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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-K
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(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 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)
(972) 450-9000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
- ----------------------------- ----------------------------
Common Stock, $0.01 par value New York Stock Exchange
Common Stock Purchase Rights New York Stock Exchange
11 3/4% Senior Notes due 2004 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
TITLE OF CLASS
--------------
None
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
The aggregate market value of the 17,511,191 shares of common stock held
by non-affiliates of the Registrant was $238,589,977 as of March 14, 1997.
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
---- ----
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date.
NUMBER OF SHARES
OUTSTANDING AT
TITLE OF EACH CLASS MARCH 14, 1997
----------------------------- ------------------------------
Common Stock, $0.01 par value 18,819,702
DOCUMENTS INCORPORATED BY REFERENCE
None.
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REXENE CORPORATION
1996 ANNUAL REPORT ON FORM 10-K
PART I
ITEM 1. BUSINESS
INTRODUCTION
The Company is the result of a combination of three businesses operated by
predecessor entities. In 1958, a subsidiary of The El Paso Company ("El Paso")
constructed a styrene plant in Odessa, Texas. In 1960, El Paso and a
predecessor of Dart Industries Inc. ("Dart") formed a joint venture to produce
ethylene, propylene, polyethylene and polypropylene in Odessa, Texas. El Paso
subsequently acquired the plastic film business of Dart in 1979 and full
ownership of these businesses by 1983. In 1983, El Paso sold its petrochemical,
polyolefin and plastic film business to a management-led group of investors,
who consolidated the businesses under a Delaware corporation named Rexene
Corporation ("Old Rexene"). In 1988, Old Rexene was sold to an investor group
organized by an investment banking firm.
In October 1991, Old Rexene filed a petition for reorganization under the
federal bankruptcy laws. On September 18, 1992, Old Rexene emerged from
bankruptcy in accordance with a plan of reorganization providing for the merger
of Old Rexene into its wholly-owned operating subsidiary, Rexene Products
Company ("Products"), a Delaware corporation, which subsequently changed its
name to Rexene Corporation (the "Reorganization"). Unless otherwise indicated,
Old Rexene, Products and Rexene Corporation and their consolidated subsidiaries
are sometimes collectively or separately referred to as "Rexene" or the
"Company".
The corporate headquarters of the Company are located at 5005 LBJ Freeway,
Dallas, Texas 75244, and its telephone number is 972-450-9000.
RECENT DEVELOPMENTS
On July 18, 1996, the Company received an unsolicited proposal from
Huntsman Corporation ("Huntsman") to acquire the outstanding shares of Common
Stock of the Company for $14 per share in a merger transaction, subject to
financing and due diligence. Huntsman subsequently made two revised proposals,
the second of which provided for the acquisition of the outstanding shares of
Common Stock of the Company for $16 per share. After carefully considering
Huntsman's proposals, the Company's Board of Directors determined that none of
the proposals were in the best interests of the Company and its stockholders.
As a result of the Board of Directors' decision to reject the Huntsman
proposals, on January 21, 1997, a group including Wyser-Pratte & Co. Inc. and
Spear, Leeds & Kellogg (the "Dissident Stockholders") commenced a solicitation
of the Company's stockholders in an effort to call a special meeting of the
stockholders of the Company to consider, among other things, the removal and
replacement of the Company's Board of Directors and the amendment of the
Company's bylaws. On February 14, 1997, the Dissident Stockholders announced
receipt of a sufficient number of agent designations to call a special meeting
of the stockholders, which the Board of Directors of the Company has called for
April 30, 1997 (the "Special Meeting").
On March 19, 1997, the Board of Directors elected Stephen C. Swid and
Richard C. Perry as additional members of the Company's Board of Directors. For
information concerning Mr. Swid and Mr. Perry, see "Item 10 -- Directors and
Executive Officers of the Registrant" and "Item 12 -- Security Ownership of
Certain Beneficial Owners and Management." In addition, on March 19, 1997,
Arthur L. Goeschel resigned as a director of the Company.
The Company's Board of Directors also approved a share repurchase program
(the "Share Repurchase Program") of up to $85 million of the Company's Common
Stock. Initial repurchases under the Share Repurchase Program will be funded
through $35 million in borrowings under the Company's New Credit Agreement (as
hereinafter defined). The Company is anticipating funding the remaining $50
million part of the Share Repurchase
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Program through a private placement of its preferred stock (the "Preferred
Stock"). The Company plans to submit the remaining $50 million part of the Share
Repurchase Program for stockholder consideration at the Special Meeting. The
Company intends to purchase shares in open-market transactions from time to time
in the first part of the Share Repurchase Program, at prevailing market prices.
Repurchased shares will be held in the Company's treasury and may be used for
general corporate purposes.
PRINCIPAL PRODUCTS
The Company manufactures and markets a wide variety of products through
its two operating divisions, Rexene Products Company division ("Rexene
Products") and the CT Film 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 sold to a diverse customer
base and are used in a wide variety of industrial and consumer-related
applications. The Company's principal products are polyethylene, polypropylene,
REXtac(R) amorphous polyalphaolefin ("APAO") and REXflex(R) flexible polyolefin
("FPO") polymers, styrene and plastic film. In addition, the Company
manufactures, primarily for its own consumption, ethylene and propylene, the
two basic chemical building blocks of the Company's principal products. The
Company manufactures polymers and petrochemicals at an integrated facility in
Odessa, Texas (the "Odessa Facility") which is located near supplies of most of
its feedstocks and plastic film at five plants located in the United States and
England.
In December 1996, the Company completed construction of its new FPO plant
at the Odessa Facility and commenced commercial production of REXflex FPO, a
flexible polyolefin produced by the Company using a proprietary process. The
Company, which is the only producer of FPO, has begun marketing REXflex FPO in
the medical, personal care, automotive and industrial markets. Because of its
flexibility and other performance characteristics, its applications include
medical bags and tubing, nonwovens, personal care products, automotive interior
uses, industrial sheeting, film and insulation.
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Plastic film, polyethylene, polypropylene, APAO, FPO and styrene are used
by the Company's customers in different industrial processes to manufacture
many diverse finished goods. These principal end market products are set forth
below:
REXENE Products and Production Facilities*
[CHARTS]
The following chart presents the net sales, excluding intercompany sales,
contributed by the Company's products for the years ended December 31 (in
thousands):
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Polyethylene ................ $162,923 $167,873 $145,362
Polypropylene ............... 87,260 90,568 77,544
REXtac APAO ................. 26,637 24,217 18,571
Styrene ..................... 89,647 120,084 89,818
Plastic film ................ 152,423 170,525 172,618
Other ....................... 68,871 41,971 34,044
-------- -------- --------
$587,761 $615,238 $537,957
======== ======== ========
</TABLE>
No customer accounted for more than 10% of the Company's net sales for
the years ended December 31, 1996, 1995 or 1994.
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POLYETHYLENE
The Product
Polyethylene represents by volume the most widely produced thermoplastic
resin in the world. The majority of polyethylene produced in the United States
is low density polyethylene ("LDPE") resin. In 1996, approximately 52% of LDPE
capacity in the United States was used to make high pressure low density
polyethylene ("HPLDPE") resin and the balance to make linear low density
polyethylene ("LLDPE"). The Company currently only participates in the HPLDPE
market, but intends to participate in the LLDPE market commencing in the fourth
quarter of 1998 with the completion of the construction of the LLDPE plant at
the Odessa Facility. See "-- Product Development" below.
The Company produces a variety of grades of HPLDPE. Many of these resins
are designed to meet specific customer requirements. Examples of the Company's
differentiated polyethylene resins are ethylene-vinyl acetate copolymer resins
used in film applications that require high clarity, toughness and sealability,
and specialty low-gel resins used in computer circuit board production. The
Company focuses on providing polymer solutions to specific customer needs.
Marketing
The Company participates in every principal market for HPLDPE resin,
selling its HPLDPE resins under the REXENE(R) trademark. Prime grade products
are sold domestically and in Canada directly to customers primarily through the
Company's sales staff. Most wide specification products are sold to dealers for
resale. Export sales, other than to Canada, are made directly and through
trading companies and agents.
Competition
There are currently 16 domestic producers of LDPE resins, some of which
produce both HPLDPE and LLDPE. In 1996, these producers had an estimated
combined, rated annual production capacity of approximately 15.7 billion
pounds. The largest manufacturer of LDPE is Millennium Petrochemicals, Inc. In
1996, the other five largest domestic producers of LDPE were Dow Chemical
Company, Union Carbide Corporation, Chevron Chemical Company, Exxon Chemical
Company and Mobil Chemical Company. In 1996, Rexene accounted for approximately
3% of the United States capacity for LDPE and approximately 5% of the United
States capacity for HPLDPE. Competition for sales is generally based on price
for less specialized products and on product performance, customer service and,
to a lesser extent, price for more specialized products. The Company competes
in the polyethylene market by providing a high level of technical support and
customer service and developing resins which are responsive to customers'
specific requirements.
POLYPROPYLENE
The Product
The Company currently produces a wide variety of polypropylene resin
grades. These include high purity homopolymers and random and impact copolymers
with properties specifically tailored for specialty markets and specific
customer needs. The Company emphasizes the manufacturing of polypropylene
resins for specialty segments of the polypropylene market such as medical,
electrical and automotive applications. The Company is one of only two domestic
producers of a super clean grade of polypropylene utilized for medical
applications, electrical capacitor film and electronics packaging. The
Company's line of impact copolymer polypropylene products is used primarily for
automotive components and other durable goods. Other products include radiation
resistant resins for medical applications requiring radiation sterilization,
specialty coating resins, high clarity products and thermoforming grades for
medical and ophthalmic uses. The Company has been active in making process
technology improvements and works closely with customers in developing new
products to meet their specific needs.
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Marketing
The Company sells its polypropylene products under the REXENE(R)
trademark. Domestic and Canadian sales of products are sold primarily through
the Company's sales staff. Most wide-specification products are sold to brokers
for resale. Export sales, other than to Canada, are made directly and through
trading companies.
Competition
In 1996, there were 14 domestic producers of polypropylene in the United
States. The industry's estimated combined, rated annual production capacity was
approximately 11.9 billion pounds in 1996. In 1996, the four largest domestic
producers of polypropylene were Montell U.S.A., Inc., Amoco Chemicals
Corporation, Fina, Inc. and Exxon Chemical Company. Competition for sales is
dependent upon a variety of factors, including product price, technical support
and customer service, and the degree of specialization of various grades of
polypropylene. General purpose polypropylene ordinarily competes principally on
the basis of price, while more differentiated polypropylene competes
principally on the basis of product quality, performance specifications and, to
a lesser extent, price. In 1996, Rexene accounted for approximately 2% of
United States production capacity for polypropylene. The Company competes in
the polypropylene market by providing a high level of technical support and
customer service focused on niche markets with specialty products.
REXTAC(R) APAO
The Product
The Company is one of only two United States on-purpose producers of APAO.
APAO is a special purpose, high quality polymer used primarily in the
production of adhesives and sealants, modified bitumen roofing materials,
lamination, wire and cable. These applications include hot melt adhesives for
nonwovens, packaging, pressure sensitive and assembly applications and as a
modifier of other polymers. Rexene is the only domestic producer of butene
copolymer APAO, a high value product used in hot melt adhesive applications.
Marketing
The Company sells APAO under the REXtac trademark. REXtac APAO is sold
domestically and internationally through the Company's sales staff, including a
specialized group that is dedicated to the product line. From time to time, the
Company has supplemented its sales of REXtac APAO with purchases from Ube
Rexene Corporation ("URC"), a former joint venture company located in Japan. In
1996, purchases from URC were approximately 140,000 pounds.
Competition
The Company and Eastman Chemical Company are currently the only domestic
on-purpose producers of APAO. In addition, a few producers of polypropylene
also produce atactic polypropylene ("APP"), which competes with APAO for some
less performance driven uses. Based on management estimates, in 1996, Rexene
accounted for approximately 36% of the United States capacity for APAO and APP.
The Company competes by providing a high level of customer service and
developing products that are responsive to customers' specific requirements.
REXFLEX(R) FPO
The Product
Using proprietary technology, the Company is the only producer of FPO.
REXflex FPO is a homogenous, reactorproduced flexible polypropylene resin,
produced in a process that controls the crystallinity of the various grades.
The Company produces a variety of grades of both homopolymers and random
copolymers. REXflex FPO is designed for specific product applications,
including medical bags and containers, tubing, nonwoven personal care products,
automotive interior uses, industrial sheeting, film and insulation.
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Marketing
FPO is marketed under the REXflex trademark generally and to the
automotive industry as REXENE REXflex FPO. Domestic and Canadian sales are
transacted primarily through the Company's polymer sales staff, while other
export sales are made either directly or through trained agents. The Company
intends to continue to make most sales through its existing sales force in
order to maximize synergies among the Company's range of polymers.
Competition
REXflex FPO competes with a variety of specialized or engineering grades
of polymers, including flexible polyvinyl chloride (PVC), polyurethane and
various polyolefins. REXflex FPO will compete with these and other polymers on
the basis of product performance, specifications and price. By mid 1997, the
Odessa Facility is expected to have a total rated annual production capacity
for FPO of 75 million pounds.
STYRENE
The Product
Styrene is an intermediate commodity petrochemical made from ethylene and
benzene and used principally in the production of polystyrene,
acrylonitrile-butadiene-styrene resins, styrene-butadiene latex and rubbers,
and unsaturated polyester resins. Through these products, styrene can be found
in packaging and consumer products, including disposable cups and trays,
consumer electronics, automotive trim, tires and building materials such as
carpeting and insulation.
Marketing
The Company sells its styrene directly, using a dedicated petrochemical
sales team. In 1995 and 1996, the Company entered into several long-term
styrene contracts which it believes will reduce its exposure to future price
volatility. Export sales, on a contractual and spot basis, are handled directly
and through international trading companies.
Competition
In 1996, there were 10 domestic producers of styrene with an estimated
combined, rated annual production capacity of approximately 12.3 billion
pounds. More than 50% of this capacity is consumed internally by the styrene
producers for the production of derivatives such as polystyrene. In 1996, the
five largest domestic producers of styrene were Arco Chemical Company, Sterling
Chemicals, Inc., Chevron Chemical Company, Dow Chemical Company and Huntsman
Chemicals Corporation. Competition for sales is generally based on price.
PLASTIC FILM
The Product
The Company, through CT Film, is a major participant in specialty markets
for plastic films. Product applications for these films include disposable
diapers, feminine hygiene products, medical device packaging, tapes, maskants,
industrial packaging, laminations, unsupported overwraps, and greenhouse and
agricultural applications. CT Film's products are manufactured principally with
its own proprietary processes.
CT Film develops specialty formulations of films to meet customer
specifications for various highly specific and value added applications.
Examples include low gel films developed for photo-resistant applications,
MAXILENE(R) lamination films, thin gauge barrier films for feminine hygiene
products and medical applications. CT Film produces coextruded films for
forming webs, composite laminations, as well as elastomeric films for surgical
products.
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A general trend by disposable diaper manufacturers towards thinner diaper
backsheet materials reduced the volume of film products sold into this market
in 1995 and 1996. Since the disposable diaper market was the largest customer
segment in the film division, this trend significantly affected its sales
volumes and operating results in 1996 and 1995. However, CT Film is developing
a number of strategies intended to increase its sales and profits, including
developing a new generation of film products for the disposable diaper market,
broadening production capabilities, globalizing sales and marketing efforts and
developing new film products for the medical, packaging and agricultural
markets. In addition, CT Film is implementing targeted cost reductions.
Marketing
Domestically, CT Film ships film from its plants in Chippewa Falls,
Wisconsin, Clearfield, Utah, Dalton, Georgia, and Harrington, Delaware.
Internationally, plastic film is shipped from United States plants and CT
Film's European subsidiary, Rexene Corporation Limited, located in Scunthorpe,
England. The Company's customers include a number of Fortune 500 companies.
Products are sold primarily through the Company's plastic film sales and
marketing staff.
Competition
The United States film industry is highly fragmented, with over 450
producers ranging from a few large national producers, such as CT Film, to many
small, regional producers. CT Film's principal competitors include Tredegar
Industries, Exxon Chemical Company, Clopay Corporation, Blessings Company,
Huntsman Corporation, DuPont of Canada and Printpack Inc. The plastic film
business is based on custom formulations to meet customer needs. Competition is
based on the quality and properties of the film as well as price. CT Film seeks
to develop innovative products to meet customer needs and competes by
segmenting market niches and being responsive to customers' specific
requirements.
EXPORT SALES
The following chart summarizes revenues from export sales, and the
percentages of net sales represented by export sales, for the indicated years
ended December 31 (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- ------------
<S> <C> <C> <C>
Export sales......................................................... $ 54,138 $ 77,508 $ 52,382
Percentage of net sales.............................................. 9% 13% 10%
</TABLE>
Export sales decreased from 1995 to 1996 principally due to the decline in
the chemical market in the Far East for styrene and polymer products. The
majority of the Company's export sales were to foreign companies through agents
and international trading companies.
PRODUCT DEVELOPMENT
The Company continually seeks to enhance and expand its portfolio of
specialty polymers through sustained in-house research and development and
licensing arrangements. For example, in late 1995, the Company licensed LLDPE
and high density polyethylene technology from Stamicarbon, a licensing
subsidiary of DSM. When planned production commences in the fourth quarter of
1998, Rexene's LLDPE plant in Odessa, Texas will be the first North American
production facility to make LLDPE using the DSM "Compact(R)" process. This
process refers to the plant's small physical size, which is well suited to
efficiently produce a broad range of high quality products. The octene
copolymers produced by this process are consistent with the Company's strategy
of producing higher quality, value-added products. In addition, through its
sales and marketing staffs, the Company works to develop new, and modify
existing, products to address specific customer needs.
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The Company has spent between $7.1 million and $9.5 million per year for
research and development during each of the last three fiscal years and
anticipates spending approximately $9.3 million for research and development in
1997.
RAW MATERIALS FOR PRINCIPAL PRODUCTS
Principal raw materials purchased by the Company consist of ethane and
propane extracted from natural gas liquids ("NGL"), 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 upon the prices of natural gas and oil,
weather conditions affecting the demand for natural gas and other factors.
During 1996, feedstocks accounted for approximately 30% of the Company's total
cost of sales. As a result, the Company's ability to pass on increases in raw
material costs to customers has a significant impact on operating results. Low
industry inventory levels of crude oil, natural gas and NGL feedstocks and
unexpected supply disruptions caused feedstock prices to increase during the
first nine months of 1996. Feedstock prices for ethane and propane increased
significantly during the fourth quarter principally due to low inventory levels
and an increase in home heating demand caused by an unusually cold winter
pattern. Feedstock prices decreased midway in the first quarter of 1997.
The Odessa Facility obtains a combination of pure and mixed streams of NGL
from NGL pipelines and NGL extraction plants located in west Texas and uses
such streams to obtain ethane and propane feedstocks for the Company's olefins
plant. In 1996, the Odessa Facility consumed approximately 569 million and 498
million pounds of ethane and propane, respectively, and in 1995, the Odessa
Facility consumed ethane and propane of approximately 530 million and 511
million pounds, respectively. In 1996, the Company produced all of its ethylene
and 50% of its propylene requirements for the Odessa Facility. The feedstock
supplies available in Odessa are currently adequate for the Company's
requirements. The Company has storage capacity for an approximately fifteen-day
supply of feedstocks.
The Odessa Facility uses benzene and ethylene to produce styrene. In 1996,
substantially all of the Company's benzene purchases were under contracts from
Gulf Coast and Midwest producers at prevailing contract prices, with the balance
of its needs filled by purchases on the spot market.
The principal feedstocks for the Company's captive ethylene and propylene
production at the Odessa Facility are ethane and propane. Ethane and propane
prices are established in Mont Belvieu, Texas (Gulf Coast) according to
prevailing market conditions, but the Company is able to purchase NGL
containing ethane and propane in west Texas at prices discounted from the
prevailing reported average Mont Belvieu, Texas prices. These discounts reflect
a significant portion of the cost for the producers to transport NGL containing
ethane and propane to Mont Belvieu, Texas and to fractionate them into pure
ethane and propane. In 1996, the Company acquired all of the Odessa Facility's
requirements for ethane and propane under such arrangements.
CT Film raw materials consist principally of polyethylene resins and
additives. CT Film obtains its raw materials from a variety of sources
(including the Odessa Facility) and has been able to order these materials in
advance as its needs dictate. CT Film has adequate storage capabilities for its
raw materials.
EMPLOYEES AND LABOR RELATIONS
As of March 14, 1997, the Company employed approximately 1,320 persons,
including approximately 120 union employees at the CT Film facility in Chippewa
Falls, Wisconsin. The Company and the union are parties to a collective
bargaining agreement through March 2, 2000.
TRADEMARKS AND PATENTS
The Company is the owner of many United States and foreign patents and
uses trade secrets, including substantial know-how, which relate to its
polyethylene, polypropylene, REXtac APAO, REXflex FPO and plastic film
products. Although patents and trade secrets are important to the Company,
permitting it to retain ownership and use of its technological advances, the
Company does not believe that the loss of any patent would have a material
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adverse effect on its financial condition. The Company also uses the technology
of others under license agreements in certain of its manufacturing operations.
REXENE(R), REXtac(R) and REXflex(R) are important trademarks for the
Company's resins and are widely known among purchasers of these products. The
Company is the owner of other trademarks, including Maxilene(R), used on or in
connection with its products.
The Company has been sued by Phillips Petroleum Company for alleged
infringement of its crystalline and block co-polymer polypropylene patents. The
Company believes that, based upon its current knowledge of the facts of each
case, the Company has meritorious defenses to the claims made and intends to
defend each lawsuit vigorously. See "Item 3 -- Legal Proceedings."
ENVIRONMENTAL AND RELATED REGULATION
General
The Company, and the industry in which it competes, is subject to
extensive environmental laws and regulations and is also subject to other
federal, state and local laws and regulations regarding health and safety
matters. The Company believes that its business, operations and facilities
generally have been and are being operated in compliance in all material
respects with applicable environmental and health and safety laws and
regulations, many of which provide for substantial fines, criminal sanctions,
and in certain extreme circumstances, temporary or permanent plant closures for
violations. Nevertheless, from time to time, the Company has received notices
of alleged violations of certain environmental laws and has endeavored to
remedy such alleged violations promptly. The ongoing operations of chemical
manufacturing plants entail risks in these areas and there can be no assurance
that material costs or liabilities will not be incurred in the future.
In addition, future developments, such as increasingly strict requirements
of environmental and health and safety laws and regulations and enforcement
policies thereunder could bring into question the handling, manufacture,
storage, use, emission or disposal of substances or pollutants at the Company's
facilities. Changes to or reinterpretations of existing laws could materially
and adversely affect the Company's business and results of operations.
The Company's operating expenditures for environmental remediation,
compliance and waste disposal were approximately $7.6 million and $8.3 million
in 1996 and 1995, respectively. In 1996 and 1995, the Company also spent
approximately $1.4 million and $1.2 million, respectively, relating to
environmental capital expenditures. In 1997, the Company anticipates spending
approximately $8.4 million for environmental remediation, compliance and waste
disposal. Of that amount, expenditures relating to remediation are projected to
be approximately $2.3 million in 1997. For the foreseeable future, the Company
expects to incur approximately $2 million to $4 million per year in capital
spending to address the requirements of environmental laws. Additionally, the
Company expects to spend approximately $5.9 million in 1997 for the completion
of an alternative wastewater disposal facility. Annual amounts could vary
depending on a variety of factors, such as the control measures or remedial
technologies ultimately required and the time allowed to meet such
requirements.
The Company believes that, in light of its historical expenditures and
expected future results of operations, it will have adequate resources to
conduct its operations in compliance with currently applicable environmental,
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 that
are not currently contemplated. 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. The Company has approximately $18.4
million accrued in the December 31, 1996 balance sheet as a preliminary
estimate of its total potential environmental liability with respect to
investigating and remediating known and assessed site contamination. Extensive
environmental investigation of the groundwater, soils and solid waste
management has been conducted at the Odessa Facility. Risk assessments have
been completed for a number of these facilities and corrective measures have
been defined and conducted. Approval of certain waste management unit closures
required a public notice period that expired at the end of February 1997. The
Company
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has received approval to allow closure of five solid waste management
units, which will permit a reduction in the accrual for potential environmental
liability of approximately $9.0 million. The Company continually reviews its
estimates of potential environmental liabilities. 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 conditions will not be
significant to the Company.
The Company does not currently carry environmental impairment liability
insurance to protect it against such contingencies because the Company has
found such coverage available only at great cost and with broad exclusions.
Wastewater
The Company currently disposes of wastewater from the Odessa Facility
through injection wells operated under permits from the Texas Natural Resource
Conservation Commission ("TNRCC"). TNRCC has stated that it does not intend to
renew the permits after they expire in December 1997. Further, TNRCC may order
the Company to cease using one or more of the wells if certain periodic testing
results indicate that continued injection cannot be conducted safely. In order
to provide a long range, cost effective wastewater disposal solution, the
Company has entered into an agreement with the City of Odessa and the Gulf
Coast Waste Disposal Authority pursuant to which the latter will acquire,
modify and operate a publicly-owned treatment works ("POTW") to dispose of the
Company's and a portion of the City of Odessa's wastewater. The parties have
completed detailed engineering work and construction to modify the existing
municipal facility is in progress with a view to having the POTW operational by
September 1997. In total, the modification of the facility is expected to cost
approximately $8 million, including expenditures of $5.9 million during 1997.
Although no assurances can be given, the Company believes that it will be able
to use its existing wells until it develops this alternative wastewater
disposal system. However, if the Company is forced to cease using its injection
wells before the POTW is operational, such loss of capacity could have a
material adverse effect on the Company's financial condition, results of
operations or cash flows.
Solid Wastes
In March 1994, TNRCC granted the Company a permit to operate three
hazardous waste management units at the Odessa Facility as
treatment/storage/disposal facilities under the Resource Conservation and
Recovery Act. This permit is accompanied by a compliance plan requiring the
Company to take corrective action with regard to existing contamination at the
Odessa Facility. Pursuant to this compliance plan, the Company has installed
three groundwater recovery systems and must complete an investigation into the
extent of on-site contamination, conduct a soils risk assessment to determine
the level of risk it presents to human health and the environment, develop a
corrective measures study on the ways to remediate the contamination, and
implement a remediation plan approved by TNRCC.
Investigations into the extent of contamination associated with waste
management facilities and the development of risk assessments regarding soils
and several of the facilities have been conducted. Based upon the results of
its continuing investigations of on-site contamination, the Company believes
that implementation of any corrective action plan will not have a material
adverse effect on its financial condition. However, no assurance can be given
that all conditions that may require corrective action have been identified, or
that the amounts that might be required to implement that plan will not be
significant to the Company.
Air Emissions
In 1990, Congress amended the federal Clean Air Act to require control of
certain emissions not previously regulated, some of which are emitted by the
Company's facilities. This legislation will require the Company (and others in
the industry with such emissions) to implement additional pollution control
measures. Some of the regulations detailing these additional control measures
have not yet been promulgated. The Company expects that modifications required
by the currently published regulations can be accomplished within the projected
capital budget, but it can give no assurance that the costs it may incur to
comply with regulations that have not yet been issued will not be significant.
10
<PAGE> 12
The Company operates in accordance with air permitting regulations in the
states where its facilities are located. Most plant operations are governed by
existing air permits. There are, however, two plants at the Odessa Facility
that are exempt from permit requirements. Permitting of these facilities is
being conducted currently in preparation for upcoming federal air requirements
associated with Title V permits.
Additional Environmental Issues
The federal Comprehensive Environmental Response Compensation and
Liability Act, as amended, and similar laws in many states, impose liability
for the clean-up of certain waste sites and for related natural resource
damages, without regard to fault or the legality of the waste disposal. Liable
persons generally include the site owner or operator, former site owners and
persons that disposed or arranged for the disposal of hazardous substances
found at those sites. The Company has sent wastes from its operations to
various third-party waste disposal sites. From time to time the Company
receives notices from representatives of governmental agencies and private
parties contending that the Company is potentially liable for a portion of the
investigation and remediation at such third-party and currently and
formerly-owned sites. Although there can be no assurance, the Company does not
believe that its liabilities for investigation and remediation of such sites,
either individually or in the aggregate, will have a material adverse effect on
the Company.
ITEM 2. PROPERTIES
The Company operates manufacturing facilities at six locations, five of
which are in the United States and one in England.
The Company manufactures its polymers and petrochemicals at the Odessa
Facility. The Odessa Facility is located on an approximately 875-acre site in
west Texas which contains plants producing polyethylene, polypropylene, APAO,
FPO and styrene, as well as ethylene and propylene primarily for captive use.
The Odessa Facility is located near four NGL pipelines from which it derives
its supply.
The polyethylene plant in Odessa, Texas has been in operation since 1961
and has a total rated annual production capacity of approximately 430 million
pounds.
The polypropylene plant in Odessa, Texas has been in operation since 1964
and, in 1996, had a total rated annual production capacity of approximately 180
million pounds. In the first half of 1997, total rated annual production
capacity is expected to increase to 210 million pounds as a result of an
ongoing debottlenecking project. REXtac APAO is produced in a former
polypropylene plant that was converted in 1986 and by the end of 1996 had a
total rated annual production capacity of approximately 65 million pounds .
The REXflex FPO plant in Odessa, Texas commenced commercial production in
December 1996 and by mid 1997 is expected to have a total rated annual
production capacity of approximately 75 million pounds.
The styrene plant in Odessa, Texas has been in operation since 1958 and
has a total rated annual production capacity of approximately 320 million
pounds.
