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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, 1996
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 August 5, 1996, 18,804,034 shares of common stock, par value $0.01 per
share, of Rexene Corporation were outstanding.
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REXENE CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Statements of Income for the Three and Six Months Ended June 30, 1996 and 1995 . . . . 1
Condensed Consolidated Balance Sheets as of June 30, 1996 and December 31, 1995 . . . . . . . . . . . . . . . 2
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1996 and 1995 . . . . . . . 3
Notes to Condensed Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . 5
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
</TABLE>
<PAGE> 3
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 Six Months Ended
June 30, June 30,
1996 1995 1996 1995
------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . . . . . . $146,462 $159,452 $286,149 $328,980
-------- -------- -------- --------
Operating expenses:
Cost of sales . . . . . . . . . . . . . . . . . . . . . 117,313 107,168 230,518 220,699
Marketing, general and administrative . . . . . . . . . 11,369 10,587 21,783 21,319
Research and development . . . . . . . . . . . . . . . 2,134 2,289 4,174 4,261
-------- -------- -------- --------
130,816 120,044 256,475 246,279
-------- -------- -------- --------
Operating income . . . . . . . . . . . . . . . . . . . . 15,646 39,408 29,674 82,701
-------- -------- -------- --------
Interest expense . . . . . . . . . . . . . . . . . . . . (4,183) (7,328) (8,550) (14,614)
Interest income . . . . . . . . . . . . . . . . . . . . . 351 820 1,120 1,577
Other, net . . . . . . . . . . . . . . . . . . . . . . . 30 (116) 4 (134)
-------- -------- -------- --------
Income before income taxes . . . . . . . . . . . . . . . 11,844 32,784 22,248 69,530
Income tax expense . . . . . . . . . . . . . . . . . . . 4,352 12,252 8,286 26,149
-------- -------- -------- --------
Net income . . . . . . . . . . . . . . . . . . . . . . . $ 7,492 $ 20,532 $ 13,962 $ 43,381
======== ======== ======== ========
Weighted average shares outstanding . . . . . . . . . . . 19,139 19,125 19,132 19,119
======== ======== ======== ========
Net income per share . . . . . . . . . . . . . . . . . . $ 0.39 $ 1.07 $ 0.73 $ 2.27
======== ======== ======== ========
</TABLE>
See notes to condensed consolidated financial statements.
1
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REXENE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
----------- ------------
ASSETS
<S> <C> <C>
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,814 $ 47,258
Deposit held in trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 3,547
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82,505 73,520
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63,899 62,257
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,580 5,663
Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 430 531
---------- ----------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154,228 192,776
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . 322,472 291,675
Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,980 11,811
Other noncurrent assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,360 24,329
---------- ----------
$ 518,040 $ 520,591
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 33,742 $ 29,768
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,316 14,319
Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,723 1,714
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,586 30,778
Employee benefits payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,527 7,781
---------- ----------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,894 84,360
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190,000 175,000
Other noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 66,314 67,107
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53,166 53,973
Stockholders' equity:
Preferred stock, par value $.01 per share; 1 million shares authorized;
none issued and outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . - -
Common stock, par value $.01 per share; 100 million shares authorized; 18.8 and
and 18.7 million shares issued and outstanding, respectively . . . . . . . . . 188 187
Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111,398 111,247
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,055 28,595
Foreign currency translation adjustment . . . . . . . . . . . . . . . . . . . . . 25 122
---------- ----------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . 152,666 140,151
---------- ----------
$ 518,040 $ 520,591
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE> 5
REXENE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1996 1995
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,962 $ 43,381
--------- --------
Adjustments to reconcile net income to net cash provided by (used for) operating
activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . 11,528 10,329
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 276 3,902
Amortization of debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . 575 2,376
Change in:
Deposit held in trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,547 -
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,964) (1,586)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,638) 544
Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . . . . . . . 102 579
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (29,192) 22,408
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,987 (11,859)
Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 (180)
Employee benefits payable and accrued liabilities . . . . . . . . . . . . . . . (3,267) 2,785
Other noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 1,007 (5,736)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (248) 4,239
--------- --------
Total adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (22,278) 27,801
--------- --------
Net cash provided by (used for) operating activities . . . . . . . . . . . . . . . (8,316) 71,182
--------- --------
Cash flows from investing activities:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (41,547) (20,718)
Purchase of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . (1,833) -
--------- --------
Net cash used for investing activities . . . . . . . . . . . . . . . . . . . . . . (43,380) (20,718)
--------- --------
Cash flows from financing activities:
Bank borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,000 -
Debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,598) -
Repayment of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - (100,000)
Advance payment (repayment) from customer . . . . . . . . . . . . . . . . . . . . (1,800) 25,000
Cash dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,502) -
Proceeds from issuance of common stock, net . . . . . . . . . . . . . . . . . . . 152 335
--------- --------
Net cash provided by (used for) financing activities . . . . . . . . . . . . . . . 7,252 (74,665)
--------- --------
Net decrease in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . (44,444) (24,201)
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . . 47,258 45,822
--------- --------
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . . $ 2,814 $ 21,621
========= ========
Supplemental cash flow information:
Cash paid for interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,545 $ 13,614
Cash paid for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 37,486 $ 1,287
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 6
REXENE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. GENERAL
Rexene Corporation manufactures and markets a wide variety of products through
two operating divisions, Rexene Products Company division ("Rexene Products")
and Consolidated Thermoplastics Company division ("CT Film"). The products
range from value added specialty products, such as customized 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, Rextac(R)
amorphous polyalphaolefin ("Rextac") 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 1995 Annual Report on Form 10-K.
