<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 9, 1994
REGISTRATION NO. 33-55507
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
REXENE CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 2821 75-2104131
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification
incorporation or Classification Code Number)
organization) Number)
</TABLE>
5005 LBJ FREEWAY
OCCIDENTAL TOWER, SUITE 500
DALLAS, TEXAS 75244
(214) 450-9000
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
------------------------
BERNARD J. MCNAMEE
VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL
REXENE CORPORATION
5005 LBJ FREEWAY
OCCIDENTAL TOWER, SUITE 500
DALLAS, TEXAS 75244
(214) 450-9000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
PETER A. LODWICK KIRK A. DAVENPORT
THOMPSON & KNIGHT, LATHAM & WATKINS
A PROFESSIONAL CORPORATION 885 THIRD AVENUE, SUITE 1000
1700 PACIFIC AVENUE, SUITE 3300 NEW YORK, NEW YORK 10022
DALLAS, TEXAS 75201 (212) 906-1200
(214) 969-1700
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED NOVEMBER 9, 1994
P R O S P E C T U S
8,000,000 SHARES
[LOGO]
COMMON STOCK
--------------
The 8,000,000 shares of Common Stock, par value $.01 per share (the "Common
Stock"), being offered by the U.S. Underwriters and the Managers are being sold
by Rexene Corporation ("Rexene" or the "Company"). Of such shares, 6,400,000
shares are being offered hereby in the United States and Canada by the U.S.
Underwriters (the "U.S. Offering") and 1,600,000 shares are being offered in a
concurrent international offering outside the United States and Canada by the
Managers (the "International Offering"), subject to transfer between the U.S.
Underwriters and the Managers. The public offering price and the aggregate
underwriting discount per share will be identical for both offerings (together,
the "Common Stock Offering"). See "Underwriting."
The Common Stock is traded on the New York Stock Exchange under the symbol
"RXN." On October 19, 1994, the closing sale price of the Common Stock as
reported by the New York Stock Exchange was $14.50 per share.
Concurrently with the Common Stock Offering and in connection with the
Recapitalization described herein, the Company is publicly offering $175 million
aggregate principal amount of its % Senior Notes Due 2004 (the "Senior
Notes") pursuant to a separate prospectus (the "Notes Offering" and, together
with the Common Stock Offering, the "Offerings"). The Common Stock Offering is
contingent upon the concurrent consummation of the Notes Offering and the other
elements of the Recapitalization, including the establishment of the New Credit
Agreement (as defined herein). See "The Recapitalization."
SEE "INVESTMENT CONSIDERATIONS" FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK
OFFERED HEREBY.
--------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS
PRICE TO THE DISCOUNTS AND TO THE
PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
Per Share......................... $ $ $
Total (3)......................... $ $ $
<FN>
(1) The Company has agreed to indemnify the U.S. Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting estimated expenses of $ , payable by the Company.
(3) The Company has granted the U.S. Underwriters and the Managers 30-day
options to purchase an aggregate of up to an additional 1,200,000 shares of
Common Stock on the same terms as set forth above solely to cover
over-allotments, if any. If such over-allotment options are exercised in
full, the total Price to the Public, Underwriting Discounts and Commissions
and Proceeds to the Company will be $ , $ and $ ,
respectively. See "Underwriting."
</TABLE>
--------------
The shares of Common Stock are being offered by the several U.S.
Underwriters and the Managers named herein, subject to receipt and acceptance by
them and to their right to reject any order in whole or in part. It is expected
that delivery of the shares of Common Stock will be made on or about
, 1994 at the offices of Smith Barney Inc., 388 Greenwich Street, New
York, New York 10013.
--------------
<TABLE>
<S> <C>
SMITH BARNEY INC. WERTHEIM SCHRODER & CO.
INCORPORATED
</TABLE>
November , 1994
<PAGE>
IN CONNECTION WITH THE OFFERINGS, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK,
THE SENIOR NOTES OR BOTH AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN
THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK
EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
[Photos of principal end market products to come]
<PAGE>
[Photos of principal end market products to come]
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY SHOULD BE READ IN CONJUNCTION WITH, AND IS QUALIFIED
IN ITS ENTIRETY BY, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS,
INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS OR IN
DOCUMENTS INCORPORATED IN THIS PROSPECTUS BY REFERENCE. UNLESS OTHERWISE
INDICATED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES THAT THE UNDERWRITERS'
OVER-ALLOTMENT OPTION TO PURCHASE A TOTAL OF 1,200,000 SHARES OF COMMON STOCK
FROM THE COMPANY IN CONNECTION WITH THE COMMON STOCK OFFERING WILL NOT BE
EXERCISED. UNLESS OTHERWISE INDICATED, ALL INDUSTRY DATA INCLUDED IN THIS
PROSPECTUS ARE DERIVED FROM INFORMATION AVAILABLE FROM OR PROVIDED BY CHEMICAL
MARKETING ASSOCIATES, INC. ("CMAI"), AN INDUSTRY CONSULTANT.
A GLOSSARY OF INDUSTRY TERMS APPEARS ON PAGE 9.
THE COMPANY
Rexene Corporation manufactures and markets a wide variety of products
ranging from value added specialty products, such as customized plastic films,
to commodity petrochemicals, such as styrene. These products are sold to a
diverse customer base and are used in a wide variety of industrial and consumer-
related applications. The Company's principal products are plastic film,
polyethylene, polypropylene and REXTAC-R- amorphous polyalphaolefin ("APAO")
resins and styrene. In addition, the Company manufactures, primarily for its own
consumption, ethylene and propylene, the two basic chemical building blocks of
the Company's principal products. The Company believes this captive olefins
source of supply provides it with an advantage over competitors that do not
produce ethylene and propylene. The Company manufactures plastic film at five
plants located in the U.S. and England and polymers and petrochemicals at an
integrated facility in Odessa, Texas (the "Odessa Facility") which is located
near supplies of most of its feedstocks.
The Company believes that it has built a strong customer base and reputation
for quality primarily due to (i) its focus on a high degree of customer service
and the production of value added specialty products, (ii) its manufacturing and
marketing expertise and (iii) the experience and commitment of its operating
management. In addition, the Company believes that it has developed a strategy
to allow it to compete effectively in its markets against larger competitors in
both periods of rising and declining product prices.
CT FILM. Through its Consolidated Thermoplastics division ("CT Film"), the
Company produces specialty grades of polyethylene films used in disposable
diapers, feminine hygiene products, medical products, tapes, packaging,
lamination and unsupported overwraps and greenhouse and agricultural
applications. CT Film's plants, located in Chippewa Falls, Wisconsin;
Clearfield, Utah; Dalton, Georgia; Harrington, Delaware; and Scunthorpe,
England, have a total rated annual production capacity of approximately 245
million pounds. From January 1, 1992 through September 30, 1994, the weighted
average utilization rate for these facilities (exclusive of Scunthorpe) was 77%.
CT Film's sales increased from $109 million in 1989 to approximately $147
million in 1993, an increase of approximately 35%, while its total rated annual
production capacity expanded by 41%. In September 1994, CT Film commenced
operation of its first overseas plant in Scunthorpe, England, which was built
primarily to service a new U.K. facility of CT Film's major customer,
Kimberly-Clark Corporation. In 1993, CT Film had sales of approximately $147
million, or 34% of the Company's net sales.
POLYETHYLENE. Polyethylene, the world's most widely produced polymer, is
used in the manufacture of packaging and nonpackaging films, coatings for paper
products, wire and cable applications, bottles and profile and foam extrusions.
The Company currently produces a variety of grades of high pressure, low density
polyethylene ("HPLDPE") for use in food packaging, industrial packaging, medical
bottles, produce films, laminated structures, paper coatings and other
applications. The Company seeks to compete with larger polyethylene producers by
targeting customers that require smaller lot sizes of specially tailored, high
quality products. This strategy generally affords the Company opportunities for
premium pricing relative to commodity grades of polyethylene. The Company
believes that the Odessa Facility, which has relatively small reactors and a
total rated annual production capacity for polyethylene of approximately 405
million pounds, is well positioned to compete in these markets. From January 1,
1992 through September 30, 1994, the weighted average utilization rate for the
Company's polyethylene facilities was 97%. In 1993, the Company had polyethylene
sales of approximately $120 million, or 28% of the Company's net sales.
3
<PAGE>
POLYPROPYLENE. Polypropylene is one of the fastest growing major polymers
in the world. The Company manufactures polypropylene for use in specialized
manufacturing applications in the medical, electrical and food packaging
markets. The Company seeks to compete with larger polypropylene producers by
focusing on specialty products that generally afford opportunities for premium
pricing relative to commodity grades of polypropylene. The Odessa Facility has a
total rated annual production capacity for polypropylene of approximately 180
million pounds. From January 1, 1992 through September 30, 1994, the weighted
average utilization rate for the Company's polypropylene facilities was 88%. In
1993, the Company had polypropylene sales of approximately $64 million, or 15%
of the Company's net sales.
APAO. The Company is a major producer of APAO, a special purpose polymer
used in the production of adhesives, sealants, roofing materials, paper
lamination and wire and cable applications. The Company estimates that in 1993
Rexene accounted for approximately 30% of total U.S. market for APAO and atactic
polypropylene. The Odessa Facility has a total rated annual production capacity
for APAO of approximately 45 million pounds. From January 1, 1992 through
September 30, 1994, the weighted average utilization rate for the Company's APAO
facilities was 85%. In 1993, the Company had APAO sales of approximately $15
million, or 4% of the Company's net sales.
STYRENE. Styrene is a raw material used principally in the production of
polymers used to manufacture products such as disposable cups and trays,
luggage, housewares, toys and building products. The Odessa Facility has a total
rated annual production capacity for styrene of approximately 320 million
pounds. From January 1, 1992 through September 30, 1994, the weighted average
utilization rate for the Company's styrene facilities was 88%. In 1993, the
Company had styrene sales of approximately $61 million, or 14% of the Company's
net sales.
The corporate headquarters of Rexene, a Delaware corporation, are located at
5005 LBJ Freeway, Dallas, Texas 75244, and its telephone number is 214/450-9000.
BUSINESS STRATEGY
The Company's operating strategy to market value added specialty products
and to improve its operating costs is designed to allow it to compete
effectively against larger competitors in both periods of rising and declining
product prices. The Company believes that its operating strategy will enable it
to take advantage of improved market conditions in a strong economy and to
lessen the impact of depressed pricing and demand in market downturns. Over the
longer term, Rexene will seek to improve its profitability by (i) maintaining
its customer driven focus to provide value added specialty products and quality
service, (ii) focusing on niche markets which optimize the use of the Odessa
Facility, (iii) continuing to develop its plastic film business, (iv) developing
new products and applications through technological innovation, (v) continuing
to improve operating efficiencies, (vi) continuing to reinvest in its core
plastic film and polymer businesses and (vii) continuing to reduce its balance
sheet leverage.
RECENT INDUSTRY TRENDS
The polyethylene, polypropylene and styrene markets in which Rexene competes
are cyclical markets that are sensitive to relative changes in supply and
demand, which are in turn affected by general economic conditions. Historically,
these markets have experienced alternating periods of tight supply and rising
prices and profit margins, followed by periods of large capacity additions
resulting in oversupply and declining prices and margins. Following a
significant improvement in domestic economic growth since the second half of
1993, these markets experienced increased levels of demand which have resulted
in greater capacity utilization and higher domestic and export prices. According
to CMAI, during the first six months of 1994, domestic demand for low density
polyethylene ("LDPE"), polypropylene and styrene increased by approximately 9%,
14% and 5%, respectively, compared to the first six months of 1993. This
increase in demand has enabled the Company and the petrochemical industry in
general to increase selling prices significantly at a time when feedstock costs
have either not increased or only increased modestly compared to end product
prices. For example, from December 1993 to September 1994, the Company increased
the average selling prices of its polyethylene, polypropylene and styrene by
28%, 18% and 66% per pound, respectively. During the same period, prices for the
Company's major feedstocks, ethane and propane, were relatively stable, and the
price for benzene increased 63%.
4
<PAGE>
THE RECAPITALIZATION
The Common Stock Offering is part of a recapitalization plan (the
"Recapitalization") designed to increase stockholders' equity, reduce
indebtedness and interest expense and improve the strategic, operating and
financial flexibility of the Company. The Company believes that the
Recapitalization should better position Rexene to continue to reduce its balance
sheet leverage through the use of cash flow from operations. The
Recapitalization includes (i) the Offerings, (ii) the establishment of a new
credit facility (the "New Credit Agreement"), providing the Company with a $100
million term loan (the "Term Loan"), which will be drawn down at the closing of
the Recapitalization, and an $80 million revolving line of credit (the
"Revolving Credit Facility"), which is not expected to be drawn down at such
closing, (iii) the call for redemption of the Company's Increasing Rate Senior
Notes Due 1999 (the "Old Senior Notes") and Increasing Rate Subordinated Notes
Due 2002 (the "Old Subordinated Notes" and, together with the Old Senior Notes,
the "Old Notes"), and (iv) the repayment in full of the outstanding indebtedness
under the Company's existing credit agreement with Transamerica Business Credit
Corporation (the "Old Credit Agreement").
The following table sets forth the estimated sources and uses of funds for
the Recapitalization, assuming consummation as of November 15, 1994. In the
event that the aggregate gross proceeds from the Offerings are less than $291
million, the Company may be required to arrange for alternative sources of cash,
which could include additional borrowings under the New Credit Agreement or
utilizing cash on hand, or a combination thereof. At September 30, 1994, the
Company had unrestricted cash on hand of approximately $50.7 million.
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
SOURCES:
Common Stock Offering (1)............................................................. $ 116,000
Notes Offering (1).................................................................... 175,000
Borrowings under New Credit Agreement................................................. 100,000
--------------
Total sources....................................................................... $ 391,000
--------------
--------------
USES:
Repay Old Senior Notes (2)(3)......................................................... $ 253,000
Repay Old Subordinated Notes(2)(3).................................................... 99,629
Repay borrowings under Old Credit Agreement........................................... 9,000
Estimated fees and expenses (4)....................................................... 16,441
Excess cash (5)....................................................................... 12,930
--------------
Total uses.......................................................................... $ 391,000
--------------
--------------
<FN>
- ------------------------
(1) Represents gross proceeds.
(2) Includes aggregate unamortized discount of approximately $59.9 million for
the Old Notes at November 15, 1994.
(3) Excludes accrued interest of approximately $11.6 million on the Old Senior
Notes and $5.1 million on the Old Subordinated Notes that will be paid from
the Company's existing cash balances on November 15, 1994.
(4) Includes estimated underwriting discounts and commissions and related
expenses of the Offerings; fees and expenses associated with the New Credit
Agreement and termination of the Old Credit Agreement; and other fees and
expenses payable or reimbursable by the Company in connection with the
Recapitalization.
(5) Any excess cash will be used for working capital purposes.
</TABLE>
5
<PAGE>
THE COMMON STOCK OFFERING
<TABLE>
<S> <C>
Common Stock being offered by the Company... 8,000,000 shares (1)
Common Stock to be outstanding after the
Common Stock Offering...................... 18,624,306 shares (2)
Use of proceeds............................. Repayment of indebtedness. See "Use of
Proceeds."
NYSE symbol................................. "RXN"
Dividend Policy............................. Neither the Company nor its predecessor has
paid cash dividends during the last two fiscal
years, and the Company does not anticipate
paying cash dividends on the Common Stock in
the foreseeable future. The Old Credit
Agreement prohibits the payment of any
dividends on the Common Stock, and the New
Credit Agreement and the indenture governing
the Senior Notes (the "Indenture") will
restrict the Company's ability to pay
dividends on the Common Stock. See "Certain
Indebtedness of the Company."
Conditions to the Common Stock Offering..... The Common Stock Offering is contingent upon
the concurrent consummation of the Notes
Offering and the other elements of the
Recapitalization, including the establishment
of the New Credit Agreement. See "The
Recapitalization."
<FN>
- ------------------------
(1) Of the 8,000,000 shares offered, 6,400,000 shares are being offered in the
United States and Canada by the U.S. Underwriters and 1,600,000 shares are
being offered outside the United States and Canada by the Managers, subject
to transfers between the U.S. Underwriters and the Managers. See
"Underwriting."
(2) Based on shares outstanding as of October 19, 1994. Does not include the
shares issuable pursuant to the Underwriters' over-allotment option or up
to 876,296 shares of Common Stock issuable by the Company upon the exercise
of options outstanding on October 19, 1994. See "Capitalization."
</TABLE>
INVESTMENT CONSIDERATIONS
Prospective purchasers of the Common Stock offered hereby should consider
carefully the matters set forth herein under the caption "Investment
Considerations."
6
<PAGE>
SUMMARY SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
The following table sets forth certain selected historical and pro forma
consolidated financial data for the Company for the periods indicated. In
October 1991, the predecessor corporation of the Company ("Old Rexene") filed a
petition for reorganization under the federal bankruptcy laws from which Old
Rexene emerged on September 18, 1992, pursuant to an amended plan of
reorganization (the "Amended Plan") which provided for the merger of Old Rexene
into a wholly owned subsidiary of Old Rexene to form the Company (the
"Reorganization"). The Company adopted fresh start reporting on September 30,
1992 following consummation of the Reorganization. As a result, results of
operations (other than net sales and EBITDA) for the periods after September 30,
1992 are not comparable to results of operations prior to that date.
<TABLE>
<CAPTION>
OLD REXENE
(PREDECESSOR) THE COMPANY
--------------------------------------- ------------------------------------------------
NINE NINE MONTHS
YEARS ENDED MONTHS THREE MONTHS ENDED
DECEMBER 31, ENDED ENDED YEAR ENDED SEPTEMBER 30,
---------------------------- SEPT. 30, DECEMBER 31, DECEMBER 31, ------------------
1989 1990 1991 1992 1992 1993 1993 1994
-------- -------- -------- --------- ------------ ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL STATEMENT OF OPERATIONS
DATA:(1)
Net sales........................ $608,631 $502,186 $449,728 $316,106 $ 98,854 $429,353 $326,460 $386,153
Gross profit..................... 158,130 133,707 61,671 38,025 12,122 53,744 41,560 77,192
Operating income................. 99,938 81,100 12,028 9,392 1,418 14,504 12,191 46,285
Interest expense (2)............. 61,111 71,732 58,374 -- 12,660 49,834 36,942 37,971
Income (loss) before income taxes
and extraordinary items......... 53,956 18,360 (56,191) (28,840) (10,436) (34,183) (23,954) 10,482
Income tax (expense) benefit..... (43,751) (15,655) 13,444 (2,636) 3,908 8,940 4,319 (4,329)
Net income (loss) before
extraordinary items............. 10,205 2,705 (42,747) (31,476) (6,528) (25,243) (19,635) 6,153
Net income (loss) per share
before extraordinary items
(3)............................. $ (0.62) $ (2.40) $ (1.87) $ 0.57
Ratio of earnings to fixed
charges (3) (4)................. -- -- -- 1.23x
OTHER DATA:
Depreciation and amortization.... $ 25,381 $ 22,451 $ 23,852 $ 20,062 $ 4,315 $ 17,446 $ 12,925 $ 13,884
Capital expenditures............. 18,596 28,855 33,464 11,136 3,961 17,008 10,688 21,089
EBITDA (5)....................... 125,319 103,551 35,880 29,454 5,733 31,950 25,116 60,169
Ratio of EBITDA to interest
expense (3) (5)................. -- -- -- 1.58x
PRO FORMA STATEMENT OF OPERATIONS
DATA:(6)
Operating income................. $ 14,504 $ 46,285
Interest expense................. $ 28,384 $ 21,276
Net income (loss)................ $(11,944) $ 16,504
Net income (loss) per share...... $ (0.65) $ 0.87
EBITDA (5)....................... $ 31,950 $ 60,169
Ratio of EBITDA to interest
expense (5)..................... 1.13x 2.83x
Ratio of earnings to fixed
charges (4)..................... -- 2.13x
<CAPTION>
AT SEPTEMBER 30, 1994
------------------------
AS ADJUSTED
ACTUAL (6)
--------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents (7).... $ 52,964 $ 53,255
Working capital.................. 125,089 133,331
Total assets..................... 476,781 485,235
Long-term debt (including current
portion):
Face amount.................... 361,629 275,000
Unamortized discount (8)....... (61,120) --
--------- ------------
Net balance.................... 300,509 275,000
Stockholders' equity............. 2,606 86,792
</TABLE>
7
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
<FN>
- ------------------------------
(1) The financial results of a manufacturing facility in Bayport, Texas, which
the Company sold in February 1990, are included in the historical statement
of operations data for the years ended December 31, 1989 and 1990. Net
sales and operating income for 1989 were $124.7 million and $4.1 million,
respectively. Net sales and operating income of the Bayport manufacturing
facility for 1990 were $16.3 million and $1.8 million, respectively.
(2) Interest expense on the indebtedness of Old Rexene accrued through October
16, 1991. In addition, interest expense on such indebtedness accrued from
October 16, 1991 to December 31, 1991 in accordance with terms of an
agreement with a noteholders' committee formed as part of the
Reorganization. If the interest expense from October 16, 1991 to December
31, 1991 had been calculated under the term of the indebtedness of Old
Rexene, the interest expense for the year ended December 31, 1991 would
have aggregated $73.8 million. The Amended Plan eliminated post petition
interest requirements through June 30, 1992. Interest expense from July 1,
1992 through September 30, 1992 was not classified as interest expense but
reflected in reorganization expense. See Note 3 of the Notes to the
Consolidated Financial Statements. Non-cash interest expense (income) was
$10.8 million for the year ended December 31, 1989, ($4.6 million) for the
year ended December 31, 1990 (due to the reversal of interest previously
accrued in accordance with Emerging Issues Task Force ("EITF") Issue No.
86-15, "Increasing Rate Debt"), $3.3 million for the year ended December
31, 1991, zero for the nine months ended September 30, 1992 (due to the
Amended Plan previously noted) $6.4 million for the three months ended
December 31, 1992 and $25.4 million for the year ended December 31, 1993.
Non-cash interest expense for the nine months ended September 30, 1993 and
1994 was $18.7 million and $16.2 million, respectively.
(3) Per share data, the ratio of earnings to fixed charges and the ratio of
EBITDA to interest expense for the periods prior to September 30, 1992 are
not presented because such information is not comparable to the similar
information for the periods after September 30, 1992, the date of the
Company's adoption of "fresh start" reporting.
(4) For the purposes of determining the ratio of earnings to fixed charges,
earnings consist of income before income taxes, extraordinary items and
fixed charges. Fixed charges consist of interest on indebtedness,
including, if any, the amortization of debt issue costs, accretion of debt
discount, interest expense accrued in accordance with EITF Issue No. 86-15
(See Note 10 to the Consolidated Financial Statements) and one-third of
rental expense (which is deemed representative of the interest factor
therein). Earnings were insufficient to cover fixed charges in the
historical periods ended December 31, 1992, December 31, 1993 and September
30, 1993 by $10.7 million, $35.4 million and $25.2 million, respectively.
Earnings were insufficient to cover fixed charges for the pro forma period
ended December 31, 1993 by $13.4 million.
(5) EBITDA means operating income before depreciation and amortization. EBITDA
has been included solely to facilitate consideration of the covenants in
the indenture governing the Senior Notes that are based, in part, on EBITDA
and because the Company understands that it is used by certain investors as
one measure of a company's historical ability to service its debt. EBITDA
is not intended to represent cash flows for the period nor has it been
presented as an alternative to earnings from operations as an indicator of
operating performance and should not be considered in isolation or as a
substitute for measures of performance prepared in accordance with
generally accepted accounting principles. EBITDA for the periods ended
December 31, 1992, December 31, 1993 and September 30, 1993 was
insufficient to cover interest expense by $6.9 million, $17.9 million and
$11.8 million, respectively. Interest expense for such periods included
non-cash interest expense as described in Note 2 above.
(6) Gives effect to the Recapitalization as described under the caption "Pro
Forma Unaudited Condensed Consolidated Financial Data". See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(7) Includes restricted cash of $2.3 million.
(8) Represents the unamortized discount on the Old Notes.
</TABLE>
8
<PAGE>
GLOSSARY OF INDUSTRY TERMS
<TABLE>
<S> <C>
"APAO" -- amorphous polyalphaolefins, a special purpose polymer used
primarily in roofing materials and adhesives, manufactured
principally to replace APP.
"APP" -- atactic polypropylene, a by-product of isotatic polypropylene
manufacturing.
"benzene" -- a petrochemical produced primarily from petroleum and used in
the production of styrene.
"CMAI" -- Chemical Marketing Associates, Inc., a Houston, Texas based
industry consultant.
"copolymers" -- a polymer formed from two different chemical building blocks
(monomers).
"CT Film" -- the Company's Consolidated Thermoplastics division, which
produces specialty grades of polyethylene films.
"ethane" -- an NGL component from which ethylene is produced.
"ethylene" -- a principal raw material used by the Company to make
polyethylene and styrene.
"feedstocks" -- ethane, propane and benzene, raw materials used in the
production of ethylene, propylene and styrene.
"film" -- a thin sheet of plastic.
"FPO" -- a flexible polyolefin polymer made from propylene.
"HDPE" -- high density polyethylene resin, a homopolymer produced from
ethylene in a low pressure process.
"homopolymer" -- a polymer produced from a single monomer.
"HPLDPE" -- high pressure low density polyethylene resin.
"LDPE" -- low density polyethylene, resin including HPLDPE and LLDPE.
"liner grade" -- a multi-purpose commodity grade of polyethylene.
"LLDPE" -- linear low density polyethylene resin.
"monomer" -- a chemical building block from which a polymer is formed.
"NGL" -- natural gas liquids which are condensed from "wet" natural gas.
"olefins" -- a particular class of petrochemicals, including ethylene and
propylene.
"operating/utilization -- derived by dividing production by total rated annual production
rate" capacity.
"petrochemicals" -- organic chemicals produced from petroleum or natural gas,
including olefins, benzene and styrene.
"polyethylene" -- a polymer formed from the polymerization of mainly ethylene.
"polymer" -- products, such as polyethylene, polypropylene and APAO, made
from the polymerization of monomers, such as ethylene and
propylene.
"polypropylene" -- a polymer formed from the polymerization of mainly propylene.
"propane" -- an NGL component from which ethylene and propylene are produced.
"propylene" -- a principal raw material used by the Company to make
polypropylene and APAO.
"SPI" -- Society of the Plastics Industry Inc., an industry trade
association.
"styrene" -- a commodity petrochemical produced from ethylene and benzene.
"thermoplastic" -- a polymer which after shaping can be reshaped (within
limitations) by the application of heat.
"total rated annual -- official design capacity of plants at continuous use all year.
production capacity"
"value added specialty -- products with composition and/or performance characteristics
products" different from commodity grade products for which certain
customers are generally willing to pay a premium price.
</TABLE>
9
<PAGE>
INVESTMENT CONSIDERATIONS
The following factors, as well as the other information contained elsewhere
in this Prospectus, should be carefully considered before investing in the
securities being offered hereby.
INDUSTRY CYCLICALITY
The polyethylene, polypropylene and styrene markets in which the Company
competes are cyclical markets that are sensitive to relative changes in supply
and demand, which are in turn affected by general economic conditions.
Historically, these markets have experienced alternating periods of tight
supply, causing prices and profit margins to increase, followed by periods of
large capacity additions, resulting in oversupply and declining prices and
profit margins. In the early 1980's, overcapacity in the polyethylene and
polypropylene markets and weakened demand for styrene due to general economic
conditions led to poor operating results for the Company and the industry in
general. In the mid 1980's, construction of new production facilities slowed and
increases in production capacities due to technology improvements moderated. At
the same time, domestic demand grew significantly as a result of a stronger U.S.
economy and export sales strengthened due in part to a weaker U.S. dollar. As a
result, during fiscal years 1987 to 1989, the industry experienced increased
levels of demand for its products which resulted in near full capacity
utilization rates, higher domestic and export prices and record earnings.
Feedstock prices were also favorable during this period. In response to this
rapid increase in demand and profits, the U.S. LDPE, polypropylene and styrene
industries increased total rated annual production capacity by approximately
22%, 31% and 34%, respectively, from 1988 to 1993. From 1990 to 1993, the rate
in U.S. demand slowed as a result of general economic conditions, and
significant production capacity was added in some of the traditional export
markets in the Far East. As a consequence, the industry, including the Company,
experienced during this period an overcapacity condition that resulted in a
decline in utilization rates and substantially lower average selling prices and
profit margins.
Economic growth in the United States in late 1993 and 1994 resulted in
significantly increased demand in the petrochemical and polymer markets in which
the Company participates and higher average selling prices and higher profit
margins during 1994. However, Rexene believes that, from late 1994 to 1995,
additional total rated annual production capacity of approximately 1.7 billion
pounds in LDPE (all of which is LLDPE, which the Company does not manufacture or
sell), 230 million pounds in polypropylene and 200 million pounds in styrene
could be added to the industry by the Company's competitors. Approximately one
billion pounds of additional polypropylene capacity has been announced to be
added by the Company's competitors during 1996. During 1993, the United States
industry had total rated annual production capacity of approximately 13.7
billion pounds of LDPE, 9.8 billion pounds of polypropylene and 11.6 billion
pounds of styrene. There can be no assurance that the current growth in demand
for the Company's products will be sustained or that it will keep pace with
anticipated or unanticipated capacity additions or other events. See "--
Competition."
PRICE VOLATILITY OF PETROCHEMICAL FEEDSTOCKS
The Company uses large amounts of petrochemical feedstocks in the
manufacturing of its chemical products. The prices of feedstocks fluctuate
widely based upon the prices of natural gas and oil. During the past four years,
feedstocks accounted for between approximately 24% and 32% of the Company's
total cost of sales. While the Company tries to match cost increases with
corresponding price increases, large increases in the prices of petrochemical
feedstocks could adversely affect the Company's operating margins. There may be
periods of time during which the Company is unable to pass through to customers
increases in feedstock costs because of weakness in demand for, or oversupply
of, the Company's products. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
HIGH LEVERAGE AND SUBSTANTIAL DEBT SERVICE REQUIREMENTS
Following the Recapitalization, the Company will continue to be highly
leveraged and have substantial debt service obligations. As of September 30,
1994, on a pro forma basis after giving effect to the Recapitalization, the
Company's long-term debt would have been $265 million and the Company's
stockholders' equity would have been approximately $87 million, including an
extraordinary loss of approximately $24.2 million (net of income tax benefits)
resulting from the redemption of the Old Notes. On such a pro forma basis, this
10
<PAGE>
long-term debt would have included $90 million of borrowings under the Term Loan
and $175 million of Senior Notes. In addition, $10 million of borrowings under
the Term Loan would be reflected as the current portion of long-term debt. See
"Capitalization." The Company may incur additional indebtedness in the future,
subject to certain limitations contained in the instruments governing its
indebtedness. For a description of the New Credit Agreement and the Senior
Notes, see "Certain Indebtedness of the Company."
The degree to which the Company is leveraged could have important
consequences to holders of the Common Stock, including but not limited to, the
following: (i) the Company's ability to obtain additional financing in the
future for working capital, capital expenditures, acquisitions, general
corporate purposes or other purposes may be impaired; (ii) a significant portion
of the Company's cash flow from operations must be dedicated to the payment of
principal and interest on its indebtedness, thereby reducing the funds available
to the Company; (iii) certain of the Company's borrowings are and will continue
to be at variable rates of interest, which could result in higher interest
expense in the event of increases in interest rates; and (iv) such indebtedness
contains and will contain financial and restrictive covenants, the failure to
comply with which may result in an event of default which, if not cured or
waived, could have a material adverse effect on the Company. See "Certain
Indebtedness of the Company."
The obligation of the lenders to fund under the New Credit Agreement is
initially contingent upon the receipt by the Company of gross proceeds from the
Common Stock Offering of at least $85 million and of aggregate gross proceeds
from the Offerings of at least $275 million, and, thereafter, availability of
borrowings under the revolving portion of the New Credit Agreement is based upon
a formula related to inventory and accounts receivable. After the
Recapitalization, the Company will have substantial principal repayment
obligations. The Company will be required to make quarterly principal payments
under the Term Loan commencing on March 31, 1995. The first four payments will
each be in the amount of $2.5 million, the next four payments will each be in
the amount of approximately $3.75 million and all payments thereafter will each
be in the amount of $6.25 million, so as to retire such indebtedness in its
entirety by December 31, 1999. In addition, under the New Credit Agreement, the
Company has certain mandatory prepayment obligations that will not exceed $10.0
million in 1995, $20.0 million, less any prior mandatory repayments made from
excess cash flow, in 1996 or $30.0 million, less any prior mandatory repayments
made from excess cash flow, in 1997 in the event annual cash flow exceeds
certain levels. The Senior Notes will mature on , 2004. The Company
believes that following the consummation of the Offerings, based on current
levels of operations and anticipated growth, its cash flow from operations,
together with other available sources of liquidity, including borrowings under
the Revolving Credit Facility, will be adequate for the foreseeable future to
make scheduled payments of principal and interest under the New Credit Agreement
and interest payments on the Senior Notes, to permit anticipated capital
expenditures and to fund working capital requirements. However, the ability of
the Company to satisfy these obligations depends on a number of significant
assumptions, including, among other things, that (i) demand for the Company's
polymers and styrene products will continue at historical levels and demand for
the Company's plastic film products will continue to grow at historical rates,
(ii) the Company will be able to recover any long-term raw material cost
increases through higher selling prices, (iii) the Company will be able to
obtain supplies of key raw materials and retain key material suppliers and key
customers, and (iv) the Company will succeed in implementing its business
strategy. If Rexene is unable to generate sufficient cash flow to service its
indebtedness, or if for any reason borrowings under the New Credit Agreement
become unavailable, it will have to adopt one or more alternatives, such as
reducing or delaying planned capital expenditures, selling assets, restructuring
or refinancing its indebtedness or seeking additional equity capital. There can
be no assurance that any of these strategies could be effected on satisfactory
terms, if at all, particularly in light of the Company's high levels of
indebtedness, the pledge of substantially all of its assets as security for the
New Credit Agreement and the restrictive covenants in the New Credit Agreement
and the Indenture.
In the event that Rexene is unable to generate sufficient cash flow and is
otherwise unable to obtain funds necessary to meet required payments of
principal, premium, if any, and interest on its indebtedness, Rexene would be in
default under the terms of the agreements governing such indebtedness, including
the Indenture and the New Credit Agreement. In the event of such default, the
holders of such indebtedness could elect to declare all of the funds borrowed
thereunder to be due and payable together with accrued and
11
<PAGE>
unpaid interest, and the lenders under the New Credit Agreement could elect to
terminate their commitments thereunder, which could result in the Company being
forced to seek protection under applicable bankruptcy laws or in an involuntary
bankruptcy proceeding being brought against the Company. In either event, the
Company's ability to generate revenues from operations or asset sales would be
limited which could further limit the Company's ability to repay its obligations
under the New Credit Agreement and the Senior Notes. Under such circumstances,
the market value of the Common Stock could be adversely affected and the holders
of Common Stock would be entitled to participate in a liquidation of the Company
only after satisfaction of obligations under the New Credit Agreement and the
Senior Notes. See "Use of Proceeds" and "Certain Indebtedness of the Company."
HISTORY OF NET LOSSES
Excluding the effect of an extraordinary gain in 1992, the Company has
experienced net losses in each of the past three fiscal years, including a net
loss of approximately $25.2 million in 1993. Such net losses were in part due to
the interest expense arising from the substantial indebtedness incurred by the
Company in 1989 to fund a special dividend aggregating approximately $216
million and the payment of approximately $105 million in settlement, including
expenses, of certain litigation arising from the acquisition of Old Rexene by an
investor group in 1988. The Company's interest expense was substantially reduced
as a result of the Company's emergence from bankruptcy on September 18, 1992
pursuant to the Reorganization and will be further reduced as a result of the
Recapitalization. The Company reported net income of approximately $6.2 million
for the nine months ended September 30, 1994. Assuming the redemption of the Old
Notes in 1994, fourth quarter 1994 results will reflect an extraordinary loss of
approximately $24.2 million (net of income tax benefits). There can be no
assurance, however, that the Company will not incur net losses in the future.
See "Pro Forma Unaudited Condensed Consolidated Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
COMPETITION
The industries in which the Company operates are highly competitive. Many of
the Company's competitors, particularly in the petrochemical industry, are
larger and have substantially 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. The entrance of new competitors into
the industry and the addition by existing competitors of additional capacity may
reduce the Company's ability to maintain profit margins in circumstances where
overcapacity develops in the industry or preserve market share in circumstances
where oversupply develops in the industry. Any of these developments would have
a negative impact on the Company's ability to obtain higher profit margins
during periods of increased demand. See "-- Industry Cyclicality."
DEPENDENCE ON MANUFACTURING FACILITY
All of the Company's olefins, polymers and styrene are manufactured at the
Odessa Facility. Any significant interruption of operations at the olefins plant
at the Odessa Facility could disrupt or eliminate the supply of ethylene and
propylene to other operations at the Odessa Facility, which could have a
material and adverse effect on the Company's business. See "Business --
Properties."
ENVIRONMENTAL CONSIDERATIONS
The Company and its operations are subject to extensive federal, state,
local and foreign environmental laws, rules, regulations and ordinances relating
to pollution, the protection of the environment or the release or disposal of
materials ("Environmental Laws") and are also subject to other federal, state,
local and foreign laws and regulations regarding health and safety matters. The
operation of any chemical manufacturing plant and the distribution of chemical
products entail risks under Environmental Laws, many of which provide for
substantial fines and criminal sanctions for violations, and there can be no
assurance that material costs or liabilities will not be incurred. In addition,
future developments, such as increasingly strict requirements of environmental
and health and safety laws and regulations and enforcement policies thereunder,
could bring into question the handling, manufacture, use, emission or disposal
of substances or pollutants at the Company's facilities or the manufacture, use
or disposal of certain products made from
12
<PAGE>
styrene or plastic resins. Potentially significant expenditures could be
required in order to comply with evolving Environmental Laws that may be adopted
or imposed in the future. To meet changing licensing and regulatory standards,
the Company may be required to make additional significant site or operational
modifications, potentially involving substantial expenditures and reduction or
suspension of certain operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
The Company's operating expenditures for environmental remediation and waste
disposal were approximately $6.4 million in 1993 and are expected to be
approximately $6.0 million in 1994. In 1993, the Company also expended
approximately $5.1 million relating to environmental capital expenditures. In
1994, the Company expects to spend approximately $3.2 million for
environmentally-related capital expenditures, which is lower than historical
levels due to timing of expenditures pertaining to several projects. Thereafter
for the foreseeable future, the Company expects to incur approximately $4.0 to
$5.0 million per year in capital spending to address the requirements of
Environmental Laws. Annual amounts could vary depending on a variety of factors,
such as the control measures or remedial technologies ultimately required and
the time allowed to meet such requirements. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and "Business -- Environmental and Related Regulation."
