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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-K

            [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE 
                        SECURITIES EXCHANGE ACT OF 1934

                       FOR FISCAL YEAR ENDED JUNE 30, 1997

          [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

      FOR THE TRANSITION PERIOD FROM ........... TO ...............

                         REGISTRATION NUMBER 333-11569

                        TEXAS PETROCHEMICALS CORPORATION
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                TEXAS                                 74-1778313
   (STATE OR OTHER JURISDICTION OF                 (I.R.S. EMPLOYER
   INCORPORATION OR ORGANIZATION)                 IDENTIFICATION NO.)

     THREE RIVERWAY, SUITE 1500
           HOUSTON, TEXAS                                77056
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)              (ZIP CODE)

                                 (713) 627-7474
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

      SECURITIES REGISTERED PURSUANT TO SECTION 12(b) AND 12(g) OF THE ACT:
                                      NONE

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirement for the past 90 days. Yes [X] No [ ]

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

     The number of shares of common stock of the registrant outstanding as of
September 24, 1997 is 4,162,000.

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<PAGE>
                      TEXAS PETROCHEMICALS CORPORATION

                             TABLE OF CONTENTS
                                                                        PAGE

                                   PART I

Item 1. Business                                                         1

Item 2. Properties                                                       8

Item 3. Legal Proceedings                                                8

Item 4. Submission of Matters to a Vote of Security Holders              8

                                  PART II

Item 5. Market for Registrant's Common Equity and Related 
          Stockholder Matters                                            9

Item 6. Selected Financial Data                                          9

Item 7. Management's Discussion and Analysis of Financial Condition
         and Results of Operations                                      10

Item 8. Financial Statements and Supplementary Data                     18

Item 9. Changes in and Disagreements With Accountants on Accounting      41
         and Financial Disclosure

                                  PART III

Item 10. Directors and Executive Officers of the Registrant             41

Item 11.  Executive Compensation                                        44

Item 12. Security Ownership of Certain Beneficial Owners and 
           Management                                                   45

Item 13. Certain Relationships and Related Transactions                 45

                                  PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports 
          on Form 8-K                                                   45

      Signatures                                                        46

                                       i
<PAGE>
                                   PART I

ITEM 1.  BUSINESS

    Texas Petrochemicals Corporation (the "Company") is the largest producer of
butadiene and butene-1, and the third largest producer of MTBE, in North
America, in terms of production capacity. In addition, the Company is the sole
producer of diisobutylene and isobutylene concentrate in the United States and
the largest domestic merchant supplier of high purity isobutylene to the
chemical market. The Company's products include: (i) butadiene, primarily used
to produce synthetic rubber; (ii) MTBE, used as an oxygenate and octane enhancer
in gasoline; (iii) n-butylenes (butene-1 and butene-2), used in the manufacture
of plastic resins, fuel additives and synthetic alcohols; and (iv) specialty
isobutylenes, primarily used in the production of specialty rubbers, lubricant
additives, detergents and coatings.

    The Company's manufacturing facility, located approximately one mile from
the Houston Ship Channel provides convenient access to other Gulf Coast
petrochemical producers and is connected to several of its customers and raw
material suppliers through an extensive pipeline network. In addition, the
Company's facility is serviced by rail, tank truck and barge. During fiscal 1997
the Company successfully gained access to the MTBE market on the East Coast of
the United States through the negotiation of a terminalling and storage
agreement with the Northville terminal in Linden, New Jersey.

    The Company was founded in 1968, at which time the Company was principally
engaged in the installation of crude butadiene processing facilities. In 1984,
Mr. Dave C. Swalm acquired from Tenneco, Inc. the assets (principally comprised
of the Houston facility) of Petro-Tex Chemical Corporation ("Petro-Tex") the
prior owner of the Company's manufacturing facility.

    On July 1, 1996 Texas Olefins Company ("TOC"), Texas Petrochemicals
Corporation and a raw material supply contract of Clarkston Corporation (the
"Affiliate") were acquired for approximately $371 million in a series of
transactions (the "Acquisition"). After the transactions, TOC was merged with
and into Texas Petrochemicals Corporation with Texas Petrochemicals Corporation
becoming a 100% owned subsidiary of Texas Petrochemical Holdings, Inc (the
"Parent"). The Parent was formed by a group of closely held investors.

    The Company's principal executive offices are located at Three Riverway,
Suite 1500, Houston, Texas 77056. The Company's telephone number is (713)
627-7474.

PRODUCTS

    Butadiene is the most widely used feedstock for synthetic rubber products
and is also used in the manufacture of engineered plastics, nylon fibers and
other products. The Company sells butadiene to a stable customer base. As the
largest producer of butadiene in North America, the Company believes that many
of its customers place significant value on its ability to provide a reliable
domestic supply of butadiene and as a result have entered into long-term sales
contracts with the Company.

                                       1
<PAGE>
    The Company extracts butadiene from crude butadiene, which is generated from
the production of ethylene and is comprised of a number of valuable components,
including butadiene, isobutylene, n-butylenes, isobutane and n-butane. Many U.S.
ethylene producers rely on third parties such as the Company to process their
crude butadiene streams, as the crude butadiene volumes they produce are not
sufficient to justify the construction of on-site butadiene recovery facilities.
The Company estimates that producers accounting for 65% of U.S. and Canadian
ethylene production capacity do not internally process crude butadiene
by-product streams. The Company is the largest non-integrated crude butadiene
processor in North America and as a result of its strategic importance to
ethylene producers, the Company has been able to secure long-terms supply
contracts covering the majority of its crude butadiene requirements. Such
contracts provide for a fixed profit based on the Company's selling prices for
butadiene, and account for the relatively stable profitability of the Company's
butadiene operations.

    MTBE is a motor gasoline blending stock which reduces carbon monoxide and
volatile organic compound emissions and enhances the octane content of gasoline,
and has been one of the fastest growing petrochemicals, in terms of volume, over
the past fifteen years. Today, MTBE is the preferred oxygenate for, and a major
component of, RFG and is used in over 30% of the U.S. gasoline pool. MTBE is
produced by reacting methanol and isobutylene. The Company's ability to produce
isobutylene by three alternative methods enables it to produce MTBE by the most
economical process available to the Company. In addition, the Company has the
ability to add incremental isobutylene capacity to capitalize on expected future
growth, at a significantly lower cost than new grass root, on-purpose capacity.
The Company believes that this incremental capacity gives it a competitive
advantage over other producers who would have to incur greater cost to increase
capacity.

    The Company is the leading producer of high margin n-butylenes and specialty
isobutylenes in North America. In recent years, the Company has increased its
sales of these products by increasing its market share in polyolefin
applications and the development of new end-use applications. Butene-1 is used
as a comonomer in the production of high-density polyethylene ("HDPE") and
linear low-density polyethylene ("LLDPE"). Both HDPE and LLDPE are raw materials
for the production of trash bags, film wrap, pipe and plastic containers.
Butene-1 is also used to produce butylene oxide, a key component of detergent
additive packages used in many gasoline formulations. Butene-2 is recovered as
part of the crude butadiene stream that remains after extraction of butadiene,
isobutylene and butene-1. The Company sells purified butene-2 primarily for use
in the production of coatings and plasticizers. High purity isobutylene is used
in the production of butyl rubber, which is used to produce tires and in
specialty chemical applications such as in the production of resins,
antioxidants, paints and coatings, synthetic lubricant oils and rubber
chemicals. The Company is currently the largest domestic merchant supplier of
high purity isobutylene to the chemical market. Isobutylene concentrate is
similar to high purity isobutylene in composition, although its purity is 88%
isobutylene compared to 99.9% in high purity isobutylene. The Company markets
isobutylene concentrate for use in the growing lubricant additives business as
well as for use in the production of butyl rubber. The Company is the sole U.S.
producer of isobutylene concentrate. Diisobutylene is used primarily as an
intermediate in the manufacturing of alkylphenols for the surfactant and
phenolic resins markets. Other uses include the production of tackifier and ink
resins, dispersants and lubricant oil additives, and rubber and processing
chemicals. The Company is the sole U.S. producer of diisobutylene.

    The Company's principal feedstocks are crude butadiene, isobutane and
methanol. One of the Company's intermediate feedstocks, isobutylene, is used in
the manufacture of MTBE and specialty isobutylenes.

                                       2
<PAGE>
COMPANY STRATEGY

    The Company believes that it has become the industry leader in the
production of the majority of its products by capitalizing on its production
flexibility, its ability to add significant cost effective, incremental capacity
across its product lines, the marketing experience of its management team, its
competitive cost position and its customer focus. The Company's strategy is to
strengthen its established presence in its selected markets by focusing on the
following factors:

    REDUCE EXPOSURE TO CYCLICAL END-MARKETS The markets in which the Company
competes are cyclical. The Company intends to mitigate the effects of this
cyclicality while benefiting from potential upturns in industry profitability by
optimizing the production of its sales under contracts allowing for a fixed
profit or at prices linked directly or indirectly to raw material prices.

    CAPITALIZE ON PRODUCTION FLEXIBILITY The Company has the ability to produce
a number of its intermediate and finished products (i.e. crude butadiene,
isobutylene and butene-1) by a variety of processes. The Company intends to
capitalize on this ability by shifting production to the most economical process
and production level based upon market conditions, thus ensuring a reliable
source of supply for its customers.

    UTILIZE INCREMENTAL CAPACITY The Company can increase its capacity to
produce butadiene, isobutylene and its derivatives at significantly lower cost
than that of new construction. The Company's ability to add incremental
butadiene capacity and its relationships with several North American ethylene
producers are expected to enable it to capture the benefit of increased U.S.
crude butadiene supply.

    RESPOND TO FAVORABLE INDUSTRY DYNAMICS The Company's production flexibility
and its ability to add low-cost capacity are crucial to its capitalizing on the
attractive demand/supply outlook for a number of its products.

o   BUTADIENE. The U.S. supply of crude butadiene is increasing in line with
    domestic ethylene production, although it is currently insufficient to meet
    U.S. demand. Industry operating rates are expected to remain at current high
    levels as the increase in domestic crude butadiene production is expected to
    replace imports with butadiene demand remaining strong in support of
    derivative businesses.

o   MTBE. While the Company expects U.S. demand for MTBE to grow less quickly
    than it has over past fifteen years, it believes that future growth in
    foreign demand may be considerable. In addition, recently announced U.S.
    MTBE capacity additions are minimal. 

o   BUTENE-1. Demand for butene-1 is closely linked to polyethylene production
    growth. The Company expects global production of polyethylene to increase at
    higher than historical rates in the next four years. In addition, the
    Company expects demand for butene-1 used in other applications to be strong.

    SUSTAIN CUSTOMER FOCUS The Company believes that producing quality products
and providing quality service with dependable supply are key factors in its
ability to compete in the market place for its products. Management believes
that its focus on customer service has resulted in strong customer relationships
and a high degree of customer loyalty. This is evidenced by the fact that
approximately 60% of the Company's current customers have purchased products
from the Company for more than ten years.

                                       3
<PAGE>
OTHER OPERATIONS

    The Company operates a large-scale cogeneration power plant that supplies
electricity and process steam to the facility's chemical processing operations.
Excess capacity of this power plant, as well as steam and boiler feed water are
currently sold to neighboring facilities under contracts at a price equal to the
cost of fuel plus a fixed profit. In addition, the Company generates revenues
from its terminals in Baytown, Texas and Lake Charles, Louisiana and from
chemical by-product sales to third parties.

CONTRACTS

    The Company enters into three general types of contracts in connection with
its production processes: feedstock supply contracts, product sales contracts
and, to a lesser extent, toll manufacturing agreements. The majority of these
contracts have terms of two to three years and provide for successive one-year
renewals unless either party objects to such renewal in a timely manner.

COMPETITION

    The petrochemicals businesses in which the Company operates are highly
competitive. Many of the Company's competitors, particularly in the
petrochemicals industry, are larger and have greater financial resources than
the Company. Among the Company's competitors are some of the world's largest
chemical companies and major integrated petroleum companies that have their own
raw material resources. In addition, a significant portion of the Company's
business is based upon widely available technology. Accordingly, barriers to
entry, apart from capital availability, may be low in the commodity product
section of the Company's business, and the entrance of new competitors into the
industry may reduce the Company's ability to capture improving profit margins in
circumstances where overcapacity in the industry is diminishing. Further,
petroleum-rich countries have recently become more significant participants in
the petrochemical industry and may continue to expand their role in this
industry in the future. Any of these developments would have a negative impact
on the Company's financial position, results of operations and cash flows.

    Given the nature of the markets in which it competes, the Company believes
it has two primary competitive advantages over its competitors. First, the
Company's position as the most significant merchant crude butadiene processor in
the U.S. has allowed it to secure supply arrangements for crude butadiene, which
provide for a fixed profit based on the Company's selling prices for the
finished product. The Company believes that this partially limits its exposure
to fluctuations in raw materials prices. Secondly, the Company's flexible
production processes enable it to take advantage of increases in demand for its
products at a lower cost than its competitors, thus allowing the Company to meet
its customers' needs through the most economic processes.

PATENTS AND LICENSES

    The Company presently owns, controls or holds right to approximately 21
patents. The Company believes that its patents, particularly its patents related
to the SKIP, OXO-D and diisobutylene production processes, are important to its
business and provide the Company with certain competitive advantages.
Accordingly, the Company actively protects existing production process
technologies.

                                       4
<PAGE>
    The Company has available for license certain of its patented technologies,
including the SKIP and OXO-D processes, to third parties. In addition, the
Company licenses certain technologies, including the process by which it
extracts butadiene from crude butadiene, from third parties.

ENVIRONMENTAL REGULATION

    The Company's policy is to be in compliance with all applicable
environmental laws. The Company is also committed to Responsible Care(R), a
chemical industry initiative to enhance the industry's responsible management of
chemicals. The Company's operations are subject to federal, state, and local
laws and regulations administered by the EPA, the U.S. Coast Guard, the Army
Corps of Engineers, the TNRCC, the Texas General Land Office, the Texas
Department of Health and various local regulatory agencies. The Company holds
all required permits and registrations necessary to comply substantially with
all applicable environmental laws and regulations, including permits and
registrations for wastewater discharges, solid and hazardous waste disposal and
air emissions, and management believes that the Company is in substantial
compliance with all such laws and regulations. While management does not expect
that compliance with existing environmental laws will have a material adverse
effect on the Company's financial condition or results of operations, there can
be no assurance that future legislation, regulation or judicial or
administrative decisions will not have such an effect.

