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1996
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
-----------------------
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
COMMISSION FILE NUMBER 1-10145
LYONDELL PETROCHEMICAL COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
DELAWARE 95-4160558
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1221 MCKINNEY STREET, 77010
SUITE 1600, HOUSTON, TEXAS (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 652-7200
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ----------------------
COMMON STOCK ($1.00 PAR VALUE) NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
--- ---
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K.
X
---
THERE WERE 80,000,000 SHARES OF THE REGISTRANT'S COMMON STOCK OUTSTANDING
ON DECEMBER 31, 1996. THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY
NON-AFFILIATES OF THE REGISTRANT ON FEBRUARY 28, 1997 BASED ON THE CLOSING PRICE
ON THE NEW YORK STOCK EXCHANGE COMPOSITE TAPE ON THAT DATE, WAS $890,488,029.
DOCUMENTS INCORPORATED BY REFERENCE
THE REGISTRANT'S DEFINITIVE PROXY STATEMENT, WHICH WILL BE FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION WITHIN 120 DAYS AFTER DECEMBER 31, 1996
(INCORPORATED BY REFERENCE UNDER PART III).
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TABLE OF CONTENTS
PART I
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Item Page
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1. and 2. Business and Properties............................ 1
The Company's Business............................. 1
Development of Business............................ 1
Summary Description of Business Segments........... 2
PETROCHEMICALS SEGMENT............................. 2
Overview - Petrochemicals Operations............... 2
-- Feedstocks...................................... 4
-- Marketing, Sales and Distribution............... 4
Overview - Polymers Operations..................... 5
-- Feedstocks...................................... 6
-- Marketing, Sales and Distribution............... 6
Competition and Industry Conditions................ 6
Capital Program and Business Strategies............ 7
Properties......................................... 7
Research and Technology; Patents and Trademarks.... 8
Employee Relations................................. 9
Finance Matters.................................... 9
Long-Term Debt and Financing Arrangements.......... 9
REFINING SEGMENT................................... 10
Overview........................................... 10
Upgrade Project.................................... 11
Management of LCR.................................. 11
Feedstocks......................................... 12
Marketing and Sales................................ 12
Agreements between Lyondell and LCR................ 13
Competition and Industry Conditions................ 13
Capital Program.................................... 13
Properties......................................... 13
Employee Relations................................. 13
LCR Unsecured Revolving Credit Facility............ 14
Environmental Matters.............................. 15
3. Legal Proceedings.................................. 16
Related Party Transactions......................... 19
Executive Officers of the Registrant............... 20
Description of Capital Stock....................... 21
4. Submission of Matters to a Vote of Security Holders 24
PART II
5. Market for Registrant's Common Equity and Related
Stockholder Matters............................... 24
6. Selected Financial Data............................ 25
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations............... 25
8. Financial Statements and Supplementary Data........ 36
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure............... 60
PART III
10. Directors and Executive Officers of the Registrant. 60
11. Executive Compensation............................. 60
12. Security Ownership of Certain Beneficial Owners and
Management........................................ 60
13. Certain Relationships and Related Transactions..... 60
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PART IV
14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K....................................... 61
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PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
THE COMPANY'S BUSINESS
Lyondell Petrochemical Company ("Lyondell" or the "Company") operates in the
petrochemicals and refining segments. The Company manufactures a wide variety
of petrochemicals, including olefins, polyolefins, methyl tertiary butyl ether
("MTBE") and aromatics. The Company's petrochemicals products are used
primarily in the manufacture of other chemicals and products, which in turn are
used in the production of a wide variety of consumer and industrial products.
Lyondell produces methanol through its interest in Lyondell Methanol Company,
L.P., a Texas limited partnership ("Lyondell Methanol"). Through its interest
in LYONDELL-CITGO Refining Company Ltd., a Texas limited liability company
("LCR") the Company produces refined petroleum products, including gasoline, low
sulfur diesel, jet fuel, aromatics and lubricants ("lube oils"). LCR sells its
principal refined products primarily to CITGO Petroleum Corporation ("CITGO").
DEVELOPMENT OF BUSINESS
From its formation in 1985 through June 1988, Lyondell operated as a division
("Lyondell Division") of Atlantic Richfield Company ("ARCO"). In July 1988, ARCO
transferred the division's assets and liabilities along with additional pipeline
assets, to its wholly owned subsidiary, Lyondell Petrochemical Company, a
Delaware corporation, in exchange for additional shares of Lyondell Common
Stock. In January 1989, ARCO completed an initial public offering of
approximately 50.1 percent of the Company's Common Stock. In August 1994, ARCO
completed an offering ("ARCO Note Offering") of three-year debt securities
("Exchangeable Notes") which are exchangeable upon maturity at September 15,
1997 into either Lyondell Common Stock or an equivalent cash value, at ARCO's
option. If ARCO elects to exchange the Notes for shares of Lyondell Common
Stock, ARCO's equity interest in Lyondell will be reduced or eliminated,
depending on the price of Lyondell Common Stock at maturity of the Exchangeable
Notes. For additional information, see "RELATED PARTY TRANSACTIONS". As of
March 1, 1997, ARCO owned 39,921,400 shares of Lyondell Common Stock,
representing 49.9 percent of the issued and outstanding Common Stock of the
Company.
In February 1990, the Company acquired a polypropylene plant and a low-density
polyethylene plant located in Pasadena, Texas ("Bayport Facility").
In July 1993, pursuant to agreements between the Company and CITGO (and its
affiliates), the Company contributed its refining business, including the
Houston, Texas refinery ("the Refinery"), the lube oil blending and packaging
plant in Birmingport, Alabama and refining working capital to LCR. The Company
retained a participation interest in LCR through its wholly owned subsidiary,
Lyondell Refining Company. At December 31, 1996, the Company had an approximate
90 percent interest in LCR while CITGO held the remaining approximate 10 percent
interest. Through December 31, 1996, the results of LCR's operations were
consolidated into the Company's financial statements. LCR completed a major
upgrade project (the "Upgrade Project") at the Refinery in the first quarter
1997. See "REFINING SEGMENT -- Upgrade Project". After completion of the
Upgrade Project, the Company's interest in LCR was reduced to approximately 60
percent and the authority and responsibility for certain management decisions
which were previously decided by majority vote, and therefore controlled by the
Company, were changed to unanimous vote, resulting in expanded joint control of
LCR by the Company and CITGO. Effective January 1, 1997, the Company will
account for its investment in LCR under the equity method of accounting. See
further discussion of the impact of this accounting change in Item 7 --
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- ACCOUNTING CHANGES" and Note 3 of "NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS".
In May 1995, the Company acquired Occidental Chemical Corporation's ALATHON
high-density polyethylene ("HDPE") business ("ALATHON Business"). Assets
involved in this acquisition included resin production facilities in Matagorda
(the "Matagorda Facility") and Victoria (the "Victoria Facility"), Texas,
related research and development activities and the rights to the Alathon(R)
trademark.
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In July 1996, the Company announced the execution of a Letter of Intent with
three other olefins producers for the planned construction of a worldscale
olefins plant ("Joint Olefins Venture"). After the withdrawal of one of the
participants in October 1996, the Company and its partners are continuing to
evaluate options for the proposed plant including, alternative designs for
utilizing various different feedstock mixes, as well as size, schedule and
participants.
In December 1996, the Company announced the formation of Lyondell Methanol with
MCN Investment Corporation ("MCNIC"), a division of MCN Corporation, to own the
Company's 248 million gallons per year methanol plant. Under the terms of the
agreement, MCNIC purchased a 25 percent interest in the methanol plant.
Lyondell retained a 75 percent interest and will serve as managing partner and
operator.
For additional information relating to certain continuing relationships and
potential conflicts of interest among Lyondell, LCR, ARCO and ARCO Chemical
Company, an 83.3 percent owned subsidiary of ARCO, ("ARCO Chemical"), see
"RELATED PARTY TRANSACTIONS", included herein, and "TRANSACTIONS BETWEEN THE
COMPANY AND ARCO" and "PRINCIPAL STOCKHOLDERS" which are included in the
Company's 1997 Proxy Statement and incorporated herein by reference as part of
Item 13 of this Annual Report on Form 10-K.
The Company's principal executive offices are located at 1221 McKinney Street,
Houston, Texas 77010 (Telephone (713) 652-7200).
SUMMARY DESCRIPTION OF BUSINESS SEGMENTS
PETROCHEMICALS SEGMENT
Through the year ended December 31, 1996, the Company reported its results of
operations in two segments, petrochemicals and refining. Beginning in 1997, the
Company intends to report the results of its polymers operations as a separate
segment. Currently the results of polymers operations are included in the
petrochemicals segment.
OVERVIEW
PETROCHEMICALS OPERATIONS
Channelview Facility -- Lyondell's Channelview petrochemical complex (the
"Channelview Facility") is located in Channelview, Texas, 20 miles east of
Houston. The Channelview Facility includes two large olefins plants and related
processing units that produce ethylene, propylene, butadiene, butylenes,
benzene, toluene, hydrogen and certain specialty products, such as isoprene,
dicyclopentadiene, resin oils and piperylenes, along with gasoline blendstocks
and heavy liquid fuels. The Company's petrochemicals products are used to
manufacture intermediate chemicals, which are primarily used in a variety of
consumer and industrial products. Petrochemicals are fundamental to many
segments of the economy, including the production of consumer products, housing
components, automotive products and other durable and non-durable goods.
Ethylene is the most significant petrochemical in terms of worldwide production
volume and is the key building block for a large number of chemicals. With the
wide proliferation of end-use products derived from ethylene during the past
several decades, especially as plastics have developed into low cost, high
performance substitutes for a wide range of materials such as metals and paper,
U.S. ethylene consumption has grown by an average annual rate of more than four
percent.
Mont Belvieu Facility -- Feedstocks for the Company's facilities and products
are stored at the Company's Mont Belvieu, Texas storage facility ("Mont Belvieu
Facility"). The Mont Belvieu Facility is connected by a comprehensive pipeline
system to the Channelview Facility.
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The following table outlines the products manufactured at the Channelview
Facility.
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PRODUCT PRIMARY USES
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ETHYLENE Ethylene is used as a feedstock to manufacture
polyethylene which is used in products such as
trash bags, packaging film, toys, housewares and
milk containers. Ethylene also is used to produce
ethylene oxide (used to produce ethylene glycol
which is used to produce antifreeze and polyester
fibers), ethylene dichloride (used to produce
polyvinyl chloride for pipe and other vinyl
products), ethylbenzene (used to produce styrene,
which in turn is used to produce polystyrene for
packaging and containers) and alpha olefins (used
in the manufacture of detergents, as well as other
intermediate chemicals).
PROPYLENE Propylene is used to produce polypropylene,
acrylonitrile, propylene oxide and oxo products.
Polypropylene is used in products such as carpets,
food packaging, upholstery, automobile parts and
plastic bottles. Acrylonitrile is used in
clothing and high impact plastics. Propylene oxide
is used in polyurethane foams for furniture and
insulation. Oxo products are used in industrial
solvents, as well as other intermediate chemicals.
BUTADIENE Butadiene is used to manufacture styrene butadiene
rubber and polybutadiene rubber, which are used in
the manufacture of tires and other rubber
products. Butadiene is also used in the production
of nylon and acrylonitrile-butadiene-styrene
plastics.
AROMATICS Aromatics products include benzene and toluene.
Benzene is used to produce styrene, phenol and
nylon. Toluene is used as an octane enhancer, for
benzene production and in urethane chemicals.
These products are used in the production of
plastics, rubber, fibers for carpet and apparel,
in gasoline and in polyurethane foams used in seat
cushions.
SPECIALTY PRODUCTS Specialty products include feedstocks for the
production of various types of hydrocarbon resins
and unsaturated polyester resins. These products
are used in the production of inks, adhesives,
paints and varnishes, rubber and fiberglass.
METHANOL Methanol is produced by Lyondell Methanol and is
used to produce MTBE and a variety of chemical
intermediates, including formaldehyde, acetic acid
and methyl methacrylate. These intermediates are
used to produce bonding adhesives for plywood as
well as in polyester fibers and plastics. Other
end uses include solvents and antifreeze
applications.
MTBE MTBE is an octane enhancer and clean fuel additive
in reformulated gasoline.
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The following table shows the current annual rated capacity for certain of the
Company's principal petrochemicals products.
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RATED CAPACITY (a)
AT DECEMBER 31,
1996
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(MILLIONS)
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PETROCHEMICALS PRODUCT:
Ethylene (pounds)........ 3,850 (b)
Propylene (pounds)....... 2,250 (c)
Butadiene (pounds)....... 615
Methanol (gallons)....... 248 (d)
MTBE (gallons)........... 199
Aromatics (gallons)...... 130
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(a) The term "rated capacity", as used in this table and throughout this report,
is calculated by estimating the number of days in a typical year that a
production unit of a plant is expected to operate, after allowing for
downtime for regular maintenance, and multiplying that number by an amount
equal to the unit's optimal daily output based on
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the design feedstock mix. Because the rated capacity of a production unit is
an estimated amount, the actual production volumes may be more or less than
rated capacity.
(b) In 1996, the Company completed a debottleneck project of its olefins units
that increased ethylene capacity by approximately seven percent.
(c) Does not include refinery grade material or production from the product
flexibility unit, which has a current rated capacity of one billion pounds
per year of propylene.
(d) Capacity as shown includes 100 percent of the methanol produced by Lyondell
Methanol, of which the Company owns 75 percent.
FEEDSTOCKS
The primary feedstocks used in the production of olefins are natural gas liquids
feedstocks including ethane, propane and butane (collectively "NGLs") and
naphtha, condensates and gas oils (collectively "Petroleum Liquids"). As of
January 1, 1997, approximately 40 percent of domestic ethylene capacity was
limited to NGL feedstocks, and the remaining approximately 60 percent could
process to some extent both NGLs and Petroleum Liquids. Olefins plants with the
flexibility to consume a wide range of feedstocks are better able to maintain
higher levels of profitability during periods of changing energy and
petrochemicals prices than olefins plants that are restricted in their feedstock
processing capability. Feedstock cost is generally the largest element of total
cost for the petrochemicals business.
Petroleum Liquids have had a significant historical variable margin advantage
over ethane and propane. The industry margin differential between these
feedstocks has been typically between one and four cents per pound of ethylene.
The Company has the capability to capture this differential at the Channelview
Facility due to its feedstock flexibility. The Company's olefins plants can
process 100 percent Petroleum Liquids or up to 90 percent NGL feedstocks.
The Company obtains a portion of its olefins feedstock requirements from LCR
(NGLs, naphtha and gas oil) and additional olefins feedstock in the form of
petroleum condensates pursuant to a contract with an affiliate of a foreign
government. The remainder of its Petroleum Liquids requirements are obtained
under short-term contracts or on the spot market from a variety of foreign and
domestic sources. The Company also purchases NGLs from a wide variety of
domestic sources, many of which have pipeline connections to the Company's
facilities.
Lyondell Methanol's plant processes natural gas feedstocks. The Company is
connected to a diverse natural gas supply network and it purchases natural gas
for use as fuel at its facilities, and sells natural gas to Lyondell Methanol as
a feedstock for the methanol plant.
MARKETING, SALES AND DISTRIBUTION
Lyondell sells a majority of its olefins products to customers with whom it has
long-standing relationships. Sales generally are made pursuant to written
agreements which typically provide for monthly negotiation of price. The
parties are contractually committed to monthly price terms. Nonetheless, in
some cases, if the parties fail to agree on a monthly price, deliveries may be
suspended for the month. The contracts typically require the customer to
purchase a specified minimum quantity. Contract terms are typically three to
six years with automatic one or two year term extension provisions. Some
contracts are subject to early termination if deliveries have been suspended for
several months.
The Company sells substantially all of the methanol output from Lyondell
Methanol and most of its aromatics output under contracts that have initial
terms ranging from two to three years and that typically contain automatic one
year term extension provisions. These contracts generally provide for monthly
or quarterly price adjustments based upon current market prices. Aromatics
produced at the Refinery, with the exception of benzene, are marketed by
Lyondell for LCR under contracts with similar terms to its own. Benzene
produced at the Refinery is sold directly to Lyondell at market-related prices.
Lyondell licenses MTBE technology from ARCO Chemical and sells MTBE produced at
one of its two units primarily to ARCO Chemical at market-based prices. The
production from the second unit is produced for LCR for gasoline blending. In
addition, Lyondell has entered into a joint development and licensing
arrangement to accelerate
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commercialization of two isomerization processes that produce feedstocks for
MTBE and tertiary amyl methyl ether ("TAME") which are blending components for
reformulated gasoline. See "RESEARCH AND TECHNOLOGY; PATENTS AND TRADEMARKS".
Most of the Company's ethylene and propylene is shipped or exchanged via an
extensive pipeline system which has connections to numerous Gulf Coast ethylene
and propylene consumers. The pipeline system is owned by ARCO PipeLine
Company, and substantially all of it is leased by the Company under long-term
leasing arrangements. See "PETROCHEMICALS SEGMENT -- Properties" and "RELATED
PARTY TRANSACTIONS". The Company has exchange agreements with other olefins
producers which allow access to customers who are not directly connected to the
pipeline system. Some propylene is shipped by ocean-going vessel. Butadiene,
methanol, aromatics and other petrochemicals are distributed by pipeline,
railcar, truck, barge or ocean-going vessel.
POLYMERS OPERATIONS
Bayport Facility -- The Bayport Facility converts propylene and ethylene into
polypropylene and low-density polyethylene that is sold into markets for end use
products. The Bayport Facility is connected by pipeline to the Company's Mont
Belvieu Facility for feedstock supply.
Matagorda Facility -- The Matagorda Facility converts ethylene and small
amounts of comonomer into HDPE. In 1996, a significant portion of the ethylene
converted at the Matagorda Facility was supplied by the Channelview Facility.
The Matagorda Facility features three independent reaction and finishing process
lines that employ the Nissan slurry polymerization technology. This enables
Lyondell to produce a wide variety of resins for blown film, blow molding and
injection molding applications.
Victoria Facility -- The Victoria Facility converts ethylene and small amounts
of comonomer into HDPE resins. In 1996, a significant portion of the ethylene
converted at the Victoria Facility was supplied by the Channelview Facility.
The Victoria Facility features solution polymerization technology that minimizes
the presence of catalyst residues resulting in resins with excellent
organoleptic properties (no taste or odor) and extremely low moisture vapor
transmission rates. This enables Lyondell to produce a wide variety of film and
injection molding resins for use in consumer products and industrial
applications.
Polymers Technology Center -- Research and development is conducted in a
catalyst laboratory with state-of-the-art analytical capabilities in Alvin,
Texas (the "Technology Center"). The Technology Center provides product and
process technology support for the Company's polymers operations and its
customers.
The following table outlines the polymers products manufactured by the Company.
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PRODUCT PRIMARY USES
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HIGH-DENSITY POLYETHYLENE Plastic films for grocery and merchandise
carry-out sacks, trash can liners and food produce
bags. Molded and extruded plastic for packaging
food items, plastic drink cups, safety equipment,
housing insulation, detergent/motor oil bottles
POLYPROPYLENE Fibers for carpets, rugs, upholstery; housewares;
plastic caps and seals for consumer items such as
shampoo and household cleaners
LOW-DENSITY POLYETHYLENE Plastic films for packaging items such as ice and
bread, plastic bottles for packaging food and
medicines
</TABLE>
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The following table shows the current annual rated capacity for each of the
Company's principal polyolefins products.
RATED CAPACITY
AT DECEMBER 31,
1996
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(MILLIONS)
POLYOLEFINS PRODUCT:
High-density polyethylene (pounds) 1,500 (a)
Polypropylene (pounds) 400 (b)
Low-density polyethylene (pounds) 140
________________
(a) The Company is undertaking a debottleneck project at its Victoria Facility
that will expand the plant's HDPE capacity by approximately 25 percent to
575 million pounds and is scheduled to be completed in 1998. In addition,
the Company plans to expand HDPE capacity by an additional 440 million
pounds. This capacity expansion should be complete in 1999.
(b) In the second quarter of 1996, the Company completed a debottleneck project
that expanded polypropylene capacity by approximately 33 percent to 400
million pounds.
FEEDSTOCKS
The ethylene and propylene converted at the Bayport Facility are supplied by the
Channelview Facility either directly or via exchange arrangements. Under a
supply agreement with Occidental Chemical Company, portions of the Company's
ethylene supply needs at the Victoria and Matagorda Facilities are supplied by
Occidental. In 1996 the Company began supplying significant amounts of ethylene
from its Channelview Facility to the Victoria and Matagorda Facilities via
exchange arrangements.
MARKETING, SALES AND DISTRIBUTION
The Company's polymers products are primarily sold to established customers,
many under term contracts, typically having a duration of one to four years.
The remainder is generally sold without contractual term commitments. In either
case, in most of the continuous supply relationships, prices are subject to
change upon mutual agreement between Lyondell and the customer. Polymers are
primarily distributed via railcar. The Company owns or leases, pursuant to
long-term lease arrangements, approximately 3,200 railcars for use in its
polymers business.
COMPETITION AND INDUSTRY CONDITIONS
The basis for competition in Lyondell's petrochemicals products is product
quality, product deliverability, customer service and price. Lyondell competes
with other large domestic producers of petrochemicals and polymers, including
Amoco Chemical Company, Chevron Chemical Company, Dow Chemical Company, Exxon
Chemical Company, Fina, Himont, Huntsman Chemical, Mobil Chemical Company,
Occidental Chemical Corporation, Phillips Petroleum Company, Shell Chemical
Company and Union Carbide Company. Petrochemicals profitability is affected by
the level of demand for petrochemicals and petrochemical derivatives, including
exports throughout the world, along with vigorous price competition which may
intensify due to, among other things, new domestic and foreign industry
capacity. In general, weak economic conditions either in the United States or
in the world tend to reduce demand and put pressure on margins. It is not
possible to predict accurately the changes in feedstock costs, market conditions
and other factors which will affect petrochemical industry margins in the
future.
The combined rated capacity of the Company's olefins units at January 1, 1997
was approximately 3.8 billion pounds of ethylene per year or approximately 7
percent of total domestic production capacity. Based on published rated
production capacities, the Company believes it is one of the six largest
producers of ethylene in the United States. Of the total ethylene production
capacity in the United States, approximately 90 percent is located along the
Gulf Coast, and approximately 75 percent is owned by ten manufacturers.
Domestic industry ethylene rated capacity at January 1, 1997 was approximately
53 billion pounds per year.
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The petrochemicals industry historically has experienced periods of high demand
and high capacity utilization which result in increasingly higher operating
margins and profitability. This generally has resulted in new capacity
investment until industry supply exceeds demand. This overcapacity in turn has
resulted in periods of decreasing capacity utilization and declining operating
margins until demand and supply factors come back into balance before the cycle
is repeated. Historically, as a producer of olefins primarily for merchant
supply to unaffiliated customers, Lyondell has typically experienced greater
variations in its sales volumes and profitability when industry supply and
demand relationships are at extremes in comparison to more integrated
competitors, i.e., those with a higher proportion of captive demand for olefins
derivatives production. However, as a result of the acquisition of the ALATHON
Business, a greater percentage of the Channelview Facility's annual ethylene
production will be converted at the Company's downstream facilities.
The Company's other major commodity chemical products also experience cyclical
market conditions similar to (although not necessarily coincident with) those of
ethylene.
CAPITAL PROGRAM AND BUSINESS STRATEGIES
The petrochemical segment's fixed asset capital expenditures totaled $77 million
in 1996 and its capital budget for 1997 is $116 million which includes initial
work on expansion of the Company's HDPE capacity.
As part of its ongoing operations, the Company periodically conducts maintenance
turnarounds on its facilities. Although turnarounds on principal facilities are
usually scheduled well in advance, the timing of such turnarounds can be
accelerated or delayed because of numerous factors, some of which are beyond the
Company's control. The Company completed a turnaround and debottleneck on one of
its two olefins units during the second quarter of 1996. A similar turnaround
and debottleneck was completed on the other olefins unit in the third quarter
1995. During the first quarter of 1997, the Company is undertaking a turnaround
at its Matagorda Facility.
The Company's business strategies are to maintain and improve its low-cost
position, reduce cyclicality and volatility and grow the business profitably.
Lyondell continually evaluates opportunities to expand or further diversify its
operations through potential acquisitions, joint ventures and other
opportunities involving third parties. Management believes that industry trends
may provide additional opportunities to enhance shareholder value. This could be
accomplished by applying the Company's expertise in the efficient and low-cost
operation of its facilities to a larger asset base. Additional vertical
integration with an ethylene or propylene consumer could increase olefins plant
operating rates during weak market periods by providing captive outlets.
Horizontal integration with another olefins producer could improve operating
efficiencies by spreading overhead costs across larger volumes and enhancing
operating flexibility. Consistent with the Company's overall strategy, however,
management's intent is to undertake such transactions only if it expects the
transactions would produce both near-term and long-term improved cash flow and
would produce returns in excess of the Company's cost of capital.
Potential funding sources for significant capital projects, whether involving
transactions with third parties or otherwise, could include, without limitation,
the Company's current financial resources, potential earnings growth, future
borrowings and future issuance of equity securities, as well as possible
contractual arrangements such as joint ventures or partnerships. Both the
Company's ability to undertake and fund the particular strategies described
above and the level of the Company's capital commitments and expenditures from
period to period will be affected by a variety of factors including, without
limitation, the general business environment, as well as changes in applicable
government regulations and tax laws. See "FINANCE MATTERS".
PROPERTIES
The Company owns all of the plant and equipment that comprise its two olefins
plants at its Channelview Facility and owns the approximately 2,945 acre parcel
on which the complex is situated. The Company also owns the petrochemicals
processing units and a 75 percent interest in the Lyondell Methanol plant, all
of which are located at the Channelview Facility. These include the product
flexibility unit, two MTBE units, a butylene isomerization unit, the butylene
alkylation unit, the benzene and toluene recovery unit, the butadiene recovery
unit, the isoprene recovery unit and an isopropyl alcohol unit. The isopropyl
alcohol unit is used exclusively to process products for ARCO Chemical and the
majority of production from one of the MTBE units is sold to ARCO Chemical. The
Company also operates a styrene maleic anhydride ("SMA") unit and a
polybutadiene unit which are owned by a third party and are located on
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property leased from the Company within the Channelview Facility. A third party
owns and operates a facility on land leased from the Company that is used to
purify hydrogen from the Company's methanol plant.
Lyondell owns several pipelines connecting the Channelview Facility, the
Refinery and the Mont Belvieu Facility, including six lines used to transport
liquid feedstocks, butylenes, benzene, hydrogen, butane, MTBE and unfinished
gasolines between the Channelview Facility and the Refinery. The Company also
owns a barge docking facility capable of berthing eight barges and related
terminal equipment for loading and unloading. This facility is used for loading
methanol, pyrolysis fuel oil and pyrolysis gas oil into barges for delivery to
customers and unloading petroleum condensate barges for olefins feedstocks.
At the Channelview Facility, the Company recovers and sells valuable
petrochemicals components contained in a number of intermediate product streams.
The Channelview Facility includes units for butadiene recovery and aromatics
recovery. In addition, the Channelview Facility recovers valuable components
such as high purity isoprene, piperylenes and dicyclopentadiene ("DCPD") and
resin oils from its gasoline products. The Company uses its proprietary
butylene isomerization technology, known as ISOMPLUS(R) ("Isomplus(R)"), to
efficiently produce isobutylene from olefins plant butylene by-product streams.
See "RESEARCH AND TECHNOLOGY; PATENTS AND TRADEMARKS".
Lyondell also owns a storage facility, a brine pond facility and a tract of
vacant land at Mont Belvieu, Texas, located approximately 15 miles east of the
Channelview Facility. Storage capacity for up to approximately 13 million
barrels of NGL feedstocks, ethylene, propylene and other hydrocarbons is
provided in salt domes at the Mont Belvieu Facility. The Company also owns an
approximate 10 percent undivided joint interest in much of the real property
surrounding the Mont Belvieu Facility. This property, which is owned jointly
with several other companies that operate storage or processing facilities at
Mont Belvieu, is maintained as a greenbelt for these facilities. The Company
has a long-term lease on product pipelines from the Mont Belvieu Facility to
most olefins customers.
The Company owns the real property, plant and equipment which comprise the
Bayport Facility located on approximately 187 acres in Pasadena, Texas. The
Company's Matagorda Facility includes a 2,114 acre site 13 miles south of Bay
City, Texas in Matagorda County which includes a pilot plant used to enhance
the Company's current product line and develop new products and processes. The
Company's Victoria Facility is comprised of an HDPE unit located on a 33 acre
site within the DuPont Chemical complex in Victoria, Texas. The Company owns or
leases pursuant to long-term lease arrangements approximately 3,200 railcars for
use in its polymers business.
Lyondell leases its executive offices and corporate headquarters in downtown
Houston. In addition, the Company leases facilities which house the Technology
Center in Alvin, Texas and storage facilities for the handling of products from
various third parties, primarily in the Gulf Coast area.
RESEARCH AND TECHNOLOGY; PATENTS AND TRADEMARKS
The Company uses numerous patents in its operations, many of which are licensed
from third parties, including ARCO. See Item 13 -- "Certain Relationships and
Related Transactions". Although the Company's licenses from ARCO and others are
significant to its operations, the Company is not dependent upon any particular
patent, trade secret or the like, and it believes that the loss of any
individual patent, trade secret or similar proprietary right would not have a
material adverse effect on the operations of the Company. The Company submitted
several new patent applications during 1996 to protect new processes it
developed.
Lyondell's Channelview Facility employs a proprietary technology, the "product
flexibility" technology, that converts ethylene and other light petrochemical
streams into propylene. In addition, the olefins facilities can upgrade
butylene into higher-value products such as MTBE and alkylates used in the
production of automotive fuels. The Company is conducting a research project to
investigate alternative feedstocks for use at the Channelview Facility.
In 1992, the Company introduced Isomplus(R), a new technology for producing low-
cost isobutylene by isomerizing normal butylenes. Isobutylene is a key
ingredient in MTBE, which in turn is an important component of reformulated
gasoline. In an effort to accelerate worldwide commercialization of Lyondell's
butylene isomerization process, Lyondell has commercialized the technology
through a joint development and licensing relationship with CDTECH, a leading
supplier of ethers technologies used in reformulated fuels production, and has
entered into licensing arrangements with third parties. The arrangement with
CDTECH is intended to commercialize two processes,
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isomerization and etherification, to produce blending agents for cleaner burning
gasolines. During the first quarter of 1995, the Isomplus(R) unit at the
Channelview Facility became operational and commercial production of isobutylene
using the new technology began. In connection with this project, the existing
MTBE unit at the Channelview Facility was expanded. Development efforts are
continuing on similar technology to produce isoamylene, a feedstock used to
produce TAME, another oxygenate used in the production of reformulated gasoline.
The Company also has product development efforts aimed at tailoring products to
meet specific customer needs, especially in such areas as consumer products and
fibers. Lyondell's research and development efforts have resulted in the
invention of KromaLon(R), an enhanced polyolefin resin for the carpet market.
This advancement in resin technology enables the production of a recyclable
fiber with advanced coloring capabilities. In addition to the inherent stain
resistance of polypropylene, the new fiber is dyeable and printable, providing
advantages for commercial and residential carpets.
Recent polymers industry announcements relate to the development of metallocene,
or single-site, catalysts. Successful development and commercialization of
these catalysts are expected to result in enhanced polymer properties. The
Company has undertaken a broad search to evaluate outside technology and is
concentrating in-house research in an effort to identify and develop single-site
catalysts for use in the production of polyolefins resins. The Company has been
issued several U.S. patents and has filed others in connection with its research
and development efforts in this area.
Included in the acquisition of the ALATHON Business were rights to the
Alathon(R) trademark. The ALATHON name is recognized by polymers customers as a
leading supplier of quality HDPE resins. The Company uses numerous trademarks
in its marketing operations, a portion of which are licensed from third parties,
including ARCO. The Company submitted several new trademark applications during
1996 to protect product line names and to enhance its marketing position. The
Company is not dependent upon any particular trademark, and it believes the loss
of any individual trademark would not have a material adverse effect on its
operations.
EMPLOYEE RELATIONS
As of December 31, 1996, Lyondell, excluding LCR, employed approximately 1,500
full-time employees. The Company also uses the services of approximately 1,000
employees of independent contractors in the routine conduct of its business.
FINANCE MATTERS
The Company's financial goals include maintaining investment-grade debt ratings
while maintaining sufficient liquidity and debt capacity through all phases of
the industry cycle to provide for what it deems to be sufficient capability to
invest in attractive capital projects and possible external business
opportunities. The Company intends that cash flow in excess of the amounts
needed to fund its capital projects, external business opportunities and
appropriate liquidity needs, would be returned to the stockholders through stock
repurchases, increased dividends or some combinations thereof.
LONG-TERM DEBT AND FINANCING ARRANGEMENTS
As of December 31, 1996, the Company had $856 million of long-term debt
(including current portion) consisting of: (i) $100 million of notes due in
1997; (ii) $150 million of notes due in 1999; (iii) $100 million of notes due
in 2002; (iv) $150 million of notes due in 2006; (v) $150 million of debentures
due in 2026; and (vi) $206 million of medium-term notes due from 1997 to 2005.
In addition, the Company had $450 million of non-recourse borrowings under LCR's
credit facilities that mature in 2000.
The Notes due in 1999 and the medium-term notes contain provisions that would
allow the holders to require the Company to repurchase the debt upon the
occurrence of certain events combined with specified declines in public ratings
("Put Rights"). Events which may trigger the Put Rights include, among other
things, acquisitions by persons other than ARCO or the Company of more than 20
percent of the Company's Common Stock, any merger or transfer of substantially
all of the Company's assets in connection with which the Company's Common Stock
is changed into or exchanged for cash, securities or other property and payment
of "special" dividends. See Item 5 -- "Market for Registrant's Common Equity
and Related Stockholder Matters". The foregoing summary of the Put Rights is
not
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intended to be complete and it is subject to, and qualified in its entirety by
reference to, the terms of the Indenture for the Notes due in 1999 which has
been filed as an exhibit to the Company's Annual Report on Form 10-K for the
year ended December 31, 1989 and is incorporated herein by reference.
Company Unsecured Revolving Credit Facility -- The Company has a five-year,
$400 million revolving credit facility ("Facility") with a group of banks that
terminates in June 2000. Borrowings under the Facility bear interest at either
the eurodollar, certificate of deposit or prime rates or based on a competitive
auction feature wherein the interest rate can be established by competitive bids
submitted by the sponsoring banks, all at the Company's option. The Facility is
available for working capital and general corporate purposes as needed and
contains covenants relating to dividend payments, debt incurrence, liens,
disposition of assets, mergers and consolidations, fixed charge and leverage
ratios. The Company does not believe that the covenants or the other terms of
the Facility described below are reasonably likely to materially affect or
restrict the future operation of the Company's business or its ability to pay
dividends on its Common Stock. At December 31, 1996, no amounts were
outstanding under the Facility.
The foregoing summary of the Facility is not intended to be complete and it is
subject to, and qualified in its entirety by reference to, the terms of the
Facility which has been filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the period ending June 30, 1995 and incorporated herein by
reference.
As of December 31, 1996, the Company also had uncommitted lines of credit
totaling $285 million with banks and other financial institutions. These
uncommitted lines of credit provide the Company with additional borrowing
flexibility and potentially more competitive interest rates. The Company can
borrow money on these uncommitted lines of credit on such terms as may be
mutually agreed upon at the time amounts are borrowed. The lines of credit can
be terminated by the lenders, in their sole discretion, on short notice. As of
December 31, 1996, the Company had $50 million outstanding under these
uncommitted lines of credit.
For a further discussion of the Company's long-term debt and financing
arrangements, see Item 7 -- "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- FINANCIAL CONDITION" and Note 13 of
"NOTES TO CONSOLIDATED FINANCIAL STATEMENTS".
REFINING SEGMENT
OVERVIEW
Lyondell participates in petroleum refining through an equity interest in LCR.
After completion of the Upgrade Project, Lyondell held an approximate 60 percent
interest and CITGO held an approximate 40 percent interest in LCR. The Refinery
is located adjacent to the Houston Ship Channel in Pasadena, Texas. Products
manufactured at the Refinery include gasoline, low sulfur diesel, jet fuel,
aromatics, lubricants (industrial lubricants, motor oils, white oils and process
oils) carbon black oil, sulfur, residual fuel and petroleum coke fuel.
Aromatics are used to manufacture a variety of intermediate chemicals, including
ethylbenzene, cumene, urethane foam components and polyester intermediates for
films, fibers and resins. End uses of these products include packaging and
containers, furniture, apparel and flooring.
LCR was formed in 1993 to upgrade the refinery's ability to process substantial
additional volumes of lower cost, very heavy crude oil supplied by Venezuela
through the Upgrade Project. LCR has entered a long-term crude supply contract
("Crude Supply Contract") with Lagoven, S.A. ("LAGOVEN"), an affiliate of CITGO.
In addition, under the terms of a long-term product sales agreement ("Products
Agreement"), CITGO purchases from LCR a majority of the refined products
produced at the Refinery. Both LAGOVEN and CITGO are direct or indirect wholly
owned subsidiaries of Petroleos de Venezuela, S.A. ("PDVSA"), the national oil
company of Venezuela.
The Company believes the principal benefits from its participation in LCR will
be more stabilized earnings and cash flow from the refining business following
the completion of the Upgrade Project as well as the Crude Supply Contract and
the Products Agreement. Beginning in 1997, the earnings potential of LCR is
expected to be enhanced due to higher margins expected to be associated with the
resulting heavier crude oil mix and LCR's increased coking capability, enhanced
reformulated fuels and low sulfur diesel production capability and other yield
improvements.
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As of March 1, 1997, CITGO contributed $130 million to LCR which was used for
ongoing LCR operations and capital projects. Prior to the in-service date for
the Upgrade Project, CITGO reinvested its share of LCR's operating cash flow
totaling $42 million which was used for ongoing LCR capital projects.
Additional LCR capital requirements which occurred prior to the in-service date
(for purposes other than the Upgrade Project) were funded mostly by Lyondell,
primarily in the form of subordinated loans to LCR.
UPGRADE PROJECT
The Upgrade Project has increased the heavy crude oil processing capability of
the Refinery from 130,000 barrels per day of 22 degree API gravity crude oil to
a design capacity of more than 215,000 barrels per day of 17 degree API gravity
crude oil. While not increasing the total throughput of the Refinery, the
Upgrade Project has improved the Refinery's ability to process heavier, higher
margin, crude oils. The 17 degree API gravity crude oil is more viscous and
dense than traditional crude oil and contains higher concentrations of sulfur
and heavy metals, making it more difficult to refine into gasoline and other
high value fuel products but less costly to purchase. The Upgrade Project also
included expansion of the Refinery's reformulated gasoline and low sulfur diesel
production capability. Major components of the Upgrade Project include new
coking, crude distillation and sulfur recovery units.
Funding for the Upgrade Project, which cost approximately $1.1 billion, occurred
in four phases. The first phase, the initial $300 million, was funded by CITGO.
The second phase was funded by an LCR borrowing of $200 million. The third
phase of $500 million was funded (i) 50 percent through an LCR borrowing, (ii)
25 percent through contributions from CITGO, and (iii) 25 percent through
subordinated loans from the Company. The fourth phase, which covers spending in
excess of $1 billion, was funded (i) 50 percent through subordinated loans from
the Company and (ii) 50 percent through contributions of $25 million from CITGO,
with the balance of CITGO's contribution in subordinated loans. Prior to
completion of the Upgrade Project, the financing costs for the Upgrade Project
bank loans were funded by CITGO. In exchange for CITGO's Upgrade Project
contributions and the additional $130 million in equity contributions, CITGO's
participation interest in LCR increased to approximately 40 percent after
completion of the Upgrade Project. CITGO has a one-time option to increase its
participation interest in LCR up to 50 percent by making an additional equity
contribution.
MANAGEMENT OF LCR
LCR is a limited liability company organized under the laws of the state of
Texas and has pass-through tax characteristics similar to those of a partnership
for federal income tax purposes. The Company owns its interest in LCR through a
wholly owned subsidiary, Lyondell Refining Company. CITGO holds its interest
through CITGO Refining Investment Company, a wholly owned subsidiary of CITGO
(together with Lyondell Refining Company, "the Owners"). The operative agreement
with respect to the rights of each of the Owners and their parent companies is
the Amended and Restated Limited Liability Company Regulations ("Regulations")
of LCR. The Regulations govern, among other things, ownership and cash
distribution rights. Under the terms of a reciprocal Performance Guarantee and
Control Agreement ("Performance Guarantee"), Lyondell and CITGO each
unconditionally guarantee the obligations and performance of their respective
subsidiary-Owner under the terms of the Regulations.
The Regulations provide that LCR is managed by an Owners Committee, which has
three representatives ("Representatives") from each Owner. Actions requiring
unanimous consent of the Representatives, include, without limitation, amendment
of the Regulations, borrowing money in excess LCR's existing credit facilities,
delegations of authority to committees, certain purchase commitments and capital
expenditures in excess of designated amounts and budgetary approval. The day-
to-day operations of the Refinery are managed by the executive officers of LCR.
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FEEDSTOCKS
The following table sets forth the Refinery's runs of blended crude oils (which
include crude oil and other petroleum liquids, unfinished oils and other
hydrocarbons) and unfinished stock.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
------------------------------
1996 1995 1994
---- ---- ----
(THOUSAND BARRELS PER DAY)
<S> <C> <C> <C>
REFINERY RUNS:
Blended crude oils.................. 218 238 209
Unfinished stock.................... 45 48 64
---- ---- ----
Total................................. 263 286 273
==== ==== ====
</TABLE>
Prior to the Upgrade Project, only 40 percent of the crude oil processed at the
facility was heavy crude oil, and it was a significantly higher grade of heavy
crude oil than the 17 degree API gravity crude oil. With the startup of new and
modified units and the closure of older distillation units, more than 95 percent
of the crude oil processed at LCR will be very heavy crude oil purchased
pursuant to the Crude Supply Contract. LCR averaged approximately 131,000
barrels per day of 22 degree API Venezuelan crude oil in a full conversion mode
in 1996.
LCR is required to purchase and LAGOVEN is required to sell sufficient crude oil
to satisfy LCR's coking capacity, a minimum of 200,000 and up to 230,000 barrels
per day of very heavy Venezuelan crude oil. LAGOVEN has the right, but not the
obligation, to supply incremental amounts above 230,000 barrels per day.
The Crude Supply Contract incorporates a formula price based on the market value
of a slate of refined products deemed to be produced from each particular crude
oil or feedstock, less: (i) certain deemed refining costs, adjustable for
inflation; (ii) certain actual costs, including crude transportation costs,
import duties and taxes; and (iii) a deemed margin, which varies according to
the grade of crude oil or other feedstock delivered. Deemed margins and deemed
costs are adjusted periodically. These adjustments are based on, and in the
case of deemed margins, less than, the rate of inflation. Because deemed
operating costs and the slate of refined products deemed to be produced for a
given barrel of crude oil or other feedstock do not necessarily reflect the
actual costs and yields in any period and also because the market value of the
refined products used in the pricing formula does not necessarily reflect the
actual price received for the refined products, the actual refining margin
earned by LCR under the Crude Supply Contract will vary depending on, among
other things, the efficiency with which LCR conducts its operations during such
period.
There are risks associated with enforcing the provisions of contracts with an
affiliate of a foreign government such as LAGOVEN. These risks include
enforcing judgments of United States courts against entities whose assets are
located outside of the United States and whose management does not reside in the
United States. Depending on then current market conditions, breach or
termination of the Crude Supply Contract could adversely affect the Company.
For example, the parties have negotiated alternative arrangements in the event
of certain force majeure conditions, including governmental or other actions
restricting or otherwise limiting LAGOVEN's ability to perform its obligations.
Any such alternative arrangements may not be as beneficial as the Crude Supply
Contract. There can be no assurance that alternative crude oils with similar
margins would be available for purchase by LCR. If LCR were required to return
to the practice of purchasing all of its crude oil feedstocks in the merchant
market, LCR would again be subject to significant volatility and price
fluctuations. However, the Company believes that this transaction holds
substantial economic and other incentives for all parties to perform their
obligations. Lyondell believes PDVSA's strategic interest in expanding its
crude oil refining operations in the United States in order to increase the
markets for its heavy crude oil and continued financial commitments of CITGO
should provide an economic incentive for all PDVSA affiliates to perform their
obligations under the various agreements.
MARKETING AND SALES
The Refinery produces gasoline, low sulfur diesel, jet fuel, aromatics,
lubricants and certain industrial products. On a weekly basis, LCR evaluates
and determines the optimal product output mix for the Refinery, based on spot
market prices and conditions. Pursuant to the Products Agreement, CITGO is
purchasing all of the gasoline, low sulfur diesel and heating oil manufactured
at the Refinery. These products are purchased by CITGO at market-based prices.
For example, the price for gasoline is based on prices published by Platts
Oilgram, an industry trade publication. Aromatics extracted as part of the
refining process are marketed for LCR by Lyondell. With the startup of new and
modified
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hydrotreaters and sulfur plants, LCR is now producing all of its distillate as
low sulfur diesel fuel for sale as transportation fuel, a higher-valued product.
Blending facilities completed as part of the Upgrade Project enable LCR to
supply more than 70 percent of its gasoline capacity as higher-value
reformulated or oxygenated fuel.
Due to the increasingly competitive lubricants business, LCR elected to close
the base oils distillation units at year-end and now purchases lubricant base
stocks in the open market for blending into motor oils. This eliminated
approximately 35,000 barrels per day of higher cost sweet crude oil previously
used in these units. LCR will continue to participate in the naphthenic oil,
white oil and compounded oil businesses.
AGREEMENTS BETWEEN LYONDELL AND LCR
The Company and LCR have entered into multiple agreements designed to preserve
much of the synergy between the Refinery and the Channelview Facility. Economic
evaluations at the Channelview Facility and the Refinery are based on sending
products to the highest-value disposition, which may be local use, use at the
other site, or third party sales. Certain refinery products (propane, butane,
low-octane naphthas, heating oils, and gas oils) can be used as feedstocks for
olefins production, and certain Channelview Facility olefins by-products can be
processed by the Refinery into gasoline. Butylenes from the Refinery are tolled
through the Channelview Facility for the production of alkylate and MTBE for
gasoline blending. Hydrogen from the Channelview Facility is used at the
Refinery for sulfur removal and product stabilization.
Pursuant to the terms of a number of service agreements, Lyondell has contracted
with LCR to continue to perform services in certain areas, including
administrative services and marketing services. Lyondell and LCR also entered
into a variety of contracts providing for the assignment or licensing of
intellectual property rights associated with the refining business.
COMPETITION AND INDUSTRY CONDITIONS
All of LCR's gasoline, low sulfur diesel and jet fuel are sold to CITGO under
the Products Agreement. LCR continues to sell lube oils directly to major
industrial consumers and through distributors in domestic and international
markets.
The refining business tends to be volatile as well as cyclical. Crude oil
prices, which are impacted by worldwide political events and the economics of
exploration and production in addition to refined products demand, are the
largest source of this volatility. Demand for refined products is influenced by
seasonal and short-term factors such as weather and driving patterns, as well as
by longer term issues such as energy conservation and alternative fuels.
Industry refined products supply is also dependent on industry operating
capabilities and on long-term refining capacity trends. However, management
believes that the combination of the Crude Supply Contract and the Products
Agreement will stabilize future earnings and cash flows and reduce the market
driven aspects of such volatility.
Among LCR's refining competitors are major integrated petroleum companies that
have their own raw material resources and, in many cases, downstream markets,
both of which tend to decrease the impact of business cycles on these
competitor's sales volumes and profitability. Many of the domestic refiners are
owned by or affiliated with major integrated oil companies. Based on published
industry data, as of January 1, 1997, there were 163 crude oil refineries in
operation in the United States, and total domestic refinery capacity was
approximately 15 million barrels per day. During 1996, LCR processed an average
of 218,000 barrels per day of blended crude oil or over one percent of domestic
capacity.
CAPITAL PROGRAM
The refining segment's capital expenditures for additions to fixed assets
(excluding spending on the Upgrade Project) totaled $56 million in 1996. The
refining segment's capital budget (excluding the Upgrade Project) for 1997 is
approximately $50 million, of which the Company remains obligated for $16
million. Of the total 1997 capital budget, approximately $15 million is
expected to be spent on environmentally-related capital projects.
As part of its ongoing operations, LCR periodically conducts maintenance
turnarounds on its facilities. Although turnarounds on principal facilities are
usually scheduled well in advance, the timing of such turnarounds can be
accelerated or delayed because of numerous factors, some of which are beyond
LCR's control.
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PROPERTIES
LCR owns the real property, plant and equipment which comprise the Refinery,
located on an approximately 700 acre site in Houston, Texas. Units include the
fluid catalytic cracking unit, the coker, reformers, crude distillation units,
sulfur recovery plants and hydrodesulfurization units, as well as lube oil
manufacturing and packaging facilities and an aromatics recovery unit. LCR also
owns the real property, plant and equipment which comprise a lube oil blending
and packaging plant in Birmingport, Alabama. LCR owns a pipeline used to
transport gasoline, kerosene and heating oil from the Refinery to the GATX
Terminal to interconnect with common carrier pipelines.
Lyondell owns several pipelines connecting the Channelview Facility, the
Refinery and the Mont Belvieu Facility, including six lines used to transport
heavy liquid feedstocks, butylenes, benzene, hydrogen, butane, MTBE and
unfinished gasolines between the Channelview Facility and the Refinery.
EMPLOYEE RELATIONS
At year-end, LCR employed approximately 1,350 full-time employees. LCR also
uses the services of approximately 250 employees of independent contractors in
the routine conduct of its business. Certain hourly workers at the Refinery are
covered by collective bargaining agreements between LCR and the Oil, Chemical
and Atomic Workers Union (approximately 820 employees).
LCR UNSECURED REVOLVING CREDIT FACILITY
Effective May 5, 1995, LCR entered into two credit facilities (the "LCR Credit
Facilities") totaling $520 million. The first facility is a $70 million, 364-
day revolving credit facility, which replaced LCR's existing $70 million
revolving credit facility, that is utilized for general business purposes,
including letters of credit, unrelated to the Upgrade Project. The second
facility is a $450 million, five-year term credit facility that has been used in
connection with the Upgrade Project. Interest for the facilities is based on
prime, eurodollar or competitive rates at LCR's option. Prior to the completion
of the Upgrade Project, substantially all financing costs related to the $450
million credit facility were funded by CITGO. The facilities contain covenants
which require LCR to maintain a minimum net worth which increases each year
until 1998 and maintenance of certain financial ratios defined in the
agreements. The facilities also contain other customary covenants which limit
LCR's ability to modify certain significant contracts, incur additional debt or
liens, dispose of assets, make restricted payments as defined in the agreements
or merge or consolidate with other entities.
At the end of the third quarter 1996, LCR was not in compliance with the
financial ratio covenant of adjusted average debt to earnings before interest,
taxes, depreciation and amortization ("EBITDA") contained in each of its
outstanding credit facilities. Effective as of November 12, 1996, the LCR
Credit Facilities were amended to replace the adjusted average debt to EBITDA
covenant and one additional financial covenant with a covenant to maintain a
minimum EBITDA. The amendments were retroactively effective as of the
noncompliance date and will continue through June 30, 1997. The foregoing
summary of the facilities is not intended to be complete and is subject to, and
qualified in its entirety by reference to, the terms of the facilities, which
have been filed as exhibits to the Company's Quarterly Report on Form 10-Q for
the period ending March 31, 1995 and the amendments thereto, filed as exhibits
to the Company's Quarterly Report on Form 10-Q for the period ending September
30, 1996 and are incorporated herein by reference.
For a further discussion of the Company's long-term debt and financing
arrangements, see Item 7 -- "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- FINANCIAL CONDITION" and Note 13 of
"NOTES TO CONSOLIDATED FINANCIAL STATEMENTS".
ENVIRONMENTAL MATTERS
Lyondell's production facilities are generally required to have permits and
licenses regulating air emissions, discharges to water and generation, storage,
treatment and disposal of hazardous wastes. Companies such as Lyondell that are
permitted to treat, store or dispose of hazardous waste and maintain underground
storage tanks pursuant to the Resource Conservation and Recovery Act ("RCRA")
also are required to meet certain financial responsibility requirements. The
Company believes that it has all permits and licenses generally necessary to
conduct its business or, where necessary, is applying for additional, amended or
modified permits and that it meets applicable financial responsibility
requirements.
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The Company's policy is to be in compliance with all applicable environmental
laws. The Company also is committed to Responsible Care(R), a chemical industry
initiative to enhance the industry's responsible management of chemicals. The
Company (together with the industries in which it operates) is subject to
extensive federal, state and local environmental laws and regulations concerning
emissions to the air, discharges onto land or waters and the generation,
handling, storage, transportation, treatment and disposal of waste materials.
Some of these laws and regulations are subject to varying and conflicting
interpretations. In addition, the Company cannot accurately predict future
developments, such as increasingly stricter requirements of environmental laws,
inspection and enforcement policies and compliance costs therefrom, which might
affect the handling, manufacture, use, emission or disposal of products, other
materials or hazardous and non-hazardous waste. In particular, the ultimate
effect of the Clean Air Act on the Company's operations will depend on how the
law is interpreted and implemented pursuant to regulations that are currently
being developed and on additional factors such as the evolution of environmental
control technologies. Some risk of environmental costs and liabilities is
inherent in particular operations and products of the Company, as it is with
other companies engaged in similar businesses, and there is no assurance that
material costs and liabilities will not be incurred. In general, however, with
respect to the capital expenditures and risks described above, the Company does
not expect that it will be affected differentially from the rest of the domestic
petrochemicals and refining industry.
In some cases, compliance with environmental, health and safety laws and
regulations can only be achieved by capital expenditures. In the years ended
December 31, 1996 and 1995, the Company spent approximately $28 million and $35
million, respectively, for environmentally related capital expenditures at
existing facilities. In 1997, the Company currently estimates that
environmentally related capital expenditures at existing facilities will be
approximately $25 million. The Company does not anticipate that environmentally
related capital expenditures at its facilities in 1998 will be materially
different than for 1997. The timing and amount of these expenditures are
subject to the regulatory and other uncertainties described above as well as
obtaining of the necessary permits and approvals. For periods beyond 1998,
additional environmentally related capital expenditures will be required,
although the Company cannot accurately predict the levels of such expenditures
at this time.
The Refinery contains on-site solid-waste landfills which were used in the past
to dispose of waste generated at this facility. It is anticipated that
corrective measures will be necessary to comply with federal and state
requirements with respect to this facility. In addition, the Company negotiated
an order with the Texas Natural Resource Conservation Commission ("TNRCC") for
assessment and remediation of groundwater and soil contamination at the
Refinery. The Company is also responsible for a portion of the remediation of
certain off-site waste disposal facilities. The Company's policy is to accrue
remediation expenses when it is probable that such efforts will be required and
the related expenses can be reasonably estimated. Estimated costs for future
environmental compliance and remediation are necessarily imprecise due to such
factors as the continuing evolution of environmental laws and regulatory
requirements, the availability and application of technology, the identification
of presently unknown remediation sites and the allocation of costs among the
responsible parties under applicable statutes. The Company has reserved an
amount (without regard to potential insurance recoveries or other third party
reimbursements) it believes to be sufficient to cover current estimates of the
cost for remedial measures at its manufacturing facilities and off-site waste
disposal facilities based upon its interpretation of current environmental
standards. In the opinion of management, there is no material range of loss in
excess of the amount recorded. Based on the establishment of such reserves, and
the status of discussions with regulatory agencies described in this paragraph,
and although the reserves are subject to increase, the Company does not
anticipate any material adverse effect upon its financial statements or
competitive position as a result of compliance with the laws and regulations
described in this or the preceding paragraphs. In the fourth quarter of 1992,
the Refinery underwent an EPA multi-media inspection. In February 1997, the
Company reached final settlement with the EPA and the Department of Justice.
The Company has paid a total fine in the amount of slightly less than $200,000
in final settlement of all issues raised in the inspection. No other relief was
sought by the government. See also Item 3 -- "Legal Proceedings -- Claims
Relating To Waste Disposal Sites", "Other Matters" and Item 7 -- "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
15
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
GENERAL
In connection with the transfer of assets and liabilities from ARCO to Lyondell,
Lyondell agreed to assume certain liabilities arising out of the operation of
the Company's integrated petrochemicals and petroleum processing business prior
to July 1, 1988. At that time, the Company and ARCO entered into an agreement
("Cross-Indemnity Agreement") whereby the Company agreed to defend and indemnify
ARCO against certain uninsured claims and liabilities which ARCO may incur
relating to the operation of the business of the Company prior to July 1, 1988,
including liabilities which may arise out of certain of the legal proceedings
described in this Item 3. The Company has reached an agreement in principle
with ARCO to update the Cross-Indemnity Agreement ("Revised Cross-Indemnity
Agreement"). See Item 13 -- "Certain Relationships and Related Transactions".
In addition to the proceedings specifically described in this Item 3, ARCO, the
Company and its subsidiaries are defendants in other suits, some of which are
not covered by insurance. Many of these additional suits involve smaller
amounts than the matters described herein, or make no specific claim for relief.
Although final determination of legal liability and the resulting financial
impact with respect to the litigation described in this Item 3, as well as the
other litigation affecting the Company, cannot be ascertained with any degree of
certainty, the Company does not believe that any ultimate uninsured liability
resulting from the legal proceedings in which it currently is involved (directly
or indirectly) will individually, or in the aggregate, have a material adverse
effect on the business or financial statements of the Company; however the
adverse resolution in any reporting period of one or more of the matters
discussed in this note could have a material impact on the Company's results of
operations for that period. See Note 20 of "NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS".
Although Lyondell is involved in numerous and varied legal proceedings, a
significant portion of its litigation arises in three contexts: (1) claims for
personal injury or death allegedly arising out of exposure to the Company's
products; (2) claims for personal injury or death, and/or property damage
allegedly arising out of the generation and disposal of chemical wastes at
Superfund and other waste disposal sites; and (3) claims for personal injury
and/or property damage and air, noise and water pollution allegedly arising out
of the operation of the Company's facilities. The following sections of this
Item 3 describe these types of pending proceedings. Lyondell (either directly
or through ARCO as its indemnitee) is the real party at interest in these
proceedings.
CLAIMS RELATED TO COMPANY PRODUCTS
ARCO and the Company are involved in numerous suits arising in whole or in part
from the operation of the Company's petrochemical and petroleum processing
businesses and the assets related thereto in which the plaintiffs allege damages
arising from exposure to allegedly toxic chemical products, such as benzene and
butadiene. Plaintiffs in these cases usually worked at a manufacturing facility
as employees of one of Lyondell's customers, were employees of the Company's
contractors, or were employees of companies involved in the transportation of
the Company's products to its customers. These suits allege toxic effects of
exposure to chemicals sold in the ordinary course of business to third parties
by various industrial concerns, including ARCO or the Company, or allege toxic
chemical exposures at the Company's manufacturing facilities. Issues common to
these cases include: (1) whether the plaintiff can identify a specific product
to which he was allegedly exposed; (2) whether the Company supplied the
identified product to which plaintiff claims he was exposed; (3) whether the
plaintiff has a medical condition which, based upon competent scientific and
medical evidence, is causally related to the identified product; (4) whether,
and under what conditions, the plaintiff was exposed to the identified product;
and (5) if the plaintiff was exposed, whether the Company has any legal defenses
to the plaintiff's claims and whether there are other parties or defendants to
whom the Company can turn for contribution or indemnification. The Company
believes that it has always followed a policy of not only complying with all
mandated standards related to product warnings and exposure levels but also of
complying with Company specific standards that were more strict than those
imposed by the law. As a result, the Company believes that it has a basis to
avail itself of legal defenses against claims regarding its products due to
exposures by employees and by claims of exposures from third parties to whom the
Company sold its products.
The vast majority of chemical exposure cases name a large number of industrial
concerns, in addition to the Company, as defendants and are at various stages of
discovery. Although the Company does not believe that the pending chemical
exposure cases will have a material adverse effect on its business or financial
statements, it is difficult to determine the potential outcome of this type of
case. The majority of the plaintiffs in chemical exposure legal
16
<PAGE>
proceedings request relief in the form of unspecified monetary damages.
Furthermore, when specific amounts are requested they often bear no objective
relation to the merits of the case. It is possible that if one or more of the
presently pending chemical exposure cases were resolved against ARCO or the
Company, the resulting damage award could have a material impact on the
Company's results of operations for any reporting period, without giving effect
to contribution or indemnification obligations of co-defendants or others, or to
the effect of any insurance coverage that may be available to offset the effects
of any such award. Under the Revised Cross-Indemnity Agreement, ARCO and the
Company will bear a proportionate share of judgment and settlement costs for
cases related to Company products and operations according to a formula that
allocates responsibility based on years of ownership during the relevant time
period.
CLAIMS RELATING TO WASTE DISPOSAL SITES
Wastes generated from products produced by facilities transferred from ARCO and
now owned by the Company have, from time to time, been disposed of at third-
party landfills. Two of these facilities, known as the "French Ltd." and the
"Brio" sites, both of which are located near Houston, Texas, have been
classified as "Superfund" sites under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA"). The EPA has named many
potentially responsible parties ("PRPs") at each site from whom wastes were
allegedly received. Based on the current law, the Company does not believe that
its obligation to ARCO related to ARCO's share of clean-up costs at either of
these sites will result in a liability that will have, individually or in the
aggregate, a material adverse effect on the business or financial statements of
the Company. It is possible, however, that the Company may be involved in
future CERCLA and comparable state law investigations and clean-ups. The
Superfund law has not been reauthorized since 1995, and the Company is not able
to determine with specificity what the impact of a revised Superfund law would
be on the Company.
French Ltd. Site Remediation -- At the French Ltd. site, ARCO and the other PRPs
have entered into a settlement agreement relating to the allocation of clean-up
costs. The EPA approved the clean-up plan and a Consent Decree was entered in
the Federal District Court for the Southern District of Texas in the first
quarter of 1990. An amendment to the Consent Decree relating to natural
resource damages has been negotiated and submitted to the court for approval.
The remediation work was completed in 1996. The Company believes that its share
of clean-up costs (as allocated pursuant to the Cross-Indemnity Agreement) will
be no more than five percent of total costs recovered without giving effect to
any insurance coverage which may be available to offset these costs. The total
costs associated with the Consent Decree are currently expected to be
approximately $90 million and the Company's total costs to date have been
approximately $3.5 million. The Revised Cross-Indemnity Agreement will not
change the allocation of remediation costs for this site.
French Ltd. Site Litigation -- Approximately 2,500 plaintiffs have made claims
related to wastes in the French Ltd. site. In each of these cases, ARCO is one
of many defendants. These suits generally allege that unspecified chemical
waste sent to the site by the defendants caused a decrease in property value, a
decrease in plaintiffs' ability to enjoy their property, and unspecified adverse
effects on plaintiffs' health. Although some of the lawsuits request relief in
the form of unspecified monetary damages, the aggregate amount of actual damages
sought in those cases where damages are specified exceeds $5 billion. The
aggregate amount of punitive damages sought in those cases where damages are
specified exceeds $20 billion. In December 1992, after mediation, ARCO, along
with several other defendants, entered into a preliminary agreement to settle
claims of approximately 2,200 plaintiffs. The remaining claims are in pretrial
discovery. Under the Revised Cross-Indemnity Agreement, ARCO will waive any
claim for reimbursement for any prior defense costs or settlements associated
with these matters, and the Company will assume responsibility for its
proportionate share, which is less than 10 percent, of all future costs not
covered by ARCO insurance.
Brio Site Remediation -- At the Brio site, a definitive agreement allocating
these remedial costs among ARCO and the other PRPs was reached. The EPA
approved the plan and a Consent Decree between the Department of Justice and a
group of PRPs (including ARCO on behalf of its former divisions and
subsidiaries) was entered in Federal District Court for the Southern District of
Texas, in April 1991. The total clean-up cost under the original consent decree
is currently estimated to be approximately $60 million. Various objections have
been raised with respect to the provisions of the original remediation plan, and
the EPA and the PRP's have agreed to fund a new feasibility study to evaluate
alternatives for remediation. The Company believes that its share of the clean-
up costs (as allocated pursuant to the Cross-Indemnity Agreement) will be no
more than one percent of total costs without giving effect to any insurance
coverage which may be available to offset these costs. The Revised Cross-
Indemnity Agreement will not change the allocation of remediation costs for this
site.
17
<PAGE>
Brio Site Litigation -- There currently are eight separate pending legal
proceedings filed against ARCO or its affiliates and numerous others in
connection with the Brio site. In these proceedings, there are approximately 600
plaintiffs, many of whom are suing in their capacity as next friend of minor
children. In each of these cases, ARCO is one of many defendants. Plaintiffs
allege personal injury as a result of exposure to various substances that were
disposed of or stored at the Brio site. These suits generally allege that
defendants were negligent in sending chemical substances to the site and also
contain allegations of nuisance and strict liability. The suits involve: a
school district alleging damages as a result of the closing of an elementary
school; employees of the various entities who operated the refining and
reprocessing facilities at the Brio site; and other plaintiffs. All of the
lawsuits request relief in the form of unspecified compensatory and exemplary
damages. These suits are in pretrial discovery. Under the Revised Cross-
Indemnity Agreement, ARCO will waive any claim for reimbursement for any prior
defense and settlement costs associated with these matters, and the Company will
assume responsibility for its proportionate share, which is 20 percent, of all
future costs not covered by ARCO insurance.
CLAIMS RELATED TO COMPANY OPERATIONS
Mont Belvieu Litigation -- Several organizations and groups of citizens who own
property in the vicinity of Mont Belvieu, Texas, have instituted suits for
monetary damages and injunctive relief against ARCO and others who own
underground storage and transportation facilities in the city of Mont Belvieu.
In September 1980, Warren Petroleum Company ("Warren") experienced a leak in one
of its underground hydrocarbon storage wells in Mont Belvieu. Three lawsuits
were filed by approximately 120 plaintiffs, naming Warren, ARCO and other
companies with operations in Mont Belvieu as defendants. These plaintiffs
claimed property damage, and, in some instances, personal injuries allegedly
resulting from storage operations in Mont Belvieu. In February 1986, ARCO was
granted a directed verdict as to all of the claims of the plaintiffs in the
first of the three lawsuits to be tried which had the effect of dismissing all
the pending claims without the ability to refile. Thereafter, the plaintiffs in
the two remaining cases dropped their claims against ARCO although ARCO remains
in these two cases as a result of cross claims for contribution filed by other
defendants. These suits have not been set for trial.
ARCO is paying all defense costs in all of the Mont Belvieu litigation. Under
the Revised Cross-Indemnity Agreement, ARCO will waive any right to
reimbursement under the existing Cross-Indemnity Agreement for costs associated
with this matter.
OTHER MATTERS
In July 1994, the Company reported results of an independent investigation
conducted by the Audit Committee of the Board of Directors regarding the
compliance status of two process waste water streams under the applicable
Benzene National Emissions Standard for Hazardous Air Pollutants ("NESHAPS")
regulations and certain issues raised by an employee. Noncompliance with the
Benzene NESHAPS regulations and the related reporting requirements can result in
civil penalties and, under certain circumstances, substantial civil and,
potentially, criminal penalties. The Company received a notice of violation
from the TNRCC regarding the two streams and paid a fine of $10,200. In
addition, the Company incurred approximately $2 million in capital costs in
connection with these waste water streams to achieve on-going compliance with
the Benzene NESHAPS regulations. Although the Criminal Enforcement Division of
the EPA is conducting a formal investigation, the Company does not believe any
aspects of the matters described above will subject the Company to criminal
liability or have a material adverse effect on the financial statements or
liquidity of the Company.
As a result of flooding during October 1994, three pipelines, owned by Colonial
Pipeline and Texaco ruptured in the San Jacinto River flood plain, resulting in
explosions and fires. As a result of the explosions and fires, the Company was
forced to shut down operations at its Channelview Facility and destroy large
volumes of product. The Company is seeking damages from Colonial Pipeline and
Texaco of $12.5 million for lost profits, destroyed product and repair costs.
Settlement in this matter has not been reached.
In June 1996, the Company experienced a fire at its Mont Belvieu terminal due to
a valve malfunction. The fire resulted in damage estimated at approximately $14
million plus a before-tax impact on operating income of $2 million. The Company
is seeking recovery of the loss from the valve manufacturer and refurbisher.
18
<PAGE>
In July 1996, the Company experienced a fire at its Channelview Facility due to
a rupture in a pipeline owned and operated by ARCO PipeLine Company ("ARCO
PipeLine"). Although no operating units were directly involved in the fire, the
damage to the pipeline and electrical systems forced the Company to shut down
the Channelview Facility for several days and the olefins units for more than
two weeks. ARCO PipeLine has paid the Company approximately $31 million to
compensate the Company for incurred expenses and lost profits.
In addition to the matters reported in this Item 3, from time to time the
Company receives notices from federal, state or local governmental entities of
alleged violations of environmental laws and regulations pertaining to, among
other things, the disposal, emission and storage of chemical and petroleum
substances, including hazardous wastes. Although the Company has not been the
subject of significant penalties to date, such alleged violations may become the
subject of enforcement actions or other legal proceedings and may (individually
or in the aggregate) involve monetary sanctions of $100,000 or more (exclusive
of interest and costs).
