<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 14a-6(e)(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] No fee required
[_] 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 8, 1997
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, 1997
Dear Stockholder:
You are cordially invited to join us at the 1997 Annual Meeting of Stockholders
on Thursday, May 8, 1997 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 in
person, 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/ Mike R. Bowlin
Chairman of the Board
/s/ Alan R. Hirsig
President and Chief Executive Officer
<PAGE>
ARCO CHEMICAL COMPANY
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 8, 1997
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 8, 1997, 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 and ratify an amendment to the ARCO Chemical Company 1990 Long-
Term Incentive Plan;
(3) To approve the appointment of Coopers & Lybrand L.L.P. as independent
auditors for ARCO Chemical for the year 1997; and
(4) To transact such other business as may properly come before the meeting.
The Board of Directors has fixed March 20, 1997 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 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, AND THEN TO 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,
Vice President,General Counsel and Secretary Pennsylvania
March 31, 1997
<PAGE>
ARCO CHEMICAL COMPANY
3801 WEST CHESTER PIKE
NEWTOWN SQUARE, PENNSYLVANIA 19073-2387
----------------
PROXY STATEMENT
MARCH 31, 1997
----------------
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 11 nominees for director listed in this Proxy Statement, FOR
the approval and ratification of the proposed amendment to the ARCO Chemical
Company 1990 Long-Term Incentive Plan, and FOR the approval of the appointment
of Coopers & Lybrand L.L.P. as independent auditors for the Company for the
year 1997. 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, 1997 will be entitled to one vote per
share. The Company had 96,848,298 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
Atlantic Richfield Company is the only person 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. Based upon information contained in a
Schedule 13D filed with the Company and dated June 13, 1991, Archer-Daniels-
Midland Company ("Archer-Daniels-Midland") owns beneficially approximately five
percent of the Common Stock as of the record date as set forth below:
<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) 82.6
515 South Flower Street
Los Angeles, California 90071
Common Stock......... Archer-Daniels-Midland Company 4,815,300(b)(c) 5.0(d)
4666 Faries Parkway
Decatur, Illinois 62526
</TABLE>
- --------
(a) Sole voting power, sole dispositive power.
(b) According to the Schedule 13D filed with the Company by Archer-Daniels-
Midland, 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.
(d) Archer-Daniels-Midland's actual holdings of Common Stock may exceed
slightly five percent of the Common Stock.
<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 for director, for the approval and ratification of the proposed
amendment to the ARCO Chemical Company 1990 Long-Term Incentive Plan, and for
the approval of the appointment of Coopers & Lybrand L.L.P. as independent
auditors for the Company for the year 1997.
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 January 30, 1997 by each director and nominee, each
executive officer named in the Summary Compensation Table, and all directors
and nominees and executive officers as a group. Other than as disclosed in the
footnotes to the following table, the directors and nominees, the named
executive officers, and the directors and nominees and executive officers as a
group did not own any equity securities of the Company or ARCO. As of January
30, 1997, the percentage of shares of any class of equity securities of the
Company or ARCO beneficially owned by any director and nominee or any named
executive officer, or by all directors and 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 AS OF
NAME JANUARY 30, 1997(A)(B) JANUARY 30, 1997(C)(D)
- -------------------------------------------------------------------------------
<S> <C> <C>
Walter F. Beran 2,000 0
Mike R. Bowlin 0 222,682(e)
Anthony G. Fernandes 0(f) 90,535(g)
Morris Gelb 73,986 3,124
Alan R. Hirsig 273,002 1,168
Marie L. Knowles 100 33,814(h)
James A. Middleton 1,000 115,000(i)
Robert J. Millstone 36,277(j) 114
Stephen R. Mut 0 31,241(k)
Frank Savage 100(l) 0
Marvin O. Schlanger 153,544 582
Robert H. Stewart, III 2,000 0
Walter J. Tusinski 72,030(m) 12,107(n)
All directors and nominees
and all executive officers
as a group, including
those named above 721,062(o) 511,459(p)
- -------------------------------------------------------------------------------
</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 January 30, 1997 through the exercise of stock options
covering Common Stock as follows: Mr. Gelb, 71,700; Mr. Hirsig, 256,100;
Mr. Millstone, 35,100; Mr. Schlanger, 147,900; Mr. Tusinski, 63,500; and
all directors and nominees and all executive officers as a group (including
those just named), 674,050.
(Continued on next page)
2
<PAGE>
(Continued from previous 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 January 30, 1997 through the exercise of stock options
covering ARCO Common Stock as follows: Mr. Bowlin, 210,731; Mr. Fernandes,
88,434; Mrs. Knowles, 30,030; Mr. Middleton, 115,000; Mr. Mut, 30,643;
Mr. Tusinski, 10,270; and all directors and nominees and all executive
officers as a group (including those just named), 485,108.
