FILED PURSUANT TO RULE 424(b)(3)
REGISTRATION NO. 333-76536
333-76536-01
333-76536-02
333-76536-03
PROSPECTUS
Lyondell Chemical Company
$393,000,000
Offer to Exchange
Registered
9 1/2% Senior Secured Notes due 2008
in exchange for
All Outstanding
9 1/2% Senior Secured Notes due 2008
The new notes:
. will be freely tradeable;
. are otherwise substantially identical to the outstanding notes;
. will accrue interest at the same rate per annum as the outstanding notes
payable semiannually in arrears on each June 15 and December 15, beginning
June 15, 2002;
. will be secured and will rank equally with outstanding notes that are not
exchanged;
. will not be listed on any securities exchange or on any automated dealer
quotation system; and
. will be guaranteed by our subsidiaries Lyondell Chemical Nederland, Ltd.,
ARCO Chemical Technology, Inc. and ARCO Chemical Technology, L.P.
The exchange offer:
. expires at 5:00 p.m., New York City time, on May 21, 2002, unless extended
or sooner terminated; and
. is not conditioned on any minimum aggregate principal amount of outstanding
notes being tendered.
In addition, you should note that:
. all outstanding notes that are validly tendered and not validly withdrawn
will be exchanged for an equal principal amount of new notes that are
registered under the Securities Act of 1933;
. tenders of outstanding notes may be withdrawn any time before the expiration
of the exchange offer; and
. the exchange of outstanding notes for new notes in the exchange offer will
not be a taxable event for U.S. federal income tax purposes.
You should consider carefully the risk factors beginning on page 10 of this
prospectus before participating in the exchange offer.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the new notes or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is April 19, 2002.
TABLE OF CONTENTS
PROSPECTUS SUMMARY.......................................................... 1
RISK FACTORS................................................................ 10
FORWARD-LOOKING STATEMENTS.................................................. 25
USE OF PROCEEDS............................................................. 25
CAPITALIZATION.............................................................. 26
THE EXCHANGE OFFER.......................................................... 27
DESCRIPTION OF OTHER INDEBTEDNESS........................................... 37
DESCRIPTION OF NEW NOTES.................................................... 41
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO NON-U.S. HOLDERS........... 85
PLAN OF DISTRIBUTION........................................................ 88
LEGAL MATTERS............................................................... 89
EXPERTS..................................................................... 89
WHERE YOU CAN FIND MORE INFORMATION......................................... 90
This prospectus incorporates important business and financial information
about us from documents that are not included in or delivered with this
prospectus. This information is available to holders of the notes without
charge upon written or oral request. You can obtain documents incorporated by
reference in this prospectus by requesting them in writing or by telephone from
us at the following address and telephone number:
Lyondell Chemical Company
1221 McKinney, Suite 700
Houston, Texas 77010
Telephone: (713) 652-7200
Attention: Investor Relations
To obtain timely delivery of any of our filings, agreements or other
documents, you must make your request to us no later than five business days
before the expiration date of the exchange offer. See "Where You Can Find More
Information" for additional information concerning access to our public
disclosures. The exchange offer will expire at 5:00 p.m., New York City time,
on May 21, 2002. The exchange offer can be extended by us in our sole
discretion. See "The Exchange Offer" for more detailed information.
MARKET, RANKING AND INDUSTRY DATA
The data included or incorporated by reference in this prospectus regarding
markets and ranking, including the size of certain markets and our position and
the position of our competitors within these markets, are based on independent
industry publications, reports from government agencies or other published
industry sources and our estimates. Our estimates are based on information
obtained from our customers, distributors, suppliers, trade and business
organizations and other contacts in the markets in which we operate and our
management's knowledge and experience. We believe these estimates to be
accurate as of the date of the document in which the estimates were made or as
of the date specified in such document. However, this information may prove to
be inaccurate because of the methods by which we obtained some of the data for
our estimates or because this information cannot always be verified with
complete certainty due to the limits on availability and reliability of raw
data, the voluntary nature of the data gathering process and other limitations
and uncertainties inherent in a survey of market size.
i
PROSPECTUS SUMMARY
Our Business
Lyondell Chemical Company is a global chemical company with low-cost
operations and leading producer positions in all of its major products.
Lyondell manufactures and markets a variety of intermediate and performance
chemicals, including propylene oxide (PO), propylene glycol (PG), propylene
glycol ethers (PGE), butanediol (BDO), toluene diisocyanate (TDI), styrene
monomer (SM), and tertiary butyl alcohol (TBA) and its derivative methyl
tertiary butyl ether (MTBE), which are collectively known as our intermediate
chemicals and derivatives business.
We currently own 41% of Equistar Chemicals, LP, a Delaware limited
partnership, which operates petrochemicals and polymers businesses. On January
31, 2002, we announced an agreement in principle with Occidental Petroleum
Corporation, one of our Equistar Partners, to acquire its 29.5% share of
Equistar. Following completion of this transaction, which is subject to
negotiation, completion and execution of definitive documentation, compliance
with the applicable provisions of the partnership agreement and the parent
agreement, approval by the boards of directors of Lyondell and Occidental,
approval by Lyondell's stockholders and other customary conditions, Lyondell
will own 70.5% of Equistar. Equistar's petrochemicals business manufactures and
markets olefins, oxygenated products, aromatics and specialty products.
Equistar's olefins are ethylene, propylene and butadiene, and its oxygenated
products include ethylene oxide, ethylene glycol, ethanol and MTBE. Equistar's
aromatics are benzene and toluene. Equistar's polymers business manufactures
and markets polyolefins, including high density polyethylene, low density
polyethylene, linear low density polyethylene, polypropylene and performance
polymers. Equistar's performance polymers include enhanced grades of
polyethylene, such as wire and cable insulating resins, and polymeric powders.
We also own 58.75% of LYONDELL-CITGO Refining LP, a Delaware limited
partnership (LCR), which produces refined petroleum products, including
gasoline, low sulfur diesel, jet fuel, aromatics and lubricants. LCR sells its
principal refined products primarily to CITGO Petroleum Corporation (CITGO).
In addition, we own 75% of Lyondell Methanol Company, L.P., a Texas limited
partnership (LMC), which produces methanol.
Lyondell is a Delaware corporation with principal executive offices located
at 1221 McKinney Street, Suite 700, Houston, Texas 77010 (Telephone: (713) 652-
7200).
1
Summary of the Exchange Offer
On December 4, 2001, we completed a private offering of the outstanding
notes. We entered into a registration rights agreement with the initial
purchasers in the private offering. We agreed to file a registration statement
with the Securities and Exchange Commission, or SEC, within 90 days after the
date we issued the outstanding notes and to use our best efforts to have it
declared effective within 210 days after the date we issued the outstanding
notes. You are entitled to new registered notes with substantially identical
terms as your outstanding notes in exchange for your outstanding notes. You
should read the discussion under the headings "--Summary of Terms of the New
Notes" and "Description of New Notes" for further information regarding the new
notes.
We summarize the terms of the exchange offer below. You should read the
discussion under the heading "The Exchange Offer" for further information
regarding the exchange offer and resale of the new notes.
The Exchange Offer.......... We are offering to issue to you new registered 9
1/2% senior secured notes due 2008 in exchange
for your outstanding 9 1/2% senior secured notes
due 2008.
Expiration Date............. Unless sooner terminated, the exchange offer will
expire at 5:00 p.m., New York City time, on May
21, 2002, or at a later date and time to which we
extend it.
Conditions to the Exchange We will not be required to accept outstanding
Offer....................... notes for exchange if the exchange offer would
violate applicable law or if any legal action has
been instituted or threatened that would impair
our ability to proceed with the exchange offer.
The exchange offer is not conditioned on any
minimum aggregate principal amount of outstanding
notes being tendered. Please read the section
"The Exchange Offer--Conditions to the Exchange
Offer" for more information regarding the
conditions to the exchange offer.
Procedures for Tendering
Outstanding Notes...........
If you wish to participate in the exchange offer,
you must complete, sign and date the letter of
transmittal and mail or deliver the letter of
transmittal, together with your outstanding
notes, to the exchange agent. If your outstanding
notes are held through The Depository Trust
Company, or DTC, you may deliver your outstanding
notes by book-entry transfer.
In the alternative, if your outstanding notes are
held through DTC and you wish to participate in
the exchange offer, you may do so through the
automated tender offer program of DTC. If you
tender under this program, you will agree to be
bound by the letter of transmittal that we are
providing with this prospectus as though you had
signed the letter of transmittal.
By signing or agreeing to be bound by the letter
of transmittal, you will represent to us, among
other things, that:
. you are not an "affiliate," as defined in Rule
405 of the Securities Act of 1933, of us or a
broker-dealer tendering outstanding notes
acquired directly from us for your own account;
2
. if you are not a broker-dealer or are a broker-
dealer but will not receive new notes for your
own account, you are not engaged in and do not
intend to participate in a distribution of the
new notes;
. you have no arrangement or understanding with
any person to participate in the distribution
of the new notes or the outstanding notes
within the meaning of the Securities Act;
. any new notes you receive will be acquired in
the ordinary course of your business; and
. if you are a broker-dealer that will receive
new notes for your own account in exchange for
outstanding notes, those outstanding notes were
acquired as a result of market-making
activities or other trading activities, and you
will deliver a prospectus, as required by law,
in connection with any resale of those new
notes.
Please see "The Exchange Offer--Purpose and
Effect of the Exchange Offer" and "The Exchange
Offer--Your Representations to Us."
Procedures for Beneficial If you beneficially own outstanding notes
Owners...................... registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and you wish to tender your outstanding notes in
the exchange offer, you should promptly contact
the registered holder and instruct it to tender
the outstanding notes on your behalf.
If you wish to tender your outstanding notes on
your own behalf, you must either arrange to have
your outstanding notes registered in your name or
obtain a properly completed bond power from the
registered holder before completing and executing
the letter of transmittal and delivering your
outstanding notes. The transfer of registered
ownership may take considerable time.
Guaranteed Delivery If you wish to tender your outstanding notes and
Procedures.................. cannot comply before the expiration date with the
requirement to deliver the letter of transmittal
and notes or use the applicable procedures under
the automated tender offer program of DTC, you
must tender your outstanding notes according to
the guaranteed delivery procedures described in
"The Exchange Offer--Guaranteed Delivery
Procedures."
U.S. Federal Income Tax
Considerations..............
The exchange of new notes for outstanding notes
in the exchange offer will not be a taxable event
for U.S. federal income tax purposes.
Use of Proceeds............. We will not receive any cash proceeds from the
issuance of new notes.
3
Plan of Distribution........ All broker-dealers who receive new notes in the
exchange offer have a prospectus delivery
obligation.
Based on SEC no-action letters, broker-dealers
who acquired the outstanding notes as a result of
market-making or other trading activities may use
this exchange offer prospectus, as supplemented
or amended, in connection with the resales of the
new notes.
Broker-dealers who acquired the outstanding notes
from us may not rely on SEC staff interpretations
in no-action letters. Broker-dealers who acquired
the outstanding notes from us must comply with
the registration and prospectus delivery
requirements of the Securities Act, including
being named as selling noteholders, in order to
resell the outstanding notes or the new notes.
The Exchange Agent
We have appointed The Bank of New York as exchange agent for the exchange
offer. You should direct questions and requests for assistance, requests for
additional copies of this prospectus or of the letter of transmittal and
requests for the notice of guaranteed delivery to the exchange agent addressed
as follows:
For Delivery by Mail, Overnight Delivery or by Hand:
The Bank of New York
15 Broad Street
16th Floor
New York, NY 10005
Attn.: Kin Lau--Reorganization Unit
By Facsimile Transmission (for eligible institutions only):
(212) 235-2261
Attn.: Kin Lau
To Confirm Receipt:
(212) 235-2358
4
Summary of Terms of the New Notes
The new notes will be freely tradeable and otherwise substantially identical
to the outstanding notes. The new notes will not have registration rights. The
new notes will evidence the same debt as the outstanding notes, and the
outstanding notes and the new notes will be governed by the same indenture.
Issuer...................... Lyondell Chemical Company.
Notes Offered............... $393,000,000 principal amount of 9 1/2% Senior
Secured Notes due 2008.
Maturity Date............... The new notes mature on December 15, 2008.
Interest Payment Dates...... The new notes bear interest at an annual rate
equal to 9 1/2%. Interest payments will be made
annually on each June 15 and December 15,
beginning June 15, 2002.
Guarantees.................. The new notes will be unconditionally guaranteed
by our subsidiaries Lyondell Chemical Nederland,
Ltd., ARCO Chemical Technology, Inc. and ARCO
Chemical Technology, L.P. The guarantees of the
new notes will be general obligations of each
guarantor and will rank equally with all existing
and future unsubordinated debt of each guarantor.
These subsidiaries are also guarantors of our
obligations under our credit facility and under
our existing senior secured notes and senior
subordinated notes. You should read "Description
of New Notes--Subsidiary Guarantees" for a
description of the guarantees.
Collateral.................. The new notes will be secured by a lien equally
and ratably with all secured debt outstanding
under our credit facility and our existing senior
secured notes and, with respect to certain of our
manufacturing plants, the debentures that we
assumed when we acquired ARCO Chemical Company,
which we call the Lyondell debentures. The liens
will constitute first-priority liens, subject to
certain exceptions and permitted liens, on:
. our personal property;
. substantially all the equity interests of
domestic subsidiaries directly owned by us and
65% of the stock of foreign subsidiaries
directly owned by us;
. the rights of certain of our subsidiaries to
receive distributions from certain of our
existing joint ventures in which they own
equity interests; and
. mortgages on our facilities located in
Bayport, Texas, Channelview, Texas and Lake
Charles, Louisiana.
If and when the liens no longer secure amounts
under our credit facility, the new notes, as well
as the existing senior secured notes and the
Lyondell debentures, will automatically cease to
be secured by the liens. The liens that secure
amounts under our credit facility
5
would be released if such a release were approved
by the requisite lenders under the credit
facility, and the consent of the holders of the
new notes would not be required for such a
release. In addition, the collateral agent and
Lyondell may amend the provisions of the security
documents with the consent of the requisite
lenders and without the consent of the holders of
the new notes. The lenders under our credit
facility will have the sole ability to control
remedies (including any sale or liquidation after
acceleration of the new notes or the debt under
the credit facility) with respect to the
collateral. See "Risk Factors--Risk Factors
Relating to Our Debt and the New Notes--You may
not be able to fully realize the value of your
liens--The security for your benefit can be
released without your consent." You should read
"Description of New Notes--Security" for a more
complete description of the security granted to
the holders of the new notes.
Ranking..................... The new notes will rank equally with all our
existing and future unsecured senior debt and
prior to all such debt to the extent of the value
of the collateral available to the holders of the
new notes, which collateral is shared by such
holders on a ratable basis with the holders of
our other senior secured debt, including the debt
under the credit facility, debt under our
existing senior secured notes and, with respect
to the mortgages, the Lyondell debentures.
The new notes will also effectively rank junior
to all liabilities of our subsidiaries that have
not guaranteed the new notes and all liabilities
of our joint ventures.
After giving effect to the sale of the
outstanding notes and the exchange offer, at
December 31, 2001:
. We and the guarantors would have had
outstanding approximately $3.4 billion of
unsubordinated debt that was secured by the
same assets, including the new notes;
. Our joint ventures, which have not guaranteed
the new notes, would have had approximately
$3.5 billion of outstanding liabilities,
including trade payables, that are effectively
senior to the new notes; and
. Our subsidiaries that have not guaranteed the
new notes would have had $78 million of
outstanding liabilities, principally trade
payables, that are effectively senior to the
new notes.
Optional Redemption......... We may redeem any of the new notes at any time on
or after December 15, 2005 at the redemption
prices described in "Description of New Notes--
Optional Redemption."
Change of Control........... Upon the occurrence of certain change of control
events described in "Description of New Notes--
Repurchase at the Option of Holders--Change of
Control" you may require us to repurchase some or
all of your notes at 101% of their principal
amount, plus
6
accrued interest. The occurrence of those events
will impose similar repurchase requirements for
our other senior secured notes and our senior
subordinated notes and may also be an event of
default under our credit facility. We cannot
assure you that we will have sufficient resources
to satisfy our repurchase obligation in such
circumstances. You should read carefully the
sections called "Risk Factors--Risk Factors
Relating to Our Debt and the New Notes--We may
not be able to repurchase your notes upon a
change of control" and "Description of New
Notes."
Covenants................... The new notes will be issued under the same
indenture as the outstanding notes. The indenture
contains certain covenants limiting or
prohibiting our ability and our subsidiaries'
ability to:
. incur additional debt or issue subsidiary
preferred stock;
. increase dividends on our capital stock;
. redeem or repurchase capital stock or
repurchase subordinated debt;
. engage in transactions with affiliates, except
on an arm's-length basis;
. create liens or engage in sale and leaseback
transactions;
. make some types of investments and sell assets;
and
. consolidate or merge with, or sell
substantially all our assets to, another
person.
Certain of these covenants will no longer apply
if the new notes are rated "BBB-" by Standard &
Poor's or "Baa3" by Moody's, even if the new
notes are subsequently downgraded to a lower
rating. You should read "Description of New
Notes--Certain Covenants" for a description of
these covenants.
If we fail to complete the exchange offer in
accordance with the requirements of the
registration rights agreement, we may be required
to pay liquidated damages to the initial
purchasers of the outstanding notes. You should
read "Description of New Notes--Registration
Rights; Liquidated Damages" for a description of
our registration obligations.
Risk Factors
Please read "Risk Factors" beginning on page 10 and carefully consider the
risk factors before participating in the exchange offer.
7
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table presents our summary consolidated financial data. The
historical financial data has been derived from our audited consolidated
financial statements for the years ended December 31, 1999, 2000 and 2001. You
should read this summary consolidated financial data in connection with the
business and financial information contained in our Annual Report on Form 10-K
that is incorporated by reference in this prospectus, including "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our consolidated financial statements and related notes thereto.
For the year ended
December 31,
---------------------
1999 2000 2001
------ ------ ------
(in millions)
Income statement data:
Sales and other operating revenues..................... $3,693 $4,036 $3,226
Cost of sales.......................................... 2,891 3,371 2,771
Selling, general and administrative and research and
development expenses.................................. 298 225 181
Income from equity investments......................... 76 199 40
Net income (loss)...................................... (115) 437 (150)
Balance sheet data (at end of period):
Property, plant and equipment, net..................... 4,291 2,429 2,293
Total assets........................................... 9,498 7,047 6,703
Total debt (a)......................................... 6,271 3,854 3,853
Total stockholders' equity............................. 1,007 1,145 749
Other financial data:
EBITDA before unusual and extraordinary items (b)...... 728 636 425
Net cash distributions from joint ventures (c)......... 154 240 121
Adjusted EBITDA (d).................................... 882 876 546
Cash interest expense (e).............................. 586 496 371
Depreciation and amortization (f)...................... 330 279 269
Capital expenditures (g)............................... 131 104 68
Ratio of earnings to fixed charges (h)................. .9x 2.0x .6x
8
Notes To Summary Consolidated Financial Data
(a) Does not include $3.1 billion in joint venture debt as of December 31,
2001, $431 million of which is Equistar debt for which Lyondell remains
contingently liable.
(b) EBITDA before unusual and extraordinary items is calculated as net income
before (1) equity income from Equistar, LCR and LMC, (2) net interest
expense, (3) taxes, (4) depreciation and amortization, (5) net unusual
charges, (6) gain on sale of assets and (7) extraordinary losses on
extinguishment of debt. While EBITDA should not be construed as a
substitute for operating income or a better indicator of liquidity than
cash flows from operating activities, which are determined in accordance
with generally accepted accounting principles, it is included herein to
provide additional information with respect to our ability to meet our
future debt service, capital expenditure and working capital requirements.
EBITDA is not necessarily a measure of our ability to fund our cash needs.
EBITDA is included herein because management believes that certain
investors find it to be a useful tool for measuring our ability to service
debt. In addition, it should be noted that companies calculate EBITDA
differently and therefore EBITDA as presented for us may not be comparable
to EBITDA reported by other companies. Net unusual charges were $15
million in 1999 and $63 million in 2001. Gain on sale of assets was $590
million for 2000. Extraordinary losses on extinguishment of debt, net of
income taxes, were $35 million in 1999, $33 million in 2000 and $5 million
in 2001.
(c) Net cash distributions from joint ventures include cash distributions from
Equistar, LCR and LMC, other than extraordinary distributions and net of
investments and loans to Equistar, LCR and LMC to finance capital
expenditures.
(d) Adjusted EBITDA is calculated as EBITDA before unusual and extraordinary
items plus net cash distributions from joint ventures as defined in (b)
above.
(e) Cash interest expense is calculated as interest expense less amortization
of debt issuance costs as set forth in (f) below.
(f) Includes amortization of debt issuance costs of $30 million for 1999, $18
million for 2000 and $15 million for 2001.
(g) Excludes contributions to the PO-11 joint venture to fund capital projects
of $3 million for 2000 and $119 million for 2001.
(h) The ratio of earnings to fixed charges is computed by dividing earnings
available for fixed charges by fixed charges. Earnings available for fixed
charges consist of earnings before income taxes plus fixed charges, less
capitalized interest. Fixed charges consist of interest, whether expensed
or capitalized, and the portion of operating lease rental expense that
represents the interest factor.
9
RISK FACTORS
There are many risks that may affect your investment in the new notes. Some
of these risks, but not all of them, are listed below. You should carefully
consider these risks as well as the other information included or incorporated
by reference in this prospectus before exchanging your notes.
Risk Factors Relating to the Exchange Offer
If you fail to exchange your outstanding notes, the existing transfer
restrictions will remain in effect and the market value of your outstanding
notes may be adversely affected because they may be more difficult to sell.
If you do not exchange your outstanding notes for new notes under the
exchange offer, then you will continue to be subject to the existing transfer
restrictions on the outstanding notes. In general, the outstanding notes may
not be offered or sold unless they are registered or exempt from registration
under the Securities Act of 1933 and applicable state securities laws. Except
as required by the registration rights agreement, we do not intend to register
resales of the outstanding notes.
The tender of outstanding notes under the exchange offer will reduce the
aggregate principal amount of the outstanding notes. This may have an adverse
effect upon, and increase the volatility of, the market price of any
outstanding notes that you continue to hold due to a reduction in liquidity.
Risk Factors Relating to Our Debt and the New Notes
The risks described in this section that apply to the new notes also apply
to any outstanding notes not tendered for new notes in the exchange offer.
Our balance sheet is highly leveraged.
As of December 31, 2001, after the sale of the outstanding notes and the
application of the net proceeds as described under "Use of Proceeds" and after
giving effect to the exchange offer, we would have had $3.9 billion of
consolidated debt, including the current portion of long-term debt. This debt
amounted to approximately 81% of our total capitalization. Our consolidated
debt amounts do not include $3.1 billion in joint venture debt ($431 million of
which is Equistar debt for which we remain contingently liable).
Our ability to pay or to refinance our debt will depend on future operating
performance, which will be affected by general economic, financial,
competitive, legislative, regulatory, business and other factors, many of which
are beyond our control. We anticipate that our operating cash flow, together
with money we can borrow under our credit facility, will be sufficient to meet
anticipated future cash requirements, including scheduled debt repayments,
necessary capital expenditures, ongoing operations and dividends. However, if
future operating cash flows are less than currently anticipated, we may be
forced to reduce or delay capital expenditures, sell assets or reduce operating
expenses.
Our debt agreements may restrict our ability to take certain actions.
Our Indentures
The indenture governing the notes and our other indentures contain various
covenants that limit our ability to engage in certain transactions. These
covenants limit our ability to, among other things:
. incur additional debt or issue subsidiary preferred stock;
. increase dividends on our capital stock;
10
. redeem or repurchase capital stock or repurchase subordinated debt;
. engage in transactions with affiliates, except on an arm's-length basis;
. create liens or engage in sale and leaseback transactions;
. make some types of investments and sell assets; and
. consolidate or merge with, or sell substantially all our assets to,
another person.
Our credit facility
Our credit facility also contains restrictive covenants and limits our
ability to prepay other debt (including the notes) until our senior unsecured
debt is rated investment grade. The credit facility also requires us to
maintain specified financial ratios and to satisfy certain other financial
condition tests. Our ability to meet those financial ratios and tests can be
affected by events beyond our control, and we cannot assure you that we will be
able to satisfy those covenants. Our ability to comply with the financial
ratios required by our credit facility will be dependent on improvement in our
results of operations during 2002, which we cannot assure you will occur.
Equistar's ability to comply with its credit facility covenants will similarly
be dependent on improvements in its operating performance. Our credit facility
covenants also limit our ability to, among other things:
. increase dividends with respect to our capital stock;
. make some types of investments; and
. allow our subsidiaries to incur some types and amounts of debt.
A breach of any of these provisions could permit the lenders to declare all
amounts outstanding under the credit facility to be immediately due and payable
and to terminate all commitments to extend further credit. If we were unable to
repay those amounts, the lenders could proceed against the collateral granted
to them to secure that debt. Under the terms of the new notes, we will pledge
the same assets pledged under the credit facility and our existing senior
secured notes as security for obligations under the new notes. Some of these
assets are also pledged to secure Lyondell's debentures. If the lenders under
our credit facility were to accelerate the repayment of borrowings thereunder,
we cannot assure you that we would have sufficient assets to repay the new
notes.
Our joint ventures are not subject to most of the covenants under the new
notes.
None of Equistar, LCR or LMC is a "subsidiary" or a "restricted subsidiary"
of Lyondell, as those terms are defined in the indenture governing the notes.
Therefore, these joint ventures are not subject to the covenants described
above. As a result, holders of the new notes will have no recourse if Equistar,
LCR or LMC substantially increases its debt leverage. The indenture obligates
us to use our best efforts, consistent with our contractual obligations and
fiduciary duties, to ensure that our joint ventures do not agree to
restrictions on their ability to make distributions to us, but that obligation
is subject to significant exceptions. You should read the section called
"Description of New Notes--Certain Covenants--Dividend and Other Payment
Restrictions Affecting Subsidiaries and Joint Ventures." Subject to the
restriction summarized above, Equistar, LCR and LMC could enter into agreements
that would restrict their ability to pay dividends or make other distributions
to us. In addition, under applicable state law, our joint ventures may be
limited in amounts that they are permitted to pay as distributions on their
equity interests. Any such restriction on distributions by Equistar or LCR
could have a material adverse effect on us.
Moreover, a default by a joint venture under any of its debt instruments
generally would not, so long as that joint venture is not a "restricted
subsidiary" as defined in the indenture, give rise to a default under the
indenture governing the notes, even though the creditors of the defaulting
joint venture would have remedies against the joint venture. As a result, you
will have no recourse if any of these joint ventures defaults on any of
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its debt. A default by Equistar under any of its material debt instruments
would, however, give rise to a default under our credit facility. A default by
any joint venture on its debt could result in reduced distributions by such
joint venture to us. Reduced distributions by a significant joint venture could
have a material adverse effect on us.
The new notes are subordinated to debt of our subsidiaries and joint ventures.
None of our joint ventures have guaranteed the new notes. Our subsidiaries
Lyondell Chemical Nederland, Ltd., ARCO Chemical Technology, Inc. and ARCO
Chemical Technology, L.P. are guarantors under the credit facility and of our
existing senior secured notes and senior subordinated notes and will be
guarantors of the new notes. None of our other subsidiaries will initially
guarantee the new notes. As a result, the new notes are not debt of our joint
ventures or subsidiaries, other than Lyondell Chemical Nederland, Ltd., ARCO
Chemical Technology, Inc. and ARCO Chemical Technology, L.P., and holders of
the debt and other liabilities, including trade payables, of these joint
ventures and other subsidiaries will effectively be senior to claims against
those entities by you. At December 31, 2001, these other subsidiaries had $78
million of outstanding liabilities, including trade payables, and these joint
ventures had approximately $3.5 billion of outstanding liabilities, including
trade payables.
We may not be able to repurchase your new notes upon a change of control.
Upon the occurrence of certain change of control events as described in
"Description of New Notes," you may require us to purchase your notes at 101%
of their principal amount, plus accrued interest. We cannot assure you that we
will have the financial resources to purchase your notes, particularly if a
change of control event triggers a similar repurchase requirement for, or
results in the acceleration of, other debt. Our credit facility provides that
certain change of control events will constitute a default under the credit
facility and could result in the acceleration of the maturity of all debt under
the credit facility. Our outstanding senior secured notes and senior
subordinated notes have similar repurchase requirements to those applicable to
the new notes. Future debt might contain similar provisions.
You may not be able to fully realize the value of your liens.
The security for your benefit can be released without your consent
The liens for the benefit of the new notes may be released without your vote
or consent:
. The security documents generally provide for an automatic release of all
liens on any asset that is disposed of in compliance with the provisions
of the security documents.
. Any lien can be released if approved by the requisite number of lenders
under our credit facility.
. The collateral agent and Lyondell may amend the provisions of the
security documents with the consent of the requisite number of lenders
under our credit facility and without your consent.
. The lenders under our credit facility will have the sole ability to
control remedies (including upon sale or liquidation of the collateral
after acceleration of the new notes or the debt under the credit
facility) with respect to the collateral.
. The new notes, as well as the existing senior secured notes and the
Lyondell debentures, will automatically cease to be secured by those
liens if and when those liens no longer secure amounts under our credit
facility.
As a result, we cannot assure you that the new notes will continue to be
secured by a substantial portion of our assets. You will have no recourse if
the lenders under our credit facility approve the release of any or all the
collateral, even if that release adversely affects any rating of the new notes.
12
The collateral may not be valuable enough to satisfy all the obligations
secured by the collateral
We will secure our obligations under the new notes by the pledge of certain
of our assets. This pledge is also for the benefit of the lenders under the
credit facility and the holders of our other outstanding senior secured notes.
The pledge of some of those assets also benefits the holders of the outstanding
Lyondell debentures.
The security documents and the indenture provide that we may apply the
proceeds of any sale of assets, including collateral (other than sales by the
collateral agent after acceleration of the debt under the credit facility), to
repay debt under our credit facility prior to repaying amounts owed under the
new notes.
The value of the pledged assets in the event of a liquidation will depend
upon market and economic conditions, the availability of buyers and similar
factors. No independent appraisals of any of the pledged property have been
prepared by or on behalf of us in connection with the offering of the
outstanding notes. Accordingly, we cannot assure you that the proceeds of any
sale of the pledged assets following an acceleration to maturity with respect
to the new notes would be sufficient to satisfy, or would not be substantially
less than, amounts due on the new notes and the other debt secured thereby.
If the proceeds of any sale of the pledged assets were not sufficient to
repay all amounts due on any new notes, you (to the extent your notes were not
repaid from the proceeds of the sale of the pledged assets) would have only an
unsecured claim against our remaining assets. By their nature, some or all the
pledged assets may be illiquid and may have no readily ascertainable market
value. Likewise, we cannot assure you that the pledged assets will be saleable
or, if saleable, that there will not be substantial delays in their
liquidation. To the extent that liens, rights and easements granted to third
parties encumber assets located on property owned by us or constitute
subordinate liens on the pledged assets, those third parties have or may
exercise rights and remedies with respect to the property subject to such
encumbrances (including rights to require marshalling of assets) that could
adversely affect the value of the pledged assets located at that site and the
ability of the collateral agent to realize or foreclose on the pledged assets
at that site.
In addition, the indenture permits us to issue additional secured debt,
including debt secured equally and ratably by the same assets pledged to you.
This would reduce amounts payable to you from the proceeds of any sale of the
collateral.
Bankruptcy laws may limit your ability to realize value from the collateral
The right of the collateral agent to repossess and dispose of the pledged
assets upon the occurrence of an event of default under the indenture is likely
to be significantly impaired by applicable bankruptcy law if a bankruptcy case
were to be commenced by or against us before the collateral agent repossessed
and disposed of the pledged assets. Under Title 11 of the United States Code,
the bankruptcy code, a secured creditor is prohibited from repossessing its
security from a debtor in a bankruptcy case, or from disposing of security
repossessed from such debtor, without bankruptcy court approval. Moreover, the
bankruptcy code permits the debtor to continue to retain and to use collateral
even though the debtor is in default under the applicable debt instruments,
provided that the secured creditor is given "adequate protection." The meaning
of the term "adequate protection" may vary according to circumstances, but it
is intended in general to protect the value of the secured creditor's interest
in the collateral and may include cash payments or the granting of additional
security, if and at such times as the court in its discretion determines, for
any diminution in the value of the collateral as a result of the stay of
repossession or disposition or any use of the collateral by the debtor during
the pendency of the bankruptcy case. Generally, adequate protection payments,
in the form of interest or otherwise, are not required to be paid by a debtor
to a secured creditor unless the bankruptcy court determines that the value of
the secured creditor's interest in the collateral is declining during the
pendency of the bankruptcy case. In view of the lack of a precise definition of
the term "adequate protection" and the broad discretionary powers of a
bankruptcy court, it is impossible to predict (1) how long payments under the
new notes could be delayed following commencement of a bankruptcy case, (2)
whether or when the collateral
13
agent could repossess or dispose of the pledged assets or (3) whether or to
what extent holders of the new notes would be compensated for any delay in
payment or loss of value of the pledged assets through the requirement of
"adequate protection."