RELATED PARTY TRANSACTIONS
In connection with the transfer of assets and liabilities to Lyondell and the
initial public offering of Lyondell's common stock in January 1989, the Company
and ARCO entered into a number of agreements for the purpose of defining their
ongoing relationships. In addition, in July 1987, Lyondell and ARCO Chemical,
then a wholly-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 Lyondell, 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 arrangements. The Audit Committee of the Board of Directors
of the Company, whose members are not affiliated with the Company, ARCO or its
affiliates, has determined that such agreements, taken as a whole, were fair to
the Company and its stockholders. Because of the complexity of the various
relationships between Lyondell, ARCO, its direct and indirect subsidiaries,
including ARCO Chemical (together, "ARCO Affiliates"), 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 parties.
The terms and provisions of many of these initial agreements have subsequently
been modified or supplemented and additional or modified agreements,
arrangements and transactions will be determined through negotiation among the
Company and ARCO Affiliates, and it is possible that conflicts of interest will
be involved. As long as ARCO remains a 49.9 percent stockholder, future
contractual relations between the Company and ARCO Affiliates will be subject to
certain provisions of the Company's Certificate of Incorporation. See "The
Company's Business - Development of Business". In addition, the Audit Committee
of the Board of Directors of the Company 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 fair to the Company and its stockholders.
During 1996, Lyondell purchased certain of its feedstock requirements from ARCO
Affiliates and paid them fees for transportation of product and for other
services. For the year ended December 31, 1996, Lyondell paid ARCO Affiliates
approximately $23 million. During 1996, Lyondell sold products to and provided
services for ARCO Affiliates, including sales of propylene, MTBE, benzene,
ethylene and methanol to ARCO Chemical and crude oil resales and sales of lube
oil to other ARCO Affiliates. For the year ended December 31, 1996, Lyondell
received approximately $318 million from sales to and services for ARCO
Affiliates, of which $287 million represented sales to and services for ARCO
Chemical. See Note 8 of "NOTES TO CONSOLIDATED FINANCIAL STATEMENTS".
In connection with the ARCO Note Offering, the Company and ARCO entered into
agreements governing their ongoing relationships, including a Registration
Rights Agreement that provides ARCO with rights under certain circumstances to
compel the Company to file a registration statement with the SEC with respect to
all or a portion of the shares of Common Stock held by ARCO. At the same time,
ARCO announced its intention to vote its shares in proportion to the votes of
the non-ARCO stockholders, except under certain limited circumstances.
For a summary of agreements, arrangements and transactions among the Company,
ARCO Chemical and ARCO see "TRANSACTIONS BETWEEN THE COMPANY AND ARCO", which is
included in the 1997 Proxy Statement and incorporated herein by reference as
part of Item 13 of this Annual Report on Form 10-K.
19
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the executive officers of Registrant(*) as of March 1, 1997.
<TABLE>
<CAPTION>
NAME, AGE AND PRESENT BUSINESS EXPERIENCE DURING PAST
POSITION WITH LYONDELL FIVE YEARS AND PERIOD SERVED AS OFFICER(S)
- --------------------------- ---------------------------------------------------
<S> <C>
John R. Beard, 44.......... Mr. Beard has served as Vice President,
Vice President, Petrochemical Manufacturing since May 1995. Mr.
Petrochemical Manufacturing Beard served as Vice President in the areas of
Quality, Supply, Planning and Evaluations since
1992. Prior to 1992, Mr. Beard served as the Site
Manager of Lyondell's Houston Refinery and in
management assignments in evaluations, marketing
and manufacturing for the Company, ARCO Products
Company and the ARCO Chemical Division.
Clifton B. Currin, Jr. 42.. Mr. Currin was named Vice President, Strategic
Vice President, Strategic Development in January 1997. Mr. Currin has
Development served as a Vice President of the Company since
1994 with responsibilities in the areas of
Petrochemicals Business Management and Olefins.
Prior to 1994, Mr. Currin held positions in
management, evaluations and marketing for the
Company and for ARCO Products Company.
J. R. Fontenot, 44......... Mr. Fontenot became Vice President, Technology in
Vice President, Technology January 1997. Mr. Fontenot served as Director of
Technology for the Company since 1995. Prior to
1995, Mr. Fontenot held various positions in
operations, evaluations and technology for the
Company.
Richard W. Park, 57........ Mr. Park has served as Vice President, Human
Vice President, Resources since June 1988. Prior to 1988, Mr.
Human Resources Park served as Vice President of Employee
Relations of the Lyondell Division and held
various personnel management positions with ARCO
Chemical.
Jeffrey R. Pendergraft, 48. Mr. Pendergraft was named Senior Vice President in
Senior Vice President, May 1993. In addition, Mr. Pendergraft has served
General Counsel and as Vice President, General Counsel and Secretary
Secretary since 1988. Prior to 1988, Mr. Pendergraft served
as General Attorney of the Lyondell Division and
as attorney in various operating divisions and
corporate units of ARCO.
W. Norman Phillips, Jr., 42 Mr. Phillips was named Vice President, Polymers in
Vice President, Polymers January 1997. Mr. Phillips has served as Vice
President of the Company with responsibilities in
the areas of marketing and operations since 1993.
Prior to 1993, Mr. Phillips held the position of
Site Manager of Channelview Operations and various
management positions in the areas of planning,
marketing and manufacturing.
Joseph M. Putz, 56......... Mr. Putz has served as Vice President and
Vice President and Controller since October, 1988. Prior to 1988,
Controller Mr. Putz served as Vice President, Control and
Administration for the Company and the Lyondell
Division and held various positions with ARCO in
internal control, special projects and various
financial positions.
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE AND PRESENT BUSINESS EXPERIENCE DURING PAST
POSITION WITH LYONDELL FIVE YEARS AND PERIOD SERVED AS OFFICER(S)
- --------------------------- ---------------------------------------------------
<S> <C>
Dan F. Smith, 50........... Mr. Smith was named Chief Executive Officer and
President, President in December 1996. Mr. Smith has been a
Chief Executive Officer Director since 1988. Mr. Smith served as
and Director President and Chief Operating Officer of the
Company from 1994 to December 1996. Prior to
1994, Mr. Smith held various positions including
Executive Vice President, Chief Financial Officer
of the Company, Vice President, Corporate Planning
of ARCO and Senior Vice President in the areas of
management, manufacturing, control and
administration for the Company and the Lyondell
Division.
Debra L. Starnes, 44....... Ms. Starnes became Senior Vice President,
Senior Vice President, Petrochemicals in January 1997. Ms. Starnes has
Petrochemicals served the Company as a Senior Vice President
since 1995 and as a Vice President since 1991 with
various responsibilities including polymers,
petrochemicals business management and marketing
and corporate planning. Prior to 1991, Ms.
Starnes held various positions in planning,
manufacturing and marketing with ARCO and Lyondell.
Russell S. Young, 48....... Mr. Young has served as Senior Vice President,
Senior Vice President, Chief Financial Officer and Treasurer since May
Chief Financial Officer 1992. Prior to 1992, Mr. Young held various
and Treasurer positions including Vice President and Treasurer
of the Company, Controller of the ARCO Products
Division and in various financial management
positions for ARCO.
</TABLE>
* The By-Laws of the Company provide that each officer shall hold office until
the officer's successor is elected or appointed and qualified or until the
officer's death, resignation or removal by the Board of Directors.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company currently consists of 250,000,000
shares of Common Stock, par value $1 per share and 80,000,000 shares of
preferred stock, par value $.01 per share. The following summary description of
the capital stock of the Company is qualified in its entirety by reference to
the Certificate of Incorporation, as amended and the Amended and Restated By-
Laws of the Company, as amended, copies of which are filed as exhibits to this
Annual Report on Form 10-K.
COMMON STOCK
The Company is currently authorized to issue 250,000,000 shares of Common Stock,
of which 80,000,000 shares of Common Stock are outstanding at the date hereof.
Holders of Common Stock ("Stockholders") are entitled (i) to receive such
dividends as may from time to time be declared by the Board of Directors of the
Company; (ii) to one vote per share on all matters on which the Stockholders are
entitled to vote; (iii) to act by written consent in lieu of voting at a meeting
of Stockholders; and (iv) to share ratably in all assets of the Company
available for distribution to the Stockholders, in the event of liquidation,
dissolution or winding up of the Company. For additional information regarding
the Company's dividend policy, see Item 5 -- "Market for Registrant's Common
Equity and Related Stockholder Matters". The holders of a majority of the
shares of Common Stock represented at a meeting can elect all of the directors.
See Item 12 -- "Security Ownership of Certain Beneficial Owners and Management"
which is incorporated herein by reference.
Shares of Common Stock are not liable to further calls or assessments by the
Company for any liabilities of the Company that may be imposed on its
Stockholders under the laws of the State of Delaware, the state of incorporation
of the Company. There are no preemptive rights for the Common Stock in the
Certificate of Incorporation.
21
<PAGE>
The Transfer Agent, Registrar and Dividend Disbursing Agent for the Common Stock
is The Bank of New York.
PREFERRED STOCK
In July 1994, the Stockholders approved an amendment to the Certificate of
Incorporation of the Company authorizing the issuance of up to 80,000,000 shares
of Preferred Stock, $.01 par value per share. Pursuant to the terms of the
amendment, the Board will be able to specify the precise characteristics of the
Preferred Stock to be issued, in light of current market conditions and the
nature of specific transactions, and will not be required to solicit further
authorization from Stockholders for any specific issue of Preferred Stock. The
Board of Directors has no present intention to issue any series of Preferred
Stock.
The Board of Directors has adopted a policy providing that no future issuance of
Preferred Stock will be effected without Stockholder approval unless the Board
of Directors (whose decision shall be conclusive) determines in good faith (i)
that such issuance is primarily for the purpose of facilitating a financing, an
acquisition or another proper corporate objective or transaction, and (ii) that
any anti-takeover effects of such issuance are not the Company's primary purpose
for effecting such issuance. The Board of Directors will not amend or revoke
this policy without giving written notice to the holders of all outstanding
shares of the Company's stock; however, no such amendment or revocation will be
effective, without Stockholder approval, to permit a subsequent issuance of
Preferred Stock for the primary purpose of obstructing a takeover of the Company
by any person who has, prior to such written notice to stockholders, notified
the Board of Directors of such person's desire to pursue a takeover of the
Company.
RIGHTS TO PURCHASE COMMON STOCK
On December 8, 1995, the Board of Directors of Lyondell declared a dividend of
one right ("Right") for each outstanding share of the Company's Common Stock,
par value $1.00 per share, to stockholders of record at the close of business on
December 20, 1995. Each Right entitles the registered holder to purchase from
the Company one share of Common Stock at a purchase price of $80 per share of
Common Stock, subject to adjustment (the "Purchase Price"). The description and
terms of the Rights are set forth in a Rights Agreement dated as of December 8,
1995 as it may from time to time be supplemented or amended (the "Rights
Agreement") between the Company and The Bank of New York, as Rights Agent.
Initially, the Rights will be attached to all certificates representing
outstanding shares of Common Stock, and no separate certificates for the Rights
("Rights Certificates") will be distributed. The Rights will separate from the
Common Stock and a "Distribution Date" will occur, with certain exceptions, upon
the earlier of (i) ten days following a public announcement of the existence of
an "Acquiring Person" (the date of the announcement being the "Stock Acquisition
Date"), or (ii) ten business days following the commencement of a tender offer
or exchange offer that would result in a person's becoming an Acquiring Person.
An "Acquiring Person" is any person or group of affiliated or associated persons
that has acquired or obtained the right to acquire beneficial ownership of 15
percent or more of the outstanding shares of Common Stock, except that ARCO will
not be or become an Acquiring Person unless and until such time as ARCO or any
person affiliated or associated with ARCO acquires or becomes the beneficial
owner of (or ARCO becomes affiliated or associated with any person who,
collectively with ARCO, is the beneficial owner of) more than the lesser of (i)
1,000,000 shares of Common Stock in addition to those ARCO beneficially owned as
of December 8, 1995 (or in addition to any lesser number of shares ARCO
beneficially owns from time to time thereafter) and (ii) one share less than 50
percent of the shares of Common Stock outstanding at any time. In certain
circumstances prior to the time a person has become an Acquiring Person, the
Distribution Date may be deferred by the Board of Directors. Certain
inadvertent acquisitions will not result in a person's becoming an Acquiring
Person if the person promptly divests itself of sufficient Common Stock. Until
the Distribution Date, (a) the Rights will be evidenced by the Common Stock
certificates (together with this Summary of Rights or bearing the notation
referred to below) and will be transferred with and only with such Common Stock
certificates, (b) new Common Stock certificates issued after December 20, 1995
will contain a notation incorporating the Rights Agreement by reference and (c)
the surrender for transfer of any certificate for Common Stock (with or without
a copy of this Summary of Rights) will also constitute the transfer of the
Rights associated with the Common Stock represented by such certificate. The
Rights are not exercisable until the Distribution Date and will expire at the
close of business on December 8, 2005, unless earlier redeemed or exchanged by
the Company as described below.
22
<PAGE>
In the event (a "Flip-In Event") that a person becomes an Acquiring Person
(except pursuant to a tender or exchange offer for all outstanding shares of
Common Stock at a price and on terms that a majority of the independent
directors of the Company determines to be fair to and otherwise in the best
interests of the Company and its stockholders (a "Permitted Offer")), each
holder of a Right will thereafter have the right to receive, upon exercise of
such Right, a number of shares of Common Stock (or, in certain circumstances,
cash, property or other securities of the Company) having a Current Market Price
(as defined in the Rights Agreement) equal to two times the exercise price of
the Right. Notwithstanding the foregoing, following the occurrence of any Flip-
In Event, all Rights that are, or (under certain circumstances specified in the
Rights Agreement) were, beneficially owned by or transferred to such Acquiring
Person (or by certain related parties) will be null and void in the
circumstances set forth in the Rights Agreement.
In the event (a "Flip-Over Event") that, at any time from and after the time an
Acquiring Person becomes such, (i) the Company is acquired in a merger or other
business combination transaction (other than certain mergers that follow a
Permitted Offer), or (ii) 50 percent or more of the Company's assets or earning
power is sold or transferred, each holder of a Right (except Rights owned by
such Acquiring Person or certain related parties) shall thereafter have the
right to receive, upon exercise, a number of shares of common stock of the
acquiring company having a Current Market Price equal to two times the exercise
price of the Right.
At any time until the time a person becomes an Acquiring Person, the Company may
redeem the Rights in whole, but not in part, at a price of $.0005 per Right,
payable, at the option of the Company, in cash, shares of Common Stock or such
other consideration as the Board of Directors may determine. At any time after
the occurrence of a Flip-In Event and prior to the occurrence of a Flip-Over
Event or a person becoming the beneficial owner of 50 percent or more of the
shares of Common Stock then outstanding, the Company may exchange the Rights
(other than Rights owned by an Acquiring Person or an affiliate or an associate
of an Acquiring Person, which will have become void), in whole or in part, at an
exchange ratio of one share of Common Stock, and/or other equity securities
deemed to have the same value as one share of Common Stock, per Right, subject
to adjustment.
Until a Right is exercised, the holder thereof, as such, will have no rights as
a stockholder of the Company, including, without limitation, the right to vote
or to receive dividends. While the distribution of the Rights should not be
taxable to stockholders or to the Company, stockholders may, depending upon the
circumstances, recognize taxable income in the event that the Rights become
exercisable for Common Stock (or other consideration) of the Company or for the
common stock of the acquiring company as set forth above or are exchanged as
provided in the preceding paragraph.
The Purchase Price payable, and the number of shares of Common Stock or other
securities or property issuable, upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the Common
Stock, (ii) if holders of the Common Stock are granted certain rights or
warrants to subscribe for Common Stock or securities convertible into Common
Stock at less than the current market price of the Common Stock, or (iii) upon
the distribution to holders of the Common Stock of evidences of indebtedness or
assets (excluding regular quarterly cash dividends) or of subscription rights or
warrants (other than those referred to above).
Other than the redemption price, any of the provisions of the Rights Agreement
may be amended by the Board of Directors of the Company as long as the Rights
are redeemable. Thereafter, the provisions of the Rights Agreement (other than
the Redemption Price) may be amended by the Board of Directors in order to cure
any ambiguity, defect or inconsistency, to make changes that do not materially
adversely affect the interests of holders of Rights (excluding the interests of
any Acquiring Person), or to shorten or lengthen any time period under the
Rights Agreement; provided, however, that no amendment to lengthen the time
period governing redemption or amendment shall be made at such time as the
Rights are not redeemable.
The Rights have certain antitakeover effects. The Rights will cause substantial
dilution to a person or group that attempts to acquire the Company on terms not
approved by its Board of Directors, except pursuant to an offer conditioned on a
substantial number of Rights being acquired. The Rights should not interfere
with any merger or other business combination approved by the Board of Directors
at a time when the Rights are redeemable.
A copy of the Rights Agreement is filed as an exhibit hereto. This summary
description of the Rights is qualified in its entirety by reference hereto.
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<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock is listed on the New York Stock Exchange. ARCO has advised the
Company that, as of March 1, 1997, ARCO owned 39,921,400 shares of the Common
Stock, which represented 49.9 percent of the outstanding shares.
The reported high and low sale prices of the Common Stock on the New York Stock
Exchange (New York Stock Exchange Composite Tape) for each quarter from January
1, 1995 through December 31, 1996, inclusive, were as set forth below.
<TABLE>
<CAPTION>
PERIOD HIGH LOW
------ ------ ------
<S> <C> <C>
1995:
First Quarter 26-3/4 21-5/8
Second Quarter 26-3/4 22-5/8
Third Quarter 29-1/8 25-1/2
Fourth Quarter 26-1/4 21-1/8
1996:
First Quarter 32-1/4 22-1/2
Second Quarter 31-1/8 22-1/4
Third Quarter 24-3/4 21-5/8
Fourth Quarter 24-1/8 20-3/8
</TABLE>
On February 28, 1997 the closing price of the Common Stock was $23.625, and
there were approximately 2,500 holders of record of the Common Stock.
During the last two years, Lyondell has declared $.225 per share quarterly cash
dividends (which were paid in the subsequent quarter). The declaration and
payment of dividends is at the discretion of the Board of Directors. The future
declaration and payment of dividends and the amount thereof will be dependent
upon the Company's results of operations, financial condition, cash position and
requirements, investment opportunities, future prospects and other factors
deemed relevant by the Board of Directors. Subject to these considerations and
to the legal considerations discussed in the following paragraph, the Company
currently intends to distribute to its Stockholders cash dividends on its Common
Stock at a quarterly rate of $.225 per share. During 1996, the Company paid $72
million in dividends.
As detailed herein, certain of the Company's debt instruments contain provisions
that generally provide that the holders of such debt may, under certain limited
circumstances, require the Company to repurchase the debt ("Put Rights"). In
addition to the occurrences described herein, the Put Rights may be triggered
by the making of certain unearned distributions to Stockholders, other than
regular dividends, that are followed by a specified decline in public ratings on
such debt. See "Long Term Debt and Financing Arrangements". Regular dividends
are those quarterly cash dividends determined in good faith by the Board of
Directors (whose determination is conclusive) to be appropriate in light of the
Company's results of operations and capable of being sustained. These
determinations were made prior to the declaration of $.225 per share dividend
paid on March 15, 1997. The Company's $400 million Facility also could limit
the Company's ability to pay dividends under certain circumstances. See Items 1
and 2 -- "Business and Properties -- Long-Term Debt and Financing Arrangements".
The operation of certain of the Company's employee benefit plans may result in
the issuance of Common Stock upon the exercise of options granted to employees
of the Company, including its officers. Although the terms of these plans
provide that additional shares may be issued to satisfy the Company's
obligations under the options, the Company generally intends to cause Common
Stock to be repurchased in the market in order to satisfy these obligations.
24
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial information for the Company.
FOR THE YEAR ENDED DECEMBER 31
----------------------------------------
MILLIONS OF DOLLARS EXCEPT PER SHARE 1996 1995 1994 1993 1992
AMOUNTS ------ ------ ------ ------ ------
- ------------------------------------
Sales and other operating revenues $5,052 $4,936 $3,857 $3,850 $4,809
Income before cumulative effect of
accounting changes 126 389 223 4 26
Net income (*) 126 389 223 26 16
Earnings per share before cumulative
effect of accounting changes 1.58 4.86 2.78 .06 .32
Earnings per share 1.58 4.86 2.78 .33 .20
Dividends per share .90 .90 .90 1.35 1.80
Total assets 3,276 2,606 1,663 1,231 1,215
Long-term debt, less current portion 1,194 807 707 717 725
(*) The 1993 amount includes an increase in net income from the cumulative
effect of an accounting change for turnarounds of $22 million, or $.27 per
share. The 1992 amount includes a net decrease in net income of $10 million,
or $.12 per share, related to the cumulative effect of accounting changes for
postretirement benefits other than pensions and income taxes.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Lyondell Petrochemical Company ("Company" or "Lyondell") operates in the
petrochemicals and refining segments. The petrochemicals segment consists of
olefins including ethylene, propylene, butadiene, butylenes and specialty
products; polyolefins including polypropylene, high-density polyethylene
("HDPE") and low-density polyethylene; aromatics produced at the Channelview,
Texas petrochemicals facility ("Channelview Facility") including benzene and
toluene; methanol; methyl tertiary butyl ether ("MTBE"); and refinery blending
stocks.
In December 1996, the Company sold an undivided interest in its methanol
facility to MCN Investment Corporation ("MCNIC") and created Lyondell Methanol
Company L.L.P. ("Lyondell Methanol"), a partnership with the minority owner, to
own and operate the methanol facility.
In May 1995, the Company acquired Occidental Chemical Corporation's Alathon(R)
HDPE business ("ALATHON Business"). Assets involved in the acquisition included
resin production facilities in Matagorda (the "Matagorda Facility") and Victoria
(the "Victoria Facility"), Texas, related research and development activities
and the rights to the Alathon(R) trademark. See Note 4 of "NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS."
The refining segment consists of refined petroleum products, including gasoline,
low sulfur diesel, jet fuel; aromatics produced at the full-conversion Houston,
Texas refinery ("Refinery"), including benzene, toluene, paraxylene and
orthoxylene; lubricants, including industrial lubricants, motor oils, white
oils, process oils and base oils; carbon black oil; sulfur; residual oil;
petroleum coke fuel; olefins feedstocks; and crude oil resales.
As discussed in Note 3 of "NOTES TO CONSOLIDATED FINANCIAL STATEMENTS," in
July 1993, Lyondell and CITGO Petroleum Corporation ("CITGO") formed
LYONDELL-CITGO Refining Company Ltd. ("LCR"), a Texas limited liability company
owned by subsidiaries of the Company and CITGO. LCR owns and operates the
25
<PAGE>
refining business formerly owned by the Company, including the Refinery. LCR has
undertaken and completed a major upgrade project at the Refinery to enable the
facility to process substantial additional volumes of very heavy crude oil
("Upgrade Project").
At inception, LCR entered into a long-term crude oil supply contract ("Crude
Supply Contract") with Lagoven, S.A. ("LAGOVEN"), an affiliate of CITGO. In
addition, under terms of a long-term product sales agreement ("Products
Agreement"), CITGO purchases a majority of the refined products produced at the
Refinery. Both LAGOVEN and CITGO are direct or indirect wholly-owned
subsidiaries of Petroleos de Venezuela, S.A., the national oil company of
Venezuela.
LCR is required to purchase and LAGOVEN is required to sell sufficient crude oil
to satisfy LCR's coking capacity, a minimum of 200,000 barrels per day and up to
230,000 barrels per day of very heavy Venezuelan crude oil. LAGOVEN has the
right, but not the obligation, to supply incremental amounts above 230,000
barrels per day.
The following table sets forth sales volumes for the Company's major products
for the periods indicated. Sales volumes include production, purchases of
products for resale, propylene production from the product flexibility unit,
products received on exchange and draws from inventory.
FOR THE YEAR ENDED
DECEMBER 31
----------------------------
1996 1995 1994
--------- ------- -------
SELECTED PETROCHEMICAL PRODUCTS
(MILLIONS)
(EXCLUDING INTERSEGMENT SALES):
Ethylene, propylene and polymers
(pounds) 6,985 6,832 6,090
Other olefins (pounds) 980 1,030 1,048
Methanol (gallons) 209 199 169
Aromatics (gallons) 167 152 160
REFINED PRODUCTS (THOUSAND BARRELS PER
DAY) (EXCLUDING INTERSEGMENT SALES):
Gasoline 101 109 109
Diesel and heating oil 47 52 44
Jet fuel 23 29 24
Aromatics 7 8 8
Other refined products 59 56 46
------- ------ ------
Total refined products volumes 237 254 231
======= ====== ======
26
<PAGE>
The following table sets forth the Company's sales and other revenues for the
periods indicated.
FOR THE YEAR ENDED
DECEMBER 31
----------------------------
MILLIONS OF DOLLARS 1996 1995 1994
- ------------------- ---------- ------- -------
PETROCHEMICAL PRODUCTS REVENUES
(EXCLUDING INTERSEGMENT SALES):
Ethylene, propylene and polymers $1,688 $1,790 $1,113
Other olefins 173 211 173
Methanol 87 118 133
Aromatics 161 144 171
Other petrochemical products and
other revenues 302 203 193
------ ------ ------
Total petrochemical products
sales $2,411 $2,466 $1,783
====== ====== ======
REFINED PRODUCTS REVENUES
(EXCLUDING INTERSEGMENT SALES):
Gasoline $ 937 $ 879 $ 813
Diesel and heating oil 421 375 311
Jet fuel 218 220 178
Aromatics 155 240 152
Other refined products and other
revenues 474 386 324
------ ------ ------
Total refined products sales 2,205 2,100 1,778
Crude oil resales (a) 436 370 296
------ ------ ------
Total refined products and
crude oil sales $2,641 $2,470 $2,074
====== ====== ======
- --------------------------
(a) Crude oil resales consist of revenues from the resale of previously
purchased crude oil and from locational exchanges of crude oil that are
settled on a cash basis. Crude oil exchanges and resales facilitate the
operation of the refining segment by allowing the Company to optimize the
crude oil feedstock mix in response to market conditions and refinery
maintenance turnarounds and to reduce transportation costs.
27
<PAGE>
RESULTS OF OPERATIONS
OVERVIEW
Net income for 1996 was $126 million or $1.58 per share compared with $389
million or $4.86 per share in 1995 and $223 million or $2.78 per share in 1994.
Earnings for 1996 included an approximate $20 million after-tax gain from the
sale of an undivided interest in the methanol facility. Excluding the effect of
this gain, the earnings decline in 1996 versus 1995 was primarily due to lower
sales margins for petrochemicals and aromatics, partially offset by higher
polymers earnings. The $166 million earnings increase in 1995 versus 1994 was
primarily due to higher petrochemicals and aromatics sales margins and to higher
polymers earnings.
PETROCHEMICALS SEGMENT
Chart 1 - Large buyer clearing price (pipeline delivered) ethylene month-end
prices as reported by ChemData, Inc. from January 1994 through December 1996.
Chart indicates increasing prices in 1994 with an annual average of the month-
end prices of 20.43 cents per pound. 1995 prices decreased, however the annual
average of the month-end prices of 25.66 cents per pound is still above the 1994
average. The chart indicates the price drop in 1995 ended in February 1996 with
a steady increase in month-end prices throughout the remainder of 1996. However,
the annual average of the month-end prices in 1996 was 21.66 cents per pound,
below the 1995 average. Selected month-end prices are as follows: January 1994 -
16.70 cents per pound, December 1994 - 27.00 cents per pound, December 1995 -
18.50 cents per pound, December 1996 - 24.00 cents per pound.
Chart 2 - Spot price WTS low crude oil month-end prices as reported by Platts
Oilgram Price Report from January 1994 through December 1996. Chart indicates
increasing prices in 1994, 1995 and 1996 with an annual average of the month-end
prices of $16.69 per barrel in 1994, $17.84 per barrel in 1995 and $21.35 per
barrel in 1996. Prices were volatile in all three years although 1995 was
somewhat flat. Selected month-end prices are as follows: January 1994 - $14.41
per barrel, December 1994 - $16.89 per barrel, December 1995 - $18.22 per
barrel, December 1996 - $24.32 per barrel.
OPERATING INCOME Operating income amounted to $337 million in 1996 compared to
$635 million in 1995 and $411 million in 1994. The $298 million decline in
operating income in 1996 as compared to 1995 was primarily due to lower sales
margins for olefins and methanol, partially offset by higher profits from the
ALATHON Business.
The lower olefins sales margins for 1996 were primarily due to higher feedstock
costs. Lyondell's olefins feedstocks are primarily condensates and other
petroleum liquids which tend to follow the cost trends of crude oil. Since 1994
the price of crude oil has increased steadily (see Chart 2) which resulted in
higher feedstock costs for the petrochemicals business. The sales prices for
various olefins products are primarily driven by two factors. One is the demand
for ethylene, propylene and other by-products as a result of economic conditions
for end-use markets for these commodities such as the auto industry, housing
construction and consumer durable and non-durable goods. Secondarily, sales
prices are driven by the underlying cost of the feedstock. While demand was
strong, margins decreased during 1996 because sales price increases during the
year were not sufficient to cover the rapidly rising cost of the feedstocks.
Methanol is a primary component of MTBE which is a clean fuel additive in
reformulated gasoline that increases octane rating. Effective January 1, 1995,
the Clean Air Act Amendments of 1990 ("Clean Air Act") required reformulated
fuels to be used in certain U.S. cities. The demand for MTBE just prior to
implementation of the Clean Air Act drove the price of MTBE and methanol to
historic highs. Since the second quarter of 1995 the price of methanol has been
dropping as new production of methanol has come onstream. Combined with the
methanol price decrease, the price of natural gas, the principal methanol
feedstock, has been increasing since the beginning of 1995, resulting in
methanol sales margins retreating to more historic levels.
28
<PAGE>
The higher profits from the ALATHON Business were a result of including a full
12 months of operations in 1996 compared to only eight months of ownership of
the ALATHON Business in 1995. The ALATHON Business was acquired in May 1995.
The $224 million improvement in operating income in 1995 compared to 1994 was
primarily due to higher olefins sales margins and the addition of the ALATHON
Business, partially offset by lower olefins sales volumes.
Olefins sales margins were higher in 1995 than 1994 due to significantly higher
sales prices that more than offset increased raw material prices (see Charts 1
and 2). Olefins sales prices were higher in the first half of 1995 due to
favorable demand factors resulting from the improved economy. These higher
prices were reduced later in the year due to increased industry supply as
additional olefins capacity came onstream in 1995. Olefins sales volumes were
lower in the latter part of 1995 due to a slow down in demand as a result of
customers cutting back inventories in expectation of price reductions and a slow
down in economic conditions in the beginning of 1996.
REVENUES Sales and other operating revenues, including intersegment sales, were
$2.6 billion in 1996 compared to $2.7 billion in 1995 and $2.0 billion in 1994.
The $14 million decrease in 1996 compared to 1995 was primarily due to lower
sales prices for petrochemicals and the decrease in methanol prices discussed
above, offset by higher sales resulting from a full year's revenues from the
ALATHON Business. Compared to most of 1995 which was a period of strong market
conditions for petrochemicals generally, average sales prices for petrochemicals
during 1996 were lower due to a decline in market conditions which began in the
latter part of 1995. This decline was due to additional olefins capacity that
came onstream in 1995 and customer inventory corrections in the latter part of
1995. However, 1996 was still a strong year for petrochemical demand, in
particular ethylene, and prices increased throughout the year after bottoming
early in 1996 (see Chart 1).
In July of 1996 a fire occurred at the ARCO PipeLine Company meter station
located within the Channelview Facility. The fire forced the shutdown of the
entire Channelview Facility for several days and more than two weeks for some
units. The Company recovered lost profits from ARCO PipeLine Company for this
shutdown. The recovery was included in 1996 reported results.
The 1995 revenue increase of $684 million compared to 1994 was primarily due to
the addition of the ALATHON Business during 1995. Contributing to the increase
were higher olefins sales prices reflecting continued strong market conditions
during the first half of 1995 for petrochemicals that resulted from the strong
U.S. economic growth rate, an improved worldwide economy and industry supply
disruptions during the latter part of 1994.
GAIN ON SALE OF ASSETS Gain on sale of assets resulted primarily from the sale
of an undivided interest in the Company's methanol facility to MCNIC in December
1996.
COST OF SALES Cost of sales was $2.2 billion in 1996 compared to $1.9 billion
in 1995 and $1.5 billion in 1994. The 1996 increase of $286 million compared to
1995 was primarily due to higher olefins feedstock costs reflecting the higher
crude oil and related products prices (see Chart 2). Also contributing to the
increase were higher operating expenses due to the ownership of the ALATHON
Business for a full year in 1996 compared to eight months in 1995.
The 1995 cost of sales increase of $416 million compared to 1994 was primarily
due to the operation of the ALATHON Business and to the higher olefins feedstock
costs.
SELLING EXPENSES Selling expenses amounted to $112 million in 1996 compared to
$84 million in 1995 and $40 million in 1994. The $28 million increase in
selling expenses in 1996 compared to 1995 was primarily due to the operation of
the ALATHON Business for a full year in 1996 compared to eight months in 1995.
In the ALATHON Business, the cost of transporting finished products to customers
by rail is classified as a selling expense. Likewise, the $44 million increase
in selling expenses in 1995 compared to 1994 was primarily due to the inclusion
of the operations of the ALATHON Business for eight months in 1995 and, to a
lesser extent, to higher terminal expense related to storing product in
anticipation of shutting down one of the olefins units for a maintenance
turnaround.
29
<PAGE>
REFINING SEGMENT
Chart 3 - Contract (barges FOB) orthoxylene month-end prices as reported by
ChemData, Inc. from January 1994 through December 1996. Chart indicates
increasing prices in 1994 with an annual average of the month-end prices of
18.38 cents per pound. 1995 prices continued to increase through May 1995, then
began a sharp decline. However, the annual average of the month-end prices of
28.83 cents per pound for 1995 is still significantly above the 1994 average.
The chart indicates the price drop in 1995 ended in November 1995 but prices
remained relatively flat through the remainder of 1996. The annual average of
the month-end prices in 1996 was 16.50 cents per pound, well below the 1995
average. Selected month-end prices are as follows: January 1994 -14.50 cents per
pound, December 1994 - 28.00 cents per pound, December 1995 -16.00 cents per
pound, December 1996 - 18.00 cents per pound.
Chart 4 - Contract (tank car delivered) paraxylene month-end prices as reported
by ChemData, Inc. from January 1994 through December 1996. Chart indicates
increasing prices in 1994 with an annual average of the month-end prices of
24.13 cents per pound. Prices continued to increase throughout 1995, then
began a sharp decline in March 1996. The annual average of the month-end prices
was 36.63 cents per pound for 1995. The chart indicates the price drop ended in
October 1996 and prices remained flat for the remainder of 1996. The annual
average of the month-end prices in 1996 was 29.13 cents per pound. Selected
month-end prices are as follows: January 1994 - 22.25 cents per pound, December
1994 - 28.00 cents per pound, December 1995 - 41.00 cents per pound, December
1996 - 19.00 cents per pound.
OPERATING INCOME Operating income amounted to $1 million in 1996 compared to
$130 million in 1995 and $56 million in 1994. During 1996, profit performance
from refined products benefited from high processing rates of heavy Venezuelan
crude oil. However, this improvement was offset by lower margins due to rising
feedstock costs for the crude oil runs not covered by the Crude Supply Contract.
Operating rates for the crude oil purchased outside the Crude Supply Contract
were reduced significantly in the third quarter due to poor economics. The $129
million decrease in 1996 compared to 1995 was primarily due to lower aromatics
(primarily paraxylene and orthoxylene) and refined products (gasoline, low
sulfur diesel and jet fuel) sales margins and to higher period costs. Overall,
aromatics sales margins were lower in 1996 primarily due to lower sales prices
for orthoxylene and paraxylene (see Charts 3 and 4). Refined products sales
margins decreased due to higher crude oil (see Chart 2) and other feedstock
costs, which more than offset higher refined product sales prices, as well as
higher fuel costs. Refining period costs were higher due to higher maintenance
expense and personnel compensation.
The $74 million increase in 1995 compared to 1994 resulted from higher sales
margins for aromatics and refined products, partially offset by higher refining
period expenses and selling, general and administrative expenses. Aromatics
sales margins were higher due to higher sales prices, particularly for
paraxylene and orthoxylene. Paraxylene prices increased due to expanding
polyethylene terephthalate (PET) bottle and polyester fiber markets, which, to a
certain extent, pulled orthoxylene prices upward. Refined products sales
margins were higher due to processing higher volumes of Venezuelan crude oil
purchased under the Crude Supply Contract in both the coking and cracking modes.
Period expenses were higher due to higher employee compensation and higher
scheduled and unscheduled repair and maintenance expense.
REVENUES Sales and other operating revenues, including intersegment sales, were
$2.8 billion in 1996 compared to $2.6 billion in 1995 and $2.3 billion in 1994.
The 1996 increase of $164 million compared to 1995 primarily resulted from
higher sales prices for refined products and higher prices on crude oil resales,
partially offset by lower paraxylene and orthoxylene prices. Beginning in the
second quarter of 1996, paraxylene prices declined due to additional industry
capacity and continued inventory reductions in the PET business by plastic
beverage container customers and in the polyester fibers business by clothing
and fabric manufacturing customers. Orthoxylene prices were at historical highs
during the first half of 1995 before returning to a more normal level in the
fourth quarter of 1995 due to increased industry production and lower demand as
a result of customers' inventory reductions.
The 1995 increase of $374 million compared to 1994 primarily resulted from
higher sales prices and volumes for refined products and aromatics and higher
sales volumes and prices for crude oil resales. Refined products sales prices
tend to track the price trends of crude oil. During 1995 refined products sales
prices were higher due to the higher worldwide crude oil prices. Aromatics
sales prices and volumes, specifically for paraxylene and orthoxylene, increased
because of improved market conditions. Paraxylene prices were positively
impacted by high
30
<PAGE>
worldwide growth of polyester, particularly in the PET bottle sector, and prices
continued to increase through all of 1995. Orthoxylene prices peaked and began
to decline in mid-1995 as a result of increased worldwide production and slower
demand. Refined products sales volumes were higher during 1995 compared to 1994
due to higher production rates as a result of less scheduled and unscheduled
downtime of production units during 1995.
COST OF SALES Cost of sales was $2.7 billion in 1996 compared to $2.5 billion
in 1995 and $2.2 billion in 1994. The 1996 increase compared to 1995 of $292
million was primarily due to higher crude oil and other petroleum feedstock
costs and higher costs of crude oil resales, both of which resulted from higher
industry crude oil prices. Crude oil resales consist of revenues from the
resale of previously purchased crude oil and from locational exchanges of crude
oil that are settled on a cash basis. Crude oil exchanges and resales
facilitate the operation of the refining segment by allowing the Company to
optimize the crude oil feedstock mix in response to market conditions and
refinery maintenance turnarounds and to reduce transportation costs. For crude
oil purchases outside the Crude Supply Contract, approximately three barrels of
crude oil are purchased for every barrel processed with the remaining two
barrels traded or resold.
The 1995 increase compared to 1994 of $293 million was primarily due to higher
raw material costs and higher costs of crude oil resales. Raw material costs
were higher due to higher crude oil and other feedstock prices and to higher raw
material consumption due to higher finished product production rates. Finished
product production rates were higher in 1995 compared to 1994 due to less
scheduled and unscheduled downtime of production units during 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and
administrative expenses were $62 million in 1996 compared to $61 million in 1995
and $54 million in 1994. The $7 million increase in 1995 compared to 1994 was
primarily due to higher employee compensation and higher product transportation
expense due to higher sales volumes.
UNALLOCATED
GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses were
$60 million in 1996 compared to $59 million in 1995 and $43 million in 1994.
The $16 million increase in 1995 compared to 1994 was primarily due to higher
management incentive compensation related expenses, a significant portion of
which was for a management incentive compensation plan adopted and approved by
the stockholders in 1995.
INTEREST EXPENSE AND INTEREST INCOME Interest expense was $81 million in 1996
compared to $80 million in 1995 and $74 million in 1994. The $6 million
increase in interest expense in 1995 compared to 1994 resulted from amounts
borrowed to partially finance the acquisition of the ALATHON Business.
Interest income was $3 million in 1996 compared to $6 million in 1995 and $5
million in 1994. The $3 million decrease in interest income in 1996 compared to
1995 was primarily due to lower levels of excess cash available for investment.
MINORITY INTEREST Minority interest was $4 million in 1996. This represented
the allocated share of LCR net income to CITGO, the minority owner of LCR, and
the allocated share of Lyondell Methanol net income to MCNIC, the minority owner
of Lyondell Methanol. Minority interest was $14 million in 1995 and $6 million
in 1994, representing the allocated share of LCR net income to CITGO.
INCOME TAX The effective income tax rate during 1996 was 35.7 percent compared
to 37.1 percent for 1995 and 36.2 percent for 1994. State income tax was the
primary difference between the effective tax rate and the 35 percent federal
statutory rate during each of the periods.
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<PAGE>
FINANCIAL CONDITION
CASH FLOW FROM OPERATIONS Lyondell's cash flow from operations totaled $232
million during 1996 compared to $471 million and $155 million generated in 1995
and 1994, respectively. The decrease in 1996 compared to 1995 was primarily
attributable to the decrease in net income.
INVESTING ACTIVITIES Excluding refinery upgrade expenditures totaling $473
million, the Company made capital expenditures totaling $136 million during
1996, of which $28 million related to environmental projects primarily at the
Refinery and $108 million was for other projects primarily at the petrochemical
plants. Refinery upgrade expenditures during 1996 were funded by $144 million
of contributions made during 1996 by CITGO, $199 million from external
borrowings by LCR, $123 million from Lyondell in the form of subordinated loans
to LCR and $7 million from the restricted cash balance.
CITGO has provided a major portion of the funding for the Upgrade Project which
through December 31, 1996 totaled cash contributions of approximately $472
million, including cash contributions for the carrying costs of the construction
debt, and has also reinvested approximately $42 million of cash distributions.
In addition, CITGO has provided $130 million for funding other non-Upgrade
Project capital projects and operations through March 1, 1997. The Upgrade
Project was placed in service during the first quarter of 1997 at a total
cost of approximately $1.1 billion. Lyondell funded one-half of the costs in
excess of $1 billion through subordinated loans.
The 1997 capital expenditures budget, excluding the Upgrade Project and other
LCR capital projects, is $116 million. In addition, approximately $25 million
will be loaned to LCR for the Upgrade Project and $16 million for other LCR
capital projects. Capital spending in 1997 includes: design and engineering for
a 440 million pound or approximately 40 percent expansion of HDPE resin capacity
with a targeted start-up of mid-1999; initial construction spending for a 100
million pound or approximately 25 percent expansion of HDPE capacity at the
Victoria Facility with a targeted start-up in 1998; and, control and electrical
upgrades at the Channelview Facility and the Refinery.
FINANCING ACTIVITIES During 1996 the Company completed a bond offering for $300
million of 10 and 30 year bonds. Additionally, LCR acquired funds to complete
its Upgrade Project by borrowing $199 million under its five-year term credit
facility and receiving $144 million in contributions from CITGO. MCNIC
contributed $2 million to Lyondell Methanol to fund ongoing operations. The
Company used cash to pay dividends of $72 million, $150 million for scheduled
repayments of long-term notes and a net $43 million for repayments of short-term
borrowings. See Note 13 of "NOTES TO CONSOLIDATED FINANCIAL STATEMENTS."
In February 1996, the Company issued $300 million of debt securities ("Debt
Securities") consisting of $150 million of 6.5 percent notes due in 2006 and
$150 million of 7.55 percent debentures due in 2026. A portion of the proceeds
received from the sale of the Debt Securities was used to repay short-term debt
during the first quarter of 1996, and the remainder was used for retirement of
maturing long-term debt and general corporate purposes. The Debt Securities are
unsecured obligations and rank on a parity with all other unsecured and
unsubordinated debt of the Company.
The Company has a five-year, $400 million revolving credit facility ("Facility")
with a group of banks expiring June 2000. Borrowings under the Facility bear
interest at either the eurodollar, certificate of deposit or prime rates or
based on a competitive auction feature wherein the interest rate can be
established by competitive bids submitted by the sponsoring banks, all at the
Company's option. The Facility is available for working capital and general
corporate purposes as needed and contains covenants relating to dividend
payments, debt incurrence, liens, disposition of assets, mergers and
consolidations, fixed charge and leverage ratios. At December 31, 1996, no
amounts were outstanding under this Facility.
In May 1995, LCR entered into two credit facilities totaling $520 million with a
group of banks with The Bank of New York as agent (together the "LCR Credit
Facilities"). The first facility, a $70 million, 364-day revolving working
capital facility, was renewed in 1996 and is being utilized for general business
purposes unrelated to the Upgrade Project and for letters of credit. At
December 31, 1996, $10 million was outstanding under this credit
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<PAGE>
facility with a weighted average interest rate of 7.1 percent. The second
facility is a $450 million, five-year term credit facility being used in
connection with the Upgrade Project. At December 31, 1996, $450 million was
outstanding under this credit facility with a weighted average interest rate of
6.3 percent. Interest for both facilities is based on prime or eurodollar rates
at LCR's option. The LCR Credit Facilities contain covenants which require LCR
to maintain a minimum net worth which increases each year until 1998 and
maintenance of certain financial ratios defined in the agreements. The LCR
Credit Facilities also contain other customary covenants which limit LCR's
ability to modify certain significant contracts, incur additional debt or liens,
dispose of assets, make restricted payments as defined in the agreements or
merge or consolidate with other entities.
At the end of the third quarter of 1996, LCR was not in compliance with the
financial ratio covenant of adjusted average debt to earnings before interest,
taxes, depreciation and amortization ("EBITDA") contained in the LCR Credit
Facilities. Effective as of November 12, 1996, the LCR Credit Facilities were
amended. The substance of these amendments was to replace the adjusted average
debt to EBITDA covenant and one additional financial covenant with a covenant to
maintain a minimum EBITDA. The amendments were retroactively effective as of
the noncompliance date and will continue through June 30, 1997. As of December
31, 1996, LCR was in compliance with the terms of the LCR Credit Facilities.
The Company also has uncommitted lines of credit totaling $285 million with
banks and other financial institutions. These uncommitted lines of credit
provide the Company with additional borrowing flexibility and potentially more
competitive interest rates. The Company can borrow money on these uncommitted
lines of credit on such terms as may be mutually agreed upon at the time amounts
are borrowed. The lines of credit can be terminated by the lenders, in their
sole discretion, on short notice. As of December 31, 1996, the Company had $50
million outstanding under these uncommitted lines of credit.
On January 24, 1997, the Board of Directors declared a regular quarterly
dividend in the amount of $.225 per share of common stock, payable March 15,
1997 to stockholders of record on February 25, 1997.
ACCOUNTING CHANGES
LYONDELL-CITGO REFINING COMPANY LTD. During the first quarter of 1997 the
Upgrade Project at LCR became fully operational. As a result, the participation
interests will change to approximately 60 percent and 40 percent for Lyondell
and CITGO, respectively. Pursuant to contractural arrangements and concurrent
with the completion of the Upgrade Project, the authority and responsibility for
certain management decisions previously decided by majority vote, and therefore
controlled by Lyondell, changed to unanimous vote resulting in expanded joint
control of LCR by Lyondell and CITGO. Consequently, effective January 1, 1997,
Lyondell will account for its investment in LCR under the equity method of
accounting, meaning that the operations of LCR will no longer be consolidated
line by line with those of Lyondell. The net earnings of LCR will be included in
the income of Lyondell as income from equity investment and Lyondell's portion
of the LCR assets will appear on a single line as investment in affiliate. See
Note 3 of "NOTES TO CONSOLIDATED FINANCIAL STATEMENTS."
SEGMENT INFORMATION Beginning in 1997, the Company intends to report the
results of its polymers operations as a separate segment. Currently, the
results of polymers operations are included in the petrochemicals segment.
ACCOUNTING STANDARDS
In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." SFAS No. 125
covers transactions that include: securitizations, sales of partial interests
in financial assets, repurchase agreements, securities lending, pledges of
collateral, loan syndications and participations, sales of receivables with
recourse, servicing of mortgages and other loans, and in-substance defeasances.
The majority of the provisions of SFAS No. 125 become effective at the beginning
of 1997 while some items are effective at the
33
<PAGE>
beginning of 1998 based on the issuance of SFAS No. 127, "Deferral of the
Effective Date of Certain Provisions of FASB Statement No. 125." Based on
current circumstances, the Company does not believe the effect of adoption will
have a material impact on the Company.
In October 1996 the American Institute of Certified Public Accountants issued
Statement of Position 96-1 ("SOP 96-1"), "Environmental Remediation
Liabilities," which establishes new accounting and reporting standards for the
recognition and disclosure of environmental remediation liabilities. The
Company does not believe the effect of adoption of SOP 96-1 in 1997 will have a
material impact on the Company's financial position or results of operations.
ENVIRONMENTAL MATTERS
Various environmental laws and regulations impose substantial requirements upon
the operations of the Company. The Company's policy is to be in compliance with
such laws and regulations, which include, among others, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), as
amended, the Resource Conservation and Recovery Act ("RCRA") and the Clean Air
Act. In connection with the transfer of assets and liabilities from Atlantic
Richfield Company ("ARCO") to the Company at the time the Company was formed
into a separate company, effective July 1, 1988, the Company and ARCO entered
into an agreement ("Cross-Indemnity Agreement") whereby the Company agreed to
defend and indemnify ARCO against certain uninsured claims and liabilities which
ARCO may incur relating to the operation of the business of the Company prior to
July 1, 1988, including certain liabilities which may arise out of pending and
future lawsuits. ARCO, along with many other companies, has been named a
potentially responsible party ("PRP") under CERCLA in connection with the past
disposal of waste at third party waste sites. Pursuant to the Cross-Indemnity
Agreement, the Company is currently contributing funds for one site pursuant to
its obligation to reimburse ARCO for a portion of its uninsured remediation
costs. The Company has reached an agreement-in-principle with ARCO to update the
Cross-Indemnity Agreement ("Revised Cross-Indemnity Agreement"). Under the
Revised Cross-Indemnity Agreement, both ARCO and the Company waive any claim for
reimbursement under the existing Cross-Indemnity Agreement for any prior defense
and settlement costs associated with waste site matters, and the Company will
assume responsibility for its proportionate share of future costs for waste site
matters not covered by ARCO insurance. The obligation described above will
continue under the Revised Cross-Indemnity Agreement.
The Company reserves for contingencies, including those based upon unasserted
claims, that are probable and reasonably estimable. In connection with
environmental matters, the Company establishes reserves based upon known facts
and circumstances. Based on current environmental laws and regulations, the
Company believes it has adequately reserved for the matters described above and,
based upon such reserves, does not anticipate any material adverse effect upon
its earnings, operations or competitive position, although the resolution in any
reporting period of one or more of these matters could have a material impact on
the Company's results of operations for that period.
The environmental reserve on December 31, 1996 was $14 million. The Company
spent $2.1 million, $9.4 million and $6.5 million in 1996, 1995 and 1994,
respectively, relating to environmental matters. The Company estimates it will
spend approximately $4 million in conjunction with environmental matters in 1997
which is included in the December 31, 1996 environmental reserve.
CURRENT BUSINESS OUTLOOK
Lyondell's results in the second half of 1996 reflected a stronger business
environment for petrochemicals and polymers compared to the earlier part of
1996. This improvement was partially offset, however, by higher petrochemicals
feedstock costs. During 1997, management expects petrochemicals supply and
demand fundamentals to continue to be favorable with positive demand growth.
However, significant additional industry capacity is expected to be added late
in 1997 which may adversely impact margins. Polymers demand has been
34
<PAGE>
relatively strong in the first quarter of 1997. HDPE supply and demand
fundamentals are expected to remain favorable, however, anticipated additional
industry polypropylene capacity may negatively impact margins.
Methanol business conditions returned to more typical levels in the latter part
of 1995 and through 1996 from the very favorable conditions that existed during
the early part of 1995. Methanol demand growth is still good and natural gas
feedstock costs have fallen from their high levels in early 1997. However,
substantial new capacity is expected in various parts of the world over the next
few years which may negatively impact margins.
Although refining industry margins are not expected to improve during 1997,
management believes the Company has improved its refining business with the
formation of LCR and the resulting benefits of the Crude Supply Contract and
Products Agreement. These arrangements are designed to diminish the impact of
market volatility and stabilize cash flows at attractive levels relative to
historic performance. With the completion of the Upgrade Project, more than 90
percent of the crude oil purchases will be under the Crude Supply Contract which
will significantly reduce the crude oil volume which is sensitive to market
conditions. The benefits of the Crude Supply Contract should begin to be fully
realizable following completion of the Upgrade Project. However, the learning
curve for the Upgrade Project may limit LCR's ability to achieve maximum
operating efficiencies and therefore realize the full benefits of the Crude
Supply Contract. Aromatics are in a weaker environment entering 1997 from
the favorable conditions that existed in 1995 and early 1996 due to lower
margins resulting from higher feedstock costs and continuing low sales prices
for paraxylene as a result of excess supply.
Profitability and cash flows for the petrochemicals and refining businesses are
affected by industry supply and demand, feedstock cost volatility, capital
expenditures required to meet more stringent environmental standards, repair and
maintenance costs and downtime of production units due to maintenance
turnarounds. Turnarounds on major units can have significant financial impacts
due to the associated loss of production, resulting in lower profitability. The
Company is performing a turnaround of its Matagorda Facility during the first
quarter of 1997.
Management believes business conditions will be such that cash balances, cash
generated from operating activities and existing lines of credit will be
adequate to meet future cash requirements for scheduled debt repayments,
necessary capital expenditures and to sustain for the reasonably foreseeable
future the regular quarterly dividend. Management anticipates increased cash
flow from its businesses. Management intends that cash flow in excess of the
amounts needed to fund capital projects, growth opportunities and appropriate
liquidity needs, would be returned to the stockholders through stock
repurchases, increased dividends or some combinations thereof.
The Company's business strategies are to maintain and improve its low-cost
position, reduce cyclicality and volatility and grow the business profitably.
Lyondell continually evaluates opportunities to expand or further diversify its
operations through potential acquisitions, joint ventures and other
opportunities involving third parties. Consistent with the Company's overall
strategy, however, management's intent is to undertake such transactions only if
it expects the transactions would produce both near-term and long-term improved
cash flow and would produce returns in excess of the Company's cost of capital.
Certain of the statements in this Current Business Outlook Section are forward-
looking statements that involve risks and uncertainties, and the factors
described herein could cause actual results to differ materially from the
estimates contained herein.
_________________
Management cautions against projecting any future results based on present or
prior earnings levels because of the cyclical nature of the refining and
petrochemical industries and uncertainties associated with the United States and
worldwide economies and current and potential United States governmental
regulatory actions.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Report of Independent Accountants 37
Financial Statements:
Consolidated Statements of Income and Retained Earnings (Deficit) 38
Consolidated Balance Sheets 39
Consolidated Statements of Cash Flows 40
Notes to Consolidated Financial Statements 41
36
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
of Lyondell Petrochemical Company:
We have audited the accompanying consolidated balance sheets of Lyondell
Petrochemical Company as of December 31, 1996 and 1995, and the related
consolidated statements of income and retained earnings (deficit), and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Lyondell
Petrochemical Company as of December 31, 1996 and 1995, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1996 in conformity with generally accepted accounting
principles.
Coopers & Lybrand L.L.P.
Houston, Texas
February 12, 1997
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LYONDELL PETROCHEMICAL COMPANY
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (DEFICIT)
FOR THE YEAR ENDED
DECEMBER 31
------------------------------
MILLIONS OF DOLLARS, EXCEPT PER SHARE
AMOUNTS 1996 1995 1994
- ------------------------------------- ---------- ------ ------
SALES AND OTHER OPERATING REVENUES:
Unrelated parties $4,734 $4,611 $3,543
Related parties 318 325 314
---------- ------ ------
5,052 4,936 3,857
GAIN ON SALE OF ASSETS 30 -- --
OPERATING COSTS AND EXPENSES:
Cost of sales:
Unrelated parties 4,320 3,801 3,066
Related parties 250 225 230
Selling, general and
administrative expenses 234 204 137
---------- ------ ------
4,804 4,230 3,433
---------- ------ ------
Operating income 278 706 424
Interest expense (81) (80) (74)
Interest income 3 6 5
Minority interest (4) (14) (6)
---------- ------ ------
Income before income taxes 196 618 349
Provision for income taxes 70 229 126
---------- ------ ------
NET INCOME $ 126 $ 389 $ 223
========== ====== ======
EARNINGS PER SHARE $ 1.58 $ 4.86 $ 2.78
========== ====== ======
RETAINED EARNINGS (DEFICIT) AT
BEGINNING OF YEAR $ 142 $ (175) $ (326)
Net income 126 389 223
Cash dividends (72) (72) (72)
Other (3) -- --
---------- ------ ------
RETAINED EARNINGS (DEFICIT) AT END OF
YEAR $ 193 $ 142 $ (175)
========== ====== ======
See notes to consolidated financial statements.
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LYONDELL PETROCHEMICAL COMPANY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31
-------------------
MILLIONS OF DOLLARS 1996 1995
- ------------------- --------- --------
ASSETS
Current assets:
Cash and cash equivalents $ 68 $ 3
Restricted cash and cash
equivalents -- 7
Accounts receivable:
Trade 394 340
Related parties 62 22
Inventories 294 265
Prepaid expenses and other current
assets 13 41
---------- --------
Total current assets 831 678
---------- --------
Property, plant and equipment 4,313 3,804
Less accumulated depreciation and
amortization (2,043) (1,990)
---------- --------
2,270 1,814
Deferred charges and other assets 175 114
---------- --------
Total assets $ 3,276 $ 2,606
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable:
Trade $ 474 $ 358
Related parties 1 1
Notes payable 60 103
Current maturities of long-term
debt 112 150
Other accrued liabilities 124 138
---------- --------
Total current liabilities 771 750
---------- --------
Long-term debt 1,194 807
Other liabilities and deferred credits 114 95
Deferred income taxes 157 115
Commitments and contingencies
Minority interest 609 459
Stockholders' equity:
Preferred stock, $.01 par value,
80,000,000 shares
authorized, none outstanding
Common stock, $1 par value,
250,000,000 shares
authorized, 80,000,000 issued
and outstanding 80 80
Additional paid-in capital 158 158
Retained earnings 193 142
---------- --------
Total stockholders' equity 431 380
---------- --------
Total liabilities and stockholders
equity $ 3,276 $ 2,606
========== ========
See notes to consolidated financial statements.
39
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LYONDELL PETROCHEMICAL COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED
DECEMBER 31
------------------------------
MILLIONS OF DOLLARS 1996 1995 1994
- ------------------- ---------- -------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 126 $ 389 $ 223
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 110 86 65
Deferred income taxes 50 3 10
Increase in accounts
receivable (94) (1) (156)
Increase in inventories (29) (36) (38)
Increase in accounts payable 160 54 59
Net change in other working
capital accounts 6 (1) 28
Minority interest 4 14 6
Gain on sale of assets (30) -- --
Other (71) (37) (42)
----------- -------- --------
Net cash provided by
operating activities 232 471 155
----------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and
equipment (609) (982) (252)
Proceeds from sales of assets 55 -- --
Purchases of short-term investments (76) -- (20)
Proceeds from sales of short-term
investments 76 -- 26
----------- -------- --------
Net cash used in
investing activities (554) (982) (246)
----------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Minority owners' contributions 146 176 136
Net change in short-term debt (43) 83 16
Borrowings of long-term debt 499 250 --
Repayments of long-term debt (150) (10) (8)
Dividends paid (72) (72) (72)
----------- -------- --------
Net cash provided by
financing activities 380 427 72
----------- -------- --------
INCREASE (DECREASE) IN CASH, RESTRICTED
CASH AND CASH EQUIVALENTS 58 (84) (19)
Cash, restricted cash and cash
equivalents at beginning of period 10 94 113
----------- -------- --------
Cash, restricted cash and cash
equivalents at end of period $ 68 $ 10 $ 94
=========== ======== ========
See notes to consolidated financial statements.
40
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LYONDELL PETROCHEMICAL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMNTS
1. FORMATION OF THE COMPANY AND OPERATIONS
As the context may require, all references hereafter to the "Company" or
"Lyondell" include Lyondell Petrochemical Company and its wholly-owned
subsidiaries, LYONDELL-CITGO Refining Company Ltd. ("LCR"), a Texas limited
liability company, and Lyondell Methanol Company L.L.P. ("Lyondell Methanol").
Lyondell Methanol was formed in December 1996 by Lyondell and MCN Investment
Corporation ("MCNIC") to own and operate the methanol facility at the
Channelview, Texas petrochemicals facility ("Channelview Facility"). MCNIC has a
25 percent interest in Lyondell Methanol. Lyondell has a 75 percent interest in
Lyondell Methanol and will serve as managing partner and operator.
From its formation in 1985 through June 1988, Lyondell operated as a division of
Atlantic Richfield Company ("ARCO"). In July 1988, ARCO transferred the
division's assets and liabilities along with additional pipeline assets, to its
wholly-owned subsidiary, Lyondell Petrochemical Company, a Delaware corporation.
In January 1989, ARCO completed an initial public offering of approximately 50.1
percent of the Company's common stock. In August 1994, ARCO completed an
offering ("ARCO Note Offering") of three-year debt securities ("Exchangeable
Notes") which are exchangeable upon maturity on September 15, 1997 into Lyondell
common stock or an equivalent cash value, at ARCO's option. If ARCO elects to
deliver shares of Lyondell common stock at the maturity of the Exchangeable
Notes, ARCO's equity interest in Lyondell will be reduced or eliminated,
depending on the price of Lyondell common stock at maturity of the Exchangeable
Notes. As of December 31, 1996, ARCO owned 39,921,400 shares of Lyondell common
stock, representing 49.9 percent of the issued and outstanding common stock of
the Company.
The Company operates in the petrochemicals and refining segments. The
petrochemicals segment manufactures a wide variety of petrochemicals including
olefins, polyolefins, aromatics, methanol and methyl tertiary butyl ether
("MTBE"). The Company's petrochemical products are used primarily in the
manufacturing of other chemicals and products, which in turn are used in the
production of a wide variety of consumer and industrial products. The refining
segment operates primarily through the Company's interest in LCR and
manufactures refined petroleum products, including gasoline, low sulfur diesel
and jet fuel; aromatics, including benzene, toluene, paraxylene and orthoxylene;
lubricants, including industrial lubricants, motor oils, white oils, process
oils and base oils; carbon black oil; sulfur; residual oil; petroleum coke fuel;
olefins feedstocks; and crude oil resales. LCR sells its principal refined
products to CITGO Petroleum Corporation ("CITGO") (see Note 3). Although during
the previous five years the contribution to operating profits made by the
petrochemicals segment has been nearly five times greater than the contribution
to operating profits made by the refining segment, this trend could be reversed
in any particular year due to margin volatility within the petrochemicals and
petroleum refining industries.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - The consolidated financial statements include the
accounts of the Company and its subsidiaries, including LCR and Lyondell
Methanol. All significant transactions between the entities of the Company have
been eliminated from the consolidated financial statements.
Revenue Recognition - Revenue from product sales is generally recognized upon
delivery of products to the customer.
Cash and Cash Equivalents - Cash equivalents consist of highly liquid debt
instruments such as certificates of deposit, commercial paper and money market
accounts purchased with an original maturity date of three months or less. Cash
equivalents are stated at cost, which approximates fair value. The Company's
policy is to invest cash in conservative, highly rated instruments and limit the
amount of credit exposure to any one institution. The Company performs periodic
evaluations of the relative credit standing of these financial institutions
which are considered in the Company's investment strategy.
41
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LYONDELL PETROCHEMICAL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
The Company has no requirements for compensating balances in a specific amount
at a specific point in time. The Company does maintain compensating balances
for some of its banking services and products. Such balances are maintained on
an average basis and are solely at the Company's discretion. As a result, none
of the Company's cash is restricted with the exception of cash held for use in
connection with LCR capital projects and other expenditures as determined by the
LCR owners (see Note 6).
All investments in debt and equity securities are accounted for in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting
for Certain Investments in Debt and Equity Securities." Management determines
the appropriate classification of investments in debt securities as trading,
available-for-sale or held-to-maturity at the time of purchase and reevaluates
such designation as of each balance sheet date.
Accounts Receivable - The Company sells its products primarily to companies in
the petrochemicals and refining industries. The Company performs ongoing credit
evaluations of its customers' financial condition and in certain circumstances
requires letters of credit from them. The Company's allowance for doubtful
accounts receivable, which is reflected in the consolidated balance sheet as a
reduction of accounts receivable, totaled $3 million at December 31, 1996 and
1995.
Inventories - Inventories are stated at the lower of cost or market. Cost is
determined on the last-in, first-out ("LIFO") basis except for materials and
supplies, which are valued at average cost.
Property, Plant and Equipment - Property, plant and equipment are recorded at
cost. Depreciation of property, plant and equipment is computed using the
straight-line method over the estimated useful lives of the related assets as
follows.
Manufacturing facilities and equipment - 5 to 30 years
Leased assets and improvements - 5 to 20 years
Upon retirement or sale, the Company removes the cost of the assets and the
related accumulated depreciation from the accounts and reflects any resulting
gains or losses in income. The Company's policy is to capitalize interest cost
incurred on debt during the construction of major projects exceeding one year.
Turnaround Maintenance and Repair Expenses - Cost of repairs and maintenance
incurred in connection with turnarounds of major units at the Company's
manufacturing facilities exceeding $5 million are deferred and amortized on a
straight-line basis until the next planned turnaround, generally four to six
years.
Environmental Remediation Costs - Expenditures related to investigation and
remediation of contaminated sites, which include operating facilities and waste
disposal sites, are accrued when it is probable a liability has been incurred
and the amount of the liability can reasonably be estimated. Estimates have not
been discounted to present value. Environmental remediation costs are expensed
or capitalized in accordance with generally accepted accounting principles.
Exchanges - Crude oil and finished product exchange transactions, which are of a
homogeneous nature of commodities in the same line of business and do not
involve the payment or receipt of cash, are not accounted for as purchases and
sales. Any resulting volumetric exchange balances are accounted for as
inventory in accordance with the normal LIFO valuation policy. Exchanges
settled through payment and receipt of cash are accounted for as purchases and
sales.
Income Taxes - Deferred income taxes result from temporary differences in the
recognition of revenues and expenses for tax and financial reporting purposes
and are calculated based upon cumulative book and tax differences in the
consolidated balance sheets in accordance with SFAS No. 109, "Accounting for
Income Taxes."
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
42
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LYONDELL PETROCHEMICAL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Reclassifications - Certain previously reported amounts have been restated to
conform to classifications adopted in 1996.
3. LYONDELL-CITGO REFINING COMPANY LTD.
In July 1993, LCR was formed to own and operate the Company's refining business,
including the full-conversion Houston, Texas refinery ("Refinery"). LCR is a
limited liability company organized under the laws of the state of Texas and
owned by subsidiaries of the Company and CITGO. At December 31, 1996, CITGO had
an approximate 13 percent participation interest in LCR. LCR has undertaken and
completed a major upgrade project at the Refinery primarily funded by debt and
CITGO equity contributions to enable the facility to process substantial
additional volumes of very heavy crude oil ("Upgrade Project"). CITGO has
provided a major portion of the funds for the Upgrade Project and has provided
$100 million through December 31, 1996 for funding other capital projects.
Major components of the Upgrade Project include new coking, crude distillation
and sulfur recovery units. CITGO has committed to reinvest its share of
operating cash flow during the Upgrade Project totaling $42 million through
December 31, 1996, while the Company has unrestricted access to its share of
operating cash flow from LCR.
LCR has entered into a long-term crude supply contract ("Crude Supply Contract")
with Lagoven, S.A. ("LAGOVEN"), an affiliate of CITGO. The Crude Supply Contract
incorporates a formula price based on the market value of a slate of refined
products deemed to be produced from each particular crude oil or feedstock,
less: (i) certain deemed refining costs, adjustable for inflation; (ii) certain
actual costs, including crude transportation costs, import duties and taxes; and
(iii) a deemed margin, which varies according to the grade of crude oil or other
feedstock delivered. Deemed margins and deemed costs are adjusted periodically.
These adjustments are based on and, in the case of deemed margins, less than
inflation rates. Because deemed operating costs and the slate of refined
products deemed to be produced for a given barrel of crude oil or other
feedstock do not necessarily reflect the actual costs and yields in any period
and because the market value of the refined products used in the pricing formula
does not necessarily reflect the actual price received for the refined products,
the actual refining margin earned by LCR under the Crude Supply Contract will
vary depending on, among other things, the efficiency with which LCR conducts
its operations during such period.
Despite the limitations discussed above, the Crude Supply Contract is designed
to reduce the inherent earnings and cash flow volatility of the refining
operations of LCR irrespective of market fluctuations of either crude oil or
refined products. Specifically, if the market value of refined products "deemed"
to be produced from the Venezuelan crude oil increases, the "deemed" cost of
crude oil to LCR will also increase. Alternatively, if the market value of
refined products "deemed" to be produced from the Venezuelan crude oil
decreases, the "deemed" cost of crude oil to LCR will also decrease. This
results in relatively stable "deemed" margins regardless of refined products
market volatility. If the actual yields, costs or volumes differ substantially
from those contemplated by the Crude Supply Contract, the benefits of this
agreement to LCR could be substantially different than anticipated.
