<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Lyondell Chemical Company
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(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(4) Date Filed:
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Notes:
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[LOGO OF LYONDELL]
LYONDELL
CHEMICAL
COMPANY
Notice of
Annual Meeting
of Stockholders
to be held
on May 4, 2000
and Proxy Statement
PLEASE COMPLETE, SIGN, DATE AND RETURN
YOUR PROXY PROMPTLY
<PAGE>
Lyondell Chemical Company
1221 McKinney Street, Suite 700
Houston, Texas 77010
April 10, 2000
Dear Stockholder:
The 2000 Annual Meeting of Stockholders will be held on Thursday, May 4,
2000, beginning at 10:00 a.m. in the Company's General Assembly Room, 42/nd/
Floor, One Houston Center, 1221 McKinney, in Houston, Texas. This booklet
includes the Notice of the Meeting and the Proxy Statement, which contains
information about the formal business to be acted upon by the stockholders. In
addition to the two regularly scheduled items, we have been advised that a
shareholder may submit a proposal relating to the manner by which the Company
tallies votes.
It is important that your shares be voted whether or not you plan to be
present at the meeting. Please complete, sign, date and return the enclosed form
of proxy promptly. If you do plan to attend, we would appreciate your checking
the appropriate box on the enclosed proxy card.
Sincerely yours,
/s/ Dan F. Smith
- --------------------------------------
Dan F. Smith
President and Chief Executive Officer
<PAGE>
Lyondell Chemical Company
Notice of Annual Meeting of Stockholders
May 4, 2000
To the Stockholders:
The Annual Meeting of Stockholders of Lyondell Chemical Company will be
held in the Company's General Assembly Room, 42/nd/ Floor, One Houston Center,
1221 McKinney, in Houston, Texas, on Thursday, May 4, 2000, for the following
purposes, as more fully described in the attached Proxy Statement:
(1) To elect seven directors to serve until the 2001 Annual Meeting of
Stockholders or until their earlier resignation or removal;
(2) To ratify the appointment of PricewaterhouseCoopers LLP, independent
auditors, as the Company's auditors for the year 2000;
(3) To vote on a stockholder proposal, if presented by its proponent; and
(4) To transact such other business as may properly come before the
meeting or any adjournment thereof.
Stockholders of record at the close of business on March 10, 2000, will be
entitled to notice of and to vote at the meeting and any adjournment thereof.
Please read the Proxy Statement, then complete, sign and date the form of
proxy and return it in the enclosed self-addressed postpaid envelope.
BY ORDER OF THE BOARD OF DIRECTORS,
/s/ Gerald A. O'Brien
- ------------------------------
Gerald A. O'Brien Houston, Texas
Secretary April 10, 2000
<PAGE>
Lyondell Chemical Company
1221 McKinney Street
Suite 700
Houston, Texas 77010
_________________
PROXY STATEMENT
April 10, 2000
_________________
INTRODUCTION
The accompanying proxy is solicited by the Board of Directors of Lyondell
Chemical Company ("Lyondell" or the "Company"). When a proxy is returned
properly dated and signed, the shares represented thereby will be voted by the
persons named as proxies in accordance with each stockholder's directions. If a
proxy is dated, signed and returned without specifying choices, the shares will
be voted as recommended by the directors of the Company. As to other items of
business that may come before the meeting or any adjournment thereof, the
persons named in the accompanying form of proxy will vote in accordance with
their best judgment. It is expected that proxy materials will be mailed to
stockholders beginning on or about April 10, 2000.
VOTING PROCEDURES
Holders of record of Common Stock at the close of business on March 10,
2000, will be entitled to one vote per share. The Company had 117,559,603 shares
of Common Stock outstanding on such record date. Fractional shares will not be
voted. The presence, in person or by proxy, of stockholders entitled to cast at
least a majority of the votes that all stockholders are entitled to cast will
constitute a quorum. Abstentions and broker non-votes are counted as present in
determining whether the quorum requirement is satisfied. Broker non-votes occur
when a broker returns a proxy but does not have the authority to vote on a
particular matter.
The directors will be elected by a plurality of the shares of Common
Stock cast in person or represented by proxy at the meeting. Adoption of the
proposal to ratify the appointment of the independent auditors and any other
proposals to be considered at the meeting will require the affirmative vote of a
majority of the shares present in person or represented by proxy at the meeting.
A shareholder proposal regarding the treatment of "abstentions" in the
tabulation of votes may be presented at the Annual Meeting and is discussed
under the heading "Proposal 3".
Abstentions from voting on any matter will be included in the voting tally
and will have the same effect as a vote against the ratification of the
appointment of the independent auditors and against the shareholder proposal, if
submitted. Broker non-votes are not considered "shares present" with respect to
a matter requiring the affirmative vote of a majority of shares present in
person or by proxy at the meeting; accordingly, broker non-votes will not affect
the outcome with respect to the ratification of the appointment of the
independent auditors or approval of the shareholder proposal.
The Company's 401(k) and Savings Plan, in which employees, including
executive officers, have account balances, permits plan participants to direct
the plan trustees on how to vote the Common Stock allocated to their accounts.
The trustee will vote all shares of Common Stock for which no participant
directions are received as directed by such Plan's Benefits Administrative
Committee, which is made up of certain executive officers of the Company.
Similarly, the trustee will vote all shares of Common Stock held in benefits
plans of the Company's subsidiaries for which no participant directions are
received as directed by each plan's Benefits Administrative Committee, which may
be made up of certain executive officers of the Company.
A proxy may be revoked by a stockholder at any time prior to the time it is
voted by giving notice of such revocation in writing to the Secretary of
Lyondell, by submitting another valid proxy bearing a later date or by voting in
person at the meeting.
<PAGE>
PRINCIPAL STOCKHOLDERS
The table below sets forth certain information as of March 6, 2000,
regarding the beneficial ownership of Common Stock by persons known by the
Company to beneficially own more than five percent of its outstanding shares of
Common Stock. Information in the table and footnotes is based on the most recent
respective Statement on Schedule 13G or 13D or amendment thereto filed by such
persons with the Securities and Exchange Commission (the "SEC"), except as
otherwise known to the Company.
<TABLE>
<CAPTION>
Percentage
Number of of Shares
Name and Address Shares Outstanding
---------------- ----------- --------------
<S> <C> <C>
AXA Financial, Inc. (a)................................ 16,412,800 14.0%
1290 Avenue of the Americas
New York, New York 10104
Franklin Resources, Inc.(b)............................ 12,190,000 10.4%
777 Mariners Island Blvd., San Mateo, CA 94404
Barrow, Hanley, Mewhinney & Strauss, Inc. (c).......... 10,779,670 9.2%
3232 McKinney Avenue, 15/th/ Floor
Dallas, Texas 75204-2429
J.P. Morgan & Co. Incorporated (d)..................... 10,540,880 9.0%
60 Wall Street, New York, New York 10260
Sanford C. Bernstein & Co., Inc.(e).................... 8,499,746 7.2%
767 Fifth Avenue, New York, New York 10153
UBS AG(f).............................................. 6,251,574 5.3%
Bahnhofstrasse 45, 8021, Zurich, Switzerland
</TABLE>
_________
(a) AXA Financial, Inc. ("AXA") is the parent holding company of subsidiaries:
Alliance Capital Management, which has sole voting power over 5,428,700
shares, shared voting power over 9,882,000 shares and sole dispositive
power over 15,610,100 shares, all of which are held on behalf of clients in
discretionary investment advisory accounts; Donaldson, Lufkin & Jenrette
Securities Corporation, which has shared dispositive power over 2,400
shares; and The Equitable Life Assurance Society of the United States,
which has sole voting and dispositive power over 800,300 shares.
(b) Franklin Resources, Inc. ("FRI") (together with its principal shareholders,
Charles B. Johnson and Rupert H. Johnson, Jr.) may be deemed the beneficial
owner of 12,190,000 shares of Common Stock held in accounts advised by
direct and indirect investment advisory subsidiaries of FRI and over which
these subsidiaries have sole voting and dispositive power, including
9,617,200 shares over which FRI's advisory subsidiary Templeton Global
Advisors Limited has sole voting and dispositive power. FRI, the principal
shareholders and each of FRI's investment advisory subsidiaries disclaim
beneficial ownership with respect to such shares.
(c) Barrow, Hanley, Mewhinney & Strauss, Inc. ("Barrow") is an investment
advisor with sole voting power over 7,849,190 shares, shared voting power
over 2,930,480 shares and sole dispositive power over 10,779,670 shares of
Common Stock held in accounts of certain of Barrow's clients.
(d) J.P. Morgan & Co. Incorporated ("Morgan") is the parent holding company of
subsidiaries Morgan Guaranty Trust Company of New York (a bank), J.P.
Morgan Investment Management, Inc. and J.P. Morgan Florida Federal Savings
Bank (both investment advisors), Morgan Capital Corporation and Morgan Bank
Tokyo. Morgan is the beneficial owner of 10,540,880 shares of Common Stock,
including 8,211,080 shares over which it has sole voting power and
10,353,280 shares over which it has sole dispositive power, and virtually
all of which are held by outside persons who have the right to receive
dividends thereon and the proceeds from the sale thereof.
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<PAGE>
(e) Sanford C. Bernstein & Co., Inc., an investment advisor, has sole voting
power over 5,181,751 shares and shared voting power over 599,868 shares,
and has sole dispositive power over 8,499,746 shares.
(f) Brinson Partners, Inc. ("BPI"), an indirect wholly owned subsidiary of UBS
AG, is an investment advisor with sole voting and shared dispositive power
over 6,052,274 shares of Common Stock. UBS AG may be deemed to be the
beneficial owner of 6,250,574 shares (which include the shares beneficially
owned by BPI), 6,226,574 shares over which it has sole voting power and
6,251,574 shares over which it has shared dispositive power. Both BPI and
UBS AG disclaim beneficial ownership with respect to all such shares.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the number of shares of Common Stock owned
beneficially as of March 1, 2000, by each director or nominee, each of the
executive officers named in the Summary Compensation Table (the "named executive
officers") and by all directors and executive officers as a group. As of March
1, 2000, the percentage of shares of Common Stock beneficially owned by any
director or nominee, named executive officer or by all directors and executive
officers as a group, did not exceed one percent of the issued and outstanding
Common Stock. Unless otherwise noted, each individual has sole voting and
investment power.
