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, 1998

                                       OR

         [ ] 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, 1998 is 4,162,000.
<PAGE>
                      TEXAS PETROCHEMICALS CORPORATION

                             TABLE OF CONTENTS

                                                                       PAGE
                                                                       ----
                                     PART I

Item 1. Business                                                         1

Item 2. Properties                                                       9

Item 3. Legal Proceedings                                                9

Item 4. Submission of Matters to a Vote of Security Holders              9

                                     PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder
         Matters                                                        10

Item 6. Selected Financial Data                                         10

Item 7. Management's Discussion and Analysis of Financial Condition
         and Results of Operations                                      11

Item 8. Financial Statements and Supplementary Data                     19

Item 9. Changes in and Disagreements With Accountants on Accounting     
         and Financial Disclosure                                       42

                                    PART III

Item 10. Directors and Executive Officers of the Registrant             42

Item 11.  Executive Compensation                                        45

Item 12. Security Ownership of Certain Beneficial Owners 
          and Management                                                46

Item 13. Certain Relationships and Related Transactions                 46

                                     PART IV

Item 14. Exhibits, Financial Statement Schedules, and 
          Reports on Form 8-K                                           46

      Signatures                                                        47

                                       -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 closely held Parent was formed by a group of 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 roots, 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 chemical grade 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. (See "Environmental Regulation").

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 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.

    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.

                                      -4-
<PAGE>
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 U.S. EPA, the U.S. Coast Guard, the
Army Corps of Engineers, the Texas Natural Resource Conservation Commission
(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 the laws
and regulations that materially affect its operations. 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. It is
not known whether the site will require remediation. 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 Clean Air Act Amendments (CAA) and similar requirements of state
law. In particular, under the CAA, the EPA and the 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 CAA and rules relating to the
control of emissions of nitrogen, which are known as the Nitrogen Oxides
Reasonably Available Control Technology rules ("NOx RACT Rules").

   The HON Rule requires additional controls on emissions of certain listed
hazardous air pollutants ("HAPs"). Butadiene, methanol, dimethyl formamide,
benzene, styrene, acrylonitrile and MTBE, which are manufactured, used and/or
processed by the Company, have been identified as HAPs for purposes of
regulation under the CAA. Areas of concern in the Company's operations for HAPs

                                      -5-
<PAGE>
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 will be able to achieve substantial
compliance with the HON Rule after incorporating additional monitoring and
record-keeping systems into its operations at a cost that management believes
will not be material.

     The NOx RACT Rules require compliance by December 1999. The Company has
examined the rules and believes that the main expenditure required to achieve
compliance will involve the 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 $0.8 million.

     The Company's Houston facility is located in Harris County, Texas, which
has been designated as a non-attainment area for ozone under the CAA.
Accordingly, the State of Texas is in the process of developing a revised State
Implementation Plan ("SIP") which is expected to require significant reductions
in emissions of ozone precursors, including volatile organic compounds and
oxides of nitrogen in Harris County. To comply with the anticipated SIP, the
Company installed new controls at a cost of approximately $7.8 million. The
Company anticipates that the revised SIP may require certain additional emission
reductions from the Company's facilities. Such reductions would require the
Company to modify existing controls and install additional controls for air
emissions. The Company is unable to predict the cost of modifying its facilities
to comply with any additional requirements that the revised SIP may impose.

   The Company has elected to participate in the CARE program sponsored by the
TNRCC under which the Company will voluntarily obtain permits for certain air
emission sources that had historically been "grandfathered" from certain permit
requirements. The Company expects to be required to commit to certain emission
reductions in connection with the CARE program. The anticipated commitments are
not expected to have a materially adverse impact on the Company's operations.

     Section 112 of the CAA requires prevention of accidental releases of
certain listed extremely hazardous substances. The EPA's rules implementing
portions of Section 112, which were signed by the EPA Administrator on May 24,
1996, will require the Company to conduct a hazards assessment and develop a
risk management plan by June 1999. The Company expects to complete the required
plan on or before the deadline.

     The regulations under Title V of the CAA will require a facility-wide
inventory of emissions, sources and the air pollution control requirements
applicable to those sources. The Company is in the process of compiling the
required inventory. In connection with the Title V program, the Company may be
required to upgrade its on-going monitoring program once it has received its
operating permit; however, as of this point in time 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 Title V permit.

     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, properly managed,
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.

                                      -6-
<PAGE>
     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 has closed its facility, and the Company now 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.

     The Company has completed the first phase of its work on its stormwater
discharge system. An engineering study is underway to determine whether
additional work will be required. The Company has completed installation of
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 effect 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, 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.

   At the end of its 1997 session, the California State Legislature passed and
the Governor signed several bills that focused directly on MTBE and its use as a
component of California Cleaner Burning Gasoline. The first of these laws
required a detailed study of the health effects, associated risks, and benefits
and other items relating to the use of MTBE in California's gasoline. These
studies, conducted by various entities of the University of California system
must be completed by year's end, 1998.

   In California and certain other states MTBE has appeared in certain drinking
water wells. It is believed that this circumstance is the result of leaks from
older underground gasoline storage tanks and pipelines. California and federal
law require that all older storage tanks be replaced by the end of 1998 with
double-walled tanks and leak detection devices. The Company believes that
replacement of leaking storage tanks may substantially reduce the incidence of
gasoline components entering into water supplies. Upon consultation with
national trade association personnel, the Company further believes that the
reform and extension of underground storage tank programs may provide an
acceptable legislative or regulatory alternative to direct limitations on MTBE.

     In addition, certain bodies of water have shown the presence of MTBE. A
typical source of MTBE in these bodies is the operation of two-cycle outboard
motors, which do not fully combust gasoline. Certain regulatory bodies are
considering imposing limitations on the use of two-cycle outboard motors in
bodies of water that are also used as sources of drinking water.

   This California legislation referred to above also required the establishment
of both primary (health) and secondary (taste/odor) standards for MTBE in
drinking water. In July 1998, the California Department of Health Services (DHS)
proposed a secondary standard for MTBE in drinking water of 5 parts per billion
(ppb); final rules are expected to be promulgated by the fourth quarter of 1998.
There is a possibility that the 5 ppb proposal will be adjusted to reflect
recent scientific findings that support standards for MTBE in drinking water of
15-22 ppb, a level that 

                                      -7-
<PAGE>
corresponds more closely to the 20-40 ppb guidance provided by the federal EPA.
The primary health standard for MTBE in drinking water is to be promulgated by
July 1, 1999. The DHS is the agency responsible for the standard in California.
The process will begin with California's Office of Environment Health Hazard
Assessment's (OEHHA) proposal for a public health goal (PHG) for MTBE in
drinking water. Once proposed, the PHG will be debated by DHS using traditional
cost and risk/benefit types of analyses. A final maximum contaminant level for
MTBE in drinking water is scheduled to be enacted by July 1, 1999. In addition,
OEHHA and the International Agency on Research and Cancer (IARC) are considering
whether to classify MTBE as a possible, probable or known human carcinogen.
While IARC classification may present certain communications challenges, it does
not directly restrict the use of MTBE. Indeed, many useful commercial products
are already so classified or are under IARC consideration.

