<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [x]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[x] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
LYONDELL PETROCHEMICAL COMPANY
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
-------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
---------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
----------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
----------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
---------------------------------------------------------------------------
(5) Total fee paid:
---------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
----------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
(LOGO OF LYONDELL PETROCHEMICAL COMPANY APPEARS HERE)
NOTICE OF
ANNUAL MEETING
OF STOCKHOLDERS
TO BE HELD
ON JUNE 2, 1995
AND PROXY STATEMENT
PLEASE COMPLETE, SIGN, DATE AND RETURN
YOUR PROXY PROMPTLY
<PAGE>
(LOGO OF LYONDELL PETROCHEMICAL COMPANY APPEARS HERE)
LYONDELL PETROCHEMICAL COMPANY
1221 MCKINNEY STREET, SUITE 1600
HOUSTON, TEXAS 77010
April 10, 1995
Dear Stockholder:
You are cordially invited to join us at the 1995 Annual Meeting of
Stockholders on Friday, June 2, 1995, beginning at 10:00 a.m. in the Ballroom
of the Four Seasons Hotel, 1300 Lamar, in Houston, Texas.
It is important that your shares be voted whether or not you plan to be
present at the meeting. Please complete, sign, date and return the enclosed
form of proxy promptly. If you attend the meeting and wish to vote your shares
personally, you may revoke your proxy. If you do plan to attend, we would
appreciate your checking the appropriate box on the enclosed proxy card.
This booklet includes the Notice of the Meeting and the Proxy Statement,
which contains information about the formal business to be acted upon by the
stockholders. The meeting will also feature a report on the operations of your
Company, followed by a question and answer period. A post-meeting report will
be mailed to all stockholders.
Sincerely yours,
[SIGNATURE OF BOB G. GOWER APPEARS HERE]
Chairman of the Board and Chief Executive Officer
[SIGNATURE OF DAN F. SMITH APPEARS HERE]
President and Chief Operating Officer
<PAGE>
(LOGO OF LYONDELL PETROCHEMICAL COMPANY APPEARS HERE)
LYONDELL PETROCHEMICAL COMPANY
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
JUNE 2, 1995
TO THE STOCKHOLDERS:
The Annual Meeting of Stockholders of Lyondell Petrochemical Company will be
held in the Ballroom of the Four Seasons Hotel, 1300 Lamar, in Houston, Texas,
at 10:00 a.m., Houston time, on Friday, June 2, 1995, for the following
purposes, as more fully described in the attached Proxy Statement.
(1) To elect seven directors to serve until the 1996 Annual Meeting of
Stockholders or until their earlier resignation or removal;
(2) To consider and act upon a proposal recommended by the Board of
Directors to adopt the Value Share Plan for Executive Officers;
(3) To consider and act upon a proposal recommended by the Board of
Directors to adopt the Restricted Stock Plan;
(4) To ratify the appointment of Coopers & Lybrand L.L.P. as independent
auditors for Lyondell for the year 1995; and
(5) To transact such other business as may properly come before the meeting
or any adjournment thereof.
Stockholders of record at the close of business on April 7, 1995 will be
entitled to notice of and to vote at the meeting and any adjournment thereof.
PLEASE READ THE PROXY STATEMENT, THEN COMPLETE, SIGN AND DATE THE FORM OF
PROXY AND RETURN IT IN THE ENCLOSED SELF-ADDRESSED POSTPAID ENVELOPE.
EACH STOCKHOLDER OF RECORD WILL RECEIVE A SINGLE FORM OF PROXY PERTAINING TO
ALL CLASSES OF VOTING STOCK REGISTERED IN HIS OR HER NAME. EACH PARTICIPANT IN
ANY OF THE VARIOUS EMPLOYEE BENEFIT PLANS WILL ALSO RECEIVE A FORM OF PROXY
PERTAINING TO SHARES CREDITED TO HIS OR HER ACCOUNTS IN ALL PLANS.
BY ORDER OF THE BOARD OF DIRECTORS,
[SIGNATURE OF JEFFREY R. PENDERGRAFT APPEARS HERE]
Jeffrey R. Pendergraft Houston, Texas
Secretary April 10, 1995
<PAGE>
(LOGO OF LYONDELL PETROCHEMICAL COMPANY APPEARS HERE)
LYONDELL PETROCHEMICAL COMPANY
1221 MCKINNEY STREET
SUITE 1600
HOUSTON, TEXAS 77010
----------------
PROXY STATEMENT
APRIL 10, 1995
----------------
INTRODUCTION
The accompanying proxy is solicited by the Board of Directors of Lyondell
Petrochemical Company ("Lyondell" or the "Company"). The proxy may be revoked
by the stockholder at any time prior to the time it is voted by giving notice
of such revocation either personally or in writing to the Secretary of
Lyondell. When a proxy is returned properly dated and signed, the shares
represented thereby will be voted by the persons named as proxies in accordance
with each stockholder's directions. If a proxy is dated, signed and returned
without specifying choices, the shares will be voted as recommended by the
directors of the Company. As to other items of business that may come before
the meeting or any adjournment thereof, the persons named in the accompanying
form of proxy will vote in accordance with their best judgment. It is expected
that proxy materials will be mailed to stockholders beginning on or about April
17, 1995. Atlantic Richfield Company, a Delaware corporation ("ARCO"), has
advised the Company that it owned approximately 49.9 percent of the outstanding
shares of Common Stock of the Company ("Common Stock") on April 1, 1995 and
that it intends to vote such shares in proportion to the votes of the non-ARCO
stockholders. See "PRINCIPAL STOCKHOLDERS."
VOTING PROCEDURES
Holders of record of Common Stock at the close of business on April 7, 1995
will be entitled to one vote per share. The Company had 80,000,000 shares of
Common Stock outstanding on such record date. Fractional shares will not be
voted. The presence, in person or by proxy, of stockholders entitled to cast at
least a majority of the votes that all stockholders are entitled to cast will
constitute a quorum. Abstentions and broker non-votes are counted as present in
determining whether the quorum requirement is satisfied.
The directors will be elected by a plurality of the shares of Common Stock
present in person or represented by proxy at the meeting. Adoption of the
proposals to approve the Value Share Plan for executive officers and the
Restricted Stock Plan and to ratify the appointment of the independent auditors
will require the affirmative vote of a majority of the shares present in person
or represented by proxy at the meeting.
Abstentions from voting on any matter will be included in the voting tally
and will have the same effect as a vote withheld on the election of directors,
against the proposed adoption of the Value Share Plan or the Restricted Stock
Plan or against the ratification of the appointment of the independent
auditors, as the case may be. Because broker non-votes are not considered
"shares present" with respect to a matter requiring the affirmative vote of a
majority of shares present in person or by proxy at the meeting, broker non-
votes will not affect the outcome with respect to the election of directors,
the adoption of the Value Share Plan or the Restricted Stock Plan or the
ratification of the appointment of the independent auditors.
<PAGE>
Certain of the Company's employee benefit plans, including the Capital
Accumulation Plan and the Savings Investment Plan, in which officers have
account balances, permit plan participants to direct the plan trustees how to
vote the Common Stock allocated to their accounts. The trustee for each such
plan will vote all shares of Common Stock for which no participant directions
are received in the same proportion as all those shares of Common Stock for
which directions are received.
PRINCIPAL STOCKHOLDERS
The Company's principal stockholder, ARCO, is one of the nation's leading
integrated oil companies and maintains its headquarters at 515 South Flower
Street, Los Angeles, California 90071. At April 1, 1995 ARCO owned 39,921,400
shares of Lyondell's Common Stock, which represent 49.9 percent of the
outstanding Common Stock.
In August 1994, ARCO completed an offering (the "ARCO Note Offering") of
three-year debt securities (the "ARCO Notes") exchangeable into Lyondell Common
Stock or cash. Upon maturity, three years from the date of issuance, the
principal amount of the ARCO Notes will be payable, at ARCO's option, in shares
of Lyondell Common Stock or cash. The number of shares or the amounts of such
cash will be determined using a formula based on the price of Lyondell Common
Stock at the maturity of the ARCO Notes. If ARCO elects to exchange the ARCO
Notes for the Lyondell Common Stock it holds, then its equity interest in
Lyondell will be substantially reduced or eliminated, depending on the price of
Lyondell's Common Stock at such time. In connection with the ARCO Note
Offering, the five ARCO officers who were directors of the Company resigned
from the Company's Board of Directors. In addition, ARCO has stated its current
intent to vote its shares of Lyondell Common Stock proportionately to the votes
of the non-ARCO stockholders, including with respect to the election of
directors; provided, however, that in the event a person other than ARCO is
deemed to own more than 10 percent of the Common Stock within the meaning of
Section 13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and there occurs a contested proxy solicitation within the meaning of
Rule 14a-11(a) of the Exchange Act, ARCO intends to vote its shares as it deems
proper.
Beginning in 1989, the Company was not included as a consolidated subsidiary
in ARCO's financial statements; however, for certain securities laws purposes,
ARCO could be deemed to be a "control" person or an "affiliate" of Lyondell.
The table below sets forth certain information as of December 31, 1994 (the
most recent date as of which the Company has information) regarding the
beneficial ownership of the Common Stock by persons other than ARCO known by
the Company of more than five percent of its outstanding shares of Common
Stock.
<TABLE>
<CAPTION>
PERCENTAGE
NUMBER OF OF SHARES
NAME AND ADDRESS SHARES OUTSTANDING
---------------- --------- -----------
<S> <C> <C>
FMR Corporation(a)..................................... 9,120,885 10.65%
82 Devonshire Street, Boston, Massachusetts 02109
Brinson Partners, Inc.(b).............................. 5,223,200 6.5%
209 South LaSalle, Chicago, Illinois 60604-1295
</TABLE>
--------
(a) FMR Corporation ("FMR") (together with its affiliated entities) may be
deemed a beneficial owner of the 9,120,885 shares by virtue of the direct
or indirect investment and/or voting discretion they possess pursuant to
the provisions of investment advisory agreements with clients. The number
of shares owned by FMR and its affiliates as of December 31, 1994 included
5,661,785 shares resulting from the assumed conversion of the ARCO Notes
held by such affiliates as of such date (assuming 0.892857 shares of Common
Stock for $1 value of the ARCO Notes). FMR has the sole power to dispose of
the 8,050,328
2
<PAGE>
shares owned or deemed to be owned by the Funds that its wholly-owned
subsidiary, Fidelity Management & Research Company ("Fidelity") acts as an
advisor to. The power to vote or direct the voting of such shares resides
with the Funds' Board of Directors and Fidelity carries out the voting of
the shares under written guidelines established by the Fund Boards of
Directors. FMR has the sole dispositive power over 1,070,557 shares owned or
deemed to be owned by Fidelity Management & Trust Company, its wholly-owned
subsidiary serving as investment manager of institutional accounts. FMR has
sole voting power with respect to 721,682 of those shares and no voting
power with respect to 348,875 of those shares.
(b) Brinson Partners, Inc. ("BPI") (together with its wholly-owned subsidiary,
Brinson Trust Company ("BTC")), and its parent holding company, Brinson
Holdings, Inc. ("BHI") may be deemed a beneficial owner of the 5,223,200
shares by virtue of the direct or indirect investment and/or voting
discretion they possess pursuant to the provisions of investment advisory
agreements with clients. BPI has sole voting and dispositive power over
3,863,600 shares, and BTC has sole voting and dispositive power with respect
to 1,359,600 shares.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the number of shares of Common Stock owned
beneficially as of April 1, 1995 by each director or nominee, each of the
executive officers named in the Summary Compensation Table and by all current
directors and executive officers as a group. As of April 1, 1995, the
percentage of shares of Common Stock beneficially owned by any director or
nominee, named executive officers or by all directors and executive officers as
a group, did not exceed one percent of the issued and outstanding Common Stock.
Unless otherwise noted, each individual has sole voting and investment power.
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK
OWNED BENEFICIALLY AS
OF APRIL 1, 1995(a)(b)
----------------------
<S> <C>
William T. Butler..................................... 3,751
D. Travis Engen....................................... -0-(c)
Bob G. Gower.......................................... 227,106(d)
Stephen F. Hinchliffe, Jr. ........................... 4,000(e)
Dudley C. Mecum II.................................... 1,700
Jeffrey R. Pendergraft................................ 43,540
Dan F. Smith.......................................... 38,051
Paul R. Staley........................................ 1,250
Debra L. Starnes...................................... 24,802(f)
Russell S. Young...................................... 44,620(g)
All directors and officers as a group................. 540,766(h)
</TABLE>
--------
(a) Includes shares held by the trustees under the Lyondell Capital
Accumulation Plan and the Lyondell Savings Investment Plan for the accounts
of participants as of December 31, 1994.
(b) The amounts shown include shares that may be acquired within 60 days
following April 1, 1995 through the exercise of stock options, as follows:
Mr. Gower, 170,937; Mr. Smith, 30,216; Mr. Pendergraft, 38,035; Mr. Young,
31,354; Ms. Starnes, 21,924 and all directors and executive officers as a
group, including those just named, 326,458.
(c) Mr. Engen was elected to the Board of Directors as of April 1, 1995.
(d) Does not include 5,000 ARCO Notes held by Mr. Gower. The ARCO Notes are
convertible at maturity into Lyondell Common Stock or, at ARCO's option,
cash.
(e) Does not include 1,000 shares held by a trust of which Mr. Hinchliffe is a
trustee, as to which shares he disclaims beneficial ownership.
(f) Does not include 3,567 shares owned by Ms. Starnes' spouse, as to which
shares she disclaims beneficial ownership.
(g) Does not include 1,100 shares owned by Mr. Young's spouse, as to which
shares he disclaims beneficial ownership.
(h) Does not include 5,667 shares owned by spouses and a trust, as to which
shares beneficial ownership is disclaimed.
3
<PAGE>
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than ten percent of a registered
class of the Company's equity securities, to file with the Securities and
Exchange Commission ("SEC") and the New York Stock Exchange initial reports of
ownership and reports of changes in ownership of Common Stock of the Company.
Officers, directors and greater than ten-percent stockholders are required by
SEC regulation to furnish the Company with copies of all Section 16(a) forms
they file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that such reports
accurately reflect all reportable transactions and holdings, during the fiscal
year ended December 31, 1994 all Section 16(a) filing requirements applicable
to its officers, directors and greater than ten-percent beneficial owners were
complied with. During 1993, one of the Company's officers acquired shares of
the Company's Common Stock through a conversion in an exempt benefit plan and
this acquisition, which involved less than 1,000 shares, was reported as a late
filing on a Form 5 filed in February 1995.
ELECTION OF DIRECTORS
Item 1 on Proxy Card
In August 1994, the five officers of ARCO who had served as directors of
Lyondell resigned in connection with the ARCO Note Offering, including Mike R.
Bowlin, then the Chairman of the Board. At that time, the size of the Board was
decreased to six, and Bob G. Gower was elected Chairman of the Board. Effective
April 1, 1995, the size of the Board was increased to seven and one new
director, D. Travis Engen was elected to the Board.
Pursuant to the Company's Certificate of Incorporation and its By-Laws, the
members of the Board of Directors serve for one-year terms, and until their
successors are elected and qualified. The Board of Directors has selected the
nominees listed below for election to the Board.
Unless authority to vote for directors is withheld in the proxy, the persons
named in the accompanying proxy intend to vote for the election of the seven
nominees listed below. The directors will be elected by a plurality of the
shares of Common Stock of the Company voted at the meeting.
All nominees have indicated a willingness to serve as directors, but if any
of them should decline or be unable to act as a director, the persons named in
the proxy will vote for the election of another person or persons as the Board
of Directors recommends.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR ELECTION OF EACH NOMINEE
LISTED BELOW. PROPERLY DATED AND SIGNED PROXIES WILL BE SO VOTED UNLESS
STOCKHOLDERS SPECIFY OTHERWISE.
The following biographical information is furnished with respect to each of
the nominees for election at the annual meeting. The information includes age
as of April 1, 1995, present position, if any, with Lyondell, period served as
director, and other business experience during the past five years. The
positions referred to beneath a director's name refer to positions with
Lyondell unless stated otherwise.
William T. Butler, 62... Dr. Butler was elected a Director of the Company on
December 21, 1988, effective as of January 25,
1989. He has held his current position as President
and Chief Executive Officer of Baylor College of
Medicine (education and research) since 1979. He is
also a director of First City Bancorporation of
Texas, Inc., C. R. Bard, Inc. and Browning-Ferris
Industries Inc.
Dr. Butler is a member of the Compensation
Committee, the Executive Committee and the
Nominating Committee.
