NOTICE:
The preliminary proxy materials filed on July 11, 2002 are identical in every
respect to the preliminary proxy materials filed by Lyondell Chemical Company on
June 11, 2002. The June 11, 2002 preliminary proxy materials are being re-filed
upon the advise of the Securities and Exchange Commission solely for the purpose
of facilitating payment of the filing fee required by Rule 14a-6(i)(1) under the
Exchange Act.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, For Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Under 14a-12
LYONDELL CHEMICAL COMPANY
(Name of Registrant as Specified in its Charter)
--------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
Series B Common Stock, par value $1.00 per share, of Lyondell Chemical
Company and Common Stock, par value $1.00 per share, of Lyondell
Chemical Company.
(2) Aggregate number of securities to which transaction applies: Between 30
million and 34 million shares of Series B Common Stock of Lyondell
Chemical Company, to be determined at the closing of the transaction by
reference to the stock price of the Registrant's Common Stock, a
warrant to purchase 5 million shares of Common Stock of Lyondell
Chemical Company, subject to adjustment, and additional shares of
Common Stock of Lyondell Chemical Company equivalent in value to up to
$35 million that may be issued as a contingent payment.
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
$440,000,000, representing the cash to be received at the closing by
the Registrant.
(4) Proposed maximum aggregate value of transaction: $440,000,000.
(5) Total fee paid: $40,480.
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No:
(3) Filing Party:
(4) Date Filed:
Preliminary Copy dated June , 2002, subject to completion
[LOGO] LYONDELL
LYONDELL
CHEMICAL
COMPANY
Notice of
Special Meeting
of Shareholders
to be held
on , 2002
and Proxy Statement
YOUR VOTE IS VERY IMPORTANT!
PLEASE RETURN
YOUR PROXY PROMPTLY
Lyondell Chemical Company
1221 McKinney Street, Suite 700
Houston, Texas 77010
, 2002
Dear Shareholder:
On , 2002, Lyondell entered into a securities purchase agreement
with a subsidiary of Occidental Petroleum Corporation under which Lyondell
agreed to sell to the Occidental subsidiary between 30 and 34 million shares of
a new series of common stock, plus warrants and the right to receive a
contingent payment. Lyondell will use the cash proceeds from the sale to
purchase from other subsidiaries of Occidental a 29.5% interest in Equistar
Chemicals, LP, increasing Lyondell's interest in Equistar to 70.5%. A Special
Meeting of Shareholders will be held on , , 2002, beginning at
9:00 a.m. in Lyondell's General Assembly Room, 42nd Floor, One Houston Center,
1221 McKinney, in Houston, Texas, to consider and approve the proposals
described in the attached Proxy Statement, both of which are made in connection
with Lyondell's sale of securities to the Occidental subsidiary.
This booklet includes the Notice of Special Meeting of Shareholders and the
Proxy Statement, which contains detailed information about the Special Meeting
and the formal business to be acted upon by the shareholders. In addition, you
may obtain information about Lyondell from documents that Lyondell has filed
with the Securities and Exchange Commission. We encourage you to read all of
this information carefully.
Your vote is important. Shareholder approval of the proposals described in
the Proxy Statement is a condition to the sale of securities to the Occidental
subsidiary. Lyondell's Board of Directors unanimously recommends that you vote
FOR each proposal contained in the Proxy Statement. An abstention from voting on
either or both of the proposals will have the same effect as a vote against that
proposal.
Whether or not you plan to attend the Special Meeting in person, please
vote as soon as possible. You may vote over the Internet, by telephone or by
mailing a traditional proxy card. Please either sign, date and return the
enclosed proxy card in the enclosed postage-paid envelope or instruct us over
the Internet or by telephone as to how you would like your shares voted. Voting
over the Internet, by telephone or by written proxy will ensure your
representation at the Special Meeting if you do not attend in person.
Instructions on how to vote your shares over the Internet, by telephone or by
written proxy are on the proxy card enclosed with the Proxy Statement.
On behalf of the Board of Directors, thank you for your continued support
of, and interest in, Lyondell Chemical Company.
Sincerely yours,
Dan F. Smith
President and Chief Executive Officer
Lyondell Chemical Company
Notice of Special Meeting of Shareholders
, 2002
To the Shareholders:
A Special Meeting of Shareholders of Lyondell Chemical Company will be held
in Lyondell's General Assembly Room, 42nd Floor, One Houston Center, 1221
McKinney, in Houston, Texas, at 9:00 a.m. on , , 2002, for the
following purposes, as more fully described in the attached Proxy Statement:
(1) To consider and approve a proposal to amend and restate Lyondell's
Certificate of Incorporation to: (a) create a new series of common
stock, designated as "Series B Common Stock," par value $1.00 per
share; (b) 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 "Original Common Stock," and (2) 80 million shares of Series B
Common Stock; (c) establish the relative powers, preferences, rights,
qualifications, limitations and restrictions of Original Common Stock
and Series B Common Stock; and (d) delete Article VIII (Relations with
Substantial Stockholder) in its entirety. The proposed amendments will
not change the number of authorized shares of preferred stock, which
is 80 million.
Note: Lyondell cannot proceed with proposal 2 below if proposal 1 is
not approved.
(2) To consider and approve a proposal for the issuance and sale to a
subsidiary of Occidental Petroleum Corporation for $440 million, of:
(a) between 30 and 34 million shares of Series B Common Stock; (b)
five-year warrants exercisable for the purchase of five million shares
of Original Common Stock; and (c) the right to receive a contingent
payment having a value up to $35 million, payable in cash or shares of
Original Common Stock or Series B Common Stock, as determined by
Lyondell, that will be equivalent in value to 7.38% of the cash
distributions by Equistar Chemicals, LP on its existing ownership
units for 2002 and 2003. Approval of the issuance and sale of the
foregoing also constitutes approval of the issuance of additional
securities in the future as contemplated by the terms of those
securities and the right to receive the contingent payment. The shares
being sold to the Occidental subsidiary will represent in the
aggregate more than 20% of the issued and outstanding shares of
Lyondell common stock.
(3) To transact any other business as may properly come before the meeting
or any adjournment or postponement thereof.
Shareholders of record at the close of business on , 2002 will be
entitled to notice of and to vote at the meeting and any adjournment or
postponement thereof.
Please read the Proxy Statement. Then, please submit a proxy as soon as
possible so that your shares can be voted at the meeting in accordance with your
instructions. You may submit your proxy (1) over the Internet, (2) by telephone
or (3) by mail. For specific instructions regarding submitting a proxy, please
see the instructions on the enclosed proxy card.
BY ORDER OF THE BOARD OF DIRECTORS,
Kerry A. Galvin Houston, Texas
Secretary ,2002
Lyondell Chemical Company
1221 McKinney Street
Suite 700
Houston, Texas 77010
PROXY STATEMENT
FOR THE SPECIAL MEETING OF SHAREHOLDERS
, 2002
The accompanying proxy is solicited by the Board of Directors of Lyondell
Chemical Company from holders of Lyondell common stock for use at the Special
Meeting of Shareholders to be held at the time and place and for the purposes
set forth in the accompanying notice. This Proxy Statement is first being mailed
to shareholders on or about , 2002.
At the Special Meeting, shareholders will be asked to consider and vote
upon proposals to (1) amend and restate Lyondell's Certificate of Incorporation
and (2) issue and sell to Occidental Chemical Holding Corporation, referred to
as "OCHC," shares of a new series of common stock, five-year warrants
exercisable for the purchase of common stock, and the right to receive a
contingent payment having a value up to $35 million, payable in cash or shares
of any series of Lyondell common stock, as determined by Lyondell. OCHC is a
subsidiary of Occidental Petroleum Corporation, referred to as "Occidental." The
shares being sold to OCHC will represent in the aggregate more than 20% of the
outstanding shares of Lyondell common stock.
Lyondell's Board of Directors has fixed the close of business on , 2002
as the record date for the Special Meeting. Only holders of record on that date
are entitled to vote at the Special Meeting and any adjournment or postponement
thereof. On the record date, there were outstanding and entitled to vote
approximately 117,564,920 shares of Lyondell common stock.
As described on the enclosed proxy card, you may submit your proxy (1) over
the Internet, (2) by telephone or (3) by mail. Votes submitted over the Internet
or by telephone must be received by 11:59 p.m. Eastern Time on , 2002.
Internet and telephone voting are available 24 hours a day. If you vote over the
Internet or by telephone, you do not need to return a written proxy card.
When a proxy is returned properly dated and signed (or is submitted over
the Internet or by telephone) and includes voting instructions, the shares
represented by that proxy will be voted by the persons named as proxies as
directed by the shareholder submitting the proxy. If a proxy is dated, signed
and returned (or submitted over the Internet or by telephone) but does not
include voting instructions, the shares will be voted as recommended by the
directors of Lyondell. As to other items of business that may properly come
before the meeting or any adjournment or postponement thereof, the persons named
in the accompanying form of proxy will vote in accordance with their best
judgment.
Your proxy may be revoked at any time before it is voted at the Special
Meeting by (1) written notice to the Secretary of Lyondell at the address shown
above, (2) submitting another proxy over the Internet, by phone or by mail, or
(3) voting in person at the Special Meeting.
Lyondell's Board of Directors, after careful consideration, has unanimously
determined that the proposed Amended and Restated Certificate of Incorporation
and the proposed sale of Lyondell securities to OCHC are in the best interests
of Lyondell and has unanimously approved and declared advisable both proposals.
Lyondell's Board of Directors unanimously recommends that the shareholders vote
FOR adoption of both proposals at the Special Meeting.
SUMMARY TERM SHEET FOR THE PROPOSALS
This summary term sheet for the proposals highlights selected information
from this Proxy Statement regarding the proposals and may not contain all of the
information that is important to you as a Lyondell shareholder. Accordingly, we
encourage you to carefully read this entire document and the documents to which
we have referred you.
The Proposals
You are being asked to consider and vote upon proposals (a) to amend and
restate Lyondell's Certificate of Incorporation and (b) for Lyondell to issue
and sell to OCHC, for $440 million, securities and the right to receive a
contingent payment. The amended and restated Certificate of Incorporation will
establish a new series of common stock, designated as "Series B Common Stock,"
shares of which will be issued and sold to OCHC pursuant to a Securities
Purchase Agreement dated , 2002 between Lyondell and OCHC. The proceeds
from the sale of those shares plus warrants and the right to receive a
contingent payment will be used to finance Lyondell's purchase of an additional
29.5% interest in Equistar Chemicals, LP from other wholly owned subsidiaries of
Occidental, referred to as the "Oxy Equistar Interest," increasing Lyondell's
interest in Equistar to 70.5%.
Amendment and Restatement of Lyondell's Certificate of Incorporation (Pages 19
through 25 and Annex A)
In connection with the sale of securities to OCHC, Lyondell seeks to amend
and restate 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 "Original
Common Stock," and (2) 80 million shares of Series B Common Stock;
. establish the relative powers, preferences, rights, qualifications,
limitations and restrictions of the Original Common Stock and Series B
Common Stock; and
. delete Article VIII (Relations with Substantial Stockholder) in its
entirety.
Key Terms of the Series B Common Stock (Pages 22 through 25). The principal
difference between Series B Common Stock and Original Common Stock is 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.
This right will continue until shares of the Series B Common Stock are converted
into shares of Original Common Stock, which, in the case of the shares of Series
B Common Stock issued to OCHC, is expected to occur three years after issuance
and perhaps earlier. Otherwise, the terms of the Series B Common Stock are
substantially the same as those of the Original Common Stock.
Sale of Securities to OCHC (Pages 26 through 35)
Principal Terms. In the Securities Purchase Agreement, Lyondell has agreed
to sell to OCHC for $440 million:
. between 30 and 34 million shares of Series B Common Stock, depending
on the market price of the Original Common Stock at the time of
closing;
. five-year warrants exercisable for the purchase of five million shares
of Original Common Stock, referred to as the "Warrants;" and
. the right to receive a contingent payment having a value up to $35
million, payable in cash or shares of Original 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.
ii
The shares of Series B Common Stock, the Warrants and the right to receive
a contingent payment are referred to collectively as the "Securities." The
proceeds from the sale of the Securities to OCHC will be used to finance
Lyondell's purchase of the Oxy Equistar Interest.
Conditions to Closing. The Securities Purchase Agreement contains several
conditions to closing, including the following:
. approval by Lyondell's shareholders of the amendment to Lyondell's
charter and the issuance of the securities to OCHC;
. expiration or termination of the waiting period for closing the
transaction required under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, referred to as the "HSR Act";
. the absence of any material injunction or legal proceeding; and
. the absence of any material adverse change in the business or
financial condition of Lyondell between the date Lyondell executed the
Securities Purchase Agreement and the closing date.
The Stockholders Agreement (Pages 29 through 31)
In connection with the Securities Purchase Agreement, Lyondell will enter
into a Stockholders Agreement with OCHC and Occidental. The principal terms of
the Stockholders Agreement include the following:
. restrictions on the conversion of Series B Common Stock into Original
Common Stock;
. restrictions on transfer of the Warrants and the shares of Original
Common Stock and Series B Common Stock issued in connection with the
Securities Purchase Agreement;
. standstill provisions restricting Occidental's ability to engage or
participate in specified change of control activities;
. 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
. Occidental's agreement to vote for the nominees to Lyondell's Board of
Directors that are proposed by the Board of Directors.
Purchase of Additional Interest in Equistar (Pages 33 through 35)
To consummate Lyondell's acquisition of the Oxy Equistar Interest, Lyondell
and subsidiaries of Occidental have entered into the Occidental Partner Sub
Purchase Agreement.
Purchase Price. Lyondell will pay an aggregate amount of $440.02 million
subsidiaries of Occidental to purchase the Oxy Equistar Interest.
Conditions to Closing. The Occidental Partner Sub Purchase Agreement
contains several conditions to closing, including,
. the closing of the Securities Purchase Agreement and Lyondell's
receipt of the purchase price thereunder from OCHC;
. expiration or termination of the waiting period under the HSR Act for
the transaction;
. the absence of any material injunction or legal proceeding; and
. the absence of any material adverse change in the business or
financial condition of Equistar or the Occidental subsidiaries that
are being acquired.
iii
Opinion of Credit Suisse First Boston Corporation (Pages 10 through 18 and
Annex B)
In connection with the proposed transactions, Lyondell's financial advisor,
Credit Suisse First Boston Corporation, delivered a written opinion to
Lyondell's Board of Directors as to the fairness to Lyondell, from a financial
point of view, of the "Consideration" to be paid by Lyondell for the Oxy
Equistar Interest, treating the transactions for purposes of the opinion as if
they were a single integrated transaction in which the Consideration was to be
exchanged for the Oxy Equistar Interest. The opinion uses the term
"Consideration" to refer collectively to the shares of Series B Common Stock,
the Warrants and the right to receive a contingent payment to be paid by
Lyondell for the Oxy Equistar Interest. The full text of Credit Suisse First
Boston's written opinion, dated May 2, 2002, is attached to this proxy statement
as Annex B. We encourage you to read this opinion carefully in its entirety for
a description of the procedures followed, assumptions made, matters considered
and limitations on the review undertaken. Credit Suisse First Boston's opinion
is addressed to Lyondell's Board of Directors and does not constitute a
recommendation to any shareholder as to any matter relating to the transactions.
Vote Required to Approve the Proposals (Pages 6, 25 and 35)
Approval of both of the proposals will require the vote of the holders of a
majority of the outstanding shares of Lyondell common stock entitled to vote on
these matters.
iv
TABLE OF CONTENTS
Page
----
QUESTIONS AND ANSWERS ABOUT THE PROPOSALS.............................................................. 1
THE SPECIAL MEETING.................................................................................... 5
Date, Time and Place of Special Meeting........................................................... 5
Proposals to be Considered at the Special Meeting................................................. 5
Record Date....................................................................................... 5
Voting Procedures................................................................................. 6
Votes Required for Adoption....................................................................... 6
BUSINESS OF LYONDELL AND EQUISTAR...................................................................... 7
Lyondell.......................................................................................... 7
Equistar.......................................................................................... 7
BACKGROUND AND RECOMMENDATION.......................................................................... 8
Background........................................................................................ 8
Reasons for the Proposals......................................................................... 9
Opinion of Credit Suisse First Boston Corporation................................................. 10
Recommendation.................................................................................... 18
PROPOSAL TO APPROVE THE AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION OF LYONDELL........................................................................... 19
Description of Proposed Amendments................................................................ 19
Purposes and Effects of the Proposed Amended and Restated Certificate of Incorporation............ 19
Anticipated Issuance of Series B Common Stock in Connection with the Sale of Securities to
OCHC........................................................................................... 21
Effects of Increase in Number of Authorized Shares................................................ 21
Description of Series B Common Stock.............................................................. 22
Summary Comparison of Original Common Stock and Series B Common Stock............................. 24
Required Vote and Board of Directors' Recommendation.............................................. 25
PROPOSAL TO APPROVE THE SALE OF SECURITIES TO OCHC..................................................... 26
Overview.......................................................................................... 26
Purchase Price under the Securities Purchase Agreement............................................ 26
Determining the Number of Shares of Series B Common Stock to be Issued at Closing of the
Securities Purchase Agreement.................................................................. 26
Potential Issuance of Additional Shares as a Contingent Payment................................... 27
Description of Warrants to be Issued at Closing of the Securities Purchase Agreement.............. 27
Effects of Issuance of Additional Common Stock.................................................... 28
Description of Stockholders Agreement............................................................. 29
Restrictions on Conversion of Shares of Series B Common Stock into Shares of Original
Common Stock................................................................................... 29
Restrictions on Transfer of Securities............................................................ 30
Standstill Agreement.............................................................................. 30
Governance Matters................................................................................ 31
Registration Rights............................................................................... 31
Delaware Section 203.............................................................................. 32
Closing Conditions under the Securities Purchase Agreement........................................ 32
Use of Proceeds from Sale of Securities........................................................... 33
Description of Occidental Partner Sub Purchase Agreement.......................................... 33
Regulatory Filings Required....................................................................... 34
Requirement for Shareholder Approval.............................................................. 34
Required Vote and Board of Directors' Recommendation.............................................. 35
v
Page
----
SELECTED FINANCIAL DATA........................................................................... 36
Selected Historical Financial Data of Lyondell............................................... 36
Selected Historical Financial Data of Equistar............................................... 37
UNAUDITED PRO FORMA FINANCIAL DATA OF LYONDELL.................................................... 38
PRINCIPAL SHAREHOLDERS............................................................................ 44
SECURITY OWNERSHIP OF MANAGEMENT.................................................................. 45
OTHER BUSINESS.................................................................................... 46
PROXY SOLICITATION................................................................................ 46
SHAREHOLDER PROPOSALS FOR 2003 ANNUAL MEETING AND DIRECTOR NOMINATIONS............................ 46
FORWARD-LOOKING STATEMENTS........................................................................ 47
WHERE YOU CAN FIND MORE INFORMATION............................................................... 47
ANNEXES:
Annex A Form of Amended and Restated Certificate of Incorporation of Lyondell
Chemical Company
Annex B Opinion of Credit Suisse First Boston Corporation
vi
QUESTIONS AND ANSWERS ABOUT THE PROPOSALS
This question-and-answer section highlights important information in this
Proxy Statement but does not contain all of the information that is important to
you. You should carefully read this entire Proxy Statement and the other
documents we refer you to for a more complete understanding of the matters being
considered at the Special Meeting. In addition, we incorporate by reference
important business and financial information about Lyondell and Equistar into
this Proxy Statement. You may obtain the information incorporated by reference
into this Proxy Statement without charge by following the instructions in the
section entitled "Where You Can Find More Information."
Q: When and where is the Special Meeting?
A: The Special Meeting is scheduled to be held as follows:
Date: , 2002
Time: 9:00 a.m. Houston time
Place: Lyondell's General Assembly Room,
42nd Floor, One Houston Center, 1221
McKinney, Houston, Texas 77010
Q: Who can vote at the Special Meeting?
A: You can vote at the Special Meeting or any postponement or adjournment
thereof if you own shares of Lyondell common stock at the close of business
on the record date, which is , 2002. As of the close of business on that
day, approximately 117,564,920 shares of Lyondell common stock were
outstanding and entitled to vote.
Q: What am I being asked to vote on?
A: You are being asked to vote to:
1) Approve an Amended and Restated Certificate of Incorporation of
Lyondell, which will contain the following amendments:
. creation of the Series B Common Stock;
. an increase in Lyondell's authorized common stock from 250 million
shares to 420 million shares, which will consist of (1) 340 million
shares of Original Common Stock and (2) 80 million shares of Series
B Common Stock
. deletion of Article VIII (Relations with Substantial Stockholder) in
its entirety.
The amendments will not change the number of authorized shares of
preferred stock, which is 80 million.
A copy of the proposed form of Amended and Restated Certificate of
Incorporation is attached to this Proxy Statement as Annex A.
2) Approve the issuance and sale to OCHC of the Securities, which consist
of (a) shares of Series B Common Stock, (b) Warrants and (c) the right
to receive a contingent payment, payable in cash or shares of Original
Common Stock or Series B Common Stock, as determined by Lyondell,
having a value up to $35 million. The shares being sold to OCHC will
represent in the aggregate more than 20% of the issued and outstanding
shares of Lyondell common stock. See "Proposal to Approve the Sale of
Securities to OCHC."
Q: What is Original Common Stock?
A: We use the term "Original Common Stock" to refer to the common stock of
Lyondell, $1.00 par value per share, that is currently authorized. Your
Lyondell common stock will not change, and you will not receive new stock
certificates, as a result of the proposed amendments to Lyondell's
Certificate of Incorporation.
Q: What is Series B Common Stock?
A: Series B Common Stock is a new series of common stock of Lyondell that will
be created by the proposed Amended and Restated Certificate of
Incorporation. The terms of the Series B Common Stock are set forth in
Article IV of Annex A and are described under "Proposal to Approve the
Amended and Restated Certificate of Incorporation of Lyondell --Description
of Series B Common Stock."
1
Q: What are the differences between Original Common Stock and Series B Common
Stock?
A: The principal difference between Series B Common Stock and Original Common
Stock is 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. This right will continue until shares of the Series B
Common Stock are converted into shares of Original Common Stock, which, in
the case of the shares of Series B Common Stock issued to OCHC, is expected
to occur three years after issuance and perhaps earlier. Otherwise, the
terms of the Series B Common Stock are substantially the same as those of
the Original Common Stock. These terms are compared under "Proposal to
Approve the Amended and Restated Certificate of Incorporation of Lyondell--
Summary Comparison of Original Common Stock and Series B Common Stock."
Q: Why should Article VIII of Lyondell's Certificate of Incorporation be
deleted?
