Filed Pursuant to Rule 424(b)(3)
Registration No. 333-88348
Registration No. 333-88348-01
Registration No. 333-88348-02
Registration No. 333-88348-03
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+ The Information in this prospectus supplement is not complete and may be +
+ changed. +
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SUBJECT TO COMPLETION, DATED JUNE 18, 2002
PROSPECTUS SUPPLEMENT
(To Prospectus dated May 29, 2002)
$275,000,000
Lyondell Chemical Company
% Senior Secured Notes due 2012
[Lyondell Chemical Logo]
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The notes will bear interest at the rate of % per year. Interest on the
notes is payable on January 1 and July 1 of each year, beginning on January 1,
2003. The notes will mature on July 1, 2012. We will have the option to redeem
some or all of the notes at any time on or after July 1, 2007. The redemption
prices are discussed under the caption "Description of Notes--Optional
Redemption."
The notes will be unconditionally guaranteed by our subsidiaries Lyondell
Chemical Nederland, Ltd., ARCO Chemical Technology, Inc. and ARCO Chemical
Technology, L.P. The notes will be secured equally and ratably with all our
existing secured debt, including debt under our credit facility and our
existing senior secured notes, by liens on certain of our personal and real
property.
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Investing in the notes involves risk. See "Risk Factors" beginning on page S-
8 of this prospectus supplement and page 4 of the accompanying prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the notes or determined that this
prospectus supplement or the accompanying prospectus is accurate or complete.
Any representation to the contrary is a criminal offense.
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Per Note Total
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Public Offering Price............................................
Underwriting Discount............................................
Proceeds to Lyondell (before expenses)...........................
-----------
The underwriters expect to deliver the notes to investors on or about ,
2002.
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Joint Book-Running Managers:
Salomon Smith Barney Banc of America Securities LLC
JPMorgan Credit Suisse First Boston
June , 2002
You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We
have not authorized anyone to provide you with different information. We are
not making an offer of these securities in any state where the offer is not
permitted. You should not assume that the information contained in this
prospectus supplement or the accompanying prospectus is accurate as of any date
other than the date on the front cover of this prospectus supplement or that
the information we previously filed with the SEC and incorporated by reference
in this prospectus supplement or the accompanying prospectus is accurate as of
any date other then the date of the document incorporated by reference.
TABLE OF CONTENTS
Prospectus Supplement
Page
----
Summary................................................................... S-1
Risk Factors.............................................................. S-8
Forward-Looking Statements................................................ S-13
Use of Proceeds........................................................... S-14
Capitalization............................................................ S-14
Description of Other Indebtedness......................................... S-15
Proposed Transactions with Occidental..................................... S-19
Description of Notes...................................................... S-24
Underwriting.............................................................. S-67
Legal Matters............................................................. S-68
Where You Can Find More Information....................................... S-69
Prospectus
About This Prospectus..................................................... 2
About Lyondell Chemical Company........................................... 2
The Subsidiary Guarantors................................................. 3
Risk Factors.............................................................. 4
Forward-Looking Information............................................... 14
Use of Proceeds........................................................... 15
Ratio of Earnings to Fixed Charges........................................ 15
Description of Debt Securities............................................ 16
Description of Capital Stock.............................................. 28
Market for Common Stock and Common Stock Dividends........................ 33
Description of Warrants................................................... 34
Description of Stock Purchase Contracts and Securities Purchase Units..... 34
Plan of Distribution...................................................... 35
General Information....................................................... 36
Legal Opinions............................................................ 36
Experts................................................................... 36
Where You Can Find More Information....................................... 37
ii
MARKET, RANKING AND INDUSTRY DATA
The data included or incorporated by reference in this prospectus supplement
and the accompanying 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.
NOTICE TO NEW HAMPSHIRE RESIDENTS
Neither the fact that a registration statement or an application for a
license has been filed under Chapter 421-B with the State of New Hampshire nor
the fact that a security is effectively registered or a person is licensed in
the State of New Hampshire constitutes a finding by the New Hampshire Secretary
of State that any document filed under RSA 421-B is true, complete and not
misleading. Neither any such fact nor the fact that an exemption or exception
is available for a security or a transaction means that the New Hampshire
Secretary of State has passed in any way upon the merits or qualifications of,
or recommended or given approval to, any person, security, or transaction. It
is unlawful to make, or cause to be made, to any prospective purchaser,
customer, or client any representation inconsistent with the provisions of this
paragraph.
iii
SUMMARY
Our Business
We are a global chemical company with low-cost operations and leading
producer positions in all of our major products. We manufacture and market a
variety of intermediate and performance chemicals, including propylene oxide,
propylene glycol, propylene glycol ethers, butanediol, toluene diisocyanate,
styrene monomer, and tertiary butyl alcohol and its derivative methyl tertiary
butyl ether (MTBE), which are collectively known as our intermediate chemicals
and derivatives business.
We currently own 41 percent of Equistar Chemicals, LP, a Delaware limited
partnership, which operates petrochemicals and polymers businesses. 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 have agreed in principle with Occidental Petroleum Corporation, one of
our Equistar partners, to acquire its 29.5 percent share of Equistar. We have
also agreed in principle to issue and sell to Occidental for $440 million in
cash (1) between 30 and 34 million shares of newly created series B of our
common stock, depending on the market price of our common stock at the time of
issuance, (2) five-year warrants exercisable for the purchase of 5 million
shares of our regular common stock at a price of $25 per share, subject to
adjustment, and (3) the right to receive a contingent payment having a value,
depending on the amount of Equistar distributions, of up to $35 million in cash
or stock as determined by us. We will use the $440 million in proceeds to fund
our purchase of Occidental's interest in Equistar. The principal difference
between the series B common shares and our regular common shares is that we
will have the right to pay dividends on the series B shares in the form of
additional series B shares, rather than cash. The pay-in-kind right will
continue until the series B shares are converted into shares identical to our
currently outstanding common shares, which is expected to occur two to three
years after issuance. Following completion of the transactions, which is
subject to completion and execution of definitive documentation, approval by
our stockholders and other customary conditions, we will own 70.5 percent of
Equistar. We anticipate that these transactions will close during the third
quarter of 2002. See "Proposed Transactions with Occidental."
We also own 58.75 percent 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. In
addition, we recently increased our ownership of Lyondell Methanol Company,
L.P. (LMC), which produces methanol, from 75 percent to 100 percent.
In this prospectus supplement, we refer to Lyondell, its wholly owned and
majority owned subsidiaries, and its ownership interest in equity affiliates as
"we" or "us," unless we specifically state otherwise or the context indicates
otherwise. Lyondell is a Delaware corporation with principal executive offices
located at 1221 McKinney Street, Suite 700, Houston, Texas 77010 (Telephone:
(713) 652-7200).
S-1
Financing Plan and Consent Solicitation
This offering is part of a series of transactions, including the following:
Credit Facility Amendment
We expect to amend and restate our credit facility to, among other things,
extend the maturity date of the revolving credit facility to June 30, 2005,
reduce the size of the revolving credit facility to $350 million, make certain
financial ratio requirements less restrictive and make certain covenants
limiting acquisitions and capital expenditures more restrictive. Closing of
this offering is conditioned upon closing of the credit facility amendment, and
closing of the credit facility amendment is conditioned upon closing of this
offering and the application of the net proceeds as described under "Use of
Proceeds."
We will use $204 million of the net proceeds of this offering to prepay $200
million of the debt outstanding under Term Loan E of our credit facility and
pay a 2% prepayment premium. We will use the remaining net proceeds for working
capital and general corporate purposes.
Common Stock Offering
We are offering 7 million shares of our common stock pursuant to a separate
prospectus supplement and intend to use the net proceeds for working capital
and general corporate purposes. Closing of the common stock offering is not a
condition to closing of this offering or the credit facility amendment.
Consent Solicitation
We are soliciting consents to proposed amendments to the indentures related
to our existing senior secured and senior subordinated notes. One of the
amendments would revise an existing exception to the "restricted payments"
limitation in the indentures. The existing exception allows us to pay common
stock dividends in an aggregate amount each year equal to our current $0.90 per
share annual dividend on all common shares that are outstanding prior to this
offering and on a limited number of additional shares that may be issued. The
amendment would permit us to pay the $0.90 dividend on all current and future
shares. If the amendments are adopted, the pertinent provisions in the existing
indentures will be the same as those in the indenture for the notes offered in
this offering. The consent solicitation will close after this offering and this
offering is not conditioned on the consent solicitation.
S-2
The Offering
Issuer...................... Lyondell Chemical Company.
Notes Offered............... $275,000,000 principal amount of % Senior
Secured Notes due 2012.
Maturity Date............... The notes will mature on July 1, 2012.
Interest Payment Dates...... Interest payments will be made annually on each
January 1 and July 1, beginning January 1, 2003.
Guarantees.................. The 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
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. You should
read "Description of Notes--Subsidiary
Guarantees" for a description of the guarantees.
Collateral.................. The 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 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 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 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
S-3
without the consent of the holders of the notes.
The lenders under our credit facility will have
the sole ability to control remedies (including
any sale or liquidation after acceleration of the
notes or the debt under the credit facility) with
respect to the collateral. See "Risk Factors--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 Notes--Security" for a more
complete description of the security granted to
the holders of the notes.
Ranking..................... The 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 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 notes will also effectively rank junior to
all liabilities of our subsidiaries that have not
guaranteed the notes and all liabilities of our
joint ventures.
After giving effect to our proposed sale of the
notes, at March 31, 2002:
. We and the guarantors would have had
outstanding approximately $3.4 billion of
unsubordinated debt that was secured by the
same assets, including the notes;
. Our joint ventures, which have not guaranteed
the notes, would have had approximately $3.5
billion of outstanding liabilities, including
trade payables, that are effectively senior to
the notes; and
. Our subsidiaries that have not guaranteed the
notes would have had approximately $66 million
of outstanding liabilities, principally trade
payables, that are effectively senior to the
notes.
Optional Redemption......... We may redeem any of the notes at any time on or
after July 1, 2007 at the redemption prices
described in "Description of Notes--Optional
Redemption."
Change of Control........... Upon the occurrence of certain change of control
events described in "Description of 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 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
S-4
circumstances. You should read carefully the
sections called "Risk Factors--We may not be able
to repurchase your notes upon a change of
control" and "Description of Notes."
Covenants................... The indenture governing the notes 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 notes are rated "BBB-" by Standard &
Poor's or "Baa3" by Moody's, even if such notes
are subsequently downgraded to a lower rating.
You should read "Description of Notes--Certain
Covenants" for a description of these covenants.
Condition to Closing........ The completion of this sale of notes and the
effectiveness of the credit facility amendment
described under "Description of Other
Indebtedness--Credit Facility" are conditioned on
each other.
Use of Proceeds............. We will use $204 million of the net proceeds of
this offering to prepay $200 million of the debt
outstanding under Term Loan E of our credit
facility and pay a 2% prepayment premium. We will
use the remaining net proceeds for working
capital and general corporate purposes.
Risk Factors
You should carefully consider all the information set forth in this
prospectus supplement and the accompanying prospectus.
S-5
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 and
from our unaudited consolidated financial statements for the three months ended
March 31, 2001 and 2002. You should read this summary consolidated financial
data in connection with the business and financial information contained in our
Form 10-K and Form 10-Q filings incorporated by reference in this prospectus
supplement, including "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our consolidated financial statements
and related notes thereto.
For the three
For the year ended months ended
December 31, March 31,
--------------------- --------------
1999 2000 2001 2001 2002
------ ------ ------ ------ ------
(unaudited)
(in millions)
Income statement data:
Sales and other operating revenues
(a)................................... $3,660 $4,003 $3,193 $ 849 $ 674
Cost of sales (a)...................... 2,923 3,402 2,799 761 589
Selling, general and administrative and
research and development expenses
(a)................................... 299 230 189 49 47
Income (loss) from equity investments.. 76 199 40 2 (21)
Net income (loss) (b).................. (115) 437 (150) (34) (55)
Other financial data:
EBITDA before unusual items (c)........ 728 636 425 97 95
Net cash distributions from joint
ventures (d).......................... 154 240 121 20 (1)
Adjusted EBITDA (e).................... 882 876 546 117 94
Cash interest expense (f).............. 586 496 371 96 89
Depreciation and amortization (g)...... 330 279 269 65 60
Capital expenditures (h)............... 131 104 68 11 11
Balance sheet data (at end of period):
Property, plant and equipment, net..... 4,291 2,429 2,293 2,361 2,265
Total assets........................... 9,498 7,047 6,703 6,913 6,375
Total debt (i)......................... 6,271 3,854 3,853 3,852 3,840
Total stockholders' equity............. 1,007 1,145 749 1,030 654
For the twelve
months ended
March 31, 2002
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(dollars in
millions)
Pro forma financial data (j):
Adjusted EBITDA.................................................. $ 524
Cash interest expense............................................ 378
Cash and cash equivalents........................................ 293
Total debt (at end of period).................................... 3,915
Ratio of debt to adjusted EBITDA................................. 7.5x
Ratio of adjusted EBITDA to cash interest expense................ 1.4x
S-6
Notes To Summary Consolidated Financial Data
(a) Amortization of intangible assets included in historical amounts for the
years ended December 31, 1999, 2000 and 2001 and the three months ended
March 31, 2001 has been reclassified to conform to the March 31, 2002
presentation.
(b) As a result of implementing Statement of Financial Accounting Standards No.
142, Goodwill and Other Intangible Assets, effective January 1, 2002,
pretax earnings in 2002 and subsequent years will be favorably affected by
$30 million annually because of the elimination of goodwill amortization.
The following table adjusts Lyondell's reported net income (loss) for all
periods presented for the effects of goodwill amortization expense.
For the three
For the year ended, months ended
December 31, March 31,
-------------------- --------------
1999 2000 2001 2001 2002
------ ----- ------ ------ ------
(unaudited)
(millions of dollars)
Reported net income (loss).............. $ (115) $ 437 $ (150) $ (34) $ (55)
Add back: goodwill amortization, net of
tax.................................... 27 23 22 5 --
------ ----- ------ ------ ------
Adjusted net income (loss).............. $ (88) $ 460 $ (128) $ (29) $ (55)
------ ----- ------ ------ ------
Diluted earnings per share
Reported net income (loss).............. $(1.10) $3.71 $(1.28) $(0.29) $(0.47)
Add back: goodwill amortization, net of
tax.................................... 0.26 0.20 0.19 0.04 --
------ ----- ------ ------ ------
Adjusted net income (loss).............. $(0.84) $3.91 $(1.09) $(0.25) $(0.47)
------ ----- ------ ------ ------
(c) EBITDA before unusual 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 and (6) gain on sale
of assets. 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 for 2001. Gain on sale of assets was $590 million for 2000.
(d) 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.
(e) Adjusted EBITDA is calculated as EBITDA before unusual items plus net cash
distributions from joint ventures as defined in (d) above.
(f) Cash interest expense is calculated as interest expense less amortization
of debt issuance costs as set forth in (g) below.
(g) Includes amortization of debt issuance costs of $30 million for 1999, $18
million for 2000, $15 million for 2001, $3 million for the three months
ended March 31, 2001 and $4 million for the three months ended March 31,
2002.
(h) Excludes contributions to our PO-11 joint venture to fund capital projects
of $3 million for 2000, $119 million for 2001, $10 million for the three
months ended March 31, 2001 and $12 million for the three months ended
March 31, 2002.
(i) Does not include $3 billion in joint venture debt as of March 31, 2002,
which includes $331 million of Equistar debt for which Lyondell remains
contingently liable.
(j) Pro forma data presents the results of Lyondell as if this offering and the
application of the net proceeds had been completed as of March 31, 2002 for
balance sheet purposes and as of April 1, 2001 for income statement
purposes.
S-7
RISK FACTORS
There are many risks that may affect your investment in the notes. Some of
these risks, but not all of them, are listed below. You should carefully
consider these risks, the risks described beginning on page 4 of the
accompanying prospectus, as well as the other information included or
incorporated by reference in this prospectus supplement before buying the
notes.
Our balance sheet is highly leveraged.
As of March 31, 2002, after giving effect to the sale of the notes and the
application of the net proceeds as described under "Use of Proceeds," we would
have had $3.9 billion of consolidated debt, including the current portion of
long-term debt. This debt would have represented approximately 83% of our total
capitalization. Our consolidated debt amounts do not include approximately $3
billion in joint venture debt at March 31, 2002, which includes $331 million of
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:
. 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.
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 the credit facility as proposed to be amended will be
dependent on there being no material decrease in our results of operations in
2002 compared to 2001 and substantially improved results of operations in 2003
compared to 2001. Equistar's ability to comply with the covenants in its credit
facility will similarly be dependent on substantial improvements in its
operating performance in 2003.
Our credit facility covenants also limit our ability to:
. increase dividends with respect to our capital stock;
S-8
. 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 notes, we will pledge the
same assets pledged under the credit facility and our existing senior secured
notes as security for obligations under the 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 notes.
Our joint ventures are not subject to most of the covenants under the notes.
Neither Equistar nor LCR is a "subsidiary" or a "restricted subsidiary" of
Lyondell, as those terms are defined in the indenture governing the notes.
