<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 9, 1994
REGISTRATION NO. 33-55609
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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
$175,000,000
[LOGO]
% SENIOR NOTES DUE 2004
----------------
The % Senior Notes due 2004 (the "Senior Notes") are being offered hereby
(the "Notes Offering") by Rexene Corporation ("Rexene" or the "Company").
Concurrently with the Notes Offering and in connection with the Recapitalization
described herein, the Company is publicly offering 8,000,000 shares of common
stock of the Company ("Common Stock") pursuant to a separate prospectus (the
"Common Stock Offering" and, together with the Notes Offering, the "Offerings").
The Notes Offering is contingent upon the concurrent consummation of the Common
Stock Offering and the other elements of the Recapitalization, including the
establishment of the New Credit Agreement (as defined herein). See "The
Recapitalization."
Interest on the Senior Notes will be payable semiannually on
and , commencing , 1995. The
Senior Notes will mature on , 2004 and will not be redeemable,
in whole or in part, prior to , except that, at any time prior
to , the Company may redeem up to an aggregate of $ million
principal amount of Senior Notes, at a price equal to % of the principal
amount thereof plus accrued and unpaid interest, if any, to the redemption date
with the net cash proceeds of any future offering or offerings of Common Stock
of the Company; provided, however, that at least $ million aggregate
principal amount of Senior Notes must remain outstanding immediately following
each such redemption; and provided further that each such redemption shall occur
within 60 days of the date of the closing of the applicable offering. On or
after , the Senior Notes will be redeemable, at the Company's
option, in whole or in part, at the prices set forth herein plus accrued and
unpaid interest, if any, to the redemption date. In the event of a Change of
Control (as defined herein), the Company will be required to offer to purchase
all of the Senior Notes at a price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the purchase date.
The Senior Notes will be senior unsecured obligations of the Company that
will rank senior in right of payment to all subordinated Indebtedness (as
defined herein) of the Company. The Senior Notes will rank PARI PASSU in right
of payment with all other existing and future Indebtedness of the Company,
including borrowings under the New Credit Agreement. However, the Senior Notes
will be effectively subordinated to secured Indebtedness of the Company to the
extent of the value of the assets securing such Indebtedness, including
borrowings under the New Credit Agreement which will be secured by substantially
all of the assets of the Company. As of June 30, 1994, on a pro forma basis
after giving effect to the Recapitalization, the Company would have had
outstanding approximately $275 million of senior Indebtedness, consisting of the
Senior Notes and $100 million aggregate principal amount of Indebtedness
pursuant to the New Credit Agreement. 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 Company does not intend to list the Senior Notes on any securities
exchange or any automated quotation system. See "Investment Considerations --
Lack of a Public Market for the Senior Notes."
SEE "INVESTMENT CONSIDERATIONS" FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE SENIOR NOTES
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(1) COMMISSIONS(2) COMPANY(3)
<S> <C> <C> <C>
Per Senior Note....................... % % %
Total................................. $ $ $
<FN>
(1) Plus accrued interest, if any, from the date of issuance.
(2) See "Underwriting" for indemnification arrangements with the Underwriters.
(3) Before deducting expenses payable by the Company estimated at
$ .
</TABLE>
----------------
The Senior Notes are being offered by the Underwriters, subject to
acceptance by them and to their right to reject any order in whole or in part.
It is expected that delivery of the Senior Notes will be made against payment
therefor at the offices of Smith Barney Inc., 388 Greenwich Street, New York,
New York 10013, on or about , 1994.
----------------
SMITH BARNEY INC. WERTHEIM SCHRODER & CO.
INCORPORATED
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 SENIOR NOTES,
THE COMMON STOCK 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 10.
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, through Rexene
Corporation Limited, a wholly-owned subsidiary of the Company, 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
3
<PAGE>
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.
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
4
<PAGE>
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%.
THE RECAPITALIZATION
The Notes 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:
Notes Offering (1).................................................................... $ 175,000
Common Stock Offering (1)............................................................. 116,000
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 NOTES OFFERING(1)
<TABLE>
<S> <C>
Securities Offered........... $175 million aggregate principal amount of % Senior Notes
due , 2004.
Maturity Date................ , 2004.
Interest Payment Dates....... and , commencing , 1995.
Optional Redemption.......... The Senior Notes will not be redeemable, in whole or in
part, prior to , except that, at any time prior to
, the Company may redeem up to an aggregate of
$ million principal amount of Senior Notes, at a price
equal to % of the principal amount thereof, plus accrued
and unpaid interest, if any, to the redemption date with the
net cash proceeds of any future offering or offerings of
Common Stock of the Company; provided, however, that at
least $ million aggregate principal amount of Senior
Notes must remain outstanding immediately following each
such redemption; and provided further that each such
redemption shall occur within 60 days of the date of the
closing of the applicable offering. On or after ,
the Senior Notes will be redeemable, at the Company's
option, in whole or in part, at the prices set forth herein
plus accrued and unpaid interest, if any, to the date of
redemption. See "Description of Senior Notes -- Optional
Redemption."
Ranking...................... The Senior Notes will be senior unsecured obligations of the
Company that 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 other
Indebtedness of the Company. However, the Senior Notes will
be effectively subordinated to secured Indebtedness of the
Company to the extent of the value of the assets securing
such Indebtedness, including borrowings under the New Credit
Agreement entered into in connection with the
Recapitalization. Indebtedness incurred pursuant to the New
Credit Agreement will be secured by substantially all 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. See "Investment Considerations -- Secured
Indebtedness" and "Description of New Credit Agreement."
Change of Control............ Upon a Change of Control, the Company will be required to
make an offer to purchase all Senior Notes then outstanding
at a price equal to 101% of the principal amount thereof,
plus accrued and unpaid interest, if any, to the purchase
date. See "Description of Senior Notes -- Change of
Control."
Certain Covenants............ The indenture relating to the Senior Notes (the "Indenture")
will contain certain covenants that, among other things,
limit the ability of the Company and its Subsidiaries to
incur additional Indebtedness and issue Preferred Stock and
limit the ability of the Company and its Restricted
Subsidiaries to repurchase Capital Stock and subordinated
Indebtedness, engage in transactions with its affiliates,
engage in sale and leaseback transactions, incur or suffer
to exist certain liens, pay dividends and other
distributions, make investments, sell assets and engage in
mergers and consolidations. See "Description of Senior Notes
-- Certain Covenants."
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
Events of Default and
Remedies.................... The Indenture will contain events of default which will
include, among others, a default for 30 days in the payment
of interest on any Senior Note; a default in payment when
due of the principal or premium on any Senior Note; a
failure by the Company for 30 days to comply with certain
covenants in the Indenture; a failure by the Company for 60
days after notice to comply with any of its other agreements
in the Indenture or the Senior Notes; certain defaults with
respect to indebtedness (other than the Senior Notes) of the
Company or any of its Restricted Subsidiaries; and certain
bankruptcy or insolvency events with respect to the Company
and any Restricted Subsidiary that is a Significant
Subsidiary.
If any event of default under the Indenture occurs and is
continuing, the trustee or the holders of at least 25% in
principal amount of the then outstanding Senior Notes may
declare all Senior Notes to be due and payable immediately.
In the case of an event of default arising from certain
events of bankruptcy or insolvency with respect to the
Company or any Restricted Subsidiary that is a Significant
Subsidiary, all outstanding Senior Notes will become due and
payable without further action or notice.
Governing Law................ The Indenture will be governed by New York law.
Use of Proceeds.............. Repayment of indebtedness. See "Use of Proceeds."
Conditions to the Notes
Offering.................... The Notes Offering is contingent upon the concurrent
consummation of the Common Stock Offering and the other
elements of the Recapitalization, including the
establishment of the New Credit Agreement. See "The
Recapitalization."
<FN>
- ------------------------
(1) All capitalized terms used herein with respect to the Notes Offering and
not otherwise defined herein have the meanings assigned thereto under
"Description of Senior Notes -- Certain Definitions."
</TABLE>
INVESTMENT CONSIDERATIONS
Prospective purchasers of the Senior Notes offered hereby should consider
carefully the matters set forth herein under the caption "Investment
Considerations."
7
<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
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
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>
8
<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) 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 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>
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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>
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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
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<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 Senior Notes and the New Credit
Agreement, see "Description of New Credit Agreement" and "Description of Senior
Notes."
The degree to which the Company is leveraged could have important
consequences to holders of the Senior Notes of the Company, 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.
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
12
<PAGE>
could elect to declare all of the funds borrowed thereunder to be due and
payable together with accrued and 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 principal, premium, if any, and interest on the Senior Notes. Under such
circumstances, the holders of the Senior Notes could be adversely affected
because secured lenders, including lenders under the New Credit Agreement, would
be entitled to receive payment at least equal to the value of their collateral,
which could exceed the amount recoverable by unsecured creditors, including the
holders of the Senior Notes. See "-- Secured Indebtedness," "Use of Proceeds,"
"Description of New Credit Agreement" and "Description of Senior Notes."
RANKING OF THE SENIOR NOTES
The Senior Notes will be unsecured obligations of the Company ranking PARI
PASSU in right of payment with all other senior indebtedness of Rexene, and will
be senior in right of payment to all existing and future subordinated
indebtedness of Rexene. However, the Senior Notes will be effectively
subordinated to secured indebtedness of the Company, including borrowings under
the New Credit Agreement, to the extent of the value of the assets securing such
indebtedness. In the event of the dissolution, liquidation or reorganization of,
or similar proceedings relating to, Rexene, secured lenders would be entitled to
receive payment at least equal to the value of their collateral, which could
exceed the amount recoverable by unsecured creditors, including the holders of
the Senior Notes. At September 30, 1994, on a pro forma basis after giving
effect to the Recapitalization, Rexene would have had outstanding $100 million
of secured indebtedness, all of which would have been outstanding pursuant to
the New Credit Agreement. 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. See "Use of Proceeds," "Capitalization,"
"Description of New Credit Agreement" and "Description of Senior Notes."
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."
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<PAGE>
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 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 Convervation 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 damages 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
14
<PAGE>
well, Company consultants have estimated the cost of installing a new deep well
injection system at approximately $6 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 operations of the Company's first
overseas plant in Scunthorpe, England, which was built primarily to service a
new U.K. facility to 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.
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."
LACK OF A PUBLIC MARKET FOR THE SENIOR NOTES
The Senior Notes are a new issue of securities, have no established trading
market and may not be widely distributed. Rexene does not intend to have the
Senior Notes listed for trading on any securities exchange or to seek their
admission to trading in any automated quotation system. If the Senior Notes are
traded after their initial issuance, they may trade at a discount from their
initial public offering price depending upon many factors, including among other
things, the Company's results of operations, prevailing interest rates and the
market for similar securities. No assurance can be given that any market for the
Senior Notes will develop, or, if any such market develops, as to the liquidity
of such market. The Company has been informed by Smith Barney Inc. and Wertheim
Schroder & Co. Incorporated that they currently intend to make a market in the
Senior Notes, as permitted by applicable laws and regulations; however, they are
not obligated to make such a market and may discontinue market making at any
time without notice. Accordingly, no assurance can be given as to the liquidity
of, or trading market for, the Senior Notes. See "Underwriting."
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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 Notes 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 $175 million aggregate principal
amount of the Senior Notes pursuant to the Notes Offering;
(ii) the issuance and sale by the Company of 8,000,000 shares of Common
Stock pursuant to the Common Stock Offering (the gross proceeds of
which are estimated to be $114 million based on an assumed offering
price of $14.25 per share, the closing price of the Common Stock on
September 14, 1994);
(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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USE OF PROCEEDS
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 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, the closing price of the Common
Stock on October 19, 1994) to be approximately $109.6 million ($126.0 million if
the Underwriters' over-allotment option in connection with the Common Stock
Offering is exercised in full).
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).
17
<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>
18
<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 $326,640 $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
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>
19
<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) 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>
20
<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)
<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)
---------- ------------- -----------
---------- ------------- -----------
</TABLE>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ------------- -----------
(IN THOUSANDS)
<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
---------- ------------- -----------
---------- ------------- -----------
</TABLE>
21
<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>
22
<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 pursuant to the Common Stock Offering 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>
23
<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.
24
<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 participated 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.
25
<PAGE>
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.
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
26
<PAGE>
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 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.
27
<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.
28
<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
29
<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
"Description of 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 Indenture and the New Credit Agreement 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," "Description of New Credit Agreement" and "Description of
Senior Notes."
30
<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 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."
31
<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.
32
<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.
33
<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
34
<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
35
<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
36
<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.
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<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 will be an Unrestricted Subsidiary for purposes of, and
as defined in, the Indenture and, accordingly, will not be subject to the
restrictive covenants contained therein. See "Description of Senior Notes."
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.
39
<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.
40
<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.
41
<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
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<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 certain pollution control measures in addition to those currently
used. The Company cannot determine the
45
<PAGE>
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 between October 23,
1989 and December 27, 1989. The defendants in this action presently include
Rexene,
46
<PAGE>
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 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, an
unspecified amount of compensatory damages and treble damages. The complaint
alleges that the
47
<PAGE>
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 bankrupcty 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."
48
<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.
49
<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
50
<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, polymers 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 Underwriter's over-allotment
option in connection with the Common Stock Offering 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.
52
<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>
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<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>
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<PAGE>
DESCRIPTION OF NEW CREDIT AGREEMENT
The following is a summary of the terms of the New Credit Agreement. For
more complete information regarding such indebtedness, reference is made to the
New Credit Agreement, a copy of which has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part and which is
incorporated by reference herein.
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
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. 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
rate or, at the Company's option, on the Bank'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
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<PAGE>
Credit Facility 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.
DESCRIPTION OF SENIOR NOTES
GENERAL
The Senior Notes will be issued pursuant to an Indenture (the "Indenture")
between the Company and , as trustee (the "Trustee"). The terms of the
Senior Notes include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939 (the "Trust Indenture
Act"). The Senior Notes are subject to all such terms, and Holders of Senior
Notes are referred to the Indenture and the Trust Indenture Act for a statement
thereof. The following summary of certain provisions of the Indenture does not
purport to be complete and is qualified in its entirety by reference to the
Indenture, including the definitions therein of certain terms used below. A copy
of the proposed form of Indenture has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part and is available as
set forth under "Available Information." The definitions of certain of the terms
used in the following summary are set forth below under "Certain Definitions."
The Senior Notes will rank senior in right of payment to all future
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.
As of the date of the Indenture, none of the Company's domestic operations
are conducted through Subsidiaries and none of the Company's Subsidiaries has
any operations or material assets or liabilities, other than a foreign sales
corporation and RCL. RCL was formed in late 1993 to operate the Company's
European film operations. As of September 30, 1994, the aggregate total assets
and total liabilities of RCL and the foreign sales corporation were $16.5
million and $13.5 million, respectively, and for the year ended December 31,
1993 and the nine months ended September 30, 1994, RCL and the foreign sales
corporation had no cash flow from operations and net losses of $1,000 and
$303,000, respectively (all of the preceding amounts are approximate). As of the
date of the Indenture, all of the Company's Subsidiaries will be Unrestricted
Subsidiaries. Under certain circumstances, the Company will be able to designate
future Subsidiaries as Unrestricted Subsidiaries. Unrestricted Subsidiaries will
not be subject to any of the restrictive covenants set forth in the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Senior Notes will be limited in aggregate principal amount to $175
million and will mature on , 2004. Interest on the Senior Notes will
accrue at the rate of % per annum and will be payable semi-annually in
arrears on and , commencing on , 1995, to
Holders of record on the immediately preceding and .
Interest on the Senior Notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from the date of
original issuance. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months. Principal, premium, if any, and interest on
the Senior Notes will be payable at the office or agency of the Company
maintained for such purpose within the City and State of New York, or at the
option of the Company, payment of interest may be made by check mailed to the
Holders of the Senior Notes at their respective addresses set forth in the
register of Holders of Senior Notes; PROVIDED that all payments with respect to
Senior Notes the Holders of which have given wire transfer instructions to the
Company will be required to be made by wire transfer of immediately available
funds to the accounts
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<PAGE>
specified by the Holders thereof. Until otherwise designated by the Company, the
Company's office or agency in New York will be the office of the Trustee
maintained for such purpose. The Senior Notes will be issued in denominations of
$1,000 and integral multiples thereof.
OPTIONAL REDEMPTION
The Senior Notes will not be redeemable at the Company's option prior to
. Thereafter, the Senior Notes will be subject to redemption at
the option of the Company, in whole or in part, upon not less than 30 nor more
than 60 days' notice, at the redemption prices (expressed as percentages of
principal amount) set forth below plus accrued and unpaid interest thereon to
the applicable redemption date, if redeemed during the twelve-month period
beginning on of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ------------------------------------------------------------------------ -------------
<S> <C>
%
</TABLE>
Notwithstanding the foregoing, during the first 36 months after the date of
this Prospectus, the Company may, from time to time, redeem up to $ million
in aggregate principal amount of Senior Notes, upon not less than 30 nor more
than 60 days' notice, at a redemption price of % of the principal amount
thereof plus accrued and unpaid interest thereon to the redemption date, with
the net proceeds of an offering or offerings of common stock of the Company;
PROVIDED that at least $100 million in aggregate principal amount of Senior
Notes remains outstanding immediately after the occurrence of such redemption;
and PROVIDED, FURTHER, that each such redemption shall occur within 60 days of
the date of the closing of the related offering of common stock of the Company.
MANDATORY REDEMPTION
Except as set forth below under "Repurchase at the Option of Holders," the
Company is not required to make mandatory redemption or sinking fund payments
with respect to the Senior Notes.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder of Senior Notes will
have the right to require the Company to purchase all or any part (equal to
$1,000 or an integral multiple thereof) of such Holder's Senior Notes pursuant
to the offer described below (the "Change of Control Offer") at an offer price
in cash equal to 101% of the aggregate principal amount thereof plus accrued and
unpaid interest thereon to the date of purchase (the "Change of Control
Payment"). Within ten days following any Change of Control, the Company will
mail a notice to each Holder stating: (1) that the Change of Control Offer is
being made pursuant to the covenant entitled "Change of Control" and that all
Senior Notes properly tendered will be accepted for payment; (2) the purchase
price and the purchase date, which will be no earlier than 30 days nor later
than 40 days from the date such notice is mailed (the "Change of Control Payment
Date"); (3) that any Senior Note not properly tendered will continue to accrue
interest; (4) that, unless the Company defaults in the payment of the Change of
Control Payment, all Senior Notes accepted for payment pursuant to the Change of
Control Offer will cease to accrue interest after the Change of Control Payment
Date; (5) that Holders electing to have any Senior Notes purchased pursuant to a
Change of Control Offer will be required to surrender the Senior Notes, with the
form entitled "Option of Holder to Elect Purchase" on the reverse of the Senior
Notes completed, or transfer by book-entry, to the Payment Agent at the address
specified in the notice prior to the close of business on the third Business Day
preceding the Change of Control Payment Date; (6) that Holders will be entitled
to withdraw their election if the Paying Agent receives, not later than the
close of business on the second Business Day preceding the Change of Control
Payment Date, a telegram, telex, facsimile transmission or letter setting forth
the name of the Holder, the principal amount of
57
<PAGE>
Senior Notes delivered for purchase, and a statement that such Holder is
withdrawing his election to have such Senior Notes purchased; and (7) that
Holders whose Senior Notes are being purchased only in part will be issued new
Senior Notes equal in principal amount to the unpurchased portion of the Senior
Notes surrendered (or transferred by book-entry), which unpurchased portion must
be equal to $1,000 in principal amount or an integral multiple thereof. The
Company will comply with the requirements of Rule 14e-1 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and any other securities
laws and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the Senior Notes in connection
with a Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (1) accept for payment all Senior Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (2) deposit with the Paying
Agent an amount equal to the Change of Control Payment in respect of all Senior
Notes or portions thereof so tendered and (3) deliver or cause to be delivered
to the Trustee the Senior Notes so accepted together with an Officers'
Certificate stating the aggregate principal amount of Senior Notes so tendered
and the Change of Control Payment for such Senior Notes, and the Trustee will
promptly authenticate and mail (or cause to be transferred by book entry) to
each Holder a new Senior Note equal in principal amount to any unpurchased
portion of the Senior Notes surrendered, if any; PROVIDED that each such new
Senior Note will be in a principal amount of $1,000 or an integral multiple
thereof. The Company will publicly announce the results of the Change of Control
Offer on or as soon as practicable after the Change of Control Payment Date.
Except as described above with respect to a Change of Control, the Indenture
does not contain provisions that permit the Holders of the Senior Notes to
require that the Company repurchase or redeem the Senior Notes in the event of a
takeover, recapitalization or similar restructuring.
The New Credit Agreement contains prohibitions of certain events that would
constitute a Change of Control. In addition, the exercise by the Holders of the
Senior Notes of their right to require the Company to repurchase the Senior
Notes upon the occurrence of a Change of Control or an Asset Sale is prohibited
by the New Credit Agreement. Finally, the Company's ability to pay cash to the
Holders of Senior Notes upon such an event may be limited by the Company's then
existing financial resources.
The definition of Change of Control includes the sale, lease, transfer,
conveyance or other disposition of "all or substantially all" of the assets of
the Company and its Restricted Subsidiaries taken as a whole. Although there is
a developing body of case law interpreting the phrase "substantially all," there
is no precise established definition of the phrase under applicable law.
Accordingly, the ability of a Holder of Senior Notes to require the Company to
repurchase such Senior Notes as a result of a sale, lease, transfer, conveyance
or other disposition of less than all of the assets of the Company and its
Restricted Subsidiaries taken as a whole to another Person or group may be
uncertain.
ASSET SALES
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, engage in an Asset Sale unless (i) the
Company (or the Restricted Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the fair market
value (evidenced by a resolution of the Board of Directors set forth in an
Officers' Certificate delivered to the Trustee) of the assets or Equity
Interests issued, sold or otherwise disposed of in such Asset Sale less the
amount of liabilities (as shown on the Company's or such Restricted Subsidiary's
most recent balance sheet or in the notes thereto) and obligations assumed in
connection with such Asset Sale by the transferee of any such assets or on
behalf of such transferee by a third party and (ii) except with respect to Asset
Sales involving Obsolete Plants, at least 80% of the consideration therefor
received by the Company or such Restricted Subsidiary (after deducting expenses
associated with such Asset Sale) is in the form of cash or Cash Equivalents;
PROVIDED that the amount of (x) any liabilities (as shown on the Company's or
such Restricted Subsidiary's most recent balance sheet or in the notes thereto)
of the Company or such Restricted Subsidiary that are assumed in connection with
such Asset Sale by the transferee of any such assets or on behalf of such
transferee by a third party and (y) any notes or other obligations received by
the Company or any such
58
<PAGE>
Restricted Subsidiary from such transferee that are immediately converted by the
Company or such Restricted Subsidiary into cash or Cash Equivalents and (z) with
respect to any Asset Sale for consideration not exceeding $10 million, up to $10
million principal amount of notes or other obligations received by the Company
or such Restricted Subsidiary from such transferee that are repaid in cash or
Cash Equivalents to the Company or such Restricted Subsidiary within 360 days
after consummation of such Asset Sale (to the extent of the cash or Cash
Equivalents received), shall be deemed to be cash for purposes of this
provision.
Within 360 days after the consummation of any Asset Sale, the Company may
apply the Net Proceeds from such Asset Sale, at its option, (a) to reduce Senior
Term Debt, (b) to reduce Senior Revolving Debt or (c) to an acquisition of a
Permitted Business, the making of capital expenditures or the acquisition of
other fixed assets, in each case, engaged or used in a Permitted Business. At
any time on or prior to 360 days following consummation of any Asset Sale, the
Company may designate all or any portion of the Net Proceeds from such Asset
Sale as "Excess Proceeds." Pending the final application of any such Net
Proceeds in accordance with the first sentence of this paragraph or to an Asset
Sale Offer, the Company may invest such Net Proceeds in any manner that is not
prohibited by the Indenture and may temporarily repay Senior Revolving Debt. Any
Net Proceeds from Asset Sales that are not applied or invested as provided in
the first sentence of this paragraph or which are designated "Excess Proceeds"
as provided above in this paragraph will constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds exceeds $25 million, the Company will be
required to make an offer to all Holders of Senior Notes (an "Asset Sale Offer")
to purchase the maximum principal amount of Senior Notes that may be purchased
out of the Excess Proceeds, at an offer price in cash equal to 100% of the
principal amount thereof plus accrued and unpaid interest thereon to the date of
purchase in accordance with the procedures set forth in the Indenture. To the
extent that the aggregate amount of Senior Notes tendered pursuant to an Asset
Sale Offer is less than the Excess Proceeds, the Company may use any remaining
Excess Proceeds for general corporate purposes. If the aggregate principal
amount of Senior Notes tendered pursuant to an Asset Sale Offer exceeds the
amount of Excess Proceeds, the Trustee shall select the Senior Notes to be
purchased on a pro rata basis. Upon completion of such offer to purchase, the
amount of Excess Proceeds shall be reset at zero.
SELECTION AND NOTICE
If less than all of the Senior Notes are to be redeemed at any time,
selection of Senior Notes for redemption will be made by the Trustee in
compliance with the requirements of the principal national securities exchange,
if any, on which the Senior Notes are listed, or, if the Senior Notes are not so
listed, on a pro rata basis, by lot or by such method as the Trustee shall deem
fair and appropriate; PROVIDED that no Senior Notes of $1,000 or less shall be
redeemed in part. Notices of redemption shall be mailed by First Class mail at
least 30 but not more than 60 days before the redemption date to each Holder of
Senior Notes to be redeemed at its registered address. If any Senior Note is to
be redeemed in part only, the notice of redemption that relates to such Senior
Note shall state the portion of the principal amount thereof to be redeemed. A
new Senior Note in principal amount equal to the unredeemed portion thereof will
be issued in the name of the Holder thereof upon cancellation of the original
Senior Note. On and after the redemption date, interest ceases to accrue on
Senior Notes or portions of them called for redemption.
CERTAIN COVENANTS
RESTRICTED PAYMENTS
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly: (i) declare or
pay any dividend or make any distribution on account of the Company's Equity
Interests (other than dividends or distributions payable to any Wholly Owned
Restricted Subsidiary of the Company); (ii) purchase, redeem or otherwise
acquire or retire for value any Equity Interests of the Company; (iii) purchase,
redeem or otherwise acquire or retire for value any Indebtedness that is
subordinated to the Senior Notes, except at final maturity thereof as set forth
in the original documentation governing such Indebtedness; or (iv) make any
Restricted Investment (all such payments and other actions set forth in clauses
(i) through (iv) above being collectively referred to as "Restricted Payments"),
unless, at the time of such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof; and
59
<PAGE>
(b) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the applicable four-quarter period, have been permitted
to incur at least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of the covenant
entitled "Incurrence of Indebtedness and Issuance of Preferred Stock;" and
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Restricted Subsidiaries
after the date of the Indenture (including Restricted Payments permitted by
clauses (v), (w) and (y) of the next succeeding paragraph), is less than the
sum of (w) 50% of the Consolidated Net Income of the Company (excluding the
amount of all cash payments received by the Company and its Wholly Owned
Restricted Subsidiaries from URC or the APAO Joint Venture after the date of
the Indenture as fees for licensing of intellectual property rights or other
proprietary technology that are applied to an Investment in either such
joint venture pursuant to clause (d) of the definition of "Permitted
Investments") for the period (taken as one accounting period) from the
beginning of the first month commencing after the date of the Indenture to
the end of the Company's most recently ended fiscal quarter for which
internal financial statements are available at the time of such Restricted
Payment (or, if such Consolidated Net Income for such period is a deficit,
less 100% of such deficit), PLUS (x) 100% of the aggregate net cash proceeds
received by the Company from the issue or sale since the date of the
Indenture of Equity Interests of the Company or of debt securities of the
Company that have been converted into such Equity Interests (other than
Equity Interests (or convertible debt securities) sold to a Subsidiary of
the Company and other than Disqualified Stock or debt securities that have
been converted into Disqualified Stock), PLUS (y) to the extent that any
Restricted Investment that was made after the date of the Indenture is sold
for cash or otherwise liquidated or repaid for cash, the lesser of (A) the
cash return of capital with respect to such Restricted Investment (less the
cost of disposition if any) and (B) the initial amount of such Restricted
Investment.
The foregoing provisions will not prohibit (v) the payment of any dividend
within 60 days after the date of declaration thereof if, at said date of
declaration, such payment would have complied with the provisions of the
Indenture; (w) the redemption, repurchase, retirement or other acquisition of
any Equity Interests of the Company in exchange for, or out of the proceeds of,
the substantially concurrent sale (other than to a Restricted Subsidiary of the
Company or a Designated Unrestricted Subsidiary) of other Equity Interests of
the Company (other than any Disqualified Stock); (x) the defeasance, redemption
or repurchase of subordinated Indebtedness with the net proceeds from an
incurrence of Permitted Refinancing Indebtedness; (y) the repurchase, redemption
or other acquisitions or retirement for value of any Equity Interests of the
Company or any Restricted Subsidiary of the Company held by any member of the
Company's (or any of its Restricted Subsidiaries') management pursuant to any
management equity subscription agreement or stock option agreement; PROVIDED
that (1) the aggregate price paid for all such repurchased, redeemed, acquired
or retired Equity Interests shall not exceed $1.0 million in any twelve-month
period plus the aggregate cash proceeds received by the Company during such
twelve-month period from any reissuance of Equity Interests by the Company to
members of management of the Company and its Restricted Subsidiaries and (2) no
Default or Event of Default shall have occurred and be continuing immediately
after such transaction; or (z) Restricted Payments to the extent made with
Equity Interests (other than Disqualified Stock) of the Company.
In no event will the Company or any Restricted Subsidiary of the Company
make an Investment after the date of the Indenture in any Person in which it has
an Equity Interest on the date of the Indenture but which is not a Subsidiary of
the Company on the date of the Indenture, including any Guarantee of
Indebtedness of such Person, in excess of the aggregate cash received from such
Person after the date of the Indenture by the Company and its Wholly Owned
Restricted Subsidiaries as fees for the licensing of any intellectual property
rights or other proprietary technology.
Not later than the thirtieth day after the end of each calendar quarter in
which any Restricted Payment is made, the Company shall deliver to the Trustee
an Officers' Certificate stating that such Restricted
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<PAGE>
Payment was permitted and setting forth the basis upon which the calculations
required by the covenant entitled "-- Restricted Payments" were computed, which
calculations may be based upon the Company's latest available financial
statements at the time such Officers' Certificate is delivered.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if (x) the Company would, at the time of such
designation and after giving pro forma effect thereto as if such designation had
been made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test set forth in the first paragraph of the
covenant described below under the caption "-- Incurrence of Indebtedness and
Issuance of Preferred Stock" and (y) such designation would not cause a Default.
For purposes of making such determination, all outstanding Investments by the
Company and its Restricted Subsidiaries in the Subsidiary so designated will be
deemed to be Restricted Payments at the time of such designation and will reduce
the amount available for Restricted Payments under the first paragraph of this
covenant. All such outstanding Investments will be deemed to constitute
Investments in an amount equal to the greater of (y) the net book value of such
Investments at the time of such designation or (z) the fair market value of such
Investments at the time of such designation. Such designation will only be
permitted if such Restricted Payment would be permitted at such time and if such
Restricted Subsidiary otherwise meets the definition of an Unrestricted
Subsidiary.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, create, incur, issue, assume, guarantee
or otherwise become liable with respect to (collectively, "incur") any
Indebtedness (including Acquired Debt) and that the Company will not issue any
Disqualified Stock and will not permit any of its Restricted Subsidiaries to
issue any shares of preferred stock; PROVIDED, HOWEVER, that the Company and any
Subsidiary Guarantor may incur Indebtedness (including Acquired Debt) or the
Company may issue shares of Disqualified Stock if the Fixed Charge Coverage
Ratio for the Company's most recently ended four full fiscal quarters for which
internal financial statements are available immediately preceding the date on
which such additional Indebtedness is incurred or such Disqualified Stock is
issued would have been at least 2.0 to 1, with respect to any such Indebtedness
incurred, or Disqualified Stock issued, on or prior to , 1997, and at
least 2.25 to 1, with respect to any such Indebtedness incurred, or Disqualified
Stock issued, after , determined on a pro forma basis (including a
pro forma application of the net proceeds therefrom), as if the additional
Indebtedness had been incurred, or the Disqualified Stock had been issued, as
the case may be, at the beginning of such four-quarter period.
The restrictions imposed in the foregoing paragraph will not apply to:
(i) the incurrence by the Company and any Subsidiary Guarantor of Senior
Term Debt in an aggregate principal amount outstanding at any time not to
exceed $100 million LESS the aggregate amount of all repayments after the
date of the Indenture, optional or mandatory, of the principal of such
Indebtedness, including, without limitation, pursuant to the covenant
entitled "-- Asset Sales";
(ii) the incurrence by the Company and any Subsidiary Guarantor of
Senior Revolving Debt and letters of credit (and any Guarantees thereof by
the Company and any Subsidiary Guarantor) in an aggregate principal amount
at any time outstanding (with letters of credit and Guarantees being deemed
to have a principal amount equal to the maximum potential liability of the
Company and its Restricted Subsidiaries thereunder) not to exceed the
Borrowing Base LESS the aggregate amount of all permanent repayments of
Senior Revolving Debt made pursuant to clause (b) of the first sentence of
the second paragraph of the covenant entitled "Asset Sales";
(iii) the incurrence by the Company and any Subsidiary Guarantor of
Acquisition Debt, if the Fixed Charge Coverage Ratio for the Company's most
recently ended four full fiscal quarters for which internal financial
statements are available immediately preceding the date on which such
Acquisition Debt is incurred, determined on a pro forma basis as if the
Acquisition Debt had been incurred and the related acquisition had been
consummated at the beginning of such four-quarter period, would be greater
than the actual Fixed Charge Coverage Ratio of the Company for such
four-quarter period;
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<PAGE>
(iv) the incurrence by the Company and any Subsidiary Guarantor of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds of
which are used to extend, refinance, renew, replace, decrease or refund
Indebtedness that was permitted by the Indenture to be incurred;
(v) the incurrence by the Company or any of its Restricted Subsidiaries
of intercompany Indebtedness between or among the Company and any of its
Restricted Subsidiaries;
(vi) the incurrence in the ordinary course of business by the Company
and any Subsidiary Guarantor of Hedging Obligations;
(vii) the incurrence by the Company and any Subsidiary Guarantor of
Indebtedness pursuant to letters of credit issued in the ordinary course of
business to support payment by the Company and such Subsidiary Guarantors of
insurance premiums;
(viii) the incurrence by the Company of Existing Debt;
(ix) the incurrence of Indebtedness which also constitutes Investments,
to the extent permitted by the covenant entitled "-- Restricted Payments";
(x) the incurrence of Indebtedness for general corporate purposes by any
Foreign Subsidiary that is a Restricted Subsidiary and not a Subsidiary
Guarantor in an aggregate principal amount outstanding at any time not
exceeding such Foreign Subsidiary's Foreign Subsidiary Borrowing Base; and
(xi) the incurrence by the Company and any Subsidiary Guarantor of
additional Indebtedness in an aggregate principal amount outstanding at any
one time not exceeding $35 million.
LIENS
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, create, incur,
assume or suffer to exist any Lien on any asset now owned or hereafter acquired,
or any income or profits therefrom, or assign or convey any right to receive any
income or profits therefrom, except Permitted Liens.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective any contractual
encumbrance or other restriction on the ability of any Restricted Subsidiary to
(i) (a) pay dividends or make any other distributions to the Company or any of
its Restricted Subsidiaries (1) on its Capital Stock or (2) with respect to any
other interest or participation in, or measured by, its profits or (b) pay any
Indebtedness owed to the Company or any of its Restricted Subsidiaries, (ii)
make loans or advances to the Company or any of its Restricted Subsidiaries or
(iii) transfer any of its properties or assets to the Company or any of its
Restricted Subsidiaries, in each case, except for such encumbrances or
restrictions existing under or by reason of (a) applicable law, (b) any
instrument governing Indebtedness or Capital Stock of a Person acquired by the
Company or any of its Restricted Subsidiaries as in effect at the time of such
acquisition (except to the extent such Indebtedness was incurred in connection
with or in contemplation of such acquisition), which encumbrance or restriction
is not applicable to any Person, or the properties or assets of any Person,
other than the Person, or the property or assets of the Person, so acquired,
provided that the Consolidated Cash Flow of such Person is not taken into
account in determining whether such acquisition was permitted by the terms of
the Indenture, (c) any Bank Credit Agreement, PROVIDED that such encumbrances
and restrictions are no more restrictive than such encumbrances and restrictions
under the New Credit Agreement as in effect on the date of the Indenture, (d) by
reason of customary non-assignment provisions in leases entered into in the
ordinary course of business and consistent with past practices or (e) purchase
money obligations and Capital Lease Obligations for property acquired in the
ordinary course of business that impose restrictions of the nature described in
clause (iii) above on the property so acquired.
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MERGER, CONSOLIDATION, OR SALE OF ASSETS
The Indenture will provide that the Company may not consolidate or merge
with or into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its properties or assets in one or more related transactions, to another
corporation, Person or entity unless (i) the Company is the surviving
corporation or the entity or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United States,
any state thereof or the District of Columbia, (ii) the entity or Person formed
by or surviving any such consolidation or merger (if other than the Company) or
the entity or Person to which such sale, assignment, transfer, lease, conveyance
or other disposition shall have been made assumes all the obligations of the
Company under the Senior Notes and the Indenture pursuant to a supplemental
Indenture in a form reasonably satisfactory to the Trustee; (iii) immediately
after such transaction no Default or Event of Default exists; and (iv) the
Company or the entity or Person formed by or surviving any such consolidation or
merger (if other than the Company), or to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made (A) will have
Consolidated Net Worth (immediately after the transaction but prior to any
purchase accounting adjustments resulting from the transaction) equal to or
greater than the Consolidated Net Worth of the Company immediately preceding the
transaction and (B) will, at the time of such transaction and after giving pro
forma effect thereto as if such transaction had occurred at the beginning of the
applicable four-quarter period, be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in the first paragraph of the covenant described above under the caption
"Incurrence of Indebtedness and Issuance of Preferred Stock."
