SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
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
HUNTSMAN POLYMERS
CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
DELAWARE 75-2104131
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
500 HUNTSMAN WAY
SALT LAKE CITY, UTAH 84108
(Address of principal executive offices) (Zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (801) 532-5200
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE ON WHICH
TITLE OF EACH CLASS THE SECURITIES ARE REGISTERED
113/4% Senior Notes due 2004 New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None.
Indicate by a 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 the 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|
As of March 27, 1998, all of the 1,000 shares of Common Stock
were owned by Huntsman Polymers Holdings Corporation, a wholly-owned
subsidiary of Huntsman Corporation, which is an affiliate of Huntsman
Polymers Corporation.
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
TITLE OF EACH CLASS AT MARCH 27, 1998
Common Stock, $0.01 par value 1,000
DOCUMENTS INCORPORATED BY REFERENCE.
None.
HUNTSMAN POLYMERS CORPORATION
1997 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PAGE
PART I ................................................................3
ITEM 1. BUSINESS...........................................................3
ITEM 2. PROPERTIES........................................................12
ITEM 3. LEGAL PROCEEDINGS.................................................13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ..............16
PART II ..................................................................16
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.......................................16
ITEM 6. SELECTED FINANCIAL DATA...........................................17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS...............................18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.......................25
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE............................26
PART III ..................................................................26
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT...............26
ITEM 11. EXECUTIVE COMPENSATION...........................................29
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...34
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................34
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K..35
SIGNATURES ...............................................................39
HUNTSMAN POLYMERS CORPORATION
1997 ANNUAL REPORT ON FORM 10-K
PART I
ITEM 1. BUSINESS
INTRODUCTION
Huntsman Polymers Corporation represents 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").
On August 27, 1997, Huntsman Centennial Corporation
("Centennial"), a Delaware corporation and a subsidiary of Huntsman
Corporation, a Utah corporation ("Huntsman Corporation"), was merged (the
"Merger") with and into Rexene Corporation ("Rexene"), and Rexene changed
its name to Huntsman Polymers Corporation. Unless otherwise indicated, Old
Rexene, Products, Rexene and Huntsman Polymers Corporation and their
consolidated subsidiaries are sometimes collectively or separately referred
to as "Huntsman Polymers" or the "Company".
The Merger occurred pursuant to an Agreement and Plan of Merger
among Huntsman Corporation, Centennial and Rexene, dated June 9, 1997 (the
"Merger Agreement"). The stockholders of Rexene approved the Merger
Agreement at a Special Meeting held on August 26, 1997.
In the Merger, all of the shares of common stock, $.01 par
value, of Rexene (the "Common Stock") (other than dissenting shares and
shares held by Huntsman Corporation, Centennial or Rexene) were canceled
and converted into the right to receive $16.00 in cash, without interest,
per share of Common Stock (the "Merger Consideration"). As a result of the
Merger, Huntsman Corporation indirectly owns all of the Common Stock of the
Company, and the Company thus became an indirect subsidiary of Huntsman
Corporation. Following the Merger, the Company filed a Form 15 with the
Securities and Exchange Commission (the "Commission") regarding the
de-registration of the Common Stock which became effective on November 25,
1997. Effective August 27, 1997, the Common Stock was removed from listing
on the New York Stock Exchange. The aggregate amount of Merger
Consideration was $301,613,836.
On September 30, 1997, the Company completed the sale of
certain of its assets comprising its CT Film Division (the "CT Film Sale")
to Huntsman Packaging Corporation, a Utah corporation and an affiliate of
the Company ("Huntsman Packaging"), pursuant to that certain First Amended
Asset Purchase Agreement, dated as of September 26, 1997 (the "Asset
Purchase Agreement"), by and between the Company and Huntsman Packaging.
Pursuant to the terms of the Asset Purchase Agreement, the Company
transferred those assets primarily used to conduct or operate the polymer
film manufacturing business known as the CT Film Division (the "CT
Business"), including, among other things, its properties, film
manufacturing facilities, sales offices, warehouses, inventory, technology
and contracts that relate to the CT Business. In consideration for the
transfer of the assets of the CT Business, the Company received $70 million
in cash. The terms of the Asset Purchase Agreement were mutually agreed
upon by the Company and Huntsman Packaging and were based upon arm's-length
negotiations, taking into account various factors concerning the valuation
of the CT Business. The foregoing description of the sale of the assets of
the CT Business does not purport to be complete, and is qualified in its
entirety by reference to the terms of the Asset Purchase Agreement, a copy
of which is attached as Exhibit 10.10 to this Form 10-K.
The corporate headquarters of the Company are located at 500
Huntsman Way, Salt Lake City, Utah 84108, and its telephone number is (801)
532-5200.
PRINCIPAL PRODUCTS
Huntsman Polymers manufactures a wide variety of products
ranging from value-added specialty products, such as customized specialty
polymers, to intermediate chemicals, such as styrene. These products are
sold for use in a wide variety of industrial and consumer related
applications. The Company's principal products are polyethylene,
polypropylene, amorphous polyalphaolefin ("APAO") and flexible polyolefin
("FPO") polymers and styrene. In addition, the Company manufactures,
primarily for its own consumption, ethylene and propylene, the two basic
chemical building blocks of the Company's principal products. The Company
manufactures polymers and petrochemicals at its facility in Odessa, Texas
(the "Odessa Facility") which is located near supplies of most of its
feedstocks. The Odessa Facility contains plants which produce polyethylene,
polypropylene, APAO, FPO and styrene, as well as ethylene and propylene
primarily for captive use. The Odessa Facility is located near four
pipelines from which it derives its raw material supply.
Polyethylene, polypropylene, APAO, FPO and styrene are used in
different industrial processes to manufacture many diverse finished goods.
These principal end market products are set forth below:
[GRAPHIC OMITTED]
The following chart presents the net sales, excluding sales to
subsidiaries of Huntsman Polymers, contributed by the Company's products
for the years ended December 31:
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
--------------------------------
EIGHT
FOUR MONTHS MONTHS YEAR YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, AUGUST-31, DECEMBER 31, DECEMBER 31
1997 1997 1996 1995
----------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
Polymers........................................ $ 91,519 $ 195,298 $ 276,820 $ 282,658
Styrene......................................... 25,621 56,064 89,647 120,084
Olefins and other............................... 22,535 56,241 68,830 41,971
------ ------ ------ ------
Total .......................................... $ 139,675 $ 307,603 $ 435,297 $ 444,713
======= ======= ======= =======
</TABLE>
The Company is not dependent upon a single customer, or a few customers,
the loss of any one or more of which would have a material adverse effect
on the Company.
Polymers
Polyethylene. 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 1997, approximately 53% of the 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") resin. The
Company currently only manufactures HPLDPE, but intends to manufacture
LLDPE commencing in the first quarter of 1999 with the anticipated
completion of construction of an LLDPE plant at the Odessa Facility. See
"Product Development" below.
The Company produces a variety of grades of HPLDPE. Many of the
resins are designed to meet specific requirements of particular end-uses.
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.
There are currently 13 domestic producers of LDPE resins, some
of which produce both HPLDPE and LLDPE. In 1997, these producers had an
estimated combined, rated annual production capacity of approximately 16.3
billion pounds. The largest manufacturer of LDPE is Equistar Chemicals, LP.
In 1997, 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 1997, the Company
accounted for approximately 3% of the United States' capacity for LDPE and
approximately 5% of the United States' capacity for HPLDPE.
Polypropylene. 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 end-uses, 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.
In 1997, there were 14 domestic producers of polypropylene in
the United States. The industry's estimated combined, rated annual
production capacity was approximately 13.6 billion pounds in 1997. In 1997,
the four largest domestic producers of polypropylene were Montell U.S.A.,
Inc., Amoco Chemicals Corporation, Huntsman Corporation 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 1997, the Company accounted for approximately 1.5% of the
United States, production capacity for polypropylene.
APAO. The Company is one of only two U.S. 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 coating. These applications include
hot melt adhesives for nonwovens, packaging, pressure sensitive and
assembly applications and as a modifier of other polymers. The Company is
the only domestic producer of butane copolymer APAO, a high value product
used in hot melt adhesive applications.
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 1997, the Company accounted for approximately 36% of the
United States, combined capacity for APAO and APP.
FPO. FPO is a homogenous, polypropylene resin, produced in a
process that controls the crystallinity of the various grades. The Company
has designed FPO for specific product applications, such as medical bags,
containers, tubing, non-woven personal care products, automotive interior
uses, industrial sheeting, film and insulation.
FPO competes with a variety of specialized or engineering
grades of polymers, including flexible polyvinyl chloride ("PVC"),
polyurethane and various polyolefins. FPO competes with these and other
polymers on the basis of product performance, specification and price.
Manufacturing and marketing issues may result in slower than expected
development of this polymer.
Styrene
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.
In 1995, 1996 and 1997, 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.
In 1997, 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 1997, the five largest domestic producers of styrene were
Arco Chemical Company, Sterling Chemicals, Inc., Chevron Chemical Company,
Dow Chemical Company and Huntsman Corporation. Competition for sales is
generally based on price. In 1997, the Company accounted for approximately
2.6% of United States production of styrene.
Olefins and other
The Company manufactures olefins from ethane and propane which
are fractionated from natural gas liquids ("NGLs"). The Odessa Facility
obtains a combination of pure and mixed NGLs from NGLs extraction plants
located in West Texas. Ethane and propane prices are established in Mont
Belvieu, Texas according to prevailing market conditions. The Company,
however, is able to purchase NGLs containing ethane and propane in West
Texas at prices discounted from prevailing reported average Mont Belvieu
prices. These discounts reflect a significant portion of the cost for the
producers to transport NGLs to Mont Belvieu, Texas and to fractionate them
into pure ethane and propane. The Company believes feedstock supplies
available in Odessa are currently adequate for the Company's requirements.
The Company has storage capacity for an approximate fifteen-day supply of
feedstocks.
The Company currently consumes substantially all of its
ethylene production internally. The Company selectively sells approximately
30 million pounds of liquid ethylene to customers not located on the Gulf
Coast pipeline grid. The Company has undertaken a major expansion that is
intended to increase its ethylene production from approximately 600 million
to 820 million pounds per year. In December 1995, the Company announced a
capital project for the modernization and expansion of the olefins plant.
The proposed modernization and expansion, scheduled for completion in the
first quarter of 1999, will include a debottlenecking of the Company's
ethylene production process.
Plastic Film
Prior to the sale of the CT Business, the Company, through the
CT Business, was 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.
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:
<TABLE>
<CAPTION>
1997 1996* 1995*
------ ------ --------
(in thousands)
Export sales:
<S> <C> <C> <C>
Continuing Operations........................................... $ 29,295 $ 28,743 $ 24,046
Discontinued Operations......................................... 9,486 25,395 53,462
Percentage of net sales (including discontinued operations):
Continuing Operations........................................... 5% 5% 4%
Discontinued Operations......................................... 2% 4% 9%
</TABLE>
- ----------------
* Export sales totaled $54,138 and $77,508 in 1996 and 1995,
respectively. The Company has determined the allocation between
continuing and discontinued export sales as indicated above.
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 B.V., a licensing subsidiary of DSM. When planned production
commences in the fourth quarter of 1998, the Company'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 octane copolymers produced by
this process are consistent with the Company's strategy of producing higher
quality, value-added products.
The Company has spent between $5.8 million and $6.2 million per
year for research and development during each of the last three fiscal
years and anticipates spending approximately $9.2 million for research and
development in 1998.
RAW MATERIALS FOR PRINCIPAL PRODUCTS
Principal raw materials purchased by the Company consist of
ethane and propane extracted from NGLs, propylene and benzene (all four of
which are referred to as "feedstocks") for the polymer and styrene
businesses. The prices of feedstocks fluctuate based upon the prices of
natural gas and oil, weather conditions affecting the demand for natural
gas and other factors. During 1997, feedstocks accounted for approximately
28% of the Company's total cost of sales. As a result, increases and
decreases in raw material costs have a significant impact on operating
results. After increasing significantly during the fourth quarter of 1996,
feedstock prices decreased midway through the first quarter of 1997 and
remained fairly stable throughout the balance of 1997 due to higher
inventory levels and a fairly mild winter season.
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 NGLs 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 NGLs containing ethane and propane to Mont Belvieu, Texas and
to fractionate them into pure ethane and propane. In 1997, the Company
acquired all of the Odessa Facility's requirements for ethane and propane
under such arrangements.
The Odessa Facility obtains a combination of pure and mixed
streams of NGLs 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 1997, the Odessa Facility consumed
approximately 684 million and 347 million pounds of ethane and propane,
respectively, and in 1996, the Odessa Facility consumed ethane and propane
of approximately 569 million and 498 million pounds, respectively. In 1997,
the Company produced all of its ethylene and 50% of its propylene
requirements for the Odessa Facility. The Company's other propylene
requirements were purchased from third parties. 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 1997, substantially all of the Company's benzene purchases were
under contracts from Gulf Coast and west Texas producers at prevailing
contract prices, with the balance of its needs filled by purchases on the
spot market.
EMPLOYEES AND LABOR RELATIONS
As of December 31, 1997, the Company employed approximately 770
persons.
TRADEMARKS AND PATENTS
The Company is the owner of many United States and foreign
patents and uses trade secrets, including substantial know-how, which
relate to its polyethylene, polypropylene, APAO and FPO 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 adverse
effect on its financial condition. The Company also uses the technology of
others under license agreements in certain of its manufacturing operations.
Various trademarks owned by the Company or its affiliates are used in
connection with the sale of the Company's products. The Company does not
believe that the loss of the right to use any trademarks owned by the
Company or its affiliates would have a material adverse effect on its
financial condition.
ENVIRONMENTAL AND RELATED REGULATION
General
The Company and the industry in which it competes are subject
to extensive environmental laws and regulations and are also subject to
other federal, state and local laws and regulations regarding health and
safety matters. In addition, future developments, such as increasingly
strict requirements and enforcement policies thereunder could bring into
question the handling, manufacture, storage, use, emission or disposal of
substances at the Company's facilities. 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. Changes to or reinterpretations of existing laws could materially
and adversely affect the Company's business and results of operations. The
Company has received notices of alleged violations of certain environmental
laws and has endeavored to remedy such alleged violations promptly. 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.
The Company's operating expenditures for environmental
remediation, compliance and waste disposal were approximately $7.1 million
and $7.6 million in 1997 and 1996, respectively. The Company also spent
approximately $7.7 million and $1.4 million relating to capital
expenditures for environmentally related projects in 1997 and 1996,
respectively. In 1998, the Company anticipates spending approximately $9.1
million for environmental remediation, compliance and waste disposal. Of
such amount, expenditures relating to remediation are projected to be
approximately $1.5 million for 1998. Environmental capital spending is
estimated at $1.7 million for 1998. Capital expenditures increased
substantially in 1997 due to the construction and initial startup of the
new wastewater treatment facility. Approximately $6.6 million was spent in
1997 to refurbish a municipal wastewater reclamation plant to be used as
the primary means of disposal for the Company's wastewater. Outside of the
environmental components associated with the LLDPE and olefins plant
expansion projects, the Company expects to incur between $2 million and $4
million annually in capital spending to address the requirements of
environmental laws.
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 $8.5 million accrued in the
December 31, 1997 balance sheet as an estimate of its total potential
environmental liability with respect to investigating and remediating known
and assessed site contamination.
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 amount that
might be required to investigate and remediate such conditions will not be
significant to the Company.
The Company carries Pollution Legal Liability insurance to
address some of the potential environmental liabilities, subject to the
policy terms, limits, exclusions and deductibles, on both a Sudden and
Accidental basis and on a Gradual basis for occurrences first commencing
after July 1, 1997.
The Company also carries Pollution Legal Liability and Closure
and Post Closure insurance on certain facilities at the Odessa
manufacturing location, which are regulated by the Texas Natural Resources
Conservation Commission (the "TNRCC"). This insurance satisfies the
requirements of the TNRCC governing the operation of these facilities.
Wastewater
The Company historically disposed of its wastewater from the
Odessa Facility through injection wells operated under permits from the
TNRCC. Due to concerns by the agency regarding the operation of these
underground injection wells, and their intention to not renew the permits
after they expired in December 1997, the Company entered into an agreement
with the City of Odessa and the Gulf Coast Waste Disposal Authority
pursuant to which the latter is currently disposing of the wastewater
through the refurbished Odessa South Wastewater Treatment Facility, a
publicly-owned-treatment-works ("POTW"). The cost of refurbishing the
City's wastewater treatment facility, which was approximately $8.0 million,
has been financed principally by the Company. This facility was brought
on-line in October and November of 1997 and culminates three years of
working together to provide a long range, cost effective wastewater
disposal solution. Wastewater is pumped to this facility where it is mixed
with City effluent as well as other industrial discharges. The water is
treated to meet discharge standards before it is released to an
intermittent-flowing stream for further reuse.
Solid Wastes
In March 1994, the 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 undertake certain activities relating to corrective action of
existing contamination at the Odessa Facility. Pursuant to this compliance
plan, the Company has installed groundwater recovery systems, investigated
the extent of on-site contamination, conducted a soils risk assessment to
determine the level of risk it presents to human health and the
environment, developed a corrective measures study on the ways to remediate
the contamination, and started implementation of a remediation plan
approved by the TNRCC.
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 by the TNRCC
for closure of five solid waste management units was received in the first
quarter of 1997. This risk based closure enabled a reduction in the accrual
for potential environmental liability of approximately $9.0 million. A
program for the remediation of existing contamination both at the Odessa
Facility and at third-party sites is continuing.
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.
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 ("CERCLA"), 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.
Additionally, the Company has developed estimates for clean-up of known
waste sites and included these potential liabilities in the environmental
accrual account. 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 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. 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 the first quarter of 1999, is expected
to have a total rated annual production capacity of approximately 220
million pounds.
The polypropylene plant in Odessa, Texas has been in operation
since 1964 and, in 1997 has a total rated annual production capacity of
approximately 200 million pounds. APAO is produced in a former
polypropylene plant that was converted in 1986 and has a total rated annual
production capacity of approximately 65 million pounds.
The FPO plant in Odessa, Texas commenced commercial production
in December 1996 and by mid 1997 had a total rated annual production
capacity of approximately 50 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 has been in operation since 1961
and has 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 plans to expand and
modernize the olefins plant. The proposed modernization and expansion,
scheduled for completion in the first quarter 1999, will include a
debottlenecking of the Company's ethylene production process, which is
anticipated to increase ethylene capacity to approximately 820 million
pounds.
During 1997, the polymer and styrene plants in Odessa, Texas
(except the polypropylene and FPO plants) operated at rates in excess of
97% of their total rated annual production capacity. Although several of
these plants first began production more than thirty years ago, the Company
believes these plants are in good operating condition.
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 Corporation to purchase
the outstanding shares of Common Stock. The lawsuit names the Company and
each of its directors as defendants. The complaint alleged 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 Corporation, in order to entrench
management. Plaintiff sought 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.
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.
Huntsman Corporation acquired the Common Stock at a price $2.00 per share
in excess of that referred to in the complaint. Accordingly, the Company
believes it likely that this lawsuit will be dismissed.
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 alleged
that the Company was infringing two Phillips patents titled "Preparation of
Block Copolymers," 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. 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. 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 appealed the
judgment. The appeal was argued before the Court of Appeals for the Federal
Circuit on November 5, 1997. No decision has been issued.
Phillips Crystalline License Litigation
In May 1990, Phillips filed a lawsuit (the "Action") 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' U.S. Patent No. 4,376,851 (the "'851 Patent") by virtue of its
continued manufacture of crystalline polypropylene after Phillips
purportedly terminated its license agreement (the "Original License
Agreement") with the Company on April 23, 1990. At trial in October 1994,
the Company asserted several defenses and, in June 1995, the Trial Court
ruled in favor of the Company and Phillips appealed. In March 1996, the
Court of Appeals for the Federal Circuit entered an order reversing the
Trial Court's decision and remanding the Action to the Trial Court. The
Trial Court reviewed and ruled on the Company's other defenses and on
September 4, 1997, the Trial Court entered a judgment in favor of Phillips
finding that the Company had infringed the '851 Patent for the period from
April 24, 1990 to September 4, 1997.
On September 19, 1997, the Company and Phillips entered into a
settlement agreement (the "Settlement Agreement"), pursuant to which the
Company paid a lump sum of $10 million to Phillips on September 26, 1997,
and will pay up to $300,000 for each subsequent calendar quarter period.
Such quarterly payments begin with the quarter ending December 31, 1997,
and must be paid through the partial quarter ending March 15, 2000, when
the '851 Patent expires. Pursuant to the Settlement Agreement, the Company
and Phillips released and discharged each other from all claims, debts,
demands, liabilities, losses, causes of action, damages, costs and expenses
relating to the subject matter of the Action. In the event the Company
fails to make a timely payment to Phillips when such payment is due
pursuant to the Settlement Agreement, the Company will be obligated to pay
Phillips accrued interest on such payment.
Effective September 5, 1997, Phillips and the Company entered
into a new crystalline polypropylene license agreement (the "New License
Agreement"). Pursuant to the New License Agreement, Phillips granted to the
Company a nonexclusive, royalty-bearing license to manufacture, use and/or
sell any product which is covered by the '851 Patent. The term of the New
License Agreement is for the period from September 5, 1997, until the
expiration of the '851 Patent on March 15, 2000, unless otherwise
terminated under the provisions thereof. The royalty rate under the New
License Agreement is substantially higher than the royalty rate under the
Original License Agreement. In the event the Company fails to make a timely
payment to Phillips when such payment is due pursuant to the New License
Agreement, the Company will be required to pay Phillips accrued interest on
such payment.
Odessa Residents' Tort Litigation
On April 15, 1994, the national and state chapters of the
National Association for the Advancement of Colored People ("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; attorneys' 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. 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 this case could be settled and the May 1997
trial date was vacated. At mediation, the Company agreed to a settlement of
this case and a related case filed in Houston, Texas in late 1996 on behalf
of 7 similarly situated plaintiffs. The trial court approved the settlement
on March 17, 1997. Although the terms of the settlement are confidential,
the settlement did not have a material adverse effect on the Company's
financial position, results of operations or cash flows. Several plaintiffs
unrepresented by counsel were not included in the settlement. All
plaintiffs in the Houston case settled and that lawsuit was dismissed. The
trial court in this case dismissed the claims of certain of those
plaintiffs on motion from the defendants. One of these plaintiffs has filed
a motion for new trial, which was granted. Approximately 20 plaintiffs
remain after these matters were finalized. On March 16, 1998, the trial
court in the case severed their case from the plaintiffs who settled or
whose claims were dismissed. The NAACP lawsuit is being dismissed.
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 1997.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Market Information
Until August 27, 1997, the Company's common stock traded on the
New York Stock Exchange under the symbol "RXN." 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 until August 27,
1997. Since August 27, 1997, all of the Company's stock has been held by
Huntsman Polymers Holdings Corporation ("HPHC"), a subsidiary of Huntsman
Corporation, and there has been no trading of the Company's common stock.
High Low
1996:
First Quarter................................ $ 14 1/4 $ 9 1/8
Second Quarter............................... 13 7/8 9 7/8
Third Quarter................................ 13 7/8 9
Fourth Quarter............................... 14 1/2 11 3/4
1997:
First Quarter................................ $ 14 1/2 $ 13
Second Quarter............................... 15 3/8 12 7/8
Third Quarter (through August 27, 1997)...... 16 14 7/8
Holders
As of March 27, 1998, there was one holder of record of the
common stock of the Company, Huntsman Polymers Holdings Corporation, a
wholly-owned subsidiary of Huntsman Corporation.
Dividends
Commencing in December 1995, the Board of Directors declared a
$0.04 per share dividend for each fiscal quarter through the second quarter
of 1997. Since the Merger, no dividends have been declared or paid.
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".
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the
Company as of the dates and 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 the Merger, effective August 27, 1997, Centennial, a
wholly-owned indirect subsidiary of Huntsman Corporation, merged with and
into Rexene to form the Company. The Merger has been accounted for using
the purchase method of accounting, and Centennial's cost of merging with
the Company was allocated to the assets and liabilities of the Company
based on estimated fair values of such assets and liabilities. In a
transaction effective September 30, 1997, the Company sold the CT Business
to an affiliate of the Company. The consolidated financial statements for
periods prior to September 1, 1997 have been prepared on a historical cost
basis, adjusted for discontinued operations. As a result of the Merger, the
Company's financial position and operating results for the four months
ended December 31, 1997 reflect a new basis of accounting and are not
comparable to prior periods.
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
---------------------------------
FOUR MONTHS
ENDED EIGHT MONTHS YEARS ENDED DECEMBER 31,
DECEMBER 31, AUGUST 31, --------------------------
1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ----
(in thousands)
CONSOLIDATED STATEMENTS OF OPERATIONS DATA
ADJUSTED FOR DISCONTINUED OPERATIONS:
<S> <C> <C> <C> <C> <C> <C>
Net sales............................................. $139,675 $307,603 $435,297 $444,713 $368,903 $281,885
Operating income...................................... 3,462 42,640 63,255 120,651 57,893 1,156
Income (loss) from continuing operations.............. (4,483) 3,155 30,444 63,466 10,535 (34,186)
Income (loss) from discontinued operations, net....... (218) (2,692) (713) 1,977 10,969 8,943
Income (loss) before extraordinary loss............... (4,701) 463 29,731 65,443 21,504 (25,243)
Extraordinary loss, net of income taxes............... - (694) - - (25,831) -
--------- ---------- --------- -------- ---------- ----------
Net income (loss)..................................... $(4,701) $(231) $29,731 $65,443 $ (4,327) $(25,243)
========= ========== ========= ======== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
PREDECCESSOR COMPANY
As of December 31,
---------------------------------
AS OF AS OF
DECEMBER 31, AUGUST 31,
1997 1997 1996 1995 1994 1993
---- ---- ----- ----- ----- -----
(in thousands)
CONSOLIDATED BALANCE SHEET DATA
ADJUSTED FOR DISCONTINUED
OPERATIONS:
<S> <C> <C> <C> <C> <C> <C>
Working capital............................... $ 103,261 $ 61,188 $ 162,458 $ 108,416 $ 140,039 $ 109,381
Total assets.................................. 943,123 541,067 567,530 520,591 506,954 434,307
Long-term debt and other non-current..........
liabilities................................. 694,241 428,927 334,386 296,080 366,766 397,091
Stockholders' equity (deficit)................ 168,799 166,260 169,051 140,151 74,876 (5,137)
======= ======= ======= ======= ====== =======
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Through September 30, 1997, Huntsman Polymers Corporation,
formerly Rexene Corporation, conducted its business through two operating
divisions: the Rexene Products division, which manufactured polyethylene,
polypropylene, APAO, FPO, styrene, and olefins and the CT Film division,
which manufactured plastic film. On September 30, 1997, the Company sold
the CT Business to Huntsman Packaging Corporation, an affiliate of the
Company. The Company now consists solely of those assets which formerly
comprised Rexene Products division. Consequently, management believes that
a description of the CT Business' results and financial condition of the CT
Business is not meaningful to an evaluation of the Company's results of
operations or financial condition.
The markets in which the Company competes are generally
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 profits. Like most companies
in the industry, the Company's operations have been affected by the
shortages and delay of rail transportation into and out of the Odessa
plant. Certain of the Company's products, such as APAO, are generally less
sensitive to economic cycles. In addition, the Company's polyethylene and
polypropylene businesses are geared toward higher value-added, specialty
grades, which are less sensitive to cyclical swings experienced by
commodity grades. Management believes that many of the factors contributing
to the lower selling prices experienced by the industry in 1997 will
continue throughout 1998.
Principal raw materials purchased by the Company consist of
ethane and propane extracted from NGLs, propylene and benzene (all four of
which are referred to as "feedstocks") for the polyethylene, polypropylene
and styrene businesses. Management believes the feedstock supplies
available in Odessa, Texas are currently adequate for the Company's
requirements. The percentage of feedstock costs compared to the Company's
total cost of sales decreased from 30% in 1996 to 28% in 1997. Lower
industry inventory levels of crude oil, natural gas and NGL feedstocks and
unexpected supply disruptions caused feedstock prices to increase during
1996 and early 1997. The Company's inability in 1996 and the first quarter
of 1997 to pass on the full amount of the increases in feedstock costs to
customers had a significant impact on operating results for those periods;
however, feedstock prices decreased midway through the first quarter of
1997 and remained fairly stable throughout the balance of 1997 due to
higher inventory levels and a fairly mild winter season, favorably
impacting the Company's earnings. Management believes that feedstock prices
will trend downward through mid-second quarter 1998 and stabilize
throughout the remainder of the year.
RESULTS OF OPERATIONS
The Merger of Rexene and Centennial, effective September 1,
1997 (the "Effective Date") for financial accounting purposes, resulted in
the implementation of a new basis of accounting, resulting in new carrying
values for certain of the Company's assets, liabilities and equity.
Huntsman Polymers' consolidated financial statements reflect this new basis
of accounting beginning with the date of the Merger. Effective September
30, 1997, the Company sold the assets of the CT Business. The operations of
the CT Business are presented as discontinued operations for all periods
presented. In order to present data which is useful for comparative
purposes, the following pro forma tabular data and related discussion have
been prepared as if the Merger and the CT Film Sale had taken place at the
beginning of each period presented. These results do not necessarily
reflect the results which would have been obtained if the Merger or the CT
Film Sale had actually occurred on the dates indicated or the results which
may be expected in the future.
