<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________
FORM 10-Q
___________
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number: 1-9988
REXENE CORPORATION
(Exact name of Registrant as Specified in its Charter)
DELAWARE 75-2104131
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5005 LBJ FREEWAY
DALLAS, TEXAS 75244
(Address of principal executive offices) (Zip code)
(214) 450-9000
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
____ ____
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No
_____ ____
At July 24, 1995, 18,736,791 shares of common stock, par value $0.01 per
share, of Rexene Corporation were outstanding.
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<PAGE>
REXENE CORPORATION AND SUBSIDIARIES
Page
----
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Statements of
Income for the Three Months Ended June 30,
1995 and 1994. . . . . . . . . . . . . . . . . . . . . . .1
Condensed Consolidated Statements of
Operations for the Six Months Ended June 30,
1995 and 1994. . . . . . . . . . . . . . . . . . . . . . 2
Condensed Consolidated Balance Sheets as
of June 30, 1995 and December 31, 1994 . . . . . . . . . 3
Condensed Consolidated Statements of
Cash Flows for the Six Months Ended
June 30, 1995 and 1994 . . . . . . . . . . . . . . . . . 4
Notes to Condensed Consolidated Financial
Statements . . . . . . . . . . . . . . . . . . . . . . . 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . 7
PART II--OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . 10
Item 4. Submission of Matters to a Vote of Security Holders. . . 11
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . 11
<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
REXENE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30,
1995 1994
---- ----
<S> <C> <C>
Net sales ................................ $159,452 $124,140
-------- --------
Operating expenses:
Cost of sales........................... 107,168 100,149
Marketing, general and administrative... 10,587 8,684
Research and development................ 2,289 1,602
-------- --------
120,044 110,435
-------- --------
Operating income.......................... 39,408 13,705
-------- --------
Interest expense.......................... (7,328) (12,615)
Interest income........................... 820 449
Other, net................................ (116) (146)
-------- --------
Income before income taxes................ 32,784 1,393
Income tax expense........................ 12,252 329
-------- --------
Net income................................ $ 20,532 $ 1,064
-------- --------
-------- --------
Weighted average shares outstanding....... 19,125 10,898
-------- --------
-------- --------
Net income per share...................... $ 1.07 $ 0.10
-------- --------
-------- --------
</TABLE>
See notes to condensed consolidated financial statements.
1
<PAGE>
REXENE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1995 1994
---- ----
<S> <C> <C>
Net sales................................. $328,980 $243,216
-------- --------
Operating expenses:
Cost of sales........................... 220,699 199,553
Marketing, general and administrative... 21,319 16,787
Research and development................ 4,261 3,150
-------- --------
246,279 219,490
-------- --------
Operating income.......................... 82,701 23,726
-------- --------
Interest expense.......................... (14,614) (25,152)
Interest income........................... 1,577 856
Other, net................................ (134) (268)
-------- --------
Income (loss) before income taxes......... 69,530 (838)
Income tax expense (benefit).............. 26,149 (177)
-------- --------
Net income (loss)......................... $ 43,381 $ (661)
-------- --------
-------- --------
Weighted average shares outstanding....... 19,119 10,501
-------- --------
-------- --------
Net income (loss) per share............... $ 2.27 $ (0.06)
-------- --------
-------- --------
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
REXENE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
---- ----
ASSETS
<S> <C> <C>
Cash and cash equivalents.............. $ 21,621 $ 45,822
Deposit held in trust.................. - 8,000
Accounts receivable, net............... 79,030 77,433
Inventories............................ 67,690 62,726
Income taxes receivable................ - 1,647
Deferred income taxes.................. 6,404 8,625
Prepaid expenses and other............. 520 1,098
-------- --------
Total current assets................. 175,265 205,351
Property, plant and equipment, net..... 269,914 258,119
Intangible assets, net................. 12,998 16,062
Other noncurrent assets................ 25,256 27,422
-------- --------
$483,433 $506,954
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable....................... $ 26,184 $ 38,019
Current portion of long-term debt...... - 10,000
Accrued liabilities.................... 11,945 9,488
Accrued interest....................... 1,714 1,894
Income taxes payable................... 20,274 -
Employee benefits payable.............. 6,241 5,911
-------- --------
Total current liabilities............ 66,358 65,312
Long-term debt......................... 175,000 265,000
Other noncurrent liabilities........... 69,263 49,999
Deferred income taxes.................. 53,448 51,767
Stockholders' equity:
Common stock, par value $0.01 per
share; 100 million shares
authorized; 18.7 and 18.6 million
shares issued and outstanding,
respectively....................... 187 186
Paid-in capital...................... 111,176 110,355