The olefins plant in Odessa, Texas has been in operation since 1961 and as
of December 31, 1996, had a total rated annual production capacity for ethylene
of approximately 600 million pounds and for propylene of approximately 240
million pounds. In December 1995, the Company announced a capital project
totaling an estimated $89 million towards the expansion and modernization of
the olefins plant. The proposed modernization and expansion, scheduled for
completion in late 1998, will include a debottlenecking of the Company's
ethylene production process which is estimated to increase ethylene capacity to
approximately 800 million pounds and reduce annual operating costs by $25
million.
During 1996, the polymer and styrene plants in Odessa, Texas (except the
FPO plant) operated at rates in excess of 97% of their total rated annual
production capacity. Although several of these plants first began production
more
11
<PAGE> 13
than thirty years ago, the Company believes these plants are in good operating
condition. In December 1995, the Company announced its plan to build a new
LLDPE plant at the Odessa Facility. The plant, which is scheduled for
completion in 1998, is expected to have a total rated annual production
capacity of 220 million pounds.
CT Film has four domestic manufacturing facilities located in Chippewa
Falls, Wisconsin, Clearfield, Utah, Dalton, Georgia and Harrington, Delaware,
with a total rated annual production capacity of approximately 225 million
pounds. In 1996, these plants, which produce blown and cast plastic film,
operated at an average utilization rate of approximately 71%. See "Item 7 --
Management's Discussion and Analysis of Financial Condition and Results of
Operations." The fifth CT Film manufacturing facility, located in England,
commenced commercial production in September 1994 and currently has a total
rated annual production capacity of 30 million pounds. These five CT Film
plants, which commenced operations between 1948 and 1994, are in good operating
condition.
The Company owns all of its manufacturing facilities, except for the CT
Film plant in Utah, which is held under a long-term lease. All of the United
States plants, except the styrene plant, are subject to encumbrances which
secure borrowings under the Amended Credit Agreement. The styrene plant in
Odessa, Texas is subject to encumbrances which secure the obligation to repay
an advance payment from a styrene customer.
The Company leases its executive offices in Dallas, Texas. Additionally,
the Company owns off-site warehouses in Odessa, Texas and leases off-site
warehouses near its manufacturing facilities in Delaware and Wisconsin.
ITEM 3. LEGAL PROCEEDINGS
Shareholder Litigation
On July 23, 1996, the Company was served with a purported stockholder
class action lawsuit filed in the Chancery Court of the State of Delaware, in
and for New Castle County, arising from the Company's rejection of the
unsolicited offer from Huntsman to purchase the outstanding shares of common
stock of the Company. 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 pending in the Chancery Court. The
plaintiffs' counsel in these cases has agreed to an indefinite extension of
defendants' answer date. Under the agreement, defendants do not need to respond
to the complaints until notified to do so by plaintiffs' counsel.
Phillips Block Copolymer Litigation
In March 1984, Phillips Petroleum Company ("Phillips") filed a lawsuit
against the Company seeking injunctive relief, an unspecified amount of
compensatory damages and treble damages. The complaint alleges that the
Company's copolymer process for polypropylene infringes Phillips' two "block"
copolymer patents, the last of which expired in 1994. This action, which was
originally filed in Illinois, was transferred to the United States District
Court for the Southern District of Texas, Houston Division. After discovery
proceedings were completed, the Company filed a motion for summary judgment.
Phillips filed a motion for partial summary judgment. Pursuant to an agreement
among the parties, the court appointed a special master who conducted a hearing
on these motions and thereafter recommended to the court that the Company's
motion be granted and Phillips' motion be denied. Thereafter, Phillips filed
motions to disqualify the special master, to reject the recommendation of the
special master and to enter partial summary judgment for Phillips. In 1993, the
court entered an order denying Phillips' motion to disqualify the special
master. On December 23, 1996, the court entered a final judgment in favor of
the Company after granting the Company's motion for summary judgment. Phillips
has filed a notice of appeal. In the Company's bankruptcy proceeding in 1992,
Phillips filed a proof of claim seeking in excess of $108 million based upon
the
12
<PAGE> 14
allegations in this litigation. The Company objected to the claim and elected
to leave the legal, equitable and contractual rights of Phillips unaltered,
thereby allowing this litigation to proceed without regard to the bankruptcy
proceeding.
Phillips Crystalline License Litigation
In May 1990, Phillips filed a lawsuit against the Company in the United
States District Court for the District of Delaware (the "Trial Court") 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, by the
terms of the License Agreement, 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. 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 and concluded that Phillips had
not properly terminated the License Agreement. Phillips appealed the Trial
Court's judgment. On March 27, 1996, the Court of Appeals for the Federal
Circuit entered an order reversing the Trial Court's judgment, holding that the
termination notice was sufficient and remanding the action to the Trial Court.
The Trial Court must now review Phillips' claims and other defenses asserted by
the Company that were not previously ruled on in order to enter a new judgment.
Odessa Residents' Tort Litigation
On April 15, 1994, the national and state chapters of the NAACP and
approximately 770 residents of a neighborhood approximately one mile northwest
of the Shell Oil Company ("Shell"), 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 to (a) add as
additional defendants the Company, Shell and General Tire Corporation (the
parent company of Dynagen) and (b) have the litigation certified as a class
action. The plaintiffs' petition seeks an unspecified amount of money damages
for past, present and future injuries to plaintiffs' health, wrongful death,
loss of consortium and reduction in property values; the conduct of and payment
for 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
specifies alleged pollution from air emissions from the three plants as a basis
for their claims. The trial court allowed the intervention and severed the
action from the original lawsuit against Dynagen. Plaintiffs have withdrawn
their motion to have the litigation certified as a class claim. 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. In May 1996, the trial court announced that the lawsuit would be
tried by groups of plaintiffs and set the first group of 65 plaintiffs 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. Discovery was ongoing when in late January 1997 the parties and the
trial court agreed to a 30-day moratorium to determine if the case could be
settled and the May 1997 trial date was vacated. At mediation, the Company
agreed to a settlement, which was approved by the trial court on March 17,
1997. Although the terms of the settlement are confidential, the Company
believes that the settlement will not have a material adverse effect on the
Company's financial position, results of operations or cash flows. Because of
the number of plaintiffs involved, the Company anticipates that the settlement
will not be finalized until the second quarter of 1997. Should the settlement
not be concluded, the case will be reset for trial later in 1997. Also, late in
1996, plaintiffs' counsel filed a new lawsuit in the State District Court in
Harris County (Houston), Texas for seven similarly situated plaintiffs. The
terms of the anticipated settlement should also cover this lawsuit.
-------------------------------------
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<PAGE> 15
Although there can be no assurance of the final resolution of any of these
matters, the Company believes that, based upon its current knowledge of the
facts of each case, it has meritorious defenses to the various claims made and
intends to defend each suit vigorously, 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.
With respect to certain pending or threatened proceedings involving the
discharge of materials into or protection of the environment, see "Item 1 --
Business -- Environmental and Related Regulation". The Company is also a party
to various lawsuits arising in the ordinary course of business and does not
believe that the outcome of any of these lawsuits will have a material adverse
effect on the Company's financial position, results of operations or cash
flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company's security holders during
the fourth quarter of 1996.
14
<PAGE> 16
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Registrant's common stock trades on the New York Stock Exchange under
the symbol "RXN". As of March 14, 1997, there were 620 record holders of
common stock. The following table sets forth the high and low sales prices of
the common stock as reported by the New York Stock Exchange for the last two
fiscal years.
<TABLE>
<CAPTION>
High Low
------ ------
1996:
<S> <C> <C>
Fourth Quarter............................................. 14 1/2 11 3/4
Third Quarter............................................. 13 7/8 9
Second Quarter............................................. 13 7/8 9 7/8
First Quarter.............................................. 14 1/4 9 1/8
1995:
Fourth Quarter............................................. 12 1/4 8 7/8
Third Quarter............................................. 15 5/8 11 1/4
Second Quarter............................................. 14 1/4 10 1/4
First Quarter.............................................. 13 3/8 9
</TABLE>
The Company did not declare or pay cash dividends during the first three
quarters of 1995. Commencing in December 1995, the Board of Directors has
declared a $0.04 per share dividend for each fiscal quarter. Although the
Company has not established a formal policy with respect to the declaration of
dividends, the Company will evaluate the advisability of declaring future
dividends on a quarterly basis based on a number of factors, including the
Company's financial condition and results of operations. See "Item 7 --
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources".
15
<PAGE> 17
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the Company for
the periods indicated. Information should be read in conjunction with the
Company's Consolidated Financial Statements and Notes thereto included on the
pages immediately following the Index to Consolidated Financial Statements
appearing on page F-1. See "Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operations". In connection with a
reorganization under Chapter 11 of the United States Bankruptcy Code, the
Company adopted as of September 30, 1992, the American Institute of Certified
Public Accountants' Statement of Position No. 90-7, "Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code" (the "Reorganization
SOP"). The Company's basis of accounting for financial reporting purposes
changed as a result of adopting the Reorganization SOP. Accordingly, the
results of operations after September 30, 1992 are not comparable to results of
operations prior to such date, and the results of operations for the nine
months ended September 30, 1992 and the three months ended December 31, 1992
have not been aggregated.
<TABLE>
<CAPTION>
Post-emergence Pre-emergence
------------------------------------------------------------- -------------
Three Months Nine Months
Years Ended December 31, Ended Ended
---------------------------------------------- December 31, September 30,
1996 1995 1994 1993 1992 1992
--------- --------- --------- --------- ----------- ------------
(In thousands, except per share data)
Consolidated Statements of
Operations Data:
<S> <C> <C> <C> <C> <C> <C>
Net sales ...................... $ 587,761 $ 615,238 $ 537,957 $ 429,353 $ 98,854 $ 316,106
Operating income ............... 63,436 125,146 75,085 14,504 1,418 9,392
Income (loss) before
extraordinary gain (loss)..... 29,731 65,443 21,504 (25,243) (6,528) (31,476)
Extraordinary gain (loss),
net of income taxes .......... -- -- (25,831) -- -- 123,672
--------- --------- --------- --------- --------- ---------
Net income (loss) .............. $ 29,731 $ 65,443 $ (4,327) $ (25,243) $ (6,528) $ 92,196
========= ========= ========= ========= ========= =========
Weighted average shares
outstanding................... 19,168 19,126 11,663 10,501 10,501
========= ========= ========= ========= =========
Income (loss) per share(1):
Income (loss) before
extraordinary loss ........... $ 1.55 $ 3.42 $ 1.84 $ (2.40) $ (.62)
Extraordinary loss ............. -- -- (2.21) -- --
--------- --------- --------- --------- ---------
Net income (loss) per share .... $ 1.55 $ 3.42 $ (.37) $ (2.40) $ (.62)
========= ========= ========= ========= =========
Dividends per share ............... $ .16 $ .04 $ -- $ -- $ --
========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
At December 31,
--------------------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheets
Data:
Working capital ............................... $ 92,089 $ 108,416 $ 140,039 $ 109,381 $ 104,824
Total assets .................................. 597,542 520,591 506,954 434,307 423,591
Long-term debt and other
noncurrent liabilities ..................... 350,383 296,080 366,766 397,091 367,327
Stockholders' equity
(deficit) .................................. 169,051 140,151 74,876 (5,137) 20,106
</TABLE>
(1) Per share data for the pre-emergence periods is not presented because such
information is not comparable to the similar information for the
post-emergence periods.
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<PAGE> 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company conducts its business through two operating divisions: the
Rexene Products division, which manufactures and sells polyethylene,
polypropylene, REXtac(R) APAO, REXflex(R) FPO and styrene, and the CT Film
division, which manufactures and sells plastic film. The polyethylene,
polypropylene and styrene markets in which the Company competes are cyclical
markets that are sensitive to relative changes in supply and demand as well as
general economic conditions. Historically, these products have experienced
alternating periods of tight supply, rising prices and increased profits
followed by periods of large capacity additions resulting in oversupply, lower
selling prices and lower gross profits. The Company's plastic film and REXtac
APAO businesses are generally less sensitive to economic cycles.
Principal raw materials purchased by the Company consist of ethane and
propane extracted from NGL, 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 feedstock supplies available in
Odessa, Texas are currently adequate for the Company's requirements. In 1996,
feedstocks accounted for approximately 30% of the Company's total cost of
sales. As a result, the Company's inability in 1996 to pass on the full amount
of the increases in feedstock costs to customers had a significant impact on
operating results. Low industry inventory levels of crude oil, natural gas and
NGL feedstocks and unexpected supply disruptions caused feedstock prices to
increase during the first nine months of 1996. Feedstock prices for ethane and
propane increased significantly during the fourth quarter principally due to
low inventory levels and an increase in home heating demand caused by an
unusually cold winter pattern. Feedstock prices decreased midway in the first
quarter of 1997.
RESULTS OF OPERATIONS
1996 COMPARED TO 1995
As discussed above, a slowdown in economic growth in the United States, a
decrease in average sales prices for styrene and polyethylene and higher
feedstock prices in the fourth quarter of 1996 resulted in overall lower sales
and profitability in 1996 than 1995. Net sales decreased $27.5 million (or
4.5%) from 1995 to 1996 principally due to a decrease in average sales prices
in styrene and polyethylene, offset by increased excess feedstock sales.
Styrene sales decreased $30.4 million (or 25%) principally due to a decrease in
average sales prices of 10 cents per pound, partially offset by an increase in
sales volumes of 9.9 million pounds. Polyethylene sales decreased $5.0 million
(or 3%) due to a decrease in average sales prices of 4 cents per pound,
partially offset by an increase in sales volumes of 21.5 million pounds.
Polypropylene sales decreased $3.3 million (or 4%) principally due to a
decrease in average sales prices of 2 cents per pound. Sales of plastic film
decreased $18.1 million (or 11%) principally due to a decrease in average sales
prices of 4 cents per pound and a decrease in sales volumes of 10.3 million
pounds as a result of a general trend by disposable diaper manufacturers
towards thinner diaper backsheet materials. REXtac APAO sales increased $2.4
million (or 10%) due to higher sales volumes of 4.8 million pounds. Other sales
increased $26.9 million principally due to an increase of excess feedstock
sales.
The Company's gross profit percentage decreased from 29% in 1995 to 20% in
1996, principally due to the decrease in average sales prices for styrene and
polyethylene discussed above and an increase in feedstock costs. Feedstock
price increases accounted for $16 million, or one-third of the 9% reduction in
the gross profit percentage in 1996 compared to 1995.
Marketing, general and administrative expenses increased $0.5 million from
1995 to 1996, primarily due to higher marketing costs in the plastic film
market. Research and development expenses decreased $0.8 million as costs
associated with the new FPO plant decreased as a result of the plant startup in
December 1996.
17
<PAGE> 19
As a result of the factors discussed above, operating income decreased
$61.7 million (or 49%) from 1995 to 1996. Of this $61.7 million decrease in
operating income, $35.8 million was due to the cyclical downturn in the styrene
business.
Interest expense decreased $8.7 million (or 36%) principally due to a
lower credit line balance and higher capitalized interest on capital
improvements.
Other, net increased $1.6 million from 1995 to 1996 principally due to
costs of $1.2 million related to the Company's response to an unsolicited offer
to purchase the Company.
Income tax expense decreased $20.3 million from 1995 to 1996 due to
decreased operating results.
Due primarily to reasons discussed above, net income decreased $35.7
million from 1995 to 1996.
1995 COMPARED TO 1994
The Company's overall sales and profitability were higher in 1995 than
1994. 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
second half of 1995. Net sales increased $77.3 million (or 14%) from 1994 to
1995 principally due to an increase in average sales prices of styrene,
polyethylene and polypropylene, offset by a decrease in sales volumes for
plastic film. Styrene sales increased $30.3 million (or 34%) principally due to
an increase in average sales prices of 9 cents per pound. Polyethylene sales
increased $22.5 million (or 15%) principally due to an increase in average
sales prices of 9 cents per pound, partially offset by a decrease in sales
volumes of 21.7 million pounds. Polypropylene sales increased $13.0 million (or
17%) principally due to an increase in average sales prices of 7 cents per
pound. Plastic film sales decreased $2.1 million (or 1%) principally due to a
decrease in sales volumes of 20.3 million pounds principally from the lost
sales volumes of the film sold to the disposable diaper market for reasons
discussed in Item 1 -- Business -- Plastic Film, partially offset by an
increase in average sales prices of 10 cents per pound. REXtac APAO sales
increased $5.6 million (or 30%) principally due to an increase in sales volumes
of 12.1 million pounds. Other sales increased $7.9 million in 1995 as compared
to 1994 principally due to an increase in excess feedstock sales.
The Company's gross profit percentage increased from 22% in 1994 to 29% in
1995 principally due to the increase in average sales prices of polyethylene,
polypropylene and styrene.
Marketing, general and administrative expenses increased $5.2 million (or
14%) from 1994 to 1995 principally due to higher information system costs to
support improvements to on-going operations, sales and marketing costs related
to the CT Film plant in England and higher employee compensation and benefits.
Research and development expenses increased $2.4 million (or 34%) principally
due to new product development at CT Film.
Due primarily to the factors discussed above, operating income increased
$50.1 million (or 67%) from 1994 to 1995.
Interest expense decreased $25.6 million (or 51%) 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.
Other, net decreased $7.7 million from 1994 to 1995 principally due to the
reversal in 1994 of a $7.4 million lawsuit accrual for which the Company
ultimately prevailed on appeal and due to the receipt in 1994 of approximately
$1.0 million of insurance proceeds received in settlement of a claim related to
a prior lawsuit.
Income tax expense increased $24.9 million from 1994 to 1995 principally
due to increased operating results.
In 1994, the Company recorded an extraordinary loss of $25.8 million, net
of income taxes of $15.8 million, as a result of the redemption of the
Company's increasing rate first priority and second priority notes. Due
primarily
18
<PAGE> 20
to the factors discussed above, the Company had net income of $65.4
million in 1995 compared with a net loss of $4.3 million in 1994.
LIQUIDITY AND CAPITAL RESOURCES
During the year ended December 31, 1996, net cash provided by operating
activities decreased $114.3 million as compared to 1995. This decrease was
principally due to lower gross profits and changes in working capital,
primarily income taxes payable and inventories. The Company paid $46.6 million
in federal and state taxes in 1996, which included the tax liability for 1995
and 1996. No federal income taxes were paid in 1995.
In the fourth quarter of 1994, the Company completed a recapitalization
plan (the "Recapitalization") designed to increase stockholders' equity, reduce
indebtedness and interest expense and improve the Company's strategic,
operating and financial flexibility. The Recapitalization resulted in (i) the
issuance of 8 million shares of common stock at $11.00 per share, (ii) the
issuance of 11 3/4% Senior Notes due 2004 (the "Senior Notes") in an aggregate
principal amount of $175 million, (iii) the establishment of a new credit
facility, providing a $100 million term loan (the "Term Loan") and an $80
million revolving line of credit (the "Revolving Credit Facility"), (iv) the
redemption and defeasance of the Company's increasing rate first priority and
second priority notes, and (v) the repayment in full of the outstanding
indebtedness under the then existing credit agreement. In addition to cash
generated from operations, in 1995, 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 long-term debt under the Term Loan in the first half of 1995. On
April 24, 1996, the Company executed an amendment to its existing credit
facility ( the "Amended Credit Agreement") to provide a line of credit in the
amount of $150 million for a seven year term. On August 5, 1996, the Company
executed an agreement with a financial institution for a $10 million
uncommitted, unsecured line of credit ( the "Unsecured Note") for day to day
cash flow requirements. As of December 31, 1996, the Company's outstanding
indebtedness under the Amended Credit Agreement was $60 million and no amounts
were outstanding under the Unsecured Note.
On March 14, 1997, the Amended Credit Agreement was further amended to,
among other things, permit the repurchase of shares of Common Stock pursuant to
the Share Repurchase Program. On March 14, 1997, the Company received a
commitment from Scotia Bank to increase the borrowing availability under the
Amended Credit Agreement from $150 million to $225 million through $150 million
in term loans and $75 million in a revolving credit facility (the "New Credit
Agreement"). The primary use of proceeds from the New Credit Agreement will be
to provide funds to repurchase approximately $35 million of the Company's
Common Stock pursuant to the Share Repurchase Program and to finance portions
of the Company's capital expenditure program at its Odessa, Texas plant over
the next two years, including the modernization and expansion of its olefins
plant and the construction of a new LLDPE plant.
The New Credit Agreement will contain covenants which limit, among other
things, the incurrence of additional indebtedness by the Company, the creation
of liens on the Company's assets, the making of certain investments by the
Company, certain mergers, sales of certain fixed assets and the prepayment of
the Senior Notes. The New Credit Agreement also will contain certain financial
covenants relating to the financial condition of the Company, including
covenants relating to minimum net worth, the ratio of its earnings to its
interest expense and the ratio of its earnings to debt . As of March 14, 1997,
the Company had borrowed $93 million under the Amended Credit Agreement.
The Company anticipates that the second part of the Share Repurchase
Program will be funded by the issuance of $50 million in Preferred Stock. At
the Special Meeting, stockholders will be asked to approve the second part of
the Share Repurchase Program. See "Item 1 -- Business -- Recent Developments."
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 New Credit
Agreement, will be adequate to make scheduled payments of interest on the
Senior Notes and dividends on the Preferred Stock, 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.
19
<PAGE> 21
The indenture governing the Senior Notes (the "Indenture") contains
certain covenants that, among other things, limit the ability of the Company to
incur additional indebtedness and to repurchase subordinated indebtedness,
incur or suffer to exist certain liens, pay dividends, make certain
investments, sell significant fixed assets and engage in mergers and
consolidations.
Pursuant to Section 10.01(k) of the Amended Credit Agreement, the
replacement of a majority of the Company's directors, if adopted by the
stockholders of the Company at the Special Meeting, would cause a "change of
control" as defined in the Amended Credit Agreement. Pursuant to the Amended
Credit Agreement, the lenders could cancel their obligations to make loans to
the Company and/or declare the loans then outstanding under the Amended Credit
Agreement due and payable. The replacement of a majority of the Company's
directors, if successful, also would be a "change of control" under the
Indenture, pursuant to which the Senior Notes were issued. Each holder of
Senior Notes would then have the right to require the Company to purchase all
or any part of such holder's Senior Notes at a price in cash equal to 101% of
the aggregate principal amount thereof plus accrued and unpaid interest thereon
to the date of purchase.
During 1996 and 1995, the Company expended $113.8 million and $54.6
million, respectively, for capital expenditures. In 1997, the Company expects
to spend approximately the same amount for capital expenditures as in 1996,
including $33 million towards the completion of the olefin plant modernization
and expansion and approximately $29 million towards construction of the LLDPE
expansion at the Odessa Facility.
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 $18.4 million accrued in the December 31, 1996 balance sheet as
an estimate of its total potential environmental liability with respect to
investigating and remediating known and assessed site contamination. Extensive
environmental investigation of the groundwater, soils and solid waste
management has been conducted at the Odessa Facility. Risk assessments have
been completed for a number of these facilities and corrective measures have
been defined and conducted. Approval of certain waste management unit closures
required a public notice period that expired at the end of February 1997. The
Company has received approval to close five solid waste management units, which
will permit a reduction in the accrual for potential environmental liability of
approximately $9.0 million. 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. See "Item 1 -Business
- -- Environmental and Related Regulation."
The Company's operating expenditures for environmental remediation,
compliance and waste disposal were approximately $7.6 million and $8.3 million
in 1996 and 1995, respectively. In 1997, the Company anticipates spending
approximately $8.4 million for environmental remediation, compliance and waste
disposal. Of that amount, expenditures relating to remediation are projected to
be approximately $2.3 million in 1997. Compliance and waste disposal costs are
expected to increase slightly over the next several years as a result of
increasingly stringent regulations that affect waste handling alternatives. In
1996 and 1995, the Company also spent approximately $1.4 million and $1.2
million, respectively, relating to environmental capital expenditures. For the
foreseeable future, the Company expects to incur approximately $2 million to $4
million per year in capital spending to address the requirements of
environmental laws. Additionally, the Company expects to spend approximately
$5.9 million in 1997 for the completion of an alternative wastewater disposal
facility. Annual amounts could vary depending on a variety of factors, such as
the control measures or remedial technologies ultimately required and the time
allowed to meet such requirements.
20
<PAGE> 22
OTHER MATTERS
The Company is including the following cautionary statement in this
combined Annual Report to Shareholders/Form 10-K to make applicable and take
advantage of the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995 for any forward-looking statements made by, or on behalf of,
the Company. Forward-looking statements include statements concerning plans,
objectives, goals, strategies, future events or performance, and underlying
assumptions and other statements which are other than statements of historical
facts. From time to time, the Company may publish or otherwise make available
forward-looking statements of this nature. All such subsequent forward-looking
statements, whether written or oral and whether made by or on behalf of the
Company, are also expressly qualified by these cautionary statements. Certain
statements contained herein are forward-looking statements and accordingly
involve risks and uncertainties which could cause actual results or outcomes to
differ materially from those expressed in the forward-looking statements. The
forward-looking statements contained herein are based on various assumptions,
many of which are based, in turn, upon further assumptions. The Company's
expectations, beliefs and projections are expressed in good faith and are
believed by the Company to have a reasonable basis, including without
limitation, management's examination of historical operating trends, data
contained in the Company's records and other data available from third parties,
but there can be no assurance that management's expectations, beliefs or
projections will result or be achieved or accomplished. In addition to the
other factors and matters discussed elsewhere herein, the following are
important factors that, in the view of the Company, could cause actual results
to differ materially from those discussed in the forward-looking statement:
1. Changes in economic conditions and weather conditions
2. Changes in the availability and/or price of feedstocks
3. Changes in management or control of the Company
4. Inability to obtain new customers or retain existing ones
5. Significant changes in competitive factors affecting the Company
6. Governmental/regulatory actions and initiatives, including those affecting
financings, and environmental/safety requirements
7. Significant changes from expectations in actual capital expenditures and
operating expenses and unanticipated project delays
8. Occurrences affecting the Company's ability to obtain funds from
operations, debt or equity to finance needed capital expenditures and
other investments
9. Regarding foreign operations - changes in foreign trade and monetary
policies, laws and regulations related to foreign operations, political
and governmental changes, inflation and exchange rates, taxes and
operating conditions
10. Significant changes in tax rates or policies or in rates of inflation or
interest
11. Significant changes in the Company's relationship with its employees and
the potential adverse effects if labor disputes or grievances were to
occur
12. Changes in accounting principles and/or the application of such principles
to the Company.
The Company disclaims any obligation to update any forward-looking
statements to reflect events or circumstances after the date hereof.
ITEM 8. FINANCIAL STATEMENTS
The Company's Consolidated Financial Statements required by this item are
included on the pages immediately following the Index to Consolidated Financial
Statements appearing on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
21
<PAGE> 23
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The table set forth below provides certain information with respect to
those persons who are currently serving as directors and executive officers of
the Company.
<TABLE>
<CAPTION>
NAME Age Position
---- --- -------------------------------------------------------------------------
<S> <C> <C>
Andrew J. Smith 55 Chairman of the Board, Director and Chief Executive Officer
Lavon N. Anderson 61 Director, President and Chief Operating Officer
James R. Ball 54 Director
Harry B. Bartley 69 Director
R. James Comeaux 58 Director
William B. Hewitt 58 Director
Ilan Kaufthal 49 Director
Charles E. O'Connell 65 Director
Jack E. Knott 42 Director, Executive Vice President and President-Rexene Products
Richard C. Perry 42 Director
Stephen C. Swid 56 Director
Jonathan R. Wheeler 45 Executive Vice President and President-CT Film
James M. Ruberto 50 Executive Vice President-Administration
Bernard J. McNamee 61 Executive Vice President, Secretary and General Counsel
Geff Perera 43 Executive Vice President and Chief Financial Officer
</TABLE>
Mr. Smith has been Chairman of the Board of Directors since April 1996 and
Chief Executive Officer and a director of the Company since March 1992. From
December 1991 to March 1992, he was a private consultant. From June 1991 to
December 1991, he was President and Chief Operating Officer of Itex
Enterprises, Inc., an environmental remediation company. Mr. Smith also served
as a consultant to Old Rexene from January 1991 to June 1991. Immediately prior
thereto, he had been a director of Old Rexene since May 1988 and the President
and Chief Executive Officer of Old Rexene since June 1988. Mr. Smith joined the
Company in 1976.
Dr. Anderson has been President and Chief Operating Officer of the Company
since January 1991 and a director since February 1990. From May 1988 to January
1991, Dr. Anderson was Executive Vice President- Manufacturing and Technical of
Old Rexene. Prior thereto Dr. Anderson has served the Company in various
capacities since 1972.
Mr. Ball has served as director of the Company since April 1996. He is a
private investor and is engaged in private consulting. Mr. Ball served Vista
Chemical Company in a number of capacities from 1984 to 1994, including Vice
President, Marketing from July 1984 to August 1987, Senior Vice President,
Commercial from August 1987 to February 1992, Executive Vice President and
Chief Operations Officer, from February 1992 to July 1992, and President and
Chief Executive Officer from July 1992 to December 1994. Prior to July 1984,
Mr. Ball held various positions with Conoco since 1969. Mr. Ball is a director
of The Carbide/Graphite Group.
Mr. Bartley has served as a director of the Company since April 1995. He
is currently retired. Mr. Bartley served Hoechst Celanese Corporation in a
number of capacities from 1950 to 1989, including President of Celanese
Chemical Co. from 1976 to 1987, President of Hoechst Celanese Chemical Group
from 1987 to 1989 and director of Hoechst Celanese Corporation from 1987 to
1989.
Mr. Comeaux has served as a director of the Company since April 1995. He
has served as President of Petrochemical Management, Inc., a consulting firm,
since April 1993. From August 1989 to January 1993, Mr. Comeaux was President,
Chief Executive Officer and Director of Arcadian Corporation, a fertilizer
manufacturer. Prior
22
<PAGE> 24
to such time, Mr. Comeaux was Senior Vice President of FINA, Inc. from 1984 to
1989 and served Gulf Oil Corporation in a number of capacities from 1967 to
1984.
