##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-K
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2007
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Kraton Polymers LLC
  Delaware
    
    94-2805249(State of incorporation)
    
    (I.R.S. Employer Identification No.)15710 John F. Kennedy Blvd, Suite 300
    
    281-504-4700Houston, TX 77032
    
    (Registrants telephone number, including area code)(Address of principal executive offices,
    
    http://www.Kraton.comincluding zip code)
    
    (Registrants url)
 None  None
 o þ
 o þ
 o þ
 o þ
  Large accelerated filer: o
    
    Accelerated filer: o
    
    Non-accelerated filer: þ
    
    Smaller reporting company: o
 o þ




---



##### 



INDEX
 PAGEPART I

3Item 1. Business

3Item 1A. Risk Factors

15Item 1B. Unresolved Staff Comments

25Item 2. Properties

25Item 3. Legal Proceedings

28Item 4. Submission of Matters to a Vote of Security Holders

28PART II

28Item 5. Market for Registrants
Common Equity and Related Stockholder Matters

28Item 6. Selected Financial Data

28Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations

31Item 7A. Quantitative and Qualitative Disclosures About Market Risk

44Item 8. Financial Statements and Supplementary Data

44Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

44Item 9A. Controls and Procedures

45Item 9B. Other Information

46PART III

46Item 10. Directors,
Executive Officers and Corporate Governance

46Item 11. Executive Compensation

49Item 12. Security Ownership of Certain Beneficial Owners and Management

67Item 13. Certain
Relationships and Related Transactions and Director Independence

69Item 14. Principal Accountant Fees and Services

70PART IV

71Item 15. Exhibits and Financial Statements Schedules

71Letter Amendment No. 2 to the Agreement for the Supply of Isoprene MonomerStatement of Computation of Ratio of Earnings to Fixed ChargesCertification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification Pursuant to Section 906
  2




---



##### Table of Contents



FORWARD LOOKING STATEMENTS
   PRESENTATION OF FINANCIAL STATEMENTS
  
 PART I
 
 ITEM 1. BUSINESS
 General
   3




---



##### Table of Contents



Corporate Background
    Competitive Strengths
 Leading Global SBC Market Position .
 Product
Innovation and Superior Technical Expertise.
 New Innovations
  
    
    In our Adhesives, Sealants and Coating end-use market, we announced in March 2007 the
commercial availability of a new Kraton SIBS product for use in hot melt adhesive labels.
This new polymer has been designed specifically for label applications and offers economic and
performance advantages over other conventional products. This unique polymer exhibits
outstanding
 4




---



##### Table of Contents



adhesive properties with an excellent balance of tack, peel, shear, adhesion and resistance to
flagging in even the most demanding label applications.
 
    
    In our Packaging and Films end-use market, we announced in April 2007 that the United States Food and Drug
Administration (FDA) has
cleared Kraton SEBS products for use in fatty food applications. All current FDA-grade Kraton
SEBS products can now be used for all types of food packaging in all conditions of use as
defined by the FDA.
 
    
    In our Compounding Channels end-use market, we announced in December 2007 the
commercialization of G1633® polymer and the creation of new opportunities for TPE-S compounds
in high temperature, high performance applications. This innovation allows the automotive,
medical, construction and heavy-industrial sectors to achieve best in class performances and
long term durability combined with high quality aesthetics and lighter weight.
 
    
    In our Packaging and Films end-use market, we announced in January 2008 the successful
passing of a full range of toxicology studies surrounding its MD6945 SEBS block co-polymer.
MD6945 can be used in a variety of medical applications, including films for ostomy bags,
medical drapery, intravenous bags and drug delivery systems, as well as other extruded
products such as tubing for IV sets, respiratory therapy, and enteral feeding kits. In
addition, this product is cleared by the FDA for use in direct food contact applications
without any conditions of use or food type restrictions.
 Strong Customer Relationships.
 Global Scale of Operations.
 Diversity
Across Customers, End-Uses and Geography.
 Business Strategy
 Deliver New Innovative Products to the Marketplace.
 Focus on the Highest Growth Segments.
 5




---



##### Table of Contents



Provide Superior Product Quality and Customer Service.
 Expanding into New Applications and Regions. .
 Focus on Operational Excellence and Reduce Unit Costs.
   6




---



##### Table of Contents



Products
   USBC.
  HSBC.
  IR
 IR Latex
 Compounds
 7




---



##### Table of Contents



End-Use Markets
   RevenueEnd-Use Markets and Other
    
    Mix(1)
    
    Selected Applications/ProductsAdhesives, Sealants and Coatings
    
    
    31
    %
    
         Tapes and Labels     Non-woven and Industrial AdhesivesPaving and Roofing
    
    
    30
    %
    
         Asphalt modificationo      Roadwayso      Roofing felts and shinglesCompounding Channels
    
    
    20
    %
    
         Soft touch and flexible materials (i.e., tool and  bicycle grips)     Impact resistant plastics     Automotive componentsPersonal Care
    
    
    7
    %
    
         Elastic films (i.e., disposable infant and child  care)     Compounds and Oil Gels (i.e., skin care products and lotions)Packaging and Films
    
    
    5
    %
    
         Disposable Food Packaging     Medical Films for Bags and PouchesEmerging Businesses
    
    
    2
    %
    
         Surgical glovesOther Markets
    
    
    5
    %
    
         Footwear     Lubricant and Fuel Additives     High Styrenics
 
 (1)
    
    Based on 2007 total product sales of $1,066.0 million (excludes by-product sales which are
reported as Other revenues). Adhesives, Sealants and Coatings.
   Paving and Roofing.
  8




---



##### Table of Contents



Compounding Channels.
   Personal Care.
   Packaging and Films.
   Emerging Business.
 Other Markets.
 9




---



##### Table of Contents



Research, Development and Technology
     Sales and Marketing
     Sources and Availability of Raw Materials
  10




---



##### Table of Contents



Styrene.
    Butadiene.
   11




---



##### Table of Contents



Isoprene.
     Competition
 SBC Industry
 Product Substitution.
     12




---



##### Table of Contents



Leases, Operating and Other Agreements
 Leases of Manufacturing and Research Facilities.
    Operating Agreements.
  Site Services, Utilities, Materials and Facilities Agreements with Shell Chemicals.
 13




---



##### Table of Contents



Information Systems
  Patents, Trademarks, Copyrights and Other Intellectual Property Rights
    Employees
  Environmental Regulation
    14




---



##### Table of Contents



Insurance
  Seasonality
  
 ITEM 1A. RISK FACTORS
 Increases in the costs of our raw materials could have an adverse effect on our financial
condition and results of operations if those costs cannot be passed onto our customers.
 15




---



##### Table of Contents



If the availability of isoprene is limited, we may be unable to produce some of our products
in quantities demanded by our customers, which could have an adverse effect on our sales of
products requiring isoprene.
   If the availability of butadiene is limited, we may be unable to produce some of our products
in quantities demanded by our customers, which could have an adverse effect on plant utilization
and our sales of products requiring butadiene.
  Shell Chemicals provides significant operating and other services under agreements that are
important to our business. The failure of Shell Chemicals to perform its obligations, or the
termination of these agreements, could adversely affect our operations.
  
    
    Operating agreements pursuant to which Shell Chemicals operates and maintains our
European manufacturing facilities and employs and provides almost all of the staff for those
facilities;
    
    Site services, utilities, materials and facilities agreements pursuant to which Shell
Chemicals provides utilities and site services to our European manufacturing facilities and
to one research and development facility; and
    
    Lease agreements pursuant to which we lease our European manufacturing facilities and
some of our research and development facilities from Shell Chemicals.
 16




---



##### Table of Contents



The failure of our suppliers to perform their obligations under long-term supply agreements,
or our inability to replace or renew these agreements when they expire, could increase our cost for
these materials, interrupt production or otherwise adversely affect our results of operations.
   If we are not able to continue the technological innovation and successful commercial
introduction of new products, our customers may turn to other producers to meet their requirements.
   
    
    In the Personal Care end-use market, competing materials include spandex, thermoplastic
polyolefin elastomers and natural rubber.
 17




---



##### Table of Contents




    
    In the Packaging and Films end-use market, SBC products primarily compete with PVC
polymers and compounds, polyolefins, PET, nylon, thermoplastic vulcanizates and
polycarbonate, based on performance, ease of use, desired aesthetics and total end-product
cost.
  Our end-use markets are highly competitive, and we may lose market share to other SBC
producers or to producers of non-SBC products that can be substituted for our products.
    
    
    In the Adhesives, Sealants and Coatings end-use market, SBC products primarily compete
with acrylics, silicones, solvent-based rubber systems and thermoplastic polyolefin
elastomers. The choice between these materials is influenced by bond strength, specific
adhesion, consistent performance to specification, processing speed, hot-melt application,
resistance to water and total end-product cost.
    
    In the Paving and Roofing end-use market, SBC products primarily compete with atactic
polypropylene, styrene butadiene rubber and unmodified asphalts. The choice between these
materials is influenced by total end-product performance, cost and ease of use.
    
    In the Compounding Channels end-use market, SBC products compete against a wide variety
of chemical and non-chemical alternatives, including thermoplastic vulcanizates, ethylene
propylene diene monomers (EPDM), thermoplastic polyolefin elastomers and thermoplastic
polyurethanes (TPUs). The choice between these materials is influenced by performance
characteristics, ease of use, desired aesthetics and total end-product cost.
    
    In the Personal Care end-use market, competing materials include spandex, thermoplastic
polyolefin elastomers and natural rubber.
    
    In the Packaging and Films end-use market, SBC products primarily compete with PVC
polymers and compounds, polyolefins, PET, nylon, thermoplastic vulcanizates and
polycarbonate, based on performance, ease of use, desired aesthetics and total end-product
cost.
  Chemical manufacturing is inherently hazardous, which could result in accidents that disrupt
our operations or expose us to significant losses or liabilities.
  18




---



##### Table of Contents




    
    pipeline and storage tank leaks and ruptures;
    
    explosions and fires;
    
    inclement weather and natural disasters;
    
    terrorist attacks;
    
    mechanical failure; and
    
    chemical spills and other discharges or releases of toxic or hazardous substances or
gases.
  Regulation of our employees exposure to butadiene could require material expenditures or
changes in our operations.
  Compliance with extensive environmental, health and safety laws could require material
expenditures, changes in our operations or site remediation.
    19




---



##### Table of Contents



We may be subject to losses due to lawsuits arising out of environmental damage or personal
injuries associated with chemical manufacturing.
     Regulatory and statutory changes applicable to us or our customers could adversely affect our
financial condition and results of operations.
  We are subject to customs, international trade, export control, antitrust, zoning and
occupancy and labor and employment laws that could require us to modify our current business
practices and incur increased costs.
  20




---



##### Table of Contents



Our business relies on intellectual property and other proprietary information and our failure
to protect our rights could harm our competitive advantages with respect to the manufacturing of
some of our products.
      Our products may infringe the intellectual property rights of others, which may cause us to
incur unexpected costs or prevent us from selling our products.
  21




---



##### Table of Contents



We may be liable for damages based on product liability claims brought against our customers
in our end-use markets.
  Our relationship with our employees could deteriorate, which could adversely affect our
operations.
  Loss of key personnel or our inability to attract and retain new qualified personnel could
hurt our business and inhibit our ability to operate and grow successfully.
   As a global business, we are exposed to local business risks in different countries, which
could have a material adverse effect on our financial condition or results of operations.
  22




---



##### Table of Contents




    
    new and different legal and regulatory requirements in local jurisdictions;
    
    export duties or import quotas;
    
    domestic and foreign customs and tariffs or other trade barriers;
    
    potential staffing difficulties and labor disputes;
    
    managing and obtaining support and distribution for local operations;
    
    increased costs of transportation or shipping;
    
    credit risk and financial conditions of local customers and distributors;
    
    potential difficulties in protecting intellectual property;
    
    risk of nationalization of private enterprises by foreign governments;
    
    potential imposition of restrictions on investments;
    
    potentially adverse tax consequences, including imposition or increase of withholding and
other taxes on remittances and other payments by subsidiaries;
    
    foreign exchange restrictions and fluctuations; and
    
    local political and social conditions, including the possibility of hyperinflationary
conditions and political instability in certain countries.
  Fluctuations in currency exchange rates may significantly impact our results of operations and
may significantly affect the comparability of our results between financial periods.
   Downturns in general economic conditions could adversely affect our profitability.
 23




---



##### Table of Contents



We generally do not have long-term contracts with our customers and the loss of customers
could adversely affect our sales and profitability.
  Our substantial level of indebtedness could adversely affect our financial condition and
prevent us from fulfilling our obligations under our senior secured credit facility and the 8.125%
Notes.
   
    
    our ability to obtain additional financing for working capital, capital expenditures,
debt service requirements or other general corporate purposes may be impaired;
    
    we must use a substantial portion of our cash flow to pay principal of and interest on
our indebtedness which will reduce the funds available to us for other purposes;
    
    we are more vulnerable to economic downturns and adverse industry conditions;
    
    our ability to capitalize on business opportunities and to react to competitive
pressures, as compared to our competitors, may be compromised due to our high level of
indebtedness; and
    
    our ability to borrow additional funds or to refinance indebtedness may be limited.
  Our debt instruments, including the senior secured credit facility and the indenture governing
the 8.125% Notes impose significant operating and financial restrictions on us.
  
    
    incur additional indebtedness;
    
    pay dividends or make certain other restricted payments;
    
    create liens or other encumbrances; and
 24




---



##### Table of Contents




    
    transfer or sell certain assets or merge or consolidate with another entity.
    
 ITEM 1B. UNRESOLVED STAFF COMMENTS
  
 ITEM 2. PROPERTIES
    Approximated
    
    
    
    
    
    Owned /Location
    
    Acres
    
    Square Footage
    
    Use
    
    LeasedBelpre, Ohio, USA
    
    
    350
    
    
    
    3,600,000
    
    
    Manufacturing
    
    Owned(1)Wesseling, Germany
    
    
    8.1
    
    
    
    354,000
    
    
    Manufacturing
    
    Leased(2)Berre, France
    
    
    9.0
    
    
    
    392,000
    
    
    Manufacturing
    
    Owned(3)Pernis, The Netherlands
    
    
    3.4
    
    
    
    146,000
    
    
    Manufacturing
    
    Owned(3)Paulinia, Brazil
    
    
    179
    
    
    
    2,220,000
    
    
    Manufacturing
    
    OwnedKashima, Japan
    
    
    11.6
    
    
    
    395,000
    
    
    Manufacturing
    
    Owned(4)Houston, Texas, USA
    
    
    N/A
    
    
    
    46,615
    
    
    
    R&D
    
    
    Leased(5)Amsterdam, The Netherlands
    
    
    N/A
    
    
    
    32,015
    
    
    
    R&D
    
    
    Leased(5)Tsukuba, Japan
    
    
    4.5
    
    
    
    23,327
    
    
    
    R&D
    
    
    OwnedShanghai, China
    
    
    N/A
    
    
    
    20,000
    
    
    Distribution
    
    Leased(5)
 
 (1)
    
    A portion of the HSBC capacity at the Belpre facility is owned by Infineum USA, a joint
venture between Shell Chemicals and ExxonMobil.(2)
    
    We lease the land and the manufacturing facility, but own the production equipment.(3)
    
    We lease the land, but own the manufacturing facility and production equipment.(4)
    
    The Japanese facility is owned by our 50%-50% joint venture with JSR. 25




---



##### Table of Contents



(5)
    
    We lease the facility, but own the equipment. Belpre, Ohio, USA
    Wesseling, Germany
   Berre, France
   Pernis, The Netherlands
  26




---



##### Table of Contents



Paulinia, Brazil
  Kashima, Japan
   Research, Development and Technical Service Facilities
  27




---



##### Table of Contents



ITEM 3. LEGAL PROCEEDINGS
   
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 PART II
 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
   
 ITEM 6. SELECTED FINANCIAL DATA
  28




---



##### Table of Contents



PredecessorPeriod from
    
    
    Period fromDecember 23
    
    
    January 1Year Ended
    
    
    Year Ended
    
    
    Year Ended
    
    
    Year Ended
    
    
    through
    
    
    throughDecember 31,
    
    
    December 31,
    
    
    December 31,
    
    
    December 31,
    
    
    December 31,
    
    
    December 22,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2003(In thousands)
    
    
    (In thousands)
    
    
    (In thousands)
    
    
    (In thousands)
    
    
    (In thousands)
    
    
    (In thousands)Statement of Operations Data:RevenuesSales
    
    $
    1,066,044
    
    
    $
    1,015,766
    
    
    $
    952,921
    
    
    $
    791,226
    
    
    $
    9,532
    
    
    $
    680,263Other(1)
    
    
    23,543
    
    
    
    32,355
    
    
    
    22,670
    
    
    
    16,160
    
    
    
    328
    
    
    
    12,475Total revenues
    
    
    1,089,587
    
    
    
    1,048,121
    
    
    
    975,591
    
    
    
    807,386
    
    
    
    9,860
    
    
    
    692,738Cost of goods sold(2)
    
    
    938,556
    
    
    
    843,726
    
    
    
    766,012
    
    
    
    692,968
    
    
    
    9,796
    
    
    
    519,743Gross profit
    
    
    151,031
    
    
    
    204,395
    
    
    
    209,579
    
    
    
    114,418
    
    
    
    64
    
    
    
    172,995Research and development expenses
    
    
    24,865
    
    
    
    24,598
    
    
    
    26,152
    
    
    
    23,178
    
    
    
    458
    
    
    
    23,310Selling, general and administrative
    
    
    69,020
    
    
    
    73,776
    
    
    
    72,731
    
    
    
    64,903
    
    
    
    1,624
    
    
    
    54,017Depreciation and amortization of
identifiable intangibles
    
    
    51,917
    
    
    
    43,574
    
    
    
    44,090
    
    
    
    42,630
    
    
    
    860
    
    
    
    25,876Earnings in unconsolidated joint
venture(3)
    
    
    (626
    )
    
    
    (168
    )
    
    
    (1,516
    )
    
    
    (462
    )
    
    
    (28
    )
    
    
    (621
    )Interest, net(4)
    
    
    43,460
    
    
    
    40,547
    
    
    
    33,943
    
    
    
    38,963
    
    
    
    556
    
    
    
    57,543Income (loss) before income taxes
    
    
    (37,605
    )
    
    
    22,068
    
    
    
    34,179
    
    
    
    (54,794
    )
    
    
    (3,406
    )
    
    
    12,870Income tax (provision) benefit(5)
    
    
    (6,138
    )
    
    
    (25,626
    )
    
    
    (11,519
    )
    
    
    18,973
    
    
    
    1,347
    
    
    
    (3,007
    )Net (loss) income
    
    $
    (43,743
    )
    
    $
    (3,558
    )
    
    $
    22,660
    
    
    $
    (35,821
    )
    
    $
    (2,059
    )
    
    $
    9,863
 29




---



##### Table of Contents



PredecessorAs of
    
    As of
    
    As of
    
    As of
    
    As of
    
    As ofDecember 31,
    
    December 31,
    
    December 31,
    
    December 31,
    
    December 31,
    
    December 31,2007
    
    2006
    
    2005
    
    2004
    
    2003
    
    2002(In thousands)
    
    (In thousands)
    
    (In thousands)
    
    (In thousands)
    
    (In thousands)
    
    (In thousands)Balance Sheet Data:Cash and cash equivalents
    
    $
    48,277
    
    
    $
    43,601
    
    
    $
    100,934
    
    
    $
    46,357
    
    
    $
    17,500
    
    
    $
    14,305Total assets(6)
    
    
    984,894
    
    
    
    989,153
    
    
    
    964,813
    
    
    
    965,587
    
    
    
    941,056
    
    
    
    608,651Total debt
    
    
    538,465
    
    
    
    582,113
    
    
    
    462,663
    
    
    
    465,343
    
    
    
    560,000
    
    
    
    343,730
 
 (1)
    
    Other revenues include the sale of by-products generated in the production of Kraton IR and
SIS.(2)
    
    In the year ended December 31, 2005 and 2004, and the period from December 23 through
December 31, 2003, these amounts include $1,684, $35,225 and $1,525, respectively, of
additional costs relating to the sale of inventory, the carrying value of which had been
increased to reflect the manufacturing profit in inventory as part of the acquisition and
separation, respectively.(3)
    