     Under federal and state environmental laws, companies may be liable for
remediation of contamination at on-site and off-site waste management and
disposal areas. Management believes that the Company is not likely to be
required to incur remediation costs related to its management, transportation
and disposal of solid and hazardous materials and wastes, or to its pipeline
operations. If the Company were to be required to incur such costs, however,
management believes that such costs would not have a material adverse effect on
the Company's results of operations. In addition, under the terms of the 1984
purchase agreement, the prior owner of the Houston facility, Petro-Tex, has
indemnified the Company for liability arising from off-site disposal of any
materials prior to June 1984. Notwithstanding the terms of the indemnity, in
July 1994 Petro-Tex filed a claim for indemnity against the Company for any
costs that may be attributable to Petro-Tex for the cleanup of the Malone
Service Company ("Malone") site in Texas City, Texas. Petro-Tex and many other
companies along the Gulf Coast allegedly sent wastes to the Malone site for
disposal in the 1970s and possibly the early 1980s. Malone has been subject to
several state enforcement actions regarding its waste disposal practices, and
TNRCC has revoked Malone's permits to operate its facilities. It is not known
whether the site will require remediation or at what cost. The Company believes
that it has meritorious defenses to Petro-Tex's claim and intends to contest the
claim vigorously. Although no on-site contamination has been identified as
requiring remediation, management believes that certain areas of the Houston
facility were historically used for waste disposal. Based on limited, currently
available information about these waste disposal areas and their contents, the
Company believes that, if such remediation becomes necessary, any remediation
costs would not have a material adverse effect on the Company's financial
condition or results of operations. The Petro-Tex indemnity does not extend to
these on-site waste disposal areas or their contents.

     The day-to-day operations of the Company are subject to extensive
regulation under the Resource Conservation and Recovery Act, the Federal Clean
Water Act, the CAAA and similar requirements of state law. In particular, under
the CAAA, the EPA and TNRCC have promulgated, or are required to promulgate,
numerous regulations, which affect or will affect the operations of the Company.
The most significant of these are the so-called Hazardous Organics National
Emission Standard for Hazardous Air Pollutants or HON Rule, the requirements of
Title V of the CAAA and rules relating to the controls of oxides of nitrogen,
which are known as the Nitrogen Oxides Reasonably Available Control Technology
rules ("NOx RACT Rules").

                                       5
<PAGE>
     The HON Rule requires additional controls on emissions of certain listed
hazardous air pollutants ("HAPs"). Butadiene, methanol, dimethyl formamide and
MTBE, which are manufactured, used and/or processed by the Company, have been
identified as HAPs for purposes of regulation under the CAAA. Areas of concern
in the Company's operations for HAPs emissions include equipment leaks, process
vents, product storage, transfer operations and emissions from wastewater
streams. The Company has examined each of these areas and believes that it is in
substantial compliance with HON Rule.

    The NOx RACT Rules require compliance by May 1999. The Company has examined
the rules and believes that the main expenditure required to achieve compliance
will involve purchase and installation of monitoring equipment for NOx
emissions, which can be either continuous emission monitors, predictive emission
monitors or other approved monitoring methods. Based on its preliminary study,
management estimates that the cost to comply with the NOx RACT Rules will be $2
million over the next three years.

    The Company's Houston facility is located in Harris County, Texas, which has
been designated as a non-attainment area for ozone under the CAAA. Accordingly,
the State of Texas has developed a State Implementation Plan ("SIP") which
requires reductions in emissions of ozone precursors, including volatile organic
compounds and NOx, as well as carbon monoxide in Harris County. To comply with
the SIP, the Company installed new controls at a cost of approximately $7.8
million. The Company anticipates that, at some time in the future, the State of
Texas may promulgate rules, which will require the Company to modify existing
controls or to install additional controls for fugitive air emissions. The
Company estimates that, if these rules are promulgated, it will incur costs of
between $1 million and $2 million in order to modify or install such controls
over a five or six year period.

    The EPA has recently finalized more stringent standards for ozone and
particulate matter. Moreover, the Texas Legislature recently passed legislation
directing TNRCC to develop a plan to address the permitting of so-called
"grandfathered" emissions sources, which are unpermitted sources constructed
prior to promulgation of permitting regulations. Because implementing
regulations for these standards have not yet been proposed, the Company cannot
predict whether their impact on the Company's operations will be material.

     Title III of the CAAA requires prevention of accidental releases of certain
listed extremely hazardous substances. The EPA's rules implementing portions of
Title III, promulgated on June 20, 1996, will require the Company to conduct a
hazards assessment and develop a risk management plan by June 1999 for each
extremely hazardous substance that the facility manufactures, uses, generates or
processes.

     The regulations under Title V of the CAAA, which will require a
facility-wide inventory of emissions sources at the Houston facility and a
single operating permit for the facility's air emissions, have not been
promulgated. Based on a preliminary review of the draft requirements, however,
the Company believes that it will have to undertake substantial efforts to
conduct an emissions source inventory. It may also be required to upgrade its
on-going monitoring program once it has received its operating permit; however,
the Company does not expect any costs associated therewith to be significant. It
is also possible that the Company may be required to make modifications to some
of its equipment in order to comply with the terms of the facility-wide permit.

                                       6
<PAGE>
     The Company has an active program to manage asbestos-containing material at
its Houston facility in accordance with federal and state environmental, health
and safety regulations. The Company does not believe that these materials pose a
hazard to the health of its employees. There is no requirement to remove these
materials, provided they are properly managed. As the plant is reconfigured or
additions are made, asbestos-containing materials are removed or encapsulated by
a certified contractor.

    The wastewater treatment system for the Houston facility is 75% owned by the
Company and 25% owned by Bayer Corporation ("Bayer"), the owner of an adjacent
facility. Bayer operates the treatment system, but the federal and state
discharge permits are held jointly by the Company and Bayer. The Company
believes that the system has sufficient capacity for the Company's projected
needs.

    In February 1996, the EPA issued an order to the Company and Bayer requiring
the companies to resolve the exceedances of their discharge permit limits for
copper and total suspended solids that had occurred since 1992. The Company
believes that these issues have been resolved by raising the limits in the new
discharge permit and by other corrective actions. No penalties were assessed.

    To meet rules expected to be promulgated concerning stormwater runoff, the
Company has budgeted to spend approximately $500,000 by 2000 for additional
stormwater control and collection. The Company has also budgeted $600,000
through fiscal 1999 to purchase noise barriers for certain equipment.

    The terminals in Baytown and Lake Charles are in substantial compliance with
applicable environmental laws and regulations, and management believes that no
significant expenditures will be required at these facilities to allow them to
continue to comply with such laws and regulations.

    MTBE and butadiene are the subject of continuing health effects studies.
While there have been some questions about the health effects of MTBE, a
multi-agency review, released June 30, 1997 by the White House's Office of
Science and Technology Policy (OSTP), concluded that health studies have shown
that "persons are not at increased risk of experiencing acute health effects due
to the use of fuels blended with oxygenates like MTBE." In addition, a February,
1996 study by the Centers for Disease Control and Prevention, reported that
adding oxygenates, including MTBE, to gasoline reduces emissions of carbon
monoxide and benzene and is unlikely to increase substantially the health risks
associated with fuel used in motor vehicles. While the EPA, California and other
states are expected to adopt limits for MTBE levels in drinking water, these
limits are not expected to be overly restrictive since that same OSTP report
concluded that drinking water is "not a major route of exposure" for MTBE. The
EPA has also determined that butadiene is a probable human carcinogen.
Effective, February 1997, the Occupational Safety and Health Administration
lowered the employee permissible exposure limit ("PEL") over an 8-hour
time-weighted average for butadiene from 1000 parts per million ("ppm") to 1
ppm. The Company has conducted employee exposure monitoring and believes that it
already meets the PEL at most of its operations. For some operations, the
Company anticipates that affected employees will need to use respirators and
that additional emissions controls may be necessary. The Company does not expect
that the current health concerns regarding MTBE or butadiene will have a
material adverse effect on the Company's financial condition or results of
operations, although no assurances can be given that future studies will not
result in more stringent regulation of MTBE and butadiene.

                                       7
<PAGE>
EMPLOYEES

     As of June 30, 1997, the Company had approximately 319 full-time employees,
all of whom were salaried employees. In addition, the Company contracts with a
third party to provide approximately 145 contract employees to perform routine
maintenance on and around its Houston facility. The Company believes its
relationship with its employees is satisfactory.

SAFETY RECORD

    The Company maintains one of the best workman's compensation records in
Texas, equivalent to most clerical operations. Over the last seven years, the
Company has experienced only three lost time injuries. The Company believes this
record is accomplished through extensive classroom and on-the-job training as
well as the efforts of its highly trained, 67-member volunteer emergency
response team.

ITEM 2.  PROPERTIES

     The Company's plant is located on a 257-acre tract approximately one mile
from the Houston Ship Channel and near one of the chemical industry's largest
domestic processing facilities. Approximately 230 acres is owned by the Company,
and 25% of the remaining 27 acres is owned by Bayer. The Company leases from the
Port of Houston two ship docks, which accommodate barge and ocean-going vessels,
and has the facilities to be served by rail and by truck. In addition, the
facility is connected by pipeline to customers and suppliers of raw materials,
directly and through other major pipelines in the immediate area as well as in
Texas City, and with salt dome storage facilities of other companies located at
both Mont Belvieu and Pierce Junction, Texas. The Company's facility also has a
laboratory for sampling and testing. The Company owns and operates a storage and
terminal facility at Baytown, Texas, leases storage and terminal facilities in
Lake Charles, Louisiana and Linden, New Jersey, and leases tank storage capacity
in Bayonne, New Jersey. The Company also leases office space in Three Riverway
Plaza, Houston, Texas as its principal executive offices. The Company believes
that is has adequate facilities for the conduct of its current and planned
operations. 

ITEM 3. LEGAL PROCEEDINGS

     In addition to the matters disclosed under "Environmental Regulation," the
Company is a party to various claims and litigation arising in the ordinary
course of its business. Management recognizes the uncertainties of litigation
and the possibility that one or more adverse rulings could materially impact
operating results. However, although no assurances can be given, management
believes that other than as disclosed, based on the nature of and its
understanding of the facts and circumstances which give rise to such claims and
litigation, and after considering appropriate reserves that have been
established, that the ultimate resolution of such issues, individually and in
the aggregate, will not have a material adverse effect on the Company's
financial position or results of operation.

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

   There were no matters submitted to a vote of the Company's security holders
during the fourth quarter of the fiscal year ended June 30, 1997.

                                       8
<PAGE>
                                  PART II

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

   Not applicable


ITEM 6.  SELECTED FINANCIAL DATA

   The selected financial data for the Company set forth below for the year
ended June 30, 1997, the one month period ended June 30, 1996, the twelve months
ended May 31, 1996 and the three years ended May 31, 1995 should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements.
<TABLE>
<CAPTION>
                                                         PREDECESSOR                       COMPANY
                                      -------------------------------------------------    -------
                                                                     TWELVE        ONE
                                                                     MONTHS       MONTH     YEAR
                                                                      ENDED       ENDED     ENDED
                                            YEAR ENDED MAY 31,        MAY 31,    JUNE 30,  JUNE 30,
                                      -----------------------------   -------    -------   -------
                                         1993      1994      1995       1996       1996     1997
                                      ---------  --------  --------   --------   -------   -------
                                               (IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S>                                   <C>        <C>       <C>        <C>        <C>       <C>    
STATEMENT OF OPERATIONS DATA:
Revenues ..........................   $   410.7  $  352.4  $  474.7   $  455.6   $  41.4   $ 490.2
                                                                                           
Income from operations ............        42.9      53.3      47.5       42.0       2.4      18.3
                                                                                           
Interest expense (income) .........         0.6       0.2      (0.7)       1.6       0.1      35.2
                                                                                           
Net income (loss)1 ................        28.1      33.9      32.5       16.7       1.2     (12.7)
                                                                                           
Loss per common share                                                                      
   Before extraordinary loss ......      --        --        --         --        --       $ (2.71)
   Extraordinary loss .............      --        --        --         --        --          (.35)
                                                                                           -------
                                                                                           $ (3.06)
                                                                                           ======= 
BALANCE SHEET DATA (AT PERIOD END):                                                        
                                                                                           
Total assets ......................   $   194.1  $  214.6  $  230.7              $ 167.9   $ 521.1
                                                                                           
Long-term debt ....................        10.9      11.0    --                     13.0     317.7
</TABLE>
--------
1   Net income (loss) for the twelve months ended May 31, 1996 includes a
    non-recurring charge for the impairment of investment in land of $12.6
    million, with an associated income tax benefit of $4.7 million. Net loss for
    the year ended June 30, 1997 includes an extraordinary loss of $1.5 million
    for early extinguishment of debt.

                                       9
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

OVERVIEW

    The Company's revenues are derived primarily from merchant market sales of
butadiene, MTBE, n-butylenes (butene-1 and butene-2) and specialty isobutylenes
(isobutylene concentrate, high purity isobutylene, and diisobutylene). The
Company's results of operations are affected by a number of factors, including
variations in market demand, production volumes, and the pricing of its products
and primary raw materials. The Company believes that the pricing for its
principal products is primarily dependent on the balance between the global
supply and North American demand for each product, the cost structure of the
various global producers (including their cost of raw materials), and from time
to time, other external factors, such as the implementation of the Clean Air Act
Amendments of 1990, which has significantly increased the demand for MTBE.
Historically, the Company has successfully mitigated the cyclicality of the
markets for certain of its end products by entering into contracts with pricing
which allows for a fixed profit by linking prices directly or indirectly to raw
material costs. In addition, the Company has attempted to optimize the use of
isobutylene, an intermediate feedstock produced by the Company, to produce MTBE
or higher margin specialty products depending on prevailing market conditions.

REVENUES

    The Company's revenues are a function of the volume of products sold by the
Company and the prices for such products. The following tables set forth the
Company's historical revenues and the percentages of historical revenues by
product and volume of products sold.