Therefore, these and our other joint ventures are not subject to the covenants
described above. As a result, holders of the notes will have no recourse if
Equistar or LCR 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 Notes--Certain Covenants--Dividend and Other Payment
Restrictions Affecting Subsidiaries and Joint Ventures." Subject to the
restriction summarized above, Equistar, LCR and our other joint ventures 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 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 notes are subordinated to debt of our subsidiaries and joint ventures.
None of our joint ventures have guaranteed the 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 and senior subordinated notes and will be guarantors of
the notes. None of our other subsidiaries will initially guarantee the notes.
As a result, the 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 March 31, 2002, these other subsidiaries had $66 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 notes upon a change of control.
Upon the occurrence of certain change of control events as described in
"Description of Notes," you may require us to purchase the notes at 101% of
their principal amount, plus accrued interest. We cannot assure you that we
will have the financial resources to purchase the notes, particularly if a
change of control event triggers
S-9
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 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 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 notes or the debt under the credit facility)
with respect to the collateral.
. The 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 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 notes.
The collateral may not be valuable enough to satisfy all the obligations
secured by the collateral
We will secure our obligations under the 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 will 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
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 this offering of 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 notes would be
sufficient to satisfy, or would not be substantially less than, amounts due on
the 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 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
S-10
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 will permit 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
notes could be delayed following commencement of a bankruptcy case, (2) whether
or when the collateral agent could repossess or dispose of the pledged assets
or (3) whether or to what extent holders of the 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 notes.
In the event of a total or partial loss to 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.
S-11
Fraudulent transfer statutes may limit your rights under the guarantees.
Our obligations under the notes are 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" as of the date 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 on the date 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.
There is no trading market for the notes and there may never be one.
The notes will be new securities for which currently there is no established
trading market. For these and other reasons, we cannot assure you that a
trading market will develop for the notes. Although the underwriters have
indicated that they intend to make a market in the notes as permitted by
applicable laws and regulations, the underwriters are not obligated to do so,
and they may cease market-making activities at any time without notice. Even if
a market for the notes does develop, we cannot assure you that there will be
liquidity in that market, or that the notes might not trade for less than their
original value or face amount. If a liquid market for the notes does not
develop, you may be unable to resell the notes for a long period of time, if at
all. This means you may not be able to readily convert the notes into cash, and
the notes may not be accepted as collateral for a loan.
Even if a market for the notes develops, trading prices could be higher or
lower than the initial offering prices. The prices of the notes will depend on
many factors, including prevailing interest rates, our operating results and
the market for similar securities. Declines in the market prices for debt
securities generally may also materially and adversely affect the liquidity of
the notes, independent of our financial performance.
S-12
FORWARD-LOOKING STATEMENTS
This prospectus supplement and the accompanying prospectus, including the
information we incorporate by reference, include forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. You can identify our forward-looking
statements by words such as "estimate," "project," "predict," "believe,"
"expect," "anticipate," "plan," "forecast," "budget," "goal" or other words
that convey the uncertainty of future events or outcomes. When considering
these forward-looking statements, you should keep in mind the risk factors and
other cautionary statements contained in this prospectus supplement, the
accompanying prospectus and the documents we have incorporated by reference.
The forward-looking statements are not guarantees of future performance, and
we caution you not to rely unduly on them. We have based many of these forward-
looking statements on expectations and assumptions about future events that may
prove to be inaccurate. While our management considers these expectations and
assumptions to be reasonable, they are inherently subject to significant
business, economic, competitive, regulatory and other risks, contingencies and
uncertainties, most of which are difficult to predict and many of which are
beyond our control. These risks, contingencies and uncertainties relate to,
among other matters, the following:
. 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
. our ability to implement our business strategies, including cost
reductions.
We have discussed some of these factors in more detail in the "Risk Factors"
section of this prospectus supplement and the accompanying prospectus and in
our other filings with the SEC, including those filings incorporated by
reference into this prospectus supplement. These factors are not necessarily
all the important factors that could affect us or our joint ventures. We advise
you that you should (i) be aware that important factors we do not refer to
above could affect the accuracy of our forward-looking statements and (ii) use
caution and common sense when considering our forward-looking statements. We do
not intend to update these statements unless the securities laws require us to
do so.
S-13
USE OF PROCEEDS
The net proceeds to us from this offering are estimated to be approximately
$269 million, after deducting discounts and commissions and estimated offering
expenses payable by us. We will use $204 million of the net proceeds to prepay
$200 million of the debt outstanding under Term Loan E of our credit facility
and pay a 2% prepayment premium. We will use the remaining net proceeds for
working capital and general corporate purposes. Pending application of the
proceeds, we will invest them in marketable short-term securities. For
information about our credit facility, see "Description of Other Indebtedness."
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 2002 on an
historical basis and as adjusted to reflect this offering and the application
of the net proceeds as described under "Use of Proceeds."
This table does not reflect the concurrent offering of 7 million shares of
Lyondell common stock, which we expect will result in estimated net proceeds of
approximately $104 million. We intend to use the proceeds of that offering for
working capital and general corporate purposes. Closing of this offering is not
conditioned on closing of the common stock offering.
As of March 31,
2002
-------------------
As
Historical Adjusted
---------- --------
(in millions)
Cash and cash equivalents.................................. $ 228 $ 293
====== ======
Debt, including current maturities of long-term debt (a):
Secured debt:
Credit facility (b).................................... $ 621 $ 421
Senior Secured Notes due 2007.......................... 1,900 1,900
Senior Secured Notes due 2008.......................... 393 393
Senior Secured Notes due 2012 offered hereby........... -- 275
Debentures due 2005-2020............................... 424 424
Senior Subordinated Notes due 2009....................... 500 500
Other debt............................................... 2 2
------ ------
Total debt, including current maturities of long-term
debt.................................................. 3,840 3,915
------ ------
Minority interest.......................................... 155 155
------ ------
Stockholders' equity:
Common stock, 250,000,000 shares authorized; 120,250,000
shares issued........................................... 120 120
Additional paid-in capital............................... 854 854
Retained earnings........................................ 166 166
Accumulated other comprehensive loss..................... (411) (411)
Treasury stock, at cost, 2,685,080 shares................ (75) (75)
------ ------
Total stockholders' equity................................. 654 654
------ ------
Total capitalization....................................... $4,649 $4,724
====== ======
- --------
(a) Does not include $3 billion in joint venture debt, which includes $331
million of Equistar debt for which Lyondell remains contingently liable.
(b) Total committed revolver capacity is $500 million on an actual basis, none
of which was borrowed as of March 31, 2002, and $350 million on an as
adjusted basis. The revolver availability is reduced to the extent of
certain outstanding letters of credit, which totaled $33 million as of
March 31, 2002.
S-14
DESCRIPTION OF OTHER INDEBTEDNESS
Credit Facility
We expect to enter into an amendment and restatement of our credit facility
in June 2002 that will be conditioned on the closing of this offering and the
application of the net proceeds as described above under "Use of Proceeds."
The amendment will, among other things, extend the maturity date of the
revolving credit facility to June 30, 2005, reduce the size of the revolving
credit facility to $350 million, make certain financial ratio requirements
less restrictive and make certain covenants limiting acquisitions and capital
expenditures more restrictive.
As of March 31, 2002, the principal amounts outstanding, then-current
interest rates and maturity dates of the term loans and revolving credit
facility were as follows:
Principal
Amount Current Interest
Debt Outstanding Rate Maturity
---- ------------ ----------------- -------------
Term Loan E..................... $621 million LIBOR plus 4.375% May 17, 2006
Revolving loans(a).............. -- LIBOR plus 3.500% June 30, 2003
- --------
(a) We are currently required to pay a commitment fee of 0.50% on the unused
portion of the revolving credit facility, which will increase to 0.75%
upon closing of the credit facility amendment. The applicable interest
rate margin, and the commitment fee once the credit facility is effective,
payable by us will vary depending on our unsecured senior debt rating or,
after the closing of the credit facility amendment, our senior secured
debt rating.
We will use $204 million of the net proceeds from the sale of the notes to
prepay $200 million of the debt outstanding under Term Loan E and pay a 2%
prepayment premium. We will use the remaining net proceeds for working capital
and general corporate purposes.
Security
Our obligations under the credit facility are secured by equal and ratable
liens on the collateral that will secure the notes and certain other
outstanding debt.
Subsidiary Guarantees
Our obligations under the credit facility are guaranteed by the
subsidiaries that will guarantee the 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 March 31, 2002. See "Risk Factors--Our debt agreements may
restrict our ability to take certain actions."
Mandatory Prepayment
We are required to offer to make mandatory prepayments of the Term Loan E
with the net cash proceeds of:
. asset sales;
. certain casualty and condemnation events;
S-15
. debt incurrences; and
. equity issuances.
The mandatory prepayment of our Term Loan E obligations is subject to
specified exceptions. The anticipated amendment to the credit facility will,
among other things, waive our prepayment obligations, including elimination of
the requirement that we apply net proceeds of our concurrent common stock
offering to prepay Term Loan E.
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. 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
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 March 31, 2002 we had outstanding the following senior secured notes:
. $900 million of 9.625% Senior Secured Notes, Series A, due 2007;
. $1 billion of 9.875% Senior Secured Notes, Series B, due 2007; and
. $393 million of 9.500% Senior Secured Notes due 2008.
The existing senior secured notes are secured by equal and ratable liens on
the same collateral that will secure the notes offered hereby and debt under
the credit facility, and these existing notes are guaranteed by the same
subsidiaries that will guarantee the notes offered hereby. 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 offered hereby. We expect to commence a consent
solicitation in June 2002 to our existing senior secured note holders to obtain
amendments to the indentures for those notes. If the amendments are adopted,
the pertinent provisions in the indentures for the existing senior secured
notes will be the same as those in the indenture for the notes offered in this
offering.
Senior Subordinated Notes
As of March 31, 2002, 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 notes offered hereby. 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 existing senior secured notes. We expect to commence a
consent solicitation in June 2002 to our existing senior subordinated note
holders to obtain amendments to the indentures for those notes. If the
amendments are adopted, the pertinent provisions in the indentures for the
existing senior subordinated notes will be the same as those in the indenture
for the notes offered in this offering.
S-16
Lyondell Debentures
As of March 31, 2002, we had the following outstanding debentures that were
originally issued by ARCO Chemical Company, 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.
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 senior secured 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
As of March 31, 2002, the principal amounts outstanding, then-current
interest rates and maturity dates of the debt obligations of Equistar were as
follows:
Principal
Amount
Debt Outstanding Current Interest Rate Maturity
---- ------------ --------------------------- ------------------
Credit Facility
Revolving loans (a)... $ 50 million LIBOR plus 1.250% to 2.750% August 2006
Term loans............ $298 million LIBOR plus 3.500% August 2007
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.......... $599 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 Equistar's indentures,
and could permit the lenders under Equistar's credit facility to terminate
future lending commitments. Equistar was in compliance with all covenants under
its debt instruments as of March 31, 2002. See "Risk Factors--Our debt
agreements may restrict our ability to take certain actions." The
S-17
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.
LCR Debt
As of March 31, 2002, the principal amounts outstanding, then-current
interest rates and maturity dates of the debt obligations of LCR were as
follows:
Principal
Amount
Debt Outstanding Current Interest Rate Maturity
---- ------------ ------------------------ ------------
Credit Facility
$70 million revolving
credit agreement..... $ 16 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 March 31, 2002. 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.
S-18
PROPOSED TRANSACTIONS WITH OCCIDENTAL
We and Occidental have agreed in principle that we will issue and sell to
Occidental, for cash of $440 million, securities and the right to receive a
contingent payment. Lyondell will use the cash to fund the purchase of
Occidental's interest in Equistar. The consideration from Lyondell to
Occidental will consist of:
. between 30 and 34 million shares of Series B Common Stock, depending on
the market price of Lyondell common stock at the time of closing with
Occidental;
. five-year warrants exercisable for the purchase of 5 million shares of
Lyondell common stock at $25 per share, subject to adjustment; and
. the right to receive a contingent payment having a value up to a total
of $35 million, payable in cash or shares of Lyondell common stock or
Series B Common Stock, as determined by Lyondell, that will be
equivalent in value to 7.38% of cash distributions by Equistar on its
existing ownership units for 2002 and 2003.
Lyondell will use the $440 million in cash proceeds to purchase Occidental's
interest in Equistar. Closing of the transactions with Occidental is subject to
customary conditions, including (1) execution of definitive documents, (2)
approval by Lyondell's shareholders of the Amended and Restated Certificate of
Incorporation of Lyondell and the issuance of the securities and the right to
receive the contingent payment to Occidental, (3) expiration or termination of
the waiting period for the transactions under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, (4) the absence of any material injunction or legal
proceeding and (5) the absence of any material adverse change in the business
or financial condition of Lyondell between the date Lyondell enters into a
definitive written agreement with Occidental and the closing date.
On a pro forma basis, the transactions with Occidental would have been
dilutive to our earnings per share in 2001 and the first three months of 2002
if the transactions had been completed at the beginnings of those periods.
Depending on the number of shares issued, the amount of dilution could be
substantial.
Determining the Number of Shares of Series B Common Stock to be Issued
The number of shares of Series B Common Stock to be issued to Occidental
will be determined by reference to the average of the high and low stock prices
for Lyondell common stock, as reported on the New York Stock Exchange, for the
twenty business-day period ending two business days prior to the closing date,
as follows:
20-Day Average Price at
Closing Number of Shares
----------------------- ------------------------------------------------
$17.10 or Above 30 million
Between $17.10 and $15.10 Between 30 million and 32 million, determined by
subtracting from 32 million the number of shares
computed by multiplying (a) the 20-day average
stock price, minus $15.10, divided by $2.00, by
(b) 2 million
Equal to or between $15.10 32 million
and $14.10
Between $14.10 and $13.10 Between 32 million and 34 million, determined by
subtracting from 34 million the number of shares
computed by multiplying (a) the 20-day average
stock price, minus $13.10, by (b) 2 million
$13.10 or Below 34 million
S-19
Description of Warrants to be Issued
Lyondell will issue five million warrants to Occidental at the closing. Each
warrant will be exercisable for one share of Lyondell common stock at an
exercise price of $25.00 per share, subject to Lyondell's ability to make a
"net payment" in lieu of issuing one share of Lyondell common stock upon
exercise, by electing to pay the excess, if any, between the stock price per
share of Lyondell common stock on the date of exercise and the exercise price.
The net payment may be in the form of (1) cash, (2) shares of Lyondell common
stock, (3) subject to specified limitations, Series B Common Stock or (4) a
combination of (1), (2) and (3), at Lyondell's option. Each warrant will be
exercisable at any time between the date of issuance and the fifth anniversary
of the date of issuance.
The number of warrants and the exercise price may be adjusted on December
31, 2002 based upon the average of the high and low per share sale prices of
Lyondell common stock, as reported on the New York Stock Exchange, for the 15
business-day period ending December 31, 2002. If the 15-day average price on
December 31, 2002 is $11.00 or above, the warrants will not be adjusted. If the
15-day average price on that day is between $7.00 and $11.00: (1) the number of
warrants will be determined by adding to five million the number computed by
multiplying (a) $11.00 minus the 15-day average stock price, by (b) 250,000;
and (2) the exercise price will be determined by subtracting from $25.00 the
number computed by multiplying (x) $11.00 minus the 15-day average stock price,
by (y) $0.675. If the 15-day average price on that day is $7.00 or below: (1)
the number of warrants will be increased to six million; and (2) the exercise
price will be reduced to $22.30. The number of warrants and the exercise price
will also be adjusted for any stock splits, dividends and combinations that
occur during the five-year exercise period.
Potential Issuance of Additional Shares as a Contingent Payment
In addition to the securities to be issued at the closing, Lyondell will be
obligated to pay to Occidental a contingent payment equivalent in value to
7.38% of cash distributions made by Equistar on its existing ownership units
that (1) relate to the period from January 1, 2002 to December 31, 2003 and (2)
are made by Equistar after the closing date and before May 1, 2004. This
contingent payment will be capped at $35 million. Lyondell will have the
option, in its sole discretion, to satisfy this contingent payment obligation
in cash or in shares of Lyondell common stock or Series B Common Stock, with a
value determined at the date of distribution by Equistar.
Amendment and Restatement of Lyondell's Certificate of Incorporation
In connection with the sale of securities to Occidental, Lyondell is
amending and restating its Certificate of Incorporation in order to:
. create a new series of common stock, the Series B Common Stock, par value
$1.00 per share;
. increase Lyondell's authorized common stock from 250 million shares to
420 million shares, which will consist of (1) 340 million shares of
common stock, par value $1.00 per share, referred to as "Lyondell common
stock," and (2) 80 million shares of Series B Common Stock; and
. establish the relative powers, preferences, rights, qualifications,
limitations and restrictions of the Lyondell common stock and Series B
Common Stock.
