HUNTSMAN INTERNATIONAL LLC - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10-K

(Mark One)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended December 31, 2001

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________

Commission file number 333-85141

HUNTSMAN INTERNATIONAL LLC
(Exact name of registrant as specified in its charter)

DELAWARE 87-0630358
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

500 Huntsman Way
Salt Lake City, Utah 84108
(801) 584-5700
(Address of principal executive offices and 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 / /

On March 31, 2002, 1,000 membership interests of Huntsman International LLC were
outstanding.

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HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES
2001 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS

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HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES
2001 FORM 10-K ANNUAL REPORT

Some of the statements contained in this report are forward-looking in
nature. In some cases, you can identify forward-looking statements by
terminology such as "believes," "expects," "may," "will," "should" or
"anticipates" or the negative of such terms or other comparable terminology, or
by discussions of strategy. You are cautioned that our business and operations
are subject to a variety of risks and uncertainties, and, consequently, our
actual results may materially differ from those projected by any forward-looking
statements. Some of those risks and uncertainties are discussed below in "Item
7--Management's Discussion and Analysis of Financial Condition and Results of
Operations--Cautionary Statement for Forward Looking Information" and elsewhere
in this report. We make no commitment to revise or update any forward-looking
statements in order to reflect events or circumstances after the date any such
statement is made.

Market data used throughout this report was obtained from internal Company
surveys and industry surveys and publications. These industry surveys and
publications generally state that the information contained therein has been
obtained from sources believed to be reliable. Results of internal Company
surveys contained in this report, while believed to be reliable, have not been
verified by any independent outside sources. References in this report to our
market position and to industry trends are based on information supplied by Chem
Systems, an international consulting and research firm, and International
Business Management Associates, an industry research and consulting firm. We
have not independently verified such market data.

PART I

ITEM 1. BUSINESS

GENERAL

Our company, Huntsman International LLC, formerly known as Huntsman ICI
Chemicals LLC, is a Delaware limited liability company. All of our membership
interests are owned by Huntsman International Holdings LLC, formerly known as
Huntsman ICI Holdings LLC ("Huntsman International Holdings"). Huntsman
International Holdings is a Delaware limited liability company and its
membership interests are owned 60% by Huntsman Specialty Chemicals Corporation
("Huntsman Specialty"), 30% by Imperial Chemicals Industries PLC ("ICI") and its
affiliates and 10% by institutional investors. For convenience in this report,
the terms "Company," "our," "us" or "we" may be used to refer to Huntsman
International LLC and, where the context requires, its subsidiaries.

The Company was formed in 1999 in connection with a transaction between
Huntsman International Holdings, Huntsman Specialty and ICI (the "Transaction").
In that Transaction, on June 30, 1999, Huntsman International Holdings acquired
ICI's polyurethane chemicals, selected petrochemicals and TiO2 businesses and
Huntsman Specialty's propylene oxide ("PO") business. Huntsman International
Holdings also acquired BP Chemicals Limited's 20% ownership interest in an
olefins facility in Wilton, U.K. and certain related assets. Huntsman
International Holdings then transferred the acquired businesses to us and to our
subsidiaries. For a more detailed description of these transactions and our
Company's structure, see "Item 13--Certain Relationships and Related
Transactions--Company Background."

We are a global manufacturer and marketer of specialty and commodity
chemicals, with three principal businesses: Specialty Chemicals, Petrochemicals
and Titanium Dioxide ("TiO2").

o Our Specialty Chemicals business produces polyurethane, PO,
surfactants and surfactant intermediaries. Our customers use our
polyurethane

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products in a wide variety of polyurethane applications, including
automotive interiors, refrigeration and appliance insulation,
construction products, footwear, furniture cushioning and adhesives.
PO is used in a variety of applications, the largest of which is the
production of polyols sold into the polyurethane chemicals market. Our
surfactants and surfactant intermediates are used primarily in
consumer detergents, toiletries, baby shampoos and personal care
products, as well as in a variety of industrial uses.

o Our Petrochemicals business produces olefins and aromatics at
integrated facilities in northern England. Olefins and aromatics are
the key building blocks for the petrochemical industry and are used in
plastic, synthetic fibers, packaging materials and a wide variety of
other applications.

o Our TiO2 business operates under the trade name "Tioxide." TiO2 is a
white pigment used to impart whiteness, brightness and opacity to
products such as paints, plastics, paper, printing inks, synthetic
fibers and ceramics.

For the year ended December 31, 2001, we had revenues of $4.6 billion and
adjusted EBITDA of $398 million. For the year ended December 31, 2001, our
Specialty Chemicals, Petrochemicals and TiO2 businesses represented 55%, 26% and
19%, respectively, of revenues. For additional information about the revenues,
profit and total assets of each of our business segments, see "Notes to
Consolidated Financial Statements--19. Industry Segment and Geographic Area
Information." For the definition of adjusted EBITDA, see "Item 7--Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Results of Operations--2001 Actual Compared to 2000 Actual."

RECENT EVENTS

SENIOR NOTES OFFERING

On March 18, 2002, we sold $300 million aggregate principal amount of our
9.875% Senior Notes due 2009 in a transaction exempt from the registration
requirements of the Securities Act of 1933. We used approximately $58 million of
the net proceeds to repay outstanding indebtedness under the revolving portion
of our senior secured credit facilities. The balance of the net proceeds was
used to repay amounts due under the term loan portion of the senior secured
credit facilities, eliminating scheduled term loan amortization requirements in
2002 and substantially reducing scheduled term loan amortization requirements in
2003. For more information, see "Item 7--Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources--Senior Notes Offering."

AMENDMENT OF OUR SENIOR SECURED CREDIT FACILITIES

On March 15, 2002, we entered into an amendment to our senior secured
credit facilities. This amendment, among other things, allowed us to (i) issue
the senior notes, (ii) apply the proceeds of the offering of the senior notes to
substantially reduce the amortization payments on the term loan portion of our
senior secured credit facilities due in 2002 and 2003, and (iii) temporarily
repay outstanding principal amounts under the revolving portion of our senior
secured credit facilities. This amendment also adjusts certain financial
covenant levels in 2002 and 2003. Additionally, this amendment provides that we
will not, and will not permit any of our subsidiaries to, amend, modify or
terminate any provisions of the recently offered senior notes. For more
information, see "Item 7--Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."

COST REDUCTION PROGRAM

We have announced the first phase of a cost reduction program in our
Specialty Chemicals business which includes the closure of our Shepton Mallet,
U.K. polyols manufacturing facility by the end of 2002. During 2001, the Company
incurred $47 million in restructuring and plant closing costs. For more
information, see "Item 7--Management's Discussion and Analysis of Financial
Condition and Results of Operations--Restructuring and Plant Closing Costs."

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SALE OF EQUITY INTERESTS IN OUR PARENT COMPANY

On November 2, 2000, ICI entered into certain agreements with Huntsman
Specialty, Huntsman International Holdings and our Company, under which ICI had
an option to transfer to Huntsman Specialty or its permitted designated buyers,
and Huntsman Specialty or its permitted designated buyers have a right to buy,
the 30% of the membership interests in Huntsman International Holdings, our
parent company, that are indirectly held by ICI for $363.5 million plus interest
from November 30, 2000 until the completion of such sale. Pursuant to these
agreements, on October 30, 2001, ICI exercised its put right requiring Huntsman
Specialty or its nominee to purchase ICI's equity interest in Huntsman
International Holdings. On December 20, 2001, ICI and Huntsman Specialty amended
ICI's put option arrangement under these agreements to, among other things,
provide that the purchase of ICI's equity interest would occur on July 1, 2003,
or earlier under certain circumstances, and to provide for certain discounts to
the purchase price for ICI's equity interest. The amended option agreement also
requires Huntsman Specialty to cause Huntsman International Holdings to pay up
to $112 million of dividends to its members, subject to certain conditions.
These conditions include the receipt of consent from our senior secured lenders
and our ability to make restricted payments under the indentures governing our
outstanding senior notes and senior subordinated notes, as well as the
outstanding high yield notes of our direct parent, Huntsman International
Holdings (the "HIH Notes"). In addition, in order to secure its obligation to
pay the purchase price for ICI's equity interest, Huntsman Specialty granted ICI
a lien on one-half of Huntsman Specialty's 60% equity interest in Huntsman
International Holdings.

CERTAIN EVENTS AFFECTING HUNTSMAN CORPORATION AND HUNTSMAN POLYMERS CORPORATION

We are party to certain arrangements described in this report with Huntsman
Corporation, an entity that together with its affiliates indirectly holds 60% of
our membership interests. See, "Item 13--Certain Relationships and Related
Transactions." In October 2001, Huntsman Corporation engaged Dresdner Kleinwort
Wasserstein, Inc. as its financial advisor and investment banker to assist
Huntsman Corporation and certain of its domestic subsidiaries in identifying and
exploring strategic alternatives, including developing out of court or court
sanctioned financial restructuring plans.

On December 20, 2001, Huntsman Corporation entered into a supplemental
accounts receivable credit agreement (the "Supplemental Credit Agreement") with
certain of the lenders under its existing senior credit facilities (the
"Existing HC Credit Facilities"), pursuant to which a revolving loan facility of
$40 million and a term loan facility of $110 million were made available. On the
same date, Huntsman Corporation, which is not in compliance with certain
financial covenants in the Existing HC Credit Facilities, entered into
amendment, forbearance, and waiver agreements (collectively, the "Amendment
Agreement") related to the Existing HC Credit Facilities. Under the Amendment
Agreement, existing defaults and some future defaults were waived (but not the
failure to pay incremental interest at a default rate ("Default Interest")), and
the lenders agreed to forbear exercising rights and remedies arising from the
failure to pay Default Interest, all until March 15, 2002 (the "Forbearance
Period"). On March 15, 2002, the Forbearance Period was extended until June 30,
2002 by lenders holding a majority of the indebtedness under the Existing HC
Credit Facilities.

If the Forbearance Period is not extended beyond June 30, 2002, Huntsman
Corporation's debt is not restructured, or the rights of the lenders under the
Existing HC Credit Facilities are not otherwise stayed, the lenders could pursue
their remedies, including acceleration of the indebtedness and foreclosure on
collateral, which includes a pledge of Huntsman Corporation's 80.1% equity
interest in Huntsman Specialty Chemicals Holdings Corporation ("HSCHC"). HSCHC
owns 100% of Huntsman Specialty, which in turn owns 60% of our equity interests.
Foreclosure on the HSCHC equity would result in a change of control within the
meaning of the indentures governing our senior notes and senior subordinated
notes, and our senior secured credit facilities.

Huntsman Corporation failed to make the interest payment under its senior
subordinated notes (the "HC Notes") on January 1, 2002. Huntsman Polymers
Corporation, a wholly-owned subsidiary of Huntsman Corporation, failed to make
the interest payment under its senior notes (the "Polymers Notes") due December
1, 2001. Huntsman Corporation and Huntsman Polymers Corporation are discussing
the

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possible restructuring of their indebtedness with representatives of a majority
of their noteholders. A restructuring could result in a change of control within
the meaning of the indentures governing our senior notes and senior subordinated
notes, our senior secured credit facilities, as well as under the indentures
governing the HIH Notes.

In connection with the December 2001 amendment of ICI's put option
agreement, Huntsman Specialty pledged one-half of its 60% equity interest in
Huntsman International Holdings, our direct parent, to ICI. A foreclosure by ICI
on such equity would result in a change of control under the indentures
governing our senior notes and senior subordinated notes, our senior secured
credit facilities, as well as under the indentures governing the HIH Notes. A
change of control would constitute a default under our senior secured credit
facilities. It would also entitle (i) the holders of our senior notes and senior
subordinated notes to exercise their rights to require us to repurchase these
notes from them and (ii) the holders of the HIH Notes to exercise their rights
to require Huntsman International Holdings to repurchase the HIH Notes from
them. Under such circumstances there can be no assurance that we or Huntsman
International Holdings would have sufficient funds to purchase all the notes.

Huntsman International Holdings and our Company have not guaranteed or
provided any other credit support to Huntsman Corporation under the Existing HC
Credit Facilities or the HC Notes or to Huntsman Polymers Corporation under the
Polymers Notes. Neither events of default under the Existing HC Credit
Facilities, the HC Notes or the Polymers Notes, nor the exercise of any remedy
by the lenders thereunder will cause any cross-defaults or cross-accelerations
under the indentures governing our senior notes and senior subordinated notes or
under our senior secured credit facilities, except insofar as foreclosure on the
stock of HSCHC would constitute a "change of control" as described in the
preceding paragraphs.

On February 27, 2002, an involuntary bankruptcy petition was filed against
Huntsman Polymers Corporation in the United States bankruptcy court located in
Delaware by three holders of the Polymers Notes that collectively held,
according to their petition, less than 1% of the outstanding Polymers Notes. On
February 28, 2002, the petitioners filed a motion to dismiss their petition. A
hearing on the motion took place on March 8, 2002, and the court signed an order
granting petitioners' motion to dismiss the petition with prejudice.

For additional information, see "Item 7--Management's Discussion and
Analysis of Financial Condition and Results of Operations--Cautionary Statement
for Forward Looking Information."

SPECIALTY CHEMICALS

SPECIALTY CHEMICALS--GENERAL

Our specialty chemicals business is composed of:

o the polyurethane chemicals business that we acquired from ICI;

o the PO business that we acquired from Huntsman Specialty;

o the TPU business that we acquired from Rohm and Haas in August 2000;

o the ethyleneamines business we acquired from The Dow Chemical Company
in February 2001; and

o the European surfactants business we acquired from Rhodia S.A. in
April 2001.

POLYURETHANE CHEMICALS. We market a complete line of polyurethane
chemicals, including MDI, TDI, TPU, polyols, polyurethane systems and aniline,
with an emphasis on MDI-based chemicals. Our customers produce polyurethane
products through the combination of an isocyanate, such as MDI or TDI, with
polyols, which are derived largely from PO and ethylene oxide. Primary
polyurethane end-uses include

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automotive interiors, refrigeration and appliance insulation, construction
products, footwear, furniture cushioning, adhesives and other specialized
engineering applications.

According to Chem Systems, we own the world's two largest MDI production
facilities in terms of capacity, located in Rozenburg, Netherlands and Geismar,
Louisiana. These facilities receive raw materials from aniline facilities
located in Wilton, U.K. and Geismar, Louisiana, which in terms of production
capacity are the world's two largest aniline facilities.

PO. We are a leading North American producer of PO. Our customers process
PO into derivative products such as polyols for polyurethane products, propylene
glycol ("PG") and various other chemical products. End uses for these derivative
products include applications in the home furnishings, construction, appliance,
packaging, automotive and transportation, food, paints and coatings and cleaning
products industries. We are also, according to Chem Systems, a leading U.S.
marketer of PG, which is used primarily to produce unsaturated polyester resins
for bath and shower enclosures and boat hulls, and to produce heat transfer
fluids and solvents. As a co-product of our PO manufacturing process, we also
produce methyl tertiary butyl ether ("MTBE"). MTBE is an oxygenate that is
blended with gasoline to reduce harmful vehicle emissions and to enhance the
octane rating of gasoline. See "--MTBE Developments" for a further discussion of
MTBE.

We manufacture PO and MTBE at our facility in Port Neches, Texas. The
current capacity of our PO facility is approximately 525 million pounds of PO
per year. We produce PG under a tolling arrangement with Huntsman Petrochemical
Corporation, which has the capacity to produce approximately 130 million pounds
of PG per year at a neighboring facility.

TPU. In August 2000, we completed our acquisition of the Morton global TPU
business from The Rohm and Haas Company. The acquired TPU business adds
production capacity in Osnabruck, Germany and Ringwood, Illinois, which
complements our existing footwear-based TPU business.

ETHYLENEAMINES. In February 2001, we completed our acquisition of the
global ethyleneamines business of Dow. The acquired ethyleneamines business adds
production capacity in Freeport, Texas and a long-term supply arrangement for up
to 50% of the existing production capacity of Dow's ethyleneamines plant in
Terneuzen, Netherlands.

SURFACE SCIENCES. Effective April 1, 2001, our specialty chemicals business
acquired the European surfactants business of Albright & Wilson, a subsidiary of
Rhodia S.A. Our new surface sciences organization (which includes the European
surfactants business acquired from Albright & Wilson) was created as a separate
business unit within the Specialty Chemicals division during the second quarter
of 2001.

Our surface sciences business is a leading manufacturer of surfactants and
surfactant intermediates in Europe and is characterized by its breadth of
product offering and market coverage. Our surfactant products are primarily used
in consumer detergent and industrial cleaning applications. In addition, we
manufacture and market a diversified range of mild surfactants and specialty
formulations for use in baby shampoos and other personal care applications. We
are also a leading producer of powder and liquid laundry detergents and other
cleaners. In addition, we offer a wide range of surfactants and formulated
specialty products for use in various industrial applications such as leather
and textile treatment, foundry and construction, agrochemicals, polymers and
coatings. Our surfactants products are manufactured in seven facilities located
in the U.K., France, Italy and Spain.

Our Specialty Chemicals business accounted for 55% and 48% of our net sales
in 2001 and 2000, respectively, and, on a pro forma basis, accounted for 48% of
our net sales in 1999.

SPECIALTY CHEMICALS--INDUSTRY OVERVIEW

The polyurethane chemicals industry is estimated to be a $26 billion global
market, consisting primarily of the manufacture and marketing of MDI, TDI and
polyols, according to Chem Systems.

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In 2001, according to Chem Systems, MDI, TDI, polyols and other products,
such as specialized additives and catalysts, accounted for 27%, 15%, 44% and 14%
of industry-wide polyurethane chemicals sales, respectively. MDI is used
primarily in rigid foam; conversely, TDI is used primarily in flexible foam
applications that are generally sold as commodities. Polyols, including
polyether and polyester polyols, are used in conjunction with MDI and TDI in
rigid foam, flexible foam and other non-foam applications. TPU is used in
flexible elastomers and other specialty non-foam applications. PO, one of the
principal raw materials for polyurethane chemicals, is primarily used in
consumer durables. The following chart illustrates the range of product types
and end uses for polyurethane chemicals:

Polyurethane products are created through the reaction of MDI or TDI with a
polyol. Polyurethane chemicals are sold to customers who react the chemicals to
produce polyurethane products. Depending on their needs, customers will use
either commodity polyurethane chemicals produced for mass sales or specialty
polyurethane chemicals tailored for their specific requirements. By varying the
blend, additives and specifications of the polyurethane chemicals, manufacturers
are able to produce and develop a breadth and variety of polyurethane products.
The following table sets forth information regarding the three principal
polyurethane chemicals markets:

Source: Chem Systems

MDI. As reflected in the chart above, MDI has a substantially larger market
size and a higher growth rate than TDI primarily because MDI can be used to make
polyurethanes with a broader range of properties and can therefore be used in a
wider range of applications than TDI. Chem Systems reports that future growth of
MDI is expected to be driven by the continued substitution of MDI-based
polyurethane for

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fiberglass and other materials currently used in insulation foam for
construction. Other markets, such as binders for reconstituted wood board
products, are expected to further contribute to the continued growth of MDI.

According to Chem Systems, global consumption of MDI was approximately 5.5
billion pounds in 2001, growing from 2.9 billion pounds in 1992, which
represents a 7.6% compound annual growth rate. This growth rate is the result of
the broad end-uses for MDI and its superior performance characteristics relative
to other polymers. The U.S. and European markets consume the largest quantities
of MDI. With the recent recovery of the Asian economies, the Asian markets are
becoming an increasingly important market for MDI and we believe that demand for
MDI in Asia will continue to increase as its less developed economies continue
to mature. There are four major producers of MDI: Bayer, our Company, BASF and
Dow.

TDI. The TDI market generally grows at a rate consistent with GDP. The four
largest TDI producers supply approximately 60% of global TDI demand, according
to Chem Systems. The consumers of TDI consist primarily of numerous
manufacturers of flexible foam blocks sold for use as furniture cushions and
mattresses. Flexible foam is typically the first polyurethane market to become
established in developing countries, and, as a result, development of TDI demand
typically precedes MDI demand.

TPU. TPU is a high quality material with unique qualities such as
durability, flexibility, strength, abrasion-resistance, shock absorbency and
chemical resistance. We can tailor the performance characteristics of TPU to
meet the specific requirements of our customers, such as for use in injection
molding and components for the automotive and footwear industries. It is also
extruded into films and profiles and finds a wide variety of applications in the
construction, adhesives, sealants and elastomers ("CASE") markets.

POLYOLS. Polyols are reacted with isocyanates, primarily MDI and TDI, to
produce finished polyurethane products. In the U.S., approximately 77% of all
polyols produced are used in polyurethane applications, according to Chem
Systems. Approximately two-thirds of the polyols used in polyurethane
applications are processed with TDI to produce flexible foam blocks and the
remaining one-third is processed in various applications that meet the specific
needs of individual customers. The creation of a broad spectrum of polyurethane
products is made possible through the different combinations of the various
polyols with MDI, TDI and other isocyanates. The market for specialty polyols
that are reacted with MDI has been growing at approximately the same rate at
which MDI consumption has been growing. We believe that the growth of commodity
polyols demand has paralleled the growth of global GDP.

ETHYLENEAMINES. Ethyleneamines are highly versatile performance chemicals
with a wide variety of end-use applications including lube oil additives, epoxy
hardeners, wet strength resins, chelating agents and fungicides.

ANILINE. Aniline is an intermediate chemical used primarily as a raw
material to manufacture MDI. Approximately 80% of all aniline produced is
consumed by MDI producers, while the remaining 20% is consumed by synthetic
rubber and dye producers. According to Chem Systems, global capacity for aniline
is approximately 6.7 billion pounds per year. Generally, most aniline produced
is either consumed downstream by the producers of the aniline or is sold to
third parties under long-term supply contracts. The lack of a significant spot
market for aniline means that, in order to remain competitive, MDI manufacturers
must either be integrated with an aniline manufacturing facility or have a
long-term cost-competitive aniline supply contract.

PO. Demand for PO depends largely on overall economic demand, especially
that of consumer durables. Consumption of PO in the U.S. represents
approximately one third of global consumption.

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According to Chem Systems, U.S. consumption of PO was approximately 3.5 billion
pounds in 2001, growing from 2.6 billion pounds in 1992, which represents a 3.2%
compound annual growth rate. According to Chem Systems, the following chart
illustrates the primary end markets and applications for PO, and their
respective percentages of total PO consumption:

Two U.S. producers, Lyondell and Dow, account for approximately 90% of
North American PO production. We believe that Dow consumes approximately 70% of
their North American PO production in their North American downstream
operations, and that approximately 50% of Lyondell's North American PO
production is consumed internally or sold to Bayer, which recently acquired
Lyondell's polyols business.

MTBE. We currently use our entire production of tertiary butyl alcohol
("TBA"), a co-product of our PO production process to produce MTBE. MTBE is an
oxygenate that is blended with gasoline to reduce harmful vehicle emissions and
to enhance the octane rating of gasoline. Historically, the refining industry
utilized tetra ethyl lead as the primary additive to increase the octane rating
of gasoline until health concerns resulted in the removal of tetra ethyl lead
from gasoline. This led to the increasing use of MTBE as a component in gasoline
during the 1980s. U.S. consumption of MTBE grew at a compound annual rate of
15.2% in the 1990s due primarily to the implementation of federal environmental
standards that require improved gasoline quality through the use of oxygenates.
MTBE has experienced strong growth due to its ability to satisfy the oxygenation
requirement of the Clean Air Act Amendments of 1990 with respect to exhaust
emissions of carbon monoxide and hydrocarbon emissions from automobile engines.
Some regions of the U.S. have adopted this oxygenate requirement to improve air
quality even though they may not be mandated to do so by the Clean Air Act.
While this trend has further increased MTBE consumption, the use of MTBE is
becoming increasingly controversial and may be substantially curtailed or
eliminated in the future by legislation or regulatory action. See, "--MTBE
Developments" below.

SURFACE SCIENCES. According to Chem Systems, the European market for
surfactants is valued at approximately euro 2 billion or approximately two
million metric tons per annum. Growth in surfactants is generally expected to
follow GDP growth rates within Western Europe for the next several years.
However, individual sectors of the European surfactants market are expected to
experience higher growth rates. Demand growth for surfactants is viewed as being
relatively stable and exhibits little cyclicality. The main consumer product
applications for surfactants can demand new formulations with unproved
performance characteristics, as a result lifetimes for these consumer (end)
products can often be quite short. This affords considerable opportunity for
innovative surfactants manufacturers to provide surfactants and blends with

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differentiated specifications and properties. For basic surfactants, pricing
bears a strong relationship to underlying raw material prices and tends to lag
petrochemical price movements.

SPECIALTY CHEMICALS--SALES AND MARKETING

We manage a global sales force at 45 locations with a presence in 33
countries, which sells our polyurethane chemicals to over 2,000 customers in 67
countries. Our sales and technical resources are organized to support major
regional markets, as well as key end-use markets which require a more global
approach. These key end-use markets include the appliance, automotive, footwear,
furniture, and CASE industries.

Approximately 50% of our polyurethane chemicals sales are in the form of
"systems" in which we provide the total isocyanate and polyol formulation to our
customers in a ready-to-use form. Our ability to supply polyurethane systems is
a critical factor in our overall strategy to offer comprehensive product
solutions to our customers. We have strategically located our polyol blending
facilities, commonly referred to in the chemicals industry as "systems houses,"
close to our customers, enabling us to focus on customer support and technical
service. We believe this customer support and technical service system
contributes to customer retention and also provides opportunities for
identifying further product and service needs of customers. We intend to
increase the utilization of our systems houses to produce and market greater
volumes of polyols and MDI polyol blends.

We have entered into contractual arrangements with Huntsman Corporation and
Huntsman Petrochemical Corporation, under which Huntsman Corporation and
Huntsman Petrochemical Corporation provide us with all of the management, sales,
marketing and production personnel required to operate our PO business and our
MTBE business. See "Item 7--Management's Discussion and Analysis of Financial
Condition and Results of Operations--Cautionary Statement for Forward Looking
Information--If we are unable to maintain our relationships with Huntsman
Corporation and ICI, then we may not be able to replace on favorable terms our
contracts with them or the services and facilities that they provide, if at all"
and "Item 13--Certain Relationships and Related Transactions." We believe that
the extensive market knowledge and industry experience of the sales executives
and technical experts provided to us by Huntsman Corporation and Huntsman
Petrochemical Corporation, in combination with our strong emphasis on customer
relationships, have facilitated our ability to establish and maintain long-term
customer contracts. Due to the specialized nature of our markets, our sales
force must possess technical knowledge of our products and their applications.
Our strategy is to continue to increase sales to existing customers and to
attract new customers by providing quality products, reliable supply,
competitive prices and superior customer service.

Based on current production levels, we have entered into long-term
contracts to sell 100% of our PO to customers including Huntsman Petrochemical
Corporation through 2007. Other contracts provide for the sale of our MTBE
production to Texaco and BP Amoco. More than 70% of our annual MTBE production
is committed to Texaco and BP Amoco, with our contract with Texaco expiring in
2007. In addition, over 40% of our current annual PG production is sold pursuant
to long-term contracts.

Our surface sciences business has its own sales and marketing capabilities.
The global and regional headquarters for the business are both located in the
United Kingdom.

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SPECIALTY CHEMICALS--MANUFACTURING AND OPERATIONS

Our primary specialty chemicals facilities are located at Geismar,
Louisiana, Port Neches, Texas, Rozenburg, Netherlands and Wilton, U.K. The
following chart provides information regarding the capacities of some of our key
facilities:

(1) The Geismer facility is owned as follows: we own 100% of the MDI, TDI and
polyol facilities, and Rubicon, Inc., a manufacturing joint venture with
Crompton Corp. in which we own a 50% interest, owns the aniline and
nitrobenzene facilities. Rubicon is a separate legal entity that operates
both the assets that we own jointly with Crompton Corp. and our
wholly-owned assets at Geismar.

(2) We have the right to approximately 80% of this capacity under the Rubicon
joint venture arrangements.

(3) We produce under a tolling arrangement with Huntsman Petrochemical
Corporation.

(4) As part of the first phase of a cost reduction program, we have announced
the closure of our Shepton Mallet, U.K. facility in 2002 and the reduction
in force of approximately 270 employees at Shepton Mallet, U.K. and other
locations during the fourth quarter of 2001 and during the first half of
2002.

Since 1996, over $600 million has been invested to improve and expand our
MDI production capabilities through the rationalization of older, less efficient
facilities and the modernization of newer facilities. We expect to pursue future
plant expansions and capacity modification projects when justified by market
conditions.

In addition to MDI, we produce TDI and polyols at our Geismar facility and
polyols and polyol blends at our Rozenburg facility. We manufacture TDI and
polyols primarily to support our MDI customers' requirements. We believe the
combination of our PO business, which produces the major feedstock for polyols,
with our polyols business creates an opportunity to expand our polyols business
and market greater volumes of polyols through our existing sales network and
customer base.

We use a proprietary manufacturing process to manufacture PO. We own or
license all technology, know-how and patents developed and utilized at this
facility. Our process reacts isobutane and oxygen in proprietary oxidation
(peroxidation) reactors, thereby forming tertiary butyl hydroperoxide ("TBHP")
and TBA which are further processed into PO and MTBE, respectively. Because our
PO production process is less expensive relative to other technologies and
allows all of our PO co-products to be processed into saleable or useable
materials, we believe that our PO production technology possesses several
distinct advantages over its alternatives.

Our surface sciences business includes seven production sites located in
the United Kingdom (at Whitehaven), France (Lavera and St. Mihiel), Spain
(Barcelona and Alcover), and Italy (Castiglione and Patrica/Frosinone), and a
research facility located in the United Kingdom (at Oldbury). Our surfactants
facilities are well located in Europe, with broad capabilities in conversion,
sulfonation and ethoxylation. The surfactants facilities have a competitive cost
base and use modern production tools that allow for flexibility in production
capabilities and technical innovation.