4
<PAGE>
D. Travis Engen, 50...... Mr. Engen was elected a Director of the Company on
March 24, 1995, effective as of April 1, 1995. He
has held his current position as Executive Vice
President and a member of the Management Policy
Committee of ITT Corporation since 1991. He held
the position of Senior Vice President of ITT
Corporation and President and Chief Executive
Officer of ITT Defense Inc. from 1987 to 1991.
From 1979 to 1985, he served in various positions
with Allied Signal Corporation and he has prior
business experience with Republic Electronic
Industries Corporation and Bell Aerospace.
Bob G. Gower, 57......... Mr. Gower was elected Chairman of the Board of
Chairman of the Board and Directors of the Company on August 31, 1994. Mr.
Chief Executive Officer Gower has served as Chief Executive Officer of the
Company since October 24, 1988 and has been a
Director of the Company since June 27, 1988. He
has been President of Lyondell and its
predecessor, the Lyondell Division, since the
formation of the Lyondell Division in April 1985.
Prior to 1989, Mr. Gower served in various
positions with ARCO, including Senior Vice
President of ARCO. He is also a director of
Keystone International and on the advisory board
of Texas Commerce Bank-Houston.
Mr. Gower is Chairman of the Executive Committee
and is a member of the Nominating Committee.
Stephen F. Hinchliffe, Mr. Hinchliffe was elected a Director of the
Jr., 61.................. Company on March 1, 1991. Since 1988, he has held
his current position of Chairman of the Board and
Chief Executive Officer of BHH Management, Inc.,
the managing partner of Leisure Group, Inc.
Previously, he served as Chairman of the Board of
Leisure Group, Inc. (a manufacturer of consumer
products), which he founded in 1964.
Mr. Hinchliffe is Chairman of the Compensation
Committee and a member of the Audit Committee.
Dudley C. Mecum II, 60... Mr. Mecum was elected a Director of the Company on
November 28, 1988, effective as of January 25,
1989. He has held his current position as a
partner with G. L. Ohrstrom & Company (merchant
banking) since August 1989. Previously he was
Chairman of Mecum & Associates (management
consulting) from December 1987 to August 1989. He
served as Group Vice President and director of
Combustion Engineering Inc. from 1985 to December
1987, and as a managing partner of the New York
region of Peat, Marwick, Mitchell & Co. from 1979
to 1985. He is also a director of The Travelers,
Inc., Dyncorp, VICORP Restaurants, Inc., Fingerhut
Companies, Inc. and Roper Industries, Inc.
Mr. Mecum is Chairman of the Audit Committee and
a member of the Compensation Committee.
Dan F. Smith, 48......... Mr. Smith was elected President of the Company on
President and Chief August 31, 1994. Mr. Smith was Executive Vice
Operating Officer President from May 1993 to August 1994 and has
been Chief Operating Officer since May 1993. Mr.
Smith was elected a Director of the Company on
October 24, 1988. He served as Vice President
Corporate Planning of ARCO from October
5
<PAGE>
1991 until May 1993. He previously served as
Executive Vice President and Chief Financial
Officer of the Company from October 1988 to October
1991 and as Senior Vice President of Manufacturing
of Lyondell, and its predecessor, the Lyondell
Division, from June 1986 to October 1988. From
August 1985 to June 1986 Mr. Smith served as Vice
President of Manufacturing for the Lyondell
Division. He joined the Lyondell Division in April
1985 as Vice President, Control and Administration.
Prior to 1985, he served in various financial,
planning and manufacturing positions with ARCO. Mr.
Smith is also a director of ABS Group of Companies,
Inc., a subsidiary of American Bureau of Shipping.
Mr. Smith is a member of the Executive Committee.
Paul R. Staley, 65...... Mr. Staley was elected a Director of the Company on
November 28, 1988, effective as of January 25,
1989. He has held his current position as Chairman
of the National Vision Foundation since August
1994. He held the position of Chairman of the
Executive Committee of the Board of Directors of P.
Q. Corporation (an industry supplier of silicates)
from January 1991 until August 1994. He also held
the positions of President and Chief Executive
Officer of P.Q. Corporation from 1973 and 1981,
respectively, until January 1991.
Mr. Staley is Chairman of the Nominating Committee
and a member of the Audit Committee.
6
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information as to the Chief Executive Officer
and the next four most highly compensated executive officers of the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
--------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
--------------------------------- ---------- ---------
SECURITIES
UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL OTHER OPTIONS PAYOUTS COMPENSATION
POSITION YEAR SALARY ($) BONUS ($)(A) ($)(B) (#)(C) ($)(C) ($)(D)
------------------ ---- ---------- ------------ ------ ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Bob G. Gower............ 1994 587,646 $670,557(e) 70,418 57,300 1,146,152 77,284
Chairman, 1993 555,099 460,000 74,499 56,500 964,452 60,357
Chief Executive Officer 1992 527,215 -0- 26,149 42,200 829,116 57,553
Dan F. Smith............ 1994 409,000 383,175(e) 11,722 25,000 86,396(f) 55,549
President, 1993 247,651(g) 220,000 4,115 -0- -0- 950,130(h)
Chief Operating Officer 1992 -0- -0- -0- -0- 423,987 -0-
Jeffrey R. Pendergraft.. 1994 238,139 143,691(e) 8,736 13,500 252,457 34,006
Senior Vice President, 1993 221,934 97,500 9,754 17,200 216,480 27,051
General Counsel &
Secretary 1992 213,277 -0- 3,307 11,700 186,629 22,086
Russell S. Young........ 1994 230,765 143,691(e) 19,648 13,500 196,916 36,900
Senior Vice President, 1993 206,338 97,500 17,347 14,500 180,698 29,130
Chief Financial Officer, 1992 186,722 -0- 6,988 8,200 155,341 19,513
Treasurer
Debra L. Starnes........ 1994 184,943 143,691(e) 9,064 8,600 141,376 29,571
Senior Vice President, 1993 164,443 74,500 6,851 12,400 105,066 20,316
Petrochemicals, Business 1992 156,846 -0- 7,055 7,000 90,323 25,892
Management & Marketing
</TABLE>
--------
(a) Special bonuses were paid in 1993 in recognition of the executive officers'
and other key employees' significant contributions during 1992 and 1993 to
the successful completion of the Company's refining venture with CITGO
Petroleum Corporation and Lagoven S.A. These amounts are included in the
bonus column for 1993 in addition to the annual bonus paid pursuant to the
Company's incentive plan that was in effect at that time.
(b) Includes imputed income in respect of the Long-Term Disability Plan, tax
gross-ups in respect of financial counseling reimbursements and in respect
of other miscellaneous items, and the amount of incremental interest
accrued under the Executive Deferral Plan that exceeds 120 percent of a
specified IRS rate. "Tax gross-ups" refers to the additional reimbursement
paid to a recipient to cover the federal income tax obligations associated
with the underlying benefit, including an additional amount, based on
maximum applicable income tax rates.
(c) The LTIP provides for the granting of stock options, the right to receive
performance units under certain circumstances and a cash payment in respect
of dividend share credits as described in this footnote. The Performance
units are payable on the third anniversary date of the award. The right to
receive payment of Performance Units, and the amount of such payment
depends on the extent to which performance targets based on the return to
stockholders as compared to certain other companies in the industry are
achieved by the Company at the end of the three year period. No performance
units are currently outstanding. Amounts shown in the LTIP Payouts column
represent payment of performance units (including associated dividend share
credits) awarded under the Company's Executive Long-Term Incentive Plan
(the "LTIP").
7
<PAGE>
Dividend share credits are allocated to an optionee's account whenever
dividends are declared on shares of Common Stock. The number of dividend
share credits to be allocated on each record date to an optionee's account
is computed by multiplying the dividend rate per share of Common Stock by
the sum of (i) the number of shares subject to outstanding options, (ii)
the number of performance units and (iii) the number of dividend share
credits then credited to the optionee's account and dividing the resulting
figure by the fair market value of a share of Common Stock ("FMV") on such
dividend record date. As future dividends are declared, the participant
will receive dividend share credits not only on the number of shares
covered by unexercised options and the number of performance units but also
on the number of dividend share credits in the participant's account. The
dividend crediting mechanism will continue to operate in this manner (i)
with respect to options, until the participant exercises such options or
the options expire, and (ii) with respect to performance units, until
payment is made (or not made, as the case may be) in respect of performance
units. Dividend share credits do not represent earned compensation and have
no definite value, if any, until the date on which the options or
performance units, as applicable, in respect of which such credits have
been allocated, are exercised or paid. See footnote (b) to the Aggregated
Option Exercises and Fiscal Year-End Option Values Table. Dividend share
credits are canceled upon an optionee's termination of employment under
certain specified circumstances. In addition to the dollar amounts shown in
the LTIP Payouts column, the number of dividend share credits accrued to
the accounts of the named executives during 1994, 1993 and 1992,
respectively, is as follows: Mr. Gower: 10,273, 13,819 and 13,200; Mr.
Smith: 1,867, 2,405 and 4,399; Mr. Pendergraft: 2,483, 3,414 and 2,885; Mr.
Young: 2,077, 2,625 and 2,311; and Ms. Starnes: 1,470, 1,674 and 1,147.
(d) Includes contributions to the Executive Supplementary Savings Plan,
incremental executive medical plan premiums, financial counseling
reimbursements and certain amounts in respect of the Executive Life
Insurance Plan, as follows:
<TABLE>
<CAPTION>
YEAR MR. GOWER MR. SMITH MR. PENDERGRAFT MR. YOUNG MS. STARNES
---- --------- --------- --------------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Executive Supplementary
Savings Plan........... 1994 $47,012 $32,720 $19,051 $18,461 $14,795
1993 $44,408 $19,812 $17,754 $16,507 $13,155
1992 $42,177 $ -0- $17,062 $14,938 $14,938
Incremental Medical Plan
Premiums............... 1994 $ 8,165 $ 8,165 $ 8,165 $ 8,165 $ 8,165
1993 $ 4,301 $ 2,867 $ 4,301 $ 4,301 $ 4,301
1992 $ 4,104 $ -0- $ 4,104 $ 4,104 $ 4,104
Financial Counseling
Reimbursement.......... 1994 $ 7,460 $10,610 $ 3,395 $ 6,645 $ 4,785
1993 $ 7,735 $ -0- $ 3,975 $ 7,235 $ 2,180
1992 $ 8,885 $ -0- $ 920 $ 100 $ 6,850
Executive Life Insurance
Plan................... 1994 $14,647 $ 4,054 $ 3,395 $ 3,629 $ 1,826
1993 $ 3,913 $ 1,770 $ 1,021 $ 1,087 $ 680
1992 $ 2,387 $ -0- $ -0- $ 371 $ -0-
</TABLE>
(e) Effective in 1995, the Company has adopted, subject to stockholder
approval, a new executive compensation program, the Value Share Plan, the
terms of which are more fully described elsewhere in this Proxy Statement.
The bonuses paid with respect to 1994 were made based on the criteria of
this new plan.
(f) Represents an amount prorated for the number of months during the three-
year period that Mr. Smith was an executive officer of the Company.
(g) Mr. Smith was elected Executive Vice President and Chief Operating Officer
on May 6, 1993. The salary figure for 1993 is the amount paid to Mr. Smith
for his service from that date. Mr. Smith had previously served as an
executive officer of the Company from its formation to October 1991.
(h) Includes relocation expenses in connection with his relocation to Houston
of $540,000 for the loss from the sale of a home. Mr. Smith also received
$370,000 as a tax gross-up in connection with that loss, which is included
in this column along with $15,681 which is the deemed value of the
interest-free portion of a bridging loan made to Mr. Smith during 1993 in
connection with his relocation to Houston.
8
<PAGE>
EXECUTIVE LONG-TERM INCENTIVE PLAN
The LTIP provided for the granting of stock options, the right to receive
performance units under certain circumstances and a cash payment in respect of
dividend share credits. The following table describes the grants in 1994 to the
named executive officers of stock options and certain other information with
respect to the exercise of stock options. No performance units were granted in
1994. Additional information with respect to payouts in 1994 of performance
units under the LTIP is contained in the Summary Compensation Table. Commencing
in 1995, no additional grants of stock options or performance units will be
made to executive officers pursuant to the LTIP, although dividend share
credits will continue to accrue on outstanding stock options. Please see the
discussion of the proposed new executive compensation program elsewhere in this
Proxy Statement.
OPTIONS
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information regarding stock options granted to
the named executive officers during 1994. The values assigned to each reported
option are shown using a variation of the Black-Scholes option pricing model.
In assessing these values it should be kept in mind that no matter what
theoretical value is placed on a stock option on the date of grant, its
ultimate value will be dependent on the market value of the Company's Common
Stock at a future date.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(A)
--------------------------------------------------------------------
NUMBER OF % OF TOTAL OPTIONS
SECURITIES GRANTED TO
UNDERLYING EMPLOYEES IN EXERCISE OR BASE EXPIRATION GRANT DATE PRESENT
NAME OPTIONS GRANTED(#) FISCAL YEAR PRICE ($/SH) DATE VALUE($)(B)
---- ------------------ ------------------ ---------------- ------------- ------------------
<S> <C> <C> <C> <C> <C>
Mr. Gower............... 57,300 25% $23.125 March 4, 2004 $699,920
Mr. Smith............... 25,000 11% 23.125 March 4, 2004 305,375
Mr. Pendergraft......... 13,500 6% 23.125 March 4, 2004 164,902
Mr. Young............... 13,500 6% 23.125 March 4, 2004 164,902
Ms. Starnes............. 8,600 4% 23.125 March 4, 2004 105,049
</TABLE>
--------
(a) The ten-year options were granted on March 4, 1994 pursuant to the LTIP at
an exercise price equal to the FMV on the date of grant. The options become
exercisable in four equal annual installments beginning March 1995. Options
and the dividend share credits associated with such options are canceled
upon an optionee's termination of employment under certain specified
circumstances. Stock options also carry eligibility for dividend share
credits as described in footnote (c) to the Summary Compensation Table.
(b) The values shown reflect a variation of the Black-Scholes pricing model.
The pricing model used by the Company includes the following assumptions:
options are exercised at the end of the 10-year term; no premium for risk
is assigned; the dividend yield is assumed to be the current yield on the
date of grant; and a long-term (200 days) historical volatility rate is
applied. The values relate solely to stock options (and not performance
units) and do not take into account risk factors such as nontransferability
and limits on exercisability. The values do take into account the fact that
dividend share credits are allocated to an optionee's account whenever
dividends are declared on shares of Common Stock.
9
<PAGE>
The following table shows the number of shares of Common Stock represented by
outstanding stock options held by each of the named executive officers as of
December 31, 1994. Also reported are the values for "in-the-money" options
which represent the positive spread between the exercise price of any such
existing stock options and the year end price of the Common Stock.
AGGREGATED OPTION EXERCISES IN 1994
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF SECURITIES
SECURITIES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
UNDERLYING OPTIONS AT FISCAL YEAR- IN-THE-MONEY OPTIONS AT
OPTIONS END(#) FISCAL YEAR-END($)(A)(B)
------------- ------------------------- -------------------------
NAME EXERCISED (#) VALUE REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------- ------------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Mr. Gower............... -0- -0- 112,137 129,925 $423,867 $270,269
Mr. Smith............... -0- -0- 20,366 28,600 81,475 89,000
Mr. Pendergraft......... -0- -0- 25,385 34,300 98,032 65,475
Mr. Young............... -0- -0- 20,704 30,075 77,592 57,913
Ms. Starnes............. -0- -0- 13,799 22,525 51,609 40,041
</TABLE>
--------
(a) The FMV of Lyondell Common Stock on December 31, 1994 was $25.875 per
share.
(b) Each option carries with it the right to dividend share credits, as
described in footnote (c) to the Summary Compensation Table. Set forth
below is a calculation of the value of accrued dividend share credits,
assuming exercise at December 31, 1994, of the in-the-money options. These
hypothetical values have been calculated for illustration purposes only.
