-----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, LqYCFukxTxZk5MLvEREFb0yonPCjxK7RUtzeUpfHr0pZQGZjWYYRIT9AFaekCL5i SRrCkhog6A2mCHRSMDoYug== 0000899243-98-001251.txt : 19980630 0000899243-98-001251.hdr.sgml : 19980630 ACCESSION NUMBER: 0000899243-98-001251 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 12 FILED AS OF DATE: 19980629 SROS: NYSE GROUP MEMBERS: LYONDELL ACQUISITION CORPORATION GROUP MEMBERS: LYONDELL PETROCHEMICAL CO SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: ARCO CHEMICAL CO CENTRAL INDEX KEY: 0000819544 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL ORGANIC CHEMICALS [2860] IRS NUMBER: 510104393 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D SEC ACT: SEC FILE NUMBER: 005-38981 FILM NUMBER: 98657109 BUSINESS ADDRESS: STREET 1: 3801 WEST CHESTER PIKE CITY: NEWTOWN SQUARE STATE: PA ZIP: 19073 BUSINESS PHONE: 6103592000 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: LYONDELL PETROCHEMICAL 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: SC 13D BUSINESS ADDRESS: STREET 1: 1221 MCKINNEY ST STREET 2: STE 1600 CITY: HOUSTON STATE: TX ZIP: 77010 BUSINESS PHONE: 7136527200 MAIL ADDRESS: STREET 1: 1221 MCKINNEY ST STREET 2: SUITE 1600 CITY: HOUSTON STATE: TX ZIP: 77010 SC 13D 1 SCHEDULE 13D - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- SCHEDULE 14D-1 TENDER OFFER STATEMENT PURSUANT TO SECTION 14(D)(1) OF THE SECURITIES EXCHANGE ACT OF 1934 ---------------- AND SCHEDULE 13D+ UNDER THE SECURITIES EXCHANGE ACT OF 1934 ARCO CHEMICAL COMPANY (NAME OF SUBJECT COMPANY) LYONDELL ACQUISITION CORPORATION LYONDELL PETROCHEMICAL COMPANY (BIDDERS) COMMON STOCK, PAR VALUE $1.00 PER SHARE 001920-10-7 ----------------------- (CUSIP NUMBER OF CLASS OF SECURITIES) KERRY A. GALVIN, ESQ. LYONDELL ACQUISITION CORPORATION C/O LYONDELL PETROCHEMICAL COMPANY 1221 MCKINNEY, SUITE 1600 HOUSTON, TEXAS 77010 (713) 652-7300 (NAME, ADDRESS AND TELEPHONE NUMBER OF PERSONS AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF OF BIDDERS) COPY TO: STEPHEN A. MASSAD BAKER & BOTTS, L.L.P. ONE SHELL PLAZA 910 LOUISIANA HOUSTON, TEXAS 77002-4995 (713) 229-1234 JUNE 18, 1998 (DATE OF EVENT WHICH REQUIRES FILING STATEMENT ON SCHEDULE 13D) CALCULATION OF FILING FEE - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
TRANSACTION AMOUNT OF VALUATION* FILING FEE - ------------------------------------------------------------------------------ $5,769,329,645 $1,153,866 - ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------- +This Statement constitutes the Statement on Schedule 13D of Lyondell Acquisition Corporation and Lyondell Petrochemical Company filed with respect to the shares of Common Stock, par value $1.00 per share, of ARCO Chemical Company. *For purposes of calculating amount of filing fee only. The amount assumes the purchase of 99,901,812 shares of common stock of the subject company, par value $1.00 per share, (collectively, the "Shares"), at a price per Share of $57.75 in cash. Such number of Shares represents all the Shares outstanding as of June 16, 1998, plus the number of Shares issuable upon the exercise of all outstanding options or other rights to acquire Shares. [_] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. Amount Previously Paid: None Form or Registration No.: N/A Filing Party: N/A Date Filed: N/A - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- CUSIP NO. 001920-10-7 (1)Names of Reporting Persons S.S. or I.R.S. Identification Nos. of Above Persons LYONDELL PETROCHEMICAL COMPANY I.R.S. No. 95-4160558 - -------------------------------------------------------------------------------- (2)Check the Appropriate Box if a Member of a Group (a) [_] (b) [_] - -------------------------------------------------------------------------------- (3)SEC Use Only - -------------------------------------------------------------------------------- (4)Source of Funds BK, OO - -------------------------------------------------------------------------------- (5)Check if Disclosure of Legal Proceedings is Required Pursuant to Items 2(e) or 2(f) [_] - -------------------------------------------------------------------------------- (6)Citizenship or Place of Organization Delaware - -------------------------------------------------------------------------------- (7)Aggregate Amount Beneficially Owned by Each Reporting Person: 80,000,001* - -------------------------------------------------------------------------------- (8)Check if the Aggregate Amount in Row (7) Excludes Certain Shares [_] - -------------------------------------------------------------------------------- (9)Percent of Class Represented by Amount in Row (7) Approximately 80.1% of the Shares outstanding on a fully diluted basis. - -------------------------------------------------------------------------------- (10)Type of Reporting Person CO * See Footnote on Next Page. CUSIP NO. 001920-10-7 (1)Names of Reporting Persons S.S. or I.R.S. Identification Nos. of Above Persons Lyondell Acquisition Corporation I.R.S. No. Applied For - ------------------------------------------------------------------------------- (2)Check the Appropriate Box if a Member of a Group (a) [_] (b) [_] - ------------------------------------------------------------------------------- (3)SEC Use Only - ------------------------------------------------------------------------------- (4)Source of Funds AF - ------------------------------------------------------------------------------- (5)Check if Disclosure of Legal Proceedings is Required Pursuant to Items 2(e) or 2(f) [_] - ------------------------------------------------------------------------------- (6)Citizenship or Place of Organization Delaware - ------------------------------------------------------------------------------- (7)Aggregate Amount Beneficially Owned by Each Reporting Person: 80,000,001* - ------------------------------------------------------------------------------- (8)Check if the Aggregate Amount in Row (7) Excludes Certain Shares [_] - ------------------------------------------------------------------------------- (9)Percent of Class Represented by Amount in Row (7) Approximately 80.1% of the Shares outstanding on a fully diluted basis. - ------------------------------------------------------------------------------- (10)Type of Reporting Person CO *On June 18, 1998, Lyondell Petrochemical Company ("Lyondell") and Lyondell Acquisition Corporation (the "Purchaser") entered into a Tender and Voting Agreement (the "Tender and Voting Agreement") with Atlantic Richfield Company ("ARCO"), a stockholder of ARCO Chemical Company, a Delaware corporation (the "Company"). ARCO has represented in the Tender and Voting Agreement that it has sole voting and dispositive power over 80,000,001 shares of common stock, par value $1.00 per share of the Company ("Shares"). Pursuant to the Tender and Voting Agreement, ARCO has agreed to tender into the Offer (as hereinafter defined), and not withdraw as long as the Tender and Voting Agreement remains in effect, all such Shares as well as any Shares thereafter acquired by it. Under the Tender and Voting Agreement, ARCO has granted to Lyondell a proxy, which is irrevocable during the term of the Tender and Voting Agreement, with respect to the Shares subject to the Tender and Voting Agreement to vote such Shares under certain circumstances. Lyondell's right to vote the Shares subject to the Tender and Voting Agreement is reflected in Rows 7 and 9 of each of the tables above. A copy of the Tender and Voting Agreement is attached hereto as Exhibit (c)(2), and the Tender and Voting Agreement is described more fully in Section 12 of the Offer to Purchase dated June 24, 1998 (the "Offer to Purchase") attached hereto as Exhibit (a)(1). This Tender Offer Statement on Schedule 14D-1 constitutes a Statement on Schedule 13D with respect to Lyondell's and the Purchaser's possible beneficial ownership of Shares pursuant to the Tender and Voting Agreement. The cover page above and item numbers and responses thereto below are in accordance with the requirements of Schedule 14D-1. ITEM 1. SECURITY AND SUBJECT COMPANY. (a) The name of the subject company is ARCO Chemical Company, a Delaware corporation (the "Company"), which has its principal executive offices at 3801 West Chester Pike, Newtown Square, Pennsylvania 19073-2387. (b) This Schedule 14D-1 relates to the offer by the Purchaser to purchase all the outstanding Shares at a price of $57.75 per Share, net to the seller in cash (the "Offer Price'), upon the terms and subject to the conditions set forth in the Offer to Purchase and in the related Letter of Transmittal (which, together with any amendments or supplements thereto, collectively constitute the "Offer"), copies of which are attached hereto as Exhibits (a)(1) and (a)(2), respectively. Information concerning the number of outstanding Shares is set forth in "Introduction" of the Offer to Purchase and is incorporated herein by reference. (c) Information concerning the principal market in which the Shares are traded and the high and low sales prices of Shares for each quarterly period during the past two years is set forth in Section 6 ("Price Range of the Shares; Dividends on the Shares") of the Offer to Purchase and is incorporated herein by reference. ITEM 2. IDENTITY AND BACKGROUND. (a)-(d) AND (g) This Schedule 14D-1 is being filed by the Purchaser, a Delaware corporation, and Lyondell, a Delaware corporation. The Purchaser is a wholly owned subsidiary of Lyondell. Information concerning the principal business and the address of the principal offices of the Purchaser and Lyondell is set forth in Section 9 ("Certain Information Concerning the Purchaser and Lyondell") of the Offer to Purchase and is incorporated herein by reference. Information regarding the names, business addresses, principal occupation and occupations, positions, offices or employments during the last five years as well as the other information required by Item 2 with respect to the directors and executive officers of the Purchaser and Lyondell is set forth in Schedule I to the Offer to Purchase and is incorporated herein by reference. (e) AND (f) None. ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE SUBJECT COMPANY. (a) AND (b) The information set forth in Section 11 ("Contacts and Transactions with the Company; Background of the Offer") and Section 12 ("Purpose of the Offer; The Merger Agreement; The Tender and Voting Agreement") of the Offer to Purchase is incorporated herein by reference. ITEM 4. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION. (a) AND (b) The information set forth in Section 10 ("Source and Amount of Funds") of the Offer to Purchase is incorporated herein by reference. ITEM 5. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE BIDDER. (a)-(e) The information set forth in Section 12 ("Purpose of the Offer; The Merger Agreement; The Tender and Voting Agreement") of the Offer to Purchase is incorporated herein by reference. (f) AND (g) The information set forth in Section 7 ("Effect of the Offer on the Market for the Shares; Share Quotation; Exchange Act Registration; Margin Regulations") of the Offer to Purchase is incorporated herein by reference. 1 ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY. (a) AND (b) The information set forth in "Introduction", Section 9 ("Certain Information Concerning the Purchaser and Lyondell") and Section 12 ("Purpose of the Offer; The Merger Agreement; The Tender and Voting Agreement") of the Offer to Purchase is incorporated herein by reference. ITEM 7. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO THE SUBJECT COMPANY'S SECURITIES. The information set forth in "Introduction", Section 9 ("Certain Information Concerning the Purchaser and Lyondell"), Section 11 ("Contacts and Transactions with the Company; Background of the Offer") and Section 12 ("Purpose of the Offer; The Merger Agreement; The Tender and Voting Agreement") of the Offer to Purchase is incorporated herein by reference. ITEM 8. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED. The information set forth in "Introduction" and in Section 16 ("Fees and Expenses") of the Offer to Purchase is incorporated herein by reference. ITEM 9. FINANCIAL STATEMENTS OF CERTAIN BIDDERS. Not applicable. ITEM 10. ADDITIONAL INFORMATION. (a) Not applicable. (b) AND (c) The information set forth in Section 15 ("Certain Legal Matters") of the Offer to Purchase is incorporated herein by reference. (d) The information set forth in Section 7 ("Effect of the Offer on the Market for the Shares; Share Quotation; Exchange Act Registration; Margin Regulations") of the Offer to Purchase is incorporated herein by reference. (e) Not Applicable. (f) The information set forth in the Offer to Purchase, the Letter of Transmittal, the Agreement and Plan of Merger dated as of June 18, 1998, among the Purchaser, Lyondell and the Company and the Tender and Voting Agreement, copies of which are attached hereto as Exhibits (a)(1), (a)(2), (c)(1) and (c)(2), respectively, is incorporated herein by reference. 2 ITEM 11. MATERIALS TO BE FILED AS EXHIBITS. (a)(1) Offer to Purchase. (a)(2) Letter of Transmittal. (a)(3) Notice of Guaranteed Delivery. (a)(4) Letter to Brokers, Dealers, Banks, Trust Companies and Other Nominees. (a)(5) Letter to Clients for use by Brokers, Dealers, Banks, Trust Companies and Other Nominees. (a)(6) Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. (a)(7) Form of Summary Advertisement dated June 24, 1998. *(a)(8) Text of Press Release dated June 18, 1998 issued by Lyondell (Incorporated herein by this reference to Exhibit 99 of Lyondell's Report on Form 8-K dated June 18, 1998). (a)(9) Text of Press Release dated June 24, 1998, issued by Lyondell. (b)(1) Commitment Letter dated June 17, 1998, among Lyondell, J.P. Morgan Securities Inc., Donaldson Lufkin & Jenrette Securities Corporation, BancAmerica Robertson Stephens, Chase Securities Inc., Morgan Guaranty Trust Company of New York, DLJ Capital Funding, Inc., Bank of America National Trust and Savings Association, The Chase Manhattan Bank, Citibank, N.A. and NationsBank, N.A. (c)(1) Agreement and Plan of Merger dated as of June 18, 1998, among the Purchaser, Lyondell and the Company. *(c)(2) Tender and Voting Agreement dated as of June 18, 1998, among the Purchaser, Lyondell and ARCO (Incorporated herein by this reference to Exhibit 10.3 of Lyondell's Report on Form 8-K dated June 18, 1998). *(c)(3) Tax Agreement dated as of June 18, 1998, among ARCO, the Company and Lyondell (Incorporated herein by this reference to Exhibit 10.2 of Lyondell's Report on Form 8-K dated June 18, 1998). (c)(4) Guaranty by Lyondell dated as of June 18, 1998. (d) None. (e) Not applicable. (f) None.