Huntsman Polymers' operations for periods after the Effective
Date are significantly affected by (1) the elimination of the amortization
of the Company's historical reorganization value, (2) the incremental
depreciation associated with the net increase in property, plant, and
equipment, (3) the impact on interest expense of the replacement of
selected debt vehicles with intercompany debt and (4) the deferred income
tax affect adjustments associated with these adjustments. For these
reasons, among others, certain financial information for periods before and
after the Effective Date is not comparable.
SELECTED FINANCIAL RESULTS:
<TABLE>
<CAPTION>
Actual Pro Forma(1)
Year Ended December 31, Year Ended December 31,
---------------------------------------------------------
1997 1996 1997 1996
---- ---- ---- ----
(in thousands)
CONSOLIDATED STATEMENT OF OPERATIONS:
<S> <C> <C> <C> <C>
Revenues $447,278 $435,297 $447,278 $435,297
Cost of goods sold 377,801 330,667 392,457 352,650
---------- -------- -------- -------
69,477 104,630 54,821 82,647
Selling, general and administrative 26,212 35,369 25,850 32,064
Research and development 6,163 6,006 6,163 6,006
Reversal of environmental accrual (9,000) - (9,000) -
---------- -------- --------- --------
Operating income 46,102 63,255 31,808 44,577
Interest expense, net (23,713) (12,629) (28,833) (28,601)
Other expense (22,173) (1,733) (13,673) (486)
---------- --------- -------- -------
216 48,893 (10,698) 15,490
Income tax benefit (expense) (1,544) (18,449) 2,603 (4,975)
---------- --------- ---------- --------
Income (loss) from continuing operations $ 1,328 $ 30,444 $ (8,095) $ 10,515
======== ========= ========== ========
- -----------------
(1) Pro forma results reflect purchase accounting adjustments as if
the Merger had occurred on January 1, 1996 or 1997, as
applicable.
</TABLE>
COMBINED 1997 COMPARED TO 1996
The 1997 compared to 1996 items below are discussed in the
context of pro forma results of operations as if the Merger between Rexene
and Centennial had occurred on January 1, 1997 and 1996, as applicable.
Revenues
The Company's net sales increased $12.0 million (or 3%) from
1996 to 1997 principally due to an increase in the average sales price of
polyethylene, the added sales volumes of the newly commercialized FPO and
to an increase in volumes of feedstock sales, and was partially offset by a
decrease in the sales price of styrene. Polyethylene sales increased $8.0
million (or 5%), principally due to an increase in average sales price of
3.3 cents per pound, partially offset by a decrease in sales volumes of
14.2 million pounds. Styrene sales decreased $8.0 million (or 9%)
principally due to a decrease in sales price of 1.7 cents per pound. APAO
sales decreased $1.5 million (or 6%) principally due to a decrease in sales
price of 4.2 cents per pound. Polypropylene sales decreased $1.0 million
(or 1%) principally due to a decrease in sales volume of 2.8 million
pounds. The FPO plant was completed in late 1996 and FPO sales were $4.5
million in 1997. Other sales increased $9.9 million principally due to an
increase in feedstock volumes sold.
Gross Profit
The Company's gross profit as a percentage of sales decreased
from 19% in 1996 to 12% in 1997 principally due to factors impacting
styrene, polypropylene and FPO. The decrease in gross profit for styrene
was the result of a $8.0 million decrease in average sales price and $3.5
million of additional manufacturing costs, partially due to an increase in
utility costs. Polypropylene production decreased 11% due to the
implementation of capital projects and mechanical difficulties during 1997
causing a decline in the gross profit of $8.4 million. FPO gross profit
margin was $(6.0) million in 1997, the first year during which the new FPO
plant has operated.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased $6.2
million (or 19%) from 1996 to 1997 due to the settlement of an insurance
claim related to a previously settled lawsuit for approximately $2.3
million, a decrease related to administrative restructuring as the result
of the Merger for approximately $3.1 million in the four months following
the Merger, and an increase of $1.5 million in legal fee reimbursements.
These decreases to selling, general, and administrative expenses were
partially offset by increases to engineering expenses and the reserve for
doubtful accounts.
Reversal of Environmental Accrual
An environmental accrual established in prior years was reduced
by $9.0 million as a result of modifications to the Company's remedial
action plans at the Company's Odessa Facility that were approved by the
TNRCC.
Interest Expense, Net
Net interest expense increased $0.2 million (or less than 1%)
from 1996 to 1997.
Other, Net
Other expense increased $13.2 million from 1996 to 1997,
principally due to the settlement of a lawsuit filed by Phillips. See Item
3 "Legal Proceedings".
Income Tax Expense
Income tax expense decreased $7.6 million from 1996 to 1997 due
to decreased operating results.
1996 COMPARED TO 1995
The 1996 compared to 1995 items below are based on historical
data, as restated to reflect the CT business as discontinued operations.
Revenues
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 $9.4 million (2%) from
1995 to 1996 principally due to a decrease in average sales prices in
styrene and polypropylene, 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.
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.
Gross Profit
The Company's gross profit as a percentage of sales, decreased
from 36% in 1995 to 24% 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 12% reduction in the gross profit percentage in 1996
compared to 1995.
Selling, General and Administrative Expenses
Selling, general and administrative expenses remained stable
from 1995 to 1996. Research and development expenses also remained
relatively stable from 1995 to 1996.
Interest Expense
Interest expense decreased $8.4 million (or 37%) principally
due to lower credit line balances and higher capitalized interest on
capital improvements.
Income Tax Expense
Income tax expense decreased $19.0 million from 1995 to 1996
due to decreased operating results.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities for the combined twelve
months ended December 31, 1997 was $14 million, a decrease of $32 million
over the same period in the prior year. This decrease was primarily
attributable to the decline in net income, a net increase in working
capital, and a net use of cash at the Company's discontinued operations.
Net cash used in investing activities for the combined twelve
months ended December 31, 1997 was $408 million, an increase of $294
million over the same period in 1996. This increase was primarily
attributable to the accounting treatment of the cash consideration paid by
Centennial in connection with the Merger under "push-down" accounting rules
as well as a higher level of capital spending on the Company's
modernization and expansion program, and was partially offset by the cash
proceeds from the sale of the CT Film assets.
Net cash provided by financing activities for the combined
twelve months ended December 31, 1997 was $421 million, an increase of $372
million over the same period in the prior year. This increase was primarily
attributable to the net proceeds from the issuance of common stock as well
as the increase of intercompany debt incurred to finance the Merger. Debt
was also used, in part, to finance the Company's modernization and
expansion program.
In connection with the Merger, the Company entered into an
intercompany loan agreement (the "Loan Agreement") with Huntsman Group
Holdings Finance Company ("HGHFC"), a wholly-owned subsidiary of Huntsman
Corporation. As of December 31, 1997, the Company owed $258.1 million under
the Loan Agreement. Subject to certain terms and conditions, the Company
may borrow additional amounts under the Loan Agreement. The Company has
guaranteed on a secured basis, subject to the limitations imposed by the
indenture governing the Company's 11 3/4% Senior Notes due 2004 (the
"Senior Notes") (the "Indenture"), Huntsman Corporation's senior secured
borrowings on a pari passu basis with substantially all of Huntsman
Corporation's domestic subsidiaries.
Pursuant to the terms of the Indenture, the Company is required
to make an offer to repurchase the Senior Notes at 101% of the principal
amount plus accrued interest within ten days following a change of control.
The Merger resulted in a change of control event. Therefore the Company
made a change of control offer to repurchase the Senior Notes in accordance
with the terms of the Indenture. The last day the holders of the Senior
Notes could accept such change of control offer was September 30, 1997.
Senior Notes with an aggregate principal amount of $118,000 were
repurchased in connection with the change of control offer.
On May 8, 1997, the Company entered into a $50 million capital
lease agreement with Estherwood Corporation to finance the facility which
produces FPO. In connection with the Merger, this lease agreement was
amended and restated with HGHFC becoming the lessor. The principal economic
terms of this lease agreement were not altered.
On September 30, 1997, the Company sold the assets of the CT
Business to Huntsman Packaging, an affiliate of the Company, for $70
million in cash. The proceeds from the CT Film Sale were used to
temporarily repay revolving intercompany indebtedness and will be applied
to the Company's modernization and expansion program as such expenses are
incurred.
Capital expenditures for the combined twelve months ended
December 31, 1997 were $119 million. The $6 million increase in capital
expenditures from the twelve months ended December 31, 1997 to the same
period in 1996 was due primarily to additional spending in connection with
the Company's modernization and expansion program, partially offset by a
lower level of capital spending at the Company's discontinued operations.
The two primary components remaining in the Company's modernization and
expansion program include the modernization of the Company's olefins
facility and the building of a new LLDPE facility. The Company expects to
complete these projects in the first quarter of 1999 and expects to spend
an additional $200 million to $225 million in connection with these
projects. Substantially all of such additional spending will occur in 1998.
The Company believes that, based on current levels of operation
and anticipated growth, its cash flow from operations, together with other
available sources of liquidity, will be adequate to make scheduled payments
of interest on the Senior Notes, to permit anticipated capital expenditures
and to fund working capital requirements. However, the ability of the
Company to satisfy these obligations depends on a number of significant
assumptions, including but not limited to, the demand for the Company's
products and raw material costs.
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 $8.5
million accrued in the December 31, 1997 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. 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 have a material adverse effect on the
Company's financial position, results of operations or cash flows. 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 carries Pollution Legal Liability insurance to
address many of the potential environmental liabilities, subject to its
terms, limits, exclusions and deductibles, on both a sudden and accidental
basis and on a gradual basis for occurrences first commencing after July 1,
1997 on its operations. The Company also carries Pollution Legal Liability
and Closure and Post Closure insurance on certain facilities at the Odessa
manufacturing location which are regulated by the TNRCC. This insurance
satisfies the requirements of the TNRCC governing operations at this
location.
The Company historically disposed of its wastewater from the
Odessa Facility through injection wells operated under permits from the
TNRCC. Due to concerns by the agency regarding the operation of these
underground injection wells, and their intention not to renew the permits
after they expired in December 1997, the Company entered into an agreement
in 1995 with the City of Odessa and the Gulf Coast Waste Disposal Authority
pursuant to which the latter is currently disposing of the wastewater
through the refurbished Odessa South Wastewater Treatment Facility, a POTW.
The cost of refurbishing the City's wastewater treatment facility, which
was approximately $8.0 million, has been financed principally by the
Company. This facility was brought on-line in October and November of 1997
and culminates three years of working together to provide a long range,
cost effective wastewater disposal solution. Wastewater is pumped to this
facility where it is mixed with City effluent as well as other industrial
discharges. The water is treated to meet discharge standards before it is
released to an intermittent-flowing stream for further reuse.
Year 2000 Compliance
In response to the year 2000 compliance issue, the Company has
completed an inventory and assessment of all internally developed or
externally acquired system components. The Company has dedicated the
resources to either replace or remediate all known problems. External
service providers have been contacted and have assured the Company that
they will be 2000 compliant. The total cost to the Company of these efforts
is estimated to be approximately $500,000, with the majority being expensed
in 1998.
Other Matters
The Company is including the following cautionary statement in
this 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.
13. Unavailability of, and substantial delays in,
transportation of raw materials and products.
The Company disclaims any obligation to update and
forward-looking statements to reflect events or circumstances after the
date hereof.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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
Effective August 27, 1997, the date of the Merger Agreement
between Centennial, a wholly-owned indirect subsidiary of Huntsman
Corporation, and Rexene, Deloitte & Touche LLP was chosen as the external
accountants for the Company. Huntsman Corporation management elected to
change the external accountants from Price Waterhouse LLP, Rexene's
historical external accountants, to Deloitte & Touche LLP, Huntsman
Corporation's external accountants, for consistency purposes.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS AND EXECUTIVE OFFICERS
The current directors and executive officers of the Company are
listed below. Directors are elected at the annual meeting of stockholders
and hold office until their successors are duly elected and qualified. All
officers serve at the pleasure of the Board of Directors of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Jon M. Huntsman* ................... 60 Chairman and Chief Executive Officer, Director
Jon M. Huntsman, Jr.* .............. 38 Vice Chairman, Director
Peter R. Huntsman* ................. 35 President, Director
J. Kimo Esplin ..................... 35 Senior Vice President and Chief Financial Officer, Treasurer
Michael J. Kern .................... 48 Senior Vice President, Operations
Robert B. Lence .................... 40 Senior Vice President and Chief Legal Officer, Secretary
Donald J. Stanutz .................. 47 Senior Vice President, Sales and Marketing
Monte G. Edlund .................... 42 Vice President, Marketing/Commercial
L. Russell Healy ................... 42 Vice President, Tax
Johnny W. Lasiter .................. 48 Vice President, Manufacturing
James A. Leitch .................... 40 Vice President, Sales
Martin F. Petersen ................. 37 Vice President
Daniel J. Subach ................... 50 Vice President, Research and Development
- ---------------------
* Such persons are related as follows: Jon M. Huntsman is the father
of Peter R. Huntsman and Jon M. Huntsman, Jr.
</TABLE>
JON M. HUNTSMAN has been Chairman and Chief Executive Officer
and a Director of the Company since August 1997. Mr. Huntsman has served as
Chairman of the Board, Chief Executive Officer and a Director of Huntsman
Corporation, its predecessors and other Huntsman companies for over 25
years. He is also the Chairman and founder of the Huntsman Cancer
Foundation. In addition, Mr. Huntsman serves on numerous charitable, civic,
industry and corporate boards. In 1994, Mr. Huntsman received the
prestigious Kavaler Award as the chemical industry's outstanding Chief
Executive Officer. Mr. Huntsman formerly served as Special Assistant to the
President of the United States and as Vice Chairman of the U.S. Chamber of
Commerce. He serves on the Board of Governors of the American Red Cross.
JON M. HUNTSMAN, JR. has been Vice Chairman and a Director of
the Company since August 1997. Mr. Huntsman, Jr. also serves on the Boards
of Directors of Huntsman Corporation and its affiliated companies, Owens-
Corning Corporation, and Valassis Communications, Inc. Mr. Huntsman, Jr.
currently serves as Vice Chairman of Huntsman Corporation and its
affiliated companies as well as President of the Huntsman Cancer
Foundation. In addition, from 1991 until 1992, Mr. Huntsman, Jr. was a
Senior Vice President and General Manager of Huntsman Chemical Corporation.
From 1992 until 1993, Mr. Huntsman, Jr. served as United States Ambassador
to the Republic of Singapore. From 1989 until 1990, Mr. Huntsman, Jr.
served as U.S. Deputy Assistant Secretary of Commerce for International
Trade, and from 1990 until 1991, he was U.S. Deputy Assistant Secretary of
Commerce for East Asian and Pacific Affairs. Mr. Huntsman, Jr. currently
serves on the Chemical Manufacturers Association and the American Plastics
Council Boards.
PETER R. HUNTSMAN has been President and a Director of the
Company since August 1997. Mr. Huntsman is the President and Chief
Operating Officer and a Director of Huntsman Corporation and its affiliated
companies including Huntsman Petrochemical Corporation and Huntsman
Chemical Corporation. He was formerly a Senior Vice President of Huntsman
Packaging Corporation and Huntsman Chemical Corporation. From 1991 until
1992, Mr. Huntsman was Senior Vice President and General Manager of
Huntsman Polypropylene Corporation and from 1990 until 1992, he was Vice
President--Purchasing of Huntsman Chemical Corporation.
J. KIMO ESPLIN has been Senior Vice President and Chief
Financial Officer of the Company since August 1997. Mr. Esplin has been
Senior Vice President and Chief Financial Officer of Huntsman Corporation
and its affiliated companies since Spring of 1997. From 1994 to 1996, Mr.
Esplin was Vice President and Treasurer of Huntsman Corporation and
affiliated companies. Prior to joining Huntsman, Mr. Esplin was a Vice
President of Bankers Trust Company, where he worked for seven years.
MICHAEL J. KERN has been Senior Vice President, Operations
since August 1997. Mr. Kern is also Senior Vice President, Manufacturing of
Huntsman Corporation, Huntsman Chemical Corporation, and Huntsman
Petrochemical Corporation. Prior to joining Huntsman Corporation and
affiliated companies in 1994, Mr. Kern held a variety of positions with
Texaco Chemical Company, including Area Manager--Jefferson County
Operations from 1993, Plant Manager of Port Neches Chemical Plant from 1992
to 1993, Manager of PO/MTBE project from 1989 to 1992 and Manager of
Operations--Oxides and Olefins from 1988 to 1989.
ROBERT B. LENCE has been Senior Vice President and Chief Legal
Officer and Secretary of the Company since August 1997. Mr. Lence is also
Senior Vice President and General Counsel and Secretary of Huntsman
Corporation and affiliated companies. Prior to joining Huntsman in 1991,
Mr. Lence was a partner with Van Cott, Bagley, Cornwall & McCarthy, a Salt
Lake City law firm with which he had been associated since 1982.
DONALD J. STANUTZ has been Senior Vice President, Sales and
Marketing of the Company since August 1997. Mr. Stanutz is also Senior Vice
President, Olefins and Performance Chemicals of Huntsman Corporation and
Senior Vice President, Performance Chemicals of Huntsman Petrochemical
Corporation. Prior to joining Huntsman Corporation and affiliated companies
in 1994, Mr. Stanutz was Business Unit Manager of Texaco Chemical Company
from 1993 to 1994; Manager--Olefins from 1992 to 1993; General
Manager--Chemical Department of Texaco Chemical Company from 1993 to 1994;
General Manager--Chemical Department of Texaco Limited, UK from 1990 to
1992; and Assistant Chemical Manager--Chemical Department from 1989 to
1990.
MONTE G. EDLUND has been Vice President, Marketing/Commercial
of the Company since August 1997. Prior to the Merger, Mr. Edlund held the
following positions with Rexene Corporation: Vice President-- Marketing,
1995-August 1997; Director--Polymers Marketing, 1994-1995;
Director--Polymer Sales, 1993-1994; Director--Polypropylene Marketing,
1992-1993; and Regional Sales Manager, 1989-1992. From 1981 to 1989, Mr.
Edlund held several positions in the Chemicals Group of Phillips Petroleum
Co., including technical, sales, marketing, and sales management in
chemicals and polyethylene.
L. RUSSELL HEALY has been Vice President, Tax of the Company
since August 1997. Mr. Healy is also Vice President, Tax of Huntsman
Corporation and affiliated companies. Prior to joining Huntsman Corporation
in 1995, Mr. Healy was a partner with Deloitte & Touche LLP. Mr. Healy is a
Certified Public Accountant.
JOHNNY W. LASITER has been Vice President, Manufacturing of the
Company since August 1997. Prior to the Merger, Mr. Lasiter had been, since
1991, Vice President of Manufacturing and General Manager of the Odessa
Complex of Rexene Products Co. and had served in various positions with
Rexene Products Co. since 1977.
JAMES A. LEITCH has been Vice President, Sales of the Company
since August 1997. Prior to the Merger, Mr. Leitch was Vice President,
Sales for Rexene since March 1995. Since joining Rexene in February 1985,
Mr. Leitch has worked in sales in both the polymers and petrochemicals
aspects of the business and has held various positions with Rexene, serving
as Sales Manager, Southern Region from October 1987 to December 1992,
Business Director, Polyethylene from January 1993 to December 1993 and
Sales Director from January 1994 to March 1995. Prior to joining Rexene,
Mr. Leitch was with Union Carbide from 1980 to 1985 in Engineering and
Sales.
MARTIN F. PETERSEN has been Vice President of the Company since
August 1997. Mr. Petersen is also Vice President and Treasurer of Huntsman
Corporation and affiliated companies. Prior to joining Huntsman Corporation
in 1997, Mr. Petersen was a Vice President in the Investment Banking
Division of Merrill Lynch & Co. where he worked for seven years.
DANIEL J. SUBACH has been Vice President, Research and
Development of the Company since August 1997. From February 1997 until the
Merger, Dr. Subach was Vice President, Research & Development/Materials
with Rexene. Dr. Subach has over fifteen years of experience in the
specialty chemical and polymer business. From September 1994 to February
1996, Dr. Subach was General Manager for Callery Chemical Company, Division
of MSA. Dr. Subach was Vice President, Product Development for the W. H.
Brady Company from 1991 to 1994.
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, 1997, 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, the four other highest paid executive officers of the
Company in 1997 and two additional executive officers for whom disclosure
would have been provided but for the fact that they were not serving as
executive officers at the end of the last completed fiscal year (the "named
executive officers") for the years indicated.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
OPTIONS
(NUMBER OF ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS SHARES) COMPENSATION
<S> <C> <C> <C> <C> <C>
Jon M. Huntsman, Chairman of the Board and
Chief Executive Officer(1)............................... 1997 $17,600 $90,000 - $10,600(2)
Andrew J. Smith, Former Chairman of the Board
and Chief Executive Officer.............................. 1997 $316,672 $357,186 - $3,291,272(3)
1996 452,088 357,186 80,000 6,300
1995 431,671 469,808 - 7,176
Jonathan R. Wheeler, Former Executive Vice
President and President of CT Film....................... 1997 $156,672 $138,914 -- $1,599,693(4)
1996 225,845 138,914 40,000 3,573
1995 206,675 190,630 __ 3,548
Jack E. Knott, Former Executive Vice President
and 1997 $255,425 $160,162 __ $1,413,382(5)
President of Rexene Products............................. 1996 241,267 160,162 40,000 3,106
1995 221,675 203,338 __ 3,542
1997 $136,500 $77,681 __ $407,041(6)
Johnny W. Lasiter, Vice President, Manufacturing......... 1996 136,500 82,602 11,000 2,944
1995 130,000 39,000 __ 3,813
1997 $124,000 $73,462 __ $321,865(7)
James A. Leitch, Vice President, Sales................... 1996 118,500 73,071 15,000 2,025
1995 112,501 20,000 __ 2,609
Monte G. Edlund, Vice President, 1997 $125,000 $73,374 __ $315,433(8)
Marketing/Commercial..................................... 1996 119,500 72,662 15,000 2,177
1995 114,293 21,100 __ 2,776
Daniel J. Subach, Vice President, Research and 1997 $100,625 $5,425 __ $82,117(9)
Development..............................................
</TABLE>
- -----------------
(1) Jon M. Huntsman's compensation was paid entirely by Huntsman
Corporation, the Company's parent. Compensation figures for Jon M.
Huntsman represent a prorated percentage of Huntsman Corporation
compensation attributable to services rendered to the Company.
(2) Consists of $2,100 employer's 401(k) contribution and $8,500 Money
Purchase Plan contribution.
(3) Consists of a severance payment of $3,286,397 in 1997, Company
contributions to employee benefit plans (and related cash
supplements) of $2,175, $2,250 and $4,584 in 1997, 1996 and 1995
respectively, and imputed income for life insurance of $2,700,
$4,050 and $2,592 for 1997, 1996 and 1995, respectively.
(4) Consists of a severance payment of $1,596,541 in 1997, Company
contributions to employee benefit plans (and related cash
supplements) of $2,175, $2,175 and $2,812 in 1997, 1996 and 1995,
respectively, and imputed income for life insurance of $977, $1,398
and $736 in 1997, 1996 and 1995, respectively.
(5) Consists of a severance payment of $1,410,289 in 1997, Company
contributions to employee benefit plans (and related cash
supplements) of $2,175, $2,225 and $2,744 in 1997, 1996 and 1995,
respectively, and imputed income for life insurance of $918, $881
and $798 in 1997, 1996 and 1995, respectively.
(6) Consists of a cash payment in connection with the Merger for
outstanding stock options of $261,212 in 1997, a $143,006 payment in
connection with an employee incentive plan paid at the time of the
Merger, Company contributions to employee benefit plans (and related
cash supplements) of $2,047, $2,175 and $3,082 in 1997, 1996 and
1995, respectively, and imputed income for life insurance of $776,
$769 and $731 in 1997, 1996 and 1995, respectively.
(7) Consists of a cash payment in connection with the Merger for
outstanding stock options of $168,817 in 1997, a $132,025 payment in
connection with an employee incentive plan paid at the time of the
Merger, reimbursement of relocation costs of $18,905 in 1997,
Company contributions to employee benefit plans (and related cash
supplements) of $1,860, $1,778 and $2,391 in 1997, 1996 and 1995,
respectively, and imputed income for life insurance of $258, $247
and $218 in 1997, 1996 and 1995, respectively.
(8) Consists of a cash payment in connection with the Merger for
outstanding stock options of $172,968 in 1997, a $140,189 payment in
connection with an employee incentive plan paid at the time of the
Merger, Company contributions to employee benefit plans (and related
cash supplements) of $1,875, $1,793 and $2,425 in 1997, 1996 and
1995, respectively, and imputed income for life insurance of $401,
$384 and $351 in 1997, 1996 and 1995, respectively.
(9) Consists of a $48,125 payment in connection with an employee
incentive plan paid at the time of the Merger, reimbursement of
relocation expenses of $31,935 in 1997, Company contributions to
employee benefit plans (and related cash supplements) of $1,150 in
1997, and imputed income for life insurance of $907 in 1997.
OPTION GRANTS, EXERCISES AND HOLDINGS
No options to purchase common stock of the Company were granted
during the year ended December 31, 1997 to any named executive officers. No
named executive officer exercised options to purchase Common Stock in 1997.
There were no unexercised options to purchase Common Stock held at December
31, 1997 by any of the Company's named executive officers. Any unexercised
options were purchased by Centennial in connection with the Merger.
RETIREMENT PLANS
During 1997, the Company maintained a trusteed non-contributory
defined benefit pension plan (the "Rexene 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 Rexene
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
Rexene Retirement Plan (up to a maximum of 35 years). All of the named
executive officers except for Mr. Jon M. Huntsman were eligible to
participate in the Rexene Retirement Plan in 1997.
In October 1994, the Company adopted the Rexene Corporation
Supplemental Executive Retirement Plan (the "Rexene SERP"), which was
amended in 1996. The purposes of the Rexene SERP are to provide
supplemental retirement and survivor benefits, in addition to amounts
payable under the Rexene 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 Rexene SERP. Although
the general assets of the Company are the source of funds for the Rexene
SERP, the benefit obligations that had accrued under the Rexene SERP as the
date of the Merger were contributed in the form of annuities to a "rabbi
trust" established for this purpose. Participants in the Rexene 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 Rexene 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 Rexene 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 Rexene
Retirement Plan and thereafter from the Rexene SERP. In addition, benefits
payable to participants in the Rexene 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 Rexene SERP may be
reduced in an amount not to exceed 10% for each year of early retirement.
Under the Rexene Retirement Plan pension payments will be permitted in
excess of the limit imposed by the Internal Revenue Code under the Rexene
Retirement Plan, which in 1997 provides that the highest annual salary on
which benefits can be calculated is $160,000. Messrs. Smith, Wheeler and
Knott participated in the Rexene SERP in 1997.
The following table illustrates the amount of annual pension
benefits payable under the Rexene Retirement Plan in specified average
earnings and years of service classifications to each of Messrs. Lasiter,
Leitch, Edlund and Subach. (Benefits payable to Messrs. Smith, Wheeler and
Knott under the Rexene Retirement Plan and the Rexene SERP combined are
reflected in the Pension Plan Table next following the table set forth
below.) Benefit payments under the Rexene Retirement Plan are not subject
to any reduction for social security benefits or other offset amounts.
Benefits are calculated on a straight life annuity basis.
<TABLE>
<CAPTION>
REXENE RETIREMENT PLAN TABLE
Years of Benefit Service at Retirement
---------------------------------------------------
Final Average Pay 5 10 15 20 25 30
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$100,000 7,000 14,000 21,000 28,000 35,000 42,000
$125,000 8,800 17,500 26,300 35,000 46,800 52,500
$150,000 10,500 21,000 31,500 42,000 52,500 63,000
$175,000 11,200 22,400 33,600 44,800 56,000 67,200
</TABLE>
For purposes of calculation of benefits under the Rexene
Retirement Plan, only credited service since 1984 count in the benefit
formula. The number of completed years of credited service as of December
31, 1997 under the Rexene Retirement Plan for each of Messrs. Lasiter,
Leitch, Edlund and Subach were 14, 12, 8 and 0, respectively.
The following table illustrates the amount of estimated annual
pension benefits payable under the Rexene Retirement Plan and the Rexene
SERP in specified average annual earnings and years of service
classifications to each of Messrs. Smith, Wheeler and Knott. Benefit
payments under the Rexene SERP are not subject to any reduction for social
security benefits or other offset amounts. Benefits are calculated on a
straight life annuity basis. All of the current participants in the Rexene
SERP are 100% vested in their accrued benefits in such plan.