    Represents our 50% joint venture interest in Kraton JSR Elastomers KK, which is accounted for
using the equity method of accounting.(4)
    
    In the period from January 1 through December 22, 2003,
net interest includes $10,200,
related to the write-off of deferred financing costs associated with indebtedness repaid in
the acquisition, $9,100 of prepayment penalty associated with such indebtedness and $7,500
related to the remaining accretion of the value of warrants of Ripplewood Chemical issued with
such indebtedness.(5)
    
    Taxes reflected in the predecessor company represents the income tax provision related to our
foreign operations due to our U.S. operations being considered a limited liability company and
treated as a flow through entity for federal income tax purposes. Since the acquisition, taxes
include all operations, including the U.S. operations.(6)
    
    At December 23, 2003, property, plant and equipment was increased by $151,123 as a result of
purchase accounting. PredecessorPeriod from
    
    Period fromDecember 23
    
    January 1Year Ended
    
    Year Ended
    
    Year Ended
    
    Year Ended
    
    through
    
    throughDecember 31,
    
    December 31,
    
    December 31,
    
    December 31,
    
    December 31,
    
    December 23,2007
    
    2006
    
    2005
    
    2004
    
    2003
    
    2003Other Data:Ratio of Earnings to Fixed Charges
    
    
    
    
    
    
    1.5
    
    
    
    1.9
    
    
    
    
    
    
    
    
    
    
    
    1.2
  30




---



##### Table of Contents



ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
   Recent Developments
 Appointment of Executive Officers
   Critical Accounting Policies
  (a) Inventories
  (b) Property, Plant and Equipment
  Machinery and equipment
    
    20 yearsBuilding and land improvements
    
    20 yearsComputer hardware/information systems
    
    3 yearsOffice equipment
    
    5 yearsResearch equipment and facilities
    
    5 yearsVehicles
    
    5 years
 (c) Impairment of Long-Lived Assets
 Accounting for the Impairment or
Disposal of Long-Lived Assets
  (d) Income Taxes
    (e) Benefit
Plans
  31




---



##### Table of Contents



(f) Revenue Recognition
   Factors Affecting Our Results of Operations
 Raw Materials
  32




---



##### Table of Contents



Seasonality
  Economic and Market Conditions
   33




---



##### Table of Contents



International Operations and Currency Fluctuations
   U.S. $ per 10,000U.S. $ per Euro
    
    Japanese Yen
    
    U.S. $ per Brazilian RealAverage
    
    Period End
    
    Average
    
    Period End
    
    Average
    
    Period EndYear Ended
    
    
    2005
    
    
    
    1.243
    
    
    
    1.184
    
    
    
    90.81
    
    
    
    85.10
    
    
    
    0.411
    
    
    
    0.4272006
    
    
    
    1.254
    
    
    
    1.319
    
    
    
    85.95
    
    
    
    84.09
    
    
    
    0.459
    
    
    
    0.4682007
    
    
    
    1.368
    
    
    
    1.472
    
    
    
    84.84
    
    
    
    87.60
    
    
    
    0.511
    
    
    
    0.565
   34




---



##### Table of Contents



Results of Operations
  Year Ended
    
    
    Year Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,
    
    
    December 31,2007
    
    
    2006
    
    
    2005(In thousands)
    
    
    (In thousands)
    
    
    (In thousands)RevenuesSales
    
    $
    1,066,044
    
    
    $
    1,015,766
    
    
    $
    952,921Other
    
    
    23,543
    
    
    
    32,355
    
    
    
    22,670Total revenues
    
    
    1,089,587
    
    
    
    1,048,121
    
    
    
    975,591Costs and expensesCost of goods sold
    
    
    938,556
    
    
    
    843,726
    
    
    
    766,012Gross profit
    
    
    151,031
    
    
    
    204,395
    
    
    
    209,579Research and development expenses
    
    
    24,865
    
    
    
    24,598
    
    
    
    26,152Selling, general and administrative expenses
    
    
    69,020
    
    
    
    73,776
    
    
    
    72,731Depreciation and amortization of identifiable intangibles
    
    
    51,917
    
    
    
    43,574
    
    
    
    44,090Earnings in unconsolidated joint venture
    
    
    (626
    )
    
    
    (168
    )
    
    
    (1,516
    )Interest, net
    
    
    43,460
    
    
    
    40,547
    
    
    
    33,943Income (loss) before income taxes
    
    
    (37,605
    )
    
    
    22,068
    
    
    
    34,179Income tax provision
    
    
    (6,138
    )
    
    
    (25,626
    )
    
    
    (11,519
    )Net (loss) income
    
    $
    (43,743
    )
    
    $
    (3,558
    )
    
    $
    22,660
  Year Ended
    
    
    Year Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,
    
    
    December 31,2007
    
    
    2006
    
    
    2005RevenuesSales
    
    
    97.8
    %
    
    
    96.9
    %
    
    
    97.7
    %Other
    
    
    2.2
    
    
    
    3.1
    
    
    
    2.3Total revenues
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0Costs and expensesCost of goods sold
    
    
    86.1
    
    
    
    80.5
    
    
    
    78.5Gross profit
    
    
    13.9
    
    
    
    19.5
    
    
    
    21.5Research and development expenses
    
    
    2.3
    
    
    
    2.3
    
    
    
    2.7Selling, general and administrative expenses
    
    
    6.3
    
    
    
    7.0
    
    
    
    7.5Depreciation and amortization of identifiable intangibles
    
    
    4.8
    
    
    
    4.2
    
    
    
    4.5Earnings in unconsolidated joint venture
    
    
    (0.1
    )
    
    
    
    
    
    
    (0.2
    )Interest, net
    
    
    4.0
    
    
    
    3.9
    
    
    
    3.5Income (loss) before income taxes
    
    
    (3.4
    )
    
    
    2.1
    
    
    
    3.5Income tax provision
    
    
    (0.6
    )
    
    
    (2.4
    )
    
    
    (1.2
    )Net income (loss)
    
    
    (4.0
    )%
    
    
    (0.3
    )%
    
    
    2.3
    %
 Year Ended December 31, 2007, Compared to Year Ended December 31, 2006
 Total Revenues
  Sales .
  
    
    Growth in our Adhesives, Sealants and Coatings and Compounding end-use markets in the
Asia Pacific region, the latter driven by innovation product growth
    
    Growth in Packaging and Films end-use markets in Europe and Asia Pacific, excluding
Japan due to cap liners and innovation product growth
    
    Growth in Personal Care end-use market, including innovation product growth
 35




---



##### Table of Contents



Other revenue .
 Cost of Goods Sold
  Gross Profit
  Operating Expenses
 Research and development expenses .
 Selling, general and administrative expenses .
 Depreciation and amortization of identifiable intangibles.
 Earnings in joint venture .
 Interest,
net.
 36




---



##### Table of Contents



Income Tax Provision
 Income tax provision.
 Net (Loss) Income
 Net Loss.
 Year Ended December 31, 2006 Compared to Year Ended December 31, 2005
 Total Revenues
  Sales .
  
    
    SIS availability and acrylic tape substitution in our North American Adhesive, Sealants
and Coatings end-use market;
    
    Paving market volume reductions, as a result of increased asphalt prices in our North
American Paving and Roofing end-use market;
    
    Competitive circumstances in our North American Personal Care end-use market; and
    
    Our continued focus on our core end-use markets resulted in decreased volumes in the
other market category.
  
    
    Strong market growth in Europe and Asia Pacific region in our Compounding Channels
end-use market;
    
    Significant growth in the European region in our Personal Care end-use market; and
    
    Strong growth in Europe in our Paving and Roofing end-use market.
 Other revenue .
 37




---



##### Table of Contents



Cost of Goods Sold
  Gross Profit
  Operating Expenses
 Research and development expenses .
 Selling, general and administrative expenses .
 Depreciation and amortization of identifiable intangibles.
 Earnings in joint venture .
 Interest expense.
 Income Tax Provision
 Income
tax provision.
 38




---



##### Table of Contents



Net (Loss) Income
 Net (Loss) Income.
 Liquidity and Capital Resources
     Operating
Activities.
  39




---



##### Table of Contents



Investing Activities.
  Financing Activities.
  Capital Expenditures.
  Contractual Commitments
  Payments Due by Period
 Dollars in Millions
    
    Total
    
    2008
    
    2009
    
    2010
    
    2011
    
    2012
    
    2013 and afterLong-term debt
    
    $
    538.5
    
    
    
    3.4
    
    
    
    3.4
    
    
    
    3.4
    
    
    
    3.4
    
    
    
    163.2
    
    
    
    361.7Estimated interest payments on debt
    
    
    176.8
    
    
    
    35.0
    
    
    
    35.2
    
    
    
    34.7
    
    
    
    29.8
    
    
    
    21.4
    
    
    
    20.7Operating leases
    
    
    30.7
    
    
    
    7.2
    
    
    
    6.7
    
    
    
    6.5
    
    
    
    3.3
    
    
    
    2.8
    
    
    
    4.2Purchase obligations(1)(2)
    
    
    202.4
    
    
    
    11.2
    
    
    
    11.2
    
    
    
    9.0
    
    
    
    9.0
    
    
    
    9.0
    
    
    
    153.0Total contractual cash obligations
    
    
    948.4
    
    
    
    56.8
    
    
    
    56.5
    
    
    
    53.6
    
    
    
    45.5
    
    
    
    196.4
    
    
    
    539.6
 
 (1)
    
    Pursuant to two feedstock supply contracts with Shell Chemicals or its affiliates, we are
obligated to purchase minimum quantities of isoprene each year. If we do not meet these
minimums, we are obligated to pay a penalty of approximately $300 per ton up to a maximum
aggregate penalty of approximately $2.2 million. Pursuant to the styrene and butadiene
feedstock supply contracts with Shell Chemicals and its affiliates, Basell and others for our
European operations, we are obligated to purchase minimum quantities. The contracts do not
contain a stated penalty for failure to purchase the minimum quantities. However, if we do not
purchase the minimum requirements, it is required under the terms of the contracts to meet
with Shell Chemicals in an effort to determine a resolution equitable to both parties. 40




---



##### Table of Contents



(2)
    
    Pursuant to a production agreement with Basell, we are obligated to pay a minimum indirect
service fee each year of approximately $9.0 million. Not included in this table are future
obligations arising under our Operating Agreements and Site Services, Utilities, Materials and
Facilities Agreements that do not specify fixed or minimum quantities of goods or services to
be purchased and do not contain fixed, minimum or variable price provisions. Under such
agreements, our obligations to third parties are based on costs incurred by them in connection
with the operation and maintenance of, and other services provided to, our European
facilities. For a description of these agreements, see Operating Agreements. The initial
terms of these agreements range between 20 years and 40 years and each agreement includes
bilateral renewal rights. During the years ended December 31, 2007, 2006 and 2005, we incurred
costs aggregating $70 million, $58 million and $57 million, respectively, under these
agreements. Description of Our Indebtedness
 Senior Secured Credit Facility
    Maturity.
 Interest.
 41




---



##### Table of Contents



Mandatory Prepayments.
 Covenants.
   8.125% Senior Subordinated Notes due 2014
  Maturity Date.
 Interest Payment Dates.
 Guarantees.
 Security and Ranking.
 Optional Redemption.
 Covenants.
 42




---



##### Table of Contents



Other Contingencies
       Off-Balance Sheet Transactions
  43




---



##### Table of Contents



Recent Accounting Pronouncements
 Noncontrolling Interests in Consolidated Financial
Statements an amendment of ARB No. 51
 Business
Combinations
 The Fair
Value Option for Financial Assets and Financial Liabilities  Including an Amendment of FASB
Statement No. 115
 Fair Value
Measurements
 
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Interest rate risk.
 Foreign currency risk .
 Commodity price risk .
 
 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  
 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  44




---



##### Table of Contents



ITEM 9A. CONTROLS AND PROCEDURES
  Internal ControlIntegrated Framework
  Internal ControlIntegrated Framework
  45




---



##### Table of Contents



ITEM 9B. OTHER INFORMATION
  
 PART III
 
 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
 Code of Ethics and Business Practice
  Directors and Executive Officers
  Name
    
    Age
    
    PositionDan F. Smith
    
    
    62
    
    
    Director and Chairman of the Board of DirectorsKelvin L. Davis
    
    
    44
    
    
    DirectorMichael G. MacDougall
    
    
    37
    
    
    DirectorNathan H. Wright
    
    
    42
    
    
    DirectorTimothy J. Walsh
    
    
    44
    
    
    DirectorKevin G. OBrien
    
    
    42
    
    
    DirectorSteven J. Demetriou
    
    
    49
    
    
    DirectorJames R. Ball
    
    
    65
    
    
    DirectorKevin M. Fogarty
    
    
    42
    
    
    Director, Chief Executive Officer and PresidentStephen E. Tremblay
    
    
    48
    
    
    Vice President and Chief Financial OfficerDavid A. Bradley
    
    
    37
    
    
    Chief Operating OfficerRichard A. Ott
    
    
    53
    
    
    Vice President, Global Human Resources and
CommunicationsStephen W. Duffy
    
    
    54
    
    
    Vice President, General Counsel and SecretaryEli A. Ben-Shoshan
    
    
    38
    
    
    Vice President, Business Development
 Dan F. Smith.
 Kelvin L. Davis .
 Michael G. MacDougall.
 46




---



##### Table of Contents



Nathan
H. Wright .
 Timothy
J. Walsh .
 Kevin G. OBrien.
 Steven J. Demetriou .
 James R. Ball.
 Kevin M. Fogarty.
 Stephen E. Tremblay.
 47




---



##### Table of Contents



David A. Bradley.
 Richard A. Ott .
 Stephen W. Duffy .
 Eli A. Ben-Shoshan.
 COMMITTEES OF THE BOARD OF DIRECTORS AND MEETING ATTENDANCE
  Audit Committee.
  48




---



##### Table of Contents



Compensation Committee.
  Executive Committee.
  
 ITEM 11. EXECUTIVE COMPENSATION
 Compensation Discussion and Analysis
  Compensation Philosophy and Objectives.
   st
 Role of the Compensation Committee.
 www.kraton.com/content/released/compensation_committee.pdf
  49




---



##### Table of Contents



Components of Direct Compensation.
 Base Salary .
      Annual Bonus: Incentive Compensation Plan.
    50




---



##### Table of Contents



Equity .
 Options .
      51




---



##### Table of Contents



Profits Units of Kraton Management LLC (Management LLC).
  Restricted Units and Notional Units of Management LLC .
  provided provided
  52




---



##### Table of Contents



Membership Units of Management LLC .
  Fringe Benefits / Perquisites .
   Components of Post-Employment Compensation.
 Employment Agreements and Severance Benefits .
  U.S. 401K Plan .
  U.S. Defined Benefit Pension Plan .
  53




---



##### Table of Contents



U.S. Savings Restoration Plan and Pension Restoration Plan .
  Other Pension Plans
  Executive Deferred Compensation Plan .
  Retiree Medical Benefits .
   54




---



##### Table of Contents



Summary Compensation Table
 Change in PensionValue andNonqualifiedNon-Equity
    
    DeferredStock
    
    Option
    
    Incentive Plan
    
    Compensation
    
    All OtherName and Principal
    
    
    
    
    
    Salary
    
    Awards
    
    Awards
    
    Compensation
    
    Earnings
    
    Compensation
    
    TotalPosition
    
    Year
    
    ($)
    
    ($)(2)(3)
    
    ($)(2)(4)
    
    ($)(5)
    
    ($)6)
    
    ($)(7)
    
    ($)(a)
    
    (b)
    
    (c)
    
    (e)
    
    (f)
    
    (g)
    
    (h)
    
    (i)
    
    (j)George B. Gregory
    
    
    2007
    
    
    
    487,500
    
    
    
    275,000
    
    
    
    386,886
    
    
    
    0
    
    
    
    11,844
    
    
    
    41,038
    
    
    
    1,202,268Chief Executive
Officer
    
    
    2006
    
    
    
    450,000
    
    
    
    275,000
    
    
    
    386,886
    
    
    
    400,000
    
    
    
    7,164
    
    
    
    51,997
    
    
    
    1,571,047Nicholas G. Dekker
    
    
    2007
    
    
    
    299,250
    
    
    
    30,000
    
    
    
    83,256
    
    
    
    0
    
    
    
    0
    
    
    
    216,122
    
    
    
    628,628Vice President,
Chief Financial
Officer (1)
    
    
    2006
    
    
    
    188,310
    
    
    
    7,500
    
    
    
    83,256
    
    
    
    50,000
    
    
    
    0
    
    
    
    22,623
    
    
    
    351,689David A. Bradley
    
    
    2007
    
    
    
    275,000
    
    
    
    60,000
    
    
    
    128,299
    
    
    
    0
    
    
    
    1,658
    
    
    
    21,000
    
    
    
    485,957Vice President,
Corporate
Operations
    
    
    2006
    
    
    
    251,250
    
    
    
    60,000
    
    
    
    128,299
    
    
    
    150,000
    
    
    
    3,096
    
    
    
    31,700
    
    
    
    624,345Kevin M. Fogarty
    
    
    2007
    
    
    
    330,000
    
    
    
    60,000
    
    
    
    160,913
    
    
    
    0
    
    
    
    1,445
    
    
    
    20,869
    
    
    
    573,227Executive Vice
President, Global
Sales and Marketing
    
    
    2006
    
    
    
    315,000
    
    
    
    60,000
    
    
    
    160,913
    
    
    
    150,000
    
    
    
    895
    
    
    
    42,138
    
    
    
    728,946Richard A. Ott
    
    
    2007
    
    
    
    227,500
    
    
    
    0
    
    
    
    127,643
    
    
    
    0
    
    
    
    156,677
    
    
    
    23,600
    
    
    
    535,420Vice President, Global
Human Resources and
Communications
    
    
    2006
    
    
    
    220,000
    
    
    
    0
    
    
    
    127,643
    
    
    
    90,000
    
    
    
    47,786
    
    
    
    38,278
    
    
    
    523,707
 
 (1)
    
    Mr. Dekker has served as Chief Financial Officer and Vice President since October 6, 2006.
Payments to Mr. Dekker in connection with his position at Kraton Polymers France were made in
Euros. For purposes of this table, we have assumed an exchange rate of 1.47 U.S. Dollars to Euros,
the currency conversion rate as of December 31, 2007, as reported on http://www.oanda.com.(2)
    
    Amounts set forth in the Stock Awards and Option Awards columns represent the amounts
recognized as compensation expense for financial statement reporting purposes in fiscal year 2007
by the Company with respect to restricted unit awards, notional unit awards (but not profits unit
awards as no compensation expense is required to be taken with respect to such awards) and option
awards, in accordance with the Financial Accounting Standards Board Statement of Financial
Accounting Standards No. 123 (revised 2004) (FASB 123R) (disregarding the estimate of forfeitures
related to service-based vesting conditions). A discussion of the assumptions used in this
valuation with respect to awards made in fiscal year 2007 may be found in the Companys financial
statements and accompanying footnotes on page F-12. A discussion of the assumptions used in this
valuation with respect to awards made in fiscal years prior to fiscal year 2007 may be found in the
corresponding sections of the Companys financial statements and accompanying footnotes for the
fiscal year in which the award was made.(3)
    
    This column consists of awards of restricted unit awards and notional unit awards. However,
profits unit awards are not included as no compensation expense is required to be taken with
respect to such awards.(4)
    
    This column consists of awards of Options to purchase membership units of TJ Chemical issued
pursuant to the TJ Chemical 2004 Option Plan.(5)
    
    This column consists of bonuses paid pursuant to the Companys 2007 Incentive Compensation
Plan. Pursuant to the Executive Deferred Compensation Plan, the Named Executive Officers elected
to defer a portion of their 2006 annual bonus, and receive Notional Units equal in value to the deferred amount,
as follows: Mr. Gregory ($100,000); Mr. Dekker
($25,000); Mr. Bradley ($75,000); Mr. Fogarty ($75,000); and Mr. Ott ($22,500) into the Executive
Deferred Compensation Plan. 55




---



##### Table of Contents



(6)
    