The principal differences between Series B Common Stock and Lyondell common
stock are that Lyondell will have the right to pay dividends on the Series B
Common Stock in the form of additional shares of Series B Common Stock, rather
than in cash, and the Series B shares are convertible into Lyondell common
stock at any time, subject to contractual restrictions. The right to pay
dividends in kind will continue until shares of the Series B Common Stock are
converted into shares of Lyondell common stock, which, in the case of the
shares of Series B Common Stock issued to Occidental, is expected to occur two
to three years after issuance. Otherwise, the terms of the Series B Common
Stock are substantially the same as those of the Lyondell common stock.
Lyondell's Board of Directors will be permitted to issue additional shares of
authorized Series B Common Stock from time to time.
S-20
Restrictions on Conversion of Shares of Series B Common Stock into Shares of
Lyondell Common Stock
The stockholders agreement will prohibit Occidental from converting shares
of Series B Common Stock into shares of Lyondell common stock until a date that
is:
. after the third anniversary of the first issuance of Series B Common
Stock;
. after the second anniversary of the first issuance of Series B Common
Stock, if Lyondell will not be restricted by its debt agreements from
paying cash dividends on the converted shares without a dividend
reduction on its then existing shares of Lyondell common stock; or
. following the acquisition of a majority of the outstanding shares of
voting stock of Lyondell by any person in a transaction not approved by
Lyondell's Board of Directors.
Series B Common Stock may be converted on an earlier date with the prior
written consent of Lyondell's Board of Directors. Lyondell's right to convert
any or all shares of Series B Common Stock into shares of Lyondell common stock
at any time in its sole discretion will not be restricted by the stockholders
agreement. If the proposed amendments to the indentures regarding dividends are
approved, the holders of Series B Common Stock will have the right to convert
their Series B shares into Lyondell common stock after two years.
Description of Stockholders Agreement
Lyondell will enter into a stockholders agreement with Occidental that sets
forth, among other things:
(1) restrictions on the conversion of Series B Common Stock into Lyondell
common stock;
(2) restrictions on transfer of the warrants and the shares of Lyondell
common stock and Series B Common Stock issued to Occidental;
(3) standstill provisions restricting Occidental's ability to engage or
participate in specified change of control activities;
(4) Lyondell's obligation to appoint two executive officers of Occidental,
Dr. Ray R. Irani and Stephen I. Chazen, to Lyondell's Board of
Directors; and
(5) Occidental's agreement to vote for the nominees to Lyondell's Board of
Directors that are proposed by the Board of Directors.
Occidental's obligations to Lyondell under the stockholders agreement, and
Lyondell's obligations to Occidental and its wholly owned affiliates under the
stockholders agreement, will terminate when Occidental beneficially owns in the
aggregate, directly or indirectly, a number of shares of Lyondell common stock
or Series B Common Stock that is less than 50% of the initial number of shares
of Series B Common Stock issued to Occidental at the closing. The obligations
to Lyondell of each shareholder who will be required to become a party to the
stockholders agreement and who is not an Occidental affiliate, and Lyondell's
obligations to each of those shareholders under the stockholders agreement,
will terminate when that shareholder beneficially owns in the aggregate,
directly or indirectly, less than five million shares of Lyondell common stock.
If Occidental beneficially owns, directly or indirectly, fewer than the
initial number of shares of Series B Common Stock issued to Occidental at the
closing of the transactions described in this "Proposed Transactions with
Occidental" but at least 50% of the initial number of shares, then only one of
such individuals, to be selected by Lyondell, will be entitled to a seat on
Lyondell's Board of Directors.
Restrictions on Transfer of Securities
The stockholders agreement will restrict the transfer of shares of Lyondell
common stock, Series B Common Stock and warrants issued in connection with the
transactions. Under the stockholders agreement, warrants and shares of Series B
Common Stock received (1) at the closing, (2) as satisfaction of Lyondell's
obligation to make a contingent payment, (3) upon exercise of a warrant and (4)
as a dividend, may be transferred only to a wholly owned affiliate of
Occidental.
S-21
Under the stockholders agreement, shares of Lyondell common stock received
(1) upon conversion of Series B Common Stock, (2) as satisfaction of Lyondell's
obligation to make a contingent payment, (3) upon exercise of a warrant and (4)
as a dividend, may be transferred only:
. to a wholly owned affiliate of Occidental;
. through a registered public offering conducted in accordance with the
terms and conditions of a registration rights agreement;
. pursuant to Rule 144 of the Securities Act of 1933, in an unsolicited
"broker's transaction" (as defined in Rule 144) on a securities exchange
in compliance with the volume limitations of the Securities Act,
regardless of whether the volume limitations are applicable by law to
the transferor; and
. in connection with a sale of not more than 15 million shares in a single
transaction or series of related transactions.
Any transferee that receives five million or more shares of Lyondell common
stock that is not a wholly owned affiliate of Occidental, and that transferee's
ultimate parent entity, will be required to execute the stockholders agreement.
Standstill Agreement
The stockholders agreement will contain a provision prohibiting Occidental
and each of its wholly owned affiliates, and any transferee of shares of Series
B Common Stock, Lyondell common stock or warrants who is required to execute
the stockholders agreement from engaging in activities that could potentially
result in a change of control of Lyondell, including:
. acquiring additional Lyondell securities;
. initiating a proxy contest or change of control transaction;
. seeking additional seats on, or control of, Lyondell's Board of
Directors or control of Lyondell policies, alone or in concert with
others; and
. granting any proxy or other voting power to any person other than
Lyondell or its designees.
An exception to these restrictions will be granted to Occidental and each of
its wholly owned affiliates so that these restrictions will be suspended
following commencement of any exchange or tender offer for Lyondell common
stock by a third party without Lyondell's consent. In addition, (1) Occidental
may purchase up to 320,000 shares of Lyondell common stock in the open market
in each calendar quarter (but only so long as after a purchase of additional
shares, Occidental will beneficially own less than 40% of Lyondell's
outstanding common stock) without being in violation of the standstill
provisions and (2) the issuance of any shares of Series B Common Stock or
Lyondell common stock in connection with the transactions or as a dividend will
not be a violation of the standstill provisions.
In the stockholders agreement, Occidental will agree to cause each share of
Lyondell securities it beneficially owns, directly or indirectly, that are
entitled to vote on any matter to be "present" for the taking of any Lyondell
shareholder action and to vote "for" the nominees to Lyondell's Board of
Directors that are proposed by the directors sitting on Lyondell's Board of
Directors at the time of nomination.
Registration Rights
Lyondell will enter into a registration rights agreement at the closing to
provide for registration rights with respect to shares of Lyondell common stock
issued to Occidental (1) as a dividend, (2) upon conversion of Series B Common
Stock, (3) upon exercise of a warrant or (4) in satisfaction of Lyondell's
obligation to make a contingent payment to Occidental. Neither Series B Common
Stock nor the Warrants will have registration rights.
S-22
Holders of Lyondell common stock with registration rights will have the
right to demand registration of their shares in an underwritten offering once
in any 12-month period if the offering is for at least 8 million shares and has
an estimated public offering price of $100 million. Holders will have the right
to demand registration in an offering that is not underwritten up to three
times (or two, if holders have requested an underwritten offering during such
period) in any 12-month period if the offering is for at least three million
shares. Lyondell will have the right to delay registration under specified
circumstances.
Lyondell will be required to notify holders of Lyondell common stock with
registration rights if it plans to conduct an underwritten public offering of
shares of Lyondell common stock solely for cash and include a holder's shares
in the registered offering if the holder so requests. However, Lyondell may
reduce the number
of qualified shares of Lyondell common stock so registered on the
recommendation of the lead managing underwriter, and Lyondell may also in its
sole discretion withdraw any such registration statement and abandon any
proposed offering.
Registration rights may be transferred together with shares of Lyondell
common stock if the transfer of the shares is permitted by the stockholders
agreement and (1) the transfer is to a wholly owned affiliate of Occidental or
(2) the transfer is for a minimum of five million shares.
S-23
DESCRIPTION OF NOTES
As used in this "Description of Notes," the term the "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 notes will be issued pursuant to an indenture among the Company, the
Subsidiary Guarantors party thereto and The Bank of New York, as trustee (the
Trustee). The terms of the 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 notes are subject to all such
terms, and holders of 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.
The 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 notes in right of
payment, the holders of the 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 notes and such
other secured indebtedness until amounts owed under the notes and the other
secured indebtedness are satisfied in full. The Company's obligations under the
notes will also be guaranteed on a senior basis by the Subsidiary Guarantors.
See "Subsidiary Guarantees." As of the Issue Date, ARCO Chemical Technology,
Inc., ARCO Chemical Technology, L.P. and Lyondell Chemical Nederland, Ltd. will
be the only Subsidiary Guarantors. 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 March 31, 2002, on a pro forma basis after giving
effect to this offering:
. approximately $3.4 billion in principal amount of outstanding
unsubordinated Indebtedness of the Company and the Subsidiary Guarantors
would have been secured, including the notes, the Indebtedness under the
Existing Credit Facility and the Existing Senior Secured Notes;
. approximately $39 million of outstanding Indebtedness of the Company and
the Subsidiary Guarantors would have been pari passu with the notes and
unsecured and ranking effectively junior to the notes to the extent of
the value of the assets securing the 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 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 notes. The 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 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
S-24
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 March 31,
2002, on a pro forma basis after giving effect to this offering, the notes
would have been effectively subordinated to approximately $3.5 billion of
outstanding liabilities of the Company's Joint Ventures, including trade
payables, and approximately $66 million of outstanding liabilities, including
trade payables, of the nonguarantor subsidiaries. See "Risk Factors--The 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 notes will mature on July 1, 2012. Interest on the notes will accrue at
the rate per annum set forth on the cover page hereof and will be payable
semiannually in arrears on January 1 and July 1 of each year, commencing on
January 1, 2003, to holders of record on the immediately preceding December 15
and June 15, respectively. Interest on the notes will accrue from the most
recent date to which interest has been paid or, if no interest has been paid,
from , 2002.
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 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 notes at their
respective addresses set forth in the register of holders of 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 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 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 notes (or in all respects except for the payment of
interest on the 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 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 notes offered hereby 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 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 JPMorgan Chase Bank, as collateral agent.
S-25
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 will also require that holders of
the 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 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 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 notes would not
be required for such a release. The Security Documents generally provide that
liens will be automatically released if the assets subject 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 notes. The lenders under
the Existing Credit Facility have the sole ability to control remedies
(including upon sale or liquidation after acceleration of the notes or the debt
under the Existing Credit Facility) with respect to the collateral. The
indenture will provide 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--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
As of the Issue Date, ARCO Chemical Technology, Inc., ARCO Chemical
Technology, L.P. and Lyondell Chemical Nederland, Ltd. will be the only
Subsidiary Guarantors. In addition, the indenture will provide 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 notes, subject to certain exceptions
S-26
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 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 will provide 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."
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 will provide 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 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 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."
S-27
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 notes.
Optional Redemption
The notes will not be redeemable at the option of the Company prior to July
1, 2007. Thereafter, the 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 thereon
to the applicable redemption date, if redeemed during the twelve-month period
beginning on July 1 of the following years:
Year Percentage
---- ----------
2007..............................................................
2008..............................................................
2009..............................................................
2010 and thereafter............................................... 100.00%
Selection and Notice
If less than all the notes are to be redeemed at any time, selection of
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 notes are listed or, if the 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 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 notes to be redeemed at its
registered address. Notices of redemption may not be conditional. If any note
is to be redeemed in part only, the notice of redemption that relates to such
note shall state the portion of the principal amount thereof to be redeemed. A
new note 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. Notes called for redemption become due on the date fixed for redemption.
On and after the redemption date, interest ceases to accrue on 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 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 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 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 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 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 notes or portions thereof properly tendered
and not withdrawn pursuant to the Change of Control Offer,
S-28
(2) deposit with the paying agent an amount equal to the Change of
Control Payment in respect of all notes or portions thereof so tendered,
and
(3) deliver or cause to be delivered to the Trustee the notes so
accepted, together with an officers' certificate stating the aggregate
principal amount of notes or portions thereof being purchased by the
Company.
The paying agent will promptly mail to each holder of notes so tendered the
Change of Control Payment for such 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 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 will not
contain provisions that permit the holders of the notes to require that the
Company purchase or redeem the 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 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 notes if a Change of Control occurs. See "Risk Factors--We may
not be able to repurchase your notes upon a change of control."
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 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 will provide 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
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(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, 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 notes are secured, only (A)
repayment of Senior Indebtedness incurred under the Existing Credit
Facility (but not any refinancing thereof other than a credit facility with
commercial banks and other lenders) or (B) if a Restricted Subsidiary that
is not a Subsidiary Guarantor has consummated the Asset Sale, repayment of
Indebtedness of such Restricted Subsidiary (with a corresponding reduction
in commitments with respect thereto in the case of revolving borrowings),
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 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 notes (an Asset Sale Offer) to purchase the maximum principal amount
of notes and (i) if the Company is required to do so under the terms of any
other Indebtedness ranking pari passu with such notes, such other Indebtedness
and (ii)
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if the Company elects to do so, any Existing ARCO Chemical Debt, on a pro rata
basis with the 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 thereon to the date of purchase, in
accordance with the procedures set forth in the indenture. To the extent that
the aggregate amount of 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 notes surrendered by holders thereof in
connection with any Asset Sale Offer exceeds the amount of Excess Proceeds,
the Trustee shall select the notes to be purchased on a pro rata basis. 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 subordinated by
its terms to the 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 May 17, 1999 (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
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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 May 17,
1999 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 May 17, 1999 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
(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 May 17, 1999 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 May 17, 1999 in an aggregate amount not to exceed the cash
received by the Company since May 17, 1999 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
S-32
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;
(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 at a rate not
to exceed $0.90 per share per annum (such $0.90 amount to be appropriately
adjusted to reflect any stock split, reverse stock split, stock dividend or
similar transactions made after the Issue Date so that the aggregate amount
of dividends payable after such transaction is the same as the amount
payable immediately prior to such transaction);
(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
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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;
(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 May 17,
1999, 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
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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 Investments were
made after May 17, 1999 or (2) in the case of a Specified Joint Venture, such
Investments were made prior to May 17, 1999). 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 will provide 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
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an amount equal to $3.202 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 May 17, 1999 to (i)
repay 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 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 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;
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(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 May 17, 1999; 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.
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Liens
The indenture will provide 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 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 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 will provide 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);
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(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 will provide 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;
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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 will provide 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
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 will provide 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 will provide 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 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 greater
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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 notes. In addition, the indenture
will provide that the Company will not lease all or substantially all its
assets to another person.
Transactions With Affiliates
The indenture will provide 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;
(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); and
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(viii) 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
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
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 notes.
If the 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 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 will provide 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 will provide that the Company will not amend, modify or alter
the Senior Subordinated Note Indenture in any way that would 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 notes.
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Limitation of Applicability of Certain Covenants if 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 notes are rated Investment Grade.
Reports
The indenture will provide that, whether or not required by the rules and
regulations of the Commission, so long as any notes issued thereunder are
outstanding, the Company will furnish to the Trustee and the holders of 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 "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.
Events of Default and Remedies
The indenture will provide that each of the following constitutes an Event
of Default with respect to the notes:
(i) default for 30 days in the payment when due of interest on the
notes;
(ii) default in payment when due of the principal of or premium, if any,
on the notes at maturity or otherwise;
(iii) 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";
(iv) 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 notes
to comply with any of its other agreements in the indenture or the notes;
(v) 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 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;
(vi) 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;
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(vii) certain events of bankruptcy or insolvency with respect to the
Company or any of its Significant Subsidiaries;
(viii) except as permitted by the indenture, any Subsidiary Guarantee
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;
and
(ix) 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
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 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 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 on such notes to be immediately due and payable. Upon
a declaration of acceleration, such principal, premium, if any, and accrued
interest 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 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 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 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 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 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 determines in good faith may
be unduly prejudicial to the rights of holders of the 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 notes. A
holder may not pursue any remedy with respect to the indenture or the 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 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
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aggregate principal amount of the outstanding 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, or interest on such note or to bring suit for
the enforcement of any such payment, on or after the due date expressed in such
notes, which right shall not be impaired or affected without the consent of the
holder.
The indenture will require 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
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 note, (ii) reduce the
principal amount of or premium, if any, or interest on any note, (iii) reduce
any amount payable on redemption of the 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 on any 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 note, (vi) reduce the above-stated percentage of
outstanding 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 on the 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 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 notes or the Subsidiary Guarantees in a manner adverse to the
holders of the 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 notes for or as an inducement
to any consent, waiver or amendment of any of the terms or provisions of the
indenture or the notes unless such consideration is offered to be paid or
agreed to be paid to all holders of such 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 will provide that the Company will
be deemed to have paid and will be discharged from any and all obligations in
respect of the 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
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deposit referred to below, and the provisions of the indenture will no longer
be in effect with respect to such notes and such Subsidiary Guarantees (except
for, among other matters, certain obligations to register the transfer or
exchange of such notes, to replace stolen, lost or mutilated 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 on such notes on the Stated Maturity of such payments in accordance
with the terms of the indenture and such 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 notes are listed on a national securities exchange, the Company has
delivered to the Trustee an opinion of counsel to the effect that such 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 will provide 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 on such notes on the Stated Maturity of such payments in
accordance with the terms of the indenture and such 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 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 notes issued thereunder as described in
the immediately preceding paragraph and such 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 notes at the time of their Stated
Maturity but may not be sufficient to pay amounts due on such notes at the time
of the acceleration resulting from such Event of Default. However, the Company
will remain liable for such payments.
