<PAGE>
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:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
[X] Definitive Proxy Statement RULE 14C-5(D)(2))
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
Arco 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):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(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):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] 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:
<PAGE>
[LOGO OF ARCO CHEMICAL COMPANY APPEARS HERE]
ARCO Chemical Company
NOTICE OF
ANNUAL MEETING
OF STOCKHOLDERS
TO BE HELD
ON MAY 11, 1995
AND PROXY STATEMENT
PLEASE COMPLETE, SIGN, DATE, AND RETURN
YOUR PROXY PROMPTLY
<PAGE>
ARCO CHEMICAL COMPANY
3801 West Chester Pike
Newtown Square, Pennsylvania 19073-2387
March 31, 1995
Dear Stockholder:
You are cordially invited to join us at the 1995 Annual Meeting of Stockholders
on Thursday, May 11, 1995 at the Conference Center at the Company's
Headquarters, 3801 West Chester Pike, Newtown Square, Pennsylvania, beginning
at 10:00 a.m.
It is important that your shares be voted whether or not you plan to be present
at the meeting. Please complete, sign, date, and return the enclosed form of
proxy promptly. If you attend the meeting and wish to vote your shares
personally, you may revoke your proxy.
This booklet includes the notice of the meeting and the Proxy Statement, which
contains information about the formal business to be acted upon by the
stockholders. The meeting will also feature a report on the operations of your
Company, followed by a question and discussion period.
Sincerely yours,
/s/ Lodwrick M. Cook
Chairman of the Board
/s/ Alan R. Hirsig
President and Chief Executive Officer
<PAGE>
ARCO CHEMICAL COMPANY
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 11, 1995
TO THE STOCKHOLDERS:
The Annual Meeting of Stockholders of ARCO Chemical Company ("ARCO Chemical" or
the "Company") will be held at the Conference Center at the Company's
Headquarters, 3801 West Chester Pike, Newtown Square, Pennsylvania, on
Thursday, May 11, 1995, at 10:00 a.m. local time, for the following purposes,
as more fully described in the attached Proxy Statement:
(1) To elect 11 directors to hold office for a one-year term;
(2) To approve the appointment of Coopers & Lybrand L.L.P. as independent
auditors for ARCO Chemical for the year 1995; and
(3) To transact such other business as may properly come before the meeting.
The Board of Directors has fixed March 20, 1995 as the record date for the
meeting. Accordingly, only stockholders of record of the common stock of the
Company at the close of business on such date are entitled to vote at the
meeting.
Each such stockholder of record will receive a form of proxy pertaining to the
shares of common stock of the Company registered in his or her name. Each
participant in any of the Company's employee stock benefit plans will also
receive a form of proxy pertaining to shares of the Company's common stock
credited to his or her account in the plans.
YOU ARE URGED TO READ THE PROXY STATEMENT, THEN COMPLETE, SIGN, AND DATE THE
FORM OF PROXY AND RETURN IT IN THE ENCLOSED SELF-ADDRESSED POSTAGE-PAID
ENVELOPE.
/s/ Robert J. Millstone
ROBERT J. MILLSTONE Newtown Square, Pennsylvania
Secretary March 31, 1995
<PAGE>
ARCO CHEMICAL COMPANY
3801 WEST CHESTER PIKE
NEWTOWN SQUARE, PENNSYLVANIA 19073-2387
----------------
PROXY STATEMENT
MARCH 31, 1995
----------------
INTRODUCTION
The accompanying proxy is solicited by the Board of Directors of ARCO
Chemical Company ("ARCO Chemical" or the "Company"). The proxy may be revoked
by the stockholder at any time prior to the time it is voted by giving notice
of such revocation either personally or in writing to the Secretary of ARCO
Chemical. Shares represented by a properly executed proxy will be voted in
accordance with the instructions of the stockholder. In the absence of such
instructions, the persons named in the accompanying proxy will vote FOR the
election of the nominees for director listed in this Proxy Statement and FOR
the approval of the appointment of Coopers & Lybrand L.L.P. as independent
auditors for the Company for the year 1995. As to other items of business that
may come before the meeting, such persons will vote in accordance with their
best judgment.
VOTING SECURITIES
Holders of record of outstanding common stock of the Company ("Common Stock")
at the close of business on March 20, 1995 will be entitled to one vote per
share. The Company had 96,181,563 shares of Common Stock outstanding on such
record date. Fractional shares will not be voted. The presence, in person or by
proxy, of stockholders entitled to cast at least a majority of the votes that
all stockholders are entitled to cast shall constitute a quorum.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS; CONTROL OF THE COMPANY
The following are the only persons known by the Company to own beneficially
more than five percent of any class of the Company's voting securities as of
the record date:
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL
NAME AND OWNERSHIP OF PERCENT
TITLE OF CLASS ADDRESS SHARES OF CLASS
-------------- -------- ------------ --------
<S> <C> <C> <C>
Common Stock......... Atlantic Richfield Company 80,000,001(a) 83.2
515 South Flower Street
Los Angeles, California 90071
Common Stock......... Archer-Daniels-Midland Company 4,815,300(b)(c) 5.01
4666 Faries Parkway
Decatur, Illinois 62526
</TABLE>
--------
(a) Sole voting power, sole dispositive power.
(b) Based upon information contained in a Schedule 13D filed with the Company
and dated June 13, 1991. According to that Schedule 13D, Archer-Daniels-
Midland Company ("Archer-Daniels-Midland") has sole voting power and sole
dispositive power.
(c) In addition, according to the above-referenced Schedule 13D, M. L. Andreas,
Senior Vice President of Archer-Daniels-Midland, owns 17% of a corporation
that owns 75,000 shares of Common Stock. Mr. Andreas also is reported as
owning 600 shares of Common Stock in his own name.
<PAGE>
Under applicable provisions of the Delaware General Corporation Law and the
Company's Certificate of Incorporation, Atlantic Richfield Company, a Delaware
corporation ("ARCO"), is able, acting alone, to elect the entire Board of
Directors of the Company and to approve any action requiring stockholder
approval. ARCO's current level of ownership of the outstanding voting stock
precludes any acquisition of control of the Company not favored by ARCO. ARCO
has informed the Company that it intends to vote its shares in favor of the 11
nominees to the Board of Directors and for the approval of Coopers & Lybrand
L.L.P. as independent auditors for 1995.
The Company and ARCO entered into an agreement, dated as of June 30, 1987,
granting ARCO certain rights as a stockholder of the Company. In order to allow
ARCO to continue to include the Company as part of its "affiliated group" for
federal income tax purposes, ARCO has been granted the cumulative, continuing
right to purchase from the Company, at the then current market price, such
number of shares of Common Stock as may be necessary to preserve that status.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the number of shares of Common Stock and the
number of shares of common stock of ARCO ("ARCO Common Stock") owned
beneficially as of February 1, 1995 by each director and/or nominee, each
executive officer named in the Summary Compensation Table, and all directors,
nominees and executive officers as a group. None of the directors and/or
nominees, the named executive officers, or the directors and/or nominees and
all executive officers as a group, owned any other equity securities of the
Company or ARCO, except as disclosed in the footnotes to the table. As of
February 1, 1995, the percentage of shares of any class of equity securities of
the Company or ARCO beneficially owned by any director and/or nominee or any
named executive officer, or by all directors and/or nominees and all executive
officers as a group, did not exceed 1% of the class so owned. Unless otherwise
noted, each individual has sole voting and investment power.
<TABLE>
<CAPTION>
SHARES OF ARCO
SHARES OF COMMON STOCK COMMON STOCK
OWNED BENEFICIALLY AS OF OWNED BENEFICIALLY
NAME FEBRUARY 1, 1995(A)(B) AS OF FEBRUARY 1, 1995(C)(D)
-------------------------------------------------------------------------------
<S> <C> <C>
Ronald J. Arnault 500 92,067
Walter F. Beran 1,000 0
Mike R. Bowlin 0 104,192(e)
Lodwrick M. Cook 1,000(f) 176,695
E. Kent Damon, Jr. 500 50,990
Peter C. Harris 26,027 0
Alan R. Hirsig 175,215 1,145
Marie L. Knowles 100 17,342(g)
James A. Middleton 1,000 109,564
Jack E. Oppasser 75,529(h) 3,433
Frank Savage 100(i) 0
Marvin O. Schlanger 97,210 1,980
Robert H. Stewart, III 4,000 0
Walter J. Tusinski 29,994(j) 18,356(k)
Bruce G. Whitmore 27,404(l) 4,651
All directors and/or
nominees and all exec-
utive officers as a
group, including those
named above 592,768(m) 587,056(n)
-------------------------------------------------------------------------------
</TABLE>
(a) Includes shares of Common Stock held by the trustees of the ARCO Chemical
Company Capital Accumulation Plan (the "Capital Accumulation Plan") and the
ARCO Chemical Company Savings Plan (the "Savings Plan") for the accounts of
participants.
