<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SUPPLEMENT SHALL NOT CONSTITUTE AN OFFER +
+TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF +
+THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD +
+BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS +
+OF ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JANUARY 12, 1998
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED AUGUST 1, 1997)
$250,000,000
LOGO
ARCO CHEMICAL COMPANY
% DEBENTURES DUE 2028
-----------
Interest on the % Debentures due 2028 (the "Debentures") is payable by
ARCO Chemical Company ("ARCO Chemical" or the "Company") semi-annually on each
and beginning . The Debentures will mature on
, 2028.
The Company, at its option, may at any time redeem all or any portion of the
Debentures at a redemption price equal to the greater of (i) 100% of their
principal amount and (ii) the sum of the present values of the remaining
scheduled payments of principal and interest thereon discounted to the date of
redemption on a semiannual basis (assuming a 360-day year consisting of twelve
30-day months) at the applicable Treasury Yield (as defined herein) plus
basis points, plus, in each case, accrued interest on the principal amount
being redeemed to the date of redemption.
The Debentures will be issued only in fully registered form and will be
represented by one or more Global Securities (as defined herein) registered in
the name of the nominee of The Depository Trust Company ("DTC"), as securities
depositary. Beneficial interests in the Debentures will be shown on, and
transfers thereof will be effected only through, the records maintained by
DTC's participants. Except as described in "Description of Debentures--Book
Entry System," owners of beneficial interests in the Debentures will not be
entitled to receive Debentures in definitive form and will not be treated by
the Company as the holders thereof. Settlement for the Debentures will be made
in immediately available funds. The Debentures are expected to trade in DTC's
Same-Day Funds Settlement System until maturity, and secondary market trading
activity in the Debentures will therefore settle in immediately available
funds. All payments of principal and interest will be made by the Company in
immediately available funds. See "Description of the Debentures--Same Day
Settlement and Payment."
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO
WHICH IT RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC (1) DISCOUNT (2) COMPANY (1)(3)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Debenture........................... % % %
- --------------------------------------------------------------------------------
Total................................... $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Plus accrued interest, if any, from .
(2) The Company has agreed to indemnify the several Underwriters against
certain liabilities under the Securities Act of 1933. See "Underwriting."
(3) Before deducting expenses payable by the Company estimated at $ .
The Debentures are offered subject to receipt and acceptance by the
Underwriters, to prior sale and to the Underwriters' right to reject any order
in whole or in part and to withdraw, cancel or modify the offer without notice.
It is expected that delivery of the Global Securities will be made through the
facilities of DTC on or about , 1998.
-----------
MERRILL LYNCH & CO.
SALOMON SMITH BARNEY
MORGAN STANLEY DEAN WITTER
The date of this Prospectus Supplement is , 1998
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE DEBENTURES
OFFERED HEREBY. SUCH TRANSACTIONS MAY INCLUDE STABILIZING TRANSACTIONS AND THE
PURCHASE OF DEBENTURES TO COVER SYNDICATE SHORT POSITIONS, SYNDICATE SHORT
COVERING TRANSACTIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF
THESE ACTIVITIES, SEE "UNDERWRITING."
----------------
ARCO CHEMICAL COMPANY
ARCO Chemical, a Delaware corporation, is a leading international
manufacturer and marketer of intermediate chemicals and specialty products
used in a broad range of consumer goods.
The Company is the successor to certain portions of the ARCO Chemical
Division of Atlantic Richfield Company, a Delaware corporation ("ARCO"). On
June 9, 1987, ARCO transferred substantially all of the assets and liabilities
of the oxygenates and polystyrenics business of the then ARCO Chemical
Division to the Company in exchange for 80,000,001 shares of the Company's
common stock, par value $1.00 (the "Common Stock"). On October 5, 1987, the
Company completed an initial public offering of 19,550,000 additional shares
of Common Stock. As of the date of this Prospectus Supplement, ARCO's
ownership of 80,000,001 shares represents approximately 82.3% of the
outstanding shares of Common Stock.
The Company's core product is propylene oxide ("PO"), which it produces
through two distinct processes, each of which yields a different co-product.
One process yields tertiary butyl alcohol ("TBA") as the co-product; the other
process yields styrene monomer ("SM") as the co-product. The Company
manufactures numerous derivatives of PO and TBA. Among these are polyols, a
key derivative of PO, and methyl tertiary butyl ether ("MTBE"), a principal
derivative of TBA. The Company also manufactures toluene diisocyanate ("TDI")
and aliphatic diisocyanate ("ADI").
The Company's principal executive offices are located at 3801 West Chester
Pike, Newtown Square, Pennsylvania 19073-2387 (Telephone: (610) 359-2000).
RECENT DEVELOPMENTS
During 1997, the Company initiated a restructuring program, which seeks to
simplify the Company's organization, streamline operations and reduce costs.
In the third quarter of 1997, the Company recorded a pretax charge of $175
million related to its restructuring program, which included a review of all
operations and assets. The charge included $75 million of personnel-related
costs and $23 million of exit costs. Other charges included $77 million
related to the review of assets. Implementation of the restructuring program
is expected to continue through the end of 1998, with the cost reductions
substantially in place by the end of that year. Key elements of the program
include the reduction of approximately 900 employee and contractor positions
and the closure of certain production, sales and administrative facilities. As
part of the restructuring program, the Company reviewed its existing asset
base and wrote down $52 million associated with the value of certain assets,
principally license agreements, other intangibles and site-specific production
assets, which have decreased ongoing utility in light of the restructured
operations, the Company's strategic direction, and the current competitive
environment. The Company also accrued a liability of $25 million related to
certain domestic production facilities.
S-2
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited capitalization of the Company
and its consolidated subsidiaries as of September 30, 1997, and as adjusted
for the issuance of the Debentures offered hereby. See "Use of Proceeds." This
table should be read in conjunction with the Company's Quarterly Report on
Form 10-Q for the quarterly period ended September 30, 1997.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-------------------
($ IN MILLIONS)
ACTUAL AS ADJUSTED
------ -----------
<S> <C> <C>
Notes payable(/1/)......................................... $ 156 $ 156
Long-term debt:(/2/)
9.9% debentures due 2000.................................. 200 200
9.375% debentures due 2005................................ 100 100
10.25% debentures due 2010................................ 100 100
9.8% debentures due 2020.................................. 224 224
Debentures offered hereby................................. -- 250
Other..................................................... 202 202
------ ------
Total notes payable and long-term debt................... 982 1,232
------ ------
Stockholder's equity:
Common Stock, $1 par value; authorized: 250,000,000
shares; issued: 99,550,001 shares; outstanding:
97,076,543 shares........................................ 100 100
Additional paid-in capital................................ 879 879
Retained earnings......................................... 904 904
Foreign currency translation.............................. (6) (6)
Treasury stock, at cost (2,473,458 shares)................ (78) (78)
------ ------
Total stockholders' equity................................ 1,799 1,799
------ ------
Total capitalization....................................... $2,781 $3,031
====== ======
</TABLE>
- --------
(1) At September 30, 1997, notes payable consisted principally of commercial
paper, net of unamortized discount.