The collateral is subject to casualty risks and no mortgage title insurance
has been obtained
We are obligated under the security documents to at all times cause all the
pledged assets to be properly insured and kept insured against loss or damage
by fire or other hazards to the extent that such properties are usually insured
by corporations operating properties of a similar nature in the same or similar
localities. There are, however, certain losses, including losses resulting from
terrorist acts, that may be either uninsurable or not economically insurable,
in whole or in part. As a result, we cannot assure you that the insurance
proceeds will compensate us fully for our losses. If there is a total or
partial loss of any of the pledged assets, we cannot assure you that the
proceeds received by us in respect thereof will be sufficient to satisfy all
the secured obligations, including the new notes.
In the event of a total or partial loss of any of the mortgaged facilities,
certain items of equipment may not be easily replaced because they are
sufficiently large or customized that replacement units generally are not
readily available. Accordingly, even though there may be insurance coverage,
the large size of some of the equipment and the extended period needed to
manufacture replacement units could cause significant delays in replacement.
Additionally, we are not required under the security documents to purchase
any title insurance insuring the collateral agent's lien on the respective
mortgaged properties. If a loss occurs arising from a title defect with respect
to any mortgaged property, we cannot assure you that we could replace such
property with collateral of equal value.
Fraudulent transfer statutes may limit your rights under the guarantees
Our obligations under the new notes are initially guaranteed by Lyondell
Chemical Nederland, Ltd., ARCO Chemical Technology, Inc. and ARCO Chemical
Technology, L.P., three of our subsidiaries. The guarantees may be subject to
review under various laws for the protection of creditors. It is possible that
the creditors of a guarantor may challenge a guarantee as a fraudulent transfer
under relevant federal and state laws, by claiming, for example, that, since
the guarantee was incurred for the benefit of Lyondell (and only indirectly, if
at all, for the benefit of the guarantor), the obligations of the guarantor
were incurred for less than reasonably equivalent value or fair consideration.
Under certain circumstances, including a finding that a guarantor was insolvent
at the time its guarantee was issued, a court could hold that the obligations
of the guarantor under the guarantee may be voided or are subordinate to other
obligations of the guarantor or that the amount for which a guarantor is liable
under a guarantee may be limited. Different jurisdictions define "insolvency"
differently. However, a guarantor generally would be considered insolvent at
the time it guaranteed the notes if (1) the fair market value (or fair saleable
value) of its assets is less than the amount required to pay its total existing
debts and liabilities (including the probable liability on contingent
liabilities) as they become absolute or matured or (2) the guarantor were
incurring debts beyond its ability to pay as such debts mature. We cannot
assure you as to what standard a court would apply in order to determine
whether a guarantor was "insolvent" when the notes were guaranteed, and we
cannot assure you that, regardless of the method of valuation, a court would
not determine that a guarantor were insolvent on that date. Nor can we assure
you that a court would not determine, regardless of whether the guarantor were
insolvent when the guarantees were issued, that the guarantees constituted
fraudulent transfers on another ground.
In an attempt to limit the applicability of fraudulent transfer laws, the
indenture limits the amount of the guarantees of Lyondell Chemical Nederland,
Ltd., ARCO Chemical Technology, Inc. and ARCO Chemical Technology, L.P. to the
amount that will result in the guarantees' not constituting fraudulent
transfers or improper corporate distributions, but we cannot be certain which
standard a court would apply in making a determination regarding the maximum
liability of a guarantor.
14
There is no trading market for the new notes and there may never be one, and
any market that does come into existence may have limited liquidity and be
highly volatile.
Currently there is no trading market for the new notes. We do not currently
intend to apply for listing of the new notes on any securities exchange or
stock market. Although the initial purchasers of the outstanding notes have
informed us that they currently intend to make a market in the new notes, they
are not obligated to do so. Any such market making may be discontinued at any
time without notice. The liquidity of any market for the new notes will depend
on the number of holders of those new notes, the interest of securities dealers
in making a market in those securities and other factors. Accordingly we cannot
assure you as to the development or liquidity of any market for the new notes.
Historically, the market for non-investment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of securities
similar to the new notes. We cannot assure you that the market, if any, for the
new notes will be free from similar disruptions. Any such disruptions may
adversely affect holders of the new notes.
Risk Factors Relating To Our Business
The cyclicality of the chemical and refining industries may cause significant
fluctuation in our income and cash flow.
Our historical operating results reflect the cyclical and volatile nature of
the supply-demand balance in both the chemical and refining industries. These
industries historically have experienced alternating periods of inadequate
capacity and tight supply, causing prices and profit margins to increase,
followed by periods when substantial capacity is added, resulting in
oversupply, declining capacity utilization rates and declining prices and
profit margins. The cyclicality of these industries results in volatile profits
and cash flow over the business cycle.
Currently, there is overcapacity in the chemical industry. Moreover, a
number of participants in the chemical industry either have added or are
expecting to add capacity. There can be no assurance that future growth in
product demand will be sufficient to utilize this additional, or even current,
capacity. Excess industry capacity has depressed and may continue to depress
our and/or our joint ventures' volumes and margins. Such excess industry
capacity and weak demand for our products, as well as higher energy and raw
material prices earlier this year, contributed to a significant decline in our
EBITDA during 2001 compared to 2000 and may continue to do so.
In addition, higher natural gas prices early in 2001 adversely affected the
ability of many domestic chemicals producers to compete internationally since
U.S. producers are disproportionately reliant on natural gas as a feedstock and
energy source. In addition to the impact that this has had on Equistar's
exports, reduced competitiveness of U.S. producers also has in the past
increased the availability of chemicals in North America, as U.S. production
that would otherwise have been sold overseas was instead offered for sale
domestically.
External factors beyond our and our joint ventures' control can cause
fluctuations in demand for our products and in our prices and margins, which
may negatively affect income and cash flow.
External factors can also cause significant fluctuations in demand for our
and our joint ventures' products and volatility in the price of raw materials
and other operating costs and can magnify the impact of economic cycles on us
and our joint ventures' businesses. Examples of external factors include:
. general economic conditions;
. competitor actions;
. international events and circumstances; and
. governmental regulation in the United States and abroad.
15
Demand for our products and our joint ventures' products is influenced by
general economic conditions. For example, during 2000 and in the first half of
2001, uncertainty regarding the global economy, as well as unusually high
prices for natural gas, reduced market demand for some of our and our joint
ventures' products, which adversely affected our results of operations.
Although natural gas prices have declined since their highs in early 2001, this
reduction in market demand has continued through 2001 and into 2002. In
addition, a number of our products and our joint ventures' products are highly
dependent on durable goods markets, such as the housing and automotive markets,
which are themselves particularly cyclical. Many of our and our joint ventures'
products are components of other chemical products that, in turn, are subject
to the supply-demand balance of both the chemical and refining industries and
general economic conditions. For example, MTBE is used as a blending component
in gasoline, and therefore a substantial decline in gasoline prices could
result in decreased profitability from MTBE sales. If the global economy does
not improve, demand for our and our joint ventures' products and our income and
cash flow would be adversely affected.
We and our joint ventures may reduce production at or idle a facility for an
extended period of time or exit a business because of high raw material prices,
an oversupply of a particular product and/or a lack of demand for that
particular product, which makes production uneconomical. These temporary
outages sometimes last for several quarters and cause us or our joint ventures
to incur costs, including the expenses of the outages and the restart of these
facilities. It is possible that factors like increases in raw material costs or
lower demand in the future will cause us or our joint ventures to further
reduce operating rates or idle facilities or exit uncompetitive businesses.
We and our joint ventures sell commodity products in highly competitive markets
and face significant price pressure.
We and our joint ventures sell our products in highly competitive markets.
Due to the commodity nature of certain of our and our joint ventures' products,
competition in these markets is based primarily on price and to a lesser extent
on product performance, product quality, product deliverability and customer
service. As a result, we and our joint ventures generally are not able to
protect our market position for these products by product differentiation and
may not be able to pass on cost increases to our customers. Accordingly,
increases in raw material and other costs may not necessarily correlate with
changes in prices for these products, either in the direction of the price
change or in magnitude. In addition, some of our and our joint ventures'
competitors may be able to drive down product prices. Moreover, some of our and
our joint ventures' competitors may have greater financial, technological and
other resources than ours, and may be better able to withstand changes in
market conditions. For certain products, our and our joint ventures'
competitors may be able to respond more quickly to new or emerging technologies
and changes in customer requirements than we can. The occurrence of any of
these events could adversely affect our financial condition and results of
operations.
Rising costs of raw materials and energy may result in increased operating
expenses and reduced results of operations.
We and our joint ventures purchase large amounts of raw materials and energy
for our business. The cost of these raw materials and energy, in the aggregate,
represents a substantial portion of our operating expenses. The prices of raw
materials and energy generally follow price trends of, and vary with market
conditions for, crude oil and natural gas, which may be highly volatile and
cyclical. Raw material costs began increasing during 1999 due to higher oil and
gas prices. These increases continued through 1999 and prices remained at high
levels during 2000. Surging natural gas costs late in 2000 and in the first
half of 2001 increased both the costs of natural gas liquids-based raw
materials, primarily ethane, as well as the cost of utilities. In the first
quarter of 2001, our results of operations and Equistar's results of operations
were significantly affected by the rising cost of natural gas. Benchmark
natural gas prices in the U.S. spiked at nearly $10 per million BTUs in January
2001, compared to a historical price range of $1.50 to $2.50 per million BTUs
in the period from 1991 to 1999. After the January 2001 spike, natural gas
prices began to decrease reaching $2.30 per million BTUs in December 2001;
however, benchmark natural gas prices for the year still averaged $4.28 per
million BTUs, or 10% higher than in 2000. Our operating expenses and Equistar's
operating expenses will likely increase if these costs increase.
16
Shared control of joint ventures involving Lyondell may delay decisions or
actions.
A substantial portion of our operations is conducted through joint ventures.
We share control of these joint ventures with unaffiliated third parties.
Our forecasts and plans with respect to these joint ventures assume that our
joint venture partners will observe their obligations with respect to the joint
ventures. In the event that any of our joint venture partners do not observe
their commitments, it is possible that the affected joint venture would not be
able to operate in accordance with its business plans or that we would be
required to increase our level of commitment in order to give effect to such
plans.
As with any such joint venture arrangements, differences in views among the
joint venture participants may result in delayed decisions or in failures to
agree on major matters, potentially adversely affecting the business and
operations of the joint ventures and in turn our business and operations.
Lyondell or any of the other owners of the joint ventures may transfer
control of their joint venture interests or engage in mergers or other business
combination transactions with a third party or one or more of the other owners
that could result in a change of control of Lyondell or the joint venture or
the other owners. In many instances, such a transfer would be subject to an
obligation to first offer the other owners an opportunity to purchase the
interest. Lyondell and the other joint venture owners have discussed, and from
time to time may continue to discuss, in connection with their ordinary course
dialog regarding the joint ventures or otherwise, transactions that could
result in a transfer or modification, directly or indirectly, of their
ownership in a joint venture. We cannot be certain that any of the joint
venture owners will not sell, transfer or otherwise modify their ownership
interest in a joint venture, whether in a transaction involving third parties
and/or one or more of the other owners. Upon a transfer of an interest in
Equistar, the partnership agreement and key agreements between Equistar and its
owners would remain in place and may not be modified without the consent of all
of the owners, but the transfer could affect the governance of Equistar,
particularly because Equistar's partnership agreement requires unanimous
approval for some decisions.
Early in 2002, Lyondell and Occidental agreed in principle for Lyondell's
acquisition of Occidental's 29.5% interest in Equistar and for Occidental's
acquisition of an equity interest in Lyondell. Upon consummation of these
transactions, Occidental would receive the following from Lyondell.
. 30 to 34 million shares of newly issued Lyondell Series B Common Stock,
with the final number to be determined at closing of this transaction.
These shares would have the same rights as Lyondell's regular common
stock with the exception of the dividend. The Series B Common Stock
would pay a dividend at the same rate as the regular common stock but,
at Lyondell's option, the dividend may be paid in additional shares of
Series B Common Stock or in cash. These new Series B shares also would
include provisions for conversion to regular common stock three years
after issuance or earlier in certain circumstances;
. five-year warrants to acquire five million shares of Lyondell regular
common stock at $25 per share, subject to adjustment upon the occurrence
of certain events; and
. a contingent payment equivalent in value to 7.38% of Equistar's cash
distributions for 2002 and 2003, up to a total of $35 million, payable
in cash, Series B Common Stock or regular common stock, as determined by
Lyondell.
These transactions are subject to negotiation, completion and execution of
definitive documentation, compliance with the applicable provisions of the
partnership agreement and the parent agreement, approval by the boards of
directors of Lyondell and Occidental, approval by Lyondell's stockholders,
regulatory approvals and other customary conditions. There can be no assurance
that the proposed transactions will be completed.
Equistar's credit facility provides that an event of default occurs if any
combination of Lyondell, Millennium and Occidental cease to collectively hold
at least a 50% interest. LCR's credit facility provides that an event of
default occurs if Lyondell and CITGO cease to individually or collectively hold
at least a 35%
17
interest. In addition, LCR's credit facility provides that an event of default
occurs if (1) Lyondell transfers its interest as a member of LCR to a person
other than an affiliate or (2) neither CITGO nor any of its affiliates is a
member of LCR.
Distributions of cash from our joint ventures may be restricted.
We conduct a substantial amount of our operations through our joint
ventures. Our ability to meet our debt service obligations is dependent, in
part, upon the receipt of distributions from our joint ventures. LCR's credit
facility prohibits the payment of distributions to us during an event of
default thereunder. Subject to the provisions of the applicable debt
agreements, future borrowings by our joint ventures may contain other
restrictions or prohibitions on the payment of distributions by such joint
ventures to us. Dependent upon applicable state law, our joint ventures may be
limited in amounts that they are permitted to pay as distributions on their
equity interests. Our joint ventures' ability to distribute cash to us is also
dependent upon their economic performance, which is dependent on a variety of
factors, including factors described elsewhere in "Risk Factors." For example,
Equistar did not make any distributions to its owners in 2001, as its results
of operations have been adversely affected by increasing industry capacity for
the products it sells, higher raw material prices and reduced demand due to
weak economic conditions.
LCR's crude oil supply agreement with PDVSA Petroleo, S.A. (PDVSA Oil) is
important to LCR's operations because it reduces the volatility of earnings and
cash flow. The agreement is subject to the risk of enforcing judgments against
non-United States affiliates of a sovereign nation and force majeure risks.
Most of the crude oil used by LCR as a feedstock for its refinery is
purchased under the crude supply agreement with PDVSA Oil, an affiliate of
Petroleos de Venezuela, S.A. (PDVSA), which was entered into in 1993. The crude
supply agreement incorporates formula prices to be paid by LCR for the crude
oil supplied based on the market value of a slate of refined products deemed to
be produced from each particular crude oil or feedstock, less (1) certain
deemed refining costs adjustable for inflation and energy costs, (2) certain
actual costs and (3) a deemed margin, which varies according to the grade of
crude oil or other feedstock delivered. The actual refining margin earned by
LCR may vary from the formula amount depending on, among other things, the
efficiency with which LCR conducts its operations from time to time. Although
LCR believes that the crude supply agreement reduces the volatility of its
earnings and cash flows, the crude supply agreement also limits LCR's ability
to enjoy higher margins during periods when the market price of crude oil is
low relative to the then-current market prices for refined products. In
addition, if the actual yields, costs or volumes of the LCR refinery differ
substantially from those contemplated by the crude supply agreement, the
benefits of this agreement to LCR could be substantially diminished and could
result in lower earnings and cash flow for LCR. Furthermore, there may be
periods during which LCR's costs for crude oil under the crude supply agreement
may be higher than might otherwise be available to LCR from other sources. A
disparate increase in the price of heavy crude oil relative to the prices for
its products, such as experienced in 1999, has the tendency to make continued
performance of its obligations under the crude supply agreement less attractive
to PDVSA Oil.
Under the crude supply agreement, PDVSA Oil is required to sell, and LCR is
required to purchase, 230,000 barrels per day of extra heavy crude, which
constitutes approximately 86% of the LCR refinery's refining capacity of
268,000 barrels per day of crude oil. By letter dated April 16, 1998, PDVSA Oil
informed LCR that the Venezuelan government, through the Ministry of Energy and
Mines, had instructed that production of certain grades of crude oil be
reduced. The letter stated that PDVSA Oil declared itself in a force majeure
situation and that PDVSA Oil would reduce deliveries of crude oil. Such
reductions in deliveries were purportedly based on announced OPEC production
cuts. LCR began receiving reduced deliveries of crude oil from PDVSA Oil in
August 1998, amounting to 195,000 barrels per day in that month. LCR was
advised by PDVSA Oil in May 1999 of a further reduction in the deliveries of
crude oil supplied under the crude supply agreement to 184,000 barrels per day,
effective May 1999.
18
On several occasions since then, PDVSA Oil further reduced crude oil
deliveries, although it made payments under a different provision of the crude
supply agreement in partial compensation for such reductions. Subsequently,
PDVSA Oil unilaterally increased deliveries of crude oil to LCR to 195,000
barrels per day effective April 2000, to 200,000 barrels per day effective July
2000 and to 230,000 barrels per day effective October 2000.
During 2001, PDVSA Oil informed LCR that the Venezuelan government, through
the Ministry of Energy and Mines, had instructed that production of certain
grades of crude oil be reduced effective February 1, 2001. PDVSA Oil declared
itself in a force majeure situation but did not reduce crude oil deliveries to
LCR during 2001. In January 2002, PDVSA Oil again declared itself in a force
majeure situation and stated that crude oil deliveries could be reduced by up
to 20.3% beginning March 1, 2002. In February 2002, LCR was advised by PDVSA
Oil that deliveries of crude oil to LCR in March 2002 would be reduced to
approximately 198,000 barrels per day. Additional reductions may be
forthcoming.
LCR has consistently contested the validity of PDVSA Oil's and PDVSA's
reductions in deliveries under the Crude Supply Agreement. The parties have
different interpretations of the provisions of the contracts concerning the
delivery of crude oil. The contracts do not contain dispute resolution
procedures, and the parties have been unable to resolve their commercial
dispute. As a result, on February 1, 2002, LCR filed a lawsuit against PDVSA
and PDVSA Oil in connection with the January 2002 force majeure declaration, as
well as the claimed force majeure from April 1998 to September 2000.
There are risks associated with enforcing the provisions of contracts with
companies such as PDVSA Oil that are non-United States affiliates of a
sovereign nation. All of the crude oil supplied by PDVSA Oil under the crude
supply agreement is produced in the Republic of Venezuela, which has
experienced economic difficulties and attendant social and political changes in
recent years. It is impossible to predict how governmental policies may change
under the current or any subsequent Venezuelan government. In addition, there
are risks associated with enforcing judgments of United States courts against
entities whose assets are located outside of the United States and whose
management does not reside in the United States. Although the parties have
negotiated alternative arrangements in the event of certain force majeure
conditions, including Venezuelan governmental or other actions restricting or
otherwise limiting PDVSA Oil's ability to perform its obligations, any such
alternative arrangements may not be as beneficial to LCR as the crude supply
agreement.
In 1999, PDVSA announced its intention to renegotiate the crude supply
agreements with all third parties, including LCR. In light of PDVSA's announced
intent, we cannot assure you that PDVSA Oil will continue to perform its
obligations under the crude supply agreement. However, it has confirmed that it
expects to honor its commitments if a mutually acceptable restructuring of the
crude supply agreement is not achieved. From time to time, Lyondell and PDVSA
have had discussions covering both a restructuring of the crude supply
agreement and a broader restructuring of the LCR partnership. We are unable to
predict whether changes in either arrangement will occur.
If the crude supply agreement is modified or terminated or this source of
crude oil is otherwise interrupted due to production difficulties, OPEC-
mandated supply cuts, political or economic events in Venezuela or other
factors, LCR could experience significantly lower earnings and cash flows. The
parties each have a right to transfer their interests in LCR to unaffiliated
third parties in certain circumstances, subject to reciprocal rights of first
refusal. In the event that CITGO were to transfer its interest in LCR to an
unaffiliated third party, PDVSA Oil would have an option to terminate the crude
supply agreement. Depending on then-current market conditions, any breach or
termination of the crude supply agreement could adversely affect LCR, since LCR
would have to purchase all or a portion of its crude oil feedstocks in the
merchant market, which could subject LCR to significant volatility and price
fluctuations. We cannot assure you that alternative crude oil supplies with
similar margins will be available for purchase by LCR.
19
Operating problems in our business may adversely affect our income and cash
flow.
The occurrence of material operating problems at our facilities or any of
our joint ventures' facilities, including, but not limited to, the events
described below, may have a material adverse effect on the productivity and
profitability of a particular manufacturing facility, or on our operations as a
whole, during and after the period of such operational difficulties. Our income
and cash flow are dependent on the continued operation of our various
production facilities, our joint ventures' production facilities and the
ability to complete construction projects on a schedule. Although we and our
joint ventures take precautions to enhance the safety of operations and
minimize the risk of disruptions, our operations and our joint ventures'
operations, along with the operations of other members of the chemical and
refining industries, are subject to hazards inherent in chemical manufacturing
and refining and the related storage and transportation of raw materials,
products and wastes. These hazards include:
. pipeline leaks and ruptures;
. explosions;
. fires;
. severe weather and natural disasters;
. mechanical failure;
. unscheduled downtime;
. labor difficulties;
. transportation interruptions;
. remediation complications;
. chemical spills;
. discharges or releases of toxic or hazardous substances or gases;
. storage tank leaks; and
. other environmental risks.
Some of these hazards can cause personal injury and loss of life, severe
damage to or destruction of property and equipment and environmental damage,
and may result in suspension of operations and the imposition of civil or
criminal penalties. Furthermore, we are also subject to present and future
claims with respect to workplace exposure, workers' compensation and other
matters. We are not fully insured against all potential hazards.
Our operations and assets are subject to extensive environmental, health and
safety laws and regulations.
We cannot predict with certainty the extent of our, our subsidiaries' or our
joint ventures' future liabilities and costs under environmental, health and
safety laws and regulations and we cannot assure you that they will not be
material. In addition, we, our subsidiaries or our joint ventures may face
liability for alleged personal injury or property damage due to exposure to
chemicals or other hazardous substances at our facilities or chemicals that we
otherwise manufacture, handle or own. Although these claims have not
historically had a material impact on our, our subsidiaries' or our joint
ventures' operations, a significant increase in the number or success of these
claims could materially adversely affect our, our subsidiaries' or our joint
ventures' business, financial condition, operating results or cash flow.
The production facilities of Lyondell, Equistar, LCR and LMC are generally
required to have permits and licenses regulating air emissions, discharges to
water and storage, treatment and disposal of hazardous wastes. Companies such
as Lyondell and its joint ventures that are permitted to treat, store or
dispose of hazardous
20
waste and maintain underground storage tanks pursuant to the Resource
Conservation and Recovery Act (RCRA) also are required to meet certain
financial responsibility requirements. We believe that we and our joint
ventures have all permits and licenses generally necessary to conduct business
or, where necessary, are applying for additional, amended or modified permits
and that we and our joint ventures meet applicable financial responsibility
requirements.
The policy of each of Lyondell, Equistar, LCR and LMC is to be in compliance
with all applicable environmental laws. Lyondell and Equistar also are each
committed to Responsible Care(R), an international chemical industry initiative
to enhance the industry's responsible management of chemicals. Our subsidiaries
and joint ventures (together with the industries in which they operate) are
subject to extensive national, state and local environmental laws and
regulations concerning emissions to the air, discharges onto land or waters and
the generation, handling, storage, transportation, treatment and disposal of
waste materials. Many of these laws and regulations provide for substantial
fines and potential criminal sanctions for violations. Some of these laws and
regulations are subject to varying and conflicting interpretations. In
addition, we cannot accurately predict future developments, such as
increasingly strict environmental laws, and inspection and enforcement
policies, as well as higher compliance costs therefrom, which might affect the
handling, manufacture, use, emission or disposal of products, other materials
or hazardous and nonhazardous waste. Some risk of environmental costs and
liabilities is inherent in particular operations and products of us, and our
joint ventures, as it is with other companies engaged in similar businesses,
and there is no assurance that material costs and liabilities will not be
incurred. In general, however, with respect to the capital expenditures and
risks described above, we do not expect that we or our joint ventures will be
affected differently from the rest of the chemicals and refining industry where
our facilities or our joint ventures' facilities are located.
Environmental laws may have a significant effect on the nature and scope of
cleanup of contamination at current and former operating facilities, the costs
of transportation and storage of raw materials and finished products and the
costs of the storage and disposal of wastewater. Also, U.S. "Superfund"
statutes may impose joint and several liability for the costs of remedial
investigations and actions on the entities that generated waste, arranged for
disposal of the wastes, transported to or selected the disposal sites and the
past and present owners and operators of such sites. All such responsible
parties (or any one of them, including us) may be required to bear all of such
costs regardless of fault, legality of the original disposal or ownership of
the disposal site. As of December 31, 2001, our, our subsidiaries' and our
joint ventures' environmental liability for future assessment and remediation
costs at the above-mentioned sites totaled $32 million. The liabilities per
site range from less than $1 million to $11 million and are expected to be
incurred over the next two to seven years. It is possible that new information
about the sites for which the accrual has been established, new technology or
future developments, such as involvement in other Comprehensive Environmental
Response Compensation and Liability Act, as amended (CERCLA), RCRA, Texas
Natural Resource Conservation Commission (TNRCC) or other comparable state or
foreign law investigations, could require us to reassess our potential exposure
related to environmental matters.
In some cases, compliance with environmental, health and safety laws and
regulations can be achieved only by capital expenditures. In the years ended
December 31, 2001, 2000 and 1999, we, our subsidiaries and our joint ventures
(on a 100% basis) spent, in the aggregate, approximately $34 million, $20
million and $21 million, respectively, for environmentally related capital
expenditures at existing facilities. We, our subsidiaries and our joint
ventures anticipate spending approximately $99 million for 2002 and
approximately $240 million for 2003 for environmentally related capital
expenditures. The increased level of such expenditures for 2001, 2002 and 2003
is a result of, among other things, implementation of a plan for the
Houston/Galveston region to comply with the ozone standard, as discussed below.
The LCR refinery contains on-site solid-waste landfills, which were used in
the past to dispose of waste generated at this facility. It is anticipated that
corrective measures will be necessary to comply with federal and state
requirements with respect to this facility. We are also subject to certain
assessment and remedial actions at the LCR refinery under RCRA. In addition, we
negotiated an order with the TNRCC for assessment and remediation of
groundwater and soil contamination at the refinery. We also have liabilities
under RCRA and
21
various state and foreign government regulations related to five current plant
sites and three former plant sites. We are also responsible for a portion of
the remediation of certain off-site waste disposal facilities. We are currently
contributing funds to the cleanup of two waste sites located near Houston,
Texas under CERCLA and the Superfund Amendments and Reauthorization Act of
1986. Lyondell has also been named, along with several other companies, as a
potentially responsible party for a third CERCLA site near Houston, Texas. The
$32 million accrual described above includes, where applicable, costs to
address these RCRA, TNRCC and CERCLA matters. In addition, Lyondell is involved
in administrative proceedings or lawsuits relating to a minimal number of other
CERCLA sites. We estimate, based upon currently available information, that
potential loss contingencies associated with the latter CERCLA sites,
individually and in the aggregate, are not significant.
The eight-county Houston/Galveston region has been designated a severe
nonattainment area for ozone by the U.S. Environmental Protection Agency (EPA).
As a result, in December 2000, the TNRCC submitted a plan to the EPA to reach
and demonstrate compliance with the ozone standard by November 2007. Ozone is a
product of the reaction between volatile organic compounds (VOCs) and nitrogen
oxides (NOx) in the presence of sunlight, and is a principal component of smog.
The proposed plans for meeting the ozone standard focus on significant
reductions in NOx emissions. NOx emission reduction controls must be installed
at LCR's refinery and each of Lyondell's two facilities and Equistar's six
facilities in the Houston/Galveston region during the next several years, well
in advance of the 2007 deadline. Compliance with the provisions of the plan
will result in increased capital investment during the next several years and
higher annual operating costs for Equistar, Lyondell and LCR. As a result,
Lyondell estimates that aggregate related capital expenditures could total
between $400 million and $500 million for Lyondell, Equistar and LCR before the
2007 deadline. Lyondell's direct expenditures could total between $65 million
and $80 million. Lyondell's proportionate share of Equistar's expenditures
could total between $85 million and $105 million, and Lyondell's proportionate
share of LCR's expenditures could total between $75 million and $95 million.
The timing and amount of these expenditures are subject to regulatory and other
uncertainties, as well as obtaining the necessary permits and approvals.
Lyondell has been actively involved with a number of organizations to help
solve the ozone problem in the most cost-effective manner and, in January 2001,
Lyondell and the BCCA Appeal Group (a group of industry participants) filed a
lawsuit against the TNRCC to encourage adoption of their alternative plan to
achieve the same air quality improvement with less negative economic impact on
the region. In June 2001, the parties entered into a consent order with respect
to the lawsuit. Pursuant to the consent order, the TNRCC agreed to review, by
June 2002, the scientific data for ozone formation in the Houston/Galveston
region. In October 2001, the EPA approved the TNRCC plan, and the BCCA Appeal
Group filed a timely petition for judicial review of that action on January 11,
2002. If the TNRCC scientific review supports the industry group proposal, the
TNRCC has agreed to revise the NOx emission reduction requirements set forth in
its original plan. Any revisions will have to be approved by the EPA. Such
revisions of the NOx emission reduction requirements are expected to reduce the
estimated capital investments for NOx reductions required by Lyondell, Equistar
and LCR to comply with the plans for meeting the ozone standards. However,
there can be no guarantees as to the ultimate capital cost of implementing any
final plan developed to ensure ozone attainment by the 2007 deadline.
The Clean Air Act specified certain emissions standards for vehicles
beginning in the 1994 model year and required the EPA to study whether further
emissions reductions from vehicles were necessary, starting no earlier than the
2004 model year. In 1998, the EPA concluded that more stringent vehicle
emission standards were needed and that additional controls on gasoline and
diesel were necessary to meet these emission standards. New standards for
gasoline were finalized in 1999 and will require refiners to produce a low
sulfur gasoline by 2004, with final compliance by 2006. A new "on-road" diesel
standard was adopted in January 2001 and will require refiners to produce ultra
low sulfur diesel by June 2006, with some allowance for a conditional phase-in
period that could extend final compliance until 2009. Lyondell estimates that
these standards will result in increased capital investment for LCR, totaling
between $175 million to $225 million for
22
the new gasoline standards and $250 million to $300 million for the new diesel
standards, between now and the implementation dates. Lyondell's share of LCR's
capital expenditures would be between $250 million and $300 million. In
addition, these standards could result in higher operating costs for LCR.
Equistar's business may also be impacted if these standards increase the cost
for processing fuel components.
Pending or future legislative initiatives or litigation may adversely affect
Equistar's MTBE sales.
In the United States, the Clean Air Act Amendments of 1990 set minimum
levels for oxygenates, such as MTBE, in gasoline sold in areas not meeting
specified air quality standards. In Europe, demand for MTBE has benefited from
new legislation in the 15-nation European Union. The so-called "Auto/Oil
Legislation" aimed at reducing air pollution from vehicle emissions was enacted
in 1998, and refineries increased consumption of MTBE to meet the new blending
requirements. However, while studies by federal and state agencies and other
world organizations have shown that MTBE is safe for use in gasoline, is not
carcinogenic and is effective in reducing automotive emissions, the presence of
MTBE in some water supplies in California and other states due to gasoline
leaking from underground storage tanks and in surface water from recreational
watercraft has led to public concern that MTBE may, in certain limited
circumstances, affect the taste and odor of drinking water supplies.
Certain federal and state governmental initiatives have sought either to
rescind the oxygenate requirement for reformulated gasoline or to restrict or
ban the use of MTBE. Such actions, to be effective, would require (1) a waiver
of the state's oxygenate mandate, (2) Congressional action in the form of an
amendment to the Clean Air Act or (3) replacement of MTBE with another
oxygenate such as ethanol, a more costly, untested and less widely available
additive.
California has twice sought a waiver of its oxygenate mandate. California's
request was denied by both the Clinton Administration and the current Bush
Administration. California is challenging the denial in court.