RUBICON JOINT VENTURE. We are a 50% joint venture owner, along with
Crompton Corp., of Rubicon, Inc., which owns aniline, nitrobenzene and
diphenylamine ("DPA") manufacturing facilities in Geismar, Louisiana. In
addition to operating our 100% owned MDI, TDI and polyol facilities at Geismar,
Rubicon also operates the joint venture's owned aniline, nitrobenzene and DPA
facilities and is responsible for providing other auxiliary services to the
entire Geismar complex. We are entitled to approximately 80% of the nitrobenzene
and aniline production capacity of Rubicon, and Crompton Corp. is entitled to
100% of

10

the DPA production. As a result of this joint venture, we are able to achieve
greater scale and lower costs for our products than we would otherwise have been
able to obtain.

RAW MATERIALS. The primary raw materials for polyurethane chemicals are
benzene and PO. Benzene is a widely-available commodity that is the primary
feedstock for the production of MDI. Approximately one-third of the raw material
costs of MDI is attributable to the cost of benzene. Our integration with our
suppliers of benzene, nitrobenzene and aniline provides us with a competitively
priced supply of feedstocks and reduces our exposure to supply interruption.

The primary raw materials for ethyleneamines are ethylene dichloride and
caustic soda. We have entered into long-term arrangements for the supply of
ethylene dichloride and caustic soda from The Dow Chemical Company, which
produces these raw materials at facilities that are in close proximity to our
Freeport, Texas manufacturing facility.

The primary raw materials for our surface sciences business are linear
alkylbenzene, ethylene oxide, natural alcohols, caustic soda and fatty acids.
All of these raw materials are widely available in the merchant market at
competitive prices. Our Whitehaven, U.K. facility also produces natural alcohols
which gives us a competitive advantage in alcohol-based surfactants.

A major cost in the production of polyols is attributable to the costs of
PO. We believe that the integration of our PO business with our polyurethane
chemicals business will give us access to a competitively priced, strategic
source of PO and the opportunity to further expand into the polyol market. The
primary raw materials used in our PO production process are butane/isobutane,
propylene, methanol and oxygen, which accounted for 56%, 21%, 14% and 2%,
respectively, of total raw material costs in 2001. We purchase our raw materials
primarily under long-term contracts. While most of these feedstocks are
commodity materials generally available to us from a wide variety of suppliers
at competitive prices in the spot market, we purchase all of the propylene used
in the production of our PO from Huntsman Petrochemical Corporation, and through
Huntsman Petrochemical Corporation's pipeline, which is the only propylene
pipeline connected to our PO facility.

SPECIALTY CHEMICALS--COMPETITION

Competitors in the polyurethane chemicals business include leading
worldwide chemical companies such as BASF, Bayer, Dow and Lyondell. While these
competitors produce various types and quantities of polyurethane chemicals, we
focus on MDI and MDI-based polyurethane systems. We compete based on
technological innovation, technical assistance, customer service, product
reliability and price. In addition, our polyurethane chemicals business also
differentiates itself from its competition in the MDI market in two ways: (1)
where price is the dominant element of competition, our polyurethane chemicals
business differentiates itself by its high level of customer support including
cooperation on technical and safety matters; and (2) elsewhere, we compete on
the basis of product performance and our ability to react to customer needs,
with the specific aim of obtaining new business through the solution of customer
problems. Nearly all the North American PO production capacity is located in the
U.S. and controlled by three producers, Lyondell, Dow and us. We compete based
on price, product performance and service.

There are numerous surfactants producers in Europe and worldwide. We are
one of the major European producers of surfactants. Our main competitors include
worldwide leading chemical companies such as Sasol, BASF, Shell, Cognis
(recently sold to financial investors Schroder Ventures and Goldman Sachs
Capital Partners), Clariant, and Akzo, as well as various smaller or more local
competitors. We compete on the basis of price with respect to our basic
surfactant product offering and, in addition to price, on the basis of
performance and service with respect to our specialty and blended surfactant
products.

SPECIALTY CHEMICALS--MTBE DEVELOPMENTS

The presence of MTBE in some groundwater supplies in California and other
states (primarily due to gasoline leaking from underground storage tanks) and in
surface water (primarily from recreational watercraft) has led to public concern
about MTBE's potential to contaminate drinking water supplies.

11

Heightened public awareness regarding this issue has resulted in state, federal
and, more recently, foreign initiatives to rescind the federal oxygenate
requirements for reformulated gasoline or restrict or prohibit the use of MTBE
in particular. For example, the California Air Resources Board adopted
regulations that would prohibit the addition of MTBE to gasoline after 2002
(recently revised to take effect January 1, 2004). In addition, the State of
California requested that the U.S. Environmental Protection Agency (the "EPA")
waive the federal oxygenated fuels requirements of the federal Clean Air Act for
gasoline sold in California. The EPA denied the State's request on June 12,
2001. Certain other states have also taken actions to restrict or eliminate the
future use of MTBE. We are unable to state what the short and long term effects
of the EPA's action on California's ban on MTBE use will be. The actual effect
of other state actions on the use of MTBE in gasoline is similarly unclear.
However, bills have been introduced in the U.S. Congress to accomplish similar
goals of curtailing or eliminating the oxygenated fuels requirements in the
Clean Air Act, or of curtailing MTBE use. In 1999, the U.S. Senate also passed a
resolution calling for a phase out of MTBE. While this resolution has no binding
legal effect, there can be no assurance that future Congressional action will
not result in a ban or other restrictions on MTBE use. The U.S. Senate is
considering comprehensive energy legislation (S.517) that includes provisions
regulating fuels. In that context, floor amendments have been added to the bill
that would ban in four years the use of MTBE in gasoline in the United States.
Whether this bill in its present or a similar form will become law is unknown at
this time. The bill in its present form is controversial, both on matters
related to MTBE and to other energy policies, and it is unclear whether such a
law will be enacted by Congress. In addition, on March 20, 2000, the EPA
announced its intention, through an advanced notice of proposed rulemaking, to
phase out the use of MTBE under authority of the federal Toxic Substances
Control Act. In its notice, the EPA also called on the U.S. Congress to restrict
the use of MTBE under the Clean Air Act. Any phase-out of or prohibition against
the use of MTBE in California (in which a significant amount of MTBE is
consumed), in other states, or nationally may result in a significant reduction
in demand for our MTBE and result in a material loss in revenues or material
costs or expenditures.

The state of New York has proposed a ban on the sale of MTBE in New York.
The Oxygenated Fuel Association ("OFA"), an organization representing MTBE
producers, challenged the proposed ban in federal court in New York. In a motion
for summary judgment, OFA asserted that the state of New York was precluded by
the doctrine of federal preemption from banning MTBE sales in the state because
of the federal oxygenated requirement under the federal Clean Air Act. The
court, however, rejected OFA's motion. Although this ruling was based on the
court's determination that there are factual issues precluding summary judgment,
the ruling tends to provide some support for the theory that an individual state
can act unilaterally to preclude the sale of MTBE within its jurisdiction.
Several states have promulgated such bans, which are scheduled to take effect
variously over the next several years. OFA will continue to pursue the New York
case, as well as a similar case in California.

In Europe, in 2001, Denmark proposed to the EU that a directive be issued,
taking effect in 2005, allowing individual EU countries to ban the use of MTBE.
No other EU member state joined Denmark's proposal. The EU issued a risk
assessment of MTBE on November 7, 2001. While no ban of MTBE was recommended,
several risk reduction measures relating to storage and handling of
MTBE-containing fuel were recommended. Separate from EU action, Denmark entered
into a voluntary agreement with refiners to reduce the sale of MTBE in Denmark.
Under the agreement, use of MTBE in 92- and 95-octane gasoline in Denmark will
cease by May 1, 2002; however, MTBE will still be an additive in a limited
amount of 98-octane gasoline sold in 100 selected service stations in Denmark.

In the event that there should be a phase-out of MTBE in the United States,
we believe we will be able to export MTBE to Europe or elsewhere or use our
co-product TBA to produce saleable products other than MTBE. We believe that our
low production costs will put us in a favorable position relative to other
higher cost sources (primarily, on-purpose manufacturing). If we opt to produce
products other than MTBE, necessary modifications to our facilities may require
significant capital expenditures and the sale of the other products may produce
a materially lower level of cash flow than the sale of MTBE. Furthermore, we
cannot give any assurance that we will not be named in litigation relating to
the environmental effects of MTBE or that such litigation will not have a
material adverse effect on our business, financial condition, results of
operations or cash flows. See "Item 7--Management's Discussion and Analysis of
Financial Condition and Results of Operations--Cautionary Statement for

12

Forward Looking Information--Pending or future litigation or legislative
initiatives related to MTBE may subject us to products or environmental
liability or materially adversely affect our sales."

PETROCHEMICALS

PETROCHEMICALS--GENERAL

We are a highly-integrated European olefins and aromatics producer.
Olefins, principally ethylene and propylene, are the largest volume basic
petrochemicals and are the key building blocks from which many other chemicals
are made. For example, olefins are used to manufacture most plastics, resins,
adhesives, synthetic rubber and surfactants that are used in a variety of
end-use applications. Aromatics are basic petrochemicals used in the manufacture
of polyurethane chemicals, nylon, polyester fiber and a variety of plastics.

OLEFINS. Our olefins facility at Wilton, U.K. is one of Europe's largest
single-site and lowest cost olefins facilities, according to Chem Systems. Our
Wilton facility has the capacity to produce approximately 1.9 billion pounds of
ethylene, 880 million pounds of propylene and 225 million pounds of butadiene
per year. We sell over 80% of our ethylene and propylene volume through
long-term contracts with The Dow Chemical Company, European Vinyls Corporation,
ICI, BP Chemicals and others, and over 64% of our total ethylene and propylene
volume is transported via direct pipelines to our customers or consumed
internally. The Wilton olefins facility benefits from its feedstock flexibility
and superior logistics, which allows for processing of naphthas, condensates and
natural gas liquids ("NGLs").

AROMATICS. We produce aromatics at our two integrated manufacturing
facilities located in Wilton, U.K. and North Tees, U.K. According to Chem
Systems, we are a leading European producer of cyclohexane with 700 million
pounds of annual capacity, a leading producer of paraxylene with 800 million
pounds of annual capacity and are among Europe's larger producers of benzene
with 1,300 million pounds of annual capacity. Additionally, our North Tees site,
which is currently idle, has an annual capacity to produce 275 million pounds of
cumene. We use most of the benzene produced by our aromatics business internally
in the production of nitrobenzene for our polyurethane chemicals business and
for the production of cyclohexane. The balance of our aromatics products are
sold to several key customers. Our aromatics business entered into a contract
with Shell Trading International Limited for the purchase of aromatics-rich
feedstock. This transaction allowed us to close part of our aromatics facilities
in the fourth quarter of 1999, thereby reducing fixed production costs while
maintaining production of key products. Shell has indicated that it will not
supply feedstock to the North Tees site after December 31, 2002. We are
currently evaluating alternative sources of supply to this unit.

Our petrochemicals business accounted for 26% and 31% of net sales in 2001
and 2000, respectively, and, on a pro forma basis, accounted for 26% of our net
sales in 1999.

PETROCHEMICALS--INDUSTRY OVERVIEW

Petrochemical markets are essentially global commodity markets. However,
the olefins market is subject to some regional price differences due to the more
limited inter-regional trade resulting from the high costs of product
transportation. The global petrochemicals market is cyclical and is subject to
pricing swings due to supply and demand imbalances, feedstock prices (primarily
driven by crude oil prices) and general economic conditions.

13

As shown in the following table, both globally and in Western Europe, our
primary market, ethylene is the largest petrochemicals market and paraxylene has
been the fastest growing:

- -----------

Source: Chem Systems

The ethylene market in Western Europe is supplied by numerous producers,
none of whom has a dominant position in terms of its share of Western European
production capacity. Western European ethylene consumption in 2001 is estimated
by Chem Systems at 46.1 billion pounds, representing an average industry
operating rate of 93%. Propylene capacity in Western Europe is approximately
33.5 billion pounds per year. Western European propylene consumption in 2001 is
estimated at 31.8 billion pounds, representing an average industry operating
rate of 92%. The top three Western European producers of ethylene are AtoFina,
Dow and EniChem. Olefins capacity in Western Europe has expanded moderately in
recent years primarily through implementation of low-cost process improvement
projects at existing units. No greenfield olefins capacity has been constructed
in Western Europe since 1994. According to Chem Systems, given that it usually
takes a minimum of three years between any announcement of a new plant and the
plant coming on-line, it appears that the earliest any new plant might come
on-line in Europe is in 2004.

According to Chem Systems, the petrochemical industry is at or near its
cyclical trough following a period of oversupply in the last few years and
supply and demand characteristics are expected to improve in coming years,
resulting in improved profitability.

Like the ethylene market, the aromatics market, which is comprised of
benzene and paraxylene, in Western Europe is characterized by several major
producers, including, according to Chem Systems, Dow, AtoFina, Shell, EniChem,
ExxonMobil and BASF. Annual Western European benzene production capacity is
approximately 20 billion pounds and consumption was estimated by Chem Systems at
17.6 billion pounds in 2001. Paraxylene production capacity in Western Europe in
2001, according to Chem Systems, was approximately 4.8 billion pounds and
consumption was estimated at 4.4 billion pounds.

Both the benzene and paraxylene markets are currently in a period of
overcapacity. The increasing restrictions imposed by regulatory authorities on
the aromatics content of gasoline in general, and the benzene content in
particular, have led to an increase in supply of aromatics in recent years. In
2001, global paraxylene demand grew by 3.0% largely as a result of the global
economic growth, while global capacity rose by 2%. As a result of these
dynamics, according to Chem Systems, margins in the aromatics industry,
particularly those in paraxylene, are expected to continue to exhibit
characteristic cyclicality and recover

14

from currently depressed cyclical lows early in the next few years as polyester
growth drives a rebalancing of supply and demand.

PETROCHEMICALS--SALES AND MARKETING

In recent years, our sales and marketing efforts have focused on developing
long-term contracts with customers to minimize our selling expenses and
administration costs. In 2001, over 85% of our primary petrochemicals sales
volume was made under long-term contracts. We delivered over 70% of our
petrochemical products volume in 2001 by pipeline, and we delivered the balance
of our products by road and ship to either the U.K. or export markets, primarily
in continental Western Europe.

PETROCHEMICALS--MANUFACTURING AND OPERATIONS

We produce olefins at our facility in Wilton, U.K. In addition, we own and
operate two integrated aromatics manufacturing facilities at our Wilton and
North Tees sites at Teesside, U.K. Information regarding these facilities is set
forth in the following chart:

The Wilton olefins facility's flexible feedstock capability, which permits
it to process naphtha, condensates and NGL feedstocks, allows us to take
advantage of favorable feedstock prices arising from seasonal fluctuations or
local availability. According to Chem Systems, the Wilton olefins facility is
one of Europe's most cost efficient olefins manufacturing facilities on a cash
cost of production basis. In addition to our manufacturing operations, we also
operate an extensive logistics operations infrastructure in North Tees. This
infrastructure includes both above and below ground storage facilities, jetties
and logistics services on the River Tees. These operations reduce our raw
material costs by providing greater access and flexibility for obtaining
feedstocks.

RAW MATERIALS. Teesside, situated on the northeast coast of England, is
near a substantial supply of oil, gas and chemical feedstocks. Due to our
location at Teesside, we have the option to purchase feedstocks from a variety
of sources. However, we have elected to procure the majority of our naphtha,
condensates and NGLs from local producers, as they have been the most economical
sources. In order to secure the optimal mix of the required quality and type of
feedstock for our petrochemical operations at fully competitive prices, we
regularly engage in the purchase and sale of feedstocks and hedging activities.

PETROCHEMICALS--COMPETITION

The markets in which our petrochemicals business operates are highly
competitive. Our competitors in the olefins and aromatics business are
frequently some of the world's largest chemical companies such as BP Amoco, Dow,
ExxonMobil and Shell. The primary factors for competition in this business are
price, service and reliability of supply. The technology used in these
businesses is widely available and licensed.

TITANIUM DIOXIDE

TIOXIDE--GENERAL

Our TiO2 business, which operates under the tradename "Tioxide," is a
leading European TiO2 producer, and among the largest producers

15

in the world, with an estimated 13% market share, according to International
Business Management Associates. TiO2 is a white pigment used to impart
whiteness, brightness and opacity to products such as paints, plastics, paper,
printing inks, synthetic fibers and ceramics. In addition to its optical
properties, TiO2 possesses traits such as stability, durability and
non-toxicity, making it superior to other white pigments. According to
International Business Management Associates, global consumption of TiO2 was
approximately 3.9 million tonnes in 2000, growing from 3.0 million tonnes in
1992, representing a 3.2% compound annual growth rate, which approximates global
GDP growth for that period.

We offer an extensive range of products that are sold worldwide to over
3,000 customers in all major TiO2 end markets and geographic regions. The
geographic diversity of our manufacturing facilities allows our TiO2 business to
service local customers, as well as global customers that require delivery to
more than one location. Our TiO2 business has an aggregate annual nameplate
capacity of approximately 576,000 tonnes at our eight production facilities.
Five of our TiO2 manufacturing plants are located in Europe, one is in North
America, one is in Asia, and one is in South Africa. Our North American
operation consists of a 50% interest in a manufacturing joint venture with NL
Industries, Inc. and our South African operations consist of a 60%-owned
subsidiary.

We recently commenced construction of a new TiO2 manufacturing plant at our
Greatham, U.K. facility. This new plant will allow us to close an older plant
located at Greatham and will increase our annual production capacity of the
facility to 100,000 tonnes of chloride-based TiO2. We expect to commence
production at the new plant in mid-2002. In addition, we are in the process of
expanding our Huelva, Spain plant by 17,000 tonnes by late 2003.

We are among the world's lowest cost TiO2 producers, according to
International Business Management Associates. We have embarked on a
comprehensive cost reduction program which has eliminated approximately $120
million of annualized costs since 1996. As part of this program, we have reduced
the number of product grades we produce, focusing on those with wider
applications. This program has resulted in reduced total plant set-up times and
further improved product quality, product consistency, customer service and
profitability. We currently anticipate achieving additional savings of $80
million by the end of 2004.

Our TiO2 business accounted for 19% and 22% of our net sales in 2001 and
2000, respectively, and on a pro forma basis, accounted for 26% of our net sales
in 1999.

TIOXIDE--INDUSTRY OVERVIEW

Global consumption of TiO2 was 3.9 million tonnes in 2000 according to
International Business Management Associates. The historical long-term growth
rate for global TiO2 consumption has been generally consistent with global GDP
growth. Although short-term influences such as customer and producer stocking
and de-stocking activities in response to changes in capacity utilization and
price may distort this trend, over the long-term, GDP growth is the primary
underlying factor influencing growth in TiO2 demand. The TiO2 industry
experiences some seasonality in its sales because paint sales generally peak
during the spring and summer months in the northern hemisphere, resulting in
greater sales volumes during the first half of the year.

The global TiO2 market is characterized by a small number of large global
producers. The TiO2 industry currently has five major producers (DuPont,
Millennium Chemicals, our Company, Kerr-McGee and NL Industries), which account
for approximately 80% of the global market share, according to International
Business Management Associates. No producer has announced greenfield TiO2
capacity in the last few years. Based upon current price levels and the long
lead times for planning, governmental approvals and construction, additional
greenfield capacity is not expected in the near future, although we have
announced a feasibility study of constructing a new ICON chloride-based TiO2
manufacturing facility in China.

16

There are two manufacturing processes for the production of TiO2, the
sulfate process and the chloride process. Most recent capacity additions have
employed the chloride process technology and, currently, the chloride process
accounts for approximately 64% of global production capacity according to
International Business Management Associates. However, the global distribution
of sulfate and chloride-based TiO2 capacity varies by region, with the sulfate
process being predominant in Europe, our primary market. The chloride process is
the predominant process used in North America and both processes are used in
Asia. While most end-use applications can use pigments produced by either
process, market preferences typically favor products that are locally available.

TIOXIDE--SALES AND MARKETING

Approximately 95% of our TiO2 sales are made through our direct sales and
technical services network, enabling us to cooperate more closely with our
customers and to respond to our increasingly global customer base. Our
concentrated sales effort and local manufacturing presence have allowed us to
achieve our leading market shares in a number of the countries where we
manufacture TiO2.

In addition, we have focused on marketing products to higher growth
industries. For example, we believe that our TiO2 business is well-positioned to
benefit from the projected growth in the plastics sector, which, according to
International Business Management Associates, is expected to grow faster than
the overall TiO2 market over the next several years. The table below summarizes
the major end markets for our TiO2 products:

TIOXIDE--MANUFACTURING AND OPERATIONS

Our TiO2 business has eight manufacturing sites in seven countries with a
total estimated capacity of 576,000 tonnes per year. Approximately 73% of our
TiO2 capacity is located in Western Europe. The following table presents
information regarding our TiO2 facilities:

(1) We have recently announced plans to expand the capacity at these
facilities.

(2) This facility is owned and operated by Louisiana Pigment Company, L.P., a
manufacturing joint venture that is owned 50% by us and 50% by Kronos
Louisiana, Inc., a subsidiary of NL Industries, Inc. The capacity shown
reflects our 50% interest in Louisiana Pigment Company.

(3) This facility is owned by Tioxide Southern Africa (Pty) Limited, a company
that is owned 60% by us and 40% by AECI. We operate this facility and are
responsible for marketing 100% of the production.

17

JOINT VENTURES. We own a 50% interest in a manufacturing joint venture
located in Lake Charles, Louisiana. The remaining 50% interest is held by our
joint venture partner Kronos Louisiana, Inc., a wholly-owned subsidiary of NL
Industries, Inc. We share production offtake and operating costs of the plant
equally with Kronos, though we market our share of the production independently.
The operations of the joint venture are under the direction of a supervisory
committee on which each partner has equal representation.

We also own a 60% interest in Tioxide Southern Africa (Pty) Limited, based
in Umbogintwini, near Durban, South Africa. The remaining 40% interest is owned
by AECI, a major South African chemicals and minerals company. We operate this
facility and are responsible for marketing 100% of the production.

RAW MATERIALS. The primary raw materials used to produce TiO2 are
titanium-bearing ores. There are a limited number of ore suppliers and we
purchase ore under long-term supply contracts. The cost of titanium-bearing ores
has been relatively stable in comparison to TiO2 prices. Titanium-bearing ore
represents approximately 40% of TiO2 pigment production costs.

TiO2 producers extract titanium from ores and process it into pigmentary
TiO2 using either the chloride or sulfate process. Once an intermediate TiO2
pigment has been produced, it is "finished" into a product with specific
performance characteristics for particular end-use applications. The finishing
process is common to both the sulfate and chloride processes and is a major
determinant of the final product's performance characteristics.

The sulfate process generally uses less-refined ores that are cheaper to
purchase but produce more co-product than the chloride process. Co-products from
both processes require treatment prior to disposal in order to comply with
environmental regulations. In order to reduce our disposal costs and to increase
our cost competitiveness, we have developed and marketed the co-products of our
TiO2 business. We now sell over 50% of the co-products generated by our
business.

TIOXIDE--COMPETITION

The global markets in which our TiO2 business operates are highly
competitive. The primary factors of competition are price, product quality and
service. The major global producers against whom we compete are DuPont,
Millennium Chemicals, Kerr-McGee Chemicals and NL Industries. We believe that
our low production costs, combined with our presence in numerous local markets,
give us a competitive advantage, particularly with respect to those global
customers demanding presence in the various regions in which they conduct
business.

SIGNIFICANT CUSTOMERS

In 2001, sales for our Specialty Chemicals, Petrochemicals and TiO2
businesses to ICI and its affiliates accounted for approximately 6% of our
consolidated revenue. In 2000, sales to ICI and its affiliates accounted for
approximately 8% of our consolidated revenue. ICI indirectly owns 30% of our
membership interests. See "Item 13--Certain Relationships and Related
Transactions" for a further discussion of our relationship with ICI. In 2001,
our Petrochemicals business had sales to two significant customers, which
amounted to 13% and 11% of sales for our Petrochemicals segment.

RESEARCH AND DEVELOPMENT

In 2001 and 2000, we spent $63 million and $59 million, respectively, on
research and development of our products and, on a pro forma basis, we spent a
total of $73 million and $68 million in 1999 and 1998, respectively.

INTELLECTUAL PROPERTY RIGHTS

Proprietary protection of our processes, apparatuses, and other technology
and inventions is important to our businesses. For our specialty chemicals
business, we own more than 300 U.S. patents and pending U.S.

18

patent applications (including provisionals), and more than 2,150 foreign
counterparts, including both issued patents and pending patent applications. For
our TiO2 business, we have approximately 20 U.S. patents and pending patent
applications, and approximately 180 foreign counterparts. For our petrochemicals
business, we own approximately 35 patents and pending applications (both U.S.
and foreign). We also rely upon unpatented proprietary know-how and continuing
technological innovation and other trade secrets to develop and maintain our
competitive position.

In addition to our own patents and patent applications and proprietary
trade secrets and know-how, we have entered into certain licensing arrangements
that authorize us to use certain trade secrets, know-how and related technology
and/or operate within the scope of certain patents owned by other entities. We
also license and sub-license certain intellectual property rights to affiliates
and to third parties. In connection with our transaction with Huntsman
International Holdings, ICI and Huntsman Specialty (under the terms of a
Technology Transfer Agreement and a PO/MTBE Technology Transfer Agreement), we
have licensed back to ICI and Huntsman Corporation (on a non-exclusive basis)
certain intellectual property rights for use in their respective retained
businesses, and ICI and Huntsman Corporation have each licensed certain retained
intellectual property to us.

For our specialty chemicals business, we have brand names for a number of
our products, and we own approximately 35 U.S. trademark registrations and
applications for registration currently pending at the United States Patent and
Trademark Office, and approximately 2,030 foreign counterparts, including both
registrations and applications for registration. For our TiO2 business, we have
approximately 180 trademark registrations and pending applications,
approximately 110 of which relate to the trademark "Tioxide." Our petrochemicals
business is not dependent on the use of trademarks. We have entered into a
trademark license agreement with Huntsman Group Intellectual Property Holdings
Corporation under which we have obtained the rights to use the trademark
"Huntsman", subject to certain restrictions.

EMPLOYEES

We employed over 7,400 people as of December 31, 2001. Additionally, over
650 people are employed by our U.S. joint ventures. Approximately 96% of our
employees, excluding employees of our joint ventures, work outside the United
States and approximately 54% of our employees are subject to collective
bargaining agreements. Overall, we believe that our relations with our employees
are good. In addition, Huntsman Corporation and Huntsman Petrochemical
Corporation are providing operating, management and administrative services to
us for our PO business similar to the services that they provided to Huntsman
Specialty with respect to the PO business before it was transferred to us. See
"Item 13--Certain Relationships and Related Transactions."

ENVIRONMENTAL REGULATIONS

Our business of manufacturing and distributing chemical products and its
related production of by-products and wastes, entails risk of adverse
environmental effects. As a result, we are subject to extensive federal, state,
local and foreign laws, regulations, rules and ordinances relating to pollution,
protection of the environment and the generation, storage, handling,
transportation, treatment, disposal and remediation of hazardous substances and
waste materials. In the ordinary course of business, we are subject to frequent
environmental inspections and monitoring by governmental enforcement
authorities. In addition, our production facilities require operating permits
that are subject to renewal, modification and, in certain circumstances,
revocation. Actual or alleged violations of environmental laws or permit
requirements could result in restrictions or prohibitions on plant operations,
substantial fines and civil or criminal sanctions. Moreover, changes in
environmental regulations could inhibit or interrupt our operations, or require
us to change our equipment or operations, and any such changes could have a
material adverse effect on our businesses. See "Item 1--Business--Specialty
Chemicals--MTBE Developments" for a discussion of the proposed regulations
regarding MTBE. Accordingly, given our businesses, environmental or regulatory
matters may cause us significant unanticipated losses, costs or liabilities.

Under some environmental laws, we may be jointly and severally liable for
the costs of environmental contamination on or from our properties and at
off-site locations where we disposed of or

19

arranged for the disposal or treatment of hazardous wastes. For example, in the
United States under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, and similar state laws, a current owner or
operator of real property may be liable for such costs regardless of whether the
owner or operator owned or operated the real property at the time of the release
of the hazardous substances and regardless of whether the release or disposal
was in compliance with law at the time it occurred. In addition, under the
United States Resource Conservation and Recovery Act of 1976, as amended
("RCRA"), and similar state laws, as the holder of permits to treat or store
hazardous wastes, we may, under some circumstances, be required to remediate
contamination at our properties regardless of when the contamination occurred.
Similar laws are being developed or are in effect to varying degrees in other
parts of the world, most notably in the EU. For example, in the U.K., a new
contaminated land regime is expected to come into effect shortly which will
provide a detailed framework for the identification, management and remediation
of contaminated sites This law may increase governmental scrutiny of our U.K.
facilities.

We may also incur future costs for capital improvements and general
compliance under environmental laws, including costs to acquire, maintain and
repair pollution control equipment. Capital expenditures are planned, for
example, under national legislation implementing the EU Directive on Integrated
Pollution Prevention and Control. Under this directive the majority of our
plants will, over the next few years, be required to obtain governmental
authorizations which will regulate air and water discharges, waste management
and other matters relating to the impact of operations on the environment, and
to conduct site assessments to evaluate environmental conditions. Although the
implementing legislation in most Member States is not yet in effect, it is
likely that additional expenditures may be necessary in some cases to meet the
requirements of authorizations under this directive. In particular, we believe
that related expenditures to upgrade our wastewater treatment facilities at
several sites may be necessary and associated costs may be material. Wastewater
treatment upgrades unrelated to this initiative also are planned at certain
facilities. In addition, we may also incur material expenditures, beyond
currently anticipated expenditures, in complying with EU Directives, including
the Directive on Hazardous Waste Incineration and the Seveso II Directive, which
governs major accident hazards. It is also possible that additional expenditures
to reduce air emissions at two of our U.K. facilities may be material. Capital
expenditures and, to a lesser extent, costs and operating expenses relating to
environmental matters will be subject to evolving regulatory requirements and
will depend on the timing of the promulgation and enforcement of specific
standards which impose requirements on our operations. Therefore, we cannot
assure you that material capital expenditures beyond those currently anticipated
will not be required under environmental laws.

