revenues for Nitrogen Products increased 25% as a result of a 39%
increase in selling prices offset by a 10% decrease in sales volumes. Ammonia
selling prices increased significantly fueled primarily by strong domestic
demand and the worldwide tightness in the ammonia market. Urea volumes declined
due to reduced domestic demand as a fertilizer caused by poor weather; however,
selling prices remained well over 1994 levels.
Costs of Goods Sold
Total cost of goods sold increased 16.9% to $129.5 million in the
current period from $111.7 million in the year-ago period. The increase was a
result of the increased volumes discussed above with raw material costs
remaining constant as unit cost decreases for chlorine and natural gas were
offset by increased ethylene costs. Expressed as a percentage of total revenues,
cost of goods sold decreased to 69% of total revenues in 1995 from 75% in 1994,
resulting in improved gross margins and net income for the Partnership.
Gross margins for PVC Polymers Products increased 124% as a result of
the improved selling prices and volumes discussed above, partially offset by a
net increase in raw material costs.
Gross margins for Methanol and Derivatives decreased 14% as a result of
the decreased volumes and selling prices discussed above, offset by reduced
natural gas costs.
Gross margins for Nitrogen Products increased 26% on the strength of
significantly improved urea and ammonia selling prices and reduced natural gas
costs.
Incentive Distribution to General Partner
An incentive distribution to the General Partner of $9.8 million was
generated in the second quarter of 1995 as a result of cash distribution to
Unitholders of $1.42 per Unit exceeding $0.3647 per Unit ("the Target
Distribution"). The distributions generated in the second quarter of 1994 of
$0.65 per Unit resulted in an incentive distribution of $2.7 million to the
General Partner.
Extraordinary Loss on Early Extinguishment of Debt
The Partnership incurred a loss of $6.9 million, or 19 cents per Unit,
in the second quarter of 1995 as a result of a prepayment premium on $150
million in debt retired in the quarter. See Acquisition and Financing.
<PAGE>
Net Income
Net income was $29.8 million compared to $25.3 million in 1994. As
discussed above, the primary reasons for the improved operating performance were
significant selling price increases and volume improvements in PVC resins and
nitrogen products, offset partially by declines in methanol and derivatives,
increased incentive distribution of the General Partner, and the extraordinary
loss.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1995 COMPARED TO SIX MONTHS ENDED JUNE 24, 1994
Total Revenues
Total revenues during the first six months of 1995 increased $133.8
million or 49.8% to $402.5 million from $268.7 million in the first six months
of 1994. This increase was the result of a $76.4 million increase in PVC
Polymers Products revenues, a $37.8 million increase in Methanol and Derivatives
revenues and a $19.7 million increase in Nitrogen Products revenues.
Total revenues for PVC Polymers Products increased 50.0% as a result of
a 23% increase in selling prices and a 22% increase in sales volumes. These
increases were due to the purchase of the Addis facility and the increased
demand for PVC resins resulting from strength in the construction and automotive
industries, as well as other industries.
Total revenues for Methanol and Derivatives increased 45.1% as a net
result of a 48% increase in selling prices and a 2% decline in sales volumes.
These results reflect the historically high selling prices of the first quarter
of 1995 that decreased dramatically during the second quarter as demand for
MTBE declined.
Total revenues for Nitrogen Products increased 61.7% as a result of a
50% increase in selling prices and an 8% increase in sales volumes. Ammonia
selling prices increased significantly fueled primarily by strong domestic
demand and the worldwide tightness in the ammonia market. Urea selling prices
also showed significant improvements.
Cost of Goods Sold
Total cost of goods sold increased 8.9% to $238.0 million in the current
period from $218.6 million in the year ago period. The increase was a result of
the increased volumes discussed above substantially offset by an aggregate raw
material cost decrease of approximately 4% comprised of unit cost decreases for
chlorine and natural gas offset by increased ethylene costs. Expressed as a
percentage of total revenues, cost of goods sold decreased to 59% of total
revenues in 1995 from 81% in 1994, resulting in greatly improved gross margins
and net income for the Partnership.
Gross margins for PVC Polymers Products increased 262% as a result of
the improved selling prices and volumes discussed above, partially offset by a
net increase in raw material costs.
Gross margins for Methanol and Derivatives increased 164% as a result of
the increased volumes and significantly higher selling prices discussed above,
combined with reduced natural gas costs.
Gross margins for Nitrogen Products improved from a near break-even
position in 1994 to a profitable position in 1995 on the strength of
significantly improved urea and ammonia selling prices, improved volumes and
reduced natural gas costs.
<PAGE>
Incentive Distribution to General Partner
The incentive distribution to the General Partner of $22.9 million was
generated in the first two quarters of 1995 as a result of the respective
quarters cash distributions to Unitholders exceeding the Target Distribution.
The distributions generated in the first quarter of 1994 did not exceed the
Target Distribution, resulting in no incentive distribution to the General
Partner; however, the second quarter distribution did exceed the Target
Distribution resulting in an incentive distribution of $2.7 million.
Extraordinary Loss on Early Extinguishment of Debt
The Partnership incurred a loss of $6.9 million, or 19 cents per Unit,
in the second quarter of 1995 as a result of a prepayment premium on $150
million in debt retired in the quarter. See Acquisition and Financing.
Net Income
Net income was $113.3 million compared to $28.9 million in 1994. As
discussed above, the primary reasons for the improved operating performance were
significant selling price increased in all product lines and volume improvements
in PVC resins and nitrogen products, and a net decrease in raw material costs.
Partially offsetting these improvements were the significant increase in the
incentive distribution to the General Partner and the extraordinary loss
incurred in the second quarter of 1995.
Liquidity and Capital Resources
Cash Flows from Operations. Cash provided by operations increased to
$141.2 million for the first half of 1995, as compared to $44.1 million for the
first half of 1994. The increase was primarily attributable to the improved
operating performance discussed above.
Cash Flows from Investing Activities. The Partnership paid $100.4
million for the acquisition of a PVC manufacturing facility in the second
quarter of 1995. See Acquisition and Financing. 1994 capital expenditures
reflect the completion of the urea granulation and expansion project.
Cash Flows from Financing Activities. The Partnership makes quarterly
distributions to Unitholders and the General Partner of 100% of its Available
Cash. 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 all of its cash disbursements and net additions to
reserves in such quarter. The General Partner may establish reserves to provide
for the proper conduct of the Partnership's business, to stabilize distributions
of cash to Unitholders and the General Partner and as necessary to comply with
the terms of any agreement or obligation of the Partnership.