REXENE RETIREMENT PLAN AND SERP TABLE
Years of Benefit Service at Retirement
---------------------------------------------------
Final Average Pay 5 10 15 20 25
- -----------------------------------------------------------------------------
$100,000 $ 21,667 $43,336 $ 65,000 $ 65,000 $ 65,000
125,000 27,083 54,167 81,250 81,250 81,250
150,000 32,500 65,000 97,500 97,500 97,500
175,000 37,917 75,833 113,750 113,750 113,750
200,000 43,333 86,667 130,000 130,000 130,000
300,000 65,000 130,000 195,000 195,000 195,000
400,000 86,667 173,333 260,000 260,000 260,000
For purposes of calculation of benefits under the Rexene
Retirement Plan, only credited service since 1984 count in the benefits
formula. As a result of the Merger, participants were credited with
additional service under the Rexene SERP to age 60. For purposes of
calculation of benefits under the Rexene SERP (and effectively under the
Rexene SERP and Rexene Retirement Plan combined), the years of credited
service for each such named executive officer as of December 31, 1997 were
as follows: Mr. Smith -- fourteen years; Mr. Wheeler -- 23 years and Mr.
Knott -- 26 years.
Effective January 1, 1998, executives of the Company will
participate in the Huntsman Corporation Defined Benefit Pension Plan (the
"Huntsman Corporation Pension Plan").
The following table sets forth the total combined estimated
annual benefits payable under the Huntsman Corporation Pension Plan and the
Huntsman Corporation Supplemental Pension Plan (the "Hunstman SERP") in
specified final average earnings and years-of-service classifications to
Mr. Jon M. Huntsman.
<TABLE>
<CAPTION>
Years of Benefit Service at Retirement
-------------------------------------------------------------------------
Final Average
Compensation 5 10 15 20 25 30 35 40
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$100,000 $7,000 $14,000 $21,000 $28,000 $35,000 $42,000 $49,000 $56,000
$125,000 8,800 17,500 26,300 35,000 43,800 52,500 61,300 70,000
$150,000 10,500 21,000 31,500 42,000 52,500 63,000 73,500 84,000
$175,000 12,300 24,500 36,800 49,000 61,250 73,500 85,800 98,000
</TABLE>
The current Huntsman Corporation Pension Plan benefit is based
on the following formula: 1.4% of average final compensation multiplied by
years of credited service, minus 1.4% of estimated Social Security benefits
multiplied by years of credited service (maximum 50% of Social Security).
Final average compensation for the Huntsman Corporation Pension Plan is
based on the highest average of three consecutive years compensation. Mr.
Jon M. Huntsman was a participant in the Huntsman Corporation Pension Plan
in 1997, and his covered compensation, which consists of base pay, is
reflected in the Salary column of the Summary Compensation Table. Federal
regulations require that for the 1997 plan year no more than $160,000 in
compensation be considered for the calculation of retirement benefits from
the Huntsman Corporation Pension Plan, and the maximum amount paid from a
qualified defined benefit plan cannot exceed $125,000, as of January 1,
1997. Benefits are calculated on a straight life annuity basis. The benefit
amounts under the Huntsman Corporation Pension Plan are offset for Social
Security benefits.
The Huntsman SERP is a non-qualified supplemental pension plan
for designated executive officers that provides benefits based on certain
compensation amounts not included in the calculation of benefits payable
under the qualified Huntsman Corporation Pension Plan. Mr. Jon M. Huntsman
was a participant in the Huntsman SERP in 1997, and his compensation
amounts taken into account for purposes of the plan include bonuses (as
reflected under the "Bonus" column of the Summary Compensation Table for
Mr. Huntsman) and base pay in excess of the qualified plan limitations. The
Huntsman SERP benefit is calculated as the difference between (a) and (b)
where (a) is the benefit determined using the Huntsman Corporation Pension
Plan formula with unlimited base pay and bonus and (b) is the benefit
determined using base pay as limited by federal regulations.
The number of completed years credited as of December 31, 1997
under the Huntsman Corporation Pension Plan and the Huntsman SERP for Mr.
Jon M. Huntsman was 27.
COMPENSATION OF DIRECTORS
Fees and Expenses. Prior to the Merger, 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. Each Director elected to the Board in
1997 also received options to acquire 2,000 shares of Common Stock at an
exercise price equal to the fair market value of the shares on the date of
grant, less $10.00 per share. Any unexercised options held by directors
were purchased by Centennial in connection with the Merger. The Company
also reimbursed directors for travel, lodging and related expenses they
incurred in attending Board and committee meetings. After the Merger,
directors have been serving without compensation from the Company.
EMPLOYMENT AGREEMENTS
Any employment arrangements with executive officers were
terminated in connection with the Merger. There are currently no employment
agreements with any executive officers.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The Company has 1,000 shares of common stock, par value $0.01
per share, issued and outstanding. The Company is a wholly-owned subsidiary
of Huntsman Polymers Holdings Corporation, which is a wholly-owned
subsidiary of Huntsman Corporation, 500 Huntsman Way, Salt Lake City, Utah
84108. Huntsman Corporation is 99.6% owned by Jon M. Huntsman and his
family. No other director, executive officer or person beneficially owns
any shares of common stock of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On August 27, 1997, Huntsman Centennial Corporation, a Delaware
corporation and a subsidiary of Huntsman Corporation, was merged with and
into Rexene, and Rexene changed its name to Huntsman Polymers Corporation.
The Merger occurred pursuant to the Merger Agreement. The stockholders of
Rexene approved the Merger Agreement at a Special Meeting held on August
26, 1997. In the Merger, each of the shares of Common Stock of Rexene
(other than dissenting shares and shares held by Huntsman Corporation,
Centennial or Rexene) were cancelled and converted into the right to
receive $16.00 in cash, without interest. As a result of the Merger,
Huntsman Corporation indirectly owns all of the Common Stock of the
Company, and the Company thus became an indirect subsidiary of Huntsman
Corporation.
In conjunction with the Merger, Centennial entered into a loan
agreement with an affiliate, HGHFC, and borrowed approximately $131.1
million under this agreement. Additionally, Centennial received an equity
contribution from its parent company, HPHC, in the amount of $173.5
million. After the Merger, the Company entered into a loan agreement with
HGHFC and borrowed $225.1 million, of which a portion of the proceeds were
used to repay to original debt incurred by Centennial and assumed by the
Company. As of December 31, 1997, the Company owed $258.1 million under the
Loan Agreement. Subject to certain terms and conditions, the Company may
borrow additional amounts under the Loan Agreement.
Also, at the time of the Merger, the Company guaranteed on a
secured basis, subject to the limitations imposed by the Indenture,
Huntsman Corporation's senior secured borrowings on a pari passu basis with
substantially all of Huntsman Corporation's domestic subsidiaries.
On August 27, 1997, the Company amended an existing Capital
Lease Agreement between the Company and Estherwood Corporation effectively
assigning all of Estherwood's rights under the agreement to HGHFC. The
value of the capital lease at the time of assignment was $50.0 million plus
accrued interest. The Company is obligated to make quarterly interest
payments to HGHFC effective the quarter ended December 31, 1997 and
quarterly lease payments commencing the quarter ended December 31,1998
through September 30, 2002 (see note 9).
On September 30, 1997, the Company completed the CT Film Sale
to Huntsman Packaging, an affiliate of the Company, pursuant to the Asset
Purchase Agreement, by and between the Company and Huntsman Packaging.
Pursuant to the terms of the Asset Purchase Agreement, the Company
transferred the CT Business, including, among other things, its properties,
film manufacturing facilities, sales offices, warehouses, inventory,
technology and contracts that relate to the CT Business. In consideration
for the transfer of the assets of the CT Business, the Company received $70
million in cash. The terms of the Asset Purchase Agreement were mutually
agreed upon by the Company and Huntsman Packaging and were based upon
arm's-length negotiations, taking into account various factors concerning
the valuation of the CT Business.
A summary of transactions between the Company and other related
parties as of, and for the year ended, December 31, 1997, is summarized as
follows (dollars in thousands):
Sales to:
Huntsman Petrochemical Corporation $ 596
Huntsman Chemical Corporation 2,500
Huntsman Corporation 69,073
Trade accounts receivable from:
Hunstman Corporation 69,428
Payroll receivable from:
Huntsman Packaging Corporation 6,148
Other miscellaneous receivables from:
Huntsman Packaging Corporation 1,507
Huntsman Corporation 586
Employee advances 727
Product purchases from:
Huntsman Petrochemical Corporation 766
Interest expense paid to:
Huntsman Group Holdings Finance Company 7,568
Miscellaneous accounts payable to:
Huntsman Petrochemical Corporation 884
Huntsman Packaging Corporation 562
Huntsman Corporation 4,958
Long-term debt payable to:
Huntsman Group Holdings Finance Company 258,055
Long-term capital lease payable to:
Huntsman Group Holdings Finance Company
(including accrued interest) 51, 535
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 the Company'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 (now known as Huntsman Polymers
Corporation) 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 (now
known as Huntsman Polymers Corporation) Annual Report on
Form 10-K for the fiscal year ended December 31, 1992 and
incorporated herein by reference).
2.4 -- Agreement and Plan of Merger by and among Huntsman
Corporation, Huntsman Centennial Corporation and Rexene
Corporation dated June 9, 1997.
3.1 -- Restated Certificate of Incorporation and the Certificate
of Amendment to the Certificate of Incorporation (filed
as Exhibit 3(i) to Rexene Corporation's (now known as
Huntsman Polymers Corporation) Quarterly Report on Form
10-Q for the quarterly period ended September 30, 1997
and incorporated by reference).
3.2 -- By-Laws (filed as Exhibit 3(ii) to Rexene Corporation's
(now known as Huntsman Polymers Corporation) Quarterly
Report on Form 10-Q for the quarterly period ended
September 30, 1997 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 (now known
as Huntsman Polymers Corporation) Annual Report on Form
10-K for the fiscal year ended December 31, 1994 and
incorporated herein by reference).
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 (now known as Huntsman
Polymers Corporation) 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 (now known as Huntsman
Polymers Corporation) 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 (now known as
Huntsman Polymers Corporation) 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 (now known as
Huntsman Polymers Corporation) 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 (now known
as Huntsman Polymers Corporation) 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 (now known as Huntsman Polymers
Corporation) 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's (now known as Huntsman Polymers
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 (now known as
Huntsman Polymers Corporation) Form 10-Q Quarterly Report
for the quarterly period 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 (now known as Huntsman Polymers
Corporation) Registration Statement on Form S-3 (SEC File
No. 33-55507) as filed on October 21, 1994 and
incorporated herein by reference).
10.6.1* -- 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 (now
known as Huntsman Polymers Corporation) 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 (now
known as Huntsman Polymers Corporation) 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 (now
known as Huntsman Polymers Corporation) 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 (filed as Exhibit 10.7.2 to Rexene
Corporation's (now known as Huntsman Polymers
Corporation) Annual Report on Form 10-K for the fiscal
year ended December 31, 1996 and incorporated herein by
reference).
10.7.3* -- Rexene Corporation 1996 Performance Unit Program for
Executive Officers (filed as Exhibit 10.7.3 to Rexene
Corporation's (now known as Huntsman Polymers
Corporation) Annual Report on Form 10-K for the fiscal
year ended December 31, 1996 and incorporated herein by
reference).
10.7.4* -- Rexene Corporation Long Term Performance Unit Program for
Executive Officers (filed as Exhibit 10.7.4 to Rexene
Corporation's (now known as Huntsman Polymers
Corporation) Annual Report on Form 10-K for the fiscal
year ended December 31, 1996 and incorporated herein by
reference).
10.8 -- First Amended Asset Purchase Agreement, dated as of
September 26, 1997, between Huntsman Polymers Corporation
and Huntsman Packaging Corporation (filed as Exhibit 2.1
to Huntsman Polymers Corporation's Current Report on Form
8-K filed on October 21, 1997 and incorporated herein by
reference).
10.9 -- Intercompany Loan Agreement, dated as of August 27, 1997,
between Huntsman Group Holdings Finance Corporation and
Huntsman Polymers Corporation, dated as of August 27,
1997 (filed as Exhibit 10.1 to Huntsman Polymers
Corporation's Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1997 and
incorporated by reference).
16.1 -- Letter re: Change in Certifying Accountant (filed as
Exhibit 16 to Huntsman Polymers Corporation's Current
Report on Form 8-K filed on August 29, 1997 and
incorporated herein by reference).
21.1 -- Subsidiaries of Huntsman Polymers Corporation.
27.1 -- Financial Data Schedule.
- --------------------
* Management contract or compensatory plan or arrangement required to
be filed as an exhibit hereto.
(b) The Company filed a Form 8-K on October 21, 1997 describing the sale
of the CT Business to Huntsman Packaging Corporation.
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, thereunto duly authorized.
HUNTSMAN POLYMERS CORPORATION
Dated March 31, 1998 By: /s/ J. Kimo Esplin
-------------------
J. Kimo Esplin
Senior Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons on behalf of the
registrant and in the capacities indicated on March 31, 1998.
SIGNATURE TITLE
/s/ Jon M. Huntsman Chairman of the Board and Chief Executive
_______________________ Officer and Director (Principal
JON M. HUNTSMAN Executive Officer)
/s/ Jon M. Huntsman, Jr. Vice Chairman and Director
_________________________
JON M. HUNTSMAN, JR.
/s/ Peter R. Huntsman President and Director
__________________________
PETER R. HUNTSMAN
/s/ J. Kimo Esplin Senior Vice President,
__________________________ Chief Financial Officer (Principal
J. KIMO ESPLIN Financial and Accounting Officer)
HUNTSMAN POLYMERS CORPORATION AND SUBSIDIARIES
ITEMS 8 AND 14(a)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Responsibility for the Consolidated Financial Statements F-2
Reports of Independent Accountants:
Deloitte & Touche LLP F-3
Price Waterhouse LLP F-4
Consolidated Balance Sheets as of December 31, 1997 and 1996 F-5
Consolidated Statements of Operations for the Four Months Ended
December 31, 1997, the Eight Months Ended August 31, 1997, and the
Years Ended December 31, 1996 and 1995 F-6
Consolidated Statements of Stockholders' Equity for the Four
Months Ended December 31, 1997, the Eight Months Ended
August 31, 1997, and the Years Ended December 31, 1996 and
1995 F-7
Consolidated Statements of Cash Flows
for the Four Months Ended December 31, 1997, the
Eight Months Ended August 31, 1997 and the Years
Ended December 31, 1996 and 1995 F-8
Notes to the Consolidated Financial Statements F-10
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.
RESPONSIBILITY FOR THE CONSOLIDATED FINANCIAL STATEMENTS
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
principals and necessarily includes estimates that are based on
management's best judgment.
To help ensure 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. 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, "Business Conduct Guidelines". Careful selection of
employees, and appropriate divisions of responsibility, also help us to
achieve our control objectives.
The 1997 financial statements have been audited by the
Company's independent accountants, Deloitte & Touche LLP. The 1996 and 1995
consolidated financial statements of Rexene have been previously audited by
Rexene's auditors Price Waterhouse LLP. Their reports are shown on pages
F-3 and F-4, respectively.
The Board of Directors oversees the adequacy of the Company's
control environment. The audit Committee meets periodically with
representatives of Deloitte & Touche LLP, internal financial management and
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.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Huntsman Polymers Corporation:
We have audited the accompanying consolidated balance sheet of
Huntsman Polymers Corporation and its subsidiaries (the "Company"),
formally Rexene Corporation (the "Predecessor Company"), as of December 31,
1997, and the related statements of operations, stockholders' equity and
cash flows for the four months ended December 31, 1997 and for the eight
months ended August 31, 1997 (Predecessor Company operations). 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 in accordance with generally accepted
auditing standards. Those standards 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 assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of
Huntsman Polymers Corporation as of December 31, 1997, and the results of
its operations and cash flows for the four months ended December 31, 1997,
and the results of the Predecessor Company operations and cash flows for
the eight months ended August 31, 1997, in conformity with generally
accepted accounting principles.
As discussed in Note 2, during 1997 the Company sold its CT
Film business. We have audited the adjustments that were applied to restate
the 1996 and 1995 financial statements. In our opinion, such adjustments
are appropriate and have been properly applied to the 1996 and 1995
financial statements.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Houston, Texas
March 30, 1997
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Rexene Corporation
In our opinion, the consolidated balance sheet and the related
consolidated statements of operations and stockholders' equity and of cash
flows, prior to the reclassification as described in Note 2 to reflect the
sale of the CT Business as discontinued operations (not presented
separately herein), present fairly, in all material respects, the financial
position, results of operations and cash flows of Rexene Corporation and
its subsidiaries (the "Predecessor Company") as of and for each of the two
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. We have not audited the
consolidated financial statements of Rexene Corporation and its
subsidiaries (the "Predecessor Company") for any period subsequent to
December 31, 1996 nor have we examined any adjustments applied to the 1996
and 1995 financial statements.
PRICE WATERHOUSE LLP
Dallas, Texas
February 12, 1997, except as to Note 9,
for which the date is March 14,
1997 and except for the SFAS 130
disclosure in Note 2 for which the date
is March 30, 1998.
<TABLE>
<CAPTION>
HUNTSMAN POLYMERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
Predecessor Company
December 31, 1997 December 31, 1996
----------------- -----------------
ASSETS
------
Current assets:
<S> <C> <C>
Cash and cash equivalents $ -- $ 714
Accounts and notes receivables, net 21,900 64,637
Accounts and advances receivable - Affiliates 78,396 --
Inventories 57,443 52,294
Net assets of discontinued operations -- 106,051
Deferred income taxes 5,543 2,816
20,062 39
Other current assets ------------------ ----------------
Total current assets 183,344 226,551
Properties, plant and equipment, net 727,418 297,334
Intangible assets, net 8,446 15,570
23,915 28,075
Other noncurrent assets ------------------- ----------------
Total assets $ 943,123 $ 567,530
LIABILITIES AND STOCKHOLDERS' EQUITY ------------------- ----------------
------------------------------------
Current liabilities:
Accounts payable $ 52,740 $ 45,498
Accounts payable - Affiliates 6,404 --
Accrued liabilities 15,080 9,289
Current income taxes payable -- 594
Accrued interest 1,723 1,889
4,136 6,823
Employee benefits payable ------------------- ----------------
80,083 64,093
Total current liabilities ------------------- ----------------
Long-term debt 174,882 235,000
Long-term debt - Affiliates 309,590 --
Deferred income taxes 166,219 39,986
46,550 59,400
Other noncurrent liabilities ------------------- ----------------
Commitments and contingencies, (see note 11)
Total liabilities 774,324 398,479
------------------- ----------------
Stockholders' equity:
Common Stock, par value $.01 per share; in 1997,
1 million shares authorized and 1,000 issued and
outstanding; in 1996, 100 million shares authorized
and 18.8 million shares issued and outstanding -- 188
Additional paid-in capital 173,500 111,553
Foreign currency translation adjustment -- 1,990
Retained earnings (deficit) (4,701) 55,320
------------------- ----------------
Total stockholders' equity 168,799 169,051
------------------- ----------------
Total liabilities and stockholders' equity $ 943,123 $ 567,530
------------------- ----------------
See accompanying notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
HUNTSMAN POLYMERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
PREDECESSOR COMPANY
-----------------------------------------------
FOUR MONTHS EIGHT MONTHS
ENDED ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, AUGUST 31, DECEMBER 31, DECEMBER 31,
1997 1997 1996 1995
---- ---- ---- ----
Revenues
<S> <C> <C> <C> <C>
Trade sales and services $ 66,564 $ 307,603 $ 435,297 $ 444,713
Affiliate sales 72,169 - - -
942 - - -
Other revenues ----------- ----------- ----------- -----------
139,675 307,603 435,297 444,713
Cost of goods sold 126,914 250,887 330,667 282,585
----------- ----------- ----------- -----------
Gross Profit 12,761 56,716 104,630 162,128
Expenses
Selling, general and administrative 6,645 19,567 35,369 35,704
Research and development 2,654 3,509 6,006 5,773
- (9,000) - -
Reversal of environmental accrual ----------- ----------- ----------- -----------
Operating Income 3,462 42,640 63,255 120,651
Interest expense
Affiliate interest expense (7,568)
Other interest expense (3,353) (15,163) (14,407) (22,769)
Interest income 1,098 1,273 1,778 3,220
Defense and Merger Costs - (8,500) (1,247) -
Other expense (226) (13,447) (486) (174)
----------- ----------- ----------- -----------
Net income (loss) from continuing
operations before income taxes (6,587) 6,803 48,893 100,928
----------- ----------- ----------- -----------
Income tax benefit (expense)
Net income (loss) from continuing operations (4,483) 3,155 30,444 63,466
Loss (income) from discontinued operations
(net of income tax benefits, ($55), ($673),
($351) and tax expense of $974, respectively) 218 2,692 713 (1,977)
----------- ----------- ----------- -----------
Net income (loss) before extraordinary loss (4,701) 463 29,731 65,443
Extraordinary loss (net of income tax benefit,
($424)) - 694 - -
----------- ----------- ----------- -----------
Net income (loss) $ (4,701) $ (231) $ 29,731 $ 65,443
=========== =========== =========== ===========
See accompanying notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
HUNTSMAN POLYMERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
FOREIGN
RETAINED CURRENCY
COMMON STOCK TREASURY PAID-IN EARNINGS TRANSLATION
PREDECESSOR COMPANY: SHARES AMOUNT STOCK CAPITAL (DEFICIT) ADJUSTMENT TOTAL
------ ------ ----- ------- ------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
(discontinued operations) - - - - - (311) (311)
Dividends of common stock ($.04 per share) - - - - (750) - (750)
Net income --------- ----- ------ --------- ---------- -------- -------
Balance, December 31, 1995 18,745 187 - 111,247 28,595 122 140,151
Issuance of common stock 63 1 - 240 - - 241
Tax benefit of directors' and employees'
compensation deduction - - - 66 - - 66
Foreign currency translation adjustment
(discontinued operations) - - - - - 1,868 1,868
Dividends of common stock ($.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
Issuance of common stock 52 1 - 334 - - 335
Repurchase of common stock (12) (1) 12 (83) - - (72)
Foreign currency translation adjustment
(discontinued operations) - - - - - (1,140) (1,140)
Dividends of common stock ($.08 per share) - - - - (1,507) - (1,507)
Net loss - - - - (231) - (231)
--------- ----- ------ --------- ---------- -------- -------
Balance at August 31, 1997 18,848 188 12 111,804 53,582 850 166,436
- ----------------------------------------------------------------------------------------------------------------------------------
POST MERGER:
Purchase accounting adjustments (18,848) (188) (12) 61,696 (53,582) (850) 7,064
Net loss - - - - (4,701) - (4,701)
--------- ----- ------ --------- ---------- -------- -------
Balance, December 31, 1997 - - - $ 173,500 $ (4,701) - $168,799
--------- ----- ------ --------- ---------- -------- -------
See accompanying notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
HUNTSMAN POLYMERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASHFLOWS
(IN THOUSANDS)
PREDECESSOR COMPANY
-----------------------------------------
FOUR MONTHS EIGHT MONTHS
ENDED ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, AUGUST 31, DECEMBER 31, DECEMBER 31,
1997 1997 1996 1995
---- ---- ---- ----
OPERATING ACTIVITIES:
<S> <C> <C> <C> <C>
Net income (loss) $ (4,701) $ (231) $ 29,731 $ 65,443
Reconciliation to net cash provided by continuing operations:
Loss (Income) from discontinued operations 218 2,692 713 (1,977)
Depreciation and amortization 14,570 14,808 16,886 14,795
Deferred income taxes 5,003 (2,160) 2,101 4,194
Amortization of debt issuance costs 264 1,130 1,297 2,876
Extraordinary loss, net of income taxes - 694 - -
Changes in operating working capital (net of merger):
Deposits held in trust - 3,547 4,453
Accounts receivable 12,067 1,303 (14,525) 11,569
Inventories (7,703) 2,554 (9,294) (621)
Other current assets (20,039) 17 292 399
Accounts payable 21,531 (7,884) 21,610 (6,864)
Accrued interest (3,418) 3,252 175 (180)
Employee benefits payable and accrued liabilities (18,858) 13,340 (751) 1,205
Income taxes (4,254) 3,660 (30,118) 32,952
Other noncurrent liabilities (15,153) (9,191) (649) (2,492)
Other 9,050 (20,795) (5,166) 354
-------- --------- --------- ---------
Net cash provided by (used in) continuing operations (11,423) 3,189 15,849 126,106
Net cash provided by (used in) discontinued operations - (5,565) 2,360 6,370
-------- --------- --------- ---------
Net cash provided by (used in) operating operations (11,423) (2,376) 18,209 132,476
-------- --------- --------- ---------
INVESTING ACTIVITIES:
Advances receivable - affiliates (49,029)
Acquisition of Rexene (308,369)
Capital expenditures of continuing operations (43,859) (72,063) (105,914) (41,918)
Capital expenditures of discontinued operations (147) (3,312) (7,878) (12,688)
Proceeds from sale of discontinued operations 70,000
Purchase of intangibles - (1,271) - -
-------- --------- --------- ---------
Net cash used in investing activities (331,404) (76,646) (113,792) (54,606)
-------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
--------------------------------------------
FOUR MONTHS EIGHT MONTHS
ENDED ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, AUGUST 31, DECEMBER 31, DECEMBER 31,
1997 1997 1996 1995
---- ---- ---- ----
FINANCING ACTIVITIES:
<S> <C> <C> <C> <C>
Issuance of common stock to parent 173,500
Intercompany borrowing from parent 269,525
Long term borrowings - 83,916
Repayment of long-term debt (100,198) (100,000)
Bank borrowing, net of repayment - 60,000
Debt issuance costs and other - (3,182) (4,598)
Advance payment from customer, net of repayments - - (3,600) 23,200
Cash dividends paid - (2,259) (3,004)
Repurchase of common stock - (166)
Proceeds of issuance of common stock, net - 251 241 366
--------- --------- --------- ---------
Net cash provided by financing activities 342,827 78,560 49,039 (76,434)
--------- --------- --------- ---------
Increase (Decrease) in Cash and Cash Equivalents - (462) (46,544) 1,436
Cash and Cash Equivalents at Beginning of Period - 714 47,258 45,822
Cash and Cash Equivalents at Beginning of Period
for Discontinued Operations - (252) - -
--------- --------- --------- ---------
Cash and Cash Equivalents at End of Period
Supplemental Cash Flow information:
Cash paid for interest 10,274 16,160 21,951 23,740
Cash paid for income taxes 3,222 1,064 46,551 1,933
See accompanying notes to financial statements.
</TABLE>
HUNTSMAN POLYMERS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. MERGER
Effective September 1, 1997 (the "Effective Date") for
financial accounting purposes, pursuant to an Agreement and Plan of Merger
(the "Merger Agreement") by and among Rexene Corporation ("Rexene" or the
"Predecessor Company"), Huntsman Corporation ("HC") and Huntsman Centennial
Corporation ("HCC"), a wholly-owned indirect subsidiary of HC, HCC was
merged with and into Rexene, and Rexene changed its name to Huntsman
Polymers Corporation (the "Company"). Pursuant to the merger, stockholders
of Rexene received from HCC $16.00 in cash for each outstanding share of
common stock of Rexene (the "Merger"). As a result of the Merger, HC
indirectly owns all of the presently issued common stock of the Company.
The accounting treatment of the cash consideration paid by HCC in
connection with the Merger is shown under push-down accounting rules.
To finance the Merger, HCC entered into a loan agreement with
an affiliate, Huntsman Group Holding Finance Company ("HGHFC"). HCC
borrowed approximately $131.1 million under this loan agreement.
Additionally, HCC received an equity contribution from its parent company,
Huntsman Polymers Holding Corporation ("HPHC"), in the amount of $173.5
million. After the Merger, the Company entered into a loan agreement with
HGHFC, and borrowed $225.1 million (the "Intercompany Loan"). The proceeds
of this borrowing were used to repay debt of HCC assumed by the Company in
the Merger and bank debt of Rexene.
The Merger closed on August 27, 1997.
The sources and applications of funds required to consummate
the Merger are summarized below in thousands of dollars.
Sources of Funds:
Loan agreement with HGHFC $ 225,067
Equity Contribution 173,500
Rexene Working Capital 3,382
----------------------
Total $ 401,949
======================
Uses of Funds:
Payment of the Merger
Consideration $ 301,614
Liquidation of Rexene debt 100,080
Transaction fees and expenses(1) 255
----------------------
Total $ 401,949
======================
- ------------------------------
(1) Transaction fees and expenses totaled $6.8 million, of
which $255 thousand was paid on August 27, 1997. The remainder were paid
using funds provided by operations.
The Merger has been accounted for as a purchase transaction,
and accordingly, the consolidated financial statements subsequent to the
Effective Date reflect the purchase price, including transaction costs and
liabilities assumed based on their estimated fair values as of the
Effective Date. Although none of the purchase price has been allocated to
intangible assets, valuation and other studies have not been finalized. It
is not expected that the final allocation of purchase price will produce
materially different results from those presented herein. The combined
financial statements for periods prior to September 1, 1997 have been
prepared on a historical cost basis. The consolidated balance sheet at
December 31, 1997 is not comparable with the historical balance sheet at
December 31, 1996. Operating results subsequent to the Merger are
comparable to the operating results prior to the Merger except for
depreciation expense, amortization of intangible assets, pensions, and
interest expense. In addition, Rexene's pre-Merger common stock was
canceled and replaced with 1,000 shares of common stock (all of which are
owned by HPHC), rendering the presentation of per share data no longer
meaningful.