<TABLE>
<CAPTION>
EXERCISABLE UNEXERCISABLE
----------- -------------
<S> <C> <C>
Mr. Gower........................ $707,630 $186,818
Mr. Smith........................ $114,290 $ 40,520
Mr. Pendergraft.................. $163,320 $ 46,808
Mr. Young........................ $130,591 $ 36,639
Ms. Starnes...................... $ 84,353 $ 27,686
</TABLE>
10
<PAGE>
ANNUAL PENSION BENEFITS
The following table shows estimated annual pension benefits payable to the
Company's employees, including executive officers of the Company, upon
retirement on January 1, 1995 at age 65 under the provisions of the Lyondell
Retirement Plan and the Executive Supplementary Retirement Plan.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
AVERAGE FINAL EARNINGS
(BASE SALARY PLUS ANNUAL
INCENTIVE PLAN AWARDS)--
HIGHEST THREE CONSECUTIVE APPROXIMATE ANNUAL BENEFIT FOR YEARS OF
YEARS OUT OF LAST TEN YEARS MEMBERSHIP SERVICE INDICATED(A)(B)(C)
--------------------------- ------------------------------------------------
15 20 25 30 35
YEARS YEARS YEARS YEARS YEARS
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
$1,100,000 252,998 337,331 421,664 505,997 590,330
1,000,000 229,898 306,531 383,164 459,797 536,430
900,000 206,798 275,731 344,664 413,597 482,530
800,000 183,698 244,931 306,164 367,397 428,630
700,000 160,598 214,131 267,664 321,197 374,730
600,000 137,498 183,331 229,164 274,997 320,830
500,000 114,398 152,531 190,664 228,797 266,930
400,000 91,298 121,731 152,164 182,597 213,030
300,000 68,198 90,931 113,664 136,397 159,130
200,000 45,098 60,131 75,164 90,197 105,230
</TABLE>
--------
(a) The amounts shown in the above table are necessarily based upon certain
assumptions, including retirement of the employee on January 1, 1995 and
payment of the benefit under the basic form of allowance provided under the
Lyondell Retirement Plan (payment for the life of the employee only with a
guaranteed minimum payment period of 60 months). The amounts will change if
the payment is made under any other form of allowance permitted by the
Lyondell Retirement Plan, or if an employee's retirement occurs after
January 1, 1995, since the "annual covered compensation level" of such
employee (one of the factors used in computing the annual retirement
benefits) may change during the employee's subsequent years of membership
service. The benefits shown are not subject to deduction for Social
Security benefits or other offset amounts. The plans, however, provide a
higher level of benefits for the portion of compensation above the
compensation levels on which Social Security benefits are based.
(b) As of December 31, 1994, the credited years of service (rounded to the
nearest whole number) under the Lyondell Retirement Plan for the named
executive officers are: Mr. Gower, 31; Mr. Smith, 18; Mr. Pendergraft, 22;
Mr. Young, 14; and Ms. Starnes, 19.
(c) All employees' (including executive officers') years of service with ARCO
prior to the creation of Lyondell have been credited under the Company's
retirement plans.
EXECUTIVE SEVERANCE AGREEMENTS
In 1994, the Company entered into severance agreements with each of its
executive officers. The severance agreements provide for the receipt by the
executive officers of certain payments and benefits in the event of a "Change
of Control" of the Company. A Change of Control occurs when (i) the Incumbent
Directors (as defined in the severance agreements) cease to constitute at least
a majority of the Board, (ii) the stockholders of the Company approve any
merger, consolidation, recapitalization or sale of substantially all of the
assets of the Company under circumstances where such stockholders would own
less than 80 percent of the outstanding voting securities of the surviving
entity, or where the Incumbent Directors would not constitute a majority of the
Board of Directors immediately after such transaction, or such stockholders
approve any plan or proposal for the liquidation or dissolution of the Company
(iii) any person or group, other than ARCO, holds or acquires, directly or
indirectly, more than 20 percent of the Company's then outstanding voting
securities, or (iv) ARCO acquires (other than in an inadvertent transaction
that is effectively reversed) ownership, directly or indirectly, of more than
50 percent of the Company's then outstanding voting securities.
11
<PAGE>
In the event of a Change of Control, the severance agreements provide for the
vesting of all of the executives' non-vested stock options (and dividend share
credits with respect thereto) granted to the executive under the Company's
Long-Term Incentive Plan. In the further event that there is a cessation of an
active market for the Company's Common Stock at or within three years after the
Change of Control, the Company is required to pay the executive a lump-sum
payment based on the Black Scholes value (as of the date immediately preceding
the cessation of an active market) and remaining term of the options for all of
the executive's unexercised stock options, notwithstanding the possibility that
the average exercise price of such options is in excess of the market value of
the underlying Common Stock.
The severance agreements provide for additional payments and benefits in the
event the executive's employment with the Company is actually or constructively
terminated at any time within three years following a Change in Control,
including lump-sum payments based on three times the executive's base salary
and targeted bonus, certain tax gross-up payments, additional pension benefits
and benefits upon termination of the executive's deferral plan. The Company
expects that a material portion of any payments required to be made under the
severance agreements would be considered "parachute" payments under applicable
Internal Revenue Code provisions and would therefore not be deductible for
Federal Income Tax purposes by the Company. The agreements extend through
August 1995 but are renewable at the request of the Company and upon specific
approval of the Compensation Committee.
The graph below compares the cumulative total return to stockholders of the
Company with the cumulative total return to stockholders of the S&P 500 Stock
Index and a group of 15 peer companies.
The Peer Group is a composite index composed of independent refiners and
commodity chemical manufacturers. The Peer Group consists of Ashland Oil, Inc.;
Crown Central Petroleum Corporation; Diamond Shamrock, Inc.; Eastman Chemical;
FINA, Inc.; The Geon Company; Georgia Gulf Corporation; Methanex Corporation;
Nova Corporation of Alberta; Rexene Corporation; Sterling Chemicals, Inc.; Sun
Company, Inc.; Tosco Corporation; Union Carbide Corporation and Valero Energy
Corporation. All the companies in the Peer Group are included in the comparison
group used for determinations of the competitiveness of executive salaries.
Three companies are included in the Peer Group for the first time for the
reasons described in this paragraph. The Geon Company became an independent
public company in 1993 when B.F. Goodrich, which had previously been in the
Peer Group spun off its chemical business to create The Geon Company and sold
all of its interest in that entity to the public through a series of public
offerings. Therefore, the Company believes it was appropriate to replace B.F.
Goodrich with Geon in the Peer Group. In addition, Quantum Chemical
Corporation, which had previously been in the Peer Group, was taken private in
1993 and no longer has comparative data available. The Company believes that it
is appropriate to maintain a balance of petrochemical companies and refiners in
its Peer Group and therefore Eastman Chemical Company (which became an
independent public company in 1993) and Methanex Corporation (which is the
successor to Ocelot Industries, Inc., effective in 1992) were selected as
replacements and additions to the Peer Group because their businesses are of a
comparable nature and scale to key businesses of the Company.
12
<PAGE>
COMPARISON OF 5-YEAR CUMULATIVE RETURNS
[PROXY GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994
------- ------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
LYONDELL......................... $100.00 $85.28 $142.77 $167.59 $153.24 $193.22
S&P 500.......................... $100.00 $96.89 $126.42 $136.05 $149.76 $151.74
OLD PEER GROUP ONLY (a).......... $100.00 $85.06 $ 99.37 $ 92.86 $110.12 $134.22
NEW PEER GROUP ONLY (b).......... $100.00 $85.06 $ 99.37 $ 92.30 $105.54 $129.04
</TABLE>
(a) Old Peer Group (13 companies, including Geon as a substitute for
Goodrich.)
(b) New Peer Group (15 companies, including Geon as a substitute for
Goodrich.)
(c) Group total returns are weighted by average annual market capitalization
for Peer Group companies as of the beginning of each year and assume
reinvestment of dividends. None of the 15 peer companies constituted more
than 20 percent of the market capitalization of the entire Peer Group in
1994.
PURSUANT TO SEC RULES, THIS SECTION OF THE PROXY STATEMENT IS NOT DEEMED
"FILED" WITH THE SEC AND IS NOT INCORPORATED BY REFERENCE WITH THE
COMPANY'S REPORT ON FORM 10-K.
LYONDELL PETROCHEMICAL COMPANY
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee") has
the responsibility for establishing and administering the compensation
philosophy, policies, and plans for the top executive officers of the Company.
The Committee conducts an annual review of executive compensation and approves
all compensation, grants, and awards to executive officers of Lyondell. The
Committee is comprised of three outside directors: Mr. Stephen F. Hinchliffe,
Jr., Chairman, Mr. Dudley C. Mecum II, and Dr. William T. Butler.
In 1994, the Compensation Committee initiated a comprehensive review of the
Company's executive compensation programs. After interviewing a number of
consultants, the Committee retained the services of a respected compensation
consulting firm which specializes in executive compensation issues to assist
in this process. Based on the study, the Committee developed a new
performance-driven incentive plan.
13
<PAGE>
EXECUTIVE COMPENSATION PHILOSOPHY
The overriding principle behind the Company's compensation philosophy is that
compensation must support the Company's primary objective of creating
shareholder value and that superior compensation will be provided for superior
performance. Specific elements of this philosophy are:
. Performance should be defined in terms of measures that directly link to
or strongly influence Lyondell's shareholder value and achievement of
strategic business and other performance objectives
. Executive base salaries should be comparable to salaries for similar
positions in a broad group of industrial and chemical companies which are
similar to Lyondell, with incentives varying substantially commensurate
with the Company's performance and designed to account for the cyclical
nature of the Company's businesses
. The compensation programs should foster a team orientation and a high
degree of cooperation and coordination among top management
. Substantial ownership in the Company's stock among executives should be
highly encouraged so that management interests are closely aligned with
shareholders in terms of both risk and reward
Driven by this philosophy, the Company's executive compensation program has
been designed to encourage a long-term performance orientation, with
performance measures that are strongly related to shareholder value creation.
Further, the program is designed to facilitate ownership of Company stock. As a
result, the Company's total compensation package is designed to be highly
sensitive to the Company's performance, defined in terms of shareholder value
creation.
(1) Base Salary
Pursuant to the compensation philosophy of emphasizing performance-oriented
pay, Lyondell's executive base salaries generally are positioned at the 50th
percentile of the market according to nationally recognized surveys for
industrial and chemical companies. Salaries for executives who are new to their
positions may be set at below market levels.
In 1994, executive base salaries were increased according to merit increase
guidelines which were established using survey and proxy data. The amount of
merit increase was primarily based on individual performance and competitive
data derived from the survey and proxy data. However, internal equity factors
also were considered.
The Compensation Committee recently assessed market pay by position by
relying on both published survey and proxy data. Published surveys covered a
group of industrial and chemical companies. Proxy data covered specific
companies considered to be comparable to Lyondell because of the business in
which they operate. Using this data, salary adjustments were made in 1995 such
that salaries for most executives were set at the median of the market.
Salaries for those new in their positions, however, were set below the median
of the market.
In the years in which external salary assessments will not be conducted, the
Compensation Committee intends to increase executive salaries commensurate with
the increases reported by at least two nationally recognized surveys. Salary
increases for those new in their positions and currently below their market
medians may be higher than the market to bring their salaries up to the median
over time.
(2) Incentives
Long Term Incentive Plan
The Long Term Incentive Plan (the "LTIP") provides for the award of non-
qualified stock options and performance units.
To determine the number of stock options granted in 1994, the Committee
considered Company and individual performance in 1993. Specific criteria used
to assess performance included Lyondell's total return to shareholders compared
to a peer group identified in the cumulative total shareholder return graphs
included in this proxy statement (which is a self-selected group of independent
refiners and petrochemical
14
<PAGE>
producers that competes in the Company's primary business segments), cash flow,
earnings, return on capital employed, productivity improvements, and personal
performance. The Committee did not assign any specific weights to these factors
in considering Lyondell's overall performance for the year. In 1994, the
officers, including the chief executive officer, received stock options based
on this performance assessment for 1993 and a competitive review of total
compensation.
The Committee considers the Company's financial and strategic performance to
be exceptional and the total incentives paid in 1994 to be consistent with the
Company's executive compensation philosophy. The Committee does not contemplate
making future grants of stock options or performance units to the executives.
Value Share Plan.
In 1995, Lyondell executives will be eligible to participate in a newly
developed incentive plan, the Value Share Plan (the "Plan") which is being
submitted to the shareholders for their approval (see the description of the
Plan on page 24 of the Proxy Statement) which Plan is designed to replace the
Company's current incentive plans. The Plan is designed to provide participants
with an incentive to maximize the long-term creation of shareholder value and
encourage significant ownership of Company stock.
To determine incentive awards for fiscal year 1994, the Company retroactively
applied certain principles of this new plan and therefore did not pay bonuses
under its Annual Incentive Plan. For 1994, an award pool was created, comprised
of 4.0% of Lyondell's Economic Value Added ("EVA"), averaged over the last five
years, and 1.25% of Lyondell's average 5-year Market Value Added ("MVA"). EVA
measures the Company's cash flow performance in excess of a capital charge,
which is calculated by multiplying the capital invested in the Company by the
Company's weighted average cost of capital. MVA measures changes in the market
value of the Company's equity, plus the value of dividends as if they had been
reinvested in the Company's stock. Based on this formula, an award pool of
$4,747,627 was created for 1994. This award pool represents 4.0% of 5-year
average EVA, which was $18,443,266, and 1.25% of 5-year average MVA, which was
$320,791,693.
In addition, a discretionary annual award pool of $1,000,000 was created for
1994, based on the Committee's subjective assessment of Lyondell's performance
over the course of the year. In determining the size of this pool, the
Committee took into account accomplishments relating to customer satisfaction,
corporate responsibility, including safety and environmental performance,
employee productivity and 1994 financial performance. The Committee also took
into account outstanding examples of employee productivity, including the
prompt and innovative actions that enabled the Company to keep the plants
operating and customers supplied during the flooding on the San Jacinto River
and resulting pipeline disruptions and the successful turnarounds done in 1994.
The formula and discretionary award pools were allocated to a total of 10
executives, including the Chief Executive Officer, who in the opinion of the
Committee, have the opportunity to significantly impact the long-range success
and value of the Company. One-third of the calculated value of each
individual's award was paid out in cash, one-third will be paid out in
restricted stock, subject to the approval of the restricted stock plan by
shareholders (see the description of the Plan on page 24 of the Proxy
Statement). One-third will be paid out at the times that the restricted stock
vests in an amount equal to the value of the restricted stock at the time of
vesting.
Stock Ownership Guidelines
The Committee has adopted stock ownership guidelines for participants in the
Value Share Plan. Within five years, participants are requested to own a
specific number of shares of Lyondell Common Stock depending upon their
position level as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
REQUESTED TO BE
POSITION OWNED
-------- ----------------
<S> <C>
Chief Executive Officer.................................. 125,000
Chief Operating Officer.................................. 60,000
Senior Vice President.................................... 25,000
Vice President........................................... 15,000
</TABLE>
15
<PAGE>
Shares which are beneficially owned, other than unexercised stock options and
unvested restricted stock, will count toward fulfillment of the ownership
guidelines.
CHIEF EXECUTIVE OFFICER'S 1994 COMPENSATION
In 1994, the Compensation Committee determined the compensation of Mr. Gower,
Lyondell's Chairman and Chief Executive Officer, in substantially the same
manner as the compensation for all other officers. Consistent with standard
compensation practices for chief executive officers, as indicated by survey
data, a greater portion of Mr. Gower's total compensation is provided through
incentive awards.
In 1994, Mr. Gower's salary was raised from $575,000 to $600,000. This salary
increase was consistent with the merit guidelines approved by the Compensation
Committee. The amount of merit increase was primarily based on individual
performance and competitive data. In August 1994, Mr. Gower was appointed
Chairman of the Board, in addition to his chief executive responsibilities. The
Committee did not take any salary action for Mr. Gower at that time.
In March 1994, Mr. Gower received a stock option grant of 57,300 shares under
the LTIP. The Compensation Committee believes that such an award is appropriate
in that Lyondell generally outperformed its peers during 1993 as measured by
the financial and strategic indicators earlier in this Report, delivered above
average returns to shareholders, and achieved most of its 1993 goals.
In March 1995, Mr. Gower received an incentive award for 1994 based on
Lyondell's EVA, averaged over the last five years, Lyondell's average 5-year
MVA, plus a discretionary assessment of the Company's performance. Based on his
responsibilities and competitive pay considerations, Mr. Gower was allocated
35% of the formula and discretionary award pools. As a result, Mr. Gower's
incentive cash award was $670,557. The Committee believes that this award is
appropriate given the Company's significant achievements in creating value, as
measured by EVA and MVA, as well as its financial and strategic success.
Mr. Gower's compensation package continues to include a large portion which
is at risk as to its ultimate value. The Compensation Committee believes that
Mr. Gower's pay mix, coupled with the design of his compensation package,
continues to align his rewards and incentives with shareholder interests.