The Company also is aware that a number of potential environmental
liabilities exist which relate to contaminated property at its current and
former facilities, and at facilities owned by third parties. The Company has
approximately $23.0 million accrued in the September 30, 1994 balance sheet as a
preliminary estimate of its total potential environmental liability with respect
to remediating known contamination. In addition, as part of its financial
assurance requirements under the Resource Conservation and Recovery Act ("RCRA")
and equivalent Texas law, the Company has deposited $10.6 million in trust to
cover closure and post-closure costs and liability for bodily injury and certain
types of property damage arising from sudden and non-sudden accidental
occurrences at certain of the Odessa Facility's hazardous waste management
units. However, no assurance can be given that all potential liabilities arising
out of the Company's present or past operations have been identified or that
costs required to remediate such conditions will not be significant. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
Further, the Company is currently negotiating with the Texas Natural
Resource Conservation Commission ("TNRCC") for a renewal of its injection well
permits for the disposal of wastewater from the Odessa Facility. TNRCC has
indicated that it intends to renew the Company's injection well permits for an
additional three years, but not thereafter. TNRCC has granted the Company a
permit to drill and operate a new deeper well to provide for wastewater
disposal. Although the Company has not elected to drill such a well, Company
consultants have estimated the cost of installing a new deep well injection
system at approximately $6.0 million. The Company has also begun investigating a
number of other alternative wastewater disposal systems. Although no assurances
can be given, the Company believes that it will be able to use its existing
wells until it develops a satisfactory alternative waste water disposal system.
However, if before an alternative system is developed, the Company is forced to
cease using such injection wells or the anticipated renewal permits do not
provide for sufficient wastewater disposal capacity, such loss of capacity could
have a material adverse effect on the Company's financial condition and results
of operation. See "Business -- Environmental and Related Regulation."
FOREIGN OPERATIONS
In September 1994, CT Film commenced operation of the Company's first
overseas plant in Scunthorpe, England, which was built primarily to service a
new U.K. facility of CT Film's major customer, Kimberly-Clark Corporation. The
Scunthorpe plant is expected to contribute less than 3% of the Company's net
sales in 1995. The customer has executed a contract giving the Company a firm
commitment to purchase film through December 2001. Foreign operations are
subject to special risks that can materially affect sales, profits and cash
flows of these operations, including currency exchange rate fluctuations,
inflation, exchange controls and changes in laws or governmental regulations.
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<PAGE>
LEGAL MATTERS
The Company is the defendant in a number of pending lawsuits. Although there
can be no assurance of the final resolution of any of these matters, the Company
believes that it has meritorious defenses to the various claims made and intends
to defend each suit vigorously. If, however, certain of the litigation matters
described elsewhere in this Prospectus are adversely resolved, they could have a
material adverse effect on the Company's financial position or results of
operations. See "Business -- Litigation."
ABSENCE OF DIVIDENDS ON COMMON STOCK
The Company has not paid any cash dividends on the Common Stock, nor did Old
Rexene pay any cash dividends on its common stock, during the last two fiscal
years, and the Company does not anticipate paying cash dividends on the Common
Stock at any time in the foreseeable future. Furthermore, certain provisions of
the New Credit Agreement and the Indenture will restrict the Company's ability
to pay dividends on the Common Stock. See "Certain Indebtedness of the Company."
DILUTION
Purchasers of shares of Common Stock will suffer immediate and substantial
dilution in the net tangible book value of their shares. See "Dilution."
CERTAIN CORPORATE GOVERNANCE PROVISIONS
The Restated Certificate of Incorporation and the Amended and Restated
Bylaws of the Company contain certain provisions which have the effect of
reducing its vulnerability to possible takeover attempts that are not negotiated
with or approved by the Company's Board of Directors. These provisions include:
(i) the ability of the Board of Directors to establish and cause the Company to
issue preferred stock having such rights and preferences as the Board may
designate, and (ii) the inability of holders of shares of Common Stock to take
action by written consent in lieu of a meeting unless by written consent of at
least 66 2/3% of the shares entitled to vote. Further, the Company's charter
does not permit modification of the provisions mentioned in item (ii) above
without the affirmative vote of 66 2/3% of the shares entitled to vote thereon.
In addition, in January 1993, the Company declared a dividend distribution of
one Common Stock Purchase Right (a "Right") for each outstanding share of Common
Stock. The Rights are exercisable only if and when a person or group acquires
15% or more of the Common Stock or announces a tender offer, the consummation of
which would result in ownership by a person or group of 15% or more of the
Common Stock. Each Right entitles stockholders to purchase such number of shares
of Common Stock at an exercise price of $60.00 (as amended by the Company's
Board of Directors in August 1994) as determined under formulas set out in the
agreement providing for the Rights. The existence of the Rights may, under
certain circumstances, render more difficult or discourage attempts to acquire
the Company.
TAX CONSEQUENCES
Stockholders should be aware of the United States federal tax consequences
of the ownership and disposition of shares acquired by a person who is not a
U.S. person. See "Certain U.S. Tax Consequences to Non-U.S. Stockholders."
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<PAGE>
THE RECAPITALIZATION
BACKGROUND. Following a period of high industry profitability in the late
1980's, Old Rexene in 1989 paid a special dividend aggregating approximately
$216 million and paid approximately $105 million in settlement, including
expenses, of certain litigation arising from the acquisition of Old Rexene by an
investor group in 1988. The dividend and the settlement payments were financed
through the issuance of approximately $500 million of increasing rate notes due
in July 1992. In 1990, a cyclical downturn in the chemical industry began,
reducing industry prices and resulting in a substantial decline in the Company's
operating results and liquidity. Due to a variety of factors, including the then
near-term unfavorable outlook for business conditions in the chemical industry
and the significant contraction of the market for high-yield debt, Old Rexene
was unable to arrange a refinancing of its outstanding indebtedness.
In response to these conditions and the pending maturity of its notes, Old
Rexene met with certain large institutional investors and discussed a voluntary
plan of reorganization. In October 1991, Old Rexene filed a petition for
reorganization under the federal bankruptcy laws. On September 18, 1992, Old
Rexene emerged from bankruptcy in accordance with a plan of reorganization
providing for the merger of Old Rexene into a wholly owned subsidiary of Old
Rexene to form the Company. As a result of the Reorganization, the Company,
among other things, (i) reduced the principal amount of its long-term debt by
approximately $66 million by replacing $403 million of debt, which was scheduled
to mature in July 1992, with $337 million face amount of the Old Notes, (ii)
reduced its annual cash interest requirements from approximately $74 million to
a minimum amount of approximately $24 million through 1994 and (iii) issued
92.5% of the outstanding shares of Common Stock of Rexene to the holders of the
Old Notes.
RECAPITALIZATION. The Common Stock Offering is part of the
Recapitalization, which is designed to increase stockholders' equity, reduce
indebtedness and interest expense and improve the strategic, operating and
financial flexibility of the Company. The Company believes that the
Recapitalization should better position the Company to continue to reduce its
balance sheet leverage through the use of cash flow from operations.
The principal elements of the Recapitalization, each of which is contingent
upon the concurrent consummation of the others, are:
(i) the issuance and sale by the Company of 8,000,000 shares of Common Stock
pursuant to the Common Stock Offering;
(ii) the issuance and sale by the Company of $175 million aggregate
principal amount of the Senior Notes pursuant to the Notes Offering;
(iii) the establishment of the New Credit Agreement providing the Company
with the Term Loan of up to $100 million, which will be drawn down at
the closing of the Recapitalization, and the $80 million Revolving
Credit Facility, which is not expected to be drawn down at the closing
of the Recapitalization, pursuant to a commitment letter (the
"Commitment Letter") received from a bank (the "Bank"); and
(iv) the call for the redemption of the Old Senior Notes and the Old
Subordinated Notes and the repayment in full of the outstanding
indebtedness under the Old Credit Agreement.
Contemporaneously with the closing of the Offerings, the Company will
terminate its obligations under the Old Notes and the indentures (the "Old
Indentures") which govern the Old Notes pursuant to the terms thereof by
irrevocably depositing with the trustee under each of the Old Indentures that
amount necessary to redeem the Old Notes. Concurrently with such deposit,
redemption notices will be issued to the trustee under each of the Old
Indentures and to the holders of the Old Notes. These redemption notices will
set the date of redemption at the earliest allowable date, which is 30 days
after such notice.
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<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the Common Stock Offering, after
deducting underwriting discounts and commissions and estimated expenses, are
estimated (based on an assumed offering price of $14.50 per share) to be
approximately $109.6 million ($126.0 million if the Underwriters' over-allotment
option is exercised in full). The net proceeds to the Company from the Notes
Offering are estimated to be approximately $170 million, after deducting
underwriting discounts and commissions and estimated expenses of the Notes
Offering.
The net proceeds of the Offerings, together with approximately $100 million
of borrowings under the Term Loan, will be used by the Company to redeem the Old
Notes and to repay in full the outstanding indebtedness under the Old Credit
Agreement. Any excess proceeds will be used by the Company for working capital
purposes. In the event that the gross proceeds from the Offerings are less than
$291 million, the Company may be required to arrange for alternative sources of
cash, which could include additional borrowings under the New Credit Agreement
or utilizing cash on hand, or a combination thereof. At September 30, 1994, the
Company had unrestricted cash on hand of approximately $50.7 million.
Interest rates on the Old Senior Notes and Old Subordinated Notes increase
beginning in 1995 and 1996, respectively. The annual interest rate on the Old
Senior Notes is 9% through November 14, 1995, 12% from November 15, 1995 through
November 14, 1996 and 14% thereafter. The annual interest rate on the Old
Subordinated Notes is 10% through November 14, 1996, 12% from November 15, 1996
to November 14, 1997, and 14% thereafter. For each interest period ending on or
prior to November 15, 1994, the Company may pay up to 90% of the interest due on
the Old Subordinated Notes by delivering additional Old Subordinated Notes in
lieu of cash through a pay-in-kind feature. To date, the Company has issued an
aggregate principal amount of $15.2 million in additional Old Subordinated Notes
in lieu of paying interest. Upon the expiration of the pay-in-kind feature on
November 15, 1994, and absent the completion of the Recapitalization, the
Company's annual cash interest obligations on the Old Subordinated Notes will
increase approximately $9.5 million, commencing with the semi-annual interest
payment due on May 15, 1995. The Company has elected not to exercise the
pay-in-kind feature for its November 15, 1994 interest payment. Interest accrues
on amounts outstanding under the Old Credit Agreement at an annual rate equal to
the lender's prime rate plus 1.5% (9.25% at September 30, 1994).
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<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
In connection with the issuance of Common Stock pursuant to the
Reorganization, the Common Stock began trading on the New York Stock Exchange
under the symbol "RXN" on a when-issued basis on September 14, 1992, and on a
regular way basis on October 8, 1992. On October 19, 1994, the last sale price
of the Common Stock, as reported by the New York Stock Exchange, was $14.50 per
share. As of October 19, 1994, there were 652 record holders of Common Stock.
The following table sets forth for the periods indicated the high and low sales
prices of the Common Stock as reported by the New York Stock Exchange.
<TABLE>
<CAPTION>
COMMON STOCK
-------------------
HIGH LOW
-------- -------
<S> <C> <C>
1992
Third Quarter (from September 14, 1992).............................. $ 3 1/4 $ 2 1/2
Fourth Quarter....................................................... 3 7/8 2 5/8
1993
First Quarter........................................................ 4 1/8 3
Second Quarter....................................................... 4 1/4 3
Third Quarter........................................................ 3 5/8 2 3/4
Fourth Quarter....................................................... 3 3/8 2 1/2
1994
First Quarter........................................................ 4 3/4 2 7/8
Second Quarter....................................................... 11 3 5/8
Third Quarter........................................................ 17 1/8 8 3/8
Fourth Quarter (through October 19, 1994)............................ 16 1/2 14
</TABLE>
Although common stock of Old Rexene was publicly traded prior to September
14, 1992, the historical sales prices for Old Rexene common stock are not
comparable with the sales prices of Common Stock of the Company set forth above
due to the Reorganization.
The Company has not paid cash dividends on the Common Stock, nor did Old
Rexene pay cash dividends on its common stock, during the last two fiscal years,
and the Company does not anticipate paying cash dividends on the Common Stock in
the foreseeable future. The Old Credit Agreement prohibits the payment of any
dividends on the Common Stock, and certain provisions of the New Credit
Agreement and the Indenture will restrict the Company's ability to pay dividends
on the Common Stock. See "Certain Indebtedness of the Company."
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<PAGE>
DILUTION
As of September 30, 1994, the Company had a deficit net tangible book value
of approximately $6.0 million, or $0.56 per share of Common Stock. After giving
effect to the sale by the Company of 8,000,000 shares of Common Stock in the
Common Stock Offering at an assumed offering price of $14.50 per share (the
closing price of the Common Stock on October 19, 1994) and the consummation of
the other elements of the Recapitalization, the pro forma net tangible book
value at September 30, 1994, would have been approximately $70.1 million, or
$3.76 per share. This represents an immediate increase in net tangible book
value of $4.32 per share to existing shareholders and an immediate dilution of
$10.74 per share to new investors purchasing Common Stock in the Common Stock
Offering. The following table illustrates the dilution to new investors
purchasing Common Stock in the Common Stock Offering.
<TABLE>
<S> <C> <C>
Public offering price per share.............................. $ 14.50
Net tangible book value per share before the
Recapitalization (1)...................................... (0.56)
Increase per share attributable to new investors........... 4.32
---------
Pro forma net tangible book value per share after the
Recapitalization (1)........................................ 3.76
---------
Dilution per share to purchasers of Common Stock in the
Common Stock Offering (1)................................... $ 10.74
---------
---------
<FN>
- ------------------------
(1) Net tangible book value (deficit) per share represents net tangible assets
(total tangible assets of the Company less total liabilities) divided by
the number of shares of Common Stock assumed to be outstanding as of
September 30, 1994. The foregoing table excludes the effect of 874,171
shares of Common Stock issuable upon exercise of vested and nonvested
outstanding stock options with per share exercise prices less than the
assumed offering price. If all of such stock options were exercised
immediately prior to consummation of the Common Stock Offering, the
immediate dilution in net tangible book value to new investors purchasing
Common Stock in the Common Stock Offering shown in the foregoing table
would have been $10.63 per share instead of $10.74 per share.
</TABLE>
18
<PAGE>
CAPITALIZATION
The following table sets forth the cash and cash equivalents, the current
portion of long-term debt and the total capitalization of the Company as of
September 30, 1994, and as adjusted to give effect to the Recapitalization. See
"Use of Proceeds," "Selected Historical Consolidated Financial Data" and "Pro
Forma Unaudited Condensed Consolidated Financial Data."
<TABLE>
<CAPTION>
SEPTEMBER 30, 1994
----------------------------
ACTUAL AS ADJUSTED
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents............................................................ $ 52,964 $ 53,255
------------- -------------
------------- -------------
Current portion of long-term debt.................................................... $ -- $ 10,000(1)
------------- -------------
------------- -------------
Long-term debt:
Old Credit Agreement............................................................... $ 9,000 $ --
Term Loan.......................................................................... -- 90,000
Old Senior Notes................................................................... 253,000 --
Old Subordinated Notes............................................................. 99,629 --
Senior Notes....................................................................... -- 175,000
Less: unamortized discount......................................................... (61,120)(2) --
------------- -------------
Total long-term debt............................................................. 300,509 265,000
------------- -------------
Stockholders' equity:
Common stock....................................................................... 106 186
Paid-in capital.................................................................... 27,486 136,966
Accumulated deficit (3)............................................................ (25,618) (50,992)
Foreign currency translation adjustment............................................ 632 632
------------- -------------
Total stockholders' equity....................................................... 2,606 86,792
------------- -------------
Total capitalization............................................................. $ 303,115 $ 351,792
------------- -------------
------------- -------------
<FN>
- ------------------------
(1) Represents current portion of the Term Loan.
(2) Represents the unamortized discount on the Old Notes.
(3) The change in accumulated deficit is due to recording the extraordinary
loss of approximately $24.2 million (net of income tax benefits) and other
costs (approximately $1.1 million net of income tax benefits) resulting
from the redemption of the Old Notes. Such losses will be recognized upon
consummation of the Recapitalization.
</TABLE>
19
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
The following table sets forth certain selected historical consolidated
financial data for the Company for the periods indicated. Information should be
read in conjunction with the Company's Consolidated Financial Statements and
Notes thereto included elsewhere in this Prospectus. The historical data
presented below as of September 30, 1993 and September 30, 1994 and for the nine
months then ended have been derived from the interim Condensed Consolidated
Financial Statements of the Company as of such dates, and the historical
consolidated financial data presented below for the periods ended December 31,
1989, 1990, 1991, 1992 and 1993, and the nine months ended September 30, 1992,
were derived from the Consolidated Financial Statements of the Company and Old
Rexene. The Company adopted fresh start reporting on September 30, 1992
following consummation of the Reorganization. As a result, results of operations
(other than net sales and EBITDA) for the periods after September 30, 1992 are
not comparable to results of operations prior to that date.
<TABLE>
<CAPTION>
OLD REXENE
(PREDECESSOR) THE COMPANY
--------------------------------------- ------------------------------------------------
NINE THREE NINE MONTHS
YEAR ENDED MONTHS MONTHS YEAR ENDED ENDED
DECEMBER 31, ENDED ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------- SEPT. 30, DECEMBER 31, ------------ ------------------
1989 1990 1991 1992 1992 1993 1993 1994
-------- -------- -------- --------- ------------ ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA: (1)
Net sales........................ $608,631 $502,186 $449,728 $316,106 $ 98,854 $429,353 $326,460 $386,153
Gross profit..................... 158,130 133,707 61,671 38,025 12,122 53,744 41,560 77,192
Operating income................. 99,938 81,100 12,028 9,392 1,418 14,504 12,191 46,285
Interest expense (2)............. 61,111 71,732 58,374 -- 12,660 49,834 36,942 37,971
Income (loss) before income taxes
and extraordinary items......... 53,956 18,360 (56,191) (28,840) (10,436) (34,183) (23,954) 10,482
Income tax (expense) benefit..... (43,751) (15,655) 13,444 (2,636) 3,908 8,940 4,319 (4,329)
Net income (loss) before
extraordinary items............. 10,205 2,705 (42,747) (31,476) (6,528) (25,243) (19,635) 6,153
Net income (loss) per share
before extraordinary items
(3)............................. $ (0.62) $ (2.40) $ (1.87) $ 0.57
Ratio of earnings to fixed
charges (3)(4).................. -- -- -- 1.23x
OTHER DATA:
Depreciation and amortization.... $ 25,381 $ 22,451 $ 23,852 $ 20,062 $ 4,315 $ 17,446 $ 12,925 $ 13,884
Capital expenditures............. 18,596 28,855 33,464 11,136 3,961 17,008 10,688 21,089
EBITDA (5)....................... 125,319 103,551 35,880 29,454 5,733 31,950 25,116 60,169
Ratio of EBITDA to interest
expense (3)(5).................. -- -- -- 1.58x
NET SALES DATA:
Plastic film..................... $108,660 $125,506 $135,923 $104,264 $ 34,140 $147,468 $108,514 $124,792
Polyethylene (1)................. 169,483 141,795 131,044 90,799 32,250 120,060 94,167 104,094
Polypropylene (1)................ 167,593 83,353 73,625 51,989 13,213 64,459 49,810 56,107
APAO............................. 9,292 10,590 13,001 10,997 2,649 15,084 12,297 14,649
Styrene.......................... 132,140 126,019 80,409 49,392 13,705 61,372 47,048 63,295
Other............................ 21,463 14,923 15,726 8,665 2,897 20,910 14,624 23,216
-------- -------- -------- --------- ------------ ------------ -------- --------
Total........................ $608,631 $502,186 $449,728 $316,106 $ 98,854 $429,353 $326,460 $386,153
-------- -------- -------- --------- ------------ ------------ -------- --------
-------- -------- -------- --------- ------------ ------------ -------- --------
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------------------- AT SEPTEMBER
1989 1990 1991 1992 1993 30, 1994
--------- --------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents (6)...................... $ 61,744 $ 64,294 $ 48,169 $ 34,202 $ 30,535 $ 52,964
Working capital.................................... 119,053 133,051 109,777 104,824 105,110 125,089
Total assets....................................... 555,679 461,152 440,665 423,591 430,036 476,781
Long-term debt (including current portion)
Face amount...................................... 416,000 403,000 -- 340,249 350,342 361,629
Unamortized discount (7)......................... -- -- -- (78,523) (68,578) (61,120)
Net amount....................................... 416,000 403,000 -- 261,726 281,764 300,509
Liabilities subject to compromise.................. -- -- 428,297 -- -- --
Other noncurrent liabilities....................... 48,418 51,096 57,410 105,601 111,056 113,802
Stockholders' equity (deficit)..................... (81,376) (55,936) (94,813) 20,106 (5,137) 2,606
</TABLE>
20
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
<FN>
- ------------------------------
(1) The financial results of a manufacturing facility in Bayport, Texas, which
the Company sold in February 1990, are included in the statement of
operations data for the years ended December 31, 1989 and 1990. Net sales
and operating income for 1989 were $124.7 million and $4.1 million,
respectively. In addition, the assets and liabilities of this facility are
included in the Balance Sheet Data at December 31, 1989. Net sales and
operating income of the Bayport manufacturing facility for 1990 were $16.3
million and $1.8 million, respectively.
(2) Interest expense on the indebtedness of Old Rexene accrued through October
16, 1991. In addition, interest expense on such indebtedness accrued from
October 16, 1991 to December 31, 1991 in accordance with terms of an
agreement with a noteholders' committee formed as part of the
Reorganization. If the interest expense from October 16, 1991 to December
31, 1991 had been calculated under the term of the indebtedness of Old
Rexene, the interest expense for the year ended December 31, 1991 would
have aggregated $73.8 million. The Amended Plan eliminated post petition
interest requirements through June 30, 1992. Interest expense from July 1,
1992 through September 30, 1992 was not classified as interest expense but
reflected as a reorganization expense. See Note 3 to the Consolidated
Financial Statements. Non-cash interest expense (income) was $10.8 million
for the year ended December 31, 1989, ($4.6 million) for the year ended
December 31, 1990 (due to the reversal of interest previously accrued in
accordance with EITF Issue No. 86-15, "Increasing Rate Debt"), $3.3 million
for the year ended December 31, 1991, zero for the nine months ended
September 30, 1992 (due to the Amended Plan previously noted), $6.4 million
for the three months ended December 31, 1992 and $25.4 million for the year
ended December 31, 1993. Non-cash interest expense for the nine months
ended September 30, 1993 and 1994 was $18.7 million and $16.2 million,
respectively.
(3) Per share data, the ratio of earnings to fixed charges and the ratio of
EBITDA to interest expense for the periods prior to September 30, 1992 are
not presented because such information is not comparable to the similar
information for the periods after September 30, 1992, the date of the
Company's adoption of "fresh start" reporting.
(4) For the purposes of determining the ratio of earnings to fixed charges,
earnings consist of income before income taxes, extraordinary items and
fixed charges. Fixed charges consist of interest on indebtedness,
including, if any, the amortization of debt issue costs, accretion of debt
discount, interest expense accrued in accordance with EITF Issue No. 86-15,
"Increasing Rate Debt" (See Note 10 to the Consolidated Financial
Statements) and one-third of rental expense (which is deemed representative
of the interest factor therein). Earnings were insufficient to cover fixed
charges in the periods ended December 31, 1992, December 31, 1993 and
September 30, 1993 by $10.7 million, $35.4 million and $25.2 million,
respectively.
(5) EBITDA means operating income before depreciation and amortization. EBITDA
has been included solely to facilitate consideration of the covenants in
the Indenture that are based, in part, on EBITDA and because the Company
understands that it is used by certain investors as one measure of a
company's historical ability to service its debt. EBITDA is not intended to
represent cash flows for the period nor has it been presented as an
alternative to earnings from operations as an indicator of operating
performance and should not be considered in isolation or as a substitute
for measures of performance prepared in accordance with generally accepted
accounting principles. EBITDA for the periods ended December 31, 1992,
December 31, 1993 and September 30, 1993 were insufficient to cover
interest expense by $6.9 million, $17.9 million and $11.8 million,
respectively. Interest expense for such periods included non-cash interest
expense as described in Note 2 above.
(6) Includes restricted cash of $3.7 million, $2.2 million and $2.3 million at
December 31, 1992, December 31, 1993 and September 30, 1994, respectively.
(7) Represents the unamortized discount on the Old Notes.
</TABLE>
21
<PAGE>
PRO FORMA UNAUDITED CONDENSED CONSOLIDATED FINANCIAL DATA
The following Pro Forma Unaudited Condensed Consolidated Statements of
Operations for the nine months ended September 30, 1994 and the year ended
December 31, 1993 present pro forma operating results as if the Recapitalization
had occurred as of January 1, 1993. The Pro Forma Unaudited Consolidated Balance
Sheet as of September 30, 1994 gives effect to the Recapitalization as if it had
occurred on that date. The pro forma adjustments are described in the notes
thereto.
The Pro Forma Unaudited Condensed Consolidated Financial Data should be read
in conjunction with the Company's Consolidated Financial Statements and Notes
thereto included elsewhere in this Prospectus. The Pro Forma Unaudited Condensed
Consolidated Financial Data does not purport to represent either future results
or the results that would have occurred if the Recapitalization had occurred on
the dates indicated, nor does it give effect to any matters other than those
described in the notes thereto.
PRO FORMA UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ------------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net sales....................................................................... $ 429,353 $ 429,353
Operating expense............................................................... 414,849 414,849
---------- -----------
Operating income................................................................ 14,504 14,504
Interest expense................................................................ (49,834) $ 21,450(1) (28,384)
Interest income................................................................. 1,392 1,392
Other, net...................................................................... (245) (245)
---------- ------------- -----------
Income (loss) before income taxes............................................... (34,183) 21,450 (12,733)
Income tax (expense) benefit.................................................... 8,940 (8,151)(2) 789
---------- ------------- -----------
Net loss(3)..................................................................... $ (25,243) $ 13,299 $ (11,944)
---------- ------------- -----------
---------- ------------- -----------
Net loss per share.............................................................. $ (2.40) $ (0.65)
---------- -----------
---------- -----------
Weighted average shares outstanding............................................. 10,501 18,501
---------- -----------
</TABLE>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ------------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net sales....................................................................... $ 386,153 $ 386,153
Operating expense............................................................... 339,868 339,868
---------- -----------
Operating income................................................................ 46,285 46,285
Interest expense................................................................ (37,971) $ 16,695(1) (21,276)
Interest income................................................................. 1,522 1,522
Other, net...................................................................... 646 646
---------- ------------- -----------
Income before income taxes...................................................... 10,482 16,695 27,177
Income tax expense.............................................................. (4,329) (6,344)(2) (10,673)
---------- ------------- -----------
Net income(3)................................................................... $ 6,153 $ 10,351 $ 16,504
---------- ------------- -----------
---------- ------------- -----------
Net income per share............................................................ $ 0.57 $ 0.87
---------- -----------
---------- -----------
Weighted average shares outstanding............................................. 10,886 18,886
---------- -----------
</TABLE>
22
<PAGE>
PRO FORMA UNAUDITED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1994
ASSETS
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
---------- -------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents...................................................... $ 52,964 $ 109,560(4) $ 53,255
100,000(5)
175,000(6)
(374,268)(7)
(8,163)(8)
(1,838)(9)
Accounts receivable, net....................................................... 75,566 75,566
Inventories.................................................................... 55,347 55,347
Prepaid expenses and other..................................................... 1,076 1,076
---------- -------------- -----------
Total current assets......................................................... 184,953 291 185,244
Property, plant and equipment, net............................................. 253,115 253,115
Reorganization value in excess of amounts allocable to identifiable assets,
net........................................................................... 3,460 3,460
Intangible assets, net......................................................... 3,326 8,163(8) 11,489
Other noncurrent assets........................................................ 31,927 31,927
---------- -------------- -----------
$ 476,781 $ 8,454 $ 485,235
---------- -------------- -----------
---------- -------------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt.............................................. $ 10,000(5) $ 10,000
Accounts payable............................................................... $ 27,976 27,976
Accrued liabilities............................................................ 8,053 8,053
Accrued interest............................................................... 12,639 (12,639)(7) --
Income taxes payable........................................................... 5,312 (5,312)(3) --
Employee benefits payable...................................................... 5,884 5,884
---------- -------------- -----------
Total current liabilities.................................................... 59,864 (7,951) 51,913
Long-term debt................................................................. 300,509 90,000(5) 265,000
175,000(6)
(361,629)(7)
61,120(3)
Other noncurrent liabilities................................................... 71,077 (17,074)(3) 54,003
Deferred income taxes.......................................................... 42,725 (14,500)(3) 27,527
(698)(9)
---------- -------------- -----------
Total liabilities............................................................ 474,175 (75,732) 398,443
Commitments and contingencies.................................................. -- --
Stockholders' equity........................................................... 2,606 109,560(4) 86,792
(24,234)(3)
(1,140)(9)
---------- -------------- -----------
$ 476,781 $ 8,454 $ 485,235
---------- -------------- -----------
---------- -------------- -----------
</TABLE>
23
<PAGE>
<TABLE>
<S> <C> <C> <C>
<FN>
NOTES TO PRO FORMA UNAUDITED CONDENSED CONSOLIDATED FINANCIAL DATA
(1) Adjustment to eliminate cash and non-cash interest expense on the Old Notes
and to record (i) interest expense associated with the Senior Notes (at an
assumed rate of 11 1/2%) and Term Loan, (ii) fees under the New Credit
Agreement, and (iii) amortization of debt issue costs resulting from the
Recapitalization, net of pro forma capitalized interest. Each one half of
one percent change in the assumed interest rates for both the Senior Notes
and the Term Loan changes pro forma annual interest expense by $1.4
million.
(2) Adjustment to reflect the federal and state income tax impact related to
the changes in interest expenses discussed above.
(3) Pro forma net income (loss) does not include the extraordinary loss that
will result from the redemption of the Old Notes. This extraordinary loss
is $24.2 million (net of income tax benefits) if the Recapitalization had
occurred as of September 30, 1994. Such loss has been reflected in the pro
forma stockholders' equity and will be reflected in the Company's
historical income statement in the period during which the Old Notes are
redeemed. The pro forma balance sheet adjustments also reflect the
recognition of unamortized discount on the Old Notes and the reversal of
non-cash interest accrued in accordance with EITF Issue No. 86-15,
"Increasing Rate Debt" resulting from the redemption of the Old Notes and
the recording of related income tax benefits.
(4) Adjustment giving effect to the issuance of 8 million shares of Common
Stock at an assumed offering price per share of $14.50 (the closing price
on the New York Stock Exchange on October 19, 1994), net of estimated
issuance costs of $6.4 million.
(5) Adjustment giving effect to the proceeds from the New Credit Agreement.
(6) Adjustment giving effect to the issuance of the Senior Notes.
(7) Adjustment giving effect to the repayment of the Old Notes and related
accrued interest and borrowings under the Old Credit Agreement.
(8) Adjustment to reflect the financing fees related to the New Credit
Agreement and the Senior Notes.
(9) Adjustment to reflect the payment of net interest expense on the Old Notes
during the redemption notice period of 30 days in compliance with the Old
Indentures and payment of the termination fee related to the Old Credit
Agreement. This non-recurring adjustment has not been reflected in pro
forma net income and has been reflected in pro forma stockholders' equity.
</TABLE>
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The polyethylene, polypropylene and styrene markets in which Rexene competes
are cyclical markets that are sensitive to relative changes in supply and
demand, which are in turn affected by general economic conditions. Rexene's
plastic film and APAO businesses are generally less sensitive to the economic
cycles. Historically, the cyclical segments have experienced alternating periods
of tight supply and rising prices and profit margins, followed by periods of
large capacity additions resulting in oversupply and declining prices and profit
margins. Following a significant improvement in domestic economic growth since
the second half of 1993, these markets experienced increased levels of demand
which have resulted in greater capacity utilization and higher domestic and
export prices. According to CMAI, during the first six months of 1994, domestic
demand for LDPE, polypropylene and styrene increased by approximately 9%, 14%
and 5%, respectively, compared to the first six months of 1993. This increase in
demand has enabled the Company and the petrochemical industry in general to
increase selling prices significantly at a time when feedstock costs have either
not increased or only increased modestly compared to end product prices. For
example, from December 1993 to September 1994, the Company increased the average
selling prices of its polyethylene, polypropylene and styrene by 28%, 18% and
66% per pound, respectively. During the same period, prices for the Company's
major feedstocks, ethane and propane, were relatively stable, and the price for
benzene increased 63%.
Principal raw materials purchased by the Company consist of ethane, propane
(extracted from natural gas liquids), propylene and benzene for the polymer and
styrene businesses and polyethylene resins for the film business. The prices of
feedstocks fluctuate widely based on the prices of natural gas and oil. During
the past four years, feedstocks accounted for between approximately 24% and 32%
of the Company's total cost of sales. As a result, the Company's ability to pass
on increases in raw material costs to customers has a significant impact on
operating results. Current market conditions for the Company's products indicate
that increases in feedstock costs may be passed on to customers, but an adverse
change in market conditions for such products could reduce pricing flexibility,
including the ability to pass on any such increase.
RESULTS OF OPERATIONS
In connection with the Reorganization, the Company adopted as of September
30, 1992, the American Institute of Certified Public Accountants' Statement of
Position No. 90-7, "Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code" (the "Reorganization SOP"). The Company's basis of accounting
for financial reporting purposes changed as a result of adopting the
Reorganization SOP. Specifically, the Reorganization SOP required (i) the
adjustment of the Company's assets and liabilities to reflect a reorganization
value generally approximating the fair value of the Company as a going concern
on an unleveraged basis, (ii) the elimination of its accumulated deficit, and
(iii) adjustments to its capital structure to reflect consummation of the
Amended Plan. Accordingly, the results of operations (other than net sales)
after September 30, 1992 are not comparable to results of operations prior to
such date, and the results of operations for the nine months ended September 30,
1992 and the three months ended December 31, 1992 have not been aggregated.
The Company will record an extraordinary non-cash loss from the redemption
of the Old Notes. Such loss will be recognized in the period during which the
Old Notes are redeemed. See Note 3 of the Notes to the Pro Forma Unaudited
Condensed Consolidated Financial Data appearing elsewhere herein.
25
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1994 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1993
Results of operations for the nine months ended September 30, 1993 and
September 30, 1994 are as follows (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1993 1994
---------- ----------
<S> <C> <C>
Net sales............................................................. $ 326,460 $ 386,153
Operating expenses:
Cost of sales....................................................... 284,900 308,961
Marketing, general and administrative............................... 24,494 25,971
Research and development............................................ 4,875 4,936
---------- ----------
314,269 339,868
---------- ----------
Operating income...................................................... 12,191 46,285
Interest expense...................................................... (36,942) (37,971)
Interest income....................................................... 1,005 1,522
Other, net............................................................ (208) 646
---------- ----------
Income (loss) before income taxes..................................... (23,954) 10,482
Income tax (expense) benefit.......................................... 4,319 (4,329)
---------- ----------
Net income (loss)..................................................... $ (19,635) $ 6,153
---------- ----------
---------- ----------
</TABLE>
Growth in the United States economy resulted in the strengthening of the
petrochemical and polymer markets in which the Company participates during the
nine months ended September 30, 1994. This resulted in increased volumes, prices
and margins for the Company in most of its major product lines. Net sales
increased $59.7 million (or 18%) from $326.5 million for the nine months ended
September 30, 1993 to $386.2 million for the nine months ended September 30,
1994 due to a general increase in demand for all product lines. Plastic film
sales increased $16.3 million (or 15%) in the first nine months of 1994 as
compared to the first nine months of 1993 principally due to a volume increase
of 20.0 million pounds (or 18%). Styrene sales increased $16.2 million (or 35%)
in the first nine months of 1994 as compared to the first nine months of 1993
due to a volume increase of 37.6 million pounds (or 19%) and a price increase of
3 cents per pound (or 15%). Polyethylene sales increased $9.9 million (or 11%)
in the first nine months of 1994 as compared to the first nine months of 1993,
principally due to a volume increase of 24.4 million pounds (or 10%).
Polypropylene sales increased $6.3 million (or 13%) in the first nine months of
1994 as compared to the first nine months of 1993 due to a volume increase of
7.9 million pounds (or 7%). APAO sales increased $2.4 million (or 19%) in the
first nine months of 1994 as compared to the first nine months of 1993,
principally due to a volume increase of 5.1 million pounds (or 22%). Excess
feedstock sales increased $8.2 million (or 136%) in the first nine months of
1994 as compared to the first nine months of 1993.
The Company's gross profit percentage increased from 13% for the nine months
ended September 30, 1993 to 20% for the same period in 1994 principally due to
the increase in selling prices and sales volumes discussed above.
Marketing, general and administrative expenses increased $1.5 million (or
6%) for the first nine months of 1994 as compared to the same period in 1993
principally due to higher employee benefits that are related to the Company's
improved operating performance, partially offset by lower marketing and bad debt
expenses. Research and development expenses for the first nine months of 1994
remained relatively stable compared to the first nine months of 1993.
Due primarily to the factors described above, operating income increased
$34.1 million (or 280%) for the nine months ended September 30, 1994 as compared
to the corresponding period in 1993.
Cash interest expense increased $3.5 million (or 19%) and non-cash interest
expense decreased $2.5 million (or 13%) principally due to the decision not to
exercise the pay-in-kind feature on the Old Subordinated Notes for the interest
payment that will be due on November 15, 1994.
26
<PAGE>
Other, net increased $.9 million for the nine months ended September 30,
1994 as compared to the nine months ended September 30, 1993, principally due to
the receipt of approximately $1.0 million of insurance proceeds received in
settlement of a claim related to a prior lawsuit.
The income tax expense of $4.3 million for the first nine months of 1994
reflects current income taxes payable of $6.8 million, partially offset by
deferred income tax benefits of $2.5 million. The income tax benefit for the
same period in 1993 reflects the current income tax benefits from the carryback
of 1993 pre-tax losses to prior years and the effect of deferred income taxes.
Due primarily to the factors discussed above, for the first nine months of
1994, the Company earned net income of $6.2 million as compared to a net loss of
$19.6 million for the first nine months of 1993.
1993 COMPARED TO 1992 (PRO FORMA)
As previously discussed, as a result of the Reorganization and the Company's
adoption of "fresh start" accounting principles in connection therewith, the
Company's results of operations (other than net sales) subsequent to September
30, 1992 are not comparable to those of prior periods. Therefore, the following
analysis compares the results for the year ended December 31, 1993 to the pro
forma results for the year ended December 31, 1992. The pro forma information
gives effect to the Reorganization as though it had occurred on September 30,
1991. The adjustments relate primarily to (i) the recording of interest expense
in accordance with the terms of the Old Notes, (ii) the recording of
depreciation of property, plant and equipment in accordance with their restated
values, (iii) the recording of amortization of reorganization value in excess of
amounts allocable to identifiable assets, (iv) the elimination of goodwill
amortization, reorganization items and the extraordinary gain, and (v) the
income tax effects for adjustments (i) through (iv) above.