The allocation of the $308 million Merger consideration
(including fees and expenses) is summarized as follows in thousands of
dollars:
Current assets $ 95,569
CT Business 70,000
Plant and equipment 701,697
Other non-current assets 40,254
Liabilities assumed (599,131)
----------
Total $ 308,389
==========
The following unaudited pro forma data has been prepared
assuming that the Merger and related financing and the sale of the CT
Business were consummated at the beginning of each period. Amounts are in
thousands of dollars.
Year Ended December 31,
1997 1996
---- ----
Revenues $447,278 $435,297
Net income (loss) before extraordinary item (8,095) 10,515
Net income (loss) (8,789) 10,515
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company manufactures products used in a wide variety of
industrial and consumer-related applications. The Company's principal
products are polyethylene, polypropylene, amorphous polyalphaolefins
("APAO"), flexible polyolefin ("FPO") and styrene.
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of the Company and the
Predecessor Company include its wholly-owned subsidiaries. Intercompany
transactions and balances are eliminated.
DISCONTINUED OPERATIONS
As discussed more fully in Note 16, the Company sold its CT
Business effective September 30, 1997. The results of operations for the CT
Business have been reclassified as discontinued operations for all periods
presented in the Consolidated Statements of Operations. Revenues of the CT
Business were $16,278 thousand, $107,221 thousand, $152,464 thousand and
$170,525 thousand for the four months ended December 31, 1997, eight months
ended August 31, 1997 and years ended December 31, 1996 and 1995,
respectively. The assets and liabilities of the CT Business have been
reclassified in the December 31, 1996 consolidated balance sheet as "Net
Assets of Discontinued Operations."
CASH AND CASH EQUIVALENTS
Highly liquid investments with an original maturity of three
months or less when purchased are considered to be cash equivalents.
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 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. Other intangible assets are stated at
their fair market values at the time of the Merger and are amortized using
the straight-line method over their estimated useful lives of five to
fifteen years or over the life of the related agreement and are included in
"Other assets."
INCOME TAXES
Deferred income taxes are provided for temporary differences
between financial statement income and taxable income using the asset and
liability method in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes."
FOREIGN CURRENCY TRANSLATION
The Company's foreign subsidiary was sold effective September
30, 1997 in conjunction with the CT Film sale transaction described in Note
16. Prior to the sale, the operations of the Company's foreign subsidiary
used the local currency of the country of operation as the functional
currency. The financial statements of the foreign subsidiary were
translated at the current and average exchange rates, with any resulting
translation adjustments included in the foreign currency translation
adjustment account in owners' equity.
ENVIRONMENTAL EXPENDITURES
Environmental related restoration and remediation costs are
recorded as liabilities and expensed when site restoration and
environmental remediation and clean-up obligations are either known or
considered probable and the related costs can be reasonably estimated.
Other environmental expenditures, which are principally maintenance or
preventative in nature, are recorded when expended and are expensed or
capitalized as appropriate.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount reported in the balance sheets for cash and
cash equivalents, accounts receivable, and accounts payable approximates
fair value because of the immediate or short-term maturity of these
financial instruments. The carrying value of the related party loans,
capital lease, and bank borrowings approximates fair value as they bear
interest at a floating rate plus an applicable margin. At December 31, 1997
and 1996, the fair value of the $175 million principal amount 11 3/4%
Senior Notes was approximately $196 million and $194 million, respectively,
based on quoted market rates.
RECLASSIFICATIONS
Certain amounts in the consolidated financial statements for
prior periods have been reclassified to conform with the current
presentation.
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 130,
"Reporting Comprehensive Income", which establishes standards for reporting
and display of comprehensive income and its components. SFAS No. 130 is
effective for fiscal years beginning after December 15, 1997 and requires
classification of financial statements in earlier periods for comparative
purposes. If the Company had calculated comprehensive income in accordance
with SFAS No. 130, Comprehensive income (loss) for the four months ended
December 31, 1997, the eight months ended, August 31, 1997, and the years
ended December 31, 1996 and 1995 would have been $(4.7) million, $(1.4)
million, $31.6 million and $65.1 million, respectively. The Company has
determined the amounts of comprehensive income for 1996 and 1995.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information", which establishes
standards for the way that public business enterprises report information
about operating segments in interim and annual financial statements. SFAS
No. 131 is effective for fiscal years beginning after December 15, 1997 and
requires comparative information for earlier years to be restated. Upon
adoption of SFAS No. 131, the Company will provide segment information
related to the Company' individual products and related disclosures.
INCOME (LOSS) PER SHARE
Income (loss) per share is not presented because it is not
considered meaningful information due to the acquisition by a single
non-public shareholder.
3. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following (in thousands):
Predecessor Company
December 31, 1997 December 31, 1996
----------------- -------------------
Trade $ 9,889 $ 55,853
Other 13,695 11,030
----------------- -------------------
23,584 66,883
Less allowances for bad debts
and returns (1,684) (2,246)
----------------- -------------------
21,900 64,637
Affiliate-receivables and advances 78,396 -
----------------- -------------------
$ 100,296 $64,637
----------------- -------------------
Net additions to (deductions from) the allowance accounts were
$(742,000), $180,000, $141,000 and $219,000 for the four months ended
December 31, 1997, the eight months ended August 31, 1997, and the years
ended December 31, 1996 and 1995, respectively.
4. INVENTORIES
Inventories consist of the following (in thousands):
Predecessor Company
December 31, 1997 December 31, 1996
----------------- -------------------
Raw Materials $ 11,297 $ 11,085
Work in progress 7,952 $ 8,134
Finished goods $ 38,194 $ 33,075
----------------- -------------------
$ 57,443 $ 52,294
----------------- -------------------
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following (in thousands):
Predecessor Company
December 31, 1997 December 31, 1996
----------------- -------------------
Land $4,487 $4,544
Buildings 23,249 21,940
Plant and equipment 542,834 267,207
Construction in progress 171,384 59,835
----------------- -------------------
741,954 353,526
Less accumulated
depreciation (14,536) (56,192)
----------------- -------------------
$ 727,418 $ 297,334
----------------- -------------------
Depreciation expense for the four months ended December 31,
1997, the eight months ended August 31, 1997 and the years ended December
31, 1996 and 1995 was $14,332,000, $10,075,000, $15,246,000 and
$13,350,000, respectively. During the four months ended December 31, 1997
the eight months ended August 31, 1997 and the years ended December 31,
1996 and 1995, $4,212,000, $5,333,000, $8,259,000 and $2,577,000,
respectively, of interest was capitalized in connection with construction
projects, substantially all of which relates to continuing operations.
6. INTANGIBLE ASSETS
Intangible assets, net of accumulated amortization are (in thousands):
Predecessor Company
December 31, 1997 December 31, 1996
----------------- -------------------
Debt issuance costs $ 7,173 $ 14,333
Less accumulated
amortization (1,821) (4,288)
----------------- -------------------
5,352 10,045
----------------- -------------------
Reorganization value in
excess of amounts
allocable to identifiable assets 4,298
Less accumulated amortization (1,437)
----------------- -------------------
- 2,861
----------------- -------------------
Other intangible assets 3,105 7,377
Less accumulated amortization (11) (4,713)
----------------- -------------------
3,094 2,664
----------------- -------------------
$ 8,446 $15,570
----------------- -------------------
7. OTHER NONCURRENT ASSETS
Other noncurrent assets consist of the following (in thousands):
Predecessor Company
December 31, 1997 December 31, 1996
----------------- -------------------
Spare parts inventory $ 20,432 $ 16,945
Unrecognized prior service cost, net of
accumulated amortization of 741 in 1996 - 2,022
Deposit in rabbi trust - 2,856
Long-term note receivable 1,198 1,550
Other 2,285 4,702
----------------- -------------------
$ 23,915 $ 28,075
----------------- -------------------
Spare parts inventories are recorded at average cost. In 1995,
the Predecessor Company deposited $2.8 million in a rabbi trust account to
fund a Supplemental Executive Retirement Plan (the "SERP). In 1996, no
amounts were deposited in the rabbi trust account to fund the SERP. In
1997, the Predecessor Company deposited $3.7 million into the rabbi trust
account to fund the SERP and purchased annuities resulting in the
elimination of the balance sheet liability.
8. ACCRUED LIABILITIES
Accrued liabilities consist of the following (in thousands):
Predecessor Company
December 31, 1997 December 31, 1996
----------------- -------------------
Accrued taxes, other than income $ 5,506 $ 2,757
Current portion of advance payment
from customer (see note 10) 3,600 3,600
Other accrued expenses 5,974 2,932
----------------- -------------------
$ 15,080 $ 9,289
----------------- -------------------
9. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
Predecessor Company
December 31, 1997 December 31, 1996
----------------- -------------------
Intercompany borrowings $258,055 $ -
Capital lease - affiliate 50,000 -
Bank borrowings under Amended Credit
Agreement - 60,000
11 3/4% Senior Notes due 2004 174,882 175,000
Other 1,535 -
----------------- -------------------
Total long-term debt $484,472 $235,000
----------------- -------------------
INTERCOMPANY BORROWINGS
Intercompany loans are made pursuant to the Huntsman Polymers
Intercompany Loan Agreement dated August 27, 1997 between HGHFC and
Huntsman Polymers Corporation. The loans accrue interest at prime rate plus
a margin of 0.75% and are payable upon demand. Management of HGHFC has
represented that HGHFC does not intend to require the Company to repay the
debt before January 1, 2002, accordingly, such amounts have been classified
as long-term. To the extent permitted by the indenture governing the
Company's 11 3/4% Senior Notes, the intercompany loans are secured by all
of the assets of the Company.
CAPITAL LEASE
On March 8, 1997, the Company entered into a Capital Lease
Agreement with the Estherwood Corporation to finance the construction of
the Company's FPO facility in Odessa, Texas. On August 27, 1997, the
agreement was amended and Estherwood Corporation assigned all of its rights
under the agreement to HGHFC. The principal economic terms of the lease
agreement were not altered. The Company is obligated to make quarterly
lease payments through September 30, 2002. The lease is secured by all of
the fixed assets associated with the FPO facility.
The Company's long-term capital lease as of December 31, 1997
maturities are as follows (in thousands):
For the years ending December 31,
1998 $ -
1999 3,125
2000 13,750
2001 18,125
2002 15,000
------
$ 50,000
AMENDED AND RESTATED CREDIT AGREEMENT
On April 24, 1996, the Predecessor 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 Predecessor Company executed an agreement with
a financial institution for a $10 million uncommitted, unsecured line or
credit (the "Unsecured Note") for day to day cash flow requirements. The
Unsecured Note agreement was canceled in August 1997.
On March 14, 1997, the Predecessor 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 the proceeds from the New
Credit Agreement were to provide funds to repurchase 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. The
Amended Credit Agreement was terminated and all amounts borrowed thereunder
were repaid in August 1997.
SENIOR NOTES
The 11 3/4% Senior Notes rank pari passu in right of payment
with all senior unsecured borrowings of the company, including a portion of
the borrowings under the intercompany loan agreement. The 11 3/4% Senior
Notes rank senior in right of payment to any subordinated indebtedness of
the Company. 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. 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 date of
redemption.
Year Percentage
- ---- ----------
(Beginning December 1)
1999.....................................................105.875%
2000.....................................................103.917%
2001.....................................................101.958%
2002.....................................................100.000%
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.
10. OTHER NONCURRENT LIABILITIES
Other noncurrent liabilities consist of the following (in thousands):
Predecessor Company
December 31, 1997 December 31, 1996
----------------- -------------------
Accrued environmental remediation
costs (see note 17) $ 8,535 $18,433
Advance payment from customer 12,400 16,000
Accumulated postretirement benefit
obligation (see note 15) 11,922 13,469
Pension liabilities (see note 15) 4,695 7,927
Other 5,998 3,571
----------------- -------------------
$43,550 $59,400
----------------- -------------------
In July 1995, the Predecessor 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 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 non-cancelable
operating lease agreements as of December 31, 1997 are as follows (in
thousands):
For the years ending December 31,
1998 $ 10,201
1999 9,572
2000 8,296
2001 6,289
2002 3,600
2003 and thereafter 26,104
---------
Total minimum lease payments $ 64,062
---------
Rental expense under operating leases for the years ended
December 31, 1997, 1996 and 1995 approximated $7,903,574, $8,699,000 and
$8,902,000, respectively, substantially all of which relates to continuing
operations.
In 1998, the Company expects to spend $200 million to $225
million for capital expenditures.
12. INCOME TAX
Income tax (expense) benefit on the Company's income from
continuing operations before extraordinary loss consists of the following
(in thousands):
<TABLE>
<CAPTION>
Predecessor Company
----------------------------------------------------
Four Months Ended Eight Months Ended
December 31, 1997 August 31, 1997 Years Ended December 31,
----------------- ------------------- ----------------------------
1996 1995
------------ -------------
Current
<S> <C> <C> <C> <C>
Federal........ $3,518 $7,892 $(14,324) $(30,376)
State.......... 544 1,088 (2,024) (2,892)
Deferred......... (1,958) (12,628) (2,101) (4,194)
------------------- ------------------- ------------- --------------
$2,104 $(3,648) $(18,449) $(37,462)
=================== =================== ============= ==============
</TABLE>
In addition, for the eight months ended August 31, 1997, the
Company recorded an income tax benefit of $424,000 as a result of the
extraordinary loss from the write-off of certain deferred issuance costs as
a result of the May 8, 1997 amendment to the Credit Agreement.
The statutory federal income tax rate was 35% for the years
ended December 31, 1997, 1996 and 1995. The effective income tax rate
differs from the amount computed by applying the statutory federal income
tax rate to the Company's income (loss) from continuing operations before
income taxes and extraordinary loss. The reasons for these differences are
as follows (in thousands):
<TABLE>
<CAPTION>
Predecessor Company
--------------------------------------------
Four Months Ended Eight Months Ended
December 31, 1997 August 31, 1997 Years Ended December 31,
----------------- ------------------ ------------------------
1996 1995
--------- ---------
Income tax (expense) benefit computed at
<S> <C> <C> <C> <C>
statutory federal tax rate................... $2,305 $(2,381) $(17,112) $(35,325)
State income taxes........................... 206 1,088 (1,316) (1,880)
Non-deductible amortization and expenses..... (61) (92) (246) (544)
Non-deductible merger and defense costs...... -- (2,097) -- --
Effect of Foreign Sales Corporation.......... 191 230 349 1,013
Other, net................................... (537) (396) (124) (726)
---------------- ------------------ --------- -----------
Income tax (expense) benefit................. $2,104 $(3,648) $(18,449) $(37,462)
================ ================== ========= ===========
</TABLE>
The net deferred income tax liability consists of the following (in
thousands):
Predecessor Company
December 31,
------------ -----------------
1997 1996
------------ -----------------
Property, plant and equipment................ $180,597 $52,071
Intangible assets............................ 376 1,709
------------ -------------
Gross deferred tax liabilities... 180,973 53,780
------------ -------------
Accounts receivable.......................... (1,192) (653)
Inventories.................................. (2,863) (46)
Tax losses and credits carried forward....... - (620)
Other noncurrent assets...................... (504) (1,686)
Other noncurrent liabilities................. (14,251) (12,592)
Other current assets and liabilities......... (1,487) (1,013)
------------ -------------
Gross deferred tax assets........ (20,297) (16,610)
------------ -------------
$160,676 $ 37,170
============ =============
The net deferred income tax liability is presented in the accompanying
consolidated balance sheets as follows:
Predecessor Company
-------------------
1997 1996
---------- -------------------
Net current (asset) liability $ (5,543) $(2,816)
Net long-term liability 166,219 39,986
---------- -------------------
Net $160,676 $37,170
========== ===================
At December 31, 1996, the CT Business had an $8.1 million
operating loss carryforward related to the operations of the CT Business in
the United Kingdom. The CT Business was sold in 1997. (see note 16)
13. INTEREST EXPENSE
For the year ended December 31, 1997, interest expense consists
of (i) interest on the 11 3/4% Senior Notes, (ii) interest on the Amended
Credit Facility and Term Loan, (iii) amortization of debt issuance costs,
net of (iv) an allocation for interest capitalized in connection with
construction projects, (v) interest on the Intercompany Loan, and (vi)
interest on the Capital Lease. For the years ended December 31, 1996 and
1995, interest expense consists of items (i) through (iv) of the preceding
sentence.
14. OTHER INFORMATION
Export sales from operations were $9,765,000, $19,530,000,
$28,743,000 and $24,046,000 for the four months ended December 31, 1997,
the eight months ended August 31, 1997 and the years ended December 31,
1996 and 1995, respectively.
Maintenance and repair expenses were $8,068,000, $17,517,000,
$23,150,000 and $22,678,000 for the four months ended December 31, 1997,
the eight months ended August 31, 1997, and the years ended December 31,
1996 and 1995, 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 annually between 1% and 10% of their
base salary up to the IRS pre-tax contribution limit ($9,500 for 1997) to
the Savings Plan. The Company matches a minimum of 25% of the employee's
aggregate contributions up to 6% of the employees base salary. Employee
contributions are fully vested. Employer contributions are fully vested
upon retirement or after five years of service. For 1997, 1996 and 1995,
the Company matched 25% of the employee contributions up to the 6% limit,
contributing approximately $575,000, $526,000 and $388,000 to the Savings
Plan, respectively, substantially all of which pertains to continuing
operations.
The Savings Plan merged with the Huntsman Salary Deferral Plan
as of January 1, 1998. As of the merger date, the Company match is 50% of
the employee's contributions up to 4% of eligible pay.
PENSION AND RETIREMENT PLANS
The Company sponsored 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 employees 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.
One of the Pension Plans was merged with the Huntsman Defined
Benefit Pension Plan as of January 1, 1998. This plan also provides
benefits based on years of service and the employee's final average
earnings.
The Company sponsored 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. During 1997, the Company
purchased annuities to fully cover the benefits and liabilities accrued
under 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.
The accompanying tables include amounts for the SERP and
Security Plan.
The net pension expense for the Pension Plans are reflective of
historical data adjusted for the discontinued operations of the CT
Business. Net pension expense consists of the following (in thousands:):
<TABLE>
<CAPTION>
Predecessor Company
-------------------------------------------
Years Ended December 31,
---------------------------
Eight Months
Four Months Ended Ended-August
December 31, 19997 31, 1997 1996 1995
------------------ ------------- -------- ---------
<S> <C> <C> <C> <C>
Service Cost $525 $976 $2,248 $1,783
Interest Cost 663 1,254 1,929 1,646
Actual return on plan assets 127 (2,967) (1,236) (2,298)
Net amortization and deferral (781) 1,980 312 1,713
---------- -------- -------- --------
Net pension expense $ 534 $ 1,243 $ 3,253 $ 2,844
---------- ------- -------- --------
</TABLE>
The following table sets forth the funded status of the Pension
Plans at December 31 (in thousands):
<TABLE>
<CAPTION>
Predecessor
Company
-------------
1997 1996
------- -------
Actuarial present value of benefit obligations:
<S> <C> <C>
Vested benefits $22,098 $18,044
Non-vested benefits 5,903 8,932
------- -------
Accumulated benefit obligations $28,001 $26,976
------- -------
Projected benefit obligation $32,389 $30,946
Plan assets at fair value 25,961 (18,164)
------- -------
Excess of projected benefit obligations over plan assets 6,428 12,782
Unrecognized net loss (1,733) (2,992)
Unrecognized prior service cost - (4,162)
Additional liability - 2,299
------- -------
Pension liabilities included in other noncurrent liabilities $4,695 $7,927
------- -------
</TABLE>
At December 31, 1997 and 1996, in determining the present value
of benefit obligations, a discount rate of 7.0% and 7.75% was used,
respectively. The assumption for the increase in future compensation levels
was 4.0% and 4.5% at December 31, 1997 and 1996 respectively. For 1997 and
1996, the expected long-term rate of return on assets used in determining
pension expense was 9.0%.
POSTEMPLOYMENT BENEFITS
The Company's obligation for postemployment benefits at
December 31, 1996 approximated $.3 million and is included in other
noncurrent liabilities. There were no such obligations as of December 31,
1997.
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.
The net postretirement benefit expense is reflective of
historical data adjusted for the discontinued operations of CT Film. Net
postretirement benefit expense consists of the following (in thousands):
<TABLE>
<CAPTION>
Predecessor Company
-----------------------------------------------------
Years Ended December 31,
------------------------
Four Months Ended Eight Months
December 31, 1997 Ended August 31, 1997 1996 1995
----------------- --------------------- ---- -----
<S> <C> <C> <C> <C>
Service Cost $ 80 $295 $ 284 $ 269
Interest Cost 294 636 653 636
Net amortization and deferral -- (167) (216) (211)
--- ----- --------- ----------
Net postretirement benefit expense
$ 374 $ 764 $ 721 $ 694
----- ----- -------- --------
</TABLE>
The following table sets forth the funded status of the postretirement
benefits at December 31 (in thousands):
<TABLE>
<CAPTION>
Predecessor
Company
------------
1997 1996
---- ----
Actuarial present value of benefit obligations:
<S> <C> <C>
Active participants eligible for retirement $4,180 $ 3,527
Active participants not yet eligible for retirement 4,644 4,884
Retired participants 3,098 1,662
-------- --------
Accumulated postretirement benefit obligation $11,922 $ 10,073
Plan assets at fair value -- --
-------- --------
Excess of projected benefit obligations over plan assets 11,922 10,073
Unrecognized prior service cost -- (848)
Unrecognized net gain -- 4,244
-------- --------
Postretirement benefits included in other noncurrent liabilities $ 11,922 $ 13,469
========= ==========
</TABLE>
In 1997 and 1996, in determining the value of postretirement
benefit obligations, a discount rate of 7.0% and 7.75% respectively, was
used, and in 1997 the health care trend rate used to measure the expected
increase in cost of benefits was assumed to be 7.0% in 1997, and descending
to 4.5% 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, 1997 by
approximately $415,000 and would increase the service and interest cost
components of the net postretirement benefit cost for the year ended
December 31, 1997 by approximately $40,000.
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 was 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.
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>
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
--------------
Exercised or bought-out in connection with
Merger....................................... (1,111,677) 3.43 -- 14.63 9.02
--------------
Balance at December 31, 1997 --
==============
</TABLE>
At December 31, 1997, no options were available for grant or
outstanding.
OUTSIDE DIRECTOR STOCK OPTION PLAN
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:
<TABLE>
<CAPTION>
Options Price Range Weighted Average
Outstanding Per Share Exercise Price
------------ --------------- ------------------
<S> <C> <C> <C>
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
Granted......................................... 4,000 3.56 3.56
Exercised or bought-out in connection with merger... (69,750) 0.43-- 3.56 1.41
----------
Balance at December 31, 1997 --
==========
</TABLE>
At December 31, 1997, no options were available for grant or
outstanding.
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 6.9%; (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.
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. RELATED PARTY TRANSACTIONS
On September 30, 1997, the Company completed the sale of
substantially all operating assets of its CT Film division. Subsequent to
the September 30th effective date, all transactions between the Company and
Huntsman Packaging Corporation, the new owner of the CT Film division and
an affiliate of HC, are considered related party transactions. In
connection with the sale, the Company received $70 million in cash and the
buyer assumed approximately $8 million in current liabilities. Subsequent
to the sale and through December 31, 1997, the Company continued to pay
selected payroll, severance and sales and administrative expenses for the
CT Film Business and has recorded the related expenses as receivables from
Huntsman Packaging.
A summary of transactions between the Company and other related
parties as of, and for the four months ended December 31, 1997, is
summarized as follows in thousands of dollars:
Four Months
Ended December 31, 1997
-----------------------
Sales to:
Huntsman Petrochemical Corporation $ 596
Huntsman Chemical Corporation 2,500
Huntsman Corporation 69,073
Trade accounts receivable from:
Huntsman Corporation 69,428
Payroll receivable from:
Huntsman Packaging Corporation 6,148
Other miscellaneous receivables from:
Huntsman Packaging Corporation 1,507
Huntsman Corporation 586
Employee advances 727
Product purchases from:
Huntsman Petrochemical Corporation 766
Interest expense paid to:
Huntsman Group Holdings Finance Company 7,568
Miscellaneous accounts payable to:
Huntsman Petrochemical Corporation 884
Huntsman Packaging Corporation 562
Huntsman Corporation 4,958
Long-term debt payable to:
Huntsman Group Holdings Finance Company 258,055
Long-term capital lease payable to:
Huntsman Group Holdings Finance Company
(including accrued interest) 51,535
17. 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 the 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 requirements, 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 $8.5 million accrued in the
December 31, 1997 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 units 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. The Company received
approval to allow closure of five solid waste management units which
enabled a reduction in the accrual for potential environmental liability of
approximately $9.0 million in the first quarter of 1997.
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 expenditures for environmental
remediation, compliance and waste disposal were approximately 7.1 million,
$7.6 million and $8.3 million in 1997, 1996 and 1995, respectively,
substantially all of which relates to continuing operations.
The Company historically disposed of its wastewater from the
Odessa Facility through injection wells operated under permits from the
TNRCC. Due to concerns by the agency regarding the operation of these
underground injection wells, and their intention to not renew the permits
after they expired in December 1997, the Company entered into an agreement
with the City of Odessa and the Gulf Coast Waste Disposal Authority
pursuant to which the latter is currently disposing of the wastewater
through the refurbished Odessa South Wastewater Treatment Facility, a
publicly-owned-treatment-works ("POTW"). The cost of refurbishing the
City's wastewater treatment facility, which is approximately $8.0 million,
has been financed principally by the Company. This facility was brought
on-line in October and November of 1997 and culminates three years of
working together to provide a long range, cost effective wastewater
disposal solution. Wastewater is pumped to this facility where it is mixed
with City effluent as well as other industrial discharges. The water is
treated to meet discharge standards before it is released to an
intermittent-flowing stream for further reuse.
STOCKHOLDER 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 to purchase
the outstanding shares of Common Stock. The lawsuit names the Company and
each of its directors as defendants. The complaint alleged 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 Corporation, in order to entrench
management. Plaintiff sought 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.
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.
Huntsman Corporation acquired the Common Stock at a price $2.00 per share
in excess of that referred to in the complaint. Accordingly, the Company
believes it likely that this lawsuit will be dismissed.
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 alleged
that the Company was infringing two Phillips patents titled "Preparation of
Block Copolymers," 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. 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. 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 appealed the
judgment. The appeal was argued before the Court of Appeals for the Federal
Circuit on November 5, 1997. No decision has been issued.
PHILLIPS CRYSTALLINE LICENSE LITIGATION
In May 1990, Phillips filed a lawsuit (the "Action") 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' U.S. Patent No. 4,376,851 (the "'851 Patent") by virtue of its
continued manufacture of crystalline polypropylene after Phillips
purportedly terminated its license agreement (the "Original License
Agreement") with the Company on April 23, 1990. At trial in October 1994,
the Company asserted several defenses and, in June 1995, the Trial Court
ruled in favor of the Company and Phillips appealed. In March 1996, the
Court of Appeals for the Federal Circuit entered an order reversing the
Trial Court's decision and remanding the Action to the Trial Court. The
Trial Court reviewed and ruled on the Company's other defenses and on
September 4, 1997, the Trial Court entered a judgment in favor of Phillips
finding that the Company had infringed the '851 Patent for the period from
April 24, 1990 to September 4, 1997.
On September 19, 1997, the Company and Phillips entered into a
settlement agreement (the "Settlement Agreement"), pursuant to which the
Company paid a lump sum of $10 million to Phillips on September 26, 1997,
and will pay up to $300,000 for each subsequent calendar quarter period.
Such quarterly payments begin with the quarter ending December 31, 1997,
and must be paid through the partial quarter ending March 15, 2000, when
the '851 Patent expires. Pursuant to the Settlement Agreement, the Company
and Phillips released and discharged each other from all claims, debts,
demands, liabilities, losses, causes of action, damages, costs and expenses
relating to the subject matter of the Action. In the event the Company
fails to make a timely payment to Phillips when such payment is due
pursuant to the Settlement Agreement, the Company will be obligated to pay
Phillips accrued interest on such payment.
Effective September 5, 1997, Phillips and the Company entered
into a new crystalline polypropylene license agreement (the "New License
Agreement"). Pursuant to the New License Agreement, Phillips granted to the
Company a nonexclusive, royalty-bearing license to manufacture, use and/or
sell any product which is covered by the '851 Patent. The term of the New
License Agreement is for the period from September 5, 1997, until the
expiration of the '851 Patent on March 15, 2000, unless otherwise
terminated under the provisions thereof. The royalty rate under the New
License Agreement is substantially higher than the royalty rate under the
Original License Agreement. In the event the Company fails to make a timely
payment to Phillips when such payment is due pursuant to the New License
Agreement, the Company will be required to pay Phillips accrued interest on
such payment.
ODESSA RESIDENTS' TORT LITIGATION
On April 15, 1994, the national and state chapters of the
National Association for the Advancement of Colored People ("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; attorneys' 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. 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 this case could be settled and the May 1997
trial date was vacated. At mediation, the Company agreed to a settlement of
this case and a related case filed in Houston in late 1996 on behalf of 7
similarly situated plaintiffs. The trial court approved the settlement on
March 17, 1997. Although the terms of the settlement are confidential, the
settlement did not have a material adverse effect on the Company's
financial position, results of operations or cash flows. Several plaintiffs
unrepresented by counsel were not included in the settlement. All
plaintiffs in the Houston case settled and that lawsuit was dismissed. The
trial court in this case dismissed the claims of certain of those
plaintiffs on motion from the defendants. One of these plaintiffs has filed
a motion for new trial, which was granted. Approximately 20 plaintiffs
remain after these matters were finalized. On March 16, 1998, the trial
court in the case, severed their case from the plaintiffs who settled or
whose claims were dismissed. The NAACP lawsuit is being dismissed.