REVENUES
<TABLE>
<CAPTION>
                                         PREDECESSOR                       COMPANY
                         ---------------------------------------------  -------------
                                        TWELVE MONTHS     ONE MONTH
                           YEAR ENDED       ENDED            ENDED       YEAR ENDED
                         MAY 31, 1995    MAY 31, 1996    JUNE 30, 1996  JUNE 30, 1997
                         ------------    ------------    -------------  -------------
                                          (DOLLARS IN MILLIONS)
<S>                      <C>       <C>   <C>       <C>   <C>      <C>   <C>       <C>
Butadiene ............   $  106.2  22%   $  112.6  25%   $  10.2  25%   $  130.9  27%
MTBE .................      199.1  42       187.4  41       21.0  50       230.3  47
n-Butylenes ..........       42.7   9        48.2  11        3.2   8        49.4  10
Specialty Isobutylenes       75.5  16        74.5  16        5.5  13        62.3  13
Other(1) .............       51.2  11        32.9   7        1.5   4        17.3   3
                         -------- ---    -------- ---    ------- ---    -------- ---
Total ................   $  474.7 100%   $  455.6 100%   $  41.4 100%   $  490.2 100%
                         ======== ===    ======== ===    ======= ===    ======== === 
</TABLE>
---------------
(1) Includes Clarkston's trading revenues from third parties (periods prior to
    July 1, 1996 only), utility revenues and revenues realized from the
    Company's terminalling facilities.

                                       10
<PAGE>
SALES VOLUMES
<TABLE>
<CAPTION>
                                       PREDECESSOR                     COMPANY
                          -----------------------------------------  -------------
                                       TWELVE MONTHS    ONE MONTH
                           YEAR ENDED      ENDED          ENDED       YEAR ENDED
                          MAY 31, 1995  MAY 31, 1996  JUNE 30, 1996  JUNE 30, 1997
                          ------------  ------------  -------------  -------------
                                  (MILLIONS OF POUNDS, EXCEPT WHERE NOTED)
<S>                          <C>           <C>             <C>          <C>  
Butadiene                    580.8         622.6           64.6         750.3
MTBE(1)                      211.1         219.8           26.6         274.1
n-Butylenes                  245.9         284.6           17.1         266.4
Specialty Isobutylenes       398.0         368.2           23.0         275.7
</TABLE>
----------                                                         
(1) Volumes in millions of gallons.

RESULTS OF OPERATIONS

    The following table sets forth an overview of the Company's results of
operations.
<TABLE>
<CAPTION>
                                                        PREDECESSOR                        COMPANY
                                      -----------------------------------------------   -------------
                                                       TWELVE MONTHS      ONE MONTH
                                        YEAR ENDED         ENDED            ENDED        YEAR ENDED
                                      MAY 31, 1995     MAY 31, 1996     JUNE 30, 1996   JUNE 30, 1997
                                      ------------     ------------     -------------   -------------
                                                             (DOLLARS IN MILLIONS)
<S>                                   <C>       <C>    <C>       <C>    <C>      <C>    <C>       <C> 
Revenues ..........................   $  474.7  100%   $  455.6  100%   $  41.4  100%   $  490.2  100%
Cost of goods sold ................      396.3   84       379.5   84       36.0   87       433.7   88
Depreciation and amortization .....       14.3    3        15.0    3        1.3    3        29.8    6
                                      --------  ---    --------  ---    -------  ---    --------  ---
    Gross profit ..................       64.1   13        61.1   13        4.1   10        26.7    6
Selling, general and administrative       16.6    3        19.1    4        1.7    4         8.4    2
                                      --------  ---    --------  ---    -------  ---    --------  ---
    Income from operations ........   $   47.5   10%   $   42.0    9%   $   2.4    6%   $   18.3    4%
                                      ========  ===    ========  ===    =======  ===    ========  ===
</TABLE>
YEAR ENDED JUNE 30, 1997 COMPARED TO THE TWELVE MONTHS ENDED MAY 31, 1996

 REVENUES

    The Company's revenues increased by approximately 8%, or $34.6 million, to
$490.2 million for the year ended June 30, 1997 from $455.6 for the twelve
months ended May 31, 1996. The increase was primarily attributable to increased
sales volumes of MTBE and butadiene, partially offset by decreases in sales
volumes of specialty isobutylenes.

    Butadiene revenues increased by approximately 16%, or $18.3 million, to
$130.9 for the year ended June 30, 1997 from $112.6 million for the twelve
months ended May 31, 1996. The increase was attributable to an increase in sales
volumes of approximately 21%, or 127.7 million pounds, as a result of increased
production levels due to the availability of crude butadiene, processing
efficiencies and strong customer demand. The volume increase was partially
offset by a decline in butadiene sales prices. Prices declined slightly in the
current year as a result of the build up of U.S. tire inventory to record levels
in the prior year.

    MTBE revenues increased by approximately 23%, or $42.9 million, to $230.3
million for the year ended June 30, 1997 from $187.4 million for the twelve
months ended May 31, 1996. With the 

                                       11
<PAGE>
decrease in demand for isobutylene concentrate for the first half of the fiscal
year, the Company shifted its isobutylene production, an intermediate feedstock,
to the production of MTBE. Demand for MTBE in the market remained strong, thus
the Company was able to supply increased volumes to its customers.

    n-Butylenes revenues increased by approximately 2%, or $1.2 million, to
$49.4 million for the year ended June 30, 1997 from $48.2 million for the twelve
months ended May 31, 1996. Sales volumes and prices of butene-1 increased
compared to the prior. The increases were the result of strong demand from
polyethylene producers and successful marketing efforts by the Company. Sales
volumes of butene-2 decreased in the current year as a result of existing market
conditions, which allowed alternative feedstocks to enter the market.

    Specialty isobutylene revenues decreased by approximately 16%, or 12.2
million, to $62.3 million for the year ended June 30, 1997 from $74.5 million
for the twelve months ended May 31, 1996. The decrease was primarily
attributable to lower sales volumes of isobutylene concentrate. Product demand
was adversely affected in the first half of the year by high isobutane prices.
Significant improvements isobutane pricing and demand was noted in the latter
half of the year. Sales revenues for high purity isobutylene and diisobutylene
decreased in the current year as a result of lower sales prices and slightly
lower sales volumes caused by market competition.

    Other revenues decreased by approximately 47%, or $15.6 million, to $17.3
million for the year ended June 30, 1997 from $32.9 million for the twelve
months ended May 31, 1996. The decrease in revenues is due to the elimination of
a former affiliate's trading revenues from third parties. The affiliate was
dissolved in June 1996 as part of the Acquisition.

 GROSS PROFIT

    Gross profit decreased by approximately 56%, or $34.4 million, to $26.7 for
the year ended June 30, 1997 from $61.1 million for the twelve months ended May
31, 1996. Gross margin during the period decreased to 5.4% from 13.4%. The
decrease was primarily attributable to lower margins on MTBE and specialty
isobutylene sales. MTBE margins were adversely affected by high feedstock costs.
Average isobutane and methanol prices are approximately 13% and 25% higher,
respectively, than in prior year. In December 1996, as a result of the decline
in MTBE margins, the Company shut down its Dehydro-1 unit for 52 days which has
a production capacity of approximately 9,000 barrels per day of isobutylene.
Additionally, during October 1996, the Company temporarily shut down Dehydro-1
for 21 days as a result of a scheduled turnaround in order to install a new
waste heat boiler. Higher natural gas prices also contributed to a lower gross
profit during the current year. Gross profits from sales of butadiene and
butene-1 increased over the prior year and were used to partially offset the
above decrease. Gross profit was also negatively impacted by increased
depreciation and amortization expense during the current period as a result of
the increased basis in fixed assets and goodwill from the Acquisition.

 INCOME FROM OPERATIONS

    Income from operations decreased by approximately 56%, or $23.7 million, to
$18.3 million for the year ended June 30, 1997 from $42.0 million for the twelve
months ended May 31, 1996. Operating margin during the period decreased to 3.7%
from 9.2%. This decrease in income from operations and operating margin was
primarily due to the same factors contributing to the decrease in gross profit
and gross margin described above. The decrease was partially offset by a
decrease in selling, general and administrative costs as a result of cost
savings subsequent to the Acquisition.

                                       12
<PAGE>
  INTEREST EXPENSE

    Interest expense increased by approximately $33.6 million, to $35.2 million
for the year ended June 30, 1997 from $1.6 million for the twelve months ended
May 31, 1996. The increase in interest expense was associated with long-term
debt incurred by the Company as a result of the Acquisition.

ONE MONTH ENDED JUNE 30, 1996 COMPARED TO ONE MONTH ENDED JUNE 30, 1995

  REVENUES

    The Company's revenues increased by approximately 14%, or $5.2 million, to
$41.4 million for the one month ended June 30, 1996 from $36.2 million for the
one month ended June 30, 1995. This increase was attributable to increased
volumes for butadiene and MTBE. Volumes for n-butylenes and specialty
isobutylenes were down compared to the prior period. Prices for butadiene were
up slightly and MTBE prices were down. Other product prices remained constant
with the prior period.

  GROSS PROFIT

    Gross profit decreased by approximately 27%, or $1.5 million, to $4.1
million for the one month ended June 30, 1996 from $5.6 million for the one
month ended June 30, 1995. Gross margin during this period decreased slightly to
9.9% from 15.4%. The decline in gross profit was primarily attributable to the
decreased sales price of MTBE. INCOME FROM OPERATIONS Income from operations
decreased by approximately 27%, or $0.9 million, to $2.4 million for the one
month ended June 30, 1996 from $3.3 million for the one month ended June 30,
1995. Operating margin during this period declined to 5.9% from 9.2%. This
decrease in income from operations and operating margin was primarily due to the
same factors contributing to the decrease in gross profit and gross margin
described above.

TWELVE MONTHS ENDED MAY 31, 1996 COMPARED TO YEAR ENDED MAY 31, 1995

  REVENUES

     The Company's revenues decreased by approximately 4%, or $19.1 million, to
$455.6 million for the twelve months ended May 31, 1996 from $474.7 million for
the year ended May 31, 1995. This decrease was primarily attributable to
decreased selling prices for butadiene, MTBE and n-butylenes, as well as
decreased sales volumes for specialty isobutylenes and a decrease in other
revenues, partially offset by increased selling prices of specialty isobutylenes
as well as increased sales volumes of butadiene, MTBE and n-butylenes.

     Butadiene revenues increased by approximately 6%, or $6.4 million, to
$112.6 million for the twelve months ended May 31, 1996 from $106.2 million for
the year ended May 31, 1995. This increase was primarily attributable to an
increase in sales volumes of approximately 7%, or 41.8 million pounds, as a
result of increased contractual volumes sold at then current prices to a major
customer as the Company gained a larger share of this customer's business and as
this customer increased its requirements. In addition, sales prices decreased
slightly due to customers drawing down inventory thereby decreasing overall
product demand.

                                       13
<PAGE>
     MTBE revenues decreased by approximately 6%, or $11.7 million, to $187.4
million for the twelve months ended May 31, 1996 from $199.1 million for the
year ended May 31, 1995. This decrease was primarily attributable to a decrease
in selling prices due to the expiration of significant sales contracts in which
pricing was based on a fixed profit above cost, in accordance with industry
trends. In addition, sales volumes increased by approximately 4%, or 8.7 million
gallons, due to the full year implementation of mandated oxygenate requirements.

     n-Butylenes revenues increased by approximately 13%, or $5.5 million, to
$48.2 million for the twelve months ended May 31, 1996 from $42.7 million for
the year ended May 31, 1995. This increase was attributable to increased sales
volumes of approximately 16%, or 38.7 million pounds, as the Company expanded
its customer base and increased its contractual volumes to a significant
existing customer. A decrease in average selling prices resulted from the
Company matching competitors' pricing for certain products, which partially
offset the increase in sales volumes.

     Specialty isobutylenes revenues decreased by approximately 1%, or $1.0
million, to $74.5 million for the twelve months ended May 31, 1996 from $75.5
million for the year ended May 31, 1995. This decrease was the result of a major
specialty isobutylene customer increasing purchases of a low price specialty
isobutylene product from a competing supplier offering an alternate, lower
purity product during this period. The Company offset a portion of these lower
volumes by sales of higher priced specialty isobutylene products to other
customers at prices which were lower than prevailing contract prices.

     Other revenues decreased by approximately 36%, or $18.3 million, to $32.9
million for the twelve months ended May 31, 1996, from $51.2 million for the
year ended May 31, 1995. This decrease was primarily due to a $17.5 million
decrease in sales from the Affiliate to third parties due to reduced n-butane
and isobutane trading activity.

 GROSS PROFIT

     Gross profit decreased by approximately 5%, or $3 million, to $61.1 million
for the twelve months ended May 31, 1996 from $64.1 million for the year ended
May 31, 1995. Gross margin during this period decreased slightly to 13.4% from
13.5%. The decline in gross profit was primarily attributable to a one-time 10%
salary increase for employees whose salaries are included in cost of goods sold,
and to an additional $3 million increase in cost of goods sold resulting from a
scheduled maintenance shutdown on one of the Company's dehydrogenation units and
the write-off of capitalized dehydrogenation catalyst costs, which resulted from
an unscheduled shutdown. In addition, depreciation and amortization increased
slightly related to new capital investments. These cost increases were partially
offset by a decrease in raw material methanol costs and a decrease in costs
associated with the Affiliate's third party trading activities during this
period.

 INCOME FROM OPERATIONS

     Income from operations decreased by approximately 12%, or $5.5 million, to
$42.0 million for the twelve months ended May 31, 1996 from $47.5 million for
the year ended May 31, 1995. Operating margin during this period declined to
9.2% from 10.0%. This decrease in income from operations and operating margin
was primarily due to the same factors contributing to the declines in gross
profit and gross margin described above, as well as a $2.5 million increase in
selling, general and administrative expenses primarily attributable to legal and
other expenses related to certain repurchases of the Predecessor's stock.