     In connection with the foregoing, there have been requests to ban MTBE as
an additive to gasoline in California. However, a recent study by the California
Air Resources Board showed that MTBE was superior to ethanol, the other
principal oxygenate, in reducing air pollution associated with automobile
exhaust and evaporative emissions. EPA continues to require oxygenates to be
added to gasoline in certain regions of the country either year-round or during
the winter months, and MTBE and ethanol continue to be the oxygenates of choice.
EPA personnel at the Office of Mobile Sources continue to support the
reformulated gasoline program as a major component of the nation's air quality
program. Should the use of MTBE become restricted in major areas of the United
States, this program may become economically untenable. However, no assurance
can be given that actions will not be taken to restrict or prohibit the use of
MTBE in certain areas of the country. Any restriction on or prohibition of the
use of MTBE could have a material adverse effect on the Company's financial
condition or results of operations.

   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 employees will need to use respirators and that additional
emission controls may be necessary. The Company does not expect that the current
health concerns regarding butadiene will have a material adverse effect on the
Company's financial condition or results of operations, although no assurance
can be given that future studies will not result in more stringent regulation of
butadiene.

EMPLOYEES
     As of June 30, 1998, the Company had approximately 328 full-time employees,
all of whom were salaried employees. In addition, the Company contracts with a
third party to provide approximately 136 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.

                                      -8-
<PAGE>
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, 1998.

                                      -9-
<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 two years
ended June 30, 1998, the one month period ended June 30, 1996, the twelve months
ended May 31, 1996 and the two 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
                                                            ENDED     ENDED
                                      YEAR ENDED MAY 31,    MAY 31,  JUNE 30,  YEAR ENDED JUNE 30,
                                      ------------------    ------   -------   -------------------
                                        1994       1995      1996      1996      1997      1998
                                      -------    -------    ------    ------   -------    -------
                                                (IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S>                                   <C>        <C>        <C>        <C>     <C>        <C>    
STATEMENT OF OPERATIONS DATA:
Revenues ..........................   $ 352.4    $ 474.7    $455.6     $41     $ 490.2    $ 514.8

Income from operations ............      53.3       47.5      42.0       2.4      18.3       37.4

Interest expense (income) 0.2 .....      (0.7)       1.6       0.1      35.2      35.7

Net income (loss)1 ................      33.9       32.5      16.7       1.2     (12.7)      (1.4)

Loss per common share
   Before extraordinary loss ......      --         --        --        --     $ (2.71)   $ (0.34)
   Extraordinary loss .............      --         --        --        --        (.35)      --
                                                                               -------    -------
                                                                               $ (3.06)   $ (0.34)
                                                                               =======    =======

BALANCE SHEET DATA (AT PERIOD END):
Total assets ......................   $ 214.6    $ 230.7             $ 167.9   $ 521.1    $ 496.8
Long-term debt ....................      11.0       --                  13.0     317.7      310.8
</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.

                                      -10-
<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 JUNE 30,
                             ENDED          ENDED        ----------------------------
                         MAY 31, 1996   JUNE 30, 1996        1997            1998
                         ------------   -------------    ------------    ------------
                                          (DOLLARS IN MILLIONS)
<S>                      <C>       <C>   <C>       <C>   <C>       <C>   <C>       <C>
Butadiene ............   $112.6    25%   $ 10.2    25%   $130.9    27%   $135.0    26%
MTBE .................    187.4    41      21.0    50     230.3    47     235.4    46
n-Butylenes ..........     48.2    11       3.2     8      49.4    10      55.2    11
Specialty Isobutylenes     74.5    16       5.5    13      62.3    13      73.7    14
Other(1) .............     32.9     7       1.5     4      17.3     3      15.5     3
                         ------   ---    ------   ---    ------   ---    ------   ---
Total ................   $455.6   100%   $ 41.4   100%   $490.2   100%    514.8   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.

                                      -11-
<PAGE>
SALES VOLUMES
                                PREDECESSOR                     COMPANY
                          ---------------------------    -----------------------
                          TWELVE MONTHS   ONE MONTH        YEAR ENDED JUNE 30,
                             ENDED          ENDED        -----------------------
                          MAY 31, 1996   JUNE 30, 1996      1997         1998
                          ------------   -------------   ----------   ----------
                                 (MILLIONS OF POUNDS, EXCEPT WHERE NOTED)
Butadiene ............       622.6            64.6          750.3        822.0
MTBE(1) ..............       219.8            26.6          274.1        300.4
n-Butylenes ..........       284.6            17.1          266.4        320.4
Specialty Isobutylenes       368.2            23.0          275.7        369.7
                                                         
----------                                                                   
(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 JUNE 30,
                                 ENDED             ENDED         ----------------------------------
                             MAY 31, 1996      JUNE 30, 1996          1997               1998
                           ---------------    ---------------    ---------------    ---------------
                                                    (DOLLARS IN MILLIONS)
<S>                        <C>         <C>    <C>         <C>    <C>         <C>    <C>         <C> 
Revenues ...............   $455.6      100%   $ 41.4      100%   $490.2      100%   $514.8      100%
Cost of goods sold .....    391.0       86      36.4       88     436.3       89     438.7       85
Depreciation and .......     15.0        3       1.3        3      29.8        6      31.8        6
amortization ...........     --       --        --       --        --       --        --       --
  Gross profit .........     49.6       11       3.7        9      24.1        5      44.3        9
Selling, general .......      7.6        2       1.3        3       5.8        1       6.9        2
and administrative .....     --       --        --       --        --       --        --       --
                           ------   ------    ------   ------    ------   ------    ------   ------
  Income from operations   $ 42.0        9%   $  2.4        6%   $ 18.3        4%   $ 37.4      7 %
                           ======   ======    ======   ======    ======   ======    ======   ======
</TABLE>
YEAR ENDED JUNE 30, 1998 COMPARED TO THE YEAR ENDED JUNE 30, 1997

  REVENUES

    The Company's revenues increased by approximately 5%, or $24.6 million, to
$514.8 million for the year ended June 30, 1998 from $490.2 million for the year
ended June 30, 1997. The increase was primarily due to increased sales volumes
of all products, which was partially offset by lower sales prices.