- -------- * Incorporated by reference as indicated. 3 SIGNATURE After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Dated: June 24, 1998 Lyondell Acquisition Corporation By: /s/ Kerry A. Galvin --------------------------- Name:Kerry A. Galvin Title:Vice President Lyondell Petrochemical Company By: /s/ Kerry A. Galvin --------------------------- Name:Kerry A. Galvin Title:Chief Corporate Counsel and Corporate Secretary 4 EXHIBIT INDEX (a)(1) Offer to Purchase. (a)(2) Letter of Transmittal. (a)(3) Notice of Guaranteed Delivery. (a)(4) Letter to Brokers, Dealers, Banks, Trust Companies and Other Nominees. (a)(5) Letter to Clients for use by Brokers, Dealers, Banks, Trust Companies and Other Nominees. (a)(6) Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. (a)(7) Form of Summary Advertisement dated June 24, 1998. *(a)(8) Text of Press Release dated June 18, 1998 issued by Lyondell (Incorporated herein by this reference to Exhibit 99 of Lyondell's Report on Form 8-K dated June 18, 1998). (a)(9) Text of Press Release dated June 24, 1998, issued by Lyondell. (b)(1) Commitment Letter dated June 17, 1998, among Lyondell, J.P. Morgan Securities Inc., Donaldson Lufkin & Jenrette Securities Corporation, BancAmerica Robertson Stephens, Chase Securities Inc., Morgan Guaranty Trust Company of New York, DLJ Capital Funding, Inc., Bank of America National Trust and Savings Association, The Chase Manhattan Bank, Citibank, N.A. and NationsBank, N.A. (c)(1) Agreement and Plan of Merger dated as of June 18, 1998, among the Purchaser, Lyondell and the Company. *(c)(2) Tender and Voting Agreement dated as of June 18, 1998, among the Purchaser, Lyondell and ARCO (Incorporated herein by this reference to Exhibit 10.3 of Lyondell's Report on Form 8-K dated June 18, 1998). *(c)(3) Tax Agreement dated as of June 18, 1998, among ARCO, the Company and Lyondell (Incorporated herein by this reference to Exhibit 10.2 of Lyondell's Report on Form 8-K dated June 18, 1998). (c)(4) Guaranty by Lyondell dated as of June 18, 1998. (d) None. (e) Not applicable. (f) None.
- -------- * Incorporated by reference as indicated. 5 EX-99.A1 2 OFFER TO PURCHASE OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK OF ARCO CHEMICAL COMPANY AT $57.75 NET PER SHARE BY LYONDELL ACQUISITION CORPORATION, A WHOLLY OWNED SUBSIDIARY OF LYONDELL PETROCHEMICAL COMPANY THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON WEDNESDAY, JULY 22, 1998 UNLESS THE OFFER IS EXTENDED THE BOARD OF DIRECTORS OF ARCO CHEMICAL COMPANY HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT (AS DEFINED HEREIN) AND THE TRANSACTIONS CONTEMPLATED THEREBY AND DETERMINED THAT THE OFFER AND THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, STOCKHOLDERS OF ARCO CHEMICAL COMPANY AND UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS OF ARCO CHEMICAL COMPANY ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (1) THERE BEING VALIDLY TENDERED AND NOT PROPERLY WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER SUCH NUMBER OF SHARES THAT, TOGETHER WITH ANY SHARES OWNED BY PURCHASER, LYONDELL AND THEIR AFFILIATES, WOULD CONSTITUTE AT LEAST A MAJORITY OF ALL OUTSTANDING SHARES ON A FULLY DILUTED BASIS AND (2) THE WAITING PERIOD UNDER THE HART- SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF 1976 APPLICABLE TO THE PURCHASE OF SHARES PURSUANT TO THE OFFER HAVING EXPIRED OR BEEN TERMINATED. LYONDELL AND THE PURCHASER HAVE ENTERED INTO A TENDER AND VOTING AGREEMENT DATED AS OF JUNE 18, 1998 WITH ATLANTIC RICHFIELD COMPANY, WHICH HAS REPRESENTED THAT IT HAS SOLE VOTING AND DISPOSITIVE POWER OVER 80,000,001 SHARES (APPROXIMATELY 80.1% OF THE OUTSTANDING SHARES ON A FULLY DILUTED BASIS). PURSUANT TO THE TENDER AND VOTING AGREEMENT, AMONG OTHER THINGS, ATLANTIC RICHFIELD COMPANY HAS AGREED TO TENDER ALL SUCH SHARES PURSUANT TO THE OFFER AND NOT WITHDRAW SUCH SHARES AS LONG AS THE TENDER AND VOTING AGREEMENT REMAINS IN EFFECT. THE DEALER MANAGER FOR THE OFFER IS J.P. MORGAN & CO. June 24, 1998 IMPORTANT Any stockholder desiring to tender all or any portion of such stockholder's Shares (as defined herein) should either (1) complete and sign the Letter of Transmittal (or a facsimile thereof) in accordance with the instructions in the Letter of Transmittal, have such stockholder's signature thereon guaranteed if required by Instruction 1 to the Letter of Transmittal, mail or deliver the Letter of Transmittal (or such facsimile), and any other required documents to the Depositary (as defined herein) and deliver the certificates for such Shares to the Depositary along with the Letter of Transmittal (or such facsimile) or, in the case of a book-entry transfer effected pursuant to the procedures described in Section 2, deliver an Agent's Message (as defined herein) and any other required documents to the Depositary and deliver such Shares pursuant to the procedures for book-entry transfer described in Section 2, in each case prior to the expiration of the Offer or (2) request such stockholder's broker, dealer, bank, trust company or other nominee to effect the transaction for such stockholder. A stockholder having Shares registered in the name of a broker, dealer, bank, trust company or other nominee must contact such broker, dealer, bank, trust company or other nominee if such stockholder desires to tender such Shares. A stockholder who desires to tender Shares and whose certificates for such Shares are not immediately available, or who cannot comply in a timely manner with the procedure for book-entry transfer, or who cannot deliver all required documents to the Depositary prior to the expiration of the Offer, may tender such Shares by following the procedures for guaranteed delivery described in Section 2. Questions and requests for assistance or for additional copies of this Offer to Purchase, the Letter of Transmittal and the Notice of Guaranteed Delivery may be directed to Georgeson & Company Inc. or to J.P. Morgan & Co. at their respective addresses and telephone numbers set forth on the back cover of this Offer to Purchase. ii TABLE OF CONTENTS
PAGE ---- INTRODUCTION............................................................. 1 THE TENDER OFFER......................................................... 3 1. TERMS OF THE OFFER.................................................. 3 2. PROCEDURE FOR TENDERING SHARES...................................... 4 3. WITHDRAWAL RIGHTS................................................... 7 4. ACCEPTANCE FOR PAYMENT AND PAYMENT.................................. 7 5. CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES........................ 8 6. PRICE RANGE OF THE SHARES; DIVIDENDS ON THE SHARES.................. 9 7. EFFECT OF THE OFFER ON THE MARKET FOR THE SHARES; SHARE QUOTATION; EXCHANGE ACT REGISTRATION; MARGIN REGULATIONS...................... 10 8. CERTAIN INFORMATION CONCERNING THE COMPANY.......................... 11 9. CERTAIN INFORMATION CONCERNING THE PURCHASER AND LYONDELL........... 12 10. SOURCE AND AMOUNT OF FUNDS.......................................... 13 11. CONTACTS AND TRANSACTIONS WITH THE COMPANY; BACKGROUND OF THE OFFER. 15 12. PURPOSE OF THE OFFER; THE MERGER AGREEMENT; THE TENDER AND VOTING AGREEMENT.......................................................... 17 13. DIVIDENDS AND DISTRIBUTIONS......................................... 29 14. CERTAIN CONDITIONS OF THE OFFER..................................... 30 15. CERTAIN LEGAL MATTERS............................................... 32 16. FEES AND EXPENSES................................................... 34 17. MISCELLANEOUS....................................................... 34
iii To the Holders of Common Stock of ARCO Chemical Company INTRODUCTION Lyondell Acquisition Corporation, a Delaware corporation (the "Purchaser") and a wholly owned subsidiary of Lyondell Petrochemical Company, a Delaware corporation ("Lyondell"), hereby offers to purchase all the issued and outstanding shares (the "Shares") of Common Stock, par value $1.00 per share (the "Common Stock"), of ARCO Chemical Company, a Delaware corporation (the "Company"), at a purchase price of $57.75 per Share, net to the seller in cash, without interest thereon (the "Offer Price"), upon the terms and subject to the conditions set forth in this Offer to Purchase and in the related Letter of Transmittal (which, together with any amendments or supplements hereto or thereto, collectively constitute the "Offer"). Tendering stockholders will not be obligated to pay brokerage fees or commissions or, except as set forth in Instruction 6 of the Letter of Transmittal, transfer taxes on the purchase of Shares pursuant to the Offer. The Purchaser will pay all fees and expenses of J.P. Morgan & Co., which is acting as Dealer Manager (the "Dealer Manager"), The Bank of New York, which is acting as the Depositary (the "Depositary"), and Georgeson & Company Inc., which is acting as the Information Agent (the "Information Agent"), incurred in connection with the Offer. See Section 16. THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE OTHER TRANSACTIONS CONTEMPLATED THEREBY AND DETERMINED THAT THE OFFER AND THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, STOCKHOLDERS OF THE COMPANY AND UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS OF THE COMPANY ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER. THE FACTORS CONSIDERED BY THE BOARD OF DIRECTORS OF THE COMPANY IN ARRIVING AT ITS DECISION TO APPROVE THE MERGER AGREEMENT AND THE OTHER TRANSACTIONS CONTEMPLATED THEREBY AND TO RECOMMEND THAT STOCKHOLDERS OF THE COMPANY ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER WILL BE DESCRIBED IN THE COMPANY'S SOLICITATION/RECOMMENDATION STATEMENT ON SCHEDULE 14D-9 (THE "SCHEDULE 14D-9") TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION"). MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED ("MERRILL LYNCH") HAS ACTED AS THE COMPANY'S FINANCIAL ADVISORS. THE OPINION OF MERRILL LYNCH DATED JUNE 18, 1998, THAT, AS OF SUCH DATE, THE CONSIDERATION TO BE RECEIVED IN THE OFFER AND THE MERGER BY THE COMPANY'S STOCKHOLDERS IS FAIR TO THE HOLDERS OF SHARES (OTHER THAN ARCO (AS DEFINED HEREIN)) FROM A FINANCIAL POINT OF VIEW, WILL BE SET FORTH IN FULL AS AN ANNEX TO THE SCHEDULE 14D-9. STOCKHOLDERS OF THE COMPANY ARE URGED TO, AND SHOULD, READ SUCH OPINION CAREFULLY IN ITS ENTIRETY. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (I) THERE BEING VALIDLY TENDERED AND NOT PROPERLY WITHDRAWN PRIOR TO THE EXPIRATION DATE (AS DEFINED IN SECTION 1) SUCH NUMBER OF SHARES THAT, TOGETHER WITH ANY SHARES OWNED BY THE PURCHASER, LYONDELL AND THEIR AFFILIATES, WOULD CONSTITUTE AT LEAST A MAJORITY OF ALL OUTSTANDING SHARES ON A FULLY DILUTED BASIS (THE "MINIMUM CONDITION") AND (II) THE WAITING PERIOD UNDER THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF 1976 (THE "HSR ACT") APPLICABLE TO THE PURCHASE OF SHARES PURSUANT TO THE OFFER HAVING EXPIRED OR BEEN TERMINATED (THE "HSR CONDITION"). Lyondell expects to make the filing pursuant to the HSR Act applicable to the Offer on June 25, 1998. Accordingly, the waiting period under the HSR Act would expire on July 10, 1998, unless the waiting period is extended as described in Section 15. The Offer is being made pursuant to an Agreement and Plan of Merger dated as of June 18, 1998 (the "Merger Agreement"), among Lyondell, the Purchaser and the Company. The Merger Agreement provides, among other things, for the making of the Offer by the Purchaser and further provides that, following the consummation of the Offer, upon the terms and subject to the conditions of the Merger Agreement and the General Corporation Law of the State of Delaware (the "DGCL"), the Purchaser will be merged with and into 1 the Company (the "Merger") with the Company surviving the Merger as a wholly owned subsidiary of Lyondell. In the Merger, each issued Share (other than Shares owned by Lyondell, the Purchaser or the Company or any other subsidiary of Lyondell, or by stockholders, if any, who are entitled to and properly exercise appraisal rights under Delaware law) will be converted into the right to receive an amount in cash equal to the price per Share paid pursuant to the Offer, without interest thereon. Consummation of the Merger is subject to a number of conditions, including approval by stockholders of the Company if such approval is required under applicable law. See Section 12. In connection with the execution of the Merger Agreement, Lyondell and Purchaser entered into a Tender and Voting Agreement dated as of June 18, 1998 (the "Tender and Voting Agreement"), with Atlantic Richfield Company, a Delaware corporation ("ARCO"). ARCO has represented in the Tender and Voting Agreement that it has sole voting and dispositive power over 80,000,001 Shares, which represented approximately 80.1% of the outstanding Shares of the Company on a fully diluted basis as of June 18, 1998. Pursuant to the Tender and Voting Agreement, among other things, ARCO has agreed to tender all such Shares pursuant to the Offer, and not withdraw such Shares as long as the Tender and Voting Agreement remains in effect, and has granted Purchaser a proxy, which is irrevocable during the term of the Tender and Voting Agreement, to vote such Shares in favor of the Merger. See Section 12. The Merger Agreement and the Tender and Voting Agreement are more fully described in Section 12. The Company has informed the Purchaser that, as of June 16, 1998, there were 97,393,822 Shares issued and outstanding and 2,507,990 Shares reserved for issuance upon the exercise of outstanding options or other rights to purchase Shares from the Company. Based upon the foregoing and assuming that no Shares are otherwise issued after June 16, 1998, there would be 99,901,812 Shares outstanding on a fully diluted basis and the Minimum Condition will be satisfied if at least 49,950,907 Shares are validly tendered and not withdrawn prior to the Expiration Date. The actual number of Shares required to be tendered to satisfy the Minimum Condition will depend upon the actual number of Shares outstanding on the date that the Purchaser accepts Shares for payment pursuant to the Offer. If ARCO tenders the 80,000,001 Shares over which it has voting and dispositive power, the Minimum Condition will have been satisfied. If the Minimum Condition is satisfied and the Purchaser accepts for payment Shares tendered pursuant to the Offer, the Purchaser will be able to elect a majority of the members of the Company's Board of Directors and to effect the Merger without the affirmative vote of any other stockholder of the Company. See Section 12. Certain U.S. federal income tax consequences of the sale of Shares pursuant to the Offer and the conversion of Shares pursuant to the Merger are described in Section 5. THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT INFORMATION THAT SHOULD BE READ BEFORE ANY DECISION IS MADE WITH RESPECT TO THE OFFER. 