In addition, under the terms of a long-term product sales agreement ("Products
Agreement"), CITGO purchases from LCR 100 percent of the refined products
produced at the Refinery. Both LAGOVEN and CITGO are direct or indirect wholly-
owned subsidiaries of Petroleos de Venezuela, S.A. ("PDVSA"), the national oil
company of Venezuela. LCR is required to purchase and LAGOVEN is required to
sell sufficient crude oil to satisfy LCR's coking capacity, a minimum of 200,000
barrels per day and up to 230,000 barrels per day of very heavy Venezuelan crude
oil. LAGOVEN has the right, but not the obligation, to supply incremental
amounts above 230,000 barrels per day.
During the first quarter of 1997 the Upgrade Project at LCR became fully
operational. As a result, the participation interests will change to
approximately 60 percent and 40 percent for Lyondell and CITGO,
43
<PAGE>
LYONDELL PETROCHEMICAL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
respectively, to reflect CITGO's equity contribution in the Upgrade Project.
CITGO has a one-time option to increase its participation interest in LCR up to
50 percent by making an additional equity contribution. Pursuant to contractual
arrangements and concurrent with the completion of the Upgrade Project, the
authority and responsibility for certain management decisions previously decided
by majority vote, and therefore controlled by Lyondell, changed to unanimous
vote resulting in expanded joint control of LCR by Lyondell and CITGO.
Consequently, effective January 1, 1997, Lyondell will account for its
investment in LCR under the equity method of accounting, meaning that the
operations of LCR will no longer be consolidated line by line with those of
Lyondell. The net earnings of LCR will be included in the income of Lyondell as
income from equity investment and Lyondell's portion of the LCR assets will
appear on a single line as investment in affiliate.
The following unaudited proforma financial information presents the financial
position, results of operations and cash flows of the Company as of and for the
year ended December 31, 1996 using the equity method of accounting for
Lyondell's investment in LCR as if the change in accounting method had been
effective January 1, 1996. This unaudited proforma information may not be
indicative of results that will be obtained in the future.
<TABLE>
<CAPTION>
INCOME STATEMENT PROFORMA AS REPORTED
- ---------------- EQUITY METHOD CONSOLIDATED
MILLIONS OF DOLLARS EXCEPT PER SHARE FOR THE YEAR ENDED FOR THE YEAR ENDED
AMOUNTS DECEMBER 31, 1996 DECEMBER 31, 1996
- ----------------------------------- -------------------- -------------------
<S> <C> <C>
Sales and other operating revenues $2,644 $5,052
Gain on sale of assets 30 30
Cost of sales 2,228 4,570
Selling, general and administrative
expenses 172 234
-------------------- -------------------
Operating income 274 278
Interest expense (79) (81)
Interest income 1 3
Minority interest (2) (4)
Income from equity investment 2 --
Provision for income taxes (70) (70)
-------------------- -------------------
Net income $ 126 $ 126
==================== ===================
Earnings per share $ 1.58 $ 1.58
==================== ===================
BALANCE SHEET PROFORMA AS REPORTED
- ------------- EQUITY METHOD CONSOLIDATED
MILLIONS OF DOLLARS DECEMBER 31, 1996 DECEMBER 31, 1996
- ------------------- -------------------- -------------------
Current assets $ 619 $ 831
Property, plant and equipment 893 2,270
Investment in affiliate 83 --
Receivable from affiliate 177 --
Deferred charges and other assets 118 175
-------------------- -------------------
Total assets $1,890 $3,276
==================== ===================
Notes payable $ 50 $ 60
Current maturities of long-term debt 112 112
Other current liabilities 323 599
-------------------- -------------------
Total current liabilities 485 771
Long-term debt 744 1,194
Other long-term liabilities 227 271
Minority interest 3 609
Total stockholders' equity 431 431
-------------------- -------------------
Total liabilities and stockholders'
equity $1,890 $3,276
==================== ===================
</TABLE>
44
<PAGE>
LYONDELL PETROCHEMICAL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
STATEMENT OF CASH FLOWS PROFORMA AS REPORTED
- ----------------------- EQUITY METHOD CONSOLIDATED
FOR THE YEAR ENDED FOR THE YEAR ENDED
MILLIONS OF DOLLARS DECEMBER 31, 1996 DECEMBER 31, 1996
- ------------------- -------------------- -------------------
<S> <C> <C>
Net income $ 126 $ 126
Depreciation and amortization 74 110
Deferred income taxes 50 50
Changes in working capital and other (128) (54)
-------------------- -------------------
Net cash provided by operating
activities 122 232
-------------------- -------------------
Additions to property, plant and
equipment (80) (609)
Proceeds from sales of assets 55 55
Contributions and advances to
affiliate, net (74) --
-------------------- -------------------
Net cash used in investing
activities (99) (554)
-------------------- -------------------
Minority owners' contributions 2 146
Net change in short-term debt (53) (43)
Borrowings of long-term debt 300 499
Repayments of long-term debt (150) (150)
Dividends paid (72) (72)
-------------------- -------------------
Net cash provided by financing
activities 27 380
-------------------- -------------------
Increase in cash and cash equivalents 50 58
Cash and cash equivalents, beginning of
period 6 10
-------------------- -------------------
Cash and cash equivalents, end of period $ 56 $ 68
==================== ===================
</TABLE>
4. ACQUISITION OF ALATHON(R) HIGH-DENSITY POLYETHYLENE BUSINESS
In May 1995, the Company acquired Occidental Chemical Corporation's Alathon(R)
high-density polyethylene ("HDPE") business ("ALATHON Business") for $356
million including certain direct costs, plus approximately $64 million for
inventory. Assets involved in the purchase included resin production facilities
at Victoria and Matagorda, Texas, associated research and development activities
and the rights to the Alathon(R) trademark. These facilities have a combined
annual production capacity of approximately 1.5 billion pounds of HDPE. The
Company financed the acquisition from internal cash and $230 million of short-
term borrowings from its existing financing arrangements.
The following unaudited proforma information combines the results of operations
of the Company and the ALATHON Business for the years ended December 31, 1995
and 1994 and assumes the acquisition of the ALATHON Business occurred on January
1, 1994. This unaudited proforma information may not be indicative of results
that would have actually resulted if this transaction had occurred on January 1,
1994 or which may be obtained in the future.
MILLIONS OF DOLLARS EXCEPT PER SHARE
AMOUNTS 1995 1994
- ------------------------------------ --------- -------
Sales and other operating revenues $5,130 $4,289
Net income 409 240
Earnings per share 5.11 3.00
45
<PAGE>
LYONDELL PETROCHEMICAL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
5. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information is summarized as follows.
MILLIONS OF DOLLARS 1996 1995 1994
- ------------------- ------- ------ ------
Cash paid during the year for:
Interest:
Paid $ 103 $ 83 $ 72
Less amount capitalized 32 6 --
------- ------ ------
Net $ 71 $ 77 $ 72
======= ====== ======
Income taxes $ 42 $ 252 $ 90
======= ====== ======
At December 31, 1996, 1995 and 1994, property, plant and equipment included $9
million, $53 million and $36 million, respectively, of non-cash additions which
related to accounts payable accruals.
6. RESTRICTED FUNDS
At December 31, 1995, cash and cash equivalents in the amount of $7 million were
restricted for use in connection with LCR capital projects, including the
Upgrade Project and other expenditures as determined by the LCR owners. No cash
or cash equivalents were restricted at December 31, 1996. Presented below is a
reconciliation of changes in restricted funds for the year ended December 31,
1996.
MILLIONS OF DOLLARS
- -------------------
Restricted cash and cash equivalents at
December 31, 1995 $ 7
Minority owner investments:
Contributions 144
Distributable cash reinvested 13
Lyondell investments:
Loan for Upgrade Project 123
Other loans 29
Contributions 12
Proceeds from bank loan 199
Additions to property, plant and
equipment:
Upgrade Project (471)
Refining segment - other (56)
-----
Restricted cash and cash equivalents at
December 31, 1996 $ --
=====
7. FINANCIAL INSTRUMENTS
The fair value of all financial instruments included in current assets and
current liabilities, including cash and cash equivalents, accounts receivable,
accounts payable and notes payable, approximated their carrying value due to
their short maturity. Based on the borrowing rates currently available to the
Company for debt with terms and average maturities similar to the Company's debt
portfolio, the fair value of the Company's long-term debt, including amounts due
within one year, was $1.236 billion and $1.017 billion at December 31, 1996 and
1995, respectively.
At December 31, 1996, the Company had issued letters of credit totaling $12
million.
46
<PAGE>
LYONDELL PETROCHEMICAL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The Company is party to various unconditional purchase obligation contracts as a
purchaser for product and services. At December 31, 1996, future minimum
payments under these contracts with noncancelable contract terms in excess of
one year were as follows.
MILLIONS OF DOLLARS AMOUNT
- ------------------- ------
1997 $ 35
1998 34
1999 33
2000 33
2001 31
Thereafter 155
------
Total minimum contract payments $321
======
The Company's total purchases under these agreements were $47 million and $21
million in 1996 and 1995, respectively.
8. RELATED PARTY TRANSACTIONS
Related party transactions with ARCO, excluding sales to ARCO Chemical Company,
are summarized as follows.
MILLIONS OF DOLLARS 1996 1995 1994
- ------------------- ------- ------ ------
Costs
Crude oil purchases $ 2 $ 2 $ 16
Product purchases 2 3 4
Transportation fees 29 26 28
Other, net (7) (3) (3)
Business interruption recovery (3) -- --
------- ------ ------
Total costs $ 23 $ 28 $ 45
======= ====== ======
Sales
Products $ 2 $ 1 $ 1
Crude oil 2 3 3
Business interruption recovery 27 -- --
------- ------ ------
Total sales $ 31 $ 4 $ 4
======= ====== ======
Sales to ARCO Chemical Company, an ARCO affiliate, consisting of propylene,
MTBE, benzene, ethylene, methanol and other products and services, were $287
million, $321 million and $310 million for the years ended December 31, 1996,
1995 and 1994, respectively.
In July of 1996 a fire occurred at the ARCO PipeLine Company meter station
located within the Channelview Facility. The fire forced the shutdown of the
entire Channelview Facility for several days and more than two weeks for some
units. The Company recovered lost profits from ARCO PipeLine Company for this
shutdown. The recovery was included in 1996 reported results.
47
<PAGE>
LYONDELL PETROCHEMICAL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
9. INVENTORIES
The categories of inventory and their book values at December 31, 1996 and 1995
were as follows.
MILLIONS OF DOLLARS 1996 1995
- ------------------- ------- ------
Crude oil $ 47 $ 55
Refined products 34 33
Petrochemicals 172 135
Materials and supplies 41 42
------- -----
Total inventories $ 294 $ 265
======= ======
For the year ended December 31, 1996, the Company increased cost of sales by
approximately $2 million; for the year ended December 31, 1995, the Company
reduced cost of sales by approximately $2 million; and for the year ended
December 31, 1994, the Company increased cost of sales by approximately $1
million, all associated with the reduction in LIFO inventories. The excess of
the current cost of inventories over book value was approximately $189 million
and $110 million at December 31, 1996 and 1995, respectively.
10. PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment and their gross value at
December 31, 1996 and 1995 were as follows.
MILLIONS OF DOLLARS 1996 1995
- ------------------- --------- --------
Manufacturing facilities and equipment $3,329 $2,958
Construction projects in progress 953 808
Land 28 35
Leased assets and improvements 3 3
--------- --------
Total property, plant and equipment $4,313 $3,804
========= ========
Repair and maintenance expenses for 1996, 1995 and 1994 were $137 million, $133
million and $109 million, respectively. The 1996, 1995 and 1994 amounts include
amortization of deferred turnaround costs of $13 million, $13 million and $12
million, respectively. Total interest cost incurred during 1996 and 1995 was
approximately $114 million and $86 million, respectively, of which approximately
$33 million and $6 million, respectively, was capitalized. No interest was
capitalized during 1994.
11. DEFERRED CHARGES AND OTHER ASSETS
Deferred charges and other assets at December 31, 1996 and 1995 were as follows.
MILLIONS OF DOLLARS 1996 1995
- ------------------- ------- ------
Deferred turnaround costs $ 81 $ 46
Company owned life insurance 39 33
Deferred software costs 32 15
Other 23 20
------- ------
Total deferred charges and other
assets $ 175 $ 114
======= ======
48
<PAGE>
LYONDELL PETROCHEMICAL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
12. OTHER ACCRUED LIABILITIES
Other accrued liabilities at December 31, 1996 and 1995 were as follows.
MILLIONS OF DOLLARS 1996 1995
- ------------------- ------- ------
Income taxes $ 6 $ 18
Accrued taxes other than income 35 37
Accrued interest 18 11
Accrued payroll 37 45
Other 28 27
------- ------
Total other accrued liabilities $ 124 $ 138
======= ======
13. LONG-TERM DEBT AND FINANCING ARRANGEMENTS
Long-term debt at December 31, 1996 and 1995 was comprised of the following.
MILLIONS OF DOLLARS 1996 1995
- ------------------- --------- ------
9.95% Notes due in 1996 $ 150
8.25% Notes due in 1997 $ 100 100
10.00% Notes due in 1999 150 150
9.125% Notes due in 2002 100 100
6.5% Notes due in 2006 150 --
7.55% Debentures due in 2026 150 --
LCR 5-year term credit facility 450 250
Medium-term notes 206 207
--------- ------
1,306 957
Less current portion 112 150
--------- ------
Total long-term debt $1,194 $ 807
========= ======
Aggregate maturities of long-term debt during the five years subsequent to
December 31, 1996 are as follows: 1997-$112 million; 1998-$32 million; 1999-$150
million; 2000-$492 million; 2001-$90 million.
The Notes due in 1999 and the medium-term notes contain provisions that would
allow the holders to require the Company to repurchase the debt upon the
occurrence of certain events together with specified declines in public ratings
on the Notes due in 1999. Certain events include acquisitions by persons other
than ARCO or the Company of more than 20 percent of the Company's common stock,
any merger or transfer of substantially all of the Company's assets, in
connection with which the Company's common stock is changed into or exchanged
for cash, securities or other property and payment of certain "special"
dividends.
In February 1996, the Company issued $300 million of debt securities ("Debt
Securities") consisting of $150 million of 6.5 percent notes due in 2006 and
$150 million of 7.55 percent debentures due in 2026. A portion of the proceeds
received from the sale of the Debt Securities was used to repay short-term debt
during the first quarter of 1996, and the remainder was used for retirement of
maturing long-term debt and general corporate purposes. The Debt Securities are
unsecured obligations and rank on a parity with all other unsecured and
unsubordinated debt of the Company.
The medium-term notes mature at various dates from 1997 to 2005 and have a
weighted average interest rate at December 31, 1996 and 1995 of 9.9 percent.
49
<PAGE>
LYONDELL PETROCHEMICAL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The Company has a five-year, $400 million revolving credit facility ("Facility")
with a group of banks expiring June 2000. Borrowings under the Facility bear
interest at either the eurodollar, certificate of deposit or prime rates or
based on a competitive auction feature wherein the interest rate can be
established by competitive bids submitted by the sponsoring banks, all at the
Company's option. The Facility is available for working capital and general
corporate purposes as needed and contains covenants relating to dividend
payments, debt incurrence, liens, disposition of assets, mergers and
consolidations, fixed charge and leverage ratios. In addition to other
customary events of default, the Facility provides that an event of default will
occur (i) if the Company fails to pay when due an aggregate amount of
indebtedness or interest thereon (other than with respect to loans under the
Facility) in excess of $15 million, or (ii) if the Company is determined to be
in default of a material obligation under the amended and restated limited
liability company regulations of LCR. At December 31, 1996, no amounts were
outstanding under this Facility.
In May 1995, LCR entered into two credit facilities totaling $520 million with a
group of banks with the Bank of New York as agent (together the "LCR Credit
Facilities"). The first facility, a $70 million, 364-day revolving working
capital facility, was renewed in 1996 and is being utilized for general business
purposes unrelated to the upgrade project and for letters of credit. At
December 31, 1996, $10 million was outstanding under this credit facility with a
weighted average interest rate of 7.1 percent. The second facility is a $450
million, five-year term credit facility being used in connection with the
Upgrade Project. At December 31, 1996, $450 million was outstanding under this
credit facility with a weighted average interest rate of 6.3 percent. Interest
for both facilities is based on prime or eurodollar rates at LCR's option. The
LCR Credit Facilities contain covenants which require LCR to maintain a minimum
net worth which increases each year until 1998 and maintenance of certain
financial ratios defined in the agreements. The LCR Credit Facilities also
contain other customary covenants which limit LCR's ability to modify certain
significant contracts, incur additional debt or liens, dispose of assets, make
restricted payments as defined in the agreements or merge or consolidate with
other entities.
At the end of the third quarter of 1996, LCR was not in compliance with the
financial ratio covenant of adjusted average debt to earnings before interest,
taxes, depreciation and amortization ("EBITDA") contained in the LCR Credit
Facilities. Effective as of November 12, 1996, the LCR Credit Facilities were
amended. The substance of these amendments was to replace the adjusted average
debt to EBITDA covenant and one additional financial covenant with a covenant to
maintain a minimum EBITDA. The amendments were retroactively effective as of
the noncompliance date and will continue through June 30, 1997. As of December
31, 1996, LCR was in compliance with the terms of the LCR Credit Facilities.
The Company also has uncommitted lines of credit totaling $285 million with
banks and other financial institutions. These uncommitted lines of credit
provide the Company with additional borrowing flexibility and potentially more
competitive interest rates. The Company can borrow money on these uncommitted
lines of credit on such terms as may be mutually agreed upon at the time amounts
are borrowed. The lines of credit can be terminated by the lenders, in their
sole discretion, on short notice. As of December 31, 1996, the Company had $50
million outstanding under these uncommitted lines of credit.
14. EARNINGS PER SHARE
Earnings per share were computed based on the weighted average number of shares
outstanding of 80,000,000 for the years ended December 31, 1996, 1995 and 1994.
50
<PAGE>
LYONDELL PETROCHEMICAL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
15. STOCKHOLDERS' EQUITY
Dividends - During 1996, 1995 and 1994, the Company paid regular quarterly
dividends of $.225 per share of common stock outstanding.
Rights to Purchase Common Stock - On December 8, 1995, the Board of Directors of
Lyondell declared a dividend of one right ("Right") for each outstanding share
of the Company's common stock to stockholders of record on December 20, 1995.
The Rights become exercisable upon the earlier of (i) ten days following a
public announcement by another entity that it has acquired beneficial ownership
of 15 percent or more of the outstanding shares of common stock, or (ii) ten
business days following the commencement of a tender offer or exchange offer to
acquire beneficial ownership of 15 percent or more of the outstanding shares of
common stock, excluding ARCO, except under certain circumstances. The Rights
expire at the close of business on December 8, 2005 unless earlier redeemed at a
price of $.0005 per Right or exchanged by the Company as described in the Rights
Agreement dated as of December 8, 1995.
Preferred Stock - The Company has authorized 80,000,000 shares of preferred
stock, $.01 par value, of which none were issued or outstanding at December 31,
1996.
Stock Options - The Company's Executive Long-Term Incentive Plan ("LTI Plan")
became effective in November 1988. The last stock options granted under the LTI
Plan were granted in March 1994. No additional stock option grants will be made
under the LTI Plan. The LTI Plan provided, among other compensation awards, for
the granting to officers and other key management employees of non-qualified
stock options for the purchase of up to 1,295,000 shares of the Company's common
stock. The number of options exercisable each year is equal to 25 percent of
the number granted after each year of continuous service starting one year from
the date of grant. The LTI Plan provided that the option price per share was
not less than 100 percent of the fair market value of the stock on the effective
date of the grant. As of December 31, 1996, options covering 743,802 shares
were outstanding under the LTI Plan, of which 575,759 were exercisable at a
weighted average price of $23.25 per share. The following summarizes stock
option activity for the LTI Plan.
OPTION PRICE
NUMBER AVERAGE
OF SHARES PER SHARE TOTAL
----------- ------------ -------------
Balance, December 31, 1994 985,496 $23.34 $22,999,026
Exercised (2,743) 20.25 (55,546)
Canceled (34,497) 25.73 (887,531)
---------- ------------
Balance, December 31, 1995 948,256 23.26 22,055,949
Exercised (204,454) 22.64 (4,628,165)
---------- ------------
Balance, December 31, 1996 743,802 23.43 $17,427,784
========== ============
The Company's Incentive Stock Option Plan ("ISO Plan"), a tax qualified plan,
became effective in January 1989. The last stock options granted under the ISO
Plan were granted in March 1993. No additional grants will be made under the
ISO Plan. All employees of the Company who were not on the executive payroll
were eligible to participate in the ISO Plan, subject to certain restrictions.
Various restrictions apply as to when and to the number of stock options that
may be exercised during any year. As of December 31, 1996, options covering
175,804 shares were outstanding at an average exercise price of $29.91 per
share. These options were held by 812 eligible employees. At December 31,
1996, 1,175 stock options were exercisable at an average exercise price of
$19.44. The following summarizes stock option activity for the ISO Plan.
51
<PAGE>
LYONDELL PETROCHEMICAL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
OPTION PRICE
NUMBER AVERAGE
OF SHARES PER SHARE TOTAL
---------- ------------ -----------
Balance, December 31, 1994 204,715 $29.31 $6,000,622
Canceled/forfeited (11,120) 27.29 (303,472)
Exercised (4,042) 19.44 (78,576)
---------- -----------
Balance, December 31, 1995 189,553 29.64 5,618,574
Canceled/forfeited (10,303) 28.51 (293,725)
Exercised (3,446) 19.44 (66,990)
---------- -----------
Balance, December 31, 1996 175,804 29.91 $5,257,859
========== ===========
16. LEASES
At December 31, 1996, future minimum rental payments for operating leases with
noncancelable lease terms in excess of one year were as follows.
MILLIONS OF DOLLARS AMOUNT
- ------------------- --------
1997 $ 58
1998 55
1999 40
2000 36
2001 29
Thereafter 383
--------
Total minimum lease payments $601
========
Operating lease net rental expenses for 1996, 1995 and 1994 were $66 million,
$60 million and $58 million, respectively.
17. RETIREMENT PLANS
All full-time regular Lyondell and LCR employees are covered by defined benefit
pension plans. Retirement benefits are based on years of service and the
employee's highest three consecutive years of compensation during the last ten
years of service. The funding policy for these plans is to make periodic
contributions as required by applicable law. Lyondell and LCR accrue pension
costs based on an actuarial valuation and fund the plans through contributions
to pension trust funds separate from Lyondell or LCR's funds. Lyondell and LCR
also have unfunded supplemental nonqualified retirement plans which provide
pension benefits for certain employees in excess of the tax qualified plans'
limits.
The following table sets forth the funded status of Lyondell and LCR's
retirement plans and the amounts recognized in the Company's consolidated
balance sheets at December 31, 1996 and 1995.
52
<PAGE>
LYONDELL PETROCHEMICAL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
1996 1995
------------------------- ------------------------
PLANS WITH PLANS WITH PLANS WITH PLANS WITH
ASSETS IN ABO IN ASSETS IN ABO IN
EXCESS OF EXCESS OF EXCESS OF EXCESS OF
ABO ASSETS ABO ASSETS
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
MILLIONS OF DOLLARS
- -------------------
Actuarial present value of benefit
obligations:
Vested benefit obligation $ 85 $ 7 $ 64 $ 30
============ =========== =========== ===========
Accumulated benefit obligation
("ABO") $ 94 $ 7 $ 65 $ 33
============ =========== ============ ===========
Projected benefit obligation $150 $ 15 $ 100 $ 61
Plan assets at fair value, primarily
stocks and bonds 122 -- 79 26
------------ ----------- ----------- -----------
Projected benefit obligation in excess
of plan assets (28) (15) (21) (35)
Unrecognized net loss 11 7 24 18
Prior service cost not yet recognized
in pension cost 4 2 (3) 2
Remaining unrecognized net asset (4) (1) (3) --
------------ ----------- ----------- -----------
Net pension liability $(17) $ (7) $ (3) $ (15)
============ =========== =========== ===========
</TABLE>
The Company's net periodic pension cost for 1996, 1995 and 1994 included the
following components.
<TABLE>
<CAPTION>
MILLIONS OF DOLLARS 1996 1995 1994
- ------------------- ----------- ----------- ----------
<S> <C> <C> <C>
Service cost - benefits earned during
the period $ 10 $ 8 $ 8
Interest cost on projected benefit
obligations 12 9 9
Actual (gain) loss on plan assets (19) (20) 3
Net amortization and deferral 11 13 (10)
----------- ----------- -----------
Net periodic pension cost $ 14 $ 10 $ 10
=========== =========== ===========
</TABLE>
The assumptions used at December 31, 1996, 1995 and 1994, in determining the
net periodic pension cost and net pension liability shown above were as follows.
PERCENT 1996 1995 1994
- ------- ---- ----- -----
Discount rate 7.50 7.10 8.25
Rate of salary progression 5.00 5.00 5.00
Long-term rate of return on assets 9.50 9.50 9.50
Effective July 1, 1995, Lyondell and LCR also maintain voluntary defined
contribution savings plans for eligible employees. Under provisions of the
plans, Lyondell and LCR contribute an amount equal to 160 percent of employee
contributions up to a maximum Lyondell or LCR contribution of eight percent of
the employees base salary. Prior to July 1, 1995, Lyondell and LCR had similar
voluntary defined contribution plans. Lyondell and LCR contributions to all
voluntary defined contribution savings plans totaled $10 million, $9 million and
$8 million during the years ended December 31, 1996, 1995 and 1994,
respectively.
18. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Lyondell and LCR sponsor unfunded postretirement benefit plans other than
pensions ("OPEB") for both salaried and non-salaried employees which provide
medical and life insurance benefits. The postretirement health care plans are
contributory while the life insurance plans are non-contributory. Currently,
Lyondell and LCR pay approximately 80 percent of the cost of the health care
plans, but reserve the right to modify the cost-sharing provisions at any time.
53
<PAGE>
LYONDELL PETROCHEMICAL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
The following table sets forth the plans' separate postretirement benefit
liabilities at December 31, 1996 and 1995.
<TABLE>
<CAPTION>
1996 1995
------------------- ----------------
MILLIONS OF DOLLARS MEDICAL LIFE MEDICAL LIFE
- ------------------- ---------- ------- --------- ------
<S> <C> <C> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $ (7) $ (7) $ (4) $ (1)
Fully eligible active plan participants (7) (2) (8) (5)
Other active plan participants (32) (1) (30) (7)
---------- ------- -------- ------
(46) (10) (42) (13)
Unrecognized prior service cost (5) -- (5) --
Unrecognized net loss 1 -- 3 4
---------- ------- -------- ------
Accrued postretirement benefit liability $ (50) $(10) $(44) $ (9)
========== ======= ======== =====
</TABLE>
Net periodic postretirement benefit costs for 1996, 1995 and 1994 included the
following components.
<TABLE>
<CAPTION>
1996 1995 1994
--------------- --------------- ----------------
MILLIONS OF DOLLARS MEDICAL LIFE MEDICAL LIFE MEDICAL LIFE
- ------------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Service cost - benefits
attributed to service $ 3 $ 2 $ 2
Interest cost on accumulated
postretirement obligation 3 $ 1 2 $ 1 3 $ 1
--------------- --------------- ----------------
Net periodic postretirement
benefit cost $ 6 $ 1 $ 4 $ 1 $ 5 $ 1
=============== =============== ================
</TABLE>
For measurement purposes, the assumed annual rate of increase in the per capita
cost of covered health care benefits as of December 31, 1996 was 7 percent for
1997-2001 and 5 percent thereafter. The health care cost trend rate assumption
has a significant effect on the amounts reported. To illustrate, increasing the
assumed health care cost trend rates by one percentage point in each year would
increase the accumulated postretirement benefit liability as of December 31,
1996 by $8 million and the net periodic postretirement benefit cost for the year
then ended by $1 million.
The accumulated postretirement benefit obligation was calculated utilizing a
weighted-average discount rate of 7.5 percent and 7.1 percent at December 31,
1996 and 1995, respectively, and an average rate of salary progression of 5.0
percent in each year. Lyondell and LCR's current policy is to fund the
postretirement health care and life insurance plans on a pay-as-you-go basis.
19. INCOME TAXES
Significant components of the Company's provision for income taxes follow.
MILLIONS OF DOLLARS 1996 1995 1994
- ------------------- ----- ----- ------
Current
Federal $ 19 $ 206 $ 106
State 1 20 11
----- ----- ------
Total current 20 226 117
----- ----- ------
Deferred
Federal 48 4 13
State 2 (1) (4)
----- ----- ------
Total deferred 50 3 9
----- ----- ------
$ 70 $ 229 $ 126
===== ===== ======
54
<PAGE>
LYONDELL PETROCHEMICAL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets as of December 31, 1996 and
1995 were as follows.
MILLIONS OF DOLLARS 1996 1995
- ------------------- ----- -----
Deferred tax liabilities:
Tax over book depreciation $ 190 $ 139
Deferred turnaround costs 11 10
Business interruption recovery 11 --
LIFO inventory 4 5
----- -----
Total deferred tax liabilities 216 154
----- -----
Deferred tax assets:
Pension and other compensation
related obligations 23 18
OPEB obligation 18 16
Environmental reserve 6 6
Other 9 4
----- -----
Total deferred tax assets 56 44
----- -----
Net deferred tax liabilities 160 110
Less current portion of deferred tax
liability (asset) 3 (5)
----- -----
long-term deferred income taxes $ 157 $ 115
===== =====
The reconciliation of income tax computed at the U.S. federal statutory tax
rates to the Company's effective tax rates follows.
1996 1995 1994
DESCRIPTION % % %
- ----------- ----- ------ -----
U.S. statutory income tax rates 35.0 35.0 35.0
State income taxes, net of federal 1.2 2.0 1.2
Company owned life insurance (.1) -- (.3)
Other, net (.4) .1 .3
----- ------ -----
Effective income tax rate 35.7 37.1 36.2
===== ====== =====
20. COMMITMENTS AND CONTINGENCIES
The Company has various purchase commitments for materials, supplies and
services incident to the ordinary conduct of business. In the aggregate, such
commitments are not at prices in excess of current market.
Depending on then current market conditions, breach or termination of the Crude
Supply Contract could adversely affect the Company. Although the parties have
negotiated alternative arrangements in the event of certain force majeure
conditions, including governmental or other actions restricting or otherwise
limiting LAGOVEN's ability to perform its obligations, any such alternative
arrangements may not be as beneficial as the Crude Supply Contract. There can
be no assurance that alternative crude oils with similar margins would be
available for purchase by LCR. Furthermore, the breach or termination of the
Crude Supply Contract would require LCR to return to the practice of purchasing
all of its crude oil feedstocks in the merchant market and would again subject
LCR to significant volatility and price fluctuations.
In connection with the transfer of assets and liabilities from ARCO to the
Company, the Company agreed to assume certain liabilities arising out of the
operation of the Company's integrated petrochemicals and petroleum processing
business prior to July 1, 1988. In connection with the transfer of such
liabilities, the Company and ARCO entered into an agreement ("Cross-Indemnity
Agreement") whereby the Company agreed to defend and indemnify ARCO against
certain uninsured claims and liabilities which ARCO may incur relating to the
operation
55
<PAGE>
of the business of the Company prior to July 1, 1988, including certain
liabilities which may arise out of pending and future lawsuits.
ARCO indemnified the Company under the Cross-Indemnity Agreement with respect to
other claims or liabilities and other matters of litigation not related to the
assets or business included in the consolidated financial statements. ARCO has
also indemnified the Company for all federal taxes which might be assessed upon
audit of the operations of the Company included in the consolidated financial
statements prior to January 12, 1989, and for all state and local taxes for the
period prior to July 1, 1988. The Company has reached an agreement-in-principle
with ARCO to update the Cross-Indemnity Agreement ("Revised Cross-Indemnity
Agreement"). For current and future cases related to Company products and
Company operations, ARCO and the Company will bear a proportionate share of
judgment and settlement costs according to a formula which allocates
responsibility based on years of ownership during the relevant time period. The
party with the most significant potential liability exposure will be responsible
for case management and associated costs while providing some provisions to
allow the non-case managing party to protect its interests. Under the Revised
Cross-Indemnity Agreement, both ARCO and the Company waive any claim for
reimbursement under the existing Cross-Indemnity Agreement for any prior defense
and settlement costs associated with waste site matters, and the Company will
assume responsibility for its proportionate share of future costs for waste site
matters not covered by ARCO insurance. Subject to the uncertainty inherent in
all litigation, management believes the resolution of the matters pursuant to
the Revised Cross-Indemnity Agreement will not have a material adverse effect
upon the financial statements or liquidity of the Company.
In addition to lawsuits for which the Company has indemnified ARCO, the Company
is also subject to various lawsuits and proceedings. Subject to the uncertainty
inherent in all litigation, management believes the resolution of these
proceedings will not have a material adverse effect upon the financial
statements or liquidity of the Company.
The Company's policy is to be in compliance with all applicable environmental
laws. The Company is subject to extensive environmental laws and regulations
concerning emissions to the air, discharges to surface and subsurface waters and
the generation, handling, storage, transportation, treatment and disposal of
waste materials. Some of these laws and regulations are subject to varying and
conflicting interpretations. In addition, the Company cannot accurately predict
future developments, such as increasingly strict requirements of environmental
laws, inspection and enforcement policies and compliance costs therefrom which
might affect the handling, manufacture, use, emission or disposal of products,
other materials or hazardous and non-hazardous waste.
Subject to the terms of the Cross-Indemnity Agreement, the Company is currently
contributing funds to the cleanup of one waste site (Brio, located near Houston,
Texas) under the Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA") as amended and the Superfund Amendments and
Reauthorization Act of 1986. The Company is also subject to certain assessment
and remedial actions at the Refinery under the Resource Conservation and
Recovery Act ("RCRA"). In addition, the Company has negotiated an order with
the Texas Natural Resource Conservation Commission ("TNRCC"), formerly the
Texas Water Commission, for assessment and remediation of groundwater and soil
contamination at the Refinery.
In July 1994, the Company reported results of an independent investigation
conducted by the Audit Committee of the Board of Directors regarding the
compliance status of two process waste-water streams under the applicable
Benzene National Emissions Standard for Hazardous Air Pollutants ("NESHAPS")
regulations and certain issues raised by an employee. Noncompliance with the
Benzene NESHAPS regulations and the related reporting requirements can result in
civil penalties and, under certain circumstances, substantial civil and,
potentially, criminal penalties. The Company received a notice of violation
from the TNRCC regarding the two streams and paid a fine of $10,200. In
addition, the Company incurred approximately $2 million in capital costs in
connection with these waste-water streams to achieve ongoing compliance with the
Benzene NESHAPS regulations. Although
56
<PAGE>
LYONDELL PETROCHEMICAL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
the Criminal Enforcement Division of the EPA is conducting a formal
investigation, the Company does not believe any aspects of the matters described
above will subject the Company to criminal liability or have a material adverse
effect on the financial statements or liquidity of the Company.
The Company has accrued $14 million related to future CERCLA, RCRA and TNRCC
assessment and remediation costs, of which $4 million is included in current
liabilities while the remaining amounts are expected to be incurred over the
next two to seven years. In the opinion of management, there is currently no
material range of loss in excess of the amount recorded. However, it is
possible that new information about the sites for which the reserve has been
established, new technology or future developments such as involvement in other
CERCLA, RCRA, TNRCC or other comparable state law investigations, could require
the Company to reassess its potential exposure related to environmental matters.
In the opinion of management, any liability arising from the matters discussed
in this Note will not have a material adverse effect on the consolidated
financial statements or liquidity of the Company. However, the adverse
resolution in any reporting period of one or more of these matters discussed in
this Note could have a material impact on the Company's results of operations
for that period without giving effect to contribution or indemnification
obligations of co-defendants or others, or to the effect of any insurance
coverage that may be available to offset the effects of any such award.
21. SEGMENT INFORMATION
The petrochemicals segment consists of olefins, including ethylene, propylene,
butadiene, butylenes and specialty products; polyolefins including
polypropylene, HDPE and low-density polyethylene; aromatics produced at the
Channelview Facility, including benzene and toluene; methanol; MTBE; and
refinery blending stocks.
The refining segment, which is primarily composed of LCR operations, consists of
refined petroleum products including gasoline, low sulfur diesel and jet fuel;
aromatics produced at the Refinery, including benzene, toluene, paraxylene and
orthoxylene; lubricants, including industrial lubricants, motor oils, white
oils, process oils and base oils; carbon black sulfur; residual oil; petroleum
coke fuel; olefins feedstocks; and crude oil resales. Crude oil resales consist
of revenues from the resale of previously purchased crude oil and from
locational exchanges of crude oil that are settled on a cash basis. Crude oil
exchanges and resales facilitate the operation of the Company's petroleum
processing business by allowing the Company to optimize the crude oil feedstock
mix in response to market conditions and refinery maintenance turnarounds and
also to reduce transportation costs. Crude oil resales amounted to $436
million, $370 million and $296 million for years ended December 31, 1996, 1995
and 1994, respectively.
Consolidated sales to CITGO totaled $1.7 billion in 1996, $1.4 billion in 1995
and $1.1 billion in 1994. No other customer accounted for 10 percent or more of
consolidated sales.
Summarized below is the segment data for the Company which includes certain
reclassifications for an intersegment pricing adjustment recorded in 1996
retroactive to 1993. Intersegment sales between the petrochemicals and refining
segments, including olefins feedstocks produced at the Refinery and gasoline
blending stocks produced at the Channelview Facility, were made at prices based
on current market values.
57
<PAGE>
LYONDELL PETROCHEMICAL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
PETROCHEMICALS REFINING
MILLIONS OF DOLLARS SEGMENT SEGMENT UNALLOCATED ELIMINATIONS CONSOLIDATED
- ------------------- ---------------- -------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
1996
- ----
Sales and other
operating revenues:
Customers $2,411 $2,641 $5,052
Intersegment 232 171 $(403) --
------------- -------- --------- -----------
2,643 2,812 (403) 5,052
Gain on sale of assets 30 -- -- 30
Cost of sales 2,224 2,749 (403) 4,570
Selling, general and
administrative
expenses 112 62 $ 60 -- 234
------------- -------- ----------- --------- -----------
Operating income $ 337 $ 1 $(60) -- $ 278
============= ======== =========== ========= ===========
Depreciation and
amortization expense $ 73 $ 34 $ 3 $ 110
============= ======== =========== ===========
Capital expenditures $ 77 $ 529 $ 3 $ 609
============= ======== =========== ===========
Identifiable assets $1,543 $1,706 $ 88 $ (61) $3,276
============= ======== =========== ========= ===========
1995
- ----
Sales and other
operating revenues:
Customers $2,466 $2,470 $4,936
Intersegment 191 178 $(369) --
------------- -------- --------- -----------
2,657 2,648 (369) 4,936
Cost of sales 1,938 2,457 (369) 4,026
Selling, general and
administrative
expenses 84 61 $ 59 -- 204
------------- -------- ----------- --------- -----------
Operating income $ 635 $ 130 $(59) -- $ 706
============= ======== =========== ========= ===========
Depreciation and
amortization expense $ 54 $ 30 $ 2 $ 86
============= ======== =========== ===========
Capital expenditures $ 471 $ 505 $ 6 $ 982
============= ======== =========== ===========
Identifiable assets $1,365 $1,212 $ 69 $ (40) $2,606
============= ======== =========== ========= ===========
1994
- ----
Sales and other
operating revenues:
Customers $1,783 $2,074 $3,857
Intersegment 190 200 $(390) --
------------- -------- --------- -----------
1,973 2,274 (390) 3,857
Cost of sales 1,522 2,164 (390) 3,296
Selling, general and
administrative
expenses 40 54 $ 43 -- 137
------------- -------- ----------- --------- -----------
Operating income $ 411 $ 56 $(43) -- $ 424
============= ======== =========== ========= ===========
Depreciation and
amortization expense $ 44 $ 20 $ 1 $ 65
============= ======== =========== ===========
Capital expenditures $ 39 $ 210 $ 3 $ 252
============= ======== =========== ===========
Identifiable assets $ 925 $ 739 $ 49 $ (50) $1,663
============= ======== =========== ========= ===========
</TABLE>
58
<PAGE>
LYONDELL PETROCHEMICAL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
22. UNAUDITED QUARTERLY RESULTS
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED
----------------------------------------------
MILLIONS OF DOLLARS EXCEPT PER SHARE
AMOUNTS MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
- ------------------------------------ ---------- ------- ------------ -----------
<S> <C> <C> <C> <C>
1996
- ----
Sales and other operating revenues $1,165 $1,239 $1,247 $1,401
Operating income 61 45 71 101
Income before income taxes 38 23 55 80
Net income 24 15 35 52
Earnings per share .30 .19 .43 .66
1995
- ----
Sales and other operating revenues $1,174 $1,370 $1,249 $1,143
Operating income 222 237 183 64
Income before income taxes 202 215 159 42
Net income 127 135 100 27
Earnings per share 1.59 1.68 1.25 .34
</TABLE>
59
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding executive officers of the Company is included in Part I.
For the other information called for by Items 10, 11, 12 and 13, reference is
made to the Registrant's definitive proxy statement for its Annual Meeting of
Stockholders, to be held on May 9, 1997, which will be filed with the Securities
and Exchange Commission within 120 days after December 31, 1996, and which is
incorporated herein by reference.
60
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
1 and 2 -- Consolidated Financial Statements: these documents are
listed in the Index to Consolidated Financial Statements.
<TABLE>
<CAPTION>
EXHIBITS:
- ---------
<S> <C>
3.1 - Amended and Restated Certificate of Incorporation of the
Registrant.
3.2 - Amended and Restated By-Laws of the Registrant.
4.1 - Indenture, as supplemented by a First Supplemental Indenture,
between the Registrant and Texas Commerce Bank National
Association, as Trustee.**
4.2 - Indenture, as supplemented by a First Supplemental Indenture,
between the Registrant and Continental Bank, National Association,
as Trustee.++
4.3 - Indenture, as supplemented by a First Supplemental Indenture,
between the Registrant and Texas Commerce Bank, as Trustee. ++++
4.4 - Specimen certificate.*
4.5 - LYONDELL-CITGO Refining Company Ltd. $70,000,000 Credit
Agreement.++++
4.5(a) - Amendment No. 1 to the $70,000,000 Credit Agreement.X
4.5(b) - Amendment No. 2 to the $70,000,000 Credit Agreement.XXX
4.6 - LYONDELL-CITGO Refining Company Ltd. $450,000,000 Credit
Agreement.++++
4.6(a) - Amendment No. 1 to the $450,000,000 Credit Agreement.X
4.6(b) - Amendment No. 2 to the $450,000,000 Credit Agreement.XXX
4.7 - Lyondell Petrochemical Company $400,000,000 Amended and Restated
Credit Agreement.+
4.7(a) - Amendment No. 1 to the $400,000,000 Credit Agreement.XX
4.8 - Rights Agreement between the Registrant and the Bank of New York,
as Rights Agent.+++
EXECUTIVE COMPENSATION:
10.1 - Amended and Restated Executive Supplementary Savings Plan.
10.2 - Amended and Restated Executive Long-Term Incentive Plan.***
10.3 - Supplementary Executive Retirement Plan.***
10.3(a) - Amendment No. 1 to the Supplementary Executive Retirement Plan.+
10.3(b) - Amendment No. 2 to the Supplementary Executive Retirement Plan. ++
10.4 - Executive Medical Plan.
10.4(a) - Amendment No. 1 to the Executive Medical Plan.
10.4(b) - Amendment No. 2 to the Executive Medical Plan.
10.5 - Executive Deferral Plan.
10.5(a) - Amendment No. 1 to the Executive Deferral Plan.
10.6 - Executive Long-Term Disability Plan. +
10.6(a) - Amendment No. 1 to the Executive Long-Term Disability Plan.
10.7 - Executive Life Insurance Plan.+
10.8 - Supplemental Executive Benefit Plans Trust Agreement.****
10.9 - Restricted Stock Plan.+++
10.9(a) - Amendment to the Restricted Stock Plan.++
10.10 - Amended and Restated Value Share Plan.
10.10(a) - Amendment to the Value Share Plan.
10.11 - Form of Executive Severance Agreement with Executive Officers.
10.12 - Form of Registrant's Indemnity Agreement with Officers and
Directors.*
10.13 - Amended and Restated Elective Deferral Plan for Non-Employee
Directors.
10.13(a) - Amendment No. 1 to the Elective Deferral Plan for Non-Employee
Directors.
10.14 - Amended and Restated Retirement Plan for Non-Employee
Directors.****
10.15 - Restricted Stock Plan for Non-Employee Directors.X
</TABLE>
61
<PAGE>
MATERIAL CONTRACTS WITH ARCO AFFILIATES:
<TABLE>
<S> <C>
10.16 - Joint Pipeline Use Agreement between ARCO Chemical Company and the
Registrant.*
10.17 - Agreements Implementing Transfer of Pipeline Rights from ARCO Pipe
Line Company to Registrant.*
10.18 - Conveyance (conformed without exhibits) between the Registrant and
ARCO.*
10.19(a) - Cross-Indemnification Agreement between the Registrant and ARCO and
Amendment No. 1 to the Cross-Indemnification Agreement.*
10.19(b) - Dispute Resolution Agreement between the Registrant, ARCO and ARCO
Chemical Company.+++
10.19(c) - Employee Services Agreement between the Registrant and ARCO.+
10.19(d) - Investment Management Agreement between the Registrant and
ARCO.+++
10.19(e) - Form of Registration Rights Agreement between the Registrant and
ARCO.+
10.20(a) - Immunity From Suit Agreement between ARCO and the Registrant.*
10.20(b) - Amendment to Immunity From Suit Agreement between ARCO and the
Registrant.***
10.21(a) - License Agreement between ARCO and the Registrant.*
10.21(b) - License Agreement Amendment between ARCO and the Registrant.***
10.22(a) - Technology Agreement between ARCO and the Registrant.**
10.22(b) - Technology Agreement Amendment between ARCO and the Registrant.***
10.23 - Assignment of Patents and Patent Applications between ARCO and the
Registrant.**
10.24 - Assignment of Technology Agreement, as amended, between ARCO and
the Registrant.**
OTHER MATERIAL CONTRACTS:
10.26 - Asset Purchase Agreement (conformed without exhibits) between the
Registrant and Rexene Products Company.**
10.27 - Crystalline Polymers License and Block Copolymer License between
Phillips Petroleum Co. and the Registrant.**
10.28 - Amended and Restated Limited Liability Company Regulations of
LYONDELL-CITGO Refining Company Ltd.++
10.28(a) - Amendment No. 1 to the Amended and Restated Limited Liability
Company Regulations of LYONDELL-CITGO Refining Company Ltd.++++
10.29 - Contribution Agreement between Lyondell Petrochemical Company and
LYONDELL-CITGO Refining Company Ltd.++
10.30 - Crude Oil Supply Agreement between LYONDELL-CITGO Refining Company
Ltd. and Lagoven, S.A.++
10.31 - Asset Purchase Agreement between the Registrant and Occidental
Chemical Company. +++++
21 - Subsidiaries of the Registrant.
23 - Consent of Coopers & Lybrand L.L.P.
24 - Powers of Attorney.
27 - Financial Data Schedule.
</TABLE>
* Filed as an exhibit to Registrant's Registration Statement on Form S-
1 (No. 33-25407) and incorporated herein by reference.
** Filed as an exhibit to Registrant's Annual Report on Form 10-K Report
for the year ended December 31, 1989 and incorporated herein by
reference.
*** Filed as an exhibit to Registrant's Annual Report on Form 10-K Report
for the year ended December 31, 1990 and incorporated herein by
reference.
**** Filed as an exhibit to Registrant's Annual Report on Form 10-K Report
for the year ended December 31, 1991 and incorporated herein by
reference.
+ Filed as an exhibit to Registrant's Annual Report on Form 10-K Report
for the year ended December 31, 1992 and incorporated herein by
reference.
62
<PAGE>
<TABLE>
<S> <C>
++ Filed as an exhibit to Registrant's Interim Report on Form 8-K dated
as of July 1, 1993 and incorporated herein by reference.
+++ Filed as an exhibit to Registrant's Annual Report on Form 10-K for
the year ended December 31, 1993 and incorporated herein by
reference.
+ Filed as an exhibit to Registrant's Registration Statement on Form S-
3 dated as of May 5, 1994 and incorporated herein by reference.
++ Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1994 and incorporated herein by
reference.
+++ Filed as an exhibit to Registrant's Annual Report on Form 10-K for
the year ended December, 31, 1994 and incorporated herein by
reference.
++++ Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1995 and incorporated herein by
reference.
+++++ Filed as an exhibit to Registrant's Interim Report on Form 8-K dated
as of May 1, 1995 and incorporated herein by reference.
+ Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1995 and incorporated herein by reference.
++ Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1995 and incorporated herein by
reference.
+++ Filed as an exhibit to Registrant's Interim Report on Form 8-K dated
December 8, 1995 and incorporated herein by reference.
++++ Filed as an exhibit to Registrant's Registration Statement on Form S-
3 dated as of January 31, 1996 and incorporated herein by reference.
+++++ Filed as an exhibit to Registrant's Annual Report on Form 10-K for
the year ended December 31, 1995 and incorporated herein by reference
X Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for
the period ended March 31, 1996
XX Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for
the period ended June 30, 1996.
XXX Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q for
the period ended September 30, 1996.
</TABLE>
63
<PAGE>
(b) Consolidated Financial Statements and Financial Statement Schedules
(1) Consolidated Financial Statements
Consolidated Financial Statements filed as part of this Annual
Report on Form 10-K are listed in the Index to Consolidated
Financial Statements on page 36.
(2) Financial Statement Schedules
All financial statement schedules are omitted because they are not
applicable or the required information is contained in the Financial
Statements or notes thereto.
Copies of exhibits will be furnished upon prepayment of 25 cents per
page. Requests should be addressed to the Secretary.
(c) Reports on Form 8-K:
The following Current Reports on Form 8-K were filed during the quarter
ended December 31, 1996 through March 17, 1997.
Date of Report Item No. Financial Statements
- -------------- -------- --------------------
January 31, 1997 5 Yes
64
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OF THE SECURITIES EXCHANGE ACT OF
1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY
THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
LYONDELL PETROCHEMICAL COMPANY
By: DAN F. SMITH
--------------------------------
Dan F. Smith
President and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT
HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND
IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
BOB G. GOWER* Chairman of the Board March 17, 1997
- ---------------------------
(Bob G. Gower)
DAN F. SMITH President, Chief Executive March 17, 1997
- --------------------------- Officer and Director
(Dan F. Smith, Principal
Executive Officer)
WILLIAM T. BUTLER* Director March 17, 1997
- ---------------------------
(William T. Butler)
CURTIS J. CRAWFORD*
- --------------------------- Director March 17, 1997
(Curtis J. Crawford)
TRAVIS ENGEN*
- --------------------------- Director March 17, 1997
(Travis Engen)
STEPHEN F. HINCHLIFFE, JR.*
- --------------------------- Director March 17, 1997
(Stephen F. Hinchliffe, Jr.)
DUDLEY C. MECUM II*
- --------------------------- Director March 17, 1997
(Dudley C. Mecum II)
PAUL R. STALEY* Director March 17, 1997
- ---------------------------
(Paul R. Staley)
RUSSELL S. YOUNG Senior Vice President, Chief March 17, 1997
- --------------------------- Financial Officer and Treasurer
(Russell S. Young,
Principal Financial
Officer)
JOSEPH M. PUTZ Vice President and Controller March 17, 1997
- ---------------------------
(Joseph M. Putz, Principal
Accounting Officer)
*By: DAN F. SMITH March 17, 1997
----------------------
(Dan F. Smith, as Attorney-in-fact)
</TABLE>
65
<PAGE>
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF LYONDELL PETROCHEMICAL COMPANY
(A DELAWARE CORPORATION)
(ORIGINALLY INCORPORATED ON NOVEMBER 15, 1985 AS LYONDELL PETROCHEMICAL
CORPORATION)
(AMENDED AND RESTATED AS OF MARCH 1, 1997 FOR ELECTRONIC SEC FILING PURPOSES
ONLY)
ARTICLE I
NAME
The name of the Company is LYONDELL PETROCHEMICAL COMPANY.
ARTICLE II
ADDRESS AND REGISTERED AGENT
The address of the Company's registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, Wilmington, County of New Castle,
Delaware, 19801. The name of the registered agent at such address is The
Corporation Trust Company.
ARTICLE III
DESCRIPTION OF BUSINESS
The nature of the business or purposes to be conducted or promoted is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
ARTICLE IV
CAPITAL STOCK
A. AUTHORIZED SHARES
The total number of shares of capital stock that the Company shall have
authority to issue is 330,000,000 shares.
B. COMMON STOCK
1. The Company shall have authority to issue up to 250,000,000 shares of
Common Stock, par value of $1.00 per share.
2. Each holder of shares of Common Stock shall have the right to one vote
for each
<PAGE>
share of Common Stock held of record on the books of the Company.
C. PREFERRED STOCK
1. The Company shall have authority to issue up to 80,000,000 shares of
Preferred Stock, par value of $.01 per share.
2. Preferred Stock may be issued from time to time in one or more series.
The Board of Directors is hereby expressly authorized from time to time to
provide for the issuance of Preferred Stock in one or more series, and to
establish and fix by resolution or resolutions providing for the issuance of
each such series the number of shares to be included in such series and the
voting and other powers, designations, preferences and relative, participating,
optional or other special rights, and qualifications, limitations or
restrictions thereof, of each such series, to the full extent now or hereafter
permitted by law, subject to any other provision of this Certificate of
Incorporation. The number of authorized shares of Preferred Stock may be
increased or decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote of the holders of stock of the Company
entitled to vote thereon having a majority of the votes entitled to be cast,
without a separate vote of the holders of the Preferred Stock, or any series
thereof, unless a separate vote of any of such holders is required pursuant to
the resolution or resolutions establishing any such series of Preferred Stock.
ARTICLE V
ANNUAL AND SPECIAL MEETINGS OF STOCKHOLDERS
Any action required or permitted to be taken by the holders of the stock of
the Company may be effected either at a duly called annual or special meeting of
such holders or by consent in writing by such holders. Except as otherwise
required by law, special meetings of stockholders of the Company may be called
only by the written consent of the stockholders owning a majority of the capital
stock issued and outstanding and entitled to vote or by the Board of Directors
pursuant to a resolution approved by a majority of the entire Board of Directors
or by the Chairman of the Board.
ARTICLE VI
DIRECTORS
A. The business and affairs of the Company shall be managed by the Board
of Directors, and the directors need not be elected by ballot unless required by
the By-Laws of the Company. The number of the directors of the Company shall be
fixed from time to time by, or in the manner provided in, the By-Laws of the
Company.
2
<PAGE>
B. Nominations for the election of directors may be made by the Board of
Directors or by any record owner of stock of the Company.
C. Newly created directorships resulting from any increase in the number
of directors or any vacancy on the Board of Directors resulting from death,
resignation, disqualification, removal or other cause may be filled by the
affirmative vote of a majority of the remaining directors then in office, even
though less than a quorum of the Board of Directors, by a sole remaining
director or by the affirmative vote of the majority of all votes entitled to be
cast by the holders of stock of the Company at a duly called annual or special
meeting of such holders or by consent in writing by such holders. Any director
elected in accordance with the preceding sentence shall hold office until such
director's successor shall have been elected and qualified or until the
director's earlier resignation or removal. No decrease in the number of
directors constituting the Board of Directors shall shorten the term of any
incumbent director.
D. Any one or more directors may be removed with or without cause, by the
holders of a majority of the shares then entitled to vote at an election of
directors.
E. The Board of Directors shall have the power to adopt, amend and repeal
the By-Laws of the Company.
ARTICLE VII
DIRECTORS' LIABILITY
To the fullest extent permitted by the General Corporation Law of Delaware
as the same exists or may hereafter be amended, a director of the Company shall
not be liable to the Company or its stockholders for monetary damages for breach
of fiduciary duty as a director. If the General Corporation Law of Delaware is
amended to authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of a director of the Company
shall be eliminated or limited to the fullest extent permitted by the General
Corporation Law of Delaware, as so amended. Any repeal or modification of this
Article VII by the stockholders of the Company shall not adversely affect any
right or protection of a director of the Company existing at the time of such
repeal or modification or with respect to events occurring prior to such time.
Notwithstanding anything contained in this Certificate to the contrary, the
affirmative vote of the holders of not less than 66-2/3 percent of all votes
entitled to be cast by the holders of stock of the Company shall be required to
amend or repeal this Article VII or to adopt any provision inconsistent
herewith.
ARTICLE VIII
RELATIONS WITH SUBSTANTIAL STOCKHOLDER
A. In anticipation that (i) Atlantic Richfield Company, a Delaware
corporation, ("ARCO") will be and will remain a substantial stockholder of the
Company, (ii) the Company and
3
<PAGE>
ARCO may engage in the same or similar activities or lines of business and have
an interest in the same areas of corporate opportunities, (iii) the Company and
ARCO may enter into contracts or otherwise transact business with each other and
that the Company may derive benefits therefrom and (iv) the Company may from
time to time enter into contractual, corporate or business relations with one or
more of its directors or one or more corporations, partnerships, associations or
other organizations in which one or more of its directors have a financial
interest (collectively, "Related Entities"), and in recognition of the benefits
to be derived by the Company through its continued contractual, corporate and
business relations with ARCO (including service of officers and directors of
ARCO as officers and directors of the Company), the provisions of this Article
VIII are set forth to regulate and define the conduct of certain affairs,
contractual relationships and other business relations of the Company as they
may involve ARCO, Related Entities and their respective officers and directors,
and the powers, rights, duties and liabilities of the Company and its officers,
directors and stockholders in connection therewith. The provisions of this
Article VIII are in addition to, and not in limitation of, the provisions of the
General Corporation Law of the State of Delaware and the other provisions of
this Restated Certificate of Incorporation. Any contract or business relation
which does not comply with the rules set forth in this Article VIII shall not by
reason thereof be deemed void or voidable or result in any breach of any
fiduciary duty, but shall be governed by the provisions of this Restated
Certificate of Incorporation, the By-Laws, the General Corporation Law of the
State of Delaware and by law.
B. ARCO shall have no duty to refrain from (i) engaging in the same or
similar activities or lines of business as the Company, (ii) doing business with
any customer of the Company, or (iii) employing or otherwise engaging any
officer or employee of the Company and neither ARCO nor any officer or director
thereof (except as provided in paragraph C below) shall be liable to the Company
or its stockholders for breach of any fiduciary duty by reason of any such
activities of ARCO or of such person's participation therein. In the event that
ARCO acquires knowledge of a potential transaction or matter which may be a
corporate opportunity for both ARCO and the Company, ARCO shall have no duty to
communicate or offer such corporate opportunity to the Company and shall 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 communicate information regarding such corporate
opportunity to the Company.
C. When a corporate opportunity is offered to an officer and/or director
of the Company who is an officer and/or director of ARCO in writing, solely in
his or her designated capacity with one of the two companies, such opportunity
shall be first presented to whichever company was so designated. Otherwise, (i)
a corporate opportunity offered to any person who is an officer or officer and
director of the Company, and who is also a director (but not an officer) of ARCO
shall be first presented to the Company, (ii) a corporate opportunity offered to
a person who is a director (but not an officer) of the Company and who is also
an officer or an officer and director of ARCO shall be first presented to ARCO,
and (iii) in all other cases, a corporate opportunity offered to any person who
is an officer and/or director of the Company and who is also an officer and/or
director of ARCO shall be first presented to the Company.
4
<PAGE>
D. If any contract, agreement, arrangement or transaction between the
Company and ARCO involves a corporate opportunity and is approved in accordance
with the procedures set forth in paragraph E of this Article VIII, ARCO and its
officers and directors shall have fully satisfied and fulfilled their fiduciary
duties to the Company and its stockholders with respect thereto under this
Article VIII. Any such contract, agreement, arrangement or transaction
involving a corporate opportunity not so approved shall not by reason thereof
result in any breach of any fiduciary duty, but shall be governed by the other
provisions of this Article VIII, this Restated Certificate of Incorporation, the
By-Laws, the General Corporation Law of the State of Delaware and by law.
E. No contract, agreement, arrangement or transaction between the Company
and ARCO or between the Company and one or more of the directors or officers of
the Company, ARCO or any Related Entity or between the Company and any Related
Entity shall be void or voidable for the reason that ARCO, any Related Entity or
one or more of the officers or directors of the Company, ARCO or any Related
Entities are parties thereto, or because any such directors or officers are
present at or participate in the meeting of the Board of Directors or committee
thereof which authorizes the contract, agreement, arrangement or transaction, or
because his, her or their votes are counted for such purpose, and ARCO, any
Related Entity and such directors and officers (a) shall have fully satisfied
and fulfilled their fiduciary duties to the Company and its stockholders with
respect thereto, (b) shall not be liable to the Company or its stockholders for
any breach of fiduciary duty by reason of any entering into, performance or
consummation of any such contract, agreement, arrangement or transaction, (c)
shall, in the case of officers and directors of the Company, be deemed to have
acted in good faith and in a manner such person reasonably believes to be in and
not opposed to the best interests of the Company and (d) shall, in the case of
officers and directors of the Company, be deemed not to have breached their
duties of loyalty to the Company and its stockholders and not to have derived an
improper personal benefit therefrom, if:
(i) The material facts as to the contract, agreement, arrangement or
transaction are disclosed or are known to the Board of Directors or the
committee thereof which authorizes the contract, agreement, arrangement or
transaction, and the Board of Directors or such committee in good faith
authorizes the contract, agreement, arrangement or transaction by the
affirmative vote of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum; or
(ii) The material facts as to the contract, agreement, arrangement or
transaction are disclosed or are known to the holders of capital stock entitled
to vote thereon, and the contract, agreement, arrangement or transaction is
specifically approved in good faith by vote of the holders of a majority of the
stock of the Company entitled to vote generally in the election of directors
voting together as a single class (other than any such stock owned by ARCO or a
Related Entity, as the case may be).
F. Contracts, agreements, arrangements or transactions entered into by
the Company or
5
<PAGE>
any Related Entity with ARCO or any Related Entity that confer or execute equal
benefits on or to the parties are deemed to be arms length and the officers and
directors of the Company that approve and execute such contracts, agreements,
arrangements or transaction shall be deemed to have acted in good faith and in
and not opposed to the best interests of the Company.
G. Directors of the Company who are also directors or officers of ARCO or
any Related Entity may be counted in determining the presence of a quorum at a
meeting of the Board of Directors or of a committee which authorizes the
contract, agreement, arrangement or transaction.
H. Any person purchasing or otherwise acquiring any interest in shares of
the stock of the Company shall be deemed to have notice of and to have consented
to the provisions of this Article VIII.
I. For purposes of this Article VIII.
1. A director of the Company who is Chairman of the Board of
Directors of the Company or of a committee thereof shall not be deemed to be an
officer of the Company by reason of holding such position (without regard to
whether such position is deemed an office of the Company under the By-Laws of
the Company), unless such person is a full-time employee of the Company; and
2. "ARCO" shall include all successors to Atlantic Richfield Company
by way of merger, consolidation or sale of all or substantially all of its
assets, and all subsidiary corporations and all partnerships, joint ventures,
associations and other entities in which Atlantic Richfield Company owns
(directly or indirectly) fifty percent or more of the outstanding voting stock,
voting power, partnership interests or similar Ownership interests, but shall
not include the Company and its subsidiaries;
3. The "Company" shall include all subsidiary corporations and all
partnerships, joint ventures, associations and other entities in which the
Company owns (directly or indirectly) fifty percent or more of the outstanding
voting stock, voting power, partnership interests or similar ownership
interests; and any contract, agreement, arrangement or transaction with any such
entity, or with any officer or director thereof, shall be deemed to be a
contract, agreement, arrangement or transaction with the Company; and
4. "corporate opportunities" shall include, but not be limited to,
business opportunities which the Company is financially able to undertake, which
are, from their nature, in the line of the Company's business and are of
practical advantage to it, which are ones in which the Company has an interest
or a reasonable expectancy, and as to which by embracing the opportunity, the
self-interest of ARCO or the officer or director, as the case may be, will be
brought into conflict with that of the Company.
6
<PAGE>
J. Neither the alteration, amendment or repeal of this Article VIII, nor
the adoption of any provision inconsistent with this Article VIII, shall
eliminate or reduce the effect of this Article VIII in respect of any matter
occurring, or any cause of action, suit or claim that, but for this Article VIII
would accrue or arise, prior to such alteration, amendment, repeal or adoption.
ARTICLE IX
OTHER CONSIDERATIONS
The Board of Directors of the Company, when evaluating any offer of a
person, other than the Company itself, to (a) make a tender or exchange offer
for any equity security of the Company, (b) merge or consolidate the Company
with another person, or (c) purchase or otherwise acquire all or substantially
all of the properties and assets of the Company shall, in connection with the
exercise of its business judgment in determining what is in the best interests
of the Company and its stockholders, be entitled to give due consideration to
all factors that the Board of Directors determines to be relevant, including
without limitation the social and economic effects on the employees, customers,
suppliers and other constituents of the Company and its subsidiaries and on the
communities in which the Company and. its subsidiaries operate or are located.
7
<PAGE>
EXHIBIT 3.2
BY-LAWS OF LYONDELL PETROCHEMICAL COMPANY
(amended and restated as of March 1, 1997 for electronic SEC filing purposes
only)
ARTICLE I
---------
STOCKHOLDERS
------------
Section 1.1. Annual Meeting. The Board of Directors by resolution shall
----------- --------------
designate the time, place and date (which shall be not more than 13 months after
the date of the last annual meeting of stockholders) of the annual meeting of
stockholders for the election of directors and transactions of such other
business as may come before it.
Section 1.2. Notice. Written notice stating the place, day and hour of
----------- ------
each meeting of stockholders and, in the case of a special meeting, the purpose
or purposes for which the meeting is called, shall be mailed either by the
Secretary, or, in the case of a special meeting called by the stockholders in
accordance with Article V of the Certificate of Incorporation, by the applicable
stockholders, at least ten days and not more than sixty days before the meeting
to each stockholder of record entitled to vote at the meeting to his address
appearing on the books of the Company.
Section 1.3. Special Meeting. Special meetings of stockholders of the
----------- ---------------
Company may be called only as set forth in Article V of the Restated Certificate
of Incorporation of the Company. At any special meeting of stockholders, only
such business shall be conducted as shall have been set forth in the notice of
special meeting.
Section 1.4. Notification of Stockholder Business. At any annual or
----------- ------------------------------------
special meeting of stockholders, there shall be conducted only such business as
shall have been brought before the meeting (a) by or at the direction of the
Board of Directors or (b) by any stockholder of the Company who is a stockholder
of record at the time of the giving of the stockholder's notice provided for in
this Section 1.4, who shall be entitled to vote at such meeting and who complies
with the notice procedure set forth in this Section 1.4. For business to be
properly brought before a meeting by a stockholder, the stockholder must have
given timely notice thereof in writing to the Secretary of the Company. To be
timely, a stockholder's notice must be delivered to or mailed and received at
the principal office of the Company not later than 90 days in advance of such
meeting; provided, however, that in the event that the date of the meeting was
not publicly announced by a mailing to stockholders, in a press release reported
by the Dow Jones News Services, Associated Press or comparable national news
service or in a filing with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Securities Exchange Act of 1934 more than 90 days
prior to the meeting, such notice, to be timely, must be delivered to the Board
of Directors not later than the close of business on the tenth day following the
day on which the date of the meeting was first so publicly announced. A
stockholder's notice to the Secretary shall set forth as to each matter the
stockholder proposes to bring before the annual or special meeting (a) a brief
description of the business desired to be brought before the meeting and the
reasons for conducting such business at the meeting and, in the event that such
<PAGE>
business includes a proposal regarding the amendment of the By-Laws of the
Company, the language of the proposed amendment; (b) the name and address, as
they appear on the Company's books, of the stockholder intending to propose such
business; (c) a representation of the stockholder as to the class and number of
shares of capital stock of the Company which are beneficially owned by the
stockholder, and the stockholder's intent to appear in person or by proxy at the
meeting to present such business; and (e) any material interest of such
stockholder in such proposal or business.
Notwithstanding anything in these By-laws to the contrary, no business
shall be conducted at any meeting of the stockholders except in accordance with
the procedures set forth in this Article I. The chairman of any annual or
special meeting shall, if the facts warrant, determine and declare to the
meeting that (i) the business proposed to be brought before the meeting was not
a proper subject therefor and/or (ii) such business was not properly brought
before the meeting in accordance with the provisions of this Article I, and, if
he should so determine, he shall so declare to the meeting and any such business
not properly brought before the meeting or not a proper subject therefor shall
not be transacted.
Section 1.5. Quorum. The presence, in person or by proxy, of stockholders
----------- ------
entitled to cast at least a majority of the votes which all stockholders are
entitled to cast on a particular matter shall constitute a quorum for the
purpose of considering such matter at a meeting of stockholders. If a quorum is
not present in person or by proxy, those present may adjourn from time to time
to reconvene at such time and place as they may determine without further notice
to the stockholders.
Section 1.6. Record Dates. The Board of Directors may fix a time not less
----------- ------------
than ten and not more than sixty days prior to the date of any meeting of
stockholders as a record date and not more than sixty days prior to the date
fixed for the payment of any dividend or distribution, or the date for the
allotment of rights, or the date when any change or conversion or exchange of
shares will be made or go into effect, as a record date for the determination of
the stockholders entitled to notice of and to vote at such meeting, a to receive
payment of any such dividend or distribution, or to receive any such allotment
of rights, or to exercise the rights in respect to any such change, conversion
or exchange of shares or for the purpose of any other lawful action. In such
case, only such stockholders as shall be stockholders of record at the close of
business on the date so fixed shall be entitled to notice of or to vote at such
meeting, or to receive payment of such dividend or distribution, or to receive
such allotment of rights, or to exercise such rights in respect to any change,
conversion or exchange of shares, as the case may be, notwithstanding any
transfer of any shares on the books of the Company after the record date fixed
as aforesaid.