(e) Includes 10,000 shares of restricted ARCO Common Stock. Restricted stock
includes voting rights and the rights to receive dividends.
(f) Does not include 35 shares held by adult son, as to which beneficial
ownership is disclaimed.
(g) Does not include 211 shares held by adult sons, as to which beneficial
ownership is disclaimed.
(h) Includes 1,922 shares that may be acquired within the 60-day period
following January 30, 1997 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.
(i) Does not include 10 shares held by spouse, as to which beneficial ownership
is disclaimed.
(j) Does not include 308 shares held for or by children, as to which beneficial
ownership is disclaimed.
(k) Does not include 231 shares that may be acquired within the 60-day period
following January 30, 1997 through the exercise of stock options covering
ARCO Common Stock held by spouse and 439 shares held for the account of
spouse by the trustees of ARCO's Capital Accumulation and Savings Plan, as
to which beneficial ownership is disclaimed.
(l) Shares subject to shared voting and investment power with spouse.
(m) Does not include 3,600 shares held for children, as to which beneficial
ownership is disclaimed.
(n) Includes 252 shares subject to shared voting and investment power with
spouse.
(o) Includes 1,800 shares subject to shared voting and investment power. Does
not include 3,943 shares held for or by family members, as to which
beneficial ownership is disclaimed.
(p) Includes 252 shares subject to shared voting and investment power. Does not
include 660 shares held by family members, as to which beneficial ownership
is disclaimed.
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. The Board of
Directors has fixed the number of directors constituting the whole Board 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 is currently a 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 the 11 nominees for
director 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.
3
<PAGE>
The following biographical information is furnished with respect to each of
the nominees. The information includes age as of May 8, 1997, 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 below are offices with the Company
or, prior to June 1987, the ARCO Chemical Division of ARCO. See "Transactions
Between the Company and ARCO" at page 17.
<TABLE>
<S> <C>
[PHOTOGRAPHS WALTER F. BERAN, 71
OF ALL DIRECTORS Mr. Beran was elected a Director of the Company on
APPEAR IN September 1, 1987. Mr. Beran is Chairman of Pacific
LEFT COLUMN] Alliance Group (a financial services firm). Previously,
he served as Vice Chairman and Western Region Managing
Partner of Ernst & Whinney (accountants), a predecessor
to Ernst & Young. Mr. Beran is also a Director of
Fleetwood Enterprises, Inc., Pacific Scientific Company
and Vencor, Inc.
MIKE R. BOWLIN, 54
Mr. Bowlin was elected Chairman of the Board and a
Director of the Company on May 11, 1995. Mr. Bowlin has
been Chairman of the Board of ARCO since July 1995, the
Chief Executive Officer of ARCO since July 1994,
President of ARCO since June 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. Mr.
Bowlin is also a Director of Wells Fargo and Company.
ANTHONY G. FERNANDES, 51
Mr. Fernandes was elected a Director of the Company on
May 10, 1996. Mr. Fernandes has been an Executive Vice
President and Director of ARCO since September 1994.
Previously, he was Senior Vice President of ARCO and
President of ARCO Coal Company from July 1990 to
September 1994 and Vice President and Controller of ARCO
from July 1987 to July 1990.
ALAN R. HIRSIG, 57
President and Chief Executive Officer
Mr. Hirsig was elected President and Chief Executive
Officer of the Company on January 1, 1991. He was elected
an officer of the Company on June 22, 1987 and a Director
of the 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.
Mr. Hirsig is also a Director of BetzDearborn Inc.
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
MARIE L. KNOWLES, 50
Mrs. Knowles was elected a Director of the Company on
September 16, 1996. Mrs. Knowles previously served as a
Director of the Company from July 1991 to May 1996.
Mrs. Knowles has been an Executive Vice President, Chief
Financial Officer and a Director of ARCO since July 1996.
Previously, she was Senior Vice President of ARCO and
President of ARCO Transportation Company from June 1993
to July 1996, 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 Vastar Resources, Inc. and Phelps Dodge
Corporation.
</TABLE>
<TABLE>
<S> <C>
JAMES A. MIDDLETON, 61
Mr. Middleton was elected a Director of the Company on
February 15, 1989. Mr. Middleton has been Chairman and
Chief Executive Officer of Crown Energy Corp. (oil sand
projects and oil and gas operations) since February 1996.
Mr. Middleton was an Executive Vice President and a
Director of ARCO from October 1987 until 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 Crown Energy Corp. and Texas Utilities
Company.
STEPHEN R. MUT, 46
Mr. Mut was elected a Director of the Company on January
1, 1997. Mr. Mut has been Senior Vice President of ARCO
since October 1994 and President of ARCO Global Energy
Ventures since September 1996. Previously, he was
President of ARCO Coal Company from October 1994 to
September 1996, Senior Vice President of Operations of
ARCO International Oil and Gas Company from December 1991
to October 1994, and Managing Director of ARCO British,
Ltd. from 1989 to December 1991.