    Butadiene revenues increased by approximately 3%, or $4.1 million, to $135.0
million for the year ended June 30, 1998 from $130.9 million for the year ended
June 30, 1997. The increase was attributable to an increase in sales volumes of
approximately 10% or 71.7 million pounds. Production rates during the year
increased as a result of operating efficiencies and the availability of crude
butadiene. The volume increase was offset by a decline in butadiene prices,
which began during the second half of fiscal year. Excess supply and imports of
butadiene into the U.S.
market contributed to lower prices.

                                      -12-
<PAGE>
    MTBE revenues increased by approximately 2%, or $5.1 million, to $235.4
million for the year ended June 30, 1998 from $230.3 million for the year ended
June 30, 1997. The increase was due to higher sales volume, which was partially
offset by lower sales prices. MTBE production levels increased during the period
due to improved on-stream time of the Company's Dehydro units during the current
fiscal year. MTBE prices were lower in the current year due to the lower
unleaded gasoline and crude oil prices during the second half of the fiscal
year.

    n-Butylenes revenues increased by approximately 12%, or $5.8 million, to
$55.2 million for the year ended June 30, 1998 from $49.4 million for the year
ended June 30, 1997. n-Butylene sales revenue increased due to higher sales
volumes particularly during the first half of the fiscal year. Sales volumes of
butene-1 increased due to an unplanned shutdown of a major competitor in the
market. The Company was able to successfully increase its butene-1 production
rates to meet this demand from customers. Sales volumes of butene-2 to also
increased during the current year.

    Specialty isobutylene revenues increased by approximately 18%, or $11.4
million, to $73.7 million for the year ended June 30, 1998 from $62.3 million
for the year ended June 30, 1997. The increase was due to higher sales volumes
of all of the Company's specialty products. Isobutylene concentrate sales
volumes returned to more historical levels during the current year after a down
year in fiscal 1997. Sales volumes of high purity isobutylene and diisobutylene
increased due to customer demand.

  GROSS PROFIT

    Gross profit increased by approximately 84%, or $20.2 million, to $44.3
million for the year ended June 30, 1998 from $24.1 million for the year ended
June 30, 1997. Gross margin during the period increased to 8.6% from 4.9%. The
gross profit increase was primarily due to higher margins on MTBE and increased
sales volumes of butadiene, n-butylenes and specialty isobutylenes. MTBE margins
improved primarily due to lower isobutane and methanol costs, which was
partially offset by lower MTBE sales prices.

  INCOME FROM OPERATIONS

    Income from operations increased by approximately 104%, or $19.1 million, to
$37.4 million for the year ended June 30, 1998 from $18.3 million for the year
ended June 30, 1997. Operating margin during this period increased to 7.3% from
3.7%. The increase in income from operations was primarily due to the same
factors contributing the increase in gross profit described above, offset
slightly by and increase in selling, general and administrative expenses. This
increase was associated with increased business development activity in the
current year.


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.

                                      -13-
<PAGE>
    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 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 in 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 51%, or $25.5 million, to $24.1 for
the year ended June 30, 1997 from $49.6 million for the twelve months ended May
31, 1996. Gross margin during the period decreased to 4.9% from 10.9%. 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 were 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 had
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

                                      -14-
<PAGE>
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.

  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 23%, or $1.1 million, to
$3.7 million for the one month ended June 30, 1996 from $4.8 million for the one
month ended June 30, 1995. Gross margin during this period decreased slightly to
9.0% from 13.2%. 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.

                                      -15-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES

  CASH FLOWS

YEAR ENDED JUNE 30, 1998 COMPARED TO THE YEAR ENDED JUNE 30, 1997

    Net cash provided by (used in) operating activities was $34.9 million for
the year ended June 30, 1998 compared to $(1.8) million for the year ended June
30, 1997. The change of $36.7 million was primarily attributable to improved
profitability levels and changes in working capital. Net cash used in investing
activities was $11.2 million for the year ended June 30, 1998 compared to $352.3
million for the year ended June 30, 1997. The change of $341.1 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
$(22.9) million for the year ended June 30, 1998 compared to $354.2 million for
the year ended June 30, 1997. The change of $377.1 million was primarily
attributable to the issuance of long-term debt and an investment from the
Parent, in order to finance the Acquisition.

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.

                                      -16-
<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, 1998, 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
June 30, 1998 the Company obtained an amendment to the Bank Credit Agreement to
update the financial ratios relating to fixed charge coverage and debt to EBITDA
for fiscal 1999 and part of fiscal 2000.

   In February 1998, the Company entered into a three-year swap agreement for
$125 million of its Senior Subordinated Notes. The swap agreement effectively
converts a portion of the 11 1/8% fixed rate Senior Subordinated Notes to a
floating debt with a structured collar. Under the agreement the Company's
interest rate is fixed at 10.8% while LIBOR is set between 5.45% and 6.75%. If
LIBOR rates are set above 6.75% the Company's interest rate is floating at
current LIBOR plus 5.35%. If LIBOR rates are set between 5.25% and 5.45% the
Company's interest rate is floating at current LIBOR plus 5.35%. If LIBOR rates
are set below 5.25% the Company's interest rate is fixed at 10.8%. As of June
30, 1998 LIBOR rates were set at 5.69%. In June 1998, the Company entered into a
three-year interest rate cap for $64 million of its senior debt under the Bank
Credit Agreement. The cap effectively converts a portion of the Company's
floating rate bank debt to a fixed rate of 6.75% plus the margin if LIBOR rates
are set above 6.75%. The principal amount of the cap amortizes from $64 million
to $32 million on a quarterly basis over the three-year term.

  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. During
the year ended June 30, 1998, $7.8 million of this amount was paid to eligible
participants and the remaining $17.6 million will be made in nine equal future
quarterly installments.

  CAPITAL EXPENDITURES

    The Company's capital expenditures for fiscal 1998 related principally to
improving operating efficiencies and maintaining environmental compliance.
Capital expenditures for year ended June 30, 1998 were $12.5 million, compared
to $7.6 million for the year ended June 30, 1997. The Company expenses
approximately $20 million annually for plant maintenance. These maintenance
costs are not treated as capital expenditures.

                                      -17-
<PAGE>
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

    During 1997, the Financial Accounting Standards Board ("FASB") 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." During 1998, the FASB issued
SFAS No. 132 "Employers Disclosures about Pensions and Other Postretirement
Benefits," and SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." The Company has adopted the provisions of SFAS No. 128 and SFAS No.
129 with no material revisions to the disclosure in the financial statements.
SFAS No. 130, SFAS No. 131, and SFAS No. 132 are effective for fiscal years
beginning after December 15, 1997. SFAS No. 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999. The Company will analyze
these pronouncements to determine what, if any, additional disclosures will be
required thereunder.