Retained earnings (deficit).......... 7,283 (36,098)
Foreign currency translation
adjustment......................... 718 433
-------- --------
Total stockholders' equity........... 119,364 74,876
-------- --------
$483,433 $506,954
-------- --------
-------- --------
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
REXENE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1995 1994
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)..................... $ 43,381 $ (661)
-------- --------
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization..... 10,329 9,194
Amortization of debt issuance
costs........................... 2,376 -
Non-cash interest expense......... - 13,023
Deferred income taxes............. 3,902 (2,266)
Change in:
Accounts receivable............. (1,586) (8,566)
Inventories..................... 544 (729)
Prepaid expenses and other...... 579 (266)
Income taxes.................... 22,408 7,748
Accounts payable................ (11,859) (572)
Accrued interest................ (180) 6
Employee benefits payable and
accrued liabilities........... 2,785 (453)
Increase (decrease) in other non-
current liabilities........... (5,736) 193
Other............................. 4,239 (832)
-------- --------
Total adjustments................... 27,801 16,480
-------- --------
Net cash provided by operating
activities.......................... 71,182 15,819
-------- --------
Cash flows from investing activities:
Capital expenditures................ (20,718) (15,462)
-------- --------
Net cash used for investing
activities........................... (20,718) (15,462)
-------- --------
Cash flows from financing activities:
Repayment of debt................... (100,000) -
Advance payment from customer....... 25,000 -
Proceeds from issuance of common
stock, net......................... 335 -
Bank borrowings..................... - 7,000
-------- --------
Net cash provided by (used for) finan-
cing activities...................... (74,665) 7,000
-------- --------
Net increase (decrease) in cash and
cash equivalents..................... (24,201) 7,357
Cash and cash equivalents at beginning
of period............................ 45,822 30,535
-------- --------
Cash and cash equivalents at end of
period............................. $ 21,621 $ 37,892
-------- --------
-------- --------
Supplemental cash flow information:
Cash paid for interest.............. $ 13,614 $ 11,955
Cash paid for income taxes.......... $ 1,287 $ 154
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
REXENE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. GENERAL
Rexene Corporation manufactures and markets a wide variety of products
through its two operating divisions, Rexene Products Company division
("Rexene Products") and Consolidated Thermoplastics Company division ("CT
Film"). The products range from specialty products, such as plastic films,
to commodity petrochemicals, such as styrene. These products are used in a
wide variety of industrial and consumer-related applications. The Company's
principal products are plastic film, polyethylene, polypropylene and REXTAC
amorphous polyalphaolefins ("APAO") resins and styrene. 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 in the 1994 Annual Report on Form 10-K.
2. INCOME TAXES
The income tax expense (benefit) is composed of (in thousands):
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Current:
Federal............... $ 9,490 $ 1,403 $19,978 $ 1,949
State................. 868 72 2,269 140
Deferred income taxes... 1,894 (1,146) 3,902 (2,266)
------- ------- ------- -------
$12,252 $ 329 $26,149 $ (177)
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
3. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
---- ----
<S> <C> <C>
Raw materials.......................... $24,721 $21,363
Work in progress....................... 6,800 8,014
Finished goods......................... 36,169 33,349
------- -------
$67,690 $62,726
------- -------
------- -------
</TABLE>
5
<PAGE>
4. PROPERTY, PLANT AND EQUIPMENT
The cost and accumulated depreciation of property, plant and equipment are as
follows (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
---- ----
<S> <C> <C>
Property, plant and equipment.......... $316,224 $295,251
Accumulated depreciation............... (46,310) (37,132)
-------- --------
$269,914 $258,119
-------- --------
-------- --------
</TABLE>
5. INTANGIBLE ASSETS
The cost and accumulated amortization of intangible assets are as follows (in
thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
---- ----
<S> <C> <C>
Debt issuance costs.................... $ 9,735 $ 9,735
Accumulated amortization............... (2,492) (116)
-------- --------
7,243 9,619
-------- --------
Reorganization value in excess of
amounts allocable to identifiable
assets................................ 4,298 4,298
Accumulated amortization............... (1,037) (904)
-------- --------
3,261 3,394
-------- --------
Other intangible assets................ 5,544 5,544
Accumulated amortization............... (3,050) (2,495)
-------- --------
2,494 3,049
-------- --------
$ 12,998 $ 16,062
-------- --------
-------- --------
</TABLE>
6. 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. On the
basis of reasonable investigation and analysis, management believes that the
approximately $22.2 million accrued in the June 30, 1995 balance sheet is
adequate for the total potential environmental liability with respect to
remediating known 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.