Our operations involve the handling, transportation and use of numerous
hazardous substances. From time to time, these operations may result in
violations under environmental laws including spills or other releases of
hazardous substances into the environment. In the event of a catastrophic
incident, we could incur material costs or experience interruption in our
operations as a result of addressing and implementing measures to prevent such
incidents in the future. Currently, we are aware of the following matters:

o We are investigating a spill at our North Tees facility that was
discovered on March 27, 2001. The U.K. Environmental Agency issued an
enforcement notice with respect to this spill on March 30, 2001,
following an investigation into an alleged leak of a mixture
consisting of approximately 60% benzene into the River Tees, allegedly
following a dewatering procedure at our North Tees site. The
requirements of that notice were complied with, to the satisfaction of
the U.K. Environmental Agency, by the end of May 2001. We contained
the spill and conducted a remediation program to reclaim the material.
The U.K. Environmental Agency is also continuing to investigate the
incident; a decision by the U.K. Environmental Agency as to whether to
prosecute or not is likely to be made in early or mid-2002. If the
U.K. Environmental Agency finds us legally responsible, we could face
legal action and possible penalties. Although we can give no
assurances, based on currently available information and our
understanding of similar investigations and penalties in the past, we
do not believe that, if such action was initiated and we are
ultimately found to be legally responsible, the probable penalties
would be material to our financial position or results of operations.
Nevertheless,

20

because this matter is in the initial stages of investigation by the
U.K. Environmental Agency, we cannot assure you that it will not have
a material effect on us.

o The Texas Natural Resource Conservation Commission has issued certain
notices of violation relating to air emissions and wastewater issues
at the Port Neches facility, and filed an amended administrative
petition with respect to certain of these violations on January 12,
2001. We met with the TNRCC on several occasions in 2001 and early
2002 and have reached a tentative settlement with the agency on all
outstanding issues concerning Port Neches. It is anticipated that the
settlement will be presented to the Commission for final approval
sometime in mid-2002. If the settlement is approved, it will result in
a fine of no more than $100,000 which would be allocable to the
PO/MTBE facility. Thus, we do not believe such fine will be material
to us.

o We are aware that there is or may be soil or groundwater contamination
at some of our facilities resulting from past operations at these or
neighboring facilities. Based on available information and the
indemnification rights that we possess (including indemnities provided
by Huntsman Specialty and ICI for the facilities that each of them
transferred to us), we believe that the costs to investigate and
remediate known contamination will not have a material adverse effect
on our business, financial condition, results of operations or cash
flows; however, we cannot give any assurance that such indemnities
will fully cover the costs of investigation and remediation, that we
will not be required to contribute to such costs or that such costs
will not be material.

Given the nature of our business, violations of environmental laws may
result in restrictions imposed on our operating activities, substantial fines,
penalties, damages or other costs, any of which could have a material adverse
effect on our business, financial condition, results of operations or cash
flows. See "Item 7--Management's Discussion and Analysis of Financial Conditions
and Results of Operations--Environmental Matters."

ITEM 2. PROPERTIES

We own or lease chemical manufacturing and research facilities in the
locations indicated in the list below, which we currently believe are adequate
for our short-term and anticipated long-term needs. We own or lease office space
and storage facilities throughout the U.S. and many foreign countries. Our
principal executive offices, which are leased from Huntsman Corporation, are
located at 500 Huntsman Way, Salt Lake City, Utah 84108. The following is a list
of our material owned or leased properties where manufacturing, blending,
research and main office facilities are located. For additional information, see
"Item 1--Business--Specialty Chemicals" "--Petrochemicals" and "--Titanium
Dioxide."

21

Everberg, Belgium Polyurethane Research Facility, Global Headquarters and European Headquarters
Gateway West, Singapore(3) Polyurethane Regional Headquarters
North Andover, Massachusetts(3) TPU Research Facility
Ringwood, Illinois(2) TPU Manufacturing Facility
Osnabruck, Germany TPU Manufacturing Facility
Port Neches, Texas PO Manufacturing Facility and MTBE Manufacturing Facility
Austin, Texas PO/TBA Pilot Plant Facility
Wilton, U.K. Olefins and Aromatics Manufacturing Facilities, Petrochemicals Headquarters
North Tees, U.K.(3) Aromatics Manufacturing Facility and Logistics/Storage Facility
Teesport, U.K.(2) Logistics/Storage Facility
Saltholme, U.K. Underground Cavity Storage Operations
Grimsby, U.K. TiO2 Manufacturing Facility
Greatham, U.K. TiO2 Manufacturing Facility
Calais, France TiO2 Manufacturing Facility
Huelva, Spain TiO2 Manufacturing Facility
Scarlino, Italy TiO2 Manufacturing Facility
Teluk Kalung, Malaysia TiO2 Manufacturing Facility
Westlake, Louisiana(4) TiO2 Manufacturing Facility
Umbogintwini, South Africa(5) TiO2 Manufacturing Facility
Billingham, U.K. TiO2 Research and Technical Facility, and Office Space
Hammersmith, U.K. TiO2 Headquarters
Whithaven, U.K. Surface Sciences Manufacturing Facility
St. Mihiel, France Surface Sciences Manufacturing Facility
Lavera, France(2) Surface Sciences Manufacturing Facility
Castiglione, Italy Surface Sciences Manufacturing Facility
Patrica/Frosinane, Italy Surface Sciences Manufacturing Facility
Barcelona, Spain (2) Surface Sciences Manufacturing Facility
Alcover, Spain Surface Sciences Manufacturing Facility
Oldbury, U.K. Surface Sciences Research Facility
Warley, U.K. Surface Sciences Regional Headquarters

(1) 50% owned manufacturing joint venture with Crompton Corp.

(2) Leased.

(3) Leased land and/or building.

(4) 50% owned manufacturing joint venture with Kronos Louisiana, Inc., a
subsidiary of NL Industries, Inc.

(5) 60% owned subsidiary with AECI.

ITEM 3. LEGAL PROCEEDINGS

We are a party to various proceedings instituted by governmental
authorities and others arising under provisions of applicable laws, including
various environmental laws. Based in part on the indemnities provided to us by
ICI and Huntsman Specialty in connection with their transfer of businesses to us
and our insurance coverage, we do not believe that the outcome of any of these
matters will have a material adverse effect on our financial condition or
results of operations. See "Item 1--Business--Environmental Regulations" for a
discussion of environmental proceedings.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

During the fourth quarter of 2001, no matters were submitted to a vote of
our security holders.

22

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET INFORMATION

As of the date of this report, there was no established public trading
market for any class of our membership interests.

HOLDERS

As of the date of this report, Huntsman International Holdings was the only
holder of record of our membership interests. Huntsman Specialty, an indirect
subsidiary of Huntsman Corporation, owns 60% of the Huntsman International
Holdings membership interests.

DISTRIBUTIONS

Pursuant to our limited liability company agreement and the limited
liability company agreement of Huntsman International Holdings, we have a tax
sharing arrangement with all of our and Huntsman International Holdings'
membership interest holders. Under the arrangement, because we are treated as a
partnership for United States income tax purposes, we will make payments to our
parent, Huntsman International Holdings, which will in turn make payments to its
membership interest holders, in an amount equal to the United States federal and
state income taxes we and Huntsman International Holdings would have paid had
Huntsman International Holdings been a consolidated or unitary group for federal
tax purposes. The arrangement also provides that we will receive cash payments
from the membership interest holders (through Huntsman International Holdings)
in amounts equal to the amount of United States federal and state income tax
refunds or benefit against future tax liabilities equal to the amount we would
have received from the use of net operating losses or tax credits generated by
us.

Except in accordance with the above paragraph, our senior credit facilities
restrict our ability to pay dividends or other distributions on our equity
interests, including prohibiting us from making distributions to Huntsman
International Holdings for the purpose of paying principal, interest or premium
on Huntsman International Holdings' 13.375% Senior Discount Notes due 2009 (the
"Senior Discount Notes") or its 8% Senior Subordinated Reset Discount Notes due
2009 (the "Senior Subordinated Reset Discount Notes" and, collectively with the
Senior Discount Notes, the "Huntsman International Holdings Notes"). The
indentures governing our notes also place certain restrictions on our ability to
pay dividends and make other distributions.

The restrictions contained in the indentures governing the outstanding
Huntsman International Holdings' Notes and our senior notes and senior
subordinated notes, may prevent us from making any "restricted payments,"
including (i) any dividends, distributions or other payments to holders of our
equity interests or (ii) payments to purchase, redeem or otherwise acquire or
retire for value any of our equity interests, subject to certain exceptions
contained in such indentures.

ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth selected financial data for our Company as
of the dates and for the periods indicated. Information should be read in
conjunction with our Consolidated Financial Statements and Notes thereto
included on the pages immediately following the Index to Consolidated Financial
Statements appearing on page F-1. See also "Item 7--Management's Discussion and
Analysis of Financial Condition and Results of Operations."

23

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

GENERAL

On June 30, 1999, we received capital contributions of cash and U.S.
operating assets from our parent company, Huntsman International Holdings, a
joint venture between Huntsman Specialty, ICI and institutional investors. With
this capitalization, we acquired ICI's polyurethane chemicals, petrochemicals
(including ICI's 80% interest in the Wilton olefins facility), and TiO2
businesses, and Huntsman Specialty's PO business. In addition, we acquired the
remaining 20% ownership interest in the Wilton olefins facility from BP
Chemicals. For a further discussion of these transactions, see "Item
1--Business--General" and "Item 13--Certain Relationships and Related
Transactions--Company Background."

We derive our revenues, earnings and cash flow from the manufacture and
sale of a wide variety of specialty and commodity chemical products. These
products are manufactured at facilities located in the Americas, Europe, Africa
and Asia and are sold throughout the world. We manage our businesses in three
segments: Specialty Chemicals (the former ICI polyurethanes and Huntsman
Specialty PO businesses and the acquisitions we have completed since 1999);
Petrochemicals (the former ICI petrochemical business and the assets acquired
from BP Chemicals); and Tioxide (the former ICI titanium dioxide business).

The profitability of our three principal business segments is impacted to
varying degrees by economic conditions, prices of raw materials, customers'
inventory levels, global supply and demand pressures as well as other seasonal
and, to a limited extent, cyclical factors. Generally, the global market for our
specialty chemicals products has grown at rates in excess of global GDP growth,
while the demand for our petrochemical and Tioxide products has historically
grown at rates that are approximately equal to global GDP growth.

Huntsman Specialty is considered the acquiror and predecessor of the
businesses transferred to us in the transactions with Huntsman Specialty, ICI
and BP Chemicals. These transactions have also resulted in the implementation of
a new basis of accounting, resulting in new carrying values for the transferred
ICI and BP Chemicals businesses. Our consolidated financial statements reflect
this new basis of accounting beginning with the date of the transactions with
Huntsman Specialty, ICI and BP Chemicals as follows (in millions of dollars):

24

RESULTS OF OPERATIONS

2001 ACTUAL COMPARED TO 2000 ACTUAL

25

(1) EBITDA is defined as earnings from continuing operations before interest
expense, depreciation and amortization, and taxes. EBITDA is included in
this report because it is a basis on which we assess our financial
performance and debt service capabilities, and because certain covenants in
our borrowing arrangements are tied to similar measures. However, EBITDA
should not be considered in isolation or viewed as a substitute for cash
flow from operations, net income or other measures of performance as
defined by accounting principles generally accepted in the United States
("U.S. GAAP") or as a measure of a company's profitability or liquidity. We
understand that while EBITDA is frequently used by security analysts,
lenders and others in their evaluation of companies, EBITDA as used herein
is not necessarily comparable to other similarly titled captions of other
companies due to potential inconsistencies in the method of calculation.

(2) For purposes of the covenants in our senior secured credit facilities, loss
on sale of accounts receivable related to the securitization program is
excluded from the computation of EBITDA.

REVENUES. Revenues in 2001 increased by $127 million, or 3%, to $4,575
million from $4,448 million during 2000. The increase in revenues resulted from
an increase in sales in the Specialty Chemicals segment which was partially
offset by decreases in sales at the Petrochemicals and Tioxide segments. Sales
in the Specialty Chemicals segment benefited from the acquisition of the TPU,
ethyleneamines and surfactants businesses and the inclusion of the European
performance chemicals sales.

SPECIALTY CHEMICALS - Our Specialty Chemicals sales, excluding
non-comparable acquisitions, declined by $44 million, or 2%, during 2001 as
compared to 2000. Total Specialty Chemicals sales increased by $420 million, or
20%, for 2001 as compared to 2000. Total MDI sales decreased by 1% as compared
to the 2000 period. A strong recovery in the Asian economies led to an increase
of sales volumes of 26% in that region, while in Europe sales volumes grew by
6%. In the Americas, sales volumes decreased by 14% due to weaker demand
resulting from the continued economic slowdown. Polyols sales increased by 7% as
compared to the 2000 period. Polyols sales volumes grew by 9%, with the increase
attributable to all three geographic regions. Higher sales volumes were
partially offset by a 2% decrease in average selling prices for polyols as
compared to the same period in 2000, a substantial portion of which was due to a
weakening in the value of the euro versus the U.S. dollar. PO sales increased by
2% mainly due to an 11% decrease in average selling prices for PO which was
partially offset by a 13% increase in PO sales volumes. MTBE sales revenue
decreased by 6% compared to the 2000 period. Lower sales were due to a 7%
decrease in average selling prices for MTBE. The decline in average selling
prices for MTBE was primarily attributable to lower gasoline prices.
Non-comparative sales from TPU, ethyleneamines, surfactants, and performance
chemicals were $464 million. Ethyleneamines and surfactants were not present in
the comparable period in 2000. TPU was included beginning September 2000 and
performance chemicals are included beginning July 2000.

PETROCHEMICALS - Our Petrochemicals sales decreased by $208 million, or
15%, in 2001 as compared to 2000. Sales volumes of ethylene and propylene
decreased by 12% and 10%, respectively. Lower sales volumes of ethylene and
propylene were a result of reduced customer demand, lower sales of product which
had been purchased for resale, and a higher volume of material delivered on
exchange. Average selling prices of ethylene and propylene declined by 13% and
18%, respectively, in 2001 as compared to 2000 due to lower feedstock prices and
weaker market conditions. In aromatics, sales of benzene increased by 25%, while
sales of cyclohexane and paraxylene decreased by 22% and 8%, respectively, in
2001 as compared to 2000. The increased sales volume of benzene resulted from
reduced internal requirements for the product. Lower sales volumes of
cyclohexane were a result of lower production resulting from a temporary
shortage of a key feedstock. Benzene and cyclohexane average selling prices
declined by 23% and 15%, respectively, in 2001 as compared to 2000, while the
paraxylene average selling prices rose by 1%. Bassell, a major customer of our
petrochemical business, has announced the closure of its Wilton, U.K.,
polypropylene facility. Bassell has also indicated that it intends to stop
purchasing propylene from us after our current contract with Bassell expires on
December 31, 2003. In 2001, Bassell purchased 350 million pounds of propylene or
approximately 40% of our output.

TIOXIDE - Our Tioxide sales decreased by $84 million, or 9%, in 2001 as
compared to 2000. Sales volumes decreased by 4% as compared to 2000. Sales in
Europe and North America each decreased by 5%, while sales volumes in the other
regions of the world decreased by 2%. Lower volumes were primarily due to
reduced customer demand resulting from global economic weakness. Average selling

26

prices declined by 6% due to reduced industry operation rates as well as the
continued weakness of the value of the euro versus the U.S. dollar.

GROSS PROFIT. Gross profit in 2001 decreased by $157 million, or 21%, to
$585 million from $742 million in 2000.

SPECIALTY CHEMICALS - Our Specialty Chemicals gross profit, excluding
non-comparable acquisitions, declined by $62, or 14%, in 2001 as compared to
2000. Total Specialty Chemicals gross profit declined by $6 million, or 1%, in
2001 as compared to 2000. Gross profit on MDI and polyols decreased by 6% and
9%, respectively. Lower gross profit on MDI was a result of higher energy and
natural gas prices in 2001 as compared to 2000. Polyols gross profit benefited
from increased sales volumes, but this benefit was more than offset by a
decrease in average selling prices and higher energy and raw material costs,
particularly in the U.S. Gross profit in PO and MTBE was a result of the lower
revenues described above which were partially offset by a decline in key raw
materials including isobutane and propylene. Non-comparative gross profit from
TPU, ethyleneamines, surfactants and performance chemicals was $56 million.
Ethyleneamines and surfactants were not present in the comparable period in
2000. TPU is included beginning September 2000 and performance chemicals
beginning July 2000.

PETROCHEMICALS - Our Petrochemicals gross profit decreased by $75 million,
or 101%, in 2001 as compared to 2000. Lower gross profit was a result of the
lower revenues discussed above, which were only partially offset by lower
feedstock costs. The price of our main feedstock, naphtha, decreased by 17% in
2001 as compared to 2000. In addition, gross profit was negatively impacted by
inventory devaluations which resulted from lower feedstock costs and lower
average selling prices.

TIOXIDE - Our Tioxide gross profit declined by $75 million, or 32%, in 2001
as compared to 2000. The decline was attributable to the lower revenues
discussed and the impact of higher raw material and energy costs, partially
offset by lower manufacturing costs, a portion of which resulted from favorable
currency movements.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (INCLUDING RESEARCH AND
DEVELOPMENT EXPENSES). Selling, general and administrative expenses ("SG&A"),
including research and development expenses ("R&D"), in 2001 increased $47
million, or 14%, to $378 million from $331 million in 2000 largely due to the
SG&A expenses associated with businesses acquired in 2000 and 2001. In addition,
in the 2001 period, we recorded certain non-recurring expenses associated with
abandoned acquisitions and other transactions.

SPECIALTY CHEMICALS - SG&A (including R&D) increased by 22% in 2001 as
compared to 2000. The increase was due largely to the SG&A expenses associated
with businesses acquired in 2000 and 2001.

PETROCHEMICALS - SG&A (including R&D) decreased by 15% in 2001 as compared
to 2000. The decrease was a result of lower administrative costs and favorable
currency exchange movements.

TIOXIDE - SG&A (including R&D) increased by 6% in 2001 as compared to 2000.

RESTRUCTURING AND PLANT CLOSING COSTS. During 2001, we incurred $47 million
in restructuring and plant closing costs in our Specialty Chemicals and Tioxide
segments. These charges primarily relate to phase one of our previously
announced cost reduction program in our Specialty Chemicals business which
includes the closure of our Shepton Mallet, U.K. polyols manufacturing facility
by the end of 2002. This facility became largely redundant following the
acquisition of our TPU business in 2000. The program also includes reductions in
work force of approximately 270 employees at the Shepton Mallet facility and
other locations during the fourth quarter of 2001 and during 2002. The cash
component of this charge is expected to total approximately $37 million, a
significant portion of which will be disbursed in 2002.

INTEREST EXPENSE. Net interest expense in 2001 increased by $6 million, or
3%, to $228 million from $222 million in 2000. The increase was a result of
higher average outstanding borrowings and the

27

decrease in the fair value of our interest rate derivative contracts, partially
offset by lower average borrowing rates on our variable rate debt.

INCOME TAXES. Income taxes decreased by $56 million to a $26 million tax
benefit in 2001 as compared to a $30 million expense in 2000. Lower taxes were
due primarily to decreased earnings for the period. Our effective income tax
rate increased to approximately 31% in 2001 from approximately 16% in 2000 due
to larger net losses in our U.S. operations, which are not subject to Federal
income taxes because of our status as a limited liability company.

NET INCOME (LOSS). Net income in 2001 decreased by $210 million to a loss
of $61 million from income of $151 million during 2000 as a result of the
factors discussed above.

2000 ACTUAL COMPARED TO 1999 (PRO FORMA)

In order to present data which is useful for comparative purposes, the
following tabular data for 1999 pro forma and related discussion, have been
prepared as if the Transaction, excluding the acquisition of 20% of the Wilton
olefins facility in June 1999 from BP Chemicals, had taken place in January
1999. These results do not necessarily reflect the results which would have been
obtained if the Transaction actually occurred on the date indicated, or the
results which may be expected in the future.

(1) EBITDA is defined as earnings from continuing operations before interest
expense, depreciation and amortization, and taxes. EBITDA is included in
this report because it is a basis on which we assess our financial
performance and debt service capabilities, and because certain covenants in
our borrowing arrangements are tied to similar measures. However, EBITDA
should not be considered in isolation or viewed as a substitute for cash
flow from operations, net income or other measures of performance as
defined by accounting principles generally accepted in the United States
("U.S. GAAP") or as a measure of a company's profitability or liquidity. We
understand that while EBITDA is

28

frequently used by security analysts, lenders and others in their
evaluation of companies, EBITDA as used herein is not necessarily
comparable to other similarly titled captions of other companies due to
potential inconsistencies in the method of calculation.

(2) For purposes of the covenants in our senior secured credit facilities,
loss on sale of accounts receivable related to the securitization
program is excluded from the computation of EBITDA.

REVENUES. Revenues for the business in 2000 increased by $580 million, or
15%, to $4,448 million from $3,868 million during 1999.

SPECIALTY CHEMICALS - Total MDI sales volumes increased by 17% from the
1999 period. A strong recovery in the Asian economies led to an increase in
sales volumes of 41% in that region, while in Europe, sales volumes grew by 19%.
In the Americas, sales volumes grew by 11% from the prior year following the
completion in February, 2000 of the MDI expansion project at our Geismar,
Louisiana facility. Polyol sales volumes grew by 19% with the increase
attributable to the European region. These gains were partially offset by a 9%
decrease in average selling prices for MDI and a 14% decrease in the price of
polyols compared to the same period in 1999, a substantial portion of which was
due to a weakening in the value of the euro versus the U.S. dollar. PO sales
revenue grew by 4% due to a 7% average selling price increase. MTBE sales
revenue grew by 52% due to a 54% MTBE average selling price increase. The MTBE
average selling price increase is primarily attributable to higher prices in
2000 for gasoline, the principal end-use product for MTBE.

PETROCHEMICALS - Sales volumes of ethylene and propylene increased by 27%
and 19%, respectively. These increases are primarily attributable to increased
output, stronger customer demand and the impact of additional olefins capacity
acquired from BP Chemicals on June 30, 1999. In aromatics, sales volumes of
benzene, paraxylene and cyclohexane rose by 18%, 13% and 12%, respectively.
Average selling prices for all products rose in response to increases in
feedstock prices. Ethylene, propylene, benzene and paraxylene prices were 35%,
56%, 47% and 40% higher, respectively. Sales revenues from feedstock trading
fell by $193 million, mainly due to the cessation of crude oil trading following
the Transaction.

TIOXIDE - Sales volumes decreased by 2% compared to the 1999 period due to
weakening of demand, particularly in the Asian and American markets, in the
fourth quarter of 2000. While selling prices in local currency were higher in
2000 than in 1999, the weakness of the euro against the U.S. dollar more than
offset these local currency selling price increases resulting in overall selling
prices 2% lower than in 1999.

GROSS PROFIT. Gross profit in 2000 decreased by $30 million, or 4%, to $742
million from $772 million in 1999. Of this $30 million decrease in gross profit,
approximately $21 million was attributable to increased depreciation resulting
from acquisitions and capital expansions, primarily in the Specialty Chemicals
business.

SPECIALTY CHEMICALS - While MDI and polyols benefited from increased sales
volumes, this benefit was more than offset by a rise in prices for the major raw
materials of MDI, benzene and chlorine. Gross profit on MDI and polyols
decreased 18% and 26%, respectively. The price of benzene increased by 57% in
the U.S. market and by 49% in the European market compared to the 1999 period.
Gross profit benefited from the increase in MTBE sales revenue.

PETROCHEMICALS - The Petrochemicals gross profit increased by 98% due to
additional volumes and improved contribution margins. The price increases for
our main raw material, naphtha, were partially offset by our hedging activities.
See "Item 7A--Quantitative and Qualitative Disclosures About Market Risks."

TIOXIDE - Despite lower revenues and higher utility costs, gross profit
increased 17% compared to 1999. This increase is due to fixed cost reductions as
a result of our on-going manufacturing excellence program.

29

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (INCLUDING RESEARCH AND
DEVELOPMENT EXPENSES). Selling, general and administrative expenses (including
research and development expenses) ("SG&A") in 2000 decreased by $78 million, or
19%, to $331 million from $409 million in 1999.

SPECIALTY CHEMICALS - There was a 21% decrease in SG&A (including R&D) in
2000 due largely to non-recurring items incurred in 1999. Major SG&A expenses
during 1999 included restructuring costs in Asia and certain pension costs. In
addition, a reduction in the costs of insurance under Huntsman ownership also
contributed to the decline in SG&A costs.

PETROCHEMICALS - In Petrochemicals, reduced expenditures on insurance and
consulting fees as well as the elimination of ICI corporate charges resulted in
a 28% reduction of SG&A cost in 2000 as compared to 1999.

TIOXIDE - A decrease of 22% in SG&A was primarily due to restructuring
activities, including personnel reductions, within selling organizations in
Europe, Asia Pacific and the U.S.

INTEREST EXPENSE. Net interest expense in 2000 was relatively unchanged
from 1999 levels.

INCOME TAXES. Income taxes in 2000 increased by $5 million, to $30 million
from $25 million in 1999. Higher taxes were due primarily to higher earnings for
the period. The effective income tax rate in 2000 was relatively unchanged from
1999.

NET INCOME. Net income in 2000 increased by $24 million to $151 million
from $127 million during 1999 as a result of the factors discussed above.

LIQUIDITY AND CAPITAL RESOURCES

CASH. Net cash provided by operating activities for 2001 was $202.4
million, as compared to net cash provided by operating activities of $411.5
million for 2000. The decrease in cash provided was attributable to lower net
income partially offset by a net decrease in working capital, excluding
acquisitions, during 2001 as compared to 2000.

Net cash used in investing activities for 2001 was $491.7 million, as
compared to $355.6 million for the same period in 2000. The increase in cash
used was attributable to increased capital expenditures and increased spending
on acquisitions during 2001.

Net cash provided by financing activities for 2001 was $312.2 million, as
compared to net cash used in financing activities of $131.0 million for 2000.
During 2001, we issued euro 250 million of additional senior subordinated notes
and had net borrowings under our revolving credit facility of $79.5 million, the
proceeds of which were used, together with cash flows from operations, to fund
acquisitions, capital expenditures and a portion of net working capital
investment. During 2000, proceeds from the securitization program were used to
repay approximately $172.4 million of the senior debt.

DEBT. As of December 31, 2001, we had $110.6 million of outstanding
borrowings under our $400 million revolving credit facility and had
approximately $84 million in cash balances. We also maintain $60 million of
short-term overdraft facilities, of which $23.2 million was available on
December 31, 2001.

As of December 31, 2001, we had outstanding variable rate borrowings of
approximately $1,370 million and euro 236 million and (pound)30 million. For the
year ended December 31, 2001, the weighted average interest rate of these
borrowings was 7.68%, 6.96% and 7.45%, respectively. These rates do not consider
the effects of interest rate hedging activities.

SENIOR NOTES OFFERING. On March 18, 2002, we sold $300 million aggregate
principal amount of our 9.875% Senior Notes due 2009 in a private placement. The
net proceeds received by us from the sale of the senior notes, after deducting
the underwriting discounts and commissions and estimated offering expenses
payable by us, were approximately $292 million. We used approximately $58
million of the net

30

proceeds to repay outstanding indebtedness under the revolving portion of our
senior secured credit facilities. The balance of the net proceeds was used to
repay amounts due under the term loan portion of the senior secured credit
facilities, eliminating scheduled term loan amortization requirements in 2002
and substantially reducing scheduled term loan amortization requirements in
2003.

CONTRACTUAL OBLIGATION AND COMMERCIAL COMMITMENTS. Our obligations under
long-term debt (after giving effect to the amendment, dated March 15, 2002, to
our senior secured credit facilities), lease agreements, and other contractual
commitments are summarized below (in millions):

We have a revolving loan facility of up to $400 million which matures on
June 30, 2005 with no scheduled commitment reductions. We also have a $60
million overdraft facility. We have various purchase commitments for materials
and supplies entered into in the ordinary course of business. Those commitments
extend from three to ten years and the purchase price is generally based on
market prices subject to certain minimum price provisions.

SECURITIZATION OF RECEIVABLES. In order to reduce our cost of financing, on
December 21, 2000, we entered into a securitization program arranged by JP
Morgan under which certain trade receivables were and will be transferred to a
qualified special purpose off balance sheet entity through December 2005. This
entity is not an affiliate of the Company. The acquisition of these receivables
by the entity was financed through the issuance of commercial paper. We received
$175 million in initial proceeds from the securitization transaction which were
used to reduce our outstanding indebtedness.

In June 2001, the special purpose entity issued approximately $165 million
in medium term notes due in 2006, replacing the majority of the $175 million
commercial paper issued previously. In addition to the medium term notes, the
special purpose entity can issue up to $100 million in commercial paper to fund
the purchase of receivables. As of December 31, 2001, the special purpose entity
had total assets (consisting of cash and accounts receivable) of approximately
$249 million, $165 million of medium term notes, and $15 million of commercial
paper outstanding. The weighted average interest rates on the medium term notes
and commercial paper was 3.04% and 2.52%, respectively, as of December 31, 2001.

During 2001, we sold approximately $3,132 million in receivables and
received $3,180 million in proceeds. We recorded $12.8 as a loss on receivables
for the year ended December 31, 2001.

CAPITAL EXPENDITURES. Capital expenditures for the year ended December 31,
2001 were $291 million, an increase of $86 million as compared to the same
period in 2000. The increase was primarily attributable to spending associated
with the ongoing expansion of our titanium dioxide plants. We expect to spend
approximately $200 - $250 million during 2002 on capital projects.

In connection with our agreements with our joint ventures with Rubicon and
Louisiana Pigment, we are obligated to fund our proportionate share of capital
expenditures. During the years ended December 31, 2001 and 2000, we invested
$2.5 million and $9 million, respectively. During 2001 and 2000, we received
$11.3 and $7.5 million, respectively, from Louisiana Pigment.