2. INCOME TAXES
Income tax expense consists of the following (in thousands):
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1996 1995 1996 1995
------- -------- ------- --------
<S> <C> <C> <C> <C>
Current:
Federal . . . . . . . . . . . . . . $ 3,499 $ 9,490 $ 6,919 $ 19,978
State . . . . . . . . . . . . . . 570 868 1,091 2,269
Deferred . . . . . . . . . . . . . . 283 1,894 276 3,902
------- ------- ------- --------
$ 4,352 $12,252 $ 8,286 $ 26,149
======= ======= ======= ========
</TABLE>
3. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
June 30, December
1996 31, 1995
---------- --------
<S> <C> <C>
Raw materials . . . . . . . . . . . . . . $ 20,885 $ 20,144
Work in progress . . . . . . . . . . . . 8,593 5,356
Finished goods . . . . . . . . . . . . . 34,421 36,757
-------- --------
$ 63,899 $ 62,257
======== ========
</TABLE>
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
1996 31, 1995
---------- ---------
<S> <C> <C>
Property, plant and equipment . . . . . . . $ 389,016 $ 347,527
Less accumulated depreciation . . . . . . . (66,544) (55,852)
--------- ---------
$ 322,472 $ 291,675
========= =========
</TABLE>
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5. INTANGIBLE ASSETS
The cost and accumulated amortization of intangible assets are as follows (in
thousands):
<TABLE>
<CAPTION>
June 30, December
1996 31, 1995
-------- --------
<S> <C> <C>
Debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,333 $ 9,735
Less accumulated amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,566) (2,991)
-------- --------
10,767 6,744
-------- --------
Reorganization value in excess of amounts allocable to identifiable assets . . . . . . . . 4,298 4,298
Less accumulated amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,304) (1,171)
-------- --------
2,994 3,127
-------- --------
Other intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,377 5,544
Less accumulated amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,158) (3,604)
-------- --------
3,219 1,940
-------- --------
$ 16,980 $ 11,811
</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 facility permitting 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
investigate and 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 its investigation and analysis, management believes
that the approximately $19.7 million accrued in the June 30, 1996 balance sheet
is adequate for the total potential environmental liability with respect to
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 fully assessed or that the amounts that might be required to
investigate and remediate such sites will not be significant to the Company.
The Company continually reviews its estimates of potential environmental
liabilities.
The Company is a party to various litigation arising in the ordinary course of
business and to certain other litigation which are set forth in Note 18 to the
Consolidated Financial Statements included in the Company's 1995 Annual Report
on Form 10-K. There have been no material changes to the litigation described
in the aforementioned Note 18, except as described in Part II below.
Although there can be no assurance of the final resolution of such litigation,
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 lawsuit vigorously, and 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, results of operations or cash flows.
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 Rextac polymer businesses are generally less
sensitive to the economic cycles. Historically, the cyclical segments have
5
<PAGE> 8
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 1994, these cyclical markets experienced increased levels of
demand through the second quarter of 1995 which resulted in greater capacity
utilization and higher domestic and export prices. This increase in demand
enabled the Company and the industry in general to increase selling prices
significantly beginning in the second quarter of 1994 through the first half of
1995 even though feedstock costs were relatively stable. During the second
half of 1995 and the first quarter of 1996, the domestic petrochemical and
polymer markets experienced a decrease in demand and selling prices due to
several factors, including inventory reductions by customers, the slowdown in
economic growth in the United States and a decrease in exports, particularly to
the Chinese market. In addition, prices for these products were influenced by
industry capacity additions in 1995. This decrease in demand and selling
prices stabilized in the second quarter of 1996. In the polyethylene business,
selling prices were increased late in the second quarter and further increases
have been announced effective August 1, 1996 and September 1, 1996.
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 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. The feedstock supplies available in
Odessa, Texas are currently adequate for the Company's requirements. During
the first six months of 1996, the Company's feedstock costs increased as
compared to late 1995.
For a discussion of certain matters that the Company anticipates could
significantly affect results of operations and financial condition in future
periods, see the exhibits to this Report referenced in Item 5 below.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THE
THREE MONTHS ENDED JUNE 30, 1995
The Company's overall sales and profitability were lower in the second quarter
of 1996 as compared to the second quarter of 1995. As discussed above, the
petrochemical and polymer markets in which the Company participates were
stronger in the second quarter of 1995 as compared to the second quarter of
1996. Net sales decreased $13.0 million (or 8%) from the second quarter of
1995 to the second quarter of 1996 principally due to lower average sales
prices in all major product lines, partially offset by higher sales volumes in
all major product lines except plastic film. Plastic film sales decreased $7.1
million (or 16%) principally due to a decrease in average sales price of 6
cents per pound and a decrease in sales volumes of 4.0 million pounds as a
result of changing technology in the disposable diaper industry. Styrene sales
decreased $6.9 million (or 22%) principally due to a decrease in average sales
price of 21 cents per pound, partially offset by an increase in sales volumes
of 22.8 million pounds. Polyethylene sales decreased $4.9 million (or 11%)
principally due to a decrease in average sales price of 9 cents per pound,
partially offset by an increase in sales volumes of 6.0 million pounds.
Polypropylene sales increased $0.7 million (or 3%) principally due to an
increase in sales volume of 4.4 million pounds, partially offset by a decrease
in average sales price of 4 cents per pound. Rextac sales increased $1.3
million (or 21%) principally due to an increase in sales volume of 2.5 million
pounds. Other sales increased $3.9 million principally due to an increase in
excess feedstock sales.
The Company's gross profit percentage decreased from 33% for the three months
ended June 30, 1995 to 20% for the three months ended June 30, 1996 principally
due to the decrease in sales prices discussed above. Marketing, general and
administrative expenses and research and development expenses remained
relatively stable for the second quarter of 1995 as compared to the second
quarter of 1996.