A: Article VIII of Lyondell's Certificate of Incorporation contains provisions
addressing, among other things, potential conflicts of interest between
Lyondell and Atlantic Richfield Company and the mechanics for Lyondell's
directors to manage business opportunities that both Lyondell and Atlantic
Richfield Company might have been interested in pursuing. These provisions
were important when Atlantic Richfield Company was a substantial
shareholder of Lyondell and had designees on Lyondell's Board of Directors.
Atlantic Richfield Company is no longer a substantial shareholder of
Lyondell and no longer has designees on Lyondell's Board of Directors, and
therefore Article VIII of Lyondell's Certificate of Incorporation is
obsolete.
Q: How will Lyondell use the proceeds from the sale of securities to OCHC?
A: Lyondell will use the cash proceeds from the sale of securities to OCHC to
purchase the Oxy Equistar Interest from wholly owned subsidiaries of
Occidental. See "Proposal to Approve the Sale of Securities to OCHC--Use of
Proceeds from Sale of Securities."
Q: What is Equistar Chemicals, LP?
A: Equistar is a joint venture currently owned by subsidiaries of Lyondell
(41%), Millennium Chemicals Inc. (29.5%) and Occidental (29.5%) that
operates petrochemicals and polymers businesses. Lyondell is the operator
of Equistar. You can learn more about Equistar by reading the documents
Lyondell and Equistar have filed with the Securities and Exchange
Commission, referred to as the "SEC." See "Where You Can Find More
Information."
Q: Why does Lyondell want to increase its ownership interest in Equistar?
A: Lyondell's Board of Directors believes the purchase of the Oxy Equistar
Interest is advantageous for Lyondell and in the best interest of Lyondell
because the increased ownership is expected to provide substantial earnings
and cash flow to Lyondell as a result of the expected cyclical recovery of
Equistar's olefins and polyolefins businesses over the next few years. The
anticipated increase in Lyondell's earnings and cash flow, if realized,
would permit more rapid de-leveraging through repayment of Lyondell's
existing debt.
Q: When do you expect to complete the sale of securities and use the proceeds
to purchase the Oxy Equistar Interest?
A: Lyondell is working toward completing the sale of securities and the
purchase of the Oxy Equistar Interest as quickly as possible. In addition
to shareholder approval, Lyondell must satisfy other conditions. See
"Proposal to Approve the Sale of Securities to OCHC--Closing Conditions
Under the Securities Purchase Agreement" and "--Description of Occidental
Partner Sub Purchase Agreement--Closing Conditions." Lyondell hopes to
complete the sale of securities and the purchase of the Oxy Equistar
Interest by , 2002.
Q: Why is shareholder approval necessary for the sale of securities?
A: OCHC will own approximately 20.3% to 22.4% of Lyondell's issued and
outstanding common stock, after giving effect to the sale of 30 to 34
million shares of Series B Common Stock and
2
assuming the Warrants are not exercised. Lyondell may issue additional
shares of Original Common Stock and Series B Common Stock to OCHC, thereby
increasing the percentage of Lyondell's outstanding common stock that OCHC
will own, (1) upon exercise of the Warrants to be issued to OCHC at the
closing of the Securities Purchase Agreement, (2) as a paid-in-kind
dividend on the Series B Common Stock or (3) as satisfaction of Lyondell's
obligation to make a contingent payment to OCHC of up to $35 million.
Lyondell's listing agreement with the New York Stock Exchange requires
shareholder approval for sales of shares equal to 20% or more of Lyondell's
issued and outstanding common stock.
Q: Do I get to vote on the purchase of the Oxy Equistar Interest?
A: No. Lyondell is not seeking approval for its purchase of the Oxy Equistar
Interest because such approval is not required by applicable law, rule or
regulation. Lyondell has, however, included in this Proxy Statement (1) a
description of the Occidental Partner Sub Purchase Agreement and (2)
unaudited pro forma financial data, which assume that both the sale of
securities to OCHC and the purchase of the Oxy Equistar Interest have
occurred so that you are fully informed about the use of proceeds to be
received by Lyondell from the sale of securities and the effect of the two
transactions on Lyondell. See "Proposal to Approve the Sale of Securities
to OCHC--Description of Occidental Partner Sub Purchase Agreement" and
"Selected Financial Data--Selected Historical and Unaudited Pro Forma
Financial Data of Lyondell."
Q: What are the tax consequences to shareholders of the sale of securities to
OCHC and the acquisition of the Oxy Equistar Interest?
A: The transactions will have no tax consequences to the holders of Lyondell
common stock.
Q: What vote will be required to approve the proposals?
A: Approval of the proposed Amended and Restated Certificate of Incorporation
and the proposed sale of securities to OCHC will require the vote of the
holders of a majority of the outstanding shares of Lyondell common stock
entitled to vote on these proposals.
Q: What happens if I do not vote?
A: Your vote is important. Lyondell cannot amend and restate its Certificate
of Incorporation or complete the sale of securities to OCHC and its
subsequent purchase of the Oxy Equistar Interest unless the holders of a
majority of the outstanding shares of Lyondell common stock vote FOR the
approval and adoption of both proposals.
Q: Do I have any appraisal rights if I oppose the proposals?
A: No. Under Delaware law, shareholders do not have the right to an appraisal
of the value of their shares in connection with either proposal.
Q: If my shares are held in my broker's name, will my broker vote my shares
for me?
A: Your broker will vote your shares only if you provide your broker with
instructions on how to vote. You should instruct your broker to vote your
shares, following the directions provided by your broker. Without
instructions, your shares will not be voted.
Q: What do I need to do now?
A: You should thoroughly read this Proxy Statement and indicate on your proxy
card or by telephone or over the Internet how you want to vote your shares
of Lyondell common stock. You should sign and mail your proxy card in the
enclosed envelope, or submit your proxy by telephone or over the Internet
as soon as possible so that your shares of Lyondell common stock may be
represented at the Special Meeting on , 2002. If you sign and send
in your proxy card (or submit a proxy over the Internet or by telephone)
and do not indicate how you want to vote, your proxy will be counted as a
vote FOR both proposals. If you abstain, your failure to vote will have the
effect of a vote against the proposals.
Q: What if I change my mind after submitting a proxy?
A: Your proxy may be revoked at any time before it is voted at the Special
Meeting by (1) written notice to the Secretary of Lyondell, (2) submitting
another valid proxy by mail, by telephone or over the Internet that is
later dated and, if mailed, properly signed, or (3) voting in person at the
Special Meeting.
3
Lyondell's Board of Directors unanimously recommends that you vote FOR the
Amended and Restated Certificate of Incorporation and FOR the sale
of securities to OCHC.
WHO CAN HELP ANSWER YOUR QUESTIONS
If you have more questions about the proposals, you should contact:
Lyondell Chemical Company
1221 McKinney, Suite 700
Houston, Texas 77010
Attn: Investor Relations
Phone number: (713) 652-4590
If you would like additional copies of this Proxy Statement, or if you have
questions on how to vote your shares, you should contact:
4
THE SPECIAL MEETING
Date, Time and Place of Special Meeting
The Special Meeting is scheduled to be held as follows:
Date: , 2002
Time: 9:00 a.m. Houston time
Place: Lyondell's General Assembly Room, 42nd Floor, One Houston
Center, 1221 McKinney, Houston, Texas 77010
Proposals to be Considered at the Special Meeting
The Special Meeting will be held for the following purposes:
(1) To consider and approve a proposal to amend and restate Lyondell's
Certificate of Incorporation in order to:
. create a new series of common stock, designated as "Series B
Common Stock,"
. increase Lyondell's authorized common stock from 250 million shares
to 420 million shares, which will consist of (1) 340 million shares
of Original Common Stock and (2) 80 million shares of Series B
Common Stock;
. establish the relative powers, preferences, rights, qualifications,
limitations and restrictions of the Original Common Stock and
Series B Common Stock; and
. delete Article VIII (Relations with Substantial Stockholder) in its
entirety.
The proposed amendments will not change the number of authorized shares of
preferred stock, which is 80 million.
Note: Lyondell cannot proceed with proposal number 2 if proposal number
1 is not approved.
(2) To consider and approve a proposal for the issuance and sale to OCHC,
for $440 million, of: (a) between 30 and 34 million shares of Series B
Common Stock; (b) the Warrants; and (c) the right to receive a
contingent payment having a value up to $35 million, payable in cash or
shares of Original 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. The shares being sold to OCHC will represent in the aggregate
more than 20% of the issued and outstanding shares of Lyondell common
stock.
(3) To transact any other business as may properly come before the meeting
or any adjournment or postponement thereof.
A copy of the form of Amended and Restated Certificate of Incorporation of
Lyondell that Lyondell proposes to file with the Secretary of State of the State
of Delaware is attached to this Proxy Statement as Annex A. A copy of the
Securities Purchase Agreement dated , 2002 between Lyondell and OCHC and the
form of Warrant have been filed with the SEC as an exhibit to Lyondell's Current
Report on Form 8-K dated , 2002. As of the date of this Proxy Statement,
Lyondell's Board of Directors is not aware of any other business to be presented
for consideration at the Special Meeting.
Record Date
Lyondell's Board of Directors has fixed the close of business on , 2002
as the record date for the Special Meeting. Only holders of record of Lyondell
common stock on the record date are entitled to vote at the Special Meeting and
any adjournment or postponement thereof. On the record date, there were
outstanding and entitled to vote approximately 117,564,920 shares of Lyondell
common stock and no shares of preferred stock.
5
Voting Procedures
Holders of record of Lyondell common stock at the close of business on ,
2002 will be entitled to one vote per share. Fractional shares will not be
voted. The presence, in person or by proxy, of shareholders entitled to cast at
least a majority of the votes that all shareholders are entitled to cast will
constitute a quorum. Abstentions and broker non-votes are considered "shares
present" with respect to the determination of whether the quorum requirement is
satisfied. Broker non-votes occur when a broker returns a proxy but does not
have the authority to vote on a particular matter.
Abstentions from voting will be included in the voting tally and will have
the same effect as a vote against the approval of the amendment and restatement
of Lyondell's Certificate of Incorporation or against the sale of the Securities
to OCHC, as the case may be. Broker non-votes are not considered "shares
present" with respect to a matter requiring the affirmative vote of the holders
of a majority of shares present in person or by proxy at the meeting.
Accordingly, broker non-votes will not affect the outcome with respect to the
approval of the amendment and restatement of Lyondell's Certificate of
Incorporation or the sale of the Securities to OCHC, as the case may be.
Lyondell's 401(k) and Savings Plan, in which employees, including executive
officers, have account balances, permits plan participants to direct the plan
trustees on how to vote the common stock allocated to their accounts. The
trustee will vote all shares of Lyondell common stock for which no participant
directions are received as directed by such plan's Benefits Administrative
Committee, which is made up of certain officers of Lyondell. Similarly, the
trustee will vote all shares of Lyondell common stock held in benefits plans of
Lyondell's subsidiaries for which no participant directions are received as
directed by each plan's Benefits Administrative Committee, which may be made up
of certain officers of Lyondell.
After carefully reading and considering the information contained in this
Proxy Statement, you should submit your proxy. As described on the enclosed
proxy card, you may submit your proxy (1) over the Internet, (2) by telephone or
(3) by mail. Votes submitted over the Internet or by telephone must be received
by 11:59 p.m. Eastern Time on , 2002. Internet and telephone voting are
available 24 hours a day. If you vote over the Internet or by telephone, you do
not need to return a written proxy card. You can also vote in person at the
Special Meeting, but we encourage you to submit your proxy even if you plan to
attend the Special Meeting.
When a proxy is returned properly dated and signed (or is submitted over
the Internet or by telephone), and includes voting instructions, the shares
represented by that proxy will be voted by the persons named as proxies in
accordance with the shareholder's directions. Unless you specify to the contrary
on your proxy card, all of your shares represented by valid proxies will be
voted FOR each of the proposals. As to other items of business that may properly
come before the meeting or any adjournment or postponement thereof, the persons
named in the accompanying form of proxy will vote in accordance with their best
judgment.
A proxy may be revoked by a shareholder at any time before it is voted at
the Special Meeting by (1) giving notice of such revocation in writing to the
Secretary of Lyondell at the address shown on the cover page of this Proxy
Statement, (2) submitting another valid proxy by mail, by telephone or over the
Internet that is later dated and, if mailed, is properly signed or (3) voting in
person at the Special Meeting.
Votes Required for Adoption
Approval of the proposed Amended and Restated Certificate of Incorporation
and the proposed sale of the Securities to OCHC will require the vote of the
holders of a majority of the outstanding shares of Lyondell common stock
entitled to vote on these proposals. Abstentions will have the same effect as a
vote against the proposal to adopt the Amended and Restated Certificate of
Incorporation and the proposed sale of the Securities to OCHC. Broker non-votes
will not affect the outcome of either proposal.
6
BUSINESS OF LYONDELL AND EQUISTAR
Lyondell
Lyondell 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, propylene glycol, propylene glycol ethers, butanediol, toluene
diisocyanate, styrene monomer, and tertiary butyl alcohol and its derivative,
methyl tertiary butyl ether.
Lyondell currently owns 41% of Equistar, which operates petrochemicals and
polymers businesses as described below. Lyondell also owns 58.75% of
LYONDELL-CITGO Refining LP, a Delaware limited partnership, referred to as
"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.
Equistar
Equistar is one of the largest chemical producers in the world with total
2001 revenues of $5.9 billion and assets of $5.0 billion as of March 31, 2002.
It is currently the world's third largest and North America's second largest
producer of ethylene, the world's most widely used petrochemical. Equistar is
also currently the third largest producer of polyethylene in North America.
Equistar's petrochemicals segment manufactures and markets olefins,
oxygenated products, aromatics and specialty products. Equistar's olefins
products are primarily ethylene, propylene and butadiene. Olefins and their
co-products are basic building blocks used to create a wide variety of products.
Equistar's oxygenated products include ethylene oxide and its derivatives,
ethylene glycol, ethanol and methyl tertiary butyl ether. Oxygenated products
have uses ranging from paint to cleaners to polyester fibers to gasoline
additives. Equistar's aromatics are benzene and toluene.
Equistar's polymers segment manufactures and markets polyolefins, including
high-density polyethylene, low-density polyethylene, linear low-density
polyethylene, polypropylene and performance polymers. Polyethylene is used to
produce packaging film, trash bags and lightweight high-strength plastic bottles
for milk, juices, shampoos and detergents. Polypropylene is used in a variety of
products including plastic caps and other closures, rigid packaging, automotive
components, and carpet facing and backing. Equistar's performance polymers
include enhanced grades of polyethylene such as wire and cable insulating resins
and polymeric powders.
7
BACKGROUND AND RECOMMENDATION
Background
Equistar was formed in November 1997 by Lyondell and Millennium Chemicals
Inc., referred to as "Millennium." Each contributed most of its petrochemicals
business to the joint venture. Initially, Lyondell's subsidiaries owned 57% of
Equistar and Millennium's subsidiaries owned 43%. Occidental joined the venture
in May 1998, contributing its petrochemicals business. Since giving effect to
Occidental's contribution, Lyondell's subsidiaries have owned 41% of Equistar,
Millennium's subsidiaries have owned 29.5% and Occidental's subsidiaries have
owned 29.5%.
The Equistar governing documents provide that, if any of the three parent
entities wishes to sell its interest in Equistar or the stock of its "partner
subsidiaries" that own its interest, it is required to give notice to the other
parent entities, stating the price at which it wishes to sell and the other
proposed terms. The other parent entities then have a 45-day period in which to
exercise a right of first option to purchase the interest or shares at that
price and on those other proposed terms. If both of the other parent entities
wish to exercise the right, the governing documents provide that they are to do
so pro rata in accordance with their existing ownership interests in Equistar.
The documents also provide that any sale must be for cash and that certain other
requirements be satisfied, unless otherwise approved by the parent entities not
participating in the transaction.
In January 2000, Millennium advised Lyondell and Occidental that it wished
to sell the stock of its subsidiary Millennium Petrochemicals Inc., which owns
Millennium's partner subsidiaries in Equistar. Millennium Petrochemicals also
owns other operating assets, and has other liabilities, in addition to its
interest in Equistar. Lyondell and Occidental advised Millennium that they
believed that the proposed transaction failed to comply with certain
requirements of the Equistar governing documents, but that they would not object
to the sale, provided other requirements of the governing documents were
satisfied. In September 2000, Millennium publicly announced that it had
terminated the announced active marketing of its Equistar interest. The owners
of Equistar have from time to time, both before and after Millennium's notice,
informally discussed other transactions that, if consummated, could have
resulted in a transfer or modification, either directly or indirectly, of their
interests in Equistar.
In late 2001, Lyondell and Occidental began discussing an acquisition by
Lyondell of the Oxy Equistar Interest in exchange for Lyondell securities. In
the course of these discussions, Lyondell and Occidental asked Millennium to
consent to the transaction, since it did not satisfy the requirement of the
governing documents that the consideration be cash. Based on their understanding
of prior discussions between them and Millennium, they expected Millennium to
give its consent, but in January 2002, Millennium declined to do so.
Thereafter, Occidental and Lyondell discussed potential transactions in
which Lyondell would issue securities to Occidental for cash and use the cash
proceeds to purchase Occidental's partner subsidiaries in Equistar. On January
22, 2002, Occidental confirmed to Lyondell and Millennium in writing that it was
interested in selling the stock of its partner subsidiaries for cash of $440
million and asked each of them to contact Occidental if they were interested in
purchasing all or a pro rata portion of the stock. Occidental's letter stated
that it was not a formal notice under the right of first option provisions.
Occidental also advised Millennium that Occidental expected Lyondell to accept
the offer and that Occidental expected to negotiate an equity investment in
Lyondell by Occidental for $440 million, which Lyondell would use to fund the
purchase of Occidental's partner subsidiaries. On January 23, 2002, Lyondell
confirmed to Occidental and Millennium its interest in making the purchase. By
letter dated January 30, 2002, Millennium advised Occidental and Lyondell that
it believed that, under the Equistar governing documents, the proposed
transaction between Lyondell and Occidental would require Millennium's consent
and that Millennium was not in a position to consent at that time. Millennium's
letter also stated that it believed it would be in the best interests of all
three Equistar owners to work to achieve a mutually acceptable restructuring of
Equistar's ownership. Millennium orally advised Lyondell and Occidental that it
believed that the proposed sale by Occidental of its partner subsidiaries to
Lyondell did not comply with the requirements of the Equistar governing
documents because, in Millennium's view, it was not a sale for cash and/or it
failed to meet what Millennium believed to be other applicable requirements.
Occidental and Lyondell advised Millennium that they believed the proposed sale
satisfied all applicable requirements and did not require Millennium's consent
under the governing documents.
8
On January 31, 2002, Lyondell announced that it had agreed in principle to
sell Lyondell securities to Occidental for $440 million in cash and to purchase
Occidental's partner subsidiaries in Equistar for $440 million in cash, in each
case in a transaction having terms and conditions generally the same as those
described in this Proxy Statement. The announcement stated that Millennium could
purchase a pro rata portion of the stock of Occidental's partner subsidiaries if
it wished to do so. The announcement also stated that the transactions would be
subject to completion and execution of definitive documentation, Lyondell
shareholder approval and customary closing conditions.
On April 19, 2002, Occidental delivered to both Lyondell and Millennium a
notice under the Equistar right of first option provisions, stating that either
of them could purchase Occidental's partner subsidiaries in Equistar for cash of
$440 million pursuant to a form of agreement that was substantially the same as
the Occidental Partner Sub Purchase Agreement described in this Proxy Statement.
The notice stated that if both Lyondell and Millennium wished to exercise their
rights to purchase, they could do so pro rata. Occidental also advised
Millennium that it expected to enter into a securities purchase agreement with
Lyondell in a form that was substantially the same as the Securities Purchase
Agreement described in this Proxy Statement, and that Lyondell would use the
cash received from selling securities thereunder to purchase Occidental's
partner subsidiaries in Equistar.
From time to time during 2002, Lyondell and Occidental engaged in
discussions with Millennium concerning the possibility of Lyondell's acquiring
Millennium's interest in Equistar, directly or indirectly.
On May 31, 2002, Lyondell, in a formal response to Occidental's April 19,
2002 notice, advised Occidental that it wished to purchase all the stock of
Occidental's partner subsidiaries or, if Millennium also elected to participate,
its pro rata share. Also on May 31, 2002, Lyondell, Occidental, Millennium and
Equistar entered into a Settlement Agreement. In that agreement, among other
things, (1) Millennium agreed not to exercise its right of first option to
participate in the purchase of Occidental's partner subsidiaries in Equistar,
(2) Millennium agreed to waive and release any and all claims it might have that
the transactions between Lyondell and Occidental did not comply with the
requirements of the Equistar governing documents and the parties represented and
agreed that the transactions do comply with those requirements, (3) Lyondell,
Occidental and Millennium agreed that Millennium and Occidental and their
affiliates would be released from indemnity agreements they had made regarding
indebtedness of Equistar following the closing of the Occidental Partner Sub
Purchase Agreement and (4) Millennium and Lyondell agreed to make certain
changes to the Equistar governing documents. Many of the foregoing provisions
also apply to subsidiaries of the parties, which also signed the Settlement
Agreement.
On 2002, Lyondell and Occidental made filings under the HSR Act
related to the Securities Purchase Agreement and the Occidental Partner Sub
Purchase Agreement.
On 2002, Lyondell and Occidental executed the Securities Purchase
Agreement and the Occidental Partner Sub Purchase Agreement.
Reasons for the Proposals
Lyondell's Board of Directors is proposing to amend Lyondell's charter to
create the Series B Common Stock for the purpose of issuing and selling shares
of Series B Common Stock to OCHC under the Securities Purchase Agreement and
related transactions, and possibly for use in unrelated transactions as well.
Lyondell proposes to issue the Securities to OCHC in order to obtain the funds
to purchase the Oxy Equistar Interest. Lyondell believes that increasing its
ownership interest in Equistar will benefit Lyondell. Lyondell expects that
there will be a cyclical recovery of Equistar's olefins and polyolefins
businesses over the next few years and that upon such a recovery Lyondell's
increased ownership in Equistar should provide substantial earnings and cash
flow to Lyondell. This cash flow, if realized, would permit more rapid
de-leveraging of Lyondell's balance sheet through repayment of Lyondell's
existing debt. By raising the funds for the purchase through the issuance of
common stock that permits payment of in-kind dividends for a period up to three
years, Lyondell will be able to conserve cash resources in the near term.
Issuance of the additional shares of common stock will also have the effect of
spreading both the risks and rewards of owning equity interests in Lyondell
across a broader number of shares.