The Company does not currently carry environmental impairment liability
insurance to protect it against such
6
<PAGE>
contingencies because the Company has found such coverage available only at
great cost and with broad exclusions.
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 20 to the
Consolidated Financial Statements included in the Company's 1994 Annual
Report on Form 10-K. There have been no material changes to the certain
other lawsuits described in the aforementioned Note 20, except as described
below in Part II, Item 1.
Although there can be no assurance of the final resolution of such lawsuits,
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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
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.
The Company'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 cyclical
markets experienced increased levels of demand which have resulted in near
full capacity utilization and higher domestic and export prices. This
increase in demand has enabled the Company and the petrochemical industry in
general to increase selling prices significantly at a time when feedstock
prices have been relatively stable.
Principal raw materials purchased by the Company consist of ethane and
propane extracted from natural gas liquids, propylene and benzene (all four
of which are referred to as "feedstocks") for the polymer and styrene
businesses and polyethylene resins for the film business. The prices of
feedstocks can fluctuate widely based on the prices of natural gas and oil.
As a result, the Company's ability to pass on increases in raw material costs
to customers has a significant impact on operating results.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1995 COMPARED TO
THE THREE MONTHS ENDED JUNE 30, 1994
The petrochemical and polymer markets in which the Company participates
continued to be strong in the second quarter of 1995. This resulted in
increased prices and margins in most of the Company's product lines. Net
sales increased $35.3 million (or 29%) from $124.1 million for the three
months ended June 30, 1994 to $159.5 million for the three months ended
June 30, 1995 principally due to an increase in average sales prices in the four
largest product lines. Styrene sales increased $11.8 million (or 61%) in the
second quarter of 1995 as compared to the second quarter of 1994 principally
due to an increase in average sale prices of 22 cents per pound.
Polyethylene sales increased $12.6 million (or 38%) in the second quarter of
1995 as compared to the second quarter of 1994 principally due to an increase
in average sales prices of 15 cents per pound. Plastic film sales increased
$6.5 million (or 17%) in the second quarter of 1995 as compared to the second
quarter of 1994 principally due to an increase in
7
<PAGE>
average sales prices of 13 cents per pound. Polypropylene sales increased
$3.2 million (or 17%) in the second quarter of 1995 as compared to the second
quarter of 1994 principally due to an increase in average sales prices of 8
cents per pound.
The Company's gross profit percentage increased from 19% for the three months
ended June 30, 1994 to 33% for the comparable period in 1995 principally due
to the increase in average sales prices discussed above, partially offset by
increases in prices of propylene for Rexene Products and polyethylene resins
for CT Film.
Marketing, general and administrative expenses increased $1.9 million (or
22%) from $8.7 million for the second quarter of 1994 to $10.6 million for
the second quarter of 1995 principally due to higher employee benefits that
are related to the Company's improved operating performance. Research and
development expenses increased $.7 million (or 43%) principally due to new
product development at CT Film.
Due primarily to the factors described above, operating income increased
$25.7 million (or 188%) for the three months ended June 30, 1995, as compared
to the corresponding period in 1994.
Interest expense decreased $5.3 million (or 42%) in the second quarter of
1995 as compared to the second quarter of 1994 principally due to lower
long-term debt as a result of the completion of a recapitalization plan in
the fourth quarter of 1994 and the repayment of bank debt in the first half
of 1995.
Income tax expense increased $11.9 million in the second quarter of 1995 as
compared to the same period in 1994 principally due to increased operating
performance.
Due primarily to the factors described above, net income increased $19.5
million from the second quarter of 1994 to the second quarter of 1995.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1995 COMPARED TO THE
SIX MONTHS ENDED JUNE 30, 1994
The petrochemical and polymer markets in which the Company participates
continued to be strong in the first half of 1995. This resulted in increased
prices and margins in most of the Company's product lines. Net sales
increased $85.8 million (or 35%) from $243.2 million for the six months ended
June 30, 1994 to $329.0 million for the six months ended June 30, 1995
principally due to an increase in average sales prices in the four largest
product lines. Styrene sales increased $30.1 million (or 79%) in the first
six months of 1995 as compared to the first six months of 1994 principally
due to an increase in average sales prices of 21 cents per pound.