Due primarily to the factors discussed above, operating income decreased $23.8
million (or 60%) for the three months ended June 30, 1996 as compared to the
corresponding period in 1995. Net interest expense decreased $2.7 million (or
41%) in the second quarter of 1996 as compared to the second quarter of 1995
principally due to the repayment of bank debt in the first half of 1995, offset
by interest on bank borrowings in the second quarter of 1996. Income tax
expense decreased $7.9 million (or 64%) in the second quarter of 1996 as
compared to the second quarter of 1995 principally due to the decrease in
operating income discussed above. Due primarily to the factors discussed
above, the Company's net income decreased $13.0 million (or 64%) in the second
quarter of 1996 as compared to the second quarter of 1995.
6
<PAGE> 9
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO THE
SIX MONTHS ENDED JUNE 30, 1995
The Company's overall sales and profitability were lower in the first half of
1996 as compared to the first half of 1995. As discussed above, the
petrochemical and polymer markets in which the Company participates were
stronger in the first half of 1995 as compared to the first half of 1996. Net
sales decreased $42.8 million (or 13%) from the first half of 1995 to the first
half of 1996 principally due to lower average sales prices in all major product
lines, partially offset by increases in sales volumes in all product lines
except plastic film. Plastic film sales decreased $18.4 million (or 20%)
principally due to a decrease in average sales price of 6 cents per pound and a
decrease in sales volumes of 12.5 million pounds as a result of changing
technology in the disposable diaper industry. Styrene sales decreased $20.4
million (or 30%) principally due to a decrease in average sales price of 18
cents per pound, partially offset by an increase in sales volumes of 23.1
million pounds. Polyethylene sales decreased $12.4 million (or 14%)
principally due to a decrease in average sales price of 11 cents per pound,
partially offset by an increase in sales volumes of 17.1 million pounds.
Polypropylene sales decreased $1.7 million (or 4%) principally due to a
decrease in average sales price of 3 cents per pound, partially offset by an
increase in sales volumes of 2.5 million pounds. Rextac sales increased $0.7
million (or 6%) principally due to an increase in sales volumes of 1.4 million
pounds. Other sales increased $9.4 million principally due to an increase in
excess feedstock sales.
The Company's gross profit percentage decreased from 33% for the six months
ended June 30, 1995 to 19% for the six months ended June 30, 1996 principally
due to the decrease in sales prices discussed above. Marketing, general and
administrative expenses and research and development expenses remained
relatively stable for the first half of 1995 as compared to the first half of
1996.
Due primarily to the factors discussed above, operating income decreased $53.0
million (or 64%) for the six months ended June 30, 1996 as compared to the
corresponding period in 1995. Net interest expense decreased $5.6 million (or
43%) in the first half of 1996 as compared to the first half of 1995
principally due to the repayment of bank debt in the first half of 1995, offset
by interest on bank borrowings in the second quarter of 1996. Income tax
expense decreased $17.9 million (or 68%) in the first half of 1996 as compared
to the first half of 1995 principally due to the decrease in operating income
discussed above. Due primarily to the factors discussed above, the Company's
net income decreased $29.4 million (or 68%) in the first half of 1996 as
compared to the first half of 1995.
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended June 30, 1996, net cash provided by operating
activities decreased $79.5 million as compared to the comparable period in
1995. This decrease was principally due to the payment in March 1996 of the
Company's 1995 federal income taxes of approximately $30 million and due to
lower operating income discussed above.
On April 24, 1996, the Company executed an amendment to its existing credit
facility (the "Amended Credit Agreement"). The Amended Credit Agreement
provides a new line of credit in an amount of $150 million for a seven year
term. The primary use of proceeds from the new line of credit is to provide
funds to finance portions of the Company's capital expenditure program at its
Odessa, Texas manufacturing facility over the next three years, including the
construction of a flexible polyolefin polymer plant, the modernization and
expansion of its olefins plant and the construction of a new linear low density
polyethylene plant. As of August 5, 1996, the outstanding balance under the
Amended Credit Agreement was $25 million.
On August 5, 1996, the Company executed an agreement with a bank for a $10
million uncommitted, unsecured line of credit (the "Unsecured Note") for day to
day cash flow needs.
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 the proceeds from the Amended Credit
Agreement, will be adequate to make scheduled payments of interest on the 11
3/4% Senior Notes due 2004, the Amended Credit Agreement and the Unsecured
Note, 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 but not limited to,
the demand for the Company's products, raw material costs and other factors.
7
<PAGE> 10
A number of potential environmental liabilities exist which relate to certain
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 investigate and remediate such sites or comply with pending or
proposed environmental regulations can be accurately estimated. The Company has
approximately $19.7 million accrued in the June 30, 1996 balance sheet as an
estimate of its total potential environmental liability with respect to
investigating and remediating known and assessed contaminated sites. If,
however, additional liabilities with respect to environmental contamination are
identified, there is no assurance that additional amounts that might be
required to investigate and remediate such potential sites would not have a
material adverse effect on the financial position, results of operations or
cash flows of the Company. In addition, future regulatory developments could
restrict or possibly prohibit existing methods of environmental compliance. 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 the
Company has found such coverage is available only at great cost and with broad
exclusions. Based on the Company's improved financial condition, the Company
recovered approximately $3.6 million held by the Texas Natural Resource
Conservation Commission in trust to cover certain environmental contingency
obligations.
