SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
[ ] Confidential, for Use of the
Commission Only (as permitted
Check the appropriate box: by Rule 14a-6(e)(2))
[x] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 240.14a-11(c) or Rule 240.14a-12
ARCO CHEMICAL COMPANY
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(Name of Registrant as Specified in its Charter)
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(Name of Persons 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:
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2) Aggregate number of securities to which transaction applies:
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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):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] 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:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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<PAGE>
ARCO Chemical Company
3801 West Chester Pike
Newtown Square, Pennsylvania 19073-2387
To the Stockholders of ARCO Chemical Company:
The Board of Directors of ARCO Chemical Company (the "Company")
is making this consent solicitation to obtain the approval of stockholders
for a proposed amendment to the Company's Restated Certificate of
Incorporation (the "Certificate of Incorporation") (i) to authorize the
creation of a class of 5,000,000 shares of Class A Preferred Stock issuable
only in respect of the exercise of rights under a stockholder rights plan
duly adopted by the Board of Directors; (ii) to authorize the creation of a
class of 250,000,000 shares of non-voting, non-convertible Class B
Preferred Stock issuable in one or more series upon terms to be determined
by the Board of Directors; (iii) to authorize the creation of a class of
5,000,000 shares of non-voting common stock issuable only to one or more
grantor trusts established by the Company for the purpose of funding
employee benefit plan obligations or otherwise providing benefits or
compensation to employees of the Company; and (iv) to provide that
stockholders of the Company are not entitled to preemptive rights.
This consent solicitation is being furnished pursuant to the
terms of a transaction (the "Transaction") entered into on June 2, 1998
between the Company and Atlantic Richfield Company ("ARCO"). In connection
with the Transaction, ARCO has informed the Company that it intends to
offer to the public (the "Offering") 23,678,215 shares of Common Stock (the
"Common Stock"), par value $1.00 per share, of the Company plus up to
2,376,822 additional shares if a 30-day over-allotment option granted to
certain underwriters of the Offering is exercised. The Company has agreed
that, upon completion of the Offering, if at least 20,000,000 shares are
sold in the Offering (other than shares sold pursuant to the over-allotment
option), it will repurchase from ARCO (the "Stock Repurchase"), at the
price per share paid by the public in the Offering, a number of shares of
Common Stock such that, upon completion of the Offering and the Stock
Repurchase, ARCO will own exactly 50 percent of the then-outstanding shares
of Common Stock (whether or not the over-allotment option is exercised in
whole or in part). In no event, however, will the Company be obligated to
repurchase from ARCO shares of Common Stock having an aggregate repurchase
price exceeding $850 million.
The Board of Directors believes the amendment to the Certificate
of Incorporation as proposed in this Consent Solicitation is in the best
interests of the stockholders of the Company and asks that you consent to
the proposed amendment.
Approval of the proposed amendment requires the consent of
stockholders of record at the close of business on June 19, 1998 holding at
least a majority of the then-outstanding Common Stock. As of June 9, 1998,
there were [97,276,339] shares of Common Stock outstanding. ARCO, which
holds 80,000,001 shares, constituting approximately 82.2 percent of the
outstanding Common Stock, has consented to the proposed amendment,
effective as of _______, 1998. Although ARCO has sufficient voting power
unilaterally to approve the proposed amendment, the Board of Directors
believes that your consent to the proposed amendment is important.
This consent solicitation will terminate on ________, 1998. All
consents must be submitted on or prior to that date. The Company expects to
file a Certificate of Amendment to the Certificate of Incorporation
adopting the proposed amendment with the Secretary of State of Delaware
immediately prior to the closing of the Transaction.
The Consent Solicitation Statement on the following pages
describes the proposed amendment to the Company's Certificate of
Incorporation being presented to the stockholders in this consent
solicitation. You may obtain additional information about the Company from
documents that the Company has filed with the Securities and Exchange
Commission. You are urged to read the Consent Solicitation Statement
carefully and then to complete, sign and date the enclosed consent card and
return it in the enclosed self-addressed, postage-paid envelope.
ROBERT J. MILLSTONE, ESQ. Newtown Square, Pennsylvania
Vice President, General June ___, 1998
Counsel and Secretary
<PAGE>
ARCO Chemical Company
3801 West Chester Pike
Newtown Square, Pennsylvania 19073-2387
CONSENT SOLICITATION STATEMENT
June __, 1998
INTRODUCTION
This Consent Solicitation Statement and the accompanying consent
card (this "Consent Solicitation") are furnished in connection with the
solicitation of stockholder consents by the Board of Directors of ARCO
Chemical Company (the "Company"), in lieu of a meeting of stockholders, for
a proposed amendment to the Restated Certificate of Incorporation (the
"Certificate of Incorporation") of the Company described herein. See "THE
PROPOSAL--APPROVAL OF THE AMENDMENT TO THE CERTIFICATE OF INCORPORATION".
This Consent Solicitation is being made pursuant to the terms of a
transaction described below. See "THE TRANSACTION."
Under Section 228 of the Delaware General Corporation Law (the
"DGCL"), any action permitted to be taken at an annual or special meeting
of stockholders of a Delaware corporation may be taken without a meeting,
without prior notice and without a vote, if consents in writing, setting
forth the action so taken, are signed by the holders of outstanding stock
having not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted. Prompt notice must be given to those
stockholders who have not consented in writing. This Consent Solicitation
will serve as the notice to stockholders required by Section 228 of the
DGCL of the approval of the amendment to the Certificate of Incorporation
by written consent of stockholders. Stockholders will not have rights of
appraisal with respect to the amendment.
