-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UkyQL4CB99vO1zMaeEHxo/Kd5y3V8ERWmCiKpmvBlzNigdq1gqVWDlQm3FpKl18b gPkqrm1ZSwWQHOlZg06lgw== 0000899243-01-500512.txt : 20010515 0000899243-01-500512.hdr.sgml : 20010515 ACCESSION NUMBER: 0000899243-01-500512 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LYONDELL CHEMICAL CO CENTRAL INDEX KEY: 0000842635 STANDARD INDUSTRIAL CLASSIFICATION: PETROLEUM REFINING [2911] IRS NUMBER: 954160558 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-10145 FILM NUMBER: 1632885 BUSINESS ADDRESS: STREET 1: 1221 MCKINNEY ST STREET 2: STE 700 CITY: HOUSTON STATE: TX ZIP: 77010 BUSINESS PHONE: 7136527200 MAIL ADDRESS: STREET 1: 1221 MCKINNEY ST STREET 2: SUITE 700 CITY: HOUSTON STATE: TX ZIP: 77010 FORMER COMPANY: FORMER CONFORMED NAME: LYONDELL PETROCHEMICAL CO DATE OF NAME CHANGE: 19920703 10-Q 1 d10q.txt FORM 10-Q FOR PERIOD ENDED MARCH 31, 2001 ================================================================================ UNITED STATES ------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________ to ____________ Commission file number 1-10145 ----------------- LYONDELL CHEMICAL COMPANY (Exact name of registrant as specified in its charter) ----------------- Delaware 95-4160558 (State or other jurisdiction of (I.R.S. EMPLOYER incorporation or organization) IDENTIFICATION NO.) 1221 McKinney Street, 77010 Suite 700, Houston, Texas (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code: (713) 652-7200 ----------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X NO ___ ___ Number of shares of Common Stock, $1.00 par value, outstanding as of March 31, 2001: 117,562,920 ================================================================================ PART I. FINANCIAL INFORMATION LYONDELL CHEMICAL COMPANY ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, ---------------------------------- Millions of dollars, except per share data 2001 2000 - ------------------------------------------ ------------ ------------ SALES AND OTHER OPERATING REVENUES $ 857 $1,136 OPERATING COSTS AND EXPENSES: Cost of sales 755 952 Selling, general and administrative expenses 39 55 Research and development expense 8 14 Amortization of goodwill and other intangibles 24 28 ------- ------- 826 1,049 ------- ------- Operating income 31 87 Interest expense (99) (165) Interest income 7 8 Other income (expense), net 3 (5) Gain on sale of assets -- 544 ------- ------- Income (loss) before equity investments, income taxes and extraordinary item (58) 469 ------- ------- INCOME (LOSS) FROM EQUITY INVESTMENTS: Equistar Chemicals, LP (22) 33 LYONDELL-CITGO Refining LP 27 16 Other (3) 1 ------- ------- 2 50 ------- ------- Income (loss) before income taxes and extraordinary item (56) 519 Provision for (benefit from) income taxes (22) 202 ------- ------- Income (loss) before extraordinary item (34) 317 Extraordinary loss on extinguishment of debt, net of income taxes -- (11) ------- ------- NET INCOME (LOSS) $ (34) $ 306 ======= ======= BASIC AND DILUTED EARNINGS PER SHARE: Income (loss) before extraordinary item $(.29) $2.69 Extraordinary loss -- (.09) ------- ------- Net income (loss) $(.29) $2.60 ======= =======
See Notes to Consolidated Financial Statements. 1 LYONDELL CHEMICAL COMPANY CONSOLIDATED BALANCE SHEETS
March 31, DECEMBER 31, Millions of dollars, except par value data 2001 2000 - ------------------------------------------- -------- ------------ ASSETS Current assets: Cash and cash equivalents $ 162 $ 260 Accounts receivable, net 435 508 Inventories 479 392 Prepaid expenses and other current assets 56 49 Deferred tax assets 165 136 ------ ------ Total current assets 1,297 1,345 Property, plant and equipment, net 2,361 2,429 Investments and long-term receivables: Investment in PO joint ventures 649 621 Investment in Equistar Chemicals, LP 577 599 Receivable from LYONDELL-CITGO Refining LP 229 229 Investment in LYONDELL-CITGO Refining LP 27 20 Other investments and long-term receivables 129 137 Goodwill, net 1,125 1,152 Other assets 519 515 ------ ------ Total assets $6,913 $7,047 ====== ====== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 376 $ 399 Current maturities of long-term debt 11 10 Other accrued liabilities 317 325 ------ ------ Total current liabilities 704 734 Long-term debt, less current maturities 3,841 3,844 Other liabilities 484 441 Deferred income taxes 693 702 Commitments and contingencies -- -- Minority interest 161 181 Stockholders' equity: Preferred stock, $.01 par value, 80,000,000 shares authorized, none outstanding -- -- Common stock, $1.00 par value, 250,000,000 shares authorized, 120,250,000 issued 120 120 Additional paid-in capital 854 854 Retained earnings 443 504 Accumulated other comprehensive loss (312) (258) Treasury stock, at cost, 2,687,080 and 2,689,667 shares, respectively (75) (75) ------ ------ Total stockholders' equity 1,030 1,145 ------ ------ Total liabilities and stockholders' equity $6,913 $7,047 ====== ======
See Notes to Consolidated Financial Statements. 2 LYONDELL CHEMICAL COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, ---------------------------------- MILLIONS OF DOLLARS 2001 2000 - ------------------- ------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (34) $ 306 Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: Gain on sale of assets -- (544) Depreciation and amortization 65 84 Extraordinary item -- 11 Deferred income taxes (29) 2 Decrease (increase) in accounts receivable 68 (46) (Increase) decrease in inventories (92) 23 (Decrease) increase in accounts payable (17) 43 Net change in other working capital accounts (7) 164 Other, net (16) (41) ----- ------- Net cash (used in) provided by operating activities (62) 2 ----- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of assets, net of cash sold -- 2,424 Expenditures for property, plant and equipment (11) (19) Contributions and advances to affiliates (20) (4) Distributions from affiliates in excess of earnings 28 -- Other -- (38) ----- ------- Net cash (used in) provided by investing activities (3) 2,363 ----- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayments of long-term debt (2) (1,004) Dividends paid (27) (26) Payment of debt-related costs (3) (10) ----- ------- Net cash used in financing activities (32) (1,040) ----- ------- Effect of exchange rate changes on cash (1) (2) ----- ------- (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (98) 1,323 Cash and cash equivalents at beginning of period 260 307 ----- ------- Cash and cash equivalents at end of period $ 162 $ 1,630 ===== =======
See Notes to Consolidated Financial Statements. 3 LYONDELL CHEMICAL COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PREPARATION The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments considered necessary for a fair presentation, have been included. For further information, refer to the consolidated financial statements and notes thereto for the year ended December 31, 2000 included in the Lyondell Chemical Company ("Lyondell") 2000 Annual Report on Form 10-K pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Certain amounts from prior periods have been reclassified to conform to the current period presentation. 2. GAIN ON SALE OF ASSETS On March 31, 2000, Lyondell completed the sale of the polyols business and ownership interests in its U.S. propylene oxide ("PO") manufacturing operations to Bayer AG and Bayer Corporation (collectively "Bayer") for approximately $2.45 billion. Lyondell recorded a pretax gain on the sale of $544 million during the first quarter 2000. In the third quarter 2000, the final settlement of working capital with Bayer and resolution of certain estimated liabilities resulted in the recording of an additional pretax gain on the sale of $46 million. As part of the asset sale, Lyondell accrued liabilities of $53 million for employee severance, relocation and other employee benefits, covering approximately 850 employees. The affected employees were generally terminated on or about April 1, 2000, with a limited number providing transition services through mid-2001. During the third quarter 2000, Lyondell reduced the accrued liability by $25 million due to a reduction in the number of affected employees and significantly lower than expected payments of severance and other benefits. Payments of $27 million for severance, relocation and other employee benefits were made through March 31, 2001. Lyondell expects to settle the remainder of the liability during 2001. 4 3. EQUITY INTEREST IN EQUISTAR CHEMICALS, LP Lyondell has a 41% joint venture ownership interest in Equistar Chemicals, LP ("Equistar"), while Millennium Chemicals Inc. ("Millennium") and Occidental Petroleum Corporation ("Occidental") each have a 29.5% joint venture ownership interest. Because the partners jointly control certain management decisions, Lyondell accounts for its investment in Equistar using the equity method of accounting. As a partnership, Equistar is not subject to federal income taxes. Summarized financial information for Equistar follows:
March 31, December 31, Millions of dollars 2001 2000 - ------------------- ------------------- ------------------- BALANCE SHEETS Total current assets $1,352 $1,332 Property, plant and equipment, net 3,784 3,819 Goodwill, net 1,078 1,086 Deferred charges and other assets 371 345 ------------------- ------------------- Total assets $6,585 $6,582 =================== =================== Current maturities of long-term debt $ 190 $ 90 Other current liabilities 570 653 Long-term debt, less current maturities 2,224 2,158 Other liabilities and deferred credits 141 141 Partners' capital 3,460 3,540 ------------------- ------------------- Total liabilities and partners' capital $6,585 $6,582 =================== =================== FOR THE THREE MONTHS ENDED March 31, --------------------------------------------- 2001 2000 ------------------- ------------------- STATEMENTS OF INCOME Sales and other operating revenues $1,773 $1,858 Cost of sales 1,723 1,698 Other operating costs and expenses 86 61 ------------------- ------------------- Operating income (loss) (36) 99 Interest expense, net (46) (45) Other income, net 5 2 ------------------- ------------------- Net income (loss) $ (77) $ 56 =================== =================== SELECTED CASH FLOW INFORMATION Depreciation and amortization $ 78 $ 77 Expenditures for property, plant and equipment 24 20
Lyondell's "Income (loss) from equity investments" in Equistar as presented in the consolidated statements of income consists of Lyondell's share of Equistar's net income (loss) plus the accretion of the difference between Lyondell's investment and its underlying equity in Equistar's net assets. 5 4. EQUITY INTEREST IN LYONDELL-CITGO REFINING LP Lyondell has a 58.75% participation interest in LYONDELL-CITGO Refining LP ("LCR"), while CITGO Petroleum Corporation ("CITGO") has a 41.25% participation interest. As a partnership, LCR is not subject to federal income taxes. Net income before depreciation expense for the period is allocated to the partners based upon participation interests. Depreciation expense is allocated to the partners based upon contributed assets. Summarized financial information for LCR follows:
March 31, December 31, Millions of dollars 2001 2000 - ------------------- -------------------- ---------------------- BALANCE SHEETS Total current assets $ 319 $ 310 Property, plant and equipment, net 1,306 1,319 Deferred charges and other assets 63 67 ------------------- ------------------- Total assets $ 1,688 $1,696 =================== =================== Notes payable $ 450 $ 450 Other current liabilities 402 417 Loans payable to partners 264 264 Other liabilities and deferred credits 60 57 Partners' capital 512 508 ------------------- ------------------- Total liabilities and partners' capital $ 1,688 $1,696 =================== =================== FOR THE THREE MONTHS ENDED March 31, -------------------------------------------- 2001 2000 ------------------ ------------------- STATEMENTS OF INCOME Sales and other operating revenues $ 910 $ 859 Cost of sales 838 811 Selling, general and administrative expenses 14 14 ------------------- ------------------- Operating income 58 34 Interest expense, net (16) (12) ------------------- ------------------- Net income $ 42 $ 22 ================== =================== SELECTED CASH FLOW INFORMATION Depreciation and amortization $ 28 $ 26 Expenditures for property, plant and equipment 11 17
5. EXTRAORDINARY ITEM During the first quarter 2000, Lyondell retired debt in the principal amount of $999 million prior to maturity. Unamortized debt issuance costs and amendment fees of $17 million, less a tax benefit of $6 million, were written off and reported as an extraordinary loss on extinguishment of debt in the first quarter 2000. 6 6. INVENTORIES The components of inventories consisted of the following:
March 31, DECEMBER 31, MILLIONS OF DOLLARS 2001 2000 - ------------------- ------------------- ------------------- Finished goods $ 387 $ 301 Work-in-process 7 7 Raw materials 53 51 Materials and supplies 32 33 ------------------- ------------------- Total inventories $ 479 $ 392 =================== ===================
7. PROPERTY, PLANT AND EQUIPMENT, NET The components of property, plant and equipment, at cost, and the related accumulated depreciation consisted of the following:
March 31, DECEMBER 31, MILLIONS OF DOLLARS 2001 2000 - ------------------- ------------------- ------------------- Land $ 10 $ 10 Manufacturing facilities and equipment 2,540 2,580 Construction in progress 91 95 ------------------- ------------------- Total property, plant and equipment 2,641 2,685 Less accumulated depreciation 280 256 ------------------- ------------------- Property, plant and equipment, net $2,361 $2,429 =================== ===================
8. LONG-TERM DEBT In March 2001, Lyondell secured an amendment to its credit facility designed to increase its financial and operating flexibility primarily by making certain financial ratio requirements less restrictive. 9. COMMITMENTS AND CONTINGENCIES Capital Commitments--Lyondell has commitments, including those related to capital expenditures, all made in the normal course of business. At March 31, 2001, major capital commitments included Lyondell's 50% share of those related to the construction of a world-scale PO facility, known as PO-11, in The Netherlands and a major expansion of a toluene diisocyanate ("TDI") facility in France. Lyondell's outstanding commitments on these two projects totaled approximately $265 million as of March 31, 2001. Leases--During the third quarter 2000, construction began on a new butanediol ("BDO") facility in Europe known as BDO-2. Construction is being financed by a third party lessor. Upon completion in the second quarter of 2002, a subsidiary of Lyondell will lease the facility under an operating lease for a term of five years. Lyondell may, at its option, purchase the facility at any time up to the end of the lease term for an amount equal to the unrecovered construction costs of the lessor, as defined. If Lyondell does not exercise the purchase option, the facility will be sold and Lyondell will pay the lessor a termination fee to the extent the sales price is less than the residual value of the facility, as defined. The residual value at the end of the lease term is estimated at approximately 206 million euros, or $182 million using March 31, 2001 exchange rates. In the transaction documents for BDO-2, Lyondell agreed to comply with certain financial and other covenants that are substantially the same as those contained in the credit facility. A breach of those covenants could result in, among other things, Lyondell having to pay the project costs incurred to date. In March 2001, Lyondell secured amendments to the transaction documents consistent with the March 2001 amendment to its credit facility (see Note 8.) 7 TDI Agreements--In January 1995, ARCO Chemical Company entered into a tolling agreement and a resale agreement with Rhodia covering the entire TDI output of Rhodia's two plants in France, which have a combined average annual capacity of approximately 264 million pounds. Lyondell is currently required to purchase an average minimum of 212 million pounds of TDI per year under the agreements. The aggregate purchase price is a combination based on plant cost and market price. In the second quarter 2000, Lyondell entered into a series of arrangements with Rhodia to expand the capacity at the Pont de Claix plant, which provides TDI to Lyondell under the tolling agreement. The expansion will add approximately 105 million pounds of average annual capacity at the Pont de Claix plant, resulting in a total average annual capacity of approximately 269 million pounds, which is scheduled to be available in the fourth quarter of 2001. After the completion of the expansion, all of the TDI that Lyondell receives from Rhodia will come from the Pont de Claix plant, which is designed to have a more efficient cost structure. Lyondell's average minimum TDI purchase commitment under the revised tolling agreement will be 197 million pounds of TDI per year and will be extended through 2016. The resale agreement, which covered output at the Lille plant, will expire December 31, 2001. Crude Supply Agreement--Under the Crude Supply Agreement, PDVSA Petroleo y Gas, S.A. ("PDSVA Oil"), an affiliate of CITGO and of Petroleos de Venezuela, S.A. ("PDVSA"), the national oil company of the Republic of Venezuela, is required to sell, and LCR is required to purchase, 230,000 barrels per day of extra heavy crude oil. This constitutes approximately 88% of the refinery's refining capacity of 260,000 barrels per day of crude oil. In late April 1998, LCR received notification from PDVSA Oil that it would reduce deliveries of crude oil on the grounds of announced OPEC production cuts. LCR began receiving reduced deliveries of crude oil from PDVSA Oil in August 1998, amounting to 195,000 barrels per day in that month. LCR was advised by PDVSA Oil in May 1999 of a further reduction to 184,000 barrels per day, effective May 1999. On several occasions since then, PDVSA Oil has further reduced certain crude oil deliveries, although it has made payments in partial compensation for such reductions. Subsequently, PDVSA Oil unilaterally increased deliveries of crude oil to LCR to 195,000 barrels per day effective April 2000, to 200,000 barrels per day effective July 2000 and to 230,000 barrels per day effective October 2000. By letter dated February 9, 2001, PDVSA Oil informed LCR that the Venezuelan government, through the Ministry of Energy and Mines, has instructed that production of certain grades of crude oil be reduced effective February 1, 2001. The letter states that PDVSA Oil declares itself in a force majeure situation, but does not announce any reduction in crude oil deliveries to LCR. Although some reduction in crude oil delivery may be forthcoming, it is unclear as to the level of reduction, if any, which may be anticipated. LCR has consistently contested the validity of PDVSA Oil's and PDVSA's reductions in deliveries under the Crude Supply Agreement and, on March 12, 2001, Lyondell, on behalf of LCR, sent a letter to PDVSA Oil and PDVSA disputing the existence and validity of the purported force majeure situation declared by the February 9, 2001 letter. PDVSA has announced that it intends to renegotiate the crude supply agreements that it has with all third parties, including LCR. However, they have confirmed that they expect to honor their commitments if a mutually acceptable restructuring of the Crude Supply Agreement is not achieved. The breach or termination of the Crude Supply Agreement would require LCR to purchase all or a portion of its crude oil feedstocks in the merchant market, would subject LCR to significant volatility and price fluctuations and could adversely affect LCR and, therefore, Lyondell. LCR Debt--On September 15, 2000, Lyondell and CITGO completed the syndication of one-year credit facilities for LCR, which consist of a $450 million term loan to replace the May 5, 2000 interim financing and a $70 million revolving credit facility to be used for working capital and general business purposes. Lyondell and CITGO, as partners of LCR, have agreed to pursue a refinancing of the indebtedness, although the final terms have not been determined. Based on previous experience of refinancing LCR's debt and the current conditions of the financial markets, the management of LCR, Lyondell and CITGO anticipate that this debt can be refinanced prior to its maturity. Cross Indemnity Agreement--In connection with the transfer of assets and liabilities from Atlantic Richfield Company ("ARCO"), now wholly owned by BP, to Lyondell in 1988, Lyondell agreed to assume certain liabilities arising out of the operation of Lyondell's integrated petrochemicals and refining business prior to July 1, 1988. In connection with the transfer of such liabilities, Lyondell and ARCO entered into an agreement, updated in 1997 ("Revised Cross- Indemnity Agreement"), whereby Lyondell agreed to defend and indemnify ARCO against certain uninsured claims and liabilities which ARCO may incur relating to the operation of Lyondell prior to July 1, 1988, including certain liabilities which may arise out of pending and future lawsuits. For current and future cases related to Lyondell's products and operations, ARCO and Lyondell bear a proportionate share of judgment and settlement 8 costs according to a formula that allocates responsibility based upon years of ownership during the relevant time period. Under the Revised Cross-Indemnity Agreement, Lyondell will assume responsibility for its proportionate share of future costs for waste site matters not covered by ARCO insurance. In connection with the acquisition of ARCO Chemical Company ("ARCO Chemical"), Lyondell succeeded, indirectly, to a cross indemnity agreement with ARCO whereby ARCO Chemical indemnified ARCO against certain claims or liabilities that ARCO may incur relating to ARCO's former ownership and operation of the businesses of ARCO Chemical, including liabilities under laws relating to the protection of the environment and the workplace, and liabilities arising out of certain litigation. As part of the agreement, ARCO indemnified ARCO Chemical with respect to claims or liabilities and other matters of litigation not related to the ARCO Chemical business. Indemnification Arrangements Relating to Equistar--Lyondell, Millennium and Occidental have each agreed to provide certain indemnifications to Equistar with respect to the petrochemicals and polymers businesses contributed by the partners. In addition, Equistar agreed to assume third party claims that are related to certain pre-closing contingent liabilities that are asserted prior to December 1, 2004 for Lyondell and Millennium, and May 15, 2005 for Occidental, to the extent the aggregate thereof does not exceed $7 million to each partner, subject to certain terms of the respective asset contribution agreements. As of March 31, 2001, Equistar had expensed approximately $5 million under the $7 million indemnification basket with respect to the business contributed by Lyondell. Equistar also agreed to assume third party claims that are related to certain pre-closing contingent liabilities that are asserted for the first time after December 1, 2004 for Lyondell and Millennium, and for the first time after May 15, 2005 for Occidental. Environmental--Lyondell's policy is to be in compliance with all applicable environmental laws. Lyondell is subject to extensive environmental laws and regulations concerning emissions to the air, discharges to surface and subsurface waters and the generation, handling, storage, transportation, treatment and disposal of waste materials. Some of these laws and regulations are subject to varying and conflicting interpretations. In addition, Lyondell cannot accurately predict future developments, such as increasingly strict environmental laws and inspection and enforcement policies, as well as higher compliance costs arising therefrom, which might affect the handling, manufacture, use, emission or disposal of products, other materials or hazardous and non-hazardous waste. Lyondell is also subject to certain assessment and remedial actions at the LCR refinery under the Resource Conservation and Recovery Act ("RCRA"). In addition, Lyondell has negotiated an order with the Texas Natural Resource Conservation Commission ("TNRCC") for assessment and remediation of groundwater and soil contamination at the LCR refinery. Lyondell also has liabilities under RCRA and various state and foreign government regulations related to five current plant sites and three former plant sites. Lyondell is currently contributing funds to the clean up of two waste sites located near Houston, Texas under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") as amended, and the Superfund Amendments and Reauthorization Act of 1986. Lyondell has also been named, along with several other companies, as a potentially responsible party for a third CERCLA site near Houston, Texas. In addition, Lyondell is involved in administrative proceedings or lawsuits relating to a minimal number of other CERCLA sites. Lyondell estimates, based upon currently available information, that potential loss contingencies associated with the latter CERCLA sites, individually and in the aggregate, are not significant. As of March 31, 2001, Lyondell's environmental liability for future assessment and remediation costs at the above-mentioned sites totaled $30 million. The liabilities per site range from less than $1 million to $12 million and are expected to be incurred over the next two to seven years. In the opinion of management, there is currently no material range of loss in excess of the amount recorded for these sites. However, it is possible that new information about the sites for which the accrual has been established, new technology or future developments such as involvement in other CERCLA, RCRA, TNRCC or other comparable state or foreign law investigations, could require Lyondell to reassess its potential exposure related to environmental matters. The eight-county Houston/Galveston region has been designated a severe non- attainment area for ozone by the U.S. Environmental Protection Agency ("EPA"). As a result, the TNRCC has submitted a plan to the EPA to reach and demonstrate compliance with the ozone standard by the year 2007. These emission reduction controls must be 9 installed during the next several years, well in advance of the 2007 deadline. Compliance with the provisions of the plan will result in increased capital investment and higher operating costs for Equistar, Lyondell and LCR during the next several years. As a result, Lyondell estimates that aggregate related capital expenditures could total between $400 million and $500 million for Lyondell, Equistar and LCR before the 2007 deadline. Lyondell's share of such expenditures could total between $65 million and $80 million, and Lyondell's share of Equistar's and LCR's expenditures could total between $160 million and $195 million. The timing and amount of these expenditures are subject to regulatory and other uncertainties, including litigation, as well as obtaining the necessary permits and approvals. Lyondell has been actively involved with a number of organizations to help solve the ozone problem in the most cost- effective manner and, in January 2001, Lyondell and an organization composed of industry participants filed a lawsuit against the TNRCC to encourage adoption of their alternative plan to achieve the same air quality improvement with less negative economic impact on the region. In the United States, the Clean Air Act Amendments of 1990 set minimum levels for oxygenates, such as MTBE, in gasoline sold in areas not meeting specified air quality standards. However, while studies by federal and state agencies and other organizations have shown that MTBE is safe for use in gasoline, is not carcinogenic and is effective in reducing automotive emissions, the presence of MTBE in some water supplies in California and other states due to gasoline leaking from underground storage tanks and in surface water from recreational water craft has led to public concern that MTBE may, in certain limited circumstances, affect the taste and odor of drinking water supplies, and thereby lead to possible environmental issues. Certain federal and state governmental initiatives have sought either to rescind the oxygenate requirement for reformulated gasoline or to restrict or ban the use of MTBE. Such actions, to be effective, would require (i) a waiver of the state's oxygenate mandate, (ii) Congressional action in the form of an amendment to the Clean Air Act or (iii) replacement of MTBE with another oxygenate such as ethanol, a more costly, untested and less widely available additive. At the federal level, a blue ribbon panel appointed by the EPA issued its report on July 27, 1999. That report recommended, among other things, reducing the use of MTBE in gasoline. During 2000, the EPA announced its intent to seek legislative changes from Congress to give the EPA authority to ban MTBE over a three-year period. Such action would only be granted through amendments to the Clean Air Act. Additionally, the EPA is seeking a ban of MTBE utilizing rulemaking authority contained in the Toxic Substance Control Act. It would take at least three years for such a rule to issue. In January 2001, however, senior policy analysts at the U.S. Department of Energy presented a study stating that banning MTBE would create significant economic risk. The presentation did not identify any benefits from banning MTBE. The EPA initiatives mentioned above or other governmental actions could result in a significant reduction in Lyondell's MTBE sales. Lyondell has developed technologies to convert TBA into alternate gasoline blending components should it be necessary to reduce MTBE production in the future. General--Lyondell is involved in various lawsuits and proceedings. Subject to the uncertainty inherent in all litigation, management believes the resolution of these proceedings will not have a material adverse effect upon the Lyondell Consolidated Financial Statements. In the opinion of management, any liability arising from the matters discussed in this note is not expected to have a material adverse effect on the Consolidated Financial Statements. However, the adverse resolution in any reporting period of one or more of these matters discussed in this note could have a material impact on Lyondell's results of operations for that period without giving effect to contribution or indemnification obligations of co- defendants or others, or to the effect of any insurance coverage that may be available to offset the effects of any such award. 10. DERIVATIVE FINANCIAL INSTRUMENTS During 2000, Lyondell entered into foreign currency forward contracts to hedge foreign exchange exposures related to euro-denominated capital commitments on the PO-11 construction project. As of January 1, 2001, Lyondell adopted Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities. Under SFAS 133, all derivative instruments are recorded on the balance sheet at fair value. Currently, Lyondell uses only cash flow hedges. Gains or losses from 10 changes in the fair value of the derivative used in a cash flow hedge are deferred in accumulated other comprehensive income, to the extent the hedge is effective, and subsequently reclassified to earnings to offset the impact of the forecasted transaction. Lyondell's Board of Directors has authorized Lyondell to enter into certain hedge transactions, but does not permit speculative positions. Lyondell formally documents all relationships between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking the hedge. This process includes specific identification of the hedging instrument and the hedge transaction, the nature of the risk being hedged and the method for assessing the hedging instrument's effectiveness. Both at the inception of the hedge and on an ongoing quarterly basis, Lyondell assesses whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows of hedged items. At December 31, 2000, forward contracts in the notional amount of 134 million euros, or approximately $125 million, were outstanding. The fair market value of these derivative instruments at December 31, 2000 represented an asset of $1 million and was based on quoted market prices. On January 1, 2001, in accordance with the transition provisions of SFAS 133, Lyondell recorded an after-tax gain of less than $1 million as a transition adjustment in accumulated other comprehensive income, representing the cumulative effect of an accounting change (see Note 11). During the first quarter of 2001, the fair value of the outstanding asset decreased $7 million, becoming a liability. An after-tax loss of $4 million was recognized in other comprehensive income. In addition, after- tax losses of less than $1 million related to maturing contracts were reclassified from accumulated other comprehensive income and included in the measurement of the plant construction costs to offset the impact of the forecasted transaction. As of March 31, 2001, the notional amounts of outstanding forward contracts totaled 117 million euros, or approximately $103 million, and mature from April through December 2001. The contracts were recognized at their fair value on March 31, 2001, resulting in an unrealized pretax loss of $6 million, all of which was deemed effective and, therefore, $4 million after tax was recognized in accumulated other comprehensive income. The $4 million loss recorded in accumulated other comprehensive income is expected to be reclassified from April through December 2001 and included in the plant construction costs. The following table summarizes activity affecting the fair value of derivative instruments and the related after-tax effect on accumulated other comprehensive income ("AOCI") for the three months ended March 31, 2001:
Derivatives AOCI, MILLIONS OF DOLLARS Fair Value net of tax - ------------------- --------------- --------------- Income (loss): January 1, 2001 transition adjustment - recognition of December 31, 2000 fair value and gain $ 1 -- First quarter 2001 activity: Unrealized loss on outstanding derivative instruments (7) (4) Reclassification of realized losses on maturing derivative instruments to earnings -- -- --------------- --------------- Unrealized loss on derivative instruments at March 31, 2001 $(6) $(4) =============== ===============
11 11. STOCKHOLDERS' EQUITY Basic and Diluted Earnings Per Share--Basic earnings per share ("EPS") for income (loss) before extraordinary items for the periods presented are computed based upon the weighted average number of shares outstanding for the periods. Diluted earnings per share for income (loss) before extraordinary items include the effect of outstanding stock options issued under the Executive Long-Term Incentive Plan and the Incentive Stock Option Plan. These stock options were antidilutive in the three-month periods ended March 31, 2001 and 2000.