Section 1.7. Voting Rights of Stockholders and Proxies. Each stockholder
----------- -----------------------------------------
of record entitled to vote in accordance with the laws of the State of Delaware,
the Certificate of Incorporation or these By-Laws, shall at every meeting of the
stockholders be entitled to one vote in person or by proxy for each share of
stock entitled to vote standing in his name on the books of the Company, but no
proxy shall be voted on after three years from its date, unless the proxy
provides for a longer period.
Section 1.8. Stockholder Actions by Written Consent. Any action required
----------- --------------------------------------
or permitted to be taken by the holders of the stock of the Company may be
effected without a meeting of
2
<PAGE>
stockholders by consent in writing by such holders in accordance with this
Section 1.8. In order that the Company may determine the stockholders entitled
to consent to corporate action in writing without a meeting, the Board of
Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which date shall not be more than ten days after the date upon
which the resolution fixing the record date is adopted by the Board of
Directors. Any stockholder of record seeking to have the stockholders authorize
or take corporate action by written consent, including without limitation the
call of a special meeting of stockholders, shall, by written notice to the
Secretary, request the Board of Directors to fix a record date. The Board of
Directors shall promptly, but in all events within ten days after the date on
which such a request is received, adopt a resolution fixing the record date. If
no record date has been fixed by the Board of Directors within ten days after
the date on which such a request is received, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting, when no prior action by the Board of Directors is required by
applicable law, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
Company by delivery to its registered office in the State of Delaware, its
principal place of business, or any officer or agent of the Company having
custody of the book in which proceedings of stockholders meetings are recorded.
Delivery shall be by hand or by certified or registered mail, return receipt
requested. If no record date has been fixed by the Board of Directors and prior
action by the Board of Directors is required by applicable law, the record date
for determining stockholders entitled to consent to corporate action in writing
without a meeting shall be at the close of business on the date on which the
Board of Directors adopts the resolution taking such prior action.
In the event of the delivery to the Company of a written consent or
consents purporting to authorize or take corporate action and/or related
revocations (each such written consent and related revocation is referred to in
this paragraph as a "Consent"), the Secretary of the Company shall provide for
the safe-keeping of such Consent and shall conduct such reasonable investigation
as he deems necessary or appropriate for the purpose of ascertaining the
validity of such Consent and all matters incident thereto, including, without
limitation, whether stockholders having the requisite voting power to authorize
or take the action specified in the Consent have given consent; provided,
however, that if the corporate action to which the Consent relates is the
removal or replacement of one or more members of the Board of Directors, the
Secretary of the Company shall designate two persons, who shall not be members
of the Board of Directors or officers or employees of the Company, to serve as
Inspectors with respect to such Consent, and such Inspectors shall discharge the
functions of the Secretary of the Company under this paragraph. If after such
investigation the Secretary or the Inspectors (as the case may be) shall
determine that the Consent is valid, that fact shall be certified on the records
of the Company for the purpose of recording the proceedings of meetings of the
stockholders, and the Consent shall be filed with such records, at which time
the Consent shall become effective as stockholder action.
In conducting the investigation required by this Section 1.8, the Secretary
or the Inspectors (as the case may be) may, but are not required to (a) at the
expense of the Company, retain any necessary or appropriate professional
advisors, and such other personnel as they may deem necessary or appropriate to
assist them and (b) allow any officers and representatives of the
3
<PAGE>
Company, stockholders soliciting consents or revocations, and any other
interested parties to propose challenges and pose questions relating to the
preliminary results of such investigation following the availability of such
preliminary results.
ARTICLE II
----------
DIRECTORS
---------
Section 2.1. Management of Business. The business of the Company shall be
----------- ----------------------
managed by its Board of Directors.
Section 2.2. Number. The number of directors constituting the entire
----------- ------
Board of Directors shall be such number as shall be fixed from time to time by
resolution of the Board of Directors. Any such action by the Board of Directors
shall require the vote of a majority of the Board of Directors then in office.
Section 2.3. Age Qualification. No person who has reached seventy-two
----------- -----------------
years of age prior to January 1 of any year shall be elected or re-elected a
director in any year.
Section 2.4. (a) Election and Term. The directors shall be elected at
----------- -----------------
the annual meeting of the stockholders, and each director shall be elected to
hold office until his successor shall be elected and qualified, or until his
earlier resignation or removal.
Section 2.4. (b) Notification of Nominations. Except for directors
----------- ---------------------------
selected by or pursuant to the provisions of Section 2.6 hereof, only
individuals nominated for election to the Board of Directors pursuant to and in
accordance with the provision of this Section 2.4(b) may be elected to and may
serve upon the Board of Directors of the Company. Subject to the rights of
holders of any class or series of stock of the Company having a preference over
the Common Stock as to dividends or upon liquidation to elect directors under
specified circumstances, nominations for the election of directors may be made
(i) by the Board of Directors or (ii) by any stockholder of the Company who is a
stockholder of record at the time of the giving of the stockholder's notice
provided for in this Section 2.4(b), who is entitled to vote in the election of
directors generally and who complies with the notice procedure set forth in this
Section 2.4(b). For a nomination to comply with the notice provisions of this
Section 2.4(b), the stockholder must have given timely notice thereof in writing
to the Secretary of the Company. To be timely a stockholder's notice must be
delivered to or mailed and received at the principal office of the Company not
later than 90 days in advance of such meeting; provided, however, that in the
event that the date of the meeting was not publicly announced by a mailing to
stockholders, in a press release reported by the Dow Jones News Services, the
Associated Press or a comparable national news service or in a filing with the
Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the
Securities Exchange Act of 1934 more than 90 days prior to the meeting, such
notice, to be timely, must be delivered to the Board of Directors not later than
the close of business on the tenth day following the day on which the date of
the meeting was first so publicly announced. A stockholder's notice to the
Secretary shall set forth (a) the name and
4
<PAGE>
address, as they appear on the Company's books, of the stockholder intending to
make the nomination and of the person or persons to be nominated; (b) a
representation of the stockholder as to the class and number of shares of
capital stock of the Company which are beneficially owned by the stockholder,
and the stockholder's intent to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice; (c) a description of all
arrangements or understandings between the stockholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the stockholder; and (d) such other
information regarding each nominee proposed by such stockholder as would be
required to be included in a proxy statement filed pursuant to the proxy rules
of the Securities and Exchange Commission, had the nominee been nominated, or
intended to be nominated, by the Board of Directors. To be effective, each
notice of intent to make a nomination given hereunder shall be accompanied by
the written consent of each nominee to serve as a director of the Company if
elected.
The chairman of any annual or special meeting shall, if the facts warrant,
determine and declare to the meeting that a nomination was not properly brought
before the meeting in accordance with the provisions hereof and, if he should so
determine, he shall so declare at the meeting that such nomination was not
properly brought before the meeting and, as a result, shall not be considered.
Section 2.5. Resignations. Any director of the Company may resign at any
----------- ------------
time by giving written notice to the Company, delivered to the Secretary. Such
resignation shall take effect at the time specified therein, if any, or if no
time is specified therein, then upon receipt of such notice by the Company; and,
unless otherwise provided therein, the acceptance of such resignation shall not
be necessary to make it effective.
Section 2.6. Vacancies and Newly Created Directorships. Vacancies and
----------- -----------------------------------------
newly created directorships resulting from any increase in the authorized number
of directors or any vacancy on the Board of Directors resulting from death,
resignation, disqualification, removal or other cause may be filled by a
majority of the directors then in office, though less than a quorum, or by a
sole remaining director or by the affirmative vote of the majority of all votes
entitled to be cast by holders of stock of the Company at a duly called annual
or special meeting of such holders or by consent in writing of such holders.
Any director so chosen shall hold office until his or her successor shall be
elected and qualified, or until his or her earlier resignation or removal. When
one or more directors shall resign from the Board, effective at a future date, a
majority of the directors then in office, including those who have so resigned,
shall have power to fill such vacancy or vacancies, the vote thereon to take
effect when such resignation or resignations shall become effective, and each
director so chosen shall hold office as herein provided in the filling of other
vacancies.
Section 2.7. Annual Meeting. An annual meeting of the Board of Directors
----------- --------------
shall be held each year in conjunction with the annual meeting of stockholders,
at the place where such meeting of stockholders was held or at such other place
as the Board of Directors may determine, for the purposes of organization,
election or appointment of officers and the transaction of such other business
as shall come before the meeting. No notice of the meeting need be given.
5
<PAGE>
Section 2.8. Regular Meetings. Regular meetings of the Board of Directors
----------- ----------------
may be held without notice at such times and at such places in Delaware or
elsewhere as the Board of Directors may determine.
Section 2.9. Special Meetings. Special meetings of the Board of Directors
----------- ----------------
may be called by the Chairman of the Board, the President or a majority of the
directors in office, to be held at such time (as will permit the giving of
notice as provided in this section) and at such place (in Delaware or elsewhere)
as may be designated by the person or persons calling the meeting. Notice of
the place, day and hour of each special meeting shall be given to each director
by the Secretary by written notice mailed on or before the third full business
day before the meeting or by notice received personally or by other means at
least twenty-four hours before the meeting. The notice need not refer to the
business to be transacted at the meeting. However, whenever notice is required
to be given under these By-Laws, a written waiver thereof, signed by the person
entitled to notice, whether before or after the time stated therein, shall be
deemed equivalent to notice and the attendance of a person at a meeting shall
constitute a waiver of notice of such meeting.
Section 2.10. Quorum of Directors. Except as provided in Sections 2.6
------------ -------------------
and 2.13 hereof, a majority of the directors in office shall constitute a quorum
for the transaction of business and the act of a majority of the directors
present at any meeting at which there is a quorum shall be the act of the Board
of Directors.
A majority of the directors present, whether or not a quorum is present,
may adjourn any meeting of the directors to another time and place. Notice of
any adjournment need not be given if such time and place are announced at the
meeting.
Section 2.11. Meeting by Telephone. One or more directors may participate
------------ --------------------
in a meeting of the Board of Directors or of a committee of the Board of
Directors by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other.
Section 2.12. Compensation. Directors shall receive such compensation for
------------ ------------
their services and expenses for attendance as shall be determined by the Board
of Directors; provided, however, that nothing herein contained shall be
construed to preclude any director from serving the Company in any other
capacity and receiving compensation therefore.
Section 2.13. Committees. The Board of Directors may, by resolution
------------ ----------
adopted by a majority of the whole board then in office, appoint an Executive
Committee of three or more directors. To the extent provided in such
resolution, the Executive Committee shall have and may, subject to applicable
law, exercise the authority of the Board of Directors in the management of the
business and affairs of the Company (when the Board of Directors is not in
session), except that the Executive Committee shall have no power (a) to elect
directors; (b) to alter, amend or repeal these By-Laws or any resolution or
resolutions of the directors designating an Executive Committee; (c) to declare
any dividend or make any other distribution to the stockholders of the Company;
or (d) to appoint any member of the Executive Committee. The Board of Directors
may appoint such other committees as it may deem advisable, and each such
committee shall have such authority and perform such duties as the Board of
Directors may determine. At each meeting of the Board of
6
<PAGE>
Directors all action taken by each committee since the preceding meeting of the
Board of Directors shall be reported to it.
Section 2.14. Consent Action. Any action required or permitted to be
------------ --------------
taken at any meeting of the Board of Directors, or any committee thereof may be
taken without a meeting if all members of the board or committee, as the case
may be, consent thereto in writing, and the writings are filed with the minutes
of proceedings of the board or the committee.
ARTICLE III
-----------
Officers and Agents
-------------------
Section 3.1. Number; Compensation. The officers of the Company shall be
----------- --------------------
chosen by the Board of Directors. The officers shall be a Chairman of the
Board, a President, a Secretary, a Treasurer, and such number of Vice-
Presidents, Assistant Secretaries and Assistant Treasurers, and such other
officers, if any, as the Board of Directors may from time to time determine.
The Board of Directors may choose such other agents as it shall deem necessary.
Any number of offices may be held by the same person. The officers shall
receive such compensation for their services as may be determined by the Board
of Directors or in a manner approved by it.
Section 3.2. Term. Each officer and each agent shall hold office until
----------- ----
the next annual meeting of the Board of Directors or until that officer's or
agent's successor is elected or appointed and qualified or until that officer or
agent's earlier resignation or removal.
Section 3.3. Removal. Any officer or agent may be removed from office at
----------- -------
any time by the Board of Directors with or without cause pursuant to a
resolution adopted by a majority of the whole Board then in office.
Section 3.4. Authority. The officers and agents, if any, shall have the
----------- ---------
authority, perform the duties and exercise the powers in the management of the
Company usually incident to the offices held by them, respectively, and/or such
other authority, duties and powers as may be assigned to them from time to time
by the Board of Directors or (except in the case of the Chief Executive Officer)
by the Chairman of the Board. In addition to the authority to perform the
duties and exercise the powers in the management of the Company usually incident
to the office held by him or her, and/or such other authority, duties and powers
as may be assigned to him or her from time to time by the Board of Directors,
the Chairman of the Board or the President, the Secretary shall record all of
the proceedings of the meetings of the stockholders and directors in a book to
be kept for that purpose. In the absence or disability of the Secretary, an
Assistant Secretary shall have the authority and shall perform the duties of the
Secretary.
Section 3.5. Voting Securities Owned by the Company. Powers of attorney,
----------- --------------------------------------
proxies, waivers of notice of meeting, consents and other instruments relating
to securities owned by the Company may be executed in the name of and on behalf
of the Company by the Chairman of the Board, the President or any Vice-President
and any such officer may, in the name of and on behalf
7
<PAGE>
of the Company, take all such action as any such officer may deem advisable to
vote in person or by proxy at any meeting of security holders of any corporation
in which the Company may own securities and at any such meeting shall possess
and may exercise any and all rights and powers incident to the ownership of such
securities and which, as the owner thereof, the Company might have exercised and
possessed if present. The Board of Directors may, by resolution, from time to
time confer like powers upon any other person or persons.
Section 3.6. Corporate Seal. A corporate seal shall be prepared and shall
----------- --------------
be kept in the custody of the Secretary of the Company. The seal or a facsimile
thereof may be impressed, affixed or reproduced, and attested to by the
Secretary or an Assistant Secretary, for the authentication of documents or
instruments requiring the seal and bearing the signature of a duly authorized
officer or agent.
ARTICLE IV
CAPITAL STOCK
-------------
Section 4.1. Stock Certificates. Every holder of stock in the Company
----------- ------------------
shall be entitled to have a certificate signed by, or in the name of the Company
by, the Chairman of the Board of Directors, or the President or a Vice-
President, and by the Secretary or an Assistant Secretary of the Company,
certifying the number of shares owned by him in the Company. Where such
certificate is signed (1) by a transfer agent other than the Company or its
employee, or (2) by a registrar other than the Company or its employee, the
signatures of the officers of the Company may be facsimiles. In case any
officer who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer before such certificate is
issued, it may be issued by the Company with the same effect as if he were such
officer at the date of issue.
Section 4.2. Transfers. Stock of the Company shall be transferable in the
----------- ---------
manner prescribed by the laws of the State of Delaware.
Section 4.3. Registered Holders. Prior to due presentment for
----------- ------------------
registration of transfer of any security of the Company in registered form, the
Company shall treat the registered owner as the person exclusively entitled to
vote, to receive notifications and to otherwise exercise all the rights and
powers of an owner, and shall not be bound to recognize any equitable or other
claim to, or interest in, any security, whether or not the Company shall have
notice thereof, except as otherwise provided by the laws of the State of
Delaware.
Section 4.4. New Certificates. The Company shall issue a new certificate
----------- ----------------
of stock in the place of any certificate theretofore issued by it, alleged to
have been lost, stolen or destroyed, if the owner: (1) so requests before the
Company has notice that the shares of stock represented by that certificate have
been acquired by a bona fide purchaser; (2) files with the Company a bond
sufficient (in the judgment of the Secretary) to indemnify the Company against
any claim that may be made against it on account of the alleged loss or theft of
that certificate or the issuance of a new certificate; and (3) satisfies any
other requirements imposed by the Secretary that are reasonable
8
<PAGE>
under the circumstances. A new certificate may be issued without requiring any
bond when, in the judgment of directors, it is proper so to do.
ARTICLE V
---------
MISCELLANEOUS
-------------
Section 5.1. Indemnification.
----------- ---------------
(a) Indemnification of Officers and Directors. The Company shall
-----------------------------------------
indemnify the officers and directors of the Company with respect to all matters
to which Section 145 of the General Corporation Law of the State of Delaware may
in any way relate, to the fullest extent permitted or allowed by the laws of the
State of Delaware, whether or not specifically required, permitted or allowed by
said Section 145. Any repeal or modification of this Section shall not in any
way diminish any rights to indemnification of such person or the obligations of
the Company that may have previously arisen hereunder.
(b) Non-Exclusivity of Rights. The right to indemnification and the
-------------------------
payment of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Section shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, the Company's
Certificate of Incorporation, any By-Law, any agreement, a vote of Company
stockholders or of disinterested Company directors or otherwise, both as to
action in that person's official capacity and as to action in any other capacity
by holding such office, and shall continue after the person ceases to serve the
Company as a director or officer or to serve another entity at the request of
the Company.
(c) Insurance. The Company may maintain insurance, at its expense, to
---------
protect itself and any director or officer of the Company or another
corporation, partnership, joint venture, trust or other enterprise against any
expense, liability or loss,whether or not the Company would have the power to
indemnify such person against such expense, liability or loss under the General
Corporation Law of Delaware.
(d) Indemnity Agreements. The Company may from time to time enter into
--------------------
indemnity agreements with the persons who are members of its Board of Directors,
its elected officers and with such other persons as the Board of Directors may
designate, the form of such indemnity agreements to be approved by a majority of
the Board then in office.
(e) Indemnification of Employees and Agents of the Company. The Company
------------------------------------------------------
may, under procedures authorized from time to time by the Board of Directors,
grant rights to indemnification, and to be paid by the Company the expenses
incurred in defending any proceeding in advance of its final disposition to any
employee or agent of the Company to the fullest extent of the provisions of this
Article V.
Section 5.2. Fiscal Year and Annual Report.
----------- ------------------------------
9
<PAGE>
(a) Fiscal Year. The fiscal year of the Company shall be the calendar
-----------
year.
(b) Annual Report. The Board of Directors shall cause an annual report to
-------------
be prepared and mailed to the stockholders in accordance with the rules and
regulations of the Securities and Exchange Commission and the New York Stock
Exchange.
Section 5.3. Offices. The registered office of the Company in the State
----------- -------
of Delaware shall be at Corporation Trust Center, 1209 Orange Street, in the
City of Wilmington, County of New Castle. The Company may also have offices at
other places within and/or without the State of Delaware.
Section 5.4. Waivers of Notice; Dispensing with Notice. Whenever any
----------- -----------------------------------------
notice whatever is required to be given under the provisions of the General
Corporation Law of the State of Delaware, of the Certificate of Incorporation of
the Company, or of these By-Laws, a waiver thereof in writing, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the
stockholders need be specified in any written waiver of notice.
Attendance of a person at a meeting of stockholders shall constitute a
waiver of notice of such meeting, except when the stockholder attends a meeting
for the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
Whenever any notice whatever is required to be given under the provisions
of the General Corporation Law of the State of Delaware, of the Certificate of
Incorporation of the Company, or of these By-Laws, to any person with whom
communication is made unlawful by any law of the United States of America, or by
any rule, regulation, proclamation or executive order issued under any such law,
then the giving of such notice to such person shall not be required and there
shall be no duty to apply to any governmental authority or agency for a license
or permit to give such notice to such person; and any action or meeting which
shall be taken or held without notice to any such person or without giving or
without applying for a license or permit to give any such notice to any such
person with whom communication is made unlawful as aforesaid, shall have the
same force and effect as if such notice had been given as provided under the
provisions of the General Corporation Law of the State of Delaware, or under the
provisions of the Certificate of Incorporation of the Company or of these By-
Laws. In the event that the action taken by the Company is such as to require
the filing of a certificate under any of the other sections of this title, the
certificate shall state, if such is the fact and if notice is required, that
notice was given to all persons entitled to receive notice except such persons
with whom communication is unlawful.
Section 5.5. Amendment of Bylaws. These By-Laws may be altered, amended
----------- -------------------
or repealed at any meeting of the Board of Directors. Any such action shall
require a vote of the majority of the Board of Directors then in office.
Section 5.6. Section Headings and Statutory References. The headings of
----------- -----------------------------------------
the Articles and
10
<PAGE>
Sections of these By-Laws have been inserted for convenience of reference only
and shall not be deemed to be a part of these By-Laws.
ARTICLE VI
----------
Emergency By-laws
-----------------
Section 6.1. When Operative. The emergency By-Laws provided by the
----------- --------------
following sections shall be operative during any emergency resulting from an
attack on the United States, any nuclear disaster, earthquake, or other natural
disaster or during the existence of any catastrophe, as a result of which a
quorum of the Board of Directors or the Executive Committee thereof cannot be
readily convened for action notwithstanding any different provision in the
preceding sections of the By-Laws or in the Certificate of Incorporation of the
Company or in the General Corporation Law of the State of Delaware. To the
extent not inconsistent with the emergency By-Laws, the By-Laws provided in the
preceding sections shall remain in effect during such emergency and upon the
termination of such emergency, the emergency By-Laws shall cease to be operative
unless and until another such emergency shall occur.
Section 6.2. Meetings. During any such emergency:
----------- --------
(a) Any meeting of the Board of Directors may be called by any director.
Whenever any officer of the Company who is not a director has reason to believe
that no director is available to participate in a meeting, such officer may call
a meeting to be held under the provisions of this section.
(b) Notice of each meeting called under the provisions of this section
shall be given by the person calling the meeting or at his request by any
officer of the Company. The notice shall specify the time and the place of the
meeting, which shall be the principal office of the Company at the time if
feasible and otherwise any other place specified in the notice. Notice need be
given only to such of the directors as it may be feasible to reach at the time
and may be given by such means as may be feasible at the time, including
publication or radio. If given by mail, messenger, telephone or telegram, the
notice shall be addressed to the director at his residence or business address
or such other place as the person giving the notice shall deem suitable. In the
case of meetings called by an officer who is not a director, notice shall also
be given similarly, to the extent feasible, to the persons named on the list
referred to in part (c) of this section. Notice shall be given at least two
days before the meeting if feasible in the judgment of the person giving the
notice and otherwise the meeting may be held on any shorter notice that he shall
deem to be suitable.
(c) At any meeting called under the provisions of this section, the
director or directors present shall constitute a quorum for the transaction of
business. If no director attends a meeting called by an officer who is not a
director and if there are present at least three of the persons named on a
numbered list of personnel approved by the Board of Directors before the
emergency, those present (but not more than nine appearing highest in priority
on such list) shall be deemed directors for such meeting and shall constitute a
quorum for the transaction of business.
11
<PAGE>
Section 6.3. Lines of Succession. The Board of Directors, during as well
----------- -------------------
as before any such emergency, may provide, and from time to time modify, lines
of succession in the event that during such an emergency any or all officers or
agents of the Company shall for any reason be rendered incapable of discharging
their duties.
Section 6.4. Offices. The Board of Directors, during as well as before
----------- -------
any such emergency, may, effective during the emergency, change the principal
office or designate several alternative principal offices or regional offices,
or authorize the officers so to do.
Section 6.5. Liability. No officer, director or employee acting in
----------- ---------
accordance with these emergency By-Laws shall be liable except for willful
misconduct.
Section 6.6. Repeal or Change. The emergency By-Laws shall be subject to
----------- ----------------
repeal or change by action of the Board of Directors or by the affirmative vote
of at least 66-2/3% of all votes entitled to be cast by the holders of Capital
Stock of the Company entitled to vote generally in the election of directors,
except that no such repeal or change shall modify the provisions of the next
preceding section with regard to action or inaction prior to the time of such
repeal or change.
12
<PAGE>
EXHIBIT 10.1
INSTRUMENT AMENDING
LYONDELL PETROCHEMICAL COMPANY
EXECUTIVE SUPPLEMENTARY SAVINGS PLAN
LYONDELL PETROCHEMICAL COMPANY hereby amends the Lyondell Petrochemical
Company Executive Supplementary Savings Plan, to read in its entirety as the
document entitled
"Lyondell Petrochemical Company Executive Supplementary Savings Plan, Edition of
January 1, 1997", as attached hereto.
IN WITNESS WHEREOF, LYONDELL PETROCHEMICAL COMPANY, acting by and through
its duly authorized officer, has caused this Instrument to be executed on this
21st of February, 1997.
ATTEST: LYONDELL PETROCHEMICAL COMPANY
/s/ Gerald O'Brien By:/s/ Richard W. Park
- ---------------------- --------------------------
Assistant Secretary Richard W. Park
Vice President, Human Resources
1
<PAGE>
LYONDELL PETROCHEMICAL COMPANY
EXECUTIVE SUPPLEMENTARY SAVINGS PLAN
EDITION OF JANUARY 1, 1997
1
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Section 1. Intent of Plan.................................. 1
Section 2. Effective Date of Plan......................... 1
Section 3. Definitions..................................... 1
3.1 "Administrative Committee" or "Committee"..... 1
3.2 "Base Pay".................................... 1
3.3 "Company"..................................... 1
3.4 "Company Contribution"........................ 1
3.5 "Disability" or Disabled"..................... 1
3.6 "Employee".................................... 2
3.7 "Plan Year"................................... 2
3.8 "Savings Contribution"........................ 2
Section 4. Costs of Plan.................................. 2
Section 5. Eligibility for Benefits....................... 2
Section 6. Amount of Benefit.............................. 3
Section 7. Crediting of Benefit........................... 3
Section 8. Time of Payment of Benefit..................... 3
Section 9. Death Benefits................................. 3
Section 10. Administration................................ 4
10.1 Rules of Conduct.............................. 4
10.2 Legal, Accounting, Clerical
and Other Services........................... 4
10.3 Interpretation of Provisions.................. 4
10.4 Records of Administration..................... 4
10.5 Denial of Claim............................... 4
10.6 Liability of Committee........................ 4
Section 11. Facility of Payment and
Lapse of Benefits............................ 4
11.1 Provisions for Incapacity..................... 4
11.2 Payments or Deposits.......................... 5
Section 12. General Provisions............................ 5
12.1 Unfunded Benefit Plan......................... 5
12.2 Payments and Benefits Not Assignable.......... 5
12.3 No Right of Employment........................ 5
12.4 Adjustments................................... 5
Section 13. Amendments and Discontinuance................. 5
13.1 Amendment of Plan............................. 5
13.2 Termination................................... 5
13.3 Effect of Amendment or Termination............ 5
</TABLE>
2
<PAGE>
LYONDELL PETROCHEMICAL COMPANY
EXECUTIVE SUPPLEMENTARY SAVINGS PLAN
SECTION 1. INTENT OF PLAN.
1.1 This Plan is intended to provide an annual benefit, in accordance with
its provisions to that select group of management or highly compensated
employees excluded from making Savings Contributions and from receiving Company
Contributions in the Lyondell Petrochemical Company 401(k) and Savings Plan due
to the probability that their benefits under one or more qualified employee
pension benefit plans maintained by Lyondell Petrochemical Company might be
reduced because of the maximum annual limitations on contributions and benefits
imposed by Sections 415, 401 or other Sections of the Internal Revenue Code of
1986, as amended (the "Code").
SECTION 2. EFFECTIVE DATE OF PLAN.
2.1 This Plan shall be effective as of January 1, 1997.
SECTION 3. DEFINITIONS
3.1 "Administrative Committee" or "Committee" means the Benefits
Administrative Committee appointed by the Compensation Committee of the Board of
Directors of the Company.
3.2 "Base Pay" means an Employee's regular wages or salary, as determined
by the Company, excluding extra pay, such as bonuses, or other supplementary
allowances;
3.3 "Company" means Lyondell Petrochemical Company and any of its
subsidiaries or affiliates whose employees are included in this Plan upon
authorization of the Board of Directors of Lyondell Petrochemical Company or the
Compensation Committee of the Board of Directors, pursuant to delegation from
the Board of Directors.
3.4 "Company Contribution" means contributions made by the Company on a
participant's behalf under the Company's 401(k) and Savings Plan.
3.5 "Disability" or Disabled" means an Employee's total and permanent
disability, as determined by the Administrative Committee.
<PAGE>
3.6 "Employee" means any person who:
(a) is regularly employed by the Company on a full time or part time
basis;
and
(b) either:
(i) is a member of that select group of management or highly
compensated employees on the executive payroll; or
(ii) is an employee with an annual Base Pay no less than
$150,000;
and
(c) has been excluded from making Savings Contributions and from
receiving Company Contributions under the Lyondell Petrochemical
Company 401(k) and Savings Plan because of the Company's
determination that the maximum annual contribution and benefit
limitations imposed by the Code potentially will apply to the
Employee.
3.7 "Plan Year" means the calendar year..
3.8 "Savings Contribution" means a participant's after-tax contributions
to the Company's 401(k) and Savings Plan.
SECTION 4. COSTS OF PLAN.
4.1 The Company shall bear all costs of this Plan, including its
administration, and no Employee contributions shall be required or permitted.
SECTION 5. ELIGIBILITY FOR BENEFITS.
5.1 Each person who qualifies as an Employee under Paragraph 3.6 for all
or any part of a Plan Year shall participate in the Plan for that portion of the
Plan Year.
2
<PAGE>
SECTION 6. AMOUNT OF BENEFIT.
6.1 The amount of an Employee's benefit for each Plan Year shall be
equal to either:
(a) An amount equal to the maximum Company Contribution under the
Lyondell Petrochemical Company 401(k) and Savings Plan, assuming
no limitations on contributions imposed by Section 415 or any
other Sections of the Code during the Plan Year, if an Employee
makes an elective deferral of at least 5% of Base Pay or the
maximum permissible elective deferral, whichever is less, under
the Lyondell Petrochemical Company 401(k) and Savings Plan for
the Plan Year, or
(b) An amount equal to 1.6 times the amount of elective deferrals
made by the Employee under the Lyondell Petrochemical Company
401(k) and Savings Plan, if an Employee does not make an elective
deferral of at least 5% of Base Pay or the maximum permissible
elective deferral under the Lyondell Petrochemical Company 401(k)
and Savings Plan for the Plan Year.
SECTION 7. CREDITING OF BENEFIT.
7.1 The Administrative Committee shall determine the amount of benefit to
be credited to an Employee for a Plan Year within 30 days after the end of the
Plan Year or 30 days after the Employee's termination of employment, whichever
occurs earlier.
SECTION 8. TIME OF PAYMENT OF BENEFIT.
8.1 An Employee shall be paid the benefit to which the Employee is
entitled for a Plan Year in a single cash payment within 30 days following the
date the Company credits the benefit, unless the benefit has been deferred under
the Lyondell Petrochemical Company Executive Deferral Plan.
SECTION 9. DEATH BENEFITS.
9.1 If an Employee dies prior to payment of the benefit due under the
Plan, the benefit shall be paid as soon as practicable following the Employee's
death to the Employee's most recently designated beneficiary or beneficiaries.
The beneficiary must be designated in writing on a form approved by the
Committee and must be accepted by the Plan prior to the Employee's death. If no
designation has been made, or if all designated beneficiaries have died before
the Employee, the benefit shall be paid to the Employee's estate.
3
<PAGE>
SECTION 10. ADMINISTRATION.
10.1 Rules of Conduct. The Administrative Committee shall adopt rules to
----------------
conduct its business and the Plan's administration as it considers desirable,
provided they do not conflict with the Plan's provisions.
10.2 Legal, Accounting, Clerical and Other Services. The Administrative
----------------------------------------------
Committee may authorize one or more of its members or any agent to act on its
behalf and may contract for legal, accounting, clerical and other services to
carry out this Plan. The Company shall pay all expenses of the Administrative
Committee.
10.3 Interpretation of Provisions. The Administrative Committee shall have
----------------------------
the exclusive right and discretionary authority to interpret the provisions of
this Plan and to decide questions arising in its administration including, but
not limited to, questions of eligibility for benefits under this Plan. The
decisions and interpretations of the Administrative Committee shall be final,
binding and conclusive on the Company, its Employees and all other persons.
10.4 Records of Administration. The Administrative Committee shall
-------------------------
maintain Plan administration records. These records are subject to audit by the
Company.
10.5 Denial of Claim. The Administrative Committee shall provide adequate
---------------
written notice to any Employee or beneficiary whose claim for benefits under
this Plan has been denied, setting forth the specific reasons for the denial.
The Administrative Committee will give the Employee or beneficiary an
opportunity for a full and fair review of the decision denying the claim. The
Employee or beneficiary shall have 60 days from the date of the notice denying
the claim to request a full and fair review.
10.6 Liability of Committee. No member of the Administrative Committee
----------------------
shall be liable for any action taken in good faith or for exercising any power
given to the Administrative Committee or for the actions of other Committee
members.
SECTION 11. FACILITY OF PAYMENT AND LAPSE OF BENEFITS.
11.1 Provision for Incapacity. If the Administrative Committee deems that
------------------------
any person entitled to receive any payment under this Plan is incapable of
receiving or disbursing the payment because of minority, illness or infirmity,
mental incompetency, or incapacity of any kind, the Committee, in its sole
discretion, may take any one or more of the following actions: it may apply the
payment directly for the person's comfort, support and maintenance; it may
reimburse any other person for support supplied to the person entitled to
receive any payment; or it may pay the payment to any other person the Committee
selects to disburse the payment for the comfort, support and maintenance of the
person entitled to the payment, including, without limitation, to any relative
who has wholly or partially undertaken the expense of the person's comfort, care
and maintenance, or any institution which is caring for or which has custody
4
<PAGE>
of the person entitled to the payment. The Administrative Committee, in its
sole discretion, may deposit any payment due to a minor to the minor's credit in
any savings or commercial bank of the Committee's choice.
11.2 Payments or Deposits. Payments or deposits made under this Section 11
--------------------
shall completely discharge, to the extent of the payment, all liability of the
Administrative Committee, the Company and this Executive Supplementary Savings
Plan under this Plan or otherwise. A person's receipt of any payment,
distribution or deposit shall be a complete acquittance and there shall be no
liability to see to the application of any payments, distributions or deposits
made.
SECTION 12. GENERAL PROVISIONS.
12.1 Unfunded Benefit Plan. This Executive Supplementary Savings Plan is
---------------------
intended to be an unfunded plan maintained primarily for the purpose of
providing deferred compensation to a select group of management or highly
compensated employees.
12.2 Payments and Benefits Not Assignable. Benefits under this Plan are
------------------------------------
not assignable, transferable or subject to alienation by Employees. Likewise,
payments are not subject to attachment by creditors of, or through legal process
against, the Company, the Administrative Committee, or any Employee.
12.3 No Right of Employment. The provisions of this Plan shall not give an
----------------------
Employee the right to be retained in the Company's service nor shall this Plan
or any action taken under it be construed as an employment contract.
12.4 Adjustments. At the Company's request, the Administrative Committee,
-----------
may adjust an Employee's benefit under this Plan or make other adjustments with
respect to the Employee as required to correct administrative errors or provide
uniform treatment of Employees in a manner consistent with this Plan's intent
and purpose.
SECTION 13. AMENDMENTS AND DISCONTINUANCE.
13.1 Amendment of Plan. This Plan may be amended from time to time by the
-----------------
Compensation Committee of the Board of Directors of the Company.
13.2 Termination. The Compensation Committee of the Board of Directors
-----------
reserves the right to terminate this Plan at any time.
13.3 Effect of Amendment or Termination. No Plan amendment or Plan
----------------------------------
termination may adversely affect the benefit payable to any Employee entitled to
receive benefits under this Plan prior to the effective date of the amendment or
termination.
5
<PAGE>
EXHIBIT 10.4
LYONDELL PETROCHEMICAL COMPANY
EXECUTIVE MEDICAL PLAN
EFFECTIVE AS OF OCTOBER 1, 1990
<PAGE>
TABLE OF CONTENTS
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<TABLE>
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<S> <C>
1. ADMINISTRATION OF THE PLAN............................................ 1
1.1. Purpose........................................................ 1
1.2. Delegation of Certain Fiduciary Responsibilities............... 1
2. ELIGIBILITY AND EFFECTIVE DATES....................................... 3
2.1. Eligibility.................................................... 3
2.2. Enrollment..................................................... 3
2.3. Effective Date of Coverage..................................... 4
2.4. Dependents..................................................... 4
2.5. COBRA and Non-COBRA Coverage Under The Plan.................... 5
2.6. Change in Coverage Procedure................................... 6
3. COVERAGE.............................................................. 7
3.1. Claims Administrator........................................... 7
3.2. Percentages Payable............................................ 7
3.3. Lifetime Maximum Benefit Amount................................ 7
3.4. Covered Medical Expenses - Regular Expenses.................... 7
(A) Hospital Expenses....................................... 8
(B) Convalescent Facility Expense........................... 9
(C) Preoperative Testing Expenses........................... 10
(D) Surgical Expenses....................................... 11
(E) Birthing Center Expenses................................ 13
(F) Laboratory And X-Ray Expenses........................... 14
(G) In-Hospital Physician Expenses.......................... 14
(H) In-Hospital Consultation Expenses....................... 15
(I) Emergency Medical Physician Expenses.................... 16
3.5. Covered Medical Expenses - Major Medical
Expenses Associated with Injury or Disease..................... 16
(A) Hospital Expenses....................................... 17
(B) Convalescent Facility Expenses.......................... 17
(C) Freestanding Surgical Expenses.......................... 18
(D) Home Health Care Expenses............................... 18
(E) Hospice Care Expenses................................... 19
(F) Dental Expenses Related to Accidents.................... 21
(G) Certain Medical Expenses Related to
Accidents............................................... 21
3.6. Covered Medical Expenses - Major Medical
Expenses Not Associated with Injury or
Disease........................................................ 21
(A) Physical Exam Expenses.................................. 22
(B) Mental Health Problem Expenses.......................... 23
(C) Other Medical Expenses.................................. 24
3.7. Treatment of Substance Dependency.............................. 26
(A) Inpatient Confinement Expenses.......................... 26
(B) Outpatient Expenses..................................... 27
3.8. Limitations and Exclusions-General............................. 29
</TABLE>
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3.9. Limitations and Exclusions - Major Medical
Expenses......................................................... 32
(A) Mouth, Jaws and Teeth...................................... 32
(B) Mammographies.............................................. 35
4. COORDINATION OF THE PLAN'S BENEFITS WITH OTHER BENEFITS................. 36
4.1. Applicability.................................................... 36
4.2. Definitions...................................................... 36
(A) Calendar Year.............................................. 36
(B) Plan....................................................... 36
(C) This Plan.................................................. 37
(D) Primary Plan/Secondary Plan................................ 37
(E) Allowable Expense.......................................... 37
(F) Claim Determination Period................................. 37
4.3. Order of Benefit Determination Rules............................. 38
(A) General.................................................... 38
(B) Rules...................................................... 38
4.4. Effect on the Benefits of this Plan.............................. 40
(A) When This Section Applies.................................. 40
(B) Reduction in This Plan's Benefits.......................... 40
4.5. Right to Receive and Release Needed Information.................. 41
4.6. Facility of Payment.............................................. 41
4.7. Right of Recovery................................................ 41
4.8. Multiple Coverage Under This Plan................................ 42
4.9. Special Provisions Applicable to Persons
Eligible for Medicare............................................ 42
(A) Applicability.............................................. 42
(B) Regular Expenses Calculation............................... 42
(C) Major Medical Expenses Calculation......................... 43
(D) Medicare Benefits.......................................... 43
5. TERMINATION OF COVERAGE................................................. 44
5.1. Executives....................................................... 44
5.2. Dependents....................................................... 44
5.3. Handicapped Dependent Child...................................... 45
5.4. Retiree.......................................................... 46
5.5. Continuation of Coverage Related to Pregnancy.................... 46
5.6. Continuation of Coverage Under Certain
Circumstances.................................................... 46
6. CONTINUATION COVERAGE (COBRA)........................................... 48
6.1. Entitlement to COBRA Coverage.................................... 48
(A) Covered as an Executive.................................... 48
(B) Covered as a Dependent Spouse.............................. 48
(C) Covered as a Dependent..................................... 48
6.2. Types of Coverage................................................ 48
6.3. Notice of COBRA Events........................................... 49
6.4. Duration of COBRA Coverage....................................... 49
</TABLE>
(ii)
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<TABLE>
<CAPTION>
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<S> <C>
6.5. Termination of COBRA Coverage.................................... 50
6.6. Cost of COBRA Coverage........................................... 50
6.7. Conversion Health Plans.......................................... 51
6.8. Questions About COBRA Coverage................................... 51
7. LEAVES OF ABSENCE....................................................... 52
7.1. General.......................................................... 52
7.2. Entitlement to Coverage During Family and
Medical Leave.................................................... 52
7.3. Duration of Coverage During Family and Medical
Leave............................................................ 52
7.4. Disqualified Leave and Integration with COBRA.................... 52
8. CONVERSION PRIVILEGE.................................................... 54
8.1. General.......................................................... 54
8.2. Eligibility for Conversion Privilege............................. 54
8.3. Right to Convert................................................. 54
8.4. Restrictions..................................................... 55
8.5. Renewal.......................................................... 56
8.6. Form of Converted Policy......................................... 56
8.7. Premiums......................................................... 56
8.8. Effective Date................................................... 56
8.9. Converted Policy Provisions...................................... 56
9. CLAIMS.................................................................. 58
9.1. Submission of Claims............................................. 58
9.2. Claim Form....................................................... 58
9.3. Time Limit for Claims............................................ 58
9.4. Examination...................................................... 58
9.5. Right to Receive and Release Necessary
Information...................................................... 58
9.6. Payment of Claim................................................. 59
9.7. Direction to Pay/Non-Assignability of
Benefits......................................................... 59
9.8. Medicaid Assignments............................................. 59
9.9. Charges Reported in Foreign Currency............................. 60
9.10. Facility of Payment.............................................. 60
9.11. Right of Recovery................................................ 60
9.12. Subrogation...................................................... 60
(A) Plan's Right to Reimbursement.............................. 60
(B) Covered Person's Agreement To
Subrogation................................................ 61
(C) Limitation To Plan's Subrogation
Rights..................................................... 62
(D) Subrogation Rights Not Affected By
Payment.................................................... 62
(E) Lien on Proceeds........................................... 62
9.13. Review and Appeal of Claim....................................... 63
9.14. Authority of Claims Administrator................................ 63
9.15. Interpretation and Administration................................ 63
</TABLE>
(iii)
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<CAPTION>
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9.16. Legal Actions................................................... 65
9.17. Qualified Medical Child Support Orders.......................... 65
10. GENERAL PROVISIONS...................................................... 66
10.1. Benefits........................................................ 66
10.2. Compliance with Federal Law..................................... 66
10.3. Effective Times................................................. 66
10.4. Errors/Delays................................................... 66
10.5. Entire Contract................................................. 66
10.6. Physical Examination and Autopsy................................ 66
10.7. Termination or Amendment of the Plan............................ 67
10.8. No Replacement for Workers' Compensation........................ 67
10.9. Physician-Patient Relationship.................................. 67
10.10. Representations................................................. 67
10.11. Misstatements of Eligibility Information........................ 67
10.12. Mistake of Fact................................................. 67
10.13. Reliance on Documents and Information........................... 67
10.14. Waiver.......................................................... 68
10.15. Plan Not a Contract of Employment............................... 68
10.16. No Guarantee of Tax Consequences................................ 68
10.17. Severability.................................................... 68
10.18. Construction.................................................... 68
10.19. Governing Law................................................... 69
11. DEFINITIONS............................................................. 70
11.1. Accident........................................................ 70
11.2. Actively at Work or Active Full-Time Work....................... 70
11.3. Administrator................................................... 70
11.4. Benefits........................................................ 70
11.5. Birthing Center................................................. 70
11.6. Board and Room Charges.......................................... 71
11.7. Child........................................................... 71
11.8. Claims Administrator............................................ 72
11.9. COBRA........................................................... 72
11.10. Company......................................................... 72
11.11. Convalescent Facility........................................... 72
11.12. Cover, Covered and Coverage..................................... 72
11.13. Covered Expenses or Covered Medical Expenses.................... 72
11.14. Covered Person.................................................. 73
11.15. Custodial Care.................................................. 73
11.16. Dentist......................................................... 73
11.17. Dependent....................................................... 73
11.18. Diagnosis Related Group (DRG)................................... 74
11.19. DRG Amount...................................................... 74
11.20. Durable Medical Equipment....................................... 74
11.21. Effective Date.................................................. 74
11.22. Effective Treatment of Substance Dependency..................... 74
11.23. Executive....................................................... 75
11.24. ERISA........................................................... 75
11.25. Experimental.................................................... 75
</TABLE>
(iv)
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<S> <C>
11.26. FMLA Leave...................................................... 75
11.27. FMLA Policy..................................................... 75
11.28. Freestanding Surgical Facility.................................. 76
11.29. Health Care Provider............................................ 76
11.30. Home Health Care................................................ 76
11.31. Home Health Care Agency......................................... 77
11.32. Home Health Care Plan........................................... 77
11.33. Hospice Care.................................................... 78
11.34. Hospice Care Agency............................................. 78
11.35. Hospice Care Program............................................ 79
11.36. Hospice Facility................................................ 79
11.37. Hospital........................................................ 80
11.38. Incurred........................................................ 80
11.39. Injury.......................................................... 80
11.40. Intensive Care Unit............................................. 80
11.41. Medical Emergency............................................... 80
11.42. Medicare........................................................ 81
11.43. Medicare Eligibility............................................ 81
11.44. Mental Health Problems.......................................... 81
11.45. Necessary....................................................... 81
11.46. Non-occupational Disease........................................ 82
11.47. Non-occupational Injury......................................... 82
11.48. Obstetric Care.................................................. 82
11.49. Office Visit.................................................... 83
11.50. Orthodontic Treatment........................................... 83
11.51. Period of Hospital Confinement.................................. 83
11.52. Pharmacy........................................................ 83
11.53. Physician....................................................... 83
11.54. Plan............................................................ 84
11.55. Plan Document................................................... 84
11.56. Plan Year....................................................... 84
11.57. Prescription.................................................... 84
11.58. Prescription Drugs.............................................. 84
11.59. Reasonable Charge............................................... 84
11.60. Retiree......................................................... 85
11.61. Sickness........................................................ 85
11.62. Skilled Nursing Care............................................ 86
11.63. Spouse.......................................................... 86
11.64. Substance Dependency............................................ 87
11.65. Surgical Services............................................... 87
11.66. Terminally Ill.................................................. 87
11.67. Total Disability and/or Totally Disabled........................ 87
11.68. Treatment Facility.............................................. 88
11.69. Treatment of a Mental Health Problem............................ 88
</TABLE>
(v)
<PAGE>
LYONDELL PETROCHEMICAL COMPANY
EXECUTIVE MEDICAL PLAN
___________________________
1. ADMINISTRATION OF THE PLAN.
1.1. Purpose. This document sets forth the terms and conditions of the
Plan with respect to the provision of medical benefits, including all
requirements with respect to eligibility, coverage, exclusions and
limitations on coverage and rules pertaining to the administration of
the Plan. This document serves as the Lyondell Petrochemical Company
Executive Medical Plan (the "Plan") and, as such, constitutes a part
of such Plan as fully as if set forth therein. The capitalized terms
set forth herein shall have the meanings assigned to them in Section
11 of the Plan.
1.2. Delegation of Certain Fiduciary Responsibilities. The Claims
Administrator is the named fiduciary under ERISA with respect to all
matters set forth herein as being within the scope of the
responsibilities of the Claims Administrator and, as such, the Claims
Administrator shall exercise complete discretionary power and
authority under the Plan with respect to any such matters, including
but not limited to the authority to make all decisions with respect
to:
(A) the administration, initial determination, review and final
determination of any and all claims for Benefits under the Plan
(including, but not limited to the administration of any claims
procedures required by ERISA), the authorization in writing of
all disbursements and the preparation of all communications to
the Covered Person and other interested parties with respect to
any such claim;
(B) the initial determination of the eligibility of an Executive or
Retiree or a Dependent of an Executive or Retiree to participate
in the Plan, provided that any final determination of
eligibility shall be made by the Administrator;
(C) the construction and interpretation of all terms, provisions,
conditions and limitations of the Plan pertaining to such
determinations that have been delegated to the Claims
Administrator (including but not limited to the definition of
Covered
<PAGE>
Expenses and the determination of the rates at which a Benefit
shall be paid), the reconciliation of any inconsistency or the
supplying of any omitted detail that may appear in the Plan in
such manner and to such extent, consistent with the general
terms of the Plan, as the Claims Administrator shall deem
necessary or appropriate, and the promulgation and enforcement
of such rules and regulations for the administration of the Plan
as are not inconsistent with its terms;
(D) any and all decisions concerning and pursuit of litigation
involving (1) issues pertaining to the denial in whole or in
part of Benefits and the recovery of overpayments of Benefits or
(2) the actions of the employees or agents of the Claims
Administrator; and
(E) any and all powers necessary for the accomplishment of such
purposes as the Claims Administrator, in its discretion, shall
deem necessary or appropriate for the administration of the Plan
in accordance with its terms and for the benefit of Covered
Persons and, for these purposes, the Claims Administrator may
consult with the Administrator.
The Administrator reserves the absolute right and power to make all
final determinations with respect to eligibility of Covered Persons
to participate in any aspect of the Plan and with respect to any
other issue unrelated to payment of claims for Benefits under the
Plan. Any such determination made by the Administrator under the Plan
shall be final, binding and conclusive upon all persons and entities.
2
<PAGE>
2. ELIGIBILITY AND EFFECTIVE DATES.
2.1. Eligibility. Subject to completion of the enrollment requirements of
Section 2.2, each Executive or Dependent shall be eligible to become
a Covered Person on the first date that the Executive enters Active
Full-Time Service with the Company on the Executive payroll. If the
Executive has transferred to the executive payroll from another
Company payroll, the Executive shall be eligible to participate in
this Plan on the date of transfer. A Retiree who was eligible to
participate in the Plan on the date immediately preceding the date of
his retirement from Active Full-Time Service with the Company shall
continue to be eligible to participate in the Plan from and after the
date of his retirement.
Notwithstanding any provision of the Plan to the contrary, to the
extent required by the Omnibus Budget Reconciliation Act of 1993,
P.L. 103-66, a Child who becomes eligible for Coverage under this
Plan as a Dependent by virtue of his adoption or placement for
adoption with an Executive or Retiree shall be eligible to receive
Benefits on the same terms and conditions as apply in the case of any
natural born or adopted Dependent Child and shall not be subject to
preexisting condition limitations.
2.2. Enrollment.
Each Executive or Retiree shall:
(A) Complete an enrollment form approved by the Administrator or its
delegate naming himself and each of his Dependents, if any, to
be Covered;
(B) Agree to make any required contributions (as determined by the
Company); and
(C) Submit the completed form to the Company or its delegate within
31 consecutive days of the date the Executive (or, in the case
of a newly acquired Dependent, the Dependent) becomes eligible
for Coverage.
If the enrollment form is not received within the 31 consecutive day
period immediately following the date the person becomes eligible for
Coverage, or if the Executive or Retiree withdraws from the Plan and
later reenrolls, the Executive or Retiree must submit, at his own
expense, evidence of good health acceptable to the Claims
Administrator.
3
<PAGE>
2.3. Effective Date of Coverage. Subject to the enrollment requirements
and the following provisions of this Section, Coverage shall become
effective on the latest of:
(A) The date the enrollment form is received by the Company or its
delegate;
(B) The date the Executive commences Active Full-Time Work with the
Company on the Executive payroll;
(C) If the Executive transfers to the executive payroll from another
Company payroll, the date of transfer;
(D) If an Executive or Retiree does not submit his enrollment form
within 31 days of becoming eligible for Coverage, the date the
Claims Administrator receives his request for enrollment in the
Plan if the Claims Administrator approves the enrollment; such
approval shall be based on evidence of good health submitted by
the Executive or Retiree and approved by the Claims
Administrator; or
(E) If an Executive is not Actively at Work on the date Coverage
would otherwise commence, the date he returns to Active Full-
Time Work with the Company for one full day.
2.4. Dependents. A Dependent of an Executive or Retiree shall be eligible
for Coverage on the same date the Executive or Retiree is eligible,
subject to the enrollment requirements and except as provided below
in the provisions concerning the effect of a change of status on
Coverage as set forth in the section entitled "Change in Coverage
Procedure". In no event will a Dependent be Eligible for Coverage
when the Executive or Retiree is not a Covered Person under this
Plan, except as provided in (F). No Dependent who is otherwise a
Dependent Child shall be eligible under this Plan if the Dependent is
also eligible as an Executive. A Dependent who is a Dependent Spouse
and an Executive is eligible under this Plan either as an Executive
or as a Dependent. Otherwise, Coverage for Dependent shall begin on
the latest of:
(A) The date the Executive's or Retiree's Coverage begins;
(B) The date the Executive or Retiree, while Covered, acquires the
Dependent, if the Executive or
4
<PAGE>
Retiree is already covered under a class of Coverage which
covers Dependents;
(C) If a Dependent's enrollment form is received by the Company more
than 31 consecutive days after the later of
(1) the date the Executive or Retiree acquired the Dependent or
(2) the date the Executive or Retiree first became eligible for
Coverage,
the date the Company approves his enrollment subject to the
provisions of (D) below; such approval shall be based on
evidence of good health submitted by the Executive or Retiree
and approved by the Claims Administrator.
(D) If a Dependent of an Executive (but not a Dependent of a
Retiree) is confined to a Hospital, Skilled Nursing Facility,
Hospice or Convalescent Facility or other similar facility
because of Injury or Sickness within 31 days of the date when
his Coverage under the Plan would otherwise become effective,
the earlier of (1) the date such Dependent has been free of
confinement for 31 days (including confinement at home) or (2)
the date that satisfactory evidence of good health is approved
by the Claims Administrator.
(E) If an Executive or Retiree is changing Coverage under Section
2.6 to a class of Coverage which covers Dependents, the later of
(1) the date the Dependent is acquired or (2) the date the
enrollment change form is received.
(F) If a Dependent Spouse of an Executive would be eligible as an
Executive under this Plan, and the Executive ceases to be
eligible, the Dependent Spouse may enroll as an Executive, if
not so enrolled, within 31 days from the time the Executive's
eligibility ceased without evidence of good health acceptable to
the Claims Administrator.
2.5. COBRA and Non-COBRA Coverage Under The Plan. If, on the day
immediately prior to the date on which a person becomes Covered under
the Plan because of his status as an Executive, Retiree or Dependent,
that person is enrolled in the Plan through the exercise of his
rights to continuation coverage under COBRA, then
5
<PAGE>
(A) the person's change in enrollment from COBRA Coverage to Coverage as
an Executive, Retiree or Dependent shall not be deemed to result in a
new effective date of Coverage for that person; and
(B) any limitations on Benefits set forth in this Plan shall apply
to all Covered Medical Expenses payable during the Plan Year
without regard to whether the Covered Medical Expenses were
incurred during the period when the Covered Person was enrolled
as a result of the exercise of his COBRA rights or during the
period of his enrollment as an Executive, Retiree or Dependent.
2.6. Change in Coverage Procedure.
A Covered Executive or Retiree may elect to change his level of
Coverage by notifying his Human Resources representative within 31
days of the date a Dependent is lost or acquired, subject to all
relevant terms and conditions of the Plan, including those set forth
above in the sections governing the effective dates of Coverage.
6
<PAGE>
3. COVERAGE.
3.1. Claims Administrator. Benefits payable for Covered Medical Expenses
are described in this Section 3 of the Plan and are administered by
the Claims Administrator.
3.2. Percentages Payable. The Plan shall pay Benefits at 100% of
Reasonable Charges, unless otherwise provided. Benefits shall be
paid after satisfaction of all terms, conditions and limitations of
this Plan. Only charges that, in the opinion of the Claims
Administrator, are Reasonable Charges will be considered as Covered
Medical Expenses for which reimbursement may be obtained.
Coverage at 100 percent shall not apply to expenses for which
Benefits are payable under any other "plan," as defined in the
section entitled "Coordination of Benefits." For such expenses, the
Plan shall not pay more than a reduced amount which, when added to
Benefits payable under the Coordination of Benefits section, will not
exceed 100% of Reasonable Charges covered under this Plan.
3.3. Lifetime Maximum Benefit Amount. The total amount of aggregate
Benefits available under Sections 3.5, 3.6 and 3.7 for a Covered
Person during his lifetime is $1,000,000.00. It may be reinstated in
full when $1,000 or more is charged against it, if evidence of good
health acceptable to the Claims Administrator is provided at the
Covered Person's expense. The Covered Person must initiate this
process.
On each January 1, the amount charged against a Covered Person's
Lifetime Maximum Benefit will be automatically restored, but by not
more than $1,000, unless otherwise authorized by the Administrator.
The Plan will not provide benefits for Covered Medical Expenses under
Sections 3.5, 3.6 and 3.7 that otherwise exceed the Lifetime Maximum
Benefit and are Incurred before the date the Lifetime Benefit Maximum
is reinstated or restored.
3.4. Covered Medical Expenses - Regular Expenses.
Covered Medical Expenses under this Section 3.4 shall mean the
following Reasonable Charges, as specified below, Incurred for a
Covered Person while that person is Covered under the Plan:
7
<PAGE>
(A) Hospital Expenses
If a Covered Person becomes confined in a Hospital because of a
disease or Injury, the Plan will pay the following Benefits:
(1) Board and Room Benefits--A Benefit equal to 100% of the
-----------------------
Reasonable Charges the Hospital makes for board and room,
but not to exceed the daily Board and Room Charge for each
day of confinement for which charges are made. No Benefit
is payable for any days of confinement exceeding 365 days
during one Period of Hospital Confinement.
(2) Miscellaneous Benefits--A benefit equal to 100% of the
----------------------
following charges:
(a) Reasonable Charges made by the Hospital in its own
behalf for services and supplies furnished in direct
treatment of the Covered Person, including (i) use of
operating, delivery, recovery and treatment rooms; (ii)
drugs and dressings; (iii) x-ray and laboratory tests
and x-ray and radiation therapy while confined in the
Hospital; (iv) administration of blood and blood plasma
by a member of the Hospital Staff and (v) physiotherapy
and hydrotherapy. Miscellaneous charges specifically
exclude Board and Room Charges, and private or special
nursing services, whether or not furnished under
Hospital direction.
(b) Reasonable Charges made by an agency or a Hospital for
professional ambulance service when used to transport
the Covered Person, when Necessary.
(c) Reasonable Charges made by a Physician who is a member
of the Hospital Staff or who is an anesthesiologist who
is not a member of the Hospital Staff for
administration of anesthesia other than local
infiltration anesthesia to the Covered Person, but only
if the Physician is not the operating Physician or his
assistant.
8
<PAGE>
(3) Limitations. Miscellaneous Benefits are payable only for
-----------
Reasonable Charges Incurred during a period for which
benefits for Board and Room Charges are payable, unless the
only Hospital charge is for any one of the following:
(a) Services furnished on the day of and in connection with
a surgical procedure.
(b) Emergency treatment for an injury furnished within
ninety-six hours of the injury.
(c) Emergency treatment for a medical emergency furnished
within ninety-six hours of the onset of the medical
emergency.
No Benefits shall be paid under subsections (1) and (2) for
charges associated with a routine vasectomy.
(B) Convalescent Facility Expenses
If a Covered Person becomes confined in a Convalescent Facility,
the Plan will pay a Benefit equal to 100% of the Reasonable
Charges made by the facility in its own behalf, except as
limited below, for the following services and supplies furnished
by the facility to the Covered Person for use during the
confinement and for convalescing from the disease or Injury
causing the confinement:
(1) Board and room, but not to exceed the daily Board and Room
Charge.
(2) Use of special treatment rooms.
(3) X-Ray and laboratory examinations.
(4) Physical, occupational and speech therapy.
(5) Oxygen and other gas therapy.
(6) Other medical services customarily provided by Convalescent
Facilities, but not private duty or special nursing
services, or Physicians' services.
(7) Medical Supplies.
9
<PAGE>
Limitations
-----------
The maximum Benefit payable for each day of Convalescent
Facility confinement is the Reasonable Charge made by the
facility, excluding, however, any charge which exceeds the daily
Board and Room Charge for each day of confinement for which
charges are made. No Benefit is payable under this section for
any days of a particular confinement in excess of 30 days.
Any Benefit payable as to a confinement in a distinct part of an
institution which meets the definition of Convalescent Facility
and also the definition of Hospital will be payable in
accordance with this section rather than any Hospital Expenses
section.
No Benefit will be payable for care for (i) Substance
Dependency; (ii) chronic brain syndrome; (iii) mental
retardation; (iv) senile deterioration; or (v) Mental Health
Problems.
(C) Preoperative Testing Expenses
If a Covered Person Incurs Preoperative Testing Expenses, the
Plan will pay a Benefit in an amount equal to the Reasonable
Charge for expenses, except as limited below.
(1) Preoperative Testing Expenses--Reasonable Charges made by a
-----------------------------
Physician, Hospital, surgery center, or licensed diagnostic
laboratory facility, in its own behalf, for outpatient
testing prior to scheduled surgery, but only if:
(a) the tests are related to the scheduled surgery;
(b) the tests are done within the 14 days prior to the
scheduled surgery or confinement as an inpatient. If
the surgery or confinement occurs after 14 days the
tests will be covered only if they are still medically
useful.
(c) the Covered Person undergoes the scheduled surgery in a
Hospital or surgery center. This does not apply if the
tests show that the surgery should
10
<PAGE>
not be done because of the Covered Person's physical
condition;
(d) the charges for the surgery are a Covered Medical
Expense under this Plan;
(e) the tests are done while the Covered Person is not
confined as an inpatient in a Hospital;
(f) the charges for the tests would have been Covered if
the Covered Person was confined as an inpatient in a
Hospital;
(g) the test results appear in the Covered Person's medical
record kept by the Hospital or surgery center where the
surgery is to be done; and
(h) the tests are not repeated in or by the Hospital or
surgery center where the surgery is done.
(2) Post-Admission Testing Expenses--The Reasonable Charges
-------------------------------
made by a Hospital, in its own behalf, for tests provided
to a Covered Person on an out-patient basis within 14 days
after discharge from Hospital, which are a follow-up to the
condition that caused the confinement.
(3) Limitations--No benefit will be payable, under this
-----------
section, if a Covered Person cancels the scheduled surgery
or under any other section for charges Incurred for which a
Benefit is payable under this section.
(D) Surgical Expenses
If any Surgical Services of this Plan are rendered to a Covered
Person by a Physician for diagnosis or treatment of a disease or
Injury, the Plan will pay a Benefit equal to 100% of the
Reasonable Charge by the Physician for the Surgical Services,
except as provided in (2).
(1) Surgical Assistance Services--The professional services of
----------------------------
a Physician in rendering technical surgical assistance to
the operating Physician in connection with Surgical
Services for which Benefits are payable under this Surgical
Expenses section,
11
<PAGE>
but only if both of the following tests are met:
(a) The Surgical Services are rendered while the Covered
Person is confined in a Hospital as an inpatient.
(b) The Surgical Services are rendered at a time when, as
determined by the Claims Administrator, surgical
assistance services are not routinely available as a
service provided by the Hospital's interns, residents
or house officers.
(2) This Plan will pay a Benefit equal to 100% of the
Reasonable Charge for (i) Surgical Services for
circumcision performed by a Physician and (ii) lawfully
performed voluntary sterilization procedures (tubal
ligation and vasectomy).
(3) Limitations--No Benefit will be payable for:
-----------
(a) Postoperative care in connection with a surgical
procedure after the end of the longer of (i) the 14 day
period following the procedure or (ii) the period of
Hospital confinement during which the procedure is
performed.
(b) Diagnostic x-ray or laboratory services, x-ray or
radioactive therapy, or drugs or medicines.
(c) Dental work and oral surgery of or related to
conditions of the teeth, mouth, jaws, jaw joints or
supporting tissues, except surgery needed to
(i) Cut out:
- teeth partly or completely impacted in the
bone of the jaw;
- teeth that will not erupt through the gum;
- other teeth that cannot be removed without
cutting bone;
- the roots of a tooth without removing the
entire tooth.
12
<PAGE>
(ii) Cut into the gums and tissues of the mouth when
not done in connection with the removal or repair
of teeth.
(iii) Cut out cysts or tumors
(iv) Treat a fracture, dislocation or wound.
(v) Alter the jaw, jaw joints, or bite relationships
by a cutting procedure when appliance therapy
alone cannot result in functional improvement.
In-mouth scaling, planing or scraping, root canal
therapy and dental cleaning are not Covered.
A dentist is considered to be a Physician for purposes
of Covered oral surgery
(d) Cosmetic surgery, other than charges for Surgical
Services Necessary for the prompt repair of an Injury
resulting from an accident.
(E) Birthing Center Expenses
If, because of a pregnancy, a Covered Person incurs Birthing
Center Expenses, the Plan will pay a Benefit equal to the
Reasonable Charge for such expenses.
(1) Birthing Center Expenses: These are the charges made by a
------------------------
Birthing Center, in its own behalf, for services and
supplies furnished to a Covered Person for:
(a) Prenatal care;
(b) Delivery of a child or children;
(c) Postpartum care rendered within 24 hours after the
delivery in connection with a normal delivery.
(2) Limitations: No Benefit will be paid for charges Incurred
-----------
in connection with a pregnancy for which pregnancy-related
expenses are not Covered.
13
<PAGE>
(F) Laboratory And X-Ray Expenses
If Laboratory or X-Ray Services, as defined below, are rendered
to a Covered Person to diagnose a disease or Injury, the Plan
will pay a Benefit equal to the Physician's Reasonable Charge for
the services.
(1) Laboratory and X-Ray Services--Any laboratory or x-ray
-----------------------------
examination made for diagnostic purposes, including the
service of a Physician in rendering or interpreting the
examination.
(2) Limitations--No Benefit will be payable for:
-----------
(a) An examination made in or through a Hospital, except an
examination made in connection with outpatient care for
which no other Benefit is payable under this Plan.
(b) Any dental x-ray except in connection with an Injury or
oral surgery for which a Benefit is payable under the
Surgical Expense Benefits section. A dentist is
considered to be a Physician for purposes of Covered
dental x-rays.
(c) Routine mammograms, other than one routine screening by
mammography for the presence of occult breast cancer
each calendar year for a female Covered Person age 35
or over.
(G) In-Hospital Physician Expenses
If a Physician renders medical treatment for a disease or Injury
to a Covered Person while the Covered Person is confined as an
inpatient in a Hospital or Convalescent Facility, the Plan will
pay a Benefit equal to 100% of the Physician's Reasonable
Charges.
(1) Limitations--No Benefit will be payable
-----------
(a) For treatment rendered during any Period of Hospital
Confinement which exceeds 365 days, if the Covered
Person is in a Hospital, or treatment rendered after 30
days if the Covered Person is in a Convalescent
Facility.
14
<PAGE>
(b) For any services for which Benefits are payable under
any Surgical Expenses section of this Plan, for dental
work or treatment, eye examinations or the fitting of
glasses, diagnostic x-rays, laboratory services, x-ray
or radioactive therapy, drugs or medicines, the
administering of an anesthetic, technical surgical
assistance rendered to an operating Physician, or
consultations, or
(c) For treatment rendered to a Covered Person during any
confinement which began before this section became
applicable to the Covered Person.
(H) In-Hospital Consultation Expenses
If Consultation Services, as described below, are rendered to a
Covered Person by a Physician in connection with diagnosis or
treatment of a disease or Injury, the Plan will pay a Benefit
equal to 100% of the Reasonable Charge by the Physician for the
services.
(1) Consultation Services--Consultations by a Physician, at the
---------------------
request of the Physician who is treating the Covered Person
while the Covered Person is confined as an inpatient in a
Hospital. A "consultation" means a review of the Covered
Person's medical history and the results of x-rays and
laboratory examinations, an examination of the Covered
Person and a written report by the consulting Physician if
requested by the Physician treating the Covered Person.
(2) Limitations. No Benefit will be payable for
-----------
(a) Any staff consultation required by Hospital rules or
regulations.
(b) Any consultation in connection with dental work or
treatment, routine eye examinations or the fitting of
glasses.
(c) Any consultation during a period of Hospital
confinement that began before this section became
applicable to the Covered Person.
15
<PAGE>
(I) Emergency Medical Physician Expenses
If any emergency medical service is rendered to a Covered Person
by a Physician for the initial treatment of any medical emergency
or Injury, and if no other Benefit is payable for the service
under this Plan (excluding Benefits payable under any Major
Medical Expenses section), the Plan will pay a Benefit equal to
100% of the Reasonable Charge by the Physician for the service.
(1) Limitations. No Benefit will be payable
-----------
(a) In connection with Surgical Services, whether or not
Benefits are payable under this Plan, or for treatments
rendered on or after the date the Surgical Service is
provided by Physicians who performed the procedure.
(b) For dental work or treatment, eye examinations or
fitting of glasses, diagnostic x-rays, drugs or
medicines.
(c) For services rendered while the Covered Person is
confined to a Hospital as an inpatient.
(d) For services rendered more than 96 hours following the
onset of the medical emergency.