FRANK SAVAGE, 58
Mr. Savage was elected a Director of the Company on July
22, 1993. Mr. Savage is Chairman of Alliance Capital
Management International and Chairman of Alliance
Corporate Finance Group, Inc. (financial services).
Previously, he was Senior Vice President of The Equitable
Life Assurance Society of the United States (financial
services) from 1988 to 1996, 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
November 1986 to April 1992 and from June 1986 to April
1992, respectively. Mr. Savage is also a director of
Alliance Capital Management Corporation, Lockheed Martin
Corporation, QUALCOMM Incorporated, and Southern Africa
Fund.
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
MARVIN O. SCHLANGER, 49
Executive Vice President and Chief Operating Officer
Mr. Schlanger was elected an officer of the Company on
September 1, 1987 and a Director of the Company on
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, 71
Mr. Stewart was elected a Director of the Company on
September 1, 1987. Mr. Stewart is Vice Chairman of Bank
One, Texas, N.A. (commercial bank). Mr. Stewart had been
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.
WALTER J. TUSINSKI, 49
Senior Vice President and Chief Financial Officer
Mr. Tusinski was elected Senior Vice President and Chief
Financial Officer and a Director of the Company on
September 1, 1992. Previously, he served as Vice
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.......... 1996 592,308 450,000 71,728 55,900 82,240
President and 1995 542,308 585,000 45,852 44,300 76,571
Chief Executive Officer 1994 496,154 375,000 83,856 34,200 73,703
Morris Gelb............. 1996 247,846 140,000 29,322 14,500 37,872
Vice President 1995 234,615 200,000 16,134 12,500 33,554
1994 225,769 120,000 34,268 8,800 37,699
Robert J. Millstone(e).. 1996 237,692 120,000 10,087 12,600 35,558
Vice President, General 1995 224,520 140,000 6,888 8,900 32,186
Counsel and Secretary 1994 190,116 70,000 6,755 3,800 29,934
Marvin O. Schlanger..... 1996 421,154 300,000 16,736 30,800 52,793
Executive Vice President 1995 400,000 385,000 8,458 24,600 49,954
and Chief Operating Of-
ficer 1994 332,808 250,000 16,860 18,600 43,563
Walter J. Tusinski ..... 1996 307,692 169,000 13,170 18,200 55,031
Senior Vice President
and 1995 292,692 235,000 8,486 17,700 49,256
Chief Financial Officer 1994 277,692 160,000 9,124 15,000 46,532
</TABLE>
- --------
(a) Includes amounts related to tax gross-ups in respect of financial
counseling reimbursements and other miscellaneous items, and incremental
interest accrued under the Key Management Deferral Plan that exceeds 120%
of a specified IRS rate.
(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 1996 contributions to the Executive Supplementary Savings Plan,
incremental Executive Medical Insurance Plan (the "Executive Medical
Plan") premiums, financial counseling reimbursements, certain amounts in
respect of the Key Management Life Insurance Plan, employee stock
ownership plan incentive program ("ESOP Incentive") payments, imputed
income in respect of the Long-Term Disability Plan (the "LTD Plan"), and
other miscellaneous payments, as follows:
<TABLE>
<CAPTION>
MR. MR. MR. MR. MR.
HIRSIG GELB MILLSTONE SCHLANGER TUSINSKI
------ ------ --------- --------- --------
($) ($) ($) ($) ($)
<S> <C> <C> <C> <C> <C>
Executive Supplementary Savings
Plan............................ 35,539 14,871 14,262 25,269 18,461
Incremental Executive Medical
Plan premiums................... 4,983 4,983 4,983 4,983 4,983
Financial counseling
reimbursements.................. 4,050 5,000 4,800 1,500 7,870
Key Management Life Insurance
Plan............................ 22,953 8,076 7,962 11,674 12,893
ESOP Incentive payments.......... 2,532 1,463 1,099 1,072 769
LTD Plan imputed income.......... 10,167 2,837 2,207 8,295 8,651
Other miscellaneous payments..... 2,016 642 245 0 1,404
</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 1996 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 1994, 1995 and 1996 to the account of the
named executive officers, and the value realized on exercise, were as
follows:
<TABLE>
<CAPTION>
1994 1995 1996
----------------- ----------------- -----------------
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.............. 9,312 0 13,761 0 13,951 106,085
Mr. Gelb................ 3,149 0 4,469 0 4,633 0
Mr. Millstone........... 878 0 1,582 0 2,238 46,117
Mr. Schlanger........... 5,619 145,639 7,807 0 9,855 0
Mr. Tusinski............ 1,309 0 2,753 0 3,894 0
</TABLE>
Dividend share credit totals are rounded to the nearest whole number. FMV
of Common Stock on December 31, 1994 was $44.125. FMV of Common Stock on
December 31, 1995 was $48.625. FMV of Common Stock on December 31, 1996 was
$49.375.