Cash distributions of $126.8 million were made during the first half
1995 compared to $14.5 million in the year-ago period. These amounts reflect the
payment of cash distributions declared for the two immediately proceeding
quarters. Cash distributions with respect to interim periods are not necessarily
indicative of cash distributions with respect to a full year. Moreover, due to
the cyclical nature of the Partnership's business, past cash distributions are
not necessarily indicative of future cash distributions.
There are various seasonality factors affecting results of operations
and, therefore, cash distributions. In addition, the amount of Available Cash
constituting Cash from Operations for any period does not necessarily correlate
directly with net income for such period because various items and transactions
affect net income and Available Cash constituting Cash from Operations
differently. For example, depreciation reduces net income but does not affect
Available Cash constituting Cash from Operations, while changes in working
capital items (including receivables, inventories, accounts payable and other
items) generally do not affect net income but do affect such Available Cash.
Moreover, as provided for in the Partnership Agreements with respect to the
Partnership and the Operating Partnership, certain reserves may be established
which affect Available Cash constituting Cash from Operations but do not affect
cash balances in financial statements. Such reserves have generally been used to
set cash aside for debt service, capital expenditures and other accrued items.
<PAGE>
Acquisition and Financing
On May 2, 1995, the Partnership, through the Operating Partnership,
completed the purchase of Occidental Chemical Corporation's Addis, Louisiana PVC
manufacturing facility and related assets. The Addis Facility has an annual
proven production capacity of 450 million pounds per year, which will increase
the Operating Partnership's stated annual capacity for PVC resin production by
approximately 50%. The cash purchase price for the Addis assets was $100.4
million.
On May 1, 1995, the Operating Partnership issued $200,000 aggregate
principal amount of senior unsecured notes (the Senior Notes). The proceeds from
this offering, net of $7.5 million of debt issuance costs, were used to prepay
the previously outstanding $150,000 aggregate principal amount of existing
notes plus a related $6.9 million prepayment premium. The remaining proceeds
were used to fund a portion of the purchase price of the Addis Facility.
Liquidity
The Partnership expects to satisfy its cash requirements, including the
requirements of the Addis Facility, through internally generated cash and
borrowings. In connection with the acquisition of the Addis Facility, the
Partnership entered into a Revolving Credit Facility which provides a $100.0
million line of credit for capital expenditures (including the acquisition),
working capital and general partnership purposes. Borrowings under the Revolving
Credit Facility were $65.0 million at June 30, 1995. The amount available under
the facility reduces to $75.0 million on January 1, 1996, $50.0 million on
January 1, 1997 and terminates December 31, 1997. The facility may be extended
for one year with the consent of the lenders. The Partnership has terminated its
previous $20.0 million credit facility.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
-------------------------
Louisiana Groundwater Remediation Settlement Agreement
------------------------------------------------------
In 1985, LDEQ and Borden, Inc. ("Borden") entered into a settlement
agreement (the "Settlement Agreement") that called for the implementation of a
long term groundwater and soil remediation program at the Geismar complex to
address contaminants, including ethylene dichloride ("EDC"). Also during this
time frame, Borden commenced closure of various units identified to have been
contributors to the EDC contamination underlying the Geismar complex. Borden and
the Partnership have implemented the Settlement Agreement, and have worked in
cooperation with the LDEQ to remediate the groundwater and soil contamination.
The Settlement Agreement contemplated, among other things, that Borden would
install a series of groundwater monitoring and recovery wells, and recovery
trench systems. The Partnership believes that it already has sufficiently
identified the extent of the groundwater plume. Nevertheless, the Partnership
intends to do additional drilling and testing for the purpose of addressing
issues raised by LDEQ concerning whether the extent of the groundwater
contamination has been identified. Borden has paid substantially all of the
costs to date of the Settlement Agreement. It is unknown how long the
remediation program will continue or whether the LDEQ will require the
Partnership to incur costs to take further remedial measures in response to data
generated by the planned additional testing. If the LDEQ requires the
Partnership to take further remedial measures, the Partnership anticipates that
a portion of such costs would be covered by an Environmental Indemnity
Agreement. The extent to which any costs for further remedial measures required
by LDEQ will be covered by the Environmental Indemnity Agreement will depend, in
large part, on whether such remedial measures respond to 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
Partnership.
Federal Environmental Enforcement Proceeding
--------------------------------------------
On October 27, 1994, the U.S. DOJ acting at the request of the EPA filed
an action against the Operating Partnership, the Partnership, and the General
Partner in the United States District Court for the Middle District of Louisiana
("Geismar enforcement proceeding"). The complaint seeks civil penalties for
alleged violations of RCRA, CERCLA and the Clean Air Act at the Geismar
facility, as well as corrective action at that facility. Prior to the filing of
the complaint, the Partnership and DOJ had engaged in settlement discussions,
and the Partnership expects that such discussions will continue.
The federal government's primary allegations for which it seeks
penalties include claims that (i) the Partnership's export to South Africa of a
partially depleted mercuric chloride catalyst for recycling violated RCRA; (ii)
the Partnership should have applied for RCRA permit for operation of its
valorization of chlorinated residual ("VCR") unit and related tanks before
August 1991; and (iii) the Partnership should have applied for a RCRA permit for
the north trench sump at the Geismar complex because such sump allegedly stored,
or disposed of, hazardous waste. The government's allegations include other
claims related to these and other alleged RCRA violations, as well as claims of
alleged violations of immediate release reporting requirements under CERCLA and
requirements governing particulate matter emissions under the Clean Air Act. The
Partnership plans to vigorously defend all of the above allegations.
During the early 1990's, the Partnership sent partially depleted
mercuric chloride catalyst to a facility in South Africa for recovery of the
mercury. See the following "Export of Partially Depleted Mercuric Chloride
----------------------------------------------
Catalyst." In 1993, LDEQ had determined that the catalyst was to a hazardous
--------
waste. However, because of a belief by the EPA that the partially depleted
catalyst could be a hazardous waste and a reversal of LDEQ's 1993 determination,
and pending the outcome of the Geismar enforcement proceeding, the Partnership
has ceased exporting the partially depleted mercuric chloride catalyst for
recycling and is currently handling it as if it were a hazardous waste.
Accordingly, even if a court should determine that the partially depleted
catalyst was a hazardous waste when it was exported, the Partnership does not
anticipate that it would incur material additional expenditures to continue to
<PAGE>
manage the partially depleted catalyst as a hazardous waste.
In 1991, as a protective filing, the Partnership applied for a hazardous
waste permit for the VCR unit and related tanks. In January 1994, in response to
a petition from the Partnership to LDEQ for a determination that the VCR unit
does not require a RCRA permit, LDEQ determined that the VCR unit is subject to
RCRA. The Partnership continues to maintain that the VCR unit is not subject to
RCRA and has filed appeals of LDEQ's determination in Louisiana State Courts.