Mr. Hewitt has served as a director of the Company since February 1990. He
has been President of Union Corporation, a receivables management and customer
service outsourcing company, since May 1995 and Chairman of the Board and Chief
Executive Officer of Capital Credit Corporation, a receivables management
company, since September 1991. Mr. Hewitt was Executive Vice President of First
Manhattan Consulting Group, a management consulting firm, from 1980 to
September 1991. He is also a director of the Union Corporation.
Mr. Kaufthal has served as a director of the Company since September 1992.
He has been a managing director of Schroder Wertheim & Co. Incorporated, an
investment banking firm, since 1987. He is also a director of United Retail
Group, Inc., Cambrex Corporation and Russ Berrie & Company.
Mr. O'Connell has served as a director of the Company since April 1995. He
is currently retired. From 1985 to 1988, Mr. O'Connell served as President of
the Society of Plastics Industries, a trade association. From 1964 to 1984, he
served Gulf Oil Corporation in a variety of capacities.
Mr. Knott has served as a director of the Company since April 1996 and has
been Executive Vice President of the Company and President of Rexene Products
since March 1995. Prior thereto, Mr. Knott had been Executive Vice
President-Sales and Market Development of the Company since March 1992. Prior
thereto, Mr. Knott was an Executive Vice President of Old Rexene since January
1991 and President of CT Film since February 1989.
Mr. Perry has served as a director of the Company since March 19, 1997. Mr.
Perry is the President of Perry Corp., a New York based private investment
management firm, which he founded in November 1988. From 1977 to 1988, Mr. Perry
implemented investment strategies in the equity trading area of Goldman Sachs &
Co. He is also Chairman of the Board of FTD Corporation and a director of Radio
& Records, Inc.
Mr. Swid has served as a director of the Company since March 19, 1997. Mr.
Swid has served as Chairman and Chief Executive Officer of SCS Communications,
an owner and operator of diverse media properties, since late 1989. From
February, 1990 to January, 1995, Mr. Swid was the Chairman and Chief Executive
Officer of Westview Press. Prior thereto, Mr. Swid had been the Chairman and
Chief Executive Officer of SBK Entertainment World, Inc. from November, 1986 to
May, 1989. For the twelve years prior thereto, Mr. Swid had been the
Co-Chairman and Co-Chief Executive Officer of Knoll International Holdings,
Inc.
Mr. Wheeler has been Executive Vice President of the Company and President
of CT Film since January 1996. Prior thereto, Mr. Wheeler was Executive Vice
President-Administration since April 1995. Prior thereto, Mr. Wheeler had been
Senior Vice President-Administration of the Company since December 1990.
Mr. Ruberto has been Executive Vice President-Administration since January
1996. Prior thereto, Mr. Ruberto had been Executive Vice President of the
Company and President of CT Film since March 1992. Prior thereto, Mr. Ruberto
had been Executive Vice President-Sales and Market Development of Rexene since
January 1991. From April 1989 to January 1991, Mr. Ruberto was Executive Vice
President-Marketing and Business Planning of Old Rexene.
Mr. McNamee has been Executive Vice President, Secretary and General
Counsel of the Company since April 1995. Prior thereto, Mr. McNamee had been
Vice President, Secretary and General Counsel of the Company since May 1993.
From September 1989 to November 1992, Mr. McNamee was Vice President and
General Counsel of Ferro Corporation, a multinational manufacturer of specialty
materials.
Mr. Perera has been Executive Vice President and Chief Financial Officer
of the Company since May 1996. Prior thereto, Mr. Perera had been Vice
President of the Company since January 1991 and Controller since February 1989.
In October 1991, Old Rexene filed a petition for reorganization under the
federal bankruptcy laws from which the Company emerged on September 18, 1992,
pursuant to the Reorganization. At the time Old Rexene filed its petition
23
<PAGE> 25
for reorganization, Dr. Anderson and Mr. Hewitt served as directors. In
addition, in connection with the Reorganization, Messrs. Kaufthal was appointed
to serve on the Company's board at the request of the committee of creditors
participating in the Reorganization. Mr. Smith, who served as a director of Old
Rexene prior to the filing of its petition for reorganization, returned to Old
Rexene's board after the petition was filed. Dr. Anderson and Messrs. Smith,
Knott, Ruberto, Wheeler and Perera each served as executive officers of Old
Rexene at some time within two years before the filing by Old Rexene of its
petition for reorganization.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"1934 Act"), requires directors and officers of the Company, and persons who
own more than 10 percent of the Common Stock, to file with the Securities and
Exchange Commission (the "SEC") initial reports of ownership and reports of
changes in ownership of the Common Stock. Directors, officers and more than 10
percent stockholders are required by SEC regulations to furnish the Company
with copies of all Section 16(a) forms they file. To the Company's knowledge,
based solely on a review of the copies of such reports furnished to the Company
and written representations that no other reports were required, during the
year ended December 31, 1996, all Section 16(a) filing requirements applicable
to its directors, officers and more than 10 percent beneficial owners were met.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain summary information concerning the
compensation paid or awarded to the Chief Executive Officer of the Company and
the four other highest paid executive officers of the Company in 1996 (the
"named executive officers") for the years indicated.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------
OPTIONS
(NUMBER ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OF SHARES) COMPENSATION
- ------------------------------------- ---- -------- -------- ------ --------
<S> <C> <C> <C> <C> <C>
Andrew J. Smith, Chairman of the 1996 $452,088 $357,186 80,000 $ 6,300(1)
Board and Chief Executive 1995 431,671 469,808 -- 7,176
Officer 1994 367,502 380,000 70,000 4,902
Lavon N. Anderson, President and 1996 $297,000 $ 70,000 -- $ 8,568(2)
Chief Operating Officer 1995 297,000 248,054 -- 10,888
1994 292,000 297,000 40,000 6,273
Jack E. Knott, Executive Vice 1996 $241,267 $160,162 40,000 $ 3,106(3)
President and President of 1995 221,675 203,338 -- 3,542
Rexene Products 1994 217,921 176,000 38,000 3,209
Jonathan R. Wheeler, Executive 1996 $225,845 $138,914 40,000 $ 3,573(4)
Vice President and 1995 206,675 190,630 -- 3,548
President of CT Film 1994 200,838 164,000 32,000 2,703
James M. Ruberto, Executive Vice 1996 $220,008 $ 87,727 20,000 $ 4,427(5)
President - Administration 1995 220,008 165,270 -- 3,579
1994 217,921 176,000 38,000 3,762
</TABLE>
- ------------------------------------------
(1) Consists of Company contributions to employee benefit plans (and
related cash supplements) of $2,250, $4,584 and $2,310 in 1996, 1995
and 1994, respectively, and imputed income for life insurance of
$4,050, $2,592 and $2,592 for 1996, 1995 and 1994, respectively.
24
<PAGE> 26
(2) Consists of Company contributions to employee benefit plans (and
related cash supplements) of $2,250, $4,570 and $2,223 in 1996, 1995
and 1994, respectively, and imputed income for life insurance of
$6,318, $6,318 and $4,050 in 1996, 1995 and 1994, respectively.
(3) Consists of Company contributions to employee benefit plans (and
related cash supplements) of $2,225, $2,744 and $2,426 in 1996, 1995
and 1994, respectively, and imputed income for life insurance of $881,
$798 and $783 in 1996, 1995 and 1994, respectively.
(4) Consists of Company contributions to employee benefit plans (and
related cash supplements) of $2,175, $2,812 and $1,988 in 1996, 1995
and 1994, respectively, and imputed income for life insurance of
$1,398, $736 and $715 in 1996, 1995 and 1994, respectively.
(5) Consists of Company contributions to employee benefit plans (and
related cash supplements) of $2,175, $2,218 and $2,426 in 1996, 1995
and 1994, respectively, and imputed income for life insurance of
$2,252, $1,361 and $1,336 in 1996, 1995 and 1994, respectively.
OPTION GRANTS, EXERCISES AND HOLDINGS
The following table sets forth certain information with respect to options
to purchase Common Stock granted during the year ended December 31, 1996 to
certain of the named executive officers.
OPTION GRANTS IN 1996
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of
Stock Price
Appreciation
Individual Grants for Option Term
------------------------------------------------------------------ ---------------------------
Number of Securities % of Total
Underlying Options Options Exercise
Granted Granted to or Base
(number of shares) Employees Price Expiration
Name (1) in 1996 ($/sh)(2) Date 5%($)(3) 10%($)(4)
---- -------------------- ---------- --------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Andrew J. Smith ... 80,000 16.34% $ 10.79 8/01/06 544,000 1,372,800
Jack E. Knott ..... 40,000 8.17% $ 10.79 8/01/06 272,000 686,400
Jonathan R. Wheeler 40,000 8.17% $ 10.79 8/01/06 272,000 686,400
James M. Ruberto .. 20,000 4.08% $ 10.79 8/01/06 136,000 343,200
</TABLE>
(1) Options represent the right to purchase shares of Common Stock at a fixed
price per share. Fifty percent (50%) of the options become exercisable
when the market value of the Common Stock first reaches $16.185 per share,
and the balance of such options become exercisable when the market value
of the Common Stock first reaches $21.58 per share. In any event, all of
the options become exercisable on August 1, 2004 or upon the death,
disability or retirement of an optionee or upon a change of control.
(2) Based on the average trading price on the New York Stock Exchange of the
Common Stock for the preceding twenty trading days.
(3) Represents an assumed market price per share of Common Stock of $17.59.
(4) Represents an assumed market price per share of Common Stock of $27.95.
25
<PAGE> 27
No named executive officer exercised options to purchase Common Stock in
1996. The following table sets forth certain information with respect to the
unexercised options to purchase Common Stock held at December 31, 1996 by each
of the Company's named executive officers.
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT 12/31/96 IN-THE-MONEY OPTIONS AT
(SHARES) 12/31/96
--------------------- ----------------------
EXERCISABLE/ EXERCISABLE/
NAME UNEXERCISABLE UNEXERCISABLE
- ---- --------------------- ----------------------
<S> <C> <C> <C> <C>
Andrew J. Smith.................................... 68,666/103,334 389,533/309,342
Lavon N. Anderson.................................. 45,916/13,334 313,668/66,103
Jack E. Knott...................................... 37,333/52,667 241,320/172,890
Jonathan R. Wheeler................................ 33,333/50,667 214,877/159,673
James M. Ruberto................................... 37,333/32,667 241,320/116,190
</TABLE>
RETIREMENT PLANS
The Company has a trusteed non-contributory defined benefit pension plan
(the "Retirement Plan") for substantially all non-union employees. The normal
retirement age of participants is 65. An employee is entitled, subject to
various Internal Revenue Code limitations, to annual pension benefits equal to
0.9% of the employee's average annual base salary during the highest paid three
consecutive years of the employee's final ten calendar years of service ("Final
Average Pay") multiplied by years of service under the Retirement Plan, plus
0.5% of the employee's Final Average Pay which exceeds an average, computed
under Internal Revenue Service rules, of the employee's wages taken into
account for social security purposes, multiplied by the number of years of the
employee's participation in the Retirement Plan (up to a maximum of 35 years).
In October 1994, the Company adopted the Rexene Corporation Supplemental
Executive Retirement Plan (the "SERP"), which was amended in 1996. The purposes
of the SERP are to provide supplemental retirement and survivor benefits, in
addition to amounts payable under the Retirement Plan, for a certain select
group of management or highly compensated employees who complete a specified
period of service and otherwise become eligible under the SERP. The Company
intends to fund the SERP from time to time at the discretion of the Management
Development and Compensation Committee or the Board of Directors; the general
assets of the Company are the source of funds for the SERP. Participants in the
SERP are entitled on or after age 60 and completion of 15 years of service from
and after the later to occur of January 1, 1988 and their employment
commencement date to receive monthly pension benefits which, when aggregated
with benefits payable under the Retirement Plan, equal 65% of the monthly
average of Final Average Pay multiplied by the participant's percentage of
vesting and credited service under the SERP. Generally, participants vest 20%
for each of the first five years of service, commencing October 1, 1994. Such
pension benefits will be paid to the extent allowable under the Internal
Revenue Code from the Retirement Plan and thereafter from the SERP. Pension
payments to be received by Dr. Anderson under the SERP will be further reduced
by any monthly pension benefits received under a predecessor company retirement
plan, but he will be totally vested and given full service credit if he elects
early retirement after August 1997. In addition, benefits payable to
participants in the SERP who have less than 15 years of service will be reduced
at the rate of 62/3% per year. If a participant elects to retire prior to age
60, he is eligible to receive benefits upon reaching age 55 and in such event
his benefits under the SERP may be reduced in an amount not to exceed 10% for
each year of early retirement. Under the SERP, pension payments will be
permitted in excess of the limit imposed by the Internal Revenue Code under the
Retirement Plan, which in 1996 provides that the highest annual salary on which
benefits can be calculated is $150,000. Messrs. Smith, Anderson, Knott, Wheeler
and Ruberto and two other executive officers are the only current participants
in the SERP.
26
<PAGE> 28
The following table illustrates the amount of combined annual pension
benefits payable under the Retirement Plan and the SERP to participants in
specified average annual earnings and years of service classifications. Benefit
payments under the Retirement Plan are not subject to any reduction for social
security benefits or other offset amounts. Although the amounts set forth below
include benefits payable under the SERP assuming participant vesting of 100%,
all of the current participants in the SERP except one are currently vested
only to the extent of 40% of his accrued benefits in such plan.
<TABLE>
<CAPTION>
ANNUAL BENEFITS FOR YEARS OF SERVICE
------------------------------------------------------------------------------
FINAL AVERAGE PAY 5 10 15 20 25
- ----------------- ------- ------- ------ ------- -------
<S> <C> <C> <C> <C> <C>
$100,000........................... $21,665 $43,336 $65,000 $65,000 $65,000
150,000........................... 32,497 65,003 97,500 97,500 97,500
200,000........................... 43,329 86,671 130,000 130,000 130,000
300,000........................... 64,994 130,007 195,000 195,000 195,000
400,000........................... 86,658 173,342 260,000 260,000 260,000
500,000........................... 108,323 216,678 325,000 325,000 325,000
</TABLE>
For purposes of calculation of benefits under the Retirement Plan, only
years of service since 1984 count in the benefits formula. As of December 31,
1996, the named executive officers had the following credited years of service
under the Retirement Plan: Mr. Smith -- thirteen years; Dr. Anderson --
thirteen years; Mr. Knott -- eleven years; Mr. Wheeler -- eight years and Mr.
Ruberto -- seven years. For purposes of calculation of benefits under the SERP,
the years of credited service for each of the named executive officers as of
December 31, 1996 were as follows: Mr. Smith -nine years; Dr. Anderson -- nine
years; Mr. Knott -- nine years; Mr. Wheeler -- eight years and Mr. Ruberto --
seven years.
EXECUTIVE SECURITY PLAN
The beneficiaries of two executive officers of the Company, Dr. Anderson
and Mr. Knott, are entitled to receive under the Executive Security Plan of the
Company (the "Security Plan") death benefits equal to a lump sum of $300,000 in
the event of the death of Dr. Anderson or Mr. Knott while employed by the
Company. The Company purchases life insurance covering such benefits. At the
present time, it is not expected that any additional executive officers will be
selected for participation in the Security Plan.
COMPENSATION OF DIRECTORS
Fees and Expenses. In 1996, each director who is not an employee of the
Company received a fee of $1,000 for each meeting of the Board attended, $1,000
for each committee meeting attended which was not held on the same day as a
Board meeting and an annual fee of $10,000 payable in quarterly installments.
In addition, on April 30, 1996, each director who is not an employee of the
Company received options to purchase an aggregate of 2,000 shares of Common
Stock under the Company's 1995 Stock Option Plan for Outside Directors. Such
1996 options are exercisable at $3.22 per share, equal to the average of the
fair market value per share of Common Stock for the last 20 trading days
immediately preceding April 30, 1996, less $10.00. The Company also reimburses
directors for travel, lodging and related expenses they may incur in attending
Board and committee meetings.
EMPLOYMENT AGREEMENTS
Andrew J. Smith, Chief Executive Officer and a director of the Company,
Lavon N. Anderson, President and Chief Operating Officer and a director of the
Company, Geff F. Perera, Executive Vice President and Chief Financial Officer
of the Company, Jack E. Knott, Executive Vice President of Rexene and President
of Rexene Products and a director of the Company, James M. Ruberto, Executive
Vice President of Rexene -- Administration, Jonathan R. Wheeler, Executive Vice
President and President of CT Film, and Bernard J. McNamee, Executive Vice
President, Secretary and General Counsel of the Company, are each parties to
termination agreements entered into in 1996. Each termination agreement
provides that in the event the employee is terminated without cause (as defined
in the agreement) within three years after a change in control of Rexene, is
assigned to a position of lesser responsibility or in the event such employee
voluntarily resigns his employment in certain limited circumstances after such
a change in control,
27
<PAGE> 29
Rexene is obligated to pay the employee within 10 business days after the
effective date of such termination, a lump sum cash severance equal to three
times his then current annual base salary less $1.00. Additionally, in the
event such employee voluntarily resigns because he is required to relocate
within the continental United States within three years after a change in
control under the Company's standard relocation policy, such employee is
entitled to receive a lump sum cash severance amount equal to 18 months of his
then current monthly base salary. The agreements also provide that in the event
the employee is terminated without cause by Rexene without a change in control,
Rexene is obligated to pay the employee within 10 business days of such
termination a lump sum cash severance amount equal to one year of such
employee's then current base salary. "Change in control" is defined in the
relevant agreements to generally include: (i) a change in at least two-thirds
of the members of the Board of Directors, whether as the result of a merger,
reorganization or otherwise; (ii) the acquisition by a related group of persons
of beneficial ownership of at least 20% of the Common Stock; (iii) the
liquidation or dissolution of the Company; or (iv) a determination by a
majority of the directors of the Company that such a change of control has
occurred or is imminent.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following tabulation sets forth as of March 14, 1997, information with
respect to each person who was known by Rexene to be the beneficial owner of
more than five percent of the Common Stock.
<TABLE>
<CAPTION>
COMMON STOCK
BENEFICIALLY OWNED
----------------------------------------
NUMBER OF PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES OF CLASS
- ------------------------------------------------------------------------ -------------------- ------------
<S> <C> <C>
Guy P. Wyser-Pratte and Spear, Leeds & Kellogg.......................... 2,483,800(1) 13.2%
c/o Guy P. Wyser-Pratte
63 Wall Street
New York, New York 10005
Dave C. Swalm........................................................... 1,850,000(2) 9.8%
11102 Hedwig Lane
Houston, Texas 77024
</TABLE>
(1) Based upon information reported in Amendment No. 2 to Schedule 13D dated
March 14, 1997 filed by Mr. Guy Wyser-Pratte and Spear, Leads & Kellogg.
Mr. Wyser-Pratte has sole voting and investment power with respect to
1,369,700 shares of Common Stock beneficially owned by him and Spear,
Leeds & Kellogg has sole voting and investment power with respect to
1,114,100 shares of Common Stock beneficially owned by it. Although Mr.
Wyser-Pratte and Spear, Leeds & Kellogg may be deemed a "group" within
the meaning of Rule 13d-5 under the 1934 Act, each of Mr. Wyser-Pratte and
Spear, Leeds & Kellogg disclaims beneficial ownership of the shares of
Common Stock owned by the other.
(2) Based upon information reported in Amendment No. 2 to Schedule 13D dated
February 28, 1997 filed by Dave C. Swalm with the SEC. Mr. Swalm has sole
voting and investment power with respect to 350,000 shares of Common Stock
he beneficially owns. Mr. Swalm has shared voting and investment power
with respect to 1,500,000 shares he beneficially owns.
28
<PAGE> 30
SECURITY OWNERSHIP OF MANAGEMENT
The following tabulation sets forth information with respect to the
beneficial ownership of the Common Stock as of March 14, 1997 by each director
and executive officer of the Company, and all executive officers and current
directors of the Company as a group.
<TABLE>
<CAPTION>
COMMON STOCK
BENEFICIALLY OWNED
-----------------------------
NUMBER OF PERCENT
NAME SHARES (1)(2) OF CLASS
Directors ------------- ------------
<S> <C> <C>
Lavon N. Anderson................................................... 54,383(3) *
James R. Ball....................................................... 2,000 *
Harry B. Bartley, Jr................................................ 7,000 *
R. James Comeaux.................................................... 7,000 *
William B. Hewitt................................................... 29,000 *
Ilan Kaufthal....................................................... 29,000 *
Jack E. Knott....................................................... 47,333(4) *
Charles E. O'Connell................................................ 4,000 *
Richard C. Perry.................................................... 602,400(5) 3.2%
Andrew J. Smith..................................................... 103,557 *
Stephen C. Swid..................................................... 639,254 3.4%
Named Executive Officers (excluding any director named above) and Group
James M. Ruberto.................................................... 43,333 *
Jonathan R. Wheeler................................................. 38,500 *
All current directors and executive officers as a group (15 persons) 1,659,430 8.7%
</TABLE>
- -----------------
* Less than 1%
(1) All shares listed are directly held with sole voting and investment power
unless otherwise indicated.
(2) Includes shares subject to stock options which are exercisable within 60
days by the following individuals and group in the following amounts: Dr.
Anderson - 52,583; Mr. Ball - 2,000; Mr. Bartley - 4,000; Mr. Comeaux -
4,000; Mr. Hewitt - 2,000; Mr. Kaufthal - 29,000; Mr. Knott - 43,333; Mr.
O'Connell - 4,000; Mr. Smith - 77,000; Mr. Ruberto - 43,333; Mr. Wheeler -
38,000; and all directors and executive officers as a group - 350,919.
(3) Includes 100 shares owned by a corporation of which Dr. Anderson owns 50%
of the outstanding stock and shares voting and investment power.
(4) Includes 3,000 shares held by Mr. Knott's spouse in a custodial capacity
under the Uniform Gift to Minors Act.
(5) All shares are owned beneficially by Perry Corp. for the benefit of
investor accounts managed and controlled by Perry Corp. As controlling
stockholder of Perry Corp., Mr. Perry may be deemed a beneficial owner of
all or a portion of such shares.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
A son of Andrew J. Smith, the Chief Executive Officer and a director of
the Company, became a Vice President of Orion Pacific, Inc. ("Orion") in 1990
and was a shareholder of Orion between 1993 and 1994. In August 1993, the son
of Mr. Smith resigned as an officer and employee of Orion. Pursuant to
contractual arrangements originated in 1988,(i) the Company sells to Orion
certain discarded byproducts which Orion extracts from Company landfills and
(ii) Orion packages and processes a portion of the REXtac APAO manufactured by
the Company at its plant in Odessa, Texas. During the year ended December 31,
1996, the Company sold approximately $36,000 of such by-products to Orion in
the ordinary course of business. For the same period, the Company purchased
approximately $1.3 million of
29
<PAGE> 31
APAO processing and packaging services and miscellaneous materials from Orion.
The Company has also agreed to pay Orion an additional $250,000 per plant for
each APAO plant utilizing the technology which the Company builds or licenses
outside the United States (excluding a former joint venture plant in Japan).
The Company currently licenses this technology to Orion so that Orion can
continue providing these services to the Company.
Ilan Kaufthal, a director of the Company, is a managing director of
Schroder Wertheim & Co. Incorporated, which provides investment banking
services to the Company from time to time and which has been retained by the
Company to act as its financial advisor in connection with an unsolicited offer
to purchase the Company . See "Item 1 -- Business -- Recent Developments."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Consolidated Financial Statements:
See Index to Consolidated Financial Statements on page F-1.
2. Financial Statement Schedules:
See Index to Consolidated Financial Statements on page F-1.
3. Exhibits:
2.1 -- First Amended Plan of Reorganization of Rexene Products
Company, et al., dated April 29, 1992 (filed as Exhibit 2.1
to Rexene Corporation's Form 8-K Current Report dated July 7,
1992 and incorporated herein by reference).
2.2 -- Order Confirming First Amended Plan of Reorganization,
dated April 29, 1992 (filed as Exhibit 2.2 to Rexene
Corporation's Annual Report on Form 10-K for the fiscal year
ended December 31, 1992 and incorporated herein by
reference).
2.3 -- Plan and Agreement of Merger, between Rexene Corporation
and Rexene Products Company, dated as of September 11, 1992
(filed as Exhibit 2.3 to Rexene Corporation's Annual Report
on Form 10- K for the fiscal year ended December 31, 1992 and
incorporated herein by reference).
3.1.1 -- Restated Certificate of Incorporation of Rexene Products
Company (a/k/a Rexene Corporation), dated September 11, 1992
(filed as Exhibit 3.1 to Rexene Corporation's Annual Report
on Form 10- K for the fiscal year ended December 31, 1992 and
incorporated herein by reference).
3.1.2-- Amendment to Certificate of Incorporation, dated June 9,
1993 (filed as Exhibit 3.1.2 to Rexene Corporation's Annual
Report on Form 10-K for the year ended December 31, 1993 and
incorporated herein by reference).
3.2 -- Amendments to By-Laws, adopted May 24, 1994, together with
a restatement of Rexene Corporation's By-Laws incorporating
all amendments through May 24, 1994 (filed as Exhibit 3.2.3
to Rexene Corporation's Form 10-Q Quarterly Report for the
three months ended June 30, 1994 and incorporated herein by
reference).
4.1 -- Indenture, dated as of November 29, 1994, between Rexene
Corporation, as Issuer, and Bank One, Texas, N.A., as
Trustee, for $175,000,000 11-3/4% Senior Notes due 2004
(filed as Exhibit 4.1 to Rexene Corporation's Annual Report
on Form 10-K for the fiscal year ended December 31, 1994 and
incorporated herein by reference).
30
<PAGE> 32
4.2.1 -- Stockholder Rights Agreement, between Rexene Corporation
and American Stock Transfer & Trust Company, as Rights Agent,
dated as of January 26, 1993 (filed as Exhibit 4.20 to Rexene
Corporation's Annual Report on Form 10-K for the fiscal
year ended December 31, 1992 and incorporated herein by
reference).
4.2.2 -- Amendment No. 1 to Stockholder Rights Agreement (filed as
Exhibit 1 to Rexene Corporation's Form 8-A/A filed on October
21, 1994 and incorporated herein by reference).
4.2.3 -- Amendment No. 2 to Stockholder Rights Agreement (filed as
Exhibit 99.4 to Rexene Corporation's Form 8-A/A filed on July
26, 1996 and incorporated herein by reference).
10.1* -- Rexene Corporation 1988 Stock Incentive Plan (filed as
Exhibit 10.5 to Rexene Corporation's Registration Statement
on Form S-1 (SEC No. 33-22723) and incorporated herein by
reference).
10.2* -- Rexene Corporation 1993 Non-Qualified Stock Option Plan
(filed as Exhibit 10.2 to Rexene Corporation's Annual Report
on Form 10-K for the fiscal year ended December 31, 1992 and
incorporated herein by reference).
10.3* -- Rexene Corporation 1994 Long-Term Incentive Plan (filed as
Exhibit 10.2 to Amendment No. 1 to Rexene Corporation's
Registration Statement on Form S-3 (SEC File No. 33-55507) as
filed on October 21, 1994 and incorporated herein by
reference).
10.4* -- Non-Qualified Stock Option Plan for Outside Directors of
Rexene Corporation (filed as Exhibit 10.3 to Rexene
Corporation's Annual Report on Form 10-K for the fiscal year
ended December 31, 1992 and incorporated herein by
reference).
10.5*-- 1995 Stock Option Plan for Outside Directors (filed as
Exhibit 10.19 to Rexene Corporation's Form 10-Q Quarterly
Report for the three months ended June 30, 1995 and
incorporated herein by reference).
10.6* -- Rexene Corporation Supplemental Executive Retirement Plan
(filed as Exhibit 10.3 to Amendment No. 1 to Rexene
Corporation's Registration Statement on Form S-3 (SEC File
No. 33-55507) as filed on October 21, 1994 and incorporated
herein by reference).
0.6.1*-- Amendment No. 1 to Rexene Corporation Supplemental
Executive Retirement Plan, dated as of June 1, 1996 (filed as
Exhibit 10.6.1 to Rexene Corporation's Quarterly Report on
Form 10-Q for the quarterly period ended June 30, 1996 and
incorporated herein by reference).
10.6.2*-- Amendment No. 2 to Rexene Corporation Supplemental
Executive Retirement Plan, dated as of July 26, 1996 (filed
as Exhibit 10.6.2 to Rexene Corporation's Quarterly Report on
Form 10-Q for the quarterly period ended June 30, 1996 and
incorporated herein by reference).
10.7.1*-- Rexene Corporation 1995 Annual Incentive Bonus Plan (filed
as Exhibit 10.6.3 to Rexene Corporation's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994 and
incorporated herein by reference).
10.7.2*-- Rexene Corporation Executive Management Committee Annual
Incentive Plan.
10.7.3*-- Rexene Corporation 1996 Performance Unit Program for
Executive Officers.
10.7.4*-- Rexene Corporation Long Term Performance Unit Program for
Executive Officers.
10.8.1*-- Rexene Corporation Executive Management Committee
Severance Policy (filed as Exhibit 10.5 to Rexene
Corporation's Annual Report on Form 10-K for the fiscal year
ended December 31, 1992 and incorporated herein by
reference).
31
<PAGE> 33
10.8.2* -- Form of Letter Agreement between Rexene Corporation and
each member of its Executive Management Committee (filed as
Exhibit 10.8.2 to Rexene Corporation's Quarterly Report on
Form 10-Q for the quarterly period ended June 30, 1996 and
incorporated herein by reference).
10.9.1* -- Executive Security Plan of Rexene Products Company (filed
as Exhibit 10.8 to Rexene Corporation's Registration
Statement on Form S-1 (SEC No. 33-22723) and incorporated
herein by reference).
10.9.2* -- Form of Letter Agreement between Rexene Corporation and L.