Polyethylene sales increased $26.1 million (or 40%) in the first six months
of 1995 as compared to the first six months of 1994 principally due to an
increase in average sales prices of 17 cents per pound. Plastic film sales
increased $13.5 million (or 17%) in the first six months of 1995 as compared
to the first six months of 1994 due to an increase in average sales prices of
12 cents per pound. Polypropylene sales increased $9.6 million (or 26%) in
the first six months of 1995 as compared to the first six months of 1994 due
to an increase in average sales prices of 9 cents per pound. Excess feedstock
sales increased $3.3 million in the first six months of 1995 as compared to
the first six months of 1994.
The Company's gross profit percentage increased 15% for the six months ended
June 30, 1995 compared to the same period in 1994 principally due to the
increase in average sales prices discussed above, partially offset by
increases in prices of propylene for Rexene Products and polyethylene resins
for CT Film. In addition, gross profits were affected by lower plastic film
profits caused by changes in the personal care market served by CT Film.
8
<PAGE>
Marketing, general and administrative expenses increased $4.5 million (or
27%) for the first six months of 1995 as compared to the same period in 1994
principally due to higher employee benefits that are related to the Company s
improved operating performance. Research and development expenses increased
$1.1 million (or 35%) principally due to new product development at CT Film.
Due primarily to the factors described above, operating income increased
$59.0 million (or 249%) for the six months ended June 30, 1995 as compared to
the corresponding period in 1994.
Interest expense decreased $10.5 million (or 42%) in the first half of 1995
as compared to the same period in 1994 principally due to lower long-term
debt as a result of the completion of a recapitalization plan in the fourth
quarter of 1994 and the repayment of bank debt in the first half of 1995.
The income tax expense in the first six months of 1995 reflects current
income taxes payable of $21.3 million and deferred income tax expense of $4.8
million. The income tax benefit in the first six months of 1994 reflects
current income taxes payable of $2.1 million, offset by deferred income tax
benefits of $2.3 million.
Due primarily to the factors discussed above, the Company had net income of
$43.4 million for the first six months of 1995 as compared to a net loss of
$.7 million in the first six months of 1994.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended June 30, 1995, net cash provided from operating
activities increased $55.4 million as compared to the same period in 1994,
principally due to improved operating income.
In addition to cash generated from operations, the Company received a $25
million advance payment from a customer as a result of a multi-year agreement
to supply a portion of annual styrene production. Using cash generated from
operations, this advance payment and existing cash balances, the Company
repaid $100 million of debt in the six months ended June 30, 1995.
In November 1994, the Company entered into (i) an Indenture under which it
borrowed $175 million, and (ii) a credit agreement (the "Credit Agreement")
under which the Company borrowed $100 million under a term loan (the "Term
Loan") and secured an $80 million revolving credit facility (the "Revolver").
In the first six months of 1995, the Company prepaid all of the Term Loan.
As a result, $1.8 million of previously capitalized financing fees were
charged to interest expense in the six months ended June 30, 1995. The
Company's 11 3/4% Senior Notes (the "Senior Notes") under the Indenture will
mature on December 1, 2004. The Company believes that, 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 Revolver, will be adequate for the foreseeable future to make
scheduled payments of interest 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.
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; however, on
the basis of reasonable investigation and analysis, management believes that
the approximately $22.2
9
<PAGE>
million accrued in the June 30, 1995 balance sheet is adequate for the 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
liabilities would not have a material adverse effect on the financial
condition of the Company. In addition, because government and environmental
groups have become increasingly concerned in recent years about environmental
issues, 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 its estimates of potential environmental liabilities. The Company
does not currently carry environmental impairment liability insurance to
protect it against such contingencies because such coverage is available only
at great cost and with broad exclusions. As part of its financial assurance
requirements under the Resource Conservation and Recovery Act and equivalent
Texas law, the Company has deposited $3.5 million in trust to cover closure
and post-closure costs and plugging and abandonment costs at certain of the
Odessa, Texas manufacturing facility's hazardous waste management units. This
amount deposited in trust does not cover the costs of addressing existing
contamination at the manufacturing facility in Odessa, Texas.
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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 the Company's common stock between
October 23, 1989 and December 27, 1989. The defendants in this action included
the Company, one of its current directors and certain of its former directors.