(2) Includes current maturities.
The Company has a bank credit facility, totaling $500 million, which
includes a $200 million, 364-day revolving credit agreement and a $300
million, 5-year revolving credit agreement. As of January 1, 1998, there were
no borrowings under this facility. As a condition to the sale of commercial
paper, the Company agreed to maintain a back-up credit facility at least equal
to the amount of the outstanding commercial paper. The Company uses the bank
credit facility for this purpose. The Company may also draw on this facility
for general corporate purposes.
S-3
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below for the Company for the five
years ended December 31, 1996 have been derived from the audited financial
statements of the Company for such periods, and should be read in conjunction
with the Company's audited financial statements included in its Annual Report
on Form 10-K for the year ended December 31, 1996, which is incorporated
herein by reference. Information for the nine-month periods ended September
30, 1996 and September 30, 1997 is unaudited but, in the opinion of
management, reflects all adjustments (consisting only of normal recurring
accruals, except for the restructuring and other charges) necessary for a fair
presentation of the results of operations for such periods. Results of
operations for the nine months ended September 30, 1997 are not necessarily
indicative of the results to be expected for the entire fiscal year.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------- -----------------
1992 1993 1994 1995 1996 1996 1997
------ ------ ------ ------ ------ -------- --------
($ IN MILLIONS EXCEPT PER SHARE
DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Sales and other operat-
ing revenues........... $3,100 $3,192 $3,423 $4,282 $3,955 $2,976 $2,989
Gross profit............ 757 739 837 1,180 888 703 578
Selling, general and ad-
ministrative expenses.. 233 242 256 278 267 200 198
Research and develop-
ment................... 67 72 76 79 81 61 61
Restructuring and other
charges................ -- -- 30 -- -- -- 175
Operating income........ 457 425 475 823 540 442 144
Other (expense) income,
net(/1/)............... -- (9) 26 22 33 26 (14)
Net income(/2/)......... 195 214 269 508 348 284 46
Earnings per share
before changes in
accounting principles.. $ 2.05 $ 2.23 $ 2.80 $ 5.28 $ 3.60 $ 2.94 $ 0.47
Earnings per share...... 2.03 2.23 2.80 5.28 3.60 2.94 0.47
Cash dividends per
share.................. 2.50 2.50 2.50 2.65 2.80 2.10 2.10
BALANCE SHEET DATA:
Total assets............ $3,599 $3,502 $3,737 $4,135 $4,394 $4,220 $4,160
Minority interest....... 57 123 124 123 185 184 218
Notes payable........... 35 54 23 -- 150 -- 156
Long-term debt(/3/)..... 1,102 905 913 912 869 880 826
------ ------ ------ ------ ------ -------- --------
Total debt............ 1,137 959 936 912 1,019 880 982
Stockholders' equity.... 1,630 1,576 1,659 1,969 2,014 2,023 1,799
OTHER FINANCIAL DATA:
Depreciation and amorti-
zation................. $ 199 $ 223 $ 235 $ 233 $ 222 $ 165 $ 172
Interest expense........ 79 105 85 89 86 65 61
Capital expendi-
tures(/4/)............. 295 181 186 195 812 158 188
EBITDA(/5/)............. 600 639 736 1,078 795 633 302
</TABLE>
- --------
(1) Primarily interest income, earnings from investment in affiliates, and
foreign exchange gains and losses.
(2) Net income in 1992 includes a charge of $2 million, or $0.02 per share,
for the net cumulative effect of changes in accounting principles and a
$56 million charge, or $0.58 per share, related to the divestiture of a
joint venture in Korea.
(3) Includes current maturities.
(4) Capital expenditures in 1996 include the acquisition of Olin Corporation's
TDI and ADI businesses.
(5) EBITDA represents income from continuing operations before interest
expense, income taxes and depreciation, depletion and amortization. EBITDA
is not a calculation based upon generally accepted accounting principles;
however, the amounts included in the EBITDA calculation are derived from
amounts included in the Company's financial statements. In addition,
EBITDA should not be considered as an alternative to net income or
operating income as an indicator of operating performance, or as an
alternative to operating cash flows as a measure of liquidity.
S-4
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company to be received from the sale of the
Debentures offered hereby, after payment of expenses related to the offering
made hereby and underwriting discounts and commissions, are estimated to be
$ million. The Company intends to use the net proceeds for general
corporate purposes, including working capital and capital expenditures. The
precise amount and timing of the application of such net proceeds will depend
on the funding requirements and the availability of other funds to the Company
and its subsidiaries. Pending such application by the Company, such net
proceeds may be temporarily invested in marketable securities or applied to
the reduction of the Company's short-term indebtedness.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges of the
Company for the periods indicated. The ratios of earnings to fixed charges for
the years ended December 31, 1992 through December 31, 1996 have been derived
from the audited financial statements of the Company for such periods and the
ratios for the nine months ended September 30, 1996 and September 30, 1997
have been derived from the unaudited financial statements of the Company for
such periods.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------ ------------------
1992 1993 1994 1995 1996 1996 1997
---- ---- ---- ---- ---- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
RATIO OF EARNINGS TO FIXED CHARGES 2.9 3.5 4.8 7.6 5.2 5.6 1.7
</TABLE>
For purposes of these calculations, earnings consist of pretax income from
continuing operations, adjusted for interest expense and a rental expense
factor. Fixed charges consist of interest expense, capitalized interest and a
rental expense factor.
DESCRIPTION OF DEBENTURES
The Debentures are a series of Debt Securities described in the accompanying
Prospectus, dated August 1, 1997 (the "Prospectus"). Reference should be made
to the accompanying Prospectus for a detailed summary of additional provisions
of the Debentures and of the Indenture under which the Debentures are issued.
Capitalized terms not defined herein have the meaning given them in the
Indenture.
GENERAL
The Debentures are to be issued as a series of Debt Securities limited to
$250,000,000 in aggregate principal amount under the Indenture described more
fully under "Description of Debt Securities" in the accompanying Prospectus.
The Debentures will mature on , 2028. The Debentures will bear interest
from at the rate per annum referred to on the cover page of this
Prospectus Supplement, payable semi-annually on and of each year
(each an "Interest Payment Date") commencing with the Interest Payment Date
next following the Original Issue Date; provided, however, that any payment of
principal or interest to be made on an Interest Payment Date that is not a
Business Day shall be made on the next succeeding Business Day with the same
force and effect as if made on the Interest Payment Date and no additional
interest shall accrue as a result of such delayed payment. Each payment of
interest shall include interest accrued through the day before the Interest
Payment Date. Interest on the Debentures will be computed on the basis of a
360-day year of twelve 30-day months. The "Record Date" with respect to any
Interest Payment Date will be the or next preceding such Interest
Payment Date, whether or not such date shall be a Business Day.