    Amounts shown in this column are not included in the total for purposes of determining who the Named
Executive Officers are. All amounts
in this column reflect the aggregate change in the present value of the Pension Plan and the
Deferred Compensation and Restoration Plan in accordance with Item 402(c)(2)(viii)(A).(7)
    
    Amounts in this column consist of (a) Company contributions to the Savings Plan on behalf of
Messrs. Gregory, Bradley, Fogarty, and Ott in the amount of $13,500, $13,500, $10,069, and $18,000,
respectively; (b) Company contributions to the Deferred Compensation and Restoration Plan on behalf
of Messrs. Gregory, Bradley, Fogarty, and Ott in the amount of $27,538, $7,500, $10,800, and
$6,500, respectively; and (d) for Mr. Dekker, employer contributions to a defined contribution plan
maintained by Kraton Polymers France in the amount of $16,000 and $85,267 relating to Medical and
Disability insurances paid in France, $81,325 paid as a result of accrued vacation in France, and
$1,092 for personal use of a company vehicle. Grants of Plan-Based Awards in Fiscal Year 2007
 All Other Stock
    
    All Other Option Awards:Estimated Future Payouts Under
    
    Estimated Future Payouts Under
    
    Awards:
    
    Number ofNon-Equity Incentive Plan Awards (1)
    
    Equity Incentive Plan Awards (2)
    
    Number of
    
    Securities
    
    Exercise or Base
    
    Grant Date FairThreshold
    
    
    
    
    
    Maximum
    
    Threshold
    
    Target
    
    Maximum
    
    Shares of Stock or
    
    Underlying Options
    
    Price of Option
    
    Value of Stock andName
    
    Grant Date
    
    ($)
    
    Target ($)
    
    ($)
    
    (#)
    
    (#)
    
    (#)
    
    Units (#)
    
    (#)
    
    Awards ($/Sh)
    
    Option Awards(a)
    
    (b)
    
    (c)
    
    (d)
    
    (e)
    
    (f)
    
    (g)
    
    (h)
    
    (i)(4)
    
    (j)(4)
    
    (k)
    
    (l)George B. Gregory
    
    
    3/6/2007
    
    
    
    147,000
    
    
    
    500,000
    
    
    
    1,000,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    101,010
    
    
    
    
    
    
    
    
    
    
    
    Nicholas G. Dekker (3)
    
    
    3/6/2007
    
    
    
    55,566
    
    
    
    189,000
    
    
    
    378,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,253
    
    
    
    
    
    
    
    
    
    
    
    David A. Bradley
    
    
    3/6/2007
    
    
    
    49,392
    
    
    
    168,000
    
    
    
    336,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    75,758
    
    
    
    
    
    
    
    
    
    
    
    Kevin M. Fogarty
    
    
    3/6/2007
    
    
    
    59,094
    
    
    
    201,000
    
    
    
    402,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    75,758
    
    
    
    
    
    
    
    
    
    
    
    Richard A. Ott
    
    
    3/6/2007
    
    
    
    36,750
    
    
    
    125,000
    
    
    
    250,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,727
    
    
    
    
    
    
    
    
    
    
    
    
 
 (1)
    
    These columns provide information on potential payouts under the 2007 Incentive
Compensation Plan. For information on amounts actually earned, see the Summary Compensation
Table.(2)
    
    These columns provide information on potential payouts pursuant to Profits Unit Awards
(See Equity Arrangements  Other Equity Awards for more information).(3)
    
    This is an award of Notional Units which vests in five equal installments on each
anniversary of the date of grant (October 6, 2006), provided that Mr. Dekker remains employed
through the applicable vesting date (See Equity Arrangements- Other Equity Awards for more
information).(4)
    
    This column consists of portions of the bonuses that would have been paid pursuant to the
Companys 2006 Incentive Compensation Plan but that were deferred at the election of the
Named Executive Officer. The full amounts of these bonuses, including the amount deferred, are
reported in the Non-Equity Inventive Plan Compensation column for 2006 in the Summary
Compensation Table. Pursuant to the Executive Deferred Compensation Plan, the Named
Executive Officers elected to defer a portion of their 2006 annual bonus, and receive
Notional Units equal in value to the deferred
amount, as follows: Mr. Gregory ($100,000); Mr. Dekker ($25,000); Mr. Bradley ($75,000);
Mr. Fogarty ($75,000); and Mr. Ott ($22,500) into the Executive Deferred Compensation Plan. 56




---



##### Table of Contents



Employment Agreements.
         Termination and Change in Control
Payments
 57




---



##### Table of Contents



Equity Arrangements
 Components of Direct Compensation  Equity Awards
  Outstanding Equity Awards at End of Fiscal Year 2007
 Option Awards
    
    
    Stock AwardsEquity
    
    
    EquityEquity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Incentive
    
    
    Incentive PlanIncentive Plan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Plan Awards:
    
    
    Awards:Number
    
    
    
    
    
    
    Awards:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Number of
    
    
    Market orof
    
    
    Number of
    
    
    Number of
    
    
    
    
    
    
    
    
    
    
    Number of
    
    
    Market
    
    
    Unearned
    
    
    Payout ValueSecurities
    
    
    Securities
    
    
    Securities
    
    
    
    
    
    
    
    
    
    
    Shares or
    
    
    Value of
    
    
    Shares, Units
    
    
    of UnearnedUnderlying
    
    
    Underlying
    
    
    Underlying
    
    
    
    
    
    
    
    
    
    
    Units of
    
    
    Shares or
    
    
    or Other
    
    
    Shares, UnitsUnexercised
    
    
    Unexercised
    
    
    Unexercised
    
    
    Option
    
    
    
    
    
    
    Stock That
    
    
    Units of
    
    
    Rights That
    
    
    or Other RightsOptions
    
    
    Options
    
    
    Unearned
    
    
    Exercise
    
    
    Option
    
    
    Have Not
    
    
    Stock That Have Not
    
    
    Have Not
    
    
    That Have Not(#)
    
    
    (#)
    
    
    Options
    
    
    Price
    
    
    Expiration
    
    
    Vested
    
    
    Vested
    
    
    Vested
    
    
    VestedName
    
    Exercisable
    
    
    Unexercisable (1)
    
    
    (#)
    
    
    ($)
    
    
    Date
    
    
    (#)
    
    
    ($)(2)
    
    
    (#)
    
    
    ($)(2)(a)
    
    (b)
    
    
    (c)
    
    
    (d)
    
    
    (e)
    
    
    (f)
    
    
    (g)
    
    
    (h)
    
    
    (i)
    
    
    (j)George B. Gregory (6)
    
    
    1,500,000
    
    
    
    1,000,000
    
    
    
    
    
    
    
    1.00
    
    
    
    12/2/2014200,000
    
    
    
    300,000400,000
    (3)
    
    
    364,000
    (3)
    
    
    
    
    
    
    350,000
    (4)
    
    
    318,500
    (4)875,000
    (5)1.00
    
    
    
    2/1/2015Nicholas G. Dekker
    
    
    22,500
    
    
    
    15,000
    
    
    
    
    
    
    
    1.00
    
    
    
    1/1/201442,50075,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    120,000
    (4)
    
    
    109,200
    (4)125,000
    (5)170,000
    
    
    
    
    
    
    
    1.00
    
    
    
    4/1/2016300,000
    
    
    
    
    
    
    
    1.00
    
    
    
    10/6/2016David A. Bradley
    
    
    375,000
    
    
    
    250,000
    
    
    
    
    
    
    
    1.00
    
    
    
    9/9/2014150,00080,000
    (3)
    
    
    72,800
    (3)
    
    
    
    
    
    
    60,000
    (3)
    
    
    54,460
    (3)125,000
    (5)225,000
    
    
    
    
    
    
    
    1.00
    
    
    
    2/1/2015Kevin M. Fogarty
    
    
    500,000
    
    
    
    750,000
    
    
    
    
    
    
    
    1.00
    
    
    
    7/15/2015180,000
    
    
    
    163,800300,000
    (5)Richard A. Ott
    
    
    600,000
    
    
    
    400,000
    
    
    
    
    
    
    
    1.00
    
    
    
    9/9/2014
    
    
    
    
    
    
    
    350,000
    (5)
    
    
    
 
 (1)
    
    All options were granted pursuant to the TJ Chemical 2004 Option Plan and relate to the right
to purchase membership units in TJ Chemical. All Options vest in 20% annual increments from the
date of grant. The date of grant for Options granted to Mr. Gregory is December 2, 2004 with
respect to 2,500,000 Options and March 1, 2005 with respect to 500,000 Options; for  Mr. Dekker is
September 9, 2004 with respect to 37,500 Options, April 1, 2006  with respect to 212,500 Options
and October 6, 2006 with respect to 375,000 Options; for Mr. Bradley is September 9, 2004 with
respect to 625,000 Options and February 1, 2005 with respect to 375,000 Options; for Mr. Fogarty is
July 15, 2005, and for Mr. Ott is September 9, 2004. 58




---



##### Table of Contents



(2)
    
    There is no established public market for membership units of TJ Chemical. The Company engaged
an independent valuation and financial consultant, Corporate Valuation Advisors, Inc., to perform a
valuation of the total equity of TJ Chemical Holdings LLC in January 2007 and again in January of
2008. In valuing the equity of TJ Chemical, the consultant relied upon our historical financial
statements. In valuing the total equity of TJ Chemical, the consultant utilized the Market
Approach. The Market Approach is a valuation technique in which estimated market value is based on
market prices in actual transactions. The market approach compared the Company with similar
companies that are publicly traded. The technique consists of collecting selling prices for
comparable assets. After studying the selling prices, value adjustments are made for comparability
differences. This process is essentially one of comparison and correlation. In applying the Market
Approach, market and financial data on publicly traded guideline companies was analyzed and
relevant valuation multiples were formulated. The consultant considered the outlook of the economy
and the current market for publicly traded guideline companies engaged in the same industry or an
industry similar in which we compete. The fair value of a membership unit was estimated at $0.91
as of December 31, 2007. Due to the fact that TJ Chemicals assets consist solely of the assets of
Management LLC and its subsidiaries, the Company has concluded that it is reasonable to assume that
membership units of Management LLC have the same value as membership units of TJ Chemical on any
given date.(3)
    
    These are awards of Restricted Units. (See Equity Arrangements- Other Equity Awards for
more information.)(4)
    
    These are awards of Notional Units. (See Equity Arrangements- Other Equity Awards for more
information.)(5)
    
    Profit units vest 50% if the assets of TJ Chemical double and an additional 50% if such assets
triple in value from the date of the grant of the Profit Units, or 100% upon a change in control.
Due to the complexity of the calculations involved in determining how the assets above the
Threshold Amount for each profit unit would be allocated among all holders of profit units
(especially as Threshold Amounts may vary from award to award) and due to the fact that the value
of TJ Chemicals assets has not increased significantly since the initial grant of Profits Units,
the Company believes that the Profits Units have no discernable market value as of December 31,
2007.(6)
    
    In connection with his termination of employment on February 1, 2008, Mr. Gregory forfeited
1,200,000 options of TJ Chemical, 200,000 Restricted Units of TJ Chemical, 350,000 Notional Units
of TJ Chemical and 875,000 Profit Units of TJ Chemical.  Option Exercises and Stock Vested in Fiscal Year 2007
 Option Awards
    
    Stock AwardsNumber of SharesAcquired on
    
    Value Realized on
    
    Number of Shares
    
    Value Realized onExercise
    
    Exercise
    
    Acquired on Vesting
    
    VestingName
    
    (#)
    
    ($)
    
    (#)
    
    ($)(4)(a)
    
    (b)
    
    (c)
    
    (d)
    
    (e)George B. Gregory
    
    
    175,000
    (1)
    
    
    
    
    
    
    
    
    
    
    Nicholas G. Dekker
    
    
    30,000
    (1)
    
    
    
    
    
    
    
    
    
    
    David A. Bradley
    
    
    
    
    
    
    
    
    
    
    20,000
    (2)
    
    
    17,80040,000
    (3)
    
    
    35,600Kevin M. Fogarty
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Richard A. Ott
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 
 (1)
    
    These represent Notional Units.(2)
    
    This relates to an award of Restricted Units granted on February 1, 2005. The
award vests 20% on each of the first five anniversaries of the grant date, assuming Mr.
Bradley is still employed as of each such date.(3)
    
    This relates to an award of Restricted Units granted on March 8, 2004. The
award vests 20% on each of the first five anniversaries of the grant date, assuming Mr.
Bradley is still employed as of each such date. 59




---



##### Table of Contents



(4)
    
    Membership units were valued at $.91 per unit on each of the vesting dates for
Mr. Bradley in fiscal 2007. See footnote 2 to the Outstanding Equity Awards at End of
Fiscal Year 2007 Table for more information on the valuation of membership units.  Pension Benefits in Fiscal Year 2007
 Present value ofNumber of years
    
    accumulated
    
    Payments duringName
    
    Plan name
    
    credited service (#)
    
    benefit($)
    
    last fiscal year ($)(a)
    
    (b)
    
    (c)
    
    (d)
    
    (e)George B. Gregory
    
    Pension Plan
    
    
    2.51
    
    
    
    11,320
    
    
    
    0Pension Benefit
    
    
    2.51
    
    
    
    14,262
    
    
    
    0Restoration PlanNicholas G. Dekker
    
    Not a participant
    
    
    0
    
    
    
    0
    
    
    
    0David A. Bradley
    
    Pension Plan
    
    
    2.76
    
    
    
    7,777
    
    
    
    0Pension Benefit
    
    
    2.76
    
    
    
    205
    
    
    
    0Restoration PlanKevin M. Fogarty
    
    Pension Plan
    
    
    1.60
    
    
    
    3,809
    
    
    
    0Pension Benefit
    
    
    1.60
    
    
    
    1,666
    
    
    
    0Restoration PlanRichard A. Ott
    
    Pension Plan
    
    
    32.26
    
    
    
    772,110
    
    
    
    0Pension Benefit
    
    
    32.26
    
    
    
    285,329
    
    
    
    0Restoration Plan
 Pension Plan.
  60




---



##### Table of Contents



Benefit Restoration Plan.
  Executive Deferred Compensation Plan
  Nonqualified Deferred Compensation During Fiscal Year 2007
 Executive
    
    Registrant
    
    
    
    
    
    Aggregatecontributions in
    
    contributions in
    
    Aggregate earnings
    
    withdrawals and
    
    Aggregatelast FY
    
    last FY
    
    in last FY
    
    distributions in
    
    balance at lastName
    
    
    
    
    
    ($)
    
    ($)
    
    ($)
    
    last FY ($)
    
    FYE(a)
    
    Plan
    
    (b)
    
    (c)(4)
    
    (d)(3)
    
    (e)
    
    (f)George B. Gregory
    
    Deferred
    
    
    23,625
    
    
    
    27,538
    
    
    
    14,791
    
    
    
    0
    
    
    
    140,789
    (1)Compensation andRestoration PlanNicholas
G. Dekker (2)
    
    Did Not ParticipateDavid A. Bradley
    
    Deferred
    
    
    7,500
    
    
    
    7,500
    
    
    
    3017
    
    
    
    0
    
    
    
    54,405Compensation andRestoration PlanKevin M. Fogarty
    
    Deferred
    
    
    10,800
    
    
    
    10,800
    
    
    
    2,173
    
    
    
    0
    
    
    
    56,725Compensation andRestoration PlanRichard A. Ott
    
    Deferred
    
    
    4,200
    
    
    
    5,600
    
    
    
    6,068
    
    
    
    0
    
    
    
    45,194Compensation andRestoration Plan
 
 (1)
    
    The balance of Mr. Gregorys account will be distributed to him, as soon as
administratively possible, in connection with his termination of employment.(2)
    
    Mr. Dekker did not participate in the Deferred Compensation and Restoration Plan in
Fiscal Year 2007.(3)
    
    Participants in the Deferred Compensation and Restoration Plan direct the investment of
their account balance in the plan in the same manner that they direct their account in the
Companys Savings Plan. In 2007, the Named Executive Officers invested in the following
funds with the following annual rates of return: Fidelity Diversified International
(16.03%); Fidelity Freedom Income Fund (4.83%); Fidelity Freedom 2025 (8.64%); Fidelity
Emerging Markets (45.06%); Fidelity International Real Estate (-8.25%); DWS Global Opps S
(8.75%); Mutual Discovery A (10.96%); Fidelity Leveraged Co. Stock (17.90%); MSIF Emerging
Markets (41.34%).(4)
    
    Amounts in this column are included in the All Other Compensation column of the
Summary Compensation Table.  61




---



##### Table of Contents



Executive Deferred Compensation Plan.
    TERMINATION AND CHANGE IN CONTROL PAYMENTS
  George B. Gregory
 Cash-Out Value of Equity-BasedAwards that vest as a result of aTriggering Event
    
    Severance Payment
    
    Triggering Event
    
    Value of Benefit ContinuationTermination of EmploymentBy Kraton for
cause or
resignation by
executive without
good reason
    
    $
    0
    
    
    $
    0
    
    
    $
    0By Kraton without
cause; or by
executive for good
reason; or
pursuant to
Kratons election
not to extend the
term of the
employment
contract
    
    $
    750,000
    
    
    $
    0
    
    
    $
    25,584By Kraton without cause or by executive
    
    $
    1,500,000
    
    
    $0 (1,300,000 Options)
    
    $
    27,379for good
reason, in either case within one
year
    
    
    
    
    
    $364,000 (400,000 Restricted Units)following a change in control
(1)
    
    
    
    
    
    $318,500 (350,000 Notional Units)Disability (2)
    
    $
    0
    
    
    $
    0
    
    
    $
    0Death (2)
    
    $
    0
    
    
    $
    0
    
    
    $
    0Change in Control
    
    $
    0
    
    
    $0 (875,000 Profits Units)
    
    $
    0
 Nicholas
G. Dekker
 Cash-Out Value of Equity-BasedAwards that vest as a result of aTriggering Event
    
    Severance Payment
    
    Triggering Event
    
    Value of Benefit ContinuationTermination of EmploymentBy Kraton for cause or
resignation by
executive without
good reason
    
    $
    0
    
    
    $
    0
    
    
    $
    0By Kraton without cause; by executive for good
reason
    
    $
    441,000
    
    
    $
    0
    
    
    $
    0By Kraton without cause or resignation by
    
    $
    630,000
    
    
    $0 (442,500 Options)
    
    Tax equalization so thatexecutive for good reason, in either case within
    
    
    
    
    
    $109,200 (120,000 Notional Units)
    
    what he earns here isone year following a  change in control
(1)
    
    
    
    
    
    
    
    
    
    equal to what he wouldhave earned in France(see 5(g) of employmentcontract)Disability (2)
    
    $
    0
    
    
    $
    0
    
    
    $
    0Death (2)
    
    $
    0
    
    
    $
    0
    
    
    $
    0Change in Control
    
    $
    0
    
    
    $0 (125,000 Profits Units)
    
    $
    0
 62




---



##### Table of Contents



David A. Bradley
 Cash-Out Value of Equity-BasedAwards that vest as a result of a
    
    Value of BenefitTriggering Event
    
    Severance Payment
    
    Triggering Event
    
    ContinuationTermination of EmploymentBy Kraton for cause or resignation by executive
    
    $
    0
    
    
    $
    0
    
    
    $
    0without good reason.By Kraton without cause or by executive for
    
    $
    140,000-280,000
    
    
    $
    0
    
    
    $
    8,528-17,056good reason (3)By Kratons election not to extend the employment
    
    $
    140,000
    
    
    $
    0
    
    
    $
    0term.By Kraton without cause or by executive for
    
    $
    448,000
    
    
    $0 (475,000 Options)
    
    $
    18,253good
reason, in either case within one year following a
change
    
    
    
    
    
    $127,400 (140,000 Restricted Units)in control. (1)Disability (2)
    
    $
    0
    
    
    $
    0
    
    
    $
    0Death (2)
    
    $
    0
    
    
    $
    0
    
    
    $
    0Change in Control
    
    $
    0
    
    
    $0 (125,000 Profit Units)
    
    $
    0Kevin M. FogartyCash-Out Value of Equity-BasedAwards that vest as a result of a
    
    Value of BenefitTriggering Event
    
    Severance Payment
    
    Triggering Event
    
    Value of BenefitTermination of EmploymentBy Kraton for cause or
resignation by
    
    $
    0
    
    
    $
    0
    
    
    $
    0executive without good reason.By Kraton without cause; or pursuant to Kratons
    