9
Opinion of Credit Suisse First Boston Corporation
Credit Suisse First Boston was engaged by Lyondell to provide an opinion in
connection with the proposed transactions. Lyondell selected Credit Suisse First
Boston based on Credit Suisse First Boston's experience, expertise and
reputation, and its familiarity with Lyondell and its business. Credit Suisse
First Boston is an internationally recognized investment banking firm and is
regularly engaged in the valuation of businesses and securities in connection
with mergers and acquisitions, leveraged buyouts, negotiated underwritings,
competitive biddings, secondary distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes.
In connection with Credit Suisse First Boston's engagement, Lyondell
requested that Credit Suisse First Boston evaluate the fairness, from a
financial point of view, of the "Consideration" to be paid by Lyondell for the
Oxy Equistar Interest, treating the transactions for purposes of the opinion as
if they were a single integrated transaction in which the Consideration was to
be exchanged for the Oxy Equistar Interest. The opinion uses the term
"Consideration" to refer collectively to the shares of Series B Common Stock,
the Warrants and the right to receive a contingent payment to be paid by
Lyondell for the Oxy Equistar Interest. On May 2, 2002, at a meeting of the
Lyondell Board of Directors held to evaluate the proposed transactions, Credit
Suisse First Boston delivered to the Lyondell Board of Directors a written
opinion dated May 2, 2002, to the effect that, as of that date and based on and
subject to the matters described in its opinion, the Consideration was fair to
Lyondell from a financial point of view, treating the transactions for purposes
of the opinion as if they were a single integrated transaction in which the
Consideration was to be exchanged for the Oxy Equistar Interest.
The full text of Credit Suisse First Boston's written opinion, dated May 2,
2002, to the Lyondell Board of Directors, which sets forth the procedures
followed, assumptions made, matters considered and limitations on the review
undertaken, is attached as Annex B and is incorporated into this Proxy Statement
by reference. Lyondell shareholders are encouraged to read this opinion
carefully and in its entirety. Credit Suisse First Boston's opinion is addressed
to Lyondell's Board of Directors and relates only to the fairness, from a
financial point of view, of the Consideration, treating the transactions for
purposes of the opinion as if they were a single integrated transaction in which
the Consideration was to be exchanged for the Oxy Equistar Interest, and does
not address any other aspect of the proposed transactions or any related
transaction and does not constitute a recommendation to any shareholder as to
any matter relating to the transactions. The summary of Credit Suisse First
Boston's opinion in this Proxy Statement is qualified in its entirety by
reference to the full text of the opinion.
In arriving at its opinion, Credit Suisse First Boston reviewed drafts
dated April 19, 2002 of the Occidental Partner Sub Purchase Agreement, the
Securities Purchase Agreement and certain related documents, as well as publicly
available business and financial information relating to Lyondell and Equistar.
Credit Suisse First Boston also reviewed other information relating to Lyondell
and Equistar, including financial forecasts, provided to or discussed with
Credit Suisse First Boston by Lyondell and Equistar, and met with the
managements of Lyondell and Equistar to discuss the businesses and prospects of
Lyondell and Equistar. Credit Suisse First Boston considered financial and stock
market data of Lyondell and financial data of Equistar, and compared those data
with similar data for publicly held companies in businesses similar to those of
Lyondell and Equistar, and considered, to the extent publicly available, the
financial terms of other business combinations and other transactions announced
or effected. Credit Suisse First Boston also considered other information,
financial studies, analyses and investigations and financial, economic and
market criteria that it deemed relevant.
In connection with its review, Credit Suisse First Boston did not assume
any responsibility for independent verification of any of the information that
it reviewed or considered and relied on that information being complete and
accurate in all material respects. With respect to the financial forecasts,
Credit Suisse First Boston was advised, and it assumed, that the forecasts were
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the managements of Lyondell and Equistar as to the future
financial performance of Lyondell and Equistar, respectively. Credit Suisse
First Boston further assumed, with Lyondell's
10
consent, that the Occidental Partner Sub Purchase Agreement, the Securities
Purchase Agreement and related documents when executed would conform to the
drafts reviewed by it in all respects material to its analysis. In addition,
Credit Suisse First Boston assumed, with Lyondell's consent, that the
transactions would be consummated as set forth above in accordance with the
terms of the Occidental Partner Sub Purchase Agreement, the Securities Purchase
Agreement and related documents without amendment, modification or waiver of any
material terms thereof, and in the course of obtaining the necessary regulatory
and third party approvals, consents, waivers and agreements relating to the
transactions, no modification, condition, restriction, limitation or delay would
be imposed that would have a material adverse effect on Lyondell or Equistar or
the contemplated benefits of the proposed transactions. Credit Suisse First
Boston further assumed, with Lyondell's consent, that neither Occidental
Petrochem Partner 1, Inc., Occidental Petrochem Partner 2, Inc. nor Occidental
Petrochem Partner GP, Inc. had any assets or liabilities other than their
partnership interests in Equistar. Credit Suisse First Boston was not requested
to, and did not, make an independent evaluation or appraisal of the assets or
liabilities, contingent or otherwise, of Lyondell or Equistar, and Credit Suisse
First Boston was not furnished with any evaluations or appraisals, with the
exception of a third-party appraisal of a petrochemical plant in Lake Charles,
Louisiana that is referenced in the Occidental Partner Sub Purchase Agreement,
which appraisal was provided to Credit Suisse First Boston by Lyondell's
management. Credit Suisse First Boston's opinion did not address the provisions
of the Occidental Partner Sub Purchase Agreement in the event of a Lease
Termination Event, a No Rebuilding Termination or the exercise of the Put Right
(each as defined in the Occidental Partner Sub Purchase Agreement) with respect
to the petrochemical plant in Lake Charles, Louisiana.
Credit Suisse First Boston's opinion was necessarily based on information
available to it, and financial, economic, market and other conditions as they
existed and could be evaluated, on the date of Credit Suisse First Boston's
opinion. Credit Suisse First Boston did not express any opinion as to what the
value of Original Common Stock, Series B Common Stock or the Warrants actually
would be when issued pursuant to the transactions or the contingent payment or
the prices at which Original Common Stock, Series B Common Stock or the Warrants
would trade or otherwise be transferrable at any time. Although Credit Suisse
First Boston evaluated the Consideration from a financial point of view, Credit
Suisse First Boston was not requested to, and did not, recommend the specific
Consideration payable in the transactions, which Consideration was determined
between Lyondell and OCHC. Credit Suisse First Boston's opinion did not address
the relative merits of the transactions as compared to other business strategies
that might have been available to Lyondell, and also did not address the
underlying business decision of Lyondell to proceed with the transactions. In
connection with its engagement, Credit Suisse First Boston was not requested to,
and did not, participate in the negotiations or structuring of the transactions.
Except as described above, Lyondell imposed no other limitations on Credit
Suisse First Boston with respect to the investigations made or procedures
followed in rendering its opinion.
In preparing its opinion to Lyondell's Board of Directors, Credit Suisse
First Boston performed a variety of financial and comparative analyses,
including those described below. The summary of Credit Suisse First Boston's
analyses described below is not a complete description of the analyses
underlying its opinion. The preparation of a fairness opinion is a complex
process involving various determinations as to the most appropriate and relevant
methods of financial analysis and the application of those methods to the
particular circumstances and, therefore, a fairness opinion is not readily
susceptible to partial analysis or summary description. In arriving at its
opinion, Credit Suisse First Boston made qualitative judgments as to the
significance and relevance of each analysis and factor that it considered.
Accordingly, Credit Suisse First Boston believes that its analyses must be
considered as a whole and that selecting portions of its analyses and factors or
focusing on information presented in tabular format, without considering all
analyses and factors or the narrative description of the analyses, could create
a misleading or incomplete view of the processes underlying its analyses and
opinion.
In its analyses, Credit Suisse First Boston considered industry
performance, general business, economic, market and financial conditions and
other matters, many of which are beyond the control of Lyondell and Equistar. No
company, transaction or business used in Credit Suisse First Boston's analyses
as a comparison is identical to Lyondell or its businesses, Equistar or the
proposed transactions, and an evaluation of the results of those analyses is not
entirely mathematical. Rather, the analyses involve complex considerations and
judgments
11
concerning financial and operating characteristics and other factors that could
affect the acquisition, public trading or other values of the companies,
business segments or transactions analyzed. The estimates contained in Credit
Suisse First Boston's analyses and the ranges of valuations resulting from any
particular analysis are not necessarily indicative of actual values or
predictive of future results or values, which may be significantly more or less
favorable than those suggested by the analyses. In addition, analyses relating
to the value of businesses or securities do not purport to be appraisals or to
reflect the prices at which businesses or securities actually may be sold.
Accordingly, Credit Suisse First Boston's analyses and estimates are inherently
subject to substantial uncertainty.
Credit Suisse First Boston's opinion and financial analyses were only one
of many factors considered by Lyondell's Board of Directors in its evaluation of
the proposed transactions and should not be viewed as determinative of the views
of Lyondell's Board of Directors or management with respect to the transactions
or the Consideration.
The following is a summary of the material financial analyses underlying
Credit Suisse First Boston's opinion dated May 2, 2002 delivered to Lyondell's
Board of Directors in connection with the transactions. The financial analyses
summarized below include information presented in tabular format. In order to
fully understand Credit Suisse First Boston's financial analyses, the tables
must be read together with the text of each summary. The tables alone do not
constitute a complete description of the financial analyses. Considering the
data in the tables below without considering the full narrative description of
the financial analyses, including the methodologies and assumptions underlying
the analyses, could create a misleading or incomplete view of Credit Suisse
First Boston's financial analyses.
Introduction
Credit Suisse First Boston compared the implied equity reference ranges for
Lyondell, including Lyondell's 58.75% interest in LCR, 41% interest in Equistar
and net corporate adjustments for Lyondell, including cash, net operating
losses, LCR's note receivable and debt, and for the Oxy Equistar Interest
derived from the "--Discounted Cash Flow Analysis," "--Selected Companies
Analysis" and "--Selected Acquisitions Analysis" for Lyondell and Equistar
described below. After adjustment for the implied estimated value of the
Warrants and contingent payment of approximately $11 million to be paid to OCHC
in the transactions, Credit Suisse First Boston then calculated the following
implied reference ranges of OCHC's percentage ownership of Lyondell common
stock, based on the three scenarios described below, as compared to the implied
ownership of OCHC of Lyondell common stock pro forma for the transactions of
approximately 20-22%, depending on the number of shares of Series B Common Stock
of between 30 million and 34 million actually issued to OCHC pursuant to the
Securities Purchase Agreement:
Implied Reference Implied Reference Range of OCHC's
Range of OCHC's Range of OCHC's % Ownership of
% Ownership of % Ownership of Lyondell
Lyondell Lyondell Alternative Case--
Base Case Alternative Case Equistar Only
----------------- ----------------- ------------------
17.4% to 28.0% 15.4% to 30.2% 12.2% to 24.0%
The base case was based on internal estimates of the managements of
Lyondell or Equistar, or both, as the case may be, and the alternative case was
based on adjustments to the base case to reflect, among other things, the
potential for decreased revenue and profitability, in each case adjusted based
on discussions with the managements of Lyondell or Equistar, or both, as the
case may be. The case referred to as the "Alternative Case -- Equistar Only" is
based on the alternative case for Equistar and the base case for Lyondell's
intermediate and derivatives and methanol businesses, referred to as "LCC," and
LCR.
Discounted Cash Flow Analysis
Equistar. Credit Suisse First Boston estimated the present value of the
stand-alone, unlevered, after-tax free cash flows that Equistar could generate
for the fiscal years 2002 to 2006 based on the base case and the alternative
case. Credit Suisse First Boston calculated a range of estimated terminal values
for Equistar by
12
applying a range of selected earnings before interest, taxes, depreciation and
amortization, commonly referred to as EBITDA, terminal value multiples of 5.0x
to 6.0x to Equistar's calendar year normalized EBITDA. References to calendar
year normalized EBITDA reflect the base case and alternative case calendar year
EBITDA expected to be achieved in a typical petrochemical cycle based on
discussions with the managements of Lyondell or Equistar, or both, as the case
may be. The estimated free cash flows and terminal values were then discounted
to present value using selected discount rates ranging from 9.0% to 11.0%. This
analysis indicated the following implied equity reference ranges for Lyondell's
41% interest in Equistar and the Oxy Equistar Interest:
Implied Equity Reference Range of Implied Reference Range of the
Lyondell's 41% Equistar Interest Oxy Equistar Interest
--------------------------------- ------------------------------
Base Case................ $832 million to $1,201 million $599 million to $864 million
Alternative Case......... $463 million to $ 791 million $333 million to $569 million
LCC. Credit Suisse First Boston estimated the present value of the stand-
alone, unlevered, after-tax free cash flows that LCC could generate for the
fiscal years 2002 to 2006 based on the base case and the alternative case.
Credit Suisse First Boston calculated a range of estimated terminal values for
LCC by applying a range of selected EBITDA terminal value multiples of 6.0x to
7.0x to LCC's calendar year normalized EBITDA. The estimated free cash flows and
terminal values were then discounted to present value using selected discount
rates ranging from 9.0% to 11.0%. This analysis indicated the following implied
enterprise reference ranges for LCC:
Implied Enterprise Reference Range Implied Enterprise Reference Range
Base Case Alternative Case
---------------------------------- ----------------------------------
$3,400 million to $4,100 million $3,050 million to $3,650 million
LCR. Credit Suisse First Boston estimated the present value of the stand-
alone, unlevered, after-tax free cash flows that LCR could generate for the
fiscal years 2002 to 2006 based on the base case and the alternative case.
Credit Suisse First Boston calculated a range of estimated terminal values for
LCR by applying a range of selected EBITDA terminal value multiples of 4.0x to
5.0x to LCR's calendar year 2006 estimated EBITDA. The estimated free cash flows
and terminal values were then discounted to present value using selected
discount rates ranging from 9.0% to 11.0%. This analysis indicated the following
implied equity reference ranges for Lyondell's 58.75% interest in LCR:
Implied Equity Reference Range Implied Equity Reference
for Lyondell's 58.75% Range for Lyondell's 58.75%
LCR Interest LCR Interest
Base Case Alternative Case
------------------------------ -----------------------------
$629 million to $922 million $335 million to $570 million
Relative Implied OCHC Ownership of Lyondell. Based on the implied reference
ranges for Lyondell and the Oxy Equistar Interest derived from the "Discounted
Cash Flow Analysis" for Lyondell and Equistar described above and the same
factors utilized in the analysis described above under "--Introduction," Credit
Suisse First Boston then calculated the following implied reference ranges of
OCHC's percentage ownership of Lyondell common stock, as compared to the implied
OCHC ownership of Lyondell common stock pro forma for the transactions of
approximately 20-22%:
Implied Reference
Implied Reference Implied Reference Range of OCHC's
Range of OCHC's Range of OCHC's % Ownership of
% Ownership of % Ownership of Lyondell
Lyondell Lyondell Alternative Case--
Base Case Alternative Case Equistar Only
----------------- ----------------- ------------------
Discounted Cash Flow Analysis......... 18.1% to 29.5% 17.8% to 36.2% 12.3% to 25.5%
13
Selected Companies Analysis
Equistar. Credit Suisse First Boston compared financial and operating data
of Equistar to financial, operating and stock market data for the following 9
publicly traded companies, including Lyondell, in the chemicals industry:
. The Dow Chemical Company
. E. I. DuPont de Nemours and Company
. Eastman Chemical Company
. Georgia Gulf Corporation
. Millennium Chemicals Inc.
. NL Industries, Inc.
. NOVA Chemicals Corporation
. Wellman, Inc.
. Lyondell
Credit Suisse First Boston reviewed enterprise values, calculated as equity
value plus net debt, as multiples of average EBITDA for calendar years 1995 to
2001, to the extent available, and calendar years 2002 and 2003 estimated
EBITDA. Credit Suisse First Boston also reviewed equity values as multiples of
average net income for calendar years 1995 to 2001, to the extent available,
calendar years 2002 and 2003 estimated net income and book value. Credit Suisse
First Boston then applied a range of selected multiples derived from the
selected companies of average EBITDA for calendar years 1995 to 2001, to the
extent available, and calendar years 2002 and 2003 estimated EBITDA to
Equistar's average EBITDA for calendar years 1997 to 2001 and calendar years
2002 and 2003 estimated EBITDA. Equistar's historical EBITDA is pro forma per
Lyondell's and Equistar's managements. All multiples were based on closing stock
prices on April 30, 2002. Estimated financial data for Equistar were based on
the base case and the alternative case and estimated financial data for the
selected companies, including Lyondell, were based on publicly available
research estimates. This analysis indicated the following implied equity
reference ranges for Lyondell's 41% interest in Equistar and the Oxy Equistar
Interest:
Implied Equity Reference Range Implied Equity Reference Range
of Lyondell's 41% Equistar Interest of the Oxy Equistar Interest
----------------------------------- ------------------------------
Base Case............. $545 million to $832 million $392 million to $599 million
Alternative Case...... $463 million to $709 million $333 million to $510 million
LCC. Credit Suisse First Boston compared financial and operating data of
LCC to financial, operating and stock market data for the 9 publicly traded
companies, including Lyondell, described above under "--Selected Companies
Analysis--Equistar." Credit Suisse First Boston reviewed enterprise values as
multiples of average EBITDA for calendar years 1995 to 2001, to the extent
available, and calendar years 2002 and 2003 estimated EBITDA. Credit Suisse
First Boston also reviewed equity values as multiples of average net income for
calendar years 1995 to 2001, to the extent available, and calendar years 2002
and 2003 estimated net income and book value. Credit Suisse First Boston then
applied a range of selected multiples derived from the selected companies of
average EBITDA for calendar years 1995 to 2001, to the extent available, and
calendar years 2002 and 2003 estimated EBITDA to LCC's average EBITDA for
calendar years 1998 to 2001 and calendar years 2002 and 2003 estimated EBITDA.
All multiples were based on closing stock prices on April 30, 2002. Historical
financial data for LCC were based on historical averages from 1998 to 2001 and
were pro forma per Lyondell's management for the sale of LCC's polyols business
to Bayer AG on March 31, 2000. Estimated financial data for LCC were based on
the base case and the alternative case and estimated financial data for the
selected companies, including Lyondell, were based on publicly available
research estimates. This analysis indicated the following implied enterprise
reference ranges for LCC:
Implied Enterprise Reference Range Implied Enterprise Reference Range
Base Case Alternative Case
---------------------------------- ----------------------------------
$3,700 million to $4,300 million $3,400 million to $3,900 million
14
LCR. Credit Suisse First Boston compared financial and operating data of
LCR to financial, operating and stock market data for the following 6 publicly
traded companies in the refining industry:
. Ashland Inc.
. Frontier Oil Corporation
. Premcor Inc.
. Sunoco, Inc.
. Tesoro Petroleum Corporation
. Valero Energy Corporation
Credit Suisse First Boston reviewed enterprise values as multiples of
calendar years 2002 and 2003 estimated EBITDA. Credit Suisse First Boston also
reviewed equity values as multiples of calendar years 2002 and 2003 estimated
net income and book value. Credit Suisse First Boston then applied a range of
selected multiples derived from the selected companies calendar years 2002 and
2003 estimated EBITDA to corresponding financial data of LCR. All multiples were
based on closing stock prices on April 30, 2002. Estimated financial data for
LCR were based on the base case and the alternative case and estimated financial
data for the selected companies were based on publicly available research
estimates. This analysis indicated the following implied equity reference ranges
for Lyondell's 58.75% interest in LCR:
Implied Equity Reference Range for Implied Equity Reference Range for
Lyondell's 58.75% LCR Interest Lyondell's 58.75% LCR Interest
Base Case Alternative Case
---------------------------------- --------------------------------
$687 million to $864 million $452 million to $629 million
Relative Implied OCHC Ownership of Lyondell. Based on the implied reference
ranges for Lyondell and the Oxy Equistar Interest derived from the "Selected
Companies Analysis" for Lyondell and Equistar described above and the same
factors utilized in the analysis described above under "--Introduction," Credit
Suisse First Boston then calculated the following implied reference ranges of
OCHC's percentage ownership of Lyondell common stock, as compared to the OCHC
implied ownership of Lyondell common stock pro forma for the transactions of
approximately 20-22%:
Implied Reference
Implied Reference Implied Reference Range of OCHC's
Range of OCHC's Range of OCHC's % Ownership of
% Ownership of % Ownership of Lyondell
Lyondell Lyondell Alternative Case--
Base Case Alternative Case Equistar Only
----------------- ----------------- ------------------
Selected Companies Analysis ..... 13.2% to 22.5% 15.2% to 26.7% 11.7% to 20.8%
15
Selected Acquisitions Analysis
Equistar. Credit Suisse First Boston reviewed the implied transaction
multiples in the following 15 selected merger and acquisition transactions in
the chemicals industry:
Target Acquiror
------ --------
... DSM NV (Petrochemicals Business) Saudi Basic Industries Corporation
... Aristech Chemical Corporation Sunoco, Inc.
... Lyondell Chemical Company (Polyols Business and U.S. Propylene Bayer AG
Oxide Joint Venture)
... Union Carbide Corporation The Dow Chemical Company
... Imperial Chemical Industries (Polyurethane and Titanium Dioxide Huntsman Corporation
Businesses)
... Huntsman Corporation (Styrenics Business) NOVA Corporation
... ARCO Chemical Company Lyondell Petrochemical Company
... Borealis A/S OMV AG/ Abu Dhabi
... Rexene Corporation Huntsman Corporation
... Texaco Inc. (Tertiary Butyl Ether Business) Huntsman Corporation
... Sterling Chemical, Inc. The Sterling Group, Inc. / Unicorn Group
... Occidental Chemical Corporation (Polyethylene Business) Lyondell Petrochemical Company
... DuPont Canada Inc. (Polyethylene Business) Novacor Chemicals Ltd.