2 THE TENDER OFFER 1. TERMS OF THE OFFER Upon the terms and subject to the conditions of the Offer, the Purchaser will accept for payment and pay for all Shares validly tendered prior to the Expiration Date and not theretofore withdrawn in accordance with Section 3. The term "Expiration Date" means 12:00 midnight, New York City time, on Wednesday, July 22, 1998 unless and until the Purchaser shall have extended the period of time during which the Offer is open, in which event the term "Expiration Date" shall mean the latest time and date on which the Offer, as so extended by the Purchaser, will expire. In the Merger Agreement, the Purchaser has agreed that it will not, without the consent of the Company, (a) reduce the number of Shares subject to the Offer, (b) reduce the Offer Price, (c) add to or modify the conditions to the Offer (which are set forth in Section 14), (d) except as set forth in the following sentence, extend the Offer, (e) change the form of consideration payable in the Offer or (f) amend or alter any other term of the Offer in any manner adverse to the Company's stockholders. However, the Merger Agreement provides that, without the consent of the Company, the Purchaser may (i) extend the Offer for any period required by any rule, regulation, interpretation or position of the Commission or the staff thereof applicable to the Offer, (ii) extend the Offer, if at the scheduled or extended Expiration Date, any of the conditions to the Offer are not satisfied or waived, until such time as such conditions are satisfied or waived, and (iii) extend the Offer on one occasion for a period of not more than 10 business days beyond the latest Expiration Date that would otherwise be permitted under the terms of clause (i) or (ii) of this sentence, if on such Expiration Date there shall not have been tendered at least 90% of the outstanding Shares. Notwithstanding the foregoing, Purchaser may not, without the Company's prior written consent, extend the Offer pursuant to clause (ii) of the prior sentence if the failure to satisfy any conditions to the Offer was directly or indirectly caused by an act or omission of Lyondell or Purchaser that constitutes a breach of the Merger Agreement. If any of the conditions of the Offer set forth in Section 14 (other than the Minimum Condition or if the Merger Agreement has been terminated in accordance with its terms) is not satisfied on the Expiration Date of the Offer, then the Purchaser must extend the Offer from time to time until such conditions are satisfied or waived, provided that (i) any such unsatisfied condition is reasonably capable of being satisfied, (ii) any Takeover Proposal (as defined in Section 12) theretofore received by the Company has been rejected by the Company (or, if not so rejected, was received less than ten days prior to the Expiration Date), and (iii) Purchaser shall not be required to extend the Offer to a date later than the Outside Date (as defined in Section 12). As used in this Offer to Purchase, "business day" has the meaning set forth in Rule l4d-1 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Subject to the terms of the Merger Agreement (which, as described above, prohibit certain amendments to the Offer without the consent of the Company) and the applicable rules and regulations of the Commission, the Purchaser reserves the right (but shall not be obligated except as described below), at any time and from time to time, and regardless of whether or not any of the events or facts set forth in Section 14 shall have occurred, (a) to extend the period of time during which the Offer is open, and thereby delay acceptance for payment of and the payment for any Shares, by giving oral or written notice of such extension to the Depositary and (b) to amend the Offer in any other respect by giving oral or written notice of such amendment to the Depositary. UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE PURCHASE PRICE FOR TENDERED SHARES, WHETHER OR NOT THE PURCHASER EXERCISES ITS RIGHT TO EXTEND THE OFFER. If by 12:00 midnight, New York City time, on Wednesday, July 22, 1998 (or any date or time then set as the Expiration Date), any or all of the conditions to the Offer have not been satisfied or waived, the Purchaser reserves the right (but shall not be obligated except as described below), subject to the terms and conditions contained in the Merger Agreement and to the applicable rules and regulations of the Commission, (a) to terminate the Offer and not accept for payment or pay for any Shares and return all tendered Shares to tendering stockholders, (b) to waive all the unsatisfied conditions and accept for payment and pay for all Shares validly tendered prior to the Expiration Date and not theretofore withdrawn, (c) to extend the Offer and, subject to the right of stockholders to withdraw Shares until the Expiration Date, retain the Shares that have been tendered during the period or periods for which the Offer is extended or (d) to amend the Offer. 3 Any extension, waiver, amendment or termination will be followed as promptly as practicable by public announcement thereof. In the case of an extension, Rule 14e-l(d) under the Exchange Act requires that the announcement be issued no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date in accordance with the public announcement requirements of Rule 14d-4(c) under the Exchange Act. Subject to applicable law (including Rules 14d-4(c) and 14d-6(d) under the Exchange Act, which require that any material change in the information published, sent or given to stockholders in connection with the Offer be promptly disseminated to stockholders in a manner reasonably designed to inform stockholders of such change) and without limiting the manner in which the Purchaser may choose to make any public announcement, the Purchaser will not have any obligation to publish, advertise or otherwise communicate any such public announcement other than by making a release to the Dow Jones News Service. If the Purchaser extends the Offer or if the Purchaser is delayed in its acceptance for payment of or payment (whether before or after its acceptance for payment of Shares) for Shares or it is unable to pay for Shares pursuant to the Offer for any reason, then, without prejudice to the Purchaser's rights under the Offer, the Depositary may retain tendered Shares on behalf of the Purchaser, and such Shares may not be withdrawn except to the extent tendering stockholders are entitled to withdrawal rights as described in Section 3. However, the ability of the Purchaser to delay the payment for Shares that the Purchaser has accepted for payment is limited by Rule 14e-l(c) under the Exchange Act, which requires that a bidder pay the consideration offered or return the securities deposited by or on behalf of holders of securities promptly after the termination or withdrawal of such bidder's offer, and by the terms of the Merger Agreement, which require that the Purchaser pay for Shares accepted for payment as soon as practicable after the Expiration Date. If the Purchaser makes a material change in the terms of the Offer or the information concerning the Offer or waives a material condition of the Offer, the Purchaser will disseminate additional tender offer materials and extend the Offer to the extent required by Rules 14d-4(c), 14d-6(d) and l4e-1 under the Exchange Act. The minimum period during which an offer must remain open following material changes in the terms of such offer or information concerning such offer, other than a change in price or a change in the percentage of securities sought, will depend upon the facts and circumstances then existing, including the relative materiality of the changed terms or information. With respect to a change in price or a change in the percentage of securities sought, a minimum period of 10 business days is generally required to allow for adequate dissemination to stockholders. The Company has provided the Purchaser with the Company's stockholder lists and security position listings for the purpose of disseminating the Offer to holders of Shares. This Offer to Purchase, the related Letter of Transmittal and other relevant materials will be mailed by the Purchaser to record holders of Shares, and will be furnished to brokers, dealers, banks, trust companies and similar persons whose names, or the names of whose nominees, appear on the stockholder lists, or, if applicable, who are listed as participants in a clearing agency's security position listing, for subsequent transmittal to beneficial owners of Shares. 2. PROCEDURE FOR TENDERING SHARES Valid Tender. For a stockholder validly to tender Shares pursuant to the Offer, either (a) a Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, together with any required signature guarantees, or, in the case of a book-entry transfer, an Agent's Message, and any other required documents, must be received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase prior to the Expiration Date and either certificates for tendered Shares must be received by the Depositary at one of such addresses or such Shares must be delivered pursuant to the procedures for book-entry transfer set forth below (and a Book-Entry Confirmation (as defined below) received by the Depositary), in each case prior to the Expiration Date, or (b) the tendering stockholder must comply with the guaranteed delivery procedures described below. Book-Entry Transfer. The Depositary will establish accounts with respect to the Shares at The Depository Trust Company (the "Book-Entry Transfer Facility") for purposes of the Offer within two business days after 4 the date of this Offer to Purchase. Any financial institution that is a participant of the Book-Entry Transfer Facility's system may make book-entry delivery of Shares by causing the Book-Entry Transfer Facility to transfer such Shares into the Depositary's account in accordance with the Book-Entry Transfer Facility's procedures for such transfer. However, although delivery of Shares may be effected through book-entry transfer into the Depositary's account at the Book-Entry Transfer Facility, the Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, with any required signature guarantees, or an Agent's Message, and any other required documents, must, in any case, be transmitted to, and received by, the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase prior to the Expiration Date, or the tendering stockholder must comply with the guaranteed delivery procedures described below. The confirmation of a book- entry transfer of Shares into the Depositary's account at the Book-Entry Transfer Facility as described above is referred to herein as a "Book-Entry Confirmation." DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE WITH THE BOOK-ENTRY TRANSFER FACILITY'S PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY. The term "Agent's Message" means a message transmitted by the Book-Entry Transfer Facility to, and received by, the Depositary and forming a part of a Book-Entry Confirmation, which states that the Book-Entry Transfer Facility has received an express acknowledgment from the participant in the Book-Entry Transfer Facility tendering the Shares that such participant has received and agrees to be bound by the terms of the Letter of Transmittal and that the Purchaser may enforce such agreement against the participant. THE METHOD OF DELIVERY OF SHARES, THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY TRANSFER FACILITY, IS AT THE ELECTION AND RISK OF THE TENDERING STOCKHOLDER. SHARES WILL BE DEEMED DELIVERED ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY (INCLUDING, IN THE CASE OF A BOOK-ENTRY TRANSFER, BY BOOK-ENTRY CONFIRMATION). IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. Signature Guarantees. No signature guarantee is required on the Letter of Transmittal (a) if the Letter of Transmittal is signed by the registered holder(s) (which term, for purposes of this Section 2, includes any participant in the Book-Entry Transfer Facility's system whose name appears on a security position listing as the owner of the Shares) of Shares tendered therewith and such registered holder has not completed either the box entitled "Special Delivery Instructions" or the box entitled "Special Payment Instructions" on the Letter of Transmittal or (b) if such Shares are tendered for the account of a financial institution (including most commercial banks, savings and loan associations and brokerage houses) that is a participant in the Security Transfer Agents Medallion Program, the New York Stock Exchange Medallion Signature Guarantee Program or the Stock Exchange Medallion Program (such participant, an "Eligible Institution"). In all other cases, all signatures on the Letter of Transmittal must be guaranteed by an Eligible Institution. See Instructions 1 and 5 to the Letter of Transmittal. If the certificates for Shares are registered in the name of a person other than the signer of the Letter of Transmittal, or if payment is to be made or certificates for Shares not tendered or not accepted for payment are to be returned to a person other than the registered holder of the certificates surrendered, the tendered certificates must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name or names of the registered holders or owners appear on the certificates, with the signatures on the certificates or stock powers guaranteed as aforesaid. See Instructions 1 and 5 to the Letter of Transmittal. Guaranteed Delivery. If a stockholder desires to tender Shares pursuant to the Offer and such stockholder's certificates for Shares are not immediately available or the procedures for book-entry transfer cannot be completed on a timely basis or time will not permit all required documents to reach the Depositary prior to the Expiration Date, such stockholder's tender may be effected if all the following conditions are met: (i) such tender is made by or through an Eligible Institution; 5 (ii) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form provided by the Purchaser, is received by the Depositary, as provided below, prior to the Expiration Date; and (iii) the certificates for all tendered Shares, in proper form for transfer (or a Book-Entry Confirmation with respect to all such Shares), together with a Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, with any required signature guarantees, or, in the case of a book-entry transfer, an Agent's Message, and any other required documents are received by the Depositary within three trading days after the date of execution of such Notice of Guaranteed Delivery. A "trading day" is any day on which the New York Stock Exchange, Inc. (the "NYSE") is open for business. The Notice of Guaranteed Delivery may be delivered to the Depositary and must include a guarantee by an Eligible Institution in the form set forth in such Notice of Guaranteed Delivery. The valid tender of Shares pursuant to one of the procedures described above will constitute a binding agreement between the tendering stockholder and the Purchaser upon the terms and subject to the conditions of the Offer. Appointment. By executing a Letter of Transmittal (or a facsimile thereof), a tendering stockholder will irrevocably appoint designees of the Purchaser as such stockholder's attorneys-in-fact and proxies in the manner set forth in the Letter of Transmittal, each with full power of substitution, to the full extent of such stockholder's rights with respect to the Shares tendered by such stockholder and accepted for payment by the Purchaser and with respect to any and all other Shares or other securities or rights issued or issuable in respect of such Shares on or after June 18, 1998. All such proxies will be considered coupled with an interest in the tendered Shares. Such appointment will be effective when, and only to the extent that, the Purchaser accepts for payment Shares tendered by such stockholder as provided herein. Upon such appointment, all prior powers of attorney, proxies and consents given by such stockholder with respect to such Shares or other securities or rights will, without further action, be revoked and no subsequent powers of attorney, proxies, consents or revocations may be given (and, if given, will not be effective). The designees of the Purchaser will thereby be empowered to exercise all voting and other rights with respect to such Shares and other securities or rights in respect of any annual, special or adjourned meeting of the Company's stockholders, actions by written consent in lieu of any such meeting or otherwise, as they in their sole discretion deem proper. The Purchaser reserves the right to require that, in order for Shares to be deemed validly tendered, immediately upon the Purchaser's acceptance for payment of such Shares, the Purchaser must be able to exercise full voting, consent and other rights with respect to such Shares and other securities or rights, including voting at any meeting of stockholders. Determination of Validity. All questions as to the validity, form, eligibility (including time of receipt) and acceptance of any tender of Shares will be determined by the Purchaser in its sole discretion, which determination will be final and binding. The Purchaser reserves the absolute right to reject any or all tenders determined by it not to be in proper form or the acceptance for payment of or payment for which may, in the opinion of the Purchaser's counsel, be unlawful. The Purchaser also reserves the absolute right to waive any defect or irregularity in the tender of any Shares of any particular stockholder whether or not similar defects or irregularities are waived in the case of other stockholders. No tender of Shares will be deemed to have been validly made until all defects or irregularities relating thereto have been cured or waived. None of the Purchaser, Lyondell, the Depositary, the Information Agent, the Dealer Manager or any other person will be under any duty to give notification of any defects or irregularities in tenders or incur any liability for failure to give any such notification. The Purchaser's interpretation of the terms and conditions of the Offer (including the Letter of Transmittal and the instructions thereto) will be final and binding. Backup Withholding. In order to avoid "backup withholding" of U.S. federal income tax on payments of cash pursuant to the Offer, a stockholder surrendering Shares in the Offer must, unless an exemption applies, provide the Depositary with such stockholder's correct taxpayer identification number ("TIN") on a Substitute 6 Form W-9 and certify under penalties of perjury that such TIN is correct and that such stockholder is not subject to backup withholding. If a stockholder does not provide such stockholder's correct TIN or fails to provide the certifications described above, the Internal Revenue Service (the "IRS") may impose a penalty on such stockholder and payment of cash to such stockholder pursuant to the Offer may be subject to backup withholding of 31%. All stockholders surrendering Shares pursuant to the Offer should complete and sign the main signature form and the Substitute Form W-9 included as part of the Letter of Transmittal to provide the information and certification necessary to avoid backup withholding (unless an applicable exemption exists and is proved in a manner satisfactory to the Purchaser and the Depositary). Certain stockholders (including, among others, all corporations and certain foreign individuals and entities) are not subject to backup withholding. Noncorporate foreign stockholders should complete and sign the main signature form and a Form W-8, Certificate of Foreign Status, a copy of which may be obtained from the Depositary, in order to avoid backup withholding. See Instruction 9 to the Letter of Transmittal. 