The class was certified with an intervenor as the class representative. The
intervenor s complaint asserted claims under Rule 10b-5 under the Securities
Exchange Act of 1934, and state common law grounds. The plaintiff alleged
that public statements made by certain directors of the Company created a
misleading impression of the Company's financial condition thereby
artificially inflating the price of the Company's common stock. The
plaintiffs sought compensatory damages, prejudgment interest, a recovery of
costs and attorneys' fees, and such other relief as may be deemed just and
proper. The parties reached an agreement to settle the case without any
admission of liability. The District Court entered a judgment approving the
settlement on May 16, 1995, and said judgment is now final.
PHILLIPS CRYSTALLINE LICENSE LITIGATION
In May 1990, Phillips Petroleum Company ("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
alleged that the Company was 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 alleged
that effective April 21, 1990, Phillips terminated the License Agreement
because it believed that all conditions precedent to such termination had
occurred. The complaint further alleged 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 alleged that
the Company made a material misrepresentation that induced Phillips
10
<PAGE>
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 alleged that the License Agreement was 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. A trial was conducted before the United States District Court in
October 1994. On June 19, 1995, the District Court entered judgment in favor
of the Company on the license termination issue. The District Court
concluded that Phillips had not properly terminated the License Agreement.
Thus, the License Agreement remains in effect, and the Company is not
infringing the '851 Patent. Phillips filed a notice of appeal on July 17,
1995.
ENVIRONMENTAL REGULATION
As reported in the Company's 1994 Annual Report on Form 10-K, the Company
operates its styrene plant and styrene loading facility under an air permit
issued by the Texas Natural Resource Conservation Commission ("TNRCC").
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 "Item 3 - Legal
Proceedings" in the 1994 Annual Report on Form 10-K. The Hearings Examiner
appointed to the case has recommended to the TNRCC that the hearing be
dismissed based on a new Texas statute. The TNRCC will probably decide
whether or not to dismiss the hearing during the third quarter of 1995. If a
hearing is held, the hearing process will probably take approximately six
months to complete. During the pendency of the public hearing process, the
Company will continue to operate under its existing permit. While there can
be no assurance, the Company expects the TNRCC to renew its styrene air
permit; although the renewal permit could require additional modeling or
monitoring or certain minor equipment modifications.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the annual meeting of stockholders on April 25, 1995, the following
matters were submitted to and approved by the stockholders, in addition to
the election of directors:
(a) ADOPTION OF THE 1994 LONG TERM INCENTIVE PLAN. Under the plan 882,000
shares of Common Stock of the Company are reserved for issuance to key
employees. This plan was approved by the holders of 11,221,898 shares of
the Common Stock of the Company. The holders of 3,500,355 shares of
Common Stock of the Company voted against adoption of this plan.
(b) ADOPTION OF THE 1995 STOCK OPTION PLAN FOR OUTSIDE DIRECTORS. Under this
plan 60,000 shares of Common Stock of the Company are reserved for
issuance to non-employee directors of the Company. This plan was approved
by the holders of 11,481,137 shares of Common Stock of the Company. The
holders of 3,146,937 shares of the Common Stock of the Company voted
against adoption of this plan.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.19 - 1995 Stock Option Plan for Outside Directors
(b) Reports Submitted on Form 8-K:
None.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
REXENE CORPORATION
Date: July 24, 1995 By: /s/ KEVIN W. McALEER
-------------------------------
Kevin W. McAleer
Executive Vice President and
Chief Financial Officer
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REXENE CORPORATION
1995 STOCK OPTION PLAN FOR OUTSIDE DIRECTORS
ARTICLE I
PURPOSE
It is the purpose of the Plan to promote the interests of the Company and
its stockholders by attracting and retaining qualified Outside Directors by
giving them the opportunity to acquire a proprietary interest in the Company and
an increased personal interest in its continued success and progress. The
Options granted under this Plan shall not be qualified as "incentive stock
options" within the meaning of Section 422(b) of the Code.
ARTICLE II
DEFINITIONS
As used in this Plan the following terms have the following meanings:
(a) "Agreement" means any stock option agreement entered into between the
Company and a Outside Director pursuant to Section 4.02 of the Plan.
(b) "Board" means the Board of Directors of the Company.
(c) "Cause" means any act of (i) fraud upon or with respect to, (ii)
intentional misrepresentation to or with respect to, or (iii) embezzlement,
misappropriation or conversion of assets or opportunities of, the Company or any
direct or indirect majority-owned subsidiary of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
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(e) "Committee" means the Management Development and Compensation
Committee of the Board.