The discussions in this report contain both historical information and
forward-looking statements. The forward-looking statements involve risks and
uncertainties that affect the Company's operations, markets, products,
services, prices and the other factors as discussed in the Company's filings
with the Securities and Exchange Commission. These risks and uncertainties
include, but are not limited to, the demand for the Company's products,
economic conditions, customer inventory levels, competitive pricing pressures,
feedstock costs, changes in industry production capacities and operating rates,
competitive technology positions, and the failure of the Company to improve
operational efficiencies or develop and successfully market new products as
anticipated or complete construction projects on schedule.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Phillips Crystalline License Litigation
As previously reported in Item 3 of the Company's Annual Report on Form 10-K
for the year ended December 31, 1995, in May 1990, Phillips filed a lawsuit
against the Company in the United States District Court for the District of
Delaware (the "Trial Court") seeking injunctive relief, 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 and that, without an effective
License Agreement, the Company's continuing use of the '851 Patent constitutes
an infringing use. At trial in October 1994, Phillips sought damages of
approximately $15.5 million, plus interest and fees, for alleged infringement
for the period between April 21, 1990 and trial. On June 19, 1995, the Trial
Court entered judgment in favor of the Company on the license termination issue
and concluded that Phillips' notice of default was insufficient to terminate
the License Agreement. Phillips appealed the Trial Court's judgment to the
Court of Appeals for the Federal Circuit. On March 27, 1996, the Court of
Appeals entered an order reversing the Trial Court and holding that the form of
notice was sufficient and remanding the action to the Trial Court. On May 20,
1996, the Court of Appeals denied the Company's motion to reconsider its
decision. The Trial Court must now review Phillips' claims and other defenses
asserted by Rexene which were not previously ruled on in order to enter a new
judgment. Although the Company believes that it has meritorious defenses to
this lawsuit, in the event of an unfavorable ruling, the Company will be
required to renegotiate a new license agreement at a substantially higher rate
than paid under the current license.
8
<PAGE> 11
Odessa Residents' Tort Litigation
As previously reported in Item 3 of the Company's Annual Report on Form 10-K
for the year ended December 31, 1995, 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"), the
Company 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 and to add as additional defendants the Company, Shell
and General Tire Corporation (the parent company of Dynagen). 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. In November 1994, the plaintiffs filed an
amended petition which substituted the Odessa branch of the NAACP as plaintiff
in place of the national and state chapters of the NAACP. The amended
complaint also added approximately 100 additional plaintiffs. Defendants are
challenging the NAACP's standing to participate in the lawsuit. At a hearing
in May 1996, the trial court announced that the lawsuit would be tried by
groups of plaintiffs with the first group of 65 plaintiffs set for trial in May
1997. The trial court allowed plaintiffs' counsel to designate ten plaintiffs
for the first trial, and the trial court selected the remaining 55 at random.
Pretrial discovery is ongoing.
Shareholder Litigation
On July 23, 1996, the Company was served with a purported stockholder class
action lawsuit as filed in the Chancery Court of the State of Delaware, in and
for New Castle County, arising from the Company's rejection of an unsolicited
offer from Huntsman Corporation ("Huntsman") to purchase all of the issued and
outstanding shares of common stock of the Company for $14.00 per share. The
lawsuit names the Company and each of its directors as defendants. The
complaint alleges that the defendant directors breached their fiduciary duty to
stockholders by refusing to attempt in good faith to maximize stockholder value
in the sale of the Company and engaging in a plan to thwart and reject offers
from third parties including Huntsman in order to entrench management.
Plaintiff seeks certification of the lawsuit as a class action, an order
requiring defendants to take various actions including exposing the Company to
the market place in an effort to create an auction of the Company and an
unspecified amount of damages. The Company is also aware of two other similar
lawsuits that are also pending in the Chancery Court. Although the Company
believes that its conduct and the conduct of its directors was appropriate and
intends to defend this and other lawsuits vigorously, there can be no assurance
of the final resolution of any of these matters.
ITEM 5. OTHER INFORMATION
On July 17, 1996, the Company received an unsolicited proposal from Huntsman to
purchase all of the issued and outstanding shares of common stock of the Company
for $14.00 per share in a merger transaction. On July 22, 1996, the Company's
Board of Directors rejected the proposal. On August 1, 1996, the Company
received a revised unsolicited proposal from Huntsman for $15.00 per share. The
Company's Board of Directors rejected this second proposal and so notified
Huntsman on August 5, 1996. Attached hereto as exhibits 99.1, 99.2 and 99.3 are
copies of the press releases and letter to stockholders issued by the Company
setting forth the reasons for the Board's rejection of the Huntsman proposals.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.6.1 - Amendment to Rexene Corporation Supplemental Executive
Retirement Plan, dated as of June 11, 1996.
10.6.2 - Amendment No. 2 to Rexene Corporation Supplemental
Executive Retirement Plan, dated as of June 26, 1996.
10.8.2 - Form of Letter Agreement between Rexene Corporation
and each member of its Executive Management Team.
10.15.4 - Money Market Grid Promissory Note, dated August 5,
1996, payable to the order of the Bank of Nova Scotia.
99.1 - Press Release, dated July 22, 1996, announcing
rejection of Huntsman unsolicited takeover bid.
99.2 - Letter to Shareholders, dated July 25, 1996.
99.3 - Press Release, dated August 5, 1996, announcing
rejection of second unsolicited Huntsman proposal.
9
<PAGE> 12
(b) Reports Submitted on Form 8-K:
None.
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
Registrant
Date: August 8, 1996 By: /s/ Geff Perera
-------------------------
Geff Perera
Executive Vice President and
Chief Financial Officer
10
<PAGE> 13
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
10.6.1 Amendment to Rexene Corporation Supplemental Executive
Retirement Plan, dated as of June 11, 1996.
10.6.2 Amendment No. 2 to Rexene Corporation Supplemental
Executive Retirement Plan, dated as of June 26, 1996.
10.8.2 Form of Letter Agreement between Rexene Corporation
and each member of its Executive Management Team.
10.15.4 Money Market Grid Promissory Note, dated August 5,
1996, payable to the order of the Bank of Nova Scotia.