Results of operations for the year ended December 31, 1993 and the year
ended December 31, 1992 (pro forma) are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1992 1993
----------- --------
(PRO FORMA)
<S> <C> <C>
Net sales..................................................... $414,960 $429,353
Operating expenses:
Cost of sales............................................... 360,257 375,609
Marketing, general and administrative....................... 30,629 32,641
Research and development.................................... 6,374 6,599
----------- --------
397,260 414,849
----------- --------
Operating income.............................................. 17,700 14,504
Interest expense.............................................. (49,572) (49,834)
Interest income............................................... 1,377 1,392
Other, net.................................................... (6,818) (245)
----------- --------
Loss before income taxes...................................... (37,313) (34,183)
----------- --------
Income tax benefit............................................ 8,116 8,940
----------- --------
Net loss...................................................... $(29,197) $(25,243)
----------- --------
----------- --------
</TABLE>
Net sales increased $14.4 million (or 3%) for the year ended December 31,
1993 as compared to 1992 principally due to an increase in plastic film sales.
Plastic film sales increased $11.8 million (or 9%) primarily due to a volume
increase of 11.2 million pounds (or 7%) principally due to higher sales to the
disposable diaper market and the blown coextrusion film market. APAO and excess
propane and ethylene sales also contributed to the increase in sales. APAO sales
increased $3.3 million (or 20%) from 1992 to 1993 principally due to an increase
in sales of product purchased from the Ube Rexene Corporation joint venture
located in Japan. Excess ethylene and propane sales increased $5 million due to
changes in the feedstock mix
27
<PAGE>
at the olefin plant. These increases were partially offset by a $3 million (or
2%) decrease in polyethylene sales and a $3.1 million (or 5%) decrease in
styrene sales. Polyethylene and styrene sales declined in 1993 as compared to
1992 primarily as a result of continuous pricing pressure due to an overcapacity
in the industry.
The Company's gross profit percentage remained constant at 13% in 1993 as
compared to 1992. Gross profit for 1993 decreased $1.0 million (or 2%) as
compared to 1992 principally due to a decrease in polyethylene gross profits of
$4.4 million as a result of lower margins, partially offset by lower
environmental remediation charges in 1993. Gross profit for 1992 reflected a
charge to increase the Company's environmental remediation accrual. Polyethylene
margins for 1993 were lower than 1992 margins principally as a result of higher
ethylene transfer prices and lower selling prices for polyethylene.
Marketing, general and administrative expenses increased $2.0 million (or
7%) from $30.6 million in 1992 to $32.6 million in 1993 principally due to an
increase in marketing and related expenditures incurred to address growth
opportunities for plastic film and APAO. In addition, the increase in 1993 is
due to unusually low expenses in 1992 as a result of changes in estimates of
incentive and benefit plan expenses and lower legal fees for general litigation
resulting from the automatic stay provision of the Bankruptcy Code.
Due primarily to the factors described above, operating income decreased
$3.2 million (or 18%) from $17.7 million in 1992 to $14.5 million in 1993.
Other, net decreased $6.6 million (or 96%) from $6.8 million in 1992 to $.2
million in 1993 principally due to a $7.4 million accrual in 1992 relating to
the adverse judgment (including estimated attorneys' fees) on the Izzarelli
class action lawsuit, partially offset by $1.5 million of business interruption
insurance proceeds received in 1992 for an electrical outage at the Odessa
Facility in May 1991. See "Business -- Litigation."
The 1993 results include an income tax benefit of $8.9 million as compared
to a benefit of $8.1 million for 1992. As a result of adoption of Statement of
Financial Accounting Standards 109, "Accounting for Income Taxes" on September
30, 1992, the income tax benefit for 1993 is not comparable to the income tax
benefit for 1992.
Due primarily to the factors described above, the net loss decreased $4.0
million (or 14%) from $29.2 million in 1992 to $25.2 million in 1993.
1992 COMPARED TO 1991
As previously discussed, as a result of the Reorganization and the Company's
adoption of "fresh start" accounting principles in connection therewith, the
Company's results of operations (other than net sales) subsequent to September
30, 1992 are not comparable to those of prior periods. Therefore, the following
analysis compares the results for the three months ended December 31, 1992 to
the results for the three months ended December 31, 1991 on a pro forma basis as
described in the following sentence, and compares the results for the nine
months ended September 30, 1992 to the nine months ended September 30, 1991. The
pro forma information for the three months ended December 31, 1991 gives effect
to the Reorganization as though it had occurred on September 30, 1991. The
adjustments relate primarily to (i) the recording of interest expense in
accordance with the terms of the Old Notes, (ii) the recording of depreciation
of property, plant and equipment in accordance with their restated values, (iii)
the recording of amortization of reorganization value in excess of amounts
allocable to identifiable assets, and (iv) the income tax effects for
adjustments (i) through (iii) above.
28
<PAGE>
Results of operations for the three months ended December 31, 1992 and the
three months ended December 31, 1991 (pro forma), and the results of operations
for the nine months ended September 30, 1992 and the nine months ended September
30, 1991 are as follows (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, DECEMBER 31,
-------------------- ----------------------
1991 1992 1991 1992
--------- --------- ----------- ---------
(PRO FORMA)
<S> <C> <C> <C> <C>
Net sales................................... $ 350,902 $ 316,106 $ 98,826 $ 98,854
Operating expenses:
Cost of sales............................. 299,356 278,081 87,523 86,732
Marketing, general and administrative..... 32,446 23,918 10,132 9,045
Research and development.................. 4,546 4,715 1,709 1,659
--------- --------- ----------- ---------
336,348 306,714 99,364 97,436
--------- --------- ----------- ---------
Operating income (loss)..................... 14,554 9,392 (538) 1,418
Interest expense............................ (49,397) -- (12,660) (12,660)
Other, net.................................. 4,402 282 (651) 806
Debt restructuring costs.................... (9,786) -- -- --
Reorganization items........................ -- (38,514) -- --
--------- --------- ----------- ---------
Loss before income taxes and extraordinary
gain....................................... (40,227) (28,840) (13,849) (10,436)
--------- --------- ----------- ---------
Income tax (expense) benefit................ 8,567 (2,636) 3,352 3,908
--------- --------- ----------- ---------
Loss before extraordinary gain.............. (31,660) (31,476) (10,497) (6,528)
Extraordinary gain.......................... -- 123,672 -- --
--------- --------- ----------- ---------
Net income (loss)........................... $ (31,660) $ 92,196 $ (10,497) $ (6,528)
--------- --------- ----------- ---------
--------- --------- ----------- ---------
</TABLE>
THREE MONTHS ENDED DECEMBER 31, 1992 COMPARED TO THREE MONTHS ENDED DECEMBER
31, 1991
(PRO FORMA)
Net sales remained constant for the three months ended December 31, 1992 as
compared to the three months ended December 31, 1991. Polyethylene sales
increased $2.7 million (or 9%) principally due to an increase in average selling
prices of 4 cents per pound (or 12%). The increase in average selling prices was
due to high capacity utilization in the HPLDPE resin industry. The polyethylene
sales increase was offset by a decrease in polypropylene sales of $2.7 million
(or 17%) for the three months ended December 31, 1992 compared to the same
period in 1991 principally due to a decrease in sales volumes of 3.1 million
pounds (or 9%) and a decrease in average selling prices of 4 cents per pound (or
9%). The decreased polypropylene sales volume was primarily due to lower demand
resulting from overall economic conditions and oversupply in the global
polypropylene markets.
The Company's gross profit percentage increased from 11% in the three months
ended December 31, 1991 to 12% in the 1992 period principally due to the 4 cents
per pound polyethylene price increase.
Marketing, general and administrative expenses decreased $1.1 million (or
11%) from $10.1 million for the three months ended December 31, 1991 to $9.0
million for the three months ended December 31, 1992 principally due to cost
reduction and containment efforts.
Due primarily to the factors described above, operating income was $1.4
million for the three months ended December 31, 1992 as compared, on a pro forma
basis, to an operating loss of $.5 million for the corresponding period in 1991.
Other, net increased $1.5 million for the three months ended December 31,
1992 as compared to the same period in 1991 principally because of a
reimbursement from an escrow account established during a merger of the Company
in 1988 of approximately $1.0 million for the net cost, plus interest thereon,
of defending certain lawsuits.
29
<PAGE>
Due primarily to the factors described above, the net loss for the three
months ended December 31, 1992 decreased by $4.0 million (or 38%) to $6.5
million, as compared, on a pro forma basis, to $10.5 million for the
corresponding period in 1991.
NINE MONTHS ENDED SEPTEMBER 30, 1992 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1991
Net sales decreased $34.8 million (or 10%) from $350.9 million for the nine
months ended September 30, 1991 to $316.1 million for the nine months ended
September 30, 1992 principally due to lower styrene, polyethylene and
polypropylene sales. Styrene sales decreased $16.1 million (or 25%) in the first
nine months of 1992 as compared to the first nine months of 1991 due to a volume
decrease of 20.3 million pounds (or 9%) and a price decrease of 4.9 cents per
pound (or 17%). The decrease in styrene volumes was primarily due to lower plant
utilization rates which were implemented to minimize operating losses and to
focus on key customers. Polyethylene sales decreased $10.6 million (or 10%) in
the first nine months of 1992 as compared to the first nine months of 1991 due
to a volume decrease of 22.1 million pounds (or 8%) and a price decrease of 1.0
cent per pound (or 3%). The polyethylene volume decrease was primarily due to
lower demand resulting from sluggish economic conditions during the early part
of the year. Polypropylene sales decreased $5.5 million (or 10%) in the first
nine months of 1992 as compared to the first nine months of 1991 due to a price
decrease of 2.1 cents per pound (or 5%) and a volume decrease of 6.5 million
pounds (or 5%). The decrease in polypropylene volumes was due to a variety of
factors including lower plant utilization rates and overall economic conditions.
Plastic film sales for the first nine months of 1992 remained relatively stable
as compared to the comparable period in 1991.
The Company's gross profit percentage decreased from 15% for the nine months
ended September 30, 1991 to 12% for the same period in 1992 principally due to
the lower average selling prices discussed above and due to an increase to the
Company's environmental remediation accrual.
Marketing, general and administrative expenses decreased $8.5 million (or
26%) from $32.4 million for the nine months ended September 30, 1991 to $23.9
million for the nine months ended September 30, 1992 principally due to cost
containment efforts and lower legal fees for general litigation because of the
automatic stay provision of the federal bankruptcy laws. (Also see professional
fees associated with the Reorganization discussed below). Due primarily to the
factors described above, operating income for the nine months ended September
30, 1992 decreased $5.2 million (or 35%) to $9.4 million, as compared to $14.6
million for the corresponding period in 1991.
Interest expense on the senior and subordinated notes of Old Rexene was
accrued through October 18, 1991. In addition, interest expense was accrued from
October 18, 1991 to December 31, 1991 in accordance with an agreement in
principle between the Company and the holders of senior and subordinated notes
of Old Rexene prior to the approval of the Amended Plan. The Amended Plan
eliminated postpetition interest requirements through June 30, 1992. Therefore,
postpetition interest of $6.8 million accrued as of December 31, 1991 was
reversed in the first quarter of 1992 and is included in other, net on the
condensed consolidated statement of operations for the nine months ended
September 30, 1992. Interest expense from July 1, 1992 through September 30,
1992 is included in reorganization items.
Other, net for the nine months ended September 30, 1992, includes a $7.4
million accrual relating to the adverse judgment (including estimated attorneys'
fees) on the Izzarelli class action lawsuit, partially offset by the reversal of
postpetition interest of $6.8 million accrued as of December 31, 1991 discussed
above, and $1.5 million of business interruption insurance proceeds received for
an electrical outage at the Odessa Facility in May 1991. See "Business --
Litigation."
The Reorganization items for the nine months ended September 30, 1992 are
described in Note 3 to the Consolidated Financial Statements. In the first nine
months of 1992, the Company incurred $12.6 million of professional fees
associated with the Reorganization. In the first nine months of 1991, the
Company incurred $9.8 million of debt restructuring costs.
The Company recorded income tax expense of $2.6 million on a loss before
income taxes of $28.8 million for the nine months ended September 30, 1992.
There are permanent differences between the Company's income for financial
reporting purposes and tax purposes resulting principally from the lower tax
basis
30
<PAGE>
for assets purchased when the Company was sold in 1988. These permanent
differences cause the effective income tax rate to be higher than the statutory
income tax rate for federal and state income taxes with the effective rate being
greater in periods of lower taxable income.
In the third quarter of 1992, the Company recorded an extraordinary gain of
$123.7 million as a result of exchanging the senior and subordinated notes of
Old Rexene for the Old Notes and Common Stock under the Amended Plan.
Due primarily to the factors described above, the Company had net income of
$92.2 million for the nine months ended September 30, 1992 (or a net loss before
extraordinary gain of $31.5 million) compared to a net loss of $31.7 million for
the corresponding period in 1991.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended September 30, 1994, cash generated from
operations increased $26.2 million as compared to the comparable period in 1993.
This increase was principally due to higher operating income and receipt of $5.5
million of federal income tax refunds, partially offset by the effect of
increased accounts receivable resulting principally from higher sales.
The New Credit Agreement provides for up to $100 million of term loans and
up to $80 million of revolving credit loans for working capital and for letters
of credit. The Company will be required to repay a portion of its borrowings
under the Term Loan each year, commencing in 1995, so as to retire such
indebtedness in its entirety by December 31, 1999. Availability of borrowings
under the Revolving Credit Facility will be based upon a formula related to
inventory and accounts receivable and is contingent upon the receipt by the
Company of gross proceeds from the Common Stock Offering of at least $85 million
and of aggregate gross proceeds from the Offerings of at least $275 million. See
"Certain Indebtedness of the Company -- New Credit Agreement."
After the Recapitalization, the Company will have substantial principal
repayment obligations. The Company will be required to make quarterly principal
payments under the Term Loan commencing on March 31, 1995. The first four
payments will each be in the amount of $2.5 million, the next four payments will
each be in the amount of approximately $3.75 million and all payments thereafter
will each be in the amount of $6.25 million, so as to retire such indebtedness
in its entirety by December 31, 1999. In addition, under the New Credit
Agreement, the Company has certain mandatory prepayment obligations that will
not exceed $10.0 million in 1995, $20.0 million, less any prior mandatory
repayments made from excess cash flow, in 1996 or $30.0 million, less any prior
mandatory repayments made from excess cash flow, in 1997 in the event annual
cash flow exceeds certain levels. The Senior Notes will mature on ,
2004. The Company believes that following the consummation of the Offerings,
based on current levels of operations and anticipated growth, its cash flow from
operations, together with other available sources of liquidity, including
borrowings under the Revolving Credit Facility, will be adequate for the
foreseeable future to make scheduled payments of principal and interest under
the New Credit Agreement and interest payments on the Senior Notes, to permit
anticipated capital expenditures and to fund working capital requirements.
However, the ability of the Company to satisfy these obligations depends on a
number of significant assumptions regarding the demand for the Company's
products, raw material costs and other factors. See "Investment Considerations
- -- High Leverage and Substantial Debt Service Requirements."
The New Credit Agreement and the Indenture will contain covenants which,
among other things, restrict the ability of the Company to incur additional
indebtedness, create or permit liens, effect certain asset sales and engage in
certain mergers or similar transactions. The New Credit Agreement will also
contain certain financial covenants relating to the financial condition of the
Company, including covenants relating to the ratio of its earnings to its
interest expense, the ratio of its earnings to its fixed charges and a leverage
ratio. These covenants could limit the Company's ability to obtain additional
financing and engage in certain corporate activities. Continued compliance with
such covenants will depend upon a variety of factors, including general economic
conditions and other factors beyond the control of the Company. See "Investment
Considerations" and "Certain Indebtedness of the Company."
31
<PAGE>
During 1992 and 1993, the Company expended approximately $15.1 and $17.0
million, respectively, for capital expenditures. For 1994, the Company has
budgeted $31.0 million for capital expenditures, of which approximately $21.1
million had been spent through September 1994. For 1995, the Company has
budgeted approximately $30.0 million for proposed capital expenditures. In
addition, the Company is exploring a number of possible product development
opportunities which would require additional capital expenditures. For example,
the Company has announced the development of a new polyolefin polymer,
REXFLEX-TM- FPO. The Company is currently producing experimental quantities of
this product in a small-scale pilot plant at the Odessa Facility and is in the
process of developing process technology for a commercial plant. At this time,
however, no budgeting decision has been made regarding this or other similar
projects.
A number of potential environmental liabilities exist which relate to
contaminated property. In addition, a number of potential environmental costs
relate to pending or proposed environmental regulations. No assurance can be
given that all of the potential liabilities arising out of the Company's present
or past operations have been identified or that the amounts that might be
required to remediate such sites or comply with pending or proposed
environmental regulations can be accurately estimated. The Company has
approximately $23.0 million accrued in the September 30, 1994 balance sheet as a
preliminary estimate of its total potential environmental liability with respect
to remediating known contamination. If, however, additional liabilities with
respect to environmental contamination are identified, there is no assurance
that additional amounts that might be required to remediate such potential sites
would not have a material adverse effect on the financial condition of the
Company. In addition, future regulatory developments could restrict or possibly
prohibit existing methods of environmental compliance, such as the disposal of
waste water in deep injection wells. At this time, the Company is unable to
determine the potential consequences such possible future regulatory
developments would have on its financial condition. Management continually
reviews on an on-going basis its estimates of potential environmental
liabilities. The Company does not currently carry environmental impairment
liability insurance to protect it against such contingencies because such
coverage is available only at great cost and with broad exclusions. As part of
its financial assurance requirements under the RCRA and equivalent Texas law,
the Company has deposited $10.6 million in trust to cover closure and
post-closure costs and liability for bodily injury and certain types of property
damage arising from sudden and non-sudden accidental occurrences at certain of
the Odessa Facility's hazardous waste management units. This deposit is included
in other noncurrent assets in the September 30, 1994 balance sheet. This amount
deposited in trust does not cover the costs of addressing existing contamination
at the Odessa Facility.
The Company's operating expenditures for environmental remediation and waste
disposal were approximately $6.4 million in 1993 and are expected to be
approximately $6.0 million in 1994. In 1993 the Company also expended
approximately $5.1 million relating to environmental capital expenditures. In
1994, the Company expects to spend approximately $3.2 million for
environmentally-related capital expenditures, which is lower than historical
levels due to timing of expenditures pertaining to several projects. Thereafter
for the foreseeable future, the Company expects to incur approximately $4.0 to
$5.0 million per year in capital spending to address the requirements of
Environmental Laws. Annual amounts could vary depending on a variety of factors,
such as the control measures or remedial technologies ultimately required and
the time allowed to meet such requirements. See "Business -- Environmental and
Related Regulation."
32
<PAGE>
BUSINESS
INDUSTRY
The polyethylene, polypropylene and styrene markets in which Rexene competes
are cyclical markets that are sensitive to relative changes in supply and
demand, which are in turn affected by general economic conditions. Rexene's
plastic film and APAO businesses are generally less sensitive to economic
cycles. Historically, the cyclical segments have experienced alternating periods
of tight supply and rising prices and profit margins, followed by periods of
large capacity additions resulting in oversupply and declining prices and profit
margins. In the early 1980's, overcapacity in the polyethylene and polypropylene
markets and weakened demand for styrene due to general economic conditions led
to poor operating results for the Company and the industry in general. In the
mid 1980's, construction of new production facilities slowed and increases in
production capacities due to technology improvements moderated. At the same
time, domestic demand grew significantly as a result of a stronger U.S. economy
and export sales strengthened due in part to a weaker U.S. dollar. As a result,
during fiscal years 1987 to 1989, the industry experienced increased levels of
demand for its products which resulted in near full capacity utilization rates,
higher domestic and export prices and record earnings. Feedstock prices were
also favorable during this period. In response to this rapid increase in demand
and profits, the U.S. LDPE, polypropylene and styrene industries increased total
rated annual production capacity by approximately 22%, 31% and 34%,
respectively, from 1988 to 1993. During the period 1990 to 1993, the rate in
U.S. demand slowed as a result of the general economic conditions, and
significant production capacity was added in some of the traditional export
markets in the Far East. As a consequence, the industry, including the Company,
experienced during this period an overcapacity condition that resulted in a
decline in utilization rates and substantially lower average selling prices and
margins.
Following a significant improvement in domestic economic growth since the
second half of 1993, these markets experienced increased levels of demand which
have resulted in greater capacity utilization and higher domestic and export
prices. According to CMAI, during the first six months of 1994, domestic demand
for LDPE, polypropylene and styrene increased by approximately 9%, 14% and 5%,
respectively, compared to the first six months of 1993. This increase in demand
has enabled the Company and the petrochemical industry in general to increase
selling prices significantly at a time when feedstock costs have either not
increased or only increased modestly compared to end product prices. For
example, from December 1993 to September 1994, the Company increased the average
selling prices on its polyethylene, polypropylene and styrene by 28%, 18% and
66% per pound, respectively. During the same period, prices for the Company's
major feedstocks, ethane and propane, were relatively stable, and the price for
benzene increased 63%.
POLYMERS
POLYETHYLENE. The chart below details the average domestic selling prices
(for liner grade HPLDPE) and capacity utilization rates for the U.S. LDPE
industry during the period 1981 through September 30, 1994. Utilization rates
are derived by dividing production by total rated annual production capacity.
LDPE utilization rates are used because HPLDPE industry utilization rate data
are unavailable. However, the Company believes that since 1988 historical HPLDPE
utilization rates have equalled or exceeded historical LDPE utilization rates.
33
<PAGE>
[LOGO]
Source: CMAI
Industry utilization rates based on LDPE
Price cents/pound based on HPLDPE
1994 third quarter estimated by CMAI
Polyethylene is the largest volume polymer in the world and is consumed in a
wide variety of consumer and industrial applications. In 1993, according to
CMAI, the total U.S. demand (including exports) for LDPE was approximately 13.2
billion pounds, consisting of 7.4 billion pounds of high pressure low density
polyethylene ("HPLDPE") and 5.8 billion pounds of linear low density
polyethylene ("LLDPE"). LDPE can be extruded or molded alone or with other
resins and additives into a wide variety of industrial and consumer products,
including film products (e.g., food packaging and pallet stretch wrap, coatings,
bags, grocery sacks, toys and bottles). Although both types of LDPE are used to
make the foregoing types of products, LLDPE has some physical properties,
including film strength, that make it more suitable for some uses (e.g., trash
bags and stretch wrap) than HPLDPE. In contrast, HPLDPE is easier to extrude and
has the advantage of higher clarity. Rexene currently only participates in the
HPLDPE segment. According to the Society of the Plastics Industry, Inc. ("SPI"),
an industry trade association, total U.S. consumption of LDPE grew at an average
annual rate of approximately 4.3% from 1988 to 1993.
According to CMAI, in 1993 the U.S. LDPE market was comprised of 14
producers, with a total rated annual production capacity for HPLDPE of
approximately 8.1 billion pounds and an annual production capacity dedicated
exclusively for the production of LLDPE of approximately 5.6 billion pounds.
According to CMAI, the LDPE industry operated at a utilization rate of
approximately 88.1% in 1993. With LDPE demand projected to grow by approximately
6.5% in 1994 over the previous year, CMAI estimates the overall LDPE industry's
utilization rate will increase to approximately 92.5% in 1994, with both the
HPLDPE and LLDPE industries operating at a rate of approximately 93.6% and
91.1%, respectively. The LDPE industry is projected by CMAI to have a
utilization rate of approximately 92% during 1995.
34
<PAGE>
POLYPROPYLENE. The chart below details the average selling prices (general
purpose, injection molding homopolymer grade) and capacity utilization rates for
the U.S. polypropylene industry during 1981 through September 30, 1994.
Utilization rates are derived by dividing production by total rated annual
production capacity.
[LOGO]
Source: CMAI
1994 third quarter estimated by CMAI
Polypropylene is by volume sales one of the fastest growing major polymers.
According to CMAI, demand (including exports) for this polymer was approximately
8.9 billion pounds in 1993. Polypropylene is consumed in a variety of
applications, including automotive, appliance, housing, packaging, consumer
products, medical and electrical/electronic. According to SPI, domestic
consumption of polypropylene grew at an average annual rate of approximately
6.7% from 1988 to 1993.
According to CMAI, in 1993 the U.S. polypropylene market consisted of 17
producers with a total rated annual production capacity of approximately 9.8
billion pounds. CMAI estimated the industry operating rate to have been
approximately 88% in 1993. With industry capacity expected to increase by
approximately 550 million pounds in 1994 and total demand (net of an
approximately 13% decline in export sales) expected to grow by approximately
8.9%, CMAI estimates the industry's utilization rate will be approximately 92%
during 1994. Since no material change in annual production capacity has been
announced for 1995, CMAI estimates that a 4.9% growth in total demand should
result in an increase in the industry's utilization rate to 95% in 1995. In
addition, approximately one billion pounds of additional capacity increases have
been announced for 1996.
AMORPHOUS POLYALPHAOLEFINS (APAO). APAO is used in a variety of
applications including adhesives, sealants, roofing materials, paper lamination
and wire and cable applications. While no definitive volume figures are
available for this industry, Rexene's management estimates the total U.S. market
(including
35
<PAGE>
exports and imports) demand for APAO and atactic polypropylene ("APP") was
approximately 150 million pounds in 1993. In addition to the APAO supplied by
Rexene and one other producer in the U.S., customers also obtain a portion of
their needs from the supply of APP. APP is produced as a by-product material in
polypropylene processes that use a standard catalyst. The supply of the
by-product APP is declining as the remaining U.S. and global polypropylene
producers shift their production to more economical high activity catalyst
systems that produce no by-product APP.
STYRENE
The chart below details the average selling prices and capacity utilization
rates for the U.S. styrene industry during the period 1981 through September 30,
1994. Utilization rates are derived by dividing production by total rated annual
production capacity.
[LOGO]
Source: CMAI
1994 third quarter estimated by CMAI
Styrene is a basic petrochemical used in a variety of applications,
including packaging, housing, automotive and appliances. In 1993, U.S. demand
(including exports) totaled approximately 10.9 billion pounds. According to
CMAI, domestic consumption of styrene grew at an average annual rate of 1.3%
from 1988 to 1993. Following the record results in 1988, demand for styrene in
the U.S. declined each year through 1991 due primarily to sluggish economic
growth and environmental concerns related to the use of polystyrene, its largest
volume derivative. According to CMAI, growth in domestic demand has improved
since 1992 with increases of approximately 8.7% and 5.4% in 1992 and 1993,
respectively. CMAI estimates that domestic demand will increase by approximately
4.2% in 1994.
In 1993, the U.S. styrene market consisted of 10 producers with total annual
rated production capacity of approximately 11.6 billion pounds. According to
CMAI, the industry operated at a utilization rate of
36
<PAGE>
approximately 87.4% in 1993. The U.S. supply is currently supplemented by
approximately 600 million pounds of imports, primarily from Canada. Based on the
estimated growth in styrene demand, CMAI estimates that domestic operating rates
for the industry will be approximately 95% in 1994.
PLASTIC FILM
The U.S. polyethylene film industry is highly fragmented, with over 450
producers ranging from a few large national producers such as CT Film to many
small, regional producers. Polyethylene films are used for a variety of
packaging and non-packaging applications for consumer and industrial uses,
including trash bags, carry-out/retail bags, food and non-food packaging,
personal care, medical uses, agricultural and horticultural uses, greenhouse,
construction uses, stretch films for industrial uses and shrink films for
consumer and industrial packaging.
According to SPI, on the basis of polyethylene resins sold into the film
market, the size of the U.S. market was estimated to be approximately 8 billion
pounds in 1993. According to SPI, domestic demand for polyethylene films has
grown at an average annual rate of approximately 5.6% from 1988 to 1993.
BUSINESS STRATEGY
The Company's operating strategy to market value added specialty products
and to improve its operating costs is designed to allow it to compete
effectively against larger competitors in both periods of rising and declining
prices. The Company believes that its operating strategy will enable it to take
advantage of improved market conditions in a strong economy and to lessen the
impact of depressed pricing and demand in market downturns. However, there can
be no assurance that the Company will be able to succeed in implementing its
business strategy. See "Investment Considerations."
The following factors are central to the Company's operating strategy:
- MAINTAIN CUSTOMER DRIVEN FOCUS TO PROVIDE VALUE ADDED SPECIALTY PRODUCTS
AND QUALITY SERVICE: The Company seeks to be the premier provider of
specialty polymers, tailored with tight performance specifications and
high quality standards to the customer's specific applications. The
Company believes that this focus distinguishes it from larger competitors,
many of which focus primarily on customers that require large quantity,
commodity grade products where competition is based primarily on price.
The Company believes that its focus on the production of higher-margin,
specialty polymers will enable the Company to maintain premium pricing
relative to commodity grades of these products and preserve market share
during periods of oversupply in the industry.
- FOCUS ON NICHE MARKETS WHICH OPTIMIZE USE OF THE ODESSA FACILITY: The
Odessa Facility has smaller polymer reactors than many of its competitors.
For example, each of the polyethylene reactors at the Odessa Facility has
a total rated annual production capacity of 75 million pounds or less, as
compared to some of the Company's competitors which have polyethylene
reactors with total rated annual production capacity ranging from 200
million to 500 million pounds. The Company believes, therefore, that it is
in a better position than such competitors to respond efficiently and with
greater flexibility to customer requirements for specially tailored, high
quality products in small lot sizes. The Company currently produces over
300 different grades of polymers, and is one of only two domestic
producers of a super clean grade of polypropylene utilized for medical
applications and one of only two domestic on-purpose producers of APAO.
Because of their added value, the Company's specialty polymers are
generally priced as performance resins, thus yielding profit margins for
Rexene generally higher than those that it otherwise would realize from
the sale of commodity grade products.
- CONTINUE TO DEVELOP PLASTIC FILM BUSINESS: CT Film sales increased from
approximately $109 million in 1989 to approximately $147 million in 1993,
an increase of approximately 35%. During the same period, the Company
increased its total rated annual film production capacity from
approximately 160 million pounds to approximately 225 million pounds. In
September 1994, the Company commenced operation of a new film production
plant with an annual rated production capacity of 20 million pounds in
Scunthorpe, England. The Company intends to continue to grow its plastic
film business through increased capacity utilization and, when
appropriate, capacity expansions and
37
<PAGE>
selected acquisitions. The Company believes that such growth may reduce
its sensitivity to the commodity chemical cycle, because demand and profit
margins in the plastic film markets in which Rexene competes tend to be
relatively stable.
- DEVELOP NEW PRODUCTS AND APPLICATIONS THROUGH TECHNOLOGICAL INNOVATION:
The Company continually seeks to enhance and expand its portfolio of
specialty polymers through sustained in-house research and development and
licensing arrangements. For example, APAO, a special purpose polymer used
primarily in roofing materials and adhesives, was developed by the Company
in 1986. This polymer was developed principally to replace APP, a
by-product of polypropylene manufacturing, with an on-purpose higher
quality polymer. The Company's latest product development is a new
polyolefin polymer, REXFLEX-TM- FPO. The Company believes that FPO has the
potential for use in a wide variety of applications, including in
automotive components, containers for personal care products and medical
devices. Although the Company has made no budgeting decision with respect
to the development of any specific new product, the Company is currently
producing experimental quantities of FPO in a pilot plant at the Odessa
Facility and is currently developing the process technology for a
commercial plant. See "New Product Development."
- CONTINUE TO IMPROVE OPERATING EFFICIENCIES: The Company's operating
strategy includes making selective capital expenditures designed to
modernize and upgrade its facilities, reduce its production costs and
enable it to continue to produce technologically advanced products. For
example, the Company has recently approved capital expenditures of
approximately $4 million to upgrade portions of the olefins plant at the
Odessa Facility, which should lower unit costs for olefin production. In
addition, the Company has begun a program to selectively modernize and
upgrade both cast and blown equipment at its plastic film production
facilities to improve capacity. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
- CONTINUE TO REINVEST IN CORE BUSINESSES AND REDUCE BALANCE SHEET LEVERAGE:
The polyethylene, polypropylene and styrene markets in which Rexene
competes are highly cyclical. The market is currently experiencing a
period of price escalation; industry capacity utilization rates are
increasing and firming while demand continues to grow. Recent price
increases announced by major domestic polymer and styrene producers,
including the Company, have made it likely that average prices will
continue at or above current levels during 1994 and 1995. The Company's
strategy is to take advantage of periods of market upturns by using cash
flow generated during these periods to make capital expenditures and other
reinvestments in its businesses and to continue to reduce the balance
sheet leverage of the Company. Although no assurance can be given, based
upon announced expansions to date, the Company does not believe that
additional capacity from competitors will materially affect the Company's
operating strategy through 1996. In addition, the Company intends to grow
its polymer and plastic film businesses, internally and through selected
strategic acquisitions and joint ventures.
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<PAGE>
PRINCIPAL PRODUCTS
Plastic film, polyethylene, polypropylene, APAO and styrene are used by the
Company's customers in different industrial processes to manufacture many
diverse finished goods. Examples of these processes and principal end market
products are set forth below:
<TABLE>
<CAPTION>
PRODUCT INDUSTRIAL PROCESS PRINCIPAL END MARKET PRODUCTS
- ---------------- ------------------------------------ ---------------------------------------------------------
<S> <C> <C>
Plastic film Lamination and other processes Disposable diapers, feminine hygiene products, medical
products, tapes, packaging, lamination and unsupported
overwraps and greenhouse and agricultural applications
Polyethylene Extrusion, injection or blow molding CT Film division, food packaging, industrial packaging,
medical bottles, produce films, laminated structures and
paper coatings
Polypropylene Extrusion, injection, thermoforming Capacitor film, electronic packaging, sterile medical
or blow molding products, automotive durables, eye care products, rigid
food containers, housewares and furniture
APAO Extrusion or blending Adhesives, sealants, roofing materials, paper lamination
and wire and cable applications
Styrene Through various intermediate Disposable cups and trays, luggage, housewares, toys and
products building products
</TABLE>
The following chart presents the net sales, excluding intercompany sales,
contributed by the Company's products during the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, % OF SEPTEMBER 30, % OF
1993 NET SALES 1994 NET SALES
------------ ----------- ------------- -----------
<S> <C> <C> <C> <C>
Plastic film............................................... $ 147,468 34.3 $ 124,792 32.3
Polyethylene............................................... 120,060 28.0 104,094 27.0
Polypropylene.............................................. 64,459 15.0 56,107 14.5
APAO....................................................... 15,084 3.5 14,649 3.8
Styrene.................................................... 61,372 14.3 63,295 16.4
Other...................................................... 20,910 4.9 23,216 6.0
------------ ----- ------------- -----
Total...................................................... $ 429,353 100.0 $ 386,153 100.0
------------ ----- ------------- -----
------------ ----- ------------- -----
</TABLE>
Except for one customer that accounted for approximately 9% and 10% of net
sales for the year ended December 31, 1993 and the nine months ended September
30, 1994, respectively, no customer accounted for more than 4% of the Company's
consolidated net sales for the year ended December 31, 1993 or the nine months
ended September 30, 1994.
PLASTIC FILM
THE PRODUCT
The Company, through CT Film, is a major participant in the specialty market
for polyethylene films. Product applications for these films include disposable
diapers, feminine hygiene products, tapes, packaging, lamination and unsupported
overwraps and greenhouse and agricultural applications. CT Film's products are
manufactured principally with its own proprietary processes.
CT Film develops specialty formulations of films to meet customer
specifications for various highly specific and value added applications.
Examples include a recycle film containing a minimum of 25% recycled materials,
low gel film developed for photo-resistant applications, MAXILENE-R- lamination
film and thin gauge barrier film for feminine hygiene products and medical
applications. CT Film produces films for coextruded forming webs, linear tear
films, and elastomeric films for surgical products. The Company currently
manufactures over 1,500 different plastic film products.
39
<PAGE>
MARKETING
Domestically, CT Film ships film from its plants in Chippewa Falls,
Wisconsin; Clearfield, Utah; Dalton, Georgia; and Harrington, Delaware. The
Company sold plastic film to over 450 customers in 1993, of which approximately
180 have been customers of CT Film for more than the past five years. The
Company's customers include a number of Fortune 500 companies. Products are sold
primarily through the Company's plastic film sales staff, which, as of September
14, 1994, consisted of 29 persons, supported by 50 technical service personnel
(including research and development personnel) dedicated to plastic film.
COMPETITION
CT Film's domestic plants have a total rated annual production capacity of
approximately 225 million pounds. From January 1, 1992 through September 30,
1994, the weighted average utilization rate for these facilities was 77%. CT
Film's principal competitors include Tredegar Industries, Exxon Chemical
Americas, Clopay Corporation, Blessings Company, Deerfield Plastics Company,
Inc., DuPont of Canada, and James River Corporation. The plastic film business
is based on custom formulations to meet customer needs. Competition is based on
the quality and properties of the film as well as price. CT Film seeks to
develop innovative products to meet customer needs and seeks to compete by
segmenting market niches and being responsive to customers' specific
requirements.
EUROPEAN OPERATIONS
In 1993, the Company formed a wholly-owned subsidiary in England, Rexene
Corporation Limited ("RCL"), to produce plastic film principally for European
customers. In 1993, Kimberly-Clark Limited ("KCL") executed a contract providing
for a firm commitment to purchase plastic film backsheet from RCL through
December 2001. Film backsheet is used in the production of disposable diapers
and training pants.
RCL recently completed construction of a manufacturing facility in
Scunthorpe, England at a cost of $12.2 million. The plant, which will supply KCL
and other potential customers in Europe, commenced operations in September 1994
and has a total rated annual production capacity of 20 million pounds.
POLYETHYLENE
THE PRODUCT
The majority of polyethylene produced in the United States is LDPE resin. In
1993, approximately 59% of LDPE capacity in the United States was used to make
HPLDPE and the balance to make LLDPE. The Company currently only participates in
the HPLDPE market.
The Company currently produces over 200 different grades of HPLDPE. Many of
these grades are combined with other polymers to meet specific customer
requirements. Examples of the Company's differentiated resins are ethylene-vinyl
acetate (EVA) resins used in film applications that require high clarity,
toughness and sealability, and specialty low-gel resins used in computer circuit
board production. The Company focuses on producing high performance, specially
tailored resins designed to meet the customer's specific requirements.
MARKETING
The Company participates in every principal market for HPLDPE, selling its
HPLDPE resins under the REXENE-R- name. Prime grade products are sold
domestically directly to customers primarily through the Company's sales and
technical service staffs. Most wide specification products are sold to dealers
for resale. Export sales are made through international trading companies or
agents. Approximately 60% of the Company's polyethylene sales during the nine
months ended September 30, 1994 were made to customers (other than CT Film) who
have been customers of the Company for more than the past five years.
Approximately 14% of the Company's polyethylene production in 1993 was shipped
to CT Film. As of September 14, 1994, the Company's sales staff for its
polyethylene, polypropylene and APAO products consisted of 37 persons, supported
by 90 technical service personnel (including research and development personnel)
dedicated to such products.