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.
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.
18. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Summarized quarterly financial information for the years ended
December 31, 1997 and 1996 is presented below. Effective September 30,
1997, the Company sold the assets of the CT Film division. The quarterly
data is reflective of historical data adjusted for the discontinued
operations of CT Film. Amounts are presented in thousands:
<TABLE>
<CAPTION>
For quarter ended,
--------------------------------------------------------------------------------------------------------------
December 31, September 30, June 30, March 31, December 31, September 20, June 30, March 31.
1997 1997 1997 1997 1996 1996 1996 1996
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $103,344 $107,635 $110,983 $125,316 $112,745 $109,901 $108,289 $104,362
Gross Profit 5,406 14,437 32,541 17,093 27,067 28,427 25,353 23,783
Extraordinary
loss - - (694) - - - - -
Net income (loss) (6,889) (12,378) 8,221 6,114 7,166 8,603 7,492 6,470
</TABLE>
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION PAGE NO.
2.1 -- First Amended Plan of Reorganization of Rexene Products
Company, et al., dated April 29, 1992 (filed as Exhibit
2.1 to the Company's Form 8-K Current Report dated July
7, 1992 and incorporated herein by reference).
2.2 -- Order Confirming First Amended Plan of Reorganization,
dated April 29, 1992 (filed as Exhibit 2.2 to the Rexene
Corporation's (now known as Huntsman Polymers
Corporation) 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 the Rexene Corporation's
(now known as Huntsman Polymers Corporation) Annual
Report on Form 10-K for the fiscal year ended December
31, 1992 and incorporated herein by reference).
2.4 -- Agreement and Plan of Merger by and among Huntsman
Corporation, Huntsman Centennial Corporation and Rexene
Corporation dated June 9, 1997.
3.1 -- Restated Certificate of Incorporation and the Certificate
of Amendment to the Certificate of Incorporation (filed
as Exhibit 3(i) to Rexene Corporation's (now known as
Huntsman Polymers Corporation) Quarterly Report on Form
10-Q for the quarterly period ended September 30, 1997
and incorporated by reference).
3.2 -- By-Laws (filed as Exhibit 3(ii) to Rexene Corporation's
(now known as Huntsman Polymers Corporation) Quarterly
Report on Form 10-Q for the quarterly period ended
September 30, 1997 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 (now known
as Huntsman Polymers Corporation) Annual Report on Form
10-K for the fiscal year ended December 31, 1994 and
incorporated herein by reference).
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 (now known as Huntsman
Polymers Corporation) 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 (now known as Huntsman
Polymers Corporation) 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 (now known as
Huntsman Polymers Corporation) 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 (now known as
Huntsman Polymers Corporation) 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 (now known
as Huntsman Polymers Corporation) 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 (now known as Huntsman Polymers
Corporation) 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's (now known as Huntsman Polymers
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 (now known as
Huntsman Polymers Corporation) Form 10-Q Quarterly Report
for the quarterly period 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 (now known as Huntsman Polymers
Corporation) Registration Statement on Form S-3 (SEC File
No. 33-55507) as filed on October 21, 1994 and
incorporated herein by reference).
10.6.1* -- 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 (now known as
Huntsman Polymers Corporation) 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 (now known as
Huntsman Polymers Corporation) 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 (now known as
Huntsman Polymers Corporation) 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 (filed as Exhibit 10.7.2 to Rexene
Corporation's (now known as Huntsman Polymers
Corporation) Annual Report on Form 10-K for the fiscal
year ended December 31, 1996 and incorporated herein by
reference).
10.7.3* -- Rexene Corporation 1996 Performance Unit Program for
Executive Officers (filed as Exhibit 10.7.3 to Rexene
Corporation's (now known as Huntsman Polymers
Corporation) Annual Report on Form 10-K for the fiscal
year ended December 31, 1996 and incorporated herein by
reference).
10.7.4* -- Rexene Corporation Long Term Performance Unit Program for
Executive Officers (filed as Exhibit 10.7.4 to Rexene
Corporation's (now known as Huntsman Polymers
Corporation) Annual Report on Form 10-K for the fiscal
year ended December 31, 1996 and incorporated herein by
reference).
10.8 -- First Amended Asset Purchase Agreement, dated as of September
26, 1997, between Huntsman Polymers Corporation and
Huntsman Packaging Corporation (filed as Exhibit 2.1 to
Huntsman Polymers Corporation's Current Report on Form
8-K filed on October 21, 1997 and incorporated herein by
reference).
10.9 -- Intercompany Loan Agreement, dated as of August 27, 1997,
between Huntsman Group Holdings Finance Corporation and
Huntsman Polymers Corporation, dated as of August 27,
1997 (filed as Exhibit 10.1 to Huntsman Polymers
Corporation's Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1997 and
incorporated by reference).
16.1 - Letter re: Change in Certifying Accountant (filed as Exhibit
16 to Huntsman Polymers Corporation's Current Report on
Form 8-K filed on August 29, 1997 and incorporated herein
by reference).
21.1 -- Subsidiaries of Huntsman Polymers Corporation.
27.1 -- Financial Data Schedule.
Exhibit 2.4
AGREEMENT
AND
PLAN OF MERGER
BY AND AMONG
HUNTSMAN CORPORATION
HUNTSMAN CENTENNIAL CORPORATION
AND
REXENE CORPORATION
June 9, 1997
TABLE OF DEFINED TERMS
Section
-------
Acquisition......................................................Recitals
Acquisition Proposal...............................................5.2(a)
Affiliates............................................................8.5
Assertion.............................................................5.8
Associates............................................................8.5
Audits............................................................3.13(b)
CAPEX Program.........................................................5.1
beneficial ownership..................................................8.5
Certificate of Merger.................................................1.2
Certificates.......................................................2.2(b)
Closing...............................................................1.3
Closing Date..........................................................1.3
Code...............................................................2.2(d)
Company..........................................................Recitals
Company Agreements....................................................3.4
Company Common Stock..................................................2.1
Company Employees..................................................5.5(a)
Company Options.......................................................2.3
Company SEC Documents.................................................3.5
Conflict Matter.......................................................5.8
DGCL.............................................................Recitals
Disclosure Schedule................................................3.2(b)
Dissenting Shares.....................................................2.4
Effective Time........................................................1.2
EMC................................................................5.1(a)
EMC Member.........................................................5.1(a)
Environmental Claim............................................3.14(e)(i)
Environmental Laws............................................3.14(e)(ii)
ERISA..............................................................3.9(a)
ERISA Affiliate....................................................3.9(a)
ERISA Plans........................................................3.9(a)
Exchange Act..........................................................2.5
Existing Credit Documents............................................5.10
GAAP..................................................................3.5
Government Antitrust Entity........................................5.4(a)
Governmental Entity...................................................3.4
Hazardous Substance..........................................3.14(e)(iii)
HSR Act...............................................................3.4
Indemnified Liability.................................................5.8
Indemnified Parties...................................................5.8
Indemnified Party.....................................................5.8
Indemnitors...........................................................5.8
Intellectual Property................................................3.11
knowledge of the Company..............................................3.6
Liens..............................................................3.2(b)
made available........................................................8.5
Material Adverse Effect...............................................3.1
Material Company Agreements..........................................3.12
Merger................................................................1.1
Merger Consideration...............................................2.1(a)
Non-Key Employees..................................................5.1(d)
Option Plans..........................................................2.3
Orrex.................................................................3.1
Orrex Governance Documents............................................3.1
Parent...........................................................Recitals
Paying Agent.......................................................2.2(a)
Payment Fund.......................................................2.2(a)
PBGC...............................................................3.9(c)
Person................................................................3.1
Plans..............................................................3.9(a)
Preferred Stock....................................................3.2(a)
Proxy Statement.......................................................2.5
PUP................................................................5.5(i)
PUPS...............................................................5.5(i)
Release.......................................................3.14(e)(iv)
Representatives....................................................5.2(a)
Rexene Plan.....................................................5.5(b)(1)
Rexene SERP........................................................5.5(f)
Rights Agreement......................................................5.6
Schroder Wertheim.....................................................2.5
SEC...................................................................2.5
Secretary of State....................................................1.2
Securities Act........................................................3.5
Severance Agreement................................................5.5(1)
Shares................................................................2.1
Smith Barney..........................................................2.5
Special Meeting.......................................................2.5
State Takeover Laws..................................................3.19
Subsidiaries...................................................3.13(j)(i)
Subsidiary............................................................3.1
Superior Proposal..................................................5.2(d)
Surviving Corporation.................................................1.1
Taxes.........................................................3.13(j)(ii)
Tax Return....................................................3.13(j)(ii)
Third Party Bidder.................................................5.2(a)
Twelve Month Premiums.................................................5.8
Voting Debt........................................................3.2(a)
1934 Act..............................................................2.5
1934 Act Rules........................................................2.5
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of June 9, 1997, by and
among Huntsman Corporation, a Utah corporation ("Parent"), Huntsman
Centennial Corporation, a Delaware corporation and a wholly-owned
subsidiary of Parent ("Acquisition"), and Rexene Corporation, a Delaware
corporation (the "Company").
WHEREAS, the Boards of Directors of Parent, Acquisition and the
Company have each approved, and determined to recommend to their respective
stockholders, the acquisition of the Company by Parent upon the terms and
subject to the conditions set forth herein; and
WHEREAS, in furtherance of such acquisition, the Boards of
Directors of Parent, Acquisition and the Company have each approved this
Agreement and the merger of Acquisition with and into the Company in
accordance with the terms of this Agreement and the General Corporation Law
of the State of Delaware (the "DGCL");
NOW, THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants and agreements set forth
herein, the parties hereto agree as follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. Upon the terms and subject to the
conditions of this Agreement and in accordance with the DGCL, at the
Effective Time (as defined in Section 1.2, 1.2 hereof), Acquisition shall
be merged (the "Merger") with and into the Company and the separate
corporate existence of Acquisition shall cease. After the Merger, the
Company shall continue as the surviving corporation (sometimes hereinafter
referred to as the "Surviving Corporation"). The Merger shall have the
effects set forth in the DGCL. Without limiting the generality of the
foregoing, at the Effective Time, all the rights, privileges, immunities,
powers and franchises of the Company and Acquisition shall vest in the
Surviving Corporation and all obligations, duties, debts and liabilities of
the Company and Acquisition shall become the obligations, duties, debts and
liabilities of the Surviving Corporation.
Section 1.2 Effective Time. On or as promptly as practicable
following the satisfaction or waiver of all of the conditions set forth in
Article VI hereof, Acquisition and the Company will cause an appropriate
Certificate of Merger (the "Certificate of Merger") to be executed and
filed with the Secretary of State of the State of Delaware (the "Secretary
of State") in such form and executed as provided in the DGCL. The Merger
shall become effective at such time as the Certificate of Merger has been
duly filed with the Secretary of State or such time as is agreed upon by
the parties and specified in the Certificate of Merger, and such time is
hereinafter referred to as the "Effective Time."
Section 1.3 Closing. The closing of the Merger (the "Closing")
will take place at 10:00 a.m., New York time, on a date to be specified by
the parties, which shall be no later than the second business day after
satisfaction or waiver of all of the conditions set forth in Article VI
hereof, other than those conditions that by their nature are to be
satisfied at the Closing, but subject to the fulfillment or waiver of those
conditions (the "Closing Date"), at the offices of Skadden, Arps, Slate,
Meagher & Flom LLP, 919 Third Avenue, New York, New York 10022, unless
another date or place is agreed to in writing by the parties hereto.
Section 1.4 Certificate of Incorporation; By-Laws. The
Certificate of Incorporation of Acquisition, as in effect immediately prior
to the Effective Time, shall be the Certificate of Incorporation of the
Surviving Corporation until thereafter amended in accordance with
applicable law and such Certificate of Incorporation, and the By-laws of
Acquisition, as in effect immediately prior to the Effective Time, shall be
the By-laws of the Surviving Corporation until thereafter amended as
provided by law, the Certificate of Incorporation and such By-laws.
Section 1.5 Directors and Officers of the Surviving
Corporation.
(a) The directors of Acquisition immediately prior to
the Effective Time shall, from and after the Effective Time, be the
directors of the Surviving Corporation until their successors shall have
been duly elected or appointed and qualified or until their earlier death,
resignation or removal in accordance with the Surviving Corporation's
Certificate of Incorporation and By-laws.
(b) The officers of Acquisition immediately prior to
the Effective Time shall be the initial officers of the Surviving
Corporation and shall hold office until their respective successors are
duly elected and qualified, or until their earlier death, resignation or
removal.
ARTICLE II
CONVERSION OF SHARES
Section 2.1 Conversion of Common Stock. As of the Effective
Time, by virtue of the Merger and without any action on the part of Parent,
Acquisition, the Company or the holders of any shares of common stock, par
value $.01 per share, of the Company (referred to herein as "Shares" or
"Company Common Stock"):
(a) Each issued and outstanding share of Company Common
Stock (other than Shares to be cancelled in accordance with Section
II2.1(c) and other than Dissenting Shares (as defined in Section 2.4))
shall be converted into the right to receive $16.00 per share in cash,
payable to the holder thereof, without interest (the "Merger
Consideration"), upon surrender of the certificate formerly representing
such share of Company Common Stock in the manner provided in Section 2.2.
All such shares of Company Common Stock, when so converted, shall no longer
be outstanding and shall automatically be cancelled and retired and shall
cease to exist, and each holder of a certificate representing any such
Shares shall cease to have any rights with respect thereto, except the
right to receive the Merger Consideration therefor upon the surrender of
such certificate in accordance with Section 2.2. Any payment made pursuant
to this Section 2.1(a) shall be made net of applicable withholding taxes to
the extent such withholding is required by law in accordance with Section
2.2(d).
(b) Each issued and outstanding share of common stock,
par value $.01 per share, of Acquisition shall be converted into and become
one fully paid and nonassessable share of common stock of the Surviving
Corporation.
(c) All shares of Company Common Stock that are held by
the Company as treasury stock, that are owned by any direct or indirect
wholly-owned Subsidiary (as hereinafter defined) of the Company, or that
are owned by Parent, Acquisition or any other direct or indirect
wholly-owned Subsidiary of Parent or Acquisition shall be cancelled and
retired and no Merger Consideration shall be delivered in exchange
therefor.
Section 2.2 Exchange of Certificates.
(a) Prior to the Effective Time, Parent shall designate
an agent reasonably satisfactory to the Company to act as Paying Agent in
connection with the Merger (the "Paying Agent") for purposes of effecting
the exchange of the Merger Consideration for certificates which, prior to
the Effective Time, represented Shares and which are entitled to receive
the Merger Consideration pursuant to Section 2.1. On the Closing Date,
Parent and Acquisition will provide the Paying Agent in trust for the
benefit of the holders of Shares with immediately available funds in an
aggregate amount ("Payment Fund") equal to the aggregate Merger
Consideration to be paid to the holders of Shares pursuant to Section 2.1.
The Payment Fund shall be invested by the Paying Agent, as directed by
Parent, in direct obligations of the United States of America, obligations
for which the full faith and credit of the United States of America is
pledged to provide for the payment of principal and interest.
(b) As promptly as practicable after the Effective
Time, the Paying Agent shall mail to each record holder, as of the
Effective Time, of an outstanding certificate or certificates which
immediately prior to the Effective Time represented Shares (the
"Certificates") a form of letter of transmittal that is reasonably
acceptable to the Company (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only
upon proper delivery of the Certificates to the Paying Agent) and
instructions for use in effecting the surrender of the Certificates for
payment therefor. Upon surrender to the Paying Agent of a Certificate,
together with such letter of transmittal duly executed, and any other
required documents, the holder of such Certificate shall receive promptly
in exchange therefor the Merger Consideration for each Share formerly
evidenced thereby, and such Certificate shall forthwith be cancelled. No
interest will be paid or accrued on the cash payable upon the surrender of
the Certificates. If payment is to be made to a person other than the
person in whose name the surrendered Certificate is registered, it shall be
a condition of payment that the Certificate so surrendered shall be
properly endorsed or otherwise be in proper form for transfer and that the
person requesting such payment shall pay any transfer or other taxes
required by reason of the payment to a person other than the registered
holder of the Certificate surrendered or establish to the satisfaction of
the Surviving Corporation that such tax has been paid or is not applicable.
One Hundred Eighty (180) days after the Effective Time, the Surviving
Corporation shall be entitled to require the Paying Agent to deliver to it
any cash (including any interest received with respect thereto) which it
has made available to the Paying Agent and which has not been disbursed to
holders of Certificates, and thereafter such holders shall be entitled to
look to the Surviving Corporation (subject to abandoned property, escheat
or other similar laws) only as general unsecured creditors thereof with
respect to the cash payable upon due surrender of their Certificates. The
Surviving Corporation shall pay all charges and expenses, including those
of the Paying Agent, in connection with the distribution of the Merger
Consideration for Shares. From and after the Effective Time, until
surrendered in accordance with the provisions of this Section 2.2(b), each
Certificate (other than Certificates which represented Shares held by the
Company, any direct or indirect wholly-owned Subsidiary of the Company,
Parent, Acquisition or any direct or indirect wholly-owned Subsidiary of
Parent or Acquisition and other than Dissenting Shares (as hereinafter
defined in Section 2.4)) shall represent for all purposes only the right to
receive consideration equal to the Merger Consideration multiplied by the
number of Shares evidenced by such Certificate, without any interest
thereon. From and after the Effective Time, holders of Certificates shall
have no right to vote or to receive any dividends or other distributions
with respect to any Shares which were theretofore represented by such
Certificates, other than any dividends or other distributions payable to
holders of record as of a date prior to the Effective Time, and shall have
no other rights other than as provided herein or by applicable law.
(c) From and after the Effective Time, there shall be
no transfers on the stock transfer books of the Surviving Corporation of
the Shares which were outstanding immediately prior to the Effective Time.
If, after the Effective Time, Certificates are presented to the Paying
Agent or the Surviving Corporation, they shall be cancelled and exchanged
for the Merger Consideration in accordance with the procedures set forth in
this Article II.
(d) The Paying Agent shall be entitled to deduct and
withhold from the consideration otherwise payable pursuant to this
Agreement to any holder of Shares such amounts as the Paying Agent is
required to deduct and withhold with respect to the making of such payment
under the Internal Revenue Code of 1986, as amended (the "Code"). To the
extent that amounts are so withheld by the Paying Agent, such withheld
amounts shall be treated for all purposes of this Agreement as having been
paid to the holder of the Certificates in respect of which such deduction
and withholding was made by the Paying Agent.
(e) In the event any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the
person claiming such Certificate to be lost, stolen or destroyed, the
Paying Agent will issue in exchange for such lost, stolen or destroyed
Certificate the Merger Consideration deliverable in respect thereof as
determined in accordance with this Article II, provided that the person to
whom the Merger Consideration is paid shall, as a condition precedent to
the payment thereof, give the Surviving Corporation a bond in such sum as
it may direct or otherwise indemnify the Surviving Corporation in a manner
satisfactory to it against any claim that may be made against the Surviving
Corporation with respect to the Certificate claimed to have been lost,
stolen or destroyed.
Section 2.3 Company Option Plans. The Company shall take such
actions as are appropriate to provide that, immediately prior to the
Effective Time, (i) all outstanding options ("Company Options") outstanding
under any of the Company's 1988 Stock Incentive Plan, 1993 Non-Qualified
Stock Option Plan, 1994 Long-Term Incentive Plan, Nonqualified Stock Option
Plan For Outside Directors or 1995 Stock Option Plan for Outside Directors
(together, the "Option Plans"), whether or not then exercisable or vested,
shall become fully exercisable and vested, (ii) each Company Option that is
then outstanding shall be cancelled and (iii) in consideration of such
cancellation and in full satisfaction of all rights of the holder under the
Company Option, and subject to Section 5.5(l) hereof, Parent shall pay at
the Effective Time or shall cause Acquisition to pay to the holder of each
Company Option an amount in cash in respect thereof equal to the product of
(A) the excess of the Merger Consideration over the exercise price of such
Company Option, multiplied by (B) the number of Shares subject to such
Company Options (such payment to be net of applicable withholding taxes).
The Company shall take such actions as are appropriate to provide that from
and after the Effective Time the Company will not be bound by any options,
warrants, rights or agreements which would entitle any person, other than
Parent or its wholly-owned subsidiaries, to own beneficially, or to receive
any payments (other than as otherwise contemplated by this Agreement) in
respect of, any capital stock or equity of the Company or the Surviving
Corporation.
Section 2.4 Dissenters' Rights. Notwithstanding anything in
this Agreement to the contrary, Shares that are outstanding immediately
prior to the Effective Time and held by a holder who has not voted in favor
of the Merger or consented thereto in writing and who has delivered a
written demand for appraisal of such shares in accordance with Section 262
of the DGCL ("Dissenting Shares"), shall not be converted into the right to
receive the Merger Consideration, as provided in Section 2.1 hereof, unless
and until such holder fails to perfect or effectively withdraws or
otherwise loses his right to appraisal and payment under the DGCL. If,
after the Effective Time, any such holder fails to perfect or effectively
withdraws or otherwise loses his right to appraisal, such Dissenting Shares
shall thereupon be treated as if they had been converted as of the
Effective Time into the right to receive the Merger Consideration, without
interest or dividends thereon. The Company shall give Acquisition prompt
notice of any demands received by the Company for appraisal of Shares, and,
prior to the Effective Time, Acquisition shall have the right to
participate in all negotiations and proceedings with respect to such
demands. Prior to the Effective Time, the Company shall not, except with
the prior written consent of Acquisition, make any payment with respect to,
or settle or offer to settle, any such demands.
Section 2.5 Stockholders' Meeting.
(a) The Company, acting through its Board of Directors,
shall, in accordance with applicable law (i) duly call, give notice of,
convene and hold a special meeting (the "Special Meeting") of its
stockholders and submit this Agreement to a vote of the Company's
stockholders as promptly as practicable following the execution and
delivery of this Agreement; (ii) as promptly as practicable following the
execution and delivery of this Agreement, subject to review of the subject
proxy materials by the Securities and Exchange Commission ("SEC") and
notification (either orally or in writing) to the Company that the SEC has
no further comments relating to such proxy materials, distribute a letter
to stockholders, notice of meeting, proxy statement and form of proxy to
stockholders of the Company in connection with the Merger (collectively,
including any amendments or supplements thereto, the "Proxy Statement"),
and include in the Proxy Statement, (A) the recommendation of the Board of
Directors that stockholders of the Company vote in favor of the approval of
the Merger Agreement and (B) the written opinions of Schroder Wertheim &
Co. Incorporated ("Schroder Wertheim") and Smith Barney Inc. ("Smith
Barney") that the Merger Consideration is fair to the stockholders of the
Company from a financial point of view; (iii) as promptly as practicable
following the execution and delivery of this Agreement, file with the SEC a
preliminary form of the Proxy Statement to be sent to the stockholders of
the Company relating to the solicitation of stockholder votes at the
Special Meeting, which Proxy Statement shall include all information
concerning the Company, Parent and Acquisition required to be set forth
therein pursuant to the Securities Exchange Act of 1934, as amended (the
"1934 Act") and the applicable rules and regulations thereunder (the "1934
Act Rules" and, together with the 1934 Act, the "Exchange Act") in
connection with the transactions contemplated by this Agreement; (iv) file
a definitive form of the Proxy Statement which shall reflect compliance
with comments and requests in accordance with the Exchange Act from the SEC
as the Company and Parent shall deem appropriate; (v) distribute such
definitive Proxy Statement to its stockholders in accordance with
applicable law; and (vi) take all such other action reasonably necessary or
appropriate to obtain the lawful approval of this Agreement by the
stockholders of the Company. Notwithstanding the foregoing, the Special
Meeting need not be called or held and, prior to the Special Meeting, the
recommendation of the Board of Directors of the Company may be withdrawn,
modified or amended to the extent that, as a result of the commencement or
receipt of an Acquisition Proposal (as hereinafter defined in Section
5.2(a)) which constitutes a Superior Proposal (as hereinafter defined in
Section 5.2(d)), the Board of Directors of the Company determines in good
faith, after receipt of advice from independent legal counsel to the
Company, that the failure to so act would result in a breach of its
fiduciary duties under applicable law.
(b) The Company shall pay all expenses related to the
printing, preparation, filing and mailing of the Proxy Statement.
(c) Parent and Acquisition shall furnish to the Company
all information concerning Parent, Acquisition and their Affiliates (as
hereinafter defined in Section 8.5) required by the Exchange Act or as
otherwise required by the Commissioners of the SEC to be set forth in the
Proxy Statement.
(d) Each of the Company and Parent shall consult and
confer with the other and the other's counsel regarding the Proxy Statement
and each shall have the opportunity to comment on such Proxy Statement and
any amendments and supplements thereto before the Proxy Statement, and any
amendments or supplements thereto, are filed with the SEC or mailed to
Company stockholders. Each of the Company and Parent will provide to the
other copies of all correspondence between it (or its advisors) and the SEC
relating to the Proxy Statement. The Company and Parent agree that all
telephonic calls and meetings with the SEC regarding the Proxy Statement
and the transactions contemplated by this Agreement shall include
representatives of each of the Company and Parent.
(e) Parent will vote, or cause to be voted, all Shares
acquired by Parent, Acquisition or any other Subsidiary of Parent in favor
of the Merger and the approval of this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Acquisition
that:
Section 3.1 Organization. The Company and each of its
Subsidiaries is a corporation or other entity duly organized, validly
existing, and in good standing under the laws of the jurisdiction of its
incorporation or organization (or the equivalent thereof in the case of
foreign Subsidiaries), has all requisite corporate power and authority and
all necessary governmental approvals to own, lease and operate its
properties and to carry on its business as it is now being conducted, and
is qualified or licensed to do business as a foreign corporation and is in
good standing in each jurisdiction in which the nature of the business
conducted by it makes such qualification or licensing necessary, except
where the failure to be so organized, existing and in good standing or to
have such power, authority or governmental approvals, or to be so qualified
or licensed would not have a Material Adverse Effect (as defined below) on
the Company and its Subsidiaries taken as a whole. The Company has
previously delivered to Parent a complete and correct copy of each of its
Restated Certificate of Incorporation, as amended, and its Amended and
Restated ByLaws, as currently in effect, and complete and correct copies of
the certificates of incorporation and by-laws, as currently in effect, or
similar organizational documents of all of the Company's Subsidiaries.
Section 3.1 of the Disclosure Schedule sets forth a complete list of the
Company's Subsidiaries. For purposes of this Agreement, (i) any reference
to any event, change or effect having a "Material Adverse Effect" on or
with respect to any entity (or group of entities taken as a whole) means
such event, change or effect, individually or in the aggregate with such
other events, changes, or effects, which is materially adverse to the
financial condition, businesses, results of operations, assets, liabilities
or properties of such entity (or, if used with respect thereto, of such
group of entities taken as a whole); (ii) "Subsidiary" shall mean with
respect to any Person, any corporation or other entity of which more than
50% of the securities or other interests having by their terms ordinary
voting power to elect a majority of the Board of Directors or others
performing similar functions with respect to such entity is directly or
indirectly owned by such Person; and (iii) "Person" shall mean an
individual, partnership, joint venture, limited liability company, trust,
corporation, unincorporated entity or Governmental Entity (as hereinafter
defined in Section 3.4). The only Person of which the Company beneficially
owns 50% of the securities or other equity interests is Orrex Plastics
Company LLC ("Orrex"). Section 3.1 of the Disclosure Schedule sets forth a
list of all Orrex charter or governance agreements and related documents
(the "Orrex Governance Documents") and true and correct copies of such
Orrex Governance Documents have previously been supplied to Parent.
Section 3.2 Capitalization.
(a) The authorized capital stock of the Company
consists of 100,000,000 shares of Company Common Stock and 1,000,000 shares
of preferred stock, par value $.01 per share (the "Preferred Stock"). As of
the date hereof, (i) 18,846,951 shares of Company Common Stock are issued
and outstanding, (ii) 11,500 shares of Company Common Stock are issued and
held in the treasury of the Company, (iii) there are no shares of Preferred
Stock issued and outstanding, (iv) Company Options to acquire 1,127,561
shares of Company Common Stock were outstanding under the Option Plans and
(v) 420,000 shares of Company Common Stock were reserved for issuance
pursuant to the Option Plans and all other employee benefit plans of the
Company. No shares of Company Common Stock have been reserved for issuance
pursuant to the Rights Agreement (as hereinafter defined in Section 5.6).