In May 1994, the Partnership filed a Complaint for Declaratory Judgment
in the U.S. District Court in Baton Rouge seeking a determination that (i) the
partially depleted mercuric chloride catalyst was not a hazardous waste when it
was exported for recycling, (ii) the materials entering the VCR unit and related
tanks are not hazardous waste and (iii) the north trench sump does not require a
RCRA permit.
In May 1995, certain adjoining landowners at the Geismar complex filed a
motion to intervene in the Geismar enforcement proceedings claiming rights under
CERCLA and RCRA to protect their property interests. The Partnership plans to
vigorously defend against this intervention.
If the Partnership is unsuccessful in prosecuting its Declaratory
Judgment Action, or in defending itself against the Geismar enforcement
proceeding, it could be subject to three types of costs: (i) penalties, (ii)
corrective action, and (iii) costs needed to obtain a RCRA permit.
As to penalties, although the maximum statutory penalties that would
apply in a successful enforcement action by the United States would be in excess
of $150.0 million, the Partnership believes that, assuming the Partnership is
unsuccessful and based on information currently available to it and an analysis
of relevant case law and administrative decisions, the more likely amount of any
liability for civil penalties would not exceed several million dollars.
If the Partnership is unsuccessful in either the Declaratory Judgment
Action or the Geismar enforcement proceedings, it may also be subject to costs
for corrective action. The federal government also can require corrective action
for a facility subject to RCRA permit requirements. Corrective action could
require the Partnership to conduct investigatory and remedial activities at the
Geismar complex concurrently with the groundwater monitoring and remedial
program that the Partnership is currently conducting under the Settlement
Agreement with LDEQ. The DOJ has advised the Partnership that it intends to seek
facility-wide corrective action to address potential contamination at the
Geismar complex. EPA has indicated that it intends to evaluate the adequacy of
the existing groundwater remediation project performed under the Settlement
Agreement with LDEQ, and to determine the potential for other areas of
contamination on or near the Geismar complex. The cost of any corrective action
could be material, depending on the scope of such corrective action. However,
the actual cost of a facility-wide corrective action cannot be identified until
the EPA provides substantially more information to the Partnership.
If the Partnership is unsuccessful in either proceeding concerning its
challenge to the applicability of the RCRA permit requirements to the VCR unit
and related tanks, or the north trench sump, it will have to incur additional
permitting costs.
The Partnership estimates that its costs to complete the permitting
process for the VCR unit and related tanks would be approximately $1.0 million.
The Partnership believes that the costs for amending its pending RCRA permit
application to include the north trench sump would not be material.
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 Partnership. However, insurance generally does not cover penalties
or the costs of obtaining permits.
Export of Partially Depleted Mercuric Chloride Catalyst
--------------------------------------------------------
During the early 1990's, the Partnership shipped partially depleted
mercuric chloride catalyst to the facility of Thor Chemicals S.A. (PTY) Limited
("Thor") in Cato Ridge, South Africa for recovery of mercury. In 1993 the
<PAGE>
LDEQ determined that the partially depleted catalyst was not a hazardous waste,
although LDEQ reversed this position in 1994. The Partnership disagrees with
this reversal. The Partnership did not send mercury-containing sludge to the
Thor facility.
The Partnership believes that Thor's operations have included the
production of mercuric chloride catalyst and the recovery of mercury from
partially depleted catalyst. Recovery of mercury at Thor's facility was
discontinued in March 1994 when the Department of Health in South Africa refused
to renew a temporary license that had been granted to Thor. At such time, there
were drums of partially depleted catalyst at the facility which had been shipped
by the Partnership to Thor. In addition, in the spring of 1994 there were drums
of other materials at the Thor facility which the Partnership had not sent
there. According to Thor, less than 25% of the drums of material at the Thor
facility, had been shipped by the Partnership to Thor.
In February 1995, Thor and three of its management personnel were tried
by South Africa for the common law crime of culpable homicide and a number of
alleged violations of the Machinery Occupational Safety Act of 1983 ("MOSA"),
because of the deaths of two Thor employees. The prosecution alleged that the
deaths were the result of mercury poisoning. In exchange of a plea by Thor that
it had violated provisions of MOSA, the prosecution dropped the homicide charges
against Thor and all the charges against Thor's management personnel. The court
has sentenced Thor to a fine of R13,500.00, which is equivalent to approximately
$3,800. The Partnership is aware that relatives of two deceased Thor employees,
and a Thor employee allegedly suffering from mercury poisoning, have filed suit
in the United Kingdom against Thor's parent company for negligence.
On March 24, 1995, the President of South Africa appointed a Commission
of Inquiry and published the following terms of reference for the Commission:
(1) to investigate the history and background of the acquisition of mercury
catalyst stockpiled by Thor as well as additional mercury-containing sludge on
the premises and to report on the further utilization or disposal thereof; (2)
to recommend the best practical environmental option to address the problem of
mercury-containing catalyst and/or waste currently on Thor's premises; and (3)
to report the results of the Commission's inquiry to the President of the
Republic of South Africa as soon as conveniently possible. In addition, the
Minister of Water Affairs and Forestry has instructed his department's regional
office to investigate alleged water pollution at and near the Thor facility. The
Government of South Africa has not made any allegations or asserted any claims
against the Partnership.
The contract between the Partnership and Thor provides that title to,
risk of loss, and all other incidents of ownership of the partially depleted
catalyst would pass from the Partnership to Thor when the catalyst reached South
Africa. The Partnership does not believe that it is liable for disposing of the
drums of partially depleted catalyst remaining at the Thor facility that were
shipped by the Partnership. Nonetheless, in the event that the Partnership
should be required to dispose of the remaining drums at the facility shipped by
the Partnership, the Partnership estimates that such cost would not be in excess
of $4 million.
With regard to the environmental condition of the Thor facility, the
Partnership has not been notified by the Government of South Africa that the
Partnership would be liable for any contamination or other conditions at that
facility, although it is impossible to determine what, if any, allegations any
party may make in connection with the Thor facility in the future. It is unclear
under current South African environmental law as to whether any such
allegations, if made, would be sustained against the Partnership, and the
Partnership would vigorously defend against any such allegations.