OMNIBUS BUDGET RECONCILIATION ACT OF 1993
Section 162(m) of the Omnibus Budget Reconciliation Act of 1993 (the "1993
Act") limits the deductibility of compensation in excess of $1 million paid to
the Company's chief executive officer and the next four highest paid officers
during any fiscal year, beginning with 1994, unless such compensation meets
certain requirements.
The Board of Directors is submitting to shareholders for approval the Plan
and the Restricted Stock Plan, which plans will replace the Company's annual
bonus plan and the LTIP. Upon approval, the Company believes that the
compensation paid pursuant to the Plan will be largely deductible. The
Committee seeks to qualify for deductibility where feasible, but retains the
discretion to pay non-deductible compensation if that would be in the best
interests of the Company and shareholders under the circumstances.
COMPENSATION COMMITTEE MEMBERS
The Compensation Committee strongly believes that shareholders are well
served by Lyondell's executive management team and that the executive
compensation philosophy and programs that have been established support the
long-term success of the Company. This report is submitted by the Compensation
Committee of the Board of Directors of Lyondell.
Respectfully submitted,
Stephen F. Hinchliffe, Jr., Chairman
Dr. William T. Butler
Dudley C. Mecum II
THE COMPENSATION COMMITTEE
16
<PAGE>
TRANSACTIONS BETWEEN THE COMPANY AND ARCO
Lyondell was a division of ARCO until July 1988 when ARCO transferred the
assets of its Lyondell division to a wholly-owned subsidiary, Lyondell
Petrochemical Company. In January 1989, ARCO completed an initial public
offering of Lyondell's Common Stock. In connection with the transfer of assets
and liabilities to Lyondell, the Company and ARCO entered into a number of
agreements for the purpose of defining their ongoing relationships. In
addition, in July 1987, the Lyondell Division and ARCO Chemical Company ("ARCO
Chemical"), then a wholly-owned (and now an 83.3 percent owned) subsidiary of
ARCO, entered into a number of agreements in connection with the organization
of ARCO Chemical. None of these agreements was the result of arm's-length
negotiations between independent parties. It was the intention of the Company,
ARCO and ARCO Chemical that such agreements and the transactions provided for
therein, taken as a whole, accommodate the parties' interests in a manner that
was fair to the parties, while continuing certain mutually beneficial joint
arrangements. The Audit Committee of the Board of Directors of the Company,
none of the members of which are affiliated with the Company (including
LYONDELL-CITGO Refining Company Ltd.,("LCR")), ARCO or ARCO Chemical, has
determined that such agreements, taken as a whole, were in its opinion fair to
the Company and its stockholders. Because of the complexity of the various
relationships between the Company, ARCO and its direct and indirect
subsidiaries, including ARCO Chemical (together, "ARCO Affiliates"), however,
there can be no assurance that each of such agreements, or the transactions
provided for therein, has been effected on terms at least as favorable to the
Company as could have been obtained from unaffiliated third parties.
The terms and provisions of many of those initial agreements have been
modified subsequently or supplemented and additional or modified agreements,
arrangements and transactions have been and will continue to be entered into by
the Company and ARCO Affiliates. Any such future agreements, arrangements and
transactions will be determined through negotiation between the Company and
ARCO Affiliates and it is possible that conflicts of interest will be involved.
Future contractual relations among the Company and ARCO Affiliates will be
subject to certain provisions of the Company's Certificate of Incorporation.
See "Certificate of Incorporation Provisions Relating to Corporate Conflicts of
Interest." In addition, the Audit Committee of the Board of Directors has
adopted a set of guidelines for the review of all agreements entered into
between the Company and ARCO Affiliates. These guidelines include a provision
that, at least annually, the Audit Committee will review such agreements, or
the transactions provided for therein, to assure that such agreements are, in
its opinion, fair to the Company and its stockholders. See "BOARD OF
DIRECTORS--Audit Committee."
For the year ended December 31, 1994, Lyondell (including LCR) paid ARCO
Affiliates an aggregate of approximately $45 million. For the year ended
December 31, 1994, Lyondell recorded revenues of approximately $314 million
from sales to ARCO Affiliates, of which $310 million represented sales to ARCO
Chemical. Sales to ARCO Chemical accounted for approximately 17 percent of
total revenues from sales of petrochemical products (including intersegment
sales) and approximately eight percent of total revenues.
THE FOLLOWING IS A SUMMARY OF CERTAIN AGREEMENTS, ARRANGEMENTS AND
TRANSACTIONS AMONG THE COMPANY AND ARCO AFFILIATES EFFECTIVE DURING THE PAST
FISCAL YEAR, AS WELL AS CERTAIN AGREEMENTS, ARRANGEMENTS AND TRANSACTIONS THAT
ARE CURRENTLY PROPOSED.
REGISTRATION RIGHTS AGREEMENT
Subject to the terms and conditions of a registration rights agreement
("Registration Rights Agreement") entered into with Lyondell in connection with
the ARCO Note Offering, ARCO agreed that it will not, without the prior
approval of Lyondell's Board of Directors, prior to the maturity of the ARCO
Notes, (i) initiate or solicit proposals by a single entity or a group of
affiliated entities to acquire all or substantially all of ARCO's Lyondell
Common Stock or otherwise to acquire Lyondell, (ii) take action by written
consent in lieu of a meeting of Lyondell's stockholders or cause to be called
any special meeting of Lyondell's
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stockholders, (iii) initiate or propose, or solicit proxies in respect of,
stockholder proposals with respect to the Company, or (iv) solicit proxies or
written consents in respect of replacing or adding members of the Lyondell
Board of Directors.
Under the terms and conditions of the Registration Rights Agreement, ARCO
also agreed that it will not, without the prior approval of Lyondell's Board of
Directors or except upon exchange of the ARCO Notes as contemplated by the
prospectus for the ARCO Notes, prior to one year following the maturity date of
such ARCO Notes dispose of (or enter into an agreement contemplating the
disposition of) all or any portion of its Lyondell Common Stock in a private
sale to a single entity or a group of affiliated entities, provided that this
agreement will not restrict ARCO from selling all or any portion of its
Lyondell Common Stock (i) in a public offering intended to result in widespread
distribution; (ii) in a Rule 144 transaction under the Securities Act of 1933
(the "Securities Act") in accordance with the volume limitations set forth
therein; (iii) in a Rule 144A transaction intended to result in widespread
distribution to institutional buyers; or (iv) pursuant to a tender offer or
exchange offer by Lyondell or a third party or a merger or other business
combination including Lyondell that is not solicited by ARCO and in which ARCO
is treated on substantially comparable terms with other holders of Lyondell
Common Stock. Notwithstanding the foregoing, ARCO is not precluded from (i)
participating in any self tender offer or exchange offer or open market
purchase program conducted by Lyondell, (ii) voting its shares of Lyondell
Common Stock as it deems proper, or (iii) disclosing (including in response to
private inquiries) either its intentions concerning matters to be brought
before Lyondell's stockholders or making such disclosures as ARCO determines
appropriate in compliance with its obligation under the federal securities
laws.
Pursuant to the Registration Rights Agreement, ARCO has the right to require
the Company to use its best efforts to file up to three registration statements
under the Securities Act covering ARCO shares of Lyondell Common Stock. ARCO
also has the right, if the Company files a registration statement, to require
the Company to register ARCO's shares of Common Stock for sale under the
Securities Act on such registration statement. If the exercise by ARCO of such
"piggyback registration rights" would result in the registration of a number of
shares of Common Stock, that in the judgment of the managing underwriter for
such proposed offering exceeds the number which can be sold in the offering,
the number of shares that ARCO initially intended to register shall be reduced.
ARCO has agreed to pay all costs and expenses relating to the exercise of its
"demand" registration rights. In the event of a "demand" registration, ARCO and
the Company will indemnify the underwriters of the offering for certain
liabilities, including liabilities under the Securities Act in connection with
any such registration, except that in the event that ARCO owns less than 20
percent of the Lyondell Common Stock, the Company will indemnify both ARCO and
the underwriters.
CROSS-INDEMNITY AGREEMENT
In connection with the transfer by ARCO of substantially all of the assets
and liabilities of its Lyondell Division to the Company, the Company and ARCO
executed a Cross-Indemnification Agreement (the "Cross-Indemnity Agreement").
In the Cross-Indemnity Agreement, the Company agreed generally to indemnify
ARCO against substantially all fixed and contingent liabilities relating to the
integrated petrochemical and petroleum processing business and certain assets
of the Lyondell Division. The liabilities assumed by the Company include the
following, to the extent not covered by ARCO's insurance: (1) all liabilities
and obligations of the Company and its combined subsidiaries, as of July 1,
1988; (2) all liabilities and obligations under contracts and commitments
relating to the business of the Lyondell Division and certain assets relating
thereto; (3) employment and collective bargaining agreements affecting the
Company's employees; (4) specified pending litigation and other proceedings;
(5) federal, state, foreign and local income taxes to the extent provided in
the Cross-Indemnity Agreement; (6) liabilities for other taxes associated with
the Lyondell Division's business and certain assets relating thereto; (7)
liabilities for any past, present or future violations of federal, state or
other laws (including environmental laws), rules, regulations or other
requirements of any governmental authority in connection with the business of
the Lyondell Division and certain assets relating thereto; (8) existing or
future liabilities for claims based on breach of contract, breach
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of warranty, personal or other injury or other torts relating to such
integrated petrochemical and petroleum processing businesses and certain assets
relating thereto; and (9) any other liabilities relating to the assets
transferred to the Company or its subsidiaries. ARCO has indemnified the
Company with respect to other claims or liabilities and other matters of
litigation not related to the assets or business transferred by ARCO to the
Company.
The Cross-Indemnity Agreement includes procedures for notice and payment of
indemnification claims and provides that a party entitled to indemnification
for a claim or suit brought by a third party may require the other party to
assume the defense of such claim. The Cross-Indemnity Agreement also includes a
defense cost-sharing agreement, whereby the Company will bear its allocated
defense costs for certain lawsuits.
SERVICES AGREEMENTS
The Company and ARCO entered into an agreement effective January 1, 1991 and
amended as of February 1992 (the "Administrative Services Agreement") under
which ARCO agreed to continue to provide various transitional services to the
Company that ARCO had been providing pursuant to previous administrative
service agreements. The services that ARCO now provides the Company pursuant to
the Administrative Services Agreement include telecommunications and certain
computer-related services. The Administrative Services Agreement terminates no
later than December 31, 1997, although it may be terminated in its entirety
earlier than such date upon the terminating party providing the other party
with at least one year's prior notice, and a party may elect to terminate some
of the services it is receiving upon 30 days prior notice to the other party.
The Administrative Services Agreement provides for an annual renegotiation of
fees. ARCO earned a fee of approximately $1 million during 1994 for all of the
services that it provided under the Administrative Services Agreement.
Effective January 1, 1994, certain services that ARCO had previously been
providing under the Administrative Services Agreement began to be provided
pursuant to an agreement (the "Employee Services Agreement") covering various
employee benefits administration and payroll services and an agreement (the
"Investment Management Agreement") covering investment services with regard to
the management of Lyondell's qualified employee benefit plan funds. Each of
these agreements terminates on May 1, 1998, although it may be terminated in
its entirety by ARCO (provided that ARCO no longer owns at least five percent
of the outstanding Common Stock) by giving Lyondell at least two years prior
notice. In addition, Lyondell may elect to terminate some or all of the
services being provided upon thirty days prior notice. Upon termination of any
or all services, ARCO will provide Lyondell with support and assistance to
accomplish an orderly transition from ARCO's provision of the services to
Lyondell's acquisition of comparable services. The Employee Services Agreement
provides for substantially all services to be provided at a fee based on ARCO's
costs and for the other services to be provided at mutually-agreed fees. The
Investment Management Agreement provides for a renegotiation of fees from time
to time. Lyondell paid ARCO an aggregate of $1 million in 1994 for services
under these agreements.
Effective January 1, 1991, the Company and ARCO entered into an agreement
(the "Insurance Termination Agreement") which terminated the insurance coverage
previously provided by ARCO and established procedures for the resolution of
pending and future claims that are or will be covered under ARCO's policies in
effect prior to January 1, 1991.
TECHNOLOGY TRANSFERS AND LICENSES
Effective July 1, 1988, ARCO assigned to the Company numerous domestic and
foreign trademarks and certain U.S. and foreign patents and granted the Company
a nonexclusive license to use other trademarks containing the word "ARCO," to
use ARCO's spark symbol as a logo and to use ARCO's color striping scheme. The
Company paid ARCO approximately $50,000 under the terms of this license in
1994.
In connection with the transfer of assets and liabilities relating to the
Lyondell Division from ARCO to the Company, the Company and ARCO, effective
July 1, 1988, entered into (i) a License Agreement pursuant
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to which ARCO licensed to the Company on a nonexclusive, royalty-free basis
certain rights (including Lyondell's right to sublicense to third parties, in
some cases without accounting to ARCO) to ARCO's technology and intellectual
property related to certain operations or assets of the Company, (ii) a
technology assignment agreement pursuant to which legal title to certain other
technology and intellectual property useful in the Company's business
(including, without limitation, technology relating to olefins, including
product flexibility) was transferred to the Company; provided, however, that
except for technology relating to the product flexibility unit, ARCO retained a
nonexclusive license to use the technology and property rights in ARCO's other
operations, and (iii) an immunity from suit agreement in respect of the
Company's right to use all remaining technology in the possession of the
Company prior to July 1, 1988. During 1990, the Company and ARCO entered into a
series of amendments to these agreements designed to clarify the parties'
rights under the original technology transfer. In addition, Lyondell and ARCO
executed a patent maintenance agreement pursuant to which ARCO agreed to
maintain certain patents licensed to Lyondell. Lyondell and ARCO also entered
into a letter agreement granting Lyondell the right to obtain additional
licensing rights.
AGREEMENTS BETWEEN THE COMPANY AND ARCO PIPE LINE COMPANY
The Company has entered into several contracts with ARCO Pipe Line Company
("ARCO Pipe Line") pursuant to which the Company: (1) leased certain pipelines
and pipeline segments from ARCO Pipe Line at annual rental rates which include
recovery of operating costs, return on capital investment and inflation
escalators; (2) acquired the services of ARCO Pipe Line to operate various
groups of pipelines owned by the Company; and (3) entered into a throughput and
deficiency commitment for volumes at tariff rates for transportation of crude
oil and other products. Certain of these contracts that relate to the refining
business were assigned to LCR as of July 1, 1993. The Company and LCR paid ARCO
Pipe Line approximately $21 million during 1994 for rental fees and services
under these contracts.
In April 1994, the Company and ARCO Pipe Line concluded negotiations that
extend the term of the Company's lease of ARCO Pipe Line's pipeline system
described in clause (1) of the foregoing paragraph through December 31, 2023.
Absent major regulatory changes, the terms and conditions of this lease
extension will not be materially different from the current lease. ARCO Pipe
Line also owns various easements and licenses for its pipelines and related
equipment located on the property of the Company or LCR and has performed
services relating to the pipeline systems. The Company (including LCR) also
ships products over common carrier pipelines owned and operated by ARCO Pipe
Line pursuant to filed tariffs on the same basis as other non-affiliated
customers.
AGREEMENTS BETWEEN THE COMPANY AND ARCO CHEMICAL
Lyondell provides to ARCO Chemical a large portion of the feedstocks
(including benzene, ethylene, propylene and methanol) purchased by ARCO
Chemical for its manufacturing facilities located at Channelview, Texas.
Pricing arrangements under these contracts are generally representative of
prevailing market prices. Lyondell also provides certain nominal plant services
at the aforementioned plants. ARCO Chemical in turn provides certain feedstocks
and supplies to Lyondell at market-based prices.
The Company sells MTBE (produced at one of the Company's two MTBE units) to
ARCO Chemical at market-based prices. The term of this agreement extends
through June 30, 1995. Production from the Company's second MTBE unit is
dedicated to LCR; however, the Company has agreed to sell to ARCO Chemical MTBE
produced at the Company's second MTBE unit that is in excess of LCR's
requirements at market-based prices.
AGREEMENTS BETWEEN THE COMPANY AND ARCO PRODUCTS COMPANY
Lyondell has entered into a nine year supply agreement beginning April 1996
with ARCO Products Company ("ARCO Products") wherein Lyondell is committed to
sell and ARCO Products is committed to buy approximately 6,000 barrels of
alkylate per day at market-based prices.