For the three months ended March 31, --------------------------------------------------------------------- 2001 2000 -------------------------------- ------------------------------ Thousands of shares Shares EPS SHARES EPS - ------------------- -------------- ------------ ------------- ------------ Basic 117,562 $(.29) 117,562 $2.69 Dilutive effect of options -- -- -- -- -------------- ------------ ------------- ------------ Diluted 117,562 $(.29) 117,562 $2.69 ============== ============ ============= ============
Comprehensive Income - Comprehensive income (loss) consisted of the following:
FOR THE THREE MONTHS ENDED MARCH 31, ---------------------------------------- 2001 2000 ---------------- ------------------ Net income (loss) $ (34) $ 306 ---------------- ------------------ Other comprehensive income (loss): Transition adjustment -- -- Reclassification of losses on derivative instruments -- -- Unrealized loss on derivative instruments (4) -- Foreign currency translation loss (50) (128) ---------------- ------------------ Total other comprehensive loss (54) (128) ---------------- ------------------ Comprehensive income (loss) $ (88) $ 178 ================ ==================
The transition adjustment resulting from the adoption of SFAS No. 133 as of January 1, 2001 was less than $1 million. After-tax losses of less than $1 million related to maturing contracts were reclassified from accumulated other comprehensive income and included in the plant construction costs (see Note 10). 12 12. SEGMENT AND RELATED INFORMATION Lyondell has identified four reportable segments in which it operates: (i) intermediate chemicals and derivatives; (ii) petrochemicals; (iii) polymers; and (iv) refining. Lyondell's methanol business is not a reportable segment. Summarized financial information concerning reportable segments is shown in the following table:
INTERMEDIATE CHEMICALS AND MILLIONS OF DOLLARS DERIVATIVES PETROCHEMICALS POLYMERS REFINING OTHER TOTAL - ------------------- ------------ -------------- --------- -------- ------ -------- FOR THE THREE MONTHS ENDED MARCH 31, 2001: Sales and other operating revenues $ 857 $ -- $ -- $ -- $ -- $ 857 Operating income 31 31 Interest expense (99) (99) Interest income 7 7 Other income, net 3 3 Income (loss) from equity investments 1 47 (36) 27 (37) 2 Loss before income taxes (56) FOR THE THREE MONTHS ENDED MARCH 31, 2000: Sales and other operating revenues $1,136 $ -- $ -- $ -- $ -- $1,136 Operating income 87 87 Interest expense (165) (165) Interest income 8 8 Other expense, net (5) (5) Gain on sale of assets 544 544 Income (loss) from equity investments 3 71 (12) 16 (28) 50 Income before income taxes and extraordinary item 519
The following table presents the details of "Income (loss) from equity investments" as presented above in the "Other" column for the periods indicated:
For the three months ended March 31, --------------------------------------------- Millions of dollars 2001 2000 - ------------------- ------------------- ------------------- Equistar items not allocated to petrochemicals and polymers: Principally general and administrative expenses and interest expense, net $ (24) $ (26) Unusual charges (9) - - Loss from equity investment in LMC (4) (2) ----- ----- Total--Other $ (37) $ (28) ===== =====
13. PURCHASE OF ARCO CHEMICAL COMPANY In connection with the July 28, 1998 acquisition of ARCO Chemical, Lyondell accrued liabilities for costs associated with the delay of construction of the PO-11 plant, vesting of certain key manager benefits pursuant to a change of control provision, severance costs for the involuntary termination of certain headquarters employees and relocation costs for moving personnel to Lyondell's Houston headquarters. The accrued liability for these items totaled approximately $255 million at the date of acquisition. Lyondell subsequently revised the estimated liabilities for penalties and cancellation charges related to the PO-11 lump-sum construction contract and related 13 commitments. Based on the final negotiated terms, Lyondell reduced the accrued liability by $13 million in 1999 and by $8 million in 2000. In addition, during 2000 Lyondell finalized the portion of the accrued liability related to employee costs and reduced the liability by $10 million. The benefit in 2000 from the accrual reversal was substantially offset by other acquisition-related costs. Through March 31, 2001, Lyondell had paid and charged approximately $214 million in total against the accrued liability. The remaining $10 million of the accrued liability relates to PO-11 commitments and final settlement is subject to negotiations with the affected third parties. 14. SUPPLEMENTAL GUARANTOR INFORMATION ARCO Chemical Technology Inc. ("ACTI"), ARCO Chemical Technology L.P. ("ACTLP") and Lyondell Chemical Nederland, Ltd. ("LCNL") are guarantors (collectively "Guarantors") of the credit facility as well as the $500 million senior subordinated notes and $1.9 billion senior secured notes issued by Lyondell in May 1999. LCNL, a Delaware corporation, is a wholly owned subsidiary of Lyondell that operates, through wholly owned foreign subsidiaries, a chemical production facility in Rotterdam, The Netherlands. ACTI is a Delaware corporation, which holds the investment in ACTLP. ACTLP is a Delaware limited partnership, which holds and licenses technology to other Lyondell affiliates and to third parties. Separate financial statements of the Guarantors are not considered to be material to the holders of the senior subordinated notes and senior secured notes. The following condensed consolidating financial information present supplemental information for the Guarantors as of March 31, 2001 and December 31, 2000 and for the three-month periods ended March 31, 2001 and 2000. 14 CONDENSED CONSOLIDATING FINANCIAL INFORMATION (UNAUDITED) BALANCE SHEET AS OF MARCH 31, 2001
NON- CONSOLIDATED MILLIONS OF DOLLARS LYONDELL GUARANTORS GUARANTORS ELIMINATIONS LYONDELL - ------------------- ----------- ----------- ---------- ------------- ------------ Total current assets $1,059 $ 238 $ -- $ -- $1,297 Property, plant and equipment, net 1,828 533 -- -- 2,361 Investments and long-term receivables 3,673 362 905 (3,329) 1,611 Goodwill, net 727 398 -- -- 1,125 Other assets 458 61 -- -- 519 ----------- ----------- ---------- ------------- ------------ Total assets $7,745 $ 1,592 $905 $(3,329) $6,913 =========== =========== ========== ============= ============ Current maturities of long-term debt $ 11 $ -- $ -- $ -- $ 11 Other current liabilities 468 226 (1) -- 693 Long-term debt, less current maturities 3,841 -- -- -- 3,841 Other liabilities 429 55 -- -- 484 Deferred income taxes 561 132 -- -- 693 Intercompany liabilities (assets) 1,244 (1,286) 42 -- -- Minority interest 161 -- -- -- 161 Stockholders' equity 1,030 2,465 864 (3,329) 1,030 ----------- ----------- ---------- ------------- ------------ Total liabilities and stockholders' equity $7,745 $ 1,592 $905 $(3,329) $6,913 =========== =========== ========== ============= ============ BALANCE SHEET AS OF DECEMBER 31, 2000 NON- CONSOLIDATED MILLIONS OF DOLLARS LYONDELL GUARANTORS GUARANTORS ELIMINATIONS LYONDELL - ------------------- ----------- ----------- ---------- ------------- ------------ Total current assets $1,103 $ 242 $ - - $ - - $1,345 Property, plant and equipment, net 1,863 566 - - - - 2,429 Investments and long-term receivables 3,644 413 920 (3,371) 1,606 Goodwill, net 738 414 - - - - 1,152 Other assets 450 61 - - 4 515 ----------- ----------- ---------- ------------- ------------ Total assets $7,798 $ 1,696 $920 $(3,367) $7,047 =========== =========== ========== ============= ============ Current maturities of long-term debt $ 10 $ - - $ - - $ - - $ 10 Other current liabilities 501 223 - - - - 724 Long-term debt, less current maturities 3,844 - - - - - - 3,844 Other liabilities 382 59 - - - - 441 Deferred income taxes 562 140 - - - - 702 Intercompany liabilities (assets) 1,173 (1,245) 68 4 - - Minority interest 181 - - - - - - 181 Stockholders' equity 1,145 2,519 852 (3,371) 1,145 ----------- ----------- ---------- ------------- ------------ Total liabilities and stockholders' equity $7,798 $ 1,696 $920 $(3,367) $7,047 =========== =========== ========== ============= ============
15 CONDENSED CONSOLIDATING FINANCIAL INFORMATION (UNAUDITED)--(CONTINUED) STATEMENT OF INCOME For the Three Months Ended March 31, 2001
NON- CONSOLIDATED MILLIONS OF DOLLARS LYONDELL GUARANTORS GUARANTORS ELIMINATIONS LYONDELL - ------------------- ----------- ----------- ---------- ------------- ------------- Sales and other operating revenues $ 727 $ 237 $ -- $ (107) $ 857 Cost of sales 715 147 -- (107) 755 Selling, general and administrative expenses 37 2 -- -- 39 Research and development expense 8 -- -- -- 8 Amortization of goodwill and other intangibles 19 5 -- -- 24 ----------- ----------- ---------- ------------- ------------ Operating income (loss) (52) 83 -- -- 31 Interest income (expense), net (97) 1 4 -- (92) Other income (expense), net 64 (61) -- -- 3 Income from equity investments 33 -- 1 (32) 2 Intercompany income (expense) (25) 28 (3) -- -- (Benefit from) provision for income taxes (30) 20 1 (13) (22) ----------- ----------- ---------- ------------- ------------ Net income (loss) $(47) $ 31 $ 1 $ (19) $(34) =========== =========== ========== ============= ============
STATEMENT OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2000
NON- CONSOLIDATED MILLIONS OF DOLLARS LYONDELL GUARANTORS GUARANTORS ELIMINATIONS LYONDELL - ------------------- ----------- ----------- ---------- ------------- ------------ Sales and other operating revenues $ 996 $217 $ -- $(77) $1,136 Cost of sales 854 175 -- (77) 952 Selling, general and administrative expenses 51 4 -- -- 55 Research and development expense 14 -- -- -- 14 Amortization of goodwill and other intangibles 20 8 -- -- 28 ----------- ----------- ---------- ------------- ------------ Operating income 57 30 -- -- 87 Interest income (expense), net (161) -- 4 -- (157) Other income (expense), net 585 (46) -- -- 539 Income from equity investments 75 -- 47 (72) 50 Intercompany income (expense) (82) 86 (4) -- -- Provision for income taxes 185 27 18 (28) 202 ----------- ----------- ---------- ------------- ------------ Income before extraordinary item 289 43 29 (44) 317 Extraordinary item, net of taxes (11) -- -- -- (11) ----------- ----------- ---------- ------------- ------------ Net income $ 278 $ 43 $29 $(44) $ 306 =========== =========== ========== ============= ============
16 CONDENSED CONSOLIDATING FINANCIAL INFORMATION (UNAUDITED)--(CONTINUED) STATEMENT OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2001
NON- CONSOLIDATED MILLIONS OF DOLLARS LYONDELL GUARANTORS GUARANTORS ELIMINATIONS LYONDELL - ------------------- ----------- ----------- ---------- ------------- ------------ Net income (loss) $(47) $ 31 $ 1 $(19) $(34) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 56 9 -- -- 65 Deferred income taxes (30) 1 -- -- (29) Net changes in working capital and other (19) (39) (25) 19 (64) ----------- ----------- ---------- ------------- ------------ Net cash provided by (used in) operating activities (40) 2 (24) -- (62) ----------- ----------- ---------- ------------- ------------ Expenditures for property, plant and equipment (9) (2) -- -- (11) Distributions from affiliates in excess of earnings (5) -- 33 -- 28 Contributions and advances to affiliates 4 (15) (9) -- (20) ----------- ----------- ---------- ------------- ------------ Net cash provided by (used in) investing activities (10) (17) 24 -- (3) ----------- ----------- ---------- ------------- ------------ Payment of debt-related costs (3) -- -- -- (3) Repayments of long-term debt (2) -- -- -- (2) Dividends paid (27) -- -- -- (27) ----------- ----------- ---------- ------------- ------------ Net cash used in financing activities (32) -- -- -- (32) ----------- ----------- ---------- ------------- ------------ Effect of exchange rate changes on cash 1 (2) -- -- (1) ----------- ----------- ---------- ------------- ------------ Decrease in cash and cash equivalents $(81) $(17) $ -- $ -- $(98) =========== =========== ========== ============ ============
17 CONDENSED CONSOLIDATING FINANCIAL INFORMATION (UNAUDITED)--(CONTINUED) STATEMENT OF CASH FLOWS--(CONTINUED) FOR THE THREE MONTHS ENDED MARCH 31, 2000
NON- CONSOLIDATED MILLIONS OF DOLLARS LYONDELL GUARANTORS GUARANTORS ELIMINATIONS LYONDELL - ------------------- ----------- ----------- ---------- ------------- ------------ Net income $ 278 $ 43 $ 29 $(44) $ 306 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Gain on sale of assets (553) 9 -- -- (544) Depreciation and amortization 68 16 -- -- 84 Extraordinary item 11 -- -- -- 11 Deferred income taxes 7 (5) -- -- 2 Net changes in working capital and other 196 (63) (34) 44 143 ----------- ----------- ---------- ------------ ------------ Net cash provided by (used in) operating activities 7 -- (5) -- 2 ----------- ----------- ---------- ------------ ------------ Proceeds from sale of assets, net of cash sold 2,260 164 -- -- 2,424 Expenditures for property, plant and equipment (19) -- -- -- (19) Distributions from affiliates in excess of earnings 10 (10) -- -- -- Contributions and advances to affiliates 3 (12) 5 -- (4) Other (38) -- -- -- (38) ----------- ----------- ---------- ------------ ------------ Net cash provided by investing activities 2,216 142 5 -- 2,363 ----------- ----------- ---------- ------------ ------------ Payment of debt issuance costs (10) -- -- -- (10) Repayments of long-term debt (1,004) -- -- -- (1,004) Dividends paid (26) -- -- -- (26) ----------- ----------- ---------- ------------ ------------ Net cash used in financing activities (1,040) -- -- -- (1,040) ----------- ----------- ---------- ------------ ------------ Effect of exchange rate changes on cash (25) 23 -- -- (2) ----------- ----------- ---------- ------------ ------------ Increase in cash and cash equivalents $ 1,158 $165 $ -- $ -- $ 1,323 =========== =========== ========== ============ ============
18 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW General--The U.S. economy grew at a 2% annual rate during the first quarter 2001 compared to 5% in the first half of 2000. The weakness in the U.S. economy now appears to be affecting Europe and Asia. Crude oil prices decreased in the first quarter 2001, resulting in lower costs for crude oil-based raw materials. However, high natural gas costs continued to affect the cost of raw materials for Equistar and energy costs for Lyondell, Equistar and LCR. Natural gas prices peaked in January 2001 at nearly $10 per million BTUs, compared to a price range of $2.00 to $2.50 per million BTUs in the period from 1996 to 1999. Since the January 2001 peak, natural gas prices have been decreasing. Nonetheless, first quarter 2001 average natural gas prices were 32% higher compared to the fourth quarter 2000 and 180% higher compared to the first quarter 2000. The high natural gas prices had a significant cost impact on Lyondell and its equity investments in the first quarter 2001. Lyondell and Equistar implemented price increases, but only recovered some of the margin lost because of the higher costs. On March 31, 2000, Lyondell completed the sale of the polyols business and ownership interests in its U.S. PO manufacturing operations to Bayer for approximately $2.45 billion. Lyondell used the net proceeds, as well as cash flows from operations, to retire $2.4 billion of debt during 2000. The lower debt levels have resulted in significantly lower interest expense for Lyondell. Lyondell recorded a $544 million pretax, $332 million after-tax, gain on the sale in the first quarter 2000. Including post-closing adjustments recorded in the third quarter 2000, the sale of assets generated a total pretax gain of $590 million, or $400 million after tax, during 2000. NET INCOME--The first quarter 2001 net loss of $34 million increased from a net loss of $15 million in the first quarter 2000, excluding the $332 million after- tax gain on the sale of assets to Bayer and an $11 million extraordinary charge in the 2000 period. The increase in the 2001 net loss was primarily due to lower product volumes and margins at Lyondell and Equistar due to the weak economy and higher raw material costs noted above. These factors were partly offset by Lyondell's lower interest expense and higher earnings at LCR, which benefited from increased deliveries at contract levels under the Crude Supply Agreement. RESULTS OF OPERATIONS LYONDELL CHEMICAL COMPANY REVENUES, OPERATING COSTS AND EXPENSES--Lyondell's operating results are reviewed below in the discussion of the intermediate chemicals and derivatives segment. GAIN ON SALE OF ASSETS--The sale of Lyondell's polyols business and ownership interests in its U.S. PO manufacturing operations on March 31, 2000 generated a $544 million pretax gain in the first quarter 2000. INCOME FROM EQUITY INVESTMENT IN EQUISTAR--Lyondell's equity investment in Equistar resulted in a loss of $22 million in the first quarter 2001 compared to income of $33 million in the first quarter 2000. The decrease of $55 million was due to lower volumes and margins in both of Equistar's petrochemicals and polymers segments, as well as Lyondell's $9 million share of shutdown costs for Equistar's Port Arthur polymer facility, which was permanently closed February 28, 2001. INCOME FROM EQUITY INVESTMENT IN LCR--Lyondell's income from its equity investment in LCR was $27 million in the first quarter 2001 compared to $16 million in the first quarter 2000. The increase was primarily due to higher volumes and a better mix of crude oil under the Crude Supply Agreement and improved spot margins. These factors were partly offset by the effects of an unplanned 10-day outage of one of its production units and higher natural gas prices on energy costs in the first quarter 2001. 19 INTEREST EXPENSE--Interest expense was $99 million in the first quarter 2001 compared to $165 million in the first quarter 2000. The decrease in interest expense was due to the retirement of $2.4 billion of debt during 2000 primarily using net proceeds of the asset sale to Bayer. INCOME TAX--The effective tax rate for 2001 currently is estimated at 39%. Lyondell's effective tax rate going forward is affected by nondeductible permanent differences relating to certain goodwill amortization, whose effect decreases as taxable income increases. The 2000 effective tax rate was also estimated at 39% during the first quarter 2000, but was revised to 32% in the third quarter 2000 due to the federal tax benefit from a restructuring of Lyondell's European operations after the Bayer transaction and the attendant recognition of certain foreign exchange translation losses in the third and fourth quarters of 2000. EXTRAORDINARY ITEM--The first quarter 2000 extraordinary loss on early retirement of debt consisted of the write off of unamortized debt issuance costs and amendment fees totaling $17 million, or $11 million after tax. These related to the early retirement of $999 million principal amount of debt on March 31, 2000, using net proceeds from the sale of assets to Bayer. PRO FORMA On March 31, 2000, Lyondell completed the sale of the polyols business and ownership interests in its U.S. PO manufacturing operations to Bayer for approximately $2.45 billion in cash. The following condensed income statement presents the unaudited pro forma consolidated operating results for the three months ended March 31, 2000 as if the transaction had occurred as of the beginning of 2000. The pro forma income statement assumes that net proceeds of $2.05 billion were used to retire debt in accordance with the provisions of Lyondell's credit facility and indentures as of the beginning of 2000. The operating results exclude the after-tax gain on asset sale of $332 million, or $2.82 per share, recorded in the first quarter 2000.