40
<PAGE>
COMPETITION
There are currently 15 domestic producers of LDPE, some of which produce
both HPLDPE and LLDPE. The largest manufacturer of LDPE is Quantum Chemical
Corporation. The other five largest domestic producers of LDPE include Dow
Chemical U.S.A., Union Carbide Corporation, Chevron Chemical Company, Exxon
Chemical Company and Mobil Chemical Company. In 1993, Rexene accounted for
approximately 3% of the U.S. capacity for LDPE and approximately 5% of the U.S.
capacity for HPLDPE. The Odessa Facility has a total rated annual production
capacity for polyethylene of approximately 405 million pounds. From January 1,
1992 through September 30, 1994, the weighted average utilization rate for the
Company's polyethylene facilities was 97%. Competition for sales is generally
based on price for less specialized products and on price, product performance
and customer service for more specialized products. The Company seeks to compete
with larger polyethylene producers by providing a high level of customer service
and developing resins which are responsive to customers' specific requirements.
POLYPROPYLENE
THE PRODUCT
The Company currently produces over 100 different grades of polypropylene
resins, including several types of general purpose polypropylene for industrial
use and a variety of more differentiated types of polypropylene which have
properties or characteristics specifically tailored for special uses. The
Company emphasizes the manufacturing of polypropylene resins for specialty
segments of the polypropylene market such as medical, electrical and food
packaging applications. The Company is one of only two domestic producers of a
super clean grade of polypropylene utilized for medical applications, and is a
key supplier of this grade for electrical capacitor film uses. The Company's
line of impact copolymer polypropylene products is used primarily for automotive
components and rigid packaging. Other products include radiation resistant
resins for medical applications requiring radiation sterilization, capacitor
resins for premium electrical grade film, and premium copolymer blow-molding
resins for medical and food applications. The Company has been active in making
technology improvements in process and catalyst technology and works closely
with customers in developing new products to meet their specific needs.
MARKETING
The Company sells its polypropylene products under the REXENE-R- name.
Domestic and Canadian sales of products are sold primarily through the Company's
sales and technical service staffs. Most wide-specification products are sold to
brokers for resale. Export sales are made directly and through trading
companies. Approximately 65% of the Company's polypropylene sales during the
nine months ended September 30, 1994 were made to customers who have been
customers of the Company for more than the past five years. As of September 14,
1994, the Company's sales staff and technical services staff for its
polyethylene, polypropylene and APAO products consisted of 37 and 90 persons,
respectively.
COMPETITION
In 1993, there were 17 domestic producers of polypropylene, with an
estimated combined rated annual production capacity of approximately 9.8 billion
pounds. In 1993, the four largest domestic producers of polypropylene were
Himont Incorporated, Amoco Chemicals Corporation, Fina, Inc. and Exxon Chemical
Company. Competition for sales is dependent upon a variety of factors, including
product price, technical support and customer service, the degree of
specialization of various grades of polypropylene and the extent to which
substitute materials such as wood, glass, metals and other plastics are
available on a cost-effective basis. General purpose polypropylene ordinarily
competes principally on the basis of price, while more differentiated
polypropylene competes principally on the basis of product quality, performance
specifications and price. In 1993, Rexene accounted for approximately 2% of U.S.
production capacity for polypropylene. The Odessa Facility has a total rated
annual production capacity for polypropylene of approximately 180 million
pounds. From January 1, 1992 through September 30, 1994, the weighted average
utilization rate for the Company's polypropylene facilities was 88%. The Company
seeks to compete effectively with larger competitors by focusing on specialty
products responsive to customers' specific requirements.
41
<PAGE>
APAO
THE PRODUCT
The Company is one of only two U.S. on-purpose producers of APAO. APAO is
used primarily in the production of adhesives, sealants, roofing materials,
paper lamination and wire and cable applications.
MARKETING
The Company sells APAO under the REXTAC-R- name. APAO is sold domestically
through the Company's sales and technical service staffs. The Company
supplements its sales of APAO with purchases from Ube Rexene Corporation
("URC"), a joint venture company located in Japan in which the Company holds a
50% equity interest. In 1993, purchases from URC were approximately 4.3 million
pounds. The Company expects to purchase similar quantities from URC in 1994.
COMPETITION
The Company and Eastman Chemical Company are currently the only domestic
on-purpose producers of APAO. In addition, a few producers of polypropylene also
produce APP, which competes with APAO for some less performance driven uses.
Based on management estimates, in 1993 Rexene accounted for approximately 30% of
the United States capacity for APAO and APP. The Company has a total rated
annual production capacity of approximately 45 million pounds per year. From
January 1, 1992 through September 30, 1994, the weighted average utilization
rate for the Company's APAO facilities was 85%. The Company seeks to compete by
providing a high level of customer service and developing products which are
responsive to customers' specific requirements.
STYRENE
THE PRODUCT
Styrene is a petrochemical commodity with a variety of applications. Styrene
is made from ethylene and benzene and is principally used in the manufacture of
intermediate products such as polystyrene, latex, acrylonitrile butadiene
styrene (ABS) resins, synthetic rubbers and unsaturated polyester resins.
Through these products, styrene can be found in consumer products, including
disposable cups and trays, luggage, housewares, toys and building products such
as roof insulation, pipes and fittings.
MARKETING
The Company sells the vast majority of its styrene directly to a small
number of domestic customers under year to year contracts, and handles export
sales through international trading companies.
COMPETITION
The total rated annual production capacity of the Odessa Facility for
styrene is approximately 320 million pounds, which, in 1993, represented
approximately 3% of the total rated domestic production capacity for styrene
during such period. From January 1, 1992 through September 30, 1994, the
weighted average utilization rate for the Company's styrene facilities was 88%.
The six largest domestic producers of styrene are Arco Chemical Company,
Huntsman Chemicals Corporation, Amoco Chemicals Corporation, Sterling Chemicals,
Inc., Dow Chemical U.S.A. and Chevron Chemical Company. Competition for sales of
styrene is generally based on price.
EXPORT SALES
The Company had total export sales in 1993 of approximately $30.5 million,
or 7.1% of the Company's total sales. During the first nine months of 1994, the
Company had total export sales of approximately $32.6 million, or 8.5% of the
Company's total sales. The export sales percentage increased during the nine
months ended September 30, 1994 principally due to exports of plastic film to
KCL, pending start-up of the Company's plant in Scunthorpe, England. The Company
is decreasing its emphasis on this market to reduce the effect of wide price
fluctuations in periods of tight demand and industry overcapacity. See Note 15
of the Notes to the Consolidated Financial Statements included elsewhere herein.
42
<PAGE>
NEW PRODUCT DEVELOPMENT
The Company continually seeks to enhance and expand its portfolio of
specialty polymers through sustained in-house research and development and
licensing arrangements. For example, in 1993 the Company developed a new
polyolefin polymer, REXFLEX-TM- FPO. The Company believes that FPO has the
potential for use in a wide variety of applications, including in automotive
components, containers for personal care products and medical devices. Although
the Company has made no budgeting decision with respect to the development of
any specific new product, the Company is currently producing experimental
quantities of FPO in a small-scale pilot plant at the Odessa Facility and is
developing the process technology for a commercial plant. Commercial production
of FPO is subject to the successful development of such technology, the
completion of a commercial plant and necessary governmental approvals.
RAW MATERIALS FOR PRINCIPAL PRODUCTS
Principal raw materials purchased by the Company consist of ethane, propane
(extracted from natural gas liquids), propylene and benzene for the polymer and
styrene businesses and polyethylene resins for the film business. The prices of
feedstocks fluctuate widely based upon the prices of natural gas and oil. During
the past four years, feedstocks accounted for between approximately 24% and 32%
of the Company's total cost of sales. As a result, the Company's ability to pass
on increases in raw material costs to customers has a significant impact on
operating results. Current market conditions for the Company's products indicate
that increases in feedstock costs may be passed on to customers, but an adverse
change in market conditions for such products could reduce pricing flexibility,
including the ability to pass on any such increase.
The Odessa Facility obtains a combination of pure and mixed streams of
natural gas liquids from NGL pipelines and NGL extraction plants located in West
Texas and uses such streams to obtain ethane and propane feedstocks for the
Company's olefins plant. In 1993, the Company consumed approximately 526 million
pounds of ethane and 422 million pounds of propane, and during the first three
quarters of 1994, the Odessa Facility consumed ethane and propane at an annual
rate of 562 million and 472 million pounds, respectively. In 1993 and the first
three quarters of 1994, the Company produced all of its ethylene and 53% of its
propylene requirements for the Odessa Facility. The Company's feedstock supplies
are currently adequate for its requirements. The Company has storage capacity
for an approximately ten-day supply of feedstocks.
The Odessa Facility uses benzene and ethylene to produce styrene. In 1993,
approximately 62% of the Company's benzene purchases were under contracts from
Gulf Coast producers and approximately 16% was purchased from Midwest producers
at prevailing contract prices, with the balance of its needs being filled with
purchases on the spot market. The Odessa Facility has historically served as its
own source of ethylene.
The principal feedstocks for the Company's captive ethylene and propylene
production of the Odessa facility are ethane and propane. Ethane and propane
prices are established in Mont Belvieu, Texas (Gulf Coast) according to
prevailing market conditions, but the Company is able to purchase natural gas
liquids containing ethane and propane in West Texas at prices discounted from
the prevailing reported average Mont Belvieu, Texas prices. These discounts
reflect a significant portion of the cost for the producers to transport natural
gas liquids containing ethane and propane to Mont Belvieu, Texas and to
fractionate them into pure ethane and propane. In 1993, the Company acquired all
of the Odessa Facility's requirements for ethane and propane under such
arrangements.
CT Film raw materials consist principally of polyethylene resins and
additives. CT Film obtains its raw materials from a variety of sources
(including the Odessa Facility) and has been able to order these materials in
advance as its needs dictate. CT Film has adequate storage capabilities for its
raw materials.
EMPLOYEES AND LABOR RELATIONS
As of September 14, 1994, the Company employed domestically approximately
1,280 persons and utilized approximately 120 contract workers. Approximately 520
(in addition to the contract workers) are employed at the Odessa Facility in the
development and production of olefins, polyethylene, polypropylene, APAO and
styrene. In addition, approximately 90 employees at the Odessa Facility are
involved in various technical support activities to the manufacturing
operations. Also, approximately 40 employees located in
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<PAGE>
Odessa, Dallas and field sales locations are involved in sales, marketing and
distribution of the Company's products. Approximately 580 people are employed by
CT Film, including 520 who are directly involved in the manufacture of plastic
film products at various manufacturing locations in the U.S. Approximately 80
people are employed by CT Film in sales, marketing, engineering and technical
support positions. Also, approximately 80 people are employed in various
corporate staff positions in Dallas, which support all business activities of
the Company. In addition, the Company employs approximately 30 people at its
Scunthorpe, England facility. None of the Company's employees are unionized,
except for approximately 120 employees at the CT Film facility in Chippewa
Falls, Wisconsin. The Company and the union are parties to a collective
bargaining agreement through February 28, 1997. The Company believes its
relationship with its employees is satisfactory.
TRADEMARKS AND PATENTS
The Company is the owner of many United States and foreign patents and uses
trade secrets, including substantial know-how, which relate to its polyethylene,
polypropylene, APAO and plastic film products. The Company has spent over $6
million for research and development during each of the last three fiscal years
and anticipates spending a similar amount in 1994. Although patents and trade
secrets are important to the Company, permitting it to retain ownership and use
of its technological advances, the Company does not believe that the loss of any
patent would have a material adverse effect on its financial condition. The
Company also uses the technology of others under license agreements in certain
of its manufacturing operations.
REXENE-R- and REXTAC-R- are important trademarks for the Company's resins
and are widely known among purchasers of these products. The Company is the
owner of other trademarks used on or in connection with its products.
The Company has been sued by Phillips Petroleum Company in two separate
proceedings for alleged infringement of its crystalline and block copolymer
polypropylene patents. The Company believes that, based upon its current
knowledge of the facts of each case, the Company has meritorious defenses to the
claims made and intends to defend each lawsuit vigorously. See "-- Litigation."
PROPERTIES
The Company manufactures its polymers and petrochemicals at the Odessa
Facility. The Odessa Facility is located on an approximately 875-acre site in
West Texas which contains plants producing polyethylene, polypropylene, APAO and
styrene, as well as ethylene and propylene primarily for captive use. The Odessa
Facility is located near four NGL pipelines from which it derives its supply. CT
Film has five manufacturing facilities for the production of blown and cast
plastic film, located in Chippewa Falls, Wisconsin; Clearfield, Utah; Dalton,
Georgia; Harrington, Delaware and Scunthorpe, England.
The polyethylene plant in Odessa, Texas has been in operation since 1961 and
has a total rated annual production capacity of approximately 405 million
pounds. The plant is capable of producing a wide range of products including
film, injection molding, extrusion coating and blow molding resins, such as
ethylene homopolymers and ethylene vinyl acetate copolymers.
The polypropylene plant in Odessa, Texas has been in operation since 1964
and has a total rated annual production capacity of approximately 180 million
pounds. APAO is produced in a former polypropylene plant that was converted in
1986 and has a total rated annual production capacity, including expansions in
1994, of approximately 45 million pounds.
The styrene plant in Odessa, Texas has been in operation since 1958 and has
a total rated annual production capacity of approximately 320 million pounds.
The olefins plant at the Odessa Facility has been in operation since 1961
and has a total rated annual production capacity for ethylene of approximately
540 million pounds and for propylene of approximately 210 million pounds.
CT Film's Chippewa Falls plant began operations in 1948 and contains 24
production lines. The total rated annual production capacity is approximately 76
million pounds.
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<PAGE>
The Clearfield plant began operations in 1991 and contains seven production
lines. The total rated annual production capacity is approximately 44 million
pounds.
The Dalton plant began operations in 1966 and contains eleven production
lines. In addition there are three printing presses, five slitter rewinders and
six bag machines in the converting area. The total rated annual production
capacity is approximately 38 million pounds.
The Harrington plant began operations in 1972 and contains 12 production
lines. The total rated annual production capacity is approximately 67 million
pounds.
In September 1994, CT Film commenced operations at a 62,000 square foot film
production plant in Scunthorpe, England. The plant includes one production line
with a total rated annual production capacity of approximately 20 million
pounds.
The Company's executive offices are located in Dallas, Texas in leased
office space aggregating approximately 45,500 square feet. Additionally, the
Company owns an off-site warehouse in Odessa, Texas and parcels of land held for
sale in the La Porte and Pasadena industrial districts near Houston, Texas.
ENVIRONMENTAL AND RELATED REGULATION
GENERAL
The Company (and the industry in which it competes) is subject to extensive
environmental laws and regulations and is also subject to other federal, state
and local laws and regulations regarding health and safety matters. The Company
believes that its business, operations and facilities generally have been and
are being operated in compliance in all material respects with applicable
environmental and health and safety laws and regulations, many of which provide
for substantial fines, criminal sanctions, and in certain extreme circumstances,
temporary or permanent plant closures for violations. Nevertheless, from time to
time the Company has received notices of alleged violations of certain
environmental laws, and has endeavored promptly to remedy such alleged
violations. The ongoing operations of chemical manufacturing plants entail risks
in these areas and there can be no assurance that material costs or liabilities
will not be incurred in the future. Further, existing groundwater and/or soil
contamination at the Odessa Facility may require remediation that could involve
significant expenditures.
In addition, future developments, such as increasingly strict requirements
of environmental and health and safety laws and regulations and enforcement
policies thereunder could bring into question the handling, manufacture, use,
emission or disposal of substances or pollutants at the Company's facilities.
Changes to or reinterpretations of existing laws could materially and adversely
affect the Company's business and results of operations.
The Company's operating expenditures for environmental remediation and waste
disposal were approximately $6.4 million in 1993 and are expected to be
approximately $6.0 million in 1994. In 1993 the Company also expended
approximately $5.1 million relating to environmental capital expenditures. In
1994, the Company expects to spend approximately $3.2 million for environmental
related capital expenditures, which is lower than historical levels due to
timing of expenditures pertaining to several projects. Thereafter for the
foreseeable future, the Company expects to incur approximately $4.0 to $5.0
million per year in capital spending to address the requirements of
environmental laws. Annual amounts could vary depending on a variety of factors,
such as the control measures or remedial technologies ultimately required and
the time allowed to meet such requirements.
The Company believes that, in light of its historical expenditures and
expected future results of operations, it will have adequate resources to
conduct its operations in compliance with currently applicable environmental and
health and safety laws and regulations. However, in order to comply with
changing licensing and regulatory standards, the Company may be required to make
additional significant site or operational modifications that are not currently
contemplated. Further, the Company has incurred and may in the future incur
liability to clean up waste or contamination at its current or former
facilities, or which it may have disposed of at facilities operated by third
parties. The Company has approximately $23.0 million
45
<PAGE>
accrued in the September 30, 1994 balance sheet as a preliminary estimate of its
total potential environmental liability with respect to remediating known site
contamination. In addition, as part of its financial assurance requirements
under RCRA and equivalent Texas law, the Company has deposited $10.6 million in
trust to cover closure and post-closure costs and liability for bodily injury
and certain types of property damage arising from sudden and non-sudden
accidental occurrences at certain of the Odessa Facility's hazardous waste
management units. However no assurance can be given that all potential
liabilities arising out of the Company's present or past operations have been
identified or that the amounts that might be required to remediate such
conditions will not be significant to the Company. The Company continually
reviews its estimates of potential environmental liabilities. The Company does
not currently carry environmental impairment liability insurance to protect it
against such contingencies because the Company has found such coverage available
only at great cost and with broad exclusions.
WASTEWATER
The Company currently disposes of wastewater from the Odessa Facility
through injection wells operated under permits from the Texas Natural Resource
Conservation Commission ("TNRCC"). These permits expired in 1990, but the
Company has been working with TNRCC since before their expiration to develop
renewal permits. TNRCC has indicated that it intends to renew the Company's
current injection well permits for an additional three years, but it has stated
that it does not intend to renew the permits again after the expiration of the
proposed three-year renewal period. Further, TNRCC may order the Company to
cease using one or more of the wells if certain periodic testing results
indicate that continued injection cannot be conducted safely. TNRCC has also
granted the Company a permit to drill and operate a new deeper well to provide
for wastewater disposal. Company consultants have estimated the cost of
installing a new deep well injection system at approximately $6 million, but the
Company has not elected to drill such a well unless and until its other
alternatives become unavailable. The Company, with neighboring industrial
facilities, has begun investigating the possibility of entering into an
agreement with a quasi-governmental authority to acquire, modify and operate a
publicly-owned wastewater treatment plant (the "South Dixie Plant") to dispose
of industrial waste water. Although no assurances can be given, the Company
believes that it will be able to use its existing wells until it develops a
satisfactory alternative waste water disposal system. If the Company is forced
to cease using such injection wells before an alternative system is developed or
the anticipated renewal permits do not provide for sufficient wastewater
disposal capacity, there could be a material adverse effect on the Company's
financial condition and results of operations.
SOLID WASTES
In March 1994, TNRCC granted the Company a permit to operate three of its
hazardous waste management units at the Odessa Facility as
treatment/storage/disposal facilities under RCRA. This permit includes a
compliance plan requiring the Company to take corrective action with regard to
existing contamination at the Odessa Facility. Pursuant to this compliance plan,
the Company must complete an investigation into the extent of onsite
contamination, conduct a risk assessment to determine the level of risk it
presents to human health and the environment, develop a corrective measures
study on the ways to remediate the contamination, and implement a remediation
plan approved by TNRCC. During the investigations of contamination at the Odessa
Facility, the Company discovered, and reported to TNRCC, the presence of low
levels of contaminants in an intermittently-flowing stream adjacent to the
Odessa Facility. The Company is continuing its investigations as to the source,
extent and effect of contaminants in this stream.
Based upon the results of its investigations of onsite contamination, the
Company does not believe that implementation of a corrective action plan will
have a material adverse effect on its financial condition. However, no assurance
can be given that all conditions any corrective action plan may be required to
address have been identified, or that the amounts that might be required to
implement that plan will not be significant to the Company.
AIR EMISSIONS
In 1990, Congress amended the federal Clean Air Act, as amended (the "Clean
Air Act"), to require control of certain emissions not previously regulated,
some of which are emitted by the Company's facilities. This legislation will
require the Company (and others in the industry with such emissions) to
implement
46
<PAGE>
certain pollution control measures in addition to those currently used. The
Company cannot determine the full impact of such legislation on its operations
until all the implementing regulations are adopted, and can give no assurance at
this time that the costs it may incur to comply with those regulations will not
be significant.
The Company operates its styrene plant under an air permit that was first
issued in 1979. The permit has been amended several times, and it currently
covers both the styrene plant and the styrene loading facilities. During the
current renewal process, two parties requested a public hearing on the permit.
One of the requesting parties is the law firm representing the plaintiffs in the
Odessa Residents Tort Litigation. See "Litigation -- Odessa Residents' Tort
Litigation." If a public hearing is allowed by TNRCC, the process would probably
take from six to thirteen months to complete. During the pendency of the public
hearing process, the Company would continue to operate under its existing
permit. While there can be no assurance, the Company expects TNRCC to renew its
styrene air permit, although the renewal permit may contain additional modeling
or monitoring requirements.
ADDITIONAL ENVIRONMENTAL ISSUES
The Federal Comprehensive Environmental Response Compensation and Liability
Act, as amended ("CERCLA"), and similar laws in many states, impose liability
for the clean-up of certain waste sites and for related natural resource
damages, without regard to fault or the legality of the waste disposal. Liable
persons generally include the site owner or operator, former site owners, and
persons that disposed or arranged for the disposal of hazardous substances found
at those sites. The Company has sent wastes from its operations to various
third-party waste disposal sites. From time to time the Company receives notices
from representatives of governmental agencies and private parties contending
that the Company is potentially liable for a portion of the remediation at such
third-party and formerly-owned sites. Although there can be no assurance, the
Company does not believe that its liabilities for remediation of such sites,
either individually or in the aggregate, will have a material adverse effect on
the Company.
The Odessa Facility is located near the South Dixie Plant owned by the City
of Odessa ("Odessa"). Odessa is implementing a plan to expand a second water
treatment plant and abandon the South Dixie Plant. Odessa has alleged that the
Company has contributed to groundwater contamination at the South Dixie Plant.
If Odessa's allegations are correct, then the Company could be liable for some
or all of the remediation at the site. Although there can be no assurance, the
Company does not believe that any such costs will have a material adverse effect
on the Company.
LITIGATION
BANKRUPTCY
On October 18, 1991, and pursuant to an agreement in principle detailing the
terms for Old Rexene's recapitalization, Old Rexene and its wholly-owned
subsidiaries, Rexene Products Company ("Products") and Poly-Pac, Inc., filed
voluntary petitions for reorganization under Chapter 11 of the United States
Bankruptcy Code in the United States Bankruptcy Court for the District of
Delaware (the "Bankruptcy Court"), case numbers 91-1058, 91-1057 and 91-1059,
respectively. Pursuant to an Order Providing for Joint Administration entered by
the Bankruptcy Court on October 21, 1991, the Old Rexene and Poly-Pac, Inc.
cases were consolidated with the Products case for administrative purposes only.
On July 7, 1992, the Bankruptcy Court entered an order confirming the Amended
Plan, which, among other things, provided for the merger of Old Rexene with and
into Products to form the Company (the "1992 Merger"). Thereafter, all
conditions to the effectiveness of the 1992 Merger and the Amended Plan were
either satisfied or waived. The 1992 Merger and the Amended Plan were then
consummated on September 11, 1992 and September 18, 1992 (the "Effective Date"),
respectively. Substantially all distributions contemplated by the Amended Plan
have been made. Certain matters, including the Izzarelli Class (as defined
below) claims, remain pending before the Bankruptcy Court.
STOCKHOLDER CLASS ACTION LITIGATION
In January 1990, a purported class action was filed in the United States
District Court, Northern District of Texas, by an alleged stockholder of Old
Rexene on behalf of purchasers of Old Rexene common stock
47
<PAGE>
between October 23, 1989 and December 27, 1989. The defendants in this action
presently include Rexene, one of its current directors and certain of its former
directors. The class has been certified with an intervenor as the class
representative. The intervenor's complaint asserts claims under Rule 10b-5 under
the Securities Exchange Act of 1934, and state common law grounds. The plaintiff
alleges that public statements made by certain directors of Old Rexene created a
misleading impression of Old Rexene's financial condition thereby artificially
inflating the price of the common stock of Old Rexene. The plaintiff seeks
compensatory damages, prejudgment interest, a recovery of costs and attorneys'
fees, and such other relief as may be deemed just and proper. Discovery is
ongoing.
In Old Rexene's Chapter 11 bankruptcy proceeding, the intervening plaintiff
filed a proof of claim on behalf of herself and the purported class seeking in
excess of $10 million based upon the allegations in the litigation. The Company
objected to the claim and elected to leave the legal, equitable and contractual
rights of the plaintiff unaltered, thereby allowing this litigation to proceed
as of the Effective Date without regard to the bankruptcy proceeding.
IZZARELLI STOCK BONUS PLAN CLASS ACTION LITIGATION
In February 1991, a class action lawsuit was filed in the United States
District Court for the Western District of Texas-Midland Division against the
Company, the El Paso Products Company Stock Bonus Plan (the "Stock Bonus Plan")
and Texas Commerce Bank -- Odessa (the former trustee for the Stock Bonus Plan)
by two former participants in the Stock Bonus Plan on behalf of the 1986
participants in the Stock Bonus Plan (the "Izzarelli Class"). The complaint
alleged that the Company amended the Stock Bonus Plan in 1987 and 1988 to
deprive the Izzarelli Class of benefits to which they would have been entitled
had the Stock Bonus Plan not been amended. The Izzarelli Class asserts claims
under the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
for alleged breach of fiduciary duties to the participants and for alleged
violation of ERISA's provision prohibiting amendments to the Stock Bonus Plan
after benefits had accrued to participants. The plaintiffs seek actual damages,
attorneys' fees, costs and expenses, prejudgment interest and such further
relief as may be deemed appropriate. After a trial, the trial court in July 1992
entered a judgment against the Company in the amount of $6.6 million (as
subsequently amended) plus court costs. In November 1992, the trial court
awarded the Izzarelli Class $595,000 for attorneys' fees and out-of-pocket
expenses. The Company has recorded an accrual of $7.4 million to reflect this
judgment.
The Company appealed the judgment to the United States Court of Appeals for
the Fifth Circuit. The Izzarelli Class has also filed an appeal with respect to
the amount of damages awarded and the judgment in favor of Texas Commerce Bank
- -- Odessa. On June 22, 1994, the appeals court reversed the trial court and held
that Rexene did not violate ERISA or any fiduciary duty in amending the Stock
Bonus Plan. It also affirmed the trial court's judgment that the trustee was not
liable to the plaintiffs. On August 11, 1994, the appeals court refused the
plaintiffs' request that it reconsider its decision.
In Old Rexene's bankruptcy proceeding, the Izzarelli Class filed proofs of
claim for $27.7 million. The Izzarelli Class has pending before the Bankruptcy
Court a motion to alter or amend the Confirmation Order and a motion to allow
their claim based upon the judgment entered by the trial court. The Bankruptcy
Court has deferred ruling on these motions until resolution of all appeals
arising from the trial court's judgment.
Pursuant to an agreement in December 1992 regarding the distribution of the
remaining balance in an escrow account established in connection with a 1988
merger involving the Company, $2 million is being retained in the escrow account
which will be available to the Company to pay up to 50% of any portion of a
final judgment or settlement in the Izzarelli litigation which is not paid by
insurance, should the judgment be reinstated. The Company intends to pursue
claims for recovery of the amount of any final judgment or settlement against
its insurance carrier subject to policy limits of $10 million. Although the
insurance carrier has been paying the Company's attorneys' fees in the Izzarelli
litigation, it has otherwise denied coverage and reserved all rights.
PHILLIPS BLOCK COPOLYMER LITIGATION
In March 1984, Phillips Petroleum Company ("Phillips") filed a lawsuit
against the Company in the United States District Court for the Northern
District of Illinois, Eastern Division, seeking injunctive relief,
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<PAGE>
an unspecified amount of compensatory damages and treble damages. The complaint
alleges that the Company's copolymer process for polypropylene infringes
Phillips' two "block" copolymer patents. This action has been transferred to the
United States District Court for the Southern District of Texas, Houston
Division. Discovery in this case has been completed. The Company has filed a
motion for summary judgment. Phillips has filed a motion for partial summary
judgment. Pursuant to an agreement among the parties, the court appointed a
special master who conducted a hearing on these motions and thereafter
recommended to the court that the Company's motion be granted and Phillips'
motion be denied. Thereafter, Phillips filed motions to disqualify the special
master, to reject the recommendation of the special master and to enter partial
summary judgment for Phillips. The court has entered an order denying Phillips'
motion to disqualify the special master. The summary judgment motions are still
pending. In Old Rexene's Chapter 11 bankruptcy proceeding, Phillips filed a
proof of claim seeking in excess of $108 million based upon the allegations in
this litigation. The Company objected to the claim and elected to leave the
legal, equitable and contractual rights of Phillips unaltered, thereby allowing
this litigation to proceed as of the Effective Date without regard to the
bankruptcy proceeding.
PHILLIPS CRYSTALLINE LICENSE LITIGATION
In May 1990, Phillips filed a lawsuit against the Company in the United
States District Court for the District of Delaware seeking injunctive relief, an
unspecified amount of compensatory damages, treble damages and attorneys' fees,
costs and expenses. The complaint alleges that the Company is infringing
Phillips' Patent No. 4,376,851 (the "'851 Patent") for crystalline
polypropylene. Pursuant to a License Agreement dated as of May 15, 1983, as
amended, (the "License Agreement"), Phillips granted the Company a non-exclusive
license to make, use and sell crystalline polypropylene covered by the '851
Patent. The complaint alleges that effective April 21, 1990, Phillips terminated
the License Agreement because it believed that, by the terms of the License
Agreement, all conditions precedent to such termination had occurred. The
complaint further alleges that, without an effective License Agreement, the
Company's continuing use of the '851 Patent constitutes an infringing use. An
amended complaint filed in May 1990 further alleges that the Company made a
material misrepresentation that induced Phillips to enter into the License
Agreement and that Phillips entered into the License Agreement as a consequence
of a mutual mistake of the parties. The amended complaint therefore alleges that
the License Agreement is void AB INITIO. The Company filed a motion to dismiss
Phillips' amended complaint for failure to state a claim. On December 30, 1993,
the court entered an order dismissing Phillips' claim that the License Agreement
was void AB INITIO, and ordered that the 1990 license termination issue be
resolved at trial. Trial is scheduled for October 19, 1994. In Old Rexene's
Chapter 11 bankruptcy proceeding, Phillips filed a proof of claim seeking in
excess of $147 million based upon the allegations in this litigation. The
Company objected to the claim and elected to leave the legal, equitable and
contractual rights of Phillips unaltered thereby allowing this litigation to
proceed as of the Effective Date without regard to the bankruptcy proceeding.
ODESSA RESIDENTS' TORT LITIGATION
On April 15, 1994, the national and state chapters of the NAACP and
approximately 770 residents of a neighborhood approximately one mile northwest
of the Shell Oil Company ("Shell"), Rexene and Dynagen, Inc. ("Dynagen") plants
in Odessa, Texas petitioned the State District Court in Odessa, Texas to
intervene in a previously existing lawsuit against Dynagen to (a) add as
additional defendants Rexene, Shell and General Tire Corporation (the parent of
Dynagen) and (b) have the litigation certified as a class action. The
plaintiffs' petition seeks an unspecified amount of money damages for past,
present and future injuries to plaintiffs' health, wrongful death, loss of
consortium and reduction in property values; the conduct and payment of property
clean up, remediation and relocation costs; payment of expenses for medical
testing and monitoring; funding of pollution and health studies; attorney's
fees; punitive damages and injunctive relief. Plaintiffs' petition specified
alleged pollution from air emissions from the three plants as a basis for their
claims. The trial court has allowed intervention and severed the action from the
original lawsuit against Dynagen. Plaintiffs have withdrawn their motion to have
the litigation certified as a class claim. This litigation is in the early
stages of pretrial discovery. Plaintiff's attorneys have also requested a public
hearing in connection with the renewal of the Company's air permit for its
styrene plant. See
"-- Environmental and Related Regulation -- Air Emissions."
49
<PAGE>
Although there can be no assurance of the final resolution of any of these
matters, the Company believes that, based upon its current knowledge of the
facts of each case, it has meritorious defenses to the various claims made and
intends to defend each suit vigorously. Although there can be no assurance of
the final resolution of any of these litigation matters, the Company does not
believe that the outcome of any of these lawsuits will have a material adverse
effect on the Company's financial position or results of operations.
With respect to certain pending or threatened proceedings involving the
discharge of materials into or protection of the environment, see "--
Environmental and Related Regulation". The Company is also a party to various
lawsuits arising in the ordinary course of business and does not believe that
the outcome of any of these lawsuits will have a material adverse effect on the
Company's financial position or results of operations.
50
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The table set forth below provides certain information with respect to those
persons who are currently serving as directors and executive officers of the
Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------ --- ---------------------------------------------
<S> <C> <C>
Arthur L. Goeschel 72 Chairman of the Board
Andrew J. Smith 54 Director, Chief Executive Officer
Lavon N. Anderson 59 Director, President and Chief Operating
Officer
Kevin N. Clowe 43 Director
William B. Hewitt 56 Director
Ilan Kaufthal 47 Director
Fred P. Rullo, Jr. 54 Director
Phillip Siegel 52 Director
Heinn F. Tomfohrde, III 60 Director
Kevin W. McAleer 44 Executive Vice President and Chief Financial
Officer
Jack E. Knott 40 Executive Vice President -- Sales and Market
Development
James M. Ruberto 47 Executive Vice President and President -- CT
Film
Jonathan R. Wheeler 43 Senior Vice President -- Administration
Bernard J. McNamee 59 Vice President, Secretary and General Counsel
Geff Perera 41 Vice President and Controller
</TABLE>
Mr. Goeschel has been Chairman of the Board of the Company since March 1992.
He also was a director of Old Rexene from April 1988 to May 1989. Mr. Goeschel
is presently retired. He was Chairman of the Board of Tetra Technologies, Inc.,
a company which recycles and treats environmentally sensitive by-product and
wastewater streams, and then markets end-use chemicals extracted from such
streams, from November 1992 to October 1993. He is a director of Calgon Carbon
Corporation, a manufacturer of activated carbon, and National Picture Frame
Company, a manufacturer of picture frames. He is also a member of the board of
trustees of the Laurel Mutual Funds.
Mr. Smith has been Chief Executive Officer and a director of the Company
since March 1992. From December 1991 to March 1992, he was a private consultant.
From June 1991 to December 1991, he was President and Chief Operating Officer of
Itex Enterprises, Inc., an environmental remediation company. Mr. Smith also
served as a consultant to Old Rexene from January 1991 to June 1991. Immediately
prior thereto, he had been a director of Old Rexene since May 1988 and the
President and Chief Executive Officer of Old Rexene since June 1988. Prior
thereto he had held various positions with Old Rexene since 1976.
Dr. Anderson has been President and Chief Operating Officer of the Company
since January 1991 and a director since February 1990. From May 1988 to January
1991 Dr. Anderson was Executive Vice President -- Manufacturing and Technical of
Old Rexene. Prior thereto he had held various engineering, manufacturing and
research and development positions with Old Rexene since 1972.
Mr. Clowe has served as a director of the Company since September 1992. He
has served as Assistant Treasurer and Corporate Officer of American
International Group, Inc., an international insurance and financial services
company, since January 1988, as Vice President and Corporate Officer of American
International Group Capital Corporation since 1987, and as President and
Director of American International Fund Distributors, Inc. since 1988. Mr. Clowe
is also a director of Concurrent Computer Corporation.
Mr. Hewitt has served as a director of the Company since February 1990. He
has been Chairman of the Board and Chief Executive Officer of Capital Credit
Corporation, a receivables management company, since
51
<PAGE>
September 1991 and Executive Vice President of Union Corporation since March
1994. Mr. Hewitt was Executive Vice President of First Manhattan Consulting
Group, a management consulting firm, from 1980 to September 1991. He is also a
director of the Union Corporation.
Mr. Kaufthal has served as a director of the Company since September 1992.
He has been a managing director of Wertheim Schroder & Co. Incorporated, an
investment banking firm, since 1987. He is also a director of Formica
Corporation, United Retail Group, Inc. and Cambrex Corporation.
Mr. Rullo has served as a director of the Company since September 1992. He
has been President and Chief Executive Officer of Freedom Chemical Company, a
specialty chemical company, since October 1991. He was President of ABB
Combustion Engineering Systems and Service Inc., a manufacturer of power plants
for utilities and industrial concerns, from September 1989 through September
1991.
Mr. Siegel has served as a director of the Company since September 1992. He
is an independent business consultant. From December 1989 to February 1993, Mr.
Siegel served as Senior Vice President of Presidential Life Insurance Company, a
company involved in the sale of life and annuity products. During 1989, Mr.
Siegel was an independent consultant with respect to mergers and acquisitions.
Mr. Siegel is a director of West Point Stevens, Inc. and Bally's Grand, Inc.
Mr. Tomfohrde has served as a director of the Company since September 1992.
He is currently retired. From January 1987 to his retirement in December 1991,
Mr. Tomfohrde served as President and Chief Operating Officer and a director of
GAF Chemicals Corp. and its successor company, International Specialty Products,
Inc., a specialty chemicals company. He is also a director of Sybron Chemicals
Corp., Creative Technologies Group, Inc., OSI Specialties, Inc. and McWhorter
Technologies, Inc.
Mr. McAleer has been Executive Vice President and Chief Financial Officer of
the Company since July 1990. From 1985 to 1990, Mr. McAleer was Chief Financial
Officer of Varo, Inc., a manufacturer of specialty electronics equipment.
Mr. Knott has been Executive Vice President -- Sales and Market Development
of the Company since March 1992. Prior thereto, Mr. Knott was an Executive Vice
President of Old Rexene since January 1991 and President of CT Film since
February 1989. Mr. Knott held various positions with CT Film from 1985 to
February 1989.
Mr. Ruberto has been Executive Vice President of the Company and President
of CT Film since March 1992. Prior thereto, Mr. Ruberto had been Executive Vice
President -- Sales and Market Development of Rexene since January 1991. From
April 1989 to January 1991, Mr. Ruberto was Executive Vice President --
Marketing and Business Planning of Old Rexene. From October 1987 through March
1989, Mr. Ruberto was Vice President -- Strategic Planning of Plicon Corp., a
manufacturer of flexible packaging materials.
Mr. Wheeler has been Senior Vice President -- Administration of the Company
since December 1990. Prior thereto, Mr. Wheeler had been Vice President -- Human
Resources and Administration of Old Rexene since September 1988.
Mr. McNamee has been Vice President, Secretary and General Counsel of the
Company since May 1993. From September 1989 to November 1992, Mr. McNamee was
Vice President and General Counsel of Ferro Corporation, a multinational
manufacturer of specialty materials. From July 1985 to August 1989, Mr. McNamee
was Associate General Counsel of Chevron Chemical Company, a manufacturer of
petrochemicals, polyolefins and other chemical products.
Mr. Perera has been Vice President of the Company since January 1991 and
Controller since February 1989. From October 1988 to February 1989, Mr. Perera
was Director of External Reporting of Old Rexene.