At the federal level, a blue ribbon panel appointed by the EPA issued its
report on July 27, 1999. That report recommended, among other things, reducing
the use of MTBE in gasoline. During 2000, the EPA announced its intent to seek
legislative changes from Congress to give the EPA authority to ban MTBE over a
three-year period. Such action would only be granted through amendments to the
Clean Air Act. Additionally, the EPA is seeking a ban of MTBE utilizing
rulemaking authority contained in the Toxic Substance Control Act. It would
take at least three years for such a rule to issue. In January 2001, however,
senior policy analysts at the U.S. Department of Energy presented a study
stating that banning MTBE would create significant economic risk. The study did
not identify any benefits from banning MTBE.
The formal risk assessment on MTBE conducted by the European Commission
concluded that the use of MTBE in gasoline does not present an unacceptable
risk to the health of the community or to the environment. The European
Commission decided not to restrict the use of MTBE in the European Union and
agreed to a formal risk management strategy.
The EPA initiatives mentioned above or other governmental actions could
result in a significant reduction in Lyondell's MTBE sales, which represented
approximately 35% of its total 2001 revenues. We have developed technologies to
convert TBA into alternate gasoline blending components should it be necessary
to reduce MTBE production in the future. However, implementation of such
technologies would require additional capital investment. The profit margin on
such alternate gasoline blending components could differ from those
historically realized on MTBE.
23
Our international operations are subject to exchange rate fluctuations,
exchange controls, political risks and other risks relating to foreign
operations.
International operations and exports to foreign markets are subject to a
number of risks, including currency exchange rate fluctuations, trade barriers,
exchange controls, national and regional labor strikes, political risks and
risks of increases in duties and taxes, as well as changes in laws and policies
governing operations of foreign-based companies. In addition, earnings of
foreign subsidiaries and intercompany payments may be subject to foreign income
tax rules that may reduce cash flow available to meet required debt service and
other obligations of Lyondell.
Lyondell and Equistar pursue acquisitions, dispositions and joint ventures.
Lyondell and Equistar both seek opportunities to maximize efficiency or
value through various transactions. These transactions may include purchases or
sales of assets or contractual arrangements or joint ventures that are intended
to result in the realization of synergies, the creation of efficiencies or the
generation of cash to reduce debt. To the extent permitted under Lyondell's and
Equistar's credit facilities and other debt, some of these transactions may be
financed by additional borrowings by Lyondell or Equistar or by the issuance of
equity securities. Although these transactions are expected to yield longer-
term benefits if the expected efficiencies and synergies of the transactions
are realized, they could adversely affect the results of operations of Lyondell
or Equistar in the short term because of the costs associated with such
transactions.
Our quarterly results will vary significantly.
Our quarterly results will vary significantly depending on various factors,
most of which are beyond our control, including:
. changes in product prices, product demand, including seasonal demand for
certain products, such as MTBE, raw material costs or supply
arrangements;
. the scheduling of plant turnarounds;
. fluctuations in shipments to customers;
. adverse developments in foreign or domestic markets;
. regional business activities;
. changes in interest rates;
. foreign exchange fluctuations; and
. unanticipated expenses.
24
FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated by reference in this
prospectus include forward-looking statements. Although we believe the
expectations reflected in such forward-looking statements are reasonable as of
the date the statements are made, they do involve certain assumptions, risks
and uncertainties, and we cannot assure you that such expectations will prove
to have been correct. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those described in "Risk Factors" and the following risks:
. the cyclical nature of the chemical and refining industries;
. uncertainties associated with the United States and worldwide economies;
. substantial chemical and refinery capacity additions resulting in
oversupply and declining prices and margins;
. the availability and cost of raw materials and utilities;
. access to capital markets;
. technological developments;
. current and potential governmental regulatory actions in the United
States and other countries;
. potential terrorist attacks;
. operating interruptions (including leaks, explosions, fires, mechanical
failure, unscheduled downtime, labor difficulties, transportation
interruptions, spills and releases, and other environmental risks); and
. Lyondell's ability to implement its business strategies, including cost
reductions.
Many of such factors are beyond our or our joint ventures' ability to
control or predict. Any of these factors, or a combination of these factors,
could materially affect our or our joint ventures' future results of operations
and the ultimate accuracy of the forward-looking statements. These forward-
looking statements are not guarantees of our or our joint ventures' future
performance, and our or our joint ventures' actual results and future
developments may differ materially from those projected in the forward-looking
statements. We undertake no obligation to publicly update or revise any
forward-looking statement, whether as a result of new information, future
events or otherwise. You are cautioned against putting undue reliance on
forward-looking statements or projecting any future results based on such
statements or present or prior earnings levels.
USE OF PROCEEDS
The exchange offer is intended to satisfy our obligations under the
registration rights agreement that we entered into in connection with the
private offering of the outstanding notes. We will not receive any cash
proceeds from the issuance of the new notes. In consideration for issuing the
new notes, we will receive in exchange a like principal amount of outstanding
notes. The outstanding notes surrendered in exchange for the new notes will be
retired and canceled, and cannot be reissued. Accordingly, issuance of the new
notes will not result in any change in our capitalization.
We used the net proceeds from the sale of the outstanding notes to prepay
the entire $192 million principal amount then outstanding under Term Loan B of
our credit facility and $192 million of the $828 million principal amount then
outstanding under Term Loan E of our credit facility.
25
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 2001 on
a historical basis and reflects the offering of the outstanding notes and the
application of the net proceeds. The exchange offer will not affect the
capitalization of Lyondell.
As of
December 31, 2001
-----------------
(in millions)
(unaudited)
Debt, including current maturities of long-term debt (a):
Secured debt:
Credit facility (b)...................................... $ 634
Senior Secured Notes due 2007............................ 1,900
Senior Secured Notes due 2008 offered hereby............. 393
Debentures due 2005-2020................................. 424
Senior Subordinated Notes due 2009........................... 500
Other debt................................................... 2
------
Total debt, including current maturities of long-term
debt.................................................... 3,853
------
Minority interest............................................ 176
------
Total stockholders' equity................................... 749
------
Total capitalization......................................... $4,778
======
- --------
(a) Does not include $3.1 billion in joint venture debt ($431 million of
which is Equistar debt for which Lyondell remains contingently liable).
(b) Total committed revolver capacity is $500 million, none of which was
borrowed as of December 31, 2001. Lyondell had outstanding letters of
credit totaling $10 million at December 31, 2001, of which $4 million
reduced the available revolver capacity.
26
THE EXCHANGE OFFER
We are offering to issue new registered 9 1/2% senior secured notes due 2008
in exchange for a like principal amount of our outstanding unregistered 9 1/2%
senior secured notes due 2008. We may extend, delay or terminate the exchange
offer. Holders of outstanding notes will need to complete the exchange offer
documentation related to the exchange.
Purpose and Effect of the Exchange Offer
We entered into a registration rights agreement with the initial purchasers
of the outstanding notes in which we agreed to file this registration statement
relating to our offer to exchange the outstanding notes for new notes within 90
days after issuing the outstanding notes and to use our best efforts to have it
declared effective within 210 days after issuing the outstanding notes. We are
offering the new notes under this prospectus to satisfy those obligations under
the registration rights agreement.
If the exchange offer is not permitted by applicable law or SEC policy or in
general if any holder of the outstanding notes notifies us before the 20th
business day following the consummation of the exchange offer that:
. it is prohibited by law or SEC policy from participating in the exchange
offer;
. it cannot resell the new notes to the public without delivering a
prospectus and this prospectus is not appropriate or available for those
resales by it; or
. it is a broker-dealer that holds notes acquired directly from us or any
of our affiliates,
we will file with the SEC a shelf registration statement to cover resales of
outstanding notes.
If we fail to comply with deadlines for completion of the exchange offer, we
will be required to pay liquidated damages to holders of the outstanding notes.
Please read the section captioned "Description of New Notes--Registration
Rights; Liquidated Damages" for more details regarding the registration rights
agreement.
To receive transferable new notes in exchange for your outstanding notes in
the exchange offer, you, as holder of that outstanding note, will be required
to make the following representations:
. you are not an "affiliate," as defined in Rule 405 of the Securities
Act, of us or a broker-dealer tendering outstanding notes acquired
directly from us for your own account;
. if you are not a broker-dealer or are a broker-dealer but will not
receive new notes for your own account in exchange for outstanding
notes, you are not engaged in and do not intend to participate in a
distribution of the new notes;
. you have no arrangement or understanding with any person to participate
in a distribution of the new notes or the outstanding notes within the
meaning of the Securities Act;
. you are acquiring the new notes in the ordinary course of your business;
and
. if you are a broker-dealer that will receive new notes for your own
account in exchange for outstanding notes, you represent that the
outstanding notes to be exchanged for new notes were acquired by you as
a result of market-making activities or other trading activities and you
acknowledge that you will deliver a prospectus meeting the requirements
of the Securities Act in connection with the resale of any new notes. It
is understood that you are not admitting that you are an "underwriter"
within the meaning of the Securities Act by acknowledging that you will
deliver, and by delivery of, a prospectus.
Based on interpretations of the SEC staff in "no action letters" issued to
third parties, we believe that each new note issued under the exchange offer
may be offered for resale, resold and otherwise transferred by you,
27
the holder of that new note, without compliance with the registration and
prospectus delivery provisions of the Securities Act if:
. you are not our "affiliate" within the meaning of Rule 405 under the
Securities Act;
. the new note is acquired in the ordinary course of your business; and
. you do not intend to participate in the distribution of new notes.
However, the SEC has not considered the legality of our exchange offer in
the context of a "no action letter," and there can be no assurance that the
staff of the SEC would make a similar determination with respect to our
exchange offer as in other circumstances.
If you tender outstanding notes in the exchange offer with the intention of
participating in any manner in a distribution of the new notes, you:
. cannot rely on these interpretations by the SEC staff; and
. must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with a secondary resale transaction.
Unless an exemption from registration is otherwise available, any security
holder intending to distribute new notes should be covered by an effective
registration statement under the Securities Act containing the selling security
holder's information required by Item 507 or Item 508, as applicable, of
Regulation S-K under the Securities Act. This prospectus may be used for an
offer to resell, resale or other retransfer of new notes only as specifically
described in this prospectus. Failure to comply with the registration and
prospectus delivery requirements by a holder subject to these requirements
could result in that holder's incurring liability for which it is not
indemnified by us. Only broker-dealers that acquired the outstanding notes as a
result of market-making activities or other trading activities may participate
in the exchange offer. Please read the section captioned "Plan of Distribution"
for more details regarding the transfer of new notes.
Terms of the Exchange Offer
Upon the terms and subject to the conditions described in this prospectus
and in the letter of transmittal, we will accept for exchange any outstanding
notes properly tendered and not withdrawn before the expiration date. We will
issue $1,000 principal amount of new notes in exchange for each $1,000
principal amount of outstanding notes surrendered under the exchange offer.
Outstanding notes may be tendered only in integral multiples of $1,000. The
exchange offer is not conditioned upon any minimum aggregate principal amount
of outstanding notes being tendered for exchange.
As of the date of this prospectus, $393 million aggregate principal amount
of the unregistered 9% senior secured notes due 2008 are outstanding. This
prospectus and the letter of transmittal included with this prospectus are
being sent to all registered holders of outstanding notes. There will be no
fixed record date for determining registered holders of outstanding notes
entitled to participate in the exchange offer.
We intend to conduct the exchange offer according to the provisions of the
registration rights agreement, the applicable requirements of the Securities
Act and the Securities Exchange Act of 1934 and the rules and regulations of
the SEC. Outstanding notes that are not tendered for exchange in the exchange
offer will remain outstanding and continue to accrue interest and will be
entitled to the rights and benefits the holders have under the indenture.
However, these outstanding notes will not be freely tradable. See "--
Consequences of Failure to Exchange" below.
We will be deemed to have accepted for exchange properly tendered
outstanding notes when we have given oral or written notice of the acceptance
to the exchange agent and complied with the applicable provisions of the
registration rights agreement. The exchange agent will act as agent for the
tendering holders for the purposes of receiving the new notes.
28
Holders tendering outstanding notes in the exchange offer will not be
required to pay brokerage commissions or fees or, subject to the instructions
in the letter of transmittal, transfer taxes with respect to the exchange of
outstanding notes. We will pay all charges and expenses, other than certain
applicable taxes described below, in connection with the exchange offer. It is
important for holders to read the section labeled "--Fees and Expenses" for
more details regarding fees and expenses incurred in the exchange offer.
We will return any outstanding notes that we do not accept for exchange for
any reason without expense to the tendering holder as promptly as practicable
after the expiration or termination of the exchange offer.
Expiration Date
The exchange offer will expire at 5:00 p.m., New York City time on May 21,
2002 unless, we extend or terminate the exchange offer.
Extensions, Delay in Acceptance, Termination or Amendment
We expressly reserve the right, at any time or at various times, to extend
the period of time during which the exchange offer is open. During any
extension, all outstanding notes previously tendered will remain subject to the
exchange offer, and we may accept them for exchange.
To extend the exchange offer, we will notify the exchange agent orally or in
writing of any extension. We will also make a public announcement of the
extension no later than 9:00 a.m., New York City time, on the next business day
after the previously scheduled expiration date.
If any of the conditions described below under "--Conditions to the Exchange
Offer" have not been satisfied, we reserve the right, in our sole discretion:
. to delay accepting for exchange any outstanding notes;
. to extend the exchange offer; or
. to terminate the exchange offer
by giving oral or written notice of a delay, extension or termination to the
exchange agent. Subject to the terms of the registration rights agreement, we
also reserve the right to amend the terms of the exchange offer in any manner.
Any delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice to the registered
holders of the outstanding notes. If we amend the exchange offer in a manner we
determine to constitute a material change, we will promptly disclose the
amendment by means of a prospectus supplement. The supplement will be
distributed to the registered holders of the outstanding notes. Depending upon
the significance of the amendment and the manner of disclosure to the
registered holders, we will extend the exchange offer if the exchange offer
would otherwise expire during that period.
Without limiting the manner in which we may choose to make public
announcements of any delay in acceptance, extension, termination or amendment
of the exchange offer, we will have no obligation to publish, advertise or
otherwise communicate any public announcement, other than by making a timely
release to the Dow Jones News Service.
Conditions to the Exchange Offer
Despite any other term of the exchange offer, if in our reasonable judgment
the exchange offer, or the making of any exchange by a holder of outstanding
notes, would violate applicable law or any applicable interpretation of the
staff of the SEC:
. we will not be required to accept for exchange, or exchange any new
notes for, any outstanding notes; and
29
. we may terminate the exchange offer as provided in this prospectus
before accepting any outstanding notes for exchange.
In addition, we will not be obligated to accept for exchange the outstanding
notes of any holder that has not made the following:
. the representations described under "--Purpose and Effect of the
Exchange Offer," "--Procedures for Tendering" and "Plan of
Distribution"; and
. other representations as may be reasonably necessary under applicable
SEC rules, regulations or interpretations to make available to us an
appropriate form for registration of the new notes under the Securities
Act.
We expressly reserve the right to amend or terminate the exchange offer, and
to reject for exchange any outstanding notes not previously accepted for
exchange, upon the occurrence of any of the conditions to the exchange offer
specified above. We will give oral or written notice of any extension,
amendment, nonacceptance or termination to the holders of the outstanding notes
as promptly as practicable. These conditions are for our sole benefit, and we
may assert them or waive them in whole or in part at any time or at various
times in our sole discretion. If we fail at any time to exercise any of these
rights, this failure will not mean that we have waived our rights. Each right
will be deemed an ongoing right that we may assert at any time or at various
times. In addition, we will not accept for exchange any outstanding notes
tendered and will not issue new notes in exchange for any outstanding note, if
at that time any stop order has been threatened or is in effect with respect to
the registration statement of which this prospectus constitutes a part or the
qualification of the indenture under the Trust Indenture Act of 1939.
Procedures for Tendering
How to Tender Generally
Only a holder of outstanding notes may tender its outstanding notes in the
exchange offer. To tender in the exchange offer, you must either comply with
the procedures for manual tender or comply with the automated tender offer
program procedures of DTC described below under "--Tendering Through DTC's
Automated Tender Offer Program."
To complete a manual tender, you must:
. complete, sign and date the letter of transmittal, or a facsimile of the
letter of transmittal;
. have the signature on the letter of transmittal guaranteed if the letter
of transmittal so requires;
. mail or deliver the letter of transmittal or a facsimile of the letter
of transmittal to the exchange agent before the expiration date; and
. deliver, and the exchange agent must receive, before the expiration
date:
--the outstanding notes along with the letter of transmittal; or
--a timely confirmation of book-entry transfer of the outstanding notes
into the exchange agent's account at DTC according to the procedure for
book-entry transfer described below under "--Book-Entry Transfer."
If you wish to tender your outstanding notes and cannot comply with the
requirement to deliver the letter of transmittal and your outstanding notes or
use the automated tender offer program of DTC before the expiration date, you
must tender your outstanding notes according to the guaranteed delivery
procedures described below.
For a tender to be effective, the exchange agent must receive any physical
delivery of the letter of transmittal and other required documents at its
address provided above under "Prospectus Summary--The
30
Exchange Agent" before the expiration date. The tender by a holder that is not
withdrawn before the expiration date will constitute an agreement between the
holder and us according to the terms and subject to the conditions described in
this prospectus and in the letter of transmittal.
The method of delivery of outstanding notes, the letter of transmittal and
all other required documents to the exchange agent is at your election and
risk. Rather than mail these items, we recommend that you use an overnight or
hand-delivery service. In all cases, you should allow sufficient time to assure
delivery to the exchange agent before the expiration date. You should not send
the letter of transmittal or outstanding notes to us. You may request your
brokers, dealers, commercial banks, trust companies or other nominees to effect
the above transactions on your behalf.
Book-Entry Transfer
The exchange agent will make a request to establish an account with respect
to the outstanding notes at DTC for purposes of the exchange offer promptly
after the date of this prospectus. Any financial institution participating in
DTC's system may make book-entry delivery of outstanding notes by causing DTC
to transfer the outstanding notes into the exchange agent's account at DTC
according to DTC's procedures for transfer. Holders of outstanding notes who
are unable to deliver confirmation of the book-entry tender of their
outstanding notes into the exchange agent's account at DTC or all other
documents required by the letter of transmittal to the exchange agent on or
before the expiration date must tender their outstanding notes according to the
guaranteed delivery procedures described below.
Tendering Through DTC's Automated Tender Offer Program
The exchange agent and DTC have confirmed that any financial institution
that is a participant in DTC's system may use DTC's automated tender offer
program to tender its outstanding notes. Participants in the program may,
instead of physically completing and signing the letter of transmittal and
delivering it to the exchange agent, transmit their acceptance of the exchange
offer electronically. They may do so by causing DTC to transfer the outstanding
notes to the exchange agent according to its procedures for transfer. DTC will
then send an agent's message to the exchange agent.
The term "agent's message" means a message transmitted by DTC, received by
the exchange agent and forming part of the book-entry confirmation, stating
that:
. DTC has received an express acknowledgment from a participant in its
automated tender offer program that is tendering outstanding notes that
are the subject of book-entry confirmation;
. the participant has received and agrees to be bound by the terms of the
letter of transmittal or, in the case of an agent's message relating to
guaranteed delivery, that the participant has received and agrees to be
bound by the applicable notice of guaranteed delivery; and
. the agreement may be enforced against the participant.
How to Tender if You Are a Beneficial Owner
If you beneficially own outstanding notes that are registered in the name of
a broker, dealer, commercial bank, trust company or other nominee and you wish
to tender those notes, you should contact the registered holder promptly and
instruct it to tender on your behalf. If you are a beneficial owner and wish to
tender on your own behalf, you must, before completing and executing the letter
of transmittal and delivering your outstanding notes, either:
. make appropriate arrangements to register ownership of the outstanding
notes in your name; or
. obtain a properly completed bond power from the registered holder of
outstanding notes.
31
The transfer of registered ownership may take considerable time and may not
be completed before the expiration date.
Signatures and Signature Guarantees
You must have signatures on a letter of transmittal or a notice of
withdrawal described below guaranteed by:
. a member firm of a registered national securities exchange;
. a member of the National Association of Securities Dealers, Inc.;
. a commercial bank or trust company having an office or correspondent in
the United States; or
. an "eligible guarantor institution" within the meaning of Rule 17Ad-15
under the Exchange Act.
The above must be a member of one of the recognized signature guarantee
programs identified in the letter of transmittal, unless the outstanding notes
are tendered:
. by a registered holder who has not completed the box entitled "Special
Issuance Instructions" or "Special Delivery Instructions" on the letter
of transmittal and the new notes are being issued directly to the
registered holder of the outstanding notes tendered in the exchange for
those new notes; or
. for the account of a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in
the United States, or an eligible guarantor institution.
When Endorsements or Bond Powers are Needed
If the letter of transmittal is signed by a person other than the registered
holder of any outstanding notes, the outstanding notes must be endorsed or
accompanied by a properly completed bond power. The bond power must be signed
by the registered holder as the registered holder's name appears on the
outstanding notes and a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the
United States or an eligible guarantor institution must guarantee the signature
on the bond power.
If the letter of transmittal or any outstanding notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, those persons should so indicate when signing. They should also
submit evidence of their authority to deliver the letter of transmittal
satisfactory to us unless we waive this requirement.
Determinations Under the Exchange Offer
We will determine in our sole discretion all questions as to the validity,
form, eligibility, time of receipt, acceptance of tendered outstanding notes
and withdrawal of tendered outstanding notes. Our determination will be final
and binding. We reserve the absolute right to reject any outstanding notes not
property tendered or any outstanding notes our acceptance of which would, in
the opinion of our counsel, be unlawful. We also reserve the right to waive any
defects, irregularities or conditions of tender as to particular outstanding
notes. Our interpretation of the terms and conditions of the exchange offer,
including the instructions in the letter of transmittal, will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of outstanding notes must be cured within the time we
shall determine. Neither we, the exchange agent nor any other person will be
under any duty to give notification of defects or irregularities with respect
to tenders of outstanding notes, and none of the aforementioned will incur
liability for failure to give notification. Tenders of outstanding notes will
not be deemed made until any defects or irregularities have been cured or
waived. Any outstanding notes received by the exchange agent that are not
properly tendered and as to which the defects or irregularities have not been
cured or waived will be returned to the tendering holder, unless otherwise
provided in the letter of transmittal, as soon as practicable following the
expiration date.
32
When We Will Issue New Notes
In all cases, we will issue new notes for outstanding notes that we have
accepted for exchange under the exchange offer only after the exchange agent
timely receives:
. outstanding notes or a timely book-entry confirmation of the outstanding
notes into the exchange agent's account at DTC; and
. a properly completed and duly executed letter of transmittal and all
other required documents or a properly transmitted agent's message.
Return of Outstanding Notes Not Accepted or Exchanged
If we do not accept any tendered outstanding notes for exchange for any
reason described in the terms and conditions of the exchange offer or if
outstanding notes are submitted for a greater principal amount than the holder
desires to exchange, the unaccepted or nonexchanged outstanding notes will be
returned without expense to their tendering holder. In the case of outstanding
notes tendered by book-entry transfer into the exchange agent's account at DTC
according to the procedures described below, the nonexchanged outstanding notes
will be credited to an account maintained with DTC. These actions will occur as
promptly as practicable after the expiration or termination of the exchange
offer.
Your Representations to Us
By signing or agreeing to be bound by the letter of transmittal, you will
represent that, among other things:
. you are not an "affiliate," as defined in Rule 405 of the Securities
Act, of us or a broker-dealer tendering outstanding notes acquired
directly from us for your own account;
. if you are not a broker-dealer or are a broker-dealer but will not
receive new notes for your own account in exchange for outstanding
notes, you are not engaged in and do not intend to participate in a
distribution of the new notes;
. you have no arrangement or understanding with any person to participate
in a distribution of the outstanding notes or the new notes within the
meaning of the Securities Act;
. you are acquiring the new notes in the ordinary course of your business;
and
. if you are a broker-dealer that will receive new notes for your own
account in exchange for outstanding notes, you represent that the
outstanding notes to be exchanged for new notes were acquired by you as
a result of market-making activities or other trading activities and you
acknowledge that you will deliver a prospectus meeting the requirements
of the Securities Act in connection with the resale of any new notes. It
is understood that you are not admitting that you are an "underwriter"
within the meaning of the Securities Act by acknowledging that you will
deliver, and by delivery of, a prospectus.
Guaranteed Delivery Procedures
If you wish to tender your outstanding notes but your outstanding notes are
not immediately available or you cannot deliver your outstanding notes, the
letter of transmittal or any other required documents to the exchange agent or
comply with the applicable procedures under DTC's automated tender offer
program before the expiration date, you may tender if:
. the tender is made through a member firm of a registered national
securities exchange or of the National Association of Securities
Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an eligible guarantor institution;
33
. before the expiration date, the exchange agent receives from the member
firm of a registered national securities exchange or of the National
Association of Securities Dealers, Inc., commercial bank or trust
company having an office or correspondent in the United States, or
eligible guarantor institution either a properly completed and duly
executed notice of guaranteed delivery by facsimile transmission, mail
or hand delivery or a properly transmitted agent's message and notice of
guaranteed delivery:
--stating your name and address, the registered number(s) of your
outstanding notes and the principal amount of outstanding notes
tendered;
--stating that the tender is being made; and
--guaranteeing that, within five business days after the expiration
date, the letter of transmittal or facsimile thereof, together with the
outstanding notes or a book-entry confirmation and any other documents
required by the letter of transmittal will be deposited by the eligible
guarantor institution with the exchange agent; and
. the exchange agent receives the properly completed and executed letter
of transmittal or facsimile thereof, as well as all tendered outstanding
notes in proper form for transfer or a book-entry confirmation and all
other documents required by the letter of transmittal, within three
business days after the expiration date.
Upon request to the exchange agent, the exchange agent will send you a
notice of guaranteed delivery if you wish to tender your outstanding notes
using the guaranteed delivery procedures described above.
Withdrawal of Tenders
Except as otherwise provided in this prospectus, you may withdraw your
tender at any time before 5:00 p.m., New York City time, on the expiration date
unless previously accepted for exchange. For a withdrawal to be effective:
. the exchange agent must receive a written notice of withdrawal at one of
the addresses listed above under "Prospectus Summary--The Exchange
Agent"; or
. the withdrawing holder must comply with the appropriate procedures of
DTC's automated tender offer program system.
Any notice of withdrawal must:
. specify the name of the person (whom we refer to as the depositor) who
tendered the outstanding notes to be withdrawn;
. identify the outstanding notes to be withdrawn, including the
registration number or numbers and the principal amount of the
outstanding notes;
. be signed by the depositor in the same manner as the original signature
on the letter of transmittal used to deposit those outstanding notes or
be accompanied by documents of transfer sufficient to permit the trustee
for the outstanding notes to register the transfer into the name of the
depositor withdrawing the tender; and
. specify the name in which the outstanding notes are to be registered, if
different from that of the depositor.
If outstanding notes have been tendered under the procedure for book-entry
transfer described above, any notice of withdrawal must specify the name and
number of the account at DTC to be credited with the withdrawn outstanding
notes and otherwise comply with the procedures of DTC.
We will determine all questions as to the validity, form, eligibility and
time of receipt of notice of withdrawal, and our determination shall be final
and binding on all parties. We will deem any outstanding notes so withdrawn not
to have been validly tendered for exchange for purposes of the exchange offer.
34
Any outstanding notes that have been tendered for exchange but that are not
exchanged for any reason will be returned to their holder without cost to the
holder or, in the case of outstanding notes tendered by book-entry transfer
into the exchange agent's account at DTC according to the procedures described
above, the outstanding notes will be credited to an account maintained with DTC
for the outstanding notes. This return or crediting will take place as soon as
practicable after withdrawal, rejection of tender or termination of the
exchange offer. Holders may retender properly withdrawn outstanding notes by
following one of the procedures described under "--Procedures for Tendering"
above at any time on or before the expiration date.
Fees and Expenses
We will bear the expenses of soliciting tenders. The principal solicitation
is being made by mail, but we may make additional solicitation by telegraph,
telephone or in person by our officers and regular employees and those of our
affiliates and the exchange agent.
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to broker-dealers or others soliciting
acceptances of the exchange offer. We will, however, pay the exchange agent
reasonable and customary fees for its services and reimburse it for its related
reasonable out-of-pocket expenses. We may also pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of this prospectus, letters of
transmittal and related documents to the beneficial owners of the outstanding
notes and in handling or forwarding tenders for exchange.
We will pay the cash expenses to be incurred in connection with the exchange
offer, including:
. SEC registration fees;
. fees and expenses of the exchange agent and trustee;
. accounting and legal fees and printing costs; and
. related fees and expenses.
Transfer Taxes
We will pay all transfer taxes, if any, applicable to the exchange of
outstanding notes under the exchange offer. The tendering holder, however, will
be required to pay any transfer taxes, whether imposed on the registered holder
or any other person, if:
. certificates representing outstanding notes for principal amounts not
tendered or accepted for exchange are to be delivered to, or are to be
issued in the name of, any person other than the registered holder of
outstanding notes tendered;
. tendered outstanding notes are registered in the name of any person
other than the person signing the letter of transmittal; or
. a transfer tax is imposed for any reason other than the exchange of
outstanding notes under the exchange offer.
If satisfactory evidence of payment of any transfer taxes payable by a note
holder is not submitted with the letter of transmittal, the amount of the
transfer taxes will be billed directly to that tendering holder.
Consequences of Failure to Exchange
If you do not exchange your outstanding notes for new notes in the exchange
offer, your notes will remain subject to the existing restrictions on transfer.
In general, you may not offer or sell the outstanding notes unless they are
registered under the Securities Act or the offer or sale is exempt from
registration under the Securities Act and applicable state securities laws.
Except as required by the registration rights agreement, we do not
35
intend to register resales of the outstanding notes under the Securities Act.
Based on interpretations of the SEC staff, you may offer for resale, resell or
otherwise transfer new notes issued in the exchange offer without compliance
with the registration and prospectus delivery provisions of the Securities Act,
if:
. you are not our "affiliate" within the meaning of Rule 405 under the
Securities Act;
. you acquired the new notes in the ordinary course of your business; and
. you have no arrangement or understanding with respect to the
distribution of the new notes to be acquired in the exchange offer.
If you tender in the exchange offer for the purpose of participating in a
distribution of the new notes:
. you cannot rely on the applicable interpretations of the SEC; and
. you must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction.
Accounting Treatment
We will not recognize a gain or loss for accounting purposes upon the
consummation of the exchange offer. We will amortize expenses of the exchange
offer over the term of the new notes under accounting principles generally
accepted in the United States of America.
Other
Participation in the exchange offer is voluntary, and you should carefully
consider whether to accept. You are urged to consult your financial and tax
advisors in making your own decision on what action to take.
We may, in the future, seek to acquire untendered outstanding notes in open-
market or privately negotiated transactions, through subsequent exchange offers
or otherwise. We have no present plans to acquire any outstanding notes that
are not tendered in the exchange offer or to file a registration statement to
permit resales of any untendered outstanding notes.
36
DESCRIPTION OF OTHER INDEBTEDNESS
Credit Facility
Prior to the application of the net proceeds of the offering of the
outstanding notes, Lyondell's credit facility consisted of two separate term
loans and a $500 million revolving credit facility to be used for general
corporate purposes. As of December 31, 2001, the principal amounts
outstanding, then-current interest rates and maturity dates of the term loans
and revolving credit facility were as follows:
Principal
Amount
Debt Outstanding Interest Rate Maturity
---- ------------ ----------------- -------------
Term Loan E..................... $634 million LIBOR plus 4.375% June 30, 2006
Revolving loans(a).............. -- LIBOR plus 3.500% June 30, 2003
- --------
(a) We are required to pay a commitment fee of 0.500% per annum on the unused
portion of the revolving credit facility. The applicable interest rate
margin payable by us will vary depending on our unsecured senior debt
rating.
The net proceeds from the sale of the outstanding notes were used to prepay
all of Term Loan B and $192 million aggregate principal amount of Term Loan E.
Security
Our obligations under the credit facility are secured by equal and ratable
liens on the collateral that will secure the new notes and certain other
outstanding debt.
Subsidiary Guarantees
Our obligations under the credit facility are guaranteed by the
subsidiaries that will initially guarantee the new notes.
Covenants
Our credit facility contains covenants that, subject to exceptions,
restrict sale and leaseback transactions, lien incurrence, debt incurrence,
dividends and investments, sales of assets and mergers and consolidations, and
require us to use our best efforts to maintain certain ownership interests in
certain of our existing joint ventures and to ensure that certain of our
existing joint ventures limit capital expenditure and debt levels and maintain
cash distribution policies. In addition, the credit facility requires us to
maintain specified financial ratios and consolidated net worth. The breach of
these covenants could permit the lenders under our credit facility to declare
the loans immediately payable, which would result in an event of default under
our indentures, and could permit the lenders under our credit facility to
terminate future lending commitments. We were in compliance with all such
covenants as of December 31, 2001.
Mandatory Prepayment
We are required to offer to make mandatory prepayments of Term Loan E with
the net cash proceeds of:
. asset sales;
. casualty and condemnation events;
. debt incurrences; and
. equity issuances.