    $
    167,500-335,000
    
    
    $
    0
    
    
    $
    8,528-17,056election not to extend the employment term, or byexecutive for good reason (3)By Kraton without cause or by  executive
    
    $
    536,000
    
    
    $0 (750,000 Options)
    
    $
    18,644for good reason within one
year of a
    
    
    
    
    
    $163,800 (180,000 Notional Units)change
in control (1)Disability (2)
    
    $
    0
    
    
    $
    0
    
    
    $
    0Death (2)
    
    $
    0
    
    
    $
    0
    
    
    $
    0Change in Control
    
    $
    0
    
    
    $0 (300,000 Profit Units)
    
    $
    0Richard A. OttCash-Out Value of Equity-BasedAwards that vest as a result of a
    
    Value of BenefitTriggering Event
    
    Severance Payment
    
    Triggering Event
    
    ContinuationTermination of EmploymentBy Kraton for cause or resignation by executive
    
    $
    0
    
    
    $
    0
    
    
    $
    0without good reasonBy Kraton without cause or resignation
    
    $
    125,000-250,000
    
    
    $
    0
    
    
    $
    8,528-17,056by executive
for good reason (3)Pursuant to Kratons election
    
    $
    125,000-250,000
    
    
    $
    0
    
    
    $
    0not to
extend the term (3)By Kraton without cause or by executive for good
    
    $
    375,000
    
    
    $0 (400,000 Options)
    
    $
    18,644reason within one year of a changeDisability (2)
    
    $
    0
    
    
    $
    0
    
    
    $
    0Death (2)
    
    $
    0
    
    
    $
    0
    
    
    $
    0Change in Control
    
    $
    0
    
    
    $0 (350,000 Profits Units)
    
    $
    0
 63




---



##### Table of Contents



(1)
    
    Note, Options, Restricted Units and Notional Units vest in the event of such a termination
within two years following a change in control.(2)
    
    Disability and Death Severance Payments are comprised of a pro-rata payment of the Named
Executive Officers bonus for the fiscal year in which death or disability occurs, based on
actual performance and paid on the date when bonuses are otherwise paid. The tables assume a
December 31, 2007 termination date, and, therefore, the Named Executive Officer would be
entitled to receive the entire bonus amount earned in fiscal year 2007.(3)
    
    These Named Executive Officer are entitled to at least 6 months continued base salary and
health benefits. Any additional severance is payable only so long as the Named Executive
Officer does not become employed with a subsequent employer. Employment Agreements, Termination of Employment Arrangements.
 provided
   64




---



##### Table of Contents



th
   Equity Arrangements.
 Options.
 Components of Direct Compensation  Equity Awards
 Notional Units.
 Components of Direct Compensation  Equity Awards,
 Profits Units.
 Components of Direct Compensation  Equity Awards
 65




---



##### Table of Contents



Restricted Units.
   Director Compensation During Fiscal Year 2007
 Fees Earned or Paid inCash
    
    Stock Awards
    
    Option Awards
    
    All Other Compensation
    
    TotalName
    
    ($)
    
    ($)
    
    ($)(1)(2)
    
    ($)
    
    ($)(a)
    
    (b)
    
    (c)
    
    (d)
    
    (g)
    
    (h)Kelvin L. Davis
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Michael G. MacDougall
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Timothy J. Walsh
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0John Breckenridge
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Nathan H. Wright
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Stephen Oppenheimer
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Steven J. Demetriou
    
    $
    25,000
    
    
    
    0
    
    
    $
    17,250
    
    
    
    0
    
    
    
    0James R. Ball
    
    $
    40,000
    
    
    
    0
    
    
    $
    17,250
    
    
    
    0
    
    
    
    0
 
 (1)
    
    Amounts set forth in the Option Awards column represent the amounts recognized as
compensation expense for financial statement reporting purposes in fiscal year 2007 by the
Company with respect to Option awards in accordance with FASB 123R (disregarding the estimate
of forfeitures related to service-based vesting conditions). A discussion of the
assumptions used in this valuation with respect to awards made in fiscal year 2007 may be
found in the Companys financial statements and accompanying
footnotes on page 75. A
discussion of the assumptions used in this valuation with respect to awards made in fiscal
years prior to fiscal year 2007 may be found in the corresponding sections of the Companys
financial statements and accompanying footnotes for the fiscal year in which the award was
made.(2)
    
    As of December 31, 2007, Messrs. Demetriou and Ball each held an aggregate of 100,000
Options. Options vest with respect to 50% on each of the first and second anniversaries of
the grant date. Directors do not receive other equity based awards from the Company.  66




---



##### Table of Contents



COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
  COMPENSATION COMMITTEE REPORT 1
   
 
 ITEM 12. SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
   Percentage ofPercentage of
    
    Non-VotingCommon
    
    Voting Equity
    
    EquityName and Address of Beneficial Owner
    
    Units
    
    Interests
    
    InterestsTPG Advisors III, Inc.
301 Commerce Street, Suite 3300

    
    
    6
    
    
    
    30.0
    %(1)
    
    
    30.0
    %Fort Worth, Texas 76102
 
 1
    
    The material in this report is not solicitation
material, is not deemed filed with the Commission, and is not incorporated by
reference in any filing of the company under the Securities Act of 1933 or the
Exchange Act, whether made before or after the date hereof and irrespective of
any general incorporation language in any filing. 67




---



##### Table of Contents



Percentage ofPercentage of
    
    Non-VotingCommon
    
    Voting Equity
    
    EquityName and Address of Beneficial Owner
    
    Units
    
    Interests
    
    InterestsTPG Advisors IV, Inc.
301 Commerce Street, Suite 3300
    
    
    6
    
    
    
    30.0
    %(1)
    
    
    29.3
    %Fort Worth, Texas 76102JPMP Capital Corp.
c/o J.P. Morgan Partners, LLC
    
    
    8
    
    
    
    40.0
    %(2)
    
    
    39.5
    %(3)270 Park Avenue, 39th Floor
New York, New York 10017
 
 (1)
    
    TPG Advisors III, Inc. (TPG Advisors III) is the general partner of
TPG GenPar III, L.P., which in turn is the sole general partner of each of TPG Partners III,
L.P. (Partners III), TPG Parallel III, L.P. (Parallel III), TPG Investors III, L.P.
(Investors III), FOF Partners III, L.P. (FOF) and FOF Partners III-B, L.P. (FOF B) and
the sole member of TPG GenPar Dutch, L.L.C., which is the general partner of TPG Dutch
Parallel III, C.V. (Dutch Parallel III). Partners III, Parallel III, Investors III, FOF, FOF
B and Dutch Parallel III are the members of TPG III Polymer Holdings LLC, which holds 30% of
the voting interests in TJ Chemical Holdings LLC. TPG Advisors IV, Inc. (TPG Advisors IV) is the general partner of TPG GenPar IV, L.P., which in turn is the sole general partner
of TPG Partners IV, L.P. (Partners IV). Partners IV is the sole member of TPG IV Polymer
Holdings LLC, which holds 30% of the voting interests of Chemical Holdings. TPG Advisors III
and TPG Advisors IV may be deemed, pursuant to Rule 13d-3 under the Securities Exchange Act of
1934, as amended, to beneficially own all of the securities held by TPG III Polymer Holdings
LLC and TPG IV Polymer Holdings LLC, respectively. David Bonderman
and James G. Coulter are directors, officers and sole
shareholders of each of TPG Advisors III and TPG
Advisors IV, and therefore, Messrs. Bonderman and Coulter may be deemed to be the
beneficial owners of the equity securities held by TPG III Polymer Holdings LLC and TPG IV
Polymer Holdings LLC.(2)
    
    Includes 22.6%, 5.4%, 0.8%, 2.3%, 0.3%, 0.4%, 0.9%, 0.9%, 6.0% and 0.4% indirectly owned by
J.P. Morgan Partners (BHCA), L.P., J.P. Morgan Partners Global Investors, L.P., JPMP Global
Fund/Kraton A. L.P., J.P. Morgan Partners Global Investors (Cayman), L.P., J.P. Morgan
Partners Global Investors (Cayman) II, L.P., JPMP Global Fund/Kraton, L.P., J.P. Morgan
Partners Global Investors (Selldown), L.P., JPMP Selldown Fund/Kraton, L.P., J.P. Morgan
Partners Global Investors (Selldown) II, L.P., and J.P. Morgan Partners Global Investors
(Selldown) II-B, L.P., respectively. Voting and disposition decisions at JPMP Capital Corp.
are made by three or more of its officers, and therefore no individual officer of JPMP Capital
Corp. is the beneficial owner of the securities. The address for each of these entities is 270
Park Avenue, New York, New York 10020, except that the address of each Cayman Global Fund
Entity is c/o Walkers SPV Limited, PO Box 908 GT, Walker House, George Town, Grand Cayman,
Cayman Islands.(3)
    
    Includes 22.3%, 5.3%, 0.8%, 2.3%, 0.3%, 0.4%, 0.9%, 0.9%, 5.9% and 0.4% indirectly owned by
J.P. Morgan Partners (BHCA), L.P., (JPMP BHCA) J.P. Morgan Partners Global Investors, L.P.,
JPMP Global Fund/Kraton A. L.P., J.P. Morgan Partners Global Investors (Cayman), L.P., J.P.
Morgan Partners Global Investors (Cayman) II, L.P., JPMP Global Fund/Kraton, L.P., J.P. Morgan
Partners Global Investors (Selldown), L.P., JPMP Selldown Fund/Kraton, L. P., J.P. Morgan
Partners Global Investors (Selldown) II-B, L.P., and J.P. Morgan Partners Global Investors
(Selldown) II-B, L.P. (collectively, the Global Investor Funds), respectively. The general
partner of JPMP BHCA is JPMP Master Fund Manager, L.P. (JPMP MFM). The general partner of
each of the Global Investor Funds is JPMP Global Investors, L.P. (JPMP Global). JPMP Capital
Corp., a wholly-owned subsidiary of JPMorgan Chase & Co., a publicly traded company, is the
general partner of each of JPMP MFM and JPMP Global. Voting and disposition decisions at JPMP
Capital Corp. are made by three or more of its officers, and therefore no individual officer
of JPMP Capital Corp. is the beneficial owner of the securities. The address for each of these
entities is 270 Park Avenue, New York, New York 10020, except that the address of each Cayman
Global Fund Entity is c/o Walkers SPV Limited, PO Box 908 GT, Walker House, George Town, Grand
Cayman, Cayman Islands.  Title of
    
    Name and Address
    
    Percent of Voting
    
    Percent of Non-VotingClass
    
    of Beneficial Owner
    
    Interests
    
    InterestsUnits
    
    Kelvin L. Davis
    
    
    60.0
    %(1)
    
    
    59.3
    %(1)Units
    
    Timothy J. Walsh
    
    
    
    %(2)
    
    
    
    %(2)Units
    
    George B. Gregory
    
    
    
    %(3)
    
    
    
    %(3)Units
    
    Kevin M. Fogarty
    
    
    
    %(3)
    
    
    
    %(3)Units
    
    David A. Bradley
    
    
    
    %(3)
    
    
    
    %(3)Units
    
    Richard A. Ott
    
    
    
    %(3)
    
    
    
    %(3)Units
    
    Joseph J. Waiter
    
    
    
    %(3)
    
    
    
    %(3)Units
    
    All directors and executive officers as a group
    
    
    60
    %(1)(2)(3)
    
    
    59.3
    %(1)(2)(3)
 68




---



##### Table of Contents



(1)
    
    Includes interests beneficially owned by TPG Advisors III, Inc., and TPG Advisors IV, Inc.
 Mr. Davis is an officer, director and/or equity owner of TPG Advisors III, Inc. and TPG Advisors
IV, Inc.(2)
    
    Mr. Walsh and Mr. OBrien are Managing Directors of CCMP Capital Advisors, LLC (CCMP
Capital), a private equity firm comprised of the former buyout/growth equity professionals of
J.P. Morgan Partners, LLC (JPMP) who separated from JPMorgan Chase in August 2006 to form an
independent private equity platform. Mr. Walsh and Mr. OBrien are serving as directors at the
request of JPMP and its affiliates. Mr. Walsh and Mr. OBrien each disclaims any beneficial
ownership of any shares beneficially owned by JPMP Capital Corp. or its affiliates, except to
the extent of their respective pecuniary interest therein, if any.(3)
    
    Consists of non-voting equity interests of less than 1% in TJ Chemical Holdings LLC owned
indirectly by the indicated persons through ownership of interests in Kraton Management LLC. 
 ITEM 13.
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
 Certain Relationships and Related Transactions
 TJ Chemical Limited Liability Company Operating Agreement.
  TJ Chemicals Option.
 Registration Rights Agreement.
 69




---



##### Table of Contents



pro rata
  Management Services Agreement.
 Related Transactions.
 Director Independence
  
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  2007
    
    
    2006(In Thousands)Audit fees
    
    $
    1,386
    
    
    $
    985Audit-related fees
    
    
    214
    
    
    
    254Tax fees
    
    
    92
    
    
    
    243Other fees
    
    
    
    
    
    
    Total fees
    
    $
    1,692
    
    
    $
    1,482
    70




---



##### Table of Contents



PART IV
 
 ITEM 15. EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES
   (i)
    
    Report of KPMG LLP, Independent Registered Public Accounting Firm(ii)
    
    Consolidated Balance Sheets as of December 31, 2007 and 2006(iii)
    
    Consolidated Statements of Operationsyears ended December 31, 2007, 2006 and 2005(iv)
    
    Consolidated Statements of Changes in Members Equity and Comprehensive Income
(Loss)years ended December 31, 2007, 2006 and 2005(v)
    
    Consolidated Statements of Cash Flowsyears ended December 31, 2007, 2006 and 2005(vi)
    
    Notes to consolidated financial statements
       71




---



##### Table of Contents



Signatures
   Kraton Polymers LLCBy:
    /s/ Kevin M. FogartyChief Executive Officer  Signature
    
    Title/s/ Kevin M. Fogarty
    
    President, Chief Executive Officer and a Director
(Principal Executive Officer)/s/ Stephen E. Tremblay
    
    Chief Financial Officer (Principal Financial Officer)/s/ Dan F. Smith
    
    Director and Chairman of the Board of Directors/s/ Michael G. MacDougall
    
    Director/s/ Timothy J. Walsh
    
    Director/s/ Nathan H. Wright
    
    Director/s/ Steven J. Demetriou
    
    Director/s/ James R. Ball
    
    Director/s/ Kevin G. OBrien
    
    Director/s/ Kelvin L. Davis
    
    Director
 72




---



##### Table of Contents



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 PageAudited Consolidated Financial Statements for the Years Ended December 31, 2007, 2006 and 2005Report of Independent Registered Public Accounting Firm
    
    
    F-1Consolidated Balance Sheets as of December 31, 2007 and 2006
    
    
    F-2Consolidated Statements of Operations for Years Ended December 31, 2007, 2006 and 2005
    
    
    F-3Consolidated Statements of Changes in Members Equity and
Comprehensive Income (Loss) for Years Ended December 31, 2007, 2006 and 2005
    
    
    F-4Consolidated Statements of Cash Flows for Years Ended December 31, 2007, 2006 and 2005
    
    
    F-5Notes to the Consolidated Financial Statements
    
    
    F-6
 73




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
      
 F-1




---



##### Table of Contents



Kraton Polymers LLC
 
 Consolidated Balance Sheets
 December 31, 2007 and 2006
(In thousands of U.S. dollars)
 December 31,
    
    
    December 31,2007
    
    
    2006AssetsCurrent assets:Cash and cash equivalents
    
    $
    48,277
    
    
    $
    43,601Receivables, net of allowances of $1,542 and $2,157
    
    
    140,321
    
    
    
    135,937Inventories of products, net
    
    
    256,323
    
    
    
    256,785Inventories of materials and supplies, net
    
    
    12,170
    
    
    
    10,903Other current assets
    
    
    12,404
    
    
    
    13,308Deferred income taxes
    
    
    
    
    
    
    1,931Total current assets
    
    
    469,495
    
    
    
    462,465Property, plant and equipment, less accumulated depreciation
    
    
    402,270
    
    
    
    403,743Identifiable intangible assets, less accumulated amortization
    
    
    76,356
    
    
    
    86,631Investment in unconsolidated joint venture
    
    
    10,326
    
    
    
    9,376Deferred financing costs
    
    
    10,323
    
    
    
    13,038Other long-term assets
    
    
    16,124
    
    
    
    13,900Total assets
    
    $
    984,894
    
    
    $
    989,153Liabilities and Members EquityCurrent liabilities:Current portion of long-term debt
    
    $
    3,445
    
    
    $
    3,850Accounts payable-trade
    
    
    102,952
    
    
    
    68,940Other payables and accruals
    
    
    55,816
    
    
    
    53,130Due to related parties
    
    
    24,505
    
    
    
    9,351Deferred income taxes
    
    
    9,827
    
    
    
    Insurance note payable
    
    
    494
    
    
    
    739Total current liabilities
    
    
    197,039
    
    
    
    136,010Long-term debt, net of current portion
    
    
    535,020
    
    
    
    578,263Deferred income taxes
    
    
    39,443
    
    
    
    40,107Long-term liabilities
    
    
    30,682
    
    
    
    35,032Total liabilities
    
    
    802,184
    
    
    
    789,412Commitments and contingencies (note 8)Members equity:Common equity
    
    
    143,149
    
    
    
    184,111Accumulated other comprehensive income
    
    
    39,561
    
    
    
    15,630Total members equity
    
    
    182,710
    
    
    
    199,741Total liabilities and members equity
    
    $
    984,894
    
    
    $
    989,153
  F-2




---



##### Table of Contents



Kraton Polymers LLC
 
 Consolidated Statements of Operations
 for the Years ended December 31, 2007, 2006 and 2005
(In thousands of U.S. dollars)
 Year Ended December 31,2007
    
    
    2006
    
    
    2005Revenues:Sales
    
    $
    1,066,044
    
    
    $
    1,015,766
    
    
    $
    952,921Other
    
    
    23,543
    
    
    
    32,355
    
    
    
    22,670Total revenues
    
    
    1,089,587
    
    
    
    1,048,121
    
    
    
    975,591Costs and expenses:Cost of goods sold
    
    
    938,556
    
    
    
    843,726
    
    
    
    766,012Gross profit
    
    
    151,031
    
    
    
    204,395
    
    
    
    209,579Research and development expenses
    
    
    24,865
    
    
    
    24,598
    
    
    
    26,152Selling, general and administrative expenses
    
    
    69,020
    
    
    
    73,776
    
    
    
    72,731Depreciation and amortization of identifiable intangibles
    
    
    51,917
    
    
    
    43,574
    
    
    
    44,090Earnings in unconsolidated joint venture
    
    
    (626
    )
    
    
    (168
    )
    
    
    (1,516
    )Interest, net
    
    
    43,460
    
    
    
    40,547
    
    
    
    33,943Income (loss) before income taxes
    
    
    (37,605
    )
    
    
    22,068
    
    
    
    34,179Income tax provision
    
    
    (6,138
    )
    
    
    (25,626
    )
    
    
    (11,519
    )Net (loss) income
    
    $
    (43,743
    )
    
    $
    (3,558
    )
    
    $
    22,660
  F-3




---



##### Table of Contents



Kraton Polymers LLC
 
 Consolidated Statements of Changes in Members Equity and Comprehensive Income (Loss)
 for the Years ended December 31, 2007, 2006 and 2005
(In thousands of U.S. dollars)
 AccumulatedOtherCommon
    
    
    ComprehensiveEquity
    
    
    Income (Loss)
    
    
    TotalBalance, December 31, 2004
    
    $
    291,703
    
    
    $
    21,990
    
    
    $
    313,693Comprehensive income (loss):Net income - 2005
    
    
    22,660
    
    
    
    
    
    
    
    22,660Other comprehensive income (loss):Foreign currency adjustments
    
    
    
    
    
    
    (26,539
    )
    
    
    (26,539
    )Unrealized gain on interest rate swaps, net of tax
    
    
    
    
    
    
    1,857
    
    
    
    1,857Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    (2,022
    )Non-cash compensation related to equity awards
    