In October 1991, Old Rexene filed a petition for reorganization under the
federal bankruptcy laws from which the Company emerged on September 18, 1992,
pursuant to the Reorganization. At the time Old Rexene filed its petition for
reorganization, Dr. Anderson and Mr. Hewitt served as directors. In addition, in
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<PAGE>
connection with the Reorganization, Messrs. Clowe, Kaufthal, Rullo, Siegel and
Tomfohrde were appointed to serve on the Company's board at the request of the
committee of creditors participating in the Reorganization. Messrs. Goeschel and
Smith, who served as directors of Old Rexene prior to the filing of its petition
for reorganization, returned to Old Rexene's board after the petition was filed.
Dr. Anderson and Messrs. Smith, McAleer, Knott, Ruberto, Wheeler and Perera each
served as executive officers of Old Rexene at some time within two years before
the filing by Old Rexene of its petition for reorganization.
Ilan Kaufthal, a director of the Company, is a managing director of Wertheim
Schroder & Co. Incorporated, a managing underwriter of the Offerings. See
"Underwriting."
RECENT ADOPTION OF MANAGEMENT INCENTIVE PLANS
In October 1994, the Management Development and Compensation Committee of
the Board of Directors of the Company (the "Committee") adopted the Rexene
Corporation 1994 Long-Term Incentive Plan (the "Incentive Plan"). The Incentive
Plan is intended to replace the Company's 1988 Stock Incentive Plan and 1993
Non-Qualified Stock Option Plan. The effectiveness of the Incentive Plan is
subject to and conditioned upon the approval thereof by the stockholders of the
Company at the 1995 annual meeting of stockholders. The Company has reserved for
issuance under the Incentive Plan 882,000 shares of Common Stock, plus up to an
additional 103,920 shares of Common Stock if the Underwriters' over-allotment
option is exercised in full.
The purpose of the Incentive Plan is to encourage and enable key salaried
employees of the Company and its subsidiaries to acquire a proprietary interest
in the Company through the ownership of Common Stock and other rights with
respect to Common Stock and to more closely align management incentives with
appreciation in the value of the Common Stock. The Incentive Plan will be
administered by the Committee, which has full power in its discretion to grant
awards under the Incentive Plan, to determine the terms of such awards (which
may be in any one or a combination of the following forms: (a) non-qualified
stock options; (b) stock appreciation rights; (c) restricted shares; (d)
performance shares; and (e) performance units), to interpret the provisions of
the Incentive Plan and to take such other action as it deems necessary or
advisable for the administration of the Incentive Plan.
In October 1994, the Committee adopted the Rexene Corporation Supplemental
Executive Retirement Plan (the "SERP"). The purpose of the SERP is to provide
supplemental retirement and survivor benefits for a certain select group of
management or highly compensated employees who complete a specified period of
service and otherwise become eligible under the SERP. The Company intends to
fund the SERP from time to time at the discretion of the Committee or the Board
of Directors.
53
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following tabulation sets forth as of October 1, 1994, information with
respect to each person who was known by Rexene to be the beneficial owner of
more than five percent of the Common Stock.
<TABLE>
<CAPTION>
COMMON STOCK
BENEFICIALLY OWNED
---------------------------
NUMBER OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES (1) CLASS
- ------------------------------------------------------------------------------ -------------- -----------
<S> <C> <C>
Executive Life Insurance Company of New York ................................. 1,047,144(2) 9.9%
390 North Broadway
Jericho, New York 11753-2167
Energy Management Corporation ................................................ 921,174(3) 8.8
1733 Woodstead Court
The Woodlands, Texas 77380
M.D. Sass Investors Services, Inc. ........................................... 633,293(4) 6.0
1133 Avenue of the Americas
New York, New York 10036
The Prudential Insurance Company of America .................................. 567,455(5) 5.4
Prudential Plaza
Newark, New Jersey 07102-3777
Household Commercial of California, Inc. ..................................... 539,682(6) 5.1
2700 Sanders Road
Prospect Heights, Illinois 60070
<FN>
- ------------------------
(1) All shares listed are directly held with sole voting and investment power
unless otherwise indicated.
(2) Based upon information reported in a Schedule 13G filed with the Securities
and Exchange Commission (the "Commission") by Kevin E. Foley, Deputy
Superintendent of Insurance of the State of New York, as Rehabilitator of
Executive Life Insurance Company of New York, on November 25, 1992, as
amended by an amendment filed with the Commission on October 11, 1994.
(3) Based upon information reported in a Schedule 13D filed with the Commission
by Energy Management Corporation ("EMC") and John W. Adams on June 14,
1994. EMC is a Colorado corporation whose principal business is the
purchase and sale of publicly and privately traded securities, accounts
receivable and other claims against distressed and troubled debtors. Does
not include 4,656 shares of Common Stock beneficially owned by John W.
Adams, a director of EMC whose business address is 767 Third Avenue, New
York, New York 10017.
(4) Based upon information reported in a Schedule 13G filed with the Commission
by M. D. Sass Investors Services, Inc. ("Sass") dated February 10, 1994.
Sass has sole investment power with respect to 124,700 of such shares and
shared investment power with respect to 508,593 of such shares.
(5) Based upon information reported in a Schedule 13G filed with the Commission
by The Prudential Insurance Company of America ("Prudential") on or about
February 11, 1993, as amended by an amendment thereto dated January 31,
1994. Includes 1,709 shares as to which Prudential has sole voting and
investment power, and 565,746 shares as to which Prudential has shared
voting and investment power, which are held for the benefit of its clients.
(6) Based upon information reported in a Schedule 13D filed with the Commission
by Household Commercial of California, Inc. on October 13, 1992, as amended
by an amendment thereto filed on October 22, 1992.
</TABLE>
54
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The following tabulation sets forth information with respect to the
beneficial ownership of the Common Stock as of October 17, 1994 by each director
and executive officer of the Company and by all directors and executive officers
of the Company as a group.
<TABLE>
<CAPTION>
COMMON STOCK
BENEFICIALLY OWNED
-------------------------
NUMBER OF PERCENT OF
NAME SHARES (1) CLASS
- ---------------------------------------------------------------------------- ------------ -----------
<S> <C> <C>
DIRECTORS
Lavon N. Anderson........................................................... 7,916 *
Kevin N. Clowe.............................................................. 6,250 *
Arthur L. Goeschel.......................................................... 37,333(2) 0.4%
William B. Hewitt........................................................... 6,250 *
Ilan Kaufthal............................................................... 6,250 *
Fred P. Rullo, Jr........................................................... 6,250 *
Phillip Siegel.............................................................. 9,250 *
Andrew J. Smith............................................................. 14,845 0.1%
Heinn F. Tomfohrde, III..................................................... 6,250 *
EXECUTIVE OFFICERS (EXCLUDING ANY DIRECTOR NAMED ABOVE)
Kevin W. McAleer............................................................ 5,000 *
Jack E. Knott............................................................... 7,000(3) *
James M. Ruberto............................................................ 4,000 *
Jonathan R. Wheeler......................................................... 4,000 *
Bernard J. McNamee.......................................................... 4,000 *
Geff Perera................................................................. 2,333 *
ALL DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP (15 PERSONS)................ 126,927(4) 1.2%
<FN>
- ------------------------
* Less than .1%
(1) All shares listed are directly held with sole voting and investment power
unless otherwise indicated.
(2) Includes 1,000 shares held by Mr. Goeschel's spouse.
(3) Includes 3,000 shares held by Mr. Knott's spouse in a custodial capacity
under the Uniform Gift to Minors Act.
(4) Includes 69,832 shares subject to stock options which are exercisable
within 60 days.
</TABLE>
55
<PAGE>
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
The authorized capital stock of the Company consists of 1,000,000 shares of
preferred stock, par value $0.01 per share ("Preferred Stock"), and 100,000,000
shares of Common Stock, par value $0.01 per share. Upon the consummation of the
Common Stock Offering, 18,624,306 shares of Common Stock and no shares of
Preferred Stock will be outstanding. The following summary description of the
capital stock of the Company is qualified in its entirety by reference to the
Company's Restated Certificate of Incorporation, a copy of which is filed as an
exhibit to the Registration Statement of which this Prospectus is a part.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to the stockholders, including the election of
directors. There is no cumulative voting with respect to the election of
directors. As a result, in an election of directors the holders of record of
more than 50% of the outstanding shares of Common Stock can elect all of the
directors then standing for election if such holders choose to do so. Subject to
preferences that may be applicable to any Preferred Stock that may from time to
time be outstanding, the holders of Common Stock are entitled to receive
dividends when and if declared by the Board of Directors out of legally
available funds. In the event of a liquidation, dissolution or winding up of the
affairs of the Company, the holders of the Common Stock are entitled to share
ratably in all assets which are available for distribution to them after payment
of liabilities and after provision has been made for each class of stock, if
any, having preference over the Common Stock. Holders of shares of Common Stock,
as such, have no conversion, pre-emptive or other subscription rights and there
are no redemption provisions applicable to the Common Stock. All of the
outstanding shares of Common Stock are, and the shares of Common Stock offered
hereby will be, when issued for consideration as set forth in this Prospectus,
validly issued, fully paid and nonassessable.
The Common Stock is traded on the New York Stock Exchange under the symbol
"RXN." The Transfer Agent and Registrar for the Common Stock is American Stock
Transfer & Trust Company.
PREFERRED STOCK
The Company's Restated Certificate of Incorporation authorizes the Board of
Directors to establish one or more series of Preferred Stock and to determine,
with respect to any series of Preferred Stock, the terms, rights and preferences
of such series, including voting, dividend, liquidation, conversion and other
rights. The authorized shares of Preferred Stock will be available for issuance
without further action by the Company's stockholders, unless such action is
required by applicable law or any stock exchange or automated quotation system
on which the Company's securities may be listed or traded. The issuance of
Preferred Stock could adversely affect the voting power of holders of Common
Stock and the likelihood that such holders will receive dividend payments and
payments upon liquidation and could have the effect of delaying, deferring or
preventing a change in control of the Company. The Company has no present plans
to issue any shares of Preferred Stock.
CERTAIN CORPORATE GOVERNANCE PROVISIONS
STOCKHOLDER ACTION BY WRITTEN CONSENT
The Restated Certificate of Incorporation provides that no action required
or permitted to be taken at any annual or special meeting of the stockholders of
the Company may be taken without a meeting unless a consent or consents in
writing, setting forth the action to be taken is signed by at least 66 2/3% of
the stockholders entitled to vote with respect to the subject matter thereof.
This provision may make it difficult for stockholders to effect actions
requiring a vote of stockholders.
SPECIAL MEETINGS OF STOCKHOLDERS
The Amended and Restated Bylaws provide that a special meeting of
stockholders of the Company may be called only by a majority of the Board of
Directors, a committee of the Board of Directors that has been
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<PAGE>
duly designated by the Board of Directors to have the power to call such
meetings, or any holder or holders of at least 50% of the then outstanding
Common Stock of the Company. This provision may make it difficult for
stockholders to take action opposed by the Board of Directors.
COMMON STOCK PURCHASE RIGHTS
In January 1993, the Company declared a dividend distribution of one Right
for each outstanding share of Common Stock of the Company. The Rights are
exercisable only if a person or group acquires 15% or more of Common Stock or
announces a tender offer, the consummation of which would result in ownership by
a person or group of 15% or more of the Common Stock. Each Right entitles
stockholders to purchase such number of shares of Common Stock at an exercise
price of $60.00 (as amended by the Board of Directors on August 29, 1994) as
determined under formulas set out in the agreement providing for the Rights. The
existence of the Rights may, under certain circumstances, render more difficult
or discourage attempts to acquire the Company.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
The Company is covered by Section 203 of the Delaware General Corporation
Law. Generally, Section 203 prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless (i) prior to such date the board of
directors of the corporation approved the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder, (ii) upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested stockholder owns
at least 85% of the outstanding voting stock or (iii) on or after such date the
business combination is approved by the board and by the affirmative vote of at
least 66 2/3% of the outstanding voting stock which is not owned by the
interested stockholder. A "business combination" includes a merger, asset sale
or certain other transactions resulting in a financial benefit to the
stockholder. An "interested stockholder" is a person who, together with
affiliates and associates, owns (or within three years, did own) 15% or more of
the corporation's voting stock. For purposes of determining whether an
interested stockholder owns at least 85% of the outstanding voting stock, shares
held by persons who are both directors and officers and shares held by employee
stock ownership plans in which employee participants do not have the right to
determine confidentially whether shares held subject to the plan will be
tendered in a tender offer or exchange offer are excluded.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Company's Amended and Restated Bylaws provide that the Company shall
indemnify all directors and officers of the Company to the fullest extent now or
hereafter permitted by the Delaware General Corporation Law. Under such
provisions, any director or officer who, in his capacity as such, is made or
threatened to be made a party to any suit or proceeding, shall be indemnified if
such director or officer acted in good faith and in a manner he reasonably
believed to be in, or not opposed to, the best interests of the Company and,
with respect to any criminal proceeding, had no reasonable cause to believe his
conduct was unlawful. The Amended and Restated Bylaws and the Delaware General
Corporation Law further provide that such indemnification is not exclusive of
any other rights to which such individuals may be entitled under any bylaws,
agreement, vote of stockholders or disinterested directors or otherwise.
In addition, the Company's Restated Certificate of Incorporation provides
that to the fullest extent now or hereafter permitted by Delaware law, the
Company's directors will not be liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director. This provision in
the Restated Certificate of Incorporation does not eliminate the directors'
fiduciary duty of care, and in appropriate circumstances, equitable remedies
such as an injunction or other forms of non-monetary relief would remain
available under Delaware law. Furthermore, each director will continue to be
subject to liability for (i) breach of the director's duty of loyalty to the
Company and its stockholders, (ii) acts or omissions not in good faith or
involving intentional misconduct or knowing violations of law, (iii) liability
arising under Section 174 of the Delaware General Corporation Law (relating to
unlawful payment of dividends and
57
<PAGE>
unlawful purchases or redemptions of the Company's stock) or (iv) any
transaction from which the director derived an improper personal benefit. This
provision does not affect a director's responsibilities under any other laws,
including the federal securities laws and state or federal environmental laws.
CERTAIN INDEBTEDNESS OF THE COMPANY
The following is a summary of the terms of the Senior Notes and the New
Credit Agreement. For more complete information regarding such indebtedness,
reference is made to the Indenture and the New Credit Agreement, copies of which
have been filed as exhibits to the Registration Statement of which this
Prospectus is a part and which are incorporated by reference herein.
SENIOR NOTES
The terms of the Senior Notes will be determined by market conditions and
other factors at the time the Senior Notes are offered for sale by the Company.
The Senior Notes will be senior unsecured obligations of the Company
expected to total approximately $175 million in aggregate principal amount. The
Senior Notes will mature in 2004 and will bear interest payable semiannually at
a fixed rate of % per annum.
The Senior Notes are expected to be redeemable at the Company's election at
any time on or after the fifth anniversary date of the issuance at the
redemption price set forth in the Indenture. Except as set forth in the
Indenture, in the event of a Change in Control (as defined in the Indenture) or
an Asset Sale (as defined in the Indenture), the Senior Notes will not be
subject to any mandatory redemption or sinking fund requirements.
The Senior Notes will rank senior in right of payment to all subordinated
indebtedness of the Company. The Senior Notes will rank PARI PASSU in right of
payment with all senior borrowings, including borrowings under the New Credit
Agreement. However, borrowings under the New Credit Agreement will be secured by
substantially all of the assets of the Company. The Company has no outstanding
indebtedness which would be subordinate to the Senior Notes and has no current
plans to incur any such subordinated indebtedness.
The Indenture will contain certain covenants that, among other things, will
limit the ability of the Company and its subsidiaries to incur additional
indebtedness (other than under the New Credit Agreement), pay dividends, issue
preferred stock, engage in transactions with affiliates, create liens, engage in
mergers and consolidations, make Asset Sales and make investments. The Indenture
will also provide for the repurchase of the Senior Notes in the event of a
Change of Control and Asset Sales and contain various customary events of
default.
NEW CREDIT AGREEMENT
The Company has received the Commitment Letter from the Bank with respect to
the New Credit Agreement, which provides for up to $100 million of term loans
and $80 million of revolving borrowings, which include letters of credit not to
exceed $15 million, for working capital and general corporate purposes.
Revolving borrowings under the Revolving Credit Facility will be limited to 65%
of eligible inventory consisting of liquid commodity products, 50% of all other
eligible inventory and 85% of eligible accounts receivable. The Company will be
required to make quarterly principal payments under the Term Loan commencing on
March 31, 1995. The first four payments will each be in the amount of $2.5
million, the next four payments will each be in the amount of approximately
$3.75 million and all payments thereafter will each be in the amount of $6.25
million, so as to retire such indebtedness in its entirety by December 31, 1999.
In addition, under the New Credit Agreement, the Company has certain mandatory
repayment obligations that will not exceed $10.0 million in 1995, $20.0 million,
less any prior mandatory repayments made from excess cash flow, in 1996 or $30.0
million, less any prior mandatory repayments made from excess cash flow, in 1997
in the event annual cash flow exceeds certain levels. Availability of borrowings
under the New Credit Agreement is initially contingent upon the receipt by the
Company of gross proceeds from the Common Stock Offering of at least $85 million
and of aggregate gross proceeds from the Offerings of at least $275 million. The
Company estimates it will be necessary for it to make initial borrowings of
approximately $100 million under the Term Loan in connection with the
Recapitalization. See "The Recapitalization." Borrowings under the New Credit
Agreement will bear interest at a floating rate based on the Bank's prime
58
<PAGE>
rate or, at the Company's option, on the agent's reserve-adjusted LIBO rate
plus, in each case, a margin which will be adjusted quarterly after the first
anniversary of the closing date of the New Credit Agreement based on the ratio
of the Company's consolidated Indebtedness to Adjusted EBITDA (as defined
therein) and will be secured by the pledge of substantially all of the assets of
the Company, including inventory and accounts receivable and the proceeds
thereof. The New Credit Agreement will require the Company to pay a commitment
fee on the daily average unadvanced portion of the Revolving Credit Facility and
the aggregate unadvanced portion of the Term Loan at a rate of one-half of one
percent or three-eighth of one percent depending upon the ratio of the Company's
consolidated Indebtedness to Adjusted EBITDA. The New Credit Agreement will also
require the Company to pay with respect to each Letter of Credit a fee on the
daily average outstanding amount of such Letter of Credit at a rate per annum
equal to one-eighth of one percent plus a margin which will depend on the ratio
of the Company's consolidated Indebtedness to Adjusted EBITDA.
The New Credit Agreement will contain covenants which restrict, among other
things, the incurrence of additional indebtedness by the Company, the payment of
dividends and other distributions in respect of the capital stock of the
Company, the creation of liens on the assets of the Company, the making of
investments by the Company, certain mergers, sales of assets and similar
transfers and the prepayment of the Senior Notes. The New Credit Agreement will
also contain certain financial covenants relating to the financial condition of
the Company, including covenants relating to the ratio of its earnings to its
interest expense, the ratio of its earnings to its fixed charges and a leverage
ratio.
The New Credit Agreement will specify a number of events of default
including, among others, the failure to make timely payments of principal, fees,
and interest, the failure to perform the covenants contained therein, the
failure of representations and warranties to be true, the occurrence of a
"change of control" (as defined in the New Credit Agreement, to include, among
other things, the ownership by any person or group of more than 50% of the total
voting securities of the Company), and certain impairments of the security for
the New Credit Agreement. The New Credit Agreement also contains a cross-default
to other indebtedness of the Company aggregating more than $5,000,000 and
certain customary bankruptcy, insolvency and similar defaults. Upon the
occurrence of an event of default under the New Credit Agreement, the lenders
holding at least 51% in amount of the principal indebtedness outstanding under
the New Credit Agreement may declare all amounts thereunder immediately due and
payable, except that such amounts automatically become immediately due and
payable in the event of certain bankruptcy, insolvency or similar defaults.
The New Credit Agreement generally prohibits the Company from prepaying the
Senior Notes, whether the prepayment would result from the redemption of the
Senior Notes, an offer by the Company to purchase the Senior Notes following a
change of control or a sale or other disposition of assets, or the acceleration
of the due date for payment of the Senior Notes.
CERTAIN U.S. TAX CONSEQUENCES TO NON-U.S. STOCKHOLDERS
The following is a general discussion of certain U.S. federal tax
consequences of the ownership and disposition of a share of Common Stock by a
person that is not a U.S. person for U.S. tax purposes (a "non-U.S. holder").
For purposes of this discussion, a "U.S. person" means a citizen or resident of
the United States (with "resident" having somewhat different definitions for
U.S. federal income and estate tax purposes), a corporation or partnership
created or organized in the United States or under the law of the United States
or of any state, or an estate or trust whose income is includible in gross
income for United States federal income tax purposes regardless of its source.
This discussion does not consider any specific facts or circumstances that may
apply to a particular non-U.S. holder and does not address state, local or
non-U.S. tax considerations. Furthermore, the following discussion is based on
current provisions of the Code, the regulations promulgated thereunder and
public administrative and judicial interpretations of the Code and regulations
as of the date hereof, all of which are subject to change, which changes could
be applied retroactively. A non-U.S. holder owning more than 5% of the equity of
the Company may have consequences (including consequences under the rules
relating to United States real property holding corporation) not discussed below
and should consult its own tax advisors.
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<PAGE>
Each prospective investor is urged to consult its own tax adviser with
respect to the U.S. federal, state and local tax consequences of owning and
disposing of a share of Common Stock, as well as any tax consequences arising
under the laws of any other taxing jurisdiction.
U.S. INCOME AND ESTATE TAX CONSEQUENCES
It is not currently contemplated that the Company will pay dividends on the
Common Stock in the foreseeable future. A dividend that is not effectively
connected with the conduct of a trade or business in the United States by a
non-U.S. holder of the share of Common Stock (or, if a tax treaty applies; not
attributable to a United States permanent establishment maintained by such
non-U.S. holder) will be subject to U.S. withholding tax at a 30% or, if an
income tax treaty applies, lower treaty rate. A dividend that is effectively
connected with the conduct of a trade or business in the United States by the
non-U.S. holder of the share of Common Stock (or, if a tax treaty applies, a
dividend that is attributable to a United States permanent establishment
maintained by such holder) will be exempt from the withholding tax described
above (if certain certification and disclosure requirements are met) and subject
instead (i) to the U.S. federal income tax on net income that applies to U.S.
persons and (ii) with respect to corporate holders under certain circumstances,
to a 30% (or lower treaty rate) branch profits tax that in general is imposed on
the dividend equivalent amount of its earnings and profits effectively connected
with its U.S. trade or business, adjusted for certain items.
Under current law, non-U.S. holders generally will not be subject to U.S.
federal income tax on any gain recognized on a disposition of a share of Common
Stock unless (i) the share disposed of constituted a United States real property
interest ("USRPI") in the hands of the non-U.S. holder because (a) the Company
is or has been a "United States real property holding corporation" for U.S.
federal income tax purposes (a "USRPHC") and (b) the non-U.S. holder making the
disposition was an owner of more than 5% of the Company's Common Stock within
the five years preceding the disposition, (ii) the gain is effectively connected
with the conduct of a trade or business within the United States of the non-U.S.
holder or, if a tax treaty applies, attributable to a permanent establishment
maintained by the non-U.S. holder, (iii) the non-U.S. holder is an individual
who holds the share as a capital asset and is present in the United States for
183 days or more in the taxable year of the disposition and either (a) such
individual has a "tax home" (as defined for U.S. federal income tax purposes) in
the United States or (b) the gain is attributable to an office or other fixed
place of business maintained in the United States by such individual or (iv) the
non-U.S. holder is subject to tax pursuant to the Code provisions applicable to
certain U.S. expatriates. If an individual non-U.S. holder falls under clause
(ii) above, he or she will be taxed on his or her net gain derived from the sale
under regular graduated U.S. federal income tax rates. If the individual
non-U.S. holder falls under clause (iii) above, he or she will be subject to a
flat 30% tax on the gain derived from the sale which may be offset by U.S.
capital losses (notwithstanding the fact that he or she is not considered a
resident of the United States). Thus, individual non-U.S. holders who have spent
183 days or more in the United States in the taxable year in which they
contemplate a sale of the Common Stock are urged to consult their tax advisers
as to the tax consequences of such sale. If a non-U.S. holder that is a foreign
corporation falls under clause (ii) above, it will be taxed on its gain under
regular graduated U.S. federal income tax rates and, in addition, may also be
subject to the branch profits tax described above.
A corporation is generally a USRPHC if the fair market value of its United
States real property interests equals or exceeds 50% of the sum of the fair
market value of its worldwide real property interests plus its other assets used
or held for use in a trade or business. Shares in a USRPHC constitute USRPIs
except that in the case of shares of a class of stock that is regularly traded
on an established securities market, shares of such class shall be treated as
USRPIs only in the case of a person who at some time during the preceding
five-year period held more than 5% of the shares of such class. The Company has
not determined whether it would constitute a USRPHC; however, only those
non-U.S. holders of more than 900,000 Shares would be affected if the Company
were to be a USRPHC.
Shares of Common Stock owned or treated as owned by an individual non-U.S.
holder at the time of his death will be includible in his estate for U.S. estate
tax purposes unless an applicable estate tax treaty provides otherwise.
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<PAGE>
BACKUP WITHHOLDING AND INFORMATION REPORTING
DIVIDENDS. The Company must report annually to the Internal Revenue Service
and to each non-U.S. holder the amount of dividends paid to and the tax withheld
with respect to such holder. These information reporting requirements apply
regardless of whether withholding was reduced or eliminated by an applicable tax
treaty. Copies of these information returns may also be available under the
provisions of a specific treaty or agreement with the tax authorities in the
country in which the non-U.S. holder resides. Dividends that are subject to U.S.
withholding tax at the 30% statutory rate or at a reduced tax treaty rate are
exempt from backup withholding of U.S. federal income tax. In general, backup
withholding at a rate of 31% and information reporting will apply to other
dividends paid on shares of Common Stock to holders that are not "exempt
recipients" and that fail to provide in the manner required certain identifying
information (such as the holder's name, address and taxpayer identification
number). Generally, individuals are not exempt recipients, whereas corporations
and certain other entities generally are exempt recipients.
BROKER SALES. If a non-U.S. holder sells shares of Common Stock through a
U.S. broker or a U.S. office of a foreign broker, the broker is required to file
an information return and is required to withhold 31% of the sale proceeds
unless the non-U.S. holder is an exempt recipient or has provided the broker
with the information and statements, under penalties of perjury, necessary to
establish an exemption from backup withholding. If payment of the proceeds of
the sale of a share by a non-U.S. holder is made to or through the foreign
office of a foreign broker, that broker will not be required to backup withhold
or, except as provided in the next sentence, to file information returns. In the
case of proceeds from a sale of a share by a non-U.S. holder paid to or through
the foreign office of a United States broker or a foreign office of a foreign
broker that is (i) a controlled foreign corporation for U.S. tax purposes or
(ii) a person 50% or more of whose gross income for the three-year period ending
with the close of the taxable year preceding the year of payment (or for the
part of that period that the broker has been in existence) is effectively
connected with the conduct of a trade of business within the United States (a
"U.S.-Connected Foreign Broker"), information reporting is required unless the
broker has documentary evidence in its files that the payee is not a U.S. person
and certain other conditions are met, or the payee otherwise establishes an
exemption. In addition, the Treasury Department has indicated that it is
studying the possible application of backup withholding in the case of such
foreign offices of United States and U.S.-Connected Foreign Brokers. Proposed
regulations, not currently in effect, state that backup withholding will not
apply in such cases (absent actual knowledge that the payee is a U.S. person).
REFUNDS. Any amounts withheld under the backup withholding rules from a
payment to a non-U.S. holder or a beneficial owner (in excess of such payee's
U.S. federal income tax liability) may be refunded or credited against the
payee's U.S. federal income tax liability, provided that the required
information is furnished to the Internal Revenue Service.
The backup withholding rules are currently under review by the U.S. Treasury
Department, and their application to shares of Common Stock is subject to
change.
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<PAGE>
UNDERWRITING
Under the terms and subject to the conditions in the U.S. Underwriting
Agreement dated the date hereof, each of the underwriters of the U.S. Offering
of Common Stock named below (the "U.S. Underwriters"), for whom Smith Barney
Inc. and Wertheim Schroder & Co. Incorporated are acting as the representatives
(the "Representatives"), has severally agreed to purchase, and the Company has
agreed to sell to each U.S. Underwriter, shares of Common Stock which equal the
number of shares set forth opposite the name of such U.S. Underwriter below:
<TABLE>
<CAPTION>
NUMBER OF
U.S. UNDERWRITER SHARES
- ------------------------------------------------------------------------------------------- ----------
<S> <C>
Smith Barney Inc. .........................................................................
Wertheim Schroder & Co. Incorporated.......................................................
----------
Total.................................................................................... 6,400,000
----------
----------
</TABLE>
Under the terms and subject to the conditions contained in the International
Underwriting Agreement dated the date hereof (together with the U.S.
Underwriting Agreement, the "Underwriting Agreements"), each of the managers of
the concurrent International Offering of Common Stock named below (the
"Managers," and together with the U.S. Underwriters, the "Underwriters"), for
whom Smith Barney Inc. and J. Henry Schroder Wagg & Co. Limited are acting as
lead managers (the "Lead Managers"), has severally agreed to purchase, and the
Company has agreed to sell to each Manager, shares of Common Stock which equal
the number of shares set forth opposite the name of such Manager below:
<TABLE>
<CAPTION>
NUMBER OF
MANAGER SHARES
- ------------------------------------------------------------------------------------------- ----------
<S> <C>
Smith Barney Inc. .........................................................................
J. Henry Schroder Wagg & Co. Limited.......................................................
----------
Total.................................................................................... 1,600,000
----------
----------
</TABLE>
The Underwriting Agreements provide that the obligations of the several
Underwriters to pay for and accept delivery of the shares are subject to
approval of certain legal matters by counsel and to certain other conditions.
The Underwriters are obligated to take and pay for all the shares of Common
Stock offered hereby (other than those covered by the over-allotment option
described below) if any such shares are taken.
The Underwriters initially propose to offer part of the shares directly to
the public at the public offering price set forth on the cover page of this
Prospectus and part of the shares to certain dealers at a price which represents
a concession not in excess of $ per share under the public offering price.
The U.S. Underwriters and the Managers may allow, and such dealers may reallow,
a concession not in excess of $ per share to the other U.S. Underwriters or
Managers, respectively, or to certain other dealers. After the initial public
offering, the public offering price and such concessions may be changed by the
Underwriters.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to 1,200,000 additional
shares of Common Stock at the price to the public set
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<PAGE>
forth on the cover page of this Prospectus minus the underwriting discounts and
commissions. The Underwriters may exercise such option solely for the purpose of
covering over-allotments, if any, in connection with the offering of the shares
offered hereby. To the extent such option is exercised, each of the Underwriters
will be obligated, subject to certain conditions, to purchase approximately the
same percentage of such additional shares as the number of shares set forth
opposite each of the Underwriters' name in the preceding tables bears to the
total number of shares listed in such table.
The Company and its executive officers and directors have agreed not,
directly or indirectly, to sell, offer to sell, solicit any offer to buy,
contract to sell, grant any option to purchase or otherwise transfer or dispose
of any shares of Common Stock, or any securities that are convertible into, or
exercisable or exchangeable for, Common Stock for a period of 90 days after the
date of this Prospectus without the prior written consent of Smith Barney.
The Company and the Underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act of 1933.
The U.S. Underwriters and the Managers have entered into an Agreement
Between U.S. Underwriters and Managers pursuant to which each U.S. Underwriter
has agreed that, as part of the distribution of the 6,400,000 shares offered in
the U.S. Offering (i) it is not purchasing any such shares for the account of
anyone other than a U.S. or Canadian Person and (ii) it has not offered or sold,
and will not, offer, sell, resell or deliver, directly or indirectly, any of
such shares or distribute any prospectus relating to the U.S. Offering outside
the United States or Canada or to anyone other than a U.S. or Canadian Person.
In addition, each Manager has agreed that as part of the distribution of the
1,600,000 shares offered in the International Offering: (i) it is not purchasing
any such shares for the account of any U.S. or Canadian Person and (ii) it has
not offered or sold, and will not offer, sell, resell or deliver, directly or
indirectly, any of such shares or distribute any prospectus relating to the
International Offering in the United States or Canada or to any U.S. or Canadian
Person. Each Manager has also agreed that it will offer to sell shares only in
compliance with all relevant requirements of any applicable law.
The foregoing limitations do not apply to stabilization transactions or to
certain other transactions specified in the U.S. Underwriting Agreement, the
International Underwriting Agreement and the Agreement Between U.S. Underwriters
and Managers, including: (i) certain purchases and sales between the U.S.
Underwriters and the Managers, (ii) certain offers, sales, resales, deliveries
or distributions to or through investment advisors or other persons exercising
investment discretion, (iii) purchases, offers or sales by a U.S. Underwriter
who is also acting as Manager or by a Manager who is also acting as a U.S.
Underwriter and (iv) other transactions specifically approved by the
Representatives and the Lead Managers. As used herein, "U.S. or Canadian Person"
means any resident or national of the United States or Canada, any corporation,
partnership or other entity created or organized in or under the laws of the
United States or Canada or any estate or trust the income of which is subject to
United States or Canadian income taxation regardless of the source of its income
(other than the foreign branch of any U.S. or Canadian Person), and includes any
United States branch of a person other than a U.S. or Canadian Person.
Any offer of shares in Canada will be made only pursuant to an exemption
from the requirement to file a prospectus in the relevant province of Canada in
which such offer is made.
Each Manager has represented and agreed (i) that it has not offered or sold
and will not offer or sell in the United Kingdom, by means of any document, any
shares other than to persons whose ordinary business it is to buy or sell shares
or debentures, whether as principal or agent or in circumstances which do not
constitute an offer to the public within the meaning of the Companies Act 1985,
(ii) that it has complied and will comply with all applicable provisions of the
Financial Services Act of 1986 with respect to anything done by it in relation
to the shares in, from, or otherwise involving, the United Kingdom and (iii)
that it has only issued or passed on and will only issue or pass on to any
person in the United Kingdom any document received by it in connection with the
issue of the shares if that person is of a kind described in Article 9(3) of the
Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1988.
63
<PAGE>
No action has been or will be taken in any jurisdiction by the Company or
the Managers that would permit an offering to the general public of the shares
offered hereby in any jurisdiction other than the United States.
Purchasers of the shares offered hereby may be required to pay stamp taxes
and other charges in accordance with the laws and practices of the country of
purchase in addition to the offering price set forth on the cover page hereof.
Pursuant to the Agreement Between U.S. Underwriters and Managers, sales may
be made between the U.S. Underwriters and the Managers of such number of shares
as may be mutually agreed. The price of any shares so sold shall be the public
offering price as then in effect for shares being sold by the U.S. Underwriters
and the Managers, less all or any part of the selling concession, unless
otherwise determined by mutual agreement. To the extent that there are sales
between the U.S. Underwriters and the Managers pursuant to the Agreement Between
U.S. Underwriters and Managers, the number of shares initially available for
sale by the U.S. Underwriters and by the Managers may be more or less than the
number of shares appearing on the front cover of this Prospectus.
The Common Stock is traded on the New York Stock Exchange under the symbol
"RXN."
The Representatives are also acting as managing underwriters in connection
with the Notes Offering and will receive customary underwriting discounts and
commissions in connection therewith. The consummation of the Common Stock
Offering is conditioned upon the consummation of the Notes Offering and the
other transactions contemplated by the Recapitalization.
LEGAL OPINIONS
The validity of Common Stock offered hereby will be passed upon for the
Company by Thompson & Knight, A Professional Corporation, Dallas, Texas. Certain
legal matters in connection with this offering will be passed upon for the
Underwriters by Latham & Watkins, New York, New York.
EXPERTS
The consolidated financial statements of the Company as of December 31, 1992
and 1993, and for the year ended December 31, 1991, the nine months ended
September 30, 1992, the three months ended December 31, 1992 and the year ended
December 31, 1993 included in this Prospectus and the financial statement
schedules included in the Registration Statement have been so included in
reliance on the reports of Price Waterhouse LLP, independent accountants, given
on the authority of said firm as experts in auditing and accounting.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports, proxy and information statements, and other
information with the Securities and Exchange Commission (the "Commission").
These reports, proxy and information statements, and other information
concerning the Company, may be inspected, without charge, at the offices of the
Commission at 450 Fifth Street, N.W, Washington, D.C. 20549 and at its regional
offices at 7 World Trade Center, New York, New York 10048 and Northwestern
Atrium Center, 500 West Madison Street, Chicago, Illinois 60661-2551. Copies of
such materials may also be obtained by mail at prescribed rates from the Public
Reference Section of the Commission at its principal office at 450 Fifth Street,
N.W, Washington, D.C. 20549. In addition, the Company's Common Stock is listed
on the New York Stock Exchange, 20 Broad Street, New York, New York 10005, where
reports, proxy statements and other information concerning the Company can be
inspected.
The Company has filed with the Commission a registration statement on Form
S-3 (as amended and together with all exhibits and schedules thereto, the
"Registration Statement") under the Securities Act of 1933 with respect to the
shares of Common Stock offered hereby. As permitted by the rules and regulations
of the Commission, this Prospectus does not contain all of the information set
forth in the Registration
64
<PAGE>
Statement. For further information with respect to the Company and the Common
Stock offered hereby, reference is made to the Registration Statement.
Statements contained in this Prospectus concerning the provisions of any
contract, agreement or other document may not be complete. With respect to each
contract, agreement or other document filed as an exhibit to the Registration
Statement, reference is made to the exhibit for the complete contents of the
exhibit, and each statement concerning its provisions is qualified in its
entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents which have been filed by the Company with the
Commission (File No. 1-9988) pursuant to the Exchange Act, are incorporated
herein by reference and made a part of this Prospectus: (i) the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993; and (ii) the
Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1994,
June 30, 1994 and September 30, 1994.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the Common Stock Offering shall be deemed to be incorporated
by reference into this Prospectus and to be a part hereof from the date of
filing of such documents. Any statement contained in a document or information
incorporated or deemed to be incorporated herein by reference shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any subsequently filed document that also is,
or is deemed to be, incorporated herein by reference, modifies or supersedes
such statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
THE COMPANY UNDERTAKES TO PROVIDE, WITHOUT CHARGE, TO EACH PERSON, INCLUDING
ANY BENEFICIAL OWNER, TO WHOM A COPY OF THIS PROSPECTUS IS DELIVERED, UPON THE
WRITTEN OR ORAL REQUEST OF SUCH PERSON, A COPY OF ANY AND ALL OF THE DOCUMENTS
OR INFORMATION REFERRED TO ABOVE THAT HAS BEEN OR MAY BE INCORPORATED BY
REFERENCE IN THIS PROSPECTUS (EXCLUDING EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH
EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE). REQUESTS SHOULD BE
DIRECTED TO NEIL DEVROY, DIRECTOR COMMUNICATIONS AND PUBLIC AFFAIRS, REXENE
CORPORATION, 5005 LBJ FREEWAY, OCCIDENTAL TOWER, SUITE 500, DALLAS, TEXAS 75244
(THE PRINCIPAL EXECUTIVE OFFICES OF THE COMPANY), TELEPHONE (214) 450-9000.