3. WITHDRAWAL RIGHTS Except as otherwise provided in this Section 3, tenders of Shares are irrevocable. Shares tendered pursuant to the Offer may be withdrawn pursuant to the procedures set forth below at any time prior to the Expiration Date and, unless theretofore accepted for payment and paid for by the Purchaser pursuant to the Offer, may also be withdrawn at any time after August 22, 1998. For a withdrawal to be effective, a written notice of withdrawal must be timely received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase and must specify the name of the person having tendered the Shares to be withdrawn, the number of Shares to be withdrawn and the name of the registered holder of the Shares to be withdrawn, if different from the name of the person who tendered the Shares. If certificates for Shares have been delivered or otherwise identified to the Depositary, then, prior to the physical release of such certificates, the serial numbers shown on such certificates must be submitted to the Depositary and, unless such Shares have been tendered by an Eligible Institution, the signatures on the notice of withdrawal must be guaranteed by an Eligible Institution. If Shares have been delivered pursuant to the procedures for book-entry transfer described in Section 2, any notice of withdrawal must also specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Shares and otherwise comply with the Book- Entry Transfer Facility's procedures. Withdrawals of tenders of Shares may not be rescinded, and any Shares properly withdrawn will thereafter be deemed not validly tendered for purposes of the Offer. However, withdrawn Shares may be retendered by again following one of the procedures described in Section 2 at any time prior to the Expiration Date. All questions as to the form and validity (including time of receipt) of notices of withdrawal will be determined by the Purchaser in its sole discretion, which determination will be final and binding. None of the Purchaser, Lyondell, the Depositary, the Information Agent, the Dealer Manager or any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. 4. ACCEPTANCE FOR PAYMENT AND PAYMENT Upon the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of any such extension or amendment), the Purchaser will accept for payment and will pay promptly after the Expiration Date for all Shares validly tendered prior to the Expiration Date and not properly withdrawn in accordance with Section 3. The Purchaser expressly reserves the right to delay acceptance for payment of or payment for Shares in order to comply in whole or in part with any applicable law, including, without limitation, the HSR Act. Any such delays will be effected in compliance with Rule 14e-l(c) under the Exchange Act (relating to a bidder's obligation to pay for or return tendered securities promptly after the termination or withdrawal of such bidder's offer). Lyondell expects to file a Notification and Report Form with respect to the Offer under the HSR Act on June 25, 1998. Accordingly, the waiting period under the HSR Act with respect to the Offer would expire at 11:59 7 p.m., New York City time, on July 10, 1998. However, the Antitrust Division of the Department of Justice (the "Antitrust Division") or the Federal Trade Commission (the "FTC") may extend the waiting period by requesting additional information or documentary material from Lyondell. If such a request is made, such waiting period will expire at 11:59 p.m., New York City time, on the 10th day after substantial compliance by Lyondell with such request. See Section 15 for additional information concerning the HSR Act and the applicability of United States antitrust laws to the Offer. In all cases, payment for Shares accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of (a) certificates for (or a timely Book-Entry Confirmation with respect to) such Shares, (b) a Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, with any required signature guarantees, or, in the case of a book- entry transfer, an Agent's Message, with respect to such Shares and (c) any other documents required by the Letter of Transmittal. The per Share consideration paid to any stockholder pursuant to the Offer will be the highest per Share consideration paid to any other stockholder pursuant to the Offer. Accordingly, tendering stockholders may be paid at different times depending upon when certificates for Shares or Book-Entry Confirmations with respect to Shares are actually received by the Depositary. For purposes of the Offer, the Purchaser will be deemed to have accepted for payment, and thereby purchased, Shares properly tendered to the Purchaser and not withdrawn as, if and when the Purchaser gives oral or written notice to the Depositary of the Purchaser's acceptance for payment of such Shares. Payment for Shares accepted for payment pursuant to the Offer will be made by deposit of the purchase price therefor with the Depositary, which will act as an agent for tendering stockholders for the purpose of receiving payment from the Purchaser and transmitting payment to tendering stockholders. UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE PURCHASE PRICE OF THE SHARES TO BE PAID BY THE PURCHASER, REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN MAKING SUCH PAYMENT. If any tendered Shares are not purchased pursuant to the Offer for any reason, certificates for any such Shares will be returned, without expense to the tendering stockholder (or, in the case of Shares delivered by book-entry transfer of such Shares into the Depositary's account at the Book-Entry Transfer Facility pursuant to the procedures described in Section 2, such Shares will be credited to an account maintained at the Book-Entry Transfer Facility), as promptly as practicable after the expiration or termination of the Offer. The Purchaser reserves the right to transfer or assign, in whole or from time to time in part, to Lyondell, or to one or more direct or indirect wholly owned subsidiaries of Lyondell, the right to purchase Shares tendered pursuant to the Offer, but any such transfer or assignment will not relieve the Purchaser of its obligations under the Offer and will in no way prejudice the rights of tendering stockholders to receive payment for Shares validly tendered and accepted for payment pursuant to the Offer. 5. CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES The receipt of cash pursuant to the Offer or the Merger will be a taxable transaction for U.S. federal income tax purposes under the Internal Revenue Code of 1986, as amended (the "Code"), and may also be a taxable transaction under applicable state, local or foreign income or other tax laws. Generally, for U.S. federal income tax purposes, a stockholder will recognize gain or loss equal to the difference between the amount of cash received by the stockholder pursuant to the Offer or the Merger and the aggregate tax basis in the Shares tendered by the stockholder and purchased pursuant to the Offer or converted into cash in the Merger, as the case may be. Gain or loss will be calculated separately for each block of Shares tendered and purchased pursuant to the Offer or converted into cash in the Merger, as the case may be. If Shares are held by a stockholder as capital assets, gain or loss recognized by the stockholder will be capital gain or loss, which will be long-term capital gain or loss if the stockholder's holding period for the Shares exceeds one year, and in the case of a noncorporate stockholder, will be eligible for a maximum federal income tax rate of 28% (if the Shares were held for more than one year and no more than 18 months) or 20% (if the 8 Shares were held for more than 18 months). In addition, under present law the ability to use capital losses to offset ordinary income is limited. A stockholder that tenders Shares may be subject to 31% backup withholding unless the stockholder provides its TIN and certifies that such number is correct or properly certifies that it is awaiting a TIN, or unless an exemption applies. Exemptions are available for stockholders that are corporations and for certain foreign individuals and entities. A stockholder that does not furnish a required TIN may be subject to a penalty imposed by the IRS. See "Backup Withholding" under Section 2. If backup withholding applies to a stockholder, the Depositary is required to withhold 31% from payments to such stockholder. Backup withholding is not an additional tax. Rather, the amount of the backup withholding can be credited against the U.S. federal income tax liability of the person subject to the backup withholding, provided that the required information is given to the IRS. If backup withholding results in an overpayment of tax, a refund can be obtained by the stockholder by filing a federal income tax return. THE FOREGOING DISCUSSION MAY NOT BE APPLICABLE WITH RESPECT TO SHARES RECEIVED PURSUANT TO THE EXERCISE OF EMPLOYEE STOCK OPTIONS OR OTHERWISE AS COMPENSATION OR WITH RESPECT TO HOLDERS OF SHARES WHO ARE SUBJECT TO SPECIAL TAX TREATMENT UNDER THE CODE, SUCH AS NON-U.S. PERSONS, LIFE INSURANCE COMPANIES, TAX-EXEMPT ORGANIZATIONS AND FINANCIAL INSTITUTIONS, AND MAY NOT APPLY TO A HOLDER OF SHARES IN LIGHT OF INDIVIDUAL CIRCUMSTANCES. STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO THEM (INCLUDING THE APPLICATION AND EFFECT OF ANY STATE, LOCAL OR FOREIGN INCOME AND OTHER TAX LAWS) OF THE OFFER AND THE MERGER. 6. PRICE RANGE OF THE SHARES; DIVIDENDS ON THE SHARES The Shares are traded on the NYSE under the symbol "RCM." The following table sets forth, for each of the periods indicated, the high and low sales prices per Share on the NYSE Composite Transactions Tape and the amount of cash dividends paid per Share. ARCO CHEMICAL COMPANY
COMMON COMMON STOCK STOCK CASH HIGH LOW DIVIDENDS ------ ------ --------- Fiscal Year Ended December 31, 1996: First Quarter........... 52 7/8 48 1/2 $.70 Second Quarter.......... 54 50 1/2 $.70 Third Quarter........... 52 1/2 47 1/8 $.70 Fourth Quarter.......... 50 3/4 47 1/2 $.70 Fiscal Year Ended December 31, 1997: First Quarter........... 50 1/2 43 1/2 $.70 Second Quarter.......... 47 7/8 40 7/8 $.70 Third Quarter........... 47 3/4 42 13/16 $.70 Fourth Quarter.......... 51 1/4 43 1/4 $.70 Fiscal Year Ended December 31, 1998: First Quarter........... 50 9/16 46 $.70 Second Quarter (through June 23, 1998)......... 58 1/4 47 3/16 $.70
9 On June 17, 1998, the last full trading day before the public announcement of the execution of the Merger Agreement, the last reported sales price of the Shares on the NYSE Composite Transactions Tape was $50 5/16 per Share. On June 23, 1998, the last full trading day before commencement of the Offer, the last reported sales price of the Shares on the NYSE Composite Transactions Tape was $57 3/8 per Share. STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE SHARES. The Merger Agreement permits the Company to continue to pay regular quarterly dividends on the Shares of not more than $0.70 per Share. The payment of dividends on the Shares is a matter for the discretion of the Board of Directors of the Company and is subject to customary restrictions thereon. 7. EFFECT OF THE OFFER ON THE MARKET FOR THE SHARES; SHARE QUOTATION; EXCHANGE ACT REGISTRATION; MARGIN REGULATIONS Market for the Shares. The purchase of Shares pursuant to the Offer will reduce the number of holders of Shares and the number of Shares that might otherwise trade publicly and could adversely affect the liquidity and market value of the remaining Shares held by the public. Share Quotation. Depending upon the number of Shares purchased pursuant to the Offer, the Shares may no longer meet the requirements of the NYSE for continued listing. According to the NYSE's published guidelines, the NYSE would consider delisting the Shares if, among other things, the total number of stockholders (including both holders of record and beneficial holders of stock held in the name of NYSE member organizations) were to fall below 400, or such number of total stockholders were to fall below 1,200 and the average monthly trading volume of the Shares were to fall below 100,000, the number of publicly held Shares (exclusive of management or other concentrated holdings) were to fall below 600,000 or the aggregate market value of publicly held Shares were to not exceed $8 million. According to the Company, as of June 16, 1998, there were approximately 2,000 holders of record of Shares and there were 97,393,822 Shares outstanding. If, as a result of the purchase of Shares pursuant to the Offer or otherwise, the Shares no longer meet the requirements of the NYSE for continued listing and the Shares are no longer listed, the market for Shares would be adversely affected. If the NYSE were to delist the Shares, it is possible that the Shares would continue to trade on other securities exchanges or in the over-the-counter market and that price quotations would be reported by such exchanges or through the Nasdaq National Market or other sources. The extent of the public market for the Shares and the availability of such quotations would, however, depend upon the number of holders of Shares remaining at such time, the interests in maintaining a market in Shares on the part of securities firms, the possible termination of registration of the Shares under the Exchange Act, as described below, and other factors. Exchange Act Registration. The Shares are currently registered under the Exchange Act. Registration of the Shares under the Exchange Act may be terminated upon application of the Company to the Commission if the Shares are neither listed on a national securities exchange nor held by 300 or more holders of record. Termination of registration of the Shares under the Exchange Act would substantially reduce the information required to be furnished by the Company to its stockholders and to the Commission and would make certain provisions of the Exchange Act no longer applicable to the Company, such as the short-swing profit recovery provisions of Section 16(b) of the Exchange Act, the requirement of furnishing a proxy statement pursuant to Section 14(a) of the Exchange Act in connection with stockholders' meetings and the related requirement of furnishing an annual report to stockholders and the requirements of Rule 13e-3 under the Exchange Act with respect to "going private" transactions. Furthermore, the ability of "affiliates" of the Company and persons holding "restricted securities" of the Company to dispose of such securities pursuant to Rule 144 or 144A promulgated under the Securities Act of 1933 may be impaired or eliminated. The Purchaser intends to seek to cause the Company to apply for termination of registration of the Shares under the Exchange Act as soon after the completion of the Offer as the requirements for such termination are met. 10 If registration of the Shares is not terminated prior to the Merger, then the Shares will be delisted from all stock exchanges and the registration of the Shares under the Exchange Act will be terminated following the consummation of the Merger. Margin Regulations. The Shares are currently "margin securities" under the regulations of the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"), which has the effect, among other things, of allowing brokers to extend credit on the collateral of the Shares. Depending upon factors similar to those described above regarding listing and market quotations, it is possible that, following the Offer, the Shares would no longer constitute "margin securities" for the purposes of the margin regulations of the Federal Reserve Board and therefore could no longer be used as collateral for loans made by brokers. 8. CERTAIN INFORMATION CONCERNING THE COMPANY The Company is a Delaware corporation with its executive offices at 3801 West Chester Pike, Newtown Square, Pennsylvania 19073-2387. The Company is a leading manufacturer and marketer in the Americas, Europe and the Asia Pacific region of intermediate and specialty chemicals used in a broad range of consumer and industrial products. Set forth below is certain selected financial information with respect to the Company and its subsidiaries excerpted from the information contained in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (the "Company 1997 10-K") and the Company's Quarterly Report on Form 10-Q for the three months ended March 31, 1998 (the "Company 1998 10-Q"). More comprehensive financial information is included in the Company 1997 10-K, the Company 1998 10-Q and other documents filed by the Company with the Commission, and the following summary is qualified in its entirety by reference to the Company 1997 10-K, the Company 1998 10-Q and such other documents and all the financial information (including any related notes) contained therein. The Company 1997 10-K, the Company 1998 10-Q and such other documents should be available for inspection and copies thereof should be obtainable in the manner set forth below under "Available Information". ARCO CHEMICAL COMPANY SELECTED HISTORICAL FINANCIAL INFORMATION
THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31, ------------ ---------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----- ------ ------ ------ ------ ------ ------ ($ IN MILLIONS) OPERATING DATA: Sales and other operating revenues...................... $ 934 $1,029 $3,995 $3,955 $4,282 $3,423 $3,192 Gross profit................... 214 185 765 888 1,180 837 739 Income before income taxes..... 135 73 168 487 756 416 311 Provision for income taxes..... 43 25 57 139 248 147 97 Net income..................... 92 48 111 348 508 269 214 BALANCE SHEET DATA: Working capital................ $ 418 $ 487 $ 387 $ 500 $ 793 $ 579 $ 456 Total assets................... 4,069 4,363 4,116 4,394 4,135 3,737 3,502 Total debt..................... 906 1,024 913 1,019 912 936 959 Stockholders' equity........... 1,802 1,959 1,793 2,014 1,969 1,659 1,576
Available Information. The Company is subject to the informational requirements of the Exchange Act and, in accordance therewith, is required to file reports relating to its business, financial condition and other matters. Information as of particular dates concerning the Company's directors and officers, their remuneration, stock 11 options and other matters, the principal holders of the Company's securities and any material interest of such persons in transactions with the Company is required to be disclosed in the Company's proxy statements distributed to the Company's stockholders and filed with the Commission. Such information should be available for inspection at the public reference facilities of the Commission at 450 Fifth Street, N.W., Washington, DC 20549, and at the regional offices of the Commission located at Seven World Trade Center, 13th Floor, New York, NY 10048 and Citicorp Center, 500 West Madison Street (Suite 1400), Chicago, IL 60661. Copies of such information should be obtainable, by mail, upon payment of the Commission's customary charges, by writing to the Commission's principal office at 450 Fifth Street, N.W., Washington, DC 20549. The Commission maintains a Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. Such reports, proxy and information statements and other information may be found on the Commission's Web site address, http://www.sec.gov. Such material should also be available for inspection at the library of the NYSE, 20 Broad Street, New York, NY 10005. Except as otherwise stated in this Offer to Purchase, the information concerning the Company contained herein has been taken from or based upon publicly available documents on file with the Commission and other publicly available information. Although the Purchaser and Lyondell do not have any knowledge that any such information is untrue, neither the Purchaser nor Lyondell takes any responsibility for the accuracy or completeness of such information or for any failure by the Company to disclose events that may have occurred and may affect the significance or accuracy of any such information. 9. CERTAIN INFORMATION CONCERNING THE PURCHASER AND LYONDELL The Purchaser, a Delaware corporation which is a wholly owned subsidiary of Lyondell, was organized to acquire the Company and has not conducted any unrelated activities since its organization. The principal office of the Purchaser is located at the principal office of Lyondell. All outstanding shares of capital stock of the Purchaser are owned by Lyondell. Lyondell is a Delaware corporation with its principal offices located at 1221 McKinney Street, Suite 1600, Houston, Texas 77010. Through its interests in three joint ventures, Lyondell manufactures a wide variety of petrochemicals and polymers, refined petroleum products and methanol. Lyondell provides to the Company a portion of the feedstocks purchased by the Company for its manufacturing facilities located at Bayport and Channelview, Texas. Lyondell also provides processing services and products to the Company, as well as certain plant services at Channelview, Texas. The Company in turn provides certain products and services to Lyondell. The Company has granted Lyondell royalty-free, non-exclusive licenses for the technology necessary to produce methyl tertiary butyl ether and isopropyl alcohol at Lyondell's petrochemical complex in Channelview, Texas. Set forth below is certain selected financial information with respect to Lyondell and its subsidiaries excerpted from the information contained in Lyondell's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (the "Lyondell 1997 10-K") and Lyondell's Quarterly Report on Form 10-Q for the three months ended March 31, 1998 (the "Lyondell 1998 10-Q"). More comprehensive financial information is included in the Lyondell 1997 10-K, Lyondell 1998 10-Q and other documents filed by Lyondell with the Commission, and the following summary is qualified in its entirety by reference to the Lyondell 1997 10-K, the Lyondell 1998 10-Q and such other documents and all the financial information (including any related notes) contained therein. The Lyondell 1997 10-K, the Lyondell 1998 10-Q and such other documents should be available for inspection and copies thereof should be obtainable in the manner set forth below under "Available Information". 12 LYONDELL PETROCHEMICAL COMPANY SELECTED HISTORICAL FINANCIAL DATA (IN MILLIONS)
THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31, ------------- ----------------------------------------------- 1998 1997 1997 1996(A) 1996 1995 1994 1993 ------ ----- ------ ----------- ------ ------ ------ ------ (UNAUDITED) (UNAUDITED) OPERATING DATA: Sales and other operating revenues..... $ -- $755 $2,876 2,644 $5,052 $4,936 $3,857 $3,850 Income from equity investments............ 120 6 132 2 -- -- -- -- Gross profit............ 120 642 534 418 512 910 561 223 Income before income taxes.................. 104 63 456 196 196 618 349 16 Provision for income taxes.................. 39 23 170 70 229 426 12 9 Net Income.............. 65 40 407 126 126 -- 223 26 BALANCE SHEET DATA: Working capital......... (39) 130 (205) 134 60 70 264 224 Total assets............ 1,397 1,423 1,559 1,890 3,276 2,606 1,663 1,231 Total debt.............. 395 964 445 906 1,366 957 717 725 Stockholders' equity (deficit).............. 652 453 619 431 431 380 63 (88)
- -------- (a) The unaudited reclassified financial information presents the financial position and results of operations of Lyondell as of and for the period ended December 31, 1996 using the equity method of accounting (rather than consolidation) for Lyondell's investment in Lyondell-Citgo Refining Company, Ltd. as if the change in accounting method had been effective on January 1, 1996 rather than on January 1, 1997. Available Information. Lyondell is subject to the informational requirements of the Exchange Act and, in accordance therewith, files reports relating to its business, financial condition and other matters. Information, as of particular dates, concerning Lyondell's directors and officers, their remuneration, stock options and other matters, the principal holders of Lyondell's securities and any material interest of such persons in transactions with Lyondell is required to be disclosed in proxy statements distributed to Lyondell's stockholders and filed with the Commission. Such reports, proxy statements and other information should be available for inspection at the Commission and copies thereof should be obtainable from the Commission in the same manner as is set forth with respect to the Company in Section 8. Such material should also be available for inspection at the library of the NYSE, 20 Broad Street, New York, NY 10005. 10. SOURCE AND AMOUNT OF FUNDS The Purchaser estimates that the total amount of funds required to purchase pursuant to the Offer the number of Shares that are outstanding on a fully diluted basis and to pay fees and expenses related to the Offer and the Merger will be approximately $5.9 billion. The Purchaser plans to obtain all funds needed for the Offer and the Merger through a capital contribution from Lyondell. The Purchaser's ability to obtain financing is not a condition to the Purchaser's obligations under the Offer, the Merger Agreement and the Tender and Voting Agreement. Lyondell plans to obtain funds to advance to the Purchaser through loans under the credit arrangements described below. Lyondell expects to obtain through J.P. Morgan Securities Inc., as arranger ("J.P. Morgan"), and Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), BancAmerica Robertson Stephens and Chase Securities, Inc., as co- arrangers, financing in the amount of up to $7.0 billion (the "Credit Facilities"), which includes amounts to refinance certain indebtedness of the Company and to meet ongoing needs of Lyondell. Morgan Guaranty Trust Company of New York, DLJ Capital Funding, Inc., Bank of America National Trust and Savings Association, The Chase Manhattan Bank, Citibank, N.A. and NationsBank, N.A., have provided underwriting commitments (the "Commitments") for the full amount of the Credit Facilities. The 13 Credit Facilities consist of (i) a revolving credit facility of up to $500 million and (ii) four separate term loans in the amounts of (a) $2.25 billion ("Term Loan A"), (b) $1.0 billion ("Term Loan B"), (c) $1.25 billion ("Term Loan C") and (d) $2 billion ("Term Loan D"). All of the loans will be available to Lyondell on the date of the consummation of the Offer. The revolving credit facility will be a five-year facility. Term Loan A will be a five-year term loan, with the amortization schedule to be determined. Term Loan B will be a seven-year term loan, with the amortization schedule to be determined. Term Loan C will be a one-year term loan, with principal due at maturity. Term Loan D will be a two-year term loan, with principal due at maturity. At the option of Lyondell, the loans will bear interest at (i) the base rate (which means the higher of the prime rate of Morgan Guaranty Trust Company of New York or the federal funds rate plus 0.50%) plus a variable margin; or (ii) the Eurodollar rate. Interest in respect of base rate loans will be payable quarterly in arrears on the last business day of each fiscal quarter. Interest on Eurodollar loans will be payable at the end of the applicable interest period, but not less frequently than quarterly. Eurodollar loans would have interest periods of 1, 2, 3 or 6 months, with 9 or 12 month periods permitted if available. All interest and fees will be calculated on the basis of the number of actual days elapsed in a 360-day year. The Eurodollar loan pricing will initially be (i) for Term Loan A, the London interbank offered rate ("LIBOR") plus 200 basis points, (ii) for Term Loan B, LIBOR plus 250 basis points, (iii) for Term Loan C, LIBOR plus 200 basis points, (iv) for Term Loan D, LIBOR plus 200 basis points and (v) for the revolving credit facility, LIBOR plus 200 basis points. The variable margin to be added to the base rate will initially be 100 basis points less than the applicable margin over LIBOR. Mandatory prepayments will be required under the term loans until (i) the date Term Loan C and Term Loan D are repaid in full, including accrued interest and fees and (ii) Lyondell has achieved investment grade ratings of at least BBB- and Baa3 from Standard & Poor's and Moody's, respectively, from or as a result of (a) certain equity issuances, (b) certain debt incurrences, (c) asset sales (with certain exceptions for inventory in the ordinary course of business and individual asset sales, the proceeds of which do not exceed $10 million), (d) receipt of proceeds from certain casualty losses unless used within 18 months to replace the insured assets, or (e) 50% of annual excess cash flow (to be defined in the credit documentation). Loans may be voluntarily repaid at any time upon appropriate notice, subject in all cases to breakage costs if Eurodollar loans are prepaid other than on the last day of the applicable interest period. The Commitments are subject to, among other things, (i) the absence of adverse changes in the market for syndicated bank loans or in the regulatory environment that would be likely to materially adversely affect the syndication of the proposed financing, (ii) the absence of material adverse changes in the financial condition, business, assets, results of operation or prospects of Lyondell and the Company taken as a whole, (iii) the absence of any competing offering, placement or arrangement of debt securities or lender financing on behalf of Lyondell, and (iv) the negotiation, execution and delivery of mutually acceptable definitive loan documentation within 90 days of June 17, 1998. The Credit Facilities will be secured by (i) a pledge of the stock and intercompany indebtedness of any material subsidiaries directly owned by Lyondell, including the subsidiaries (the "JV Subsidiaries") that hold Lyondell's interests in Equistar Chemicals, LP, Lyondell-Citgo Refining Company, Ltd. and Lyondell Methanol Company, Ltd. (collectively the "JVs") and (ii) the rights of the JV Subsidiaries to receive distributions from the JVs. Obligations under the Credit Facilities will be guaranteed by the Purchaser, the Company, and any other material domestic subsidiaries of Lyondell, excluding the JVs and the JV Subsidiaries. The foregoing summary is qualified in its entirety by reference to the text of the letters evidencing the Commitments, copies of which are filed as exhibits to the Schedule 14D-1 and incorporated in this Offer to Purchase by reference and may be inspected in the same manner as set forth under "Available Information" in Section 9. If and when definitive documentation providing for the Credit Facilities is executed, copies will be filed with the Commission. Because the procurement of the facilities is subject to, among other things, the negotiation, execution and delivery of definitive documentation on terms satisfactory to the lenders, there can be no assurance that the terms described above will be the actual or only terms of the Credit Facilities. 14 Although no definitive plan or arrangement for repayment of borrowings under the Credit Facilities has been made, Lyondell expects that it will repay any amounts borrowed with cash flow from operations and internally generated funds (including, if the Merger is consummated, those of the Company) and from other sources which may include the proceeds from future public or private sales of debt or equity securities. The sources for repayment of such borrowings will also depend on Lyondell's review from time to time of the advisability of certain actions, as well as prevailing interest rates, financial and other economic conditions and such other factors as Lyondell may deem appropriate. 11. CONTACTS AND TRANSACTIONS WITH THE COMPANY; BACKGROUND OF THE OFFER Lyondell is a former subsidiary of ARCO. Certain of the manufacturing facilities of Lyondell and the Company were once operated as part of the same division of ARCO. The Company's manufacturing facilities in Channelview and Pasadena, Texas are adjacent to facilities held by Lyondell's 41% owned joint venture, Equistar Chemicals, L.P. ("Equistar"). Lyondell (including Equistar) and the Company are parties to various commercial contracts pursuant to which Lyondell provides feedstocks for the Company's propylene oxide, styrene and methyl tertiary butyl ether ("MTBE") businesses at its Channelview facilities. Lyondell also sells MTBE to the Company. Pricing arrangements under these contracts are representative of prevailing market prices. In 1997, Lyondell recorded revenues of approximately $271 million from sales to the Company, which sales accounted for approximately 9.6% of Lyondell's total revenues from sales of petrochemical products for 1997 and approximately 8.3% of Lyondell's total revenues for 1997. Lyondell also provides certain nominal plant services at the Company's Channelview facilities. The Company sells certain feedstocks and supplies to Lyondell at market-based prices. Lyondell and the Company also are parties, along with ARCO, to a Dispute Resolution Agreement that mandates a procedure for negotiation and binding arbitration of significant commercial disputes among any two or more of the parties. In December 1997, Lyondell began an internal review and assessment of the desirability and feasibility of acquiring the Company. In February 1998, Lyondell engaged J. P. Morgan as financial advisor to assist in the evaluation process. On February 17, 1998, Dan F. Smith, President and Chief Executive Officer of Lyondell, called Mike R. Bowlin, Chairman and Chief Executive Officer of ARCO, to express Lyondell's interest in acquiring the Company. On February 20, 1998, ARCO and Lyondell entered into a confidentiality agreement regarding any discussions relating to a possible transaction. On March 4, 1998, at the initiation of Mr. Smith, a meeting took place between Mr. Smith and Mr. Bowlin, in which Mr. Smith reiterated Lyondell's interest in acquiring the Company and potential value ranges were discussed. Other attendees included Terry G. Dallas, Senior Vice President and Treasurer of ARCO, Edward Rich, Vice President, Finance and Treasurer of Lyondell, and representatives from J.P. Morgan. On March 13, 1998, ARCO and Lyondell entered into a supplemental confidentiality agreement covering evaluation information. At the invitation of ARCO, on March 17, 1998, Lyondell submitted to ARCO a written expression of interest with respect to the potential acquisition by Lyondell or an affiliate of Lyondell of 100% of the Common Stock. Subject to certain assumptions and conditions, Lyondell expressed an interest in acquiring all outstanding Shares in an all cash transaction for a purchase price of $6.5 billion, including the assumption of $913 million of debt. Lyondell's letter stated that the proposed purchase price was predicated on the assumption that the Purchaser would receive a tax basis in the assets equal to the purchase price for the Company and that any tax liabilities resulting from the transaction would remain with shareholders of the Company. The letter indicated that financing for the acquisition would be provided by a group led by J.P. Morgan. The Lyondell expression of interest was also subject to the satisfactory completion of due diligence, as well as approval by the Boards of Directors of Lyondell and the Company. 