The mandatory prepayment of our Term Loan E obligations will be subject to
specified exceptions, and the lenders thereunder may elect not to receive any
mandatory prepayment. Term Loan B under our credit facility
37
was subject to these same mandatory prepayment provisions. However, all amounts
outstanding under Term Loan B were repaid with a portion of the net proceeds of
the offering of the outstanding notes.
Optional Prepayment
Subject to specified exceptions, we may (1) prepay loans under the credit
facility in a minimum amount of $20 million or any larger multiple of $1
million and (2) terminate any class of loans under the credit facility or
reduce permanently the amount of the commitments of any class of loans under
the credit facility in a minimum amount of $20 million or any larger multiple
of $1 million. Before May 17, 2002, we may offer to prepay amounts under the
Term Loan E portion of the credit facility without prepayment premium, but the
Term Loan E lenders have the option to reject such prepayment. Beginning May
17, 2002, the Term Loan E lenders will no longer have such option, but we will
be required to pay a 2% prepayment premium if we, at our option, prepay amounts
under the Term Loan E portion of the credit facility on or after May 17, 2002
but prior to May 17, 2003, and a 1% premium if we, at our option, prepay
amounts under the Term Loan E portion of the credit facility on or after May
17, 2003 but prior to May 18, 2004. Thereafter, no premiums will be required.
Events of Default
The credit facility includes customary events of default, including a change
of control, as defined in the credit facility.
Existing Senior Secured Notes
As of December 31, 2001, we had outstanding the following senior secured
notes:
. $900 million of 9.625% Senior Secured Notes, Series A, due 2007; and
. $1 billion of 9.875% Senior Secured Notes, Series B, due 2007.
The existing senior secured notes are secured by equal and ratable liens on
the same collateral that will secure the new notes and debt under the credit
facility, and these existing notes are guaranteed by the same subsidiaries that
guarantee the outstanding notes and will guarantee the new notes. The
indentures for the existing senior secured notes contain covenant, asset sale,
change of control and event of default provisions substantially similar to the
covenant, asset sale, change of control and event of default provisions in the
indenture governing the notes.
Senior Subordinated Notes
As of December 31, 2001, we had outstanding $500 million of 10.875% Senior
Subordinated Notes due 2009. These senior subordinated notes are guaranteed by
the same subsidiaries that will guarantee the new notes. The indenture for the
senior subordinated notes contains covenant, asset sale, change of control and
event of default provisions substantially similar to the covenant, asset sale,
change of control and event of default provisions in the indenture governing
the notes.
Lyondell Debentures
As of December 31, 2001, we had the following outstanding debentures that
were originally issued by ARCO Chemical, which was acquired by Lyondell in 1998
and merged into Lyondell in 1999:
. $100 million of 9.375% debentures due 2005;
. $100 million of 10.250% debentures due 2010; and
. $224 million of 9.800% debentures due 2020.
38
The debentures are secured by liens on Lyondell's manufacturing plants
located in Texas and Louisiana that are equal and ratable with the liens on
those assets that secure the outstanding notes, the new notes and the loans
under the credit facility. The indentures for these debentures contain
limitations on liens and sale and leaseback transactions.
Joint Venture Debt
Equistar Debt
In August 2001, Equistar completed a $700 million placement of seven-year
senior unsecured notes and amended and restated its credit facility. A portion
of the net proceeds from the sale of the Equistar notes, together with $365
million of borrowings under the Equistar credit facility, were used to
refinance $820 million of revolving credit borrowings that were scheduled to
mature in November 2002 and $90 million of medium term notes that matured in
August 2001. The remaining net proceeds of the financing will be used for
general business purposes. As of December 31, 2001, the principal amounts
outstanding, then-current interest rates and maturity dates of the debt
obligations of Equistar were as follows:
Principal
Amount
Debt Outstanding Interest Rate Maturity
---- ------------ --------------------------- ------------------
Credit Facility
Revolving loans(a).... -- LIBOR plus 1.000% to 2.000% August 2006
Term loans............ $299 million LIBOR plus 3.000% August 2007
Notes due 2002(b)....... $100 million 9.125% March 2002
Notes due 2004.......... $300 million 8.500% February 2004
Notes due 2006(b)....... $150 million 6.500% February 2006
Notes due 2008.......... $700 million 10.125% August 2008
Notes due 2009.......... $598 million 8.750% February 2009
Debentures due 2026(b).. $150 million 7.550% February 2026
Medium-term notes(b).... $ 31 million 9.500%-11.200% Various dates from
September 2002 to
March 2005
- --------
(a) Equistar currently also pays a facility fee of 0.750% per annum on the
entire $500 million revolving credit facility. The applicable margin and
facility fee for revolving credit facility borrowings will vary depending
on Equistar's leverage ratio and usage of the revolving credit facility.
(b) This debt was assumed by Equistar from Lyondell in connection with
Equistar's formation in 1997. Lyondell remains a guarantor of this debt
(or, in the case of the medium-term notes, a co-obligor, although Equistar
is primarily liable as between the two entities).
Equistar Covenants
Equistar's credit facility and senior unsecured notes indenture contain
covenants that, subject to exceptions, restrict sale and leaseback
transactions, investments, certain payments, lien incurrence, debt incurrence,
sales of assets and mergers and consolidations and contain customary events of
default, including a change of control. In addition, the Equistar credit
facility requires Equistar to maintain specified financial ratios, in all cases
as provided in the credit facility. The breach of these covenants could permit
the lenders under Equistar's credit facility to declare the loans immediately
payable, which would result in an event of default under the indenture for the
Equistar notes due 2008, and could permit the lenders under Equistar's credit
facility to terminate future lending commitments. The Equistar credit facility
is secured by a lien on Equistar's accounts receivable, inventory, other
personal property and certain fixed assets. Equistar's debt instruments do not
prohibit the payment by it of distributions to its owners, but its credit
facility and senior notes due 2008 require the payment of additional interest
if, at the time of, or as a result of, payment of any such dividend, Equistar's
interest coverage ratio, as defined therein, is less than 1.75 to 1. Equistar
was in compliance with all covenants under its debt instruments as of December
31, 2001.
39
LCR Debt
As of December 31, 2001, the principal amounts outstanding, then-current
interest rates and maturity dates of the debt obligations of LCR were as
follows:
Principal
Amount
Debt Outstanding Interest Rate Maturity
---- ------------ ------------------------ ------------
Credit Facility
$70 million revolving
credit agreement......... $ 50 million LIBOR plus 2.000% January 2003
Term loans................ $450 million LIBOR plus 2.000% January 2003
Loans Payable to Lyondell... $229 million LIBOR plus basis July 2003
points consistent with a
BBB+ issuer
Loans Payable to CITGO...... $ 35 million LIBOR plus basis July 2003
points consistent with a
BBB+ issuer
LCR Covenants
Under the covenant provisions of its credit agreements, LCR has agreed to,
among other things, maintain certain specified financial ratios (including a
consolidated net worth, debt to total capitalization, interest coverage ratio
and leverage ratio), not enter into certain transactions with affiliates, not
make certain investments, not create certain liens, not incur certain debt, not
make distributions (including distributions to its owners during an event of
default or repurchases of its capital securities), not allow its subsidiaries
to incur certain debt, not enter into certain asset sales and not take certain
specified actions with respect to its crude supply agreement, products purchase
agreement or certain of LCR's formation documents. LCR was in compliance with
each of such covenants as of December 31, 2001. The breach by LCR of any of the
covenants or financial requirements in its credit agreement could result in a
default, which would permit the lenders to declare the loans immediately
payable and to terminate future lending commitments.
40
DESCRIPTION OF NEW NOTES
As used in this "Description of New Notes," the term "Company" refers to
Lyondell Chemical Company and not to any of its subsidiaries. For definitions
of certain terms used in the following summary, see "--Certain Definitions."
General
The form and the term of the new notes are the same as the form and term of
the outstanding notes they will replace, except that:
. we will register the new notes under the Securities Act;
. the new notes, once registered, will not bear legends restricting
transfer; and
. holders of the new notes will not be entitled to some rights under the
registration rights agreement, including our payment of liquidated
damages for failure to meet specified deadlines that will terminate when
the exchange offer is consummated.
The new notes will be issued solely in exchange for an equal principal
amount of outstanding notes. As of the date of this prospectus, $393 million
aggregate of 9 1/2% senior secured notes are outstanding. See "The Exchange
Offer."
The new notes will mature on December 15, 2008 and will bear interest at the
rate of 9 1/2% per annum. Interest on the new notes will accrue from December
4, 2001, the date the outstanding notes were issued, and will be payable
semiannually in arrears on June 15 and December 15 of each year, commencing
June 15, 2002. We will make each interest payment to the holders of record of
the new notes at the close of business on the June 1 or December 1 preceding
such interest payment date. Interest will be computed on the basis of a 360-day
year of twelve 30-day months.
The new notes will be issued pursuant to the existing indenture relating to
the outstanding notes among the Company, the Subsidiary Guarantors party
thereto and The Bank of New York, as trustee (the Trustee). The terms of the
new notes include those stated in the indenture and those made part of the
indenture by reference to the Trust Indenture Act of 1939, as amended (the
Trust Indenture Act). The new notes are subject to all such terms, and holders
of new notes are referred to the indenture and the Trust Indenture Act for a
statement of all the terms. Because this is a summary, it does not contain all
the information that may be important to you. You should read the indenture in
its entirety, including the definitions in the indenture of certain terms used
below. Copies of the indenture and the Security Documents (as defined under "--
Security") are filed as exhibits to the registration statement of which this
prospectus forms a part.
The new notes will be general secured obligations of the Company and will
rank pari passu in right of payment with all other existing and future
unsubordinated Indebtedness of the Company, including Indebtedness under the
Existing Credit Facility and the Existing Senior Secured Notes. While unsecured
and unsubordinated indebtedness ranks pari passu with the new notes in right of
payment, the holders of the new notes, together with the holders of other
outstanding secured indebtedness, may, to the exclusion of unsecured creditors,
seek recourse against the pledged assets as security for the new notes and such
other secured indebtedness until amounts owed under the new notes and the other
secured indebtedness are satisfied in full. The Company's obligations under the
new notes will also be guaranteed on a senior basis by the Subsidiary
Guarantors. See "--Subsidiary Guarantees." ARCO Chemical Technology, Inc., ARCO
Chemical Technology, L.P. and Lyondell Chemical Nederland, Ltd. initially will
be the only Subsidiary Guarantors of the new notes. The Subsidiary Guarantees
will be general unsecured obligations of the Subsidiary Guarantors and will
rank pari passu in right of payment to all existing and future unsubordinated
Indebtedness of the Subsidiary Guarantors. At September 30, 2001, on a pro
forma basis after giving effect to the offering of the outstanding notes and
the exchange offer:
41
. approximately $3.4 billion in principal amount of outstanding
unsubordinated Indebtedness of the Company and the Subsidiary Guarantors
would have been secured, including the new notes, the Indebtedness under
the Existing Credit Facility and the Existing Senior Secured Notes;
. approximately $10 million of outstanding Indebtedness of the Company and
the Subsidiary Guarantors would have been pari passu with the new notes
and unsecured and ranking effectively junior to the new notes to the
extent of the value of the assets securing the new notes, consisting
primarily of hedging obligations and undrawn letters of credit; and
. the $500 million in principal amount of Senior Subordinated Notes are,
by their terms, subordinated to the new notes.
Structural Subordination. Many of the operations of the Company are
conducted through its Subsidiaries and Joint Ventures and, therefore, the
Company is dependent upon the cash flow of its Subsidiaries and Joint Ventures
to meet its obligations, including its obligations under the new notes. The new
notes will be effectively subordinated to all outstanding Indebtedness and
other liabilities and commitments (including trade payables and operating lease
obligations) of the Company's Subsidiaries and Joint Ventures, except to the
extent they are Subsidiary Guarantors. Any right of the Company to receive
assets of any of its Subsidiaries or Joint Ventures that are not Subsidiary
Guarantors upon the latter's liquidation or reorganization or insolvency (and
the consequent right of the holders of new notes to participate in those
assets) will be effectively subordinated to the claims of that Subsidiary's or
Joint Venture's creditors and preferred stockholders, except to the extent that
the Company is itself recognized as a creditor of such Subsidiary or Joint
Venture. In that case, the claims of the Company would still be subordinate to
any lien or security interest in the assets of such Subsidiary or Joint Venture
and any Indebtedness of such Subsidiary or Joint Venture senior to that held by
the Company. At December 31, 2001, after the sale of the outstanding notes and
after giving effect to the exchange offer, the new notes would have been
effectively subordinated to approximately $3.5 billion of outstanding
liabilities of the Company's Joint Ventures, including trade payables, and $78
million of outstanding liabilities, including trade payables, of the
nonguarantor subsidiaries. See "Risk Factors--Risk Factors Relating to Our Debt
and the New Notes--The new notes are subordinated to debt of our subsidiaries
and joint ventures."
Under certain circumstances, the Company will be able to designate current
or future Subsidiaries as Unrestricted Subsidiaries. Unrestricted Subsidiaries
and Joint Ventures, so long as they are not Subsidiaries of the Company (and,
if they are Subsidiaries, at any time that they are designated as Unrestricted
Subsidiaries), will not be subject to many of the restrictive covenants set
forth in the indenture.
Principal, Maturity and Interest
The new notes will mature on December 15, 2008. Interest on the new notes
will accrue at the rate per annum set forth on the cover page hereof and will
be payable semiannually in arrears on June 15 and December 15 of each year,
commencing on June 15, 2002, to holders of record on the immediately preceding
June 1 and December 1, respectively. Interest on the new notes will accrue from
the most recent date to which interest has been paid or, if no interest has
been paid, from the date of issuance.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months. Principal of and premium, if any, and interest and liquidated
damages, if any, on the new notes will be payable at the office or agency of
the Company maintained for such purpose within the City and the State of New
York or, at the option of the Company, payment of interest and liquidated
damages, if any, may be made by check mailed to the holders of the new notes at
their respective addresses set forth in the register of holders of new notes;
provided that all payments with respect to Global Notes, the holders of which
have given wire transfer instructions, on or prior to the relevant record date,
to the paying agent, will be required to be made by wire
42
transfer of immediately available funds to the accounts specified by such
holders. Until otherwise designated by the Company, the Company's office or
agency in New York will be the office of the Trustee maintained for such
purpose. The new notes will initially be issued in global form and, in the
event they are subsequently certificated, in denominations of $1,000 and
integral multiples thereof.
Subject to the covenants described below under "Certain Covenants," the
Company may issue additional notes under the indenture having the same terms in
all respects as the new notes (or in all respects except for the payment of
interest on the new notes (i) scheduled and paid prior to the date of issuance
of such notes or (ii) payable on the first interest payment date following such
date of issuance); provided that the aggregate principal amount of notes
outstanding after giving effect to any such issuance shall not exceed the
amount that may be equally and ratably secured with obligations under the
Existing Credit Facility without causing a default under the Existing Credit
Facility; provided further that prior to any such issuance, the Company shall
have delivered to the Trustee an opinion of counsel confirming that the holders
of the outstanding new notes will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case
if such additional notes were not issued. The new notes and any such additional
notes would be treated as a single class for all purposes under the indenture.
Security
Under the Security Documents referred to below, the new notes will be
secured by a lien equally and ratably with all Senior Indebtedness owing under
the Existing Credit Facility and the Existing Senior Secured Notes (and, with
respect to certain of the Company's manufacturing plants described below, with
Existing ARCO Chemical Debt as well) pursuant to certain security agreements
and pledge agreements, as amended from time to time (collectively, the
"Security Documents") between the Company or certain of its Restricted
Subsidiaries and JP Morgan Chase Bank, as collateral agent.
The liens granted under the Security Documents constitute first-priority
liens, subject to certain exceptions and permitted liens described therein, on:
. personal property of the Company;
. substantially all the stock directly owned by the Company of the
Company's domestic subsidiaries and 65% of the stock directly owned by
the Company of the Company's foreign subsidiaries (other than the stock
of certain subsidiaries for which consent is required in order to permit
a pledge to the extent such consent has not been obtained);
. the rights of certain of the Company's Joint Venture Subsidiaries to
receive distributions from Joint Ventures in which they hold Equity
Interests; and
. mortgages on the Company's facilities located in Bayport, Texas,
Channelview, Texas and Lake Charles, Louisiana
(collectively and together with any other assets that may be pledged from time
to time, the Collateral).
The indenture and the Security Documents also require that holders of the
new notes be granted a lien equally and ratably with any lien granted on
additional assets to secure the holders of Senior Indebtedness under the
Existing Credit Facility subsequent to the Issue Date.
The liens that will secure the new notes also secure the Existing Credit
Facility, the Existing Senior Secured Notes and, in the case of the mortgages,
the Existing Arco Chemical Debt. The new notes, as well as the Existing Senior
Secured Notes and the Existing Arco Chemical Debt, will automatically cease to
be secured by those liens if and when those liens no longer secure the Existing
Credit Facility. The liens that secure the Existing Credit Facility would be
released if such a release were approved by the requisite lenders under the
Existing Credit Facility, and the consent of the holders of the new notes would
not be required for such a release. The Security Documents generally provide
that liens will be automatically released if the assets subject
43
to such lien are transferred or otherwise disposed of in compliance with the
provisions of the Existing Credit Facility. The Existing Credit Facility
specifically provides that liens will be automatically released from assets
that are the subject of a Major Asset Sale and that are transferred to a
Subject Asset Transferee in accordance with the terms of the Existing Credit
Facility. In addition, the collateral agent and the Company may amend the
provisions of the Security Documents with the consent of the requisite lenders
under the Existing Credit Facility and without the consent of the holders of
the new notes. The lenders under the Existing Credit Facility have the sole
ability to control remedies (including upon sale or liquidation after
acceleration of the new notes or the debt under the Existing Credit Facility)
with respect to the collateral. The indenture provides that the Company and
its Restricted Subsidiaries that are parties to any Security Documents will
comply with all the covenants and agreements contained in such Security
Documents the failure to comply with which would have a material and adverse
effect on the Liens purported to be created thereby, unless such failure to
comply is waived by the requisite lenders under the Existing Credit Facility
and, after that waiver, the Company is in compliance with the covenant
described under "Security." See "Risk Factors--Risk Factors Relating to Our
Debt and the New Notes--You may not be able to fully realize the value of your
liens--The security for your benefit can be released without your consent."
From and after the date when all liens granted in favor of the holders of
Senior Indebtedness under the Existing Credit Facility are released, the
provisions regarding security described above will no longer apply. The
provisions of the covenant described below under "Certain Covenants--Liens"
will, however, continue to apply.
Subsidiary Guarantees
ARCO Chemical Technology, Inc., ARCO Chemical Technology, L.P. and Lyondell
Chemical Nederland, Ltd. initially will be the only Subsidiary Guarantors of
the new notes. In addition, the indenture provides that any Restricted
Subsidiary that Guarantees or secures the payment of any other Indebtedness of
the Company or any of its Restricted Subsidiaries must also Guarantee the
payment of the new notes, subject to certain exceptions described below under
"Certain Covenants--Limitations on Issuances of Guarantees of Indebtedness by
Subsidiaries." The Subsidiary Guarantors will unconditionally guarantee the
due and punctual payment of the principal of and premium, if any, and interest
and liquidated damages, if any, on the new notes, when and as the same shall
become due and payable, whether at maturity, upon redemption, by declaration
or otherwise (the "Subsidiary Guarantees"). The terms of each Subsidiary
Guarantee will provide that the obligations of the Subsidiary Guarantor
thereunder will be limited so as not to constitute a fraudulent conveyance
under applicable law. The Subsidiary Guarantees will be general senior
obligations of the Subsidiary Guarantors.
The indenture provides that no Subsidiary Guarantor may consolidate with or
merge with or into (whether or not such Subsidiary Guarantor is the surviving
person) another corporation, person or entity, whether or not affiliated with
such Subsidiary Guarantor unless:
(i) subject to the provisions of the following paragraph, the person
formed by or surviving any such consolidation or merger (if other than the
Company or such Subsidiary Guarantor) assumes all the obligations of such
Subsidiary Guarantor, pursuant to a supplemental indenture in form and
substance reasonably satisfactory to the Trustee, under its Subsidiary
Guarantee;
(ii) immediately after giving effect to such transaction, no Default or
Event of Default exists; and
(iii) the Company would, at the time of such transaction and after
giving pro forma effect thereto as if such transaction had occurred at the
beginning of the applicable four-quarter period,
(A) have a Consolidated Net Worth immediately after the transaction
equal to or greater than the Consolidated Net Worth of the Company
immediately preceding the transaction, and
(B) except with respect to a consolidation or merger with a person
that has no outstanding Indebtedness, be permitted to incur at least
$1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage
Ratio test set forth in the covenant described under the caption
"Certain Covenants--Incurrence of Indebtedness and Issuance of
Preferred Stock."
44
The requirements of clauses (i) and (iii) of this paragraph will not apply in
the case of a consolidation with or merger with or into the Company and the
requirements of clause (iii) of this paragraph will not apply in the case of a
consolidation with or merger with or into another Subsidiary Guarantor.
The indenture provides that:
(i) in the event of a sale or other disposition, by way of merger,
consolidation or otherwise, of all the Capital Stock of any Subsidiary
Guarantor to any person that is not an Affiliate of the Company, such
Subsidiary Guarantor will be released and relieved of any obligations under
its Subsidiary Guarantee; provided that the Net Proceeds of such sale or
other disposition are applied in accordance with the applicable provisions
of the indenture. See "Repurchase at the Option of Holders--Asset Sales";
(ii) upon the release or discharge of the Guarantee that resulted in the
creation of the Subsidiary Guarantee of such Subsidiary Guarantor (or, in
the case of the Subsidiary Guarantee of the new notes by ARCO Chemical
Technology, Inc., ARCO Chemical Technology, L.P. or Lyondell Chemical
Nederland, Ltd., the release or discharge of its Guarantee of Indebtedness
under the Existing Credit Facility and the Existing Senior Secured Notes),
except a discharge or release by or as a result of payment under such
Guarantee, such Subsidiary Guarantor will be released and relieved of any
obligations under its Subsidiary Guarantee; and
(iii) upon the designation of any Subsidiary Guarantor as an
Unrestricted Subsidiary in accordance with the terms of the indenture, such
Subsidiary Guarantor will be released and relieved of any obligations under
its Subsidiary Guarantee.
See "Certain Covenants--Limitations on Issuances of Guarantees of Indebtedness
by Subsidiaries."
Mandatory Redemption
Except as set forth below under "Repurchase at the Option of Holders," the
Company will not be required to make any mandatory redemption or sinking fund
payments with respect to the new notes.
Optional Redemption
The new notes will not be redeemable at the option of the Company prior to
December 15, 2005. Thereafter, the new notes will be subject to redemption at
the option of the Company, in whole or from time to time in part, upon not less
than 30 nor more than 60 days' notice, at the redemption prices (expressed as
percentages of principal amount) set forth below plus accrued and unpaid
interest and liquidated damages, if any, thereon to the applicable redemption
date, if redeemed during the twelve-month period beginning on December 15 of
the following years:
Year Percentage
---- ----------
2005.............................. 104.750%
2006.............................. 102.375%
2007.............................. 100.000%
Selection and Notice
If less than all the new notes are to be redeemed at any time, selection of
new notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which
the new notes are listed or, if the new notes are not so listed, on a pro rata
basis, by lot or by such method as the Trustee shall deem fair and appropriate;
provided that no new notes of $1,000 or less shall be redeemed in part. Notices
of redemption shall be mailed by first class mail at least 30 but not more than
60 days before the redemption date to each holder of new notes to be redeemed
at its registered address. Notices of redemption may not be conditional. If any
new note is to be redeemed in part only, the notice of redemption that relates
to such new note shall state the portion of the principal amount thereof to be
redeemed. A new note
45
in principal amount equal to the unredeemed portion thereof will be issued in
the name of the holder thereof upon cancellation of the original note. New
notes called for redemption become due on the date fixed for redemption. On and
after the redemption date, interest ceases to accrue on new notes or portions
of them called for redemption.
Repurchase at the Option of Holders
Change of Control
Upon the occurrence of a Change of Control, each holder of new notes will
have the right to require the Company to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of such holder's new notes pursuant to
the offer described below (the Change of Control Offer) at an offer price in
cash equal to 101% of the aggregate principal amount thereof plus accrued and
unpaid interest and liquidated damages, if any, thereon to the date of purchase
(the Change of Control Payment) on a date that is not more than 90 days after
the occurrence of such Change of Control (the Change of Control Payment Date).
Within 30 days following any Change of Control, the Company will mail, or at
the Company's request the Trustee will mail, a notice to each holder offering
to repurchase the new notes held by such holder pursuant to the procedures
specified in such notice. The Company will comply with the requirements of Rule
l4e-1 under the Securities Exchange Act of 1934 and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the new notes as a result of a
Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful:
(1) accept for payment all new notes or portions thereof properly
tendered and not withdrawn pursuant to the Change of Control Offer;
(2) deposit with the paying agent an amount equal to the Change of
Control Payment in respect of all new notes or portions thereof so
tendered; and
(3) deliver or cause to be delivered to the Trustee the new notes so
accepted, together with an officers' certificate stating the aggregate
principal amount of new notes or portions thereof being purchased by the
Company.
The paying agent will promptly mail to each holder of new notes so tendered
the Change of Control Payment for such new notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each holder
a note equal in principal amount to any unpurchased portion of the new notes
surrendered, if any; provided that each such note will be in a principal amount
of $1,000 or an integral multiple thereof.
A failure by the Company to comply with the provisions of the two preceding
paragraphs will constitute an Event of Default under the indenture. Except as
described above with respect to a Change of Control, the indenture does not
contain provisions that permit the holders of the new notes to require that the
Company purchase or redeem the new notes in the event of a takeover,
recapitalization or similar transaction. See "Events of Default and Remedies."
There can be no assurance that the Company will have the financial resources
to purchase the new notes, particularly if a Change of Control triggers a
similar repurchase requirement for, or results in the acceleration of, other
Indebtedness. The Existing Senior Secured Notes and Senior Subordinated Notes
contain a similar repurchase requirement. The Existing Credit Facility provides
that certain events constituting a Change of Control will constitute a default
under, and could result in the acceleration of the maturity of, the Existing
Credit Facility. Future indebtedness might contain similar provisions.
Accordingly, the Company might not be able to fulfill its obligation to
repurchase any new notes if a Change of Control occurs. See "Risk Factors--Risk
Factors Relating to Our Debt and the New Notes--We may not be able to
repurchase your new notes upon a change of control."
46
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer at the
same or a higher purchase price, at the same times and otherwise in substantial
compliance with the requirements applicable to a Change of Control Offer made
by the Company and purchases all new notes validly tendered and not withdrawn
under such Change of Control Offer.
"Change of Control" means the occurrence of any of the following: (i) the
sale, transfer, conveyance or other disposition, in one or a series of related
transactions, of all or substantially all the assets of the Company and its
Subsidiaries taken as a whole to any person or group (as such term is used in
Sections 13(d)(3) and 14(d)(2) of the Exchange Act) other than to a person or
group who, prior to such transaction, held a majority of the voting power of
the voting stock of the Company; (ii) the acquisition by any person or group
(as defined above) of a direct or indirect interest in more than 50% of the
voting power of the voting stock of the Company, by way of merger or
consolidation or otherwise; or (iii) the first day on which a majority of the
members of the Board of Directors of the Company are not Continuing Directors.
The phrase "all or substantially all" the assets of the Company will likely
be interpreted under applicable state law and will be dependent upon particular
facts and circumstances. As a result, there may be a degree of uncertainty in
ascertaining whether a sale or transfer of "all or substantially all" the
assets of the Company has occurred, in which case a holder's ability to obtain
the benefit of a Change of Control Offer may be impaired.
Asset Sales
The indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, consummate an Asset Sale unless:
(i) the Company and/or the Restricted Subsidiary, as the case may be,
receives consideration at the time of such Asset Sale at least equal to the
fair market value (as conclusively evidenced by a resolution of the Board
of Directors of the Company set forth in an officers' certificate delivered
to the Trustee) of the assets or Equity Interests issued or sold or
otherwise disposed of; and
(ii) at least 80% of the consideration therefor received by the Company
and/or such Restricted Subsidiary is in the form of:
(A) cash or Cash Equivalents; or
(B) a controlling interest or a joint venture interest (to the
extent otherwise permitted by the indenture) in a business engaged in a
Permitted Business or long-term property or assets that are used or
useful in a Permitted Business;
provided that the amount of (x) any liabilities (as shown on the Company's or
such Restricted Subsidiary's most recent balance sheet) of the Company or any
Restricted Subsidiary (other than contingent liabilities and liabilities that
are by their terms subordinated to the notes or any guarantee thereof) that are
assumed by the transferee of any such assets pursuant to a customary novation
agreement that releases the Company or such Restricted Subsidiary from further
liability and (y) any securities, new notes or other obligations received by
the Company or any such Restricted Subsidiary from such transferee that are
promptly converted by the Company or such Restricted Subsidiary into cash (to
the extent of the cash received) shall be deemed to be cash for purposes of
this provision.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
the Company may apply such Net Proceeds, at its option:
(a) to permanently repay Senior Indebtedness (and to correspondingly
reduce commitments with respect thereto in the case of revolving
borrowings) of the Company or a Subsidiary Guarantor or Indebtedness (and
to correspondingly reduce commitments with respect thereto in the case of
revolving borrowings) of any Restricted Subsidiary that is not a Subsidiary
Guarantor; provided that so long as the new notes are secured, only
repayment of Senior Indebtedness incurred under the Existing Credit
Facility
47
(but not any refinancing thereof other than a credit facility with
commercial banks and other lenders) shall constitute a repayment of
Indebtedness permitted pursuant to this clause (a); or
(b) to acquire a controlling interest or a joint venture interest (to
the extent otherwise permitted by the indenture) in another business or the
making of a capital expenditure or the acquisition of other long-term
assets, in each case, in a Permitted Business (or enter into a binding
commitment for any such expenditure or acquisition); provided that such
binding commitment shall be treated as a permitted application of Net
Proceeds from the date of such commitment until and only until the earlier
of (x) the date on which such expenditure or acquisition is consummated and
(y) the 180th day following the expiration of the aforementioned 360-day
period. If the expenditure or acquisition contemplated by such binding
commitment is not consummated on or before such 180th day and the Company
shall not have applied such Net Proceeds pursuant to clause (a) above on or
before such 180th day, such commitment shall be deemed not to have been a
permitted application of Net Proceeds at any time.
However, so long as the new notes are secured, the Company may not apply Net
Proceeds of a Significant Asset Sale pursuant to clause (b) to satisfy its
obligations under the first sentence of this paragraph except to the extent
that the provisions of the Existing Credit Facility (but not any refinancing
thereof other than a credit facility with commercial banks and other lenders)
require a mandatory prepayment from such proceeds but the requisite lenders
thereunder have waived such mandatory prepayment. Pending the final application
of any such Net Proceeds, the Company may temporarily reduce the revolving
Indebtedness under the Existing Credit Facility or otherwise invest such Net
Proceeds in any manner that is not prohibited by the indenture. Any Net
Proceeds from Asset Sales that are not applied or invested as provided in the
first sentence of this paragraph will be deemed to constitute "Excess
Proceeds." When the aggregate amount of Excess Proceeds under the indenture
exceeds $25 million, the Company will be required to make an offer to all
holders of new notes (an Asset Sale Offer) to purchase the maximum principal
amount of new notes and (i) if the Company is required to do so under the terms
of any other Indebtedness ranking pari passu with such new notes, such other
Indebtedness and (ii) if the Company elects to do so, any Existing ARCO
Chemical Debt, on a pro rata basis with the new notes, that may be purchased
out of the Excess Proceeds, at an offer price in cash in an amount equal to
100% of the principal amount thereof plus accrued and unpaid interest and
liquidated damages, if any, thereon to the date of purchase, in accordance with
the procedures set forth in the indenture. To the extent that the aggregate
amount of new notes (and any other pari passu Indebtedness subject to such
Asset Sale Offer) tendered pursuant to such Asset Sale Offers is less than the
Excess Proceeds, the Company may, subject to the other terms of the indenture,
use any remaining Excess Proceeds for general corporate purposes. If the
aggregate principal amount of new notes surrendered by holders thereof in
connection with any Asset Sale Offer exceeds the amount of Excess Proceeds, the
Trustee shall select the new notes to be purchased on a pro rata basis with the
outstanding notes not tendered for exchange. Upon completion of the offer to
purchase made under the indenture, the amount of Excess Proceeds under the
indenture shall be reset at zero.