TRANSACTIONS WITH AFFILIATES
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into or make any contract, agreement, understanding, loan,
advance or guarantee with, or for the benefit of, any Affiliate (each of the
foregoing, an "Affiliate Transaction"), unless (i) such Affiliate Transaction is
on terms that are no less favorable to the Company or the relevant Restricted
Subsidiary than those that would have been obtained in a comparable transaction
by the Company or such Restricted Subsidiary with an unrelated Person and (ii)
the Company delivers to the Trustee (a) with respect to any Affiliate
Transaction involving aggregate consideration in excess of $1 million, a
resolution of the Board of Directors set forth in an Officers' Certificate
certifying that such Affiliate Transaction complies with clause (i) above and
that such Affiliate Transaction has been approved by a majority of the
disinterested members of the Board of Directors and (b) with respect to any
Affiliate Transaction involving aggregate consideration in excess of $10
million, an opinion as to the fairness to the Company or such Restricted
Subsidiary of such Affiliate Transaction from a financial point of view issued
by an investment banking firm of national standing; PROVIDED, HOWEVER, that (x)
any contract, agreement, understanding, payment, loan, advance or guarantee
(each a "Compensation Benefit") with, for the benefit of, or to an executive
officer of the Company as compensation for employment by the Company, whether
pursuant to an employment agreement, an employee benefit plan or other
compensation arrangement if either (1) such Compensation Benefit is less than $1
million or (2) is approved by the Compensation Committee or the Board of
Directors of the Company, (y) transactions between or among the Company and/or
its Restricted Subsidiaries and (z) transactions permitted by the covenant
entitled "-- Restricted Payments," in each case, shall not be deemed Affiliate
Transactions.
LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF WHOLLY OWNED
RESTRICTED SUBSIDIARIES
The Indenture will provide that the Company (i) will not, and will not
permit any Wholly Owned Restricted Subsidiary of the Company to, transfer,
convey or sell any Capital Stock of any Wholly Owned Restricted Subsidiary of
the Company to any Person (other than the Company or a Wholly Owned Restricted
Subsidiary of the Company), unless (a) such transfer, conveyance or sale is of
all the Capital Stock of such Wholly Owned Restricted Subsidiary and (b) the
cash Net Proceeds from such transfer, conveyance or sale are applied in
accordance with the covenant described above under the caption "-- Asset Sales,"
and
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(ii) will not permit any Wholly Owned Restricted Subsidiary of the Company to
issue any of its Equity Interests (other than, if necessary, shares of its
Capital Stock constituting directors' qualifying shares) to any Person other
than to the Company or a Wholly Owned Restricted Subsidiary of the Company.
SUBSIDIARY GUARANTEES
The Indenture will provide that the Company will cause all Subsidiaries of
the Company that are designated or are otherwise deemed to be Restricted
Subsidiaries after the date of the Indenture (other than Foreign Subsidiaries)
to execute Subsidiary Guarantees. The Company may, at its option, cause any
Restricted Subsidiary that is a Foreign Subsidiary to execute a Subsidiary
Guarantee.
LIMITATION ON APPLICABILITY OF CERTAIN COVENANTS
During any period of time that (i) the ratings assigned to the Senior Notes
by each of Standard & Poor's Ratings Group and Moody's Investors Services
(collectively, the "Rating Agencies") are higher than BBB- and Baa3,
respectively (the "Investment Grade Ratings") and (ii) no Default or Event of
Default has occurred and is continuing, the Company and its Restricted
Subsidiaries will not be subject to the covenants entitled "Assets Sales,"
"Restricted Payments" and "Incurrence of Indebtedness and Issuance of Preferred
Stock" (collectively, the "Suspended Covenants"). If one or both Rating Agencies
withdraws its rating or downgrades its Investment Grade Rating, then thereafter
the Company and its Restricted Subsidiaries will be subject to the Suspended
Covenants (until the Rating Agencies have again assigned Investment Grade
Ratings to the Senior Notes) and compliance with the Suspended Covenants with
respect to Restricted Payments made after the time of such withdrawal or
downgrade will be calculated in accordance with the covenant entitled
"Restricted Payments" as if such covenant had been in effect at all times after
the date of the Indenture.
REPORTS
The Indenture will provide that, whether or not required by the federal
securities laws or the rules and regulations of the Securities and Exchange
Commission (the "Commission"), so long as any Senior Notes are outstanding, the
Company will furnish to the Holders of Senior Notes (i) all quarterly and annual
financial information that would be required to be contained in a filing with
the Commission on Forms 10-Q and 10-K if the Company were required to file such
Forms including, in addition to the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" with respect to the Company and
its Subsidiaries required pursuant to such Forms with respect to the annual
information only, a report thereon by the Company's certified independent
accountants and (ii) all current reports that would be required to be filed with
the Commission on Form 8-K if the Company were required to file such reports. If
at any time during the period presented in such quarterly or annual financial
information, the Company has one or more Unrestricted Subsidiaries that singly
or together would constitute a Significant Subsidiary, all such quarterly and
annual financial information shall also include a "Management's Discussion and
Analysis of Financial Condition and Results of Operations" with respect to the
Company and its Restricted Subsidiaries (if any) for such period. In addition,
whether or not required by the federal securities laws or the rules and
regulations of the Commission, the Company will file a copy of all such
information and reports with the Commission for public availability and make
such information available to securities analysts and prospective investors upon
request.
EVENTS OF DEFAULT AND REMEDIES
The Indenture will provide that each of the following constitutes an Event
of Default: (i) default for 30 days in the payment when due of interest on any
Senior Note; (ii) default in payment when due of the principal of or premium, if
any, on any Senior Note; (iii) failure by the Company for 30 days to comply with
any of the provisions described under the captions "Certain Covenants -- Change
of Control," "-- Asset Sales," "-- Restricted Payments" or "-- Incurrence of
Indebtedness and Issuance of Preferred Stock"; (iv) failure by the Company for
60 days after notice to comply with any of its other agreements in the Indenture
or the Senior Notes; (v) default under any mortgage, indenture or instrument
under which there may be issued or by which there may be secured or evidenced
any Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by the Company or any of its
Restricted Subsidiaries) whether such Indebtedness or guarantee now exists, or
is created after the date
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of the Indenture, which default (a) is caused by a failure to pay principal of
or premium, if any, or interest on such Indebtedness prior to the expiration of
a period of ten days after expiration of any grace period provided in such
Indebtedness (as amended from time to time) (a "Payment Default") or (b) results
in the acceleration of such Indebtedness prior to its express maturity and, in
each case, the principal amount of any such Indebtedness, together with the
principal amount of any other such Indebtedness under which there has been a
Payment Default or the maturity of which has been so accelerated, aggregates $10
million or more (excluding the principal amount of the Senior Notes); (vi)
failure by the Company or any of its Restricted Subsidiaries to pay final
judgments aggregating in excess of $5 million, which judgments are not paid,
discharged or stayed for a period of 60 days; (vii) except as permitted by the
Indenture or if, at the time thereof, the obligor under such Subsidiary
Guarantee is and is permitted to be designated as an Unrestricted Subsidiary
without causing a Default, any Subsidiary Guarantee of a Significant Subsidiary
shall be held in any judicial proceeding to be unenforceable or invalid or shall
cease for any reason to be in full force and effect or any Subsidiary Guarantor
that is a Significant Subsidiary, or any Person acting on behalf of any such
Subsidiary Guarantor, shall deny or disaffirm, in writing, its obligation under
its Subsidiary Guarantee; and (viii) certain events of bankruptcy or insolvency
with respect to the Company or any Restricted Subsidiary that is a Significant
Subsidiary.
If any Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the then outstanding Senior Notes may
declare all the Senior Notes to be due and payable immediately. Notwithstanding
the foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Company or any Restricted
Subsidiary that is a Significant Subsidiary, all outstanding Senior Notes will
become due and payable without further action or notice. Holders of the Senior
Notes may not enforce the Indenture or the Senior Notes except as provided in
the Indenture. Subject to certain limitations, Holders of a majority in
principal amount of the then outstanding Senior Notes may direct the Trustee in
its exercise of any trust or power. The Trustee may withhold from Holders of the
Senior Notes notice of any continuing Default or Event of Default (except a
Default or event of Default relating to the payment of principal, premium or
interest) if it determines that withholding notice is in their interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Senior Notes pursuant to
the optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Senior Notes. If an Event of Default occurs prior
to by reason of any willful action (or inaction) taken (or not taken)
by or on behalf of the Company with the intention of avoiding the prohibition on
redemption of the Senior Notes prior to such date, then the Make-whole Premium
shall also become immediately due and payable to the extent permitted by law
upon the acceleration of the Senior Notes.
The Holders of a majority in aggregate principal amount of the Senior Notes
then outstanding by notice to the Trustee may on behalf of the Holders of all of
the Senior Notes waive any existing Default or Event of Default and its
consequences under the Indenture except a continuing Default or Event of Default
in the payment of interest or premium on, or the principal of, the Senior Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OR DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company
or any Subsidiary Guarantor, as such, shall have any liability for any
obligations of the Company or any Subsidiary Guarantor under the Senior Notes,
the Indenture or any Subsidiary Guarantee, or for any claim based on, in respect
of, or by reason of, such obligations or their creation. Each Holder of Senior
Notes by accepting a Senior Note waives
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and releases all such liability. The waiver and release are part of the
consideration for issuance of the Senior Notes. Such waiver may not be effective
to waive liabilities under the federal securities laws and it is the view of the
Commission that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Senior Notes ("Legal
Defeasance") except for (i) the rights of Holders of outstanding Senior Notes to
receive payments in respect of the principal of, premium, if any, and interest
on such Senior Notes when such payments are due solely out of the trust funds
deposited pursuant to the following paragraph, (ii) the Company's obligations
with respect to the Senior Notes concerning issuing temporary Senior Notes,
registration of Senior Notes, mutilated, destroyed, lost or stolen Senior Notes
and the maintenance of an office or agency for payment and money for security
payments held in trust, and (iii) the rights, powers, trusts, duties and
immunities of the Trustee, and the Company's obligations in connection
therewith. In addition, the Company may, at its option and at any time, elect to
have the obligations of the Company released with respect to certain covenants
that are described in the Indenture ("Covenant Defeasance") and thereafter any
omission to comply with such covenants shall not constitute a Default or Event
of Default with respect to the Senior Notes. In the event Covenant Defeasance
occurs, certain events (not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "Events of Default" will
no longer constitute an Event of Default with respect to the Senior Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit of
the Holders of the Senior Notes, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, premium, if any, and interest on the outstanding Senior
Notes on the stated maturity or on the applicable redemption date, as the case
may be, and the Company must specify whether the Senior Notes are being defeased
to maturity or to a particular redemption date; (ii) in the case of Legal
Defeasance, the Company shall have delivered to the Trustee an Opinion of
Counsel in the United States reasonably acceptable to the Trustee confirming
that (A) the Company has received from, or there has been published by, the
Internal Revenue Service a ruling or (B) since the date of the Indenture, there
has been a change in the applicable federal income tax law, in either case to
the effect that, and based thereon such Opinion of Counsel shall confirm that,
the Holders of the outstanding Senior Notes will not recognize income, gain or
loss for federal income tax purposes as a result of such Legal Defeasance and
will be subject to federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such Legal Defeasance had
not occurred; (iii) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an Opinion of Counsel in the United States reasonably
acceptable to the Trustee confirming that the Holders of the outstanding Senior
Notes will not recognize income, gain or loss for federal income tax purposes as
a result of such Covenant Defeasance and will be subject to federal income tax
on the same amounts, in the same manner and at the same times as would have been
the case if such Covenant Defeasance had not occurred; (iv) no Default or Event
of Default shall have occurred and be continuing on the date of such deposit
(other than a Default or Event of Default resulting from the borrowing of funds
to be applied to such deposit) or insofar as Events of Default from bankruptcy
or insolvency events are concerned, at any time in the period ending on the 91st
day after the date of deposit; (v) such Legal Defeasance or Covenant Defeasance
will not result in a breach or violation of, or constitute a default under any
material agreement or instrument (other than the Indenture) to which the Company
or any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound; (vi) the Company must have delivered to the Trustee an
Opinion of Counsel to the effect that after the 91st day following the deposit,
the trust funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally; (vii) the Company must deliver to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the intent
of preferring the Holders of Senior Notes over the other creditors of the
Company with the intent of defeasing, hindering, delaying or defrauding
creditors of
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the Company or others; and (viii) the Company must deliver to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent provided for relating to the Legal Defeasance or the
Covenant Defeasance have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Senior Notes in accordance with the
Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company is not required to transfer or exchange
any Senior Note selected for redemption. Also, the Company is not required to
transfer or exchange any Senior Note for a period of 15 days before a selection
of Senior Notes to be redeemed.
The registered Holder of a Senior Note will be treated as the owner of it
for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture or
the Senior Notes may be amended or supplemented with the consent of the Holders
of at least a majority in principal amount of the Senior Notes then outstanding
(including waivers obtained in connection with a tender offer or exchange offer
for Senior Notes), and any existing default or compliance with any provision of
the Indenture or the Senior Notes may be waived with the consent of the Holders
of a majority in principal amount of the then outstanding Senior Notes
(including consents obtained in connection with the tender offer or exchange
offer for Senior Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Senior Notes held by a non-consenting Holder): (i) reduce
the principal amount of Senior Notes whose Holders must consent to an amendment,
supplement or waiver, (ii) reduce the principal of or change the fixed maturity
of any Senior Note or alter the provisions with respect to the redemption of the
Senior Notes (other than provisions relating to the covenants described above
under the captions "-- Repurchase at the Option of Holders"), (iii) reduce the
rate of or change the time for payment of interest on any Senior Note, (iv)
waive a Default or Event of Default in the payment of principal of or premium,
if any, or interest on the Senior Notes (except a rescission of acceleration of
the Senior Notes by the Holders of at least a majority in aggregate principal
amount of the Senior Notes and a waiver of the payment default that resulted
from such acceleration), (v) make any Senior Note payable in money other than
that stated in the Senior Notes, (vi) make any change in the provisions of the
Indenture relating to waivers of past Defaults or the rights of Holders of
Senior Notes to receive payments of principal of or premium, if any, or interest
on the Senior Notes, (vii) waive a redemption payment with respect to any Senior
Note (other than a payment required by one of the covenants described above
under the caption "-- Repurchase at the Option of Holders") or (viii) make any
change in the foregoing amendment and waiver provisions.
Without the consent of any Holder of Senior Notes, the Company and the
Trustee may amend or supplement the Indenture or the Senior Notes to cure any
ambiguity, defect or inconsistency, to provide for uncertificated Senior Notes
in addition to or in place of certificated Senior Notes, to provide for the
assumption of the Company's obligations to Holders of Senior Notes in the case
of a merger or consolidation, to make any change that would provide any
additional rights or benefits to the Holders of Senior Notes or that does not
materially adversely affect the legal rights under the Indenture of any such
Holder, or to comply with requirements of the Commission in order to effect or
maintain the qualification of the Indenture under the Trust Indenture Act. The
Trustee may, without the consent of any Holders of the Senior Notes, waive any
Event of Default that relates to untimely or incomplete reports or information
if the legal rights of the Holders would not be materially adversely affected
thereby and may waive any other defaults the effect of which would not
materially adversely affect the rights of the Holders under the Indenture.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in
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respect of any such claim as security or otherwise. The Trustee will be
permitted to engage in other transactions; however, if it acquires any
conflicting interest it must eliminate such conflict within 90 days, apply to
the Commission for permission to continue or resign.
The Holders of a majority in principal amount of the then outstanding Senior
Notes will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent person in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request of any Holder of Senior Notes, unless such Holder shall have
provided to the Trustee security and indemnity satisfactory to it against any
loss, liability or expense.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"ACQUIRED DEBT" means, with respect to the Company or any Restricted
Subsidiary of the Company, (i) Indebtedness of any other Person existing at the
time such other Person is merged with or into the Company or any such Restricted
Subsidiary or became a Restricted Subsidiary of the Company, including, without
limitation, Indebtedness incurred by such other Person in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Restricted Subsidiary of the Company, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such other Person prior to the date on which
the Company or any Restricted Subsidiary acquires such Person.
"ACQUISITION DEBT" means (i) Indebtedness incurred substantially
simultaneously with, and for the purpose of financing all or any part of the
purchase price or cost of, any acquisition of a Permitted Business, which
acquisition is permitted pursuant to the covenant entitled "-- Restricted
Payments" and (ii) Acquired Debt of the Person which is acquired.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such person, whether through the
ownership of voting securities, by agreement or otherwise; PROVIDED that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control; and PROVIDED FURTHER, that no employee or group of
employees of the Company (other than executive officers and directors) shall by
reason of their employment be deemed to be an Affiliate.
"APAO JOINT VENTURE" means a joint venture between the Company and any other
Person, other than URC, providing for the manufacture and sale of APAO outside
of the United States and Canada in geographic regions in which URC does not do
business.
"APAO VENTURE INVESTMENT" means each of the following Investments by the
Company and its Restricted Subsidiaries in the APAO Joint Venture: (i)
Investments of cash in an aggregate amount outstanding at any time (measured by
their fair market value as of the date made) not in excess of the aggregate cash
received after the date of the Indenture by the Company and its Restricted
Subsidiaries from the APAO Joint Venture as fees for the licensing to the APAO
Joint Venture of any intellectual property rights or other proprietary
technology relating to the manufacture of APAO and (ii) the Guarantee by the
Company and any Subsidiary Guarantor of Indebtedness of the APAO Joint Venture
in a principal amount not exceeding $15 million less all Investments made by the
Company and the Subsidiary Guarantors to satisfy their obligations under any
such Guarantee.
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"ASSET SALE" means (i) the sale, lease, transfer or conveyance of any assets
of the Company or any Restricted Subsidiary (including, without limitation, by
way of a sale and leaseback, but specifically excluding a sale and leaseback of
an asset occurring within 150 days after the completion of construction or
acquisition of such asset) other than in the ordinary course of business
(PROVIDED that the sale, lease, transfer or conveyance of all or substantially
all of the assets of the Company and its Restricted Subsidiaries taken as a
whole will be governed by the covenant entitled "-- Change of Control" and/or
the covenant entitled "-- Merger, Consolidation or Sale of Assets" and not by
the covenant entitled "Asset Sale"), (ii) the issuance by any Restricted
Subsidiary of the Company of Equity Interests of any of the Company's Restricted
Subsidiaries to any Person other than the Company or a Restricted Subsidiary,
and (iii) the sale by the Company or its Restricted Subsidiaries of Equity
Interests of any Restricted Subsidiary of the Company, in each case (a) whether
in a single transaction or a series of related transactions and (b) that have a
fair market value, as determined by the Board of Directors of the Company, in
excess of $1 million. Notwithstanding the foregoing: (i) a transfer of assets by
the Company to a Restricted Subsidiary or by a Restricted Subsidiary to the
Company or to another Restricted Subsidiary, (ii) a transfer of up to 375 acres
of undeveloped land located in Bayport, Texas, and owned by the Company on the
date of the Indenture, (iii) a disposition of any machinery, equipment,
furniture, apparatus, tools, implements, materials, supplies or other similar
property which have become worn out or obsolete, (iv) a Restricted Payment that
is permitted by the covenant entitled "-- Restricted Payments" or (v) a sale,
transfer or conveyance of any intellectual property rights of the Company (other
than those used in the CT Film division) to manufacture a product in any country
in which neither the Company nor any Restricted Subsidiary is manufacturing the
same product at the time of such sale, transfer or conveyance will not be deemed
to be an Asset Sale. In no event shall any sale, lease, transfer or conveyance
of (i) all or substantially all of the capital stock or assets of any of the
styrene, polymer or film businesses of the Company or (ii) all or substantially
all of the capital stock or assets of any Restricted Subsidiary or group of
Restricted Subsidiaries that singly or together would constitute a Significant
Subsidiary or (iii) assets which account for (A) at least 10% of the
consolidated assets of the Company and its Restricted Subsidiaries as of the end
of the most recently ended fiscal quarter of the Company or (B) at least 10% of
the Consolidated Cash Flow of the Company for the four full fiscal quarters
immediately preceding such sale, lease or conveyance be deemed to be made in the
ordinary course of business.
"BANK CREDIT AGREEMENTS" means one or more credit agreements between the
Company and lenders thereunder providing for term borrowings and/or revolving
borrowings, including all related notes, guarantees, collateral documents,
instruments and agreements executed in connection therewith, in each case as
amended, modified, renewed, refunded, replaced or refinanced, in whole or in
part, from time to time (and regardless of the number of lenders thereunder and
whether Indebtedness thereunder would constitute Permitted Refinancing
Indebtedness) and including, but not limited to, the New Credit Agreement.
"BORROWING BASE" means the greater of (i) $80 million and (ii) the sum of
(A) 80% of the net book value of all accounts receivable of the Company that are
not more than 60 days past due and (B) 60% of the net book value of all
inventory of the Company.
"CAPITAL LEASE OBLIGATION" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"CAPITAL STOCK" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participation, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
"CASH EQUIVALENTS" means (i) United States dollars, pounds sterling and any
other freely convertible currency, (ii) securities issued or directly and fully
guaranteed or insured by the United States government or any agency or
instrumentality thereof, having maturities of not more than six months from the
date of acquisition, (iii) certificates of deposit and eurodollar time deposits,
with maturities of six months or less from the date of acquisition, bankers'
acceptances with maturities not exceeding six months and overnight
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bank deposits, in each case with any domestic commercial bank having capital and
surplus in excess of $500 million and a Keefe Bank Watch Rating of "B" or
better, (iv) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (ii) and (iii) above
entered into with any financial institution meeting the qualifications specified
in clause (iii) above and (v) commercial paper having the highest rating
obtainable from Moody's Investors Service, Inc. or Standard & Poor's Corporation
and in each case maturing within six months after the date of acquisition.
"CHANGE OF CONTROL" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition in one or a series of
related transactions, by merger or consolidation or otherwise, of all or
substantially all of the assets of the Company and its Restricted Subsidiaries
taken as a whole to any Person or Group (as such term is used in Sections
13(d)(3) and 14(d)(2) of the Exchange Act), (ii) the adoption of a plan relating
to the liquidation or dissolution of the Company unless such plan is abandoned
within 30 days after the date of adoption of such plan, (iii) the acquisition by
any Person or Group (as defined above) of a direct or indirect interest in more
than 50% of the voting power of the voting stock of the Company, by way of
merger or consolidation or otherwise, or (iv) the first day on which a majority
of the members of the Board of Directors of the Company are not Continuing
Directors. For purposes of this definition, any transfer of an Equity Interest
of an entity that was formed for the purpose of acquiring voting stock of the
Company will be deemed to be a transfer of such portion of such voting stock as
corresponds to the portion of the equity of such entity that has been so
transferred, and the acquisition of voting power of the voting stock of the
Company by any Subsidiary of the Company shall be disregarded.
"COGEN ASSETS" means (i) feasibility studies and other similar developmental
items related to one or more joint ventures to produce steam and power for the
Odessa Facility; PROVIDED, HOWEVER, that the aggregate cost thereof does not
exceed $3.0 million and (ii) up to ten acres of unused land at the Odessa
Facility which is owned by the Company as of the date of the Indenture.
"CONSOLIDATED CASH FLOW" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period PLUS (i) an amount
equal to any extraordinary loss plus any net loss realized in connection with an
Asset Sale (to the extent such losses were deducted in computing such
Consolidated Net Income), PLUS (ii) provision for taxes based on income or
profits of such Person and its Restricted Subsidiaries for such period, to the
extent that such provision for taxes was included in computing such Consolidated
Net Income PLUS (iii) consolidated interest expense of such Person and its
Restricted Subsidiaries for such period, whether paid or accrued and whether or
not capitalized (including, without limitation, amortization of original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings, and
net payments (if any) pursuant to Hedging Obligations), to the extent that any
such expense was deducted in computing such Consolidated Net Income, PLUS (iv)
depreciation and amortization (including amortization of goodwill and other
intangibles but excluding amortization of prepaid cash expenses that were paid
in a prior period) of such Person and its Restricted Subsidiaries for such
period to the extent that such depreciation and amortization were deducted in
computing such Consolidated Net Income PLUS (v) any other non-cash charges that
were deducted in computing such Consolidated Net Income less all non-cash income
that was included in computing such Consolidated Net Income. Notwithstanding the
foregoing, the provision for taxes on the income or profits of, and the
depreciation and amortization of, a Subsidiary of the referent person shall be
added to Consolidated Net Income to compute Consolidated Cash Flow only to the
extent (and in same proportion) that the Net Income of such Subsidiary was
included in calculating the Consolidated Net Income of such Person and only if a
corresponding amount would be permitted at the date of determination to be
dividended to the Company by such Subsidiary without prior approval, pursuant to
the terms of its charter and all agreements, instruments, judgments, decrees,
orders, statutes, rules and governmental regulations applicable to that
Subsidiary or its stockholders.
"CONSOLIDATED NET INCOME" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
PROVIDED that (i) the Net Income of any Person that is not a Restricted
Subsidiary or
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that is accounted for by the equity method of accounting shall be included only
to the extent of the amount of dividends or distributions paid in cash to the
referent Person or a Wholly Owned Restricted Subsidiary thereof, (ii) the Net
Income of any Restricted Subsidiary shall be excluded to the extent that the
declaration or payment of dividends or similar distributions by that Restricted
Subsidiary of that Net Income is not at the date of determination permitted
without any prior governmental approval (which has not been obtained) or,
directly or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Restricted Subsidiary or its stockholders, (iii)
the Net Income of any Person acquired in a pooling of interests transaction for
any period prior to the date of such acquisition shall be excluded and (iv) the
cumulative effect of a change in accounting principles shall be excluded.
"CONSOLIDATED NET WORTH" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such Person
and its consolidated Subsidiaries as of such date plus (ii) the respective
amounts reported on such Person's balance sheet as of such date with respect to
any series of preferred stock (other than Disqualified Stock) that by its terms
is not entitled to the payment of dividends unless such dividends may be
declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock, LESS (x) all write-ups (other than
write-ups resulting from foreign currency translations and write-ups of tangible
assets of a going concern business made within 12 months after the acquisition
of such business) subsequent to the date of the Indenture in the book value of
any asset owned by such Person or a consolidated Subsidiary of such Person, (y)
all investments as of such date in unconsolidated Subsidiaries and in Persons
that are not Subsidiaries (except, in each case, Permitted Investments), and (z)
all unamortized debt discount and expense and unamortized deferred charges as of
such date, all of the foregoing determined in accordance with GAAP.
"CONTINUING DIRECTORS" means, as of any date of determination, any member of
the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of the Indenture or (ii) was nominated for election or
elected to such Board of Directors with the affirmative vote of a majority of
the Continuing Directors who were members of such Board at the time of such
nomination or election.
"CONTRACT OBLIGATIONS" means contractual obligations of the Company and any
Subsidiary Guarantor to repay or credit to a third party amounts advanced by
such third party (or its Affiliates) to the Company or any Subsidiary Guarantor,
which obligations to repay or credit are secured by a lien on the assets of the
Company and/or any Subsidiary Guarantor. The amount of Contract Obligations
outstanding as of any date shall be equal to the aggregate amount of remaining
payments required to be made by, and credits required to be given by, the
Company and/or the Subsidiary Guarantors under the agreements related to such
Contractual Obligations at such time.
"CURRENCY AGREEMENT" means the obligation of any Person pursuant to any
foreign exchange contract, currency swap agreement or other similar agreement or
arrangement designed to protect such Person against fluctuations in currency
values.
"DEFAULT" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"DESIGNATED UNRESTRICTED SUBSIDIARY" means, as of any date, any Unrestricted
Subsidiary of the Company from which the Company and its Wholly Owned Restricted
Subsidiaries have received, as of the date of determination, cash distributions
in an amount less than the Investments made by the Company and its Restricted
Subsidiaries in such Unrestricted Subsidiary.
"DISQUALIFIED STOCK" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the Holder thereof, in whole or in part, on or prior to the date
that is 91 days after the date on which the Senior Notes mature.
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"EQUITY INTERESTS" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"EXISTING DEBT" means all Indebtedness outstanding on the date of the
Indenture.
"FIXED CHARGES" means, with respect to any Person for any period, the sum of
(i) the consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued, to the extent that such
expense was deducted in computing Consolidated Net Income (excluding all
non-cash amortization of financing fees incurred in connection with the
Recapitalization and including, without limitation, the interest component of
any deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, commissions, discounts and other fees
and charges incurred in respect of letter of credit or bankers' acceptance
financings, and net payments (if any) pursuant to Hedging Obligations) and (ii)
the consolidated interest expense of such Person and its Restricted Subsidiaries
that was capitalized during such period, and (iii) any interest expense on
Indebtedness of another Person that is Guaranteed by such Person or any of its
Restricted Subsidiaries or secured by a Lien on assets of such Person or any of
its Restricted Subsidiaries (whether or not such Guarantee or Lien is called
upon) and (iv) the product of (a) all cash dividend payments (and non-cash
dividend payments in the case of a Person that is a Restricted Subsidiary) on
any series of preferred stock of such Person, times (b) a fraction, the
numerator of which is one and the denominator of which is one minus the then
current combined federal, state and local statutory tax rate of such Person,
expressed as a decimal, in each case, on a consolidated basis and in accordance
with GAAP.
"FIXED CHARGE COVERAGE RATIO" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period. In the event that the
Company or any of its Restricted Subsidiaries incurs, assumes, Guarantees or
redeems any Indebtedness (other than revolving credit borrowings) or issues
preferred stock subsequent to the commencement of the period for which the Fixed
Charge Coverage Ratio is being calculated but prior to the date on which the
event for which the calculation of the Fixed Charge Coverage Ratio is made (the
"Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated
giving pro forma effect to such incurrence, assumption, Guarantee or redemption
of Indebtedness, or such issuance or redemption of preferred stock, as if the
same had occurred at the beginning of the applicable four-quarter reference
period. For purposes of making the computation referred to above, (i)
acquisitions that have been made by the Company or any of its Restricted
Subsidiaries, including through mergers or consolidations and including any
related financing transactions, during the four-quarter reference period or
subsequent to such reference period and on or prior to the Calculation Date
shall be deemed to have occurred on the first day of the four-quarter reference
period, and (ii) the Consolidated Cash Flow attributable to discontinued
operations, as determined in accordance with GAAP, and operations or businesses
disposed of prior to the Calculation Date, shall be excluded, and (iii) the
Fixed Charges attributable to discontinued operations, as determined in
accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded, but only to the extent that the obligations
giving rise to such Fixed Charges will not be obligations of the referent Person
or any of its Restricted Subsidiaries following the Calculation Date.
"FOREIGN SUBSIDIARY" means any Subsidiary of the Company organized under the
laws of a jurisdiction outside of the United States.
"FOREIGN SUBSIDIARY BORROWING BASE" means, with respect to any Foreign
Subsidiary that is a Restricted Subsidiary and not a Subsidiary Guarantor, the
sum of (A) 80% of the net book value of all accounts receivable of such Foreign
Subsidiary that are not more than 60 days past due and (B) 60% of the net book
value of all inventory of such Foreign Subsidiary.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in
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effect on the date of the Indenture; provided, however, that for purposes of all
information and other reports required to be delivered pursuant to the covenant
described under the caption "Reports", GAAP shall mean such generally accepted
accounting principles as are in effect from time to time.
"GUARANTEE" means, with respect to any Person, a guarantee (other than by
endorsement of negotiable instruments for collection in the ordinary course of
business), direct or indirect, in any manner (including, without limitation,
letters of credit and reimbursement agreements in respect thereof), of all or
any part of any Indebtedness that is owed by any other Person.
"HEDGING OBLIGATIONS" means, with respect to any Person, the obligations of
such Person under (i) Currency Agreements, (ii) Interest Rate Agreements and
(iii) agreements to protect against fluctuations in the price of feedstocks.
"HOLDER" means a Person in whose name a Senior Note is registered.
"INDEBTEDNESS" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or indebtedness representing
Hedging Obligations, Capital Lease Obligations or the balance of the deferred
and unpaid portion of the purchase price of any property, except any such
balance that constitutes an accrued expense or trade payable, if and to the
extent any of the foregoing indebtedness (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP, as well as all Indebtedness of others
secured by a Lien on any asset of such Person (whether or not such Indebtedness
is assumed by such Person) and, to the extent not otherwise included, the
Guarantee by such Person of any indebtedness of any other Person other than a
Restricted Subsidiary of such Person.
"INTEREST RATE AGREEMENT" means the obligations of any person pursuant to
any interest rate swap agreement, interest rate collar agreement or other
similar agreement or arrangement designed to protect such Person against
fluctuations in interest rates.
"INVESTMENT" means, with respect to the Company and its Restricted
Subsidiaries, any investment by the Company or any of its Restricted
Subsidiaries in other Persons (including Affiliates) in the form of loans
(including Guarantees of Indebtedness), advances (excluding commission, travel
and similar advances to officers and employees made in the ordinary course of
business), capital contributions, purchases or other acquisitions from such
other Persons for consideration of Indebtedness, Equity Interests, cash or other
property, and all other items that are or would be classified as investments on
a balance sheet prepared in accordance with GAAP; PROVIDED, HOWEVER, that
Investments do not include purchases and sales of goods and services in the
ordinary course of business on arms' length terms.
"LIEN" means, with respect to any asset owned by the Company or its
Restricted Subsidiaries, any mortgage, lien, pledge, charge, security interest
or encumbrance of any kind in respect of such asset, whether or not filed,
recorded or otherwise perfected under applicable law (including any conditional
sale or other title retention agreement, any option or other agreement to sell
or give a security interest in and any filing of or agreement to give any
financing statement under the Uniform Commercial Code (or equivalent statutes)
of any jurisdiction).
"MAKE-WHOLE PREMIUM" means, as of any date of determination, the greater of
(a) 1.0% of the then outstanding principal amount of the Senior Notes or (b) the
excess of (A) the present value of all required interest and principal payments
due on such Senior Notes from and after such date to the first date that the
Senior Notes may be redeemed at the option of the Company assuming all such
Senior Notes so redeemed and computed using a discount rate equal to the
Treasury Rate on such date plus 100 basis points compounded semi-annually over
(B) the then outstanding principal amount of the Senior Notes.
"NET INCOME" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation dispositions pursuant to sale and leaseback
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transactions) or (b) the disposition of any securities by such Person or any of
its Restricted Subsidiaries or the extinguishment of any Indebtedness of such
Person or any of its Restricted Subsidiaries and (ii) any extraordinary gain
(but not loss), together with any related provision for taxes on such
extraordinary gain (but not loss).
"NET PROCEEDS" means the aggregate proceeds of cash and Cash Equivalents
received by the Company or any of its Restricted Subsidiaries in respect of any
Asset Sale (including, without limitation, any cash received upon the sale or
other disposition of any non-cash consideration received in any Asset Sale), net
of the direct costs relating to such Asset Sale (including, without limitation,
legal, accounting and investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements) and any reserve for adjustment in
respect of the sale price of such asset or assets established in accordance with
GAAP.
"NEW CREDIT AGREEMENT" means the Credit Agreement, dated as of
, between the Company, the Bank of Nova Scotia and the lenders
party thereto.
"OBLIGATIONS" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"OBSOLETE PLANTS" means plant and equipment, together with land on which
such plant and equipment is situated, at the Odessa Facility that, as of the
date of the Indenture, has been shut down (other than plant or equipment that
has been temporarily shut down for repairs or maintenance); PROVIDED, HOWEVER,
that the aggregate net book value of all such Obsolete Plants on the date of the
Indenture shall not exceed $2.0 million.
"PERMITTED BUSINESS" means any business that is not unrelated to the
businesses in which the Company is engaged on the date of the Indenture.
"PERMITTED INVESTMENTS" means (a) Investments in the Company or in a Wholly
Owned Restricted Subsidiary of the Company; (b) Investments in Cash Equivalents;
(c) Investments by the Company or any Restricted Subsidiary of the Company in a
Person, if as a result of such Investment (i) such Person becomes a Wholly Owned
Restricted Subsidiary of the Company or (ii) such Person is merged, consolidated
or amalgamated with or into, or transfers or conveys substantially all of its
assets to, or is liquidated into, the Company or a Wholly Owned Restricted
Subsidiary of the Company; (d) the APAO Venture Investments and the URC Venture
Investments; (e) Investments received as consideration for Asset Sales permitted
under the Indenture; (f) Investments by the Company and its Restricted
Subsidiaries in RCL not exceeding the amount of such Investment on the date of
the Indenture, calculated as of the date of each such Investment, (g) the
transfer by the Company of the Cogen Assets to one or more joint ventures; and
(h) other Investments in joint ventures or Unrestricted Subsidiaries of the
Company that are engaged in a Permitted Business in an aggregate amount
outstanding at any time (measured by their fair market value as of the date
made) not exceeding $15 million.
"PERMITTED LIENS" means:
(i) Liens on assets of the Company and the Subsidiary Guarantors securing
Indebtedness permitted to be incurred pursuant to clauses (i) and (ii) of the
second paragraph of the covenant entitled "-- Incurrence of Indebtedness and
Issuance of Preferred Stock";
(ii) Liens in favor of the Company or any Subsidiary Guarantor;
(iii) first priority Liens (other than Liens permitted pursuant to any other
clause of this definition) securing Indebtedness of the Company and any
Subsidiary Guarantor that is not subordinated to any other Indebtedness of the
Company or such Subsidiary Guarantor and/or Contract Obligations of the Company
or such Subsidiary Guarantor, PROVIDED that the sum of the aggregate principal
amount of such Indebtedness and the total amount of such Contract Obligations
outstanding from time to time does not exceed $100 million LESS the principal
amount of Senior Term Debt (and Permitted Refinancing Indebtedness with respect
thereto) outstanding as of such time;
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(iv) Liens existing on the property of any Person at the time such Person
becomes a Restricted Subsidiary of the Company (excluding Liens which were
incurred in connection with, or in contemplation of, such Person becoming a
Restricted Subsidiary of the Company) that do not extend to any other property
of the Company or its Restricted Subsidiaries;
(v) Liens on the shares of URC stock now owned or hereafter acquired by the
Company and on patents of the Company licensed to URC, in each case, to the
extent required pursuant to the agreements governing the URC Venture Investment,
as amended from time to time;
(vi) Liens on (x) the Company's Equity Interest in the APAO Joint Venture
and (y) intellectual property rights permitted by the Indenture to be licensed
and licensed to the APAO Joint Venture required pursuant to the agreements
governing the APAO Investments;
(vii) Liens to secure Acquisition Debt permitted to be incurred pursuant to
the covenant entitled "-- Incurrence of Indebtedness and Issuance of Preferred
Stock"; PROVIDED, HOWEVER, that (a) such Liens shall either (1) extend only to
the assets acquired with the proceeds of such Acquisition Debt or (2) otherwise
be permitted by clause (iv) or (xvii) of this definition, (b) the Acquisition
Debt secured thereby shall not exceed the fair market value of the assets
acquired with the proceeds of such Acquisition Debt and (c) except with respect
to Acquired Debt, such Lien shall be created simultaneously with the incurrence
of such Acquisition Debt;
(viii) Liens for taxes, assessments or governmental charges or claims that are
not yet delinquent or that are being contested in good faith by appropriate
proceedings promptly instituted and diligently concluded, provided that any
reserve or other appropriate provision as shall be required in conformity with
GAAP shall have been made therefor;
(ix) landlords', carriers', vendors', warehousemen's, mechanics',
materialmen's, repairmen's or other like Liens arising by operating of law in
the ordinary course of business;
(x) pledges or deposits in connection with workers' compensation,
unemployment insurance and other social security legislation;
(xi) deposits to secure the performance of bids, trade contracts, statutory
obligations, surety and appeal bonds, performance bonds and other obligations of
like nature incurred in the ordinary course of business;
(xii) easements, rights of way, restrictions, licenses, consignments and
other similar encumbrances on any property of the Company or of any Restricted
Subsidiary, including Liens constituting leases or subleases to third parties
granted by the Company or any Restricted Subsidiary, in each case to the extent
incurred in the ordinary course of business;
(xiii) judgment Liens that do not constitute a Default;
(xiv) Liens on unearned premiums of insurance policies that secure the
financing of such premiums for such policies;
(xv) Liens arising pursuant to authority granted under CERCLA, RCRA or
analogous state statutes, PROVIDED that the aggregate of all obligations in
respect of which the Company is required to record a reserve in accordance with
GAAP that are secured by such Liens shall not exceed $40 million at any time;
(xvi) Liens existing on the date of the Indenture;
(xvii) Liens on property existing at the time of acquisition thereof by the
Company or any Restricted Subsidiary of the Company; PROVIDED that such Liens
were in existence prior to contemplation of such acquisition;
(xviii) Liens on assets of any Person which is not a Restricted Subsidiary;
(xix) Liens incurred to secure (A) Purchase Money Financings or (B) Capital
Lease Obligations but only, in the case of (A) and (B), if such Liens do not
extend to any assets other than the assets purchased with
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the proceeds of the corresponding Purchase Money Financing or which are the
subject of such Capital Lease Obligation, and in each case to the extent the
Indebtedness secured thereby is permitted to be incurred pursuant to the
covenant entitled "-- Incurrence of Indebtedness and Issuance of Preferred
Stock";
(xx) Liens on accounts receivable and inventory of Foreign Subsidiaries that
are Restricted Subsidiaries and not Subsidiary Guarantors to secure Indebtedness
permitted to be incurred pursuant to clause (x) of the second paragraph of the
covenant entitled "-- Incurrence of Indebtedness and Issuance of Preferred
Stock"; and
(xxi) Liens securing any extension, renewal or refunding of any obligations
secured by the foregoing Liens that do not increase the obligations secured
thereby and do not extend such Lien to any assets other than those previously
securing such obligations.