N. Anderson and J. E. Knott dated as of March 1, 1995
relating to waiver of certain rights under the Executive
Security Plan (filed as Exhibit 10.9.2 to Rexene
Corporation's Annual Report on Form 10-K for the year ended
December 31, 1995 and incorporated herein by reference).
10.10* -- Indemnity Agreement, dated as of May 25, 1990, by and
among Rexene Corporation, Rexene Products Company and Andrew
J. Smith (filed as Exhibit 10.8.2 to Rexene Corporation's
Annual Report on Form 10-K for the fiscal year ended December
31, 1992 and incorporated herein by reference).
10.11.1* -- Non-Qualified Stock Option Agreement, dated as of June
15, 1988, between Rexene Corporation and Lavon N. Anderson
(filed as Exhibit 10.29.2 to Rexene Corporation's
Registration Statement on Form S-1 (SEC No. 33-22723) and
incorporated herein by reference).
10.11.2* -- Indemnity Agreement, dated as of May 25, 1990, by and
among Rexene Corporation, Rexene Products Company and Lavon
N. Anderson (filed as Exhibit 10.9.3 to Rexene Corporation's
Annual Report on Form 10-K for the fiscal year ended December
31, 1992 and incorporated herein by reference).
10.12* -- Employment Agreement, dated as of May 29, 1990, between
Rexene Products Company and Jack E. Knott (filed as Exhibit
10.15 to Rexene Corporation's Annual Report on Form 10-K for
the year ended December 31, 1990 and incorporated herein by
reference).
10.13.1 -- Amended and Restated Credit Agreement dated as of April
24, 1996, among Rexene Corporation, as Borrower, The Bank of
Nova Scotia, as Agent, and the Lenders Signatory thereto
(filed as Exhibit 10.15.3 to Rexene Corporation's
Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 1996 and incorporated herein by reference).
10.13.2 -- Money Market Grid Promissory Note, dated August 5, 1996,
payable to the order of the Bank of Nova Scotia (filed as
Exhibit 10.15.4 to Rexene Corporation's Quarterly Report on
Form 10-Q for the quarterly period ended June 30, 1996 and
incorporated herein by reference) .
10.13.3 -- First Amendment and Supplement to Credit Agreement,
effective March 14, 1997, among Rexene Corporation, as
Borrower, The Bank of Nova Scotia, as Agent, and the Lenders
Signatory thereto.
10.14* -- Indemnity Agreement, dated as of May 25, 1990, by and
among Rexene Corporation, Rexene Products Company and William
B. Hewitt (filed as Exhibit 10.22 to Rexene Corporation's
Annual Report on Form 10-K for the year ended December 31,
1992, and incorporated herein by reference).
32
<PAGE> 34
21.1 -- Subsidiaries of Rexene Corporation.
23.1 -- Consent of Price Waterhouse LLP.
27.1 -- Financial Data Schedule.
99.1 -- Press Release, dated July 22, 1996, announcing rejection
of Huntsman unsolicited takeover bid (filed as Exhibit 99.1
to Rexene Corporation's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1996 and incorporated herein
by reference).
99.2 -- Letter to Shareholders, dated July 25, 1996 (filed as
Exhibit 99.2 to Rexene Corporation's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1996 and
incorporated herein by reference).
99.3 -- Press Release, dated August 5, 1996, announcing rejection
of second unsolicited Huntsman proposal (filed as Exhibit
99.3 to Rexene Corporation's Quarterly Report on Form 10-Q
for the quarterly period ended June 30, 1996 and incorporated
herein by reference).
99.4 -- Letter to Shareholders, dated September 3, 1996.
- -----------
* Management contract or compensatory plan or arrangement required to be filed
as an exhibit hereto.
(b) No Form 8-K was filed in the fourth quarter of 1996.
33
<PAGE> 35
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, hereunto duly authorized, as of March 24,
1997.
REXENE CORPORATION
Registrant
By: /s/ ANDREW J. SMITH
------------------------------
Andrew J. Smith
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below as of March 24, 1997 by the following persons on
behalf of the registrant and in the capacities indicated.
<TABLE>
<S> <C>
/s/ ANDREW J. SMITH /s/ LAVON N. ANDERSON
- ---------------------------------------------------- -------------------------------------------------
Andrew J. Smith Lavon N. Anderson
Chief Executive Officer, President and Chief Operating
Chairman of the Board and Director Officer and Director
/s/ JAMES R. BALL /s/ HARRY B. BARTLEY, JR.
- ---------------------------------------------------- -------------------------------------------------
James R. Ball Harry B. Bartley, Jr.
Director Director
/s/ R. JAMES COMEAUX /s/ WILLIAM B. HEWITT
- ---------------------------------------------------- -------------------------------------------------
R. James Comeaux William B. Hewitt
Director Director
/s/ ILAN KAUFTHAL /s/ JACK E. KNOTT
- ---------------------------------------------------- -------------------------------------------------
Ilan Kaufthal Jack E. Knott
Director Executive Vice President and Director
/s/ CHARLES O'CONNELL /s/ GEFF PERERA
- ---------------------------------------------------- -------------------------------------------------
Charles O'Connell Geff Perera
Director Executive Vice President and
Chief Financial Officer
/s/ RICHARD PERRY /s/ STEPHEN C. SWID
- ---------------------------------------------------- -------------------------------------------------
Richard Perry Stephen C. Swid
Director Director
</TABLE>
34
<PAGE> 36
REXENE CORPORATION AND SUBSIDIARIES
ITEMS 8 AND 14(a)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
Page
<S> <C>
Responsibility for the Consolidated Financial Statements............................................... F-2
Report of Independent Accountants...................................................................... F-2
Consolidated Financial Statements:
Consolidated Statements of Operations for the Years Ended December 31, 1996, 1995 and 1994.......... F-3
Consolidated Balance Sheets as of December 31, 1996 and 1995........................................ F-4
Consolidated Statements of Changes in Stockholders' Equity (Deficit) for the Years Ended
December 31, 1996, 1995 and 1994................................................................ F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994.......... F-6
Notes to Consolidated Financial Statements.......................................................... F-7-23
</TABLE>
All Financial Statement Schedules have been omitted because (i) the required
information is not present in amounts sufficient to require submission of the
schedule, (ii) the information required is included in the Consolidated
Financial Statements or the Notes thereto, or (iii) the information required in
the schedules is not applicable to the Company.
F-1
<PAGE> 37
RESPONSIBILITY FOR THE CONSOLIDATED FINANCIAL REPORTS
Company management is responsible for the preparation, accuracy and
integrity of the consolidated financial statements and other financial
information included in this Annual Report. This responsibility includes
preparing the statements in accordance with generally accepted accounting
principles and necessarily includes estimates that are based on management's
best judgements.
To help insure the accuracy and integrity of Company financial data,
management maintains internal controls which are designed to provide reasonable
assurance that transactions are executed as authorized, that they are
accurately recorded and that assets are properly safeguarded. These controls
are monitored by an ongoing program of internal audits. It is essential for all
Company employees to conduct their business affairs in keeping with the highest
ethical standards as outlined in our code of conduct policy, "Conduct of
Company Employees." Careful selection of employees, and appropriate divisions
of responsibility, also help us to achieve our control objectives.
The financial statements have been audited by the Company's
independent accountants, Price Waterhouse LLP. Their report is also shown on
this page.
The Board of Directors, acting through its Audit Committee composed
entirely of outside directors, oversees the adequacy of the Company's control
environment. The Audit Committee meets periodically with representatives of
Price Waterhouse LLP, internal financial management and the internal auditors
to review accounting, control, auditing and financial reporting matters. The
independent accountants and the internal auditors also have full and free
access to meet privately with the Committee.
Andrew J. Smith Geff Perera
Chief Executive Officer Chief Financial Officer
-----------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Rexene Corporation
In our opinion, the accompanying consolidated financial statements
listed on page F-1 present fairly, in all material respects, the financial
position of Rexene Corporation and its subsidiaries (the Company) at December
31, 1996 and 1995, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Dallas, Texas
February 12, 1997, except as to Note 20, for which the date is March 14, 1997
F-2
<PAGE> 38
REXENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------
1996 1995 1994
-------------- -------------- --------------
<S> <C> <C> <C>
Net sales........................................................... $ 587,761 $ 615,238 $ 537,957
-------------- -------------- --------------
Operating expenses:
Cost of sales..................................................... 472,152 437,640 418,048
Marketing, general and administrative............................. 43,482 42,962 37,764
Research and development.......................................... 8,691 9,490 7,060
-------------- -------------- --------------
524,325 490,092 462,872
-------------- -------------- --------------
Operating income.................................................... 63,436 125,146 75,085
Interest expense.................................................... (15,684) (24,343) (49,885)
Interest income..................................................... 1,810 3,250 2,337
Other, net.......................................................... (1,733) (174) 7,524
-------------- -------------- --------------
Income before income taxes and extraordinary loss................... 47,829 103,879 35,061
Income tax expense.................................................. (18,098) (38,436) (13,557)
-------------- -------------- --------------
Income before extraordinary loss.................................... 29,731 65,443 21,504
Extraordinary loss.................................................. -- -- (25,831)
-------------- -------------- --------------
Net income (loss)................................................... $ 29,731 $ 65,443 $ (4,327)
============== ============== ==============
Weighted average shares outstanding................................. 19,168 19,126 11,663
============== ============== ==============
Income (loss) per share:
Income before extraordinary loss.................................. $ 1.55 $ 3.42 $ 1.84
Extraordinary loss................................................ -- -- (2.21)
-------------- -------------- --------------
Net income (loss)................................................. $ 1.55 $ 3.42 $ (0.37)
============== ============== ==============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 39
REXENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
December 31,
---------------------------
ASSETS 1996 1995
------------ -------------
<S> <C> <C>
Cash and cash equivalents............................................................. $ 714 $ 47,258
Deposit held in trust................................................................. -- 3,547
Accounts receivable, net.............................................................. 85,340 73,520
Inventories........................................................................... 81,026 62,257
Deferred income taxes................................................................. 2,816 5,663
Prepaid expenses and other............................................................ 301 531
------------ -------------
Total current assets............................................................... 170,197 192,776
------------ -------------
Property, plant and equipment, net.................................................... 383,700 291,675
Intangible assets, net................................................................ 15,570 11,811
Other noncurrent assets............................................................... 28,075 24,329
------------ -------------
$ 597,542 $ 520,591
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable...................................................................... $ 55,030 $ 29,768
Income taxes payable.................................................................. 594 30,778
Accrued liabilities................................................................... 13,772 14,319
Accrued interest...................................................................... 1,889 1,714
Employee benefits payable............................................................. 6,823 7,781
------------ -------------
Total current liabilities.......................................................... 78,108 84,360
------------ -------------
Long-term debt........................................................................ 235,000 175,000
Other noncurrent liabilities.......................................................... 62,459 67,107
Deferred income taxes................................................................. 52,924 53,973
Commitments and contingencies......................................................... -- --
Stockholders' equity:
Preferred stock, par value $.01 per share; 1 million shares authorized; none issued
and outstanding, respectively..................................................... -- --
Common stock, par value $.01 per share; 100 million shares authorized; 18.8
and 18.7 million shares issued and outstanding, respectively...................... 188 187
Paid-in capital.................................................................... 111,553 111,247
Retained earnings.................................................................. 55,320 28,595
Foreign currency translation adjustment............................................ 1,990 122
------------ -------------
Total stockholders' equity........................................................ 169,051 140,151
------------ -------------
$ 597,542 $ 520,591
============ =============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 40
REXENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Foreign
Common Stock Retained Currency
------------------------- Paid-in Earnings Translation
Shares Amount Capital (Deficit) Adjustment Total
----------- ------------ ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993.................. 10,501 $ 105 $ 26,529 $ (31,771) $ -- $ (5,137)
Issuance of common stock.................... 8,124 81 83,826 -- -- 83,907
Foreign currency translation adjustment..... -- -- -- -- 433 433
Net loss.................................... -- -- -- (4,327) -- (4,327)
----------- ------------ ------------- ------------- ------------ -------------
Balance, December 31, 1994.................. 18,625 186 110,355 (36,098) 433 74,876
Issuance of common stock.................... 120 1 365 -- -- 366
Tax benefit of directors' and employees'
compensation deduction.................... -- -- 527 -- -- 527
Foreign currency translation adjustment..... -- -- -- -- (311) (311)
Dividends on common stock ($.04 per share).. -- -- -- (750) -- (750)
Net income.................................. -- -- -- 65,443 -- 65,443
----------- ------------ ------------- ------------- ------------ -------------
Balance, December 31, 1995.................. 18,745 187 111,247 28,595 122 140,151
Issuance of common stock.................... 63 1 240 -- -- 241
Tax benefit of directors' and employees'
compensation deduction.................... -- -- 66 -- -- 66
Foreign currency translation adjustment..... -- -- -- -- 1,868 1,868
Dividends on common stock ($.16 per share).. -- -- -- (3,006) -- (3,006)
Net income.................................. -- -- -- 29,731 -- 29,731
----------- ------------ ------------- -------------- ------------ ------------
Balance, December 31, 1996.................. 18,808 $ 188 $ 111,553 $ 55,320 $ 1,990 $ 169,051
=========== ============ ============= ============== ============ ============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 41
REXENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------
1996 1995 1994
----------- ------------ -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................................... $ 29,731 $ 65,443 $ (4,327)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization............................... 23,402 21,475 18,959
Deferred income taxes....................................... 1,750 5,168 (2,476)
Amortization of debt issuance costs......................... 1,297 2,876 --
Extraordinary loss, net of income taxes..................... -- -- 25,831
Reversal of lawsuit judgment................................ -- -- (7,400)
Non-cash interest expense................................... -- -- 19,441
Change in:
Deposits held in trust.................................... 3,547 4,453 --
Accounts receivable....................................... (11,597) 3,872 (19,588)
Inventories............................................... (18,628) 5,943 (10,111)
Prepaid expenses and other................................ 235 567 413
Income taxes.............................................. (30,118) 32,952 19,550
Accounts payable.......................................... 25,106 (8,254) 10,621
Accrued interest.......................................... 175 (180) (1,203)
Employee benefits payable and accrued liabilities......... (976) 2,369 3,528
Other noncurrent liabilities.............................. (549) (2,492) 3,189
Other....................................................... (5,166) (1,716) (3,643)
----------- ------------ -----------
Total adjustments....................................... (11,522) 67,033 57,111
----------- ------------ -----------
Net cash provided by operating activities......................... 18,209 132,476 52,784
----------- ------------ -----------
Cash flows used for investing activities -- capital expenditures.. (113,792) (54,606) (30,876)
----------- ------------ -----------
Cash flows from financing activities:
Repayment of debt............................................... -- (100,000) (352,629)
Advance payment from customer, net of repayments................ (3,600) 23,200 --
Proceeds from issuance of common stock, net..................... 241 366 83,907
Cash dividends paid............................................. (3,004) -- --
Proceeds from issuance of debt.................................. -- -- 275,000
Bank borrowing.................................................. 60,000 -- 7,000
Repayment of bank borrowing..................................... -- -- (9,000)
Debt issuance costs and other................................... (4,598) -- (10,899)
----------- ------------ -----------
Net cash provided by (used for) financing activities.............. 49,039 (76,434) (6,621)
----------- ------------ -----------
Net increase (decrease) in cash and cash equivalents.............. (46,544) 1,436 15,287
Cash and cash equivalents at beginning of year.................... 47,258 45,822 30,535
----------- ------------ -----------
Cash and cash equivalents at end of year.......................... $ 714 $ 47,258 $ 45,822
=========== ============ ===========
Supplemental cash flow information:
Cash paid for interest.......................................... $ 21,951 $ 23,740 $ 30,915
Cash paid for income taxes...................................... $ 46,551 $ 1,933 $ 2,451
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 42
REXENE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
Rexene Corporation (the "Company") manufactures and markets a wide
variety of products through two operating divisions. 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 ("APAO"), styrene and, beginning in 1997, REXflex(R) FPO. The
markets in which the Company competes are cyclical markets that are sensitive
to relative changes in supply and demand, which in turn are affected by general
economic conditions. The Company's plastic film and APAO businesses are
generally less sensitive to the economic cycles.
Management Assumptions
The preparation of the consolidated financial statements requires
management to make estimates and assumptions that affect the reported amounts
of assets, liabilities and disclosure of contingent assets and liabilities and
the reported amounts of revenues and expenses. Actual results could differ from
these estimates.
Principles of Consolidation
The consolidated financial statements of the Company include its
wholly-owned subsidiaries. Intercompany transactions and balances are
eliminated.
Cash and Cash Equivalents
Cash equivalents represent short-term investments with original
maturities of three months or less.
Inventories
Inventories are stated at the lower of cost or market using the
first-in, first-out method.
Property, Plant and Equipment
Property, plant and equipment is stated at cost. Depreciation is
provided utilizing the straight-line method over the estimated useful lives of
the assets, ranging from 3 to 20 years. Improvements are capitalized, while
repair and maintenance costs are charged to operations as incurred. Interest
costs are capitalized as part of major construction projects. Upon disposal of
assets, the cost and related accumulated depreciation are removed from the
accounts and the resulting gain or loss is included in income.
Intangible Assets
Debt issuance costs are amortized over the term of the related debt,
ranging from five to ten years. Reorganization value in excess of amounts
allocable to identifiable assets is amortized on a straight-line basis over
fifteen years. Other intangible assets are stated at cost and consist primarily
of licensing agreements and patents, which are amortized on a straight-line
basis over five years.
F-7
<PAGE> 43
REXENE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Income Taxes
The Company accounts for income taxes following an asset and liability
approach to financial accounting and reporting of income taxes.
Foreign Currency Translation
Operations of the Company's foreign subsidiary use the local currency
of the country of operation as the functional currency. The financial
statements of the foreign subsidiary are translated at current and average
exchange rates, with any resulting translation adjustments included in the
foreign currency translation adjustment account in stockholders' equity.
Income (Loss) per Share
Income (Loss) per share is based on the weighted average number of
shares of common stock and, if dilutive, common stock equivalents outstanding.
Fair Value of Financial Instruments
The carrying values of current assets and liabilities approximate fair
value. At December 31, 1996 and 1995, the fair value of the $175 million
principal amount 11 3/4% Senior Notes was approximately $194 million and $187
million, respectively, based on quoted market rates.
Reclassifications
Certain amounts in the consolidated financial statements for periods
prior to 1996 have been reclassified to conform with the 1996 presentation.
New Accounting Standards
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard ("SFAS") No. 123, "Accounting for
Stock-Based Compensation," which generally establishes financial accounting and
reporting standards for stock-based employee compensation plans. As permitted
by SFAS No. 123, the Company continues to account for such plans in accordance
with Accounting Principles Board Opinion No. 25 and provides certain disclosures
required by SFAS No. 123.
During 1995, the Company adopted SFAS No. 121, "Impairment of Long-Lived
Assets." There was no adjustment recorded as a result of adopting this
standard. The Company periodically compares the carrying value of its
long-lived assets, principally property, plant and equipment, to undiscounted
cash flows generated by the long-lived assets. The Company's undiscounted cash
flows exceed the carrying value of its long-lived assets.
2. RECAPITALIZATION
In the fourth quarter of 1994, the Company completed a recapitalization
plan (the "Recapitalization") consisting of (i) the issuance of 8 million
shares of common stock at $11.00 per share, (ii) the issuance of 11 3/4% Senior
Notes due 2004 (the "11 3/4% Senior Notes") in an aggregate principal amount of
$175 million, (iii) the establishment of a new credit facility (the "Credit
Agreement"), providing the Company with a $100 million term loan (the "Term
Loan") and an $80 million revolving line of credit (the "Revolving Credit
Facility"), (iv) the redemption and defeasance of the Company's existing
increasing rate senior notes (the "Old Notes"), and (v) the repayment in full
of the then outstanding indebtedness under the Company's existing credit
agreement. In connection with the redemption of the Old Notes, the Company
recorded an extraordinary loss of $25.8 million (net of income tax benefits of
$15.8 million).
F-8
<PAGE> 44
REXENE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
------------------------------
1996 1995
----------- ------------
<S> <C> <C>
Trade....................................................................... $ 77,822 $ 65,719
Other....................................................................... 11,030 11,175
----------- ------------
88,852 76,894
Less allowances for bad debts and returns................................... (3,512) (3,374)
----------- ------------
$ 85,340 $ 73,520
=========== ============
</TABLE>
Net additions to (deductions from) the allowance accounts were $138,000,
($595,000) and $162,000 for 1996, 1995 and 1994, respectively.
4. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------------------------
1996 1995
------------ ------------
<S> <C> <C>
Raw materials.............................................................. $ 30,145 $ 20,144
Work in progress........................................................... 8,561 5,356
Finished goods............................................................. 42,320 36,757
------------ ------------
$ 81,026 $ 62,257
============ ============
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------------------------
1996 1995
------------ ------------
<S> <C> <C>
Land....................................................................... $ 5,874 $ 5,823
Buildings.................................................................. 34,588 22,697
Plant and equipment........................................................ 359,243 284,749
Construction in progress................................................... 61,764 34,258
------------ ------------
461,469 347,527
Less accumulated depreciation.............................................. (77,769) (55,852)
------------ ------------
$ 383,700 $ 291,675
============ ============
</TABLE>
Depreciation expense for the years ended December 31, 1996, 1995 and
1994 was $21,768,000, $19,123,000 and $17,426,000, respectively. During the
years ended December 31, 1996, 1995, and 1994, $8,259,000, $2,577,000 and
$1,412,000, respectively, of interest was capitalized in connection with
construction projects.
F-9
<PAGE> 45
REXENE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
6. INTANGIBLE ASSETS
Intangible assets, net of accumulated amortization are (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------------------
1996 1995
------------ -------------
<S> <C> <C>
Debt issuance costs.................................................................. $ 14,333 $ 9,735
Less accumulated amortization........................................................ (4,288) (2,991)
------------ -------------
10,045 6,744
Reorganization value in excess of amounts allocable to identifiable assets........... 4,298 4,298
Less accumulated amortization........................................................ (1,437) (1,171)
------------ -------------
2,861 3,127
Other intangible assets.............................................................. 7,377 5,544
Less accumulated amortization........................................................ (4,713) (3,604)
------------ -------------
2,664 1,940
------------ -------------
$ 15,570 $ 11,811
============ =============
</TABLE>
7. OTHER NONCURRENT ASSETS
Other noncurrent assets consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------------------
1996 1995
------------ -------------
<S> <C> <C>
Spare parts inventories.............................................................. $ 16,945 $ 15,760
Unrecognized prior service cost, net of accumulated amortization of $741 in 1996
and $389 in 1995................................................................ 2,022 2,763
Deposit in rabbi trust............................................................... 2,856 2,766
Long-term note receivable............................................................ 1,550 1,550
Deposits held in trusts.............................................................. -- 3,547
Other................................................................................ 4,702 1,490
------------ -------------
28,075 27,876
Less: current portion of deposits held in trust..................................... -- (3,547)
------------ -------------
$ 28,075 $ 24,329
============ =============
</TABLE>
Spare parts inventories are recorded at average cost. In 1995, the
Company deposited $2.8 million in a rabbi trust account to fund a Supplemental
Executive Retirement Plan (see note 15). In 1996, no amounts were deposited in
the rabbi trust account to fund the SERP. The deposits held in trusts for the
benefit of the Texas Natural Resource Conservation Commission ("TNRCC") were
established and funded to comply with the financial assurance requirements of
the Resource Conservation and Recovery Act. Based on the Company's improved
financial condition, the TNRCC released the funds in the trust during 1996.
F-10
<PAGE> 46
REXENE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
8. ACCRUED LIABILITIES
Accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
---------------------------
1996 1995
------------- -------------
<S> <C> <C>
Accrued taxes, other than income..................................................... $ 3,243 $ 2,811
Current portion of advance payment from customer (see note 10)....................... 3,600 3,600
Other accrued expenses............................................................... 6,929 7,908
------------- -------------
$ 13,772 $ 14,319
============= =============
</TABLE>
9. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------------------
1996 1995
------------ -------------
<S> <C> <C>
Senior Notes due November 2004....................................................... $ 175,000 $ 175,000
Bank borrowing under the Amended Credit Agreement.................................... 60,000 --
------------ -------------
$ 235,000 $ 175,000
============ =============
</TABLE>
Senior Notes
The 11 3/4% Senior Notes rank pari passu in right of payment with all
senior borrowings, including borrowings under the Amended Credit Agreement. The
11 3/4% Senior Notes rank senior in right of payment to any subordinated
indebtedness of the Company. The Company has no such outstanding subordinated
indebtedness at December 31, 1996 and 1995. Interest is payable on the 11 3/4%
Senior Notes semiannually on June 1 and December 1 at an annual interest rate
of 11 3/4%. The Company is not required to make mandatory redemption or sinking
fund payments with respect to the 11 3/4% Senior Notes.
The 11 3/4% Senior Notes are not redeemable, in whole or in part, prior
to December 1, 1999, except that, at any time prior to December 1, 1997, the
Company may redeem up to an aggregate of $58.3 million principal amount of
11 3/4% Senior Notes, at a price equal to 110% of the principal amount thereof,
plus accrued and unpaid interest, if any, to the redemption date with the net
cash proceeds of any future offerings of common stock of the Company; provided,
however, that at least $100 million aggregate principal amount of 11 3/4%
Senior Notes is outstanding immediately following each such redemption; and
provided further that each such redemption occurs within 60 days of the date of
the closing of the applicable offering. On or after December 1, 1999, the 11
3/4% Senior Notes are redeemable, at the Company's option, in whole or in part,
at the redemption prices (expressed as percentages of principal amount) set
forth below plus accrued and unpaid interest, if any, to the date of
redemption.
F-11
<PAGE> 47
REXENE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C> <C>
1999................................... 105.875%
2000................................... 103.917%
2001................................... 101.958%
2002 and thereafter.................... 100.000%
</TABLE>
The indenture governing the 11 3/4% Senior Notes contains certain
covenants that, among other things, limit the ability of the Company to incur
additional indebtedness and to repurchase subordinated indebtedness, incur or
suffer to exist certain liens, pay dividends, make certain investments, sell
significant fixed assets and engage in mergers and consolidations.
Amended and Restated Credit Agreement
In April 1996, the Company executed an Amended and Restated Credit
Agreement (the "Amended Credit Agreement") expiring in 2003 which increased
borrowing capacity under the Revolving Credit Facility to $150 million.
Borrowings under the Amended Credit Agreement bear interest at a floating rate
based on the prime rate or, at the Company's option, on the reserve-adjusted
London Interbank offered rate and is secured by the pledge of substantially all
of the assets of the Company, including inventory and accounts receivable and
the proceeds thereof, but excluding the styrene plant in Odessa, Texas and the
property at the plant in Scunthorpe, England. At December 31, 1996,
approximately $2.3 million of stand-by letters of credit were outstanding under
the Amended Credit Agreement and the applicable interest rate on outstanding
borrowings was 7.4%.
The Amended Credit Agreement contains covenants which limit, among
other things, the incurrence of additional indebtedness by the Company, the
payment of dividends, the creation of liens on the Company's assets, the making
of certain investments by the Company, certain mergers, sales of certain fixed
assets and the prepayment of the 11 3/4% Senior Notes. The Amended Credit
Agreement also contains certain financial covenants relating to the financial
condition of the Company, including covenants relating to interest coverage and
a leverage ratio.
Unsecured Note
On August 5, 1996, the Company executed an agreement with a financial
institution for a $10 million uncommitted, unsecured line of credit ( the
"Unsecured Note") for day to day cash flow requirements. As of December 31,
1996, the Unsecured Note had no outstanding balance .
10. OTHER NONCURRENT LIABILITIES
Other noncurrent liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------------------------
1996 1995
------------ ------------
<S> <C> <C>
Accrued environmental remediation costs......................................$ 18,433 $ 20,331
Advance payment from customer................................................ 16,000 19,600
Accumulated postretirement benefit obligation (see note 15).................. 16,379 15,841
Pension liabilities.......................................................... 8,076 6,730
Other........................................................................ 3,571 4,605
------------ ------------
$ 62,459 $ 67,107
============ ============
</TABLE>
F-12
<PAGE> 48
REXENE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
In July 1995, 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. The unamortized portion of this advance payment, net of the
current portion, is included as a noncurrent liability above. This advance
payment is secured by a lien on the styrene plant in Odessa, Texas.
11. COMMITMENTS
The future payments of rentals on buildings, computers, office equipment
and transportation equipment under the terms of noncancellable operating lease
agreements are as follows (in thousands):
<TABLE>
<CAPTION>
For the years ending December 31,
<S> <C> <C>
1997.............................................................................. $ 7,720
1998.............................................................................. 6,555
1999.............................................................................. 5,837
2000.............................................................................. 4,633
2001.............................................................................. 2,165
2002 and thereafter............................................................... 4,025
--------
Total minimum lease payments...................................................... $ 30,935
========
</TABLE>
Rental expense under operating leases for the years ended December 31,
1996, 1995 and 1994 approximated $8,699,000, $8,902,000 and $7,616,000,
respectively.
In 1997, the Company expects to spend approximately the same amount for
capital expenditures as in 1996.
12. INCOME TAXES
Income tax (expense) benefit on the Company's income before extraordinary
loss consists of the following (in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------
1996 1995 1994
-------------- -------------- ------------
<S> <C> <C> <C>
Current:
Federal...................................................... $ (14,324) $ (30,376) $ (13,883)
State........................................................ (2,024) (2,892) (2,150)
Deferred ...................................................... (1,750) (5,168) 2,476
-------------- -------------- ------------
$ (18,098) $ (38,436) $ (13,557)
============== ============== ============
</TABLE>
In addition, for the year ended December 31, 1994, the Company recorded
an income tax benefit of $15.8 million as a result of the extraordinary loss
from the Recapitalization.