15 On April 22, 1998, Lyondell entered into a confidentiality agreement with ARCO and the Company (which superseded the earlier such agreements). On April 27-28, 1998, representatives of Equistar, Lyondell, J.P. Morgan and DLJ, whom Lyondell had engaged to help secure financing, met with representatives of the Company and ARCO for a series of due diligence sessions, and representatives of Lyondell reviewed certain due diligence information concerning the Company organized in a data room. On May 6, 1998, Lyondell was invited by ARCO, acting through its financial advisor, to submit by May 15, 1998 a firm offer for the possible acquisition of the Company. As part of the process, Lyondell was asked to review and submit proposed revisions to drafts of a Merger Agreement, a Tender and Voting Agreement and a Tax Agreement, which were delivered to Lyondell on May 8, 1998. On May 15, 1998, Lyondell delivered to ARCO a written proposal to purchase all of the outstanding Shares. In the proposal, Lyondell indicated that it was prepared to make a cash tender offer for all outstanding Shares at $51 per Share, with an option for stockholders of the Company (other than ARCO) to receive, in a second step merger, either (i) $51 in cash per Share or (ii) Lyondell common stock having a market value at the time of the merger of $56 per Share, subject to a maximum of 15.5 million shares of Lyondell common stock being issued. Lyondell also proposed that ARCO be responsible for all liabilities arising out of a Section 338(h)(10) election under the Internal Revenue Code (a "338(h)(10) Election") and for certain other potential tax liabilities of the Company. Lyondell also proposed that it be given an option to purchase the Shares owned by ARCO. The proposal was also accompanied by markups of the proposed agreements between the parties. The proposal was subject to approval by the Boards of Directors of each of Lyondell and the Company, as well as additional due diligence. The proposal was accompanied by commitment and highly confident letters from J.P. Morgan and DLJ regarding financing. On May 18, 1998, Lyondell was informed by ARCO's financial advisor, and Mr. Smith was informed by Mr. Bowlin, that ARCO was not interested in pursuing a transaction on the terms proposed. Over the course of the next two weeks, Lyondell, acting directly and through its financial advisors, continued to pursue the possibility of a transaction and reiterated to ARCO its interest in acquiring the Company. On June 3, 1998, ARCO and the Company publicly announced that they had agreed to a transaction pursuant to which ARCO would reduce its ownership interest in the Company from 82% to 50% through a secondary offering of Common Stock and a simultaneous share repurchase by the Company from ARCO of additional Common Stock. On June 4, Lyondell submitted a revised written proposal to purchase all outstanding Shares for $56.50 per share, with no change from the previous proposal with respect to responsibilities for tax liabilities. The Lyondell proposal was subject to approval by the Boards of Directors of Lyondell and the Company. Between June 4 and June 10, 1998, ARCO and its financial advisors engaged in discussions with Lyondell and its financial advisors regarding the proposed purchase price, the potential responsibility for certain tax liabilities, and other terms. On June 10, 1998, these discussions terminated due to inability to reach agreement on financial terms. On June 13, 1998, a Lyondell financial advisor called an ARCO financial advisor to indicate that Lyondell would consider a revised proposal to purchase all outstanding Shares for $57.75 per share and confirmed that Lyondell would have fully committed financing for the entire purchase price. Under the revised proposal, ARCO would be responsible for liabilities arising out of a 338(h)(10) Election, but would not be responsible for the other tax liabilities of the Company as originally proposed by Lyondell. On June 14, 1998, Mr. Bowlin called Mr. Smith to communicate an interest in pursuing discussions of the revised Lyondell proposal. During the period June 15 through June 18, 1998, Lyondell and ARCO and their respective legal and financial advisors met to conduct further negotiations of the price and other terms of the proposed transaction. Representatives of the Company participated in certain of such negotiations with respect to the other terms of the proposed transaction. On June 17, 1998, Lyondell's Board of Directors met and authorized the execution and delivery of the Merger Agreement and the related agreements in substantially the form reviewed at the meeting. 16 On the morning of June 18, 1998, ARCO and the Company issued press releases announcing that the parties were conducting negotiations regarding a sale of the Company and that the Company's Board of Directors was meeting that day to consider a proposed transaction. Lyondell issued a statement confirming that negotiations were pending. On June 18, 1998, Lyondell, the Purchaser and the Company executed the Merger Agreement, Lyondell, the Purchaser and ARCO executed the Tender and Voting Agreement, and Lyondell, ARCO and the Company executed the Tax Agreement (as defined under the heading "Purpose of the Offer; The Merger Agreement; The Tender and Voting Agreement--The Tax Agreement" in Section 12), and the parties issued press releases announcing the agreements providing for the Offer and the Merger. 12. PURPOSE OF THE OFFER; THE MERGER AGREEMENT; THE TENDER AND VOTING AGREEMENT PURPOSE The purpose of the Offer is to enable Lyondell to acquire control of the Company and to acquire the outstanding Shares. The Offer, as the first step in the acquisition of the Company, is intended to facilitate the acquisition of all the outstanding Shares. The purpose of the Merger is to acquire all outstanding Shares not tendered and purchased pursuant to the Offer or otherwise. THE MERGER AGREEMENT The Merger Agreement provides that, following the satisfaction or waiver of the conditions described below under "Conditions to the Merger", the Purchaser will be merged with and into the Company, and each issued Share (other than Shares owned by Lyondell, the Purchaser or the Company or any other subsidiary of Lyondell, or by stockholders, if any, who are entitled to and who properly exercise appraisal rights under Delaware law) will be converted into the right to receive from the Surviving Corporation an amount in cash equal to the price per Share paid pursuant to the Offer without interest thereon. The "Surviving Corporation" of the Merger will be the Company. Vote Required To Approve Merger. The Delaware General Corporation Law ("DGCL") requires, among other things, that the adoption of any plan of merger or consolidation of the Company must be approved by the Board of Directors and, if the "short-form" merger procedure described below is not available, approved by the holders of a majority of the Company's outstanding voting securities. The Board of Directors of the Company has approved the Offer, the Merger and the Merger Agreement; consequently, the only additional action of the Company that may be necessary to effect the Merger is adoption of the Merger Agreement by the Company's stockholders if such "short-form" merger procedure is not available. Under the DGCL, if stockholder adoption of the Merger Agreement is required in order to consummate the Merger, the vote required is the affirmative vote of the holders of a majority of the outstanding Shares (including any Shares owned by the Purchaser). If the Purchaser acquires, through the Offer or otherwise, voting power with respect to at least majority of the outstanding Shares (which would be the case if the Minimum Condition were satisfied and the Purchaser were to accept for payment Shares tendered pursuant to the Offer), it would have sufficient voting power to effect the Merger without the affirmative vote of any other stockholder of the Company. The DGCL also provides that if a parent company owns at least 90% of the outstanding shares of each class of stock of a subsidiary, the parent company may merge that subsidiary into the parent company, or the parent company may merge itself into that subsidiary, pursuant to the "short-form" merger procedures without prior notice to, or the approval of, the other stockholders of the subsidiary. In order to consummate the Merger pursuant to these provisions of the DGCL, the Purchaser would have to own at least 90% of the outstanding Shares. Conditions to the Merger. The Merger Agreement provides that the respective obligations of each of Purchaser, Lyondell and the Company to effect the Merger are subject to the satisfaction or waiver of certain conditions, including the following: (a) if required by the DGCL, the Merger Agreement having been approved 17 and adopted by the affirmative vote of the holders of a majority of the Shares; provided, however, that neither Lyondell nor Purchaser shall be entitled to assert the failure of this condition if Lyondell breaches its agreement to cause all Shares purchased in the Offer to be voted in favor of, or to consent to, the Merger; (b) no statute, rule, regulation, executive order, decree, temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other Governmental Entity (as defined herein) or other legal restraint or prohibition preventing the consummation of the Merger being in effect; and (c) the Purchaser having previously accepted for payment and paid for Shares pursuant to the Offer; provided, however, that neither Lyondell nor Purchaser will be entitled to assert the failure of this condition if Purchaser breaches certain of its obligations in connection with the Offer as set forth in the Merger Agreement or fails to purchase Shares pursuant to the Offer in breach of its obligations under the Merger Agreement. Termination of the Merger Agreement. The Merger Agreement may be terminated at any time prior to the effective time of the Merger, whether before or after approval and adoption of the Merger Agreement by the affirmative vote of the holders of a majority of the Shares: (1) by mutual written consent of Lyondell and the Company; (2) by either Lyondell or the Company if: (a) any Federal, state or local government or any court, tribunal, administrative agency or commission or other governmental or other regulatory authority or agency, domestic, foreign or supranational (a "Governmental Entity") shall have issued an order, decree or ruling or taken any other action permanently enjoining, restraining or otherwise prohibiting the acceptance for payment of, or payment for, Shares pursuant to the Offer or the Merger and such order, decree or ruling or other action shall have become final and nonappealable; or (b) the Merger shall not have been consummated by June 30, 1999. (3) by Lyondell if as the result of a failure of any of the conditions to the Offer set forth in Section 14, Purchaser shall not have accepted for payment any Shares pursuant to the Offer on or prior to the Outside Date (as defined herein); provided, however, that such right to terminate the Merger Agreement shall not be available to Lyondell if (a) Purchaser shall have breached its obligation to extend the Offer under certain circumstances when an Offer condition has not been met or (b) such failure of such Offer condition is caused by or results from the failure of Lyondell or Purchaser to perform in any material respect any of its covenants or agreements contained in the Merger Agreement or the failure of any representation or warranty of Lyondell or Purchaser contained therein to be true and correct in any material respect. (4) by the Company if: (a) Purchaser shall not have accepted for payment any Shares pursuant to the Offer on or prior to the Outside Date, provided, however, that the failure to accept Shares for payment is not caused by or result from the failure of the Company to satisfy any condition set forth in paragraphs (c) or (d) of Section 14 hereof; or (b) prior to the acceptance by Purchaser of Shares for payment pursuant to the Offer, the Board of Directors of the Company determines that a Takeover Proposal (as defined below) constitutes a Superior Proposal (as defined below); provided, however, that at least two business days prior to such termination the Company shall have given Lyondell written notice advising Lyondell that the Board of Directors of the Company has received a Takeover Proposal that it has determined to be a Superior Proposal, specifying the material terms and conditions of such Superior Proposal and identifying the person making such Superior Proposal; and provided, further, however, that (i) prior to such termination, the Board of Directors of the Company has reaffirmed its determination that such Takeover Proposal, taking into account any amendment by Lyondell of the terms of the Offer and Merger or any offer by Lyondell to amend the terms of the Merger Agreement, the Offer or the Merger, together with any subsequent amendments or modifications of such Takeover Proposal, is a Superior Proposal and (ii) no such termination shall be effective unless concurrently with such termination a termination fee equal to $140,000,000 is paid in cash by the Company to Lyondell. 