"PERMITTED REFINANCING INDEBTEDNESS" means any Indebtedness issued in
exchange for, or the net proceeds of which are used to extend, refinance, renew,
replace, defease or refund Indebtedness (other than the Senior Notes); PROVIDED
that: (i) the principal amount of such Permitted Refinancing Indebtedness does
not exceed the principal amount of the Indebtedness so extended, refinanced,
renewed, replaced, defeased or refunded (plus the amount of reasonable expenses
incurred in connection therewith), (ii) such Permitted Refinancing Indebtedness
has a final maturity date later than the final maturity date of, and has a
Weighted Average Life to Maturity equal to or greater than the Weighted Average
Life to Maturity of, the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; and (iii) if the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded is subordinated in right of
payment to the Senior Notes or any Subsidiary Guarantee, such Permitted
Refinancing Indebtedness has a final maturity date later than the final maturity
date of, and is subordinated in right of payment to, the Senior Notes and the
Subsidiary Guarantee on terms at least as favorable to the Holders of Senior
Notes as those contained in the documentation governing the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded.
"PERSON" means an individual, corporation, limited liability company,
partnership, association, joint stock company, trust or trustee thereof, estate
or executor thereof, unincorporated organization or joint venture.
"PURCHASE MONEY FINANCING" means, with respect to any Person, Indebtedness
incurred to finance the purchase of any assets of such Person (within 90 days of
such purchase) to the extent (i) the amount of Indebtedness thereunder shall not
exceed 95% of the purchase cost of such assets, (ii) the purchase cost for such
assets is or should be included in "additions to property plant and equipment"
in accordance with GAAP and (iii) the purchase of such assets is not part of an
acquisition of any Person.
"RCL" means Rexene Corporation Limited, an English company.
"RECAPITALIZATION" shall have the meaning ascribed to such term in the
Registration Statement on Form S-3 relating to the Senior Notes.
"RESTRICTED INVESTMENT" means any Investment other than a Permitted
Investment.
"RESTRICTED SUBSIDIARY" of the Company means any Subsidiary of the Company
that is designated as a Restricted Subsidiary by the Board of Directors or
otherwise fails to meet the requirement set forth in the definition of
Unrestricted Subsidiary.
"SENIOR REVOLVING DEBT" means revolving credit borrowings under the Bank
Credit Agreements.
"SENIOR TERM DEBT" means term borrowings under the Bank Credit Agreements.
"SIGNIFICANT SUBSIDIARY" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Act.
"SUBSIDIARY" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time
76
<PAGE>
owned or controlled, directly or indirectly, by such Person or one or more
Subsidiaries of that Person (or a combination thereof) and (ii) any partnership
(a) the sole general partner or the managing general partner of which is such
Person or a Subsidiary of such Person or (b) the only general partners of which
are such Person or of one or more Subsidiaries of such Person (or any
combination thereof).
"SUBSIDIARY GUARANTEE" means (i) the full and unconditional guarantee by a
Restricted Subsidiary (other than a Foreign Subsidiary) of all of the Company's
obligations under the Indenture and the Senior Notes delivered pursuant to the
covenant entitled "Subsidiary Guarantees" and (ii) the full and unconditional
guarantee of all of the Company's obligations under the Indenture and the Senior
Notes by any Foreign Subsidiary that is a Restricted Subsidiary that elects to
so guarantee such obligations, in each case, in the form required by the
Indenture.
"SUBSIDIARY GUARANTOR" means any Restricted Subsidiary that has executed a
Subsidiary Guarantee.
"UNRESTRICTED SUBSIDIARY" means (i) each of the Subsidiaries of the Company
in existence on the date of the Indenture, (ii) any Subsidiary of the Company
designated as an Unrestricted Subsidiary pursuant to the provisions described
above under the caption "Certain Covenants -- Restricted Payments" and (iii) any
Subsidiary formed or acquired by the Company after the date of the Indenture,
but only to the extent that such Subsidiary: (a) is not party to any agreement,
contract, arrangement or understanding with the Company or any Restricted
Subsidiary of the Company unless the terms of any such agreement, contract,
arrangement or understanding are no less favorable to the Company or such
Restricted Subsidiary than those that might be obtained at the time from Persons
who are not Affiliates of the Company; (b) is a Person with respect to which
neither the Company nor any of its Restricted Subsidiaries has any direct or
indirect obligation to maintain or preserve such Person's financial condition or
to cause such Person to achieve any specified levels of operating results; (c)
has not guaranteed or otherwise directly or indirectly provided credit support
for any Indebtedness of the Company or any of its Restricted Subsidiaries; and
(d) has at least one director on its board of directors that is not a director
or executive officer of the Company or any of its Restricted Subsidiaries and
has at least one executive officer that is not a director or executive officer
of the Company or any of its Restricted Subsidiaries. Any designation of a
Subsidiary as an Unrestricted Subsidiary pursuant to the provisions of clause
(ii) above by the Board of Directors shall be evidenced to the Trustee by filing
with the Trustee a certified copy of the Board Resolution giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing conditions and was permitted by the covenant
described above under the caption "Certain Covenants -- Restricted Payments."
If, at any time, any Unrestricted Subsidiary would fail to meet the foregoing
requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an
Unrestricted Subsidiary for purposes of the Indenture and any Indebtedness of
such Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of the
Company as of such date (and, if such Indebtedness is not permitted to be
incurred as of such date under the covenant described under the caption
"Incurrence of Indebtedness and Issuance of Preferred Stock," the Company shall
be in default of such covenant unless such default shall have been cured within
a period of 30 days thereafter). The Board of Directors of the Company may at
any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary;
PROVIDED that such designation shall be deemed to be an incurrence of
Indebtedness by a Restricted Subsidiary of the Company of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall only be
permitted if (i) such Indebtedness is permitted under the covenant described
under the caption "Certain Covenants -- Incurrence of Indebtedness and Issuance
of Preferred Stock," (ii) no Default or Event of Default would be in existence
following such designation and (iii) unless such Subsidiary is a Foreign
Subsidiary, such Subsidiary executes a Subsidiary Guarantee.
"URC VENTURE INVESTMENT" means (i) all Investments by the Company in URC
outstanding as of the date of the Indenture PLUS (ii) all Investments made by
the Company and its Restricted Subsidiaries in URC after the date of the
Indenture; PROVIDED, HOWEVER, that the aggregate amount of all such Investments
made after the date of the Indenture (measured by their fair market value as of
the date made) shall not exceed the aggregate amount of the cash received after
the date of the Indenture by the Company and its Restricted Subsidiaries as fees
for the licensing of any intellectual property rights or other proprietary
technology to URC PLUS (iii) the Guaranty (as defined in the Joint Venture
Modification Agreement dated as of (and as in effect on) February 25, 1992
between the Company and UBE Industries Inc.); PROVIDED that at no time shall
77
<PAGE>
the Guaranty made by the Company and its Restricted Subsidiaries (A) be with
recourse to the Company or any of its Subsidiaries or (B) be secured by any
Liens on the property of the Company or any of its Subsidiaries (other than
Liens permitted pursuant to clause (v) of the definition of Permitted Liens);
and PROVIDED FURTHER that the amount of the obligations guaranteed pursuant to
such Guaranty shall be reduced by the amount of all Investments made to satisfy
the Company's obligations under such Guaranty.
"URC" means Ube Rexene Corporation, a Japanese corporation.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"WHOLLY OWNED RESTRICTED SUBSIDIARY" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person or a combination thereof.
78
<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 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.
79
<PAGE>
COMMON STOCK PURCHASE RIGHTS
In January 1993, the Company declared a dividend distribution of one Common
Stock Purchase Right (a "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 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.
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<PAGE>
UNDERWRITING
Smith Barney Inc. and Wertheim Schroder & Co. Incorporated (the
"Underwriters") have severally agreed, subject to the terms and conditions of
the Underwriting Agreement (a copy of which has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part), to purchase from the
Company the respective principal amount of Senior Notes as set forth below:
<TABLE>
<CAPTION>
PRINCIPAL
UNDERWRITERS AMOUNT
- ---------------------------------------------------------------------------------------- --------------
<S> <C>
Smith Barney Inc. ...................................................................... $
Wertheim Schroder & Co. Incorporated....................................................
--------------
Total................................................................................. $ 175,000,000
</TABLE>
The Company has been advised by the Underwriters that they propose to offer
the Senior Notes initially to the public at the offering price set forth on the
cover page of this Prospectus. After the initial public offering, the offering
price and other selling terms may be changed.
The Company has agreed to indemnify the Underwriters and any person who
controls the Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended.
The Senior Notes are a new issue of securities, have no established trading
market and may not be widely distributed. The Company does not intend to have
the Senior Notes listed for trading on any securities exchange or to seek their
admission to trading in any automated quotation system. If the Senior Notes are
traded after their initial issuance, they may trade at a discount from their
initial public offering price depending on many factors, including among other
things, the Company's results of operations, prevailing interest rates and the
market for similar securities. No assurance can be given that any market for the
Senior Notes will develop, or, if any such market develops, as to the liquidity
of such market. The Company has been informed by the Underwriters that they
currently intend to make a market in the Senior Notes, as permitted by
applicable laws and regulations; however, the Underwriters are not obligated to
make such a market and may discontinue market making at any time without notice.
Accordingly, no assurance can be given as to the liquidity of, or trading market
for, the Senior Notes.
The Underwriters are acting as underwriters in connection with the Common
Stock Offering and will receive customary underwriting discounts and commissions
in connection therewith.
LEGAL OPINIONS
The validity of the Senior Notes 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 Exchange
Act, and in accordance therewith, files reports, proxy and information
statements, and other information with 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
81
<PAGE>
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
Senior Notes 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 Statement. For further information with respect to the Company
and the Senior Notes 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 Notes 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.
82
<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............................................. 11
The Recapitalization.................................................. 16
Use of Proceeds....................................................... 17
Capitalization........................................................ 18
Selected Historical Consolidated Financial Data....................... 19
Pro Forma Unaudited Condensed Consolidated Financial Data............. 21
Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................ 24
Business.............................................................. 32
Management............................................................ 50
Security Ownership of Certain Beneficial Owners and Management........ 53
Description of New Credit Agreement................................... 55
Description of Senior Notes........................................... 56
Description of Capital Stock.......................................... 79
Underwriting.......................................................... 81
Legal Opinions........................................................ 81
Experts............................................................... 81
Available Information................................................. 81
Incorporation of Certain Documents by Reference....................... 82
Index to Consolidated Financial Statements............................ F-1
</TABLE>
$175,000,000
[LOGO]
% SENIOR NOTES
DUE 2004
---------
P R O S P E C T U S
NOVEMBER , 1994
---------
SMITH BARNEY INC.
WERTHEIM SCHRODER & CO.
INCORPORATED
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<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 Senior Notes being registered (all amounts are being
estimated except the SEC Registration Fee), all of which will be paid by the
Registrant:
<TABLE>
<S> <C>
SEC Registration Fee...................................................... $ 60,345
NASD Filing Fee and Expenses.............................................. 28,000
Printing and Engraving Expenses........................................... 107,500
Fees and Expenses of Counsel.............................................. 150,000
Accounting Fees........................................................... 75,000
Blue Sky Qualification Fees and Expenses.................................. 36,675
Trustee's Fees and Expenses............................................... 11,000
Rating Agencies' Fees..................................................... 105,000
Miscellaneous............................................................. 26,480
---------
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 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 -- Amendments to By-Laws adopted May 24, 1994, together with a restatement of the Registrant's By-Laws
incorporating all amendments through May 24, 1994 (filed as Exhibit 3.2.3 to the Registrant's Form
10-Q Quarterly Report for the three months ended June 30, 1994 and incorporated herein by reference).
4.1+ -- Form of Indenture governing the Senior Notes (including form of Senior Notes).
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).
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).
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
NUMBER EXHIBIT
- --------- -----------------------------------------------------------------------------------------------------
<C> <C> <S>
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).
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).
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
NUMBER EXHIBIT
- --------- -----------------------------------------------------------------------------------------------------
<C> <C> <S>
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 (filed as Exhibit 10.2 to Amendment No. 1 to the
Registrant's Registration Statement on Form S-3 (SEC File No. 33-55507) as filed on October 21, 1994
and incorporated herein by reference).
10.3 -- Rexene Corporation Supplemental Executive Retirement Plan (filed as Exhibit 10.3 to Amendment No. 1
to the Registrant's Registration Statement on Form S-3 (SEC File No. 33-55507) as filed on October
21, 1994 and incorporated herein by reference).
10.4 -- Form of New Credit Agreement.
12.1 -- Statement of Computation of Ratio of Earnings to Fixed Charges (filed as Exhibit 12.1 to the
Registrant's Registration Statement on Form S-3 (SEC File No. 33-55507) as filed on September 16,
1994).
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).
25.1+ -- Statement of Eligibility and Qualification of Trustee under the Trust Indenture Act of 1939 on Form
T-1.
27 -- Financial Data Schedule (filed as Exhibit 27 to Amendment No. 1 to the Registrant's Registration
Statement on Form S-3 (SEC File No. 33-55507) as filed on October 21, 1994).
<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>
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.
II-5
<PAGE>
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. 33-55609 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 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 -- Amendments to By-Laws adopted May 24, 1994, together with a restatement of the
Registrant's By-Laws incorporating all amendments through May 24, 1994 (filed as Exhibit
3.2.3 to the Registrant's Form 10-Q Quarterly Report for the three months ended June 30,
1994 and incorporated herein by reference).
4.1+ -- Form of Indenture governing the Senior Notes (including form of Senior Notes).
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).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBER EXHIBIT NUMBERED PAGE
- --------- ----------------------------------------------------------------------------------------- ---------------
<C> <C> <S> <C>
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).
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).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBER EXHIBIT NUMBERED PAGE
- --------- ----------------------------------------------------------------------------------------- ---------------
<C> <C> <S> <C>
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).
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 (filed as Exhibit 10.2 to Amendment No.
1 to the Registrant's Registration Statement on Form S-3 (SEC File No. 33-55507) as filed
on October 21, 1994 and incorporated herein by reference).
10.3 -- Rexene Corporation Supplemental Executive Retirement Plan (filed as Exhibit 10.3 to
Amendment No. 1 to the Registrant's Registration Statement on Form S-3 (SEC File No.
33-55507) as filed on October 21, 1994 and incorporated herein by reference).
10.4 -- Form of New Credit Agreement.
12.1 -- Statement of Computation of Ratio of Earnings to Fixed Charges (filed as Exhibit 12.1 to
the Registrant's Registration Statement on Form S-3 (SEC File No. 33-55507) as filed on
September 16, 1994).
23.1 -- Consent of Price Waterhouse LLP (contained on page II-9 of this Registration Statement).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBER EXHIBIT NUMBERED PAGE
- --------- ----------------------------------------------------------------------------------------- ---------------
<C> <C> <S> <C>
24.1+ -- Power of Attorney (included on page II-7 of the original Registration Statement).
25.1+ -- Statement of Eligibility and Qualification of Trustee under the Trust Indenture Act of
1939 on Form T-1.
27 -- Financial Data Schedule (filed as Exhibit 27 to Amendment No. 1 to the Registrant's
Registration Statement on Form S-3 (SEC File No. 33-55507) as filed on October 21, 1994).
<FN>
- ------------------------
+ Previously filed.
</TABLE>
<PAGE>
US $180,000,000
CREDIT AGREEMENT
DATED AS OF NOVEMBER ____, 1994
AMONG
REXENE CORPORATION,
AS BORROWER,
THE BANK OF NOVA SCOTIA,
AS AGENT,
AND
THE LENDERS SIGNATORY HERETO
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE I
DEFINITIONS AND ACCOUNTING MATTERS
Section 1.01 TERMS DEFINED ABOVE........................................... 1
Section 1.02 CERTAIN DEFINED TERMS......................................... 1
Section 1.03 ACCOUNTING TERMS AND DETERMINATIONS........................... 21
ARTICLE II
COMMITMENTS
Section 2.01 LOANS AND LETTERS OF CREDIT................................... 21
Section 2.02 BORROWINGS, CONTINUATIONS, CONVERSIONS AND LETTERS OF CREDIT.. 22
Section 2.03 CHANGES OF REVOLVING CREDIT COMMITMENTS....................... 24
Section 2.04 FEES.......................................................... 24
Section 2.05 SEVERAL OBLIGATIONS........................................... 25
Section 2.06 NOTES......................................................... 25
Section 2.07 PREPAYMENTS................................................... 25
Section 2.08 ASSUMPTION OF RISKS........................................... 27
Section 2.09 OBLIGATION TO REIMBURSE AND TO PREPAY......................... 28
Section 2.10 LENDING OFFICES............................................... 29
ARTICLE III
PAYMENTS OF PRINCIPAL AND INTEREST
Section 3.01 REPAYMENT OF LOANS............................................ 29
Section 3.02 INTEREST...................................................... 30
ARTICLE IV
PAYMENTS; PRO RATA TREATMENT; COMPUTATIONS; ETC.
Section 4.01 PAYMENTS...................................................... 31
Section 4.02 PRO RATA TREATMENT............................................ 31
Section 4.03 COMPUTATIONS.................................................. 31
-i-
<PAGE>
Section 4.04 NON-RECEIPT OF FUNDS BY THE AGENT............................. 32
Section 4.05 SET-OFF, SHARING OF PAYMENTS, ETC. ........................... 32
Section 4.06 TAXES......................................................... 33
ARTICLE V
CAPITAL ADEQUACY
Section 5.01 EURODOLLAR REGULATIONS, ETC. ................................. 36
Section 5.02 LIMITATION ON EURODOLLAR ADVANCES............................. 38
Section 5.03 ILLEGALITY.................................................... 39
Section 5.04 BASE RATE LOANS PURSUANT TO SECTIONS 5.01, 5.02 AND 5.03...... 39
Section 5.05 COMPENSATION.................................................. 39
Section 5.06 REPLACEMENT LENDERS........................................... 40
ARTICLE VI
CONDITIONS PRECEDENT
Section 6.01 INITIAL FUNDING............................................... 41
Section 6.02 INITIAL AND SUBSEQUENT LOANS.................................. 44
Section 6.03 CONDITIONS RELATING TO LETTERS OF CREDIT...................... 44
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
Section 7.01 CORPORATE EXISTENCE........................................... 45
Section 7.02 FINANCIAL CONDITION........................................... 45
Section 7.03 LITIGATION.................................................... 45
Section 7.04 NO BREACH..................................................... 46
Section 7.05 AUTHORITY..................................................... 46
Section 7.06 APPROVALS..................................................... 46
Section 7.07 USE OF LOANS.................................................. 46
Section 7.08 ERISA......................................................... 47
Section 7.09 TAXES......................................................... 48
Section 7.10 TITLES, ETC. ................................................. 48
Section 7.11 NO MATERIAL MISSTATEMENTS..................................... 48
Section 7.12 INVESTMENT COMPANY ACT........................................ 49
Section 7.13 PUBLIC UTILITY HOLDING COMPANY ACT............................ 49
Section 7.14 SUBSIDIARIES AND PARTNERSHIPS................................. 49
-ii-
<PAGE>
Section 7.15 LOCATION OF BUSINESS AND OFFICES.............................. 49
Section 7.16 DEFAULTS...................................................... 49
Section 7.17 ENVIRONMENTAL MATTERS......................................... 49
Section 7.18 COMPLIANCE WITH THE LAW....................................... 51
Section 7.19 INSURANCE..................................................... 51
Section 7.20 RESTRICTION ON LIENS.......................................... 51
Section 7.21 MATERIAL AGREEMENTS........................................... 51
ARTICLE VIII
AFFIRMATIVE COVENANTS
Section 8.01 FINANCIAL STATEMENTS.......................................... 52
Section 8.02 LITIGATION.................................................... 54
Section 8.03 MAINTENANCE, ETC.............................................. 54
Section 8.04 ENVIRONMENTAL MATTERS......................................... 55
........................................................................... 55
Section 8.05 FURTHER ASSURANCES............................................ 56
Section 8.06 PERFORMANCE OF OBLIGATIONS.................................... 56
Section 8.07 ERISA INFORMATION AND COMPLIANCE.............................. 56
Section 8.08 LOCKBOX....................................................... 57
Section 8.09 BORROWING BASE AUDIT.......................................... 57
ARTICLE IX
NEGATIVE COVENANTS
Section 9.01 DEBT.......................................................... 57
Section 9.02 LIENS......................................................... 58
Section 9.03 INVESTMENTS................................................... 58
Section 9.04 RESTRICTED PAYMENTS........................................... 59
Section 9.05 SALES AND LEASEBACKS.......................................... 60
Section 9.06 NATURE OF BUSINESS............................................ 60
Section 9.07 LIMITATION ON LEASES.......................................... 60
Section 9.08 MERGERS, ETC.................................................. 60
Section 9.09 PROCEEDS OF NOTES............................................. 60
Section 9.10 ERISA COMPLIANCE.............................................. 60
Section 9.11 SALE OR DISCOUNT OF RECEIVABLES............................... 62
Section 9.12 LEVERAGE RATIO................................................ 62
Section 9.13 FIXED CHARGE COVERAGE RATIO................................... 62
Section 9.14 INTEREST COVERAGE RATIO....................................... 63
Section 9.15 SALE OF PROPERTY.............................................. 63
-iii-
<PAGE>
Section 9.16 TRANSACTIONS WITH AFFILIATES.................................. 63
Section 9.17 SUBSIDIARIES AND PARTNERSHIPS................................. 64
Section 9.18 NEGATIVE PLEDGE AGREEMENTS.................................... 64
ARTICLE X
EVENTS OF DEFAULT; REMEDIES
Section 10.01 EVENTS OF DEFAULT............................................ 65
Section 10.02 REMEDIES..................................................... 67
ARTICLE XI
THE AGENT
Section 11.01 APPOINTMENT, POWERS AND IMMUNITIES........................... 67
Section 11.02 RELIANCE BY AGENT............................................ 68
Section 11.03 DEFAULTS..................................................... 68
Section 11.04 RIGHTS AS A LENDER........................................... 68
Section 11.05 INDEMNIFICATION.............................................. 69
Section 11.06 NON-RELIANCE ON AGENT AND OTHER LENDERS...................... 69
Section 11.07 ACTION BY AGENT.............................................. 70
Section 11.08 RESIGNATION OF AGENT......................................... 70
ARTICLE XII
MISCELLANEOUS
Section 12.01 WAIVER....................................................... 71
Section 12.02 NOTICES...................................................... 71
Section 12.03 PAYMENT OF EXPENSES, INDEMNITIES, ETC. ...................... 71
Section 12.04 AMENDMENTS, ETC. ............................................ 74
Section 12.05 SUCCESSORS AND ASSIGNS....................................... 74
Section 12.06 ASSIGNMENTS AND PARTICIPATIONS............................... 75
Section 12.07 INVALIDITY................................................... 76
Section 12.08 COUNTERPARTS................................................. 76
Section 12.09 REFERENCES................................................... 76
Section 12.10 SURVIVAL..................................................... 76
Section 12.11 CAPTIONS..................................................... 77
Section 12.12 NO ORAL AGREEMENTS........................................... 77
Section 12.13 GOVERNING LAW; SUBMISSION TO JURISDICTION.................... 77
Section 12.14 INTEREST..................................................... 79
-iv-
<PAGE>
Section 12.15 CONFIDENTIALITY.............................................. 80
Section 12.16 RELEASES OF LIEN............................................. 80
Section 12.17 EFFECTIVENESS................................................ 81
-v-
<PAGE>
Exhibit A-1 - Form of Revolving Credit Note
Exhibit A-2 - Form of Term Note
Exhibit B - Form of Borrowing, Continuation and Conversion Request
Exhibit C - Form of Compliance Certificate
Exhibit D-1 - Form of Legal Opinion of Thompson & Knight
Exhibit D-2 - Form of Legal Opinion of Bayard, Handelman & Murdoch, P.A.
Exhibit D-3 - Form of Legal Opinion of Cohne, Rappaport & Segal
Exhibit D-4 - Form of Legal Opinion of Foley & Lardner
Exhibit D-5 - Form of Legal Opinion of Arnall, Golden & Gregory
Exhibit E - List of Security Instruments
Exhibit F - Form of Assignment Agreement
Exhibit G - List of Commitments
Schedule 2.04 - Applicable Margin and Commitment Fee
Schedule 7.02 - Liabilities
Schedule 7.03 - Litigation
Schedule 7.09 - Taxes
Schedule 7.10 - Titles, etc.
Schedule 7.14 - Subsidiaries and Partnerships
Schedule 7.17 - Environmental Matters
Schedule 7.19 - Insurance
[Schedule 7.21 - Material Agreements]
Schedule 9.01 - Debt
Schedule 9.02 - Liens
Schedule 9.03 - Investments, Loans and Advances
-vi-
<PAGE>
CREDIT AGREEMENT dated as of November ____, 1994, among: REXENE
CORPORATION, a Delaware corporation (the "BORROWER"); each of the lenders that
is a signatory hereto or which becomes a signatory hereto as provided in Section
12.06 (individually, together with its successors and assigns, a "LENDER" and,
collectively, the "LENDERS"); and THE BANK OF NOVA SCOTIA (in its individual
capacity, "SCOTIABANK"), as agent for the Lenders (in such capacity, together
with its successors in such capacity, the "AGENT").
R E C I T A L S
A. The Borrower has requested that the Lenders provide certain loans and
extensions of credit on behalf of the Borrower; and
B. The Lenders have agreed to make such loans and extensions of credit
subject to the terms and conditions of this Agreement.
C. In consideration of the mutual covenants and agreements herein
contained and of the loans, extensions of credit and commitments hereinafter
referred to, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING MATTERS
Section 1.01 TERMS DEFINED ABOVE. As used in this Agreement, the terms
"AGENT," "BORROWER," "LENDER," "LENDERS," and "SCOTIABANK" shall have the
meanings indicated above.
Section 1.02 CERTAIN DEFINED TERMS. As used herein, the following terms
shall have the following meanings (all terms defined in this Article I or in
other provisions of this Agreement in the singular to have the same meanings
when used in the plural and vice versa):
"ADDITIONAL COSTS" shall have the meaning assigned such term in
Section 5.01(a).
"ADJUSTED CONSOLIDATED NET INCOME" shall mean with respect to the
Borrower and its Consolidated Subsidiaries, for any period, the aggregate
of the net income (or loss) of the Borrower and its Consolidated
Subsidiaries for such period, determined on a consolidated basis in
accordance with GAAP; PROVIDED that there shall be excluded from such net
income (to the extent otherwise included therein) the following: (a) the
net income of any Person in which the Borrower or any
<PAGE>
Consolidated Subsidiary has an interest (which interest does not cause
the net income of such other Person to be consolidated with the net
income of the Borrower and its Consolidated Subsidiaries in accordance
with GAAP), except to the extent of the amount of dividends or
distributions actually paid in such period by such other Person to the
Borrower or to a Consolidated Subsidiary, as the case may be; (b) the net
income (but not loss) of any Consolidated Subsidiary to the extent that
the declaration or payment of dividends or similar distributions or
transfers or loans by that Consolidated Subsidiary is not at the time
permitted by operation of the terms of its charter or any agreement,
instrument or Governmental Requirement applicable to such Consolidated
Subsidiary, or is otherwise restricted or prohibited in each case
determined in accordance with GAAP; (c) the net income (or loss) of any
Person acquired in a pooling-of-interests transaction for any period
prior to the date of such transaction; (d) any extraordinary gains or
losses, including gains or losses attributable to Property sales not in
the ordinary course of business; and (e) the cumulative effect of a
change in accounting principle and any gains or losses attributable to
writeups or writedowns of assets.
"ADJUSTED EBITDA" shall mean, for any period, the sum of Adjusted
Consolidated Net Income for such period plus the following expenses or
charges to the extent deducted from Adjusted Consolidated Net Income in
such period: interest, taxes, depreciation and amortization.
"AFFECTED LOANS" shall have the meaning assigned such term in
Section 5.04.
"AFFILIATE" of any Person shall mean (a) any Person directly or
indirectly controlled by, controlling or under common control with such
first Person, (b) any director or officer of such first Person or of any
Person referred to in clause (a) above, and (c) if any Person in clause
(a) above is an individual, any member of the immediate family (including
parents, spouse and children) of such individual and any trust whose
principal beneficiary is such individual or one or more members of such
immediate family and any Person who is controlled by any such member or
trust. As used in this definition, "CONTROL" (including, with its
correlative meanings, "CONTROLLED BY" and "UNDER COMMON CONTROL WITH")
shall mean any Person which owns directly or indirectly 10% or more of
the securities having ordinary voting power for the election of directors
or other governing body of a corporation or 10% or more of the
partnership or other ownership interests of any other Person (other than
as a limited partner of such other Person) will be deemed to control such
corporation or other Person.
"AGREEMENT" shall mean this Credit Agreement, as the same may from
time to time be amended or supplemented.
-2-
<PAGE>
"AGGREGATE COMMITMENTS" at any time shall equal the sum of the
Commitments of the Lenders.
"APAO" shall mean amorphous polyalphaolefins.
"APAO JOINT VENTURE" shall mean a joint venture between the
Borrower and any other Person, other than URC, providing for the
manufacture and sale of APAO outside of the United States and Canada in
geographic regions in which URC does not do business.
"APAO VENTURE INVESTMENT" shall mean each of the following
Investments by the Borrower and its Restricted Subsidiaries in the APAO
Joint Venture: (i) Investments of cash in an aggregate amount outstanding
at any time (measured by their fair market value as of the date made) not
in excess of the aggregate cash received after the date of this Agreement
by the Borrower and its Restricted Subsidiaries from the APAO Joint
Venture as fees for the licensing to the APAO Joint Venture of any
intellectual property rights or other proprietary technology relating to
the manufacture of APAO and (ii) the Guarantee by the Borrower and any
Restricted Subsidiary of Debt of the APAO Joint Venture in a principal
amount not exceeding $15,000,000 less all Investments made by the
Borrower and the Restricted Subsidiaries to satisfy their obligations
under any such Guarantee.
"ASSET SALE" means [(i)] the sale or conveyance of any non-current
tangible assets of the Borrower or any Restricted Subsidiary (including,
without limitation, by way of sale and leaseback, but specifically
excluding a sale and leaseback of an asset occurring within 150 days
after the completion of construction or acquisition of such asset) other
than in the ordinary course of business [and (ii) any contract for the
sale of products or services where the consideration paid is not
amortized evenly over the life of the contract.]
"APPLICABLE LENDING OFFICE" shall mean, for each Lender and for
each Type of Loan, the lending office of such Lender (or an Affiliate of
such Lender) designated for such Type of Loan on the signature pages
hereof or such other offices of such Lender (or of an Affiliate of such
Lender) as such Lender may from time to time specify to the Agent and the
Borrower as the office by which its Loans of such Type are to be made and
maintained.
"APPLICABLE MARGIN" shall mean, for the first twelve-month period
following the Closing Date, (a) three-fourths of one percent (3/4 of 1%)
per annum with respect to Base Rate Loans and (b) one and three-fourths
percent (1-3/4%) per annum with respect to Eurodollar Advances.
Thereafter, the Applicable Margin for Base Rate Loans and Eurodollar
Advances will be determined quarterly based on
-3-
<PAGE>
the ratio of consolidated Debt of the Borrower and its Consolidated
Subsidiaries to Adjusted EBITDA on a trailing four-quarter basis, as
follows (with changes in Applicable Margin to occur 60 days after the
applicable quarter end, so long as Borrower has supplied the computation
required by subsection 8.01(j) within the 45 days required under such
subsection:
<TABLE>
<CAPTION>
==============================================================================================================
CONSOLIDATED LESS THAN GREATER THAN GREATER THAN GREATER THAN GREATER THAN GREATER THAN
DEBT TO ADJUSTED 1.5 TO 1.0 OR EQUAL TO OR EQUAL TO OR EQUAL TO OR EQUAL TO OR EQUAL TO
EBITDA RATIO 1.5 TO 1.0 2.0 TO 1.0 3.0 TO 1.0 4.0 TO 1.0 5.0 TO 1.0
LESS THAN LESS THAN LESS THAN LESS THAN
2.0 TO 1.0 3.0 TO 1.0 4.0 TO 1.0 5.0 TO 1.0
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Eurodollar
Advances 1% 1.25% 1.5% 1.75% 2% 2.5%
- --------------------------------------------------------------------------------------------------------------
Base Rate
Loans 0% .25% .5% .75% 1% 1.5%
==============================================================================================================
</TABLE>
"ASSIGNMENT" shall have the meaning assigned such term in Section
12.06(b).
"BASE RATE" shall mean, with respect to any Base Rate Loan, for any
day, the higher of (a) the Federal Funds Rate for any such day plus 1/2
of 1% or (b) the rate of interest most recently established by Scotiabank
at its New York office as its base rate for Dollar loans in the U.S.
Each change in any interest rate provided for herein based upon the Base
Rate resulting from a change in the Base Rate shall take effect at the
time of such change in the Base Rate.
"BASE RATE LOANS" shall mean Loans that bear interest at rates
based upon the Base Rate.
"BORROWING BASE" shall mean at any time the sum of 85% of the value
of all Eligible Accounts, 65% of the value of all Eligible Inventory
composed of liquid commodity products and 50% of the value of all other
Eligible Inventory provided, however, Eligible Inventory shall never be
permitted to exceed 50% of the Borrowing Base.
"BORROWING BASE REPORT" shall mean the report of the Borrower to be
delivered pursuant to Section 8.01(h), and being in the form of Exhibit E
hereto.
-4-
<PAGE>
"BUSINESS DAY" shall mean (i) any day other than a day on which
commercial banks are authorized or required to close in New York, New
York and, (ii) if such term is used in the definition of "Quarterly Date"
in this Section 1.02 or if such day relates to a borrowing or
continuation of, a payment or prepayment of principal of or interest on,
or a conversion of or into, or the Interest Period for, a Eurodollar
Advances or a notice by the Borrower with respect to any such borrowing
or continuation, payment, prepayment, conversion or Interest Period, any
day which is also a day on which dealings in Dollar deposits are carried
out in the London interbank market.
"CAPITAL LEASE OBLIGATION" shall mean, at the time any
determination thereof is to be made, the amount of the liability in
respect of a capital lease that would at such time be required to be
capitalized on a balance sheet in accordance with GAAP.
"CAPITAL STOCK" shall mean (i) in the case of a corporation,
corporate stock, (ii) in the case of an association or business entity,
any and all shares, interests, participation, rights or other equivalents
(however designated) of corporate stock, (iii) in the case of a
partnership, partnership interests (whether general or limited), and (iv)
any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets
of, the issuing Person.
"CHANGE OF CONTROL" means the occurrence of any of the following
(i) the acquisition by any Person (or group of Persons acting together)
of a direct or indirect interest in more than 50% of the voting power of
the voting stock of the Borrower, by way of merger or consolidation or
otherwise, or (ii) the first day on which a majority of the members of
the board of directors of the Borrower are not continuing directors.
For purposes of this definition, any transfer of an Equity Interest of an
entity that was formed for the purpose of acquiring voting stock of the
Borrower will be deemed to be a transfer of such portion of such voting
stock as corresponds to the portion of the equity of such entity that has
been so transferred, and the acquisition of voting power of the voting
stock of the Borrower by any Subsidiary of the Borrower shall be
disregarded.
"CLOSING DATE" shall mean November ____, 1994.
"CODE" shall mean the Internal Revenue Code of 1986, as amended
from time to time and any successor statute.
"COMMITMENT" shall mean, for any Lender, its obligation to make
Loans as provided in Section 2.01(a) and Section 2.01(b) and to
participate in the Letters of
-5-
<PAGE>
Credit as provided in Section 2.01(c), up to the sum of (a) the amount
set forth opposite such Lender's name under the caption "Revolving Credit
Loans" on Exhibit G, and (b) the amount set forth opposite such Lender's
name under the caption "Term Loans" on Exhibit G, as the same may be
modified from time to time to reflect any assignments permitted by
Section 12.06(b).
"CONSOLIDATED NET WORTH" shall mean, as at any date, the sum of the
Borrower's and its Consolidated Subsidiaries' consolidated net worth
determined (without duplication) in accordance with GAAP, but exclusive
of increases to Consolidated Net Worth attributable to the income of
Unrestricted Subsidiaries.
"CONSOLIDATED SUBSIDIARIES" shall mean each Restricted Subsidiary
of the Borrower (whether now existing or hereafter created or acquired)
the financial statements of which shall be (or should have been)
consolidated with the financial statements of the Borrower in accordance
with GAAP.
"CURRENCY AGREEMENT" shall mean the obligation of any Person
pursuant to any foreign exchange contract, currency swap agreement or
other similar agreement or arrangement designed to protect such Person
against fluctuations in currency values.
"CURRENT FUNDED DEBT" means the Borrower's Debt under:
(i) the Increasing Rate Senior Notes Due 1999;
(ii) the Increasing Rate Subordinated Notes Due 2002;
(iii) the existing credit agreement with Transamerica Business
Credit Corporation.