... Texaco Inc. (Texaco Chemical Company) Huntsman Financial Corporation
... Quantum Chemical Corporation Hanson Industries
Credit Suisse First Boston compared enterprise values in the selected
transactions as the latest multiples of 12-month EBITDA and average EBITDA for
the preceding five calendar years, to the extent available, before announcement
of the respective transactions. Credit Suisse First Boston then applied a
multiples range of selected derived from the selected transactions average
EBITDA for the preceding five calendar the extent years, to available, to
Equistar's calendar year normalized EBITDA. All multiples for the were based
selected transactions on publicly available information at the time of
announcement of the relevant indicated transaction. This analysis the following
implied equity reference ranges for Lyondell's 41% interest in Equistar Equistar
and the Oxy Interest:
Implied Equity Reference Range of Implied Equity Reference Range
Lyondell's 41% Equistar Interest of the Oxy Equistar Interest
--------------------------------- ------------------------------
Base Case ........... $811 million to $1,160 million $584 million to $835 million
Alternative Case .... $504 million to $791 million $363 million to $569 million
LCC. Credit Suisse First Boston reviewed the implied transaction multiples
in the 15 selected merger and acquisition transactions described above under
"--Selected Acquisitions Analysis--Equistar." Credit Suisse First Boston
compared, to the extent available, enterprise values in the selected
transactions as multiples of the latest 12-month EBITDA and average EBITDA for
the preceding five calendar years, to the extent available, before announcement
of the respective transactions. Credit Suisse First Boston then applied a range
of selected multiples derived from the selected transactions of the latest
12-month EBITDA and average EBITDA for the preceding five calendar years, to the
extent available, before announcement of the respective transactions to LCC's
latest 12-month EBITDA and calendar year normalized EBITDA. All multiples for
the selected transactions were based on publicly available information at the
time of announcement of the relevant transaction. This analysis indicated the
following implied enterprise reference ranges for LCC:
Implied EnterpriseReference Range Implied Enterprise Reference Range
Base Case Alternative Case
--------------------------------- ----------------------------------
$3,800 million to $4,400 million $3,400 million to $4,000 million
16
LCR. Credit Suisse First Boston reviewed the implied transaction multiples
in the following 18 selected merger and acquisition transactions in the refining
industry:
Target Acquiror
------ --------
... Valero Energy Corporation* Tesoro Petroleum Corporation
... Texaco Inc. Shell Oil Company/Saudi Refining, Inc.
... BP p.l.c. (Mandan and Salt Lake City Refineries)* Tesoro Petroleum Corporation
... El Paso Corporation (Corpus Christi Refinery)* Valero Energy Corporation
... Ultramar Diamond Shamrock Corporation Valero Energy Corporation
... Tosco Corporation Phillips Petroleum Company
... BP Amoco p.l.c. (Alliance Refinery)* Tosco Corporation
... Tosco Corporation (Avon Refinery)* Ultramar Diamond Shamrock Corporation
... Equilon Enterprises LLC (Wood River Refinery)* Tosco Corporation
... Exxon Mobil Corporation* Frontier Oil Corporation
... Equilon Enterprises LLC (El Dorado Refinery)* Frontier Oil Corporation
... BP p.l.c. (Lima Refinery)* Clark USA, Inc.
... Mobil Oil Corporation (Paulsboro Refinery)* Valero Energy Corporation
... Shell Oil Corporation (Anacortes Refinery)* Tesoro Petroleum Corporation
... Clark USA, Inc. The Blackstone Capital Partners III Merchant Banking Fund L.P.
... Total Petroleum (North America) Ltd. Ultramar Diamond Shamrock Corporation
... Unocal Corporation (Refinery and Marketing Tosco Corporation
Businesses)
... Diamond Shamrock, Inc. Ultramar Corporation
_________
* Denotes asset rather than corporate transaction.
Credit Suisse First Boston compared enterprise values in the selected
transactions as multiples of (i) capacity, as measured by the number of barrels
of crude oil that a refinery can process in a single day, (ii) capacity times
the Nelson Complexity of the refinery, which is an industry measure of a
refinery's ability to produce high value-added products and is commonly referred
to as Nelson Capacity and (iii) the latest 12-month or then current-year EBITDA.
Credit Suisse First Boston then applied a range of selected multiples derived
from the selected transactions of capacity, Nelson Capacity and the latest
12-month or then current-year EBITDA to corresponding financial and operating
data of LCR. All multiples for the selected transactions were based on publicly
available information. This analysis indicated the following implied equity
reference ranges for Lyondell's 58.75% interest in LCR:
Implied Equity Reference Range
for Lyondell's 58.75%
LCR Interest
Base Case and Alternative Case
--------------------------------
$364 million to $599 million
Relative Implied OCHC Ownership of Lyondell. Based on the implied reference
ranges for Lyondell and the Oxy Equistar Interest derived from the "--Selected
Acquisitions Analysis" for Lyondell and Equistar described above and the same
factors utilized in the analysis described above under "--Introduction," Credit
Suisse First Boston then calculated the following implied reference ranges of
OCHC's percentage ownership of Lyondell common stock, as compared to the OCHC
implied ownership of Lyondell common stock pro forma for the transactions of
approximately 20-22%:
Implied Reference
Implied Reference Implied Reference Range of OCHC's
Range of OCHC's Range of OCHC's % Ownership of
% Ownership of % Ownership of Lyondell
Lyondell Lyondell Alternative Case--
Base Case Alternative Case Equistar Only
------------------- ------------------ --------------------
Selected Acquisitions Analysis .... 17.9% to 27.9% 15.5% to 29.0% 13.2% to 24.0%
17
Pro Forma Transaction Consequences
Credit Suisse First Boston analyzed the potential pro forma effect of the
transactions on Lyondell's calendar years 2003 to 2005 estimated earnings per
share, commonly referred to as EPS, giving effect to, among other things,
accounting adjustments provided by Lyondell's managements. Estimated financial
data were based on internal estimates of Equistar's and Lyondell's
managements. This analysis suggested that the transactions would be dilutive
to Lyondell's calendar year 2003 estimated EPS and accretive to Lyondell's
calendar year 2004 and 2005 estimated EPS.
The actual results achieved by the combined company may vary from
projected results and the variations may be material.
Other Factors
In the course of preparing its opinion, Credit Suisse First Boston also
reviewed and considered other information and data, including:
. historical price performance and trading characteristics of Lyondell
common stock and the relationship between movements in Lyondell common
stock and selected chemicals companies since announcement of the
transactions, as well as the five-year price performance and trading
characteristics of Lyondell common stock;
. publicly available research reports addressing the transaction; and
. the three-year stock performance of selected companies in the refining
industry.
Miscellaneous
Lyondell has agreed to pay Credit Suisse First Boston customary fees for
its financial advisory services. Lyondell also has agreed to reimburse Credit
Suisse First Boston for all of its reasonable out-of-pocket expenses,
including fees and expenses of legal counsel and any other advisor retained by
Credit Suisse First Boston, and to indemnify Credit Suisse First Boston and
related parties against liabilities, including liabilities under the federal
securities laws, arising out of its engagement.
Credit Suisse First Boston and its affiliates have in the past provided,
and may in the future provide, investment banking and financial services to
Lyondell, Equistar and Occidental and certain of their affiliates unrelated to
the proposed transactions, for which services Credit Suisse First Boston and
its affiliates have received, and expect to receive, compensation. In
addition, a senior advisor of Credit Suisse First Boston and a member of the
Board of Directors of Credit Suisse Group are each members of the board of
directors of Occidental. In the ordinary course of business, Credit Suisse
First Boston and its affiliates may actively trade the debt and equity
securities of Lyondell and Occidental and certain of their affiliates,
including the debt securities of Equistar, for their own accounts and for the
accounts of customers and, accordingly, may at any time hold long or short
positions in those securities.
Recommendation
Lyondell's Board of Directors has unanimously determined that the
proposed sale of the Securities to OCHC and the proposed purchase of the Oxy
Equistar Interest are in the best interests of Lyondell. Lyondell's Board of
Directors unanimously recommends a vote FOR approval of the proposed Amended
and Restated Certificate of Incorporation of Lyondell and FOR approval of the
proposed sale of the Securities to OCHC.
18
PROPOSAL TO APPROVE THE
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF LYONDELL
Item 1 on Proxy Card
Description of Proposed Amendments
Lyondell's Board of Directors unanimously recommends to the shareholders
for approval at the Special Meeting an Amended and Restated Certificate of
Incorporation of Lyondell that (1) amends Article IV of Lyondell's Certificate
of Incorporation, which sets forth the terms of Lyondell's authorized capital
stock and (2) deletes in its entirety Article VIII (Relations with Substantial
Stockholder) of Lyondell's Certificate of Incorporation, which currently sets
forth governance provisions relating to Atlantic Richfield Company, a former
substantial shareholder of Lyondell. The proposed amendment and restatement was
approved by Lyondell's Board of Directors at a meeting on , 2002. Article IV of
Lyondell's Certificate of Incorporation currently authorizes 330 million shares
of capital stock, consisting of (1) 250 million shares of Original Common Stock,
and (2) 80 million shares of preferred stock, par value $.01 per share. On May
15, 2002, 117,564,920 shares of Original Common Stock and no shares of preferred
stock were issued and outstanding.
The proposed Amended and Restated Certificate of Incorporation would:
. create Series B Common Stock;
. increase Lyondell's authorized common stock from 250 million shares to
420 million shares, which will consist of (1) 340 million shares of
Original Common Stock and (2) 80 million shares of Series B Common
Stock;
. establish the relative powers, preferences, rights, qualifications,
limitations and restrictions of the Original Common Stock and the
Series B Common Stock; and
. delete Article VIII (Relations with Substantial Stockholder), which is
obsolete.
The proposed amendments will not change the number of authorized shares of
preferred stock, which is 80 million, or the provisions of Lyondell's
Certificate of Incorporation relating to Lyondell's preferred stock. The
existing, issued and outstanding shares of Lyondell common stock will not change
as a result of the proposed Amended and Restated Certificate of Incorporation
and holders of Lyondell common stock will not receive new stock certificates.
If the proposed Amended and Restated Certificate of Incorporation is
approved by the shareholders, Lyondell's Certificate of Incorporation will be
amended as described in this Proxy Statement and as set forth in the form of
Amended and Restated Certificate of Incorporation attached hereto as Annex A.
The Amended and Restated Certificate of Incorporation will become effective when
it is filed with the Secretary of State of the State of Delaware. Prior to its
filing with the Secretary of State of the State of Delaware, the proposed
Amended and Restated Certificate of Incorporation may be abandoned by Lyondell's
Board of Directors, without further action by the shareholders, at any time
before or after the Special Meeting if for any reason the Board of Directors
deems it advisable.
Purposes and Effects of the Proposed Amended and Restated Certificate of
Incorporation
The principal purpose of amending and restating Lyondell's Certificate of
Incorporation to establish the Series B Common Stock is to provide for a series
of common stock with particular characteristics, shares of which will be issued
and sold to OCHC pursuant to the Securities Purchase Agreement. The terms of the
Securities Purchase Agreement are more fully described in this Proxy Statement
under "Proposal to Approve the
19
Sale of Securities to OCHC." The proceeds of the sale of the Securities to OCHC
will be used to finance Lyondell's purchase of the Oxy Equistar Interest from
wholly owned subsidiaries of Occidental, increasing Lyondell's interest in
Equistar to 70.5%. In addition, the Series B Common Stock would be available
for:
. issuance of Series B Common Stock to the extent issued upon exercise of
the Warrants to be issued to OCHC under the Securities Purchase
Agreement;
. issuance of Series B Common Stock to the extent it is used to satisfy
Lyondell's obligation under the Securities Purchase Agreement to make a
contingent payment of up to $35 million, based on the distributions made
by Equistar to its owners; this payment may be satisfied with Series B
Common Stock in lieu of cash or Original Common Stock, at Lyondell's
option;
. issuance of payment-in-kind dividends on shares of Series B Common
Stock; and
. issuance in other future financing and acquisition transactions that
Lyondell may determine to pursue from time to time, stock dividends or
splits and other corporate purposes.
Once authorized, the shares of Series B Common Stock may be issued with approval
of Lyondell's Board of Directors and without further approval of the
shareholders unless shareholder approval is required by applicable law, rule or
regulation. The terms of the Series B Common Stock are set forth in Article IV
of the proposed Amended and Restated Certificate of Incorporation, a copy of
which is attached to this Proxy Statement as Annex A, and the terms of the
Series B Common Stock are described below under "--Description of Series B
Common Stock." The differences between Original Common Stock and Series B Common
Stock are summarized below under "--Summary Comparison of Original Common Stock
and Series B Common Stock."
The principal purpose of amending and restating Lyondell's Certificate of
Incorporation to increase the number of authorized shares of Original Common
Stock is to provide Lyondell with additional authorized shares for:
. issuance of Original Common Stock upon conversion of Series B Common
Stock in accordance with the terms thereof;
. issuance of Original Common Stock to the extent issued upon exercise of
the Warrants to be issued to OCHC under the Securities Purchase
Agreement;
. issuance of Original Common Stock to the extent it is used to satisfy
Lyondell's obligation under the Securities Purchase Agreement to make a
contingent payment of up to $35 million, based on the distributions made
by Equistar to its owners, this payment may be satisfied with Original
Common Stock in lieu of cash or Series B Common Stock, at Lyondell's
option; and
. issuance in other future financing and acquisition transactions that
Lyondell may determine to pursue from time to time, stock dividends or
splits, employee benefit plans and other corporate purposes.
Once authorized, the additional shares of Original Common Stock may be issued
with approval of the Board of Directors and without further approval of the
shareholders unless shareholder approval is required by applicable law, rule or
regulation.
The principal purpose of deleting Article VIII (Relations with Substantial
Stockholder) of Lyondell's Certificate of Incorporation is to remove an obsolete
provision. Article VIII contains provisions addressing, among other things,
potential conflicts of interest between Lyondell and Atlantic Richfield Company
and mechanics for Lyondell's directors to manage business opportunities that
both Lyondell and Atlantic Richfield Company might have been interested in
pursuing. These provisions were important when Atlantic Richfield Company was a
substantial shareholder of Lyondell and had designees on Lyondell's Board of
Directors. Atlantic Richfield Company is no longer a substantial shareholder of
Lyondell and no longer has designees on Lyondell's Board of Directors, and
therefore these provisions are no longer necessary for the governance of
Lyondell.
20
Anticipated Issuance of Series B Common Stock in Connection with the Sale of
Securities to OCHC
The following table illustrates the number of shares of Series B Common
Stock that could be needed in connection with the Securities Purchase Agreement
for a three-year period after the closing under the agreement. The stock prices
in the table below are based on the per-share stock prices used to calculate the
number of shares to be issued to OCHC at the closing of the Securities Purchase
Agreement. See "Proposal to Approve the Sale of Securities to OCHC."
Number of
shares of Series B
Common Stock,
assuming a constant
stock price of
-------------------
$13.10 $17.10
per per
Reason for Issuance (millions of shares) share(a) share(b)
- ---------------------------------------- -------- --------
Initial number to be issued at closing................. 34.0 30.0
In-kind dividends(c)................................... 7.7 5.1
Contingent payment shares(d)........................... 2.7 2.1
----- -----
Total(e)............................................ 44.4 37.2
===== =====
- -------
(a) This column assumes that for the three-year period beginning at the closing
of the Securities Purchase Agreement, Lyondell's per-share stock price is
always $13.10 (the lower end of the range that will be used to determine
the number of shares of Series B Common Stock to be issued at the closing).
(b) This column assumes that for the three-year period beginning at the closing
of the Securities Purchase Agreement, Lyondell's per-share stock price is
always $17.10 (the upper end of the range that will be used to determine
the number of shares of Series B Common Stock to be issued at the closing).
(c) The number of shares to be issued as in-kind dividends set forth in this
table is also based on the assumption that Lyondell continues to pay
dividends on Lyondell common stock at its current annual rate of $.90 per
share and that it pays in-kind dividends on shares of Series B Common Stock
for three years.
(d) The number of shares to be issued to satisfy Lyondell's obligation to make
a contingent payment of up to $35 million under the Securities Purchase
Agreement is also based on the assumption that Lyondell would be obligated
to pay the maximum of $35 million and would elect to satisfy this
obligation entirely with shares of Series B Common Stock. Lyondell will be
obligated to make a contingent payment only if Equistar makes distributions
to its owners that (1) relate to the period from January 1, 2002 to
December 31, 2003 and (2) are made by Equistar after the closing date of
the Securities Purchase Agreement and before May 1, 2004. See "Proposal to
Approve the Sale of Securities to OCHC--Potential Issuance of Additional
Shares as a Contingent Payment."
(e) In addition to the total number of shares of Series B Common Stock
reflected in this table, Lyondell may issue shares of Series B Common Stock
upon exercise of Warrants to be issued to OCHC at the closing of the
Securities Purchase Agreement in lieu of issuing shares of Original Common
Stock. If Lyondell were to use only Series B Common Stock to satisfy its
obligation under all the Warrants, the total number of shares of Series B
Common Stock to be issued would have a value equal to the excess, if any,
between the stock price per share of Original Common Stock on the date of
exercise and the exercise price of the Warrants, multiplied by five
million. See "Proposal to Approve the Sale of Securities to OCHC--
Description of Warrants to be Issued at Closing of the Securities Purchase
Agreement--Exercise Price; Net Payment Option."
Effects of Increase in Number of Authorized Shares
An increase in the number of authorized shares of Lyondell common stock
could have a potential anti-takeover effect. Lyondell has not proposed the
increase in the number of authorized shares of common stock with the intention
of using the additional shares for anti-takeover purposes, although Lyondell may
use the additional shares in a manner that would discourage an attempt to
acquire control of Lyondell or to make any such attempt more difficult. Lyondell
is not aware of any pending or threatened efforts to acquire control of
Lyondell.
21
Description of Series B Common Stock
The following summary of the terms of Series B Common Stock is qualified in
its entirety by reference to Article IV of the proposed Amended and Restated
Certificate of Incorporation, a copy of which is attached to this Proxy
Statement as Annex A, and the Amended and Restated By-Laws of Lyondell, a copy
of which has been filed with the SEC as an exhibit to Lyondell's Annual Report
on Form 10-K. You should read the proposed Amended and Restated Certificate of
Incorporation and Lyondell's By-Laws as currently in effect for more details
regarding the provisions described below and for other provisions that may be
important to you.
The following summary describes the powers, preferences, rights,
qualifications, limitations and restrictions of Series B Common Stock that are
in addition to, or different from, those generally applicable to Original Common
Stock. Except as otherwise set forth in the proposed Amended and Restated
Certificate of Incorporation, the relative powers, preferences, rights,
qualifications, limitations and restrictions of Series B Common Stock will be
identical in all respects to those of Original Common Stock. A description of
Original Common Stock has been filed with the SEC in Lyondell's Registration
Statement on Form S-3 dated May 15, 2002. The differences between Original
Common Stock and Series B Common Stock are summarized below under "--Summary
Comparison of Original Common Stock and Series B Common Stock."
Number of Authorized Shares in Series B Common Stock
If the proposed Amended and Restated Certificate of Incorporation is
approved by the shareholders, 80,000,000 shares of Series B Common Stock will be
authorized.
Dividends
Holders of record of Series B Common Stock, referred to as "Series B
Holders," will be entitled to receive such dividends as may be declared from
time to time by Lyondell's Board of Directors. Lyondell's Board of Directors
will not declare any dividend on shares of Original Common Stock without also
declaring a dividend on shares of Series B Common Stock in the same amount and
form per share. However, if a cash dividend is declared on shares of Original
Common Stock, Lyondell may in its sole discretion declare and pay the
corresponding dividend on shares of Series B Common Stock in kind by issuing
additional shares of fully-paid and nonassessable Series B Common Stock instead
of cash. The number of payment-in-kind shares to be issued in lieu of cash will
be calculated by reference to the average of the high and low stock prices for
Original Common Stock, as reported on the New York Stock Exchange, for a 10-
business-day period beginning four business days before the corresponding cash-
dividend-payment date for the Original Common Stock and ending five business
days thereafter. No fractional shares will be issued for dividends paid in kind
and any paid-in-kind dividends will be rounded to the nearest whole number.
Conversion of Shares of Series B Common Stock into Shares of Original Common
Stock
Each Series B Holder will have the right to convert any or all of its
shares of Series B Common Stock into shares of fully-paid and nonassessable
Original Common Stock, without payment of additional consideration by the Series
B Holder, at any time on or after the date of issuance of the shares or such
later date as may be fixed by Lyondell's Board of Directors in resolutions
authorizing the issuance of such shares, unless conversion is restricted by
agreement between the holder and Lyondell. Lyondell may in its sole discretion
at any time convert any or all shares of the Series B Common Stock into shares
of Original Common Stock. Shares of Series B Common Stock may not be converted
during the period between a dividend declaration date and the related record
date.
The Stockholders Agreement to be entered into among Lyondell, Occidental
and OCHC at the closing of the Securities Purchase Agreement will restrict
conversion of the shares of Series B Common Stock issued to OCHC or its wholly
owned affiliates in connection with the transactions contemplated by the
Securities Purchase Agreement. The Stockholders Agreement will prohibit
Occidental, OCHC and each wholly owned affiliate of Occidental who is a holder
of Series B Common Stock from converting shares of Series B Common Stock into
shares of fully-paid and nonassessable Original Common Stock, until a date that
is:
. after the third anniversary of the first issuance of Series B Common
Stock;
22
. 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 of its then outstanding shares of Original 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.
Voting
Series B Holders will be entitled to one vote, in person or by proxy, for
each share of Series B Common Stock registered in his, her or its name on the
books of Lyondell, at all shareholder meetings and on each matter submitted to a
vote by the shareholders, except where otherwise provided by law or in the
proposed Amended and Restated Certificate of Incorporation.
Series B Holders will vote together with the holders of Original Common
Stock as a single class, except as otherwise provided by law or in the proposed
Amended and Restated Certificate of Incorporation. For example, Series B Holders
will vote as a separate class to (1) approve any amendments to Lyondell's
Certificate of Incorporation that would adversely affect the powers, preferences
or special rights of Series B Common Stock and (2) approve any reorganization,
consolidation or merger in which holders of Original Common Stock and Series B
Holders will not receive identical consideration upon such reorganization,
consolidation or merger, except as described below under "--Reorganization,
Consolidation or Merger." Any proposal to alter the powers, preferences or
rights of Series B Common Stock in an adverse manner will require the
affirmative vote of the holders of at least 80% of the outstanding shares of
Series B Common Stock present, or represented by proxy, at the vote. Neither an
increase in the number of authorized shares of Lyondell's capital stock nor the
creation, authorization or issuance of convertible securities, warrants or other
similar purchase rights is deemed to adversely affect Series B Common Stock.
Series B Common Stock does not have cumulative voting rights. Holders of a
majority of the shares of Original Common Stock and Series B Common Stock,
acting as one class of Lyondell common stock, represented at a shareholder
meeting can elect all of the directors of Lyondell.
Liquidation
Series B Holders will be entitled to share ratably with holders of Original
Common Stock in all assets of Lyondell available for distribution to Lyondell's
shareholders in the event of the liquidation, dissolution or winding-up of
Lyondell.
Reorganization, Consolidation or Merger
Upon a reorganization, consolidation, or merger of Lyondell, holders of
Original Common Stock and Series B Common Stock will be entitled to receive for
each share the same kind and amount of shares of stock and other securities and
properties (including cash) as will be received by a holder of a share of the
other Series, except as otherwise approved by the Series B Holders and holders
of Original Common Stock, each voting as a separate class. However, the
foregoing does not apply to a merger in which Lyondell:
. is the surviving corporation and that does not result in the
distribution of shares of stock or other securities or property
(including cash) or any reclassification or change in the outstanding
shares of Lyondell common stock, in which case holders of Original
Common Stock and Series B holders will continue to hold their respective
shares, or
. merges with a wholly owned subsidiary for the purpose of forming a
holding company, in which case each outstanding share of Original Common
Stock and Series B Common Stock will be converted into one share of
common stock of the resulting holding company with the same respective
rights, powers, preferences, qualifications, limitations and
restrictions as Original Common Stock or Series B Common Stock, as the
case may be, being converted in the merger.