<TABLE>
<CAPTION>
Shares of Common Stock
Owned Beneficially as of
March 1, 2000(a)(b)
---------------------------
<S> <C>
Eugene R. Allspach............................................. 25,500
Carol A. Anderson.............................................. 6,861(c)
William T. Butler.............................................. 11,616
Travis Engen................................................... 14,331
Morris Gelb.................................................... 67,655
Stephen F. Hinchliffe, Jr...................................... 23,859(d)
Dudley C. Mecum II............................................. 4,290
Jeffrey R. Pendergraft......................................... 120,550(e)
Dan F. Smith................................................... 351,141
Paul R. Staley................................................. 22,774
Debra L. Starnes............................................... 111,994(f)
All directors and executive officers as a group (14)........... 852,124(g)
</TABLE>
________
(a) Includes shares held by the trustees under the Lyondell 401(k) and Savings
Plan for the accounts of participants as of December 31, 1999.
(b) The amounts shown for the named executive officers include shares that (i)
are restricted shares that are not fully vested, (ii) shares acquired under
the Company's Dividend Reinvestment Plan and (iii) shares that may be
acquired within 60 days through the exercise of stock options. Those shares
that may be acquired through the exercise of stock options include: Mr.
Smith, 186,667; Mr. Pendergraft, 76,967; Mr. Gelb, 30,567; Ms. Starnes,
49,033; and all executive officers as a group, including those just named,
370,120. The amounts shown for the directors include restricted shares that
are not fully vested.
(c) Does not include 100 shares held by a trust of which Ms. Anderson is an
indirect beneficiary, and as to which she disclaims beneficial ownership.
(d) Does not include 1,000 shares held by a trust of which Mr. Hinchliffe is a
trustee, as to which shares he disclaims beneficial ownership.
(e) Does not include approximately 1,553 shares owned by Mr. Pendergraft's
spouse, as to which shares he disclaims beneficial ownership.
(f) Does not include approximately 8,995 shares owned by Ms. Starnes' spouse,
as to which shares she disclaims beneficial ownership.
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<PAGE>
(g) Does not include the approximately 11,648 shares owned by family members of
certain directors and executive officers and trusts, as to which shares
beneficial ownership is disclaimed.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") requires the Company's directors and executive officers, and
persons who own more than ten percent of a registered class of the Company's
equity securities, to file with the SEC and the New York Stock Exchange (the
"NYSE") initial reports of ownership and reports of changes in ownership of
Common Stock of the Company. Officers, directors and greater than ten-percent
stockholders are required by SEC regulation to furnish the Company with copies
of all Section 16(a) forms they file.
SEC regulations related to compliance with Section 16(a) of the Exchange
Act require the following disclosure: Lyn Stanton, an officer of the Company,
failed to file on a timely basis one report on Form 4 relating to a purchase
transaction involving 2,000 shares of Common Stock of the Company directly owned
by him.
Except as described above, to the Company's knowledge, based solely on
review of the copies of such reports furnished to the Company and written
representations that such reports accurately reflect all reportable transactions
and holdings, during the fiscal year ended December 31, 1999, all Section 16(a)
filing requirements applicable to its officers, directors and greater than ten-
percent beneficial owners were complied with.
BOARD OF DIRECTORS
Directors' Meetings
An annual meeting of the Board of Directors is held each year in
conjunction with the annual meeting of stockholders for the purposes of the
organization of committees, election or appointment of officers and the
transaction of other business. Regular meetings of the Board of Directors may be
held without notice at such times as the Board of Directors may determine.
Special meetings may be called by the Chairman of the Board of Directors, the
President or a majority of the directors in office. The Company's By-Laws permit
action to be taken without a meeting if all members of the Board of Directors
consent to such action in writing. During 1999, the Board of Directors held nine
meetings. All of the Company's incumbent directors attended seventy-five percent
or more of the aggregate of all meetings of the Board and committees on which
they served during 1999.
Audit Committee
The Audit Committee of the Board of Directors was established for the
general purpose of reviewing the adequacy of and promoting continued emphasis on
integrity of the Company's internal controls, maintaining communications between
the Board of Directors and external and internal auditors, and initiating
special investigations as deemed necessary. The independent accountants and the
internal auditors have full and free access to the Audit Committee and meet with
it, with and without management being present, to discuss all appropriate
matters. No member of the Audit Committee is an officer or employee of the
Company. The Audit Committee held five meetings during 1999. The Audit Committee
currently comprises Messrs. Frank Savage (who will not stand for re-election as
director), Staley and Mecum. Mr. Mecum serves as Chairman.
Compensation Committee
The Compensation Committee of the Board of Directors makes recommendations
to the Board of Directors as to management succession plans, determines
appropriate policy for the Company's pay and benefit programs for executive
officers and senior management and reviews the performance of the Chief
Executive Officer. The Committee also reviews pay and benefit programs for the
Company's joint ventures. No member of the Committee is an officer or employee
of the Company and no member is eligible to participate in any benefit plan of
the Company that is administered by the Committee. The Compensation Committee
held six meetings during 1999. The Compensation Committee currently comprises
Messrs. Butler, Engen and Hinchliffe. Mr. Hinchliffe serves as Chairman.
4
<PAGE>
Corporate Governance and Responsibility Committee
The Corporate Governance and Responsibility Committee considers and makes
recommendations to the Board of Directors as to the number of directors to
constitute the whole Board, the selection criteria for membership and the names
of persons whom it concludes should be considered for membership on the Board of
Directors. The Corporate Governance and Responsibility Committee also recommends
matters relating to committee assignments and the roles and responsibilities of
the Board and of the directors in addition to monitoring the Company's legal
compliance programs. The Corporate Governance and Responsibility Committee makes
determinations on compensation for Non-Employee Directors and is responsible for
evaluating the Board's performance and assessing the effectiveness of its
structure and governance. The Corporate Governance and Responsibility Committee
held three meetings during 1999. The Corporate Governance and Responsibility
Committee currently comprises Ms. Anderson and Messrs. Butler and Staley. Mr.
Staley serves as Chairman. Stockholders of the Company who wish to nominate
persons for election to the Board of Directors must comply with the provisions
of the Company's By-Laws that are described more fully on page 22 of this Proxy
Statement.
Executive Committee
The Executive Committee has and may exercise all the authority of the Board
of Directors in the management of the Company in the interim between meetings of
the Board of Directors, except to the extent of certain exceptions set forth in
Delaware law and the Company's By-Laws. The Executive Committee did not meet
during 1999. The Executive Committee currently comprises Messrs. Smith, Engen
and Butler. Dr. Butler serves as Chairman.
CORPORATE GOVERNANCE GUIDELINES
The Board of Directors has adopted a formal statement of the roles and
responsibilities of the Board and has adopted Corporate Governance Guidelines.
The following are the statement on roles and responsibilities as well as
excerpts from the Guidelines adopted by the Board:
Role of the Board
The Board of Directors represents the interests of shareholders in
perpetuating a successful business and optimizing long-term financial returns.
In furtherance of this objective, it is the responsibility of the Board to
select management, oversee corporate strategy and performance, and act as a
resource to management in matters of planning and policy. The Board also will
participate in management's succession planning, including specifically the
evaluation of the Chief Executive Officer. To assure success, Board members will
act not only as advisors, but also as participants and decision makers in
matters of governance and corporate strategy.
While the Board's primary role is to foster increased shareholder value,
the Board also recognizes that the Company has responsibilities to other
constituencies, including customers, employees, suppliers, creditors and the
communities where it operates--all of whom are essential to a successful
business.
Responsibilities of Directors
Directors owe a duty of care and a duty of loyalty to the Company.
Therefore, directors are expected to do the following:
. act in the best interests of all shareholders;
. exercise informed and independent judgment;
. be knowledgeable about the businesses;
. participate in the development of the Company's mission, aspirations,
values and strategies;
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. maintain an understanding of general economic trends and conditions,
and trends in corporate governance;
. study materials presented for Board consideration;
. actively participate in an objective and constructive manner in
meetings of the Board and its committees; and
. assist in representing the Company to the outside world.
Governance Guidelines
The following is a synopsis of key provisions of the Corporate Governance
Guidelines for the Board of Directors:
Board membership will consist of no more than twelve Board members
including no more than two present or former members of Company management.
Desired characteristics of potential new Board members will be
reviewed on at least an annual basis. Potential new Board members may be
nominated by any director for screening, selection and recommendation for
election by the Board. Invitation to join the Board of Directors will be
extended by the Chairman of the Board and the Chairman of the Corporate
Governance and Responsibility Committee. New directors will undergo a
Company orientation.
Whether the Chairman of the Board and the Chief Executive Officer
positions should be held by separate individuals will be addressed in the
best interest of the Company under the circumstances at the time. A lead
director may be chosen by outside directors when the Chairman of the Board
is an employee of the Company.
There are no term limits for Board members. Annually, each director
will be asked to confirm his or her desire to continue as a member of the
Board. The Corporate Governance and Responsibility Committee will review
the continued appropriateness of Board membership for directors who change
the job responsibilities held when last elected to the Board. Retirement
age for Board members is 72.
Compensation for Board members will be reviewed annually for
competitiveness. A portion of the directors' compensation will be in the
form of Company stock.
Performance of the Board will be reported annually to the Board by the
Corporate Governance and Responsibility Committee in order to increase the
Board's effectiveness.
The Chief Executive Officer will be evaluated annually by the full
Board. The evaluation will be used in considering compensation of the Chief
Executive Officer.
The Chief Executive Officer will provide an annual reporting to the
Compensation Committee on succession planning and management development.
This information will be shared with the full Board.
6
<PAGE>
ELECTION OF DIRECTORS
Item 1 on Proxy Card
Pursuant to the Company's Restated Certificate of Incorporation, as amended
(the "Certificate of Incorporation") and its By-Laws, the members of the Board
of Directors serve for one-year terms, and until their successors are elected
and qualified. The Board of Directors has selected the persons listed below as
nominees for election to the Board.
Unless authority to vote for directors is withheld in the proxy, the
persons named in the accompanying proxy intend to vote for the election of the
seven nominees listed below. The directors will be elected by a plurality of the
shares of Common Stock cast in person or by proxy at the meeting.
All nominees have indicated a willingness to serve as directors, but if any
of them should decline or be unable to act as a director, the persons named in
the proxy will vote for the election of another person or persons as the Board
of Directors recommends.
The Board of Directors recommends that you vote FOR election of each
nominee listed below. Properly dated and signed proxies will be so voted unless
stockholders specify otherwise.
The following biographical information is furnished with respect to each of
the nominees for election at the annual meeting. The information includes age as
of March 1, 2000, present position, if any, with Lyondell, period served as
director, and other business experience during the past five years.
William T. Butler, 67............. Dr. Butler was elected Chairman of the Board
of Directors of the Company on June 30,
1997. He has served as a director of the
Company since his election on December 21,
1988, effective as of January 25, 1989. Dr.
Butler has served as Chancellor of Baylor
College of Medicine since January 1996. From
1979 until January 1996, he served as
President and Chief Executive Officer of
Baylor College of Medicine. He is also a
director of C. R. Bard, Inc.