ENVIRONMENTAL MATTERS. Our capital expenditures relating to environmental
matters for the year ended December 31, 2001 and 2000 were approximately $42
million and $35 million, respectively. Capital costs relating to environmental
matters in 2002 are expected to total approximately $38 million. Capital
expenditures are planned to comply with national legislation implementing the
European Union

31

("EU") Directive on Integrated Pollution Prevention and Control. Under this
directive, the majority of our plants will, over the next few years, be required
to obtain governmental authorizations which will regulate air and water
discharges, waste management and other matters relating to the impact of
operations on the environment, and to conduct site assessments to evaluate
environmental conditions. Although implementing legislation in most EU member
states is not yet in effect, it is likely that additional expenditures may be
necessary in some cases to meet the requirements of authorizations under this
directive. In particular, we believe that related expenditures to upgrade our
wastewater treatment facilities at several sites may be necessary and associated
costs could be material. Wastewater treatment upgrades unrelated to this
initiative also are planned at certain facilities. In addition, we may incur
material expenditures, beyond currently anticipated expenditures, in complying
with EU Directives, particularly the Directive on Hazardous Waste Incineration
and the Seveso II Directive, which governs major accident hazards. It is also
possible that additional expenditures to reduce air emissions at two of our U.K.
facilities may be material. Capital expenditures relating to environmental
matters will be subject to evolving regulatory requirements and will depend on
the timing of the promulgation of specific standards which impose requirements
on our operations. Therefore, we cannot assure you that material capital
expenditures beyond those currently anticipated will not be required under
environmental laws. See also "Item 1--Business--Specialty Chemicals--MTBE
Developments" and "--Environmental Regulations."

CONVERSION TO EURO. On January 1, 1999, eleven European countries
established fixed conversion rates between their existing sovereign currencies
("legacy currencies") and adopted the euro as their common legal currency. The
euro and the legacy currencies are each legal tender for transactions now.
Beginning January 1, 2002, the participating countries will issue
euro-denominated bills and coins. By July 1, 2002, each country will withdraw
its sovereign currency and transactions thereafter will be conducted solely in
euros. We currently believe that the conversion to the euro will not have a
material effect on our operations, financial condition or liquidity.

CHANGES IN FINANCIAL CONDITION

The following information summarizes our working capital position as of
December 31, 2001 and 2000 (in millions):

As of December 31, 2001, our working capital decreased by $21.8 million as
a result of the net impact of the following significant changes:

32

o Increase in cash balances of $17.8 million is due to normal
fluctuations in collections and payments;

o Decrease in account receivables of $52.3 million is due to a lower
sales in the fourth quarter of 2001 as compared to 2000 as a result
of weaker economic conditions;

o Decrease in other current assets of $22.2 million is primarily due
to a reduction in income taxes receivable;

o Decrease in accounts payable of $46.6 relates to a decrease in the
amounts owed to our affiliate Rubicon for inventory purchases which
are lower due to weaker economic conditions;

o Decrease in accrued liabilities of $20.3 million results from a
reduction in accruals for raw materials and services offset by an
increase related to the restructuring and plant closing costs;

o Increase in other current liabilities of $28.7 million is related
to the fair value of interest rate derivatives recorded on the
balance sheet in 2001 as a result of the implementation of a new
accounting standard in 2001.

RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS

On July 20, 2001, the Financial Accounting Standards Board (the "FASB") issued
SFAS No. 141, BUSINESS COMBINATIONS, and SFAS No. 142, GOODWILL AND OTHER
INTANGIBLE ASSETS. The statements will change the accounting for business
combinations and goodwill in two significant ways. SFAS No. 141 requires that
the purchase method of accounting be used for all business combinations
initiated after June 30, 2001. Use of the pooling-of-interests method will be
prohibited. SFAS No. 142 changes the accounting for goodwill from an
amortization method to an impairment-only approach. Thus, amortization of
goodwill, including goodwill recorded in past business combinations will cease
upon adoption of that statement on January 1, 2002. The impact of adopting this
pronouncement is not material.

In August 2001, the FASB issued SFAS No. 143, ACCOUNTING FOR ASSET RETIREMENT
OBLIGATIONS. SFAS No. 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible, long-lived assets and
the associated asset retirement costs. This Statement requires that the fair
value of a liability for an asset retirement obligation be recognized in the
period in which it is incurred by capitalizing it as part of the carrying amount
of the long-lived assets. As required by SFAS No. 143, the Company will adopt
this new accounting standard on January 1, 2003. The Company is currently
evaluating the effects of adopting this pronouncement.

In October 2001, the FASB issued SFAS No. 144, ACCOUNTING FOR THE IMPAIRMENT OR
DISPOSAL OF LONG-LIVED ASSETS. This Statement establishes a single accounting
model for the impairment or disposal of long-lived assets. As required by SFAS
No. 144, the Company will adopt this new accounting standard on January 1, 2002.
The Company is currently evaluating the effects of adopting this pronouncement.

CAUTIONARY STATEMENT FOR FORWARD LOOKING INFORMATION

Certain information set forth in this report contains "forward-looking
statements" within the meaning of the federal securities laws. Forward-looking
statements include statements concerning our plans, objectives, goals,
strategies, future events, future revenues or performance, capital expenditures,
financing needs, plans or intentions relating to acquisitions and other
information that is not historical information. In some cases, forward-looking
statements can be identified by terminology such as "believes," "expects,"
"may," "will," "should," or "anticipates," or the negative of such terms or
other comparable terminology, or by discussions of strategy. We may also make
additional forward-looking statements from time to time. All such subsequent
forward-looking statements, whether written or oral, by us or on our behalf, are
also expressly qualified by these cautionary statements.

All forward-looking statements, including without limitation, management's
examination of historical operating trends, are based upon our current
expectations and various assumptions. Our expectations, beliefs and projections
are expressed in good faith and we believe there is a reasonable basis for them,

33

but, there can be no assurance that management's expectations, beliefs and
projections will result or be achieved. All forward-looking statements apply
only as of the date made. We undertake no obligation to publicly update or
revise forward-looking statements which may be made to reflect events or
circumstances after the date made or to reflect the occurrence of unanticipated
events.

There are a number of risks and uncertainties that could cause our actual
results to differ materially from the forward-looking statements contained in or
contemplated by this report. The following are among the factors that could
cause actual results to differ materially from the forward-looking statements.
There may be other factors, including those discussed elsewhere in this report,
that may cause our actual results to differ materially from the forward-looking
statements. Any forward-looking statements should be considered in light of all
such factors.

DEMAND FOR SOME OF OUR PRODUCTS IS CYCLICAL AND WE MAY EXPERIENCE PROLONGED
DEPRESSED MARKET CONDITIONS FOR OUR PRODUCTS.

A substantial portion of our revenue is attributable to sales of products,
including most of the products of our petrochemicals business, the prices of
which have been historically cyclical and sensitive to relative changes in
supply and demand, the availability and price of feedstocks and general economic
conditions. Historically, the markets for some of our products, including most
of the products of our petrochemicals business, have experienced alternating
periods of tight supply, causing prices and profit margins to increase, followed
by periods of capacity additions, resulting in oversupply and declining prices
and profit margins. Currently, several of our markets are experiencing periods
of oversupply, and the pricing of our products in these markets is depressed. We
cannot guarantee that future growth in demand for these products will be
sufficient to alleviate any existing or future conditions of excess industry
capacity or that such conditions will not be sustained or further aggravated by
anticipated or unanticipated capacity additions or other events. In addition,
sales of certain of our products, including a substantial portion of our
petrochemical products, are dependent upon the continued demand from several key
customers. Bassell, a major customer of our petrochemical business, has
announced the closure of its Wilton, U.K., polypropylene facility. Bassell has
also indicated that it intends to stop purchasing propylene from us after our
current contract with Bassell expires on December 31, 2003. In 2001, Bassell
purchased 350 million pounds of propylene or approximately 40% of our output.

WE HAVE SUBSTANTIAL DEBT THAT WE MAY BE UNABLE TO SERVICE AND THAT
RESTRICTS OUR ACTIVITIES, WHICH COULD ADVERSELY AFFECT OUR ABILITY TO MEET
OUR OBLIGATIONS.

We have incurred substantial debt in connection with our transactions with
ICI and Huntsman Specialty and with BP Chemicals, as well as in connection with
our recent acquisitions. As of December 31, 2001, we had total outstanding
indebtedness of $2,638 million (including the current portion of long-term debt)
and a debt to total capitalization ratio of approximately 73%. We require
substantial capital to finance our operations and continued growth, and we may
incur substantial additional debt from time to time for a variety of purposes,
including acquiring additional businesses. However, the indentures governing our
outstanding senior notes and senior subordinated notes and our senior secured
credit facilities all contain restrictive covenants. Among other things, these
covenants limit or prohibit our ability to incur more debt; make prepayments of
other debt, including our senior notes and senior subordinated notes, in whole
or in part; pay dividends, redeem stock or make other distributions; issue
capital stock; make investments; create liens; enter into transactions with
affiliates; enter into sale and leaseback transactions; and merge or consolidate
and transfer or sell assets. Additionally, our senior secured credit facilities
provide that we will not, and will not permit any of our subsidiaries to, amend,
modify or terminate any provisions of our senior notes or senior subordinated
notes. Also, if we undergo a change of control, the indentures governing our
outstanding senior notes and senior subordinated notes require us to make an
offer to purchase the notes. Under these circumstances, we may also be required
to repay indebtedness under our senior secured credit facilities to the extent
of the value of the assets securing such indebtedness. In this event, we may not
have the financial resources necessary to purchase our notes or repay
indebtedness under our senior secured credit facilities, which would result in
an event of default.

34

The degree to which we have outstanding debt could have important
consequences for our business, including:

o 80% of our EBITDA for 2001 was applied towards cash payment of
interest on our debt, which reduced funds available for other
purposes, including our operations and future business opportunities;

o our ability to obtain additional financing may be constrained due to
our existing level of debt;

o a high degree of debt will make us more vulnerable to a downturn in
our business or the economy in general; and

o part of our debt is, and any future debt may be, subject to variable
interest rates, which might make us vulnerable to increases in
interest rates.

Our ability to make scheduled payments of principal and interest on, or to
refinance, our debt depends on our future financial performance, which, to a
certain extent, is subject to economic, competitive, regulatory and other
factors beyond our control. We cannot guarantee that we will have sufficient
cash from our operations or other sources to service our debt. If our cash flow
and capital resources are insufficient to fund our debt service obligations, we
may be forced to reduce or delay capital expenditures, sell assets or seek to
obtain additional equity capital or restructure or refinance our debt. We cannot
guarantee that such alternative measures would be successful or would permit us
to meet our scheduled debt service obligations. In the absence of operating
results and resources, we could face substantial liquidity problems and might be
required to dispose of material assets or operations to meet our debt service
obligations. We cannot guarantee our ability to consummate any asset sales or
that any proceeds from an asset sale would be sufficient to meet the obligations
then due.

If we are unable to generate sufficient cash flow and we are unable to
obtain the funds required to meet payments of principal and interest on our
indebtedness, or if we otherwise fail to comply with the various covenants in
the instruments governing our indebtedness, including those under our senior
secured credit facilities and the indentures governing our outstanding senior
notes and senior subordinated notes, we could be in default under the terms of
those agreements. In the event of a default by us, a holder of the indebtedness
could elect to declare all of the funds borrowed under those agreements to be
due and payable together with accrued and unpaid interest, the lenders under our
senior secured credit facilities could elect to terminate their commitments
thereunder and we could be forced into bankruptcy or liquidation. Any default
under the agreements governing our indebtedness could have a material adverse
effect on our ability to pay principal and interest on our notes and on the
market value of our notes.

CERTAIN EVENTS AFFECTING HUNTSMAN CORPORATION COULD RESULT IN A "CHANGE OF
CONTROL" UNDER OUR SENIOR NOTES, OUR SENIOR SUBORDINATED NOTES AND OUR
SENIOR SECURED CREDIT FACILITIES.

The exercise of remedies by the lenders under Huntsman Corporation's
existing senior secured credit facilities (the "Existing HC Credit Facilities")
or a restructuring of the indebtedness of Huntsman Corporation could result in a
"change of control" under our senior notes, our outstanding senior subordinated
notes and our senior secured credit facilities. A "change of control" would
constitute a default under our senior secured credit facilities. It would also
entitle the holders of our senior notes and our senior subordinated notes to
exercise their rights to require us to repurchase those notes from them. Under
such circumstances we may not have sufficient funds to purchase all the notes.
In addition, a change of control might affect our ability to maintain the
commercial arrangements with our affiliated companies described in "--The
restructuring of Huntsman Corporation could adversely affect our relationship
with Huntsman Corporation and its subsidiaries; in such event we may not be able
to replace on favorable terms our contracts with them or services and facilities
that they provide to us, if at all."

As of December 31, 2001, Huntsman Corporation had approximately $1.5
billion of outstanding borrowings under its senior secured credit facilities. As
collateral for that indebtedness, Huntsman Corporation has pledged its 80.1%
equity interest in Huntsman Specialty Chemicals Holdings Corporation ("HSCHC").
HSCHC owns 100% of Huntsman Specialty, which in turn owns 60% of our equity.
Huntsman

35

Corporation is not in compliance with certain financial covenants of the
Existing HC Credit Facilities. On December 20, 2001, Huntsman Corporation
entered into amendment, forbearance, and waiver agreements (collectively, the
"Amendment Agreement") related to the Existing HC Credit Facilities. Under the
Amendment Agreement, existing defaults and some future defaults were waived (but
not the failure to pay incremental interest at a default rate ("Default
Interest")), and the lenders agreed to forbear exercising rights and remedies
arising from the failure to pay Default Interest, all until March 15, 2002 (the
"Forbearance Period"). On March 15, 2002, the Forbearance Period was extended
until June 30, 2002 by lenders holding a majority of the indebtedness under the
Existing HC Credit Facilities.

If the Forbearance Period is not extended beyond June 30, 2002, Huntsman
Corporation's debt is not restructured, or the rights of the lenders under the
Existing HC Credit Facilities are not otherwise stayed, the lenders could pursue
their remedies, including acceleration of the indebtedness and foreclosure on
the HSCHC equity. Foreclosure on the HSCHC equity would result in a change of
control within the meaning of the indentures governing our senior notes, the
indentures governing our senior subordinated notes, and our senior secured
credit facilities as well as under indentures governing the high yield notes at
our direct parent, Huntsman International Holdings (the "HIH Notes").

Huntsman Corporation failed to make the interest payment on January 1, 2002
under its senior subordinated notes (the "HC Notes"). Huntsman Polymers
Corporation, a wholly-owned subsidiary of Huntsman Corporation, failed to make
the interest payment due December 1, 2001 under its senior unsecured notes (the
"Polymers Notes"). Huntsman Corporation and Huntsman Polymers Corporation are
discussing the possible restructuring of their indebtedness with representatives
of a majority of their noteholders. A restructuring could result in a change of
control within the meaning of the indenture governing the senior notes, the
indentures governing our senior subordinated notes, our senior secured credit
facilities, as well as under the indentures governing the HIH Notes.

In connection with the December 2001 amendment of ICI's put option
agreement, Huntsman Specialty pledged half of its 60% equity interest in
Huntsman International Holdings, our direct parent, to ICI. A foreclosure by ICI
on such equity would result in a change of control under the indentures
governing our senior notes and senior subordinated notes and our senior secured
credit facilities, as well as under the indentures governing the HIH Notes.

A change of control would constitute a default under our senior secured
credit facilities. It would also entitle (i) the holders of our senior notes and
our senior subordinated notes to exercise their rights to require us to
repurchase these notes from them and (ii) the holders of the HIH Notes to
exercise their rights to require Huntsman International Holdings to repurchase
the HIH Notes from them. Under such circumstances, we or Huntsman International
Holdings may not have sufficient funds to purchase all the notes.

THE RESTRUCTURING OF HUNTSMAN CORPORATION COULD ADVERSELY AFFECT OUR
RELATIONSHIPS WITH HUNTSMAN CORPORATION AND ITS SUBSIDIARIES; IN SUCH AN
EVENT WE MAY NOT BE ABLE TO REPLACE ON FAVORABLE TERMS OUR CONTRACTS WITH
THEM OR THE SERVICES AND FACILITIES THAT THEY PROVIDE TO US, IF AT ALL.

We have entered and will continue to enter into certain agreements,
including service, supply and purchase contracts with Huntsman Corporation, and
its affiliates. If, as a result of a court sanctioned financial restructuring at
Huntsman Corporation, such agreements are terminated, rejected or restructured,
there could be a material adverse effect on our business, financial condition,
results of operations or cash flows if we are unable to obtain similar service,
supply or purchase contracts on the same terms from third parties. For example,
we have only one operating facility for our production of PO, which is located
in Port Neches, Texas. The facility is dependent on Huntsman Petrochemical
Corporation's existing infrastructure and its adjacent facilities for certain
utilities, raw materials, product distribution systems and safety systems. In
addition, we depend upon employees of Huntsman Petrochemical Corporation, a
subsidiary of Huntsman Corporation, to operate our Port Neches facility. We
purchase all of the propylene used in the production of PO through Huntsman
Petrochemical Corporation's pipeline, which is the only existing propylene
pipeline connected to our PO facility. If we were required to obtain propylene
from another source, we would need

36

to make a substantial investment in an alternative pipeline. This could have a
material adverse effect on our business, financial condition, results of
operations or cash flows. See "Item 13--Certain Relationships and Related
Transactions."

IF OUR SUBSIDIARIES DO NOT MAKE SUFFICIENT DISTRIBUTIONS TO US, THEN WE
WILL NOT BE ABLE TO MAKE PAYMENT ON OUR DEBT.

Our debt is the exclusive obligation of our Company and any guarantors
thereof and not of any of our other subsidiaries. Because a significant portion
of our operations are conducted by our subsidiaries, our cash flow and our
ability to service indebtedness are dependent to a large extent upon cash
dividends and distributions or other transfers from our subsidiaries. Any
payment of dividends, distributions, loans or advances by our subsidiaries to us
could be subject to restrictions on dividends or repatriation of earnings under
applicable local law, monetary transfer restrictions and foreign currency
exchange regulations in the jurisdictions in which our subsidiaries operate, and
any restrictions imposed by the current and future debt instruments of our
subsidiaries. In addition, payments to us by our subsidiaries are contingent
upon our subsidiaries' earnings.

Our subsidiaries are separate and distinct legal entities and, except for
the guarantors of our notes, have no obligation, contingent or otherwise, to pay
any amounts due pursuant to our debt or to make any funds available therefore,
whether by dividends, loans, distributions or other payments, and do not
guarantee the payment of interest on, or principal of, our debt. Any right that
we have to receive any assets of any of our subsidiaries that are not guarantors
upon the liquidation or reorganization of any such subsidiary, and the
consequent right of holders of our debt to realize proceeds from the sale of
their assets, will be junior to the claims of that subsidiary's creditors,
including trade creditors and holders of debt issued by that subsidiary. In
addition, the guarantees of our debt are subordinated to all indebtedness of
each guarantor that is secured to the extent of the value of the assets securing
such indebtedness.

THE SIGNIFICANT PRICE VOLATILITY OF MANY OF OUR RAW MATERIALS MAY RESULT IN
INCREASED COSTS.

The prices for a large portion of our raw materials are cyclical. Recently,
prices for oil and natural gas, two key raw materials, have fluctuated
dramatically. While we attempt to match raw material price increases with
corresponding product price increases, we are not able to immediately raise
product prices and, ultimately, our ability to pass on increases in the cost of
raw materials to our customers is greatly dependent upon market conditions.

THE INDUSTRIES IN WHICH WE COMPETE ARE HIGHLY COMPETITIVE AND WE MAY NOT BE
ABLE TO COMPETE EFFECTIVELY WITH OUR COMPETITORS THAT ARE LARGER AND HAVE
GREATER RESOURCES.

The industries in which we operate are highly competitive. Among our
competitors are some of the world's largest chemical companies and major
integrated petroleum companies that have their own raw material resources. Some
of these companies may be able to produce products more economically than we
can. In addition, many of our competitors are larger and have greater financial
resources, which may enable them to invest significant capital into their
businesses, including expenditures for research and development. If any of our
current or future competitors develop proprietary technology that enables them
to produce products at a significantly lower cost, our technology could be
rendered uneconomical or obsolete. Moreover, certain of our businesses use
technology that is widely available. Accordingly, barriers to entry, apart from
capital availability, are low in certain product segments of our business, and
the entrance of new competitors into the industry may reduce our ability to
capture improving profit margins in circumstances where capacity utilization in
the industry is increasing. Further, petroleum-rich countries have become more
significant participants in the petrochemical industry and may expand this role
significantly in the future. Any of these developments would have a significant
impact on our ability to enjoy higher profit margins during periods of increased
demand. See "--Demand for some of our products is cyclical and we may experience
prolonged depressed market conditions for our products.

IF WE ARE UNABLE TO INTEGRATE SUCCESSFULLY THE BUSINESSES THAT WE ACQUIRE,
THEN OUR ABILITY TO MEET OUR DEBT SERVICE OBLIGATIONS MAY BE IMPAIRED.

37

We have recently acquired new businesses, such as Dow's ethyleneamines
business, Rohm and Haas' TPU business and Rhodia S.A.'s European surfactants
business. We may acquire additional businesses in the future. You should
consider the risks we will encounter during our process of integrating these
acquired businesses and during the continued integration of our businesses
following the June 30, 1999 transaction, including:

o our potential inability to successfully integrate acquired operations
and businesses or to realize anticipated synergies, economies of scale
or other value;

o diversion of our management's attention from business concerns;

o difficulties in increasing production at acquired sites and
coordinating management of operations at the acquired sites;

o delays in implementing consolidation plans;

o legal liabilities; and

o loss of key employees of acquired operations.

The full benefit of the businesses that we acquire generally requires the
integration of administrative functions and the implementation of appropriate
operations, financial and management systems and controls. If we are unable to
integrate our various businesses effectively, our business, financial condition,
results of operations and cash flows may suffer.

Part of our business strategy may include expansion through strategic
acquisitions. We cannot be certain that we will be able to identify suitable
acquisition candidates, negotiate acquisitions on terms acceptable to us or
obtain the necessary financing to complete any acquisition. In addition, the
negotiation and consummation of any acquisition and the integration of any
acquired business may divert our management from our day to day operations,
which could have an adverse effect on our business.

OUR ABILITY TO REPAY OUR DEBT MAY BE ADVERSELY AFFECTED IF OUR JOINT
VENTURE PARTNERS DO NOT PERFORM THEIR OBLIGATIONS OR WE HAVE DISAGREEMENTS
WITH THEM.

We conduct a substantial amount of our operations through our joint
ventures. Our ability to meet our debt service obligations depends, in part,
upon the operation of our joint ventures. If any of our joint venture partners
fails to observe its commitments, that joint venture may not be able to operate
according to its business plans or we may be required to increase our level of
commitment to give effect to those plans. In general, joint venture arrangements
may be affected by relations between the joint venture partners. Differences in
views among the partners may, for example, result in delayed decisions or in
failure to agree on significant matters. Such circumstances may have an adverse
effect on the business and operations of the joint ventures, adversely affecting
the business and operations of our Company. If we cannot agree with our joint
venture partners on significant issues, we may experience a material adverse
effect on our business, financial condition, results of operations or cash
flows.

TERRORIST ATTACKS, SUCH AS THE ATTACKS IN NEW YORK AND WASHINGTON, D.C., ON
SEPTEMBER 11, 2001, AND OTHER ATTACKS OR ACTS OF WAR MAY ADVERSELY AFFECT
THE MARKETS IN WHICH WE OPERATE, OUR OPERATIONS AND OUR PROFITABILITY.

On September 11, 2001, the United States was the target of terrorist
attacks of unprecedented scope. These attacks have caused major instability in
the U.S. and other financial markets. Leaders of the U.S. government have
announced their intention to actively pursue those behind the attacks and to
possibly initiate broader action against global terrorism. The attacks and any
response may lead to further armed hostilities or to further acts of terrorism
in the United States or elsewhere, and such developments would

38

likely cause further instability in financial markets. In addition, armed
hostilities and further acts of terrorism may directly impact our physical
facilities and operations, which are located in North America, Central America,
South America, Europe, Africa, Australia, Asia and the Middle East, or those of
our clients. Furthermore, the recent terrorist attacks and future developments
may result in reduced demand from our clients for our products or may negatively
impact our clients' ability to outsource. These developments will subject our
worldwide operations to increased risks and, depending on their magnitude, could
have a material adverse effect on our business and your investment.

PENDING OR FUTURE LITIGATION OR LEGISLATIVE INITIATIVES RELATED TO MTBE MAY
SUBJECT US TO PRODUCTS OR ENVIRONMENTAL LIABILITY OR MATERIALLY ADVERSELY
AFFECT OUR SALES.

The presence of MTBE in groundwater in some regions of California and other
states (primarily due to gasoline leaking from underground storage tanks) and in
surface water (primarily from recreational water craft) has led to public
concern about MTBE's potential to contaminate drinking and other water supplies.
California has sought to ban MTBE use commencing in 2003. Heightened public
awareness has resulted in several other state, federal and foreign initiatives
and proposed legislation to rescind the oxygenate requirements for reformulated
gasoline, or to restrict or prohibit the use of MTBE in particular. Ongoing
debate regarding this issue is continuing at all levels of government in the
United States, including Congress.

In Europe, Denmark proposed to the EU that a directive be issued, taking
effect in 2005, allowing individual EU countries to ban the use of MTBE. No
other EU member state joined Denmark's proposal. The EU issued a risk assessment
of MTBE on November 7, 2001. While no ban of MTBE was recommended, several risk
reduction measures relating to storage and handling of MTBE-containing fuel were
recommended. Separate from EU action, Denmark entered into a voluntary agreement
with refiners to reduce the sale of MTBE in Denmark. Under this agreement, use
of MTBE in 92- and 95-octane gasoline in Denmark will cease by May 1, 2002;
however, MTBE will still be an additive in a limited amount of 98-octane
gasoline sold in 100 selected service stations in Denmark.

Any phase-out of or prohibition against the use of MTBE could result in a
significant reduction in demand for our MTBE. In that event, we may be required
to make significant capital expenditures to modify our PO production process to
make alternative co-products other than MTBE. In addition, we could incur a
material loss in revenues or material costs or expenditures in the event of a
widespread decrease or cessation of use of MTBE.

Furthermore, we cannot give any assurance that we will not be named in
litigation by citizens groups, municipalities or others relating to the
environmental effects of MTBE, or that such litigation will not have a material
adverse effect on our business, financial condition, results of operations or
cash flows.

For additional information on recent developments concerning MTBE, see
"Item 1--Business--Specialty Chemicals--MTBE Developments."

IF OUR KEY SUPPLIERS ARE UNABLE TO PROVIDE THE RAW MATERIALS NECESSARY IN
OUR PRODUCTION, THEN WE MAY NOT BE ABLE TO OBTAIN RAW MATERIALS FROM OTHER
SOURCES ON FAVORABLE TERMS, IF AT ALL.

As of December 31, 2001, approximately 33% of our raw materials purchased
were from our four key suppliers. If any of these suppliers is unable to meet
its obligations under present supply agreements, we may be forced to pay higher
prices to obtain the necessary raw materials and we may not be able to increase
prices for our finished products. In addition, if some of the raw materials that
we use become unavailable within the geographic area from which we now source
our raw materials, then we may not be able to obtain suitable and cost effective
substitutes. Any interruption of supply or any price increase of raw materials
could have a material adverse effect on our business, financial condition,
results of operations or cash flows. On December 17, 2001, Shell Trading
International Limited gave us notice of its intent to discontinue supplying our
Petrochemicals business with aromatics-rich feedstock after December 31, 2002.
We are currently in negotiations with a number of alternative suppliers. If we
are unable to enter into alternative

39

supply arrangements for the required amounts of feedstock, we may alter our
manufacturing process or restart the reformer unit which was idled in 1999.

IF WE ARE UNABLE TO MAINTAIN OUR RELATIONSHIPS WITH HUNTSMAN CORPORATION
AND ICI, THEN WE MAY NOT BE ABLE TO REPLACE ON FAVORABLE TERMS OUR
CONTRACTS WITH THEM OR THE SERVICES AND FACILITIES THAT THEY PROVIDE, IF AT
ALL.

We have entered and will continue to enter into certain agreements,
including service, supply and purchase contracts with Huntsman Corporation, ICI
and their respective affiliates. If Huntsman Corporation, ICI or any of their
respective affiliates fail to perform their obligations under any of these
agreements, or if any of these agreements terminate or we are otherwise unable
to obtain the benefits thereunder for any reason, there could be a material
adverse effect on our business, financial condition, results of operations or
cash flows if we are unable to obtain similar service, supply or purchase
contracts on the same terms from third parties. For example, we have only one
operating facility for our production of PO, which is located in Port Neches,
Texas. The facility is dependent on Huntsman Petrochemical Corporation's
existing infrastructure and its adjacent facilities for certain utilities, raw
materials, product distribution systems and safety systems. In addition, we
depend upon employees of Huntsman Petrochemical Corporation, a subsidiary of
Huntsman Corporation, to operate our Port Neches facility. We purchase all of
the propylene used in the production of PO through Huntsman Petrochemical
Corporation's pipeline, which is the only existing propylene pipeline connected
to our PO facility. If we were required to obtain propylene from another source,
we would need to make a substantial investment in an alternative pipeline. This
could have a material adverse effect on our business, financial condition,
results of operations or cash flows. See "Item 13--Certain Relationships and
Related Transactions."

WE ARE SUBJECT TO MANY ENVIRONMENTAL AND SAFETY REGULATIONS THAT MAY RESULT
IN UNANTICIPATED COSTS OR LIABILITIES.