18 The term "Outside Date" is defined as the later of (a) the 30th day after the initial expiration of the Offer (i.e., August 21, 1998) or (b) the date that the HSR Condition has been satisfied for a period of two business days, but in no event later than the 60th day after the initial expiration of the Offer (i.e., September 20, 1998). Takeover Proposals. For purposes of the Merger Agreement, a "Takeover Proposal" means any bona fide proposal made by a third party to acquire, directly or indirectly, more than 30% of the voting power of the Shares or of the assets of the Company; provided, however, that a change in the terms of a proposal submitted prior to the date of the Merger Agreement will be deemed a new "Takeover Proposal." For purposes of the Merger Agreement, a "Superior Proposal" means any Takeover Proposal having terms which the Board of Directors of the Company determines in its good faith judgment (based, with respect to the consideration payable, on the opinion of a financial advisor of nationally recognized reputation) to be more favorable to the Company's stockholders than the Offer and the Merger and to be reasonably capable of being completed (and for which financing has been committed on customary terms). The Merger Agreement provides that the Company will, and will direct and use reasonable efforts to cause its officers, directors, employees, representatives and agents to, immediately cease any discussions or negotiations with any parties other than Lyondell and the Purchaser that may be ongoing with respect to a Takeover Proposal. The Merger Agreement provides that the Company will not, and will not authorize or permit any of its officers, directors or employees or any investment banker, financial advisor, attorney, accountant or other representative retained by it to, directly or indirectly, (1) solicit, initiate or encourage any inquiries or the making of any proposal that constitutes, or may reasonably be expected to lead to, any Takeover Proposal or (2) participate in any discussions or negotiations regarding any Takeover Proposal; provided, however, that if, at any time prior to the acceptance for payment of Shares pursuant to the Offer, the Board of Directors of the Company determines in good faith, after consultation with its financial advisors, that a Takeover Proposal that has not been solicited, initiated or encouraged after the date of the Merger Agreement in violation of either clause (1) above or similar provisions of the Tender and Voting Agreement, constitutes a Superior Proposal, the Company may (a) furnish information with respect to the Company and its subsidiaries to the third party that has made such Takeover Proposal (and to any investment banker, financial advisor, attorney, accountant or other representative retained by such party) pursuant to a customary and reasonable confidentiality agreement and (b) participate in negotiations regarding such Takeover Proposal. In addition to the obligations of the Company set forth in this paragraph, the Merger Agreement provides that the Company shall immediately advise Lyondell orally and in writing of any request for information or of any Takeover Proposal or any inquiry regarding the making of a Takeover Proposal. The Merger Agreement provides further that nothing contained in the provisions summarized under "--Takeover Proposals",will prohibit the Company from at any time taking and disclosing to its stockholders a position (including the withdrawal or modification of any recommendation with respect to the Offer and the Merger) contemplated by Rule 14e-2(a) promulgated under the Exchange Act or from making any disclosure to the Company's stockholders if, in the good faith judgment of the Board of Directors of the Company, after consultation with outside counsel, failure so to disclose would create a risk of liability for breach of its fiduciary duties to its stockholders under applicable law; provided, however, that neither the Company nor its Board of Directors nor any committee thereof will, except as permitted in accordance with this paragraph or paragraph 4(b) above under "--Termination of the Merger Agreement", withdraw or modify, or propose to withdraw or modify, its position with respect to the Offer or the Merger or approve or recommend, or propose to approve or recommend, a Takeover Proposal. Fees and Expenses. The Merger Agreement provides that all fees and expenses incurred in connection with the Offer, the Merger, the Merger Agreement and the transactions contemplated by the Merger Agreement will be paid by the party incurring such fees or expenses, whether or not the Offer or the Merger is consummated. Conduct of Business. The Merger Agreement provides that, from the date thereof until such time as Purchaser's designees shall constitute a majority of the Board of Directors of the Company, except as otherwise contemplated in the Merger Agreement or to the extent that Lyondell shall otherwise consent in writing, the 19 Company will, and will cause its subsidiaries to, carry on their respective businesses in the ordinary course consistent with the manner as theretofore conducted and, to the extent consistent therewith, use commercially reasonable efforts to preserve intact their current business organization, keep available the services of their current officers and employees and preserve their relationships with customers, suppliers, licensors, licensees, distributors and others having significant business dealings with them. The Merger Agreement further provides that, without limiting the generality of the foregoing, from the date thereof until such time as Purchaser's designees shall constitute a majority of the Board of Directors of the Company, except as expressly contemplated or permitted by the Merger Agreement or the Disclosure Letter delivered by the Company to Lyondell and Purchaser concurrently with the execution and delivery of the Merger Agreement, or to the extent that Lyondell shall otherwise consent in writing, the Company will (a) use its commercially reasonable efforts to operate and maintain its business in all material respects only in the usual, regular and ordinary manner consistent with past practice (including undertaking scheduled or necessary "turnarounds" or other maintenance work and including offsite storage, treatment and disposal of chemical substances generated prior to such time as Purchaser's designees shall constitute a majority of the Board of Directors of the Company) and, to the extent consistent with such operation and maintenance, use commercially reasonable efforts to preserve the present business organization of its business intact, keep available the services of, and good relations with, the present employees and preserve present relationships with all persons having business dealings with its business, except in each case for such matters that, individually and in the aggregate, do not and are not reasonably likely to have a material adverse effect on the Company and its subsidiaries taken as a whole and (b) except to the extent required by clause (a) above, the Company will not, and will not permit any of its subsidiaries to: (i) (x) other than dividends and distributions by a direct or indirect wholly owned subsidiary of the Company to its parent and other than the regular quarterly dividend in respect of the Shares in the amount of $.70 per Share, declare, set aside or pay any dividends on, or make any other distributions in respect of, any of its capital stock, (y) split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock, or (z) purchase, redeem or otherwise acquire any shares of capital stock of the Company or any of its subsidiaries or any other securities thereof or any rights, warrants or options to acquire any such shares or other securities (other than in connection with the exercise of currently outstanding Company Stock Options (as defined herein)); (ii) issue, deliver, sell, pledge or otherwise encumber any shares of its capital stock, any other voting securities or any securities convertible into, or any rights, warrants or options to acquire, any such shares, voting securities or convertible securities (other than the issuance of Shares upon the exercise of Company Stock Options outstanding on the date of the Merger Agreement in accordance with their present terms) or as provided for in the Merger Agreement; (iii) amend its Certificate of Incorporation or By-Laws or other comparable organizational documents; (iv) acquire or agree to acquire (y) by merging or consolidating with, or by purchasing a substantial portion of the assets of, or by any other manner, any business or any corporation (other than any subsidiary of the Company), partnership, joint venture, association or other business organization or division therefor or (z) any assets that are material, individually or in the aggregate, to the Company and its subsidiaries taken as a whole, except acquisitions in the ordinary course of business consistent with past practice and acquisitions permitted by clause (vii) below; (v) sell, lease, license, mortgage or otherwise encumber or subject to any lien or otherwise dispose of any of its properties or assets, that are material, in the aggregate, to the Company and its subsidiaries taken as a whole, except (x) sales, leases or other dispositions of inventory, or (y) sales or licenses in the ordinary course of business consistent with past practice and which, individually, are not in excess of $5 million and, in the aggregate, are not in excess of $25 million; (vi) (y) incur any indebtedness for borrowed money other than (1) the issuance or roll-over of commercial paper in the ordinary course of business and consistent with past practice and (2) indebtedness to or from ARCO that will be repaid in full prior to the expiration of the Offer, or guarantee any such indebtedness or issue or sell any debt securities or warrants or rights to acquire any debt securities of the Company or any of its subsidiaries or guarantee any debt securities of others, or (z) make any loans, advances (other than to employees of the Company and its subsidiaries in the ordinary course of business) or capital contributions to, or investments in, any other person (other than any subsidiary of the Company); (vii) make or agree to make any capital expenditures regarding the BDO-II or PO-11 projects, other than those reasonably necessary to avoid payment of penalties or cancellation fees, or make or 20 agree to make any other capital expenditure or expenditures with respect to property, plant or equipment which, individually, is in excess of $10 million or, in the aggregate, are in excess of $25 million, other than caretaker, maintenance and turnaround capital expenditures in the ordinary course of business; (viii) pay, discharge, settle or satisfy any material claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction, in the ordinary course of business consistent with past practice or in accordance with their terms, of liabilities reflected or reserved against in, or contemplated by, the most recent consolidated financial statements (or the notes thereto) of the Company included in the Filed SEC Documents (as defined in the Merger Agreement) or incurred thereafter in the ordinary course of business consistent with past practice, or waive any material benefits of, or agree to modify in any material respect, any confidentiality, standstill or similar agreements to which the Company is a party; (ix) (a) adopt, enter into or amend any bonus, profit sharing, compensation, stock option, warrant, pension, retirement, deferred compensation, employment, consulting, indemnification, severance, termination or other employee benefit plan, agreement, trust fund or arrangement for the benefit or welfare of any officer, director or employee, (b) except as reasonably called for pursuant to formulas contained in existing employee benefit plans or arrangements and except for salary increases in the ordinary course of business and consistent with past practices, agree to any increase in the compensation (including bonuses) payable or to become payable to any officer, director or employee or (c) change the performance objective or performance period under any employee benefit plans; (x) make any tax election that would have a material adverse effect (as defined in the Merger Agreement) on the Company and its subsidiaries taken as a whole (and the Company shall, before filing or causing to be filed any material tax return of the Company or any of its subsidiaries, consult with Lyondell and its advisors as to the positions and elections that may be taken or made with respect to such return and to the extent practical the Company shall defer settlement or compromise of any income tax liability of the Company or any of its subsidiaries that would have a material adverse effect on the Company and its subsidiaries taken as a whole until such time as Purchaser's designees shall constitute a majority of the Board of Directors of the Company); (xi) waive any material rights or claims relating to the Company's business; (xii) accelerate vesting or conversion or approve the acceleration or conversion of any shares of restricted stock, except as provided in the Merger Agreement, or grant or approve the grant of any additional shares of restricted stock, phantom stock units, or stock options under any existing plan, except as provided in the Merger Agreement, or modify the term of any performance period or the performance objective to be attained for that performance period under any existing plan; or (xiii) authorize any of, or commit or agree to take any of, the foregoing actions. Board of Directors. The Merger Agreement provides that promptly upon the acceptance for payment of, and payment for, any Shares by Purchaser pursuant to the Offer and from time to time thereafter, Purchaser will be entitled to designate such number of directors on the Board of Directors of the Company as will give Purchaser, subject to compliance with Section 14(f) of the Exchange Act and subject to the last sentence of this paragraph, representation on the Board equal to at least that number of directors (rounded up to the next whole number) equal to the product of (i) the total number of directors on the Board and (ii) the percentage that the number of Shares owned by Purchaser bears to the number of Shares outstanding, and the Company shall, at such time, cause Purchaser's designees to be so elected or appointed to the Board of Directors of the Company. Subject to applicable law, the Company has agreed to take all action requested by Lyondell necessary to effect any such election, including mailing to its stockholders the information statement (as amended from time to time, the "Information Statement") containing the information required by Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder, which Information Statement is attached as Appendix A to the Schedule 14d-9. See "Plans for the Company" below. In connection with the foregoing, the Company has agreed to promptly, at the option of Lyondell, either increase the size of the Company's Board of Directors and/or use its commercially reasonable efforts to obtain the resignation of such number of its current directors as is necessary to enable Purchaser's designees to be elected or appointed to the Company's Board of Directors as provided above. In addition, the Merger Agreement provides that, subject to applicable law, at such time as Purchaser is entitled to designate a number of directors as provided by the Merger Agreement, at the request of Lyondell, the Company will use its best efforts to cause individuals designated by Purchaser to constitute the same percentage as such individuals represent on the Board of Directors of (x) each committee of the Board of Directors, (y) each board of directors of each subsidiary of the Company and (z) each committee of each such board. 21 Notwithstanding the foregoing, until the effective time of the Merger, there shall be at least two directors who are directors on the date of the Merger Agreement and who are not designees nor officers, directors, employees or affiliates of Lyondell or Purchaser nor officers or employees of the Company or ARCO ("Independent Directors"), provided that if the number of Independent Directors shall be reduced below two for any reason, the Board of Directors shall subject to the approval of the remaining Independent Directors (or Independent Director, if there be only one remaining), if any, designate a person or persons to fill the vacancy or vacancies who are not designees nor officers, directors, employees or affiliates of Lyondell or Purchaser nor officers or employees of the Company, and such persons shall be deemed to be Independent Directors for purposes of the Merger Agreement. Stock Options. The Merger Agreement provides that upon the consummation of the Offer, as and to the extent provided in the Company's Change of Control Plan adopted effective on February 19, 1998 (the "Change of Control Plan"), (a) each outstanding option to purchase Shares (a "Company Stock Option") heretofore granted under any stock option, stock appreciation rights or stock purchase plan, program or arrangement of the Company (collectively, the "Stock Incentive Plans") outstanding immediately prior to the consummation of the Offer, whether or not then exercisable, will be canceled by the Company in exchange for an amount in cash, payable at the time of such cancellation, equal to the product of (i) the number of Shares subject to such Company Stock Option immediately prior to the consummation of the Offer and (ii) the excess of the price per Share to be paid in the Offer over the per Share exercise price of such Company Stock Option (the "Net Amount"); (b) each phantom stock unit granted under the Company's Value Incentive Plan outstanding immediately prior to the consummation of the Offer will, whether or not exercisable, be canceled in exchange for an amount in cash, payable at the time of such cancellation, equal to (i) the excess of (x) the price per Share paid in the Offer over (y) the award price assigned to the phantom stock unit, multiplied by (ii) the number of Shares subject to such unit (the "SAR Amount"); (c) each dividend share credit ("DSCs") accrued, credited or issued immediately prior to the consummation of the Offer in connection with a Company Stock Option or phantom stock unit, and each DSC that would have been accrued, credited or issued (as determined in accordance with the Company's Change of Control Plan) through the remainder of the term of each such Company Stock Option or phantom stock unit, will, whether or not vested, be canceled in exchange for an amount in cash, payable at the time of such cancellation, equal to the price per Share paid in the Offer (the "DSC Amount"); (d) each share of contingent restricted stock issued under the Company's 1998 Long Term Incentive Plan (the "1998 LTIP") that is eligible for conversion upon achievement of the current Return on Capital Managed target (the "RCM") performance level established under the 1998 LTIP will, immediately prior to the consummation of the Offer, be converted to performance-based restricted stock on a pro-rated basis based on a calculation of the percentage of the current RCM performance objective achieved as of the consummation of the Offer (but not to exceed 25% of the outstanding shares of contingent restricted stock issued under the 1998 LTIP); (e) the performance supplement related to the contingent restricted stock referred to in clause (d) above will be calculated immediately prior to the consummation of the Offer using the price per Share to be paid in the Offer, and the resulting number of shares of performance-based restricted stock will be issued to the Company's employees in accordance with the 1998 LTIP; and (f) each share of performance-based restricted stock outstanding immediately prior to the consummation of the Offer (including amounts issued under clauses (d) and (e) above) will, whether or not vested, be canceled in exchange for an amount in cash, payable at the time of such cancellation, equal to the price per Share paid in the Offer (the "Restricted Stock Amount"). The Merger Agreement further provides that, subject to the foregoing paragraph, all Stock Incentive Plans will terminate as of the effective time of the Merger, but, notwithstanding the foregoing, the Surviving Corporation will continue to be obligated to pay the Net Amount, the SAR Amount, the DSC Amount and the Restricted Stock Amount. The Merger Agreement provides that all calculations required to be made pursuant to the foregoing paragraph will be made in accordance with Article IV of the Company's Change of Control Plan and the terms of the relevant Stock Incentive Plan. In the Merger Agreement the Company represents that ARCO has taken all such actions as are necessary so that options to acquire ARCO shares and DSCs with respect to ARCO shares held by or credited to employees of the Company and its subsidiaries are not forfeited upon consummation of the Offer and remain outstanding for the duration of their terms. 