"DEBT" shall mean, for any Person the sum of the following (without
duplication): (a) all obligations of such Person for borrowed money or
evidenced by bonds, debentures, notes or other similar instruments; (b)
all obligations of such Person (whether contingent or otherwise) in
respect of bankers' acceptances, letters of credit, surety or other bonds
and similar instruments; (c) all obligations under leases which shall
have been, or should have been, in accordance with GAAP, recorded as
Capital Lease Obligations; (d) all Debt obligations of others secured by
a Lien on any asset of such Person, whether or not such Debt is assumed
by such Person; (e) all Debt obligations of others guaranteed by such
Person; (f) all obligations or undertakings of such Person to maintain or
cause to be maintained the financial position or financial covenants of
other Persons and (g) all obligations
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of such Person under Hedging Agreements.
"DEFAULT" shall mean an Event of Default or an event which with
notice or lapse of time or both would become an Event of Default.
"DOLLARS" and "$" shall mean lawful money of the U.S.
"EFFECTIVE DATE" shall have the meaning assigned such term in
Section 12.17.
["ELIGIBLE ACCOUNTS" shall mean at any time an amount equal to the
aggregate net invoice or ledger amount owing on all trade accounts
receivable of the Borrower and any Restricted Subsidiary, for goods sold
or leased or services rendered in the ordinary course of business, in
which the Agent has a perfected, first priority security interest
(subject only to Excepted Liens), after deducting (a) the amount of all
such accounts owing by account debtors having their principle place of
business in the U.S. that are unpaid for 60 days after the due date of
the original invoice, (b) the amount of all such accounts owing by
account debtors which have 20% or more of their accounts owing to the
Borrower unpaid for 60 days after the due date of the original invoice,
(c) in a situation in which the accounts owing by a single account
debtor exceeds 10% of all such accounts owing to the Borrower, then the
amount of all such accounts owing by such account debtor in excess of
such 10% portion, unless waived, as to a particular account debtor, in
writing by the Agent following consent by the Majority Lenders, (d) the
amount on all such accounts which are owed by account debtors having
their principle place of business outside of the U.S. that are (i) not
backed by a letter of credit satisfactory to the Agent or otherwise not
insured in a manner satisfactory to the Agent or (ii) unpaid for 91 days
or more after the due date of the original invoice, (e) the amount on all
such accounts owing in connection with non-trade products not sold in the
ordinary course of business, (f) the amount of all trade and other
discounts, returns, allowances, rebates, credits, concessions, unbilled
amounts and adjustments to such accounts, (g) all accounts owing by a
Governmental Authority which rise out of contracts between such
Governmental Authority and the Borrower or any Restricted Subsidiary, (h)
all contra accounts, setoffs, defenses or counterclaims asserted by the
Persons obligated on such accounts, (i) the amount billed for or
representing retainage, if any, until all prerequisites to the immediate
payment of retainage have been satisfied, (e) all such accounts owed by
account debtors which are insolvent or otherwise not satisfactory to the
Agent, and (j) all such accounts owing by officers or employees of the
Borrower or by Restricted Subsidiaries or any other Person in which the
Borrower may have an Equity Interest.]
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["ELIGIBLE INVENTORY" shall mean at any time all inventory of
100% of raw materials, 50% of work in process and 100% of finished goods
then owned by the Borrower or any Restricted Subsidiary (less any
reserve for obsolescence, any reserve for slow-moving inventory or any
other similar contra-account to inventory, all of which shall be
reasonably satisfactory to the Agent) and held for use, sale or
disposition in the ordinary course of business, in which the Agent has a
perfected, first priority security interest (subject only to Excepted
Liens), valued at the lower of cost or market, exclusive of (i) book
inventory reserves in the general ledger, (ii) 10% of inventory at
nonowned locations, (iii) 25% of inventory on consignment, (iv) 25% of
inventory in transit.]
"ENVIRONMENTAL LAWS" shall mean any and all Governmental
Requirements pertaining to health or the environment in effect in any
and all jurisdictions that may be applicable to the business or Property
of the Borrower or any Restricted Subsidiary, including without
limitation, the Oil Pollution Act of 1990 ("OPA"), the Clean Air Act, as
amended, the Comprehensive Environmental, Response, Compensation, and
Liability Act of 1980 ("CERCLA"), as amended, the Federal Water
Pollution Control Act, as amended, the Occupational Safety and Health
Act of 1970, as amended, the Resource Conservation and Recovery Act of
1976 ("RCRA"), as amended, the Safe Drinking Water Act, as amended, the
Toxic Substances Control Act, as amended, the Superfund Amendments and
Reauthorization Act of 1986, as amended, the Hazardous Materials
Transportation Act, as amended, and other environmental conservation or
protection laws. The term "oil" shall have the meaning specified in
OPA, the terms "hazardous substance" and "release" (or "threatened
release") have the meanings specified in CERCLA, and the terms "solid
waste" and "disposal" (or "disposed") have the meanings specified in
RCRA; provided, however, that (i) in the event either OPA, CERCLA or
RCRA is amended so as to broaden the meaning of any term defined
thereby, such broader meaning shall apply prospectively only and only
subsequent to the effective date of such amendment and (ii) to the
extent the laws of the state in which any Property of the Borrower or
any Restricted Subsidiary is located establish a meaning for "oil,"
"hazardous substance," "release," "solid waste" or "disposal" which is
broader than that specified in either OPA, CERCLA or RCRA, such broader
meaning shall apply, but only in such state.
"EQUITY INTERESTS" means Capital Stock and all warrants, options
or other rights to acquire Capital Stock (but excluding any debt
security which is convertible into, or exchangeable for, Capital Stock).
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time and any successor statute.
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"ERISA AFFILIATE" shall mean each trade or business (whether or
not incorporated) which together with the Borrower or any Restricted
Subsidiary would be deemed to be a "single employer" within the meaning
of section 4001(b)(1) of ERISA or subsections (b), (c), (m) or (o) of
section 414 of the Code.
"ERISA EVENT" shall mean (i) a "Reportable Event" described in
Section 4043 of ERISA and the regulations issued thereunder other than
one for which the PBGC has waived in writing the statutory notice
requirement, (ii) the withdrawal of the Borrower, any Subsidiary or any
ERISA Affiliate from a Plan during a plan year in which it was a
"substantial employer" as defined in Section 4001(a)(2) of ERISA,
(iii) the filing of a notice of intent to terminate a Plan or the
treatment of a Plan amendment as a termination under Section 4041 of
ERISA, (iv) the institution of proceedings to terminate a Plan by the
PBGC or (v) any other event or condition which might constitute grounds
under Section 4042 of ERISA for the termination of, or the appointment
of a trustee to administer, any Plan.
"EURODOLLAR ADVANCES" shall mean Loans the interest rates on
which are determined on the basis of rates referred to in the definition
of "Fixed Eurodollar Rate" in this Section 1.02.
"EVENT OF DEFAULT" shall have the meaning assigned such term in
Section 10.01.
"EXCEPTED LIENS" shall mean:
(i) Liens securing payment of any Indebtedness, but exclusive
of Liens securing Hedging Agreements other than Interest
Rate Agreements;
(ii) Liens existing on Property as of the Closing Date and (if
such Liens are Liens for borrowed money or judgments or
for taxes due and payable which are delinquent and as to
which the Borrower or a Restricted Subsidiary (as
applicable) has received written notice) listed on
Schedule 9.02.
(iii) Liens (other than as already permitted by other clauses
of this definition) on the Property of the Borrower at
its Odessa Texas plant after the aggregate principal
amount of the Term Loans is less than $25,000,000, but
only to the extent Debt secured thereby is permitted
to be incurred pursuant to Section 9.01, such Liens and
Debt do not otherwise cause an Event of Default hereunder
and no Event of Default exists hereunder at the time of
creation of such Liens;
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(iv) Liens in favor of the Borrower or any Restricted
Subsidiary;
(v) Liens existing on the Property of any Person at the time
such Person becomes a Restricted Subsidiary of the
Borrower (excluding Liens which were incurred in
connection with, or in contemplation of, such Person
becoming a Restricted Subsidiary of the Borrower) that do
not extend to any other Property of the Borrower or its
Restricted Subsidiaries and as to which Borrower has used
reasonable efforts to reduce in size in situations where
the Lien in question is large in comparison to the
obligation secured;
(vi) Liens on the shares of URC stock now owned or hereafter
acquired by the Borrower and on [patents] of the Borrower
licensed to URC, in each case, to the extent and only to
the extent required pursuant to the agreements governing
the URC Venture Investment, as amended from time to time;
(vii) Liens on (x) the Borrower's Equity Interest in the APAO
Joint Venture and (y) [intellectual property rights
licensed to the APAO Joint Venture required pursuant to
the agreements governing the APAO Venture Investments];
(viii) Liens for taxes, assessments or governmental charges or
claims that are not yet delinquent or that are being
contested in good faith by appropriate proceedings
promptly instituted and diligently concluded, provided
that any reserve or other appropriate provision as shall
be required in conformity with GAAP shall have been made
therefor;
(ix) landlords', carriers', vendors', warehousemen's,
mechanics', materialmen's, repairmen's or other like
Liens arising by operation of law in the ordinary course
of business;
(x) pledges or deposits in connection with workers'
compensation, unemployment insurance and other social
security legislation;
(xi) deposits to secure the performance of bids, trade
contracts, statutory obligations, surety and appeal
bonds, performance bonds and other obligations of like
nature incurred in the ordinary course of business;
(xii) easements, rights of way, restrictions, licenses,
consignments and other similar encumbrances on any
Property of the Borrower or of any Restricted Subsidiary,
including Liens constituting leases or
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subleases to third parties granted by the Borrower or any
Restricted Subsidiary, in each case to the extent
incurred in the ordinary course of business;
(xiii) judgment Liens which attach to Property after the Closing
Date and which do not constitute a Default;
(xiv) Liens on unearned premiums of insurance policies that
secure the financing of such premiums for such policies;
(xv) Liens arising pursuant to authority granted under CERCLA
or RCRA or pursuant to analogous state statutes, provided
that the aggregate of all obligations in respect of which
the Borrower is required to record a reserve in
accordance with GAAP that are secured by such Liens shall
not exceed [$40,000,000] at any time;
(xvi) Liens on property existing at the time of acquisition
thereof by the Borrower or any Restricted Subsidiary of
the Borrower; provided that such Liens were in existence
prior to contemplation of such acquisition and as to
which Borrower has used reasonable efforts to reduce in
size in situations where the Lien in question is large in
comparison to the obligation secured;
(xvii) Liens on assets of any Person (other than Borrower) which
is not a Restricted Subsidiary;
(xviii) Liens incurred to secure (A) Purchase Money Financings or
(B) Capital Lease Obligations but only, in the case of
(A) and (B), if such Liens do not extend to any assets
other than the assets purchased with the proceeds of the
corresponding Purchase Money Financing or which are the
subject of such Capital Lease Obligation, and in each
case to the extent the Debt secured thereby is permitted
to be incurred pursuant to Section 9.01;
(xix) Liens securing any extension, renewal or refunding of any
obligations secured by the foregoing Liens that do not
increase the obligations secured thereby and do not
extend such Lien to any assets other than those
previously securing such obligations.
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"EXCESS CASH FLOW" shall mean, for the four fiscal quarters
immediately preceding the date of determination, Adjusted EBITDA PLUS
non-cash charges MINUS (a) the scheduled cash payments made for
principal and interest for such four fiscal quarters of the Borrower and
(b) the lesser of capital expenditures actually incurred and
$20,000,000, and (c) cash taxes paid.
"EXISTING DEBT" shall mean all Debt of the Borrower and its
Restricted Subsidiaries outstanding on the Closing Date.
"FEDERAL FUNDS RATE" shall mean, for any day, the rate per annum
(rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the
weighted average of the rates on overnight Federal funds transactions
with a member of the Federal Reserve System arranged by Federal funds
brokers on such day, as published by the Federal Reserve Bank of New
York on the Business Day next succeeding such day, provided that (i) if
the date for which such rate is to be determined is not a Business
Day, the Federal Funds Rate for such day shall be such rate on such
transactions on the next preceding Business Day as so published on the
next succeeding Business Day, and (ii) if such rate is not so published
for any day, the Federal Funds Rate for such day shall be the average
rate charged to the Agent on such day on such transactions as determined
by the Agent.
"FINAL MATURITY DATE" shall mean, unless the Term Notes are
sooner prepaid pursuant to Section 2.07 hereof, December 31, 1999.
"FINANCIAL STATEMENTS" shall mean the financial statement or
statements of the Borrower described or referred to in Section 7.02.
"FIXED EURODOLLAR RATE" shall mean, with respect to any
Eurodollar Advances, the rate per annum (rounded upwards, if necessary,
to the nearest 1/16 of 1%) quoted by the Agent at approximately 11:00
a.m. London time (or as soon thereafter as practicable) two Business
Days prior to the first day of the Interest Period for such Loan for the
offering by the Agent to leading lenders in the London interbank
market of Dollar deposits having a term comparable to such Interest
Period and in an amount comparable to the principal amount of the
Eurodollar Advances to be made by the Lenders for such Interest Period.
"FIXED RATE" shall mean, with respect to any Eurodollar Advances,
a rate per annum (rounded upwards, if necessary, to the nearest 1/100 of
1%) determined by the Agent to be equal to the quotient of (i) the Fixed
Eurodollar Rate for such Loan for the Interest Period for such Loan
divided by (ii) 1 minus the Reserve Requirement for such Loan for such
Interest Period.
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"FOREIGN SUBSIDIARY" shall mean any Subsidiary of the Borrower
organized under the laws of a jurisdiction outside of the United States
of America and not operating in the United States of America.
"GAAP" shall mean generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards
Board or in such other statements by such other entity as have been
approved by a significant segment of the accounting profession,
which are in effect on the Closing Date provided, however, that for
purposes of all determinations with respect to accounting matters and
all financial statements, certificates and other reports as to financial
matters required to be made or delivered pursuant to this Agreement
after the Closing Date, GAAP shall mean such generally accepted
accounting principles as are in effect from time to time.
"GOVERNMENTAL AUTHORITY" shall include the country, the state,
county, city and political subdivisions in which any Person or such
Person's Property is located or which exercises valid jurisdiction over
any such Person or such Person's Property, and any court, agency,
department, commission, board, bureau or instrumentality of any of them
including monetary authorities which exercises valid jurisdiction over
any such Person or such Person's Property. Unless otherwise specified,
all references to Governmental Authority herein shall mean a
Governmental Authority having jurisdiction over, where applicable, the
Borrower, its Restricted Subsidiaries or any of their Properties or the
Agent or, any Lender or any Applicable Lending Office.
"GOVERNMENTAL REQUIREMENT" shall mean any law, statute, code,
ordinance, order, determination, rule, regulation, judgment, decree,
injunction, franchise, permit, certificate, license, authorization or
other directive or requirement (whether or not having the force of law),
including, without limitation, Environmental Laws, energy regulations
and occupational, safety and health standards or controls, of any
Governmental Authority.
"GUARANTEE" shall mean, with respect to any Person, a guarantee
(other than by endorsement of negotiable instruments for collection in
the ordinary course of business), direct or indirect, in any manner
(including, without limitation, letters of credit and reimbursement
agreements in respect thereof), of all or any part of any Debt that is
owed by any other Person.
"HEDGING AGREEMENTS" shall mean, with respect to any Person, the
obligations of such Person under (i) Currency Agreements, (ii) Interest
Rate Agreements and (iii) agreements to protect against fluctuations in
the price of
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feedstocks or products.
"HIGHEST LAWFUL RATE" shall mean, with respect to each Lender,
the maximum nonusurious interest rate, if any, that at any time or from
time to time may be contracted for, taken, reserved, charged or received
on the Notes or on other Indebtedness under laws applicable to such
Lender which are presently in effect or, to the extent allowed by law,
under such applicable laws which may hereafter be in effect and which
allow a higher maximum nonusurious interest rate than applicable
laws now allow.
"INDEBTEDNESS" shall mean any and all amounts owing or to be
owing by the Borrower or any Restricted Subsidiary to the Agent and/or
Lenders in connection with the Notes or any other Loan Document and any
Hedging Agreements now or hereafter arising between the Borrower or any
Restricted Subsidiary and any Lender, and all renewals, extensions for
any period, amendments, supplements, reissues, modifications, and/or
rearrangements of any of the above.
"INDEMNIFIED PARTIES" shall have the meaning assigned such term
in Section 12.03(b).
"INDEMNITY MATTERS" shall mean any and all actions, suits,
proceedings (including any investigations, litigation or inquiries),
claims, demands and causes of action made or threatened against a Person
and, in connection therewith, all losses, liabilities, damages
(including, without limitation, consequential damages) or reasonable
costs and expenses of any kind or nature whatsoever incurred by such
Person whether caused by the sole or concurrent negligence of such
Person seeking indemnification.
"INITIAL FUNDING" shall mean the funding of the initial Loans
pursuant to Section 6.01 hereof.
"INTEREST PERIOD" shall mean, with respect to any Eurodollar
Advances, the period commencing on the date such Eurodollar Advances is
made and ending on the numerically corresponding day in the first,
second, third or sixth calendar month thereafter, as the Borrower may
select as provided in Section 2.02 (or such longer period as may be
requested by the Borrower and agreed to by the Majority Lenders),
except that each Interest Period which commences on the last Business
Day of a calendar month (or on any day for which there is no numerically
corresponding day in the appropriate subsequent calendar month) shall
end on the last Business Day of the appropriate subsequent calendar
month.
Notwithstanding the foregoing: (i) no Interest Period may
commence before
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and end after the Final Maturity Date; (ii) no Interest Period for any
Eurodollar Advances may end after the due date of any installment, if
any, provided for in Section 3.01 hereof to the extent that such
Eurodollar Advances would need to be prepaid prior to the end of such
Interest Period in order for such installment to be paid when due; (iii)
each Interest Period which would otherwise end on a day which is not a
Business Day shall end on the next succeeding Business Day (or, if such
next succeeding Business Day falls in the next succeeding calendar
month, on the next preceding Business Day); and (iv) no Interest Period
shall have a duration of less than one month and, if the Interest Period
for any Eurodollar Advances would otherwise be for a shorter period,
such Loans shall not be available hereunder.
"INTEREST RATE AGREEMENT" shall mean the obligations of any
person pursuant to any interest rate swap agreement, interest rate
collar agreement or other similar agreement or arrangement designed to
protect such Person against fluctuations in interest rates.
"INVESTMENT" shall mean, with respect to the Borrower and its
Restricted Subsidiaries, any investment by the Borrower or any of its
Restricted Subsidiaries in other Persons (including Affiliates) in the
forms of loans, Guarantees of Debt, advances (excluding commission,
travel and similar advances to officers and employees made in the
ordinary course of business), capital contributions, purchases
or other acquisitions from such other Persons for consideration of Debt,
Equity Interests, cash or other property, and all other items that are
or would be classified as investments on a balance sheet prepared in
accordance with GAAP, but excluding investments to the extent made with
the Capital Stock of the Borrower.
"ISSUER" shall mean, with respect to the issuance of Letters of
Credit, the Agent or, with respect to a Letter of Credit issued or to be
issued by a Lender for which prior consent of the Agent was obtained,
such Lender.
"LC COMMISSION RATE" shall mean the rate per annum equal to the
sum of (a) one-eighth of one percent (1/8%), plus (b) the Applicable
Margin for Eurodollar Advances in effect at the time of issuance of a
Letter of Credit.
"LC COMMITMENT" at any time shall mean $15,000,000.
"LC EXPOSURE" at any time shall mean the aggregate face amount of
all undrawn and uncancelled Letters of Credit and the aggregate of all
amounts drawn under all Letters of Credit and not yet reimbursed.
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"LETTER OF CREDIT AGREEMENTS" shall mean the written agreements
with the Issuer for any Letter of Credit, executed or hereafter executed
in connection with the issuance of the Letters of Credit, such
agreements to be on the Issuer's customary form for letters of credit of
comparable amount and purpose as from time to time in effect or as
otherwise agreed to by the Borrower and the Issuer's.
"LETTERS OF CREDIT" shall mean the letters of credit issued
pursuant to Section 2.01(c) and Section 6.03 and all reimbursement
obligations pertaining to any such letters of credit, and "Letter of
Credit" shall mean any one of the Letters of Credit and the
reimbursement obligations pertaining thereto.
"LIEN" shall mean any interest in Property securing an obligation
owed to, or a claim by, a Person other than the owner of the Property,
whether such interest is based on the common law, statute or contract,
and whether such obligation or claim is fixed or contingent, and
including but not limited to the lien or security interest arising from
a mortgage, encumbrance, pledge, security agreement, conditional sale
or trust receipt or a lease, consignment or bailment for security
purposes. The term "LIEN" shall include reservations, exceptions,
encroachments, easements, rights of way, covenants, conditions,
restrictions, leases and other title exceptions and encumbrances
affecting Property. For the purposes of this Agreement, the Borrower
or any Subsidiary shall be deemed to be the owner of any Property which
it has acquired or holds subject to a conditional sale agreement, or
leases under an agreement constituting a Capital Lease Obligation.
"LOAN DOCUMENTS" shall mean this Agreement, the Notes the Letters
of Credit, the Letter of Credit Agreements and the Security Instruments.
"LOANS" shall mean the loans as provided for by Sections 2.01(a)
and (b). "Loans" shall include the Revolving Credit Loans and the Term
Loans.
"LOCKBOX AGREEMENT" shall mean that certain Lockbox Agreement of
even date herewith by and between the Borrower, the depository bank for
the lockbox and the Agent, relating to the lockbox maintained by the
Borrower pursuant to Section 8.08.
"MAJORITY LENDERS" shall mean, at any time while no Loans are
outstanding, Lenders having at least fifty-one percent (51%) of the
Aggregate Commitments and, at any time while Loans are outstanding,
Lenders holding at least fifty-one percent (51%) of the outstanding
aggregate principal amount of the Loans (without regard to any sale by
a Lender of a participation in any Loan under Section 12.06(c)).
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"MATERIAL ADVERSE EFFECT" shall mean any material and adverse
effect, as determined by the Majority Lenders, on (i) the assets,
liabilities, financial condition, business, operations or affairs of the
Borrower and its Restricted Subsidiaries taken as a whole different from
those reflected in the Financial Statements or from the facts
represented or warranted in this Agreement or any other Security
Instrument, or (ii) the ability of the Borrower and its Restricted
Subsidiaries taken as a whole to carry out their business as at the
Closing Date to be conducted or meet their obligations under the Loan
Documents on a timely basis.
"MORTGAGED PROPERTY" shall mean the Property owned by the
Borrower and which is subject to the Liens existing and to exist under
the terms of the Security Instruments.
"MULTIEMPLOYER PLAN" shall mean a Plan defined as such in Section
3(37) or 4001(a)(3) of ERISA.
"NET PROCEEDS" means the aggregate proceeds of cash and cash
equivalents received by the Borrower or any of its Restricted
Subsidiaries in respect of any Asset Sale (including, without
limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the
direct costs relating to such Asset Sale (including, without limitation,
legal, accounting and investment banking fees and sales commissions) and
any relocation expenses incurred as a result thereof, taxes paid or
payable as a result thereof (after taking into account any available tax
credits or deductions and any tax sharing arrangements) and any reserve
for adjustment in respect of the sale price of such asset or assets
established in accordance with GAAP.
"NOTES" shall mean the Notes provided for by Section 2.06,
together with any and all renewals, extensions for any period,
increases, rearrangements, substitutions or modifications thereof. The
"Notes" shall include the Revolving Credit Notes and the Term Notes.
"OTHER TAXES" shall have the meaning assigned such term in
Section 4.06(b).
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions.
"PERCENTAGE SHARE" shall mean the percentage of the Aggregate
Commitments to be provided by a Lender under this Agreement as indicated
on Exhibit G hereto, as modified from time to time to reflect any
assignments permitted by Section 12.06(b).
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"PERSON" shall mean any individual, corporation, company,
voluntary association, partnership, joint venture, trust, unincorporated
organization or government or any agency, instrumentality or political
subdivision thereof, or any other form of entity.
"PLAN" shall mean any employee pension benefit plan, as defined
in Section 3(2) of ERISA, which (a) is currently or hereafter sponsored,
maintained or contributed to by the Borrower, any Subsidiary or an ERISA
Affiliate or (b) was at any time during the preceding six calendar
years, sponsored, maintained or contributed to, by the Borrower, any
Subsidiary or an ERISA Affiliate.
"POST-DEFAULT RATE" shall mean, in respect of any principal of
any Loan or any other amount payable by the Borrower under this
Agreement or any Note which is not paid when due (whether at stated
maturity, by acceleration or otherwise), a rate per annum during the
period commencing on the due date until such amount is paid in full or
the default is cured or waived equal to 2% per annum above the Base Rate
as in effect from time to time plus the Applicable Margin (if any), but
in no event to exceed the Highest Lawful Rate (provided that, if such
amount in default is principal of a Eurodollar Advances, the
"Post-Default Rate" for such principal shall be, for the period
commencing on the due date and ending on the last day of the Interest
Period therefor, 2% per annum above the interest rate for such Loan as
provided in Section 3.02(b), but in no event to exceed the Highest
Lawful Rate).
"PRINCIPAL OFFICE" shall mean the principal office of the Agent,
presently located at 600 Peachtree Street, N.E., Suite 2700, Atlanta,
Georgia 30308.
"PROPERTY" shall mean any interest in any kind of property or
asset, whether real, personal or mixed, or tangible or intangible.
"PURCHASE MONEY FINANCING" shall mean, with respect to any
Person, Debt incurred to finance the purchase of any assets of such
Person (within 90 days of such purchase) to the extent (i) the amount of
Debt thereunder shall not exceed 95% of the purchase cost of such
assets, (ii) the purchase cost for such assets is or should be included
in "additions to property plant and equipment" in accordance with
GAAP and (iii) the purchase of such assets is not part of an acquisition
of any Person.
"QUARTERLY DATES" shall mean the last day of each March, June,
September and December, in each year, the first of which shall be
December 31, 1994; provided, however, that if any such day is not a
Business Day, such Quarterly Date shall be the next preceding Business
Day.
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"REGULATION D" shall mean Regulation D of the Board of Governors
of the Federal Reserve System (or any successor), as the same may be
amended or supplemented from time to time.
"REGULATORY CHANGE" shall mean, with respect to any Lender, any
change after the Closing Date in any Governmental Requirement (including
Regulation D) or the adoption or making after such date of any
interpretations, directives or requests applying to a class of lenders
(including such Lender or its Applicable Lending Office) of or under any
Governmental Requirement generally applicable to banks operating in the
United States of America (whether or not having the force of law)
by any Governmental Authority charged with the interpretation or
administration thereof.
"REQUIRED PAYMENT" shall have the meaning assigned such term in
Section 4.04.
"RESERVE REQUIREMENT" shall mean, for any Interest Period for any
Eurodollar Advances, the average maximum rate at which reserves
(including any marginal, supplemental or emergency reserves) are
required to be maintained during such Interest Period under Regulation
D by member banks of the Federal Reserve System in New York City with
deposits exceeding one billion Dollars against "Eurocurrency
liabilities" (as such term is used in Regulation D). Without limiting
the effect of the foregoing, the Reserve Requirement shall reflect any
other reserves required to be maintained by such member banks by reason
of any Regulatory Change against (i) any category of liabilities which
includes deposits by reference to which the Fixed Eurodollar Rate for
Eurodollar Advances is to be determined as provided in the definition of
"Fixed Eurodollar Rate" in this Section 1.02 or (ii) any category of
extensions of credit or other assets which include a Eurodollar
Advances.
"RESPONSIBLE OFFICER" shall mean, as to any Person, the Chief
Executive Officer, the President or any Vice President of such Person
and, with respect to financial matters, the term "Responsible Officer"
shall include the Chief Financial Officer of such Person. Unless
otherwise specified, all references to a Responsible Officer herein
shall mean a Responsible Officer of the Borrower.
"RESTRICTED SUBSIDIARY" of a Person shall mean any direct or
indirect Subsidiary of the Borrower that is not an Unrestricted
Subsidiary.
"REVOLVING CREDIT COMMITMENT" shall mean, for any Lender, its
obligation to make Loans as provided in Section 2.01(a), and to
participate in Letters of Credit as provided in Section 2.01(c) up to
the Lender's Percentage Share of the
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lesser of (a) $80,000,000, or (b) the then effective Borrowing Base, as
the same may be reduced pursuant to Section 2.03(a).
"REVOLVING CREDIT LOANS" shall mean Loans made pursuant to
Section 2.01(a).
"REVOLVING CREDIT NOTES" shall mean the promissory note or notes
(whether one or more) of the Borrower described in Section 2.06 hereof
and being in the form of Exhibit A-1 hereto.
"REVOLVING CREDIT PERIOD" shall mean the period from the Closing
Date to and ending on the Revolving Credit Termination Date.
"REVOLVING CREDIT TERMINATION DATE" shall mean, unless the
Revolving Credit Commitments are sooner terminated pursuant to Sections
2.03(a) or 10.02 hereof, December 31, 1999.
"SEC" shall mean the Securities and Exchange Commission or any
successor Governmental Authority.
"SECURITY INSTRUMENTS" shall mean the Letters of Credit, the
Letter of Credit Agreements, the agreements or instruments described or
referred to in Exhibit E, and any and all other agreements or
instruments now or hereafter executed and delivered by the Borrower or
any other Person (other than participation or similar agreements between
any Lender and any other lender or creditor with respect to any
Indebtedness pursuant to this Agreement) in connection with, or as
security for the payment or performance of the Notes, this Agreement,
or reimbursement obligations under the Letters of Credit, as such
agreements may be amended, supplemented or restated from time to time.
"SENIOR UNSECURED NOTES" shall mean those certain unsecured ____%
Senior Notes due 2004 in the aggregate principal amount of $175,000,000,
to be issued by the Borrower pursuant to the Indenture dated as of
November ____, 1994 and governing such notes, upon terms and conditions
satisfactory to the Agent.
"SIGNIFICANT SUBSIDIARY" shall mean any Subsidiary that would be
a "significant subsidiary" as defined in Article 1, Rule 1-02 of
Regulation S-X, promulgated pursuant to the Securities Act.
"SUBSIDIARY" shall mean any corporation of which at least a
majority of the outstanding shares of stock having by the terms thereof
ordinary voting power to elect a majority of the board of directors of
such corporation (irrespective of
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whether or not at the time stock of any other class or classes of such
corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time directly or indirectly
owned or controlled by the Borrower and/or one or more of its
Subsidiaries.
"TAXES" shall have the meaning assigned such term in Section
4.06(a).
"TERM LOANS" shall mean the term loans made pursuant to Section
2.01(b). A "Term Loan" shall mean, for any Lender, the amount set forth
opposite such Lender's name on Exhibit G under the caption "Term Loan"
as modified from to time to reflect any assignments permitted by Section
12.06(b).
"TERM LOAN COMMITMENT" shall mean, for any Lender, its obligation
to make Loans as provided in Section 2.01(b) up to the amount set forth
opposite such Lender's name under the caption "Term Loans" on Exhibit G.
"TERM LOAN TERMINATION DATE" shall mean the first day on which
the Term Loans have been paid in full.
"TERM NOTES" shall mean the promissory note or notes (whether one
or more) of the Borrower described in Section 2.06 hereof and being in
the form of Exhibit A-2 hereto.
"TYPE" shall mean, with respect to any Loan, a Base Rate Loan or
a Eurodollar Advances.
"UNRESTRICTED SUBSIDIARY" means [(i) each of the Subsidiaries of
the Borrower in existence on the date of this Agreement (which meets the
tests set forth in clause (iii) of this definition), (ii) any Subsidiary
of the Company designated as an Unrestricted Subsidiary pursuant to the
provisions of Section ____ of this Agreement (which meets the tests set
forth in clause (iii) of this definition) and (iii) any Subsidiary
formed or acquired by the Borrower after the date of this Agreement, but
only to the extent that such Subsidiary complies with the following: (a)
is not party to any agreement, contract, arrangement or understanding
with the Borrower or any Restricted Subsidiary of the Borrower unless
the terms of any such agreement, contract, arrangement or understanding
are no less favorable to the Borrower or such Restricted Subsidiary than
those that might be obtained at the time from Persons who are not
Affiliates of the Borrower; (b) is a Person with respect to which
neither the Borrower nor any of its Restricted Subsidiaries has any
direct or indirect obligation to maintain or preserve such Person's
financial condition or to cause such Person to achieve any specified
levels of operating results; (c) has not guaranteed or otherwise
directly or indirectly
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provided credit support for any Debt of the Borrower or any of its
Restricted Subsidiaries; (d) has at least one director on its board of
directors that is not a director or executive officer of the Borrower
or any of its Restricted Subsidiaries and has a least one executive
officer that is not a director or executive officer of the Borrower or
any of its Restricted Subsidiaries; and (e) the unrestricted subsidiary
is, at the time it becomes an Unrestricted Subsidiary, adequately
capitalized in light of its business activities at such time. Any
designation of a Subsidiary as an Unrestricted Subsidiary pursuant to
the provisions of Section _____ of this Agreement by the board of
directors of the Borrower shall be evidenced to the Agent by filing with
the Agent a certified copy of the board resolution giving effect to such
designation and an officers' certificate certifying that such
designation complied with the foregoing conditions and was permitted by
the provisions of Section ____ of this Agreement. If, at any time, any
Unrestricted Subsidiary would fail to meet the foregoing requirements
as an Unrestricted Subsidiary, it shall thereafter cease to be an
Unrestricted Subsidiary for purposes of this Agreement and any
Indebtedness of such Subsidiary shall be deemed to be incurred by a
Restricted Subsidiary of the Borrower as of such date (and, if such
Indebtedness is not permitted to be incurred as of such date under the
provisions of this Agreement, the Borrower shall be in default of such
covenant unless such default shall have been cured within a period of 30
days thereafter). The board of directors of the Borrower may at any
time designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; PROVIDED that such designation shall be deemed to be an
incurrence of Indebtedness by a Restricted Subsidiary of the Borrower of
any outstanding Indebtedness of such Unrestricted by a Restricted
Subsidiary of the Borrower of any outstanding Indebtedness of such
Unrestricted Subsidiary and such designation shall only be permitted if
(i) such Indebtedness is permitted under the provisions of this
Agreement, (ii) no Default or Event of Default would be in existence
following such designation and (iii) unless such Subsidiary is a
Foreign Subsidiary, such Subsidiary complies with the requirements of
Section ____ of this Agreement.]
"URC VENTURE INVESTMENT" shall mean (i) all Investments by the
Borrower in URC outstanding as of the date of this Agreement, plus (ii)
all Investments made by the Borrower and its Restricted Subsidiaries in
URC after the date of this Agreement; provided, however that the
aggregate amount of all such Investments made after the date of this
Agreement (measured by their fair market value as of the date made)
shall not exceed the aggregate amount of the cash received after the
date of this Agreement by the Borrower and its Restricted Subsidiaries
as fees for the licensing of any intellectual property rights or other
proprietary technology to URC and (iii) the Guaranty (as defined in the
Joint Venture Modification Agreement dated as of (and as in effect on)
February 25, 1992 between the Borrower and UBE Industries Inc.);
provided that at no time shall the Guaranty
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made by the Borrower and its Restricted Subsidiaries (A) be with
recourse to the Borrower or any of its Subsidiaries or (B) be secured
by any Liens on the Property of the Borrower or any of its Subsidiaries
(other than Liens permitted pursuant to clause (i) of the definition
of Excepted Liens); and provided further that the amount of the
obligations guaranteed pursuant to such Guaranty shall be reduced by the
amount of all Investments made to satisfy the Borrower's obligations
under such Guaranty.
"URC" shall mean Ube Rexene Corporation, a Japanese corporation.
"U.S." shall mean the United States of America.
"WHOLLY-OWNED SUBSIDIARY" shall mean, as to the Borrower, any
Subsidiary of which all of the outstanding shares of stock having by the
terms thereof ordinary voting power to elect the board of directors of
such corporation, other than directors' qualifying shares, are owned or
controlled by the Borrower or one or more of the Wholly-Owned
Subsidiaries or by the Borrower and one or more of the Wholly-Owned
Subsidiaries.
Section 1.03 ACCOUNTING TERMS AND DETERMINATIONS. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
determinations with respect to accounting matters hereunder shall be made, and
all financial statements and certificates and reports as to financial matters
required to be furnished to the Agent or the Lenders hereunder shall be
prepared, in accordance with GAAP, applied on a basis consistent with the
audited financial statements of the Borrower referred to in Section 7.02 (except
for changes concurred with by the Borrower's independent public accountants).
ARTICLE II
COMMITMENTS
Section 2.01 LOANS AND LETTERS OF CREDIT.
(a) REVOLVING CREDIT LOANS. Each Lender severally agrees, on
the terms of this Agreement, to make Revolving Credit Loans to the
Borrower during the period from and including (i) the Closing Date or
(ii) such later date that such Lender becomes a party to this Agreement
as provided in Section 12.06(b), to and up to, but excluding, the
Revolving Credit Termination Date in an aggregate principal amount at
any one time outstanding up to but not exceeding the amount of such
Lender's Revolving Credit Commitment as then in effect; PROVIDED,
HOWEVER, that the aggregate principal amount of all such Loans by all
Lenders
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hereunder at any one time outstanding together with the LC
Exposure shall not exceed the lesser of (i) $80,000,000, or (ii) the
then effective Borrowing Base. Subject to the terms of this Agreement,
during the period from the Closing Date to and up to, but excluding,
the Revolving Credit Termination Date, the Borrower may borrow, repay
and reborrow the amount described in this Section 2.01(a).
(b) TERM LOANS. On the Closing Date, the Lenders will make
Term Loans to the Borrower in the aggregate amount of $100,000,000.
(c) LETTERS OF CREDIT. During the period from and including
the Closing Date to but excluding the Revolving Credit Termination Date,
each Issuer, as issuing bank for the Lenders, agrees to extend credit
for the account of the Borrower or any Restricted Subsidiary at any time
and from time to time by issuing, renewing, extending or reissuing
Letters of Credit; provided however, the LC Exposure at any one time
outstanding shall not exceed the lesser of (A) the LC Commitment or
(B) the Revolving Credit Commitments, as then in effect, minus the
aggregate principal amount of all Revolving Credit Loans then
outstanding. The Lenders shall participate in such Letters of Credit
according to their respective Percentage Shares.
The Lenders shall have the right (and the obligation, notwithstanding
any Event of Default, but subject to each Lender's respective Revolving
Credit Commitment) to make advances under their respective Revolving
Credit Note to fund such Lender's Percentage Share of any Letter of
Credit. In addition, if any Lender fails to fund its Percentage Share
of any Letter of Credit on the date specified therefor, the Borrower
shall request an advance under each Lender's Revolving Credit Note
(exclusive of the defaulting Lender's Revolving Credit Note) sufficient
to fund such amount and the Lenders shall make such advance
notwithstanding the occurrence of an Event of Default.