We are subject to extensive federal, state, local and foreign laws,
regulations, rules and ordinances relating to pollution, the protection of the
environment and the use or cleanup of hazardous substances and wastes. We may
incur substantial costs, including fines, damages and criminal or civil
sanctions, or experience interruptions in our operations for actual or alleged
violations or compliance requirements arising under environmental laws,
including with respect to any facilities acquired in connection with our pending
or future acquisitions. Our operations could result in violations under
environmental laws, including spills or other releases of hazardous substances
to the environment. In the event of a catastrophic incident, we could incur
material costs as a result of addressing and implementing measures to prevent
such incidents. We know of three current environmental proceedings that may
result in penalties over $100,000. With respect to two of these proceedings, we
do not believe that they will be material to us. The third matter involves a
spill at our North Tees facility that was discovered on March 27, 2001. The U.K.
Environmental Agency issued an enforcement notice with respect to this spill on
March 30, 2001, following an investigation into an alleged leak of a mixture
consisting of approximately 60% benzene into the River Tees. The requirements of
that notice were complied with, to the satisfaction of the U.K. Environmental
Agency, by the end of May 2001. We contained the spill and conducted a
remediation program to reclaim the material. The U.K. Environmental Agency is
continuing to investigate the incident; a decision by the U.K. Environmental
Agency as to whether to prosecute or not is likely to be made in early or
mid-2002. If the U.K. Environmental Agency finds us legally responsible, we
could face legal action and possible penalties. Although we can give you no
assurances, based on currently available information and our understanding of
similar investigations and penalties in the past, we do not believe that, if
such action was initiated and we are ultimately found to be legally responsible,
the probable penalties would be material to our financial position and results
of operations. Because this matter is in the initial stages of investigation by
the U.K. Environmental Agency, however, we cannot assure you that it will not
have a material effect on us. Given the nature of our business, violations of
environmental laws may result in restrictions imposed on our operating
activities, substantial fines, penalties, damages or other costs, any of which
could have a material adverse effect on our business, financial condition,
results of operations or cash flows. See "Item 1--Business--Environmental
Regulations."

40

In addition, we could incur significant expenditures in order to comply
with existing or future environmental laws. Capital expenditures and, to a
lesser extent, costs and operating expenses relating to environmental matters
will be subject to evolving regulatory requirements and will depend on the
timing of the promulgation and enforcement of specific standards which impose
requirements on our operations. Therefore, we cannot assure you that capital
expenditures beyond those currently anticipated will not be required under
environmental laws. See "Item 7--Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources--Environmental Matters."

Furthermore, we may be liable for the costs of investigating and cleaning
up environmental contamination on or from our properties or at off-site
locations where we disposed of or arranged for the disposal or treatment of
hazardous wastes. Based on available information and the indemnification rights
that we possess, we believe that the costs to investigate and remediate known
contamination will not have a material adverse effect on our business, financial
condition, results of operations or cash flows; however, if such indemnities do
not fully cover the costs of investigation and remediation or we are required to
contribute to such costs, and if such costs are material, then such expenditures
may have a material adverse effect on our business, financial condition, results
of operations or cash flows. See "Item 1--Business--Environmental Regulations."

HUNTSMAN CORPORATION AND ICI MAY HAVE CONFLICTS OF INTEREST WITH US, AND
THESE CONFLICTS COULD ADVERSELY AFFECT OUR BUSINESS.

For so long as Huntsman Corporation and ICI retain their ownership
interests in our company, conflicts of interest could arise with respect to
transactions involving business dealings between us and them, potential
acquisitions of businesses or properties, the issuance of additional securities,
the payment of dividends by us and other matters. See "Item 13--Certain
Relationships and Related Transactions." In addition, most of our executive
officers currently serve as executive officers and directors of various Huntsman
companies or of ICI and its affiliates. Any such conflicts of interest could
result in decisions that adversely affect our business. See "Item 10 Directors
and Executive Officers of the Registrant" and "Item 13--Certain Relationships
and Related Transactions" for more detailed descriptions of the relationships
between our Company and our subsidiaries, Huntsman Corporation and its
affiliates, and ICI and its affiliates, and among the management of these
companies.

OUR BUSINESS MAY BE ADVERSELY AFFECTED BY INTERNATIONAL OPERATIONS AND
FLUCTUATIONS IN CURRENCY EXCHANGE RATES.

We conduct a significant portion of our business outside the United States.
Our operations outside the United States are subject to risks normally
associated with international operations. These risks include the need to
convert currencies which we may receive for our products into currencies
required to pay our debt, or into currencies in which we purchase raw materials
or pay for services, which could result in a gain or loss depending on
fluctuations in exchange rates. Other risks of international operations include
trade barriers, tariffs, exchange controls, national and regional labor strikes,
social and political risks, general economic risks, required compliance with a
variety of foreign laws, including tax laws and the difficulty of enforcing
agreements and collecting receivables through foreign legal systems.

OUR BUSINESS IS DEPENDENT ON OUR INTELLECTUAL PROPERTY. IF OUR PATENTS ARE
DECLARED INVALID OR OUR TRADE SECRETS BECOME KNOWN TO OUR COMPETITORS, OUR
ABILITY TO COMPETE MAY BE ADVERSELY AFFECTED.

Proprietary protection of our processes, apparatuses, and other technology
is important to our business. Consequently, we rely on judicial enforcement for
protection of our patents. While a presumption of validity exists with respect
to patents issued to us in the United States, there can be no assurance that any
of our patents will not be challenged, invalidated, circumvented or rendered
unenforceable. Furthermore, if any pending patent application filed by us does
not result in an issued patent, or if patents are issued to us, but such patents
do not provide meaningful protection of our intellectual property, then the use
of any such intellectual property by our competitors could have a material
adverse effect on our business, financial condition, results of operations or
cash flows. Additionally, our competitors or other third parties may obtain
patents that restrict or preclude our ability to lawfully produce or sell our
products in a competitive manner,

41

which could have a material adverse effect on our business, financial condition,
results of operations or cash flows.

We also rely upon unpatented proprietary know-how and continuing
technological innovation and other trade secrets to develop and maintain our
competitive position. While it is our policy to enter into confidentiality
agreements with our employees and third parties to protect our intellectual
property, these confidentiality agreements may be breached, may not provide
meaningful protection for our trade secrets or proprietary know-how, or adequate
remedies may not be available in the event of an unauthorized use or disclosure
of such trade secrets and know-how. In addition, others could obtain knowledge
of such trade secrets through independent development or other access by legal
means. The failure of our patents or confidentiality agreements to protect our
processes, apparatuses, technology, trade secrets or proprietary know-how could
have a material adverse effect on our business, financial condition, results of
operations or cash flows.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

We are exposed to market risk, including changes in interest rates,
currency exchange rates, and certain commodity prices. Our exposure to foreign
currency market risk is limited since sales prices are typically denominated in
euros or U.S. dollars. To the extent we have material foreign currency exposure
on known transactions, hedges are put in place monthly to mitigate such market
risk. Our exposure to changing commodity prices is also limited (on an annual
basis) since the majority of raw material is acquired at posted or market
related prices, and sales prices for finished products are generally at market
related prices which are set on a quarterly basis in line with industry
practice. To manage the volatility relating to these exposures, we enter into
various derivative transactions. We hold and issue derivative financial
instruments for economic hedging purposes only.

Our cash flows and earnings are subject to fluctuations due to exchange
rate variation. Historically, the businesses transferred to us by ICI have
managed the majority of their foreign currency exposures by entering into
short-term forward foreign exchange contracts with ICI. In addition, short-term
exposures to changing foreign currency exchange rates at certain of our foreign
subsidiaries were managed, and will continue to be managed, through financial
market transactions, principally through the purchase of forward foreign
exchange contracts (with maturities of six months or less) with various
financial institutions. While the overall extent of our currency hedging
activities has not changed significantly, we have altered the scope of our
currency hedging activities to reflect the currency denomination of our cash
flows. In addition, we are now conducting our currency hedging activities for
our exposures arising in connection with the businesses transferred to us by ICI
with various financial institutions. We do not hedge our currency exposures in a
manner that would entirely eliminate the effect of changes in exchange rates on
our cash flows and earnings. As of December 31, 2001, we had no outstanding
foreign exchange forward contracts with third party banks. Predominantly our
hedging activity is to sell forward the majority of our surplus non-U.S. dollar
receivables for U.S. dollars. Using sensitivity analysis, the foreign exchange
loss due to these derivative instruments from an assumed 10% unfavorable change
in year-end rates, when considering the effects of the underlying hedged firm
commitment, is not material.

Historically, Huntsman Specialty used interest rate swaps, caps and collar
transactions entered into with various financial institutions to hedge against
the movements in market interest rates associated with its floating rate debt
obligations. We do not hedge our interest rate exposure in a manner that would
entirely eliminate the effects of changes in market interest rates on our cash
flow and earnings. Under the terms of our senior secured credit facilities, we
are required to hedge a significant portion of our floating rate debt. As a
result and as of December 31, 2001, we had entered into approximately $594
million notional amount of interest rate swap, cap and collar transactions,
which have terms ranging from approximately 9 to 39 months. The majority of
these transactions hedge against movements in U.S. dollar interest rates. The
U.S. dollar swap transactions obligate us to pay fixed amounts ranging from
approximately 5.75% to approximately 7.00%. The U.S. dollar collar transactions
carry floors ranging from 5.00% to 6.25% and caps ranging from 6.60% to 7.50%.
We have also entered into a euro-denominated swap transaction that obligates us
to pay a fixed rate of approximately 4.30%. Assuming a

42

1% (100 basis point) increase in U.S. dollar interest rates, the effect on the
annual interest expense would be an increase of approximately $16.2 million.
This increase would be reduced by approximately $5.4 million per year as a
result of the effects of the interest rate swap, cap and collar transactions
described above.

In order to reduce our overall raw material costs, our petrochemical
business enters into various commodity contracts to hedge its purchase of
commodity products. We do not hedge our commodity exposure in a manner that
would entirely eliminate the effects of changes in commodity prices on our cash
flows and earnings At December 31, 2001, we had forward purchase contracts for
20,000 tonnes of naphtha and propane, which qualify for hedge accounting. In
addition, at December 31, 2001, we had forward purchase and sales contracts for
51,000 and 59,000 tonnes (naphtha and other hydrocarbons), respectively, which
do not qualify for hedge accounting. A change of 10% in the market price per
tonne of naphtha at December 31, 2001 would result in a hypothetical gain or
loss of approximately $0.6 million per year.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Our Consolidated Financial Statements required by this item are included on
the pages immediately following the Index to Consolidated Financial Statements
appearing on page F-1.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

There have been no changes in our external accountants, Deloitte & Touche
LLP, or disagreements with them on matters of accounting or financial
disclosure.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Members of our current board of managers and executive officers are listed
below. The members of the board of managers are appointed by the owner of our
membership interests and hold office until their successors are duly appointed
and qualified. All officers serve at the pleasure of our board of managers.

Board of Managers and Executive Officers

43

James R. Moore 57 Vice President and Chief Environmental Counsel
David S. Parkin* 29 Vice President, Purchasing
Russell R. Stolle 39 Vice President and Chief Technology Counsel

*Such persons are related as follows: Karen H. Huntsman is the wife of Jon M.
Huntsman. Jon M. Huntsman and Karen H. Huntsman are the parents of Peter R.
Huntsman and James H. Huntsman. David S. Parkin is a son-in-law of Jon M.
Huntsman and Karen H. Huntsman and brother-in-law of Peter R. Huntsman and James
H. Huntsman.

JON M. HUNTSMAN is Chairman of the Board of Managers of both Huntsman
International and Huntsman International Holdings, the parent of Huntsman
International, and has held those positions since those entities were formed. He
has been Chairman of the Board of Directors of Huntsman Corporation and all
Huntsman companies since he founded his first company in 1970. Mr. Huntsman
served as Chief Executive Officer of Huntsman Corporation and its affiliated
companies from 1970 to 2000, and of Huntsman International and Huntsman
International Holdings from 1999 to 2000. In addition, Mr. Huntsman serves or
has served on numerous corporate and industry boards, including the American Red
Cross, The Wharton School, University of Pennsylvania, Primary Children's
Medical Center Foundation, the Chemical Manufacturers Association and the
American Plastics Council. Mr. Huntsman was selected in 1994 as the chemical
industry's top CEO for all businesses in Europe and North America. Mr. Huntsman
formerly served as Special Assistant to the President of the United States and
as Vice Chairman of the U.S. Chamber of Commerce.

PETER R. HUNTSMAN is President, Chief Executive Officer and a Manager of both
Huntsman International and Huntsman International Holdings. Prior to his
appointment in July 2000 as Chief Executive Officer, Mr. Huntsman had served as
President, Chief Operating Officer and a Manager of both companies since they
were formed in 1999. He also serves as President, Chief Executive Officer and a
Director of Huntsman Corporation and many of its subsidiaries. Previously, Mr.
Huntsman was Senior Vice President of Huntsman Chemical Corporation and a Senior
Vice President of Huntsman Packaging Corporation, a former subsidiary of
Huntsman Corporation. Mr. Huntsman also served as Vice President-Purchasing,
then as Senior Vice President and General Manager for Huntsman Polypropylene
Corporation, also a former subsidiary of Huntsman Corporation.

PATRICK W. THOMAS is President, Huntsman Specialty Chemicals. Mr. Thomas has
held this position since he joined the Company is 1999. Since 2000, Mr. Thomas
has also served as a Manager and President of several subsidiaries of Huntsman
International. From 1982 to 1999, Mr. Thomas worked at ICI, a thirty percent
shareholder of Huntsman International Holdings LLC. At ICI, Mr. Thomas held
numerous management positions, including Polyurethanes Business Director, Europe
from 1993 to 1997, Polyurethanes International Marketing and Planning Manager
from 1991 to 1993 and Polyurethanes Business Engineering & Investment Manager
from 1989 to 1991.

DOUGLAS A.L. COOMBS is President, Tioxide. Mr. Coombs has held this position
since he joined the Company in 1999. Prior to joining Huntsman, Mr. Coombs spent
35 years with ICI where he held a number of management positions, including
Chairman & Chief Executive Officer of Tioxide Group from 1996 through June 1999.

GABRIEL C.M. KOW is President, Surface Sciences. Mr. Kow has served in this
position since March 2002. Mr. Kow joined the Company in 2001, following the
acquisition of the Albright & Wilson Surfactants Europe business from Rhodia.
From 1997, Mr. Kow had been a Director of Albright & Wilson plc and President of
its European and Asia/Pacific operations. Prior to this, he held a number of
senior management positions in Glaxo Wellcome.

J. KIMO ESPLIN is Executive Vice President and Chief Financial Officer. Mr.
Esplin has served in this position since 1999. Mr. Esplin also serves as Senior
Vice President and Chief Financial Officer of Huntsman Corporation and as an
officer or director of many Huntsman companies. Previously, Mr. Esplin served as
Treasurer of Huntsman Corporation. Prior to joining Huntsman in 1994, Mr. Esplin
was

44

a Vice President in the Investment Banking Division of Bankers Trust Company,
where he worked for seven years.

SAMUEL D. SCRUGGS is Executive Vice President. Mr. Scruggs served as Vice
President and Treasurer from 1999 until he was appointed to his current position
in 2002. Mr. Scruggs also serves as Executive Vice President of Huntsman
Corporation. Mr. Scruggs previously served as Vice President and Associate
General Counsel and as Vice President and Treasurer of Huntsman Corporation.
Prior to joining Huntsman in 1995, Mr. Scruggs was an associate with the law
firm of Skadden, Arps, Slate, Meagher & Flom LLP.

MICHAEL J. KERN is Senior Vice President, Environmental, Health & Safety. Mr.
Kern has served in senior management positions of Huntsman International,
including Executive Vice President, Manufacturing, since 1999. Mr. Kern also
serves as Senior Vice President, Environmental, Health & Safety of Huntsman
Corporation. Prior to joining Huntsman, Mr. Kern held a variety of positions
within Texaco Chemical Company, including Area Manager--Jefferson County
Operations from April 1993 until joining the Company, Plant Manager of the Port
Neches facility from August 1992 to March 1993, Manager of the PT/MTBE project
from October 1989 to July 1992, and manager of Oxides and Olefins from April
1988 to September 1989.

ROBERT B. LENCE is Senior Vice President, General Counsel and Secretary. Mr.
Lence has served in this position since 1999. Mr. Lence also serves as Senior
Vice President and General Counsel of Huntsman Corporation. Mr. Lence joined
Huntsman in December 1991 from Van Cott, Bagley, Cornwall & McCarthy, a Salt
Lake City law firm, where he was a partner.

KEVIN J. NINOW is Senior Vice President, Petrochemicals Manufacturing. Mr. Ninow
has served as an officer of Huntsman International since it was formed in 1999.
Mr. Ninow has served in a variety of executive, manufacturing and engineering
positions in Huntsman Corporation and its subsidiaries, including Vice President
European Petrochemicals, Vice President International Manufacturing, Plant
Manager - Oxides and Olefins, Plant Manager - C4's, Operations Manager - C4's,
Manager of Technology, Process Control Group Leader, and Project Engineer.

BRIAN V. RIDD is Senior Vice President, Purchasing. Mr. Ridd has held this
position since 2002. Mr. Ridd is also Senior Vice President, Purchasing of
Huntsman Corporation. Since joining Huntsman in 1984, Mr. Ridd has served as an
officer of many Huntsman Corporation subsidiaries, including Vice President of
Olympus Oil and Vice President, Purchasing of Huntsman Petrochemical Corporation
and Huntsman Chemical Corporation.

SEAN DOUGLAS is Vice President and Treasurer of the Company. Mr. Douglas is also
Vice President and Treasurer of Huntsman Corporation and many of its affiliated
companies. Since joining Huntsman Corporation in 1990, he has served in a number
of executive roles, including Vice President, Administration and Assistant
Treasurer of Huntsman Corporation, Vice President of Huntsman's affiliated
companies, Controller of Huntsman Specialty Chemicals Corporation, and as a
financial analyst for Huntsman's European businesses. Mr. Douglas is a CPA and,
prior to joining Huntsman, worked for Price Waterhouse.

CURTIS C. DOWD is Vice President, Surface Sciences. Mr. Dowd served as Vice
President, Corporate Development from 1999 through 2001, when he was appointed
to his current position. Mr. Dowd also serves as Vice President, Surface
Sciences of Huntsman Corporation. Mr. Dowd served as Vice President and General
Counsel of Huntsman Petrochemical Corporation from 1994 to 1998. Prior to
joining Huntsman in 1994, Mr. Dowd was an associate with the law firm of
Skadden, Arps, Slate, Meagher & Flom LLP and had spent over six years as a CPA
with the accounting firm of Price Waterhouse.

KEVIN C. HARDMAN is Vice President, Tax. Mr. Hardman served as Chief Tax Officer
from 1999 until he was appointed to his current position in 2002. Mr. Hardman is
also Vice President, Tax of Huntsman Corporation. Prior to joining Huntsman in
1999, Mr. Hardman was a tax Senior Manager with Deloitte &

45

Touche, where he worked for 10 years. Mr. Hardman is a CPA and hold a master's
degree in tax accounting.

L. RUSSELL HEALY is Vice President, Finance. Mr. Healy also serves as Vice
President, Finance of Huntsman Corporation and as an officer or director of
several subsidiaries of Huntsman Corporation and Huntsman International.
Previously, Mr. Healy served as Vice President, Tax for Huntsman Corporation.
Prior to joining Huntsman in 1995, Mr. Healy was a partner with the accounting
firm of Deloitte and Touche, LLP. Mr. Healy is a CPA and holds a masters degree
in accounting.

JOHN R. HESKETT is Vice President, Corporate Development. Mr. Heskett has held
this position since 2002. Mr. Heskett also serves as Vice President, Corporate
Development for Huntsman Corporation and as Vice President of Huntsman
Surfactants Technology Corporation. Mr. Heskett previously served as Assistant
Treasurer for Huntsman Corporation and its subsidiaries, Huntsman Petrochemical
Corporation and Huntsman Polymers Corporation. Prior to joining Huntsman in
1997, Mr. Heskett was Assistant Vice President and Relationship Manager for PNC
Bank, N.A., where he worked for several years.

JAMES H. HUNTSMAN is Vice President, European Petrochemicals Sales. Mr. Huntsman
has held this position since 2002. Since 1995, Mr. Huntsman has served as Vice
President and a Director of Huntsman Corporation, currently holding the position
of Vice President, European Sales. Mr. Huntsman also serves on the boards of
directors of other Huntsman companies.

KAREN H. HUNTSMAN is Vice President. Mrs. Huntsman has served in this position
since 1999. Mrs. Huntsman performs an active role in all the Huntsman
Corporation businesses and currently serves as an officer and/or board member
for many of the Huntsman companies. By appointment of the Governor of the State
of Utah, Mrs. Huntsman serves as a member of the Utah State Board of Regents.
Previously, Mrs. Huntsman served on the board of directors of First Security
Corporation. She also serves on the boards of directors of various Huntsman
companies and not-for-profit entities.

RICHARD H. JOHNIGAN, JR. is Vice President and Controller. Mr. Johnigan has held
this position since 2001. Mr. Johnigan also serves as Vice President and
Controller of Huntsman Corporation. Prior to joining Huntsman in 1997, Mr.
Johnigan was Vice President and Controller of Oxychem, where he worked for 23
years. Mr. Johnigan, a CPA, held several executive positions at Oxychem,
including Vice President and Chief Financial Officer of the Polymers and
Agricultural Chemicals Divisions.

JAMES R. MOORE is Vice President and Chief Environmental Counsel. Mr. Moore has
held this position since 2002. Mr. Moore also serves as Vice President and Chief
Environmental Counsel of Huntsman Corporation. Prior to joining Huntsman in
1998, Mr. Moore was a partner at the Seattle law firm of Perkins Coie and also
served in various environmental counsel positions with the U.S. Department of
Justice and Environmental Protection Agency.

DAVID S. PARKIN is Vice President, Purchasing. Mr. Parkin has served in this
position since 2002. Mr. Parkin is also Vice President, European Purchasing and
Director of Huntsman Corporation. Since 1995, Mr. Parkin has served in a number
of management roles for Huntsman companies.

RUSSELL R. STOLLE is Vice President and Chief Technology Counsel. Mr. Stolle was
appointed to this position in 2002. Mr. Stolle also serves as Vice President and
Chief Technology Counsel of Huntsman Corporation and served as Huntsman's Chief
Patent and Licensing Counsel from 1994 to 2001. From 1990 to 1994, Mr. Stolle
was patent counsel for Texaco Chemical Company. Prior to that he was an
associate in the Houston law firm of Baker & Botts.

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ITEM 11. EXECUTIVE COMPENSATION

SUMMARY OF COMPENSATION

The following summary compensation table sets forth information concerning
compensation earned in the fiscal year ended December 31, 2001, by our chief
executive officer and our remaining four most highly compensated executive
officers at the end of the last fiscal year.

All of the compensation of Messrs. Jon M. Huntsman, Peter M. Huntsman and
J. Kimo Esplin was paid entirely by Huntsman Corporation, our ultimate parent
company, and we were charged a management overhead allocation with respect to
this compensation. Compensation figures for these executive officers represent a
prorated percentage of Huntsman Corporation compensation attributable to
services rendered to the Company and its subsidiaries. All of the compensation
of Messrs. Thomas and Coombs was paid entirely by the Company.

SUMMARY COMPENSATION TABLE

(1) All compensation for Messrs. Jon M. Huntsman, Peter R. Huntsman, and J.
Kimo Esplin was paid entirely by Huntsman Corporation, our parent company;
a charge for management overhead allocation for the fiscal year 2001 was
paid by the Company to Huntsman Corporation, which payment included, among
other things, a portion of the 2001 annual compensation shown on this
table. Compensation figures for these three executives represent a
pro-rated percentage of Huntsman Corporation compensation attributable to
services rendered to the Company and to its subsidiaries.

(2) Any blank items in this column reflect perquisites and other personal
benefits, securities or property received by the named executive officer
which are less than either $50,000 or 10% of the total annual salary and
bonus reported for the named executive officer.

(3) Perquisites and other personal benefits in the amount of $82,479 were
provided for the named executive officer, including $27,990 for use of
company airplane and $44,729 for security and administrative services.

(4) Consists of an employer's contribution of $1,020 to the 401(k) Plan, an
employer's contribution of $4,080 to the Money Purchase Pension Plan and a
payment of $43,269 for unused vacation.

47

(5) Consists of an employer's contribution of $1,360 to the 401(k) Plan, an
employer's contribution of $10,436 to the Supplemental 401(k) Plan, an
employer's contribution of $5,440 to the Money Purchase Plan, an employer's
contribution of $43,483 to the Supplemental Money Purchase Plan, and an
employer's contribution of $18,871 to an unfunded deferred compensation
plan known as the Equity Deferral Plan.

(6) Consists of $39,141 employer's 401(k) contribution, an employer's money
purchase contribution of $164,065, and an employer's contribution of
$46,875 to the Equity Deferral Plan.

(7) Perquisites and other personal benefits in the amount of $339,085 were
provided for the named executive officer, including relocation expenses of
$108,710 and $156,775 for education and housing expenses for overseas
assignment.

(8) Consists of $2,913 and $1,700 employer's contribution to the 401(k) Plan
for 2001 and 2000 respectively, $9,415 and $9,262 employer's contribution
to the Supplemental 401(k) Plan for 2001 and 2000 respectively, $6,800 and
$6,800 employer's contribution to the Money Purchase Plan for 2001 and 2000
respectively, $68,520 and $57,046 employer's contribution to the money
purchase pension plan portion of the Huntsman SERP for 2001 and 2000
respectively, $246,375 and $125,000 employer's contribution to the Equity
Deferral Plan for 2001 and 2000 respectively and a $500,000 equity credit
for foreign service under the Equity Deferral Plan for 2001.

(9) Payment of $66,160 for living expenses.

(10) Perquisites and other personal benefits in the amount of $131,450 were
provided for the named executive officer, including moving expenses of
$58,367 and a relocation payment of $71,002.

(11) Consists of $14,183 employer's 401(k) contribution, an employer's money
purchase contribution of $71,732 and an employer's contribution of $93,750
to the Equity Deferral Plan.

(12) Perquisites and other personal benefits in the amount of $190,837 were
provided for the named executive officer, including $126,513 for taxes paid
in connection with overseas assignment and $25,707 for education and
housing expenses for overseas assignment.

(13) Consists of $1,712, $1,638 and $1,600 employer's contribution to the 401(k)
Plan for 2001, 2000 and 1999 respectively, $2,938, $1,093 and $4,950
employer's contribution to the Supplemental 401(k) Plan for 2001, 2000 and
1999 respectively, $2,567, $893 and $400 employer's contribution to the
Money Purchase Plan for 2001, 2000 and 1999 respectively, $7,744, $2,279
and $1,863 employer's contribution to the money purchase pension plan
portion of the Huntsman SERP for 2001, 2000 and 1999 respectively, and
$31,250, $22,361 and $62,500 employer's contribution to the Equity Deferral
Plan for 2001, 2000 and 1999 respectively.

(14) Perquisites and other personal benefits in the amount of $123,699,
including a payment of $69,461 for living expenses, $32,087 for educational
expenses, and a foreign services payment of $18,785 as a cost of living
adjustment for working abroad.

(15) Consists of $125,000 employer's contribution to the Equity Deferral Plan.

(16) Perquisites and other personal benefits in the amount of $85,287, including
a payment of $60,550 for housing accommodations and a foreign services
payment of $19,979 as a cost of living adjustment for working abroad.

(17) Consists of $26,345 employer's contribution to the Equity Deferral Plan.

(18) Perquisites and other personal benefits in the amount of $31,730, including
a payment of $15,138 for housing accommodations, $7,494 for use of an
automobile, and a foreign services payment of $7,433 as a cost of living
adjustment for working abroad.

(19) Perquisites and other personal benefits in the amount of $110,422,
including a payment of $88,511 for living expenses and $16,507 for use of
an automobile.

(20) Perquisites and other personal benefits in the amount of $140,421,
including a payment of $87,909 for housing accommodations, $30,832 for
foreign service assignments for taxes in excess of those that would
otherwise be incurred, and $13,497 for use of an automobile.

(21) Perquisites and other personal benefits in the amount of $81,552, including
a payment of $66,618 for housing accommodations and $14,134 for use of an
automobile.

(22) "EARs" means equity appreciation rights.

EQUITY OPTIONS AND EQUITY APPRECIATION RIGHTS

The following table sets forth information concerning the grant of equity
appreciation rights ("EARs") to each of the Company's chief executive officer
and its other four most highly compensated executive officers during the last
fiscal year. The grants represent a prorated percentage of the total grants
under the Huntsman Equity Appreciation Rights Plan representing the prorated
percentage of compensation attributable to services rendered to the Company and
its subsidiaries.

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OPTION/EAR GRANTS IN LAST FISCAL YEAR

Equity appreciation rights were granted on January 5, 2001, under the
Huntsman Equity Appreciation Rights Plan, and vest at a rate of 25% per year,
beginning with the first anniversary of the date of grant. Vesting of these
equity appreciation rights accelerates upon retirement or a change in control,
as defined in the plan.

EXERCISE OF OPTIONS AND EQUITY APPRECIATION RIGHTS

The following table sets forth information concerning the exercise of EARs
during the last fiscal year by each of the Company's chief executive officer and
its other four most highly compensated executive officers and the fiscal
year-end value of unexercised EARs.

AGGREGATED OPTION/EAR EXERCISES IN LAST FISCAL YEAR,
AND FY-END OPTION/EAR VALUES

RETIREMENT PLANS

The following table shows the estimated annual benefits payable under the
Huntsman Corporation's tax-qualified benefit pension plan (the "Huntsman
Corporation Pension Plan") and supplemental pension plan ("Huntsman SERP") in
specified final average earning and years-of-service classification.

49

HUNTSMAN CORPORATION PENSION PLANS TABLE

The current Huntsman Corporation Pension Plan benefit is based on the
following formula: 1.5% of final average compensation multiplied by years of
credited service, minus 1.5% of estimated Social Security benefits multiplied by
years of credited service (maximum of 50% of Social Security benefits). For
years of credited service prior to 2000, benefits are based on a 1.4% formula.
Final average compensation is based on the highest average of three consecutive
years of compensation. Messrs. Jon M. Huntsman, Peter R. Huntsman and J. Kimo
Esplin were participants in the Huntsman Corporation Pension Plan in 2001. For
the foregoing named executive officers, covered compensation under this plan
consists of base salary and is reflected in the "Salary" column of the Summary
Compensation Table. Federal regulations require that for the 2001 plan year, no
more than $170,000 in compensation be considered for the calculation of
retirement benefits under the Huntsman Corporation Pension Plan, and the maximum
annual benefit paid from a qualified defined benefit plan cannot exceed
$140,000. Benefits are calculated on a straight life annuity basis. The benefit
amounts under the Huntsman Corporation Pension Plan are offset for Social
Security as described above.