(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.
Following, are cash payments received by the named individuals with respect
to dividend share credits in connection with the exercise of ARCO options.
During 1996: Mr. Gelb, $89,664; Mr. Schlanger, $106,229; and Mr. Tusinski,
$93,435. During 1995: Mr. Gelb, $11,516 and Mr. Tusinski, $47,727. There
were no cash payments received during 1994.
(e) Mr. Millstone was elected Vice President and General Counsel of the Company
effective January 1, 1995.
STOCK OPTION GRANTS IN 1996
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS(A) OPTION TERM(B)
------------------------------------------- ---------------------------
% OF TOTAL
OPTIONS GRANTED
OPTIONS TO EMPLOYEES EXERCISE EXPIRATION
NAME GRANTED IN 1996 PRICE DATE 5% 10%
---- ------- --------------- -------- ---------- ------------- -------------
(#) ($/SH) ($) ($)
<S> <C> <C> <C> <C> <C> <C>
Alan R. Hirsig.......... 55,900 19.09 50.625 2/14/06 1,779,732 4,510,192
Morris Gelb............. 14,500 4.95 50.625 2/14/06 461,648 1,169,907
Robert J. Millstone..... 12,600 4.30 50.625 2/14/06 401,156 1,016,608
Marvin O. Schlanger..... 30,800 10.52 50.625 2/14/06 980,604 2,485,043
Walter J. Tusinski...... 18,200 6.22 50.625 2/14/06 579,448 1,468,434
Stock Price(c).......... 82.4628 131.3082
All Stockholders(c)..... 3,080,602,862 7,806,852,491
</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, become
exercisable on February 15, 2000, 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, 1996 of
96,759,317 and assumed purchase price of $50.625 per share.
9
<PAGE>
AGGREGATED OPTION EXERCISES IN 1996 AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF IN-THE-MONEY
NUMBER OF UNEXERCISED UNEXERCISED OPTIONS AT
SHARES OPTIONS AT YEAR-END(A) YEAR-END(B)(C)
ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
(#) ($) (#) (#) ($) ($)
<S> <C> <C> <C> <C> <C> <C>
Alan R. Hirsig.......... 3,500 70,025 203,700 55,900 1,671,138 0
Morris Gelb............. 0 0 64,200 14,500 620,532 0
Robert J. Millstone..... 2,000 34,750 22,500 12,600 164,645 0
Marvin O. Schlanger..... 0 0 117,100 30,800 991,095 0
Walter J. Tusinski...... 0 0 45,300 18,200 228,695 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, 1996 was $49.375.
(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, 1996 of $49.375. The dividend share credit values have been
calculated based on the cash payment formula described in footnote (d) of
the Summary Compensation Table at page 8, assuming the exercise of the
corresponding options (even if not exercisable in fact) on December 31,
1996, as follows:
<TABLE>
<CAPTION>
YEAR-END DIVIDEND SHARE CREDIT VALUES
-----------------------------------------
EXERCISABLE OPTIONS UNEXERCISABLE OPTIONS
------------------- ---------------------
($) ($)
<S> <C> <C>
Mr. Hirsig.......................... 2,680,938 157,779
Mr. Gelb............................ 1,060,556 40,927
Mr. Millstone....................... 239,208 35,564
Mr. Schlanger....................... 1,608,933 86,934
Mr. Tusinski........................ 369,117 51,370
</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 Executive Retirement Plan as in effect on
December 31, 1996.
<TABLE>
<CAPTION>
AVERAGE FINAL EARNINGS
(SALARY PLUS BONUS)
HIGHEST THREE
CONSECUTIVE YEARS APPROXIMATE ANNUAL BENEFIT FOR YEARS OF
SINCE DECEMBER 31, 1978 MEMBERSHIP SERVICE INDICATED(B)(C)
- ----------------------- -----------------------------------------------------
15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 300,000 $ 66,371 $ 89,995 $113,618 $137,242 $160,866
400,000 88,871 120,495 152,118 183,742 215,366
500,000 111,371 150,995 190,618 230,242 269,866
600,000 133,871 181,495 229,118 276,742 324,366
700,000 156,371 211,995 267,618 323,242 378,866
800,000 178,871 242,495 306,118 369,742 433,366
900,000 201,371 272,995 344,618 416,242 487,866
1,000,000 223,871 303,495 383,118 462,742 542,366
1,100,000 246,371 333,995 421,618 509,242 596,866
1,200,000 268,871 364,495 460,118 555,742 651,366
</TABLE>
- --------------------------------------------------------------------------------
(a) The Retirement Plan and the Supplementary Executive Retirement Plan cover
the compensation reported as salary and bonus in the Summary Compensation
Table. Retirement benefits are 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, 1996 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, 1996, the credited years of service under the Retirement
Plan for the five named executive officers were as follows: Mr. Hirsig,
35.58; Mr. Gelb, 27.33; Mr. Millstone, 8.00; Mr. Schlanger, 22.00; and Mr.