    
    534
    
    
    
    
    
    
    
    534Balance, December 31, 2005
    
    $
    314,897
    
    
    $
    (2,692
    )
    
    $
    312,205Comprehensive income (loss):Net loss  2006
    
    
    (3,558
    )
    
    
    
    
    
    
    (3,558
    )Other comprehensive income (loss):Foreign currency adjustments
    
    
    
    
    
    
    20,468
    
    
    
    20,468Unrealized loss on interest rate swaps, net of tax
    
    
    
    
    
    
    (951
    )
    
    
    (951
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    15,959Cash distribution to parent
    
    
    (129,533
    )
    
    
    
    
    
    
    (129,533
    )Adoption of SFAS 158 net of deferred tax benefit of $730
    
    
    
    
    
    
    (1,195
    )
    
    
    (1,195
    )Non-cash compensation related to equity awards
    
    
    2,305
    
    
    
    
    
    
    
    2,305Balance, December 31, 2006
    
    
    184,111
    
    
    
    15,630
    
    
    
    199,741Comprehensive income (loss):Net loss  2007
    
    
    (43,743
    )
    
    
    
    
    
    
    (43,743
    )Other comprehensive income (loss):Foreign currency adjustments
    
    
    
    
    
    
    21,457
    
    
    
    21,457Realized gain on interest rate swaps, net of tax
    
    
    
    
    
    
    (1,863
    )
    
    
    (1,863
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    (24,149
    )Decrease in pension liability, net of
deferred tax liability of $1,800
    
    
    
    
    
    
    4,337
    
    
    
    4,337Non-cash compensation related to equity awards
    
    
    2,781
    
    
    
    
    
    
    
    2,781Balance, December 31, 2007
    
    $
    143,149
    
    
    $
    39,561
    
    
    $
    182,710
  F-4




---



##### Table of Contents



Kraton Polymers LLC
 
 Consolidated Statements of Cash Flows
 for the Years ended December 31, 2007, 2006 and 2005
(In thousands of U.S. dollars)
 Year Ended December 31,2007
    
    
    2006
    
    
    2005Cash flows provided by (used in) operating activities:Net (loss) income
    
    $
    (43,743
    )
    
    $
    (3,558
    )
    
    $
    22,660Adjustments to reconcile net income (loss) to net cash (used in) provided by
operating activities:Depreciation and amortization of identifiable intangibles
    
    
    51,917
    
    
    
    43,574
    
    
    
    44,090Amortization of deferred financing costs
    
    
    2,715
    
    
    
    2,351
    
    
    
    2,262Loss on disposal of fixed assets
    
    
    274
    
    
    
    262
    
    
    
    709Change in fair value of interest rate swaps
    
    
    (1,553
    )
    
    
    (20
    )
    
    
    (149
    )Net distributed (undistributed) earnings in unconsolidated joint venture
    
    
    (520
    )
    
    
    1,097
    
    
    
    (1,055
    )Deferred tax expense
    
    
    1,537
    
    
    
    9,073
    
    
    
    4,100Non-cash compensation related to equity awards
    
    
    2,781
    
    
    
    2,305
    
    
    
    534Decrease (increase) in working capital:Accounts receivable
    
    
    8,710
    
    
    
    (13,575
    )
    
    
    1,205Due (to) from related party
    
    
    14,704
    
    
    
    (6,508
    )
    
    
    (1,567
    )Inventories
    
    
    17,793
    
    
    
    (53,126
    )
    
    
    517Other assets
    
    
    (1,525
    )
    
    
    5,713
    
    
    
    (11,886
    )Accounts payable, other payables and accruals, and long-term liabilities
    
    
    28,647
    
    
    
    11,135
    
    
    
    7,922Net cash (used in) provided by operating activities
    
    
    81,737
    
    
    
    (1,277
    )
    
    
    69,342Cash flows used in investing activities:Purchase of property, plant and equipment
    
    
    (28,713
    )
    
    
    (38,032
    )
    
    
    (18,816
    )Proceeds from sale of property, plant and equipment
    
    
    43
    
    
    
    151
    
    
    
    122Net cash used in investing activities
    
    
    (28,670
    )
    
    
    (37,881
    )
    
    
    (18,694
    )Cash flows used in financing activities:Proceeds from debt
    
    
    48,500
    
    
    
    123,008
    
    
    
    Repayment of debt
    
    
    (92,148
    )
    
    
    (3,558
    )
    
    
    (2,680
    )Net proceeds from (repayment of) insurance note payable
    
    
    (245
    )
    
    
    739
    
    
    
    Cash dividend to parent
    
    
    
    
    
    
    (129,533
    )
    
    
    Deferred financing costs
    
    
    
    
    
    
    (2,678
    )
    
    
    Net cash used in financing activities
    
    
    (43,893
    )
    
    
    (12,022
    )
    
    
    (2,680
    )Effect of exchange rate differences on cash
    
    
    (4,498
    )
    
    
    (6,153
    )
    
    
    6,609Net (decrease) increase in cash and cash equivalents
    
    
    4,676
    
    
    
    (57,333
    )
    
    
    54,577Cash and cash equivalents, beginning of period
    
    
    43,601
    
    
    
    100,934
    
    
    
    46,357Cash and cash equivalents, end of period
    
    $
    48,277
    
    
    $
    43,601
    
    
    $
    100,934Supplemental disclosure cash flow information:Cash paid during the period for income taxes
    
    $
    8,912
    
    
    $
    7,623
    
    
    $
    4,457Cash paid during the period for interest
    
    
    37,052
    
    
    
    39,844
    
    
    
    33,006
  F-5




---



##### Table of Contents



Kraton Polymers LLC
 
 Notes to the Consolidated Financial Statements
 (1) Summary of Significant Accounting Policies
 (a) Organization, Acquisition and Description of Business
   (b) Principles of Consolidation
  (c) Cash Equivalents
  (d) Receivables
  (e) Inventories
  F-6




---



##### Table of Contents



(f) Property, Plant and Equipment
  Machinery and equipment
    
    20 yearsBuilding and land improvements
    
    20 yearsComputer hardware/information systems
    
    3 yearsOffice equipment
    
    5 yearsResearch equipment and facilities
    
    5 yearsVehicles
    
    5 years
 (g) Identifiable Intangible Assets
  (h) Investment in Unconsolidated Joint Venture
   (i) Impairment of Long-Lived Assets
 Accounting for the Impairment or
Disposal of Long-Lived Assets
  (j) Deferred Financing Costs
  F-7




---



##### Table of Contents



(k) Income Taxes
    (l) Revenue Recognition
   (m) Research and Development Expenses
  (n) Leases
  (o) Foreign Currency Translation and Foreign Exchange
   F-8




---



##### Table of Contents



(p) Derivative Instruments and Hedging Activities
 Accounting for Derivative Instruments and Hedging
Activities
 (q) Environmental Costs
  (r) Disclosures about Fair Value of Financial Instruments
  (s) Financial Statement Estimates
  (t) Asset Retirement Obligations
 Accounting for Asset Retirement Obligations Accounting for Conditional Asset Retirement Obligations Interpretation of FASB Statement No. 143
  (u) Accounting
for Defined Benefit Pension and Other Postretirement Plans
  F-9




---



##### Table of Contents



Recently Issued Accounting Standards
 Noncontrolling Interests in Consolidated Financial
Statements
 Business
Combinations
 The Fair
Value Option for Financial Assets and Financial Liabilities  Including an Amendment of FASB
Statement No. 115
 Fair Value
Measurements
 (2) Share-Based Compensation
 Share-Based Payment,
    F-10




---



##### Table of Contents



Year EndedDecember 31,
    
    Amount2008
    
    $
    2.42009
    
    
    1.32010
    
    
    0.62011
    
    
    0.22012
    
    
    0.0
  Year Ended
    
    Year Ended
    
    Year Ended2007
    
    2006
    
    2005Risk-free interest rate
    
    
    3.40
    %
    
    
    4.41
    %
    
    
    3.95
    %Expected dividend yield
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %Expected volatility
    
    
    0.4
    
    
    
    0.90
    
    
    
    0.98Expected term (in years)
    
    
    5.0
    
    
    
    5.0
    
    
    
    5.0
   2005Reported net income
    
    $
    22,660Share-based employee compensation expense1
    
    
    Less: Total fair value computed share-based compensation, net of tax
    
    
    (1,010
    )Pro forma net income
    
    $
    21,650
  Weighted
    
    
    WeightedNumber
    
    
    Average
    
    
    Average
    
    
    Aggregateof
    
    
    Exercise
    
    
    Remaining
    
    
    IntrinsicOptions
    
    
    Price
    
    
    Life
    
    
    Value (1)Outstanding-beginning of year
    
    
    15,293
    
    
    $
    1.00
    
    
    
    
    
    
    
    Granted
    
    
    50
    
    
    
    1.00
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    1.00
    
    
    
    
    
    
    
    Cancelled
    
    
    (673
    )
    
    
    1.00
    
    
    
    
    
    
    
    Outstanding at December 31, 2007
    
    
    14,670
    
    
    $
    1.00
    
    
    
    7.0
    
    
    
    Exercisable at December 31, 2007
    
    
    7,197
    
    
    $
    1.00
    
    
    
    6.5
    
    
    
    
 
 (1)
    
    The intrinsic value of a stock option is the amount by which the market value of the
underlying stock exceeds the exercise price of the option. As the fair value of our stock was
estimated to be $0.91 at December 31, 2007 and all outstanding options have an exercise price
of $1.00, there is no intrinsic value for the options.1
    
    Amount does not include share-based compensation of
$534 for the year ended December 31, 2005 related to the Companys restricted
membership units, as these amounts are included in reported net income. F-11




---



##### Table of Contents



WeightedWeighted
    
    
    AverageRange of
    
    
    Number of
    
    
    Average
    
    
    Remaining LifeExercise Prices
    
    
    Options
    
    
    Exercise Price
    
    
    (years)Outstanding options
    
    $
    1.00
    
    
    
    14,670
    
    
    $
    1.00
    
    
    
    8.0Exercisable options
    
    $
    1.00
    
    
    
    7,197
    
    
    $
    1.00
    
    
    
    7.7
  Number of Shares
    
    
    Fair ValueRestricted and Notional Units
    
    (in thousands)
    
    
    per ShareNon-vested shares at January 1, 2007
    
    
    2,325
    
    
    $
    1.00Granted
    
    
    505
    
    
    $
    1.00Vested
    
    
    
    
    
    
    Forfeited
    
    
    (90
    )
    
    $
    1.00Non-vested shares at December 31, 2007
    
    
    2,740
    
    
    $
    1.00
 (3) Restructuring Activities
     F-12




---



##### Table of Contents



Year EndedDecember 312007
    
    
    2006
    
    
    2005Cost of goods sold
    
    $
    2,000
    
    
    $
    6,679
    
    
    $
    Research and development
    
    
    
    
    
    
    1,341
    
    
    
    Selling, general and administrative
    
    
    394
    
    
    
    1,661
    
    
    
    1,600$
    2,394
    
    
    $
    9,681
    
   
    $
    1,600
   Severance
    
    Exit ActivityCosts (1)
    
    Costs
    
    TotalReserve balance at December 31, 2006
    
    $
    2,042
    
    
    $
    935
    
    
    $
    2,977Accruals
    
    
    394
    
    
    
    2,100
    
    
    
    2,494Cash payments
    
    
    (2,142
    )
    
    
    (633)
    
    
    
    (2,775
    )Reserve balance at December 31, 2007
    
    $
    294
    
    
    $
    2,402
    
    
    $
    2,696
 
 (1)
    
    Excludes additional pension and other postretirement benefits expense of approximately $2.3
million recorded during 2006. F-13




---



##### Table of Contents



(4) Detail of Certain Balance Sheet Accounts
 December 31, 2007
    
    
    December 31, 2006Inventories
of products, net:Finished products
    
    $
    212,125
    
    
    $
    215,623Work in progress
    
    
    3,858
    
    
    
    4,098Raw materials
    
    
    40,340
    
    
    
    37,064$
    256,323
    
    
    $
    256,785Property, plant and equipment:Land
    
    $
    13,339
    
    
    $
    12,144Buildings
    
    
    38,490
    
    
    
    32,910Plant and equipment
    
    
    489,260
    
    
    
    451,794Construction in progress
    
    
    18,824
    
    
    
    12,114559,913
    
    
    
    508,962Less accumulated depreciation
    
    
    157,643
    
    
    
    105,219$
    402,270
    
    
    $
    403,743Identifiable intangible assets:Technology
    
    $
    47,154
    
    
    $
    48,517Customer relations
    
    
    35,213
    
    
    
    36,229Trademarks
    
    
    23,194
    
    
    
    23,863105,561
    
    
    
    108,609Less accumulated amortization
    
    
    29,205
    
    
    
    21,978$
    76,356
    
    
    $
    86,631Other payables and accruals:Employee related
    
    $
    12,178
    
    
    $
    14,979Interest
    
    
    13,680
    
    
    
    7,604Property and other taxes
    
    
    3,735
    
    
    
    4,102Customer rebates
    
    
    6,561
    
    
    
    3,089Income taxes payable
    
    
    4,643
    
    
    
    8,504Other
    
    
    15,019
    
    
    
    14,852$
    55,816
    
    
    $
    53,130
   (5) Long-Term Debt
  December 31,
    
    
    December 31,2007
    
    
    2006Senior Secured Credit Facilities:Term loans
    
    $
    338,465
    
    
    $
    382,113Revolver
    
    
    
    
    
    
    8.125% Notes
    
    
    200,000
    
    
    
    200,000Total debt
    
    
    538,465
    
    
    
    582,113Less current portion of long-term debt
    
    
    3,445
    
    
    
    3,850Total long-term debt
    
    $
    535,020
    
    
    $
    578,263
 (a) Senior Secured Credit Facilities
  F-14




---



##### Table of Contents



Maturity
  Interest
 %
  Mandatory Prepayments
  F-15




---



##### Table of Contents



Covenants
    (b) Senior Subordinated Notes Due January 15, 2014
  Interest
  Optional Redemption
   Covenants
    (c) Debt Maturities
 F-16




---



##### Table of Contents



PrincipalPaymentsYear ending December 31:2008
    
    $
    3,4452009
    
    
    3,4452010
    
    
    3,4452011
    
    
    3,4452012
    
    
    163,204Thereafter
    
    
    361,481Total debt
    
    $
    538,465
 (6) Income Taxes
   Year Ended December 31,2007
    
    
    2006
    
    
    2005Current tax provision:U.S.
    
    $
    (12
    )
    
    $
    
    
    
    $
    Foreign
    
    
    (4,589
    )
    
    
    (16,553
    )
    
    
    (7,419
    )Total
    
    
    (4,601
    )
    
    
    (16,553
    )
    
    
    (7,419
    )Deferred tax provision:U.S.
    
    
    (2,509
    )
    
    
    (5,699
    )
    
    
    4,300Foreign
    
    
    972
    
    
    
    (3,374
    )
    
    
    (8,400
    )Total
    
    
    (1,537
    )
    
    
    (9,073
    )
    
    
    (4,100
    )Income tax provision
    
    $
    (6,138
    )
    
    $
    (25,626
    )
    
    $
    (11,519
    )
   Year Ended December 31,2007
    
    
    2006
    
    
    2005Income (loss) before income taxes:U.S.
    
    $
    (29,180
    )
    
    $
    (23,701
    )
    
    $
    (8,934
    )Foreign
    
    
    (8,424
    )
    
    
    45,769
    
    
    
    43,113Total
    
    $
    (37,605
    )
    
    $
    22,068
    
    
    $
    34,179
 F-17




---



##### Table of Contents



December 31,2007
    
    
    2006Deferred tax liabilities:Property, plant and equipment
    
    $
    99,370
    
    
    $
    92,991Identifiable intangibles
    
    
    10,391
    
    
    
    17,939Inventory
    
    
    
    
    
    
    173Interest rate swaps
    
    
    
    
    
    
    1,116Exchange rate differences
    
    
    18,302
    
    
    
    6,174Total deferred tax liabilities
    
    
    128,063
    
    
    
    118,393Deferred tax assets:Net operating loss carryforward
    
    
    (108,822
    )
    
    
    (93,503
    )Inventory
    
    
    (2,093
    )
    
    
    (1,439
    )Pension accrual
    
    
    (3,899
    )
    
    
    (6,034
    )Other
    
    
    (3,541
    )
    
    
    (3,730
    )Total deferred tax assets
    
    
    (118,355
    )
    
    
    (104,706
    )Valuation allowance for deferred tax assets
    
    
    39,562
    
    
    
    24,489Net deferred tax liabilities
    
    $
    49,270
    
    
    $
    38,176Net deferred tax liabilities of (in thousands):
 December 312007
    
    
    2006Current deferred tax assets
    
    $
    (12,843
    )
    
    $
    (8,326
    )Non-current deferred tax assets
    
    
    (144,121
    )
    
    
    (71,940
    )Current deferred tax liabilities
    
    
    22,670
    
    
    
    6,395Non-current deferred tax liabilities
    
    
    183,564
    
    
    
    112,047Net deferred tax liabilities
    
    $
    49,270
    
    
    $
    38,176
  Year Ended December 31,2007
    
    
    2006
    
    
    2005Income taxes at the statutory rate
    
    $
    13,162
    
    
    $
    (7,723
    )
    
    $
    (11,963
    )Foreign tax rate differential
    
    
    (3,331
    )
    
    
    369
    
    
    
    (729
    )State tax rate differential
    
    
    3,012
    
    
    
    650
    
    
    
    1,167Change in valuation allowance and reserves
    
    
    (15,073
    )
    
    
    (18,831
    )
    
    
    (580
    )ETI exclusion benefit
    
    
    
    
    
    
    377
    
    
    
    374Dividend income
    
    
    (4,043
    )
    
    
    
    
    
    
    Other
    
    
    135
    
    
    
    (468
    )
    
    
    212Income tax provision
    
    $
    (6,138
    )
    
    $
    (25,626
    )
    
    $
    (11,519
    )
    F-18




---



##### Table of Contents



Accounting for Uncertainty in Income Taxes, an Interpretation
of FASB Statement No. 109
    Unrecognized
    
    
    InterestMillions of dollars
    
    Tax Benefits
    
    
    and PenaltiesBalance at January 1, 2007
    
    $
    2.4
    
    
    $
    0.3Increase (decrease) in prior year tax positions
    
    
    (2.0
    )
    
    
    (0.3
    )Balance at December 31, 2007
    
    $
    0.4
    
    
    $
    0.0
 (7) Employee Benefits
  (a) U.S. Retirement Benefit Plans
  F-19




---



##### Table of Contents



Employers Accounting for Defined Benefit Pension and Other Postretirement Plans
 Employers Accounting for Pensions
   December 31,2007
    
    
    2006Change in benefit obligation:Benefit obligation at beginning of period
    
    $
    63,662
    
    
    $
    59,500Service cost
    
    
    2,561
    
    
    
    2,737Interest cost
    
    
    3,842
    
    
    
    3,494Benefits paid
    
    
    (1,427
    )
    
    
    (782
    )Actuarial (gain) loss
    
    
    (6,577
    )
    
    
    (1,336
    )Plan amendments
    
    
    
    
    
    
    49Benefit obligation at end of period
    
    $
    62,061
    
    
    $
    63,662Change in plan assets:Fair value at beginning of period
    
    $
    42,747
    
    
    $
    36,458Actual return on plan assets
    
    
    3,540
    
    
    
    4,144Employer contributions
    
    
    1,470
    
    
    
    2,927Benefits paid
    
    
    (1,428
    )
    
    
    (782
    )Fair value at end of period
    
    $
    46,329
    
    
    $
    42,747
 December 31,2007
    
    
    2006Development of net amount recognized:Funded status
    
    $
    (15,732
    )
    
    $
    (20,915
    )Unrecognized net prior service cost
    
    
    
    
    
    
    Unrecognized actuarial loss
    
    
    
    
    
    
    Net amount recognized
    
    $
    (15,732
    )
    
    $
    (20,915
    )Amounts recognized in the statement of financial position:Accrued pension cost
    
    $
    (15,732
    )
    