                                       14
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES

  CASH FLOWS

YEAR ENDED JUNE 30, 1997 COMPARED TO THE TWELVE MONTHS ENDED MAY 31, 1996

    Net cash provided by (used in) operating activities was $(1.8) million for
the year ended June 30, 1997 compared to $44.5 million for the twelve months
ended May 31, 1996. The change of $46.3 million was primarily attributable to
the decrease in overall profitability and changes in working capital. Net cash
provided by (used in) investing activities was $(352.3) million for the year
ended June 30, 1997 compared to $8.2 million for the twelve months ended May 31,
1996. The change of $360.5 million was primarily attributable to the Acquisition
of the Company on July 1, 1996, partially offset by proceeds from the sale of
non-plant assets and Predecessor assets and investments. Net cash provided by
(used in) financing activities was $354.2 million for the year ended June 30,
1997 compared to $(69.0) million for the twelve months ended May 31, 1996. The
change of $423.2 million was primarily attributable to the issuance of long-term
debt and an investment from the Parent, in order to finance the Acquisition.

ONE MONTH ENDED JUNE 30, 1996 COMPARED TO ONE MONTH ENDED JUNE 30, 1995

     Net cash provided by operating activities was $13.9 million for the one
month ended June 30, 1996 compared to $1.9 million for the one month ended June
30, 1995. This increase of $12.0 million was primarily attributable to changes
in working capital, partially offset by a decrease in net income. Net cash used
in investing activities was $1.3 million for the one month ended June 30, 1996
compared to net cash provided by investing activities of $5.9 million for the
one month ended June 30, 1995. This change of $7.2 million was due to an
increase in capital expenditures and a decrease in proceeds from sales of
investment securities. Net cash used in financing activities was $9.4 million
for the one month ended June 30, 1996 compared to $4.5 million for the one month
ended June 30, 1995. This increase of $4.9 million was primarily due to a
decrease in bank overdrafts partially offset by an increase in borrowings under
revolving credit lines, a decrease in payments of notes payable and a decrease
in dividends paid.

TWELVE MONTHS ENDED MAY 31, 1996 COMPARED TO YEAR ENDED MAY 31, 1995

     Net cash provided by operating activities was $44.5 million for the twelve
months ended May 31, 1996 compared to $50.3 million for the year ended May 31,
1995. This decrease of $5.8 million was primarily attributable to a decrease in
net income adjusted for non-cash items and a decrease in changes in working
capital. Net cash provided by investing activities was $8.2 million for the
twelve months ended May 31, 1996 compared to net cash used in investing
activities of $25.9 million for the year ended May 31, 1995. This change of
$34.1 million was due to decreases in capital expenditures, an increase in
proceeds from the sales of investment securities and a decrease in purchases of
investment securities. Net cash used in financing activities was $69.0 million
for the twelve months ended May 31, 1996 compared to $23.3 million for the year
ended May 31, 1995. This increase of $45.7 million was primarily due to the
purchase by the Company of common stock for a total consideration of $95.4
million in August 1995 and an increase in dividends and distributions paid,
partially offset by the sale by the Company of common stock to certain officers
of the Company for $22.6 million and decreased repayments under revolving credit
lines.

                                       15
<PAGE>
  LIQUIDITY

    On July 1, 1996 the Company issued $175 million of 11 1/8% Senior
Subordinated Notes due 2006 and borrowed $140 million under a Bank Credit
Agreement. The Company used the combined proceeds to finance the Acquisition of
the Company. The Company's liquidity needs arise primarily from principal and
interest payments under the Bank Credit Agreement and the Subordinated Notes.
The Company's primary source of funds to meet debt service requirements is net
cash flow provided by operating activities. Operating cash flow is significantly
impacted by raw materials cost as well as the selling price and volume variances
of finished goods. The Company enters into supply contracts for certain of its
products in order to mitigate the impact of changing prices. Additionally, the
Company has a $40 million Revolving Credit Facility, of which $12 million was in
use at June 30, 1997, to provide adequate funds for ongoing operations, working
capital and planned capital expenditures. The Company believes that the
availability of funds under the Revolving Credit Facility are sufficient to
cover any current liquidity needs which could arise as a result of negative
working capital. The Company's ability to borrow is limited by the terms of the
Bank Credit Agreement and the Subordinated Notes. The Bank Credit Agreement and
the Subordinated Notes include certain restrictive covenants, which include but
are not limited to, limitations on capital expenditures, indebtedness,
investments and sales of assets and subsidiary stock. Additionally, the Bank
Credit Agreement requires the Company to maintain certain financial ratios. On
July 31, 1997 the Company obtained an amendment to the Bank Credit Agreement to
waive the debt to EBITDA ratio at June 30, 1997 and to update the financial
ratios relating to fixed charge coverage and debt to EBITDA for fiscal 1998.

    On March 13, 1997 the Company closed on the sale of $50 million aggregate
principal of its 11 1/8% Senior Subordinated Notes Due 2006 in a Rule 144A
offering. The terms of the notes were identical, except as to the offering
price, to the terms of the Senior Subordinated Notes issued by the Company in
July 1996. The Company applied the net proceeds received from the offering to
reduce bank debt. The Company subsequently completed an exchange offer to
exchange the unregistered securities for identical securities, which have been
registered under the Securities Act.

  CASH BONUS PLAN

    In connection with the Acquisition, the Predecessor established a $35
million Cash Bonus Plan covering substantially all employees of the Predecessor
(or certain affiliates of the Predecessor) and covering certain third-party
contractors who have contributed to the past success of the Predecessor. In
August 1996, 10% of this amount was paid to eligible participants and the
remaining payments have been and will continue to be made in quarterly
installments.

  CAPITAL EXPENDITURES

    The Company's capital expenditures for fiscal 1997 related principally to
improving operating efficiencies and maintaining environmental compliance
(including the installation of an environmentally superior waste-heat boiler in
one of the Company's dehydrogenation units). Capital expenditures for year ended
June 30, 1997 were $7.6 million, compared to $5.5 million for the twelve months
ended May 31, 1996 and $8.7 million for the year ended May 31, 1995. The Company
expenses approximately $20 million annually for plant maintenance. These
maintenance costs are not treated as capital expenditures.

                                       16
<PAGE>
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

During 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128 "Earnings per Share," SFAS No.
129 "Disclosure of Information about Capital Structure," SFAS No. 130,
"Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." SFAS No. 128 is effective for
financial statements for both interim and annual periods ending after December
15, 1997. SFAS No. 129 is effective for periods ending after December 15, 1997.
SFAS No. 130 and SFAS 131 are effective for fiscal years beginning after
December 15, 1997. Adoption of these pronouncements is not expected to have a
material effect on the Company's financial position, results of operations or
cash flows.

DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS

Part I, Items 1 and 2 of this document include forward-looking statements within
the meaning of Section 21E of the Securities Exchange Act of 1934, as amended.
Although the Company believes that the expectations reflected in such forward
looking statements are based upon reasonable assumptions, it can give no
assurance that its expectations will be achieved. Important factors that could
cause actual results to differ materially from the Company's expectations are
disclosed in conjunction with the forward looking statements included herein
("Cautionary Disclosures"). Subsequent written or oral forward looking
statements attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by the Cautionary Disclosures.

                                       17
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                        PAGE

Reports of Independent Accountants                                       19

Financial Statements

    Consolidated Balance Sheet                                           21

    Consolidated Statement of Operations                                 22

    Consolidated Statement of Stockholders' Equity                       23

    Consolidated Statement of Cash Flows                                 24

    Notes to Consolidated Financial Statements                           25

                                       18
<PAGE>
                     REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
Texas Petrochemicals Corporation:

     We have audited the accompanying consolidated balance sheet of Texas
Petrochemicals Corporation as of June 30, 1997, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

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

     In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company at June 30, 1997, and the
results of its operations and its cash flows for the year then ended, in
conformity with generally accepted accounting principles.

                                                  DELOITTE & TOUCHE LLP
Houston, Texas
August 1, 1997

                                       19
<PAGE>
                     REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
Texas Petrochemicals Corporation:

     We have audited the accompanying combined balance sheet of Texas Olefins
Company, subsidiaries and affiliate (Predecessor to Texas Petrochemicals
Corporation) as of June 30, 1996, and the related combined statements of
operations, stockholders' equity, and cash flows for the one month period ended
June 30, 1996, the twelve month period ended May 31, 1996 and for the year ended
May 31, 1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

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

     In our opinion, the combined financial statements referred to above present
fairly, in all material respects the combined financial position of Texas
Olefins Company, subsidiaries and affiliate as of June 30, 1996, and the
combined results of their operations and their cash flows for the one month
period ended June 30, 1996, the twelve month period May 31, 1996 and for the
year ended May 31, 1995, in conformity with generally accepted accounting
principles.

     As discussed in Note 3 to the combined financial statements, effective June
1, 1994 and June 1, 1995, the Company changed its method of accounting for
investment securities and its method of accounting for impairment of long-lived
assets, respectively.

                                                  COOPERS & LYBRAND L.L.P.
Houston, Texas
August 16, 1996

                                       20
<PAGE>
             TEXAS PETROCHEMICALS CORPORATION (AND PREDECESSOR)

                         CONSOLIDATED BALANCE SHEET

               (IN THOUSAND OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
                                                                 COMPANY    PREDECESSOR
                                                                 -------    -----------
                                                                 JUNE 30,     JUNE 30,
                                                                   1997        1996
                                                                ---------    --------
<S>                                                             <C>          <C>     
               ASSETS
Current assets:
    Cash and cash equivalents ...............................   $     101    $  4,780
    Investment securities ...................................        --         6,794
    Accounts receivable - trade .............................      44,662      35,280
    Inventories .............................................      17,926      11,933
    Other current assets ....................................      19,683      11,753
                                                                ---------    --------
       Total current assets .................................      82,372      70,540

Property, plant and equipment, net ..........................     239,959      81,814
Investments in land held for sale ...........................       3,886       6,181
Investment in and advances to limited partnership ...........       2,969       2,824
Goodwill, net of accumulated amortization of $4,887 .........     179,598        --
Other assets, net ...........................................      12,325       6,523
                                                                ---------    --------
       Total assets .........................................   $ 521,109    $167,882
                                                                =========    ========
    LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:

    Bank overdraft ..........................................   $  10,157    $   --
    Accounts payable - trade ................................      29,942      40,131
    Accrued expenses ........................................      16,917       4,383
    Current portion of cash bonus plan liability ............       7,811        --
    Current portion of long-term debt .......................       6,438        --
    Dividends payable .......................................        --           677
                                                                ---------    --------
       Total current liabilities ............................      71,265      45,191

Revolving line of credit ....................................      12,000      13,000
Long-term debt ..............................................     299,236        --
Cash bonus plan liability ...................................      17,573        --
Deferred income taxes and other .............................      65,959      16,107
Minority interest in net assets of consolidated subsidiary ..        --         1,107

Commitments and contingencies (Note 10)

Stockholders' equity:

    Common stock, $1 par value, 4,162,000 shares authorized
      and outstanding .......................................       4,162        --
    Additional paid in capital ..............................      71,643        --
    Accumulated deficit .....................................     (12,729)       --
    Note receivable from ESOP ...............................      (8,000)       --
    Net equity of Predecessor ...............................        --        92,477
                                                                ---------    --------
       Total stockholders' equity ...........................      55,076      92,477
                                                                ---------    --------
         Total liabilities and stockholders' equity .........   $ 521,109    $167,882
                                                                =========    ========
</TABLE>
        See accompanying notes to consolidated financial statements.

                                       21
<PAGE>
              TEXAS PETROCHEMICALS CORPORATION (AND PREDECESSOR)

                     CONSOLIDATED STATEMENT OF OPERATIONS
                (IN THOUSAND OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
                                                COMPANY                PREDECESSOR
                                               ---------    ----------------------------------
                                                              ONE         TWELVE
                                                 YEAR        MONTH        MONTHS       YEAR
                                                 ENDED       ENDED        ENDED        ENDED
                                                JUNE 30,    JUNE 30,      MAY 31,      MAY 31,
                                                  1997        1996         1996         1995
                                               ---------    --------    ---------    ---------
<S>                                            <C>          <C>         <C>          <C>      
Revenues ...................................   $ 490,246    $ 41,384    $ 455,585    $ 474,677
Cost of goods sold .........................     433,685      35,992      379,468      396,360
Depreciation and amortization ..............      29,876       1,277       14,982       14,298
                                               ---------    --------    ---------    ---------
  Gross profit .............................      26,685       4,115       61,135       64,019

Selling, general and administrative expenses       8,414       1,683       19,070       16,571
                                               ---------    --------    ---------    ---------
      Income from operations ...............      18,271       2,432       42,065       47,448

Interest expense (income) ..................      35,157          76        1,630         (720)

Other income (expense)
  Gain (loss) on disposal of assets and
     investment securities, net ............        --          (280)      (3,099)       1,112
  Impairment of investment in land .........        --          --        (12,592)        --
  Other, net ...............................       2,271         (88)        (236)         (12)
                                               ---------    --------    ---------    ---------
                                                   2,271        (368)     (15,927)       1,100
                                               ---------    --------    ---------    ---------
      Income (loss) before income taxes,
       extraordinary loss and minority

       interest ............................     (14,615)      1,988       24,508       49,268

Provision (benefit) for income taxes .......      (3,342)        761        7,903       16,880
                                               ---------    --------    ---------    ---------
      Income (loss) before extraordinary
       loss and minority interest ..........     (11,273)      1,227       16,605       32,388

Extraordinary loss from early extinguishment
  of debt, net of tax benefit of $784 ......       1,456        --           --           --

Minority interest in net loss of
  consolidated subsidiary ..................        --             9          143          129
                                               ---------    --------    ---------    ---------
      Net income (loss) ....................   $ (12,729)   $  1,236    $  16,748    $  32,517
                                               =========    ========    =========    =========
Pro Forma net income to reflect
  income taxes for Affiliate (Note 7) ......                $   1,236    $ 15,098    $  30,448
                                                            =========    =========   =========
Loss per common share:
     Before extraordinary loss ....            $   (2.71)
     Extraordinary loss ...........                 (.35)
                                               ---------
                                               $   (3.06)
                                               ========= 
Weighted average shares outstanding             4,162,000
                                               ========= 
</TABLE>
         See accompanying notes to consolidated financial statements.