The Huntsman SERP is a nonqualified supplemental pension plan for
designated executive officers that provides benefits based on certain
compensation amounts not included in the calculation of benefits payable under
the Huntsman Corporation Pension Plan.1 Messrs. Jon M. Huntsman, Peter R.
Huntsman and J. Kimo Esplin were participants in the Huntsman SERP in 2001. The
compensation amounts taken into account for these named executive officers under
the Huntsman SERP include bonuses (as reflected in the "Bonus" columns of the
Summary Compensation Table) and base salary in excess of the qualified plan
limitations. The Huntsman SERP benefit related to the Huntsman Corporation
Pension Plan is calculated as the difference between (1) the benefit determined
using the Huntsman Corporation Pension Plan formula with unlimited base salary
plus bonus, and (2) the benefit determined using base salary as limited by
federal regulations.

- --------------
1 The SERP also provides benefits not available under the Huntsman Money
Purchase Pension Plan (a qualified money purchase pension plan in which Messrs.
Jon M. Huntsman, Peter R. Huntsman and J. Kimo Esplin participate) because of
limits on compensation that can be counted and amounts that can be allocated to
accounts under federal law within the Huntsman Money Purchase Pension Plan. The
amount of benefits accrued for the year under the SERP relating to the Huntsman
Money Purchase Pension Plan for the executives mentioned above allocable to the
Company is included in the Summary Compensation Table under the "All Other
Compensation" column.

50

The number of completed years of credited service as of December 31, 2001
under the Huntsman Corporation Pension Plan and Huntsman SERP for the named
executed officers participating in the plans were 31, 18 and 7 years for Messrs.
Jon M. Huntsman, Peter R. Huntsman and J. Kimo Esplin, respectively.

Effective September 27, 2001, Huntsman Corporation terminated the Huntsman
Equity Deferral Plan and the Huntsman Supplemental Salary Deferral Plan, each an
elective nonqualified deferred compensation plan, the Company terminated the
Huntsman International Equity Deferral Plan and participants were paid the
amounts which they were entitled to receive under the terms of each plan.
Huntsman Corporation also amended the portion of the Huntsman SERP related to
the Huntsman Money Purchase Pension Plan to provide for the payout to
participants of amounts participants were entitled to receive under that portion
of the Huntsman SERP as of September 30, 2001.

Mr. Patrick W. Thomas has been a participant in the Huntsman all-employee
pension plans in the United Kingdom and Belgium during his periods of service in
these countries. Mr. Thomas has completed 9 years of credited service in the
Huntsman Pension Scheme in the U.K. and has completed 12 years of credited
service in the Huntsman Pension Fund VZW in Belgium. Mr. Thomas is entitled to a
choice between a pension calculated as if he spent his entire service period in
Belgium using the Huntsman Pension Fund VZW formula and a pension calculated as
if he spent his entire service period in the U.K. using the formula of the
Huntsman Pension Scheme in the U.K. Currently, the U.K. formula is the most
beneficial and his current pension estimate at retirement based upon current
service and pay is $141,285 ((pound)98,000) per year with a mandatory 50%
spouses pension attached.

The U.K. pension formula is 2.2% of final pensionable compensation up to
(pound)11,250, plus 1.83% of final pensionable compensation above (pound)11,250,
minus 1/50th of the current State pension benefit times actual years of service;
subject to a maximum limit of 2/3rd of final pensionable compensation times
service, divided by total possible service to retirement. The Belgium pension
formula is a lump sum benefit equal to 8.57% of final pensionable compensation
up to the Belgian Social Security earnings ceiling, plus 18.21% of pensionable
compensation above the ceiling.

Mr. Douglas A.L. Coombs has a pension promise from September 1, 1999 that
guarantees him a pension as if he spent his Huntsman career in Canada. Mr.
Coombs has completed two years of service since this guarantee was made. The
formula for this plan is based on the formula for the Pension Plan of ICI Canada
Inc. for Senior Managers which is: 1.5% of final compensation up to the maximum
pensionable earnings ceiling in Canada (YMPE), plus 2.1% of the final
compensation above YMPE. Final average compensation is defined as the final
average earnings over a three-year period. His pension at retirement under this
guarantee based upon his current Huntsman service and pay is estimated to be
$20,000 (C$30,000) per annum.

COMPENSATION OF MANAGERS

The managers do not receive any additional compensation for their service as
managers.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The Company has 1,000 member equity units issued and outstanding. The
Company is a wholly-owned subsidiary of Huntsman International Holdings LLC
which is a 60% owned affiliate of an indirect subsidiary of Huntsman
Corporation, 500 Huntsman Way, Salt Lake City, Utah 84108. Jon M. Huntsman and
his family own or control over 95% of Huntsman Corporation. No other director,
executive officer or person beneficially owns any member equity units of the
Company.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

GENERAL

We share numerous services and resources with Huntsman Corporation and ICI.
We also rely on Huntsman Corporation and ICI to supply some of our raw materials
and to purchase a significant portion of our products. During the year ended
December 31, 2001, purchases from and sales to Huntsman

51

Corporation and its subsidiaries were $217.5 million and $73.8 million,
respectively, and purchases from, and sales to, ICI and its subsidiaries were
$235.5 million and $286.2 million, respectively.

We have entered into an agreement with Huntsman Corporation under which
Huntsman Corporation provides us with administrative support and a range of
services, including treasury and risk management, human resources, technical and
legal services for our businesses in the U.S. and elsewhere. In 2001, we paid
$25 million for these services. We also participate in Huntsman Corporation's
worldwide insurance program. Furthermore, we expect to enter into one or more
agreements under which we will provide to Huntsman Corporation and certain of
its subsidiaries a range of support services, including treasury, human
resources, technical and legal services for Huntsman Corporation's businesses in
Europe and elsewhere. These agreements provide for fees based on an equitable
allocation of the general and administrative costs and expenses. See "Item
7--Management's Discussion and Analysis of Financial Condition and Results of
Operations--Cautionary Statement for Forward Looking Information--If we are
unable to maintain our relationships with Huntsman Corporation and ICI, then we
may not be able to replace on favorable terms our contracts with them or the
services and facilities that they provide, if at all."

COMPANY BACKGROUND

At the close of business on June 30, 1999, we acquired assets and stock
representing ICI's polyurethane chemicals, selected petrochemicals (including
ICI's 80% interest in the Wilton olefins facility) and TiO2 businesses and
Huntsman Specialty Chemicals Corporation's PO business. In addition, at the
close of business on June 30, 1999, we also acquired the remaining 20% ownership
interest in the Wilton olefins facility from BP Chemicals Limited. The chart
below shows our current company structure, together with membership interest
ownership:

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(a) Huntsman Polymers Corporation is an indirect wholly-owned subsidiary of
Huntsman Corporation.

(b) In connection with the December 2001 amendment of ICI's put option
agreement, Huntsman Specialty pledged one-half of its 60% equity interest
in Huntsman International Holdings, our direct parent, to ICI.

(c) Guarantor of the notes.

SALE OF EQUITY INTERESTS IN OUR PARENT COMPANY

On November 2, 2000, ICI entered into agreements with Huntsman Specialty,
Huntsman International Holdings and our Company, under which ICI has an option
to transfer to Huntsman Specialty or its permitted designated buyers, and
Huntsman Specialty or its permitted designated buyers have a right to buy, 30%
of the membership interests in Huntsman International Holdings, our parent
company, that are indirectly held by ICI.

Pursuant to such agreements, on October 30, 2001, ICI exercised its put
right requiring Huntsman Specialty or its nominee to purchase ICI's equity stake
in Huntsman International Holdings. On December 20, 2001, ICI and Huntsman
Specialty amended ICI's put option arrangement under the agreements to, among
other things, provide that the purchase of ICI's equity stake would occur on
July 1, 2003, or earlier under certain circumstances, and to provide for certain
discounts to the purchase price for ICI's equity stake. The amended option
agreement also requires Huntsman Specialty to cause Huntsman International
Holdings to pay up to $112 million of dividends to its members, subject to
certain conditions including consent from our senior secured lenders. If
Huntsman International Holdings, our parent, pays this dividend, Huntsman
Specialty would be required to pay over its share of such dividend to ICI. The
dividends received by ICI directly from Huntsman International Holdings and
indirectly through Huntsman Specialty would be a prepayment of the purchase
price for ICI's equity stake in Huntsman

53

International Holdings. In addition, to secure its obligation to pay the
purchase price for ICI's equity interest, Huntsman Specialty granted ICI a lien
on one-half of Huntsman Specialty's 60% equity interest in Huntsman
International Holdings. See "--Description of Put and Call Options" below.

Huntsman International Holdings and ICI have also agreed to settle certain
indemnification matters in relation to ICI and Huntsman International Holdings
has agreed to pay a portion of the costs of an offering by ICI of the HIH reset
notes held by ICI. See "--Warranties and Indemnification" below. Furthermore,
ICI and our Company agreed to finalize other ancillary agreements contemplated
by the contribution agreement and to enter into additional agreements in order
to resolve other issues outstanding since our transaction with ICI in 1999.

ADJUSTMENTS TO CONSIDERATION

ICI was not in a position to transfer its interests in Nippon Polyurethane
Industry Co. Ltd. and Arabian Polyol Company Limited to us at the closing of the
transaction contemplated by the contribution agreement. Under the terms of the
contribution agreement under which we acquired ICI's and Huntsman Specialty's
businesses, we did not receive a purchase price adjustment with respect to those
retained joint venture interests. Instead, ICI has agreed to hold the retained
joint venture interests for our benefit and to pay to us any dividends received
from the joint ventures, and we agreed to indemnify ICI for any losses relating
to any such retained joint venture interest from the closing until such time as
such interests are transferred to us or we receive a refund with respect to such
interests. ICI is required to pay us an amount equal to the higher of $3 million
and the fair market value as of the closing of our transaction with ICI of the
Arabian Polyol joint venture interest if either (1) any of the other joint
venture partners exercise a right of first refusal to acquire that joint venture
interest or (2) on or before June 30, 2001, ICI has not obtained all consents
necessary to transfer that interest to us. In addition, and pursuant to the
contribution agreement as modified by our November 2000 agreements with ICI, ICI
has agreed to pay us $31 million in respect of the Nippon Polyurethane joint
venture interest because ICI determined that it would not be able to obtain all
consents necessary to transfer that interest to us on or before March 31, 2001.
Pursuant to this agreement, ICI paid us $31 million on March 31, 2001. We do not
believe the failure by ICI to transfer these interests will have a material
adverse impact on our results of operations or cash flows.

WARRANTIES AND INDEMNIFICATION

In connection with our transaction with Huntsman Specialty and ICI in 1999,
both ICI and Huntsman Specialty gave standard warranties to Huntsman
International Holdings in connection with the businesses being transferred,
including warranties relating to environmental liabilities and potential
environmental liabilities; existence of, or breaches in connection with, any
material contracts; and tax matters. Under our November 2000 agreements with
ICI, we also agreed with ICI that the approximately (pound)10 million of
payments that they had made with respect to our indemnity claims in relation to
emissions from the Greatham site prior to the acquisition constituted final
settlement of that claim. We also waived any rights that we may have with
respect to certain notices of claim that we had previously filed with ICI, which
waived notices we do not believe met the threshold requirements for recovery
under the contribution agreement or were material in meeting such threshold.

DESCRIPTION OF PUT AND CALL OPTIONS

Under our November 2000 agreements with ICI, ICI had an option to transfer
to Huntsman Specialty or its permitted designated buyers, and Huntsman Specialty
or its permitted designated buyers have a right to buy, the 30% of the
membership interests in Huntsman International Holdings, our parent company,
that are indirectly held by ICI for $363.5 million plus interest from November
30, 2000 until the completion of such sale. ICI exercised its put option on
October 30, 2001. On December 20, 2001, ICI and Huntsman Specialty amended the
option agreement. Among other things, this amendment provides that:

o the closing of the purchase of ICI's equity stake would occur on July
1, 2003, or earlier under certain circumstances;

54

o Huntsman Specialty will receive a discount of approximately $32.7
million for the purchase of ICI's equity stake if the closing of the
purchase occurs before 2:00 pm on July 1, 2003;

o Huntsman Specialty will receive additional discounts of up to an
aggregate amount of $20 million for certain prepayments of the
purchase price;

o to the extent that funds are available for the payment of a dividend
and the payment of the dividend would be permissible under Huntsman
International Holdings' and our indentures, until Huntsman
International Holdings has paid an aggregate of $112 million of
dividends (other than tax distributions), Huntsman Specialty will use
its commercially reasonable best efforts to cause Huntsman
International Holdings and its subsidiaries to obtain required third
party consents including consent of a majority of lenders under the
Senior Secured Credit Facilities to the payment of such dividends and,
upon receipt of such consents, will cause the managers of Huntsman
International Holdings who have been appointed by Huntsman Specialty
to approve the payment of such dividends, subject to:

o the declaration and payment of such dividend being in compliance
with applicable law;

o the board of managers of Huntsman International Holdings having
due regard with respect to the financial viability of Huntsman
International Holdings as a going concern, and due regard with
respect to whether the payment of such dividend would prejudice
the conduct of the business of Huntsman International Holdings;

o approval of such dividend by the managers of Huntsman
International Holdings who have been appointed by ICI;

o if Huntsman International Holdings, our parent, pays this
dividend, Huntsman Specialty would be required to pay over its
share of such dividend to ICI. This payment by Huntsman Specialty
to ICI would be a prepayment of the purchase price for ICI's
equity in Huntsman International Holdings; and

o any dividends that ICI receives directly from Huntsman
International Holdings will also count as a prepayment of the
purchase price for ICI's equity interest in Huntsman
International Holdings;

o Huntsman Specialty can elect to purchase ICI's equity stake at any
time after ICI has sold at least one-half of the HIH Reset Notes or,
regardless of whether ICI has sold any of those notes, at any time
after January 1, 2003; and

o Huntsman Specialty's obligation to purchase ICI's equity stake could
accelerate upon the occurrence of certain events, including certain
breaches of the option agreement by Huntsman Specialty, the bankruptcy
of Huntsman Specialty, an acceleration or payment default in respect
of certain Huntsman International Holdings or Huntsman International
debt, a change of control of Huntsman International Holdings or
Huntsman International and the failure of Huntsman Specialty to
satisfy certain judgments.

In addition, in order to secure its obligation to pay the purchase price
for ICI's equity interest, Huntsman Specialty granted ICI a lien on one-half of
Huntsman Specialty's 60% equity interest in Huntsman International Holdings.

As part of the original agreement with ICI relating to the creation of our
Company, ICI agreed not to engage, for a period of two years following ICI's
sale of its interests in our Company, in any business in which our Company would
at that time be engaged. Pursuant to an amendment entered into on December 20,
2001, this non-competition obligation of ICI in favor of our Company was
modified to commence on

55

December 20, 2001 and end on June 30, 2004 and not apply to the ethyleneamines
operations acquired from Dow in February 2001 or to the European surfactants
operations acquired from Rhodia, S.A. in April 2001).

Under the terms of an agreement, as amended, between Huntsman Specialty and
BT Capital Investors, L.P., J.P. Morgan Partners (BHCA), L.P., GS Mezzanine
Partners, L.P. and GSMP(HICI), Inc., each of these institutional investors has
the right to require Huntsman Specialty to purchase their respective membership
interests in Huntsman International Holdings contemporaneously with the purchase
by Huntsman Specialty of the ICI equity interests or if ICI sells its equity
interests to a third party, in each case except as described below. In addition,
each such institutional investor has the right to require Huntsman Specialty to
purchase its membership interest in Huntsman International Holdings at any time
after June 30, 2004. Each such institutional investor also has an option to
require Huntsman Specialty to purchase its membership interest in Huntsman
International Holdings following the occurrence of a change of control of
Huntsman International Holdings or Huntsman Corporation. Huntsman Specialty has
the option to purchase all outstanding membership interests owned by the
institutional investors at any time after June 30, 2006. The exercise price for
each of these put and call options will be the value of our business as agreed
between Huntsman Specialty and the institutional investors or as determined by a
third party at the time of the exercise of the put or call option. If Huntsman
Specialty, having used commercially reasonable efforts, does not purchase such
membership interests, the selling institutional investor will have the right to
require Huntsman International Holdings to register such membership interests
for resale under the Securities Act.

SPECIALTY CHEMICALS BUSINESS

ACQUISITION OF POLYURETHANES BUSINESS.

On March 31, 2001, we acquired the polyurethanes business of ICI India for
a purchase price of approximately $17 million. Located in Thane (Maharashtra),
India, the business has sales in India and Southern Asia. The business will be
integrated into the specialty chemicals division of our Company.

SUPPLY CONTRACTS

We are interdependent with Huntsman Petrochemical Corporation with respect
to the supply of certain feedstock, utilities and products. Under a supply
agreement that expires in 2012, we are required to sell, and Huntsman
Petrochemical Corporation is required to purchase, a portion of the steam that
we purchase from outside parties. Huntsman Petrochemical Corporation reimburses
us for the cost of the steam that it purchases from us. Under separate supply
agreements, we have agreed to purchase our requirements of mono-ethylene glycol
and tri-ethylene glycol from Huntsman Petrochemical Corporation at market prices
for use in our PO operations. Furthermore, in exchange for Huntsman
Petrochemical Corporation's PG tolling services, we pay Huntsman Petrochemical
Corporation a reservation fee, adjusted annually for inflation, plus a variable
toll fee equal to Huntsman Petrochemical Corporation's cost of operating the PG
plant. In 2001, we paid Huntsman Petrochemical Corporation approximately $6.6
million in fees under these contracts and received approximately $12.3 million
in reimbursements from Huntsman Petrochemical Corporation.

PO SUPPLY AGREEMENT

Pursuant to an existing agreement with Huntsman Petrochemical Corporation
that expires in 2012, we are obligated to sell, and Huntsman Petrochemical
Corporation is obligated to buy, all PO produced at our PO facility in Port
Neches, Texas which is not purchased by our other customers. We are entitled to
receive market prices for the PO purchased by Huntsman Petrochemical
Corporation. During 2001, Huntsman Petrochemical Corporation did not purchase
any PO from us under this agreement. However, Huntsman Petrochemical did
purchase approximately $26 million of PO in 2001 from us for use in its
operations.

56

PROPYLENE SUPPLY AGREEMENT

Pursuant to an agreement that expires in 2012, Huntsman Petrochemical
Corporation is obligated to provide 100% of the propylene required by us for
operation of our PO facility, up to a maximum of 350 million pounds per year. We
pay market prices for the propylene supplied by Huntsman Petrochemical
Corporation. In 2001, we spent approximately $64 million under this agreement.
During 2002, we expect that one of our PO customers will begin providing
propylene under a tolling arrangement.

ETHYLENE AND ETHYLENE OXIDE SUPPLY

Currently, Huntsman Petrochemical Corporation supplies ethylene and
ethylene oxide required by us for the operation of our ethyleneamines facility.
We pay market prices for the ethylene supplied by Huntsman Petrochemical
Corporation. In 2001, we spent approximately $13 million to purchase ethylene
from Huntsman Petrochemical Corporation.

SERVICES CONTRACTS

During 2000, we continued to purchase services under a contract with ICI
which were being delivered by Enron Teesside Operations Limited ("ETOL"). These
services include the operation and maintenance of various infrastructure,
effluent disposal, storage of engineering materials, analytical and distribution
assets. We terminated this arrangement in August 2000, at which time we entered
into a new arrangement directly with ETOL.

In addition, we have entered into arrangements relating to the provision by
ICI or its affiliates to us of a range of support service for the efficient
transition of the change of business ownership. These services may include human
resources, analytical, engineering, occupational health and marketing and sales.
The terms and conditions of these agreements are substantially the same as
agreements or non-contractual arrangements existing prior to the closing of the
transfer of ICI's business to us, which generally reflect either market prices
or prices based on cost plus a reasonable fee, which we believe, taken together,
reflect market and below market rates. These services have been largely
discontinued.

In order to operate the PO business, we have entered into a series of
contracts with Huntsman Petrochemical Corporation that expire in 2012 under
which Huntsman Petrochemical Corporation operates and maintains the PO facility,
including the provision of management, personnel, transportation, information
systems, accounting, tax and legal services, and research and development to our
PO business. Generally, under these agreements, we pay Huntsman Petrochemical
Corporation an amount equal to its actual costs for providing us with each of
these services. In 2001, we paid Huntsman Petrochemical Corporation
approximately $25 million under these agreements, which we believe to be
equivalent to that which would be paid under arm's length negotiations.

In order to operate our ethyleneamines business, we purchase services from
Huntsman Petrochemical Corporation, including personnel, transportation,
accounting, tax and information systems. In 2001, we spent approximately $7
million for these services.

PETROCHEMICALS BUSINESS

NAPHTHA SUPPLY AGREEMENT

We entered into a product supply agreement with ICI, which requires ICI to
supply and us to buy the entire naphtha output (up to 2.98 billion pounds per
year) of the Phillips Imperial Petroleum Limited (now Petroplus Limited)
refinery at Teesside and specified amounts of other feedstock available to ICI
from operations on Teesside. We purchase these products on terms and conditions
which reflect market prices. During 2001, we spent approximately $214 million
under this agreement.

57

On January 6, 2002, we provided ICI notice of our intent to terminate this
contract. The contract will terminate on January 6, 2003 with a $5 million
payment by us to ICI. We are currently in negotiations with alternate suppliers
of naphtha, including Petroplus Limited.

SUPPLY CONTRACTS

We have entered into several agreements with ICI and an affiliate for the
supply of ethylene and the supply of hydrogen to and from affiliates of ICI.
During 2001, ICI's major hydrogen supplying plant was closed. The terms and
conditions of these agreements are substantially the same as agreements or
non-contractual arrangements existing prior to the closing of the transfer of
ICI's petrochemicals business to us, which generally reflect market prices. ICI
divested its interests in these businesses at the end of 2000, with the
exception of one ethylene customer. During 2001, we spent approximately $4
million on the purchase of hydrogen from ICI, and ICI spent approximately $41
million under its residual ethylene agreement.

In addition, there are certain supply agreements with ethylene customers
which have not yet been novated from ICI to Huntsman. Until these contracts are
novated, Huntsman continues to invoice ICI which in turn invoices the customer.
During the twelve months ended December 31, 2001, ICI made purchases of
approximately $145 million relating to these agreements.

UTILITIES CONTRACTS

We have entered into several agreements with ICI and an affiliate of ICI
relating to the provision of certain utilities, including steam, fuel gas,
potable water, electricity, water and compressed air by us to an affiliate. The
terms and conditions of these agreements are substantially the same as
agreements or non-contractual arrangements existing prior to the closing of the
transfer of ICI's businesses to us, which generally reflect either market prices
or prices based upon cost plus a reasonable fee, which we believe, taken
together, reflect market or below market rates. During the twelve months ended
December 31, 2000, ICI spent approximately $4 million under these agreements.
The affiliate concerned was divested by ICI at the end of 2000.

During 2001, we continued to purchase utilities under a contract with ICI
which were being supplied by ETOL. Utilities included electricity, steam, water,
natural gas and compressed air. During 2001, we spent approximately $45 million
under this agreement. Effective January 2002, the natural gas supply contract
has been discontinued.

SERVICES CONTRACTS

We have entered into several agreements with ICI and its affiliates
relating to a wide range of operational services both to and from ICI or its
affiliates, primarily at Teesside. These operational services include the
operation and maintenance of various infrastructure, effluent disposal, storage,
jetty and distribution assets. The terms and conditions of these agreements are
substantially the same as agreements or non-contractual arrangements existing
prior to the closing of the transfer of ICI's businesses to us, which generally
reflect either market prices or prices based upon cost plus a reasonable fee,
which we believe, taken together, reflect market or below market rates. The ICI
businesses/affiliates to whom these agreements relate were divested by ICI at
the end of 2000.

In addition, we have entered into agreements relating to the provision by
ICI or its affiliates to us of a range of support services for the efficient
transition of the change of business ownership. These services may include
various human resources, occupational health, analytical, engineering or
purchasing services. The terms and conditions of these agreements are
substantially the same as agreements or non-contractual arrangements existing
prior to the closing of the transfer of ICI's businesses to us, which generally
reflect either market prices or prices based on cost plus a reasonable fee,
which we believe, taken together, reflect market or below market rates. These
services have been largely discontinued.

During the twelve months ended December 31, 2000, we spent approximately
$10 million, and ICI spent approximately $7 million, under the service
contracts.

58

TIOXIDE BUSINESS

SUPPLY AGREEMENT WITH ICI PAINTS

We have an existing agreement with the paints business of ICI to supply
TiO2. At the current level of commitment, we supply approximately 60,000 tonnes
of TiO2 per year at market prices. We have revised and extended the agreement to
ensure that it remains consistent with developments in the market. The revised
agreement expires no earlier than December 31, 2003 upon at least twelve months'
prior notice. In 2001, ICI spent approximately $94 million under this agreement.

FEEDSTOCK SUPPLY CONTRACTS

Through January 9, 2001, when ICI sold its interest in the supplying
businesses to INEOS, we had several agreements whereby ICI and its affiliates
supplied us with sulphur, sulphuric acid, caustic soda and chlorine. The terms
and conditions of the agreements with ICI were substantially the same as
agreements or non-contractual arrangements existing prior to the closing of the
transfer of ICI's businesses to us, which generally reflect market prices. In
2000, we spent approximately $14 million under these agreements.

We have also operated an agreement with an affiliate of ICI relating to the
supply of titanium tetrachloride. The terms and conditions of this agreement
with ICI was substantially the same as agreements or non-contractual
arrangements existing prior to the closing of the transfer of ICI's businesses
to us, which generally reflect market prices. In 2001, ICI spent approximately
$1.3 million under this agreement.

SERVICES CONTRACTS

We have entered into several agreements with ICI or its affiliates relating
to a wide range of operational services. These operational services will include
the operation and maintenance of various infrastructure, effluent disposal,
storage and distribution assets. The terms and conditions of these agreements
are substantially the same as agreements or non-contractual arrangements
existing prior to the closing of the transfer of ICI's businesses to us, which
generally reflect either market prices or prices based upon cost plus a
reasonable fee, which we believe, taken together, reflect market or below market
rates.

In addition, we have entered into several agreements relating to the
provision by ICI or its affiliates to us of a range of support services for the
efficient transition of business ownership. These services include various human
resources, occupational health, analytical, engineering or purchasing services.
The terms and conditions of these agreements are substantially the same as
agreements or non-contractual arrangements existing prior to the closing of the
transfer of ICI's businesses to us, which generally reflect either market prices
or below market rates. In 2001, we spent approximately $7 million under these
agreements.

TAX SHARING ARRANGEMENT

Pursuant to our limited liability company agreement and the limited
liability company agreement of Huntsman International Holdings, we have a tax
sharing arrangement with all of our and Huntsman International Holdings'
membership interest holders. Under the arrangement, because we are treated as a
partnership for United States income tax purposes, we will make payments to our
parent, Huntsman International Holdings, which will in turn make payments to its
membership interest holders, in an amount equal to the United States federal and
state income taxes we and Huntsman International Holdings would have paid had
Huntsman International Holdings been a consolidated or unitary group for federal
tax purposes. The arrangement also provides that we will receive cash payments
from the membership interest holders (through Huntsman International Holdings)
in amounts equal to the amount of United States federal and state income tax
refunds or benefit against future tax liabilities equal to the amount we would
have received from the use of net operating losses or tax credits generated by
us.