For the three months ended March 31, 2000 ----------------- In millions, except per share data Sales and other operating revenues $916 Operating income 72 Interest expense 116 Net income from continuing operations 6 Basic and diluted income per share from continuing operations .06
The unaudited pro forma data presented above are not necessarily indicative of the results of operations of Lyondell that would have occurred had such transactions actually been consummated as of the indicated date, nor are they necessarily indicative of future results. FIRST QUARTER 2001 VERSUS FOURTH QUARTER 2000 For the first quarter 2001, Lyondell reported a net loss of $34 million compared to a fourth quarter 2000 net loss before extraordinary item of $45 million. The improvement was due to higher operating income at Lyondell and a reduced loss on investment from Equistar. These improvements were partly offset by lower earnings at LCR in the first quarter 2001 and foreign exchange gains in the fourth quarter 2000 that did not recur in the first quarter 2001. Lyondell's operating income improved primarily due to higher margins for MTBE. Equistar increased margins and reduced its loss as a result of higher ethylene prices, which were partly offset by lower sales volumes, higher energy costs and the costs of shutting down one of its polymer facilities. LCR's earnings were negatively affected by a 10-day period of reduced operating rates due to an unplanned production unit outage in the first quarter 2001. 20 INTERMEDIATE CHEMICALS AND DERIVATIVES SEGMENT OVERVIEW--Demand for products in the intermediate chemicals and derivatives ("IC&D") segment during the first quarter 2001 was negatively affected by the weaker economy in the U.S. and other regions. The cost of propylene, a key raw material, decreased in the first quarter 2001 from fourth quarter 2000 levels, but was still higher than first quarter 2000 levels. While average benchmark propylene costs decreased 6% compared to the fourth quarter 2000, they were 9% higher compared to the first quarter 2000. In addition, natural gas costs continued at high levels, increasing Lyondell's operating costs. The impact of the higher natural gas costs in the first quarter 2001 was estimated at approximately $35 million. Due to the weaker demand, Lyondell only partially offset the effect of the increased costs through price increases. The following table sets forth volumes, including processing volumes, included in sales and other operating revenues for this segment. Co-product tertiary butyl alcohol ("TBA") is principally used to produce the derivative MTBE. Volumes for the polyols business, sold on March 31, 2000, are included through the date of sale. Bayer's ownership interest in the U.S. PO manufacturing joint venture ("PO Joint Venture") entered into by Lyondell and Bayer as part of the asset sale transaction, represents ownership of an in kind portion of the PO production of the PO Joint Venture. Bayer's share of the PO production from the PO Joint Venture will increase from approximately 1.47 billion pounds in 2001 to approximately 1.6 billion pounds annually in 2004 and thereafter. Lyondell takes in kind the remaining PO production and all styrene monomer ("SM") and TBA co-product production from the PO Joint Venture. Bayer's PO volumes are not included in sales and are excluded from the table.
FOR THE THREE MONTHS ENDED MARCH 31, ------------------------------------ IN MILLIONS 2001 2000 - ----------- --------------- --------------- PO, PO derivatives, TDI (pounds) 722 1,187 Co-products: SM (pounds) 789 900 TBA and derivatives (gallons) 245 284
REVENUES--Revenues of $857 million in the first quarter 2001 decreased from revenues of $1.1 billion in the first quarter 2000 primarily due to the March 31, 2000 sale of the polyols business. The sale of the polyols business resulted in a decrease of $220 million in sales revenues and a decrease of 408 million pounds in sales volumes, comparing first quarter 2001 to first quarter 2000. Excluding the effect of polyols, sales revenues decreased $59 million, or 6%, due to lower volumes, which were partly offset by higher prices for certain products. Sales volumes decreased by 14% for TBA and derivatives, 12% for SM, and 7% for PO and derivatives, which include TDI. The decreases primarily reflected lower demand due to the weaker U.S. economy. Average spot MTBE sales prices increased 34% in the first quarter 2001 compared to the first quarter 2000 in anticipation of strong demand for gasoline during the summer driving season and due to tight supplies. Average sales prices for most PO and derivatives products increased compared to first quarter 2000 in an attempt to recover higher raw material costs. SM prices decreased 18% due to weaker demand compared to the first quarter 2000. OPERATING INCOME--Operating income was $31 million, or 4% of sales, in the first quarter 2001 compared to $87 million, or 8% of sales, in the first quarter 2000. The decrease was due to lower margins for PO and derivatives and SM, the sale of the polyols business and lower volumes for most products. These factors were partly offset by higher margins for MTBE. PO and derivatives product margins, excluding polyols, decreased as raw material costs, primarily propylene, rose in 2001, while weaker demand limited the ability to increase prices. The lower SM margins were due to lower prices and higher raw material costs, primarily ethylene. MTBE margins improved as the increase in prices significantly exceeded increases in raw material costs. Margins were also negatively affected by the impact of high natural gas costs on operating expenses during the first quarter 2001. Decreases in selling, general and administrative expenses, as well as in research and development expenses in 2000 primarily reflected the effects of the sale of the polyols business. 21 FIRST QUARTER 2001 VERSUS FOURTH QUARTER 2000 Operating income in the first quarter 2001 was $31 million compared to $13 million in the fourth quarter 2000. Compared to the fourth quarter 2000, the IC&D segment benefited from higher MTBE margins, improved performance in the BDO business and lower propylene costs. These factors more than offset the effects of higher energy costs and lower PO and TDI sales volumes due to weak polyurethanes markets. Sales volumes for PO and derivatives, including TDI, were 9% lower compared to the fourth quarter. The fourth quarter 2000 also included the impact of a scheduled PO plant outage; however, this was substantially offset by foreign exchange gains, which did not recur in the first quarter 2001. MTBE margins expanded primarily as a result of higher selling prices, which are being supported by a tight gasoline market in advance of the summer driving season. Benchmark MTBE raw material margins increased from about 9 cents per gallon in the fourth quarter 2000 to about 25 cents per gallon in the first quarter 2001. PO margins improved due to higher selling prices and the lower cost for propylene. The average benchmark price for propylene in the first quarter 2001 was 21 cents per pound compared to 22.3 cents per pound in the fourth quarter 2000. BDO sales continued their growth, with sales volumes increasing 9% compared to the fourth quarter and 14% compared to the first quarter 2000. BDO margins also improved as a result of industry price increases. SM profitability was lower in the first quarter 2001 compared to the fourth quarter 2000 as a result of price erosion due to weaker demand. EQUISTAR CHEMICALS, LP OVERVIEW General--Demand for products in Equistar's petrochemicals and polymers segments during the first quarter 2001 was affected by the continuing weakness of the U.S. economy, a trend that started in the second half of 2000. The U.S. economy grew at a 2% annual rate in the first quarter 2001 compared to 5% in the first half of 2000. Crude oil prices decreased in the first quarter 2001, resulting in lower costs for crude oil-based raw materials. However, high natural gas costs continued to affect the cost of other raw materials, natural gas liquids ("NGL"), and energy costs. The impact of the higher natural gas costs on raw materials and energy costs in the first quarter 2001 was estimated at approximately $83 million compared to the first quarter 2000. The significant increase in NGL costs caused some producers, including Equistar, to idle plants that primarily use NGLs as raw materials. Industry analysts estimate that 15% to 20% of North American capacity was not utilized during the first quarter 2001 for this reason. Equistar implemented price increases, but only recovered some of the margin lost to the higher costs. In addition, the ethylene industry is affected by significant capacity additions. The industry added annual ethylene capacity of 13.4 billion pounds globally in 2000 and is scheduled to add a record 14.1 billion pounds in 2001, or nearly 6% in each year. New domestic capacity scheduled for the latter half of 2001 will add 5% to domestic ethylene capacity during a period of weak demand growth. NET INCOME--Equistar had a net loss of $77 million in the first quarter 2001 compared to net income of $56 million in the first quarter 2000. The $133 million decrease reflected the effect of lower petrochemicals and polymers volumes and margins and the $22 million cost of closing the Port Arthur polymers facility. Volumes were down on weaker demand due to the U.S. economy, while margins reflected significantly higher raw material and energy costs that were only partly recovered through higher prices. FIRST QUARTER 2001 VERSUS FOURTH QUARTER 2000 Equistar reported a net loss of $77 million in the first quarter 2001 compared to a net loss of $118 million in the fourth quarter 2000. Excluding $22 million of unusual charges, Equistar had a net loss of $55 million in the first quarter 2001. The $63 million improvement in the first quarter 2001 primarily reflects higher prices for ethylene and polymers and a decline in crude oil-based raw material costs. These were partially offset by lower co-product 22 prices, the impact of higher natural gas prices and weaker demand for products due to the general economic slowdown in the U.S. In the petrochemicals segment, ethylene cash margins increased from low fourth quarter 2000 levels due to some industry success in raising ethylene prices to recover cost increases. The average benchmark price for ethylene was 32.1 cents per pound in the first quarter 2001 compared to 29.5 cents per pound in the fourth quarter 2000. The cost of ethylene decreased somewhat from the fourth quarter 2000 as the cost of crude oil-based raw material decreased. This was offset by lower co-product credits, due to a decrease in propylene and other co- product prices, and higher energy costs. Reported ethylene cash margins for the U.S. industry were 8.8 cents per pound in the first quarter 2001 compared to 5.6 cents per pound in the fourth quarter 2000 and nearly 10 cents per pound in the first quarter 2000. As a result of the deterioration in margins, particularly in January 2001, many producers, including Equistar, took operating actions, including temporarily shutting down capacity, to reduce losses. Sales volumes for petrochemical products were down 5% from fourth quarter 2000 levels as Equistar managed plant operating rates to maximize profitability. First quarter 2001 results for the polymers segment were essentially unchanged from the fourth quarter 2000. The first quarter 2001 operating loss was $89 million compared to a fourth quarter 2000 operating loss of $85 million. Polymer prices were increased in an effort to recover higher ethylene and energy costs. A 5 cent per pound industry price increase, effective January 1, 2001, was announced and about half of the increase was realized in the first quarter 2001. Margins were unchanged from the fourth quarter 2000, however, because the product price increases matched the cost increases. Polymers sales volumes for the first quarter 2001 decreased 5% from the fourth quarter 2000 due to overall demand weakness. SEGMENT DATA The following tables reflect selected actual sales volume data, including intersegment sales volume, and summarized financial information for Equistar's business segments.
FOR THE THREE MONTHS ENDED MARCH 31, ------------------------------------- IN MILLIONS 2001 2000 - ----------- --------------- --------------- SELECTED PETROCHEMICALS PRODUCTS: Olefins (pounds) 4,241 4,902 Aromatics (gallons) 90 102 POLYMERS PRODUCTS (pounds) 1,441 1,667 MILLIONS OF DOLLARS - ------------------- SALES AND OTHER OPERATING REVENUES: Petrochemicals segment $1,689 $1,752 Polymers segment 542 580 Intersegment eliminations (458) (474) --------------- --------------- Total $1,773 $1,858 =============== =============== OPERATING INCOME (LOSS): Petrochemicals segment $ 115 $ 172 Polymers segment (89) (31) Unallocated and unusual charges (62) (42) --------------- --------------- Total $ (36) $ 99 =============== ===============
PETROCHEMICALS SEGMENT REVENUES--Revenues of $1.7 billion in the first quarter 2001 decreased nearly 4% from the first quarter 2000, as a 13% decrease in sales volumes was partly offset by higher sales prices. The decrease in sales volumes reflected the weakness of the U.S. economy and idled capacity as a result of the increase in NGL-based raw material costs. The 23 increase in sales prices is primarily in response to the impact of the significant increase in natural gas costs on NGL-based raw materials and energy costs compared to the first quarter 2000. Benchmark quoted ethylene prices averaged 32.1 cents per pound in the first quarter 2001, an 11% increase over 28.8 cents per pound in the first quarter 2000. OPERATING INCOME--Operating income of $115 million in the first quarter 2001 decreased from $172 million in the first quarter 2000 due to a combination of lower sales volumes and lower product margins. Margins decreased as sales price increases implemented by Equistar only partially covered the significant increases in costs of NGL-based raw materials and energy due to high natural gas prices in the first quarter 2001. POLYMERS SEGMENT REVENUES--Revenues of $542 million in the first quarter 2001 decreased nearly 7% compared to revenues of $580 million in the first quarter 2000. The decrease was primarily a result of 14% lower sales volumes partly offset by higher sales prices. The lower sales volumes reflect the effect of the weaker U.S. economy. The sales price increases were in response to higher raw material costs, primarily ethylene and propylene. OPERATING INCOME--For the first quarter 2001, the polymers segment had an operating loss of $89 million compared to an operating loss of $31 million in the first quarter 2000. The increased operating loss was due to decreases in polymer margins, as sales price increases lagged behind increases in polymer raw material costs, as well as lower sales volumes and higher energy costs. UNALLOCATED ITEMS The following discusses significant changes in expenses that were not allocated to the petrochemicals or polymers segments. UNUSUAL CHARGES--Equistar discontinued production at its higher-cost Port Arthur, Texas polyethylene facility on February 28, 2001 and shut down the facility. Closed production units included a 240 million pounds per year HDPE reactor and an LDPE reactor with annual capacity of 160 million pounds. These units and a 300 million pounds per year HDPE reactor mothballed in the fourth quarter of 1999 have been shut down permanently. The asset values of these production units were previously adjusted as part of a $96 million restructuring charge recognized in 1999. During the first quarter 2001, Equistar recorded a $22 million charge, which included environmental remediation liabilities and other exit costs of $10 million and severance benefits of $7 million for approximately 125 people employed at the Port Arthur facility. The balance primarily relates to the write down of certain inventories. LYONDELL-CITGO Refining LP REFINING SEGMENT OVERVIEW--Beginning in October 2000, deliveries of extra heavy Venezuelan crude oil under the Crude Supply Agreement returned to the contractual rate of 230,000 barrels per day. During the first quarter 2000, such deliveries were at a rate of 184,000 barrels per day, forcing LCR to make spot purchases of crude oil to maintain production levels. A strong gasoline market during 2000 and continuing through the first quarter 2001 helped improve the margins that LCR realized on its spot purchases of crude oil. LCR was also affected by the significant increase in natural gas costs, which increased its operating costs by approximately $12 million, comparing the first quarter 2001 to the first quarter 2000. During the first quarter 2001, LCR experienced a 10-day period of reduced operating rates due to an unplanned outage of one of its production units. 24 FIRST QUARTER 2001 VERSUS FIRST QUARTER 2000 The following table sets forth, in thousands of barrels per day, sales volumes for LCR's refined products and processing rates for the periods indicated:
For the three months ended March 31, --------------------------------- 2001 2000 ------------ ------------ Refined products Gasoline 106 106 Diesel and heating oil 71 66 Jet fuel 20 15 Aromatics 10 10 Other refined products 104 118 ------------ ------------ Total refined products volumes 311 315 ============ ============ Crude processing rates: Crude supply agreement--coked 231 180 Other heavy crude oil--coked 23 41 Other crude oil 5 21 ------------ ------------ Total crude oil 259 242 ============ ============
REVENUES--Revenues for LCR, including intersegment sales, were $910 million in the first quarter 2001, a 6% increase over first quarter 2000 revenues of $859 million. The increase was primarily due to higher sales prices for refined products, reflecting the ongoing strength of gasoline and other fuels prices, and was partly offset by a slight decrease in refined products volumes. Crude processing rates increased 7% from 242,000 barrels per day in the first quarter 2000 to 259,000 barrels per day in the first quarter 2001. The increase was primarily due to increased deliveries under the Crude Supply Agreement, reducing the need for purchases of crude oil in the spot market. The increase was partly offset by the effects of the 10-day unplanned outage in the first quarter 2001. INTEREST EXPENSE--LCR's interest expense was $16 million in the first quarter 2001 compared to $12 million in the first quarter 2000. The increase was due to fees and higher interest rates associated with the refinancing of LCR's debt in May and September 2000. NET INCOME--LCR's net income was $42 million in the first quarter 2001 compared to $22 million in the first quarter 2000. The increase was primarily due to higher deliveries and processing of crude oil under the Crude Supply Agreement as well as higher margins on spot crude oil. These benefits were partly offset by higher energy costs, the effects of the unplanned outage and higher interest expense. FIRST QUARTER 2001 VERSUS FOURTH QUARTER 2000 LCR's net income in the first quarter 2001 was $42 million compared to $62 million in the fourth quarter 2000. The decrease reflected the negative effects of the 10-day unplanned outage and higher energy costs compared to the fourth quarter 2000. LCR benefited from continued delivery of contract levels of extra-heavy Venezuelan crude oil under the Crude Supply Agreement and higher processing rates of such volumes compared to the fourth quarter 2000. Processing volumes under the Crude Supply Agreement in the first quarter 2001 averaged 231,000 barrels per day compared to 219,000 barrels per day in the fourth quarter 2000. The first quarter 2001 also benefited from higher spot margins for other crude oil processed by LCR. Total crude processing rates in the first quarter 2001 declined by 11,000 barrels per day, or 4%, compared with the fourth quarter 2000 as a result of the 10-day unplanned outage. 25 FINANCIAL CONDITION OPERATING ACTIVITIES--Lyondell's operating activities used cash of $62 million in the first quarter 2001 primarily due to a $48 million increase in working capital, the $34 million net loss and a $29 million non-cash benefit from the deferred tax provision. The increase in working capital is primarily due to a $92 million increase in inventories, which reflects a planned buildup of MTBE inventory levels in anticipation of significant MTBE demand during the summer driving season. This was partly offset by a $68 million decrease in accounts receivable due to improved collections. INVESTING ACTIVITIES--Lyondell made capital expenditures of $11 million in the first quarter 2001. Capital expenditures by the joint ventures were $24 million by Equistar and $11 million by LCR in the first quarter 2001. Lyondell's pro rata share of the joint ventures' total capital expenditures was $16 million. First quarter 2001 contributions to affiliates were $20 million and included $15 million contributed to the joint venture with Bayer for the construction of PO- 11. Lyondell's 2001 projected capital spending is estimated at approximately $195 million, and its pro rata share of Equistar's and LCR's 2001 projected capital spending is $47 million and $64 million, respectively. Lyondell's and Equistar's planned 2001 capital expenditures have been reduced from previously reported amounts due to the poor current business environment. In addition to the PO-11 project, the 2001 capital amounts reflect spending for cost reduction and yield improvement projects by Equistar, and for regulatory compliance, maintenance and cost reduction projects by LCR. First quarter 2001 distributions from affiliates in excess of earnings were $28 million, including $22 million from LCR. Equistar did not make any distributions during the first quarter 2001. FINANCING ACTIVITIES--In March 2001, Lyondell secured amendments to its credit facility and the transaction documents governing the operating lease for BDO-2, a new 275 million pound-per-year BDO facility currently under construction. The amendments increase Lyondell's financial and operating flexibility, primarily by making certain financial ratio requirements less restrictive. Lyondell paid a regular quarterly dividend of $.225 per share of common stock, or $27 million, in the first quarter 2001. LIQUIDITY AND CAPITAL RESOURCES--At March 31, 2001, Lyondell had cash on hand of $162 million. Lyondell also had $500 million available under its revolving credit facility that extends until July 2003. Current maturities of long-term debt were $11 million at March 31, 2001. The amended credit facility and the indentures under which Lyondell's senior secured notes and senior subordinated notes were issued contain covenants that, subject to exceptions, restrict sale and leaseback transactions, lien incurrence, debt incurrence, dividends and investments, sales of assets and mergers and consolidations. In addition, the credit facility requires Lyondell to maintain specified financial ratios and consolidated net worth, in all cases as provided in the credit facility. The breach of these covenants could permit the lenders under Lyondell's credit facility and indentures to declare the loans immediately payable and could permit the lenders under Lyondell's credit facility to terminate future lending commitments. In the transaction documents for BDO-2, Lyondell agreed to comply with certain financial and other covenants that are substantially the same as those contained in the credit facility. A breach of those covenants could result in, among other things, Lyondell having to pay the project costs incurred to date. Lyondell was in compliance with all such covenants as of March 31, 2001. Equistar had outstanding debt of $2.4 billion at March 31, 2001. Lyondell remains liable on $521 million of Equistar debt for which Equistar assumed primary responsibility in connection with its formation. At March 31, 2001, Equistar and LCR had combined outstanding debt of $2.9 billion to unrelated parties and combined equity of approximately $4.0 billion. The ability of the joint ventures to distribute cash to Lyondell is reduced by weaker business conditions and their respective debt service obligations. Equistar's credit facility contains covenants that, subject to exceptions, restrict sale and leaseback transactions, lien incurrence, debt incurrence, sales of assets and mergers and consolidations, and require Equistar to maintain certain specified financial ratios, in all cases as provided in the credit facility. The breach of these covenants could permit the lenders to declare the loans immediately payable and to terminate future lending commitments. Furthermore, a default under Equistar's debt instruments involving more than $50 million of indebtedness would constitute a cross- 26 default under Lyondell's credit facility. Equistar secured an amendment to its credit facility in March 2001 that increases its financial and operating flexibility, primarily by making certain financial ratio requirements less restrictive. Equistar was in compliance with all covenants under its debt instruments as of March 31, 2001. Lyondell believes that conditions will be such that cash balances, cash generated from operating activities, and funds from lines of credit will be adequate to meet anticipated future cash requirements, including scheduled debt repayments, necessary capital expenditures and dividends. CURRENT BUSINESS OUTLOOK Management expects second quarter 2001 earnings to improve significantly over the first quarter of 2001 due to higher MTBE margins and volumes and better results from refining operations despite difficult business conditions in Lyondell's chemical businesses due to a weak economy. The expected improvement in MTBE margins is seasonal due to the start of the summer driving season and lower inventories of reformulated gasoline, which uses MTBE, than at the same time last year. The expected improved second quarter earnings from the LCR refining segment result from higher crude processing rates and higher margins on spot market volumes. In addition, the recent easing of natural gas prices should lower production costs across all of Lyondell's businesses. However, a seasonal decline in aircraft deicer volumes will partially offset the second quarter improvement. ITEM 3. DISCLOSURE OF MARKET AND REGULATORY RISK. Lyondell's exposure to market and regulatory risks is described in Item 7a of its Annual Report on Form 10-K for the year ended December 31, 2000. Lyondell's exposure to market and regulatory risks has not changed materially in the quarter ended March 31, 2001, except as noted below. Equistar enters into over-the-counter "derivatives," or price swaps, and futures contracts for crude oil to help manage its exposure to commodity price risk with respect to crude oil-related raw material purchases. As of March 31, 2001, the outstanding contracts covered 7.3 million barrels, mature from April 2001 through December 2001, and cover from approximately 15% to 25% of Equistar's estimated crude oil-related raw material exposures for the period from April 2001 to December 2001. Based on quoted market prices, Equistar recorded a liability of $2 million at March 31, 2001 for those contracts. Assuming a hypothetical 30% decrease in crude oil prices from those in effect at March 31, 2001, Equistar's loss in earnings for the derivatives contracts would be approximately $23 million. Sensitivity analysis was used for this purpose. Lyondell's pretax share of such losses would be approximately $9 million. The quantitative information about market risk is necessarily limited because it does not take into account the effects of the underlying operating transactions. Equistar does not engage in any derivatives trading activities. FORWARD-LOOKING STATEMENTS Certain of the statements contained in this report are "forward-looking statements" within the meaning of the federal securities laws. Although Lyondell believes the expectations reflected in such forward-looking statements are reasonable, they do involve certain assumptions, risks and uncertainties, and Lyondell can give no assurance that such expectations will prove to have been correct. Lyondell's actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including: . the cyclical nature of the chemical and refining industries, . uncertainties associated with the United States and worldwide economies, . current and potential governmental regulatory actions in the United States and in other countries, . substantial chemical and refinery capacity additions resulting in oversupply and declining prices and margins, . the availability and cost of raw materials, 27 . operating interruptions (including leaks, explosions, fires, mechanical failure, unscheduled downtime, labor difficulties, transportation interruptions, spills and releases and other environmental risks), and . Lyondell's ability to implement cost reductions. Many of such factors are beyond Lyondell's or its joint ventures' ability to control or predict. Management cautions against putting undue reliance on forward-looking statements or projecting any future results based on such statements or present or prior earnings levels. All forward-looking statements in this Form 10-Q are qualified in their entirety by the cautionary statements contained in this section and in Lyondell's Annual Report on Form 10-K for the year ended December 31, 2000. 28 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS There have been no material developments with respect to Lyondell's legal proceedings previously reported in the Annual Report on Form 10-K for the year ended December 31, 2000, except as described below. In April 1997, the Illinois Attorney General's Office filed a complaint in Grundy County, Illinois Circuit Court seeking monetary sanctions for releases into the environment at Millennium Petrochemicals Inc.'s Morris, Illinois plant in alleged violation of state regulations. The Morris, Illinois plant was contributed to Equistar on December 1, 1997 in connection with the formation of Equistar. Equistar now believes that a civil penalty in excess of $100,000 could result, without giving effect to contribution or indemnification obligations of others. Lyondell would bear its proportionate share of such civil penalty. Equistar does not believe that the ultimate resolution of this complaint will have a material adverse effect on the business or financial condition of Equistar. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Lyondell held its annual meeting of stockholders on May 3, 2001. The stockholders elected all of Lyondell's nine nominees for director and ratified the appointment of PricewaterhouseCoopers LLP as Lyondell's independent auditors for 2001. The votes were as follows:
1. Election of Directors: Nominee For Withheld ------- --- -------- Carol A. Anderson 106,480,985 803,342 William T. Butler 106,542,205 742,122 Travis Engen 106,594,686 719,641 Stephen F. Hinchliffe, Jr. 106,489,930 794,397 David J. Lesar 106,525,656 758,671 Dudley C. Mecum II 106,441,296 843,031 Dan F. Smith 106,242,556 1,041,771 William R. Spivey 97,969,784 9,314,543 Paul R. Staley 106,519,257 765,070 2. Appointment of PricewaterhouseCoopers LLP: For: 106,356,735 Against: 701,542 Abstain: 226,050
In July 2000, William R. Spivey became a member of Lyondell's Board of Directors and became the President and Chief Executive Officer of Luminent Inc. As a result of changing jobs and only being a member of Lyondell's Board of Directors for half of 2000, Dr. Spivey was unable to attend 75% of all meetings of the Board and committees on which he served during the period that he served during 2000. Lyondell reported this result in its Proxy Statement relating to the 2001 annual meeting of stockholders, and Lyondell's management believes that this caused certain institutional stockholders to withhold authority to vote for Dr. Spivey's election as a director. 29 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 4.7(b) Amendment No. 1 dated as of March 27, 2001 to the Credit Agreement dated as of November 25, 1997, as amended and restated as of February 5, 1999, among Equistar, as Borrower, Millennium America Inc., as Guarantor, and the Lenders party thereto. 4.8(b) Amendment No. 5 dated as of March 27, 2001 to the $7,000,000,000 Credit Agreement dated as of July 23, 1998. 10.3 Amended and Restated Supplementary Executive Retirement Plan, effective January 1, 2001. 10.11 Amended and Restated Elective Deferral Plan for Non-Employee Directors, effective December 31, 2000. (b) Reports on Form 8-K The following Current Report on Form 8-K was filed during the quarter ended March 31, 2001 and through the date hereof: Date of Report Item No. Financial Statements - --------------- -------- --------------------- February 6, 2001 5 No 30 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Lyondell Chemical Company Dated: May 14, 2001 /s/ ROBERT T. BLAKELY -------------------------------------------- Robert T. Blakely Executive Vice President and Chief Financial Officer (Duly Authorized and Principal Financial Officer) /s/ JOSEPH M. PUTZ -------------------------------------------- Joseph M. Putz Acting Controller (Principal Accounting Officer) 31 EX-4.7(B) 2 dex47b.txt AMENDMENT NO. 1 TO CREDIT AGREEMENT Exhibit 4.7(b) CONFORMED COPY AMENDMENT No. 1 dated as of March 27, 2001 to the Credit Agreement dated as of November 25, 1997, as amended and restated February 5, 1999, among EQUISTAR CHEMICALS, LP, a Delaware limited partnership; MILLENNIUM AMERICA INC., a Delaware corporation, as Guarantor; the Lenders party thereto; BANK OF AMERICA, N. A., as Servicing Agent, Documentation Agent and Administrative Agent; and THE CHASE MANHATTAN BANK, as Syndication Agent and Administrative Agent. WHEREAS, the Borrower (such term and each other capitalized term used but not defined herein having the meaning assigned to it in the Credit Agreement as amended hereby, the "Amendment"), the Lenders, BofA and Chase are parties to the Credit Agreement dated as of November 25, 1997, as amended and restated February 5, 1999 (the "Credit Agreement"); WHEREAS, the Borrower has requested that the Lenders further amend the Credit Agreement; and WHEREAS, the undersigned Lenders are willing, on the terms and subject to the conditions set forth herein, to approve such amendment; NOW, THEREFORE, in consideration of these premises, the Borrower, Millennium America Inc. and the undersigned Lenders hereby agree as follows: SECTION 1. Amendments. Effective as of the Effective Date (as defined in Section 2 hereof), the Credit Agreement is hereby amended in its current form with the following amendments: (a) The definition of "Applicable Percentage" in Section 1.01 of the Credit Agreement is hereby amended by replacing the table contained therein with the following table:
FACILITY INDEX LIBOR/NIBOR FEE RATINGS SPREAD PERCENTAGE - -------------------------------------------------------------------------------------------------- Category 1 A-/A3 or higher .410% .090% - -------------------------------------------------------------------------------------------------- Category 2 BBB+/Baa1 .500% .125% - -------------------------------------------------------------------------------------------------- Category 3 BBB/Baa2 .600% .150% - -------------------------------------------------------------------------------------------------- Category 4 BBB-/Baa3 .800% .200% - -------------------------------------------------------------------------------------------------- Category 5 BBB-/Ba1 or BB+/Baa3 .900% .225% - --------------------------------------------------------------------------------------------------
FACILITY INDEX LIBOR/NIBOR FEE RATINGS SPREAD PERCENTAGE - -------------------------------------------------------------------------------------------------- Category 6 BB+/Ba1 1.125% .250% - -------------------------------------------------------------------------------------------------- Category 7 BB/Ba2 or lower 1.325% .300% - --------------------------------------------------------------------------------------------------
(b) Section 6.05 of the Credit Agreement is hereby amended to read as follows: "Section 6.05. Interest Coverage Ratio. Permit the Interest Coverage Ratio for the period of four consecutive fiscal quarters ending on any date set forth below to be less than the ratio set forth below opposite such date: Date Ratio ---- ----- March 31, 2001 2.50 to 1.00 June 30, 2001 2.00 to 1.00 September 30, 2001 2.00 to 1.00 December 31, 2001 2.50 to 1.00 March 31, 2002 2.75 to 1.00 Each fiscal quarter end thereafter 3.00 to 1.00" SECTION 2. Effectiveness. This Amendment shall become effective as of March 27, 2001, but only if the Administrative Agents (or their counsel) shall have received (a) copies hereof that, when taken together, bear the signatures of the Borrower and the Required Lenders and (b) the amendment fees due under Section 3. The date on which this Amendment shall become effective is referred to as the "Effective Date." SECTION 3. Amendment Fees. The Borrower shall pay to the Administrative Agents on March 27,2001, for the account of each Lender that shall have executed this Amendment on or prior to such date, an amendment fee equal to .25% of the sum of such Lender's Revolving Exposure and unused Commitment as of such date. SECTION 4. Applicable Law. This Amendment shall be construed in accordance with and governed by the law of the State of New York. SECTION 5. No Other Amendments. Except as expressly set forth herein, this Amendment shall not by implication or otherwise limit, impair, constitute a waiver of, or otherwise affect the rights and remedies of any party under, the Credit Agreement, nor alter, modify, amend or in any way affect any of the terms, conditions, obligations, covenants or agreements contained in the Credit Agreement, all of which are ratified and affirmed in all respects and shall continue in full force and effect. SECTION 6. Counterparts. This Amendment may be executed in two or more counterparts, each of which shall constitute an original, but all of which when taken together shall constitute but one contract. Delivery of an executed counterpart of a signature page of this Amendment by facsimile transmission shall be as effective as delivery of a manually executed counterpart of this Amendment. SECTION 7. Headings. Section headings used herein are for convenience of reference only, are not part of this Amendment and are not to affect the construction of, or to be taken into consideration in interpreting, this Amendment. SECTION 8. Expenses. The Borrower shall reimburse the Administrative Agents for their reasonable out-of-pocket expenses incurred in connection with this Amendment, including the reasonable fees and expenses of Cravath, Swaine & Moore, counsel for the Administrative Agents. IN WITNESS WHEREOF, the Borrower, Millennium America Inc. and the undersigned Lenders have caused this Amendment to be duly executed by their duly authorized officers, all as of the date first above written. EQUISTAR CHEMICALS, LP by /s/ Gerald A. O'Brien --------------------------- Name: Gerald A. O'Brien Title: Vice President MILLENNIUM AMERICA, INC. by /s/ Christine Wubbolding --------------------------- Name: Christine Wubbolding Title: Vice President & Treasurer BANK OF AMERICA, N. A., individually and as Administrative Agent, Documentation Agent and Servicing Agent, by /s/ Michael J. Dillon --------------------------- Name: Michael J. Dillon Title: Managing Director THE CHASE MANHATTAN BANK, individually and as Administrative Agent and Syndication Agent, by /s/ Steve A. Nordaker --------------------------- Name: Steve A. Nordaker Title: Managing Director 4 ABN AMRO BANK N.V., by /s/ Angela Noique --------------------------- Name: Angela Noique Title: Vice President by /s/ Scott J. Albert --------------------------- Name: Scott J. Albert Title: Group Vice President BANK ONE, N.A., by /s/ Daniel A. Davis --------------------------- Name: Daniel A. Davis Title: Vice President BANK AUSTRIA AG, by /s/ Laura DePersis --------------------------- Name: Laura DePersis Title: Vice President by /s/ William W. Hunter --------------------------- Name: William W. Hunter Title: Vice President THE BANK OF NEW YORK, by /s/ Raymond J. Palmer --------------------------- Name: Raymond J. Palmer Title: Vice President THE BANK OF NOVA SCOTIA, by /s/ M.D. Smith --------------------------- Name: M.D. Smith Title: Agent Operations THE BANK OF TOKYO-MITSUBISHI, by /s/ K. Glasscock --------------------------- Name: K. Glasscock Title: VP & Manager 5 BANQUE NATIONALE DE PARIS, by /s/ Mike Shryock --------------------------- Name: Mike Shryock Title: Vice President by /s/ Aurora Abella --------------------------- Name: Aurora Abella Title: Vice President CIBC INC., by CIBC OPPENHEIMER CORP, as Agent, by /s/ Dominic Sorresso ---------------------------- Name: Dominic Sorresso Title: Executive Director CITIBANK, N.A., by /s/ Claudio Phillips ---------------------------- Name: Claudio Phillips Title: Vice President/Managing Director COMMERZBANK AG, by /s/ Harry Yergey ---------------------------- Name: Harry Yergey Title: SVP & Manager by /s/ David Suttles ---------------------------- Name: David Suttles Title: Vice President CREDIT LYONNAIS NEW YORK BRANCH, by /s/ Philippe Soustra ---------------------------- Name: Philippe Soustra Title: Executive Vice President THE DAI-ICHI-KANGO BANK, LTD., by /s/ Perzemek T. Blaziak ---------------------------- Name: Perzemek T. Blaziak Title: Account Officer 6 DEUTSCHE GENOSSENSCHAFTSBANK AG, by /s/ Mark K. Connelly ---------------------------- Name: Mark K. Connelly Title: Vice President by /s/ Richard W. Wilbert ---------------------------- Name: Richard W. Wilbert Title: Vice President THE FUJI BANK LIMITED, by /s/ Jacques Azagury ---------------------------- Name: Jacques Azagury Title: Senior Vice President & Manager GENERAL ELECTRIC CAPITAL CORPORATION, by /s/ Robert M. Kadlick ---------------------------- Name: Robert M. Kadlick Title: Duly Authorized Signatory GUARANTY FEDERAL BANK, F.S.B., by /s/ Jim R. Hamilton ---------------------------- Name: Jim R. Hamilton Title: Vice President HSBC BANK USA, by /s/ George Linhart ---------------------------- Name: George Linhart Title: Vice President THE INDUSTRIAL BANK OF JAPAN, LTD., by /s/ Michael N. Oakes ---------------------------- Name: Michael N. Oakes Title: Senior Vice President, Houston Office 7 KBC BANK N. V., by /s/ Robert Snauffer --------------------------- Name: Robert Snauffer Title: First Vice President MORGAN GUARANTY TRUST COMPANY OF NEW YORK, by /s/ Carl J. Mehldau Jr. -------------------------- Name: Carl J. Mehldau Jr. Title: Vice President THE SANWA BANK LIMITED, by /s/ Jean-Michel Patovic --------------------------- Name: Jean-Michel Patovic Title: Vice President SOCIETE GENERALE, by /s/ Antoine Broustra --------------------------- Name: Antoine Broustra Title: Director THE SUMITOMO BANK, LTD., by /s/ P.R.C. Knight --------------------------- Name: P.R.C. Knight Title: Senior Vice President SUNTRUST BANK, ATLANTA, by /s/ Steven J. Newby --------------------------- Name: Steven J. Newby Title: Vice President 8 THE TORONTO-DOMINION BANK, by /s/ Carolyn R. Faeth --------------------------- Name: Carolyn R. Faeth Title: Mgr. Cr. Admin. WESTERN CONFERENCE TEAMSTERS, by /s/ Mohan V. Phansalkar --------------------------- Name: Mohan V. Phansalkar Title: Executive Vice President WESTDEUTSCHE LANDESBANK GIROZENTRALE, NEW YORK BRANCH, by /s/ Lisa M. Walker --------------------------- Name: Lisa M. Walker Title: Associate Director by /s/ Barry S. Wadler --------------------------- Name: Barry S. Wadler Title: Manager EX-4.8(B) 3 dex48b.txt AMENDMENT NO. 5 TO CREDIT AGREEMENT Exhibit 4.8(b) CONFORMED COPY AMENDMENT NO. 5 TO THE CREDIT AGREEMENT AMENDMENT No. 5 dated as of March 27, 2001 to the Credit Agreement dated as of July 23, 1998 (as heretofore amended, the "CREDIT AGREEMENT") among LYONDELL CHEMICAL COMPANY, the LENDERS party thereto, the DOCUMENTATION AGENTS party thereto, MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent and DLJ CAPITAL FUNDING, INC., as Syndication Agent. The parties hereto agree as follows: Section 1.01. Defined Terms; References. Unless otherwise specifically defined herein, each term used herein which is defined in the Credit Agreement has the meaning assigned to such term in the Credit Agreement. Each reference to "hereof", "hereunder", "herein" and "hereby" and each other similar reference and each reference to "this Agreement" and each other similar reference contained in the Credit Agreement shall, after this Amendment becomes effective, refer to the Credit Agreement as amended hereby. Section 1.02. Amendments. (a) The definition of "Adjusted EBITDA" in Section 1.01 is amended to read in its entirety as follows: "ADJUSTED EBITDA" means, for any period, the sum of (i) the EBITDA of the Non-JV Group for such period, adjusted to exclude the effect of one time charges incurred in connection with (A) the Acquisition and subsequent Asset Sales (other than a TDI Sale) in an aggregate amount not exceeding $250,000,000 and (B) a TDI Sale, plus (ii) the Distributable Cash Flow of all Borrower Joint Ventures and non-wholly owned Subject Assets Transferees for such period. (b) The definition of "Excess Cash Flow Prepayment Amount" is amended by adding at the end thereof, before the period, the following: and the aggregate principal amount of the New Senior Notes prepaid during such period pursuant to Section 5.15(b)(viii) (c) The following definition is added in alphabetical order to Section 1.01 of the Credit Agreement: "TDI SALE" means an Asset Sale of all or any part of the Company's Isocyanates business (including the transfer or assignment of the TDI Assets or the TDI Agreements), whether consisting of one transaction or more than one related or unrelated transactions. (d) Section 1.02(c) of the Credit Agreement is amended by replacing the parenthetical "(other than the Acquisition)" in the third sentence of the clause with the following: (other than (i) the Acquisition and (ii) a TDI Sale) (e) Section 2.09 of the Credit Agreement is amended to add at the end of clause (i) of the first proviso of subsection (a) the phrase "except as provided in Section 2.09(d)", and Section 2.09 is further amended to add thereto the following: (d) Notwithstanding the foregoing, if the Borrower includes in its notice to the Administrative Agent pursuant to Section 2.09(a) of its election to prepay any Group of Loans (which for purposes of this subsection (d) may include an election to prepay Term Loans-E) that the Lenders may reject the prepayment so proposed by the Borrower, then the provisions of Section 2.04(e), (f) and (h) shall apply to any such offered prepayment, mutatis mutandis, as though the offered prepayment were a mandatory prepayment of the Term Loans pursuant to Section 2.04(d)(i) or (ii); provided, however, to the extent any Lender accepts a prepayment offered pursuant to this subsection (d), such prepayment shall be made together with any applicable premium specified in Section 2.09(a). (f) Section 5.11 of the Credit Agreement is amended to read in its entirety as follows: SECTION 5.11. Adjusted Debt to Adjusted EBITDA. At any date during each period set forth below, the ratio of (i) Adjusted Debt at such date to (ii) Adjusted EBITDA for the period of four consecutive Fiscal Quarters most recently ended on or prior to such date will not exceed the ratio set forth below opposite such period: PERIOD RATIO ------ ----- January 1, 2001 - March 30, 2002 6.00 March 31, 2002 - June 29, 2002 5.50 June 30, 2002 - September 29, 2002 5.00 September 30, 2002 - December 30, 2002 4.75 December 31, 2002 - March 30, 2003 4.50 March 31, 2003 - March 30, 2004 4.00 At all times thereafter 3.00 2 (g) Section 5.12 of the Credit Agreement is amended to read in its entirety as follows: SECTION 5.12. Fixed Charge Coverage Ratio. At the end of each Fiscal Quarter ending during each period set forth below, the Fixed Charge Coverage Ratio will not be less than the ratio set forth below opposite such period: PERIOD RATIO ------ ------ January 1, 2001 - September 30, 2001 1.50 October 1, 2001 - December 31, 2001 1.60 January 1, 2002 - March 31, 2002 1.85 April 1, 2002 - June 30, 2002 1.95 July 1, 2002 - September 30, 2002 2.00 October 1, 2002 - December 31, 2002 2.15 At any time thereafter 2.60 (h) Section 5.13 of the Credit Agreement is amended by the addition of the following clause (iv) at the end thereof: minus (iv) the amount by which Consolidated Net Worth shall have been reduced by reason of one-time charges and/or losses in connection with a TDI Sale. (i) Section 5.15(b) of the Credit Agreement is amended by the addition of the following new clauses (vii) and (viii): , (vii) the New Senior Notes from Net Cash Proceeds and Excess Cash Flow Prepayment Amounts to the extent that those Net Cash Proceeds and Excess Cash Flow Prepayment Amounts are not applied to prepayment of the Term Loans pursuant to Section 2.04(d) by reason of Sections 2.04(f) and (h)(ii) thereof and (viii) the New Senior Notes to the extent of any amount that is offered in prepayment, and is not applied to prepayment, of the Term Loans pursuant to Section 2.09(d). Section 1.03. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of New York. Section 1.04. Counterparts. This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. 3 Section 1.05. Effectiveness. This Amendment shall become effective on the first date (the "AMENDMENT 5 EFFECTIVE DATE") on which the Administrative Agent shall have received: (a) counterparts hereof signed by each of the Required Lenders and the Borrower (or, in the case of any party as to which an executed counterpart shall not have been received, the Administrative Agent shall have received in form satisfactory to it telegraphic, telex or other written confirmation from such party of execution of a counterpart hereof by such party); and (b) receipt by each of the Agents, the Arranger and the Co-Arrangers of payment of all amendment fees, other costs, fees and expenses (including, without limitation, reasonable legal fees and expenses for which invoices shall have been submitted to the Borrower) and other compensation payable to any of the foregoing on or prior to the Amendment 5 Effective Date in connection with the Loan Documents. Promptly after the Amendment 5 Effective Date occurs, the Administrative Agent shall notify the Borrower, the other Agents and the Lenders thereof, and such notice shall be conclusive and binding on all parties hereto. 4 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written. LYONDELL CHEMICAL COMPANY By: /s/ Karen A. Twitchell ----------------------- Title: Vice President and Treasurer MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent and as Lender By: /s/ Colleen B. Galle --------------------- Title: Vice President CREDIT SUISSE FIRST BOSTON (formerly known as DLJ Capital Funding, Inc.), as Syndication Agent and as Lender By: /s/ Paul L. Colon ------------------ Title: Vice President BANK OF AMERICA, N.A., as Documentation Agent and as Lender By: /s/ Michael J. Dillon ---------------------- Title: Managing Director THE CHASE MANHATTAN BANK, as Documentation Agent By: /s/ Steve A. Nordaker ---------------------- Title: Managing Director 2 CITIBANK, N.A., as Documentation Agent and as Lender By: /s/ Eileen G. Ogimachi ----------------------- Title: Attorney-in-Fact ABN AMRO BANK N.V. By: /s/ Angela Noique ------------------ Title: Vice President By: /s/ Scott J. Albert -------------------- Title: Group Vice President ADDISON CDO, Limited (Acct 1279) By: Pacific Investment Management Company LLC, as its Investment Advisor By: /s/ Mohan V. Phansalkar ------------------------ Title: Executive Vice President AERIES FINANCE-II LTD. By: INVESCO Senior Secured Management, Inc. as Sub-Managing Agent By: /s/ Joseph Rotondo ------------------- Title: Authorized Signatory 3 AIM FLOATING RATE PORTFOLIO By: INVESCO Senior Secured Management, Inc. as attorney in fact By: /s/ Joseph Rotondo ------------------- Title: Authorized Signatory AIMCO CDO SERIES 2000-A By: /s/ Jerry D. Zinkula --------------------- Title: Authorized Signatory By: /s/ Patricia W. Wilson ----------------------- Title: Authorized Signatory ALLSTATE LIFE INSURANCE COMPANY By: /s/ Jerry D. Zinkula --------------------- Title: Authorized Signatory By: /s/ Patricia W. Wilson ----------------------- Title: Authorized Signatory Title: AMARA-1 FINANCE, LTD. By: INVESCO Senior Secured Management, Inc., as Subadviser By: /s/ Joseph Rotondo -------------------- Title: Authorized Signatory 4 AMARA-2 FINANCE, LTD. By: INVESCO Senior Secured Management, Inc., as Subadviser By: /s/ Joseph Rotondo -------------------- Title: Authorized Signatory APEX (IDM) CDO I, LTD. By: /s/ William A. Hayes --------------------- Title: Director ARAB BANK PLC By: /s/ Samer Tamimi ----------------- Title: Vice President ARCHIMEDES FUNDING II, LTD By: ING Capital Advisors, LLC as Collateral Manager By: /s/ Michael J. Campbell ------------------------- Title: Managing Director ARCHIMEDES FUNDING III, LTD. By: ING Capital Advisors LLC as Collateral Manager By: -------------------------- Title: 5 ARES III CLO LTD. By: Ares CLO Management LLC By: /s/ Seth J. Brufsky -------------------- Title: Vice President ARES IV CLO LTD. By: Ares CLO Management IV, L.P., Investment Manager By: Ares CLO GP IV, LLC, Its Managing Member By: /s/ Seth J. Brufsky -------------------- Title: Vice President ARES LEVERAGED INVESTMENT FUND II, L.P. By: Ares Management II, L.P., its General Partner By: /s/ Seth J. Brufsky -------------------- Title: Vice President ATHENA CDO, Limited (Acct 1277) By: Pacific Investment Management Company LLC, as its Investment Manager By: ---------------------------- Title: 6 AVALON CAPITAL LTD. By: INVESCO Senior Secured Management, Inc. as Portfolio Advisor By: /s/ Joseph Rotondo ------------------- Title: Authorized Signatory AVALON CAPITAL LTD. 2 By: INVESCO Senior Secured Management, Inc. as Portfolio Advisor By: /s/ Joseph Rotondo ------------------- Title: Authorized Signatory BALANCED HIGH-YIELD FUND II, LTD. By: ING Capital Advisors LLC, as Asset Manager By: /s/ Michael J. Campbell ------------------------ Title: Managing Directory BANK LEUMI USA By: /s/ Joung Hee Hong ------------------- Title: Vice President 7 BANK OF CANTON OF CALIFORNIA By: /s/ Ben Hom ------------ Title: Senior Vice President THE BANK OF NEW YORK By: /s/ Raymond J. Palmer ---------------------- Title: Vice President THE BANK OF NOVA SCOTIA By: /s/ F.C.H. Ashby ----------------- Title: Senior Manager Loan Operations THE BANK OF TOKYO-MITSUBISHI LTD., HOUSTON AGENCY By: /s/ K. Glasscock ----------------- Title: Vice President & Manager BANK ONE, NA (formerly known as The First National Bank of Chicago) By: /s/ Daniel A. Davis --------------------- Title: Vice President 8 BANK POLSKA KASA OPIEKI S.A. NEW YORK BRANCH By: /s/ Hussein B. El-Tawil ------------------------ Title: Vice President BANKBOSTON, N.A. By: -------------------------- Name: Title: BANKERS TRUST COMPANY By: -------------------------- Name: Title: BNP PARIBAS By: /s/ Stephanie Rogers --------------------- Title: Vice President By: /s/ Shayn P. March ------------------- Title: Vice President BARCLAYS BANK PLC By: /s/ Nicholas A. Bell --------------------- Title: Director 9 BATTERSON PARK, CBO I By: General Re-New England Asset Management Inc., as Collateral Manager By: --------------------------- Name: Title: BATTERY PARK CDO, LTD By: Nomura Corporate Research and Asset Management Inc. as Investment Advisor By: /s/ Richard W. Stewart ----------------------- Title: Director BAYERISCHE HYPO-UND VEREINSBANK AG NEW YORK BRANCH By: /s/ Laura DePersis ------------------- Title: Director By: /s/ Shannon Batchman --------------------- Title: Director BHF (USA) CAPITAL CORPORATION By: /s/ Thomas J. Scifo -------------------- Title: Vice President By: /s/ Nina Zhou -------------- Title: Associate 10 CAPTIVA FINANCE LTD. By: /s/ David Dyer --------------- Title: Director CAPTIVA II FINANCE LTD. By: /s/ David Dyer --------------- Title: Director CAPTIVA III FINANCE, LTD. (Acct. 275), as advised by Pacific Investment Management Company LLC By: /s/ David Dyer --------------- Title: Director CAPTIVA IV FINANCE, LTD. (Acct. 1275), as advised by Pacific Investment Management Company By: /s/ David Dyer --------------- Title: Director CARAVELLE INVESTMENT FUND, LLC By: Caravelle Advisors By: /s/ Dean Criares ----------------- Title: Managing Director 11 CARILLON HOLDING, LIMITED By: ------------------------ Name: Title: CARLYLE HIGH YIELD FUND, L.P. By: /s/ Linda M. Pace ------------------ Title: Vice President CARLYLE HIGH YIELD PARTNERS II, LTD. By: /s/ Linda M. Pace ------------------ Title: Vice President CARLYLE HIGH YIELD PARTNERS III, LTD. By: /s/ Linda M. Pace ------------------ Title: Vice President CERES FINANCE LTD. By: INVESCO Senior Secured Management, Inc., as Sub-Managing Agent By: /s/ Joseph Rotondo ------------------- Title: Authorized Signatory 12 CERES II FINANCE LTD. By: INVESCO Senior Secured Management, Inc., as Sub-Managing Agent (Financial) By: /s/ Joseph Rotondo ------------------- Title: Authorized Signatory CHANG HWA COMMERCIAL BANK, LTD., NEW YORK BRANCH By: /s/ Wan-Tu Yeh --------------- Title: SVP & General Manager CHARTER VIEW PORTFOLIO By: INVESCO Senior Secured Management, Inc. as Investment Advisor By: /s/ Joseph Rotondo ------------------- Title: Authorized Signatory THE CHASE MANHATTAN BANK (formerly known as Chase Bank of Texas National Association) By: /s/ Steve A. Nordaker ---------------------- Title: Managing Director 13 CHIAO TUNG BANK CO., LTD. NEW YORK AGENCY By: /s/ Shyh Jiann Peng -------------------- Title: SVP & General Manager CLYDESDALE CBO I, LTD. By: Nomura Corporate Research and Asset Management Inc. as Investment Advisor By: /s/ Richard W. Stewart ----------------------- Title: Director COLISEUM FUNDING LTD. By: Travelers Asset Management International Company LLC By: /s/ Allen R. Cantrell ---------------------- Title: Investment Officer COLUMBUS LOAN FUNDING LTD. By: Travelers Asset Management International Company LLC By: /s/ Allen R. Cantrell ---------------------- Title: Investment Officer 14 CREDIT INDUSTRIEL ET COMMERCIAL By: /s/ Sean Mounier ----------------- Title: First Vice President By: /s/ Marcus Edward ------------------ Title: Vice President CREDIT LYONNAIS NEW YORK BRANCH By: /s/ Philippe Soustra --------------------- Title: Executive Vice President CREDIT SUISSE FIRST BOSTON By: /s/ Paul L. Colon ------------------ Title: Vice President By: /s/ James P. Moran ------------------- Title: Director CRESCENT/MACH I PARTNERS LP By: TCW Asset Management Company, its Investment Manager By: /s/ Jonathan Berg ------------------ Title: Assistant Vice President 15 CYPRESSTREE INSTITUTIONAL FUND, LLC By: CypressTree Investment Management Company, Inc. its Managing Member By: /s/ Philip C. Robbins ---------------------- Title: Principal CYPRESSTREE INVESTMENT FUND, LLC By: CypressTree Investment Management Company, Inc. its Managing Member By: /s/ Philip C. Robbins ---------------------- Title: Principal CYPRESSTREE INVESTMENT PARTNERS I, LTD. By: CypressTree Investment Management Company, Inc. its Managing Member By: /s/ Philip C. Robbins ---------------------- Title: Principal CYPRESSTREE INVESTMENT PARTNERS II, LTD. By: CypressTree Investment Management Company, Inc., as Portfolio Manager By: /s/ Philip C. Robbins ---------------------- Title: Principal 16 CYPRESSTREE SENIOR FLOATING RATE FUND By: CypressTree Investment Management Company, Inc. as Portfolio Manager By: /s/ Philip C. Robbins ---------------------- Title: Principal THE DAI-ICHI KANGYO BANK LIMITED By: /s/ Takayuki Kumagai --------------------- Title: Vice President DEBT STRATEGIES FUND, INC. By: ----------------------- Name: Title: DELANO COMPANY (Acct 274) By: Pacific Investment Management Company LLC, as its Investment Advisor By: /s/ Mohan V. Phansalkar ------------------------ Title: Executive Vice President 17 DRESDNER BANK AG, NEW YORK AND GRAND CAYMAN BRANCHES By: /s/ Deborah Carlson -------------------- Title: First Vice President By: /s/ Ken Hamilton ----------------- Title: Senior Vice President EATON VANCE INSTITUTIONAL SENIOR LOAN FUND By: Eaton Vance Management, as Investment Advisor By: /s/ Scott H. Page ------------------ Title: Vice President EATON VANCE SENIOR INCOME TRUST By: Eaton Vance Management, as Investment Advisor By: /s/ Scott H. Page ------------------ Title: Vice President EATON VANCE CDO III, LTD. By: Eaton Vance Management, as Investment Advisor By: /s/ Scott H. Page ------------------ Title: Vice President 18 ELC (CAYMAN) LTD. By: /s/ William A. Hayes --------------------- Title: Director ELC (CAYMAN) LTD. 1999-III By: /s/ William A. Hayes --------------------- Title: Director ELC (CAYMAN) LTD. 2000-I By: /s/ William A. Hayes --------------------- Title: Director ELC (CAYMAN) LTD. CDO SERIES 1999-I By: /s/ William A. Hayes --------------------- Title: Director ELC (CAYMAN) LTD. 1999-II By: /s/ William A. Hayes --------------------- Title: Director ELT LTD. By: /s/ Ann E. Morris ------------------ Title: Authorized Agent 19 FC CBO LIMITED By: /s/ David Wales ---------------- Title: Collateral Manager FC CBO II LIMITED By: /s/ David Wales ---------------- Title: Collateral Manager FIDELITY ADVISOR SERIES II: FIDELITY ADVISOR FLOATING RATE HIGH INCOME FUND By: /s/ John H. Costello --------------------- Title: Assistant Treasurer FIDELITY SUMMER STREET TRUST: FIDELITY CAPITAL & INCOME FUND By: /s/ John H. Costello --------------------- Title: Assistant Treasurer 20 CYPRESSTREE INVESTMENT MANAGEMENT COMPANY, INC. As: Attorney-in-Fact and on behalf of First Allmerica Financial Life Insurance Company as Portfolio Manager By: ------------------------ Title: FIRST COMMERCIAL BANK By: /s/ Dong-Ho Wang ----------------- Title: SVP & General Manager FIRST DOMINION FUNDING I By: ------------------------- Name: Title: FIRST DOMINION FUNDING II By: ------------------------- Name: Title: FIRST DOMINION FUNDING III By: ------------------------- Name: Title: 21 FIRST UNION NATIONAL BANK By: /s/ Charles B. Edmondson ------------------------- Title: Assistant Vice President CITIBANK N.A. as additional Investment Manager for and on behalf of Five Finance Corporation By: /s/ Mike Regan --------------- Title: Vice President By: /s/ Daniel Slotkin ------------------- Title: Vice President FLOATING RATE PORTFOLIO By: INVESCO Senior Secured Management, Inc., as attorney-in-fact By: ----------------------- Name: Title: FRANKLIN FLOATING RATE TRUST By: /s/ Chauncey Lufkin -------------------- Title: Vice President 22 FRANKLIN CLO I, LIMITED By: /s/ Chauncey Lufkin -------------------- Title: Vice President FREMONT INVESTMENT & LOAN By: /s/ Maria Chachere ------------------- Title: Vice President THE FUJI BANK, LIMITED, NEW YORK BRANCH By: /s/ John D. Doyle ------------------ Title: Vice President & Manager GALAXY CLO 1999-1, LTD. By: SAI Investment Adviser, Inc., its Collateral Manager By: /s/ Kevin J. Buckle --------------------- Title: Authorized Agent GENERAL AMERICAN LIFE INSURANCE COMPANY By: ------------------------ Name: Title: 23 GRAYSON & CO. By: Boston Management and Research as Investment Advisor By: /s/ Scott H. Page ------------------ Title: Vice President SANKATY ADVISORS, INC. as Collateral Manager for GREAT POINT CLO 1999-1 LTD., as Term Lender By: /s/ Diane J. Exter ------------------- Title: Managing Director Portfolio Manager GUARANTY FEDERAL BANK, F.S.B. By: ---------------------- Name: Title: GULF INTERNATIONAL BANK B.S.C. By: /s/ M. Khalidi --------------- Title: Vice President By: /s/ I. N. Baconi ----------------- Title: Executive Vice President HAMILTON BANK By: ------------------------ Name: Title: 24 HARBOURVIEW CDO II, LTD. By: /s/ David Foxhoven ------------------- Title: Assistant Vice President IMPERIAL BANK By: /s/ Gerald R. Finney, Jr. -------------------------- Title: Vice President THE ING CAPITAL SENIOR SECURED HIGH INCOME FUND, L.P. By: ING Capital Advisors LLC as Investment Advisor By: --------------------------- Name: Title: J.H. WHITNEY MARKET VALUE FUND, L.P. By: /s/ Michael B. DeFlorio ------------------------ Title: Managing Director JHW CASH FLOW FUND I, L.P. By: /s/ Michael B. DeFlorio ------------------------ Title: Managing Director 25 JISSEKIKUN FUNDING LTD. (Acct 1288) By: Pacific Investment Management Company LLC, as its Investment Advisor By: /s/ Mohan V. Phansalkar ------------------------ Title: Executive Vice President KBC BANK By: /s/ Robert Snauffer -------------------- Title: First Vice President By: /s/ Patrick A. Janssens ------------------------ Title: Vice President KEMPER FLOATING RATE FUND By: /s/ Kelly Babson ----------------- Title: Managing Director KZH III LLC By: ------------------------- Name: Title: 26 KZH CNC LLC By: /s/ Kimberly Rowe ------------------ Title: Authorized Agent KZH CRESCENT LLC By: /s/ Kimberly Rowe ------------------ Title: Authorized Agent KZH CRESCENT-2 LLC By: /s/ Kimberly Rowe ------------------ Title: Authorized Agent KZH CRESCENT-3 LLC By: /s/ Kimberly Rowe ------------------ Title: Authorized Agent KZH-CYPRESSTREE-1 LLC By: /s/ Kimberly Rowe ------------------ Title: Authorized Agent 27 KZH ING-1 LLC By: /s/ Kimberly Rowe ------------------ Title: Authorized Agent KZH ING-2 LLC By: /s/ Kimberly Rowe ------------------ Title: Authorized Agent KZH ING-3 LLC By: /s/ Kimberly Rowe ------------------ Title: Authorized Agent KZH LANGDALE LLC By: /s/ Kimberly Rowe ------------------ Title: Authorized Agent KZH PONDVIEW LLC By: /s/ Kimberly Rowe ------------------ Title: Authorized Agent 28 KZH RIVERSIDE LLC By: /s/ Kimberly Rowe ------------------ Title: Authorized Agent KZH SHOSHONE LLC By: /s/ Kimberly Rowe ------------------ Title: Authorized Agent KZH SOLEIL LLC By: /s/ Kimberly Rowe ------------------ Title: Authorized Agent KZH SOLEIL-2 LLC By: /s/ Kimberly Rowe ------------------ Title: Authorized Agent KZH STERLING LLC By: /s/ Kimberly Rowe ------------------ Title: Authorized Agent 29 KZH WATERSIDE LLC By: /s/ Kimberly Rowe ------------------ Title: Authorized Agent LIBERTY-STEIN ROE ADVISOR FLOATING RATE ADVANTAGE FUND By: Stein Roe & Farnham Incorporated, As Adviser By: /s/ James R. Fellows --------------------- Title: Sr. Vice President & Portfolio Manager LONGHORN CDO (CAYMAN) LTD. By: Merrill Lynch Asset Management, L.P., as Attorney-in-Fact By: ------------------------ Name: Title: LONGLANE MASTER TRUST IV By: Fleet National Bank as Trust Administrator By: /s/ Renee Nadlen ----------------- Title: Managing Director 30 MAGNETITE ASSET INVESTORS L.L.C. By: Blackrock Financial Management, Inc. As Managing Member By: --------------------------- Name: Title: MAGNETITE ASSET INVESTORS III L.L.C. By: Blackrock Financial Management, Inc. As Managing Member By: --------------------------- Name: Title: MAPLEWOOD (CAYMAN) LTD. By: Massachusetts Mutual Life Insurance Company as Investment Manager By: /s/ Steven J. Katz ------------------- Title: Second Vice President and Associate General Counsel MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY By: David L. Babson and Company Incorporated, as Investment Advisor By: /s/ Mark A. Ahmed ------------------ Title: Managing Director 31 MASTER SENIOR FLOATING RATE TRUST By: ------------------------- Name: Title: MEDICAL LIABILITY MUTUAL INSURANCE COMPANY By: INVESCO Senior Secured Management, Inc., as Investment Manager By: ------------------------- Name: Title: MERRILL LYNCH DEBT STRATEGIES PORTFOLIO By: Merrill Lynch Asset Management, L.P., as Investment Advisor By: ------------------------- Name: Title: MERRILL LYNCH GLOBAL INVESTMENT SERIES: INCOME STRATEGIES PORTFOLIO By: Merrill Lynch Asset Management, L.P., as Investment Advisor By: ------------------------- Name: Title: 32 MERRILL LYNCH GLOBAL INVESTMENT SERIES: BANK LOAN INCOME PORTFOLIO By: Merrill Lynch Asset Management, L.P., as Investment Advisor By: ------------------------- Name: Title: MERRILL LYNCH SENIOR FLOATING RATE FUND, INC. By: ------------------------- Name: Title: MERRILL LYNCH SENIOR FLOATING RATE FUND II, INC. By: ------------------------- Name: Title: MERRILL LYNCH PRIME RATE PORTFOLIO By: Merrill Lynch Asset Management, L.P., as Investment Advisor By: ------------------------- Name: Title: 33 METROPOLITAN LIFE INSURANCE COMPANY By: /s/ James R. Dingler --------------------- Title: Director THE MITSUBISHI TRUST AND BANKING CORPORATION By: /s/ Toshihiro Hayashi ---------------------- Title: Senior Vice President ML CLO XX PILGRIM AMERICA (CAYMAN) LTD. By: ING Pilgrim Investments, as its Investment Manager By: /s/ Charles E. LeMieux, CFA ---------------------------- Title: Vice President MONUMENTAL LIFE INSURANCE COMPANY, successor by merger to Commonwealth Life Insurance Co. By: /s/ John Bailey ---------------- Title: Vice President 34 MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST By: /s/ Sheila A. Finnerty ----------------------- Title: Senior Vice President MOUNTAIN CAPITAL CLO II LTD. By: /s/ Darren P. Riley -------------------- Title: Director NATIONAL BANK OF EGYPT NEW YORK BRANCH By: ------------------------- Name: Title: NATIONAL WESTMINSTER BANK PLC By: NatWest Capital Markets Limited, its agent By: Greenwich Capital Markets, Inc., its agent By: /s/ Kelly A. Myers ------------------- Title: Vice President NATIONWIDE LIFE INSURANCE COMPANY By: ------------------------- Name: Title: 35 NEMEAN CLO LTD. By: ING Capital Advisors LLC, as Investment Manager By: /s/ Michael J. Campbell ------------------------ Title: Managing Director NOMURA BOND & LOAN FUND By: Nomura Corporate Research and Asset Management Inc. as Investment Advisor By: /s/ Richard W. Stewart ----------------------- Title: Director NORSE CBO, LTD. By: Regiment Capital Management, LLC as its Investment Advisor By: Regiment Capital Advisors, LLC its Manager and pursuant to delegated authority By: /s/ Timothy S. Peterson ------------------------ Title: President NORTH AMERICAN SENIOR FLOATING RATE FUND By: CypressTree Investment Management Company, Inc. as Portfolio Manager By: /s/ Philip C. Robbins ---------------------- Title: Principal 36 OASIS COLLATERALIZED HIGH INCOME PORTFOLIO-1, LTD. By: INVESCO Senior Secured Management, Inc., as Subadviser By: /s/ Joseph Rotondo ------------------- Title: Authorized Signatory OCTAGON INVESTMENT PARTNERS II, LLC By: Octagon Credit Investors, LLC as sub-investment manager By: /s/ Michael B. Nechamkin ------------------------- Title: Portfolio Manager OCTAGON INVESTMENT PARTNERS III, LTD. By: Octagon Credit Investors, LLC as Portfolio Manager By: /s/ Michael B. Nechamkin ------------------------- Title: Portfolio Manager OLYMPIC FUNDING TRUST, SERIES 1999-1 By: /s/ Ann E. Morris ------------------ Title: Authorized Agent 37 OPPENHEIMER SENIOR FLOATING RATE FUND By: /s/ Charles Kobayashi ----------------------- Title: SVP, Corporate Finance Group ORIX USA CORPORATION By: /s/ Charles Kobayashi ---------------------- Title: SVP, Corporate Finance Group OSPREY INVESTMENTS PORTFOLIO By: Citibank, N.A., as Manager By: /s/ Mike Regan --------------- Title: Vice President OXFORD STRATEGIC INCOME FUND By: Eaton Vance Management as Investment Advisor By: ------------------------- Name: Title: PAM CAPITAL FUNDING L.P. By: Highland Capital Management, L.P. as Collateral Manager By: /s/ Mark K. Okada CFA ---------------------- Title: Executive Vice President 38 PAMCO CAYMAN LTD. By: Highland Capital Management, L.P. as Collateral Manager By: /s/ Mark K. Okada CFA ---------------------- Title: Executive Vice President PILGRIM PRIME RATE TRUST By: ING Pilgrim Investments, as its Investment Manager By: /s/ Charles E. LeMieux, CFA ---------------------------- Title: Vice President PINEHURST TRADING, INC. By: /s/ Ann E. Morris ------------------ Title: Assistant Vice President PROVIDENT CBO I, LIMITED By: Provident Investment Management, LLC By: ------------------------- Name: Title: REGIMENT CAPITAL, LTD. By: Regiment Capital Management, LLC as its Investment Advisor By: Regiment Capital Advisors, LLC its Manager and pursuant to delegated authority By: /s/ Timothy Peterson --------------------- Title: President 39 THE ROYAL BANK OF SCOTLAND PLC By: /s/ Jayne Seaford ------------------ Title: Vice President ROYALTON COMPANY By: Pacific Investment Management Company LLC, as its Investment Advisor By: /s/ Mohan V. Phansalkar ------------------------ Title: Executive Vice President SANKATY HIGH YIELD ASSET PARTNERS II, L.P. By: /s/ Diane J. Exter ------------------- Title: Managing Director Portfolio Manager SAWGRASS TRADING LLC By: /s/ Ann E. Morris ------------------ Title: Assistant Vice President SEABOARD CLO 2000 LTD. By: /s/ Sheppard Davis ------------------- Title: Authorized Signatory 40 SENIOR DEBT PORTFOLIO By: Boston Management and Research, as Investment Advisor By: /s/ Scott H. Page ------------------ Title: Vice President SENIOR HIGH INCOME PORTFOLIO INC. By: ------------------------- Title: SEQUILS I, LTD By: TCW Advisors, Inc. as its Collateral Manager By: /s/ Jonathan Berg ------------------ Title: Assistant Vice President By: /s/ Jonathan Insull -------------------- Title: Senior Vice President SEQUILS IV, LTD By: TCW Advisors, Inc. as its Collateral Manager By: /s/ Jonathan Insull -------------------- Title: Senior Vice President By: /s/ Jonathan Berg ------------------ Title: Assistant Vice President 41 SEQUILS - CUMBERLAND I, LTD By: Deerfield Capital Management LLC As its Collateral Manager By: /s/ Mark E. Whittnebel ----------------------- Title: Senior Vice President SEQUILS-ING I (HBDGM), LTD. By: ING Capital Advisors LLC., as Collateral Manager By: /s/ Michael J. Campbell ------------------------ Title: Managing Director SEQUILS B PILGRIM I, LTD. By: ING Pilgrim Investments, as its Investment manager By: /s/ Charles E. LeMieux, CFA ---------------------------- Title: Vice President SIERRA CLO I, LTD. By: /s/ John M. Casparian ---------------------- Title: Chief Operating Officer SIMSBURY CLO LTD. By: Mass Mutual Life Insurance Company, as Collateral Manager By: /s/ Steven J. Katz ------------------- Title: Second Vice President and Associate General Counsel 42 SKM-LIBERTYVIEW CBO I LIMITED By: /s/ Kenneth C. Klegar ---------------------- Title: Authorized Signatory SOCIETE GENERALE, SOUTHWEST AGENCY By: /s/ Elizabeth W. Hunter ------------------------ Title: Director SOMERS CDO, LIMITED By: David L. Babson and Company Incorporated under delegated authority from Massachusetts Mutual Life Insurance Company as Collateral Manager By: /s/ Mark A. Ahmed ------------------ Title: Managing Director SOUTHERN PACIFIC BANK By: /s/ Cheryl A. Wasilewski ------------------------- Title: Senior Vice President SRF 2000 LLC By: /s/Ann E. Morris ----------------- Title: Assistant Vice President 43 STANFIELD CLO, LTD. By: Stanfield Capital Partners LLC as its Collateral Manager By: /s/ Christopher A. Bondy ------------------------- Title: Partner STANFIELD/RMF TRANSATLANTIC CDO LTD. By: Stanfield Capital Partners LLC as its Collateral Manager By: /s/ Christopher A. Bondy ------------------------- Title: Partner STEIN ROE & FARNHAM CLO1 LTD., by Stein Roe & Farnham Incorporated, As Portfolio Manager By: /s/ James R. Fellows --------------------- Title: Senior Vice President & Portfolio Manager STEIN ROE FLOATING RATE LIMITED LIABILITY COMPANY By: /s/ James R. Fellows --------------------- Title: Senior Vice President & Portfolio Manager Stein Roe & Farnham Incorporated, as Advisor to the Stein Roe Floating Rate Limited Liability Company 44 STRATA FUNDING LTD. By: INVESCO Senior Secured Management Inc., as Sub-Managing Agent By: /s/ Joseph Rotondo -------------------- Title: Authorized Signatory STRATEGIC MANAGED LOAN PORTFOLIO By: Citibank, N.A., as Manager By: /s/ Mike Regan --------------- Title: Vice President STRONG ADVANTAGE FUND, INC. By: /s/ Susan A. Holliski ---------------------- Title: Vice President SUFFIELD CLO LIMITED By: David L. Babson & Company Inc. as Collateral Manager By: /s/ Mark A. Ahmed ------------------ Title: Managing Director 45 THE SUMITOMO TRUST & BANKING CO., LTD., NEW YORK BRANCH By: /s/ Stephen A. Stratico ------------------------ Title: Vice President THE SUMITOMO BANK, LIMITED By: /s/ Suresh S. Tata ------------------- Title: Senior Vice President SUNTRUST BANK By: /s/ Steven J. Newby -------------------- Title: Vice President SWISS LIFE US RAINBOW LTD. By: ING Capital Advisors LLC, as Investment Manager By: /s/ Michael J. Campbell ------------------------ Title: Managing Director TAIPEI BANK, NEW YORK AGENCY By: /s/ Sophia Jing ---------------- Title: Vice President and General Manager 46 TEXTRON FINANCIAL CORPORATION By: /s/ Matthew J. Colgan ---------------------- Title: Director THERMOPYLAE FUNDING CORP. By: /s/ Frank B. Bilotta --------------------- Title: Vice President THE TOKAI BANK, LIMITED, NEW YORK BRANCH By: /s/ Takatoshi Haruna --------------------- Title: Joint General Manager TORONTO DOMINION (TEXAS), INC. By: /s/ Carolyn R. Faeth --------------------- Title: Vice President THE TOYO TRUST & BANKING CO., LTD. By: ------------------------- Name: Title: 47 TRAVELERS CORPORATE LOAN FUND, INC. By: Travelers Asset Management International Company LLC By: /s/ Allen R. Cantrell ---------------------- Title: Investment Officer THE TRAVELERS INSURANCE COMPANY By: /s/ Allen R. Cantrell ---------------------- Title: Investment Officer TRITON CBO III, LIMITED By: INVESCO Senior Secured Management, Inc., as Investment Advisor By: /s/ Joseph Rotondo ------------------- Title: Authorized Signatory TRITON CDO IV LIMITED By: INVESCO Senior Secured Management, Inc., as Investment Advisor By: /s/ Joseph Rotondo ------------------- Title: Authorized Signatory 48 TRYON CLO. LTD. 2000-I By: /s/ William A. Hayes --------------------- Title: Director UBS AG, STAMFORD BRANCH By: /s/ Dorothy L. McKinley ------------------------ Title: Director By: /s/ Anthony N. Joseph ---------------------- Title: Associate Director UNITED OF OMAHA LIFE INSURANCE COMPANY By: INVESCO Senior Secured Management, Inc., as Portfolio Advisor By: /s/ Joseph Rotondo ------------------- Title: Authorized Signatory VAN KAMPEN SENIOR FLOATING RATE FUND By: Van Kampen Investment Advisory Corp. By: /s/ Darvin D. Pierce --------------------- Title: Principal 49 VAN KAMPEN CLO I, LIMITED By: Van Kampen Management, Inc., as Collateral Manager By: /s/ Darvin D. Pierce --------------------- Title: Principal VAN KAMPEN PRIME RATE INCOME TRUST By: Van Kampen Investment Advisory Corp. By: /s/ Darvin D. Pierce --------------------- Title: Principal VAN KAMPEN SENIOR INCOME TRUST By: Van Kampen Investment Advisory Corp. By: /s/ Darvin D. Pierce --------------------- Title: Principal VAN KAMPEN SENIOR FLOATING RATE FUND By: Van Kampen Investment Advisory Corp. By: /s/ Darvin D. Pierce --------------------- Title: Principal 50 VARIABLE INSURANCE PRODUCTS II: ASSET MANAGER PORTFOLIO By: /s/ John H. Costello --------------------- Title: Assistant Treasurer VARIABLE INSURANCE PRODUCTS II: GROWTH PORTFOLIO By: /s/ John H. Costello --------------------- Title: Assistant Treasurer WESTDEUTSCHE LANDESBANK GIROZENTRALE, NEW YORK BRANCH By: /s/ Lisa M. Walker ------------------- Title: Associate Director By: /s/ Barry S. Wadler -------------------- Title: Manager WINDSOR LOAN FUNDING, LIMITED. By: Stanfield Capital Partners LLC as its Investment Manager By: /s/ Christopher A. Bondy ------------------------- Title: Partner 51 WINGED FOOT FUNDING TRUST By: /s/ Ann E. Morris ------------------ Title: Authorized Agent 52 EX-10.3 4 dex103.txt AMENDED & RESTATED SUPP. EXE. RETIREMENT PLAN Exhibit 10.3 LYONDELL CHEMICAL COMPANY - --------------------------------------------------------------- SUPPLEMENTARY EXECUTIVE RETIREMENT PLAN EFFECTIVE JANUARY 1, 2001 LYONDELL CHEMICAL COMPANY SUPPLEMENTARY EXECUTIVE RETIREMENT PLAN TABLE OF CONTENTS PAGE ARTICLE I - GENERAL PROVISIONS......................................... 1 Section 1.1 Purpose and Intent of Plan....................... 1 Section 1.2 Effective Date of Plan........................... 1 Section 1.3 Costs of Plan.................................... 1 Section 1.4 Definitions...................................... 1 ARTICLE II - SUPPLEMENTARY BENEFITS.................................... 5 Section 2.1 Types of Supplementary Benefits Provided......... 5 Section 2.2 Eligibility in General........................... 5 Section 2.3 Amount of Supplementary Benefits (or Survivor Benefit) in General.............................. 6 Section 2.4 Deferral/Incentive Supplement.................... 6 Section 2.5 Qualification Limitation Supplement.............. 8 Section 2.6 Special Supplements.............................. 8 Section 2.7 Supplementary Benefits on Change in Control...... 8 ARTICLE III - FORM OF BENEFIT.......................................... 11 Section 3.1 Supplementary Benefits........................... 11 Section 3.2 Special Supplements.............................. 12 Section 3.3 Form of Benefit on Change in Control............. ARTICLE IV - TIMING OF PAYMENT OF BENEFIT.............................. 13 Section 4.1 Supplementary Benefits........................... 13 Section 4.2 Special Supplements.............................. 13 Section 4.3 Payment on Change in Control..................... 14 ARTICLE V - ADMINISTRATION............................................. 16 Section 5.1 Interpretation................................... 16 Section 5.2 Administrative Records........................... 16 Section 5.3 Claims........................................... 16 Section 5.4 Committee Liability.............................. 16 ARTICLE VI - FACILITY OF PAYMENT AND LAPSE OF BENEFITS................. 17 Section 6.1 Payment on Incapacity............................ 17 Section 6.2 Payments or Deposits............................. 17 1 LYONDELL CHEMICAL COMPANY SUPPLEMENTARY EXECUTIVE RETIREMENT PLAN TABLE OF CONTENTS (cont'd) ARTICLE VII - MISCELLANEOUS............................................ 18 Section 7.1 Unfunded Benefit Plan............................ 18 Section 7.2 Unsecured General Creditor....................... 18 Section 7.3 Grantor Trust.................................... 18 Section 7.4 Payments and Benefits Not Assignable............. 18 Section 7.5 No Right of Employment........................... 19 Section 7.6 Adjustments...................................... 19 Section 7.7 Obligation to Company............................ 19 Section 7.8 Protective Provisions............................ 19 Section 7.9 Gender, Singular and Plural...................... 19 Section 7.10 Law Governing.................................... 19 Section 7.11 Validity......................................... 20 Section 7.12 Notice........................................... 20 Section 7.13 Successors and Assigns........................... 20 ARTICLE VIII - AMENDMENT AND DISCONTINUANCE............................ 21 Section 8.1 Amendment of Plan................................ 21 Section 8.2 Termination...................................... 21 Section 8.3 Effect of Amendment or Termination............... 