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OTHER AGREEMENTS BETWEEN THE COMPANY AND ARCO
Lyondell has purchased and LCR continues to purchase certain of its crude oil
requirements from ARCO Affiliates under short-term arrangements at prices based
on market values at the time of delivery. LCR also purchases crude oil from
ARCO Affiliates from time to time on the spot market at then-current spot
market prices. The Company and LCR also purchased natural gas and natural gas
liquids from ARCO Affiliates during 1994 on the spot market at then-current
spot market prices.
The Company (including LCR) also sold products to ARCO Affiliates, including
crude oil resales and sales of heating oil and lube oil at market-based prices.
DISPUTE RESOLUTION AGREEMENT
In April 1993, the Company, ARCO and ARCO Chemical entered into a Dispute
Resolution Agreement that mandates a procedure for negotiation and binding
arbitration of significant commercial disputes among any two or more of the
parties.
CERTIFICATE OF INCORPORATION PROVISIONS RELATING TO CORPORATE CONFLICTS OF
INTEREST
In order to address certain potential conflicts of interest between the
Company and ARCO (for purposes of this section the term "ARCO" also includes
ARCO's successors and any corporation, partnership or other entity in which
ARCO owns fifty percent or more of the voting securities or other interest),
the Company's Certificate of Incorporation contains provisions regulating and
defining the conduct of certain affairs of the Company as they may involve ARCO
and its officers and directors, and the powers, rights, duties and liabilities
of the Company and its officers, directors and stockholders in connection
therewith. In general, these provisions recognize that from time to time the
Company and ARCO may engage in the same or similar activities or lines of
business and have an interest in the same areas of corporate opportunities. The
Certificate of Incorporation provides that ARCO has no duty to refrain from (1)
engaging in business activities or lines of business that are the same as or
similar to those of the Company, (2) doing business with any customer of the
Company or (3) employing any officer or employee of the Company. The
Certificate of Incorporation provides that ARCO is not under any duty to
present any corporate opportunity to the Company if it may be a corporate
opportunity for both ARCO and the Company, and that ARCO will not be liable to
the Company or its stockholders for breach of any fiduciary duty as a
stockholder of the Company by reason of the fact that ARCO pursues or acquires
such corporate opportunity for itself, directs such corporate opportunity to
another person or does not present the corporate opportunity to the Company.
ARCO currently owns interests in certain chemical companies and refiners (other
than the Company) and has advised the Company that it may continue to acquire
additional interests in chemical companies and refiners.
The foregoing Certificate of Incorporation provisions describe the
obligations of officers and directors of the Company with respect to
presentation of corporate opportunities, but do not limit the ability of the
Company or of ARCO to consider and act upon such opportunities whether or not
such provisions have been followed.
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COMPENSATION OF DIRECTORS
DIRECTORS' FEES
Directors who are employees of the Company are not paid any fees or
additional compensation for service as members of the Board of Directors or any
committee thereof. During 1994, directors who were not employees of the Company
received an annual retainer fee of $30,000 and $1,250 for each Board or
committee meeting attended, and were reimbursed for travel and other related
expenses incurred in attending such meetings. In addition, the outside
directors who served as Chairman of the Audit, Compensation and Nominating
Committees, respectively, received $15,000, $12,500 and $10,000 per year.
RETIREMENT PLAN FOR OUTSIDE DIRECTORS
The Lyondell Petrochemical Company Retirement Plan for Outside Directors (the
"Directors' Retirement Plan") is a non-qualified retirement plan for directors
who are not employees of the Company. The annual retirement benefit is equal to
the director's annual retainer fee immediately preceding the director's
retirement from the Board of Directors. A director vests in the benefit upon
serving three years as a member of the Board of Directors, or, in the case of a
retired Company officer, three years following retirement as an officer of the
Company. The benefit is payable for a period of time equal to a director's
service on the Board of Directors, or, in the case of retired officers of the
Company, to the director's service on the Board of Directors following
retirement as an officer. However, if a director has served for at least 15
years as a member of the Board of Directors, excluding years of service when
the director was also an officer of the Company, the benefit shall be paid for
the greater of the period described in the preceding sentence or until death.
Benefits commence at age 65, or, if later, at the time the director retires
from the Board of Directors. A surviving spouse is entitled to receive 50
percent of the benefits otherwise payable to a director with payment up to a
maximum of 15 years if the director dies prior to retirement from the Board of
Directors or if he dies after retirement from the Board of Directors the
benefits otherwise payable to the director up to a maximum of 15 years. The
benefits under the Directors' Retirement Plan are secured through a grantor
trust.
DEFERRAL PLAN FOR OUTSIDE DIRECTORS
The Lyondell Petrochemical Company Elective Deferral Plan for Outside
Directors (the "Directors' Deferral Plan") became effective October 1, 1990 and
provides directors who are not employees of the Company with the opportunity to
defer all or a portion of their retainer and meeting fees. Under the Directors'
Deferral Plan, the minimum amount that may be elected to be deferred is $8,000
and the maximum is 100 percent of the director's retainer and meeting fees per
year. Amounts may be deferred until retirement from their regular employment or
resignation from the Board, unless the director has suffered a financial
hardship or elected an early distribution at the time the deferral commitment
is made. Upon the director's death, retirement or resignation, benefits are
payable, in accordance with the director's prior election, either in a lump sum
or in substantially equal monthly payments over five, ten or fifteen years. All
other benefits are paid in a lump sum. The benefits under the Directors'
Deferral Plan are secured through a grantor trust. A participant's account
under the Deferral Plan will accrue interest at a rate established by the
Company annually prior to the commencement of each year. The guaranteed minimum
rate of interest is not less than the Citibank base rate. The interest rate for
1994 was 143% of the rolling average 10-year Treasury Note Rate.
RESTRICTED STOCK GRANTS
In November 1994, each of the outside directors received a one-time grant of
shares ("Restricted Shares") of Common Stock, which are subject to transfer
restrictions and risk of forfeiture for a period (the "restricted period") of
one year from the date of grant. The shares were granted in acknowledgement of
the significant contributions of these directors, particularly their efforts on
behalf of the Company in connection with the Note Offering and their
consideration of related issues with respect to the transition of the Board
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and other corporate governance matters. The four outside directors were
convened in special sessions of the Audit Committee to review the terms of the
proposed transaction and negotiate on behalf of the Company.
The Company believes that such recognition strengthens the Company's ability
to continue to attract and retain highly qualified directors and provides the
directors with additional incentives to continue making valuable contributions.
Mr. Mecum, who serves as chairman of the Audit Committee, received a grant of
1,000 Restricted Shares. Each of Messrs. Butler, Hinchliffe and Staley received
a grant of 750 shares. Ownership of the shares is reflected in the table at
page 4 of this proxy.
During the restricted period, the director has the right to receive dividends
on and the right to vote the shares. The shares will be forfeited if the
director's service terminates (other than for death or disability) prior to the
end of the restricted period. It is intended that the directors will continue
to hold the Restricted Shares beyond the termination of the Restricted Period.
BOARD OF DIRECTORS
DIRECTORS' MEETINGS
An annual meeting of the Board of Directors is held each year in conjunction
with the annual meeting of stockholders for the purposes of the organization of
Committees, election or appointment of officers and the transaction of other
business. Regular meetings of the Board of Directors may be held without notice
at such times as the Board of Directors may determine. The Board of Directors
currently expects to hold regular meetings in Houston, Texas. Special meetings
may be called by the Chairman of the Board of Directors, the President or a
majority of the directors in office. The By-Laws permit action to be taken
without a meeting if all members of the Board of Directors consent to such
action in writing. During 1994, the Board of Directors held nine meetings. All
of the Company's incumbent directors attended 75 percent or more of the
aggregate of all meetings of the Board and committees on which they served
during 1994.
EXECUTIVE COMMITTEE
The Executive Committee has and may exercise all the authority of the Board
of Directors in the management of the Company in the interim between meetings
of the Board of Directors. The Executive Committee reviews and approves all
director compensation plans and arrangements. The Executive Committee met four
times during 1994. The Executive Committee currently consists of Messrs.
Butler, Smith and Gower, who serves as Chairman.
COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors adopts, amends,
administers and terminates compensation and benefit plans, makes
recommendations to the Board of Directors as to management succession plans and
administers the Company's incentive and long-term compensation plans for
executive officers. No member of the Committee is an officer or employee of the
Company and no member is eligible to participate in any benefit plan of the
Company that is administered by the Committee. The Compensation Committee held
ten meetings during 1994. The Compensation Committee currently consists of
Messrs. Butler, Mecum and Hinchliffe, who serves as the Chairman.
NOMINATING COMMITTEE
The Nominating Committee of the Board of Directors considers and makes
recommendations to the Board of Directors as to the names of persons whom it
concludes should be considered for Board of Directors membership, and
recommends matters relating to committee assignments and the selection, tenure
and retirement of directors. The Nominating Committee also performs an annual
evaluation of the Board's performance. Stockholders of the Company who wish to
nominate persons for election to the Board of Directors must comply with the
provisions of the By-Laws that are described more fully at page 28 of this
Proxy Statement. The Nominating Committee held six meetings during 1994. The
Nominating Committee currently consists of Messrs. Gower, Butler, and Staley,
who serves as Chairman.
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AUDIT COMMITTEE
The Audit Committee of the Board of Directors was established for the general
purpose of reviewing the integrity of the Company's accounting and financial
reporting, maintaining communications between the Board of Directors and
external and internal auditors, dealing with conflicts between ARCO and the
Company and initiating special investigations as deemed necessary. The Audit
Committee has adopted specific guidelines for review of agreements between the
Company and ARCO or its affiliates to assure that such agreements are fair to
the Company and its stockholders. The independent accountants and the internal
auditors have full and free access to the Audit Committee and meet with it,
with and without management being present, to discuss all appropriate matters.
No member of the Committee is an officer or employee of the Company. The Audit
Committee held sixteen meetings during 1994, including meetings in its capacity
as a special committee constituted to consider and negotiate on behalf of the
Company the terms of the Company's participation in the ARCO Note Offering and
to conduct a special investigation into an environmental compliance matter. The
Audit Committee currently consists of Messrs. Staley, Hinchliffe and Mecum, who
serves as Chairman.
PROPOSAL TO ADOPT VALUE SHARE PLAN
VALUE SHARE PLAN
The Board of Directors is proposing for stockholder approval the Value Share
Plan (the "Plan"). The principal features of the Plan and of the operating
guidelines the Committee has adopted to implement the Plan are described below.
The full text of the Plan is annexed hereto as Appendix A and should be
referred to for a complete description of the Plan provisions.
In 1994 the Compensation Committee initiated a comprehensive review of the
Company's executive compensation programs and retained the services of a
respected compensation consulting firm to assist in this process. This effort
resulted in the development of this new performance-driven plan.
The purposes of the Plan are to focus executive officers on key measures of
value creation for the Company's stockholders and on operating measures that
lead to the creation of value; provide significant upside and downside award
potential commensurate with stockholder value creation; encourage long-term
management perspective; reinforce teamwork and cooperation among the executive
officers; attract and retain highly talented and competent individuals; and
encourage stock ownership by the executive officers. Top executives of the
Company who have the ability to significantly impact the long-range success and
value of the Company are eligible to participate in the Plan, and the
Compensation Committee selects participants.
ADMINISTRATION. The Plan vests broad powers in the Compensation Committee to
administer and interpret the Plan. The Committee's powers include authority,
within the limitations set forth in the Plan, to select participants, to
determine when awards will be granted, to determine whether objectives and
conditions for earning awards have been met, and to determine whether an award
or payment of an award should be reduced or eliminated.
AWARDS. The Plan is designed to provide participants with an incentive to
maximize long-term stockholder value and encourage significant ownership of
Company stock. The Plan establishes five-year Performance Cycles and at the
beginning of each Cycle, participants will be assigned an allocation percentage
that will indicate the extent to which each participant will share in the
amounts generated by the Plan. At the end of the Performance Cycle two award
pools will be created: (i) a Value Award Pool and (ii) an Operating Award Pool.
The Value Award Pool equals the sum of 4.0% of Average EVA and 1.25% of
Average MVA. EVA ("economic value added") measures the Company's cash flow
performance in excess of a capital charge, which is calculated by multiplying
the capital invested in the Company times the Company's weighted average cost
of capital. MVA ("market value added") measures changes in the market value of
the Company's equity, plus the value of dividends as if they had been
reinvested in the Company's Common Stock.
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The Operating Award Pool will be created based on the Compensation
Committee's evaluation of Lyondell's operating performance in the final year of
any Cycle in the areas of customer satisfaction, corporate responsibility
(including safety and environmental performance), employee productivity and
financial performance. The Operating Award Pool maximum is $1,000,000 for any
Performance Cycle and may be adjusted downward by the Compensation Committee
based on its assessment of the Company's performance in the final year of the
Cycle.
Following the completion of a Performance Cycle, the sum of the Pools will be
awarded to Participants in accordance with their allocation percentages. Awards
will typically be paid out in three parts as follows:
(a) One-third in cash, to be paid within 90 days following the end of a
Performance Cycle;
(b) One-third in restricted stock, issued within 90 days following the
end of a Performance Cycle; and
(c) One-third in cash, to be paid at the time that the related award of
restricted stock vests.
The awards of restricted stock will be made pursuant to the terms of the
Company's Restricted Stock Plan, which is described below and is being
submitted for stockholder approval in connection with the Plan.
In addition, Participants will receive an amount equal to the value of the
first quarter dividends which otherwise would have been earned on the shares of
Restricted Stock if the Restricted Stock grants were made immediately after the
end of the Performance Cycle.
EFFECTIVE DATE, AMENDMENT AND TERMINATION. If approved by stockholders, the
Plan will become effective as of January 1, 1995. The Committee may amend or
terminate the Plan so long as such action does not adversely affect any rights
or obligations with respect to awards already outstanding under the Plan.
FEDERAL INCOME TAX CONSEQUENCES. Under the Internal Revenue Code as presently
in effect, the portions of an award paid in cash would be immediately taxable
to a participant as ordinary income.
At the time any portion of an award is paid or made available, the Company
will be entitled to a corresponding deduction, except to the extent the
deduction limit of Section 162(m) of the Omnibus Budget Reconciliation Act of
1993 ("Section 162(m)") applies. (See page 27 for a discussion of the federal
income tax consequences with respect to grants of restricted stock.)
SECTION 162(M). Section 162(m) generally limits to $1 million the amount that
a publicly held corporation is allowed each year to deduct for the compensation
paid to each of the corporation's chief executive officer and the corporation's
four most highly compensated executive officers other than the chief executive
officer. However, "performance-based" compensation is not subject to the $1
million deduction limit. In general, to qualify as performance-based
compensation, the following requirements must be satisfied: (i) the performance
goals are determined by a committee consisting solely of two or more "outside
directors", (ii) the material terms under which the compensation is to be paid,
including the performance goals, are approved by a majority of the
corporation's stockholders and (iii) the committee certifies that the
applicable performance goals were satisfied before payment of any performance-
based compensation is made. The Compensation Committee will consist solely of
"outside directors" as defined for purposes of Section 162(m) of the Code. The
Plan is intended to comply with the requirements of Section 162(m) with respect
to performance-based grants and awards paid in the future to employees whose
remuneration is likely to exceed $1 million in any year. However, there is no
definitive guidance on certain matters and it is possible that some amounts
payable under the Plan would not qualify.
The affirmative vote of the holders of a majority of shares of Common Stock,
present in person or by proxy, voted at the meeting, is required for adoption
of the Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THIS PROPOSAL. PROPERLY
DATED AND SIGNED PROXIES WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY
OTHERWISE.
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The following table sets forth the awards made in 1995 based on the criteria
set forth in the Plan. The table also sets forth the awards made under the
Restricted Stock Plan. The restricted stock awards are contingent upon approval
of the Restricted Stock Plan by the stockholders.
NEW PLAN BENEFITS TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
TITLE NAME AWARD AWARD(1)
----- ----------- --------- ---------
<S> <C> <C> <C>
Chairman & CEO............................... Gower 670,557 1,341,113
President & COO.............................. Smith 383,175 766,351
SVP, General Counsel......................... Pendergraft 143,691 287,381
SVP, CFO..................................... Young 143,691 287,381
SVP, BM&M.................................... Starnes 143,691 287,381
Executive Officer Group(10 Total)............ 1,915,875 3,831,752
Non-Executive Officer Group(2)...............