(b) The amounts shown include shares that may be acquired within the 60-day
period following February 1, 1995 through the exercise of stock options
covering Common Stock as follows: Mr. Harris, 25,400; Mr. Hirsig, 162,900;
Mr. Oppasser, 73,000; Mr. Schlanger, 92,500; Mr. Tusinski, 27,600;
Mr. Whitmore, 25,200; and all directors and/or nominees and all executive
officers as a group (including those just named), 552,700.
2
<PAGE>
(c) Includes shares of ARCO Common Stock held by the trustees of the Capital
Accumulation Plan, the Savings Plan, and ARCO's Capital Accumulation and
Savings Plans for the accounts of participants.
(d) The amounts shown include shares that may be acquired within the 60-day
period following February 1, 1995 through the exercise of stock options
covering ARCO Common Stock as follows: Mr. Arnault, 86,925; Mr. Bowlin,
92,272; Mr. Cook, 168,300; Mr. Damon, 49,363; Mrs. Knowles, 16,802; Mr.
Middleton, 104,850; Mr. Schlanger, 1,398; Mr. Tusinski, 12,291; Mr.
Whitmore, 3,577; and all directors and/or nominees and all executive
officers as a group (including those just named), 537,266.
(e) Includes 10,000 shares of restricted ARCO Common Stock. Restricted stock
includes voting rights and the rights to receive dividends.
(f) Held in trust and subject to shared voting and investment power with spouse
as co-trustee.
(g) Does not include 1,015 shares that may be acquired within the 60-day period
following February 1, 1995 through the exercise of stock options covering
ARCO Common Stock held by spouse and 1,322 shares held for the account of
spouse by the trustees of ARCO's Capital Accumulation and Savings Plans, as
to which beneficial ownership is disclaimed.
(h) Includes 1,040 shares subject to shared voting and investment power with
spouse.
(i) Shares subject to shared voting and investment power with spouse. Section
16(a) of the Securities Exchange Act of 1934 requires executive officers
and directors to file reports of changes of ownership of the Company's
Common Stock with the Securities and Exchange Commission. The Form 4
reporting Mr. Savage's purchase of these shares was inadvertently filed
subsequent to the applicable due date. The report was otherwise in
compliance with all applicable filing requirements.
(j) Does not include 2,600 shares held in trust for children, as to which
beneficial ownership is disclaimed.
(k) Includes 252 shares subject to shared voting and investment power with
spouse.
(l) Includes 200 shares subject to shared voting and investment power with
spouse.
(m) Includes 4,040 shares subject to shared voting and investment power. Does
not include 2,875 shares held for certain executive officers' children, as
to which beneficial ownership is disclaimed.
(n) Includes 252 shares subject to shared voting and investment power.
ELECTION OF DIRECTORS
Item 1 on Proxy Card
Pursuant to the Company's Certificate of Incorporation and its By-Laws, the
members of the Board of Directors serve for one-year terms.
Francis X. McCormack, who was elected a director of the Company at the 1994
Annual Meeting of Stockholders, resigned from the Board on June 27, 1994 in
connection with his retirement from ARCO in 1994. In connection with his
planned retirement from ARCO in 1995, Lodwrick M. Cook has decided to resign as
Chairman of the Board and a director of the Company effective as of May 11,
1995. In addition, Peter C. Harris and Jack E. Oppasser, both of whom are
officers of the Company, will resign from the Board effective as of May 11,
1995.
The Board of Directors has fixed the number of directors constituting the
whole Board, effective as of May 11, 1995, at 11 and has selected the nominees
listed below, who were recommended by the Nominating Committee (described
below), for election to a term of one year. Each of the nominees, with the
exception of Mike R. Bowlin, is currently a director of the Company. Mr. Bowlin
is President, Chief Executive Officer, Chief Operating Officer and a director
of ARCO. James A. Middleton retired as a director and an officer of ARCO in
1994, and as an employee of ARCO in 1995. In the event of his re-election to
the Board of Directors for an additional term, Mr. Middleton will serve as an
outside director of the Company. Unless authority to vote for any nominee is
withheld in the proxy, the persons named in the accompanying proxy intend to
vote FOR the election of all the nominees listed below.
All nominees have indicated a willingness to serve as directors, but if any
of them should decline or be unable to act as a director, the persons named in
the proxy will vote for the election of such nominee or nominees as may be
recommended by the Board of Directors.
Under the Delaware General Corporation Law, each of the nominees must receive
a plurality of the votes of shares of Common Stock present in person or by
proxy at the meeting to be elected as a director. Abstentions will be counted
as shares present at the meeting. Broker non-votes, if any, will not be counted
as shares present at the meeting.
3
<PAGE>
The following biographical information is furnished with respect to each of
the nominees. The information includes age as of the date of the annual
meeting, present position, if any, with ARCO Chemical, period served as a
director, and other business experience during the past five years. Unless
stated otherwise, the offices referred to in the second column refer to offices
with the Company or, prior to June 1987, the ARCO Chemical Division of ARCO.
See "Transactions Between the Company and ARCO."
<TABLE>
<S> <C>
RONALD J. ARNAULT, 51
[PHOTO OF Mr. Arnault was elected a Director of the Company on June
RONALD J. 17, 1987. Mr. Arnault has been an Executive Vice
ARNAULT President and a Director of ARCO since October 1987. He
APPEARS HERE] has been Chief Financial Officer of ARCO from June 1984
to July 1990 and from July 1992 to the present. Mr.
Arnault is also Chairman of the Board and a Director of
Vastar Resources, Inc. and a Director of SunAmerica, Inc.
WALTER F. BERAN, 69
[PHOTO OF Mr. Beran was elected a Director of the Company on
WALTER F. September 1, 1987. Mr. Beran is Chairman of Pacific
BERAN Alliance Group (a financial services firm). Previously,
APPEARS he served as Vice Chairman and Western Region Managing
HERE] Partner of Ernst & Whinney (accountants), a predecessor
to Ernst & Young. Mr. Beran is also a Director of
Fleetwood Enterprises, Inc., The Hillhaven Corporation
and Pacific Scientific Company.
MIKE R. BOWLIN, 52
[PHOTO OF Mr. Bowlin is a nominee for Director. Mr. Bowlin has been
MIKE R. the Chief Executive Officer of ARCO since July 1994,
BOWLIN President and Chief Operating Officer of ARCO since June
APPEARS HERE] 1993 and a Director of ARCO since June 1992. Mr. Bowlin
served as Executive Vice President of ARCO from June 1992
to May 1993 and Senior Vice President of ARCO from July
1985 to June 1992.
E. KENT DAMON, JR., 52
[PHOTO OF Mr. Damon was elected a Director of the Company on
E. KENT February 15, 1989. Mr. Damon has been Senior Vice
DAMON, JR. President of ARCO and President of ARCO Asia Pacific,
APPEARS HERE] Ltd. since August 1993. Previously, he was Senior Vice
President of Planning and Control of ARCO from July 1990
to August 1993, Vice President and Investment Officer of
ARCO from August 1985 to July 1990, and President and
Chief Investment Officer of ARCO Investment Management
Company from December 1987 to July 1990.
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
ALAN R. HIRSIG, 55
President and Chief Executive Officer
[PHOTO OF Mr. Hirsig was elected President and Chief Executive
ALAN R. Officer on January 1, 1991. He was elected an officer of
HIRSIG the Company on June 22, 1987 and a Director of the
APPEARS HERE] Company on November 14, 1989. Previously, Mr. Hirsig was
President of the Company's European operations from July
1984 to December 1990 and a Senior Vice President of the
Company from July 1988 to December 1990.