65
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----------
<S> <C>
Report of Independent Accountants:
Post-emergence Consolidated Financial Statements.................................................... F-2
Pre-emergence Consolidated Financial Statements..................................................... F-3
Audited Consolidated Financial Statements:
Consolidated Statements of Operations for the year ended December 31, 1991, the nine months ended
September 30, 1992, the three months ended December 31, 1992 and the year ended December 31,
1993............................................................................................... F-4
Consolidated Balance Sheets as of December 31, 1992 and 1993........................................ F-5
Consolidated Statements of Changes in Stockholders' Equity (Deficit) for the year ended December 31,
1991, the nine months ended September 30, 1992, the three months ended December 31, 1992 and the
year ended December 31, 1993....................................................................... F-6
Consolidated Statements of Cash Flows for the year ended December 31, 1991, the nine months ended
September 30, 1992, the three months ended December 31, 1992 and the year ended December 31,
1993............................................................................................... F-7
Notes to Consolidated Financial Statements.......................................................... F-9
Condensed Consolidated Financial Statements (Unaudited):
Condensed Consolidated Statements of Operations for the Nine Months Ended September 30, 1993 and
1994............................................................................................... F-27
Condensed Consolidated Balance Sheet as of September 30, 1994....................................... F-28
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1993 and
1994............................................................................................... F-29
Notes to Condensed Consolidated Financial Statements................................................ F-30
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS -- POST-EMERGENCE
CONSOLIDATED FINANCIAL STATEMENTS
To the Board of Directors and Stockholders of
Rexene Corporation
In our opinion, the accompanying consolidated financial statements as listed
on the Index on page F-1, present fairly, in all material respects, the
financial position of Rexene Corporation and its subsidiaries (the Company) at
December 31, 1992 and 1993, and the results of their operations and their cash
flows for the three months ended December 31, 1992 and the year ended December
31, 1993 in conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audits 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in notes 2 and 3 to the consolidated financial statements, on
September 18, 1992 the Company's Plan of Reorganization was consummated.
Effective September 30, 1992, the Company accounted for the Chapter 11
reorganization using "fresh-start" reporting as set forth in the American
Institute of Certified Public Accountants' Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization under the Bankruptcy Code."
Accordingly, the financial statements subsequent to the emergence from Chapter
11 have been prepared using a different basis of accounting and are therefore
not comparable to the pre-emergence consolidated financial statements.
PRICE WATERHOUSE LLP
Dallas, Texas
February 10, 1994
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS -- PRE-EMERGENCE
CONSOLIDATED FINANCIAL STATEMENTS
To the Board of Directors and Stockholders of
Rexene Corporation
In our opinion, the accompanying consolidated financial statements as listed
on the Index on page F-1, present fairly, in all material respects, the results
of Rexene Corporation and its subsidiaries' (the Company) operations and their
cash flows for the year ended December 31, 1991 and the nine months ended
September 30, 1992, in conformity with generally accepted accounting principles.
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 of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audits 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in notes 2 and 3 to the consolidated financial statements, on
October 18, 1991 the Company filed a voluntary petition for reorganization under
Chapter 11 of the United States Bankruptcy Code. The Company's Plan of
Reorganization was consummated on September 18, 1992 and, effective September
30, 1992, the Company accounted for the reorganization using "fresh-start"
reporting as set forth in the American Institute of Certified Public
Accountants' Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization under the Bankruptcy Code."
PRICE WATERHOUSE LLP
Dallas, Texas
April 12, 1993
F-3
<PAGE>
REXENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRE-EMERGENCE POST-EMERGENCE
--------------------------- ---------------------------
NINE MONTHS THREE MONTHS
YEAR ENDED ENDED ENDED YEAR ENDED
DECEMBER 31, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1991 1992 1992 1993
------------ ------------- ------------- ------------
<S> <C> <C> <C> <C>
Net sales............................................. $ 449,728 $ 316,106 $ 98,854 $ 429,353
------------ ------------- ------------- ------------
Operating expenses:
Cost of sales....................................... 388,057 278,081 86,732 375,609
Marketing, general and administrative............... 43,388 23,918 9,045 32,641
Research and development............................ 6,255 4,715 1,659 6,599
------------ ------------- ------------- ------------
437,700 306,714 97,436 414,849
------------ ------------- ------------- ------------
Operating income...................................... 12,028 9,392 1,418 14,504
Interest expense:
Cash................................................ (55,029) -- (6,215) (24,446)
Non-cash............................................ (3,345) -- (6,445) (25,388)
Interest income....................................... 2,750 740 637 1,392
Debt restructuring costs.............................. (7,866) -- -- --
Other, net............................................ 1,001 (458) 169 (245)
------------ ------------- ------------- ------------
Income (loss) before reorganization items, income
taxes and extraordinary gain......................... (50,461) 9,674 (10,436) (34,183)
Reorganization items.................................. (5,730) (38,514) -- --
------------ ------------- ------------- ------------
Loss before income taxes and extraordinary gain....... (56,191) (28,840) (10,436) (34,183)
Income tax (expense) benefit.......................... 13,444 (2,636) 3,908 8,940
------------ ------------- ------------- ------------
Loss before extraordinary gain........................ (42,747) (31,476) (6,528) (25,243)
Extraordinary gain.................................... -- 123,672 -- --
------------ ------------- ------------- ------------
Net income (loss)..................................... $ (42,747) $ 92,196 $ (6,528) $ (25,243)
------------ ------------- ------------- ------------
------------ ------------- ------------- ------------
Weighted average shares outstanding................... 10,501 10,501
------------- ------------
------------- ------------
Net loss per share.................................... $ (.62) $ (2.40 )
------------- ------------
------------- ------------
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
REXENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1992 1993
---------- ----------
<S> <C> <C>
Cash and cash equivalents:
Unrestricted............................................................................ $ 30,444 $ 28,288
Restricted.............................................................................. 3,758 2,247
Accounts receivable, net.................................................................. 51,771 57,820
Inventories............................................................................... 53,692 52,621
Income taxes receivable................................................................... 71 4,965
Prepaid expenses and other................................................................ 1,246 1,522
---------- ----------
Total current assets.................................................................. 140,982 147,463
---------- ----------
Property, plant and equipment, net........................................................ 243,621 244,346
Reorganization value in excess of amounts allocable to identifiable assets, net........... 3,928 3,660
Intangible assets, net.................................................................... 5,317 4,198
Other noncurrent assets................................................................... 29,743 30,369
---------- ----------
$ 423,591 $ 430,036
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Accounts payable.......................................................................... $ 20,387 $ 27,386
Accrued liabilities....................................................................... 9,719 8,116
Accrued interest.......................................................................... 3,145 3,097
Employee benefits payable................................................................. 2,907 3,754
---------- ----------
Total current liabilities............................................................. 36,158 42,353
---------- ----------
Long-term debt............................................................................ 261,726 281,764
Other noncurrent liabilities.............................................................. 56,225 65,840
Deferred income taxes..................................................................... 49,376 45,216
Commitments and contingencies............................................................. -- --
Stockholders' equity (deficit):
Common stock, par value $.01 per share; 100 million shares authorized; 10.5 million
shares issued and outstanding.......................................................... 105 105
Paid-in capital......................................................................... 26,529 26,529
Accumulated deficit..................................................................... (6,528) (31,771)
---------- ----------
Total stockholders' equity (deficit).................................................... 20,106 (5,137)
---------- ----------
$ 423,591 $ 430,036
---------- ----------
---------- ----------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
REXENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
--------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
------- ------ --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1990.............. 31,239 $ 312 $ 147,543 $(203,791) $ (55,936)
Issuance of common stock................ 180 2 3,868 -- 3,870
Net loss................................ -- -- -- (42,747) (42,747)
------- ------ --------- ----------- ---------
Balance, December 31, 1991.............. 31,419 314 151,411 (246,538) (94,813)
Net loss -- pre-emergence............... -- -- -- (5,602) (5,602)
------- ------ --------- ----------- ---------
Balance, September 30, 1992 --
pre-emergence.......................... 31,419 314 151,411 (252,140) (100,415)
Adjustments for reorganization:
Extraordinary gain on debt exchange... -- -- -- 123,672 123,672
Fresh start reporting adjustments..... (31,419) (314) (151,411) 128,468 (23,257)
Issuance of common stock.............. 10,501 105 26,529 -- 26,634
------- ------ --------- ----------- ---------
Balance, September 30, 1992 -- post-
emergence.............................. 10,501 $ 105 $ 26,529 $ -- $ 26,634
------- ------ --------- ----------- ---------
------- ------ --------- ----------- ---------
Balance, September 30, 1992............. 10,501 $ 105 $ 26,529 $ -- $ 26,634
Net loss................................ -- -- -- (6,528) (6,528)
------- ------ --------- ----------- ---------
Balance, December 31, 1992.............. 10,501 105 26,529 (6,528) 20,106
Net loss................................ -- -- -- (25,243) (25,243)
------- ------ --------- ----------- ---------
Balance, December 31, 1993.............. 10,501 $ 105 $ 26,529 $ (31,771) $ (5,137)
------- ------ --------- ----------- ---------
------- ------ --------- ----------- ---------
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
REXENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRE-EMERGENCE POST-EMERGENCE
--------------------------- ---------------------------
YEAR NINE MONTHS THREE MONTHS YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1991 1992 1992 1993
------------ ------------- ------------- ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................... $ (42,747) $ 92,196 $ (6,528) $ (25,243)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization..................... 23,852 20,062 4,315 17,446
Reorganization items.............................. 5,730 38,514 -- --
Reversal of accrued interest...................... -- (6,831) -- --
Debt restructuring costs.......................... 7,866 -- -- --
Extraordinary gain................................ -- (123,672) -- --
Non-cash interest expense......................... -- -- 6,445 25,388
Deferred income taxes............................. 2,262 525 (3,690) (4,160)
Change in:
Accounts receivable............................. 11,080 (9,343) 5,756 (6,049)
Inventories..................................... 20,983 182 (3,030) 1,071
Prepaid expenses and other...................... (446) 727 (940) (276)
Income taxes.................................... (12,856) 17,441 (408) (4,894)
Accounts payable................................ 5,549 1,139 2,517 6,999
Accrued interest................................ 11,312 -- (2,914) (48)
Employee benefits payable and accrued
liabilities.................................... -- (1,552) 612 (756)
Prepetition liabilities paid:
Accounts payable................................ -- (15,834) (1,093) --
Accrued interest................................ -- (14,737) -- --
Increase in other noncurrent liabilities.......... 2,259 12,518 985 1,006
Other............................................. 844 (456) 782 857
------------ ------------- ------------- ------------
Total adjustments............................. 78,435 (81,317) 9,337 36,584
------------ ------------- ------------- ------------
Net cash provided by operating activities before
reorganization items paid............................ 35,688 10,879 2,809 11,341
Reorganization items paid........................... (3,396) (10,180) (2,053) --
------------ ------------- ------------- ------------
Net cash provided by operating activities............. 32,292 699 756 11,341
------------ ------------- ------------- ------------
(continued on page F-8)
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
REXENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRE-EMERGENCE POST-EMERGENCE
--------------------------- ---------------------------
YEAR NINE MONTHS THREE MONTHS YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1991 1992 1992 1993
------------ ------------- ------------- ------------
<S> <C> <C> <C> <C>
Cash flows from investing activities:
Capital expenditures................................ (33,464) (11,136) (3,961) (17,008)
Investment in joint venture......................... (733) -- (325) --
Proceeds from sale of property, plant and
equipment.......................................... 2,491 -- -- --
Deposits held in trust for the Texas Water
Commission......................................... (10,255) -- -- --
------------ ------------- ------------- ------------
Net cash used for investing activities................ (41,961) (11,136) (4,286) (17,008)
------------ ------------- ------------- ------------
Cash flows from financing activities:
Bank borrowings..................................... -- -- -- 2,000
Debt restructuring costs............................ (6,501) -- -- --
Proceeds from issuance of common stock, net......... 45 -- -- --
------------ ------------- ------------- ------------
Net cash provided by (used for) financing
activities........................................... (6,456) -- -- 2,000
------------ ------------- ------------- ------------
Net decrease in cash and cash equivalents............. (16,125) (10,437) (3,530) (3,667)
Cash and cash equivalents at beginning of period.... 64,294 48,169 37,732 34,202
------------ ------------- ------------- ------------
Cash and cash equivalents at end of period.......... $ 48,169 $ 37,732 $ 34,202 $ 30,535
------------ ------------- ------------- ------------
------------ ------------- ------------- ------------
Supplemental cash flow information:
Cash paid for interest.............................. $ 50,745 $ 14,737 $ 9,002 $ 24,039
Cash paid for income taxes.......................... $ -- $ 1,703 $ -- $ 114
</TABLE>
See notes to consolidated financial statements.
F-8
<PAGE>
REXENE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
IDENTITY OF REGISTRANT
Rexene Corporation ("Old Rexene") was merged into its wholly-owned operating
subsidiary, Rexene Products Company, on September 11, 1992 pursuant to a First
Amended Plan of Reorganization (the "Amended Plan") under Chapter 11 of the
United States Bankruptcy Code (the "Bankruptcy Code") (see note 2). Upon
completion of the merger, Rexene Products Company changed its name to Rexene
Corporation ("New Rexene"). Old Rexene, Rexene Products Company and New Rexene
are hereinafter sometimes collectively or separately referred to as the
"Company".
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of the Company include its
wholly-owned direct and indirect subsidiaries.
CASH AND CASH EQUIVALENTS
Cash equivalents represent short-term investments with original maturities
of three months or less. Restricted cash is held in a reserve account under the
Amended Plan for payment of disputed claims and administrative expenses.
INVENTORIES
Inventories are stated at the lower of cost or market using the first-in,
first-out method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Depreciation is provided
utilizing the straight-line method over the estimated useful lives of the
assets, ranging from 3 to 20 years. Improvements are capitalized, while repair
and maintenance costs are charged to operations as incurred. Certain interest
costs are capitalized as part of major construction projects. Upon disposal of
assets, the cost and related accumulated depreciation are removed from the
accounts and the resulting gain or loss is included in income.
REORGANIZATION VALUE IN EXCESS OF AMOUNTS ALLOCABLE TO IDENTIFIABLE ASSETS
Reorganization value in excess of amounts allocable to identifiable assets
is amortized on a straight-line basis over fifteen years.
INTANGIBLE ASSETS
Intangible assets are stated at cost and consist primarily of licensing
agreements and patents which are amortized on a straight-line basis over five
years.
DEFERRED PRE-OPERATING COSTS
The incremental costs of establishing a plant in the United Kingdom have
been deferred. This plant is scheduled to begin production in late 1994. These
deferred pre-operating costs will be amortized on a straight-line basis over
five years, after commencement of production.
INCOME TAXES
Concurrent with fresh start reporting (see note 3), on September 30, 1992
the Company adopted Statement of Financial Accounting Standard ("SFAS") 109,
"Accounting for Income Taxes", which requires an asset and liability approach to
financial accounting and reporting of income taxes. Prior to September 30, 1992,
the Company accounted for income taxes under the deferred method, as prescribed
under Accounting Principles Board ("APB") Opinion No. 11, "Accounting for Income
Taxes".
FOREIGN CURRENCY TRANSLATION
Operations of the foreign subsidiary use the local currency of the country
of operation as the functional currency. The resulting translation adjustments
are not significant in 1993.
F-9
<PAGE>
REXENE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET LOSS PER SHARE
Net loss per share is based on the weighted average number of common stock
shares outstanding. The per share amount for the pre-emergence periods is not
presented since such information is not comparable with the post-emergence
periods.
RECLASSIFICATIONS
Certain amounts in the 1992 and 1991 consolidated financial statements have
been reclassified to conform with the 1993 presentation.
2. CHAPTER 11 REORGANIZATION
As a result of its reorganization under Chapter 11 of the Bankruptcy Code
and the confirmation of the Amended Plan by the United States Bankruptcy Court
for the District of Delaware (the "Bankruptcy Court"), the Company, among other
things, (i) reduced the principal amount of its long-term debt by replacing $403
million of outstanding senior and subordinated notes of Old Rexene, which was
scheduled to mature in July 1992, with $337 million of debt that becomes due in
1999 and 2002, (ii) reduced its annual cash interest requirements from
approximately $74 million to a minimum amount of approximately $24 million
through 1994, and (iii) issued 92.5% of the common stock of New Rexene to the
holders of such debt. The Amended Plan was consummated on September 18, 1992
(the "Effective Date"). Under the Amended Plan, the holders of outstanding
senior notes of Old Rexene received, pro rata as a class, (i) an equal principal
amount of Increasing Rate First Priority Notes due 1999 of New Rexene at an
initial interest rate of 9% per year (the "Old Senior Notes"), (ii) 26% of the
common stock of New Rexene to be outstanding after giving effect to the Amended
Plan, and (iii) $11.7 million in cash representing the prepetition interest
accrued on the outstanding senior notes of Old Rexene plus interest on the
prepetition interest during the reorganization under Chapter 11 of the
Bankruptcy Code proceedings. The holders of outstanding subordinated notes of
Old Rexene received, pro rata as a class, (i) $84.375 million aggregate
principal amount of Increasing Rate Second Priority Notes due 2002 (with certain
sinking fund requirements in 2001) at an initial interest rate of 10% per year
(the "Old Subordinated Notes", and together with the Old Senior Notes, the "Old
Notes"), (ii) 66.5% of the common stock in New Rexene to be outstanding after
giving effect to the Amended Plan, and (iii) $3.1 million in cash for settlement
of prepetition interest. Holders of the common stock of Old Rexene became
entitled to receive 7.5% of the common stock of New Rexene to be outstanding
after giving effect to the Amended Plan. The Company recorded an extraordinary
gain of $123.7 million as a result of exchanging the outstanding senior and
subordinated debt of Old Rexene for the Old Notes and the common stock of New
Rexene under the Amended Plan.
3. FRESH START REPORTING
In connection with the reorganization under Chapter 11 of the Bankruptcy
Code described in note 2, the Company adopted as of September 30, 1992, the
American Institute of Certified Public Accountants' Statement of Position No.
90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy
Code" (the "Reorganization SOP"). The Company's basis of accounting for
financial reporting purposes changed as a result of adopting the Reorganization
SOP. Specifically, the Reorganization SOP required (i) the adjustment of the
Company's assets and liabilities to reflect a reorganization value (the
"Reorganization Value") generally approximating the fair value of the Company as
a going concern on an unleveraged basis, (ii) the elimination of its accumulated
deficit, and (iii) adjustments to its capital structure to reflect consummation
of the Amended Plan. Accordingly, the results of operations after September 30,
1992 are not comparable to results of operations prior to such date, and the
results of operations for the nine months ended September 30, 1992 and the three
months ended December 31, 1992 have not been aggregated.
F-10
<PAGE>
REXENE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. FRESH START REPORTING (CONTINUED)
The Reorganization Value was determined by independent financial advisors.
At September 30, 1992, the Reorganization Value of $291 million was allocated to
assets and liabilities as follows (in thousands):
<TABLE>
<S> <C>
Working capital (excluding accrued interest).............. $ 112,860
Property, plant and equipment............................. 243,498
Reorganization value in excess of amounts allocable to
identifiable assets...................................... 4,298
Intangible assets......................................... 5,598
Other noncurrent assets................................... 30,031
Deferred income taxes..................................... (53,066)
Other noncurrent liabilities.............................. (52,219)
---------
$ 291,000
---------
---------
</TABLE>
Current assets and liabilities were recorded at their book value, which
approximated fair value. Property, plant and equipment was recorded at
reorganization value, which approximated fair value in continued use, based on
an independent appraisal. Intangible assets and other noncurrent assets were
recorded at their net book value, which approximated fair value. Long-term debt
was recorded at present values as determined by independent financial advisors.
Based on the allocation of the Reorganization Value in conformity with the
procedures specified by the Reorganization SOP, the portion of the
Reorganization Value which was not attributed to specific tangible or
identifiable intangible assets of the reorganized Company was reported as
"reorganization value in excess of amounts allocable to identifiable assets".
The Company recorded the following reorganization expenses and adjustments
to assets and liabilities to reflect fresh start reporting in its statement of
operations for the nine months ended September 30, 1992 (in thousands):
<TABLE>
<S> <C>
Professional fees......................................... $ (12,600)
Interest expense -- cash.................................. (6,059)
Interest expense -- non-cash.............................. (1,941)
Revaluation of assets and liabilities to fair values:
Property, plant and equipment........................... 50,535
Goodwill................................................ (16,604)
Reorganization value in excess of amounts allocable to
identifiable assets.................................... 4,298
Other noncurrent assets................................. (11,904)
Deferred income taxes................................... (50,346)
Pension liability....................................... 7,067
Other..................................................... (960)
---------
$ (38,514)
---------
---------
</TABLE>
F-11
<PAGE>
REXENE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1992 1993
--------- ---------
<S> <C> <C>
Trade................................................................... $ 52,137 $ 57,697
Other................................................................... 4,143 3,930
--------- ---------
56,280 61,627
Less allowances......................................................... (4,509) (3,807)
--------- ---------
$ 51,771 $ 57,820
--------- ---------
--------- ---------
</TABLE>
Bad debt expense for the year ended December 31, 1991, the nine months ended
September 30, 1992, the three months ended December 31, 1992 and the year ended
December 31, 1993 is $1,175,000, $327,000, $300,000 and $223,000, respectively.
5. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1992 1993
--------- ---------
<S> <C> <C>
Raw materials........................................................... $ 14,971 $ 11,313
Work in progress........................................................ 7,481 6,694
Finished goods.......................................................... 31,240 34,614
--------- ---------
$ 53,692 $ 52,621
--------- ---------
--------- ---------
</TABLE>
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1992 1993
---------- ----------
<S> <C> <C>
Land.................................................................. $ 5,276 $ 5,738
Buildings............................................................. 13,841 17,758
Plant and equipment................................................... 216,440 230,026
Construction in progress.............................................. 11,728 10,530
---------- ----------
247,285 264,052
Less accumulated depreciation......................................... (3,664) (19,706)
---------- ----------
$ 243,621 $ 244,346
---------- ----------
---------- ----------
</TABLE>
Depreciation expense for the year ended December 31, 1991, the nine months
ended September 30, 1992, the three months ended December 31, 1992 and the year
ended December 31, 1993 is $20,656,000, $17,689,000, $3,664,000 and $16,059,000,
respectively. During the year ended December 31, 1991, the three months ended
December 31, 1992 and the year ended December 31, 1993, $4,685,000, $312,000 and
$1,259,000, respectively, of interest was capitalized in connection with
construction projects. No interest was capitalized during the nine months ended
September 30, 1992.
F-12
<PAGE>
REXENE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. REORGANIZATION VALUE IN EXCESS OF AMOUNTS ALLOCABLE TO IDENTIFIABLE ASSETS
AND INTANGIBLE ASSETS
Reorganization value in excess of amounts allocable to identifiable assets
and intangible assets, net of accumulated amortization are (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1992 1993
--------- ---------
<S> <C> <C>
Reorganization value in excess of amounts allocable to identifiable
assets................................................................... $ 4,298 $ 4,298
Less accumulated amortization............................................. (370) (638)
--------- ---------
$ 3,928 $ 3,660
--------- ---------
--------- ---------
Intangible assets......................................................... $ 5,598 $ 5,598
Less accumulated amortization............................................. (281) (1,400)
--------- ---------
$ 5,317 $ 4,198
--------- ---------
--------- ---------
</TABLE>
8. OTHER NONCURRENT ASSETS
Other noncurrent assets consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1992 1993
--------- ---------
<S> <C> <C>
Spare parts inventories................................................. $ 18,107 $ 16,654
Deposits held in trusts................................................. 10,428 10,523
Deferred pre-operating costs............................................ -- 1,322
Other................................................................... 1,208 1,870
--------- ---------
$ 29,743 $ 30,369
--------- ---------
--------- ---------
</TABLE>
The deposits held in trusts for the benefit of the Texas Water Commission
were established and funded to comply with the financial assurance requirements
of the Resource Conservation and Recovery Act.
9. ACCRUED LIABILITIES
Accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1992 1993
--------- ---------
<S> <C> <C>
Accrued taxes, other than income.......................................... $ 3,122 $ 2,555
Accrued reorganization costs and disputed claims.......................... 2,422 435
Other accrued expenses.................................................... 4,175 5,126
--------- ---------
$ 9,719 $ 8,116
--------- ---------
--------- ---------
</TABLE>
10. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1992 1993
---------- ----------
<S> <C> <C>
Old Senior Notes...................................................... $ 253,000 $ 253,000
Old Subordinated Notes................................................ 87,249 95,342
Less: unamortized discount............................................ (78,523) (68,578)
---------- ----------
261,726 279,764
Bank borrowings under the Old Credit Agreement........................ -- 2,000
---------- ----------
$ 261,726 $ 281,764
---------- ----------
---------- ----------
</TABLE>
F-13
<PAGE>
REXENE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. LONG-TERM DEBT (CONTINUED)
The long-term debt was recorded at its fair market value at the Effective
Date. The resulting discount from the face amount is accreted to interest
expense over the term of the Notes. The Company believes, based on its
understanding of the bid and ask prices at December 31, 1993, that the aggregate
fair market value of the long-term debt is approximately $36 million greater
than its net book value.
The Old Senior Notes are secured by a first lien on all of the assets of the
Company and its subsidiaries, other than (i) accounts receivable, other than
intercompany receivables, (ii) inventory, (iii) cash and cash equivalents, and
(iv) certain nonmaterial excluded assets (the "Collateral").
Interest is payable on the Old Notes semiannually on May 15 and November 15.
In addition, the interest rates on the Old Senior and Old Subordinated Notes
increase beginning in 1995 and 1996, respectively. The annual interest rate on
the Old Senior Notes is 9% through November 14, 1995, 12% from November 15, 1995
through November 14, 1996 and 14% thereafter. The Old Subordinated Notes are
secured by a second lien on the Collateral. The annual interest rate on the Old
Subordinated Notes is 10% through November 14, 1996, 12% from November 15, 1996
through November 14, 1997 and 14% thereafter.
For each interest period ending on or prior to November 15, 1994, the
Company may pay up to 90% of the interest due on the Old Subordinated Notes by
delivering additional Old Subordinated Notes in lieu of cash ("Pay-in-Kind"), if
certain financial tests are met. In 1993 and 1992, the Board of Directors
exercised the Pay-in-Kind feature and issued $8.1 million and $2.9 million,
respectively, of Old Subordinated Notes.
The Pay-in-Kind feature expires on November 15, 1994, and the Company's
annual cash interest requirements will increase approximately $10.0 million,
commencing with the semi-annual interest payment due on May 15, 1995.
The Old Senior Notes, and after all Old Senior Notes are redeemed, the Old
Subordinated Notes, are redeemable at the option of the Company, at any time in
whole or from time to time in part, at a price equal to 100% of the principal
amount to be redeemed plus accrued interest to the redemption date. In addition
the Company may at any time purchase Old Senior Notes in the open market. In the
event the Company generates "excess cash flow" from operations (as defined in
the indenture governing the Old Senior Notes) in any fiscal year, the Company is
required to make an offer to purchase Old Senior Notes at par in an amount equal
to such excess cash flow. However, the cash purchase price of Old Senior Notes
acquired in the open market (not previously applied as a credit) may be credited
towards the excess cash flow offer requirement. In addition, in the event of
asset sales exceeding $8 million in the aggregate during any four consecutive
fiscal quarters, the Company is required to make an offer to purchase Old Senior
Notes and thereafter, if applicable, Old Subordinated Notes at par in an amount
equal to the net proceeds (as defined in the indentures governing the Notes (the
"Indentures")) of such asset sales. Open market purchases cannot be credited
towards the asset sale redemption requirement. The Indentures contain covenants
which, among other things (i) limit the Company's ability to incur additional
indebtedness, (ii) limit restricted payments (e.g. dividends, purchases or
redemption of subordinated indebtedness, purchases or redemption of capital
stock and certain investments), (iii) limit the incurrence of liens other than
certain permitted liens, (iv) restrict transactions with stockholders and
affiliates, (v) require the maintenance of a minimum stockholders' equity, and
(vi) limit certain investments.
The Company entered into a loan agreement dated September 18, 1992 (the "Old
Credit Agreement") as subsequently amended, with Transamerica Business Credit
Corporation providing for a credit facility for general corporate purposes of up
to $35 million, $15 million of which may be used for financing the operations of
a subsidiary in the United Kingdom. The Old Credit Agreement includes a
sub-facility of $15 million for stand-by letters of credit. The Old Credit
Agreement terminates December 31, 1996. The Company pays interest on borrowed
funds at 1.5% above the prime rate. At December 31, 1993, the Company had
borrowed $2.0 million under the Old Credit Agreement at an annual interest rate
of 7%.
F-14
<PAGE>
REXENE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. LONG-TERM DEBT (CONTINUED)
There were no borrowings under the Old Credit Agreement in 1992. At December 31,
1993 and 1992 approximately $2.9 million and $1.1 million, respectively, of
stand-by letters of credit were outstanding under the Old Credit Agreement.
Funds advanced under the Old Credit Agreement are secured by a first lien on the
Company's (i) inventory, (ii) accounts receivable, other than intercompany
receivables, (iii) letters of credit and (iv) the proceeds of the above. The Old
Credit Agreement also contains certain continuing obligations, such as the
maintenance of a minimum cash flow coverage ratio, as well as restrictions or
prohibitions covering, among other things, the incurrence of other indebtedness,
asset sales, investments, dividend payments, mergers and acquisitions.
11. OTHER NONCURRENT LIABILITIES
Other noncurrent liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1992 1993
--------- ---------
<S> <C> <C>
Accrued environmental remediation costs................................. $ 24,298 $ 23,357
Accumulated postretirement benefit obligation (note 16)................. 13,152 14,729
Noncurrent interest payable............................................. 3,021 11,630
Lawsuit accrual (note 19)............................................... 7,400 7,400
Other................................................................... 8,354 8,724
--------- ---------
$ 56,225 $ 65,840
--------- ---------
--------- ---------
</TABLE>
Noncurrent interest payable represents non-cash interest accrued in
accordance with Emerging Issues Task Force ("EITF") Issue No. 86-15, "Increasing
Rate Debt". Under EITF Issue No. 86-15, aggregate interest expense is charged in
equal amounts over the estimated term of the Old Notes (see note 14).
12. COMMITMENTS
The future payments of rentals on buildings, computers, office equipment and
transportation equipment under the terms of noncancellable operating lease
agreements are as follows (in thousands):
<TABLE>
<S> <C>
For the years ending December 31,
1994............................................................... $ 7,721
1995............................................................... 6,255
1996............................................................... 3,786
1997............................................................... 1,581
1998............................................................... 512
1999 and thereafter................................................ 4,517
---------
Total minimum lease payments....................................... $ 24,372
---------
---------
</TABLE>
Rental expense under operating leases for the year ended December 31, 1991,
the nine months ended September 30, 1992, the three months ended December 31,
1992 and the year ended December 31, 1993, approximated $7,810,000, $6,451,000,
$2,024,000 and $7,630,000, respectively.
13. INCOME TAXES
At September 30, 1992, the Company adopted SFAS 109, "Accounting for Income
Taxes", concurrent with its adoption of fresh start reporting. For periods prior
to the three months ended December 31, 1992, the Company accounted for income
taxes under principles provided in APB 11. Therefore, the income tax benefit for
the three months ended December 31, 1992 and the year ended December 31, 1993 is
not comparable with the income tax expense (benefit) for the year ended December
31, 1991 and the nine months ended September 30, 1992.
F-15
<PAGE>
REXENE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. INCOME TAXES (CONTINUED)
The current income tax benefit for the year ended December 31, 1993 includes
a federal income tax benefit of $4.0 million, relating primarily to the
carryback of the Company's 1993 net operating loss to the year ended December
31, 1990. The income tax benefit for the nine months ended September 30, 1992 is
principally for alternative minimum taxes. During the bankruptcy proceedings in
1992, all federal income tax matters through the 1991 tax year were resolved
which resulted in, among other things, a refund of $17.2 million from the
Internal Revenue Service.
The Company has unused net operating loss carryforwards of $1.2 million at
December 31, 1993 that expire in the year 2004 and an alternative minimum tax
credit carryforward of approximately $1.6 million. The utilization of the net
operating loss carryforwards and tax credit carryforwards is shown as a charge
equivalent to federal income taxes in 1991.
Income tax (expense) benefit consists of the following (in thousands):
<TABLE>
<CAPTION>
YEAR NINE MONTHS THREE MONTHS
ENDED ENDED ENDED YEAR ENDED
DECEMBER 31, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1991 1992 1992 1993
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Current:
State............ $ 220 $ 683 $ 177 $ (610)
Federal.......... 16,399 (2,794) 41 5,390
Deferred income
taxes............. (2,262) (525) 3,690 4,160
Charge equivalent
to federal income
taxes............. (913) -- -- --
------------ ------------- ------ ------
$13,444 $(2,636) $3,908 $8,940
------------ ------------- ------ ------
------------ ------------- ------ ------
</TABLE>
Deferred income tax provisions under SFAS 109 result from temporary
differences between the basis of assets and liabilities for financial reporting
purposes. Under APB 11 the deferred income tax provisions result from timing
differences in the recognition of revenues and expenses for tax and financial
reporting purposes. The deferred income tax benefit for the year ended December
31, 1993 is net of a charge of $1.3 million to record the effect of the Omnibus
Budget Reconciliation Act of 1993, which increased the corporate federal tax
rate from 34% to 35%, retroactive from January 1, 1993. The nature of the
temporary differences under SFAS 109 and timing differences under APB 11 and the
tax effects are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR NINE MONTHS THREE MONTHS
ENDED ENDED ENDED YEAR ENDED
DECEMBER 31, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1991 1992 1992 1993
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Depreciation and
amortization...... $(2,708) $(3,010) $1,571 $(5,119)
Non-cash
interest.......... -- -- 2,096 10,700
Non-qualified
executive stock
option plan....... (970) -- -- --
Effect of change in
federal statutory
income tax
rates............. -- -- -- (1,333)
Accrual for
lawsuit........... -- 2,504 -- --
Capitalized
inventory costs... 312 -- -- --
Other, net......... 1,104 (19) 23 (88)
------------ ------------- ------ ------------
$(2,262) $ (525) $3,690 $ 4,160
------------ ------------- ------ ------------
------------ ------------- ------ ------------
</TABLE>
F-16
<PAGE>
REXENE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. INCOME TAXES (CONTINUED)
Deferred income taxes consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1992 1993
---------- ----------
<S> <C> <C>
Excess financial over tax basis of property, plant and equipment................ $ 63,962 $ 69,533
Excess tax over financial basis of the Notes.................................... 16,396 9,168
---------- ----------
Gross deferred tax liabilities.............................................. 80,358 78,701
Accounts receivable............................................................. (2,188) (1,639)
Inventories..................................................................... (2,485) (666)
Intangible assets............................................................... (2,780) (1,140)
Other noncurrent assets......................................................... (3,180) (4,474)
Other noncurrent liabilities.................................................... (19,982) (23,600)
Other........................................................................... (367) (1,966)
---------- ----------
$ 49,376 $ 45,216
---------- ----------
---------- ----------
</TABLE>
The effective income tax rate differs from the amount computed by applying
the federal income tax rate to income before income taxes. The federal income
tax rate was 34% for the year ended December 31, 1991, the nine months ended
September 30, 1992 and the three months ended December 31, 1992 and 35% for the
year ended December 31, 1993. The reasons for these differences are as follows
(in thousands):
<TABLE>
<CAPTION>
NINE MONTHS THREE MONTHS
YEAR ENDED ENDED ENDED YEAR ENDED
DECEMBER 31, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1991 1992 1992 1993
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Tax computed at
federal statutory
tax rate.......... $19,104 $ 9,806 $3,549 $11,964
State income
taxes............. 168 461 116 (397)
Differences in
financial and tax
bases of assets
and liabilities... (4,496) (3,893) -- --
Non-deductible
amortization...... -- -- -- (493)
Non-cash
interest.......... -- -- -- (728)
Effect of change in
federal statutory
income tax rate... -- -- -- (1,333)
Reorganization
items............. -- (8,133) 325 --
Non-qualified
executive stock
option plan....... (1,180) -- -- --
Other, net......... (152) (877) (82) (73)
------------ ------------- ------ ------------
Income tax
(expense)
benefit........... $13,444 $(2,636) $3,908 $ 8,940
------------ ------------- ------ ------------
------------ ------------- ------ ------------
</TABLE>
14. INTEREST EXPENSE
Cash interest for the three months ended December 31, 1992 and the year
ended December 31, 1993 consists of interest on the Old Senior Notes and 10% of
the interest on the Old Subordinated Notes. The remaining 90% of the interest on
the Old Subordinated Notes is included as non-cash interest in accordance with
the Pay-in-Kind feature (see note 10). In addition, non-cash interest includes
(i) accretion on the Old Notes (see note 10), (ii) an adjustment for EITF Issue
No. 86-15 (see note 11), and (iii) an adjustment for interest capitalized in
connection with construction projects (see note 6).
15. OTHER STATEMENT OF OPERATIONS INFORMATION
During 1991 the Company incurred $7.9 million of debt restructuring costs.
Included in other income for the year ended December 31, 1991 is approximately
$1 million in license fees from a joint venture with Ube Industries, Ltd.
F-17
<PAGE>
REXENE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. OTHER STATEMENT OF OPERATIONS INFORMATION (CONTINUED)
Other, net for the nine months ended September 30, 1992 includes an accrual
of $7.4 million relating to the adverse judgment in the class action lawsuit
discussed in note 19 which was partially offset by a reversal of postpetition
interest of $6.8 million accrued as of December 31, 1991 and $1.5 million of
business interruption insurance proceeds received in 1992 for an electrical
outage at the Odessa, Texas facility in May 1991.
Export sales of the Company were $71,570,000, $33,806,000, $9,295,000 and
$30,495,000 for the year ended December 31, 1991, the nine months ended
September 30, 1992, the three months ended December 31, 1992 and the year ended
December 31, 1993, respectively. The majority of export sales were to foreign
companies through agents and domestic offices of foreign companies, which are
responsible for the actual export of the product to a variety of locations.
Accordingly, amounts of export sales to specific geographic locations are not
available.
Maintenance and repair expenses were $26,665,000, $18,244,000, $6,221,000
and $27,017,000 for the year ended December 31, 1991, the nine months ended
September 30, 1992, the three months ended December 31, 1992 and the year ended
December 31, 1993, respectively.
16. EMPLOYEE BENEFITS
SAVINGS PLAN
The Company sponsors an employee savings plan (the "Savings Plan") that is
intended to provide participating employees with additional income upon
retirement. Employees may contribute between 1% and 10% of their base salary up
to a maximum of $8,994 annually to the Savings Plan. The Company matches a
minimum of 25% of the employee's aggregate contributions up to 6% of the
employee's base salary. Employee contributions are fully vested. Employer
contributions are fully vested upon retirement or after five years of service.