</TABLE>
--------
(1) A grant of restricted stock in an amount equal to 50% of the Long-Term
Award was made. This is in accordance with the Plan that provides for the
awards to be paid out one-third in cash, one-third in restricted stock and
one-third in a deferred amount equal to the value of the restricted stock
at the time of vesting. Restricted stock grants made under the Restricted
Stock Plan for the named executive officers and the executive officer
group, respectively, are 26,483, 15,133, 5,675, 5,675, 5,675, and 75,666,
subject to approval of the Restricted Stock Plan. In addition, a cash
award, equivalent to the amount of dividends that would have been earned on
the restricted stock during the first quarter of 1995, was paid to the
named executive officers and the officer group, respectively, in the
amounts of $5,959, $3,405, $1,277, $1,277, $1,277, and $17,025.
(2) The non-executive officer employee group is not eligible to participate in
the Plan. This group of approximately 65 employees have received grants of
an aggregate of 39,500 shares of restricted stock, subject to approval of
the Restricted Stock Plan.
PROPOSAL TO ADOPT RESTRICTED STOCK PLAN
The Board of Directors is proposing for stockholder approval the Restricted
Stock Plan (the "Restricted Stock Plan"). The principal features of the
Restricted Stock Plan are described below. The full text of the Restricted
Stock Plan is annexed hereto as Appendix B and should be referred to for a
complete description of the Restricted Stock Plan provisions.
The purpose of the Restricted Stock Plan is to provide executive officers and
other key employees with a proprietary interest in the Company's success and
progress by granting them shares of Common Stock. It is intended to further
align the interests of such employees with the interests of the stockholders in
terms of both risk and reward and to strengthen the Company's ability to
continue to attract and retain highly qualified employees.
DESCRIPTION OF THE PLAN
ADMINISTRATION. The Restricted Stock Plan will be administered by the
Compensation Committee of the Board of Directors. No member of the Committee is
eligible to receive a discretionary award of Common Stock of the Company under
the Restricted Stock Plan or any other plan of the Company.
Subject to the express provisions of the Restricted Stock Plan, the Committee
has the authority to select eligible executive officers for participation in
the Restricted Stock Plan and to determine all of the terms and conditions of
grants and awards. The Chief Executive Officer has authority to select eligible
non-officer key employees of the Company for participation in the Restricted
Stock Plan. The Committee will also have authority to prescribe rules and
regulations for administering the Restricted Stock Plan and to decide questions
of interpretation of any provision of the Restricted Stock Plan.
26
<PAGE>
AVAILABLE SHARES. Under the Restricted Stock Plan, 1,000,000 shares of Common
Stock are available for grants and awards to officers and other key management
employees, subject to adjustment in the event of a stock split, stock dividend,
recapitalization, reorganization, merger or other similar event or change in
capitalization. Although the shares subject to the Restricted Stock Plan may be
originally issued shares or treasury shares or a combination thereof, it is the
Company's intention to purchase such shares on the open market and reissue them
to the Participants. In general, shares that are subject to a grant or award
and for any reason are not issued or delivered, including by reason of
forfeiture of all or a portion of a grant or award, would again be available
under the Restricted Stock Plan.
EFFECTIVE DATE, AMENDMENT AND TERMINATION. If approved by stockholders, the
Restricted Stock Plan will become effective as of January 1, 1995. The
Committee may amend the Restricted Stock Plan at any time except that no
amendment may be made without stockholder approval if stockholder approval
would be required by any applicable law, rule or regulation. The Committee may
terminate the Restricted Stock Plan at any time; provided that no termination
may impair any participant's rights with respect to outstanding grants of
Restricted Shares under the Restricted Stock Plan.
AWARDS. Under the Restricted Stock Plan, fixed awards may be made in the form
of shares of Common Stock that are issued to the employee but that are
forfeitable and subject to restrictions on transfer. Vesting of Restricted
Stock awards is not contingent on the achievement of specific objectives, but
is contingent on the participant's continuing in the Company's employ for a
period specified in the award.
The restricted period will begin on the date of the grant and will continue
for a period of time determined on the date of grant, subject to the following
conditions: (i) the Restricted Period for a grant to a participant in the Value
Share Plan shall lapse on the last day of each year following the grant as to
one third of the grant of Restricted Shares, until, on the last day of the
third year following the grant, the Restricted Period has totally lapsed as to
all Restricted Shares for that particular grant; and (ii) the Restricted Period
for a grant to participants who are not participants in the Value Share Plan
shall not be less than the Restricted Period for a grant to Value Share Plan
participants. Participants also will have the right, unless and until such
award is forfeited, to receive dividends thereon from the date of grant and the
right to participate in any capital adjustment applicable to all holders of
Common Stock. Participants also will have the right to vote the shares. Upon
termination of any applicable restricted period, a certificate evidencing
ownership of the shares of Common Stock will be delivered to the holder of such
award.
The Restricted Stock Plan provides for early vesting in the event of
disability, death, retirement or Change of Control (See pages 11-12 for a
description of events causing a Change of Control). In the event of early
vesting, shares of Restricted Stock issued pursuant to an award will be
released from the restrictions.
FEDERAL INCOME TAX CONSEQUENCES. The following is a brief summary of certain
of the U.S. federal income tax consequences generally arising with respect to
grants and awards under the Restricted Stock Plan.
A participant will not recognize any income at the time of the grant of
shares of restricted stock unless the participant makes an election to be taxed
at the time the restricted stock is granted (a "Section 83(b) election"), and
the Company will not be entitled to a tax deduction at such time. A participant
will recognize compensation taxable as ordinary income at the time the
restrictions lapse on restricted stock if a Section 83(b) election was not made
in an amount equal to the fair market value of the shares at such time. The
amount of ordinary income recognized by a participant is deductible by the
Company as compensation expense, except to the extent the deduction limit of
Section 162(m) applies. In addition, a participant receiving dividends with
respect to restricted stock for which a Section 83(b) election has not been
made and prior to the time the restrictions lapse will recognize compensation
taxable as ordinary income (subject to income tax withholding), rather than
dividend income, in an amount equal to the dividends paid and the Company will
be entitled to a corresponding deduction, except to the extent the deduction
limit of section 162(m) applies.
Awards made in 1995 under the Restricted Stock Plan (and subject to
stockholder approval) are set forth in the New Plan Benefits Table immediately
preceding this description.
27
<PAGE>
The affirmative vote of the holders of a majority of shares of Common Stock,
present in person or by proxy, voted at the meeting, is required for adoption
of the Restricted Stock Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THIS PROPOSAL. PROPERLY
DATED AND SIGNED PROXIES WILL BE SO VOTED UNLESS STOCKHOLDER SPECIFY OTHERWISE.
PROPOSAL TO RATIFY THE APPOINTMENT OF INDEPENDENT AUDITORS
Item 4 on Proxy Card
The Board of Directors has recommended the appointment of Coopers & Lybrand
L.L.P., Certified Public Accountants, to audit the financial statements of
Lyondell for the year 1995. Coopers & Lybrand L.L.P. has acted in this capacity
since July 1988 and has acted as the independent auditor for ARCO for many
years. Since June 1987, Coopers & Lybrand L.L.P. has also acted as the
independent auditor for ARCO Chemical, an 83.3 percent-owned (as of April 1995)
subsidiary of ARCO that became publicly held in October 1987. In addition, from
time to time, the firm performs consulting work for ARCO Chemical, ARCO and the
Company. Representatives of Coopers & Lybrand L.L.P. will be present at the
meeting and will have the opportunity to make a statement if they desire to do
so. These representatives will also be available to respond to appropriate
questions.
The proposal will be approved if it receives the affirmative vote of a
majority of the shares of Common Stock present in person or by proxy at the
meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR RATIFICATION OF THE
APPOINTMENT OF COOPERS & LYBRAND L.L.P. PROPERLY DATED AND SIGNED PROXIES WILL
BE SO VOTED UNLESS STOCKHOLDERS SPECIFY OTHERWISE.
OTHER BUSINESS
The Board of Directors is not aware of any other matters to be presented at
the meeting. If any other matters should properly come before the meeting, the
persons named in the enclosed proxy will vote the proxies in accordance with
their best judgment.
PROXY SOLICITATION
The expense of soliciting proxies will be paid by the Company. The Company
has retained Georgeson & Company Inc. to solicit proxies at an estimated fee of
$10,000 plus expenses. Some of the officers and other employees of the Company
also may solicit proxies personally, by telephone and by mail, if deemed
appropriate.
PROXIES
The designated proxies are Messrs. John R. Beard, Joseph M. Putz and Russell
S. Young. Under the General Corporate Law of Delaware, a stockholder has the
right to designate other individuals to act as proxies. A stockholder may
designate other individuals by crossing out the printed names on the proxy
card, provided that no more than three individuals are so designated.
STOCKHOLDER PROPOSALS FOR 1995 ANNUAL MEETING
Stockholder proposals intended to be presented at the 1996 Annual Meeting
must be received by December 20, 1995. Such proposals should be addressed to
the Secretary.
A stockholder wishing to nominate a candidate for election to the Board is
required to give written notice to the Secretary of the Company of his or her
intention to make such a nomination. The notice of nomination must be received
by the Company not less than 60 days in advance of such meeting, if such
meeting is to be held on a day preceding the anniversary of the previous years'
annual meeting by 30 or more days, or 90 days in advance of such meeting if
such meeting is to be held either less than 30 days prior to or after the
anniversary of the previous year's annual meeting. The notice of nomination is
required to contain certain information about both the nominee and the
stockholder making the nomination. A nomination that does not comply with the
above procedure will be disregarded.
28
<PAGE>
ADDITIONAL INFORMATION AVAILABLE
THE COMPANY FILES AN ANNUAL REPORT ON FORM 10-K WITH THE SECURITIES AND
EXCHANGE COMMISSION. STOCKHOLDERS MAY OBTAIN A COPY OF THIS REPORT (WITHOUT
EXHIBITS), WITHOUT CHARGE, BY WRITING TO THE COMPANY'S INVESTOR RELATIONS
DEPARTMENT AT 1221 MCKINNEY STREET, SUITE 1600, HOUSTON, TEXAS 77010.
29
<PAGE>
APPENDIX A
LYONDELL PETROCHEMICAL COMPANY
-------------------------------
VALUE SHARE PLAN
Effective January 1, 1995
<PAGE>
TABLE OF CONTENTS
I. PURPOSE
II. DESCRIPTION OF PLAN OPERATION
III. OTHER PLAN PROVISIONS
IV. DEFINITIONS
<PAGE>
LYONDELL PETROCHEMICAL COMPANY
VALUE SHARE PLAN
I. PURPOSE
The purpose of the Lyondell Petrochemical Company Value Share Plan (the
"Plan") is to:
. Focus Participants on key measures of value creation for the Company's
shareholders and on operating measures that lead to the creation of
value
. Provide significant upside and downside award potential commensurate
with shareholder value creation
. Encourage a long-term management perspective and reward for sustained
long-term performance
. Enhance the ability of Lyondell to attract and retain highly talented
and competent individuals
. Reinforce a team orientation among top management
. Encourage ownership of the Company's stock among top management
II. DESCRIPTION OF PLAN OPERATION
II.1 GENERAL PLAN DESCRIPTION
The Value Share Plan (the "Plan") provides the opportunity for top executives
of Lyondell Petrochemical Company ("Lyondell" or the "Company") to receive
incentive awards based on:
(1) Performance measured against two key indicators of shareholder value:
. Economic Value Added
. Market Value Added
(2) Performance measured against four key indicators of operating success:
. Financial Results
. Customer Satisfaction Ranking
. Corporate Responsibility Ranking
. Employee Productivity Ranking
At the beginning of each Performance Cycle (or in some cases during the
Performance Cycle), certain top executive officers of the Company will be
selected to participate in the Plan for that Performance Cycle. Upon selection,
each Participant will be assigned an Allocation Percentage, which will indicate
the extent to which each Participant will share in the amounts generated by the
Plan.
Following the end of each Performance Cycle, two award pools will be created:
(1) a Value Award Pool and (2) an Operating Award Pool. The Value Award Pool
will be created based upon Lyondell's performance over the Performance Cycle.
The Value Award Pool will equal the sum of [a+b], as follows:
(a) 4.0% of Average Economic Value Added, plus
(b) 1.25% of Average Market Value Added
An Operating Award Pool will be created based on Lyondell's operating
performance in the areas of financial results, customer satisfaction, corporate
responsibility and employee productivity. This pool may be adjusted downward by
the Compensation Committee (the "Committee") of the Board of Directors of the
Company based on its assessment of Lyondell's financial and strategic
performance against any criteria that it deems appropriate.
1
<PAGE>
The Value Award Pool and the Operating Award Pool will then be allocated to
Participants in accordance with each Participant's Allocation Percentage.
Awards to Participants typically will be paid out in three parts [a+b+c], as
follows:
(a) One-third in cash paid within 90 days following the end of the
Performance Cycle;
(b) One-third in Restricted Stock issued within 90 days following the end
of the Performance Cycle; and
(c) One-third in Deferred Cash paid at the time that the related Restricted
Stock vests
The number of shares of Restricted Stock to be granted to each Participant
will be calculated by dividing the Participant's award in (b) above by the
Company's average daily closing stock price during the last month of the
Performance Cycle. The Restricted Stock will vest annually in three equal
installments over three years following the end of the Performance Cycle, and
will earn dividends and have voting rights over the restriction period.
The Deferred Cash award will be paid out at the time that the related
Restricted Stock vests in an amount equal to the value of the Restricted Stock
at the time of its vesting.
In addition, Participants will will receive the cash equivalent to first
quarter dividends which otherwise would have been paid earned on the Restricted
Stock if the Restricted Stock grants were made immediately after the end of the
Performance Cycle.
A detailed description of how the Plan works is presented in the following
sections of this document.
II.2 ELIGIBILITY
Plan participation will be extended to the top executives of the Company who,
in the opinion of the Compensation Committee of Lyondell, have the opportunity
to significantly impact the long-range success and value of the Company. These
executives, referred to as Participants, will be notified in writing of their
selection to participate in the Plan within 90 days of being elected an
executive officer of the Company. No non-employee directors shall be eligible
to participate in this Plan.
II.3 ALLOCATION PERCENTAGE
All Participants will be assigned an Allocation Percentage for each
Performance Cycle by March 30 of the first year of each Performance Cycle. The
initial and maximum Allocation Percentages for the Chief Executive Officer and
the Chief Operating Officer are 35% and 20%, respectively. Other Allocation
Percentages will be determined by the Compensation Committee, based on the
number of Participants in the Plan, the position level of each Participant, and
other considerations, as deemed appropriate by the Committee.
If a Participant is selected to participate in the Plan after March 30 of the
first year of the Performance Cycle, the Participant will be assigned an
Allocation Percentage commensurate with his/her position level in the
organization, as well as other factors that the Committee may consider. The
Participant will be notified of the Allocation Percentage within 90 days of
selection to participate. Adding new Participants to the Plan during a
Performance Cycle may result in Allocation Percentages which total more than
100% for that Performance Cycle. If a Participant ceases to participate in the
Plan, Allocation Percentages for ongoing Performance Cycles will not be
readjusted for remaining Participants.
The Allocation Percentages for Performance Cycles ending in 1995, 1996, 1997,
1998 and 1999 will be established prior to March 30, 1995.
2
<PAGE>
II.4 VALUE AWARD POOL
Within 60 days following the end of the Performance Cycle, a Value Award Pool
will be established based on Lyondell's performance over the Performance Cycle.
The Value Award Pool will equal the sum of [a+b] for the Performance Cycle, as
follows:
(a) 4.0% of Average Economic Value Added, plus
(b) 1.25% of Average Market Value Added
II.5 AVERAGE ECONOMIC VALUE ADDED
Economic Value Added measures the Company's cash flow relative to the return
that debt and equity holders expect to receive on the Company's capital. Each
year of a Performance Cycle, Economic Value Added will be measured by the
difference between (i) cash generated by Company operations and (ii) the sum of
the Company's debt and equity capital, multiplied by a factor representing
investors' expected rate of return on that capital, as calculated under the
formula in Schedule A.
Average Economic Value Added will be determined by calculating the sum of
Economic Value Added for each year of a Performance Cycle and dividing the
total by the number of years in that cycle.
II.6 AVERAGE MARKET VALUE ADDED
Average Market Value Added measures changes in total return to shareholders
during a Performance Cycle, including the value of dividend reinvestment, as
calculated under the formula in Schedule B.
II.7 OPERATING AWARD POOL
Within 60 days following the end of the Performance Cycle, an Operating Award
Pool shall be established. The extent to which this pool is created will be
contingent upon Lyondell meeting certain criteria during the Performance Cycle.