YEAR 2000 CONVERSION

    The Company has recognized the need to ensure that its systems, equipment
and operations will not be adversely impacted by the change to the calendar year
2000. As such, the Company has taken steps to identify areas of risk and has
begun addressing these issues. The Company is currently in the process of
installing an upgraded information technology (IT) system and anticipate that it
will be fully implemented by mid calendar year 1999. The Company made the
decision to upgrade its IT system prior to concerns surrounding the year 2000.
Management believes the full implementation of this IT system will ensure the
Company's financial systems are compliant with the year 2000. The Company is
also evaluating its non-IT systems, consisting primarily of plant processing
equipment, for year 2000 compliance. The Company has not fully quantified these
areas but it is not expected to have a material impact on the Company's
financial position, results of operations or cash flows. In addition to
evaluating our own compliance with the year 2000, the Company is currently
requesting all of our major customers and suppliers to supply us with a status
of their compliance. At this point the Company has not received sufficient
responses to determine our exposure to non-compliance by a third party. The
Company currently does not have a contingency plan for the year 2000.

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.

                                      -18-
<PAGE>
    ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



                 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                        PAGE
                                                                        ----
Reports of Independent Auditors                                          20

Financial Statements

    Consolidated Balance Sheet                                           22

    Consolidated Statement of Operations                                 23

    Consolidated Statement of Stockholders' Equity                       24

    Consolidated Statement of Cash Flows                                 25

    Notes to Consolidated Financial Statements                           26

                                      -19-
<PAGE>
                       REPORT OF INDEPENDENT AUDITORS

To the Board of Directors
Texas Petrochemicals Corporation:

     We have audited the accompanying consolidated balance sheets of Texas
Petrochemicals Corporation and subsidiary (the "Company") as of June 30, 1998
and 1997, and the related consolidated statements of operations, stockholder's
equity, and cash flows for the years 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 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, such financial statements present fairly, in all material
respects, the financial position of the Company at June 30, 1998 and 1997 and
the results of its operations and its cash flows for the years then ended, in
conformity with generally accepted accounting principles.

                                                           DELOITTE & TOUCHE LLP
Houston, Texas 
August 4, 1998

                                      -20-
<PAGE>
                     REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
Texas Petrochemicals Corporation:

      We have audited the accompanying combined statements of operations,
stockholders' equity and cash flows of Texas Olefins Company, subsidiaries and
affiliate (Predecessor to Texas Petrochemicals Corporation) for the one month
period ended June 30, 1996 and the twelve month period ended May 31, 1996. 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 results of operations and cash
flows of Texas Olefins Company, subsidiaries and affiliate for the one month
period ended June 30, 1996 and the twelve month period May 31, 1996, in
conformity with generally accepted accounting principles.

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


                                                        COOPERS & LYBRAND L.L.P.

Houston, Texas
August 16, 1996

                                      -21-
<PAGE>
             TEXAS PETROCHEMICALS CORPORATION (AND PREDECESSOR)

                         CONSOLIDATED BALANCE SHEET
               (IN THOUSAND OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
                                                                   JUNE 30,     JUNE 30,
                                                                    1998         1997
                                                                  ---------    ---------
<S>                                                               <C>          <C>      
                      ASSETS
Current assets:
      Cash and cash equivalents ...............................   $     956    $     101
      Accounts receivable - trade .............................      45,298       44,662
      Inventories .............................................      17,210       17,926
      Other current assets ....................................      13,636       19,683
                                                                  ---------    ---------
          Total current assets ................................      77,100       82,372

Property, plant and equipment, net ............................     227,217      239,959
Investments in land held for sale .............................       2,579        3,886
Investment in and advances to limited partnership .............       3,035        2,969
Goodwill, net of accumulated amortization of $10,342 and $4,887     174,143      179,598
Other assets, net .............................................      12,679       12,325
                                                                  ---------    ---------
          Total assets ........................................   $ 496,753    $ 521,109
                                                                  =========    =========

      LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities:
      Bank overdraft ..........................................   $    --      $  10,157
      Accounts payable - trade ................................      28,000       29,942
      Payable to Parent .......................................       2,850         --
      Accrued expenses ........................................      18,868       16,917
      Current portion of cash bonus plan liability ............       7,811        7,811
      Current portion of long-term debt .......................       6,982        6,438
                                                                  ---------    ---------
          Total current liabilities ...........................      64,511       71,265

Revolving line of credit ......................................      12,000       12,000
Long-term debt ................................................     291,856      299,236
Cash bonus plan liability .....................................       9,766       17,573
Deferred income taxes .........................................      62,941       65,959

Commitments and contingencies (Note 10)

Stockholder's equity:
      Common stock, $1 par value, 4,162,000 shares authorized
         and outstanding ......................................       4,162        4,162
      Additional paid in capital ..............................      71,643       71,643
      Accumulated deficit .....................................     (14,126)     (12,729)
      Note receivable from ESOP ...............................      (6,000)      (8,000)
                                                                  ---------    ---------
          Total stockholder's equity ..........................      55,679       55,076
                                                                  ---------    ---------
              Total liabilities and stockholder's equity ......   $ 496,753    $ 521,109
                                                                  =========    =========
</TABLE>
        See accompanying notes to consolidated financial statements.

                                      -22-
<PAGE>
              TEXAS PETROCHEMICALS CORPORATION (AND PREDECESSOR)
                     CONSOLIDATED STATEMENT OF OPERATIONS
                (IN THOUSAND OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
                                                         COMPANY                  PREDECESSOR
                                               --------------------------    --------------------
                                                                                ONE       TWELVE
                                                  YEAR          YEAR           MONTH      MONTHS
                                                  ENDED         ENDED          ENDED       ENDED
                                                JUNE 30,       JUNE 30,       JUNE 30,    MAY 31,
                                                  1998           1997           1996        1996
                                               -----------    -----------    --------    ---------
<S>                                            <C>            <C>            <C>         <C>      
Revenues ...................................   $   514,790    $   490,246    $ 41,384    $ 455,585
Cost of goods sold .........................       438,725        436,339      36,392      390,968
Depreciation and amortization ..............        31,787         29,876       1,277       14,982
                                               -----------    -----------    --------    ---------
   Gross profit ............................        44,278         24,031       3,715       49,635

Selling, general and administrative expenses         6,888          5,760       1,283        7,570
                                               -----------    -----------    --------    ---------
        Income from operations .............        37,390         18,271       2,432       42,065

Interest expense ...........................        35,720         35,157          76        1,630

Other income (expense)
   Loss on disposal of assets and
      investment securities, net ...........          (436)          --          (280)      (3,099)
   Impairment of investment in land ........          --             --          --        (12,592)
   Other, net ..............................           993          2,271         (88)        (236)
                                               -----------    -----------    --------    ---------
                                                       557          2,271        (368)     (15,927)
                                               -----------    -----------    --------    ---------
        Income (loss) before income taxes,
          extraordinary loss and minority
          interest .........................         2,227        (14,615)      1,988       24,508