OPTIONAL REDEMPTION
The Debentures will be redeemable, in whole or in part, at the option of the
Company at any time at a redemption price equal to the greater of (i) 100% of
the principal amount of such Debentures and (ii) the sum of the present values
of the Remaining Scheduled Payments (as defined below) of principal and
interest thereon discounted to the date of redemption on a semiannual basis
(assuming a 360-day year consisting of twelve 30-day months) at the applicable
Treasury Yield (as defined below) plus basis points, plus, in each case,
accrued interest on the principal amount being redeemed to the date of
redemption.
S-5
<PAGE>
"Treasury Yield" means, with respect to any redemption date, the rate per
annum equal to the semiannual equivalent yield to maturity of the Comparable
Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed
as a percentage of its principal amount) equal to the Comparable Treasury
Price for such redemption date.
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparable
to the remaining term of the Debentures to be redeemed that would be utilized,
at the time of selection and in accordance with customary financial practice,
in pricing new issues of corporate debt securities of comparable maturity to
the remaining term of such Debentures. "Independent Investment Banker" means
one of the Reference Treasury Dealers appointed by the Company.
"Comparable Treasury Price" means, with respect to any redemption date, (i)
the average of the Reference Treasury Dealer Quotations for such redemption
date, after excluding the highest and lowest such Reference Treasury Dealer
Quotations, or (ii) if the Trustee obtains fewer than three such Reference
Treasury Dealer Quotations, the average of all such quotations.
"Reference Treasury Dealer" means (i) each of Merrill Lynch & Co., Salomon
Brothers Inc and Morgan Stanley & Co. Incorporated and their successors;
provided, however, that if the foregoing shall cease to be a primary U.S.
Government securities dealer in New York City (a "Primary Treasury Dealer"),
the Company shall substitute therefor another Primary Treasury Dealer and (ii)
any other Primary Treasury Dealer selected by the Company.
"Reference Treasury Dealer Quotations" means, with respect to each Reference
Treasury Dealer and any redemption date, the average, as determined by the
Trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. on the
third Business Day preceding such redemption date.
"Remaining Scheduled Payments" means, with respect to any Debenture, the
remaining scheduled payments of the principal thereof to be redeemed and
interest thereon that would be due after the related redemption date but for
such redemption; provided, however, that, if such redemption date is not an
Interest Payment Date with respect to such Debenture, the amount of the next
succeeding scheduled interest payment thereon will be reduced by the amount of
interest accrued thereon to such redemption date.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of the Debentures to be
redeemed.
Unless the Company defaults in payment of the redemption price, on and after
the redemption date, interest will cease to accrue on the Debentures or
portions thereof called for redemption.
BOOK-ENTRY SYSTEM
The Debentures will initially be represented by one or more global
securities (each a "Global Security") deposited with DTC and registered in the
name of a nominee of DTC, except as set forth below. The settlement of
transactions with respect to each Global Security will be facilitated through
electronic computerized book-entry changes in participants' accounts, thereby
eliminating the physical movement of Debenture certificates. The Debentures
will be available for purchase in denominations of $1,000 and integral
multiples thereof in book-entry form only. Unless and until certified
Debentures are issued under the limited circumstances described herein, no
beneficial owner of a Debenture shall be entitled to receive a definitive
certificate representing a Debenture. So long as DTC or any successor
depositary (the "Depositary") or its nominee is the registered owner of a
Global Security, such Depositary or such nominee, as the case may be, will be
considered to be the sole owner or holder of the Debentures represented
thereby for all purposes of the Indenture. Unless and until it is exchanged in
whole or in part for the Debentures represented thereby, a Global Security may
not be transferred except as a whole by the Depositary to a nominee of the
Depositary or by a nominee of such Depositary to such Depositary or another
nominee of such Depositary or by the Depositary or any nominee to a successor
Depositary or any nominee of such successor.
So long as Debentures are represented by a Global Security, all payments of
principal and interest with respect thereto will be made to the Depositary or
its nominee (or a successor), as the case may be, as the sole registered owner
of the Global Security representing such Debentures.
S-6
<PAGE>
The Company expects that the Depositary or its nominee, upon receipt of any
payment of principal or interest in respect of a Global Security representing
Debentures, will credit participants' accounts with payments in amounts
proportionate to their respective beneficial interests in the principal amount
of such Global Security as shown on the records of the Depositary or such
nominee.
If the Depositary is at any time unwilling, unable or ineligible to continue
as Depositary for a Global Security and a successor is not appointed by the
Company within 90 days, the Company will issue certificated Debentures in
definitive form in exchange for such Global Security. In addition, the Company
may at any time determine not to have the Debentures represented by a Global
Security, and, in such event, will issue certificated Debentures in definitive
form in exchange for such Global Security. In either instance, an owner of a
beneficial interest in a Global Security will be entitled to physical delivery
of certificated Debentures in definitive form equal in principal amount to
such beneficial interest in such Global Security and to have such certificated
Debentures registered in its name. Certificated Debentures so issued in
definitive form will be issued in denominations of $1,000 and integral
multiples thereof and will be issued in registered form only, without coupons.
See "Description of Debt Securities" in the accompanying Prospectus for
additional information concerning the Debentures, the Indenture and the book-
entry system.
SAME DAY SETTLEMENT AND PAYMENT
Settlement for the Debentures will be made by the Underwriters (as
hereinafter defined) in immediately available funds. All payments of principal
and interest to the Depositary will be made by the Company in immediately
available funds.
Secondary trading in notes and debentures of corporate issuers is generally
settled in clearinghouse or next-day funds. In contrast, the Debentures are
expected to trade in the DTC's Same-Day Funds Settlement System until
maturity, and, to the extent that secondary market trading activity in the
Debentures is effected through the facilities of DTC, such secondary market
trading activity in the Debentures will settle in immediately available funds.
No assurance can be given as to the effect, if any, of settlements in
immediately available funds on trading activity in the Debentures.
----------------
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement,
the Company has agreed to sell to each of the Underwriters named below, and
each of the Underwriters has severally agreed to purchase, the amount of
Debentures set forth opposite its name below:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF
UNDERWRITERS DEBENTURES
------------ ----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................................ $
Salomon Brothers Inc.................................................
Morgan Stanley & Co. Incorporated.................................... $
----
Total....................................................... $
====
</TABLE>
In the Underwriting Agreement, the several Underwriters have agreed, subject
to the terms and conditions set forth therein, to purchase all the Debentures
offered hereby if any Debentures are purchased. In the event of default by any
Underwriter, the Underwriting Agreement provides that, in certain
circumstances, purchase commitments of the nondefaulting Underwriters may be
increased or the Underwriting Agreement may be terminated.
The Company has been advised by the Underwriters that they propose initially
to offer the Debentures to the public at the public offering price set forth
on the cover page of this Prospectus Supplement, and to certain dealers at
such price less a concession not in excess of . % of the principal amount.
The Underwriters may
S-7
<PAGE>
allow and such dealers may reallow a discount not in excess of . % of the
principal amount of the Debentures to certain other dealers. After the initial
public offering, the public offering price and such concessions and discount
may be changed.
The Company does not presently intend to list the Debentures on an exchange.