Holders of record of the Company's Common Stock (the "Common
Stock"), par value $1.00 per share at the close of business on June 19,
1998 (the "Record Date"), are entitled to consent, withhold consent, or
abstain with respect to, the proposed amendment to the Certificate of
Incorporation by executing and submitting the accompanying consent card. On
the close of business on June 19, 1998, the Company had outstanding [ ]
shares of Common Stock. 80,000,001, or approximately 82.2 percent, of the
outstanding shares of Common Stock are held by Atlantic Richfield Company
("ARCO"), which has consented to the proposed amendment, effective as of
__, 1998. Each share of Common Stock is entitled to one vote in respect of
this Consent Solicitation. Consents evidencing a majority of the
outstanding shares of the Common Stock on the Record Date are required to
approve the proposed amendment to the Certificate of Incorporation.
Although ARCO has sufficient voting power unilaterally to approve the
proposed amendment to the Certificate of Incorporation, the Board of
Directors believes that your consent to the proposed amendment is
important.
This Consent Solicitation will terminate on _____, 1998. All
consent cards must be submitted on or prior to that date. Any action other
than the delivery of a properly executed consent card prior to ______,
1998, including abstentions and broker nonvotes, will have the same effect
as if consent to the proposed amendment was explicitly withheld.
The Company expects to file with the Secretary of State of
Delaware, immediately prior to the closing of the transaction described
below, a Certificate of Amendment to the Certificate of Incorporation
substantially in the form attached as Exhibit A hereto (the "Proposed
Certificate of Amendment") adopting the proposed amendment described
herein. The amendment to the Certificate of Incorporation set forth in the
Certificate of Amendment will be effective immediately upon filing. A
consent card executed by a stockholder may be revoked at any time provided
that a written, dated revocation is executed and delivered to the Company.
A revocation may be in any written form validly signed by the stockholder
as long as it clearly states that the consent card previously submitted is
no longer effective. The revocation should be addressed to Robert J.
Millstone, Esq., Vice President, General Counsel and Secretary, ARCO
Chemical Company, 3801 West Chester Pike, Newtown Square, Pennsylvania
19073-2387.
These consent solicitation materials are being mailed to
stockholders on or about June __, 1998.
THE TRANSACTION
On January 29, 1998, the Board of Directors established a special
committee (the "Special Committee") consisting of two independent
directors, Frank Savage and Walter F. Beran. The Special Committee was
formed to evaluate any transaction proposed by ARCO pursuant to which ARCO
would reduce its interest in the Company to 50 percent or less of the
outstanding shares of the Common Stock, to negotiate with ARCO regarding
the terms thereof and to determine whether or not to enter into a
transaction with ARCO and the terms thereof. At a meeting held on June 2,
1998, the Special Committee approved the transaction with ARCO (the
"Transaction") described below. The members of the Special Committee
received compensation in the amount of $15,000 in addition to their normal
director's fees, which include $1,000 per board or committee meeting
attended.
The Stock Repurchase
On June 2, 1998, the Company and ARCO entered into a Stock
Repurchase Agreement (the "Stock Repurchase Agreement") pursuant to which
the Company agreed to repurchase (the "Stock Repurchase") from ARCO a
number of shares such that, upon completion of the Stock Repurchase, ARCO
will own exactly 50 percent of the Common Stock. The Company's obligation
to complete the repurchase is conditioned on ARCO completing a public
offering (the "Offering") of at least 20,000,000 shares of Common Stock
held by it (other than shares sold pursuant to the over-allotment option
described below). The repurchase price per share (the "Repurchase Price")
payable by the Company in the Stock Repurchase will equal the price paid by
the public in connection with the Offering. In no event, however, will the
Company be obligated to repurchase from ARCO shares of Common Stock having
an aggregate Repurchase Price exceeding $850 million.
ARCO has informed the Company that it currently intends to offer
to the public in the Offering 23,678,215 shares of Common Stock plus up to
2,367,822 additional shares if a 30-day over-allotment option (the
"Over-allotment Option") granted to certain underwriters of the Offering
(the "Underwriters") is exercised in full. If all 23,678,215 shares of
Common Stock are sold pursuant to the Offering and if the Over-allotment
Option is exercised in full, the Company will repurchase _____ shares
pursuant to the Stock Repurchase (so long as the aggregate Repurchase Price
does not exceed $850 million). If the Over-allotment Option is not
exercised, the Company will repurchase _____ shares pursuant to the Stock
Repurchase (assuming the Repurchase Price is equal to $_____, the last
reported sale price of the Common Stock on the New York Stock Exchange on
_____, 1998)).
On June 3, 1998, the Company filed with the Securities and
Exchange Commission a registration statement for the registration of the
23,678,215 shares of Common Stock (plus the 2,637, 822 shares subject to
the Over-allotment Option) ARCO intends to sell in the Offering. ARCO and
the Company currently expect the Offering and the Stock Repurchase to close
in the third quarter of 1998.
ARCO has agreed to pay all of the Company's reasonable
out-of-pocket fees and expenses of the Offering. ARCO has also agreed to
make a payment of $15 million to the Company, of which $7.5 million will be
paid on June 30, 1998 and the remainder upon completion of the Transaction.
In connection with the Stock Repurchase, the Company has received
a commitment from First National Bank of Chicago, as an agent for a
syndicate of lenders, for a credit facility (a "Bridge Facility") in the
amount of $850 million. The Company intends to utilize the Bridge Facility
to finance the Stock Repurchase and for other general corporate purposes.
The Bridge Facility is expected to bear a floating interest rate at either
the agent's base rate or the applicable LIBOR plus a margin based on the
Company's public debt rating and will mature 364 days after the execution
of definitive credit agreements (which is expected in July 1998). The
Bridge Facility is also expected to contain covenants that, among other
things: (a) restrict the Company's ability to (i) create liens on its
properties; (ii) merge, consolidate or sell substantially all of its
assets; (iii) engage in sale and leaseback transactions; and (iv) engage in
transactions with its affiliates; and (b) require the Company to maintain a
minimum consolidated net worth of $750 million. The Company plans to
refinance the Bridge Facility using a combination of short-, medium- and
long-term financing, which may include non-convertible trust preferred
securities. This permanent financing may be at a higher weighted-average
interest rate than the Bridge Facility.
