Huntsman is moving forward with its embattled deal to be purchased by specialty chemical maker Hexion Specialty Chemicals, on a timetable now extended another 90 days.

Following up on last month’s angry words and litigation against Hexion affiliate Apollo Management, and partners Leon Black and Joshua Harris, Huntsman said it was extending its merger agreement to Oct. 2. The company also said it filed counterclaims to a Hexion’s own lawsuit, and asked the Delaware court to expedite the proceedings.

Several weeks ago, Hexion went to court seeking to back away from the merger agreement with Huntsman, claiming that Huntsman’s financial condition has materially worsened. Hexion asserted that Huntsman increased its net debt, and that its earnings are now lower than expected. “While both companies individually are solvent, Hexion believes that consummating the merger on the basis of the capital structure agreed to with Huntsman would render the combined company insolvent,” Hexion said at the time.

Huntsman responded by suing Apollo, Black, and Harris for fraud and “tortious interference,” alleging they had coaxed Huntsman to terminate a prior merger agreement with the Dutch company Basell, and instead to enter into a merger agreement with Hexion. “It is now clear that, to get Huntsman to terminate its contract with Basell, Apollo falsely represented to Huntsman its commitment to closing a merger with Hexion at $28 per share, when it really intended all along to then delay the process and create enough problems with the transaction to bring us back to the table at a lower price,” Peter Huntsman, president and CEO, said at the time. “We intend to pursue every available legal action required to hold Apollo, Black, and Harris responsible for their ruinous actions.” Hexion responded at the time by calling the Huntsman lawsuit “baseless.”

In its latest court filing, Huntsman asked the Delaware court to declare that no material adverse effect has occurred under the merger agreement. Huntsman asked the court to enjoin Hexion from continuing to breach the merger agreement and to order Hexion to specifically perform its obligations under the merger agreement. The counterclaims made by Huntsman in the filing include breach of contract, breach of good faith and fair dealing, defamation, injurious falsehood, and commercial disparagement, among others.

“After actively evaluating the current situation, our board has concluded that if Apollo causes Hexion to honor its contractual obligations, Hexion will obtain the antitrust approvals and the merger can and will close by Oct. 2, 2008,” Peter Huntsman said. “Apollo and Hexion continue to assert their ongoing intention that Hexion will do the work necessary to complete the transaction, and we are asking the Delaware court to make those more than hollow words.”

In a statement, Hexion asserted that Huntsman is permitted to extend the termination date until Oct. 2 only if its board determines in good faith that there is an objectively reasonable probability that the transaction can be completed in that time frame. “We do not understand how Huntsman’s board of directors could in good faith make that determination,” said Craig O. Morrison, Hexion’s chairman, president, and CEO. “There is no factual basis to conclude that the combined company would be solvent. As a result, the merger is not viable.”

Stay tuned.