    $
    (20,915
    )
   Year Ended December 31,2007
    
    
    2006
    
    
    2005Service cost benefits earned during the period
    
    $
    2,561
    
    
    $
    2,737
    
    
    $
    3,545Interest on prior years projected benefit obligation
    
    
    3,842
    
    
    
    3,494
    
    
    
    3,114Expected return on plan assets
    
    
    (3,646
    )
    
    
    (3,338
    )
    
    
    (2,943
    )Amortization of prior year service cost
    
    
    
    
    
    
    
    
    
    
    Recognized curtailment loss
    
    
    
    
    
    
    576
    
    
    
    Recognized loss due to special term benefits
    
    
    
    
    
    
    48
    
    
    
    Net pension costs
    
    $
    2,757
    
    
    $
    3,517
    
    
    $
    3,716
 F-20




---



##### Table of Contents



December 31,2007
    
    2006Weighted average assumptions used to determine benefit obligations at December 31:Measure date
    
    
    12/31/2007
    
    
    
    12/31/2006Discount rate
    
    
    6.64
    %
    
    
    6.00
    %Rates of increase in salary compensation level
    
    
    3.50
    %
    
    
    4.00
    %Rates of increase in hourly compensation levels
    
    
    3.50
    %
    
    
    3.00
    %Expected long-term rate of return on plan assets
    
    
    8.75
    %
    
    
    9.00
    %Weighted average assumptions used to periodic benefit cost for years ended December 31:Discount rate
    
    
    6.00
    %
    
    
    5.75
    %Rates of increase in salary compensation level
    
    
    4.00
    %
    
    
    4.00
    %Rates of increase in hourly compensation levels
    
    
    3.00
    %
    
    
    3.00
    %Expected long-term rate of return on plan assets
    
    
    8.75
    %
    
    
    9.00
    %
  Plan Assets
  Percentage of Plan Assets at December 31Asset Category
    
    2007
    
    2006Equity Securities
    
    
    64.2
    %
    
    
    66.6
    %Debt Securities
    
    
    35.3
    %
    
    
    33.1
    %Other
    
    
    0.5
    %
    
    
    0.3
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
 Contributions
  Estimated Future Benefit Payments
  2008
    
    $
    1,4942009
    
    
    1,6202010
    
    
    1,7892011
    
    
    2,0102012
    
    
    2,223Years 2013-2017
    
    
    17,389$
    26,525
 (b) Other Retirement Benefit Plans
  F-21




---



##### Table of Contents



(c) Postretirement Benefits Other Than Pensions
   Employers Accounting for Pensions
 F-22




---



##### Table of Contents



December 31,2007
    
    
    2006Change in benefit obligation:Benefit obligation at beginning of period
    
    $
    12,834
    
    
    $
    8,967Service cost
    
    
    357
    
    
    
    379Interest cost
    
    
    776
    
    
    
    644Benefits paid
    
    
    (671
    )
    
    
    (251
    )Actuarial gain (loss)
    
    
    45
    
    
    
    3,095Plan amendments
    
    
    
    
    
    
    Benefit obligation at end of period
    
    $
    13,341
    
    
    $
    12,834Reconciliation of plan assets (1):Employer contributions
    
    $
    671
    
    
    $
    251Benefits paid
    
    
    (671
    )
    
    
    (251
    )$
    
    
    
    $
    
 
 (1)
    
    As part of the Ripplewood Transaction, Shell Chemicals has committed to a future cash payment
related to retiree medical expenses based on a specified dollar amount per employee, if
certain contractual commitments are met. As of December 31, 2007 and 2006, we have recorded an
asset of approximately $5.6 million as our estimate of the present value of this commitment,
respectively. December 31,2007
    
    
    2006Development of net amount recognized:Funded status
    
    $
    (13,341
    )
    
    $
    (12,834
    )Unrecognized cost: Actuarial gain
    
    
    
    
    
    
    Amount recognized in the statement of financial position
    
    $
    (13,341
    )
    
    $
    (12,834
    )
  Year Ended December 31,2007
    
    
    2006
    
    
    2005Service cost
    
    $
    357
    
    
    $
    379
    
    
    $
    367Interest cost
    
    
    776
    
    
    
    644
    
    
    
    475Recognized net actuarial gain
    
    
    
    
    
    
    
    
    
    
    (4
    )Restructuring costs
    
    
    
    
    
    
    1,949
    
    
    
    Net plan costs
    
    $
    1,133
    
    
    $
    2,972
    
    
    $
    838
 December 31,2007
    
    2006Weighted average assumptions used to determine benefit obligations:Measurement date
    
    
    12/31/2007
    
    
    
    12/31/2006Discount rate
    
    
    6.49
    %
    
    
    6.00
    %Rates of increase in salary compensation level
    
    
    N/A
    
    
    
    N/AWeighted average assumptions used to net periodic benefit cost:Discount rate
    
    
    6.00
    %
    
    
    5.75
    %Rates of increase in salary compensation level
    
    
    N/A
    
    
    
    N/AExpected long-term rate of return on plan assets
    
    
    N/A
    
    
    
    N/A
 F-23




---



##### Table of Contents



December 31,2007
    
    2006Assumed health care cost trend rates:Health care cost trend rate assumed for next year
    
    
    9.50
    %
    
    
    8.40
    %Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)
    
    
    5.00
    %
    
    
    5.00
    %Year that the rate reaches the ultimate trend rate
    
    
    2014
    
    
    
    2012
   1% Increase
    
    1% DecreaseEffect on total of service and interest cost components
    
    $
    52
    
    
    $
    (30
    )Effect on postretirement benefit obligation
    
    
    618
    
    
    
    (325
    )
  December 31, 2006Before
    
    
    
    
    
    AfterApplication of
    
    
    
    
    
    Application ofSFAS No. 158
    
    Adjustments
    
    SFAS No. 158(Millions of dollars)Noncurrent deferred income tax assets
    
    $
    5.3
    
    
    $
    0.7
    
    
    $
    6.0Employee compensation and benefits
    
    
    32.3
    
    
    
    1.9
    
    
    
    34.2Accumulated other comprehensive income
    
    
    
    
    
    
    (1.9
    )
    
    
    (1.9
    )
  OtherPension
    
    PostretirementBenefits
    
    Benefits(Millions of dollars)Net actuarial loss
    
    $
    0.7
    
    
    $
    0.3Prior service benefit
    
    
    
    
    
    
    Total recognized in accumulated other comprehensive income
    
    $
    0.7
    
    
    $
    0.3
 (d) Kraton Savings Plan
    F-24




---



##### Table of Contents



(e) Membership Units
  (f) TJ Chemical Holdings LLC 2004 Option Plan
    F-25




---



##### Table of Contents



(g) Other Equity Awards
  (h) Kraton Polymers LLC Executive Deferred Compensation Plan
  (8) Commitments and Contingencies
 (a) Lease Commitments
  (b) Environmental and Safety Matters
  F-26




---



##### Table of Contents



(c) Legal Proceedings
  (d) Pernis, The Netherlands Manufacturing Facility Fire
   F-27




---



##### Table of Contents



(9) Fair Value of Financial Instruments
  2007CarryingValue
    
    Fair ValueTerm loans(1)
    
    $
    338,465
    
    
    $
    338,4658.125% Notes
    
    
    200,000
    
    
    
    187,250
 2006CarryingValue
    
    Fair ValueTerm loans(1)
    
    $
    382,113
    
    
    $
    382,1138.125% Notes
    
    
    200,000
    
    
    
    200,000
 
 (1)
    
    Due to the Term Loans having variable interest rates, the fair value approximates their
carrying value. (10) Significant Contracts
  (a) Leases with Shell Chemicals and Basell
    (b) Operating Agreements with Shell Chemicals and Basell
 F-28




---



##### Table of Contents



(c) Site Services, Utilities, Materials and Original Facilities Agreements with Shell
Chemicals
   (d) Raw Materials Agreements
   Styrene
   F-29




---



##### Table of Contents



Isoprene
    Butadiene
   (e) Infineum
  (11) Related Party Transactions
  (a) Related-Party Amounts
  Year Ended December 31,2007
    
    2006
    
    2005Sales to related parties
    
    $
    1,210
    
    
    $
    1,117
    
    
    $
    2,327Purchases from related parties
    
    $
    39,741
    
    
    $
    33,394
    
    
    $
    37,008
 F-30




---



##### Table of Contents



(b) Other
   (12) Members Equity
  (13) Industry Segment and Foreign Operations
 Disclosures About Segments of an Enterprise and Related Information
  Year Ended December 31,2007
    
    
    2006
    
    
    2005Net Revenues:United States
    
    $
    366,048
    
    
    $
    366,783
    
    
    $
    399,554Germany
    
    
    145,649
    
    
    
    123,054
    
    
    
    98,666Japan
    
    
    53,479
    
    
    
    58,631
    
    
    
    57,848Italy
    
    
    51,569
    
    
    
    56,938
    
    
    
    50,638The Netherlands
    
    
    49,334
    
    
    
    55,013
    
    
    
    42,586United Kingdom
    
    
    38,364
    
    
    
    39,823
    
    
    
    30,182Brazil
    
    
    36,732
    
    
    
    31,920
    
    
    
    27,001China
    
    
    33,956
    
    
    
    32,821
    
    
    
    19,691Belgium
    
    
    30,751
    
    
    
    29,520
    
    
    
    6,039France
    
    
    30,358
    
    
    
    26,094
    
    
    
    39,333Poland
    
    
    22,604
    
    
    
    18,069
    
    
    
    15,553Canada
    
    
    22,300
    
    
    
    25,279
    
    
    
    25,605Taiwan
    
    
    20,196
    
    
    
    14,661
    
    
    
    16,436Thailand
    
    
    14,916
    
    
    
    15,192
    
    
    
    11,756Turkey
    
    
    14,432
    
    
    
    13,607
    
    
    
    10,676Argentina
    
    
    14,109
    
    
    
    13,727
    
    
    
    12,472Sweden
    
    
    12,418
    
    
    
    9,860
    
    
    
    9,357Austria
    
    
    9,973
    
    
    
    7,395
    
    
    
    7,147Mexico
    
    
    9,460
    
    
    
    8,419
    
    
    
    7,980Republic of Korea
    
    
    8,877
    
    
    
    5,905
    
    
    
    5,100Australia
    
    
    8,856
    
    
    
    10,135
    
    
    
    9,116
 F-31




---



##### Table of Contents



Year Ended December 31,2007
    
    
    2006
    
    
    2005Denmark
    
    
    8,795
    
    
    
    6,443
    
    
    
    4,257Hong Kong
    
    
    8,369
    
    
    
    8,609
    
    
    
    5,878All other countries
    
    
    78,042
    
    
    
    70,223
    
    
    
    62,720$
    1,089,587
    
    
    $
    1,048,121
    
    
    $
    975,591
 December 31,2007
    
    
    2006
    
    
    2005Long-lived Assets:United States
    
    $
    298,979
    
    
    $
    283,171
    
    
    $
    270,639Germany
    
    
    40,406
    
    
    
    32,506
    
    
    
    26,011Japan
    
    
    3,743
    
    
    
    3,225
    
    
    
    3,342Italy
    
    
    28
    
    
    
    25
    
    
    
    22France
    
    
    111,441
    
    
    
    100,476
    
    
    
    91,593The Netherlands
    
    
    34,454
    
    
    
    29,436
    
    
    
    23,732Brazil
    
    
    56,721
    
    
    
    48,485
    
    
    
    30,008United Kingdom
    
    
    133
    
    
    
    133
    
    
    
    968China
    
    
    2,119
    
    
    
    54
    
    
    
    4All other countries
    
    
    11,889
    
    
    
    11,451
    
    
    
    11,843$
    559,913
    
    
    $
    508,962
    
    
    $
    458,162
  (14) Subsequent Event
  (15) Supplemental Guarantor Information
  F-32




---



##### Table of Contents



Balance Sheets
 As of December 31, 2007Guarantor
    
    
    Non-GuarantorIssuers (1)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedAssetsCurrent assets:Cash and cash equivalents
    
    $
    
    
    
    
    11,152
    
    
    $
    37,125
    
    
    
    
    
    
    $
    48,277Receivables, net of allowance
    
    
    
    
    
    
    50,134
    
    
    
    90,187
    
    
    
    
    
    
    
    140,321Due from related parties
    
    
    1,873
    
    
    
    19,856
    
    
    
    6,291
    
    
    
    (28,020
    )
    
    
    Inventories of products, net
    
    
    
    
    
    
    124,052
    
    
    
    138,772
    
    
    
    (6,501
    )
    
    
    256,323Inventories of materials and supplies, net
    
    
    
    
    
    
    6,817
    
    
    
    5,353
    
    
    
    
    
    
    
    12,170Other current assets
    
    
    2,172
    
    
    
    1,671
    
    
    
    8,561
    
    
    
    
    
    
    
    12,404Total current assets
    
    
    4,045
    
    
    
    213,682
    
    
    
    286,289
    
    
    
    (34,521
    )
    
    
    469,495Property, plant and equipment, less
accumulated depreciation
    
    
    104,945
    
    
    
    166,948
    
    
    
    130,377
    
    
    
    
    
    
    
    402,270Identifiable intangible assets, less accumulated amortization
    
    
    29,418
    
    
    
    
    
    
    
    46,938
    
    
    
    
    
    
    
    76,356Investment in consolidated subsidiaries
    
    
    807,543
    
    
    
    
    
    
    
    
    
    
    
    (807,543
    )
    
    
    Investment in unconsolidated joint venture
    
    
    813
    
    
    
    
    
    
    
    9,513
    
    
    
    
    
    
    
    10,326Deferred financing costs
    
    
    10,323
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,323Other long-term assets
    
    
    97,301
    
    
    
    400,861
    
    
    
    16,997
    
    
    
    (499,035
    )
    
    
    16,124Total assets
    
    $
    1,054,388
    
    
    $
    781,491
    
    
    $
    490,114
    
    
    $
    (1,341,099
    )
    
    $
    984,894Liabilities and Members EquityCurrent liabilities:Current portion of long-term debt
    
    $
    3,445
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    3,445Accounts payable-trade
    
    
    2,700
    
    
    
    48,030
    
    
    
    52,222
    
    
    
    
    
    
    
    102,952Other payables and accruals
    
    
    13,503
    
    
    
    17,988
    
    
    
    24,325
    
    
    
    
    
    
    
    55,816Due to related parties
    
    
    
    
    
    
    6,291
    
    
    
    46,234
    
    
    
    (28,020
    )
    
    
    24,505Deferred income taxes
    
    
    
    
    
    
    
    
    
    
    9,827
    
    
    
    
    
    
    
    9,827Insurance note payable
    
    
    494
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    494Total current liabilities
    
    
    20,142
    
    
    
    72,309
    
    
    
    132,608
    
    
    
    (28,020
    )
    
    
    197,039Long-term debt, net of current portion
    
    
    535,020
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    535,020Deferred income taxes
    
    
    (52,048
    )
    
    
    84,417
    
    
    
    7,074
    
    
    
    
    
    
    
    39,443Long-term liabilities
    
    
    405,552
    
    
    
    22,980
    
    
    
    101,185
    
    
    
    (499,035
    )
    
    
    30,682Total liabilities
    
    
    908,666
    
    
    
    179,706
    
    
    
    240,867
    
    
    
    (527,055
    )
    
    
    802,184Commitments and contingencies (note 8)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Members equity:Common equity
    
    
    145,722
    
    
    
    621,110
    
    
    
    190,361
    
    
    
    (814,044
    )
    
    
    143,149Accumulated other comprehensive income
    
    
    
    
    
    
    (19,325
    )
    
    
    58,886
    
    
    
    
    
    
    
    39,561Total members equity
    
    
    145,722
    
    
    
    601,785
    
    
    
    249,247
    
    
    
    (814,044
    )
    
    
    182,710Total liabilities and members equity
    
    $
    1,054,388
    
    
    $
    781,491
    
    
    $
    490,114
    
    
    $
    (1,341,099
    )
    
    $
    984,894
 
 (1)
    
    Kraton Polymers Capital Corporation has minimal assets and income. We do not believe that
separate financial information concerning the Issuers would provide additional information
that would be useful. F-33




---



##### Table of Contents



As of December 31, 2006Guarantor
    
    
    Non-GuarantorIssuers (1)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedAssetsCurrent assets:Cash and cash equivalents
    
    $
    
    
    
    $
    13,850
    
    
    $
    29,751
    
    
    $
    
    
    
    $
    43,601Receivables,
net of allowance
    
    
    3,509
    
    
    
    47,194
    
    
    
    97,259
    
    
    
    (12,025
    )
    
    
    135,937Inventories
of products, net
    
    
    
    
    
    
    141,164
    
    
    
    119,514
    
    
    
    (3,893
    )
    
    
    256,785Inventories
of materials and supplies, net
    
    
    
    
    
    
    6,615
    
    
    
    4,288
    
    
    
    
    
    
    
    10,903Other current assets
    
    
    3,659
    
    
    
    1,022
    
    
    
    8,627
    
    
    
    
    
    
    
    13,308Deferred income taxes
    
    
    
    
    
    
    8,665
    
    
    
    (6,734
    )
    
    
    
    
    
    
    1,931Total current assets
    
    
    7,168
    
    
    
    218,510
    
    
    
    252,705
    
    
    
    (15,918
    )
    
    
    462,465Property, plant and equipment, less
accumulated depreciation
    
    
    117,519
    
    
    
    169,727
    
    
    
    116,497
    
    
    
    
    
    
    
    403,743Identifiable
intangible assets, less accumulated amortization
    
    
    37,820
    
    
    
    
    
    
    
    48,811
    
    
    
    
    
    
    
    86,631Investment in consolidated subsidiaries
    
    
    795,168
    
    
    
    
    
    
    
    
    
    
    
    (795,168
    )
    
    
    Investment in unconsolidated joint venture
    
    
    813
    
    
    
    
    
    
    
    8,563
    
    
    
    
    
    
    
    9,376Deferred financing costs
    
    
    13,038
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,038Other long-term assets
    
    
    97,657
    
    
    
    338,894
    
    
    
    7,314
    
    
    
    (429,965
    )
    
    
    13,900Total assets
    
    $
    1,069,183
    
    
    $
    727,131
    
    
    $
    433,890
    
    
    $
    (1,241,051
    )
    
    $
    989,153Liabilities and Members EquityCurrent liabilities:Current portion of long-term debt
    
    $
    3,850
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    3,850Accounts payable-trade
    
    
    2,900
    
    
    
    23,432
    
    
    
    42,608
    
    
    
    
    
    
    
    68,940Other payables and accruals
    
    
    7,605
    
    
    
    16,415
    
    
    
    29,110
    
    
    
    
    
    
    
    53,130Due to related parties
    
    
    
    
    
    
    704
    
    
    
    20,672
    
    
    
    (12,025
    )
    
    
    9,351Insurance note payable
    
    
    739
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    739Total current liabilities
    
    
    15,094
    
    
    
    40,551
    
    
    
    92,390
    
    
    
    (12,025
    )
    
    
    136,010Long-term debt, net of current portion
    
    
    578,263
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    578,263Deferred income taxes
    
    
    (43,583
    )
    
    
    72,164
    
    
    
    11,526
    
    
    
    
    
    
    
    40,107Long-term liabilities
    
    
    333,435
    
    
    
    34,158
    
    
    
    97,404
    
    
    
    (429,965
    )
    
    
    35,032Total liabilities
    
    
    883,209
    
    
    
    146,873
    
    
    
    201,320
    
    
    
    (441,990
    )
    
    
    789,412Commitments and contingencies (note 8)Members equity:Common equity
    
    
    184,111
    
    
    
    581,453
    
    
    
    217,608
    
    
    
    (799,061
    )
    
    
    184,111Accumulated other comprehensive income
    
    
    1,863
    
    
    
    (1,195
    )
    
    
    14,962
    
    
    
    
    
    
    
    15,630Total members equity
    
    
    185,974
    
    
    
    580,258
    
    
    
    232,570
    
    
    
    (799,061
    )
    
    
    199,741Total liabilities and members equity
    
    $
    1,069,183
    
    
    $
    727,131
    
    
    $
    433,890
    
    
    $
    (1,241,051
    )
    
    $
    989,153
 
 (1)
    
    Kraton Polymers Capital Corporation has minimal assets and income. We do not believe that
separate financial information concerning the Issuers would provide additional information
that would be useful. F-34