The Stockholder Agreement
On June 2, 1998, the Company and ARCO also entered into a
Stockholder Agreement (the "Stockholder Agreement") pursuant to which the
Company agreed, among other things, that ARCO would have the right to
designate two individuals to be nominated by the Company for election to
the Board of Directors, until such time as ARCO owns less than twenty
percent of the Common Stock. ARCO currently holds six of the twelve seats
on the Board of Directors, and intends, but is not obligated, to maintain
representation on the Board of Directors proportional to its stock
ownership. The Stockholder Agreement also provides that, until such time
that ARCO owns less than twenty percent of the Common Stock, the Company
will be required to cause a majority of the individuals whom the Company
nominates for election to the Board of Directors who are not officers or
employees of ARCO or ARCO nominees to be independent directors.
In the Stockholder Agreement, the Company agreed to solicit the
consent of its stockholders to the proposed amendment to the Certificate of
Incorporation described in this Consent Solicitation Statement.
In addition, under the Stockholder Agreement, until such time as
ARCO is the owner of less than thirty percent of the Common Stock, the
Company will be prohibited from issuing (other than issuances pursuant to
stockholder-approved employee benefit plans) any shares of Common Stock, or
any options, warrants, or other securities convertible into Common Stock,
without the approval of ARCO or majority stockholder approval.
During the period beginning on the closing date of the Offering
and ending on the first anniversary thereof, to enable ARCO to maintain an
ownership level of at least fifty percent of the Common Stock, the Company
will be required to repurchase from the public one share of Common Stock
for each share issued pursuant to employee benefits plans. The Stockholder
Agreement provides that, commencing on such first anniversary date and
until such time as ARCO owns less than thirty percent of the Common Stock,
to the extent the Company issues in excess of an agreed number of shares of
Common Stock pursuant to any employee benefit plan or otherwise to provide
employee benefits, the Company will be obligated to repurchase an
equivalent number of shares of Common Stock in the open market or in
privately negotiated transactions. This purchase obligation would be
triggered if, (i) during the first three twelve-month periods immediately
following the first anniversary of the Offering, the Company issues in
excess of 1,000,000 shares of Common Stock, in the aggregate, for employee
benefit purposes or (ii) during the first 48-month period immediately
following the first anniversary of the final closing date of the Offering,
the Company issues in excess of 3,000,000 shares of Common Stock, in the
aggregate, for such purposes.
Under the Stockholder Agreement, ARCO will have certain rights to
participate in any repurchase by the Company of shares of Common Stock that
would cause ARCO's percentage ownership of the Company to become greater
than fifty percent and cause ARCO to become obligated to include the
results of operations, assets and liabilities of the Company in ARCO's
consolidated financial statements.
In addition, pursuant to the Stockholder Agreement, until such
time that ARCO owns less than thirty percent of the Common Stock, unless
approved by ARCO, the Company will be prohibited from (i) entering into any
material agreement containing a change-of-control provision, that if
triggered would give rise to any actual or potential event of default under
any debt agreement or would otherwise have an adverse effect on the
Company, other than employment or severance agreements and plans and debt
agreements that contain change-of-control provisions that reflect in all
material respects then-prevailing market terms for substantially comparable
borrowers and debt or (ii) entering into any material agreement granting
any party thereto or holder thereunder the right to vote for the election
of directors of the Company. Any such change-of-control agreements will be
required to be submitted to the Board of Directors for approval whether or
not approved by ARCO.
The Stockholder Agreement also provides that, until such time as
ARCO owns less than twenty percent of the Common Stock, unless approved by
ARCO or holders of a majority of the shares of Common Stock cast at any
stockholders' meeting, the Company will be prohibited from (i) engaging in
any recapitalization or other change in capital structure of the Company
that would reduce ARCO's percentage ownership of Common Stock or ARCO's
percentage voting power in connection with the election of the Board of
Directors or (ii) amending the Company's By-Laws in any manner that
diminishes the rights of any holder of Common Stock. ARCO will be permitted
to assign these rights to a transferee that acquires shares from ARCO
representing twenty percent or more of the Common Stock.
All the rights of ARCO under the Stockholder Agreement described
above will become effective upon, and are subject to, the consummation of
the Transaction.
The Registration Rights Agreement
On June 2, 1998, the Company and ARCO entered into a Registration
Rights Agreement (the "Registration Rights Agreement") pursuant to which,
if the Transaction is completed, ARCO will have the right to cause the
Company to file, on up to seven occasions, a registration statement to
register the sale of ARCO's Common Stock (a "demand registration"). In
addition, subject to certain exceptions, at any time the Company is
registering Common Stock or other equity securities, ARCO would have the
right to cause the Company to include Common Stock of ARCO in such
registration (a "piggyback registration"). Subject to certain limitations,
ARCO may assign its rights with respect to two demand registrations and its
rights with respect to piggyback registrations.
ARCO has agreed to be responsible for all reasonable expenses
incurred by the Company and ARCO in connection with the exercise of ARCO's
demand registration rights (other than certain expenses relating to the
inclusion of shares for the Company's own account). The Company would be
responsible for all reasonable expenses incurred by the Company and ARCO in
connection with any piggyback registration (other than the fees of any
counsel, accountants or advisors retained by ARCO and other than
underwriting discounts, fees and commissions and stock transfer taxes
relating to ARCO's Common Stock).
Pursuant to the Registration Rights Agreement, the Company, its
executive officers and directors and ARCO have agreed to certain "lock-up"
restrictions. The Company has also agreed in the Registration Rights
Agreement to indemnify ARCO, any underwriters on behalf of ARCO and certain
other persons against certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
The Rights Plan
Pursuant to the Stockholder Agreement, the Board of Directors of
the Company approved a stockholder rights plan (the "Rights Plan"), to be
effective upon the closing of the Offering. In connection with the Rights
Plan, the Board of Directors has declared a dividend of one preferred share
purchase right (a "Right") in respect of each share of Common Stock
outstanding on a date to be determined by the Board. The Rights, which will
have an initial exercise price (the "Purchase Price") of $250, will not
become exercisable until the occurrence of the events described below.