Emergency Planning and Community Right-to-Know Act Proceeding
-------------------------------------------------------------
In February 1993, an EPA Administrative Law Judge held that the
Illiopolis facility had violated CERCLA and the Emergency Planning and Community
Right to Know Act ("EPCRA") by failing to report certain relief valve releases,
which occurred between February 1987 and July 1989, that the Partnership
believes are exempt from CERCLA and EPCRA reporting. The Partnership's petition
for reconsideration was denied, a penalty hearing will be scheduled, and further
appeals are possible. Management does not believe that any ultimate penalty
arising from this proceeding would have a material adverse effect on the
Partnership. The proposed penalty in EPA's administrative complaint initiating
this proceeding in 1991 was $1.0 million.
<PAGE>
Borden Environmental Indemnity
------------------------------
Under the Environmental Indemnity Agreement, subject to certain
conditions, Borden has agreed to indemnify the Partnership 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 Partnership (the "Transfer Date").
The Partnership is responsible for environmental liabilities arising from facts
or circumstances that existed and 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 Partnership 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 Environmental Indemnity Agreement
after November 30, 2002, and no claim can, with certain exceptions, be made with
respect to the first $500,000 of liabilities which Borden would otherwise be
responsible for thereunder in any year, but such excluded amounts shall not
exceed $3.5 million in the aggregate. Excluded amounts under the Environmental
Indemnity Agreement have aggregated approximately $2.7 million through June 30,
1995.
If the United States is successful in requiring the Partnership to
perform corrective action at the Geismar facility or the LDEQ requires the
Partnership to take further remedial measures in connection with the Settlement
Agreement, the Partnership anticipates that a portion of its corrective action
costs would be covered by the Environmental Indemnity Agreement. The extent to
which any penalties or permit costs that the Partnership may incur as a result
of pending environmental proceedings will be subject to the Environmental
Indemnity Agreement will depend, in large part, on whether such penalties or
costs are attributable to facts or circumstances that existed and requirements
in effect prior to the Transfer Date.
Federal Wastewater Permit
-------------------------
The Geismar facility has a permit for each of its two wastewater
outfalls. The Partnership is challenging conditions in one of those permits. As
a result of the government's delay in responding to this challenge, the
challenged permit has expired and, prior to the expiration, the Partnership
applied for a new permit. Depending on the result of that permit application,
the Partnership's current permit challenge may be irrelevant.
Other Legal Proceedings
-----------------------
The Partnership manufactures, distributes and uses many different
chemicals in its business. As a result of its chemical operations, the
Partnership is subject to various lawsuits and claims, such as product liability
and toxic tort claims, arising 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 harm. New or different claims
arising from the Partnership's various chemical operations may be made in the
future.
In addition, the Partnership is subject to various other legal
proceedings and claims which arise in the ordinary course of business. The
management of the Partnership believes, based upon the information it presently
possesses, that the realistic range of liability of these other matters, taking
into account its insurance coverage, including its risk retention program and
the Environmental Indemnity Agreement with Borden, would not have a material
adverse affect on the financial position and results of operations of the
Partnership.
<PAGE>
ITEM 6, EXHIBITS AND REPORTS OF FORM 8-K
----------------------------------------
(a) Exhibits
--------
3.0 Restated to Certificate of Incorporation, dated May 3, 1995
10.0 1995 long term long incentive plan
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
BORDEN CHEMICALS AND PLASTICS LIMITED
PARTNERSHIP
By BCP Management, Inc.
General Partner
By /s/ JAMES O. STEVNING
-------------------------------
James O. Stevning
Controller and Principal
Accounting Officer
Date: August 11, 1995
<PAGE>
EXHIBIT 3.0
RESTATED CERTIFICATE OF INCORPORATION
OF
BCP MANAGEMENT, INC.
BCP Management, Inc., a corporation organized and existing under the
laws of the State of Delaware (the "Corporation"), hereby certifies as follows:
1. The name of the Corporation is BCP Management, Inc. BCP
Management, Inc. was originally incorporated under the same name, and the
original Certificate of Incorporation of the Corporation was filed with the
Secretary of State of the State of Delaware on August 6, 1987.
2. Pursuant to Sections 242 and 245 of the General Corporation Law of
the State of Delaware, this Restated Certificate of Incorporation restates and
integrates and further amends the provisions of the Certificate of Incorporation
of the Corporation.
3. The text of the Restated Certificate of Incorporation as
heretofore amended or supplemented is hereby restated and further amended to
read in its entirety as follows:
FIRST: The name of the Corporation is BCP Management, Inc.
SECOND: The address of the Corporation's registered office in the
State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City
of Wilmington, County of New Castle. The name of the Corporation's registered
agent at such address is The Corporation Trust Company.
THIRD: The purposes of the Corporation are to (i) act as the general
partner of Borden Chemicals and Plastics Limited partnership, a Delaware limited
partnership, and Borden Chemicals and Plastics Operating Limited Partnership, a
Delaware limited Partnership, and any successors to such limited partnerships,
(ii) conduct, direct and exercise full control over all activities of such
limited partnerships and successors and (iii) do anything necessary or
incidental to the foregoing.
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 10,000 shares of common stock with
a par value of one dollar ($1.00) per share.
<PAGE>
FIFTH: The name and mailing address of the incorporator of the
Corporation are as follows:
Name Address
---- -------
Steven Sutherland One First National Plaza
Suite 4200
Chicago, Illinois 60603
SIXTH: The name and mailing address of the person who is to serve as
director until the first annual meeting of stockholders or until his successor
is elected and qualified is as follows:
Name Address
---- -------
Lawrence O. Doza c/o Borden, Inc.
277 Park Avenue
New York, New York 10172
SEVENTH: In furtherance and not in limitation of the powers conferred
by statute, the Board of Directors is expressly authorized to make, alter or
repeal the By-Laws of the Corporation, subject to any specific limitation on
such power provided by any By-Laws adopted by the stockholders.
EIGHTH: Elections of directors need not be by written ballot unless
the By-Laws of the Corporation so provide.
NINTH: The Corporation is to have perpetual existence.
TENTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon the
stockholders herein are granted subject to this reservation.
ELEVENTH: A. A director of the Corporation shall not be personally
liable to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the General Corporation Law
of the State of Delaware, or (iv) for any transaction from which the director
derived an improper personal benefit. If the General Corporation Law of the
State of Delaware is amended to authorize corporate action further eliminating
or limiting the personal liability of directors, then the liability of a
director of the Corporation shall be eliminated or limited to the fullest extent
permitted by the General Corporation Law of the State of Delaware, as so
amended. Any repeal or modification of this Section A by the stockholders
-2-
<PAGE>
of the Corporation shall not adversely affect any right or protection of a
director of the Corporation existing at the time of such repeal or modification.