Certain Covenants
Restricted Payments
The Company will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly:
(i) declare or pay any dividend or make any distribution on account of
the Company's or any of its Restricted Subsidiaries' Equity Interests
(other than (x) dividends or distributions payable in Qualified Equity
Interests of the Company and (y) dividends or distributions payable to the
Company or any Restricted Subsidiary of the Company);
(ii) purchase, redeem or otherwise acquire or retire for value any
Equity Interests of the Company, any of its Restricted Subsidiaries or any
Affiliate of the Company (other than any such Equity Interests owned by the
Company or any of its Restricted Subsidiaries);
(iii) make any principal payment on, or purchase, redeem, defease or
otherwise acquire or retire for value any Indebtedness (Subordinated Debt)
of the Company or any Restricted Subsidiary that is
48
subordinated by its terms to the new notes or the Subsidiary Guarantees, as
applicable (other than Indebtedness owed to the Company or any Restricted
Subsidiary), except, in each case, payment of interest or principal at
Stated Maturity; or
(iv) make any Restricted Investment (all such payments and other actions
set forth in clauses (i) through (iv) above being collectively referred to
as Restricted Payments);
unless, at the time of and after giving effect to such Restricted Payment (the
amount of any such Restricted Payment, if other than cash, shall be the fair
market value (as conclusively evidenced by a resolution of the Board of
Directors) of the asset(s) proposed to be transferred by the Company or such
Restricted Subsidiary, as the case may be, pursuant to such Restricted
Payment):
(a) no Default or Event of Default shall have occurred and be continuing
after giving effect thereto;
(b) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the most recently ended four full fiscal quarters for
which financial statements have been filed with the Commission pursuant to
the covenant described below under the caption "Reports" immediately
preceding the date of such Restricted Payment, have been permitted to incur
at least $1.00 of additional Indebtedness pursuant to the Fixed Charge
Coverage Ratio test set forth in the first paragraph of the covenant in the
indenture described below under the caption "--Incurrence of Indebtedness
and Issuance of Preferred Stock"; and
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Restricted Subsidiaries
after the Existing Notes Issue Date (excluding Restricted Payments
permitted by clauses (b)(to the extent paid to the Company or any of its
Restricted Subsidiaries or to the extent such distributions are deducted as
a minority interest in calculating Consolidated Net Income), (c), (d), (e),
(g), (j), (n) and (p) of the next succeeding paragraph and 50% of any
Restricted Payments permitted by clause (h) of the next succeeding
paragraph), is less than the sum, without duplication, of:
(i) 50% of the Consolidated Net Income of the Company for the period
(taken as one accounting period) from the beginning of the first fiscal
quarter commencing on April 1, 1999, to the end of the Company's most
recently ended fiscal quarter for which financial statements have been
filed with the Commission pursuant to the covenant described below under
the caption "Reports" at the time of such Restricted Payment (or, if
such Consolidated Net Income for such period is a deficit, less 100% of
such deficit), plus
(ii) 100% of the aggregate net cash proceeds received by the Company
or any of its Restricted Subsidiaries from the issue or sale (other than
to a Subsidiary or Joint Venture of the Company) after the Existing
Notes Issue Date of Qualified Equity Interests of the Company or of debt
securities of the Company or any of its Restricted Subsidiaries that
have been converted into or exchanged for such Qualified Equity
Interests of the Company, plus
(iii) to the extent that any Restricted Investment (other than a
Restricted Investment permitted to be made pursuant to clause (g) or (h)
below) that was made after the Existing Notes Issue Date is sold for
cash or otherwise liquidated, repaid or otherwise reduced, including by
way of dividend (to the extent not included in calculating Consolidated
Net Income), for cash, the lesser of (A) the cash return with respect to
such Restricted Investment (less the cost of disposition, if any) and
(B) the initial amount of such Restricted Investment, plus
(iv) an amount equal to the sum of
(A) the net reduction in Investments in Unrestricted Subsidiaries
resulting from dividends, repayments of loans or other transfers of
assets (to the extent not included in calculating Consolidated Net
Income), in each case to the Company or any Restricted Subsidiary
from Unrestricted Subsidiaries, and
49
(B) the portion (proportionate to the Company's equity interest
in such Subsidiary) of the net market value of the net assets of an
Unrestricted Subsidiary at the time such Unrestricted Subsidiary is
designated a Restricted Subsidiary;
provided, however, that the foregoing sum shall not exceed, in the case of
any Unrestricted Subsidiary, the amount of Restricted Investments (other
than Restricted Investments permitted to be made pursuant to clause (g) or
(h) below) previously made after the Existing Notes Issue Date by the
Company or any Restricted Subsidiary in such Unrestricted Subsidiary.
If, other than with respect to payments made under clauses (a) and (n)
below, no Default or Event of Default shall have occurred and be continuing
after giving effect to such Restricted Payment, the foregoing provisions will
not prohibit the following Restricted Payments:
(a) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would have
complied with the provisions of the indenture;
(b) dividends or distributions by any Restricted Subsidiary of the
Company payable
(x) to all holders of a class of Capital Stock of such Restricted
Subsidiary on a pro rata basis or on a basis that is more favorable to
the Company; provided that at least 50% of such class of Capital Stock
is held by the Company and/or one or more of its Restricted
Subsidiaries, or
(y) to all holders of a class of Preferred Stock of a Restricted
Subsidiary that is not a Subsidiary Guarantor issued after the Issue
Date in compliance with the covenant described below under the caption
"--Incurrence of Indebtedness and Issuance of Preferred Stock";
(c) the payment of cash dividends on any series of Disqualified Stock
issued after the Existing Notes Issue Date in an aggregate amount not to
exceed the cash received by the Company since the Existing Notes Issue Date
upon issuance of such Disqualified Stock;
(d) the redemption, repurchase, retirement or other acquisition of any
Equity Interests of the Company, any Restricted Subsidiary or any Joint
Venture (or the acquisition of all the outstanding Equity Interests of any
person that conducts no operations and has no assets or liabilities other
than the ownership of Equity Interests in a Joint Venture) in exchange for,
or out of the net cash proceeds of the substantially concurrent sale (other
than to a Subsidiary or Joint Venture of the Company) of, Qualified Equity
Interests of the Company; provided that the amount of any such net cash
proceeds that are utilized for any such redemption, repurchase, retirement
or other acquisition shall be excluded from clause (c)(ii) of the preceding
paragraph;
(e) the defeasance, redemption or repurchase of Subordinated Debt with
the net cash proceeds from an incurrence of Permitted Refinancing or in
exchange for or out of the net cash proceeds from the substantially
concurrent sale (other than to a Subsidiary or Joint Venture of the
Company) of Qualified Equity Interests of the Company; provided that the
amount of any such net cash proceeds that are utilized for any such
redemption, repurchase, retirement or other acquisition shall be excluded
from clause (c)(ii) of the preceding paragraph;
(f) the repurchase, redemption or other acquisition or retirement for
value of (i) any Equity Interests of the Company or any Subsidiary of the
Company held by any member of the Company's (or any of its Subsidiaries')
management pursuant to any management equity subscription agreement or
stock option agreement or (ii) any Equity Interests of the Company that are
or are intended to be used to satisfy issuances of Equity Interests upon
exercise of employee or director stock options or upon exercise or
satisfaction of other similar instruments outstanding under employee or
director benefit plans of the Company or any Subsidiary of the Company;
provided that the aggregate price paid for all such repurchased, redeemed,
acquired or retired Equity Interests shall not exceed $5 million in any
fiscal year of the Company;
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(g) Restricted Investments in any of the Specified Joint Ventures
(including, without limitation, the purchase of Equity Interests of a
Specified Joint Venture directly from another person or the purchase of all
the outstanding Equity Interests of any person that conducts no operations
and has no assets or liabilities other than the ownership of Equity
Interests of a Specified Joint Venture) to the extent that the proceeds
thereof are used to purchase or redeem an interest of another person in
such Specified Joint Venture (other than the Company, a Restricted
Subsidiary or an Affiliate of the Company, except a person that is deemed
to be an Affiliate solely by virtue of its ownership of Equity Interests of
the Company acquired in exchange for Equity Interests in such Specified
Joint Venture); provided that after giving pro forma effect thereto as if
such Restricted Payment (and any related incurrence of Indebtedness) had
been made at the beginning of the most recently ended four-full-fiscal-
quarter period for which financial statements have been filed with the
Commission pursuant to the covenant described below under the caption
"Reports" immediately preceding the date of such Restricted Payment, the
Company would have been permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in
the first paragraph of the covenant described below under the caption "--
Incurrence of Indebtedness and Issuance of Preferred Stock";
(h) Restricted Investments in any Joint Venture made during any fiscal
year of the Company or within 45 days after the end of such fiscal year in
amounts that, together with all other Restricted Investments made in such
Joint Venture in respect of such fiscal year in reliance on this clause (h)
during such fiscal year or within 45 days after the end of such fiscal
year, do not exceed the amount of dividends or distributions previously
paid in respect of such fiscal year to the Company or any Restricted
Subsidiary by such Joint Venture;
(i) the payment of dividends on the Company's common stock in an
aggregate amount per annum not to exceed the product of (i) $0.90 and (ii)
the sum, without duplication, of (w) the number of shares outstanding on
the day prior to the Existing Notes Issue Date plus (x) 40,250,000 (i.e.,
the number of shares issued in the stock offering made concurrently with
placement of the Existing Senior Secured Notes), plus (y) if the Company
issues shares of its common stock after the Existing Notes Issue Date, to
the extent (1) such shares are issued in exchange for or (2) the net cash
proceeds therefrom are used substantially concurrently to acquire Equity
Interests (held by a person other than the Company, a Restricted Subsidiary
or an Affiliate of the Company, except a person that is deemed to be an
Affiliate solely by virtue of its ownership of Equity Interests of the
Company acquired in exchange for Equity Interests in such Specified Joint
Venture) of a Specified Joint Venture that immediately prior to such
issuance was or as a result of such exchange or acquisition becomes a
Restricted Subsidiary (and such Specified Joint Venture is not subsequently
designated as an Unrestricted Subsidiary), such number of shares of common
stock plus (z) the sum of (1) 1,000,000 and (2) such number of shares of
common stock of the Company as have been or are issued after the Existing
Notes Issue Date pursuant to the exercise of employee or director stock
options granted prior to the Existing Notes Issue Date or issued after the
Existing Notes Issue Date pursuant to other employee or director benefit
plans of the Company or any of its Restricted Subsidiaries or issuable
pursuant to the exercise of employee or director stock options granted
after the Existing Notes Issue Date; provided that the aggregate number of
shares includable pursuant to this clause (z)(2) with respect to shares
issued or issuable during any fiscal year of the Company shall not exceed
1,000,000; provided further that the number of shares referred to in
clauses (y) and (z) shall be adjusted to reflect any stock split (or
reverse stock split) or stock dividend made after the Issue Date and prior
to the date such shares were issued;
(j) distributions or payments of Receivables Fees;
(k) (i) Investments in any Joint Venture or Unrestricted Subsidiary
organized to construct, own and/or operate a propylene oxide plant in the
European Union in an aggregate amount that, together with all other
Investments made pursuant to this clause (k), does not exceed $100.0
million and (ii) the pledge of the Capital Stock of such Joint Venture or
Unrestricted Subsidiary or of a Joint Venture Subsidiary that has no assets
and conducts no operations other than the holding directly or indirectly of
Equity Interests of such Joint Venture to secure Non-Recourse Debt of such
Joint Venture or Unrestricted Subsidiary;
51
(l) (i) (x) the transfer of the TDI Assets to a newly formed Joint
Venture or Unrestricted Subsidiary or (y) the designation of any Restricted
Subsidiary that has no assets or liabilities other than all or a portion of
the TDI Assets as an Unrestricted Subsidiary, in each case, in connection
with the incurrence of Indebtedness by such Joint Venture or Unrestricted
Subsidiary or Rhodia or a wholly owned subsidiary of Rhodia to improve the
Rhodia TDI Plant and (ii) the pledge of the Capital Stock of such Joint
Venture or Unrestricted Subsidiary or of a Joint Venture Subsidiary that
has no assets and conducts no operations other than the holding directly or
indirectly of Equity Interests of such Joint Venture to secure Non-Recourse
Debt of such Joint Venture or Unrestricted Subsidiary or Rhodia or a wholly
owned subsidiary of Rhodia;
(m) the repurchase of any Subordinated Debt at a purchase price not
greater than 101% of the principal amount thereof in the event of (x) a
Change of Control pursuant to a provision no more favorable to the holders
thereof than the provision of the indenture described under "Repurchase at
the Option of Holders--Change of Control" or (y) an Asset Sale pursuant to
a provision no more favorable to the holders thereof than the provision of
the indenture described under "Repurchase at the Option of Holders--Asset
Sales"; provided that, in each case, prior to such repurchase, the Company
has made a Change of Control Offer or Asset Sale Offer, as applicable, and
repurchased all notes issued under the indenture that were validly tendered
for payment in connection with such Change of Control Offer or Asset Sale
Offer;
(n) distributions by any Restricted Subsidiary or Joint Venture of
chemicals to a holder of Capital Stock of such Restricted Subsidiary or
Joint Venture if such distributions are made pursuant to a provision in a
joint venture agreement or other arrangement entered into in connection
with the establishment of such Joint Venture or Restricted Subsidiary that
requires such holder to pay a price for such chemicals equal to that which
would be paid in a comparable transaction negotiated on an arm's-length
basis (or pursuant to a provision that imposes a substantially equivalent
requirement);
(o) any other Restricted Payment that, together with all other
Restricted Payments made pursuant to this clause (o) on or after the
Existing Notes Issue Date, does not exceed $25 million (after giving effect
to any subsequent reduction in the amount of any Investments made pursuant
to this clause (o) as a result of the repayment or other disposition
thereof for cash as set forth in clause (iii) of the first paragraph above,
the amount of such reduction not to exceed the amount of such Investments
previously made pursuant to this clause (o)); and
(p) dividends or distributions by any Joint Venture (other than a
Specified Joint Venture) to all holders of a class of Capital Stock of such
Joint Venture permitted by clause (b)(x) above; provided that after giving
effect to such dividends or distributions and any related transactions, the
Joint Venture making such dividends or distributions to such holders is
contractually entitled to receive, and receives within 180 days before or
after the date of such dividends or distributions, directly or indirectly,
an equivalent or larger cash payment from each such holder (other than from
a holder that is the Company or any Restricted Subsidiary) or from an
Affiliate of such holder, which cash payment has not been previously
applied pursuant to this clause (p) to offset any other dividend or
distribution by such Joint Venture to such holder and (y) such dividends or
distributions do not exceed such holders' pro rata share of the Joint
Venture's cash flows from operating activities, minus any noncash charge to
the extent that it represents an accrual of or reserve for cash
expenditures in any future period or amortization of a prepaid cash expense
in any future period.
The Board of Directors of the Company may designate any Restricted
Subsidiary to be an Unrestricted Subsidiary if such designation would not cause
a Default. For purposes of making such determination, all outstanding
Investments by the Company and its Restricted Subsidiaries in the Subsidiary so
designated will be deemed to be Restricted Payments at the time of such
designation and will reduce the amount available for Restricted Payments under
the first paragraph of this covenant (except to the extent such Investments
were repaid in cash, and, in the case of a Joint Venture (and any Subsidiary of
a Joint Venture) designated as an Unrestricted Subsidiary on the first day that
it is a Subsidiary of the Company, except to the extent that (1) such
52
Investments were made after the Existing Notes Issue Date or (2) in the case of
a Specified Joint Venture, such Investments were made prior to the Existing
Notes Issue Date). All such outstanding Investments (except as provided in the
parenthetical included in the preceding sentence) will be deemed to constitute
Investments in an amount equal to the fair market value of such Investments at
the time of such designation (as conclusively determined by the Board of
Directors). Such designation will only be permitted if any such Restricted
Payment would be permitted at such time and if such Restricted Subsidiary
otherwise meets the definition of an Unrestricted Subsidiary. In the case of
any designation by the Company of a person as an Unrestricted Subsidiary on the
first day that such person is a Subsidiary of the Company in accordance with
the provisions of the indenture, such designation shall be deemed to have
occurred for all purposes of the indenture simultaneously with, and
automatically upon, such person becoming a Subsidiary.
Not later than the date of making any Restricted Payment, other than those
permitted by clauses (b)(x), (f), (j) and (n) above, and not later than the
120th day after making any Restricted Payment permitted by clause (f) above,
the Company shall deliver to the Trustee an officers' certificate stating that
such Restricted Payment is permitted and setting forth the basis upon which the
calculations required by the covenant described under the caption "--Restricted
Payments" were computed.
For purposes of this covenant, any payment made on or after May 17, 1999 but
prior to the Issue Date shall be deemed to be a "Restricted Payment" to the
extent such payment would have been a Restricted Payment had the indenture been
in effect at the time of such payment (and, to the extent that any such
Restricted Payment was permitted by clauses (a) through (p) above, such
Restricted Payment may be deemed by the Company to have been made pursuant to
such clause).
Incurrence of Indebtedness and Issuance of Preferred Stock
The indenture provides that, on or after the Issue Date:
. the Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, issue, assume,
Guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any
Indebtedness (including Acquired Debt);
. the Company will not, and will not permit any of its Restricted
Subsidiaries to, issue any Disqualified Stock (including Acquired
Disqualified Stock); and
. the Company will not permit any of its Restricted Subsidiaries that are
not Subsidiary Guarantors to issue any shares of Preferred Stock
(including Acquired Preferred Stock);
provided, however, that the Company and the Subsidiary Guarantors may incur
Indebtedness (including Acquired Debt) and the Company and the Subsidiary
Guarantors may issue shares of Disqualified Stock (including Acquired
Disqualified Stock) if the Fixed Charge Coverage Ratio for the Company's most
recently ended four full fiscal quarters for which financial statements have
been filed with the Commission pursuant to the covenant described below under
the caption "Reports" immediately preceding the date on which such additional
Indebtedness is incurred or such Disqualified Stock is issued would have been
at least 2.0 to 1, determined on a pro forma basis (including a pro forma
application of the net proceeds therefrom), as if the additional Indebtedness
had been incurred or the Disqualified Stock had been issued, as the case may
be, at the beginning of such four-quarter period. Letters of credit and
bankers' acceptances shall be deemed to have an aggregate principal amount of
Indebtedness equal to the maximum amount available thereunder.
The foregoing provisions will not apply to:
(i) the incurrence by the Company of Indebtedness pursuant to the
Existing Credit Facility (and by its Subsidiaries of Guarantees thereof) in
an aggregate principal amount at any time outstanding not to exceed an
amount equal to $3.477 billion less the aggregate amount of all mandatory
repayments (other than mandatory prepayments triggered solely by the
issuance of Indebtedness or Preferred Stock of a Finance Subsidiary to
refinance the Existing Credit Facility) applied after the Existing Notes
Issue Date to (i) repay
53
loans (other than revolving credit loans) outstanding thereunder or (ii)
permanently reduce the revolving credit commitments thereunder;
(ii) the incurrence by the Company and the Subsidiary Guarantors of
Indebtedness represented by the new notes (other than additional notes) and
the Subsidiary Guarantees thereof;
(iii) the incurrence by the Company and its Restricted Subsidiaries of
Existing Indebtedness (other than Indebtedness of the type described in
clause (i), (ii) or (v) through (xii) of this covenant);
(iv) the incurrence by the Company or any of its Restricted Subsidiaries
of any Permitted Refinancing in exchange for, or the net proceeds of which
are used to extend, refinance, renew, replace, defease or refund,
Indebtedness that was permitted to be incurred under the Fixed Charge
Coverage Ratio test set forth above or clause (ii) or (iii) above or (xiii)
or (xiv) below or this clause (iv);
(v) the incurrence by the Company or any of its Restricted Subsidiaries
of intercompany Indebtedness between or among the Company and any of its
Restricted Subsidiaries; provided, however, that (i) if the Company or any
Subsidiary Guarantor is the obligor on such Indebtedness, such Indebtedness
is expressly subordinated to the prior payment in full in cash of all
Obligations with respect to the new notes or the Subsidiary Guarantee, as
the case may be, and (ii)(A) any subsequent issuance or transfer of Equity
Interests that results in any such Indebtedness being held by a person
other than the Company or a Restricted Subsidiary and (B) any sale or other
transfer of any such Indebtedness to a person that is not either the
Company or a Restricted Subsidiary shall be deemed, in each case, to
constitute an incurrence of such Indebtedness by the Company or such
Restricted Subsidiary, as the case may be;
(vi) the incurrence by the Company or any Restricted Subsidiary of
Hedging Obligations that are incurred for the purpose of (A) fixing or
hedging interest rate or currency risk with respect to any fixed or
floating rate Indebtedness that is permitted by the indenture to be
outstanding or any receivable or liability the payment of which is
determined by reference to a foreign currency; provided that the notional
principal amount of any such Hedging Obligation does not exceed the
principal amount of the Indebtedness to which such Hedging Obligation
relates or (B) fixing or hedging risk with respect to fluctuations in the
cost of raw materials; provided that such obligation is entered into for
valid business purposes other than speculative purposes (as determined by
the Company's or such Restricted Subsidiary's principal financial officer
in the exercise of his or her good faith business judgment);
(vii) the issuance by any of the Company's Restricted Subsidiaries of
shares of Preferred Stock to the Company or a Wholly Owned Restricted
Subsidiary; provided that (A) any subsequent issuance or transfer of Equity
Interests that results in such Preferred Stock being held by a person other
than the Company or a Wholly Owned Restricted Subsidiary or (B) the
transfer or other disposition by the Company or a Wholly Owned Restricted
Subsidiary of any such shares to a person other than the Company or a
Wholly Owned Restricted Subsidiary shall be deemed, in each case, to
constitute an issuance of such Preferred Stock by such Subsidiary on such
date that is not permitted by this clause (vii);
(viii) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness represented by tender, bid, performance,
government contract, surety or appeal bonds, standby letters of credit and
warranty and contractual service obligations of like nature, trade letters
of credit or documentary letters of credit, in each case to the extent
incurred in the ordinary course of business of the Company or such
Restricted Subsidiary and the incurrence by the Company of Indebtedness
represented by letters of credit incurred in connection with the PBGC
Settlement;
(ix) the incurrence by any Restricted Subsidiary of the Company of
Indebtedness or the issuance by any Restricted Subsidiary of Preferred
Stock, the aggregate principal amount or liquidation preference of which,
together with all other Indebtedness and Preferred Stock of the Company's
Restricted Subsidiaries at the time outstanding and incurred or issued in
reliance upon this clause (ix), does not exceed $50.0 million;
54
(x) the issuance by any Finance Subsidiary of Preferred Stock with an
aggregate liquidation preference not exceeding the amount of Indebtedness
of the Company held by such Finance Subsidiary; provided that the Fixed
Charge Coverage Ratio for the Company's most recently ended four full
fiscal quarters for which financial statements have been filed with the
Commission pursuant to the covenant described below under the caption
"Reports" immediately preceding the date on which such Preferred Stock is
issued would have been at least 2.0 to 1, determined on a pro forma basis
(including a pro forma application of the net proceeds therefrom) as if
such Preferred Stock had been issued at the beginning of such four-quarter
period;
(xi) the incurrence of Indebtedness by Foreign Subsidiaries in an
aggregate principal amount (or accreted value, as applicable) at any time
outstanding and incurred in reliance upon this clause (xi) not to exceed
$100.0 million;
(xii) the Guarantee by any Restricted Subsidiary of Indebtedness of the
Company or a Restricted Subsidiary that was permitted to be incurred by
another provision of this covenant;
(xiii) Acquired Debt or Acquired Disqualified Stock; provided that such
Indebtedness or Disqualified Stock was not incurred in connection with or
in contemplation of such person's becoming a Restricted Subsidiary; and
provided further that immediately after giving effect to such incurrence,
the Fixed Charge Coverage Ratio for the Company's most recently ended four
full fiscal quarters for which financial statements have been filed with
the Commission pursuant to the covenant described below under the caption
"Reports" immediately preceding the date of such incurrence would have been
at least 2.0 to 1, determined on a pro forma basis;
(xiv) Indebtedness or Disqualified Stock of a Specified Joint Venture or
a Subsidiary thereof existing at the time such Specified Joint Venture
first becomes a Restricted Subsidiary; provided that such Indebtedness or
Disqualified Stock was not incurred in connection with or in contemplation
of such Specified Joint Venture's becoming a Restricted Subsidiary; and
provided further that immediately after giving effect to such Specified
Joint Venture's becoming a Restricted Subsidiary, the Fixed Charge Coverage
Ratio for the Company's most recently ended four full fiscal quarters for
which financial statements have been filed with the Commission pursuant to
the covenant described below under the caption "Reports" immediately
preceding the date on which such Specified Joint Venture became a
Restricted Subsidiary would have been, determined on a pro forma basis, (i)
at least 2.0 to 1 or (ii) equal to or greater than it was immediately prior
to such Specified Joint Venture's becoming a Restricted Subsidiary;
(xv) with respect to any Specified Joint Venture that becomes a
Restricted Subsidiary, the incurrence by such Specified Joint Venture of
Indebtedness under any revolving credit facility in an aggregate principal
amount at any time outstanding not to exceed the aggregate principal amount
of committed financing under all revolving credit facilities of such
Specified Joint Venture as in effect on the Issue Date; and
(xvi) the incurrence by the Company or any Subsidiary Guarantor of
Indebtedness in an aggregate principal amount (or accreted value, as
applicable) at any time outstanding and incurred in reliance on this clause
(xvi) not to exceed $25.0 million.
For purposes of determining compliance with this covenant, in the event that
an item of Indebtedness or Preferred Stock meets the criteria of more than one
of the categories of permitted Indebtedness described in clauses (i) through
(xvi) above or is entitled to be incurred pursuant to the first paragraph of
this covenant, the Company shall, in its sole discretion, classify such item of
Indebtedness or Preferred Stock in any manner that complies with this covenant,
and such Indebtedness or Preferred Stock will be treated as having been
incurred pursuant to the clauses or the first paragraph hereof, as the case may
be, designated by the Company. The amount of Indebtedness issued at a price
which is less than the principal amount thereof shall be equal to the amount of
the liability in respect thereof determined in accordance with GAAP.
55
Liens
The indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, create, incur, assume
or suffer to exist any Lien (except Permitted Liens) on any asset now owned or
hereafter acquired, or any income or profits therefrom, unless all payments due
under the indenture and the new notes or the Subsidiary Guarantees are secured
on an equal and ratable basis with the obligations so secured (or, if such
obligations are subordinated by their terms to the new notes or the Subsidiary
Guarantees, prior to the obligations so secured) until such time as such
obligations are no longer so secured.
Dividend and Other Payment Restrictions Affecting Subsidiaries and Joint
Ventures
The indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any restriction on the ability of
any Restricted Subsidiary to:
(i)(a) pay dividends or make any other distributions to the Company or
any of its Restricted Subsidiaries:
(1) on its Capital Stock, or
(2) with respect to any other interest or participation in, or
measured by, its profits, or
(b) pay any Indebtedness owed to the Company or any of its Restricted
Subsidiaries;
(ii) make loans or advances to the Company or any of its Restricted
Subsidiaries; or
(iii) transfer any of its properties or assets to the Company or any of
its Restricted Subsidiaries;
except for such restrictions existing under or by reason of:
(a) existing agreements as in effect on the Issue Date;
(b) Indebtedness permitted by the indenture to be incurred containing
restrictions on the ability of Restricted Subsidiaries to consummate
transactions of the types described in clause (i), (ii) or (iii) above not
materially more restrictive than those contained in the indenture;
(c) the indenture;
(d) applicable law;
(e) existing restrictions with respect to a person acquired by the
Company or any of its Restricted Subsidiaries (except to the extent such
restrictions were put in place in connection with or in contemplation of
such acquisition), which restrictions are not applicable to any person, or
the properties or assets of any person, other than the person, or the
property or assets of the person, so acquired;
(f) customary non-assignment provisions in leases and other agreements
entered into in the ordinary course of business;
(g) construction loans and purchase money obligations (including Capital
Lease Obligations) for property acquired in the ordinary course of business
that impose restrictions of the nature described in clause (iii) above on
the property so constructed or acquired;
(h) in the case of clause (iii) above, restrictions contained in
security agreements or mortgages securing Indebtedness of a Restricted
Subsidiary to the extent such restrictions restrict the transfer of the
property subject to such security agreements or mortgages;
(i) a Permitted Refinancing, provided that the restrictions contained in
the agreements governing such Permitted Refinancing are not materially more
restrictive, taken as a whole, than those contained in the agreements
governing the Indebtedness being refinanced (as conclusively evidenced by a
resolution of the Board of Directors);
56
(j) customary restrictions on a Finance Subsidiary imposed in such
Finance Subsidiary's organizational documents or by the terms of its
Preferred Stock;
(k) any restriction with respect to shares of Capital Stock of a
Restricted Subsidiary imposed pursuant to an agreement entered into for the
sale or disposition of such shares of Capital Stock or any restriction with
respect to the assets of a Restricted Subsidiary imposed pursuant to an
agreement entered into for the sale or disposition of such assets or all or
substantially all the Capital Stock of such Restricted Subsidiary pending
the closing of such sale or disposition;
(l) in the case of any Restricted Subsidiary that is a Joint Venture,
customary restrictions on such Restricted Subsidiary contained in its joint
venture agreement, which restrictions are consistent with the past practice
of the Company and its Restricted Subsidiaries (as conclusively evidenced
by a resolution of the Board of Directors);
(m) existing restrictions with respect to a Specified Joint Venture or
the property or assets thereof or a Subsidiary of a Specified Joint Venture
or the property or assets thereof, in each case, at the time such Specified
Joint Venture first becomes a Restricted Subsidiary (except to the extent
such restrictions were put in place in connection with or in contemplation
of such Specified Joint Venture becoming a Restricted Subsidiary), which
restrictions are not applicable to any person, or the properties or assets
of any person, other than such Specified Joint Venture or the property or
assets thereof or a Subsidiary of such Specified Joint Venture or the
property or assets thereof; and
(n) the Existing Credit Facility and related documentation as the same
is in effect on the Issue Date and as amended, modified, extended, renewed,
refunded, refinanced, restated or replaced from time to time; provided that
the Existing Credit Facility and related documentation as so amended,
modified, extended, reviewed, refunded, refinanced, restated or replaced is
not materially more restrictive, taken as a whole, as to the matters
enumerated above than the Existing Credit Facility and related
documentation as in effect on the Issue Date (as conclusively evidenced by
a resolution of the Board of Directors).
For purposes of determining compliance with this covenant, in the event that
a restriction meets the criteria of more than one of the categories of
permitted restrictions described in clauses (a) through (n) above, the Company
shall, in its sole discretion, classify such restriction in any manner that
complies with this covenant, and such restriction will be treated as existing
pursuant to the clauses designated by the Company.
In addition, the indenture provides that the Company will use best efforts
(consistent with its contractual obligations and fiduciary duties to any Joint
Venture, in each case, as in effect on the Issue Date) not to permit any of its
Joint Ventures that are not Restricted Subsidiaries to, directly or indirectly,
create or otherwise cause or suffer to exist or become effective any
restriction on the ability of such Joint Venture to:
(i)(a) pay dividends or make any other distributions to the Company or
any of its Restricted Subsidiaries:
(1) on its Capital Stock, or
(2) with respect to any other interest or participation in, or
measured by, its profits, or
(b) pay any Indebtedness owed to the Company or any of its Restricted
Subsidiaries;
(ii) make loans or advances to the Company or any of its Restricted
Subsidiaries; or
(iii) transfer any of its properties or assets to the Company or any of
its Restricted Subsidiaries;
except for such restrictions existing under or by reason of:
(a) such Joint Venture's joint venture agreement or its credit facility
(provided that in each case such restrictions are consistent with the past
practice of the Company);
(b) in the case of any Joint Venture existing on the Issue Date, its
existing agreements as in effect on the date of the indenture and as
amended, modified, extended, restated or replaced from time to time;
57
provided that no such amendment, modification, extension, restatement or
replacement results in agreements that are materially more restrictive,
taken as a whole, as to the matters enumerated above than the existing
agreements as in effect on the date of the indenture (as conclusively
evidenced by a resolution of the Board of Directors);
(c) in the case of LCR, any instrument governing its Indebtedness; and
(d) the restrictions described in clauses (d), (e), (f), (g), (h), (j),
(k) and (n) of the first sentence of this covenant (assuming that
references in clauses (h) and (k) to Restricted Subsidiary were references
to a Joint Venture).
Sale and Leaseback Transactions
The indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, enter into any Sale and Leaseback Transaction;
provided that the Company or any Restricted Subsidiary may enter into a Sale
and Leaseback Transaction if:
(a) the Company or such Restricted Subsidiary, as the case may be, could
have:
(i) incurred Indebtedness in an amount equal to the Attributable
Debt relating to such Sale and Leaseback Transaction pursuant to the
Fixed Charge Coverage Ratio test set forth in the first paragraph of
the covenant described under the caption "--Incurrence of Indebtedness
and Issuance of Preferred Stock" (whether or not such covenant has
ceased to be otherwise in effect as described below under "Limitation
on Applicability of Certain Covenants if Notes Rated Investment
Grade"); and
(ii) incurred a Lien to secure such Indebtedness pursuant to the
covenant described under the caption "--Liens" without securing the new
notes; and
(b) the gross cash proceeds of such Sale and Leaseback Transaction are
at least equal to the fair market value (as conclusively determined by the
Board of Directors) of the property that is the subject of such Sale and
Leaseback Transaction.