MARIE L. KNOWLES, 48
[PHOTO OF Mrs. Knowles was elected a Director of the Company on
MARIE L. July 10, 1991. Mrs. Knowles has been Senior Vice
KNOWLES President of ARCO and President of ARCO Transportation
APPEARS HERE] Company since June 1993. Previously, she served as Vice
President and Controller of ARCO from July 1990 to May
1993 and Vice President of Finance, Control, and Planning
of ARCO International Oil and Gas Company from July 1988
to July 1990. Mrs. Knowles is also a Director of Phelps
Dodge Corporation.
JAMES A. MIDDLETON, 59
[PHOTO OF Mr. Middleton was elected a Director of the Company on
JAMES A. February 15, 1989. Mr. Middleton was an Executive Vice
MIDDLETON President and a Director of ARCO from October 1987 until
APPEARS HERE] he resigned from those positions in September 1994. Mr.
Middleton retired as an employee of ARCO in January 1995.
Previously, he served as President of ARCO Oil and Gas
Company from January 1985 to September 1990. Mr.
Middleton is also a Director of Texas Utilities Company.
FRANK SAVAGE, 56
[PHOTO OF Mr. Savage was elected a Director of the Company on July
FRANK 22, 1993. Mr. Savage is Chairman of Alliance Capital
SAVAGE Management International and Chairman of Alliance
APPEARS HERE] Corporate Finance Group, Inc. (financial services). He is
Senior Vice President of The Equitable Life Assurance
Society of the United States (financial services).
Previously, he served as Chairman of Equitable Capital
Management Corporation (which was merged into Alliance
Capital Management Corporation) from April 1992 to July
1993 and Vice Chairman and Head of International
Operations, Equitable Capital Management Corporation from
December 1986 to April 1992. Mr. Savage is also a
director of Alliance Capital Management Corporation,
Alliance '95 Fund, Lockheed Corporation and Southern
Africa Fund.
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
MARVIN O. SCHLANGER, 47
Executive Vice President and Chief Operating Officer
[PHOTO OF
MARVIN O. Mr. Schlanger was elected an officer of the Company on
SCHLANGER September 1, 1987 and a Director of the Company on
APPEARS HERE] November 14, 1989. He assumed his current position in
November 1994. Previously, he was Senior Vice President
of the Company and President of ARCO Chemical Americas
Company from August 1992 to November 1994, Senior Vice
President and Chief Financial Officer from October 1989
to August 1992 and Vice President, Worldwide Business
Management from September 1988 to September 1989. Mr.
Schlanger is also a Director of Roy F. Weston, Inc.
ROBERT H. STEWART, III, 69
[PHOTO OF Mr. Stewart was elected a Director of the Company on
ROBERT H. September 1, 1987. Mr. Stewart is Vice Chairman of Bank
STEWART, III One, Texas, N.A. (commercial bank). Mr. Stewart had been
APPEARS HERE] Vice Chairman of the Board of Team Bank (commercial
bank). Team Bancshares, Inc., the parent of Team Bank,
was merged into BANC ONE CORPORATION, the parent of Bank
One, Texas, N.A., in November 1992. Previously, Mr.
Stewart served as Vice Chairman of LaSalle Energy Corp.
(gas pipeline business) from August 1987 to January 1990.
Mr. Stewart is also a Director of PepsiCo, Inc.
WALTER J. TUSINSKI, 47
Senior Vice President and Chief Financial Officer
[PHOTO OF Mr. Tusinski was elected Senior Vice President and Chief
WALTER J. Financial Officer and a Director of the Company on
TUSINSKI September 1, 1992. Previously, he served as Vice
APPEARS HERE] President, New Business Ventures of ARCO International
Oil and Gas Company from September 1990 to August 1992
and Vice President, Planning and Control of ARCO Products
Company from October 1986 to August 1990.
</TABLE>
6
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
--------------------------------- -------------
NAME AND OTHER ALL
PRINCIPAL ANNUAL OTHER
POSITION YEAR SALARY BONUS COMPENSATION STOCK OPTIONS COMPENSATION
--------- ---- ------- ------- ------------ ------------- ------------
($) ($) ($) (#) ($)
(A) (B) (C)(D)
<S> <C> <C> <C> <C> <C> <C>
Alan R. Hirsig.......... 1994 496,154 375,000 93,891 34,200 63,668
President and 1993 467,308 250,000 55,412 36,700 58,872
Chief Executive Officer 1992 417,308 275,000 23,324 32,000 37,246
Jack E. Oppasser........ 1994 271,000 165,000 131,771 14,300 213,602
Senior Vice President 1993 256,000 105,000 164,224 14,700 203,059
1992 231,846 120,000 151,078 11,000 229,338
Marvin O. Schlanger..... 1994 332,808 250,000 24,743 18,600 35,680
Executive Vice President 1993 306,923 155,000 11,294 18,900 34,712
and Chief Operating Of- 1992 274,077 200,000 5,695 16,000 26,626
ficer
Walter J. Tusinski (e).. 1994 277,692 160,000 16,463 15,000 39,192
Senior Vice President 1993 263,461 105,000 13,985 12,600 39,213
and Chief Financial 1992 78,945 105,000 97,471 0 61,792
Officer
Bruce G. Whitmore (f)... 1994 250,923 155,000 20,067 8,800 34,462
Vice President and 1993 243,154 90,000 12,812 9,400 34,085
General Counsel 1992 231,154 95,000 7,519 11,000 27,164
</TABLE>
--------
(a) Includes imputed income in respect of the Long-Term Disability Plan,
amounts related to the payment of foreign and other taxes, tax gross-ups
in respect of financial counseling reimbursements, moving expenses and
other miscellaneous items, and incremental interest accrued under the Key
Management Deferral Plan that exceeds 120% of a specified IRS rate. The
financial counseling and moving expense reimbursements are increased by an
amount to cover the federal and state income tax obligations of the
recipient associated with the reimbursements, including an additional
amount, based on maximum applicable federal and state income tax rates.
(b) These options were granted under the Company's 1990 Long-Term Incentive
Plan. These options accrue dividend share credits. For a description of
dividend share credits under the 1990 Long-Term Incentive Plan, see
footnote (d) of this Summary Compensation Table.
(c) Includes 1994 contributions to the Executive Supplementary Savings Plan,
incremental medical plan premiums, financial counseling reimbursements,
certain amounts in respect of the Key Management Life Insurance Plan,
foreign housing and service payments, and employee stock ownership plan
incentive program ("ESOP Incentive") payments and other miscellaneous
payments, as follows:
<TABLE>
<CAPTION>
MR. MR. MR. MR. MR.
HIRSIG OPPASSER SCHLANGER TUSINSKI WHITMORE
------ -------- --------- -------- --------
($) ($) ($) ($) ($)
<S> <C> <C> <C> <C> <C>
Executive Supplementary Savings
Plan........................... 29,769 16,260 19,969 16,661 15,055
Incremental Executive Medical
Plan premiums.................. 7,020 7,020 7,020 7,020 7,020
Financial counseling
reimbursements................. 9,545 2,053 1,625 5,700 5,000
Key Management Life Insurance
Plan........................... 15,226 7,966 6,448 9,434 6,182
Foreign housing and service
payments....................... 0 179,225 0 0 0
ESOP Incentive and other misc.
payments....................... 2,108 1,077 618 377 1,205
</TABLE>
(Continued on next page)
7
<PAGE>
(Continued from previous page)
The amounts disclosed in respect of the Key Management Life Insurance Plan
include certain reimbursements of premiums paid by the executive officer as
well as the dollar value of the benefit to the executive officer of the
premium paid by the Company during the fiscal year. The dollar value of the
latter benefit is calculated by (i) treating the annual premium paid by the
Company, less the portion of the premium attributable to death benefits
payable to the Company and certain policy charges, as a demand loan from
the Company to the executive officer and (ii) imputing interest on the
demand loan at the applicable federal rate. The deemed amount of the
benefit to the executive officer is the amount of interest imputed less the
executive officer's contribution to the policy.
(d) Dividend share credits accrue on options granted under both the Company's
1987 Executive Long-Term Incentive Plan, which is not available for
additional option grants, and the Company's 1990 Long-Term Incentive Plan.