All the outstanding shares of the Company's capital stock are duly
authorized, validly issued, fully paid and non-assessable. There are no
bonds, debentures, notes or other indebtedness having general voting rights
(or convertible into securities having such rights) ("Voting Debt") of the
Company or any of its Subsidiaries issued and outstanding. Except as set
forth above and for the transactions contemplated by this Agreement, (i)
there are no shares of capital stock of the Company authorized, issued or
outstanding and (ii) there are no existing options, warrants, calls,
pre-emptive rights, subscriptions or other rights, convertible securities,
agreements, arrangements or commitments of any character, relating to the
issued or unissued capital stock of the Company or any of its Subsidiaries,
obligating the Company or any of its Subsidiaries to issue, transfer or
sell or cause to be issued, transferred or sold any shares of capital stock
or Voting Debt of, or other equity interest in, the Company or any of its
Subsidiaries or securities convertible into or exchangeable for such shares
or equity interests or obligations of the Company or any of its
Subsidiaries to grant, extend or enter into any such option, warrant, call,
subscription or other right, convertible security, agreement, arrangement
or commitment. Except as set forth in Section 3.2(a) of the Disclosure
Schedule, there are no outstanding contractual obligations of the Company
or any of its Subsidiaries to repurchase, redeem or otherwise acquire any
Shares of the capital stock of the Company or any Subsidiary or affiliate
of the Company or to provide funds to make any investment (in the form of a
loan, capital contribution or otherwise) in any Subsidiary or any other
entity and following the Merger, neither the Company nor any of its
Subsidiaries will have any obligation to issue, transfer or sell any shares
of its capital stock.
(b) Except as set forth in Section 3.2(b) of the
Company's disclosure schedule (the "Disclosure Schedule"), all of the
outstanding shares of capital stock of each of the Company's Subsidiaries
are beneficially owned by the Company, directly or indirectly, except for
any directors' qualifying shares of the Company's foreign Subsidiaries, and
all such shares have been validly issued and are fully paid and
nonassessable and are owned by either the Company or one of its
Subsidiaries free and clear of all liens, charges, security interests,
options, claims or encumbrances of any nature whatsoever (collectively,
"Liens").
(c) Except as set forth in Section 3.2(c) of the
Disclosure Schedule, there are no voting trusts or other agreements or
understandings to which the Company or any of its Subsidiaries is a party
with respect to the voting of the capital stock of the Company or any of
the Subsidiaries. None of the Company or its Subsidiaries is required to
redeem, repurchase or otherwise acquire shares of capital stock of the
Company, or any of its Subsidiaries, respectively, as a result of the
transactions contemplated by this Agreement.
(d) At the Effective Time, the number of shares of
Company Common Stock outstanding (assuming all Company Options outstanding
on the date hereof are exercised) shall not exceed 20,000,000.
Section 3.3 Authorization; Validity of Agreement.
(a) The Company has the requisite corporate power and
authority to execute and deliver this Agreement and, subject to approval of
its stockholders as contemplated by Section 2.5 hereof, to consummate the
transactions contemplated hereby. The execution and delivery by the Company
of this Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by the Board of Directors of the Company
and, except for obtaining the stockholder approval contemplated by Section
2.5 hereof in the case of this Agreement, no other corporate proceedings on
the part of the Company are necessary to authorize the execution and
delivery of this Agreement by the Company and the consummation of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by the Company and, assuming due authorization, execution and
delivery of this Agreement by Parent and Acquisition, this Agreement is a
valid and binding obligation of the Company enforceable against the Company
in accordance with its terms, except that such enforcement may be subject
to or limited by (i) bankruptcy, insolvency or other similar laws, now or
hereafter in effect, affecting creditors' rights generally, and (ii) the
effect of general principles of equity (regardless of whether
enforceability is considered in a proceeding at law or in equity).
(b) The Board of Directors of the Company has duly and
validly approved and taken all corporate action required to be taken by the
Board for the consummation of the transactions contemplated by this
Agreement including, but not limited to, all action necessary to render the
provisions of Section 203 of the DGCL inapplicable to this Agreement and
the transactions contemplated hereby. The affirmative vote of the holders
of a majority of the Shares is the only vote of the holders of any class or
series of capital stock of the Company necessary to approve this Agreement
and the Merger.
Section 3.4 No Violations; Consents and Approvals. Except as
set forth in Section 3.4 of the Disclosure Schedule and for filings,
permits, authorizations, consents and approvals as may be required under,
and other applicable requirements of, the Exchange Act, the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), and the DGCL, and for the approval of this Agreement and the Merger
by the Company's stockholders and the filing and recordation of the
Certificate of Merger as required by the DGCL, neither the execution and
delivery of this Agreement by the Company nor the consummation by the
Company of the transactions contemplated hereby will (i) conflict with or
violate any provision of the Restated Certificate of Incorporation or
Amended and Restated By-Laws of the Company or the certificates of
incorporation or by-laws or similar organizational documents of any of its
Subsidiaries, (ii) require any filing with, or permit, authorization,
consent or approval of, any court, arbitral tribunal, administrative agency
or commission or other governmental or other regulatory authority, agency
or official (a "Governmental Entity"), (iii) assuming the accuracy of the
representations and warranties of, and performance of the covenants by
Parent and Acquisition as set forth herein, result in a violation or breach
of, or constitute (with or without due notice or lapse of time or both) a
default (or give rise to any right of termination, amendment, cancellation
or acceleration) or require any consent under, any of the terms, conditions
or provisions of any note, bond, mortgage, indenture, guarantee, other
evidence of indebtedness, lease, license, contract, agreement or other
instrument or obligation to which the Company or any of its Subsidiaries is
a party or by which any of them or any of their assets may be bound
("Company Agreements") or result in the imposition or creation of any Lien
on the assets of the Company or any of its Subsidiaries or (iv) violate any
order, writ, injunction, decree, statute, rule or regulation applicable to
the Company, any of its Subsidiaries or any of their properties or assets;
except in the case of clauses (ii), (iii) or (iv), (A) where the failure to
obtain such permits, authorizations, consents or approvals or to make such
filings would not have a Material Adverse Effect on the Company and its
Subsidiaries, taken as a whole, or (B) for such violations, breaches or
defaults which would not have a Material Adverse Effect on the Company and
its Subsidiaries, taken as a whole.
Section 3.5 SEC Reports and Financial Statements. The Company
has filed with the SEC, and has heretofore made available to Parent true
and complete copies of, all forms and documents required to be filed by it
since January 1, 1994 under the Exchange Act, or the Securities Act of
1933, as amended (the "Securities Act") (as such documents have been
amended since the time of their filing, collectively, the "Company SEC
Documents"). As of their respective dates (or, if amended, as of the date
of the last such amendment), the Company SEC Documents, including, without
limitation, any financial statements or schedules included therein (i) did
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading and (ii) complied in all material respects with the
applicable requirements of the Exchange Act and the Securities Act, as the
case may be, and the applicable rules and regulations of the SEC
thereunder. The consolidated financial statements included in the Company
SEC Documents (i) have been prepared from, and are in accordance with, the
books and records of the Company and its consolidated Subsidiaries, (ii)
have been prepared in accordance with United States generally accepted
accounting principles ("GAAP") applied on a consistent basis during the
periods involved (except as otherwise noted therein and except that the
quarterly financial statements are subject to year end adjustment and do
not contain all footnote disclosures required by GAAP), (iii) comply in all
material respects with applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto and (iv)
fairly present in all material respects the consolidated financial position
and the consolidated results of operations and cash flows of the Company
and its consolidated Subsidiaries as at the dates thereof or for the
periods presented therein. No Subsidiary of the Company is required to file
any reports, forms or other documents with the SEC.
Section 3.6 Absence of Certain Changes. Except as disclosed in
the Company SEC Documents filed prior to the date of this Agreement or as
disclosed in Section 3.6 of the Disclosure Schedule, since December 31,
1996, the Company and its Subsidiaries have conducted their respective
businesses and operations only in the ordinary course and consistent with
past practice, and there have not occurred (i) any events or changes
(including the incurrence of any liabilities of any nature, whether or not
accrued, contingent or otherwise) having or which would have a Material
Adverse Effect on the Company and its Subsidiaries, taken as a whole; (ii)
except for the payment of regular quarterly cash dividends consistent with
past practice, any declaration, setting aside or payment of any dividend or
other distribution (whether in cash, stock or property) with respect to the
equity interests of the Company or any of its Subsidiaries; or (iii) any
change by the Company or any of its Subsidiaries in accounting principles
or methods, except insofar as may be required by a change in GAAP. Except
as disclosed in the Company SEC Documents filed prior to the date of this
Agreement or in Section 3.6 or Section 5.1 of the Disclosure Schedule,
since December 31, 1996, neither the Company nor any of its Subsidiaries
has taken any of the actions prohibited by Section 5.1 hereof. For purposes
of this Agreement, "knowledge of the Company" shall mean the actual
knowledge of the individuals specified in Section 3.6 of the Disclosure
Schedule.
Section 3.7 No Undisclosed Liabilities. Except as disclosed in
the Company SEC Documents filed prior to the date of this Agreement or in
Section 3.7 of the Disclosure Schedule and except for liabilities and
obligations incurred in the ordinary course of business and consistent with
past practice since December 31, 1996, neither the Company nor any of its
Subsidiaries have incurred any liabilities or obligations of any nature,
whether or not accrued, contingent or otherwise, that have, or would have,
a Material Adverse Effect on the Company and its Subsidiaries, taken as a
whole, or would be required to be reflected or reserved against in the
consolidated financial statements of the Company and its Subsidiaries
(including notes thereto) prepared in accordance with GAAP.
Section 3.8 Information in Proxy Statement. The Proxy Statement
at the date mailed to Company stockholders and at the time of the Special
Meeting, (i) will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances
under which they are made, not misleading and (ii) will comply in all
material respects with the provisions of the Exchange Act; except that no
representation is made by the Company with respect to statements made in
the Proxy Statement based on written information supplied by Parent or
Acquisition for inclusion in the Proxy Statement.
Section 3.9 Employee Benefit Plans; ERISA.
(a) Section III3.9(a) of the Disclosure Schedule
contains a true and complete list of each bonus, deferred compensation,
incentive compensation, stock purchase, stock option, severance or
termination pay, hospitalization or other medical, life or other insurance,
supplemental unemployment benefits, profit-sharing, pension or retirement
plan, program or agreement and each other employee benefit plan within the
meaning of Section 3(3) of ERISA, sponsored, maintained or contributed to
by the Company or by any trade or business, whether or not incorporated (an
"ERISA Affiliate"), that together with the Company would be deemed a
"single employer" within the meaning of section 4001 of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), for the
benefit of any employee or former employee of the Company or any ERISA
Affiliate (the "Plans"). Section III3.9(a) of the Disclosure Schedule
identifies each of the Plans that is an "employee benefit plan," as defined
in section 3(3) of ERISA (the "ERISA Plans").
(b) With respect to each Plan, the Company has
heretofore delivered or made available to Acquisition true and complete
copies of each of the following documents:
(i) the Plan;
(ii) the most recent annual report and actuarial
report, if required under ERISA;
(iii) the most recent Summary Plan Description (as
defined in ERISA) required under ERISA with respect thereto;
(iv) if the Plan is funded through a trust or any
third-party funding vehicle, the trust or other funding
agreement and the latest financial statements thereof; and
(v) the most recent determination letter received
from the Internal Revenue Service with respect to each Plan
intended to qualify under section 401(a) of the Code.
(c) No liability under Title IV of ERISA has been
incurred by the Company or any ERISA Affiliate that has not been satisfied
or otherwise discharged in full, and no condition exists that presents a
material risk to the Company or any ERISA Affiliate of incurring a
liability under such Title, other than liability for contributions due in
the ordinary course and premiums due the Pension Benefit Guaranty
Corporation ("PBGC") (which contributions and premiums have been paid when
due).
(d) No ERISA Plan is a "multiemployer pension plan," as
defined in section 3(37) of ERISA, nor is any ERISA Plan a plan described
in section 4063(a) of ERISA.
(e) No ERISA Plan or any trust established thereunder
has incurred any "accumulated funding deficiency" (as defined in section
302 of ERISA and section 412 of the Code), whether or not waived, as of the
last day of the most recent fiscal year of each ERISA Plan ended prior to
the Closing Date. No Lien imposed under the Code or ERISA exists or is
likely to be imposed on account of any ERISA Plan. The form of each ERISA
Plan intended to be "qualified" within the meaning of section 401(a) of the
Code has been determined by the Internal Revenue Service to be so qualified
(or timely application has been made therefor); no event has occurred since
the date of such determination that would adversely affect such
qualification for which the cost of correction would have a Material
Adverse Effect on the Company and its Subsidiaries taken as a whole; and
each trust maintained thereunder has been determined by the Internal
Revenue Service to be exempt from taxation under section 501(a) of the
Code. Each Plan has been operated and administered in accordance with its
terms and applicable law, including but not limited to ERISA and the Code,
except for such non-compliance that would not have a Material Adverse
Effect on the Company and its Subsidiaries taken as a whole.
(f) There are no pending, threatened or anticipated
claims (other than routine claims for benefits) by, on behalf of, or
against, any of the Plans or any trusts related thereto that if determined
adversely to the Company and its Subsidiaries would have a Material Adverse
Effect on the Company and its Subsidiaries taken as a whole.
(g) The PBGC has not instituted proceedings to
terminate any of the ERISA Plans and no condition exists that presents a
material risk that such proceedings will be instituted.
(h) As of December 31, 1996, the present value of all
actuarial accrued benefit liabilities under the Company's defined benefit
plans subject to Title IV of ERISA, as determined by the actuary of such
plans using the actuarial assumptions and methods described in the
actuarial valuation as of January 1, 1996, did not exceed the market value
of the assets of such plans by more than $1,500,000.
(i) Neither the Company, any ERISA Affiliate, any of
the ERISA Plans, any trust created thereunder nor any trustee or
administrator thereof has engaged in a transaction or has taken or failed
to take any action in connection with which the Company, any ERISA
Affiliate, any of the ERISA Plans, any such trust, any trustee or
administrator thereof, or any party dealing with the ERISA Plans or any
such trust could be subject to either a civil penalty assessed pursuant to
section 409 or 502(i) of ERISA or a tax imposed pursuant to section 4975,
4976 or 4980B of the Code that would have a Material Adverse Effect on the
Company and its Subsidiaries taken as a whole.
(j) Except as disclosed on Section 3.9(j) of the
Disclosure Schedule, no amounts payable under the Plans or any other
agreement or arrangement to which the Company is a party will, as a result
of the transaction contemplated hereby, fail to be deductible for federal
income tax purposes by virtue of section 280G of the Code.
(k) Except as disclosed on Section 3.9(k) of the
Disclosure Schedule, no ERISA Plan provides benefits, including without
limitation death or medical benefits (whether or not insured), with respect
to current or former employees after retirement or other termination of
employment (other than (i) coverage mandated by applicable law, (ii)
disability, death or retirement benefits under any "employee pension plan,"
as that term is defined in section 3(2) of ERISA, (iii) deferred
compensation benefits or severance benefits accrued as liabilities on the
books of the Company or the ERISA Affiliates, (iv) severance pay,
disability benefits and benefit claims under ERISA Plans incurred on or
prior to a termination of employment but not reported or paid until after
such termination, or (v) benefits, the full cost of which is borne by the
current or former employee (or his beneficiary).
Section 3.10 Litigation; Compliance with Law.
(a) Except as disclosed in the Company SEC Documents
filed prior to the date of this Agreement or in Section 3.10 of the
Disclosure Schedule, there is no suit, claim, action, proceeding or
investigation pending or, to the knowledge of the Company, threatened,
against or affecting the Company or any of its Subsidiaries or any of their
respective properties which, if determined adversely to the Company or such
Subsidiaries, would have a Material Adverse Effect on the Company and its
Subsidiaries taken as a whole or would prevent or delay the Company from
consummating the Merger or the other transactions contemplated hereby.
(b) Except as disclosed in the Company SEC Documents
filed prior to the date of this Agreement or in Section 3.10 of the
Disclosure Schedule, the Company and its Subsidiaries are in compliance in
all material respects with all laws, statutes, regulations, rules,
ordinances, judgments, decrees, orders, writs and injunctions, of any court
or Governmental Entity relating to any of the property owned, leased or
used by them, or applicable to their business, including, but not limited
to, employment and employment practices, labor relations, occupational
safety and health, environmental, tax, interstate commerce and antitrust
laws, except for such non-compliance which would not have a Material
Adverse Effect on the Company and its Subsidiaries taken as a whole. Except
as set forth in the Company SEC Documents filed prior to the date of this
Agreement, neither the Company nor any of its Subsidiaries nor any of their
respective properties is subject to any judgment, decree, order, writ or
injunction having, or which would have, a Material Adverse Effect on the
Company and its Subsidiaries taken as a whole, or which would prevent or
delay the consummation of the transactions contemplated hereby.
(c) The Company and its Subsidiaries hold all licenses,
permits, variances and approvals of Governmental Entities necessary for the
lawful conduct of their respective businesses as currently conducted except
where the failure to hold such licenses, permits, variances or approvals
would not have a Material Adverse Effect on the Company and its
Subsidiaries taken as a whole.
Section 3.11 Intellectual Property.
(a) Except as disclosed in the Company SEC Documents
filed prior to the date of this Agreement or in Section 3.11 of the
Disclosure Schedule, to the knowledge of the Company, the Company and its
Subsidiaries own or possess adequate licenses or other valid rights to use
or operate within the scope of all United States and foreign patents,
trademarks, trade names, copyrights, service marks, all applications
therefor and registrations thereof, confidential or proprietary technical
and business information, know-how and trade secrets, and computer software
(collectively, "Intellectual Property") which are material to the
operations of the Company and its Subsidiaries, taken as a whole, as
currently conducted. Except as disclosed in the Company SEC Documents filed
prior to the date of this Agreement or in Section 3.11 of the Disclosure
Schedule, such Intellectual Property that is owned by the Company or its
Subsidiaries is not subject to any Liens except for such Liens that would
not have a Material Adverse Effect on the Company or its Subsidiaries, and,
to the knowledge of the Company, there are no infringements or other
violations or conflicts with the rights of others with respect to the (i)
use of or other conduct by the Company or its Subsidiaries within the scope
of, (ii) ownership of, (iii) validity of, or (iv) enforceability of, any
Intellectual Property owned by the Company or its Subsidiaries that has or
would have a Material Adverse Effect on the Company and its Subsidiaries
taken as a whole.
Section 3.12 Company Agreements. Each Company Agreement that is
material to the consolidated business and operations of the Company and its
Subsidiaries as currently conducted or that is listed on Section 3.12(a) of
the Disclosure Schedule (collectively, the "Material Company Agreements")
is a valid, binding and enforceable obligation of the Company or Subsidiary
of the Company that is a party thereto, except where the failure to be
valid, binding and enforceable would not have a Material Adverse Effect on
the Company and its Subsidiaries taken as a whole, and there are no
defaults thereunder on the part of the Company or its Subsidiary (which is
a party thereto, as the case may be), or, to the knowledge of the Company,
on the part of the other party thereto), except those defaults that would
not have a Material Adverse Effect on the Company and its Subsidiaries
taken as a whole. Except as disclosed in Section 3.12(b) of the Disclosure
Schedule, neither the Company nor any Subsidiary is a party to any
technology license agreement or sales agency or distributorship agreement
that limits in any material manner the ability of the Company or any
Subsidiary to compete in or conduct any significant line of business or
compete with any Person or in any geographic area or during any period of
time exceeding one year from the date hereof.
Section 3.13 Taxes. Except as set forth in Section 3.13 of the
Disclosure Schedule:
(a) the Company and its Subsidiaries have (i) filed (or
there have been filed on their behalf) with the appropriate Governmental
Entity all material Tax Returns (as hereinafter defined) required to be
filed by them and such Tax Returns are true, correct and complete in all
material respects, (ii) maintained in all material respects all required
records with respect to all material Tax Returns, (iii) paid in full (or
there has been paid on their behalf) all material Taxes (as hereinafter
defined) that are due and payable for all taxable periods and portions
thereof except to the extent of reserves established in accordance with
GAAP on the consolidated financial statements included in the Company SEC
Documents and (iv) made provision, in accordance with GAAP, for all future
material Tax liabilities (including reserves for deferred Taxes established
in accordance with GAAP and for all contingent Tax liabilities) for all
taxable periods and portions thereof;
(b) no federal, state, local or foreign audits or other
administrative proceedings ("Audits") or court proceedings are presently
pending with regard to any Taxes or Tax Returns of the Company or its
Subsidiaries, and none of the Company or its Subsidiaries has received
written notice of either the commencement of any such Audits or of the
intention on the part of any Governmental Entity to commence any such
Audits;
(c) no Governmental Entity has asserted in writing
against the Company or any of its Subsidiaries any material deficiency for
any Taxes which have not been satisfied in full or adequately reserved for
in accordance with GAAP on the consolidated financial statements included
in the Company SEC Documents;
(d) there are no Liens for Taxes upon any property or
assets of the Company or any of its Subsidiaries (except for current Taxes
that are not yet due and payable);
(e) the income Tax Returns of or including the Company
and each of its Subsidiaries have been examined by and settled with the
appropriate Governmental Entity (or the applicable statutes of limitation
for the assessment of income Taxes for such periods have expired) for all
periods through and including December 31, 1992;
(f) none of the Company or its Subsidiaries has waived
any statute of limitation with respect to Taxes (which waiver is currently
in effect) or has agreed to any extension of time with respect to a Tax
assessment or deficiency (which has not yet been paid) or has extended the
time to file any income or other material Tax Return (which Tax Return has
not subsequently been filed);
(g) none of the Company or its Subsidiaries is a party
to any income tax allocation, tax indemnity or tax sharing agreement or
arrangement, nor has any of the Company or its Subsidiaries ever joined in
the filing of a consolidated, combined, unitary or other group Tax Return
with any corporation other than the Company and its Subsidiaries. None of
the Company or its Subsidiaries could have any liability for Taxes of any
other corporation, person or entity (other than the Company and its
Subsidiaries) under Treasury Regulation Section 1.1502-6 (or any similar
provision of state, local or foreign law) by contract, or otherwise that,
individually or in the aggregate, would have a Material Adverse Effect on
the Company and its Subsidiaries taken as a whole;
(h) the Company and its Subsidiaries have complied in
all material respects with all applicable laws, rules and regulations
relating to the payment and withholding of Taxes and, except to the extent
of any reserves established in accordance with GAAP on the consolidated
financial statements included in the Company SEC Documents have, within the
time and manner prescribed by law, withheld and paid over to the proper
Governmental Entity all amounts required to be withheld and paid over under
all applicable laws;
(i) none of the Subsidiaries of the Company have an
investment in "United States property" within the meaning of Section 956 of
the Code; and
(j) (i) For purposes of this Section 3.13, the term
"Subsidiaries" shall include any entity in which the Company or a
Subsidiary of the Company is a general partner.
(ii) For purposes of this Agreement: (x) "Taxes"
shall mean any and all taxes, charges, fees, levies or other
assessments, including, without limitation, all net income,
gross income, gross receipts, excise, stamp, real or personal
property, ad valorem, withholding, estimated, social security,
unemployment, occupation, use, service, service use, license,
net worth, payroll, franchise, severance, transfer, recording
or other taxes, assessments or charges imposed by any
Governmental Entity and any interest, penalties, or additions
to tax attributable thereto; and (y) "Tax Return" shall mean
any return, report or similar statement required to be filed
with respect to any Tax (including any attached schedules),
including, without limitation, any information return, claim
for refund, amended return or declaration of estimated Tax.
Section 3.14 Environmental Matters.
(a) Except as disclosed in the Company SEC Documents
filed prior to the date of this Agreement or as disclosed in Section
III3.14(a) of the Disclosure Schedule, the Company and its Subsidiaries are
and have been in compliance in all material respects with all applicable
Environmental Laws (as hereinafter defined) which compliance includes (i)
the possession of material permits, licenses, registrations and other
governmental authorizations and financial assurances required under
applicable Environmental Laws for the Company and its Subsidiaries to
operate their businesses as currently conducted, and (ii) compliance with
the terms and conditions thereof, except in all cases above where such
non-compliance would not have a Material Adverse Effect on the Company and
its Subsidiaries taken as a whole.
(b) Except as disclosed in the Company SEC Documents
filed prior to the date of this Agreement or as disclosed in Section
III3.14(b) of the Disclosure Schedule, (i) there are no Environmental
Claims pending or, to the knowledge of the Company, threatened, against the
Company or its Subsidiaries that would result in a Material Adverse Effect
on the Company and its Subsidiaries taken as a whole, (ii) neither the
Company nor its Subsidiaries has received any written request for
information under any Environmental Law from any Governmental Entity with
respect to any actual or alleged environmental contamination which has not
been remediated or otherwise resolved and the remediation of which
contamination or the resolution of the request would have a Material
Adverse Effect on the Company and its Subsidiaries taken as a whole; and
(iii) none of the Company, its Subsidiaries or, to the knowledge of the
Company, any Governmental Entity, is conducting or has conducted (or, to
the knowledge of the Company, is threatening to conduct) any environmental
remediation or investigation which would result in a Material Adverse
Effect on the Company and its Subsidiaries, taken as a whole, under any
Environmental Law.
(c) Except as disclosed in the Company SEC Documents
filed prior to the date of this Agreement or as disclosed in Section
3.14(c) of the Disclosure Schedule, (i) to the knowledge of the Company,
there is no friable asbestos-containing material in or on any real property
currently owned, leased or currently operated by the Company or its
Subsidiaries, (ii) there are no polychlorinated diphenyls in any equipment
currently owned, leased or operated by the Company or any of its
Subsidiaries as a manufacturing facility and (iii) there are and, to the
knowledge of the Company, have been no underground storage tanks (whether
or not required to be registered under any applicable law), dumps,
landfills, lagoons, surface impoundments, injection wells or other land
disposal units in or on any property currently or, to the knowledge of the
Company, formerly owned, leased or operated by the Company or its
Subsidiaries where in each case, the presence, ownership or operation of
which would result in a Material Adverse Effect on the Company and its
Subsidiaries, taken as a whole.
(d) Except as disclosed in the Company SEC Documents
filed prior to the date of this Agreement or as disclosed in Section
3.14(d) of the Disclosure Schedule, to the knowledge of the Company, there
have been no Releases of Hazardous Substances at any of the Company's or
its Subsidiaries' properties or of Hazardous Substances which were
generated, stored, disposed of or transported by the Company, which could
form the basis of any Environmental Claim against the Company, or to the
knowledge of the Company, against any person or entity whose liability for
any Releases the Company has or may have retained or assumed either
contractually or by operation of law, which would have a Material Adverse
Effect on the Company and its Subsidiaries taken as a whole.
(e) As used in this Agreement:
(i) the term "Environmental Claim" means any claim,
action, investigation or written notice to the Company or its
Subsidiaries by any person or entity alleging potential
liability or responsibility of the Company or any of its
Subsidiaries (including, without limitation, potential
liability for investigatory costs, cleanup costs, governmental
response costs, natural resource damages, personal injuries, or
penalties) arising out of, based on, or resulting from (a) the
presence, or release into the environment, of any Hazardous
Substance (as hereinafter defined) at any location, whether or
not owned or operated by the Company or its Subsidiaries or (b)
circumstances forming the basis of any violation or alleged
violation of any applicable Environmental Law;
(ii) the term "Environmental Laws" means all
federal, state, local and foreign laws, rules, regulations,
common law, ordinances, decrees, orders and other binding legal
requirements, as in effect as of the date hereof, relating to
pollution or protection of the environment, including without
limitation, laws and regulations relating to emissions,
discharges, releases or threatened releases of Hazardous
Substances, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Substances;
(iii) the term "Hazardous Substance" means any
chemicals, pollutants, contaminants, hazardous wastes, toxic
substances or radioactive materials regulated under any
Environmental Law, and oil and petroleum products; and
(iv) the term "Release" means any release, spill,
emission, discharge, leaking, pumping, injection, deposit,
disposal, dispersal, leaching or migration into the indoor or
outdoor environment (including, without limitation, ambient
air, surface water, groundwater and surface or subsurface
strata).
Section 3.15 No Default. Except as disclosed in the Company
SEC Documents filed prior to the date of this Agreement or as disclosed in
Section 3.15 of the Disclosure Schedule, the business of the Company and
each of its Subsidiaries is not being conducted in default or violation of
any term, condition or provision of (a) its respective certificate of
incorporation or by-laws or similar organizational documents, (b) any
Material Company Agreement, or (c) any federal, state, local or foreign
law, statute, regulation, rule, ordinance, judgement, decree, writ,
injunction, franchise, permit or license or other governmental
authorization or approval applicable to the Company or any of its
Subsidiaries, excluding from the foregoing clauses (b) or (c), defaults or
violations that would not have a Material Adverse Effect on the Company and
its Subsidiaries taken as a whole or would not materially impair the
ability of the Company to consummate the Merger or the other transactions
contemplated hereby.
Section 3.16 Opinion of Financial Advisors. The Board of
Directors of the Company has received opinions from Schroder Wertheim and
Smith Barney to the effect that, as of the date of this Agreement, the
Merger Consideration is fair to the holders of Company Common Stock from a
financial point of view, and a written copy of which opinions will be
delivered to Parent promptly after receipt thereof by the Company.
Section 3.17 Brokers. Except for Schroder Wertheim and Smith
Barney (true and complete copies of whose engagement letters have been
provided to Parent), no broker, finder or investment banker is entitled to
any brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by
or on behalf of the Company.
Section 3.18 Property. The Company and its Subsidiaries, as the
case may be, have good and valid title to, or in the case of leased
property, have valid leasehold interests in all properties and assets
necessary to conduct the business of the Company as currently conducted,
except to the extent the failure of this representation and warranty to be
true would not have a Material Adverse Effect on the Company and its
Subsidiaries, taken as a whole.