99.1 Press Release, dated July 22, 1996, announcing
rejection of Huntsman unsolicited takeover bid.
99.2 Letter to Shareholders, dated July 25, 1996.
99.3 Press Release, dated August 5, 1996, announcing
rejection of second unsolicited Huntsman proposal.
</TABLE>
<PAGE> 1
EXHIBIT 10.6.1
CERTIFICATE OF SECRETARY
I, Bernard J. McNamee, hereby certify that I am the duly elected,
qualified and acting Secretary of Rexene Corporation, a Delaware corporation
(hereinafter referred to as the "Corporation"), that the following is a true
and correct copy of the resolutions adopted by the Board of Directors of the
Corporation at a meeting of said Board of Directors held on June 11, 1996, and
that said resolutions remain in full force and effect and have not been
modified, amended or rescinded:
RESOLVED, that effective June 1, 1996, the Rexene Corporation
Supplemental Executive Retirement Plan (the "Plan") is amended by the
addition of a new Section 6.2 to the Plan to read as follows:
6.2 Special Lump Sum in Lieu of Pension: Notwithstanding
the provisions of Section 6.1, any Participant whose employment
terminates during the second quarter of 1996 with fewer that two (2)
years of service will not be eligible to receive the Joint and Fifty
Percent (50%) Survivor Pension provided for in Section 6.1, but will
be paid a lump sum distribution within forty-five (45) days after
termination of employment. For purposes of determining such lump sum
present value: (i) the interest rate used shall be 6.05%, and (ii) the
mortality assumptions shall be taken from the 1983 Group Annuity
Mortality Table.
FURTHER RESOLVED, that any executive officer of the
Corporation shall be and is hereby authorized to execute an amendment
to the Plan and to do all other acts and things necessary and proper
to carry out the intent of the foregoing resolution.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the
corporate seal of the Corporation this 17th day of June, 1996.
/s/ Bernard J. McNamee
---------------------------------
Bernard J. McNamee, Secretary
<PAGE> 1
EXHIBIT 10.6.2
AMENDMENT NO. 2 TO THE
REXENE CORPORATION SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
Pursuant to the provisions of Section 9.1 thereof, the Rexene
Corporation Supplemental Executive Retirement Plan (the "Plan") is hereby
amended in the following respects only:
FIRST: Subsection 1.2(d)(v) of the Plan is hereby amended by
restatement in its entirety to read as follows:
(v) material failure to follow or comply with the
reasonable and lawful directives of the Continuing Directors (as
defined below) or the written policies of the Employer.
SECOND: Subsection 1.2(e)(ii) of the Plan is hereby amended by
restatement in its entirety to read as follows:
(ii) any person or group of persons (as defined in
Rule 13d-5 under the Securities Exchange Act of 1934), together with
its affiliates, becomes the beneficial owner, directly or indirectly,
of 15% or more of Rexene's then outstanding common stock or 15% or
more of the voting power of Rexene's then outstanding securities
entitled generally to vote for the election of Directors;
THIRD: Subsection 1.2(i) of the Plan is hereby deleted in its
entirety.
FOURTH: Subsection 5.3(b) of the Plan is hereby amended by
restatement in its entirety to read as follows:
(b) effective on and after the date of a Change in
Control, for purposes of Section 3.2, the Credited Service of a
Participant who is an Employee as of the date of such Change in
Control and who has not yet attained his Normal Retirement Date
<PAGE> 2
shall be equal to the Credited Service such Participant would have if
he remained an Employee eligible to participate in the Plan until his
Normal Retirement Date.
FIFTH: The third sentence of Section 9.1 of the Plan is hereby
amended by restatement in its entirety to read as follows:
Any provision of this Plan to the contrary notwithstanding: (i) no
amendment to or termination of this Plan shall reduce or eliminate the
Employer's obligation for the payment of benefits accrued under this
Plan as of the date of such amendment or termination, without the
consent of the affected Participant; and (ii) effective upon a Change
in Control, this Plan may not be terminated or amended in any manner
for a period of two years following such Change in Control without the
written consent of a majority of the Participants, provided however
that no such amendment or termination shall be effective with respect
to a Participant without the written consent of such Participant (or
his beneficiary with respect to a deceased Participant) if such
amendment or termination adversely affects the rights of such
Participant (or his beneficiary with respect to a deceased
Participant) with respect to his benefit hereunder.
IN WITNESS WHEREOF, this Amendment has been executed this 26th day of
July, 1996 to be effective immediately.
REXENE CORPORATION
By /s/ Bernard J. McNamee
----------------------------------
Title: Executive Vice President
2
<PAGE> 1
EXHIBIT 10.8.2
December 15, 1995
[See Schedule A]
- --------------------
- --------------------
Rexene Corporation
5005 LBJ Freeway, Suite 500
Dallas, Texas 75244
Dear _____:
This letter shall serve as an agreement between Rexene Corporation
("Rexene") and you regarding the payment of certain severance compensation in
various termination situations, all as described below:
1. If Rexene terminates your employment without cause,
then Rexene shall pay you within ten business days of such termination
severance compensation equal to one year of your then current base
salary.
2. If your employment is terminated without cause after
a change of control in Rexene, or if you voluntarily resign your
employment after such a change in control because as a condition to
continued employment with Rexene or any successor to either Rexene or
any or part of its business or assets (a "Successor"), you are
required to (i) relocate outside the continental United States, (ii)
relocate within the continental United States without relocation
assistance at least equal that provided under the Rexene relocation
policy then in effect, (iii) accept a reduction in your base salary,
or (iv) accept a position of lesser responsibility or authority than
you had prior to the change in control, then Rexene shall pay or cause
a Successor to pay you within ten business days after the effective
date of such termination or voluntary resignation severance
compensation equal to three times your then current annual base salary
less one dollar. Such payment shall be in lieu of and not in addition
to the severance compensation set forth in the preceding paragraph.