Tusinski, 4.33.
10
<PAGE>
PERFORMANCE GRAPHS
COMPARISONS OF CUMULATIVE TOTAL RETURN
The performance graphs below compare 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 for the five-year and nine-year periods ended December
31, 1996. The longer period comprises the nine calendar years since the initial
public offering of the Company's Common Stock in October 1987. The performance
graphs assume an initial investment of $100 in the Company's Common Stock and
in each of the comparative indices and assume the reinvestment of all
dividends.
Five-Year Cumulative Total Return
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96
<S> <C> <C> <C> <C> <C> <C>
ARCO Chemical $100.00 $116.63 $122.21 $131.40 $153.30 $163.28
S&P 500 Stock Index $100.00 $107.62 $118.46 $120.03 $165.13 $203.05
S&P Chemical Index $100.00 $109.50 $122.46 $141.77 $185.19 $244.65
</TABLE>
Nine-Year Cumulative Total Return
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
12/31/87 12/31/88 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ARCO Chemical $100.00 $100.71 $133.10 $138.87 $167.05 $194.83 $204.15 $219.50 $256.09 $272.76
S&P 500 Stock Index $100.00 $116.61 $153.56 $148.79 $194.12 $208.92 $229.97 $233.01 $320.58 $394.18
S&P Chemical Index $100.00 $106.71 $137.78 $116.99 $152.57 $167.06 $186.83 $216.29 $282.54 $373.26
</TABLE>
11
<PAGE>
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'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 Compensation Committee does not, however, apply any
specific quantitative formulas in arriving at its compensation decisions. ARCO
Chemical's 1996 full-year performance met most of its financial objectives.
Annual performance was below the average of the competitor group, but the
Company has sustained longer term performance around the median tier of the
competitor group on several key measures. In addition, several important
business initiatives were implemented that are designed to position the Company
for continued success.
The Company also established specific internal goals and objectives for 1996.
The Company met or exceeded its objectives in 1996 on its key internal goals.
Given the above, the Compensation Committee has approved total compensation
below last year and below the expected competitor average.
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.
12
<PAGE>
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 receive
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 approximating 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.
In establishing the compensation of Alan R. Hirsig, the Company's CEO, the
Compensation Committee recognized that the Company achieved most of its 1996
goals and objectives. Five-year return on stockholder's equity (ROSE) and
return on capital employed (ROCE) are at or above the average of the competitor
group. Additionally, the Company completed two significant strategic
transactions during 1996: the sale of its plastics business to NOVA Chemicals,
and the purchase of Olin Corporation's TDI and ADI businesses.
Based on the Company's performance, and consistent with the compensation
philosophy outlined above, the Compensation Committee recommended, and the
Board approved, the following 1996 compensation for Mr. Hirsig:
Mr. Hirsig's base pay for 1996 was set at $600,000, an increase of $50,000
over 1995 levels. This increase was intended to move Mr. Hirsig's base pay
nearer to the competitive average.
Mr. Hirsig's Annual Incentive Plan award for 1996 was $450,000, down from
the 1995 level of $585,000. This decline reflected the Compensation
Committee's judgment regarding 1996 Company performance and competitive
positioning.
In February 1996, Mr. Hirsig was awarded 55,900 options under the 1990
Long-Term Incentive Plan. This long-term compensation exceeded competitive
levels and helped place Mr. Hirsig's 1996 total compensation around 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 1996, no ARCO Chemical officer realized qualifying compensation in
excess of $1,000,000.
Summary
The Compensation Committee believes that compensation levels of ARCO Chemical
Company executives clearly and appropriately reflect individual and Company
performance. Base pay levels recognize individual 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
13
<PAGE>
internally established objectives. Grants of stock options 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.
Robert H. Stewart, III, Chairman
Walter F. Beran
Mike R. Bowlin
James A. Middleton
Frank Savage
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 seven times during 1996. Except as noted below,
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 1996. Mr. Middleton attended 69% of the meetings of the Board of
Directors and committees on which he served in 1996. Mr. Mut was elected a
director of the Company on January 1, 1997.
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 1996.
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 three times during 1996. A
special subcommittee of the Compensation Committee, the Long-Term Incentive
Plan
14
<PAGE>
Administration Subcommittee (the "Subcommittee"), administers the Company's
long-term incentive plans. The Subcommittee consists of those members of the
Compensation Committee who are "outside directors" within the meaning of
Section 162(m) of the Internal Revenue Code. The Subcommittee met once during
1996.