F-13
<PAGE> 49
REXENE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The statutory federal income tax rate was 35% for the years ended
December 31, 1996, 1995 and 1994. The effective income tax rate differs from
the amount computed by applying the statutory federal income tax rate to the
Company's income before income taxes and extraordinary loss. The reasons for
these differences are as follows (in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Income tax expense computed at statutory federal tax rate..............$ (16,740) $ (36,358) $ (12,271)
State income taxes..................................................... (1,316) (1,880) (554)
Non-deductible amortization and expenses............................... (246) (544) (245)
Non-cash interest...................................................... -- -- (1,771)
Effect of Foreign Sales Corporation.................................... 349 1,013 --
Other, net............................................................. (145) (667) 1,284
------------ ------------ ------------
Income tax expense.....................................................$ (18,098) $ (38,436) $ (13,557)
============ ============ ============
</TABLE>
The net deferred income tax liability consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------------------------
1996 1995
------------ -----------
<S> <C> <C>
Property, plant and equipment............................................... $ 73,142 $ 71,452
Intangible assets........................................................... 1,709 737
------------ -----------
Gross deferred tax liabilities............................................ 74,851 72,189
------------ -----------
Accounts receivable......................................................... (1,392) (2,311)
Inventories................................................................. (361) (659)
Tax losses and credits carried forward...................................... (3,526) (1,358)
Other noncurrent assets..................................................... (1,686) (1,321)
Other noncurrent liabilities................................................ (16,765) (16,895)
Other current assets and liabilities........................................ (1,013) (1,335)
------------ -----------
Gross deferred tax assets................................................. (24,743) (23,879)
------------ -----------
$ 50,108 $ 48,310
============ ===========
</TABLE>
The Company has unused net operating loss carryforwards of $8.1 million
in the United Kingdom, which do not expire. In 1994, the Company received $5.5
million in income tax refunds related to the carryback of the 1993 and 1992 net
operating losses to the year ended December 31, 1990.
13. INTEREST EXPENSE
For the years ended December 31, 1996 and 1995, interest expense consists
of (i) interest on the 11 3/4% Senior Notes, (ii) interest on the Amended
Credit Agreement or Term Loan and, (iii) amortization of debt issuance costs,
net of (iv) an allocation for interest capitalized in connection with
construction projects (see note 5). For the year ended December 31, 1994,
interest expense consists of (i) interest on the Old Notes, (ii) accretion on
the Old Notes and (iii) an adjustment for Emerging Issues Task Force Issue No.
86-15 "Increasing Rate Debt," net of (iv) an allocation for interest
capitalized in connection with construction projects.
F-14
<PAGE> 50
REXENE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
14. OTHER INFORMATION
Export sales were $54,138,000, $77,508,000, and $52,382,000 for the years
ended December 31, 1996, 1995 and 1994, respectively.
Other income for the year ended December 31, 1994 includes the reversal
of a $7.4 million lawsuit accrual for which the Company ultimately prevailed on
appeal.
Maintenance and repair expenses were $29,343,000, $28,606,000, and
$27,335,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
15. EMPLOYEE BENEFITS
Savings Plan
The Company sponsors an employee savings plan (the "Savings Plan") that
provides participating employees with additional income upon retirement.
Employees may contribute between 1% and 10% of their base salary up to a
maximum of $9,500 annually to the Savings Plan. The Company matches a minimum
of 25% of the employee's aggregate contributions up to 6% of the employee's
base salary. Employee contributions are fully vested. Employer contributions
are fully vested upon retirement or after five years of service. For 1996, 1995
and 1994, the Company matched 25% of the employee contributions up to the 6%
limit, contributing approximately $526,000, $388,000, and $395,000 to the
Savings Plan, respectively.
Pension and Retirement Plans
The Company has two noncontributory defined benefit plans (the "Pension
Plans") covering substantially all full time employees. Benefits provided under
the Pension Plans are primarily based on years of service and the employee's
final average earnings. The Company's funding policy is to contribute annually
an amount based upon actuarial and economic assumptions designed to achieve
adequate funding of projected benefit obligations.
The Company has a Supplemental Executive Retirement Plan (the "SERP") to
provide supplemental retirement and survivor benefits for certain key employees
who complete a specified period of service and otherwise become eligible under
the SERP. In 1996, no amounts were deposited in the rabbi trust account to fund
the SERP. In 1995, $2.8 million was funded for the SERP.
The Company provides retirement and death benefits to certain employees
through an Executive Security Plan (the "Security Plan"). The Company does not
fund the Security Plan, and no amount was funded for the Security Plan in 1996
and 1995. No new employees have been added to this plan, and it is not expected
that any additional employees will participate in the Security Plan.
F-15
<PAGE> 51
REXENE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Net pension expense consists of the following (in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------
1996 1995 1994
------------ ------------ -----------
<S> <C> <C> <C>
Service cost...................................................... $ 2,575 $ 2,050 $ 1,792
Interest cost..................................................... 2,170 1,850 1,503
Actual return on plan assets...................................... (1,457) (2,704) 462
Net amortization and deferral..................................... 288 1,929 (1,410)
------------ ------------ -----------
Net pension expense............................................... $ 3,576 $ 3,125 $ 2,347
============ ============ ===========
</TABLE>
The following table sets forth the funded status of the pension and
retirement plans at December 31 (in thousands):
<TABLE>
<CAPTION>
1996 1995
------------- --------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits................................................................ $ 20,680 $ 16,888
Non-vested benefits............................................................ 9,333 8,601
------------- --------------
Accumulated benefit obligation................................................... $ 30,013 $ 25,489
============= ==============
Projected benefit obligation..................................................... $ 34,839 $ 29,425
Plan assets at fair value........................................................ (21,316) (19,143)
------------- --------------
Excess of projected benefit obligations over plan assets......................... 13,523 10,282
Unrecognized net loss............................................................ (3,487) (1,816)
Unrecognized prior service cost.................................................. (4,259) (4,824)
Additional liability............................................................. 2,299 3,088
------------- --------------
Pension liabilities included in other noncurrent liabilities..................... $ 8,076 $ 6,730
============= ==============
</TABLE>
At December 31, 1996 and 1995, in determining the present value of
benefit obligations, a discount rate of 7.75% and 7.25% was used, respectively.
The assumption for the increase in future compensation levels was 4.5% at
December 31, 1996 and 1995. At December 31, 1995 and 1994, the expected
long-term rate of return on assets used in determining future service costs was
9%.
Postemployment Benefits
The Company's obligation for postemployment benefits at December 31, 1996
and 1995 approximated $.3 million and $.9 million, respectively, and is
included in other noncurrent liabilities.
Postretirement Benefits Other than Pensions
The Company sponsors postretirement benefits other than the Pension
Plans, such as health care and medical benefits. The Company reimburses
retirees for these benefits but does not provide any additional funding for the
postretirement benefits.
F-16
<PAGE> 52
REXENE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Net postretirement benefit expense consists of the following (in
thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Service cost...................................................... $ 396 $ 374 $ 394
Interest cost..................................................... 790 766 682
Net amortization and deferral..................................... (346) (339) (284)
------------ ------------ ------------
Net postretirement benefit expense................................ $ 840 $ 801 $ 792
============ ============ ============
</TABLE>
The following table sets forth the funded status of the postretirement
benefits at December 31 (in thousands):
<TABLE>
<CAPTION>
1996 1995
-------------- -------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Active participants eligible for retirement..................................... $ 4,058 $ 3,583
Active participants not yet eligible for retirement............................. 5,353 3,553
Retired participants............................................................ 2,857 2,906
-------------- -------------
Accumulated postretirement benefit obligation..................................... 12,268 10,042
Plan assets at fair value......................................................... -- --
-------------- -------------
Excess of benefit obligation over plan assets..................................... 12,268 10,042
Unrecognized prior service cost................................................... (113) 760
Unrecognized net gain............................................................. 4,224 5,039
-------------- -------------
Postretirement benefits included in other noncurrent liabilities.................. $ 16,379 $ 15,841
============== =============
</TABLE>
In 1996 and 1995, in determining the value of postretirement benefit
obligations, a discount rate of 7.75% and 7.25%, respectively, was used, and in
1996 the health care trend rate used to measure the expected increase in cost
of benefits was assumed to be 9.0% in 1997, and descending to 5.5% in 2003 and
thereafter. A one percentage-point increase in the assumed health care cost
trend rate for each year would increase the accumulated postretirement benefit
obligation as of December 31, 1996 by approximately $422,000 and would increase
the service and interest cost components of the net postretirement benefit cost
for the year ended December 31, 1996 by approximately $41,000.
Employee Stock Option Plans
In 1988, the Company adopted a stock incentive plan (the "Stock Incentive
Plan") providing for the granting of 87,500 stock options for, stock
appreciation rights in, and the sale of restricted shares of, common stock for
certain employees. In 1993, the Company adopted a stock option plan (the
"Employee Plan") providing for the granting of 700,000 stock options for common
stock to key employees of the Company. In 1994, the Company adopted a long-term
incentive plan (the "Incentive Plan") providing for the granting of 882,000
stock options for common stock to key employees of the Company. The Incentive
Plan is intended to replace the Stock Incentive Plan and the Employee Plan. The
Company has granted non-qualified stock options under the Stock Incentive Plan,
the Incentive Plan and the Employee Plan. In August, 1996 the Company granted
489,500 stock options to employees under the Incentive Plan.
F-17
<PAGE> 53
REXENE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The exercise price of stock options is based on the average trading price of
the stock for twenty days prior to the grant date. Changes in stock options
during the years indicated are as follows:
<TABLE>
<CAPTION>
Options Price Range Weighted Average
Outstanding Per Share Exercise Price
-------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Balance at December 31, 1993......................... 220,300 $3.43 -- 304.00 $15.50
Granted.............................................. 498,000 3.71 -- 14.63 9.22
Exercised............................................ (4,496) 3.43 3.43
Canceled............................................. (8,175) 304.00 304.00
--------------
Balance at December 31, 1994......................... 705,629 3.43 -- 95.20 7.81
Exercised............................................ (16,157) 3.43 -- 3.71 3.55
Canceled............................................. (9,561) 3.43 -- 95.20 80.04
--------------
Balance at December 31, 1995......................... 679,911 3.43 -- 14.63 6.89
Granted.............................................. 489,500 10.79 10.79
Exercised............................................ (29,168) 3.43 -- 3.71 3.57
Canceled............................................. (28,566) 3.43 -- 14.63 12.07
--------------
Balance at December 31, 1996......................... 1,111,677 3.43 -- 14.63 9.02
==============
</TABLE>
At December 31, 1996, 392,500 options are available for grant under
the Incentive Plan. The following table summarizes information about options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Weighted
Number Average Weighted Number Weighted
Range of Outstanding Remaining Average Exercisable Average
Exercise Prices at 12/31/96 Life(Years) Exercise Price at 12/31/96 Exercise Price
- ---------------------- ------------------ ------------------- ----------------------- ------------- ---------------
<C> <C> <C> <C> <C> <C> <C>
$ 3.43 to $3.71 393,674 6.82 $ 3.58 318,501 $ 3.55
$10.00 to $14.63 718,003 8.97 11.99 153,324 14.54
--------- -------
1,111,677 8.21 9.02 471,825 7.12
========= =======
</TABLE>
Outside Director Stock Option Plans
In 1993, the Company adopted a non-qualified stock option plan for
outside directors providing for the granting of 225,000 stock options for
common stock. In 1995, the Company adopted a non-qualified stock option plan
for outside directors providing for the granting of 60,000 stock options for
common stock. The exercise price of stock options is less than the market value
of the Company's stock on the date of grant. Accordingly, compensation expense
is recognized by the Company with respect to such grants. Changes in stock
options during the years indicated are as follows:
F-18
<PAGE> 54
REXENE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
<TABLE>
<CAPTION>
Weighted
Options Price Range Average
Outstanding Per Share Exercise Price
-------------- ------------------- -----------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993....................... 104,167 $ 0.63 $0.63
Granted............................................ 104,167 0.43 0.43
Exercised.......................................... (14,583) 0.63 0.63
Canceled........................................... (18,750) 0.43 -- 0.63 0.50
--------------
Balance at December 31, 1994....................... 175,001 0.43 -- 0.63 0.53
Granted............................................ 14,500 2.09 2.09
Exercised.......................................... (104,167) 0.43 -- 0.63 0.55
--------------
Balance at December 31, 1995....................... 85,334 0.43 -- 2.09 0.76
Granted............................................ 14,000 3.22 3.22
Exercised.......................................... (33,584) 0.43 -- 2.09 0.75
--------------
Balance at December 31, 1996....................... 65,750 0.43 -- 3.22 1.28
==============
</TABLE>
At December 31, 1996, 51,750 options are exercisable, and 31,500
options are available for grant.
As permitted by SFAS No. 123, the Company elected to continue to use
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" and related interpretations in accounting for its stock option
incentive plans. If the Company had elected to recognize compensation cost
based on the fair value of the options granted at grant date and the vesting
provisions under the plans in accordance with SFAS No. 123, net income in 1996
would have been reduced by approximately $118,000, or $.01 per share. Earnings
per share for 1995 would not have changed. The average fair value of each
option granted during 1996 under the Incentive Plan is estimated at $8.48 on
the date of grant using the Noreen-Wolfson option pricing model with the
following assumptions: (i) volatility of 46.9%, (ii) risk free interest rates
of 6.95%, (iii) expected life of ten years with no defaults; and (iv) the
Company's present dividend yield rate. The effects of applying SFAS No. 123 in
this pro forma disclosure are not necessarily indicative of future amounts as
SFAS No. 123 does not apply to awards prior to 1995 and additional awards are
anticipated in future years.
Stock Option for Former Officer
In 1994, a stock option to purchase 105,031 shares of common stock at
an aggregate exercise price of $901,120 was exercised.
Stock Bonus Plan
In 1985, the Company established an employee stock bonus plan (the
"Stock Bonus Plan") for the benefit of its employees. Contributions were made
at the discretion of the Company. Effective January 1, 1992, all participants
(as defined) became 100% vested, and participation in the Stock Bonus Plan was
frozen. In May 1996, the company terminated the Stock Bonus Plan and
distributed all the funds.
16. COMMON STOCK PURCHASE RIGHTS
In 1993, the Company declared a dividend distribution of one Common
Stock Purchase Right (a "Right") for each outstanding share of common stock.
The Rights are exercisable only if a person or group acquires 15% or
F-19
<PAGE> 55
REXENE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
more of common stock or announces a tender offer, the consummation of which
would result in ownership by a person or group of 15% or more of the common
stock. Each Right entitles stockholders to purchase such number of shares of
common stock at an exercise price of $60.00 (as amended) as determined under
formulas set out in the agreement providing for the Rights. The existence of
the Rights may, under certain circumstances, render more difficult or
discourage attempts to acquire the Company.
The Company can terminate the Rights at no cost any time prior to the
acquisition of a 15% position. The termination period can be extended by the
Board of Directors. The rights expire February 8, 2003.
17. RELATED PARTY TRANSACTIONS
Pursuant to a letter agreement between the Company and its Chairman of
the Board, Arthur L. Goeschel, the Company agreed to pay Mr. Goeschel, in
addition to his normal director fees, a sum of $2,750 per day plus expenses for
each day over five days per quarter that he spends on Company matters. Under
this letter agreement, the Company paid Mr. Goeschel approximately $50,000 in
additional fees for the year ended December 31, 1994. No amount of additional
fees were paid in 1996 or 1995.
Mr. Kevin Clowe, a former director of the Company in 1994, is a
corporate officer of The American International Group, Inc. ("AIG") which
provides various types of insurance for the Company. During 1994, the Company
paid approximately $3.1 million in premiums and fees to subsidiaries of AIG in
the ordinary course of business.
Mr. Ilan Kaufthal, a director of the Company, is a managing director
of Schroder Wertheim & Co. Incorporated ("Schroder"). In connection with the
Recapitalization in 1994, the Company paid Schroder underwriter fees of
approximately $2.9 million. During 1996, the Company paid Schroder $0.6 million
for services in connection with an unsolicited offer to purchase the Company.
18. CONTINGENCIES
Environmental Regulation
The Company, and the industry in which it competes, 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
and expected future results of operations, it will have adequate resources to
conduct its operations in compliance with currently applicable environmental
and health and safety laws and regulations. However, in order to comply with
changing facility permitting and regulatory standards, the Company may be
required to make additional significant site or operational modifications that
are not currently contemplated. Further, the Company has incurred and may in
the future incur liability to 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 reasonable investigation
and analysis, management believes that the approximately $18.4 million accrued
in the December 31, 1996 balance sheet is adequate for the total potential
environmental liability of the Company with respect to contaminated sites.
Extensive environmental investigation of the groundwater, soils and solid waste
management has been conducted at the Odessa Facility. Risk assessments have
been completed for a number of these facilities and corrective measures have
been defined and conducted. Approval of these waste management unit closures
requires a public notice period that expires at the end of February 1997. The
Company has received approval to allow closure of five solid waste management
units, which will permit a reduction in the accrual for potential environmental
liability of approximately $9.0 million. The Company continually reviews its
estimates of potential environmental liabilities. 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 remediate such conditions will not be significant to the
Company. The Company's operating
F-20
<PAGE> 56
REXENE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
expenditures for environmental remediation, compliance and waste disposal were
approximately $7.6 million, $8.3 million and $6.6 million in 1996, 1995 and
1994, respectively.
The Company currently disposes of wastewater from the Odessa Facility
through injection wells operated under permits from the Texas Natural Resource
Conservation Commission ("TNRCC"). TNRCC has stated that it does not intend to
renew the permits after they expire in December 1997. The Company has entered
into an agreement with the City of Odessa and the Gulf Coast Waste Disposal
Authority pursuant to which the latter will acquire, modify and operate a
publicly-owned treatment works ("POTW") to dispose of the Company's and a
portion of the City of Odessa's wastewater. Construction to modify the existing
municipal facility is in progress with a view to having the POTW operational by
September 1997. Although no assurances can be given, the Company believes that
it will be able to use its existing wells until it develops this alternative
wastewater disposal system. However, if the Company is forced to cease using
its injection wells before the POTW is operational, such loss of capacity could
have a material adverse effect on the Company's financial condition, results of
operations or cash flows.
Shareholder Litigation
On July 23, 1996, the Company was served with a purported stockholder
class action lawsuit filed in the Chancery Court of the State of Delaware, in
and for New Castle County, arising from the Company's rejection of the
unsolicited offer from Huntsman Corporation ("Huntsman") to purchase the
outstanding shares of common stock of the Company. 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
pending in the Chancery Court. The plaintiffs' counsel in these cases has
agreed to an indefinite extension of defendants' answer date. Under the
agreement, defendants need not respond to the complaints until notified to do
so by plaintiffs' counsel.
Phillips Block Copolymer Litigation
In March 1984, Phillips Petroleum Company ("Phillips") filed a lawsuit
against the Company seeking injunctive relief, an unspecified amount of
compensatory damages and treble damages. The complaint alleges that the
Company's copolymer process for polypropylene infringes Phillips' two "block"
copolymer patents, the last of which expired in 1994. This action, which was
originally filed in Illinois, was transferred to the United States District
Court for the Southern District of Texas, Houston Division. After discovery
proceedings were completed, the Company filed a motion for summary judgment.
Phillips filed a motion for partial summary judgment. Pursuant to an agreement
among the parties, the court appointed a special master who conducted a hearing
on these motions and thereafter recommended to the court that the Company's
motion be granted and Phillips' motion be denied. Thereafter, Phillips filed
motions to disqualify the special master, to reject the recommendation of the
special master and to enter partial summary judgment for Phillips. In 1993, the
court entered an order denying Phillips' motion to disqualify the special
master. On December 23, 1996, the court entered a final judgment in favor of
the Company after granting the Company's motion for summary judgment. Phillips
has filed a notice of appeal. In the Company's bankruptcy proceeding in 1992,
Phillips filed a proof of claim seeking in excess of $108 million based upon
the allegations in this litigation. The Company objected to the claim and
elected to leave the legal, equitable and contractual rights of Phillips
unaltered, thereby allowing this litigation to proceed without regard to the
bankruptcy proceeding.
F-21
<PAGE> 57
REXENE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Phillips Crystalline License Litigation
In May 1990, Phillips filed a lawsuit against the Company in the
United States District Court for the District of Delaware seeking injunctive
relief, an unspecified amount of compensatory damages, treble damages and
attorneys' fees, costs and expenses. The complaint 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, by the terms of the
License Agreement, 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. 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 United States District Court entered
judgment in favor of the Company and concluded that Phillips had not properly
terminated the License Agreement. Phillips appealed the court's judgment. On
March 27, 1996, the Court of Appeals for the Federal Circuit entered an order
reversing the lower court's judgment, holding that the termination notice was
sufficient and remanding the action to the lower court. The lower court must
now review Phillips' claims and other defenses asserted by the Company that
were not previously ruled on in order to enter a new judgment.
Odessa Residents' Tort Litigation
On April 15, 1994, the national and state chapters of the NAACP and
approximately 770 residents of a neighborhood approximately one mile northwest
of the Shell Oil Company ("Shell"), 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 to (a) add as
additional defendants the Company, Shell and General Tire Corporation (the
parent company of Dynagen) and (b) have the litigation certified as a class
action. The plaintiffs' petition seeks an unspecified amount of money damages
for past, present and future injuries to plaintiffs' health, wrongful death,
loss of consortium and reduction in property values; the conduct and payment of
property clean up, remediation and relocation costs; payment of expenses for
medical testing and monitoring; funding of pollution and health studies;
attorney's fees; punitive damages and injunctive relief. Plaintiffs' petition
specified alleged pollution from air emissions from the three plants as a basis
for their claims. The trial court allowed the intervention and severed the
action from the original lawsuit against Dynagen. Plaintiffs have withdrawn
their motion to have the litigation certified as a class claim. 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. In May 1996, the trial court announced that the lawsuit would be
tried by groups of plaintiffs and set the first group of 65 plaintiffs 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. Discovery was ongoing when in late January 1997 the parties and the
trial court agreed to a 30-day moratorium to determine if the case could be
settled and the May 1997 trial date was vacated. At mediation, the Company
agreed to a settlement with plaintiffs' counsel which still must be ratified by
the plaintiffs' group. If a settlement is not concluded, the case will be reset
for trial later in 1997. Also, late in 1996, plaintiffs' counsel filed a new
lawsuit in the State District Court in Harris County (Houston), Texas for seven
similarly situated plaintiffs. Under the terms of the tentative settlement, this
lawsuit will be settled as well.
Although there can be no assurance of the final resolution of any of
these matters, the Company believes that, based upon its current knowledge of
the facts of each case, it has meritorious defenses to the various claims made
and intends to defend each suit vigorously, 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.
F-22
<PAGE> 58
REXENE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The Company is also a party to various lawsuits arising in the
ordinary course of business and does not believe that the outcome of any of
these lawsuits will have a material adverse effect on the Company's financial
position, results of operations or cash flows.
19. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Summarized quarterly financial information for the years ended
December 31, 1996 and 1995 is as follows (in thousands except per share
amounts):
<TABLE>
<CAPTION>
For the quarter ended
--------------------------------------------------------------------------------
December September June 30, March 31, December September June 30, March 31,
31, 1996 30, 1996 1996 1996 31, 1995 30, 1995 1995 1995
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net sales.................. $ 151,156 $ 150,456 $ 146,462 $ 139,687 $ 132,145 $ 154,113 $ 159,452 $ 169,528
Gross profit............... 28,352 31,626 29,149 26,482 29,163 40,154 52,284 55,997
Net income................. 7,166 8,603 7,492 6,470 8,102 13,960 20,532 22,849
Weighted average shares
outstanding................ 19,257 19,185 19,139 19,126 19,112 19,143 19,125 19,104
Net income per share....... .37 .45 .39 .34 .42 .73 1.07 1.20
Dividends per share........ .04 .04 .04 .04 .04 -- -- --
</TABLE>
20. SUBSEQUENT EVENT
On March 14, 1997, the Company executed a commitment letter with a
bank to increase the borrowing availability under the Amended Credit Agreement
from $150 million to $225 million through $150 million in term loans and $75
million in a revolving credit facility. The Company anticipates consummation of
the financing during the second quarter of 1997.
F-23
<PAGE> 59
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
2.1 -- First Amended Plan of Reorganization of Rexene Products
Company, et al., dated April 29, 1992 (filed as Exhibit 2.1
to Rexene Corporation's Form 8-K Current Report dated July 7,
1992 and incorporated herein by reference).
2.2 -- Order Confirming First Amended Plan of Reorganization,
dated April 29, 1992 (filed as Exhibit 2.2 to Rexene
Corporation's Annual Report on Form 10-K for the fiscal year
ended December 31, 1992 and incorporated herein by
reference).
2.3 -- Plan and Agreement of Merger, between Rexene Corporation
and Rexene Products Company, dated as of September 11, 1992
(filed as Exhibit 2.3 to Rexene Corporation's Annual Report
on Form 10- K for the fiscal year ended December 31, 1992 and
incorporated herein by reference).
3.1.1 -- Restated Certificate of Incorporation of Rexene Products
Company (a/k/a Rexene Corporation), dated September 11, 1992
(filed as Exhibit 3.1 to Rexene Corporation's Annual Report
on Form 10- K for the fiscal year ended December 31, 1992 and
incorporated herein by reference).
3.1.2 -- Amendment to Certificate of Incorporation, dated June 9,
1993 (filed as Exhibit 3.1.2 to Rexene Corporation's Annual
Report on Form 10-K for the year ended December 31, 1993 and
incorporated herein by reference).
3.2 -- Amendments to By-Laws, adopted May 24, 1994, together with
a restatement of Rexene Corporation's By-Laws incorporating
all amendments through May 24, 1994 (filed as Exhibit 3.2.3
to Rexene Corporation's Form 10-Q Quarterly Report for the
three months ended June 30, 1994 and incorporated herein by
reference).
4.1 -- Indenture, dated as of November 29, 1994, between Rexene
Corporation, as Issuer, and Bank One, Texas, N.A., as
Trustee, for $175,000,000 11-3/4% Senior Notes due 2004
(filed as Exhibit 4.1 to Rexene Corporation's Annual Report
on Form 10-K for the fiscal year ended December 31, 1994 and
incorporated herein by reference).
</TABLE>
<PAGE> 60
<TABLE>
<S> <C>
4.2.1 -- Stockholder Rights Agreement, between Rexene Corporation
and American Stock Transfer & Trust Company, as Rights Agent,
dated as of January 26, 1993 (filed as Exhibit 4.20 to Rexene
Corporation's Annual Report on Form 10-K for the fiscal
year ended December 31, 1992 and incorporated herein by
reference).
4.2.2 -- Amendment No. 1 to Stockholder Rights Agreement (filed as
Exhibit 1 to Rexene Corporation's Form 8-A/A filed on October
21, 1994 and incorporated herein by reference).
4.2.3 -- Amendment No. 2 to Stockholder Rights Agreement (filed as
Exhibit 99.4 to Rexene Corporation's Form 8-A/A filed on July
26, 1996 and incorporated herein by reference).
10.1* -- Rexene Corporation 1988 Stock Incentive Plan (filed as
Exhibit 10.5 to Rexene Corporation's Registration Statement
on Form S-1 (SEC No. 33-22723) and incorporated herein by
reference).
10.2* -- Rexene Corporation 1993 Non-Qualified Stock Option Plan
(filed as Exhibit 10.2 to Rexene Corporation's Annual Report
on Form 10-K for the fiscal year ended December 31, 1992 and
incorporated herein by reference).
10.3* -- Rexene Corporation 1994 Long-Term Incentive Plan (filed as
Exhibit 10.2 to Amendment No. 1 to Rexene Corporation's
Registration Statement on Form S-3 (SEC File No. 33-55507) as
filed on October 21, 1994 and incorporated herein by
reference).
10.4* -- Non-Qualified Stock Option Plan for Outside Directors of
Rexene Corporation (filed as Exhibit 10.3 to Rexene
Corporation's Annual Report on Form 10-K for the fiscal year
ended December 31, 1992 and incorporated herein by
reference).
10.5*-- 1995 Stock Option Plan for Outside Directors (filed as
Exhibit 10.19 to Rexene Corporation's Form 10-Q Quarterly
Report for the three months ended June 30, 1995 and
incorporated herein by reference).
10.6* -- Rexene Corporation Supplemental Executive Retirement Plan
(filed as Exhibit 10.3 to Amendment No. 1 to Rexene
Corporation's Registration Statement on Form S-3 (SEC File
No. 33-55507) as filed on October 21, 1994 and incorporated
herein by reference).
0.6.1*-- Amendment No. 1 to Rexene Corporation Supplemental
Executive Retirement Plan, dated as of June 1, 1996 (filed as
Exhibit 10.6.1 to Rexene Corporation's Quarterly Report on
Form 10-Q for the quarterly period ended June 30, 1996 and
incorporated herein by reference).
10.6.2*-- Amendment No. 2 to Rexene Corporation Supplemental
Executive Retirement Plan, dated as of July 26, 1996 (filed
as Exhibit 10.6.2 to Rexene Corporation's Quarterly Report on
Form 10-Q for the quarterly period ended June 30, 1996 and
incorporated herein by reference).
10.7.1*-- Rexene Corporation 1995 Annual Incentive Bonus Plan (filed
as Exhibit 10.6.3 to Rexene Corporation's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994 and
incorporated herein by reference).
10.7.2*-- Rexene Corporation Executive Management Committee Annual
Incentive Plan.
10.7.3*-- Rexene Corporation 1996 Performance Unit Program for
Executive Officers.
10.7.4*-- Rexene Corporation Long Term Performance Unit Program for
Executive Officers.
10.8.1*-- Rexene Corporation Executive Management Committee
Severance Policy (filed as Exhibit 10.5 to Rexene
Corporation's Annual Report on Form 10-K for the fiscal year
ended December 31, 1992 and incorporated herein by
reference).