3. If you voluntarily resign your employment after a
change in control because as a condition to continued employment with
Rexene or any Successor, you are required to relocate within the
continental United States even though you are offered relocation
assistance at least equal that provided under the Rexene relocation
policy then in effect, then Rexene shall pay or cause a Successor to
pay you within ten business days after the effective date of voluntary
resignation severance compensation equal to one and one-half (1.5)
times your then current annual base salary. Such payment shall be in
lieu of and not in addition to the severance compensation set forth in
paragraph 1 above.
For purposes of this letter agreement, the terms "termination without
cause," "cause" and "change of control in Rexene" shall be defined as set forth
in Exhibit A which is attached hereto and incorporated herein.
<PAGE> 2
- --------------------
December 15, 1995
Page 2
The payment of severance compensation under this letter agreement
would be conditional upon your executing and delivering to Rexene or a
Successor its then standard form settlement agreement and general release.
THIS LETTER AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF
TEXAS.
If any provision of this letter agreement is found to be illegal,
invalid or unenforceable, then such provision shall be replaced if possible by
a substitute provision as close thereto as is legal, valid and enforceable, and
in any event, the remaining provisions of this letter agreement shall not
terminate but shall be considered to continue in full force and effect.
This letter agreement constitutes the entire agreement between Rexene
and you with respect to the subject matter hereof, and it supersedes all prior
or contemporaneous negotiations, understandings and agreements, written or
oral, between us. This letter agreement may not be modified or amended or any
provision hereof waived except pursuant to a written document duly signed by
both Rexene and you.
If the foregoing is acceptable to you, please sign this letter below
and return to me. A duplicate original is enclosed for your records.
Very truly yours,
REXENE CORPORATION
By:
----------------------------
AGREED TO AND ACCEPTED:
- ------------------------------
<PAGE> 3
EXHIBIT A
to
Letter Agreement Dated December 15, 1995
Between
Rexene Corporation and
1. Cause. "Cause" shall mean any of the following:
(a) conduct involving moral turpitude or fraud,
regardless of the context, which conduct shall be conclusively
presumed if you are convicted of or enter a plea of nolo contendere or
similar plea as to a crime involving moral turpitude or fraud,
(b) repeated intoxication by alcohol or drugs during the
performance of your duties,
(c) malfeasance in the conduct of your duties, including
misuse or diversion of Rexene's funds, embezzlement or willful and
material misrepresentations or concealments on any reports submitted
to Rexene.
(d) repeated material failure by you to perform your
duties as an officer, or
(e) material failure to follow or comply with the
reasonable and lawful directives of the Board of Directors or the
written policies of Rexene.
2. Change of Control in Rexene. A "change of control in Rexene"
shall mean any one of the following:
(a) Continuing Directors no longer constitute at least
two-thirds of the Directors constituting the Board (the terms
"Continuing Directors," "Directors," and the "Board" being used as
defined below);
(b) any person or group of persons (as defined in Rule
13d-5 under the Securities Exchange Act of 1934), together with its
affiliates, becomes the beneficial owner, directly or indirectly, of
20% or more of Rexene's then outstanding common stock or 20% or more
of the voting power of Rexene's then outstanding securities entitled
generally to vote for the election of Directors;
(c) the occurrence of or the approval by Rexene's
stockholders of the merger or consolidation of Rexene with any other
corporation, the sale of any substantial portion of the assets of
Rexene or the liquidation or dissolution of Rexene unless, in the case
of a merger or consolidation, the Continuing Directors in office
immediately prior to such merger or consolidation will constitute at
least two-thirds of the directors constituting the board of directors
of the surviving corporation of such merger or consolidation and any
parent (as such term is defined in Rule 12b-2 under the Securities
Exchange Act of 1934) of such corporation; or
<PAGE> 4
(d) at least a majority of the Continuing Directors in
office immediately prior to any other action taken or proposed to be
taken by Rexene's stockholders or by the Board determines that such
action constitutes, or that such proposed action, if taken, would
constitute, a Change of Control of Rexene and such action is taken.
For the purposes of section 2 of this Exhibit, "Board" means the board
of directors of Rexene, "Director" means a member of the Board, and "Continuing
Director" means any person who is either (i) a Director on the date hereof, or
(ii) was designated as Continuing Director by a majority of the Continuing
Directors.
3. Termination Without Cause. "Termination without cause" means
any involuntary separation for any reason except for a "cause" or a "change in
control in Rexene."
-2-
<PAGE> 5
SCHEDULE A
Andrew J. Smith
Lavon N. Anderson
Geff Perera
Jack E. Knott
Jonathan R. Wheeler
James M. Ruberto
Bernard J. McNamee
-3-
<PAGE> 1
EXHIBIT 10.15.4
MONEY MARKET GRID PROMISSORY NOTE
(Schedule Attached)
Dated: August 5, 1996
FOR VALUE RECEIVED, Rexene Corporation (the "Borrower") does hereby
unconditionally promise to pay upon maturity to The Bank of Nova Scotia (the
"Bank"), any successor or assign, the principal sum of TEN MILLION UNITED
STATES DOLLARS ($10,000,000 U.S.) or such lesser amount as may be outstanding
hereunder as advances from time to time as shown in the schedule attached
hereto. The principal amount of each loan evidenced hereby shall be paid on the
maturity date therefor specified in the schedule attached hereto. The Company
promises to pay interest on the unpaid principal amount of each loan, from the
date of such loan until the principal amount thereof is paid in full, at the
interest rate per annum applicable thereto, as specified in the schedule
attached hereto.