Section 3.19 Board Recommendations; Takeover Provisions. The
Board of Directors of the Company, at a meeting duly called and held, has
by the majority vote of those directors present (i) determined that this
Agreement and the transactions contemplated hereby are fair to and in the
best interests of the stockholders of the Company and has approved the
same, and (ii) resolved to recommend that the holders of the shares of
Company Common Stock approve this Agreement and the transactions
contemplated herein. No State Takeover Laws (as defined below) including,
but not limited to, Section 203 of the DGCL, are applicable to Parent or
Acquisition as a result of the Merger, this Agreement or the transactions
contemplated hereby or thereby. As a result of the execution or delivery or
performance of this Agreement or as a result of the consummation of the
transactions contemplated hereby, a Distribution Date (as defined in the
Rights Agreement) shall not be deemed to occur, the Rights (as defined in
the Rights Agreement) shall not separate from the shares of Company Common
Stock and none of Parent, Acquisition or any of their Affiliates shall
become an Acquiring Person (as defined in the Rights Agreement). The
current holders of the Rights will have no additional rights under the
Rights Agreement as a result of the Merger or any other transaction
contemplated by this Agreement. "State Takeover Laws" shall mean any "fair
price" or "control share acquisition" statute or similar statute or
regulation.
Section 3.20 Labor Matters. Except as disclosed in the Company
SEC Documents filed prior to the date of this Agreement, neither the
Company nor any of its Subsidiaries is a party to or bound by any
collective bargaining agreement or other labor union contract applicable to
persons employed by the Company or its Subsidiaries nor, to the knowledge
of the Company, as of the date of this Agreement, are there any activities
or proceedings of any labor union to organize any such employees. Except as
disclosed in the Company SEC Documents filed prior to the date of this
Agreement or as disclosed in Section 3.20 of the Disclosure Schedule, as of
the date of this Agreement, (i) there are no unfair labor practice charges
or complaints pending against the Company or any of its Subsidiaries before
the National Labor Relations Board or any current union representation
questions involving employees of the Company or any of its Subsidiaries and
(ii) there is no labor strike, lockout, organized slowdown or organized
work stoppage in effect or, to the knowledge of the Company, threatened
against the Company or any of its Subsidiaries, which, in either such case
has, had or would have, a Material Adverse Effect on the Company and its
Subsidiaries taken as a whole.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND ACQUISITION
Parent and Acquisition represent and warrant to the Company as
follows:
Section 4.1 Organization. Parent is a corporation duly
organized, validly existing and in good standing under the laws of Utah and
Acquisition is a corporation duly organized, validly existing and in good
standing under the laws of Delaware. Each of Parent and Acquisition has all
requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as now being conducted except where
the failure to have such power or authority would not have a Material
Adverse Effect on Parent and Acquisition, taken as a whole, or materially
impair or delay the consummation of the transactions contemplated hereby.
Section 4.2 Authorization; Validity of Agreement. Each of
Parent and Acquisition has the requisite corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery by Parent and Acquisition
of this Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by the respective Boards of Directors of
Parent and Acquisition and no other corporate proceedings on the part of
Parent or Acquisition are necessary to authorize the execution and delivery
of this Agreement by Parent and Acquisition and the consummation of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by Parent and Acquisition. Assuming due authorization, execution
and delivery of this Agreement by the Company, this Agreement is a valid
and binding obligation of Parent and Acquisition, enforceable against each
of them in accordance with its terms, except that such enforcement may be
subject to or limited by (i) bankruptcy, insolvency or other similar laws,
now or hereafter in effect, affecting creditors' rights generally, and (ii)
the effect of general principles of equity (regardless of whether
enforceability is considered in a proceeding at law or in equity).
Section 4.3 Consents and Approvals; No Violations. Except as
disclosed in Section 4.3 of Parent's disclosure schedule and for filings,
permits, authorizations, consents and approvals as may be required under,
and other applicable requirements of, the Exchange Act and the HSR Act and
the filing and recordation of the Certificate of Merger as required by the
DGCL, no filing with, and no permit, authorization, consent or approval of,
any Governmental Entity is necessary for the consummation by Parent or
Acquisition of the transactions contemplated by this Agreement. Neither the
execution and delivery of this Agreement by Parent or Acquisition nor the
consummation by Parent or Acquisition of the transactions contemplated
hereby nor compliance by Parent or Acquisition with any of the provisions
hereof will (i) conflict with or violate any provision of the Articles of
Incorporation or Certificate of Incorporation, as the case may be, or
By-Laws, of Parent or Acquisition or (ii) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to Parent or
Acquisition or any of their properties or assets, except in the case of
clause (ii) where such violations would not have a Material Adverse Effect
on Parent and Acquisition taken as a whole.
Section 4.4 Information in Proxy Statement. None of the
information supplied by Parent or Acquisition for inclusion in the Proxy
Statement will, at the date mailed to stockholders and at the time of the
Special Meeting, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which
they are made, not misleading.
Section 4.5 Financing. Parent and/or its Affiliates have
received written commitments (copies of which are attached as Section 4.5
of Parent's disclosure schedule) from responsible financial institutions
and others to provide, subject to the terms and conditions of such
commitments, financing sufficient, together with other funds available to
Parent, to effect the Merger and any other transactions contemplated by
this Agreement, and to pay all related fees and expenses associated with
the Merger and the transactions contemplated by this Agreement. The
financing and the consummation of the Merger and the other transactions
contemplated thereby will not result in an Event of Default or Default
under the Indenture (so long as immediately prior to the Effective Time the
Company has the ability to incur at least $1.00 of additional Indebtedness
pursuant to the Fixed Charge Coverage Ratio test set forth in the first
paragraph of Section 4.09 of the Indenture).
ARTICLE V
COVENANTS
Section 5.1 Interim Operations of the Company. The Company
covenants and agrees that, except as (i) contemplated by this Agreement,
(ii) contemplated by the Company's capital spending program (the "CAPEX
Program") disclosed in Section 5.1 of the Disclosure Schedule (it being
agreed that indebtedness incurred in connection with the CAPEX Program
shall only be made from the Existing Credit Facilities (as hereinafter
defined) and no new or additional credit facilities or indebtedness shall
be created, entered into or incurred to fund the CAPEX Program) and other
matters disclosed in Section 5.1 of the Disclosure Schedule or (iii)
approved in writing by Parent (which approval Parent shall not unreasonably
withhold except for the approval of Parent required in accordance with the
proviso in Section 5.1(h) which may be withheld for any reason), after the
date hereof and prior to the Effective Time:
(a) the business of the Company and its Subsidiaries
shall be conducted only in the ordinary course consistent with past
practice and, to the extent consistent therewith, each of the Company and
its Subsidiaries shall use its reasonable efforts to preserve its business
organization intact and maintain its existing relations with customers,
suppliers, employees, creditors and business partners, and the Company
shall use its reasonable efforts to cause the members of the Executive
Management Committee of the Company (such individuals being referred to as
the "EMC Members" (which EMC Members are identified and listed on Section
5.1 of the Disclosure Schedule) and such committee being referred to as the
"EMC Committee"), to continue to perform their duties as currently
performed for the Company;
(b) the Company will not, directly or indirectly,
split, combine or reclassify the outstanding Company Common Stock or any
outstanding capital stock of any of its Subsidiaries;
(c) neither the Company nor any of its Subsidiaries
shall: (i) amend its certificate of incorporation or by-laws; (ii) declare,
set aside or pay any dividend or other distribution payable in cash, stock
or property with respect to its capital stock, other than regular quarterly
cash dividends by the Company in a per share amount not in excess of $.04
per Share; (iii) issue, sell, transfer, pledge, dispose of or encumber any
additional shares of, or securities convertible into or exchangeable for,
or options, warrants, calls, commitments or rights of any kind to acquire,
any shares of capital stock of any class of the Company or its
Subsidiaries, other than issuances pursuant to the exercise of Company
Options and Company benefit plan obligations disclosed in Section 3.9 of
the Disclosure Schedule, in each case which are outstanding on the date
hereof; (iv) transfer, lease, license, sell, mortgage, pledge, dispose of
or encumber any material assets other than in the ordinary and usual course
of business and consistent with past practice; or (v) redeem, purchase or
otherwise acquire directly or indirectly any of its capital stock;
(d) neither the Company nor any of its Subsidiaries
shall, except as required by law or as otherwise expressly provided
elsewhere in this Agreement: (i) grant any increase in the compensation
payable or to become payable by the Company or any of its Subsidiaries to
any of their executive officers, key employees or directors or (A) adopt
any new, or (B) amend or otherwise increase, or accelerate the payment or
vesting of the amounts payable or to become payable under any existing,
bonus, incentive compensation, deferred compensation, severance, profit
sharing, stock option, stock purchase, insurance, pension, retirement or
other employee benefit plan agreement or arrangement; or (ii) enter into
any, or amend any existing, employment or severance agreement with or,
except in accordance with the existing written policies of the Company,
grant any severance or termination pay to any officer, director or employee
of the Company or any of its Subsidiaries; provided, however, that the
Company or its Subsidiaries may, in the ordinary course of business,
consistent with past practice, enter into termination agreements or
arrangements with employees other than any EMC Member or any employee with
whom the Company has entered into a letter agreement described in Section
5.5(k) of the Disclosure Schedule (the "Non-Key Employees"), which
agreements and arrangements shall have an aggregate value in excess of
amounts that are payable under the Company's Separation Policy and
Guidelines not to exceed $50,000, and with respect to any individual
Non-Key Employee shall have a value not in excess of $8,000.
(e) neither the Company nor any of its Subsidiaries
shall modify, amend or terminate any of the Material Company Agreements or
waive, release or assign any material rights or claims with respect to such
Material Company Agreements, except in the ordinary course of business and
consistent with past practice;
(f) neither the Company nor any of its Subsidiaries
shall permit any material insurance policy naming it as a beneficiary or a
loss payable payee to be cancelled or terminated without notice to Parent,
unless equivalent replacement policies, without lapse of coverage, shall be
put in place;
(g) neither the Company nor any of its Subsidiaries
shall: (i) incur or assume any indebtedness for borrowed money or enter
into any capital leases or other arrangements with similar economic effects
except pursuant to the Existing Credit Facilities; (iii) assume, guarantee,
endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other person; (iv)
make any loans, advances or capital contributions to, or investments in,
any other person (other than to wholly-owned Subsidiaries of the Company or
customary loans or advances to employees in accordance with past practice);
or (v) enter into any material commitment or transaction (including, but
not limited to, any borrowing, capital expenditure or purchase, sale or
lease of assets) except for purchases and sales of goods and inventories on
commercially reasonable terms with a term of one year or less;
(h) the Company and its Subsidiaries shall not settle
or compromise any claim, liability or obligation which is described in a
filing with the SEC and neither the Company nor any of its Subsidiaries
shall pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction of any such claims, liabilities
or obligations, (x) to the extent reflected or reserved against in, or
contemplated by, the consolidated financial statements (or the notes
thereto) of the Company and its consolidated Subsidiaries, (y) incurred in
the ordinary course of business and consistent with past practice or (z)
which are legally required to be paid, discharged or satisfied (provided
that if such claims, liabilities or obligations referred to in this clause
(z) are legally required to be paid and are also not otherwise payable in
accordance with clauses (x) or (y) above, the Company will notify Parent in
writing if such claims, liabilities or obligations exceed, individually or
in the aggregate, $5,000,000 in value, reasonably in advance of their
payment), provided that notwithstanding anything to the contrary set forth
in this Section 5.1(h), the Company and its Subsidiaries shall not settle
or compromise any claim or litigation brought by any stockholder of the
Company making such claim or bringing such litigation as such a
stockholder, either individually or on behalf of any class, without the
written consent of Parent;
(i) neither the Company nor any of its Subsidiaries
will adopt a plan of complete or partial liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or other reorganization of
the Company or any of its Subsidiaries (other than the Merger);
(j) neither the Company nor any of its Subsidiaries
will change any method of accounting or any accounting principle or
practice, except for changes required by a concurrent change in GAAP;
(k) neither the Company nor any of its Subsidiaries
will take, or agree to commit to take, any action that would make any
representation or warranty of the Company contained herein inaccurate at,
or as of any time prior to, the Effective Time;
(l) the Company and its Subsidiaries shall (i) use
reasonable efforts to maintain or otherwise preserve its rights in all of
the Intellectual Property owned by the Company or its Subsidiaries that is
material to the consolidated business and operations of the Company and its
Subsidiaries and use reasonable efforts not to permit any of such
Intellectual Property to lapse, expire or go abandoned by any action or
inaction on their part, provided however, for purposes of this paragraph,
Intellectual Property relating to Flexible Polyolefins (FPO) shall be
deemed material to the consolidated business and operations of the Company
and its Subsidiaries; (ii) diligently and responsively prosecute all
applications for patents or registrations before whichever Governmental
Entity the same may be pending; and (iii) not allow any rights with respect
to trademarks, inventions or discoveries material to the Company or its
Subsidiaries to go abandoned for failure to timely file new applications
for patents or registrations corresponding to the subject matter thereof;
(m) neither the Company nor any of its Subsidiaries
shall voluntarily make or agree to make any material change in any Tax
accounting method, waive or consent to the extension of any statute of
limitations with respect to income or other material Taxes, or consent to
any material assessment of Taxes, or settle any judicial proceeding
affecting any material amount of Taxes;
(n) neither the Company nor any of its Subsidiaries
shall fail to take all reasonable steps in defense of any claim (which
would be disclosable by the Company in a filing pursuant to the Exchange
Act or the Securities Act) asserted against the Company or any of its
Subsidiaries in any proceedings before any Governmental Entity including,
but not limited to, taking all steps (i) to perfect the appeal of any
adverse judgment, ruling, or decision in litigation against the Company by
Phillips Petroleum Company pending in the U.S. District Court in
Wilmington, Delaware, and (ii) to defend the summary judgment in favor of
the Company against Phillips Petroleum Company in litigation decided in the
U.S. District Court of Houston, Texas;
(o) the Company will not, directly or indirectly,
amend, supplement or modify any of the Orrex Governance Documents except as
set forth on Section 5.1(o) of the Disclosure Schedule; and
(p) neither the Company nor any of its Subsidiaries
will enter into an agreement, contract, commitment or arrangement to do any
of the foregoing, or to authorize, recommend, propose or announce an
intention to do any of the foregoing.
Section 5.2 No Solicitations.
(a) Neither the Company nor any of its Subsidiaries or
Affiliates shall (and the Company shall use its best efforts to cause its
officers, directors, employees, representatives and agents, including, but
not limited to, investment bankers, attorneys and accountants
(collectively, "Representatives"), not to), directly or indirectly,
encourage, solicit, participate in or initiate discussions or negotiations
with, or provide any information to, any corporation, partnership, person
or other entity or group (other than Parent, any of its Affiliates or
Representatives) concerning any merger, consolidation, tender offer,
exchange offer, sale of a material portion or product line of the assets
and business of the Rexene Products Division and/or the CT Film Division
(whether in one or more transactions), sale of shares of capital stock or
debt securities, restructuring, recapitalization, or similar transactions
involving the Company or any Subsidiary, division or operating or principal
business unit of the Company (whether in one or more transactions) (an
"Acquisition Proposal"). The Company further agrees that it will, and will
cause its Representatives to, immediately cease any existing activities,
discussions or negotiations with any parties conducted heretofore with
respect to any of the foregoing. Notwithstanding the foregoing, the Company
may, directly or indirectly, provide access and furnish information
concerning its business, properties or assets to any corporation,
partnership, person or other entity or group (a "Third Party Bidder")
pursuant to appropriate confidentiality agreements, and may negotiate and
participate in discussions and negotiations with such a Third Party Bidder
concerning a Superior Proposal (as hereinafter defined) (i) if such Third
Party Bidder without any solicitation, initiation, encouragement,
discussion or negotiation, directly or indirectly, by or with the Company
or its Representatives, has submitted a bona fide written proposal to the
Board of Directors of the Company relating to any such transaction, (ii)
if, in the opinion of the Board of Directors of the Company, after receipt
of advice from independent legal counsel to the Company, the failure to
provide such information or access or to engage in such discussions or
negotiations would result in a breach of their fiduciary duties to the
Company's stockholders under applicable law and (iii) if such Third Party
Bidder executes a confidentiality agreement in reasonably customary form;
in such case, nothing contained in this Section 5.2 shall prohibit the
Company or its Board of Directors from taking and disclosing to the
Company's stockholders a position with respect to a tender offer by a
third-party pursuant to Rules 14d-9 and 14e-2(a) promulgated under the
Exchange Act or from making such disclosure to the Company's stockholders
which, in the judgment of the Board of Directors with the advice of
independent legal counsel, may be required under applicable law.
(b) The Company shall promptly advise Parent orally and
in writing if it is prepared to provide access and furnish information
concerning its business, properties or assets to a Third Party Bidder as
described in Section 5.2(a) above, and shall at such time inform Parent of
the material terms of such Third Party Bidder's Acquisition Proposal and
thereafter promptly inform Parent of any changes to the material terms of
such Third Party Bidder's Acquisition Proposal. The Company shall give
Parent three days' advance notice of (including a copy of) any agreement to
be entered into with respect to such Third Party Bidder's Acquisition
Proposal.
(c) Notwithstanding anything in this Agreement to the
contrary, Parent shall have the right to revise the terms of this Agreement
such that this Agreement contains terms which are identical in all material
respects to such Superior Proposal, and, in such event, Parent and the
Company shall so amend this Agreement and, subject to the terms and
conditions of this Agreement as so amended, consummate the transactions
contemplated hereby.
(d) For purposes of this Agreement, the term "Superior
Proposal" shall mean any Acquisition Proposal which a majority of the
members of the Company's Board of Directors determines, in good faith and
after receipt of the advice of outside financial advisors, (i) is more
favorable to the holders of Company Common Stock than the transactions
contemplated hereby and (ii) is not subject to any financing condition.
Section 5.3 Access to Information.
(a) From the date of this Agreement until the Effective
Time, the Company shall (and shall cause each of its Subsidiaries to)
afford to Parent and the Parent Representatives (as defined below)
reasonable access during normal business hours upon reasonable prior notice
to all of its, and its Subsidiaries', books, records, files, documents and
Company Agreements and, during such period, the Company shall (and shall
cause each of its Subsidiaries to) furnish promptly to Parent (i) a copy of
each report, schedule, registration statement and other document filed or
received by it during such period pursuant to the requirements of the
federal securities laws and (ii) such other information including, without
limitation, copies of books, records, files, documents and Company
Agreements, concerning the Company's and its Subsidiaries' business,
properties and personnel as Parent may reasonably request; provided, that
Parent and the Parent Representatives will conduct all such inspections in
a reasonable manner. The Company and its Subsidiaries shall provide Parent
and the Parent Representatives with reasonable access during normal
business hours to the EMC Members and such EMC Members shall reasonably
cooperate with Parent and the Parent Representatives and provide Parent and
the Parent Representatives with such information regarding the Company and
its Subsidiaries as may be reasonably requested. Parent and the Company
agree to comply with the terms of the protocol set forth in Section 5.3 of
the Disclosure Schedule relating to Parent's access to and the conduct of
the business of the Company between the date hereof and the Effective Time.
The Company and its Subsidiaries shall in addition use their reasonable
efforts to provide Parent and the Parent Representatives with access to the
Representatives, commercial bankers, actuaries, trustees, outside Plan
administrators and consultants of the Company and its Subsidiaries and to
use its best efforts to cause such Representatives, commercial bankers,
actuaries, trustees, outside Plan administrators and consultants to provide
Parent and the Parent Representatives with such information regarding the
Company and its Subsidiaries as may be reasonably requested.
Notwithstanding any of the foregoing, prior to the Effective Time no access
to or disclosure of technical information relating to the FPO plant or
processes shall be given to Parent or its Affiliates. Parent and the Parent
Representatives shall use reasonable efforts to conduct any activities
pursuant to this Section 5.3 in a manner that does not interfere in any
material respect with the management and conduct of the Company's
operations. The obligations of the Company under this Section 5.3(a) are
subject to limitations imposed by law as disclosed to Parent.
(b) Until the Effective Time, Parent and Acquisition
will, with respect to the information furnished to Parent by or on behalf
of the Company, and the Company will, with respect to the information
furnished to the Company by or on behalf of Parent or Acquisition, have the
same confidentiality obligations as set forth in the April 26, 1997 letter
agreement between Parent and the Company.
Section 5.4 Further Action; Reasonable Best Efforts.
(a) Upon the terms and subject to the conditions herein
provided, each of the parties hereto agrees to use its reasonable best
efforts to take, or cause to be taken, all action and to do, or cause to be
done, all things necessary under applicable laws and regulations to
consummate and make effective the transactions contemplated by this
Agreement, including, without limitation, (i) to comply promptly with all
legal requirements which may be imposed on it with respect to this
Agreement and the transactions contemplated hereby (which actions shall
include, without limitation, furnishing all information required by
applicable law in connection with approvals of or filings with any
Governmental Entity), (ii) to satisfy the conditions precedent to the
obligations of such party hereto, (iii) to obtain any consent,
authorization, order or approval of, or any exemption by, any Governmental
Entity or other public or private third-party required to be obtained or
made by Parent, Acquisition, the Company or any of their Subsidiaries in
connection with the Merger or the taking of any action contemplated by this
Agreement, (iv) to effect all necessary registrations and filings and (v)
to take any action reasonably necessary to vigorously defend, lift,
mitigate, rescind the effect of any litigation or administrative proceeding
adversely affecting the Merger or this Agreement, including promptly
appealing any adverse court or administrative decision.
(b) Subject to appropriate confidentiality protections,
each of the parties hereto will furnish to the other parties such necessary
information and reasonable assistance as such other parties may reasonably
request in connection with the foregoing and will provide the other parties
with copies of all filings made by such party with any Governmental Entity
and, upon request, any other information supplied by such party to a
Governmental Entity in connection with this Agreement and the transactions
contemplated hereby. Upon the terms and subject to the conditions herein
provided, in case at any time after the Effective Time any further action
is necessary or desirable to carry out the purposes of this Agreement, the
proper officers and/or directors of the parties shall use their reasonable
best efforts to take or cause to be taken all such necessary action.
Section 5.5 Employee Benefits.
(a) Fair and Non-Discriminatory Treatment. Except as
provided in Section 5.5(b) below, on and after the Effective Time, Parent
shall, and shall cause its Affiliates (including the Surviving Corporation)
to, provide on an uninterrupted basis employee benefits (including, if
applicable, group medical and dental, life insurance, defined contribution
retirement plan, short- and long-term disability, severance, vacation and
sick pay) for non-bargaining unit employees of the Company as of the
Effective Time ("Company Employees") which are, in the aggregate for each
such employee, no less favorable than (i) the employee benefits they were
provided immediately prior to the Effective Time or, at Parent's option,
(ii) in the case of employees of the Company's Rexene Products Division and
non-Division Company Employees, the employee benefits provided to similarly
situated employees of Parent and its Affiliates (including Huntsman
Packaging Corporation), and, in the case of employees of the Company's CT
Films Division, the employee benefits provided to similarly situated
employees of Huntsman Packaging Corporation.
(b) Pension Plans.
(1) On and after the Effective Time, Parent shall, or
shall cause its Affiliates to, take such actions that are necessary and
appropriate to ensure that the benefits calculated on behalf of Company
Employees pursuant to the terms of the Rexene Corporation Retirement Plan
("Rexene Plan") (i) credit all service with the Parent and its Affiliates
after the Effective Time for purposes of eligibility and vesting under such
plan (including eligibility for early or normal retirement) and (ii)
include compensation with Parent and its Affiliates after the Effective
Time in the same manner as compensation from the Company for purposes of
calculating benefits under such plan.
(2) At all times during which Parent or any of its
Affiliates maintains a defined benefit plan providing benefit accruals for
employees of Parent or its Affiliates, Parent shall, or shall cause its
Affiliates (including the Surviving Corporation) to, provide Company
Employees with past service credit for eligibility and vesting purposes
(including eligibility for early or normal retirement) and with benefit
accruals under a defined benefit plan as follows:
(i) in the case of employees of the Company's Rexene
Products Division and non-Division Company Employees,
the retirement benefit they would have accrued based
solely on their service after the Effective Time under
a defined benefit plan for similarly situated employees
of Parent and its Affiliates (including Huntsman
Packaging Corporation) and without any offset for
benefits accrued under the Rexene Plan; and
(ii) in the case of employees of the Company's CT Films
Division, the retirement benefit they would have
accrued based solely on their service after the
Effective Time under the defined benefit plan for
similarly situated employees of Huntsman Packaging
Corporation and without any offset for benefits accrued
under the Rexene Plan.
(3) Non-bargaining unit employees of the Company shall
be treated as newly hired employees of Parent and its Affiliates as of the
Effective Time solely for purposes of the Parent's money purchase pension
plan.
(c) Past Service Credit. Except as provided in Section
5.5(b), all service with the Company and its Subsidiaries shall be counted
as service with Parent and its Affiliates for all purposes, including
eligibility to participate, vesting and determining the amount of a
benefit, but without duplication of benefits, under the employee benefit
plans and compensation practices (including, if applicable, group medical
and dental, life insurance, defined contribution retirement plan, short-
and long-term disability, severance, vacation and sick pay) covering or
otherwise benefitting such employees on and after the Effective Time.
Parent hereby agrees to take or to cause its Affiliates (including
Surviving Corporation) to take such action as may be necessary or
appropriate under all employee benefit plans and compensation practices
covering or otherwise benefitting the Company Employees on or after the
Effective Time to provide for such past service credit.
(d) Co-payments and Deductibles. Each Company Employee
shall be given credit for any deductible or co-payment amounts paid under
Plans maintained by the Company or its Subsidiaries in respect of the Plan
year in which the Effective Time occurs, to the extent that, following the
Effective Time, they participate in comparable plans maintained by Parent
or its Affiliates for which deductibles or co-payments are required. Parent
shall also cause each of its and its Affiliates plans to waive any
preexisting condition requirement to the extent waived under the terms of
any Plan maintained by the Company or its Subsidiaries immediately prior to
the Effective Time.
(e) Labor Agreements. To the extent required by
applicable law or the terms of any contract or agreement disclosed on
Section 3.20 of the Disclosure Schedule, Parent shall cause the Surviving
Corporation to honor all labor or collective bargaining agreements
pertaining to employees of the Company or any of its Subsidiaries in effect
at the Effective Time.
(f) Non-Qualified Retirement Plans. Parent hereby
agrees to honor or to cause its Affiliates (including the Surviving
Corporation) to honor all liabilities to Company Employees and their
beneficiaries arising under all nonqualified, unfunded deferred
compensation programs of Company or its Subsidiaries listed on Section
5.5(f) of the Disclosure Schedule, including but not limited to the Rexene
Corp. Supplemental Executive Retirement Plan (the "Rexene SERP"). In
particular, Parent hereby agrees that Company shall have the right to
contribute within 3 days prior to the Effective Time to the Rexene Corp.
Supplemental Executive Retirement Trust, an amount necessary to fully fund
all benefit obligations accrued under the Rexene SERP immediately after the
Effective Time (as required under the terms of the Rexene SERP and the
Trust) equal to the lesser of (i) $4,000,000 or (ii) an amount sufficient
to purchase annuities from New York Life Insurance Company, Principal
Mutual Life Insurance Company, John Hancock Mutual Life Insurance Company
or Metropolitan Life Insurance Company or any other reputable insurance
company rated at least A++ by Best and recommended by William M. Mercer
Incorporated for the full accrued benefit of each participant and
beneficiary under the Rexene SERP (and the Trustee shall cause the Trust to
purchase such annuities in the name of the Trust).
(g) Retiree Benefits. Parent hereby agrees to provide,
or to cause its Affiliates to provide, retiree (including early retiree)
medical benefits to individuals who were or would become eligible for such
benefits under the Company's retiree medical plans as of the Effective Time
if they terminated their employment on or before the Effective Time and who
terminate or had terminated their employment on or before two business days
following the Effective Time, comparable to the retiree medical benefits
provided to similarly situated employees of the Company, or at Parent's
option, similarly situated employees of the Parent.
(h) Vacation. Subject to Section 5.5(l) hereof, Parent
agrees to or shall cause its Affiliates (including the Surviving
Corporation) to agree to provide all vacation entitlement to Company
Employees for the 1997 calendar year as determined under the Company's
vacation pay policies in effect as of the Effective Time.
(i) Performance Unit Plans. Parent hereby agrees that
the Company shall terminate, and, subject to Section 5.5(l) hereof, pay on
or before the Effective Time to those Company Employees participating in,
the Rexene Corporation Long-Term Performance Unit Plan, the Rexene
Corporation 1996 Performance Unit Program for Key Employees and the Rexene
Corporation 1996 Performance Unit Program for Executive Officers (each a
"PUP" or, collectively, the "PUPs"), all amounts to which such Company
Employees would become entitled on or after the Effective Time, and such
amounts have been calculated assuming (i) Net Operating Profit (as defined
in the PUPs) for the Performance Periods beginning January 1, 1996 and
ending as of the Effective Time is determined by averaging (A) Company's
Net Operating Profit for its fiscal year ended December 31, 1996, with (B)
the annualized Net Operating Profit of Company for the period commencing
January 1, 1997 and ending the last day of the calendar month immediately
preceding the Effective Time, (ii) the Ending Invested Capital is
determined as the amount of Invested Capital that is estimated to be
invested as of the day preceding the Effective Time, and (iii) each such
participant is entitled to a pro rata portion of the award to which such
participant would have become entitled under the PUPs assuming he completed
the entire Performance Periods, and any and all rights to any additional
payments thereunder shall be null and void. The calculations of the PUPs
shall be made in accordance with the methodology disclosed on Section
5.5(i) of the Disclosure Schedule.