(d) LIMITATION ON TYPES OF LOANS. Subject to the other terms
and provisions of this Agreement, at the option of the Borrower, the
Loans may be Base Rate Loans or Eurodollar Advances; provided that,
without the prior written consent of the Majority Lenders, no more than
five (5) Eurodollar Advances may be outstanding at any time.
Section 2.02 BORROWINGS, CONTINUATIONS, CONVERSIONS AND LETTERS OF
CREDIT.
(a) BORROWINGS. The Borrower shall give the Agent (which shall
promptly notify the Lenders) advance notice as hereinafter provided of
each borrowing hereunder, which shall specify the aggregate amount of
such borrowing, the Type and the date (which shall be a Business Day) of
the Loans to be borrowed
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and (in the case of Eurodollar Advances) the duration of the Interest
Period therefor.
(b) MINIMUM AMOUNTS. All Base Rate Loan borrowings shall be in
amounts of at least $1,000,000 or the remaining balance of the Aggregate
Commitments, if less, or any whole multiple of $500,000 in excess
thereof, and all Eurodollar Advances shall be in amounts of at least
$5,000,000 or any whole multiple of $1,000,000 in excess thereof.
(c) NOTICES. All borrowings, continuations and conversions
shall require advance written notice (including notice by telecopier as
provided in Section 12.02) to the Agent (which shall promptly notify the
Lenders) in the form of Exhibit B hereto (or telephonic notice promptly
confirmed by such a written notice), which in each case shall be
irrevocable, from the Borrower to be received by the Agent not later
than 11:00 a.m. New York, New York time at least one Business Day prior
to the date of each Base Rate Loan borrowing and three Business Days
prior to the date of each Eurodollar Advances borrowing, continuation or
conversion. Without in any way limiting the Borrower's obligation to
confirm in writing any telephonic notice, the Agent may act without
liability upon the basis of telephonic notice believed by the Agent in
good faith to be from the Borrower prior to receipt of written
confirmation. In each such case, the Borrower hereby waives the right
to dispute the Agent's record of the terms of such telephonic notice
except in the case of gross negligence or willful misconduct by the
Agent.
(d) CONTINUATION OPTIONS. Subject to the provisions made in
this Section 2.02(d), the Borrower may elect to continue all or any part
of any Eurodollar Advances beyond the expiration of the then current
Interest Period relating thereto by giving advance notice as provided in
Section 2.02(c) to the Agent (which shall promptly notify the Lenders)
of such election, specifying the amount of such Loan to be continued and
the Interest Period therefor. In the absence of such a timely and
proper election, the Borrower shall be deemed to have elected to convert
such Eurodollar Advances to a Base Rate Loan pursuant to Section
2.02(e). All or any part of any Eurodollar Advances may be continued as
provided herein, provided that (i) any continuation of any such Loan
shall be (as to each Loan as continued for an applicable Interest
Period) in amounts of at least $5,000,000 or any whole multiple of
$1,000,000 in excess thereof and (ii) no Default shall have occurred and
be continuing. If a Default shall have occurred and be continuing, each
Eurodollar Advances shall be converted to a Base Rate Loan on the last
day of the Interest Period applicable thereto.
(e) CONVERSION OPTIONS. The Borrower may elect to convert all
or any part of any Eurodollar Advances on the last day of the then
current Interest Period
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relating thereto to a Base Rate Loan by giving advance notice to the
Agent (which shall promptly notify the Lenders) of such election.
Subject to the provisions made in this Section 2.02(e), the Borrower may
elect to convert all or any part of any Base Rate Loan at any time and
from time to time to a Eurodollar Advance by giving advance notice as
provided in Section 2.02(c) to the Agent (which shall promptly notify
the Lenders) of such election. All or any part of any outstanding Loan
may be converted as provided herein, provided that (i) any conversion of
any Base Rate Loan into a Eurodollar Advance shall be (as to each such
Loan into which there is a conversion for an applicable Interest Period)
in amounts of at least $5,000,000 or any whole multiple of $1,000,000 in
excess thereof and (ii) no Default shall have occurred and be
continuing. If a Default shall have occurred and be continuing, no Base
Rate Loan may be converted into a Eurodollar Advances.
(f) ADVANCES. Not later than 11:00 a.m. New York, New York
time on the date specified for each borrowing hereunder, each Lender
shall make available the amount of the Loans to be made by it on such
date to the Agent, to an account which the Agent shall specify, in
immediately available funds, for the account of the Borrower. The
amounts so received by the Agent shall, subject to the terms and
conditions of this Agreement, be made available to the Borrower by
transferring the same, in immediately available funds, to an account of
the Borrower, designated by the Borrower and maintained with the Agent
at the Principal Office.
(g) LETTERS OF CREDIT. The Borrower shall give the Agent
(which shall promptly notify the Lenders of such request and their
Percentage Share of such Letter of Credit) advance notice to be received
by the Agent not later than 11:00 a.m. New York, New York time not less
than three (3) Business Days prior thereto of each request for the
issuance and at least ten (10) Business Days prior to the date of the
renewal or extension of a Letter of Credit hereunder which request shall
specify (i) the amount of such Letter of Credit, (ii) the date (which
shall be a Business Day) such Letter of Credit is to be issued, renewed
or extended, (iii) the duration thereof, (iv) the name and address of
the beneficiary thereof, (v) the form of the Letter of Credit, (vi) the
name of the Issuer thereof, and (vii) such other information as the
Agent may reasonably request, all of which shall be reasonably
satisfactory to the Agent. Subject to the terms and conditions of this
Agreement, on the date specified for the issuance, renewal or extension
of a Letter of Credit, the Issuer shall issue such Letter of Credit to
the beneficiary thereof.
In conjunction with the issuance of each Letter of Credit, the
Borrower and the Restricted Subsidiary, if the account party, shall
execute a Letter of Credit Agreement. In the event of any conflict
between any provision of a Letter of
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Credit Agreement and this Agreement, the Borrower, the Agent and the
Lenders hereby agree that the provisions of this Agreement shall govern.
The Issuer will send to the Borrower and each Lender, immediately
upon issuance of any Letter of Credit, or an amendment thereto, a true
and complete copy of such Letter of Credit, or such amendment thereto.
Section 2.03 CHANGES OF REVOLVING CREDIT COMMITMENTS.
(a) The Borrower shall have the right to terminate or to reduce
the amount of the Revolving Credit Commitments at any time or from time
to time upon not less than three (3) Business Days' prior notice to the
Agent (which shall promptly notify the Lenders) of each such termination
or reduction, which notice shall specify the effective date thereof and
the amount of any such reduction (which shall not be less than
$5,000,000 or any whole multiple of $1,000,000 in excess thereof) and
shall be irrevocable and effective only upon receipt by the Agent.
(b) The Revolving Credit Commitments once terminated or reduced
may not be reinstated.
Section 2.04 FEES.
(a) The Borrower shall pay to the Agent for the account of each
Lender a commitment fee on (i) the daily average unadvanced portion of
the Revolving Credit Commitments (without regard to the Borrowing Base
and minus the LC Exposure) and (ii) the aggregate unadvanced portion of
the Term Loan Commitments for the twelve-month period following the
Closing Date at a rate per annum equal to one-half of one percent (1/2
of 1%). Thereafter, for the period up to but excluding the earlier of
the date the Revolving Credit Commitments are terminated or the
Revolving Credit Termination Date, the commitment fee will be determined
quarterly and will be 3/8% per annum if the ratio of consolidated Debt
of the Borrower and its Consolidated Restricted Subsidiaries to Adjusted
EBITDA on a trailing four-quarter basis is less than 3.0 to 1.0 and 1/2%
per annum if such ratio is equal to or greater than 3.0 to 1.0.
Accrued commitment fees shall be payable on each Quarterly Date and on
the date the Revolving Credit Commitments are terminated.
(b) The Borrower agrees to pay to the Agent for the Issuers and
the Lenders a fee for each Letter of Credit in an amount equal to the LC
Commission Rate on the daily average outstanding amount of the maximum
liability existing
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from time to time under such Letter of Credit. In each such case, the
Issuer shall receive for its own account a portion of said fee equal to
one eighth of one percent (1/8%) per annum of the maximum liability and
the remaining portion of said fee shall be distributed to the Lenders
(including the Issuer as a Lender) in accordance with their respective
Percentage Share. Each Letter of Credit shall be deemed to be
outstanding up to the full face amount of the Letter of Credit until the
Issuer has received the cancelled Letter of Credit or a written
cancellation of the Letter of Credit from the beneficiary of such Letter
of Credit in form and substance acceptable to the Issuer or for any
reductions in the amount of the Letter of Credit (other than from a
drawing), written notification from the Borrower. Such fees are
payable in advance at issuance of the Letter of Credit.
(c) Upon each transfer of any Letter of Credit to a successor
beneficiary in accordance with its terms, the Borrower shall pay the
sum of $500 to the Issuer for its own account.
Section 2.05 SEVERAL OBLIGATIONS. The failure of any Lender to make
any Loan to be made by it or to provide funds for disbursements under Letters of
Credit on the date specified therefor shall not relieve any other Lender of its
obligation to make its Loan or provide funds on such date (up to but not
exceeding its Commitment).
Section 2.06 NOTES. The Term Loan made by each Lender shall be
evidenced by a single promissory note of the Borrower in substantially the form
of Exhibit A-2 hereto, dated (i) the Closing Date or (ii) the effective date of
an Assignment pursuant to Section 12.06(b), payable to the order of such Lender
in a principal amount equal to the amount set forth on Exhibit G. The Revolving
Credit Loans made by each Lender shall be evidenced by a single promissory note
of the Borrower in substantially the form of Exhibit A-1 hereto, dated (i) the
Closing Date or (ii) the effective date of an Assignment pursuant to Section
12.06(b), payable to the order of such Lender in a principal amount equal to its
Maximum Credit Amount as originally in effect and otherwise duly completed. The
date, amount, Type, interest rate and Interest Period of each Loan made by each
Lender, and all payments made on account of the principal thereof, shall be
recorded by such Lender on its books for its Notes, and, prior to any transfer,
endorsed by such Lender on the schedule attached to such Notes or any
continuation thereof. Such records shall be deemed conclusive absent manifest
error.
Section 2.07 PREPAYMENTS.
(a) The Borrower may prepay the Base Rate Loans upon not less
than one (1) Business Day prior notice to the Agent (which shall
promptly notify the Lenders), which notice shall specify the prepayment
date (which shall be a Business Day) and the amount of the prepayment
(which shall be at least
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$2,000,000, or the remaining aggregate principal balance outstanding on
the Notes) and shall be irrevocable and effective only upon receipt by
the Agent. Except for mandatory prepayments provided for in this
Agreement, the Borrower may not prepay any Eurodollar Advances prior to
the end of an Interest Period. Any prepayment of a Eurodollar Advances
shall be made together with the payment of compensation pursuant to
Section 5.05.
(b) If, after giving effect to any termination or reduction of
the Revolving Credit Commitments pursuant to Section 2.03(a), the
outstanding aggregate principal amount of the Revolving Credit Loans
plus the LC Exposure exceeds the Revolving Credit Commitments (in this
subsection (b) and subsection 2.07(c) such excess is referred to as the
"Excess"), the Borrower shall (i) prepay the Revolving Credit Loans
on the date of such termination or reduction in an aggregate principal
amount equal to the Excess, together with interest on the principal
amount paid accrued to the date of such prepayment and (ii) if any
portion of the Excess remains after prepaying all of the Revolving
Credit Loans, pay to the Agent on behalf of the Lenders an amount equal
to such remaining portion of the Excess to be held as cash
collateral as provided in Section 2.09(b) hereof.
(c) Upon any redetermination of the amount of the Borrowing
Base, if the redetermined Borrowing Base is less than the aggregate
outstanding principal amount of the Revolving Credit Loans plus the LC
Exposure, then the Borrower shall within ten (10) Business Days of
receipt of written notice thereof prepay the Revolving Credit Loans in
an aggregate principal amount equal to such Excess, together with
interest on the principal amount paid accrued to the date of such
prepayment. Furthermore, it shall be the responsibility of the Borrower
to continually monitor the amount of the Borrowing Base. If, as a
result of such monitoring, the Borrower determines that the amount of
the Borrowing Base is less than the aggregate outstanding principal
amount of the Revolving Credit Loans plus the LC Exposure, the Borrower
shall, within two (2) Business Days following such determination, prepay
the Revolving Credit Loans in an aggregate principal amount equal to
such Excess, together with interest on the principal amount paid accrued
to the date of such prepayment.
(d) Until all amounts owing under the Term Notes have been paid
in full, the Borrower shall make annual prepayments on the Term Loans,
which prepayments (i) shall be due and payable on April 15th of each
fiscal year commencing April 15, 1996, (ii) shall be in an amount equal
to 50% of Excess Cash Flow, (iii) may not be reborrowed, and (iv) shall
be applied to installments on the Term Notes in the inverse order of
maturity; provided, however, the amount of such prepayments made as to
years 1995, 1996 and 1997 shall not exceed $10,000,000 plus the
difference between the "Cap" for all prior years and the
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amounts actually prepaid for such years. As used herein, "Cap" shall
initially be $10,000,000 and shall be increased for subsequent years by
the difference between the Cap for all prior years and the amounts
actually prepaid for such years.
(e) Until the Term Loan Termination Date, all insurance
proceeds received by the Borrower in an amount equal to or greater than
$1,000,000 in each year which are not used by the Borrower within twelve
(12) months of the receipt thereof to restore or replace the damaged or
destroyed asset of the Borrower upon which such proceeds were paid,
shall be delivered to the Agent and shall be applied by the Agent to
installments of principal on the Term Notes in the inverse order of
their maturity until the Term Notes are paid in full. After the Term
Notes have been paid in full, all such proceeds received in excess of
$20,000,000 in the aggregate shall be delivered to the Agent for
application towards the reduction of outstanding Indebtedness in such
manner as the Majority Lenders shall, in their sole discretion,
determine.
(f) Until the Term Loan Termination Date, (i) 50% of the Net
Proceeds from Asset Sales in excess of the first $10,000,000 of Net
Proceeds from Asset Sales up to $25,000,000 of Net Proceeds from Asset
Sales and (ii) 100% of the Net Proceeds from Asset Sales over the first
$25,000,000 of Net Proceeds from Asset Sales (subject to approval of
Assets Sales over $25,000,000 pursuant to Section 9.15 hereof) shall be
delivered to the Agent and shall be applied by the Agent to installments
of the principal on the Term Notes in the inverse order of maturity
until the Term Notes are paid in full; provided, however, no such
prepayments shall be required in situations where replacement assets are
purchased as permitted in Section 9.15.
(g) Prepayments permitted or required under this Section 2.07
shall be without premium or penalty, except as required under Section
5.05 for prepayment of Eurodollar Advances. Any prepayments on the
Revolving Credit Loans may be reborrowed subject to the then effective
Revolving Credit Commitments.
Section 2.08 ASSUMPTION OF RISKS. The Borrower assumes all risks of
the acts or omissions of any beneficiary of any Letter of Credit or any
transferee thereof with respect to its use of such Letter of Credit. Neither
the Agent (except in the case of willful misconduct or bad faith on the part of
the Agent or any of its employees), its correspondents nor any Lender shall be
responsible for the validity, sufficiency or genuineness of certificates or
other documents or any endorsements thereon, even if such certificates or other
documents should in fact prove to be invalid, insufficient, fraudulent or
forged; for errors, omissions, interruptions or delays in transmissions or
delivery of any messages by mail, telex, or otherwise, whether or not they be
in code; for errors in translation or for errors in interpretation of
technical terms; the validity or sufficiency of
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any instrument transferring or assigning or purporting to transfer or assign any
Letter of Credit or the rights or benefits thereunder or proceeds thereof, in
whole or in part, which may prove to be invalid or ineffective for any reason.
The Agent and its correspondents may accept certificates or other documents that
appear on their face to be in order, without responsibility for further
investigation of any matter contained therein regardless of any notice or
information to the contrary.
Section 2.09 OBLIGATION TO REIMBURSE AND TO PREPAY.
(a) If a disbursement by an Issuer is made under any Letter
of Credit, the Borrower shall pay to the Issuer within two (2) Business
Days after notice of any such disbursement is received by the Borrower,
the amount of each such disbursement made by the Issuer under the Letter
of Credit (if such payment is not sooner effected as may be required
under this Section 2.09, permitted under Section 2.01(c) or under other
provisions of the Letter of Credit), together with interest on the
amount disbursed from and including the date of disbursement until
payment in full of such disbursed amount at a varying rate per annum
equal to (i) the then applicable interest rate for Base Rate Loans
through the second Business Day after notice of such disbursement is
received by the Borrower and (ii) thereafter, the Post-Default Rate for
Base Rate Loans (but in no event to exceed the Highest Lawful Rate) for
the period from and including the Business Day following the date
of such disbursement to and including the date of repayment in full of
such disbursed amount. The obligations of the Borrower under this
Agreement with respect to each Letter of Credit shall be absolute,
unconditional and irrevocable and shall be paid or performed strictly
in accordance with the terms of this Agreement under all circumstances
whatsoever, including, without limitation, but only to the fullest
extent permitted by applicable law, the following circumstances: (i) any
lack of validity or enforceability of this Agreement, any Letter of
Credit or any of the Security Instruments; (ii) any amendment or waiver
of (including any default), or any consent to departure from this
Agreement made or given in accordance with the terms of the Loan
Agreement (except to the extent permitted by any amendment or waiver),
any Letter of Credit or any of the Security Instruments; (iii) the
existence of any claim, set-off, defense or other rights which the
Borrower may have at any time against the beneficiary of any Letter of
Credit or any transferee of any Letter of Credit (or any Persons for
whom any such beneficiary or any such transferee may be acting), the
Agent, any Lender or any other Person, whether in connection with this
Agreement, any Letter of Credit, the Security Instruments, the
transactions contemplated hereby or any unrelated transaction; (iv) any
statement, certificate, draft, notice or any other document presented
under any Letter of Credit proves to have been forged, fraudulent,
insufficient or invalid in any respect or any statement therein proves
to have been untrue or inaccurate in any respect whatsoever; (v)
payment by the Issuer under any Letter of Credit
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against presentation of a draft or certificate which appears on its face
to comply, but does not comply, with the terms of such Letter of Credit;
and (vi) any other circumstance or happening whatsoever, whether or not
similar to any of the foregoing.
Notwithstanding anything in this Agreement to the contrary, the Borrower
will not be liable for payment or performance that results from the
gross negligence or willful misconduct of the Issuer, except (i) where
the Borrower or any Subsidiary actually recovers the proceeds for itself
or the Issuer of any payment made by the Issuer in connection with such
gross negligence or willful misconduct or (ii) in cases where the
Issuer makes payment to the named beneficiary of a Letter of Credit in
accordance with the requirements of the Letter of Credit.
(b) In the event of the occurrence of any Event of Default, a
payment or prepayment pursuant to Sections 2.07(b) and (c) hereof or the
maturity of the Notes, whether by acceleration or otherwise, an amount
equal to the LC Exposure (or the Excess in the case of Sections 2.07(b)
and (c)) shall be deemed to be forthwith due and owing by the Borrower
to the Agent and the Lenders as of the date of any such occurrence; and
the Borrower's obligation to pay such amount shall be absolute and
unconditional, without regard to whether any beneficiary of any such
Letter of Credit has attempted to draw down all or a portion of such
amount under the terms of a Letter of Credit, and, to the fullest extent
permitted by applicable law, shall not be subject to any defense or be
affected by a right of set-off, counterclaim or recoupment which the
Borrower may now or hereafter have against any such beneficiary, the
Agent, the Lenders or any other Person for any reason whatsoever.
Such payments shall be held by the Agent on behalf of the Lenders as
cash collateral securing the LC Exposure. In the event of any such
payment by the Borrower of amounts contingently owing under outstanding
Letters of Credit and in the event that thereafter drafts or other
demands for payment complying with the terms of such Letters of Credit
are not made prior to the respective expiration dates thereof,
the Agent agrees, if no Event of Default has occurred and is continuing
or if no other amounts are outstanding under this Agreement, the Notes
or the Security Instruments, to remit to the Borrower amounts for which
the contingent obligations evidenced by the Letters of Credit have
ceased.
(c) Each Lender severally and unconditionally agrees that,
notwithstanding the occurrence of an Event of Default, it shall promptly
reimburse the Issuer an amount equal to such Lender's Percentage Share
of any disbursement made by the Issuer under any Letter of Credit that
is not reimbursed according to this Section 2.09.
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Section 2.10 LENDING OFFICES. The Loans of each Type made by each
Lender shall be made and maintained at such Lender's Applicable Lending Office
for Loans of such Type.
ARTICLE III
PAYMENTS OF PRINCIPAL AND INTEREST
Section 3.01 REPAYMENT OF LOANS. The Borrower will pay to the Agent,
for the account of each Lender, the principal payments required by this Section
3.01. On the Revolving Credit Termination Date, the Borrower shall repay the
outstanding aggregate principal amount of the Revolving Credit Notes. On each
Quarterly Date commencing on March 31, 1995, the aggregate principal amount of
the Term Notes shall be payable in installments as set forth below, with final
payment of the remaining principal balance on the Term Notes due on the Final
Maturity Date:
<TABLE>
<CAPTION>
QUARTERLY
PERIOD AGGREGATE PRINCIPAL AMOUNT
<S> <C>
1995 $2,500,000
1996 $3,750,000
1997 $6,250,000
1998 $6,250,000
1999 $6,250,000
</TABLE>
Section 3.02 INTEREST. The Borrower will pay to the Agent, for account
of each Lender, interest on the unpaid principal amount of each Loan made by
such Lender for the period commencing on the date such Loan is made to but
excluding the date such Loan shall be paid in full, at the following rates per
annum:
(a) if such a Loan is a Base Rate Loan, the Base Rate (as in
effect from time to time) plus the Applicable Margin, but in no event
to exceed the Highest Lawful Rate; and
(b) if such a Loan is a Eurodollar Advance, for each Interest
Period relating thereto, the Fixed Rate for such Loan plus the
Applicable Margin, but in no event to exceed the Highest Lawful Rate.
Notwithstanding the foregoing, the Borrower will pay to the Agent, for the
account of each Lender, interest at the applicable Post-Default Rate on any
principal of any Loan
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made by such Lender, and (to the fullest extent permitted by law) on any other
amount payable by the Borrower hereunder or under any Notes held by such Lender
to or for account of such Lender, which shall not be paid in full when due
(whether at stated maturity, by acceleration or otherwise), for the period
commencing on the due date thereof until the same is paid in full.
Accrued interest on Base Rate Loans shall be payable on each Quarterly
Date commencing on December 31, 1994, and accrued interest on each Eurodollar
Advances shall be payable on the last day of the Interest Period therefor and,
if such Interest Period is longer than three months at three-month intervals
following the first day of such Interest Period, except that interest payable
at the Post-Default Rate shall be payable from time to time on demand and
interest on any Eurodollar Advances that is converted into a Base Rate Loan
(pursuant to Section 5.04) shall be payable on the date of conversion (but only
to the extent so converted).
Promptly after the determination of any interest rate provided for
herein or any change therein, the Agent shall notify the Lenders to which such
interest is payable and the Borrower thereof. Each determination by the Agent
of an interest rate or fee hereunder shall, except in cases of manifest error,
be final, conclusive and binding on the parties.
ARTICLE IV
PAYMENTS; PRO RATA TREATMENT; COMPUTATIONS; ETC.
Section 4.01 PAYMENTS. Except to the extent otherwise provided herein,
all payments of principal, interest and other amounts to be made by the Borrower
under this Agreement, the Notes and the Letters of Credit shall be made in
Dollars, in immediately available funds, to the Agent at such account as the
Agent shall specify by notice to the Borrower from time to time, not later than
11:00 a.m. New York, New York time on the date on which such payments shall
become due (each such payment made after such time on such due date to be deemed
to have been made on the next succeeding Business Day). Such payments shall be
made without (to the fullest extent permitted by applicable law) defense,
set-off or counterclaim. Each payment to be made to the Agent under this
Agreement or any Note for account of a Lender shall be paid promptly to such
Lender in immediately available funds. If the due date of any payment under
this Agreement or any Note would otherwise fall on a day which is not a Business
Day such date shall be extended to the next succeeding Business Day and interest
shall be payable for any principal so extended for the period of such extension.
At the time of each payment to the Agent of any principal of or interest on any
borrowing, the Borrower shall notify the Agent of the Loans to which such
payment shall apply. In the absence of such notice the
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Agent may specify the Loans to which such payment shall apply, but to the extent
possible such payment or prepayment will be applied first to the Loans comprised
of Base Rate Loans.
Section 4.02 PRO RATA TREATMENT. Except to the extent otherwise
provided herein each Lender agrees that: (a) each borrowing from the Lenders
under Section 2.01 shall be made from the Lenders pro rata in accordance with
their Percentage Share, each payment of commitment fee or other fees under
Sections 2.04(a) and (b) shall be made for account of the Lenders pro rata in
accordance with their Percentage Share, and each termination or reduction of the
amount of the Revolving Credit Commitments under Section 2.03(a) shall be
applied to the Revolving Credit Commitment of each Lender, pro rata according
to the amounts of its respective Revolving Credit Commitment; (b) each payment
of principal of Loans by the Borrower shall be made for account of the Lenders
pro rata in accordance with the respective unpaid principal amount of the Loans
held by the Lenders; and (c) each payment of interest on Loans by the Borrower
shall be made for account of the Lenders pro rata in accordance with the amounts
of interest due and payable to the respective Lenders; and (d) each
reimbursement by the Borrower of disbursements under Letters of Credit shall be
made for account of the Lenders pro rata in accordance with the amounts of
reimbursement obligations due and payable to each respective Lender.
Section 4.03 COMPUTATIONS. Interest on Eurodollar Advances and fees
shall be computed on the basis of a year of 360 days and actual days elapsed
(including the first day but excluding the last day) occurring in the period for
which such interest is payable, unless such calculation would exceed the Highest
Lawful Rate, in which case interest shall be calculated on the per annum basis
of a year of 365 or 366 days, as the case may be. Interest on Base Rate Loans
shall be computed on the basis of a year of 365 or 366 days, as the case
may be, and actual days elapsed (including the first day but excluding the last
day) occurring in the period for which such interest is payable.
Section 4.04 NON-RECEIPT OF FUNDS BY THE AGENT. Unless the Agent shall
have been notified (which notice shall be effective upon receipt) by a Lender or
the Borrower prior to the date on which such notifying party is scheduled to
make payment to the Agent (such payment being herein called the "REQUIRED
PAYMENT") of (a) in the case of a Lender, the proceeds of a Loan or a payment
under a Letter of Credit to be made by it hereunder or (b) in the case of the
Borrower, a payment to the Agent for account of one or more of the Lenders
hereunder, that it does not intend to make the Required Payment to the Agent,
the Agent may assume that the Required Payment has been made and may, in
reliance upon such assumption (but shall not be required to), make the amount
thereof available to the intended recipient(s) on such date and, if such Lender
or the Borrower (as the case may be) has not in fact made the Required Payment
to the Agent or fails to make such Required Payment on the date when due, (i)
the recipient(s) of such payment (to the
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extent payment is not made pursuant to clause (ii) below) shall, on demand,
repay to the Agent the amount so made available together with interest thereon
in respect of each day during the period commencing on the date such amount was
so made available by the Agent until but excluding the date the Agent recovers
such amount at a rate per annum which, for any Lender as recipient, will be
equal to the Federal Funds Rate, and for the Borrower as recipient, will be
equal to the Base Rate plus the Applicable Margin and (ii) the Lender failing
to advance proceeds of a Loan or a payment under a Letter of Credit shall pay to
the Agent interest on such proceeds and payments for each day on which such
proceeds and/or payments are not made equal to the Federal Funds Rate for the
first two (2) such days and at the Base Rate for each such day thereafter until
such advances are made or returned to the Agent.
Section 4.05 SET-OFF, SHARING OF PAYMENTS, ETC.
(a) The Borrower agrees that, in addition to (and without
limitation of) any right of set-off, bankers' lien or counterclaim a
Lender may otherwise have, each Lender shall have the right and be
entitled (after consultation with the Agent), at its option, to offset
balances held by it or by any of its Affiliates for account of the
Borrower or any Restricted Subsidiary at any of its offices, in Dollars
or in any other currency, against any principal of or interest on any of
such Lender's Loans, or any other amount payable to such Lender
hereunder, which is not paid when due (regardless of whether such
balances are then due to the Borrower), in which case it shall promptly
notify the Borrower and the Agent thereof, provided that such Lender's
failure to give such notice shall not affect the validity thereof.
(b) If any Lender shall obtain payment of any principal of or
interest on any Loan made by it to the Borrower under this Agreement
through the exercise of any right of set-off, banker's lien or
counterclaim or similar right or otherwise, and, as a result of such
payment, such Lender shall have received a greater percentage of the
principal or interest then due hereunder by the Borrower to such Lender
than the percentage received by any other Lenders, it shall promptly (i)
notify the Agent and each other Lender thereof and (ii) purchase from
such other Lenders participations in (or, if and to the extent specified
by such Lender, direct interests in) the Loans made by such other
Lenders (or in interest due thereon, as the case may be) in such
amounts, and make such other adjustments from time to time as shall be
equitable, to the end that all the Lenders shall share the benefit of
such excess payment (net of any expenses which may be incurred by such
Lender in obtaining or preserving such excess payment) pro rata in
accordance with the unpaid principal and/or interest on the Loans held
by each of the Lenders. To such end all the Lenders shall make
appropriate adjustments among themselves (by the resale of
participations sold or otherwise) if such payment is rescinded or must
otherwise be restored. The Borrower agrees that any Lender so
purchasing
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a participation (or direct interest) in the Loans made by other Lenders
(or in interest due thereon, as the case may be) may exercise all rights
of set-off, banker's lien, counterclaim or similar rights with respect
to such participation as fully as if such Lender were a direct holder of
Loans in the amount of such participation. Nothing contained herein
shall require any Lender to exercise any such right or shall affect the
right of any Lender to exercise, and retain the benefits of exercising,
any such right with respect to any other indebtedness or obligation of
the Borrower. If under any applicable bankruptcy, insolvency or other
similar law, any Lender receives a secured claim in lieu of a set-off
to which this Section 4.05 applies, such Lender shall, to the extent
practicable, exercise its rights in respect of such secured claim in a
manner consistent with the rights of the Lenders entitled under this
Section 4.05 to share the benefits of any recovery on such secured
claim.
Section 4.06 TAXES.
(a) PAYMENTS FREE AND CLEAR. Any and all payments by the
Borrower hereunder shall be made, in accordance with Section 4.01, free
and clear of and without deduction for any and all present or future
taxes, levies, imposts, deductions, charges or withholdings, and all
liabilities with respect thereto resulting from a Regulatory Change,
EXCLUDING, in the case of each Lender and the Agent, taxes imposed on
its income, and franchise or similar taxes imposed on it, by (i) any
jurisdiction (or political subdivision thereof) of which the Agent or
such Lender, as the case may be, is a citizen or resident or in which
such Lender has an Applicable Lending Office, (ii) the jurisdiction (or
any political subdivision thereof) in which the Agent or such Lender is
organized, or (iii) any jurisdiction (or political subdivision
thereof) in which such Lender or the Agent is doing business which taxes
are imposed solely as a result of doing business in such jurisdiction
(all such non-excluded taxes, levies, imposts, deductions, charges,
withholdings and liabilities being hereinafter referred to as "TAXES").
If the Borrower shall be required by law to deduct any Taxes from or in
respect of any sum payable hereunder to the Lenders or the Agent (i) the
sum payable shall be increased by the amount necessary so that
after making all required deductions (including deductions applicable
to additional sums payable under this Section 4.06) such Lender or the
Agent (as the case may be) shall receive an amount equal to the sum it
would have received had no such deductions been made, (ii) the Borrower
shall make such deductions and (iii) the Borrower shall pay the full
amount deducted to the relevant taxing authority or other
Governmental Authority in accordance with applicable law.
(b) OTHER TAXES. In addition, to the fullest extent permitted
by applicable law, the Borrower agrees to pay any present or future
stamp or documentary taxes or any other excise or property taxes,
charges or similar levies that arise from any
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payment made hereunder or from the execution, delivery or registration
of, or otherwise with respect to, this Agreement, any Assignment or any
other Security Instrument (hereinafter referred to as "OTHER TAXES").
(c) INDEMNIFICATION. TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, THE BORROWER WILL INDEMNIFY EACH LENDER AND THE AGENT
FOR THE FULL AMOUNT OF TAXES AND OTHER TAXES (INCLUDING, BUT NOT LIMITED
TO, ANY TAXES OR OTHER TAXES IMPOSED BY ANY GOVERNMENTAL AUTHORITY ON
AMOUNTS PAYABLE UNDER THIS SECTION 4.06) PAID BY SUCH LENDER OR THE
AGENT (ON THEIR BEHALF OR ON BEHALF OF ANY LENDER), AS THE CASE MAY BE,
AND ANY LIABILITY (INCLUDING PENALTIES, INTEREST AND EXPENSES) ARISING
THEREFROM OR WITH RESPECT THERETO, WHETHER OR NOT SUCH TAXES OR OTHER
TAXES WERE CORRECTLY OR LEGALLY ASSERTED UNLESS THE PAYMENT OF SUCH
TAXES WAS NOT CORRECTLY OR LEGALLY ASSERTED AND SUCH LENDER'S PAYMENT
OF SUCH TAXES OR OTHER TAXES WAS THE RESULT OF ITS GROSS NEGLIGENCE OR
WILFUL MISCONDUCT. ANY PAYMENT PURSUANT TO SUCH INDEMNIFICATION SHALL
BE MADE WITHIN THIRTY (30) DAYS AFTER THE DATE ANY LENDER OR THE AGENT,
AS THE CASE MAY BE, MAKES WRITTEN DEMAND THEREFOR. IF ANY LENDER OR THE
AGENT RECEIVES A REFUND OR CREDIT IN RESPECT OF ANY TAXES OR OTHER TAXES
FOR WHICH SUCH LENDER OR THE AGENT HAS RECEIVED PAYMENT FROM THE
BORROWER HEREUNDER IT SHALL PROMPTLY NOTIFY THE BORROWER OF SUCH REFUND
OR CREDIT AND SHALL, IF NO DEFAULT HAS OCCURRED AND IS CONTINUING,
WITHIN THIRTY (30) DAYS AFTER RECEIPT OF A REQUEST BY THE BORROWER (OR
PROMPTLY UPON RECEIPT, IF THE BORROWER HAS REQUESTED APPLICATION FOR
SUCH REFUND OR CREDIT PURSUANT HERETO), PAY AN AMOUNT EQUAL TO SUCH
REFUND OR CREDIT TO THE BORROWER WITHOUT INTEREST (BUT WITH ANY INTEREST
SO REFUNDED OR CREDITED), PROVIDED THAT THE BORROWER, UPON THE REQUEST
OF SUCH LENDER OR THE AGENT, AGREES TO RETURN SUCH REFUND OR CREDIT
(PLUS PENALTIES, INTEREST OR OTHER CHARGES) TO SUCH LENDER OR THE AGENT
IN THE EVENT SUCH LENDER OR THE AGENT IS REQUIRED TO REPAY SUCH
REFUND OR CREDIT.
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(d) LENDER REPRESENTATIONS.
(i) Each Lender represents that it is either (i) a
corporation organized under the laws of the United States of
America or any state thereof or (ii) it is entitled to complete
exemption from United States withholding tax imposed on or with
respect to any payments, including fees, to be made to it
pursuant to this Agreement (A) under an applicable provision of a
tax convention to which the United States of America is a party
or (B) because it is acting through a branch, agency or office in
the United States of America and any payment to be received by it
hereunder is effectively connected with a trade or business in
the United States of America. Each Lender that is not a
corporation organized under the laws of the United States of
America or any state thereof agrees to provide to the Borrower
and the Agent on the Closing Date, or on the date of its delivery
of the Assignment pursuant to which it becomes a Lender, and at
such other times as required by United States law or as the
Borrower or the Agent shall reasonably request, two accurate and
complete original signed copies of either (A) Internal Revenue
Service Form 4224 (or successor form) certifying that all
payments to be made to it hereunder will be effectively connected
to a United States trade or business (the "FORM 4224
CERTIFICATION") or (B) Internal Revenue Service Form 1001 (or
successor form) certifying that it is entitled to the benefit of
a provision of a tax convention to which the United States of
America is a party which completely exempts from United States
withholding tax all payments to be made to it hereunder (the
"FORM 1001 CERTIFICATION"). In addition, each Lender agrees that
if it previously filed a Form 4224 Certification, it will deliver
to the Borrower and the Agent a new Form 4224 Certification prior
to the first payment date occurring in each of its subsequent
taxable years; and if it previously filed a Form 1001
Certification, it will deliver to the Borrower and the Agent a
new certification prior to the first payment date falling in the
third year following the previous filing of such certification.
Each Lender also agrees to deliver to the Borrower and the Agent
such other or supplemental forms as may at any time be required
as a result of changes in applicable law or regulation in order
to confirm or maintain in effect its entitlement to exemption
from United States withholding tax on any payments hereunder,
PROVIDED that the circumstances of such Lender at the relevant
time and applicable laws permit it to do so. If a Lender
determines, as a result of any change in either (i) a
Governmental Requirement or (ii) its circumstances, that it is
unable to submit any form or certificate that it is obligated to
submit pursuant to this Section 4.06, or that it is required to
withdraw or cancel any such form or certificate previously
submitted, it shall promptly notify the Borrower and the Agent
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of such fact. If a Lender is organized under the laws of a
jurisdiction outside the United States of America, unless the
Borrower and the Agent have received a Form 1001 Certification or
Form 4224 Certification satisfactory to them indicating that all
payments to be made to such Lender hereunder are not subject to
United States withholding tax, the Borrower shall withhold taxes
from such payments at the applicable statutory rate. Each Lender
agrees to indemnify and hold harmless from any United States
taxes, penalties, interest and other expenses, costs and losses
incurred or payable by (i) the Agent as a result of such Lender's
failure to submit any form or certificate that it is required to
provide pursuant to this Section 4.06 or (ii) the Borrower or the
Agent as a result of their reliance on any such form or
certificate which such Lender has provided to them pursuant to
this Section 4.06.
(ii) For any period with respect to which a Lender has
failed to provide the Borrower with the form required pursuant to
this Section 4.06, if any, (other than if such failure is due to
a change in a Governmental Requirement occurring subsequent to
the date on which a form originally was required to be provided),
such Lender shall not be entitled to indemnification under
Section 4.06 with respect to taxes imposed by the United States
which taxes would not have been imposed but for such failure to
provide such forms; PROVIDED, HOWEVER, that should a Lender,
which is otherwise exempt from or subject to a reduced rate of
withholding tax becomes subject to taxes because of its failure
to deliver a form required hereunder, the Borrower shall take
such steps as such Lender shall reasonably request to assist such
Lender to recover such taxes.