Dr. Butler is a member of the Compensation
Committee and the Corporate Governance and
Responsibility Committee, and is Chairman of
the Executive Committee.
Carol A. Anderson, 53............. Ms. Anderson was elected a director of the
Company effective December 11, 1998. She has
served as Managing Director of TSG
International, a subsidiary of The
Springland Group, which manages private
equity investments in high technology
ventures, since April 1998. From 1993 until
March 1998, Ms. Anderson served as Managing
Director of Merrill International, Ltd.,
which develops energy projects worldwide.
Ms. Anderson is also a director of The Stroh
Brewery Co., The Stroh Companies, Merrill
International, Ltd. and The GTX.
Ms. Anderson is a member of the Corporate
Governance and Responsibility Committee.
Travis Engen, 55.................. Mr. Engen was elected a director of the
Company effective as of April 1, 1995. He
has held his current position as Chairman
and Chief Executive of ITT Industries, Inc.
(a diversified manufacturing company) since
December 1995. From 1991 until December
1995, he served as Executive Vice President
of ITT Corporation. He held the position of
Senior Vice President of ITT Corporation and
President and Chief Executive Officer of ITT
Defense, Inc. from
7
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1987 to 1991. Mr. Engen is also a director
of Alcan Aluminium, Ltd. and Fundacion
Chile.
Mr. Engen is a member of the Compensation
Committee and the Executive Committee.
Stephen F. Hinchliffe, Jr., 66.... Mr. Hinchliffe was elected a director of the
Company on March 1, 1991. Since 1988, he has
held his current position of Chairman of the
Board and Chief Executive Officer of BHH
Management, Inc., the managing partner of
Leisure Group, Inc. (a manufacturer of
consumer products). Previously, he served as
Chairman of the Board of Leisure Group,
Inc., which he founded in 1964. Mr.
Hinchliffe is also a director of BHH
Management, Inc., Leisure Group, Inc. and
Relton Corp.
Mr. Hinchliffe is Chairman of the
Compensation Committee.
Dudley C. Mecum II, 65............ Mr. Mecum was elected a director of the
Company on November 28, 1988, effective as
of January 25, 1989. Since June 1997, Mr.
Mecum has been Managing Director of
Capricorn Holdings LLC, a firm specializing
in leveraged buyouts. From August 1989 until
January 1997, Mr. Mecum was a partner with
the merchant banking firm of G. L. Ohrstrom
& Company. He served as Group Vice President
and director of Combustion Engineering Inc.
from 1985 to December 1987, and as a
managing partner of the New York region of
Peat, Marwick, Mitchell & Co. from 1979 to
1985. He is also a director of Dyncorp,
Travelers Property Casualty Corporation,
Suburban Propane LLP, Citigroup and CCC
Information Services, Inc.
Mr. Mecum is Chairman of the Audit
Committee.
Dan F. Smith, 53.................. Mr. Smith was named Chief Executive Officer
of the Company on December 6, 1996, and has
served as President of the Company since
August 31, 1994. He has served as a director
of the Company since October 24, 1988. Since
December 1, 1997, Mr. Smith has also served
as the Chief Executive Officer of Equistar
Chemicals, LP ("Equistar"), a petrochemicals
and polymers joint venture owned 41 percent
by the Company. Mr. Smith served as Chief
Operating Officer of the Company from May
1993 to December 1996. He served as Vice
President Corporate Planning of Atlantic
Richfield Company ("ARCO") from October 1991
until May 1993. He previously served as
Executive Vice President and Chief Financial
Officer of the Company from October 1988 to
October 1991 and as Senior Vice President of
Manufacturing of the Company, and its
predecessor, the Lyondell Division of ARCO,
from June 1986 to October 1988. From April
1985 to June 1986 Mr. Smith held executive
positions in manufacturing, control and
administration. Prior to 1985, he served in
various financial, planning and
manufacturing positions with ARCO. Mr. Smith
is also a director of Cooper Industries,
Inc. and ChemFirst, Inc.
Mr. Smith is a member of the Executive
Committee.
Paul R. Staley, 70................ Mr. Staley was elected a director of the
Company on November 28, 1988, effective as
of January 25, 1989. He has held his current
position as Chairman of the National Vision
Foundation since August 1994. He held the
position of Chairman of the Executive
8
<PAGE>
Committee of the Board of Directors of P.Q. Corporation
(an industrial supplier of silicates) from January 1991
until August 1994. He also held the positions of
President and Chief Executive Officer of P.Q.
Corporation from 1973 and 1981, respectively, until
January 1991.
Mr. Staley is Chairman of the Corporate Governance and
Responsibility Committee and a member of the Audit
Committee.
PROPOSAL TO RATIFY THE APPOINTMENT OF INDEPENDENT AUDITORS
Item 2 on Proxy Card
The Board of Directors has recommended the appointment of
PricewaterhouseCoopers LLP ("PricewaterhouseCoopers") to audit the financial
statements of Lyondell for the year 2000. PricewaterhouseCoopers audited the
financial statements of Lyondell for the year 1999, and, prior to their merger,
Coopers & Lybrand L.L.P. ("Coopers & Lybrand") and Price Waterhouse LLP
(including any successor merged entity of the two firms), were jointly appointed
to audit the financial statements of Lyondell for the year 1998. Prior thereto,
Coopers & Lybrand had acted in this capacity since July 1988. In addition, from
time to time, PricewaterhouseCoopers performs consulting work for the Company.
Representatives of PricewaterhouseCoopers will be present at the meeting
and will have the opportunity to make a statement if they desire to do so. These
representatives will also be available to respond to appropriate questions.
The proposal will be approved if it receives the affirmative vote of a
majority of the shares of Common Stock present in person or by proxy at the
meeting.
The Board of Directors recommends that you vote FOR ratification of the
appointment of PricewaterhouseCoopers. Properly dated and signed proxies will be
so voted unless stockholders specify otherwise.
STOCKHOLDER PROPOSAL: REGARDING THE TABULATION OF VOTES
ON PROPOSALS THAT ARE PRESENTED TO STOCKHOLDERS
Item 3 on Proxy Card
The New York City Employees Retirement System ("NYCERS"), 1 Centre Street,
New York, NY 10007, has given the Company notice that it intends to present the
following proposal (the "Proposal") for action at the Annual Meeting. NYCERS
did not furnish a statement in support of the Proposal. Information concerning
the number of shares of stock of the Company owned by NYCERS will be furnished
by the Company to any person, orally or in writing as requested, promptly upon
the receipt of any oral or written request therefor.
Text of the Stockholder's Proposal
"RESOLVED, that the shareholders of Lyondell Chemical request that the
Board of Directors amend the By-Law provisions which describe how voted shares,
non-voted shares and abstentions are counted, to ensure, for the purpose of
determining whether a proposal has been approved, that only the shares voted for
and the shares voted against any proposal, which is presented in the company's
proxy statement or introduced from the floor at an annual or special meeting of
the company, shall be counted. Accordingly, we request that such By-Law
provisions be amended to provide that shares considered present at the annual or
any special meeting that are not voted for or against a particular proposal,
including broker non-votes and abstentions, not be counted for or against the
approval of the proposal."
9
<PAGE>
Statement by the Company in Opposition to the Proposal
In the opinion of the Company, the effect of the Proposal would be to ask
the Company to disregard the actions of stockholders who abstain from voting on
a matter at the Company's meetings of stockholders. The Company opposes the
Proposal because the Company believes that it should give effect to the wishes
of a stockholder who abstains on a matter presented for a stockholder vote and
because the Company believes that implementation of the Proposal could confuse
stockholders.
As disclosed in the Company's annual proxy statement pursuant to rules of
the SEC, currently "[a]bstentions from voting on any matter will be included in
the voting tally and will have the same effect as a vote against" the passage of
any proposal submitted to stockholders for approval. (The Proposal would not
affect the Company's treatment of broker non-votes, which, as disclosed in the
proxy statement currently "are not considered 'shares present' with respect to a
matter requiring the affirmative vote of a majority of shares present in person
or by proxy at the meeting.") Thus, the effect of an abstention is to raise the
number of "for" votes needed in order for a matter to be approved by
stockholders. Counting abstentions as "no" votes helps to ensure that
proposals, whether from management or stockholders, receive the affirmative
support of a majority of the relevant shares rather than of a small percentage
of stockholders while the majority of stockholders passively "abstains". The
Company believes that stockholders may prefer to abstain on a matter as to which
they have no opinion or which they do not support but, for policy reasons, do
not wish to vote against. If the Proposal were implemented, any matter
presented by either the Company or a stockholder for a stockholder vote could be
approved even if a majority of stockholders abstained on the vote. The Company
believes that a decision to abstain is a conscious and legitimate voting
decision and should not be disregarded.
Further, the Company believes that implementation of the Proposal could
confuse stockholders. Under regulations of the SEC, the Company is required to
provide a space on its proxy cards where stockholders can abstain as to any
matter being voted on (other than an election to office). Lyondell's voting
policy with respect to abstentions is consistent with the treatment of
abstentions afforded by most public companies and most Delaware companies.
Changing treatment of abstentions to conflict with their standard treatment
under Delaware law would likely lead to confusion on the part of our
stockholders. We believe that there is a benefit to having a clear and
consistent rule in this regard and that, accordingly, the Proposal should not be
implemented.
For these reasons, the Board of Directors recommends that you vote AGAINST
the Proposal. Properly dated and signed proxies will be so voted unless
stockholders specify otherwise.