The Company has been advised by Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Salomon Brothers Inc and Morgan Stanley & Co. Incorporated that
each intends to make a market in the Debentures; however, the Underwriters are
not obligated to do so and may discontinue making a market at any time without
notice. No assurance can be given as to the liquidity of the trading market
for the Debentures.
The Underwriters are permitted to engage in certain transactions that
stabilize the price of the Debentures. Such transactions consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of the
Debentures. If the Underwriters create a short position in the Debentures in
connection with the offering, i.e., if they sell Debentures in an aggregate
principal amount exceeding that set forth on the cover page of this Prospectus
Supplement, the Underwriters may reduce that short position by purchasing
Debentures in the open market.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases.
Neither the Company nor the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the Debentures. In
addition, neither the Company nor any of the Underwriters makes any
representation that the Underwriters will engage in such transactions or that
such transactions, once commenced, will not be discontinued without notice.
The Underwriting Agreement provides that the Company will indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933, as amended, or contribute to payments which the
Underwriters may be required to make in respect thereof.
S-8
<PAGE>
PROSPECTUS
LOGO
ARCO CHEMICAL COMPANY
DEBT SECURITIES
----------------
ARCO Chemical Company, a Delaware corporation (the "Company"), intends to
issue from time to time debt securities (the "Debt Securities") from which the
Company will receive up to an aggregate principal amount of $350,000,000, or
the equivalent thereof in one or more foreign currencies or composite
currencies, including European Currency Units ("ECU"). The Debt Securities may
be sold for U.S. dollars or one or more foreign or composite currencies, and
the principal of and any interest on the Debt Securities may likewise be
payable in U.S. dollars or one or more foreign or composite currencies.
The Debt Securities will be offered to the public on terms determined by
market conditions at the time of sale. The Debt Securities may be issued in
one or more series with the same or various maturities at par or a premium or
with an original issue discount. The specific designation, aggregate principal
amount, currency, purchase price, maturity, rate and time of payment of
interest, whether such Debt Securities are to be issued in book-entry form,
any other specific terms and any listing on a securities exchange of the Debt
Securities in respect of which this Prospectus is being delivered (the
"Offered Debt Securities") are set forth in the accompanying prospectus
supplement (the "Prospectus Supplement") together with the terms of offering
of the Offered Debt Securities.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------
The Debt Securities will be sold directly, through agents designated from
time to time, through underwriting syndicates represented by managing
underwriters, by underwriters without a syndicate, or by dealers. If any
agents of the Company or any underwriters are involved in the sale of the
Offered Debt Securities, the names of such agents or underwriters and any
applicable commissions or discounts are set forth in the Prospectus
Supplement. The net proceeds to the Company from such sale are also set forth
in the Prospectus Supplement. This Prospectus may not be used to consummate
sales of Debt Securities unless accompanied by a Prospectus Supplement.
----------------
The date of this Prospectus is August 1, 1997
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT
IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS OR ANY PROSPECTUS
SUPPLEMENT AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY UNDERWRITER,
DEALER OR AGENT. THIS PROSPECTUS AND ANY PROSPECTUS SUPPLEMENT DO NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. THIS
PROSPECTUS AND ANY PROSPECTUS SUPPLEMENT DO NOT CONSTITUTE AN OFFER TO SELL OR
A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THOSE TO WHICH
THEY RELATE.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission") relating to its
business, financial position, results of operations and other matters. Such
reports, proxy statements and other information filed by the Company with the
Commission pursuant to the informational requirements of the Exchange Act can
be inspected and copied at the Public Reference Section maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549
as well as the Commission's regional offices located at 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511 and 7 World Trade Center,
13th Floor, New York, New York 10048. Copies of such material can be obtained
from the Commission by mail at prescribed rates. Requests should be directed
to the Commission's Public Reference Section located at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549. Such material may also be accessed
electronically by means of the Commission's web site on the Internet
(http://www.sec.gov). Such reports, proxy statements and other information can
also be inspected at the offices of the New York Stock Exchange, 20 Broad
Street, New York, New York 10005, on which one or more of the Company's
securities are listed.
The Company has filed with the Commission a registration statement on Form
S-3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"). This Prospectus does not contain all of the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. Reference is made
to the Registration Statement and to the exhibits relating thereto for further
information with respect to the Company and the securities offered thereby.
Statements contained herein concerning any document filed as an exhibit are
not necessarily complete and, in each instance, reference is made to the copy
of such document filed as an exhibit to the Registration Statement. Each such
statement is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company hereby incorporates by reference herein the following documents:
(i) the Company's Quarterly Report on Form 10-Q for the period ended June 30,
1997, (ii) the Company's Current Report on Form 8-K, dated July 21, 1997,
(iii) the Company's Current Report on Form 8-K, dated June 27, 1997, (iv) the
Company's Quarterly Report on Form 10-Q for the period ended March 31, 1997
and (v) the Company's Annual Report on Form 10-K for the year ended December
31, 1996, all of which have been filed with the Commission under File No. 1-
9678.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date hereof and prior to the termination
of the offering of the Debt Securities offered hereby shall be deemed to be
incorporated by reference herein and to be a part hereof from the date of
filing of such documents. Any statement contained in a document incorporated
or deemed to be incorporated by reference herein shall be deemed to be
modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein or in the
accompanying Prospectus Supplement modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
2
<PAGE>
The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, upon written or oral
request of such person, a copy of any and all of the information incorporated
herein by reference (not including exhibits to such information, unless such
exhibits are specifically incorporated by reference into such information).
Requests should be directed to: Manager, Investor Relations, ARCO Chemical
Company, 3801 West Chester Pike, Newtown Square, Pennsylvania 19073-2387
(Telephone: (610) 359-3171 or (610) 359-2000).
ARCO CHEMICAL COMPANY
ARCO Chemical Company, a Delaware corporation ("ARCO Chemical" or the
"Company"), is a leading international manufacturer and marketer of
intermediate chemicals and specialty products used in a broad range of
consumer goods.
The Company's principal executive offices are located at 3801 West Chester
Pike, Newtown Square, Pennsylvania 19073-2387 (Telephone: (610) 359-2000).
The Company is the successor to certain portions of the ARCO Chemical
Division of Atlantic Richfield Company, a Delaware corporation ("ARCO"). On
June 9, 1987, ARCO transferred substantially all the assets and liabilities of
the oxygenates and polystyrenics business of the then ARCO Chemical Division
to the Company in exchange for 80,000,001 shares of the Company's common
stock, par value $1.00 (the "Common Stock"). On October 5, 1987, the Company
completed an initial public offering of 19,550,000 additional shares of Common
Stock. As of the date of this Prospectus, ARCO's 80,000,001 shares represent
approximately 82.5 percent of the outstanding shares of Common Stock.
USE OF PROCEEDS
Unless otherwise indicated in the accompanying Prospectus Supplement, the
net proceeds to be received from the sale of the Offered Debt Securities will
be used for general corporate purposes, including capital expenditures.