(iii) Any Lender claiming any additional amounts
payable pursuant to this Section 4.06 shall use reasonable
efforts (consistent with legal and regulatory restrictions) to
file any certificate or document requested by the Borrower or the
Agent or to change the jurisdiction of its Applicable Lending
Office or to contest any tax imposed if the making of such a
filing or change or contesting such tax would avoid the need for
or reduce the amount of any such additional amounts that may
thereafter accrue and would not, in the sole determination of
such Lender, be otherwise disadvantageous to such Lender.
(iv) Each Lender hereby represents that it will acquire
its Note for its own account in the ordinary course of its
commercial lending business; however, the disposition of such
Lender's property shall at all times be and remain within its
control and, in particular and without limitation, such Lender
may, subject to the provisions of Section 12.06 and
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any other applicable provisions of this Agreement, sell or
otherwise transfer its Note, any participation interest or any
interest in its Note, or any of its other rights and obligations
under the Loan Documents.
ARTICLE V
CAPITAL ADEQUACY
Section 5.01 EURODOLLAR REGULATIONS, ETC.
(a) EURODOLLAR REGULATIONS, ETC. The Borrower shall pay directly
to each Lender from time to time such amounts as such Lender may
determine to be necessary to compensate such Lender for any costs which
it determines are attributable to its making or maintaining of any
Eurodollar Advances or issuing or participating in Letters of Credit
hereunder or its obligation to make any Eurodollar Advances or issue or
participate in any Letters of Credit hereunder, or any reduction in any
amount receivable by such Lender hereunder in respect of any of such
Eurodollar Advances, Letters of Credit or such obligation (such increases
in costs and reductions in amounts receivable being herein called
"ADDITIONAL COSTS"), resulting from any Regulatory Change which: (i)
changes the basis of taxation of any amounts payable to such Lender under
this Agreement or any Note in respect of any of such Eurodollar Advances
or Letters of Credit (other than taxes imposed on the overall net income
of such Lender or of its Applicable Lending Office for any of such
Eurodollar Advances by the jurisdiction in which such Lender has its
principal office or Applicable Lending Office); or (ii) imposes or
modifies any reserve, special deposit, minimum capital, capital ratio or
similar requirements (other than the Reserve Requirement utilized in the
determination of the Fixed Rate for such Loan) relating to any extensions
of credit or other assets of, or any deposits with or other liabilities
of such Lender (including any of such Eurodollar Advances or any deposits
referred to in the definition of "Fixed Eurodollar Rate" in Section 1.02
hereof), or the Commitment of such Lender or the Eurodollar interbank
market; or (iii) imposes any other condition affecting this Agreement or
any Note (or any of such extensions of credit or liabilities) or such
Lender's Commitment. Each Lender will notify the Agent and the Borrower
of any event occurring after the Closing Date which will entitle such
Lender to compensation pursuant to this Section 5.01(a) as promptly as
practicable after it obtains knowledge thereof and determines to request
such compensation, and will designate a different Applicable Lending
Office for the Loans of such Lender affected by such event if such
designation will avoid the need for, or reduce the amount of, such
compensation and will not, in the sole opinion of such Lender, be
disadvantageous to such Lender, provided that such Lender shall have no
obligation
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to so designate an Applicable Lending Office located in the United
States. If any Lender requests compensation from the Borrower under this
Section 5.01(a), the Borrower may, by notice to such Lender, suspend the
obligation of such Lender to make additional Loans of the Type with
respect to which such compensation is requested until the Regulatory
Change giving rise to such request ceases to be in effect (in which case
the provisions of Section 5.04 shall be applicable).
(b) REGULATORY CHANGE. Without limiting the effect of the
provisions of Section 5.01(a), in the event that, by reason of any
Regulatory Change or any other circumstances arising after the Closing
Date affecting such Lender, the Eurodollar interbank market or such
Lender's position in such market, any Lender either (i) incurs Additional
Costs based on or measured by the excess above a specified level of the
amount of a category of deposits or other liabilities of such Lender
which includes deposits by reference to which the interest rate on
Eurodollar Advances is determined as provided in this Agreement or a
category of extensions of credit or other assets of such Lender which
includes Eurodollar Advances or (ii) becomes subject to restrictions on
the amount of such a category of liabilities or assets which it may hold,
then, if such Lender so elects by notice to the Borrower, the obligation
of such Lender to make additional Eurodollar Advances shall be suspended
until such Regulatory Change or other circumstances ceases to be in
effect (in which case the provisions of Section 5.04 shall be
applicable).
(c) CAPITAL ADEQUACY. Without limiting the effect of the
foregoing provisions of this Section 5.01 (but without duplication), the
Borrower shall pay directly to any Lender from time to time on request
such amounts as such Lender may reasonably determine to be necessary to
compensate such Lender or its parent or holding company for any costs
which it determines are attributable to the maintenance by such Lender or
its parent or holding company (or any Applicable Lending Office),
pursuant to any Governmental Requirement following any Regulatory Change,
of capital in respect of its Commitment, its Note,its Loans or any
interest held by it in any Letter of Credit, such compensation to
include, without limitation, an amount equal to any reduction of the rate
of return on assets or equity of such Lender or its parent or holding
company (or any Applicable Lending Office) to a level below that which
such Lender or its parent or holding company (or any Applicable Lending
Office) could have achieved but for such Governmental Requirement. Such
Lender will notify the Borrower that it is entitled to compensation
pursuant to this Section 5.01(c) as promptly as practicable after it
determines to request such compensation.
(d) COMPENSATION PROCEDURE. Any Lender notifying the Borrower
of the incurrence of additional costs under this Section 5.01 shall in
such notice to the Borrower and the Agent set forth in reasonable detail
the basis and amount of its
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request for compensation. Determinations and allocations by each Lender
for purposes of this Section 5.01 of the effect of any Regulatory Change
pursuant to Section 5.01(a) or (b), or of the effect of capital
maintained pursuant to Section 5.01(c), on its costs or rate of return of
maintaining Loans or its obligation to make Loans or issue Letters of
Credit, or on amounts receivable by it in respect of Loans or Letters of
Credit, and of the amounts required to compensate such Lender under this
Section 5.01, shall be conclusive and binding for all purposes, provided
that such determinations and allocations are made on a reasonable basis.
Any request for additional compensation under this Section 5.01 shall be
paid by the Borrower within thirty (30) Business Days of the receipt by
the Borrower of the notice described in this Section 5.01(d).
Section 5.02 LIMITATION ON EURODOLLAR ADVANCES. Anything herein to the
contrary notwithstanding, if, on or prior to the determination of any Fixed
Eurodollar Rate for any Interest Period:
(a) the Agent determines (which determination shall be
conclusive, absent manifest error) that quotations of interest rates for
the relevant deposits referred to in the definition of "Fixed Eurodollar
Rate" in Section 1.02 are not being provided in the relevant amounts or
for the relevant maturities for purposes of determining rates of interest
for Eurodollar Advances as provided herein; or
(b) the Agent determines (which determination shall be
conclusive, absent manifest error) that the relevant rates of interest
referred to in the definition of "Fixed Eurodollar Rate" in Section 1.02
upon the basis of which the rate of interest for Eurodollar Advances for
such Interest Period is to be determined are not sufficient to adequately
cover the cost to the Lenders of making or maintaining Eurodollar
Advances;
then the Agent shall give the Borrower prompt notice thereof, and so long as
such condition remains in effect, the Lenders shall be under no obligation to
make additional Eurodollar Advances.
Section 5.03 ILLEGALITY. Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful for any Lender or its
Applicable Lending Office to honor its obligation to make or maintain Eurodollar
Advances hereunder, then such Lender shall promptly notify the Borrower thereof
and such Lender's obligation to make Eurodollar Advances shall be suspended
until such time as such Lender may again make and maintain Eurodollar Advances
(in which case the provisions of Section 5.04 shall be applicable).
Section 5.04 BASE RATE LOANS PURSUANT TO SECTIONS 5.01, 5.02 AND 5.03.
If the
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obligation of any Lender to make Eurodollar Advances shall be suspended pursuant
to Sections 5.01, 5.02 or 5.03 ("AFFECTED LOANS"), all Affected Loans which
would otherwise be made by such Lender shall be made instead as Base Rate Loans
(and, if an event referred to in Section 5.01(b) or Section 5.03 has occurred
and such Lender so requests by notice to the Borrower, all Affected Loans of
such Lender then outstanding shall be automatically converted into Base Rate
Loans on the date specified by such Lender in such notice) and, to the extent
that Affected Loans are so made as (or converted into) Base Rate Loans, all
payments of principal which would otherwise be applied to such Lender's Affected
Loans shall be applied instead to its Base Rate Loans.
Section 5.05 COMPENSATION. The Borrower shall pay to each Lender
within thirty (30) days of receipt of written request of such Lender (which
request shall set forth, in reasonable detail, the basis for requesting such
amounts and which shall be conclusive and binding for all purposes provided that
such determinations are made on a reasonable basis), such amount or amounts as
shall compensate it for any loss, cost, expense or liability which such Lender
determines are attributable to:
(a) any payment, prepayment or conversion of a Eurodollar
Advances properly made by such Lender or the Borrower for any reason
(including, without limitation, the acceleration of the Loans pursuant to
Section 10.01) on a date other than the last day of the Interest Period
for such Loan; or
(b) any failure by the Borrower for any reason (including but
not limited to, the failure of any of the conditions precedent specified
in Article VI to be satisfied) to borrow, continue or convert a
Eurodollar Advances from such Lender on the date for such borrowing,
continuation or conversion specified in the relevant notice given
pursuant to Section 2.02(c).
Without limiting the effect of the preceding sentence, such compensation shall
include an amount equal to the excess, if any, of (i) the amount of interest
which would have accrued on the principal amount so paid, prepaid or converted
or not borrowed for the period from the date of such payment, prepayment or
conversion or failure to borrow to the last day of the Interest Period for such
Loan (or, in the case of a failure to borrow, the Interest Period for such Loan
which would have commenced on the date specified for such borrowing) at the
applicable rate of interest for such Loan provided for herein over (ii) the
interest component of the amount such Lender would have bid in the London
interbank market for Dollar deposits of leading banks in amounts comparable to
such principal amount and with maturities comparable to such period (as
reasonably determined by such Lender).
Section 5.06 REPLACEMENT LENDERS.
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(a) If only one (1) Lender has notified the Borrower of its
incurring additional costs under Section 5.01 hereof or has required the
Borrower to make payments for Taxes under Section 4.06 hereof, then the
Borrower may, unless such Lender has notified the Borrower that the
circumstances giving rise to such notice no longer apply, terminate, in
whole but not in part, the Commitment of such Lender (other than the
Agent) (the "TERMINATED LENDER") at any time upon five (5) Business Days'
prior written notice to the Terminated Lender and the Agent (such notice
referred to herein as a "NOTICE OF TERMINATION"). The rights of the
Borrower provided for in this Section 5.06(a) shall not apply if two (2)
or more Lenders notify the Borrower that each such Lender has incurred
such additional costs or required the Borrower to pay such Taxes.
(b) In order to effect the termination of the Commitment of the
Terminated Lender, the Borrower shall: (i) obtain an agreement with one
or more Lenders to increase their Commitment or Commitments and/or (ii)
request any one or more other banking institutions to become parties to
this Agreement in place and instead of such Terminated Lender and agree
to accept a Commitment or Commitments; PROVIDED, HOWEVER, that such one
or more other banking institutions are reasonably acceptable to the Agent
and become parties by executing an Assignment (the Lenders or other
banking institutions that agree to accept in whole or in part the
Commitment of the Terminated Lender being referred to herein as the
"REPLACEMENT LENDERS"), such that the aggregate increased and/or accepted
Commitments of the Replacement Lenders under clauses (i) and (ii) above
equal the Commitment of the Terminated Lender.
(c) The Notice of Termination shall include the name of the
Terminated Lender, the date the termination will occur (the "TERMINATION
DATE"), and the Replacement Lender or Replacement Lenders to which the
Terminated Lender will assign its Commitment and, if there will be more
than one Replacement Lender, the portion of the Terminated Lender's
Commitment to be assigned to each Replacement Lender.
(d) On the Termination Date, (i) the Terminated Lender shall by
execution and delivery of an Assignment assign its Commitment to the
Replacement Lender or Replacement Lenders (pro rata, if there is more
than one Replacement Lender, in proportion to the portion of the
Terminated Lender's Commitment to be assigned to each Replacement Lender)
indicated in the Notice of Termination and shall assign to the
Replacement Lender or Replacement Lenders each of its Loans (if any) then
outstanding and participation interests in Letters of Credit (if any)
then outstanding pro rata as aforesaid), (ii) the Terminated Lender shall
endorse its Note, payable without recourse, representation or warranty to
the order of the Replacement Lender or Replacement Lenders (pro rata as
aforesaid),
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(iii) the Replacement Lender or Replacement Lenders shall purchase the
Note held by the Terminated Lender (pro rata as aforesaid) at a price
equal to the unpaid principal amount thereof plus interest and facility
and other fees accrued and unpaid to the Termination Date, and (iv) the
Replacement Lender or Replacement Lenders will thereupon (pro rata as
aforesaid) succeed to and be substituted in all respects for the
Terminated Lender with like effect as if becoming a Lender pursuant to
the terms of Section 12.06(b), and the Terminated Lender will have the
rights and benefits of an assignor under Section 12.06(b). To the extent
not in conflict, the terms of Section 12.06(b) shall supplement the
provisions of this Section 5.06(d). For each assignment made under this
Section 5.06, the Replacement Lender shall pay to the Agent the
processing fee provided for in Section 12.06(b).
ARTICLE VI
CONDITIONS PRECEDENT
Section 6.01 INITIAL FUNDING.
The obligation of the Lenders to make the Initial Funding is subject to
the receipt by the Agent and the Lenders of all fees payable pursuant to Section
2.04 or otherwise under this Agreement on or before the Closing Date, receipt by
the Agent and the Lenders of each of the documents referred to below, and the
satisfaction of the following conditions provided in this Section 6.01, each of
which shall be satisfactory to the Agent and the Lenders as to form and
substance:
(a) a certificate of the Secretary or an Assistant Secretary of
the Borrower setting forth (i) resolutions of its board of directors with
respect to the authorization of the Borrower to execute and deliver the
Loan Documents to which it is a party and to enter into the transactions
contemplated in those documents, (ii) the officers of the Borrower (y)
who are authorized to sign the Loan Documents to which Borrower is a
party and (z) who will, until replaced by another officer or officers
duly authorized for that purpose, act as its representative for the
purposes of signing documents and giving notices and other communications
in connection with this Agreement and the transactions contemplated
hereby, (iii) specimen signatures of the authorized officers, and (iv)
the articles or certificate of incorporation and bylaws of the Borrower,
certified as being true and complete. The Agent and the Lenders may
conclusively rely on such certificate until the Agent receives notice in
writing from the Borrower to the contrary;
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(b) certificates of the appropriate state agencies with respect
to the existence, qualification and good standing of the Borrower and
Restricted Subsidiaries;
(c) a compliance certificate which shall be substantially in
the form of Exhibit C, duly and properly executed by a Responsible
Officer and dated as of the date of the Initial Funding;
(d) the Notes, duly completed and executed;
(e) the Security Instruments, including those described on
Exhibit E, duly completed and executed in sufficient number of
counterparts for recording, if necessary, granting to the Agent for the
benefit of the Lenders Liens upon the Property of the Borrower more
particularly described therein including, without limitation,
(i) certain real property and all improvements thereon
located in Ector County, Texas, Chippewa County, Wisconsin, Kent
County, Delaware, Whitfield County, Georgia and Davis County,
Utah;
(ii) all accounts, inventory, equipment, chattel paper
and general intangibles of the Borrower;
(iii) [all of Borrower's patents and other intellectual
property;]
(iv) certain deposit accounts of the Borrower;
(v) 100% of the Capital Stock of each Subsidiary other
than a Foreign Subsidiary;
(vi) 65% of the Capital Stock of each Foreign Subsidiary
of URC [and APAO Venture, as applicable]; and
(vii) 100% of the Borrower's Equity Interest in all joint
ventures and partnerships other than a foreign joint venture or
partnership.
(f) completion by independent consultants and legal counsel
selected by the Agent of due diligence reviews and audits regarding the
overall economic, technical, environmental, legal and operational status
of the Borrower the results of which shall be satisfactory to the Lenders
in all respects;
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(g) satisfactory review by the Lenders of the proposed capital
structure of the Borrower and the terms and conditions of the Senior
Unsecured Notes;
(h) the Borrower shall have received a minimum of $85,000,000
gross proceeds from the issuance of its common stock and an aggregate of
$275,000,000 gross proceeds from the issuance of Senior Unsecured Notes
and common stock; provided that the aggregate gross proceeds of
$275,000,000 may be reduced by the amount of the Borrower's balance sheet
cash above $20,000,000 which is used to retire Debt;
(i) the following legal opinions:
(i) an opinion of Thompson & Knight, counsel to the
Borrower, substantially in the form of Exhibit D-1 hereto;
(ii) an opinion of Bayard, Handelman & Murdoch, P.A.,
special Delaware counsel to the Borrower, substantially in the
form of Exhibit D-2 hereto;
(iii) an opinion of Cohne, Rappaport & Segal, special
Utah counsel to the Borrower, substantially in the form of
Exhibit D-3 hereto;
(iv) an opinion of Foley & Lardner, special Wisconsin
counsel to the Borrower, substantially in the form of Exhibit D-4
hereto;
(v) an opinion of Arnall, Golden & Gregory, special
Georgia counsel to the Borrower, substantially in the form of
Exhibit D-5 hereto;
(j) a certificate of insurance coverage of the Borrower
evidencing that the Borrower is carrying insurance in accordance with
Section 7.19 hereof;
(k) the Agent shall have been furnished with appropriate UCC
search certificates reflecting the filing of all financing statements
required to perfect the security interests granted by the Security
Instruments and reflecting no prior liens or security interests;
(l) the Agent shall have received commitments for title
insurance on real property assets upon which a Lien has been granted in
favor of the Agent to secure the Indebtedness; and
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(m) after giving effect to (h) above, (i) the market value of
the outstanding shares of the Borrower's common stock will be a minimum
of $155,000,000 and (ii) the aggregate indebtedness of the Borrower
including the Indebtedness and Debt permitted by Section 9.01, less its
unrestricted cash on hand, shall not exceed $280,000,000.
(n) such other documents as the Agent or special counsel to the
Agent may reasonably request.
Section 6.02 INITIAL AND SUBSEQUENT LOANS. The obligation of the
Lenders to make Loans to the Borrower upon the occasion of each borrowing
hereunder (including the Initial Funding) is subject to the further conditions
precedent that, as of the date of such Loans and after giving effect thereto (i)
no Default shall have occurred and be continuing or result therefrom; (ii) no
Material Adverse Effect shall have occurred; (iii) the aggregate principal
amount of the Revolving Credit Loans plus the LC Exposure does not exceed the
Revolving Credit Commitment, and (iv) the representations and warranties made by
the Borrower in Article VII and in the Security Instruments shall be true on and
as of the date of the making of such Loans with the same force and effect as if
made on and as of such date and following such new borrowing, except as such
representations and warranties are modified to give effect to transactions
expressly permitted hereby. Each request for a borrowing by the Borrower
hereunder shall constitute a certification by the Borrower to the effect set
forth in the preceding sentence (both as of the date of such notice and, unless
the Borrower otherwise notifies the Agent prior to the date of and immediately
following such borrowing as of the date thereof).
Section 6.03 CONDITIONS RELATING TO LETTERS OF CREDIT. In addition to
the satisfaction of all other conditions precedent set forth in this Article VI,
the issuance, renewal, extension or reissuance of the Letters of Credit referred
to in Section 2.01(b) hereof is subject to the following conditions precedent:
(a) At least three (3) Business Days prior to the date of the
issuance and at least thirty (30) Business Days prior to the date of the
renewal, extension or reissuance of each Letter of Credit, the Agent
shall have received a written request for a Letter of Credit.
(b) Each of the Letters of Credit shall (i) be issued by an
Issuer, (ii) contain such terms and provisions as are reasonably required
by the Agent, (iii) be for the account of the Borrower or a Restricted
Subsidiary, (iv) expire not later than twelve (12) months after the date
of issuance, renewal, extension or reissuance, and in no event later than
two (2) days before the Final Maturity Date, and (v) not be issued to
directly or indirectly support the Borrower's obligations under the
Senior Unsecured Note.
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(c) The Borrower shall have duly and validly executed and
delivered to the Issuer a Letter of Credit Agreement pertaining to the
Letter of Credit.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Agent and the Lenders that
(each representation and warranty herein is given as of the Closing Date and
shall be deemed repeated and reaffirmed on the dates of each borrowing as
provided in Section 6.02):
Section 7.01 CORPORATE EXISTENCE. Each of the Borrower and each
Restricted Subsidiary: (a) is a corporation duly organized, legally existing
and in good standing under the laws of the jurisdiction of its incorporation;
(b) has all requisite corporate power, and has all material governmental
licenses, authorizations, consents and approvals necessary to own its assets and
carry on its business as now being conducted; and (c) is qualified to do
business in all jurisdictions in which the nature of the business conducted by
it makes such qualification necessary and where failure so to qualify would have
a Material Adverse Effect.
Section 7.02 FINANCIAL CONDITION. The audited consolidated balance
sheet of the Borrower and its consolidated Subsidiaries as at December 31, 1993
and the related consolidated statement of income, stockholders' equity and cash
flow of the Borrower and its consolidated Subsidiaries for the fiscal year ended
on said date, with the opinion thereon of Price Waterhouse L.L.P. heretofore
furnished to each of the Lenders and the unaudited consolidated balance sheet of
the Borrower and its consolidated Subsidiaries as at September 30, 1994 and
their related consolidated statements of income, stockholders' equity and cash
flow of the Borrower and its consolidated Subsidiaries for the three-month
period ended on such date heretofore furnished to the Agent, fairly present the
consolidated financial condition of the Borrower and its consolidated
Subsidiaries as at said dates and the results of its operations for the fiscal
year and the three and nine-month periods on said dates, all in accordance with
GAAP, as applied on a consistent basis (subject, in the case of the interim
financial statements, to normal year-end adjustments). Neither the Borrower nor
any Subsidiary has on the Closing Date any material Debt, material contingent
liabilities, material liabilities for taxes, unusual material forward or
long-term commitments or unrealized or anticipated material losses from any
unfavorable commitments, except as referred to or reflected or provided for in
the Financial Statements , in the Borrower's registration statement (#33-55507)
or in Schedule 7.02. Since December 31, 1993, there has been no change or event
having a Material Adverse Effect. Since the date of the Financial Statements,
neither the business nor the Properties of the Borrower or any Restricted
Subsidiary have been materially and adversely affected as a
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result of any fire, explosion, earthquake, flood, drought, windstorm, accident,
strike or other labor disturbance, embargo, requisition or taking of Property or
cancellation of contracts, permits or concessions by any Governmental Authority,
riot, activities of armed forces or acts of God or of any public enemy.
Section 7.03 LITIGATION. Except as disclosed to the Lenders in Schedule
7.03 hereto, at the Closing Date there is no litigation, legal, administrative
or arbitral proceeding, to the knowledge of the Borrower governmental
investigation, or to the knowledge of the Borrower other similar action of any
nature pending or, to the knowledge of the Borrower threatened against the
Borrower or any Subsidiary which involves the reasonable possibility of any
judgment or liability against the Borrower or any Subsidiary not fully covered
by insurance (except for normal deductibles), and which may reasonably have a
Material Adverse Effect.
Section 7.04 NO BREACH. Except (i) with respect to Current Funded Debt
and Existing Debt which is either being prepaid in full or refinanced in its
entirety with the proceeds of the Loans, or (ii) as otherwise disclosed to the
Agent and the Lenders in writing, neither the execution and delivery of the Loan
Documents nor compliance with the terms and provisions hereof will conflict with
or result in a breach of, or require any consent which has not been obtained as
of the Closing Date under, the respective charter or by-laws of the Borrower or
any Restricted Subsidiary, or any Governmental Requirement or any agreement or
instrument to which the Borrower or any Restricted Subsidiary is a party or by
which it is bound or to which it or its Properties are subject, or constitute a
default under any such agreement or instrument, or result in the creation or
imposition of any Lien upon any of the revenues or assets of the Borrower or any
Restricted Subsidiary pursuant to the terms of any such agreement or instrument
other than the Liens created by the Loan Documents.
Section 7.05 AUTHORITY. The Borrower has all necessary corporate power
and authority to execute, deliver and perform its obligations under the Loan
Documents to which it is a party; and the execution, delivery and performance by
the Borrower and each Restricted Subsidiary of the Loan Documents to which it is
a party, have been duly authorized by all necessary corporate action on its
part; and the Loan Documents constitute the legal, valid and binding obligations
of the Borrower and each Restricted Subsidiary, enforceable in accordance with
their terms.
Section 7.06 APPROVALS. No authorizations, approvals or consents of,
and no filings or registrations with, any Governmental Authority are necessary
for the execution, delivery or performance by the Borrower or any Restricted
Subsidiary of the Loan Documents or for the validity or enforceability thereof,
except for the recording and filing of the Security Instruments as required by
this Agreement.
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Section 7.07 USE OF LOANS. The proceeds of the Term Loans and the
Revolving Credit Loans shall be used to repay Current Funded Debt in full and
related expenses. Proceeds of the Revolving Credit Loans may also be used for
general corporate purposes including but not limited to the payment of
reimbursement obligations under Section 2.09. The Borrower is not engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose, whether immediate, incidental or ultimate, of buying or
carrying margin stock (within the meaning of Regulation U or X of the Board of
Governors of the Federal Reserve System) and no part of the proceeds of any Loan
hereunder will be used to buy or carry any margin stock. Neither the Borrower
nor any Person acting on behalf of the Borrower has taken or will take any
action which might cause the Notes or any of the Security Instruments, including
this Agreement, to violate Regulation U or X or any other regulation of the
Board of Governors of the Federal Reserve System or to violate Section 7 of the
Securities Exchange Act of 1934 or any rule or regulation thereunder, in each
case as now in effect or as the same may hereinafter be in effect.
Section 7.08 ERISA.
(a) The Borrower, each Restricted Subsidiary and each ERISA
Affiliate have since September 18, 1992, and have to the best knowledge
of the executive officers of the Borrower prior to such date, complied in
all material respects with ERISA and, where applicable, the Code
regarding each Plan.
(b) Each Plan is, has been since September 18, 1992, and has
been to the best knowledge of the executive officers of the Borrower
prior to such date, maintained in substantial compliance with ERISA and,
where applicable, the Code.
(c) No act, omission or transaction has occurred which is
reasonably likely to result in imposition on the Borrower or any
Restricted Subsidiary of (i) either a civil penalty assessed pursuant to
section 502(c), (i) or (l) of ERISA or a tax imposed pursuant to Chapter
43 of Subtitle D of the Code which would have a Material Adverse Effect
or (ii) breach of fiduciary duty liability damages under section 409 of
ERISA which would have a Material Adverse Effect.
(d) No Plan (other than a defined contribution plan) or any
trust created under any such Plan has been terminated since September 2,
1974. Neither Borrower nor any Restricted Subsidiary has any liability
to the PBGC with respect to any Plan (other than for the payment of
current premiums which are not past due) which would have a Material
Adverse Effect. No ERISA Event with respect to any Plan which would have
a Material Adverse Effect has occurred.
(e) Full payment when due has been made of all amounts which
the
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Borrower, any Restricted Subsidiary or any ERISA Affiliate is required
under the terms of each Plan or applicable law to have paid as
contributions to such Plan and which, if not paid, would have a Material
Adverse Effect, and no accumulated funding deficiency (as defined in
section 302 of ERISA and section 412 of the Code), whether or not waived,
exists with respect to any Plan.
(f) The current value of the benefit liabilities under each
Plan which is subject to Title IV of ERISA does not, as of the end of the
Borrower's most recently ended fiscal year, exceed by more than
$5,000,000 the current value of the assets of such Plan allocable to such
benefit liabilities based upon the assumptions applied by the actuary for
each such Plan in the most recent actuarial report for each such Plan.
(g) None of the Borrower, any Restricted Subsidiary or any
ERISA Affiliate currently sponsors, maintains, or contributes to an
employee welfare benefit plan, as defined in section 3(1) of ERISA,
including, without limitation, any such plan maintained to provide
benefits to former employees of such entities, that may not be terminated
by the Borrower, a Restricted Subsidiary or any ERISA Affiliate in its
sole discretion at any time without any material liability.
(h) None of the Borrower, any Restricted Subsidiary or any
ERISA Affiliate currently sponsors, maintains or contributes to, or has
at any time in the preceding six calendar years sponsored, maintained or
contributed to, any Multiemployer Plan.
(i) None of the Borrower, any Restricted Subsidiary or any
ERISA Affiliate is currently required to provide security under section
401(a)(29) of the Code due to a Plan amendment that results in an
increase in current liability for the Plan.
Section 7.09 TAXES. Except as set out in Schedule 7.09, each of the
Borrower and its Restricted Subsidiaries has filed all United States Federal
income tax returns and all other tax returns which are required to be filed by
them and have paid (to the extent payment is required by the Closing Date) all
material taxes due pursuant to such returns or pursuant to any assessment
received by the Borrower or any Restricted Subsidiary, except for such
assessments which are being contested in good faith. The charges, accruals and
reserves on the books of the Borrower and its Restricted Subsidiaries in respect
of taxes and other governmental charges are, in the opinion of the Borrower,
adequate. Except as disclosed on Schedule 7.09, no material tax lien has been
filed and, to the knowledge of the Borrower, no claim is being asserted with
respect to any such tax, fee or other charge.
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Section 7.10 TITLES, ETC. Except as set out in Schedule 7.10, each of
the Borrower and its Restricted Subsidiaries has good and defensible title to
its material (individually or in the aggregate) Properties, free and clear of
all Liens except Liens permitted by Section 9.02.
Section 7.11 NO MATERIAL MISSTATEMENTS. No written information,
statement, exhibit, certificate, document or report furnished to the Agent by
the Borrower or any Subsidiary in connection with the negotiation of this
Agreement contained any material misstatement of fact or omitted to state a
material fact or any fact necessary to make the statement contained therein not
materially misleading in the light of the circumstances in which made and with
respect to the Borrower and its Subsidiaries taken as a whole (except to the
extent corrected or updated by later information furnished to the Agent prior to
the Closing Date). There is no fact peculiar to the Borrower or any Subsidiary
which has or in the opinion of Borrower would have a Material Adverse Effect and
which has not been set forth in this Agreement or the other written information,
statements, exhibits, certificates, documents, or reports furnished to the Agent
by or on behalf of the Borrower or any Restricted Subsidiary prior to, or on,
the Closing Date in connection with the transactions contemplated hereby.
Section 7.12 INVESTMENT COMPANY ACT. Neither the Borrower nor any
Subsidiary is an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.
Section 7.13 PUBLIC UTILITY HOLDING COMPANY ACT. Neither the Borrower
nor any Subsidiary is a "holding company," or a "subsidiary company" of a
"holding company," or an "affiliate" of a "holding company" or of a "subsidiary
company" of a "holding company," or a "public utility" within the meaning of the
Public Utility Holding Company Act of 1935, as amended.
Section 7.14 SUBSIDIARIES AND PARTNERSHIPS. Except as set forth on
Schedule 7.14, the Borrower has no Subsidiaries and has no interest in any
partnerships. Schedule 7.14 indicates which Subsidiaries are Restricted
Subsidiaries and which are Unrestricted Subsidiaries.
Section 7.15 LOCATION OF BUSINESS AND OFFICES. The Borrower's principal
place of business and chief executive offices are located at the address stated
on the signature page of this Agreement. The principal place of business and
chief executive office of each Restricted Subsidiary are located at the
addresses stated on Schedule 7.14.
Section 7.16 DEFAULTS. Except (i) with respect to Current Funded Debt
and Existing Debt which is either being prepaid in full or refinanced in its
entirety with the proceeds of the loans, or (ii) as otherwise disclosed to the
Agent and the Lenders in
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writing, neither the Borrower nor any Restricted Subsidiary is in default
nor has any event or circumstance occurred which, but for the expiration of any
applicable grace period or the giving of notice, or both, would constitute a
default under any material agreement or instrument to which the Borrower or any
Restricted Subsidiary is a party or by which the Borrower or any Restricted
Subsidiary is bound which default would have a Material Adverse Effect. No
Default hereunder has occurred and is continuing.
Section 7.17 ENVIRONMENTAL MATTERS. Except (i) as provided in Schedule
7.17 or (ii) as would not have a Material Adverse Effect (or with respect to
(c), (d) and (e) below, where the failure to take such actions would not have a
Material Adverse Effect):
(a) Neither any Property of the Borrower or any Restricted
Subsidiary nor the operations conducted thereon violate any order or
requirement of any court or Governmental Authority or any Environmental
Laws;
(b) Without limitation of clause (a) above, no Property of the
Borrower or any Restricted Subsidiary nor the operations currently
conducted thereon or, to the knowledge of the Borrower, by any prior
owner or operator of such Property or operation, are subject to any
existing, pending or, to the knowledge of Borrower, threatened action,
suit, investigation or proceeding by or before any court or Governmental
Authority or to any remedial obligations under Environmental Laws;
(c) All notices, permits, licenses or similar authorizations,
if any, required to be obtained or filed in connection with the operation
or use of any and all Property of the Borrower and each Restricted
Subsidiary, including without limitation those required for treatment,
storage, disposal or release of a hazardous substance or solid waste into
the environment, have been duly applied for, obtained or filed, and the
Borrower and each Restricted Subsidiary are in compliance in ALL material
respects with the terms and conditions of all such notices, permits,
licenses and similar authorizations;
(d) To the knowledge of the Borrower all hazardous substances
and solid waste generated at any and all Property of the Borrower or any
Restricted Subsidiary have in the past been transported, treated and
disposed of in accordance with Environmental Laws and so as not to pose
an imminent and substantial endangerment to public health or welfare or
the environment, and, all such transport carriers and treatment and
disposal facilities have been and are operating in compliance with
Environmental Laws and so as not to pose an imminent and substantial
endangerment to public health or welfare or the environment, and are not
the subject of any existing, pending or threatened action, suit,
investigation or proceeding by or before any Governmental Authority in
connection with any Environmental Laws;
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(e) The Borrower, after reasonably appropriate inquiry, has
determined that no hazardous substances or solid waste has been disposed
of or otherwise released on or to any Property of the Borrower or any
Restricted Subsidiary except in compliance with Environmental Laws and so
as not to pose an imminent and substantial endangerment to public health
or welfare or the environment;
(f) To the extent applicable, all Property of the Borrower
and each Restricted Subsidiary currently satisfies all design, operation,
and equipment requirements imposed by the OPA as of the Closing Date or
scheduled to be imposed by OPA during the term of this Agreement, and the
Borrower does not have any reason to believe that such Properties, to the
extent subject to OPA, will not be able to maintain compliance with the
OPA requirements during the term of this Agreement; and
(g) Neither the Borrower nor any Restricted Subsidiary has
any known contingent liability in connection with any release or
threatened release of any oil, hazardous substance or solid waste into
the environment;
provided, however, neither the Borrower nor any Restricted Subsidiary shall be
in breach of any representation concerning compliance with Environmental Laws
in any situation in which the Borrower or Restricted Subsidiary was in
compliance with an Environmental Law and such law was amended or supplemented
such that the Borrower or Restricted Subsidiary is no longer in compliance, so
long as the Borrower or Restricted Subsidiary is making diligent efforts to
comply as soon as practicable, the matter is reported to the Agent and
compliance is achieved within six months after the date of effectiveness of
the change or supplement to such law.
Section 7.18 COMPLIANCE WITH THE LAW. Except as specified herein or
otherwise disclosed to the Agent and the Lenders in writing, neither the
Borrower nor any Restricted Subsidiary is at the Closing Date in violation in
any material respect of any Governmental Requirement or does not have or has
not applied for any license, permit, franchise or other governmental
authorization necessary for the ownership of any of its Properties or the
conduct of its business, which violation or failure would have a Material
Adverse Effect.
Section 7.19 INSURANCE. Schedule 7.19 attached hereto contains an
accurate and complete list of all material policies of fire, liability,
workmen's compensation, business interruption and other forms of insurance
owned or held by the Borrower and each Restricted Subsidiary. All such
policies are in full force and effect, all premiums with respect thereto
covering all periods up to and including the date of the closing have been
paid, and no notice of cancellation or termination has been received with
respect to any such policy. Such policies are sufficient for compliance in all
material respects with all requirements of law and of all agreements to which
the Borrower or any Restricted
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Subsidiary is a party; are valid, outstanding and enforceable policies;
provide insurance coverage in at least such amounts and against at least such
risks (but including in any event public liability) as are usually insured
against in the same general area by companies engaged in the same or a similar
business for the assets and operations of the Borrower and each Restricted
Subsidiary; will remain in full force and effect through the respective dates
set forth in Schedule 7.19 without the payment of additional premiums; and will
not in any way be affected by, or terminate or lapse by reason of, the
transactions contemplated by this Agreement; and will otherwise be satisfactory
to the Agent in all respects, including, without limitation, the insurer,
amount, form and substance.
Section 7.20 RESTRICTION ON LIENS. Except (i) with respect to Current
Funded Debt and Existing Debt which is either being prepaid in full or
refinanced in its entirety with the proceeds of the Loans, (ii) with respect to
the Senior Unsecured Notes, or (iii) as otherwise disclosed to the Agent and
the Lenders in writing, neither the Borrower nor any of its Restricted
Subsidiaries is a party to any agreement or arrangement (other than this
Agreement and the Security Instruments), or subject to any order, judgment,
writ or decree, which either restricts or purports to restrict its ability to
grant Liens to other Persons on or in respect of their respective assets or
Properties.
Section 7.21 MATERIAL AGREEMENTS. Set forth on Schedule 7.21 hereto
is a complete and correct list of all material agreements, leases, indentures,
purchase agreements, obligations in respect of letters of credit, guarantees,
and joint venture agreements of the Borrower and its Restricted Subsidiaries
with a remaining obligation in excess of $5,000,000 and a remaining term of
twelve (12) months, and such list correctly sets forth the names of the debtor
or lessee and creditor or lessor with respect to the Debt or lease obligations
outstanding or to be outstanding and the property subject to any Lien securing
such Debt or lease obligation. The Borrower has heretofore delivered or made
available to the Agent a complete and correct copy of all such agreements,
indentures, purchase agreements, letters of credit, guarantees, or joint
venture agreements, including any modifications or supplements thereto, as in
effect on the Closing Date.