Dividend share credits are allocated to an optionee's account whenever
dividends are declared on shares of Common Stock. The number of dividend
share credits to be allocated on each dividend record date to an
optionee's account is computed by multiplying the dividend rate per share
of Common Stock by the sum of (x) the number of shares subject to
outstanding options and (y) the number of dividend share credits then
credited to the optionee's account and dividing the resulting figure by
the fair market value of a share of Common Stock ("FMV") on such dividend
record date. Upon the exercise, expiration or surrender of an option, an
optionee may receive a cash payment in respect of the dividend share
credits attributable to such option provided that certain performance-
based conditions are satisfied. If FMV on the date of exercise, expiration
or surrender is greater than the exercise price of the option, then the
optionee is entitled to receive a cash payment equal to the number of
dividend share credits attributable to such option multiplied by FMV on
such date. If the option exercise price is greater than FMV on such date
(i.e., the option is out-of-the-money) and the fair market value of the
dividend share credits (equal to FMV on such date multiplied by the number
of dividend share credits) is equal to or less than the amount by which
the aggregate exercise price of the option exceeds the aggregate FMV of
the shares of Common Stock underlying such option (the "Out-of-the-Money
Spread"), then the optionee is not entitled to receive any cash payment in
respect of the dividend share credits. If the option is out-of-the-money
but the fair market value of the dividend share credits is greater than
the Out-of-the-Money Spread, then the optionee is entitled to receive a
cash payment in respect of the dividend share credits equal to the fair
market value of the dividend share credits less the Out-of-the-Money
Spread. The dividend share credit values realized in the table below and
the dividend share credit values in the table set forth at footnote (c) of
the Aggregated Option Exercises in 1994 and Year-End Option Values Table
at page 10 reflect the application of the foregoing cash payment formula.
Dividend share credits accrued on Company options during 1992, 1993 and
1994 to the account of the named executive officers, and the value
realized on exercise, were as follows:
<TABLE>
<CAPTION>
1992 1993 1994
----------------- ----------------- -----------------
DIVIDEND DIVIDEND DIVIDEND
SHARE VALUE SHARE VALUE SHARE VALUE
NAME CREDITS REALIZED CREDITS REALIZED CREDITS REALIZED
---- -------- -------- -------- -------- -------- --------
# $ # $ # $
<S> <C> <C> <C> <C> <C> <C>
Mr. Hirsig.............. 5,421 0 7,869 0 9,312 0
Mr. Oppasser............ 2,756 0 3,733 0 4,303 0
Mr. Schlanger........... 3,775 0 5,075 0 5,619 145,639
Mr. Tusinski............ 0 0 560 0 1,309 0
Mr. Whitmore............ 927 0 1,580 0 1,459 85,456
</TABLE>
Dividend share credit totals are rounded to the nearest whole number. FMV
of Common Stock on December 31, 1992 was $44.375. FMV of Common Stock on
December 31, 1993 was $43.25. FMV of Common Stock on December 31, 1994 was
$44.1250.
(Continued on next page)
8
<PAGE>
(Continued from previous page)
Certain officers and employees of the Company also have options for ARCO
Common Stock granted by ARCO for services rendered to ARCO. Dividend share
credits accrue on options for ARCO Common Stock in the same manner that
dividend share credits accrue on options for Common Stock. Upon an ARCO
employee becoming employed by the Company, the Company assumes ARCO's
contingent future cash payment obligation with respect to all dividend
share credits accrued on ARCO options allocated to such employee. During
1994, cash payments received by the named executive officers with respect
to dividend share credits in connection with the exercise of ARCO options
were as follows: Mr. Whitmore, $95,545.
(e) Mr. Tusinski began employment with the Company on September 1, 1992. The
amount shown for Mr. Tusinski's 1992 salary is for the four-month period
ended December 31, 1992.
(f) Mr. Whitmore resigned December 31, 1994 to become Senior Vice President,
General Counsel and Secretary of ARCO.
STOCK OPTION GRANTS IN 1994
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS(A) OPTION TERM(B)
------------------------------------------- ---------------------------
% OF TOTAL
OPTIONS GRANTED
OPTIONS TO EMPLOYEES EXERCISE EXPIRATION
NAME GRANTED IN 1994 PRICE DATE 5% 10%
---- ------- --------------- -------- ---------- ------------- -------------
(#) ($/SH) ($) ($)
<S> <C> <C> <C> <C> <C> <C>
Alan R. Hirsig.......... 34,200 13.68 48.5625 2/16/04 1,044,492 2,646,947
Jack E. Oppasser........ 14,300 5.72 48.5625 2/16/04 436,732 1,106,764
Marvin O. Schlanger..... 18,600 7.44 48.5625 2/16/04 568,057 1,439,568
Walter J. Tusinski...... 15,000 6.00 48.5625 2/16/04 458,110 1,160,942
Bruce G. Whitmore....... 8,800 3.52 48.5625 2/16/04 268,758 681,086
Stock Price(c).......... 79.10 125.96
All Stockholders(c)..... 2,934,508,849 7,436,621,574
</TABLE>
--------
(a) These options were granted under the Company's 1990 Long-Term Incentive
Plan at an exercise price equal to the FMV on the date of grant, became
exercisable on February 17, 1995, and earn dividend share credits. The
options and the dividend share credits associated with such options are
cancelled upon an optionee's termination of employment under certain
specified circumstances. For a description of dividend share credits under
the 1990 Long-Term Incentive Plan, see footnote (d) of the Summary
Compensation Table at page 8.
(b) The potential realizable values presented are exclusive of the value, if
any, that might be realized in the future in respect of dividend share
credits.
(c) Based on total number of shares outstanding on December 31, 1994 of
96,085,201 and assumed purchase price of $48.5625 per share.
9
<PAGE>
AGGREGATED OPTION EXERCISES IN 1994 AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF IN-THE-MONEY
NUMBER OF UNEXERCISED UNEXERCISED OPTIONS AT
SHARES OPTIONS AT YEAR-END(A) YEAR-END(B)(C)
ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
(#) ($) (#) (#) ($) ($)
<S> <C> <C> <C> <C> <C> <C>
Alan R. Hirsig.......... 0 0 128,700 34,200 721,156 0
Jack E. Oppasser........ 0 0 58,700 14,300 371,406 0
Marvin O. Schlanger..... 6,300 110,250 73,900 18,600 417,344 0
Walter J. Tusinski...... 0 0 12,600 15,000 27,563 0
Bruce G. Whitmore....... 11,000 92,875 16,400 8,800 56,438 0
</TABLE>
--------
(a) Each option carries with it the right to dividend share credits, as
described in footnote (d) of the Summary Compensation Table at page 8.
(b) FMV of Common Stock on December 31, 1994 was $44.1250.
(c) Set forth below are the values of aggregate dividend share credits accrued
with respect to options held at year-end based on FMV of Common Stock on
December 31, 1994 of $44.1250. The dividend share credit values have been
calculated based on the cash payment formula described in footnote (d) of
the Summary Compensation Table at page 8, assuming the exercise of the
corresponding options (even if not exercisable in fact) on December 31,
1994, as follows:
<TABLE>
<CAPTION>
YEAR-END DIVIDEND SHARE CREDIT VALUES
-----------------------------------------
EXERCISABLE OPTIONS UNEXERCISABLE OPTIONS
------------------- ---------------------
($) ($)
<S> <C> <C>
Mr. Hirsig.......................... 1,202,359 0
Mr. Oppasser........................ 641,613 0
Mr. Schlanger....................... 703,202 0
Mr. Tusinski........................ 55,860 0
Mr. Whitmore........................ 92,870 0
</TABLE>
PENSION PLAN TABLE
The following table shows estimated annual pension benefits payable to
employees, including executive officers of the Company, upon retirement at age
65 under the provisions of the ARCO Chemical Company Retirement Plan and the
ARCO Chemical Company Supplementary Retirement Plan as in effect on December
31, 1994.
<TABLE>
<CAPTION>
AVERAGE FINAL EARNINGS
(SALARY PLUS BONUS)
HIGHEST THREE
CONSECUTIVE YEARS APPROXIMATE ANNUAL BENEFIT FOR YEARS OF
OUT OF LAST TEN YEARS(A) MEMBERSHIP SERVICE INDICATED(B)(C)
------------------------ -----------------------------------------------------
15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 100,000 $ 21,429 $ 29,072 $ 36,715 $ 44,358 $ 52,001
200,000 43,929 59,572 75,215 90,858 106,501
300,000 66,429 90,072 113,715 137,358 161,001
400,000 88,929 120,572 152,215 183,858 215,501
500,000 111,429 151,072 190,715 230,358 270,001
600,000 133,929 181,572 229,215 276,858 324,501
700,000 156,429 212,072 267,715 323,358 379,001
800,000 178,929 242,572 306,215 369,858 433,501
900,000 201,429 273,072 344,715 416,358 488,001
1,000,000 223,929 303,572 383,215 462,858 542,501
</TABLE>
--------------------------------------------------------------------------------
(a) The Retirement Plan and the Supplementary Retirement Plan cover the
compensation reported as salary and bonus in the Summary Compensation
Table. Effective January 1, 1995, retirement benefits will be based on
years of participation service and the employee's compensation during the
highest three consecutive years of service since December 31, 1978.