Provision (benefit) for income taxes .......         3,624         (3,342)        761        7,903
                                               -----------    -----------    --------    ---------

        Income (loss) before extraordinary
          loss and minority interest .......        (1,397)       (11,273)      1,227       16,605

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

        Net income (loss) ..................   $    (1,397)   $   (12,729)   $  1,236    $  16,748
                                               ===========    ===========    ========    =========
Pro Forma net income to reflect
   income taxes for Affiliate (Note 7) .....          --             --      $  1,236    $  15,098
                                               ===========    ===========    ========    =========
Basic loss per common share:
       Before extraordinary loss ...........   $     (0.34)   $     (2.71)       --           --
       Extraordinary loss ..................          --             (.35)       --           --
                                               -----------    -----------    --------    ---------
                                               $     (0.34)   $     (3.06)       --           --
                                               ===========    ===========    ========    =========
Weighted average shares outstanding ........     4,162,000      4,162,000        --           --
                                               ===========    ===========    ========    =========
</TABLE>
          See accompanying notes to consolidated financial statements.

                                      -23-
<PAGE>


               TEXAS PETROCHEMICALS CORPORATION (AND PREDECESSOR)
                 CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
                 (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
                                                                               RETAINED  UNREALIZED
                                        ADDITIONAL  NOTE    CLASS A  CLASS B  AFFILIATE  EARNINGS    LOSS ON
                                 COMMON  PAID IN  RECEIVABLE COMMON  COMMON    COMMON  (ACCUMULATED)INVESTMENT  TREASURY
                                 STOCK   CAPITAL  FROM ESOP  STOCK    STOCK     STOCK    (DEFICIT)  SECURITIES   STOCK       TOTAL
                                 ------  -------  --------   -----   -------   -------   ---------   -------   --------   ---------
<S>                              <C>     <C>      <C>        <C>     <C>       <C>       <C>         <C>       <C>        <C>      
PREDECESSOR COMPANY:
Balance, May 31, 1995 ..........   --       --        --     $ 200   $ 5,021   $ 1,000   $ 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 .   --       --        --      --      (1,214)     --       (71,626)     --       72,840        --   
Cancellation of Class B Common .   --       --        --      --          (7)     --          (461)     --          468        --
Redemption and cancellation  of    --       --        --      --        --        --          --        --         --          --   
   Affiliate common stock ......   --       --        --      --        --      (1,000)       --        --         --        (1,000)
                                 ------  -------  --------   -----   -------   -------   ---------   -------   --------   ---------
Balance, May 31, 1996 ..........   --       --        --       200     3,800      --        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 .........   --       --        --       200     3,800      --        89,865    (1,388)      --        92,477

THE COMPANY:
Adjustments due to
    Acquisition ................ $4,162  $71,643  $(10,000)   (200)   (3,800)     --       (89,865)    1,388       --       (26,672)
Net loss .......................   --       --        --      --        --        --       (12,729)     --         --       (12,729)
Reduction in ESOP Note .........   --       --       2,000    --        --        --          --        --         --         2,000
                                 ------  -------  --------   -----   -------   -------   ---------   -------   --------   ---------
Balance, June 30, 1997 .........  4,162  $71,643    (8,000)   --        --        --       (12,729)     --         --        55,076
Net loss .......................   --       --        --      --        --        --        (1,397)     --         --        (1,397)
Reduction in ESOP Note .........   --       --       2,000    --        --        --          --        --         --         2,000
                                 ------  -------  --------   -----   -------   -------   ---------   -------   --------   ---------
Balance June 30, 1998 .......... $4,162  $71,643  $ (6,000)  $--     $  --     $  --     $ (14,126)  $  --     $   --     $  55,679
                                 ======  =======  ========   =====   =======   =======   =========   =======   ========   =========
</TABLE>
          See accompanying notes to consolidated financial statements.

                                      -24-
<PAGE>
               TEXAS PETROCHEMICALS CORPORATION (AND PREDECESSOR)
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                            (IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
                                                                  COMPANY            PREDECESSOR
                                                            -------------------   ------------------
                                                                                    ONE       TWELVE
                                                             YEAR       YEAR       MONTH      MONTHS
                                                            ENDED       ENDED      ENDED      ENDED
                                                           JUNE 30,    JUNE 30,   JUNE 30,    MAY 31,
                                                             1998       1997        1996       1996
                                                           --------   ---------   --------   --------
<S>                                                        <C>        <C>         <C>        <C>     
Cash flows from operating activities:
    Net income (loss) ...................................  $ (1,397)  $ (12,729)  $  1,236   $ 16,748
    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 ........................    25,208      24,810      1,259     14,768
    Amortization of intangibles .........................     6,579       5,066         18        214
    Amortization of debt issue costs and deferred premium     1,089       1,435       --         --
    Deferred income taxes ...............................    (1,680)     (2,897)      (237)    (5,829)
    Earnings from limited partnership ...................      (476)       (670)       190        202
    Change in:
       Accounts receivable ..............................      (636)     (9,382)     7,723      1,593
       Inventories ......................................       716      (5,993)     3,069      2,230
       Other assets .....................................     1,843      (4,906)     1,424     (3,616)
       Accounts payable, accrueds and other .............     3,661       2,051       (768)     5,597
                                                           --------   ---------   --------   --------
         Net cash provided by
          (used in) operating activities ................    34,907      (1,759)    13,914     44,499

Cash flows from investing activities:
    Capital expenditures ................................   (12,466)     (7,634)    (1,997)    (5,462)
    Proceeds from asset sales ...........................       871       4,754       --         --
    Acquisition of the Company, net of cash acquired ....      --      (366,277)      --         --
    Distribution received from partnership ..............       410         525       --         --
    Purchase of investment securities ...................      --          --         --      (19,138)
    Proceeds from sale of Predecessor assets ............      --        16,288        702     32,821
                                                           --------   ---------   --------   --------
         Net cash provided by (used in)
          investing activities ..........................   (11,185)   (352,344)    (1,295)     8,221

Cash flows from financing activities:
    Bank overdraft ......................................   (10,157)     10,157    (12,382)    12,382
    Net borrowings on revolving line of credit ..........      --        (1,000)     3,000     10,000
    Proceeds from issuance of long-term debt ............     3,192     368,000       --         --
    Payments on long-term debt ..........................    (9,706)    (62,219)      --       (1,022)
    Cash bonus plan payments ............................    (7,807)     (9,406)      --         --
    Debt issuance and organizational costs ..............      (389)    (15,839)      --         --
    Investment by Parent ................................      --        62,511       --         --
    Reduction in note receivable from ESOP ..............     2,000       2,000       --         --
    Dividends paid ......................................      --          --         --      (16,526)
    Predecessor common stock transactions ...............      --          --         --      (73,840)
                                                           --------   ---------   --------   --------
         Net cash provided by (used in)
          financing activities ..........................   (22,867)    354,204     (9,382)   (69,006)
                                                           --------   ---------   --------   --------

Net increase (decrease) in cash and cash equivalents ....       855         101      3,237    (16,286)
Cash and cash equivalents, beginning ....................       101        --        1,543     17,829
                                                           --------   ---------   --------   --------
Cash and cash equivalents, ending .......................  $    956   $     101   $  4,780   $  1,543
                                                           ========   =========   ========   ========
</TABLE>
          See accompanying notes to consolidated financial statements.