The Rights Plan provides, among other things and subject to
certain exceptions, that, upon the acquisition by a person of beneficial
ownership of twenty percent or more of the Common Stock, each Right other
than those Rights owned by the acquiring person will become exercisable and
will entitle its holder, among other things, to purchase shares of Common
Stock or, if sufficient authorized shares of Common Stock are not then
available, shares of Class A Junior Participating Preferred Stock
(described below) from the Company at a fifty percent discount to the
market price of the shares of Common Stock. In addition, in the event of
certain merger, business combination or asset sale transactions after a
person has acquired, or in connection with which, a person acquires,
beneficial ownership of twenty percent or more of the Common Stock, the
Rights, if not then already exercisable, will become exercisable, and each
holder of a Right (except Rights which have been voided in accordance with
the provisions of the Rights Plan) will thereafter have the right to
receive, upon exercise, common shares of the acquiring company having a
value equal to two times the Purchase Price.
Until such time as ARCO's ownership of Common Stock decreases to
less than twenty percent of the Common Stock, the ownership and acquisition
by ARCO of Common Stock will not cause the Rights to become exercisable. In
addition, no transfer by ARCO of Common Stock will cause the Rights to
become exercisable if such transfer is to any person who (i) acquires from
ARCO in any one transaction beneficial ownership of Common Stock
constituting at least twenty percent of the Common Stock; (ii) immediately
after such acquisition, beneficially owns no more than fifty percent of the
outstanding Common Stock; and (iii) in the case of a person beneficially
owning five percent or more of the Common Stock prior to such acquisition,
has given the Board of Directors at least 90 days' prior notice of its
proposed acquisition of Common Stock from ARCO and the terms thereof and
continues to own five percent or more of the Common Stock during such
90-day period (an "ARCO Transferee"). Additionally, the Rights will not
become exercisable as a result of a purchase pursuant to a Qualifying
Offer. "Qualifying Offer" means, generally, a tender or exchange offer by
an ARCO Transferee for all the outstanding Common Stock in connection with
which the ARCO Transferee (i) agrees not to consummate any transactions
pursuant to the offer for at least 90 days from the commencement of the
offer or, if the offer price is decreased, or any other material change is
made to the terms of the offer, 90 days after the date of such change, (ii)
has offered the same consideration to all holders of Common Stock and has
obtained firm written commitments sufficient to fund any cash portion of
the offer, (iii) causes a nationally recognized investment bank to deliver
to the Company an opinion as to the fairness from a financial point of
view, as of the date of the completion of the offer, of the consideration
to be paid pursuant to the offer, and (iv) pays consideration per share
having, on the date of the completion of the offer, a fair market value (as
determined in good faith by the Board of Directors) at least equal to the
greatest amount of consideration paid for any Common Stock purchased by the
ARCO Transferee from ARCO within the two-year period prior to the
commencement of the offer and having a cash component that is no less
(proportionately) than the amount of cash, if any, paid to ARCO by such
ARCO Transferee during such period.
So long as ARCO or any ARCO Transferee owns twenty percent or
more of the Common Stock, the Rights Plan may not be amended or modified in
any material respect, and the Company may not adopt any other rights plan
without the prior written approval of ARCO or the ARCO Transferee. ARCO has
also agreed not to cause any amendment or modification to the Rights Plan
that would have a material adverse effect on the protections afforded to
stockholders other than ARCO.
The Company will not be permitted to redeem or amend the Rights
Plan to facilitate any merger or consolidation with or into, any sale of a
material amount of the Company's assets to, or any offer or other
transaction with, an ARCO Transferee unless or until the ARCO Transferee
shall have purchased Common Stock pursuant to a Qualifying Offer. Once an
ARCO Transferee has purchased Common Stock pursuant to a Qualifying Offer,
any subsequent purchases of Common Stock by such ARCO Transferee are
exempted from the dilutive effects of the Rights Agreement.
<PAGE>
THE
PROPOSAL
APPROVAL OF THE AMENDMENT TO THE
CERTIFICATE OF INCORPORATION
On June 2, 1998, the Board of Directors adopted resolutions
declaring it advisable and in the best interests of the stockholders of the
Company to amend, and submit to the stockholders of the Company a proposal
to amend, Article IV of the Certificate of Incorporation (i) to authorize
the creation of a class of 5,000,000 shares of Class A Preferred Stock, par
value $.01 per share ("Class A Preferred Stock"), issuable only in respect
of the exercise of rights under a stockholder rights plan duly adopted by
the Board of Directors; (ii) to authorize the creation of a class of
250,000,000 shares of non-voting, non-convertible Class B Preferred Stock,
par value $.01 per share ("Class B Preferred Stock"), issuable in one or
more series upon terms to be determined by the Board of Directors; (iii) to
authorize the creation of a class of 5,000,000 shares of Non-Voting Common
Stock, par value $.01 per share ("Non-Voting Common Stock"), issuable only
to one or more grantor trusts established by the Company for the purpose of
funding employee benefit plan obligations or otherwise providing benefits
or compensation to employees of the Company; and (iv) to provide that
stockholders of the Company are not entitled to preemptive rights. A copy
of the Certificate of Amendment setting forth the provisions of the
proposed amendment is attached as Exhibit A hereto.
If the proposed amendment is approved and the Transaction is
consummated, the Company's capital stock will consist of 510,000,000
shares, consisting of (i) 250,000,000 shares of Common Stock, (ii)
5,000,000 shares of Class A Preferred Stock, (iii) 250,000,000 shares of
Class B Preferred Stock, and (iv) 5,000,000 shares of Non-Voting Common
Stock. In addition, if the amendment is approved, the Certificate of
Incorporation would provide that stockholders of the Company are not
entitled to preemptive rights. The proposed amendment does not otherwise
affect any terms of the Certificate of Incorporation.