21 2 ARTICLE I GENERAL PROVISIONS SECTION 1.1 PURPOSE AND INTENT OF PLAN. This Plan is intended to provide supplemental retirement allowances in accordance with its provisions to those Employees who are eligible to receive Awards under the Lyondell Chemical Company Senior Manager or Executive Incentive Plan, and who (a) have deferred a portion of their Salary under the Lyondell Chemical Company Executive Deferral Plan or (b) have had the amount of their benefit reduced, due to federal legal requirements, under a tax-qualified, defined benefit retirement plan maintained by Lyondell Chemical Company, or (c) have been granted a Special Supplement under Section 2.6 of this Plan. SECTION 1.2 EFFECTIVE DATE OF PLAN. This Plan document shall be effective January 1, 2001 and shall apply to Employees who are employed by the Company on or after January 1, 2001, except to the extent that certain provisions specify that they are effective on a different date. This Plan is an amendment and restatement of the Prior Plan. SECTION 1.3 PLAN COSTS. All Plan costs, including administrative costs, shall be borne by the Company and no Employee contributions shall be required or permitted. SECTION 1.4 DEFINITIONS. Actuarial Equivalent or Actuarially Equivalent mean, in comparing benefits payable in different forms or at different times or in different circumstances, a value under one set of circumstances which is the same as the value under a different set of circumstances. The value shall be computed and determined by using mortality assumptions, interest rates and other actuarial factors and assumptions used to calculate actuarial equivalents under the Retirement Plan. Administrative Committee means the Benefits Administrative Committee. 3 Award means a cash award made under the Lyondell Chemical Company Senior Manager or Executive Incentive Plans or their equivalents. An Award does not include Deferred Cash as that term is used in those plans. Base Pay means the annual amount of "Base Pay," as defined in the Retirement Plan. Basic Allowance means an annuity payable for the Participant's life, with a guarantee that an amount equal to 60 monthly payments will be made to the Participant and his Beneficiary. Beneficiary means a person entitled to receive the Survivor Benefit under Sections 2.4, 2.5 and/or 2.6 when the Participant dies. Change in Control means an event which is deemed to have occurred as of the date that one or more of the following occurs: (a) Individuals who, as of January 1, 2001, constitute the entire Board of Directors of the Company ("Incumbent Directors") cease for any reason to constitute at least a majority of the Board of Directors; provided, however, that any individual becoming a director subsequent to January 1, 2001 whose election or nomination for election by the Company's shareholders was approved by a vote of at least a majority of the then Incumbent Directors shall be considered as though the individual was an Incumbent Director. An individual elected or nominated for election shall exclude any person whose initial assumption of office occurs as a result of either an actual or threatened election contest, as those terms are used in Rule 14a-11 under the Securities Exchange Act of 1934, as amended, or other actual or threatened solicitation of proxies or consents by or on behalf of any Person (as defined below) other than the Board; (b) The shareholders of the Company shall approve (i) any merger, consolidation or recapitalization of the Company (or, if the capital stock of the Company is affected, any Company subsidiary), or any sale, lease, or other transfer (in one transaction or a series of transactions contemplated or arranged by any party as a single plan) of all or substantially all of the assets of the Company ("Acquisition Transaction") where (A) the shareholders of the Company immediately prior to the Acquisition Transaction would not immediately after that Acquisition Transaction beneficially own, directly or indirectly, shares or other ownership interests representing in the aggregate eighty percent (80%) or more of (1) the then outstanding common stock or other equity interests of the corporation or other entity surviving or resulting from the merger, consolidation or recapitalization or acquiring the assets of the Company, as the case may be (the "Surviving Entity") or of its ultimate parent corporation or other entity, if any, and (2) the Combined Voting Power of the outstanding Voting Securities of the Surviving Entity (or of its ultimate parent corporation or other entity, if any) or (B) the Incumbent Directors at the time of the initial approval of the Acquisition Transaction would not immediately after the transaction constitute a majority of the Board of Directors, or similar managing group, of the Surviving Entity (or of its ultimate parent corporation or other entity, if any), or (ii) any plan or proposal for the liquidation or dissolution of the Company; or 4 (c) Any Person shall be or become the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, as amended), directly or indirectly, of securities of the Company representing in the aggregate more than twenty percent (20%) of either (i) the then outstanding shares of common stock of the Company ("Common Shares") or (ii) the Combined Voting Power of all then outstanding Voting Securities of the Company; provided, however, that notwithstanding the foregoing, a Change in Control shall not be deemed to have occurred for purposes of this Subsection: (A) Solely as a result of the Company's acquisition of securities which, by reducing the number of Common Shares or other Voting Securities outstanding, increases (1) the proportionate number of Common Shares beneficially owned by any Person to more than twenty percent (20%) of the outstanding Common Shares, or (2) the proportionate voting power represented by the Voting Securities beneficially owned by any Person to more than twenty percent (20%) of the Combined Voting Power of all outstanding Voting Securities; or (B) Solely as a result of an acquisition of securities directly from the Company except for any conversion of a security that was not acquired directly from the Company. If any Person referred to in paragraph (A) or (B) of this Subsection (c) becomes the beneficial owner of any additional Common Shares or other Voting Securities of the Company (other than pursuant to a stock split, stock dividend or similar transaction), then a Change in Control shall be deemed to have occurred for purposes of this definition. (d) As used in this definition: (i) "Combined Voting Power" means the aggregate votes entitled to be cast generally in the election of the Board of Directors, or similar managing group, of a corporation or other entity by holders of the outstanding Voting Securities of the corporation or other entity. (iii) "Person" means any individual, entity (including any corporation, partnership, trust, joint venture, association or governmental body) or group (as defined in Sections 14(d)(3) or 15(d)(2) of the Exchange Act and the rules and regulations thereunder); provided, however, that Person shall not include the Company or LYONDELL-CITGO Refining LP, Equistar Chemicals LP, any of their subsidiaries, any of their employee benefit plans, any of their majority-owned subsidiaries or any entity organized, appointed or established by the Company, LYONDELL-CITGO Refining LP, Equistar Chemicals LP or those subsidiaries for or pursuant to the terms of any plan. (iii) "Voting Securities" shall means all securities of a corporation or other entity having the right under ordinary circumstances to vote in an election of the Board of Directors, or similar managing group, of the corporation or other entity. 5 Code means the Internal Revenue Code of 1986, as amended, including any successor provisions and any regulations or other guidance promulgated by applicable governmental agencies. Company means Lyondell Chemical Company, a Delaware corporation, or its successor. Deferral/Incentive Supplement means a Supplementary Benefit described under Section 2.4. Deferred Compensation means any amount of Salary which a Participant elects to defer according to the terms of the Lyondell Chemical Company Executive Deferral Plan. Employee means any person who is regularly employed by the Company on or after January 1, 2001 and who is an exempt, salaried employee. ERISA means the Employee Retirement Income Security Act of 1974, as amended, including any successor provisions, and any regulations or other guidance promulgated by applicable governmental agencies. Fifty Percent Joint and Survivor Annuity means an annuity providing payments for the Participant's life, with a survivor annuity for his Beneficiary's life, where each payment to the Beneficiary is 50 percent of the amount payable during the Participant's life. Each payment during the Participant's life shall be a percentage of the amount otherwise payable to the Participant as a Basic Allowance, so that the Fifty Percent Joint and Survivor Annuity is the Actuarial Equivalent of that Basic Allowance. Financial Hardship means a condition of financial difficulty, determined by the Administrative Committee upon advice of counsel to be sufficient to justify a change in the elected form of benefits under Section 3.1 without causing, in counsel's judgment, any other Plan Participant to receive taxable income in advance of actual payment of Plan benefits. Lump Sum means a single payment of the benefit that is the Actuarial Equivalent of the Basic Allowance. Participant means an active Employee or a former Employee who, at time of Termination of Employment, retirement or death, was employed by the Company or a Related Company and who is entitled to receive Plan benefits by reason of having (a) received one or more Awards that would be used to compute the Employee's Average Final Base Pay under a Retirement Plan, if the Awards were recognized as a part of Base Pay under that Retirement Plan; (b) deferred a portion of his Salary that would be used to calculate the Employee's Average Final Base Pay under a Retirement Plan if the Deferred Compensation recognized as a part of Base Pay under that Retirement Plan; (c) had his benefit under the Retirement Plan reduced due to required limitations under the Code or ERISA; and/or (d) been granted a Special Supplement under Section 2.6. 6 Participant shall include a former Employee who has not received the entire benefit to which he is entitled under this Plan. Plan means this Supplementary Executive Retirement Plan of Lyondell Chemical Company. Pre-Retirement Survivor Annuity means the annuity paid under a Retirement Plan to a survivor, attributable to Company contributions, that is payable on account of the Member's death prior to commencing payment of a retirement allowance and after the Member became entitled to a retirement allowance payable from Company contributions under that Plan. Prior Plan means this Plan, as it was in effect prior to this amendment and restatement. Qualified Limitation Supplement means a Supplementary Benefit described in Section 2.5. Related Company means (a) Any corporation that is a member of a controlled group of corporations within the meaning of section 1563(e)(3)(C), of which Lyondell Chemical Company is a member, (b) All trades or businesses, whether or not incorporated, which, under regulations prescribed by the Secretary of the Treasury pursuant to Section 210(d) of ERISA, are under common control with Lyondell Chemical Company, and (c) LYONDELL-CITGO Refining LP, and Equistar Chemicals LP, to the extent that the Related Company has agreed to recognize a Participant's Base Pay for purposes of its retirement plan. Retirement Plan means the Lyondell Chemical Company Retirement Plan for Non- Represented Employees or the Lyondell Chemical Company Retirement Plan for Former ARCO Chemical Company Employees. Retirement Plans means both the Lyondell Chemical Company Retirement Plan for Non-Represented Employees and the Lyondell Chemical Company for Former ARCO Chemical Company Employees. Salary means the Employee's regular base salary paid by the Company or a Related Company, excluding Awards and any other special or additional compensatory payments. Special Supplement means a supplementary retirement benefit approved for payment to an Employee under Section 2.6. Supplementary Benefit means any of the types of supplementary benefits provided in 7 Sections 2.4, 2.5 or 2.6. Supplementary Benefits means, collectively, all Supplementary Benefits provided by this Plan, or all those Supplementary Benefits to which a particular Participant is entitled, as the context requires. Survivor Benefit means any survivor benefit that is payable to a Participant's Beneficiary under the provisions of Article II. Termination of Employment or Terminate Employment means to cease performing services as an Employee for the Company or any Related Company. However, an individual will not be considered to have Terminated Employment for Plan purposes solely because the Company or Related Company's identity changes due to a sale of substantially all of the Company's or Related Company's assets or stock, where the individual continues, after the sale, to perform substantially the same services for the purchaser as he performed for the Company or Related Company immediately prior to the sale. 8 ARTICLE II SUPPLEMENTARY BENEFITS SECTION 2.1 TYPES OF SUPPLEMENTARY BENEFITS PROVIDED. This Plan provides for the following types of Supplementary Benefits: (a) Deferral/Incentive Supplements, as described in Section 2.4; (b) Qualification Limitation Supplements, as described in Section 2.5; (c) Special Supplements, as described in Section 2.6. SECTION 2.2 ELIGIBILITY IN GENERAL. (a) ELIGIBILITY FOR BENEFIT. An Employee who Terminates Employment with a nonforfeitable right to a retirement allowance from a Retirement Plan or who has a non-forfeitable right to a retirement allowance amount from a Retirement Plan at the time of a Change in Control, automatically is eligible for each type of Supplementary Benefit provided by Sections 2.4 and 2.5, to the extent he satisfies the specific eligibility requirements of the applicable Section. Supplementary Benefits shall be paid in the form and at the time provided under Articles III and IV, respectively. (b) ELIGIBILITY FOR SURVIVOR'S BENEFIT. If a Participant dies prior to commencing any Supplementary Benefit to which the Participant is entitled, any person designated by the Participant as his Beneficiary will be eligible to receive a Survivor Benefit that relates to the particular Supplementary Benefit. The Participant must designate the same person as his Beneficiary for purposes of all Survivor Benefits payable under this Plan. Survivor Benefits to which a Beneficiary is entitled under this Article will automatically be paid to the Beneficiary. If the Participant dies prior to commencing any Supplementary Benefits without having designated a Beneficiary, the Beneficiary shall be the Participant's spouse, if the Participant was married at the time of death, and the Participant's estate if the Participant was single at the time of death. If a Participant dies after commencing Plan benefits in a form that provides for continued payments after the Participant's death, benefit payments shall continue in accordance with the terms and provisions of that form of benefit, unless payable in a Lump Sum as a result of a Change in Control. SECTION 2.3 AMOUNT OF SUPPLEMENTARY BENEFITS (OR SURVIVOR BENEFIT) IN GENERAL. The total amount of a Supplementary Benefits (or Survivor Benefits, if applicable) payable under this Plan shall be the sum of the benefits to which the Participant is entitled (or Survivor Benefits to which the Participant's Beneficiary is entitled, if applicable) under all types of Supplementary Benefits whose requirements are satisfied by or with respect to the Participant. 9 Each type of Supplementary Benefit payable from this plan to a Participant is the Participant's Excess Retirement Benefit. "Excess Retirement Benefit" means the excess of: (a) the Participant's "Hypothetical Amount", as defined separately for purposes of each type of Supplementary Benefit, over (b) the Participant's "Basic Amount". The Basic Amount shall be (i) the amount of the monthly retirement allowance the Participant is actually entitled to receive at retirement from the Retirement Plans; and (ii) the amount of any Supplementary Benefit paid to a Participant or to a trustee or custodian on the Participant's behalf under the ARCO Chemical Company Supplementary Executive Retirement Plan as a result of the Company's acquisition of ARCO Chemical Company. SECTION 2.4. DEFERRAL/INCENTIVE SUPPLEMENT. (a) ELIGIBILITY FOR DEFERRAL/INCENTIVE SUPPLEMENT. A Participant is eligible for a Deferral/Incentive Supplement if his Excess Retirement Benefit, using the Hypothetical Amount in 2.4(b)(1), is positive. If a Participant entitled to receive a Deferral/Incentive Supplement dies before commencing this benefit, his Beneficiary will be paid a monthly Survivor Benefit described in Section 2.4(b)(2) below. (b) CALCULATION OF DEFERRAL/INCENTIVE SUPPLEMENT. (1) PARTICIPANT'S BENEFIT. Subject to Sections 2.4 (c), (d) and (e) and Section 2.7, the Hypothetical Amount of the Participant's Deferral/Incentive Supplement shall be the monthly retirement benefit the Participant would have received, in the form of a Basic Allowance, from the Retirement Plans if the Base Pay used to calculate that benefit under the Retirement Plans had included the Participant's Awards and Deferred Compensation. If the Participant transfers directly from the Company's employment to a Related Company's employment, Base Pay to calculate the Hypothetical Amount will include the Participant's Awards and Deferred Compensation while he is employed by the Related Company, if the Company recognizes the Participant's salary while employed by the Related Company to determine the Participant's Retirement Plan benefits. (2) SURVIVOR BENEFIT. The monthly amount of the Survivor Benefit payable with respect to a Participant who dies before commencing a Deferral/Incentive Supplement under his Plan shall be (i) minus (ii), where: (i) is the monthly Pre-Retirement Survivor Annuity that would be payable with respect to the Participant from the Retirement Plan if it were calculated using the Participant's Hypothetical Amount described in Section 2.4(b)(1), and 10 (ii) is the monthly amount of Pre-Retirement Survivor Annuity actually payable from the Retirement Plans with respect to the Participant. (c) MAXIMUM LIMITATION ON DEFERRAL/INCENTIVE SUPPLEMENT BENEFITS. Notwithstanding the provisions of Paragraphs (a) and (b) of this Section 2.4, the amount of a Participant's Deferral/Incentive Supplement (or Survivor Benefit payable with respect to the Participant, as applicable) shall be reduced to the extent necessary so the total annual benefits payable to or with respect to the Participant (i) from a Retirement Plan; (ii) as a Qualification Limitation Supplement, if any, under Section 2.5; and (iii) as a Deferral/ Incentive Supplement, under this Section, will not exceed 65 percent of the greater of (a) the sum of the Participant's annual Salary at his Termination of Employment plus his most recent Award, or (b) the average of the Participant's highest 3 consecutive years of Salary and Awards for each year during the Participant's prior ten years of employment with the Company or a Related Company. Benefits payable from the Retirement Plans shall not include annuities resulting from voluntary employee contributions to the Retirement Plans and increased benefits resulting from election of a Level Income Option under the Retirement Plans. (d) RECALCULATION DUE TO SUBSEQUENT AWARD. The Award used to determine the Hypothetical Amount for the calendar year in which the Participant's Termination of Employment or death occurs shall be the pro-rata share of the Award, if any, granted for the year immediately prior to that calendar year. If the Participant receives an actual award after Termination of Employment, the actual Award shall be used to recalculate the Deferral/Incentive Supplement. A Supplement already being paid may be increased, but not decreased, by this recalculation. No recalculation shall occur if the Participant actually receives an Award following a Change in Control. (e) TERMINATION OF EMPLOYMENT. If a Participant is not eligible for a retirement allowance from a Retirement Plan at the time of his Termination of Employment, or if a Pre-Retirement Survivor Annuity is not payable under a Retirement Plan on the Participant's death, the rights of a Participant or any person claiming under or by right of the Participant to any Deferral/Incentive Supplement benefits shall cease. SECTION 2.5 QUALIFICATION LIMITATION SUPPLEMENT. (a) ELIGIBILITY FOR QUALIFICATION LIMITATION SUPPLEMENT. An Employee shall be eligible for a Qualification Limitation Supplement if his Excess Retirement Benefit using the Hypothetical Amount in Section 2.5(b)(1) is positive. If a Participant entitled to receive a qualification Limitation Supplement dies before commencing this benefit, his Beneficiary will be paid the monthly Survivor Benefit described in Section 2.5(b)(2) below. 11 (b) AMOUNT OF QUALIFICATION LIMITATION SUPPLEMENT. (1) PARTICIPANT'S BENEFIT. The Hypothetical Amount of the Participant's Qualification Limitation Supplement shall be the monthly retirement benefit the Participant would have received, in the form of a Basic Allowance, from the Retirement Plans if the amount of the Participant's retirement benefit under the Retirement Plans was not subject to limitations or reductions required under the Code or ERISA. (2) SURVIVOR BENEFIT. The monthly amount of a Survivor Benefit payable with respect to a Participant who dies before commencing a Qualification Limitation Supplement under this Plan shall be (i) minus (ii), where: (i) is the monthly Pre-Retirement Survivor Annuity that would be payable with respect to the Participant from a Retirement Plan if the amount of the Participant's retirement benefit under the Retirement Plan was calculated using the Participant's Hypothetical Amount described in Section 2.5(b)(i), and (ii) is the monthly amount of Pre-Retirement Survivor Annuity actually payable from a Retirement Plan with respect to the Participant. SECTION 2.6 SPECIAL SUPPLEMENTS. In addition to any other Supplementary Benefits to which an Employee may be entitled under this Plan, at its sole discretion, the Compensation Committee of the Company's Board of Directors may award a Special Supplement to any Employee in an amount, or to be computed on a basis it determines. These awards may be granted for any reason the Compensation Committee deems appropriate, including, without limitation, recognition of all or any part of the Employee's years of service with an organization or entity acquired by, or merged into, the Company, any Related Company, or any predecessor of the Company. A Special Supplement shall not be granted to or on account of any Employee who is not a member of a select group of management or other highly compensated employee, as defined from time to time by the Compensation Committee. A certified copy of the resolution granting a Special Supplement shall be furnished to the Administrative Committee prior to the date any Plan payment is to be made. The form, the time of commencement, the duration of any periodic payments, and any other relevant factors affecting the Company's obligation to provide a Special Supplement to an Employee, or any related Survivor Benefit to the Employee's Beneficiary, if that benefit is specified by the Compensation Committee, shall be determined at the sole discretion of the Compensation Committee and shall be set forth in the certified copy of the resolution. 2.7 SUPPLEMENTARY BENEFITS ON CHANGE IN CONTROL (a) In the event of a Change in Control, the Hypothetical Amounts under Sections 2.4 and 2.5 for Participants eligible for benefits under the Company's Executive Severance Pay Plan 12 shall be adjusted as follows: (i) If a Participant is age 55 at the time of a Change in Control, Hypothetical Amounts shall be calculated first as a benefit payable at age 65 and then reduced by those percentages used to calculate a Participant's early retirement allowances under the Retirement Plans. (ii) If a Participant has not attained age 55 at the time of a Change of Control, Hypothetical Amounts shall be calculated first as a benefit payable at age 65 and then actuarially reduced by the Actuarial Assumptions, defined under Section (a)(ii) of the definition of Actuarial Equivalent in the Retirement Plans. 13 ARTICLE III FORM OF BENEFIT SECTION 3.1. SUPPLEMENTARY BENEFITS. (a) OPTIONAL FORMS OF BENEFIT. Except as provided for a distribution on a Change of Control, the Participant may elect to receive payment of his Supplementary Benefits in any form available to pay the normal retirement benefit under the Retirement Plans, provided that (1) the same payment form must be elected for all Supplementary Benefits and (2) if the Participant elects an annuity form for the Supplementary Benefits and for the retirement allowances under the Retirement Plans, then he must elect the same annuity form under all plans. (b) ELECTIONS. (1) The Participant must elect the form of payment within the time period and in the manner prescribed by the Administrative Committee and communicated to the Participant before the date the Participant is eligible to commence Supplementary Benefit payments. (2) If the Participant fails to elect the form of Supplementary Benefit payment within the time period designated by the Administrative Committee, then the Participant only may elect an annuity form available under the corresponding Retirement Plan used to calculate the Participant's Supplementary Benefit. If the Participant fails to elect a specific annuity form, the Participant will receive (i) an annuity paid in the form of a Fifty Percent Joint and Survivor Annuity, with the surviving spouse as the Beneficiary, if the Participant is married at the time of retirement, or (ii) an annuity paid in the form of a Basic Allowance, if the Participant is single at the time of retirement. (3) If the Participant elects the form of benefit payment within the time period designated by the Administrative Committee and subsequently wishes to change that election prior to benefit commencement or, if the Participant is being paid an annuity and wishes to receive the Actuarial Equivalent of the remaining annuity installments, he may apply in writing to the Administrative Committee to change the previously elected payment form (i) without any reduction in, or imposition of any penalty on, the amount of Supplementary Benefits, if the Administrative Committee determines that the Participant has experienced a Financial Hardship justifying an election change, or (ii) if the Administrative Committee, in its sole discretion, determines that it is appropriate to grant the Participant's request. (4) A Participant may elect payment of Survivor Benefits in any form payable under the corresponding Retirement Plan used to calculate the Participant's Supplementary Benefit if the Participant dies before commencing his benefit. If the Participant fails to make this election, payment to the Beneficiary will be in the form of a life annuity, payable for the Beneficiary's life 14 with a value equal to the Actuarially Equivalent value of the Survivor Benefit payable in any other available form. The Beneficiary may request the Administrative Committee change the Participant's prior election and the form may be changed if the Administrative Committee determines that a Financial Hardship exists or it is appropriate to grant the Beneficiary's request. SECTION 3.2 SPECIAL SUPPLEMENTS. Any Special Supplement described in Section 2.6 shall be paid in a form prescribed in the Compensation Committee's resolution conferring the benefit. SECTION 3.3 FORM OF BENEFIT ON CHANGE IN CONTROL. A Participant's Supplementary Benefits or any Survivor Benefit described in Article II shall be paid as a Lump Sum. 15 ARTICLE IV TIMING OF PAYMENT OF BENEFIT SECTION 4.1 SUPPLEMENTARY BENEFITS. (a) Supplementary Benefits shall commence at the same time as the Participant's benefits are paid under the Retirement Plans unless earlier commencement is required under Section 4.3. (b) Survivor Benefits payable under this Plan shall normally be paid on the earliest date the Participant would have become eligible to begin receiving a retirement allowance under a Retirement Plan. A Participant may elect that the Survivor Benefit be paid immediately following his death as a Lump Sum, rather than being paid on the Participant's earliest retirement eligibility date and a Beneficiary may request that the Administrative Committee permit a Lump Sum payment of the Actuarial Equivalent of the Basic Allowance at the time of the Participant's death, according to requirements of Section 3.1(b)(4). SECTION 4.2 SPECIAL SUPPLEMENTS. Any Special Supplement payable under Section 2.6 shall be payable at the time or times prescribed in the Compensation Committee's resolution conferring that benefit. SECTION 4.3 PAYMENT IN THE EVENT OF A CHANGE IN CONTROL. (a) Supplementary Benefits shall be payable immediately following a Change in Control, unless the Participant has previously elected an alternate payment commencement date, as established under Administrative Committee procedures, or except as provided in (b). (b) A Participant eligible for benefits under the Company's Executive Severance Pay Plan shall receive an immediate Lump Sum payment of all Supplementary Benefits provided under this Plan upon a Change in Control, notwithstanding any prior election. 