                                      -25-
<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.

                                      -26-
<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.

                                      -27-
<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 years ended June 30,
1998 and 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.

                                      -28-
<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 for
major units of the manufacturing facilities are capitalized and amortized over
the life of the turnaround. 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.

                                      -29-
<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 reported 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 ("FASB") 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." During 1998, the FASB issued
SFAS No. 132 "Employers Disclosures about Pensions and Other Postretirement
Benefits," and SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." The Company has adopted the provisions of SFAS No. 128 and SFAS No.
129 with no material revisions to the disclosure in the financial statements.
SFAS No. 130, SFAS No. 131, and SFAS No. 132 are effective for fiscal years
beginning after December 15, 1997. SFAS No. 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999. The Company will analyze
these pronouncements to determine what, if any, additional disclosures will be
required thereunder.

RECLASSIFICATIONS

    Certain reclassifications have been made to previously issued financial
statements to conform to the current presentation.

                                      -30-
<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.

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

INVENTORIES:

                                                            JUNE 30,    JUNE 30,
                                                              1998        1997
                                                            --------    --------
      Finished goods ...................................    $  4,701    $  8,500
      Raw materials ....................................      10,415       7,504
      Chemicals and supplies ...........................       2,094       1,922
                                                            --------    --------
                                                            $ 17,210    $ 17,926
                                                            ========    ========
PROPERTY, PLANT AND EQUIPMENT:

                                                            JUNE 30,    JUNE 30,
                                                              1998        1997
                                                            --------    --------
      Chemical plants ..................................    $260,808    $259,293
      Construction in progress .........................      13,624       3,047
      Other ............................................       2,308       1,934
                                                            --------    --------
                                                             276,740     264,274
      Less accumulated depreciation, depletion
          and amortization .............................      49,523      24,315
                                                            --------    --------
                                                            $227,217    $239,959
                                                            ========    ========

                                      -31-
<PAGE>
               TEXAS PETROCHEMICALS CORPORATION (AND PREDECESSOR)
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

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

OTHER ASSETS:

                                                         JUNE 30,       JUNE 30,
                                                           1998           1997
                                                         --------       --------
      Debt issue costs ...........................       $ 13,415       $ 13,026
      Organizational costs .......................            573            573
      Intangibles and other ......................          4,502          2,000
                                                         --------       --------
                                                           18,490         15,599
      Less accumulated amortization ..............          5,811          3,274
                                                         --------       --------
                                                         $ 12,679       $ 12,325
                                                         ========       ========
ACCRUED EXPENSES:
                                                         JUNE 30,       JUNE 30,
                                                           1998           1997
                                                         --------       --------
      Accrued interest ...........................       $ 14,581       $ 13,203
      Property and sales taxes ...................          2,836          2,866
      Federal and state income taxes .............            710            135
      Other ......................................            741            713
                                                         --------       --------
                                                         $ 18,868       $ 16,917
                                                         ========       ========
6. LONG-TERM DEBT
                                                         JUNE 30,       JUNE 30,
                                                           1998           1997
                                                         --------       --------
     Bank Credit Agreement:
      Term A Loan ................................       $ 21,003       $ 25,781
      Term B Loan ................................         42,393         44,000
      ESOP Loan ..................................          6,000          8,000
      Revolving Credit Loans .....................         12,000         12,000
     Senior Subordinated Notes ...................        225,000        225,000
     Deferred premium on Senior
      Subordinated Notes .........................          2,571          2,893
     Long-term financing .........................          1,871           --
                                                         --------       --------
                                                          310,838        317,674
      Less current maturities ....................          6,982          6,438
                                                         --------       --------
      Long-term debt .............................       $303,856       $311,236
                                                         ========       ========

                                      -32-
<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, 1998) or the greater of the prime rate and the federal
funds rate plus 1/2% plus a margin (1.5% at June 30, 1998). 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 June 30,
1998 the Company obtained an amendment to the Bank Credit Agreement to update
the financial ratios relating to fixed charge coverage and debt to EBITDA for
fiscal 1999 and part of fiscal 2000.

    The fair value of the Senior Subordinated Notes, based on quoted market
prices, was approximately $244 million and $242 million as of June 30, 1998 and
1997, respectively. 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, 1998 and 1997.

   In February 1998, the Company entered into a three-year swap agreement for
$125 million of its Senior Subordinated Notes. The swap agreement effectively
converts a portion of the 11 1/8% fixed rate Senior Subordinated Notes to a
floating debt with a structured collar. Under the agreement the Company's
interest rate is fixed at 10.8% while LIBOR is set between 5.45% and 6.75%. If
LIBOR rates are set above 6.75% the Company's interest rate is floating at
current LIBOR plus 5.35%. If LIBOR rates are set between 5.25% and 5.45% the
Company's interest rate is floating at current LIBOR plus 5.35%. If LIBOR rates
are set below 5.25% the Company's interest rate is fixed at 10.8%. As of June
30, 1998 LIBOR rates were set at 5.69%. In June 1998, the Company entered into a
three-year interest rate cap for $64 million of its senior debt under the Bank
Credit Agreement. The cap effectively converts a portion of the Company's
floating rate bank debt to a fixed rate of 6.75% plus the margin if LIBOR rates
are set above 6.75%. The principal amount of the cap amortizes from $64 million
to $32 million on a quarterly basis over the three-year term.

   The net premiums paid for interest rate swap agreements are charged to
expense over the terms of the agreements. The Company is exposed to credit
losses in the event of nonperformance by a counterparty to the derivative
financial instruments. The Company anticipates, however, that the counterparties
will be able to fully satisfy obligations under the contracts. Market risk
arises from changes in interest rates.