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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 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 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 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 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 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 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 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 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.
Additional Information
A copy of the indenture has been filed as an exhibit to the registration
statement of which this prospectus forms a part.
Book-Entry, Delivery and Form
The certificates representing the notes will be issued in fully registered
form without interest coupons and will be deposited with the Trustee as
custodian for, and registered in the name of a nominee of, the Depository Trust
Company ("DTC").
Ownership of beneficial interests in a Global Note will be limited to
persons who have accounts with DTC ("participants") or persons who hold
interests through participants. Ownership of beneficial interests in a Global
Note will be shown on, and the transfer of that ownership will be effected only
through, records maintained by DTC or its nominee (with respect to interests of
participants) and the records of participants
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(with respect to interests of persons other than participants). Purchasers may
hold their interests in a Global Note directly through DTC if they are
participants in such system, or indirectly through organizations which are
participants in such system.
So long as DTC, or its nominee, is the registered owner or holder of a
Global Notes, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the notes represented by such Global Note for all
purposes under the Indenture and the notes. No beneficial owner of an interest
in a Global Note will be able to transfer that interest except in accordance
with DTC's applicable procedures, in addition to those provided for under the
Indenture.
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.
Neither the Company, the Subsidiary Guarantors, the Trustee nor any Paying
Agent 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.
The Company expects 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 record of
DTC or its nominee. The Company also expects that payments by participants to
owners of beneficial interests in such Global Note held through such
participants will be governed by standing instructions and customary practices,
as is now the case with securities held for the 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.
The Company expects that DTC will take any action permitted to be taken by a
holder of notes (including the presentation of 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 notes, DTC will exchange the applicable Global Note for
Certificated Notes, which it will distribute to its participants.
The Company understands that DTC 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. Participants
include:
. securities brokers and dealers;
. banks, trust companies; and
. clearing corporations and certain other organizations.
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Indirect access to the DTC system is available to others such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationships with a participant, either directly or indirectly ("indirect
participants").
Although DTC is expected to follow the foregoing procedures in order to
facilitate transfers of interests in a Global Note among participants of DTC,
it is under no obligation to perform or continue to perform such procedures,
and such procedures may be discontinued at any time. Neither the Company nor
the Trustee will have any responsibility for the performance by DTC or its
participants or indirect participants of their respective obligations under the
rules and procedures governing their operations.
If DTC is at any time unwilling or unable to continue as a depository for
the Global Notes and a successor depositary is not appointed by the Company
within 90 days, the Company will issue Certificated Notes in exchange for the
Global Notes. Holders of an interest in a Global Note may receive Certificated
Notes, at the option of the Company in accordance with the DTC's rules and
procedures in addition to those provided for under the Indenture.
The information in this section concerning DTC and its book-entry systems
has been obtained from sources that the Company believes to be reliable, but
the Company takes no responsibility for the accuracy thereof.
Transfers of Interests in Global Notes for Certificated Notes
An entire Global Note may be exchanged for definitive notes in registered,
certificated form without interest coupons ("Certificated Notes") if (i) DTC
(x) notifies the Company that it is unwilling or unable to continue as
depositary for the Global Notes and the Company thereupon fails to appoint a
successor depositary within 90 days or (y) has ceased to be a clearing agency
registered under the Exchange Act, (ii) the Company, at its option, notifies
the Trustee in writing that it elects to cause the issuance of Certificated
Notes or (iii) there shall have occurred and be continuing a Default or an
Event of Default with respect to such notes. In any such case, the Company will
notify the Trustee in writing that, upon surrender by the Direct and Indirect
Participants of their interest in such Global Note, Certificated Notes will be
issued to each person that such Direct and Indirect Participants and the DTC
identify as being the beneficial owner of the related notes.
Beneficial interests in Global Notes held by any Direct or Indirect
Participant may be exchanged for Certificated Notes upon request to DTC, by
such Direct Participant (for itself or on behalf of an Indirect Participant),
to the Trustee in accordance with customary DTC procedures. Certificated Notes
delivered in exchange for any beneficial interest in any Global Note will be
registered in the names, and issued in any approved denominations, requested by
DTC on behalf of such Direct or Indirect Participants (in accordance with DTC's
customary procedures).
Neither the Company, the Subsidiary Guarantors nor the Trustee will be
liable for any delay by the holder of any Global Note or DTC in identifying the
beneficial owners of notes, and the Company and the Trustee may conclusively
rely on, and will be protected in relying on, instructions from the holder of
the Global Note or DTC for all purposes.
Same Day Settlement and Payment
The indenture will require that payments in respect of the notes represented
by the Global Notes (including principal, premium, if any, interest and
Liquidated Damages, if any) be made by wire transfer of immediately available
same day funds to the accounts specified by the holder of interests in such
Global Note. With respect to Certificated Notes, the Company will make all
payments of principal, premium, if any, interest and Liquidated Damages, if
any, at the agency or office of the Company maintained for such purpose in The
City and State of New York or, at the Company's option, by mailing a check to
each such holder's registered address. The Company expects that secondary
trading in the Certificated Notes will also be settled in immediately available
funds.
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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 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.
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"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.
"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.
S-51
"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
(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
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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 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
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(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.
"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.
"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).
"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 JPMorgan 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 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.
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"Existing Senior Secured Notes" means the Company's 9.625% Senior Secured
Notes, Series A, Due 2007, its 9.875% Senior Secured Notes, Series B, Due 2007
and its 9.5% Senior Secured Notes, Due 2008.
"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
(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
S-55
(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 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
S-56
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, 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 the date on which the notes are 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
S-57
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
(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
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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
(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;
S-59
(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;
(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
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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;
(xiv) 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;
(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
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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;
(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.
S-62
"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 (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.
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"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 Specified Joint Ventures,
other than Lyondell Methanol Company, L.P., are Subsidiaries of the Company. No
Specified Joint Venture that otherwise would be a "Subsidiary" under this
definition shall be deemed to be or become a Subsidiary or a Restricted
Subsidiary until such designation would not result in a Default under "Certain
Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock"
(provided that, if (i) such Specified Joint Venture would otherwise be or
become a "Subsidiary" as a result of an Investment by the Company or any
Restricted Subsidiary made after June 12, 2002, and (ii) such Investment is not
made 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, then this sentence shall not
apply); at such time as the designation of such Specified Joint Venture would
not result in a Default under "Certain Covenants--Incurrence of Indebtedness
and Issuance of Preferred Stock," such Specified Joint Venture shall
automatically be a Subsidiary and a Restricted Subsidiary (unless designated as
an Unrestricted Subsidiary).
"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.
"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.
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"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.
"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
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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.
S-66
UNDERWRITING
Salomon Smith Barney Inc., Banc of America Securities LLC, J.P. Morgan
Securities Inc. and Credit Suisse First Boston Corporation are acting as joint
bookrunning managers of the offering and as representatives of the underwriters
named below.
Subject to the terms and conditions stated in the underwriting agreement
dated the date of this prospectus supplement, each underwriter named below has
agreed to purchase, and we have agreed to sell to that underwriter, the
principal amount of notes set forth opposite the underwriter's name.
Principal
Underwriter Amount
----------- ------------
Salomon Smith Barney Inc.......................................... $
Banc of America Securities LLC....................................
J.P. Morgan Securities Inc........................................
Credit Suisse First Boston Corporation............................
------------
Total........................................................... $275,000,000
============
The underwriting agreement provides that the obligations of the underwriters
to purchase the notes included in this offering are subject to approval of
legal matters by counsel and to other conditions. The underwriters are
obligated to purchase all the notes if they purchase any of the notes.
The underwriters propose to offer some of the notes directly to the public
at the public offering price set forth on the cover page of this prospectus
supplement and some of the notes to dealers at the public offering price less a
concession not to exceed % of the principal amount of the notes. The
underwriters may allow, and dealers may reallow a concession not to exceed %
of the principal amount of the notes on sales to other dealers. After the
initial offering of the notes to the public, the representatives may change the
public offering price and concessions.
The following table shows the underwriting discounts and commissions that we
are to pay to the underwriters in connection with this offering (expressed as a
percentage of the principal amount of the notes).
Paid by Lyondell
----------------
Per note................................................ %
In connection with the offering, Salomon Smith Barney, on behalf of the
underwriters, may purchase and sell notes in the open market. These
transactions may include over-allotment, syndicate covering transactions and
stabilizing transactions. Over-allotment involves syndicate sales of notes in
excess of the principal amount of notes to be purchased by the underwriters in
the offering, which creates a syndicate short position. Syndicate covering
transactions involve purchases of the notes in the open market after the
distribution has been completed in order to cover syndicate short positions.
Stabilizing transactions consist of certain bids or purchases of notes made for
the purpose of preventing or retarding a decline in the market price of the
notes while the offering is in progress.
The underwriters also may impose a penalty bid. Penalty bids permit the
underwriters to reclaim a selling concession from a syndicate member when
Salomon Smith Barney, in covering syndicate short positions or making
stabilizing purchases, repurchases notes originally sold by that syndicate
member.
Any of these activities may have the effect of preventing or retarding a
decline in the market price of the notes. They may also cause the price of the
notes to be higher than the price that otherwise would exist in the open market
in the absence of these transactions. The underwriters may conduct these
transactions in the over-the-counter market or otherwise. If the underwriters
commence any of these transactions, they may discontinue them at any time.
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We estimate that our total expenses for this offering will be $ .
The underwriters and their affiliates have performed investment banking,
commercial banking and advisory services for us from time to time in the
ordinary course of business for which they have received customary fees and
expenses. The underwriters may, from time to time, engage in transactions with
and perform services for us in the ordinary course of their business.
Affiliates of each of the underwriters are acting as lenders and agents under
our credit agreement and receive customary fees in connection therewith. A
portion of the net proceeds of this offering are being used to prepay amounts
outstanding under our credit facility. In addition, affiliates of each
underwriter acted as initial purchasers of senior secured notes we offered in
November 2001 and received customary fees in connection therewith.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, or to contribute to
payments the underwriters may be required to make because of any of those
liabilities.
Mr. Dudley C. Mecum II, a director of Lyondell, also serves on the board of
directors of Citigroup Inc., which is an affiliate of Salomon Smith Barney Inc.
LEGAL MATTERS
Certain legal matters in connection with the offering of the notes will be
passed on for Lyondell by Baker Botts L.L.P., Houston, Texas. Certain legal
matters in connection with the offering of the notes will be passed on for the
underwriters by Davis Polk & Wardwell, New York, New York.
S-68
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 www.sec.gov. You may also
read and copy any document Lyondell files at the SEC's public reference rooms
in Washington, D.C., New York, New York and Chicago, Illinois. 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 supplement or the accompanying
prospectus and does not constitute a part of this prospectus supplement or the
accompanying prospectus.
Lyondell has incorporated by reference information, 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 supplement or the accompanying prospectus, and information that we
file later with the SEC will automatically update and supersede the information
in this prospectus supplement or the accompanying 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.
(1) Annual Report on Form 10-K.................. Year ended December 31, 2001
(2) Current Report on Form 8-K.................. Filed on January 11, 2002
(3) Quarterly Reports on Form 10-Q.............. Filed on May 14, 2002
You may request a copy of these filings (excluding exhibits), at no cost, by
writing or telephoning Lyondell at the following address:
Lyondell Chemical Company
1221 McKinney, Suite 700
Houston, Texas 77010
Telephone: (713) 652-4590
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.
S-69
Prospectus
[LYONDELL LOGO]
Lyondell Chemical Company
One Houston Center, Suite 700
1221 McKinney Street
Houston, Texas 77010
(713) 652-7200
$3,335,000,000
Senior Secured Debt Securities
Senior Unsecured Debt Securities
Senior Subordinated Debt Securities
Junior Subordinated Debt Securities
Preferred Stock
Common Stock
Warrants
Stock Purchase Contracts
Securities Purchase Units
----------------
Guarantees of Debt Securities or Subsidiary Guarantees by:
Lyondell Chemical Company
Lyondell Chemical Nederland, Ltd.
ARCO Chemical Technology, Inc.
ARCO Chemical Technology, L.P.
----------------
Consider
carefully the
Risk Factors
beginning on page
4.
We will provide
additional terms
of our securities
in one or more
supplements to
this prospectus.
You should read
this prospectus
and the related
prospectus
supplement
carefully before
you invest in our
securities. No
person may use
this prospectus
to offer and sell
our securities
unless a
prospectus
supplement
accompanies this
prospectus.
The Offering
We may offer from time to time:
... senior secured or senior unsecured debt securities, whether or not guaranteed
by our subsidiaries;
... senior subordinated debt securities, whether or not guaranteed by our
subsidiaries;
... junior subordinated debt securities, whether or not guaranteed by our
subsidiaries;
... preferred stock;
... common stock;
... warrants to purchase our common stock, preferred stock, senior debt
securities or subordinated debt securities;
... stock purchase contracts; and
... securities purchase units, consisting of a stock purchase contract and either
our debt securities or debt obligations of third parties.
Our common stock is listed on the New York Stock Exchange under the symbol
"LYO."
----------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
----------------
The date of this prospectus is May 29, 2002.
Table of Contents
About This Prospectus....................................................... 2
About Lyondell Chemical Company............................................. 2
The Subsidiary Guarantors................................................... 3
Risk Factors................................................................ 4
Forward-Looking Information................................................. 14
Use of Proceeds............................................................. 15
Ratio of Earnings to Fixed Charges.......................................... 15
Description of Debt Securities.............................................. 16
Description of Capital Stock................................................ 28
Market for Common Stock and Common Stock Dividends.......................... 33
Description of Warrants..................................................... 34
Description Of Stock Purchase Contracts and Securities Purchase Units....... 34
Plan of Distribution........................................................ 35
General Information......................................................... 36
Legal Opinions.............................................................. 36
Experts..................................................................... 36
Where You Can Find More Information......................................... 37
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we have filed with
the SEC under a "shelf" registration process. Using this process, we may offer
the securities this prospectus describes in one or more offerings with a total
initial offering price of up to $3,335,000,000. This prospectus provides you
with a general description of the securities we may offer. Each time we use
this prospectus to offer securities, we will provide a prospectus supplement
and, if applicable, a pricing supplement. The prospectus supplement and any
pricing supplement will describe the specific terms of that offering. The
prospectus supplement and any pricing supplement may also add to, update or
change the information this prospectus contains. Please carefully read this
prospectus, the prospectus supplement and any pricing supplement, in addition
to the information contained in the documents we refer to under the "Where You
Can Find More Information" section of this prospectus.
ABOUT LYONDELL CHEMICAL COMPANY
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 percent 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 percent share of
Equistar. Following completion of this transaction, which is subject to
completion and execution of definitive documentation, compliance with the
applicable provisions of the partnership agreement and the parent agreement,
approval by Lyondell's stockholders and other customary conditions, Lyondell
will own 70.5 percent 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
2
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 percent 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 percent of Lyondell Methanol Company, L.P., a Texas
limited partnership (LMC), which produces methanol.
In this prospectus, we refer to Lyondell, its wholly owned and majority
owned subsidiaries, and its ownership interest in equity affiliates as "we" or
"us," unless we specifically state otherwise or the context indicates
otherwise. Lyondell is a Delaware corporation with principal executive offices
located at 1221 McKinney Street, Suite 700, Houston, Texas 77010 (Telephone:
(713) 652-7200).
THE SUBSIDIARY GUARANTORS
Lyondell Chemical Nederland, Ltd., ARCO Chemical Technology, Inc. and ARCO
Chemical Technology, L.P. may jointly and severally and unconditionally
guarantee our payment obligations under any series of debt securities offered
by this prospectus, as set forth in a related prospectus supplement. We
sometimes refer to these companies in this prospectus as the "subsidiary
guarantors." Lyondell Chemical Nederland, Ltd. and ARCO Chemical Technology,
Inc. are both Delaware corporations and ARCO Chemical Technology, L.P. is a
Delaware limited partnership. The subsidiary guarantors have principal
executive offices located at c/o Lyondell Chemical Company, 1221 McKinney
Street, Suite 700, Houston, Texas 77010 (Telephone: (713) 652-7200).
3
RISK FACTORS
You should carefully consider the following matters, in addition to the
other information we have provided in this prospectus, the accompanying
prospectus supplement and the documents we incorporate by reference, before
reaching a decision regarding an investment in our securities.
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 last year, contributed to a significant decline in our EBITDA
during 2001 compared to 2000 and may continue to do so.
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.
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 reduced market demand for some
of our and our joint ventures' products, which adversely affected our results
of operations. This reduction in market demand continued through 2001 until the
first quarter of 2002, during which we observed an increase in market demand.
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
4
for that particular product, which makes production uneconomical. These
temporary outages sometimes last for several quarters or, in certain cases,
longer 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 percent higher than in 2000. Our operating expenses and
Equistar's operating expenses will likely increase if these costs increase.