</TABLE>
<PAGE> 61
<TABLE>
<S> <C>
10.8.2* -- Form of Letter Agreement between Rexene Corporation and
each member of its Executive Management Committee (filed as
Exhibit 10.8.2 to Rexene Corporation's Quarterly Report on
Form 10-Q for the quarterly period ended June 30, 1996 and
incorporated herein by reference).
10.9.1* -- Executive Security Plan of Rexene Products Company (filed
as Exhibit 10.8 to Rexene Corporation's Registration
Statement on Form S-1 (SEC No. 33-22723) and incorporated
herein by reference).
10.9.2* -- Form of Letter Agreement between Rexene Corporation and L.
N. Anderson and J. E. Knott dated as of March 1, 1995
relating to waiver of certain rights under the Executive
Security Plan (filed as Exhibit 10.9.2 to Rexene
Corporation's Annual Report on Form 10-K for the year ended
December 31, 1995 and incorporated herein by reference).
10.10* -- Indemnity Agreement, dated as of May 25, 1990, by and
among Rexene Corporation, Rexene Products Company and Andrew
J. Smith (filed as Exhibit 10.8.2 to Rexene Corporation's
Annual Report on Form 10-K for the fiscal year ended December
31, 1992 and incorporated herein by reference).
10.11.1* -- Non-Qualified Stock Option Agreement, dated as of June
15, 1988, between Rexene Corporation and Lavon N. Anderson
(filed as Exhibit 10.29.2 to Rexene Corporation's
Registration Statement on Form S-1 (SEC No. 33-22723) and
incorporated herein by reference).
10.11.2* -- Indemnity Agreement, dated as of May 25, 1990, by and
among Rexene Corporation, Rexene Products Company and Lavon
N. Anderson (filed as Exhibit 10.9.3 to Rexene Corporation's
Annual Report on Form 10-K for the fiscal year ended December
31, 1992 and incorporated herein by reference).
10.12* -- Employment Agreement, dated as of May 29, 1990, between
Rexene Products Company and Jack E. Knott (filed as Exhibit
10.15 to Rexene Corporation's Annual Report on Form 10-K for
the year ended December 31, 1990 and incorporated herein by
reference).
10.13.1 -- Amended and Restated Credit Agreement dated as of April
24, 1996 ,among Rexene Corporation, as Borrower, The Bank of
Nova Scotia, as Agent, and the Lenders Signatory thereto
(filed as Exhibit 10.15.3 to Rexene Corporation's Quarterly
Report on Form 10-Q for the quarterly period ended March 31,
1996 and incorporated herein by reference).
10.13.2 -- Money Market Grid Promissory Note, dated August 5, 1996,
payable to the order of the Bank of Nova Scotia (filed as
Exhibit 10.15.4 to Rexene Corporation's Quarterly Report on
Form 10-Q for the quarterly period ended June 30, 1996 and
incorporated herein by reference) .
10.13.3 -- First Amendment and Supplement to Credit Agreement,
effective March 14, 1997, among Rexene Corporation, as
Borrower, The Bank of Nova Scotia, as Agent, and the Lenders
Signatory thereto.
10.14* -- Indemnity Agreement, dated as of May 25, 1990, by and
among Rexene Corporation, Rexene Products Company and William
B. Hewitt (filed as Exhibit 10.22 to Rexene Corporation's
Annual Report on Form 10-K for the year ended December 31,
1992, and incorporated herein by reference).
</TABLE>
<PAGE> 62
<TABLE>
<S> <C>
21.1 -- Subsidiaries of Rexene Corporation.
23.1 -- Consent of Price Waterhouse LLP.
27.1 -- Financial Data Schedule.
99.1 -- Press Release, dated July 22, 1996, announcing rejection
of Huntsman unsolicited takeover bid (filed as Exhibit 99.1
to Rexene Corporation's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1996 and incorporated herein
by reference).
99.2 -- Letter to Shareholders, dated July 25, 1996 (filed as
Exhibit 99.2 to Rexene Corporation's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1996 and
incorporated herein by reference).
99.3 -- Press Release, dated August 5, 1996, announcing rejection
of second unsolicited Huntsman proposal (filed as Exhibit
99.3 to Rexene Corporation's Quarterly Report on Form 10-Q
for the quarterly period ended June 30, 1996 and incorporated
herein by reference).
99.4 -- Letter to Shareholders, dated September 3, 1996.
</TABLE>
* Management contract or compensatory plan or arrangement required to be filed
as an exhibit hereto.
<PAGE> 1
EXHIBIT 10.7.2
REXENE CORPORATION
EXECUTIVE MANAGEMENT COMMITTEE
ANNUAL INCENTIVE PLAN
I. Purpose.
The Rexene Executive Management Committee Annual Incentive Plan
("EAIP") is designed to reward Executive Management Committee ("EMC")
members for their achievement of specific individual performance
objectives that are established annually.
II. Award Structure.
The maximum award opportunity under the EAIP for any calendar year
expressed as a percent of year-end base salary is as follows:
POSITION
<TABLE>
----------------------------------------------------------
<S> <C>
Chief Executive Officer 60%
----------------------------------------------------------
Other Executive Management Committee Members
----------------------------------------------------------
a) Line 50%
----------------------------------------------------------
b) Staff 35%
----------------------------------------------------------
</TABLE>
III. Administration.
o The Management Development and Compensation Committee
("Committee") of the Board of Directors ("Board") will be
responsible for administering the EAIP. The Board shall have
the final authority to determine the level of performance and
the amount of all awards made to members of the EMC.
o The Chief Executive Officer shall provide to the Board his
evaluation of the performance of the other members of the EMC,
as well as his recommendation as the size of the award to be
made to each of them.
o The Board shall have the discretion not to make any awards in
years in which the Corporation is not profitable.
<PAGE> 2
o The Board may amend or terminate the EAIP at any time on a
prospective basis. If the EAIP is terminated or substantially
amended during any year, awards for such year shall be made on
a pro rata basis to the date of termination or amendment.
IV. General Provisions.
o EMC members whose employment with the Corporation is
terminated prior to the end of a calendar year for any reason,
except for Cause, or who are Constructively Terminated, shall
be eligible to receive a pro rata award based on his/her
performance to date of termination.
o Except for Constructive Termination, Executive Officers who
voluntarily resign their employment prior to the end of the
fiscal year shall not be entitled to any bonus payment.
o Payment of awards will be made in cash before the end of
February of each year.
V. Definitions.
o "Constructive Termination" of employment occurs if a member of
the EMC voluntarily resigns his/her employment within three
(3) years after a Change of Control because, as a condition to
continued employment with the Corporation or any successor to
either the Corporation or any or part of its business or
assets (a "Successor"), he/she is required to (i) relocate
outside the greater Dallas area, (ii) accept a reduction in
base salary, or (iii) accept a position of lesser
responsibility or authority than he/she had prior to the
change in control.
o "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 a member of the EMC is
convicted of or enters 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 his/her duties,
- 2 -
<PAGE> 3
(c) malfeasance in the conduct of his/her duties,
including misuse or diversion of the Corporation's
funds, embezzlement or willful and material
misrepresentations or concealments on any reports
submitted to the Corporation.
(d) repeated material failure by him/her to perform
his/her duties as an executive officer, or
(e) material failure to follow or comply with the
reasonable and lawful directives of Continuing
Directors (as defined below) or the written policies
of the Corporation.
o "Change of Control" of the Corporation shall mean any one of
the following:
(a) Continuing Directors no longer constitute at least
two-thirds of the Directors constituting the Board;
(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 the
Corporation's then outstanding common stock or 20% or
more of the voting power of the Corporation's then
outstanding securities entitled generally to vote for
the election of Directors and thereafter, directly or
indirectly, takes steps to influence the management
of the Corporation;
(c) the occurrence of or the approval by the
Corporation's stockholders of the merger or
consolidation of the Corporation with any other
corporation, the sale of any substantial portion of
the assets of the Corporation or the liquidation or
dissolution of the Corporation 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
(d) at least a majority of the Continuing Directors in
office immediately prior to any other action taken or
proposed to be taken by the Corporation'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 the
Corporation and such action is taken.
- 3 -
<PAGE> 4
o "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.
o "Termination without Cause" means any involuntary separation
for any reason, except for a "Cause" as defined above.
o "Executive Management Committee" or "EMC" shall mean the CEO
and such other executive officers of the Company as may be
designated by the Committee. The Committee shall further
designate those EMC members who are "Line" and those who are
"Staff."
IN WITNESS WHEREOF, the Corporation has caused this Executive
Management Committee Annual Incentive Plan to be executed effective as of
January 1, 1996.
REXENE CORPORATION
By: /s/ JAMES M. RUBERTO
-----------------------------
Title:
- 4 -
<PAGE> 5
NON-FINANCIAL PERFORMANCE OBJECTIVES
INSTRUCTION SHEET
INTRODUCTION: Non-financial objectives (NFO) should encompass those
individual performance expectancies that are not considered "routine" to the
normal functions of a position. These objectives should be challenging,
attainable, objectively measurable and, above all, impact the overall success
of the company. It is suggested that five (5) NFO's be established for a year.
1. Description of Objectives: Describe the objective to be
accomplished within the following conceptual framework:
o to achieve what result (definition)
o by when (timetable)
o as evidenced by (measurement)
2. Priority Weight: Assign a priority weight (%) to the objective, based
on its importance relative to the other objectives (minimum 10%;
maximum 30%). If all objectives are of equal importance, weight them
equally. In all cases, the sum of weights must equal 100%.
3. Completion Percent: Evaluate progress toward attainment of a listed
performance objective by assigning a percentage of completion at the
end of each fiscal quarter (interim 1, 2, 3) and total at year end
(final). During interim progress, special notation should be made of
unexpected impediments to satisfying any objectives. The final
evaluation percent assigned should be in line with the following
definitions of performance:
SUPERIOR effort with goal surpassed;
extraordinary performance. 100%
SATISFACTORY performance; goal attained. 80%
ACCEPTABLE effort with goal not met;
noticeable progress made toward completion. 50%
NO SATISFACTORY PROGRESS made toward
completion of goal. 0%
4. Weighted Completion: At year end, assign a total weighted completion
percent for each objective by multiplying the priority weight (A) by the final
completion percent (B). Add the weighted completion percents for each
objective to arrive at a total non-financial performance objective score.
<PAGE> 6
NON-FINANCIAL PERFORMANCE OBJECTIVES
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
COMPLETION PERCENT
------------------
NAME: PRIORITY INTERIM FINAL WEIGHTED
WEIGHT (%) ------------------------- COMPLETION%
DESCRIPTION OF OBJECTIVE (A) 1 2 3 (B) (A X B)
===================================================================================================
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
100% -----------
TOTAL
</TABLE>
<PAGE> 1
EXHIBIT 10.7.3
REXENE CORPORATION
1996 PERFORMANCE UNIT PROGRAM
FOR EXECUTIVE OFFICERS
THIS 1996 PERFORMANCE UNIT PROGRAM FOR EXECUTIVE OFFICERS has been
established by Rexene Corporation, a Delaware corporation (the "Corporation"),
to provide incentive compensation opportunities for certain executives of the
Corporation.
RECITALS
On August 1, 1996, the Committee and the Board approved an incentive
compensation strategy to provide for, among other things, the award of
Performance Units to certain executives and other key employees of the
Corporation. This document sets forth the full statement of the terms and
conditions of the incentive compensation strategy as it relates to the award of
Performance Units to Executive Officers of the Corporation and as contemplated
and intended by the Committee and the Board on August 1, 1996.
NOW, THEREFORE, the Corporation hereby sets forth the Rexene
Corporation 1996 Performance Unit Program for Executive Officers (the
"Executive Program") as follows:
ARTICLE I
DEFINITIONS
1.1 The capitalized terms as used in this Executive Program have the
meanings set forth in Exhibit A, which is attached hereto and
incorporated herein by reference for all purposes.
ARTICLE II
ELIGIBILITY AND PARTICIPATION
2.1 Participation. Subject to the provisions of this Article II, only
those Executive Officers who are designated by the Committee as
"Participants" in this Executive Program for any Performance Period
shall participate in this Executive Program for that Performance
Period. In the event that a Participant ceases to be an Executive
Officer during a Performance Period, his or her participation in the
Executive Program shall cease at such time.
2.2 Award Eligibility. Except as provided in Section 2.4, a Participant
must be an employee of the Corporation being paid on the regular
payroll (including approved annual vacation
<PAGE> 2
leave) of the Corporation as of the last day of a Performance Period
to be eligible to receive a Performance Unit Award pursuant to the
Executive Program for that Performance Period.
2.3 Leaves During Performance Period. Any provision of the Executive
Program to the contrary notwithstanding: (i) for purposes of
determining whether a Participant is on the regular payroll as of the
last day of a Performance Period under this Article, a Participant on
a leave of absence as of the last day of the Performance Period
(whether paid or unpaid) to which the employee is entitled pursuant to
the Family and Medical Leave Act shall be deemed to be on the regular
payroll as of that date; and (ii) for purposes of determining whether
a Participant is on the regular payroll as of the last day of a
Performance Period under this Article, a Participant receiving
benefits pursuant to the disability plans or policies of the
Corporation applicable to the Participant shall be deemed to be on the
regular payroll as of that date.
2.4 Termination During Performance Period.
(a) Any Participant whose employment with the Corporation
terminates during a Performance Period (but prior to the last
day of such Performance Period) for any reason other than a
Vested Termination shall not be eligible to receive a
Performance Unit Award for the Performance Period.
(b) Any Participant whose employment with the Corporation
terminates during a Performance Period (but prior to the last
day of the Performance Period) and such termination qualifies
as a Vested Termination, such Participant shall be eligible to
receive a pro rata proportion of the Performance Unit Award to
which he/she would otherwise become entitled, but only with
respect to the Performance Period which ends in the same
fiscal year in which the Vested Termination occurs, and the
former Participant who is no longer employed by the
Corporation shall forfeit all rights to Performance Unit
Awards as to all other Performance Periods. The pro rata
proportion shall be measured by a fraction, the numerator of
which is the portion of the Performance Period during which
the Participant's employment continued and the denominator is
the Performance Period.
(c) If a Participant ceases to be a Participant during a
Performance Period, but continues thereafter to be an employee
of the Corporation or its Subsidiaries, then such person shall
be entitled to a Performance Unit Award only for the
Performance Period that ends in the same fiscal year in which
his/her participation ceased, calculated in the same manner as
for a Participant who has a Vested Termination, and such
person shall forfeit all rights to Performance Unit Awards as
to all other Performance Periods.
-2-
<PAGE> 3
(d) In the event of a Participant's death during a Performance
Period, his or her Award, if any, shall be paid to his or her
designated beneficiary under the Rexene Corporation Savings
Plan, or if no such beneficiary designation has been made by
the Participant or if the Rexene Corporation Savings Plan is
no longer in effect at the time such award is paid, to his or
her estate.
(e) In the event of a termination of participation in the
Executive Program, the Awards to which a former Participant
becomes entitled under section 2.4(b) or (c) above, shall be
payable at the same time and in the same manner as provided in
section 5.2 below.
2.5 New Participants. In the event that an Executive Officer is designated
by the Committee to become a Participant after the commencement of a
Performance Period, such new Participant shall be entitled to receive
a pro rata Award with respect to each Performance Period that is in
existence on the date on which such Executive Officer becomes a
Participant. The pro rata proportion of the Award shall be measured by
a fraction, the numerator of which is the portion of the Performance
Period during which the Executive Officer is a Participant and the
denominator is the Performance Period.
ARTICLE III
PERFORMANCE OBJECTIVES
3.1 Transitional Performance Periods. The Performance Objectives for the
Transitional Performance Periods shall be as set forth on Exhibits B-1
and B-2, which are attached hereto and incorporated herein by
reference for all purposes.
3.2 3-Year Performance Period. The Performance Objectives for the 3-Year
Performance Period commencing January 1, 1996 shall be as set forth on
Exhibit C, which is attached hereto and incorporated herein by
reference for all purposes.
ARTICLE IV
PERFORMANCE UNITS
4.1 Calculation of Number of Targeted Performance Units. For the
Performance Periods beginning in 1996, the number of Targeted Units
for each Participant is as follows:
<TABLE>
<CAPTION>
Position Targeted Units
-------- --------------
<S> <C>
Chief Executive Officer: 13,190
Business Unit Heads: 5,679
Other Executive Officers: 4,162
</TABLE>
-3-
<PAGE> 4
4.2 Certification of Performance Achievement. Promptly after the end of
each Performance Period, the Committee shall certify in writing (i)
the results of the Corporation for the Performance Period as to each
measure of performance set out in the Performance Objectives for such
Performance Period; and (ii) the Actual Percentage Award by applying
the factors set out in the Performance Objectives for such Performance
Period. For the Transitional Performance Periods, performance results
and Actual Performance Awards will be determined by reference to the
schedule set forth on the attached Exhibit B. For the 3-Year
Performance Period commencing January 1, 1996, performance results and
Actual Performance Awards will be determined by reference to the
schedule set forth on the attached Exhibit C.
4.3 Calculation of Performance Units Awarded. The actual number of
Performance Units that are ultimately awarded to a Participant shall
be determined at the end of each Performance Period by using the
following formula:
Performance Units Awarded = Targeted Units X Actual Percentage Award
provided, however, that the maximum number of Performance Units
awarded to any Participant shall not exceed (i) with respect to the
Chief Executive Officer and each Business Unit Head who is a
Participant, two hundred percent (200%) of the number of each such
Participant's Targeted Units, and (ii) with respect to each other
Participant, one hundred seventy percent (170%) of each such
Participant's Targeted Units.
ARTICLE V
FORM AND TIMING OF AWARDS
5.1 Form of Award. The amount payable to a Participant with respect to a
Performance Period shall be equal to the number of the Participant's
Performance Units Awarded at the end of a Performance Period
(determined under Section 4.3) multiplied by the Ending Value for the
Performance Period. For the 1996 Performance Period, Awards under the
Executive Program shall be paid in cash. For all other Performance
Periods, Awards may be paid in cash or shares of Common Stock of the
Corporation, or in any combination thereof, at the discretion of the
Committee, provided that no more than 50 percent of an Award may be
paid in shares of Common Stock of the Corporation, and provided
further that no Awards shall be paid in shares of Common Stock of the
Corporation in excess of the shares of Common Stock that remain
available for award and issuance under the Long Term Incentive Plan.
If the Committee determines to pay a portion of a Performance Unit
Award in shares of Common Stock of the Corporation, the number of
shares of Common Stock paid to the Participant shall be equal the
amount of the award payable in shares of Common Stock as described
above divided by the Ending Value of Common Stock for the applicable
Performance Period.
-4-
<PAGE> 5
5.2 Timing of Award. Awards under the Executive Program shall be paid by
the last day of the second month following the completion of a
Performance Period. Notwithstanding the foregoing, with respect to a
Performance Period that ends as a result of a Change of Control,
Awards for that Performance Period shall be paid as soon as
practicable, but no later than 30 days following the Change of
Control.
5.3 Shortened Performance Period. In the event that a Performance Period
ends prior to the end of a fiscal year as a result of a Change of
Control or any other reason, the amount of the awards made under the
Executive Program shall be calculated using the following adjustments
to determine Return on Capital:
(a) for any accounting period that is less than a full fiscal year
of 12 months, the Net Operating Profit for the shortened
accounting period shall be calculated by annualizing on a pro
forma basis Net Operating Profit for the period ending as of
the last day of the calendar month immediately preceding the
Change of Control or other termination of the Performance
Period.
(b) the Ending Invested Capital for each relevant Performance
Period shall be the amount of the Invested Capital as of the
day immediately preceding the Change of Control or other
termination of the Performance Period.
5.4 Taxes. The Corporation shall have the right in connection with awards
under this Executive Program to (i) require Participants or their
beneficiaries or legal representatives to remit to the Corporation an
amount sufficient to satisfy all federal, state and local withholding
tax requirements and (ii) deduct from all payments under the Executive
Program amounts sufficient to satisfy such withholding tax
requirements. Whenever payments under the Executive Program are to be
made to a Participant in cash, such payments shall be net of any
amounts sufficient to satisfy all federal, state and local withholding
tax requirements.
ARTICLE VI
ADMINISTRATION
6.1 Administration. The Executive Program shall be administered by the
Corporation's Compensation Committee of the Board unless the
Compensation Committee fails to meet the qualifications of Section
162(m) of the Code, in which event the Committee appointed from time
to time by the Board shall be (i) comprised solely of two or more
members of the Board who are "outside directors" for purposes of
Section 162(m) of the Code and (ii) constituted so as to permit the
Executive Program to comply with Rule 16b-3 under the Exchange Act.
-5-
<PAGE> 6
6.2 Powers of Committee. The Committee shall have the right and authority,
in its sole and absolute discretion, (a) to adopt, amend, or rescind
administrative and interpretive rules and regulations relating to the
Executive Program; (b) to construe the Executive Program; (c) to make
all other determinations necessary or advisable for administering the
Executive Program; and (d) to exercise the powers conferred on the
Committee under the Executive Program. The Committee may correct any
defect, supply any omission or reconcile any inconsistency in the
Executive Program in the manner and to the extent it shall deem
expedient to carry it into effect, and it shall be the sole and final
judge of such expediency. The determinations of the Committee on the
matters referred to in this Section 6.2 shall be final and conclusive.
6.3 Amendment or Termination. The Committee shall have the exclusive
authority to amend or modify the Executive Program and the Board shall
have the exclusive authority to suspend or terminate the Executive
Program at any time, provided that no amendment, modification,
suspension or termination shall in any manner adversely affect the
right of any Participant to receive any amount to which such
Participant has become entitled prior to such amendment, modification,
suspension or termination or would become entitled in the absence of
such amendment, modification, suspension or termination.
ARTICLE VII
MISCELLANEOUS
7.1 Source of Payment. Awards payable under the Executive Program in the
form of Common Stock are made pursuant to and are subject to the
Long-Term Incentive Plan. Awards payable in cash shall be paid from
the general assets of the Corporation. To the extent that a
Participant or designated beneficiary acquires a right to receive a
payment, in cash or Common Stock from the Corporation pursuant to this
Executive Program, such right shall be no greater than the right of
any unsecured general creditor of the Corporation.
7.2 No Right to Employment. Nothing in the Executive Program shall confer
upon any Participant any right to continue in the employ of the
Corporation or to be entitled to any remuneration or benefits not set
forth in the Executive Program or interfere with or limit the right of
the Corporation to modify the terms of or terminate such Participant's
employment at any time.
7.3 Severability. In the event that any provision of the Executive Program
shall be held illegal or invalid for any reason, such illegality or
invalidity shall not affect the remaining parts of the Executive
Program, and the Executive Program shall be construed and enforced as
if the illegal or invalid provision had not been included.
-6-
<PAGE> 7
7.4 Transferability. A Participant shall not have the right to anticipate,
alienate, sell, transfer, assign, pledge, or encumber his or her right
to receive any Performance Unit Award made under the Executive
Program.
7.5 No Restriction of Corporate Action. The adoption of the Executive
Program or any modification or amendment hereof does not imply any
commitment to continue or adopt the same program, or any modification
hereof, or any other program for incentive compensation for any
succeeding Performance Period.
7.6 Effective Date. The Executive Program shall be effective as of January
1, 1996.
7.7 Governing Law. To the extent not preempted by federal law, the
Executive Program, and all agreements hereunder, shall be construed in
accordance with and governed by the laws of the State of Texas.
IN WITNESS WHEREOF, the Corporation has caused this Executive Program
to be executed effective as of January 1, 1996.
REXENE CORPORATION
By: /s/ JAMES M. RUBERTO
----------------------------
Title:
-7-
<PAGE> 8
EXHIBIT A
REXENE CORPORATION
1996 PERFORMANCE UNIT PROGRAM
FOR EXECUTIVE OFFICERS
DEFINITIONS
"Actual Percentage Award" is a number, expressed as a percentage of
the Targeted Units, which is set out in Exhibits B-1, B-2 or C, as applicable,
under the columns titled "% of Units Awarded".
"Average Base Price" of Common Stock means the average of the Closing
Prices of Common Stock of the company under consideration for the last 45
trading days immediately preceding a Performance Period.
"Average Closing Price" of Common Stock means the average of the
Closing Prices of Common Stock of the company under consideration for the last
45 trading days of a Performance Period.
"Award" means the cash and/or shares of Common Stock of the
Corporation awarded to a Participant under Article V.
"Base Salary" means:
(a) with respect to the Chief Executive Officer, the annual base
salary of the Chief Executive Officer;
(b) with respect to the Business Unit Heads, the average of their
base salaries; and
(c) with respect to the Other Executive Officers, the average of
their base salaries,
all as reflected in the personnel records of the Corporation and in effect as
of the first day of a Performance Period, except that if an Executive Officer
becomes a Participant after the beginning of a Performance Period that
Participant's Base Salary shall mean his/her annual base salary on the date on
which such person becomes a Participant.
"Board" means the Board of Directors of the Corporation.
<PAGE> 9
"Business Unit Head" means an Executive Officer who has line
management responsibilities for a principal operating unit or division of the
Corporation.
"Cause" means (i) conduct involving moral turpitude or fraud,
regardless of the context, which conduct shall be conclusively presumed if an
Executive Officer is convicted of or enters a plea of nolo contendere or
similar plea as to a crime involving moral turpitude or fraud, (ii) repeated
intoxication by alcohol or drugs during the performance of an Executive
Officer's duties, (iii) malfeasance in the conduct of an Executive Officer's
duties, including misuse or diversion of the Corporation's or a Subsidiary's
funds, embezzlement or willful and material misrepresentations or concealments
on any reports submitted to the Corporation or a Subsidiary, (iv) repeated
material failure by an Executive Officer to perform his or her duties as an
officer, or (v) material failure to follow or comply with the reasonable and
lawful directives of Continuing Directors or the written policies of the
Corporation.
"Change of Control" means any one of the following: (i) any person or
group of persons (as defined in Rule 13d- 5 under the Exchange Act), together
with its affiliates, becomes the beneficial owner, directly or indirectly, of
more than 50% of the Corporation's then outstanding common stock, or more than
50% of the voting power of the Corporation's then outstanding securities
entitled generally to vote for the election of directors of the Corporation;
(ii) the occurrence of or the approval by the Corporation's stockholders of the
merger or consolidation of the Corporation with any other corporation, the sale
of any substantial portion of the assets of the Corporation or the liquidation
or dissolution of the Corporation unless, in the case of a merger or
consolidation, the Continuing Directors in office immediately prior to such
merger or consolidation will constitute for a substantial period of time after
such merger or consolidation 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 defined in Rule 12b-2 under the Exchange Act)
of such corporation; or (iii) at least a majority of the Continuing Directors
in office immediately prior to any other action taken or proposed to be taken
by the Corporation's stockholders or by the Board determines that such action
constitutes, or that such proposed action, if taken, would effectively result
in a change of control of the Corporation and such action is taken.
"Change of Control Value" means the amount determined in clause (i),
(ii) or (iii), whichever is applicable, as follows: (i) the per share price of
Common Stock offered to stockholders of the Corporation in any merger,
consolidation, sale of assets or dissolution transaction; (ii) the price per
share of Common Stock offered to stockholders of the Corporation in any tender
offer or exchange offer whereby a Change of Control takes place; or (iii) if a
Change of Control occurs other than as described in clause (i) or clause (ii),
the fair market value per share of Common Stock of the Corporation determined
by the Committee as of the date of the Change of Control or such other relevant
date as may be determined by the Committee. If the consideration offered to
stockholders of the Corporation in any transaction resulting in a Change of
Control consists of anything other than cash, the Committee shall determine the
fair cash equivalent of the portion of the consideration offered which is other
than cash.
-2-
<PAGE> 10
"Closing Price" of Common Stock on any day shall be determined as
follows: (i) if the Common Stock is listed on a national securities exchange or
quoted through the NASDAQ National Market System, the Closing Price on any day
shall be the average of the high and low reported Consolidated Trading sales
prices of the Common Stock for such day, or if no such sale is made on such
day, the average of the closing bid and asked prices of the Common Stock
reported on the Consolidated Trading listing for such day; (ii) if the Common
Stock is quoted on the NASDAQ inter-dealer quotation system, the Closing Price
on any day shall be the average of the representative bid and asked prices of
the Common Stock at the close of business for such day; or (iii) if the Common
Stock is not listed on a national securities exchange or quoted on the NASDAQ
National Market System or inter-dealer quotation system, the Closing Price on
any day shall be the average of the high bid and low asked prices of the Common
Stock reported by the National Quotation Bureau, Inc. for such day. If the
Common Stock is not publicly traded at the time a determination of its value is
required to be made under the Executive Program, the determination of the
Closing Price of the Common Stock shall be made by the Committee in such manner
as it deems appropriate.
"Code" means Internal Revenue Code of 1986, as amended from time to
time.
"Committee" means the Committee as appointed from time to time by the
Board to administer the Executive Program pursuant to section 6.1.
"Common Stock" means (i) in the case of the Corporation, the common
stock, par value $.01 per share, of the Corporation or any stock or other
securities of the Corporation hereafter issued or issuable in substitution or
exchange for Common Stock; or (ii) the common stock, or the equivalent thereof,
of all other companies in the Peer Group.
"Compensation Committee" means the Management Development and
Compensation Committee of the Board, or any successor thereto.
"Constructive Termination" occurs if a Participant voluntarily resigns
his/her employment within three (3) years after either (i) 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 the Corporation's then outstanding Common Stock
or 20% or more of the voting power of the Corporation's then outstanding
securities entitled generally to vote for the election of directors of the
Corporation and thereafter directly or indirectly takes steps to influence the
management of the Corporation, or (ii) a Change of Control because as a
condition to continued employment with the Corporation, a Participant is
required to (1) relocate outside the greater Dallas area, (2) accept a
reduction in his/her base salary, or (3) accept a position of lesser
responsibility or authority than he/she had prior to such acquisition of the
Corporation's Common Stock.