(b) The amounts shown in the above table are necessarily based upon certain
assumptions, including retirement of the employee on December 31, 1994 and
payment of the benefit under the basic form of allowance provided under the
Retirement Plan (payment for the life of the employee only with a
guaranteed minimum payment period of 60 months). The benefits shown are not
subject to deduction for Social Security benefits or other offset amounts.
(c) As of December 31, 1994, the credited years of service under the Retirement
Plan for the five named executive officers were as follows: Mr. Hirsig,
33.58; Mr. Oppasser, 6.42; Mr. Schlanger, 20.00; Mr. Tusinski, 2.33; and
Mr. Whitmore, 4.25.
10
<PAGE>
PERFORMANCE GRAPH
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*
The performance graph below compares the cumulative total stockholder return
of the Company with the cumulative total return of the S&P 500 Stock Index and
the S&P Chemicals Index.
[GRAPH APPEARS HERE]
<TABLE>
COMPARISON OF FIVE YEAR CUMULATIVE RETURN
AMONG ARCO CHEMICAL, S&P 500 STOCK INDEX AND S&P CHEMICALS INDEX
<CAPTION>
S&P 500 S&P
Measurement period ARCO STOCK CHEMICALS
(Fiscal Year Covered) CHEMICAL INDEX INDEX
--------------------- -------- -------- --------
<S> <C> <C> <C>
Measurement PT -
12/31/89 $ 100.00 $ 100.00 $ 100.00
FYE 12/31/90 $ 104.34 $ 96.89 $ 84.91
FYE 12/31/91 $ 125.51 $ 126.42 $ 110.73
FYE 12/31/92 $ 146.39 $ 136.05 $ 121.25
FYE 12/31/93 $ 153.39 $ 149.76 $ 135.60
FYE 12/31/94 $ 164.92 $ 151.74 $ 156.98
</TABLE>
--------
* Assumes initial investment of $100 and reinvestment of all dividends
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of ARCO Chemical's Board of Directors (the
"Compensation Committee") administers ARCO Chemical's executive compensation.
The Compensation Committee is composed of the individuals listed below, all of
whom are non-employee directors.
ARCO Chemical Company's Executive Compensation policy links the elements of
executive pay to Company and individual performance. The compensation program
is intended to attract, motivate and retain high caliber executive personnel,
and to deliver short and long-term compensation predicated on achievement of
Company objectives and performance relative to its chemical industry
competitors.
Each year the Compensation Committee conducts a full review of ARCO
Chemical's performance and executive compensation. The evaluation of Company
performance is based on an assessment of financial performance as compared to
the S&P Chemicals group, and the achievement of Company financial and other
business objectives. Financial performance comparisons to the S&P Chemicals
group include such factors as relative net income, net income growth, return on
sales, return on capital employed, return on stockholders' equity, and total
return to stockholders. The
11
<PAGE>
Compensation Committee does not, however, apply any specific quantitative
formulas in arriving at its compensation decisions. ARCO Chemical's 1994 full-
year performance significantly exceeded its financial objectives, with net
income at its highest level since 1990. Although annual performance was near
the median of the competitor group, the Company has sustained longer term
performance in the upper tier of the competitor group on several key measures.
In addition, several important business initiatives were implemented that will
position the Company for continued success.
The Company also established specific internal goals and objectives for 1994.
The Company met or exceeded its objectives in 1994 on its key internal goals.
Components of Executive Compensation
The Company's executive compensation program is designed to emphasize
incentive compensation through the use of annual cash bonuses and equity-based
long-term incentives. These incentive opportunities represent a variable
component of pay which, when combined with base pay, provide total compensation
that reflects both individual and Company performance. Total compensation
levels are measured against other chemical companies whose size and character
are similar to ARCO Chemical.
The components of executive compensation each play a specific role in the
achievement of the desired total compensation position.
The Company maintains a target executive base pay structure at approximately
the average of the competitor group. Aggregate and individual base pay levels
are reviewed regularly, and individual pay adjustments are considered based on
individual performance, contribution to corporate results, and relative
position to peers both within and outside the Company.
Executives are considered for incentive compensation designed to motivate and
reward superior business results through the Company's Annual Incentive Plan
and 1990 Long-Term Incentive Plan.
The Annual Incentive Plan provides for cash incentive payments based on
Company and individual performance. The establishment of target incentive
levels is based on the Company performance criteria described above, which are
the same measures used for the broad-based incentive plan applicable to the
majority of the Company's employees worldwide. Individual awards under the plan
vary from the target level based on differences in individual performance.
The 1990 Long-Term Incentive Plan is the key component in positioning total
compensation at levels reflecting Company performance. The plan provides for
the granting of stock options, which carry with them the right to dividend
share credits, or DSCs. The DSCs are calculated based on Common Stock dividend
payments. The Compensation Committee believes stock options with dividend share
credits are an effective long-term award instrument because they focus
management's attention on total return to stockholders through share price
appreciation and dividend payments.
Based on an assessment of annual and longer term Company performance, a
target level of total compensation as measured against the competitor group is
established. Stock option grant guidelines for each executive grade are set at
levels that, when combined with base pay and annual incentives, result in total
compensation which approximates the target level. Variations in individual
awards are made based on differences in contributions and performance.
CEO Compensation
The compensation level for the CEO is set based on Company performance and on
competitive pay levels. CEO compensation is measured against the average of
similar positions reported in the proxy statements of competitor companies
whose size and character are similar to ARCO Chemical.
12
<PAGE>
In establishing the compensation of Alan R. Hirsig, the Company's CEO, the
Compensation Committee recognized that the Company achieved or exceeded many of
its 1994 goals and objectives. Net income was well above the levels budgeted
for the year. Total return to stockholders through the third quarter was above
the median of the peer group; and over the last five years substantially
exceeded the S&P Chemicals Index as illustrated by the performance graph on
page 11. Five year return on stockholder's equity (ROSE) and return on capital
employed (ROCE) are at or near the top of the competitor group.
Based on the Company's performance, and consistent with the compensation
philosophy outlined above, the Compensation Committee recommended, and the
Board approved, the following 1994 compensation for Mr. Hirsig:
Mr. Hirsig's base pay for 1994 was set at $500,000, an increase of $25,000
over 1993 levels. This increase was intended to move Mr. Hirsig's base pay
to a level approximating the competitive average.
Mr. Hirsig's Annual Incentive Plan award for 1994 was $375,000, up from the
1993 level of $250,000. This increase reflected the Compensation
Committee's judgment regarding strong 1994 Company performance and
competitive positioning.
In February 1994, Mr. Hirsig was awarded 34,200 options under the 1990
Long-Term Incentive Plan. This long-term compensation exceeded competitive
levels and helped place Mr. Hirsig's 1994 total compensation above the
average of the competitor group.
Deductibility of Compensation under Internal Revenue Code Section 162(m)
Section 162(m) of the Internal Revenue Code limits the deductibility of
annual compensation in excess of $1,000,000 paid to the Company's CEO or any
one of the four other most highly compensated officers, unless such
compensation qualifies as "performance-based" within the meaning of Section
162(m). In 1994, no ARCO Chemical officer realized compensation in excess of
$1,000,000.
The Compensation Committee believes that compensation levels of ARCO Chemical
executives clearly and appropriately reflect individual and Company
performance. Base pay levels are determined by performance and competitive pay
levels. Awards under the Annual Incentive Plan are based on several measures of
Company performance relative to its peers and against internally established
objectives. The Annual Incentive Plan has not been modified to conform to the
technical requirements for tax deductibility under Section 162(m). Awards under
the 1990 Long-Term Incentive Plan are designed to achieve a total compensation
target that reflects both annual and longer term Company performance versus the
competitor group. The Compensation Committee believes that awards under the
1990 Long-Term Incentive Plan qualify as performance-based under Section
162(m).