---



##### Table of Contents



Statements of Operations
 For
the Year Ended December 31, 2007Guarantor
    
    
    Non-GuarantorIssuers (1)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Sales
    
    $
    
    
    
    $
    545,203
    
    
    $
    669,809
    
    
    $
    (148,968
    )
    
    $
    1,066,044Other
    
    
    
    
    
    
    
    
    
    
    23,543
    
    
    
    
    
    
    
    23,543Total revenues
    
    
    
    
    
    
    545,203
    
    
    
    693,352
    
    
    
    (148,968
    )
    
    
    1,089,587Costs and expenses:Cost of goods sold
    
    
    2,728
    
    
    
    458,148
    
    
    
    626,648
    
    
    
    (148,968
    )
    
    
    938,556Gross profit
    
    
    (2,728
    )
    
    
    87,055
    
    
    
    66,704
    
    
    
    
    
    
    
    151,031Research and development expenses
    
    
    
    
    
    
    7,851
    
    
    
    17,014
    
    
    
    
    
    
    
    24,865Selling, general and administrative expenses
    
    
    (193
    )
    
    
    39,612
    
    
    
    29,601
    
    
    
    
    
    
    
    69,020Depreciation
    
    
    19,687
    
    
    
    20,299
    
    
    
    11,931
    
    
    
    
    
    
    
    51,917Earnings in consolidated subsidiaries
    
    
    (22,273
    )
    
    
    
    
    
    
    
    
    
    
    22,273
    
    
    
    Earnings in unconsolidated joint venture
    
    
    
    
    
    
    
    
    
    
    (626
    )
    
    
    
    
    
    
    (626
    )Interest, net
    
    
    45,954
    
    
    
    (9,480
    )
    
    
    6,986
    
    
    
    
    
    
    
    43,460Income (loss) before income taxes
    
    
    (45,903
    )
    
    
    28,773
    
    
    
    1,798
    
    
    
    (22,273
    )
    
    
    (37,605
    )Income tax
benefit provision
    
    
    2,160
    
    
    
    (4,681
    )
    
    
    (3,617
    )
    
    
    
    
    
    
    (6,138
    )Net income (loss)
    
    $
    (43,743
    )
    
    $
    24,092
    
    
    $
    (1,819
    )
    
    $
    (22,273
    )
    
    $
    (43,743
    )
 F-35




---



##### Table of Contents



For the Year Ended December 31, 2006Guarantor
    
    
    Non-GuarantorIssuers (1)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Sales
    
    $
    
    
    
    $
    514,994
    
    
    $
    654,155
    
    
    $
    (153,383
    )
    
    $
    1,015,766Other
    
    
    
    
    
    
    216
    
    
    
    32,139
    
    
    
    
    
    
    
    32,355Total revenues
    
    
    
    
    
    
    515,210
    
    
    
    686,294
    
    
    
    (153,383
    )
    
    
    1,048,121Costs and expenses:Cost of goods sold
    
    
    (1,900
    )
    
    
    415,837
    
    
    
    583,172
    
    
    
    (153,383
    )
    
    
    843,726Gross profit
    
    
    1,900
    
    
    
    99,373
    
    
    
    103,122
    
    
    
    
    
    
    
    204,395Research and development expenses
    
    
    
    
    
    
    14,153
    
    
    
    10,445
    
    
    
    
    
    
    
    24,598Selling, general and administrative expenses
    
    
    
    
    
    
    42,840
    
    
    
    30,936
    
    
    
    
    
    
    
    73,776Depreciation
and amortization of identifiable intangibles
    
    
    16,199
    
    
    
    19,202
    
    
    
    8,173
    
    
    
    
    
    
    
    43,574Earnings in consolidated subsidiaries
    
    
    (30,612
    )
    
    
    
    
    
    
    
    
    
    
    30,612
    
    
    
    Earnings in
unconsolidated joint venture
    
    
    
    
    
    
    
    
    
    
    (168
    )
    
    
    
    
    
    
    (168
    )Interest, net
    
    
    41,643
    
    
    
    (9,063
    )
    
    
    7,967
    
    
    
    
    
    
    
    40,547Income (loss) before income taxes
    
    
    (25,330
    )
    
    
    32,241
    
    
    
    45,769
    
    
    
    (30,612
    )
    
    
    22,068Income tax (provision) benefit
    
    
    21,772
    
    
    
    (27,471
    )
    
    
    (19,927
    )
    
    
    
    
    
    
    (25,626
    )Net income (loss)
    
    $
    (3,558
    )
    
    $
    4,770
    
    
    $
    25,842
    
    
    $
    (30,612
    )
    
    $
    (3,558
    )
 For the Year Ended December 31, 2005Guarantor
    
    
    Non-GuarantorIssuers (1)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Sales
    
    $
    
    
    
    $
    523,567
    
    
    $
    562,740
    
    
    $
    133,386
    )
    
    $
    952,921Other
    
    
    
    
    
    
    425
    
    
    
    22,245
    
    
    
    
    
    
    
    22,670Total revenues
    
    
    
    
    
    
    523,992
    
    
    
    584,985
    
    
    
    (133,386
    )
    
    
    975,591Costs and expenses:Cost of goods sold
    
    
    4,939
    
    
    
    404,664
    
    
    
    489,795
    
    
    
    (133,386
    )
    
    
    766,012Gross profit
    
    
    (4,939
    )
    
    
    119,328
    
    
    
    95,190
    
    
    
    
    
    
    
    209,579Research and development expenses
    
    
    
    
    
    
    12,933
    
    
    
    13,219
    
    
    
    
    
    
    
    26,152Selling, general and administrative expenses
    
    
    
    
    
    
    44,571
    
    
    
    28,160
    
    
    
    
    
    
    
    72,731Depreciation and amortization of identifiable intangibles
    
    
    18,390
    
    
    
    18,396
    
    
    
    7,304
    
    
    
    
    
    
    
    44,090Earnings in consolidated subsidiaries
    
    
    (60,245
    )
    
    
    
    
    
    
    
    
    
    
    60,245
    
    
    
    Earnings in unconsolidated joint venture
    
    
    
    
    
    
    
    
    
    
    (1,516
    )
    
    
    
    
    
    
    (1,516
    )Interest, net
    
    
    36,657
    
    
    
    (7,624
    )
    
    
    4,910
    
    
    
    
    
    
    
    33,943Income (loss) before income taxes
    
    
    259
    
    
    
    51,052
    
    
    
    43,113
    
    
    
    (60,245
    )
    
    
    34,179Income tax (provision) benefit
    
    
    22,401
    
    
    
    (18,101
    )
    
    
    (15,819
    )
    
    
    
    
    
    
    (11,519
    )Net income (loss)
    
    $
    (22,660
    )
    
    $
    32,951
    
    
    $
    27,294
    
    
    $
    (60,245
    )
    
    $
    22,660
 
 (1)
    
    Kraton Polymers Capital Corporation has minimal assets and income. We do not believe that
separate financial information concerning the Issuers would provide additional information
that would be useful. F-36




---



##### Table of Contents



Statements of Condensed Cash Flows
 For the Year Ended December 31, 2007Guarantor
    
    
    Non-GuarantorIssuers (1)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash flows provided by (used in) operating activities
    
    $
    (25,177
    )
    
    $
    84,956
    
    
    $
    21,958
    
    
    $
    
    
    
    $
    81,737Cash flows used in investing activities:Purchase of plant and equipment, net of proceeds from
sales of equipment
    
    
    
    
    
    
    (18,584
    )
    
    
    (10,086
    )
    
    
    
    
    
    
    (28,670
    )Net cash used in investing activities
    
    
    
    
    
    
    (18,584
    )
    
    
    (10,086
    )
    
    
    
    
    
    
    (28,670
    )Cash flows provided by (used in) financing activities:Proceeds from debt
    
    
    48,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    48,500Repayment of debt
    
    
    (92,148
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (92,148
    )Cash dividend to parent
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Deferred financing costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net proceeds from insurance note payable
    
    
    (245
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (245
    )Proceeds from (payments on) intercompany loans
    
    
    69,070
    
    
    
    (69,070
    )
    
    
    
    
    
    
    
    
    
    
    Net cash provided by (used in) financing activities
    
    
    25,177
    
    
    
    (69,070
    )
    
    
    
    
    
    
    
    
    
    
    (43,893
    )Effect of exchange rate difference on cash
    
    
    
    
    
    
    
    
    
    
    (4,498
    )
    
    
    
    
    
    
    (4,498
    )Net increase (decrease) in cash and cash equivalents
    
    
    
    
    
    
    (2,698
    )
    
    
    7,374
    
    
    
    
    
    
    
    4,676Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    13,850
    
    
    
    29,751
    
    
    
    
    
    
    
    43,601Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    11,152
    
    
    $
    37,125
    
    
    $
    
    
    
    $
    48,277
 For the Year Ended December 31, 2006Guarantor
    
    
    Non-GuarantorIssuers (1)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash flows provided by (used in) operating activities
    
    $
    (44,782
    )
    
    $
    22,183
    
    
    $
    21,322
    
    
    $
    
    
    
    $
    (1,277
    )Cash flows used in investing activities:Purchase of plant and equipment, net of proceeds from
sales of equipment
    
    
    
    
    
    
    (15,325
    )
    
    
    (22,556
    )
    
    
    
    
    
    
    (37,881
    )Net cash used in investing activities
    
    
    
    
    
    
    (15,325
    )
    
    
    (22,556
    )
    
    
    
    
    
    
    (37,881
    )Cash flows provided by (used in) financing activities:Proceeds from debt
    
    
    123,008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    123,008Repayment of debt
    
    
    (3,558
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,558
    )Cash dividend to parent
    
    
    (129,533
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (129,533
    )Deferred financing costs
    
    
    (2,678
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,678
    )Net proceeds from insurance note payable
    
    
    739
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    739Proceeds from (payments on) intercompany loans
    
    
    56,804
    
    
    
    (47,949
    )
    
    
    (8,855
    )
    
    
    
    
    
    
    Net cash provided by (used in) financing activities
    
    
    44,782
    
    
    
    (47,949
    )
    
    
    (8,855
    )
    
    
    
    
    
    
    (12,022
    )Effect of exchange rate difference on cash
    
    
    
    
    
    
    
    
    
    
    (6,153
    )
    
    
    
    
    
    
    (6,153
    )Net increase (decrease) in cash and cash equivalents
    
    
    
    
    
    
    (41,091
    )
    
    
    (16,242
    )
    
    
    
    
    
    
    (57,333
    )Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    54,941
    
    
    
    45,993
    
    
    
    
    
    
    
    100,934Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    13,850
    
    
    $
    29,751
    
    
    $
    
    
    
    $
    43,601
 F-37




---



##### Table of Contents



For the Year Ended December 31, 2005Guarantor
    
    
    Non-GuarantorIssuers (1)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash flows provided by (used in) operating activities
    
    $
    (42,419
    )
    
    $
    86,408
    
    
    $
    25,353
    
    
    $
    
    
    
    $
    69,342Cash flows used in investing activities:Purchase of plant and equipment, net of proceeds from
sales of equipment
    
    
    
    
    
    
    (12,091
    )
    
    
    (6,603
    )
    
    
    
    
    
    
    (18,694
    )Net cash used in investing activities
    
    
    
    
    
    
    (12,091
    )
    
    
    (6,603
    )
    
    
    
    
    
    
    (18,694
    )Cash flows provided by (used in) financing activities:Repayment of debt
    
    
    (2,680
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,680
    )Proceeds from (payments on) intercompany loans
    
    
    45,099
    
    
    
    (35,357
    )
    
    
    (9,742
    )
    
    
    
    
    
    
    Net cash provided by (used in) financing activities
    
    
    42,419
    
    
    
    (35,357
    )
    
    
    (9,742
    )
    
    
    
    
    
    
    (2,680
    )Effect of exchange rate difference on cash
    
    
    
    
    
    
    
    
    
    
    6,609
    
    
    
    
    
    
    
    6,609Net increase (decrease) in cash and cash equivalents
    
    
    
    
    
    
    38,960
    
    
    
    15,617
    
    
    
    
    
    
    
    54,577Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    15,981
    
    
    
    30,376
    
    
    
    
    
    
    
    46,357Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    54,941
    
    
    $
    45,993
    
    
    $
    
    
    
    $
    100,934
 
 (1)
    
    Kraton Polymers Capital Corporation has minimal assets and income. We do not believe that
separate financial information concerning the Issuers would provide additional information
that would be useful. F-38




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




---



##### Table of Contents



Schedule II
 Kraton Polymers LLC
 Valuation Accounts
For the Years Ended December 31, 2007, 2006 and 2005
(In thousands)
 Balance
    
    Charged to
    
    
    
    
    
    Balanceat Beginning
    
    Costs and
    
    
    
    
    
    at End ofof Period
    
    Expenses
    
    Deductions
    
    PeriodAllowance for Doubtful AccountsYear ended December 31, 2007
    
    $
    2,157
    
    
    $
    81
    
    
    $
    (696
    )
    
    $
    1,542Year ended December 31, 2006
    
    
    1,013
    
    
    
    1,382
    
    
    
    (238
    )
    
    
    2,157Year ended December 31, 2005
    
    
    750
    
    
    
    936
    
    
    
    (673
    )
    
    
    1,013
 Balance
    
    Charged to
    
    
    
    
    
    Balanceat Beginning
    
    Costs and
    
    
    
    
    
    at End ofof Period
    
    Expenses
    
    Deductions
    
    PeriodInventory ReservesYear ended December 31, 2007
    
    $
    4,215
    
    
    $
    2,994
    
    
    $
    (2,454
    )
    
    $
    4,755Year ended December 31, 2006
    
    
    5,026
    
    
    
    9,250
    
    
    
    (10,061
    )
    
    
    4,215Year ended December 31, 2005
    
    
    2,107
    
    
    
    7,773
    
    
    
    (4,764
    )
    
    
    5,026




---



EXHIBIT INDEX
 ITEM 15. EXHIBITS.
  ExhibitNo.
    
    Description of Exhibits2.1
    
    Amended and Restated Agreement and Plan of Merger dated November 5, 2003, among Ripplewood
Chemical Holding LLC, Kraton Polymers LLC, Polymer Holdings LLC and Polymer Acquisition LLC
(portions of this exhibit have been omitted pursuant to a request for confidential treatment)
(incorporated by reference from Exhibit 2.1 to Amendment No. 2 to Kratons Registration
Statement on Form S-4 filed with the Commission on July 15, 2005)3.1
    
    Certificate of Formation of Ripplewood Chemical Acquisition LLC dated August 24, 2000
(incorporated by reference from Exhibit 3.1 to Kratons Registration Statement on Form S-4
filed with the Commission on April 1, 2005)3.2
    
    Certificate of Amendment to the Certificate of Formation of Ripplewood Chemical Acquisition
LLC dated December 11, 2000, changing the name to RK Polymers LLC (incorporated by reference
from Exhibit 3.2 to Kratons Registration Statement on Form S-4 filed with the Commission on
April 1, 2005)3.3
    
    Certificate of Amendment to the Certificate of Formation of RK Polymers LLC dated February 28,
2001, changing the name to Kraton Polymers LLC (incorporated by reference from Exhibit 3.3 to
Kratons Registration Statement on Form S-4 filed with the Commission on April 1, 2005)3.4
    
    Second Amended and Restated Limited Liability Company Agreement of Kraton Polymers LLC dated
March 31, 2004 (incorporated by reference from Exhibit 3.4 to Kratons Registration Statement
on Form S-4 filed with the Commission on April 1, 2005)3.5
    
    Certificate of Formation of TPG Polymer Holdings, LLC dated October 28, 2003 (incorporated by
reference from Exhibit 3.1 to Polymer Holdings Registration Statement on Form S-4 filed with
the Commission on April 1, 2005)3.6
    
    Amended and Restated Certificate of Formation of TPG Polymer Holdings, LLC dated November 24,
2003, changing name to Polymer Holdings LLC (incorporated by reference from Exhibit 3.2 to
Polymer Holdings Registration Statement on Form S-4 filed with the Commission on April 1,
2005)3.7
    
    Amended and Restated Limited Liability Company Agreement of Polymer Holdings LLC, dated
December 23, 2003 (incorporated by reference from Exhibit 3.3 to Polymer Holdings
Registration Statement on Form S-4 filed with the Commission on April 1, 2005)4.1
    
    Indenture dated as of December 23, 2003, among Kraton Polymers LLC, Kraton Polymers Capital
Corporation, the Guarantors named therein and Wells Fargo Bank Minnesota, N.A., as trustee,
relating to the 8.125% Senior Subordinated Notes due 2014 (incorporated by reference from
Exhibit 4.1 to Kratons Registration Statement on Form S-4 filed with the Commission on April
1, 2005)4.2
    
    Form of 8.125% Senior Subordinated Notes due 2014 of Kraton Polymers LLC and Kraton Polymers
Capital Corporation (included as Exhibit A1 to the Indenture filed as Exhibit 4.1) (1)4.3
    
    Exchange and Registration Rights Agreement dated December 23, 2003, among Kraton Polymers LLC,
Kraton Polymers Capital Corporation, the Guarantors named therein, Goldman, Sachs & Co. and
UBS Securities LLC (incorporated by reference from Exhibit 4.3 to Kratons Registration
Statement on Form S-4 filed with the Commission on April 1, 2005) (incorporated by reference
from Exhibit 4.1 to Polymer Holdings Registration Statement on Form S-4 filed with the
Commission on April 1, 2005)4.4
    
    Pledge and Security Agreement dated December 23, 2003, among Kraton Polymers LLC, Polymer
Holdings LLC, Kraton Polymers Capital Corporation, Elastomers Holdings LLC, Kraton Polymers
U.S. LLC, as Grantors and UBS AG, Stanford Branch, as Collateral Agent (incorporated by
reference from Exhibit 4.4 to Kratons Registration Statement on Form S-4 filed with the
Commission on April 1, 2005)4.5
    
    Credit and Guaranty Agreement dated December 23, 2003, among Kraton Polymers LLC, as Borrower,
Polymer Holdings LLC, certain subsidiaries of Kraton Polymers LLC, as Guarantors, various
lenders, Goldman Sachs Credit Partners L.P. and UBS Securities LLC, as Lead Arrangers, Goldman
Sachs Credit Partners L.P., as Syndication Agent, UBS AG, Stanford Branch, as Administrative
Agent and Collateral Agent and Morgan Stanley Senior Funding Inc., Credit Suisse First Boston,
acting through its Cayman Islands Branch and General Electric Capital Corporation, as
Documentation Agents (incorporated by reference from Exhibit 4.5(a) to Kratons Registration
Statement on Form S-4 filed with the Commission on April 1, 2005)




---



##### Table of Contents



ExhibitNo.
    