23
Summary Comparison of Original Common Stock and Series B Common Stock
The following summary of the differences between Original Common Stock and
Series B Common Stock is qualified in its entirety by reference to (1) Article
IV of Lyondell's Certificate of Incorporation, a copy of which has been filed
with the SEC as an exhibit to Lyondell's Annual Report on Form 10-K, and (2)
Article IV of the proposed Amended and Restated Certificate of Incorporation, a
copy of which is attached to this Proxy Statement as Annex A. This summary
assumes approval of the proposed Amended and Restated Certificate of
Incorporation and that no shares of Lyondell preferred stock have been issued.
You should read Lyondell's Certificate of Incorporation as currently in effect
and the proposed Amended and Restated Certificate of Incorporation for more
details regarding the provisions described below and for other provisions that
may be important to you.
Term Original Common Stock Series B Common Stock
---- --------------------- ---------------------
Number of Authorized Shares 340 million 80 million
Par Value per Share $1.00 Same as Original Common Stock
Dividends:
- --Non-cash As declared by the Board of Same as Original Common Stock
Directors
- --Cash Cash Cash or additional shares of
Series B Common Stock
Conversion Rights Not applicable May be converted into shares of
Original Common Stock at any time
at option of holder or Lyondell
(subject to any applicable
contractual restrictions)
Voting Rights:
- --Number of Votes per Share One Same as Original Common Stock
- --Cumulative Voting None Same as Original Common Stock
- --General Rule Vote with other series of common Same as Original Common Stock
stock as single class, unless
specified by Lyondell's Certificate
of Incorporation or applicable law
or regulation
- --Exception for Amendments to Certificate Majority approval of Original 80% approval of Series B
of Incorporation Common Stock required for Common Stock required for
adverse changes to Original adverse changes to Series B
Common Stock Common Stock
- --Exception for Reorganization, Vote as separate class if holders Same as Original Common Stock
Consolidation or Merger will not receive same kind and
amount of consideration as other
holders of common stock
Liquidation, Dissolution or Winding Up Share ratably in all assets Same as Original Common Stock
available for distribution
Reorganization, Consolidation or Merger:
- --General Rule Receive same kind and amount of Same as Original Common Stock
consideration as other holders of
common stock
24
Term Original Common Stock Series B Common Stock
---- --------------------- ---------------------
- --Exceptions:
--Merger where Lyondell is the No change to issued shares of Same as Original Common Stock
survivor and there is no common stock
distribution of securities or
property or reclassification or
change to common stock
--Formation of holding Receive shares of common stock Receive shares of common stock
company of holding company with same of holding company with same
terms as Original Common Stock terms as Series B Common Stock
Required Vote and Board of Directors' Recommendation
Approval of the proposed Amended and Restated Certificate of Incorporation
will require the vote of the holders of a majority of the outstanding shares of
Lyondell common stock entitled to vote on this proposal. Abstentions will have
the same effect as a vote against the proposal to adopt the Amended and Restated
Certificate of Incorporation. Broker non-votes will not affect the outcome of
this proposal.
Lyondell's Board of Directors unanimously recommends a vote FOR approval
of the proposed Amended and Restated Certificate of Incorporation of Lyondell.
Properly dated and signed proxies, and proxies properly submitted over the
Internet and by telephone, will be so voted unless shareholders specify
otherwise.
25
PROPOSAL TO APPROVE THE
SALE OF SECURITIES TO OCHC
Item 2 on Proxy Card
Overview
On , 2002, Lyondell and OCHC, a wholly owned subsidiary of
Occidental, entered into the Securities Purchase Agreement for the issuance and
sale by Lyondell to OCHC, for an aggregate purchase price of $440 million, of:
. between 30 and 34 million shares of Series B Common Stock;
. the Warrants; and
. the right to receive a contingent payment having a value up to a total
of $35 million, payable in cash or shares of Original 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.
The Securities being sold to OCHC will represent in the aggregate more than 20%
of the issued and outstanding shares of Lyondell common stock. A copy of the
Securities Purchase Agreement and the form of Warrant have been filed with the
SEC as an exhibit to Lyondell's Current Report on Form 8-K dated , 2002.
In connection with the closing of the Securities Purchase Agreement,
Lyondell will enter into the Stockholders Agreement with OCHC and Occidental and
the Registration Rights Agreement with OCHC. A copy of the form of Stockholders
Agreement and the form of Registration Rights Agreement have been filed with the
SEC as an exhibit to Lyondell's Current Report on Form 8-K dated , 2002.
Lyondell will use the cash proceeds received from the sale of Securities to
OCHC to purchase for $440.02 million the Oxy Equistar Interest, pursuant to the
Occidental Partner Sub Purchase Agreement. A copy of the Occidental Partner Sub
Purchase Agreement has been filed with the SEC as an exhibit to Lyondell's
Current Report on Form 8-K dated , 2002.
The following summary of the terms and provisions of the Securities
Purchase Agreement, Warrant, Stockholders Agreement, Registration Rights
Agreement and Occidental Partner Sub Purchase Agreement is qualified in its
entirety by reference to each of those documents, a copy of which has been filed
with the SEC as an exhibit to Lyondell's Current Report on Form 8-K dated ,
2002. You should read these agreements carefully for more details regarding the
provisions we describe below and for other provisions that may be important to
you.
Purchase Price under the Securities Purchase Agreement
OCHC will pay an aggregate amount of $440 million to Lyondell for (1) the
number of shares of Series B Common Stock issued to OCHC at the closing of the
Securities Purchase Agreement, (2) the Warrants and (3) the right to receive a
contingent payment having a value up to a total of $35 million, payable in cash
or shares of Original 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.
Determining the Number of Shares of Series B Common Stock to be Issued at
Closing of the Securities Purchase Agreement
The powers, preferences, rights, qualifications, limitations and
restrictions of the Series B Common Stock are described above under "Proposal to
Approve the Amended and Restated Certificate of Incorporation of
26
Lyondell--Description of the Series B Common Stock." The number of shares of
Series B Common Stock to be issued at the closing of the Securities Purchase
Agreement 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
Between $15.10 and $14.10 32 million
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 pr ice, minus $13.10, by (b) 2
million
$13.10 or Below 34 million
Potential Issuance of Additional Shares as a Contingent Payment
In addition to the Securities to be issued at the closing of the Securities
Purchase Agreement, Lyondell will be obligated to pay to OCHC 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 of the
Securities Purchase Agreement 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 Original Common Stock or Series B Common Stock. If Lyondell elects to satisfy
this contingent payment obligation in shares of Original Common Stock or Series
B Common Stock, the number of shares to be issued and delivered to OCHC will be
based on the average of the high and low per share sale prices of Original
Common Stock, as reported on the New York Stock Exchange, for the
20-business-day period beginning 10 business days before the date Equistar makes
a distribution and ending 9 business days after the distribution date.
Description of Warrants to be Issued at Closing of the Securities Purchase
Agreement
Warrants to be Issued at Closing
Lyondell will issue five million Warrants to OCHC at the closing of the
Securities Purchase Agreement that will be in the form of Warrant that Lyondell
filed with the SEC as an exhibit to Lyondell's Current Report on Form 8-K dated
, 2002. Each Warrant will be exercisable for one share of Original Common
Stock, subject to Lyondell's ability to make a "Net Payment" in lieu of issuing
one share of Original Common Stock upon exercise, as described below under "--
Exercise Price; Net Payment Option."
Exercise Period
Each Warrant will be exercisable at any time between the date of issuance
and the fifth anniversary of the date of issuance.
27
Exercise Price; Net Payment Option
Each Warrant may be exercised for one share of Original Common Stock at an
exercise price of $25.00 per share. However, Lyondell will have the right, in
its sole discretion, to instead make a "Net Payment" by electing to pay the
excess, if any, between the stock price per share of Original 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 Original Common Stock, (3) subject to specified
limitations, Series B Common Stock or (4) a combination of (1), (2) and (3), at
Lyondell's option. If Lyondell elects to make all or a portion of a Net Payment
in the form of shares of Original Common Stock or Series B Common Stock, each
share shall be valued by the average of the high and low per-share sale prices
of Lyondell common stock, as reported on the New York Stock Exchange, on the
date a Warrant is exercised.
Adjustments to Exercise Price and Number of Warrants
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 Warrant 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)
$.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.
Upon a consolidation or merger (other than a consolidation or merger in
which Lyondell is the surviving entity or continuing entity and that does not
result in any change in the Original Common Stock), or sale of substantially all
assets of Lyondell, each Warrant will be exercisable for the number of shares of
stock, other Lyondell securities or property, or successor entity's securities
or property, as the case may be, that the holder of the Warrant would have
received had the holder exercised the Warrant immediately before the merger,
consolidation or sale of substantially all assets. In addition, Lyondell may not
effect a consolidation, merger or sale of substantially all assets unless
Lyondell's successor following any of those events agrees in writing to fulfill
Lyondell's obligations under the Warrants.
Restrictions on Transfer of the Warrants and Shares Received Upon Exercise of
the Warrants
Transfer of the Warrants and shares of Original Common Stock or Series B
Common Stock received upon exercise of a Warrant will be restricted by the
Stockholders Agreement as described below under "--Restrictions on Transfer of
Securities."
Effects of Issuance of Additional Common Stock
The issuance of additional common stock will dilute the voting power of the
currently outstanding shares of Lyondell common stock. In addition, the issuance
of the Series B Common Stock may dilute Lyondell's earnings per share and lower
the trading price of the outstanding Lyondell common stock. The likelihood or
magnitude of these effects is difficult to predict since they are dependent in
part on circumstances beyond Lyondell's control.
28
Description of Stockholders Agreement
In connection with the Securities Purchase Agreement, Lyondell will
enter into the Stockholders Agreement with OCHC and Occidental that sets forth,
among other things:
(1) restrictions on the conversion of Series B Common Stock into Original
Common Stock, as more fully described below under "--Restrictions on
Conversion of Shares of Series B Common Stock into Shares of Original
Common Stock;"
(2) restrictions on transfer of the Warrants and the shares of Original
Common Stock and Series B Common Stock issued in connection with the
Securities Purchase Agreement, as more fully described below under "--
Restrictions on Transfer of Securities;"
(3) standstill provisions restricting Occidental's ability to engage or
participate in specified change of control activities, as more fully
described below under "--Standstill Agreement;"
(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, as more fully described below under "--Governance Matters
--Appointments 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, as more fully
described below under "--Governance Matters--Voting Agreement."
A copy of the form of Stockholders Agreement has been filed with the
SEC as an exhibit to Lyondell's Current Report on Form 8-K dated , 2002.
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 Original 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 OCHC at the closing of the Securities
Purchase Agreement. 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 Original Common Stock.
Restrictions on Conversion of Shares of Series B Common Stock into Shares of
Original Common Stock
Notwithstanding the conversion provisions set forth in Article IV of the
proposed Amended and Restated Certificate of Incorporation, the Stockholders
Agreement will prohibit Occidental, OCHC and each wholly owned affiliate of
Occidental who is a holder of Series B Common Stock from converting shares of
Series B Common Stock into shares of fully-paid and nonassessable Original
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 Original 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 Original Common Stock at any time
in its sole discretion will not be restricted by the Stockholders Agreement.
29
Restrictions on Transfer of Securities
The Stockholders Agreement will restrict the transfer of shares of Original
Common Stock, Series B Common Stock and Warrants issued in connection with the
transactions contemplated by the Securities Purchase Agreement.
Under the Stockholders Agreement, Warrants and shares of Series B Common
Stock received (1) at the closing of the Securities Purchase Agreement, (2) as
satisfaction of Lyondell's obligation to make a contingent payment to OCHC, (3)
upon exercise of a Warrant and (4) as a dividend, may be transferred only to a
wholly owned affiliate of Occidental.
Under the Stockholders Agreement, shares of Original Common Stock received
(1) upon conversion of Series B Common Stock, (2) as satisfaction of Lyondell's
obligation to make a contingent payment to OCHC, (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 the 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 Original 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.
Shares of Original Common Stock, Series B Common Stock and Warrants issued
in connection with the Securities Purchase Agreement may be pledged to any bank,
insurance company, investment bank or other financial institution that is
regularly engaged in the business of making loans. Upon foreclosure, the lender
will be obligated 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, Original 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 control of Lyondell's Board of Directors or 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) any wholly owned
affiliate of Occidental may purchase up to 320,000 shares of Original 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%
30
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 Original Common Stock in connection with the transactions contemplated
by the Securities Purchase Agreement or as a dividend will not be a violation of
the standstill provisions.
Governance Matters
Appointments to Lyondell's Board of Directors
In the Stockholders Agreement, Lyondell will agree, effective at the
closing of the Securities Purchase Agreement, to appoint Dr. Ray R. Irani,
Chairman of the Board of Directors and Chief Executive Officer of Occidental,
and Stephen I. Chazen, Chief Financial Officer and Executive Vice
President--Corporate Development of Occidental, to Lyondell's Board of
Directors. If Occidental beneficially owns, directly or indirectly, fewer than
the initial number of shares of Series B Common Stock issued to OCHC at the
closing of the Securities Purchase Agreement 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. If Occidental
beneficially owns, directly or indirectly, fewer than 50% of the number of
shares issued to OCHC at the closing of the Securities Purchase Agreement, then
neither of such individuals will be entitled to a seat on Lyondell's Board of
Directors. Occidental will not have the right to (1) substitute any other
individuals for Dr. Irani or Mr. Chazen on Lyondell's Board of Directors or (2)
require that any other individual be appointed to Lyondell's Board of Directors.
Subject to the limitations described above, Lyondell's Board of Directors will
include Dr. Irani and Mr. Chazen, as appropriate, in any slate of directors
presented to the shareholders of Lyondell for election for so long as they are
able and qualified to serve.
Dr. Ray R. Irani has served since 1990 as Chairman and Chief Executive
Officer of Occidental, one of the world's largest independent oil and gas
exploration and production companies and a leading marketer and manufacturer of
basic and niche performance chemicals. Dr. Irani served as President of
Occidental from 1984 until 1996 and as Chief Operating Officer from 1984 to
1990. He was Chairman of the Board of Directors of Canadian Occidental Petroleum
Ltd. (now Nexen Inc.) from 1987 to 1999, and was honorary Chairman of the Board
from 1999 to 2000. Prior to joining Occidental, Dr. Irani served as President
and Chief Operating Officer of Olin Corporation. Dr. Irani is also a director of
Cedars Bank, Health Net and KB Home. On the date of this Proxy Statement, Dr.
Irani was 67 years old.
Stephen I. Chazen is Executive Vice President of Corporate Development and
Chief Financial Officer for Occidental, one of the world's largest independent
oil and gas exploration and production companies and a leading marketer and
manufacturer of basic and niche performance chemicals. Mr. Chazen joined
Occidental as Executive Vice President--Corporate Development in 1994 and the
additional responsibilities of Chief Financial Officer were added in 1999. Prior
to Occidental, Mr. Chazen held numerous positions from 1982 until 1994 in the
investment banking division of Merrill Lynch where he was a Managing Director.
Mr. Chazen is a director of Premcor, Inc. On the date of this Proxy Statement,
Mr. Chazen was 55 years old.
Voting Agreement
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 voted "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
As a condition of the sale of the Securities to OCHC, Lyondell will enter
into the Registration Rights Agreement at the closing of the Securities Purchase
Agreement to provide for registration rights with respect to shares of Original
Common Stock issued to OCHC (1) as a dividend, (2) upon conversion of Series B
Common
31
Stock, (3) upon exercise of a Warrant or (4) in satisfaction of Lyondell's
obligation to make a contingent payment to OCHC. Neither Series B Common Stock
nor the Warrants will have registration rights. A copy of the form of
Registration Rights Agreement has been filed with the SEC as an exhibit to
Lyondell's Current Report on Form 8-K dated , 2002.
Lyondell will bear all costs, fees and expenses of each registration,
except underwriting discounts and commissions, fees of counsel, experts and/or
advisors retained by a holder, underwriter, underwriter's counsel and
out-of-pocket roadshow expenses.
Demand Registration Rights
Holders of Original 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 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.
Piggy-Back Registration Rights
Lyondell will be required to notify holders of Original Common Stock with
registration rights if it plans to conduct an underwritten public offering of
shares of Original 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 Original Common Stock so registered on the
recommendation of the lead managing underwriter, and Lyondell may also in its
sole discretion withdraw any registration statement and abandon any proposed
offering.
Transfer of Registration Rights
Registration rights may be transferred together with shares of Original
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.
Delaware Section 203
Lyondell is a Delaware corporation and is 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% or more of
Lyondell's outstanding voting stock) from engaging in a "business combination"
(as defined in Section 203) with Lyondell for three years after the time that
person becomes an interested stockholder. The limitations of Section 203 do not
apply to an interested stockholder if Lyondell's Board of Directors approves in
advance the transaction that will result in the creation of an interested
stockholder.
Upon the closing of the sale of the Securities to OCHC, OCHC will be an
interested stockholder for purposes of Section 203 of the General Corporation
Law of Delaware. However, because Lyondell's Board of Directors approved the
sale of the Securities to OCHC before executing the Securities Purchase
Agreement and the issuance of the Securities to OCHC, OCHC will not be
restricted from engaging in a "business combination" with Lyondell by Section
203.
Closing Conditions under the Securities Purchase Agreement
The Securities Purchase Agreement contains several conditions to closing,
including (1) approval by Lyondell's shareholders of the Amended and Restated
Certificate of Incorporation of Lyondell and the issuance of the Securities to
OCHC, (2) expiration or termination of the HSR waiting period for the
transaction, (3) the absence of any material injunction or legal proceeding and
(4) the absence of any material adverse change in the business or financial
condition of Lyondell between the date Lyondell executed the Securities Purchase
Agreement and the closing date.
32
Use of Proceeds from Sale of Securities
The Securities Purchase Agreement provides that Lyondell will use the net
proceeds received from the sale of the Securities to OCHC to finance Lyondell's
purchase of the Oxy Equistar Interest on the terms set forth in the Occidental
Partner Sub Purchase Agreement. Equistar is a joint venture currently owned by
wholly owned subsidiaries of Lyondell (41%), Occidental (29.5%) and Millennium
(29.5%) that operates petrochemicals and polymers businesses. Lyondell is the
operator of Equistar and Lyondell's Chief Executive Officer, Dan F. Smith, is
also the Chief Executive Officer of Equistar. After the purchase of the Oxy
Equistar Interest, Lyondell will own 70.5% of Equistar. A copy of the Occidental
Partner Sub Purchase Agreement has been filed with the SEC as an exhibit to
Lyondell's Current Report on Form 8-K dated , 2002. The Occidental Partner Sub
Purchase Agreement is described below under "--Description of Occidental Partner
Sub Purchase Agreement."
Description of Occidental Partner Sub Purchase Agreement
Oxy Equistar Interest
Occidental indirectly holds, in the aggregate, a 29.5% partnership interest
in Equistar. Three indirect wholly owned subsidiaries of Occidental hold the Oxy
Equistar Interest. These subsidiaries are Occidental Petrochem Partner 1, Inc.,
referred to as "Occidental LP1," Occidental Petrochem Partner 2, Inc., referred
to as "Occidental LP2," and Occidental Petrochem Partner GP, Inc., referred to
as "Occidental GP." Occidental Chemical Corporation owns all of the outstanding
capital stock of Occidental LP1. Oxy CH Corporation owns all of the outstanding
capital stock of Occidental LP2 and Occidental GP. Occidental Chemical
Corporation and Oxy CH Corporation are also subsidiaries of Occidental.
Purchase Price
Lyondell will pay an aggregate amount of $440.02 million to Oxy CH
Corporation and Occidental Chemical Corporation for all of the outstanding
capital stock of Occidental LP1, Occidental LP2 and Occidental GP.
Indemnification for Potential Loss of Partnership Units
A copy of the Amended and Restated Limited Partnership Agreement of
Equistar, dated August 24, 2001, has been filed with the SEC as an exhibit to
Lyondell's Annual Report on Form 10-K.
Occidental LP1 holds 6,623 of the aggregate of 29,500 Equistar partnership
units that are held by the Occidental subsidiaries that Lyondell is purchasing.
Section 14 of the Equistar Partnership Agreement provides that, upon termination
of a specified petrochemical-plant lease from Occidental to Equistar, Occidental
LP1 could lose its 6,623 partnership units and no longer be an owner of
Equistar. If that occurs, the Occidental Partner Sub Purchase Agreement and the
Securities Purchase Agreement provide that Occidental will (1) allow Lyondell or
Equistar to acquire, operate or receive the benefit of operating the previously
leased petrochemical plant, (2) pay Lyondell $75 million in cash or (3) if the
value is greater than $75 million, transfer or pay to Lyondell 5.4 million
shares of Lyondell common stock or the sale proceeds from 5.4 million shares of
Lyondell common stock or a combination of both.
Closing Conditions
The Occidental Partner Sub Purchase Agreement contains several conditions
to closing, including (1) the closing of the Securities Purchase Agreement and
Lyondell's receipt of the purchase price thereunder from OCHC, (2) expiration or
termination of the waiting period for closing the transaction required under the
HSR
33
Act, (3) the absence of any material injunction or legal proceeding and (4) the
absence of any material adverse change in the business or financial condition of
Equistar, Occidental LP1, Occidental LP2 or Occidental GP.
Regulatory Filings Required
The transaction comprising the acquisition of Securities by OCHC and the
purchase of the Oxy Equistar Interest is subject to the filing by Occidental and
Lyondell of a notification and report to the Federal Trade Commission and the
U.S. Department of Justice, Antitrust Division, under the HSR Act. Pursuant to
HSR rules and regulations, the acquisition cannot close until termination or
expiration of a waiting period. Termination or expiration of the HSR waiting
period without the imposition of any condition or restriction is a condition to
the closing of the Securities Purchase Agreement and the Occidental Partner Sub
Purchase Agreement.