Additional information on the use of net proceeds from the sale of Offered
Debt Securities may be set forth in the Prospectus Supplement relating to such
Offered Debt Securities.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges of the
Company for the periods indicated. The ratios of earnings to fixed charges for
the years ended December 31, 1992 through December 31, 1996 have been derived
from the audited financial statements of the Company for such periods and the
ratio for the six months ended June 30, 1997 has been derived from the
unaudited financial statements of the Company for such period.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------ JUNE 30,
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
RATIO OF EARNINGS TO FIXED CHARGES.......... 2.9 3.5 4.8 7.6 5.2 3.0
</TABLE>
For purposes of these calculations, earnings consist of pretax income from
continuing operations, adjusted for interest expense and a rental expense
factor. Fixed charges consist of interest expense, capitalized interest and a
rental expense factor.
3
<PAGE>
DESCRIPTION OF DEBT SECURITIES
The following description sets forth certain general terms and provisions of
the Debt Securities to which any Prospectus Supplement may relate. The
particular terms of the Offered Debt Securities offered by any Prospectus
Supplement and the extent, if any, to which such general provisions may apply
to the Offered Debt Securities will be described in the Prospectus Supplement
relating to such Offered Debt Securities.
The Debt Securities will be unsecured obligations issued under the
Indenture, dated as of June 15, 1988 (the "Indenture"), between the Company
and The Bank of New York, as trustee (the "Trustee"). The following statements
are subject to the detailed provisions of the Indenture, a copy of which is
incorporated by reference into the Registration Statement. Wherever particular
provisions of the Indenture or terms defined therein are referred to herein or
in the Prospectus Supplement, such provisions or terms are incorporated by
reference as a part of the statements made, and the statements are qualified
in their entirety by such reference. References in italics are to the
Indenture. Capitalized terms used but not otherwise defined herein have the
meaning given to them in the Indenture.
GENERAL
The Debt Securities will rank equally with all other unsecured and
unsubordinated debt of the Company. The Indenture does not limit the amount of
debt, either secured or unsecured, that may be issued by the Company under the
Indenture or otherwise.
Debt Securities may be issued from time to time up to an aggregate principal
amount of $350,000,000 and will be offered to the public on terms determined
by market conditions at the time of sale. The Debt Securities may be issued in
one or more series with the same or various maturities, at par or a premium or
with an original issue discount.
Reference is made to the Prospectus Supplement for the following terms of
the Debt Securities offered thereby: (i) the designation of and any limit upon
the aggregate principal amount of such Debt Securities; (ii) the percentage of
principal amount at which such Debt Securities will be issued; (iii) the date
or dates on which such Debt Securities will mature; (iv) the currency of
denomination of such Debt Securities, which may be in Dollars or in any
Foreign Currency or composite currency, including ECUs; (v) the designation of
the currency or currencies in which payment of the principal of, and premium,
if any, and the interest on such Debt Securities will be made, and whether, in
the event the currency of denomination is other than Dollars but the payment
of principal thereof, and premium, if any, and interest thereon is payable in
Dollars, payment of the principal of, and premium, if any, or the interest on
such Debt Securities, at the election of a Holder thereof, may instead be
payable in the currency of denomination; (vi) the rate or rates (which may be
fixed or floating) per annum, if any, at which such Debt Securities will bear
interest; (vii) the times at which any such interest will be payable; (viii)
any index used to determine the amounts of payments of principal of, and
premium, if any, and interest on such Debt Securities; and (ix) any redemption
terms or other specific terms associated with such Debt Securities.
One or more series of Debt Securities may be sold at a substantial discount
from their stated principal amount, bearing no interest or interest at a rate
which at the time of issuance is below market rates. One or more series of
Debt Securities may be floating rate debt securities or floating rate debt
securities which are exchangeable for fixed rate debt securities. Federal
income tax consequences and special considerations applicable to any such
series will be described in the Prospectus Supplement relating thereto.
Any series of Debt Securities may be issued in whole or in part in book-
entry form. The Prospectus Supplement relating to a series of Debt Securities
which may be issued in book-entry form will specify the terms and procedures
relating thereto. Debt Securities, to the extent evidenced in registered form,
will be issued in denominations of $1,000 and integral multiples thereof. The
Prospectus Supplement relating to a series of Debt Securities denominated in a
composite currency or any Foreign Currency or Currencies will specify the
4
<PAGE>
denominations thereof. Unless otherwise indicated in the Prospectus Supplement
relating thereto, principal, and premium, if any, and interest are to be
payable at the principal corporate trust office of the Trustee in New York,
New York, or at any paying agency maintained at the time by the Company for
such purpose. At the option of the Company, payment of interest may be made by
check mailed to the address of the person entitled thereto as it appears on
the register for Debt Securities. Debt Securities may be presented for
registration of transfer or exchange at such office of the Trustee or at such
other location or locations as may be established pursuant to the Indenture
without any service charge but subject to the limitations provided in the
Indenture.
GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more Global Securities that will be deposited with, or on
behalf of, a depositary (the "Depositary") identified in the Prospectus
Supplement relating to such series. Global Securities may be issued only in
fully registered form and in either temporary or permanent form. Unless and
until it is exchanged in whole or in part for the individual Debt Securities
represented thereby, a Global Security may not be transferred except as a
whole by the Depositary for such Global Security to a nominee of such
Depositary or by a nominee of such Depositary to a successor Depositary or any
nominee of such successor.
The specific terms of the depositary arrangement with respect to a series of
Debt Securities will be described in the Prospectus Supplement relating to
such series. The Company anticipates that the following provisions will
generally apply to depositary arrangements.
Upon the issuance of a Global Security, the Depositary for such Global
Security or its nominee will credit, on its book entry registration and
transfer system, the respective principal amounts of the individual Debt
Securities represented by such Global Security to the accounts of persons that
have accounts with such Depositary. Such accounts shall be designated by the
dealers, underwriters or agents with respect to such Debt Securities or by the
Company if such Debt Securities are offered and sold directly by the Company.
Ownership of beneficial interests in a Global Security will be limited to
persons that have accounts with the applicable Depositary ("participants") or
persons that may hold interests through participants. Ownership of beneficial
interests in such Global Security will be shown on, and the transfer of that
ownership will be effected only through, records maintained by the applicable
Depositary or its nominee (with respect to interests of participants) and the
records of participants (with respect to interests of persons other than
participants). The laws of some states require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
limits and such laws may impair the ability to transfer beneficial interests
in a Global Security.
So long as the Depositary for a Global Security, or its nominee, is the
registered owner of such Global Security, such Depositary or such nominee, as
the case may be, will be considered the sole owner or holder of the Debt
Securities represented by such Global Security for all purposes under the
Indenture. Except as provided herein, owners of beneficial interests in a
Global Security will not be entitled to have any of the individual Debt
Securities of the series represented by such Global Security registered in
their names, will not receive or be entitled to receive physical delivery of
any such Debt Securities of such series in definitive form and will not be
considered the owners or holders thereof under the Indenture governing such
Debt Securities.