B. (1) Each person who was or is made a party or is threatened to be
made a party to or is involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she or a person of whom he or she is the legal
representative is or was a director, officer or employee of the Corporation or
is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation or of a partnership, joint venture,
trust or other enterprise, including service with respect to employee benefit
plans, whether the basis of such proceeding is alleged action in an official
capacity as a director, officer, employee or agent or in any other capacity
while serving as a director, officer, employee or agent, shall be indemnified
and held harmless by the Corporation to the fullest extent authorized by the
General Corporation Law of the State of Delaware as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than said law permitted the Corporation to provide prior to such
amendment), against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid
in settlement) reasonably incurred or suffered by such person in connection
therewith and such indemnification shall continue as to a person who has ceased
to be a director, officer, employee or agent and shall inure to the benefit of
his or her heirs, executors and administrators; provided, however, that except
-------- -------
as provided in paragraph (2) of this Section B with respect to proceedings
seeking to enforce rights to indemnification, the Corporation shall indemnify
any such person seeking indemnification in connection with a proceeding (or part
thereof) initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation. The right to
indemnification conferred in this Section B shall be a contract right and shall
include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition; provided,
--------
however, that if the General Corporation Law of the State of Delaware requires,
-------
the payment of such expenses incurred by a director or officer in his or her
capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such person while a director or officer,
including, without limitation, service to an employee benefit plan) in advance
of the final disposition of a proceeding, shall be made only upon delivery to
the Corporation of an undertaking by or on behalf of such director or officer,
to repay all amounts so advanced if it shall ultimately be determined that such
director or officer is not entitled to be indemnified under this Section B or
otherwise.
-3-
<PAGE>
(2) If a claim under paragraph (1) of this Section B is not paid in
full by the Corporation within thirty days after a written claim has been
received by the Corporation, the claimant may at any time thereafter bring suit
against the Corporation to recover the unpaid amount of the claim and, if
successful in whole or in part, the claimant shall be entitled to be paid also
the expense of prosecuting such claim. It shall be a defense to any such action
(other than an action brought to enforce a claim for expenses incurred in
defending any proceeding in advance of its final disposition where the required
undertaking, if any is required, has been tendered to the Corporation) that the
claimant has not met the standards of conduct which make it permissible under
the General Corporation Law of the State of Delaware for the Corporation to
indemnify the claimant for the amount claimed, but the burden of proving such
defense shall be on the Corporation. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel or stockholders) to
have made a determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances because he or she
has met the applicable standard of conduct set forth in the General Corporation
Law of the State of Delaware, nor an actual determination by the Corporation
(including its Board of Directors, independent legal counsel or stockholders)
that the claimant has not met such applicable standard of conduct, shall be a
defense to the action or create a presumption that the claimant has not met the
applicable standard of conduct.
(3) The right to indemnification and the payment of expenses incurred
in defending a proceeding in advance of its final disposition conferred in this
Section B shall not be exclusive of any other right which any person may have or
hereafter acquire under any statute, provision of the Certificate of
Incorporation, By-Law, agreement, vote of stockholders or disinterested
directors or otherwise.
(4) The Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under the General Corporation Law of the State of Delaware.
(5) The Corporation may, to the extent authorized from time to time by
the Board of Directors, grant rights to indemnification, and rights to be paid
by the Corporation the expenses incurred in defending any proceeding in advance
of its final disposition, to any agent of the Corporation to the fullest extent
of the provisions of this Section B with respect to the indemnification and
advancement of expenses of directors, officers and employees of the Corporation.
-4-
<PAGE>
(6) Without limiting the foregoing, to the extent that the General
Corporation Law of the State of Delaware is amended or supplemented from time to
time after the date hereof to provide for additional rights of indemnification
to directors, officers or employees of the Corporation, the Corporation shall,
to the fullest extent permitted by the General Corporation Law of the State of
Delaware, as the same may be amended and supplemented, indemnify any and all
such directors, officers and employees from and against any and all of the
expenses, liabilities, or other matters referred to in or covered by the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, said Corporation has caused this Certificate to be
signed by Lawrence L. Dieker, its Secretary, this 3rd day of May, 1995.
/s/ Lawrence L. Dieker
----------------------
Lawrence L. Dieker
Its: Secretary
-5-
<PAGE>
EXHIBIT 10.0
BCP MANAGEMENT, INC.
1995 LONG-TERM INCENTIVE PLAN
I. INTRODUCTION
1.1 Purposes. The purposes of the 1995 Long-Term Incentive Plan (the "Plan")
-------- ----
of BCP Management Inc., a Delaware corporation (the "General Partner"), are (i)
---------------
to align the interests of the unitholders of Borden Chemicals and Plastics
Limited Partnership, a Delaware limited partnership (the "Partnership"), and the
-----------
recipients of awards under this Plan by increasing the proprietary interest of
such recipients in the Partnership's growth and success, (ii) to advance the
interests of the Partnership by attracting and retaining well-qualified persons
who are not officers or employees of the General Partner for service as
directors of the General Partner ("Non-Employee Directors"), directors,
officers, and employees of the General Partner, and those officers and other
employees of Borden, Inc., a New Jersey corporation and the sole stockholder of
the General Partner ("Borden"), who render services on behalf of the General
------
Partner, the Partnership and Borden Chemicals and Plastics Operating Limited
Partnership, a Delaware limited partnership (the "Operating Partnership"), and
---------------------
(iii) to motivate such officers and other employees and non-employee directors
to act in the long-term best interests of the Partnership's unitholders. For
purposes of this Plan, references to employment with the General Partner shall
also mean employment with Borden.
1.2 Certain Definitions.
-------------------
"Agreement" shall mean the written agreement between the General Partner
---------
and the recipient of an award under this Plan evidencing unit appreciation
rights ("UARs") and any Phantom Units credited to the recipient of such UARs
----
pursuant to Section 2.2 of this Plan.
"Base Price" shall mean the amount associated with a UAR that is
----------
determined by the Committee at the time of grant in accordance with Section 2.1.
"Board" shall mean the Board of Directors of the General Partner.
-----
"Code" shall mean the Internal Revenue Code of 1986, as amended.
----
"Committee" shall mean the Independent Committee of the Board.
---------
"Common Units" shall mean the depositary units representing common
------------
limited partner interests in the Partnership.
"Disability" shall mean the inability of the holder of an award to
----------
perform substantially such holder's duties and responsibilities for a continuous
period of at least six months, as determined solely by the Committee.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended.
1
<PAGE>
"Exercise Window Period" shall mean "window periods" established by the
----------------------
General Partner for trading in the Securities of the Partnership, each of which
window periods shall be an Exercise Window Period under the Plan. The General
Partner will inform participants in the Plan of any change in the announced
window periods.