Requirement for Shareholder Approval
Issuance of Securities
Lyondell's listing agreement with the New York Stock Exchange requires
shareholder approval for the issuance of Lyondell common stock that represents
in the aggregate more than 20% of the issued and outstanding shares of Lyondell
common stock. In addition, the listing agreement requires shareholder approval
for the issuance of securities to a "substantial stockholder" of Lyondell. As of
May 15, 2002, 117,564,920 shares of Lyondell common stock were issued and
outstanding. At the closing of the Securities Purchase Agreement, Lyondell will
sell to OCHC securities representing more than 20% of the issued and outstanding
shares of Lyondell common stock on a fully diluted basis, and OCHC will become a
substantial stockholder of Lyondell. In addition to the Securities issued to
OCHC at the closing of the Securities Purchase Agreement, Lyondell may issue
additional shares of Original Common Stock or Series B Common Stock to OCHC or
to other wholly owned affiliates of Occidental:
. to satisfy Lyondell's obligation to make a contingent payment having a
value up to $35 million to OCHC as described above under "--Potential
Issuance of Additional Shares as a Contingent Payment;"
. upon conversion of Series B Common Stock into Original Common Stock;
. upon exercise of a Warrant; and
. as a stock dividend or upon a stock split.
Approval of the issuance and sale of the Securities also constitutes
approval of the issuance of additional securities in the future as contemplated
by the terms of the Securities. After giving effect to the sale of 30 to 34
million shares of Series B Common Stock at the closing of the Securities
Purchase Agreement, assuming no exercise of the Warrants, OCHC will beneficially
own approximately 20.3% to 22.4% of Lyondell's issued and outstanding common
stock. After giving effect to the exercise of the Warrants, assuming each
Warrant is exercised for one share of Original Common Stock for a total issuance
of five million shares of Original Common Stock, OCHC would beneficially own
approximately 22.9% to 24.9% of Lyondell's issued and outstanding shares of
common stock. In connection with the sale of the Securities to OCHC, Lyondell's
Board of Directors adopted resolutions exempting OCHC and its affiliates from
the definition of "Acquiring Person" under the Rights Agreement dated December
8, 1995, as it may be supplemented or amended from time to time, between
Lyondell and The Bank of New York, as Rights Agent. These resolutions authorize
OCHC and its affiliates to acquire, without triggering operation of the Rights
Agreement, beneficial ownership of additional securities as contemplated by the
Securities Purchase Agreement and its related agreements so long as their
beneficial ownership in the aggregate, directly or indirectly, does not exceed
40% of the issued and outstanding common stock of Lyondell.
34
Purchase of the Oxy Equistar Interest
Although Lyondell needs to issue the Securities to OCHC in order to have
sufficient funds to purchase the Oxy Equistar Interest, Lyondell is not seeking
shareholder approval for the purchase of the Oxy Equistar Interest because
shareholder approval of this purchase is not required under Delaware law,
Lyondell's Certificate of Incorporation or Lyondell's listing agreement with the
New York Stock Exchange.
Required Vote and Board of Directors' Recommendation
Approval of the sale of the Securities to OCHC will require the vote of the
holders of a majority of the outstanding shares of Lyondell common stock
entitled to vote on this matter. Abstentions will have the same effect as a vote
against the proposal to approve the sale of the Securities to OCHC. Broker
non-votes will not affect the outcome of this proposal.
Lyondell's Board of Directors unanimously recommends a vote FOR approval of
the proposed sale of the Securities to OCHC. Properly dated and signed proxies,
and proxies properly submitted over the Internet or by telephone, will be so
voted unless shareholders specify otherwise.
35
SELECTED FINANCIAL DATA
Selected Historical Financial Data of Lyondell
The selected historical financial data set forth below for the five years
ended December 31, 2001 are from the audited financial statements of Lyondell.
The selected financial data for the three-month periods ended March 31, 2002 and
2001 are from the unaudited financial statements of Lyondell.
For the three
months ended
March 31, For the year ended December 31,
-------------- -------------------------------------------
2002 2001 2001 2000 1999 1998(a) 1997(b)
------ ------ ------ ------ ------ --------- ---------
Millions of dollars, except per-share data
- -----------------------------------------
Results of Operations Data:
Sales and other operating revenues (c)........... $ 674 $ 849 $3,193 $4,003 $3,660 $1,433 $2,878
Income (loss) from equity investments--Equistar.. (45) (22) (77) 101 52 119 6
Income from equity investments--other............ 24 24 117 98 24 116 102
Net income (loss) (d)(e)......................... (55) (34) (150) 437 (115) 52 286
Basic earnings (loss) per share (d)(e)........... (.47) (.29) (1.28) 3.72 (1.10) .67 3.58
Diluted earnings (loss) per share (d)(e)......... (.47) (.29) (1.28) 3.71 (1.10) .67 3.58
Dividends per share.............................. .225 .225 .90 .90 .90 .90 .90
Balance Sheet Data:
Total assets..................................... 6,375 6,913 6,703 7,047 9,498 9,156 1,559
Long-term debt................................... 3,833 3,841 3,846 3,844 6,046 5,391 345
- -----------
(a) The financial information for 1998 included five months of operating
results for ARCO Chemical Company, acquired as of July 28, 1998 and
accounted for using the purchase method of accounting. It also included
twelve months of Equistar, LCR and Lyondell Methanol Company, L.P.,
referred to as "LMC"; each accounted for as an equity investment.
(b) The financial information for 1997 included twelve months of consolidated
operating results of Lyondell and LMC, and Lyondell's equity income from
LCR for twelve months and from Equistar for one month.
(c) Amortization of intangible assets for all periods has been reclassified to
conform to the March 31, 2002 presentation.
(d) The net loss for 2001, net income for 2000 and the net loss for 1999
included extraordinary losses on early extinguishment of debt, net of
income taxes, of $5 million, $33 million and $35 million, or $.04, $.28 and
$.33 per basic and diluted share, respectively. In addition, net income for
2000 included an after-tax gain on asset sales of $400 million, or $3.40
per share.
(e) As a result of implementing Statement of Financial Accounting Standards,
referred to as "SFAS," No. 142, Goodwill and Other Intangible Assets,
effective January 1, 2002, pre-tax 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 months
ended March
31, For the year ended December 31,
------------- -------------------------------------------
2002 2001 2001 2000 1999 1998(a) 1997(b)
------ ------ ------ ------ ------ --------- ---------
Millions of dollars
- -------------------
Reported net income (loss)......................... $ (55) $ (34) $ (150) $ 437 $ (115) $ 52 $ 286
Add back: goodwill amortization, net of tax........ -- 5 22 23 27 11 --
------ ----- ------ ------ ------ ----- ------
Adjusted net income (loss)......................... $ (55) $ (29) $ (128) $ 460 $ (88) $ 63 $ 286
====== ===== ====== ====== ====== ===== ======
Diluted earnings per share
Reported net income (loss)......................... $ (.47) $(.29) $(1.28) $ 3.71 $(1.10) $ .67 $ 3.58
Add back: goodwill amortization, net of tax........ -- .04 .19 .20 .26 .14 --
------ ----- ------ ------ ------ ----- ------
Adjusted net income (loss)......................... $ (.47) $(.25) $(1.09) $ 3.91 $ (.84) $ .81 $ 3.58
====== ===== ====== ====== ====== ===== ======
36
Selected Historical Financial Data of Equistar
The selected historical financial data set forth below for the period from
December 1, 1997 (inception) to December 31, 2001 are from the audited financial
statements of Equistar. The selected financial data for the three-month periods
ended March 31, 2002 and 2001 are from the unaudited financial statements of
Equistar. As a partnership, Equistar is not subject to federal income taxes and
does not have registered equity securities.
For the
period from
December 1,
For the three 1997
months ended (inception) to
March 31, For the year ended December 31, December 31,
--------------- -----------------------------------
2002 2001 2001 2000 1999 1998(a) 1997
------ ------ ------ ------ ------ --------- --------------
Millions of dollars
- -------------------
Results of Operations Data:
Sales and other operating
revenues........................... $ 1,136 $ 1,773 $5,909 $ 7,495 $ 5,594 $ 4,524 $ 365
Net income (loss) (b)................ (1,179) (77) (283) 153 32 143 7
Balance Sheet Data:
Total assets......................... 5,048 6,585 6,308 6,582 6,736 6,665 4,600
Obligations under capital leases..... -- -- -- -- -- 205 --
Long-term debt....................... 2,282 2,224 2,233 2,158 2,169 1,865 1,512
- ------------
(a) The financial information for 1998 includes the operating results of the
businesses contributed by Occidental prospectively from May 15, 1998, the
date of contribution. The business contributed by Occidental was accounted
for using the purchase method of accounting.
(b) The net loss of $1,179 million for the three months ended March 31, 2002
includes a $1,053 million, charge for the write off of goodwill upon
adoption of SFAS No. 142, Goodwill and Other Intangible Assets, effective
January 1, 2002.
(c) As a result of implementing SFAS No. 142, earnings in 2002 and subsequent
years will be favorably affected by $33 million annually because of the
elimination of goodwill amortization. The following table adjusts
Equistar's reported net income (loss) before cumulative effect of
accounting change and reported net income (loss) for all periods presented
for the effects of goodwill amortization expense.
For the
period from
December 1,
For the three 1997
months ended (inception) to
March 31, For the year ended December 31, December 31,
--------------- -----------------------------------
2002 2001 2001 2000 1999 1998(a) 1997
------ ------ ------ ------ ------ --------- --------------
Millions of dollars
- -------------------
Reported net income (loss) before
cumulative effect of accounting
change..................................... $ (126) $ (77) $ (283) $ 153 $ 32 $ 143 $ 7
Add back: goodwill amortization............... -- 8 33 33 33 31 3
------- ------ ------ ----- ---- ------ ----
Adjusted net income (loss) before
cumulative effect of accounting
change..................................... $ (126) $ (69) $ (250) $ 186 $ 65 $ 174 $ 10
======= ====== ====== ===== ==== ====== ====
Reported net income (loss).................... $(1,179) $ (77) $ (283) $ 153 $ 32 $ 143 $ 7
Add back: goodwill amortization............... -- 8 33 33 33 31 3
------- ------ ------ ----- ---- ------ ----
Adjusted net income (loss).................... $(1,179) $ (69) $ (250) $ 186 $ 65 $ 174 $ 10
======= ====== ====== ===== ==== ====== ====
37
UNAUDITED PRO FORMA FINANCIAL DATA OF LYONDELL
The unaudited pro forma financial statements below give effect to: (1) the
proposed sale of the Securities to OCHC under the Securities Purchase Agreement
and (2) the proposed purchase of the Oxy Equistar Interest under the Occidental
Partner Sub Purchase Agreement, as if both transactions had been completed as of
March 31, 2002 for purposes of the pro forma balance sheet and January 1, 2001
for purposes of the pro forma income statements. These unaudited pro forma
financial statements do not necessarily reflect the results of operations or
financial position of Lyondell that would have resulted had such transactions
actually been consummated as of such dates. Also, they are not necessarily
indicative of the future results of operations or the future financial position
of Lyondell.
The unaudited pro forma financial statements have been prepared based on
the estimated fair value of the securities to be issued as of March 31, 2002. As
described under "Proposal to Approve the Sale of Securities to OCHC," the
proposed transactions have specified values of approximately $440 million. The
difference in indicated value primarily relates to changes in Lyondell's stock
price during the period subsequent to January 23, 2002, the date Lyondell
confirmed its interest in purchasing the Oxy Equistar Interest.
The unaudited pro forma financial statements should be read together with
the financial statements and notes of Lyondell, which are incorporated by
reference to Lyondell's Annual Report on Form 10-K for the year ended December
31, 2001 and Quarterly Report on Form 10-Q for the quarterly period ended March
31, 2002.
38
Unaudited Pro Forma Balance Sheet of Lyondell
As of March 31, 2002
Historical Adjustments Pro Forma
---------- ----------- ---------
(Dollars in millions, except per-share data)
ASSETS
Cash and cash equivalents........................................... $ 228 $ 228
Accounts receivable, net............................................ 320 320
Inventories......................................................... 303 303
Prepaid expenses and other current assets........................... 45 45
Deferred tax assets................................................. 61 61
-------- --------
Total current assets............................................. 957 957
Property, plant and equipment, net.................................. 2,265 2,265
Investment in Equistar Chemicals, LP................................ 477 $ 889(a) 1,366
Other investments and long-term receivables......................... 1,123 1,123
Goodwill, net....................................................... 1,100 1,100
Other assets, net................................................... 453 453
-------- ------- --------
Total assets..................................................... $ 6,375 $ 889 $ 7,264
======== ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable.................................................... $ 275 $ 275
Current maturities of long-term debt................................ 7 7
Accrued liabilities................................................. 282 282
-------- --------
Total current liabilities........................................... 564 564
Long-term debt...................................................... 3,833 3,833
Other liabilities................................................... 589 589
Deferred income taxes............................................... 580 $ 373(a) 953
Minority interest................................................... 155 155
Stockholders' equity:
Common stock..................................................... 120 120
Common stock, B Series........................................... -- 30(b) 30
Additional paid-in capital....................................... 854 475(b) 1,340
8(c)
3(d)
Retained earnings................................................ 166 166
Accumulated other comprehensive loss............................. (411) (411)
Treasury stock, at cost.......................................... (75) (75)
-------- ------- --------
Total stockholders' equity.................................. 654 516 1,170
-------- ------- --------
Total liabilities and stockholders' equity.......................... $ 6,375 $ 889 $ 7,264
======== ======= ========
Book value per share................................................ $ 5.56 $ 7.91
======== ========
See notes to Unaudited Pro Forma Financial Statements of Lyondell.
39
Unaudited Pro Forma Income Statement of Lyondell
For the Three Months Ended March 31, 2002
Historic Adjustments Pro Forma
-------- ----------- ---------
(Dollars in millions, except per-share data)
Sales and other operating revenues........................... $ 674 $ 674
Operating costs and expenses:
Cost of sales........................................... 589 589
Selling, general and administrative expenses............ 40 40
Research and development expense........................ 7 7
-------- ----------
636 636
-------- ----------
Operating income........................................ 38 38
Interest expense............................................. (93) (93)
Interest income.............................................. 2 2
Other income, net............................................ 1 1
-------- ----------
Loss before equity investments and income taxes......... (52) (52)
Income (loss) from equity investments:
Equistar Chemicals, LP.................................. (45) $ (37)(e) (86)
(4)(f)
Other................................................... 24 24
-------- ----------
(21) (41) (62)
-------- -------- ----------
Loss before income taxes................................ (73) (41) (114)
Benefit from income taxes.................................... (18) (14)(g) (32)
-------- -------- ----------
Net loss..................................................... $ (55) $ (27) $ (82)
======== ======== ==========
Basic and diluted earnings per common share.................. $ (.47) $ (.55)(i)
======== ==========
Cash dividends per share..................................... $ .225 $ .225
======== ==========
Basic and diluted weighted average shares outstanding (in
thousands)................................................ 117,565 149,723 (h)
======== ==========
See notes to Unaudited Pro Forma Financial Statements of Lyondell.
40
Unaudited Pro Forma Income Statement of Lyondell
For the Year Ended December 31, 2001
Historical(j) Adjustment ProForma
------------ ---------- --------
(Dollars in millions, except per-share data)
Sales and other operating revenues........................................... $ 3,193 $ 3,193
Operating costs and expenses:
Cost of sales........................................................... 2,799 2,799
Selling, general and administrative expenses............................ 157 157
Research and development expense........................................ 32 32
Amortization of goodwill................................................ 30 30
Unusual charges......................................................... 63 63
---------- --------
3,081 3,081
---------- --------
Operating income............................................................. 112 112
Interest expense............................................................. (386) (386)
Interest income.............................................................. 17 17
Other expense, net........................................................... (4) (4)
---------- --------
Loss before equity investments, income taxes and extraordinary
item................................................................. (261) (261)
---------- --------
Income (loss) from equity investments:
Equistar Chemicals, LP.................................................. (77) $ (74)(e) (169)
(18)(f)
Other................................................................... 117 117
---------- ------ --------
40 (92) (52)
---------- ------ --------
Loss before income taxes and extraordinary item......................... (221) (92) (313)
Benefit from income taxes.................................................... (76) (32)(g) (108)
---------- ------ --------
Loss before extraordinary item............................................... $ (145) $ (60) $ (205)(k)
========== ====== ========
Basic and diluted loss before extraordinary item per common share............ $ (1.24) $ (1.38)(i)(k)
========== ========
Cash dividends per share.............................................. $ .90 $ .90
========== ========
Basic and diluted weighted average shares outstanding (in
thousands)......................................................... 117,563 148,664 (h)
========== ========
See notes to Unaudited Pro Forma Financial Statements of Lyondell.
41
Notes to Unaudited Pro Forma Financial Statements of Lyondell
(a) To reflect the acquisition, under the Occidental Partner Sub Purchase
Agreement, of an additional 29.5% interest in Equistar, including the
recognition of $373 million of deferred tax liabilities. After this acquisition,
Lyondell will hold 70.5% of the Equistar partnership interests. Lyondell expects
to continue to account for its investment in Equistar using the equity method of
accounting, reflecting the joint governance of Equistar.
(b) To reflect the issuance and sale under the Securities Purchase Agreement of
30.4 million shares of Series B Common Stock, $1.00 par value, assuming an
average of the high and low per-share stock prices for Original Common Stock
for the 20-day period ending two business days before March 31, 2002, of
$16.70. The pro forma number of shares of Series B Common Stock issued is
based on the following:
20-Day Average Lyondell
common stock
price at closing Number of shares of Series B common stock
---------------- -----------------------------------------
$17.10 or above 30 million
Between $ 15.10 and $17.10 Between 30 million and 32 million, determined
by by subtracting from 32 million the number
of shares computed multiplying (a) the 20-day
average price, minus $15.10, divided by
$2.00, by(b) 2 million
Between $ 15.10 and $14.10 32 million
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 price, minus $13.10, by (b) 2 million
Less than $ 13.10 34 million
The pro forma issuance of the shares is valued at the March 31, 2002
closing price of $16.61 per share.
(c) To reflect the issuance and sale under the Securities Purchase Agreement of
five million Warrants at an estimated fair value of $1.60 per Warrant. The
fair value of the Warrants was estimated using the Black-Scholes option-
pricing model. Each Warrant is exercisable for one share of Original Common
Stock at $25 per share. Both the number of Warrants and the exercise price
are subject to adjustment depending on the 15-day average price for
Lyondell's stock. If the 15-day average price on December 31, 2002 is
$11.00 or above, the Warrant 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) $.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.
(d) To reflect the sale under the Securities Purchase Agreement of the right to
receive a contingent payment having a value up to $35 million, payable in
cash or shares of Original Common Stock or Series B Common Stock, as
determined by Lyondell, that will be equivalent in value to 7.38% of
Equistar's cash distributions for 2002 and 2003. The estimated fair value
of $3 million of the right is based on estimates of future cash
distributions from Equistar, adjusted for the risk attributable to the
significant uncertainties associated with future events.
(e) To reflect the additional 29.5% interest in Equistar's net loss for the
period.
(f) To reflect the change, resulting from the acquisition of an additional
29.5% interest in Equistar, in the accretion of the difference between
Lyondell's investment in Equistar and its underlying equity in Equistar's
net assets.
42
(g) To reflect the tax effect of the pro forma adjustments using the 35%
U.S. federal statutory income tax rate.
(h) Series B Common Stock will pay dividends at the same rate as Original
Common Stock, which, in all historical periods presented, was at an annual
rate of $.90 per share. However, dividends on shares of Series B Common
Stock may be paid, at Lyondell's option, in cash, in Original Common Stock
or in additional Series B Common Stock. The pro forma financial information
reflects the assumption that the dividends will be paid in additional
Series B Common Stock and, therefore, such dividends increase the pro forma
weighted average shares outstanding by 701,000 shares and 1,758,000 shares
for the periods ending December 31, 2001 and March 31, 2002, respectively.
If, instead, the dividends on Series B Common Stock were paid in cash, the
cumulative cash dividends on the pro forma Series B Common Stock
outstanding over the 15-month period ending March 31, 2002 would have been
$34 million.
(i) Basic and diluted earnings per common share are based on weighted average
shares outstanding, including the pro forma issuance of 30.4 million shares
of Series B Common Stock as described in (b) above and the pro forma
issuance of additional Series B Common Stock in payment of dividends on the
pro forma Series B Common Stock outstanding as described in (h) above. The
pro forma effect of the Warrants is antidilutive in both periods presented.
(j) Amortization of intangible assets included in historical amounts for the
year ended December 31, 2001 has been reclassified to conform to the March
31, 2002 presentation.
(k) Pre-tax earnings in 2002 and subsequent years will be favorably affected by
$30 million annually because of the elimination of goodwill amortization
upon adoption of SFAS No. 142, Goodwill and Other Intangibles. The
following table presents Lyondell's reported net loss and earnings per
share for the year ended December 31, 2001, as adjusted for goodwill
amortization expense.
Millions of dollars Historical Pro Forma
- ------------------- ---------- ----------
Reported net loss before extraordinary item................. $ (145) $ (199)
Add back: goodwill amortization, net of tax................. 20 20
--------- ----------
Adjusted net loss........................................... $ (125) $ (179)
--------- ----------
Earnings per share
- -------------------
Reported net loss before extraordinary item................. $ (1.24) $ (1.34)
Add back: goodwill amortization, net of tax................. .17 .13
--------- ----------
Adjusted net loss........................................... $ (1.07) $ (1.21)
--------- ----------
43
PRINCIPAL SHAREHOLDERS
The table below sets forth certain information as of May 15, 2002,
regarding the beneficial ownership of common stock by persons known by Lyondell
to beneficially own more than five percent of its outstanding shares of Lyondell
common stock. Information in the table and footnotes is based on the most recent
Statement on Schedule 13G or 13D or amendment thereto filed by each such person
with the SEC, except as otherwise known to Lyondell.
Percentage
Number of Of Shares
Name and Address Shares Outstanding
---------------- ---------- -----------
FMR Corp. (a)......................................................... 17,576,775 14.95%
82 Devonshire Street
Boston, Massachusetts 02109
AXA Financial, Inc. (b)............................................... 16,977,737 14.44%
1290 Avenue of the Americas
New York, New York 10104
Franklin Resources, Inc. (c).......................................... 11,383,900 9.68%
One Franklin Parkway
San Mateo, California 94403
Barrow, Hanley, Mewhinney & Strauss, Inc. (d)......................... 9,491,270 8.07%
3232 McKinney Avenue, 15th Floor
Dallas, Texas 75204-2429
- -----------
(a) FMR Corp. is the parent holding company of subsidiaries: Fidelity
Management & Research Company, referred to as "Fidelity," which is the
beneficial owner of 14,968,975 shares of Lyondell common stock as a result
of acting as investment adviser to various investment companies; and
Fidelity Management Trust Company, referred to as "FMT," which is the
beneficial owner of 2,352,200 shares of Lyondell common stock as a result
of serving as investment manager of certain institutional accounts. Members
of the Edward C. Johnson 3d family own stock of FMR representing
approximately 49% of the voting power of FMR, and are parties to a voting
agreement with other holders of FMR stock. Edward C. Johnson 3d owns 12.0%
and Abigail P. Johnson owns 24.5% of the outstanding voting stock of FMR.