The Compensation Committee Report on Executive Compensation begins at page
12.
The Compensation Committee currently consists of Messrs. Beran, Bowlin,
Middleton, Savage, and Stewart (Chairman). The Subcommittee currently consists
of Messrs. Beran, Savage, and Stewart (Chairman).
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 1996.
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) protection of the
environment and the health and safety of employees, customers, contractors, and
the public, (ii) compliance with applicable laws and regulations, (iii) cleanup
or remediation of waste sites or excursions, and (iv) development of the
Company's 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 three times during 1996.
The Environment, Health, and Safety Committee currently consists of Messrs.
Fernandes, 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 1996.
The Executive Committee currently consists of Messrs. Bowlin (Chairman),
Hirsig, and Savage.
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 four times during 1996.
The Finance Committee currently consists of Mrs. Knowles (Chair), and Messrs.
Fernandes, Hirsig, Mut, and Tusinski.
15
<PAGE>
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
1996. 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. Bowlin, Hirsig, and
Savage (Chairman).
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, Middleton, Savage, and Stewart accrued
interest that exceeded 120% of a specified IRS rate in the amounts of $6,470,
$841, $3,465, and $6,633, respectively, in 1996.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Bowlin served on the Compensation Committee during 1996. Mr. Bowlin, as
Chairman of the Board of the Company, is an ex officio officer of the Company
under its By-Laws. Mr. Bowlin receives no compensation from the Company and is
not eligible to participate in any Company benefit plan.
16
<PAGE>
TRANSACTIONS BETWEEN THE COMPANY AND ARCO
In June 1987, ARCO transferred substantially all the assets and liabilities
of the oxygenates and polystyrenics businesses of the then ARCO Chemical
Division to the Company in exchange for 80,000,001 shares of Common Stock,
representing all of the issued and outstanding Common Stock of the Company
prior to October 5, 1987 (the date of the initial public offering of the Common
Stock) and approximately 82.6% 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 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,
1997, 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 have been 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.
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 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, 1996, the Company purchased
from ARCO and its subsidiaries approximately $31 million of products and plant
services. The Company sold to ARCO and its subsidiaries, approximately $179
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
17
<PAGE>
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
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, 1996, the Company paid ARCO a total of
approximately $30 million and ARCO paid the Company a total of approximately $1
million under the Administrative Services Agreement and other such agreements
(principally including the lease described below).
Leases
The Company leases its facility in Newtown Square, Pennsylvania from ARCO. In
1997, the Company renewed the lease for an additional term of five years,
ending in 2002. The annual rent paid to ARCO during the renewal term will be
$6.5 million.
Cross-Indemnification Agreement
The Company and ARCO are parties to a cross-indemnification agreement (the
"Cross-Indemnification Agreement") that obligates the Company to indemnify ARCO
against substantially all claims relating to the oxygenates and polystyrenics
businesses transferred to the Company and certain assets relating thereto.
Conversely, the Cross-Indemnification Agreement obligates ARCO to indemnify the
Company against claims not relating to the assets, subsidiaries, or business
operations transferred to the Company.
Tax Sharing Agreement
The Company and its subsidiaries are members of an affiliated group of
corporations which files a consolidated federal income tax return with ARCO.
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, for periods after June 30, 1987 and
prior to January 1, 1995, 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. 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.
The Company and ARCO entered into an amended and restated version of the Tax
Sharing Agreement (the "Amended Agreement") effective as of January 1, 1995.
Except as noted below, the Company and its subsidiaries will continue to
compute their share of the ARCO affiliated group's federal income tax liability
on a stand-alone basis. The Amended Agreement will permit the Company to reduce
its federal income tax liability through the use of certain tax attributes that
produce a benefit to the ARCO affiliated group, but would not otherwise benefit
the Company on a stand-alone basis. ARCO must keep the Company informed of
audits and related litigation that may affect the Company, and the Company has
rights to participate in such audits and related litigation. In addition, under
certain limited circumstances and after consultation with the Company, ARCO may
adjust, compromise or settle issues common to ARCO and the Company, on terms
that, in the opinion of independent counsel are at least as favorable as the
likely results of continuing to contest such issues, without indemnifying the
Company for the increased tax liability arising therefrom. In 1996, the Amended
Agreement permitted the Company to use approximately $8 million of ARCO's
excess foreign tax credits against the Company's pro forma residual federal
income tax liability.
18
<PAGE>
Intellectual Property
ARCO has assigned to the Company various United States and foreign
trademarks, together with the registrations and applications therefor, and has
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 has
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.
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.