                                       22
<PAGE>
                     TEXAS PETROCHEMICALS CORPORATION (AND PREDECESSOR)
                       CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

                      (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                                                     
                                             ADDITIONAL     NOTE      CLASS A   CLASS B   AFFILIATE  
                                     COMMON   PAID IN    RECEIVABLE   COMMON    COMMON     COMMON    
                                     STOCK    CAPITAL    FROM ESOP     STOCK     STOCK      STOCK    
                                     ------  ----------  ----------   -------   -------   ---------  
<S>                                  <C>     <C>         <C>          <C>       <C>       <C>        
PREDECESSOR COMPANY:

Balance, May 31, 1994                  --          --          --     $   200   $ 5,028   $   1,000  
Net Income                             --          --          --        --        --          --    
Dividends                              --          --          --        --        --          --    
Sale of treasury stock                 --          --          --        --        --          --    
Cancellation of Class B Common         --          --          --        --          (7)       --    
Unrealized loss on investment
  investment securities                --          --          --        --        --          --    
                                     ------  ----------  ----------   -------   -------   ---------  
Balance, May 31, 1995                  --          --          --         200     5,021       1,000  
Net income                             --          --          --        --        --          --    
Redemption of Class A & B
  Common                               --          --          --        --        --          --    
Sale of treasury stock                 --          --          --        --        --          --    
Dividends                              --          --          --        --        --          --    
Net change in unrealized loss on
  investment securities                --          --          --        --        --          --    
Cancellation of Class B Common         --          --          --        --      (1,214)       --    
Cancellation of Class B Common         --          --          --        --          (7)       --    
Redemption and cancellation  of
   Affiliate common stock              --          --          --        --        --        (1,000) 
                                     ------  ----------  ----------   -------   -------   ---------  
Balance, May 31, 1996                  --          --          --         200     3,800        --    
Net income                             --          --          --        --        --          --    
Net change in unrealized loss on
    investment securities              --          --          --        --        --          --    
Liquidating dividend to
    affiliate shareholders             --          --          --        --        --          --    
                                     ------  ----------  ----------   -------   -------   ---------  
Balance, June 30, 1996                 --          --          --         200     3,800        --    

POST ACQUISITION:

Adjustments due to Acquisition       $4,162  $   71,643  $  (10,000)     (200)   (3,800)       --    
Net loss                               --          --          --        --        --          --    
Reduction in ESOP Note                 --          --         2,000      --        --          --    
                                     ------  ----------  ----------   -------   -------   ---------  
Balance, June 30, 1997               $4,162  $   71,643  $   (8,000)  $  --     $  --     $    --    
                                     ======  ==========  ==========   =======   =======   =========  
<CAPTION>
                                         RETAINED      UNREALIZED
                                         EARNINGS       LOSS ON
                                       (ACCUMULATED)   INVESTMENT   TREASURY
                                         (DEFICIT)     SECURITIES     STOCK      TOTAL
                                       -------------   ----------   --------   ---------
<S>                                    <C>             <C>          <C>        <C>      
PREDECESSOR COMPANY:

Balance, May 31, 1994                  $     135,367         --     $ (1,187)  $ 140,408
Net Income                                    32,517         --         --        32,517
Dividends                                     (6,253)        --         --        (6,253)
Sale of treasury stock                          --           --          251         251
Cancellation of Class B Common                  (461)        --          468        --
Unrealized loss on investment
  investment securities                         --     $   (3,651)      --        (3,651)
                                       -------------   ----------   --------   ---------
Balance, May 31, 1995                        161,170       (3,651)      (468)    163,272
Net income                                    16,749         --         --        16,749
Redemption of Class A & B
  Common                                        --           --      (95,440)    (95,440)
Sale of treasury stock                          --           --       22,600      22,600
Dividends                                    (16,526)        --         --       (16,526)
Net change in unrealized loss on
  investment securities                         --          3,007       --         3,007
Cancellation of Class B Common               (71,626)        --       72,840        --
Cancellation of Class B Common                  (461)        --          468        --
Redemption and cancellation  of
   Affiliate common stock                       --           --         --        (1,000)
                                       -------------   ----------   --------   ---------
Balance, May 31, 1996                         89,306         (644)      --        92,662
Net income                                     1,236         --         --         1,236
Net change in unrealized loss on
    investment securities                       --           (744)      --          (744)
Liquidating dividend to
    affiliate shareholders                      (677)        --         --          (677)
                                       -------------   ----------   --------   ---------
Balance, June 30, 1996                        89,865       (1,388)      --        92,477

POST ACQUISITION:

Adjustments due to Acquisition               (89,865)       1,388       --       (26,672)
Net loss                                     (12,729)        --         --       (12,729)
Reduction in ESOP Note                          --           --         --         2,000
                                       -------------   ----------   --------   ---------
Balance, June 30, 1997                 $     (12,729)  $     --     $   --     $  55,076
                                       =============   ==========   ========   =========
</TABLE>

                See accompanying notes to consolidated financial statements.

                                       23
<PAGE>
                    TEXAS PETROCHEMICALS CORPORATION (AND PREDECESSOR)
                          CONSOLIDATED STATEMENT OF CASH FLOWS

                               (IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
                                                        COMPANY                PREDECESSOR
                                                       ---------    --------------------------------
                                                                       ONE       TWELVE
                                                          YEAR        MONTH      MONTHS       YEAR
                                                          ENDED       ENDED       ENDED       ENDED
                                                         JUNE 30,    JUNE 30,    MAY 31,      MAY 31,
                                                          1997        1996        1996        1995
                                                       ---------    --------    --------    --------
<S>                                                    <C>          <C>         <C>         <C>     
Cash flows from operating activities:
   Net income (loss) ...............................   $ (12,729)   $  1,236    $ 16,748    $ 32,517
   Adjustments to reconcile net income (loss)
    to cash flow from operating activities:
   Extraordinary loss ..............................       1,456        --          --          --
   Impairment of investment in land ................        --          --        12,592        --
   Depreciation of fixed assets ....................      24,810       1,259      14,768      14,072
   Amortization of intangibles .....................       5,066          18         214         226
   Amortization of debt issue costs ................       1,435        --          --          --
   Deferred income taxes ...........................      (2,897)       (237)     (5,829)        818
   Earnings from limited partnership ...............        (670)        190         202        (260)
   Change in:
     Accounts receivable ...........................      (9,382)      7,723       1,593     (18,100)
     Inventories ...................................      (5,993)      3,069       2,230      12,954
     Other assets ..................................      (4,906)      1,424      (3,616)       (852)
     Accounts payable, accrueds and other ..........       2,051        (768)      5,597       8,927
                                                       ---------    --------    --------    --------
      Net cash provided by
       (used in) operating activities ..............      (1,759)     13,914      44,499      50,302

Cash flows from investing activities:
   Capital expenditures ............................      (7,634)     (1,997)     (5,462)     (8,680)
   Proceeds from asset sales .......................       4,754        --          --          --
   Acquisition of the Company, net of cash acquired     (366,277)       --          --          --
   Distribution received from partnership ..........         525        --          --          --
   Purchase of investment securities ...............        --          --       (19,138)    (33,998)
   Proceeds from sale of Predecessor assets ........      16,288         702      32,821      16,778
                                                       ---------    --------    --------    --------
      Net cash provided by (used in)
       investing activities ........................    (352,344)     (1,295)      8,221     (25,900)

Cash flows from financing activities:
   Bank overdraft ..................................      10,157     (12,382)     12,382        --
   Net borrowings revolving line of credit .........      (1,000)      3,000      10,000     (11,000)
   Proceeds from issuance of long-term debt ........     368,000        --          --         1,000
   Payments on long-term debt ......................     (62,219)       --        (1,022)     (4,697)
   Cash bonus plan payments ........................      (9,406)       --          --          --
   Debt issuance and organizational costs ..........     (15,839)       --          --          --
   Investment by Parent ............................      62,511        --          --          --
   Reduction in note receivable from ESOP ..........       2,000        --          --          --
   Dividends paid ..................................        --          --       (16,526)     (9,085)
   Predecessor common stock transactions ...........        --          --       (73,840)        451
                                                       ---------    --------    --------    --------
      Net cash provided by (used in)
       financing activities ........................     354,204      (9,382)    (69,006)    (23,331)
                                                       ---------    --------    --------    --------
Net increase (decrease) in cash and cash equivalents         101       3,237     (16,286)      1,071
Cash and cash equivalents, beginning ...............        --         1,543      17,829      16,758
                                                       ---------    --------    --------    --------
Cash and cash equivalents, ending ..................   $     101    $  4,780    $  1,543    $ 17,829
                                                       =========    ========    ========    ========
</TABLE>
              See accompanying notes to consolidated financial statements.

                                       24
<PAGE>
            TEXAS PETROCHEMICALS CORPORATION (AND PREDECESSOR)

                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  THE ACQUISITION

    On July 1, 1996, Texas Olefins Company ("TOC"), Texas Petrochemicals
Corporation and a raw material supply contract of Clarkston Corporation (the
"Affiliate") were acquired for approximately $371 million in a series of
transactions (the "Acquisition"). After the transactions, TOC was merged with
and into Texas Petrochemicals Corporation with Texas Petrochemicals Corporation
(the "Company") becoming a 100% owned subsidiary of Texas Petrochemicals
Holdings, Inc. (the "Parent"). In connection with the Acquisition, the Company
issued $175 million of Senior Subordinated Notes due 2006 (the "Subordinated
Notes") and borrowed $140 million under the Bank Credit Agreement. On the
closing date of the Acquisition, prior to closing, TOC sold to the previous
majority shareholder of TOC for $7.8 million in cash a ranch of approximately
1,900 acres and the livestock and personalty thereon and 80% of the outstanding
capital stock of The Texas Falls Corporation ("The Falls") owned by TOC. In June
1996, the Affiliate was dissolved and a $677,000 liquidating dividend was
declared to its shareholders.

    The sources and applications of funds required to consummate the Acquisition
are summarized below.

                                                       AMOUNT
                                                    (IN MILLIONS)
Sources of Funds:
   Bank Credit Agreement                                $ 140
   Subordinated Notes                                     175
   Investment by Parent                                    63
                                                        -----
       Total                                            $ 378
                                                        =====
Uses of Funds:
   Acquisition(1)                                       $ 363
   Fees and expenses(2)                                    15
                                                        -----
       Total                                            $ 378
                                                        =====
---------------
(1) Acquisition cost is net of cash received from the sale of the Texas Falls
    Corporation and the Ranch for combined proceeds of $7.8 million
(2) Represents underwriting fees, legal, accounting and other professional fees
    payable in connection with the financing of the Acquisition.

   The Acquisition was accounted for using the purchase method of accounting
and, therefore, the consolidated financial statements for the year ended June
30, 1997 reflect the acquisition cost allocated to the net assets acquired based
on their estimated fair values as of July 1, 1996. The fair value of tangible
assets acquired, net of liabilities assumed, was $179 million. The balance of
the acquisition cost, $184 million, was recorded as goodwill and is being
amortized over 40 years utilizing the straight-line method.

                                       25
<PAGE>
               TEXAS PETROCHEMICALS CORPORATION (AND PREDECESSOR)

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

    The following unaudited pro forma combined statement of income assumes the
Acquisition occurred on June 1, 1995. The pro forma combined statement of income
reflects several adjusting entries, including but not limited to, increased
depreciation and amortization as a result of the increased basis in fixed assets
and goodwill and increased interest expense from the incurrance of additional
debt. The results are not necessarily indicative of the results, which would
actually have occurred if the purchase had taken place at June 1, 1995. Amounts
are in millions, except share amounts.

                                                                   TWELVE
                                                                MONTHS ENDED
                                                                MAY 31, 1996
                                                                -------------
Revenues ....................................................   $       454.2
Cost of goods sold ..........................................           367.3
Depreciation and amortization ...............................            36.3
                                                                -------------
    Gross profit ............................................            50.6
Selling, general and administrative .........................            12.7
                                                                -------------
        Income from operations ..............................            37.9
Interest expense ............................................            31.9

Other expense:

    Loss on disposal of assets and investment securities, net            (3.1)
    Impairment of investment in land ........................           (12.6)
    Other, net ..............................................             0.1
                                                                -------------
                                                                        (15.6)
                                                                -------------
        Loss before income taxes ............................            (9.6)

Provision for income taxes ..................................            --

        Net loss ............................................   $        (9.6)
                                                                ============= 
        Loss per share ......................................   $       (2.30)
                                                                ============= 
        Weighted average shares outstanding .................       4,162,000
                                                                ============= 

2.  NATURE OF OPERATIONS

    The Company through its facility in Houston, Texas is the largest producer
of butadiene and butene-1, and the third largest producer of methyl
tertiary-butyl ether ("MTBE"), in North America, in terms of production
capacity. In addition, the Company is the sole producer of diisobutylene and
isobutylene concentrate in the United States and is the largest domestic
merchant supplier of high purity isobutylene to the chemical market. The
Company's products include: (i) butadiene, primarily used to produce synthetic
rubber; (ii) MTBE, used as an oxygenate and octane enhancer in gasoline; (iii)
n-butylenes (butene-1 and butene-2), used in the manufacture of plastic resins,
fuel additives and synthetic alcohols; and (iv) specialty isobutylenes,
primarily used in the production of specialty rubbers, lubricant additives,
detergents and coatings.

    The Company's principal feedstocks are crude butadiene, isobutane and
methanol. The Company purchases a significant portion of its crude butadiene
requirements at prices, which are adjusted based on the Company's selling price
of butadiene as well as the cost of natural gas used to produce butadiene,
thereby providing the Company with a fixed profit on such sales. Methanol and
isobutane are purchased at prices linked to prevailing market prices.

                                       26
<PAGE>
            TEXAS PETROCHEMICALS CORPORATION (AND PREDECESSOR)

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

3.  SIGNIFICANT ACCOUNTING POLICIES

  PRINCIPLES OF CONSOLIDATION

    The consolidated financial statements as of and for the year ended June 30,
1997 include the accounts of Texas Petrochemicals Corporation and its wholly
owned subsidiary, Texas Butylene Chemical Company, collectively referred to as
(the "Company"). The financial statements for the periods prior to July 1, 1996
include the combined presentation of the accounts of TOC, Texas Petrochemicals
Corporation, The Falls and the Affiliate, collectively referred to as (the
"Predecessor"). TOC was merged with and into Texas Petrochemicals Corporation in
conjunction with the Acquisition described in Note 1. The minority interest
reflected in the accompanying Predecessor financial statements reflects
approximately 20% of the common stock of The Falls not owned by the Company.