                                      -33-
<PAGE>
               TEXAS PETROCHEMICALS CORPORATION (AND PREDECESSOR)
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

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

          FISCAL YEAR
            1999 .......................      $ 6,982
            2000 .......................        7,461
            2001 .......................        7,486
            2002 .......................        6,386
            2003 .......................       30,303

7.  FEDERAL AND STATE INCOME TAXES

    Significant components of the Company's deferred tax assets and liability at
June 30, 1998 and June 30, 1997 are as follows (in thousands of dollars):

                                                         JUNE 30,      JUNE 30,
                                                            1998         1997
                                                          --------     --------
    Deferred tax asset (liability) - current:
       Net operating loss carryforward ...............    $   --       $  1,292
       Cash bonus plan ...............................       2,756        2,756
       Turnaround costs ..............................        (443)        --
       Other .........................................         (49)        --
       Accrued liabilities ...........................        --           (446)
                                                          --------     --------
                                                          $  2,264     $  3,602
                                                          ========     ========
    Deferred tax asset (liability) - noncurrent:
       Investment in land ............................    $  4,813     $  4,660
       Cash bonus plan ...............................       3,466        6,200
       Property, plant and equipment .................     (71,000)     (76,819)
       Other .........................................        (220)        --
                                                          --------     --------
                                                          $(62,941)    $(65,959)
                                                          ========     ========

    The current deferred tax asset is included in other current assets in the
accompanying balance sheet. The provision for federal and state income taxes is
comprised of the following (in thousand of dollars):

                                             COMPANY             PREDECESSOR
                                        -----------------   -------------------
                                                              ONE      TWELVE
                                         YEAR      YEAR      MONTH     MONTHS
                                         ENDED    ENDED      ENDED      ENDED
                                        JUNE 30,  JUNE 30,  JUNE 30,    MAY 31,
                                         1998      1997       1996       1996
                                        -------   -------   --------   --------
Current:
    Federal ..........................  $ 4,368   $  (508)  $    880   $ 12,150
    State ............................      936        63        118      1,582
                                        -------   -------   --------   --------
                                          5,304      (445)       998     13,732
                                        -------   -------   --------   --------
Deferred:
    Federal ..........................   (1,680)   (2,897)      (210)    (5,461)
    State ............................     --        --          (27)      (368)
                                        -------   -------   --------   --------
                                         (1,680)   (2,897)      (237)    (5,829)
                                        -------   -------   --------   --------
       Total provision (benefit)
         for income taxes ............  $ 3,624   $(3,342)  $    761   $  7,903
                                        =======   =======   ========   ========
       Pro Forma income
         tax provision ...............     --        --     $    761   $  9,553
                                        =======   =======   ========   ========

                                      -34-
<PAGE>
               TEXAS PETROCHEMICALS CORPORATION (AND PREDECESSOR)
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

    Pro Forma income tax provision 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.

    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       YEAR         MONTH     MONTHS
                                             ENDED      ENDED        ENDED     ENDED
                                            JUNE 30,   JUNE 30,     JUNE 30,   MAY 31,
                                              1998       1997        1996       1996
                                            --------   --------    --------   --------
<S>                                         <C>        <C>         <C>        <C>     
Statutory federal income tax rate ........        35%        35%         35%        35%
Computed "expected" federal income tax ...  $    779   $ (5,115)   $    696   $  8,578
Increase (decrease) in tax resulting from:
    Affiliate earnings not subject to
      federal income tax .................      --         --          --       (1,651)
    State income taxes, net of
      federal benefit ....................       608         41          59        789
    Other, net ...........................       328         22           6        280
    Amortization of goodwill and other ...     1,909      1,710        --          (93)
                                            --------   --------    --------   --------
Provision (benefit) for income taxes .....  $  3,624   $ (3,342)   $    761   $  7,903
                                            ========   ========    ========   ========
</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       YEAR       MONTH      MONTHS
                                        ENDED      ENDED      ENDED      ENDED
                                       JUNE 30,   JUNE 30,   JUNE 30,    MAY 31,
                                          1998      1997       1996       1996
                                       --------   --------   --------   --------
    Interest .......................   $ 33,735   $ 20,600   $     62   $  2,330
    Income taxes ...................      1,641        967        877     14,756

                                      -35-
<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, $0.8 million, $0.04 million and $0.8 million, for
the years ended June 30, 1998 and 1997, for the one-month period ended June 30,
1996 and for the twelve months ended May 31, 1996, respectively. The Company is
also obligated under an operating lease to Hollywood/Texas Olefins, Ltd. for the
rental of one barge.

    Total rent expense was approximately $3.6 million, $3.9 million, $0.4
million and $4.8 million (net of reimbursements described above and including
$0.7 million, $1.8 million, $0.2 million and $2.0 million for the rental of
barges) for the years ended June 30, 1998 and 1997, for the one month period
ended June 30, 1996 and for the twelve months ended May 31, 1996, respectively.
Future minimum lease payments at June 30, 1998 are as follows (in thousands of
dollars):

           FISCAL YEAR
             1999 ................................      $3,945
             2000 ................................       3,392
             2001 ................................       2,722
             2002 ................................       1,890
             2003 ................................         492

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, results of
operations or cash flows.

                                      -36-
<PAGE>
               TEXAS PETROCHEMICALS CORPORATION (AND PREDECESSOR)
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

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. 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.

                                      -37-
<PAGE>
               TEXAS PETROCHEMICALS CORPORATION (AND PREDECESSOR)
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

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.

    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.

                                      -38-
<PAGE>
               TEXAS PETROCHEMICALS CORPORATION (AND PREDECESSOR)
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

    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.

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.

                                      -39-
<PAGE>
               TEXAS PETROCHEMICALS CORPORATION (AND PREDECESSOR)
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

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 $167,634, $169,591, $14,786 and $195,627 for
the years ended June 30, 1998 and 1997, for the one month period ended June 30,
1996 and for the twelve month period ended May 31, 1996, respectively.
Additionally, the Company made additional discretionary contributions to the
plan which amounted to approximately $2.1 million, $1.1 million, $0.2 million
and $2.4 million for the years ended June 30, 1998 and 1997, for the one month
period ended June 30, 1996 and for the twelve month period ended May 31, 1996,
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 are used to retire
principal and pay interest on the loan is reported as compensation expense.
Principal and interest payments made for the years ended June 30, 1998 and 1997
amounted to $2.6 million and $2.7 million, respectively. As of June 30, 1998,
40,000 shares have been allocated to employees.

  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.