At the Bank's discretion, advances may be obtained hereunder, upon telephonic
or written communication of a duly authorized officer or representative of
Borrower who previously shall have been designated in writing to lender for
interest periods up to thirty days, such interest periods to be selected by the
Borrower on same business days' notice to the Bank. The Bank agrees to provide
the Borrower written confirmation of any loans hereunder. After maturity,
interest on the unpaid principal of any advance shall be calculated at 1% per
annum above the Bank's Base Rate New York (being a variable per annum reference
rate of interest announced and adjusted by the Bank from time to time for loans
made in the United States). All interest hereunder shall be calculated on the
basis of a 360-day year for the actual number of days elapsed and payable at
maturity.
The date, amount, interest period, maturity date, interest rate and repayment
of each advance will be recorded by the Bank on the grid schedule attached
hereto and such notations will constitute prima facie evidence of the existence
and amounts of the obligation of the Borrower, absent any manifest error and
provided that the failure of the Bank to complete the grid schedule hereto from
time to time shall not affect the obligation of the Borrower hereunder.
The Borrower will compensate the Bank on demand for any reasonable costs or
actual losses suffered due to an early termination of an interest period by the
Borrower, new or increased taxes (other than taxes on the Bank's general
income) or reserve costs in compliance by the Bank with any law, regulation or
guideline of or any interpretation or change thereof by any government, agency,
court of other administrative authority, whether or not the same has force of
law, or any other reason other than the gross negligence or wilful misconduct
of the Bank.
In addition, the Borrower agrees upon default to pay all reasonable costs of
collection, including reasonable legal fees actually incurred by the Bank.
The Bank may sell or grant participation in the Note without giving notice to
the Borrower, provided the Bank agrees that it and the parties which
participate in the Note will comply with all applicable state and federal
securities laws. Furthermore, the participant agrees to be bound by the
confidentiality provisions agreed to by the Bank.
All amounts owing hereunder are payable to the New York Agency of The Bank of
Nova Scotia, 1 Liberty Plaza, New York, New York, through the Fed Wire in
Federal Funds using ABA #026002532 for the account of The Bank of Nova Scotia,
or in such other manner as the holder hereof may direct the Borrower in
writing.
This Note shall be governed by and construed in accordance with the laws of the
state of New York. Presentment, demand, protest and notice of dishonor and
non-payment are hereby waived by the undersigned.
REXENE CORPORATION
By: /s/ GEFF PERERA
------------------------------------
Title: Executive Vice President
and Chief Financial Officer
<PAGE> 2
REXENE CORPORATION
GRID SCHEDULE TO PROMISSORY NOTE
Dated August 5, 1996
Date of Amount Amount
Advance/ of of Security Interst Interest
Payment Advance Payment Date Period Date
- ------- ------- ------- -------- ------- --------
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,814
<SECURITIES> 0
<RECEIVABLES> 86,147
<ALLOWANCES> 3,642
<INVENTORY> 63,899
<CURRENT-ASSETS> 154,228
<PP&E> 389,016
<DEPRECIATION> 66,544
<TOTAL-ASSETS> 518,040
<CURRENT-LIABILITIES> 55,894
<BONDS> 190,000
<COMMON> 188
0
0
<OTHER-SE> 152,478
<TOTAL-LIABILITY-AND-EQUITY> 518,040
<SALES> 286,149
<TOTAL-REVENUES> 286,149
<CGS> 230,518
<TOTAL-COSTS> 230,518
<OTHER-EXPENSES> 25,957
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,550
<INCOME-PRETAX> 22,248
<INCOME-TAX> 8,286
<INCOME-CONTINUING> 13,962
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,962,
<EPS-PRIMARY> 0.73
<EPS-DILUTED> 0.73
</TABLE>
<PAGE> 1
EXHIBIT 99.1
[REXENE CORPORATION LOGO]
CONTACT: Neil J. Devroy
214-450-9101
REXENE REJECTS HUNTSMAN UNSOLICITED TAKEOVER BID
Dallas, TX -- July 22, 1996 -- Rexene Corporation (NYSE: RXN) announced
today that its Board of Directors unanimously has determined to reject an
unsolicited acquisition proposal by Huntsman as not being in the best interest
of Rexene and its shareholders.
Andrew Smith, Rexene's Chairman and Chief Executive Officer, said that
the Board considered a wide range of factors, including the historical and
present market valuation of the Company's common stock, the present condition
of the commodity chemical industry and the Company's future prospects in
reaching its conclusions. "The Board has determined that this is not a
propitious time to engage in this type of a transaction," said Mr. Smith.
"Huntsman's proposal appears to represent a unilateral attempt to acquire
Rexene in a transaction that is harmful to the best interest of Rexene's
shareholders and customers and that only benefits Huntsman.
-more-
<PAGE> 2
"The Company's financial performance has not yet begun to reflect the
substantial benefits expected from our capital expenditure program and we
believe the Company and its shareholders will be far better served by
continuing our current strategic plan to create shareholder value as an
independent public company" Mr. Smith said. "We believe that implementing our
long-term strategic plan beginning with the introduction of REXflex(R)
polymers in the fourth quarter this year and culminating with the start-up
in 1998 of the first 'compact process' linear low density polyethylene plant in
the United States will realize a far greater financial return to our
shareholders than the Huntsman offer."
The Board's decision followed a meeting at which the directors received
and considered a report by the Company's financial advisor, Schroder Wertheim.
Rexene Corporation, through its Rexene Products and CT Film divisions,
manufactures thermoplastic resins and plastic film. Headquartered in Dallas,
Texas, the Company has manufacturing facilities in Texas, Wisconsin, Georgia,
Delaware, Utah and in England.