-3-
<PAGE> 11
"Continuing Director" means any person who either (i) is a director of
the Corporation on January 1, 1996, or (ii) was designated as a Continuing
Director by a majority of the Continuing Directors.
"Corporation" means Rexene Corporation, a Delaware corporation, or any
successor thereto.
"Disability" means a termination of employment with the Corporation
because of a disability, within the meaning of the disability plans or policies
of the Corporation applicable to a Participant, as determined by the Committee
in its sole discretion.
"Ending Invested Capital" means, except as provided in Section 5.3,
the sum of long-term debt and equity of the Corporation as of the last day of a
Performance Period, as reflected in the financial statements of the Corporation
prepared in accordance with GAAP.
"Ending Value" means the average of the Closing Prices of the Common
Stock of the Corporation for the last 45 trading days of a Performance Period,
other than a Performance Period that ends on the date of a Change of Control.
For purposes of determining Ending Value for a Performance Period that ends as
a result of a Change of Control, Ending Value shall be equal to Change of
Control Value. For Performance Periods ending on or before December 31, 1998,
Ending Value shall be capped at $20.50. Notwithstanding the foregoing, if a
Performance Period ends as a result of a Change of Control, there shall be no
cap on Ending Value for such Performance Period.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Executive Officer" means an employee of the Corporation who is an
"officer" of the Corporation as defined in Rule 16a-1(f) promulgated by the
Securities and Exchange Commission under Section 16 of the Exchange Act.
"Executive Program" means this Rexene Corporation 1996 Performance
Unit Program for Executive Officers, as amended from time to time.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which principles shall be applied on a consistent basis throughout
a Performance Period or other period under consideration, except that with
respect to less than wholly owned Subsidiaries and affiliated companies, the
amount of Net Operating Profit and the amount of Invested Capital to be
included in making the calculations under this Executive Program
-4-
<PAGE> 12
shall include only the proportionate amount of the Net Operating Profit and
Invested Capital that equals the percentage ownership by the Corporation of
such Subsidiaries and affiliates.
"Income Tax" means federal and state taxes determined or measured for
a Performance Period or other period under consideration as reflected in the
financial statements of the Corporation prepared in accordance with GAAP for
such period.
"Initial Invested Capital" means the sum of long-term debt and equity
of the Corporation, as reflected in the financial statements of the Corporation
prepared in accordance with GAAP, as of the first day of a Performance Period
of the Corporation.
"Initial Value" means the average of the Closing Prices of Common
Stock of the Corporation for the 45 trading days immediately preceding the
first day of a Performance Period.
"Invested Capital" means the sum of long term debt and equity of the
Corporation, as reflected in the financial statements of the Corporation
prepared in accordance with GAAP.
"Long-Term Incentive Plan" means the Rexene Corporation 1994 Long-Term
Incentive Plan.
"Net Operating Profit" for a Performance Period or other period under
consideration means Operating Income less Income Tax.
"1996 Performance Period" means the period commencing on January 1,
1996 and ending on the earliest of (i) December 31, 1996, (ii) the date on
which a Change of Control occurs, or (iii) the date of any suspension or
termination of this Executive Program.
"1996-1997 Performance Period" means the period commencing on January
1, 1996 and ending on the earliest of (i) December 31, 1997, (ii) the date on
which a Change of Control occurs, or (iii) the date of any suspension or
termination of this Executive Program.
"Operating Income" means Operating Income for a Performance Period or
other period under consideration as reflected in the financial statements of
the Corporation prepared in accordance with GAAP, but where applicable adjusted
in accordance with Section 5.3(a).
"Other Executive Officers" includes all Executive Officers other than
the Chief Executive Officer and the Business Unit Heads.
"Participant" means any Executive Officer who is selected to
participate in the Executive Program as set forth in Article II hereof.
-5-
<PAGE> 13
"Peer Group" means those companies (other than the Corporation) set
forth on the attached Exhibit D, as amended from time to time.
"Peer Group Total Shareholder Return" means the average of the Total
Shareholder Returns for the Peer Group.
"Performance Objectives" mean the performance goals established for
each Performance Period in accordance with Article III pursuant to which
performance is measured.
"Performance Period" means each of the Transitional Performance
Periods and the 3-Year Performance Period commencing on January 1, 1996, as the
case may be.
"Performance Units" mean the number of Performance Units awarded as
determined under section 4.3.
"Performance Unit Awards" or any variation thereof means an award of
Performance Units determined in accordance with Article IV.
"Relative Total Shareholder Return" for a Performance Period means the
Total Shareholder Return of the Corporation divided by the Peer Group Total
Shareholder Return for the same period.
"Retirement" means a termination of employment with the Corporation
either (i) on a voluntary basis by a Participant who is at least 60 years of
age or (ii) otherwise with the written consent of the Committee in its sole
discretion.
"Return on Capital" or "ROC" means Net Operating Profit for a
Performance Period or other period under consideration divided by Total
Invested Capital for the same Performance Period or other period under
consideration.
"Subsidiary" means any present or future company (whether a
corporation, partnership, joint venture or other form of entity) in which the
Corporation owns, directly or indirectly, more than 50% of the equity.
"Targeted Units" means the number of Performance Units initially
assigned to each Participant at the beginning of each Performance Period, as
set out in section 4.1 of the Executive Program.
"Target Award Percentage" means a percentage applicable to each
Participant's position within the Corporation during a Performance Period, as
set forth on Exhibit E, which is attached hereto and incorporated herein by
reference for all purposes. In the event that a Participant holds more than one
position within the Corporation during a Performance Period, his or her Target
-6-
<PAGE> 14
Award Percentage for each position shall be determined by multiplying the
number of months in the Performance Period during which he or she holds such
position by the percentage set forth on Exhibit E for such position, and then
dividing the total by the number of months in the Performance Period. The
results obtained by such calculations shall then be combined to provide a
weighted average Target Award Percentage.
"3-Year Performance Period" means the period commencing on January 1,
1996, and ending on the first to occur of (i) the day prior to the third
anniversary thereof, (ii) the date on which a Change of Control occurs, or
(iii) the date of any suspension or termination of this Executive Program.
"3-Year Return on Capital" means the Return on Capital of the
Corporation during a Performance Period. If the 3-Year Performance Period shall
for any reason be shorter than a full three fiscal years, then the Return on
Capital for such shorter Performance Period shall be calculated applying the
Initial Invested Capital and Ending Invested Capital as contemplated under
Section 5.3.
"Total Invested Capital" for a Performance Period means the average of
Initial Invested Capital and Ending Invested Capital for a Performance Period.
For the 1996 Performance Period, Total Invested Capital shall be $375.0
million. In the event that the actual Ending Invested Capital for any other
Performance Period differs by more than five percent (5%) from the budgeted
Ending Investment Capital for such Performance Period, as set out in the
capital expenditure budget for such Performance Period, and such difference is
attributable to a decision by the Board during such Performance Period to
increase, add to, accelerate, decrease, eliminate or postpone the capital
expenditures during such Performance Period, such variation in capital
expenditures shall be excluded in determining the Ending Invested Capital for
such Performance Period.
"Total Shareholder Return" or "TSR" means the ratio of Average Closing
Price of Common Stock of a company for a Performance Period plus cash dividends
paid on such Common Stock during the Performance Period to the Average Base
Price of Common Stock of such company for the Performance Period.
"Transitional Performance Periods" means the 1996 Performance Period
and the 1996-1997 Performance Period.
"Vested Termination" means a Participant's termination of employment
with the Corporation (i) by reason of death, Disability, Retirement, or
Constructive Termination, or (ii) Without Cause.
"Weighted Average Cost of Capital" or "WACC" means, when making the
calculations under Section 4.3 with respect to any Performance Period, the
after-tax interest rate on the
-7-
<PAGE> 15
Corporation's long term debt plus the cost of the Corporation's equity, by
applying the Capital Asset Pricing Model (see e.g., Managerial Finance, Weston
& Brigham, 7th Edition, pp. 107-110) ("CAPM"). For the 1996 Transition Period,
the WACC shall be deemed to be 10%. If in the judgment of the Corporation's
independent compensation consultants, currently Towers Perrin, the Capital
Asset Pricing Model becomes an inappropriate measure for determining WACC
because of substantial changes in the capital structure of the Corporation,
then there shall be substituted for the CAPM a different model approved by the
Committee based on the recommendation of the Corporation's independent
compensation consultants.
"Without Cause" means any involuntary termination of employment with
the Corporation for any reason other than for Cause.
-8-
<PAGE> 16
EXHIBIT B-1
REXENE CORPORATION
1996 PERFORMANCE UNIT PROGRAM
FOR EXECUTIVE OFFICERS
PERFORMANCE OBJECTIVES
FOR
1996 PERFORMANCE PERIOD
<TABLE>
<CAPTION>
================================================================================
Return on Capital % of Units Awarded*
- --------------------------------------------------------------------------------
Line(1) Staff(2)
---- -----
<S> <C> <C>
Less than 10% 0% 0%
- --------------------------------------------------------------------------------
10% 25% 25%
- --------------------------------------------------------------------------------
11% 50% 50%
- --------------------------------------------------------------------------------
12% 100% 100%
- --------------------------------------------------------------------------------
13% 140% 120%
- --------------------------------------------------------------------------------
14% 170% 145%
- --------------------------------------------------------------------------------
15% 200% 170%
================================================================================
</TABLE>
* Awards for performance that occurs between the Return on Capital
values shown above will be determined through straight-line
interpolation.
(1) Chief Executive Officer and Business Unit Heads
(2) Other Executive Officers
<PAGE> 17
EXHIBIT B-2
REXENE CORPORATION
1996 PERFORMANCE UNIT PROGRAM
FOR EXECUTIVE OFFICERS
PERFORMANCE OBJECTIVES
FOR
1996-1997 PERFORMANCE PERIOD
<TABLE>
<CAPTION>
================================================================================
Percent of
Where ROC is: Units Awarded*
- --------------------------------------------------------------------------------
Line(1) Staff(2)
---- -----
<S> <C> <C>
Less than WACC 0% 0%
- --------------------------------------------------------------------------------
Equal to WACC 25% 25%
- --------------------------------------------------------------------------------
1% Above WACC 50% 50%
- --------------------------------------------------------------------------------
2% above WACC 100% 100%
- --------------------------------------------------------------------------------
3% above WACC 140% 120%
- --------------------------------------------------------------------------------
4% above WACC 170% 145%
- --------------------------------------------------------------------------------
5% above WACC 200% 170%
================================================================================
</TABLE>
* Awards for performance that occurs between the Return on Capital
values shown above will be determined through straight-line
interpolation.
(1) Chief Executive Officer and Business Unit Heads
(2) Other Executive Officers
<PAGE> 18
EXHIBIT C
REXENE CORPORATION
1996 PERFORMANCE UNIT PROGRAM
FOR EXECUTIVE OFFICERS
PERFORMANCE OBJECTIVES
FOR
3-YEAR PERFORMANCE PERIODS
<TABLE>
<CAPTION>
==========================================
Where Return on % of Units Awarded*
Capital is: ==========================================
<S> <C> <C> <C> <C> <C>
4% or more 14% 50% 100% 150% 200%
above WACC
------------------------------------------
1% above WACC 11% 25% 50% 100% 150%
------------------------------------------
Equal to WACC 10% 15% 35% 75% 100%
------------------------------------------
Not more than 1%
below the WACC 0% 25% 25% 50%
==========================================
</TABLE>
TSR less TSR greater
than 12% than or equal
to 12%
less than 1.00 1.00 1.10
Relative Total Shareholder Return
* Award levels for performance occurring between levels shown above will
be determined through straight-line interpolation.
<PAGE> 19
EXHIBIT D
REXENE CORPORATION
1996 PERFORMANCE UNIT PROGRAM
FOR EXECUTIVE OFFICERS
PEER GROUP
ARCO Chemical Georgia Gulf Corporation
Borden Chemical and Plastic Lyondell Petrochemical
Dow Chemical NL Industries
Eastman Chemical Union Carbide Corporation
Geon Company
In the event that a member of the above Peer Group ceases to be publicly traded
or substantially changes the nature of its business during a Performance
Period, then the Committee shall use its best efforts to select another company
(i) that is in the polyolefin and/or film business; (ii) whose stock is
publicly traded, and (iii) that is regarded by the investment bankers of the
Corporation at such time as a comparable company in the industry for
stockholder evaluation purposes, to replace such company as a Peer Group
member.
<PAGE> 20
EXHIBIT E
REXENE CORPORATION
1996 PERFORMANCE UNIT PROGRAM
FOR EXECUTIVE OFFICERS
TARGET AND MAXIMUM AWARD PERCENTAGES
<TABLE>
<CAPTION>
================================================================================
Position Target Award % Maximum Award %
- --------------------------------------------------------------------------------
<S> <C> <C>
CEO 30% 60%
- --------------------------------------------------------------------------------
Business Unit Heads 25% 50%
- --------------------------------------------------------------------------------
Other Executive Officers 20% 35%
================================================================================
</TABLE>
<PAGE> 1
EXHIBIT 10.7.4
REXENE CORPORATION
LONG TERM PERFORMANCE UNIT PROGRAM
FOR EXECUTIVE OFFICERS
THIS LONG TERM PERFORMANCE UNIT PROGRAM FOR EXECUTIVE OFFICERS has
been established by Rexene Corporation, a Delaware corporation (the
"Corporation"), to provide incentive compensation opportunities for certain
executives of the Corporation.
RECITALS
On March 13, 1997, the Committee and the Board approved an incentive
compensation strategy to provide for, among other things, the award of
Performance Units to certain executives and other key employees of the
Corporation for periods beginning on or after January 1, 1997. This document
sets forth the full statement of the terms and conditions of the incentive
compensation strategy as it relates to the award of Performance Units to
Executive Officers of the Corporation and as contemplated and intended by the
Committee and the Board on March 13, 1997.
NOW, THEREFORE, the Corporation hereby sets forth the Rexene
Corporation Long Term Performance Unit Program for Executive Officers (the
"Executive Program") as follows:
ARTICLE I
DEFINITIONS
1.1 The capitalized terms as used in this Executive Program have the
meanings set forth in Exhibit A, which is attached hereto and
incorporated herein by reference for all purposes.
ARTICLE II
ELIGIBILITY AND PARTICIPATION
2.1 Participation. Subject to the provisions of this Article II, only
those Executive Officers who are designated by the Committee as
"Participants" in this Executive Program for any Performance Period
shall participate in this Executive Program for that Performance
Period. In the event that a Participant ceases to be an Executive
Officer during a Performance Period, his or her participation in the
Executive Program shall cease at such time.
<PAGE> 2
2.2 Award Eligibility. Except as provided in Section 2.4, a Participant
must be an employee of the Corporation being paid on the regular
payroll (including approved annual vacation leave) of the Corporation
as of the last day of a Performance Period to be eligible to receive a
Performance Unit Award pursuant to the Executive Program for that
Performance Period.
2.3 Leaves During Performance Period. Any provision of the Executive
Program to the contrary notwithstanding: (i) for purposes of
determining whether a Participant is on the regular payroll as of the
last day of a Performance Period under this Article, a Participant on
a leave of absence as of the last day of the Performance Period
(whether paid or unpaid) to which the employee is entitled pursuant to
the Family and Medical Leave Act shall be deemed to be on the regular
payroll as of that date; and (ii) for purposes of determining whether
a Participant is on the regular payroll as of the last day of a
Performance Period under this Article, a Participant receiving
benefits pursuant to the disability plans or policies of the
Corporation applicable to the Participant shall be deemed to be on the
regular payroll as of that date.
2.4 Termination During Performance Period.
(a) Any Participant whose employment with the Corporation
terminates during a Performance Period (but prior to the last
day of such Performance Period) for any reason other than a
Vested Termination shall not be eligible to receive a
Performance Unit Award for the Performance Period.
(b) Any Participant whose employment with the Corporation
terminates during a Performance Period (but prior to the last
day of the Performance Period) and such termination qualifies
as a Vested Termination, such Participant shall be eligible to
receive a pro rata proportion of the Performance Unit Award to
which he/she would otherwise become entitled, but only with
respect to the Performance Period which ends in the same
fiscal year in which the Vested Termination occurs, and the
former Participant who is no longer employed by the
Corporation shall forfeit all rights to Performance Unit
Awards as to all other Performance Periods. The pro rata
proportion shall be measured by a fraction, the numerator of
which is the portion of the Performance Period during which
the Participant's employment continued and the denominator is
the Performance Period.
(c) If a Participant ceases to be a Participant during a
Performance Period, but continues thereafter to be an employee
of the Corporation or its Subsidiaries, then such person shall
be entitled to a Performance Unit Award only for the
Performance Period that ends in the same fiscal year in which
his/her participation ceased, calculated in the same manner as
for a Participant who has a Vested Termination, and such
person shall forfeit all rights to Performance Unit Awards as
to all other Performance Periods.
2
<PAGE> 3
(d) In the event of a Participant's death during a Performance
Period, his or her Award, if any, shall be paid to his or her
designated beneficiary under the Rexene Corporation Savings
Plan, or if no such beneficiary designation has been made by
the Participant or if the Rexene Corporation Savings Plan is
no longer in effect at the time such award is paid, to his or
her estate.
(e) In the event of a termination of participation in the
Executive Program, the Awards to which a former Participant
becomes entitled under section 2.4(b) or (c) above, shall be
payable at the same time and in the same manner as provided in
section 5.2 below.
2.5 New Participants. In the event that an Executive Officer is
designated by the Committee to become a Participant after the
commencement of a Performance Period, such new Participant shall be
entitled to receive a pro rata Award with respect to each Performance
Period that is in existence on the date on which such Executive
Officer becomes a Participant. The pro rata proportion of the Award
shall be measured by a fraction, the numerator of which is the portion
of the Performance Period during which the Executive Officer is a
Participant and the denominator is the Performance Period.
ARTICLE III
PERFORMANCE OBJECTIVES
3.1 1997 3-Year Performance Period. The Performance Objectives for the
3-Year Performance Period commencing January 1, 1997, under this
Executive Program shall be as set forth on Exhibit B, which is
attached hereto and incorporated herein by reference for all purposes.
3.2 For 3-Year Performance Periods commencing on or after January 1, 1998,
within the first 90 days of each such Performance Period, the
Committee shall in writing (i) approve the Performance Objectives set
forth on Exhibit B, (ii) modify the Performance Objectives set forth
on Exhibit B, or (iii) establish new Performance Objectives which
shall provide the basis for calculating Performance Unit Awards for
Participants for such Performance Period. In the event that the
Committee does not approve or modify the Performance Objectives set
forth on Exhibit B or establish new Performance Objectives within the
first 90 days of a 3-Year Performance Period, then the Performance
Objectives in effect for the immediately preceding 3-Year Performance
Period shall be in effect for such 3-Year Performance Period. Any new
Performance Objectives established by the Committee for a Performance
Period may be based on stock price, cash flows, net income, operating
3
<PAGE> 4
income, expense levels, debt balance, debt ratings, total shareholder
return, return on investment, return on equity, return on capital,
weighted average cost of capital, economic value added, earnings per
share, net asset value per share, or such other objectives as the
Committee may determine appropriate for a Performance Period. The
Performance Objectives may be based on the performance of the
Corporation generally, in the absolute or in relation to its peers, or
the performance of a particular employee, division, department,
branch, subsidiary or other unit to which a particular employee is
assigned. In establishing the Performance Objectives for the
applicable Performance Period, the Committee shall determine the
required levels of performance for each Performance Objective.
ARTICLE IV
PERFORMANCE UNITS
4.1 Calculation of Number of Targeted Performance Units. For each
Performance Period, the number of Targeted Units for each Participant
shall be determined as follows:
<TABLE>
<CAPTION>
Position Targeted Units
-------- --------------
<S> <C>
Chief Executive Officer: Target Award Percentage times Base Salary
-----------------------------------------
Average Base Price
Business Unit Heads: Target Award Percentage times Base Salary
-----------------------------------------
Average Base Price
Other Executive Officers: Target Award Percentage times Base Salary
-----------------------------------------
Average Base Price
</TABLE>
4.2 Certification of Performance Achievement. Promptly after the end of
each Performance Period and prior to payment of an Award for such
Performance Period in accordance with section 5.2, the Committee shall
certify in writing (i) the results of the Corporation for the
Performance Period as to each measure of performance set out in the
Performance Objectives for such Performance Period; and (ii) the
Actual Percentage Award by applying the factors set out in the
Performance Objectives for such Performance Period. For each 3-Year
Performance Period commencing on or after January 1, 1997, performance
results and Actual Performance Awards will be determined by reference
to the Performance Objectives for such Performance Period.
4
<PAGE> 5
4.3 Calculation of Performance Units Awarded. The actual number of
Performance Units that are ultimately awarded to a Participant shall
be determined at the end of each Performance Period by using the
following formula:
Performance Units Awarded = Targeted Units X Actual Percentage Award
provided, however, that the maximum number of Performance Units
awarded to any Participant shall not exceed (i) with respect to the
Chief Executive Officer and each Business Unit Head who is a
Participant, two hundred percent (200%) of the number of each such
Participant's Targeted Units, and (ii) with respect to each other
Participant, one hundred seventy percent (170%) of each such
Participant's Targeted Units.
ARTICLE V
FORM AND TIMING OF AWARDS
5.1 Form of Award. The amount payable to a Participant with respect to a
Performance Period shall be equal to the number of the Participant's
Performance Units Awarded at the end of a Performance Period
(determined under Section 4.3) multiplied by the Ending Value for the
Performance Period. For any Performance Period, Awards may be paid
in cash or shares of Common Stock of the Corporation, or in any
combination thereof, at the discretion of the Committee, provided that
no more than 50 percent of an Award may be paid in shares of Common
Stock of the Corporation, and provided further that no Awards shall be
paid in shares of Common Stock of the Corporation in excess of the
shares of Common Stock that remain available for award and issuance
under the Long Term Incentive Plan, or such other plan or plans that
may hereafter be established. If the Committee determines to pay a
portion of a Performance Unit Award in shares of Common Stock of the
Corporation, the number of shares of Common Stock paid to the
Participant shall be equal the amount of the award payable in shares
of Common Stock as described above divided by the Ending Value of
Common Stock for the applicable Performance Period. Any provision of
this Executive Program to the contrary notwithstanding, the maximum
Award based upon attainment of Performance Objectives that may be
payable to any Participant for a Performance Period calculated as
described above shall be one million dollars.
5.2 Timing of Award. Awards under the Executive Program shall be paid by
the last day of the second month following the completion of a
Performance Period. Notwithstanding the foregoing, with respect to a
Performance Period that ends as a result of a Change of Control,
Awards for that Performance Period shall be paid as soon as
practicable, but no later than 30 days following the Change of
Control.
5
<PAGE> 6
5.3 Shortened Performance Period. In the event that a Performance Period
ends prior to the end of a fiscal year as a result of a Change of
Control or any other reason, the amount of the awards made under the
Executive Program shall be calculated using the following adjustments
to determine Return on Capital:
(a) for any accounting period that is less than a full fiscal year
of 12 months, the Net Operating Profit for the shortened
accounting period shall be calculated by annualizing on a pro
forma basis Net Operating Profit for the period ending as of
the last day of the calendar month immediately preceding the
Change of Control or other termination of the Performance
Period.
(b) the Ending Invested Capital for each relevant Performance
Period shall be the amount of the Invested Capital as of the
day immediately preceding the Change of Control or other
termination of the Performance Period.
5.4 Taxes. The Corporation shall have the right in connection with awards
under this Executive Program to (i) require Participants or their
beneficiaries or legal representatives to remit to the Corporation an
amount sufficient to satisfy all federal, state and local withholding
tax requirements and (ii) deduct from all payments under the Executive
Program amounts sufficient to satisfy such withholding tax
requirements. Whenever payments under the Executive Program are to be
made to a Participant in cash, such payments shall be net of any
amounts sufficient to satisfy all federal, state and local withholding
tax requirements.
ARTICLE VI
ADMINISTRATION
6.1 Administration. The Executive Program shall be administered by the
Corporation's Compensation Committee of the Board unless the
Compensation Committee fails to meet the qualifications of Section
162(m) of the Code, in which event the Committee appointed from time
to time by the Board shall be (i) comprised solely of two or more
members of the Board who are "outside directors" for purposes of
Section 162(m) of the Code and (ii) constituted so as to permit the
Executive Program to comply with Rule 16b-3 under the Exchange Act.
6.2 Powers of Committee. The Committee shall have the right and
authority, in its sole and absolute discretion, (a) to adopt, amend,
or rescind administrative and interpretive rules and regulations
relating to the Executive Program; (b) to construe the Executive
Program; (c) to make all other determinations necessary or advisable
for administering the Executive Program; and (d) to exercise the
powers conferred on the Committee under the Executive Program. The
Committee may correct any defect, supply any omission or reconcile any
6
<PAGE> 7
inconsistency in the Executive Program in the manner and to the extent
it shall deem expedient to carry it into effect, and it shall be the
sole and final judge of such expediency. The determinations of the
Committee on the matters referred to in this Section 6.2 shall be
final and conclusive.
6.3 Amendment or Termination. The Committee shall have the exclusive
authority to amend or modify the Executive Program and the Board shall
have the exclusive authority to suspend or terminate the Executive
Program at any time, provided that no amendment, modification,
suspension or termination shall in any manner adversely affect the
right of any Participant to receive any amount to which such
Participant has become entitled prior to such amendment, modification,
suspension or termination or would become entitled in the absence of
such amendment, modification, suspension or termination.
ARTICLE VII
MISCELLANEOUS
7.1 Source of Payment. Awards payable under the Executive Program in the
form of Common Stock are made pursuant to and are subject to the
Long-Term Incentive Plan. Awards payable in cash shall be paid from
the general assets of the Corporation. To the extent that a
Participant or designated beneficiary acquires a right to receive a
payment, in cash or Common Stock from the Corporation pursuant to this
Executive Program, such right shall be no greater than the right of
any unsecured general creditor of the Corporation.
7.2 No Right to Employment. Nothing in the Executive Program shall confer
upon any Participant any right to continue in the employ of the
Corporation or to be entitled to any remuneration or benefits not set
forth in the Executive Program or interfere with or limit the right of
the Corporation to modify the terms of or terminate such Participant's
employment at any time.
7.3 Severability. In the event that any provision of the Executive
Program shall be held illegal or invalid for any reason, such
illegality or invalidity shall not affect the remaining parts of the
Executive Program, and the Executive Program shall be construed and
enforced as if the illegal or invalid provision had not been included.
7.4 Stockholder Approval. To the extent that any payments under this
Executive Program which would otherwise be payable to any Covered
Employee when added to such Covered Employee's other Remuneration
would result in such Covered Employee's total Remuneration for such
taxable year being in excess of one million dollars, then such excess
shall not be paid to such Covered Employee unless prior to the date of
payment this
7
<PAGE> 8
Executive Program shall have been approved by a vote of the holders of
a majority of shares of Common Stock of the Corporation present in
person or represented by proxy at a duly convened meeting of
stockholders. In the event that a Covered Employee has total
Remuneration in excess of one million dollars for a taxable year
disregarding any payments made under this Executive Program, then no
amounts shall be paid to such Covered Employee under this Executive
Program unless this Executive Program is approved by the holders of a
majority of the shares of Common Stock of the Corporation present in
person or represented by proxy at a duly convened meeting of the
stockholders of the Corporation.
7.5 Transferability. A Participant shall not have the right to
anticipate, alienate, sell, transfer, assign, pledge, or encumber his
or her right to receive any Performance Unit Award made under the
Executive Program.
7.6 No Restriction of Corporate Action. The adoption of the Executive
Program or any modification or amendment hereof does not imply any
commitment to continue or adopt the same program, or any modification
hereof, or any other program for incentive compensation for any
succeeding Performance Period.
7.7 Effective Date. The Executive Program shall be effective as of
January 1, 1997, and shall continue indefinitely until such time as
it is terminated pursuant to section 6.3.
7.8 Governing Law. To the extent not preempted by federal law, the
Executive Program, and all agreements hereunder, shall be construed in
accordance with and governed by the laws of the State of Texas.
IN WITNESS WHEREOF, the Corporation has caused this Executive Program
to be executed effective as of January 1, 1997.
REXENE CORPORATION
By:
----------------------------
Title:
-------------------------
8
<PAGE> 9
EXHIBIT A
REXENE CORPORATION
LONG TERM PERFORMANCE UNIT PROGRAM
FOR EXECUTIVE OFFICERS
DEFINITIONS
"Actual Percentage Award" is a number, expressed as a percentage of
the Targeted Units, which is set out in Exhibit B under the columns titled "%
of Units Awarded."
"Average Base Price" of Common Stock means the average of the Closing
Prices of Common Stock of the company under consideration for the last 45
trading days immediately preceding a Performance Period.
"Average Closing Price" of Common Stock means the average of the
Closing Prices of Common Stock of the company under consideration for the last
45 trading days of a Performance Period.
"Award" means the cash and/or shares of Common Stock of the
Corporation awarded to a Participant under Article V.
"Base Salary" means:
(a) with respect to the Chief Executive Officer, the annual base
salary of the Chief Executive Officer;
(b) with respect to the Business Unit Heads, the average of their
base salaries; and
(c) with respect to the Other Executive Officers, the average of
their base salaries,
all as reflected in the personnel records of the Corporation and in effect as
of the first day of a Performance Period, except that if an Executive Officer
becomes a Participant after the beginning of a Performance Period that
Participant's Base Salary shall mean his/her annual base salary on the date on
which such person becomes a Participant.
"Board" means the Board of Directors of the Corporation.
"Business Unit Head" means an Executive Officer who has line
management responsibilities for a principal operating unit or division of the
Corporation.