10
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information as to the Chief Executive
Officer during 1999 and the next four most highly compensated executive officers
of the Company.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
--------------------------------
Other Annual
Compensation
Name and Principal Position Year Salary ($) Bonus ($) ($)(a)
- --------------------------- ---- ---------- --------- ------
<S> <C> <C> <C> <C>
Dan F. Smith.......................................... 1999 965,328 1,414,400 4,517
President and Chief Executive 1998 804,000 1,094,000 8,516
Officer of Lyondell 1997 651,734 548,900 11,360
Eugene R. Allspach (e)................................ 1999 413,088 480,300 13,926
Executive Vice President of Lyondell, and 1998 335,531 321,600 11,344
President and Chief Operating Officer of
Equistar
Jeffrey R. Pendergraft................................ 1999 410,176 467,500 10,820
Executive Vice President and Chief 1998 350,468 327,000 26,358
Administrative Officer of Lyondell 1997 282,556 182,967 14,129
Morris Gelb (f)....................................... 1999 380,000 433,000 8,477
Executive Vice President and Chief 1998 142,464 179,900 3,029
Operating Officer of Lyondell
Debra L. Starnes (g).................................. 1999 330,148 322,400 9,569
Senior Vice President, Intermediate 1998 297,356 201,000 21,693
Chemicals of Lyondell 1997 270,598 182,967 16,310
<CAPTION>
Long-Term
Compensation
------------------------
Awards Payouts
--------------------- ---------
Restricted Long-term
Stock Securities Incentive All Other
Awards Underlying Payouts Compensation
Name and Principal Position ($)(b) Options (#) ($)(c) ($)(d)
- --------------------------- ------ ----------- ------ ------
<S> <C> <C> <C> <C>
Dan F. Smith.......................................... -- 463,400 295,896 120,456
President and Chief Executive 1,094,000 -- -- 87,578
Officer of Lyondell 277,325 -- 5,079,354 85,712
Eugene R. Allspach (e)................................ -- -- -- 60,737
Executive Vice President of Lyondell, and -- -- -- 48,641
President and Chief Operating Officer of
Equistar
Jeffrey R. Pendergraft................................ -- 79,100 88,442 55,288
Executive Vice President and Chief 326,995 -- -- 50,536
Administrative Officer of Lyondell 96,514 -- 1,721,777 45,178
Morris Gelb (f)....................................... -- 91,700 97,241 55,814
Executive Vice President and Chief 706,440 -- 140,867 22,984
Operating Officer of Lyondell
Debra L. Starnes (g).................................. -- 49,600 54,367 45,192
Senior Vice President, Intermediate 200,996 -- -- 43,046
Chemicals of Lyondell 96,514 -- 1,721,777 42,686
</TABLE>
__________
(a) Includes imputed income in respect of the Long-Term Disability Plan and tax
gross-ups in respect of financial counseling reimbursements and in respect
of other miscellaneous items. "Tax gross-ups" refers to the additional
reimbursement paid to a recipient to cover the federal income tax
obligations associated with the underlying benefit, including an additional
amount based on maximum applicable income tax rates. Excludes perquisites
and other benefits the total amount of which does not exceed the lesser of
$50,000 or 10% of the total annual salary and bonus of the named executive
officer.
(b) Messrs. Smith and Pendergraft and Ms. Starnes received restricted stock
awards under the Lyondell Chemical Company Restricted Stock Plan (the
"Restricted Stock Plan") as of March 4, 1999, in connection with their
annual bonus for 1998. The valuations of such restricted stock awards in the
table were calculated using a per share price of $14 1/4, the fair market
value of the Company's Common Stock on the date of grant. Mr. Gelb was
awarded 25,230 shares of restricted stock under the Restricted Stock Plan as
a relocation bonus on July 24, 1998. The value of unvested restricted stock
at December 31, 1999, based on the stock's closing price, was $652,558,
$195,050, $107,228 and $119,888 for Messrs. Smith, Pendergraft and Gelb and
Ms. Starnes, respectively. All of the restricted stock awarded to named
executive officers with respect to 1998 vests annually in three equal
installments beginning on December 15, 1998, with respect to Mr. Gelb's
restricted stock award, and on December 15, 1999, with respect to the awards
to Messrs. Smith and Pendergraft and Ms. Starnes. The restricted stock
awards in the table attributable to 1997 were made pursuant to the Value
Share Plan, a performance-driven pay plan for executive officers that was
terminated effective December 1, 1997, in connection with the significant
reorganization of the Company as a result of the formation of Equistar.
Upon termination of the Value Share Plan, all then unvested outstanding
restricted stock became vested. The dollar value included in the table
reflects the valuation at the time of the award. The named executive
officers receive the dividends on shares of restricted stock at the same
rate as all other stockholders.
11
<PAGE>
(c) Amounts shown in the Long-Term Incentive Payouts column for 1999 represent
the deferred cash payments made in 1999 with respect to the 1998 long-term
bonus awards. Such cash payment was equal to the value of the restricted
stock, granted in December 1998, to which the named executive officer became
vested in 1999. The restricted stock awards granted in 1998 vested with
respect to one third of the shares covered thereby on December 15, 1999, on
which date the Common Stock had a closing sale price of $11.5625. The amount
shown in the Long-Term Incentive Payouts column in 1998 represents the
deferred cash payment made to Mr. Gelb in 1998 relating to restricted stock
granted in July 1998. Such cash payment was equal to the value of the
shares that became vested (one third of the original grant) on December 15,
1998, when the Common Stock had a closing sale price of $16.75. Amounts
shown in the Long-Term Incentive Payouts column for 1997 represent the
deferred cash payments made in 1997 in accordance with the normal operation
of the Value Share Plan, together with cash payments made in December 1997
in accordance with the termination of the Value Share Plan. In connection
with such termination and pursuant to the terms of the plan, each
participant received a payment equivalent to the sum of the estimated pro-
rated Value Share Plan awards for the years 1998 through 2001. Awards under
the Value Share Plan were calculated based on five-year Performance Cycles
and the payments made in December 1997 acknowledge each participant's
contributions to the Company through December 1997 for the Cycles ending in
each of the years 1998 through 2001. Under the Value Share Plan,
participants were assigned an allocation percentage at the beginning of each
Cycle. At the end of the Performance Cycle two award pools were created:
(i) a Value Award Pool (equal to the sum of 4.0 percent of Average EVA and
1.25 percent of MVA) and (ii) an Operating Award Pool. EVA measures the
Company's cash flow performance in excess of a capital charge, which is
calculated by multiplying the capital invested in the Company times the
Company's weighted average cost of capital. MVA measures changes in the
market value of the Company's equity, plus dividends as if they had been
reinvested. An Operating Award Pool up to $1 million for any Cycle was
created if certain minimum criteria were satisfied. The size of the pool was
based on the Compensation Committee's evaluation of Lyondell's operating
performance in the final year of any Cycle in the areas of customer
satisfaction, corporate responsibility, employee productivity and financial
performance. The award for the Performance Cycle ended in 1997 was paid
entirely in cash and such award payment is set forth in the "Bonus" column
under the Summary Compensation Table. For purposes of calculating such
payments, the share price for calculating MVA was held at $23.943, the
average price for 1997, and EVA for the remaining Performance Cycles was
deemed to be the same as for 1997.
(d) Includes contributions to the Executive Supplementary Savings Plan,
incremental executive medical plan premiums, financial counseling
reimbursements, certain amounts in respect to the Executive Life Insurance
Plan and the Optional Life Insurance Plan. In the case of Mr. Allspach and
Ms. Starnes, also includes amounts paid by Equistar under comparable
Equistar plans with respect to service as an officer of Equistar, and, in
the case of Mr. Gelb, also includes certain amounts paid under comparable
ARCO Chemical plans, as follows:
<TABLE>
<CAPTION>
Year Mr. Smith Mr. Allspach Mr. Pendergraft Mr. Gelb Ms. Starnes
---- --------- ------------ --------------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Executive Supplementary Savings Plan............ 1999 $77,226 $33,047 $32,814 $28,938 $26,412
Incremental Medical Plan Premiums............... 1999 15,600 15,600 9,348 9,696 9,348
Financial Counseling Reimbursement.............. 1999 -- 6,514 4,229 5,640 3,553
Executive and Optional Life Insurance Plans..... 1999 27,630 5,576 8,897 11,540 5,879
</TABLE>
(e) In addition to being an officer of Lyondell, Mr. Allspach is an officer and
employee of Equistar and is compensated pursuant to Equistar's pay and
benefit plans. The summary compensation information presented above consists
of compensation paid to Mr. Allspach by Equistar; he does not receive any
additional compensation from the Company. Prior to the formation of Equistar
on December 1, 1997, he was an officer and employee of Millennium
Petrochemicals Inc.
(f) Mr. Gelb began serving as the Company's Executive Vice President and Chief
Operating Officer in December 1998. From July 1998 through December 1998,
Mr. Gelb served as Senior Vice President, Manufacturing, Process Development
and Engineering. Prior thereto, Mr. Gelb served as an officer of ARCO
Chemical, which was acquired by Lyondell in July 1998. The summary
compensation information presented above includes compensation paid to Mr.
Gelb by such subsidiary of Lyondell subsequent to the acquisition date. Mr.
Gelb's 1998 bonus was an amount based on his ARCO Chemical bonus target for
1998. The bonus amount in the table represents the pro-rata portion of such
target bonus, which was paid to Mr. Gelb by the Company for the last five
months of 1998.
12
<PAGE>
(g) Ms. Starnes has served as Senior Vice President, Intermediate Chemicals of
the Company since July 1998. From December 1, 1997 through June 1998, she
served as Senior Vice President, Polymers, of Equistar. Prior thereto, Ms.
Starnes served as Senior Vice President, Petrochemicals, of the Company. The
summary compensation information presented above includes compensation paid
to Ms. Starnes by the Company and Equistar in each of the foregoing
capacities.
Option Grants in 1999
<TABLE>
<CAPTION>
Individual Grants (a)
---------------------
No. of Securities % of Total Options Grant Date
Underlying Granted to Exercise Expiration Present
Name Options Granted Employees in 1999 Price ($/Sh) Date Value ($) (b)
---- --------------- ----------------- ------------ ---- -------------
<S> <C> <C> <C> <C> <C>
Mr. Smith 463,400 26.6 18.125 2/24/09 2,164,078
Mr. Allspach -- -- -- -- --
Mr. Pendergraft 79,100 4.5 18.125 2/24/09 369,397
Mr. Gelb 91,700 5.3 18.125 2/24/09 428,239
Ms. Starnes 49,600 2.8 18.125 2/24/09 231,632
</TABLE>
__________________________
(a) The options granted to the named executive officers vest in one third annual
increments, with the first third vesting on February 24, 2000. The options
are subject to early vesting under certain specified conditions.
(b) The grant date present value per share of options granted was estimated as
of the date of grant using the Black-Scholes option-pricing model and the
following assumptions: fair value per share of options granted --$4.67;
dividend yield -5%; expected volatility -35%; risk-free interest rate -5%;
and maturity in years -10.
. No stock options were exercised during 1999 by any named executive officers.
The following table shows the number of shares of Common Stock represented by
outstanding stock options held by each of the named executive officers as of
December 31, 1999, including the value for "in-the-money" options, which
represents the positive spread between the exercise price of any such stock
option and the year end price of the Common Stock.
Option Values at December 31, 1999
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at Fiscal In-The-Money Options at
Name Year-End (#) Fiscal Year-End ($)(a)
---- ------------------------------ ---------------------------
Exercisable(b) Unexercisable Exercisable Unexercisable
-------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Mr. Smith.................................. 32,200 463,400 -0- -0-
Mr. Allspach............................... -- -- -- --
Mr. Pendergraft............................ 50,600 79,100 -0- -0-
Mr. Gelb................................... -- 91,700 -- -0-
Ms. Starnes................................ 32,500 49,600 -0- -0-
</TABLE>
_______
(a) On December 31, 1999, the last reported closing sale price, as reported on
the NYSE, of Lyondell Common Stock was $12.75 per share, and none of the
options held by the named executive officers was in-the-money.