For 1991, 1992 and 1993, the Company matched 25% of the employee contributions
up to the 6% limit. The Company contributed approximately $351,000, $275,000,
$96,000 and $351,000 to the Savings Plan during the year ended December 31,
1991, the nine months ended September 30, 1992, the three months ended December
31, 1992 and the year ended December 31, 1993, respectively.
PENSION PLANS
The Company has two noncontributory defined benefit plans (the "Pension
Plans") covering substantially all full time employees. Benefits provided under
the Pension Plans are primarily based on years of service and the employee's
final average earnings. The Company's funding policy is to contribute annually
an amount based upon actuarial and economic assumptions designed to achieve
adequate funding of projected benefit obligations.
Net pension expense consists of the following (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS THREE MONTHS
YEAR ENDED ENDED ENDED YEAR ENDED
DECEMBER 31, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1991 1992 1992 1993
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Service cost....... $ 1,601 $1,108 $ 369 $ 1,279
Interest accrued on
pension
obligations....... 1,064 717 239 976
Actual cash return
on plan assets.... (1,565) (446) (137) (1,278)
Net amortization
and deferral...... 726 (540) -- 162
------------ ------ ----- ------------
Net pension
expense........... $ 1,826 $ 839 $ 471 $ 1,139
------------ ------ ----- ------------
------------ ------ ----- ------------
</TABLE>
F-18
<PAGE>
REXENE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. EMPLOYEE BENEFITS (CONTINUED)
The following table sets forth the funded status of the Pension Plan (in
thousands):
<TABLE>
<CAPTION>
1992 1993
---------- ----------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits............................................................... $ 9,476 $ 11,924
---------- ----------
---------- ----------
Accumulated benefit obligation................................................ $ 10,820 $ 13,822
---------- ----------
---------- ----------
Projected benefit obligation.................................................... $ 13,161 $ 16,518
Plan assets at fair value....................................................... (12,109) (14,238)
---------- ----------
Excess of projected benefit obligations over plan assets........................ 1,052 2,280
Unrecognized net loss........................................................... -- (1,392)
Prior service cost.............................................................. -- 125
Other........................................................................... -- 100
---------- ----------
Pension liability included in other noncurrent liabilities...................... $ 1,052 $ 1,113
---------- ----------
---------- ----------
</TABLE>
At December 31, 1992 and 1993, in determining the present value of benefit
obligations, a discount rate of 7.5% and 7.0% was used, respectively. The
assumption for the increase in future compensation levels was 4.5% at December
31, 1992 and 1993. At December 31, 1992 and 1993, the expected long-term rate of
return on assets used in determining future service costs was 9.0%.
POSTEMPLOYMENT BENEFITS
Concurrent with fresh start reporting (see note 3), on September 30, 1992
the Company adopted SFAS No. 112, "Employers' Accounting for Postemployment
Benefits", which generally requires an employer to recognize the obligation to
provide postemployment benefits. The obligation for postemployment benefits at
December 31, 1992 and 1993 approximated $1.2 million and is included in other
noncurrent liabilities.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company sponsors life and health welfare benefits plans for its current
and future retirees. Concurrent with fresh start reporting (see note 3), on
September 30, 1992 the Company adopted SFAS 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions", which requires an accrual method
of accounting for certain postretirement benefits. Adoption of SFAS 106 did not
have a material effect on the September 30, 1992 financial statements since the
Company had recorded an estimated liability for these benefits as part of
purchase accounting entries recorded in 1988. Prior to September 30, 1992, the
cost of net postretirement benefits other than pensions were recognized using
the pay-as-you-go basis.
Net postretirement benefit cost consists of the following (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1992 1993
------------ ------------
<S> <C> <C>
Service cost...................................... $175 $ 760
Interest cost..................................... 234 1,070
----- ------
$409 $1,830
----- ------
----- ------
</TABLE>
F-19
<PAGE>
REXENE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. EMPLOYEE BENEFITS (CONTINUED)
The actuarial value of postretirement benefit obligations consists of (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1992 1993
--------- ---------
<S> <C> <C>
Active participants eligible for retirement....................................... $ 3,025 $ 3,016
Active participants not yet eligible for retirement............................... 5,655 3,736
Retired participants.............................................................. 4,472 3,154
Prior service cost................................................................ -- 914
Net unrecognized gain............................................................. -- 3,909
--------- ---------
Accumulated postretirement benefit obligation..................................... $ 13,152 $ 14,729
--------- ---------
--------- ---------
</TABLE>
In 1992 and 1993, in determining the value of postretirement benefit
obligations, a discount rate of 8.25% and 7.0%, respectively, was used, and in
1993 the health care trend rate used to measure the expected increase in cost of
benefits was assumed to be 15% in 1994, and descending to 6.5% in 2006 and
thereafter. A one percentage-point increase in the assumed health care cost
trend rate for each year would increase the accumulated postretirement benefit
obligation as of December 31, 1993 by approximately $800,000 and would increase
the net postretirement benefit cost for the year ended December 31, 1993 by
approximately $90,000.
STOCK OPTION PLANS FOR EMPLOYEES
In July 1988, the Company adopted a stock incentive plan (the "Stock
Incentive Plan") providing for the granting of stock options for, stock
appreciation rights in, and the sale of restricted shares of, common stock. The
number of shares of common stock issuable under the Stock Incentive Plan is
limited to 87,500 shares in the aggregate.
In 1993, the Company adopted a non-qualified stock option plan (the
"Employee Plan") providing for the granting of 700,000 stock options for common
stock to key salaried employees of the Company.
Changes in stock options during the year ended December 31, 1991, the nine
months ended September 30, 1992, the three months ended December 31, 1992 and
the year ended December 31, 1993, are summarized as follows:
<TABLE>
<CAPTION>
OPTIONS PRICE RANGE
OUTSTANDING PER SHARE
----------- ----------------
<S> <C> <C>
Balance at December 31, 1990............................................ 21,975 $10.00-$304.00
Granted................................................................. 20,125 93.60
Exercised............................................................... (4,500) 10.00
Cancelled............................................................... (2,350) 93.60- 304.00
-----------
Balance at December 31, 1991............................................ 35,250 10.00- 304.00
Cancelled............................................................... (3,250) 65.20- 304.00
-----------
Balance at December 31, 1992............................................ 32,000 10.00- 304.00
Granted................................................................. 207,000 3.43
Cancelled............................................................... (18,700) 93.60- 304.00
-----------
Balance at December 31, 1993............................................ 220,300 $ 3.43-$304.00
-----------
-----------
</TABLE>
All of the data above has been adjusted to reflect a 40-for-1 reverse stock
split effected in connection with the merger of Old Rexene into Rexene Products
Company as described in note 1. Of the employee options outstanding at December
31, 1993, 12,500 are exercisable.
F-20
<PAGE>
REXENE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. EMPLOYEE BENEFITS (CONTINUED)
NON-QUALIFIED STOCK OPTION PLAN FOR OUTSIDE DIRECTORS
In 1993, the Company adopted a non-qualified stock option plan for outside
directors (the "Directors Plan") providing for the granting of 225,000 stock
options for common stock. The Directors Plan provided for the automatic grant as
of January 1, 1993 and January 1, 1994 to each non-employee director of options
to purchase 12,500 shares of common stock, other than the Chairman of the Board
for whom an award on each grant date of options to purchase 16,667 shares of
common stock was provided. The exercise price of the options to purchase 104,167
shares of common stock granted in each year under the Directors Plan as of
January 1, 1993 and 1994 was $0.63 and $0.43 per share, respectively.
STOCK OPTION FOR FORMER OFFICER
In 1992, the Company granted a stock option to purchase at an aggregate
exercise price of $901,120, for a five-year period, an amount equal to one
percent of the common stock outstanding from the Effective Date, giving effect
to the Amended Plan and other adjustments.
STOCK BONUS PLAN
During 1985, the Company established an employee stock bonus plan (the
"Stock Bonus Plan") for the benefit of its employees. Contributions were made at
the discretion of the Company. Effective January 1, 1992, all participants (as
defined) became 100% vested and participation in the Stock Bonus Plan was
frozen. The Company does not intend to make further contributions to the Stock
Bonus Plan (see note 19).
17. SHARE PURCHASE RIGHTS PLAN
In January 1993, the Company adopted a share purchase rights plan ("Share
Rights Plan") by declaring a dividend distribution on February 8, 1993 of one
Common Stock Purchase Right ("Right") on each outstanding share of common stock.
The Rights are exercisable only if a person or group acquires 15% or more of
common stock or announces a tender offer, the consummation of which would result
in ownership by a person or group of 15% or more of the common stock. Each Right
entitles stockholders to purchase such number of shares of common stock at an
exercise price of $25.00 as determined under formulas set out in the Share
Rights Plan.
If the Company is acquired in a merger or other business combination, each
Right will entitle its holder to purchase, at the Rights' then-current exercise
price, a number of shares of the acquiring Company's common stock having a
market value of twice such price. In addition, if a person or group acquires 15%
or more of the Company's common stock, each Right will entitle its holder (other
than the acquiring person or group) to purchase, at the Right's then-current
exercise price, a number of shares of common stock having a market value of
twice such price.
Following the acquisition by a person of beneficial ownership of 15% or more
of the Company's common stock and prior to an acquisition of 50% or more of the
common stock, the Board of Directors may exchange the Rights (other than Rights
owned by the acquiring person or group), in whole or in part, at an exchange
ratio of one share of common stock per Right.
The Company can terminate the Rights at no cost any time prior to the
acquisition of a 15% position. The termination period can be extended by the
Board of Directors. The rights expire February 8, 2003.
18. RELATED PARTY TRANSACTIONS
Pursuant to a letter agreement dated March 16, 1992 between the Company and
its Chairman of the Board, Arthur L. Goeschel, the Company agreed to pay Mr.
Goeschel, in addition to his normal director fees, a sum of $2,750 per day plus
expenses for each day over five days per quarter that he spends on Company
matters. Under this letter agreement, the Company paid Mr. Goeschel $137,500,
$60,500 and $107,250 in additional fees for the nine months ended September 30,
1992, the three months ended December 31, 1992 and the year ended December 31,
1993 respectively. Mr. Goeschel is also a director of
F-21
<PAGE>
REXENE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. RELATED PARTY TRANSACTIONS (CONTINUED)
Calgon Carbon Corporation ("Calgon"). During the year ended December 31, 1991,
the nine months ended September 30, 1992, the three months ended December 31,
1992 and the year ended December 31, 1993, the Company purchased approximately
$126,000, $54,000, $36,000 and $44,000, respectively, of materials from Calgon
in the ordinary course of business.
A son of Mr. Andrew J. Smith, the Chief Executive Officer and a director of
the Company, became a Vice President in 1990 and a stockholder in 1993 of Orion
Pacific, Inc. ("Orion"). In August 1993 the son of Mr. Smith resigned as an
officer and employee of Orion. Pursuant to contractual arrangements originated
in 1988, (i) the Company sells to Orion certain (a) discarded by-products which
Orion extracts from Company landfills and (b) scrap products, and (ii) Orion
packages and processes a portion of the Rextac-R- amorphous polyalphaolefins
("APAO") manufactured by the Company at its plant in Odessa, Texas. During the
year ended December 31, 1991, the nine months ended September 30, 1992, the
three months ended December 31, 1992 and the year ended December 31, 1993, the
Company sold approximately $1,005,000, $671,000, $241,000 and $283,000,
respectively, of such by-product and scrap products to Orion in the ordinary
course of business.
For the same periods, the Company purchased approximately $1,087,000,
$1,033,000, $302,000 and $1,551,000, respectively, of APAO processing and
packaging services and miscellaneous materials from Orion. At December 31, 1992,
the net receivable from Orion was approximately $332,000 and at December 31,
1993, the net payable to Orion was approximately $55,000. In 1990, Orion sold
its APAO processing and packaging technology to the Company for $750,000. The
Company has also agreed to pay Orion an additional $250,000 per plant for each
APAO plant utilizing the technology which the Company builds outside the United
States (excluding a certain joint venture plant in Japan). The Company currently
licenses this technology to Orion so that Orion can continue providing these
services to the Company.
Mr. Ilan Kaufthal, a director of the Company, is a managing director of
Wertheim Schroder & Co. Incorporated ("Wertheim"). In February 1991, an
unofficial committee of holders of debt securities of the Company retained
Wertheim as its financial advisor at the Company's expense. In November 1991,
the official committee of unsecured creditors in the Company's bankruptcy
proceeding also retained Wertheim as its financial advisor at the Company's
expense. Pursuant to these engagements, the Company paid Wertheim fees of
$1,075,000 and $860,000 for the year ended December 31, 1991 and the nine months
ended September 30, 1992, respectively. In December 1992, the Company retained
Wertheim as its financial advisor with respect to the adoption of a share
purchase rights plan (see note 17) for approximately $78,000.
The American International Group, Inc. ("AIG") of which Mr. Kevin Clowe, a
director of the Company, is a corporate officer provides various types of
insurance for the Company. During 1993, the Company paid approximately $2.8
million in premiums and fees to subsidiaries of AIG. In addition, a subsidiary
of AIG is the beneficiary of a standby letter of credit of $1.2 million to
ensure payment of premiums.
On March 2, 1992, Mr. William Gilliam resigned as Chairman of the Board and
Chief Executive Officer of the Company. In connection with Mr. Gilliam's
resignation, the Company, Mr. Gilliam, and Gilliam and Company, Inc., a
corporation of which Mr. Gilliam was the sole shareholder ("GCI"), with the
approval of the Bankruptcy Court, entered into an agreement which, among other
things, (i) terminated a management agreement (the "Management Agreement")
between the Company and GCI which had been suspended during the Chapter 11
proceedings, (ii) granted to Mr. Gilliam a stock option (see note 16), and (iii)
paid $500,000 to Mr. Gilliam.
Under the Management Agreement, as consideration for advisory and consulting
services, the Company agreed to pay GCI a fee of $1 million per year plus
reimbursement of expenses. For the year ended
F-22
<PAGE>
REXENE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. RELATED PARTY TRANSACTIONS (CONTINUED)
December 31, 1991, the Company paid GCI approximately $800,000. In addition, the
Company reimbursed GCI approximately $653,000 in such year for expenses
primarily consisting of the operating costs for GCI aircraft used in connection
with Company business.
In April 1988, the Company was sold (the "1988 Merger") by its then current
stockholders (the "Selling Stockholders"). Pursuant to the merger agreement for
the 1988 Merger (the "1988 Merger Agreement") and a related escrow agreement,
$30 million of the purchase price was deposited into an escrow account (the
"Escrow Account") on behalf of the Selling Stockholders to indemnify the Company
against certain contingencies. In December 1992, the Company entered into a
memorandum agreement (the "Escrow Settlement Agreement") for the disposition of
the principal balance of the Escrow Account and accrued interest thereon (less
certain prior distributions). Pursuant to the Escrow Settlement Agreement, the
Escrow Account, among other things, (i) distributed approximately $32.1 million
to the Selling Stockholders, (ii) paid approximately $1 million to reimburse the
Company for its net expenses (plus interest thereon) in defending certain
lawsuits, (iii) retained $2.25 million as a reserve to pay certain potential
expenses of the Escrow Account and (iv) retained $2 million which will be
available to the Company to pay up to 50% of any portion of a final judgment or
settlement in the Izzarelli litigation (as hereafter described in note 19) which
is not paid by insurance. As a result of the Escrow Settlement Agreement, Mr.
Smith, Dr. Lavon N. Anderson, the president and chief operating officer and a
director of the Company, and Mr. Jack E. Knott, executive vice president of
sales and market development of the Company, received approximately $660,000,
$85,000 and $71,000 from the Escrow Account, respectively in 1992. Any amounts
being reserved by the Escrow Account which are not utilized for their intended
purpose will be available for future distribution to the Selling Stockholders.
In all negotiations concerning the Escrow Account, the Selling Stockholders were
represented by a committee appointed under the 1988 Merger Agreement and by
counsel to such committee. Mr. Smith, Dr. Anderson and Mr. Knott were not
members of such committee and did not participate in any of the negotiations
between the Company and the committee.
19. CONTINGENCIES
The Company is subject to extensive environmental laws and regulations
concerning, for example, emissions to the air, discharges to surface and
subsurface waters and the generation, handling, storage, transportation,
treatment and disposal of waste and other materials. The Company believes that,
in light of its historical expenditures, it will have adequate resources to
conduct its operations in compliance with currently applicable environmental and
health and safety laws and regulations. However, in order to comply with
changing licensing and regulatory standards, the Company may be required to make
additional significant site or operational modifications. Further, the Company
has incurred and may in the future incur liability to clean up waste or
contamination at its current or former facilities, or which it may have disposed
of at facilities operated by third parties. Company management believes that the
$23.4 million accrued in the December 31, 1993 balance sheet is adequate for the
total potential environmental liability with respect to remediating site
contamination. However, no assurance can be given that all potential liabilities
arising out of the Company's present or past operations have been identified or
that the amounts that might be required to remediate such conditions will not be
significant to the Company. The Company continually reviews its estimates of
potential environmental liabilities.
STOCKHOLDER CLASS ACTION LITIGATION
In January 1990, a purported class action was filed in the United States
District Court, Northern District of Texas, by an alleged stockholder of the
Company on behalf of purchasers of common stock of Old Rexene between October
23, 1989 and December 27, 1989. The defendants in this action presently include
the Company, one of its current directors and certain of its former directors.
The class has been certified with an intervenor as the class representative. The
intervenor's complaint asserts claims under Section 10b-5 of the Securities
Exchange Act of 1934, and state common law grounds. The plaintiff alleges that
public statements made by certain directors of the Company created a misleading
impression of the Company's financial
F-23
<PAGE>
REXENE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
19. CONTINGENCIES (CONTINUED)
condition thereby artificially inflating the price of the common stock of Old
Rexene. The plaintiff seeks compensatory damages, prejudgment interest, a
recovery of costs and attorneys' fees, and such other relief as may be deemed
just and proper. Discovery is ongoing.
In the Company's Chapter 11 proceeding, the intervening plaintiff filed a
proof of claim on behalf of herself and the purported class seeking in excess of
$10 million based upon the allegations in the litigation. The Company objected
to the claim and elected to leave the legal, equitable and contractual rights of
the plaintiff unaltered thereby allowing this litigation to proceed as of the
Effective Date without regard to the bankruptcy proceeding.
IZZARELLI STOCK BONUS PLAN CLASS ACTION LITIGATION
In February 1991, a class action lawsuit was filed in the United States
District Court for the Western District of Texas -- Midland Division (the "Trial
Court") against the Company, the Stock Bonus Plan and Texas Commerce Bank --
Odessa (the former trustee for the Stock Bonus Plan) by two former employees of
the Company on behalf of themselves and all other 1986 participants in the Stock
Bonus Plan (the "Izzarelli Class"). The complaint alleges that the Company
amended the Stock Bonus Plan in 1987 and 1988 to deprive the Izzarelli Class of
stock benefits to which they would have been entitled had the Stock Bonus Plan
not been amended. The plaintiffs assert claims under the Employee Retirement
Income Security Act of 1974, as amended ("ERISA") for breach of fiduciary duties
to the participants and for violation of ERISA's provision prohibiting
amendments to the Stock Bonus Plan after benefits have accrued to participants.
The plaintiffs seek actual damages, attorneys' fees, costs and expenses, and
such further relief as may be deemed appropriate. After a trial, the Trial Court
in July 1992 entered a judgment against the Company in the amount of $6.6
million (as subsequently amended) plus costs of court. In November 1992, the
Trial Court awarded the Izzarelli Class $595,000 for attorneys' fees and
out-of-pocket expenses. The Company has recorded an accrual of $7.4 million to
reflect this judgment. The Company has appealed the judgment to the United
States Court of Appeals for the Fifth Circuit. The Izzarelli Class has also
filed an appeal with respect to the amount of damages awarded and the judgment
in favor of Texas Commerce Bank -- Odessa. These appeals are pending.
In the Bankruptcy Court, the Izzarelli Class filed proofs of claim for $27.7
million. The Izzarelli Class has pending before the Bankruptcy Court a motion to
alter or amend the order confirming the Amended Plan and a motion to allow their
claim based upon the judgment entered by the Trial Court. The Company believes
that if the Bankruptcy Court granted these motions, the Izzarelli Class would be
allowed to enforce its judgment unless the Company posted a bond or other
security. Pursuant to a request by the Company, the Bankruptcy Court on November
4, 1992 entered an order continuing such motions until the resolution of the
appeals pending in the Fifth Circuit Court of Appeals. The Izzarelli Class has
appealed the Bankruptcy Court's continuation order to the United States District
Court for the District of Delaware, which dismissed the appeal on September 29,
1993. The Izzarelli Class then filed an appeal with the United States Court of
Appeals for the Third Circuit. This appeal is pending.
Pursuant to an agreement in December 1992 regarding the distribution of the
remaining balance in an escrow account established in connection with a 1988
merger involving the Company, there is $2 million being retained in the escrow
account which will be available to the Company to pay up to 50% of any portion
of a final judgment or settlement in this matter which is not paid by insurance.
The Company intends to pursue claims for recovery of the amount of any final
judgment or settlement against its insurance carrier subject to policy limits of
$10 million. Although the insurance carrier has been paying the Company's
attorneys' fees, it has otherwise denied coverage and reserved all rights.
PHILLIPS BLOCK COPOLYMER LITIGATION
In March 1984, Phillips Petroleum Company ("Phillips") filed a lawsuit
against the Company in the United States District Court for the Northern
District of Illinois, Eastern Division, seeking injunctive relief,
F-24
<PAGE>
REXENE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
19. CONTINGENCIES (CONTINUED)
an unspecified amount of compensatory damages and treble damages. The complaint
alleges that the Company's copolymer process for polypropylene infringes
Phillips' two "block" copolymer patents. This action has been transferred to the
United States District Court for the Southern District of Texas, Houston
Division. Discovery proceedings in this case have been completed. The Company
has filed a motion for summary judgment. Phillips has filed a motion for partial
summary judgment. Pursuant to an agreement among the parties, the Court
appointed a Special Master who conducted a hearing on these motions and
thereafter recommended to the Court that the Company's motion be granted and
Phillips' motion be denied. Thereafter, Phillips filed motions to disqualify the
Special Master, to reject the recommendation of the Special Master and to enter
partial summary judgment for Phillips. The Court has entered an order denying
Phillips' motion to disqualify the Special Master. The summary judgment motions
are still pending. In the Company's Chapter 11 proceedings, Phillips filed
proofs of claim seeking in excess of $108 million based upon the allegations in
this litigation. The Company objected to the claims and elected to leave the
legal, equitable and contractual rights of Phillips unaltered thereby allowing
this litigation to proceed as of the Effective Date without regard to the
bankruptcy proceeding.
PHILLIPS CRYSTALLINE LICENSE LITIGATION
In May 1990, Phillips filed a lawsuit against the Company in the United
States District Court for the District of Delaware seeking injunctive relief, an
unspecified amount of compensatory damages, treble damages and attorneys' fees,
costs and expenses. The complaint alleges that the Company is infringing
Phillips' Patent No. 4,376,851 (the "851 Patent") for crystalline polypropylene.
Pursuant to a License Agreement dated as of May 15, 1983 (the "License
Agreement"), Phillips granted the Company a non-exclusive license to make, use
and sell crystalline polypropylene covered by the '851 Patent. The complaint
alleges that effective April 21, 1990, Phillips terminated the License Agreement
because it believed that, by the terms of the License Agreement, all conditions
precedent to such termination had occurred. The complaint further alleges that,
without an effective License Agreement, the Company's continuing use of the '851
Patent constitutes an infringing use. An amended complaint filed in May 1990
further alleges that the Company made a material misrepresentation that induced
Phillips to enter into the License Agreement and that Phillips entered into the
License Agreement as a consequence of a mutual mistake of the parties. The
amended complaint therefore alleges that the License Agreement is void AB
INITIO. The Company filed a motion to dismiss Phillips' amended complaint for
failure to state a claim. On December 30, 1993, the Court entered an order
dismissing Phillips' claim that the License Agreement was void AB INITIO, and
ordered that the 1990 license termination issue be resolved at trial. Trial has
been scheduled for October 19, 1994. In the Company's Chapter 11 proceedings,
Phillips filed proofs of claim seeking in excess of $147 million based upon the
allegations in this litigation. The Company objected to the claims and elected
to leave the legal, equitable and contractual rights of Phillips unaltered
thereby allowing this litigation to proceed as of the Effective Date without
regard to the bankruptcy proceeding.
With respect to each of the litigation matters described above, the Company
believes that, based upon its current knowledge of the facts of each case, the
Company has meritorious defenses to the various claims made and intends to
defend each such suit vigorously. Although there can be no assurance of the
final resolution of any of these litigation matters, the Company does not
believe that the outcome of any of these lawsuits will have a material adverse
effect on the Company's financial position or results of operations.
The Company is also a party to various lawsuits arising in the ordinary
course of business and does not believe that the outcome of any of these
lawsuits will have a material adverse effect on the Company's financial position
or results of operations.
F-25
<PAGE>
REXENE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
20. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Summarized quarterly financial information for the year ended December 31,
1993, the three months ended December 31, 1992 and the nine months ended
September 30, 1992 is as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
PRE-EMERGENCE POST-EMERGENCE
----------------------------------- -----------------------------------------------------------------
FOR THE QUARTERS ENDED
-------------------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1992 1992 1992 1992 1993 1993 1993 1993
--------- -------- ------------- ------------ --------- -------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales................ $103,703 $102,763 $109,640 $98,854 $109,274 $105,998 $111,188 $102,893
Gross profit............. 9,351 16,288 12,386 12,122 13,410 13,613 14,537 12,184
Loss before extraordinary
gain.................... (237) (3,258) (27,981) (6,528) (8,153) (3,656) (7,826) (5,608)
Extraordinary gain....... -- -- 123,672 -- -- -- -- --
Net income (loss)........ (237) (3,258) 95,691 (6,528) (8,153) (3,656) (7,826) (5,608)
Loss per share........... (.62) (.78) (.35) (.75) (.53)
</TABLE>
The per share amount for the pre-emergence periods is not presented because
such information is not comparable with the post-emergence periods.
F-26
<PAGE>
REXENE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1993 1994
---------- ----------
<S> <C> <C>
Net sales................................................................................. $ 326,460 $ 386,153
---------- ----------
Operating expenses:
Cost of sales........................................................................... 284,900 308,961
Marketing, general and administrative................................................... 24,494 25,971
Research and development................................................................ 4,875 4,936
---------- ----------
314,269 339,868
---------- ----------
Operating income.......................................................................... 12,191 46,285
Interest expense:
Cash.................................................................................... (18,261) (21,763)
Non-cash................................................................................ (18,681) (16,208)
Interest income........................................................................... 1,005 1,522
Other, net................................................................................ (208) 646
---------- ----------
Income (loss) before income taxes......................................................... (23,954) 10,482
Income tax expense (benefit).............................................................. (4,319) 4,329
---------- ----------
Net income (loss)......................................................................... $ (19,635) $ 6,153
---------- ----------
---------- ----------
Weighted average shares outstanding....................................................... 10,501 10,886
---------- ----------
---------- ----------
Net income (loss) per share............................................................... $ (1.87) $ 0.57
---------- ----------
---------- ----------
</TABLE>
See notes to condensed consolidated financial statements.
F-27
<PAGE>
REXENE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
1994
-------------
<S> <C>
Cash and cash equivalents:
Unrestricted..................................................................................... $ 50,658
Restricted....................................................................................... 2,306
Accounts receivable, net........................................................................... 75,566
Inventories........................................................................................ 55,347
Prepaid expenses and other......................................................................... 1,076
-------------
Total current assets........................................................................... 184,953
Property, plant and equipment, net................................................................. 253,115
Reorganization value in excess of amounts allocable to identifiable assets, net.................... 3,460
Intangible assets, net............................................................................. 3,326
Other noncurrent assets............................................................................ 31,927
-------------
$ 476,781
-------------
-------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable................................................................................... $ 27,976
Accrued liabilities................................................................................ 8,053
Accrued interest................................................................................... 12,639
Income taxes payable............................................................................... 5,312
Employee benefits payable.......................................................................... 5,884
-------------
Total current liabilities...................................................................... 59,864
Long-term debt..................................................................................... 300,509
Other noncurrent liabilities....................................................................... 71,077
Deferred income taxes.............................................................................. 42,725
-------------
Total liabilities.............................................................................. 474,175
Commitments and contingencies...................................................................... --
Stockholders' equity:
Common stock, par value $0.01 per share; 100 million shares authorized; 10.6 million shares
issued and outstanding.......................................................................... 106
Paid-in capital.................................................................................. 27,486
Accumulated deficit.............................................................................. (25,618)
Foreign currency translation adjustment.......................................................... 632
-------------
Total stockholders' equity..................................................................... 2,606
-------------
$ 476,781
-------------
-------------
</TABLE>
See notes to condensed consolidated financial statements.
F-28
<PAGE>
REXENE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1993 1994
---------- ----------
<S> <C> <C>
Cash flow from operating activities:
Net income (loss)......................................................................... $ (19,635) $ 6,153
---------- ----------
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization........................................................... 12,925 13,884
Non-cash interest expense............................................................... 18,681 16,208
Deferred income taxes................................................................... (2,687) (2,491)
Change in:
Accounts receivable................................................................... (12,027) (17,710)
Inventories........................................................................... 4,288 (2,720)
Prepaid expenses and other............................................................ 379 435
Income taxes.......................................................................... (1,683) 10,277
Accounts payable...................................................................... 3,002 568
Accrued interest...................................................................... 5,999 9,542
Employee benefits payable and accrued liabilities..................................... (865) 2,066
Increase (decrease) in other noncurrent liabilities..................................... 1,721 (208)
Other................................................................................... (764) (506)
---------- ----------
Total adjustments....................................................................... 28,969 29,345
---------- ----------
Net cash provided by operating activities................................................. 9,334 35,498
---------- ----------
Cash flows from investing activities:
Capital expenditures.................................................................... (10,688) (21,089)
Proceeds from issuance of common stock, net............................................. -- 958
---------- ----------
Net cash used for investing activities.................................................... (10,688) (20,131)
---------- ----------
Cash flows from financing activities:
Bank borrowings......................................................................... -- 7,000
---------- ----------
Net cash provided by financing activities................................................. -- 7,000
---------- ----------
Effect of exchange rate changes on cash................................................... -- 62
---------- ----------
Net increase (decrease) in cash and cash equivalents...................................... (1,354) 22,429
Cash and cash equivalents at beginning of period.......................................... 34,202 30,535
---------- ----------
Cash and cash equivalents at end of period................................................ $ 32,848 $ 52,964
---------- ----------
---------- ----------
Supplemental cash flow information:
Cash paid for interest.................................................................. $ 11,910 $ 11,955
Cash paid for income taxes.............................................................. $ -- $ 203
</TABLE>
See notes to condensed consolidated financial statements.
F-29
<PAGE>
REXENE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL
Rexene Corporation manufactures and markets thermoplastic and petrochemical
products, including low density polyethylene and polypropylene resins, plastic
films and styrene, which are integral elements in the manufacture of a wide
variety of industrial and consumer products. Rexene Corporation and its
subsidiaries are hereinafter sometimes collectively or separately referred to as
the "Company".
The accompanying condensed consolidated financial statements are unaudited;
however, in management's opinion, all adjustments, consisting only of normal
recurring adjustments necessary for a fair presentation of the results of
operations, financial position, and cash flows for the periods shown have been
made. Results for interim periods are not necessarily indicative of those to be
expected for the full year. The interim condensed consolidated financial
statements should be read in conjunction with the Consolidated Financial
Statements and Notes thereto included elsewhere in this Prospectus.
2. INCOME TAXES
The income tax expense (benefit) is composed of (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1993 1994
--------- ---------
<S> <C> <C>
Current:
Federal.......................................................................... $ (2,174) $ 6,632
State............................................................................ 542 188
Deferred income taxes.............................................................. (2,687) (2,491)
--------- ---------
$ (4,319) $ 4,329
--------- ---------
--------- ---------
</TABLE>
3. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
1994
-------------
<S> <C>
Raw materials.................................................................. $ 18,202
Work in progress............................................................... 7,016
Finished goods................................................................. 30,129
-------------
$ 55,347
-------------
-------------
</TABLE>
F-30
<PAGE>
REXENE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. NONCURRENT ASSETS
The cost and accumulated depreciation of property, plant and equipment and
cost and accumulated amortization of reorganization value in excess of amounts
allocable to identifiable assets and intangible assets are as follows (in
thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
1994
-------------
<S> <C>
Property, plant and equipment.................................................. $ 285,633
Accumulated depreciation....................................................... (32,518)
-------------
$ 253,115
-------------
-------------
Reorganization value in excess of amounts allocable to identifiable assets..... $ 4,298
Accumulated amortization....................................................... (838)
-------------
$ 3,460
-------------
-------------
Intangible assets.............................................................. $ 5,544
Accumulated amortization....................................................... (2,218)
-------------
$ 3,326
-------------
-------------
</TABLE>
5. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
1994
-------------
<S> <C>
Old Senior Notes............................................................... $ 253,000
Old Subordinated Notes......................................................... 99,629
Less: unamortized discount..................................................... (61,120)
-------------
291,509
Bank borrowings under the Old Credit Agreement................................. 9,000
-------------
$ 300,509
-------------
-------------
</TABLE>
6. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
In October 1994, the Compensation Committee of the Board of Directors
adopted a noncontributory defined benefit Supplemental Executive Retirement Plan
("SERP") covering certain key employees of the Company. The Company intends to
fund the SERP from time to time at the discretion of the Compensation Committee
or the Board of Directors.
The projected benefit obligation under this plan as of October 3, 1994 was
approximately $3.2 million and the annual periodic cost is approximately
$950,000 beginning with the fourth quarter of 1994.
7. CONTINGENCIES
The Company is subject to extensive environmental laws and regulations
concerning, for example, emissions to the air, discharges to surface and
subsurface waters and the generation, handling, storage, transportation,
treatment and disposal of waste and other materials. The Company believes that,
in light of its historical expenditures, it will have adequate resources to
conduct its operations in compliance with currently applicable environmental and
health and safety laws and regulations. However, in order to comply with
changing licensing and regulatory standards, the Company may be required to make
additional significant site or operational modifications. Further, the Company
has incurred and may in the future incur liability to clean up waste or
contamination at its current or former facilities, or which it may have disposed
F-31
<PAGE>
REXENE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
7. CONTINGENCIES (CONTINUED)
of at facilities operated by third parties. On the basis of reasonable
investigation and analysis, management believes that the approximately $23.0
million accrued in the September 30, 1994 balance sheet is adequate for the
total potential environmental remediation liability with respect of contaminated
sites. However, no assurance can be given that all potential liabilities arising
out of the Company's present or past operations have been identified or that the
amounts that might be required to remediate such conditions will not be
significant to the Company. The Company continually reviews its estimates of
potential environmental liabilities.
The Company is a party to various lawsuits arising in the ordinary course of
business and to certain other lawsuits which are set forth in Note 19 to the
Consolidated Financial Statements included in this Prospectus. There have been
no material changes to the certain other lawsuits described in the
aforementioned Note 19, except as described in the Litigation section of this
Prospectus.
With respect to each of the litigation matters filed against the Company,
the Company believes that, based upon its current knowledge of the facts of each
case, the Company has meritorious defenses to the various claims made and
intends to defend each such suit vigorously. Although there can be no assurance
of the final resolution of any of these litigation matters, the Company does not
believe that the outcome of any of these lawsuits will have a material adverse
effect on the Company's financial position or results of operations.
F-32
<PAGE>
[Inside Back Cover]
[Photos of Odessa, Texas facility and Scunthorpe, England plant to come]
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER
TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY
CIRCUMSTANCES OR IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Prospectus Summary.................................................... 3
Investment Considerations............................................. 10
The Recapitalization.................................................. 15
Use of Proceeds....................................................... 16
Price Range of Common Stock and Dividend Policy....................... 17
Dilution.............................................................. 18
Capitalization........................................................ 19
Selected Historical Consolidated Financial Data....................... 20
Pro Forma Unaudited Condensed Consolidated Financial Data............. 22
Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................ 25
Business.............................................................. 33
Management............................................................ 51
Security Ownership of Certain Beneficial Owners and Management........ 54
Description of Capital Stock.......................................... 56
Certain Indebtedness of the Company................................... 58
Certain U.S. Tax Consequences to Non-U.S. Stockholders................ 59
Underwriting.......................................................... 62
Legal Opinions........................................................ 64
Experts............................................................... 64
Available Information................................................. 64
Incorporation of Certain Documents by Reference....................... 65
Index to Consolidated Financial Statements............................ F-1
</TABLE>
8,000,000 SHARES
[LOGO]
COMMON STOCK
---------
P R O S P E C T U S
NOVEMBER , 1994
---------
SMITH BARNEY INC.
WERTHEIM SCHRODER & CO.
INCORPORATED
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED NOVEMBER 9, 1994
P R O S P E C T U S
8,000,000 SHARES
[LOGO]
COMMON STOCK
--------------
The 8,000,000 shares of Common Stock, par value $.01 per share (the "Common
Stock"), being offered by the U.S. Underwriters and the Managers are being sold
by Rexene Corporation ("Rexene" or the "Company"). Of such shares, 1,600,000
shares are being offered hereby outside the United States and Canada by the
Managers (the "International Offering") and 6,400,000 shares are being offered
in a concurrent offering in the United States and Canada by the U.S.
Underwriters (the "U.S. Offering"), subject to transfer between the Managers and
the U.S. Underwriters. The public offering price and the aggregate underwriting
discount per share will be identical for both offerings (together, the "Common
Stock Offering"). See "Underwriting."
The Common Stock is traded on the New York Stock Exchange under the symbol
"RXN." On October 19, 1994, the closing sale price of the Common Stock as
reported by the New York Stock Exchange was $14.50 per share.
Concurrently with the Common Stock Offering and in connection with the
Recapitalization described herein, the Company is publicly offering $175 million
aggregate principal amount of its % Senior Notes Due 2004 (the "Senior
Notes") pursuant to a separate prospectus (the "Notes Offering" and, together
with the Common Stock Offering, the "Offerings"). The Common Stock Offering is
contingent upon the concurrent consummation of the Notes Offering and the other
elements of the Recapitalization, including the establishment of the New Credit
Agreement (as defined herein). See "The Recapitalization."
SEE "INVESTMENT CONSIDERATIONS" FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK
OFFERED HEREBY.
--------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS
PRICE TO THE DISCOUNTS AND TO THE
PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
Per Share......................... $ $ $
Total (3)......................... $ $ $
<FN>
(1) The Company has agreed to indemnify the Managers against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting estimated expenses of $ , payable by the Company.
(3) The Company has granted the U.S. Underwriters and the Managers 30-day
options to purchase an aggregate of up to an additional 1,200,000 shares of
Common Stock on the same terms as set forth above solely to cover
over-allotments, if any. If such over-allotment options are exercised in
full, the total Price to the Public, Underwriting Discounts and Commissions
and Proceeds to the Company will be $ , $ and $ ,
respectively. See "Underwriting."