Robert H. Stewart, III, Chairman
Ronald J. Arnault
Walter F. Beran
Lodwrick M. Cook
Frank Savage
13
<PAGE>
BOARD OF DIRECTORS
DIRECTORS' MEETINGS
An annual meeting of the Board of Directors will be held each year in
conjunction with the annual meeting of stockholders (held in May) for the
purposes of organization, election or appointment of officers and the
transaction of other business. Regular meetings of the Board may be held
without notice at such times as the Board may determine. The Board generally
holds regular meetings in January, February, May, July, October, and November.
Special meetings may be called by the Chairman of the Board, the President, or
a majority of the directors in office. The By-Laws permit action to be taken
without a meeting if all members of the Board consent to such action in
writing.
The Board of Directors met five times during 1994. All of the Company's
incumbent directors attended 75% or more of the aggregate of all meetings of
the Board of Directors and committees on which they served during 1994.
AUDIT COMMITTEE
The Audit Committee of the Board of Directors reviews the integrity of the
Company's accounting and financial reporting standards and practices, maintains
communications between the Board of Directors and external and internal
auditors, and initiates special investigations as deemed necessary. The Audit
Committee also reviews at least once a year all agreements between the Company
and ARCO (including their subsidiaries and affiliates) to assure that such
agreements are fair to the Company and all its stockholders. The independent
accountants and the internal auditors have full and free access to the Audit
Committee and meet with it, with and without management being present, to
discuss all appropriate matters. No member of the Audit Committee is an officer
or employee of the Company or of ARCO (including their subsidiaries and
affiliates). The Audit Committee met three times during 1994.
The Audit Committee currently consists of Messrs. Beran (Chairman), Savage,
and Stewart.
COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors reviews and approves
employee compensation plans and such other benefits as it deems advisable,
makes recommendations to the Board as to management succession plans, and
administers the Company's Annual Incentive Plan. No member of the Compensation
Committee is an employee of the Company, no member is eligible to participate
in any benefit plan of the Company that is administered by the Compensation
Committee, and no member is eligible or will be eligible to participate in any
benefit plan of the Company other than the Retirement Plan for Outside
Directors (described below) and the Deferral Plan for Outside Directors
(described below). The Compensation Committee met twice during 1994. A special
subcommittee of the Compensation Committee, the Long-Term Incentive Plan
Administration Subcommittee (the "Subcommittee"), administers the Company's
long-term incentive plans. The Subcommittee consists of those members of the
Compensation Committee who are not officers or directors of either the Company
or ARCO. The Subcommittee met twice during 1994.
The Compensation Committee Report on Executive Compensation begins at page
11.
The Compensation Committee currently consists of Messrs. Arnault, Beran,
Cook, Savage, and Stewart (Chairman). The Subcommittee currently consists of
Messrs. Beran, Savage, and Stewart (Chairman).
14
<PAGE>
CONTRIBUTIONS COMMITTEE
The Contributions Committee of the Board of Directors reviews and approves
the Company's charitable contributions budget, approves contributions involving
multi-year commitments, and assures accountability for charitable contributions
and activities. The Contributions Committee met once during 1994.
The Contributions Committee currently consists of Messrs. Hirsig, Savage
(Chairman), and Tusinski.
ENVIRONMENT, HEALTH, AND SAFETY COMMITTEE
The Environment, Health, and Safety Committee reviews and assesses the
Company's policies, procedures, and practices relating to (i) the protection of
the environment and the health and safety of employees, customers, contractors,
and the public, (ii) compliance with applicable laws and regulations, (iii) the
cleanup or remediation of waste sites or excursions, and (iv) development of
Company environmental, health, and safety goals and objectives, and makes
recommendations to the Board as to such policies, procedures, and practices.
The Environment, Health, and Safety Committee met twice during 1994.
The Environment, Health, and Safety Committee currently consists of Mrs.
Knowles, and Messrs. Hirsig, Middleton, and Savage (Chairman).
EXECUTIVE COMMITTEE
The Executive Committee of the Board of Directors has and may exercise all
the authority of the Board of Directors in the management of the Company in the
interim between meetings of the Board. The Executive Committee did not meet
during 1994.
The Executive Committee currently consists of Messrs. Arnault, Cook
(Chairman), Hirsig, and Middleton.
FINANCE COMMITTEE
The Finance Committee of the Board of Directors reviews and makes
recommendations to the Board regarding proposals for the issuance of securities
to the public, proposed loans, borrowings and credit agreements, proposed
capital projects over $25 million, proposed business acquisitions and
divestitures, mergers and joint ventures, all budgets and long range plans,
dividend policy and the capital structure of the Company. The Finance Committee
met twice during 1994.
The Finance Committee currently consists of Messrs. Arnault (Chairman),
Damon, Hirsig, and Tusinski.
NOMINATING COMMITTEE
The Nominating Committee of the Board of Directors considers and makes
recommendations to the Board as to persons who it believes should be considered
for Board membership, and makes recommendations relating to the selection,
tenure, and retirement of directors. The Nominating Committee met once during
1994. The Nominating Committee will consider nominees recommended by
stockholders. Such recommendations should be submitted to the Secretary of the
Company.
The Nominating Committee currently consists of Messrs. Arnault, Cook, Hirsig,
and Savage (Chairman).
15
<PAGE>
COMPENSATION OF DIRECTORS
Director's Fees
Directors who are employees of the Company or of ARCO are not paid any fees
or additional compensation for service as members of the Board or any committee
thereof. Directors who are not employees of the Company or of ARCO receive an
annual retainer of $40,000 plus $1,000 for each Board or committee meeting
attended, and are reimbursed for travel and other related expenses incurred in
attending such meetings. In addition, the Chairmen of the Audit and
Compensation Committees receive $18,000 per year, the Chairman of the
Environment, Health, and Safety Committee receives $10,000 per year, and the
Chairmen of the Nominating and Contributions Committees receive $5,000 per
year. Outside directors are not eligible to participate in the Company's stock
option or other benefit plan programs, but may participate in the plans
described below, which, except as otherwise described, are administered by a
committee of three Company officers who are not members of the Board of
Directors.
Retirement Plan for Outside Directors
The ARCO Chemical Company Retirement Plan for Outside Directors is an
unfunded, non-qualified retirement plan for directors who are not employees of
the Company. Such directors are eligible to receive benefits after serving
three years as a member of the Board of Directors. The annual retirement
benefit is equal to the director's annual retainer immediately preceding the
participant's retirement from the Board. The benefit is payable for the period
equal to the time such participant served on the Board as an outside director.
Benefits commence following retirement or attainment of the age of 65,
whichever is later. In addition, the benefit is payable for life to directors
who have served for 15 or more years as an outside director. A surviving
beneficiary is entitled to receive 50% of the benefits otherwise payable to the
director for the payment period otherwise applicable to the director.
Deferral Plan for Outside Directors
The ARCO Chemical Company Deferral Plan for Outside Directors permits outside
directors to defer up to 100% of their annual retainer and meeting fees and any
committee chairmanship and meeting fees to which they are entitled. The
deferral accounts of Messrs. Beran, Savage, and Stewart accrued interest that
exceeded 120% of a specified IRS rate in the amounts of $8,874, $2,608, and
$10,444, respectively, in 1994.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Cook served on the Compensation Committee during 1994. Mr. Cook, as
Chairman of the Board of the Company, is an ex officio officer of the Company
under its By-Laws. Mr. Cook receives no compensation from the Company and is
not eligible to participate in any Company benefit plan.
TRANSACTIONS BETWEEN THE COMPANY AND ARCO
In June 1987, ARCO transferred to its wholly-owned subsidiary, ARCO Chemical
Company, substantially all the assets and liabilities of the oxygenates and
polystyrenics businesses of the ARCO Chemical Division of ARCO. In exchange,
the Company issued additional shares of Common Stock to ARCO, resulting in the
ownership by ARCO of 80,000,001 shares, representing all of the issued and
outstanding Common Stock of the Company prior to October 5, 1987 and
approximately 83.2% of the outstanding Common Stock at the record date.
In conjunction therewith, the Company and ARCO entered into a number of
agreements for the purpose of defining the ongoing relationship between them.