                                      -40-
<PAGE>
               TEXAS PETROCHEMICALS CORPORATION (AND PREDECESSOR)
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

12.  RELATED PARTY TRANSACTIONS

   In June 1998 the Company made a loan to its Vice President, Finance and
Corporate Development (Mr. Stutts) in the amount of $200,000 of which $145,129
remained outstanding as of September 24, 1998. The proceeds from the loan were
utilized to purchase outstanding shares of the Company's common stock at fair
market value. The loan carries an interest rate of 7%. During fiscal 1998 the
Company made payments totaling $500,000 to a consulting firm (ENPAL) whose
majority shareholder is also an outside director and shareholder of the Company
(Mr. Cain). The Chairman of the Company (Mr. McMinn) receives annual
compensation of $150,000 for consulting services provided to the Company and
reimbursements of approximately $25,000 per year for office expenses. 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 years ended June 30, 1998 and 1997, the one
month period ended June 30, 1996 and the twelve month period ended May 31, 1996
approximately 41%, 41%, 46% and 50%, respectively, of the Company's sales were
to four customers. The Company had two customers, which represented 13% and 15%
of sales during the year ended June 30, 1998, 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 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, 1998 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. The Company enters into certain derivative financial instruments as
part of its interest rate risk management. Interest rate swaps, caps, collars
and floors are classified as matched transactions. The differential to be paid
or received as interest rates change is accrued and recognized as an adjustment
to interest expense.

   The fair value of derivative financial instruments are the amounts at which
they could be settled base on estimates from dealers. As of June 30, 1998, the
carrying amounts and estimated fair values of derivative financial instruments
were not significant.

                                      -41-
<PAGE>
ITEM 9. CHANGES IN AND DIAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
        DISCLOSURE

    None.

                                    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. 
<TABLE>
<CAPTION>
                                                                                    YEARS OF SERVICE WITH 
                                                                                           THECOMPANY  
NAME                        AGE    POSITION                                           OR ITS PREDECESSORS
-------------------         ---    ----------------------------------------------   ---------------------
<S>                         <C>    <C>                                              <C>
Gordon A. Cain               86    Director                                                    14
Hunter W. Henry Jr.          70    Director                                                     -
William R. Huff              48    Director                                                     2
William A. McMinn            68    Director and Chairman                                       14
Steve A. Nordaker            51    Director                                                     1
Gary L. Rosenthal            49    Director                                                     -
Susan O. Rheney              39       Director                                                  2
John T. Shelton              67    Director                                                    14
B. W. Waycaster              59    Director, President and Chief Executive Officer              5
Bill R. McNeese              64    Vice President, Operations                                  10
H.E. Sebastian               54    Vice President, Marketing                                    -
Carl S. Stutts               51    Vice President, Finance and Corporate Development            -
Ronald W. Woliver            58    Vice President, Market Development 29
Stephen R. Wright            50    Vice President, Secretary and General Counsel                2
</TABLE>
     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.

                                      -42-
<PAGE>
    Mr. Henry has held various manufacturing management positions in Dow
Chemical Company, including Vice President - Business Operations for Latin
America, Vice President - Manufacturing Dow Badische, General Manager - Michigan
Division, President - Dow Brazil, President - Dow USA and Executive Vice
President of Dow Chemical Company (1982 - 1988). Mr. Henry was on Dow's board
from 1979 to 1993 and has served on the Executive, Compensation, Health and
Safety Committees and as Chairman of the Finance and Investment Policy
Committee. Mr. Henry also served as Chairman of the Board of Dowell
Schlumberger, 1985 - 1988.

    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 The Sterling Group, Inc. 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. Rosenthal serves as President of Heaney Rosenthal, Inc., which focuses
on investment, acquisition and advice to various businesses. Mr. Rosenthal
served as Chairman of the Board (1990 - 1994) and CEO (1994) of Wheatley TXT
Corp. He serves a Chairman of the Board of Diamond Products International, Inc.
and since July 1998 has served as Chairman of the Board of AXIA Group, 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.

                                      -43-
<PAGE>
    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.

   Mr. Sebastian joined the Company in March 1998 after performing consulting
activities in chemical and oil products marketing, operations and logistics,
specializing in buying and selling physical assets and companies. Prior to that,
he was Executive Vice President of Commonwealth Oil Refining Company and a
Co-Founder of Arochem Corporation, both with refinery and petrochemical
operations in Puerto Rico. He also brings extensive marketing and trading
experience from Exxon Chemical Company and Phibro Energy.

    Mr. Stutts joined the Company in April 1998 as Vice President of Finance and
Corporate Development. Previously, he was a general partner of Columbine Venture
Funds, an institutional venture capital fund focusing on investments in early
stage companies. From 1971 to 1988 he held various management positions in
Tenneco, Inc. and its subsidiary companies.

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

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.

                                      -44-
<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 years ended June 30,
1998 and 1997, the twelve months ended May 31, 1996.

                           SUMMARY COMPENSATION TABLE

NAME AND PRINCIPAL POSITION                  YEAR(1)   SALARY        BONUS(2)
-----------------------------------------    ----    ----------    ----------
B. W. Waycaster, President and ..........    1998    $  300,000    $  507,186
  Chief Executive Officer ...............    1997       300,000       326,787
                                             1996       300,000     2,899,100

Ronald W. Woliver, Vice
  President, Marketing ..................    1998    $  180,000    $  281,138
                                             1997       180,000       127,393
                                             1996       180,000     1,012,300

Stephen R. Wright, Vice
 President, Secretary and ...............    1998    $  180,000    $  281,138
 General Counsel ........................    1997       165,000        50,104

Bill R. McNeese,
Vice  President, Operations .............    1998    $  150,000    $  236,251
                                             1997       148,500        63,869
                                             1996       132,000        72,293

H.E. Sebastian ..........................    1998    $   58,333    $   19,779
 Vice President, Marketing

Carl S. Stutts, Vice President, .........    1998    $   41,761    $     --
  Finance and Corporate Development


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

(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 $21,149 for Mr. McNeese.

                                      -45-
<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

   In June 1998 the Company made a loan to its Vice President, Finance and
Corporate Development (Mr. Stutts) in the amount of $200,000 of which $145,129
remained outstanding as of September 24, 1998. The proceeds from the loan were
utilized to purchase outstanding shares of the Company's common stock at fair
market value. The loan carries an interest rate of 7%. During fiscal 1998 the
Company made payments totaling $500,000 to a consulting firm (ENPAL) whose
majority shareholder is also an outside director and shareholder of the Company
(Mr. Cain). The Chairman of the Company (Mr. McMinn) receives annual
compensation of $150,000 for consulting services provided to the Company and
reimbursements of approximately $25,000 per year for office expenses. 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, 1998.

                                      -46-
<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, 1998.

 WILLIAM A. MCMINN            Chairman
 William A. McMinn

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

  GORDON A. CAIN              Director
  Gordon A. Cain

HUNTER W. HENRY JR.           Director
Hunter W. Henry Jr.

  WILLIAM R. HUFF             Director
  William R. Huff

 STEVE A. NORDAKER            Director
 Steve A. Nordaker

  SUSAN O. RHENEY             Director
  Susan O. Rheney


 GARY L. ROSENTHAL            Director
 Gary L. Rosenthal


  JOHN T. SHELTON             Director
  John T. Shelton

                                      -47-