(b) Stock options granted prior to 1999 provided for the accrual of dividend
share credits. The number of dividend share credits allocated on each record
date to an optionee's account is computed by multiplying the dividend rate
per share of Common Stock by the sum of (i) the number of shares subject to
outstanding options and (ii) the number of dividend share credits then
credited to the optionee's account, and dividing the resulting figure by the
fair market value of a share of Common Stock on such dividend record date.
The participant receives dividend share credits not only on the number of
shares covered by unexercised options but also on the number of dividend
share credits already in the participant's account. Dividend share credits
do not represent earned compensation and have no definite value until the
date on which the options in respect of which such credits have been
allocated are exercised. Dividend share credits are canceled upon an
optionee's termination of employment under certain specified circumstances.
The number of dividend share credits accrued to the
13
<PAGE>
accounts of the named executives as of December 31, 1999, was as follows:
Mr. Smith: 10,199; Mr. Pendergraft: 18,224; and Ms. Starnes: 11,500. Messrs.
Allspach and Gelb do not hold options granted under plans pursuant to which
dividend share credits accrue.
Long-Term Incentive Plans--Awards in 1999
<TABLE>
<CAPTION>
Performance or Estimated Future Payouts
Number of Shares, Other Period Under Non-Stock Price-Based Plans
---------------------------------
Units or Other Until Maturation Threshold Target Maximum
Name Rights (#) ($) or Payout ($ or #) ($ or #) ($ or #)
---- -------------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Mr. Smith(a)........... 122,800 shares 1/1/99 - 12/31/01 24,560 shares 122,800 shares 245,600 shares
Mr. Allspach (b)....... $1,303,700 1/1/99 - 12/31/02 $392,450 $784,900 N/A
Mr. Pendergraft (a).... 21,000 shares 1/1/99 - 12/31/01 4,200 shares 21,000 shares 42,000 shares
Mr. Gelb (a)........... 24,300 shares 1/1/99 - 12/31/01 4,860 shares 24,300 shares 48,600 shares
Ms. Starnes (a)........ 8,100 shares 1/1/99 - 12/31/01 1,620 shares 8,100 shares 16,200 shares
</TABLE>
__________________________
(a) The awards granted to each of Messrs. Smith, Pendergraft and Gelb and Ms.
Starnes are pursuant to the Lyondell Chemical Company 1999 Long-Term
Incentive Plan and represent awards of performance shares, which may be
earned if the Company achieves its target performance over the years 1999-
2001. The Company's performance target is to achieve total shareholder
return (defined as the change in market price of the Common Stock plus
dividend yield measured over the course of the performance cycle) during the
performance cycle of at least the fiftieth percentile, as compared to the
companies in its peer group. In order for any performance shares to be
earned, the Company must achieve a total shareholder return ranking of at
least the thirtieth percentile (the threshold amount); and total shareholder
return in the eightieth percentile will result in the maximum payment set
forth above. Shareholder returns between the thirtieth and fiftieth
percentile, or between the fiftieth and eightieth percentile will be
interpolated between the values listed above. The companies composing the
peer group are those that are included in the S&P Chemicals Index and the
S&P Mid-Cap Chemicals Index as of both the first and last day of the
performance cycle (or such other group of companies as the Compensation
Committee may select). These companies constitute the Second Peer Group
reflected in the 1999 Performance Graph on page 19. Based on total
shareholder return through December 31, 1999, and assuming the performance
cycle was January 1 through December 31, 1999, no payments would have been
made under these performance share awards.
(b) Mr. Allspach is entitled to awards under Equistar's long-term incentive
plan. Awards are based on whether Equistar reaches performance and financial
levels in two critical areas: economic value added ("Equistar EVA") and the
achievement of synergies. Equistar EVA measures Equistar's cash flow
performance in excess of a capital charge, which is calculated by
multiplying the capital invested in Equistar by Equistar's weighted average
cost of capital. Synergies include both one-time and on-going potential
savings from operating the businesses contributed by each of Equistar's
owners. Equistar assigns a target award percentage to each plan participant
based primarily on the participant's salary and position. The target award
percentage is multiplied by a multiple (based on Equistar's achievement of
Equistar EVA and synergy goals) that is determined by Equistar's Partnership
Governance Committee, the product of which is multiplied by the
participant's base pay. Awards consist of a combination of current cash and
deferred cash compensation. Equistar's Partnership Governance Committee
determined that Equistar exceeded its target performance in 1999, resulting
in a payout at 166.1% of the target award. The deferred portion of the 1999
awards ($1,303,700 in the case of Mr. Allspach) will be paid out, subject to
adjustment as determined by the Equistar compensation committee, in three
annual installments beginning in March 2001. (There is no cap on the amount
that can be paid.)
14
<PAGE>
ANNUAL PENSION BENEFITS
The following table shows estimated annual pension benefits payable to the
Company's employees, including executive officers of the Company, upon
retirement at age 65 based on credited service as of January 1, 2000, under the
provisions of the Lyondell Retirement Plan and the Lyondell Supplementary
Executive Retirement Plan (together, the "Lyondell Retirement Plan").
Lyondell Pension Plan Table (a)
<TABLE>
<CAPTION>
Average Final Earnings (Base
Salary plus Annual Bonus) Approximate Annual Benefit for Years of Membership
--------------------------------------------------
Highest Three Consecutive Service Indicated (b) (c)
-------------------------
Years out of Last 10 Years 15 Years 20 Years 25 Years 30 Years 35 Years
-------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$3,000,000....................... $691,747 $922,330 $1,152,912 $1,383,494 $1,614,077
2,800,000....................... 645,547 860,730 1,075,912 1,291,094 1,506,277
2,600,000....................... 599,347 799,130 998,912 1,198,694 1,398,477
2,400,000....................... 553,147 737,530 921,912 1,106,294 1,290,677
2,200,000....................... 506,947 675,930 844,912 1,013,894 1,182,877
2,000,000....................... 460,747 614,330 767,912 921,494 1,075,077
1,800,000....................... 414,547 552,730 690,912 820,094 967,277
1,600,000....................... 368,347 491,130 613,912 736,694 859,477
1,400,000....................... 322,147 429,530 536,912 644,294 751,677
1,200,000....................... 275,947 367,930 459,912 551,894 643,877
1,000,000....................... 229,747 306,330 382,912 459,494 536,077
800,000....................... 183,547 244,730 305,912 367,094 428,277
600,000....................... 137,347 183,130 228,912 274,694 320,477
400,000....................... 91,147 121,530 151,912 182,294 212,677
200,000....................... 44,947 59,930 74,912 89,894 104,877
</TABLE>
________
(a) Mr. Allspach and Mr. Gelb do not participate in the Lyondell Retirement
Plan.
(b) As of December 31, 1999, the credited years of service (rounded to the
nearest whole number) under the Lyondell Retirement Plan for the
participating named executive officers were: Mr. Smith, 25; Mr. Pendergraft,
27; and Ms. Starnes, 24.
(c) All employees' (including executive officers') years of service with
Atlantic Richfield Company prior to the creation of Lyondell have been
credited under the Company's retirement plans.
15
<PAGE>
The following table shows estimated annual pension benefits payable to
certain former employees of ARCO Chemical Company, including certain executive
officers of the Company such as Mr. Gelb, upon retirement at age 65 based on
credited service as of January 1, 2000, under the provisions of the Lyondell
Chemical Company Retirement Plan for Former ARCO Chemical Company Employees and
the Lyondell Supplementary Executive Retirement Plan (together, the "ACC
Retirement Plan").
ACC Pension Plan Table
<TABLE>
<CAPTION>
Average Final Earnings (Base
Salary plus Annual Bonus)
Highest Three Consecutive Approximate Annual Benefit for Years of Membership Service Indicated (b) (c)
----------------------------------------------------------------------------
Years out of Last 10 Years 15 Years 20 Years 25 Years 30 Years 35 Years
-------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$1,200,000....................... $268,782 $364,376 $459,970 $555,564 $651,158
1,100,000....................... 246,282 333,876 421,470 509,064 596,658
1,000,000....................... 223,782 303,376 382,970 462,564 542,158
900,000....................... 201,282 272,876 344,470 416,064 487,658
800,000....................... 178,782 242,376 305,970 369,564 433,158
700,000....................... 156,282 211,876 267,470 323,064 378,658
600,000....................... 133,782 181,376 228,970 276,564 324,158
500,000....................... 111,282 150,876 190,470 230,064 269,658
400,000....................... 88,782 120,376 151,970 183,564 215,158
300,000....................... 66,282 89,876 113,470 137,064 160,658
200,000....................... 43,782 59,376 74,970 90,564 106,158
</TABLE>
_______________________
(a) As of December 31, 1999, the credited years of service (rounded to the
nearest whole number) for Mr. Gelb under the ACC Retirement Plan was 30.
The following table shows estimated annual pension benefits payable to
Equistar's employees, including Mr. Allspach, upon retirement at age 65 based on
credited service as of January 1, 2000, under the provisions of the Equistar
Retirement Plan and the Equistar Supplementary Executive Retirement Plan
(together, the "Equistar Retirement Plan").
Equistar Pension Plan Table
<TABLE>
<CAPTION>
Average Final Earnings (Base
Salary plus Annual Bonus)
Highest Three Consecutive Approximate Annual Benefit for Years of Membership Service Indicated (b) (c)
----------------------------------------------------------------------------
Years out of Last 10 Years 15 Years 20 Years 25 Years 30 Years 35 Years
-------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$1,200,000....................... $253,098 $337,464 $421,830 $506,196 $590,562
1,100,000....................... 232,007 309,342 386,678 464,013 541,349
1,000,000....................... 210,915 281,220 351,525 421,830 492,135
900,000....................... 189,824 253,098 316,373 379,647 442,922
800,000....................... 168,732 224,976 281,220 337,464 393,708
700,000....................... 147,641 196,854 246,068 295,281 344,495
600,000....................... 126,549 168,732 210,915 253,098 295,281
500,000....................... 105,458 140,610 175,763 210,915 246,068
400,000....................... 84,366 112,488 140,610 168,732 196,854
300,000....................... 63,275 84,366 105,458 126,549 147,641
200,000....................... 42,183 56,244 70,305 84,366 98,427
</TABLE>
____________
(a) Mr. Allspach is a participant in Equistar's pension plan with two years of
credited service (rounded to the nearest whole number) as of December 31,
1999. Ms. Starnes is a participant in Equistar's pension plan with one year
of credited service as a result of her one year of employment with
Equistar. Payments to Ms. Starnes under the Equistar Retirement Plan will
be based on her average final earnings with Lyondell.