These agreements were developed in
16
<PAGE>
connection with the establishment of the Company by ARCO and, therefore, were
not the result of arms-length negotiations between independent parties. Certain
of these agreements are between the Company and Lyondell Petrochemical Company
("Lyondell"). As of February 1, 1995, ARCO owned 49.9% of the outstanding
common stock of Lyondell. In 1994, ARCO issued Exchangeable Notes due 1997,
which, at ARCO's option, can be exchanged at maturity into Lyondell common
stock or cash of equal value. If ARCO elects to deliver shares of Lyondell
common stock at maturity, ARCO's equity interest in Lyondell will be
substantially reduced or eliminated. The Company continues to treat Lyondell as
a related party.
It was the intention of the Company and ARCO that the 1987 agreements and the
transactions provided for therein, taken as a whole, should accommodate the
parties' interests in a manner that was fair to both parties, while continuing
certain mutually beneficial joint arrangements.
Subsequent to 1987, additional or modified agreements, arrangements, and
transactions were entered into by the Company, ARCO, and Lyondell, and their
respective subsidiaries, and other such agreements, arrangements, and
transactions may be entered into in the future. Any future agreements,
arrangements, and transactions will be determined through negotiation between
the Company and ARCO or Lyondell, or their respective subsidiaries, as the case
may be, and it is possible that conflicts of interest will be involved.
Periodically, and at least annually, the Audit Committee of the Board of
Directors reviews these agreements to assure that such agreements are fair to
the Company and its stockholders. See "Board of Directors-Audit Committee" on
page 14. Nevertheless, there can be no assurance that each of such agreements,
or the transactions provided for therein, was, or will be in the future, on
terms at least as favorable to the Company as could have been obtained from
unaffiliated third parties.
The following is a summary of the principal arrangements between the Company
and ARCO, and between the Company and Lyondell.
AGREEMENTS WITH LYONDELL
Lyondell provides to the Company a portion of the feedstocks purchased by the
Company for its manufacturing facilities located at Bayport and Channelview,
Texas. Lyondell also provides processing services and products to the Company,
as well as certain plant services at Channelview, Texas. The Company in turn
provides certain products and services to Lyondell. The Company has granted
Lyondell royalty-free, non-exclusive licenses for the technology necessary to
produce methyl tertiary butyl ether and isopropyl alcohol at Lyondell's
petrochemical complex in Channelview, Texas. For the year ended December 31,
1994, the Company purchased from Lyondell approximately $315 million of
feedstocks, products, and plant services. The Company sold Lyondell
approximately $2 million of products and services during the same period.
AGREEMENTS WITH ARCO
Supply, Sales, and Services
The Company has a number of ongoing supply, sales, and services agreements
with various divisions and subsidiaries of ARCO, including Vastar Resources,
Inc. ("Vastar"). For the year ended December 31, 1994, the Company purchased
from ARCO and its subsidiaries approximately $30 million of products and plant
services. The Company sold to ARCO and its subsidiaries, approximately $154
million of products during the same period.
Administrative Services Agreement
The Company and ARCO are parties to an agreement (the "Administrative
Services Agreement") under which ARCO has provided various services to the
Company and the Company has provided various services to ARCO since October 1,
1987. The services that ARCO currently provides thereunder to the Company
include insurance, aviation, telecommunications, internal audit, payroll and
employee benefits administration, employee assistance program services, certain
tax and legal
17
<PAGE>
services, and services relating to the issuance of commercial paper and the
investment of excess cash. The services that the Company currently provides
thereunder to ARCO include environmental technical services, research and
development assistance, information and communication systems support, and
certain legal services. The Administrative Services Agreement continues in
effect from year to year unless terminated by either party upon 12 months prior
notice. Either party may terminate any type of service that it receives under
the Administrative Services Agreement at any time upon 90 days prior notice.
For the year ended December 31, 1994, the Company paid ARCO a total of
approximately $34 million and ARCO paid the Company a total of approximately $1
million under the Administrative Services Agreement and other such agreements
(principally including the leases described below).
Intellectual Property
In 1987, ARCO assigned to the Company various United States and foreign
trademarks, together with the registrations and applications therefor, and
granted the Company a non-exclusive license to use other trademarks which
contain the word "ARCO" and to use ARCO's spark design as a logo. ARCO also
assigned to the Company over 300 U.S. patents and patent applications and many
corresponding foreign patents and patent applications relating to the Company's
areas of interest.
Leases
The Company leases its office facility in Newtown Square, Pennsylvania from
ARCO for an initial term running through 1997 at a rate below prevailing market
rates.
Cross-Indemnification Agreement
In 1987, the parties executed a cross-indemnification agreement (the "Cross-
Indemnification Agreement"). In the Cross-Indemnification Agreement, the
Company agreed generally to indemnify ARCO against substantially all fixed and
contingent liabilities relating to the oxygenates and polystyrenics businesses
transferred to the Company and certain assets relating thereto. ARCO agreed to
indemnify the Company for substantially all liabilities or obligations not
relating to the assets, subsidiaries, or business operations transferred to the
Company.
Tax Sharing Agreement
The Company and its subsidiaries are members of the ARCO affiliated group of
corporations, which files a consolidated federal income tax return. The Company
and ARCO are parties to a Tax Sharing Agreement, which applies to all taxable
years in which the Company and its subsidiaries are included in the ARCO
affiliated group's consolidated return and the five taxable years thereafter.
Subject to certain exceptions, the Company's share of the ARCO affiliated
group's federal income tax liability is determined under the Tax Sharing
Agreement as if the Company and its subsidiaries filed a hypothetical separate
consolidated federal income tax return for periods after June 30, 1987. In May
1994, the Company and ARCO agreed to a one-time modification to the Tax Sharing
Agreement. The modification permitted the Company to offset ARCO's excess
foreign tax credits against its pro forma residual federal tax liability
related to a foreign tax refund to the Company of approximately $20 million.
ARCO must honor reasonable requests by the Company to participate in audits
and related litigation and ARCO may not finally adjust, compromise, or settle
issues related to the Company and its subsidiaries without the Company's
consent if the Company's position has a reasonable basis in law and in fact
unless ARCO indemnifies the Company for the increased tax liability arising
therefrom.
18
<PAGE>
CERTIFICATE OF INCORPORATION PROVISIONS RELATING TO CORPORATE OPPORTUNITIES
In order to address certain potential conflicts of interest between the
Company and ARCO, the Company's Certificate of Incorporation contains
provisions regulating and defining the conduct of certain affairs of the
Company as they may involve ARCO and its officers and directors, and the
powers, rights, duties, and liabilities of the Company and its officers,
directors, and stockholders in connection therewith. In general, these
provisions recognize that from time to time the Company and ARCO may engage in
the same or similar activities or lines of business and have an interest in the
same areas of corporate opportunity. The Certificate of Incorporation provides
that ARCO shall have no duty to refrain from (1) engaging in business
activities or lines of business the same as or similar to those of the Company,
(2) doing business with any customer of the Company, or (3) employing any
officer or employee of the Company, and neither ARCO nor any officer or
director of ARCO will be liable to the Company or to its stockholders for
breach of any fiduciary duty by reason of any such activities of ARCO or of
such person's participation therein. The Certificate of Incorporation provides
certain directives as to how a corporate opportunity is to be handled when
presented to an officer or director of either company. It also provides that
ARCO is not under any duty to present any corporate opportunity to the Company
that may be a corporate opportunity for both ARCO and the Company, and ARCO
will not be liable to the Company or its stockholders for breach of any
fiduciary duty as stockholder of the Company by reason of the fact that ARCO
pursues or acquires such corporate opportunity for itself, directs such
corporate opportunity to another person, or does not present the corporate
opportunity to the Company.
OTHER RELATED PARTY TRANSACTIONS
During 1994, the Company purchased approximately $3 million of ethanol at
prevailing market prices from Archer-Daniels-Midland Company. According to a
Schedule 13D filed with the Company and dated June 13, 1991, Archer-Daniels-
Midland beneficially owns 5.01% of the Company's Common Stock. See "Security
Ownership of Certain Beneficial Owners; Control of the Company" at page 1.
PROPOSAL TO APPROVE THE APPOINTMENT OF INDEPENDENT AUDITORS
Item 2 on Proxy Card
The Board of Directors has appointed Coopers & Lybrand L.L.P., independent
accountants, to audit the consolidated financial statements of the Company and
its subsidiaries for the year ending December 31, 1995. Coopers & Lybrand
L.L.P. has acted as the Company's independent auditors since June 1987. The
firm has acted as the independent auditor (i) for ARCO, the Company's principal
stockholder, for many years, (ii) for Lyondell since July 1, 1988 and (iii) for
Vastar since July 5, 1994. In addition, from time to time, the firm performs
consulting work for the Company and for ARCO. The firm has no other
relationship with the Company or ARCO or any of their subsidiaries or
affiliates except the existing professional relationships of independent
accountants.