Purpose and Effect of the Authorization of Class A Preferred Stock
The Certificate of Incorporation does not currently authorize the
issuance of Preferred Stock. As proposed to be amended, the Certificate of
Incorporation will allow for the issuance of 5,000,000 shares of Class A
Preferred Stock without further stockholder approval. Such shares may be
issued only in respect of the exercise of rights under a stockholder rights
plan duly approved by the Board of Directors. Subject to the foregoing, the
Board of Directors will be authorized to provide for the issuance of shares
of Class A Preferred Stock in one or more series and to fix the specific
terms of the shares of each such series.
In connection with the adoption of the Rights Plan, the Board of
Directors intends to designate a series of Class A Preferred Stock to be
referred to as Class A Junior Participating Preferred Stock. Each
one-thousandth of a share of Class A Junior Participating Preferred Stock
will have rights and entitlements (including with respect to voting,
dividend and liquidation) substantially similar to those of one share of
Common Stock and, in accordance with the terms of the Rights Plan, will be
issuable upon the exercise of the Rights under the Rights Plan in the event
that the Company does not then have a sufficient number of shares of Common
Stock authorized for issuance upon such exercise and under certain other
circumstances.
If the proposed authorization of Class A Preferred Stock is not
approved, in order to ensure that the Company had available sufficient
number of shares for issuance upon exercise of the Rights, it would be
necessary for the Board of Directors to reserve a substantial portion of
the Company's existing authorized-but-unissued shares of Common Stock for
issuance in connection with the Rights Plan. The Board of Directors
believes the proposed authorization of Class A Preferred Stock is advisable
and in the best interests of stockholders because it will ensure that the
Company has sufficient number of shares authorized for issuance upon
exercise of the Rights when, and in the event that, the Rights become
exercisable, without the Board having to reserve any of the Company's
existing authorized-but-unissued shares of Common Stock.
The Rights may have the effect of discouraging, delaying or
preventing a change of control of the Company or unsolicited acquisition
proposals. The Rights will cause substantial dilution to a person or group
that attempts to acquire the Company without conditioning the offer on the
Rights being redeemed or a substantial number of Rights being acquired.
Purpose and Effect of the Authorization of Class B Preferred Stock
As proposed to be amended, the Certificate of Incorporation would
also authorize the issuance of up to 250,000,000 shares of Class B
Preferred Stock. Except as may be required by the DGCL or by any U.S.
national securities exchange or quotation system on which such shares are
listed or traded, the shares of Class B Preferred Stock will not have any
voting rights, and in no event will shares of Class B Preferred Stock be
convertible into shares of Common Stock. Subject to the foregoing and
certain other limited exceptions, the Board of Directors will be authorized
to provide for the issuance of shares of Class B Preferred Stock in one or
more series and to fix the terms, including, without limitation, dividend,
redemption and liquidation rights and preferences, if any, of the shares of
each such series, without any further stockholder approval.
The Board of Directors considers it advisable and in the best
interests of stockholders that the Class B Preferred Stock be authorized,
in order to increase the Company's financial flexibility. The Board
believes that the complexity of modern business financing and acquisition
transactions requires greater flexibility in the Company's capital
structure than now exists. The Class B Preferred Stock would be available
for issuance from time to time as determined by the Board of Directors for
any proper corporate purpose. Such purposes might include, without
limitation, issuance in public and private sales for cash as a means of
obtaining additional capital for use in the Company's business and
operations and issuance as part or all of the consideration required to be
paid by the Company for acquisitions of other businesses or properties. The
Company does not have, at present, any agreements, understandings, or
arrangements which would result in the issuance of any shares of Class B
Preferred Stock.
It is not possible to state the precise effect of the
authorization of the Class B Preferred Stock upon the rights of the holders
of the Common Stock until the Board of Directors determines the terms of
one or more series of the Class B Preferred Stock. However, such effect
might include: (i) restrictions on dividends on Common Stock if dividends
on the Class B Preferred Stock are in arrears; and (ii) the holders of
Common Stock not being entitled to share in the Company's assets upon
liquidation until satisfaction of any liquidation preference granted to the
Class B Preferred Stock.
Purpose and Effect of the Authorization of Non-Voting Common Stock
The proposed amendment to the Certificate of Incorporation would
also authorize the issuance of up to 5,000,000 shares of Non-Voting Common
Stock, without any further stockholder approval. The Non-Voting Common
Stock would be issuable only to one or more grantor trusts (each a "GSOP")
established by the Company for the purpose of funding employee benefit plan
obligations or otherwise providing benefits or compensation to employees of
the Company.
The holders of shares of Non-Voting Common Stock will not be
entitled to vote on any matter, except as may be required by law. Shares of
Non-Voting Common Stock sold, transferred or otherwise disposed of by a
GSOP will immediately and automatically convert into an equal number of
shares of Common Stock, subject to adjustment for Common Stock dividends,
splits, combinations or similar transactions. Except with respect to the
voting rights of the Common Stock and the conversion rights of the
Non-Voting Common Stock, the rights and entitlements of Common Stock and
Non-Voting Common Stock are identical in all respects.
If the Underwriters of the Offering do not exercise the
Over-allotment Option in full, the Company intends to establish one or more
GSOPs and issue to them up to 3,000,000 shares of Non-Voting Common Stock
which are expected to be distributed by the GSOPs during the second, third
and fourth years following the Transaction to satisfy the Company's
obligations under employee benefit plans and to satisfy other employee
benefit obligations. Whether or not the Over-allotment Option is exercised,
the Non-Voting Common Stock would be available for issuance to one or more
GSOPs if such issuance received the requisite Board approval.