"Fair Market Value" shall mean the average of the high and low
-----------------
transaction prices of Common Unit as reported on the New York Stock Exchange
Composite Transactions on the date as of which such value is being determined,
or, if there shall be no reported transactions for such date, on the next
preceding date for which transactions were reported; provided, however, that if
Fair Market Value for any date cannot be so determined, Fair Market Value shall
be determined by the Committee by whatever means or method as the Committee, in
the good faith exercise of its discretion shall at such time deem appropriate.
"Non-Employee Director" shall mean any director of the General Partner
---------------------
who is not an officer or employee of the General Partner, Borden, the
Partnership, the Operating Partnership or any subsidiary of the foregoing.
"Performance Measures" shall mean the criteria and objectives,
--------------------
established by the Committee, which shall be satisfied or met as a condition to
the grant of a UAR or the crediting of a Phantom Unit or to the exercisability
of all or a portion of an award evidencing UARs and/or Phantom Units. Such
criteria and objectives may include, but are not limited to, the attainment by a
Common Unit of a specified Fair Market Value for a specified period of time,
earnings per share, return on equity, earnings, revenues, market share, cash
flows or cost reduction goals, or any combination of the foregoing and any other
criteria and objectives established by the Committee. In the sole discretion of
the Committee, the Committee may amend or adjust the Performance Measures or
other terms and conditions of an outstanding award in recognition of unusual or
nonrecurring events affecting the Partnership or its financial statements or
changes in law or accounting principles.
"Phantom Unit" shall mean a right which entitles the holder thereof to
------------
receive, upon exercise of such Phantom Unit, cash in an amount equal to the Fair
Market Value of one Common Unit on the date of exercise.
"Retirement" shall mean, as applicable, retirement from employment with,
----------
or for, the General Partner on or after age 65, or on or after age 60 with the
consent of the General Partner or retirement from service as a director of the
General Partner on or after age 60.
"UAR" shall mean a unit appreciation right which (i) in the event the
---
Fair Market Value of one common Unit equals or exceeds the Base Price of such
UAR at the time of exercise of such UAR, entitles the holder thereof to receive,
upon exercise of such UAR, cash in an amount equal to the excess of the Fair
Market Value of one Common Unit on the date of exercise over the Base Price of
such UAR, and (ii) in the event the Fair Market Value of one Common Unit is less
than the Base Price of such UAR at the time of exercise of such UAR, results (in
accordance with Section 2.3(b) and 4.3(b)), upon exercise of such UAR, in a
reduction of the cash payable, by the difference between such Fair Market Value
and such Base Price, due to the exercise of Phantom Units in connection with the
exercise of such UAR.
2
<PAGE>
1.3 Administration. This Plan shall be administered by the Committee. UARs
may be awarded under this Plan to eligible officers and other employees of the
General Partner and Borden, and shall be awarded to Non-Employee Directors in
accordance with Article IV. The Committee shall, subject to the terms of this
Plan, select eligible officers and other employees for participation in this
Plan and determine the form, amount and timing of each award to such persons and
the number of UARs subject to such an award, the Base Price associated with a
UAR, the time and conditions of exercise of the award and all other terms and
conditions of the award, including, without limitation, the form of the
Agreement evidencing the award. The Committee shall, subject to the terms of
this Plan, interpret this Plan and the application thereof, establish rules and
regulations it deems necessary or desireable for the administration of this Plan
and may impose, incidental to the grant of an award, conditions with respect to
the award, such as limiting competitive employment or other activities. All
such interpretations, rules, regulations and conditions shall be conclusive and
binding on all parties.
The Committee may delegate some or all of its power and authority
hereunder to the President and Chief Executive Officer or other executive
officer of the General Partner as the Committee deems appropriate; provided,
however, that the Committee may not delegate its power and authority with regard
to the selection for participation in this Plan of an officer or other person
subject to Section 16 of the Exchange Act or decisions concerning the timing,
pricing or amount of an award to such an officer or other person.
A majority of the Committee shall constitute a quorum. The acts of the
Committee shall be either (i) acts of a majority of the members of the Committee
present at any meeting at which a quorum is presented or (ii) acts approved in
writing by a majority of the members of the Committee without a meeting.
1.4 Eligibility. Participants in this Plan shall consist of such officers or
-----------
other employees of the General Partner and Borden as the Committee in its sole
discretion may select from time to time. The Committee's selection of a person
to participate in this Plan at any time shall not require the Committee to
select such person to participate in this Plan at any other time. Non-Employee
Directors shall be eligible to participate in this Plan in accordance with
Article IV.
1.5 UARs and Phantom Units Available. Subject to adjustment as provided in
Section 5.6. an annual aggregate of 1.5% of the number of outstanding BCP Common
Units as of January 1 of each calendar year beginning January 1, 1995 shall be
available to be granted as UARs and Phantom Units under this Plan, reduced by
the sum of the aggregate number of UARs and Phantom Units which become subject
to outstanding awards during such calendar year. UARs and Phantom Units which
are not exercised by reason of the expiration, termination, cancellation or
forfeiture of an award shall again be available under this Plan.
II. UNIT APPRECIATION RIGHTS AND PHANTOM UNITS
Awards evidencing UARs and Phantom Units shall be subject to the
following terms and conditions and shall contain such additional terms and
conditions, not inconsistent with the terms of this Plan, as the Committee shall
deem advisable:
3
<PAGE>
2.1 Unit Appreciation Rights. The Committee may, in its discretion, grant
------------------------
UARs to such eligible persons as may be selected by the Committee. The number of
UARs subject to an award shall be determined by the Committee. The Base Price of
a UAR shall be determined by the Committee; provided, however, that such Base
Price shall not be less than 100% of the Fair Market Value of a Common Unit on
the date of grant of such UAR.
2.2 Phantom Units. On the date a cash distribution is made by the
-------------
Partnership to the unitholders of the Partnership, a credit of Phantom Units
shall be made to each participant's account under this Plan. The number of
Phantom Units credited to a participant's account shall be the number determined
by dividing (i) the product of (A) the aggregate number of UARs and Phantom
Units held in such participant's account immediately prior to the cash
distribution, multiplied by (B) the amount of the cash distribution per Common
Unit by (ii) the Fair Market Value of a Common Unit on the date of the cash
distribution.
2.3 Exercise Provisions.
-------------------
(a) Exercisability. Subject to Article III and unless otherwise
---------------
specified in the Agreement relating to such award, one-half (50%) of the UARs
and any Phantom Units related thereto subject to such award shall become
exercisable on the date which is two years after the date of grant of such UARs,
and on the date which is three years after the date of grant of such UARs, all
UARs and any Phantom Units related thereto which are then unexercisable shall
become exercisable.