CHANGE IN FISCAL YEAR END

    In June 1996 the Company's Board of Directors approved a change in the
Company's fiscal year end to June 30 from May 31. Accordingly, the accompanying
combined financial statements include results of operations and cash flows for
the one month transition period.

CASH AND CASH EQUIVALENTS

    The Company considers all highly liquid investments with a maturity of three
months or less at the date of purchase to be cash equivalents.

INVESTMENT SECURITIES

    The Company accounts for investment securities in accordance with Statement
of Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities." Management has classified all investments as
available-for-sale. Cost is determined by specific identification. Purchases and
sales are reflected on a trade date basis. Investment securities are carried at
fair value with any unrealized gains or losses reported as a component of
stockholders' equity, net of tax.

INVENTORIES

    Inventories consist of raw materials, finished goods and chemicals used in
processing and are valued at the lower of average cost or market.

    The Company may enter into product exchange agreements with suppliers
whereby certain inventories are exchanged for raw materials. These exchanges are
recorded at the lower of cost or market. Any resulting gains or losses from the
utilization of these exchanges are reflected in cost of chemical products sold.
Balances related to quantities due to or payable by the Company are included in
inventory.

                                       27
<PAGE>
            TEXAS PETROCHEMICALS CORPORATION (AND PREDECESSOR)

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

 PROPERTY, PLANT AND EQUIPMENT

    Property, plant and equipment are recorded at cost. Turnaround costs and
other maintenance and repairs are charged to expense as incurred while
significant improvements are capitalized. Upon retirement or sale of an asset,
the asset and the related accumulated depreciation are removed from the accounts
and any resulting gain or loss is reflected in operations.

DEPRECIATION

    Depreciation of property, plant and equipment is computed using the
straight-line method over their estimated useful lives ranging from 3 to 31
years, with the plants being depreciated over 10 years.

DEBT ISSUE COSTS AND OTHER

    Debt issue costs relating to the Company's long-term debt are amortized to
interest expense over the scheduled maturity of debt utilizing the effective
interest method. Unamortized debt issue costs relating to long-term debt retired
prior to its scheduled maturity are charged off as an extraordinary item. Other
assets include patents and catalysts, which are amortized using the
straight-line method over their useful lives ranging from 2 to 7 years.

IMPAIRMENT OF ASSETS

    Prior to June 1, 1995, the Company recognized impairment of investments in
land and property, plant and equipment at the time when a decline in value of an
asset was determined to be permanent. Effective June 1, 1995, the Company
adopted SFAS No. 121, "Impairment of Long-Lived Assets and Assets to be Disposed
of." During the twelve months ended May 31, 1996, the Company evaluated the
carrying value of its investment in land in light of the possible sale of these
assets in the foreseeable future and considering the criteria of SFAS No. 121,
determined that an impairment write-down was necessary. As a result, the Company
recorded a provision for estimated impairment of $12.6 million, with an
associated tax benefit of $4.7 million, to write-down certain investments in
land to estimated fair market value. Actual sales proceeds from investments in
land may differ from the carrying amounts.

 REVENUE RECOGNITION

    The Company recognizes revenue from sales of refined products in the period
of delivery.

INCOME TAXES

    The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes," which requires that deferred taxes be provided at
enacted tax rates on temporary differences between the carrying amounts of
assets and liabilities for financial and tax reporting purposes.

                                       28
<PAGE>
               TEXAS PETROCHEMICALS CORPORATION (AND PREDECESSOR)

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

    The Affiliate of the Predecessor elected for federal tax purposes to be
taxed under provisions of Subchapter S of the Internal Revenue Code. This
election required the stockholders to include the Affiliate's net earnings,
losses and credits in their own income for tax purposes. Accordingly, the
Affiliate generally was not liable for federal income taxes and no provision for
federal income taxes is included in the accompanying financial statements. For
the periods prior to July 1, 1996, pro forma net income reflects the effect on
the combined company as if the Affiliate was a taxable entity for income tax
purposes. The Affiliate's articles of incorporation required its board of
directors to declare a payment of a cash dividend to its shareholders of no less
than 110% of the maximum individual federal income tax rate under the Internal
Revenue Code for each calendar year, payable within 30 days after the Affiliate
files its tax return.

EMPLOYEE STOCK OWNERSHIP PLAN

    The balance of the note receivable from the Employee Stock Ownership Plan
(See Note 11), is recorded as a contra account in the stockholder's equity
section of the balance sheet.

     MANAGEMENT ESTIMATES

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

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

    During 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128 "Earnings per Share," SFAS No.
129 "Disclosure of Information about Capital Structure," SFAS No. 130,
"Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." SFAS No. 128 is effective for
financial statements for both interim and annual periods ending after December
15, 1997. SFAS No. 129 is effective for periods ending after December 15, 1997.
SFAS No. 130 and SFAS 131 are effective for fiscal years beginning after
December 15, 1997. Adoption of these pronouncements is not expected to have a
material effect on the Company's financial position, results of operations or
cash flows.

RECLASSIFICATIONS

    Certain reclassifications have been made to previously issued financial
statements to conform to the current presentation. There is no resulting impact
on stockholders' equity or net income (loss).

                                       29
<PAGE>
            TEXAS PETROCHEMICALS CORPORATION (AND PREDECESSOR)

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

4.  INVESTMENT SECURITIES

    On July 1, 1996 in connection with the Acquisition, all of the Predecessor's
equity securities were sold at their unamortized cost. As of June 30, 1996 the
Predecessor held $6.8 million of equity securities with an unamortized cost of
$9.0 million and gross unrealized losses of $2.2 million. Unrealized losses of
$0.6 million and $1.4 million (net of deferred tax) related to these securities
is recorded as a component of stockholders' equity for the twelve months ended
May 31, 1996 and the one month ended June 30, 1996, respectively. During the
twelve months ended May 31, 1996 and the one month ended June 30, 1996, gross
realized gains of approximately $1.9 million and $0, respectively, and gross
realized losses of approximately $5.0 million and $0.3 million, respectively,
were recognized on the sale of securities.

    The Predecessor held $3.7 million of bankers acceptance notes at May 31,
1995, with scheduled maturities of less than one year. The Predecessor also held
approximately $17.4 million of equity securities at May 31, 1995. Unrealized
losses of $3.6 million (net of deferred tax) related to these securities are
recorded as a component of stockholders' equity for the year ended May 31, 1995.
During the year ended May 31, 1995, gross realized gains of approximately $1.2
million and gross realized losses of approximately $0.05 million were recognized
on the sale of securities.

5. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS (IN THOUSANDS OF DOLLARS)

INVENTORIES:

                                                     COMPANY     PREDECESSOR
                                                     --------     --------
                                                     JUNE 30,     JUNE 30,
                                                       1997         1996
                                                     --------     --------
      Finished goods                                 $  8,500     $  5,480
      Raw materials                                     7,504        4,533
      Chemicals and supplies                            1,922        1,920
                                                     --------     --------
                                                     $ 17,926     $ 11,933
                                                     ========     ========

PROPERTY, PLANT AND EQUIPMENT:
                                                     COMPANY     PREDECESSOR
                                                     --------     --------
                                                     JUNE 30,     JUNE 30,
                                                       1997         1996
                                                     --------     --------
      Chemical plants                                $259,293     $173,369
      Construction in progress                          3,047        5,378
      Other                                             1,934       13,812
                                                     --------     --------
                                                      264,274      192,559
      Less accumulated depreciation, depletion
          and amortization                             24,315      110,745
                                                     --------     --------
                                                     $239,959     $ 81,814
                                                     ========     ========

                                       30
<PAGE>
            TEXAS PETROCHEMICALS CORPORATION (AND PREDECESSOR)

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS (IN THOUSANDS OF DOLLARS), CONTINUED

OTHER ASSETS:

                                                     COMPANY     PREDECESSOR
                                                     --------     --------
                                                     JUNE 30,     JUNE 30,
                                                       1997         1996
                                                     --------     --------
      Debt issue costs                               $ 13,026     $   -
      Organizational costs                                573         -
      Intangibles and other                             2,000        7,934
                                                     --------     --------
                                                       15,599        7,934

      Less accumulated amortization                     3,274        1,411
                                                     --------     --------
                                                     $ 12,325     $  6,523
                                                     ========     ========
ACCRUED EXPENSES:
                                                     COMPANY     PREDECESSOR
                                                     --------     --------
                                                     JUNE 30,     JUNE 30,
                                                       1997         1996
                                                     --------     --------
      Accrued interest                               $ 13,203     $     81
      Property and sales taxes                          2,866        2,370
      Federal and state taxes                             135          959
      Other                                               713          973
                                                     --------     --------
                                                     $ 16,917     $  4,383
                                                     ========     ========

6.  LONG-TERM DEBT
                                                     COMPANY     PREDECESSOR
                                                     --------     --------
                                                     JUNE 30,     JUNE 30,
                                                       1997         1996
                                                     --------     --------
     Bank Credit Agreement:
      Term A Loan                                    $ 25,781     $   -
      Term B Loan                                      44,000         -
      ESOP Loan                                         8,000         -
      Revolving Credit Loans                           12,000       13,000
     Senior Subordinated Notes                        225,000         -
     Deferred premium on Senior Subordinated 
        Notes                                           2,893         -
                                                     --------     --------
                                                      317,674       13,000
      Less current maturities                           6,438         -
                                                     --------     --------
      Long-term debt                                 $311,236     $ 13,000
                                                     ========     ========


                                       31
<PAGE>
            TEXAS PETROCHEMICALS CORPORATION (AND PREDECESSOR)

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

    The Bank Credit Agreement provided for term loans in the amount of $130
million, an ESOP loan of $10 million, and a revolving credit facility of up to
$40 million. Quarterly principal and interest payments are made under the Bank
Credit Agreement. The final payments under the ESOP Loan, Term A Loan and Term B
Loan are due on June 30, 2001, December 31, 2002 and June 30, 2004,
respectively. The Revolving Credit Loan facility is currently scheduled to
expire on December 31, 2002. The debt under the Bank Credit Agreement bears
interest, at the option of the borrower, based on the LIBOR rate plus a margin
(2.5% and 3% at June 30, 1997) or the greater of the prime rate and the federal
funds rate plus 1/2% plus a margin (1.5% at June 30, 1997). Substantially all
assets of the Company are pledged as collateral under the Bank Credit Agreement.
The Senior Subordinated Notes are due 2006 and bear interest at 11 1/8% payable
semiannually on January 1 and July 1. The Bank Credit Agreement and the Senior
Subordinated Notes include certain restrictive covenants, which include but are
not limited to, limitations on capital expenditures, indebtedness, investments
and sales of assets and subsidiary stock. Additionally, the Bank Credit
Agreement requires the Company to maintain certain financial ratios. On July 31,
1997 the Company obtained an amendment to the Bank Credit Agreement to waive the
debt to EBITDA ratio at June 30, 1997 and to update the financial ratios
relating to fixed charge coverage and debt to EBITDA for fiscal 1998.

    On March 13, 1997 the Company closed on the sale of $50 million aggregate
principal of its 11 1/8% Senior Subordinated Notes Due 2006 in a Rule 144A
offering. The terms of the notes were identical, except as to the offering
price, to the terms of the Senior Subordinated Notes issued by the Company in
July 1996. The Company applied the net proceeds received from the offering to
reduce the Term A Loan. The Company subsequently completed an exchange offer to
exchange the unregistered securities for identical securities, which have been
registered under the Securities Act.

    The fair value of the Senior Subordinated Notes, based on quoted market
prices, was approximately $242 million as of June 30, 1997. The long-term debt
under the Bank Credit Agreement carries a floating interest rate, therefore, the
Company estimates that the carrying amount of such debt was not materially
different from its fair value as of June 30, 1997.

    The aggregate scheduled maturities outstanding debt for the succeeding five
years are as follows:

               FISCAL YEAR
               -----------
                  1998                                 $6,438
                  1999                                  6,438
                  2000                                  7,125
                  2001                                  8,156
                  2002                                  7,188

                                       32
<PAGE>
               TEXAS PETROCHEMICALS CORPORATION (AND PREDECESSOR)

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

7.  FEDERAL AND STATE INCOME TAXES

    Significant components of the Company's deferred tax assets and liability at
June 30, 1997 and June 30, 1996 are as follows (in thousands of dollars):

                                                        COMPANY      PREDECESSOR
                                                       ----------    ----------
                                                        JUNE 30,      JUNE 30,
                                                          1997          1996
                                                       ----------    ----------
    Deferred tax asset (liability) - current:

       Net operating loss carryforward .............   $    1,292    $     --
       Cash bonus plan .............................        2,756          --
       Accrued liabilities .........................         (446)         --
       Unrealized loss on investment securities ....         --             815
                                                       ----------    ----------
                                                       $    3,602    $      815
                                                       ==========    ==========
    Deferred tax asset (liability) - noncurrent:

       Investment in land ..........................   $    4,660    $    4,660
       Cash bonus plan .............................        6,200          --
       Property, plant and equipment ...............      (76,819)      (20,423)
                                                       ----------    ----------
                                                       $  (65,959)   $  (15,763)
                                                       ==========    ==========

    The current deferred tax asset is included in other current assets in the
accompanying balance sheet. As of June 30, 1997 the Company had estimated net
operating loss carryforwards for income tax reporting purposes of approximately
$3.7 million which expire on June 30, 2012.