ARTICLE VIII
AFFIRMATIVE COVENANTS
The Borrower covenants and agrees that, so long as any of the
Commitments are in effect and until payment in full of all Loans hereunder, all
interest thereon and all other amounts payable by the Borrower hereunder:
Section 8.01 FINANCIAL STATEMENTS. The Borrower shall deliver, or
shall cause to
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be delivered, to the Agent and to each of the Lenders:
(a) As soon as available and in any event within 90 days
after the end of each fiscal year of the Borrower, the audited
consolidated and unaudited consolidating statements of income,
stockholders' equity, and cash flow of the Borrower and its Consolidated
Subsidiaries for such fiscal year, and the related consolidated and
consolidating balance sheets of the Borrower and its Consolidated
Subsidiaries as at the end of such fiscal year, and setting forth in
each case in comparative form the corresponding figures for the
preceding fiscal year, and accompanied by the related opinion of
independent public accountants of recognized national standing
acceptable to the Agent which opinion shall state that said financial
statements fairly present the consolidated financial condition and
results of operations of the Borrower and its Consolidated Subsidiaries
as at the end of, and for, such fiscal year and that such financial
statements have been prepared in accordance with GAAP except for such
changes in such principles with which the independent public accountants
shall have concurred and a certificate of such accountants stating that,
in making the examination necessary for their opinion, they obtained no
knowledge, except as specifically stated, of any Default; provided,
however, notwithstanding the foregoing, all audited statements shall be
for the Borrower and its consolidated Subsidiaries and statements and
reports for the Borrower and its Consolidated Subsidiaries shall be
unaudited. Simultaneously with the delivery of the statements referred
to in the first sentence of this Section 8.01(a), the Borrower shall
deliver to the Agent and to each of the Lenders an income budget for the
fiscal year of the Borrower following the date of such financial
statements.
(b) As soon as available and in any event within 45 days
after the end of each of the first three fiscal quarterly periods of
each fiscal year of the Borrower, a consolidated and consolidating
statements of income, stockholders' equity, and cash flow of the
Borrower and its Consolidated Subsidiaries for such period and for the
period from the beginning of the respective fiscal year to the end of
such period, and the related consolidated and consolidating balance
sheets as at the end of such period, and setting forth in each case in
comparative form the corresponding figures for the corresponding period
in the preceding fiscal year, accompanied by the certificate of a
Responsible Officer, which certificate shall state that said financial
statements fairly present the consolidated and consolidating financial
condition and results of operations of the Borrower and its Consolidated
Subsidiaries in accordance with GAAP, as at the end of, and for, such
period (subject to normal year-end audit adjustments).
(c) As soon as available and in any event within 30 days
after the end of each calendar month of each fiscal year of the
Borrower, consolidated and
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consolidating statements of income, stockholders' equity, and
cash flow of the Borrower and its Consolidated Subsidiaries for such
period and for the period from the beginning of the respective fiscal
year to the end of such period, and the related consolidated and
consolidating balance sheets as at the end of such period, and setting
forth in each case in comparative form the corresponding figures for the
corresponding period in the preceding fiscal year, accompanied by the
certificate of a Responsible Officer, which certificate shall state that
said financial statements fairly present the consolidated and
consolidating financial condition and results of operations of the
Borrower and its Consolidated Subsidiaries in accordance with GAAP, as
at the end of, and for, such period (subject to normal year-end audit
adjustments).
(d) Promptly after the Borrower knows that any Default or
any Material Adverse Effect has occurred, a notice of such Default or
Material Adverse Effect, describing the same in reasonable detail and
the action the Borrower proposes to take with respect thereto.
(e) Promptly upon receipt thereof, a copy of each other
report or letter submitted to the Borrower or any Restricted Subsidiary
by independent accountants in connection with any annual, interim or
special audit made by them of the books of the Borrower and its
Restricted Subsidiaries, and a copy of any response by the Borrower or
any Restricted Subsidiary of the Borrower, or the Board of Directors of
the Borrower or any Restricted Subsidiary of the Borrower, to such
letter or report.
(f) Promptly upon its becoming available, each financial
statement, report, notice or proxy statement sent by the Borrower to
stockholders generally and each regular or periodic report and any
registration statement, prospectus or written communication (other than
transmittal letters) in respect thereof filed by the Borrower with or
received by the Borrower in connection therewith from any securities
exchange or the SEC or any successor agency.
(g) Promptly after the furnishing thereof, copies of any
statement, report or notice furnished to or any Person pursuant to the
terms of any indenture, loan or credit or other similar agreement, other
than this Agreement and not otherwise required to be furnished to the
Lenders pursuant to any other provision of this Section 8.01.
(h) On the 15th day of each calendar month (as of the end of
the prior calendar month), a Borrowing Base Report.
(i) From time to time such other information regarding the
business,
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affairs or financial condition of the Borrower or any Restricted
Subsidiary (including, without limitation, any Plan or Multiemployer
Plan and any reports or other information required to be filed under
ERISA) as any Lender or the Agent may reasonably request.
(j) The Borrower will furnish to the Agent, at the time it
furnishes each set of financial statements pursuant to paragraph (a) or
(b) above, a certificate substantially in the form of Exhibit C hereto
executed by a Responsible Officer (i) certifying as to the matters set
forth therein and stating that no Default has occurred and is continuing
(or, if any Default has occurred and is continuing, describing the same
in reasonable detail), and (ii) setting forth in reasonable detail the
computations necessary to determine whether the Borrower is in
compliance with Sections 2.07(f), 9.01, 9.03, 9.12, 9.13 and 9.14 as of
the end of the respective fiscal quarter or fiscal year and whether or
not a change in Applicable Margin should occur.
Section 8.02 LITIGATION. The Borrower shall promptly give to the
Agent notice of: (a) all legal or arbitral proceedings, and of all proceedings
before any Governmental Authority affecting the Borrower or any Restricted
Subsidiary, except proceedings which, if adversely determined, would not likely
have a Material Adverse Effect, and (b) of any litigation or proceeding
affecting the Borrower or any Restricted Subsidiary in which the amount claimed
is in excess of $5,000,000 and is not covered by insurance. The Borrower will,
and will cause each of its Restricted Subsidiaries to, promptly notify the
Agent and each of the Lenders of any claim, judgment, Lien or other encumbrance
affecting any Property of the Borrower or any Restricted Subsidiary if the
value of the judgment, Lien, or other encumbrance affecting such Property shall
exceed $1,000,000.
Section 8.03 MAINTENANCE, ETC.
(a) The Borrower shall and shall cause each Restricted
Subsidiary to: preserve and maintain its corporate existence and all of
its material rights, privileges and franchises; keep books of record and
account in which full, true and correct entries will be made of all
dealings or transactions in relation to its business and activities;
comply with all Governmental Requirements if failure to comply with such
requirements will have a Material Adverse Effect; pay and discharge all
taxes, assessments and governmental charges or levies imposed on it or
on its income or profits or on any of its Property prior to the date on
which penalties attach thereto, except for any such tax, assessment,
charge or levy the payment of which is being contested in good faith and
by proper proceedings and against which adequate reserves are being
maintained in accordance with GAAP; upon reasonable notice, permit
representatives of the Agent or any Lender, during normal business
hours, to examine, copy and make extracts from its books and records, to
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inspect its Properties, and to discuss its business and affairs
with its officers, all to the extent reasonably requested by such Lender
or the Agent (as the case may be); and keep insured by financially sound
and reputable insurers all Property of a character usually insured by
Persons engaged in the same or similar business similarly situated
against loss or damage of the kinds and in the amounts customarily
insured against by such Persons and carry such other insurance as is
usually carried by such Persons.
(b) Contemporaneously with the delivery of the financial
statements required by Section 8.01(a) to be delivered for each year,
the Borrower will furnish or cause to be furnished to the Agent and the
Lenders certificates of insurance coverage (with respect to the
Borrower's and each Restricted Subsidiary's Property) from the insurers
in form and substance satisfactory to the Agent and, if requested, will
furnish the Agent and the Lenders copies of the applicable policies.
(c) The Borrower will and will cause each Restricted
Subsidiary to operate its Properties or cause such Properties to be
operated in a careful and efficient manner in accordance with the
practices of the industry and in compliance in all material respects
with all applicable contracts and agreements and in compliance in all
material respects with all Governmental Requirements.
Section 8.04 ENVIRONMENTAL MATTERS.
(a) The Borrower and each Restricted Subsidiary will own and
operate its Property so as not to cause or permit any of its Property to
be in violation of any Environmental Laws and will not do anything or
permit anything to be done which will subject any such Property to any
remedial obligations under any Environmental Laws, assuming disclosure
to the applicable Governmental Authority of all relevant facts,
conditions and circumstances, if any, pertaining to such Property where
such violations or remedial obligations would have a Material Adverse
Effect; provided, however, neither the Borrower or any Restricted
Subsidiary shall be in breach of this covenant for failure to comply
with any Environmental Law in any situation in which the Borrower or
Restricted Subsidiary was in compliance with an Environmental Law and
such law was amended or supplemented such that the Borrower or
Restricted Subsidiary is no longer in compliance, so long as the
Borrower or Restricted Subsidiary is making diligent efforts to comply
as soon as practicable, the matter is reported to the Agent and
compliance is achieved within six months after the date of effectiveness
of the change or supplement to such law.
(b) The Borrower will and will cause each Restricted
Subsidiary to establish and implement such procedures as may be
reasonably necessary to
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continuously determine and assure that any failure of following does not
have a Material Adverse Effect: (i) all Property of the Borrower and its
Restricted Subsidiaries and the operations conducted thereon are in
compliance with and do not violate the requirements of any Environmental
Laws in any material respect, (ii) no oil, hazardous substances or solid
wastes are disposed of or otherwise released on or to any Property owned
by any such party except in substantial compliance with Environmental
Laws, and (iii) no oil, hazardous substance or solid wastes are released
on or to any such Property so as to pose an imminent and substantial
endangerment to human health or welfare or the environment.
(c) The Borrower will promptly notify the Agent in writing of
any threatened action, suit, investigation or proceeding by or before
any Governmental Authority of which the Borrower receives notice or
otherwise has knowledge that involves allegations of harm to human
health or the environment or potential violations of Environmental Laws,
except that notice to the Agent shall not be required for actions,
suits, investigations, or proceedings where the potential fine, penalty
or remedial obligation is likely to cost the Borrower less than $100,000
or the injunctive relief sought would not have a Material Adverse
Effect.
Section 8.05 FURTHER ASSURANCES. The Borrower will and will cause each
Restricted Subsidiary to cure promptly any defects in the creation and issuance
of the Notes and the execution and delivery of the Security Instruments,
including this Agreement. The Borrower at its expense will and will cause each
Restricted Subsidiary to promptly execute and deliver to the Agent upon its
reasonable request all such other documents, agreements and instruments to
comply with or accomplish the covenants and agreements of the Borrower or any
Restricted Subsidiary in the Security Instruments, including this Agreement, or
to further evidence and more fully describe the collateral intended as security
for the Notes, or to correct any omissions in the Security Instruments, or to
state more fully the security obligations set out herein or in any of the
Security Instruments, or to perfect, protect or preserve any Liens created
pursuant to any of the Security Instruments, or to make any recordings, to file
any notices or obtain any consents, all as may be necessary or appropriate in
connection therewith.
Section 8.06 PERFORMANCE OF OBLIGATIONS. The Borrower will pay the
Notes according to the reading, tenor and effect thereof; and the Borrower will
and will cause each Restricted Subsidiary to do and perform every act and
discharge all of the obligations to be performed and discharged by them under
the Security Instruments, including this Agreement, at the time or times and in
the manner specified.
Section 8.07 ERISA INFORMATION AND COMPLIANCE. The Borrower will
promptly furnish and will cause the Restricted Subsidiaries and any ERISA
Affiliate to promptly furnish to the Agent with sufficient copies to the
Lenders (i) promptly after the filing
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thereof with the United States Secretary of Labor, the Internal Revenue Service
or the PBGC, upon written request by the Lenders, copies of each annual and
other report with respect to each Plan or any trust created thereunder, (ii)
immediately upon becoming aware of the occurrence of any ERISA Event which
would have a Material Adverse Effect or of any "prohibited transaction," as
described in section 406 of ERISA or in section 4975 of the Code which would
have a Material Adverse Effect, in connection with any Plan or any trust
created thereunder, a written notice signed by a Responsible Officer specifying
the nature thereof, what action the Borrower, the Restricted Subsidiary or the
ERISA Affiliate is taking or proposes to take with respect thereto, and, when
known, any action taken or proposed by the Internal Revenue Service, the
Department of Labor or the PBGC with respect thereto, and (iii) immediately
upon receipt thereof, copies of any notice of the PBGC's intention to terminate
or to have a trustee appointed to administer any Plan. With respect to each
Plan (other than a Multiemployer Plan), the Borrower will, and will cause each
Subsidiary and ERISA Affiliate to, (i) satisfy in full and in a timely manner,
without incurring any late payment or underpayment charge or penalty and
without giving rise to any lien, all of the contribution and funding
requirements of section 412 of the Code (determined without regard to
subsections (d), (e), (f) and (k) thereof) and of section 302 of ERISA
(determined without regard to sections 303, 304 and 306 of ERISA) where failure
to do so would have a Material Adverse Affect, and (ii) pay, or cause to be
paid, to the PBGC in a timely manner, without incurring any late payment or
underpayment charge or penalty, all premiums required pursuant to sections 4006
and 4007 of ERISA where failure to do so would have a Material Adverse Affect.
Section 8.08 LOCKBOX. The Borrower shall establish and maintain a
lockbox for the collection of its accounts receivable, and shall cause its
accounts receivable to be deposited in such lockbox, with all amounts so
deposited being pledged to secure the Indebtedness, all in accordance with the
terms and provisions of the Lockbox Agreement. The Borrower and the Agent can
change the depository at which the lockbox is maintained without the consent of
the Lenders.
Section 8.09 BORROWING BASE AUDIT. At the request of the Agent and/or
the Majority Lenders, the Borrower shall permit, at the Borrower's expense, a
Person acceptable to the Agent and/or the Majority Lenders to conduct an audit
of the then current Borrowing Base; provided, however, no more than one such
audit shall be conducted in a calendar year.
ARTICLE IX
NEGATIVE COVENANTS
The Borrower covenants and agrees that, so long as any of the
Commitments are in effect and until payment in full of Loans hereunder, all
interest thereon and all other
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amounts payable by the Borrower hereunder, without the prior written consent of
the Majority Lenders:
Section 9.01 DEBT. Neither the Borrower nor any Restricted Subsidiary
will incur, create, assume or suffer to exist any Debt, except:
(a) the Notes, reimbursement obligations under Letters of
Credit, or other Indebtedness or any guaranty of or suretyship
arrangement for the Notes or other Indebtedness;
(b) Debt of the Borrower existing on the Closing Date which is
reflected in the Financial Statements (except for Current Funded Debt)
or disclosed on Schedule 9.01, and any renewals or extensions (but not
increases) thereof;
(c) Debt constituting Capital Lease Obligations (as required
to be reported on the financial statements of the Borrower pursuant to
GAAP) and Purchase Money Financing not to exceed $10,000,000 in the
aggregate;
(d) Debt of the Borrower and its Restricted Subsidiaries under
Hedging Agreements, provided that Borrower and its Restricted
Subsidiaries may execute Interest Rate Agreements only with the Agent or
a Lender;
(e) Intercompany Debt between or among Borrower and any of its
Restricted Subsidiaries;
(f) Debt which also constitutes Investments to the extent
permitted under Section 9.03;
(g) Debt not to exceed $5,500,000 incurred in connection with
transactions for the disposal of wastewater and groundwater to a
wastewater treatment plant in the vicinity of Borrower's Odessa Texas
plant;
(h) Debt evidenced by the Senior Unsecured Notes, up to the
aggregate principal amount of $180,000,000; and
(i) Other Debt not to exceed $10,000,000 in the aggregate at
any one time outstanding.
Section 9.02 LIENS. Neither the Borrower nor any Restricted
Subsidiary will create, incur, assume or permit to exist any Lien on any of its
Properties (now owned or hereafter acquired), except Excepted Liens.
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Section 9.03 INVESTMENTS. Neither the Borrower nor any Restricted
Subsidiary will make or permit to remain outstanding any Investments (which
includes acquisitions) in any Person, except that the foregoing restriction
shall not apply to:
(a) investments, reflected in the Financial Statements or
which are disclosed to the Lenders in Schedule 9.03, including, without
limitation, investments up to the aggregate amount of $20,000,000
existing as of the Effective Date in Rexene Corporation Limited, an
English company, which investments in Rexene Corporation Limited may be
paid down and reinvested, but which can not take the form of a
Guarantee;
(b) direct obligations of the United States or any agency
thereof, or obligations guaranteed by the United States or any agency
thereof, in each case maturing within one year from the date of creation
thereof;
(c) commercial paper maturing within one year from the date of
creation thereof rated in the highest grade by Standard & Poors
Corporation or Moody's Investors Service, Inc.;
(d) deposits maturing within one year from the date of
creation thereof with, including certificates of deposit issued by, any
Lender or any office located in the United States of any other bank or
trust company which is organized under the laws of the United States or
any state thereof, has capital, surplus and undivided profits
aggregating at least $100,000,000.00 (as of the date of such Lender's or
bank or trust company's most recent financial reports) and has a short
term deposit rating of no lower than A2 or P2, as such rating is set
forth from time to time, by Standard & Poors Corporation or Moody's
Investors Service, Inc., respectively;
(e) deposits in money market funds investing exclusively in
investments described in Section 9.03(b), 9.03(c) or 9.03(d);
(f) Investments in the Borrower or a Restricted Subsidiary;
(g) Investments by the Borrower or a Restricted Subsidiary in
a person if as a result of such Investment (i) such Person becomes a
Restricted Subsidiary, or (ii) such person is merged, consolidated or
amalgamated into, the Borrower or a Restricted Subsidiary;
(h) Investments in joint ventures not to exceed at any one
time outstanding an aggregate of $25,000,000, calculated as of the dates
of such investments; provided, however, that the Borrower or a
Restricted Subsidiary must
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be one of the venture partners;
(i) Other Investments in Unrestricted Subsidiaries in an
aggregate amount at any time outstanding not to exceed $15,000,000
calculated as of the dates of such Investments (which can take the form
of a Guarantee);
(k) Investments to the extent made with Capital Stock of the
Borrower; and
(l) other Investments not to exceed at any one time
outstanding $5,000,000.
Section 9.04 RESTRICTED PAYMENTS. The Borrower or any Restricted
Subsidiary will not declare or pay any dividend, purchase, redeem or otherwise
acquire for value any of its stock now or hereafter outstanding, return any
capital to its stockholders or make any distribution of its assets to its
stockholders other than (i) dividends payable in Capital Stock of the Borrower
or (ii) dividends or distributions payable to the Borrower or any Restricted
Subsidiary. In addition, the Borrower shall not make any prepayments on the
Senior Unsecured Notes.
Section 9.05 SALES AND LEASEBACKS. Neither the Borrower nor any
Restricted Subsidiary will enter into any arrangement, directly or indirectly,
with any Person whereby the Borrower or any Restricted Subsidiary shall sell or
transfer any of its Property, whether now owned or hereafter acquired, and
whereby the Borrower or any Restricted Subsidiary shall then or thereafter rent
or lease as lessee such Property or any part thereof or other Property which
the Borrower or any Restricted Subsidiary intends to use for substantially the
same purpose or purposes as the Property sold or transferred; except (i) a sale
and leaseback in the ordinary course of business and (ii) a sale and leaseback
of an asset occurring within 150 days after the acquisition or completion of
construction of such asset.
Section 9.06 NATURE OF BUSINESS. Neither the Borrower nor any
Restricted Subsidiary will allow any material change to be made in the
character of its business.
Section 9.07 LIMITATION ON LEASES. Neither the Borrower nor any
Restricted Subsidiary will create, incur, assume or suffer to exist any
obligation for the payment of rent or hire of Property of any kind whatsoever
(real or personal excluding capital leases), under leases or lease agreements
which would cause the aggregate amount of all payments made by the Borrower and
its Restricted Subsidiaries pursuant to such leases or lease agreements to
exceed $10,000,000 in any period of twelve consecutive calendar months during
the life of such leases.
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Section 9.08 MERGERS, ETC. The Borrower will not merge or consolidate
with or sell, assign, lease or otherwise dispose of (whether in one transaction
or in a series of transactions) all or substantially all of its Properties
(whether now owned or hereafter acquired) to any Person, or permit any
Restricted Subsidiary to do so, except that any Restricted Subsidiary may merge
into or consolidate with or transfer Properties to the Borrower, and the
Borrower or any Restricted Subsidiary may merge or consolidate with any Person
provided in each case that, immediately thereafter and giving effect thereto,
no event shall occur and be continuing which constitutes a Default or an Event
of Default and in the case of any such merger or consolidation to which the
Borrower or any Restricted Subsidiary is a party, the Borrower or such
Restricted Subsidiary, as the case may be, is the surviving corporation.
Section 9.09 PROCEEDS OF NOTES. The Borrower will not permit the
proceeds of the Notes to be used for any purpose other than those permitted by
Section 7.07.
Section 9.10 ERISA COMPLIANCE. The Borrower will not at any time:
(a) Engage in, or permit any Restricted Subsidiary to engage
in, any transaction in connection with which the Borrower, any
Restricted Subsidiary or any ERISA Affiliate is reasonably likely to be
subjected to either a civil penalty assessed pursuant to section 502(c),
(i) or (l) of ERISA which would have a Material Adverse Effect or a tax
imposed by Chapter 43 of Subtitle D of the Code which would have a
Material Adverse Effect;
(b) Terminate, or permit any Restricted Subsidiary or ERISA
Affiliate to terminate, any Plan in a manner, or take any other action
with respect to any Plan, which could result in any liability to the
Borrower, any Restricted Subsidiary or any ERISA Affiliate to the PBGC
which would have a Material Adverse Effect;
(c) Fail to make, or permit any Restricted Subsidiary or ERISA
Affiliate to fail to make, full payment when due of all amounts which,
under the provisions of any Plan, agreement relating thereto or
applicable law, the Borrower, a Restricted Subsidiary or any ERISA
Affiliate is required to pay as contributions thereto if such failure
would have a Material Adverse Effect;
(d) Permit to exist, or allow any Restricted Subsidiary or
ERISA Affiliate to permit to exist, any accumulated funding deficiency
within the meaning of section 302 of ERISA or section 412 of the Code,
whether or not waived, with respect to any Plan;
(e) Permit, or allow any Restricted Subsidiary or ERISA
Affiliate to permit, the current value of the benefit liabilities under
any Plan maintained by the
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Borrower, any Restricted Subsidiary or any ERISA Affiliate which is
subject to Title IV of ERISA to exceed by more than $5,000,000 the
applied current value of the assets of such Plan allocable to such
benefit liabilities (based upon the assumptions applied by the actuary
for each such Plan in the most recent actuarial report for each such
Plan).
(f) Without thirty days prior written notice to the Lenders,
contribute to or assume an obligation to contribute to, or permit any
Restricted Subsidiary or ERISA Affiliate to contribute to or assume an
obligation to contribute to, any Multiemployer Plan;
(g) Without thirty days prior written notice to the Lenders,
acquire, or permit any Restricted Subsidiary or ERISA Affiliate to
acquire, an interest in any Person that causes such Person to become an
ERISA Affiliate with respect to the Borrower, any Restricted Subsidiary
or any ERISA Affiliate if such Person sponsors, maintains or contributes
to, or at any time in the six-year period preceding such acquisition has
sponsored, maintained, or contributed to, (1) any Multiemployer Plan, or
(2) any other Plan that is subject to Title IV of ERISA under which the
current value of the benefit liabilities under such Plan exceeds by more
than $5,000,000 the current value of the assets of all such Plans
allocable to such benefit liabilities (based upon the assumptions
applied by the actuary for each such Plan in the most recent actuarial
report for each such Plan);
(h) Incur, or permit any Restricted Subsidiary or ERISA
Affiliate to incur, a liability to or on account of a Plan under section
515, 4041, 4062, 4063, 4064, 4201 or 4204 of ERISA which would have a
Material Adverse Effect;
(i) Contribute to or assume an obligation to contribute to, or
permit any Restricted Subsidiary or ERISA Affiliate to contribute to or
assume an obligation to contribute to, any employee welfare benefit
plan, as defined in section 3(1) of ERISA, including, without
limitation, any such plan maintained to provide benefits to former
employees of such entities, that may not be terminated by such entities
in their sole discretion at any time without any material liability; or
(j) Amend or permit any Restricted Subsidiary or ERISA
Affiliate to amend, a Plan resulting in an increase in current liability
that has a Material Adverse Affect such that the Borrower, any
Restricted Subsidiary or any ERISA Affiliate is required to provide
security to such Plan under section 401(a)(29) of the Code.
Section 9.11 SALE OR DISCOUNT OF RECEIVABLES. Neither the Borrower nor
any Restricted Subsidiary will discount or sell (with or without recourse) any
of its notes
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receivable or accounts receivable.
Section 9.12 LEVERAGE RATIO. The Borrower will not permit its Leverage
Ratio to be greater in any fiscal year of the Borrower than the ratio for the
fiscal years indicated below:
<TABLE>
<CAPTION>
PERIOD RATIO
------ -----
<S> <C>
12/31/94 - 12/30/95 80%
12/31/95 - 12/30/96 70%
12/31/96 - 12/30/97 60%
12/31/97 and thereafter 50%
</TABLE>
For the purposes of this Section 9.12, "LEVERAGE RATIO" shall mean the ratio of
(i) Debt to (ii) Debt plus Consolidated Net Worth.
Section 9.13 FIXED CHARGE COVERAGE RATIO. The Borrower will not permit
the Fixed Charge Coverage Ratio of the Borrower and its Restricted Subsidiaries
as of the end of any fiscal quarter (calculated quarterly at the end of each
fiscal quarter beginning with the first quarter of fiscal 1995) to be less than
1.0 to 1.0. For purposes of this Section 9.13, "Fixed Charge Coverage Ratio"
shall mean the ratio of (A) Adjusted EBITDA and other non-cash charges for the
four fiscal quarters immediately preceding the date of determination, plus the
lesser of (i) $40,000,000 and (ii) (a) 50% of the Revolving Credit Commitments
minus (b) the average usage of the Revolving Credit Commitments during the
immediately preceding fiscal quarter (including LC Exposure) offset by the
average cash on hand for such period, to (B) (i) cash payments made during such
period for or under taxes, capital expenditures, Guarantees of Debt and
obligations of any Affiliate (other than Restricted Subsidiaries) made during
such period by the Borrower and Restricted Subsidiaries, and scheduled
principal reductions, (ii) interest expense incurred during such period, and
(iii) investments, loans, and advances in any Affiliate (other than Restricted
Subsidiaries) made during such period by the Borrower and Restricted
Subsidiaries; provided, however, for determinations made for the first four
fiscal quarters after December 31, 1994, each such determination shall be for
the period beginning the first day of the calendar quarter following December
31, 1994 through the date of such determination.
Section 9.14 INTEREST COVERAGE RATIO. The Borrower will not permit its
Interest Coverage Ratio as of the end of any fiscal quarter of the Borrower
(calculated quarterly
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at the end of each fiscal quarter beginning with the first fiscal quarter of
1995) to be less in any fiscal year of the Borrower than the ratio and for the
fiscal years indicated below:
<TABLE>
<CAPTION>
YEAR(S) ENDED RATIO
------------- -----
<S> <C>
1995 3.0 to 1
1996 3.0 to 1
1997 3.1 to 1
1998 and thereafter 3.25 to 1
</TABLE>
For the purposes of this Section 9.14, "INTEREST COVERAGE RATIO" shall mean the
ratio of (i) Adjusted EBITDA for the four fiscal quarters immediately preceding
the date of determination to (ii) interest expense incurred for such four
fiscal quarters of the Borrower and its Consolidated Subsidiaries; provided,
however, for determinations made for the first four fiscal quarters after
December 31, 1994, each such determination shall be for the period beginning
the first day of the calendar quarter following December 31, 1994 through the
date of such determination.
Section 9.15 SALE OF PROPERTY. Except in the ordinary course of its
business, the Borrower will not sell, assign, convey or otherwise transfer any
Property or any undivided interest in any Property except for Asset Sales for
which the Borrower has given the Agent at least thirty (30) days prior written
notice of the proposed Asset Sale; provided, however, in no event shall the
aggregate market value of all Asset Sales exceed $25,000,000, or result in the
sale or other transfer of substantially all of the assets of the Borrower or
any Restricted Subsidiary, without the prior written consent of the Majority
Lenders. Notwithstanding anything to the contrary contained in this Section
9.15, the Borrower or any Restricted Subsidiary may sell an asset if (i) such
asset is replaced by an asset of the same type as the asset sold within 12
calendar months of such sale, (ii) the market value of each such asset sold is
less than or equal to $10,000,000 (but in no event shall the aggregate market
value of all such assets sold during the term of this Agreement exceed
$50,000,000), and (iii) the Borrower or such Restricted Subsidiary, as the case
may be, shall execute and deliver to the Agent all instruments and documents
necessary to grant to the Agent for the benefit of the Lenders a first-priority
Lien on each asset replacing an asset so sold.
Section 9.16 TRANSACTIONS WITH AFFILIATES. The Borrower shall not, and
shall not permit any of its Restricted Subsidiaries to, sell, lease, transfer
or otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make any contract, agreement,
understanding, loan, advance or guarantee with, or for the benefit of, any
Affiliate (each of the foregoing, an "Affiliate Transaction"), unless (i) such
Affiliate Transaction is on terms that are no less favorable to the Borrower or
the relevant Restricted Subsidiary than those that would have been obtained in
a comparable
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transaction by the Borrower or such Restricted Subsidiary with an unrelated
Person and (ii) the Borrower delivers to the Agent (a) with respect to any
Affiliate Transaction involving aggregate consideration in excess of $1.0
million, a resolution of the appropriate board of directors' set forth in an
officers' certificate certifying that such Affiliate Transaction complies with
clause (i) above and that such Affiliate Transaction has been approved by a
majority of the disinterested members of the board of directors and (b) with
respect to any Affiliate Transaction involving aggregate consideration in
excess of $10.0 million, an opinion as to the fairness to the Borrower or such
Restricted Subsidiary of such Affiliate Transaction from a financial point of
view issued by an investment banking firm of national standing; PROVIDED,
HOWEVER, that (x) any contract, agreement, understanding, payment, loan,
advance or guarantee (each a "Compensation Benefit") with, for the benefit of,
or to an executive officer of the Borrower as compensation for employment by
the Borrower, whether pursuant to an employment agreement, an employee benefit
plan or other compensation arrangement if either (1) such Compensation benefit
is less than $1 million or (2) is approved by the compensation committee or the
board of directors of the Borrower, (v) transactions between or among the
Borrower and/or its Restricted Subsidiaries and (z) transactions permitted by
Sections 9.03 and 9.04 of this Agreement, in each case, shall not be deemed
Affiliate Transactions.
Section 9.17 SUBSIDIARIES AND PARTNERSHIPS. The Borrower shall not
create any additional Subsidiaries or partnerships or permit any Subsidiary to
do so without prior written notice to the Agent and the Lenders. In every such
case (i) 100% of the Capital Stock of each new Restricted Subsidiary and 65% of
the Capital Stock of each new Foreign Subsidiary (and 100% of the Equity
Interest of Borrower or any Restricted Subsidiary in any partnership) shall be
forthwith pledged to the Agent for the benefit of the Lenders as security for
the payment of the Indebtedness, (ii) a Lien covering the assets of each new
Restricted Subsidiary (unless it is a Foreign Subsidiary) shall be granted in
favor of the Agent for the benefit of the Lenders, (iii) each new Restricted
Subsidiary shall forthwith execute a written instrument of guaranty,
unconditionally guaranteeing payment of all Indebtedness under this Agreement,
the Notes and any other Security Instrument, and (iv) the Borrower shall
deliver to the Agent and the Lenders a revised Schedule 7.14 with respect to
each new Subsidiary and partnership, designating such Subsidiary as a
Restricted Subsidiary or Unrestricted Subsidiary.
Section 9.18 NEGATIVE PLEDGE AGREEMENTS. Neither the Borrower nor any
Restricted Subsidiary will create, incur, assume or suffer to exist any
contract, agreement or understanding (other than this Agreement and the
Security Instruments) which in any way prohibits or restricts the granting,
conveying, creation or imposition of any Lien except Excepted Liens on any of
its Property or restricts any Restricted Subsidiary from paying dividends to
the Borrower, or which requires the consent of or notice to other Persons in
connection therewith.
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ARTICLE X
EVENTS OF DEFAULT; REMEDIES
Section 10.01 EVENTS OF DEFAULT. If one or more of the following
events shall occur and be continuing, it shall constitute an "Event of
Default":
(a) the Borrower shall default in the payment or prepayment
when due of any principal of any Loan or reimbursement obligation for a
disbursement made under any Letter of Credit; or the Borrower shall
default for two (2) Business Days in the payment or prepayment when due
of any interest on any Loan or any fees or other amount payable by it
hereunder or under any Security Instrument; or
(b) the Borrower or any Restricted Subsidiary shall default in
the payment when due of any principal of or interest on any of its other
Debt aggregating $5,000,000 or more, or any event specified in any note,
agreement, indenture or other document evidencing or relating to any
such Debt shall occur if the effect of such event is to cause, or (with
the giving of any notice or the lapse of time or both) to permit the
holder or holders of such Debt (or a trustee or agent on behalf of such
holder or holders) to cause, such Debt to become due prior to its stated
maturity; or
(c) any representation, warranty or certification made or
deemed made herein or in any Security Instrument by the Borrower or any
Restricted Subsidiary, or any certificate furnished to any Lender or the
Agent pursuant to the provisions hereof or any Security Instrument,
shall prove to have been false or misleading as of the time made or
furnished in any material respect and the failure of such
representation, warranty or certification to be true shall have caused
or reasonably be expected to cause a Material Adverse Effect; or
(d) the Borrower shall default in the performance of any of
its obligations under Article IX (other than Sections 9.02 [with
respect to inadvertent Liens] and 9.10) or any other Article of this
Agreement other than Article VIII, or the Borrower shall default in the
performance of any of its obligations under Section 9.02 (with respect
to inadvertent Liens only), Section 9.10 or Article VIII of this
Agreement or any Security Instrument (other than the payment of amounts
due which shall be governed by Section 10.01(a)) and such default shall
continue unremedied for a period of thirty (30) days after the earlier
to occur of (i) notice thereof to the Borrower by the Agent or any
Lender (through the Agent), or (ii) the Borrower otherwise becoming
aware of such default; or
(e) the Borrower shall admit in writing its inability to, or be
generally
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unable to, pay its debts as such debts become due; or
(f) the Borrower shall (i) apply for or consent to the
appointment of, or the taking of possession by, a receiver, custodian,
trustee or liquidator of itself or of all or a substantial part of its
property, (ii) make a general assignment for the benefit of its
creditors, (iii) commence a voluntary case under the Federal Bankruptcy
Code (as now or hereafter in effect), (iv) file a petition seeking to
take advantage of any other law relating to bankruptcy, insolvency,
reorganization, winding-up, or composition or readjustment of debts, (v)
fail to controvert in a timely and appropriate manner, or acquiesce in
writing to, any petition filed against it in an involuntary case under
the Federal Bankruptcy Code, or (vi) take any corporate action for the
purpose of effecting any of the foregoing; or
(g) a proceeding or case shall be commenced, without the
application or consent of the Borrower, in any court of competent
jurisdiction, seeking (i) its liquidation, reorganization, dissolution
or winding-up, or the composition or readjustment of its debts, (ii) the
appointment of a trustee, receiver, custodian, liquidator or the like of
the Borrower of all or any substantial part of its assets, or (iii)
similar relief in respect of the Borrower under any law relating to
bankruptcy, insolvency, reorganization, winding-up, or composition or
adjustment of debts, and such proceeding or case shall continue
undismissed, or an order, judgment or decree approving or ordering any
of the foregoing shall be entered and continue unstayed and in effect,
for a period of 60 days; or (iv) an order for relief against the
Borrower shall be entered in an involuntary case under the Federal
Bankruptcy Code; or
(h) a judgment or judgments for the payment of money in excess
of $5,000,000 in the aggregate shall be rendered by a court against the
Borrower or any Restricted Subsidiary not covered by insurance and the
same shall not be discharged (or provision shall not be made for such
discharge), or a stay of execution thereof shall not be procured, within
thirty (30) days from the date of entry thereof and the Borrower or such
Restricted Subsidiary shall not, within said period of 30 days, or such
longer period during which execution of the same shall have been stayed,
appeal therefrom and cause the execution thereof to be stayed during
such appeal; or
(i) [a final rule, order, decision, or decree shall be issued
by a Governmental Authority pursuant to Environmental Laws that requires
the Borrower to expend more than $5,000,000 in any one calendar year to
remediate environmental contamination or to spend more than $10,000,000
in any one calendar year to install pollution or control equipment or
that requires the Borrower to change its operations in a manner that can
reasonably be expected to cause a
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Material Adverse Effect; or]
(j) the Security Instruments after delivery thereof shall for
any reason, except to the extent permitted by the terms thereof, cease
to be in full force and effect and valid, binding and enforceable in
accordance with their terms, or cease to create a valid and perfected
Lien of the priority required thereby on any of the collateral purported
to be covered thereby, or the Borrower shall so state in writing; or
(k) the Borrower discontinues its usual business or a Change of
Control occurs; or
(l) any Restricted Subsidiary takes, suffers or permits to
exist any of the events or conditions referred to in paragraphs (e),
(f), (g) or (h) hereof.
Section 10.02 REMEDIES.
(a) In the case of an Event of Default other than one referred
to in clauses (e), (f) or (g) of Section 10.01 or in clause (l) to the
extent it relates to clauses (e), (f) or (g), the Agent may and, upon
request of the Majority Lenders, shall, by notice to the Borrower,
cancel the Commitments and/or declare the principal amount then
outstanding of, and the accrued interest on, the Loans and all other
amounts payable by the Borrower hereunder and under the Notes (including
without limitation the payment of cash collateral to secure the LC
Exposure as provided in Section 2.09(b) hereof) to be forthwith due and
payable, whereupon such amounts shall be immediately due and payable
without presentment, demand, protest, notice of intent to accelerate,
notice of acceleration or other formalities of any kind, all of which
are hereby expressly waived by the Borrower.
(b) In the case of the occurrence of an Event of Default
referred to in clauses (e), (f) or (g) of Section 10.01 or in clause (l)
to the extent it relates to clauses (e), (f) or (g), the Commitments
shall be automatically cancelled and the principal amount then
outstanding of, and the accrued interest on, the Loans and all other
amounts payable by the Borrower hereunder and under the Notes (including
without limitation the payment of cash collateral to secure the LC
Exposure as provided in Section 2.09(b) hereof) shall become
automatically immediately due and payable without presentment, demand,
protest, notice of intent to accelerate, notice of acceleration or other
formalities of any kind, all of which are hereby expressly waived by the
Borrower.
(c) All proceeds received after maturity of the Notes, whether
by
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acceleration or otherwise shall be applied first to reimbursement of
expenses and indemnities provided for in this Agreement and the Security
Instruments; second to accrued interest on the Notes; third to fees;
fourth pro rata to principal outstanding on the Notes and other
Indebtedness; fifth to serve as cash collateral to be held by the Agent
to secure the LC Exposure; and any excess shall be paid to the Borrower
or as otherwise required by any Governmental Requirement.