Payments of principal, any premium on, and any interest on, individual Debt
Securities represented by a Global Security registered in the name of a
Depositary or its nominee will be made to the Depositary or its nominee, as
the case may be, as the registered owner of the Global Security representing
such Debt Securities. Neither the Company, the Trustee for such Debt
Securities, any paying agent, nor the security registrar for such Debt
Securities will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests of the Global Security for such Debt Securities or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
The Company expects that the Depositary for a series of Debt Securities or
its nominee, upon receipt of any payment of principal, premium or interest in
respect of a permanent Global Security representing any of such
5
<PAGE>
Debt Securities, immediately will credit participants' accounts with payments
in amounts proportionate to their respective beneficial interests in the
principal amount of such Global Security for such Debt Securities as shown on
the records of such Depositary or its nominee. The Company also expects that
payments by participants to owners of beneficial interests in such Global
Security held through such participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers in bearer form or registered in "street name."
Such payments will be the responsibility of such participants.
If the Depositary for a series of Debt Securities is at any time unwilling,
unable or ineligible to continue as depositary and a successor depositary is
not appointed by the Company within 90 days, the Company will issue individual
Debt Securities of such series in exchange for the Global Security
representing such series of Debt Securities. In addition, the Company may at
any time and in its sole discretion, subject to any limitations described in
the Prospectus Supplement relating to such Debt Securities, determine not to
have any Debt Securities of a series represented by one or more Global
Securities and, in such event, will issue individual Debt Securities of such
series in exchange for the Global Security or Securities representing such
series of Debt Securities. Further, if the Company so specifies with respect
to the Debt Securities of a series, an owner of a beneficial interest in a
Global Security representing Debt Securities of such series may, on terms
acceptable to the Company, the Trustee and the Depositary for such Global
Security, receive individual Debt Securities of such series in exchange for
such beneficial interests, subject to any limitations described in the
Prospectus Supplement relating to such Debt Securities. In any such instance,
an owner of a beneficial interest in a Global Security will be entitled to
physical delivery of individual Debt Securities of the series represented by
such Global Security equal in principal amount to such beneficial interest and
to have such Debt Securities registered in its name. Individual Debt
Securities of such series so issued will be issued in denominations, unless
otherwise specified by the Company, of $1,000 and integral multiples thereof.
LIMITATION ON LIENS
The Company agrees that neither it nor any Restricted Subsidiary will issue,
assume or guarantee any notes, bonds, debentures or other similar evidences of
indebtedness for money borrowed ("Debt") secured by a mortgage, lien, pledge
or other encumbrance ("Mortgages") upon any Restricted Property without
effectively providing that the Debt Securities (together with, if the Company
so determines, any other indebtedness or obligation then existing or
thereafter created ranking equally with the Debt Securities) shall be secured
equally and ratably with (or prior to) such Debt so long as such Debt shall be
so secured, except that this restriction will not apply to: (a) Mortgages
affecting property of a corporation existing at the time it becomes a
Subsidiary or at the time it is merged into or consolidated with the Company
or a Subsidiary; (b) Mortgages on property existing at the time of acquisition
thereof or incurred to secure payment of the purchase price thereof or to
secure Debt incurred prior to, at the time of, or within 24 months after the
acquisition for the purpose of financing all or part of the purchase price;
(c) Mortgages on any property to secure all or part of the cost of improvement
or construction thereon or Debt incurred to provide funds for such purpose in
a principal amount not exceeding the cost of such improvements or
construction; (d) Mortgages which secure only indebtedness owing by a
Subsidiary to the Company or a Subsidiary; (e) certain Mortgages to government
entities, including pollution control or industrial revenue bond financing;
(f) Mortgages required by any contract or statute in order to permit the
Company or a Subsidiary to perform any contract or subcontract made by it with
or at the request of the United States of America, any state or any
department, agency or instrumentality or political subdivision of either; and
(g) subject to certain conditions, any extension, renewal or replacement of
any Mortgage referred to in the foregoing clauses (a) through (f).
Notwithstanding the foregoing, the Company and any one or more Restricted
Subsidiaries may, without securing the Debt Securities, issue, assume or
guarantee Debt which would otherwise be subject to the foregoing restrictions
in an aggregate principal amount which, together with all other such Debt of
the Company and its Restricted Subsidiaries which would otherwise be subject
to the foregoing restrictions (not including Debt permitted to be secured
under clauses (a) to (g) inclusive above) and the aggregate Value of Sale and
Lease-Back Transactions (other than those in connection with which the Company
has voluntarily retired Funded Debt) does not at any one time exceed 10% of
the Consolidated Net Tangible Assets of the Company and its consolidated
Subsidiaries. (Sections 5.03 and 5.04)
6
<PAGE>
The term Restricted Property means any of the Company's or a Subsidiary's
manufacturing plants for the production of oxygenated chemicals or styrene-
based polymers (other than such determined by the Board of Directors not to be
a principal plant) located in the continental United States, and any shares of
capital stock or indebtedness of a Restricted Subsidiary. The term Restricted
Subsidiary means any Subsidiary which owns Restricted Property unless
substantially all such Subsidiary's physical properties are located outside
the continental United States. The term Subsidiary means any corporation at
least a majority of the outstanding securities of which having ordinary voting
power to elect a majority of the board of directors of such corporation is at
the time owned or controlled directly or indirectly by the Company or one or
more Subsidiaries or by the Company and one or more Subsidiaries. The term
Consolidated Net Tangible Assets means the total amount of assets (less
applicable reserves and other properly deductible items) after deducting
therefrom (i) all current liabilities (excluding any thereof which are by
their terms extendible or renewable at the option of the obligor thereon to a
time more than 12 months after the time as of which the amount thereof is
being computed), and (ii) all goodwill, trade names, trademarks, patents,
purchased technology, unamortized debt discount and other like intangible
assets, all as set forth on the most recent quarterly balance sheet of the
Company and its consolidated Subsidiaries and computed in accordance with
generally accepted accounting principles. (Article One)
The Company agrees that, if, upon any consolidation or merger of the Company
with or into any other corporation, or upon any sale or conveyance of all or
substantially all of its property to any other corporation, any of the
property of the Company or of any Restricted Subsidiary would thereupon become
subject to any mortgage, lien or pledge, the Company will first secure the
Debt Securities equally and ratably with any other obligations of the Company
or any Restricted Subsidiary then entitled thereto, by a direct lien on all
such property prior to all liens other than any theretofore existing thereon.
(Section 12.02)
LIMITATION ON DEBT
The Indenture does not contain any limitation on the aggregate amount of
Debt that may be assumed by the Company and does not offer any credit or event
risk protection to holders of Debt Securities in the event that the Company
engages in or is the subject of a highly leveraged transaction. The Indenture
provisions described under "Limitation on Liens," however, may have the effect
of inhibiting the Company from engaging in, or preventing the Company from
being the subject of, some types of highly leveraged transactions.