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,
1996, the Company purchased from Lyondell approximately $253 million of
feedstocks, products, and plant services. The Company sold Lyondell
approximately $1 million of products and services during the same period.
PROPOSAL TO APPROVE AND RATIFY AN AMENDMENT TO THE ARCO CHEMICAL COMPANY 1990
LONG-TERM INCENTIVE PLAN
Item 2 on Proxy Card
DESCRIPTION OF PLAN
The ARCO Chemical Company 1990 Long-Term Incentive Plan (the "1990 Plan")
provides for nonqualified options--options that are not "qualified stock
options" within the meaning of the Internal Revenue Code (the "Code")--for
shares of Common Stock to be granted to management employees
19
<PAGE>
and selected other key employees of the Company. The purposes of the 1990 Plan
are to encourage management employees to focus on the long-range growth and
profitability of the Company, to reward them for success in achieving specific
long-range goals and to facilitate the attraction and retention of employees of
superior capability. At December 31, 1996, the Company's management employee
group numbered 31 individuals.
The 1990 Plan is administered by the Long-Term Incentive Plan Administration
Subcommittee of the Compensation Committee of the Board of Directors. All of
the members of the Subcommittee are "outside directors" within the meaning of
Section 162(m) of the Code.
The 1990 Plan provides that the terms of any option granted shall be fixed by
the Subcommittee, provided that the option price may not be less than the fair
market value of Common Stock on the date of grant, the option period may not
exceed 10 years and the option may not be exercised less than one year
following the date of grant. The 1990 Plan also provides that the aggregate
number of options awarded to any individual in any calendar year may not exceed
25% of the total number of options granted under the 1990 Plan in such calendar
year. All options granted to date under the 1990 Plan have been priced at the
fair market value on the date of grant and have had an option period of 10
years.
The options granted under the 1990 Plan carry eligibility for dividend share
credits. Dividend share credits (DSCs) are allocated to an optionee's account
whenever dividends are declared on shares of Common Stock. The number of DSCs
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 DSCs 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.
The 1990 Plan sets forth a performance-based criterion for determining the
cash payment that an optionee may receive, if any, with respect to accrued DSCs
in connection with the exercise, expiration or surrender of options. On the
date of exercise, expiration or surrender (the "Determination Date") of any
option, DSCs attributable to such option are cancelled. The optionee is
entitled to receive a cash payment in respect of the cancelled DSCs only if (1)
the fair market value of such DSCs (equal to the FMV of a share of Common Stock
on the Determination Date multiplied by the number of such DSCs) exceeds (2)
the aggregate exercise price of such option less the aggregate FMV on the
Determination Date of the shares of Common Stock underlying such option. If the
performance-based criterion is met, the optionee is entitled to receive a cash
payment equal to the difference between (1) the fair market value of such DSCs
and (2) the amount, if any, by which the aggregate exercise price of such
option exceeds the aggregate FMV of the shares of Common Stock underlying such
stock option. With respect to the Company's Chief Executive Officer and four
other most highly compensated officers, no cash payment may be made in respect
of DSCs unless the Subcommittee has certified in writing that the performance-
based criterion has been met.
Options and the dividend share credits associated with each such option are
cancelled upon an optionee's termination of employment under certain specified
circumstances, including discharge for cause and resignation without approval
of the Company. Prior to the proposed amendment, the 1990 Plan provided that no
grants of options were to be made under the 1990 Plan after December 31, 1996.
PROPOSED AMENDMENT
On February 20, 1997, the Subcommittee adopted, subject to stockholder
approval and ratification, an amendment to the 1990 Plan (i) extending the
period during which options may be granted under the 1990 Plan until December
31, 1998 and (ii) increasing the number of shares for
20
<PAGE>
which options may be granted thereunder from 2,200,000 to 3,000,000. This
amendment is necessary to enable the Subcommittee to continue to authorize
grants of options under the 1990 Plan in the future at levels consistent with
the stated purposes of the 1990 Plan and consistent with the compensation
policies described in the Compensation Committee Report on Executive
Compensation. As of December 31, 1996, options for a total of 181,110 shares of
ARCO Chemical Common Stock remained available for grant under the 1990 Plan.
The following table sets forth the aggregate number of options granted under
the 1990 Plan from its commencement through February 20, 1997 to the named
executive officers of the Company, to all of the Company's current executive
officers as a group, and to all of the Company's employees as a group
(excluding the preceding executive group).
<TABLE>
<CAPTION>
NUMBER OF
OPTIONS
NAME GRANTED(1)(2)
---- -------------
<S> <C>
Alan R. Hirsig.................................................... 306,300
Morris Gelb....................................................... 85,400
Robert J. Millstone............................................... 50,300
Marvin O. Schlanger............................................... 178,000
Walter J. Tusinski................................................ 80,400
Executive Group................................................... 807,100
Non-Executive Officer Employee Group.............................. 1,351,190
</TABLE>
- --------
(1) Any grants of options for shares in excess of 2,200,000 are subject to
stockholder approval and ratification of the proposed amendment.