ARTICLE XI
THE AGENT
Section 11.01 APPOINTMENT, POWERS AND IMMUNITIES. Each Lender hereby
irrevocably appoints and authorizes the Agent to act as its agent hereunder
with such powers as are specifically delegated to the Agent by the terms of
this Agreement, together with such other powers as are reasonably incidental
thereto. The Agent (which term as used in this sentence and in Section 11.05
and the first sentence of Section 11.06 shall include reference to its
Affiliates and its and its Affiliates' officers, directors, employees,
attorneys, accountants, experts and agents): (a) shall have no duties or
responsibilities except those expressly set forth in this Agreement, and shall
not by reason of this Agreement be a trustee or fiduciary for any Lender; (b)
makes no representation or warranty to any Lender and shall not be responsible
to the Lenders for any recitals, statements, representations or warranties
contained in this Agreement, or in any certificate or other document referred
to or provided for in, or received by any of them under, this Agreement, or for
the value, validity, effectiveness, genuineness, execution, effectiveness,
legality, enforceability or sufficiency of this Agreement, any Note or any
other document referred to or provided for herein or for any failure by the
Borrower or any other Person (other than the Agent) to perform any of its
obligations hereunder or thereunder or for the existence, value, perfection or
priority of any collateral security or the financial or other condition of the
Borrower, its Subsidiaries or any other obligor or guarantor; (c) except
pursuant to Section 11.07 shall not be required to initiate or conduct any
litigation or collection proceedings hereunder; and (d) shall not be
responsible for any action taken or omitted to be taken by it hereunder or
under any other document or instrument referred to or provided for herein or in
connection herewith including its own ordinary negligence, except for its own
gross negligence or willful misconduct. The Agent may employ agents,
accountants, attorneys and experts and shall not be responsible for the
negligence or misconduct of any such agents, accountants, attorneys or experts
selected by it in good faith or any action taken or omitted to be taken in good
faith by it in accordance with the advice of such agents, accountants,
attorneys or experts. The Agent may deem and treat the payee of any Note as
the holder thereof for all purposes hereof unless and until a written notice of
the assignment or transfer thereof permitted hereunder shall have been filed
with the Agent.
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Section 11.02 RELIANCE BY AGENT. The Agent shall be entitled to rely
upon any certification, notice or other communication (including any thereof by
telephone, telex, telecopier, telegram or cable) believed by it to be genuine
and correct and to have been signed or sent by or on behalf of the proper
Person or Persons, and upon advice and statements of legal counsel, independent
accountants and other experts selected by the Agent.
Section 11.03 DEFAULTS. The Agent shall not be deemed to have
knowledge of the occurrence of a Default (other than the non-payment of
principal of or interest on Loans or of fees or failure to reimburse for Letter
of Credit drawings) unless the Agent has received notice from a Lender or the
Borrower specifying such Default and stating that such notice is a "Notice of
Default." In the event that the Agent receives such a notice of the occurrence
of a Default, the Agent shall give prompt notice thereof to the Lenders. In
addition, the Agent shall give each Lender prompt notice of each such Default.
Section 11.04 RIGHTS AS A LENDER. With respect to its Commitment, the
Loans made by it and its participation in the issuance of Letters of Credit,
Scotiabank (and any successor acting as Agent) in its capacity as a Lender
hereunder shall have the same rights and powers hereunder as any other Lender
and may exercise the same as though it were not acting as the Agent, and the
term "Lender" or "Lenders" shall, unless the context otherwise indicates,
include the Agent in its individual capacity. Scotiabank (and any successor
acting as Agent) and its Affiliates may (without having to account therefor to
any Lender) accept deposits from, lend money to and generally engage in any
kind of banking, trust or other business with the Borrower (and any of its
Affiliates) as if it were not acting as the Agent, and Scotiabank and its
Affiliates may accept fees and other consideration from the Borrower for
services in connection with this Agreement or otherwise without having to
account for the same to the Lenders.
Section 11.05 INDEMNIFICATION. THE LENDERS AGREE TO INDEMNIFY THE AGENT
RATABLY IN ACCORDANCE WITH THEIR PERCENTAGE SHARES FOR THE INDEMNITY MATTERS AS
DESCRIBED IN SECTION 12.03 TO THE EXTENT NOT INDEMNIFIED OR REIMBURSED BY THE
BORROWER UNDER SECTION 12.03, BUT WITHOUT LIMITING THE OBLIGATIONS OF THE
BORROWER UNDER SAID SECTION 12.03 AND FOR ANY AND ALL OTHER LIABILITIES,
OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS,
EXPENSES OR DISBURSEMENTS OF ANY KIND AND NATURE WHATSOEVER WHICH MAY BE
IMPOSED ON, INCURRED BY OR ASSERTED AGAINST THE AGENT IN ANY WAY RELATING TO OR
ARISING OUT OF: (A) THIS AGREEMENT, THE SECURITY INSTRUMENTS OR ANY OTHER
DOCUMENTS CONTEMPLATED BY OR REFERRED TO HEREIN OR THE TRANSACTIONS
CONTEMPLATED HEREBY, BUT EXCLUDING, UNLESS A DEFAULT HAS OCCURRED AND IS
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CONTINUING, NORMAL ADMINISTRATIVE COSTS AND EXPENSES INCIDENT TO THE
PERFORMANCE OF ITS AGENCY DUTIES HEREUNDER; (B) ANY FAILURE OF A LENDER TO MAKE
LOANS OR PROVIDE FUNDS FOR DISBURSEMENTS UNDER LETTERS OF CREDIT ON THE DATES
SPECIFIED THEREFOR; OR (C) THE ENFORCEMENT OF ANY OF THE TERMS OF THIS
AGREEMENT, ANY SECURITY INSTRUMENT OR OF ANY SUCH OTHER DOCUMENTS; WHETHER OR
NOT ANY OF THE FOREGOING SPECIFIED IN THIS SECTION 11.05 ARISES FROM THE SOLE
OR CONCURRENT NEGLIGENCE OF THE AGENT, PROVIDED THAT NO LENDER SHALL BE LIABLE
FOR ANY OF THE FOREGOING TO THE EXTENT THEY ARISE FROM THE GROSS NEGLIGENCE OR
WILFUL MISCONDUCT OF THE AGENT.
Section 11.06 NON-RELIANCE ON AGENT AND OTHER LENDERS. Each Lender
acknowledges and agrees that it has, independently and without reliance on the
Agent or any other Lender, and based on such documents and information as it
has deemed appropriate, made its own credit analysis of the Borrower and its
decision to enter into this Agreement, and that it will, independently and
without reliance upon the Agent or any other Lender, and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own analysis and decisions in taking or not taking action under this
Agreement. The Agent shall not be required to keep itself informed as to the
performance or observance by the Borrower of this Agreement, the Notes, the
Security Instruments or any other document referred to or provided for herein
or to inspect the properties or books of the Borrower. Except for notices,
reports and other documents and information expressly required to be furnished
to the Lenders by the Agent hereunder, the Agent shall not have any duty or
responsibility to provide any Lender with any credit or other information
concerning the affairs, financial condition or business of the Borrower (or any
of its Affiliates) which may come into the possession of the Agent or any of
its Affiliates.
Section 11.07 ACTION BY AGENT. Except for action or other matters
expressly required of the Agent hereunder, the Agent shall in all cases be
fully justified in failing or refusing to act hereunder unless it shall (i)
receive written instructions from the Majority Lenders specifying the action to
be taken, and (ii) be indemnified to its satisfaction by the Lenders against
any and all liability and expenses which may be incurred by it by reason of
taking or continuing to take any such action. The instructions of the Majority
Lenders and any action taken or failure to act pursuant thereto by the Agent
shall be binding on all of the Lenders. If a Default has occurred and is
continuing, the Agent shall take such action with respect to such Default as
shall be directed by the Majority Lenders in the written instructions (with
indemnities) described in this Section 11.07, provided that, unless and until
the Agent shall have received such directions, the Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with
respect to such Default as it shall deem advisable in the best
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interests of the Lenders. In no event, however, shall the Agent be required to
take any action which exposes the Agent to personal liability or which is
contrary to this Agreement and the Security Instruments or applicable law.
Section 11.08 RESIGNATION OF AGENT. Subject to the appointment and
acceptance of a successor Agent as provided below, the Agent may resign at any
time by giving notice thereof to the Lenders and the Borrower. Upon any such
resignation, the Majority Lenders shall have the right to appoint a successor
Agent. If no successor Agent shall have been so appointed by the Majority
Lenders and shall have accepted such appointment within thirty (30) days after
the retiring Agent's giving of notice of resignation, then the retiring Agent
may, on behalf of the Lenders, appoint a successor Agent with the prior consent
of the Borrower, which consent shall not be unreasonably withheld. Upon the
acceptance of such appointment hereunder by a successor Agent, such successor
Agent shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Agent, and the retiring Agent shall be
discharged from its duties and obligations hereunder. After any retiring
Agent's resignation hereunder as Agent, the provisions of this Article XI and
Section 12.03 shall continue in effect for its benefit in respect of any
actions taken or omitted to be taken by it while it was acting as the Agent.
ARTICLE XII
MISCELLANEOUS
Section 12.01 WAIVER. No failure on the part of the Agent or any
Lender to exercise and no delay in exercising, and no course of dealing with
respect to, any right, power or privilege under the Loan Documents shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, power or privilege under the Loan Documents preclude any other or
further exercise thereof or the exercise of any other right, power or
privilege. The remedies provided herein are cumulative and not exclusive of
any remedies provided by law.
Section 12.02 NOTICES. All notices and other communications provided
for herein and in the other Security Instruments (including, without
limitation, any modifications of, or waivers or consents under, this Agreement
or the other Security Instruments) shall be given or made by telex, telecopy,
telegraph, cable, courier or U.S. Mail or in writing and telexed, telecopied,
telegraphed, cabled, mailed or delivered to the intended recipient at the
"Address for Notices" specified below its name on the signature pages hereof or
in the other Security Instruments or, as to any party, at such other address as
shall be designated by such party in a notice to each other party. Except as
otherwise provided in this Agreement or in the other Security Instruments, all
such communications shall be deemed to have been duly given when transmitted
before 1:00 p.m. local time if on a Business
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Day; otherwise on the next succeeding Business Day, by telex or telecopier and
evidence or confirmation of receipt is obtained, delivered to the telegraph or
cable office or personally delivered or, in the case of a mailed notice, seven
(7) Business Days after the date deposited in the mails, postage prepaid, in
each case given or addressed as aforesaid.
Section 12.03 PAYMENT OF EXPENSES, INDEMNITIES, ETC. The Borrower
agrees:
(a) whether or not the transactions hereby contemplated are
consummated, to pay all reasonable expenses of the Agent in the
administration (both before and after the execution hereof and including
advice of counsel as to the rights and duties of the Agent and the
Lenders with respect thereto) of, and in connection with the
negotiation, syndication, investigation, preparation, execution and
delivery of, recording or filing of, preservation of rights under,
enforcement of, and refinancing, renegotiation or restructuring of, the
Loan Documents and any amendment, waiver or consent relating thereto
(including, without limitation, travel, photocopy, mailing, courier,
telephone and other similar expenses of the Agent, the cost of
environmental audits, surveys [including industry surveys] and
appraisals at reasonable intervals, the reasonable fees and
disbursements of counsel for the Agent and in the case of enforcement
for any of the Lenders, and for insurance and other consultants retained
by the Agent to review all policies of insurance of the Borrower or
other matters reasonably required by the Agent or the Lenders); and
promptly reimburse the Agent for all amounts expended, advanced or
incurred by the Agent or the Lenders to satisfy any obligation of the
Borrower under this Agreement or any Security Instrument, including
without limitation, all costs and expenses of foreclosure;
(b) TO INDEMNIFY THE AGENT AND EACH LENDER AND EACH OF THEIR
AFFILIATES AND EACH OF THEIR OFFICERS, DIRECTORS, EMPLOYEES,
REPRESENTATIVES, AGENTS, ATTORNEYS, ACCOUNTANTS AND EXPERTS
("INDEMNIFIED PARTIES") FROM, HOLD EACH OF THEM HARMLESS AGAINST AND
PROMPTLY UPON DEMAND PAY OR REIMBURSE EACH OF THEM FOR, THE INDEMNITY
MATTERS WHICH MAY BE INCURRED BY OR ASSERTED AGAINST OR INVOLVE ANY OF
THEM (WHETHER OR NOT ANY OF THEM IS DESIGNATED A PARTY THERETO) AS A
RESULT OF, ARISING OUT OF OR IN ANY WAY RELATED TO (i) ANY ACTUAL OR
PROPOSED USE BY THE BORROWER OF THE PROCEEDS OF ANY OF THE LOANS, (ii)
THE EXECUTION, DELIVERY AND PERFORMANCE OF THIS AGREEMENT, THE NOTES AND
THE OTHER SECURITY INSTRUMENTS, (iii) THE OPERATIONS OF THE BUSINESS OF
THE BORROWER AND ITS SUBSIDIARIES, (iv) THE FAILURE OF THE BORROWER OR
ANY RESTRICTED SUBSIDIARY TO COMPLY WITH THE TERMS OF ANY SECURITY
INSTRUMENT,
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INCLUDING THIS AGREEMENT, OR WITH ANY GOVERNMENTAL REQUIREMENT, (v) ANY
INACCURACY OF ANY REPRESENTATION OR ANY BREACH OF ANY WARRANTY OF THE
BORROWER SET FORTH IN THIS AGREEMENT OR THE OTHER SECURITY INSTRUMENTS,
(vi) THE ISSUANCE, EXECUTION AND DELIVERY OR TRANSFER OF OR PAYMENT OR
FAILURE TO PAY UNDER ANY LETTER OF CREDIT, IN ACCORDANCE WITH THE TERMS
HEREOF, SUCH LETTER OF CREDIT, OR THE LETTER OF CREDIT AGREEMENT
EXECUTED IN CONNECTION THEREWITH, OR (vii) THE PAYMENT OF A DRAWING
UNDER ANY LETTER OF CREDIT IN ACCORDANCE WITH THE TERMS HEREOF, SUCH
LETTER OF CREDIT, OR THE LETTER OF CREDIT AGREEMENT EXECUTED IN
CONNECTION THEREWITH, NOTWITHSTANDING THE NON-COMPLIANCE, NON-DELIVERY
OR OTHER IMPROPER PRESENTATION OF THE MANUALLY EXECUTED DRAFT(S) AND
CERTIFICATION(S), (viii) ANY ASSERTION THAT THE LENDERS WERE NOT
ENTITLED TO RECEIVE THE PROCEEDS RECEIVED PURSUANT TO THE SECURITY
INSTRUMENTS, OR (ix) ANY OTHER ASPECT OF THIS AGREEMENT, THE NOTES AND
THE SECURITY INSTRUMENTS, INCLUDING, WITHOUT LIMITATION, THE REASONABLE
FEES AND DISBURSEMENTS OF COUNSEL AND ALL OTHER EXPENSES INCURRED IN
CONNECTION WITH INVESTIGATING, DEFENDING OR PREPARING TO DEFEND ANY SUCH
ACTION, SUIT, PROCEEDING (INCLUDING ANY INVESTIGATIONS, LITIGATION OR
INQUIRIES) OR CLAIM AND INCLUDING ALL INDEMNITY MATTERS ARISING BY
REASON OF THE ORDINARY NEGLIGENCE OF ANY INDEMNIFIED PARTY, BUT
EXCLUDING ALL INDEMNITY MATTERS ARISING SOLELY BY REASON OF CLAIMS
BETWEEN THE LENDERS OR ANY LENDER AND THE AGENT OR A LENDER'S
SHAREHOLDERS AGAINST THE AGENT OR LENDER OR BY REASON OF THE GROSS
NEGLIGENCE OR WILFUL MISCONDUCT ON THE PART OF THE INDEMNIFIED PARTY;
AND
(c) TO INDEMNIFY AND HOLD HARMLESS FROM TIME TO TIME THE
INDEMNIFIED PARTY FROM AND AGAINST ANY AND ALL LOSSES, CLAIMS, COST
RECOVERY ACTIONS, ADMINISTRATIVE ORDERS OR PROCEEDINGS, DAMAGES AND
LIABILITIES TO WHICH ANY SUCH PERSON MAY BECOME SUBJECT (i) UNDER ANY
ENVIRONMENTAL LAW APPLICABLE TO THE BORROWER OR ANY SUBSIDIARY OR ANY OF
THEIR PROPERTIES, INCLUDING WITHOUT LIMITATION, THE TREATMENT OR
DISPOSAL OF HAZARDOUS SUBSTANCES ON ANY OF THEIR PROPERTIES, (ii) AS A
RESULT OF THE BREACH OR NON-COMPLIANCE BY THE BORROWER OR ANY SUBSIDIARY
WITH ANY ENVIRONMENTAL LAW APPLICABLE TO THE BORROWER OR ANY
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SUBSIDIARY, (iii) DUE TO PAST OWNERSHIP BY THE BORROWER OR ANY
SUBSIDIARY OF ANY OF THEIR PROPERTIES OR PAST ACTIVITY ON ANY THEIR
PROPERTIES WHICH, THOUGH LAWFUL AND FULLY PERMISSIBLE AT THE TIME, COULD
RESULT IN PRESENT LIABILITY, (iv) THE PRESENCE, USE, RELEASE, STORAGE,
TREATMENT OR DISPOSAL OF HAZARDOUS SUBSTANCES ON OR AT ANY OF THE
PROPERTIES OWNED OR OPERATED BY THE BORROWER OR ANY SUBSIDIARY, OR (v)
ANY OTHER ENVIRONMENTAL, HEALTH OR SAFETY CONDITION IN CONNECTION WITH
THIS AGREEMENT, THE NOTES OR ANY OTHER SECURITY INSTRUMENT, PROVIDED,
HOWEVER, NO INDEMNITY SHALL BE AFFORDED UNDER THIS SECTION 12.03(c) IN
RESPECT OF ANY PROPERTY FOR ANY OCCURRENCE ARISING FROM THE ACTS OR
OMISSIONS OF THE AGENT OR ANY LENDER DURING THE PERIOD AFTER WHICH SUCH
PERSON, ITS SUCCESSORS OR ASSIGNS SHALL HAVE OBTAINED POSSESSION OF SUCH
PROPERTY (WHETHER BY FORECLOSURE OR DEED IN LIEU OF FORECLOSURE, AS
MORTGAGEE-IN-POSSESSION OR OTHERWISE).
(d) No Indemnified Party may settle any claim to be indemnified
without the consent of the indemnitor, such consent not to be
unreasonably withheld; provided, that the indemnitor may not reasonably
withhold consent to any settlement that an Indemnified Party proposes,
if the indemnitor does not have the financial ability to pay all its
obligations outstanding and asserted against the indemnitor at that
time, including the maximum potential claims against the Indemnified
Party to be indemnified pursuant to this Section 12.03.
(e) In the case of any indemnification hereunder, the Agent, as
appropriate, shall give notice to the Borrower of any such claim or
demand being made against the Indemnified Party and the Borrower shall
have the non-exclusive right to join in the defense against any such
claim or demand provided that if the Borrower provides a defense, the
Indemnified Party shall bear its own cost of defense unless there is a
conflict between the Borrower and such Indemnified Party.
(f) THE FOREGOING INDEMNITIES SHALL EXTEND TO THE INDEMNIFIED
PARTIES NOTWITHSTANDING THE SOLE OR CONCURRENT NEGLIGENCE OF EVERY KIND
OR CHARACTER WHATSOEVER, WHETHER ACTIVE OR PASSIVE, WHETHER AN
AFFIRMATIVE ACT OR AN OMISSION, INCLUDING WITHOUT LIMITATION, ALL TYPES
OF NEGLIGENT CONDUCT IDENTIFIED IN THE RESTATEMENT (SECOND) OF TORTS OF
ONE OR MORE OF THE INDEMNIFIED PARTIES OR BY REASON OF STRICT LIABILITY
IMPOSED
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WITHOUT FAULT ON ANY ONE OR MORE OF THE INDEMNIFIED PARTIES. TO THE
EXTENT THAT AN INDEMNIFIED PARTY IS FOUND TO HAVE COMMITTED AN ACT OF
GROSS NEGLIGENCE OR WILFUL MISCONDUCT, THIS CONTRACTUAL OBLIGATION OF
INDEMNIFICATION SHALL CONTINUE BUT SHALL ONLY EXTEND TO THE PORTION OF
THE CLAIM THAT IS DEEMED TO HAVE OCCURRED BY REASON OF EVENTS OTHER THAN
THE GROSS NEGLIGENCE OR WILFUL MISCONDUCT OF THE INDEMNIFIED PARTY.
(g) The Borrower's obligations under this Section 12.03 shall
survive any termination of this Agreement and the payment of the Notes
and shall continue thereafter in full force and effect.
(h) The Borrower shall pay any amounts due under this Section
12.03 within thirty (30) days following a final determination of the
liability of the Agent or Lenders and of the receipt by the Borrower of
notice of the amount due.
Section 12.04 AMENDMENTS, ETC. Any provision of this Agreement or any
other Security Instruments may be amended, modified or waived with the
Borrower's and the Majority Lenders' prior written consent; provided that (a)
no amendment, modification or waiver which extends the Final Maturity Date,
increases the Aggregate Commitments, modifies the Borrowing Base, releases all
or substantially all of the collateral, reduces the interest rate applicable to
the Loans or the fees payable to the Lenders generally, affects Sections
2.03(a), this Section 12.04 or Section 12.06(a) or modifies the definition of
"Majority Lenders" shall be effective without consent of all Lenders; (b) no
amendment, modification or waiver which increases the Maximum Credit Amount of
any Lender shall be effective without the consent of such Lender; and (c) no
amendment, modification or waiver which modifies the rights, duties or
obligations of the Agent shall be effective without the consent of the Agent.
Section 12.05 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
Section 12.06 ASSIGNMENTS AND PARTICIPATIONS.
(a) The Borrower may not assign its rights or obligations
hereunder or under the Notes or any Letters of Credit without the prior
consent of all of the Lenders and the Agent.
(b) Any Lender may, upon the written consent of the Agent and
the Borrower (which consent will not be unreasonably withheld), assign
to one or more
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assignees all or a portion of its rights and obligations under this
Agreement pursuant to an Assignment Agreement substantially in the form
of Exhibit F (an "Assignment") PROVIDED, HOWEVER, that (i) any such
assignment shall be in the amount of at least $5,000,000 or such lesser
amount to which the Borrower has consented and (ii) the assignee shall
pay to the Agent a processing and recordation fee of $2,500 for each
assignment. Any such assignment will become effective upon the
execution and delivery to the Agent of the Assignment and the consent of
the Agent. Promptly after receipt of an executed Assignment, the Agent
shall send to the Borrower a copy of such executed Assignment. Upon
receipt of such executed Assignment, the Borrower, will, at its own
expense, execute and deliver new Notes to the assignor and/or assignee,
as appropriate, in accordance with their respective interests as they
appear. Upon the effectiveness of any assignment pursuant to this
Section 12.06(b), the assignee will become a "Lender," if not already a
"Lender," for all purposes of this Agreement and the other Security
Instruments. The assignor shall be relieved of its obligations
hereunder to the extent of such assignment (and if the assigning Lender
no longer holds any rights or obligations under this Agreement, such
assigning Lender shall cease to be a "Lender" hereunder except that its
rights under Sections 4.06, 5.01, 5.05 and 12.03 shall not be affected).
(c) Each Lender may transfer, grant or assign participations in
all or any part of such Lender's interests hereunder pursuant to this
Section 12.06(c) to any Person, PROVIDED that: (i) such Lender shall
remain a "Lender" for all purposes of this Agreement and the transferee
of such participation shall not constitute a "Lender" hereunder; (ii)
the amount thereof shall be at least $1,000,000; and (iii) no
participant under any such participation shall have rights to approve
any amendment to or waiver of the Loan Documents except to the extent
such amendment or waiver would (x) extend the Final Maturity Date, (y)
reduce the interest rate (other than as a result of waiving the
applicability of any post-default increases in interest rates) or fees
applicable to any of the Commitments or Loans or Letters of Credit in
which such participant is participating, or postpone the payment of any
thereof, or (z) release all or substantially all of the collateral
(except as expressly provided in this Agreement or the Security
Instruments) supporting any of the Commitments or Loans or Letters of
Credit in which such participant is participating. In the case of any
such participation, the participant shall not have any rights under this
Agreement or any of the Security Instruments (the participant's rights
against the granting Lender in respect of such participation to be those
set forth in the agreement with such Lender creating such
participation), and all amounts payable by the Borrower hereunder shall
be determined as if such Lender had not sold such participation,
PROVIDED that such participant shall be entitled to receive additional
amounts under Article V on the same basis as if it were a Lender and be
indemnified under Section 12.03 as if it were a Lender. In
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addition, each agreement creating any participation must include an
agreement by the participant to be bound by the provisions of Section
12.15.
(d) The Lenders may furnish any information concerning the
Borrower in the possession of the Lenders from time to time to assignees
and participants (including prospective assignees and participants);
provided that, such Persons agree to be bound by the provisions of
Section 12.15 hereof.
(e) Notwithstanding anything in this Section 12.06 to the
contrary, any Lender may assign and pledge all or any of its Notes to
any Federal Reserve Bank or the United States Treasury as collateral
security pursuant to Regulation A of the Board of Governors of the
Federal Reserve System and any operating circular issued by such Federal
Reserve System and/or such Federal Reserve Bank. No such assignment
and/or pledge shall release the assigning and/or pledging Lender from
its obligations hereunder.
(f) Notwithstanding any other provisions of this Section
12.06, no transfer or assignment of the interests or obligations of any
Lender or any grant of participations therein shall be permitted if such
transfer, assignment or grant would require the Borrower to file a
registration statement with the SEC or to qualify the Loans under the
"Blue Sky" laws of any state.
Section 12.07 INVALIDITY. In the event that any one or more of the
provisions contained in any of the Loan Documents shall, for any reason, be
held invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provision of the Loan
Documents.
Section 12.08 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and
the same instrument and any of the parties hereto may execute this Agreement by
signing any such counterpart.
Section 12.09 REFERENCES. The words "herein," "hereof," "hereunder"
and other words of similar import when used in this Agreement refer to this
Agreement as a whole, and not to any particular article, section or subsection.
Any reference herein to a Section shall be deemed to refer to the applicable
Section of this Agreement unless otherwise stated herein. Any reference herein
to an exhibit or schedule shall be deemed to refer to the applicable exhibit or
schedule attached hereto unless otherwise stated herein.
Section 12.10 SURVIVAL. The obligations of the parties under Section
4.06, Article V, and Sections 11.05 and 12.03 shall survive the repayment of
the Loans and the termination of the Commitments. To the extent that any
payments on the Indebtedness or proceeds of any collateral are subsequently
invalidated, declared to be fraudulent or
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preferential, set aside or required to be repaid to a trustee, debtor in
possession, receiver or other Person under any bankruptcy law, common law or
equitable cause, then to such extent, the Indebtedness so satisfied shall be
revived and continue as if such payment or proceeds had not been received and
the Agent's and the Lenders' Liens, security interests, rights, powers and
remedies under this Agreement and each Security Instrument shall continue in
full force and effect. In such event, each Security Instrument shall be
automatically reinstated and the Borrower shall take such action as may be
reasonably requested by the Agent and the Lenders to effect such reinstatement.
Section 12.11 CAPTIONS. Captions and section headings appearing herein
are included solely for convenience of reference and are not intended to affect
the interpretation of any provision of this Agreement.
Section 12.12 NO ORAL AGREEMENTS. THE LOAN DOCUMENTS EMBODY THE ENTIRE
AGREEMENT AND UNDERSTANDING BETWEEN THE PARTIES AND SUPERSEDE ALL OTHER
AGREEMENTS AND UNDERSTANDINGS BETWEEN SUCH PARTIES RELATING TO THE SUBJECT
MATTER HEREOF AND THEREOF. THE LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
Section 12.13 GOVERNING LAW; SUBMISSION TO JURISDICTION.
(a) THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THE LOAN
DOCUMENTS SHALL BE BROUGHT AND MAINTAINED IN THE COURTS OF THE STATE OF
NEW YORK AND OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT
OF NEW YORK (PROVIDED, HOWEVER, ANY ENFORCEMENT ACTION WITH RESPECT TO
COLLATERAL SECURITY MAY BE BROUGHT IN THE JURISDICTION IN WHICH THE
COLLATERAL IS LOCATED), AND, BY EXECUTION AND DELIVERY OF THIS
AGREEMENT, THE BORROWER, THE AGENT AND EACH LENDER HEREBY ACCEPTS FOR
ITSELF AND (TO THE EXTENT PERMITTED BY LAW) IN RESPECT OF ITS PROPERTY,
GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS.
THE BORROWER, THE AGENT AND EACH LENDER HEREBY IRREVOCABLY WAIVES ANY
OBJECTION, INCLUDING, WITHOUT
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LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS
OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE
JURISDICTIONS. THIS SUBMISSION TO JURISDICTION IS NON-EXCLUSIVE AND
DOES NOT PRECLUDE THE AGENT OR ANY LENDER FROM OBTAINING JURISDICTION
OVER THE BORROWER IN ANY COURT OTHERWISE HAVING JURISDICTION.
(c) THE BORROWER HEREBY IRREVOCABLY DESIGNATES LOCATED AT
, AS THE DESIGNEE, APPOINTEE AND AGENT OF THE BORROWER
TO RECEIVE, FOR AND ON BEHALF OF THE BORROWER, SERVICE OF PROCESS IN
SUCH RESPECTIVE JURISDICTIONS IN ANY LEGAL ACTION OR PROCEEDING WITH
RESPECT TO THE LOAN DOCUMENTS. IT IS UNDERSTOOD THAT A COPY OF SUCH
PROCESS SERVED ON SUCH AGENT WILL BE PROMPTLY FORWARDED BY OVERNIGHT
COURIER TO THE BORROWER AT ITS ADDRESS SET FORTH UNDER ITS SIGNATURE
BELOW, BUT THE FAILURE OF THE BORROWER TO RECEIVE SUCH COPY SHALL NOT
AFFECT IN ANY WAY THE SERVICE OF SUCH PROCESS. THE BORROWER FURTHER
IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE
AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF
COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE
BORROWER AT ITS SAID ADDRESS, SUCH SERVICE TO BECOME EFFECTIVE THIRTY
(30) DAYS AFTER SUCH MAILING.
(d) NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE BORROWER, THE
AGENT OR ANY LENDER OR ANY HOLDER OF A NOTE TO SERVE PROCESS IN ANY
OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR
OTHERWISE PROCEED AGAINST THE BORROWER IN ANY OTHER JURISDICTION.
INCLUDING, WITHOUT LIMITATION, THE COMMENCEMENT OF ENFORCEMENT
PROCEEDINGS UNDER THE SECURITY INSTRUMENTS IN ALL APPLICABLE
JURISDICTIONS.
(e) EACH OF THE BORROWER AND EACH LENDER HEREBY (A)
IRREVOCABLY AND UNCONDITIONALLY WAIVE, TO THE FULLEST EXTENT PERMITTED
BY LAW, TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS
AGREEMENT OR ANY OTHER SECURITY INSTRUMENT AND FOR ANY COUNTERCLAIM
THEREIN; (B) IRREVOCABLY WAIVE, TO THE MAXIMUM EXTENT NOT PROHIBITED BY
LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR
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RECOVER IN ANY SUCH LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR
CONSEQUENTIAL DAMAGES, OR DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL
DAMAGES; (C) CERTIFY THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OR
AGENT OR COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR
OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (D) ACKNOWLEDGE
THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT, THE OTHER
SECURITY INSTRUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND
THEREBY BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS
CONTAINED IN THIS SECTION 12.13.
Section 12.14 INTEREST. It is the intention of the parties hereto that
each Lender shall conform strictly to usury laws applicable to it.
Accordingly, if the transactions contemplated hereby would be usurious as to
any Lender under laws applicable to it (including the laws of the United States
of America and the State of New York or any other jurisdiction whose laws may
be mandatorily applicable to such Lender notwithstanding the other provisions
of this Agreement), then, in that event, notwithstanding anything to the
contrary in the Notes, this Agreement or in any other Security Instrument or
agreement entered into in connection with or as security for the Notes, it is
agreed as follows: (i) the aggregate of all consideration which constitutes
interest under law applicable to any Lender that is contracted for, taken,
reserved, charged or received by such Lender under any of the Loan Documents or
otherwise in connection with the Notes shall under no circumstances exceed the
maximum amount allowed by such applicable law, and any excess shall be
cancelled automatically and if theretofore paid shall be credited by such
Lender on the principal amount of the Indebtedness (or, to the extent that the
principal amount of the Indebtedness shall have been or would thereby be paid
in full, refunded by such Lender to the Borrower); and (ii) in the event that
the maturity of the Notes is accelerated by reason of an election of the holder
thereof resulting from any Event of Default under this Agreement or otherwise,
or in the event of any required or permitted prepayment, then such
consideration that constitutes interest under law applicable to any Lender may
never include more than the maximum amount allowed by such applicable law, and
excess interest, if any, provided for in this Agreement or otherwise shall be
cancelled automatically by such Lender as of the date of such acceleration or
prepayment and, if theretofore paid, shall be credited by such Lender on the
principal amount of the Indebtedness (or, to the extent that the principal
amount of the Indebtedness shall have been or would thereby be paid in full,
refunded by such Lender to the Borrower). All sums paid or agreed to be paid
to any Lender for the use, forbearance or detention of sums due hereunder
shall, to the extent permitted by law applicable to such Lender, be amortized,
prorated, allocated and spread throughout the full term of the Loans evidenced
by the Notes until payment in full so that the rate or amount
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of interest on account of any Loans hereunder does not exceed the maximum
amount allowed by such applicable law. If at any time and from time to time
(i) the amount of interest payable to any Lender on any date shall be computed
at the Highest Lawful Rate applicable to such Lender pursuant to this Section
12.14 and (ii) in respect of any subsequent interest computation period the
amount of interest otherwise payable to such Lender would be less than the
amount of interest payable to such Lender computed at the Highest Lawful Rate
applicable to such Lender, then the amount of interest payable to such Lender
in respect of such subsequent interest computation period shall continue to be
computed at the Highest Lawful Rate applicable to such Lender until the total
amount of interest payable to such Lender shall equal the total amount of
interest which would have been payable to such Lender if the total amount of
interest had been computed without giving effect to this Section 12.14.
Section 12.15 CONFIDENTIALITY. In the event that the Borrower provides
to the Agent or the Lenders written confidential information belonging to the
Borrower, if the Borrower shall denominate such information in writing as
"confidential", the Agent and the Lenders and any participants (for purposes of
this Section 12.15, the term "Lenders" shall include all participants) shall
thereafter maintain such information in confidence in accordance with the
standards of care and diligence that each utilizes in maintaining its own
confidential information. This obligation of confidence shall not apply to
such portions of the information which (i) are in the public domain, (ii)
hereafter become part of the public domain without the Agent or the Lenders
breaching their obligation of confidence to the Borrower, (iii) are previously
known by the Agent or the Lenders from some source other than the Borrower,
(iv) are hereafter developed by the Agent or the Lenders without using the
Borrower's information, (v) are hereafter obtained by or available to the Agent
or the Lenders from a third party who owes no obligation of confidence to the
Borrower with respect to such information or through any other means other than
through disclosure by the Borrower, (vi) are disclosed with the Borrower's
prior written consent, (vii) must be disclosed either pursuant to any
Governmental Requirement or to Persons regulating the activities of the Agent
or the Lenders, or (viii) as may be required by law or regulation or order of
any Governmental Authority in any judicial, arbitration or governmental
proceeding. Further, the Agent or a Lender may disclose any such information
to any other Lender, any independent petroleum engineers or consultants, any
independent certified public accountants, any legal counsel employed by such
Person in connection with this Agreement or any Security Instrument, including
without limitation, the enforcement or exercise of all rights and remedies
thereunder, or any assignee or participant (including prospective assignees and
participants) in the Loans; provided, however, that the Agent or Lender shall
receive a confidentiality agreement from the Person to whom such information is
disclosed such that said Person shall have the same obligation to maintain the
confidentiality of such information as is imposed upon the Agent or Lender
hereunder. Notwithstanding anything to the contrary provided herein, this
obligation of confidence shall cease five (5) years from the date the
information was
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<PAGE>
furnished (and fifteen (15) years if such information is technical information)
unless the Borrower requests in writing at least thirty (30) days prior to the
expiration of such five year period, to maintain the confidentiality of such
information for an additional period of like duration. The Borrower waives any
and all other rights it may have to confidentiality as against the Agent and
the Lenders arising by contract, agreement, statute or law except as expressly
stated in this Section 12.15.
Section 12.16 RELEASES OF LIEN. When required to do so, the Lenders
will release, or cause the Agent to release, a Lien held by the Agent for the
benefit of the Lenders upon any Property which is the subject of an Asset Sale;
provided, however:
(i) such Asset Sale is permitted under the terms of this
Agreement;
(ii) the Borrower is in compliance with all of the terms and
conditions of this Agreement;
(iii) No Event of Default has occurred and is continuing
hereunder;
(iv) the Borrower shall receive consideration at the time of
such Asset Sale at least equal to the fair market value (evidenced by a
resolution of the board of directors of the Borrower) of the Property
sold or otherwise disposed of in such Asset Sale; provided, however, a
resolution of the board of directors of the Borrower shall not be
necessary for Asset Sales where the consideration to be received is
under $1,000,000 and in such cases only the consent of the Agent
(without the consent of any other Lenders) shall be needed for such a
release of Liens; and
(v) 80% of the consideration is in the form of cash or cash
equivalents.
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<PAGE>
Section 12.17 EFFECTIVENESS. This Agreement shall be effective on the
Closing Date (the "EFFECTIVE DATE").
The parties hereto have caused this Agreement to be duly executed as of
the day and year first above written.
BORROWER: REXENE CORPORATION
By:_____________________________
Name:
Title:
Address for Notices:
5005 LBJ Freeway
Occidental Tower
Dallas, Texas 75244
Telecopier No.: 214-450-9017
Telephone No.: 214-450-9000
Attention: General Counsel
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<PAGE>
LENDER AND AGENT: THE BANK OF NOVA SCOTIA
By:_____________________________
Name:
Title:
Lending Office for Base Rate Loans,
Eurodollar Advances and Address for
Notices:
600 Peachtree Street, N.E.
Suite 2700
Atlanta, Georgia 30308
Telecopier No.:
Telephone No.:
Attention: F.C.H. Ashby
[With copy to:]
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<PAGE>
LENDERS: _________________________
By:_____________________________
Name:
Title:
Lending Office for Base Rate Loans:
________________________________
________________________________
________________________________
Lending Office for Eurodollar Advances:
________________________________
________________________________
________________________________
Address for Notices:
________________________________
________________________________
________________________________
Telecopier No.:
Telephone No.:
Attention:
[With copy to:]
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