    Description of Exhibits4.6
    
    Amendment No. 1 to the Credit and Guaranty Agreement dated as of March 4, 2004 (incorporated
by reference from Exhibit 4.5(b) to Kratons Registration Statement on Form S-4 filed with the
Commission on April 1, 2005)4.7
    
    Amendment No. 2 to the Credit and Guaranty Agreement dated as of October 21, 2004
(incorporated by reference from Exhibit 4.5(c) to Kratons Registration Statement on Form S-4
filed with the Commission on April 1, 2005)4.8
    
    Amendment No. 3 to the Credit and Guaranty Agreement dated as of February 16, 2006, among
Kraton, each of the Guarantors listed on the signature pages attached thereto, the Lenders,
and UBS AG, Stamford Branch (incorporated by reference from Exhibit 10.1 to Kratons Quarterly
Report on Form 10-Q filed with the Commission on May 15, 2006)4.9
    
    Amendment No. 4 to the Credit and Guaranty Agreement dated as of May 12, 2006, by and among
Kraton; Polymer Holdings and certain subsidiary companies; Goldman Sachs Credit Partners L.P.;
UBS AG, Stamford Branch; Morgan Stanley Senior Funding Inc.; Credit Suisse, Cayman Island
Branch; and General Electric Capital Corporation (incorporated by reference from Exhibit 10.3
to Kratons Quarterly Report on Form 10-Q filed with the Commission on May 15, 2006)4.10
    
    Amendment No. 5 to the Credit and Guaranty Agreement dated December 15, 2006, between the
Company, the Guarantors, the Administrative Agent and the Lenders (incorporated by reference
from Exhibit 10.1 to Kratons Current Report on Form 8-K filed with the Commission on December
21, 2006)4.11
    
    Joinder Agreement dated June 7, 2006, between the Lender, the Company, the Guarantors and the
Administrative Agent (incorporated by reference from Exhibit 10.3 to Kratons Current Report
on Form 8-K filed with the Commission on June 7, 2006)10.1
    
    Employment Agreement dated November 1, 2004, between George Gregory and Kraton Polymers LLC
(incorporated by reference from Exhibit 10.5 to Kratons Registration Statement on Form S-4
filed with the Commission on April 1, 2005)10.1(a)
    
    Amendment No. 2 to the Employment Agreement dated April 9, 2007, between George Gregory and
Kraton Polymers LLC (incorporated by reference from Exhibit 10.1(a) to Kratons Annual Report
on Form 10-K filed with the Commission on April 12, 2007)10.2
    
    Notional Unit Award Grant Agreement dated September 10, 2004, between George Gregory and
Kraton Polymers LLC (incorporated by reference from Exhibit 10.6 to Kratons Registration
Statement on Form S-4 filed with the Commission on April 1, 2005)10.3
    
    Profits Unit Award Agreement dated September 10, 2004, between George Gregory and Kraton
Polymers LLC (incorporated by reference from Exhibit 10.7 to Kratons Registration Statement
on Form S-4 filed with the Commission on April 1, 2005)10.4
    
    Letter Agreement dated March 17, 2005, between Kraton Management LLC and George Gregory
(incorporated by reference from Exhibit 10.08(b) to Amendment No. 1 to Kratons Registration
Statement on Form S-4 filed with the Commission on June 9, 2005)10.5
    
    Employment Agreement dated April 12, 2004, between Richard A. Ott and Kraton Polymers LLC
(incorporated by reference from Exhibit 10.20 to Kratons Registration Statement on Form S-4
filed with the Commission on April 1, 2005)10.5(a)
    
    Amendment No. 2 to the Employment Agreement dated April 9, 2007, between Richard A. Ott and
Kraton Polymers LLC (incorporated by reference from Exhibit 10.5(a) to Kratons Annual Report
on Form 10-K filed with the Commission on April 12, 2007)10.6
    
    Profits Unit Award Agreement dated September 10, 2004, between Richard Ott and Kraton Polymers
LLC (incorporated by reference from Exhibit 10.22 to Kratons Registration Statement on Form
S-4 filed with the Commission on April 1, 2005)10.7
    
    Employment Agreement dated April 12, 2004, between Joseph J. Waiter, and Kraton Polymers LLC
(incorporated by reference from Exhibit 10.23 to Kratons Registration Statement on Form S-4
filed with the Commission on April 1, 2005)10.8
    
    Profits Unit Award Agreement dated September 10, 2004, between Joseph Waiter and Kraton
Polymers LLC (incorporated by reference from Exhibit 10.25 to Kratons Registration Statement
on Form S-4 filed with the Commission on April 1, 2005)10.9
    
    Employment Agreement dated March 8, 2004, between Dave Bradley and Kraton Polymers LLC
(incorporated by reference from Exhibit 10.26 to Kratons Registration Statement on Form S-4
filed with the Commission on April 1, 2005)10.9(a)
    
    Amendment No. 3 to the Employment Agreement dated April 9, 2007, between David Bradley and
Kraton Polymers




---



##### Table of Contents



ExhibitNo.
    
    Description of ExhibitsLLC (incorporated by reference from Exhibit 10.9(a) to Kratons Annual Report
on Form 10-K filed with the Commission on April 12, 2007)10.10
    
    Profits Unit Award Agreement dated September 10, 2004, between Dave Bradley and Kraton
Polymers LLC (incorporated by reference from Exhibit 10.28 to Kratons Registration Statement
on Form S-4 filed with the Commission on April 1, 2005)10.11
    
    Restricted Unit Award Grant Agreement dated September 10, 2004, between Dave Bradley and
Kraton Polymers LLC (incorporated by reference from Exhibit 10.29 to Kratons Registration
Statement on Form S-4 filed with the Commission on April 1, 2005)10.12
    
    Restricted Unit Award Grant Agreement dated as of March 17, 2005, between Kraton Polymers LLC
and David Bradley (incorporated by reference from Exhibit 10.29(a) to Amendment No. 1 to
Kratons Registration Statement on Form S-4 filed with the Commission on June 9, 2005)10.13
    
    Employment Agreement dated as of March 2, 2005, between Kraton Polymers LLC and Eli
Ben-Shoshan (incorporated by reference from Exhibit 10.52 to Amendment No. 1 to Kratons
Registration Statement on Form S-4 filed with the Commission on June 9, 2005)10.14
    
    Notional Unit Award Grant Agreement dated as of March 17, 2005, between Kraton Polymers LLC
and Eli Ben-Shoshan (incorporated by reference from Exhibit 10.53 to Amendment No. 1 to
Kratons Registration Statement on Form S-4 filed with the Commission on June 9, 2005)10.15
    
    Profits Unit Award Agreement dated as of March 17, 2005, between Kraton Polymers LLC and Eli
Ben-Shoshan (incorporated by reference from Exhibit 10.55 to Amendment No. 1 to Kratons
Registration Statement on Form S-4 filed with the Commission on June 9, 2005)10.16
    
    Employment Agreement dated November 9, 2005, between Kraton and Kevin M. Fogarty (incorporated
by reference from Exhibit 10.3 to Kratons Quarterly Report on Form 10-Q filed with the
Commission on November 14, 2005)10.16(a)
    
    Amendment No. 2 to the Employment Agreement dated April 9, 2007, between Kevin M. Fogarty and
Kraton Polymers LLC (incorporated by reference from Exhibit 10.16(a) to Kratons Annual Report
on Form 10-K filed with the Commission on April 12, 2007)10.17
    
    Notional Unit Award Grant Agreement dated July 15, 2005, between Kevin Fogarty and Kraton
Polymers LLC (incorporated by reference from Exhibit 10.56 to Amendment No. 3 to Kratons
Registration Statement on Form S-4 filed with the Commission on August 29, 2005)10.18
    
    Profits Unit Award Agreement dated July 15, 2005, between Kevin Fogarty and Kraton Management
LLC (incorporated by reference from Exhibit 10.58 to Amendment No. 3 to Kratons Registration
Statement on Form S-4 filed with the Commission on August 29, 2005)10.19
    
    Employment Agreement dated as of December 15, 2005, between Kraton Polymers LLC and Raymond
Guba (incorporated by reference from Exhibit 10.1 to Kratons Current Report on Form 8-K filed
with the Commission on December 16, 2005)10.20
    
    Profit Unit Award Agreement Dated October 24, 2005, between Kraton Management LLC and Raymond
K. Guba (incorporated by reference from Exhibit 10.5 to Kratons Quarterly Report on Form 10-Q
filed with the Commission on November 14, 2005)10.21
    
    Notional Unit Award Grant Agreement dated October 24, 2005, between Kraton Polymers LLC and
Raymond K. Guba (incorporated by reference from Exhibit 10.6 to Kratons Quarterly Report on
Form 10-Q filed with the Commission on November 14, 2005)10.21(a)
    
    Separation Agreement and General Release and Waiver dated October 26, 2006, between the
Company and Raymond K. Guba (incorporated by reference from Exhibit 10.1 to Kratons Current
Report on Form 8-K filed with the Commission on October 26, 2006)10.22
    
    Kraton Polymers LLC Executive Deferred Compensation Plan (incorporated by reference from
Exhibit 10.30 to Kratons Registration Statement on Form S-4 filed with the Commission on
April 1, 2005)10.23
    
    TJ Chemical Holdings LLC 2004 Option Plan and Form of Option Grant Agreement (incorporated by
reference from Exhibit 10.31 to Kratons Registration Statement on Form S-4 filed with the
Commission on April 1, 2005)10.24
    
    First Amended and Restated Site Services, Utilities, Materials and Facilities Agreement dated
February 28, 2001, between Kraton Polymers Nederland B.V. and Shell Nederland Raffinaderij
B.V. (Pernis) (portions of this exhibit have been omitted pursuant to a request for
confidential treatment) (incorporated by reference from Exhibit 10.32 to Amendment No. 2 to
Kratons Registration Statement on Form S-4 filed with the Commission on July 15, 2005)10.25
    
    First Amended and Restated Site Services, Utilities, Materials and Facilities Agreement dated
February 28, 2001, between Kraton Polymers Nederland B.V. and Shell Nederland Chemie B.V.
(Pernis) (portions of this exhibit have been




---



##### Table of Contents



ExhibitNo.
    
    Description of Exhibitsomitted pursuant to a request for confidential
treatment) (incorporated by reference from Exhibit 10.33 to Amendment No. 2 to Kratons
Registration Statement on Form S-4 filed with the Commission on July 15, 2005)10.26
    
    First Amended and Restated Site Services, Utilities, Materials and Facilities Agreement dated
February 28, 2001, between Shell Chimie S.A. and Kraton Polymers France S.A.S. (Berre)
(portions of this exhibit have been omitted pursuant to a request for confidential treatment)
(incorporated by reference from Exhibit 10.34 to Amendment No. 2 to Kratons Registration
Statement on Form S-4 filed with the Commission on July 15, 2005)10.27
    
    First Amended and Restated Operations and Maintenance Services Agreement dated February 28,
2001, between Kraton Polymers Nederland B.V. and Shell Nederland Chemie B.V. (Pernis)
(portions of this exhibit have been omitted pursuant to a request for confidential treatment)
(incorporated by reference from Exhibit 10.35 to Amendment No. 2 to Kratons Registration
Statement on Form S-4 filed with the Commission on July 15, 2005)10.28
    
    First Amended and Restated Operations and Maintenance Services Agreement dated February 28,
2001, between Kraton Polymers France S.A.S. and Shell Chimie S.A. (Berre) (portions of this
exhibit have been omitted pursuant to a request for confidential treatment) (incorporated by
reference from Exhibit 10.36 to Amendment No. 2 to Kratons Registration Statement on Form S-4
filed with the Commission on July 15, 2005)10.29
    
    Production Agreement dated March 31, 2000, between Elenac GmbH and Kraton Polymers GmbH
(Wesseling) (portions of this exhibit have been omitted pursuant to a request for confidential
treatment) (incorporated by reference from Exhibit 10.37 to Amendment No. 2 to Kratons
Registration Statement on Form S-4 filed with the Commission on July 15, 2005)10.30
    
    Amended and Restated Belpre Facility Sharing and Operating Agreement dated July 1, 1999, among
Infineum USA LP, Shell Oil Company and Shell Elastomers LLC (portions of this exhibit have
been omitted pursuant to a request for confidential treatment) (incorporated by reference from
Exhibit 10.38 to Amendment No. 2 to Kratons Registration Statement on Form S-4 filed with the
Commission on July 15, 2005)10.31
    
    Styrene Sales Contract dated August 30, 1999, between Shell Chemical Company and Shell
Elastomers LLC (portions of this exhibit have been omitted pursuant to a request for
confidential treatment) (portions of this exhibit have been omitted pursuant to a request for
confidential treatment) (incorporated by reference from Exhibit 10.39 to Amendment No. 2 to
Kratons Registration Statement on Form S-4 filed with the Commission on July 15, 2005)10.32
    
    Agreement dated January 31, 2000, between Shell Hydrocarbures et Derives S.A.S. and Kraton
Polymers France S.A.S. for common reception and storage of Styrene Monomer (portions of this
exhibit have been omitted pursuant to a request for confidential treatment) (incorporated by
reference from Exhibit 10.40 to Amendment No. 2 to Kratons Registration Statement on Form S-4
filed with the Commission on July 15, 2005)10.33
    
    Multi-Site Agreement for the supply of Styrene Monomer dated February 28, 2001, among Shell
Nederland Chemie B.V., Shell Chimie S.A. and Kraton Polymers Nederland BV (portions of this
exhibit have been omitted pursuant to a request for confidential treatment) (incorporated by
reference from Exhibit 10.41 to Amendment No. 2 to Kratons Registration Statement on Form S-4
filed with the Commission on July 15, 2005)10.34
    
    Butadiene Sales Contract dated September 11, 1999, between Shell Chemical Company and Shell
Elastomers LLC (portions of this exhibit have been omitted pursuant to a request for
confidential treatment) (incorporated by reference from Exhibit 10.42 to Amendment No. 2 to
Kratons Registration Statement on Form S-4 filed with the Commission on July 15, 2005)10.35
    
    1,3-Butadiene Agreement dated October 1, 1999, between Shell Chimie S.A. and Kraton Polymers
France S.A.S. (portions of this exhibit have been omitted pursuant to a request for
confidential treatment) (incorporated by reference from Exhibit 10.43 to Amendment No. 2 to
Kratons Registration Statement on Form S-4 filed with the Commission on July 15, 2005)10.36
    
    Deed of Novation dated December 20, 2005, between Shell Chemical Europe B.V., Shell
Pétrochimie Méditerranée S.A.S., Basell Polyoléfines France S.A.S. and Kraton Polymers France
S.A.S (incorporated by reference from Exhibit 10.36 to Kratons Annual Report on Form 10-K
filed with the Commission on March 30, 2006)10.37
    
    1,3-Butadiene Agreement dated December 1, 1999, between Deutsche Shell Chemie GmbH and MWW
Achtundzwanzigste Vermoegensverwaltungs GmbH (portions of this exhibit have been omitted
pursuant to a request for confidential treatment) (incorporated by reference from Exhibit
10.44 to Amendment No. 2 to Kratons Registration Statement on Form S-4 filed with the
Commission on July 15, 2005)10.38
    
    Sales Contract dated September 11, 1999, between Shell Chemical Company and Shell Elastomers
LLC (portions of this exhibit have been omitted pursuant to a request for confidential
treatment) (incorporated by reference from Exhibit 10.45 to Amendment No. 2 to Kratons
Registration Statement on Form S-4 filed with the Commission on July 15, 2005)10.39
    
    Agreement dated February 28, 2001, between Shell Nederland Chemie B.V. and Kraton Polymers
Nederland B.V. for the




---



##### Table of Contents



ExhibitNo.
    
    Description of Exhibitssupply of Isoprene Monomer (portions of this exhibit have been omitted
pursuant to a request for confidential treatment) (incorporated by reference from Exhibit
10.46 to Amendment No. 2 to Kratons Registration Statement on Form S-4 filed with the
Commission on July 15, 2005)10.39(a)
    
    Letter Amendment No. 2 (and by reference Amendment No. 1) to the Agreement dated February 28,
2001, between Shell Nederland Chemie B.V. and Kraton Polymers Nederland B.V. for the
supply of
Isoprene Monomer, dated December 10, 2007, between Shell Chemicals Europe B.V. and Kraton
Polymers Nederland P.V. (portions of this exhibit have been omitted pursuant to a request for
confidential treatment)*10.40
    
    Manufacturing Facility Lease dated August 24, 2000, between Shell Chemie and Kravis
(Berre-Kraton D) (incorporated by reference from Exhibit 10.47 to Kratons Registration
Statement on Form S-4 filed with the Commission on April 1, 2005)10.41
    
    Manufacturing Facility Lease dated August 24, 2000, between Shell Chimie and Kraton Polymers
France SAS (Berre-Kraton G) (incorporated by reference from Exhibit 10.48 to Kratons
Registration Statement on Form S-4 filed with the Commission on April 1, 2005)10.42
    
    Business Lease dated March 31, 2000, between Elenac GmbH and Kraton Polymers GmbH (Wesseling)
(portions of this exhibit have been omitted pursuant to a request for confidential treatment)
(incorporated by reference from Exhibit 10.49 to Kratons Registration Statement on Form S-4
filed with the Commission on April 1, 2005)10.43
    
    Amendment to the Business Lease dated March 31, 2000, between Bassell Polyolefine GmbH
(previously Elenac GmbH) and Kraton Polymers GmbH (incorporated by reference from Exhibit
10.49(a) to Kratons Registration Statement on Form S-4 filed with the Commission on April 1,
2005)10.44
    
    Contribution Agreement dated February 28, 2001, between Shell Oil Company and Shell Elastomers
(portions of this exhibit have been omitted pursuant to a request for confidential treatment)
(incorporated by reference from Exhibit 10.50 to Amendment No. 2 to Kratons Registration
Statement on Form S-4 filed with the Commission on July 15, 2005)10.45
    
    Contribution Agreement dated February 28, 2001, between Shell Internationale Research
Maatschappil B.V. and Kraton Polymers Research B.V. (portions of this exhibit have been
omitted pursuant to a request for confidential treatment) (incorporated by reference from
Exhibit 10.51 to Amendment No. 2 to Kratons Registration Statement on Form S-4 filed with the
Commission on July 15, 2005)10.46
    
    Sales Contract dated April 25, 2006, between Kraton Polymers U.S. LLC and Shell Chemical LP.
(incorporated by reference from Exhibit 10.2 to Kratons Quarterly Report on Form 10-Q filed
with the Commission on May 15, 2006)10.47
    
    Employment Agreement dated April 9, 2007, between Kraton Polymers LLC and Nicholas G. Dekker
(incorporated by reference from Exhibit 10.47 to Kratons Annual Report on Form 10-K filed
with the Commission on April 12, 2007)10.47(a)
    
    Amendment No. 1 to the
Employment Agreement dated as of December 19, 2007, between
Kraton Polymers LLC and Nicholas G. Dekker (incorporated by
reference from Exhibit 99.1 to Kratons Current Report on
Form 8-K filed with the Commission on December 21, 2007)10.48
    
    Tripartite Agreement dated April 9, 2007, among Kraton Polymers LLC, Nicholas G. Dekker and
Kraton Polymers France SAS (incorporated by reference from Exhibit 10.48 to Kratons Annual
Report on Form 10-K filed with the Commission on April 12,
2007)10.48(a)
    
    Amendment No. 1 to the
Tripartite Agreement dated as of December 19, 2007, between
Kraton Polymers LLC, Nicholas G. Dekker and Kraton Polymers
France SAS (incorporated by reference from Exhibit 99.2 to
Kratons Current Report on Form 8-K filed with the Commission on
December 21, 2007)10.49
    
    Notional Unit Award Grant Agreement dated November 30, 2005, between the Company and Nicholas
G. Dekker (incorporated by reference from Exhibit 10.1 to Kratons Current Report on Form 8-K
filed with the Commission on December 22, 2006)10.50
    
    Profit Unit Award Agreement dated October 6, 2006, between Management LLC and Nicholas G.
Dekker. (incorporated by reference from Exhibit 10.2 to Kratons Current Report on Form 8-K
filed with the Commission on December 22, 2006)10.51
    
    Form of Amendment No. 1 to the Employment Agreement of Executive Officers (incorporated by
reference from Exhibit 10.3 to Kratons Current Report on Form 8-K filed with the Commission
on December 22, 2006)10.52
    
    Form of Amendment No. 2 to the Employment Agreement of Executive Officers (incorporated by
reference from Exhibit 10.4 to Kratons Current Report on Form 8-K filed with the Commission
on December 22, 2006)10.53
    
    Form of Amendment No. 1 to the Profits Unit Award Agreement (incorporated by reference from
Exhibit 10.5 to Kratons Current Report on Form 8-K filed with the Commission on December 22,
2006)10.54
    
    Agreement for Adjustment and Termination of Services under Kraton/SNC SUMFs and OMS Agreements
at Pernis dated as of June 28, 2007 by and among Shell Nederland Chemie B.V. and Kraton
Polymers Nederland B.V. (incorporated by reference from Exhibit 10.1 to Kratons Quarterly
Report on Form 10-Q filed with the Commission on November 14, 2007)




---



##### Table of Contents



ExhibitNo.
    
    Description of Exhibits12.1
    
    Statement of Computation of Ratio of Earnings to Fixed Charges*21.1
    
    List of Significant Subsidiaries (incorporated by reference from Exhibit 21.1 to Kratons
Registration Statement on Form S-4 filed with the Commission on April 1, 2005)31.1
    
    Certification by CEO pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of
1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*31.2
    
    Certification by CFO pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of
1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*32.1
    
    Certification by CEO and CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002*
 
 *
    
    Filed herewith.