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
an 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, resulting in excess supply and lower prices in North America.
We have risks resulting from significant amounts of debt.
As of March 31, 2002, Lyondell had outstanding debt of approximately $3.84
billion, and Equistar had outstanding debt of approximately $2.29 billion. Our
level of debt and the limitations imposed on us by our existing or future debt
agreements could have significant consequences on our business and future
prospects, including the following:
. we may not be able to obtain necessary financing in the future for
working capital, capital expenditures, debt service requirements or other
purposes;
5
. our less leveraged competitors could have a competitive advantage because
they have greater flexibility to utilize their cash flow to improve their
operations; and
. we could be more vulnerable in the event of a downturn in our business
that would leave us less able to take advantage of significant business
opportunities and to react to changes in market or industry conditions.
Lyondell's, Equistar's and LCR's bank credit facilities and Lyondell's and
Equistar's indentures relating to their secured debt securities impose
restrictions on each of Lyondell, Equistar and LCR. These credit facilities and
indentures contain customary covenants that, subject to exceptions, restrict
the ability of each of Lyondell, Equistar and LCR to incur additional debt or
liens, dispose of assets, make restricted payments (as defined in the
agreements) or merge or consolidate with other entities. In addition, the
credit facilities require the maintenance of specified financial ratios as
provided in the agreements. The breach of these covenants could permit the
lenders to declare the loans immediately payable and could permit the lenders
under the credit facilities to terminate future lending commitments.
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 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.
Equistar's credit facility provides that an event of default occurs if any
combination of Lyondell, Millennium and Occidental ceases to collectively hold
at least a 50 percent 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 percent interest. In addition, LCR's credit facility provides
that an event of default occurs if (i) Lyondell transfers its interest as a
member of LCR to a person other than an affiliate or (ii) neither CITGO nor any
of its affiliates is a member of LCR.
6
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 and other 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 the "Risk Factors" section of
this prospectus. 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 currently subject to litigation and 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 (i) certain
deemed refining costs adjustable for inflation and energy costs, (ii) certain
actual costs and (iii) 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 percent 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.
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.
7
During 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 percent 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.
Lyondell currently expects second quarter 2002 deliveries under the crude
supply agreement to average 190,000 barrels per day. The recent political
uncertainty in Venezuela has not affected crude oil deliveries, the crude
supply agreement or related matters to date, and the long-term effects of these
events, if any, are not yet clear.
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 or reduction in supplies thereunder
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.
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
8
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;
. other environmental risks; and
. potential terrorist acts.
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 incident to our
business, including losses resulting from war risks or terrorist acts. As a
result of market conditions, premiums and deductibles for certain insurance
policies can increase substantially, and in some instances, certain insurance
may become unavailable or available only for reduced amounts of coverage. If we
were to incur a significant liability for which we were not fully insured, it
could have a material adverse effect on our financial position.
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 and sell, 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
9
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 ours, 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 March 31, 2002, our, our subsidiaries' and our joint
ventures' environmental liability for future assessment and remediation costs
at the above-mentioned sites totaled $28 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.
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 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 $28 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
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potential loss contingencies associated with the latter CERCLA sites,
individually and in the aggregate, are not significant.
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 percent 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 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 share of such 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
emissions standards were needed and that additional controls on gasoline and
diesel were necessary to meet these emissions 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
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standards will result in increased capital investment for LCR, totaling between
$175 million to $225 million for 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
Lyondell'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, and some litigation, 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. On April 25, 2002, the U.S. Senate passed its version of
an omnibus energy bill, which, among other things, would ban the use of MTBE as
a fuel oxygenate. The Senate bill is not law and must be reconciled with the
version of the omnibus energy bill passed by the U.S. House of Representatives
in 2001. Lyondell does not expect these initiatives to have a significant
impact on MTBE margins and volumes in 2002. Lyondell's MTBE sales represented
approximately 35 percent 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.
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 various
business combinations, 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.
12
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.
13
FORWARD-LOOKING INFORMATION
This prospectus, including the information we incorporate by reference,
includes forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
You can identify our forward-looking statements by words such as "estimate,"
"project," "predict," "believe," "expect," "anticipate," "plan," "forecast,"
"budget," "goal" or other words that convey the uncertainty of future events or
outcomes. When considering these forward-looking statements, you should keep in
mind the risk factors and other cautionary statements contained in this
prospectus, any prospectus supplement and the documents we have incorporated by
reference.
The forward-looking statements are not guarantees of future performance, and
we caution you not to rely unduly on them. We have based many of these forward-
looking statements on expectations and assumptions about future events that may
prove to be inaccurate. While our management considers these expectations and
assumptions to be reasonable, they are inherently subject to significant
business, economic, competitive, regulatory and other risks, contingencies and
uncertainties, most of which are difficult to predict and many of which are
beyond our control. These risks, contingencies and uncertainties relate to,
among other matters, the following:
. 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
. our ability to implement our business strategies, including cost
reductions.
We have discussed some of these factors in more detail in the "Risk Factors"
section of this prospectus and in our other filings with the SEC, including
those filings incorporated by reference into this prospectus. These factors are
not necessarily all the important factors that could affect us or our joint
ventures. We advise you that you should (i) be aware that important factors we
do not refer to above could affect the accuracy of our forward-looking
statements and (ii) use caution and common sense when considering our forward-
looking statements. We do not intend to update these statements unless the
securities laws require us to do so.
14
USE OF PROCEEDS
Unless we inform you otherwise in the prospectus supplement, we will use the
net proceeds from the sale of the offered securities for general corporate
purposes. These purposes may include funding working capital requirements,
capital expenditures, repayment and refinancing of indebtedness and repurchases
and redemptions of securities, and may initially be invested in short-term
marketable securities. We will determine any specific allocation of the net
proceeds of an offering to a specific purpose at the time of such offering and
will describe the specific allocation in the related prospectus supplement.
RATIO OF EARNINGS TO FIXED CHARGES
Our ratio of earnings to fixed charges for each of the periods shown is as
follows:
For the Three Years Ended December 31,
Months Ended ------------------------
March 31, 2002 2001 2000 1999 1998 1997
-------------- ---- ---- ---- ---- ----
Ratio of earnings to fixed charges
(a).................................. -- -- 2.0x -- 1.2x 4.6x
- --------
(a) For the three months ended March 31, 2002 and for the years ended December
31, 2001 and 1999, earnings were insufficient to cover fixed charges by $75
million, $224 million and $104 million, respectively. The ratio of earnings
to fixed charges has been calculated including amounts for Lyondell and its
current proportionate share of amounts for Equistar (57 percent through May
15, 1998 and 41 percent thereafter), LCR (58.75 percent for the year ended
December 31, 1998 and thereafter, 86 percent for the first quarter of 1997
and 58.49 percent for the remainder of 1997) and LMC (75 percent for the
year ended December 31, 1998 and thereafter), for the periods in which
Lyondell accounted for its respective investment in each such joint venture
using the equity method of accounting. Lyondell remains a guarantor of $300
million of Equistar's debt and a co-obligor with Equistar for $31 million
of debt for which Equistar assumed responsibility in connection with its
formation. Fixed charges include interest expense plus capitalized interest
and the portion of rental expense that represents an interest factor.
15
DESCRIPTION OF DEBT SECURITIES
The following description of the terms of the debt securities sets forth
certain general terms that may apply to the debt securities that we may issue
separately, upon conversion of preferred stock, upon exercise of a warrant, in
connection with a stock purchase contract, as part of a stock purchase unit or
upon exercise of a subscription right from time to time in the form of one or
more series. The particular terms of any debt securities will be described in
the prospectus supplement relating to those debt securities. For purposes of
this "Description of Debt Securities" section of this prospectus, references to
the terms "Lyondell," "us" or "we" mean Lyondell Chemical Company only, unless
we state otherwise or the context clearly indicates otherwise.
Any senior secured debt securities will be issued in one or more series
under an indenture, as supplemented or amended from time to time, between us
and an institution that we will name in the related prospectus supplement, as
trustee. Any senior unsecured debt securities will be issued in one or more
series under an indenture, as supplemented or amended form time to time,
between us and an institution that we will name in the related prospectus
supplement, as trustee. Any senior subordinated debt securities will be issued
in one or more series under an indenture, as supplemented or amended from time
to time, between us and an institution that we will name in the related
prospectus supplement, as trustee. Any junior subordinated debt securities will
be issued in one or more series under an indenture, as supplemented or amended
from time to time, between us and an institution that we will name in the
related prospectus supplement, as trustee. For ease of reference, we will refer
to the indenture relating to any senior secured or senior unsecured debt
securities as the senior indenture(s). For ease of reference, we will refer to
the indenture relating to the senior subordinated debt securities as the senior
subordinated indenture, to the indenture relating to the junior subordinated
debt securities as the junior subordinated indenture, and to the senior
subordinated indenture together with the junior subordinated indenture as the
subordinated indentures.
This summary of the terms and provisions of the debt securities and the
indentures is not complete. You should read the forms of the indentures which
are filed as exhibits to the registration statement of which this prospectus
forms a part. Whenever we refer to particular defined terms of the indentures
in this section or in a prospectus supplement, we are incorporating these
definitions into this prospectus or the prospectus supplement.
General
We will issue the debt securities in one or more series in accordance with a
supplemental indenture or a resolution of our board of directors or a committee
of the board. Unless otherwise specified in a prospectus supplement, each
series of senior secured debt securities will rank equally in right of payment
with all of our other senior secured obligations, and each series of our senior
unsecured debt securities will rank equally in right of payment with all of our
other senior unsecured obligations. Any senior unsecured debt securities will
be effectively subordinated to all of our existing and future senior secured
debt, to the extent of the value securing our senior secured debt. Each series
of senior and junior subordinated debt securities will be subordinated and
junior in right of payment to the extent and in the manner described in the
subordinated indenture and any supplemental indenture relating to the
subordinated debt securities. Except as otherwise provided in a prospectus
supplement, the indentures do not limit our ability to incur additional secured
or unsecured debt, whether under the indentures, any other indenture that we
may enter into in the future or otherwise. For more information, you should
read the prospectus supplement relating to a particular offering of securities.
The applicable prospectus supplement will describe the following terms of
the series of debt securities with respect to which this prospectus is being
delivered:
. the title of the debt securities of the series and whether the series is
senior secured or senior unsecured debt securities or senior or junior
subordinated debt securities;
. any limit on the aggregate principal amount of the debt securities of the
series;
. the person to whom any interest on a debt security shall be payable, if
other than the person in whose name that debt security is registered on
the regular record date;
16
. the date or dates on which the principal and premium, if any, of the debt
securities of the series are payable or the method of that determination
or the right to defer any interest payments;
. the rate or rates (which may be fixed or variable) at which the debt
securities will bear interest, if any, or the method of determining the
rate or rates;
. the date or dates from which interest will accrue and the interest
payment dates on which any such interest will be payable or the method by
which the dates will be determined;
. the regular record date for any interest payable on any interest payment
date and the basis upon which interest will be calculated if other than
that of a 360-day year of twelve 30-day months;
. the place or places where the principal of and premium, if any, and any
interest on the debt securities of the series will be payable, if other
than the Borough of Manhattan, The City of New York;
. the period or periods within which, the date or dates on which, the price
or prices at which and the terms and conditions upon which the debt
securities of the series may be redeemed, in whole or in part, at our
option or otherwise;
. our obligation, if any, to redeem, purchase or repay the debt securities
of the series pursuant to any sinking fund or otherwise or at the option
of the holders and the period or periods within which, the price or
prices at which, the currency or currencies including currency unit or
units in which and the terms and conditions upon which, the debt
securities will be redeemed, purchased or repaid, in whole or in part;
. the terms, if any, upon which the debt securities of the series may be
convertible into or exchanged for other debt securities, preferred stock
or common stock of Lyondell and the terms and conditions upon which the
conversion or exchange may be effected, including the initial conversion
or exchange price or rate, the conversion or exchange period and any
other additional provisions;
. the denominations in which any debt securities will be issuable, if other
than denominations of $1,000 and any integral multiple thereof;
. the currency in which payment of principal of and premium, if any, and
interest on debt securities of the series shall be payable, if other than
United States dollars;
. any index, formula or other method used to determine the amount of
payments of principal of and premium, if any, and interest on the debt
securities;
. if the principal amount payable at the stated maturity of debt securities
of the series will not be determinable as of any one or more dates before
the stated maturity, the amount that will be deemed to be the principal
amount as of any date for any purpose, including the principal amount
which will be due and payable upon any maturity other than the stated
maturity or which will be deemed to be outstanding as of any date (or, in
any such case, the manner in which the deemed principal amount is to be
determined), and if necessary, the manner of determining the equivalent
thereof in United States currency;
. if the principal of or premium, if any, or interest on any debt
securities is to be payable, at our election or the election of the
holders, in one or more currencies or currency units other than that or
those in which such debt securities are stated to be payable, the
currency, currencies or currency units in which payment of the principal
of and premium, if any, and interest on such debt securities shall be
payable, and the periods within which and the terms and conditions upon
which such election is to be made;
. if other than the stated principal amount, the portion of the principal
amount of the debt securities which will be payable upon declaration of
the acceleration of the maturity of the debt securities or provable in
bankruptcy;
. the applicability of, and any addition to or change in, the covenants and
definitions then set forth in the applicable indenture or in the terms
then set forth in such indenture relating to permitted consolidations,
mergers or sales of assets;
17
. any changes or additions to the provisions of the applicable indenture
dealing with defeasance, including the addition of additional covenants
that may be subject to our covenant defeasance option;
. whether any of the debt securities are to be issuable in permanent global
form and, if so, the depositary or depositaries for such global security
and the terms and conditions, if any, upon which interests in such debt
securities in global form may be exchanged, in whole or in part, for the
individual debt securities represented thereby in definitive registered
form, and the form of any legend or legends to be borne by the global
security in addition to or in lieu of the legend referred to in the
applicable indenture;
. the appointment of any trustee, any authenticating or paying agents,
transfer agent or registrars;
. the terms, if any, of any guarantee of the payment of principal, premium,
if any, and interest with respect to debt securities of the series and
any corresponding changes to the provisions of the applicable indenture
as then in effect;
. the terms, if any, of the transfer, mortgage, pledge or assignment as
security for the debt securities of the series of any properties, assets,
moneys, proceeds, securities or other collateral, including whether
certain provisions of the Trust Indenture Act are applicable and any
corresponding changes to provisions of the applicable indenture as then
in effect;
. any addition to or change in the events of default with respect to the
debt securities of the series and any change in the right of the trustee
or the holders to declare the principal, premium, if any, and interest
with respect to the debt securities due and payable;
. any applicable subordination provisions for any subordinated debt
securities in addition to or in lieu of those set forth in this
prospectus;
. if the securities of the series are to be secured, the property covered
by the security interest, the priority of the security interest, the
method of perfecting the security interest and any escrow arrangements
related to the security interest; and
. any other terms of the debt securities, including any restrictive
covenants.
We may sell debt securities at a substantial discount below their stated
principal amount or debt securities that bear no interest or bear interest at a
rate which at the time of issuance is below market rates. We will describe the
material United States federal income tax consequences, accounting and other
special considerations applicable to the debt securities in the applicable
prospectus supplement.
If the purchase price of any of the debt securities is payable in one or
more foreign currencies or currency units or if any debt securities are
denominated in one or more foreign currencies or currency units or if the
principal of, premium, if any, or interest, if any, on any debt securities is
payable in one or more foreign currencies or currency units, we will set forth
the restrictions, elections, specific terms and other information with respect
to the issue of debt securities and such foreign currency or currency units in
the applicable prospectus supplement.
Form, Exchange, Registration and Transfer
Unless otherwise indicated in the applicable prospectus supplement, debt
securities of any series will be exchangeable for other debt securities of the
same series and of a like aggregate principal amount and tenor of different
authorized denominations in accordance with the applicable indenture. Debt
securities may be presented for registration of transfer (with the form of
transfer endorsed thereon duly executed), at the office of the security
registrar or at the office of any transfer agent designated by us for such
purpose with respect to any series of debt securities and referred to in an
applicable prospectus supplement, without service charge and upon payment of
any taxes and other governmental charges as described in the applicable
indenture. The transfer or exchange will be effected upon the security
registrar or such transfer agent, as the case may be, being satisfied with the
documents of title and identity of the person making the request.
18
We have appointed the trustee under each indenture as security registrar for
debt securities issued thereunder. If a prospectus supplement refers to any
transfer agents (in addition to the security registrar) initially designated by
us with respect to any series of debt securities, we may at any time rescind
the designation of the transfer agent or approve a change in the location
through which any such transfer agent acts. We are required to maintain an
office or agency (which may be the office of the trustee, the security
registrar or the paying agent) in each place of payment for such series. We may
at any time designate additional transfer agents with respect to any series of
debt securities.
In the event of any redemption in part, we shall not be required to:
. register the transfer or exchange of any debt security of any series
during a period beginning 15 business days prior to the mailing of the
relevant notice of redemption and ending on the close of business on the
day of mailing of the notice or
. register the transfer of or exchange any debt security called for
redemption in whole or in part, except the unredeemed portion of any debt
security being redeemed in part.