59

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) 1. Consolidated Financial Statements:
See Index to Consolidated Financial Statements on page F-1

(a) 2. Financial Statement Schedule:
See Index to Consolidated Financial Statements on page F-1

(a) 3. Description of Exhibits

3.1 Certificate of Formation of Huntsman International LLC (incorporated
by reference to Exhibit 3.1 to our registration statement on Form S-4
(File No. 333-85141))

3.2 Amended and Restated Limited Liability Company Agreement of Huntsman
International LLC dated June 30, 1999 (incorporated by reference to
Exhibit 3.2 to our registration statement on Form S-4 (File No.
333-85141))

3.3 Certificate of Formation of Huntsman International Financial LLC
(incorporated by reference to Exhibit 3.3 to our registration
statement on Form S-4 (File No. 333-85141))

3.4 Limited Liability Company Agreement of Huntsman International
Financial LLC dated June 18, 1999, as amended by the First Amendment
dated June 19, 1999 (incorporated by reference to Exhibit 3.4 to our
registration statement on Form S-4 (File No. 333-85141))

3.5 Memorandum of Association of Tioxide Group (incorporated by reference
to Exhibit 3.5 to our registration statement on Form S-4 (File No.
333-85141))

3.6 Articles of Association of Tioxide Group (incorporated by reference to
Exhibit 3.6 to our registration statement on Form S-4 (File No.
333-85141))

3.7 Memorandum of Association of Tioxide Americas Inc. (incorporated by
reference to Exhibit 3.7 to our registration statement on Form S-4
(File No. 333-85141))

3.8 Articles of Association of Tioxide Americas Inc. (incorporated by
reference to Exhibit 3.8 to our registration statement on Form S-4
(File No. 333-85141))

3.9 Certificate of Amendment to Certificate of Formation of Huntsman
International LLC (incorporated by reference to Exhibit 3.9 to our
annual report on Form 10-K for the year ended December 31, 2000)

3.10 Certificate of Amendment to Certificate of Formation of Huntsman
International Financial LLC (incorporated by reference to Exhibit
3.10 to our annual report on Form 10-K for the year ended
December 31, 2000)

4.1 Indenture, dated as of June 30, 1999, among Huntsman International LLC
(f/k/a Huntsman ICI Chemicals LLC), the Guarantors party thereto and
Bank One, N.A., as Trustee, relating to the 10-1/8% Senior
Subordinated Notes due 2009 (incorporated by reference to Exhibit 4.1
to our registration statement on Form S-4 (File No. 333-85141))

4.2 Form of certificate of 10-1/8% Senior Subordinated Note due 2009
denominated in dollars (included as Exhibit A-3 to Exhibit 4.1)

4.3 Form of certificate of 10-1/8% Senior Subordinated Note due 2009
denominated in euros (included as Exhibit A-4 to Exhibit 4.1)

4.4 Form of Guarantee (included as Exhibit E of Exhibit 4.1)

4.5 First Amendment, dated January 5, 2000, to Indenture, dated as of June
30, 1999, among Huntsman International LLC (f/k/a Huntsman ICI
Chemicals LLC), as Issuer, each of the Guarantors named therein and
Bank One, N.A., as Trustee (incorporated by reference to Exhibit 4.6
to our registration statement on Form S-4 (File No. 333-85141))

10.1 Contribution Agreement, dated as of April 15, 1999, by and among
Imperial Chemical Industries PLC, Huntsman Specialty Chemicals
Corporation, Huntsman International Holdings LLC (f/k/a Huntsman ICI
Huntsman International Holdings LLC) and Huntsman International LLC
(f/k/a Huntsman ICI Chemicals LLC) as amended by the first Amending
Agreement, dated June 4, 1999, the second Amending Agreement, dated
June 30, 1999, and the third Amending Agreement, dated June 30, 1999
(incorporated by reference to Exhibit 10.1 to our registration
statement on Form S-4 (File No. 333-85141))

10.2 Purchase and Sale Agreement (PO/MTBE Business), dated March 21, 1997,
among Texaco, Texaco Chemical Inc. and Huntsman Specialty Chemicals
Corporation (incorporated by reference to Exhibit 10.2 to our
registration statement on Form S-4 (File No. 333-85141))

60

10.3 Operating and Maintenance Agreement, dated as of March 21, 1997, by
and between Huntsman Specialty Chemicals Corporation and Huntsman
Petrochemical Corporation (incorporated by reference to Exhibit 10.3
to our registration statement on Form S-4 (File No. 333-85141))

10.4 Credit Agreement, dated as of June 30, 1999, by and among Huntsman
International LLC (f/k/a Huntsman ICI Chemicals LLC), Huntsman
International Holdings LLC (f/k/a Huntsman ICI Huntsman International
Holdings LLC), Bankers Trust Company, Goldman Sachs Credit Partners
LP, The Chase Manhattan Bank, and Warburg Dillon Read and various
lending institutions party thereto (incorporated by reference to
Exhibit 10.4 to our registration statement on Form S-4 (File No.
333-85141))

10.5 Asset Sale Agreement, dated June 30, 1999, by and between BP Chemicals
Limited and Huntsman International LLC (f/k/a Huntsman ICI Chemicals
LLC) (incorporated by reference to Exhibit 10.5 to our registration
statement on Form S-4 (File No. 333-85141))

10.6 Joint Venture Agreement, dated as of October 18, 1993, between Tioxide
Americas Inc. and Kronos Louisiana, Inc. (incorporated by reference to
Exhibit 10.6 to our registration statement on Form S-4 (File No.
333-85141))

10.7 Shareholders Agreement, dated as of January 11, 1982, by and among
Imperial Chemical Industries PLC, ICI American Huntsman International
Holdings, Inc. and Uniroyal, Inc. (incorporated by reference to
Exhibit 10.7 to our registration statement on Form S-4 (File No.
333-85141))

10.8 Operating Agreement, dated December 28, 1981, between Uniroyal, Inc.,
Rubicon Chemicals, Inc. and Rubicon, Inc. (incorporated by reference
to Exhibit 10.8 to our registration statement on Form S-4 (File No.
333-85141))

10.9 Liability and Indemnity Agreement, dated December 28, 1981, by and
among Rubicon Inc., Rubicon Chemicals Inc., Imperial Chemical
Industries PLC, ICI American Huntsman International Holdings Inc., ICI
Americas Inc. and Uniroyal Inc. (incorporated by reference to Exhibit
10.9 to our registration statement on Form S-4 (File No. 333-85141))

10.10 Titanium Dioxide Supply Agreement, dated July 3, 1997, by and between
Imperial Chemicals Industries PLC and Tioxide Group (incorporated by
reference to Exhibit 10.10 to our registration statement on Form S-4
(File No. 333-85141))*

10.11 Slag Sales Agreement, dated July 10, 1997, by and between Richards Bay
Iron and Titanium (Proprietary ) Limited and Tioxide S.A. (Pty)
Limited (incorporated by reference to Exhibit 10.11 to our
registration statement on Form S-4 (File No. 333-85141))*

10.12 Slag Sales Agreement, dated April 19, 2000, by and between Qit-Fer Et
Titane Inc. and Tioxide Europe Limited (incorporated by
reference to Exhibit 10.12 to our annual report on Form 10-K for
the year ended December 31, 2000)**

10.13 Supply Agreement, dated April 13, 1998, by and between Shell Trading
International Limited and ICI Chemicals & Polymers Limited
(incorporated by reference to Exhibit 10.13 to our registration
statement on Form S-4 (File No. 333-85141))*

10.14 Amendment, dated February 7, 2001, to the Supply Agreement, dated
April 13, 1998, by and between Shell Trading International Limited and
ICI Chemicals & Polymers Limited (incorporated by reference to Exhibit
10.14 to our annual report on Form 10-K for the year ended December
31, 2000)**

10.15 First Amendment, dated as of December 21, 2000, by and among Huntsman
International LLC, Huntsman International Holdings LLC, the financial
institutions named therein, as Lenders, Bankers Trust Company, as Lead
Arranger, Administrative Agent for the Lenders and Sole Book Manager,
Goldman Sachs Credit Partners L.P., as Syndication Agent and
Co-Arranger and The Chase Manhattan Bank and Warburg Dillon Read (a
division of UBS AG), as Co-Arrangers and as Co-Documentation Agents,
to the Credit Agreement dated as of June 30, 1999 (incorporated by
reference to Exhibit 10.15 to our annual report on Form 10-K for
the year ended December 31, 2000)

10.16 Second Amendment, dated as of March 5, 2001, is entered into by and
among Huntsman International LLC, Huntsman International Holdings LLC,
the undersigned financial institutions, including Bankers Trust
Company, in their capacities as lenders hereunder, Bankers Trust
Company, as Lead Arranger, Administrative Agent for the Lenders and
Sole Book Manager, Goldman Sachs Credit Partners L.P., as Syndication
Agent and Co-Arranger and The Chase Manhattan Bank and UBS Warburg LLC
(as successor to Warburg Dillon Read), as Co-Arrangers and as
Co-Documentation Agents, to the Credit Agreement dated as of June 30,
1999 (incorporated by reference to Exhibit 10.16 to our annual report
on Form 10-K for the year ended December 31, 2000)

61

10.17 Contribution Agreement, among Huntsman International LLC, as
Contributor and Originator, and Huntsman Receivables Finance LLC, as
the Company, dated as of December 20, 2000 (incorporated by reference
to Exhibit 10.17 to our annual report on Form 10-K for the year ended
December 31, 2000)

10.18 Huntsman Master Trust Pooling Agreement, dated as of December 21,
2000, among Huntsman Receivables Finance LLC, as Company, Huntsman
(Europe) BVBA, as Master Servicer, and Chase Manhattan Bank (Ireland)
Plc, as Trustee (incorporated by reference to Exhibit 10.18 to our
annual report on Form 10-K for the year ended December 31, 2000)

10.19 Huntsman Master Trust, Series 2000-1 Supplement, dated as of December
21, 2000, to Pooling Agreement dated as of December 21, 2000, among
Huntsman Receivables Finance LLC, as Company, Huntsman (Europe), BVBA,
as Master Servicer, The Chase Manhattan Bank, as Funding Agent, Park
Avenue Receivables Corp., as Series 2000-1 Initial Purchaser, the
several financial institutions party thereto from time to time as
Series 2000-1 APA Banks, and Chase Manhattan Bank (Ireland) Plc, as
Trustee (incorporated by reference to Exhibit 10.19 to our annual
report on Form 10-K for the year ended December 31, 2000)

10.20 Servicing Agreement, dated as of December 21, 2000, among Huntsman
Receivables Finance LLC, as the Company, Huntsman (Europe) BVBA, as
Master Servicer, Tioxide Americas Inc., Huntsman ICI Holland B.V.,
Tioxide Europe Limited, Huntsman International LLC, Huntsman
Petrochemicals (U.K.) Limited, Huntsman Propylene Oxide Ltd., Huntsman
International Fuels L.P., as Local Servicers, Chase Manhattan Bank
(Ireland) Plc, as Trustee, Pricewaterhousecoopers, as Liquidation
Servicer, and Huntsman International LLC, as Servicer Guarantor
(incorporated by reference to Exhibit 10.20 to our annual report on
Form 10-K for the year ended December 31, 2000)

10.21 U.S. Receivables Purchase Agreement, Huntsman International LLC, as
Purchaser, and Tioxide Americas Inc., Huntsman Propylene Oxide Ltd.
and Huntsman International Fuels, L.P., each as a Seller and an
Originator (incorporated by reference to Exhibit 10.21 to our annual
report on Form 10-K for the year ended December 31, 2000)

10.22 Dutch Receivables Purchase Agreement, dated as of December 21, 2000,
between Huntsman International LLC, as Purchaser, Huntsman ICI Holland
B.V., as Originator, Huntsman ICI (Europe) B.V.B.A., as Master
Servicer (incorporated by reference to Exhibit 10.22 to our annual
report on Form 10-K for the year ended December 31, 2000)

10.23 U.K. Receivables Purchase Agreement, dated as of December 20, 2000,
between Huntsman International LLC, as Purchaser, Tioxide Europe
Limited and Huntsman Petrochemicals (U.K.) Limited, as Originators,
and Huntsman (Europe) B.V.B.A., as Master Servicer (incorporated by
reference to Exhibit 10.23 to our annual report on Form 10-K for the
year ended December 31, 2000)

10.24 Third Amendment, dated as of November 30, 2001, by and among Huntsman
International LLC, Huntsman International Holdings LLC and the various
agents and lending institutions party thereto (incorporated by
reference to Exhibit 10.1 to our current report on Form 8-K filed
December 4, 2001)

21.1 Subsidiaries of Huntsman International LLC (incorporated by reference
to Exhibit 21.1 to our annual report on Form 10-K for the year ended
December 31, 2000)

* Confidential treatment pursuant to Rule 406 of the Securities Act has been
previously granted by the SEC.

** Portions of this document have been omitted and previously filed separately
with the SEC pursuant to requests for confidential treatment pursuant to
Rule 406 of the Securities Act and Rule 24b-2 of the Exchange Act.

(b) The Company filed one current report on Form 8-K during the last quarter of
year ended December 31, 2001 relating to the following events:

Item 5. Other Events

On November 30, 2001, Huntsman International LLC (the "Company") entered
into the Third Amendment (the "Third Amendment") to its senior secured
credit facilities (as so amended, the "Credit Facilities") with the
approval of lenders holding over 90% of the indebtedness and commitments
under the Credit Facilities. The Third Amendment, among other things,
waives certain defaults by the Company under the Credit Facilities and
amends certain financial and other covenants in the Credit Facilities. As a
result of the Third Amendment, the Company is now in compliance with all
the covenants contained in the Credit Facilities and is able to borrow
under, and have access to, the Credit Facilities. A copy of the Third
Amendment is attached hereto as Exhibit 10.1 and is incorporated by
reference in its entirety herein.

62

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.

Huntsman International LLC

Dated: April 1, 2002 By: /s/ J. Kimo Esplin
-------------------- ----------------------------
J. KIMO ESPLIN
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Registrant and in the
capacities indicated on the 1st day of April, 2002:

NAME CAPACITIES
- ------------------------ ------------------------------------------------

/s/ Jon M. Huntsman
- ----------------------
JON M. HUNTSMAN Chairman of the Board and Manager

/s/ Peter R. Huntsman
- ----------------------
PETER R. HUNTSMAN President and Chief Executive Officer and
Manager (Principal Executive Officer)

/s/ J. Kimo Esplin
- ----------------------
J. KIMO ESPLIN Executive Vice President, Chief Financial Officer
(Principal Financial and Accounting Officer)

63

HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES
ITEMS 8 AND 14(a)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

F-1

RESPONSIBILITY FOR THE CONSOLIDATED FINANCIAL STATEMENTS

Company management is responsible for the preparation, accuracy and
integrity of the consolidated financial statements and other financial
information included in this Annual Report. This responsibility includes
preparing the statements in accordance with accounting principles generally
accepted in the United States of America and necessarily includes estimates
based upon management's best judgment.

To help ensure the accuracy and integrity of Company financial data,
management maintains internal controls which are designed to provide reasonable
assurance that transactions are executed as authorized, that they are accurately
recorded and that assets are properly safeguarded. It is essential for all
Company employees to conduct their business affairs in keeping with the highest
ethical standards as outlined in our code of conduct policy, "Business Conduct
Guidelines." Careful selection of employees, and appropriate divisions of
responsibility also help us to achieve our control objectives.

The consolidated balance sheets of Huntsman International LLC and
subsidiaries as of December 31, 2001 and 2000, and the related consolidated
statements of operations and comprehensive income (loss), equity, and cash flows
for the years ended December 31, 2001 and 2000 and the six months ended December
31, 1999; and the six months ended June 30, 1999 of Huntsman Specialty Chemicals
Corporation (the "HSCC Predecessor Company") have been audited by the Company's
independent accountants Deloitte & Touche LLP. Their report is shown on page
F-3.

The Board of Managers oversees the adequacy of the Company's control
environment. The Audit Committee meets periodically with representatives of
Deloitte & Touche LLP, internal financial management and the internal auditor to
review accounting, control, auditing and financial reporting matters. The
independent accountants and the internal auditor also have full and free access
to meet privately with the Committee.

F-2

INDEPENDENT AUDITORS' REPORT

TO THE BOARD OF MANAGERS AND MEMBERS OF
HUNTSMAN INTERNATIONAL LLC

We have audited the accompanying consolidated balance sheets of Huntsman
International LLC and subsidiaries (the "Company"), formerly Huntsman Specialty
Chemicals Corporation (the "HSCC Predecessor Company"), as of December 31, 2001
and 2000, and the related consolidated statements of operations and
comprehensive income (loss), equity, and cash flows for the years ended December
31, 2001 and 2000 and the six months ended December 31, 1999; and the six months
ended June 30, 1999 (HSCC Predecessor Company operations). Our audits also
included the financial statement schedule listed in the table of contents. These
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Huntsman International LLC and
subsidiaries at December 31, 2001 and 2000 and the results of the Company's
operations and its cash flows for the years ended December 31, 2001 and 2000 and
the six months ended December 31, 1999; and the results of the HSCC Predecessor
Company operations and its cash flows for the six months ended June 30, 1999 in
conformity with accounting principles generally accepted in the United States of
America. Also, in our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.

As discussed in Note 1 to the consolidated financial statements, the
Company was required to adopt Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities," effective
January 1, 2001.

DELOITTE & TOUCHE LLP

Salt Lake City, Utah
February 28, 2002, except for Note 21,
as to which the date is March 18, 2002

F-3

HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Millions of Dollars)

See accompanying notes to consolidated financial statements

F-4

HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Millions of Dollars)

See accompanying notes to consolidated financial statements

F-5

HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(Millions of Dollars)

See accompany notes to consolidated financial statements

F-6

HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Millions of Dollars)

F-7

See accompanying notes to consolidated financial statements

F-8

HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

Effective June 30, 1999, pursuant to a contribution agreement and ancillary
agreements between Huntsman International Holdings LLC ("Holdings"), Huntsman
Specialty Chemicals Corporation ("HSCC"), Imperial Chemicals Industries PLC
("ICI") and Huntsman International LLC ("Huntsman International" or the
"Company"), the Company acquired assets and stock representing ICI's
polyurethane chemicals, selected petrochemicals (including ICI's 80% interest in
the Wilton olefins facility) and titanium dioxide businesses and HSCC's
propylene oxide business. In addition, the Company also acquired the remaining
20% ownership interest in the Wilton olefins facility from BP Chemicals, Limited
("BP Chemicals") for approximately $117 million.

The Company is a global manufacturer and marketer of specialty and commodity
chemicals through our principal businesses: specialty chemicals, petrochemicals
and titanium dioxide. The Company is a wholly-owned subsidiary of Holdings.

In exchange for transferring its business, HSCC retained a 60% common equity
interest in Holdings and received approximately $360 million in cash as a
distribution from Holdings. In exchange for transferring its businesses, ICI
received a 30% common equity interest in Holdings, approximately $2 billion in
cash that was paid in a combination of U.S. dollars and euros, and discount
notes of Holdings with approximately $508 million of accreted value at issuance.
The cash proceeds of the Holdings discount notes issued to ICI were contributed
by Holdings as equity to Huntsman International. The obligations of the discount
notes from Holdings are non-recourse to the Company. BT Capital Investors, LP,
Chase Equity Associates, LP, and the Goldman Sachs Group acquired the remaining
10% common equity interest in Holdings for $90 million cash.

The cash sources to finance the above transactions are summarized as follows (in
millions):

Senior secured credit facilities of Huntsman International $1,683
Senior subordinated notes of Huntsman International 807
Cash equity contributed by Holdings 598
------
TOTAL CASH SOURCES $3,088
======

HSCC is considered the acquirer and predecessor of the businesses transferred to
the Company in connection with the transaction because the shareholders of HSCC
acquired majority control of the businesses transferred to the Company. HSCC is
a 80.1% owned subsidiary of Huntsman Corporation ("Huntsman"). The transactions
with ICI and BP Chemicals are accounted for as purchase transactions. Operating
results prior to July 1, 1999 are not comparable to the operating results
subsequent to such date due to the transaction.

The total consideration to ICI of cash and the value of common equity interest
in Holdings was approximately $2.8 billion, including expenses and liabilities
assumed. The excess of the purchase price over the estimated fair value of net
tangible assets acquired has been recorded as identifiable intangibles and
goodwill which are being amortized over 5 to 15 years and 20 years,
respectively.

F-9

The allocation of the purchase price is summarized as follows (in millions):

Current assets $ 970.2
Plant and equipment 2,232.5
Investments in unconsolidated affiliates 192.7
Intangible assets (patents, technology, noncompete agreements
and goodwill) 248.1
Other assets 292.4
Liabilities assumed (1,020.8)
----------
TOTAL $ 2,915.1
==========

The total consideration paid to BP Chemicals was allocated to tangible assets,
primarily property and equipment.

The following unaudited pro forma data (in millions) has been prepared assuming
that the transaction (excluding the acquisition of 20% of the Wilton olefins
facility from BP Chemicals) and related financing were consummated at the
beginning of each period.

SALE OF EQUITY INTERESTS IN HOLDINGS

On December 20, 2001, ICI and HSCC entered into an agreement (the "Option
Agreement") which amends the terms of previous agreements for the buyout of
ICI's 30% interest in Holdings. The Option Agreement provides that the purchase
of ICI's 30% interest will occur on or before July 1, 2003 for a price of $363.5
million, plus interest at 9% from November 30, 2000 until the closing date. The
Option Agreement also provides for discounts to the purchase price for certain
prepayments of the purchase price and if the closing occurs prior to July 1,
2003. The purchase can occur any time after January 1, 2003 and prior to that
date, if certain conditions are met. To secure its obligation to pay ICI, HSCC
granted a lien on 50% of the membership interests in Holdings owned by HSCC. The
Option Agreement also requires HSCC to cause Holdings to pay up to $112 million
in distributions to members, subject to certain conditions. HSCC is obligated to
pay to ICI its share of membership distributions as advance purchase price
payments. Holdings has the right to provide up to $70 million to fund the
purchase.

Under the terms of an agreement, as amended, between HSCC and the institutional
investors, each of these investors has the right to require HSCC to purchase its
interest in Holdings contemporaneously with the purchase of ICI's interest. In
addition, each institutional investor has the right to require HSCC to purchase
its equity interest in Holdings at any time after June 30, 2004. Each
institutional investor also has an option to require HSCC to purchase its equity
interest in Holdings following the occurrence of a change of control of Holdings
or Huntsman. HSCC has the option to purchase all outstanding interest owned by
the institutional investors at any time after June 30, 2006. The exercise price
for each of these put and call options will be the value of the business as
agreed between HSCC and the institutional investors or as determined by a third
party at the time of the exercise of the put or call options. If HSCC, having
used commercially reasonable efforts, does not purchase such equity interests,
the selling institutional investor will have the right to require Holdings to
register such equity interests for resale under the Securities Act.

F-10

2001 ACQUISITION

On March 31, 2001, the Company closed a definitive purchase agreement with an
affiliate of Rhodia S.A. for the acquisition of the European surfactants
business of Albright & Wilson, a subsidiary of Rhodia, for approximately $180
million.

2000 ACQUISITION

On August 31, 2000, the Company acquired the Morton global thermoplastic
polyurethanes business from Rohm and Haas Company for an aggregate purchase
price of $120 million.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements of the Company include its majority owned
subsidiaries. Intercompany transactions and balances are eliminated. HSCC is
considered the accounting acquirer and, accordingly, the operating results prior
to July 1, 1999 reflect the historical financial position and results of
operations of HSCC.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

CASH FLOW INFORMATION

Highly liquid investments with an original maturity of three months or less when
purchased are considered to be cash equivalents.

Cash paid for interest and income taxes are as follows (in millions):

SECURITIZATION OF ACCOUNTS RECEIVABLE

In September 2000, Statement of Financial Accounting Standards ("SFAS") No. 140,
ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS
OF LIABILITIES, was issued. SFAS No. 140 provides consistent standards for
distinguishing transfers of financial assets that are sales from those that are
secured borrowings. The Company adopted SFAS No. 140 during the year ended
December 31, 2001 as required. Adoption of the accounting requirements of this
standard did not have a material impact on the statement of operations or
financial position.

The Company securitizes certain trade receivables in connection with a revolving
securitization program. The Company retains the servicing rights which are a
retained interest in the securitized receivables.

F-11

Losses are recorded on the sale and depend on the carrying value of the
receivables as allocated between the receivables sold and the retained interests
and their relative fair value at the date of the transfer. Retained interests
are subsequently carried at fair value which is estimated based on the present
value of expected cash flows, calculated using management's best estimates of
key assumptions including credit losses and discount rates commensurate with the
risks involved (see Note 10).

INVENTORIES

Inventories are stated at the lower of cost or market using the weighted average
method.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment is stated at cost. Depreciation is provided
utilizing the straight line method over the estimated useful lives of the
assets ranging from 3 to 20 years. Upon disposal of assets, the cost and
related accumulated depreciation are removed from the accounts and the
resulting gain or loss is included in income. Of the total plant and
equipment, approximately $436 million is depreciated using the straight-line
method on a group basis at a 5% composite rate. When capital assets
representing complete groups of property are disposed of, the difference
between the disposal proceeds and net book value is credited or charged to
income. When miscellaneous assets are disposed of, the difference between
asset costs and salvage value is charged or credited to accumulated
depreciation.

Periodic maintenance and repairs applicable to major units of manufacturing
facilities are accounted for on the prepaid basis by capitalizing the costs of
the turnaround and amortizing the costs over the estimated period until the next
turnaround. Normal maintenance and repairs of all other plant and equipment are
charged to expense as incurred. Renewals, betterments and major repairs that
materially extend the useful life of the assets are capitalized, and the assets
replaced, if any, are retired.

Interest costs are capitalized as part of major construction projects. Interest
expense capitalized as part of plant and equipment was $9.3 and $10.3 million
for the years ended December 31, 2001 and 2000, respectively, and $10.1 million
and $0.3 million for six months ended December 31, 1999 and June 30, 1999,
respectively.

INVESTMENT IN UNCONSOLIDATED AFFILIATES

Investments in companies in which the Company exercises significant influence,
generally ownership interests from 20% to 50%, are accounted for using the
equity method.

INTANGIBLE ASSETS

Debt issuance costs are amortized over the term of the related debt agreements,
ranging from six to ten years. Goodwill is amortized over a period of 20 years.
Other intangible assets, which consist of patents, trademarks, technology and
certain other agreements, are stated at their fair market values at the time of
acquisition, and are amortized using the straight line method over their
estimated useful lives of five to fifteen years or over the life of the related
agreement.

CARRYING VALUE OF LONG-TERM ASSETS

The Company evaluates the carrying value of long-term assets based upon current
and anticipated undiscounted cash flows, and recognizes an impairment when such
estimated cash flows will be less than the carrying value of the asset.
Measurement of the amount of impairment, if any, is based upon the difference
between carrying value and fair value.

F-12

FINANCIAL INSTRUMENTS

The carrying amount reported in the balance sheet for cash and cash equivalents,
accounts receivable and accounts payable approximates fair value because of the
immediate or short-term maturity of these financial instruments. The carrying
value of the senior credit facilities approximates fair value since they bear
interest at a floating rate plus an applicable margin. The fair value of the
senior subordinated notes approximates book value.

DERIVATIVES AND HEDGING ACTIVITIES

Effective January 1, 2001, the Company adopted SFAS No. 133, ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 133 requires that an
entity recognize all derivative instruments as assets or liabilities in the
balance sheet and measure those instruments at fair value. The accounting for
the change in the fair value depends on the use of the instrument. The adoption
of SFAS No. 133 resulted in a cumulative increase in net loss of $1.5 million
and a cumulative increase to accumulated other comprehensive loss of $1.1
million (see Note 13).

INCOME TAXES

The Company and its U.S. subsidiaries are organized as Limited Liability
Companies. These entities are treated similar to a partnership for U.S. income
tax purposes, and therefore are not subject to U.S. federal tax on their income.
Subsidiaries outside the U.S. are generally taxed on the income generated in the
local country.

Deferred income taxes are provided for temporary differences between financial
statement income and taxable income using the asset and liabilities method in
accordance with Statement of Financial Accounting Standards No. 109, "ACCOUNTING
FOR INCOME TAXES." The Company does not provide for income taxes or benefits on
the undistributed earnings of its international subsidiaries as earnings are
reinvested and, in the opinion of management, will continue to be reinvested.

The HSCC predecessor company filed a consolidated federal income tax return with
its ultimate parent. The HSCC predecessor company entered into a tax allocation
agreement with its ultimate parent whereby the Company was charged or credited
for an amount that would have been applicable had HSCC filed a separate
consolidated federal income tax return.

ENVIRONMENTAL EXPENDITURES

Environmental related restoration and remediation costs are recorded as
liabilities and expensed when site restoration and environmental remediation and
cleanup obligations are either known or considered probable and the related
costs can be reasonably estimated. Other environmental expenditures, which are
principally maintenance or preventative in nature, are recorded when incurred
and are expensed or capitalized as appropriate.

PREFERRED STOCK

During 1997, HSCC acquired its propylene oxide and methyl/tertiary butyl ether
business from Texaco, Inc. ("Texaco"). In conjunction with this acquisition,
HSCC issued preferred stock to Texaco with an aggregate liquidation preference
of $65 million. The preferred stock has a cumulative dividend rate of 5.5%, 6.5%
or a combination thereof of the liquidation preference per year. The preferred
stock and its obligations, including unpaid cumulative dividends, were not
transferred to Holdings or the Company.

FOREIGN CURRENCY TRANSLATION

Generally, the accounts of the Company's subsidiaries outside of the United
States consider local currency to be functional currency. Accordingly, assets
and liabilities are translated at rates prevailing at the

F-13

balance sheet date. Revenues, expenses, gains, and losses are translated at a
weighted average rate for the period. Cumulative translation adjustments are
recorded to equity as a component of accumulated other comprehensive income.
Transaction gains and losses are recorded in the statement of operations and
were $4.8 million and $8.2 million net gain for the years ended December 31,
2001 and 2000, respectively, and $5.0 million net gain for the six months ended
December 31, 1999. Prior to the transfer of the business from ICI on July 1,
1999, the Company had no subsidiaries outside of the United States.

REVENUE RECOGNITION

The Company generates revenues through sales in the open market, raw material
conversion agreements and long-term supply contracts. The Company recognizes
revenue when it is realized or realizable and earned, which is generally when
the product is shipped to the customer.

RESEARCH AND DEVELOPMENT

Research and development costs are expensed as incurred.

EARNINGS PER MEMBER EQUITY UNIT

Earnings per member equity unit is not presented because it is not considered
meaningful information due to the Company's ownership by a single equity holder.

RECLASSIFICATIONS

Certain amounts in the consolidated financial statements for prior periods have
been reclassified to conform with the current presentation.

RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS

On July 20, 2001, the Financial Accounting Standards Board (the "FASB") issued
SFAS No. 141, BUSINESS Combinations, and SFAS No. 142, GOODWILL AND OTHER
INTANGIBLE ASSETS. The statements will change the accounting for business
combinations and goodwill in two significant ways. SFAS No. 141 requires that
the purchase method of accounting be used for all business combinations
initiated after June 30, 2001. Use of the pooling-of-interests method will be
prohibited. SFAS No. 142 changes the accounting for goodwill from an
amortization method to an impairment-only approach. Thus, amortization of
goodwill, including goodwill recorded in past business combinations will cease
upon adoption of that statement on January 1, 2002. The impact of adopting this
pronouncement is not expected to be material.

In August 2001, the FASB issued SFAS No. 143, ACCOUNTING FOR ASSET RETIREMENT
OBLIGATIONS. SFAS No. 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible, long-lived assets and
the associated asset retirement costs. This Statement requires that the fair
value of a liability for an asset retirement obligation be recognized in the
period in which it is incurred by capitalizing it as part of the carrying amount
of the long-lived assets. As required by SFAS No. 143, the Company will adopt
this new accounting standard on January 1, 2003. The Company is currently
evaluating the effects of adopting this pronouncement.

In October 2001, the FASB issued SFAS No. 144, ACCOUNTING FOR THE IMPAIRMENT OR
DISPOSAL OF LONG-LIVED ASSETS. This Statement establishes a single accounting
model for the impairment or disposal of long-lived assets. As required by SFAS
No. 144, the Company will adopt this new accounting standard on January 1, 2002.
The Company is currently evaluating the effects of adopting this pronouncement.