16 ARTICLE V ADMINISTRATION SECTION 5.1 INTERPRETATION. The Administrative Committee has the exclusive right and discretionary authority to interpret the Plan's provisions and to decide questions arising in its administration. The Administrative Committee's decisions and interpretations shall be final and binding on the Company, Employees, Participants and all other persons. SECTION 5.2 ADMINISTRATIVE RECORDS. The Administrative Committee shall keep records reflecting Plan administration, which the Company may audit. SECTION 5.3 CLAIMS. The Administrative Committee shall provide adequate written notice to any Participant or Beneficiary whose claim for Plan benefits has been denied, setting forth the specific reasons for the denial. The Participant or Beneficiary will be given an opportunity for a full and fair review by the Administrative Committee of its decision denying the claim. The Participant or Beneficiary shall be given 60 days from the date of the notice denying any claim within which to request the review. SECTION 5.4 COMMITTEE LIABILITY. No Administrative Committee member shall be liable for any action taken in good faith or for exercise of any power given to the Administrative Committee, or for the actions of other Administrative Committee members. 17 ARTICLE VI FACILITY OF PAYMENT AND LAPSE OF BENEFITS SECTION 6.1 PAYMENT ON INCAPACITY. If the Administrative Committee deems that any person entitled to receive any Plan payment is incapable of receiving or disbursing the payment because of minority, illness or infirmity, mental incompetence, or incapacity of any kind, the Administrative Committee, in its sole discretion, may take any one or more of the following actions: it may apply the payment directly for the person's comfort, support and maintenance; it may reimburse any person for any support previously supplied to the person entitled to receive any payment; or it may pay any other person the Administrative Committee selects to disburse the payment for the person's comfort, support and maintenance, including, without limitation, to any relative who has undertaken, wholly or partially, the expense of person's comfort, care and maintenance, or any institution in whose care or custody the person entitled to the payment may be. The Administrative Committee, in its sole discretion, may deposit any payment due to a minor to the minor's credit in any savings or commercial bank of the Administrative Committee's choice. SECTION 6.2 PAYMENTS OR DEPOSITS. Payments or deposits under this Article VI shall be a complete discharge, to the extent of the payment or deposit, of the Plan or all other liability of the Administrative Committee, the Company and this Plan. Receipt of any payment, distribution or deposit shall be a complete acquittance by the persons(s) receiving the payment. There shall be no liability to see to the application of any Plan payments, distributions or deposits. 18 ARTICLE VII MISCELLANEOUS SECTION 7.1 UNFUNDED BENEFIT PLAN. (a) Benefits under Sections 2.4 and 2.6 are intended to constitute a plan that is unfunded and maintained primarily for the purpose of providing deferred compensation in the form of additional retirement benefits to a select group of management or highly compensated employees, as defined in Sections 201(a)(2), 301(a)(3) and 401(a)(1) of ERISA. (b) Benefits under Section 2.5 of this Plan are intended to constitute an unfunded "excess benefit plan" within the meaning of Section 3(36) of ERISA. SECTION 7.2 UNSECURED GENERAL CREDITOR. Participants and their Beneficiaries shall have no legal or equitable rights, claims or interests in any specific Company assets or property, nor are they the Beneficiaries of, or have any rights, claims or interests in any life insurance policies, annuity contracts, or the proceeds of those policies or contracts, which the Company owns or acquires (the "Policies"). Any Policies or other Company assets shall be and shall remain general, unpledged, unrestricted Company assets. The Company's obligation under the Plan is merely an unfunded and unsecured Company promise to pay money in the future. SECTION 7.3 GRANTOR TRUST. Although the Company is responsible for all Plan benefits, the Company, in its discretion, may contribute funds to a grantor trust, as it deems appropriate, to pay Plan benefits. The trust may be irrevocable, but trust assets shall be subject to the claims of creditors of Lyondell Chemical Company. To the extent any Plan benefits are actually paid from the trust, the Company shall have no further obligation for those benefits, but to the extent the benefit is not paid, benefits shall remain the obligation of, and shall be paid by, the Company. Participants shall be unsecured creditors insofar as their legal claim for Plan benefits and Participants shall have no security interest in the grantor trust. SECTION 7.4 PAYMENTS AND BENEFITS NOT ASSIGNABLE. Payments to and benefits under this Plan are not assignable, transferable or subject to alienation since they are primarily for the support and maintenance of the Participants and their joint annuitant or Beneficiaries after retirement. Likewise, payments shall not be subject to attachments by creditors of, or through legal process against, the Company, the Administrative Committee or any Participant. Payments may be offset by the Company as provided under Section 7.7. 19 SECTION 7.5 NO RIGHT OF EMPLOYMENT. The Plan provisions shall not give an Employee the right to be retained in Company service nor shall this Plan or any action taken under it be construed as an employment contract. SECTION 7.6 ADJUSTMENTS. At the Company's request, the Administrative Committee may adjust the Participant's Plan benefit or make other adjustments required to correct administrative errors or provide uniform treatment of Participants, in a manner consistent with the Plan's intent and purpose. SECTION 7.7 OBLIGATION TO COMPANY. If a Participant becomes entitled to a distribution of Plan benefits and the Participant has any debt, obligation, or other liability representing an amount owed to the Company or any Company benefit plan, then the Administrative Committee may offset the amount owed to the Company or the benefit plan against the amount of benefits otherwise distributable under this Plan. SECTION 7.8 PROTECTIVE PROVISIONS. Each Participant shall cooperate with the Company by furnishing any and all information the Company requests to facilitate the payment of Plan benefits, taking any physical examinations the Company deems necessary and taking other relevant action the Company requests. If a Participant refuses to cooperate, the Company shall have no further obligation to the Participant under the Plan. If the Participant makes any material misstatement of information or nondisclosure of medical history, no benefits will be payable to the Participant or his Beneficiary unless, at the Company's sole discretion. benefits are payable in an amount reduced to compensate the Company for any loss, cost, damage or expense suffered or incurred by the Company as a result in any way of any Participant action, misstatement or nondisclosure. SECTION 7.9 GENDER, SINGULAR AND PLURAL. All pronouns and any variations are deemed to refer to the masculine, feminine, or neuter, as the identity of the person or persons requires. The singular may be read as the plural and the plural as the singular, as the context may require. SECTION 7.10 LAW GOVERNING. This Plan shall be construed, regulated and administered under the laws of the State of Texas, except to the extent that those laws are preempted by ERISA. 20 SECTION 7.11 VALIDITY. If any Plan provision is held invalid, void or unenforceable, it shall not affect the validity of any other Plan provision in any respect whatsoever. SECTION 7.12 NOTICE. Any notice or filing required or permitted to be given to the Administrative Committee under the Plan shall be sufficient if in writing and hand delivered, or sent by registered or certified mail, to the Company's principal office, directed to the attention of the Secretary of the Administrative Committee. Notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown or the postmark on the receipt for registration or certification. SECTION 7.13 SUCCESSORS AND ASSIGNS. This Plan shall be binding upon the Company and its successors and assigns. 21 ARTICLE VIII AMENDMENT AND DISCONTINUANCE SECTION 8.1 AMENDMENT OF PLAN. This Plan may be amended from time to time by a resolution of the Compensation Committee of the Board of Directors of Lyondell Chemical Company. SECTION 8.2 TERMINATION. Lyondell Chemical Company intends to continue this Plan indefinitely, but reserves the right to terminate it at any time for any reason, in its sole discretion. SECTION 8.3 EFFECT OF AMENDMENT OR TERMINATION. No Plan amendment or termination may adversely affect the benefit payable to any Participant receiving or entitled to receive Plan benefits prior to the effective date of the amendment or termination. However, the Company may amend the Plan to eliminate any optional form of payment and if so, the amendment will not be deemed to adversely affect any Participant's benefit entitlement. 22 EX-10.11 5 dex1011.txt AMENDED AND RESTATED ELECTIVE DEFERRAL PLAN Exhibit 10.11 Lyondell Chemical Company _________________________________________________________________ ELECTIVE DEFERRAL PLAN FOR NON-EMPLOYEE DIRECTORS As Amended and Restated Effective December 31, 2000 ARTICLE I GENERAL PROVISIONS SECTION 1.1. PURPOSE AND INTENT OF PLAN. This Plan is intended to provide an opportunity for Directors who are not employees of the Company to accumulate supplemental funds for retirement or special needs prior to retirement through the deferral of portions of their Board and Board Committee Retainer Fees and Meeting Fees. SECTION 1.2. EFFECTIVE DATE OF PLAN. This amended and restated Plan document shall be effective as of December 31, 2000. SECTION 1.3. DEFINITIONS. (a) Account means a separate bookkeeping account maintained by the Company for each Participant and which measures and determines the amounts to be paid to the Participant under the Plan. Effective October 1, 1996, separate subaccounts within the Account for previous deferrals of Retainer and Meeting Fees, will be consolidated into a single account balance. (b) Administrative Committee means the Directors Benefit Committee. (c) Beneficiary means a person who is entitled to receive a Participant's interest under this Plan in the event of the Participant's death. (d) Board means the Board of Directors of Lyondell Chemical Company. (e) Board Committee means any committee established by the Board which consists of Directors and which reports to the Board. (f) Chairman Fee means the annual amount payable in cash to a Director as additional compensation for serving as Chairman of the Board or as Chairman of a Board Committee. (g) Change in Control shall be deemed to have occurred as of the date that one or more of the following occurs: (i) Individuals who, as of the Effective Date hereof, constitute the entire Board of Directors of the Company ("Incumbent Directors") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the Effective Date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the then Incumbent Directors shall be considered as though such individual was an Incumbent Director, but excluding, for this purpose any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest, as such terms are used in Rule 14a-11 under the Securities Exchange 1 Act of 1934, as amended, or other actual or threatened solicitation of proxies or consents by or on behalf of any Person (as defined below) other than the Board; (ii) The stockholders of the Company shall approve (A) any merger, consolidation or recapitalization of the Company (or, if the capital stock of the Company is affected, any subsidiary of the Company), or any sale, lease, or other transfer (in one transaction or a series of transactions contemplated or arranged by any party as a single plan) of all or substantially all of the assets of the Company (each of the foregoing being an "Acquisition Transaction") where (1) the shareholders of the Company immediately prior to such Acquisition Transaction would not immediately after such Acquisition Transaction beneficially own, directly or indirectly, shares or other ownership interests representing in the aggregate eighty percent (80%) or more of (a) the then outstanding common stock or other equity interests of the corporation or other entity surviving or resulting from such merger, consolidation or recapitalization or acquiring such assets of the Company, as the case may be (the "Surviving Entity") (or of its ultimate parent corporation or other entity, if any), and (b) the Combined Voting Power of the then outstanding Voting Securities of the Surviving Entity (or of its ultimate parent corporation or other entity, if any) or (2) the Incumbent Directors at the time of the initial approval of such Acquisition Transaction would not immediately after such Acquisition Transaction constitute a majority of the Board of Directors, or similar managing group, of the Surviving Entity (or of its ultimate parent corporation or other entity, if any), or (B) any plan or proposal for the liquidation or dissolution of the Company; or (iii) Any Person shall be or become the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, as amended), directly or indirectly, of securities of the Company representing in the aggregate more than twenty percent (20%) of either (A) the then outstanding shares of common stock of the Company ("Common Shares") or (B) the Combined Voting Power of all then outstanding Voting Securities of the Company; provided, however, that notwithstanding the foregoing, a Change in Control shall not be deemed to have occurred for purposes of this Subsection (iii): (1) Solely as a result of an acquisition of securities by the Company which, by reducing the number of Common Shares or other Voting Securities outstanding, increases (a) the proportionate number of Common Shares beneficially owned by any Person to more than twenty percent (20%) of the Common Shares then outstanding, or (b) the proportionate voting power represented by the Voting Securities beneficially owned by any Person to more than twenty percent (20%) of the Combined Voting Power of all then outstanding Voting Securities; or (2) Solely as a result of an acquisition of securities directly from the Company except for any conversion of a security that was not acquired directly from the Company, provided, further, that if any Person referred to in paragraph (1) or (2) of this Subsection (iii) shall thereafter become the beneficial owner of any additional Common Shares or other Voting Securities of the Company (other than pursuant to a stock split, stock dividend or similar transaction), then a Change in Control shall be deemed to have occurred for purposes of this Subsection (iii). 2 (iv) For purposes of this definition of Change in Control: (1) "Combined Voting Power" shall mean the aggregate votes entitled to be cast generally in the election of the Board of Directors, or similar managing group, of a corporation or other entity by holders of then outstanding Voting Securities of such corporation or other entity. (2) "Person" shall mean any individual, entity (including, without limitation, any corporation, partnership, trust, joint venture, association or governmental body) or group (as defined in Sections 14(d)(3) or 15(d)(2) of the Exchange Act and the rules and regulations thereunder); provided, however, that Person shall not include the Company, LYONDELL-CITGO Refining LP ("LCR") or Equistar Chemicals, LP ("Equistar"), any of their subsidiaries, any employee benefit plan of the Company, LCR, Equistar or any of their majority-owned subsidiaries or any entity organized, appointed or established by the Company, LCR, Equistar or such subsidiaries for or pursuant to the terms of any such plan. (3) "Voting Securities" shall mean all securities of a corporation or other entity having the right under ordinary circumstances to vote in an election of the Board of Directors, or similar managing group, of such corporation or other entity. (h) Citibank Base Rate means for any Plan Year the average of the prime rates at Citibank, N. A., in effect on the first day of the current calendar quarter and each of the three prior quarters provided, however, that if for any quarter the first day of the calendar quarter is not a business day, the prime rate in effect on the first business day of such quarter shall be deemed the prime rate for the first day of such quarter. (i) Code means the Internal Revenue Code of 1986, as amended. (j) Common Stock means the Company's common stock, par value $1.00 per share. (k) Company means Lyondell Chemical Company, and any successor thereto. (l) Deferral Election means a voluntary election made by a Director to defer Retainer Fees and/or Meeting Fees pursuant to Section 2.2, for which the Director has submitted a Participation Agreement. (m) Deferral Period means a maximum number of years established by the Administrative Committee in advance of a particular Deferral Election, over which the Director elects to defer Retainer Fees or Meeting Fees. A new Deferral Period shall normally start each January 1, except that with respect to a new Director, the Deferral Period shall commence 30 days after the Director's election to the Board. (n) Deferred Compensation means the aggregate amount of Deferred Retainer Fees and Supplemental Fees that a Director is required to defer pursuant to Section 2.1 and the amount of Retainer Fees and Meeting Fees that a Director elects to defer pursuant to a Deferral Election. If applicable, Deferred Compensation also includes the present value as of December 3 31, 1998 of the accrued retirement benefit earned under the Company's Retirement Plan for Non-Employee Directors which a Director has elected to defer under this Plan effective January 1, 1999. (o) Deferred Retainer Fees means the portion of the Retainer Fee designated by the Administrative Committee as subject to the automatic deferral provisions of Section 2.1. As of the 2001 Plan Year, the Deferred Retainer Fee is 25% of the Retainer Fee otherwise payable to the Director. (p) Deferred Stock Units or DSUs means a bookkeeping unit representing the value of one share of Common Stock used to credit certain deferrals to a Participant's account and track investment returns. (q) Director means a Director of the Board who is not a current employee of the Company or any of its subsidiaries or affiliates. (r) Effective Date means December 31, 2000. (s) Financial Hardship means a condition of financial difficulty, determined by the Administrative Committee, upon advice of counsel, based on written information supplied by the Participant or Beneficiary, as the case may be, in accordance with such standards established, from time to time, by the Administrative Committee, which condition is sufficient to justify a change in payment election under the Plan without causing receipt of taxable income by any other Plan Participant before the Participant or Beneficiary, as the case may be, actually receives his benefit. (t) In-Service Distribution means a distribution to a Participant prior to Termination of Service pursuant to Section 4.4. (u) Interest Rate means (i) for any Plan Year commencing prior to a Change in Control, the interest rate adopted by the Administrative Committee in advance of the election period for a Plan Year, which shall constitute the interest rate applicable to that Plan Year; or (ii) for each Plan Year commencing after a Change in Control, the interest rate which is equal to the greater of (a) the Prime Rate or (b) 125 percent of the rolling average Ten-Year Treasury Note Rate, as of October 1 prior to the commencement of the applicable Plan Year. (v) Meeting Fee means the amount paid in cash to a Director as compensation for each Board and/or Board Committee meeting attended by the Director. (w) Participant means any Director who is participating in this Plan as provided in Article II, or any former Director who has not received the entire benefit to which he or she is entitled under this Plan. (x) Participation Agreement means the Deferral Election submitted by a Participant to the Company prior to the beginning of the Deferral Period. 4 (y) Plan means this Elective Deferral Plan for Non-Employee Directors. (z) Plan Year means each calendar year beginning on January 1 and ending on December 31, except that the first Plan Year shall be the period commencing on August 1, 1990 and ending on December 31, 1990. (aa) Prime Rate means the prime commercial lending rate of Citibank, N.A. as publicly announced to be in effect at the close of business on October 1 of the year immediately prior to the commencement of the applicable Plan Year. The Prime Rate is not necessarily the lowest rate of interest of Citibank, N.A. (bb) Retainer Fee means the annual amount paid in cash to a Director as compensation for serving in such capacity and any additional Chairman Fees. (cc) Retirement means the Director's termination of employment with a right to an immediate retirement allowance from the Director's regular, full- time employer. (dd) Supplemental Fee means the annual amount payable as additional compensation to a Director who is not accruing a benefit under the Retirement Plan for Non-Employee Directors. (ee) Survivor Benefit means the benefits described in Section 4.3 of the Plan. (ff) Ten-Year Treasury Note Rate means the rate periodically published by the U.S. Department of Treasury under the heading "10 year Treasury Note Rate". (gg) Termination of Service means the Director ceasing to be a member of the Board. (hh) Trust Agreement means the Lyondell Petrochemical Company Supplemental Executive Benefit Plans Trust Agreement and any amendments or successor agreements thereto. (ii) Unscheduled Distribution means a distribution to a Participant pursuant to Section 4.5. (jj) Valuation Date means the last day of each month, or such other dates as the Administrative Committee may determine in its discretion, which may be either more or less frequent, for the valuation of Participants' Accounts. ARTICLE II PARTICIPATION AND DEFERRAL ELECTIONS SECTION 2.1. REQUIRED DEFERRALS. The payment of the Supplemental Fee and the Deferred Retainer Fee shall be automatically deferred under the Plan in the form of Deferred Stock Units. 5 The Director's Account described in Article III will be credited as of the first day of each calendar month during the Plan Year with a number of DSUs equal to (A) 1/12th of the amount of required deferrals under this Section, divided by (B) the closing price of a share of Common Stock as of the last trading day of the preceding calendar month. SECTION 2.2. ELECTIVE DEFERRALS. A Director may elect to make deferrals in addition to the required deferrals described in Section 2.1 by submitting a Participation Agreement for a Deferral Period to the Company no later than thirty (30) days prior to the commencement of the Deferral Period and specifying the desired form of crediting method pursuant to Section 3.5. Each Director's Deferral Election shall be irrevocable except as authorized pursuant to Section 2.5. SECTION 2.3. LIMITATION ON DEFERRAL. Deferral Elections shall be subject to any limitation established by the Administrative Committee in advance of a Deferral Period, including a minimum deferral amount reasonably anticipated to be in excess of Eight Thousand Dollars ($8,000) per Deferral Period and a minimum deferral amount reasonably anticipated to be in excess of at least Two Thousand Dollars ($2,000) per Plan Year in the Deferral Period. The maximum Deferral Election for any Plan Year within a Deferral Period is an amount equal to one hundred (100%) of the Participant's Retainer Fees and Meeting Fees that would otherwise be payable in cash during such Plan Year. SECTION 2.4. TERMINATION OF SERVICE. A Participant's required deferrals pursuant to Section 2.1 and Deferral Elections shall terminate upon the Participant's Termination of Service. SECTION 2.5. MODIFICATION OF DEFERRAL ELECTIONS. Deferral Elections shall be irrevocable except as follows: (a) Financial Hardship. The Administrative Committee may permit a Participant to reduce the amount elected under a prior Deferral Election, or to waive the remaining deferrals under a prior Deferral Election, upon a finding that the Participant has suffered a Financial Hardship. (b) Accelerated Deferral. At the Administrative Committee's discretion, prior to the beginning of any Plan Year in any Deferral Period for which two or more Plan Years remain, a Participant may elect to accelerate the amount of Deferred Compensation previously elected pursuant to a Deferral Election for any of the remaining Plan Years in that Deferral Period; provided, however, that any acceleration of Deferred Compensation for remaining Plan Years in the Deferral Period shall not increase, for any single Plan Year, the total Retainer Fees or Meeting Fee deferrals above one hundred percent (100%) of the Participant's Retainer Fees and Meeting Fees payable in cash during the Plan Year. 6 ARTICLE III DEFERRED COMPENSATION ACCOUNTS SECTION 3.1. ACCOUNTS. For record-keeping purposes only, Accounts shall be maintained for each Participant. SECTION 3.2. DEFERRED COMPENSATION. A Participant's Deferred Compensation shall be credited to his or her Account as of the date when the corresponding non-deferred portion of the compensation is paid or would have been paid but for the deferral. Any Deferred Compensation attributable to the accrued benefit earned by the Participant as of December 31, 1998 under the Company's Retirement Plan for Non-Employee Directors shall be credited to the Participant's Account effective January 1, 1999. The Company shall have the right to withhold from any Retainer Fees or Meeting Fees or Plan benefits (or otherwise to cause the Director, his Beneficiary or the executor or administrator of his estate to make payment of) any federal, state, local or foreign taxes required to be withheld with respect to any Deferred Compensation or benefits paid pursuant to the Plan, including, but not limited to, Medicare taxes. SECTION 3.3. DEFERRED STOCK UNITS. When dividends are paid on shares of Common Stock, a Participant's Account which is then credited with DSUs shall be credited as of the dividend record date with an additional number of DSUs equal to (A) the total amount of dividends payable with respect to the number of shares of Common Stock represented by the DSUs then credited to such Participant's Account, divided by (B) the closing price per share of Common Stock on