Book-Entry System
The provisions set forth in this "Book-Entry System" section of this
prospectus will apply to the debt securities of any series if the prospectus
supplement relating to such series so indicates.
Unless otherwise indicated in the applicable prospectus supplement, the debt
securities of such series will be represented by one or more global securities
registered with The Depository Trust Company, or DTC, or a depositary named in
the prospectus supplement relating to such series. Except as set forth below, a
global security may be transferred, in whole but not in part, only to the
depositary or another nominee of the depositary.
The general terms of the depositary arrangement with DTC, with respect to a
series of debt securities are described in the "Description of the Depository"
section of this prospectus, unless otherwise indicated in the prospectus
supplement relating to the series. We anticipate that the following provisions
will generally apply to depositary arrangements.
Unless otherwise provided in the applicable prospectus supplement, debt
securities represented by a global security will be exchangeable for debt
securities in definitive form of like tenor as such global security in
denominations of $1,000 and in any greater amount that is an integral multiple
thereof if:
. the depositary notifies us and the trustee that it is unwilling or unable
to continue as depositary for such global security or if at any time the
depositary ceases to be a clearing agency registered under the Exchange
Act and a successor depositary is not appointed by us within 90 days;
. we, in our sole discretion, determine not to have all of the debt
securities represented by a global security and notify the trustee; or
. there shall have occurred and be continuing an event of default or an
event which, with the giving of notice or lapse of time, or both, would
constitute an event of default with respect to the debt securities.
Any debt security that is exchangeable pursuant to the preceding sentence is
exchangeable for debt securities registered in such names as the depositary
shall instruct the trustee. It is expected that such instructions may be based
upon directions received by the depositary from its participants with respect
to ownership of beneficial interests in such global security. Subject to the
foregoing, a global security is not exchangeable except for a global security
or global securities of the same aggregate denominations to be registered in
the name of the depositary or its nominee.
19
Description of the Depository
Unless otherwise provided in the applicable prospectus supplement, DTC (New
York, NY), will act as securities depository for the debt securities. The debt
securities will be issued as fully registered securities registered in the name
of Cede & Co. (DTC's partnership nominee) or such other name as may be
requested by an authorized representative of DTC.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934. DTC holds securities that its participants (the "Direct
Participants") deposit with DTC. DTC also facilitates the settlement among
Direct Participants of securities transactions, such as transfers and pledges,
in deposited securities through electronic computerized book-entry changes in
Direct Participants' accounts, thereby eliminating the need for physical
movement of securities certificates. Direct Participants include securities
brokers and dealers, banks, trust companies, clearing corporations and certain
other organizations. DTC is owned by a number of its Direct Participants and by
the New York Stock Exchange, Inc., the American Stock Exchange LLC and the
National Association of Securities Dealers, Inc. Access to the DTC system is
also available to others such as securities brokers and dealers, banks and
trust companies that clear through or maintain a custodial relationship with a
Direct Participant, either directly or indirectly (the "Indirect
Participants"). The rules applicable to DTC and its Direct and Indirect
participants are on file with the Securities and Exchange Commission.
Purchases of the debt securities under the DTC system must be made by or
through Direct Participants, which will receive a credit for the debt
securities on DTC's records. The ownership interest of each actual purchaser of
each debt security, a "beneficial owner," is in turn to be recorded on the
Direct and Indirect Participants' records. Beneficial owners will not receive
written confirmation from DTC of their purchase, but beneficial owners are
expected to receive written confirmations providing details of the transaction,
as well as periodic statements of their holdings, from the Direct or Indirect
Participant through which the beneficial owner entered into the transaction.
Transfers of ownership interests in the debt securities are to be accomplished
by entries made on the books of Direct and Indirect Participants acting on
behalf of beneficial owners. Beneficial owners will not receive certificates
representing their ownership interests in the debt securities, except in the
event that use of the book-entry system for the debt securities is
discontinued.
To facilitate subsequent transfers, all debt securities deposited by Direct
Participants with DTC are registered in the name of DTC's partnership nominee,
Cede & Co. or such other name as may be requested by an authorized
representative of DTC. The deposit of debt securities with DTC and their
registration in the name of Cede & Co. or such other nominee do not effect any
change in beneficial ownership. DTC has no knowledge of the actual beneficial
owners of the debt securities; DTC's records reflect only the identity of the
Direct Participants to whose accounts such debt securities are credited, which
may or may not be the beneficial owners. The Direct and Indirect Participants
will remain responsible for keeping account of their holdings on behalf of
their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Neither DTC nor Cede & Co. (nor such DTC nominee) will consent or vote with
respect to the debt securities. Under its usual procedures, DTC will mail an
omnibus proxy to us as soon as possible after the record date. The Omnibus
Proxy assigns Cede & Co.'s consenting or voting rights to those Direct
Participants to whose accounts the debt securities are credited on the record
date (identified in a listing attached to the omnibus proxy).
20
Redemption proceeds, distributions and dividend payments on the debt
securities will be made to Cede & Co., or such other nominee as may be
requested by an authorized representative of DTC. DTC's practice is to credit
Direct Participants' accounts upon DTC's receipt of funds and corresponding
detail information from us on the payment date in accordance with their
respective holdings shown on DTC's records. Payments by Direct or Indirect
Participants to beneficial owners will be governed by standing instructions and
customary practices, as is the case with securities held for the accounts of
customers in bearer form or registered in "street name," and will be the
responsibility of the Direct or Indirect Participant and not of DTC, or the
agent, or us, subject to any statutory or regulatory requirements as may be in
effect from time to time. Payment of redemption proceeds, distributions and
dividends to Cede & Co. (or such other nominee as may be requested by an
authorized representative of DTC) is our responsibility, disbursement of such
payments to Direct Participants shall be the responsibility of DTC, and
disbursement of such payments to the beneficial owners shall be the
responsibility of Direct and Indirect Participants.
DTC may discontinue providing its services as securities depositary with
respect to the debt securities at any time by giving reasonable notice to us.
Under such circumstances, in the event that a successor securities depository
is not obtained, debt security certificates will be printed and delivered.
We may decide to discontinue use of the system of book-entry transfers
through DTC (or a successor securities depository). In that event, debt
security certificates will be printed and delivered.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that we believe are reliable, but we take no
responsibility for the accuracy thereof.
Option to Defer Interest Payments or to Pay-In-Kind
If so described in the applicable prospectus supplement, we will have the
right, at any time and from time to time during the term of any series of debt
securities, to defer the payment of interest for the number of consecutive
interest payment periods as may be specified in the applicable prospectus
supplement, subject to the terms, conditions and covenants, if any, specified
in such prospectus supplement. However, any extension period may not extend
beyond the stated maturity of the final installment of principal of the series
of debt securities. If provided in the applicable prospectus supplement, we
will have the right, at any time and from time to time during the term of any
series of debt securities, to make payments of interest by delivering
additional debt securities of the same series.
Covenants
The covenants, if any, that will apply to a particular series of debt
securities will be set forth in the indenture relating to such series of debt
securities. Except as otherwise specified in the applicable prospectus
supplement with respect to any series of debt securities, we may remove or add
covenants without the consent of holders of the securities.
Defeasance
Except as otherwise specified in the applicable prospectus supplement with
respect to any series of debt securities, we may, at our option, elect:
. to have substantially all of our obligations discharged with respect to
the debt securities (except for certain obligations to register the
transfer or exchange of debt securities, replace stolen, lost or
mutilated debt securities or maintain paying agencies and hold moneys for
payment in trust), which we call legal defeasance; or
. to have substantially all of our obligations terminated with respect to
certain restrictive covenants of the applicable indenture, which we call
covenant defeasance.
21
In the event of legal or covenant defeasance, certain events of default will no
longer constitute events of default with respect to any debt securities, upon
the deposit with the applicable trustee, in trust, of money or U.S. government
obligations, or a combination thereof, which through the payment of interest
and principal on those monies or obligations in accordance with their terms
will provide sufficient money to pay all the principal of and premium, if any,
and interest on such debt securities on the dates such payments are due in
accordance with the terms of the debt securities on their stated maturity or
any redemption date.
Except as otherwise specified in the applicable prospectus supplement with
respect to any series of debt securities, we will be required to deliver to the
trustee an opinion of counsel to the effect that the deposit and related
defeasance would not cause the holders of the debt securities to recognize
income, gain or loss for federal income tax purposes and, in the case of a
legal defeasance, such opinion must be based upon a ruling from the United
States Internal Revenue Service or a change in law to that effect.
The Guarantees
Our payment obligations under any series of debt securities may be jointly
and severally, fully and unconditionally guaranteed by the subsidiary
guarantors. If a series of debt securities are so guaranteed, the subsidiary
guarantors will execute a notation of guarantee or a supplemental indenture as
further evidence of their guarantee. In addition, Lyondell may fully and
unconditionally guarantee the payment obligations of the subsidiary guarantors
under the subsidiary guarantees of any series of debt securities. The
applicable prospectus supplement will describe the terms of any guarantee by
the subsidiary guarantors and Lyondell, as well as any covenants of or
restrictions on the subsidiary guarantors or Lyondell under the applicable
indenture.
The obligations of each guarantor under its guarantee will be limited to the
maximum amount that will not result in the obligations of the guarantor under
the guarantee constituting a fraudulent conveyance or fraudulent transfer under
federal or state law. The applicable prospectus will set forth the provisions
under which a guarantor may be released and discharged from its guarantee.
If a series of debt securities is guaranteed by and is designated as
subordinate to our senior indebtedness (as defined in the "Subordination of
Subordinated Debt Securities" section of this prospectus), then the guarantees
by those guarantors will be subordinated to the senior indebtedness of the
guarantors on substantially the same extent as the series is subordinated to
our senior indebtedness. See the "Subordination of Subordinated Debt
Securities" section of this prospectus.
Events of Default
Unless otherwise provided in the prospectus supplement with respect to any
series of debt securities, the following will be events of default under an
indenture with respect to the debt securities of such series issued under such
indenture:
. default by us for 30 days in payment of any interest or any additional
amounts with respect to any debt securities of such series;
. default by us in the payment of (i) any principal of any debt securities
of such series at its maturity or (ii) premium, if any, on any debt
securities of such series when the same becomes due and payable;
. default by us for 30 days in the deposit of any sinking fund payment,
when and as due by the terms of a debt security of such series;
. default by us in compliance with any of our other covenants or agreements
in, or provisions of, the debt securities of such series or the
applicable indenture (other than an agreement, covenant or provision that
has expressly been included in such indenture solely for the benefit of
one or more series of debt securities other than that series) which shall
not have been remedied within 90 days after written notice by the trustee
or by the holders of at least 25 percent in principal amount of the then
outstanding debt securities affected by such default;
22
. certain events involving bankruptcy, insolvency or reorganization of
Lyondell; and
. any other event of default provided with respect to debt securities of
that series.
The indentures will provide that the trustee may withhold notice to the
holders of the debt securities of any default or event of default (except in
payment of principal of, premium, if any, and interest on any additional
amounts or any sinking fund installment with respect to debt securities of such
series) if the trustee considers it in the interest of the holders of such debt
securities to do so.
Unless otherwise provided in the applicable prospectus supplement with
respect to any series of debt securities, each indenture will provide that if
an event of default with respect to any debt securities of any series at the
time outstanding occurs, and is continuing (other than an event of default
involving the bankruptcy, insolvency or reorganization of Lyondell), the
applicable trustee or the holders of at least 25 percent in principal amount of
the then outstanding debt securities of the series affected by the default may
declare the principal of and accrued and unpaid interest on all then
outstanding debt securities of such series or of all series affected, as the
case may be, to be due and payable. Upon such a declaration, the amounts due
and payable on such debt securities will be due and payable immediately. If an
event of default involving the bankruptcy, insolvency or reorganization of
Lyondell occurs, then the principal of and accrued and unpaid interest on all
then outstanding debt securities shall become immediately due and payable
without any declaration, notice or other act on the part of the trustee or any
holder. Under certain circumstances, the holders of a majority in principal
amount of the outstanding debt securities of the series affected by such
default or all series, as the case may be, may rescind any acceleration and its
consequences.
Unless otherwise provided in the applicable prospectus supplement with
respect to any series of debt securities, each indenture will provide that no
holder of a debt security of any series may pursue any remedy under such
indenture unless:
. the holder gives the applicable trustee written notice of a continuing
event of default with respect to the series;
. the holders of at least 25 percent in principal amount of the then
outstanding debt securities of the series make a written request to the
applicable trustee to pursue such remedy;
. such holder or holders offer to the applicable trustee indemnity
reasonably satisfactory to the trustee;
. the trustee shall have failed to act for a period of 60 days after
receipt of the notice and offer of indemnity; and
. during such 60-day period, the holders of a majority in principal amount
of the debt securities of that series do not give the trustee a direction
inconsistent with the request; however, such provision does not affect
the right of a holder of a debt security to sue for enforcement of any
overdue payment thereon.
Unless otherwise provided in the applicable prospectus supplement with
respect to any series of debt securities, each indenture will provide that the
holders of a majority in principal amount of the then outstanding debt
securities of a series or of all series affected, as the case may be, may
direct the time, method and place of conducting any proceeding for any remedy
available to the applicable trustee or exercising any trust or power conferred
on it not relating to or arising under an event of default, subject to certain
limitations specified in such indenture. Each indenture requires us to
periodically file with the applicable trustee a written statement as to our
compliance with the indenture covenants.
Modification and Waiver
Unless otherwise provided in the applicable prospectus supplement with
respect to any series of debt securities, modifications and amendments of each
indenture or the debt securities may be made by us and the applicable trustee
with the consent of the holders of a majority in principal amount of the
outstanding debt
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securities of all series affected by such amendment (acting as one class) under
the applicable indenture. However, no such modification, amendment, supplement
or waiver may, without the consent of each holder of any outstanding debt
security so affected, accomplish the following events:
. reduce the amount of debt securities whose holders must consent to an
amendment, supplement or waiver;
. reduce the rate of or change the time for payment of interest, including
default interest, on any debt security;
. reduce the principal of or premium, if any, on, or change the stated
maturity of, any debt security;
. reduce the premium, if any, payable upon the redemption of any debt
security or change the time at which any debt security may or shall be
redeemed;
. change any obligation of us to pay additional amounts with respect to any
debt security;
. make any debt security payable in money other than that stated in the
debt security;
. impair the right to institute suit for the enforcement of any payment of
principal of, premium, if any, or interest on, or any additional amounts
with respect to, any debt security;
. make any change in the percentage of principal amount of debt securities
necessary to waive compliance with certain provisions of the applicable
indenture; or
. waive a continuing default or event of default in the payment of
principal of, premium, if any, or interest on or additional amounts with
respect to the debt securities.
In addition, in the case of the subordinated debt securities, no
modification or amendment may be made to the subordinated indenture with
respect to the subordination of any subordinated debt security in a manner
adverse to holder without the consent of the holder of each subordinated debt
security then outstanding affected by the modification or amendment. Unless
otherwise provided in the applicable prospectus supplement with respect to any
series of debt securities, the indentures will provide that amendments and
supplements to, or waivers of any provision of, such indenture may be made by
us and the trustee without the consent of any holders of debt securities in
certain circumstances, including, among other things:
. to cure any ambiguity, omission, defect or inconsistency;
. to provide for the assumption of the obligations of us under the
indenture upon the merger, consolidation or sale or other disposition of
all or substantially all of our assets;
. to provide for uncertificated debt securities in addition to or in place
of certificated debt securities, or to provide for the issuance of bearer
debt securities (with or without coupons);
. to secure any series of debt securities or to add guarantees of any
series of debt securities;
. to comply with any requirement in order to effect or maintain the
qualification of the indenture under the Trust Indenture Act; or
. to make any change that does not adversely affect any outstanding debt
securities of any series in any material respect.
Unless otherwise provided in the applicable prospectus supplement with
respect to any series of debt securities, the indentures will provide that the
holders of a majority in principal amount of the then outstanding debt
securities of any series or of all series (acting as one class) may waive any
existing or past default or event of default with respect to a series or all
series, as the case may be, except (i) in the payment of the principal of, or
premium, if any, or interest on or any additional amounts with respect to any
debt securities or (ii) in respect of a provision that under the proviso to the
prior paragraph cannot be amended or supplemented without the consent of each
holder affected.
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Subordination of Subordinated Debt Securities
Unless otherwise indicated in the applicable prospectus supplement, the
following provisions will apply to the subordinated debt securities.
Senior Subordinated Debt Securities
The senior subordinated indenture may provide that the senior subordinated
debt securities are subordinate in right of payment to the prior payment in
full of all of our senior indebtedness, which includes our indebtedness and
other monetary obligations (including expenses and fees) under our 9.625
percent senior secured notes, series A, due 2007, the 9.875 percent senior
secured notes, Series B, due 2007, and 9.5 percent senior secured notes, due
2008, our bank credit facility and any senior secured or senior unsecured debt
securities that we may issue under a senior indenture.