(e) For services rendered more than 96 hours following the
accident which causes an injury.
3.5. Covered Medical Expenses - Major Medical Expenses Associated with
Injury or Disease.
Covered Medical Expenses under this Section 3.5 shall mean the
following Reasonable Charges, as specified below, for treatment of an
Injury or disease Incurred for a Covered Person while that person is
Covered under the Plan.
If Covered Medical Expenses, in excess of Benefits payable for such
expenses under any other section of this Plan, are Incurred (i) during
a calendar year and (ii) for treatment of a Covered Person, the Plan
will pay a Benefit equal to the 100% of the Reasonable Charge of the
excess, unless a different level of Benefits is provided for specified
expenses in Covered Medical
16
<PAGE>
Expenses or Limitations. However, not more than the 100% of the
Reasonable Charge is payable for all expenses as to a Covered Person
during his lifetime regardless of any interruption in coverage.
Benefits payable under this Section are subject to the Lifetime
Maximum Benefit Amount provisions of Section 3.3.
(A) Hospital Expenses
The Board and Room Charges a Hospital makes in its own behalf for
days of confinement in excess of 365 days during a Period of
Hospital Confinement and other Hospital services. Hospital
expenses exclude charges which exceed the daily Board and Room
Charge for each day of confinement for which charges are made.
(B) Convalescent Facility Expenses
The Reasonable Charges a Convalescent Facility makes in its own
behalf for the following Necessary services and supplies
furnished by the facility to a Covered Person while the Covered
Person is confined in the facility, after the 30th day of a
particular convalescence from the disease or Injury causing the
confinement.
(1) Board and Room Charges exclude, however, any charge which
exceeds the daily Board and Room Charge for each day of
confinement for which charges are made.
(2) Use of special treatment rooms.
(3) X-ray and laboratory examinations.
(4) Physical, occupational and speech therapy.
(5) Oxygen and other gas therapy.
(6) Other medical services customarily provided by Convalescent
Facilities, but not private duty or special nursing
services, or Physicians' services.
(7) Medical Supplies.
Convalescent Facility Expenses will not be included as Covered
Medical Expenses if they are Incurred in connection with care for
(i) Substance
17
<PAGE>
Dependency; (ii) Chronic brain syndrome; (iii) Mental
retardation; (iv) Senile deterioration; or (v) Mental Health
Problems.
(C) Freestanding Surgical Expenses.
Reasonable Charges for an approved Freestanding Surgical
Facility.
(D) Home Health Care Expenses
The Reasonable Charges made by a Home Health Care Agency for the
following services and supplies furnished to a Covered Person in
the Covered Person's home in accordance with a Home Health Care
Plan.
(1) Part-time or intermittent nursing care by a registered
graduate nurse (R.N.) or by a licensed practical nurse
(L.P.N.), if the services of a registered graduate nurse
(R.N.) are not available.
(2) Part-time or intermittent home health aide services which
consist primarily of caring for the Covered Person.
(3) Physical therapy, occupational therapy, and speech therapy.
(4) Medical supplies, drugs and medicines prescribed by a
Physician, and laboratory services provided by or on behalf
of a Home Health Care Agency, but only to the extent that
such charges would have been covered under this policy if
the Covered Person had been confined in a Hospital or
Convalescent Facility.
The maximum number of home health care visits to a Covered
Person's home that will be covered in any one calendar year is
120 visits. Each visit by a registered graduate nurse (R.N.) or
licensed practical nurse (L.P.N.) to provide nursing care, by a
therapist to provide physical, occupational, or speech therapy,
and each visit of up to 4 hours by a home health aide, will be
considered as one visit.
Home Health Care Expenses will not be included as Covered Medical
Expenses if they are Incurred in connection with any of the
following:
18
<PAGE>
(1) Services or supplies not specified in the Home Health Care
Plan, or if specified, furnished while the Covered Person is
not under the continuing care of a Physician.
(2) Services of a person who ordinarily resides in the Executive
or Retiree's home or is a member of the family of either the
Executive or Retiree's wife or husband.
(3) Services of any social worker.
(4) Transportation services.
(5) Custodial care.
(E) Hospice Care Expenses
The Reasonable Charges made for the following furnished to a
Covered Person for Hospice Care when given as a part of a Hospice
Care Program:
(1) Facility Expenses--The Reasonable Charges made in its own
-----------------
behalf by a Hospice Facility, Hospital, or Convalescent
Facility which are for Board and Room Charges and other
services and supplies furnished to a Covered Person while a
full-time inpatient for (a) pain control; and (b) other
acute and chronic symptom management.
Benefits for Board and Room Charges shall be payable at the
private or semi-private room rate used by the Hospice
Facility, as approved by the Claims Administrator.
(2) Other Expenses--Reasonable Charges made by a Hospice Care
--------------
Agency for:
(a) Part-time or intermittent nursing care by a registered
nurse (R.N.) or licensed practical nurse (L.P.N.) for
up to 8 hours in any one day.
(b) Medical social services under the direction of a
Physician, which include:
(i) assessment of the Covered Person's social,
emotional and medical needs, and the home and
family situation;
19
<PAGE>
(ii) identification of the community resources which
are available to the Covered Person; and
(iii) assisting the Covered Person to obtain those
resources needed to meet the Covered Person's
assessed needs.
(c) Psychological and dietary counseling.
(d) Consultation or case management services by a
Physician.
(e) Physical and occupational therapy.
(f) Part-time or intermittent home health aide services,
for up to 8 hours in any one day, which consist mainly
of caring for the Covered Person.
(g) Medical supplies, drugs, and medicines prescribed by a
Physician.
(3) Reasonable Charges made by the Health Care Providers below,
but only if the Health Care Provider is not an employee of a
Hospice Care Agency and such Agency retains responsibility
for the care of the Covered Person.
(a) A Physician for consultant or case management services.
(b) A physical or occupational therapist.
(c) A Home Health Care Agency for:
(i) physical or occupational therapy;
(ii) part-time or intermittent home health aide
services, for up to 8 hours in any one day, which
consist mainly of caring for the Covered Person;
(iii) medical supplies, drugs and medicines prescribed
by a Physician; or
(iv) psychological and dietary counseling.
20
<PAGE>
(4) Limitations--Hospice Care Expenses exclude charges for:
-----------
(a) bereavement counseling;
(b) funeral arrangements;
(c) pastoral counseling;
(d) financial or legal counseling (including estate
planning or the drafting of will);
(e) homemaker or caretaker services, which are not solely
related to care of the Covered Person, including:
(i) sitter or companion services for either the
Covered Person who is ill or other members of the
Covered Person's family;
(ii) transportation;
(iii) housecleaning; and
(iv) maintenance of the house;
(f) respite care, which is care furnished during a period
of time when the Covered Person's family or usual
caretaker cannot, or will not, attend to Covered
Person's needs.
(F) Dental Expenses Related to Accidents
Reasonable Charges for dental expenses or oral surgery performed
by a Physician or legally qualified dentist, subject to the
limitations of Section 3.9(A)(1)(c), and required for prompt
repair of natural teeth, otherwise in good repair, or of other
dental tissue damaged in an accident.
(G) Certain Medical Expenses Related to Accidents
Reasonable Charges for non-surgical medical expenses incurred in
connection with Surgical Services considered as cosmetic surgery,
when such Surgical Services are required for prompt repair of an
Injury resulting from an accident.
3.6. Covered Medical Expenses - Major Medical Expenses Not Associated with
Injury or Disease.
Covered Medical Expenses under this Section 3.6 shall mean the
following Reasonable Charges, as specified
21
<PAGE>
below, Incurred for a Covered Person while that person is Covered
under the Plan, even though the charges are not incurred in connection
with an Injury or disease:
Benefits payable under this section are subject to the Lifetime
Maximum Benefit Amount provisions of Section 3.3.
(A) Physical Exam Expenses
Reasonable Charges made by a Physician for a routine physical
examination to a Covered Person who is an Executive or Retiree,
an Executive or Retiree's Dependent Spouse, or Dependent Child. A
routine physical examination is a medical examination given by a
Physician for a reason other than to diagnose or treat a
suspected or identified Injury or disease. X-rays, laboratory and
other tests given in connection with the examination are included
as part of the examination.
(1) A Physician's physical examination for a Dependent Child
must include at least:
(a) a review and written record of the Dependent Child's
complete medical history;
(b) a check of all body systems; and
(c) a review and discussion of the examination results with
the Dependent Child or with the parent or guardian.
A physical examination may also include the materials for
and the administration of immunizations for infectious
disease and testing for tuberculosis.
Covered Medical Expenses for all physical examinations given
to Dependent Child under age 6 will not include charges for:
(a) more than six examinations in the first year of the
Dependent Child's life.
(b) more than one examination in each following year of the
Dependent Child's life.
22
<PAGE>
(2) No more than $750.00 will be paid for all physical
examinations given to an Executive or Retiree, an Executive
or Retiree's Dependent Spouse or an Executive or Retiree's
Dependent Child in a calendar year.
(3) Limitations. No Benefit will be payable for:
-----------
(a) services which are Covered to any extent under any
other section of this Plan; or under any other group
plan sponsored by the Company;
(b) services which are for diagnosis or treatment of a
suspected or identified Injury or disease;
(c) examinations given while the Covered Person is confined
in a Hospital or other facility for medical care;
(d) services not performed by a Physician or under his
direct supervision;
(e) medicines, drugs, appliances, equipment or supplies;
(f) psychiatric, psychological, personality or emotional
testing or examinations;
(g) examinations in any way related to employment;
(h) premarital examinations;
(i) hearing or dental examinations; or
(j) a Physician's office visit in connection with
immunizations or testing for tuberculosis, unless
provided under (1) above.
(B) Mental Health Problem Expenses
(1) Seventy five percent of the Reasonable Charges for
psychiatric care rendered by a Physician for Treatment of a
Mental Health Problem where the Covered Person is not
confined in a Hospital or other facility.
23
<PAGE>
(2) Seventy five percent of Reasonable Charges for drugs
prescribed by a Physician for Treatment of a Mental Health
Problem.
(C) Other Medical Expenses
Any of the following Reasonable Charges which have not been
included under any other category of medical expenses described
in this section:
(1) Reasonable Charges made by a Physician for visits to a
Covered Person in a Hospital which occur more than 365 days
after the beginning of period of Hospital Confinement or to
a Covered Person in a Convalescent Facility after 30 days.
(2) Reasonable Charges for treatment by a Physician where a
Covered Person is not confined in a Hospital or Convalescent
Facility, or treatment rendered more than ninety six hours
after an Injury or medical emergency occurs.
(3) Reasonable Charges for skilled nursing care as required by a
Physician made by a registered nurse (R.N.), licensed
practical nurse (L.P.N.) under the supervision of an R.N. or
nursing agency, other than an R.N., L.P.N. or employee of a
nursing agency related to the Executive or the Executive's
Dependents. As used here, "skilled nursing care" means these
services:
(a) Visiting nursing care by an R.N. or L.P.N. Visiting
nursing care means a visit of not more than 2 hours for
the purpose of performing specific skilled nursing
tasks.
(b) Private duty nursing by an R.N. or L.P.N. if the
Covered Person's Physician has authorized private duty
nursing or skilled nursing services due to the Covered
Person's condition, visiting nursing care is not
adequate, and private duty nursing is Necessary.
24
<PAGE>
"Skilled nursing care" does not include:
(a) that part or all of any nursing care that does not
require the skills of an R.N.; and
(b) any nursing care, given while the Covered Person is an
inpatient in a health care facility, that could safely
and adequately be furnished by the facility's general
nursing staff if it were fully staffed.
(4) Reasonable Charges for post operative office visits with a
Physician who provided Surgical Services, where the visits
occur more than 14 days after the surgical procedure or the
period of Hospital Confinement during which the procedure
was performed, whichever is later.
(5) Reasonable Charges for:
(a) Drugs and medicines which by law require a Physician's
prescription or which do not require a Physician's
prescription but are ordered by a Physician.
(b) Diagnostic x-ray and laboratory examinations while a
Covered Person is not confined in a Hospital, including
associated Physician's charges, but excluding those
examinations performed in connection with routine
physical examinations and dental x-rays.
(c) X-ray, radium and radioactive isotopes therapy.
(d) Anesthesia and oxygen.
(e) Rental or purchase of Durable Medical Equipment.
(f) Initial external breast prostheses, the initial bra
designed exclusively for use with the prostheses, or
the charges for internal prostheses, which are
Necessary following the mastectomy; artificial limbs
and eyes, but not orthopedic shoes or other supportive
devices for the feet.
25
<PAGE>
(g) A hearing aid when first acquired following inner ear
surgery or when required to correct an impairment
caused by a Non-occupational Injury; except that
(i) charges for hearing aids obtained more than one
year following the surgery or Injury will not be
considered Covered Medical Expenses, and
(ii) Covered Medical Expenses for eyeglass-type
hearing aids will be limited to charges for a
comparable device of standard design.
(h) Initial set of eyeglasses and/or contact lenses
Incurred as a result of cataract surgery when
prescribed by the attending Physician.
3.7. Treatment of Substance Dependency.
Benefits payable under this Section are subject to the Lifetime
Maximum Benefit Amount provisions of Section 3.3.
(A) Inpatient Confinement Expenses
(1) General.
-------
These provisions concerning inpatient confinement for
Effective Treatment of Substance Dependency apply only to
confinements resulting from diagnosis or recommendation by a
Physician and only to Reasonable Charges for expenses to the
extent that they are for treatment recognized by the medical
profession as appropriate methods of Effective Treatment of
Substance Dependency in accordance with broadly accepted
standards of medical practice, taking into account the
current condition of the Covered Person. For the purposes of
this section, a full-time confinement in a Treatment
Facility will be considered a Hospital Confinement, but only
to the extent Covered by (3) and while Benefits are payable
for the confinement under this section.
26
<PAGE>
(2) Inpatient Hospital Expenses
---------------------------
If a Covered Person is confined as an inpatient in a
Hospital solely for treatment of the medical complications
of Substance Dependency (such as cirrhosis of the liver,
delirium tremens or hepatitis), or if, for Effective
Treatment of Substance Dependency, a Covered Person is
confined as an inpatient in a Hospital that does not have a
section which is a Treatment Facility, any such confinement
is Covered for Hospital Expenses to the same extent as any
other disease Covered under Section 3.4(A).
(3) Inpatient Treatment Facility Expenses
-------------------------------------
Confinement as a full-time inpatient in a Treatment Facility
approved by the Claims Administrator for Effective Treatment
of Substance Dependency will also be Covered as any other
disease or Injury under Section 3.4(A). Confinement for
Effective Treatment of Substance Dependency in a Treatment
Facility will be Covered under this Plan only as provided in
this Section.
(4) The Plan will pay a Benefit of 100% of the Reasonable Charge
of conjoint therapy or family consultations when Necessary
for the Effective Treatment of Substance Dependency, if the
therapy occurs while the Covered Person is confined in a
Hospital or Treatment Facility for which Benefits are
payable under this subsection (A), or while enrolled in a
day care or night care program for which Benefits are
payable for partial confinement under subsection (B).
(B) Outpatient Expenses
(1) General
-------
These provisions apply only to Effective Treatment of
Substance Dependency resulting from diagnosis or
recommendation by a Physician and only to expenses for
Reasonable Charges to the extent that they are recognized by
the medical profession as appropriate methods of Effective
Treatment of Substance Dependency in accordance with broadly
accepted standards of medical
27
<PAGE>
practice, taking into account the current condition of the
Covered Person.
(2) Outpatient Expenses--If, for Effective Treatment of
-------------------
Substance Dependency (including group, family or individual
counseling), expenses are incurred by a Covered Person for
Reasonable Charges for services and supplies made by a
Hospital or Treatment Facility, while the Covered Person is
partially confined or is not confined in a Hospital or
Treatment Facility, the following expenses, subject to the
limitations of (3) below, will be deemed to be Covered
Medical Expenses payable at 100% of Reasonable Charges:
(a) Hospital Charges for day or night care programs while
the Covered Person is partially confined;
(b) Non-Hospital Treatment Facility charges for day or
night care programs, if determined to be Necessary by
the Claims Administrator, while the Covered Person is
partially confined;
(c) Physician's charges directly relating to a program of
Effective Treatment for Substance Dependency while the
Covered Person is partially confined;
(d) Hospital or Treatment Facility charges for
(i) services of a Physician, psychologist, nurse,
certified addictions counselor and trained staff
services;
(ii) rehabilitation therapy and counseling;
(iii) family counseling and intervention;
(iv) psychiatric, psychological and medical laboratory
tests;
(v) drugs and medicines; and
(vi) equipment use and supplies while the Covered
Person is an outpatient.
28
<PAGE>
3.8. Limitations and Exclusions-General.
Covered Medical Expenses shall not include charges for or related to
any of the following:
(A) Charges for services or supplies not deemed Necessary.
(B) Charges for services or supplies which any school system is
required to provide under any law.
(C) Charges for care, treatment, services or supplies that are not
prescribed, recommended, and approved by the Covered Person's
attending Physician or dentist.
(D) Charges for procedures, services, drugs and other supplies that
are, as determined by the Claims Administrator, experimental or
still under clinical investigation by health professionals.
(E) Charges for services of a resident Physician or intern rendered
in that capacity.
(F) Charges that the Claims Administrator determines are not
Reasonable.
(G) Charges that are made only because there is insurance.
(H) Charges that a Covered Person is not legally obliged to pay.
(I) Charges that the Claims Administrator determines are for
Custodial Care.
(J) Charges for services and supplies furnished, paid for, or for
which Benefits are provided or required by reason of the past or
present service of any individual in the armed forces of a
government or under any law of a government, including workers'
compensation laws. This does not include a plan established by a
government for its own employees or their dependents or Medicaid.
(K) Charges for or related to eye surgery mainly to correct
refractive errors.
(L) Charges for education, special education, or job training whether
or not given in a facility that also provides medical or
psychiatric treatment.
29
<PAGE>
(M) Charges for plastic surgery, reconstructive surgery, cosmetic
surgery, or other services and supplies which improve, alter, or
enhance appearance, whether or not for psychological or emotional
reasons, except to the extent needed to:
(1) Improve the function of a part of the body that is not a
tooth or structure that supports the teeth.
(2) Improve the function of a part of the body that is malformed
as the result of a severe birth defect (including harelip or
webbed fingers or toes) or as a direct result of disease or
surgery performed to treat the disease or Injury.
(3) Repair an Injury which occurs while the Covered Person is
Covered under this policy. Surgery must be performed in the
calendar year of the accident which causes the Injury or in
the next calendar year.
(N) Charges that are for therapy, supplies or counseling for sexual
dysfunction or inadequacies.
(O) Charges for or related to sex change surgery or any treatment of
gender identity disorders.
(P) Charges for or related to artificial insemination, in-vitro
fertilization, GIFT, or embryo transfer procedures, or for or
related to the pregnancy of a surrogate mother.
(Q) Charges for the reversal of a sterilization procedure.
(R) Charges as an inpatient for a vasectomy.
(S) Charges for routine dental exams, hearing exams, immunizations,
or other preventive services and supplies.
(T) Charges for or in connection with marriage, family, child,
career, social adjustment, pastoral, of financial counseling
services.
(U) Charges for or related to the treatment of obesity or for diet or
weight control which have not been approved by the Claims
Administrator.
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(V) Charges for Treatment of a Mental Health Problem through (1)
primal therapy; (2) Rolfing; (3) psychodrama; (4) megavitamin
therapy; (5) bioenergetic therapy; (6) vision perception
training; (7) carbon monoxide therapy; or related therapies or
treatment.
(W) Charges for acupuncture therapy, except acupuncture performed by
a Physician and used as a anesthesia in connection with surgery
that is covered under this Plan.
(X) Charges for or in connection with speech therapy, except speech
therapy that is expected to restore speech to a Covered Person
who has lost an existing speech function (the ability to express
thoughts, speak words, and form sentences) as the result of a
disease or Injury.
(Y) Charges for organ and tissue transplants except as follows:
(1) Surgical procedures performed for the purposes of
transplanting a heart, lung, kidney, cornea or liver or for
transplanting bone marrow in the treatment of leukemia.
However, if the procedure relates to a liver transplant, the
Claims Administrator must first determine whether the
procedure is Necessary based on the Covered Person's medical
condition.
(2) If a surgical procedure is performed on a Covered Person to
transplant a body organ or tissue to another individual due
to the disease or Injury of that individual, the hospital,
surgical and medical expenses of the Covered Person will be
considered Covered Medical Expenses as if incurred for
treatment of the donor for a disease or Injury.
(3) If a surgical procedure is performed on a Covered Person to
treat the Covered Person's disease or Injury by
transplanting a body organ or tissue from a living person
who is not a Covered Person
a. the Hospital, surgical and medical expenses of the
donor will not be considered Covered Medical Expenses,
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b. the Hospital, surgical and medical expenses of the
Covered Person will be considered Covered Medical
Expenses.
No benefits are payable for:
(1) Expenses Incurred by the donor or recipient of an organ or
tissue transplant who is not a Covered Person if that person
is Covered under another plan of group medical Coverage.
(2) Expenses incurred for transplants which are not Necessary.
Any general exclusion or limitation will not apply if Coverage is
specifically provided by name in a separate provision or section of
this Plan or Coverage of the charge is required under any law that
applies to the Coverage.
Before determining Benefits under any section, the amount related to
the preceding charges will be deducted from the Covered Person who is
Covered under that section and, if this Plan contains a Coordination
of Benefits With Other Plans, the amount of the preceding charges will
not be included as Allowable Expenses.
No Benefits are payable under this Plan to the extent that the
provision of Benefits is prohibited by any law of the jurisdiction in
which the Covered Person resides at the time claim is incurred.
3.9. Limitations and Exclusions - Major Medical Expenses. The following
limitations and exclusions shall apply in determining Covered Medical
Expenses for those services or charges listed in this Section 3.9.
(A) Mouth, Jaws and Teeth
(1) Limitations. Covered Medical Expenses include only those
-----------
services rendered and supplies needed for the following
treatment of or related to conditions of the teeth, mouth,
jaws, jaw joints, or supporting tissues (including bones,
muscles, and nerves). For these expenses, Physician includes
a dentist.
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(a) Surgery needed to:
(i) Treat a fracture, dislocation, or wound.
(ii) Cut out:
- teeth partly or completely impacted in the
bone of the jaw;
- teeth that will not erupt through the gum;
- other teeth that cannot be removed without
cutting the bone;
- the roots of a tooth without removing the
entire tooth; or
- cysts, tumors, or other diseased tissues.
(iii) Cut into the gums and tissues of the mouth when
not done in connection with the removal or
repair of teeth.
(iv) Alter the jaw, jaw joints, or bite relationships
by a cutting procedure when appliance therapy
alone cannot result in functional improvement.
(b) Non-surgical treatment of infections or diseases not of
or related to the teeth.
(c) Dental work, surgery and orthodontic treatment needed
to remove, repair, replace, restore, or reposition
natural teeth damaged, lost or removed or other body
tissues of the mouth fractured or cut due to Injury if:
(i) The accident causing the Injury occurs while the
Covered Person is Covered under this section;
(ii) Such teeth must have been free from decay or in
good repair and firmly attached to the jaw bone
at the time of the Injury;
(iii) The treatment must be done in the calendar year
of the accident or the next one.
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If crowns (caps), dentures (false teeth), bridgework,
or in-mouth appliances are installed due to such
Injury, Covered Medical Expenses include only charges
for:
(i) the first denture or fixed bridgework to replace
lost teeth;
(ii) the first crown needed to repair each damaged
tooth; and
(iii) an in-mouth appliance used in the first course
of orthodontic treatment after the Injury.
(2) Exclusions. The following are excluded from Covered
----------
Medical Expenses:
(a) Charges to remove, repair, replace, restore or
reposition teeth lost or damaged in the course of
biting or chewing;
(b) Charges to repair, replace, or restore fillings,
crowns, dentures or bridgework;
(c) Charges for non-surgical periodontal treatment;
(d) Charges for in-mouth scaling, planing or scraping;
(e) Charges for myofunctional therapy which is muscle
training therapy, or training to correct or control
harmful habits;
(f) Charges for mouth appliances, crowns, bridgework,
dentures, tooth restorations, or any related fitting or
adjustment services, except as provided for Injury;
whether or not the purpose of such services or supplies
is to relieve pain;
(g) Charges for root canal therapy or dental cleaning;
(h) Charges for routine tooth removal (not needing cutting
of bone), except as provided for Injury.
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(B) Mammographies
Charges Incurred by a female Covered Person age 35 or over for
one routine screening by mammography each calendar year for the
presence of occult breast cancer, whether or not incurred in
connection with a disease or Injury.
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4. COORDINATION OF THE PLAN'S BENEFITS WITH OTHER BENEFITS.
4.1. Applicability.
(A) This Coordination of Benefits ("COB") provision applies to This
Plan when a Covered Person has health care coverage under more
than one Plan. "Plan" and "This Plan" are defined below.
(B) If this COB provision applies, the order of benefit
determination rules should be looked at first. Those rules
determine whether the benefits of This Plan are determined
before or after those of another plan. The benefits of This
Plan:
(1) shall not be reduced when, under the order of benefit
determination rules, This Plan determines its benefits
before another plan; but
(2) may be reduced when, under the order of benefits
determination rules, another plan determines its benefits
first. The above reduction is described in Section 4.4
"Effect on the Benefits of This Plan" below.
4.2. Definitions.
(A) Calendar Year.
The period extending from January 1 of any year to December 31
of the same year.
(B) Plan.
Any of the following plans or programs which provides benefits
or services for, or because of, medical or dental care or
treatment:
(1) Group insurance or group-type coverage, whether insured or
uninsured. This includes prepayment, group practice or
individual practice coverage. It also includes coverage
other than school accident-type coverage.
(2) Automobile reparations (no-fault) insurance required under
any law of a government and provided on other than a group
basis, but only to the extent of the benefits required
under such no-fault law.
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<PAGE>
The term "Plan" will be construed separately with respect to
each policy, contract, or other arrangement for benefits or
services and separately with respect to that portion of any such
policy, contract, or other arrangement which reserves the right
to take the benefits or services of other Plans into
consideration in determining its benefits and that portion which
does not.
(C) This Plan.
The Lyondell Petrochemical Company Executive Medical Plan as
amended and restated effective October 1, 1990, that is set
forth herein.
(D) Primary Plan/Secondary Plan.
The order of benefit determination rules state whether This Plan
is a Primary Plan or Secondary Plan as to another plan covering
the person.
When This Plan is a Primary Plan, its benefits are determined
before those of the other plan and without considering the other
plan's benefits.
When This Plan is a Secondary Plan, its benefits are determined
after those of the other plan and may be reduced because of the
other plan's benefits. When there are more than two plans
covering the person, This Plan may be a Primary Plan as to one
or more other plans, and may be a Secondary Plan as to a
different plan or plans.
(E) Allowable Expense.
The Reasonable Charge for a Necessary item of medical or dental
expense at least partly covered under at least one of the Plans
covering the person for whom the claim is made.
When a plan provides benefits in the form of services, the
reasonable cash value of each service rendered will be
considered both an Allowable Expense and a benefit paid.
(F) Claim Determination Period.
A calendar year. However, if a person is not eligible for
Benefits under this Plan during all of a calendar year, then the
Claim Determination Period for the person as to that year will
be the
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total period thereof during which he was eligible for Benefits.
4.3. Order of Benefit Determination Rules.
(A) General.
When there is a basis for a claim under This Plan and another
plan, This Plan is a Secondary Plan which has its benefits
determined after those of the other plan, unless
(1) The other plan has rules coordinating its benefits with
those of This Plan; and
(2) Both those rules and This Plan's rules, in Subsection
4.3.(B), below, require that This Plan's benefits be
determined before those of the other plan.
(B) Rules.
This Plan determines its order of benefits using the first of
the following rules which applies:
(1) Non-Dependent/Dependent. The benefits of the plan which
-----------------------
covers the person other than as a dependent are determined
before those of the plan which covers the person as a
dependent; except that if the person is also a Medicare
beneficiary, and as a result of the rule established by
Title XVIII of the Social Security Act and implementing
regulations, Medicare is:
(a) Secondary to the plan covering the person as a
dependent, and
(b) Primary to the plan covering the person as other than a
dependent (e.g. a retired employee),
then the benefits of the plan covering the person as a
dependent are determined before those of the plan covering
that person as other than a dependent.
(2) Dependent Child/Parents not Separated or Divorced. Except
-------------------------------------------------
as stated in Paragraph (B)(3) below, when This Plan and
another plan cover the same child as a dependent of
different persons, called "parents".
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<PAGE>
(a) The benefits of the plan of the parent whose birthday
falls earlier in a year are determined before those of
the plan of the parent whose birthday falls later in
that year; but
(b) If both parents have the same birthday, the benefits of
the plan which covered one parent longer are determined
before those of the plan which covered the other parent
for a shorter period of time.
However, if the other plan does not have the rule
described in (a) immediately above, the rule in the
other plan will determine the order of benefits.
(3) Dependent Child/Parents Separated or Divorced. Except as
---------------------------------------------
otherwise required under the terms of a valid qualified
medical child support order ("QMCSO"), if two or more plans
cover a person as a dependent child of divorced or
separated parents, benefits for the child are determined in
this order:
(a) First, the plan of the parent with custody of the
child;
(b) Then, the plan of the Spouse of the parent with the
custody of the child; and
(c) Finally, the plan of the parent not having custody of
the child.
However, if the specific terms of a valid QMCSO state that
one of the parents is responsible for the health care
expense of the child, and the entity obligated to pay or
provide the benefits of the plan of that parent has actual
knowledge of those terms, the benefits of that plan are
determined first. The plan of the other parent shall be
the Secondary Plan. This paragraph does not apply with
respect to any Claim Determination Period or Plan Year
during which any benefits are actually paid or provided
before the entity has that actual knowledge.
(4) Active/Inactive Employee. The benefits of a plan which
------------------------
covers a person as an employee who is neither laid off nor
retired or a dependent of such Person are determined
39
<PAGE>
before those of a plan which covers that person as a laid
off or retired employee or a dependent of such person. If
the other plan does not have this rule, and if, as a
result, the plans do not agree on the order of benefits,
this Section 4.3(B)(4) is ignored.
(5) If none of the above applies, the Plan under which the
person has been covered the longest will be deemed to pay
its benefits first except in the case shown below.
(6) Continuation Coverage. If a person whose coverage is
---------------------
provided under a right of continuation pursuant to federal
or state law also is covered under another plan, the
following shall be the order of benefit determination:
(a) First, the benefits of a plan covering the person as an
employee, member or subscriber (or as that person's
dependent);
(b) Second, the benefits under the continuation coverage.
If the other plan does not have the rule described
above, and if, as a result, the plans do not agree on
the order of benefits, this Section 4.3(B)(5) is
ignored.
4.4. Effect on the Benefits of this Plan.
(A) When This Section Applies.
This Section 4.4 applies when, in accordance with Section 4.3,
this Plan is a Secondary Plan as to one or more other plans. In
that event, the benefits of This Plan may be reduced under this
section. Such other plan or plans are referred to as "the other
plans" immediately below.
(B) Reduction in This Plan's Benefits.
The benefits of This Plan will be reduced when the sum of:
(1) The benefits that would be payable for the Allowable
Expense under This Plan in the absence of this COB
provision; and
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<PAGE>
(2) The benefits that would be payable for the Allowable
Expenses under the other plans, in the absence of
provisions with a purpose like that of this COB provision,
whether or not claim is made; exceeds those Allowable
Expenses in a Claim Determination Period. In that case,
the benefits of This Plan will be reduced so that they and
the benefits payable under the other plans do not total
more than those Allowable Expenses.
When the total amount of benefits of This Plan are reduced as
described above, each benefit is reduced in proportion and the
reduced amount charged against any applicable benefit limit of
This Plan.
4.5. Right to Receive and Release Needed Information. Certain facts are
needed to apply these COB rules. The Claims Administrator has the
right to decide which facts it needs. It may get needed facts from
or give them to any other organization or person. The Claims
Administrator need not tell, or get the consent of, any person to
this. Each person claiming Benefits under This Plan must give the
Claims Administrator any facts it needs to pay the claim.
4.6. Facility of Payment. A payment made under another plan may include
an amount which should have been paid under This Plan. If it does,
the Claims Administrator, in its sole discretion, may pay that amount
to the organization which made that payment. That amount will then
be treated as though it were a benefit paid under This Plan. The
Claims Administrator will not have to pay that amount again.
4.7. Right of Recovery. If the amount of the payments made by the Claims
Administrator is more than it should have paid under this COB
provision, it may recover the excess from one or more of:
(A) The persons it has paid or for whom it has paid;
(B) Insurance companies; or
(C) Other organizations.
The "amount of the payments made" includes the reasonable cash value
of any benefits provided in the form of services. Such right of
recovery does not affect any other right of recovery this Plan may
have with respect to such overpayment.
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<PAGE>
4.8. Multiple Coverage Under This Plan. If a Covered Person is covered
under this Plan both as an Executive and a Dependent, or as a
Dependent of 2 Executives, the following will also apply to this
provision:
(A) The person's coverage in each capacity under this plan will be
established separately as a "Plan".
(B) The Order of Benefit Determine Rules will be applied to the
"Plans" established above as well as to all other Plans.
(C) This provision will not apply more than once to determine the
total benefits payable to the Covered Person for each claim
under this Plan.
4.9. Special Provisions Applicable to Persons Eligible for Medicare
(A) Applicability
These provisions will not apply and Medicare will not have any
effect on Benefits payable under this Plan at any time when the
Company's compliance with federal law requires Benefits to be
determined under this Plan for a Covered Person before Medicare
determines its benefits.
(B) Regular Expenses Calculation
The amount of Covered Medical Expenses under Regular Expenses as
to a Covered Person will be the excess of 1 over 2. No Benefit
will be payable if 1 does not exceed 2.
1. The Benefits that would be payable as Regular Expenses, as
if no charge to which the Coverage applies were covered
under Medicare.
2. The Benefits provided under Medicare as to those charges to
which are covered as Regular Expenses. A separate
determination of Medicare benefits, by Coverage, will be
made as in 1. Benefits provided by Medicare will be taken
into account if the Covered Person is eligible for
Medicare, whether or not the Covered Person is entitled to
Medicare benefits.
A benefit calculation, as described above, will be made as to
each claim for Benefits. No recalculation of Benefits will be
made as to
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<PAGE>
charges included in a prior claim for, or prior calculation of,
Benefits.
Any Benefits payable, as calculated above, and the Benefits
referred to in 1. above, will be determined before the terms
under the Coordination of the Plan's Benefits section are
applied.
The provisions of (B) and (C) shall not be applied if the
Covered Person is an Executive age 65 or over or if the Covered
Person is eligible for Medicare due to disability, and Covered
Medical Expenses under the Plan shall be calculated without
reduction for Medicare.
(C) Major Medical Expenses Calculation
Covered Medical Expenses under Major Medical Expenses Coverage
will be reduced before any coinsurance percentage is applied, by
any benefits provided under Medicare as to charges to which both
Medicare and Major Medical Expenses Coverage pertain. Benefits
provided by Medicare will be taken into account while the
Covered Person is eligible for any Medicare coverage, whether or
not the Covered Person is entitled to Medicare benefits.
As to Medicare, the terms of this section will apply instead of
any governmental benefit exclusion.
(D) Medicare Benefits
In determining benefits provided under Medicare, any deductible
that applies to charges made by various providers of care will
be applied against charges to which this Plan's Coverage
pertains in the order the charges are received.
If a benefit claim includes more than one charge, any remaining
Medicare deductible will he applied to charges of the various
providers of services, starting with the largest charge, then
the next largest, etc.
If benefits provided by Medicare for a charge to which this
Plan's Coverage pertains cannot be determined from the above
rules, then reasonable estimates of the amount of the benefits
will be made, on a non-discriminatory basis, and will be used to
determine any Benefits under this Plan.
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5. TERMINATION OF COVERAGE.
If all or any part of an Executive's or Retiree's Coverage terminates, then
the corresponding Coverage for his Dependents, if any, shall terminate
simultaneously, subject to the provisions below under the heading
"Continuation of Coverage" under certain circumstances.
5.1. Executives. An Executive's Coverage shall terminate on the earliest
to occur of the following:
(A) The last day of the month in which the Executive terminates
employment, for a reason other than a disability retirement;
(B) The date of the Executive's death;
(C) The last day of the month in which the Employee transfers to a
position with the Company that is not on the executive payroll;
or
(D) The effective date of termination of the Plan.
5.2. Dependents. Subject to the provisions below for Handicapped
Dependent Children and totally disabled Dependents, Coverage for a
Covered Dependent shall terminate on the earliest to occur of the
following:
(A) The date on which the Employee's or Retiree's Coverage
terminates, but if Coverage terminates due to the Executive's or
Retiree's death, the last day of the month in which her death
occurs;
(B) The last day of the month in which the individual ceases to be a
Dependent; or, if earlier, when the individual, if a Dependent
Child, becomes an Executive;
(C) The date of the Dependent's death; or
(D) If the Dependent is Totally Disabled on the date on which
Coverage would otherwise terminate under this subsection,
(1) Coverage for Regular Expenses (except Emergency Medical
Care) incurred while the Dependent remains Totally Disabled
will be continued for three months after the date Coverage
would have otherwise terminated.
However, Coverage for Hospital or Convalescent Facility
confinements beyond
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<PAGE>
this three month period will be continued (a) if this is a
Hospital Confinement, it began before the date that
Coverage would have otherwise terminated under this
subsection; and (b) if this is a Convalescent Facility
confinement, the Convalescent Facility Confinement and
previous Hospital confinement of at least three consecutive
days both took place before the date Coverage would have
otherwise terminated under this subsection.
(2) Coverage for services or treatment related to Major Medical
Expenses will be continued until the earlier of the time:
(a) the disability ends:
(b) twelve months from the date Coverage would have
otherwise terminated under this subsection; or
(c) the Dependent became covered by another group health
plan which provides lesser benefits.
5.3. Handicapped Dependent Child. A Handicapped Child is an Executive or
Retiree's Child who meets the definition of Dependent under Section
11.18(D) of the Plan and who is chiefly dependent upon the Executive
or Retiree for support and maintenance. The following shall apply to
a Handicapped Child who reaches the age at which he would otherwise
cease to be a Covered Dependent unless the Handicapped Child has been
issued a personal medical conversion policy. If he is then a
Handicapped Child, the Plan shall continue to consider him as a
Covered Dependent while he remains a Handicapped Child if the
Executive or Retiree submits to the Claims Administrator proof of the
Child's incapacity. Furthermore, if a Handicapped Child was covered
under any group health plan of the Company on the date immediately
preceding the effective date of the Executive's Coverage, the Child
shall be considered as a Dependent while remaining a Handicapped
Child.
The Claims Administrator shall have the right to require satisfactory
proof of continuance of the incapacity of a Handicapped Child and the
right to examine such Child, but not more than once a year after two
years have elapsed from the date the Child reaches an age at which he
would have otherwise ceased to be a Covered Dependent. Upon failure
to submit such required proof or to undergo such an examination, or
when such Child ceases to be so incapacitated or when Dependent
Coverage terminates for any reason other than reaching an age at
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<PAGE>
which a Child would have otherwise ceased to be a Covered Dependent,
Coverage with respect to him shall cease. The continuance of
Coverage shall be subject to all provisions of the Plan relating to
termination of Coverage except as modified by this section.
Proof that a Child is fully Handicapped must be submitted to the
Claims Administrator no later than 31 days after the date the Child
reaches the age at which he would otherwise cease to be a Covered
Dependent.
5.4. Retiree. Retiree Coverage terminates on the earlier of:
(A) The day of the Retiree's death; or
(B) The effective date of termination of the Plan or the amendment
of the Plan in a manner that eliminates Coverage for a class of
Covered Persons of which the Retiree is a member.
5.5. Continuation of Coverage Related to Pregnancy. If any or all
Coverage would otherwise terminate for a Covered Person during a
pregnancy
(A) As to any applicable sections except Major Medical Expenses, any
Benefit provided under that section for her pregnancy expenses
will continue to be available for such expenses Incurred in
connection with that pregnancy, but not beyond the end of a
period of 3 months following termination of the pregnancy.
(B) As to any Major Medical Expenses section, any Benefit provided
under such section for her pregnancy expenses will continue to
be available for such expenses Incurred in connection with
pregnancy, but not beyond the end of a period of 12 months
following the date her Coverage terminates.
(C) Limitations
No benefits will be payable if the applicable section terminates
as to the Eligible Class of which the Executive or Retiree is a
member.
5.6. Continuation of Coverage Under Certain Circumstances. A Covered
Person's Coverage under the Plan may be extended under the following
circumstances:
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(A) The Executive's eligibility for a qualifying FMLA Leave taken in
accordance with applicable provisions of the Company's FMLA
Policy, as described in Section 7 of the Plan; or eligibility
under the Company's general leave of absence policy;
(B) The Covered Person's eligibility for continued Coverage pursuant
to the requirements of COBRA;
(C) The Executive's eligibility for and receipt of a benefit under a
severance plan or an early retirement plan that, by its terms,
provides for continuation of Coverage under this Plan.
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6. CONTINUATION COVERAGE (COBRA).
6.1. Entitlement to COBRA Coverage.
(A) Covered as an Executive.
If a Covered Person is covered by the Plan as an Executive or
Retiree, he has the right to elect COBRA coverage if he loses
Coverage because:
(1) If he is an Executive, his hours of employment with the
Company are reduced;
(2) If he is an Executive, his employment with the Company is
terminated (for reasons other than his gross misconduct);
or
(3) If he is a Retiree, certain bankruptcy proceedings commence
concerning the Company.
(B) Covered as a Dependent Spouse.
If a Covered Person is Covered by the Plan as the Dependent
Spouse of an Executive, he has the right to elect COBRA coverage
for himself if he loses Coverage for any of the reasons in (A)
above or for one of the following reasons:
(1) The Executive dies;
(2) He becomes divorced or legally separated; or
(3) He becomes entitled to Medicare.
(C) Covered as a Dependent Child.
If a Covered Person is Covered by the Plan as a Dependent Child
of an Executive, he has the right to elect COBRA coverage for
himself if he loses Coverage for any of the reasons in (A) or
(B) above, or if he ceases to be a Dependent Child eligible for
Coverage under the Plan.
6.2. Types of Coverage. A Covered Person does not have to show that he is
insurable to elect COBRA coverage. Each Covered Person who is
eligible to elect COBRA coverage is entitled to make a separate
coverage election. Thus, a Dependent Spouse or Dependent Child may
elect COBRA coverage even if the Covered Executive does not make that
election. Similarly, a Dependent Spouse or Dependent Child may elect
coverage different from the coverage the Executive elects.
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6.3. Notice of COBRA Events. Under COBRA, each Covered Executive or
Dependent must inform the Company of a divorce, legal separation, or
a Child's losing Dependent status under the Plan within 60 days after
the date of such event. If notice is not received within that 60-day
period, the Covered Person will not be entitled to elect COBRA
coverage. If the Covered Person elects COBRA coverage, the Covered
Person must notify the Company immediately if an event occurs that
causes that coverage to be cut short (as described below).
If a Covered Person elects COBRA coverage due to a employment
termination (other than gross misconduct) or reduction in hours and
the Social Security Administration determines that the Covered Person
was disabled on the date of such termination or reduction in hours,
he must notify the Claims Administrator of that fact within 60 days
after the date of such determination and within the 18-month period
described below. He also must notify the Claims Administrator within
30 days after the date he is determined to be no longer disabled.
When the Company is notified of a divorce, legal separation, or loss
of dependent status, or determines that one of the other events
described in Section 6.1(A), (B), or (C) has occurred, the Company
will notify the Covered Person of his COBRA coverage election rights.
Notice to a parent is also notice to any Dependent Children who would
also lose Coverage under the Plan.
A Covered Person must notify the Company in writing if he wants to
elect COBRA coverage within 60 days of the later of (1) the date of
the Company's notice to him or (2) the date he would lose Coverage
because of an event described above. A parent can elect COBRA
coverage on behalf of Dependent Children.
6.4. Duration of COBRA Coverage. If a Covered Person does not elect COBRA
coverage when it is offered to him, his Coverage under the Plan will
end. If he elects COBRA coverage, his coverage will be identical to
the Coverage provided under the Plan to similarly situated Executives
or Dependents, as of the time Coverage is being provided. This means
that if the Coverage for similarly situated Executives or Dependents
is modified, his coverage will be modified in the same manner. COBRA
coverage generally will last for 36 months unless the Covered Person
------
lost Coverage because of a termination of employment (other than
gross misconduct) or reduction in hours of employment, in which case,
COBRA coverage will
49
<PAGE>
last for only 18 months. The 18-month coverage period may be
extended to 29 months if the Covered Person is determined to be
disabled by the Social Security Administration at the time of the
Executive's termination of employment or reduction in hours, provided
that the Covered Person notifies the Company within 60 days of the
date of such determination and within the 18-month period.
Special rules govern the COBRA coverage period when the Covered
Executive becomes entitled to Medicare, a Retiree or his family
member loses Coverage because of the commencement of bankruptcy
proceedings concerning the Company, or if certain qualifying events
occur within 18 or 29 months of a termination or reduction in hours
of employment.
6.5. Termination of COBRA Coverage. COBRA coverage will be terminated
----
(including retroactively) if:
(A) The Covered Person becomes covered under any other group health
plan (as an employee or otherwise) that does not contain any
exclusion or limitation for any preexisting condition the
Covered Person has that is covered by the Plan;
(B) The Covered Person becomes entitled to Medicare benefits;
(C) A premium for the Covered Person's COBRA coverage is not paid
and received within (30) days of its due date;
(D) The Company no longer provides any group health coverage to any
employee; or
(E) Coverage was extended due to the Covered Person's disability and
he is determined to be no longer disabled.
6.6. Cost of COBRA Coverage. A Covered Person electing to continue
Coverage under COBRA must pay to the Company on a monthly basis the
entire amount due for such Coverage. The amount due will be no more
than 102 percent of the Company's cost on a group basis, except that
Persons who qualify for an extension of continuation Coverage on the
basis of disability will be required to pay 150 percent (instead of
102 percent) of the Company's cost for each additional month of
Coverage after the initial 18-month period. The first contribution
must cover the period from the date Coverage would otherwise have
terminated until the end of the month in which the first
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<PAGE>
contribution is made. Subsequent contributions are due and payable
on the first day of each month subject to a 30-day grace period
during which grace period the contribution must be received. The
first contribution must be received by the Administrator no later
than 45 days after continuation Coverage is elected.
In the event that a monthly contribution is not timely received by
the first day of the month or within the next 30 days, coverage under
--------------
the Plan will be automatically terminated without notice as of the
--------------------------------------------------------
last day of the month for which a proper contribution was last
received.
6.7. Conversion Health Plans. If a Covered Person has COBRA coverage for
the entire coverage period, he must be allowed to enroll in a
conversion health plan if one is available to him under the Plan.
6.8. Questions About COBRA Coverage. If a Covered Person has any
questions about COBRA, he should contact the Claims Administrator.
If a Covered Person's marital status changes, his Child loses
Dependent status, he or his spouse change address, or other changes
or events noted above occur, he must notify the Claims Administrator
within the prescribed time period.
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7. LEAVES OF ABSENCE.
7.1. General. An Executive who is granted an unpaid leave of absence
shall be entitled to continue Coverage under this Plan if permitted
under the Company's leave of absence policy, except as provided in
subsection 7.2.
7.2. Entitlement to Coverage During Family and Medical Leave. An
Executive who has applied for and has been granted an FMLA Leave
under the terms of the Company's FMLA Policy will continue to be
eligible to participate in the Plan during the period of his FMLA
Leave on the same conditions as would have applied if the Executive
had not been on FMLA Leave. An Executive may choose not to retain
health coverage under the Plan during FMLA leave.
7.3. Duration of Coverage During Family and Medical Leave. Except as
required by COBRA, if a "key employee" who is on FMLA Leave and has
been notified by the Company that substantial or grievous economic
injury will result from his reinstatement does not return from FMLA
Leave, the Executive's entitlement to group health benefits continues
unless and until the Executive advises the Company that the Executive
does not desire restoration to employment at the end of the leave
period, or FMLA Leave entitlement is exhausted, or reinstatement is
actually denied. A "key employee" refers to an Executive who is
among the highest paid 10 percent of employees employed within 75
miles of his worksite and as further defined in the regulations under
the Family and Medical Leave Act.
7.4. Disqualified Leave and Integration with COBRA. If the requested
leave of absence does not qualify as a FMLA Leave in accordance with
the provisions of the FMLA Policy, or the Executive's coverage is not
continued under the Company's leave of absence policy, then the
Covered Employee and any Covered Dependents (referred to as COBRA
"Qualified Beneficiaries") will be offered COBRA continuation
coverage under the Plan (as described in the COBRA section of the
Plan).
If a Qualified Beneficiary fails to timely pay a required premium for
COBRA coverage, the continuation coverage of such Qualified
Beneficiary under the Plan will cease in accordance with the Plan's
COBRA procedures. If an Executive who did not elect COBRA coverage,
or whose COBRA coverage was terminated, should return to Active Full-
Time Work on the Company's executive payroll, such Executive (and his
Dependents, if any) shall be eligible to participate in the Plan on
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<PAGE>
the first day of Active Full-Time Service on the Company's Executive
payroll.
53
<PAGE>
8. CONVERSION PRIVILEGE.
8.1. General. This section does not continue group insurance, but permits
the issuance of an individual medical expense policy under certain
conditions.
8.2. Eligibility for Conversion Privilege. An individual policy may be
issued, subject to the terms of this section, only in the following
cases:
(A) All an Executive's Coverage under the Plan, including Coverage,
if any, as to his Dependents, terminates because his employment
terminates, or he ceases to be a member of the classes of
employees then still eligible for Coverage. This does not apply
to any person who becomes, or is, a Retiree.
(B) All an Executive's Coverage, including Coverage, if any, as to
his Dependents, terminates, or would otherwise terminate in the
absence of any provision continuing coverage for Retirees, when
the Executive becomes a Retiree.
(C) An Executive's Employee - Only Coverage under the Plan continues
but his Dependent Coverage for an individual terminates because
the individual ceases to be a Dependent.
In no event will an individual policy be available if Coverage
terminates because the Plan discontinues in its entirety or with
respect to all Executives of the Company or as to an eligible class
or group of which the Executive is a member.
8.3. Right to Convert
The Executive in 8.2(A) and (B), the Dependent in 8.2(C), or the
Dependent(s) of an Executive whose employment terminates because of
death prior to retirement will have the right to obtain an individual
policy of insurance (the "converted policy") from the Claims
Administrator without medical evidence of insurability. If the
Executive is entitled to a conversion policy under 8.2(A) or (B), the
Executive may obtain a converted policy which covers the Executive
only or the Executive and all his Dependents who were covered under
the Plan when the Executive's Coverage terminated. If the
Executive's employment terminates due to death prior to retirement, a
converted policy may be issued to cover all the Executive's
Dependents or the Dependent Spouse only who are Covered under the
Plan
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<PAGE>
when the Executive's Coverage terminates. Written application for
the converted policy must be made to the Claims Administrator within
31 days after the date that Coverage under this Plan terminates or
would otherwise terminate in the absence of any provision continuing
Coverage for Retirees;
8.4. Restrictions
(A) The Claims Administrator may decline to issue a converted policy
in any of the following instances:
(1) If application for the converted policy is made in a
jurisdiction in which the Claims Administrator is not
authorized to issue or deliver the policy.
(2) If Coverage under the Plan terminates before the Executive
has been Covered under them for at least 3 months.
(3) If any person who would be covered under the converted
policy is, on the conversion date, covered under (a) or (b)
below, covered or eligible for coverage under (c) below, or
for whom benefits are required or available under (d)
below, and such coverage provides similar benefits and
would, with the converted policy, result in overinsurance
or duplica-tion of benefits under the Claims Admin-
istrator's standards for converted policies last made
effective by the Claims Admin-istrator as to the
jurisdiction in which the converted policy would be
delivered.
(a) Any other hospital or surgical expense insurance
policy.
(b) Any hospital service or medical expense indemnity
corporation subscriber contract.
(c) Any other group contract.
(d) Any statute, welfare plan or program.
(B) The Claims Administrator may decline to cover an individual
under a converted policy in either of the following instances:
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<PAGE>
(1) If Coverage for the Executive or a Dependent under the Plan
terminated because the person had exhausted the Lifetime
Maximum Benefit Amount available under the Plan.
(2) If the law of the jurisdiction in which the Executive or
Dependent resides prohibits the provision of benefits under
the converted policy.
8.5. Renewal. The converted policy will contain a provision giving the
Claims Administrator the right to refuse renewal under certain stated
conditions.
8.6. Form of Converted Policy. The policy's form, and its terms, will be
of a type or types offered by the Claims Administrator under the
Company's conversion plan for group insurance conversions at the time
the policy is applied for. It will have benefits at least in line
with any law or regulation which applies. Upon request, the Claims
Administrator will give details as to the type of policies offered.
8.7. Premiums. The first premium for the converted policy must be paid
within 31 days after the applicable termination date of Coverage
under this Plan. The premium payable under the converted policy on
its effective date will be the Claims Administrator's then customary
rate for the insured individual's class and age, and the form and
amount of insurance.
8.8. Effective Date. The converted policy will become effective on the
day after the applicable termination date of Coverage under this
Plan.
8.9. Converted Policy Provisions. The converted policy may contain either
or both of the following:
(A) A provision that benefits under it will be reduced by like
benefits payable as to the individual under this Plan, for
expenses Incurred after termination of Coverage under the Plan.
(B) A provision that the Claims Administrator may, on any premium
due date of the converted policy, request information as to any
individual's coverage under Section 8.4(A)(3)(a) through (d).
If the individual fails to furnish the information requested by
the Claims Administrator, any benefits under the converted
policy may be based on actual expenses incurred reduced by
expenses to
56
<PAGE>
the extent covered or provided under those subsections (a)
through (d).
For any individual named in the converted policy, the converted
policy is in exchange for all privileges and benefits under this
Plan.
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<PAGE>
9. CLAIMS.
9.1. Submission of Claims. All claims for Benefits shall be submitted to
the Claims Administrator by the Covered Person. Claims shall be made
on properly completed forms approved by the Claims Administrator,
with supporting documentation as required. The Claims Administrator
shall decide whether a Benefit will be paid or denied after providing
a full review of the claim and documentation submitted.
9.2. Claim Form. The Claims Administrator shall furnish a claim form to
the Covered Person. The Covered Person's claim shall include the
dates, occurrence, and nature and extent of the claim.
9.3. Time Limit for Claims. Claims in proper form and with all required
information must be furnished to the Claims Administrator within 90
days. Later claims may be accepted only if, under the particular
circumstances, the claim was furnished as soon as reasonably possible
but no later than one (1) year after the date the claim is Incurred.
No claim shall be accepted if it is received by the Claims
Administrator after this period of time, unless the Covered Person is
legally incapacitated as determined by the Claims Administrator.
9.4. Examination. The Claims Administrator shall have the right and
opportunity to arrange for the performance of an independent
examination performed of the Covered Person whose Injury or Sickness
is the basis of a claim under this Plan. Such examination shall be
permitted as often as reasonably required while claim is being made
and shall be done at no cost to the Covered Person.
9.5. Right to Receive and Release Necessary Information. To determine how
and when the terms and provisions of the Plan or other plans shall
apply, the Claims Administrator may, without the consent of or notice
to any person, release to or obtain from any organization or person
any information it considers necessary or appropriate. Any Covered
Person claiming Benefits shall furnish to the Claims Administrator
any requested information that may be necessary or appropriate to
implement this provision. Neither the Plan, the Company, the Claims
Administrator nor the Administrator shall be responsible for the
direct or indirect consequences of a Covered Person's failure to
provide required information in a timely manner.
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<PAGE>
9.6. Payment of Claim. All Benefits shall be paid to the Covered Persons
unless subject to a direction to pay under Section 9.7. Should any
claim under the Plan remain unpaid at the Covered Person's death, or
if the Covered Person is a minor or is, in the opinion of the Claims
Administrator, legally incapable of giving a valid receipt and
discharge for any payment, the Claims Administrator may at its option
pay the whole or any part of the Benefit, up to $1,000, to any of the
Covered Person's relatives.
Any payment made by the Claims Administrator shall constitute a
complete discharge of the obligation under the Plan to the extent of
such payment and neither the Plan nor the Company shall be required
to oversee the application of the money so paid.
9.7. Direction to Pay/Non-Assignability of Benefits. A Covered Person may
direct payment of Benefits under this Plan to a Health Care Provider
or institution which made the charges on which the Benefits are based
if such direction is in writing and received by the Claims
Administrator prior to payment of the Benefit. A Covered Person's
direction to pay benefits shall not be considered an assignment of
any rights under this Plan. The Claims Administrator may comply with
the direction to pay unless the Covered Person submits a signed,
written notice not to honor the direction to pay and the Claims
Administrator receives it before the claim is submitted.
A Covered Person is specifically prohibited from assigning any rights
to Benefits or any other right the person may have arising under the
terms of this Plan, except Medicaid assignments as described in the
next paragraph. No other assignment shall be binding upon the Claims
Administrator, Administrator or Plan.
9.8. Medicaid Assignments. Notwithstanding any contrary provision of this
Plan, to the extent required by the Omnibus Budget Reconciliation Act
of 1993, P.L. 103-66, as it may be amended from time to time, payment
for a Benefit with respect to a Covered Person will be made in
accordance with any assignment of rights made by or on behalf of such
Covered Person as required by a Medicaid Plan. In addition, to the
extent that payment has been made under a Medicaid Plan in any case
in which the Plan has a legal liability to make payment for items or
services constituting such assistance, payment of any Benefit under
the Plan will be made in accordance with any State law which provides
that the State has acquired
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<PAGE>
the rights with respect to a Covered Person to such payment for such
items or services.
9.9. Charges Reported in Foreign Currency. Benefits based on charges
reported in foreign currency shall be determined in accordance with
the rate of exchange between such currency and United States dollars
in effect at the time Benefits are calculated.
9.10. Facility of Payment. If payments made under any other plan should
have been made under the Plan, the Claims Administrator shall have
the right, exercisable in its discretion, to pay to any person or
organization making such other payments any amounts it shall
determine to be warranted in order to satisfy the intent of the Plan.
Amounts so paid shall be deemed to be Benefits paid under the Plan
and, to the extent of such payments, the Company, Plan, the
Administrator and the Claims Administrator shall be fully discharged
from liability under the Plan.
9.11. Right of Recovery. Whenever payments have been made in excess of the
amount provided by the Plan, the Claims Administrator shall have the
right to:
(A) Recover such payment, to the extent of any excess, from among
one or more of the following, as the Claims Administrator should
determine: any persons to or with respect to whom the payment
was made, any insurance companies, or other organizations; and
(B) Deduct the total or any partial amount of such payment from any
Benefits payable under the Plan. Such deduction may be made
against any claim for Benefits by a Covered Person or by any of
his Covered Dependents if such payment is made with respect to
such Covered Person or any person Covered or asserting Coverage
as a Dependent of such Covered Person.
9.12. Subrogation.
(A) Plan's Right to Reimbursement.
In the event of any Benefit payments made under the Plan to or
on behalf of any Covered Person, the Plan shall, to the extent
of such payments, be fully subrogated to all the rights of
recovery and other rights of the Covered Person arising out of
any claim or cause of action which may accrue because of the
alleged accidental, negligent,
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<PAGE>
intentional, or tortious conduct, act or omission, of another
person or entity (hereinafter all such persons or entities shall
be individually and collectively referred to as a "third
party"). The Covered Person, by participation in the Plan,
agrees that he and his estate, and the legal representative of
his estate, shall be obligated and that the Plan shall be fully
subrogated to any recovery or right of recovery that the estate
may have against any third party, including without limitation,
any wrongful death claim or action.
The Covered Person, or the legal representative or beneficiaries
of Covered Person or his estate, shall notify the Claims
Administrator of any claim or lawsuit against a third party or
insurance carrier within 30 days of the date that the claim is
made or the lawsuit is filed. The Claims Administrator, on
behalf of the Plan, also has the right to pursue any action to
enforce its subrogation rights against a third party. The
Claims Administrator may, in its discretion, elect not to
enforce the Plan's subrogation rights to the extent consistent
with its fiduciary obligations to the Plan.
(B) Covered Person's Agreement To Subrogation.
The Covered Person, on behalf of himself and each beneficiary of
a payment made on Covered Person's behalf, by accepting Benefits
under the Plan, consents and agrees (1) that the Plan shall be
promptly reimbursed for any payments made to or on the Covered
Person's behalf under the Plan out of any monies recovered as
the result of any lawsuit, judgment, order, award, settlement,
compromise, arbitration or other arrangement, and (2) to include
all Benefits paid or payable under the Plan in any liability or
other claim against a third party. Furthermore, Covered Person
and beneficiaries promise and agree to take such action, to
furnish such information and assistance, to execute and deliver
any assignments, reimbursement agreements and other instruments
as the Claims Administrator may require to facilitate
enforcement of the Plan's subrogation rights, and not to
prejudice, or in any way detrimentally affect, such rights. The
Plan's subrogation rights shall extend to all conceivable
sources of recovery, other than the Plan itself, including, by
way of example and not limitation, any and all automobile
insurance
61
<PAGE>
coverage (including uninsured/underinsured motorist coverage),
no-fault coverage, school insurance coverage, disability
coverage and personal injury awards or settlements.
(C) Limitation To Plan's Subrogation Rights.
The Plan's subrogation rights shall extend only to the recovery
by the Plan of (1) the Benefits that it has paid or will pay to
or on behalf of the Covered Person and (2) the cost of
prosecuting the claim including reasonable attorney's fees and
court and collection costs.
(D) Subrogation Rights Not Affected By Payment.
The Plan's subrogation rights shall not be affected if Benefits
are paid before the Claims Administrator obtains any additional
agreement from the Covered Person (or from any other payee), or
if the Claims Administrator does not request any such agreement.
In addition, the failure or refusal of an Covered Person (or
other payee, if applicable) to sign an agreement at the request
of the Claims Administrator recognizing the Plan's subrogation
rights shall result in a forfeiture of all Benefits payable to
that Covered Person (or other payee) even if such Benefits have
already been paid, and the Claims Administrator shall retain a
right to recover paid Benefits which are forfeited; moreover,
the Covered Person's failure or refusal shall not affect
enforcement of the Plan's subrogation rights.
(E) Lien on Proceeds.
The Claims Administrator, on behalf of the Plan, shall have a
lien against the proceeds of any settlement, award or judgment
that results from a claim or lawsuit by or on behalf of an
Covered Person who received Benefits under the Plan. Notice of
the lien is sufficient to establish the Plan's lien against the
third party or insurance carrier. The Claims Administrator
shall be entitled to (i) deduct the amount of the lien from any
future claims payable to or on behalf of the Covered Person if
(A) the lien is not repaid or otherwise recovered by the Claims
Administrator or (B) the Covered Person or other claimant fails
to promptly notify the Claims Administrator of a payment
received from a third party or insurance carrier that is subject
to the Plan's subrogation
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<PAGE>
rights, and (ii) to otherwise take any action that the Claims
Administrator deems necessary or appropriate to enforce the
Plan's subrogation rights.
9.13. Review and Appeal of Claim. If a claim is denied in whole or in
part, the Claims Administrator shall provide the claimant with
written notice of such denial. Such notice shall be written in a
manner calculated to be understood by the claimant. It shall also
state the specific reason or reasons for such denial, reference the
specific plan provisions on which the denial is based, and explain
the review procedure.
To appeal an unfavorable determination, the claimant or his
authorized representative must file a written application for review
with the Claims Administrator within sixty (60) days of the receipt
of a notice of denial of benefits. An appeal shall be considered as
filed on the date received by the Claims Administrator. After the
filing of an appeal and prior to a final decision on it, the claimant
or his representative may review Plan Documents and submit issues and
comments in writing.
No later than 60 days after receipt of the request for the review,
the Claims Administrator shall render a decision on the appeal,
unless special circumstances, such as a request for a hearing,
require a greater period of time. In such a case a final
determination shall be rendered no more than 120 days after receipt
of the request for review. If no decision is received within 120
days, the claim will be deemed to be denied without further action or
notice.
9.14. Authority of Claims Administrator. In making initial claim
determinations, the Claims Administrator shall consider the terms and
provisions of the Plan and shall have the power and discretion to
construe such terms and provisions. All such determinations made by
the Claims Administrator, whether in the case of an appeal from an
initial claim denial or in the case of an initial determination which
is not appealed, arising in connection with the administration,
interpretation and/or application of the Plan shall be conclusive and
binding upon all persons and entities.
9.15. Interpretation and Administration. The Claims Administrator shall
have the absolute right and power to administer and to interpret,
construe and construct the terms and provisions of the Plan,
including, without limitation, correcting any error or defect,
supplying
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<PAGE>
any omission, and reconciling any inconsistency with respect to
matters delegated to the Claims Administrator under the Plan;
provided, however, that with respect to the final determination of
eligibility of individuals to become or continue as Covered Persons,
such authority shall be reserved to the Administrator. The Claims
Administrator shall have the absolute right and power to make all
decisions that may impact a claim for Benefits, including factual
determinations. Subject only to the claims review procedure set
forth in the Plan, any determination, decision, computation, or
interpretation made by the Claims Administrator under the Plan shall
be final, binding and conclusive on all persons and entities.
The Administrator reserves the absolute right and power to review all
initial determinations and make all final determinations with respect
to eligibility of individuals to become or continue as Covered
Persons, and any such determination, decision, computation or
interpretation made by the Administrator under the Plan shall be
final, binding and conclusive upon all persons and entities.
The Plan shall be interpreted by the Administrator or Claims
Administrator, as applicable in accordance with the terms and
provisions of the Plan and their intended meanings. However, the
Claims Administrator shall have the discretion to make any findings
of fact needed in the administration of the Plan, and shall have the
discretion to interpret or construe ambiguous, unclear or implied
(but omitted) terms in any fashion it deems to be appropriate in its
judgment. The validity of any such finding of fact, interpretation,
construction or decision shall not be given de novo review if
-- ----
challenged in court, by arbitration or in any other forum, and shall
be upheld unless clearly arbitrary or capricious.
To the extent the Claims Administrator or another Plan fiduciary has
been granted discretionary authority under the Plan, the prior
exercise of such authority by the Plan fiduciary shall not obligate
it to exercise its authority in a like fashion thereafter.
If, due to errors in drafting, any Plan provision does not accurately
reflect its intended meaning, as demonstrated by prior
interpretations or other evidence of intent, or as determined by the
Claims Administrator or, with respect to the final determination of
eligibility of a Covered Person to participate in the Plan, the
Administrator in its discretion, the provision shall be considered
ambiguous and shall be interpreted
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<PAGE>
by the Claims Administrator in a fashion consistent with its intent,
as determined by the Claims Administrator or, with respect to the
final determination of eligibility of a Covered Person to participate
in the Plan, the Administrator. The Plan may be amended
retroactively to cure any such ambiguity, notwithstanding anything in
the Plan to the contrary.
The provisions of this section may not be invoked by any person to
require the Plan to be interpreted in a manner which is inconsistent
with its interpretation by the Claims Administrator or, with respect
to the final determination of eligibility of a Covered Person to
participate in the Plan, the Administrator. All actions taken and
all determinations by the Claims Administrator or by another Plan
fiduciary shall be final and binding upon all persons claiming any
interest in or under the Plan subject only to the claims review
procedures of the Plan.
9.16. Legal Actions. No action at law or in equity shall be brought to
recover any benefit under the Plan after the expiration of 3 years
from the deadline for filing claims.
9.17. Qualified Medical Child Support Orders. Pursuant to the procedures
established by the Plan with respect to the handling of a "qualified
medical support child order" within the meaning of Section
609(a)(2)(A) of ERISA ("QMCSO"), in the event that the Plan receives
a medical child support order that the Claims Administrator
determines to be a valid QMCSO, any person who is an "alternate
recipient" under such QMCSO shall be considered a Dependent covered
under the Plan for all purposes of ERISA and as a Covered Person for
purposes of the reporting and disclosure provisions of ERISA. Any
payment of Benefits made pursuant to a QMCSO as reimbursement for
Covered Expenses on behalf of an alternate recipient shall be made to
the alternate recipient or to the alternate recipient's custodial
parent or legal guardian, as determined by the Claims Administrator.
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<PAGE>
10. GENERAL PROVISIONS.
10.1. Benefits. Benefits shall be subject to all terms, provisions,
conditions, limitations and exclusions of the Plan.
10.2. Compliance with Federal Law. The Plan shall comply with all federal
laws and regulations to which it is subject. To the extent that any
provision of the Plan is in conflict with any such federal law or
regulation as determined by the Administrator, the federal law or
regulation will control. If, in the opinion of the Administrator,
the applicability of any such law or regulation is unclear, the
Administrator shall have the right to decide the question of such
applicability until the law is clarified by the appropriate
governmental authority.
10.3. Effective Times. Any change in Coverage under the Plan shall take
effect as of 12:00:01 A.M. standard time at the Company's principal
office on the effective date of such change.
Termination of the Plan or of any Coverage hereunder shall take
effect at 12:00:00 midnight standard time at the Company's principal
office on the effective date of such termination.
Plan Years and Plan months shall begin at 12:00:01 A.M. standard time
at the Company's principal office on the dates involved, and they
shall end at 12:00:00 midnight standard time at the end of the dates
involved.
10.4. Errors/Delays. Clerical errors or unintentional errors on records of
the Administrator or Claims Administrator, and delays in making
entries on such records, shall not affect Coverage.