(f) "Common Stock" means the $.01 par value Common Stock of the Company.
(g) "Company" means Rexene Corporation, a Delaware corporation.
(h) "Effective Date" means the date on which this Plan is approved by the
stockholders of the Company which shall be the date on which the Plan shall be
effective.
(i) "Fair Market Value" means the closing sales price on the date in
question (or, if there was no reported sale on such date, on the last preceding
day on which any reported sale occurred) of a share of Common Stock as reported
on the principal national stock exchange on which the Common Stock is then
listed or admitted to trading or, if the Common Stock is not listed or admitted
to trading on any national stock exchange but is listed as a national market
security on the National Association of Securities Dealers, Inc. Automated
Quotations System ("NASDAQ"), as reported on NASDAQ; or, if the Common Stock is
not listed or admitted to trading on any such exchange and is not listed as a
national market security on NASDAQ, but is quoted on NASDAQ or any similar
system then in use, "Fair Market Value" shall mean the average of the closing
high bid and low asked quotations on such system for the Common Stock on the
date in question (or, if no such quotations are available on such date, on the
last preceding day on which such quotations were available).
(j) "Grant Date" means the date of grant of an Option pursuant to Section
4.02(a) of the Plan.
(k) "Holder" means a Outside Director to whom an Option has been granted
under the Plan.
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(l) "Outside Director" means an individual who (i) is on the Effective
Date, or thereafter becomes, a member of the Board, and (ii) is neither an
employee nor an officer of the Company or any direct or indirect majority-owned
subsidiary of the Company. For purposes of the Plan, "employee" shall mean an
individual whose wages are subject to the withholding of federal income tax
under Section 3402 of the Code, and "officer" shall mean an individual elected
or appointed by the Board or the board of directors of the subsidiary, as the
case may be, or chosen in such other manner as may be prescribed by the bylaws
of the Company or the subsidiary, to serve as such.
(m) "Option" means any option to purchase shares of Common Stock granted
pursuant to the provisions of the Plan.
(n) "Plan" means this Rexene Corporation 1995 Stock Option Plan for
Outside Directors.
(o) "Option Period" has the meaning assigned to it in Section 4.02(d) of
the Plan.
ARTICLE III
ADMINISTRATION
The Plan shall be administered by the Committee. The Committee shall have
no authority, discretion or power to select the participants who will receive
Options, to set the number of shares to be covered by any Option, to set the
exercise price of any Option, to set the period within which Options may be
exercised, or to alter any other terms or conditions specified in this Plan
document, except in the sense of administering the Plan subject to the express
provisions of the Plan and except in accordance with Section 6.02 of the Plan.
Subject to the foregoing limitations, the Committee shall have authority and
power to adopt such rules and regulations and to take such action as it shall
consider necessary or advisable
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for the administration of the Plan to determine if any terms and conditions of
any Agreement are inconsistent with the Plan, and to construe, interpret and
administer the Plan. The decisions of the Committee relating to the Plan shall
be final and binding upon the Company, the Holders and all other persons. No
member of the Committee shall incur any liability by reason of any action or
determination made in good faith with respect to the Plan or any stock option
agreement entered into pursuant to the Plan.
ARTICLE IV
OPTIONS
4.01 PARTICIPATION. Each Outside Director shall be granted an Option to
purchase Common Stock under the Plan on the terms and conditions described in
this Plan document.
4.02 TERMS AND CONDITIONS OF OPTIONS; STOCK OPTION AGREEMENTS. Each Option
granted under the Plan shall be evidenced by a written stock option agreement
entered into by the Company and the Holder to whom the Option is granted, which
agreement shall include, incorporate or conform to the following terms and
conditions, and such other terms and conditions not inconsistent with such terms
and conditions or with the other terms and conditions of the Plan.
(a) OPTION GRANT DATES.
(i) An Option shall be granted automatically as of the
Effective Date to each Outside Director who shall have been elected by
the stockholders of the Company on such date to serve as a director on
the Board.
(ii) On the date of the annual meeting of stockholders of the
Company in 1996 and 1997, an Option shall be granted automatically to
each
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Outside Director who shall have been elected by the stockholders of
the Company at such annual meeting to serve as a director on the
Board.