Shares held by a GSOP are not deemed to be outstanding under
generally accepted accounting principles, but are deemed to be outstanding
under Delaware law and entitled to dividends and other distributions of the
Company. In general, when such shares are distributed by the GSOP to fund
employee benefit plan obligations or otherwise to provide benefits or
compensation to employees, the Company will be deemed to have funded the
benefits or compensation directly for tax purposes (i.e., the Company would
be entitled to a fair market value tax deduction for most benefits and a
tax deduction equal to the spread between the fair market value of the
stock and the strike price at the exercise date for distributions in
respect of exercises of non-qualified options).
Purpose and Effect of the Elimination of Preemptive Rights
Section 102(b)(3) of the DGCL states the general rule that no
stockholder of a Delaware corporation is entitled to preemptive rights
unless, and except to the extent, expressly granted in the certificate of
incorporation; provided, however, that any preemptive rights in existence
on July 3, 1967 remain in effect unless and until changed or terminated.
Prior to July 3, 1967, the DGCL in effect provided that, unless otherwise
provided in the certificate of incorporation, stockholders of a Delaware
corporation were entitled to preemptive rights.
The Company was originally incorporated by ARCO, then the holder
of all of the Common Stock, on December 31, 1965. At that time and on July
3, 1967, the Certificate of Incorporation did not contain any provisions
limiting or eliminating preemptive rights of stockholders. As such, on July
3, 1967, the Company's stockholders were entitled to preemptive rights. The
Company has been advised by ARCO that, based upon the advice of ARCO's
counsel, ARCO believes that such rights were eliminated pursuant to
amendments to the Certificate of Incorporation effected by ARCO in 1987, as
the sole stockholder of the Company prior to the Company's initial public
offering, whereby 1,000 shares, par value $100 per share, were replaced by
250,000,000 shares of Common Stock, par value $1 per share, with the result
that the new class of Common Stock thus created was not entitled to
preemptive rights. Moreover, since the initial public offering of shares of
Common Stock in October 1987, all dispositions of Common Stock by the
Company have been in connection with the exercise of employee options or
other employee benefit plans and have been from shares of treasury stock of
the Company, and the Company has been advised by counsel that such
dispositions do not entitle stockholders to preemptive rights. In addition,
shares and other equity securities issued in connection with the initial
public offering and certain of such employee benefits plans were approved
by ARCO, the then 100% parent of the Company. Accordingly, whether or not
preemptive rights have been eliminated, based on the advice of counsel, the
Board of Directors believes no current or prior stockholder of the Company
was or is entitled to preemptive rights in respect of any such issuance.
The Board of Directors believes that preemptive rights do not
serve the best interests of the stockholders, since the preemptive rights
procedure involves considerable delay and substantial expense to the
Company. For example, an underwritten public offering by the Company of
newly issued equity securities for cash could be effected only by a rights
offering to stockholders or by obtaining waivers of preemptive rights.
Attempting to obtain waivers would involve uncertainty, considerable delay
and substantial expense. The Board of Directors is of the opinion that the
disadvantage of this loss of flexibility would outweigh any possible
benefit to stockholders resulting from the existence of preemptive rights
if they were to exist. Accordingly, the Board of Directors believes that it
is in the best interests of the stockholders to amend the Certificate of
Incorporation to expressly clarify that no preemptive rights attach to the
Common Stock, and to the other classes of stock being authorized by the
proposed amendments, in order to remove any uncertainty regarding whether
future issuances of shares would be subject to preemptive rights.
VOTING SECURITIES AND PRINCIPAL HOLDERS
The following table sets forth certain information regarding
beneficial ownership of the Company's Common Stock and ARCO's common stock
("ARCO Common Stock") as of February 1, 1998 of (i) each stockholder known
by the Company to be the beneficial owner of more than five percent of the
outstanding Common Stock, (ii) each director of the Company, (iii) the
Chief Executive Officer and the four other most highly compensated
executive officers of the Company in 1997, and (iv) all directors and
executive officers as a group. Except as otherwise indicated, the Company
believes that the beneficial owners of the Common Stock listed below, based
on information furnished by such owners, have sole investment and voting
power with respect to such shares, subject to community property laws where
applicable.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF PERCENT OF SHARES OF
COMMON STOCK COMMON STOCK
NAMES AND ADDRESSES OF BENEFICIAL OWNERS BENEFICIALLY OWNED BENEFICIALLY OWNED
- ----------------------------------------------- --------------------- ----------------------
<S> <C> <C>
Atlantic Richfield Company............ 80,000,001(a) 82.2
515 South Flower Street
Los Angeles, California 90071
Archer-Daniels-Midland
Company.............................. 4,815,300(b)(c) 5.0
4666 Faries Parkway
Decatur, Illinois 62526
<FN>
(a) Sole voting power, sole dispositive power.
(b) According to a Schedule 13D, dated June 13, 1991, filed with the
Securities and Exchange Commission by Archer-Daniels-Midland Company
("ADM"), ADM has sole voting and sole dispositive power.
(c) In addition, according to the above-referenced Schedule 13D, M.L.
Andreas, Senior Vice President of ADM, 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.
</FN>
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF SHARES OF PERCENT OF SHARES OF
COMMON STOCK COMMON STOCK
NAMES OF BENEFICIAL OWNERS BENEFICIALLY OWNED(a)(b) BENEFICIALLY OWNED(c)(d)
- ----------------------------------------------- ------------------------- -------------------------
<S> <C> <C>
Walter F. Beran 8,453 0
Anthony G. Fernandes 1,000 254,386
Morris Gelb 59,751 6,478
Mark L. Hazelwood 0 66,482
Alan R. Hirsig 223,804 2,355
John H. Kelly 0 40,168
Marie L. Knowles 100 115,755
James A. Middleton 2,485 217,449
Robert J. Millstone 25,002 237
Stephen R. Mut 1,000 93,896
Frank Savage 8,739(e) 0
Marvin O. Schlanger 126,216 1,164
Walter J. Tusinski 60,095 27,920(f)
Donald R. Voelte, Jr. 0 39,291
All directors and executive officers
as a group, including those named above 546,571(g) 867,339(h)
<FN>
(a) The amounts shown include 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. The amounts shown
include shares of restricted Common Stock held under the ARCO Chemical
Company Restricted Stock Plan for Outside Directors as follows: Mr.