10.5. Entire Contract. The Plan Document (including any insurance policy
providing benefits under this Plan) and the applications of the
Covered Persons, including any required evidence of good health,
shall constitute the entire contract of Coverage between the Company
and the Covered Persons.
10.6. Physical Examination and Autopsy. The Claims Administrator or
Administrator reserves the right to examine any Covered Person,
including an autopsy examination. Any such examination made will be
at the expense of the Plan.
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10.7. Termination or Amendment of the Plan. The Company, through its duly
authorized officers, may amend or terminate this Plan at any time for
any reason by written instrument, including but not limited to, an
amendment terminating, reducing or modifying any of these Plan
provisions as to any Covered Person. Notwithstanding the above, no
provision of the Plan regarding pediatric vaccines shall be amended
except as permitted by the Omnibus Budget Reconciliation Act of 1933,
P.L. 103-66, as it may be amended from time to time, or other
applicable law.
10.8. No Replacement for Workers' Compensation. The Plan does not replace
Workers' Compensation or affect any requirement for Workers'
Compensation coverage.
10.9. Physician-Patient Relationship. The Plan is not intended to disturb
the Physician-patient relationship. Physicians and other Health Care
Providers are not agents or delegates of the Company, Administrator
or the Claims Administrator. The actual provision of medical and
other services on behalf of any Covered Person remains the sole
prerogative and responsibility of the attending Physician or other
Health Care Provider.
10.10. Representations. Statements made by or on behalf of any person to
obtain coverage under the Plan shall be deemed representations and
not warranties.
10.11. Misstatements of Eligibility Information. If any relevant
information has been misstated or omitted by or on behalf of a person
to obtain Coverage, correct information shall be used to determine
whether and to what extent the Coverage shall be in force. The
Administrator may rescind Coverage upon the discovery of any
misstatement or omission.
10.12. Mistake of Fact. When a Plan fiduciary becomes aware of any mistake
of fact in a document, he shall correct the mistake and make any
proper adjustment required. A fiduciary shall not be liable in any
manner for any such determination made in good faith.
10.13. Reliance on Documents and Information. Evidence required by the
Claims Administrator or Administrator of anyone under the Plan may be
made by any document which the Claims Administrator or Administrator
considers acceptable. The Administrator shall be entitled to
conclusively rely upon, and shall be protected for any action or
failure to act taken in good faith in relying upon, any information
furnished by an Executive or Retiree, Dependent, Company, Claims
Administrator, or
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any accountant, counsel or other specialist appointed by the
Administrator or the Claims Administrator.
10.14. Waiver. The Administrator's or Claims Administrator's failure to
enforce strictly any term or provision of the Plan shall not be
construed as a waiver of such term or provision. The Administrator
or Claims Administrator reserves the right to enforce strictly any
term or provision of the Plan at any time, regardless of the nature
or number of prior occurrences or the similarity of the
circumstances.
10.15. Plan Not a Contract of Employment. Nothing contained in the Plan
shall be construed as (i) a contract of employment between the
Company and any Executive, (ii) a right of any Executive to be
continued in the employment of the Company, (iii) consideration or
inducement for employment with the Company, (iv) a condition of
employment between the Company and any Executive, or (v) a limitation
of the right of the Company to discharge any Executive, with or
without cause, at any time. All Executives shall be subject to
discharge to the same extent as if the Plan had never been adopted.
10.16. No Guarantee of Tax Consequences. No representation, commitment or
guarantee is made that any amounts paid under the Plan will be
excludable from the recipient's gross income for any tax purpose, or
that any other tax treatment will apply or be available to such
person.
10.17. Severability. In the event that any term or provision of the Plan
shall be held illegal or invalid for any reason, such illegality or
invalidity shall be fully severable and shall not affect the
remaining terms and provisions of the Plan, and, furthermore, the
Plan shall be construed and enforced as if the illegal or invalid
term or provision had not been included herein.
10.18. Construction. Whenever the context of the Plan so requires, any
gender shall include the other genders, and words used in the
singular or plural shall include the other. The words "herein,"
"hereof," "hereunder," and other similar compounds of the word "here"
shall refer to the entire Plan, not to any particular article,
section or provision of the Plan. Headings of articles and sections
as used herein are inserted solely for convenience and reference and
shall not create an inference, implication, or presumption of the
construction of the Plan.
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10.19. Governing Law. The terms, conditions and provisions of the Plan shall
be construed, governed and enforced under ERISA or other controlling
federal law and, if not otherwise preempted, under the laws of the
State of Texas. The Plan is an "employee welfare benefit plan", as
defined in Section 3(l) of ERISA, as a plan maintained for the
purpose of providing medical, hospital care, and other benefits as
provided herein.
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11. DEFINITIONS.
The capitalized terms of the Plan shall have the meanings set forth below,
except where the context clearly indicates otherwise.
11.1. Accident. A sudden, unexpected, unusual, specific event that occurs
at an identifiable time and place.
11.2. Actively at Work or Active Full-Time Work. An Executive shall be
deemed Actively at Work if he is performing all the regular duties of
his occupation on the date in question.
11.3. Administrator. The Benefits Administrative Committee of Lyondell
Petrochemical Company, which is the plan administrator for purposes
of ERISA. Pursuant to the terms and conditions of the Plan, the
Administrator may delegate its fiduciary duties to a third party
administrator.
11.4. Benefits. Benefits provided by the Plan for payment or reimbursement
of Covered Expenses.
11.5. Birthing Center. A freestanding facility which must:
(A) Meet licensing standards.
(B) Be set up, equipped and run to provide prenatal care, delivery
and immediate postpartum care.
(C) Make charges.
(D) Be directed by at least one Physician who is a specialist in
obstetrics and gynecology.
(E) Have a Physician or certified nurse midwife present at all
births and during the immediate postpartum period.
(F) Extend staff privileges to Physicians who practice obstetrics
and gynecology in an area hospital.
(G) Have at least 2 beds or 2 birthing rooms for use by patients
while in labor and during delivery.
(H) Provide, during labor, delivery and the immediate postpartum
period, full-time skilled nursing services, under the direction
of a registered graduate nurse (R.N.) or certified nurse
midwife.
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(I) Provide, or arrange with a facility in the area for, diagnostic
x-ray and laboratory services for the mother and the child.
(J) Have the capacity to administer a local anesthetic and to
perform minor surgery, including episiotomy and repair of
perineal tear.
(K) Be equipped and have trained staff to handle medical emergencies
and provide immediate support measures to sustain life if
complications arise during labor or if a child is born with an
abnormality which impairs function or threatens life.
(L) Accept only patients with low risk pregnancies.
(M) Have a written agreement with a Hospital in the area for
emergency transfer of a patient or a child. Written procedures
for such a transfer must be displayed and the staff must be
aware of them.
(N) Provide an ongoing quality assurance program including reviews
by Physicians who do not own or direct the facility.
(O) Keep a medical record on each patient and child.
11.6. Board and Room Charges. The institution's charges for board and room
and its charges for other Necessary institutional services and
supplies, made regularly at a daily or weekly rate as a condition of
occupancy of the type of accommodations occupied, based on (i) the
institution's average daily private room and board rate, (ii) if the
institution is a Hospital and the Claims Administrator determines it
Necessary, the Hospital's intensive care unit rate or (iii) if the
institution is a Convalescent Facility without private rooms, the
average private room and board rate for similar institutions in the
area. Board and Room Charges shall include any general nursing
services provided by the staff of the institution.
11.7. Child.
(A) The Covered Person's natural child, legally adopted child or
step child,
(B) any child under the age of 18 who is placed for adoption with
the Covered Person, or
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(C) any other child for whom the Covered Person is a legal guardian
or managing conservator.
11.8. Claims Administrator. Except as otherwise may be designated by the
Administrator, AEtna Life Insurance Company shall be the Claims
Administrator.
11.9. COBRA. The Consolidated Omnibus Budget Reconciliation Act of 1985,
as amended.
11.10. Company. Lyondell Petrochemical Company and any successor thereto.
11.11. Convalescent Facility. An institution (or distinct part thereof)
that:
(A) Is licensed to provide and is engaged in providing, on an in-
patient basis, for persons convalescing from Injury or Sickness,
professional nursing services rendered by a registered graduate
nurse (R.N.) or by a licensed practical nurse (L.P.N.) under the
direction of a registered graduate nurse, physical restoration
services to assist patients to reach a degree of body
functioning to permit self-care in essential daily living
activities;
(B) Provides services for compensation from its patients and under
the full-time supervision of a Physician or registered graduate
nurse;
(C) Provides 24 hour per day nursing services by licensed nurses,
under the direction of a full-time registered graduate nurse;
(D) Maintains a complete medical record of each patient;
(E) Has an effective utilization review plan; and
(F) Is not, other than incidentally, a place for rest, the aged,
mental retardation, Custodial Care, Educational Care, or care of
Substance Dependency or Mental Health Problems.
11.12. Cover, Covered and Coverage. Coverage under the Plan.
11.13. Covered Expenses or Covered Medical Expenses. Charges for which
Benefits are specifically provided under the provisions of this Plan.
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11.14. Covered Person. An Executive, Retiree or Dependent while covered
under the Plan. With reference to an Executive's Dependent, "covered
under the Plan" shall mean that the Executive has Coverage for that
Dependent, except as otherwise may be required under COBRA.
11.15. Custodial Care. Care consisting of services and supplies, provided
to a Covered Person in or out of an institution, primarily to assist
in daily living activities, whether or not the Covered Person is
disabled, and no matter by whom recommended or furnished.
Board and room and skilled nursing services are not, however,
considered Custodial Care (i) if provided during confinement in an
institution for which Coverage is available under this Plan, and (ii)
if combined with other Necessary therapeutic services, under accepted
medical standards, which can reasonably be expected to substantially
improve the Covered Person's medical condition.
11.16. Dentist. A legally qualified dentist or a Physician authorized by
his license to perform, at the time and place involved, the
particular dental procedure rendered by him.
11.17. Dependent.
(A) The Spouse of a Covered Executive or Retiree;
(B) Any unmarried Child to the end of the month in which he attains
age 19;
(C) Any unmarried Child from his 19th birthday to the end of the
month in which he attains age 25 provided that the Child depends
on the Covered Executive or Retiree for the majority of his
support on the date the expense is Incurred.
(D) Any unmarried Child from his 19th birthday, provided the Child
was Covered as a Dependent before age 19 and became
incapacitated or incapable of employment due to a mental or
physical handicap which occurred before the Child became 19,
provided, further, that the Covered Person provides satisfactory
verification of continued incapacity to the Administrator when
requested.
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(E) Any child who is required to be treated as a Dependent under the
terms of any valid qualified medical child support order.
Except as otherwise required under a valid qualified medical child
support order, the term "Dependent" shall not include any person who
(i) does not qualify as a Dependent for whom an exemption is claimed
by the Covered Executive or Retiree on his current federal tax return
filed in compliance with the Internal Revenue Code of 1986, as
amended, (ii) does not live with the Covered Executive in a regular
parent-child relationship, if the person is a Child, (iii) is on
active duty with the armed forces of any country. A Dependent Child
of parents who are both Covered Executives will be considered the
Dependent of both parents.
11.18. Diagnosis Related Group (DRG). Classifications of inpatient cases
which group inpatients by principal diagnosis and other relevant
factors.
11.19. DRG Amount. A predetermined charge for each Diagnosis Related Group,
as determined by any applicable law or regulation, or otherwise by
the Claims Administrator.
11.20. Durable Medical Equipment. Equipment for medical or surgical
purposes that
(A) is designed to withstand prolonged use in the treatment of a
Sickness or Injury,
(B) is suitable for use in the Covered Person's home;
(C) is not normally of use to persons who do not have a Sickness or
Injury;
(D) is not normally for use in altering air quality or temperature;
(E) is not for the purpose of exercise or training of persons who do
not have a Sickness or Injury.
11.21. Effective Date. October 1, 1990, the effective date of this
amendment and restatement of the Plan.
11.22. Effective Treatment of Substance Dependency. A program of
Substance Dependency therapy that is prescribed and supervised by a
Physician and meets either of the following:
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(A) The Physician certifies that a follow-up program has been
established which includes therapy by a Physician, or group
therapy under a Physician's direction, at least once per month.
(B) It includes attendance at least twice a month at meetings of
organizations devoted to the therapeutic treatment of Substance
Dependency.
Treatment solely for detoxification or primarily for maintenance care
is not considered effective treatment. Detoxification is care aimed
primarily at overcoming the aftereffects of a specific episode of
Substance Dependency. Maintenance care consists of the providing of
an environment without access to alcohol or one or more Controlled
Substances or Illegal Drugs.
11.23. Executive. An individual who is employed by the Company and is paid
on the Company's executive payroll or a former Executive whom the
Company determines shall continue to be eligible to participate under
this Plan.
11.24. ERISA. The Employee Retirement Income Security Act of 1974, as
amended, and the implementing regulations issued thereunder by the
appropriate governmental authority. References herein to any Section
of ERISA shall include reference to any successor section of ERISA.
11.25. Experimental. A treatment, procedure, device or drug which the
Claims Administrator, in the exercise of its discretion, determines
does not constitute accepted medical practice under the standards of
a reasonably substantial, qualified, responsible and relevant segment
of the medical community after taking into account whether the
treatment, procedure, drug or device is Necessary.
The Claims Administrator shall make an evaluation of the Experimental
standing of a specific treatment, procedure, device or drug. The
decision of the Claims Administrator shall be rendered following a
review of the case and the proposed treatment.
11.26. FMLA Leave. Leave approved in accordance with the Company's FMLA
Policy.
11.27. FMLA Policy. The Lyondell Petrochemical Company Family and Medical
Care Leave Policy.
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11.28. Freestanding Surgical Facility. A specialized institution which meets
all of the following requirements:
(A) It is permanently established, equipped and operated solely to
accommodate the performance of outpatient surgery by Physicians
who are legally authorized to perform surgery;
(B) It has at least two operating rooms and at least one recovery
room; is equipped to perform diagnostic lab and x-ray procedures
in connection with surgery; has resuscitation equipment for
emergencies resulting from surgery, a blood bank and other blood
supplies;
(C) It has the full-time services of registered nurses for patient
care in operating and recovery rooms;
(D) It has a written agreement with one or more Hospitals in the
area for immediate acceptance of patients who develop
complications or require post-operative confinement; and
(E) It has an organized medical staff supervising its operations as
required by established policy and maintains adequate medical
records for all patients.
11.29. Health Care Provider. Any Physician, registered graduate nurse,
licensed practical nurse, home health aide, speech or physical
therapist, licensed social worker or family counselor or Hospital,
facility, laboratory or other individual or entity that provides
services which are eligible for reimbursement under the Plan as
Covered Expenses.
11.30. Home Health Care. Services that are rendered pursuant to a Home
Health Care Plan and which are Necessary to treat an Injury or
Sickness for which a Covered Person would otherwise have required
inpatient confinement in a Hospital or similar institution and are
rendered pursuant to a Home Health Care Plan. Home Health Care
services shall be limited to:
(A) Part-time or intermittent nursing care rendered by a registered
nurse or a licensed practical nurse under the supervision of a
registered nurse;
(B) Physical, occupational and speech therapy rendered or supervised
by a duly qualified therapist;
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(C) Medical supplies, drugs and medicines prescribed by a Physician;
(D) Laboratory services that would have been provided had the
Covered Person been confined in a Hospital;
(E) Part-time or intermittent home health aide services provided in
the Covered Person's home. Such services shall consist primarily
of patient care of a medical or therapeutic nature.
Home Health Care shall not include (i) services or supplies that are
rendered by a person who ordinarily resides in the Covered Person's
home or is a member of the Covered Person's or his spouse's family;
(ii) custodial care; (iii) transportation services; (iv) services or
supplies furnished while the Covered Person is not under the
continuous care of a Physician.
11.31. Home Health Care Agency. An agency or organization which meets fully
every one of the following requirements:
(A) It is primarily engaged in and duly licensed, if such licensing
is required, by the appropriate licensing authority to provide
skilled nursing services and other therapeutic services.
(B) It has policies established by a professional group associated
with the agency or organization. This professional group must
include at least one Physician and at least one registered
graduate nurse (R.N.) to govern the services provided and it
must provide for full-time supervision of such services by a
Physician or by a registered graduate nurse (R.N.).
(C) It maintains a complete medical record on each patient.
(D) It has a full-time administrator.
11.32. Home Health Care Plan. A program for care and treatment of the
Covered Person established and approved in writing by such Covered
Person's attending Physician. The attending Physician must certify
that the proper treatment of the disease or injury would require
confinement as a resident inpatient in a Hospital or Convalescent
Facility in the absence of the services and supplies provided as part
of the home health care plan.
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11.33. Hospice Care. Care given to a Terminally Ill Covered Person by or
under arrangements with a Hospice Care Agency. The care must be part
of a Hospice Care Program.
Hospice Care shall not include charges for bereavement counseling,
funeral arrangements, pastoral counseling, financial or legal
counseling, homemaker or caretaker services for the Covered Person or
his family, transportation, home maintenance or respite care, or any
charges for which Benefits are payable under any other section of
this Plan or any other plan maintained by the Company.
11.34. Hospice Care Agency. An agency or organization which:
(A) Has Hospice Care available 24 hours a day.
(B) Meets any licensing or certification standards set forth by the
jurisdiction where it is.
(C) Provides:
(1) Skilled nursing services.
(2) Medical social services.
(3) Psychological and dietary counseling.
(4) Bereavement counseling for the immediate family.
(D) Provides or arranges for other services which will include:
(1) Services of a Physician.
(2) Physical or occupational therapy.
(3) Part-time home health aide services which mainly consist of
caring for Terminally Ill individuals.
(4) Inpatient care in a facility when needed for pain control
and acute and chronic symptom management.
(E) Has personnel which include at least:
(1) One Physician.
(2) One registered nurse (R.N.).
(3) One licensed or certified social worker employed by the
Agency.
(4) One pastoral or other counselor.
(F) Establishes policies governing the provision of Hospice Care.
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(G) Assesses the patient's medical and social needs.
(H) Develops a Hospice Care Program to meet those needs.
(I) Provides an ongoing quality assurance program, including reviews
by Physicians, other than those who own or direct the Agency.
(J) Permits all area medical personnel to utilize its services for
their patients.
(K) Keeps a medical record on each patient.
(L) Utilizes volunteers trained in providing services for non-
medical needs.
(M) Has a full-time administrator.
11.35. Hospice Care Program. A written plan of Hospice Care, which:
(A) Is established by and reviewed from time to time by a Physician
attending the Covered Person and
appropriate personnel of a Hospice Care Agency;
(B) Is designed to provide (i) palliative and supportive care to
Terminally Ill Covered Persons and (ii) supportive care to their
families;
(C) Includes (i) an assessment of the Covered Person's medical and
social needs and (ii) a description of the care to be rendered
to meet those needs.
11.36. Hospice Facility. A facility, or distinct part of one, which:
(A) Mainly provides inpatient Hospice Care to Terminally Ill Covered
Persons.
(B) Charges its patients.
(C) Meets any licensing or certification standards set forth by the
jurisdiction where it is.
(D) Keeps a medical record on each patient.
(E) Provides an ongoing quality assurance program, including reviews
by Physicians other than those who own or direct the facility.
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(F) Is run by a staff of Physicians, at least one who must be on
call at all times.
(G) Provides, 24 hours a day, nursing services under the direction
of a registered nurse (R.N.).
(H) Has a full-time administrator.
11.37. Hospital. An institution meeting all the following tests:
(A) It engages primarily in providing, on an inpatient basis,
diagnostic and therapeutic facilities for surgical and medical
diagnosis, treatment, and care of injured and sick persons.
(B) Its services are provided for compensation by its patients and
under the supervision of a staff of Physicians.
(C) It provides 24 hour per day registered graduate nursing (R.N.)
services.
(D) It is not, other than incidentally, a nursing home, a place for
rest, or for the aged or substance dependents.
11.38. Incurred. The charge for a service or supply is considered to be
incurred on the date the service was rendered or the item furnished.
In the absence of due proof to the contrary when a single charge is
made for a series of services, each service will be considered to
bear a pro rata share of the charge.
11.39. Injury. Accidental bodily injury that (i) is sustained by a person
while he or she is covered under the Plan and (ii) does not arise out
of (or in the course of) any work performed by the Covered Person for
pay or profit or result in any way from an Injury that does arise
from such work. Such injury must result in loss directly and
independently of all other causes. All bodily injuries caused by one
Accident shall be considered as one Injury.
11.40. Intensive Care Unit. An area within a Hospital which is specifically
reserved, specially equipped, and specially staffed by the Hospital
for the treatment and care of patients who are so critically ill as
to required extraordinary, continuous, and intensive nursing care for
the preservation of life.
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11.41. Medical Emergency. The sudden and unexpected onset of acute
conditions requiring medical care such as heart attacks,
cardiovascular accidents, poisoning, loss of consciousness or
respiration.
11.42. Medicare. The "Health Insurance For The Aged and Disabled" part of
the U.S Social Security Act, as now constituted or later amended.
11.43. Medicare Eligibility. A Covered Person is "eligible for Medicare"
during any period he either has coverage under Medicare or, while
otherwise qualifying for coverage under Medicare, does not have such
coverage solely because he has refused, discontinued, or failed to
make any necessary application for, Medicare Coverage.
11.44. Mental Health Problems. A disease or condition (i) for which
treatment is rendered by a Health Care Provider acting within the
scope of his license or certification to provide care for Mental
Health Problems defined in (ii); (ii) that is (a) classified as a
mental disorder in the current edition of International
Classification of Diseases published by the United States Department
of Health and Human Services, (b) listed in the current edition of
Diagnostic and Statistical Manual of Mental Disorders published by
the American Psychiatric Association or (c) determined to be a Mental
Health Problem by the Claims Administrator, in its discretion.
Mental Health Problems shall include, but shall not be limited to,
mental, adjustment, anxiety, mood, eating, psychoneurotic and
personality disorders, but shall specifically exclude non-medical
conditions such as family or marital problems.
11.45. Necessary. Coverage is only provided for a service or supply
which, as determined by the Claims Administrator in its sole
discretion, is necessary for the diagnosis, care, or treatment of the
physical or mental condition involved whether or not prescribed,
recommended or approved by the attending Physician or dentist. The
service or supply must be widely accepted professionally in the
United States as effective, appropriate, and essential based upon
recognized standards of the health care specialty involved.
In no event will the following be considered to be Necessary:
(A) Those services rendered by a Health Care Provider that do not
require the technical skills of a Health Care Provider.
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(B) Those services and supplies furnished mainly for the personal
comfort or convenience of the Covered Person, any person who
cares for him, or any person who is part of his family.
(C) Those services and supplies furnished to Covered Person solely
because he is an inpatient on any day on which the Covered
Person's physical or mental condition could safely and
adequately be diagnosed or treated while not confined.
(D) That part of the cost which exceeds that of any other service or
supply that would have been sufficient to safely and adequately
diagnose or treat the Covered Person's physical or mental
condition.
11.46. Non-occupational Disease. A disease is considered non-occupational
only if it does not arise out of (or in the course of) any work for
pay or profit nor, in any way, results from a disease which does.
However, if proof is furnished to the Claims Administrator that an
individual covered under a Worker's Compensation Law (or other law of
similar purpose), is not covered for a particular disease under such
law, that disease shall be considered "non-occupational" regardless
of its cause.
11.47. Non-occupational Injury. An injury is considered non-occupational
only if it is an accidental bodily injury and does not arise out of
(or in the course) any work for pay or profit nor, in any way,
results from an injury which does.
11.48. Obstetric Care. The following items prescribed by a Physician and
required solely to manage pregnancy and/or to treat Sickness caused
directly by pregnancy, excluding all services and supplies furnished
by a Hospital, a pathologist, a radiologist, an anesthesiologist and
an assistant surgeon in connection with inpatient confinement:
(A) Drugs, medicines, diagnostic tests and medical equipment for
monitoring or testing;
(B) Services rendered by a Physician during the course of or
immediately following termination of pregnancy, including, but
not limited to, Cesarean or vaginal delivery, episiotomy and
treatment for ectopic pregnancy and spontaneous abortion and
voluntary abortion; and
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(C) One visit to a Physician following termination of pregnancy.
11.49. Office Visit. Services rendered by a Physician at the Physician's
place of business (other than a Hospital, Skilled Nursing Facility,
Convalescent Facility, Treatment Facility or Hospice) for which
Covered Medical Expenses are Incurred.
11.50. Orthodontic Treatment. Any medical or dental service or supply
furnished to prevent, diagnose, or correct a misalignment of the
teeth, bite, or jaws or jaw joint relationships, whether or not for
the purposes of relieving pain, excluding the installation of a space
maintainer or a surgical procedure to correct malocclusion.
11.51. Period of Hospital Confinement. As to Hospital Expense Benefits and
In-Hospital Physician Expense Benefits, all Hospital confinements of
a Covered Person will be considered as beginning during one period of
disability (regardless of any interruption in Coverage). However,
the latest confinement will not be considered as having begun during
the same period of disability as prior confinements if any of the
following applies:
(A) No cause of the latest confinement can be connected with a cause
of any prior confinement.
(B) A cause of the latest confinement can be connected with a cause
of a prior confinement but, between the last previous connected
confinement and the latest confinement the Covered Person has
recovered from all causes of the prior connected confinements.
(C) The Covered Person is an active Executive and has returned to
active work for a full day; or
(D) The Covered Person is a Retiree or Dependent and has not been
confined in a hospital for at least 90 days.
11.52. Pharmacy. An establishment where Prescription Drugs are legally
dispensed.
11.53. Physician. A legally qualified physician. However, if another
practitioner lawfully performs a service for which a Benefit is
provided under this Plan when performed by a Physician and if
applicable law requires the recognition of such practitioner under
this Plan, the term "Physician" will also include such a
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practitioner but only to the extent required by law. For purposes of
determining Mental Health Problem Benefits, a legally qualified
Physician will also include a licensed or certified psychologist, a
licensed social worker and a licensed family and child counselor who
is under the direct supervision of a psychiatrist or a licensed or
certified psychologist, if the care of the social worker or counselor
(1) is required to diagnosis or treat the Mental Health
Problem;
(2) the patient has been referred by a licensed psychologist or
a Physician; and
(3) the patient is directly and personally attended to by the
licensed psychologist or Physician at least once for every
four visits to the social worker or counselor.
11.54. Plan. The Lyondell Petrochemical Company Executive Medical Plan, as
described herein, as it may be amended from time to time.
11.55. Plan Document. The document setting forth the terms and conditions
of the Lyondell Petrochemical Company Executive Medical Plan, as
amended and restated effective October 1, 1990, including any
insurance contract.
11.56. Plan Year. The calendar year.
11.57. Prescription. An order of a Physician or other health care
professional, acting within the scope of his or her license and legal
authority, for a Prescription Drug. Any oral Prescription must
promptly be recorded in writing by the Pharmacy.
11.58. Prescription Drugs. A drug, biological or compounded Prescription
which, by federal law, may be dispensed only by Prescription and
which is required to be labeled as such; injectable insulin,
disposable needles and syringes and disposable diabetic supplies;
smoking cessation aids prescribed by a Physician.
11.59. Reasonable Charge. The Reasonable Charge for a service or supply is
the lower of (i) the Health Care Provider's usual charge for
furnishing it; and (ii) the charge the Claims Administrator
determines to be the prevailing charge level in the geographic area
where it is furnished.
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In determining the Reasonable Charge for a service or supply that is
unusual, not often provided in the area, or provided by only a small
number of Health Care Providers in the area, the Claims Administrator
may take into account factors, such as (i) the complexity; (ii) the
degree of skill needed; (iii) the type of specialty of the Health
Care Provider; (iv) the range of services or supplies provided by a
facility; and (v) the prevailing charge in other areas.
When a Hospital or other facility is required to charge the DRG
Amount for a service or supply, the DRG Amount will be considered the
Reasonable Charge.
11.60. Retiree. A former Executive who was a member of this Plan maintained
by the Company and who, while a member of this Plan,
(A) Terminated employment after attainment of age 62, or
(B) Retired at any time with an immediate retirement allowance from
a retirement plan of the Company, or
(C) Retired with a disability retirement allowance from a retirement
plan of the Company.
Notwithstanding any contrary provision of the Plan, if a former
Executive's Coverage is extended pursuant to the other provisions of
the Plan, and if such former Executive is eligible to receive an
immediate retirement allowance from a retirement plan of the Company
and elects to have his retirement allowance commence no later than
the day following the last day of such extended participation in the
Plan, then such former Executive shall be deemed to be a Retiree for
purposes of the Plan.
11.61. Sickness. For purposes of this Plan, any of the following, whether
or not diagnosed, treated or requiring treatment: ill health,
disease, pregnancy and bodily or mental infirmity or disorder
including Mental Health Problems and Substance Dependency. All
Sicknesses which are due to the same cause or related causes shall be
considered as one Sickness.
Notwithstanding the foregoing, the term "Sickness" does not include
any disease or other bodily or mental infirmity or disorder that
arises out of or in the course of any work for pay or profit or
results in any way from a disease that does. A disease or other
bodily
85
<PAGE>
or mental infirmity or disorder will be deemed not to arise out of
work for pay or profit if the Covered Person provides proof that the
Claims Administrator, in its discretion, determines to be sufficient
evidence that the Covered Person is covered under any type of
workers' compensation law and is not eligible to receive benefits for
that disease, bodily or mental infirmity or disorder under such
workers' compensation law.
11.62. Skilled Nursing Care. Services of a registered nurse or a licensed
nurse that require the education, training and technical skills of a
registered nurse or a licensed nurse, including the administration of
oral medicines required by law to be dispensed by a registered or
licensed nurse. Skilled Nursing Care shall not include:
(A) The portion of any nursing care that does not require the
education, training and technical skills of a registered nurse
or a licensed nurse, including transportation, meal preparation,
charting of vital signs or companionship activities;
(B) Private duty nursing care given while the person is an inpatient
in a hospital or other health care facility;
(C) Care provided to help a person in the activities of daily life,
such as bathing, feeding, personal grooming, dressing, getting
in and out of bed or a chair, or toileting;
(D) Care provided solely for skilled observation except for care
following the occurrence of (1) a change in medication of the
Covered Person; (2) the need for Emergency medical services
provided by a Physician or the onset of symptoms indicating the
likely need for such services; (3) surgery or (4) release from
inpatient confinement; or
(E) Any service provided solely to administer oral medicines, except
where applicable law requires that such medicines be
administered by a registered nurse or a licensed nurse.
11.63. Spouse. The Executive's or Retiree's legally qualified spouse as
determined under the laws of the state in which the Executive or
Retiree primarily resides while Covered.
86
<PAGE>
11.64. Substance Dependency. The current and habitual use of alcohol
or one or more Controlled Substances or Illegal Drugs or such other
substance as may be determined by the Claims Administrator, in its
discretion. "Controlled Substance" means a drug or substance listed
in the Federal Controlled Substances Act and includes, but is not
limited to, marijuana, hashish, heroin, cocaine, phencyclidine (PCP),
benzodiazepines, narcotics, opiates, hallucinogens, inhalants and any
other substances which have either a stimulant or depressant effect
on the central nervous system, such as amphetamines or barbiturates.
"Illegal Drug" means any drug which (i) is not legally obtainable,
(ii) is legally obtainable but has not been legally obtained, or
(iii) has been legally obtained but is not being used for prescribed
purposes or in a prescribed manner.
11.65. Surgical Services. The professional services of the operating
Physicians in performing a surgical procedure on a Covered Person,
including related preoperative and post-operative care, and the
administering of an anesthetic by the Physician. A "surgical
procedure" is any procedure in the following categories:
(A) Incision, excision, or electrocauterization of any part of the
body.
(B) Manipulative reduction of a fracture or dislocation.
(C) Suturing of a wound.
(D) Endoscopic removal of a stone or foreign object from the larynx,
bronchus, trachea, esophagus, stomach, urinary bladder, or
ureter.
(E) An obstetrical procedure.
11.66. Terminally Ill. A medical prognosis of 6 months or less to live.
11.67. Total Disability and/or Totally Disabled. In the case of
(A) An Executive, his inability due to Injury or Sickness to engage
in any occupation or employment for wages or profit, as
determined in accordance with the provisions of the Company's
Long-Term Disability Plan; and
87
<PAGE>
(B) A Dependent or Retiree, his inability due to Injury or Sickness
to perform activities normal to persons of like age and sex in
good health.
11.68. Treatment Facility. As the term applies to the treatment of
Substance Dependency, an institution, or a distinct part of an
institution, meeting all of the following tests:
(A) It is primarily engaged in providing, for compensation from its
patients, a program for diagnosis, evaluation, and Effective
Treatment of Substance Dependency.
(B) It provides all medical detoxification services on the premises,
24 hours a day.
(C) It provides all normal infirmary-level medical services required
for the treatment of any disease or Injury manifested during the
treatment period, whether or not related to the Substance
Dependency. Also it provides, or has an agreement with a
Hospital in the area to provide, any other medical services that
may be required.
(D) At all times during the treatment period, it is under the
continuous supervision of a staff of Physicians and it
continuously provides skilled nursing services by licensed
nursing personnel under the direction of a full-time registered
graduate nurse.
(E) It prepares and maintains a written individual plan of treatment
for each patient based on a diagnostic assessment of the
patient's medical, psychological and social needs with
documentation that the plan is under the supervision of a
Physician.
(F) It meets any applicable licensing standards established by the
jurisdiction in which it is located.
11.69. Treatment of a Mental Health Problem. Includes only treatment of a
Mental Health Problem not related to, accompanying or resulting from
the Covered Person's Substance Dependency.
88
<PAGE>
EXHIBIT 10.4a
INSTRUMENT AMENDING
LYONDELL PETROCHEMICAL COMPANY
EXECUTIVE MEDICAL PLAN
LYONDELL PETROCHEMICAL COMPANY hereby amends the Lyondell Petrochemical Company
Executive Medical Plan, effective January 1, 1996, as follows:
Section 5, TERMINATION OF COVERAGE, is amended to read as follows:
If all of any part of an Executive's or Retiree's Coverage terminates, for
a reason other than the Executive or Retiree's death, then the
corresponding Coverage for his Dependents, if any, shall terminate
simultaneously, unless otherwise extended under the provisions of
subsection 5.6, Continuation of Coverage Under Certain Circumstances.
Section 5, TERMINATION OF COVERAGE, subsection 5.2, Dependents, paragraph (A),
is amended to read as follows:
5.2. Dependents. Subject to the provisions below for Handicapped Dependent
Children and totally disabled dependents, Coverage for a Covered
Dependent shall terminate on the earliest to occur of the following:
(A) The date on which the Executive's or Retiree's Coverage
terminates for a reason other than the Executive's or Retiree's
death;
Section 6, CONTINUATION COVERAGE (COBRA), subsection 6.1, Entitlement to COBRA
Coverage, paragraph (B), is amended to read as follows:
<PAGE>
6.1. Entitlement to COBRA Coverage.
(B) Covered as a Dependent Spouse
If a Covered Person is Covered by the Plan as the Dependent
Spouse of an Executive or Retiree, he has the right to elect
COBRA coverage for himself if he loses Coverage for any of the
reasons in (A) above or for one of the following reasons:
(1) He becomes divorced or legally separated; or
(2) The Executive or Retiree becomes entitled to Medicare.
IN WITNESS WHEREOF, LYONDELL PETROCHEMICAL COMPANY acting by and through its
duly authorized officer, has caused this Instrument to be executed on this 22nd
day of March, 1996.
ATTEST: LYONDELL PETROCHEMICAL COMPANY
BY:/s/ Gerald A. O'Brien BY:/s/ Richard W. Park
---------------------- -----------------------------------
Assistant Secretary Richard W. Park
Vice President, Human Resources
<PAGE>
EXHIBIT 10.4b
INSTRUMENT AMENDING
LYONDELL PETROCHEMICAL COMPANY
EXECUTIVE MEDICAL PLAN
LYONDELL PETROCHEMICAL COMPANY hereby amends the Lyondell Petrochemical Company
Executive Medical Plan, effective November 1, 1996, to read as follows:
Section 3, COVERAGE, Subsection 3.2, Percentages Payable, is amended to read as
follows:
3.2. Percentages Payable. The Plan shall pay Benefits, other than
Prescription Drug Benefits, at 100% of Reasonable Charges, unless
otherwise provided. The Plan shall pay Prescription Drug Benefits at
100% of Reasonable Charges in excess of the copayment if the
Reasonable Charge for the Prescription Drug is greater than the
copayment.
Benefits shall be paid after satisfaction of all terms, conditions and
limitations of this Plan. Only charges that, in the opinion of the
Claims Administrator, are Reasonable Charges will be considered as
Covered Medical Expenses for which reimbursement may be obtained.
Coverage at 100%, or 100% less copayment for Prescription Drug
Benefits, shall not apply to expenses for which Benefits are payable
under any other "plan," as defined in the section entitled
"Coordination of Benefits." For such expenses, the Plan shall not pay
more than a reduced amount which, when added to Benefits payable under
the Coordination of Benefits section, will not exceed 100% of
Reasonable Charges or 100% of Reasonable Charges less copayment for
Prescription Drugs covered under this Plan.
Section 3, COVERAGE, is amended to add new Subsection 3.8, Special Prescription
Drug Program, to read as follows:
<PAGE>
3.8 Special Prescription Drug Program.
(A) In General. Benefits will be paid for a Prescription Drug that is
dispensed by a Pharmacy for treatment of a Sickness or Injury at
100% of Reasonable Charges in excess of the copayment, if the
Reasonable Charge for the Prescription Drug is greater than the
amount of the copayment.
Copayments for brand names and generic drugs are as follows:
Prescription Drug Copayments
Local Purchase
Generic $ 3.00
Brand Name $10.00
Mail Order (31-90 day supply)
Generic $ 5.00
Brand Name $15.00
The copayment with respect to brand name drugs shall apply to any
brand name drug that is dispensed unless there is no generic
equivalent to the brand name drug or the Pharmacy is unable to
provide the generic drug at the time the prescription is
presented. If the Pharmacy participates in the Special
Prescription Drug Program, the Covered Person need only pay the
applicable copayment at the time he obtains his Prescription Drug
in order to receive the Benefits under the Plan. If the Pharmacy
does not participate in the Special Prescription Drug Program,
the Covered Person must pay the entire cost of the Prescription
Drug at the time the Prescription Drug is obtained and must
submit a claim in order to receive Benefits under the Plan.
Notwithstanding any other provision of this Plan to the contrary,
Benefits will be paid under this Special Prescription Drug
Program for Prescription Drugs that (i) are Covered Mental Health
Problem Expenses and (ii) comply with all other requirements of
the Special Prescription Drug Program.
(B) Mail Order. A Covered Person may, at his option, elect to obtain
his Prescription Drugs from a Mail Order Pharmacy and will
receive Benefits at 100% of the Reasonable Charge in excess of
the Copayment for mail order drugs. With respect to the Mail
Order Pharmacy, the Covered Person need only pay the applicable
copayment at the time he obtains his Prescription Drug in order
to receive the Benefits under the Plan.
2
<PAGE>
(C) Limitation on Special Prescription Drug Benefits. Notwithstanding
any other provision of this Plan to the contrary, Benefits will
not be payable under the terms of this Special Prescription Drug
Program for the following charges:
(1) For items that are not Prescription Drugs and that are not
ordered by a Physician;
(2) For any drug that is entirely consumed at the time and place
it as prescribed;
(3) For less than a 30-day or more than a 90-day supply of a
Prescription Drug that is dispensed on a single occasion by
a Mail Order Pharmacy;
(4) For any injectable agent except insulin;
(5) For the administration or injection of any drug;
(6) For any contraceptive drug except oral contraceptives;
(7) For more than a 30-day supply per prescription or refill
from a Pharmacy other than a Mail Order Pharmacy;
(8) For any refill of a drug if it is more than the number of
refills specified by the Prescribing Physician; if the
prescriber has not specified the number of refills, or if
the frequency or number of prescriptions or refills appears
excessive under accepted medical practice standards, the
Claims Administrator, before recognizing charges, may
require a new Prescription or evidence as to need.
(9) For any refill of a Prescription Drug dispensed more than
one year after the latest Prescription for it or as
permitted by law of the jurisdiction in which the
Prescription Drug is dispensed;
(10) For any Prescription Drug provided by or while the person is
an inpatient in any health care facility;
(11) For any Prescription Drug provided on an outpatient basis in
any such institution to the extent Benefits are paid for it
under any other part of this Plan or any other program
sponsored by the Company;
(12) For any Prescription Drug for which Benefits are actually
paid under any other part of this Plan.
3
<PAGE>
and Sections 3.8 and 3.9 are renumbered as Sections 3.9 and 3.10, respectively.
Section 6, CONTINUATION COVERAGE (COBRA), Subsection 6.1, Entitlement to COBRA
Coverage,
Subpart (C), is amended to read as follows:
(C) Covered as a Dependent. If a Covered Person is covered by the
Plan as a Dependent Child of an Executive, he has the right to
elect COBRA coverage for himself if he loses coverage for any of
the reasons in (A) or (B) above, or if he ceases to be a
Dependent Child eligible for Coverage under the Plan.
For purposes of eligibility for COBRA coverage, a Dependent Child
shall include a Child born to or placed for adoption with a
Covered Person who was an Executive during the period of COBRA
Coverage applicable to that Covered Person. Coverage shall begin
as of the same date for applicable Coverage for Dependents under
Section 2.4.
Section 6, CONTINUATION COVERAGE (COBRA), Subsection 6.3, Notice of COBRA
Events, paragraph 2, is amended to read as follows:
If a Covered Person elects COBRA coverage due to an employment
termination (other than gross misconduct) or reduction in hours and
the Social Security Administration determines that the Covered Person
was disabled within the first 60 days of COBRA coverage, he must
notify the Claims Administrator within the 18-month period described
below. He also must notify the Claims Administrator within 30 days
after the date he is determined to be no longer disabled.
Section 6, CONTINUATION COVERAGE (COBRA), Subsection 6.4, Duration of COBRA
Coverage, is amended to read as follows:
6.4. Duration of COBRA Coverage. If a Covered Person does not elect
COBRA coverage when it is offered to him, his coverage under the
Plan will end. If he elects COBRA coverage, his coverage will be
identical to the coverage provided under the Plan to similarly
situated Executives or Dependents, as of the time
4
<PAGE>
coverage is being provided. This means that if the coverage for
similarly situated Executives or Dependents is modified, his coverage
will be modified in the same manner. COBRA coverage generally will
last for 36 months unless the Covered Person lost coverage because of
------
a termination of employment (other than gross misconduct) or reduction
in hours of employment, in which case, COBRA coverage will last for
only 18 months. The 18-month coverage period may be extended to 29
months if the Covered Person is determined to be disabled by the
Social Security Administration within the first 60 days of COBRA
coverage, provided that the Covered Person notifies the Company before
the end of the 18-month period.
If the Covered Person who is an Executive becomes entitled to
Medicare, the maximum duration of COBRA coverage for qualified
beneficiaries, other than the Covered Person who is an Executive,
whether coverage is acquired as a result of eligibility for Medicare
or other subsequent event, is 36 months from the date of the
determination of Medicare eligibility.
Special rules govern the COBRA coverage period when a Retiree or his
family member loses coverage because of the commencement of bankruptcy
proceedings concerning the Company, or if certain qualifying events
occur within 18 or 29 months of a termination or reduction in hours of
employment.
IN WITNESS WHEREOF, LYONDELL PETROCHEMICAL COMPANY, acting by and through its
duly authorized officer, has caused this Instrument to be executed on this 19th
day of December, 1996.
ATTEST: LYONDELL PETROCHEMICAL COMPANY
By:/s/ G.A. O'Brien By:/s/ Richard W. Park
-------------------------- ---------------------------
Assistant Secretary Richard W. Park
Vice President, Human Resources
5
<PAGE>
EXHIBIT 10.5
LYONDELL PETROCHEMICAL COMPANY
================================================================================
EXECUTIVE DEFERRAL PLAN
EFFECTIVE SEPTEMBER 1, 1996
<PAGE>
LYONDELL PETROCHEMICAL COMPANY
EXECUTIVE DEFERRAL PLAN
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I - GENERAL PROVISIONS............................................. 1
Section 1.1 Purpose and Intent of Plan............................ 1
Section 1.2 Effective Date of Plan................................ 1
Section 1.3 Definitions........................................... 1
ARTICLE II - PARTICIPATION AND DEFERRAL COMMITMENTS........................ 6
Section 2.1 Eligibility and Participation......................... 6
Section 2.2 Forms of Deferral..................................... 6
Section 2.3 Deferral Elections.................................... 6
Section 2.4 Limitation on Deferral................................ 7
Section 2.5 Termination of Employment............................. 7
Section 2.6 Transfers............................................. 7
Section 2.7 Modification of Deferral Commitments.................. 7
ARTICLE III - DEFERRED COMPENSATION ACCOUNTS............................... 9
Section 3.1 Accounts.............................................. 9
Section 3.2 Deferred Compensation................................. 9
Section 3.3 Interest Rate......................................... 9
Section 3.4 Determination of Accounts............................. 10
Section 3.5 Vesting of Accounts................................... 10
Section 3.6 Statement of Accounts................................. 10
ARTICLE IV - PLAN BENEFITS................................................. 11
Section 4.1 Basic Plan Benefit.................................... 11
Section 4.2 Form and Time of Retirement
Distribution.......................................... 11
Section 4.3 Form of Distribution Upon Termination of
Employment............................................ 12
Section 4.4 Survivor Benefits..................................... 12
Section 4.5 Early Distributions................................... 15
Section 4.6 Unscheduled Distributions............................. 16
Section 4.7 Disability............................................ 16
Section 4.8 Termination of Employment Due to Special
Circumstances......................................... 17
Section 4.9 Valuation and Settlement.............................. 17
Section 4.10 Small Benefit......................................... 18
Section 4.11 Benefits In the Event of a Change in
Control............................................... 18
Section 4.12 Definitions........................................... 20
ARTICLE V - DESIGNATION OF BENEFICIARY..................................... 24
Section 5.1 Designation of Beneficiary............................ 24
Section 5.2 Failure to Designate Beneficiary...................... 24
</TABLE>
(i)
<PAGE>
LYONDELL PETROCHEMICAL COMPANY
EXECUTIVE DEFERRAL PLAN
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
ARTICLE VI - ADMINISTRATION................................................ 25
Section 6.1 Administrative Committee.............................. 25
Section 6.2 Rules of Conduct; Administrative
Provisions............................................ 25
Section 6.3 Legal, Accounting, Clerical and Other
Services.............................................. 25
Section 6.4 Interpretation of Provisions.......................... 25
Section 6.5 Records of Administration............................. 25
Section 6.6 Denial of Claim....................................... 26
Section 6.7 Liability of Committee................................ 26
ARTICLE VII - AMENDMENT AND DISCONTINUANCE................................. 27
Section 7.1 Amendment of Plan..................................... 27
Section 7.2 Termination........................................... 27
Section 7.3 Effect of Amendment or Termination.................... 27
ARTICLE VIII - MISCELLANEOUS............................................... 28
Section 8.1 Unfunded Benefit Plan................................. 28
Section 8.2 Unsecured General Creditor............................ 28
Section 8.3 Grantor Trust......................................... 28
Section 8.4 Payments and Benefits Not Assignable.................. 28
Section 8.5 No Right of Employment................................ 29
Section 8.6 Adjustments........................................... 29
Section 8.7 Obligation to Company................................. 29
Section 8.8 Protective Provisions................................. 29
Section 8.9 Gender, Singular and Plural........................... 30
Section 8.10 Law Governing......................................... 30
Section 8.11 Notice................................................ 30
Section 8.12 Successors and Assigns................................ 30
Section 8.13 Provisions for Incapacity............................. 30
APPENDIX A - EXAMPLE OF SURVIVOR BENEFIT DETERMINATION AND
PRORATION..................................................... 32
</TABLE>
(ii)
<PAGE>
ARTICLE I
GENERAL PROVISIONS
SECTION 1.1 PURPOSE AND INTENT OF PLAN.
This Plan is intended to provide the opportunity for eligible Employees to
accumulate supplemental funds through the deferral of portions of their regular
salary, Awards and Executive Supplementary Savings Plan benefits for retirement
or special needs prior to retirement.
The Prior Plan was an amendment and restatement of the deferral provisions
of the Lyondell Petrochemical Company Annual Incentive Plan and Lyondell
Petrochemical Company Executive Supplementary Savings Plan as in effect on
October 1, 1990.
SECTION 1.2 EFFECTIVE DATE OF PLAN.
This amended and restated Plan document shall be generally effective as of
September 1, 1996 and shall apply to those Employees who are employed by the
Company on or after September 1, 1996 except to the extent that certain
provisions hereof specify that they are effective as of a different date.
SECTION 1.3 DEFINITIONS.
ACCOUNT means a separate bookkeeping account maintained by the Company for
-------
each Employee and which measures and determines the amounts to be paid to the
Employee under the Plan. Effective October 1, 1996, separate subaccounts for
previous deferrals of Salary, Awards or ESSP Benefits will be consolidated into
a single account balance. Accounts shall include any Transferred Accounts that
were assumed as obligations of this Plan as of October 1, 1990.
ADMINISTRATIVE COMMITTEE means the Benefits Administrative Committee of the
------------------------
Company.
AWARDS means cash awards made under the Lyondell Petrochemical Company
------
Value Share Plan or awards under any other plan that the Board of Directors of
Lyondell Petrochemical Company, or its Compensation Committee thereof, has
authorized the Company to adopt and has further authorized awards thereunder to
be treated as Awards under this Plan.
1
<PAGE>
BENEFICIARY means a person who is entitled to receive an Employee's
-----------
interest under this Plan in the event of the Employee's death.
CHANGE IN CONTROL means a change in the control of Lyondell Petrochemical
-----------------
Company as defined in Section 4.12 of the Plan.
CITIBANK BASE RATE means the average of the base rates in effect on January
------------------
1, April 1, July 1 and October 1 of each year at Citibank.
CODE means the Internal Revenue Code of 1986, as amended, including any
----
successor provisions thereof and any regulations or other guidance promulgated
pursuant thereto by applicable governmental agencies.
COMPANY means Lyondell Petrochemical Company, a Delaware corporation, or
-------
its successor.
CONSTRUCTIVE TERMINATION FOR GOOD REASON means the termination of the
----------------------------------------
Participant's employment with the Company, LCR, or any subsidiary of the Company
or LCR (a) by the Participant, within 90 days following a Change in Control, if
the Participant is the Chief Executive Officer, Chief Operating Officer, Chief
Financial Officer or General Counsel, or (b) by the Participant, including those
Officers and General Counsel listed above, within two years following a Change
in Control and within 90 days following the occurrence, without the
Participant's written consent, of any of the following events:
(1) the assignment of the Participant to any duties or
responsibilities that are not comparable to the Participant's position,
offices, duties, responsibilities or status immediately preceding such
Change in Control, or a change in the Participant's reporting
responsibilities or titles in effect at such time resulting in a reduction
of the Participant's responsibilities or position with the Company;
(2) the reduction of the Participant's annual salary (including any
deferred portions thereof), the reduction of the Participant's Value Share
Plan as a result of an adverse change in Plan terms (and not as a result of
a reduction solely to satisfy federal tax law requirements), or a material
reduction in the level of benefits or supplemental compensation provided to
the Participant; or
(3) the actual transfer, or the proposed transfer, as evidenced in a
written communication from Company to the Participant, of the Participant
to another location other than the location at which he was primarily
employed immediately preceding the Change in Control, unless such new
location is
2
<PAGE>
a major operating unit or facility of the Company that is located within 50
miles of the Participant's primary location as of the date immediately
preceding such Change in Control; provided, however, (1) the Participant,
-------- -------
within 30 days from the date that he is given written notice by the Company
of such actual or proposed transfer, shall provide the Board with written
notice that such transfer shall constitute a Constructive Termination for
Good Reason hereunder, (2) Company within 20 days of receipt of such notice
by the Board shall fail to provide the Participant with written notice
rescinding such actual or proposed transfer and (3) if the transfer is not
rescinded by the Company, the Participant must terminate his employment due
to Constructive Termination for Good Reason within 40 days following
expiration of the 20-day period referred to in the preceding clause so that
in any event the Participant shall have terminated his employment with the
Company within 90 days after the Participant first receives written notice
from the Company of such actual or proposed transfer.
DEFERRAL ELECTION means an election made by an Employee to defer Salary,
-----------------
Awards, and/or ESSP Benefits pursuant to Article II, for which the Employee has
submitted a Participation Agreement to the Company.
DEFERRAL PERIOD means a maximum number of years, established by the
---------------
Administrative Committee in advance of a particular Deferral Election, over
which the Employee elects to defer Salary, Awards and/or ESSP Benefits. A new
Deferral Period shall normally start each January 1, except that an Employee who
is immediately eligible upon his commencement of employment or who otherwise
attains eligibility following the Effective Date, shall have his Deferral Period
commence 30 days following the Employee's first day of employment or attainment
of eligibility, as applicable.
DEFERRED COMPENSATION means the amount of Salary, Awards and/or ESSP
---------------------
Benefits that a Participant elects to defer pursuant to a Deferral Election.
DISABILITY means the disability as determined under the provisions of the
----------
Company's Executive Long-Term Disability Plan.
EARLY DISTRIBUTION means a distribution prior to Termination of Employment
------------------
pursuant to Section 4.5.
EFFECTIVE DATE means September 1, 1996.
--------------
ELIGIBLE TERMINATION means a termination of an Employee's employment with
--------------------
the Company (other than due to death, Disability or retirement) or his
"Constructive Termination for Good Reason", either of which occurs within 2
years following a Change in Control.
3
<PAGE>
EMPLOYEE means an individual who is a regular salaried employee of the
--------
Company on or after October 1, 1990.
ERISA means the Employee Retirement Income Security Act of 1974, as
-----
amended, including any successor provisions thereof, and any regulations or
other guidance promulgated pursuant thereto by applicable governmental agencies.
ESSP BENEFITS means the benefits under the Company's Executive
-------------
Supplementary Savings Plan.
FINANCIAL HARDSHIP means a condition of financial difficulty, determined by
------------------
the Administrative Committee, upon advice of counsel, based on written
information supplied by the Employee in accordance with such standards
established by the Administrative Committee from time to time, which condition
is sufficient, in counsel's judgment, to justify a change in payment election
under the Plan without causing receipt of taxable income by any other Plan
Participant before the Participant actually receives his benefit.
INCOME TAX GROSS-UP means the benefit described in the last paragraph of
-------------------
Section 4.11 of the Plan.
INTEREST RATE means the interest rate announced by the Company in advance
-------------
of the election period for a Plan Year which shall be the interest rate applied
to that Plan Year.
PARTICIPANT means any Employee who is participating in this Plan as
-----------
provided in Article II, and any former Employee who has not received the entire
benefit to which he is entitled under this Plan.
PARTICIPATION AGREEMENT means the Deferral Election submitted by a
-----------------------
Participant to the Company prior to the beginning of the Deferral Period.
PLAN means this Executive Deferral Plan.
----
PLAN YEAR means each calendar year beginning on January 1 and ending on
---------
December 31.
RETIREMENT DISTRIBUTION means a distribution due to Termination of
-----------------------
Employment with a right to an immediate allowance under a retirement plan
maintained by the Company.
SALARY means the Employee's regular, biweekly salary, excluding Awards and
------
any other special or additional compensatory payments made by the Company.
4
<PAGE>
SUBSIDIARIES OR AFFILIATES means:
--------------------------
(a) All corporations, that are members of a controlled group of
corporations within the meaning of Section 1563(a) of the Code (determined
without regard to Section 1563(a)(4) and Section 1563(e)(3)(C) of said Code) and
of which the Company is then a member, and
(b) All trades or businesses, whether or not incorporated, that, under the
regulations prescribed by the Secretary of the Treasury pursuant to Section
210(d) of ERISA, are then under common control with the Company.
SURVIVOR BENEFIT means the benefit provided by Section 4.4 in the event of
----------------
the Participant's death.
TERMINATION OF EMPLOYMENT means the termination of an Employee's employment
-------------------------
with Lyondell Petrochemical Company, Atlantic Richfield Company, ARCO Chemical
Company, and LYONDELL-CITGO Refining Company Ltd. or any subsidiary or affiliate
of any such company. A transfer to any such company, to which a Participant
voluntarily consents shall not be a Termination of Employment for purposes of
this Plan.
TRANSFERRED ACCOUNT means the portion of any Participant's Account, as
-------------------
represented by official records certified by the Administrator of the Company's
Annual Incentive Plan and Executive Supplementary Savings Plan or the Atlantic
Richfield Company Executive Supplementary Savings Plan or the ARCO Chemical
Company Executive Supplementary Savings Plan that reflect amounts of deferrals
made by the Participant, plus any credited interest, prior to October 1, 1990
under the Company's Annual Incentive Plan and Executive Supplementary Savings
Plan.
VALUATION DATE means the last day of each month, or such other dates as the
--------------
Administrative Committee may determine in its discretion, which may be either
more or less frequent, for the valuation of Participants' Accounts.
401(K) AND SAVINGS PLAN means the Company's 401(k) and Savings Plan.
-----------------------
5
<PAGE>
ARTICLE II
PARTICIPATION AND DEFERRAL COMMITMENTS
SECTION 2.1 ELIGIBILITY AND PARTICIPATION.
(a) ELIGIBILITY. Eligibility to make a Deferral Election shall be limited
-----------
to Employees (1) who are eligible to receive an Award; (2) who are participants
in the Executive Supplementary Savings Plan or (3) who have been designated as
eligible by a specific resolution of the Administrative Committee upon
recommendation of the Vice President, Human Resources, of the Company.
(b) PARTICIPATION. An eligible Employee may elect to participate in the
-------------
Plan by submitting a Participation Agreement in accordance with rules, including
the time and form of submission, established by the Administrative Committee.
SECTION 2.2 FORMS OF DEFERRAL.
(a) BASIC DEFERRAL. A Participant may elect to defer Salary, Awards
--------------
and/or ESSP Benefits in a Participation Agreement subject to any limitations,
conditions or restrictions, such as minimum or maximum amounts that may be
deferred, as the Administrative Committee prescribes in advance of the Deferral
Period.
(b) SAVINGS DEFERRAL. Any amount of Salary that the Participant elected to
----------------
contribute to the 401(k) and Savings Plan during each Deferral Period that was
not permitted due to legal restrictions precluding such contributions and
deferrals to the 401(k) and Savings Plan, other than the limitation on the
amount of deferrals under Section 402(g) of the Code, shall be deferred under
this Plan to the extent that such contributions would have received a matching
Company contribution under the 401(k) and Savings Plan. The Company will
contribute an additional amount for amounts deferred during a Deferral Period
under this Subsection (b) based upon the matching Company contribution formula
then in effect under the 401(k) and Savings Plan.
SECTION 2.3 DEFERRAL ELECTIONS.
Prior to each Deferral Period, at a time and on a form prescribed by the
Administrative Committee, each Employee may execute an election form to defer
Salary, Awards, and/or ESSP Benefits. This Deferral Election shall be
irrevocable unless modifications are authorized pursuant to Section 2.7.
6
<PAGE>
SECTION 2.4 LIMITATION ON DEFERRAL.
Except as permitted for accelerated deferral in Section 2.7(b), Deferral
Elections shall be subject to the following limitations:
(a) A Participant may not defer more than 50 percent of his Salary.
(b) The minimum amount that may be deferred for the Deferral Period
relating to a Deferral Election, shall be established by the Administrative
Committee in advance of the Deferral Period.
SECTION 2.5 TERMINATION OF EMPLOYMENT.
A Participant's Deferral Elections shall terminate upon the Participant's
Termination of Employment; provided, however, that any Deferral Election
-------- -------
relating to Salary, Awards and/or ESSP Benefits granted after Termination of
Employment shall remain binding.
SECTION 2.6 TRANSFERS.
A Participant's Deferral Elections shall be irrevocable regardless of a
transfer of employment among Lyondell Petrochemical Company, Atlantic Richfield
Company, ARCO Chemical Company, LYONDELL-CITGO Refining Company Ltd., or any
subsidiary or affiliate of any such company. In the case of such a transfer,
the Participant's Deferral Election shall apply to Awards, Salary or ESSP
Benefits granted by the transferee company and the applicable Plan of the
transferee company shall assume responsibility for the remaining period, if any,
of any Deferral Election that the Participant made under the transferor
company's plan.
SECTION 2.7 MODIFICATION OF DEFERRAL ELECTIONS.
Deferral Elections shall be irrevocable except as follows:
(a) FINANCIAL HARDSHIP. The Administrative Committee may permit a
------------------
Participant to either reduce the amount elected under a prior Deferral Election,
or waive the remaining deferrals under a prior Deferral Election, upon finding
that the Participant has suffered a Financial Hardship.
(b) ACCELERATED DEFERRAL. At the Administrative Committee's discretion,
--------------------
prior to the beginning of any Plan Year in any Deferral Period for which two or
more Plan Years remain, a Participant may elect to accelerate the amount of
previously elected Deferred Compensation for any of the remaining Plan Years in
that Deferral
7
<PAGE>
Period on a form prescribed by the Administrative Committee; provided, however,
-------- -------
that any acceleration in Deferred Compensation for remaining Plan Years in the
Deferral Period shall not increase, for any single Plan Year, the total Salary
deferrals above 50 percent of Salary, the total deferred Awards above 100
percent of an Award or the total deferred ESSP Benefits above 100 percent of the
ESSP Benefits during that Plan Year.
8
<PAGE>
ARTICLE III
DEFERRED COMPENSATION ACCOUNTS
SECTION 3.1 ACCOUNTS.
For record-keeping purposes only, Accounts shall be maintained for each
Participant.
SECTION 3.2 DEFERRED COMPENSATION.
A Participant's Deferred Compensation shall be credited to the
Participant's Account as of the date when the corresponding non-deferred portion
of the compensation is paid or would have been paid but for the Deferral
Election. The Company shall have the right to withhold from Salary (or
otherwise to cause the Employee or the executor or administrator of his estate,
or his Beneficiary) to make payment of any federal, state, local and/or foreign
taxes required to be withheld with respect to any Deferred Compensation.
SECTION 3.3 INTEREST RATE.
The Accounts shall be credited monthly with interest based on the rates
specified below, compounded annually. Interest shall be credited as of each
Valuation Date from the dates when deferred amounts are credited to Accounts,
based on the balance of each Account.
(a) INTEREST RATE DURING PARTICIPANT'S LIFETIME. During a Participant's
-------------------------------------------
lifetime, the Participant's Account will be credited with interest on a monthly
basis during each Plan Year at the Interest Rate previously announced by the
Company to apply for the Plan Year, but at no less than the Citibank Base Rate.
The Interest Rate for the first Plan Year shall be 125 percent of the rolling
average 10-year Treasury Note Rate.
(b) INTEREST RATE AFTER PARTICIPANT'S DEATH. Except with respect to
---------------------------------------
payments made pursuant to Article IV, Section 4.4(a)(2)(i) following a
Participant's death, the Participant's Account will be credited with interest on
a monthly basis during each Plan Year at an interest rate equal to the Citibank
Base Rate.
(c) GUARANTEED INTEREST RATE. In no event will the Interest Rate
------------------------
applicable to the portion of a Transferred Account containing deferrals of
Awards previously granted under the Company's Annual Incentive Plan be less than
the Citibank Base Rate.
SECTION 3.4 DETERMINATION OF ACCOUNTS.
9
<PAGE>
A Participant's Account as of each Valuation Date shall consist of the
balance of the Participant's Account as of the immediately preceding Valuation
Date, plus the amount of the Participant's Deferred Compensation since Valuation
Date, plus interest credited to the Account, and minus any distributions or
reductions made from the Account since the immediately preceding Valuation Date.
SECTION 3.5 VESTING OF ACCOUNTS.
Each Participant shall be 100 percent vested at all times in the amounts
credited to the Participant's Account.
SECTION 3.6 STATEMENT OF ACCOUNTS.
The Company shall provide each Participant with periodic statements setting
forth the balance of the Participant's Account.
10
<PAGE>
ARTICLE IV
PLAN BENEFITS
SECTION 4.1 BASIC PLAN BENEFIT.
If a Participant has a Termination of Employment for any reason, the
Company shall pay a Plan benefit equal to the Participant's Account, as
determined below:
(a) Accounts of Participants shall be credited with the interest rate
previously determined under Section 3.3(a) or (c), and communicated in advance
of each Deferral Period, to apply each Plan Year that the Account has been
maintained.
(b) The Interest Rates provided under Section 4.1(a) shall be payable until
the Participant's Accounts are distributed in full except in the event of the
Participant's death. After the Participant's death, interest shall be credited
at the Interest Rate previously determined under Section 3.3(b).
SECTION 4.2 FORM AND TIME OF RETIREMENT DISTRIBUTION.
(a) TIME OF RETIREMENT DISTRIBUTIONS. Retirement Distributions shall be
--------------------------------
paid at the time and in the form of benefit elected by the Participant. If a
Participant is an Employee, the Participant may change a distribution election
once each year until the year in which the Participant attains age 53. The
change must be made during a period established by the Administrative Committee
which precedes a Deferral Period and is irrevocable until the next period
established by the Administrative Committee.
The Participant's distribution election shall be irrevocable as of the year
in which a Participant attains age 53, except that a Participant may request, in
writing, that the Administrative Committee allow a change in distribution
election prior to retirement or commencement of benefits, or in the case of
installment payments, following commencement of payments, (i) without any
reduction in, or imposition of any penalty on, the Participant's Account, if the
Administrative Committee determines that the Participant has experienced a
Financial Hardship justifying the request for a change of election, or (ii) if
the Administrative Committee, in its sole discretion, determines that it is
appropriate to grant the Participant's request. Absent the Participant's
election of the form and/or commencement date of the Retirement Distribution,
payment will be made in a lump sum immediately following the Participant's date
of retirement from the Company.
If a Participant is an Employee, notwithstanding a
11
<PAGE>
Participant's age or prior distribution elections, during a period established
by the Administrative Committee prior to the 1997 Deferral Period, that
Participant may submit a distribution election which supersedes all existing
distribution elections for all previous deferrals under this Plan. If the
Participant fails to submit a new distribution election during this period and
has attained age 53 or more, the Participant's deferrals shall be paid in a lump
sum immediately following the Participant's date of retirement from the Company.
(b) FORM OF RETIREMENT DISTRIBUTIONS. A Participant may elect one or more
--------------------------------
of the following forms and commencement dates for all or portions of his
Deferral Account:
(1) LUMP SUM. A single payment of all or a percentage of, or of a
--------
specific dollar amount of, the Participant's Deferral Account, payable at
retirement.
(2) INSTALLMENT PAYMENTS. Monthly installment payments in
--------------------
substantially equal payments of principal and interest over periods prescribed
and communicated by the Administrative Committee in advance of the applicable
Deferral Period. The amount of each of the monthly installments shall be
redetermined effective as of January 1 of each year based on the remaining
Account balance and the remaining number of installment payments.
(3) DEFERRED PAYMENTS. A lump sum or installment payments or
-----------------
combination thereof, commencing subsequent to retirement at one of the optional
deferral times prescribed and communicated by the Administrative Committee in
advance of the applicable Deferral Period.
SECTION 4.3 FORM OF DISTRIBUTION UPON TERMINATION OF EMPLOYMENT.
Except as provided in Sections 4.8 and 4.11, termination benefits payable
upon a Participant's Termination of Employment other than due to retirement or
death shall be paid in a lump sum following Termination of Employment; provided,
--------
however, that the Administrative Committee may, in its sole discretion, pay such
- -------
termination benefits in monthly installments over a 3-year period.
SECTION 4.4 SURVIVOR BENEFITS.
(a) AMOUNT AND FORM OF BENEFIT ON AND AFTER JULY 1, 1993:
----------------------------------------------------
(1) DEATH AFTER AGE 65. If the Participant dies on or after attaining
------------------
age 65, the amount of the Survivor Benefit shall be equal to the Participant's
Account balance, increased by the applicable Interest Rate on the unpaid Account
balance during the
12
<PAGE>
period in which Survivor Benefit payments are being made to the Participant's
Beneficiary, and payable in the form elected by the Participant.
(2) DEATH PRIOR TO TERMINATION OF EMPLOYMENT AND PRIOR TO AGE 65.
------------------------------------------------------------
(i) Benefit Determination. If a Participant dies prior to
---------------------
attaining age 65 and prior to Termination of Employment, the Survivor Benefit
payable with respect to such Participant shall be the greater of the values
determined under (A) or (B) immediately below:
(A) The net present value of a stream of annual payments
which equals 40 percent of the Participant's Account, and which are payable on
the date of the Participant's death and on each anniversary of such date until
the date on which the Participant would have attained age 65. For purposes of
this calculation (I) the applicable discount rate shall be determined by the
Administrative Committee, in its sole discretion, and (II) Deferral Elections
that have not been completed prior to the Participant's death shall be
determined in accordance with the provisions of Section 4.4(a)(2)(i)(C) below;
or
(B) The value of the Participant's Account balance at his
date of death.
(C) For purposes of calculating the deferred amount where a
Participant has died before he completes his Deferral Elections, the
Participant's Salary (for purposes of determining the amount deferred with
respect to either Salary or ESSP Benefits) and Awards for relevant years or
other time periods ending after this death shall be deemed to be as follows:
(I) Salary for each year or time period shall be the
Participant's annual base Salary in effect on the date of his death, increased
for each year after his death by the escalation factor for such year, determined
in the sole discretion of the Administrative Committee; and
(II) Awards for each such year shall be the amount that
is the highest annual average of the Participant's Awards paid in any 3
consecutive year period during the last ten years during which the Participant
received Awards from the Company or, for years prior to the Effective Date, from
a Subsidiary or Affiliate (or if fewer than ten, the total number of years for
which the Participant received Awards).