(iii) On the date that a person becomes an Outside Director of
the Board as a result of his/her election to the Board by the other
members of the Board where such election occurs after the Effective
Date and before the annual meeting of stockholders in 1998, an Option
shall be granted automatically to such Outside Director.
(b) NUMBER OF SHARES. Each Option shall entitle the Holder to
purchase, in accordance with the terms of such Option and the Plan, two
thousand (2,000) shares of Common Stock, subject to adjustment in
accordance with Section 5.02 hereof; provided, however, that each Option
granted to the Chairman of the Board shall entitle such Holder to purchase
two thousand five hundred (2,500) shares of Common Stock, subject to
adjustment in accordance with Section 5.02 hereof. If, on the Grant Date of
any Option, fewer shares of Common Stock remain available for grant than
are necessary to permit the grant of an Option covering 2,000 shares of
Common Stock (2,500 shares of Common Stock in the case of the Chairman of
the Board) to each person entitled to receive an Option on such date, then
each Option granted on such date shall cover an equal number of whole
shares of Common Stock, and all Options granted on such date shall cover,
in the aggregate, all shares then available for grant under the Plan (or
such smaller number as may be necessary to permit each such Option to cover
an equal number of whole shares of Common Stock).
(c) PRICE. The price at which each share of Common Stock covered by
an Option may be purchased ("Exercise Price") pursuant to the Plan shall be
equal to the average of the fair Market Value of a share of Common Stock
for the twenty (20) trading days immediately preceding the Grant Date less
ten dollars ($10.00),
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provided, however, in no event shall the Exercise Price be less than $0.25
per share subject to adjustment pursuant to Section 5.02 of the Plan.
(d) OPTION PERIOD. The period within which each Option may be
exercised shall commence on the first anniversary of the Grant Date of the
Option and shall expire on the tenth anniversary of such Grant Date (the
"Option Period"), unless terminated sooner pursuant to Section 4.02(e).
(e) TERMINATION OF SERVICE, DEATH, ETC. The following provisions
shall apply with respect to the exercise of an Option granted hereunder in
the event that the Holder thereof ceases to be a director of the Company
for the reasons described in this Section 4.02(e):
(i) If the directorship of the Holder is terminated within the
Option Period for Cause, all unexercised Options shall automatically
terminate as of the date of such termination;
(ii) If the Holder dies during the Option Period while such
Holder is a director of the Company, all Options may be retained and
exercised in accordance with their terms by the executor or
administrator of the estate of the Holder, or by the person or persons
who shall have acquired the Option directly from the Holder by bequest
or inheritance; provided, however, all such Options must be so
exercised upon the earlier of two years after the Holder's death or
the expiration of the Option.
(iii) If the Holder ceases within the Option Period to be a
director of the Company for any reason other than as set forth in
paragraphs (i) and (ii) above, the Options may be retained and
exercised in accordance with their
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terms; provided, however, that all such Options must be exercised upon
the earlier of one year after the Holder ceases to be a director of
the Company or the expiration of the Option Period.
(f) TRANSFERABILITY. An Option granted under the Plan shall not be
transferable by the Holder, otherwise than by will or pursuant to the laws
of descent and distribution, and during the lifetime of the Holder the
Option shall be exercisable only by the Holder or his or her guardian or
legal representative.
(g) EXERCISE, PAYMENTS, ETC. Each Option granted hereunder may be
exercised, in whole or in part, by the Holder thereof at any time or (with
respect to partial exercises) from time to time during the Option Period,
subject to the provisions of the Plan and the stock option agreement
evidencing such Option, and the method for exercising an Option shall be by
personal delivery to the Secretary of the Company of, or by the sending by
United States registered or certified mail, postage prepaid, addressed to
the Company (to the attention of its Secretary), of, written notice signed
by the Holder specifying the number of shares of Common Stock with respect
to which such Option is being exercised. Such notice shall be accompanied
by the full amount of the purchase price of such shares, in cash, by check
or by wire transfer. Any such notice shall be deemed to have been given on
the date of receipt by the Secretary of the Company of the notice and
payment of the full amount of the purchase price of such shares. In
addition to the foregoing, promptly after demand by the Company, the
exercising Holder shall pay to the Company an amount equal to applicable
withholding taxes, if any, due in connection with such exercise. No shares
of Common Stock need be issued by the Company upon exercise of an Option
until full payment therefor and for all applicable withholding taxes has
been made, and a Holder shall have none of the rights of a stockholder
until shares of Common Stock are issued to such Holder.