The holders of all of our senior indebtedness outstanding at the time of
acceleration will first be entitled to receive payment in full of all amounts
due on our senior indebtedness before the holders of the senior subordinated
debt securities will be entitled to receive any payment upon the principal of,
or premium, if any, or interest, if any, on the senior subordinated debt
securities in the following circumstances:
. upon any payment or distribution of assets to creditors upon any
liquidation, dissolution, winding up, reorganization, assignment for the
benefit of creditors, or any bankruptcy, insolvency, debt restructuring
or similar proceedings in connection with any insolvency or bankruptcy
proceeding of Lyondell;
. (i) in the event and during the continuation of any default in the
payment of principal, premium or interest on any senior indebtedness
beyond any applicable grace period or (ii) in the event that any event of
default with respect to any of our senior indebtedness has occurred and
is continuing, permitting the holders of that senior indebtedness (or a
trustee) to accelerate the maturity of that senior indebtedness, whether
or not the maturity is in fact accelerated (unless, in the case of (i) or
(ii), the payment default or event of default has been cured or waived or
ceased to exist and any related acceleration has been rescinded) or (iii)
in the event that any judicial proceeding is pending with respect to a
payment default or event of default described in (i) or (ii); or
. in the event that any senior subordinated debt securities have been
declared due and payable before their stated maturity.
By reason of this subordination, in the event of liquidation or insolvency,
holders of senior subordinated debt securities may recover less than holders of
our senior indebtedness and may recover more than the holders of junior
subordinated debt securities.
For purposes of the subordination provisions, the payment, issuance and
delivery of cash, property or securities, other than stock and some of our
subordinated securities, upon conversion or exchange of a senior subordinated
debt security will be deemed to constitute payment upon the principal of the
senior subordinated debt security.
Junior Subordinated Debt Securities
The junior subordinated debt indenture may provide that the junior
subordinated debt securities are subordinate in right of payment to the prior
payment in full of all of our senior debt, which includes any senior
subordinated debt securities that we may issue under the senior subordinated
indenture.
The holders of all of our senior debt outstanding at the time of
acceleration will first be entitled to receive payment in full of all amounts
due on our senior debt before the holders of the junior subordinated debt
25
securities will be entitled to receive any payment upon the principal of, or
premium, if any, or interest, if any, on the junior subordinated debt
securities in the following circumstances:
. upon any payment or distribution of assets to creditors upon any
liquidation, dissolution, winding up, reorganization, assignment for the
benefit of creditors, or any bankruptcy, insolvency, debt restructuring
or similar proceedings in connection with any insolvency or bankruptcy
proceeding of Lyondell;
. (i) in the event and during the continuation of any default in the
payment of principal, premium or interest on any senior debt beyond any
applicable grace period or (ii) in the event that any event of default
with respect to any of our senior debt has occurred and is continuing,
permitting the holders of that senior debt (or a trustee) to accelerate
the maturity of that senior debt, whether or not the maturity is in fact
accelerated (unless, in the case of (i) or (ii), the payment default or
event of default has been cured or waived or ceased to exist and any
related acceleration has been rescinded) or (iii) in the event that any
judicial proceeding is pending with respect to a payment default or event
of default described in (i) or (ii); or
. in the event that any junior subordinated debt securities have been
declared due and payable before their stated maturity.
By reason of this subordination, in the event of liquidation or insolvency,
holders of the junior subordinated debt securities may recover less than
holders of our senior debt, including the holders of any senior subordinated
debt securities.
For purposes of the subordination provisions, the payment, issuance and
delivery of cash, property or securities, other than stock and some of our
subordinated securities, upon conversion or exchange of a junior subordinated
debt security will be deemed to constitute payment upon the principal of the
junior subordinated debt security.
Definitions
Unless otherwise indicated in the applicable prospectus supplement, the
following definitions are applicable to the subordinated indentures relating to
the subordinated debt securities. You should refer to the applicable
subordinated indenture for the full definition of each term.
"Debt" means, without duplication, with respect to any person or entity,
whether recourse is to all or a portion of the assets of that person or entity
and whether or not contingent:
. every obligation of that person or entity for money borrowed;
. every obligation of that person or entity evidenced by bonds, debentures,
notes or other similar instruments, including obligations incurred in
connection with the acquisition of property, assets or businesses;
. every reimbursement obligation of that person or entity with respect to
letters of credit, bankers' acceptances or similar facilities issued for
the account of that person or entity;
. every obligation of that person or entity issued or assumed as the
deferred purchase price of property or services;
. all indebtedness of that person or entity, whether incurred on or prior
to the date of the applicable subordinated indenture or incurred later,
for claims in respect of derivative products, including interest rate,
foreign exchange rate and commodity forward contracts, options and swaps
and similar arrangements; and
. every obligation of the type referred to in the foregoing clauses of
another person or entity and all dividends of another person or entity
the payment of which, in either case, that person or entity has
26
guaranteed or is responsible or liable, directly or indirectly, as
obligor, guarantor or otherwise; provided that this definition does not
include trade accounts payable or accrued liabilities arising in the
ordinary course of business.
"Senior debt" means the principal of, and premium, if any, and interest if
any, on debt (as defined above), whether incurred on or prior to the date of
the junior subordinated indenture or created later, unless, in the instrument
creating or evidencing the same or pursuant to which the same is outstanding,
it is provided that the obligations are not superior in right of payment to the
junior subordinated debt securities or to other debt that is equal with, or
subordinated to, the junior subordinated debt securities. Senior debt will not
include any debt (as defined above) that, when incurred and without respect to
any election under Section 1111(b) of the Bankruptcy Reform Act of 1978, was
without recourse to us, debt to any of our employees, and the junior
subordinated debt securities.
"Senior indebtedness" means the principal of, and premium, if any, and
interest on all indebtedness for borrowed money, whether incurred on or prior
to the date of the senior subordinated indenture or incurred later, excluding
(i) the subordinated debt securities, (ii) obligations that by their terms are
not superior in right of payment to the senior subordinated securities or to
other indebtedness that is equal with, or subordinated to, the senior
subordinated securities and (iii) any deferrals, renewals or extensions of any
indebtedness for money borrowed. The term "indebtedness for money borrowed" as
used in the prior sentence means any obligation of, or any obligation
guaranteed by, Lyondell for the repayment of borrowed money, whether or not
evidenced by bonds, debentures, notes or other written instruments, and any
deferred obligation for the payment of the purchase price of property or
assets.
Unless otherwise provided in the prospectus supplement, neither subordinated
indenture limits or prohibits the incurrence of additional senior debt or
senior indebtedness, either of which may include indebtedness that is senior to
the subordinated debt securities, but subordinate to other obligations of ours.
In connection with the future issuances of securities, the subordinated
indentures may be amended or supplemented to limit the amount of indebtedness
incurred by us.
The applicable prospectus supplement may further describe the provisions, if
any, applicable to the subordination of the subordinated debt securities of a
particular series.
Consolidation, Merger and Sale of Assets
Unless otherwise provided in the applicable prospectus supplement with
respect to any series of debt securities, the indentures will provide that we
will not, in any transaction or series of transactions, consolidate with or
merge into any person, or sell, convey, transfer or otherwise dispose of all or
substantially all of its assets to any person, unless:
. either (i) we shall be the continuing corporation or (ii) the person (if
other than Lyondell) formed by such consolidation or into which Lyondell
is merged, or to which such sale, lease, conveyance, transfer or other
disposition shall be made, is a corporation organized and validly
existing under the laws of the United States of America, any political
subdivision thereof or any state thereof or the District of Columbia, and
shall expressly assume, by a supplemental indenture, the due and punctual
payment of the principal of, premium, if any, and interest on and
additional amounts with respect to all the debt securities and the
performance of our covenants and obligations under the indenture and the
debt securities;
. immediately after giving effect to the transaction or series of
transactions, no default or event of default shall have occurred and be
continuing or would result from the transaction;
. we deliver to the applicable trustee an officer's certificate and an
opinion of counsel, each stating that the transaction and the
supplemental indenture comply with the applicable indenture; and
. we comply with any provisions provided for with respect to any series of
debt securities.
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Conversion or Exchange
If and to the extent indicated in the applicable prospectus supplement, the
debt securities of any series may be convertible or exchangeable into other
securities. The specific terms on which debt securities of any series may be so
converted or exchanged will be set forth in the applicable prospectus
supplement. These terms may include provisions for conversion or exchange,
either mandatory, at the option of the holder, or at our option, in which case
the number of shares of other securities to be received by the holders of debt
securities would be calculated as of a time and in the manner stated in the
applicable prospectus supplement.
Governing Law
The indentures, the guarantees and the debt securities will be governed by
and construed in accordance with the laws of the State of New York.
Regarding the Trustee
Each indenture will contain certain limitations on the right of the
applicable trustee, should it become a creditor of us, 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. Each trustee is permitted to
engage in other transactions. However, the trustee generally must eliminate any
conflicting interest it acquires or resign.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of Lyondell Chemical Company currently consists
of 250,000,000 shares of common stock, par value $1.00 per share, and
80,000,000 shares of preferred stock, par value $.01 per share. The following
summary description of our capital stock is qualified in its entirety by
reference to our certificate of incorporation, and our by-laws, each as
amended, copies of which have been filed as exhibits to Lyondell's Annual
Report on Form 10-K. You should read our certificate of incorporation and by-
laws as currently in effect for more details regarding the provisions we
describe below and for other provisions that may be important to you.
Common Stock
We are currently authorized to issue 250,000,000 shares of common stock, of
which 117,564,920 shares of common stock were outstanding at March 31, 2002.
Holders of our common stock are entitled:
. to receive any dividends as may from time to time be declared by our
board of directors;
. to one vote per share on all matters on which the holders of our common
stock are entitled to vote;
. to act by written consent in lieu of voting at a meeting of the holders
of our common stock; and
. to share ratably in all of our assets available for distribution to the
holders of our common stock, in the event of our liquidation, dissolution
or winding up.
The holders of a majority of the shares of common stock represented at a
meeting can elect all of the directors.
Shares of our common stock are not liable to further calls or assessments by
us for any of our liabilities that may be imposed on the holders of our common
stock under the laws of the State of Delaware, the state of our incorporation.
There are no preemptive rights for our common stock in our certificate of
incorporation.
The transfer agent, registrar and dividend disbursing agent for our common
stock is the American Stock Transfer & Trust Company.
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Preferred Stock
We are currently authorized to issue up to 80,000,000 shares of preferred
stock, $.01 par value per share. Our board of directors will specify the
precise characteristics of the preferred stock to be issued, in light of
current market conditions and the nature of specific transactions, and is not
required to solicit further authorization from the holders of our common stock
for any specific issue of preferred stock.
Our board of directors has adopted a policy providing that no future
issuance of preferred stock will be effected without the approval of the
holders of our common stock unless the board of directors (whose decision shall
be conclusive) determines in good faith:
. that the issuance is primarily for the purpose of facilitating a
financing, an acquisition or another proper corporate objective or
transaction; and
. that any anti-takeover effects of the issuance are not our primary
purpose for effecting such issuance.
Our board of directors will not amend or revoke this policy without giving
written notice to the holders of all outstanding shares of our stock. However,
no such amendment or revocation will be effective, without the approval of the
holders of our common stock, to permit a subsequent issuance of preferred stock
for the primary purpose of obstructing a takeover of Lyondell by any person who
has, prior to such written notice to stockholders, notified the board of
directors of its desire to pursue a takeover of Lyondell.
The prospectus supplement will describe the terms of any preferred stock we
offer, including without limitation the specific designation, number of shares,
liquidation preference, maturity (if any), redemption or repurchases
provisions, dividend rates and payment dates, voting rights, whether
convertible or exchangeable into other securities and any other rights,
preferences, privileges, limitations and restrictions.
Rights to Purchase Common Stock
On December 8, 1995, our board of directors declared a dividend of one right
for each outstanding share of our common stock, par value $1.00 per share, to
the holders of our common stock of record at the close of business on December
20, 1995. Each right entitles the registered holder to purchase from us one
share of our common stock at a purchase price of $80.00 per share of common
stock, subject to adjustment. The description and terms of the rights are set
forth in a Rights Agreement dated as of December 8, 1995 as it may from time to
time be supplemented or amended between Lyondell and The Bank of New York, as
Rights Agent.
Initially, the rights will be attached to all certificates representing
outstanding shares of common stock and no separate certificates for the rights
will be distributed. The rights will separate from our common stock and a
"distribution date" will occur, with certain exceptions, upon the earlier of:
. ten days following a public announcement of the existence of an
"Acquiring Person"; or
. ten business days following the commencement of a tender offer or an
exchange offer that would result in a person becoming an Acquiring
Person.
An "Acquiring Person" is any person or group of affiliated or associated
persons that has acquired or obtained the right to acquire beneficial ownership
of 15 percent or more of the outstanding shares of our common stock, except
that ARCO will not be or become an Acquiring Person unless and until such time
as ARCO or any person affiliated or associated with ARCO acquires or becomes
the beneficial owner of (or ARCO becomes affiliated or associated with any
person who, collectively with ARCO, is the beneficial owner of) more than the
lesser of:
. 1,000,000 shares of our common stock in addition to those ARCO
beneficially owned as of December 8, 1995 (or in addition to any lesser
number of shares ARCO beneficially owns from time to time thereafter); or
. one share less than 50 percent of the shares of our common stock
outstanding at any time.
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In certain circumstances prior to the time a person has become an Acquiring
Person, the distribution date may be deferred by our board of directors.
Certain inadvertent acquisitions will not result in a person's becoming an
Acquiring Person if the person promptly divests itself of a sufficient amount
of our common stock. Until the distribution date:
. the rights will be evidenced by the common stock certificates (together
with this summary of the rights or bearing the notation referred to
below) and will be transferred with and only with our common stock
certificates;
. new common stock certificates issued after December 20, 1995 will contain
a notation incorporating the rights agreement by reference; and
. the surrender for transfer of any certificate for our common stock (with
or without a copy of this summary of the rights) will also constitute the
transfer of the rights associated with the common stock represented by
such certificate.
The rights are not exercisable until the distribution date and will expire at
the close of business on December 8, 2005, unless earlier redeemed or exchanged
by us as described below.
In the event (a "Flip-In Event") that a person becomes an Acquiring Person
(except pursuant to a tender or an exchange offer for all outstanding shares of
our common stock at a price and on terms that a majority of our independent
directors determines to be fair to and otherwise in the best interests of us
and our stockholders (a "Permitted Offer")), each holder of a right will
thereafter have the right to receive, upon exercise of such right, a number of
shares of our common stock (or, in certain circumstances, cash, property or
other securities of Lyondell) having a current market price (as defined in the
rights agreement) equal to two times the exercise price of the right.
Notwithstanding the foregoing, following the occurrence of any Flip-In Event,
all rights that are, or (under certain circumstances specified in the rights
agreement) were, beneficially owned by or transferred to such Acquiring Person
(or by certain related parties) will be null and void in the circumstances set
forth in the rights agreement.
In the event (a "Flip-Over Event") that, at any time from and after the time
an Acquiring Person becomes such, (i) we are acquired in a merger or other
business combination transaction (other than certain mergers that follow a
Permitted Offer), or (ii) 50 percent or more of our assets or earning power is
sold or transferred, each holder of a right (except rights owned by such
Acquiring Person or certain related parties) shall thereafter have the right to
receive, upon exercise, a number of shares of common stock of the acquiring
company having a current market price equal to two times the exercise price of
the right.
At any time until the time a person becomes an Acquiring Person, we may
redeem the rights in whole, but not in part, at a price of $.0005 per right,
payable, at our option, in cash, shares of our common stock or such other
consideration as the board of directors may determine. At any time after the
occurrence of a Flip-In Event and prior to the occurrence of a Flip-Over Event
or a person becoming the beneficial owner of 50 percent or more of the shares
of our common stock then outstanding, we may exchange the rights (other than
rights owned by an Acquiring Person or an affiliate or an associate of an
Acquiring Person, which will have become void), in whole or in part, at an
exchange ratio of one share of our common stock, and/or other equity securities
deemed to have the same value as one share of our common stock, per right,
subject to adjustment.
Until a right is exercised, the holder thereof, as such, will have no rights
as a stockholder of Lyondell, including, without limitation, the right to vote
or to receive dividends. While the distribution of the rights should not be
taxable to stockholders or to us, stockholders may, depending upon the
circumstances, recognize taxable income in the event that the rights become
exercisable for our common stock (or other consideration) or for the common
stock of the acquiring company as set forth above or are exchanged as provided
in the preceding paragraph.
30
The purchase price payable, and the number of shares of our common stock or
other securities or property issuable, upon exercise of the rights are subject
to adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, our common
stock, (ii) if holders of our common stock are granted certain rights or
warrants to subscribe for our common stock or securities convertible into our
common stock at less than the current market price of our common stock or (iii)
upon the distribution to holders of our common stock of evidences of
indebtedness or assets (excluding regular quarterly cash dividends) or of
subscription rights or warrants (other than those referred to above).