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The amounts shown in the above tables are necessarily based upon certain
assumptions, including retirement of the employee at age 65, based on credited
services as of January 1, 2000, and payment for the life of the employee only
with a guaranteed minimum payment period of 60 months. The amounts will change
if the payment is made under any other form of retirement benefit permitted by
the respective retirement plan, or if an employee's actual retirement occurred
after January 1, 2000, since the "annual covered compensation level" of such
employee (one of the factors used in computing the annual retirement benefits)
may change during the employee's subsequent years of membership service. The
covered compensation for which retirement benefits are computed under each of
the Lyondell Retirement Plan, the ACC Retirement Plan and the Equistar
Retirement Plan is the average of the participant's highest three consecutive
years out of the last ten years of base salary plus annual bonus. Base salary
and annual bonus amounts are set forth under the "Salary" and "Bonus" headings
in the Summary Compensation Table. The benefits shown are not subject to
deduction for Social Security benefits or other offset amounts. However, the
Lyondell Retirement Plan and the ACC Retirement Plan provide a higher level of
benefits for the portion of compensation above the compensation levels on which
Social Security benefits are based.
EXECUTIVE SEVERANCE ARRANGEMENTS
Certain employees (including Mr. Gelb and other executive officers) who are
former employees of ARCO Chemical are participants in the ARCO Chemical Company
Change of Control Plan (the "ACC Change of Control Plan"). The Company's
acquisition of ARCO Chemical in July 1998 was a change of control as defined in
such plan.
Under the ACC Change of Control Plan, if an eligible employee is terminated
by the Company without cause or by the employee for good reason (which includes
certain "constructive" terminations) within two years following the change of
control, the employee will be entitled to receive one times to three times pay,
depending upon the employee's grade level. The definition of good reason varies
depending on the employee's grade level within the Company. Severance payments
are paid based upon length of service for employees who were not executives or
key managers of ARCO Chemical. As a former executive of ARCO Chemical, Mr. Gelb
would receive a payment equal to three times the sum of his current base salary
plus the greater of (i) the average of his bonuses for the three years prior to
termination or (ii) his target bonus for the year in which the termination
occurs. Former ARCO Chemical employees will receive additional specified
coverage under the Company's medical, dental and life insurance plans, depending
on the employee's grade level. Mr. Gelb will receive 36 months of coverage. Mr.
Gelb will also receive a gross-up payment from the Company for the amount of the
excise tax liability, if any, imposed pursuant to Code Section 4999 with respect
to any benefits paid in connection with the change of control; however, due to
the nature of the Company's acquisition of ARCO Chemical, the Company does not
believe that any payments made pursuant to the ACC Change of Control Plan will
result in excise tax liability under Code Section 4999.
On March 15, 1999, the Compensation Committee adopted the Lyondell Chemical
Company Executive Severance Pay Plan (the "Severance Plan"), which generally
applies to all executive officers of the Company, including Mr. Smith, Mr.
Pendergraft and Ms. Starnes, and certain other key members of management that
are designated by the Chief Executive Officer. Mr. Gelb is not eligible to
participate in the Severance Plan because no employee currently eligible for a
severance benefit under a plan or agreement established by ARCO Chemical is
eligible to participate. At the expiration of the ACC Change of Control Plan in
July 2000, Mr. Gelb and the other former ARCO Chemical executives will
automatically be covered under the Severance Plan. Mr. Allspach is also not
currently eligible to participate in the Severance Plan because he is eligible
to receive benefits under his severance agreement with Equistar (described
below). The Severance Plan provides for the payment of certain benefits to
covered employees upon certain terminations following a Change in Control of the
Company. Under the Severance Plan, a "Change in Control" of the Company means
any one of the following events: (i) the incumbent directors of the Company
(directors as of February 1, 1999 or individuals recommended or approved by a
majority of the then incumbent directors other than as a result of either an
actual or threatened election contest) cease to constitute at least a majority
of the Company's Board of Directors, (ii) the stockholders approve (A) a merger,
consolidation, or recapitalization of the Company, or a sale of substantially
all the Company's assets, unless immediately after the consummation of the
transaction, the shareholders of the Company immediately prior to the
transaction would own eighty percent or more of the resulting entity, or the
incumbent directors at the time of initial approval of the transaction would,
immediately after the transaction, constitute a majority of the Board of
Directors or similar managing group of such resulting entity, or (B) any plan
for the liquidation or dissolution of the Company, (iii) any person shall become
the beneficial owner of twenty percent or more of the outstanding Common
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Stock or combined voting power of all voting securities of the Company, unless
such person reaches twenty percent ownership solely as a result of (A) the
Company acquiring securities and correspondingly reducing the number of shares
outstanding or (B) acquisition of securities directly from the Company except
for any conversion of a security that was not acquired directly from the
Company, provided that if a person referred to in subsection (iii)(A) or (B)
shall thereafter become the beneficial owner of any additional shares of Common
Stock or other voting securities (other than by stock split, stock dividend or
similar transaction), then a Change in Control will be deemed to have occurred.
If an employee covered under the Severance Plan is terminated by the
Company without cause or by the employee for good reason (which includes certain
"constructive" terminations) within two years following a Change in Control, the
employee will be entitled to receive a payment equal to one times to three times
annual earnings, depending on the employee's position in the Company. Annual
earnings for this purpose is generally the sum of an employee's base pay plus
target annual bonus. Mr. Smith and Mr. Pendergraft will receive a payment equal
to three times their respective annual earnings, and Ms. Starnes will receive a
payment equal to two times her annual earnings. Outstanding option awards to
covered employees will be automatically vested. Covered employees will also
receive: (i) eligibility to commence vested early retirement benefits under the
Company's retirement plans, actuarially reduced for early commencement, and
retiree medical coverage; (ii) continuation of welfare benefit coverages for a
period of two years following termination; and (iii) outplacement services for a
period of one year, at a cost not to exceed $40,000. In addition, covered
employees will receive a gross-up payment from the Company for the amount of the
excise tax liability, if any, imposed pursuant to Code Section 4999 with respect
to any benefits paid in connection with the Change in Control. In order to
receive benefits under the Severance Plan, a covered employee must sign a
general release of claims against the Company and its affiliates. Upon a Change
in Control, the Company will also deposit into the Company's Supplemental
Executive Benefit Plans Trust any additional assets necessary to fully fund the
benefits due under the Supplementary Executive Retirement Plan and the Executive
Deferral Plan. The Severance Plan may be amended or terminated at any time prior
to a Change in Control or, if earlier, prior to the date that a third party
submits a proposal to the Board of Directors that is reasonably calculated, in
the judgment of the Compensation Committee, to effect a Change in Control. The
Severance Plan may not be amended to deprive a covered employee of benefits
after a Change in Control.
The severance agreement between Equistar and Eugene Allspach, which was
assumed by Equistar from Millennium Petrochemicals upon the formation of
Equistar, provides for Mr. Allspach's receipt of payments and benefits described
below in the event of his termination before January 1, 2001. Benefits under Mr.
Allspach's severance agreement apply if he is terminated either (i) by Equistar
without cause or (ii) as a result of a Constructive Termination for Good Reason.
Notice of Constructive Termination for Good Reason, as defined in Mr. Allspach's
severance agreement, can be given by Mr. Allspach if Equistar does any of the
following: (i) assigns him to any duties or responsibilities not comparable to
his duties or responsibilities when he joined Equistar or reduces his
responsibilities or position; (ii) relocates Equistar's principal executive
offices outside a 25-mile radius of its current location or requests Mr.
Allspach's transfer, in writing, to a new location; (iii) reduces Mr. Allspach's
annual base salary or comparable benefits to a level below the annual base
salary or benefits he received when joining Equistar; (iv) fails to continue any
bonus plan, program or arrangement in which Mr. Allspach participates or changes
Mr. Allspach's status under any bonus plan, program or arrangement; or (v) fails
to comply with any material provision of Mr. Allspach's severance agreement. In
the event Mr. Allspach is entitled to receive benefits under his severance
agreement, Equistar agrees to provide all of the following rights and benefits:
(i) a lump-sum payment in cash equal to three times his annual earnings plus any
unreimbursed business expenses and any base salary, bonus, vacation pay or other
deferred compensation accrued or earned under law or according to Equistar's
policies; (ii) additional pension benefits by crediting Mr. Allspach with three
additional years of age and service; (iii) an amount equal to three years of the
maximum employer contribution to a qualified or nonqualified 401(k) plan
assuming the executive deferred the maximum amount and continued to earn his
then current salary; (iv) continuation of insurance and other benefits for 36
months following termination; (v) financial counseling for a period of one year;
(vi) out-placement services and assistance, not to exceed $40,000; and (vii) any
other amounts or benefits due under then-applicable employee benefit incentive
or equity plans of Equistar applicable to him. Mr. Allspach would also receive
an additional payment equal to the amount of excise tax imposed under the
Internal Revenue Code of 1986, as amended, plus any federal, state or local
taxes incurred as a result of the payment. As a result, he would be in the same
position after payment of the excise tax as he would have been if he were not
subject to the excise tax at all.
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PERFORMANCE GRAPH
The graph below compares the cumulative total return to stockholders of the
Company for a five-year period (December 31, 1994 to December 31, 1999) with the
cumulative total return to stockholders of the S&P 500 Stock Index and two peer
groups.
The First Peer Group is a composite index composed of commodity chemical
manufacturers and independent refiners, which the Company has used for
comparative purposes in prior year proxy statements. The First Peer Group
consists of Ashland, Inc., Crown Central Petroleum Corporation, Eastman Chemical
Company, The Geon Company, Georgia Gulf Corporation, Methanex Corporation,
Sunoco, Inc., Tosco Corporation, Ultramar Diamond Shamrock Corporation, Union
Carbide Corporation, and Valero Energy Corporation
The Second Peer Group, which is used in calculating total shareholder
return for performance share awards, consists of: Air Products and Chemicals,
Inc., Airgas, Inc., Albemarle Corporation, Cabot Corporation, Calgon Carbon
Corporation, CK Witco Corporation, Cytec Industries, Inc., Dexter Corporation,
Dow Chemical Company, EI DuPont de Nemours & Company, Eastman Chemical Company,
Ecolab, Inc., Engelhard Corporation, Ethyl Corporation, Ferro Corporation, FMC
Corporation, HB Fuller Company, Georgia Gulf Corporation, B. F. Goodrich
Company, W. R. Grace & Co., Great Lakes Chemical Corporation, MA Hanna Company,
Hercules Incorporated, IMC Global, Inc., International Flavors and Fragrances,
Lubrizol Corporation, Minerals Technologies Inc., Monsanto Company, Morton
Industrial Group Inc., Nalco Chemical Company, Olin Corporation, PPG Industries,
Inc., Praxair Inc., Rohm & Haas Company, RPM Incorporated, A Schulman, Inc.,
Sigma-Aldrich Corporation, Union Carbide Corporation and Lyondell.