Line of Business
The indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, engage in any business other than Permitted
Businesses, except to such extent as would not be material to the Company and
its Subsidiaries taken as a whole.
Merger, Consolidation or Sale of Assets
The indenture provides that the Company may not consolidate or merge with or
into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, convey or otherwise dispose of all or substantially all its
assets in one or more related transactions, to another corporation, person or
entity unless: (i) the Company is the surviving corporation or the entity or
the person formed by or surviving any such consolidation or merger (if other
than the Company) or to which such sale, assignment, transfer, conveyance or
other disposition shall have been made is a corporation organized or existing
under the laws of the United States, any state thereof or the District of
Columbia; (ii) the corporation formed by or surviving any such consolidation or
merger (if other than the Company) or the corporation to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made assumes all the Obligations of the Company under the new notes, the
indenture and the Security Documents pursuant to a supplemental indenture in
form reasonably satisfactory to the Trustee; (iii) immediately after such
transaction no Default or Event of Default exists; and (iv) the Company or the
entity or person formed by or surviving any such consolidation or merger (if
other than the Company), or to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made (A) will have a
Consolidated Net Worth immediately after the transaction equal to or
58
greater than the Consolidated Net Worth of the Company immediately preceding
the transaction and (B) except with respect to a consolidation or merger of the
Company with or into a person that has no outstanding Indebtedness, will, at
the time of such transaction and after giving pro forma effect thereto as if
such transaction had occurred at the beginning of the applicable four-quarter
period, be permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Fixed Charge Coverage Ratio test set forth in the first
paragraph of the covenant in the indenture described above under the caption
"--Incurrence of Indebtedness and Issuance of Preferred Stock." The foregoing
shall not prohibit the merger or consolidation of a Wholly Owned Restricted
Subsidiary with the Company; provided that, in connection with any such merger
or consolidation, no consideration (other than common stock in the surviving
person or the Company) shall be issued or distributed to the stockholders of
the Company.
The sale, assignment, transfer, lease, conveyance or other disposition by
the Company of all or substantially all its property or assets taken as a whole
to one or more of the Company's Subsidiaries shall not relieve the Company from
its obligations under the indenture and the new notes. In addition, the
indenture provides that the Company will not lease all or substantially all its
assets to another person.
Transactions With Affiliates
The indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, sell, lease, transfer or otherwise dispose of
any of its properties or assets to, or purchase any property or assets from, or
enter into or make any contract, agreement, understanding, loan, advance or
Guarantee with, or for the benefit of, any Affiliate (each of the foregoing, an
Affiliate Transaction), unless (i) such Affiliate Transaction is on an arm's-
length basis and (ii) the Company delivers to the Trustee (a) with respect to
any Affiliate Transaction involving aggregate consideration in excess of $10
million, a resolution of the Board of Directors set forth in an officers'
certificate certifying that such Affiliate Transaction complies with clause (i)
above and that such Affiliate Transaction has been approved by a majority of
the disinterested members of the Board of Directors and (b) with respect to any
Affiliate Transaction involving aggregate consideration in excess of $25
million, an opinion as to the fairness to the Company or such Restricted
Subsidiary of such Affiliate Transaction from a financial point of view issued
by an investment banking firm of national standing; provided that:
(i) transactions or payments pursuant to any employment arrangements or
employee, officer or director benefit plans or arrangements entered into by
the Company or any of its Restricted Subsidiaries in the ordinary course of
business;
(ii) transactions between or among the Company and/or its Restricted
Subsidiaries;
(iii) any Restricted Payment permitted by the provisions of the
indenture described under the caption "--Restricted Payments," of the type
described in clause (i) or (ii) of the first paragraph thereof;
(iv) customary loans, advances, fees and compensation paid to, and
indemnity provided on behalf of, officers, directors, employees or
consultants of the Company or any of its Restricted Subsidiaries;
(v) transactions entered into on an arm's-length basis in the ordinary
course of business between the Company or any of its Restricted
Subsidiaries and any Joint Venture;
(vi) sales (including a sale in exchange for a promissory note of or
Equity Interest in such Accounts Receivable Subsidiary) of accounts
receivable and the provision of billing, collection and other services in
connection therewith, in each case, to an Accounts Receivable Subsidiary in
connection with any Receivables Facility; and
(vii) transactions pursuant to any contract or agreement in effect on
the date of the indenture as the same may be amended, modified or replaced
from time to time so long as any such contract or agreement as so amended,
modified or replaced is, taken as a whole, no less favorable to the Company
and its Restricted Subsidiaries than the contract or agreement as in effect
on the date of the indenture (as conclusively evidenced by a resolution of
the Board of Directors);
59
in each case, shall not be deemed to be Affiliate Transactions and therefore
not subject to the requirements of clauses (i) and (ii) of the initial
paragraph above.
Limitations on Issuances of Guarantees of Indebtedness by Subsidiaries
The indenture provides that the Company will not permit any Restricted
Subsidiary that is not a Subsidiary Guarantor, directly or indirectly, to
Guarantee or secure the payment of any other Indebtedness of the Company or any
of its Restricted Subsidiaries (except Indebtedness of such Restricted
Subsidiary or a Restricted Subsidiary of such Restricted Subsidiary) unless (i)
such Restricted Subsidiary simultaneously executes and delivers a supplemental
indenture to the indenture providing for the Guarantee of the payment of the
new notes by such Restricted Subsidiary and (ii) such Restricted Subsidiary
waives and agrees not to in any manner whatsoever claim or take the benefit or
advantage of, either (i) any right to receive payment by way of subrogation
against the Company or against any direct or indirect security for such
obligation, or any other right to be reimbursed, indemnified or exonerated by
or for the account of the Company in respect thereof or (ii) any right to
receive payment, in the nature of contribution or for any other reason, from
any other Subsidiary Guarantor with respect to such payment, in each case so
long as any amount payable by the Company under the indenture or under the new
notes remains unpaid; provided that this paragraph shall not be applicable to
(x) any Guarantee of any Restricted Subsidiary that existed at the time such
person became a Restricted Subsidiary and was not incurred in connection with,
or in contemplation of, such person's becoming a Restricted Subsidiary, (y)
Guarantees of Indebtedness of a Restricted Subsidiary that is a Foreign
Subsidiary by a Restricted Subsidiary that is a Foreign Subsidiary or (z) the
granting of Liens by a Joint Venture Subsidiary to secure Indebtedness under
the Existing Credit Facility, the Existing Senior Secured Notes and the new
notes. If the new notes are (A) pari passu with the Guaranteed Indebtedness,
then the Subsidiary Guarantee shall be pari passu with, or senior to, the
guarantee of such Guaranteed Indebtedness or (B) senior to the Guaranteed
Indebtedness, then the Subsidiary Guarantee shall be senior to the guarantee of
such Guaranteed Indebtedness at least to the extent that the new notes are
senior to such Guaranteed Indebtedness.
Notwithstanding the foregoing, each Subsidiary Guarantee by a Restricted
Subsidiary will provide by its terms that it shall be automatically and
unconditionally released and discharged upon (i) any sale, exchange or
transfer, to any person not an Affiliate of the Company, of all the Company's
and each Restricted Subsidiary's Capital Stock in such Restricted Subsidiary
(which sale, exchange or transfer is not prohibited by the indenture), (ii) the
release or discharge of the Guarantee which resulted in the creation of such
Subsidiary Guarantee (or, in the case of the Subsidiary Guarantee of ARCO
Chemical Technology, Inc., ARCO Chemical Technology, L.P. or Lyondell Chemical
Nederland, Ltd. issued on the Issue Date, the release or discharge of its
respective Guarantee of Indebtedness under the Existing Credit Facility and the
Existing Senior Secured Notes), except a discharge or release by or as a result
of payment under such Guarantee and (iii) the designation of such Restricted
Subsidiary as an Unrestricted Subsidiary in accordance with the terms of the
indenture.
Accounts Receivable Facilities
The indenture provides that the Company may, and any of its Restricted
Subsidiaries may, sell (including a sale in exchange for a promissory note of
or an Equity Interest in such Accounts Receivable Subsidiary) at any time and
from time to time, accounts receivable to any Accounts Receivable Subsidiary;
provided that the aggregate consideration received in each such sale is at
least equal to the aggregate fair market value of the receivables sold.
No Amendment to Subordination Provisions
The indenture provides that the Company will not amend, modify or alter the
Senior Subordinated Note Indenture in any way that would (i) increase the
principal of, advance the final maturity date of or shorten the Weighted
Average Life to Maturity of any Senior Subordinated Notes such that the final
maturity date of the Senior Subordinated Notes is earlier than the 91st day
following the final maturity date of the new notes or (ii) amend the
subordination provisions of the Senior Subordinated Note Indenture or any of
the defined terms used therein in a manner that would be adverse to the holders
of the new notes.
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Limitation of Applicability of Certain Covenants if New Notes Rated Investment
Grade
Notwithstanding the foregoing, the Company's and its Restricted
Subsidiaries' obligations to comply with the provisions of the indenture
described above under the captions "Certain Covenants--Restricted Payments,"
"Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred
Stock," "Certain Covenants--Dividend and other Payment Restrictions Affecting
Subsidiaries," "Certain Covenants--Line of Business," "Certain Covenants--
Limitations on Issuances of Guarantees of Indebtedness by Subsidiaries,"
"Certain Covenants--Transactions with Affiliates," "Certain Covenants--Accounts
Receivable Facilities" and "Repurchase at the Option of Holders--Asset Sales"
will terminate and cease to have any further effect from and after the first
date when the new notes are rated Investment Grade.
Reports
The indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any new notes issued thereunder are
outstanding, the Company will furnish to the Trustee and the holders of new
notes (i) all quarterly and annual financial information that would be required
to be contained in a filing with the Commission on Forms 10-Q and 10-K if the
Company were required to file such Forms, including a "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and, with
respect to the annual information only, a report thereon by the Company's
certified independent accountants and (ii) all current reports that would be
required to be filed with the Commission on Form 8-K if the Company were
required to file such reports. In addition, whether or not required by the
rules and regulations of the Commission, the Company will file a copy of all
such information and reports with the Commission for public availability and
make such information available to securities analysts and prospective
investors upon request.
In addition, the Company has agreed that, for so long as any new notes
remain outstanding, it will furnish to the holders and to securities analysts
and prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act.
Events of Default and Remedies
The indenture provides that each of the following constitutes an Event of
Default with respect to the new notes:
(a) default for 30 days in the payment when due of interest or
liquidated damages on the new notes issued thereunder;
(b) default in payment when due of the principal of or premium, if any,
on the new notes issued thereunder, at maturity or otherwise;
(c) failure by the Company to comply with the provisions described under
the captions "Repurchase at the Option of Holders--Change of Control,"
"Repurchase at the Option of Holders--Asset Sales" or "Certain Covenants--
Merger, Consolidation or Sale of Assets";
(d) failure by the Company for 60 days after notice by the Trustee or
holders of at least 25% in principal amount of the then outstanding new
notes issued thereunder to comply with any of its other agreements in the
indenture or the new notes issued thereunder;
(e) any default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Significant
Subsidiaries (or any Indebtedness for money borrowed Guaranteed by the
Company or any of its Significant Subsidiaries if the Company or a
Significant Subsidiary does not perform its payment obligations under such
Guarantee within any grace period provided for in the documentation
governing such Guarantee) and, whether such Indebtedness or Guarantee
exists on the date of the indenture or is thereafter created, which default
(a) constitutes a Payment Default or (b) results in the acceleration of
such
61
Indebtedness prior to its Stated Maturity, and in each case, the principal
amount of any such Indebtedness, together with the principal amount of any
other such Indebtedness under which there has been a Payment Default or
that has been so accelerated, aggregates $50 million or more;
(f) failure by the Company or any of its Significant Subsidiaries to pay
a final judgment or final judgments aggregating in excess of $50 million,
which judgment or judgments are not paid, discharged or stayed for a period
of 60 days;
(g) certain events of bankruptcy or insolvency with respect to the
Company or any of its Significant Subsidiaries;
(h) except as permitted by the indenture, any Subsidiary Guarantee
issued thereunder shall be held in any judicial proceeding to be
unenforceable or invalid or shall cease for any reason to be in full force
and effect or any Subsidiary Guarantor, or any person acting on behalf of
any Subsidiary Guarantor, shall deny or disaffirm its obligations under the
Subsidiary Guarantees issued thereunder; and
(i) any of the Security Documents ceases to be in full force and effect,
or any of the Security Documents ceases to give the holders of the new
notes any of the Liens purported to be created thereby, or any of the
Security Documents is declared null and void or the Company or any
Restricted Subsidiary denies in writing that it has any further liability
under any Security Document or gives written notice to such effect (in each
case other than in accordance with the terms of the indenture or the terms
of the Existing Credit Facility or the Security Documents (including the
cessation of effectiveness of any Security Document in connection with the
release of all collateral covered thereby in accordance with the terms of
the indenture, the Existing Credit Facility, the Existing Senior Secured
Note Indentures and such Security Document) or unless waived by the
requisite lenders under the Existing Credit Facility if, after that waiver,
the Company is in compliance with the covenant described under "Security");
provided that if a failure of the sort described in this clause (ix) is
susceptible of cure, no Event of Default shall arise under this clause (ix)
with respect thereto until 30 days after notice of such failure shall have
been given to the Company by the Trustee or the holders of at least 25% in
principal amount of the then outstanding new notes issued under the
indenture.
If an Event of Default (other than an Event of Default specified in clause
(vii) above that occurs with respect to the Company or any Subsidiary
Guarantor) occurs and is continuing under the indenture, the Trustee or the
holders of at least 25% in aggregate principal amount of the new notes then
outstanding, by written notice to the Company (and to the Trustee if such
notice is given by the holders (the Acceleration Notice)), may, and the Trustee
at the request of such holders shall, declare the principal of and premium, if
any, and accrued interest and liquidated damages, if any, on such new notes to
be immediately due and payable. Upon a declaration of acceleration, such
principal, premium, if any, and accrued interest and liquidated damages, if
any, shall be immediately due and payable. If an Event of Default specified in
clause (vii) above occurs with respect to the Company or any Subsidiary
Guarantor, the principal of and premium, if any, and accrued interest and
liquidated damages, if any, on the new notes then outstanding shall ipso facto
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any holder. The holders of at least a majority in
principal amount of the outstanding new notes, by written notice to the Company
and to the Trustee, may waive all past defaults and rescind and annul a
declaration of acceleration and its consequences under the new notes if (i) all
existing Events of Default, other than the nonpayment of the principal of and
premium, if any, and interest and liquidated damages, if any, on such new notes
that have become due solely by such declaration of acceleration, have been
cured or waived and (ii) the rescission would not conflict with any judgment or
decree of a court of competent jurisdiction. For information as to the waiver
of defaults, see "Modification and Waiver."
The holders of at least a majority in aggregate principal amount of the
outstanding new notes may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee. However, the Trustee may refuse to follow any
direction that conflicts with law or the indenture, that may involve the
Trustee in personal liability, or that the Trustee
62
determines in good faith may be unduly prejudicial to the rights of holders of
the new notes not joining in the giving of such direction and may take any
other action it deems proper that is not inconsistent with any such direction
received from holders of the new notes. A holder may not pursue any remedy with
respect to the indenture or the new notes unless: (i) the holder gives the
Trustee written notice of a continuing Event of Default; (ii) the holders of at
least 25% in aggregate principal amount of outstanding new notes make a written
request to the Trustee to pursue the remedy; (iii) such holder or holders offer
the Trustee indemnity satisfactory to the Trustee against any costs, liability
or expense; (iv) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer of indemnity; and (v) during such
60-day period, the holders of at least a majority in aggregate principal amount
of the outstanding new notes do not give the Trustee a direction that is
inconsistent with the request. However, such limitations do not apply to the
right of any holder of a note to receive payment of the principal of or
premium, if any, interest or liquidated damages, if any, on such note or to
bring suit for the enforcement of any such payment, on or after the due date
expressed in such new notes, which right shall not be impaired or affected
without the consent of the holder.
The indenture requires certain officers of the Company to certify, on or
before a date not more than 120 days after the end of each fiscal year, that
they have conducted or supervised a review of the activities of the Company and
its Restricted Subsidiaries and the Company's and its Restricted Subsidiaries'
performance under the indenture and that, to the best of such officers'
knowledge, based upon such review, the Company has fulfilled all obligations
thereunder or, if there has been a default in the fulfillment of any such
obligation, specifying each such default and the nature and status thereof. The
Company will also be obligated to notify the Trustee promptly of any default or
defaults in the performance of any covenants or agreements under the indenture.
Modification and Waiver
Modifications and amendments of the indenture may be made by the Company,
the Subsidiary Guarantors and the Trustee with the consent of the holders of
not less than a majority in aggregate principal amount of the outstanding new
notes; provided that no such modification or amendment may, without the consent
of each holder affected thereby, (i) change the Stated Maturity of the
principal of, or any installment of interest on, any new note, (ii) reduce the
principal amount of or premium, if any, or interest or liquidated damages, if
any, on any new note, (iii) reduce any amount payable on redemption of the new
notes or upon the occurrence of an Event of Default or reduce the Change of
Control Payment or the amount to be paid in connection with an Asset Sale
Offer, (iv) change the place or currency of payment of principal of or premium,
if any, or interest or liquidated damages, if any, on any new note, (v) impair
the right to institute suit for the enforcement of any payment on or after the
Stated Maturity (or, in the case of a redemption, on or after the Redemption
Date) of any new note, (vi) reduce the above-stated percentage of outstanding
new notes the consent of whose holders is necessary to modify or amend the
indenture, (vii) waive a default in the payment of principal of or premium, if
any, or interest or liquidated damages, if any, on the new notes (except as set
forth in the penultimate sentence of the second paragraph under the caption
"Events of Default and Remedies"), (viii) reduce the percentage or aggregate
principal amount of outstanding new notes the consent of whose holders is
necessary for waiver of compliance with certain provisions of the indenture or
for waiver of certain defaults, (ix) modify or change any provision of the
indenture affecting the ranking of the new notes or the Subsidiary Guarantees
in a manner adverse to the holders of the new notes, (x) release any Subsidiary
Guarantor from any of its obligations under its Subsidiary Guarantee or the
indenture other than in accordance with the provisions of the indenture, or
amend or modify any provision relating to such release or (xi) directly or
indirectly release the Liens created by the Security Documents on all or
substantially all the Collateral (other than in accordance with the terms of
the Existing Credit Facility or the Security Documents or with the consent of
the requisite lenders under the Existing Credit Facility if, after such
consent, the Company is in compliance with the covenant described under
"Security").
Neither the Company nor any of its Subsidiaries or Affiliates will, directly
or indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any holder of any new notes for or as
63
an inducement to any consent, waiver or amendment of any of the terms or
provisions of the indenture or the new notes unless such consideration is
offered to be paid or agreed to be paid to all holders of such new notes that
consent, waive or agree to amend such term or provision in the time frame set
forth in the solicitation documents relating to such consent, waiver or
agreement.
Defeasance
Defeasance and Discharge
The indenture provides that the Company will be deemed to have paid and will
be discharged from any and all obligations in respect of the new notes (and any
Subsidiary Guarantor will be discharged from any and all obligations in respect
of its Subsidiary Guarantee) on the 123rd day after the deposit referred to
below, and the provisions of the indenture will no longer be in effect with
respect to such new notes and such Subsidiary Guarantees (except for, among
other matters, certain obligations to register the transfer or exchange of such
new notes, to replace stolen, lost or mutilated new notes, to maintain paying
agencies and to hold monies for payment in trust) if, among other things, (A)
the Company has deposited with the Trustee, in trust, money and/or U.S.
Government obligations that through the payment of interest and principal in
respect thereof in accordance with their terms will provide money in an amount
sufficient to pay the principal of and premium, if any, and accrued interest
and liquidated damages, if any, on such new notes on the Stated Maturity of
such payments in accordance with the terms of the indenture and such new notes
to redemption or maturity, as the case may be, (B) the Company has delivered to
the Trustee (i) either (x) an opinion of counsel to the effect that holders
will not recognize income, gain or loss for federal income tax purposes as a
result of the Company's exercise of its option under this "Defeasance"
provision and will be subject to federal income tax on the same amount and in
the same manner and at the same times as would have been the case if such
deposit, defeasance and discharge had not occurred, which opinion of counsel
must be based upon (and accompanied by a copy of) a ruling of the Internal
Revenue Service to the same effect unless there has been a change in applicable
federal income tax law after the Issue Date such that a ruling is no longer
required or (y) a ruling directed to the Trustee or the Company received from
the Internal Revenue Service to the same effect as the aforementioned opinion
of counsel and (ii) an opinion of counsel to the effect that the creation of
the defeasance trust does not violate the Investment Company Act of 1940 and
after the passage of 123 days following the deposit, the trust fund will not be
subject to the effect of Section 547 of the United States Bankruptcy Code or
Section 15 of the New York Debtor and Creditor Law, or any comparable provision
or applicable law, (C) immediately after giving effect to such deposit on a pro
forma basis, no Event of Default, or event that after the giving of notice or
lapse of time or both would become an Event of Default, shall have occurred and
be continuing on the date of such deposit or during the period ending on the
123rd day after the date of such deposit, and such deposit shall not result in
a breach or violation of, or constitute a default under, any other agreement or
instrument to which the Company is a party or by which the Company is bound and
(D) if at such time such new notes are listed on a national securities
exchange, the Company has delivered to the Trustee an opinion of counsel to the
effect that such new notes will not be delisted as a result of such deposit,
defeasance and discharge.
Defeasance of Certain Covenants and Certain Events of Default
The indenture further provides that the provisions of the indenture will no
longer be in effect with respect to the provision described under "Security,"
clause (iv) under "Certain Covenants--Merger, Consolidation and Sale of Assets"
and all the covenants described under "Certain Covenants," and clauses (iii)
and (iv) under "Events of Default" with respect to such covenants and clause
(iv) under "Certain Covenants--Merger, Consolidation and Sale of Assets," and
clauses (v), (vi) and (ix) under "Events of Default" shall be deemed not to be
Events of Default, upon, among other things, the deposit with the Trustee, in
trust, of money and/or U.S. Government obligations that through the payment of
interest and principal in respect thereof in accordance with their terms will
provide money in an amount sufficient to pay the principal of and premium, if
any, and accrued interest and liquidated damages, if any, on such new notes on
the Stated Maturity of such payments in accordance with the terms of the
indenture and such new notes, the satisfaction of the provisions described in
clauses (B)(ii), (C) and (D) of the preceding paragraph and the delivery by the
Company to the Trustee of an
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opinion of counsel to the effect that, among other things, the holders will not
recognize income, gain or loss for federal income tax purposes as a result of
such deposit and defeasance of certain covenants and Events of Default and will
be subject to federal income tax on the same amount and in the same manner and
at the same times as would have been the case if such deposit and defeasance
had not occurred.
Defeasance and Certain Other Events of Default
In the event the Company exercises its option to omit compliance with
certain covenants and provisions of the indenture with respect to the new notes
issued thereunder as described in the immediately preceding paragraph and such
new notes are declared due and payable because of the occurrence of an Event of
Default that remains applicable, the amount of money and/or U.S. Government
obligations on deposit with the Trustee will be sufficient to pay amounts due
on such new notes at the time of their Stated Maturity but may not be
sufficient to pay amounts due on such new notes at the time of the acceleration
resulting from such Event of Default. However, the Company will remain liable
for such payments.
No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator, stockholder or other holder of
Equity Interests of the Company or the Subsidiary Guarantors, as such, shall
have any liability for any obligations of the Company or the Subsidiary
Guarantors under the new notes, the Subsidiary Guarantees, the indenture or for
any claim based on, in respect of, or by reason of, such obligations or their
creation. Each holder of new notes by accepting a note waives and releases all
such liability. The waiver and release are part of the consideration for the
issuance of the new notes. Such waiver may not be effective to waive
liabilities under the federal securities laws, and it is the view of the
Commission that such a waiver is against public policy.
Transfer and Exchange
A holder may transfer or exchange new notes in accordance with the
indenture. The Registrar and the Trustee may require a holder, among other
things, to furnish appropriate endorsements and transfer documents, and the
Company may require a holder to pay any taxes and fees required by law or
permitted by the indenture.
The registered holder of a new note will be treated as the owner of it for
all purposes.
Concerning the Trustee
The indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of Lyondell, to obtain payment of claims in certain
cases, or to realize on certain property received in respect of any such claim
as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must
eliminate such conflict within 90 days, apply to the Commission for permission
to continue or resign.
The holders of a majority in principal amount of the then outstanding new
notes issued under the indenture will have the right to direct the time, method
and place of conducting any proceeding for exercising any remedy available to
the Trustee, subject to certain exceptions. The indenture provides that in case
an Event of Default shall occur (which shall not be cured), the Trustee will be
required, in the exercise of its power, to use the degree of care of a prudent
man in the conduct of his own affairs. Subject to such provisions, the Trustee
will not be under any obligation to exercise any rights or powers under the
indenture at the request of any holder of new notes, unless such holder shall
have offered to the Trustee security and indemnity satisfactory to it against
any loss, liability or expense.
The Bank of New York will act as Trustee for the new notes and is also the
trustee for the Existing Senior Secured Notes and the Senior Subordinated
Notes, the transfer agent for the Company's stock and a lender under its credit
facility.
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Book-Entry, Delivery and Form
The new notes will initially be represented by one or more permanent global
notes in definitive, fully registered book-entry form (the "Global Notes") and
registered in the name of Cede & Co., as nominee of DTC. The Global Notes will
be deposited on behalf of the acquirors of the new notes with a custodian for
DTC for credit to the respective accounts of acquirors or such other accounts
as they direct DTC. See "The Exchange Offer--Procedures for Tendering--Book-
Entry Transfer."
The Global Notes
We expect that under procedures established by DTC:
. upon deposit of the Global Notes with DTC or its custodian, DTC will
credit on its internal system a portion of the Global Notes that shall
be composed of the corresponding respective amounts of the Global Notes
to the respective accounts of persons who have accounts with the
depository, and
. ownership of the notes will be shown on, and the transfer or ownership
will be effected only through records maintained by DTC or its nominee,
with respect to interests and records of participants and with respect
to interests of persons other than participants.
So long as DTC or its nominee is the registered owner of the Global Notes,
DTC or its nominee, as the case may be, will be considered the sole owner or
holder of the new notes represented by the Global Notes for all purposes under
the indenture and under the new notes represented thereby. Except as provided
below, owners of beneficial interest in Global Notes will not:
. be entitled to have new notes represented by Global Notes registered in
their names,
. receive or be entitled to receive physical delivery of certificated new
notes or
. be considered the owners or holders of the Global Notes under the
indenture for any purpose, including with respect to the giving of any
direction, instruction or approval to the trustee.
Payments of the principal of, and interest on, a Global Note will be made to
DTC or its nominee, as the case may be, as the registered owner thereof. None
of the Company, any Subsidiary Guarantor, the Trustee or any paying agent under
the indenture will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests in a Global Note or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
We expect that DTC or its nominee, upon receipt of any payment of principal
or interest in respect of a Global Note, will credit participants' accounts
with payments in amounts proportionate to their respective beneficial interests
in the principal amount of such Global Note as shown on the records of DTC or
its nominee. We also expect that payments by participants to owners of
beneficial interests in a Global Note held through such participants will be
governed by standing instructions and customary practices, as is now the case
with securities held for accounts of customers registered in the names of
nominees for such customers. Such payments will be the responsibility of such
participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in same-day funds. Transfers
between participants in Euroclear and Clearstream will be effected in the
ordinary way in accordance with their respective rules and operating
procedures.
We expect that DTC will take any action permitted to be taken by a holder of
new notes, including the presentation of new notes for exchange as described
below, only at the direction of one or more participants to whose account the
DTC interests in a Global Note is credited and only in respect of such portion
of the aggregate principal amount of notes as to which such participant or
participants has or have given such direction. However, if there is an event of
default under the indenture or the new notes, DTC will exchange the applicable
Global Notes for Certificated Notes, which it will distribute to its
participants.
66
Although DTC, Euroclear and Clearstream are expected to follow the foregoing
procedures in order to facilitate transfers of interests in a Global Note among
participants of DTC, Euroclear and Clearstream, they are under no obligation to
perform or continue to perform such procedures, and such procedures may be
discontinued at any time. Neither Lyondell nor the trustee will have any
responsibility for the performance by DTC, Euroclear or Clearstream or their
respective participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.
Description of DTC
The description of the operations and procedures of DTC set forth below is
provided solely as a matter of convenience. These operations and procedures are
solely within the control of DTC and are subject to change from time to time.
We do not take any responsibility for these operations or procedures, and
investors are urged to contact DTC or its participants directly to discuss
these matters.
DTC has advised us that it is:
. a limited purpose trust company organized under the laws of the State of
New York;
. a "banking organization" within the meaning of New York Banking Law;
. a member of the Federal Reserve System;
. a "clearing corporation" within the meaning of the Uniform Commercial
Code; and
. a "Clearing Agency" registered pursuant to the provisions of Section 17A
of the Exchange Act.
DTC was created to hold securities for its participants and facilitate the
clearance and settlement of securities transactions between participants
through electronic book-entry changes in accounts of its participants, thereby
eliminating the need for physical movement of certificates. DTC is owned by a
number of its participants and by the New York Stock Exchange, Inc., the
American Stock Exchange, Inc. and the National Association of Securities
Dealers, Inc.
DTC's direct participants include:
. securities brokers and dealers;
. banks and trust companies; and
. clearing corporations and other organizations.
Indirect access to the DTC system is available to others such as securities
brokers and dealers, banks and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly.
Investors who are not participants may beneficially own securities held by or
on behalf of DTC only through participants or indirect participants.
The rules applicable to DTC and its participants are on file with the SEC.
Certificated Notes
Interest in the Global Notes may be exchanged for certificated securities
if:
. we notify the Trustee in writing that DTC is no longer willing or able
to at as a depositary or DTC ceases to be registered as a clearing
agency under the Securities Exchange Act and a successor depositary is
not appointed within 90 days of notice or cessation;
. we, at our option, notify the Trustee in writing that we elect to cause
the issuance of new notes in certificated form under the indenture; or
. other events occur as provided in the indenture.
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Upon the occurrence of any of the events described in the preceding
sentence, we will cause the appropriate certificated securities to be
delivered.
None of the Company, any Subsidiary Guarantor or the Trustee shall be liable
for any delay by DTC or any participant or indirect participant in identifying
the beneficial owners of the related new notes, and each person may
conclusively rely on, and shall be protected in relying on, instructions from
DTC for all purposes, including with respect to the registration and delivery,
and the respective principal amounts, of the new notes to be issued.
Same Day Settlement and Payment
The indenture requires that payments in respect of the new notes represented
by the Global Notes be made by wire transfer of immediately available funds to
the accounts specified by holders of the Global Notes. With respect to new
notes in certificated form, we will make all payments at the agency or office
maintained by the for that purpose or, at our option, by mailing a check to
each holder's registered address.
Because of time zone differences, the securities account of a Euroclear or
Clearstream participant purchasing an interest in a Global Note from a
participant in DTC will be credited, and any such crediting will be reported to
the relevant Euroclear or Clearstream participant, during the securities
settlement processing day (which must be a business day for Euroclear and
Clearstream) immediately following the settlement date of DTC. DTC has advised
us that cash received in Euroclear or Clearstream as a result of sales of
interests in a global note by or through a Euroclear or Clearstream participant
to a participant in DTC will be received with value on the settlement date of
DTC but will be available in the relevant Euroclear or Clearstream cash account
only as of the business day for Euroclear or Clearstream following DTC's
settlement date.
Registration Rights; Liquidated Damages
The Company, the Subsidiary Guarantors and the initial purchasers entered
into a registration rights agreement on the Issue Date. In the registration
rights agreement, the Company and the Subsidiary Guarantors agreed to file an
exchange offer registration statement with the SEC within 90 days of the
closing of the offering of the outstanding notes and use their respective best
efforts to have it declared effective at the earliest possible time, but in no
event later than 210 days following the Issue Date. The Company and the
Subsidiary Guarantors also agreed to use their best efforts to cause the
exchange offer registration statement to be effective continuously, to keep the
exchange offer for the outstanding notes open for a period of not less than 20
business days and to cause the exchange offer to be consummated no later than
the 30th business day after the exchange offer registration statement is
declared effective by the SEC. See "The Exchange Offer" for further information
about the exchange offer.