(b) Exercise Period and Exercisability. An award under this Plan shall
---------------------------------
be settled solely in cash. The period during which an award may be exercised
shall be determined by the Committee; provided, however, that, unless otherwise
specified in the Agreement relating to an award, an award may be exercised only
during an Exercise Window Period, an election to exercise may be subject to the
approval of the Company and no award shall be exercised later than seven years
after its date of grant. Unless otherwise specified in the Agreement relating
to an award, Phantom Units may only be exercised in connection with an exercise
of UARs (although in order to exercise the Phantom Units related to a UAR, a
participant may exercise a UAR even if at the time of such exercise, the Fair
Market Value of one Common Unit is less than the Base Price of such UAR, in
which event the amount payable due to the exercise of such Phantom Units shall
be reduced by the difference between such Fair Market Value and such Base
Price). The number of Phantom Units to be exercised shall be equal to the
product of (i) the number of Phantom Units subject to the award then being
exercised by such participant and held in the participant's account immediately
prior to such exercise, multiplied by (ii) a fraction, the numerator of which is
the number of UARs subject to such award then being exercised by such
participant and the denominator of which is the total number of UARs subject to
such award held in such participant's account immediately prior to such
exercise. In the event of multiple awards to a single participant, the foregoing
calculation shall be made separately with respect to the UARs and the Phantom
Units issued pursuant to each award. The Committee may, in its discretion,
establish Performance Measures which shall be satisfied or met as a condition to
the grant of a UAR or the crediting of a Phantom Unit or to the exercisability
of all or a portion of an award evidencing UARs and/or Phantom Units. The
Committee shall determine whether an award may be exercised in cumulative or
non-cumulative installments and in part or in full at any time.
4
<PAGE>
(c) Notice of Exercise. An award may be exercised by giving written
------------------
notice to the Corporate Secretary of the General Partner specifying the number
of UARs to be exercised.
III. TERMINATION OF EMPLOYMENT
3.1 Disability, Retirement or Death. Unless otherwise specified in the
-------------------------------
Agreement relating to an award, if the employment with, or for, the General
Partner of a participant terminates by reason of Disability, Retirement or
death, each award held by such participant shall be exercisable only to the
extent that the UARs and Phantom Units subject to such award are exercisable on
the effective date of such participant's termination of employment or date of
death, as the case may be, and may thereafter be exercised by such participant
or such participant's executor, administrator, legal representative or similar
person, as the case may be until and including the earliest to occur of (i) the
date which is three years (or such other period as set forth in the Agreement
relating to such award) after the effective date of such participant's
termination of employment or date of death, as the case may be, and (ii) the
expiration date of the term of such award.
3.2 Other Termination. Unless otherwise specified in the Agreement relating
-----------------
to an award or at the discretion of the Committee exercised at any time after
the grant of an award, if the employment with, or for, the General Partner of a
participant terminates for any reason other than Disability, Retirement or
death, each award held by such participant shall terminate automatically on the
effective date of such participant's termination of employment.
3.3 Death Following Termination of Employment. Unless otherwise specified in
-----------------------------------------
the Agreement relating to an award, if a participant dies during the three-year
period following termination of employment by reason of Disability or Retirement
(or such other period as set forth in the Agreement relating to such award),
each award held by such participant shall be exercisable only to the extent that
the UARs and Phantom Units subject to such award are exercisable on the date of
such participant's death and may thereafter be exercised by the participant's
executor, administrator, legal representative, beneficiary or similar person, as
the case may be, until and including the earliest to occur of (i) the date which
is one year (or such other period as set forth in the Agreement relating to an
award) after the date of death and (ii) the expiration date of the term of such
award.
IV. PROVISIONS RELATING TO NON-EMPLOYEE DIRECTORS
4.1 Eligibility. Each Non-Employee Director shall be granted UARs in
-----------
accordance with this Article IV.
4.2 Grants of UARs. Each Non-Employee Director shall be granted UARs and
--------------
Phantom Units as follows:
(a) Time of Grant. Annually, on the third Tuesday of each April
-------------
beginning in 1995, each person who is a Non-Employee Director on such date shall
be granted 1,500 UARs.
5
<PAGE>
(b) UARs. The Base Price of a UAR granted to a Non-Employee Director
----
shall be 100% of the Fair Market Value of a Common Unit on the date of grant of
such UAR.
(c) Phantom Units. Phantom Units shall be credited to the account of
-------------
each Non-Employee Director in accordance with the provisions of Section 2.2.
4.3 Exercise Provisions. Each award granted under this Article IV shall be
-------------------
subject to the following exercise provisions.
(a) Exercisability. Subject to Section 4.4, one-half (50%) of the UARs
--------------
and any Phantom Units related thereto subject to an award shall become
exercisable on the date which is two years after the date of grant of such UARs
and on the date which is three years after the date of grant of such UARs, all
UARs and any Phantom Units related thereto which are then unexercisable shall
become exercisable.
(b) Exercise Period and Exercisability. An award under this Plan shall
----------------------------------
be settled solely in cash. An award may be exercised only during an Exercise
Window Period or on the expiration date of the term of such award, an election
to exercise shall be subject to approval of the Company and no award shall be
exercised later than seven years after its date of grant. Phantom Units may
only be exercised in connection with an exercise of UARs (although in order to
exercise the Phantom Units related to a UAR, a Non-Employee Director may
exercise a UAR even if at the time of such exercise, the Fair Market Value of
one Common Unit is less than the Base Price of such UAR, in which event the
amount payable due to the exercise of such Phantom Units shall be reduced by the
difference between such Fair Market Value and such Base Price). The number of
Phantom Units to be exercised shall be determined automatically and shall be
equal to the product of (i) the number of Phantom Units subject to the award
then being exercised by such Non-Employee director and held in the Non-Employee
Director's account immediately prior to such exercise, multiplied by (ii) a
fraction, the numerator of which is the number of UARs subject to such award
then being exercised by such Non-Employee Director and the denominator of which
is the total number of UARs subject to such award held in such Non-Employee
Director's account immediately prior to exercise. In the event of multiple
awards to a single Non-Employee Director, the foregoing calculation shall be
made separately with respect to the UARs and Phantom Units issued pursuant to an
award.
(c) Notice of Exercise. An award may be exercised by giving written
-----------------
notice to the Corporate Secretary of the General Partner specifying the number
of UARs to be exercised.