F-14

3. INVENTORIES

Inventories consist of the following (in millions):

In the normal course of operations, the Company exchanges raw materials with
other companies. No gains or losses are recognized on these exchanges, and the
net open exchange positions are valued at the Company's cost. The Company did
not owe any inventory under open exchange agreements at December 31, 2001. The
amount deducted from inventory under open exchange agreements owed by the
Company at December 31, 2000 was $4.4 million (16.7 million pounds of feedstock
and products), which represented the amount payable by the Company under open
exchange agreements.

4. PROPERTY, PLANT AND EQUIPMENT

The cost and accumulated depreciation of property, plant and equipment are as
follows (in millions):

5. INVESTMENTS IN UNCONSOLIDATED AFFILIATES

The Company's ownership percentage and investments in unconsolidated affiliates,
primarily manufacturing joint ventures, are as follows (in millions):

F-15

Summarized approximate financial information of such affiliated companies as a
group as of December 31, 2001 and 2000 and for the years then ended is presented
below (in millions):

6. INTANGIBLE ASSETS

Intangible assets, net of accumulated amortization consist of the following (in
millions):

7. OTHER NONCURRENT ASSETS

Other noncurrent assets consist of the following (in millions):

F-16

8. ACCRUED LIABILITIES

Accrued liabilities consist of the following (in millions):

9. RESTRUCTURING AND PLANT CLOSING COSTS

The Company has incurred restructuring and plant closing costs totaling $46.6
million in its Specialty Chemicals and Tioxide business segments.

The Specialty Chemicals segment announced the first phase of a cost reduction
program which includes closure of the Shepton Mallet, U.K. polyols manufacturing
facility by the end of 2002 resulting in a charge of $44.7 million. The program
includes reduction in workforce of approximately 270 employees at the Shepton
Mallet facility and other locations. Approximately $7.8 was recorded to
write-down the fixed assets, $36.1 for employee termination benefits, and $.8
for other exit costs. The Company expects that this first phase of the cost
reduction program will be substantially complete by the end of 2002.

The Tioxide business segment recorded $1.9 million in restructuring charges
which relates to a workforce reduction of approximately 50 employees. The
Company expects that the termination benefits will be substantially paid by the
end of 2002.

The restructuring and plant closing cost were recorded in the following
accounts: $7.8 million in property, plant, and equipment, and $38.8 million in
accrued liabilities.

A summary of the Specialty Chemicals and Tioxide costs are as follows (in
millions):

10. SECURITIZATION OF ACCOUNTS RECEIVABLE

On December 21, 2000, the Company initiated a five-year revolving securitization
program under which certain trade receivables were and will be transferred to an
off balance sheet special purpose entity at a discount. Under the terms of the
agreements, the Company continues to service the receivables in exchange for a
1% fee of the outstanding receivables and is subject to recourse provisions.

In 2000, proceeds from new sales totaled approximately $175 million. During
2001, new sales totaled approximately $3,132 million and cash collections
reinvested totaled approximately $3,180 million. Servicing fees received in 2001
are approximately $3 million and are recorded as a reduction in the loss on sale
of accounts receivable in the statements of operations. The retained interest in
the receivables was

F-17

approximately $60 million and $110 million as of December 31, 2001 and 2000,
respectively. The value of the retained interest is subject to credit and
interest rate risk.

The key economic assumptions used in valuing the residual interest at December
31, 2001 is presented below:

Weighted average life (in months) 2
Credit losses (annual rate) Less than 1%
Discount rate (annual rate) 5%

A 10% and 20% adverse change in any of the key economic assumptions would not
have a material impact on the fair value of the retained interest. Total
delinquencies (receivables over 60 days past due) as of December 31, 2001 were
$15.6 million.

11. LONG-TERM DEBT

Long-term debt outstanding as of December 31, 2001 and 2000 is as follows (in
millions):

The revolving loan facility of up to $400 million matures on June 30, 2005 with
no scheduled commitment reductions. Both the term A dollar loan and the term A
euro loan facilities (as amended) mature on June 30, 2005 and are payable in
semi-annual installments commencing December 31, 2003 with the amortization
increasing over time. The term B loan facility matures on June 30, 2007 and the
term C loan facility matures on June 30, 2008. The term C loan facility (as
amended) requires payments in annual installments of $5.65 million each,
commencing June 30, 2007, with the remaining unpaid balance due on final
maturity.

Interest rates for the Senior Secured Credit Facilities are based upon, at the
Company's option, either a eurocurrency rate or a base rate plus the applicable
spread. The applicable spreads vary based on a pricing grid, in the case of
eurocurrency based loans, from 1.25% to 3.5% per annum depending on the loan
facility and whether specified conditions have been satisfied and, in the case
of base rate loans, from zero to 2.25% per annum. As of December 31, 2001 and
2000 the average interest rates on the Senior Secured Credit Facilities were
7.6% and 9.2%, respectively.

The obligations under the Senior Secured Credit Facilities are supported by
guarantees of certain subsidiaries (Tioxide Group, Tioxide America, Inc.,
Huntsman Propylene Oxide Holdings LLC, Huntsman Texas Holdings LLC, Huntsman
Propylene Oxide Ltd., Eurofuels LLC, Eurostar Industries LLC, Huntsman
International Fuels, L.P., Huntsman International Financial LLC, Huntsman
Ethyleneamines LLC and Huntsman Ethyleneamines Ltd.) (collectively the
"Guarantors") and Holdings as well as pledges of 65% of the voting stock of
certain non-U.S. subsidiaries. The Senior

F-18

Secured Credit Facilities contain covenants relating to the voting stock of
certain non-U.S. subsidiaries. The Senior Secured Credit Facilities contain
covenants relating to incurrence of debt, purchase and sale of assets,
limitations on investments, affiliate transactions and maintenance of certain
financial ratios. The Senior Secured Credit Facilities limit the payment of
dividends generally to the amount required by the members to pay income taxes.

The Company issued $600 million and euro 450 million 10.125% Senior Subordinated
Notes (the "Notes"). Interest on the Notes is payable semi-annually and the
Notes mature on July 1, 2009. The Notes are fully and unconditionally guaranteed
on a joint and several basis by the Guarantors. The Notes may be redeemed, in
whole or in part, at any time by the Company on or after July 1, 2004, at
percentages ranging from 105% to 100% at July 1, 2007 of their face amount, plus
accrued and unpaid interest. The Notes contain covenants relating to the
incurrence of debt, face amount, plus accrued and unpaid interest. The Notes
contain covenants relating to the incurrence of debt, limitations on
distributions, asset sales and affiliate transactions, among other things. The
Notes also contain a change in control provision requiring the Company to offer
to repurchase the Notes upon a change in control.

Management believes that the Company is in compliance with the covenants of both
the Senior Secured Credit Facilities and the Senior Subordinated Notes.

In 2001, Huntsman, the indirect 60% owner of Holdings, was not in compliance
with certain financial covenants contained in its senior credit facilities and
failed to make interest payments on its subordinated notes. Huntsman has entered
into amendment, forbearance and waiver agreements (collectively, the "Amendment
Agreement"), which waives existing and certain future defaults and the lenders
agreed to forbear exercising rights and remedies until June 30, 2002, if
Huntsman continues to meet the terms of the Amendment Agreement. Huntsman is
also discussing the possible restructuring of the senior subordinated notes.

Under the Huntsman senior credit facilities, the lenders have the right to
pursue remedies, including acceleration of the indebtedness and foreclosure on
equity of certain subsidiaries of Huntsman. Foreclosure on equity of the
Huntsman subsidiary that owns Holdings 60% interest would result in a change in
control as defined in the Company's Senior Secured Credit Facilities, Senior
Subordinated Notes, and subordinated notes of Holdings.

A change in control would constitute a default under the Company's Senior
Secured Credit Facilities. It would also entitle the holders of Senior
Subordinated Notes and the subordinated notes of Holdings to exercise their
rights to require the repurchase of these notes by the Company and Holdings,
respectively.

The scheduled maturities of long-term debt are as follows (in millions):

The Company enters into various types of interest rate contracts to manage
interest rate risks on long-term debt. The Company has the following outstanding
at December 31, 2001:

o Pay Fixed Swaps Long Term Duration - $319.2 million notional amount,
weighted average pay rate of 5.84%, based upon underlying indices at
year end, maturing 2002 through 2004. Increases in underlying indices
could cause the weighted average pay rate to increase to a maximum of
6.55%.

F-19

o Interest Rate Collars - $275 million notional amount, weighted average
cap rate of 7%, weighted average floor rate of 5.35%, based upon
underlying indices at year end, maturing 2002 through 2004. Decreases
in underlying indices could cause the weighted average floor rate to
increase to a maximum of 6.12%.

Under interest rate swaps, the Company agrees with other parties to exchange, at
specified intervals, the difference between fixed-rate and floating-rate
interest amounts calculated by reference to an agreed notional principal amount.

The Company purchases interest rate cap and sells interest rate floor agreements
to reduce the impact of changes in interest rates on its floating-rate long-term
debt. The cap agreements entitle the Company to receive from counterparties
(major banks) the amounts, if any, by which the Company's interest payments on
certain of its floating-rate borrowings exceed 6.6% to 7.5%. The floor agreement
requires the Company to pay to the counterparty (a major bank) the amount, if
any, by which the Company's interest payments on certain of its floating-rate
borrowings are less than 5% to 6.25%.

12. INCOME TAXES

The provision (benefit) for income taxes consists of the following (in
millions):

The following schedule reconciles the differences between the United States
federal income taxes at the United States statutory rate to the Company's
provision (benefit) for income taxes (in millions):

F-20

The components of deferred tax assets and liabilities are as follows (in
millions):

The Company has net operating loss carryforwards of $372 million in various
foreign jurisdictions. Most of the NOLs have no expiration date. The remaining
NOLs begin to expire in 2006. If the valuation allowance is reversed,
substantially all of the benefit will be allocated to reduce goodwill or other
noncurrent intangibles. During 2001, the Company reversed $18.2 million of the
valuation allowance and reduced goodwill.

The Company does not provide for income taxes or benefits on the undistributed
earnings of its international subsidiaries as earnings are reinvested and, in
the opinion of management, will continue to be reinvested indefinitely. In
consideration of the Company's corporate structure, upon distribution of these
earnings, certain of the Company's subsidiaries would be subject to both income
taxes and withholding taxes in the various international jurisdictions. It is
not practicable to estimate the amount of taxes that might be payable upon
distribution.

The Company is treated as a partnership for U.S. federal income tax purposes and
as such is generally not subject to U.S. income tax, but rather such income is
taxed directly to the Company's owners. The net difference of the book basis of
the U.S. assets and liabilities over the tax basis of those assets and
liabilities is approximately $707 million.

13. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The Company is exposed to market risks, such as changes in interest rates,
currency exchange rates and commodity pricing. As a result, the Company enters
into transactions including derivative instruments to manage these risks. The
overall risk management philosophy of the Company is to manage the downside
risks of these activities. Primary goals of the Company's risk management
activities include: (1) reducing the impact of fluctuations in variable interest
rates and meeting the requirements of certain credit agreements; (2) reducing
the short-term impact from certain movements in foreign exchange rates on
earnings; (3) reducing the variability in the purchase price of certain
feedstocks; and (4) hedging the net investment position in euro functional
currency entities.

INTEREST RATE HEDGING

Through the Company's borrowing activities, it is exposed to interest rate risk.
Such risk arises due to the structure of the Company's debt portfolio, including
the duration of the portfolio and the mix of fixed and floating interest rates.
Actions taken to reduce interest rate risk include managing the mix and rate

F-21

characteristics of various interest bearing liabilities as well as entering into
interest rate swaps, collars, and options (see Note 11).

As of December 31, 2001, the Company maintained interest rate swaps and collars
with a fair value of approximately $13.4 million which have been designated as
cash flow hedges of variable rate debt obligations. These amounts are recorded
as other current liabilities in the accompanying balance sheet. The effective
portion of unrealized losses of approximately $14.2 million were recorded as a
component of other comprehensive income (loss), with the ineffective portion of
approximately $1.4 million recorded as additional interest income in the
accompanying statement of operations. The effective portion of the
mark-to-market effects is recorded in other comprehensive income until the
underlying interest payments affect earnings.

Swaps and collars not designated as hedges are also recorded at fair value on
the balance sheet and resulted in a increase in interest expense and other
current liabilities of approximately $7.9 million in the accompanying financial
statements.

FOREIGN CURRENCY RATE HEDGING

The Company enters into foreign currency derivative instruments to minimize the
short-term impact of movements in foreign currency rates. These contracts are
not designated as hedges for financial reporting purposes and are recorded at
fair value. As of December 31, 2001, there were no outstanding contracts. During
the year ended December 31, 2001, the Company recognized $3.0 million in loss
from these activities.

COMMODITY PRICE HEDGING

Because feedstocks used by the Company are subject to price volatility, the
Company uses commodity futures and swaps to reduce the risk associated with
certain of these feedstocks. These instruments are designated as cash flow
hedges of future inventory purchases and fair value hedges of inventory
currently held and trading activities. The mark-to-market gains and losses of
qualifying cash flow hedges are recorded as a component of other comprehensive
income until the underlying transactions are recognized in earnings. The
mark-to-market gains and losses of non-qualifying, excluded and ineffective
portions of hedges are recorded in cost of goods sold in the accompanying
statement of operations. The net losses on derivatives qualifying as cash flow
hedges are $.9 million and are recorded in other comprehensive income. All of
such amounts are expected to be reclassified to cost of goods sold in the next
12 months. The fair value of all commodity derivatives included as other current
assets are $1.0 million as of December 31, 2001. The fair value of commodity
derivatives included in other current liabilities is $1.1 million as of December
31, 2001.

During the year ended December 31, 2001, the Company recorded $11.1 million as
an increase in cost of goods sold related to net losses from settled contracts
and the change in fair value (unrealized gains and losses) on the contracts that
are effective economic hedges of commodity price exposures, but do not meet the
SFAS No. 133 definition of hedging instruments. As of December 31, 2001, $2.0
million and $1.0 million were included in other current assets and liabilities,
respectively.

As of December 31, 2000, the Company had forward purchase and sales contracts
for commodities which are accounted for as hedges. Unrealized deferred losses
amounted to $1.1 million. For contracts not accounted for as hedges, net gains
and losses amounted to $1.4 million and $1.9 million, respectively. As of
December 31, 2000, $3.0 million and 2.5 million were included in other current
assets and liabilities, respectively.

During the year ended December 31, 2000 and the six months ended December 31,
1999, the Company recorded $17.9 million and $21.3 million, respectively, as a
reduction to cost of goods sold related to net gains from settled contracts and
the change in fair value (unrealized gains and losses) on contracts which do not
qualify as hedges.

F-22

HSCC had no such contracts during the six months ended June 30, 1999.

NET INVESTMENT HEDGING

The Company hedges its net investment position in euro functional currency
entities. To accomplish this, a portion of the Company's debt is euro
denominated and designated as a hedge of net investments. Currency effects of
these hedges produced a net gain in other comprehensive income (foreign currency
translation adjustments) of approximately $19.5 million for the year ended
December 31, 2001, with an ending net balance of approximately $63.2 million.

14. EMPLOYEE BENEFIT PLANS

DEFINED BENEFIT AND OTHER POSTRETIREMENT BENEFIT PLANS

The Company sponsors various contributory and non-contributory defined benefit
pension plans covering employees in the U.S., the U.K., Netherlands, Belgium,
Canada and a number of other countries. The Company funds the material plans
through trust arrangements (or local equivalents) where the assets of the fund
are held separately from the employer. The level of funding is in line with
local practice and in accordance with the local tax and supervisory
requirements. The plan assets consist primarily of equity and fixed income
securities of both U.S. and non-U.S. issuers.

The Company also sponsors unfunded post-retirement benefit plans other than
pensions which provide medical and life insurance benefits covering certain
employees in the U.S. and Canada. In 2001, the healthcare trend rate used to
measure the expected increase in the cost of benefits was assumed to be 8% per
annum decreasing to 5% per annum after 7 years.

The HSCC Predecessor sponsored no employee benefit plans.

The following table sets forth the funded status of the plans and the amounts
recognized in the consolidated balance sheet at December 31, 2001 (in millions):

F-23

CHANGE IN PLAN ASSETS
Market value of plan assets as of January 1, 2001 $ 1,001.4 $ --
Actual return on plan assets (80.4) --
Company contributions 20.9 --
Foreign exchange impact (31.9) --
Benefits paid (26.7) --
Acquisitions 44.4 --
Other 3.1 --
------------------ --------------------
MARKET VALUE OF PLAN ASSETS AS OF
DECEMBER 31, 2001 $ 930.8 $ --
================== ====================

CHANGE IN FUNDED STATUS
Prepaid (accrued) expense as of
January 1, 2001 $ 172.2 $ (10.1)
Net periodic pension (cost)/benefit (8.0) (1.0)
Employer contributions 20.9 --
Foreign exchange impact (6.9) .1
Benefits paid .5 .6
Other items (7.0) --
------------------ --------------------
PREPAID (ACCRUED) EXPENSE AS OF
DECEMBER 31, 2001 $ 171.7 $ (10.4)
================== ====================

COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost $ 31.0 $ .3
Employee contributions (2.1) --
Interest cost 52.4 .6
Return on plan assets (73.4) --
Unrecognized gains .1 .1
------------------ --------------------
NET PERIODIC COST/(BENEFIT) $ 8.0 $ 1.0
================== ====================

The following assumptions were used in the above calculations:

F-24

The following table sets forth the funded status of the plans and the amounts
recognized in the consolidated balance sheet at December 31, 2000 (in millions):

F-25

The following assumptions were used in the above calculations:

The projected benefit obligation, accumulated benefit obligation, and fair value
of plan assets for the defined benefit plans with accumulated benefit
obligations in excess of plan assets were $65.2 million, $48.6 million and $26.1
million, respectively, as of December 31, 2001.

The projected benefit obligation, accumulated benefit obligation, and fair value
of plan assets for the defined benefit plans with plan assets in excess of
accumulated benefit obligations were $893.9 million, $781.3 million and $904.7
million, respectively, as of December 31, 2001.

DEFINED CONTRIBUTION PLANS

The Company has defined contribution plans covering its domestic employees and
employees in some foreign subsidiaries who have completed at least two years of
service.

The Company's total combined expense for the above defined contribution plans
for the year ended December 31, 2001 and 2000 and six months ended December 31,
1999 were approximately $6.3 million, $2.9 million, and $0.5 million,
respectively. There were no plans prior to July 1, 1999.

EQUITY DEFERRAL PLAN

Effective July 1, 1999, the Board of Directors of Huntsman, the ultimate parent
of HSCC, approved the adoption of the Huntsman Equity Deferral Plan (the
"Deferral Plan") and the Huntsman Equity Rights Plan (the "Rights Plan"),
(collectively, the "Equity Plans"). Under the terms of the Equity Plans,
selected Huntsman officers and key employees, including certain of the Company's
management may (1) have a portion of their compensation deferred and contribute
the deferred compensation to the Deferral Plan and (2) be given the right to
receive a benefit equal to the difference between the value of Huntsman stock at
the grant date and the value of the stock at the exercise date multiplied by the
specific number of shares granted.

For each $1 contributed to the Deferral Plan, Huntsman credits an additional
$.50 to the account of the contributing plan participant. A plan participant may
defer up to 50% of the participants salary and up to 100% of the participant's
bonus up to a maximum of $250,000 (which maximum may be amended to certain
employees by the Huntsman Board of Directors). The amounts contributed to the
Deferral Plan are considered invested in phantom shares of Huntsman stock.
Benefits under the Equity Plans (including the matching contribution) vest after
four years from the date of the grant and are exercisable after eight years.

Effective September 30, 2001, Huntsman terminated the Equity Plans. The
Company's cost to terminate the Equity Plans and the expense for the Equity
Plans for the years ended December 31, 2001 and 2000 and the six months ended
December 31, 1999 was not material.

F-26

15. COMMITMENTS AND CONTINGENCIES

The Company has various purchase commitments for materials and supplies entered
into in the ordinary course of business. These agreements extend from three to
ten years and the purchase price is generally based on market prices subject to
certain minimum price provisions.

The Company is involved in litigation from time to time in the ordinary course
of its business. In management's opinion, after consideration of
indemnifications, none of such litigation is material to the Company's financial
condition or results of operations.

16. ENVIRONMENTAL MATTERS

The operation of any chemical manufacturing plant, the distribution of chemical
products and the related production of by-products and wastes, entail risk of
adverse environmental effects. The Company is subject to extensive federal,
state, local and foreign laws, regulations, rules and ordinances relating to
pollution, the protection of the environment and the generation, storage,
handling, transportation, treatment, disposal and remediation of hazardous
substances and waste materials. In the ordinary course of business, the Company
is subject continually to environmental inspections and monitoring by
governmental enforcement authorities. The Company may incur substantial costs,
including fines, damages and criminal or civil sanctions, or experience
interruptions in our operations for actual or alleged violations arising under
any environmental laws. In addition, production facilities require operating
permits that are subject to renewal, modification and, in some circumstances,
revocation. Violations of permit requirements can also result in restrictions or
prohibitions on plant operations, substantial fines and civil or criminal
sanctions. The Company's operations involve the generation, handling,
transportation, use and disposal of numerous hazardous substances. Changes in
regulations regarding the generation, handling, transportation, use and disposal
of hazardous substances could inhibit or interrupt operations and have a
material adverse effect on business. From time to time, these operations may
result in violations under environmental laws, including spills or other
releases of hazardous substances to the environment. In the event of a
catastrophic incident, the Company could incur material costs as a result of
addressing and implementing measures to prevent such incidents. Given the nature
of the Company's business, there can be no assurance that violations of
environmental laws will not result in restrictions imposed on the Company's
operating activities, substantial fines, penalties, damages or other costs. In
addition, potentially significant expenditures could be necessary in order to
comply with existing or future environmental laws. In management's opinion,
after consideration of indemnifications, there are no environmental matters
which are material to the Company's financial condition or results of
operations.

The Company is investigating a spill at its North Tees facility that was
discovered on March 27, 2001. The U.K. Environmental Agency issued an
enforcement notice with respect to this spill on March 30, 2001, following an
investigation into an alleged leak of a mixture consisting of approximately 60%
benzene into the River Tees, allegedly following a dewatering procedure at the
Company's North Tees site. The requirements of that notice were complied with,
to the satisfaction of the U.K. Environmental Agency, by the end of May 2001.
The Company contained the spill and conducted a program to reclaim the material.
The U.K. Environmental Agency is also continuing to investigate the incident; a
decision by the U.K. Environmental Agency as to whether to prosecute or not is
likely to be made in early or mid-2002. If the U.K. Environmental Agency finds
the Company legally responsible, the Company could face legal action and
possible penalties. Although the Company can give no assurances, based on
currently available information and the Company's understanding of similar
investigations and penalties in the past, management does not believe that, if
such action was initiated and the Company is ultimately found to be legally
responsible, the probable penalties would be material to the Company's financial
position or results of operations. Nevertheless, because this matter is in the
initial stages of investigation by the U.K. Environmental Agency, the Company
cannot give assurance that it will not have a material effect on the Company's
financial position or results of operations.

F-27

17. RELATED-PARTY TRANSACTIONS

The Company shares numerous services and resources with Huntsman, ICI, and
subsidiaries of both companies. In accordance with various agreements Huntsman
and ICI provide management, operating, maintenance, steam, electricity, water
and other services to the Company. The Company also relies on Huntsman, ICI and
their subsidiaries to supply certain raw materials and to purchase products.
Rubicon, Inc., and Louisiana Pigment Company are non-consolidated 50 percent
owned subsidiaries of the Company. The amounts which the Company purchased from
or sold to related parties are as follows (in millions):

Included in purchases from Huntsman and subsidiaries for the years ended
December 31, 2001 and 2000, are $54 million and $64 million, respectively, of
allocated management costs which are reported in selling, general and
administrative expenses. The amounts which the Company is owed or owes to
related parties are as follows (in millions):

HSCC PREDECESSOR COMPANY

HSCC had no employees and relied entirely on third parties to provide all goods
and services necessary to operate the Company's business. Certain of such goods
and services were provided by an affiliate of Huntsman.

SERVICE AGREEMENTS - In accordance with various service agreements, the terms of
which range from 10 to 29 years, an affiliate of Huntsman provided management,
operating, maintenance and other services to the Company.

SUPPLY AGREEMENTS - Additionally, HSCC relies on an affiliate to supply certain
raw materials and to purchase a significant portion of the facility's output
pursuant to various agreements.

18. LEASE COMMITMENTS

The Company leases a number of assets which are accounted for as operating
leases. The lease obligation reflected in the Company's statement of operations
as rental expense, totaled $18.5 million and $23.7 million for the years ended
December 31, 2001 and 2000, respectively, and $17.7 million and $3.6 million for
the six months ended December 31, 1999 and June 30, 1999, respectively. The
minimum future rental payments due under existing agreements are by year (in
millions):

F-28

The Company also has lease obligations accounted for as capital leases. The
present value of the future net minimum lease payments is $14.6 million at
December 31, 2001.

19. INDUSTRY SEGMENT AND GEOGRAPHIC AREA INFORMATION

The Company derives its revenues, earnings and cash flows from the manufacture
and sale of a wide variety of specialty and commodity chemical products. The
Company manages its businesses in three segments, Specialty Chemicals (the
former ICI polyurethanes business and HSCC's propylene oxide business and
acquisitions completed in 2000 and 2001); Petrochemicals (businesses acquired
from ICI and BP Chemicals); and Tioxide (acquired from ICI).

The major products of each business group are as follows:

F-29

Sales between segments are generally recognized at external market prices.

(1) EBITDA is defined as earnings from continuing operations before interest
expense, depreciation and amortization, and taxes.

F-30

20. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED - IN MILLIONS)

F-31

During the three months ended December 31, 2001, the Company incurred $44.7
million of restructuring and plant closing costs (see Note 9).

21. SUBSEQUENT EVENT

On March 18, 2002, the Company completed an offering of $300 million in senior
notes (the "Notes"), resulting in net proceeds of approximately $292 million.
The Notes are due March 1, 2009 and bear interest at 9.875% per annum, payable
semi-annually on March 1 and September 1. The Notes are unsecured obligations.
The Company used approximately $58 million of the net proceeds to repay
outstanding indebtedness under the revolving portion of its Senior Secured
Credit Facilities. The balance of the net proceeds was used to repay amounts due
under the term loan portion of the Senior Secured Credit Facilities, eliminating
scheduled term loan amortization requirements in 2002 and substantially reducing
scheduled term loan amortization requirements in 2003.

22. CONSOLIDATING CONDENSED FINANCIAL STATEMENTS

The following are consolidating condensed financial statements which present, in
separate columns: Huntsman International carrying its investment in subsidiaries
under the equity method; the Guarantors on a combined, or where appropriate,
consolidated basis, carrying its investment in the Non-Guarantors under the
equity method; and the Non-Guarantors on a consolidated basis. Additional
columns present eliminating adjustments and consolidated totals as of December
31, 2001 and 2000 and for the years ended December 31, 2001 and 2000 and the six
months ended December 31, 1999. There are no restrictions limiting transfers of
cash from guarantor and non-guarantor subsidiaries to Huntsman International.
The Combined Guarantors are wholly-owned subsidiaries of Huntsman International
and have fully and unconditionally guaranteed the senior subordinated notes on a
joint and several basis. The Company has not presented separate financial
statements and other disclosures concerning the Combined Guarantors because
management has determined that such information is not material to investors.

F-32

HUNTSMAN INTERNATIONAL LLC
CONSOLIDATING BALANCE SHEETS
DECEMBER 31, 2001
(Millions of Dollars)

F-33

HUNTSMAN INTERNATIONAL LLC
CONSOLIDATING BALANCE SHEETS
DECEMBER 31, 2000
(Millions of Dollars)

F-34

HUNTSMAN INTERNATIONAL LLC
CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
YEAR ENDED DECEMBER 31, 2001
(Millions of Dollars)

F-35

HUNTSMAN INTERNATIONAL LLC
CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
YEAR ENDED DECEMBER 31, 2000
(Millions of Dollars)

F-36

HUNTSMAN INTERNATIONAL LLC
CONSOLIDATING STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
SIX MONTHS ENDED DECEMBER 31, 1999
(Millions of Dollars)

F-37

HUNTSMAN INTERNATIONAL LLC
CONSOLIDATING CONDENSED STATEMENTS OF CASH FLOW
YEAR ENDED DECEMBER 31, 2001
(Millions of Dollars)

F-38

HUNTSMAN INTERNATIONAL LLC
CONSOLIDATING CONDENSED STATEMENTS OF CASH FLOW
YEAR ENDED DECEMBER 31, 2000
(Millions of Dollars)

F-39

HUNTSMAN INTERNATIONAL LLC
CONSOLIDATING CONDENSED STATEMENTS OF CASH FLOW
SIX MONTHS ENDED DECEMBER 31, 1999
(Millions of Dollars)

F-40

HUNTSMAN INTERNATIONAL LLC AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
DECEMBER 31, 2001

Column A Column B Column C Column D Column E
- ----------------------- ---------------- ---------------------------------- -------------- -------------
Balance at Balance
Beginning at End
Description of Period Additions Deductions of Period
- ----------------------- ---------------- ---------------------------------- -------------- -------------
Charged to Charged to
cost and other
expenses accounts
--------------- ---------------

Allowance for
Doubtful Accounts

Year Ended
December 31,
2001 $ 10.6 $ 2.8 $ 3.0(2) $ (1.2) $ 15.2

Year Ended
December 31,
2000 $ 9.5 $ 2.2 $ -- $ (1.1) $ 10.6

Six months ended
December 31,
1999 $ -- $ 0.3 $ 9.2(1) $ -- $ 9.5

(1) Represents specific reserves provided for receivables which were considered
to be uncollectible at the time of acquisition from ICI.

(2) Represents specific reserves provided for receivables which were purchased
with businesses acquired in 2001.

F-41