The registration rights agreement also provides that:
. if the Company and the Subsidiary Guarantors fail to file any
registration statement on or prior to the applicable deadline;
. if such registration statement is not declared effective by the SEC on
or before the applicable deadline;
. if the exchange offer is not consummated on or before the 30th business
day after the exchange offer registration statement is declared
effective; and
. if any registration statement is declared effective but thereafter
ceases to be effective or useable in connection with resales of the
Transfer Restricted Securities during the periods specified in the
registration rights agreement, for such time of non-effectiveness or
non-usability (each of the foregoing four bullet points, a "Registration
Default"),
the Company and the Subsidiary Guarantors agree to pay each holder of Transfer
Restricted Securities affected thereby liquidated damages in an amount equal to
$.05 per week per $1,000 in principal amount of Transfer
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Restricted Securities held by such holder for each week or portion thereof that
the Registration Default continues for the first 90-day period immediately
following the occurrence of such Registration Default. The amount of the
liquidated damages shall increase by an additional $.05 per week per $1,000 in
principal amount of Transfer Restricted Securities with respect to each
subsequent 90-day period until all Registration Defaults have been cured, up to
a maximum amount of liquidated damages of $.25 per week per $1,000 in principal
amount of Transfer Restricted Securities. Following the cure of all
Registration Defaults, the accrual of liquidated damages will cease. The
Company shall not be required to pay liquidated damages for more than one
Registration Default at any given time.
All accrued liquidated damages shall be paid by the Company to holders
entitled thereto in the same manner and at the same time as interest on the
notes is paid. The outstanding notes and any registered new notes issued in
exchange for the outstanding notes will constitute a single series of debt
securities under the indenture. If an exchange offer is consummated, holders of
outstanding notes who do not exchange their notes will vote together with the
holders of the registered new notes for all relevant purposes under the
indenture.
Certain Definitions
Set forth below are certain defined terms used in the indenture. Reference
is made to the indenture for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
"Accounts Receivable Subsidiary" means any Wholly Owned Subsidiary of the
Company (i) which is formed solely for the purpose of, and which engages in no
activities other than activities in connection with, financing accounts
receivable of the Company and/or its Restricted Subsidiaries, (ii) which is
designated by the Company as an Accounts Receivables Subsidiary pursuant to an
officers' certificate delivered to the Trustee, (iii) no portion of
Indebtedness or any other obligation (contingent or otherwise) of which is at
any time recourse to or obligates the Company or any Restricted Subsidiary in
any way, or subjects any property or asset of the Company or any Restricted
Subsidiary, directly or indirectly, contingently or otherwise, to the
satisfaction thereof, other than pursuant to (I) representations, warranties
and covenants (or any indemnity with respect to such representations,
warranties and covenants) entered into in the ordinary course of business in
connection with the sale (including a sale in exchange for a promissory note of
or Equity Interest in such Accounts Receivable Subsidiary) of accounts
receivable to such Accounts Receivable Subsidiary or (II) any guarantee of any
such accounts receivable financing by the Company or any Restricted Subsidiary
that is permitted to be incurred pursuant to the covenant described under the
caption entitled "Certain Covenants--Incurrence of Indebtedness and Issuance of
Preferred Stock," (iv) with which neither the Company nor any Restricted
Subsidiary of the Company has any contract, agreement, arrangement or
understanding other than contracts, agreements, arrangements and understandings
entered into in the ordinary course of business in connection with the sale
(including a sale in exchange for a promissory note of or Equity Interest in
such Accounts Receivable Subsidiary) of accounts receivable in accordance with
the covenant described under the caption "Certain Covenants--Accounts
Receivable Facilities" and fees payable in the ordinary course of business in
connection with servicing accounts receivable and (v) with respect to which
neither the Company nor any Restricted Subsidiary of the Company has any
obligation (a) to subscribe for additional shares of Capital Stock or other
Equity Interests therein or make any additional capital contribution or similar
payment or transfer thereto other than in connection with the sale (including a
sale in exchange for a promissory note of or Equity Interest in such Accounts
Receivable Subsidiary) of accounts receivable to such Accounts Receivable
Subsidiary in accordance with the covenant described under "Certain Covenants--
Accounts Receivable Facilities" or (b) to maintain or preserve the solvency,
any balance sheet term, financial condition, level of income or results of
operations thereof.
"Acquired Debt" means, with respect to any specified person, (i)
Indebtedness of any other person existing at the time such other person is
merged with or into or became a Subsidiary of such specified person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other
69
person merging with or into or becoming a Subsidiary of such specified person
and (ii) Indebtedness secured by a Lien encumbering any asset acquired by such
specified person.
"Acquired Disqualified Stock" means, with respect to any specified person,
Disqualified Stock of any other person existing at the time such other person
is merged with or into or became a Subsidiary of such specified person,
including, without limitation, Disqualified Stock incurred in connection with,
or in contemplation of, such other person merging with or into or becoming a
Subsidiary of such specified person.
"Acquired Preferred Stock" means, with respect to any specified person,
Preferred Stock of any other person existing at the time such other person is
merged with or into or became a Subsidiary of such specified person, including,
without limitation, Preferred Stock incurred in connection with, or in
contemplation of, such other person merging with or into or becoming a
Subsidiary of such specified person.
"Acquiring Person" means a person other than a Subject Assets Transferee
which acquires (i) all or a portion of the Subject Assets or (ii) an interest
in a Subject Assets Transferee in connection with a Major Asset Sale.
"Adjusted Consolidated Cash Flow" means, for any period, the sum of
Consolidated Cash Flow of the Company for such period plus the aggregate
Distributable Joint Venture Cash Flow of the Company and its Restricted
Subsidiaries, determined on a consolidated basis, for such period.
"Affiliate" of any specified person means any other person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any person, shall
mean the possession, directly or indirectly, of the power to direct or cause
the direction of the management or policies of such person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a person shall
be deemed to be control; provided further that the foregoing proviso shall not
apply for purposes of clauses (g) and (i) of the covenant described under
"Certain Covenants--Restricted Payments" or clause (d) of the definition of
"Unrestricted Subsidiaries."
"Asset Sale" means (i) the sale, lease, conveyance or other disposition
(other than the creation of a Lien) of any assets other than the disposition of
inventory, equipment or Cash Equivalents in the ordinary course of business
consistent with past practices (provided that the sale, conveyance or other
disposition of all or substantially all the assets of the Company and its
Restricted Subsidiaries taken as a whole will be governed by the provisions of
the indenture described above under the caption "Repurchase at the Option of
Holders--Change of Control" and/or the provisions described above under the
caption "Certain Covenants--Merger, Consolidation or Sale of Assets" and not by
the provisions of the Asset Sale covenant), (ii) the sale by the Company or any
of its Restricted Subsidiaries of Equity Interests of any of the Company's
Restricted Subsidiaries, Unrestricted Subsidiaries or Joint Ventures and (iii)
the issuance by any of the Company's Restricted Subsidiaries of Equity
Interests of such Restricted Subsidiary, in the case of clause (i), (ii) or
(iii), whether in a single transaction or a series of related transactions (a)
that have a fair market value in excess of $25 million or (b) for Net Proceeds
in excess of $25 million. Notwithstanding the foregoing: (a) a transfer of
assets by the Company to a Restricted Subsidiary or by a Restricted Subsidiary
to the Company or to another Restricted Subsidiary; (b) an issuance of Equity
Interests by a Restricted Subsidiary to the Company or to another Restricted
Subsidiary; (c) a Restricted Payment that is permitted by the covenant
described under the caption "Certain Covenants--Restricted Payments"; (d) an
issuance of Preferred Stock by a Finance Subsidiary that is permitted by the
covenant described under the caption "Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock"; (e) sales (including a sale in
exchange for a promissory note of or Equity Interest in such Accounts
Receivable Subsidiary) of accounts receivable to an Accounts Receivable
Subsidiary, in connection with any Receivables Facility; and (f) Sale and
Leaseback Transactions will not be deemed to be an Asset Sale.
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"Asset Sale Lien" means a Lien on the Subject Assets (including as a Lien
for this purpose contractual rights with respect to the operation of the
Subject Assets) arising in connection with a Major Asset Sale in favor of the
Acquiring person (or an Affiliate thereof) which Lien does not secure any
Indebtedness.
"Attributable Debt" in respect of a Sale and Leaseback Transaction that is
treated as a capital lease in accordance with GAAP means, at the time of
determination, the present value (discounted at the rate of interest implicit
in such transaction, determined in accordance with GAAP) of the obligation of
the lessee for net rental payments during the remaining term of the lease
included in such Sale and Leaseback Transaction (including any period for which
such lease has been extended or may, at the option of the lessor, be extended).
"Board of Directors" means the board of directors of the Company or any
committee thereof duly authorized to act on behalf of such board of directors.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or a business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation that
confers on a person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing person.
"Cash Equivalents" means (a) United States dollars, (b) securities issued or
directly and fully guaranteed or insured by the United States government or any
agency or instrumentality thereof (provided that the full faith and credit of
the United States is pledged in support thereof) having maturities of not more
than one year from the date of acquisition, (c) demand deposits, time deposits
and certificates of deposit with maturities of one year or less from the date
of acquisition, bankers' acceptances with maturities not exceeding one year
from the date of acquisition and overnight bank deposits, in each case with any
bank or trust company organized or licensed under the laws of the United States
or any State thereof having capital, surplus and undivided profits in excess of
$500 million, (d) repurchase obligations with a term of not more than seven
days for underlying securities of the type described in clauses (b) and (c)
above entered into with any financial institution meeting the qualifications
specified in clause (c) above, (e) commercial paper rated at least P-1 or A-1
by Moody's or S&P, respectively, and in each case maturing within six months
after the date of acquisition, (f) any fund investing exclusively in
investments of the type described in clauses (a) through (e) above and (g) in
the case of a Foreign Subsidiary, substantially similar investments denominated
in foreign currencies (including similarly capitalized foreign banks).
"Consolidated Cash Flow" means, with respect to any person for any period,
the Consolidated Net Income of such person for such period (less the Net Income
of any Joint Venture to the extent included therein pursuant to clause (i) of
the definition of "Consolidated Net Income"), plus, in each case, without
duplication:
(i) provision for taxes based on income or profits of such person and
its Restricted Subsidiaries for such period (including any provision for
taxes on the Net Income of any Joint Venture that is a pass-through entity
for federal income tax purposes, to the extent such taxes are paid or
payable by such person or any of its Restricted Subsidiaries), to the
extent that such provision for taxes was included in computing such
Consolidated Net Income,
(ii) the Fixed Charges of such person and its Restricted Subsidiaries
for such period, to the extent that such Fixed Charges were deducted in
computing such Consolidated Net Income,
(iii) depreciation and amortization (including amortization of goodwill
and other intangibles but excluding amortization of prepaid cash expenses
that were paid in a prior period) of such person and its Restricted
Subsidiaries for such period to the extent that such depreciation and
amortization were deducted in computing such Consolidated Net Income and
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(iv) any non-cash charges reducing Consolidated Net Income for such
period (excluding any such non-cash charge to the extent that it represents
an accrual of or a reserve for cash expenses in any future period or an
amortization of a prepaid cash expense that was paid in a prior period);
minus
(v) any noncash items increasing Consolidated Net Income for such
period,
in each case, on a consolidated basis and determined in accordance with GAAP.
Notwithstanding the foregoing, the provision for taxes on the income or
profits of, and the depreciation and amortization of, a Restricted Subsidiary
of the referent person shall be added to Consolidated Net Income to compute
Consolidated Cash Flow only to the extent (and in the same proportion) that the
Net Income of such Restricted Subsidiary was included in calculating the
Consolidated Net Income of such person.
"Consolidated Net Income" means, with respect to any person for any period,
the aggregate of the Net Income of such person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that:
(i) the Net Income of any person that is not a Restricted Subsidiary
shall be included only to the extent of the lesser of (x) the amount of
dividends or distributions paid in cash (but not by means of a loan) to the
referent person or a Restricted Subsidiary thereof or (y) the referent
person's (or a Restricted Subsidiary of the referent person's)
proportionate share of the Net Income of such other person,
(ii) the Net Income (but not loss) of any Restricted Subsidiary shall be
excluded to the extent that the declaration or payment of dividends or
similar distributions by that Restricted Subsidiary of that Net Income is
not at the date of determination permitted without any prior governmental
approval (that has not been obtained) or, directly or indirectly, by
operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation
applicable to that Subsidiary or its stockholders,
(iii) the Net Income of any person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded and
(iv) the cumulative effect of a change in accounting principles shall be
excluded.
"Consolidated Net Worth" means, with respect to any person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such
person and its Restricted Subsidiaries as of such date plus (ii) the respective
amounts reported on such person's balance sheet as of such date with respect to
any series of Preferred Stock (other than Disqualified Stock), less all write-
ups (other than write-ups resulting from foreign currency translations and
write-ups of tangible assets of a going concern business made in accordance
with GAAP as a result of the acquisition of such business) subsequent to the
date of the indenture in the book value of any asset owned by such person or a
Restricted Subsidiary of such person, and excluding the cumulative effect of a
change in accounting principles, all as determined in accordance with GAAP.
"Continuing Directors" means, as of any date of determination, any member of
the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of the indenture or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election or any successor Continuing Directors appointed by such
Continuing Directors (or their successors).
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable
at the option of the holder thereof, in whole or in part, on or prior to the
date on which the notes mature; provided that any Capital
72
Stock that would not constitute Disqualified Stock but for provisions thereof
giving holders thereof the right to require such person to repurchase or redeem
such Capital Stock upon the occurrence of an "asset sale" or a "change of
control" occurring prior to the date on which the notes mature shall not
constitute Disqualified Stock if the "asset sale" or "change of control"
provisions applicable to such Capital Stock are no more favorable to the
holders of such Capital Stock than the "asset sale" provision of the Senior
Subordinated Indenture or the provision contained in the "Repurchase at the
Option of Holders--Change of Control" covenant described above and such Capital
Stock specifically provides that such person will not repurchase or redeem any
such stock pursuant to such provision prior to the Company's repurchase of such
notes as are required pursuant to such covenants.
"Distributable Joint Venture Cash Flow" means, with respect to any person
for any period, in the case of each Joint Venture that is not a Restricted
Subsidiary of the referent person, the sum of:
(I) the lesser of:
(x) the amount of dividends or distributions paid in cash (but not
by means of a loan) by such Joint Venture to the referent person or a
Restricted Subsidiary thereof; or
(y) the referent person's (or a Restricted Subsidiary of the
referent person's) proportionate share of:
(i) the Net Income of such Joint Venture for such period, plus
(ii) to the extent deducted therefrom, depreciation and
amortization (including amortization of goodwill and other
intangibles but excluding amortization of prepaid cash expenses that
were paid in a prior period) of such Joint Venture for such period,
plus
(iii) any non-cash charges reducing Net Income of such Joint
Venture for such period (excluding any such non-cash charge to the
extent that it represents an accrual of or a reserve for cash
expenses in any future period or an amortization of a prepaid cash
expense that was paid in a prior period), less
(iv) any non-cash items increasing Net Income of such Joint
Venture for such period,
minus (II) the aggregate amount of all Investments made by the Company or
any of its Restricted Subsidiaries in such Joint Venture during such period
pursuant to clause (h) of the covenant described under "Certain Covenants--
Restricted Payments," in each case determined on a consolidated basis and
in accordance with GAAP.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Equistar Assumed Debt" means (i) the 9.125% Notes Due 2002 issued by the
Company pursuant to an Indenture dated as of March 10, 1992 between the Company
and First Trust National Association, as Trustee, as supplemented by the First
Supplemental Indenture dated as of March 10, 1992 and the Second Supplemental
Indenture dated as of December 1, 1997; (ii) the 6.5% Notes Due 2006 and the
7.55% Notes Due 2026, each issued by the Company pursuant to an Indenture dated
as of January 29, 1996 between the Company and Texas Commerce Bank National
Association, as Trustee, as supplemented by the First Supplemental Indenture
dated as of February 15, 1996 and the Second Supplemental Indenture dated as of
December 1, 1997; and (iii) Indebtedness under the medium term notes issued by
the Company, maturing at various dates from 2002 to 2005; in each case
outstanding as of the Issue Date and with respect to which either (x) the
Company is a guarantor or (y) as between the Company and Equistar, Equistar is
the primary obligor and the Company is an obligor; in each case, as may be
amended from time to time, provided that any such amendment does not increase
the principal amount thereof or interest rate applicable thereto or shorten the
Weighted Average Life to Maturity or Stated Maturity thereof or add any
Restricted Subsidiary as an obligor with respect thereto.
73
"Existing ARCO Chemical Debt" means the 9.375% Debentures Due 2005, the
10.25% Debentures Due 2010 and the 9.8% Debentures Due 2020, all issued
pursuant to the Indenture dated June 15, 1988 between the Company (as successor
to ARCO Chemical Company) and The Bank of New York, as Trustee.
"Existing Credit Facility" means that certain Credit Agreement dated as of
July 23, 1998 and as amended through the date hereof by and among the Company
and JP Morgan Chase Bank, as administrative agent, DLJ Capital Funding, Inc.,
as syndication agent, and the other lenders that are parties thereto, including
any related notes, instruments and agreements executed in connection therewith,
as amended, restated, modified, extended, renewed, refunded, replaced or
refinanced, in whole or in part, from time to time, after the Issue Date,
whether or not with the same lenders or agents.
"Existing Indebtedness" means Indebtedness of the Company and its Restricted
Subsidiaries in existence, and considered Indebtedness of the Company or any of
its Restricted Subsidiaries, on the Issue Date, until such amounts are repaid,
including all reimbursement obligations with respect to letters of credit
outstanding as of the date of the indenture.
"Existing Notes Issue Date" means May 17, 1999.
"Existing Senior Secured Note Indentures" means the indentures among the
Company, the Subsidiary Guarantors party thereto and The Bank of New York, as
trustee, pursuant to which the Company issued the Existing Senior Secured
Notes.
"Existing Senior Secured Notes" means the Company's 9.625% Senior Secured
Notes, Series A, Due 2007 and the 9.875% Senior Secured Notes, Series B, Due
2007.
"Finance Subsidiary" means a Restricted Subsidiary of the Company, all the
Capital Stock of which (other than Preferred Stock) is owned by the Company
that does not engage in any activity other than:
(i) holding of Indebtedness of the Company;
(ii) the issuance of Capital Stock; and
(iii) any activity necessary, incidental or related to the foregoing.
"Fixed Charge Coverage Ratio" means with respect to any person for any
period, the ratio of the Adjusted Consolidated Cash Flow of such person for
such period to the Fixed Charges of such person for such period. In the event
that the Company or any of its Restricted Subsidiaries incurs, assumes or
redeems any Indebtedness (other than revolving credit borrowings) or issues or
redeems Preferred Stock subsequent to the commencement of the period for which
the Fixed Charge Coverage Ratio is being calculated but prior to the date on
which the event for which the calculation of the Fixed Charge Coverage Ratio is
made (the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be
calculated giving pro forma effect to such incurrence, assumption or redemption
of Indebtedness, or such issuance or redemption of Preferred Stock, as if the
same had occurred at the beginning of the applicable four-quarter reference
period.
In addition, for purposes of making the computation referred to above,
(i) acquisitions that have been made by the Company or any of its
Restricted Subsidiaries, including through mergers or consolidations and
including any related financing transactions, during the four-quarter
reference period or subsequent to such reference period and on or prior to
the Calculation Date shall be deemed to have occurred on the first day of
the four-quarter reference period,
(ii) the Adjusted Consolidated Cash Flow and Fixed Charges attributable
to operations or businesses disposed of prior to the Calculation Date shall
be excluded, but, in the case of such Fixed Charges, only to the extent
that the obligations giving rise to such Fixed Charges will not be
obligations of the referent person or any of its Restricted Subsidiaries
following the Calculation Date and
74
(iii) if since the beginning of the four-quarter reference period any
person was designated as an Unrestricted Subsidiary or redesignated as or
otherwise became a Restricted Subsidiary, such event shall be deemed to
have occurred on the first day of the four-quarter reference period.
"Fixed Charges" means, with respect to any person for any period, the sum,
without duplication, of:
(i) the consolidated interest expense of such person and its Restricted
Subsidiaries for such period, whether paid or accrued (including, without
limitation, amortization of original issue discount, non-cash interest
payments, the interest component of any deferred payment obligations, the
interest component of all payments associated with Capital Lease
Obligations, commissions, discounts and other fees and charges incurred in
respect of letters of credit or bankers' acceptance financings and net
payments or receipts (if any) pursuant to Hedging Obligations) and
(ii) the consolidated interest expense of such person and its Restricted
Subsidiaries that was capitalized during such period and
(iii) any interest expense on Indebtedness of another person (other than
Non-Recourse Debt of a Joint Venture or an Unrestricted Subsidiary secured
by a pledge by the Company or any Restricted Subsidiary of Capital Stock
which pledge is permitted by clause (k) or (1) of the covenant described
under the caption "Certain Covenants--Restricted Payments") that is
Guaranteed by such person or one of its Restricted Subsidiaries or secured
by a Lien on assets of such person or one of its Restricted Subsidiaries
(whether or not such Guarantee or Lien is called upon) and
(iv) the product of (a) all dividend payments (other than any payments
to the referent person or any of its Restricted Subsidiaries) on any series
of Preferred Stock of such person and its Restricted Subsidiaries, times
(b) a fraction, the numerator of which is one and the denominator of which
is one minus the then current combined federal, state and local statutory
tax rate of such person, expressed as a decimal, in each case, on a
consolidated basis and in accordance with GAAP;
provided that (i) interest payments by Equistar on the Equistar Assumed Debt
and (ii) interest payments on Indebtedness of a Joint Venture shall, in each
case, not be deemed Fixed Charges of the Company as of any date of
determination when such Indebtedness is not considered Indebtedness of the
Company or any Restricted Subsidiary of the Company.
"Foreign Subsidiary" means any Restricted Subsidiary that has 50% or more of
its assets located outside the United States or any territory thereof.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, as in effect on the Issue Date.
"General Partner" means a Restricted Subsidiary of the Company or any of its
Restricted Subsidiaries that has no assets and conducts no operations other
than its ownership of a general partnership interest in a Joint Venture.
"Guarantee" means any obligation, contingent or otherwise, of any person
directly or indirectly guaranteeing any Indebtedness or Disqualified Stock of
any other person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of)
such Indebtedness or Disqualified Stock of such other person (including those
arising by virtue of partnership arrangements (other than, in the case of the
Company or a Restricted Subsidiary of the Company, with respect to the
obligations of a Joint Venture, solely by virtue of a Restricted Subsidiary of
the Company being the General Partner of such Joint Venture if, as of the date
of determination, no payment on such Indebtedness or obligation has been made
by such General Partner of such Joint Venture and such arrangement would not be
classified and accounted for, in accordance
75
with GAAP, as a liability on a consolidated balance sheet of the Company)) or
(ii) entered into for the purpose of assuring in any other manner the obligee
of such Indebtedness or Disqualified Stock of the payment thereof or to protect
such obligee against loss in respect thereof in whole or in part (including by
agreement to keep-well, to purchase assets, goods, securities or services, to
take-or-pay, to maintain financial statement conditions or otherwise); provided
that the term "Guarantee" shall not include endorsements for collection or
deposit in the ordinary course of business. The term "Guarantee" used as a verb
has a corresponding meaning.
"Hedging Obligations" means, with respect to any person, the obligations of
such person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements, (ii) forward foreign exchange
contracts or currency swap agreements, (iii) other agreements or arrangements
designed to protect such person against fluctuations in interest rates or
currency values and (iv) agreements designed to protect such person against
fluctuations in raw material prices.
"Indebtedness" means, with respect to any person, any indebtedness of such
person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of
the purchase price of any property or representing net Hedging Obligations,
except any such balance that constitutes an accrued expense or a trade payable,
if and to the extent any of the foregoing indebtedness (other than letters of
credit and Hedging Obligations) would appear as a liability on a balance sheet
of such person prepared in accordance with GAAP, as well as all indebtedness of
others secured by a Lien on any asset of such person whether or not such
indebtedness is assumed by such person (provided that, for purposes of
determining the amount of any Indebtedness of the type described in this
clause, if recourse with respect to such Indebtedness is limited to such asset,
the amount of such Indebtedness shall be limited to the lesser of the fair
market value of such asset or the amount of such Indebtedness) and, to the
extent not otherwise included, the Guarantee by such person of any indebtedness
of the types described above of any other person; provided that Indebtedness
shall not include the pledge by the Company or any of its Restricted
Subsidiaries of the Capital Stock of a Joint Venture Subsidiary, an
Unrestricted Subsidiary or a Joint Venture permitted by clause (k) or (1) of
the covenant described above under the caption "Certain Covenants--Restricted
Payments" to secure Non-Recourse Debt of such Unrestricted Subsidiary or Joint
Venture.
The Equistar Assumed Debt shall not constitute Indebtedness of the Company
as of any date of determination if the Company has not made any principal or
interest payments on such Indebtedness after the Issue Date; provided that, the
payment by the Company of any principal or interest thereon shall be deemed to
be an incurrence of such Indebtedness on the day of such payment.
The amount of any Indebtedness outstanding as of any date shall be (i) the
accreted value thereof, in the case of any Indebtedness that does not require
current payments of interest and (ii) the principal amount thereof, together
with any interest thereon that is more than 30 days past due, in the case of
any other Indebtedness.
"Investment Grade" means a rating of BBB- or higher by S&P or Baa3 or higher
by Moody's or the equivalent of such ratings by S&P or Moody's. In the event
that the Company shall select any other Rating Agency pursuant to the
provisions of the definition thereof, the equivalent of such ratings by such
Rating Agency shall be used.
"Investments" means, with respect to any person, all investments by such
person in another person (including an Affiliate of such person) in the form of
direct or indirect loans, advances or extensions of credit to such other person
(including any Guarantee by such person of the Indebtedness or Disqualified
Stock of such other person) or capital contributions or purchases or other
acquisitions for consideration of Indebtedness, Equity Interests or other
securities of such other person, together with all items that are or would be
classified as investments of such investing person on a balance sheet prepared
in accordance with GAAP; provided that (x) trade credit and accounts receivable
in the ordinary course of business, (y) commissions, loans, advances,
76
fees and compensation paid in the ordinary course of business to officers,
directors and employees and (z) reimbursement obligations in respect of
letters of credit and tender, bid, performance, government contract, surety
and appeal bonds, in each case solely with respect to obligations of the
Company or any of its Restricted Subsidiaries shall not be considered
Investments. If the Company or any Restricted Subsidiary of the Company sells
or otherwise disposes of any Equity Interests of any direct or indirect
Restricted Subsidiary of the Company such that, after giving effect to any
such sale or disposition, such person is no longer a Restricted Subsidiary of
the Company, the Company shall be deemed to have made an Investment on the
date of any such sale or disposition equal to the fair market value of the
Equity Interests of such Restricted Subsidiary not sold or disposed of in an
amount determined as provided in the first paragraph of the covenant described
above under the caption "Certain Covenants--Restricted Payments."
"Issue Date" means December 4, 2001, the date on which the outstanding
notes were originally issued.
"Joint Venture" means any joint venture between the Company or any
Restricted Subsidiary and any other person, whether or not such joint venture
is a Subsidiary of the Company or any Restricted Subsidiary.
"Joint Venture Subsidiary" means a Subsidiary of the Company or any of its
Subsidiaries that has no assets and conducts no operations other than its
ownership of Equity Interests of a Joint Venture.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest (other than, in the case of Receivables Facilities,
security interests under the Uniform Commercial Code arising solely by virtue
of the application of Article 9 thereof to sales of accounts) or encumbrance
of any kind in respect of such asset, whether or not filed, recorded or
otherwise perfected under applicable law (including any conditional sale or
other title retention agreement, and any lease in the nature thereof) or the
assignment or conveyance of any right to receive income therefrom.
"Lyondell TDI" means Lyondell Chimie France TDI, a French limited
partnership and a wholly owned subsidiary of the Company.
"Major Asset Sale" means an Asset Sale designated by the Company by prior
notice to the Trustee as a Major Asset Sale, so long as in connection
therewith (i) the Company receives Net Proceeds in an aggregate amount not
less than $1,000,000,000 (which shall be deemed Net Proceeds of such Major
Asset Sale for purposes of the covenant described under the caption
"Repurchase at the Option of Holders--Asset Sales"), (ii) at the time of such
Major Asset Sale and after giving effect thereto, no Default shall exist,
(iii) the sum of the gross cash proceeds received by the Company in respect of
such Major Asset Sale plus the value of the interest of the Company in the
Subject Assets Transferee (if any) after giving effect to such Major Asset
Sale is not less than the value (as conclusively determined by the Board of
Directors of the Company) of the portion of the Subject Assets transferred by
the Company in connection with such Major Asset Sale, and (iv) the Company
directly or indirectly is the operator of the Subject Assets in which it or a
Subject Assets Transferee retains an interest. For purposes of clause (i) of
this definition (1) a transaction that produces substantially the same
economic result as a sale of a partial interest in an asset, as might be
achieved, for instance, through contractual arrangements allocating future
revenues and costs attributable to the asset, shall be deemed an Asset Sale
even though there may be no change in title to the asset or in the ownership
of the person that has title to the asset and (2) a subsequent related
transaction with the same Acquiring person (or an Affiliate thereof)
contemplated by the terms of the initial Major Asset Sale with such person
shall, for purposes of determining the applicability of and compliance with
this definition, be deemed a single cumulative transaction.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Income" means, with respect to any person, the net income (loss) of
such person, determined in accordance with GAAP and before any reduction in
respect of Preferred Stock dividends, excluding, however,
(i) any gain or loss, together with any related provision for taxes on
such gain or loss, realized in connection with
(a) any Asset Sale or any disposition pursuant to a Sale and
Leaseback Transaction or
77
(b) the disposition of any securities by such person or any of its
Restricted Subsidiaries or the extinguishment of any Indebtedness of
such person or any of its Restricted Subsidiaries and
(ii) any extraordinary gain or loss, together with any related provision
for taxes on such extraordinary gain or loss.
"Net Proceeds" means the aggregate cash proceeds (excluding any proceeds
deemed to be "cash" pursuant to the covenant described above under "Repurchase
at the Option of Holders--Asset Sales") received by the Company or any of its
Restricted Subsidiaries in respect of any Asset Sale (including, without
limitation, any cash received upon the sale or other disposition of any non-
cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees and sales commissions) and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof (after
taking into account any available tax credits or deductions and any tax sharing
arrangements), amounts required to be paid to holders of minority interests in
Restricted Subsidiaries as a result of such Asset Sale, amounts required to be
applied to the repayment of Indebtedness (other than Indebtedness under the
Existing Credit Facility, the Existing Senior Secured Notes or the Existing
ARCO Chemical Debt) secured by a Lien on any asset sold in such Asset Sale and
any reserves for adjustment in respect of the sales price of such asset or
assets established in accordance with GAAP and any reserve for future
liabilities established in accordance with GAAP; provided that the reversal of
any such reserve that reduced Net Proceeds when issued shall be deemed a
receipt of Net Proceeds in the amount of such proceeds on such day.
"Non-Recourse Debt" means Indebtedness as to which the lenders have been
notified in writing that they will not have any recourse to the stock or assets
(in each case, other than the stock of a Joint Venture or an Unrestricted
Subsidiary or of a Joint Venture Subsidiary that has no assets and conducts no
operations other than the holding, directly or indirectly, of Equity Interests
of such Joint Venture pledged by the Company or any of its Restricted
Subsidiaries to secure debt of such Joint Venture or Unrestricted Subsidiary)
of the Company or any of its Restricted Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness and in all cases whether direct or
indirect, absolute or contingent, now outstanding or hereafter created, assumed
or incurred and including, without limitation, interest accruing subsequent to
the filing of a petition in bankruptcy or the commencement of any insolvency,
reorganization or similar proceedings at the rate provided in the relevant
documentation, whether or not an allowed claim, and any obligation to redeem or
defease any of the foregoing.
"Payment Default" means any failure to pay any scheduled installment of
interest or principal on any Indebtedness within the grace period provided for
such payment in the documentation governing such Indebtedness.
"PBGC Settlement" means the settlement agreement between the Company and the
Pension Benefit Guaranty Corporation (or any successor entity) as amended,
modified, restated or replaced from time to time.
"Permitted Business" means the petrochemical, chemical and petroleum
refining businesses and any business reasonably related, incidental,
complementary or ancillary thereto.