13
<PAGE>
(ii) Amount and Form of Payment.
--------------------------
(A) The annual Survivor Benefit payable with respect to
Section 4.4(a)(2)(i)(A) shall be equal to 40 percent of the value of the
Account, as determined in accordance with Section 4.4(a)(2)(i)(A) and, to the
extent applicable, with Section 4.4(a)(2)(i)(C). One-twelfth of the annual
Survivor Benefit shall be paid monthly from the Participant's date of death
until the end of the month in which the Participant would have attained age 65.
(B) The Survivor Benefit payable with respect to Section
4.4(a)(2)(i)(B) shall be the value of the Participant's Account balance at his
date of death, increased by the applicable Interest Rate on the unpaid Account
balance during the period in which Survivor Benefit payments are being made to
the Participant's Beneficiary, and shall be paid in monthly installments over
the greater of:
(I) the period described in Section 4.4(a)(2)(ii)(A);
or
(II) the period over which the Participant had elected
to have installment payments made after his retirement.
(C) Notwithstanding any other provision of this Plan, if the
Survivor Benefit payable is the amount determined under Section
4.4(a)(2)(ii)(A), and if the Participant completed (or, pursuant to Section
4.4(a)(2)(i)(C), is deemed to have completed) a portion of a Deferral Election
while an employee at LYONDELL-CITGO Refining Company Ltd. and a portion of such
Deferral Election while a Participant in this Plan, then the annual amount of
the Survivor Benefit determined pursuant to Section 4.4(a)(2)(ii)(A) shall be
equal to the product of (I) the amount of the Survivor Benefit determined
pursuant to Section 4.4(a)(2)(ii)(A), multiplied by (II) a fraction, the
numerator of which is equal to the portion of the Deferral Elections that the
Participant completed (or, pursuant to Section 4.4(a)(2)(i)(C), is deemed to
have completed) under this Plan, and the denominator of which is equal to the
sum of the Deferral Elections that the Participant completed (or, pursuant to
Section 4.4(a)(2)(i)(C), is deemed to have completed) under this Plan and under
the LYONDELL-CITGO Refining Company Ltd. Executive Deferral Plan. An example of
the determination of the Survivor Benefit and the proration of that benefit
between the Company and LYONDELL-CITGO Refining Company Ltd. is attached hereto
as Appendix A.
(b) DEATH AFTER TERMINATION OF EMPLOYMENT AND PRIOR TO AGE 65. If the
---------------------------------------------------------
Participant dies after Termination of Employment and prior to age 65, the
Participant's Account balance shall be paid by continuation of the form of
benefit that was payable to the Participant for the remaining payments that
would have been made to
14
<PAGE>
the Participant if the Participant had lived, increased by the applicable
Interest Rate credited on unpaid Account balances of deceased Participants
during each year of the payment period to the Beneficiary.
SECTION 4.5 EARLY DISTRIBUTIONS.
A Participant may elect to receive an Early Distribution from his Account
subject to the following restrictions:
(a) TIMING OF ELECTION. The election to take an Early Distribution from an
------------------
Account for a particular Deferral Election must be made at the same time the
Participant makes the particular Deferral Election.
(b) AMOUNT OF WITHDRAWAL. The amount which a Participant can elect to
--------------------
receive as an Early Distribution with respect to an Account shall be such
portions of the Participant's Account balance for the amounts deferred under a
particular Deferral Election, as prescribed by the Administrative Committee in
advance of the Deferral Period. If a previously elected amount exceeds the
Account balance when an Early Distribution is to be made, only the Account
balance will be paid.
(c) TIMING AND FORM OF EARLY DISTRIBUTION. The Early Distribution shall
-------------------------------------
commence at a time prescribed by the Administrative Committee and in the form
elected by the Participant on the Participation Agreement at the time of the
Deferral Election; provided, however, that if the Participant terminates
-------- -------
employment without a right to commence a retirement allowance under the
Retirement Plan, the Early Distribution election will be canceled and
distribution will be made pursuant to Section 4.3; and provided, further, that
-------- -------
if the Participant terminates employment with a right to commence a retirement
allowance, the Early Distribution election will be canceled and distribution
will be made pursuant to Section 4.2.
(d) Amounts paid to a Participant pursuant to this section shall be treated
as distributions from the Participant's Account.
(e) During a period to be established by the Administrative Committee prior
to the 1997 Deferral Period, a Participant may elect to maintain or revoke any
existing Early Distribution election. No other changes are permitted in any
existing Early Distribution election. A Participant who fails to make an
election regarding existing Early Distributions shall be considered to have
elected to maintain those existing Early Distribution elections.
SECTION 4.6 UNSCHEDULED DISTRIBUTIONS.
(a) DISTRIBUTIONS ON ACCOUNT OF FINANCIAL HARDSHIP. Upon a
----------------------------------------------
15
<PAGE>
finding that a Participant has suffered a Financial Hardship, following the
Participant's written application, the Administrative Committee shall make a
distribution of all or a portion of the Participant's Account, consistent with
the finding of Financial Hardship but not to exceed the amount of the
Participant's request, without any reduction in, or imposition of any penalty
on, the Participant's Account. The distribution shall be paid in a lump sum as
soon as administratively practical following the finding of Financial Hardship.
(b) OTHER UNSCHEDULED DISTRIBUTIONS. A Participant, by a written
-------------------------------
application to the Administrative Committee, may apply for a distribution of all
or part of his/her Account, without regard to any condition of Financial
Hardship. Any distribution so requested shall be made as soon as practical
following the Participant's application and shall be subject to whatever
penalty, in the form of a forfeiture of a percentage of the amount requested
and/or a suspension of participation, as may be determined by the Administrative
Committee, upon the advice of Counsel for the Plan, to be necessary to preclude
the constructive receipt of taxable income by any Participant in the Plan.
(c) REVIEW OF REQUEST FOR UNSCHEDULED DISTRIBUTIONS. Counsel for the Plan,
-----------------------------------------------
on an ongoing basis, shall review legal and tax developments to assure
continuous compliance with the relevant authorities governing plan design to
prevent constructive receipt of taxable income by any Participant, and shall
advise the Administrative Committee in writing in advance of any change in its
most recent written advice on the penalty that is to be imposed with respect to
unscheduled distributions.
The Company shall notify Participants in writing of the provisions of this
Section 4.6 and of the specific, currently effective penalty as described under
Section 4.6(b), and shall update this written notification periodically and in
advance of any subsequent change of which it is notified under Section 4.6(c),
unless in the opinion of the Company it is administratively impractical to do
so, in which case such notification shall be provided no later than 30 days
following the effective date of the change.
SECTION 4.7 DISABILITY.
If a Participant suffers a Disability under the provisions of the Company's
Executive Long-Term Disability Plan, the Participant's Deferral Elections will
cease except for any Awards that may be payable thereafter. Distribution of the
Participant's Account will not be made due to the Disability. The Participant's
Account will be distributed in accordance with the method that the Participant
had elected for payment of retirement benefits if and when the Participant
retires following his Disability. Absent the
16
<PAGE>
Participant's retirement election, payment will be made in a lump sum upon
Termination of Employment.
SECTION 4.8 TERMINATION OF EMPLOYMENT DUE TO SPECIAL CIRCUMSTANCES.
If, other than as provided in Section 4.11, a Participant has an
----- ----
involuntary Termination of Employment in conjunction with a sale of assets or a
reorganization (including termination due to a specific job elimination), the
Participant's Account will be distributed in accordance with the method which
the Participant had elected for payment of retirement benefits under this Plan,
with payment commencing on the earliest date the Participant would have become
eligible to commence receiving the retirement benefit hereunder. During the
period between the Participant's Termination of Employment and the commencement
of payments under this Plan, interest will be credited to the Participant's
Account each year at the applicable rate of interest for Accounts of living
Participants. Absent the Participant's election with respect to the form of
benefit to be paid by this Plan at or after his retirement, payment will be made
in a lump sum upon Termination of Employment.
SECTION 4.9 VALUATION AND SETTLEMENT.
The Settlement Date shall be the earlier of the date on which a lump sum is
paid or on which installment payments commence. The Settlement Date for an
Account shall be no more than 30 days after the last day of the month in which
the Participant or his Beneficiary becomes entitled to payments on account of
retirement, other Termination of Employment or death, unless the Participant has
elected to defer commencement of payments following retirement to a later date.
The Settlement Date for an Early Distribution or delayed payments following
retirement shall be the month that the Participant has elected for commencement
of such payments. The amount of a lump sum and the initial amount of
installment payments for a Participant's Account shall be based on the value of
the Participant's Account as of the Valuation Date at the end of the immediately
preceding month before the Settlement Date. For example, the Valuation Date at
the end of December shall be used to determine a lump sum and/or the initial
amount of installment payments that will be made in the following January.
17
<PAGE>
SECTION 4.10 SMALL BENEFIT.
Notwithstanding any election made by the Participant, the Administrative
Committee, in its sole discretion, may pay any benefit in the form of a lump sum
payment to the Participant or any Beneficiary, if the lump sum amount of the
Account balance that remains in the Account following a distribution for any
reason, or which is payable to the Participant or Beneficiary when payments to
such Participant or Beneficiary would otherwise commence is less than $6,000.
SECTION 4.11 BENEFITS IN THE EVENT OF A CHANGE IN CONTROL.
Notwithstanding the contrary provisions of Section 4.8, the provisions of
this Section 4.11 shall control in the event of a Change in Control of the
Company.
In the event that (i) there is a "Termination or Adverse Amendment" (as
defined below) of this Plan within 2 years following a Change in Control and
(ii) either (a) an Eligible Termination has not occurred with respect to a
Participant who is an active Employee or (b) the Participant has had an
involuntary Termination of Employment for reasons described in Section 4.8
hereof and, pursuant to his election as to the form and timing of his Retirement
Distributions hereunder, he has not begun to receive such Retirement
Distributions on the date of such Termination or Adverse Amendment, then
notwithstanding any other provision of this Plan, the full amount of
contributions and earnings accrued or credited to the Participant's Account (as
of the date immediately preceding the Termination or Adverse Amendment) shall be
immediately distributed to the Participant in a cash lump-sum payment. If
applicable, the Company also shall pay the Participant in a cash lump-sum
payment an additional amount equal to the "Income Tax Gross-up" (as defined
below).
In the event that the Participant has an Eligible Termination, and as of
his Eligible Termination date is not eligible to receive an "Immediate
Retirement Benefit" (as defined below), then the full amount of contributions
and earnings accrued or credited to the Participant's Account (as of the date
immediately preceding his Eligible Termination) shall be immediately distributed
to the Participant in a cash lump-sum payment. If applicable, the Company also
shall pay the Participant in a cash lump-sum payment an additional amount equal
to the Income Tax Gross-up, without regard to whether or not there has been a
Termination or Adverse Amendment.
In the event that (i) there is a Termination or Adverse Amendment of this
Plan following a Change in Control and (ii) either (a) the Participant as of his
Eligible Termination date is either eligible to receive an Immediate Retirement
Benefit or
18
<PAGE>
elects (or has elected) to commence an Immediate Retirement Benefit or (b) the
Participant has had an involuntary Termination of Employment for reasons
described in Section 4.8 hereof and, pursuant to his election as to the form and
timing of his Retirement Distributions hereunder, the Participant has begun to
receive installment payments of such Retirement Distributions hereunder but has
not, as of the date of such Termination or Adverse Amendment, received the full
amount of benefits to which he is entitled under this Plan, then the full amount
of contributions and earnings accrued or credited to the Participant's Account
(as of the date immediately preceding the Termination or Adverse Amendment)
shall be immediately distributed to the Participant in a cash lump-sum payment.
If applicable, the Company also shall pay the Participant in a cash lump-sum
payment an additional amount equal to the Income Tax Gross-up.
For purposes of this Plan, "Termination or Adverse Amendment" means that
this Plan is either (i) terminated for whatever reason by the Company or (ii)
amended by the Company in any way that adversely affects the Participant's
rights, privileges or benefits hereunder including, without limitation, an
amendment that results in a change to the methodology used to determine the
interest rate for earnings credited to the Participant's Account, without the
Participant's written consent to such amendment, other than an amendment that is
required by law.
For purposes of this Plan, "Immediate Retirement Benefit" means the
Participant is eligible (after giving effect to any additional years of age and
additional years of service for benefit accrual purposes to which the Employee
is entitled under the Lyondell Petrochemical Company Supplementary Executive
Retirement Plan) to receive an immediate allowance or distribution (whether
reduced or unreduced) from a retirement plan maintained by the Company that is
intended to be a qualified plan under Section 401(a) of the Internal Revenue
Code of 1986, as amended.
For purposes of this Plan, if any of the events above occur within the
specified time period, "Income Tax Gross-up" shall be based on the full amount
of contributions and earnings accrued or credited to Participant's account
balance as of September 1, 1996. The Income Tax Gross-up shall be the following
percentage of the amount necessary so that after payment of any federal, state
and local income or employment tax by the Participant on the distribution of
that amount under this Plan and the Income Tax Gross-up, the net amount retained
by the Participant shall be the full amount accrued and credited to his Account
under this Plan as of September 1, 1996.
19
<PAGE>
<TABLE>
<CAPTION>
Specified Time Period Percentage of
--------------------- --------------
Income Tax Gross-up
-------------------
<S> <C>
September 1, 1996 - August 31, 1997 100%
September 1, 1997 - August 31, 1998 66%
September 1, 1998 - August 31, 1999 33%
</TABLE>
No Income Tax Gross-up shall be payable for an event which occurs on
September 1, 1999 or later.
For purposes of determining the amount of the Income Tax Gross-up, the
Participant shall be deemed (i) to pay federal income taxes at the highest
stated rate of federal income taxation (including surtaxes, if any) for the
calendar year in which the Income Tax Gross-up is to be made (for 1996, the
highest stated rate is 39.6 percent); and (ii) to pay any applicable state and
local income taxes at the highest stated rate of taxation (including surtaxes,
if any) for the calendar year in which the Income Tax Gross-up is to be made.
Any Income Tax Gross-up required hereunder shall be paid by Company to the
Participant at the same time that any payment made under this Plan which is
subject to income tax is paid or deemed received by the Participant.
SECTION 4.12 DEFINITIONS.
(a) EVENTS CONSTITUTING A "CHANGE IN CONTROL". For purposes of this Plan,
----------------------------------------
a Change in Control will be deemed to have occurred as of the date that one or
more of the following occurs:
(1) Individuals who, as of the date hereof, constitute the entire
Board of Directors of the Company ("Incumbent Directors") cease for any reason
to constitute at least a majority of the Board; provided, however, that any
-------- -------
individual becoming a director subsequent to the date hereof whose election, or
nomination for election by the Company's shareholders, was approved by a vote of
at least a majority of the then Incumbent Directors shall be considered as
though such individual was an Incumbent Director, but excluding, for this
purpose any such individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest, as such terms are
used in Rule 14a-11 under the Exchange Act or other actual or threatened
solicitation of proxies or consents by or on behalf of any Person (as defined
below) other than the Board; provided, further, that in the event ARCO at any
-------- -------
time determines to achieve minority representation on the Company's Board of
Directors approximately equal to its then ownership percentage of the Company's
common stock, its implementation of such determination through the
20
<PAGE>
election of ARCO employees as directors of the Company shall not be deemed to be
a Change in Control and such ARCO employees shall constitute Incumbent
Directors;
(2) The stockholders of the Company shall approve (A) any merger,
consolidation or recapitalization of the Company (or, if the capital stock of
the Company is affected, any subsidiary of the Company), or any sale, lease, or
other transfer (in one transaction or a series of transactions contemplated or
arranged by any party as a single plan) of all or substantially all of the
assets of the Company (each of the foregoing being an "Acquisition Transaction")
where (1) the shareholders of the Company immediately prior to such Acquisition
Transaction would not immediately after such Acquisition Transaction
beneficially own, directly or indirectly, shares or other ownership interests
representing in the aggregate 80 percent or more of (a) the then outstanding
common stock or other equity interests of the corporation or other entity
surviving or resulting from such merger, consolidation or recapitalization or
acquiring such assets of the Company, as the case may be (the "Surviving
Entity") (or of its ultimate parent corporation or other entity, if any), and
(b) the Combined Voting Power of the then outstanding Voting Securities of the
Surviving Entity (or of its ultimate parent corporation or other entity, if any)
or (2) the Incumbent Directors at the time of the initial approval of such
Acquisition Transaction would not immediately after such Acquisition Transaction
constitute a majority of the Board of Directors, or similar managing group, of
the Surviving Entity (or of its ultimate parent corporation or other entity, if
any), or (B) any plan or proposal for the liquidation or dissolution of the
Company;
(3) Any Person except for ARCO shall be or become the beneficial
owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or
indirectly, of securities of the Company representing in the aggregate more than
twenty percent (20%) of either (A) the then outstanding shares of common stock
of the Company ("Common Shares") or (B) the Combined Voting Power of all then
outstanding Voting Securities of the Company; provided, however, that
-------- -------
notwithstanding the foregoing, a "Change of Control" shall not be deemed to have
occurred for purposes of this Subsection (iii):
(i) Solely as a result of an acquisition of securities by the
Company which, by reducing the number of Common Shares or other Voting
Securities outstanding, increases (a) the proportionate number of Common Shares
beneficially owned by any Person to more than 20 percent of the Common Shares
then outstanding, or (b) the proportionate voting power represented by the
Voting Securities beneficially owned by any Person to more than 20 percent of
the Combined Voting Power of all then outstanding Voting Securities; or
21
<PAGE>
(ii) Solely as a result of an acquisition of securities directly
from the Company except for any conversion of a security that was not acquired
directly from the Company, provided, further, that if any Person referred to in
-------- -------
paragraph (1) or (2) of this Subsection (iii) shall thereafter become the
beneficial owner of any additional Common Shares or other Voting Securities of
the Company (other than pursuant to a stock split, stock dividend or similar
transaction), then a "Change of Control" shall be deemed to have occurred for
purposes of this Subsection (iii); or
(4) ARCO shall become the owner, directly or indirectly, of
securities of the Company representing in the aggregate more than 50 percent of
either (i) the then outstanding Common Shares or (ii) the Combined Voting Power
of all then outstanding Voting Securities of the Company except as the result of
an acquisition of securities by the Company which, by reducing the number of
Common Shares or other Voting Securities outstanding, increases (x) the
proportionate number of Common Shares beneficially owned by ARCO to more than 50
percent of the Common Shares then outstanding, or (y) the proportionate voting
power represented by the Voting Securities beneficially owned by ARCO to more
than 50 percent of the Combined Voting Power of all then outstanding Voting
Securities; provided, however, that if thereafter ARCO becomes the beneficial
-------- -------
owner of any additional Common Shares or other Voting Securities of the Company
(other than pursuant to a stock split, stock dividend or similar transaction)
the exception provided above shall no longer apply; provided, further, that for
-------- -------
purposes of this Subsection (iv), neither record ownership of common stock of
the Company by the Trustee for ARCO's 401(a) qualified plans nor beneficial
ownership of common stock of the Company by any of ARCO's directors for their
personal account shall be deemed to constitute "indirect" ownership of common
stock of the Company by ARCO; provided, further, that notwithstanding any
-------- -------
contrary provision of the Plan, no Change in Control shall be deemed to have
occurred pursuant to this Subsection (iv) if as a result of an inadvertent act
ARCO becomes the owner, directly or indirectly, of additional Common Shares or
Voting Securities and such securities are sold or otherwise disposed of by ARCO
within 30 days after ARCO discovers, or is notified by the Company as to, the
potential Change of Control resulting from such ownership, so that, as a result
of such subsequent sale or other disposition by ARCO, no Change in Control would
otherwise be deemed to have occurred pursuant to the terms (excluding this
proviso) of this Subsection (iv) .
Notwithstanding any of the foregoing, no Change in Control shall be
deemed to have occurred as a result solely of (i) the registration by ARCO of
the Exchangeable Notes pursuant to the Registration Statement, (ii) the issuance
and sale by ARCO of the Exchangeable Notes to the underwriters in accordance
with the Registration Statement, or (iii) prior to the maturity of the
Exchangeable Notes, purchases and sales of the Exchangeable Notes.
22
<PAGE>
(b) For purposes of this Section 4.12:
(1) "Affiliate" shall mean, as to a specified Person, another Person
that directly, or indirectly through one or more intermediaries, controls or is
controlled by, or is under common control with, the specified Person, within the
meaning of such terms as used in Rule 405 under the Securities Act of 1933, as
amended, or any successor rule.
(2) "ARCO" shall mean Atlantic Richfield Company and any of its
Affiliates, excluding the Company.
(3) "Combined Voting Power" shall mean the aggregate votes entitled
to be cast generally in the election of the Board of Directors, or similar
managing group, of a corporation or other entity by holders of then outstanding
Voting Securities of such corporation or other entity.
(4) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(5) "Exchangeable Notes" shall mean the debt securities exchangeable
upon maturity, at ARCO's option, into shares of the Company's common stock or
cash, as such debt securities are described in the Registration Statement.
(6) "LCR" shall mean LYONDELL-CITGO Refining Company Ltd., a Limited
Liability Company organized under the laws of the State of Texas.
(7) "Person" shall mean any individual, entity (including, without
limitation, any corporation, partnership, trust, joint venture, association or
governmental body) or group (as defined in Sections 14(d)(3) or 15(d)(2) of the
Exchange Act and the rules and regulations thereunder); provided, however, that
-------- -------
Person shall not include the Company or LCR, any of their subsidiaries, any
employee benefit plan of the Company or LCR or any of their majority-owned
subsidiaries or any entity organized, appointed or established by the Company,
LCR or such subsidiaries for or pursuant to the terms of any such plan.
(8) "Registration Statement" shall mean ARCO's registration statement
on Form S-3 (Registration No. 33-53481) with respect to the Exchangeable Notes.
23
<PAGE>
(9) "Voting Securities" shall mean all securities of a corporation or
other entity having the right under ordinary circumstances to vote in an
election of the Board of Directors, or similar managing group, of such
corporation or other entity.
24
<PAGE>
ARTICLE V
DESIGNATION OF BENEFICIARY
SECTION 5.1 DESIGNATION OF BENEFICIARY.
Each Participant shall have the right to designate a Beneficiary or
Beneficiaries to receive his interest in his Account upon his death. Such
designation shall be made on a form prescribed by and delivered to the Company.
The Participant shall have the right to change or revoke any such designation
from time to time by filing a new designation or notice of revocation with the
Company, and no notice to any Beneficiary nor consent by any Beneficiary shall
be required to effect any such change or revocation.
SECTION 5.2 FAILURE TO DESIGNATE BENEFICIARY.
If a Participant fails to designate a Beneficiary before his death, or if
no designated Beneficiary survives the Participant, the Administrative Committee
shall direct the Company to pay the balance in his Account in a lump sum to the
executor or administrator for his estate.
25
<PAGE>
ARTICLE VI
ADMINISTRATION
SECTION 6.1 ADMINISTRATIVE COMMITTEE.
The Benefits Administrative Committee for the Company shall act as this
Plan's Administrative Committee.
SECTION 6.2 RULES OF CONDUCT; ADMINISTRATIVE PROVISIONS.
The Administrative Committee shall adopt such rules for the conduct of its
business and the administration of this Plan as it considers desirable;
provided, however, that such rules shall not conflict with the provisions of
- -------- -------
this Plan. Except as otherwise specifically provided in this Plan, all of the
administrative provisions (such as the benefit claims procedures) contained in
the 401(k) and Savings Plan shall apply to the administration of this Plan.
SECTION 6.3 LEGAL, ACCOUNTING, CLERICAL AND OTHER SERVICES.
The Administrative Committee may authorize one or more of its members or
any agent to act on its behalf and may contract for legal, accounting, clerical
and other services to carry out this Plan. All expenses of the Administrative
Committee shall be paid by the Company.
SECTION 6.4 INTERPRETATION OF PROVISIONS.
The Administrative Committee shall have the exclusive right and
discretionary authority to interpret the provisions of this Plan and to decide
questions arising in its administration. The decisions and interpretations of
the Administrative Committee shall be final and binding on the Company,
Employees and all other persons.
SECTION 6.5 RECORDS OF ADMINISTRATION.
The Administrative Committee shall keep records reflecting the
administration of this Plan which shall be subject to audit by the Company.
26
<PAGE>
SECTION 6.6 DENIAL OF CLAIM.
The Administrative Committee shall provide adequate notice in writing to
any Employee or Beneficiary whose claim for benefits under this Plan has been
denied, setting forth the specific reasons for such denial. The Employee or
Beneficiary will be given an opportunity for a full and fair review by the
Administrative Committee of the decision denying the claim. The Employee or
Beneficiary shall be given 60 days from the date of the notice denying any such
claim within which to request such review.
SECTION 6.7 LIABILITY OF COMMITTEE.
No member of the Administrative Committee shall be liable for any action
taken in good faith or for exercise of any power given the Administrative
Committee, or for the actions of other members of said Committee.
27
<PAGE>
ARTICLE VII
AMENDMENT AND DISCONTINUANCE
SECTION 7.1 AMENDMENT OF PLAN.
This Plan may be amended from time to time by the Compensation Committee of
the Board of Directors of the Company.
SECTION 7.2 TERMINATION.
The Company intends to continue this Plan indefinitely, but reserves the
right to terminate it at any time for any reason.
SECTION 7.3 EFFECT OF AMENDMENT OR TERMINATION.
No amendment or termination of this Plan may adversely affect the benefit
payable to any former Employee receiving benefits under this Plan prior to the
effective date of the amendment or termination, or any Employee who, as of such
date, was eligible to receive a benefit under this Plan.
28
<PAGE>
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1 UNFUNDED BENEFIT PLAN.
This Plan is intended to constitute a plan which is unfunded and maintained
primarily for the purpose of providing deferred compensation in the form of
additional retirement benefits to a select group of management or highly
compensated employees, as defined in Section 201(a)(2), 301(a)(3) and 401(a)(1)
of ERISA.
SECTION 8.2 UNSECURED GENERAL CREDITOR.
Participants and their Beneficiaries shall have no legal or equitable
rights, claims or interests in any specific assets or property of the Company,
nor shall they be the Beneficiaries of, or have any rights, claims or interests
in any life insurance policies, annuity contracts, or the proceeds therefrom
owned, or which may be acquired by, the Company (the "Policies"). Any such
Policies or other assets of the Company shall be, and remain, the general,
unpledged, unrestricted assets of the Company. The Company's obligation under
the Plan shall be merely that of an unfunded and unsecured promise of the
Company to pay money in the future.
SECTION 8.3 GRANTOR TRUST.
Although the Company is responsible for the payment of all benefits under
the Plan, the Company may, in its discretion, contribute funds to a grantor
trust for the purpose, as it deems appropriate, of paying benefits under this
Plan. Such trust may be irrevocable, but assets of the trust shall be subject to
the claims of creditors of Lyondell Petrochemical Company. To the extent any
benefits provided under the Plan are actually paid from the trust, the Company
shall have no further obligation with respect thereto but to the extent not so
paid, such benefits shall remain the obligation of, and shall be paid by, the
Company. The Employees shall have the status of unsecured creditors insofar as
their legal claim for benefits under the Plan and the Employees shall have no
security interest in the grantor trust.
SECTION 8.4 PAYMENTS AND BENEFITS NOT ASSIGNABLE.
Payments to and benefits under this Plan are not assignable, transferable
or subject to alienation since they are primarily for the support and
maintenance of the Participants and their joint annuitants or Beneficiaries
after retirement. Likewise, such
29
<PAGE>
payments shall not be subject to attachments by creditors of, or through legal
process against, the Company, the Administrative Committee or Participant.
SECTION 8.5 NO RIGHT OF EMPLOYMENT.
The provisions of this Plan shall not give an Employee the right to be
retained in the service of the Company nor shall this Plan or any action taken
under the Plan be construed as a contract of employment.
SECTION 8.6 ADJUSTMENTS.
At the Company's request, the Administrative Committee may, with respect to
a Participant, adjust such Participant's benefit under this Plan or make such
other adjustments with respect to such Participant as are required to correct
administrative errors or provide uniform treatment of Participants in a manner
consistent with the intent and purpose of this Plan.
SECTION 8.7 OBLIGATION TO COMPANY.
If a Participant becomes entitled to a distribution of benefits under the
Plan, and if at such time the Participant has outstanding any debt, obligation,
or other liability representing an amount owing to the Company, or any benefit
plan maintained by the Company, then the Company may offset such amount owed to
it or such benefit plan against the amount of benefits otherwise distributable.
Such determination shall be made by the Administrative Committee.
SECTION 8.8 PROTECTIVE PROVISIONS.
Each Participant shall cooperate with the Company by furnishing any and all
information requested by the Company in order to facilitate the payment of
benefits hereunder, taking such physical examinations as the Company may deem
necessary and taking such other relevant action as may be requested by the
Company. If a Participant refuses to cooperate, the Company shall have no
further obligation to the Participant under the Plan. If the Participant makes
any material misstatement of information or nondisclosure of medical history,
then no benefits will be payable hereunder to such Participant or his
Beneficiary, provided, that in the Company's sole discretion, benefits may be
payable in an amount reduced to compensate the Company for any loss, cost,
damage or expense suffered or incurred by the Company as a result in any way of
any such action, misstatement or nondisclosure.
30
<PAGE>
SECTION 8.9 GENDER, SINGULAR AND PLURAL.
All pronouns and any variations thereof shall be deemed to refer to the
masculine, feminine, or neuter, as the identity of the person or persons may
require. As the context may require, the singular may be read as the plural and
the plural as the singular.
SECTION 8.10 LAW GOVERNING.
This Plan shall be construed, regulated and administered under the laws of
the State of Texas, except to the extent that such laws are preempted by ERISA.
SECTION 8.11 NOTICE.
Any notice or filing required or permitted to be given to the
Administrative Committee under the Plan shall be sufficient if in writing and
hand delivered, or sent by registered or certified mail, to the principal office
of the Company, directed to the attention of the Secretary of the Administrative
Committee. Such notice shall be deemed given as to the date of delivery or, if
delivery is made by mail, as of the date shown on the postmark on the receipt
for registration or certification.
SECTION 8.12 SUCCESSORS AND ASSIGNS.
This Plan shall be binding upon the Company and its successors and assigns.
SECTION 8.13 PROVISIONS FOR INCAPACITY.
If the Administrative Committee deems any person entitled to receive any
payment under the provisions of this Plan incapable of receiving or disbursing
the same by reason of minority, illness or infirmity, mental incompetency, or
incapacity of any kind, the Administrative Committee may, in its sole
discretion, take any one or more of the following actions: it may apply such
payment directly for the comfort, support and maintenance of such person; it may
reimburse any person for any such support theretofore supplied to the person
entitled to receive any such payment; or it may pay such payment to any other
person selected by the Administrative Committee to disburse such payment for the
comfort, support and maintenance of the person entitled thereto, including,
without limitations, to any relative who has undertaken, wholly or partially,
the expense of such person's comfort, care and maintenance, or any institution
in whose care or custody the person entitled to the payment may be. The
Administrative Committee may, in its sole discretion, deposit any payment due to
a minor to the
31
<PAGE>
minor's credit in any savings or commercial bank of the Administrative
Committee's choice.
32
<PAGE>
APPENDIX A
EXAMPLE OF SURVIVOR BENEFIT DETERMINATION AND PRORATION
John Doe: Current Age - 49
Presumed to die on July 1, 1996
<TABLE>
<CAPTION>
=====================================================================
Award % Deferred Amount
<S> <C> <C> <C>
1994 $ 39,000 100% $39,000
---------------------------------------------------------------------
1995 -0- 10% -0-
---------------------------------------------------------------------
1996 $ 60,000 10% $ 6,000
---------------------------------------------------------------------
1997 $ 60,000 10% $ 6,000
---------------------------------------------------------------------
1998 $ 70,000 10% $ 7,000
---------------------------------------------------------------------
Total $58,000
=====================================================================
</TABLE>
<TABLE>
<CAPTION>
=====================================================================
Base Salary % Deferred Amount
<S> <C> <C> <C>
1993 $140,000 20% $28,000
---------------------------------------------------------------------
1994 $164,000 0% -0-
---------------------------------------------------------------------
1995 $170,000 10% $17,000
---------------------------------------------------------------------
1996 $180,000 10% $18,000
---------------------------------------------------------------------
1997 $190,000 10% $19,000
---------------------------------------------------------------------
Total $82,000
=====================================================================
</TABLE>
CALCULATION OF SURVIVOR BENEFIT - GREATER OF:
(a) 40 percent of Deferral Election
$58,000 + $82,000 = $140,000 * 40% = $56,000 per yr. for 15 yrs.
The present value of this benefit would be determined by multiplying
the annual benefit ($56,000) by the number of years the payment is to
be made (15) and then applying a discount rate.
If the discount rate is 7.8%, the present value of this benefit would
be approximately $500,000.
(b) Actual Account Balance
Amounts deferred:
$39,000 + $6,000 + $28,000 + $17,000 + $9,000 = $ 99,000
Interest (est.) $ 21,000
--------
Total $120,000
$120,000 paid out over 15 years.
The annual Survivor Benefit would be $56,000 for 15 years as (a) is
greater than (b).
PRORATION OF THE ANNUAL SURVIVOR BENEFIT BETWEEN COMPANY AND LYONDELL-CITGO:
Company's Share: $56,000 * 75.5/140 = $30,200
LYONDELL-CITGO's Share: $56,000 * 64.5/140 = $25,800
33
<PAGE>
EXHIBIT 10.5a
INSTRUMENT AMENDING
LYONDELL PETROCHEMICAL COMPANY
EXECUTIVE DEFERRAL PLAN
LYONDELL PETROCHEMICAL COMPANY hereby amends the Lyondell Petrochemical
Company Executive Deferral Plan, effective November 1, 1996, as follows:
Article I, GENERAL PROVISIONS, Section 1.3, Definitions, is amended to delete
the definitions, "Constructive Termination for Good Reason" and "Eligible
Termination".
Article II, PARTICIPATION AND DEFERRAL COMMITMENTS, Section 2.2, Forms of
Deferral, is amended to delete subsection (b), Savings Deferral.
----------------
Article IV, PLAN BENEFITS, Section 4.1, Basic Plan Benefit, subsection (b), is
amended to read as follows:
4.1 Basic Plan Benefit
(b) Except as provided in Section 4.11, the Interest Rates provided
under Section 4.1(a) shall be payable until the Participant's Account
is distributed in full, except in the event of the Participant's
death. After the Participant's death, interest shall be credited at
the Interest Rate previously determined under Section 3.3(b).
Article IV, PLAN BENEFITS, Section 4.4, Survivor Benefits, is amended to add new
subsection (c), Death Following Change in Control, to read as follows:
---------------------------------
1
<PAGE>
4.4 Survivor Benefits
(c) Death Following Change in Control. If a Participant is entitled
---------------------------------
to a payment under Section 4.11 and dies prior to receiving his entire
Account, the balance of the Participant's Account shall be paid to
Participant's Beneficiary in a lump sum or on an installment basis,
according to the Participant's election of form of payment on Change
in Control.
Article IV, PLAN BENEFITS, Section 4.11, Benefits in the Event of a Change in
Control, is revised to read as follows:
Section 4.11 Benefits in the Event of a Change in Control
Notwithstanding the contrary provisions of Section 4.8, the provisions
of this Section 4.11 shall control in the event of a Change in Control of
the Company.
In the event of a Change in Control, as defined in Section 4.12, the
full amount of contributions and earnings accrued or credited to the
Participant's Account, (as of the date immediately preceding the Change in
Control) shall be distributed to the Participant or the Participant's
Beneficiary, if a Survivor Benefit is being paid at the time of the Change
in Control. Payment shall be made in a form previously approved by the
Administrative Committee and previously elected by the Participant. If
applicable, the Company shall pay the Participant an additional amount
equal to the Income Tax Gross-up in a cash lump-sum payment.
For purposes of this Plan, the "Income Tax Gross-up" shall be based on
the full amount of contributions and earnings accrued or credited to
Participant's Account as of September 1, 1996. The Income Tax Gross-up
shall be the following percentage of the amount necessary so that after
payment of any federal, state and local income or employment tax by the
Participant on the distribution of that amount under this Plan and the
Income Tax Gross-Up, the net amount retained by the Participant shall be
the full amount accrued and credited to his Account under this Plan as of
September 1, 1996.
Specified Period of Time Percentage of
------------------------ -------------
Income Tax Gross-up
-------------------
September 1, 1996-August 31, 1997 100%
September 1, 1997-August 31, 1998 66%
September 1, 1998-August 31, 1999 33%
2
<PAGE>
No Income Tax Gross-up shall be payable for an event which occurs on
September 1, 1999 or later.
For purposes of determining the amount of the Income Tax Gross-up, the
Participant shall be deemed (i) to pay federal income taxes at the highest
stated rate of federal income taxation (including surtaxes, if any) for the
calendar year in which the Income Tax Gross-up is to be made (for 1996, the
highest stated rate is 39.6 percent); and (ii) to pay any applicable state
and local income taxes at the highest stated rate of taxation (including
surtaxes, if any) for the calendar year in which the Income Tax Gross-up is
to be made. Any Income Tax Gross-up required hereunder shall be paid by
Company to Participant at the same time that any payment made under this
Plan which is subject to income tax is paid or deemed received by the
Participant.
IN WITNESS WHEREOF, LYONDELL PETROCHEMICAL COMPANY, acting by and through
its duly authorized officer, has caused this Instrument to be executed this
6th day of December, 1996.
ATTEST: LYONDELL PETROCHEMICAL COMPANY
/s/ Gerald A. O'Brien /s/ Richard W. Park
- ------------------------- -------------------------------
Assistant Secretary Richard W. Park
Vice President, Human Resources
3
<PAGE>
EXHIBIT 10.6(A)
INSTRUMENT AMENDING LYONDELL PETROCHEMICAL
EXECUTIVE LONG-TERM DISABILITY PLAN
LYONDELL PETROCHEMICAL COMPANY hereby amends, effective January 1, 1995, the
Lyondell Petrochemical Company Executive Long-Term Disability Plan as follows:
SECTION 1.3, DEFINITIONS, subsection (b), Annual Incentive Award, is deleted and
subsections
(c) through (x) are relettered (b) through (w), respectively.
SECTION 1.3, DEFINITIONS, subsection (t), Salary, is amended to read as follows:
(t) Salary means a Participant's regular monthly base rate of salary in
effect as of the date the Participant becomes Totally or Residually
Disabled, as applicable, plus the greater of: (i) one-twelfth (8.33
percent) of the annual average of the Participant's Value Share Plan Awards
paid in the 36 month period prior to the date the Participant became
Totally or Residually Disabled or (ii) one twelfth (8.33 percent) of the
highest annual average of the Participant's Value Share Plan Awards paid in
any consecutive three year period during the ten year period prior to the
date the Participant became Totally or Residually disabled and during which
period the Participant was eligible to receive Value Share Plan Awards or
Annual Incentive Plan Awards from the Company (or if fewer than ten, during
the total number of years for which the Participant was eligible to receive
Value Share Plan Awards or Annual Incentive Plan Awards from the Company
prior to the date the Participant became Totally or Residually Disabled).
For purposes of this definition, if the Participant has been paid a Value
Share Plan Award for only a portion of that 36 month period, then the
annual average shall be the annual average of the Participant's Value Share
Plan Awards and any awards previously received during that 36 month period
under the Company's Annual Incentive Award Plan.
<PAGE>
SECTION 1.3, DEFINITIONS, is amended to add subsection (x), Value Share Plan
Award, to read
as follows:
(x) Value Share Plan Award means the amount of the cash award, if any received
by a Participant under the Company's Value Share Plan, Management Value Share
Plan or any similar type incentive plan maintained by the Company. Value Share
Plan Award does not include Deferred Cash as such term is used in the Company's
Value Share Plan or Management Value Share Plan.
IN WITNESS WHEREOF, LYONDELL PETROCHEMICAL COMPANY, by and through
its duly authorized officer, has caused this Instrument to be executed on this
18th day of
December, 1995.
ATTEST: LYONDELL PETROCHEMICAL COMPANY
BY:/s/ Gerald A. O'Brien BY:/s/ Richard W. Park
------------------------ ------------------------
Assistant Secretary Richard W. Park
Vice President, Human Resources
<PAGE>
EXHIBIT 10.10
LYONDELL PETROCHEMICAL COMPANY
- -------------------
VALUE SHARE PLAN
Edition of October 1, 1996
<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
-1-
<PAGE>
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, 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.
The Value Award Pool and the Operating Award Pool will then be allocated to
Participants in accordance with each Participant's Allocation Percentage.
2
<PAGE>
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 receive the cash equivalent to first quarter
dividends which otherwise would have been 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 at the beginning of each Performance Cycle, the
position level of each participant, and other considerations, as deemed
appropriate by the Committee. If a Participant ceases to participate in the
Plan, Allocation Percentages for ongoing Performance Cycles will not be
readjusted for remaining Participants.
A New Participant will not be assigned an Allocation Percentage until the
beginning of the first Performance Cycle for which Allocation Percentages have
not already been assigned under this Section, at which time the New Participant
will become a Participant. Prior to assignment of an
3
<PAGE>
Allocation Percentage, the New Participant, at the Committee's discretion, may
receive an award under Section II.11.
The Allocation Percentages for performance Cycles ending in 1995, 1996, 1997,
and 1998 and 1999 will be established prior to March 30, 1995.
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:
4
<PAGE>
Operating Performance Standard Operating Award Pool
----------------------------------------- ----------------------------
(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
==========
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>
Performance Rating Downward Adjustment (1) Total Operating 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
II.8 AWARD CALCULATION
Each Participant's award under the Plan for a Performance Cycle will be
determined by multiplying the Participant's 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.
5
<PAGE>
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 granted
Restricted Stock 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 granted 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 December 15
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. Shares of Restricted
Stock 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.
II.11 SEPARATE DISCRETIONARY AWARDS
6
<PAGE>
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 or New 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 by reason of death,
disability or retirement, or if termination occurs within two years following a
Change in Control, or if the participant becomes ineligible to participate in
the Plan due to a demotion or 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, calculated according to the
7
<PAGE>
following formula: the award the Participant would have earned for the
Performance Cycle ending in the year in which an event listed above occurs shall
be multiplied by a fraction, the numerator of which shall be the number of full
months that the Participant was employed by the Company during that final year
of the Performance Cycle and the denominator of which shall be twelve. Pro-rated
awards pursuant to this Section III.3 will be paid in their entirety by cash
within 120 days following the end of the Performance Cycle.
A Participant who terminates employment with the Company prior to the end of any
ongoing 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 this Plan, the Committee, in its sole
discretion, may permit continued participation, pro-ration or early distribution
(or a combination of awards which would otherwise be forfeited.)
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 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.6 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.
8
<PAGE>
III.7 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.
III.8 WITHHOLDING TAX
Lyondell will deduct from all awards paid under the Plan any taxes required by
law to be withheld.
III.9 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.10 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.11 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.
9
<PAGE>
"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.
"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.
10
<PAGE>
"NET INCOME" refers to the Company's net income after taxes, as reported in the
Company's audited financial statements.
"NEW PARTICIPANT" refers to a key Employee and officer of Lyondell or Affiliate
selected by the Committee to participate in the Plan after March 30 of the first
year of a Performance Cycle.
"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.
PERFORMANCE CYCLE PERFORMANCE MEASUREMENT PERIOD
--------------------------- --------------------------------------
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
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:
PERFORMANCE CYCLE PERFORMANCE MEASUREMENT PERIOD
--------------------------- --------------------------------------
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
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.
"RETIREMENT" refers to a termination of employment with a right to commence an
immediate allowance under a retirement plan maintained by the Company.
11
<PAGE>
"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.
12
<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.
13
<PAGE>
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 entered
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
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.
14
<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]} divided 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/ square root [(Adjusted Shares*ESP) divided
(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.
15
<PAGE>
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.
- ---------------
16
<PAGE>
INSTRUMENT AMENDING
LYONDELL PETROCHEMICAL COMPANY
VALUE SHARE PLAN
LYONDELL PETROCHEMICAL COMPANY hereby amends the Lyondell Petrochemical
Company Value Share Plan, effective February 1, 1997, as follows:
SECTION III.3, Terminations, Demotions and Transfers, is amended to read as
follows:
If Termination of a Participant's employment occurs by reason of death,
Disability or Retirement, or if Termination occurs within two years
following a Change in Control, or if the Participant becomes ineligible to
participate in the Plan due to a demotion or 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 for each outstanding Performance Cycle
for which the Participant was assigned an Allocation Percentage.
The amount of the pro-rata award shall be calculated by multiplying the
award for the respective Performance Cycle by a fraction, where the
numerator is the months of the Participant's Company employment during the
Performance Cycle and the denominator is the total number of months in that
Performance Cycle.
The award for the Performance Cycle which ends in the year of the
Termination event shall be based on the full amount of the Participant's
award calculated under Section II.8. The award for remaining outstanding
Performance Cycles shall be based only on the Participant's Allocation
Percentage multiplied by the amount of the Value Award Pool determined for
that 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 applicable
Performance Cycle.
A Participant who terminates employment with the Company prior to the end
of any 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.
<PAGE>
Notwithstanding any other provision of this Plan, the Committee, in its
sole discretion, may permit continued participation, pro-ration or early
distribution (or a combination of awards which would otherwise be
forfeited).
IN WITNESS WHEREOF, LYONDELL PETROCHEMICAL COMPANY, acting by and
through its duly authorized officer, has caused this Instrument to be executed
on the 20th day of February, 1997.
ATTEST: LYONDELL PETROCHEMICAL COMPANY
BY:/s/ Gerald A. O'Brien BY:/s/ Richard W. Park
------------------------ -----------------------------
Assistant Secretary Richard W. Park
Vice President, Human Resources
<PAGE>
EXHIBIT 10.11
EXECUTIVE SEVERANCE AGREEMENT,
DATED AS OF ________, 1996,
BETWEEN
LYONDELL PETROCHEMICAL COMPANY,
A DELAWARE CORPORATION (THE "COMPANY"), AND
______________________ ("EXECUTIVE")
<PAGE>
TABLE OF CONTENTS
-----------------
PAGE
----
<TABLE>
<CAPTION>
<S> <C>
Section 1. Stock Options......................................... 1
Section 2. Termination Following Change in Control............... 3
(a) Termination Upon Change in Control.................... 3
(b) Change in Control..................................... 4
Section 3. Rights and Benefits upon Termination.................. 7
(a) Salary and Other Payment at Termination............... 7
(b) Prorated Value Share Plan Award....................... 8
(c) Crediting of Additional Pension Benefit............... 8
(d) Stock Options......................................... 9
(e) Executive Deferral Plan............................... 9
(f) Insurance and Other Benefits.......................... 10
(g) Financial Counseling.................................. 11
(h) Outplacement.......................................... 11
(i) No Duty to Mitigate................................... 11
Section 4. Other Benefit Plans................................... 11
Section 5. Payment Obligations Absolute.......................... 12
Section 6. Combined Gross-up Payment; Tax Defense................ 12
(a) Combined Gross-up Payment............................. 12
(b) Tax Defense........................................... 12
Section 7. Conditions to the Obligations of the Company.......... 13
Section 8. Confidentiality and Cooperation....................... 13
(a) Cooperation........................................... 13
(b) Release of Liability.................................. 14
Section 9. Term of Agreement..................................... 15
Section 10. Arbitration........................................... 15
(a) Arbitrable Matters.................................... 15
(b) Submission to Arbitration............................. 15
(c) Arbitration Procedures................................ 16
</TABLE>
(i)
<PAGE>
<TABLE>
<S> <C> <C>
(d) Compliance with Decisions............................. 17
(e) Costs and Expenses.................................... 17
Section 11. Notices............................................... 17
Section 12. Miscellaneous......................................... 18
(a) Assignment............................................ 18
(b) Construction of Agreement............................. 18
(c) Amendment............................................. 18
(d) Waiver................................................ 18
(e) Severability.......................................... 18
(f) Successors............................................ 18
(g) Taxes................................................. 19
(h) Governing Law......................................... 19
(i) Entire Agreement...................................... 19
</TABLE>
(ii)
<PAGE>
EXECUTIVE SEVERANCE AGREEMENT
THIS EXECUTIVE SEVERANCE AGREEMENT, is made and entered into this ____ day
of __________, 1996, by and between LYONDELL PETROCHEMICAL COMPANY, a Delaware
corporation (hereinafter referred to as "Company"), and _____________________,
an individual (hereinafter referred to as "Executive").
W I T N E S S E T H :
WHEREAS, the Compensation Committee of the Board of Directors of the
Company (the "Compensation Committee") has authorized the Company to enter into
a severance agreement in the form hereof with Executive;
WHEREAS, the Board of Directors of the Company (the "Board") has determined
that, in the event the Company becomes subject to any proposed or threatened
change in control, it is imperative that the Company and the Board be able to
rely upon Executive to continue in Executive's position, and that the Company be
able to receive and rely upon Executive's advice, if requested, as to the best
interests of the Company and its stockholders without concern that Executive
might be distracted by the personal uncertainties and risks created by such a
proposal or threat;
WHEREAS, in the event the Company receives any such proposal or threat,
Executive may, in addition to Executive's regular duties, be called upon to
assist in the assessment of such matters, advise management and the Board as to
whether such proposals or other matters would be in the best interests of the
Company and its stockholders, and to take such other actions as the Board might
determine to be appropriate;
NOW, THEREFORE, to assure the Company that it will have the continued
dedication of Executive and the availability of Executive's advice and counsel
notwithstanding the possibility, threat or occurrence of an effort to take over
control of the Company, and to induce Executive to remain in the employ of the
Company, and for other good and valuable consideration, the Company and
Executive agree as follows:
1. STOCK OPTIONS.
-------------
If a Change in Control occurs while Executive is employed by the Company or
any subsidiary thereof, then with respect to any stock options granted to
Executive under the Company's Executive Long-Term Incentive Plan (the "Stock
Option Plan"), notwithstanding any provision of the Stock Option Plan or
Executive's associated stock option agreement, if any, to the contrary, all non-
vested options shall become 100% vested and fully exercisable as of the last
business day immediately preceding the Change in Control. On Change in Control,
the Company shall also pay to Executive a cash lump sum payment for all
outstanding dividend share credits associated with stock options granted under
the Stock Option Plan. This lump sum
<PAGE>
payment shall be paid within forty-five (45) calendar days from the date of the
Change in Control.
For purposes of this Section, the value of the outstanding dividend share
credits shall be calculated by Strategic Compensation Associates, or any other
compensation consultant that is mutually agreeable to the parties (the
"Compensation Consultant"). In preparing its valuation, the Compensation
Consultant in its good faith discretion shall be responsible for designating
reasonable and customary parameters for the methodology used in its calculation.
Company shall deliver to Executive the determination of the value of his
dividend share credits with the payment therefore.
2. TERMINATION FOLLOWING CHANGE IN CONTROL.
---------------------------------------
(a) Termination Upon Change in Control. The Company will provide or cause
----------------------------------
to be provided to Executive the rights and benefits described in Section 3 of
this Agreement in the event that Executive's employment by the Company (which
for this purpose also shall include LCR and any subsidiary of the Company or
LCR) is terminated at any time within two (2) years following a Change in
Control (as defined in Section 2(b)): (1) by the Company for reasons other than
(A) "Cause" (as defined in Section 7), (B) Executive's death or permanent
disability or (C) Executive's retirement upon reaching age 65 ("Normal
Retirement Date"), or (2) (A) by Executive within ninety (90) days following the
occurrence of a Change in Control, if the Executive is the Chairman and Chief
Executive Officer, President and Chief Operating Officer, Senior Vice President,
Chief Financial Officer and Treasurer or Senior Vice Presidnet, Secretary and
General Counsel or (B) by Executive, including Executives listed in (A) above,
within ninety (90) days following the occurrence of any of the following events
without Executive's written consent which events shall constitute "Constructive
Termination for Good Reason":
(i) Executive's assignment to any duties or responsibilities that
are not comparable to Executive's position, offices, duties,
responsibilities or status immediately preceding such Change in Control, or
a change in Executive's reporting responsibilities or titles in effect at
such time resulting in a reduction of Executive's responsibilities or
position at the Company;
(ii) the reduction in the level of benefits or compensation provided
to Executive below the comparable level of benefits and compensation
payable to Executive immediately preceding the Change in Control; or
(iii) the actual transfer, or the proposed transfer, as evidenced in
a written communication from Company to Executive, of Executive to another
location other than
2
<PAGE>
the location at which he was primarily employed immediately preceding the
Change in Control, unless such new location is a major operating unit or
facility of the Company that is located within 50 miles of Executive's
primary location as of the date immediately preceding such Change in
Control; provided, however, (1) Executive, within thirty (30) days from the
-------- -------
date that he is given written notice by the Company of such actual or
proposed transfer, shall provide the Board with written notice that such
transfer shall constitute a Constructive Termination for Good Reason
hereunder, (2) Company within twenty (20) days of receipt of such notice by
the Board shall fail to provide Executive with written notice rescinding
such actual or proposed transfer and (3) if the transfer is not rescinded
by the Company, Executive must terminate his employment due to Constructive
Termination for Good Reason within forty (40) days following expiration of
the 20-day period referred to in the preceding clause so that in any event
Executive shall have terminated his employment with the Company within 90
days after Executive first receives written notice from the Company of such
actual or proposed transfer.
(b) Change in Control. For purposes of this Agreement, a "Change in
-----------------
Control" shall be deemed to have occurred as of the date that one or more of the
following occurs:
(i) Individuals who, as of the date hereof, constitute the entire
Board of Directors of the Company ("Incumbent Directors") cease for any
reason to constitute at least a majority of the Board; provided, however,
-------- -------
that any individual becoming a director subsequent to the date hereof whose
election, or nomination for election by the Company's shareholders, was
approved by a vote of at least a majority of the then Incumbent Directors
shall be considered as though such individual was an Incumbent Director,
but excluding, for this purpose any such individual whose initial
assumption of office occurs as a result of either an actual or threatened
election contest, as such terms are used in Rule 14a-11 under the Exchange
Act or other actual or threatened solicitation of proxies or consents by or
on behalf of any Person (as defined below) other than the Board; provided,
--------
further, that in the event ARCO at any time determines to achieve minority
-------
representation on the Company's Board of Directors approximately equal to
its then ownership percentage of the Company's common stock, its
implementation of such determination through the election of ARCO employees
as directors of the Company shall not be deemed to be a Change in Control
and such ARCO employees shall constitute Incumbent Directors;
(ii) The stockholders of the Company shall approve (A) any merger,
consolidation or recapitalization of the Company (or, if the capital stock
of the Company is affected, any subsidiary of the Company), or any sale,
lease, or other transfer (in one transaction or a series of transactions
contemplated or arranged by any party as a single plan) of all or
substantially all of the assets of the Company (each of the foregoing being
an "Acquisition Transaction") where (1) the shareholders of the Company
immediately prior to such Acquisition Transaction would not immediately
after such Acquisition
3
<PAGE>
Transaction beneficially own, directly or indirectly, shares or other
ownership interests representing in the aggregate eighty percent (80%) or
more of (a) the then outstanding common stock or other equity interests of
the corporation or other entity surviving or resulting from such merger,
consolidation or recapitalization or acquiring such assets of the Company,
as the case may be (the "Surviving Entity") (or of its ultimate parent
corporation or other entity, if any), and (b) the Combined Voting Power of
the then outstanding Voting Securities of the Surviving Entity (or of its
ultimate parent corporation or other entity, if any) or (2) the Incumbent
Directors at the time of the initial approval of such Acquisition
Transaction would not immediately after such Acquisition Transaction
constitute a majority of the Board of Directors, or similar managing group,
of the Surviving Entity (or of its ultimate parent corporation or other
entity, if any), or (B) any plan or proposal for the liquidation or
dissolution of the Company;
(iii) Any Person except for ARCO shall be or become the beneficial
owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act),
directly or indirectly, of securities of the Company representing in the
aggregate more than twenty percent (20%) of either (A) the then outstanding
shares of common stock of the Company ("Common Shares") or (B) the Combined
Voting Power of all then outstanding Voting Securities of the Company;
provided, however, that notwithstanding the foregoing, a "Change of
-------- -------
Control" shall not be deemed to have occurred for purposes of this
Subsection (iii):
(1) Solely as a result of an acquisition of securities by the
Company which, by reducing the number of Common Shares or other
Voting Securities outstanding, increases (a) the proportionate
number of Common Shares beneficially owned by any Person to
more than twenty percent (20%) of the Common Shares then
outstanding, or (b) the proportionate voting power represented
by the Voting Securities beneficially owned by any Person to
more than twenty percent (20%) of the Combined Voting Power of
all then outstanding Voting Securities; or
(2) Solely as a result of an acquisition of securities directly
from the Company except for any conversion of a security that
was not acquired directly from the Company,
provided, further, that if any Person referred to in paragraph (1) or (2)
-------- -------
of this Subsection (iii) shall thereafter become the beneficial owner of
any additional Common Shares or other Voting Securities of the Company
(other than pursuant to a stock split, stock dividend or similar
transaction), then a "Change of Control" shall be deemed to have occurred
for purposes of this Subsection (iii); or
(iv) ARCO shall become the owner, directly or indirectly, of
securities of the Company representing in the aggregate more than fifty
percent (50%) of either (i) the
4
<PAGE>
then outstanding Common Shares or (ii) the Combined Voting Power of all
then outstanding Voting Securities of the Company except as the result of
an acquisition of securities by the Company which, by reducing the number
of Common Shares or other Voting Securities outstanding, increases (x) the
proportionate number of Common Shares beneficially owned by ARCO to more
than fifty percent (50%) of the Common Shares then outstanding, or (y) the
proportionate voting power represented by the Voting Securities
beneficially owned by ARCO to more than fifty percent (50%) of the Combined
Voting Power of all then outstanding Voting Securities; provided, however,
-------- -------
that if thereafter ARCO becomes the beneficial owner of any additional
Common Shares or other Voting Securities of the Company (other than
pursuant to a stock split, stock dividend or similar transaction) the
exception provided above shall no longer apply; provided, further, that for
-------- -------
purposes of this Subsection (iv), neither record ownership of common stock
of the Company by the Trustee for ARCO's 401(a) qualified plans nor
beneficial ownership of common stock of the Company by any of ARCO's
directors for their personal account shall be deemed to constitute
"indirect" ownership of common stock of the Company by ARCO; provided,
--------
further, that notwithstanding any contrary provision of this Agreement, no
-------
Change in Control shall be deemed to have occurred pursuant to this
Subsection (iv) if as a result of an inadvertent act ARCO becomes the
owner, directly or indirectly, of additional Common Shares or Voting
Securities and such securities are sold or otherwise disposed of by ARCO
within 30 days after ARCO discovers, or is notified by the Company as to,
the potential Change of Control resulting from such ownership, so that, as
a result of such subsequent sale or other disposition by ARCO, no Change in
Control would otherwise be deemed to have occurred pursuant to the terms
(excluding this proviso) of this Subsection (iv).
Notwithstanding any of the foregoing, no Change in Control shall be deemed
to have occurred as a result solely of (i) the registration by ARCO of the
Exchangeable Notes pursuant to the Registration Statement, (ii) the
issuance and sale by ARCO of the Exchangeable Notes to the underwriters in
accordance with the Registration Statement, or (iii) prior to the maturity
of the Exchangeable Notes, purchases and sales of the Exchangeable Notes.
(c) For purposes of this Agreement:
(i) "Affiliate" shall mean, as to a specified Person, another
Person that directly, or indirectly through one or more intermediaries,
controls or is controlled by, or is under common control with, the
specified Person, within the meaning of such terms as used in Rule 405
under the Securities Act of 1933, as amended, or any successor rule.
(ii) "ARCO" shall mean Atlantic Richfield Company and any of its
Affiliates, excluding the Company.
5
<PAGE>
(iii) "Combined Voting Power" shall mean the aggregate votes entitled
to be cast generally in the election of the Board of Directors, or similar
managing group, of a corporation or other entity by holders of then
outstanding Voting Securities of such corporation or other entity.
(iv) "Exchangeable Notes" shall mean the debt securities
exchangeable upon maturity, at ARCO's option, into shares of the Company's
common stock or cash, as such debt securities are described in the
Registration Statement.
(v) "LCR" shall mean LYONDELL-CITGO Refining Company Ltd., a
Limited Liability Company organized under the laws of the State of Texas.
(vi) "Person" shall mean any individual, entity (including, without
limitation, any corporation, partnership, trust, joint venture, association
or governmental body) or group (as defined in Sections 14(d)(3) or 15(d)(2)
of the Exchange Act and the rules and regulations thereunder); provided,
--------
however, that Person shall not include the Company or LCR, any of their
-------
subsidiaries, any employee benefit plan of the Company or LCR or any of
their majority-owned subsidiaries or any entity organized, appointed or
established by the Company, LCR or such subsidiaries for or pursuant to the
terms of any such plan.
(vii) "Registration Statement" shall mean ARCO's registration
statement on Form S-3 (Registration No. 33-53481) with respect to the
Exchangeable Notes.
(viii) "Voting Securities" shall mean all securities of a corporation
or other entity having the right under ordinary circumstances to vote in an
election of the Board of Directors, or similar managing group, of such
corporation or other entity.
3. RIGHTS AND BENEFITS UPON TERMINATION. In the event Executive is
------------------------------------
entitled pursuant to Section 2 to receive the rights and benefits described in
this Section as a result of the termination or Constructive Termination for Good
Reason of Executive's employment within two years following a Change in Control
(hereinafter collectively referred to as "Termination"), the Company agrees to
provide or cause to be provided to Executive the following rights and benefits:
(a) Salary and Other Payment at Termination. Company shall pay to
---------------------------------------
Executive not later than thirty (30) days following Termination a lump-sum
payment in cash in the amount of three (3) times Executive's "Applicable Annual
Earnings" (as defined below); provided, however, if there are fewer than twenty-
-------- -------
four (24) full months remaining from the date of Termination to Executive's
Normal Retirement Date, the payment Executive shall be entitled to receive
pursuant to this Section 3(a) will equal such amount multiplied by a fraction,
the numerator of which is the number of months (including any fraction of a
month) so remaining to Executive's Normal Retirement Date and the denominator of
which is 24.
6
<PAGE>
For purposes of this Agreement, "Applicable Annual Earnings" shall mean the
sum of Executive's current annual base salary (determined using the highest rate
in effect up to and including the effective date of Termination, whether or not
paid) and Executive's Average Value Share Plan Award, (whether or not paid) for
personal services on behalf of the Company, LCR or their subsidiaries for a
calendar year in which the Termination occurs. The Average Value Share Plan
Award shall be the average, determined over the three year period immediately
prior to Termination, of the cash amount of an Executive's Value Share Plan
award (but not deferred cash associated with any grant of restricted stock). If
Executive is subject to a Constructive Termination for Good Reason because his
salary is reduced or the Value Share Plan award is reduced as a result of an
adverse change in plan terms, then the current annual base salary and Average
Value Share Plan Award used to determine Applicable Annual earnings shall be the
annual base salary in effect immediately prior to such Constructive Termination
for Good Reason or the Average Value Share Plan Award determined over the three
year period immediately prior to the Constructive Termination for Good Reason.
Applicable Annual Earnings shall include Executive's current annual base salary
and Average Value Share Plan Award whether or not paid on a deferred basis,
including without limitation, amounts contributed by or on behalf of Executive
under a Company-sponsored plan, such as (i) a plan described in Section 125 or
401(k) of the Internal Revenue Code of 1986, as amended, or (ii) the Company's
Executive Deferral Plan or an "excess benefit plan" as defined in the Employee
Retirement Income Security Act of 1974, as amended. Notwithstanding the
preceding provisions of this paragraph, Applicable Annual Earnings does not
include any income attributable to stock options, stock appreciation rights,
performance awards, dividend credits, and restricted stock granted under, and
dividends on shares acquired pursuant to, any stock option plan, restricted
stock plan or performance unit plan.
(b) Prorated Value Share Plan Award. Company shall pay to Executive, not
-------------------------------
later than one hundred and twenty (120) days following the end of the year in
which Termination occurs, a cash lump-sum payment equal to his Value Share Plan
award for the Performance Cycle ending in the year of Termination (except that
if Executive is subject to Constructive Termination for Good Reason because his
Value Share Plan award was reduced, then the Value Share Plan award for this
purpose shall be the Value Share Plan award immediately prior to such
Constructive Termination for Good Reason) multiplied by a fraction, the
numerator of which is the number of elapsed days in the year of Termination up
to and including the date of Termination and the denominator of which is 365.
No payment shall be made under this paragraph if Executive is entitled to a
prorated award payable under the Value Share Plan.
(c) Crediting of Additional Pension Benefit. In accordance with the
---------------------------------------
special supplemental retirement benefit authorized by the Compensation Committee
on September 13, 1991, Company shall credit Executive with an additional five
(5) years of (i) age (not to exceed age 65) and (ii) service with the Company,
under the Company's Supplementary Executive Retirement Plan (or its successor)
for purposes of determining his accrued benefits thereunder.
7
<PAGE>
(d) Stock Options. All stock options owned by Executive shall be freely
-------------
exercisable following Termination for the remainder of their existing terms
without regard to any earlier date that may be specified therein including,
without limitation, an earlier expiration date specified with respect to
Executive's termination of employment.
(e) Executive Deferral Plan. The provisions of this Section 3(e) shall
-----------------------
apply notwithstanding any provisions of the Company's Executive Deferral Plan
(the "Deferral Plan") or the initial paragraph of Section 3 hereof to the
contrary.
In the event that (i) there is a "Termination or Adverse Amendment" (as
defined below) of the Deferral Plan within two years following a Change in
Control and (ii) a Termination within the meaning of this Agreement has not
occurred with respect to Executive, then, notwithstanding any other provision of
this Agreement, the full amount of contributions and earnings accrued or
credited to Executive's account balance under the Deferral Plan (as of the date
immediately preceding the Termination or Adverse Amendment) shall be immediately
distributed to Executive in a cash lump-sum payment. If applicable, the Company
also shall pay Executive in a cash lump-sum payment an additional amount equal
to the "Income Tax Gross-up" (as defined below).
In the event that Executive as of his Termination date is not eligible to
receive an "Immediate Retirement Benefit" (as defined below), then the full
amount of contributions and earnings accrued or credited to Executive's account
balance under the Deferral Plan (as of the date immediately preceding his
Termination) shall be immediately distributed to Executive in a cash lump-sum
payment. If applicable, the Company also shall pay Executive in a cash lump-sum
payment an additional amount equal to the Income Tax Gross-up, without regard to
whether or not there has been a Termination or Adverse Amendment.
In the event that (i) there is a Termination or Adverse Amendment of the
Deferral Plan following a Change in Control and (ii) Executive as of his
Termination date is either eligible to receive an Immediate Retirement Benefit
or elects (or has elected) to commence an Immediate Retirement Benefit, then the
full amount of contributions and earnings accrued or credited to Executive's
account balance under the Deferral Plan (as of the date immediately preceding
the Termination or Adverse Amendment) shall be immediately distributed to
Executive in a cash lump-sum payment. If applicable, the Company also shall pay
Executive in a cash lump-sum payment an additional amount equal to the Income
Tax Gross-up.
For purposes of this Agreement, "Termination or Adverse Amendment" means
that the Deferral Plan is either (i) terminated for whatever reason by the
Company or (ii) amended by the Company in any way that adversely affects
Executive's rights, privileges or benefits thereunder including, without
limitation, an amendment that results in a change to the methodology used to
determine the interest rate for earnings credited to Executive's account
balance, without the
8
<PAGE>
Executive's written consent to such amendment, other than an amendment which is
required by law.
For purposes of this Agreement, "Immediate Retirement Benefit" means
Executive is eligible (after giving effect to Section 3(c)) to receive an
immediate allowance or distribution (whether reduced or unreduced) from a
retirement plan maintained by the Company which is intended to be a qualified
plan under Section 401(a) of the Internal Revenue Code of 1986, as amended.
For purposes of this Agreement, "Income Tax Gross-up" shall be based on the
full amount of contributions and earnings accrued or credited to Executive's
account balance under the Deferral Plan as of September 1, 1996. The Income Tax
Gross-up shall be the following percentage of the amount necessary so after
payment of any federal, state and local income or employment tax by Executive on
the distribution of that amount under the Deferral Plan and the Income Tax
Gross-up, the net amount retained by Executive shall be the full amount accrued
and credited to his account balance under the Deferral Plan as of September 1,
1996:
<TABLE>
<CAPTION>
================================================================================
PERCENTAGE OF INCOME TAX
PERIOD GROSS-UP
================================================================================
<S> <C>
First twelve month period following date of 100%
Agreement
Second twelve month period following date 66%
of Agreement
Third twelve month period following date 33%
of Agreement
================================================================================
</TABLE>
No Income Tax Gross-up shall be payable after the end of the third twelve
month period following the date of this Agreement.
For purposes of determining the amount of the Income Tax Gross-up,
Executive shall be deemed (i) to pay federal income taxes at the highest stated
rate of federal income taxation (including surtaxes, if any) for the calendar
year in which the Income Tax Gross-up is to be made (for 1996, the highest
stated rate is 39.6%); and (ii) to pay any applicable state and local income
taxes at the highest stated rate of taxation (including surtaxes, if any) for
the calendar year in which the Income Tax Gross-up is to be made. Any Income
Tax Gross-up required hereunder shall be paid by Company to Executive at the
same time that any payment made under the Deferral Plan which is subject to
income tax is paid or deemed received by Executive.