Beran, 6,453; Mr. Middleton, 1,485; and Mr. Savage, 8,639. Shares of
restricted Common Stock include the right to vote and receive
dividends.
(b) The amounts shown include shares that may be acquired within the
60-day period following February 1, 1998 through the exercise of stock
options covering Common Stock as follows: Mr. Gelb, 57,200; Mr.
Hirsig, 200,200; Mr. Millstone, 22,500; Mr. Schlanger, 117,100; Mr.
Tusinski, 45,300; and all directors and all executive officers as a
group (including those just named), 468,800.
(c) The amounts shown include shares of ARCO Common Stock held by the
trustees of the Capital Accumulation Plan, the Savings Plan, and
ARCO's Capital Accumulation and Savings Plan for the accounts of
participants. The amounts shown include shares of restricted ARCO
Common Stock granted under ARCO's 1985 Executive Long-Term Incentive
Plan as follows: Mr. Fernandes, 3,240; Mr. Hazelwood, 842; Mr. Kelly,
968; Mrs. Knowles, 2,431; and Mr. Mut 1,202. Shares of restricted ARCO
Common Stock include voting rights and the right to receive dividends.
(d) The amounts shown include shares of ARCO Common Stock that may be
acquired within the 60-day period following February 1, 1998 through
the exercise of stock options as follows: Mr. Fernandes, 205,903; Mr.
Hazelwood, 52,861; Mr. Kelly, 33,334; Mrs. Knowles, 96,260; Mr.
Middleton, 168,000; Mr. Mut, 74,241; Mr. Tusinski, 17,740; Mr. Voelte,
39,270; and all directors and nominees and all executive officers as a
group (including those just named), 687,609. The amounts also include
the following number of shares of ARCO Common Stock issuable in
respect of the conversion of dividend share credits allocated to such
options: Mr. Fernandes, 40,793; Mr. Hazelwood, 11,498; Mr. Kelly,
4,952; Mrs. Knowles, 15,983; Mr. Middleton, 49,449; Mr. Mut, 17,257;
Mr. Tusinski, 7,428; and all directors and executive officers as a
group, 147,360.
(e) The amount shown includes 100 shares subject to shared voting and
investment power with spouse.
(f) The amount shown includes 354 shares subject to shared voting and
investment power with spouse.
(g) The amount shown includes 100 shares subject to shared voting and
investment power. Does not include 4,963 shares held for or by family
members, as to which beneficial ownership is disclaimed.
(h) The amount shown includes 354 shares of ARCO Common Stock subject to
shared voting and investment power. Does not include 10,300 shares
held by spouses (two of whom are employees of ARCO) or adult children,
as to which beneficial ownership is disclaimed.
</FN>
</TABLE>
SOLICITATION EXPENSES
The expense of solicitating consents pursuant to the Consent
Solicitation 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 consents 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 1999 ANNUAL MEETING
Stockholder proposals intended to be presented at the 1999 Annual
Meeting of the Stockholders of the Company must be received by December 22,
1998. Such proposals should be addressed to the Secretary.
By order of the Board of Directors
Robert J. Millstone, Esq.
Vice President, General Counsel
and Secretary
June __, 1998
Newtown Square, Pennsylvania
<PAGE>
EXHIBIT A
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
ARCO CHEMICAL COMPANY
ARCO Chemical Company, a corporation organized and existing under
the laws of the State of Delaware (the "Company"), does hereby certify
that:
FIRST: That the Board of Directors of the Company, at a meeting
duly held, adopted resolutions setting forth, among other
things, a proposed amendment to the Restated Certificate of
Incorporation of the Company and declaring such amendment to
be advisable and setting a record date for purposes of
obtaining the written consent of stockholders of the Company
to such amendment. The resolution setting forth the
proposed amendment is as follows:
RESOLVED, that it is in the best interest of the
Company that the Restated Certificate of Incorporation of
the Company be amended by changing Article IV thereof such
that, as amended, Article IV shall read in its entirety as
follows:
"The total number of shares of capital stock which the
Company shall have authority to issue is Five Hundred Ten
Million (510,000,000) shares, consisting of Five Million
(5,000,000) shares of class A preferred stock, $.01 par
value per share ("CLASS A PREFERRED STOCK"), Two Hundred
Fifty Million (250,000,000) shares of class B preferred
stock, $.01 par value per share ("CLASS B PREFERRED STOCK"),
Two Hundred Fifty Million (250,000,000) shares of common
stock, $1.00 par value per share (the "COMMON STOCK"), and
Five Million (5,000,000) shares of non-voting common stock,
$.01 par value per share ("NON-VOTING COMMON STOCK"). No
holder of shares of any class of capital stock of the
Company shall be entitled to preemptive rights to subscribe
to any additional issue of stock of the Company or to any
security convertible into such stock.
"The Board of Directors of the Company is authorized,
subject to limitations prescribed by law, to provide for the
issuance of shares of Class A Preferred Stock in one or more
series, to establish the number of shares to be included in
each series, and to fix the designations, powers (including
voting powers), preferences and rights of the shares of each
such series and any qualifications, limitations or
restrictions thereof; provided, however, that shares of such
class may be issued only pursuant to the exercise of rights
under a stockholder rights plan duly adopted by the Board of
Directors of the Company.