Operating Award Pool amounts to be made available upon the achievement of these
criteria include:
<TABLE>
<CAPTION>
OPERATING
OPERATING PERFORMANCE STANDARD AWARD POOL
------------------------------ ----------
<C> <S> <C>
(1) Financial Performance refers to Net Income in the final year
of the Performance Cycle greater than or equal to dividends
paid in the final year of the Performance Cycle.............. $ 300,000
(2) Customer Satisfaction Ranking................................ 200,000
(3) Corporate Responsibility Ranking............................. 200,000
(4) Employee Productivity Ranking................................ 300,000
----------
Total Operating Award Pool................................... $1,000,000
==========
</TABLE>
Within 60 days following the end of the Performance Cycle, the Compensation
Committee also will evaluate the Company's performance in the final year of the
Performance Cycle on any criteria that it deems appropriate. These criteria may
be financial or strategic in nature and could include, but are not limited to,
environmental and health measures, key strategic accomplishments, and quality
measures. Based on this subjective assessment, the Compensation Committee will
rate Lyondell's annual performance and, in its discretion, reduce the Operating
Award Pool, if appropriate. The extent of any reduction will be contingent upon
Lyondell's performance rating as follows:
<TABLE>
<CAPTION>
DOWNWARD TOTAL OPERATING
PERFORMANCE RATING ADJUSTMENT(1) AWARD POOL
------------------ ------------- ---------------
<S> <C> <C>
Exceptional....................................... $ 0 $1,000,000
Good.............................................. $ 500,000 $ 500,000
Partially meets expectations...................... $ 850,000 $ 150,000
Deficient......................................... $1,000,000 $ 0
</TABLE>
--------
(1) Interpolate for performance between discrete points
3
<PAGE>
II.8 AWARD CALCULATION
Each Participant's award under the Plan for a Performance Cycle will be
determined by multiplying the Participant's Award Allocation Percentage by the
sum of the Value Award Pool and the Operating Award Pool in accordance with the
formula [a*(b+c)], as follows:
(a)Participant's Allocation Percentage, multiplied by the sum of:
(b)Value Award Pool, plus
(c)Operating Award Pool.
The maximum award that can be paid based on the Value Award Pool and the
Operating Award Pool for any Participant for any Performance Cycle equals
$3,500,000. This maximum amount includes payments in cash, Restricted Stock,
and Deferred Cash, as described in Section II.9 below.
In addition, a Participant will receive an award in cash equal to the amount
of dividends which would have been paid on shares of Restricted Stock for the
first quarter in the year of the award, as if the Participant had been issued
granted Restricted Stock prior to the dividend payment date immediately after
the end of the Performance Cycle. This award shall not be paid if the
Participant actually receives the dividends.
II.9 PAYOUT OF AWARDS
Earned awards (except for Deferred Cash) will be paid out within 90 days
following the end of the Performance Cycle. Except in the event of Termination
due to death, Retirement, or permanent Disability, awards will be paid out in
three parts as follows:
(a) One-third in cash paid within 90 days following the end of the
Performance Cycle;
(b) One-third in shares of Restricted Stock issuedgranted within 90 days
following the end of the Performance Cycle; and
(c) One-third in Deferred Cash paid at the time that the related Restricted
Stock vests.
Any award of cash equal to dividends under Section II.8 also shall be paid
within 90 days of the end of a Performance Cycle.
In the event of Termination due to death, Retirement, or permanent
Disability, pro-rata awards will be paid out in cash within 90 days following
the end of the Performance Cycle in accordance with the provisions of Section
III.3.
The number of shares of Restricted Stock to be granted to each Participant
will be calculated by dividing the Participant's award in (b) above by the
Company's average daily closing stock price during the last month of the
Performance Cycle. The Restricted Stock will vest in three equal installments
on the last day of the year in each of the three years following the end of the
Performance Cycle. Restricted Stock will vest immediately upon a Change in
Control or upon the Participant's death, Retirement, or permanent Disability.
The Restricted Shares will earn dividends, as paid, and have voting rights over
the restricted period.
The Deferred Cash award will be paid at the time that the related Restricted
Stock vests in an amount equal to the number of shares of Restricted Stock
vesting multiplied by the Company's closing stock price on the vesting date.
II.10 DISCRETION TO REDUCE AWARDS
The Committee may exercise negative discretion and reduce any awards based on
the Value Award Pool and the Operating Award Pool payable to any individual who
participates in the Plan.
4
<PAGE>
II.11 SEPARATE DISCRETIONARY AWARDS
The Committee may pay discretionary awards which are not based on Allocation
Percentages, in addition to any awards paid in accordance with Section II.8 of
the Plan, to any Participant in the Plan for any year in cash, Restricted
Stock, Deferred Cash, or any combination thereof.
II.12 DEFERRALS
The Participant may elect to defer cash and Deferred Cash amounts calculated
under the Plan under the terms of any deferred compensation plan in which
he/she is eligible to participate.
If any payment of any amount under this Plan would be disallowed under Code
Section 162(m) by reason of the fact that the Participant's applicable employee
remuneration, as defined in Code Section 162(m)(4), either exceeds or, if such
amount were paid, would exceed the $1,000,000 limitation in Code 162(m)(1), the
Committee may, in its sole discretion, defer the payment of this excess amount,
but only to the extent that, and for so long as, the Company's tax deduction
for the payment would be disallowed under Code Section 162(m). No such payment,
however, may be deferred beyond three months after the end of the Company's
fiscal year in which the Participant's termination of employment occurs. In
addition, the Committee may accelerate the payment of previously deferred
amounts if it determines that the amount of the tax deduction that would be
disallowed is not significant. Amounts which are deferred under this Section
II.12 will be credited with interest at a rate provided for in the Company's
Executive Deferral Plan at the time of the deferral or at the prime rate of
Citibank, N.A. in effect from time to time if no deferral plan is in effect at
the time of the award payout.
III. OTHER PLAN PROVISIONS
III.1 ACCRUAL OF AWARDS
This is an unfunded Plan. Awards will be charged to the Company's earnings
according to Generally Accepted Accounting Principles (GAAP). Accrual of awards
will not imply a promise by the Company to pay any of a Participant's award.
Awards will be paid only upon the completion of the Performance Cycle, in
accordance with provisions outlined elsewhere in this document.
III.2 EMPLOYMENT
In order to receive an award under the Plan, a Participant must be employed
by Lyondell at the end of the Performance Cycle, except as otherwise noted
below.
III.3 TERMINATION, DEMOTIONS, AND TRANSFERS
If Termination of the Participant's employment occurs during the Performance
Cycle by reason of death, Disability, or Retirement, or if Termination occurs
within one year following a Change in Control, or if the Participant is
rendered ineligible to Participate in the Plan due to a demotion or a transfer
by the Company to an Affiliate, such as LYONDELL-CITGO Refining Company Ltd.,
the Participant (or the Participant's beneficiary or estate in the event of
death) will be eligible to receive a pro-rata award, whereby the Participant's
award will be multiplied by the number of full months that the Participant was
employed by the Company during the Performance Cycle, divided by the number of
months in the Performance Cycle. Pro-rated awards earned pursuant to this
Section III.3 will be paid out in their entirety in cash within 120 days
following the end of the Performance Cycle.
A Participant who terminates employment with the Company prior to the end of
the Performance Cycle for any other reason (whether voluntary or involuntary)
in the absence of a Change in Control will forfeit the opportunity to earn an
award under the Plan.
Notwithstanding any other provision of the Plan, the Committee may, in its
sole discretion, permit continued participation, pro-ration or early
distribution (or a combination) of awards which would otherwise be forfeited.
5
<PAGE>
III.4 DESIGNATION OF BENEFICIARIES
A Participant may designate a beneficiary or beneficiaries to receive, in the
event of the Participant's death, all or part of the amounts to be distributed
to the Participant under the Plan.
III.5 NEW HIRES AND PROMOTIONS
Individuals who have been selected during the Performance Cycle to
participate in the Plan and who have a minimum of one month of service as a
Participant may be eligible, at the discretion of the Committee, to receive a
pro-rata award. If the Participant has been selected to receive a pro-rata
award, the Participant's award will be multiplied by the number of full months
that the Participant was eligible to participate in the Plan during the
Performance Cycle, divided by the number of months in the Performance Cycle.
Pro-rated awards earned pursuant to this Section III.5 will be paid out in a
combination of cash, Restricted Stock and Deferred Cash in accordance with
Section II. 8 of this document.
III.6 AMENDMENT OR TERMINATION OF THE PLAN
This Plan may be amended, suspended, or terminated at any time by the
Committee without notice, provided that no change to the Plan may be made,
unless required by law, that adversely affects a previously earned award. In
the case of termination of the Plan, the Committee, if it determines in its
sole discretion that it is advisable under the circumstances, may authorize the
pro-ration and/or early distribution of awards earned under the Plan. However,
no amendment or change in the Plan may, without the approval of the
shareholders of the Company, be effective with respect to an award which is
intended to satisfy the requirements of Code Section 162(m), if such approval
is required by Code Section 162(m)(4)(C).
III.7 PLAN ADMINISTRATION
The Committee has the full power and authority to construe, interpret, and
administer the Plan and to make rules and regulations in accordance with Plan
provisions. All Committee decisions, actions, determinations, or
interpretations will be at the Committee's sole discretion and will be final,
conclusive and binding on the Company, Participants and all other persons.
In making any determination under the Plan, the Committee will be entitled to
rely on opinions, reports, statements, or advice of officers of the Company,
and of counsel, public accountants, and other experts or third parties.
No member of the Committee will be personally liable for any action taken in
good faith, any exercise of power given to the Committee under the Plan, or any
action of any other member of the Committee.
III.8 LIMITATION OF EMPLOYEE RIGHTS
No Employee has a claim or right to be a Participant in the Plan, to continue
as a Participant, or to be granted an award under the Plan. Lyondell is not
obligated to give uniform treatment (e.g., the assignment of Allocation
Percentages) to Employees or Participants under the Plan. Participation in the
Plan does not give an Employee the right to be retained in the employment of
the Company, nor does it imply or confer any other employment rights.
Nothing contained in the Plan will be construed to create a contract of
employment with any Participant. Lyondell reserves the right to elect any
person to its offices and to remove Employees in any manner and upon any basis
permitted by law.
Nothing contained in the Plan will be deemed to require Lyondell to deposit,
invest or set aside amounts for the payment of any awards. Participation in the
Plan does not give a Participant any ownership, security or other rights in any
assets of the Company.
6
<PAGE>
III.9 WITHHOLDING TAX
Lyondell will deduct from all awards paid under the Plan any taxes required
by law to be withheld.
III.10 EFFECTIVE DATE
The Plan is effective as of January 1, 1995, and will remain in effect unless
otherwise terminated or amended by the Compensation Committee, provided that
the Plan is approved by the Company's shareholders on or before December 31,
1995.
III.11 VALIDITY
In the event any provision of the Plan is held invalid, void, or
unenforceable, the same will not affect, in any respect, the validity of any
other provision of the Plan.
III.12 APPLICABLE LAW
The Plan will be governed by and construed in accordance with the laws of the
State of Texas.
IV. DEFINITIONS
"AFFILIATE" means any entity substantially owned and/or controlled by
Lyondell, as determined by the Committee.
"ALLOCATION PERCENTAGE" refers to a percentage assigned to a Participant in
accordance with Section II.3 of the Plan.
"CHANGE IN CONTROL" will have the same meaning as a Participant's Executive
Severance Agreement between the Participant and the Company or the Company's
Supplemental Executive Benefit Plans Trust Agreement if the Participant does
not have an Executive Severance Agreement.
"CODE" refers to the Internal Revenue Code of 1986 or any successor statute,
as amended from time to time.
"COMPANY" refers to Lyondell Petrochemical Company.
"COMPENSATION COMMITTEE" OR "COMMITTEE" refers to the Compensation Committee
of the Board of Directors of Lyondell.
"CORPORATE RESPONSIBILITY RANKING" refers to Lyondell, during the final year
of a Performance Cycle, (a) achieving first or second quartile ranking (where
first signifies the best performance) in recordable incident rates as reported
for its category by the National Petroleum Refining Association (NPRA) and the
Chemical Manufacturers Association (CMA) and (b) meeting the CMA time
guidelines for implementation of the Responsible Care Guidelines. If the CMA
and NPRA no longer issue such reports, the Committee may choose alternate
reports issued by other companies or associations.
"CUSTOMER SATISFACTION RANKING" refers to Lyondell achieving first or second
quartile ranking (where first signifies the best performance) in (a) customer
audits of any Company plant or facility held during the final year of a
Performance Cycle and (b) customer surveys performed by the Company during the
final year of a Performance Cycle. Provided however, that if no customer audits
or surveys are done during such year than the Company must have maintained its
ISO-9000 rating in the most recent audit performed by the ISO-9000 auditing
agency.
"DEFERRED CASH" refers to an amount of cash equal to the value of the
Restricted Stock determined in accordance with Section II.9 of the Plan.
7
<PAGE>
"DISABILITY" refers to total and permanent disability, as defined in the
Company's Executive Long-Term Disability Plan.
"EMPLOYEE" refers to an Employee of Lyondell Petrochemical Company.
"EMPLOYEE PRODUCTIVITY RANKING" refers to Lyondell achieving first or second
quartile ranking (where first signifies the best performance) on production
cost for Lyondell's Channelview facility, as reported by Solomon Associates,
Inc. on its most recent report issued prior to the end of the Performance
Cycle. If Solomon Associates, Inc. no longer issues such reports, the Gulf
Coast cost of ethylene comparison shall be used as the measurement.
"ENDING SHARES OUTSTANDING" OR "ESO" refers to the number of shares
outstanding at the end of the final year of the Performance Cycle, adjusted for
stock splits and stock dividends.
"LYONDELL" refers to Lyondell Petrochemical Company, a Delaware corporation.
"NET INCOME" refers to the Company's net income after taxes, as reported in
the Company's audited financial statements.
"OPERATING AWARD POOL" is the award pool that is created upon Lyondell
meeting key operating performance criteria in accordance with Section II.9 of
this Plan.
"PARTICIPANT" refers to a key Employee and officer of Lyondell or Affiliate
selected by the Committee to participate in the Plan.
"PERFORMANCE CYCLE" refers to the following time periods, except as provided
below.
<TABLE>
<CAPTION>
PERFORMANCE
CYCLE PERFORMANCE MEASUREMENT PERIOD
----------- ----------------------------------
<S> <C>
1 January 1, 1991--December 31, 1995
2 January 1, 1992--December 31, 1996
3 January 1, 1993--December 31, 1997
4 January 1, 1994--December 31, 1998
5 January 1, 1995--December 31, 1999
6 January 1, 1996--December 31, 2000
</TABLE>
Each cycle continues to advance by one year.
The first four Performance Cycles for the Chief Executive Officer and the Chief
Operating Officer are as follows:
<TABLE>
<CAPTION>
PERFORMANCE
CYCLE PERFORMANCE MEASUREMENT PERIOD
----------- ----------------------------------
<S> <C>
1 January 1, 1995--December 31, 1995
2 January 1, 1995--December 31, 1996
3 January 1, 1995--December 31, 1997
4 January 1, 1995--December 31, 1998
</TABLE>
Thereafter, the Performance Cycle will be the same as the Performance Cycle
for other Plan Participants.
"PLAN" refers to the Lyondell Petrochemical Company Value Share Plan as set
forth in this document.
"RESTRICTED STOCK" refers to shares of the Company's common stock which will
be issued subject to vesting restrictions under the Company's Restricted Stock
Plan. These shares will earn dividends, as paid, and have voting rights during
the restriction period.
8
<PAGE>
"RETIREMENT" refers to a termination of employment with a right to commence
an immediate allowance under a retirement plan maintained by the Company.
"TAX RATE" refers to the combined maximum Texas and Federal corporate income
tax rate.
"TERMINATION" refers to the Participant's ceasing his/her service with the
Company for any reason whatsoever, whether voluntarily or involuntarily,
including by reason of death or permanent Disability.
"VALUE AWARD POOL" is the award pool created based on Lyondell's performance
on Average Economic Value Added and Average Market Value Added, calculated in
accordance with Section II.4 of this Plan.
9
<PAGE>
SCHEDULE A
I. ECONOMIC VALUE ADDED SHALL BE DETERMINED ACCORDING TO THE FOLLOWING FORMULA:
Economic Value Added = ECF-(ECI * WACC)
Weighted Average Cost of Capital ("WACC"), as used to calculate Economic
Value Added, shall be determined according to the following formula:
WACC = After tax cost of long-term debt * [LTD / (LTD + MVE)] + Cost of equity
* [MVE / (LTD + MVE)]
where [LTD / (LTD + MVE)] equals 30% and [MVE / (LTD + MVE)] equals 70%.