XXX
<PAGE> 1
EXHIBIT 99.2
[REXENE LETTERHEAD]
July 25, 1996
Dear Fellow Shareholder:
Your company is in the process of implementing a strategic plan designed to
build and deliver greater value for you, its owners. As we have reported
previously to you, we are committed to maximizing shareholder value by focusing
existing assets on the higher margin niches of the markets in which we compete,
widening the range of polymer and film products Rexene can offer to existing
and new customers and lowering production costs. More specifically, we have:
o Continued to refocus our existing polyethylene, polypropylene, and
plastic film businesses on global opportunities to take advantage of
expanded and improved production capabilities.
o Expanded our propylene derivatives businesses with the doubling of our
REXTAC(R) polymers capacity to 60 million pounds and the construction of
our new 60-75 million pound REXflex(R) polymer plant scheduled to begin
production by the end of the year.
o Begun a modernization and improvement program that is expected to
expand ethylene production capacity by approximately 360 million
pounds/year and reduce production costs by an estimated $25 million per
year, by 1998.
o Entered into a licensing agreement with DSM/Stamicarbon to become the
first U.S. producer of 'compact process' linear low density polyethylene
(LLDPE). We will be building a new 220 million pounds/year LLDPE
production plant which is scheduled for completion in 1998.
o Signed a letter of intent with MAPCO Natural Gas Liquids to expand our
existing fractionation capacity to 80,000 barrels/day from 25,000
barrels/day. This will enhance our ability to secure a long-term
economical supply of feedstocks.
Now, just as the Company is on the verge of reaping the rewards of these
investments, the Huntsman Corporation has made a proposal to acquire your
company for $14 a share, our trading price on March 18 of this year. YOUR BOARD
OF DIRECTORS, COMMITTED TO ACT IN YOUR BEST INTEREST AND WITH INTIMATE
KNOWLEDGE OF OUR STRATEGIC PLAN AND ITS EXPECTED FINANCIAL RETURNS TO YOU, HAS
DETERMINED THAT THIS PROPOSAL IS NOT IN YOUR BEST INTEREST AND THAT THIS IS NOT
THE TIME TO ENGAGE IN THIS KIND OF TRANSACTION.
<PAGE> 2
YOU SHOULD KNOW THAT JUST THIS YEAR ALONE OUR STOCK HAS TRADED AT PRICES
GREATER THAN THE PRICE OFFERED BY MR. HUNTSMAN. IN RECENT MONTHS, OUR STOCK
PRICE REACTED TO THE INITIAL CAPITAL COSTS ASSOCIATED WITH THE SIGNIFICANT
INVESTMENTS WE HAVE MADE AND TO THE DOWNTURN IN THE COMMODITY CHEMICAL PRICE
CYCLE. While we obviously cannot predict the market, we believe that our
investments, together with positive changes in the pricing environment, should
result in an improving stock price within a reasonable period of time.
The Huntsman Corporation has a fine record in our industry - but do not be
misled: its management has built the company largely by buying assets at
bargain prices at the bottom of the chemical cycle. Mr. Huntsman's obligation,
as Chairman of a private, family-owned company, is to his family, not to you.
The Huntsman Corporation has every incentive to try to buy Rexene as
inexpensively as possible. Your Board has the incentive and legal obligation to
protect and serve your best interests.
YOUR BOARD OF DIRECTORS AND MANAGEMENT WILL CONTINUE TO ACT IN THE INTERESTS
OF ALL REXENE SHAREHOLDERS AND TAKE ALL NECESSARY STEPS TO PROTECT THAT
INTEREST. We are focused on making Rexene one of the strongest industry
competitors and on assuring that you, our shareholders, receive full value for
your investment in Rexene.
Sincerely,
/s/ ANDREW J. SMITH
- ----------------------------------
Andrew J. Smith
<PAGE> 1
EXHIBIT 99.3
[REXENE LOGO]
CONTACT: Neil J. Devroy
(214) 450-9101
REXENE REJECTS SECOND UNSOLICITED HUNTSMAN PROPOSAL
Dallas, TX -- August 5, 1996 -- Rexene Corporation (NYSE: RXN) announced today
that its Board of Directors has reviewed Huntsman Corporation's unsolicited
proposal to acquire all the outstanding common stock of Rexene for $15 per share
and unanimously rejected it as not in the best interest of the company's
stockholders.
Andrew J. Smith, Chairman and CEO for Rexene Corporation, said, "After a
thorough evaluation with the assistance of our financial advisors, the Board
firmly believes that we will generate increased value to our stockholders by
continuing to expand and strengthen our business -- largely by focusing our
flexible manufacturing capabilities on meeting our customers' specific needs.
Our strategic investment program, which is adding approximately 350 million
pounds of annual capacity through 1998, is targeted to achieve profitable growth
for our specialty businesses by providing a broader range of material solutions
for our customers.
<PAGE> 2
"We believe that this additional capacity, coupled with our ongoing actions to
expand our global market opportunities, reduce our manufacturing costs and
improve margins, will yield significantly enhanced stockholder value," Mr.
Smith said. "Indeed, Rexene's earnings increased 15 percent for the second
quarter of 1996 compared with the first quarter. This improvement reflected the
realization of price increases in our largest business, polyethylene. An
additional price increase has been announced for polyethylene for September 1,
as well as price increases in our polypropylene and film businesses.
"We intend to continue to devote our full energies and attention to making
Rexene one of the strongest competitors in our industry and ensuring that our
stockholders receive full value for their investment in Rexene," Mr. Smith said.
Rexene Corporation, through its Rexene Products and CT Film divisions,
manufactures thermoplastic resins and plastic film. Headquartered in Dallas,
Texas, the Company has manufacturing facilities in Texas, Wisconsin, Georgia,
Delaware, Utah and England.