"Permitted Investments" means:
(a) any Investment in the Company or in a Restricted Subsidiary of the
Company that is engaged in a Permitted Business;
(b) any Investment in Cash Equivalents;
(c) any Investment by the Company or any Subsidiary of the Company in a
person, if as a result of such Investment:
(i) such person becomes a Restricted Subsidiary of the Company
engaged in a Permitted Business; or
78
(ii) such person is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all its assets to, or is
liquidated into, the Company or a Restricted Subsidiary of the Company
engaged in a Permitted Business;
(d) any non-cash consideration (other than a joint venture interest
received in full or partial satisfaction of the 80% requirement in clause
(ii) of the first paragraph of the covenant described above under the
caption "Repurchase at the Option of Holders--Asset Sales") received as
consideration in an Asset Sale that was made pursuant to and in compliance
with the covenant described above under the caption "Repurchase at the
Option of Holders--Asset Sales";
(e) any acquisition of assets or Equity Interests solely in exchange for
the issuance of Equity Interests (other than Disqualified Stock) of the
Company;
(f) Hedging Obligations entered into in the ordinary course of business
and otherwise permitted under the indenture;
(g) Investments in an Accounts Receivable Subsidiary that, as
conclusively determined by the Board of Directors, are necessary or
advisable to effect a Receivables Facility;
(h) Investments in Unrestricted Subsidiaries and Joint Ventures in an
aggregate amount, taken together with all other Investments made in
reliance on this clause (h), not to exceed at any time outstanding $25
million (after giving effect to any reductions in the amount of any such
Investments as a result of the repayment or other disposition thereof for
cash, the amount of such reduction not to exceed the amount of such
Investments previously made pursuant to this clause (h)); and
(i) any Investment received by the Company or any Restricted Subsidiary
as consideration for the settlement of any litigation, arbitration or claim
in bankruptcy or in partial or full satisfaction of accounts receivable
owned by a financially troubled person to the extent reasonably necessary
in order to prevent or limit any loss by the Company or any of its
Restricted Subsidiaries in connection with such accounts receivable.
"Permitted Liens" means:
(i) Liens in favor of the Company or any Subsidiary Guarantor;
(ii) Liens securing the notes and the Subsidiary Guarantees;
(iii) Liens on property of a person existing at the time such person is
merged into or consolidated with the Company or any Restricted Subsidiary
of the Company or becomes a Subsidiary of the Company; provided that such
Liens were in existence prior to the contemplation of such merger,
consolidation or acquisition and do not extend to any assets of the Company
or its Restricted Subsidiaries other than those of the person merged into
or consolidated with the Company or that becomes a Restricted Subsidiary of
the Company;
(iv) Liens on property existing at the time of acquisition thereof by
the Company or any Restricted Subsidiary of the Company; provided that such
Liens were in existence prior to the contemplation of such acquisition;
(v) Liens (including the interest of a lessor under a capital lease) on
any asset existing at the time of acquisition thereof or incurred within
180 days of the time of acquisition or completion of construction thereof,
whichever is later, to secure or provide for the payment of all or any part
of the purchase price (or construction price) thereof;
(vi) Liens incurred or assumed in connection with the issuance of
revenue bonds the interest on which is exempt from federal income taxation
pursuant to Section 103(b) of the Internal Revenue Code;
(vii) Liens imposed by law, such as laborers' or other employees',
carriers', warehousemen's, mechanics', materialmen's and vendors' Liens and
Liens imposed by law on pipelines or pipeline facilities;
79
(viii) Liens arising by reason of deposits necessary to qualify the
Company or any Restricted Subsidiary to conduct business, maintain self
insurance or comply with any law and Liens securing the PBGC Settlement;
(ix) Liens to secure the performance of statutory obligations, tender,
bid, performance, government contract, surety or appeal bonds or other
obligations of a like nature incurred in the ordinary course of business;
(x) Liens existing on the Issue Date other than Liens securing
Indebtedness under the Existing Credit Facility, the Existing Senior
Secured Notes or the Existing ARCO Chemical Debt;
(xi) Liens for taxes, assessments or governmental charges or claims that
are not yet delinquent or that are being contested in good faith by
appropriate proceedings, prejudgment Liens that are being contested in good
faith by appropriate proceedings and Liens arising out of judgments or
awards against the Company or any Restricted Subsidiary with respect to
which the Company or such Restricted Subsidiary at the time shall be
prosecuting an appeal or proceedings for review and with respect to which
it shall have secured a stay of execution pending such appeal or
proceedings for review; provided that in each case any reserve or other
appropriate provision as shall be required in conformity with GAAP shall
have been made therefor;
(xii) easements, rights-of-way, restrictions, irregularities of title
and other similar charges or encumbrances, not interfering in any material
respect with the ordinary conduct of the business of the Company or any of
its Restricted Subsidiaries;
(xiii) Liens securing reimbursement obligations with respect to
commercial letters of credit obtained in the ordinary course of business
which encumber documents and other property or assets relating to such
letters of credit and products and proceeds thereof;
(xiv) Liens securing assets under construction arising from progress or
partial payments by a customer of the Company or its Restricted
Subsidiaries relating to such property or assets;
(xv) licenses or leases by the Company or any of its Restricted
Subsidiaries as licensor or lessor in the ordinary course of business and
otherwise permitted by the indenture for patents, copyrights, trademarks,
trade names and other intellectual property;
(xvi) leases or subleases by the Company or any of its Restricted
Subsidiaries as lessor or sublessor in the ordinary course of business and
otherwise permitted by the indenture;
(xvii) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods;
(xviii) Liens resulting from the deposit of funds or evidences of
Indebtedness in trust for the purpose of (A) defeasing Indebtedness of the
Company or any of its Restricted Subsidiaries (which defeasance is
otherwise permitted under the indenture) having an aggregate principal
amount at any one time outstanding not to exceed $25 million or (B)
defeasing Indebtedness ranking pari passu with the notes issued under the
indenture; provided that the notes issued under the indenture are defeased
concurrently with such Indebtedness;
(xix) from and after the first date when the notes are rated Investment
Grade, Liens on any asset of the Company other than any of the Company's or
any of its Restricted Subsidiary's manufacturing plants or Liens on any
Equity Interests of any Restricted Subsidiary that owns a manufacturing
plant;
(xx) the pledge of Equity Interests of an Unrestricted Subsidiary or a
Joint Venture (or of a Joint Venture Subsidiary that has no assets and
conducts no operations other than the holding, directly or indirectly, of
Equity Interests of such Joint Venture) organized (or designated as an
Unrestricted Subsidiary and holding no other assets and conducting no other
operations) to construct, own and/or operate a propylene oxide plant in the
European Union to secure Non-Recourse Debt of such Joint Venture or
Unrestricted Subsidiary;
80
(xxi) the pledge of Equity Interests of an Unrestricted Subsidiary or a
Joint Venture (or of a Joint Venture Subsidiary that has no assets and
conducts no operations other than the holding, directly or indirectly, of
Equity Interests of such Joint Venture) organized (or designated as an
Unrestricted Subsidiary and holding no other assets and conducting no other
operations) to participate in the improvement of the Rhodia TDI Plant to
secure Non-Recourse Debt of such Joint Venture or Unrestricted Subsidiary
or Rhodia or a wholly owned subsidiary of Rhodia;
(xxii) Liens on equipment of the Company or any Restricted Subsidiary
arising as a result of a sale and leaseback with respect to such equipment;
provided that the proceeds from such sale and leaseback are applied
pursuant to the covenant described above under the caption "Repurchase at
the Option of Holders--Asset Sales";
(xxiii) Asset Sale Liens;
(xxiv) customary Liens for the fees, costs and expenses of trustees and
escrow agents pursuant to any indenture, escrow agreement or similar
agreement establishing a trust or an escrow arrangement, and Liens pursuant
to merger agreements, stock purchase agreements, asset sale agreements,
option agreements and similar agreements in respect of the disposition of
property or assets of the Company or any Restricted Subsidiary, to the
extent such dispositions are permitted hereunder;
(xxv) netting provisions and setoff rights in favor of counterparties to
agreements creating Hedging Obligations;
(xxvi) other Liens on assets of the Company or any Restricted Subsidiary
of the Company securing Indebtedness that is permitted by the terms of the
indenture to be outstanding having an aggregate principal amount at any one
time outstanding not to exceed $100 million; and
(xxvii) Liens to secure a Permitted Refinancing incurred to refinance
Indebtedness that was secured by a Lien permitted under the indenture and
that was incurred in accordance with the provisions of the indenture;
provided that such Liens do not extend to or cover any property or assets
of the Company or any Restricted Subsidiary other than assets or property
securing the Indebtedness so refinanced.
"Permitted Refinancing" means any Indebtedness of the Company or any of its
Subsidiaries or Preferred Stock of a Finance Subsidiary issued in exchange for,
or the net proceeds of which are used solely to extend, refinance, renew,
replace, defease or refund, other Indebtedness of the Company or any of its
Restricted Subsidiaries; provided that:
(i) the principal amount (or liquidation preference in the case of
Preferred Stock) of such Permitted Refinancing (or if such Permitted
Refinancing is issued at a discount, the initial issuance price of such
Permitted Refinancing) does not exceed the principal amount of the
Indebtedness so extended, refinanced, renewed, replaced, defeased or
refunded (plus the amount of any premiums paid and reasonable expenses
incurred in connection therewith);
(ii) such Permitted Refinancing or, in the case of Preferred Stock of a
Finance Subsidiary, the Indebtedness issued to such Finance Subsidiary, has
a Stated Maturity date later than the Stated Maturity date of, and has a
Weighted Average Life to Maturity equal to or greater than the Weighted
Average Life to Maturity of, the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded;
(iii) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated by its terms in right of payment to
the notes or the Subsidiary Guarantees, such Permitted Refinancing, or, in
the case of Preferred Stock, the Indebtedness issued to such Finance
Subsidiary, has a Stated Maturity date later than the Stated Maturity date
of, and is subordinated in right of payment to, the notes on subordination
terms at least as favorable to the holders of notes as those contained in
the documentation governing the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded;
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(iv) such Indebtedness is incurred by the Company or a Subsidiary
Guarantor (or such Preferred Stock is issued by a Finance Subsidiary) if
the Company or a Subsidiary Guarantor is the obligor on the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded; and
(v) such Indebtedness is incurred by the Company or a Restricted
Subsidiary (or such Preferred Stock is issued by a Finance Subsidiary) if a
Restricted Subsidiary that is not a Subsidiary Guarantor is the obligor on
the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
"Preferred Stock" means, with respect to any person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) of preferred or preference stock of such person which is
outstanding or issued on or after the date of the indenture.
"Qualified Equity Interests" shall mean all Equity Interests of a person
other than Disqualified Stock of such person.
"Rating Agency" means (i) S&P or (ii) Moody's or (iii) if neither S&P nor
Moody's shall exist, a nationally recognized securities rating agency or
agencies, as the case may be, selected by the Company, which shall be
substituted for S&P or Moody's or both, as the case may be.
"Receivables Facility" means one or more receivables financing facilities
or arrangements, as amended from time to time, pursuant to which the Company
or any of its Restricted Subsidiaries sells (including a sale in exchange for
a promissory note of or an Equity Interest in an Accounts Receivable
Subsidiary) its accounts receivable to an Accounts Receivable Subsidiary.
"Receivables Fees" means distributions or payments made directly or by
means of discounts with respect to any participation interests issued or sold
in connection with, and other fees paid to a person that is not the Company or
a Restricted Subsidiary in connection with, any Receivables Facility.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a person means any Subsidiary of the referent
person that is not an Unrestricted Subsidiary.
"Rhodia" means Rhodia S.A., a French company and the successor in interest
to Rhone-Poulenc Chemie S.A. under the TDI Agreements.
"Rhodia TDI Plant" means the manufacturing facilities for the production of
toluene diisocyanate, currently owned by Rhodia and located at Pont-de-Claix,
France.
"Sale and Leaseback Transaction" means, with respect to any person, any
arrangement with a lender or an investor providing for the leasing by such
person of any property or asset of such person which has been or is being sold
or transferred by such person to such lender or investor if such arrangement
is accounted for as a capitalized lease by such person under GAAP.
"Senior Indebtedness" has the meaning assigned to such term in the Senior
Subordinated Note Indenture.
"Senior Subordinated Note Indenture" means the indenture among the Company,
the Subsidiary Guarantors party thereto and The Bank of New York, as trustee,
pursuant to which the Company issued the Senior Subordinated Notes.
"Senior Subordinated Notes" means the 10.875% Senior Subordinated Notes Due
2009 issued by the Company pursuant to the Senior Subordinated Note Indenture.
"Significant Asset Sale" means an Asset Sale of (x) any of the Company's or
its Restricted Subsidiaries' plants that (a) has a fair market value in excess
of $50 million or (b) for Net Proceeds in excess of $50 million
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(a "Significant Asset") or (y) a controlling interest in any Restricted
Subsidiary that owns a Significant Asset (other than, in each case, an
involuntary disposition, to the extent that the Existing Credit Facility (but
not any refinancing thereof other than a credit facility with commercial banks
and other lenders) permits the proceeds thereof to be reinvested prior to any
mandatory prepayment of amounts outstanding thereunder).
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Act, as such Regulation is in effect on the Issue
Date.
"Specified Joint Ventures" means (i) Equistar Chemicals, LP, (ii) LYONDELL-
CITGO Refining LP and (iii) Lyondell Methanol Company, L.P.
"S&P" means Standard & Poor's Corporation and its successors.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness (or any later date established by any amendment to
such original documentation) and shall not include any contingent obligations
to repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subject Assets" means, with respect to any Major Asset Sale, the assets
that are the subject of such Major Asset Sale.
"Subject Assets Transferee" means any Restricted Subsidiary or Joint Venture
that becomes the owner of Subject Assets in connection with a Major Asset Sale.
"Subsidiary" means, with respect to any person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
person or one or more of the other Subsidiaries of that person (or a
combination thereof) or (ii) any partnership (a) the sole general partner or
the managing general partner of which is such person or a Subsidiary of such
person or (b) the only general partners of which are such person or one or more
Subsidiaries of such person (or any combination thereof) or (c) that is a
Specified Joint Venture and as to which (i) a general partner of which is such
person or a Subsidiary of such person, (ii) such person owns, directly or
indirectly, 50% or more of the partnership interests of such Specified Joint
Venture and (iii) the Board of Directors of such person has designated such
Specified Joint Venture to be a "Subsidiary" (which designation shall be
irrevocable for so long as such Specified Joint Venture satisfies the foregoing
requirements). As of the Issue Date, none of the Existing Joint Ventures are
Subsidiaries of the Company.
"Subsidiary Guarantor" means (i) ARCO Chemical Technology, Inc., ARCO
Chemical Technology, L.P. and Lyondell Chemical Nederland, Ltd. and (ii) any
other Subsidiary that executes a Subsidiary Guarantee in accordance with the
provisions of the indenture, in each case, until the Subsidiary Guarantee of
such person is released in accordance with the provisions of the indenture.
"TDI Agreements" means (i) the Share Purchase Agreement dated as of January
23, 1995 between ARCO Chemical Europe Inc. and Rhone-Poulenc Chemie S.A., as
such agreement may be amended, supplemented or otherwise modified from time to
time, (ii) the Processing Agreement dated as of January 23, 1995 between ARCO
Chemical Chemie TDI and Rhone-Poulenc Chemie S.A., as such agreement may be
amended, supplemented or otherwise modified from time to time, and (iii) the
TDI License.
"TDI Assets" means (i) all rights of ARCO Chemical Europe Inc., ARCO
Chemical Chemie TDI, ARCO Chemical Technology, L.P. and their respective
successors under the TDI Agreements and (ii) all of Lyondell TDI's customer
lists relating to the Rhodia TDI Plant.
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"TDI License" means the TDI Technology Agreement dated as of January 23,
1995 between ARCO Chemical Technology, L.P. and Rhone-Poulenc Chemie S.A., as
such agreement may be amended, supplemented or otherwise modified from time to
time.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that is
designated by the Board of Directors of the Company as an Unrestricted
Subsidiary pursuant to a board resolution, (ii) any Subsidiary of an
Unrestricted Subsidiary and (iii) any Accounts Receivable Subsidiary. The Board
of Directors may designate any Subsidiary of the Company (including any newly
acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless
such Subsidiary or any of its Subsidiaries owns any Equity Interest or
Indebtedness of, or holds any Lien on any property of, the Company or any other
Subsidiary of the Company that is not a Subsidiary of the Subsidiary to be so
designated; provided that:
(a) any Guarantee (other than as a co-obligor of the Equistar Assumed
Debt so long as the Equistar Assumed Debt is not considered Indebtedness of
the Company pursuant to the definition thereof) by the Company or any
Restricted Subsidiary of any Indebtedness of the Subsidiary being so
designated shall be deemed an "Incurrence" of such Indebtedness and an
"Investment" by the Company or such Restricted Subsidiary (or both, if
applicable) at the time of such designation,
(b) either (i) the Subsidiary to be so designated has total assets of
$1,000 or less or (ii) if such Subsidiary has assets greater than $1,000,
such designation would be permitted under the covenant described above
under the caption "Certain Covenants--Restricted Payments,"
(c) if applicable, the Investment and the incurrence of Indebtedness
referred to in clause (a) of this proviso would be permitted under the
covenants described above under the captions "Certain Covenants--Restricted
Payments" and "Certain Covenants--Incurrence of Indebtedness and Issuance
of Preferred Stock" and
(d) in the case of any Subsidiary that is a Joint Venture as of the date
of its designation as an Unrestricted Subsidiary, such Subsidiary has an
aggregate of 15% or more of its outstanding Capital Stock or other voting
interests (other than directors' qualifying shares) held by another person
other than the Company or any Restricted Subsidiary or any Affiliate of the
Company.
Any such designation by the Board of Directors of the Company pursuant to
clause (i) above shall be evidenced to the Trustee by filing with the Trustee a
certified copy of the Board Resolution giving effect to such designation and an
officers' certificate certifying that such designation complied with the
foregoing conditions and was permitted by the covenants described above under
the captions "Certain Covenants--Restricted Payments" and "Certain Covenants--
Incurrence of Indebtedness and Issuance of Preferred Stock."
If (i) at any time, any Unrestricted Subsidiary would fail to meet the
foregoing requirements of clause (d) (because the Company has acquired more
than 85% of the outstanding Capital Stock or other voting interests of any
Subsidiary that was a Joint Venture on the date of its designation as an
Unrestricted Subsidiary), or (ii) at any time the Company or any Restricted
Subsidiary Guarantees any Indebtedness of such Unrestricted Subsidiary or makes
any other Investment in such Unrestricted Subsidiary and such incurrence of
Indebtedness or Investment would not be permitted under the covenants described
above under the caption "Certain Covenants--Incurrence of Indebtedness and
Issuance of Preferred Stock" or "Certain Covenants--Restricted Payments," it
shall thereafter cease to be an Unrestricted Subsidiary for purposes of the
indenture and any Indebtedness of such Subsidiary shall be deemed to be
incurred by a Restricted Subsidiary of the Company as of such date (and, if
such Indebtedness is not permitted to be incurred as of such date under the
covenant described above under the caption "Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock," the Company shall be in default
of such covenant). The Board of Directors of the Company may at any time
designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided
that such designation shall be deemed to be an incurrence of Indebtedness by a
Restricted Subsidiary of the Company of any outstanding Indebtedness of such
Unrestricted Subsidiary and such designation shall be permitted only if (i)
such Indebtedness is permitted under the covenant described above under the
caption "Certain Covenants--Incurrence of Indebtedness and Issuance of
Preferred Stock" and (ii) no Default or Event of Default would be in existence
following such designation.
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"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (ii) the then outstanding
principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any person means a Restricted
Subsidiary of such person all the outstanding Equity Interests of which (other
than directors' qualifying shares) shall at the time be owned by such person or
by one or more Wholly Owned Restricted Subsidiaries of such person or by such
person and one or more Wholly Owned Restricted Subsidiaries of such person.
"Wholly Owned Subsidiary" of any person means a Subsidiary of such person
all the outstanding Equity Interests of which (other than directors' qualifying
shares) shall at the time be owned by such person or by one or more Wholly
Owned Subsidiaries of such person or by such person and one or more Wholly
Owned Subsidiaries of such person.
UNITED STATES FEDERAL INCOME
TAX CONSEQUENCES TO NON-U.S. HOLDERS
The following is a summary of the material United States federal income tax
consequences of the exchange of the outstanding notes for the new notes and the
ownership and disposition of the new notes by a purchaser that is a non-U.S.
holder. For this purpose, a non-U.S. holder is a holder that is, for United
States federal income tax purposes:
. a nonresident alien individual;
. a foreign corporation; or
. a foreign estate or trust that is not subject to United States federal
income taxation on its worldwide income.
If a partnership (including for this purpose an entity treated as a
partnership for United States federal income tax purposes) is a beneficial
owner of notes, the treatment of a partner in the partnership will generally
depend upon the status of the partner and upon the activities of the
partnership. Holders of notes that are a partnership or partners in such
partnership should consult their tax advisors about the United States federal
income tax consequences of purchasing, owning and disposing of the notes.
This summary is based upon the Internal Revenue Code of 1986, as amended to
the date hereof (the Code), administrative pronouncements, judicial decisions
and final temporary and proposed Treasury Regulations, each of which is subject
to change, possibly retroactively. This summary does not discuss all aspects of
United States federal income taxation that may be important to particular non-
U.S. holders in light of their individual investment circumstances, such as
notes held by investors subject to special tax rules (e.g., U.S. expatriates,
financial institutions, insurance companies, broker-dealers and tax-exempt
organizations) or to persons that will hold the new notes as a part of a
straddle, hedge or synthetic security transaction for United States federal
income tax purposes or that have a functional currency other than the United
States dollar, all of whom may be subject to tax rules that differ
significantly from those summarized below. In addition, this summary does not
discuss any foreign, state or local tax considerations.
This summary assumes that investors will hold the new notes as "capital
assets" (generally, property held for investment) under the Code. Prospective
investors are urged to consult their tax advisors regarding the United States
federal, state, local and foreign income and other tax consequences of the
exchange of the outstanding notes for new notes and ownership and disposition
of the new notes.
85
The Exchange Offer
The exchange of a new note for an outstanding note will not constitute a
taxable exchange for United States federal income tax purposes because the new
notes will not differ materially either in kind or extent from the outstanding
notes for which they will be exchanged. Accordingly, holders who receive a new
note in exchange for an outstanding note will not recognize gain or loss,
because for United States federal income tax purposes, the new notes will be
treated as continuations of the outstanding notes.
Payment of Interest
Interest paid by Lyondell to non-U.S. holders will not be subject to United
States federal income or withholding tax provided:
. the beneficial owner of the new note does not actually or constructively
own 10% or more of the total combined voting power of all classes of
stock of Lyondell entitled to vote;
. the beneficial owner of the new note is not a controlled foreign
corporation that is related to Lyondell through stock ownership;
. the beneficial owner of the new note is not a bank that acquired the
outstanding note as an extension of credit made pursuant to a loan
agreement made in the ordinary course of business; and
. the requirements of section 871(h) or 881(c) of the Code are satisfied
as described below under the heading "Owner Statement Requirement."
Notwithstanding the above, unless the holder qualifies for an exemption from
such tax or a lower tax rate under an applicable treaty, a non-U.S. holder that
is engaged in the conduct of a United States trade or business will be subject
to:
. United States federal income tax on interest that is effectively
connected with the conduct of such trade or business; and
. if the non-U.S. holder is a corporation, a United States branch profits
tax equal to 30% of its "effectively connected earnings and profits" as
adjusted for the taxable year.
Gain on Disposition
A non-U.S. holder will generally not be subject to United States federal
income tax on gain recognized on a sale, redemption or other disposition of a
new note unless:
. the gain is effectively connected with the conduct of a trade or
business within the United States by the non-U.S. holder; or
. in the case of a non-U.S. holder who is a nonresident alien individual,
such holder is present in the United States for 183 or more days during
the taxable year and certain other requirements are met.
However, to the extent that disposition proceeds represent interest accruing
between interest payment dates, a non-U.S. Holder may be required to establish
an exemption from United States federal income tax. (See "--Payment of
Interest" above).
Any gain recognized on a sale, redemption or other disposition of a new note
that is effectively connected with the conduct of a United States trade or
business by a non-U.S. holder will be subject to United States federal income
tax on a net income basis in the same manner as if such holder were a United
States person and, if such non-U.S. holder is a corporation, such gain may also
be subject to the 30% United States branch profits tax (or lower treaty rate,
if applicable) described above.
Federal Estate Taxes
A new note held by an individual who at the time of death is not a citizen
or resident of the United States will not be subject to United States federal
estate tax as a result of such individual's death, provided:
. the individual does not actually or constructively own 10% or more of
the total combined voting power of all classes of stock of Lyondell
entitled to vote; and
86
. the interest accrued on the note was not effectively connected with a
United States trade or business of the individual at the individual's
death.
Owner Statement Requirement
In order to claim an exemption from United States federal withholding tax
with respect to payments of interest on a new note, sections 871(h) and 881(c)
of the Code require that either the beneficial owner of the new note or a
securities clearing organization, bank or other financial institution that
holds customers' securities in the ordinary course of its trade or business and
that holds a new note on behalf of such owner file a statement with Lyondell or
its agent representing that the beneficial owner is not a United States person.
Under current regulations, this requirement will be satisfied if Lyondell or
its agent receives:
. a statement from the beneficial owner certifying under penalty of
perjury that such owner is not a United States person and that provides
certain information required under the regulations; or
. a statement from the financial institution holding the new note on
behalf of the beneficial owner certifying, under penalties of perjury,
that it has received the owner's statement, together with a copy of the
owner's statement.
The beneficial owner must inform Lyondell or its agent, as applicable, or
the financial institution, as applicable, within 30 days of any change in
information on the owner's statement.
Backup Withholding
Payments made on, and proceeds from the sale of, a new note may be subject
to a "backup" withholding tax unless the holder furnishes to the paying agent
or broker an owner's statement or otherwise establishes an exemption. Any
withheld amounts would generally be allowed as a credit against a holder's
federal income tax, provided the required information is timely filed with the
Internal Revenue Service.
The United States federal income tax discussion set forth above is included
for general information only and may not be applicable to a holder's particular
situation. Holders of the new notes should consult tax advisors with respect to
the tax consequences to them of the exchange of the outstanding notes for the
new notes and of the ownership and disposition of the new notes, including the
tax consequences under state, local, foreign and other tax laws and the
possible effects of changes in United States federal or other tax laws.
87
PLAN OF DISTRIBUTION
Based on interpretations by the staff of the SEC in no action letters issued
to third parties, we believe that you may transfer new notes issued under the
exchange offer in exchange for the outstanding notes if:
. you acquire the new notes in the ordinary course of your business; and
. you are not engaged in, and do not intend to engage in, and have no
arrangement or understanding with any person to participate in, a
distribution of new notes.
Broker-dealers receiving new notes in the exchange offer will be subject to
a prospectus delivery requirement with respect to resales of the new notes.
We believe that you may not transfer new notes issued under the exchange
offer if you are:
. our "affiliate" within the meaning of Rule 405 under the Securities Act;
. a broker-dealer that acquired outstanding notes directly from us; or
. a broker-dealer that acquired outstanding notes as a result of market-
making or other trading activities without compliance with the
registration and prospectus delivery provisions of the Securities Act.
To date, the staff of the SEC has taken the position that participating
broker-dealers may fulfill their prospectus delivery requirements with respect
to transactions involving an exchange of securities such as this exchange
offer, other than a resale of an unsold allotment from the original sale of the
outstanding notes, with the prospectus contained in the exchange offer
registration statement. In the registration rights agreement, we have agreed to
permit participating broker-dealers to use this prospectus in connection with
the resale of new notes. We have agreed that, for a period of up to 180 days
after the expiration of the exchange offer, we will make this prospectus, and
any amendment or supplement to this prospectus, available to any broker-dealer
that requests these documents in the letter of transmittal.
If you wish to exchange your outstanding notes for new notes in the exchange
offer, you will be required to make representations to us as described in the
"The Exchange Offer--Purpose and Effect of the Exchange Offer" and "The
Exchange Offer--Your Representations to Us" sections of this prospectus and in
the letter of transmittal. In addition, if you are a broker-dealer who receives
new notes for your own account in exchange for outstanding notes that were
acquired by you as a result of market-making activities or other trading
activities, you will be required to acknowledge that you will deliver a
prospectus in connection with any resale by you of new notes.
We will not receive any proceeds from sale of new notes by broker-dealers.
Broker-dealers who receive new notes for their own account in the exchange
offer may sell them from time to time in one or more transactions either:
. in the over-the-counter market;
. in negotiated transactions;
. through the writing of options on the new notes or a combination of
methods of resale; or
. at prices related to prevailing market prices or negotiated prices.
Any resale may be made directly to purchasers or to or through brokers or
dealers who may receive compensation in the form of commissions or concessions
form any broker-dealer or the purchasers of any new notes. Any broker-dealer
that resells new notes it received for its own account in the exchange offer
and any broker or dealer that participates in a distribution of new notes may
be deemed to be an "underwriter" within
88
the meaning of the Securities Act. Any profit on any resale of new notes and
any commissions or concessions received by any persons may be deemed to be
underwriting compensation under the Securities Act. The letter of transmittal
states that, by acknowledging that it will deliver and by delivery a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning the Securities Act.
We have agreed to pay all expenses incidental to the exchange offer other
than commissions and concessions of any broker or dealers. We will indemnify
holders of the outstanding notes, including any broker-dealers, against some
liabilities, including liabilities under the Securities Act, as provided in the
registration rights agreement.
LEGAL MATTERS
Baker Botts L.L.P., Houston, Texas, counsel for Lyondell Chemical Company,
has issued an opinion about the legality of the new notes.
EXPERTS
The consolidated financial statements of Lyondell Chemical Company as of
December 31, 2001 and 2000 and for each of the three years in the period ended
December 31, 2001, incorporated in this prospectus by reference to the Lyondell
Chemical Company Annual Report on Form 10-K for the year ended December 31,
2001, have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The consolidated financial statements of Equistar Chemicals, LP as of
December 31, 2001 and 2000 and for each of the three years in the period ended
December 31, 2001, incorporated in this prospectus by reference to the Lyondell
Chemical Company Annual Report on Form 10-K for the year ended December 31,
2001, have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The financial statements of LYONDELL-CITGO Refining LP as of December 31,
2001 and 2000 and for each of the three years in the period ended December 31,
2001, incorporated in this prospectus by reference to the Lyondell Chemical
Company Annual Report on Form 10-K for the year ended December 31, 2001, have
been so incorporated in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
89
WHERE YOU CAN FIND MORE INFORMATION
Lyondell files annual, quarterly and special reports, proxy statements and
other information with the SEC. Lyondell's SEC filings are available to the
public over the Internet at the SEC's web site at http://www.sec.gov. You may
also read and copy any document Lyondell files at the SEC's public reference
room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further information on the public reference rooms. In
addition, because Lyondell's common stock is listed on the New York Stock
Exchange, reports and other information concerning Lyondell can also be
inspected at the office of the New York Stock Exchange, Inc., 20 Broad Street,
New York, New York 10005. Our SEC filings are also available from our web site
at www.lyondell.com. Information contained on our web site or any other web
site is not incorporated into this prospectus and does not constitute a part of
this prospectus.
Lyondell has incorporated by reference information into this prospectus,
which means that it is disclosing important information to you by referring you
to those documents. The information incorporated by reference is an important
part of this prospectus, and information that we file later with the SEC will
automatically update and supersede the information in this prospectus. Lyondell
incorporates by reference the documents listed below and any future filings
made with the SEC (file no. 1-10145) under Section 13(a), 13(c), 14, or 15(d)
of the Securities Exchange Act of 1934, as amended, until the exchange offer
expires or is terminated.
(1) Annual Report on Form 10-K..................... Year ended December 31, 2001
(2) Current Report on Form 8-K..................... Filed on January 11, 2002
You may request a copy of these filings, at no cost, by writing or
telephoning Lyondell at the following address:
Lyondell Chemical Company
1221 McKinney, Suite 700
Houston, Texas 77010
Telephone: (713) 652-7200
Attention: Investor Relations
Whether or not required by the rules and regulations of the SEC, as long as any
notes are outstanding, Lyondell has agreed to furnish to the Trustee and to the
holders of the notes:
(1) all quarterly and annual financial information that would be
required to be contained in a filing with the SEC on Forms 10-Q and 10-K if
Lyondell were required to file such Forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and, with respect to the annual information only, a report thereon by
Lyondell's certified independent accountants; and
(2) all current reports that would be required to be filed with the SEC
on Form 8-K if Lyondell were required to file such reports.
In addition, whether or not required by the rules and regulations of the
SEC, Lyondell will file a copy of all such information and reports with the SEC
for public availability and make such information available to securities
analysts and prospective investors upon request.
In addition, Lyondell has agreed that, for so long as any outstanding notes
remain outstanding, it will furnish to the holders and to securities analysts
and prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act. Any such
request and requests for the agreements summarized herein should be directed to
the address referred to above.
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PROSPECTUS dated April 19, 2002
LYONDELL CHEMICAL COMPANY
$393,000,000
Offer to Exchange
REGISTERED
9 1/2% Senior Secured Notes due 2008
FOR
ALL OUTSTANDING
9 1/2% Senior Secured Notes due 2008
You should rely only on the information contained or incorporated by reference
in this prospectus. We have not authorized anyone to provide you with different
information. We are not offering to exchange notes in any jurisdiction where
the offer is not permitted. We do not claim the accuracy of the information in
this prospectus as of any date other than the date stated on the cover.
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