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1999
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
LYONDELL...................................................... $100.00 $ 91.61 $ 91.92 $114.33 $ 80.65 $ 60.74
S&P 500....................................................... $100.00 $137.58 $169.17 $225.60 $290.08 $351.12
FIRST PEER GROUP(a)........................................... $100.00 $108.51 $122.42 $146.70 $119.71 $129.27
SECOND PEER GROUP(a).......................................... $100.00 $128.84 $156.37 $186.67 $168.24 $190.44
</TABLE>
________
(a) Group total returns are weighted by average annual market capitalization
for Peer Group companies as of the beginning of each year and assume the
reinvestment of dividends. None of the Peer Companies constituted more than
twenty percent of the market capitalization of the entire Peer Group in
1999.
19
<PAGE>
Pursuant to SEC Rules, the foregoing section of the Proxy Statement (including
the Compensation Committee Report that follows) is not deemed "filed" with the
SEC and is not incorporated by reference with the Company's Report on Form 10-K.
LYONDELL CHEMICAL COMPANY
1999 COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board of Directors (the "Committee") has
responsibility for establishing and administering the pay philosophy, policies,
and plans for the executive officers of the Company and has oversight
responsibility with respect to compensation for executive officers of the
Company's joint ventures. The Committee conducts an annual review of executive
pay and approves all salary changes, grants and awards to executive officers of
Lyondell. The partners committee for Equistar Chemicals LP approves the
salaries and incentive compensation for Equistar's executive officers, including
Mr. Allspach.
Executive Pay Philosophy
The overriding principle behind the Company's pay philosophy is that pay
must support the Company's primary objective of creating shareholder value and
that premium pay will be provided for premium performance. Specific elements of
this philosophy are:
. Performance should be defined in terms of measures that directly link to or
strongly influence Lyondell's shareholder value and achievement of
strategic business and other performance objectives.
. Executive base salaries should be comparable to salaries for similar
positions in a broad group of industrial and chemical companies that are
similar to Lyondell, with incentives varying substantially commensurate
with the Company's performance and designed to account for the cyclical
nature of the Company's businesses.
. The pay programs should foster a team orientation and a high degree of
cooperation and coordination among top management.
. Substantial ownership in the Company's stock among executives should be
highly encouraged so that management interests are closely aligned with
shareholders in terms of both risk and reward.
Driven by this philosophy, the Company's executive pay program has been
designed to encourage a long-term performance orientation, with performance
measures strongly related to shareholder value creation. Further, the program is
designed to facilitate ownership of Company stock.
Base Salary
Pursuant to the pay philosophy, Lyondell's executive base salaries
generally are positioned at the fiftieth percentile of the market for industrial
and chemical companies. The market data used are reflective of the Company's
size, as measured by revenues under management. The Company believes that this
approach to compensation is necessary to attract and retain executive talent in
today's competitive market. Generally, the Compensation Committee assesses
market pay by position by relying on nationally recognized, published surveys.
As a result of the acquisition of ARCO Chemical Company and the addition of
certain assets of Occidental Chemical to the Equistar venture in 1998, the
Company's revenue base nearly doubled. Accordingly, in considering base
salaries for 1999 (with the exception of Mr. Allspach, whose salary is
determined by the Equistar partners committee), the Committee found that most of
the Company's executive officers were being compensated at a level that was
significantly below the fiftieth percentile of market for industrial and
chemical companies of similar size. The Committee determined to effect the
adjustment in base salaries over a two-year period. In 1999, the base salaries
of executive officers, including the named executive officers, increased from
10% to 20%.
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Incentive Compensation
In 1999, the shareholders approved the Lyondell Chemical Company 1999 Long
Term Incentive Plan. The plan provides the Committee with sufficient incentive
tools to provide long-term incentive compensation that is closely tied to the
creation of shareholder value. The plan allows for the Committee to make long-
term incentive awards in the form of stock options, restricted stock,
performance shares, phantom stock or stock appreciation rights, and to make cash
bonus payments. Under this program, incentive compensation opportunities for
1999 were delivered in three forms:
. An executive Annual Cash Award, which rewards management for creating
Economic Value Added ("EVA") over a five-year period. EVA measures
Lyondell's cash flow performance in excess of a capital charge, which is
calculated by multiplying the capital invested in Lyondell by Lyondell's
weighted average cost of capital.
. Stock options, granted at 100 percent of fair market value, having a term
of ten years and vesting at a rate of one-third per year over three years,
with accelerated vesting if the stock price increases 100 percent. The
stock option awards are intended to provide incentive to participants to
increase the Company's share price over time.
. A performance share arrangement, under which executives earn a
predetermined number of shares of Lyondell stock based on the Company's
cumulative total shareholder return (stock price growth plus reinvested
dividends) relative to an industry group comprising peer chemical
companies. This plan is intended to provide incentive to participants to
improve Lyondell's total shareholder return performance compared to the
peer group.
Again, based on published, nationally recognized compensation surveys for
industrial and chemical companies, the Committee established a percentage of
base salary that would, subject to attainment by the Company of objective
financial results as established by the Committee, be payable in incentive
compensation for Lyondell executive officers (excluding Mr. Allspach who is
compensated under Equistar's incentive plan). The percentages for both annual
cash bonus and long-term compensation were targeted at the medians for such
compensation as reflected in the published surveys.
Annual Cash Award
The 1999 annual incentive bonus formula for executive officers and other
senior managers of the Company was approved by the Committee in February 1999
and is consistent with bonus incentives used in prior years. The formula
employs a rolling five-year average of economic value added. While
implementation of the formula can result in bonuses being paid in years where
the Company incurs losses in economic value, such as was the case in 1999, the
Committee believes that it reflects Company's pay philosophy of encouraging
growth in economic value over the long-term and dampening the effect of earnings
cyclicality in the chemical industry
Long-term Incentives
For 1999, long-term incentive compensation was split equally between stock
options and performance shares, both of which are linked directly to shareholder
return. The exercise price for officer stock options cannot be less than the
stock fair market value on the date of grant. Thus the value of the
shareholders' investment in the Company must appreciate before an optionee
receives any financial benefit from the option. The number of shares subject to
stock options granted in 1999 was calculated using the Black- Scholes model,
including the assumptions set forth under the Option Grants in 1999 table set
forth on page 13 of the proxy statement. The number of target performance
shares for each executive officer was calculated using the average fair market
value of the Common Stock during the first week of 1999. The terms of the 1999
performance shares granted to the named executive officers are shown in the
Long-Term Incentive Plans--Awards in 1999 table on page 14 of the proxy
statement.
Stock Ownership Guidelines
In 1995, the Committee adopted stock ownership guidelines for executive
officers. The current ownership targets are as follows:
Number of Shares
Position Requested to be Owned
-------- ---------------------
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Chief Executive Officer............ 110,000
Executive Vice President........... 50,000
Senior Vice President.............. 25,000
Vice President..................... 15,000
All shares which are beneficially owned, including, if applicable, shares
of unvested restricted stock and shares held in the Company's 401(k) plan, but
excluding unexercised stock options, count toward fulfillment of the ownership
guidelines.
Chief Executive Officer's 1999 Pay
In January 1999, Mr. Smith's base salary was raised from $811,200 to
$965,300. This increase recognizes the growth in scale as measured by revenues
under management and reflects the acquisition of ARCO Chemical in July 1998 and
the expansion of Equistar with the addition of Occidental Chemicals in May 1998.
This also reflects the Compensation Committee's objective to move Officer pay
aggressively towards the targeted level at the median competitive salary for
companies of similar size as determined from published compensation surveys.
For 1999, Mr. Smith received an Annual Cash Award of $1,414,400 under the
Company's Long-Term Incentive Plan. The Committee believes that this award was
appropriate given the Company's achievements in creating value, as measured by
Economic Value Added (EVA). The Plan recognizes the deeply cyclical nature of
the commodity chemical industry, which experiences significant year-to-year
swings in financial results. The Plan provides an award mechanism designed to
moderate the effect of the cycle on pay over the longer term. The Committee
believes that this approach to pay enables the Company to attract, retain and
reward executive talent competitively.
The formula for determining the Annual Cash Award reflects the Committee's
continuing focus on encouraging growth in economic value over the long term.
Targets are set at the industry median as determined financial analysis of
industry results.
Using the criteria discussed above, in February 1999, Mr. Smith received a
grant of 463,400 stock options and 122,800 Performance Shares under the 1999
Long-Term Incentive Plan. Stock options were granted at $18.125. Performance
Shares are based on three-year Total Shareholder Return for Lyondell as compared
to a chemical industry peer group for the period 1999-2001.
Omnibus Budget Reconciliation Act of 1993
Section 162(m) of the Omnibus Budget Reconciliation Act of 1993 (the "1993
Act") limits the deductibility of pay in excess of $1 million paid to the
Company's Chief Executive Officer and the next four highest paid officers during
any fiscal year, beginning with 1994, unless such pay meets certain
requirements. The Committee seeks to qualify compensation for deductibility,
but retains the discretion to pay non-deductible amounts if that would be in the
best interests of the Company and shareholders.
Compensation Committee Members
The Compensation Committee believes that shareholders are well served by
Lyondell's executive management team and that the executive pay philosophy and
programs that have been established support the long-term success of the
Company. This report is submitted by the Compensation Committee of the Board of
Directors of Lyondell.
Respectfully submitted,
Stephen F. Hinchliffe, Jr. (Chairman)
Dr. William T. Butler
Travis Engen
The Compensation Committee
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COMPENSATION OF DIRECTORS
Directors' Fees
Directors who are employees of the Company are not paid any fees or
additional compensation for service as members of the Board of Directors or any
committee thereof. During 1999, directors who were not employees of the Company
("Non-Employee Directors") were paid an annual retainer of $40,000 (of which
$10,000 was paid in shares of restricted stock ("Restricted Shares")) and $1,250
for each Board or committee meeting attended, and were reimbursed for travel and
other related expenses incurred in attending such meetings. In addition, the
Non-Employee Directors who served as Chairman of the Audit, Compensation and
Corporate Governance and Responsibility Committees each received $7,500. The
non-employee Chairman of the Board received an additional $40,000, of which
$10,000 was in the form of Restricted Shares.