<PAGE> 10
"Cause" means (i) conduct involving moral turpitude or fraud,
regardless of the context, which conduct shall be conclusively presumed if an
Executive Officer is convicted of or enters a plea of nolo contendere or
similar plea as to a crime involving moral turpitude or fraud, (ii) repeated
intoxication by alcohol or drugs during the performance of an Executive
Officer's duties, (iii) malfeasance in the conduct of an Executive Officer's
duties, including misuse or diversion of the Corporation's or a Subsidiary's
funds, embezzlement or willful and material misrepresentations or concealments
on any reports submitted to the Corporation or a Subsidiary, (iv) repeated
material failure by an Executive Officer to perform his or her duties as an
officer, or (v) material failure to follow or comply with the reasonable and
lawful directives of Continuing Directors or the written policies of the
Corporation.
"Change of Control" means any one of the following: (i) any person or
group of persons (as defined in Rule 13d- 5 under the Exchange Act), together
with its affiliates, becomes the beneficial owner, directly or indirectly, of
more than 50% of the Corporation's then outstanding common stock, or more than
50% of the voting power of the Corporation's then outstanding securities
entitled generally to vote for the election of directors of the Corporation;
(ii) the occurrence of or the approval by the Corporation's stockholders of the
merger or consolidation of the Corporation with any other corporation, the sale
of any substantial portion of the assets of the Corporation or the liquidation
or dissolution of the Corporation unless, in the case of a merger or
consolidation, the Continuing Directors in office immediately prior to such
merger or consolidation will constitute for a substantial period of time after
such merger or consolidation 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 defined in Rule 12b-2 under the Exchange Act)
of such corporation; or (iii) at least a majority of the Continuing Directors
in office immediately prior to any other action taken or proposed to be taken
by the Corporation's stockholders or by the Board determines that such action
constitutes, or that such proposed action, if taken, would effectively result
in a change of control of the Corporation and such action is taken.
"Change of Control Value" means the amount determined in clause (i),
(ii) or (iii), whichever is applicable, as follows: (i) the per share price of
Common Stock offered to stockholders of the Corporation in any merger,
consolidation, sale of assets or dissolution transaction; (ii) the price per
share of Common Stock offered to stockholders of the Corporation in any tender
offer or exchange offer whereby a Change of Control takes place; or (iii) if a
Change of Control occurs other than as described in clause (i) or clause (ii),
the fair market value per share of Common Stock of the Corporation determined
by the Committee as of the date of the Change of Control or such other relevant
date as may be determined by the Committee. If the consideration offered to
stockholders of the Corporation in any transaction resulting in a Change of
Control consists of anything other than cash, the Committee shall determine the
fair cash equivalent of the portion of the consideration offered which is other
than cash.
"Closing Price" of Common Stock on any day shall be determined as
follows: (i) if the Common Stock is listed on a national securities exchange or
quoted through the NASDAQ
2
<PAGE> 11
National Market System, the Closing Price on any day shall be the average of
the high and low reported Consolidated Trading sales prices of the Common Stock
for such day, or if no such sale is made on such day, the average of the
closing bid and asked prices of the Common Stock reported on the Consolidated
Trading listing for such day; (ii) if the Common Stock is quoted on the NASDAQ
inter-dealer quotation system, the Closing Price on any day shall be the
average of the representative bid and asked prices of the Common Stock at the
close of business for such day; or (iii) if the Common Stock is not listed on a
national securities exchange or quoted on the NASDAQ National Market System or
inter- dealer quotation system, the Closing Price on any day shall be the
average of the high bid and low asked prices of the Common Stock reported by
the National Quotation Bureau, Inc. for such day. If the Common Stock is not
publicly traded at the time a determination of its value is required to be made
under the Executive Program, the determination of the Closing Price of the
Common Stock shall be made by the CPA in such manner as it deems appropriate.
"Code" means Internal Revenue Code of 1986, as amended from time to
time.
"Committee" means the Committee as appointed from time to time by the
Board to administer the Executive Program pursuant to section 6.1.
"Common Stock" means (i) in the case of the Corporation, the common
stock, par value $.01 per share, of the Corporation or any stock or other
securities of the Corporation hereafter issued or issuable in substitution or
exchange for Common Stock; or (ii) the common stock, or the equivalent thereof,
of all other companies in the Peer Group.
"Compensation Committee" means the Management Development and
Compensation Committee of the Board, or any successor thereto.
"Constructive Termination" occurs if a Participant voluntarily resigns
his/her employment within three (3) years after either (i) 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 the Corporation's then outstanding Common Stock
or 20% or more of the voting power of the Corporation's then outstanding
securities entitled generally to vote for the election of directors of the
Corporation and thereafter directly or indirectly takes steps to influence the
management of the Corporation, or (ii) a Change of Control because as a
condition to continued employment with the Corporation, a Participant is
required to (1) relocate outside the greater Dallas area, (2) accept a
reduction in his/her base salary, or (3) accept a position of lesser
responsibility or authority than he/she had prior to such acquisition of the
Corporation's Common Stock.
"Continuing Director" means any person who either (i) is a director of
the Corporation on January 1, 1997, or (ii) was designated as a Continuing
Director by a majority of the Continuing Directors.
3
<PAGE> 12
"Corporation" means Rexene Corporation, a Delaware corporation, or any
successor thereto.
"Covered Employee" has the same meaning as given such term in Section
162(m)(3) of the Code.
"CPA" means the firm of independent certified public accountants for
the Corporation at the time of the relevant determination or calculation.
"Disability" means a termination of employment with the Corporation
because of a disability, within the meaning of the disability plans or policies
of the Corporation applicable to a Participant, as determined by the Committee
in its sole discretion.
"Ending Invested Capital" means, except as provided in Section 5.3,
the sum of long-term debt and equity of the Corporation as of the last day of a
Performance Period, as reflected in the financial statements of the Corporation
prepared in accordance with GAAP.
"Ending Value" means the average of the Closing Prices of the Common
Stock of the Corporation for the last 45 trading days of a Performance Period,
other than a Performance Period that ends on the date of a Change of Control.
For purposes of determining Ending Value for a Performance Period that ends as
a result of a Change of Control, Ending Value shall be equal to Change of
Control Value. Except as provided in the immediately succeeding sentence, the
Ending Value shall not exceed 200% of the Initial Value. Notwithstanding the
foregoing, if a Performance Period ends as a result of a Change of Control,
there shall be no cap on Ending Value for such Performance Period.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Executive Officer" means an employee of the Corporation who is an
"officer" of the Corporation as defined in Rule 16a-1(f) promulgated by the
Securities and Exchange Commission under Section 16 of the Exchange Act.
"Executive Program" means this Rexene Corporation Long Term
Performance Unit Program for Executive Officers, as amended from time to time.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which principles shall be applied on a consistent basis throughout
a Performance Period or other period under consideration, except that with
respect to less than wholly owned Subsidiaries and affiliated companies, the
amount of Net Operating Profit and the
4
<PAGE> 13
amount of Invested Capital to be included in making the calculations under this
Executive Program shall include only the proportionate amount of the Net
Operating Profit and Invested Capital that equals the percentage ownership by
the Corporation of such Subsidiaries and affiliates.
"Income Tax" means federal and state taxes determined or measured with
respect to the Operating Income of the Corporation for a Performance Period or
other period under consideration as reflected in the financial statements of
the Corporation prepared in accordance with GAAP for such period.
"Initial Invested Capital" means the sum of long-term debt and equity
of the Corporation, as reflected in the financial statements of the Corporation
prepared in accordance with GAAP, as of the first day of a Performance Period
of the Corporation.
"Initial Value" means the average of the Closing Prices of Common
Stock of the Corporation for the 45 trading days immediately preceding the
first day of a Performance Period.
"Invested Capital" means the sum of long term debt and equity of the
Corporation, as reflected in the financial statements of the Corporation
prepared in accordance with GAAP.
"Long-Term Incentive Plan" means the Rexene Corporation 1994 Long-Term
Incentive Plan.
"Net Operating Profit" for a Performance Period or other period under
consideration means Operating Income less Income Tax.
"Operating Income" means Operating Income for a Performance Period or
other period under consideration as reflected in the financial statements of
the Corporation prepared in accordance with GAAP, but where applicable adjusted
in accordance with Section 5.3(a).
"Other Executive Officers" includes all Executive Officers other than
the Chief Executive Officer and the Business Unit Heads.
"Participant" means any Executive Officer who is selected to
participate in the Executive Program as set forth in Article II hereof.
"Peer Group" means those companies (other than the Corporation) set
forth on the attached Exhibit C, as amended from time to time as provided in
Exhibit C.
"Peer Group Total Shareholder Return" means the average of the Total
Shareholder Returns for the Peer Group.
5
<PAGE> 14
"Performance Objectives" mean the performance goals established for
each Performance Period in accordance with Article III pursuant to which
performance is measured.
"Performance Period" means each of the 3-Year Performance Periods
commencing on or after January 1, 1997.
"Performance Units" mean the number of Performance Units awarded as
determined under section 4.3.
"Performance Unit Awards" or any variation thereof means an award of
Performance Units determined in accordance with Article IV.
"Relative Total Shareholder Return" for a Performance Period means the
Total Shareholder Return of the Corporation divided by the Peer Group Total
Shareholder Return for the same period.
"Remuneration" means "applicable employee remuneration" as defined in
Section 162(m)(4) of the Code.
"Retirement" means a termination of employment with the Corporation
either (i) on a voluntary basis by a Participant who is at least 60 years of
age or (ii) otherwise with the written consent of the Committee in its sole
discretion.
"Return on Capital" or "ROC" means Net Operating Profit for a
Performance Period or other period under consideration divided by Total
Invested Capital for the same Performance Period or other period under
consideration.
"Subsidiary" means any present or future company (whether a
corporation, partnership, joint venture or other form of entity) in which the
Corporation owns, directly or indirectly, more than 50% of the equity.
"Targeted Units" means the number of Performance Units initially
assigned to each Participant at the beginning of each Performance Period, as
set out in section 4.1 of the Executive Program.
"Target Award Percentage" means a percentage applicable to each
Participant's position within the Corporation during a Performance Period, as
set forth on Exhibit D, which is attached hereto and incorporated herein by
reference for all purposes. In the event that a Participant holds more than
one position within the Corporation during a Performance Period, his or her
Target Award Percentage for each position shall be determined by multiplying
the number of months in the Performance Period during which he or she holds
such position by the target award percentage set forth on Exhibit D for such
position, and then dividing the total by the number of months in
6
<PAGE> 15
the Performance Period. The results obtained by such calculations shall then
be combined to provide a weighted average Target Award Percentage.
"3-Year Performance Period" means any period commencing on January 1
of any year after 1996 and ending on the first to occur of (i) the day prior to
the third anniversary thereof, (ii) the date on which a Change of Control
occurs, or (iii) the date of any suspension or termination of this Executive
Program.
"3-Year Return on Capital" means the Return on Capital of the
Corporation during a Performance Period. If the 3-Year Performance Period
shall for any reason be shorter than a full three fiscal years, then the Return
on Capital for such shorter Performance Period shall be calculated applying the
Initial Invested Capital and Ending Invested Capital as contemplated under
Section 5.3.
"Total Invested Capital" for a Performance Period means the average of
Initial Invested Capital and Ending Invested Capital for a Performance Period.
In the event that the actual Ending Invested Capital for any Performance
Period differs by more than five percent (5%) from the budgeted Ending
Investment Capital for such Performance Period, as set out in the capital
expenditure budget for each fiscal year during a Performance Period, and
during such Performance Period the Board increased, added to, accelerated,
decreased, eliminated or postponed the capital expenditures during such
Performance Period, the variation in capital expenditures resulting from such
Board action shall be excluded in determining the Ending Invested Capital for
such Performance Period.
"Total Shareholder Return" or "TSR" means the ratio of Average Closing
Price of Common Stock of a company for a Performance Period plus cash dividends
paid on such Common Stock during the Performance Period to the Average Base
Price of Common Stock of such company for the Performance Period.
"Vested Termination" means a Participant's termination of employment
with the Corporation (i) by reason of death, Disability, Retirement, or
Constructive Termination, or (ii) Without Cause.
"Weighted Average Cost of Capital" or "WACC" means, when making the
calculations under Section 4.3 with respect to any Performance Period, the
after-tax interest rate on the Corporation's long term debt plus the cost of
the Corporation's equity, by applying the Capital Asset Pricing Model (see
e.g., Managerial Finance, Weston & Brigham, 7th Edition, pp. 107-110) ("CAPM").
If in the judgment of the Corporation's CPA, the Capital Asset Pricing Model
becomes an inappropriate measure for determining WACC because of substantial
changes in the capital structure of the Corporation, then there shall be
substituted for the CAPM a different model selected by the CPA.
"Without Cause" means any involuntary termination of employment with
the Corporation for any reason other than for Cause.
7
<PAGE> 16
EXHIBIT B
REXENE CORPORATION
LONG TERM PERFORMANCE UNIT PROGRAM
FOR EXECUTIVE OFFICERS
PERFORMANCE OBJECTIVES
FOR
3-YEAR PERFORMANCE PERIODS
<TABLE>
<CAPTION>
==========================================
Where Return on % of Units Awarded*
Capital is: ==========================================
<S> <C> <C> <C> <C>
4% or more 50% 100% 150% 200%
above WACC
------------------------------------------
1% above WACC 25% 50% 100% 150%
------------------------------------------
Equal to WACC 15% 35% 75% 100%
------------------------------------------
Not more than 1%
below the WACC 0% 25% 25% 50%
==========================================
</TABLE>
TSR less TSR greater
than 12% than or equal
to 12%
less than 1.00 1.00 1.10
Relative Total Shareholder Return
* Award levels for performance occurring between levels shown above will
be determined through straight-line interpolation.
<PAGE> 17
EXHIBIT C
REXENE CORPORATION
LONG TERM PERFORMANCE UNIT PROGRAM
FOR EXECUTIVE OFFICERS
PEER GROUP
<TABLE>
<S> <C>
ARCO Chemical Georgia Gulf Corporation
Borden Chemical and Plastic Lyondell Petrochemical
Dow Chemical NL Industries
Eastman Chemical Union Carbide Corporation
Geon Company
</TABLE>
In the event that a member of the above Peer Group ceases to be publicly traded
or substantially changes the nature of its business during a Performance Period
as determined by the Corporation's investment bankers at such time, then such
investment bankers shall select another company (i) that is in the polyolefin
and/or film business; (ii) whose stock is publicly traded, and (iii) that is
regarded by the investment bankers of the Corporation at such time as a
comparable company in the industry for stockholder evaluation purposes, to
replace such company as a Peer Group member.
<PAGE> 18
EXHIBIT D
REXENE CORPORATION
LONG TERM PERFORMANCE UNIT PROGRAM
FOR EXECUTIVE OFFICERS
TARGET AND MAXIMUM AWARD PERCENTAGES
<TABLE>
<CAPTION>
================================================================================
Position Target Award % Maximum Award %
- --------------------------------------------------------------------------------
<S> <C> <C>
CEO 30% 60%
- --------------------------------------------------------------------------------
Business Unit Heads 25% 50%
- --------------------------------------------------------------------------------
Other Executive Officers 20% 35%
================================================================================
</TABLE>
<PAGE> 1
EXHIBIT 10.13.3
FIRST AMENDMENT AND SUPPLEMENT TO
CREDIT AGREEMENT
BY AND AMONG
REXENE CORPORATION,
AS BORROWER,
THE BANK OF NOVA SCOTIA,
AS AGENT,
AND
THE LENDERS SIGNATORY HERETO
EFFECTIVE AS OF THE FIRST AMENDMENT EFFECTIVE DATE
<PAGE> 2
FIRST AMENDMENT AND SUPPLEMENT TO
CREDIT AGREEMENT
This FIRST AMENDMENT AND SUPPLEMENT TO CREDIT AGREEMENT (this "First
Amendment") dated effective as of the "First Amendment Effective Date" (as
defined in the hereinafter described Credit Agreement, and herein sometimes
called the "Effective Date"), is by and among REXENE CORPORATION, a Delaware
corporation ("Borrower"), and THE BANK OF NOVA SCOTIA (in its individual
capacity, "Scotiabank"), as agent (in such capacity, "Agent") for each of the
lenders that is a signatory hereto or which becomes a signatory hereto and to
the Credit Agreement as provided in Section 12.06 of the Credit Agreement
(individually, together with it successors and assigns, "Lender" and
collectively, "Lenders").
W I T N E S S E T H :
WHEREAS, Borrower, Agent and Lenders are parties to that certain
Amended and Restated Credit Agreement dated as of April 24, 1996 (the "Credit
Agreement"), pursuant to which Lenders agreed to make loans to and extensions
of credit on behalf of Borrower; and
WHEREAS, Borrower, Agent and Lenders desire to amend the Credit
Agreement in the particulars hereinafter provided;
NOW, THEREFORE, in consideration of the promises and the mutual
covenants herein contained, the parties hereto agree as follows:
ARTICLE I. DEFINITIONS
Section 1.01 Terms Defined Above. As used in this First Amendment, each
of the terms "Agent," "Borrower," "Credit Agreement," "First Amendment,"
"Scotiabank," "Lender," and "Lenders" shall have the meaning assigned to such
term hereinabove.
Section 1.02 Terms Defined in Credit Agreement. Each term defined in
the Credit Agreement and used herein without definition shall have the meaning
assigned to such term in the Credit Agreement, unless expressly provided to the
contrary.
Section 1.03 Other Definitional Provisions.
(a) The words "hereby," "herein," "hereinafter," "hereof",
"hereto" and "hereunder" when used in this First Amendment shall refer to
this First Amendment as a whole and not to any particular Article,
Section, subsection or provision of this First Amendment.
(b) Section, subsection and Exhibit references herein are to such
Sections, subsections and Exhibits to this First Amendment unless
otherwise specified.
<PAGE> 3
ARTICLE II. AMENDMENTS TO CREDIT AGREEMENT
Borrower, Agent and Lenders agree that the Credit Agreement is hereby
amended, effective as of the First Amendment Effective Date, in the following
particulars.
Section 2.01 Amendments and Supplements to Definitions.
(a) The term "Agreement," as defined in the Credit Agreement, is
hereby amended to mean the Credit Agreement, as amended and supplemented
by this First Amendment and as the same may from time to time be further
amended or supplemented.
(b) Section 1.02 of the Credit Agreement is hereby further
amended and supplemented by adding the following new definitions where
alphabetically appropriate, which read in their entirety as follows:
"First Amendment" shall mean that certain First Amendment
and Supplement to Credit Agreement dated effective as of the
First Amendment Effective Date, by and among Borrower, Agent and
Lenders.
"First Amendment Effective Date" shall mean the date upon
which the Borrower accepts a commitment from Scotiabank for the
refinancing of the Indebtedness upon terms mutually acceptable to
the Borrower and Scotiabank.
"Preferred Stock" shall mean the shares of non-convertible
up to 13% cumulative preferred stock, par value $.01 per share,
issued or to be issued by the Borrower during the period of one
year from and after the First Amendment Effective Date.
Section 2.02 Amendments and Supplements to Article VII. The first
full sentence of Section 7.07 of the Credit Agreement is hereby amended and
restated in its entirety to read as follows:
"Proceeds of the Loans may be used by Borrower for general
corporate purposes including, but not limited to, the payment of
reimbursement obligations under Section 2.09, and $35,000,000 in
proceeds of Loans may be used by Borrower for a period of one
year from and after the First Amendment Effective Date to
purchase shares of its issued and outstanding common stock;
provided, however, it is hereby understood and agreed that,
except as provided in this Section 7.07, neither Agent nor
Lenders shall have any obligation to make any future Loans to
Borrower for the purpose of purchasing any of its Capital Stock."
Section 2.03 Amendments and Supplements to Article IX. Section 9.04
of the Credit Agreement is hereby amended in its entirety to read as follows:
-2-
<PAGE> 4
"Section 9.04 Restricted Payments. Neither the Borrower nor
any Restricted Subsidiary will declare or pay any dividend, purchase,
redeem or otherwise acquire for value any of its stock now or
hereafter outstanding, return any capital to its stockholders or make
any distribution of its assets to its stockholders or repay, purchase,
repurchase, defease or make any prepayments on the Senior Unsecured
Notes; provided, however, so long as no Default has occurred and is
continuing hereunder or would occur as a consequence thereof:
(a) for a period of one year from and after the
First Amendment Effective Date, the Borrower may purchase
shares of its issued and outstanding common stock, in an
aggregate amount not to exceed $85,000,000, $35,000,000 of the
purchase price of which may be paid using the proceeds of
Loans to the Borrower hereunder, with the balance to be paid
out of the proceeds received by the Borrower from the issuance
of the Preferred Stock; provided further that, except as set
forth in this Section 9.04(a), neither Agent nor Lenders shall
have any obligation to permit Borrower to purchase any further
shares of its Capital Stock; and
(b) the Borrower and any Restricted Subsidiary
may declare and pay (i) dividends payable in Capital Stock of
the Borrower, or (ii) dividends or distributions payable to
the Borrower or any Restricted Subsidiary; provided further
that the Borrower may (x) declare and pay cash dividends on
the common stock of the Borrower in an amount not exceeding
(A) with respect to cash dividends declared during the 1996
fiscal year, $5,000,000; and (B) with respect to cash dividends
declared during each fiscal year after 1996, the lesser of (1)
$5,000,000 per annum or (2) an amount which, together with all
other cash dividends declared after December 31, 1996, shall
not exceed fifty (50%) percent of aggregate Consolidated Net
Income for the period (computed as a single period) from
January 1, 1996 through the last day of fiscal quarter
preceding the date on which such cash dividend was declared,
and (y) declare and pay quarterly cash dividends on
$50,000,000 of the Preferred Stock of Borrower at the
specified rate not in excess of 13% per annum."
ARTICLE III. MISCELLANEOUS
Section 3.01. Adoption, Ratification and Confirmation of Credit
Agreement. Each of the Borrower, Agent, and Lenders does hereby adopt, ratify
and confirm the Credit Agreement, as amended hereby, and acknowledges and
agrees that the Credit Agreement, as amended hereby, is and remains in full
force and effect.
Section 3.02 Successors and Assigns. This First Amendment shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns permitted pursuant to the Credit Agreement.
-3-
<PAGE> 5
Section 3.03 Counterparts. This First Amendment may be executed by
one or more of the parties hereto in any number of separate counterparts, and
all of such counterparts taken together shall be deemed to constitute one and
the same instrument and shall be enforceable as of the First Amendment
Effective Date upon the execution of one or more counterparts hereof by
Borrower, Agent and Lenders. In this regard, each of the parties hereto
acknowledges that a counterpart of this First Amendment containing a set of
counterpart execution pages reflecting the execution of each party hereto shall
be sufficient to reflect the execution of this First Amendment by each
necessary party hereto and shall constitute one instrument.
Section 3.04 Number and Gender. Whenever the context requires,
reference herein made to the single number shall be understood to include the
plural; and likewise, the plural shall be understood to include the singular.
Words denoting sex shall be construed to include the masculine, feminine and
neuter, when such construction is appropriate; and specific enumeration shall
not exclude the general but shall be construed as the cumulative. Definitions
of terms defined in the singular or plural shall be equally applicable to the
plural or singular, as the case may be, unless otherwise indicated.
Section 3.05 Entire Agreement. This First Amendment constitutes
the entire agreement among the parties hereto with respect to the subject
hereof. All prior understandings, statements and agreements, whether written or
oral, relating to the subject hereof are superseded by this First Amendment.
Section 3.06 Invalidity. In the event that any one or more of the
provisions contained in this First Amendment shall for any reason be held
invalid, illegal or unenforceable in any respect, such invalidity, illegality
or unenforceability shall not affect any other provision of this First
Amendment.
Section 3.07. Titles of Articles, Sections and Subsections. All
titles or headings to Articles, Sections, subsections or other divisions of
this First Amendment or the exhibits hereto, if any, are only for the
convenience of the parties and shall not be construed to have any effect or
meaning with respect to the other content of such Articles, Sections,
subsections, other divisions or exhibits, such other content being controlling
as the agreement among the parties hereto.
Section 3.08 Governing Law. This First Amendment shall be deemed
to be a contract made under and shall be governed by and construed in
accordance with the internal laws of the State of New York.
THIS FIRST AMENDMENT, THE CREDIT AGREEMENT, AS SUPPLEMENTED AND
AMENDED HEREBY, THE NOTES, AND THE OTHER SECURITY INSTRUMENTS
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN AGREEMENTS BETWEEN THE PARTIES.
-4-
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this First
Amendment to be duly executed and delivered by their proper and duly authorized
officers as of the Effective Date.
BORROWER: REXENE CORPORATION
By: /s/ GEFF PERERA
---------------------------------------
Name: Geff Perera
-------------------------------------
Title: Executive Vice President & Chief
Financial Officer
------------------------------------
AGENT AND LENDERS: THE BANK OF NOVA SCOTIA, individually and
as Agent
By: The Bank of Nova Scotia, Atlanta
Agency
By: /s/
---------------------------------
Name:
-------------------------------
Title:
------------------------------
MELLON BANK, N.A.
By: /s/
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
ABN AMRO BANK N.V. HOUSTON AGENCY
By: ABN AMRO NORTH AMERICA, INC.,
as Agent
By: /s/
---------------------------------
Name:
-------------------------------
Title:
------------------------------
By: /s/
---------------------------------
Name:
-------------------------------
Title:
------------------------------
-5-
<PAGE> 7
DEN NORSKE BANK ASA
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
By:
---------------------------------------
Name:
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Title:
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CREDIT LYONNAIS NEW YORK BRANCH
By:
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Name:
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Title:
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SOCIETE GENERALE, SOUTHWEST AGENCY
By:
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Name:
-------------------------------------
Title:
------------------------------------
NATIONAL BANK OF CANADA
By:
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Name:
-------------------------------------
Title:
------------------------------------
By:
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Name:
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Title:
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THE YASUDA TRUST AND BANKING
COMPANY, LIMITED
By:
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Name:
-------------------------------------
Title:
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-6-
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF REXENE CORPORATION
<TABLE>
<CAPTION>
NAME OF SUBSIDIARY JURISDICTION OF INCORPORATION
<S> <C>
Rexene International Services Corporation
(f/k/a El Paso Products Sales Company) Texas
Rexene Foreign Sales Company U.S. Virgin Islands
Rexene Cogeneration, Inc. Delaware
Rexene Corporation Limited England
</TABLE>
<PAGE> 1
EXHIBIT 23.1
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-60543 and 33-60553) of Rexene Corporation of our
report dated February 12, 1997 except as to Note 20, for which the date is
March 14, 1997, appearing on page F-2 of this Form 10-K.
Price Waterhouse LLP
Dallas, Texas
March 24, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 714
<SECURITIES> 0
<RECEIVABLES> 88,852
<ALLOWANCES> 3,512
<INVENTORY> 81,026
<CURRENT-ASSETS> 170,197
<PP&E> 461,469
<DEPRECIATION> 77,769
<TOTAL-ASSETS> 597,542
<CURRENT-LIABILITIES> 78,108
<BONDS> 235,000
0
0
<COMMON> 188
<OTHER-SE> 168,863
<TOTAL-LIABILITY-AND-EQUITY> 597,542
<SALES> 587,761
<TOTAL-REVENUES> 587,761
<CGS> 472,152
<TOTAL-COSTS> 472,152
<OTHER-EXPENSES> 52,173
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,684
<INCOME-PRETAX> 47,829
<INCOME-TAX> 18,098
<INCOME-CONTINUING> 29,731
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29,731
<EPS-PRIMARY> 1.55
<EPS-DILUTED> 0
</TABLE>
<PAGE> 1
EXHIBIT 99.4
[REXENE CORPORATION LETTERHEAD]
September 3, 1996
Dear Rexene Shareholder:
As you may know, Huntsman Corporation has decided to terminate its
efforts to acquire Rexene. In our view, Mr. Huntsman's decision not to pursue a
potentially costly and disruptive "hostile takeover" attempt of Rexene is a
positive development. We believe Huntsman's $15.00 per share proposal fell
short of adequately reflecting the long-term value of your Rexene shares and
would have precluded you from participating in Rexene's exciting future.
I want to take this opportunity to thank the many shareholders who have
expressed their support for me and the other Rexene directors and managers who
so strongly believe that the Huntsman proposal was not in your best interests
and that Rexene is poised for future growth and success. The Board of Directors
and management of Rexene Corporation remain fully committed to enhancing
long-term value for all of our shareholders.
As I discussed in our second quarter Report to Shareholders, we are in
the process of implementing an aggressive strategic plan that we believe will
significantly strengthen our competitive position and improve our financial
performance. This includes: focusing our existing assets on the higher margin
niches of the markets in which we compete; widening the range of polymer and
film products we can offer to existing and new customers; and lowering
production costs.
The capital required for these improvements comes from current cashflow
and a draw down of our $150 million line of credit. We currently have used
approximately $20 million from this line. We believe that these capital
expenditures, which may have had a short term negative affect on our stock
price, should enhance shareholder value in the near future.
We are well into the process of implementing a $175 million capital
program that we believe will significantly enhance our performance year by year
through 1998. Some of the specific strategic initiatives we are implementing
include: expanding our specialty propylene derivatives capacity by
approximately 70 million pounds; continuing our olefins expansion and
modernization program that will increase annual olefins production capacity by
approximately 50 percent and reduce production costs by approximately $25
million; expanding our polyethylene business by more than 50 percent and into
more specialized areas; improving the reliability and costs of our feedstock
supply; and working aggressively to strengthen our CT Film division through
new technologies and global expansion.
<PAGE> 2
September 3, 1996
Page Two
In addition, we are expanding our efforts to ensure that the financial
community fully understands our strategy and our potential. I also have
communicated with all of our employees, reminding them of our commitment to our
shareholders and urging them to do everything they can to satisfy our
customers, operate efficiently, and build value for our shareholders.
I believe that all of these initiatives, taken together, will enable us
to deliver enhanced value to our shareholders. I appreciate your continued
interest in our company and look forward to keeping you informed of our
progress.
Sincerely,
/s/ ANDREW J. SMITH
Andrew J. Smith
Chairman and Chief Executive Officer