    The provision for federal and state income taxes is comprised of the
following (in thousand of dollars):

                                  COMPANY                PREDECESSOR
                                  --------   ----------------------------------
                                                ONE         TWELVE
                                    YEAR       MONTH        MONTHS       YEAR
                                   ENDED       ENDED        ENDED       ENDED
                                  JUNE 30,    JUNE 30,      MAY 31,     MAY 31,
                                    1997        1996         1996        1995
                                  --------   ----------   ----------   --------
Current:

    Federal ....................  $   (508)  $      880   $   12,150   $ 14,314
    State ......................        63          118        1,582      1,748
                                  --------   ----------   ----------   --------
                                      (445)         998       13,732     16,062
                                  --------   ----------   ----------   --------
Deferred:

    Federal ....................    (2,897)        (210)      (5,461)       895
    State ......................       (27)        (368)         (77)
                                  --------   ----------   ----------   --------
                                    (2,897)        (237)      (5,829)       818
                                  --------   ----------   ----------   --------
       Total provision (benefit)
         for income taxes ......  $ (3,342)  $      761   $    7,903   $ 16,880
                                  ========   ==========   ==========   ========
       Pro Forma income
         tax provision .........      --     $      761   $    9,553   $ 18,949
                                  ========   ==========   ==========   ========

    Pro Forma income tax provision assumes that the income of the Affiliate,
which is a Subchapter S Corporation and accordingly pays no federal income tax,
was taxable to the Predecessor based on the Predecessor's effective tax rate.

                                       33
<PAGE>
               TEXAS PETROCHEMICALS CORPORATION (AND PREDECESSOR)

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

    The provision for income taxes differs from the amount computed by applying
the statutory federal income tax rate to income from continuing operations. The
reasons for this difference are as follows:

<TABLE>
<CAPTION>
                                          COMPANY               PREDECESSOR
                                          --------    --------------------------------
                                                        ONE        TWELVE
                                            YEAR       MONTH       MONTHS       YEAR
                                           ENDED       ENDED       ENDED       ENDED
                                          JUNE 30,    JUNE 30,     MAY 31,     MAY 31,
                                            1997        1996        1996        1995
                                          --------    --------    --------    --------
<S>                                       <C>         <C>         <C>         <C>     
Statutory federal income tax rate ......        35%         35%         35%         35%
Computed "expected" federal income tax .  $ (5,115)   $    696    $  8,578    $ 17,438
Increase (decrease) in tax
  resulting from:
    Affiliate earnings not subject
      to federal income tax ............      --        (1,651)     (2,069)
    State income taxes, net of
      federal benefit ..................        41          59         789       1,086
    Other, net .........................        22           6         280         518
    Amortization of goodwill and other .     1,710        --           (93)        (93)
                                          --------    --------    --------    --------
Provision (benefit) for income taxes ...  $ (3,342)   $    761    $  7,903    $ 16,880
                                          ========    ========    ========    ========
</TABLE>

8.  INVESTMENT IN AND ADVANCES TO LIMITED PARTNERSHIP

    The Company and Hollywood Marine, Inc. formed a limited partnership,
Hollywood/Texas Olefins, Ltd., to operate four barges capable of transporting
chemicals. The Company is a 50% limited partner in the limited partnership. The
Company accounts for this investment under the equity method and records its
portion of the limited partnership's net income as other income in the
accompanying statement of operations. Summarized financial information of the
partnership has not been presented because the Company's investment in and its
proportionate share of the partnership's operations are not material.

9.  SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

   Cash paid for interest and income taxes are as follows (in thousands of
dollars):

                              COMPANY                   PREDECESSOR
                              --------      ------------------------------------
                                              ONE          TWELVE
                                YEAR         MONTH         MONTHS         YEAR
                               ENDED         ENDED         ENDED         ENDED
                              JUNE 30,      JUNE 30,       MAY 31,       MAY 31,
                                1997          1996          1996          1995
                              --------      --------      --------      --------
Interest ...............      $ 20,600      $     62      $  2,330      $    527

Income taxes ...........           967           877        14,756        14,740

                                       34
<PAGE>
            TEXAS PETROCHEMICALS CORPORATION (AND PREDECESSOR)

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

10.  COMMITMENTS AND CONTINGENCIES

LEASE COMMITMENTS

    The Company leases tank cars under noncancelable operating leases. Under the
terms of the lease agreements, the Company is reimbursed by customers at a fixed
rate per mile, based on the distance the tank cars travel. Reimbursements were
approximately $0.8 million, $0.04 million, $0.8 million and $0.7 million, for
the year ended June 30, 1997, for the one month period ended June 30, 1996, for
the twelve months ended May 31, 1996 and for the year ended May 31, 1995,
respectively. The Company is also obligated under an operating lease to
Hollywood/Texas Olefins, Ltd. for the rental of two barges.

    Total rent expense was approximately $3.9 million, $0.4 million, $4.8
million and $4.4 million (net of reimbursements described above and including
$1.8 million, $0.2 million, $2.0 million and $2.0 million for the rental of four
barges) for the year ended June 30, 1997, for the one month period ended June
30, 1996, for the twelve months ended May 31, 1996 and for the year ended May
31, 1995, respectively. Future minimum lease payments at June 30, 1997 are as
follows (in thousands of dollars):

               FISCAL YEAR
               -----------
                  1998                                 $3,993
                  1999                                  2,994
                  2000                                  2,307
                  2001                                  1,783
                  2002                                    814

PURCHASE COMMITMENTS

    The Company has purchase commitments incident to the ordinary conduct of
business. The prices of such purchase commitments are based on formulas, which
are determined from the prevailing market rate for such products. These
commitments generally have cancellation provisions given proper notification.

LITIGATION

    The Company is involved in various routine legal proceedings which are
incidental to the business. Management of the Company is vigorously defending
such matters and is of the opinion that their ultimate resolution will not have
a material adverse impact on the Company's financial position of results of
operations.

STOCKHOLDER ACTION

    Effective July 28, 1995 the Predecessor's Board of Directors approved the
redemption of 25,000 shares of Class A common stock and 1,565,670 shares of
Class B common stock from certain stockholders for total consideration of
approximately $95,000,000. The redemption was paid with cash of approximately
$80,000,000 and with the issuance to a former stockholder of a $15,000,000
promissory note due November 1, 1995 collateralized by 915,000 shares of Class B
common stock

                                       35
<PAGE>
               TEXAS PETROCHEMICALS CORPORATION (AND PREDECESSOR)

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

and the personal guarantee of an officer of the Predecessor. In connection with
the above redemption the Predecessor's Board of Directors approved the sale of
(1) 351,670 shares of Class B treasury stock to certain officers of the
Predecessor and to a trust at the price of $60 per share, and (2) 25,000 shares
to Class A treasury stock to an officer of the Predecessor at a price of $60 per
share. On September 12, 1995, the Predecessor's stockholders did not ratify the
stock redemption and other transactions described above. These items were not
ratified due to the abstention of the trustee representing a majority of Class B
common stock. The abstaining stockholder has the right, for up to two years from
September 12, 1995, to vote in favor of or against the aforementioned
transaction or take other action on behalf of the trust beneficiaries. The
Company cannot predict what action the abstaining stockholder will take.
Accordingly, the Company cannot determine the effect, if any, of this
uncertainty on its financial position, results of operations or cash flows.

ENVIRONMENTAL REGULATION

    The Company's operations are subject to federal, state and local laws and
regulations administered by the U.S. Environmental Protection Agency, the U.S.
Coast Guard, the Army Corps of engineers, the Texas Natural Resource
Conservation Commission, the Texas General Land Office, the Texas Department of
Health and various local regulatory agencies. The Company holds all required
permits and registrations necessary to comply substantially with all applicable
environmental laws and regulations, including permits and registrations for
wastewater discharges, solid and hazardous waste disposal and air emissions, and
management believes that the Company is in substantial compliance with all such
laws and regulations. While management does not expect the cost of compliance
with existing environmental laws will have a material adverse effect on the
Company's financial condition, results of operations or cash flows, there can be
no assurance that future legislation, regulation or judicial or administrative
decisions will not have such an effect.

    Under federal and state environmental laws, companies may be liable for
remediation of contamination at on-site and off-site waste management and
disposal areas. Management believes that the Company is not likely to be
required to incur remediation costs related to its management, transportation
and disposal of solid and hazardous materials and wastes, or to its pipeline
operations. If the Company were to be required to incur such costs, however,
management believes that such costs would not have a material adverse effect on
the Company's results of operations. In addition, under the terms of the 1984
purchase agreement, the prior owner of the Houston facility, Petro-Tex, has
indemnified the Company for liability arising from off-site disposal of any
materials prior to June 1984. Notwithstanding the terms of the indemnity, in
July 1994 Petro-Tex filed a claim for indemnity against the Company for any
costs that may be attributable to Petro-Tex for the cleanup of the Malone
Service Company ("Malone") site in Texas City, Texas. Petro-Tex and many other
companies along the Gulf Coast allegedly sent wastes to the Malone site for
disposal in the 1970s and possibly the early 1980s. Malone has been subject to
several state enforcement actions regarding its waste disposal practices. It is
not known whether the site will require remediation or at what cost.

                                       36
<PAGE>
               TEXAS PETROCHEMICALS CORPORATION (AND PREDECESSOR)

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

The Company believes that it has meritorious defenses to Petro-Tex's claim and
intends to contest the claim vigorously. Although no on-site contamination has
been identified as requiring remediation, management believes that certain areas
of the Houston facility were historically used for waste disposal. Based on
limited, currently available information about these waste disposal areas and
their contents, the Company believes that, if such remediation becomes
necessary, any remediation costs would not have a material adverse effect on the
Company's financial condition or results of operations. The Petro-Tex indemnity
does not extend to these on-site waste disposal areas or their contents.

PREDECESSOR COMMITMENTS

    During 1996, the Predecessor's Board of Directors approved the cancellation
of all of the following stock purchase agreements, stock option agreements and
salary continuation agreements in anticipation of the Acquisition.

STOCK PURCHASE AGREEMENTS

    The Predecessor's Board of Directors approved a stock purchase agreement
with certain officers who own 185,000 shares of the Predecessor's outstanding
Class A common stock and 1,081,670 shares of the Predecessor's outstanding Class
B common stock. Under the terms of this agreement in the event any of these
officers ceases full time employment with the Predecessor or in the event of the
stockholder's death, the Predecessor must redeem all of the stockholder's shares
at a redemption price of $60 per share. This agreement superseded the previous
stock purchase agreements of the Predecessor which are described in the
following paragraphs.

    The Predecessor entered into a stock purchase agreement with a certain
minority stockholder who owns 20,000 shares of the Predecessor's outstanding
Class A common stock and 80,000 shares of the Predecessor's outstanding Class B
common stock. Under the terms of this agreement, in the event of the
stockholder's death, the Predecessor must redeem all shares owned by the
deceased stockholder at a formula price, which is adjusted annually. At May 31,
1995, the formula price per share was approximately $58.

    The Predecessor entered into a death benefit agreement with an officer of
the Predecessor who owns 660,000 shares of Class B common stock of the
Predecessor. This agreement provides that in the event of the death of the
officer, the Predecessor is obligated to redeem the shares at a price of $60 per
share with twenty-five percent of the purchase price payable at closing and the
balance payable in five equal annual installments plus interest at the rate of
eight percent per annum. This agreement replaces a previous agreement that
obligated the Predecessor to redeem the shares in the event of the death of the
officer at a price of $80 per share.

                                       37
<PAGE>
               TEXAS PETROCHEMICALS CORPORATION (AND PREDECESSOR)

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

    The Predecessor entered into a stock purchase agreement with certain of its
minority stockholders who own 171,000 shares of the Predecessor's outstanding
common stock. Under the terms of this agreement, such stockholders may sell
their shares to the Predecessor at a formula price, which is adjusted annually.
Under this agreement, the Predecessor is obligated to redeem the shares in the
event of the death of the stockholder at the formula price. At May 31, 1995, the
formula price per share was approximately $54.

    The Predecessor also entered into a Section 303 stock purchase agreement
with an officer of the Predecessor who owns 85,000 shares of the Predecessor's
outstanding common stock. This agreement allows for the officer's estate to
require the Predecessor to redeem the necessary shares so as to pay estate taxes
and funeral and administrative expenses upon the death of the officer. Under the
terms of this agreement, the redemption price per share will be based upon the
value of the shares as reflected on the federal estate tax return.

    Additionally, the Predecessor entered into separate stock purchase
agreements with an officer of the Predecessor and his spouse who own 500,000
shares of the Predecessor's outstanding common stock as part of a community
estate. The agreement with the officer requires the Predecessor to redeem
250,000 shares from the community estate upon the officer's death at a price of
$90 per share with twenty five percent of the redemption price payable at
closing and the balance payable in five annual installments plus interest at the
rate of eight percent per annum. The agreement with the officer's spouse allows
her to require the Predecessor to redeem the 250,000 shares from the community
estate not redeemed as part of the officer's agreement for a period of one year
subsequent to the officer's death at the same price and payable in the same
manner as set forth in the officer's agreement. Additionally, the spouse's
agreement requires the Predecessor to redeem 250,000 shares of the stock from
the community estate in the event that she predeceases the officer at a price of
$90 per share with sixty percent of the redemption price payable at closing and
the balance payable in thirty-six equal monthly installments plus interest at
the rate of eight percent per annum.

    All of the Affiliate's common stock is subject to a stock purchase
agreement. Under the terms of the stock purchase agreement, the Affiliate is
obligated to redeem all of a stockholder's shares in the event of death and has
an option to redeem all of a stockholder's shares in certain other instances.
The redemption price is equal to the Affiliate's adjusted book value, as defined
in the agreement, divided by the number of outstanding shares. At May 31, 1995,
the redemption price per share was $8.15. Of the total redemption amount, 25% is
to be paid in cash with the remaining balance to be paid in 42 equal monthly
installments as evidenced by an interest bearing promissory note.

                                       38
<PAGE>
               TEXAS PETROCHEMICALS CORPORATION (AND PREDECESSOR)

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

STOCK OPTION AGREEMENTS

    The Predecessor entered into stock option agreements with two of its
officers, which granted them the option to purchase 100,000 shares of common
stock. The option purchase price for the shares is $40 per share. At May 31,
1995, 30,000 shares were exercisable. During the fiscal year ended May 31, 1994,
one of the officers forfeited his option to purchase 50,000 shares of common
stock. In the event the option is exercised, the Predecessor and the officers
will enter into stock purchase agreements. Under the terms of the agreement,
transfer of the stock is restricted and only the Predecessor, at its option, may
redeem the stock. However, upon death of the officer, the Predecessor is
obligated to redeem the officer's shares. In all instances the redemption price
will be the greater of the formula price in the agreement or $40 per share. At
May 31, 1995 the formula price was approximately $54 per share.