Restricted Stock Grants
The Company believes paying a portion of the directors' compensation in
stock further aligns the directors' interests with the stockholders' interests
and, accordingly, has adopted stock ownership guidelines for its Non-Employee
Directors of 2,000 shares each. Restricted Shares were granted as part of the
annual retainer for 1999 and were valued at approximately $10,000 (and are
subject to transfer restrictions and risk of forfeiture for a period (the
"restricted period") of at least one year from the date of grant). During the
restricted period, the director has the right to receive dividends on and the
right to vote the Restricted Shares. The Restricted Shares will be forfeited if
the director's service terminates (other than for retirement, death or
disability) prior to the end of the restricted period. It is intended that the
directors will continue to hold the Restricted Shares beyond the termination of
the restricted period.
Retirement Plan for Non-Employee Directors
The Lyondell Chemical Company Retirement Plan for Non-Employee Directors
(the "Directors' Retirement Plan") is a non-qualified retirement plan for
directors who are not employees of the Company. The annual retirement benefit is
equal to the director's annual retainer fee immediately preceding the director's
retirement from the Board of Directors. A director vests in the benefit upon
serving three years as a member of the Board of Directors, or, in the case of a
retired Company officer, three years following retirement as an officer of the
Company. The benefit is payable for a period of time equal to a director's
service on the Board of Directors, or, in the case of retired officers of the
Company, to the director's service on the Board of Directors following
retirement as an officer. However, if a director has served for at least 15
years as a member of the Board of Directors, excluding years of service when the
director was also an officer of the Company, the benefit shall be paid for the
greater of the period described in the preceding sentence or until death.
Benefits commence at age 65, or, if later, at the time the director retires from
the Board of Directors. A surviving spouse is entitled to receive fifty percent
of the benefits otherwise payable to a director with payment up to a maximum of
15 years if the director dies prior to retirement from the Board of Directors or
if he or she dies after retirement from the Board of Directors, the benefits
otherwise payable to the director up to a maximum of 15 years. The benefits
under the Directors' Retirement Plan are secured through a grantor trust.
In October 1998, the Board of Directors amended and restated the Directors'
Retirement Plan to close such plan to new directors and to give those directors
covered under the Plan the option of: continuing to accrue benefits under the
Plan; retaining their existing benefits as of December 31, 1998; or electing to
receive a payment equal to the present value of their benefits under the Plan in
the form of deferred compensation or Restricted Shares. Directors who elected
not to continue to accrue benefits under the Directors' Retirement Plan,
together with directors first elected after October 1998, receive, in lieu of
such benefit, an annual award of Restricted Shares valued at $25,000.
Deferral Plan for Non-Employee Directors
The Lyondell Chemical Company Elective Deferral Plan for Non-Employee
Directors (the "Directors' Deferral Plan") provides directors who are not
employees of the Company with the opportunity to defer all or a portion of their
retainer and meeting fees. Under the Directors' Deferral Plan, the minimum
amount that may be elected to be deferred is $8,000 and the maximum is 100
percent of the director's retainer and meeting fees per year. Amounts
23
<PAGE>
may be deferred until retirement from their regular employment or resignation
from the Board, unless the director has suffered a financial hardship or elected
an early distribution at the time the deferral commitment is made. Upon the
director's death, retirement or resignation, benefits are payable, in accordance
with the director's prior election, either in a lump sum or in substantially
equal monthly payments over five, ten or fifteen years. The benefits under the
Directors' Deferral Plan are secured through a grantor trust. A participant's
account under the Deferral Plan will accrue interest at a rate established by
the Company annually prior to the commencement of each year. The guaranteed
minimum rate of interest is not less than the Citibank base rate. The interest
rate for 1999 was 8.9 percent.
Stock Options Granted to Directors
On February 3, 2000, the Board of Directors approved the grant to each Non-
Employee Director of an option to acquire 5,000 shares of Common Stock at an
exercise price of $12.921, representing the average closing sale price of the
Common Stock for the first two weeks of 2000. (The closing sale price of a
share of Common Stock on February 3, 2000 was $10.125.) The options vest
annually in one third increments, subject to early vesting in certain
situations. The shares deliverable upon the exercise of an option must be
treasury shares.
OTHER BUSINESS
The Board of Directors is not aware of any other matters to be presented at
the meeting. If any other matters should properly come before the meeting, the
persons named in the enclosed proxy will vote the proxies in accordance with
their best judgment.
PROXY SOLICITATION
The expense of soliciting proxies will be paid by the Company. The Company
has retained Georgeson & Company Inc. to solicit proxies at an estimated fee of
$7,500 plus expenses. Some of the executive officers and other employees of the
Company also may solicit proxies personally, by telephone and by mail, if deemed
appropriate. The Company will reimburse brokers or other persons holding stock
in their names or in the names of their nominees for their reasonable expenses
in forwarding proxy material to beneficial owners of stock.
STOCKHOLDER PROPOSALS FOR 2001 ANNUAL MEETING
AND DIRECTOR NOMINATIONS
Stockholder proposals intended to be presented at the 2001 Annual Meeting
must be received by the Company, at the address set forth on the first page of
this Proxy Statement, no later than December 12, 2000, in order to be included
in the Company's proxy material and form of proxy relating to such meeting. Such
proposals should be addressed to the Secretary. Stockholder proposals must
otherwise be eligible for inclusion. The 2001 Annual Meeting is scheduled to
take place in May 2001.
Pursuant to the By-Laws of the Company, a stockholder wishing to nominate a
candidate for election to the Board or bring a proposal before the 2001 Annual
Meeting is required to give written notice to the Secretary of the Company of
his or her intention to make such a nomination or present such a proposal. The
notice of intent to make a nomination or present a proposal at the 2001 Annual
Meeting must be received by the Company not less than 90 days in advance of such
meeting or, if the meeting was not publicly announced by a mailing to the
stockholders, in a press release reported by the Dow Jones News Service, the
Associated Press or a comparable national news service or a filing with the
Securities and Exchange Commission more than 90 days prior to the meeting, 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. The notice is required to contain certain information about
both the nominee or proposal, as applicable, and the stockholder making the
nomination or proposal. A nomination or proposal that does not comply with the
above procedures will be disregarded. Compliance with the above procedures does
not require the Company to include the proposed nominee or proposal in the
Company's proxy solicitation material.
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ADDITIONAL INFORMATION AVAILABLE
The Company files an Annual Report on Form 10-K with the Securities and
Exchange Commission. Stockholders may obtain a copy of this report (without
exhibits), without charge, by writing to the Company's Investor Relations
Department at 1221 McKinney Street, Suite 700, Houston, Texas 77010.
25
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[LOGO OF LYONDELL]
Lyondell Chemical Company
1221 McKinney Street, Suite 700
Houston, Texas 77010
April 10, 2000
Dear Stockholder:
You are cordially invited to join us at the 2000 Annual Meeting of Stockholders
on Thursday, May 4, 2000, beginning at 10:00 a.m. in the General Assembly Room
of One Houston Center, 1221 McKinney, 42/nd/ Floor in Houston, Texas.
It is important that your shares be voted whether or not you plan to be present
at the meeting. Please complete, sign, date and return the enclosed form of
proxy promptly. If you do plan to attend, we would appreciate your checking the
appropriate box on the enclosed proxy card.
This booklet includes the Notice of the Meeting and the Proxy Statement, which
contains important information about the formal business to be acted upon by the
stockholders.
Sincerely yours,
DAN F. SMITH
President and Chief Executive Officer
PLEASE DETACH PROXY CARD HERE
- --------------------------------------------------------------------------------
1. ELECTION OF DIRECTORS
FOR all nominees WITHHOLD AUTHORITY to
listed below [_] vote for all nominees listed below [_] *EXCEPTIONS [_]
Nominees: Carol A. Anderson, William T. Butler, Travis Engen, Stephen F.
Hinchliffe, Jr., Dudley C. Mecum II, Dan F. Smith, Paul R. Staley
(INSTRUCTIONS: To withhold authority to vote for any individual nominee mark
the "Exceptions" box and write that nominee's name in the space provided
below.)
*Exceptions __________________________________________________________
2. Proposal to ratify the appointment of PricewaterhouseCoopers, LLP,
independent accountants, as the Company's auditors for the fiscal year
ending December 2000.
FOR [_] AGAINST [_] ABSTAIN [_]
3. Stockholder proposal regarding the treatment of abstentions and broker non-
votes as described in the Proxy Statement.
FOR [_] AGAINST [_] ABSTAIN [_]
4. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
I/we will attend the meeting. [_] Address Change Mark Here [_]
Please sign exactly as name appears. When shares are held by joint tenants,
both should sign. When signing as an attorney, executor, administrator, trustee
or guardian, please sign as such.
Dated: ____________________________, 2000
________________________________________
Signature
________________________________________
Signature if held jointly
PLEASE SIGN, DATE AND RETURN THE PROXY Votes MUST be indicated (x)
PROMPTLY USING THE ENCLOSED ENVELOPE. in Black or Blue Ink.
<PAGE>
[LOGO OF LYONDELL]
One Houston Center
1221 McKinney, Suite 700
Houston, Texas 77010
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned stockholder of Lyondell Chemical Company (herein the
"Company") hereby makes, constitutes and appoints Robert T. Blakely, Gerald A.
O'Brien and Jeffrey R. Pendergraft, and each of them, lawful attorneys and
proxies of the undersigned, with full power of substitution, for and in name,
place and stead of the undersigned to vote the number of shares of Company
Common Stock that the undersigned would be entitled to vote if personally
present at the Annual Meeting of Stockholders to be held in the General Assembly
Room of One Houston Center, 1221 McKinney, 42/nd/ Floor, in Houston, Texas on
Thursday, May 4, 2000 at 10:00 a.m., local time, and at any adjournment(s)
thereof, on the matters set forth on the reverse side.
This proxy when properly executed will be voted in the manner directed
herein by the undersigned stockholder. If no direction is made, this proxy will
be voted FOR items 1 and 2 and AGAINST item 3.
This card also constitutes my voting instructions with respect to shares
held in the Lyondell Chemical Company 401(k) and Savings Plan, the Equistar
Chemicals, LP Savings and Investment Plan, the LYONDELL-CITGO Refining Company
Ltd. 401(k) and Savings Plan for Non-Represented Employees, the LYONDELL-CITGO
Refining Company Ltd. 401(k) and Savings Plan for Represented Employees, the
ARCO Capital Accumulation Plan, the Vastar Capital Accumulation Plan and the
undersigned hereby authorizes Fidelity Management Trust Company, as Trustee of
such plans, to vote the shares held in the undersigned's accounts.
LYONDELL CHEMICAL COMPANY
P.O. BOX 11244
NEW YORK, NY 10203-0244
(Continued, and to be signed and dated, on reverse side.)