"The Board of Directors of the Company is authorized,
subject to limitations prescribed by law, to provide for the
issuance of shares of Class B Preferred Stock in one or more
series, to establish the number of shares to be included in
each series and to fix the designations, powers, (including
voting powers to the extent contemplated by clause (i)
below), preferences and rights of the shares of each such
series and any qualifications, limitations or restrictions
thereof; provided, however, that shares of such class shall
not be convertible, directly or indirectly, into shares of
Common Stock or Non-Voting Common Stock and, except to the
extent of the minimum voting power required (i) as a
condition to listing such series on any national U.S.
securities exchange or quotation system or (ii) by the
General Corporation Law of the State of Delaware (the
"DGCL"), shares of such class shall in no event be entitled
to vote; provided, further, however, that the Board of
Directors is not authorized to issue any series or shares of
Class B Preferred Stock unless, in the judgment of the Board
of Directors upon advice of legal counsel, it would not be
treated as "stock" pursuant to Section 1504(a)(4) of the
United States Internal Revenue Code, as amended from time to
time (or any successor or additional section of the Internal
Revenue Code dealing with the treatment of stock for
purposes of determining whether a consolidated return may be
filed), and any regulations issued thereunder.
"The Board of Directors of the Company is authorized,
subject to limitations prescribed by law, to provide for the
issuance of shares of Non-Voting Common Stock; provided,
however, that shares of such class may be issued only to one
or more grantor trusts established by the Company for the
purpose of funding employee benefit plan obligations or
otherwise providing benefits or compensation to employees of
the Company (a "GSOP"). In the event of any sale, transfer
or other disposition (a "Transfer") of shares of Non-Voting
Common Stock by a GSOP, such shares shall immediately and
automatically be converted into an equal number of shares of
Common Stock. Notwithstanding the foregoing, if the Company
shall (i) pay a dividend or make a distribution on or in
respect of the Common Stock in shares of Common Stock, (ii)
subdivide its outstanding shares of Common Stock, (iii)
combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock or (iv) issue by
reclassification of its shares of Common Stock other
securities of the Company, then the number of shares of
Common Stock into which a share of Non-Voting Common Stock
will convert upon Transfer by a GSOP shall be adjusted so
that the transferee of such Non-Voting Common Stock shall be
entitled to receive the kind and number of shares of Common
Stock or other securities of the Company which such
transferee would have been entitled to receive after the
happening of any of the events described above, had such
Non-Voting Common Stock been converted into Common Stock
immediately prior to the happening of such event or any
record date with respect thereto. All such adjustments shall
be cumulative.
"Each holder of shares of Common Stock shall be
entitled to one vote for each share of Common Stock held of
record on the books of the Company. Except as otherwise
required by law, the Non-Voting Common Stock shall not be
entitled to vote on any matter, including the increase or
decrease of the number of authorized shares of Non-Voting
Common Stock. Except with respect to voting rights of the
Common Stock and the conversion rights of the Non-Voting
Common Stock, the rights and entitlements of Common Stock
and Non-Voting Common Stock shall be identical in all
respects.
"Upon the Transfer of shares of Non-Voting Common Stock
by a GSOP, the holder of the converted shares shall be
entitled to surrender the certificate or certificates that,
prior to such conversion, represented the Non-Voting Common
Stock and promptly after the surrender of such certificates,
the Company shall issue and deliver in accordance with the
surrendering holder's instructions (a) the certificate or
certificates representing the Common Stock into which such
shares of Non-Voting Common Stock were converted and (b) a
certificate representing any Non-Voting Common Stock which
was represented by the certificate or certificates delivered
to the Company in connection with such conversion but which
was not converted.
"The issuance of certificates for Common Stock upon
conversion of Non-Voting Common Stock will be made without
charge to the holders of such shares for any issuance tax in
respect thereof or other cost incurred by the Company in
connection with such conversion and the related issuance of
Common Stock.
"The Company shall at all times reserve and keep
available out of its authorized-but-unissued shares of
Common Stock, solely for the purpose of the conversion of
the Non-Voting Common Stock, such number of shares of Common
Stock issuable upon the conversion of all outstanding
Non-Voting Common Stock. All shares of Common Stock which
are so issuable shall, when issued, be duly and validly
issued, fully paid and nonassessable and free from all
taxes, liens and charges. The Company shall take all such
action as may be necessary to assure that all such shares of
Common Stock may be so issued without violation of any
applicable law or governmental regulation or any
requirements of any national U.S. securities exchange or
quotation system upon which shares of Common Stock may be
listed (except for official notice of issuance which will be
immediately transmitted by the Company upon issuance)."
SECOND: That, thereafter, pursuant to a resolution of the Board of
Directors of the Company, stockholders of the Company
holding the necessary number of shares as required by
statute approved the amendment pursuant to an action by
written consent in accordance with Section 228 of the DGCL.
THIRD: That the amendment was duly adopted in accordance with the
applicable provisions of Section 242 of the DGCL.
IN WITNESS WHEREOF, ARCO Chemical Company has caused this
certificate to be signed by its President and Chief Executive Officer this
day of _____________, 1998.
ARCO CHEMICAL COMPANY
By:
-------------------------
Name
Title
<PAGE>
ARCO CHEMICAL COMPANY CONSENT FORM
CONSENT SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, a stockholder of record of ARCO Chemical Company
(the "Company") as of the close of business on June 9, 1998, hereby takes
the following action, with respect to all stock of the Company held by the
undersigned, in connection with the solicitation by the Board of Directors
of the Company of written consents, pursuant to Section 228 of the Delaware
General Corporation Law, to the amendment of the Restated Certificate of
Incorporation of the Company described in the Company's Consent
Solicitation Statement, dated June __, 1998, without a meeting:
(Place an "X" in the appropriate box)
CONSENT [ ] CONSENT WITHHELD [ ] ABSTAIN [ ]
If no box is marked with respect to the action described above,
the undersigned will be deemed to have consented to the proposed amendment.
Dated: , 1998
-------------------------------
--------------------------------------------
Signature(s)
Please sign as registered and return
promptly in the enclosed envelope.
Executors, trustees and others signing in
a representative capacity should include
their names and the capacity in which they
sign.