LIMITATION ON SALE AND LEASE-BACK
The Company agrees that neither it nor any Restricted Subsidiary will enter
into any Sale and Lease-Back Transaction with respect to any Restricted
Property with any person (other than the Company or a Subsidiary) unless
either (a) the Company or such Restricted Subsidiary would be entitled,
pursuant to the above provisions, to incur Debt in a principal amount equal to
or exceeding the Value of such Sale and Lease-Back Transaction secured by a
Mortgage on the property to be leased without equally and ratably securing the
Debt Securities, or (b) the Company during or immediately after the expiration
of four months after the effective date of such transaction applies to the
voluntary retirement of its Funded Debt an amount equal to the greater of: (1)
the net proceeds of the sale of the property leased in such transaction or (2)
the fair value in the opinion of the Board of Directors of the leased property
at the time such transaction was entered into (subject to credits for certain
voluntary retirements of Funded Debt, including the Debt Securities).
(Sections 5.04 and 5.05)
MODIFICATION OF THE INDENTURE
The Indenture contains provisions permitting the Company and the Trustee,
with the consent of the Holders of not less than 50% in principal amount of
the Debt Securities of each series affected by the modification or amendment
at the time outstanding, to modify the Indenture or any supplemental indenture
or the rights of the Holders of the Debt Securities; provided that no such
modification may without the consent of the Holder of each outstanding Debt
Security thereby affected (a) extend the fixed maturity of any Debt Security,
or reduce the rate of interest, or extend the time of payment of interest
thereon, or reduce the principal amount thereof or the time during which a
premium is payable thereon, or change the currency in which the Debt Security
is payable, or reduce the amount of the principal of an original
issue discount security that would be due and payable upon acceleration or
provable upon bankruptcy without the consent of the Holder of each Debt
7
<PAGE>
Security so affected, (b) reduce the aforesaid percentage of Debt Securities,
the consent of the Holders of which is required for any such modification, or
the consent of the Holders of which is required for any waiver of certain
provisions of or defaults under the Indenture or (c) modify the provisions
heretofore described in this paragraph, except to increase any percentage
described above or to provide that certain other provisions of the Indenture
cannot be modified or waived without the consent of the Holders of all
outstanding Debt Securities of such series so affected. (Section 11.02)
EVENTS OF DEFAULT
The Indenture defines an Event of Default with respect to a particular
series of Debt Securities as being any one of the following events and such
other event as may be established for the Debt Securities of such series: (a)
default for 30 days in any payment of interest on such series; (b) default in
any payment of principal, and premium, if any, on such series when due; (c)
default for 30 days in the payment of any sinking fund installment when due;
(d) default for 90 days after appropriate notice in performance of any other
covenant in the Indenture applicable to that series; or (e) certain events of
bankruptcy, insolvency or reorganization. No Event of Default with respect to
a particular series of Debt Securities issued under the Indenture necessarily
constitutes an Event of Default with respect to any other series of Debt
Securities issued thereunder. In case an Event of Default shall occur and be
continuing with respect to a particular series of Debt Securities, the Trustee
or the Holders of not less than 25% in aggregate principal amount of the Debt
Securities then outstanding of the series (or, in the case of defaults under
(d) or (e), of the Debt Securities of all series) may declare the principal
or, in the case of Debt Securities issued with original issue discount, the
amount specified in the terms thereof, of such series (or of all outstanding
Debt Securities, as the case may be) to be due and payable. Any Event of
Default with respect to a particular series of Debt Securities may be waived
by the Holders of a majority in aggregate principal amount of the outstanding
Debt Securities of such series (or of the outstanding Debt Securities of all
series, in the case of defaults under (d) or (e)), except in each case a
failure to pay principal, or premium, if any, or interest on such Debt
Securities. (Section 7.01)
The Indenture requires the Company to file annually with the Trustee an
Officers' Certificate as to the absence of certain defaults under the terms of
the Indenture. (Section 5.08) The Indenture provides that the Trustee may
withhold notice to the Holders of the Debt Securities of any default (except
in payment of principal, or premium, if any, or interest) if it considers it
in the interest of the Holders of the Debt Securities to do so. (Section 7.08)
Subject to the provisions of the Indenture relating to the duties of the
Trustee in case an Event of Default shall occur and be continuing, the
Indenture provides that the Trustee shall be under no obligation to exercise
any of its rights or powers under the Indenture at the request, order or
direction of the Holders of the Debt Securities unless such Holders shall have
offered to the Trustee reasonable indemnity. (Section 7.04, 8.01 and 8.02)
Subject to such provisions for indemnification and certain other rights of the
Trustee, the Indenture provides that the Holders of a majority in principal
amount of the outstanding Debt Securities of the particular series affected
shall have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee. (Sections 7.07 and 8.02)
CONSOLIDATION, MERGER AND TRANSFER OF ASSETS
The Company may not consolidate with or merge into any corporation, or
transfer its assets substantially as an entirety to any person, unless the
successor corporation or transferee assumes the Company's obligations on the
Debt Securities and under the Indenture, and certain other conditions are met,
except that no such assumption will be required in any case where the Company
transfers all or substantially all its assets located in the United States to
one or more wholly owned Subsidiaries organized under the laws of the United
States or any political subdivision thereof. (Article Twelve) To the extent
any such assets constitute Restricted Property, the Subsidiary to which they
were transferred would be a Restricted Subsidiary. See "Limitation on Liens."
DEFEASANCE
If so specified in the Prospectus Supplement with respect to Debt Securities
of any series, the Company, at its option, (i) will be discharged from any and
all obligations in respect of the Debt Securities of such series
8
<PAGE>
(except for certain obligations to register the transfer or exchange of Debt
Securities of such series, replace stolen, lost or mutilated Debt Securities
of such series, maintain paying agencies, and hold moneys for payment in
trust) or (ii) will not be subject to provisions of the Indenture described
above under "Limitation on Liens," "Limitation on Sale and Lease-Back" and
"Consolidation, Merger and Transfer of Assets" with respect to the Debt
Securities of such series, in each case if the Company deposits with the
Trustee, in trust, money or U.S. Government Obligations which through the
payment of interest thereon and principal thereof in accordance with their
terms will provide money in an amount sufficient to pay all the principal
(including any mandatory sinking fund payments) of, premium, if any, and
interest on, the Debt Securities of such series on the dates such payments are
due in accordance with the terms of such Debt Securities. In case any Debt
Securities of a series are to be redeemed prior to their Stated Maturity, the
Company must have given the Trustee such irrevocable notices and instructions
as are required for redemption pursuant to the terms of the Debt Securities of
such series. To exercise any such defeasance option, the Company is required
to deliver to the Trustee an Opinion of Counsel to the effect that, if the
Debt Securities of such series are then listed on the New York Stock Exchange,
such Debt Securities would not be delisted as a result of the exercise of such
option. (Sections 14.01, 14.02 and 14.03)
Under Federal income tax laws as of the date of this Prospectus, such
deposit and discharge may be treated as an exchange of the related Debt
Securities. Each holder of such Debt Securities might be required to recognize
gain or loss equal to the difference between the holder's cost or other tax
basis for the Debt Securities and the value of the holder's interest in the
trust. Such holders might be required to include in income a different amount
than would be includable without the discharge. Prospective investors are
urged to consult their own tax advisers as to the consequences of such a
deposit and discharge, including the applicability and effect of tax laws
other than the Federal income tax law.