</TABLE>
--------------
The shares of Common Stock are being offered by the several Managers named
herein, subject to receipt and acceptance by them and to their right to reject
any order in whole or in part. It is expected that delivery of the shares of
Common Stock will be made on or about , 1994 at the offices of Smith
Barney Inc., 388 Greenwich Street, New York, New York 10013.
--------------
<TABLE>
<S> <C>
SMITH BARNEY INC. SCHRODERS
</TABLE>
November , 1994
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER
TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY
CIRCUMSTANCES OR IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Prospectus Summary.................................................... 3
Investment Considerations............................................. 10
The Recapitalization.................................................. 15
Use of Proceeds....................................................... 16
Price Range of Common Stock and Dividend Policy....................... 17
Dilution.............................................................. 18
Capitalization........................................................ 19
Selected Historical Consolidated Financial Data....................... 20
Pro Forma Unaudited Condensed Consolidated Financial Data............. 22
Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................ 25
Business.............................................................. 33
Management............................................................ 51
Security Ownership of Certain Beneficial Owners and Management........ 54
Description of Capital Stock.......................................... 56
Certain Indebtedness of the Company................................... 58
Certain U.S. Tax Consequences to Non-U.S. Stockholders................ 59
Underwriting.......................................................... 62
Legal Opinions........................................................ 64
Experts............................................................... 64
Available Information................................................. 64
Incorporation of Certain Documents by Reference....................... 65
Index to Consolidated Financial Statements............................ F-1
</TABLE>
8,000,000 SHARES
[LOGO]
COMMON STOCK
---------
P R O S P E C T U S
NOVEMBER , 1994
---------
SMITH BARNEY INC.
SCHRODERS
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, incurred or to be incurred in connection
with the sale of the Common Stock being registered (all amounts are being
estimated except the SEC Registration Fee and the NYSE Listing Fee), all of
which will be paid by the Registrant:
<TABLE>
<S> <C>
SEC Registration Fee...................................................... $ 44,810
NYSE Listing Fee.......................................................... 32,200
NASD Filing Fee and Expenses.............................................. 23,495
Printing and Engraving Expenses........................................... 195,000
Fees and Expenses of Counsel.............................................. 200,000
Accounting Fees........................................................... 75,000
Blue Sky Qualification Fees and Expenses.................................. 9,525
Transfer Agent and Registrar Fees......................................... 3,500
Miscellaneous............................................................. 16,470
---------
Total................................................................. $ 600,000
---------
---------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
STATUTORY PROVISIONS
Section 102(b)(7) of the Delaware General Corporation Law enables a
corporation to include in its certification of incorporation a provision
eliminating or limiting the personal liability of members of its board of
directors to the corporation or its stockholders for monetary damages for
violations of a director's fiduciary duty as a director. Such a provision does
not have any effect on the availability of equitable remedies, such as an
injunction or rescission, for breach of fiduciary duty. In addition, such a
provision may not eliminate or limit the liability of a director for breaching
his duty of loyalty to the corporation or its stockholders, failing to act in
good faith, engaging in intentional misconduct or knowingly violating a law,
paying an unlawful dividend or approving an illegal stock repurchase, or
executing any transaction from which the director obtained an improper personal
benefit.
Section 145 of the Delaware General Corporation Law empowers a corporation
to indemnify any person who was or is a party to or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation), by reason of the fact that he is or was
a director, officer, employee or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorney's fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful and except that no
indemnification may be made in respect of any claim, issue or matter as to which
such person has been adjudged to be liable to the corporation unless and only to
the extent that the Delaware Court of Chancery or the court in which such action
or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses as the
court deems proper. With respect to actions or suits by or in the right of the
corporation, such indemnification is limited to expenses (including attorney's
fees) actually and reasonably incurred by such person in connection with the
defense or settlement of such action or suit. To the extent that such directors
or officers have been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to above or in defense of any claim, issue
or matter therein a corporation is required to indemnify its directors and
officers against expenses (including attorneys fees) actually and reasonably
incurred by such officers and directors in connection therewith.
II-1
<PAGE>
Indemnification can be made by the corporation only upon a determination
made in the manner prescribed by the statute that indemnification is proper in
the circumstances because the party seeking indemnification has met the
applicable standard of conduct as set forth in the Delaware General Corporation
Law. The indemnification provided by the Delaware General Corporation Law is not
exclusive of any other rights to which those seeking indemnification may be
entitled under any bylaw, agreement, vote of stockholders or disinterested
directors, or otherwise. Unless otherwise provided when authorized or ratified,
the indemnification provided by the Delaware General Corporation Law continues
as to a person who has ceased to be a director, officer, employee or agent and
inures to the benefit of the heirs, executors and administrators of such a
person.
A corporation also has the power to purchase and maintain insurance on
behalf of any person covering any liability incurred by such person in his
capacity as a director, officer, employee or agent of the corporation, or
arising out of his status as such, whether or not the corporation has the power
to indemnify him against such liability.
THE REGISTRANT'S CHARTER AND BYLAW PROVISIONS
Article VI, Section 6.1 of the Registrant's Amended and Restated Bylaws
provides that the Registrant shall indemnify all directors and officers of the
Company to the fullest extent now or hereafter permitted by the Delaware General
Corporation Law. Under such provisions, any director or officer, who in his
capacity as such, is made or threatened to be made a party to any suit or
proceeding, shall be indemnified if such director or officer acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the Registrant and, with respect to any criminal proceeding, had no
reasonable cause to believe his conduct was unlawful. The Amended and Restated
Bylaws and the Delaware General Corporation Law further provide that such
indemnification is not exclusive of any other rights to which such individuals
may be entitled under any bylaws, agreement, vote of stockholders or
disinterested directors or otherwise.
In addition, Article VII of the Registrant's Restated Certificate of
Incorporation provides that to the fullest extent now or hereafter permitted by
Delaware law, the Registrant's directors will not be liable to the Registrant
and its stockholders for monetary damages for breach of fiduciary duty as a
director.
UNDERWRITING AGREEMENT PROVISIONS
The form of Underwriting Agreement contained in Exhibit 1.1 provides for
indemnification of the directors and officers signing the Registration Statement
and certain controlling persons of the Company against certain liabilities,
including certain liabilities under the Securities Act of 1933, in certain
instances by the Underwriters.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
NUMBER EXHIBIT
- ---------- -----------------------------------------------------------------------------------------------------
<C> <C> <S>
1.1+ -- Form of U.S. Underwriting Agreement.
1.2+ -- Form of International Underwriting Agreement.
2.1 -- First Amended Plan of Reorganization of Rexene Products Company, et al., dated April 29, 1992 (filed
as Exhibit 2.1 to the Registrant's Form 8-K Current Report dated July 7, 1992 and incorporated herein
by reference).
2.2 -- Order Confirming First Amended Plan of Reorganization dated April 29, 1992 (filed as Exhibit 2.2 to
the Registrant's Form 10-K for the fiscal year ended December 31, 1992 and incorporated herein by
reference).
2.3 -- Plan and Agreement of Merger between the Registrant and Rexene Products Company dated as of September
11, 1992 (filed as Exhibit 2.3 to the Registrant's Form 10-K for the fiscal year ended December 31,
1992 and incorporated herein by reference.)
3.1.1 -- Restated Certificate of Incorporation of Rexene Products Company (a/k/a Rexene Corporation) dated
September 11, 1992 (filed as Exhibit 3.1 to the Registrant's Form 10-K for the fiscal year ended
December 31, 1992 and incorporated herein by reference.)
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
NUMBER EXHIBIT
- ---------- -----------------------------------------------------------------------------------------------------
<C> <C> <S>
3.1.2 -- Amendment to Certificate of Incorporation dated June 9, 1993 (filed as Exhibit 3.1.2 to the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1993 and incorporated herein
by reference).
3.2.1 -- Amended and Restated By-Laws dated September 18, 1992 (filed as Exhibit 3.2.1 to the Registrant's
Form 10-K for the fiscal year ended December 31, 1992 and incorporated herein by reference).
3.2.2 -- Amendments to By-Laws adopted January 16, 1993 (filed as Exhibit 3.2.2 to the Registrant's Form 10-K
for the fiscal year ended December 31, 1992 and incorporated herein by reference).
4.1 -- Form of Indenture governing the Senior Notes (filed as Exhibit 4.1 to Amendment No. 2 to the
Registrant's Registration Statement on Form S-3 (SEC File No. 33-55609) as filed on November 8, 1994
and incorporated herein by reference).
4.2 -- Indenture dated as of September 18, 1992 between the Registrant, as Issuer, and Chemical Bank, as
Trustee, for Increasing Rate First Priority Notes Due 1999 (filed as Exhibit 4.1 to the Registrant's
Form 10-Q Quarterly Report for the three months ended September 30, 1992 and incorporated herein by
reference).
4.3 -- Indenture dated as of September 18, 1992 between the Registrant, as Issuer, and United States Trust
Company of New York, as Trustee, for Increasing Rate Second Priority Notes Due 2002 (filed as Exhibit
4.2 to the Registrant's Form 10-Q Quarterly Report for the three months ended September 30, 1992 and
incorporated herein by reference).
4.4 -- Intercreditor and Collateral Trust Agreement dated as of September 18, 1992 by and among the
Registrant and Poly-Pac, Inc. as Grantors, Chemical Bank as Collateral Agent, Chemical Bank as
Trustee, and United States Trust Company, as Trustee (filed as Exhibit 4.3 to the Registrant's Form
10-Q Quarterly Report for the three months ended September 30, 1992 and incorporated herein by
reference).
4.5 -- Company First Priority Security and Pledge Agreement dated as of September 18, 1992 made by the
Registrant, as Grantor, in favor of Chemical Bank, as Collateral Agent (filed as Exhibit 4.4 to the
Registrant's Form 10-Q Quarterly Report for the three months ended September 30, 1992 and
incorporated herein by reference).
4.6 -- Company Second Priority Security and Pledge Agreement dated as of September 18, 1992 made by the
Registrant, as Grantor, in favor of Chemical Bank, as Collateral Agent (filed as Exhibit 4.5 to the
Registrant's Form 10-Q Quarterly Report for the three months ended September 30, 1992 and
incorporated herein by reference).
4.7 -- Subsidiary First Priority Security and Pledge Agreement dated as of September 18, 1992 made by
Poly-Pac, Inc., as Grantor, in favor of Chemical Bank, as Collateral Agent (filed as Exhibit 4.6 to
the Registrant's Form 10-Q Quarterly Report for the three months ended September 30, 1992 and
incorporated herein by reference).
4.8 -- Subsidiary Second Priority Security and Pledge Agreement dated as of September 18, 1992 made by
Poly-Pac, Inc., as Grantor, in favor of Chemical Bank, as Collateral Agent (filed as Exhibit 4.7 to
the Registrant's Form 10-Q Quarterly Report for the three months ended September 30, 1992 and
incorporated herein by reference).
4.9 -- First Priority Deed of Trust and Security Agreement dated as of September 18, 1992 from the
Registrant, as Grantor, to Phillip D. Weller, as Trustee for the benefit of Chemical Bank, as
Beneficiary, for certain property located in Odessa, Texas (filed as Exhibit 4.8 to the Registrant's
Form 10-Q Quarterly Report for the three months ended September 30, 1992 and incorporated herein by
reference).
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
NUMBER EXHIBIT
- ---------- -----------------------------------------------------------------------------------------------------
<C> <C> <S>
4.10 -- Second Priority Deed of Trust and Security Agreement dated as of September 18, 1992 from the
Registrant, as Grantor, to Phillip D. Weller, as Trustee for the benefit of Chemical Bank, as
Beneficiary, for certain property located in Odessa, Texas (filed as Exhibit 4.9 to the Registrant's
Form 10-Q Quarterly Report for the three months ended September 30, 1992 and incorporated herein by
reference).
4.11 -- First Priority Deed of Trust and Security Agreement dated as of September 18, 1992 from the
Registrant, as Grantor, to Phillip D. Weller, as Trustee for the benefit of Chemical Bank, as
Beneficiary, for certain property located in Pasadena, Texas (filed as Exhibit 4.10 to the
Registrant's Form 10-Q Quarterly Report for the three months ended September 30, 1992 and
incorporated herein by reference).
4.12 -- Second Priority Deed of Trust and Security Agreement dated as of September 18, 1992 from the
Registrant, as Grantor, to Phillip D. Weller, as Trustee for the benefit of Chemical Bank, as
Beneficiary, for certain property located in Pasadena, Texas (filed as Exhibit 4.11 to the
Registrant's Form 10-Q Quarterly Report for the three months ended September 30, 1992 and
incorporated herein by reference).
4.13 -- First Priority Mortgage, Fixture Filing and Security Agreement dated as of September 18, 1992 from
the Registrant, as Mortgagor, to Chemical Bank, as Collateral Agent, Mortgagee, for certain property
located in Chippewa Falls, Wisconsin (filed as Exhibit 4.12 to the Registrant's Form 10-Q Quarterly
Report for the three months ended September 30, 1992 and incorporated herein by reference).
4.14 -- Second Priority Mortgage, Fixture Filing and Security Agreement dated as of September 18, 1992 from
the Registrant, as Mortgagor, to Chemical Bank, as Collateral Agent, Mortgagee, for certain property
located in Chippewa Falls, Wisconsin (filed as Exhibit 4.13 to the Registrant's Form 10-Q Quarterly
Report for the three months ended September 30, 1992 and incorporated herein by reference).
4.15 -- First Priority Mortgage and Security Agreement dated as of September 18, 1992 from the Registrant, as
Mortgagor, to Chemical Bank, as Collateral Agent, Mortgagee, for certain property located in
Harrington, Delaware (filed as Exhibit 4.14 to the Registrant's Form 10-Q Quarterly Report for the
three months ended September 30, 1992 and incorporated herein by reference).
4.16 -- Second Priority Mortgage and Security Agreement dated as of September 18, 1992 from the Registrant,
as Mortgagor, to Chemical Bank, as Collateral Agent, Mortgagee, for certain property located in
Harrington, Delaware (filed as Exhibit 4.15 to the Registrant's Form 10-Q Quarterly Report for the
three months ended September 30, 1992 and incorporated herein by reference).
4.17 -- First Priority Leasehold Deed of Trust, Fixture Filing and Security Agreement dated as of September
18, 1992 from the Registrant, Trustor, to Founders Title Company, Trustee for the use and benefit of
Chemical Bank, as Collateral Agent, Beneficiary, for certain property located in Clearfield, Utah
(filed as Exhibit 4.16 to the Registrant's Form 10-Q Quarterly Report for the three months ended
September 30, 1992 and incorporated herein by reference).
4.18 -- Second Priority Leasehold Deed of Trust, Fixture Filing and Security Agreement dated as of September
18, 1992 from the Registrant, Trustor, to Founders Title Company, Trustee for the use and benefit of
Chemical Bank, as Collateral Agent, Beneficiary, for certain property located in Clearfield, Utah
(filed as Exhibit 4.17 to the Registrant's Form 10-Q Quarterly Report for the three months ended
September 30, 1992 and incorporated herein by reference).
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
NUMBER EXHIBIT
- ---------- -----------------------------------------------------------------------------------------------------
<C> <C> <S>
4.19 -- First Priority Deed to Secure Debt and Security Agreement dated as of September 18, 1992 from
Poly-Pac, Inc., Grantor, to Chemical Bank, as Collateral Agent, Grantee, for certain property located
in Dalton, Georgia (filed as Exhibit 4.18 to the Registrant's Form 10-Q Quarterly Report for the
three months ended September 30, 1992 and incorporated herein by reference).
4.20 -- Second Priority Deed to Secure Debt and Security Agreement dated as of September 18, 1992 from
Poly-Pac, Inc., Grantor, to Chemical Bank, as Collateral Agent, Grantee, for certain property located
in Dalton, Georgia (filed as Exhibit 4.19 to the Registrant's Form 10-Q Quarterly Report for the
three months ended September 30, 1992 and incorporated herein by reference).
4.21.1 -- Stockholder Rights Agreement between the Registrant and American Stock Transfer & Trust Company, as
Rights Agent, dated as of January 26, 1993 (filed as Exhibit 4.20 to the Registrant's Form 10-K for
the fiscal year ended December 31, 1992 and incorporated herein by reference).
4.21.2 -- Amendment No. 1 to Stockholder Rights Agreement (filed as Exhibit 1 to the Registrant's Form 8-A/A
filed on October 21, 1994 and incorporated herein by reference).
5.1+ -- Opinion of Thompson & Knight, A Professional Corporation.
10.1.1 -- Loan Agreement dated as of September 18, 1992 between the Registrant and Transamerica Business Credit
Corporation (filed as Exhibit 28 to the Registrant's Form 10-Q Quarterly Report for the quarter ended
September 30, 1992 and incorporated herein by reference).
10.1.2 -- First Amendment to Loan Agreement dated as of February 10, 1993 between the Registrant and
Transamerica Business Credit Corporation (filed as Exhibit 28.2 to the Registrant's Form 10-K for the
fiscal year ended December 31, 1992 and incorporated herein by reference).
10.1.3 -- Fourth Amendment to Loan Agreement dated as of December 22, 1993 between Rexene Corporation and
Transamerica Business Credit Corporation (filed as Exhibit 10.17.3 to the Registrant's Form 10-K for
the fiscal year ended December 31, 1993 and incorporated herein by reference).
10.2+ -- Rexene Corporation 1994 Long-Term Incentive Plan.
10.3+ -- Rexene Corporation Supplemental Executive Retirement Plan.
10.4 -- Form of New Credit Agreement (filed as Exhibit 10.4 to Amendment No. 3 to the Registrant's
Registration Statement on Form S-3 (SEC File No. 33-55609) as filed on November 9, 1994 and
incorporated herein by reference).
12.1 -- Statement of Computation of Ratio of Earnings to Fixed Charges.
23.1 -- Consent of Price Waterhouse LLP (contained on page II-9 of this Registration Statement).
24.1+ -- Power of Attorney (included on page II-7 of the original Registration Statement).
27+ -- Financial Data Schedule.
<FN>
- ------------------------
+ Previously filed.
</TABLE>
Financial Statement Schedules:
Consolidated Schedules for the year ended December 31, 1991, the nine months
ended September 30, 1992, the three months ended December 31, 1992 and the year
ended December 31, 1993:
<TABLE>
<S> <C> <C> <C>
V -- Property, Plant and Equipment................................................ S-1
VI -- Accumulated Depreciation of Property, Plant and Equipment.................... S-2
VIII -- Valuation and Qualifying Accounts............................................ S-3
</TABLE>
II-5
<PAGE>
All other schedules have been omitted since the required information is not
present in amounts sufficient to require submission of the schedule, or because
the information required is included in the Consolidated Financial Statements or
the notes thereto.
ITEM. 17 UNDERTAKINGS
A. The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offerer therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
B. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 14 of this Registration
Statement, or otherwise, the Registrant certifies that it has reasonable grounds
to believe that it meets all of the requirements for filing on Form S-3 and has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
C. The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial BONA FIDE offering thereof.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 3 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Dallas, State of Texas, on November 9, 1994.
REXENE CORPORATION
By: /s/ KEVIN W. MCALEER
---------------------------------
Kevin W. McAleer
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- -------------------------------- ----------------------- ------------------
/s/ ARTHUR L. GOESCHEL*
- -------------------------------- Chairman of the Board November 9, 1994
Arthur L. Goeschel
/s/ ANDREW J. SMITH*
- -------------------------------- Chief Executive Officer November 9, 1994
Andrew J. Smith and Director
/s/ LAVON N. ANDERSON* President, Chief
- -------------------------------- Operating Officer and November 9, 1994
Lavon N. Anderson Director
/s/ KEVIN W. MCALEER Executive Vice
- -------------------------------- President and Chief November 9, 1994
Kevin W. McAleer Financial Officer
/s/ GEFF PERERA*
- -------------------------------- Vice President and November 9, 1994
Geff Perera Controller
II-7
<PAGE>
SIGNATURE TITLE DATE
- ----------------------------------- ----------------------- ------------------
/s/ KEVIN N. CLOWE*
- ----------------------------------- Director November 9, 1994
Kevin N. Clowe
/s/ WILLIAM B. HEWITT*
- ----------------------------------- Director November 9, 1994
William B. Hewitt
/s/ ILAN KAUFTHAL*
- ----------------------------------- Director November 9, 1994
Ilan Kaufthal
/s/ FRED P. RULLO, JR.*
- ----------------------------------- Director November 9, 1994
Fred P. Rullo, Jr.
/s/ PHILLIP SIEGEL*
- ----------------------------------- Director November 9, 1994
Phillip Siegel
/s/ HEINN F. TOMFOHRDE, III*
- ----------------------------------- Director November 9, 1994
Heinn F. Tomfohrde, III
*By /s/ KEVIN W. MCALEER
- -----------------------------------
Kevin W. McAleer
ATTORNEY-IN-FACT
II-8
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Prospectus constituting part of
Registration Statement No. 33-55507 on Form S-3 of our reports dated February
10, 1994 and April 12, 1993 relating to the consolidated financial statements of
Rexene Corporation, which appear in such Prospectus. We also consent to the
incorporation by reference of our reports dated February 10, 1994 and April 12,
1993 appearing on pages F-2 and F-3 of Rexene Corporation's Annual Report on
Form 10-K for the year ended December 31, 1993. We also consent to the reference
to us under the heading "Experts" in such Prospectus.
PRICE WATERHOUSE LLP
Dallas, Texas
November 9, 1994
II-9
<PAGE>
SCHEDULE V
REXENE CORPORATION AND SUBSIDIARIES
PROPERTY, PLANT AND EQUIPMENT
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING ADDITIONS RETIREMENTS END OF
DESCRIPTION OF PERIOD AT COST OR SALE OTHER CHARGES PERIOD
- ------------------------------------------------- ---------- ----------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C>
PRE-EMERGENCE
Year ended December 31, 1991:
Land......................................... $ 3,536 $ -- $ (1,194) $ -- $ 2,342
Buildings.................................... 20,316 1,965 (1,707) -- 20,574
Plant and equipment.......................... 190,832 30,301 (183) -- 220,950
Construction in progress..................... 19,916 1,198 (34) -- 21,080
---------- ----------- ----------- ------------- ----------
$ 234,600 $ 33,464 $ (3,118) $ -- $ 264,946
---------- ----------- ----------- ------------- ----------
---------- ----------- ----------- ------------- ----------
Nine months ended September 30, 1992:
Land......................................... $ 2,342 $ -- $ -- $ 2,934(A) $ 5,276
Buildings.................................... 20,574 57 -- (6,758)(A) 13,873
Plant and equipment.......................... 220,950 18,846 -- (28,760)(A) 211,036
Construction in progress..................... 21,080 (7,767) -- -- 13,313
---------- ----------- ----------- ------------- ----------
$ 264,946 $ 11,136 $ -- $ (32,584) $ 243,498
---------- ----------- ----------- ------------- ----------
---------- ----------- ----------- ------------- ----------
POST-EMERGENCE
Three months ended December 31, 1992:
Land......................................... $ 5,276 $ -- $ -- $ -- $ 5,276
Buildings.................................... 13,873 32 (64) -- 13,841
Plant and equipment.......................... 211,036 5,514 (110) -- 216,440
Construction in progress..................... 13,313 (1,585) -- -- 11,728
---------- ----------- ----------- ------------- ----------
$ 243,498 $ 3,961 $ (174) $ -- $ 247,285
---------- ----------- ----------- ------------- ----------
---------- ----------- ----------- ------------- ----------
Year ended December 31, 1993:
Land......................................... $ 5,276 $ 462 $ -- $ -- $ 5,738
Buildings.................................... 13,841 3,917 -- -- 17,758
Plant and equipment.......................... 216,440 13,827 (241) -- 230,026
Construction in progress..................... 11,728 (1,198) -- -- 10,530
---------- ----------- ----------- ------------- ----------
$ 247,285 $ 17,008 $ (241) $ -- $ 264,052
---------- ----------- ----------- ------------- ----------
---------- ----------- ----------- ------------- ----------
<FN>
- ------------------------
(A) Other charges reflect the effect of fresh start reporting (see note 3 to
the consolidated financial statements).
</TABLE>
S-1
<PAGE>
SCHEDULE VI
REXENE CORPORATION AND SUBSIDIARIES
ACCUMULATED DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END OF
DESCRIPTION OF PERIOD EXPENSES RETIREMENTS OTHER CHARGES PERIOD
- ------------------------------------------------ ----------- ----------- ------------- -------------- ---------
<S> <C> <C> <C> <C> <C>
PRE-EMERGENCE
Year ended December 31, 1991:
Buildings................................... $ 1,793 $ 1,013 $ (288) $ -- $ 2,518
Plant and equipment......................... 43,322 19,643 (53) -- 62,912
----------- ----------- ----- -------------- ---------
$ 45,115 $ 20,656 $ (341) $ -- $ 65,430
----------- ----------- ----- -------------- ---------
----------- ----------- ----- -------------- ---------
Nine months ended September 30, 1992:
Buildings................................... $ 2,518 $ 779 $ -- $ (3,297 )(A) $ --
Plant and equipment......................... 62,912 16,910 -- (79,822 )(A) --
----------- ----------- ----- -------------- ---------
$ 65,430 $ 17,689 $ -- $ (83,119 ) $ --
----------- ----------- ----- -------------- ---------
----------- ----------- ----- -------------- ---------
POST-EMERGENCE
Three months ended December 31, 1992:
Buildings................................... $ -- $ 216 $ -- $ -- $ 216
Plant and equipment......................... -- 3,448 -- -- 3,448
----------- ----------- ----- -------------- ---------
$ -- $ 3,664 $ -- $ -- $ 3,664
----------- ----------- ----- -------------- ---------
----------- ----------- ----- -------------- ---------
Year ended December 31, 1993:
Buildings................................... $ 216 $ 883 $ -- $ -- $ 1,099
Plant and equipment......................... 3,448 15,176 (17) -- 18,607
----------- ----------- ----- -------------- ---------
$ 3,664 $ 16,059 $ (17) $ -- $ 19,706
----------- ----------- ----- -------------- ---------
----------- ----------- ----- -------------- ---------
<FN>
- ------------------------
(A) Other charges reflect the effect of fresh start reporting (see note 3 to
the consolidated financial statements).
</TABLE>
S-2
<PAGE>
SCHEDULE VIII
REXENE CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO UNCOLLECTIBLE BALANCE
BEGINNING COSTS AND ACCOUNTS AT END OF
OF PERIOD EXPENSES WRITTEN OFF PERIOD
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
PRE-EMERGENCE
Year ended December 31, 1991:
Allowance for doubtful accounts............................. $ 4,703 $ 1,175 $ (1,778) $ 4,100
Nine months ended September 30, 1992:
Allowance for doubtful accounts............................. $ 4,100 $ 327 $ -- $ 4,427
POST-EMERGENCE
Three months ended December 31, 1992:
Allowance for doubtful accounts............................. $ 4,427 $ 300 $ (218) $ 4,509
Year ended December 31, 1993:
Allowance for doubtful accounts............................. $ 4,509 $ 223 $ (925) $ 3,807
</TABLE>
S-3
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBER EXHIBIT NUMBERED PAGE
- --------- ----------------------------------------------------------------------------------------- -------------
<C> <C> <S> <C>
1.1+ -- Form of U.S. Underwriting Agreement.
1.2+ -- Form of International Underwriting Agreement.
2.1 -- First Amended Plan of Reorganization of Rexene Products Company, et al., dated April 29,
1992 (filed as Exhibit 2.1 to the Registrant's Form 8-K Current Report dated July 7, 1992
and incorporated herein by reference).
2.2 -- Order Confirming First Amended Plan of Reorganization dated April 29, 1992 (filed as
Exhibit 2.2 to the Registrant's Form 10-K for the fiscal year ended December 31, 1992 and
incorporated herein by reference).
2.3 -- Plan and Agreement of Merger between the Registrant and Rexene Products Company dated as
of September 11, 1992 (filed as Exhibit 2.3 to the Registrant's Form 10-K for the fiscal
year ended December 31, 1992 and incorporated herein by reference.)
3.1.1 -- Restated Certificate of Incorporation of Rexene Products Company (a/k/a Rexene
Corporation) dated September 11, 1992 (filed as Exhibit 3.1 to the Registrant's Form 10-K
for the fiscal year ended December 31, 1992 and incorporated herein by reference.)
3.1.2 -- Amendment to Certificate of Incorporation dated June 9, 1993 (filed as Exhibit 3.1.2 to
the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993 and
incorporated herein by reference).
3.2.1 -- Amended and Restated By-Laws dated September 18, 1992 (filed as Exhibit 3.2.1 to the
Registrant's Form 10-K for the fiscal year ended December 31, 1992 and incorporated
herein by reference).
3.2.2 -- Amendments to By-Laws adopted January 16, 1993 (filed as Exhibit 3.2.2 to the
Registrant's Form 10-K for the fiscal year ended December 31, 1992 and incorporated
herein by reference).
4.1 -- Form of Indenture governing the Senior Notes (filed as Exhibit 4.1 to Amendment No. 2 to
the Registrant's Registration Statement on Form S-3 (SEC File No. 33-55609) as filed on
November 8, 1994 and incorporated herein by reference).
4.2 -- Indenture dated as of September 18, 1992 between the Registrant, as Issuer, and Chemical
Bank, as Trustee, for Increasing Rate First Priority Notes Due 1999 (filed as Exhibit 4.1
to the Registrant's Form 10-Q Quarterly Report for the three months ended September 30,
1992 and incorporated herein by reference).
4.3 -- Indenture dated as of September 18, 1992 between the Registrant, as Issuer, and United
States Trust Company of New York, as Trustee, for Increasing Rate Second Priority Notes
Due 2002 (filed as Exhibit 4.2 to the Registrant's Form 10-Q Quarterly Report for the
three months ended September 30, 1992 and incorporated herein by reference).
4.4 -- Intercreditor and Collateral Trust Agreement dated as of September 18, 1992 by and among
the Registrant and Poly-Pac, Inc. as Grantors, Chemical Bank as Collateral Agent,
Chemical Bank as Trustee, and United States Trust Company, as Trustee (filed as Exhibit
4.3 to the Registrant's Form 10-Q Quarterly Report for the three months ended September
30, 1992 and incorporated herein by reference).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBER EXHIBIT NUMBERED PAGE
- --------- ----------------------------------------------------------------------------------------- -------------
<C> <C> <S> <C>
4.5 -- Company First Priority Security and Pledge Agreement dated as of September 18, 1992 made
by the Registrant, as Grantor, in favor of Chemical Bank, as Collateral Agent (filed as
Exhibit 4.4 to the Registrant's Form 10-Q Quarterly Report for the three months ended
September 30, 1992 and incorporated herein by reference).
4.6 -- Company Second Priority Security and Pledge Agreement dated as of September 18, 1992 made
by the Registrant, as Grantor, in favor of Chemical Bank, as Collateral Agent (filed as
Exhibit 4.5 to the Registrant's Form 10-Q Quarterly Report for the three months ended
September 30, 1992 and incorporated herein by reference).
4.7 -- Subsidiary First Priority Security and Pledge Agreement dated as of September 18, 1992
made by Poly-Pac, Inc., as Grantor, in favor of Chemical Bank, as Collateral Agent (filed
as Exhibit 4.6 to the Registrant's Form 10-Q Quarterly Report for the three months ended
September 30, 1992 and incorporated herein by reference).
4.8 -- Subsidiary Second Priority Security and Pledge Agreement dated as of September 18, 1992
made by Poly-Pac, Inc., as Grantor, in favor of Chemical Bank, as Collateral Agent (filed
as Exhibit 4.7 to the Registrant's Form 10-Q Quarterly Report for the three months ended
September 30, 1992 and incorporated herein by reference).
4.9 -- First Priority Deed of Trust and Security Agreement dated as of September 18, 1992 from
the Registrant, as Grantor, to Phillip D. Weller, as Trustee for the benefit of Chemical
Bank, as Beneficiary, for certain property located in Odessa, Texas (filed as Exhibit 4.8
to the Registrant's Form 10-Q Quarterly Report for the three months ended September 30,
1992 and incorporated herein by reference).
4.10 -- Second Priority Deed of Trust and Security Agreement dated as of September 18, 1992 from
the Registrant, as Grantor, to Phillip D. Weller, as Trustee for the benefit of Chemical
Bank, as Beneficiary, for certain property located in Odessa, Texas (filed as Exhibit 4.9
to the Registrant's Form 10-Q Quarterly Report for the three months ended September 30,
1992 and incorporated herein by reference).
4.11 -- First Priority Deed of Trust and Security Agreement dated as of September 18, 1992 from
the Registrant, as Grantor, to Phillip D. Weller, as Trustee for the benefit of Chemical
Bank, as Beneficiary, for certain property located in Pasadena, Texas (filed as Exhibit
4.10 to the Registrant's Form 10-Q Quarterly Report for the three months ended September
30, 1992 and incorporated herein by reference).
4.12 -- Second Priority Deed of Trust and Security Agreement dated as of September 18, 1992 from
the Registrant, as Grantor, to Phillip D. Weller, as Trustee for the benefit of Chemical
Bank, as Beneficiary, for certain property located in Pasadena, Texas (filed as Exhibit
4.11 to the Registrant's Form 10-Q Quarterly Report for the three months ended September
30, 1992 and incorporated herein by reference).
4.13 -- First Priority Mortgage, Fixture Filing and Security Agreement dated as of September 18,
1992 from the Registrant, as Mortgagor, to Chemical Bank, as Collateral Agent, Mortgagee,
for certain property located in Chippewa Falls, Wisconsin (filed as Exhibit 4.12 to the
Registrant's Form 10-Q Quarterly Report for the three months ended September 30, 1992 and
incorporated herein by reference).
4.14 -- Second Priority Mortgage, Fixture Filing and Security Agreement dated as of September 18,
1992 from the Registrant, as Mortgagor, to Chemical Bank, as Collateral Agent, Mortgagee,
for certain property located in Chippewa Falls, Wisconsin (filed as Exhibit 4.13 to the
Registrant's Form 10-Q Quarterly Report for the three months ended September 30, 1992 and
incorporated herein by reference).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBER EXHIBIT NUMBERED PAGE
- --------- ----------------------------------------------------------------------------------------- -------------
<C> <C> <S> <C>
4.15 -- First Priority Mortgage and Security Agreement dated as of September 18, 1992 from the
Registrant, as Mortgagor, to Chemical Bank, as Collateral Agent, Mortgagee, for certain
property located in Harrington, Delaware (filed as Exhibit 4.14 to the Registrant's Form
10-Q Quarterly Report for the three months ended September 30, 1992 and incorporated
herein by reference).
4.16 -- Second Priority Mortgage and Security Agreement dated as of September 18, 1992 from the
Registrant, as Mortgagor, to Chemical Bank, as Collateral Agent, Mortgagee, for certain
property located in Harrington, Delaware (filed as Exhibit 4.15 to the Registrant's Form
10-Q Quarterly Report for the three months ended September 30, 1992 and incorporated
herein by reference).
4.17 -- First Priority Leasehold Deed of Trust, Fixture Filing and Security Agreement dated as of
September 18, 1992 from the Registrant, Trustor, to Founders Title Company, Trustee for
the use and benefit of Chemical Bank, as Collateral Agent, Beneficiary, for certain
property located in Clearfield, Utah (filed as Exhibit 4.16 to the Registrant's Form 10-Q
Quarterly Report for the three months ended September 30, 1992 and incorporated herein by
reference).
4.18 -- Second Priority Leasehold Deed of Trust, Fixture Filing and Security Agreement dated as
of September 18, 1992 from the Registrant, Trustor, to Founders Title Company, Trustee
for the use and benefit of Chemical Bank, as Collateral Agent, Beneficiary, for certain
property located in Clearfield, Utah (filed as Exhibit 4.17 to the Registrant's Form 10-Q
Quarterly Report for the three months ended September 30, 1992 and incorporated herein by
reference).
4.19 -- First Priority Deed to Secure Debt and Security Agreement dated as of September 18, 1992
from Poly-Pac, Inc., Grantor, to Chemical Bank, as Collateral Agent, Grantee, for certain
property located in Dalton, Georgia (filed as Exhibit 4.18 to the Registrant's Form 10-Q
Quarterly Report for the three months ended September 30, 1992 and incorporated herein by
reference).
4.20 -- Second Priority Deed to Secure Debt and Security Agreement dated as of September 18, 1992
from Poly-Pac, Inc., Grantor, to Chemical Bank, as Collateral Agent, Grantee, for certain
property located in Dalton, Georgia (filed as Exhibit 4.19 to the Registrant's Form 10-Q
Quarterly Report for the three months ended September 30, 1992 and incorporated herein by
reference).
4.21.1 -- Stockholder Rights Agreement between the Registrant and American Stock Transfer & Trust
Company, as Rights Agent, dated as of January 26, 1993 (filed as Exhibit 4.20 to the
Registrant's Form 10-K for the fiscal year ended December 31, 1992 and incorporated
herein by reference).
4.21.2 -- Amendment No. 1 to Stockholder Rights Agreement (filed as Exhibit 1 to the Registrant's
Form 8-A/A filed on October 21, 1994 and incorporated herein by reference).
5.1+ -- Opinion of Thompson & Knight, A Professional Corporation.
10.1.1 -- Loan Agreement dated as of September 18, 1992 between the Registrant and Transamerica
Business Credit Corporation (filed as Exhibit 28 to the Registrant's Form 10-Q Quarterly
Report for the quarter ended September 30, 1992 and incorporated herein by reference).
10.1.2 -- First Amendment to Loan Agreement dated as of February 10, 1993 between the Registrant
and Transamerica Business Credit Corporation (filed as Exhibit 28.2 to the Registrant's
Form 10-K for the fiscal year ended December 31, 1992 and incorporated herein by
reference).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBER EXHIBIT NUMBERED PAGE
- --------- ----------------------------------------------------------------------------------------- -------------
<C> <C> <S> <C>
10.1.3 -- Fourth Amendment to Loan Agreement dated as of December 22, 1993 between Rexene
Corporation and Transamerica Business Credit Corporation (filed as Exhibit 10.17.3 to the
Registrant's Form 10-K for the fiscal year ended December 31, 1993 and incorporated
herein by reference).
10.2+ -- Rexene Corporation 1994 Long-Term Incentive Plan.
10.3+ -- Rexene Corporation Supplemental Executive Retirement Plan.
10.4 -- Form of New Credit Agreement (filed as Exhibit 10.4 to Amendment No. 3 to the
Registrant's Registration Statement on Form S-3 (SEC File No. 33-55609) as filed on
November 9, 1994 and incorporated herein by reference).
12.1 -- Statement of Computation of Ratio of Earnings to Fixed Charges.
23.1 -- Consent of Price Waterhouse LLP (contained on page II-9 of this Registration Statement).
24.1+ -- Power of Attorney (included on page II-7 of the original Registration Statement).
27+ -- Financial Data Schedule.
<FN>
- ------------------------
+ Previously filed.
</TABLE>