Mr. Johnson is Chairman of FMR and Ms. Johnson is a director of FMR.
Neither FMR nor Mr. Johnson has sole voting power with respect to the
shares of Lyondell common stock owned by the Fidelity funds, which power
resides with the funds' Board of Trustees. Each of FMR and Mr. Johnson has
sole dispositive power with respect to 14,968,975 shares of Lyondell common
stock owned by the Fidelity funds. Each of FMR and Mr. Johnson has sole
dispositive power with respect to 2,352,200 shares of Lyondell common stock
and sole voting power with respect to 2,347,400 shares of Lyondell common
stock and no voting power with respect to 4,800 shares of Lyondell common
stock owned by the FMT institutional accounts. Fidelity International
Limited, referred to as "FIL," a former majority-owned subsidiary of
Fidelity, has sole dispositive and voting power with respect to 255,600
shares of Lyondell common stock. A partnership controlled by the Johnson
family owns shares of FIL voting stock representing approximately 39.89% of
the voting power of FIL.
(b) AXA Financial, Inc. is the parent holding company of subsidiaries: Alliance
Capital Management L.P., which has sole voting power over 7,238,873 shares
of Lyondell common stock, shared voting power over 7,676,459 shares of
Lyondell common stock and sole dispositive power over 16,889,737 shares of
Lyondell common stock, all of which are held on behalf of clients in
discretionary investment advisory accounts; and The Equitable Life
Assurance Society of the United States, which has sole dispositive power
over 88,000 shares of Lyondell common stock.
(c) Franklin Resources, Inc., together with its principal shareholders, Charles
B. Johnson and Rupert H. Johnson, Jr., may be deemed the beneficial owner
of 11,383,900 shares of Lyondell common stock held in accounts advised by
direct and indirect investment advisory subsidiaries of Franklin Resources
and over which
44
those subsidiaries have sole voting and dispositive power, including
11,338,800 shares of Lyondell common stock over which FRI's subsidiary
Templeton Global Advisors Limited has sole voting and dispositive power and
45,100 shares of Lyondell common stock over which FRI's subsidiary Franklin
Templeton Investment Management Limited has sole voting and dispositive
power.
(d) Barrow, Hanley, Mewhinney & Strauss, Inc., referred to as "Barrow," is an
investment adviser with sole voting power over 6,049,420 shares of Lyondell
common stock, shared voting power over 3,441,850 shares of Lyondell common
stock and sole dispositive power over 9,491,270 shares of Lyondell common
stock held in accounts of certain of Barrow's clients.
SECURITY OWNERSHIP OF MANAGEMENT
The second column in the table below sets forth the number of shares of
Lyondell common stock owned beneficially as of May 15, 2002 by each director or
nominee, each of the named executive officers, and all directors and executive
officers as a group. Unless otherwise noted, each individual has sole voting and
investment power with respect to the shares of Lyondell common stock listed in
the second column below as beneficially owned by the individual. The third
column in the table below sets forth the number of Deferred Stock Units held as
of May 15, 2002 by these individuals under the Lyondell Chemical Company
Elective Deferral Plan for Non-Employee Directors. Although the Deferred Stock
Units track the market value of Lyondell common stock, they are payable in cash
and do not carry voting rights.
Shares of Common
Stock Owned Deferred Stock
Beneficially as of Units Held as of
Name May 15, 2002(a)(b)(c) May 15, 2002(d)
---- --------------------- ---------------
Carol A. Anderson.................................................... 12,362(e) 18,682
Robert T. Blakely (f)................................................ 486,827 --
William T. Butler.................................................... 19,617 6,359
Edward J. Dineen..................................................... 161,075 --
Travis Engen......................................................... 19,332 32,376
Morris Gelb.......................................................... 260,706 --
Stephen F. Hinchliffe, Jr............................................ 29,860(g) 4,946
David J. Lesar....................................................... 8,473(h) 10,888
Dudley C. Mecum II................................................... 9,291 4,066
Dan F. Smith......................................................... 1,236,630 --
William R. Spivey.................................................... 6,367 5,278
All directors and executive officers as a group (17)................. 2,731,011(i) 82,595
- -----------
(a) Includes shares held by the trustees under the Lyondell 401(k) and Savings
Plan for the accounts of participants as of May 15, 2002.
(b) The amounts shown in the second column of the table for the directors and
executive officers include (1) restricted shares, (2) shares acquired under
Lyondell's Dividend Reinvestment Plan and (3) shares that may be acquired
within 60 days through the exercise of stock options. Those shares that may
be acquired through the exercise of stock options include: 5,001 for each
of Ms. Anderson, Dr. Butler, Mr. Engen, Mr. Hinchliffe, Mr. Lesar, Mr.
Mecum and Dr. Spivey; 486,827 for Mr. Blakely; 122,287 for Mr. Dineen;
218,341 for Mr. Gelb; 1,058,924 for Mr. Smith; and 2,278,982 for all
directors and executive officers as a group. Until stock options are
exercised, these individuals have neither voting nor investment power over
the underlying shares of Lyondell common stock, and only have the right to
acquire beneficial ownership of the shares through exercise of their
respective stock options. The amounts shown in the second column of the
table do not include Deferred Stock Units.
(c) The number of outstanding shares listed represents less than 1% of Lyondell
common stock outstanding as of May 15, 2002 except for the shares of
Lyondell common stock beneficially owned by Dan F. Smith, which represent
approximately 1.04%, and all directors and executive officers as a group,
which represent approximately 2.28%, of Lyondell common stock outstanding
as of that date.
45
(d) Directors do not have voting or investment power with respect to Deferred
Stock Units, and only have the right to make elections with respect to
their deferrals as provided under the Lyondell Chemical Company Elective
Deferral Plan for Non-Employee Directors.
(e) Includes 100 shares held by a trust of which Ms. Anderson is an indirect
beneficiary. (f) Mr. Blakely will retire effective as of June 30, 2002.
(g) Includes 1,000 shares held by a trust of which Mr. Hinchliffe is a trustee
and 28,860 shares held by a trust of which Mr. Hinchliffe is a trustee and
a beneficiary.
(h) Includes 2,000 shares held by a family limited partnership. The general
partner of the family limited partnership is a corporation owned by Mr.
Lesar and his spouse.
(i) Includes approximately 5,100 shares owned by family members of certain
directors and executive officers and family limited partnerships and
trusts.
OTHER BUSINESS
The Board of Directors is not aware of any other matters to be presented at
the meeting. If any other matters should properly come before the meeting, the
persons named in the enclosed proxy will vote the proxies in accordance with
their best judgment.
PROXY SOLICITATION
The expense of soliciting proxies will be paid by Lyondell. Lyondell has
retained to assist with the solicitation of proxies at an estimated fee
of $ plus expenses. Some of the executive officers and other employees of
Lyondell also may solicit proxies personally, by telephone, mail, facsimile or
other means of communication, if deemed appropriate. Lyondell will reimburse
brokers or other persons holding stock in their names or in the names of their
nominees for their reasonable expenses in forwarding proxy material to
beneficial owners of Lyondell common stock.
SHAREHOLDER PROPOSALS FOR 2003 ANNUAL MEETING AND DIRECTOR NOMINATIONS
Shareholder proposals intended to be presented at the 2003 Annual Meeting
must be received by Lyondell, at the address set forth on the first page of this
Proxy Statement, no later than November 28, 2002, in order to be included in
Lyondell's proxy materials and form of proxy relating to such meeting. Such
proposals should be addressed to the Secretary of Lyondell. Shareholder
proposals must otherwise be eligible for inclusion. The 2003 Annual Meeting is
scheduled to take place in May 2003.
Under the By-Laws of Lyondell, a shareholder wishing to nominate a
candidate for election to the Board of Directors or bring business before the
2003 Annual Meeting in a form other than a shareholder proposal in accordance
with the preceding paragraph is required to give written notice to the Secretary
of Lyondell of his or her intention to make such a nomination or present such
business. The notice of intent to make a nomination or present business at the
2003 Annual Meeting must be received by the Secretary of Lyondell, at the
address set forth on the first page of this Proxy Statement, no later than 90
days in advance of such meeting. However, if the meeting was not publicly
announced by a mailing to the shareholders, in a press release reported by the
Dow Jones News Service, the Associated Press or a comparable national news
service or a filing with the SEC more than 90 days prior to the meeting, the
notice must be delivered to the 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. The notice is required to contain certain
information set forth in Lyondell's By-Laws about both the nominee or proposed
business, as applicable, and the shareholder making the nomination or proposal.
A nomination or proposal that does not comply with the above procedures will be
disregarded. Compliance with the above procedures does not require Lyondell to
include the proposed nominee or business in Lyondell's proxy solicitation
materials.
46
FORWARD-LOOKING STATEMENTS
Some of the statements contained in this Proxy Statement are "forward-
looking statements" within the meaning of the federal securities laws. Although
Lyondell believes the expectations reflected in such forward-looking statements
are reasonable, they do involve certain assumptions, risks and uncertainties,
and Lyondell can give no assurance that such expectations will prove to have
been correct. Lyondell's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors
that are more fully described in the annual reports and quarterly reports
Lyondell and Equistar have filed with the SEC that are incorporated by reference
in this Proxy Statement. Management cautions against putting undue reliance on
forward-looking statements or projecting any future results based on such
statements or present or prior earnings levels. All forward-looking statements
in this Proxy Statement are qualified in their entirety by the cautionary
statements contained in this section and elsewhere in this Proxy Statement and
in the documents Lyondell incorporates by reference in this Proxy Statement.
WHERE YOU CAN FIND MORE INFORMATION
Lyondell and Equistar file annual, quarterly and current reports, proxy
statements and other information with the SEC. You can read and copy any
materials they 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 Lyondell and
Equistar file electronically with the SEC, which you can access over the
Internet at www.sec.gov. Lyondell's electronic SEC filings are also available
through its website at www.lyondell.com and Equistar's electronic SEC filings
are also available through its website at www.equistarchem.com. Information
contained on the Lyondell or Equistar website is not incorporated into this
Proxy Statement and does not constitute a part of this Proxy Statement. You can
also obtain information about Lyondell at the offices of the New York Stock
Exchange, 20 Broad Street, New York, New York 10005.
Statements contained in this Proxy Statement, or in any document
incorporated by reference in this Proxy Statement, regarding the contents of any
contract or other document are not necessarily complete and each such statement
is qualified in its entirety by reference to such contract or other document
filed as an exhibit with the SEC.
The SEC allows us to "incorporate by reference" the information Lyondell
and Equistar file with it, which means Lyondell can disclose important
information to you by referring you to those documents. The information Lyondell
incorporates by reference is an important part of this Proxy Statement, and
later information Lyondell and Equistar file with the SEC will automatically
update and supersede the information in this Proxy Statement. Lyondell
incorporates by reference into this Proxy Statement the documents listed below,
and any future filings it makes with the SEC (file number 1-10145) and any
filings it makes with the SEC under Section 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934 after the date of this Proxy Statement and
before the date of the Special Meeting. The documents Lyondell incorporates by
reference are:
. Lyondell's annual report on Form 10-K for the year ended December 31,
2001;
. Lyondell's quarterly report on Form 10-Q for the quarter ended March
31, 2002;
. Lyondell's current reports on Form 8-K dated January 11, 2002 and
, 2002;
. the description of the Original Common Stock 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.
47
Lyondell also incorporates by reference into this Proxy Statement the
documents filed with the SEC by Equistar that are listed below, any future
filings Equistar makes with the SEC (file number 333-76473) and any filings
Equistar makes with the SEC under Section 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934 after the date of this Proxy Statement and
before the Special Meeting. The documents filed by Equistar that Lyondell
incorporates by reference are:
. Equistar's annual report on Form 10-K for the year ended December 31,
2001; and
. Equistar's quarterly report on Form 10-Q for the quarter ended March
31, 2002.
Lyondell will provide without charge to each person, including any
beneficial owner, to whom a copy of this Proxy Statement has been delivered,
upon written or oral request, a copy of any or all the documents it incorporates
by reference in this Proxy Statement, other than any exhibit to any of those
documents, unless Lyondell has specifically incorporated that exhibit by
reference into the information this Proxy Statement incorporates. You may
request copies by writing or telephoning Lyondell at the following address:
Lyondell Chemical Company
1221 McKinney, Suite 700
Houston, Texas 77010
Attention: Investor Relations
Telephone: (713) 652-4590
If you would like to request documents from Lyondell, please do so at least five
business days before the date of the Special Meeting in order to receive timely
delivery of such documents prior to the Special Meeting.
This Proxy Statement does not constitute the solicitation of a proxy in any
jurisdiction to or from any person to whom or from whom it is unlawful to make
such proxy solicitation in such jurisdiction. You should rely only on the
information Lyondell has provided or incorporated by reference in this Proxy
Statement to vote your shares at the Special Meeting. Lyondell has not
authorized any person to provide information other than that provided in this
Proxy Statement. Lyondell has not authorized anyone to provide you with
different information. This Proxy Statement is dated , 2002. You should not
assume that the information in this Proxy Statement is accurate as of any date
other than that date or that any information contained in any document Lyondell
has incorporated by reference is accurate as of any date other than the date of
the document incorporated by reference, and the mailing of this Proxy Statement
to shareholders does not create any implication to the contrary. Accordingly,
Lyondell urges you to review each document it and Equistar subsequently file
with the SEC and Lyondell incorporates by reference as Lyondell describes above
for updated information.
48
ANNEX A
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
LYONDELL CHEMICAL COMPANY
Under Sections 242 and 245 of the
Delaware General Corporation Law
LYONDELL CHEMICAL COMPANY (the "Company"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, does hereby certify that:
1. The current name of the corporation is Lyondell Chemical Company.
The name under which the Company was originally incorporated was Lyondell
Petrochemical Corporation. The original Certificate of Incorporation of the
Company (as heretofore amended, the "Certificate of Incorporation") was
filed with the Secretary of State of the State of Delaware on November 15,
1985.
2. The restatement of and amendments to the Certificate of
Incorporation have been duly adopted by a resolution of the Board of
Directors of the Company (the "Board of Directors") proposing and declaring
advisable this Amended and Restated Certificate of Incorporation, and the
Company's stockholders have duly approved and adopted the Amended and
Restated Certificate of Incorporation, all in accordance with the
provisions of Sections 242 and 245 of the General Corporation Law of the
State of Delaware.
3. This Amended and Restated Certificate of Incorporation restates and
amends the Certificate of Incorporation of the Company in its entirety. The
amendments to the Certificate of Incorporation effected by this Amended and
Restated Certificate of Incorporation include, but are not limited to,
amendments to increase the number of authorized shares of capital stock
that the Company shall have the authority to issue, to provide for a Series
B of common stock, to add provisions relating to dividends, liquidation and
voting with respect to the common stock and the Series B common stock of
the Company and to delete former Article VIII.
4. The capital of the Company shall not be reduced under or by reason
of the foregoing amendments to the Certificate of Incorporation.
5. The Certificate of Incorporation is hereby superseded by this
Amended and Restated Certificate of Incorporation, which shall henceforth
be the Certificate of Incorporation of the Company.
6. The text of the Restated Certificate of Incorporation is hereby
restated and amended to read in its entirety as follows (hereinafter, the
Amended and Restated Certificate of Incorporation, as it may be further
amended or restated from time to time, is referred to as the "Amended and
Restated Certificate of Incorporation").
A-1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
ARTICLE I
Name
The name of the Company is LYONDELL CHEMICAL COMPANY.
ARTICLE II
Address and Registered Agent
The address of the Company's registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, Wilmington, County of New Castle,
Delaware, 19801. The name of the registered agent at such address is The
Corporation Trust Company.
ARTICLE III
Description of Business
The nature of the business or purposes to be conducted or promoted is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation law of Delaware.
ARTICLE IV
Capital Stock
The aggregate number of shares of capital stock that the Company shall
have authority to issue is 500,000,000, divided into two classes as follows:
(1) 420,000,000 shares of common stock issued in two series with the
first series consisting of 340,000,000 shares, par value $1.00 per share
("Common Stock"), and the second series consisting of 80,000,000 shares of
Series B common stock, par value $1.00 per share ("Series B Common
Stock"); and
(2) 80,000,000 shares of preferred stock, par value $.01 per share
("Preferred Stock").
(3) Shares of any class or series of capital stock of the Company may
be issued for such consideration and for such corporate purposes as the
Board of Directors may from time to time determine. Except as may be
provided otherwise in any certificate of designation for any series of
preferred stock, the number of authorized shares of any class or series of
capital stock of the Company may be increased or decreased (but not below
the number of shares thereof then outstanding) by the affirmative vote of
holders of at least a majority of the then outstanding Voting Stock (as
defined below), voting as a single class. The term "Voting Stock" shall
mean all outstanding shares of all classes and series of capital stock of
the Company entitled to vote generally in the election of Directors of the
Company, considered as one class; and, if the Company shall have
outstanding at any time shares of Voting Stock entitled to more or less
than one vote for any such share, each reference in this Amended and
Restated Certificate of Incorporation to a proportion or percentage in
voting power of Voting Stock shall be calculated by reference to the
portion or percentage of all votes entitled to be cast by holders of all
such shares generally in the election of Directors of the Company.
The following is a statement of the powers, preferences and rights, and
the qualifications, limitations or restrictions, of the Preferred Stock, the
Common Stock and the Series B Common Stock.
SECTION I. PREFERRED STOCK
Preferred Stock may be issued from time to time in one or more series. The
Board of Directors is hereby expressly authorized from time to time to provide
for the issuance of Preferred Stock in one or more series, and to establish and
fix by resolution or resolutions providing for the issuance of each such series
the number of
A-2
shares to be included in such series and the voting and other powers,
designations, preferences and relative, participating, optional or other special
rights, and qualifications, limitations or restrictions thereof, of each such
series, to the full extent now or hereafter permitted by law, subject to any
other provision of this Amended and Restated Certificate of Incorporation. The
number of authorized shares of Preferred Stock may be increased or decreased
(but not below the number of shares thereof then outstanding) by the affirmative
vote of the holders of stock of the Company entitled to vote thereon having a
majority of the votes entitled to be cast, without a separate vote of the
holders of the Preferred Stock, or any series thereof, unless a separate vote of
any of such holders is required pursuant to the resolution or resolutions
establishing any such series of Preferred Stock.
SECTION II. COMMON STOCK
(1) Common Stock and Series B Common Stock Otherwise Identical. Except as
otherwise set forth in this Article IV, the relative powers, preferences and
participating, optional or other special rights, and the qualifications,
limitations or restrictions of the Common Stock and the Series B Common Stock
shall be identical in all respects. The shares of Common Stock shall constitute
one series of common stock and the shares of Series B Common Stock shall
constitute a second series of common stock, and together the two series shall
constitute one class of common stock.
(2) Dividends.
(a) Subject to any requirements with respect to preferential or
participating dividends as shall be provided by the express terms of any
outstanding series of Preferred Stock and subject to Section II(2)(b),
holders of the Common Stock and the Series B Common Stock shall be entitled
to receive such dividends thereon, if any, as may be declared from time to
time by the Board of Directors.
(b) The Board of Directors shall not declare any dividend on the common
Stock without declaring a dividend in the same amount and form per share on
the Series B Common Stock; provided, however, in the event a cash dividend
is declared on the Common Stock, the Company may, at its option and in its
sole discretion, declare and pay the corresponding dividend on shares of
Series B Common Stock by issuance of additional shares of fully paid and
nonassessable shares of Series B Common Stock ("PIK Dividend"). Any such
PIK Dividend shall be declared at the same time and shall have the same
record date as the corresponding cash dividend on Common Stock, but the
payment date for any dividend on Series B Common Stock that is paid in the
form of shares of Series B Common Stock shall be 10 Business Days (as
defined below) after the payment date for the corresponding cash dividend
on shares of Common Stock, in order that the number of shares may be
calculated pursuant to the following sentence. The number of shares of
Series B Common Stock to be issued in lieu of cash shall be determined by
dividing the amount of the cash dividend per share declared with respect to
the Common Stock by the average (calculated to the nearest thousandth) of
the Daily Prices (as defined below) of the Common Stock for the ten
consecutive Business Days commencing four Business Days prior to the
payment date for the cash dividend on the Common Stock and ending five
Business Days thereafter. For purposes of this calculation, (i) the "Daily
Price" for any day shall mean the average (calculated to the nearest
thousandth) of the high and low per share sales prices of the Common Stock
on such day for sales conducted regular way, as such high and low per share
sales prices are reported on www.nysenet.com or, if not reported thereby,
another authoritative source and (ii) "Business Day" shall mean any day on
which the New York Stock Exchange, Inc. is open for trading. No fractional
shares of Series B Common Stock shall be issued as a dividend pursuant to
the foregoing method of valuation. Instead, the aggregate number of shares
of Series B Common Stock issuable to each record holder in accordance with
the foregoing method of valuation shall be rounded to the nearest whole
number. The payment of dividends to holders of Series B Common Stock in
shares of Series B Common Stock as set forth above shall constitute full
payment of such dividend.
(3) Liquidation. In the event of liquidation, dissolution or winding-up of
the Company, whether voluntary or involuntary, holders of the Common Stock and
the Series B Common Stock then outstanding shall be entitled to receive such
assets and properties of the Company, tangible and intangible, as are available
for
A-3
distribution to stockholders of the Company ratably in proportion to the number
of shares of Common Stock and Series B Common Stock held by each holder (such
that the Common Stock and the Class B Common Stock shall be treated
identically), after there shall have been paid or set apart for payment the full
amounts necessary to satisfy any preferential or participating rights to which
holders of each outstanding series of Preferred Stock are entitled by the
express terms of such series.
(4) Reorganization or Merger. In the case of any reorganization,
consolidation or merger involving the Company--except as otherwise approved by
the affirmative vote of a majority of the outstanding shares of the Common
Stock, voting as a separate class, and the affirmative vote of a majority of the
outstanding shares of Series B Common stock, voting as a separate class--each
holder of a share of Common Stock or Series B Common Stock shall be entitled to
receive with respect to that share the same kind and amount of shares of stock
and other securities and property (including cash) upon the reorganization,
consolidation or merger as shall be received by a holder of a share of the other
series; provided, however, that the foregoing shall not apply to (i) any merger
in which the Company is the continuing corporation and which does not result in
any distribution of shares of stock or other securities or property (including
cash) to the holders of, or any reclassification or change in, the outstanding
shares of Common Stock or Series B Common Stock or (ii) any merger in which the
Company merges with or into a wholly owned subsidiary solely for the purpose of
forming a holding company, whether such holding company is formed without a vote
of the stockholders pursuant to Section 251(g) of the General Corporation Law of
Delaware or formed with the approval of the stockholders. In the case of a
merger referred to in clause (ii), each share of Common Stock and each share of
Series B Common Stock outstanding immediately prior to such merger shall be
converted into a share of common stock of such holding company having the same
respective rights, powers and preferences, and the same respective
qualifications, limitations and restrictions thereon, as the Common Stock or the
Series B Common Stock, as the case may be, being converted in such merger.