(j) Annual Incentive Plan. Parent hereby agrees that
Company shall terminate and, subject to Section 5.5(l) hereof, pay on or
before the Effective Time all amounts determined, in accordance with the
terms of such plan, to be payable under the Company's Key Employees Annual
Incentive Plan and Executive Management Committee Annual Incentive Plan
(each, an "Annual Incentive Plan") for the portion of the Company's fiscal
year through the Effective Time; provided, however, that the aggregate
amount payable shall not exceed the amount set forth in Section 5.5(j) of
the Disclosure Schedule, multiplied by a fraction, the numerator of which
is the number of days in the fiscal year up to and including the Effective
Time, and the denominator of which is 365.
(k) Severance Pay. Parent hereby agrees to assume and
perform or cause its Affiliates (including the Surviving Corporation) to
assume and perform the letter agreements described in Section 5.5(k) of the
Disclosure Schedule. In the event any Company Employee is terminated
without cause within one year following the Effective Time, Parent and its
Affiliates shall provide severance pay to such employee which is not less
than the amount such employee would have received under the severance pay
plans and practices in effect immediately prior to the Effective Time.
(l) EMC and 280G Payments. Except as may otherwise be
agreed in writing by Parent and any member of the EMC with respect to such
member only, Parent has determined that it will not offer any EMC Member a
position in the Surviving Corporation of equal responsibility and authority
to such person's position in the Company and therefore acknowledges and
agrees that immediately following the Effective Time each EMC Member shall
be deemed to have resigned his employment within the meaning of paragraph 2
of his severance agreement with the Company, dated August 9, 1996 (the
"Severance Agreement"). Accordingly, prior to the Effective Time, the
Company will wire transfer to the rabbi trust disclosed in Section 5.5(l)
of the Disclosure Schedule ("The Trust") the total amount, less any
applicable withholding and employment taxes, that each such EMC Member is
and would become entitled to receive upon or following termination of
employment without cause following a change of control of the Company as
provided under the following agreements and plans of the Company or the
foregoing provisions of this Section 5.5: (i) such EMC Member's Severance
Agreement; (ii) the cash payments in respect of Company Options then held
by such EMC Member as provided under Section 2.3 of this Agreement; (iii)
the cash payments in respect of the PUPs; (iv) the cash payments in respect
of unused vacation time for 1997; and (v) to the extent not made prior to
such time, payments to be made under the Company's Annual Incentive Plan.
The foregoing amounts shall be calculated by Price Waterhouse LLP, whose
calculation shall be final and binding on Parent, the Surviving Corporation
and the EMC Members absent manifest error. Price Waterhouse LLP shall
consult with Parent's accountant in preparing such calculations. A copy of
such calculations, together with relevant work sheets, shall be provided by
Price Waterhouse LLP to the Parent, the Company and the EMC Members in an
estimated or draft form not fewer than thirty (30) days prior to the
Effective Time and in final form not fewer than three days prior to the
Effective Time. The Company shall provide to Parent not fewer than 30 days
prior to the Effective Time an analysis of the benefits subject to section
280G of the Code as applied to the employees and former employees of the
Company. On the day following the Effective Time, the Trust shall wire
transfer to the accounts specified by each EMC Member the amounts received
by the Trust with respect to such Member.
(m) COBRA. Parent agrees to provide or to cause its
Affiliates to provide continuation coverage for purposes of Part 6 of Title
I of ERISA to former non-bargaining unit employees of the Company and their
eligible dependents comparable to the benefits, as from time to time in
effect, provided to similarly situated employees of the Company.
Section 5.6 Rights Plan. The Board of Directors of the Company
has approved, and the Company agrees to enter into, an amendment to the
Rights Agreement, dated as of January 26, 1993, as amended, between the
Company and American Stock Transfer & Trust Company (the "Rights
Agreement") providing that, conditioned upon and effective concurrently
with the Merger, the Rights shall terminate and be cancelled without the
payment of any consideration therefor. The form of the amendment to the
Rights Agreement shall be presented to Parent for its review and shall be
reasonably satisfactory to Parent prior to its execution by the Company.
The Company agrees that it shall not amend the term "Acquiring Person" as
such term is currently defined in the Rights Agreement.
Section 5.7 Notification of Certain Matters. The Company shall
give prompt notice to Parent and Parent shall give prompt notice to the
Company, of (i) the occurrence or non-occurrence of any event the
occurrence or non-occurrence of which would cause any representation or
warranty contained in this Agreement to be untrue or inaccurate in any
material respect at or prior to the Effective Time, (ii) any material
failure of the Company, Parent or Acquisition, as the case may be, to
comply with or satisfy any covenant, condition or agreement to be complied
with or satisfied by it hereunder and (iii) the commencement or, to the
best of their knowledge, the threat, of any action, suit, claim,
investigation or proceeding which relates to this Agreement or the
transactions contemplated hereby; provided, however, that the delivery of
any notice pursuant to this Section 5.7 shall not limit or otherwise affect
the remedies available hereunder to the party receiving such notice.
Section 5.8 Directors' and Officers' Insurance and
Indemnification. Parent agrees that following the Effective Time it shall
indemnify, or shall cause the Surviving Corporation and its Subsidiaries to
indemnify, each person who is now, or has been at any time prior to the
date hereof, an employee, agent, director or officer of the Company or of
any of the Company's Subsidiaries (individually an "Indemnified Party" and
collectively the "Indemnified Parties"), to the same extent and in the same
manner as is now provided in the respective certificates of incorporation
or by-laws of the Company and such Subsidiaries or otherwise in effect on
the date hereof, with respect to any claim, liability, loss, damage, cost
or expense, whenever asserted or claimed ("Indemnified Liability"), based
in whole or in part on, or arising in whole or in part out of, any matter
existing or occurring at or prior to the Effective Time, including, without
limitation, matters arising out of or pertaining to the Merger, this
Agreement or the transactions contemplated by this Agreement. Parent shall,
or shall cause the Surviving Corporation to, maintain in effect for not
less than four years after the Effective Time policies of directors' and
officers' liability insurance equivalent in all material respects to those
maintained by or on behalf of the Company and its Subsidiaries on the date
hereof (and having at least the same coverage and containing terms and
conditions which are no less advantageous to the persons currently covered
by such policies) with respect to matters existing or occurring at or prior
to the Effective Time; provided, however, that if the aggregate annual
premiums for such insurance at any time during such period shall exceed
200% of the premiums paid by the Company and its Subsidiaries for such
insurance for the twelve calendar months immediately preceding the date of
this Agreement (the "Twelve Month Premiums"), then Parent shall cause the
Surviving Corporation to, and the Surviving Corporation shall, provide the
maximum coverage that shall then be available at an annual premium equal to
200% of the Twelve Month Premiums. Without limiting the foregoing, in the
event any Indemnified Party becomes involved in any capacity in any action,
proceeding or investigation based in whole or in part on, or arising in
whole or in part out of, any matter, including the transactions
contemplated hereby, existing or occurring at or prior to the Effective
Time, then to the extent permitted by law Parent shall, or shall cause the
Surviving Corporation to, periodically advance to such Indemnified Party
its legal and other expenses (including the cost of any investigation and
preparation incurred in connection therewith), subject to the provision by
such Indemnified Party of an undertaking to reimburse the amounts so
advanced in the event of a final determination by a court of competent
jurisdiction that such Indemnified Party is not entitled thereto. Promptly
after receipt by an Indemnified Party of notice of the assertion (an
"Assertion") of any claim or the commencement of any action against him in
respect to which indemnity or reimbursement may be sought against Parent,
the Company, the Surviving Corporation or a Subsidiary of the Company or
the Surviving Corporation ("Indemnitors") hereunder, such Indemnified Party
shall notify any Indemnitor in writing of the Assertion, but the failure to
so notify any Indemnitor shall not relieve any Indemnitor of any liability
it may have to such Indemnified Party hereunder except to the extent that
such failure shall have materially prejudiced Indemnitor in defending
against such Assertion. Indemnitors shall be entitled to participate in
and, to the extent Indemnitors elect by written notice to such Indemnified
Party within 30 days after receipt by any Indemnitor of notice of such
Assertion, to assume the defense of such Assertion, at their own expense,
with counsel chosen by Indemnitors and reasonably satisfactory to such
Indemnified Party. Notwithstanding that Indemnitors shall have elected by
such written notice to assume the defense of any Assertion, such
Indemnified Party shall have the right to participate in the investigation
and defense thereof, with separate counsel chosen by such Indemnified
Party, but in such event the fees and expenses of such counsel shall be
paid by such Indemnified Party. Notwithstanding the foregoing, in the event
the Indemnified Party reasonably believes, based on the advice of his
independent counsel under applicable standards of professional conduct that
there is reasonably likely to be, with respect to a particular matter, a
conflict on any significant issue between the positions of any two or more
Indemnified Parties or with any Indemnitor (a "Conflict Matter") such
Indemnified Party may select a separate counsel, reasonably acceptable to
the Indemnitors, to represent such Indemnified Party with respect to such
Conflict Matter and the Indemnitor shall pay the reasonable fees and
expenses of counsel so selected by the Indemnified Party in connection with
such Conflict Matter. No Indemnified Party shall settle any Assertion
without the prior written consent of Parent, which, in the case of a
settlement solely for a cash payment, shall not be unreasonably withheld,
nor shall Parent or any other Indemnitor settle any Assertion without
either (i) the written consent of all Indemnified Parties against whom such
Assertion was made, or (ii) obtaining an unconditional general release from
the party making the Assertion for all Indemnified Parties as a condition
of such settlement. The provisions of this Section 5.8 are intended for the
benefit of, and shall be enforceable by, the respective Indemnified
Parties. In the event the Surviving Corporation or Parent or any of their
successors or assigns (i) consolidates with or merges into any other Person
and shall not be the continuing or surviving corporation or entity of such
consolidation or merger or (ii) transfers all or substantially all of its
properties and assets to any Person, then, and in each case, proper
provision shall be made so that the successors and assigns of the Surviving
Corporation or Parent shall assume Parent's obligations set forth in this
Section 5.8.
Section 5.9 Treatment of Public Indebtedness. The Company shall
cooperate with Parent in connection with (i) complying with Section 5.01 of
the Indenture as it applies to the Merger, including without limitation
delivering the officer's certificate and opinion of counsel required
thereunder, (ii) preparing the notices required pursuant to Section 4.14 of
the Indenture and (iii) conferring with the Indenture Trustee concerning
such matters as Parent shall specify.
Section 5.10 Existing Credit Documents. The Company will use
reasonable efforts to (i) assist Parent to negotiate, and (ii) to enter
into, an arrangement with The Bank of Nova Scotia and the other lenders
party to the Credit Agreement, dated as of May 8, 1997, and with the
financial institutions and other parties party to the Participation and
Credit Agreement dated as of May 8, 1997, which arrangements will permit
the Company to terminate, on and as of the Closing Date, such agreements
and all related loan and lease documentation (collectively, the "Existing
Credit Documents"), upon payment in full of all obligations of the Company
thereunder, without any requirement that the Company deliver irrevocable
prior notices of termination under the Existing Credit Documents or to make
any payment with respect to the Existing Credit Documents except upon the
occurrence of the Merger.
Section 5.11 Directors' Qualifying Shares. The Company shall
cause any directors' qualifying shares owned by directors of its foreign
Subsidiaries to be transferred (for nominal consideration), as of the
Effective Time, in such amounts and to such of Parent's director nominees
for such Subsidiaries as Parent may specify in writing to the Company.
Section 5.12 Parent Undertaking. Parent shall be responsible
for and shall cause Acquisition to perform all of its obligations hereunder
in a timely manner.
ARTICLE VI
CONDITIONS
Section 6.1 Conditions to Each Party's Obligation To Effect the
Merger. The respective obligation of each party to consummate the Merger
shall be subject to the satisfaction on or prior to the Closing Date of
each of the following conditions:
(a) This Agreement shall have been approved and adopted
by the stockholders of the Company in accordance with the DGCL;
(b) No Governmental Entity shall have issued any order,
and there shall not be any statute, rule, decree or regulation restraining,
prohibiting or making illegal the consummation of the Merger; and
(c) Any waiting period applicable to the consummation
of the Merger under the HSR Act shall have expired or been terminated.
Section 6.2 Conditions to the Obligation of the Company to
Effect the Merger. The obligation of the Company to effect the Merger is
further subject to the satisfaction or waiver at or prior to the Effective
Time of the following conditions:
(a) The representations and warranties of Parent and
Acquisition contained in this Agreement shall be true and correct in all
material respects both when made and (except for those representations and
warranties that address matters only as of a particular date which need
only be true and accurate as of such date) as of the Effective Time after
giving effect to the Merger as if made at and as of such time; and
(b) Each of Parent and Acquisition shall have performed
in all material respects its obligations under this Agreement required to
be performed by it at or prior to the Effective Time pursuant to the terms
hereof.
Section 6.3 Conditions to Obligations of Parent and Acquisition
to Effect the Merger. The obligations of Parent and Acquisition to effect
the Merger are further subject to the satisfaction or waiver at or prior to
the Effective Time of the following conditions:
(a) The representations and warranties of the Company
contained in this Agreement shall be true and correct in all material
respects both when made and (except for those representations and
warranties that address matters only as of a particular date which need
only be true and accurate as of such date) as of the Effective Time after
giving effect to the Merger as if made at and as of such time;
(b) The Company shall have performed in all material
respects each of its obligations under this Agreement required to be
performed by it at or prior to the Effective Time pursuant to the terms
hereof; and
(c) Since March 31, 1997, the Company and its
Subsidiaries, taken as a whole, shall not have experienced events, changes
or effects, the effect of which, on an overall basis, would have, or, in
the written opinion of an independent investment banking firm of national
stature, would be likely to have, a Material Adverse Effect, other than
resulting from any matter disclosed in the Company SEC Documents filed
prior to the date hereof or in Section 6.3(c) of the Disclosure Schedule.
ARTICLE VII
TERMINATION
Section 7.1 Termination. Notwithstanding anything herein to the
contrary, this Agreement may be terminated and the Merger may be abandoned
at any time prior to the Effective Time, whether before or after
stockholder approval thereof:
(a) By the mutual consent of Parent and the Company.
(b) By either the Company or Parent if:
(i) the Merger has not been consummated on or prior
to October 31, 1997; provided, however, that the right to
terminate this Agreement under this Section VII7.1(b)(i) shall
not be available to a party whose failure to fulfill any
obligation under this Agreement has been the cause of, or
resulted in, the failure of the Merger to occur on or before
such date; or
(ii) the stockholders of the Company fail to
approve and adopt this Agreement at the Special Meeting
(including any postponement or adjournment thereof); or
(iii) any Governmental Entity shall have issued a
statute, order, decree or regulation or taken any other action,
in each case permanently restraining or enjoining the
consummation of the transactions contemplated by this Agreement
and such statute, order, decree, regulation or other action
shall have become final and non-appealable.
(c) By the Board of Directors of the Company:
(i) if the Board of Directors of the Company shall
have (x) withdrawn, or modified or changed in a manner adverse
to Parent or Acquisition, its approval or recommendation of
this Agreement in order to approve and permit the Company to
execute a definitive agreement relating to an Acquisition
Proposal which is a Superior Proposal, and (y) determined in
good faith, after receipt of advice from independent legal
counsel to the Company, that the failure to take such action as
set forth in the preceding clause (x) would result in a breach
of the Board's fiduciary duties under applicable law; provided,
however, that the Company shall have given Parent three days'
written notice of any such termination and prior to such
termination the Company shall have paid Parent the fees
required to be paid pursuant to Section 8.1(b) hereof; or
(ii) if Parent or Acquisition materially breaches
or fails in any material respect to perform or comply with any
of its covenants and agreements contained herein or breaches
its representations and warranties in any material respect;
provided, however, that if any such breach is curable by the
breaching party through the exercise of the breaching party's
reasonable best efforts and for so long as such breaching party
shall be so attempting to cure such breach for a period not to
exceed 20 days, the Company may not terminate this Agreement
pursuant to this section.
(d) By the Board of Directors of Parent:
(i) if the Company materially breaches or fails in
any material respect to perform or comply with any of its
covenants and agreements contained herein or breaches its
representations and warranties in any material respect;
provided, however, that if any such breach is curable by the
Company through the exercise of its reasonable best efforts and
for so long as the Company shall be so attempting to cure such
breach for a period not to exceed 20 days, the Board of
Directors of Parent may not terminate this Agreement pursuant
to this section; or
(ii) if (A) the Board of Directors of the Company
shall have withdrawn, or modified or changed in a manner
adverse to Parent or Acquisition its approval or recommendation
of this Agreement or shall have recommended a Superior
Proposal, or shall have executed an agreement in principle (or
similar agreement) or definitive agreement providing for an
Acquisition Proposal or other business combination with a
Person other than Parent, Acquisition or their Affiliates (or
the Board of Directors of the Company resolves to do any of the
foregoing), or (B) any Person or "group" (as that term is
defined in Section 13(d)(3) of the Exchange Act), other than
Parent or its Affiliates or any group of which any of them is a
member, shall have filed a statement on Schedule 13D (or an
amendment thereto) disclosing beneficial ownership (determined
pursuant to Rule 13d-3 promulgated under the Exchange Act) of
more than 15% of any class or series of capital stock of the
Company, through the acquisition of stock, the formation of a
group or otherwise.
Section 7.2 Effect of Termination. In the event of the
termination of this Agreement as provided in Section 7.1, written notice
thereof shall forthwith be given to the other party or parties specifying
the provision hereof pursuant to which such termination is made, and this
Agreement shall forthwith terminate and there shall be no liability on the
part of Parent, Acquisition or the Company or their respective directors or
officers except that Sections 7.2, 8.1 and 8.10 hereof shall survive any
such termination. Without limiting the generality of the foregoing, Parent,
Acquisition and the Company expressly agree that the sole remedy for any
breach of this Agreement (including, without limitation, as contemplated by
Sections 8.1(b) and 8.1(d) hereof) shall be the termination rights
contained in Section 7.1 and any fee payable pursuant to Section 8.1, and
that in the event of any such breach, the breaching party shall have no
liability whatsoever (including, without limitation, liability for actual,
direct, indirect, consequential (including lost profits), punitive,
exemplary or special damages), other than the obligation to pay any fee
required to be paid pursuant to Section 8.1. The parties agree that any
such fee constitutes liquidated damages and not a penalty. No party shall
be obligated to pay more than one such fee, provided that if two fees under
differing provisions of Article VIII hereof would otherwise be payable by a
party (at the same time or at different times) then such party shall be
obligated to pay the highest fee payable. The parties to this Agreement
agree that they are relinquishing any rights they may otherwise have to
specific performance of the transactions herein contemplated.
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Fees and Expenses.
(a) Except as otherwise contemplated by this Agreement,
all costs and expenses incurred in connection with this Agreement and the
consummation of the transactions contemplated hereby shall be paid by the
party incurring such expenses.
(b) If this Agreement is terminated pursuant to Section
7.1(c)(i) or 7.1(d)(ii)(A), the Company will immediately pay to Parent in
immediately available funds an amount equal to the product of (x) 50(cent)
and (y) the number of outstanding shares of Company Common Stock as of the
date of this Agreement. If this Agreement is terminated pursuant to Section
7.1(d)(i), the Company will immediately pay to Parent an amount equal to
$15 million in immediately available funds, provided that no amount shall
be payable to Parent for a termination pursuant to Section 7.1(d)(i) if
such termination is due to a breach of the Company's representations and
warranties that relate to an event which occurs or arises after the date of
this Agreement and (x) does not relate to an event which occurred or arose
on or prior to the date of this Agreement and (y) was not caused, directly
or indirectly, by the action or inaction of the Company or any of its
Affiliates.
(c) If this Agreement is terminated:
(i) pursuant to Section 7.1(b)(ii);
(ii) pursuant to Section 7.1(b)(i) and the Special
Meeting has not been held or has been postponed or adjourned
until after October 31, 1997 (so long as the failure to hold
the meeting, or such postponement or adjournment of the
meeting, is not due to Parent's breach of its covenants or
representations and warranties set forth in this Agreement); or
(iii) pursuant to Section 7.1(d)(ii)(B); and within
nine months of such termination set forth in the preceding
clauses (i), (ii), or (iii), a Person, other than Parent or any
of its Affiliates:
(I) shall acquire or beneficially own a majority of the
then outstanding shares of Company Common Stock;
(II) shall enter into a definitive agreement with the
Company or any of its Affiliates with respect to an Acquisition
Proposal; or
(III) shall consummate an Acquisition Proposal with the
Company or any of its Affiliates,
then, immediately upon the occurrence of any one of the events set forth in
the preceding clauses (I), (II), or (III) above, the Company shall pay to
Parent in immediately available funds an amount equal to the product of (x)
50(cent) and (y) the number of outstanding shares of Company Common Stock
as of the date of this Agreement. For purposes of Sections 8.1(c)(II) and
8.1(c)(III) above, the term "Acquisition Proposal" shall not include a sale
of assets (in one or more transactions) constituting less than a majority
of the consolidated gross asset value of the Company and its Subsidiaries
(a "Minority Asset Sale"), unless such a Minority Asset Sale constitutes a
sale of all or substantially all of the assets of the Rexene Products
Division or the CT Film Division, in which event such a Minority Asset Sale
of all or substantially all of the assets of either such division shall
constitute an Acquisition Proposal for purposes of Sections 8.1(c)(II) and
8.1(c)(III).
(d) If this Agreement is terminated by the Company
pursuant to Section 7.1(c)(ii), then Parent shall immediately pay to the
Company an amount equal to $15 million in immediately available funds,
provided that no amount shall be payable to the Company for a termination
pursuant to Section 7.1(c)(ii) if such termination is due to a breach of
Parent's representations and warranties that relate to an event which
occurs or arises after the date of this Agreement and (x) does not relate
to an event which occurred or arose on or prior to the date of this
Agreement and (y) was not caused, directly or indirectly, by the action or
inaction of Parent or any of its Affiliates. If this Agreement is
terminated by the Company pursuant to Section 7.1(b)(i) and as of the date
of such termination all of the conditions to the Parent's obligation to
consummate the Merger set forth in Sections 6.1 and 6.3 hereof shall have
been fulfilled, then Parent shall immediately pay to the Company an amount
equal to $15 million in immediately available funds.
Section 8.2 Amendment; Waiver.
(a) This Agreement may be amended by the parties
hereto, by action taken or authorized by their respective Boards of
Directors, at any time before or after approval by the stockholders of the
Company of the matters presented in connection with the Merger, but after
any such approval no amendment shall be made without the approval of such
stockholders if such amendment changes the Merger Consideration or alters
or changes any of the other terms or conditions of this Agreement if such
alteration or change would materially adversely affect the rights of such
stockholders. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto.
(b) At any time prior to the Effective Time, the
parties may (i) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties of the other parties
contained herein or in any document, certificate or writing delivered
pursuant hereto or (iii) waive compliance with any of the agreements or
conditions of the other parties hereto contained herein. Any agreement on
the part of any party to any such extension or waiver shall be valid only
if set forth in an instrument in writing signed on behalf of such party.
Section 8.3 Survival. The respective representations and
warranties of Parent, Acquisition and the Company contained herein or in
any certificates or other documents delivered prior to or as of the
Effective Time shall not survive beyond the Effective Time. The covenants
and agreements of the parties hereto (including the Surviving Corporation
after the Merger) shall survive the Effective Time without limitation
(except for those which, by their terms, contemplate a shorter survival
period).
Section 8.4 Notices. All notices and other communications
hereunder shall be in writing and shall be deemed given upon (a)
transmitter's confirmation of a receipt of a facsimile transmission
provided that a confirmed delivery by a standard overnight carrier or a
hand delivery is made within two business days of the date such facsimile
is sent or (b) confirmed delivery by a standard overnight carrier or when
delivered by hand, addressed at the following addresses (or at such other
address for a party as shall be specified by like notice):
(a) if to the Company, to:
Rexene Corporation
5005 LBJ Freeway
Dallas, Texas 75244
Telephone: (972) 450-9000
Facsimile: (972) 450-9017
Attention: General Counsel
with a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Telephone: (212) 310-8000
Facsimile: (212) 310-8007
Attention: Dennis J. Block, Esq.
and
(b) if to Parent or Acquisition, to:
Huntsman Corporation
500 Huntsman Way
Salt Lake City, Utah 84108
Telephone: (801) 584-5700
Facsimile: (801) 584-5781
Attention: General Counsel
with a copy to:
Skadden, Arps, Slate, Meagher
& Flom LLP
919 Third Avenue
New York, New York 10022
Telephone: (212) 735-3000
Facsimile: (212) 735-2000
Attention: Nancy A. Lieberman, Esq.
Section 8.5 Interpretation. When a reference is made in this
Agreement to Sections, such reference shall be to a Section of this
Agreement unless otherwise indicated. Whenever the words "include",
"includes" or "including" are used in this Agreement they shall be deemed
to be followed by the words "without limitation". The phrase "made
available" when used in this Agreement shall mean that the information
referred to has been made available if requested by the party to whom such
information is to be made available. The words "Affiliates" and
"Associates" when used in this Agreement shall have the respective meanings
ascribed to them in Rule 12b-2 under the Exchange Act. The phrase
"beneficial ownership" and words of similar import when used in this
Agreement shall have the meaning ascribed to it in Rule 13d-3 under the
Exchange Act.
Section 8.6 Section Headings. The headings contained in this
Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
Section 8.7 Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original but all of
which shall be considered one and the same agreement.
Section 8.8 Entire Agreement. This Agreement, together with the
schedules, documents, letter agreements, and instruments referred to herein
and therein, (i) constitutes the entire agreement, and supersedes all prior
agreements and understandings (written and oral), among the parties with
respect to the subject matter hereof and (ii) except as provided in Section
5.8 hereof, is not intended to confer upon any person other than the
parties hereto any rights or remedies hereunder.
Section 8.9 Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction
or other authority to be invalid, void, unenforceable or against its
regulatory policy, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and
shall in no way be affected, impaired or invalidated.
Section 8.10 Governing Law; Waiver of Jury Trial; Enforcement.
This Agreement shall be governed and construed in accordance with the laws
of the State of Delaware without giving effect to the principles of
conflicts of law thereof. Each party to this Agreement (a) waives, to the
fullest extent permitted by applicable law, any right it may have to a
trial by jury in respect of any action, suit or proceeding arising out of
or relating to this Agreement, (b) consents to submit itself to the
personal jurisdiction of any federal court located in the State of Delaware
or any Delaware state court in the event any dispute arises out of this
Agreement or any of the transactions contemplated by this Agreement, (c)
agrees that it will not attempt to deny such personal jurisdiction by
motion or other request for leave from any such court and (d) agrees that
it will not bring any action relating to this Agreement or any of the
transactions contemplated by this Agreement in any court other than a
federal or state court sitting in the State of Delaware.
Section 8.11 Assignment. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties, except that Acquisition may, in its
sole discretion, assign any or all of its rights, interests and obligations
hereunder to Parent or any majority-owned Affiliate of Parent, and except
that Parent, Acquisition or any majority-owned Affiliate of Parent which is
an assignee of Acquisition, is permitted from time to time to collaterally
assign all of their respective right, title and interest in and to this
Agreement to their lenders or such lenders' representative(s) and such
collateral assignees shall be permitted to exercise all of their rights
(including foreclosure and assignment of this Agreement in connection
therewith) as a secured creditor in respect thereof provided, that in no
case shall any assignment relieve Parent of any of its obligations
hereunder. Subject to the preceding sentence, this Agreement will be
binding upon, inure to the benefit of and be enforceable by, the parties
and their respective successors and assigns.
IN WITNESS WHEREOF, Parent, Acquisition and the Company have
caused this Agreement to be signed by their respective officers thereunto
duly authorized as of the date first written above.
REXENE CORPORATION
By:/s/ A.J. Smith
-------------------------------------------
Name: A. J. Smith
Title: Chairman and Chief
Executive Officer
HUNTSMAN CORPORATION
By:/s/ Peter R. Huntsman
-------------------------------------------
Name: Peter R. Huntsman
Title: President and
Chief Operating Officer
HUNTSMAN CENTENNIAL CORPORATION
By:/s/ Peter R. Huntsman
-------------------------------------------
Name: Peter R. Huntsman
Title: President
Exhibit 21.1
SUBSIDIARIES OF HUNTSMAN POLYMERS CORPORATION
NAME OF SUBSIDIARY JURISDICTION OF INCORPORATION
------------------ -----------------------------
Rexene International Services Corporation Texas
(f/k/a El Paso Products Sales Company)
Rexene Foreign Sales Company U.S. Virgin Islands
Rexene Cogeneration, Inc. Delaware
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<FISCAL-YEAR-END> DEC-31-1997
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