Note: These ratios may be amended due to a significant change in the
Company's capital structure.
ECF and ECI will be determined at year end during each Performance Cycle
based on the Company's audited financial statements, as adjusted to
recognize the effect of Lyondell's interest in LYONDELL-CITGO Refining
Company Ltd. consistent with the economics of the limited liability company
arrangement. For example, CITGO's contributions and minority interests,
loans for which Lyondell is not liable or interest relating to those loans
will not be included in these determinations, regardless of their inclusion
on audited financial statements. Similar adjustments consistent with the
economics of the LYONDELL-CITGO Refining Company Ltd. arrangement may be
warranted.
If extraordinary events occur during a Performance Cycle which alter the
basis upon which Economic Value Added is calculated, the effect of these
events, with the Committee's approval, may be amortized over a period of up
to three years, beginning with the year in which the event occurs, provided
the decision to amortize is made no later than 90 days following the end of
the year in which the event occurs. Events warranting such action may
include, but are not limited to, major acquisitions, divestitures, and a
recapitalization of the Company.
II. DEFINITIONS
For purposes of this Section, terms are defined as follows:
Cost of Equity means cost of equity as determined under the Capital Asset
Pricing Model.
Economic Capital Invested ("ECI") means the sum of
Common and preferred equity; plus
Long-term debt; plus
Current portion of long-term debt; plus
Other non-current liabilities; plus
Deferred taxes; plus
Accumulated depreciation, less $482,556,000 (the difference between
the gross book value and estimated market value of Lyondell's
refining assets in 1991); plus
Capitalized value of significant operating leases enters into after
January 1, 1995.
Economic Cash Flow ("ECF") means the sum of
Net income (after accrual of all expenses pursuant to this Plan);
plus
Depreciation and amortization; plus
Other non-cash items; plus
Deferred taxes; plus
After-tax interest, calculated by multiplying the Company's pre-tax
interest by (1-Tax Rate); plus
Implicit interest on significant operating leases entered into after
January 1, 1995
<PAGE>
Long-Term Debt ("LTD") means the book value of Lyondell's long-term debt,
including the current portion of long-term debt.
Market Value of Equity ("MVE") means the Company's stock price multiplied
by the number of outstanding shares of common stock.
<PAGE>
SCHEDULE B
I. AVERAGE MARKET VALUE ADDED SHALL BE DETERMINED ACCORDING TO THE FOLLOWING
FORMULA:
Average Market Value Added = {[BSP*(l+TSR)n * ESO]-[BSP*BSO]} / n
II. TOTAL SHAREHOLDER RETURN, AS USED TO CALCULATE AVERAGE MARKET VALUE ADDED,
SHALL BE DETERMINED ACCORDING TO THE FOLLOWING FORMULA:
Total Shareholder Return =n x (square root of) [(Adjusted Shares*ESP) /
(1 Share*BSP)] - 1
III.DEFINITIONS
For purposes of this section, terms are defined as follows:
Adjusted Shares means the number of shares a shareholder would own at the
end of a Performance Cycle if the shareholder owned one share of Lyondell
common stock on the last day of the year immediately prior to the
Performance Cycle and then reinvested any dividends paid during the
Performance Cycle at the end of each month in which the dividend was paid,
up to and including the last day of the Performance Cycle.
Beginning Shares Outstanding ("BSO") means the number of shares
outstanding, adjusted for stock splits and dividends, at the end of the
year immediately prior to the beginning of a Performance Cycle.
Beginning Share Price ("BSP") means Lyondell's average month-end closing
stock price, adjusted for stock splits and dividends, for the year
immediately prior to the beginning of a Performance Cycle. The Beginning
Share Price used in the Total Shareholder Return calculation for the
Performance Cycle beginning January 1, 1991 and ending December 31, 1995
will be $14.63.
Ending Shares Outstanding ("ESO") means the number of shares outstanding
at the end of the final year of a Performance Cycle, adjusted for stock
splits and dividends.
Ending Stock Price ("ESP") means the average month-end closing stock
price in the final year of a Performance Cycle, adjusted for stock splits
and dividends.
Total Shareholder Return ("TSR") means the compound annual growth rate of
Lyondell's common stock price from the end of the year immediately prior to
the first year of a Performance Cycle to the end of the final year of that
Performance Cycle, including the value of dividends paid during the
Performance Cycle, as if those dividends were reinvested at the end of each
month in which a dividend was paid.
Number of Years ("n") means number of years in a Performance Cycle.
<PAGE>
APPENDIX B
RESTRICTED STOCK PLAN
OF LYONDELL PETROCHEMICAL COMPANY
Section 1 Purpose.
The Restricted Stock Plan of Lyondell Petrochemical Company (the Plan) is
intended to provide key employees (including executive officers) of Lyondell
Petrochemical Company and its subsidiaries and affiliates ("the Company") with
a proprietary interest in the Company's success and progress by granting them
shares of the Company's Common Stock ("Common Stock"), that are restricted in
accordance with the terms and conditions set forth below ("Restricted Shares").
The Plan is intended to increase the alignment of key employees with the
interests of the Company's shareholders in terms of both risk and reward and to
strengthen the Company's ability to continue to attract and retain highly
qualified employees.
Section 2 Eligibility.
Executive officers who are eligible to participate in the Company's Value
Share Plan ("Value Share Plan Participants") shall automatically be eligible to
participate in this Plan. In addition, the Company's Chief Executive Officer
may designate key employees of the Company, other than Value Share Plan
Participants, who he determines to be in a position to contribute directly to
the Company's continued economic success, as eligible to participate in this
Plan. These participants, together with the Value Share Plan Participants,
shall be referred to as "Participants". No non-employee director shall be
eligible to participate in this Plan.
Section 3 Shares Reserved Under the Plan
The shares of Common Stock covered by grants under this Plan as Restricted
Shares will not exceed one (1) million shares in the aggregate, subject to
adjustment as provided below, and in accordance with and subject to Rule 16b-3
of the Securities and Exchange Act of 1934, ("Exchange Act") as amended.
Restricted Shares may be originally issued or treasury shares or a combination
of both.
Any shares of Common Stock granted as Restricted Shares that are terminated,
forfeited or surrendered or which expire for any reason will be available again
for issuance under this Plan, provided that those shares shall not be reissued
if any Participant subject to Section 16 of the Exchange Act directly or
indirectly received any of the benefits of ownership of those shares of Common
Stock prior to termination, forfeiture or surrender.
In the event of a recapitalization, stock split, stock dividend, combination
or exchange of shares, merger, consolidation, rights offering, separation,
reorganization or liquidation, or any other change in the Company's corporate
structure or shares, the Compensation Committee ("Committee") of the Board of
Directors ("Board") of the Company may make such equitable adjustments in the
number and class of shares authorized to be granted as Restricted Shares, as it
deems appropriate to prevent dilution or enlargement of rights. Shares issued
as a consequence of any such change shall be issued subject to the same
restrictions and provisions applicable to the original grant of Restricted
Shares.
Section 4 Grants.
The Chief Executive Officer of the Company may from time to time authorize
grants of Restricted Shares to Participants, other than Value Share Plan
Participants, who have been designated as eligible under Section 2 of this
Plan. At least annually, the Chief Executive officer shall notify the Committee
of key employees designated as eligible and the amount of authorized grants of
Restricted Shares to those key employees under this Plan.
If the Participant has been awarded Restricted Stock by allocation under the
Value Share Plan, the Committee shall grant each Value Share Plan Participant a
number of Restricted Shares under this Plan equal to one third of the total
award under the Value Share Plan, divided by the average daily closing share
price of Common Stock during the last month of the Performance Cycle on which
the award is based. If the Participant has been awarded Restricted Stock as a
separate award under the Value Share Plan, the
<PAGE>
Committee shall grant the Value Share Participant a number of Restricted Shares
equal to that separate award based on the share price described above.
Grants of Restricted Shares to Participants shall be on the terms and
conditions and with the restrictions determined from time to time by the
Committee under Section 5 of this Plan.
Section 5 Terms and Conditions of Restricted Shares.
(a) General. Each grant of Restricted Shares shall be subject to the
restrictions under subsection (c) for the Restricted Period of the grant.
(b) Restricted Period. The Restricted Period shall begin on the date of the
grant and shall continue for a period of time determined on the date of the
grant, subject to the following conditions: (i) The Restricted Period for a
grant to a Value Share Plan Participant shall lapse on the last day of each
year following the grant as to one third of the grant of Restricted Shares,
until, on the last day of the third year following the grant, the Restricted
Period has totally lapsed as to all Restricted Shares for that particular
grant; and (ii) The Restricted Period for a grant to Participants who are not
Value Share Plan Participants shall not be less than the Restricted Period for
a grant to Value Share Plan Participants.
(c) Restrictions. One or more of these restrictions shall be a restriction
which constitutes a substantial risk of forfeiture. The Participant shall have
all ownership rights and privileges of a shareholder as to the Restricted
Shares, including the right to vote such Restricted Shares, except as follows:
(i) the Participant shall not be entitled to delivery of a stock certificate
representing the number of Restricted Shares granted until the lapse of the
Restricted Period; (ii) none of the Restricted Shares may be sold, transferred,
assigned, pledged, or otherwise encumbered or disposed of during the Restricted
Period; and (iii) except as provided in subsection (d), all grants of
Restricted Shares shall be forfeited if the Participant fails to satisfy the
terms of the grant of Restricted Shares by the end of the Restricted Period.
During the Restricted Period, the Restricted Shares may be held on an
uncertificated basis or a stock certificate representing the number of
Restricted Shares granted may be registered in each Participant's name but held
in custody by the Company for the Participant's account and not released to the
Participant until the Restricted Period lapses.
(d) Forfeiture. All rights of a Participant to any grant of Restricted Shares
shall be forfeited without any further obligation on the Company's part if (i)
a Participant ceases to be an employee of the Company for a reason other than
Death, Disability, Retirement, Change of Control or transfer to the Atlantic
Richfield Company, LYONDELL-CITGO Refining Company Ltd. or an entity
substantially owned or controlled by the Company; or (ii) if the restrictions
imposed by the Committee are not otherwise satisfied by the end of the
Restricted Period, unless the Committee makes an affirmative decision that any
or all of the Participant's grant of Restricted Shares shall not be forfeited.
Restricted Shares that are forfeited may be used for other grants of Restricted
Shares.
(e) Lapse of Restrictions. If a Participant ceases to be an employee of the
Company by reason of Disability, Death or Retirement or, if a Change of Control
occurs, any restrictions on an outstanding grant of Restricted Shares shall
immediately lapse and the Participant's right to the grant shall be fully
vested.
For purposes of this section, the following definitions apply:
(i) "Disability", for Participants other than Value Share Plan
Participants, means a permanent and total disability as defined in Section
22(e)(3) of the Internal Revenue Code. "Disability", for Value Share Plan
Participants, means the Participant is totally disabled according to the
provisions of the Company's Executive Long-Term Disability Plan.
2
<PAGE>
(ii) "Retirement" means a termination of employment with a right to
commence an immediate retirement allowance under a retirement plan
maintained by the Company.
(iii) "Change of Control" means a change of control as defined in a
Participant's Executive Severance Agreement between the Participant and the
Company or, if the Participant does not have an Executive Severance
Agreement with the Company, as defined in the Company's Supplemental
Executive Benefit Plans Trust Agreement.
(f) Delivery of Restricted Shares. A stock certificate for the number of
Restricted Shares which have vested shall be delivered free of all such
restrictions to the Participant or the Participant's beneficiary or estate, as
the case may be, on the lapse of the Restricted Period.
Section 6 Regulatory Compliance.
A Participant or Participant's beneficiary or estate shall not receive or
sell any Common Stock granted pursuant to this Plan until all appropriate
listing, registration and qualification requirements and consents and approvals
have been satisfied or obtained, free of any condition unacceptable to the
Board of Directors.
The Committee shall have the authority to remove any or all of the
restrictions on the Restricted Shares, including restrictions under the
Restricted Period, whenever it determines that such action is appropriate as a
result of changes in applicable laws or other circumstances after the date of
the grant.
Section 7 Administration.
The Plan shall be supervised and administered by the Committee or any
successor committee with responsibility for executive compensation. The
Committee shall have all necessary authority and discretion to interpret any
provision of this Plan or to determine any questions regarding grants of
Restricted Shares under this Plan. Any determination or interpretation by the
Committee shall be final, conclusive and binding on all persons. Any Committee
determination may be made in writing signed by a majority of Committee members,
without notice or meeting.
Section 8 Termination or Amendment of the Plan.
The Board may at any time terminate the Plan and may from time to time alter
or amend the Plan or any part (including any amendment deemed necessary to
ensure that the Company may comply with any regulatory requirement referred to
in Section 6) without shareholder approval, unless otherwise required by law or
by the rules of the Securities and Exchange Commission or New York Stock
Exchange. No termination or amendment of the Plan may impair a Participant's
rights with respect to outstanding grants of Restricted Shares under the Plan
without the Participant's consent.
Section 9 Miscellaneous.
(a) The Company shall have the right to require that the Participant pay any
taxes required by law with respect to the issuance or delivery of, or the lapse
of restrictions on, Restricted Shares prior to issuance or delivery.
(b) Nothing in the Plan shall be deemed to create any right in a Participant
to continued employment or other service with the Company. Participants shall
have no rights under this Plan other than as general creditors of the Company.
Section 10 Governing Law.
The Plan shall be construed according to the law of the State of Texas to the
extent federal law does not supersede and preempt state law.
Section 11 Effective Date.
The Plan shall become effective as of January 1, 1995, provided that a
majority of the holders of the Company's Common Stock shall have approved the
Plan at the Company's 1995 Annual Meeting of Stockholders.
3
<PAGE>
(LOGO OF LYONDELL PETROCHEMICAL COMPANY APPEARS HERE)
(LOGO OF RECYCLED PAPER APPEARS HERE)
<PAGE>
/ /
1. ELECTION FOR all / / WITHHOLD AUTHORITY / / *EXCEPTIONS / /
OF nominees to vote for all
DIRECTORS listed below nominees listed below
Nominees: William T. Butler, D. Travis Engen, Bob G. Gower, Stephen F.
Hinchliffe, Jr., Dudley C. Mecum II, Dan F. Smith, Paul R. Staley
(INSTRUCTIONS: To withhold authority to vote for any individual nominee mark
the "Exceptions" box and write that nominee's name in space provided below.)
*Exceptions
-----------------------------------------------------------------
2. Proposal to approve Value Share Plan for executive officers.
FOR / / AGAINST / / ABSTAIN / /
3. Proposal to approve Restricted Stock Plan.
FOR / / AGAINST / / ABSTAIN / /
4. Proposal to ratify the appointment of Coopers & Lybrand, independent
accountants, as the Company's auditors for the fiscal year ending December
31, 1995.
FOR / / AGAINST / / ABSTAIN / /
5. In their discretion, the Proxies are authorized I/we will / /
to vote upon such other business as may attend meeting
properly come before the meeting.
Address Change / /
Mark Here
Please sign exactly as name appears. When
shares are held by joint tenants, both
should sign. When signing as attorney,
executor, administrator, trustee or
guardian, please give full title as such.
Dated: , 1995
-----------------------------
-----------------------------------------
Signature
-----------------------------------------
Signature if held jointly
Please Sign, Date and Return the Proxy Votes MUST be indicated / /
Promptly Using the Enclosed Envelope. (x) in Black or Blue ink.
[LOGO OF LYONDELL APPEARS HERE]
ONE HOUSTON CENTER
1221 McKINNEY, SUITE 1600
HOUSTON, TEXAS 77010
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby makes, constitutes and appoints State Street Bank,
as Trustee, lawful attorney and proxy of the undersigned, with full power of
substitution, for and in the name, place and stead of the undersigned to attend
the Annual Meeting of Stockholders of Lyondell Petrochemical Company (herein
the "Company") in the Ballroom of the Four Seasons Hotel, 1300 Lamar, Houston,
Texas, on Friday, June 2, 1995 at 10:00 a.m., local time, and at any
adjournment(s) thereof, with all powers the undersigned would be entitled to
vote if personally present.
YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE
BOXES, SEE REVERSE SIDE, BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN
ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS. THE PROXIES CANNOT BE
VOTED UNLESS YOU SIGN AND RETURN THIS CARD
LYONDELL PETROCHEMICAL COMPANY
P.O. BOX 11244
NEW YORK, N.Y. 10203-0244
(Continued, and to be signed and dated, on reverse side.)