4.4 Termination of Service as a Director. Each award granted under this
------------------------------------
Article IV shall be subject to the following termination provisions:
(a) Disability, Retirement or Death. If the service as a director of the
-------------------------------
General Partner of a Non-Employee Director terminates by reason of Disability,
Retirement or death, each award held by such Non-Employee shall be exercisable
only to the extent that the UARs and Phantom Units subject to such award are
exercisable on the effective date of such Non-Employee Director's termination of
service or date of death, as the case may be, and may thereafter be exercised by
such Non-Employee Director or such Non-Employee Director's executor,
administrator, legal representation or similar person, as the case may be, until
and including the earliest to occur of (i) the date which is three years after
the effective date of such Non-Employee
6
<PAGE>
Director's termination of service or date of death, as the case may be, and (ii)
the expiration date of the term of such award.
(b) Other Termination. If the service as a director of the General
-----------------
Partner of a Non-Employee Director terminates for any reason other than
Disability, Retirement or death, each award held by such Non-Employee Director
shall terminate automatically on the effective date of such Non-Employee
Director's termination of service.
(c) Death Following Termination of Service. If a Non-Employee Director
--------------------------------------
dies during the three-year period following termination of service by reason of
Disability or Retirement, each award held by such Non-Employee Director shall be
exercisable only to the extent that the UARs and Phantom Units subject to such
award are exercisable on the date of such Non-Employee Director's death and may
thereafter be exercised by the Non-Employee Director's executor, administrator,
legal representative, beneficiary or similar person, as the case may be, until
and including the earliest to occur of (i) the date which is one year after the
date of death and (ii) the expiration date of the term of such award.
V. GENERAL
5.1 Effective Date and Term of Plan. This Plan shall become effective as of
-------------------------------
April 18, 1995. This Plan shall terminate ten years after its effective date
unless terminated earlier by the Board. Termination of this Plan shall not
affect the terms or conditions of any award granted prior to termination.
5.2 Amendments. The Board may amend this Plan as it shall deem advisable,
----------
provided, however, that no amendment may impair the rights of a holder of an
outstanding award without the consent of such holder; and provided further that,
subject to Section 5.6, the number of UARs granted to Non-Employee Directors
pursuant to Article IV, the date of grant of any such UARs, the termination
provisions relating to such UARs and the category of persons eligible to be
granted such UARs shall not be amended more than once every six months, other
than to comply with changes in the Code or ERISA, or the rules and regulations
thereunder. No amendment may impair the rights of a holder of an outstanding
award without the consent of such holder.
5.3 Agreement. Each award under this Plan shall be evidenced by an Agreement
---------
setting forth the terms and conditions applicable to such award. No such award
shall be valid until an Agreement is executed by the General Partner and the
recipient of such award and upon execution by each party and delivery of the
Agreement to the General Partner, such award shall be effective as of the
effective date set forth in the Agreement.
5.4 Non-Transferability. No UARs or Phantom Units shall be transferable
-------------------
other than by will, the laws of descent and distribution or pursuant to
beneficiary designation procedures approved by the General Partner. Except as
permitted by the foregoing sentence, each UAR or Phantom Unit may be exercised
during a participant's lifetime only by the participant or the participant's
legal representative or other person acting in a similar capacity. Except as
permitted by the second preceding sentence, no UAR or Phantom Unit may be sold,
transferred, assigned, pledged, hypothecated, encumbered or otherwise disposed
of (whether by operation of law or otherwise) to be subject to execution,
attachment or similar process. Upon any attempt to sell,
7
<PAGE>
transfer, assign, pledge, hypothecate, encumber or otherwise dispose of any UAR
or Phantom Unit, such award and all rights thereunder shall immediately become
null and void.
5.5 Tax Withholding. The General Partner shall have the right to require, prior
---------------
to any cash payment pursuant to an award made hereunder, payment by the holder
of such award of any Federal, state, local or other taxes which may be
required to be withheld or paid in connection with such award or withhold an
amount of cash which would otherwise be payable to a holder, in the amount
necessary to satisfy any such obligation.
5.6 Adjustment. In the event of any unit split, unit dividend, recapitalization,
----------
reorganization, merger, consolidation, combination, exchange of shares,
liquidation, spin-off or other similar change in capitalization or event, or any
distribution to holders of Common Units other than a regular cash distribution,
the number and types of awards available under this Plan, the number and types
of awards subject to each outstanding award, including the number of UARs
granted to Non-Employee Directors pursuant to Article IV, the Base Price per UAR
and the terms of each outstanding award shall be appropriately adjusted by the
Committee, such adjustments to be made in the case of outstanding UARs without
an increase in the aggregate Base Price. The decision of the Committee regarding
any such adjustment shall be final, binding and conclusive.
5.7 No Right of Participation or Employment. No person shall have any right to
---------------------------------------
participate in this Plan. Neither this Plan nor any award made hereunder shall
confer upon any person any right to continued employment with, or service as a
director or, the General Partner, Borden or any affiliate or affect in any
manner the right of the General Partner or Borden to terminate the employment of
any person at any time without liability hereunder.
5.8 Rights as Unitholder. No person shall have any right as a unitholder of the
--------------------
Partnership with respect to any UARs or Phantom Units of the Partnership which
are subject to an award hereunder at any time.
5.9 Governing Law. The Plan, each award hereunder and the related Agreement, and
-------------
all determinations made and actions taken pursuant thereto, to the extent not
otherwise governed by the Code or the laws of the United States, shall be
governed by the laws of the State of Delaware and construed in accordance
therewith without giving effect to principles of conflicts of laws.
As approved as of April 18, 1995 /s/ J. M. Saggese
-------------------------------------
J. M. Saggese,
Chairman of the Board, President and Chief
Executive Officer
BCP Management, Inc.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 82,935
<SECURITIES> 0
<RECEIVABLES> 111,529
<ALLOWANCES> 588
<INVENTORY> 46,866
<CURRENT-ASSETS> 242,555
<PP&E> 671,206
<DEPRECIATION> 311,874
<TOTAL-ASSETS> 643,585
<CURRENT-LIABILITIES> 195,600
<BONDS> 200,000
<COMMON> 0
0
0
<OTHER-SE> 240,417
<TOTAL-LIABILITY-AND-EQUITY> 643,585
<SALES> 402,469
<TOTAL-REVENUES> 402,469
<CGS> 237,970
<TOTAL-COSTS> 237,970
<OTHER-EXPENSES> 35,457
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,801
<INCOME-PRETAX> 120,241
<INCOME-TAX> 0
<INCOME-CONTINUING> 120,241
<DISCONTINUED> 0
<EXTRAORDINARY> 6,912
<CHANGES> 0
<NET-INCOME> 113,329
<EPS-PRIMARY> 3.05
<EPS-DILUTED> 0
</TABLE>