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ARTICLE V
AUTHORIZED COMMON STOCK
5.01 COMMON STOCK. The total number of shares as to which Options may be
granted pursuant to the Plan shall be 60,000 shares of Common Stock, in the
aggregate, except as such number of shares shall be adjusted from and after the
Effective Date in accordance with the provisions of Section 5.02 of the Plan.
If any outstanding Option under the Plan shall expire or be terminated for any
reason, the shares of Common Stock allocable to the unexercised portion of such
Option shall again be available for grant under the Plan.
5.02 ADJUSTMENTS UPON CHANGES IN COMMON STOCK. In the event the Company
shall effect a split of the Common Stock or a dividend payable in Common Stock,
or in the event the outstanding Common Stock shall be combined into a smaller
number of shares, the maximum number of shares as to which Options may be
granted under the Plan and the number of shares to be covered by any Option not
yet granted under Section 4.02(a) shall be increased or decreased
proportionately. In the event that before delivery by the Company of all the
shares of Common Stock in respect of which any Option has been granted under the
Plan, the Company shall have effected such a split, dividend or combination, the
shares still subject to the Option shall be increased or decreased
proportionately and the purchase price per share shall be increased or decreased
proportionately so that the aggregate purchase price for all the then optioned
shares shall remain the same as immediately prior to such split, dividend or
combination.
In the event of a reclassification of the Common Stock not covered by the
foregoing, or in the event of a liquidation or reorganization, including a
merger, consolidation or sale of assets, the Committee shall make such
adjustments, if any, as it may deem appropriate in the number, purchase price
and kind of shares covered by the unexercised portions of Options previously
granted under the Plan. The provisions of this Section 5.02 shall only be
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applicable if, and only to the extent that, the application thereof does not
conflict with any valid governmental statute, regulation or rule.
ARTICLE VI
GENERAL PROVISIONS
6.01 TERMINATION OF PLAN. The Plan shall terminate whenever (whether
before, on or after the Effective Date) the Board adopts a resolution to that
effect. If not sooner terminated in accordance with the preceding sentence, the
Plan shall wholly cease and expire at the time of the meeting of the
stockholders of the Company in 1998. After termination of the Plan, no Options
shall be granted under the Plan, but the Company shall continue to recognize,
and perform its obligations with respect to, any Options previously granted.
6.02 AMENDMENT OF PLAN. The Committee may from time to time (whether
before, on or after the Effective Date) amend, modify or suspend the Plan.
Nevertheless, (a) no such amendment, modification or suspension shall impair any
Options previously granted under the Plan or deprive any Holder of any shares of
Common Stock which such Holder might have acquired through or as a result of the
Plan, and (b) after the stockholders of the Company have approved and adopted
the Plan in accordance with Section 6.04 hereof, no such amendment or
modification shall be made without the approval of the holders of a majority of
the outstanding shares of Common Stock of the Company where such amendment or
modification would (i) increase the total number of shares of Common Stock as to
which Options may be granted under the Plan or decrease the exercise price at
which Options may be granted under the Plan (other than as provided in Section
5.02 hereof), (ii) materially alter the class of persons eligible to be granted
Options under the Plan, (iii) materially increase the benefits accruing to
Holders under the Plan or (iv) extend the term of the Plan or the Option Period
specified in Section 4.02(d) hereof.
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Notwithstanding the foregoing, the provisions of the Plan relating to (a)
the number of shares of Common Stock covered by, and the exercise price of,
Options granted under the Plan, (b) the timing of grants of Options under the
Plan and (c) the class of persons eligible to be granted Options under the Plan
shall not be amended more than once every six months, other than to comport with
changes in the Code, the Employee Retirement Income Security Act of 1974, as
amended, or the rules thereunder.
6.03 TREATMENT OF PROCEEDS. Proceeds from the sale of Common Stock
pursuant to Options granted under the Plan shall constitute general funds of the
Company.
6.04 EFFECTIVENESS. The Plan shall become effective as of the Effective
Date, subject to the satisfaction of the condition stated in the following
sentence. The effectiveness of the Plan and each Option to be granted hereunder
is conditioned on the approval and adoption of the Plan on the Effective Date by
the affirmative vote of the holders of a majority of the shares of Common Stock
of the Company present, or represented, and entitled to vote at a meeting of
stockholders of the Company.
6.05 SECTION HEADINGS. The section headings included herein are only for
convenience, and they shall have no effect on the interpretation of the Plan.
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