the dividend record date. SECTION 3.4. INTEREST RATE. Except as provided in Section 4.8, the cash portion of the Accounts shall be credited as of each Valuation Date with interest based on the rates specified below, compounded annually. Interest shall be credited as of each Valuation Date from the date when Deferred Compensation is credited to Accounts based on the cash portion of the balance of each Account. (a) Interest Rate During Participant's Lifetime. During a Participant's lifetime, the Participant's Account will be credited with interest at the greater of the Interest Rate previously announced by the Company to be applicable for the Plan Year or the current Citibank Base Rate. (b) Interest Rate After Participant's Death. Following a Participant's death, the Participant's Account will be credited with interest at an interest rate equal to the Citibank Base Rate. With respect to payments made pursuant to Section 4.3(a), no interest shall be credited on that portion of the benefit representing a Participant's unfulfilled Deferral Election for each unexpired Deferral Period. SECTION 3.5. ELECTION AS TO CREDITING METHOD. Once each Plan Year, a Participant may elect to have the balance credited to his Account allocated between DSUs and cash, and the corresponding crediting methods set forth in Sections 3.3 and 3.4 above, on a prospective basis. Such elections shall be made in the manner prescribed by the Administrative Committee and will 7 be effective as of the first day of the following Plan Year. Notwithstanding the foregoing, the required deferrals described in Section 2.1 will always be credited in the form of DSUs, regardless of a Participant's election, for the Plan Year for which such amounts are earned. Once the end of such Plan Year is reached, a Participant may elect to transfer the value of such DSUs into the cash portion of his Account. However, Deferral Elections may specify the initial form in which such Deferred Compensation (other than required deferrals described in Section 2.1) is to be credited. SECTION 3.6. DETERMINATION OF ACCOUNTS. A Participant's Account as of each Valuation Date shall consist of the balance of the Participant's Account as of the immediately preceding Valuation Date, plus the amount of the Participant's Deferred Compensation (in both cash and DSUs) since that Valuation Date, plus interest and dividend-derived DSUs credited to the Account and minus any distributions or reductions made from the Account since the immediately preceding Valuation Date. The value of DSUs credited to a Participant's Account shall equal the closing price per share of Common Stock as of the most recent Valuation Date. SECTION 3.7. VESTING OF ACCOUNTS. Each Participant shall be one hundred percent (100%) vested at all times in the amounts credited to his or her Account. SECTION 3.8. STATEMENT OF ACCOUNTS. At least annually, the Company shall provide each Participant with a statement setting forth the balance of his or her Account. ARTICLE IV PLAN BENEFITS SECTION 4.1. PLAN BENEFIT. A Participant's benefit under the Plan shall equal the amount of his or her Account as determined in accordance with Sections 3.6 and 4.6. DSUs credited to a Participant's Account shall be paid in cash based on the closing price of a share of Common Stock as of the most recent Valuation Date. SECTION 4.2. DISTRIBUTION UPON TERMINATION OF SERVICE. (a) Lump Sum. Benefits payable on account of a Participant's Termination of Service, other than due to the death of the Participant, shall be paid in a lump sum payment of cash unless the Participant has otherwise elected to have all or a portion of the benefits distributed in accordance with Section 4.2(b) and/or Section 4.2(c) hereof. (b) Deferred Commencement of Benefits. A Participant may elect to have cash payment of all or any portion of the Participant's Account commence on (i) January of any year following the Participant's Termination of Service or (ii) the later of the month following Retirement or completion of all the Participant Deferrals under the Plan, provided that payment of benefits must commence no later than the first January following the year in which the Participant will reach age seventy-two (72). 8 (c) Installment Payments. A Participant may elect to have payment of all or any portion of the Participant's Account benefits made in substantially equal monthly cash installment payments of five (5) years, ten (10) years or fifteen (15) years. The amount of each of the monthly installments shall be redetermined effective as of January 1 of each year based on the remaining Account balance and the remaining number of installment payments. (d) Change of Election. A Participant, other than a former Director, may change a distribution election once each year until the year in which the Participant attains age 70. The change must be made during a period established by the Administrative Committee which precedes a Deferral Period and is irrevocable until the next period established by the Administrative Committee. The Participant's distribution election shall become irrevocable as of the year in which the Participant attains age 70, except that a Participant may request in writing that the Administrative Committee approve a change of an election made pursuant to Subsection (b) or (c) at any time prior to commencement of the payment of benefits, or in the case of installment payments, following commencement of payments, if (i) the Administrative Committee determines that the Participant has experienced a Financial Hardship justifying the request for a change of election, or (ii) the Participant agrees to accept a reduction in the value of the benefit, as determined by the Administrative Committee, upon advice of counsel, to be necessary to preclude the receipt of taxable income by any Participant in the Plan before the Participant actually receives his or her benefit. If a Participant has a voluntary Termination of Service prior to the year in which the Participant attains age 72, the Administrative Committee shall not honor any change in distribution elections made within the two calendar years immediately preceding the year in which the Termination of Service occurred. The Participant's distribution election which had been made before that period shall be considered the controlling distribution election, unless the Participant requests and the Administrative Committee grants, a change of election for the reasons provided in (i) or (ii) above. (e) Payment of Benefits Upon Death of Participant. Upon a Participant's death, any of the Participant's vested and unpaid benefits shall be paid in accordance with the applicable provisions of Section 4.3. SECTION 4.3. SURVIVOR BENEFITS. (a) Death Prior to Termination of Service. If the Participant dies prior to Termination of Service, the Survivor Benefit shall be equal to the sum of the Participant's Account as determined in accordance with Section 3.6 and 4.6 plus an amount equal to the Participant's unfulfilled Deferral Elections for unexpired Deferral Periods, if any. The Survivor Benefit shall be paid in a lump sum payment of cash unless the Participant has elected to have all or a portion of the benefits distributed in accordance with Subsection (b) hereof. (b) Installment Payments. A Participant may elect to have payment of the Survivor Benefit made to the Participant's Beneficiary in substantially equal monthly cash payments of five (5) years, ten (10) years or fifteen (15) years if the Participant's Termination of Service is due to the death of the Participant. The amount of each of the monthly installments shall be redetermined effective as of January 1 of each year based on the remaining Account balance and 9 the amount, if any, attributable to the Participant's unfulfilled Deferral Elections and the remaining number of installment payments. (c) Death After Termination of Service. If the Participant dies after Termination of Service and all benefits have not been paid in a lump sum under Section 4.2(a), the Survivor Benefit shall be equal to the Participant's Account as determined in accordance with Sections 3.6 and 4.6 and payable in the form and at the time elected by the Participant. (d) Change of Election. A Beneficiary may request the Administrative Committee to approve a change in the form of payment from installments to a lump sum provided that (i) the Administrative Committee determines, upon application of the Beneficiary, that the Beneficiary has experienced a Financial Hardship justifying the request for a change of election, or (ii) the Beneficiary agrees to accept a reduction in the value of the benefit, as determined by the Administrative Committee, upon advice of counsel, to be necessary to preclude the receipt of taxable income by any Participant in the Plan in advance of the time the Participant actually receives his or her benefit. (e) Death Following Change in Control. If a Participant is entitled to a payment under Section 4.8 and dies prior to receiving his entire Account, the balance of the Participant's Account shall be paid to Participant's Beneficiary in cash in a lump sum payment or on an installment basis, according to the Participant's existing election of manner of payment on Change in Control. SECTION 4.4. IN-SERVICE DISTRIBUTIONS. A Participant may elect to receive an In-Service Distribution from his or her Account subject to the following restrictions: (a) Timing of Election. The election to take an In-Service Distribution from the Account for a particular Deferral Election must be made at the same time the Participant makes the particular Deferral Election. (b) Amount of Distribution. The amount which a Participant can elect to receive as an In-Service Distribution with respect to an Account shall be such portions of the Participant's Account balance for the amounts deferred under a particular Deferral Election, as prescribed by the Administrative Committee in advance of the Deferral Period. If a previously elected amount exceeds the Account balance when an In-Service Distribution is to be made, only the Account balance will be paid. (c) Timing and Manner of In-Service Distribution. The In-Service Distribution shall be made in cash and shall commence at the time and in the manner elected by the Participant in the Participation Agreement entered into with respect to the Deferral Election; provided, however, that if the Participant has a Termination of Service, the In-Service Distribution election will be canceled and distribution will be made pursuant to Section 4.2 and provided, further, that if the Participant commences Retirement and has elected payment upon Retirement, the In-Service Distribution election will be canceled and distribution will be made pursuant to Section 4.2. In no event shall an In- Service Distribution be made prior to two (2) years following the initial effective date of the particular Deferral Election. 10 (d) Treatment of Distribution. Amounts paid to a Participant pursuant to this Section 4.4 shall be treated as distributions from the Participant's Account. SECTION 4.5. UNSCHEDULED DISTRIBUTIONS. Upon a finding that a Participant has suffered a Financial Hardship or upon the Participant agreeing to accept a reduction of his or her benefit in an amount determined necessary by the Administrative Committee, upon advice of counsel, to avoid constructive receipt of taxable income by any other Participant, the Administrative Committee may, in its sole discretion, make distributions from an Account prior to the time specified for payment of the Account. Any unscheduled withdrawal will be paid in a lump sum cash payment and will be subject to a minimum amount of $10,000 and any additional conditions prescribed by the Administrative Committee. Applications for unscheduled distributions and determinations thereon by the Administrative Committee shall be in writing, and a Participant may be required to furnish proof of the Financial Hardship in a formal manner as deemed appropriate by the Administrative Committee, upon advice of counsel. SECTION 4.6. VALUATION AND SETTLEMENT. The date on which a lump sum is paid or the date on which installment payments commence shall be the "Settlement Date". The Settlement Date shall be no more than thirty (30) days after the last day of the month in which the Participant or his Beneficiary becomes entitled to payments on account of Retirement, Termination of Service or death, unless the Participant elected to defer commencement of payments pursuant to Section 4.2(b). The Settlement Date for an In-Service Distribution or delayed payments shall be the month which the Participant elects to have such payments commence in the election form for designation of form of payment. The amount of a lump sum and the initial amount of installment payments shall be based on the value of the Participant's Account as of the Valuation Date immediately preceding the Settlement Date. SECTION 4.7. SMALL BENEFIT. Notwithstanding any election made by the Participant, the Company may pay any benefit in the form of a lump sum cash payment to the Participant or any Beneficiary, if the value of the Plan benefits remaining following a distribution for any reason, or the benefit payable to the Participant or Beneficiary when payments to such Participant or Beneficiary would otherwise commence, is less than $2,000. SECTION 4.8. CHANGE IN CONTROL. Notwithstanding any contrary provisions of this Article IV, in the event that a Change in Control occurs while this Plan is in effect, the provisions of this Section 4.8 shall control. In the event of a Change in Control, the full amount of contributions and earnings accrued or credited to the Participant's Account (whether credited as cash amounts or as DSUs), as of the date immediately preceding the Change in Control, shall be distributed in cash to the Participant or the Participant's Beneficiary, if a Survivor Benefit is being paid to a Beneficiary at the time of Change in Control. Payment shall be made on a lump sum or installment basis, according to the Participant's election of the manner of payment on Change in Control. 11 Section 4.9. Combined Gross-up Payment; Tax Defense. (a) Combined Gross-up Payment. If a Participant becomes entitled to one or more payments (with a "payment" including, without limitation, an increase in pension benefits and the vesting of an option or other non-cash benefit or property) pursuant to the terms of any plan, arrangement or agreement with the Company (the "Total Payments"), which are or become subject to the tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") (or any similar tax that may hereafter be imposed) (the "Excise Tax"), the Company shall pay to the Participant an additional cash amount (the "Combined Gross-up Payment") such that the net amount retained by the participant after reduction for (i) any Excise Tax on the Total Payments and (ii) any federal, state and local income or employment tax and Excise Tax payable with respect to the Combined Gross-up Payment, shall equal the Total Payments. For purposes of determining the amount of the Combined Gross-up Payment, a Participant shall be deemed (i) to pay federal income taxes at the highest stated rate of federal income taxation (including surtaxes, if any) for the calendar year in which the Combined Gross up Payment is to be made; and (ii) to pay any applicable state and local income taxes at the highest stated rate of taxation (including surtaxes, if any) for the calendar year in which the Combined Gross-up Payment is to be made. Any Combined Gross-up Payment required hereunder shall be made to the Participant at the same time any Total Payment subject to the Excise Tax is paid or deemed received by the Participant. The Combined Gross-up Payment shall not be paid under this Plan if a Combined Gross- up Payment which is identical to or greater than the amount calculated under this Section 4.9 is paid under any other plan, arrangement or agreement with the Company. (b) Tax Defense. If, in connection with the examination of a Participant's tax return, the Internal Revenue Service asserts that any amount payable or benefit provided hereunder is a "parachute payment" as defined in the Code and such amount or benefit was not treated as a parachute payment in determining a Combined Gross-up Payment, the Company at its cost shall assume the defense of any controversy involving such issue and shall indemnify and hold the Participant harmless for all liabilities, costs, taxes, interest and penalties attributable to such issue and shall to the extent necessary (without duplication) increase the Combined Gross-up Payment to give effect to any additional amount or benefit determined to be a parachute payments. The Participant shall cooperate with the Company so that the Company will be able to challenge any adverse determination by the Internal Revenue Service through administrative proceedings and, if determined by the Company, through litigation. ARTICLE V DESIGNATION OF BENEFICIARY SECTION 5.1. DESIGNATION OF BENEFICIARY. Each Participant shall have the right to designate a Beneficiary or Beneficiaries to receive his interest in his Account upon his death as determined in accordance with Section 4.3. Such designation shall be made on a form provided by and delivered to the Company. The Participant shall have the right to change or revoke any such designation from time to time by filing a new designation or notice of revocation with the 12 Company. No notice to or consent by any Beneficiary shall be required to effect any such change or revocation. SECTION 5.2. FAILURE TO DESIGNATE BENEFICIARY. If a Participant fails to designate a Beneficiary before his or her death, or if no designated Beneficiary survives the Participant, the balance in the Participant's Account shall be paid in cash in a lump sum to the executor or administrator for his or her estate. ARTICLE VI ADMINISTRATION SECTION 6.1. ADMINISTRATIVE COMMITTEE. The Administrative Committee shall be responsible for the administration of the Plan. SECTION 6.2. RULES OF CONDUCT. The Administrative Committee shall adopt such rules for the conduct of its business and administration of this Plan as it considers desirable, provided they do not conflict with the provisions of this Plan. SECTION 6.3. LEGAL, ACCOUNTING, CLERICAL AND OTHER SERVICES. The Administrative Committee may authorize one or more of its members or any agent to act on its behalf and may contract for legal, accounting, clerical and other services to carry out this Plan. All expenses of the Administrative Committee shall be paid by the Company. SECTION 6.4. INTERPRETATION OF PROVISIONS. The Administrative Committee shall have the exclusive right and discretionary authority to interpret the provisions of this Plan and to decide questions arising in its administration. The decisions and interpretations of the Administrative Committee shall be final and binding on the Company, Participants, Directors, Beneficiaries and all other persons. SECTION 6.5. RECORDS OF ADMINISTRATION. Records reflecting the administration of this Plan shall be kept. SECTION 6.6. DENIAL OF CLAIM. The Administrative Committee shall provide adequate notice in writing to any Participant, Director or Beneficiary whose claim for benefits under this Plan has been denied, setting forth the specific reasons for such denial. The Participant, Director or Beneficiary will be given an opportunity for review by the Administrative Committee of the decision denying the claim. The Participant, Director or Beneficiary shall be given sixty (60) days from the date of the notice denying any such claim within which to request such review. SECTION 6.7. LIABILITY OF COMMITTEE. No member of the Administrative Committee shall be liable for any action taken in good faith or for exercise of any power given the Administrative Committee, or for the actions of other members of said Administrative Committee. 13 ARTICLE VII AMENDMENT AND DISCONTINUANCE SECTION 7.1. AMENDMENT OF PLAN. This Plan may be amended from time to time by the Board of Directors of the Company. SECTION 7.2. TERMINATION. The Company intends to continue this Plan indefinitely, but reserves the right to terminate it at any time. In the event of a Change in Control, this Plan shall be terminated following distribution of assets to Participants or to the Independent Plan Administrator under the Trust Agreement. SECTION 7.3. EFFECT OF AMENDMENT OR TERMINATION. No amendment or termination of this Plan may adversely affect the benefit payable to any former Participant or Beneficiary receiving benefits under this Plan prior to the effective date of the amendment or termination, or any Participant or Beneficiary of a deceased Participant who, as of such effective date, was vested in or eligible to receive a benefit under this Plan, except as follows. Payment of a Participant's Account to the Participant or a Beneficiary in a previously elected manner of distribution payable on Change in Control shall not be considered an amendment which adversely affects benefits under this Plan. No amendment or termination of this Plan due to a Change in Control shall adversely affect the amount of contributions and earnings accrued or credited to any former or current Participant's Account under this Plan immediately prior to the Change in Control. ARTICLE VIII MISCELLANEOUS SECTION 8.1. UNSECURED GENERAL CREDITOR. Participants and their Beneficiaries shall have no legal or equitable rights, claims or interests in any specific assets or property of the Company, nor shall they be the beneficiaries of, or have any rights, claims or interests in any life insurance policies, annuity contracts, or the proceeds therefrom owned, or which may be acquired by, the Company ("Policies"). Any such Policies or other assets of the Company shall be, and remain, the general, unpledged, unrestricted assets of the Company. The Company's obligation under the Plan shall be merely that of an unfunded and unsecured promise of the Company to pay money in the future. SECTION 8.2. GRANTOR TRUST. Although the Company is responsible for the payment of all benefits under the Plan, the Company may, in its sole discretion, contribute funds to a grantor trust for the purpose, as it deems appropriate, of paying benefits under this Plan. Such trust may be irrevocable, but assets of the trust shall be subject to the claims of creditors of the Company. 14 To the extent any benefits provided under the Plan are actually paid from the trust, the Company shall have no further obligation with respect thereto but to the extent not so paid, such benefits shall remain the obligation of, and shall be paid, by the Company. The Participants or Beneficiaries of deceased Participants shall have the status of unsecured creditors insofar as their legal claim for benefits under the Plan and shall have no security interest in the grantor trust. SECTION 8.3. PAYMENTS AND BENEFITS NOT ASSIGNABLE. Payments to and benefits under this Plan are not assignable, transferable or subject to alienation since they are primarily for the support and maintenance of the Participants and Beneficiaries. Likewise, such payments shall not be subject to attachment by creditors of, or through legal process against, the Company, the Administrative Committee or the Participants. SECTION 8.4. NO RIGHT TO SERVICE ON THE BOARD. The provisions of this Plan shall not give a Director the right to be retained in the service of the Company nor shall this Plan or any action taken under the Plan be construed as a contract for service on the Board. SECTION 8.5. ADJUSTMENTS. At the Company's request, the Administrative Committee may, with respect to a Participant, adjust such Participant's benefit under this Plan or make such other adjustments with respect to such Participant as are required to correct administrative errors or provide uniform treatment of Participants in a manner consistent with the intent and purpose of this Plan. SECTION 8.6. OBLIGATION TO COMPANY. If a Participant becomes entitled to a distribution of benefits under the Plan, and if at such time the Participant has outstanding any debt, obligation, or other liability representing an amount owing to the Company, or any benefit plan maintained by the Company, then the Company may offset such amount owed to it or such benefit plan against the amount of benefits otherwise distributable. Such determination shall be made by the Administrative Committee. SECTION 8.7. PROTECTIVE PROVISIONS. Each Participant shall cooperate with the Company by furnishing any and all information requested by the Company in order to facilitate the payment of benefits hereunder, taking such physical examinations as the Company may deem necessary and taking such other relevant action as may be requested by the Company. If a Participant refuses to cooperate, the Company shall have no further obligation to the Participant under the Plan. If the Participant makes any material misstatement of information or nondisclosure of medical history, then no benefits will be payable hereunder to such Participant or his Beneficiary, provided, that in the Company's sole discretion, benefits may be payable in an amount reduced to compensate the Company for any loss, cost, damage or expense suffered or incurred by the Company as a result in any way of any such action, misstatement or nondisclosure. SECTION 8.8. GENDER, SINGULAR AND PLURAL. All pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, or neuter, as the identity of the person or persons may require. As the context may require, the singular may be read as the plural and the plural as the singular. 15 SECTION 8.9. LAW GOVERNING. This Plan shall be construed, regulated and administered under the laws of the State of Texas, except to the extent that such laws are preempted by ERISA. SECTION 8.10. NOTICE. Any notice or filing required or permitted to be given to the Administrative Committee or the Company under the Plan shall be sufficient if in writing and hand delivered, or sent by registered or certified mail, to the principal office of the Company, directed to the attention of the Secretary of the Company. Such notice shall be deemed given as to the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification. SECTION 8.11. SUCCESSORS AND ASSIGNS. This Plan shall be binding upon the Company and its successors and assigns. SECTION 8.12. PROVISIONS FOR INCAPACITY. If the Administrative Committee deems any person entitled to receive any payment under the provisions of this Plan incapable of receiving or disbursing the same by reason of minority, illness or infirmity, mental incompetency, or incapacity of any kind, the Administrative Committee may, in its sole discretion, take any one or more of the following actions: it may apply such payment directly for the comfort, support and maintenance of such person; it may reimburse any person for any such support theretofore supplied to the person entitled to receive any such payment; or it may pay such payment to any other person selected by the Administrative Committee to disburse such payment for the comfort, support and maintenance of the person entitled thereto, including, without limitations, to any relative who has undertaken, wholly or partially, the expense of such person's comfort, care and maintenance, or any institution in whose care or custody the person entitled to the payment may be. The Administrative Committee may, in its sole discretion, deposit any payment due to a minor to the minor's credit in any savings or commercial bank of the Administrative Committee's choice. IN WITNESS WHEREOF, LYONDELL CHEMICAL COMPANY, acting by and through its duly authorized officer, has caused this Instrument to be executed on this 9th day of May, 2001. ATTEST: LYONDELL CHEMICAL COMPANY By: /s/ Michelle S. Miller By: /s/ Kerry A. Galvin ------------------------ --------------------- Assistant Secretary Kerry A. Galvin Secretary 16 -----END PRIVACY-ENHANCED MESSAGE-----