Other than the redemption price, any of the provisions of the rights
agreement may be amended by our board of directors as long as the rights are
redeemable. Thereafter, the provisions of the rights agreement (other than the
redemption price) may be amended by the board of directors in order to cure any
ambiguity, defect or inconsistency, to make changes that do not materially
adversely affect the interests of holders of rights (excluding the interests of
any Acquiring Person), or to shorten or lengthen any time period under the
rights agreement; provided, however, that no amendment to lengthen the time
period governing redemption or amendment shall be made at such time as the
rights are not redeemable.
The rights have certain antitakeover effects. The rights will cause
substantial dilution to a person or group that attempts to acquire us on terms
not approved by our board of directors, except pursuant to an offer conditioned
on a substantial number of rights being acquired. The rights should not
interfere with any merger or other business combination approved by the board
of directors at a time when the rights are redeemable.
A copy of the rights agreement has been filed as an exhibit to our Annual
Report on Form 10-K. This summary description of the rights is qualified in its
entirety by reference thereto.
Voting Rights
Each holder of shares of our common stock, except where otherwise provided
by law or our certificate of incorporation, is entitled to one vote, in person
or by proxy, for each share of common stock standing in his, her or its name on
our books. Our common stock does not have cumulative voting rights. Holders of
any of our preferred stock, if any, will be entitled to vote upon the election
of directors or upon any questions affecting us only if and to the extent that
the holders of any series of our preferred stock are granted voting rights
fixed for such series by our board of directors in the resolution creating such
series.
Delaware Section 203
We are a Delaware corporation and are subject to Section 203 of the General
Corporation Law of Delaware. In general, Section 203 prevents an "interested
stockholder" (defined generally as a person owning 15 percent or more of our
outstanding voting stock) from engaging in a "business combination" (as defined
in Section 203) with us for three years following the time that person becomes
an interested stockholder unless (i) before that person became an interested
stockholder, our board of directors approved the transaction in which the
interested stockholder became an interested stockholder or approved the
business combination, (ii) upon completion of the transaction that resulted in
the interested stockholder's becoming an interested stockholder, the interested
stockholder owns at least 85 percent of our voting stock outstanding at the
time the transaction commenced (excluding stock held by directors who are also
officers of Lyondell and by employee stock plans that do not provide employees
with the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or an exchange offer) or (iii) at the time of
or subsequent to the transaction in which that person became an interested
stockholder, the business combination is approved by our board of directors and
authorized at a meeting of stockholders by the affirmative vote of the holders
of at least two-thirds of our outstanding voting stock not owned by the
interested stockholder.
Under Section 203, these restrictions also do not apply to certain business
combinations proposed by an interested stockholder following the announcement
or notification of one of certain extraordinary transactions involving Lyondell
and a person who was not an interested stockholder during the previous three
years or who
31
became an interested stockholder with the approval of a majority of our
directors, if that extraordinary transaction is approved or not opposed by a
majority of the directors who were directors before any person became an
interested stockholder in the previous three years or who were recommended for
election or elected to succeed such directors by a majority of such directors.
Limitation on Directors' Liability
Delaware law authorizes corporations to limit or eliminate the personal
liability of directors to corporations and their stockholders for monetary
damages for breach of directors' fiduciary duty of care. Our certificate of
incorporation limits the liability of our directors to us or the holders of our
common stock to the fullest extent permitted by Delaware law. Specifically, a
director will not be personally liable for monetary damages for breach of a
director's fiduciary duty as a director, except for the following liabilities:
. for any breach of the director's duty of loyalty to us or the holders of
our common stock;
. for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. for unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the General Corporation Law of
Delaware; or
. for any transaction from which the director derived an improper personal
benefit.
The inclusion of this provision in our certificate of incorporation may have
the effect of reducing the likelihood of derivative litigation against
directors and may discourage or deter stockholders or management from bringing
a lawsuit against directors for breach of their duty of care, even though such
an action, if successful, might otherwise have benefited us and the holders of
our common stock.
Provisions of Lyondell's By-Laws
Certain provisions of our by-laws establish time periods during which
appropriate stockholder proposals must be delivered to us for consideration at
special and annual meetings called by us. Our by-laws provide, among other
things, that stockholders making nominations for our board of directors at, or
bringing other business before, an annual or a special meeting of stockholders
must provide timely written notice to us thereof, timely notice being required
to be no later than 90 days in advance of the meeting. However, if the date of
the meeting was not publicly announced by a mailing to stockholders, in a press
release reported by the Dow Jones News Services, Associated Press or comparable
national news service or in a filing with the SEC pursuant to Section 13, 14 or
15(d) of the Securities Exchange Act of 1934 more than 90 days prior to the
meeting, such notice, to be timely, must be delivered to our board of directors
not later than the close of business on the tenth day following the day on
which the date of the meeting was first so publicly announced.
Limitation on Changes in Control
The rights and rights agreement, certain provisions of our by-laws and the
provisions of Section 203 of the General Corporation Law of Delaware could have
the effect of delaying, deferring or preventing a change in control of
Lyondell. This could be the case, notwithstanding that a majority of the
stockholders might benefit from such a change in control or offer.
32
MARKET FOR COMMON STOCK AND COMMON STOCK DIVIDENDS
Our common stock is listed on the New York Stock Exchange under the symbol
"LYO." The reported high and low sales prices of our common stock on the New
York Stock Exchange (New York Stock Exchange Composite Tape) for each quarter
from January 1, 2000 through March 31, 2002, inclusive, were as set forth
below.
Period High Low
------ ------ -------
2000:
First Quarter.................................................. 14.875 8.4375
Second Quarter................................................. 19.500 13.5000
Third Quarter.................................................. 17.750 11.0000
Fourth Quarter................................................. 16.750 11.3125
2001:
First Quarter.................................................. 17.950 12.625
Second Quarter................................................. 17.650 13.940
Third Quarter.................................................. 15.400 9.450
Fourth Quarter................................................. 15.930 10.900
2002:
First Quarter.................................................. 17.590 12.070
Second Quarter (through May 14, 2002).......................... 17.140 14.180
During the last two years, Lyondell has declared $.225 per share quarterly
cash dividends (which were paid in the subsequent quarter). On May 2, 2002 our
Board of Directors declared a dividend of $.225 per share for the second
quarter of 2002, payable June 17, 2002. The declaration and payment of
dividends is at the discretion of our board of directors. The future
declaration and payment of dividends and the amount of the dividend will be
dependent upon Lyondell's results of operations, financial condition, cash
position and requirements, investment opportunities, future prospects,
contractual restrictions and other factors deemed relevant by our board of
directors. Subject to these considerations and to the legal considerations
discussed in the following paragraph, we currently intend to distribute to our
holders of common stock cash dividends on our common stock at a quarterly rate
of $.225 per share. During 2001, we paid $106 million in dividends. During the
first quarter of 2002, we paid $26 million in dividends.
Lyondell's credit facilities and indentures limit Lyondell's ability to pay
dividends under certain circumstances. In addition, pursuant to a settlement
agreement entered into with the Pension Benefit Guaranty Corporation in 1998,
Lyondell may not pay extraordinary dividends (as defined by regulations under
the Employee Retirement Income Security Act of 1974, as amended) without
providing a letter of credit meeting certain specified requirements. In
February 2002, Lyondell provided a letter of credit meeting these requirements.
33
DESCRIPTION OF WARRANTS
We may issue warrants to purchase debt securities, common stock, preferred
stock or other securities. We may issue warrants independently or together with
other securities. Warrants sold with other securities may be attached to or
separate from the other securities. We will issue warrants under one or more
warrant agreements between us and a warrant agent that we will name in the
prospectus supplement. The prospectus supplement relating to any warrants we
offer will include specific terms relating to the offering. The terms will
include some or all of the following:
. the title of the warrants;
. the aggregate number of warrants offered;
. the designation, number and terms of the debt securities, common stock,
preferred stock or other securities purchasable upon exercise of the
warrants and procedures by which those numbers may be adjusted;
. the exercise price of the warrants;
. the dates or periods during which the warrants are exercisable;
. the designation and terms of any securities with which the warrants are
issued;
. if the warrants are issued as a unit with another security, the date on
and after which the warrants and the other security will be separately
transferable;
. if the exercise price is not payable in U.S. dollars, the foreign
currency, currency unit or composite currency in which the exercise price
is denominated;
. any minimum or maximum amount of warrants that may be exercised at any
one time;
. any terms relating to the modification of the warrants; and
. any terms, procedures and limitations relating to the transferability,
exchange or exercise of the warrants.
The description in the prospectus supplement will not necessarily be
complete, and reference will be made to the warrant agreements, which will be
filed with the SEC.
DESCRIPTION OF STOCK PURCHASE CONTRACTS AND SECURITIES PURCHASE UNITS
We may issue stock purchase contracts, including contracts obligating
holders to purchase from us, and us to sell to the holders, a specified number
of shares of common stock at a future date or dates. The price per share of
common stock and number of shares of common stock may be fixed at the time the
stock purchase contracts are issued or may be determined by reference to a
specific formula set forth in the stock purchase contracts. The stock purchase
contracts may be issued separately or as a part of securities purchase units
consisting of a stock purchase contract and either (i) our debt securities or
(ii) debt obligations of third parties, including U.S. Treasury securities,
which will secure the holders' obligations to purchase the common stock under
the stock purchase contracts. The stock purchase contracts may require holders
to secure their obligations thereunder in a specified manner. The stock
purchase contracts also may require us to make periodic payments to the holders
of the securities purchase units or vice versa and such payments may be
unsecured or prefunded on some basis.
The prospectus supplement will describe the terms of any stock purchase
contracts or securities purchase units. The description in the prospectus
supplement will not necessarily be complete, and reference will be made to the
stock purchase contracts, and, if applicable, collateral or depositary
arrangements, relating to the stock purchase contracts or securities purchase
units. Material United States federal income tax considerations applicable to
the securities purchase units and the stock purchase contracts will also be
discussed in the applicable prospectus supplement.
34
PLAN OF DISTRIBUTION
We may sell the offered securities in and outside the United States through
underwriters or dealers, directly to purchasers, including our affiliates,
through agents or through a combination of any of these methods. The prospectus
supplement will include the following information:
. the terms of the offering;
. the names of any underwriters, dealers or agents, and the respective
amounts of securities underwritten or purchased by each of them;
. the name or names of any managing underwriter or underwriters;
. the purchase price of the securities from us;
. the net proceeds to us from the sale of the securities;
. any delayed delivery arrangements;
. any underwriting discounts, commissions and other items constituting
underwriters' compensation;
. any initial public offering price;
. any discounts or concessions allowed or reallowed or paid to dealers; and
. any commissions paid to agents.
Sale through Underwriters or Dealers
If we use underwriters in the sale, the underwriters will acquire the
securities for their own account. The underwriters may resell the securities
from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices determined
at the time of sale. Underwriters may offer securities to the public either
through underwriting syndicates represented by one or more managing
underwriters or directly by one or more firms acting as underwriters. Unless we
inform you otherwise in the prospectus supplement, the obligations of the
underwriters to purchase the securities will be subject to certain conditions,
and the underwriters will be obligated to purchase all the offered securities
if they purchase any of them. The underwriters may change from time to time any
initial public offering price and any discounts or concessions allowed or
reallowed or paid to dealers.
During and after an offering through underwriters, the underwriters may
purchase and sell the securities in the open market as may be further described
in any prospectus supplement. These transactions may include overallotment and
stabilizing transactions and purchases to cover syndicate short positions
created in connection with the offering. The underwriters may also impose a
penalty bid, which means that selling concessions allowed to syndicate members
or other broker-dealers for the offered securities sold for their account may
be reclaimed by the syndicate if the offered securities are repurchased by the
syndicate in stabilizing or covering transactions. These activities may
stabilize, maintain or otherwise affect the market price of the offered
securities, which may be higher than the price that might otherwise prevail in
the open market. If commenced, the underwriters may discontinue these
activities at any time.
If we use dealers in the sale of securities, we will sell the securities to
them as principals. They may then resell those securities to the public at
varying prices determined by the dealers at the time of resale. We will include
in the prospectus supplement the names of the dealers and the terms of the
transaction.
Direct Sales and Sales through Agents
We may sell the securities directly. In this case, no underwriters or agents
would be involved. We may also sell the securities through agents we designate
from time to time. In the prospectus supplement, we will name any agent
involved in the offer or sale of the offered securities, and we will describe
any commissions payable
35
by us to the agent. Unless we inform you otherwise in the prospectus
supplement, any agent will agree to use its reasonable best efforts to solicit
purchases for the period of its appointment. We may sell the securities
directly to institutional investors or others who may be deemed to be
underwriters within the meaning of the Securities Act of 1933 with respect to
any sale of those securities. We will describe the terms of any such sales in
the prospectus supplement.
Delayed Delivery Contracts
If we so indicate in the prospectus supplement, we may authorize agents,
underwriters or dealers to solicit offers from certain types of institutions to
purchase securities from us at the public offering price under delayed delivery
contracts. These contracts would provide for payment and delivery on a
specified date in the future. The contracts would be subject only to those
conditions described in the prospectus supplement. The prospectus supplement
will describe the commission payable for solicitation of those contracts.
GENERAL INFORMATION
We may have agreements with the agents, dealers and underwriters to
indemnify them against certain civil liabilities, including liabilities under
the Securities Act of 1933, or to contribute with respect to payments that the
agents, dealers or underwriters may be required to make. Agents, dealers and
underwriters may be customers of, engage in transactions with or perform
services for us in the ordinary course of their businesses.
LEGAL OPINIONS
Except as set forth in the applicable prospectus supplement, Baker Botts
L.L.P., Houston, Texas, will issue an opinion about the legality of any debt
securities (whether secured or unsecured or senior or subordinated), common
stock, preferred stock, warrants, stock purchase contracts, securities purchase
units or guarantees we offer through this prospectus. Any underwriters will be
advised about issues relating to any offering by their own legal counsel.
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.
36
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the SEC. You can read and copy any materials we file with the
SEC at the SEC's public reference room at 450 Fifth Street, N.W., Washington,
D.C. 20549. You can obtain information about the operation of the SEC's public
reference room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a
web site that contains information we file electronically with the SEC, which
you can access over the Internet at http://www.sec.gov, and our electronic 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. You can also
obtain information about us at the offices of the New York Stock Exchange, 20
Broad Street, New York, New York 10005.
This prospectus is part of a registration statement we have filed with the
SEC relating to the securities. This prospectus does not contain all the
information the registration statement sets forth or includes in its exhibits
and schedules, in accordance with the rules and regulations of the SEC, and we
refer you to that omitted information. The statements this prospectus makes
pertaining to the content of any contract, agreement or other document that is
an exhibit to the registration statement necessarily are summaries of their
material provisions, and we qualify them in their entirety by reference to
those exhibits for complete statements of their provisions. The registration
statement and its exhibits and schedules are available at the SEC's public
reference room or through its Web site.
The SEC allows us to incorporate by reference the information we file with
it, which means we can disclose important information to you by referring you
to those documents. The information we incorporate by reference is an important
part of this prospectus, and later information we file with the SEC will
automatically update and supersede that information. We incorporate by
reference the documents listed below, and any future filings we make with the
SEC under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of
1934 until we sell all the offered securities. The documents we incorporate by
reference are:
. our annual report on Form 10-K for the year ended December 31, 2001;
. our quarterly report on Form 10-Q for the quarter ended March 31, 2002;
. our current report on Form 8-K filed on January 11, 2002;
. the description of the common stock, par value $1.00 per share, of
Lyondell contained in Lyondell's registration statement on Form 8-A dated
December 16, 1988, as such registration statement may be amended from
time to time for the purpose of updating, changing or modifying such
description; and
. the description of the rights to purchase common stock contained in
Lyondell's registration statement on Form 8-A dated December 12, 1995, as
such registration statement may be amended from time to time for the
purpose of updating, changing or modifying such description.
We will provide without charge to each person, including any beneficial
owner, to whom a copy of this prospectus has been delivered, upon written or
oral request, a copy of any or all the documents we incorporate by reference in
this prospectus, other than any exhibit to any of those documents, unless we
have specifically incorporated that exhibit by reference into the information
this prospectus incorporates. You may request copies by writing or telephoning
us at the following address:
Lyondell Chemical Company
1221 McKinney Street, Suite 700
Houston, Texas 77010
Attention: Investor Relations
Telephone: (713) 652-7200
You should rely only on the information we have provided or incorporated by
reference in this prospectus or any prospectus supplement. We have not
authorized any person to provide information other than that provided in this
prospectus or any prospectus supplement. We have not authorized anyone to
provide you with different information. We are not making an offer of the
securities in any jurisdiction where the offer is not
37
permitted. You should not assume that the information in this prospectus or any
prospectus supplement is accurate as of any date other than the date on its
cover page or that any information contained in any document we have
incorporated by reference is accurate as of any date other than the date of the
document incorporated by reference. Accordingly, we urge you to review each
document we subsequently file with the SEC and incorporate by reference as we
describe above for updated information.
38
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$275,000,000
Lyondell Chemical Company
[Lyondell Logo] % Senior Secured Notes due 2012
-----------------------------
PROSPECTUS SUPPLEMENT
June , 2002
-----------------------------
Salomon Smith Barney
Banc of America Securities LLC
JPMorgan
Credit Suisse First Boston
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