9
<PAGE>
(f) Insurance and Other Benefits. To the extent that Executive is eligible
----------------------------
thereunder, then for a period of twenty-four (24) months following Termination,
Executive (and his dependents, as applicable) shall continue to be covered at
Company's expense by the life insurance, medical and dental plans, and accident
and disability plans of the Company and its subsidiaries, or any successor to a
plan or program in effect at Termination for employees in the same class or
category as Executive (hereafter individually and collectively referred to as
"Company Welfare Plan"), subject to the terms of the Company Welfare Plan and to
Executive's making any required contributions thereto which contributions shall
not exceed those charged to employees in the same class or category in which
Executive was employed by the Company. In the event that Executive is ineligible
to continue to be so covered under the terms of any Company Welfare Plan, or in
the event that Executive is eligible but the benefits applicable to Executive
(and his dependents, as applicable) are not substantially equivalent to such
benefits immediately prior to Termination, then, for a period of twenty-four
(24) months following Termination, the Company shall at its expense provide to
Executive (and his dependents, as applicable) through other sources such
benefits as may be necessary to make the benefits applicable to Executive (and
his dependents, as applicable) substantially equivalent to those in effect
immediately prior to Termination. Continuation coverage provided hereunder
pursuant to any group health plan maintained by the Company or a subsidiary
shall be in lieu of, and not in addition to, any continuation coverage required
under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended
("COBRA"). Any retiree coverage provided to Executive by Company shall be on the
same terms and conditions, including bridging of coverage, as that provided to
executives in the same class or category in which Executive was employed by
Company.
(g) Financial Counseling. For a period of one year following Termination,
--------------------
Executive shall continue to be covered at Company's expense under the financial
counseling program of Company, or any successor program, in effect at
Termination for employees in the same class or category as Executive, subject to
the terms of such program. In the event the benefits available to Executive
under such financial counseling program are not substantially equivalent to the
benefits available to Executive at Termination, Company at its expense shall
provide to Executive through other sources such benefits as may be necessary to
make the benefits available to Executive substantially equivalent to those in
effect at Termination.
(h) Outplacement. Company shall provide to Executive, at Company's expense
------------
but not to exceed $40,000.00, outplacement assistance for Executive from a
professional outplacement assistance firm which is reasonably suitable to
Executive.
(i) No Duty to Mitigate. Executive's entitlement to benefits hereunder
-------------------
shall not be governed by any duty to mitigate Executive's damages by seeking
further employment nor offset by any compensation which Executive may receive
from future employment.
4. OTHER BENEFIT PLANS. The specific arrangements referred to in this
-------------------
Agreement
10
<PAGE>
are not intended (i) to exclude or limit Executive's participation in other
benefit plans or programs in which Executive currently participates or may
participate including, without limitation, retiree benefits, or benefits which
are available to executive personnel generally in the same class or category as
Executive (excluding only the Company's Special Termination Plan and the special
supplemental retirement benefit authorized by the Compensation Committee on
September 13, 1991) or (ii) to preclude or limit other compensation or benefits
as may be authorized by the Compensation Committee or the Board from time to
time. To the extent not otherwise paid or provided, the Company shall timely pay
or provide to the Executive and/or the Executive's dependents any other amounts
or benefits required to be paid or provided or which the Executive or the
Executive's dependents are eligible to receive pursuant to this Agreement and
under any plan, program, policy or practice or contract or agreement of the
Company and its Affiliates as in effect and applicable generally to executive
personnel in the same class or category of Executive.
5. PAYMENT OBLIGATIONS ABSOLUTE. The Company's obligation to pay or
----------------------------
provide or cause to be paid or provided to Executive the amounts and benefits,
and to make the arrangements, provided in this Agreement shall be absolute and
unconditional and shall not be affected by any circumstances (including, without
limitation, any setoff, claim, counterclaim, recoupment, defense or other right,
which the Company may have against Executive or anyone else). All amounts
payable by or on behalf of the Company hereunder shall be paid without notice or
demand. Each and every payment made hereunder by or on behalf of the Company
shall be final and the Company and its subsidiaries shall not, for any reason
whatsoever, seek to recover all or any part of such payment from Executive or
from whomever shall be entitled thereto. In no event shall an asserted violation
of any provision of this Agreement constitute a basis for deferring or
withholding any amount payable to, or on behalf of, Executive under this
Agreement.
6. COMBINED GROSS-UP PAYMENT; TAX DEFENSE.
--------------------------------------
(a) Combined Gross-up Payment. If the Executive becomes entitled to one or
-------------------------
more payments (with a "payment" including, without limitation, an increase in
pension benefits and the vesting of an option or other non-cash benefit or
property) pursuant to the terms of any plan, arrangement or agreement with the
Company (the "Total Payments"), which are or become subject to the tax imposed
by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code")
(or any similar tax that may hereafter be imposed) (the "Excise Tax"), the
Company shall pay to Executive an additional cash amount (the "Combined Gross-up
Payment") such that the net amount retained by Executive after reduction for (i)
any Excise Tax on the Total Payments and (ii) any federal, state and local
income or employment tax and Excise Tax payable with respect to the Combined
Gross-up Payment, shall equal the Total Payments. For purposes of determining
the amount of the Combined Gross-up Payment, Executive shall be deemed (i) to
pay federal income taxes at the highest stated rate of federal income taxation
(including surtaxes, if any) for the calendar year in which the Combined Gross-
up Payment is to be made (for 1996,
11
<PAGE>
the highest stated rate is 39.6%); and (ii) to pay any applicable state and
local income taxes at the highest stated rate of taxation (including surtaxes,
if any) for the calendar year in which the Combined Gross-up Payment is to be
made. Any Combined Gross-up Payment required hereunder shall be made to
Executive at the same time any Total Payment subject to the Excise Tax is paid
or deemed received by Executive.
(b) Tax Defense. If in connection with the examination of Executive's tax
-----------
return the Internal Revenue Service asserts that any amount payable or benefit
provided hereunder is a "parachute payment" as defined in the Code and such
amount or benefit was not treated as a parachute payment in determining the
Combined Gross-up Payment (as defined in Section 6(a) above), Company at its
cost shall assume the defense of any controversy involving such issue and shall
indemnify and hold Executive harmless for all liabilities, costs, taxes,
interest and penalties attributable to such issue and shall to the extent
necessary (without duplication) increase the Combined Gross-up Payment to give
effect to any additional amount or benefit determined to be a parachute payment.
Executive shall cooperate with Company so that Company will be able to challenge
any adverse determination by the Internal Revenue Service through administrative
proceedings and, if determined by Company, through litigation.
7. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The Company shall have
--------------------------------------------
no obligation to provide or cause to be provided to Executive the rights and
benefits described in this Agreement if the Company shall terminate Executive's
employment for "Cause", which for purposes of this Agreement shall be defined
and limited to: (i) the continued and willful refusal by Executive to
substantially perform his duties (other than a willful refusal to perform a duty
which constitutes Constructive Termination for Good Reason or a refusal
resulting from Executive's incapacity due to physical or mental illness), after
demand for substantial performance is delivered by the Board, which demand
specifically identifies the manner in which the Board has determined that
Executive has not substantially performed his duties, and Executive's
performance is not cured to the Board's reasonable satisfaction within thirty
(30) days from such demand; (ii) the engagement by Executive in willful
misconduct or dishonesty that is materially injurious to the Company, monetarily
or otherwise; or (iii) Executive's final conviction of a felony. Notwithstanding
the foregoing, the Company shall not be deemed to have terminated Executive for
Cause without (1) reasonable written notice to Executive setting forth the
reasons for the Company's intention to terminate Executive for Cause and (2) an
opportunity for Executive, together with his counsel, to be heard before the
Board. Notwithstanding any contrary provision of this Agreement, it is
specifically agreed that Cause shall not include any act or omission by
Executive in the good faith exercise of Executive's business judgment as an
officer of the Company or as a member of the Board.
If Executive is terminated for Cause, Company, in accordance with and
subject to the provisions of the immediately preceding paragraph, shall not be
required to provide Executive with at least sixty (60)
12
<PAGE>
days advance written notice of such termination for Cause. If Executive is
terminated for a reason other than for Cause, Company shall be required to
provide sixty (60) days advance written notice to Executive unless Executive
agrees to a shorter notice period. Regardless of the reason for termination,
Executive shall receive, in addition to any other payments provided to Executive
hereunder or otherwise, payment for his accrued base salary and a vacation
allowance based on years of service through his termination date.
8. CONFIDENTIALITY AND COOPERATION.
-------------------------------
(a) Cooperation. Executive agrees that, at all times following
-----------
Termination, Executive will furnish such information and render such assistance
and cooperation as may reasonably be requested in connection with any litigation
or legal proceedings concerning the Company or any of its subsidiaries (other
than any legal proceedings arising out of or concerning Executive's employment
or its termination). In connection with such cooperation, the Company will pay
or reimburse Executive for reasonable expenses.
(b Release of Liability. Executive hereby represents and covenants that
--------------------
prior to the time he is eligible to receive any payments provided for in Section
3 of this Agreement, he will execute and deliver to the Company, on a form
reasonably satisfactory to the Company and the Executive, a separate release and
waiver, which, without limiting the generality of the foregoing, shall include a
release and discharge of the Company and its subsidiaries and affiliates, and
its and their directors, officers, employees, owners, agents, successors and
assigns from any and all suits, causes of action, demands, claims, charges,
complaints, liabilities, costs, losses, damages, injuries, bonds, judgments,
attorneys' fees and expenses, in any form whatsoever, in law or in equity,
whether known or unknown, whether suspected or unsuspected, arising out of
Executive's employment with Company through his Termination, including, without
limitation, claims arising under any federal, state or local law for breach of
an implied covenant of good faith and fair dealing, breach of contract,
defamation, slander, negligent misrepresentation, fraud, intentional or
negligent interference with business relations, and employment discrimination,
including, but not limited to, claims under the Age Discrimination in Employment
Act, the Americans with Disabilities Act and the Texas Commission on Human
Rights Act.
9. TERM OF AGREEMENT. This Agreement shall remain in effect unless
-----------------
otherwise terminated by resolution of the Compensation Committee of the
Company's Board of Directors. Notwithstanding the foregoing, in no event shall
this Agreement terminate, within two (2) years after a Change in Control without
the written consent of Executive. It is the Company's intention to provide to
Executive the benefits set forth herein if the Company is subject to any Change
in Control and the other applicable conditions are satisfied. The Company shall
notify Executive in writing of the effective date of Termination if the
Compensation Committee determines to terminate this Agreement.
13
<PAGE>
10. ARBITRATION.
-----------
(a) Arbitrable Matters. Any dispute under this Agreement arising between
------------------
the parties shall be settled by binding arbitration. In the event of any
dispute between Executive and Company hereunder, either party shall be entitled
to submit the dispute to arbitration. The arbitration proceeding shall be held
in Houston, Texas (unless otherwise mutually agreed by the parties), and shall
be conducted in accordance with the Center for Public Resources ("CPR") Rules
for Non-Administered Arbitration of Business Disputes. The arbitration shall be
conducted by a sole arbitrator appointed in accordance with rules established by
CPR (the "Arbitrator").
Any arbitration between Executive and Company pursuant to this Agreement
shall be governed by the United States Arbitration Act, 9 U.S.C. (S)(S) 1-16 (or
its successor). If the United States Arbitration Act is determined by the
Arbitrator not to apply to this type of employer/employee agreement based on
precedential legal authority, the parties agree to arbitrate any dispute under
the Texas General Arbitration Act, V.A.T.S. Art. 238-6 et. seq. (or its
successor).
(b) Submission to Arbitration. The party submitting any matter arising out
-------------------------
of this Agreement to arbitration (the "demanding party") shall do so by
delivering written notice thereof (the "arbitration notice") to the other party
(the "noticed party"). In addition to indicating the demanding party's intention
to commence arbitration proceedings, the arbitration notice shall state the
nature, with reasonable detail, of the dispute and the demanding party's claim
or claims, the question or questions to be submitted for decision or award by
arbitration and the relief or remedy sought. A copy of the arbitration notice
shall be concurrently provided to CPR, along with a copy of this Agreement and a
request to appoint an Arbitrator. Either party may bring an action in any court
of competent jurisdiction to compel arbitration under this Agreement.
(c) Arbitration Procedures. The Arbitrator shall apply the substantive law
----------------------
(and the law of remedies, if applicable) of the State of Texas as applicable to
the claim asserted. The Federal Rules of Evidence shall apply. The Arbitrator
shall have no authority to change this Agreement unless otherwise agreed by both
parties. The Arbitrator, and not any federal, state, or local court or agency,
shall have exclusive authority to resolve any dispute relating to the
interpretation, applicability, enforceability or formation of this Agreement,
including but not limited to any claim that all or any part of this Agreement is
void or voidable. Any party may be represented by an attorney or other
representative selected by the party.
The Arbitrator shall have jurisdiction to hear and rule on pre-hearing
disputes and is authorized to hold pre-hearing conferences by telephone or in
person as the Arbitrator deems necessary. The Arbitrator shall have the
authority to entertain a motion to dismiss and/or a motion for summary judgment
by any party and shall apply the standards governing such motions under the
Federal Rules of Civil Procedure.
14
<PAGE>
At any time after the date of receipt of the arbitration notice, each party
can make discovery requests of the other in any form permitted under the Federal
Rules of Civil Procedure. The recipient of a discovery request shall have 20
days after the receipt of such request to object to any or all portions of such
request, and shall respond to any portions of such request not so objected to
within 30 days of the receipt of such request. All objections shall be in
writing and shall indicate the reasons for such objections. The objecting party
shall insure that all objections and responses are received by other parties
within the above time periods. Any party seeking to compel discovery following
receipt of an objection shall file with the other party and the Arbitrator a
motion to compel, including a copy of the initial request and the objection. The
Arbitrator shall allow 10 days for responses to the motion to compel before
ruling. Claims of privilege and other objections shall be determined as they
would in federal court in a case applying Texas law.
At least 30 days before the arbitration, the parties must exchange lists of
witnesses, including any expert witnesses, and copies of all exhibits intended
to be used at the arbitration. Each party shall have the right to subpoena
witnesses and documents for the arbitration. Either party may arrange for a
court reporter to provide a stenographic record of proceedings. The cost of the
court reporter will be paid by the Company.
(d) Compliance with Decisions. To the extent permissible under applicable
-------------------------
law, the parties agree that the award of the Arbitrator shall be final and
binding and shall be subject only to the judicial review permitted by the United
States Arbitration Act or other applicable arbitration law pursuant to Section
10(a) hereof. Judgment on the arbitration award may be entered and enforced in
any court having jurisdiction over the parties or their assets. It is the
intent of the parties that the arbitration provisions hereof be enforced to the
fullest extent permitted by applicable law.
(e) Costs and Expenses. The Company shall promptly pay or reimburse
------------------
Executive for all costs and expenses, including, without limitation, attorneys'
fees and witnesses' fees, incurred by Executive as result of any arbitration
(regardless of the outcome thereof) arising out of this Agreement. All expenses
of such arbitration, including the reasonable fees and expenses of legal counsel
for Executive and the costs and expenses incurred by the Arbitrator, shall be
borne by the Company.
11. NOTICES. All notices, requests, demands and other communications
-------
required or permitted to be given hereunder (hereinafter referred to as
"notices") shall be in writing and shall be deemed to have been duly given if
delivered by-hand, given by prepaid telecopy, telex or telegram, or mailed via
certified or registered U.S. mail, to the party to receive such notice at such
party's address set forth below; provided that either party may change its
address for notice by giving to the other party written notice of such change.
15
<PAGE>
If to Company:
Lyondell Petrochemical Company
1221 McKinney, Suite 1600
Houston, TX 77002
Attn: Chairman of the Board of Directors
If to Executive:
______________________________________________
______________________________________________
______________________________________________
Any notice given pursuant to this Agreement shall be deemed received (i) if
delivered by-hand, when delivered; (ii) if sent by telecopy, telex or telegram,
24 hours after sending; and (iii) if mailed, when delivered.
12. MISCELLANEOUS.
-------------
(a) Assignment. No right, benefit or interest hereunder shall be subject
----------
to assignment, anticipation, alienation, sale, encumbrance, charge, pledge,
hypothecation or set-off in respect of any claim, debt or obligation, or to
execution; attachment, levy or similar process; provided, however, that
-------- -------
Executive may assign any right, benefit or interest hereunder if such assignment
is permitted under the terms of any plan or policy of insurance, or annuity
contract governing such right, benefit or interest.
(b) Construction of Agreement. Nothing in this Agreement shall be
-------------------------
construed to amend any provision of any plan or policy of the Company except as
otherwise expressly noted herein. This Agreement is not, and nothing herein
shall be deemed to create, a commitment of continued employment of Executive by
the Company or any of its subsidiaries. The captions of this Agreement are not
part of the provisions hereof and shall have no force or effect. Whenever the
context of this Agreement so requires, the masculine gender includes the
feminine gender, and words used in the singular or plural will include the
other. The words "herein", "hereunder," and other similar compounds of the word
"here" refer to the entire Agreement and not to any particular, section or
provision.
(c) Amendment. This Agreement may not be amended, modified or canceled
---------
except by written agreement of the parties or their respective successors and
legal representatives.
(d) Waiver. No provision of this Agreement may be waived except by a
------
writing signed by the party to be bound thereby.
16
<PAGE>
(e) Severability. In the event that any provision or portion of this
------------
Agreement shall be determined to be invalid or unenforceable for any reason, the
remaining provisions of this Agreement shall remain in full force and effect to
the fullest extent permitted by law.
(f) Successors. This Agreement is personal to Executive and without the
----------
prior written consent of the Company shall not be assignable by Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's legal
representatives. The Company will require any successor (whether direct or
indirect) by purchase, merger, consolidation or otherwise of all or
substantially all of the business and/or assets of the Company or of any
division or subsidiary thereof, to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform this Agreement if no such succession had taken place.
Failure of the Company to obtain such assumption and agreement, prior to the
effective date for any such succession, shall constitute a breach of this
Agreement and shall entitle Executive to compensation from the Company in the
same amount and on the same terms as he would be entitled hereunder with respect
to Constructive Termination for Good Reason.
This Agreement shall be binding upon and inure to the benefit of the
Company and any successor organization or organizations which shall succeed to
substantially all of the business and/or assets of the Company (whether direct
or indirect by means of merger, consolidation, acquisition of substantially all
the assets of the Company, or otherwise, including by operation of law).
(g) Taxes. Any payment or delivery required under this Agreement shall be
-----
subject to all requirements of the law with regard to withholding of taxes,
filing, making of reports and the like.
(h) Governing Law. THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN
-------------
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT GIVING EFFECT TO ITS
CONFLICTS OF LAW PRINCIPLES.
(i) Entire Agreement. Except as otherwise provided in Section 4 or Section
12(b) hereof, this Agreement sets forth the entire agreement and understanding
of the parties hereto with respect to the matters covered hereby.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
_____ day of _________, 1996.
17
<PAGE>
LYONDELL PETROCHEMICAL COMPANY
By:
Name:____________________________________________
Title:___________________________________________
EXECUTIVE
[NAME AND TITLE]
18
<PAGE>
EXHIBIT 10.13
LYONDELL PETROCHEMICAL COMPANY
_________________________________________________________________
ELECTIVE DEFERRAL PLAN FOR NON-EMPLOYEE DIRECTORS
EFFECTIVE OCTOBER 1, 1996
<PAGE>
ARTICLE I
GENERAL PROVISIONS
SECTION 1.1. PURPOSE AND INTENT OF PLAN. This Plan is intended to provide an
opportunity for Directors who are not employees of the Company to accumulate
supplemental funds for retirement or special needs prior to retirement through
the deferral of portions of their Board and Committee Retainers and Meeting
Fees.
SECTION 1.2. EFFECTIVE DATE OF PLAN. This amended and restated Plan document
shall be effective as of October 1, 1996.
SECTION 1.3. DEFINITIONS.
(a) Account means a separate bookkeeping account maintained by the Company
for each Participant and which measures and determines the amounts to be paid to
the Participant under the Plan. Effective October 1, 1996, separate subaccounts
within the Account for previous deferrals of Retainer and Meeting Fees, will be
consolidated into a single account balance.
(b) Administrative Committee means the Directors Benefit Committee, as
appointed from time to time by the Executive Committee of the Board.
(c) Beneficiary means a person who is entitled to receive a Participant's
interest under this Plan in the event of the Participant's death.
(d) Board means the Board of Directors of Lyondell Petrochemical Company.
(e) Board Committee means any committee established by the Board which
consists of Directors and which reports to the Board.
(f) Change in Control shall be deemed to have occurred as of the date that
one or more of the following occurs:
(i) Individuals who, as of the date hereof, constitute the entire
Board of Directors of the Company ("Incumbent Directors") cease for any
reason to constitute at least a majority of the Board; provided, however,
-------- -------
that any individual becoming a director subsequent to the date hereof whose
election, or nomination for election by the Company's shareholders, was
approved by a vote of at least a majority of the then Incumbent Directors
shall be considered as though such individual was an Incumbent Director,
but excluding, for this purpose any such individual whose initial
assumption of office occurs as a result of either an actual or threatened
election contest, as such terms are used in Rule 14a-11 under the
Securities Exchange Act of 1934, as amended or other actual or threatened
solicitation of proxies or consents by or on behalf of any Person (as
defined below) other than the Board; provided, further, that in the event
-------- -------
ARCO at any time determines to achieve minority representation on the
Company's Board of Directors approximately equal to its then ownership
percentage of the Company's
<PAGE>
common stock, its implementation of such determination through the election
of ARCO employees as directors of the Company shall not be deemed to be a
Change in Control and such ARCO employees shall constitute Incumbent
Directors;
(ii) The stockholders of the Company shall approve (A) any merger,
consolidation or recapitalization of the Company (or, if the capital stock
of the Company is affected, any subsidiary of the Company), or any sale,
lease, or other transfer (in one transaction or a series of transactions
contemplated or arranged by any party as a single plan) of all or
substantially all of the assets of the Company (each of the foregoing being
an "Acquisition Transaction") where (1) the shareholders of the Company
immediately prior to such Acquisition Transaction would not immediately
after such Acquisition Transaction beneficially own, directly or
indirectly, shares or other ownership interests representing in the
aggregate eighty percent (80%) or more of (a) the then outstanding common
stock or other equity interests of the corporation or other entity
surviving or resulting from such merger, consolidation or recapitalization
or acquiring such assets of the Company, as the case may be (the "Surviving
Entity") (or of its ultimate parent corporation or other entity, if any),
and (b) the Combined Voting Power of the then outstanding Voting Securities
of the Surviving Entity (or of its ultimate parent corporation or other
entity, if any) or (2) the Incumbent Directors at the time of the initial
approval of such Acquisition Transaction would not immediately after such
Acquisition Transaction constitute a majority of the Board of Directors, or
similar managing group, of the Surviving Entity (or of its ultimate parent
corporation or other entity, if any), or (B) any plan or proposal for the
liquidation or dissolution of the Company;
(iii) Any Person except for ARCO shall be or become the beneficial
owner (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange
Act of 1934, as amended), directly or indirectly, of securities of the
Company representing in the aggregate more than twenty percent (20%) of
either (A) the then outstanding shares of common stock of the Company
("Common Shares") or (B) the Combined Voting Power of all then outstanding
Voting Securities of the Company; provided, however, that notwithstanding
-------- -------
the foregoing, a Change in Control shall not be deemed to have occurred for
purposes of this Subsection (iii):
(1) Solely as a result of an acquisition of securities by the
Company which, by reducing the number of Common Shares or other
Voting Securities outstanding, increases (a) the proportionate
number of Common Shares beneficially owned by any Person to more
than twenty percent (20%) of the Common Shares then outstanding,
or (b) the proportionate voting power represented by the Voting
Securities beneficially owned by any Person to more than twenty
percent (20%) of the Combined Voting Power of all then
outstanding Voting Securities; or
(2) Solely as a result of an acquisition of securities directly from
the Company except for any conversion of a security that was not
acquired directly from the Company, provided, further, that if
-------- -------
any Person referred to in paragraph (1) or (2) of this
Subsection (iii) shall thereafter become the beneficial owner of
any additional Common Shares or other Voting Securities of the
Company (other than pursuant to a stock split, stock dividend or
similar transaction), then a Change in Control shall be deemed
to have occurred for purposes of this Subsection (iii); or
2
<PAGE>
(iv) ARCO shall become the owner, directly or indirectly, of
securities of the Company representing in the aggregate more than fifty
percent (50%) of either (i) the then outstanding Common Shares or (ii) the
Combined Voting Power of all then outstanding Voting Securities of the
Company except as the result of an acquisition of securities by the Company
which, by reducing the number of Common Shares or other Voting Securities
outstanding, increases (x) the proportionate number of Common Shares
beneficially owned by ARCO to more than fifty percent (50%) of the Common
Shares then outstanding, or (y) the proportionate voting power represented
by the Voting Securities beneficially owned by ARCO to more than fifty
percent (50%) of the Combined Voting Power of all then outstanding Voting
Securities; provided, however, that if thereafter ARCO becomes the
-------- -------
beneficial owner of any additional Common Shares or other Voting Securities
of the Company (other than pursuant to a stock split, stock dividend or
similar transaction) the exception provided above shall no longer apply;
provided, further, that for purposes of this Subsection (iv), neither
-------- -------
record ownership of common stock of the Company by the Trustee for ARCO's
401(a) qualified plans nor beneficial ownership of common stock of the
Company by any of ARCO's directors for their personal account shall be
deemed to constitute "indirect" ownership of common stock of the Company by
ARCO; provided, further, that notwithstanding any contrary provision of
-------- -------
this Plan, no Change in Control shall be deemed to have occurred pursuant
to this Subsection (iv) if as a result of an inadvertent act ARCO becomes
the owner, directly or indirectly, of additional Common Shares or Voting
Securities and such securities are sold or otherwise disposed of by ARCO
within 30 days after ARCO discovers, or is notified by the Company as to,
the potential Change of Control resulting from such ownership, so that, as
a result of such subsequent sale or other disposition by ARCO, no Change in
Control would otherwise be deemed to have occurred pursuant to the terms
(excluding this proviso) of this Subsection (iv).
Notwithstanding any of the foregoing, no Change in Control shall be deemed to
have occurred as a result solely of (i) the registration by ARCO of the
Exchangeable Notes pursuant to the Registration Statement, (ii) the issuance and
sale by ARCO of the Exchangeable Notes to the underwriters in accordance with
the Registration Statement, or (iii) prior to the maturity of the Exchangeable
Notes, purchases and sales of the Exchangeable Notes.
(g) Citibank Base Rate means for any Plan Year the average of the prime
rates at Citibank, N. A., in effect on the first day of the current calendar
quarter and each of the three prior quarters provided, however, that if for any
quarter the first day of the calendar quarter is not a business day, the prime
rate in effect on the first business day of such quarter shall be deemed the
prime rate for the first day of such quarter.
(h) Code means the Internal Revenue Code of 1986, as amended.
(i) Combined Voting Power means the aggregate votes entitled to be cast
generally in the election of the Board of Directors, or similar managing group,
of a corporation or other entity by holders of then outstanding Voting
Securities of such corporation or entity.
(j) Company means Lyondell Petrochemical Company and any of its
subsidiaries or affiliates.
3
<PAGE>
(k) Deferral Election means an election made by a Director to defer
Retainer and/or Meeting Fees, for which the Director has submitted Participation
Agreement.
(l) Deferral Period means a maximum number of years established by the
Administrative Committee in advance of a particular Deferral Election, over
which the Director elects to defer Retainer or Meeting Fees. A new Deferral
Period shall normally start each January 1, except that with respect to a new
Director, the Deferral Period shall commence 30 days after the Director's
election to the Board.
(m) Deferred Compensation means the amount of Retainer or Meeting Fees that
a Director elects to defer pursuant to a Deferral Election.
(n) Director means a Director of the Board who is not a current employee of
Lyondell Petrochemical Company, Atlantic Richfield Company or ARCO Chemical
Company or any subsidiary or affiliate of any of these entities.
(o) Effective Date means October 1, 1996.
(p) Exchangeable Notes means the debt securities exchangeable upon
maturity, at ARCO's option, into shares of the Company's common stock or cash,
as such debt securities are described in the Registration Statement.
(q) Financial Hardship means a condition of financial difficulty,
determined by the Administrative Committee, upon advice of counsel, based on
written information supplied by the Participant or Beneficiary, as the case may
be, in accordance with such standards established, from time to time, by the
Administrative Committee, which condition is sufficient to justify a change in
payment election under the Plan without causing receipt of taxable income by any
other Plan Participant before the Participant or Beneficiary, as the case may
be, actually receives his benefit.
(s) In-Service Distribution means a distribution to a Participant prior to
Termination of Service pursuant to Section 4.4.
(t) Interest Rate means (i) for any Plan Year commencing prior to a Change
in Control, the interest rate adopted by the Administrative Committee in advance
of the election period for a Plan Year, which shall constitute the interest rate
applicable to that Plan Year; or (ii) for each Plan Year commencing after a
Change in Control, the interest rate which is equal to the greater of (a) the
Prime Rate or (b) 125 percent of the rolling average ten-year Treasury Note
Rate, as of October 1 prior to the commencement of the applicable Plan Year.
(u) Meeting Fee means the amount paid in cash to a Director as compensation
for each Board and/or Board Committee meeting attended by the Director.
(v) Participant means any Director who is participating in this Plan as
provided in Article II, or any former Director who has not received the entire
benefit to which he is entitled under this Plan.
4
<PAGE>
(w) Participation Agreement means the Deferral Election submitted by a
Participant to the Company prior to the beginning of the Deferral Period.
(x) Person means any individual, entity (including, without limitation,
any corporation, partnership, trust, joint venture, association or governmental
body) or group (as defined in Sections 14(d)(3) or 15(d)(2) of the Securities
Exchange Act of 1934, as amended and the rules and regulations thereunder);
provided, however, that Person shall not include the Company or LYONDELL-CITGO
- -------- -------
Refining Company Ltd., any of their subsidiaries, any employee benefit plan of
the Company or LYONDELL-CITGO Refining Company Ltd. or any of their majority-
owned subsidiaries or any entity organized, appointed or established by the
Company, LYONDELL-CITGO Refining Company Ltd. or such subsidiaries for or
pursuant to the terms of any such plan.
(y) Plan means this Elective Deferral Plan for Non-Employee Directors.
(z) Plan Year means each calendar year beginning on January 1 and ending
on December 31, except that the first Plan Year shall be the period commencing
on August 1, 1990 and ending on December 31, 1990.
(aa) Prime Rate means the prime commercial lending rate of Citibank, N.A.
as publicly announced to be in effect at the close of business on October 1 of
the year immediately prior to the commencement of the applicable Plan Year. The
Prime Rate is not necessarily the lowest rate of interest of Citibank, N.A.
(bb) Registration Statement means ARCO's registration statement on Form S-3
(Registration No. 33-53481) with respect to the Exchangeable Notes.
(cc) Retainer Fee means the annual amount paid in cash to an Director as
compensation for serving in such capacity and any additional annual amount paid
in cash to an Director for serving in the capacity of a Board Committee
Chairman.
(dd) Retirement means the Director's termination of employment with a right
to an immediate retirement allowance from the Director's regular, full-time
employer.
(ee) Survivor Benefit means the benefits described in Section 4.3 of the
Plan.
(ff) Ten-Year Treasury Note Rate means the rate periodically published by
the U.S. Department of Treasury under the heading "10 year Treasury Note Rate".
(gg) Termination of Service means the Director ceasing to be a member of
the Board.
(hh) Trust Agreement means the Trust Agreement between Lyondell
Petrochemical Company and State Street Bank & Trust Company, and any amendments
or successor agreements thereto.
(ii) Unscheduled Distribution means a distribution to a Participant
pursuant to Section 4.5.
5
<PAGE>
(jj) Valuation Date means the last day of each month, or such other dates
as the Administrative Committee may determine in its discretion, which may be
either more or less frequent, for the valuation of Participants' Accounts.
(kk) Voting Securities means all securities of a corporation or other
entity having the right under ordinary circumstances to vote in an election of
the Board of Directors, or similar managing group, of such corporation or other
entity.
ARTICLE II
PARTICIPATION AND DEFERRAL ELECTIONS
SECTION 2.1. PARTICIPATION. A Director may elect to participate, or continue
participation, in the Plan by submitting a Participation Agreement for a
Deferral Period to the Company no later than thirty (30) days prior to the
commencement of the Deferral Period.
SECTION 2.3. DEFERRAL ELECTIONS. At least 30 days prior to each Deferral
Period, through completion of a form provided by Company, each Director may make
a Deferral Election which shall be irrevocable except as authorized pursuant to
Section 2.6.
SECTION 2.4. LIMITATION ON DEFERRAL. Deferral Elections shall be subject to
any limitation established by the Administrative Committee in advance of a
Deferral Period, including a minimum deferral amount reasonably anticipated to
be in excess of Eight Thousand Dollars ($8,000) per Deferral Period and a
minimum deferral amount reasonably anticipated to be in excess of at least Two
Thousand Dollars ($2,000) per Plan Year in the Deferral Period. The maximum
Deferral Election for any Plan Year within a Deferral Period is an amount equal
to one hundred (100%) of the Participant's Retainer and Meeting Fees payable in
cash for such Plan Year.
SECTION 2.5. TERMINATION OF SERVICE. A Participant's Deferral Elections shall
terminate upon the Participant's Termination of Service.
SECTION 2.6. MODIFICATION OF DEFERRAL ELECTIONS. Deferral Elections shall be
irrevocable except as follows:
(a) Financial Hardship. The Administrative Committee may permit a
Participant to reduce the amount elected under a prior Deferral Election, or to
waive the remaining deferrals under a prior Deferral Election, upon a finding
that the Participant has suffered a Financial Hardship.
(b) Accelerated Deferral. At the Administrative Committee's discretion,
prior to the beginning of any Plan Year in any Deferral Period for which two or
more Plan Years remain, a Participant may elect to accelerate the amount of
Deferred Compensation previously elected for any of the remaining Plan Years in
that Deferral Period; provided, however, that any acceleration of Deferred
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Compensation for remaining Plan Years in the Deferral Period shall not increase,
for any single Plan Year, the total Retainer or Meeting Fee deferrals above one
hundred percent (100%) of the Participant's Retainer and Meeting Fees payable in
cash during the Plan Year.
ARTICLE III
DEFERRED COMPENSATION ELECTIONS
SECTION 3.1. ACCOUNTS. For record-keeping purposes only, Accounts shall be
maintained for each Participant.
SECTION 3.2. DEFERRED COMPENSATION. A Participant's Deferred Compensation
shall be credited to his or her Account as of the date when the corresponding
non-deferred portion of the compensation is paid or would have been paid but for
the Deferral Election. The Company shall have the right to withhold from any
Retainer or Meeting Fees or Plan benefits (or otherwise to cause the Director,
his Beneficiary or the executor or administrator of his estate to make payment
of) any federal, state, local or foreign taxes required to be withheld with
respect to any Deferred Compensation or benefits paid pursuant to the Plan.
SECTION 3.3. INTEREST RATE. The Accounts shall be credited as of each
Valuation Date with interest based on the rates specified below, compounded
annually. Interest shall be credited as of each Valuation Date from the dates
when Deferred Compensation is credited to Accounts based on the balance of each
Account.
(a) Interest Rate During Participant's Lifetime. During a Participant's
lifetime, the Participant's Account will be credited with interest at the
greater of the Interest Rate previously announced by the Company to be
applicable for the Plan Year or the current Citibank Base Rate. The Interest
Rate for the first Plan Year shall be 125% of the rolling average Ten-Year
Treasury Note Rate.
(b) Interest Rate After Participant's Death. Following a Participant's
death, the Participant's Account will be credited with interest at an interest
rate equal to the Citibank Base Rate. With respect to payments made pursuant to
Section 4.3(a), no interest shall be credited on that portion of the benefit
representing a Participant's unfulfilled Deferral Commitment for each Deferral
Unit.
SECTION 3.4. DETERMINATION OF ACCOUNTS. A Participant's Account as of each
Valuation Date shall consist of the balance of the Participant's Account as of
the immediately preceding Valuation Date, plus the amount of the Participant's
Deferred Compensation since that Valuation Date, plus interest credited to the
Account and minus any distributions or reductions made from the Account since
the immediately preceding Valuation Date.
SECTION 3.5. VESTING OF ACCOUNTS. Each Participant shall be one hundred
percent (100%) vested at all times in the amounts credited to his or her
Account.
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SECTION 3.6. STATEMENT OF ACCOUNTS. At least annually, the Company shall
provide each Participant with a statement setting forth the balance of his or
her Account.
ARTICLE IV
PLAN BENEFITS
SECTION 4.1. PLAN BENEFIT. A Participant's benefit under the Plan shall equal
the amount of his or her Account as determined in accordance with Sections 3.4
and 4.6.
SECTION 4.2. DISTRIBUTION UPON TERMINATION OF SERVICE. (a) Lump Sum.
Benefits payable on account of a Participant's Termination of Service, other
than due to the death of the Participant, shall be paid in a lump sum unless the
Participant has otherwise elected to have all or a portion of the benefits
distributed in accordance with Section 4.2(b) and/or Section 4.2(c) hereof.
(b) Deferred Commencement of Benefits. A Participant may elect to have
payment of all or any portion of the Participant's Account commence on (i)
January of any year following the Participant's Termination of Service or (ii)
the later of the month following Retirement or completion of all the Participant
Deferrals under the Plan, provided that payment of benefits must commence no
later than January of the year in which the Participant will reach age seventy-
two (72).
(c) Installment Payments. A Participant may elect to have payment of all
or any portion of the Participant's Account benefits made in substantially equal
monthly installment payments of five (5) years, ten (10) years or fifteen (15)
years. The amount of each of the monthly installments shall be redetermined
effective as of January 1 of each year based on the remaining Account balance
and the remaining number of installment payments.
(d) Change of Election. A Participant, other than a former Director, may
change a distribution election once each year until the year in which the
Participant attains age 63. The change must be made during a period established
by the Administrative Committee which precedes a Deferral Period and is
irrevocable until the next period established by the Administrative Committee.
The Participant's distribution election shall become irrevocable as of the year
in which the Participant attains age 63, except that a Participant may request
in writing, that the Administrative Committee approve a change of an election
made pursuant to Subsection (b) or (c) at any time prior to commencement of the
payment of benefits, or in the case of installment payments, following
commencement of payments, if (i) the Administrative Committee determines that
the Participant has experienced a Financial Hardship justifying the request for
a change of election, or (ii) the Participant agrees to accept a reduction in
the value of the benefit, as determined by the Administrative Committee, upon
advice of counsel, to be necessary to preclude the receipt of taxable income by
any Participant in the Plan before the Participant actually receives his or her
benefit.
If a Participant has a voluntary Termination of Service prior to the year
in which the Participant attains age 65, the Administrative Committee shall not
honor any change in distribution elections made
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within the two calendar years immediately preceding the year in which the
Termination of Service occurred. The Participant's distribution election which
had been made before that period shall be considered the controlling
distribution election, unless the Participant requests and the Committee grants,
a change of election for the reasons provided in (i) or (ii) above.
(e) Transition Election. A Participant, other than a former Director, may
submit a distribution election which supersedes all existing distributions
elections for all previous deferrals under this Plan during a period established
by the Administrative Committee prior to the 1997 deferral period,
notwithstanding the Participant's age or prior distribution elections.
(f) Payment of Benefits Upon Death of Participant. Upon a Participant's
death, any of the Participant's vested and unpaid benefits shall be paid in
accordance with the applicable provisions of Section 4.3.
SECTION 4.3. SURVIVOR BENEFITS. (a) Death Prior to Termination of Service.
If the Participant dies prior to Termination of Service, the Survivor Benefit
shall be equal to the sum of the Participant's Account as determined in
accordance with Section 3.4 and 4.6 plus an amount equal to the Participant's
unfulfilled Deferral Elections, if any. The Survivor Benefit shall be paid in a
lump sum unless the Participant has elected to have all or a portion of the
benefits distributed in accordance with Subsection (b) hereof.
(b) Installments Payments. A Participant may elect to have payment of the
Survivor Benefit made to the Participant's Beneficiary in substantially equal
monthly payments of five (5) years, ten (10) years or fifteen (15) years if the
Participant's Termination of Service is due to the death of the Participant.
The amount of each of the monthly installments shall be redetermined effective
as of January 1 of each year based on the remaining Account balance and the
amount, if any, attributable to the Participant's unfulfilled Deferral Elections
and the remaining number of installment payments.
(c) Death After Termination of Service. If the Participant dies after
Termination of Service and all benefits have not been paid in a lump sum under
Section 4.2(a), the Survivor Benefit shall be equal to the Participant's Account
as determined in accordance with Sections 3.4 and 4.6 and payable in the form
and at the time elected by the Participant.
(d) Change of Election. A Beneficiary may request the Administrative
Committee to approve a change in the form of payment from installments to a lump
sum provided that (i) the Administrative Committee determines, upon application
of the Beneficiary, that the Beneficiary has experienced a Financial Hardship
justifying the request for a change of election, or (ii) the Beneficiary agrees
to accept a reduction in the value of the benefit, as determined by the
Administrative Committee, upon advice of counsel, to be necessary to preclude
the receipt of taxable income by any Participant in the Plan in advance of the
time the Participant actually receives his or her benefit.
SECTION 4.4. IN-SERVICE DISTRIBUTIONS. A Participant may elect to receive an
In-Service Distribution from his or her Account subject to the following
restrictions:
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(a) Timing of Election. The election to take an In-Service Distribution
from the Account for a particular Deferral Election must be made at the same
time the Participant makes the particular Deferral Election.
(b) Amount of Distribution. The amount which a Participant can elect to
receive as an In-Service Distribution with respect to an Account shall be such
portions of the Participant's Account balance for the amounts deferred under a
particular Deferral Election, as prescribed by the Administrative Committee in
advance of the Deferral Period. If a previously elected amount exceeds the
Account balance when an In-Service Distribution is to be made, only the Account
balance will be paid.
(c) Timing and Form of In-Service Distribution. The In-Service
Distribution shall commence at the time and in the form elected by the
Participant in the Participation Agreement entered into with respect to the
Deferral Election; provided, however, that if the Participant has a Termination
of Service, the In-Service Distribution election will be canceled and
distribution will be made pursuant to Section 4.2 and provided, further, that if
the Participant commences Retirement, the In-Service Distribution election will
be canceled and distribution will be made pursuant to Section 4.2. In no event
shall an In-Service Distribution be made prior to seven (7) years following the
start of the Deferral Period for the particular Deferral Election.
(d) Treatment of Distribution. Amounts paid to a Participant pursuant to
this Section 4.4 shall be treated as distributions from the Participant's
Account.
(e) Transition Election. During a period to be established by the
Administrative Committee prior to the 1997 Deferral Period, a participant may
elect to maintain or revoke any existing In-Service Distribution Election. No
other changes are permitted in any existing In-Service Distribution Election. A
Participant who fails to make an election regarding existing In-Service
Distributions shall be considered to have elected to maintain those existing In-
Service Distribution Elections.
SECTION 4.5. UNSCHEDULED DISTRIBUTIONS. Upon a finding that a Participant has
suffered a Financial Hardship or upon the Participant agreeing to accept a
reduction of his or her benefit in an amount determined necessary by the
Administrative Committee, upon advice of counsel, to avoid constructive receipt
of taxable income by any Participant, the Administrative Committee may, in its
sole discretion, make distributions from an Account prior to the time specified
for payment of the Account. Any unscheduled withdrawal will be paid in lump sum
and will be subject to a minimum amount of $10,000 and any additional conditions
prescribed by the Administrative Committee. Applications for unscheduled
distributions and determinations thereon by the Administrative Committee shall
be in writing, and a Participant may be required to furnish proof of the
Financial Hardship in a formal manner as deemed appropriate by the
Administrative Committee, upon advice of counsel.
SECTION 4.6. VALUATION AND SETTLEMENT. The date on which a lump sum is paid or
the date on which installment payments commence shall be the "Settlement Date".
The Settlement Date shall be no more than thirty (30) days after the last day of
the month in which the Participant or his Beneficiary becomes entitled to
payments on account of Retirement, Termination of Service or death, unless the
Participant elected to defer commencement of payments pursuant to Section
4.2(b). The Settlement Date for an
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In-Service Distribution or delayed payments shall be the month which the
Participant elects to have such payments commence in the election form for
designation of form of payment. The amount of a lump sum and the initial amount
of installment payments shall be based on the value of the Participant's Account
as of the Valuation Date immediately preceding the Settlement Date.
SECTION 4.7. SMALL BENEFIT. Notwithstanding any election made by the
Participant, the Company may pay any benefit in the form of a lump sum payment
to the Participant or any Beneficiary, if the value of the Plan benefits
remaining following a distribution for any reason, or the benefit payable to the
Participant or Beneficiary when payments to such Participant or Beneficiary
would otherwise commence, is less than $2,000.
SECTION 4.8. CHANGE IN CONTROL. (a) Continuation of Plan. Subject to the
provisions of Section 4.8(b) hereof, upon a Change of Control as defined in the
Trust Agreement and incorporated herein by this reference, the interests of all
then remaining Participants and Beneficiaries of deceased Participants shall
continue, and provisions shall be made in connection with such transaction for
the continuance of the Plan and the assumption of the obligations of the Company
under the Plan by the Company's successor(s) in interest.
(b) Accelerated Payment. Notwithstanding any other provision of the Plan,
at any time after a Change of Control as defined in the Trust Agreement, a
Participant or a Beneficiary of a deceased Participant may elect to receive an
immediate lump sum payment of the vested benefits under the Plan, in lieu of
payments in accordance with the form previously selected by the Participant,
reduced by a penalty, which shall be forfeited to the Company. The penalty
shall be determined by the Administrative Committee as of or within thirty (30)
days following a Change of Control, upon advice of counsel, and shall be a
portion of the balance of the Account as deemed necessary to avoid constructive
receipt of taxable income by any other Participant in the Plan. However, this
penalty shall not apply in the event of (i) a determination by the
Administrative Committee based on advice of counsel or (ii) a final
determination by the Internal Revenue Service or any court of competent
jurisdiction, that by reason of the foregoing provision no Participant or
Beneficiary of a deceased Participant has recognized or will recognize gross
income for federal income tax purposes under this Plan in advance of payment to
him of Plan benefits. The Company shall notify all Participants (and
Beneficiaries of deceased Participants) of any such determination. Whenever any
such determination is made, the Company shall refund all penalties which were
imposed hereunder on account of making lump sum payments at any time during or
after the first year to which such determination applies (i.e., the first year
when gross income is recognized for federal income tax purposes). Interest
shall be paid on any such refunds at the Interest Rate previously determined to
be applicable for each such Plan Year.
(c) Accelerated Payment With Income Tax Gross-up. Notwithstanding any
contrary provisions of this Article IV, in the event that a Change in Control
occurs while this Plan is in effect and a "Termination or Adverse Amendment" (as
defined below) of this Plan is made:
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(i) in connection with or within three years following the Change in
Control, then any Participant who (A) was a Participant at the time of the
Change In Control and (B) continues to be a member of the Board, whether or
not such individual is then an employee of the company, at the time of the
Termination or Adverse Amendment, shall immediately receive an "Accelerated
Payment" and an "Income Tax Gross-up" (as defined below) upon that
Termination or Adverse Amendment; or
(ii) in connection with or at any time following the Change in Control,
then any Participant who (A) was a Participant at the time of the Change in
Control, (B) ceased to be a member of the Board at any time prior to the
third anniversary of the Change in Control and (C) continues to be a
Participant at the time of the Termination or Adverse Amendment, shall
immediately receive an Accelerated Payment and an Income Tax Gross-up upon
such Termination or Adverse Amendment.
For purposes of this Section 4.8(c):
(x) "Accelerated Payment" means a lump sum cash distribution of the full
amount of contributions and earnings accrued or credited to the Participant's
Account as of the date immediately preceding the Termination or Adverse
Amendment.
(y) "Termination or Adverse Amendment" means that this Plan is either (1)
terminated for whatever reason by the Company or (2) amended by the Company in
any way that adversely affects the Participant's rights, privileges or benefits
hereunder including, without limitation, an amendment that results in a change
to the methodology used to determine the interest rate for earnings credited to
the Participant's Account, without the Participant's written consent to such
amendment, other than an amendment that is required by law.
(z) "Income Tax Gross-up" means a lump sum cash distribution of the amount
necessary, so that after payment of any federal, state and local income or
employment tax by the Participant on the distribution of amounts under this Plan
and the Income Tax Gross-up, the net amount retained by the Participant shall be
the full amount accrued and credited to his Account under this Plan at the time
immediately preceding distribution. For purposes of determining the amount of
the Income Tax Gross-up, the Participant shall be deemed (1) to pay federal
income taxes at the highest stated rate of federal income taxation (including
surtaxes, if any) for the calendar year in which the Income Tax Gross-up is to
be made (for 1996, the highest stated rate is 39.6 percent); and (2) to apply
any applicable state and local income taxes at the highest stated rate of
taxation (including surtaxes, if any) for the calendar year in which the Income
Tax Gross-up is to be made. Any Income Tax Gross-up required hereunder shall be
paid by Company to the Participant at the same time that any payment made under
this Plan which is subject to income tax is paid or deemed received by the
Participant.
4.9 COMBINED GROSS-UP PAYMENT; TAX DEFENSE.
(a) Combined Gross-up Payment. If a Participant becomes entitled to one or
more payments (with a "payment" including, without limitation, an increase in
pension benefits and the vesting of an option or other non-cash benefit or
property) pursuant to the terms of any plan, arrangement or agreement with the
Company (the "Total Payments"), which are or become subject to the tax imposed
by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code")
(or any similar tax that may hereafter be imposed) (the "Excise Tax"), the
Company shall pay to the
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Participant an additional cash amount (the "Combined Gross-up Payment") such
that the net amount retained by the participant after reduction for (i) any
Excise Tax on the Total Payments and (ii) any federal, state and local income or
employment tax and Excise Tax payable with respect to the Combined Gross-up
Payment, shall equal the Total Payments. For purposes of determining the amount
of the Combined Gross-up Payment, a Participant shall be deemed (i) to pay
federal income taxes at the highest stated rate of federal income taxation
(including surtaxes, if any) for the calendar year in which the Combined Gross-
up Payment is to be made; and (ii) to pay any applicable state and local income
taxes at the highest stated rate of taxation (including surtaxes, if any) for
the calendar year in which the Combined Gross-up Payment is to be made. Any
Combined Gross-up Payment required hereunder shall be made to the Participant at
the same time any Total Payment subject to the Excise Tax is paid or deemed
received by the Participant. The Combined Gross-up Payment shall not be paid
under this Plan if a Combined Gross-up Payment which is identical to or greater
than the amount calculated under this Section 4.9 is paid under any other plan,
arrangement or agreement with the Company.
(b) Tax Defense. If, in connection with the examination of a Participant's
tax return, the Internal Revenue Service asserts that any amount payable or
benefit provided hereunder is a "parachute payment" as defined in the Code and
such amount or benefit was not treated as a parachute payment in determining a
Combined Gross-up Payment, Company at its cost shall assume the defense of any
controversy involving such issue and shall indemnify and hold the Participant
harmless for all liabilities, costs, taxes, interest and penalties attributable
to such issue and shall to the extent necessary (without duplication) increase
the Combined Gross-up Payment to give effect to any additional amount or benefit
determined to be a parachute payments. The Participant shall cooperate with
Company so that Company will be able to challenge any adverse determination by
the Internal Revenue Service through administrative proceedings and, if
determined by Company, through litigation.
ARTICLE V
DESIGNATION OF BENEFICIARY
SECTION 5.1. DESIGNATION OF BENEFICIARY. Each Participant shall have the right
to designate a Beneficiary or Beneficiaries to receive his interest in his
Account upon his death as determined in accordance with Section 4.3. Such
designation shall be made on a form provided by and delivered to the Company.
The Participant shall have the right to change or revoke any such designation
from time to time by filing a new designation or notice of revocation with the
Company. No notice to or consent by any Beneficiary shall be required to effect
any such change or revocation.
SECTION 5.2. FAILURE TO DESIGNATE BENEFICIARY. If a Participant fails to
designate a Beneficiary before his or her death, or if no designated Beneficiary
survives the Participant, the balance in the Participant's Account shall be paid
in a lump sum to the executor or administrator for his or her estate.
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ARTICLE VI
ADMINISTRATION
SECTION 6.1. ADMINISTRATIVE COMMITTEE. The Administrative Committee shall be
responsible for the administration of the Elective Deferral Plan for Non-
Employee Directors.
SECTION 6.2. RULES OF CONDUCT. The Administrative Committee shall adopt such
rules for the conduct of its business and administration of this Plan as it
considers desirable, provided they do not conflict with the provisions of this
Plan.
SECTION 6.3. LEGAL, ACCOUNTING, CLERICAL AND OTHER SERVICES. The
Administrative Committee may authorize one or more of its members or any agent
to act on its behalf and may contract for legal, accounting, clerical and other
services to carry out this Plan. All expenses of the Administrative Committee
shall be paid by the Company.
SECTION 6.4. INTERPRETATION OF PROVISIONS. The Administrative Committee shall
have the exclusive right and discretionary authority to interpret the provisions
of this Plan and to decide questions arising in its administration. The
decisions and interpretations of the Administrative Committee shall be final and
binding on the Company, Participants, Directors, Beneficiaries and all other
persons.
SECTION 6.5. RECORDS OF ADMINISTRATION. Records reflecting the administration
of this Plan shall be kept.
SECTION 6.6. DENIAL OF CLAIM. The Administrative Committee shall provide
adequate notice in writing to any Participant, Director or Beneficiary whose
claim for benefits under this Plan has been denied, setting forth the specific
reasons for such denial. The Participant, Director or Beneficiary will be given
an opportunity review by the Administrative Committee of the decision denying
the claim. The Participant, Director or Beneficiary shall be given sixty (60)
days from the date of the notice denying any such claim within which to request
such review.
SECTION 6.7. LIABILITY OF COMMITTEE. No member of the Administrative Committee
shall be liable for any action taken in good faith or for exercise of any power
given the Administrative Committee, or for the actions of other members of said
Administrative Committee.
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ARTICLE VII
AMENDMENT AND DISCONTINUANCE
SECTION 7.1. AMENDMENT OF PLAN. This Plan may be amended from time to time by
the Board of Directors of the Company.
SECTION 7.2. TERMINATION. The Company intends to continue this Plan
indefinitely, but reserves the right to terminate it at any time.
SECTION 7.3. EFFECT OF AMENDMENT OR TERMINATION. No amendment or termination
of this Plan may adversely affect the benefit payable to any former Participant
or Beneficiary receiving benefits under this Plan prior to the effective date of
the amendment or termination, or any Participant or Beneficiary of a deceased
Participant who, as of such effective date, was vested in or eligible to receive
a benefit under this Plan.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1. UNSECURED GENERAL CREDITOR. Participants and their Beneficiaries
shall have no legal or equitable rights, claims or interests in any specific
assets or property of the Company, nor shall they be the beneficiaries of, or
have any rights, claims or interests in any life insurance policies, annuity
contracts, or the proceeds therefrom owned, or which may be acquired by, the
Company ("Policies"). Any such Policies or other assets of the Company shall
be, and remain, the general, unpledged, unrestricted assets of the Company. The
Company's obligation under the Plan shall be merely that of an unfunded and
unsecured promise of the Company to pay money in the future.
SECTION 8.2. GRANTOR TRUST. Although the Company is responsible for the
payment of all benefits under the Plan, the Company may, in its sole discretion,
contribute funds to a grantor trust for the purpose, as it deems appropriate, of
paying benefits under this Plan. Such trust may be irrevocable, but assets of
the trust shall be subject to the claims of creditors of the Company. To the
extent any benefits provided under the Plan are actually paid from the trust,
the Company shall have no further obligation with respect thereto but to the
extent not so paid, such benefits shall remain the obligation of, and shall be
paid, by the Company. The Participants or Beneficiaries of deceased
Participants shall have the status of unsecured creditors insofar as their legal
claim for benefits under the Plan and shall have no security interest in the
grantor trust.
SECTION 8.3. PAYMENTS AND BENEFITS NOT ASSIGNABLE. Payments to and benefits
under this Plan are not assignable, transferable or subject to alienation since
they are primarily for the support and maintenance of the Participants and
Beneficiaries. Likewise, such payments shall not be subject to attachment by
creditors of, or through legal process against, the Company, the Administrative
Committee or the Participants.
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SECTION 8.4. NO RIGHT TO SERVICE ON THE BOARD. The provisions of this Plan
shall not give a Director the right to be retained in the service of the Company
nor shall this Plan or any action taken under the Plan be construed as a
contract for service on the Board.
SECTION 8.5. ADJUSTMENTS. At the Company's request, the Administrative
Committee may, with respect to a Participant, adjust such Participant's benefit
under this Plan or make such other adjustments with respect to such Participant
as are required to correct administrative errors or provide uniform treatment of
Participants in a manner consistent with the intent and purpose of this Plan.
SECTION 8.6. OBLIGATION TO COMPANY. If a Participant becomes entitled to a
distribution of benefits under the Plan, and if at such time the Participant has
outstanding any debt, obligation, or other liability representing an amount
owing to the Company, or any benefit plan maintained by the Company, then the
Company may offset such amount owed to it or such benefit plan against the
amount of benefits otherwise distributable. Such determination shall be made by
the Administrative Committee.
SECTION 8.7. PROTECTIVE PROVISIONS. Each Participant shall cooperate with the
Company by furnishing any and all information requested by the Company in order
to facilitate the payment of benefits hereunder, taking such physical
examinations as the Company may deem necessary and taking such other relevant
action as may be requested by the Company. If a Participant refuses to
cooperate, the Company shall have no further obligation to the Participant under
the Plan. If the Participant makes any material misstatement of information or
nondisclosure of medical history, then no benefits will be payable hereunder to
such Participant or his Beneficiary, provided, that in the Company's sole
discretion, benefits may be payable in an amount reduced to compensate the
Company for any loss, cost, damage or expense suffered or incurred by the
Company as a result in any way of any such action, misstatement or
nondisclosure.
SECTION 8.8. GENDER, SINGULAR AND PLURAL. All pronouns and any variations
thereof shall be deemed to refer to the masculine, feminine, or neuter, as the
identity of the person or persons may require. As the context may require, the
singular may be read as the plural and the plural as the singular.
SECTION 8.9. LAW GOVERNING. This Plan shall be construed, regulated and
administered under the laws of the State of Texas, except to the extent that
such laws are preempted by ERISA.
SECTION 8.10. NOTICE. Any notice or filing required or permitted to be given
to the Administrative Committee or the Company under the Plan shall be
sufficient if in writing and hand delivered, or sent by registered or certified
mail, to the principal office of the Company, directed to the attention of the
Secretary of the Company. Such notice shall be deemed given as to the date of
delivery or, if delivery is made by mail, as of the date shown on the postmark
on the receipt for registration or certification.
SECTION 8.11. SUCCESSORS AND ASSIGNS. This Plan shall be binding upon the
Company and its successors and assigns.
SECTION 8.12. PROVISIONS FOR INCAPACITY. If the Administrative Committee deems
any person entitled to receive any payment under the provisions of this Plan
incapable of receiving or disbursing the same
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by reason of minority, illness or infirmity, mental incompetency, or incapacity
of any kind, the Administrative Committee may, in its sole discretion, take any
one or more of the following actions: it may apply such payment directly for the
comfort, support and maintenance of such person; it may reimburse any person for
any such support theretofore supplied to the person entitled to receive any such
payment; or it may pay such payment to any other person selected by the
Administrative Committee to disburse such payment for the comfort, support and
maintenance of the person entitled thereto, including, without limitations, to
any relative who has undertaken, wholly or partially, the expense of such
person's comfort, care and maintenance, or any institution in whose care or
custody the person entitled to the payment may be. The Administrative Committee
may, in its sole discretion, deposit any payment due to a minor to the minor's
credit in any savings or commercial bank of the Administrative Committee's
choice.
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EXHIBIT 10.13a
INSTRUMENT AMENDING
LYONDELL PETROCHEMICAL COMPANY
ELECTIVE DEFERRAL PLAN FOR NON-EMPLOYEE DIRECTORS
LYONDELL PETROCHEMICAL COMPANY hereby amends the Lyondell Petrochemical Company
Elective Deferral Plan for Non-Employee Directors, effective November 1, 1996,
as follows:
Article III, DEFERRED COMPENSATION ELECTIONS, Section 3.3, Interest Rate,
paragraph one, is amended to read as follows:
4.1 Interest Rate
Except as provided in Section 4.8, the Accounts shall be credited as
of each Valuation Date with interest based on the ration specified below,
compounded annually, Interest shall be credited as of each Valuation Date
from the date when Deferred Compensation is credited to Accounts based on
the balance of each Account.
ARTICLE IV, PLAN BENEFITS, Section 4.3, Survivor benefits, is amended to add new
subsection
(c) Death Following Change in Control, to read as follows:
---------------------------------
4.3 Survivor Benefits
(e) Death Following Change in Control. If a Participant is
---------------------------------
entitled to a payment under Section 4.8 and dies to receiving his
entire Account, the balance of the Participant's Account shall be paid
to Participant's Beneficiary in a lump sum payment or on an
installment basis, according to the particiapnt's existing election of
form of payment on Change in Control.
Article IV, PLAN BENEFITS, Section 4.8, Change in Control, is restated to read
follows:
Section 4.8, Change in Control
Notwithstanding any contrary provisions of this Article IV, in
the event that a Change in Control, as defined in the Trust Agreement and
incorporated herein by reference, occurs while this Plan is in effect, the
provisions of this Section 4.8 shall control.
1
<PAGE>
In the event of a Change in Control, the full amount of contributions
and earnings accrued or credited to the Participant's Account, as of the
date immediately preceding the Change in Control, shall be distributed to
the Participant or the Participant's Beneficiary, if a Survivor Benefit is
being paid to a Beneficiary at the time of Change in Control. Payment shall
be made on a lump sum or installment basis, according to the Participant's
election of the form of payment on Change in Control. If applicable, the
Company shall pay the Participant an additional amount equal to the Income
Tax Gross-up in a cash lump-sum payment.
For purposes of this Plan, the "Income Tax Gross-up" shall be based on
the full amount of contributions and earnings accrued or credited to
Participant's Account as of September 1, 1996. The Income Tax Gross-up
shall be the following percentage of the amount necessary so that after
payment of any federal, state and local income or employment tax by the
Participant on the distribution of that amount under this Plan and the
Income Tax Gross-Up, the net amount retained by the Participant shall be
the full amount accrued and credited to his Account under this Plan as of
September 1, 1996.
Specified Period of Time Percentage of
------------------------ -------------
Income Tax Gross-up
-------------------
September 1, 1996-August 31, 1997 100%
September 1, 1996-August 31, 1997 66%
September 1, 1996-August 31, 1997 33%
No Income Tax Gross-up shall be payable for any event which occurs on
September 1, 1999 or later.
For purposes of determining the amount of the Income Tax Gross-up, the
Participant shall be deemed (i) to pay federal income taxes at the highest
stated rate of federal income taxation (including surtaxes, if any) for the
calendar year in which the Income Tax Gross-up is to be made (for 1996, the
highest stated rate 39.6 percent); and (ii) to pay any applicable state and
local income taxes at the highest stated rate of taxation (including surtaxes,
if any) for the calendar year in which the Income Tax Gross-up is to be made.
Any Income Tax Gross-up required hereunder shall be paid by Company to
Participant at the same time that any payment made under this Plan which is
subject to income tax is paid or deemed received by the Participant.
Article VII, AMENDMENT AND DISCONTINUANCE, Section 7.2, Termination, is amended
to read as follows:
7.2 Termination.
2
<PAGE>
The Company intends to continue this Plan indefinitely, but reserves
the right to terminate it any time. In the event of a Change in Control,
this Plan shall be terminated following distribution of assets to
Participants or to the Independent Plan Administrator under the Non-
Employee Directors Benefit Plans Trust Agreement.
Article VII, AMENDMENT AND DISCONTINUANCE, Section 7.3 Effect of Amendment or
Termination, is amended to read as follows:
7.3 Effect of Amendment or Termination.
No amendment or termination of this Plan may adversely affect the
benefit payable to any former Participant or Beneficiary receiving benefits
under this Plan prior to the effective date of amendment or termination, or
any Participant or Beneficiary of a deceased Participant who, as of such
effective date, was vested in or eligible to receive a benefit under this
Plan, except as follows. Payment of a Participant's Account to the
Participant or a Beneficiary in a previously elected form of distribution
payable on Change in Control shall not be considered an amendment which
adversely affects benefits under this Plan.
No amendment or termination of this Plan due to a Change in Control
shall adversely the amount of contributions and earnings accrued or
credited to any former or current Participant's Account under this Plan
immediately prior to the Change in Control
IN WITNESS WHEREOF, LYONDELL PETROCHEMICAL COMPANY, acting by and through
its duly authorized officer, has caused this Instrument to be executed this
17th day of December, 1996.
ATTEST: LYONDELL PETROCHEMICAL COMPANY
Gerald A. O'Brien /s/ Jeffrey R. Pendergraft
- ---------------------- --------------------------------
Assistant Secretary Jeffrey R. Pendergraft
Senior Vice President and General
Counsel
3
<PAGE>
EXHIBIT 21
SUBSIDIARIES
Lyondell FSC, Inc.
Lyondell General Methanol Company
Lyondell Limited Methanol Company
Lyondell Mont Belvieu Corporation
Lyondell Petrochemical de Mexico, Inc.
Lyondell Refining Company
Lyondell Transportation Company
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the following registration
statements of Lyondell Petrochemical Company, Post-Effective Amendment No. 4 to
Registration Statement on Form S-8 (No. 33-26867), Registration Statement on
Form S-8 (No. 33-31564), Registration Statement on Form S-8 (No. 33-32683),
Registration Statement on Form S-8 (No. 33-60785) and Registration Statement on
Form S-8 (No. 333-05399) of our report dated February 12, 1997 on our audits of
the consolidated financial statements of Lyondell Petrochemical Company as of
December 31, 1996 and 1995 and for each of the three years in the period ended
December 31, 1996, which report is included in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Houston, Texas
March 17, 1997
<PAGE>
EXHIBIT 24
LYONDELL PETROCHEMICAL COMPANY
POWER OF ATTORNEY
-----------------
Each person whose signature appears below hereby constitutes and appoints
Dan F. Smith, Joseph M. Putz and Russell S. Young, and each of them, his or her
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him or her and in his or her name, place and stead, in
any and all capacities, in connection with any outstanding securities of
Lyondell Petrochemical Company (the "Company"), or any public offering or other
issuance of any securities of the Company authorized by the Board of Directors
of the Company, or by the Executive Committee thereof pursuant to due
authorization by such Board, (1) to execute and file, or cause to be filed, with
the United States Securities and Exchange Commission (the "Commission"), (A)
Registration Statements and any and all amendments (including post-effective
amendments) thereto and to file, or cause to be filed, all exhibits thereto and
other documents in connection therewith as required by the Commission in
connection with such registration under the Securities Act of 1933,
1 of 4
<PAGE>
as amended, and (B) any report or other document required to be filed by the
Company with the Commission pursuant to the Securities Exchange Act of 1934, as
amended, (2) to execute and file, or cause to be filed, any application for
registration or exemption therefrom, any report or any other document required
to be filed by the Company under the Blue Sky or securities law of any of the
United States and to furnish any other information required in connection
therewith, (3) to execute and file, or cause to be filed, any application for
registration or exemption therefrom under the securities laws of any
jurisdiction outside the United States, including any reports or other documents
required to be filed subsequent to the issuance of such securities, and (4) to
execute and file, or cause to be filed, any application for listing such
securities on the New York Stock Exchange, or any other securities exchange in
any other jurisdiction where any such securities are proposed to be sold,
granting to such attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act required to be done as he or she
might or could do in person, hereby ratifying and confirming all that such
attorneys-in-fact and agents, and each of them, may lawfully do or cause to be
done by virtue of this power of attorney. Each person whose signature appears
below may at any time revoke this power of attorney as to himself or herself
only by an instrument in writing specifying that this power of attorney is
2 of 4
<PAGE>
revoked as to him or her as of the date of execution of such instrument or at a
subsequent specified date. This power of attorney shall be revoked
automatically with respect to any person whose signature appears below effective
on the date he or she ceases to be a member of the Board of Directors or an
officer of the Company. Any revocation hereof shall not void or otherwise
affect any acts performed by any attorney-in-fact and agent named herein
pursuant to this power of attorney prior to the effective date of such
revocation.
Dated: March 7, 1997
SIGNATURE TITLE
--------- -----
________________________ President, Chief Executive
Dan F. Smith Officer and Director
(Principal Executive Officer)
________________________ Senior Vice President, Chief
Russell S. Young Financial Officer and Treasurer
(Principal Financial Officer)
_________________________ Vice President and Controller
Joseph M. Putz
(Principal Accounting Officer)
3 of 4
<PAGE>
SIGNATURE TITLE
--------- -----
________________________ Chairman and Director
Bob G. Gower
________________________ Director
Dr. William T. Butler
Director
__________________________
Curtis J. Crawford
Director
___________________________
Travis Engen
Director
____________________________
Stephen F. Hinchliffe, Jr.
Director
____________________________
Dudley C. Mecum II
Director
____________________________
Paul R. Staley
4 of 4
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<PERIOD-START> JAN-01-1996
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