(2) Options granted under the 1990 Plan during the period January 1, 1996
through February 20, 1997 will become exercisable four years after the date
of grant. Options granted previously under the 1990 Plan have been
exercisable one year after the date of grant.
VOTES REQUIRED FOR APPROVAL
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 AND RATIFICATION
OF THE PROPOSED AMENDMENT TO THE ARCO CHEMICAL COMPANY 1990 LONG-TERM INCENTIVE
PLAN. PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE SO VOTED UNLESS
STOCKHOLDERS SPECIFY OTHERWISE.
PROPOSAL TO APPROVE THE APPOINTMENT OF INDEPENDENT AUDITORS
Item 3 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, 1997. 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.
21
<PAGE>
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.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE
APPOINTMENT OF COOPERS & LYBRAND L.L.P. AS INDEPENDENT AUDITORS FOR THE COMPANY
FOR THE YEAR 1997. PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE SO VOTED
UNLESS STOCKHOLDERS SPECIFY OTHERWISE.
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 1998 ANNUAL MEETING
Stockholder proposals intended to be presented at the 1998 Annual Meeting
must be received by December 1, 1998. 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
Vice President,General Counsel and Secretary
Newtown Square, Pennsylvania
March 31, 1997
22
<PAGE>
ARCO CHEMICAL COMPANY
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
THE COMPANY FOR THE ANNUAL MEETING ON MAY 8, 1997
The undersigned hereby constitutes and appoints Alan R. Hirsig, Robert J.
Millstone, and Walter J. Tusinski, and each of them, true and lawful
agents and proxies with full power of substitution in each, to represent
the undersigned at the Annual Meeting of Stockholders of ARCO CHEMICAL
COMPANY to be held at the Conference Center at the Company's Headquarters,
3801 West Chester Pike, Newtown Square, Pennsylvania, on Thursday, May 8,
1997, and at any adjournments thereof, on all matters coming before said
meeting, including (1) the election of 11 directors, (2) approval of an
amendment to the ARCO Chemical Company 1990 Long-Term Incentive Plan, and
(3) approval of the appointment of Coopers & Lybrand L.L.P. as independent
auditors for the year 1997.
Nominees for election as director:
Walter F. Beran Stephen R. Mut COMMENTS OR CHANGE OF ADDRESS
Mike R. Bowlin Frank Savage -----------------------------
Anthony G. Fernandes Marvin O. Schlanger -----------------------------
Alan R. Hirsig Robert H. Stewart, III -----------------------------
Marie L. Knowles Walter J. Tusinski -----------------------------
James A. Middleton
(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.
P R O X Y
<PAGE>
X PLEASE MARK YOUR
VOTES LIKE THIS. 1018
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, FOR PROPOSAL 2, AND FOR PROPOSAL 3, 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):
- ------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
2. Approval of amendment to ARCO [_] [_] [_]
Chemical Company 1990 Long-Term
Incentive Plan
FOR AGAINST ABSTAIN
3. Approval of 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 8, 1997
The undersigned hereby constitutes and appoints Alan R. Hirsig, Robert J.
Millstone, and Walter J. Tusinski, and each of them, true and lawful
agents and proxies with full power of substitution in each, to represent
the undersigned at the Annual Meeting of Stockholders of ARCO CHEMICAL
COMPANY to be held at the Conference Center at the Company's Headquarters,
3801 West Chester Pike, Newtown Square, Pennsylvania, on Thursday, May 8,
1997, and at any adjournments thereof, on all matters coming before said
meeting, including (1) the election of 11 directors, (2) approval of an
amendment to the ARCO Chemical Company 1990 Long-Term Incentive Plan, and
(3) approval of the appointment of Coopers & Lybrand L.L.P. as independent
auditors for the year 1997.
Nominees for election as director:
Walter F. Beran Stephen R. Mut COMMENTS OR CHANGE OF ADDRESS
Mike R. Bowlin Frank Savage -----------------------------
Anthony G. Fernandes Marvin O. Schlanger -----------------------------
Alan R. Hirsig Robert H. Stewart, III -----------------------------
Marie L. Knowles Walter J. Tusinski -----------------------------
James A. Middleton
(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.
P R O X Y
<PAGE>
X PLEASE MARK YOUR
VOTES LIKE THIS. 6016
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, FOR PROPOSAL 2, AND FOR PROPOSAL 3, 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):
- ------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
2. Approval of amendment to [_] [_] [_]
ARCO Chemical Company 1990
Long-Term Incentive Plan
FOR AGAINST ABSTAIN
3. Approval of 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.