CONCERNING THE TRUSTEE
The Bank of New York is the Trustee under the Indenture. The Bank of New
York also acts as Trustee under the Indenture for the Company's 9.9%
Debentures due 2000, 9.375% Debentures due 2005, 10.25% Debentures due 2010
and 9.8% Debentures due 2020. The Bank of New York also acts as trustee for
ARCO with respect to three public debt issues and extends credit to ARCO in
the ordinary course of business. The Trustee may extend credit to the Company
and its Subsidiaries in the future.
PLAN OF DISTRIBUTION
The Company may sell the Debt Securities (i) through underwriters or
dealers; (ii) directly to a limited number of institutional purchasers or to a
single purchaser; (iii) through agents; or (iv) through a combination of any
such methods of sale. The Prospectus Supplement with respect to the Offered
Debt Securities sets forth the terms of the offering of the Offered Debt
Securities, including the name or names of any underwriters, the purchase
price of the Offered Debt Securities and the proceeds to the Company from such
sale, any underwriting discounts and other items constituting underwriters'
compensation, any initial public offering price and any discounts or
concessions allowed or reallowed or paid to dealers and any securities
exchanges on which the Offered Debt Securities may be listed.
If underwriters are used in the sale, the Debt Securities will be acquired
by the underwriters for their own account and may be resold from time to time
in one or more transactions, including negotiated transactions, at a fixed
public offering price or at varying prices determined at the time of sale. The
Debt Securities may be offered to the public through underwriting syndicates
represented by managing underwriters. Unless otherwise set forth in the
Prospectus Supplement, the obligations of the underwriters to purchase the
Offered Debt Securities will be subject to certain conditions precedent and
the underwriters will be obligated to purchase all the Offered Debt Securities
if any are purchased. Any initial public offering price and any discounts or
concessions allowed or reallowed or paid to dealers may be changed from time
to time.
Offered Debt Securities may be sold directly by the Company or through
agents designated by the Company from time to time. Any agent involved in the
offer or sale of the Offered Debt Securities in respect of which this
9
<PAGE>
Prospectus is delivered will be named, and any commissions payable by the
Company to such agent will be set forth, in the Prospectus Supplement. Unless
otherwise indicated in the Prospectus Supplement, any such agent will be
acting on a best efforts basis for the period of its appointment.
If so indicated in the Prospectus Supplement, the Company will authorize
agents, underwriters or dealers to solicit offers by certain specified
institutions to purchase Offered Debt Securities from the Company at the
public offering price set forth in the Prospectus Supplement pursuant to
delayed delivery contracts providing for payment and delivery on a specified
date in the future. Such contracts will be subject only to those conditions
set forth in the Prospectus Supplement and the Prospectus Supplement will set
forth the commission payable for solicitation of such contracts.
Agents and underwriters may be entitled under agreements entered into with
the Company to indemnification by the Company against certain civil
liabilities, including liabilities under the Securities Act, or to
contribution with respect to payments which the agents or underwriters may be
required to make in respect thereof. Agents and underwriters may be customers
of, engage in transactions with, or perform services for the Company in the
ordinary course of business.
Each series of Offered Debt Securities will be a new issue of securities
with no established trading market. Any underwriters to whom Offered Debt
Securities are sold by the Company for public offering and sale may make a
market in such Offered Debt Securities, but such underwriters will not be
obligated to do so and may discontinue any market making at any time without
notice. No assurance can be given as to the liquidity of the trading market
for any Offered Debt Securities.
PRINCIPAL STOCKHOLDER; CONTROL OF THE COMPANY
As of the date of this Prospectus, ARCO owns 80,000,001 shares of Common
Stock, representing approximately 82.5% of the outstanding shares of Common
Stock.
Under applicable provisions of the General Corporation Law of Delaware, 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 percentage
ownership of the outstanding voting stock will preclude any acquisition of
control of the Company not favored by ARCO.
ARCO, including its subsidiaries, is one of the largest integrated
enterprises in the petroleum industry. ARCO conducts operations in two
business segments, resources and products. ARCO owns an 82.3% equity interest
in Vastar Resources, Inc., which conducts natural gas and, to a lesser extent,
oil, exploration, production and marketing operations. ARCO also owns a 49.9%
equity interest in Lyondell Petrochemical Company, which operates
petrochemical processing and petroleum refining businesses. In 1994, ARCO
issued Exchangeable Notes due September 15, 1997 ("Notes"), which, at ARCO's
option, can be exchanged at maturity into Lyondell common stock or cash of
equal value. In July, 1997, ARCO finalized its decision to deliver shares of
Lyondell common stock at maturity to settle all of the Notes. Upon the
exchange, ARCO's equity interest in Lyondell will be substantially reduced or
eliminated.
EXPERTS
The consolidated financial statements of the Company and its subsidiaries
that are included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1996, incorporated by reference in this Prospectus, have
been incorporated herein in reliance on the report of Coopers & Lybrand
L.L.P., independent accountants, given on the authority of such firm as
experts in accounting and auditing.
10
<PAGE>
LEGAL OPINIONS
Certain matters relating to the legality of the Debt Securities offered
hereby will be passed upon for the Company by Robert J. Millstone, Esq., Vice
President, General Counsel and Secretary of the Company. As of June 30, 1997,
Mr. Millstone owned an aggregate of 2,357 shares of Common Stock, held
directly and under a Company benefit plan, and options to purchase another
48,300 shares of Common Stock. Mr. Millstone disclaims beneficial ownership of
318 shares of Common Stock held for or in trust for certain family members as
of June 30, 1997. Certain matters relating to the legality of the Debt
Securities offered hereby will be passed upon for any underwriters, agents or
purchasers by Drinker Biddle & Reath LLP.
11
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESMAN OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCOR-
PORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN CON-
NECTION WITH THE OFFER MADE BY THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER, DEALER OR
AGENT. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OF-
FER TO SELL OR SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED
HEREBY IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHO-
RIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALI-
FIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLIC-
ITATION.
-----------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARCO Chemical Company...................................................... S-2
Recent Developments........................................................ S-2
Capitalization............................................................. S-3
Selected Financial Data.................................................... S-4
Use of Proceeds............................................................ S-5
Ratio of Earnings to Fixed Charges......................................... S-5
Description of Debentures.................................................. S-5
Underwriting............................................................... S-7
PROSPECTUS
Available Information...................................................... 2
Incorporation of Certain Documents by Reference............................ 2
ARCO Chemical Company...................................................... 3
Use of Proceeds............................................................ 3
Ratio of Earnings to Fixed Charges......................................... 3
Description of Debt Securities............................................. 4
Plan of Distribution....................................................... 9
Principal Stockholder; Control of the Company.............................. 10
Experts.................................................................... 10
Legal Opinions............................................................. 11
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$250,000,000
ARCO CHEMICAL COMPANY
LOGO
% DEBENTURES DUE 2028
-----------------
PROSPECTUS SUPPLEMENT
-----------------
MERRILL LYNCH & CO.
SALOMON SMITH BARNEY
MORGAN STANLEY DEAN WITTER
, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