  SALARY CONTINUATION AGREEMENTS

    The Predecessor entered into salary continuation agreements with three of
its officers. The agreements provide that if the officer is an employee of the
Predecessor upon death, an amount ranging from $10,000 to $25,000 would be
payable monthly to his estate for a period of five years.

11.  EMPLOYEE BENEFITS

PROFIT SHARING PLAN

     The Company has a noncontributory profit sharing plan that covers all
full-time employees that have completed one year or more of service. Employees
can contribute up to 10% of their base compensation to a tax deferred fund which
is matched by the Company at the rate of $.25 per one dollar contributed by the
employee up to 6% of the employee's base compensation. The Company's expense to
match employee contributions was $169,591, $14,786, $195,627 and $180,000 for
the year ended June 30, 1997, for the one month period ended June 30, 1996, for
the twelve month period ended May 31, 1996 and for the year ended May 31, 1995,
respectively. Additionally, the Company made additional discretionary
contributions to the plan which amounted to approximately $1.1 million, $0.2
million, $2.4 million and $2.6 million for the year ended June 30, 1997, for the
one month period ended June 30, 1996, for the twelve month period ended May 31,
1996 and for the year ended May 31, 1995, respectively. The Company's
contributions vest with the employee at a rate of 20% per year.

EMPLOYEE STOCK OWNERSHIP PLAN

   In connection with the Acquisition, the Parent established an Employee Stock
Ownership Plan (the "ESOP"), covering substantially all full-time employees of
the Company. The ESOP borrowed $10 million under the Bank Credit Agreement to
purchase 100,000 shares of the Parent's Common Stock at the closing of the
Acquisition. The shares of Common Stock purchased by the ESOP were pledged as
security for the ESOP Loan, and such shares will be released and allocated to
ESOP participants' accounts as the ESOP Loan is discharged. For employees whose
employment commenced prior to October 1, 1996 and who have attained 21 years,
participation begins as of the Acquisition date or the date of commencement of
the participant's employment. A participant's ESOP account vests at the rate of
20% per year. The Company's contributions to the ESOP, which

                                       39
<PAGE>
               TEXAS PETROCHEMICALS CORPORATION (AND PREDECESSOR)

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

are used to retire principal and pay interest on the loan is reported as
compensation expense. Principal and interest payments made for the year ended
June 30, 1997 amounted to $2.7 million.

  CASH BONUS PLAN LIABILITY

   In connection with the Acquisition, the Predecessor established the $35
million Cash Bonus Plan covering substantially all employees of the Predecessor
(or certain affiliates of the Predecessor) and covering the employees of certain
third-party contractors who have contributed to the past success of the
Predecessor. All participants of the plan as of July 2, 1996 were distributed
10% of the cash bonus in August 1996, and the remaining amount is to be paid in
sixteen quarterly installments which began in October 1996.

12.  RELATED PARTY TRANSACTIONS

     Prior to the Acquisition, the Predecessor made contributions from time to
time to a charitable organization that is an affiliate of the Predecessor.

13.  CONCENTRATION OF CREDIT RISK

    The Company sells its products primarily to chemical and petroleum based
companies in North America. For the year ended June 30, 1997, the one month
period ended June 30, 1996, the twelve month period ended May 31, 1996 and the
year ended May 31, 1995 approximately 41%, 46%, 50%, and 35%, respectively, of
the Company's sales were to four customers. The Company had two customers, which
represented 11% and 17% of sales during the year ended June 30, 1997, 14% and
16% of sales during the one month period ended June 30, 1996, and 16% and 19% of
sales during the twelve months ended May 31, 1996. The Company had one customer,
which represented 12% of sales during the year ended May 31, 1995. The Company
performs ongoing credit evaluations of its customers and generally does not
require collateral for accounts receivable. The Company's credit losses have
been minimal.

    The Company maintains its cash deposits and short-term investments with a
major bank and a financial services company which at certain times exceed the
federally insured limits. Management assesses the financial condition of these
institutions and believes that any possible credit loss is minimal.

14.  FINANCIAL INSTRUMENTS

    At June 30, 1997 the Company estimated that the carrying value and fair
value of its financial instruments, other than long-term debt (See Note 6), were
approximately equal due to the short-term nature of the instruments. Such
instruments include cash and cash equivalents, accounts receivable and accounts
payable.

                                       40
<PAGE>
ITEM 9.  CHANGES IN AND DIAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

    On January 15, 1997 the Audit Committee of the Board of Directors of the
Company recommended and the Company's Board of Directors approved, the
engagement of Deloitte & Touche LLP ("D&T") to audit the consolidated financial
statements of the Company for the year ending June 30, 1997. Accordingly, the
engagement of Coopers & Lybrand L.L.P. ("C&L") as the Company's auditors was
discontinued. C&L's reports on the Company's combined financial statements for
the year ended May 31, 1995, the twelve months ended May 31, 1996 and the one
month ended June 30, 1996 did not contain an adverse opinion or disclaimer of
opinion, and were not qualified or modified as to uncertainty, audit scope or
accounting principles. In connection with the audits of the Company's combined
financial statements for the year ended May 31, 1995, the twelve months ended
May 31, 1996 and the one month ended June 30, 1996, and during the subsequent
interim period preceding such dismissal, (i) the Company had no disagreements
with C&L on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure, (ii) C&L did not advise the
Company of any "reportable event" as defined in Regulation S-K under the
Securities Exchange Act of 1934 and (iii) the Company did not consult with D&T
on any accounting, auditing, or financial reporting matters.

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

    The following table sets forth certain information concerning the directors
and executive officers of the Company. Each director is elected for a one year
term or until such person's successor is duly elected and qualified. 

                                                                   YEARS OF
                                                               SERVICE WITH THE
                                                                COMPANY OR ITS  
       NAME            AGE                POSITION               PREDECESSORS
--------------------  ----  ----------------------------------     --------
Gordon A. Cain          85  Director                                   13
William R. Huff         47  Director                                    1
William A. McMinn       67  Director and Chairman                      13
Steve A. Nordaker       50  Director                                   --   
Susan O. Rheney         38  Director                                    1
John T. Shelton         66  Director                                   13
B. W. Waycaster         58  Director, President and 
                               Chief Executive Officer                  4
Claude E. Manning       51  Chief Financial Officer                    24
Ronald W. Woliver       57  Vice President, Marketing                  28
Stephen R. Wright       49  Vice President and General Counsel          1
Bill R. McNeese         62  Vice President, Operations                  9

                                       41
<PAGE>
    Mr. Cain is Chairman of the Board of Agennix Inc. and of Lexicon Genetics,
Inc., biotechnology companies. From August 1982 until his retirement in December
31, 1992, he was Chairman of the Board of The Sterling Group, Inc. ("Sterling").
Mr. Cain was the Chairman of the Board of Sterling Chemicals, Inc. from 1986
until it was sold in August 1996 and was on the Board of Directors of Arcadian
Corporation from May 1989 until it was sold in April 1997. Prior to organizing
Sterling, Mr. Cain was involved in the purchase of a variety of businesses and
provided consulting services to these and other companies. Mr. Cain was also
Chairman of the Board of UltraAir, Inc. from 1991 to 1994, Chairman of the Board
of Cain Chemical Inc. from its organization in March 1987 until its acquisition
by Occidental Petroleum Corporation in May 1988 and the Chairman of the Board of
Vista Chemical Company from 1984 until 1986.

    Mr. Huff is President of the General Manager of WRH Partners, L.L.C., the
General Partner of The Huff Alternative Income Fund, L.P. (the "Huff Fund"). He
also has been President of one of the general managers of W.R. Huff Asset
Management Co., L.L.C., an investment management firm, since 1984. Mr. Huff
serves on the Board of Directors as the designee of the Huff Fund.

    Mr. McMinn has been Chairman of the Board of the Company since 1996. He was
Corporate Vice President and Manager of the Industrial Chemical Group of FMC
Corporation, a manufacturer of machinery and chemical products, from 1973
through 1985. He became President and Chief Executive Officer of Cain Chemical
Inc., a producer of petrochemicals, in 1987 and served in that capacity until
its acquisition by Occidental Petroleum in May 1988. He became Chairman of the
Board of Directors of Arcadian Corporation in August 1990 and served in that
capacity until it was sold in April 1997

    Mr. Nordaker has been a Managing Director of Chase Securities since August
1995. From 1982 to 1995, he was a Group Manager at Texas Commerce Bank National
Association and, in addition, served in several capacities at Texas Commerce
Bank in the Energy Group, including Section Manager and Division Manager. From
May 1977 to March 1982, Mr. Nordaker was a Manager of Projects for The Frantz
Company, an engineering consulting firm servicing the oil refinery and
petrochemical industry. Prior thereto, he was a chemical engineer with Universal
Oil Products. Mr. Nordaker serves on the Board of Directors as the Designee of
Chase Venture, an affiliate of Chase Securities.

    Ms. Rheney has been a principal of Sterling since February 1992. She worked
as an independent financial consultant from December 1990 to January 1992. Prior
to that time, from June 1987 to November 1990, she was an associate at Sterling.
Ms. Rheney is also a director of Mail-Well, Inc.

    Mr. Shelton has been Vice Chairman of the Board, Executive Vice President
and Chief Operations Officer of the Company since 1983. Prior thereto, Mr.
Shelton held various positions in the chemicals industry including Vice
President - Manufacturing of Oxirane Corporation and Manager -
Manufacturing/Engineering of Atlantic Richfield Company. Mr. Waycaster has been
President and Chief Executive Officer of the Company since 1992. Prior thereto,
Mr. Waycaster spent 27 years with The Dow Chemical Company and was serving as
Vice President of the Hydro-Carbon and Resources division when he left to join
the Company.

    Mr. Manning has been Chief Financial Officer of the Company since 1991. In
1972, he joined Petro-Tex Chemical Corporation (which was the prior owner of the
Company's Houston facility), where he served as Vice President - Finance, and
Director of Finance and Accounting. 

    Mr. Woliver has been Vice President - Marketing of the Company since 1976.
He joined 

                                       42
<PAGE>
Petro-Tex Chemical Corporation in 1968 and has held various marketing positions
in the United States and in Brussels.

    Mr. Wright joined the Company in August 1996 as Vice President and General
Counsel. From January 1996 until he joined the Company, Mr. Wright was engaged
in the private practice of law, either as a sole practitioner or of counsel to
Andrews & Kurth, L.L.P. For over five years prior thereto, Mr. Wright was the
Vice President and General Counsel or the Senior Vice President and General
Counsel of Destec Energy, Inc.

    Mr. McNeese has been Vice President - Operations of the Company since 1992.
He joined the Company in 1986 and has held positions in manufacturing,
production and utilities. From 1984 to 1986, Mr. McNeese served as General
Manager- Operations of Engineering for Paktank Corporation. Prior thereto, Mr.
McNeese held various positions in a number of Atlantic Richfield Company
businesses. Mr. McNeese has over 30 years of experience in the chemicals
industry.

COMPENSATION OF DIRECTORS

    Directors of the Company who are not employees of the Company receive an
annual retainer of $15,000 and a fee of $500 for each meeting of the Board or
any committee thereof that they attend. Directors who are also employees of the
Company do not receive Director compensation.

                                       43
<PAGE>
ITEM 11.  EXECUTIVE COMPENSATION

     The following table sets forth the total value of compensation received by
the Chief Executive Officer and the five most highly compensated executive
officers, other than the Chief Executive Officer, who served as executive
officers of the Company as of May 31, 1996 (the "Named Executive Officers") for
services rendered in all capacities to the Company for the year ended June 30,
1997, the twelve months ended May 31, 1996 and the year ended May 31, 1995.

                           SUMMARY COMPENSATION TABLE

NAME AND PRINCIPAL POSITION                  YEAR(1)      SALARY       BONUS(2)
---------------------------                 --------     --------     ----------
B. W. Waycaster, President
  and  Chief Executive Officer                  1997     $300,000     $  326,787
                                                1996      300,000      2,899,100
                                                1995      300,000        565,300

Ronald W. Woliver, Vice
  President, Marketing                          1997     $180,000     $  127,393
                                                1996      180,000      1,012,300
                                                1995      180,000      1,084,900

Stephen R. Wright, Vice
  President, General Counsel                    1997     $165,000     $   50,104

Claude E. Manning,
  Chief Financial Officer                       1997     $148,500     $   63,649
                                                1996      132,000         72,966
                                                1995      121,000        100,811

Bill R. McNeese, Vice
  President, Operations                         1997     $148,500     $   63,869
                                                1996      132,000         72,293
                                                1995      121,000        100,133

----------
(1) None of the executive officers has received perquisites, the value of which
    exceeded the lesser of $50,000 or 10% of the salary and bonus of such
    executive officer.

(2) Includes 401(k) contributions in 1996 and 1995 of $21,035 and $24,618,
    respectively, for Mr. Manning and $21,149 and $24,440, respectively, for Mr.
    McNeese.

                                       44
<PAGE>
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

    Texas Petrochemical Holdings, Inc. owns 100% of the outstanding shares of
the Company's common stock.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    Prior to the Acquisition, the Predecessor made contributions from time to
time to a charitable organization that is an affiliate of the Predecessor.

                                     PART IV

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

    (a) Exhibits

        27  Financial Data Schedule

    (b) Financial Statement Schedules

        Not applicable

    (c) Reports on Form 8-K

        There were no reports on Form 8-K filed during the three months ended
    June 30, 1997.

                                       45
<PAGE>
                                   SIGNATURES

    Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                   TEXAS PETROCHEMICALS CORPORATION
                                                (Registrant)

                                   By:        B.W. WAYCASTER
                                               (Signature)
                                              B.W. Waycaster
                                   President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
to be signed below by the following persons on behalf of the registrant in the
indicated capacities on September 24, 1997.

    WILLIAM A. MCMINN            Chairman
    William A. McMinn

     B.W. WAYCASTER              Director, President and Chief Executive Officer
     B.W. Waycaster

    CLAUDE E. MANNING            Chief Financial Officer
    Claude E. Manning

     GORDON A. CAIN              Director
     Gordon A. Cain

     WILLIAM B. HUFF             Director
     William B. Huff

    STEVE A. NORDAKER            Director
    Steve A. Nordaker

     SUSAN O. RHENEY             Director
     Susan O. Rheney

     JOHN T. SHELTON             Director
     John T. Shelton

                                       46