Representatives of Coopers & Lybrand L.L.P. will be present at the meeting
and will have the opportunity to make a statement if they desire to do so.
These representatives will also be available to respond to appropriate
questions.
This proposal will be approved if it receives the affirmative vote of a
majority of the shares of Common Stock present in person or by proxy at the
meeting. Abstentions will be counted as shares present at the meeting. Broker
non-votes, if any, will not be counted as shares present at the meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE
APPOINTMENT OF COOPERS & LYBRAND L.L.P. PROXIES SOLICITED BY THE BOARD OF
DIRECTORS WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY OTHERWISE.
19
<PAGE>
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 form will vote the proxies in accordance
with their best judgment.
VOTING OF STOCK IN PLAN ACCOUNTS
The Company's Capital Accumulation and Savings Plans, and certain employee
benefit plans of ARCO and other affiliates in which Common Stock may be held,
permit plan participants to direct the plan trustees how to vote the Common
Stock allocated to their accounts. The trustee for each such plan will vote all
shares of Common Stock for which no participant directions are received in the
same proportion as all the shares of Common Stock for which directions are
received.
PROXY SOLICITATION
The expense of soliciting proxies will be paid by the Company. Solicitations
will be made primarily through the use of the mails. In addition, some of the
officers and other employees of the Company may solicit proxies personally, by
telephone and by mail, if deemed appropriate. Brokers and nominees will be
requested to obtain voting instructions from beneficial owners of stock
registered in their names.
STOCKHOLDER PROPOSALS FOR 1996 ANNUAL MEETING
Stockholder proposals intended to be presented at the 1996 Annual Meeting
must be received by November 30, 1995. Such proposals should be addressed to
the Secretary.
ADDITIONAL INFORMATION AVAILABLE
THE COMPANY FILES AN ANNUAL REPORT ON FORM 10-K WITH THE SECURITIES AND
EXCHANGE COMMISSION. STOCKHOLDERS MAY OBTAIN A COPY OF THIS REPORT (WITHOUT
EXHIBITS), WITHOUT CHARGE, BY WRITING TO THE COMPANY'S INVESTOR RELATIONS
DEPARTMENT.
By order of the Board of Directors
/s/ Robert J. Millstone
Robert J. Millstone
Secretary
Newtown Square, Pennsylvania
March 31, 1995
20
<PAGE>
ARCO CHEMICAL COMPANY
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
THE COMPANY FOR THE ANNUAL MEETING ON MAY 11, 1995
P The undersigned hereby constitutes and appoints Alan R. Hirsig, Robert J.
Millstone, John A. Shaw and Walter J. Tusinski, and each of them, true and
R lawful agents and proxies with full power of substitution in each, to
represent the undersigned at the Annual Meeting of Stockholders of ARCO
O CHEMICAL COMPANY to be held at the Conference Center at the Company's
Headquarters, 3801 West Chester Pike, Newtown Square, Pennsylvania, on
X Thursday, May 11, 1995, and at any adjournments thereof, on all matters
coming before said meeting, including (1) the election of 11 directors and
Y (2) approval of the appointment of Coopers & Lybrand L.L.P. as independent
auditors for the year 1995.
Nominees for election as director:
Ronald J. Arnault James A. Middleton
Walter F. Beran Frank Savage
Mike R. Bowlin Marvin O. Schlanger
E. Kent Damon, Jr. Robert H. Stewart, III
Alan R. Hirsig Walter J. Tusinski
Marie L. Knowles
COMMENTS OR CHANGE OF ADDRESS
--------------------------------------------------
--------------------------------------------------
--------------------------------------------------
--------------------------------------------------
(If you have written in the above space, please
mark the corresponding box on the reverse side of
this card.)
YOU ARE ENCOURAGED TO SPECIFY YOUR SEE
CHOICES BY MARKING THE APPROPRIATE REVERSE
BOXES, SEE REVERSE SIDE, BUT YOU NEED SIDE
NOT MARK ANY BOXES IF YOU WISH TO VOTE
IN ACCORDANCE WITH THE BOARD OF
DIRECTORS' RECOMMENDATIONS. THIS PROXY
CANNOT BE VOTED UNLESS YOU SIGN AND
RETURN IT.
<PAGE>
1018
[X] PLEASE MARK YOUR
VOTES LIKE THIS.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF
DIRECTORS AND FOR PROPOSAL 2, IN ACCORDANCE WITH THE RECOMMENDATIONS OF THE
BOARD OF DIRECTORS.
--------------------------------------------------------------------------------
FOR WITHHELD
1. Election of Directors [ ] [ ]
For, except vote withheld for the following nominee(s):
-------------------------------------------------------------
2. Approval of FOR AGAINST ABSTAIN
appointment of
Coopers & Lybrand L.L.P. [ ] [ ] [ ]
as independent
auditors.
Comments or change of address on reverse side. [ ]
If you plan to attend the meeting please put an "X" [ ]
in the box.
SIGNATURE(S) _______________________________ DATE __________
NOTE: Please sign exactly as name appears hereon.
Joint owners should each sign. When signing
as attorney, executor, administrator, trustee,
guardian, or corporate officer, please give
full title as such.
<PAGE>
ARCO CHEMICAL COMPANY
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
THE COMPANY FOR THE ANNUAL MEETING ON MAY 11, 1995
The undersigned hereby constitutes and appoints Alan R. Hirsig, Robert J.
P Millstone, John A. Shaw and Walter J. Tusinski, and each of them, true and
lawful agents and proxies with full power of substitution in each, to
R represent the undersigned at the Annual Meeting of Stockholders of ARCO
CHEMICAL COMPANY to be held at the Conference Center at the Company's
O Headquarters, 3801 West Chester Pike, Newtown Square, Pennsylvania, on
Thursday, May 11, 1995, and at any adjournments thereof, on all matters
X coming before said meeting, including (1) the election of 11 directors and
(2) approval of the appointment of Coopers & Lybrand L.L.P. as independent
Y auditors for the year 1995.
Nominees for election as director:
Ronald J. Arnault James A. Middleton
Walter F. Beran Frank Savage
Mike R. Bowlin Marvin O. Schlanger
E. Kent Damon, Jr. Robert H. Stewart, III
Alan R. Hirsig Walter J. Tusinski
Marie L. Knowles
COMMENTS OR CHANGE OF ADDRESS
--------------------------------------------------
--------------------------------------------------
--------------------------------------------------
--------------------------------------------------
(If you have written in the above space, please
mark the corresponding box on the reverse side of
this card.)
THE NUMBER OF SHARES SPECIFIED ON THE
REVERSE SIDE OF THIS PROXY REPRESENTS
THE AGGREGATE NUMBER OF SHARES HELD FOR
YOUR ACCOUNT IN THE ARCO CHEMICAL SEE
COMPANY CAPITAL ACCUMULATION AND/OR REVERSE
SAVINGS PLANS OR IN CERTAIN EMPLOYEE SIDE
BENEFIT PLANS OF ATLANTIC RICHFIELD
COMPANY, LYONDELL PETROCHEMICAL COMPANY
OR VASTAR RESOURCES, INC. THIS PROXY
COVERS ALL SHARES CREDITED TO YOUR
ACCOUNT IN THESE PLANS.
<PAGE>
6016
[X] PLEASE MARK YOUR
VOTES LIKE THIS.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF
DIRECTORS AND FOR PROPOSAL 2, IN ACCORDANCE WITH THE RECOMMENDATIONS OF THE
BOARD OF DIRECTORS.
--------------------------------------------------------------------------------
FOR WITHHELD
1. Election of Directors [ ] [ ]
For, except vote withheld for the following nominee(s):
-----------------------------------------------------------------
2. Approval of appointment of FOR AGAINST ABSTAIN
Coopers & Lybrand L.L.P. as [ ] [ ] [ ]
independent auditors.
Comments or change of address on reverse side. [ ]
If you plan to attend the meeting please put an "X" in the box. [ ]
SIGNATURE(S) _________________________________________ DATE ____________
NOTE: Please sign exactly as name appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee, guardian, or
corporate officer, please give full title as such.