(5) Voting.
(a) The holders of shares of Common Stock and the holders of shares of
Series B Common Stock shall be entitled to receive notice of and to attend
all meetings of the stockholders of the Company and to vote together as a
single class (subject to any right that may be conferred upon holders of
Preferred Stock to vote together with holders of Common Stock and/or Series
B Common Stock) at all such meetings on each matter submitted to a vote of
stockholders, except as otherwise provided by this Amended and Restated
Certificate of Incorporation or as otherwise provided by Delaware law with
respect to matters as to which the holders of one series of shares of a
class of the Company's capital stock are entitled to vote separately as a
class. Each holder of shares of Common Stock and Series B Common Stock
shall have the right to one vote for each share of common stock held of
record on the books of the Company.
(b) Except as otherwise provided by Delaware law or Article VII hereof,
the provisions of this Amended and Restated Certificate of Incorporation
shall not be modified, revised, altered or amended, repealed or rescinded,
in whole or in part, without the affirmative vote of holders of at least a
majority of the then outstanding shares of Voting Stock, voting together as
a single class; provided, however, that, except as provided in paragraph
(c) of this Section II(5), any proposal to modify, revise, alter or amend
this Amended and Restated Certificate of Incorporation (whether by merger,
consolidation or otherwise) in any manner that would alter or change the
powers, preferences or special rights of the shares of either the Common
Stock or the Series B Common Stock so as to affect them adversely also will
require the approval of the holders of shares having a majority of the
votes entitled to be cast by the holders of the shares of the series so
affected by the proposed amendment (or if such series is Series B Common
Stock, shares having 80% of such votes), voting as a separate class. Any
increase in the authorized number of shares of any class or classes of
stock of the Company, or the creation, authorization or issuance of any
securities convertible into, or warrants, options or similar rights to
purchase, acquire or receive, shares of any such class or classes of stock,
shall be deemed not to affect adversely the powers, preferences or special
rights of the shares of either the Common Stock or the Series B Common
Stock.
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(c) The holders of Common Stock and Series B Common Stock shall vote
together as a single class, and not as two separate series, on any proposal to
approve (i) any reorganization, consolidation or merger in which each holder of
a share of Common Stock and each holder of a share of Series B Common Stock
shall be entitled to receive with respect to that share the same kind and amount
of shares of stock and other securities and property (including cash) receivable
upon the reorganization, consolidation or merger as shall be received by a
holder of a share of the other such series, (ii) any merger of a type described
in clauses (i) or (ii) of Section II(4) or (iii) any other merger in which the
shares of stock receivable by the holders of Common Stock and Series B Common
Stock pursuant thereto shall have the same respective rights, powers and
preferences, and the same respective qualifications, limitations or
restrictions, as the shares of Common Stock and the Series B Common Stock prior
thereto.
(6) Conversion of Shares of Series B Common Stock into Common Stock.
(a) Shares of Series B Common Stock may be converted into shares of Common
Stock at the option of the holder at any time on or after the date of issuance
of the shares or such later date as may be fixed by the Board of Directors in
resolutions authorizing the issuance of such shares.
(b) The Company may, at its option and in its sole discretion, at any time
convert any or all shares of Series B Common Stock into shares of Common Stock.
(c) Each share of Series B Common Stock properly submitted to the Company
for conversion shall be converted into one share of fully paid and nonassesable
Common Stock in accordance with the following:
(i) such right shall be exercised by the holder by surrender of the
certificate representing such share of Series B Common Stock to be
converted to the Company at any time during normal business hours to the
office of the Secretary of the Company at the principal executive offices
of the Company or, if an agent for the registration of transfer of shares
of Series B Common Stock is then duly appointed and acting (said agent
being hereinafter called the "Transfer Agent"), then at the office of the
Transfer Agent, accompanied by (x) a written notice of the election by the
holder thereof to convert, (y) instruments of transfer (if so required by
the Company or the Transfer Agent) in a form reasonably satisfactory to the
Company or the Transfer Agent, duly executed by such holder or his duly
authorized attorney and (z) transfer tax stamps or funds therefor, if
required pursuant to subparagraph (iii) below;
(ii) as promptly as practicable after the surrender for conversion of a
certificate representing shares of Series B Common Stock in the manner
provided in the foregoing paragraph and the payment in cash of any amount
required by the provisions of subparagraph (iii) below or upon the
Company's exercise of its conversion rights pursuant to Section II(6)(b),
the Company will deliver or cause to be delivered at the office of the
Company or the Transfer Agent to or upon the written order of the holder of
such certificate, a certificate or certificates representing the number of
full shares of Common Stock issuable upon such conversion, issued in such
name or names as such holder may direct. Such conversion shall be deemed to
have been made immediately prior to the close of business on the date of
the surrender of the certificate representing shares of Series B Common
Stock, and all rights of the holder of such shares as such holder shall
cease at such time and the person or persons in whose name or names the
certificate or certificates representing the shares of Common Stock are to
be issued shall be treated for all purposes as having become the record
holder or holders of such shares of Common Stock at such time; provided,
however, that if any such surrender occurs on any date when the stock
transfer books of the Company shall be closed, the person or persons in
whose name or names the certificate or certificates representing shares of
Common Stock are to be issued shall be treated for all purposes as having
become the record holder or holders thereof and such conversion shall be
deemed to have been made, immediately prior to the close of business on the
next succeeding day on which such stock transfer books are open; and
(iii) the issuance of certificates for shares of Common Stock upon
conversion of shares of Series B Common Stock shall be made without charge
for any stamp or other similar tax in respect of such
A-5
issuance; provided, however, that if any such certificate is to be
issued in a name other than that of the holder of the share or shares
of Series B Common Stock converted, the person or persons requesting
the issuance thereof shall pay to the Company the amount of any
applicable tax that may be payable in respect of any transfer involved
in such issuance or shall establish to the satisfaction of the Company
that such tax has been paid.
(d) Notwithstanding the foregoing, there shall be no conversion of
shares of Series B Common Stock into shares of Common Stock pursuant to the
provisions of this Section II(6) in any time period commencing with the
date a dividend is declared and ending on the related record date, after
which record date conversion pursuant to Sections II(6)(a),(b) and (c)
above may resume.
(7) Outstanding Common Stock. Upon this Amended and Restated Certificate
of Incorporation becoming effective in accordance with Section 103 of the DGCL
(the "Effective Time"), each share of common stock, par value $1.00 per share,
that was issued and outstanding immediately prior to the Effective Time shall
automatically and without any action on the part of the holder thereof or any
other person be reclassified as one share of Common Stock.
ARTICLE V
Annual and Special Meetings of Stockholders
Any action required or permitted to be taken by the holders of the stock of
the Company may be effected either at a duly called annual or special meeting of
such holders or by consent in writing by such holders. Except as otherwise
required by law, special meetings of stockholders of the Company may be called
only by the written consent of the stockholders owning a majority of the capital
stock issued and outstanding and entitled to vote or by the Board of Directors
pursuant to a resolution approved by a majority of the entire Board of Directors
or by the Chairman of the Board.
ARTICLE VI
Directors
(1) The business and affairs of the Company shall be managed by the Board
of Directors, and the directors need not be elected by ballot unless required by
the By-Laws of the Company. The number of the directors of the Company shall be
fixed from time to time by, or in the manner provided in, the By-Laws of the
Company.
(2) Nominations for the election of directors may be made by the Board of
Directors or by any record owner of stock of the Company.
(3) Newly created directorships resulting from any increase in the number
of directors or any vacancy on the Board of Directors resulting from death,
resignation, disqualification, removal or other cause may be filled by the
affirmative vote of a majority of the remaining directors then in office, even
though less than a quorum of the Board of Directors, by a sole remaining
director or by the affirmative vote of the majority of all votes entitled to be
cast by the holders of stock of the Company at a duly called annual or special
meeting of such holders or by consent in writing by such holders. Any director
elected in accordance with the preceding sentence shall hold office until such
director's successor shall have been elected and qualified or until the
director's earlier resignation or removal. No decrease in the number of
directors constituting the Board of Directors shall shorten the term of any
incumbent director.
(4) Any one or more directors may be removed with or without cause, by the
holders of a majority of the shares then entitled to vote at an election of
directors.
(5) The Board of Directors shall have the power to adopt, amend and repeal
the By-Laws of the Company.
A-6
ARTICLE VII Directors'
Liability
To the fullest extent permitted by the General Corporation Law of Delaware
as the same exists or may hereafter be amended, a director of the Company shall
not be liable to the Company or its stockholders for monetary damages for breach
of fiduciary duty as a director. If the General Corporation Law of Delaware is
amended to authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of a director of the Company
shall be eliminated or limited to the fullest extent permitted by the General
Corporation Law of Delaware, as so amended. Any repeal or modification of this
Article VII by the stockholders of the Company shall not adversely affect any
right or protection of a director of the Company existing at the time of such
repeal or modification or with respect to events occurring prior to such time.
Notwithstanding anything contained in this Amended and Restated Certificate of
Incorporation to the contrary, the affirmative vote of the holders of not less
than 66-2/3 percent of all votes entitled to be cast by the holders of stock of
the Company shall be required to amend or repeal this Article VII or to adopt
any provision inconsistent herewith.
ARTICLE VIII
Other Considerations
The Board of Directors of the Company, when evaluating any offer of a
person, other than the Company itself, to (a) make a tender or exchange offer
for any equity security of the Company, (b) merge or consolidate the Company
with another person or (c) purchase or otherwise acquire all or substantially
all of the properties and assets of the Company shall, in connection with the
exercise of its business judgment in determining what is in the best interests
of the Company and its stockholders, be entitled to give due consideration to
all factors that the Board of Directors determines to be relevant, including
without limitation the social and economic effects on the employees, customers,
suppliers and other constituents of the Company and its subsidiaries and on the
communities in which the Company and its subsidiaries operate or are located.
IN WITNESS WHEREOF, the Company has caused this Amended and Restated
Certificate of Incorporation to be signed by its duly authorized officer, this
day of , 2002
LYONDELL CHEMICAL COMPANY
By ______________________________
Name:
Title:
A-7
Annex B
[LETTERHEAD OF CREDIT SUISSE FIRST BOSTON CORPORATION]
May 2, 2002
Board of Directors
Lyondell Chemical Company
One Houston Center 1221
McKinney, Suite 700
Houston, Texas 77253-3646
Members of the Board:
You have asked us to advise you with respect to the fairness to Lyondell
Chemical Company ("Lyondell") from a financial point of view of the
Consideration to be paid for the Purchased Interests, treating the Transactions
for purposes of this opinion as if they were a single integrated transaction in
which the Consideration is to be exchanged for the Purchased Interests (each
such capitalized term as defined below). Pursuant to the Occidental Partner Sub
Purchase Agreement (the "Equistar Interests Purchase Agreement") to be entered
into by Lyondell, Occidental Chemical Holding Corporation ("OCHC"), Oxy CH
Corporation ("Oxy CH") and Occidental Chemical Corporation ("OCC"), Lyondell
will purchase from OCC and Oxy CH all of the outstanding equity interests (the
"Purchased Interests") of Occidental Petrochem Partner 1, Inc. ("Oxy LP1"),
Occidental Petrochem Partner 2, Inc. ("Oxy LP2") and Occidental Petrochem
Partner GP, Inc. ("Oxy GP"), which entities hold directly, in the aggregate, a
29.5% partnership interest in Equistar Chemicals, LP ("Equistar"), in exchange
for $440,020,000 in cash (such transaction, the "Equistar Interests
Transaction"). Pursuant to the Securities Purchase Agreement (the "Lyondell
Securities Purchase Agreement" and, together with the Equistar Interests
Purchase Agreement, the "Agreements") to be entered into by Lyondell and OCHC,
Lyondell will, in exchange for $440,000,000 in cash, issue to OCHC (i) a number
of newly authorized shares of Series B common stock, par value $1.00 per share,
of Lyondell ("Lyondell Series B Common Stock") based on the 20-Day Average Price
(as such term is defined in the Lyondell Securities Purchase Agreement) for
shares of common stock, par value $1.00 per share, of Lyondell ("Lyondell
Original Common Stock" and, together with Lyondell Series B Common Stock,
"Lyondell Common Stock"); provided that the number of shares of Lyondell Series
B Common Stock shall not be less than 30 million and shall not be more than 34
million (the "Shares"), as more fully described in the Lyondell Securities
Purchase Agreement; (ii) warrants to purchase up to a total of five million
shares of Lyondell Original Common Stock at $25.00 (the "Exercise Price") per
share (the "Warrants"); provided that (a) if the 15-Day Price (as such term is
defined in the Form of Warrant attached to the Lyondell Securities Purchase
Agreement) of Lyondell Original Common Stock is equal to or less than $11.00 per
share, then the number of shares of Lyondell Original Common Stock purchasable
upon exercise of the Warrants shall be increased to a number which in no event
will exceed six million shares and the Exercise Price shall be decreased to a
price which in no event will be less than $22.30 per share and (b) Lyondell may,
at its option, in lieu of issuing shares of Lyondell Original Common Stock upon
exercise of the Warrants, make a net payment to OCHC in the form of (w) cash,
(x) shares of Lyondell Original Common Stock, (y) shares of Lyondell Series B
Common Stock or (z) any combination of the foregoing, as more fully described in
the Form of Warrant attached to the Lyondell Securities Purchase Agreement; and
(iii) an amount in cash equal to the distributions with respect to 7,375
partnership units of Equistar for the period from January 1, 2002 to December
31, 2003 and paid by Equistar after consummation of the transactions
contemplated by the Lyondell Securities Purchase Agreement but prior to May 1,
2004, which amount is subject to certain adjustments more fully described in the
Lyondell Securities Purchase Agreement and shall in no event be more than
$35,000,000 (the "Contingent Payment" and, together with the Warrants and the
Shares, the "Consideration"); provided that Lyondell may, at its option, pay all
or any portion of the Contingent Payment in shares of Lyondell Original Common
Stock or Lyondell Series B Common Stock, as more fully described in the Lyondell
Securities Purchase Agreement (such transaction, the "Lyondell Securities
Transaction" and, together with the Equistar Interests Transaction, the
"Transactions"). The Agreements further provide that the obligation of Lyondell
to consummate the Equistar Interests Transaction is
B-1
Board of Directors
Lyondell Chemical Company
May 2, 2002
Page 2
conditioned upon the consummation of the Lyondell Securities Transaction and
that the obligation of Lyondell to consummate the Lyondell Securities
Transaction is subject to the satisfaction or waiver of the conditions contained
in the Equistar Interests Purchase Agreement.
In arriving at our opinion, we have reviewed drafts, dated April 19, 2002, of
the Agreements and certain related documents, as well as certain publicly
available business and financial information relating to Lyondell and Equistar.
We also have reviewed certain other information relating to Lyondell and
Equistar, including financial forecasts, provided to or discussed with us by
Lyondell and Equistar, and have met with the managements of Lyondell and
Equistar to discuss the businesses and prospects of Lyondell and Equistar. We
also have considered certain financial and stock market data of Lyondell and
certain financial data of Equistar, and we have compared those data with similar
data for publicly held companies in businesses similar to those of Lyondell and
Equistar, and we have considered, to the extent publicly available, the
financial terms of certain other business combinations and other transactions
which have been effected or announced. We also considered such other
information, financial studies, analyses and investigations and financial,
economic and market criteria which we deemed relevant.
In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information and have relied on
its being complete and accurate in all material respects. With respect to the
financial forecasts, we have been advised, and have assumed, that such forecasts
have been reasonably prepared on bases reflecting the best currently available
estimates and judgments of the managements of Lyondell and Equistar as to the
future financial performance of Lyondell and Equistar, respectively. We have
assumed, with your consent, that the Agreements and related documents when
executed will conform to the drafts reviewed by us in all respects material to
our analysis. We also have assumed, with your consent, that the Transactions
will be consummated as set forth above in accordance with the terms of the
Agreements and related documents without amendment, modification or waiver of
any material terms thereof and that in the course of obtaining any necessary
regulatory and third party approvals, consents, waivers and agreements relating
to the Transactions, no modification, condition, restriction, limitation or
delay will be imposed that will have a material adverse effect on Lyondell or
Equistar or the contemplated benefits of the Transactions. We further have
assumed, with your consent, that neither Oxy LP1, Oxy LP2 nor Oxy GP has any
assets or liabilities other than their partnership interests in Equistar. We
have not been requested to make, and have not made, an independent evaluation or
appraisal of the assets or liabilities (contingent or otherwise) of Lyondell or
Equistar, nor have we been furnished with any such evaluations or appraisals,
with the exception of the third party appraisal of the Lake Charles Facility (as
such term is defined in the Equistar Interests Purchase Agreement) provided to
us by Lyondell management. Our opinion does not address the provisions of the
Equistar Interests Purchase Agreement in the event of a Lease Termination Event,
a No Rebuilding Termination or the exercise of the Put Right (each as defined in
the Equistar Interests Purchase Agreement) with respect to the Lake Charles
Facility. Our opinion is necessarily based upon information available to us and
financial, economic, market and other conditions as they exist and can be
evaluated, on the date hereof. We are not expressing any opinion as to what the
value of Lyondell Common Stock or the Warrants actually will be when issued
pursuant to the Transactions or the Contingent Payment or the prices at which
such securities will trade or otherwise be transferable at any time. Our opinion
does not address the relative merits of the Transactions as compared to other
business strategies that might be available to Lyondell, nor does it address the
underlying business decision of Lyondell to proceed with the Transactions. In
connection with our engagement, we were not requested to, and we did not,
participate in the negotiations or structuring of the Transactions.
We have been engaged by Lyondell to provide an opinion in connection with the
proposed Transactions and will receive a fee upon delivery of this opinion. We
and our affiliates have in the past provided, and may in the future provide,
investment banking and financial services to Lyondell, Equistar and Occidental
Petroleum Corporation
B-2
Board of Directors
Lyondell Chemical Company
May 2, 2002
Page 3
("Occidental") and certain of their affiliates unrelated to the proposed
Transactions, for which services we have received, and expect to receive,
compensation. In addition, a senior advisor of Credit Suisse First Boston
Corporation and a member of the board of directors of Credit Suisse Group are
each members of the board of directors of Occidental. In the ordinary course of
business, we and our affiliates may actively trade the debt and equity
securities of Lyondell and Occidental and certain of their affiliates, including
the debt securities of Equistar, for our own and such affiliates' accounts and
for the accounts of customers and, accordingly, may at any time hold long or
short positions in such securities.
It is understood that this letter is for the information of the Board of
Directors of Lyondell in connection with its evaluation of the Transactions and
does not constitute a recommendation to any stockholder as to how such
stockholder should vote or act on any matter relating to the Transactions.
Based upon and subject to the foregoing, it is our opinion that, as of the date
hereof, treating the Transactions for purposes of this opinion as if they were a
single integrated transaction in which the Consideration is to be exchanged for
the Purchased Interests, the Consideration to be paid by Lyondell for the
Purchased Interests is fair to Lyondell from a financial point of view.
Very truly yours,
CREDIT SUISSE FIRST BOSTON CORPORATION
B-3
[LOGO of Lyondell]
[RECYCLED PAPER LOGO]
[LYONDELL LOGO]
Lyondell Chemical Company
C/O Proxy Services
P.O. Box 9141
Farmingdale, NY 11735
INSTRUCTIONS FOR SUBMITTING PROXY:
VOTE BY INTERNET - www.proxyvote.com
Use the Internet to transmit your
voting instructions and for electronic
delivery of information. Have your
proxy card in hand when you access the
web site. You will be prompted to enter
your 12-digit Control Number located
below to obtain your records and create
an electronic voting instruction form.
Internet voting must be completed by
11:59 p.m. (Eastern) on ,
2002.
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to
transmit your voting instructions. Have
your proxy card in hand when you call.
You will be prompted to enter your 12-
digit Control Number located below and
then follow the simple instructions
that the Vote Voice provides you.
Telephone voting must be completed by
11:59 p.m. (Eastern) on ,
2002.
VOTE BY MAIL
Mark, sign and date your proxy card and
return it in the postage-paid envelope
we have provided or return to Lyondell
Chemical Company c/o ADP, 51 Mercedes
Way, Edgewood, NY 11717.
TO VOTE, MARK BLOCKS BELOW IN
BLUE OR BLACK INK AS FOLLOWS [X] PLEASE DETACH PROXY CARD HERE
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED
1. Proposal to Approve the Amended and Restated Certificate of Incorporation of
Lyondell Chemical Company in the form accompanying proxy statement as
Annex A.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. Proposal to Approve the sale of Lyondell Chemical Company securities to a
subsidiary of Occidental Petroleum Corporation, Occidental Chemical Holding
Corporation, as described in the accompanying Proxy Statement.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
I/we will attend the meeting. [ ] Address Change Mark Here [ ]
Please sign exactly as name appears. When shares are held by joint tenants,
both should sign. When signing as an attorney, executor, administrator, trustee
or guardian, please sign as such, giving full title.
___________________ _________ ____________________________ ___________
Signature Date Signature (Joint Owners) Date
[LYONDELL LOGO]
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of Lyondell Chemical Company (herein the "Company")
hereby makes, constitutes and appoints T. Kevin DeNicola, Kerry A. Galvin and
Charles L. Hall, and each of them, lawful attorneys and proxies of the
undersigned, with full power of substitution, for and in name, place and stead
of the undersigned to vote the number of shares of Company Common Stock that the
undersigned would be entitled to vote if personally present at the Special
Meeting of Stockholders to be held in the General Assembly Room of One Houston
Center, 1221 McKinney, 42nd Floor, in Houston, Texas on , ,
2002 at 9:00 a.m., local time, and at any adjournment(s) or postponement(s)
thereof, on the matters set forth on the reverse side.
THIS PROXY, WHEN PROPERLY EXECUTED OR SUBMITTED OVER THE INTERNET OR BY
TELEPHONE, WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED
STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR ITEMS 1
AND 2.
This card also constitutes my voting instructions with respect to shares held in
the Lyondell Chemical Company 401(k) and Savings Plan, the Equistar Chemicals,
LP Savings and Investment Plan, the LYONDELL-CITGO Refining, LP 401(k) and
Savings Plan for Non-Represented Employees, the LYONDELL-CITGO Refining, LP
401(k) and Savings Plan for Represented Employees, and the Quantum Chemicals
Retirement Savings and Investment Plan for Hourly Represented Employees, and the
undersigned hereby authorizes Fidelity Management Trust Company, as Trustee of
such plans, to vote the shares held in the undersigned's accounts.
(Continued, and to be signed and dated, on the reverse side.)