22 Employee Benefits Matters. The Merger Agreement provides that, at and after the consummation of the Offer, Lyondell will cause the Company and its subsidiaries to promptly pay or provide when due all compensation and benefits provided for pursuant to the terms of any compensation arrangements, employment agreements and employee or director benefit plans (including, without limitation, deferred compensation and change of control plans), programs and policies in existence as of the consummation of the Offer for any employee (and/or former employee) and director (and/or former director) of the Company and its subsidiaries; provided, however, that Lyondell will not be precluded by the provisions described in this paragraph from amending or terminating any such plans, arrangements, programs or policies after the consummation of the Offer. Lyondell and the Company have agreed that the Company and its subsidiaries will pay promptly or provide when due all compensation and benefits required to be paid pursuant to the terms of any individual agreement with any employee, former employee, director or former director in effect as of the date of the Merger Agreement. The Merger Agreement provides that Lyondell will cause the Company, for the period commencing upon the consummation of the Offer and ending on the end of the calendar year following the year in which the consummation of the Offer occurs (the "Continuation Period"), to provide employee benefits under plans, programs and arrangements which, in the aggregate for all current employees of the Company and its subsidiaries as a group (other than employees covered by a collective bargaining agreement), will provide benefits to such employees which are not materially less favorable than those provided pursuant to the plans, programs and arrangements of the Company and its subsidiaries in effect on the date of the Merger Agreement and employees covered by collective bargaining agreements will be provided with such benefits as shall be required under the terms of any applicable collective bargaining agreement; provided, however, that, without limiting the generality of the foregoing, Lyondell shall not be required to provide compensation which is based upon the equity of the Company or any of its subsidiaries; and provided, however, that, without limiting the generality of the foregoing, nothing in the Merger Agreement will prevent the amendment or termination of any specific plan, program or arrangement, require that the Surviving Corporation provide or permit investment in the securities of Lyondell, the Company or the Surviving Corporation or interfere with the Surviving Corporation's right or obligation to make such changes as are necessary to conform with applicable law. The Merger Agreement further provides that, during the Continuation Period, Lyondell will provide, or cause the Surviving Corporation to provide, post- retirement health, dental, life insurance and other welfare benefits that are not materially less favorable than those that are provided by the Company immediately prior to the consummation of the Offer to those employees or directors or former employees or directors of the Company and any of its subsidiaries who at such time (x) were receiving any such benefits, (y) would have been eligible to receive any of such benefits upon his or her termination at such time or (z) would have become eligible within one year of such time to receive any of such benefits upon his or her termination within such one-year period. The Merger Agreement further provides that employees of the Company and its subsidiaries will be given credit for all service with ARCO and its affiliates and with the Company and its subsidiaries, under each employee benefit plan, program, or arrangement of Lyondell or its affiliates in which such employees are eligible to participate for purposes of eligibility, vesting and benefit accrual; provided, however, that in no event will such employees be entitled to any credit to the extent that it would result in any duplication of benefits with respect to the same period of service under any plans of ARCO and its affiliates, the Company and Lyondell. The Merger Agreement provides that if employees of the Company and its subsidiaries become eligible to participate in a medical, dental, disability, life insurance or other welfare plan of Lyondell or its subsidiaries, Lyondell will cause such plan to (i) waive any preexisting condition limitations for conditions covered under the applicable plan of ARCO or the Company and its or their subsidiaries and (ii) give credit for any deductible and out of pocket expenses incurred by the employees and their beneficiaries under such plans prior to such participation. The Merger Agreement provides that nothing in the provisions summarized under "--Employee Benefits Matters" requires the continued employment of any person or, subject to the preceding paragraph, prevents the Company and/or the Surviving Corporation and their subsidiaries from taking any action or refraining from taking any action which the Company and its subsidiaries prior to the consummation of the Offer, could have taken or refrained from taking. The Merger Agreement and the Tender and Voting Agreement provide that promptly following the execution thereof, the Company and ARCO will enter into an agreement providing that, 23 effective upon the purchase of Shares pursuant to the Offer, all administrative service agreements and arrangements between ARCO and the Company relating to the Company's employee benefit plans and payroll services shall continue for a period no less than the Continuation Period; provided, however, that ARCO shall have the right to (i) terminate such agreement if there are any change or changes in such benefit plans or payroll services that result in any additional costs or burdens to ARCO in performing its obligations under such agreement and (ii) to remove AIMCO as designated fiduciary with respect to employee benefit plans within 90 days after the consummation of the Offer. Indemnification, Exculpation and Insurance. The Merger Agreement provides that Lyondell agrees that all rights to indemnification and exculpation (including the advancement of expenses) from liabilities for acts or omissions occurring at or prior to the effective time of the Merger (including with respect to the transactions contemplated by the Merger Agreement) existing as of the date of the Merger Agreement or at the effective time of the Merger in favor of the current or former directors or officers of the Company as provided in its Certificate of Incorporation, its By-Laws (each as in effect on the date of the Merger Agreement) and indemnification agreements will be assumed by the Surviving Corporation in the Merger, without further action, as of the effective time of the Merger and will survive the Merger and will continue in full force and effect without amendment, modification or repeal in accordance with their terms for a period of not less than six years after the effective time of the Merger; provided, however, that if any claims are asserted or made within such six-year period, all rights to indemnification (and to advancement of expenses) under the Merger Agreement in respect of any such claims will continue, without diminution, until disposition of any and all such claims. In the Merger Agreement, Lyondell agrees that, for six years after the effective time of the Merger, it will cause the Surviving Corporation to indemnify and hold harmless each present and former director and officer of the Company, determined as of the effective time of the Merger (the "Indemnified Parties"), against any costs or expenses (including reasonable attorneys' fees), judgments, fines, losses, claims, damages or liabilities (collectively, "Costs") (but only to the extent such Costs are not otherwise covered by insurance and paid) incurred in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, arising out of or pertaining to matters existing or occurring at or prior to the effective time of the Merger, including in connection with the Merger Agreement and the transactions contemplated thereby, whether asserted or claimed prior to, at or after the effective time of the Merger, to the fullest extent permitted under applicable law (and Lyondell will, or will cause the Surviving Corporation to, also advance expenses as incurred to the fullest extent permitted under applicable law); provided, however, that, with respect to any Indemnified Person that is an officer or employee of ARCO as of the date of the Merger Agreement, such Indemnified Person shall first have pursued all available rights to indemnification (and advancement of expenses) from ARCO. Pursuant to the Merger Agreement and the Tender and Voting Agreement, ARCO has agreed to indemnify and hold harmless any such Indemnified Person that is at the date of the Merger Agreement an officer or employee of ARCO against any such Costs (not covered by insurance and paid) to the fullest extent permitted under applicable law (and ARCO shall also advance expenses as incurred to the fullest extent permitted under applicable law). The Merger Agreement provides that, in the event that Lyondell, the Surviving Corporation or any of their successors or assigns (a) consolidates with or merges into any other person and is not the continuing or surviving corporation or entity of such consolidation or merger or (b) transfers or conveys all or substantially all of its properties and assets to any person, then, and in each such case, proper provision will be made so that the successors and assigns of Lyondell or the Surviving Corporation, as the case may be, shall assume the obligations set forth in the two foregoing paragraphs. In the event the Surviving Corporation transfers any material portion of its assets, in a single transaction or in a series of transactions, Lyondell will either guarantee the indemnification obligations referred to in the two foregoing paragraphs or take such other action to insure that the ability of the Surviving Corporation, legal and financial, to satisfy such indemnification obligations will not be diminished in any material respect. Pursuant to the Merger Agreement and the Tender and Voting Agreement, ARCO has agreed, for a period of six years after the effective time of the Merger, to cause to be maintained in effect policies of directors' and 24 officers' liability insurance substantially in the amounts currently maintained by ARCO and covering the officers, directors and employees of the Company currently covered by ARCO's directors' and officers' liability insurance with similar terms and conditions with respect to claims arising from or related to facts or events which occurred at or before the effective time of the Merger; provided, however, that ARCO shall not be obligated to make annual premium payments for such insurance to the extent such premiums exceed 200% of the annual premiums paid as of the date of the Merger Agreement by ARCO for such insurance (such 200% amount, the "Maximum Premium"). If such insurance coverage cannot be obtained at all, or can only be obtained at an annual premium in excess of the Maximum Premium, ARCO shall maintain the most advantageous policies of directors' and officers' insurance obtainable for an annual premium equal to the Maximum Premium; provided further, if such insurance coverage cannot be obtained at all, ARCO shall purchase extended reporting periods with respect to such insurance for an amount which, together with all other insurance purchased pursuant to this paragraph, does not exceed the Maximum Premium. It is understood that ARCO will not take any action that would have the effect of limiting the aggregate amount of insurance coverage required to be maintained for the individuals referred to in this paragraph. The Merger Agreement provides that the provisions of the four previous paragraphs (x) are intended to be for the benefit of, and shall be enforceable by, each indemnified party, his or her heirs and his or her representatives and (y) are in addition to, and not in substitution for, any other rights to indemnification or contribution that any such person may have by contract or otherwise. Reasonable Efforts; Notification. The Merger Agreement provides that (a) upon the terms and subject to the conditions set forth therein, each of the parties to the Merger Agreement will use its commercially reasonable efforts to take, or cause to be taken, all appropriate action, and to do or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by the Merger Agreement as soon as practicable, including but not limited to: (i) cooperation in the preparation and filing of the Offer Documents, the Schedule 14D-9, the Information Statement, the Proxy Statement, any required filings under the HSR Act or other foreign filings and any amendments or supplements to any thereof and (ii) using its commercially reasonable efforts to promptly make all required regulatory filings and applications including, without limitation, responding promptly to requests for further information and to obtain all licenses, permits, consents, approvals, authorizations, qualifications and orders of Governmental Entities as are necessary for the consummation of the transactions contemplated by the Merger Agreement and to fulfill the conditions to the Offer and the Merger, (b) in case at any time after the effective time of the Merger any further action is necessary or desirable to carry out the purposes of the Merger Agreement, the proper officers and directors of each party to the Merger Agreement will use their commercially reasonable efforts to take all such necessary action, (c) the Company and Lyondell each will keep the other apprised of the status of matters relating to completion of the transactions contemplated in the Merger Agreement, including promptly furnishing the other with copies of notices or other communications received by Lyondell or the Company, as the case may be, or any of their subsidiaries, from any Governmental Entity with respect to the Offer, the Merger or any of the other transactions contemplated by the Merger Agreement, and (d) the parties to the Merger Agreement will consult and cooperate with one another, and consider in good faith the views of one another in connection with, and will provide each other the opportunity to review and comment upon, any analyses, appearances, presentations, memoranda, briefs, arguments, opinions and proposals made or submitted by or on behalf of any party to the Merger Agreement in connection with proceedings under or relating to the HSR Act or any other antitrust law. The Merger Agreement further provides that, without limiting the generality of the foregoing undertakings, (i) Lyondell agrees that, if necessary to prevent any Governmental Entity from taking steps to obtain, or from issuing, any order, injunction, decree, judgment or ruling or the taking of any other action that would (x) restrain, enjoin or otherwise prohibit the Offer, the Merger or any of the other transactions contemplated by this Agreement or (y) cause any Offer Condition not to be satisfied, Lyondell shall (A) offer to accept an order to divest (and to enter into a consent decree or other agreement giving effect thereto) such of the Company's or Lyondell's assets and business, and agree to hold separate such assets and business pending such divestiture, and (B) enter into any supply, license, tolling, joint venture or other agreement or take any other action, as may be necessary to forestall such order, decree, ruling or action; provided, however, that 25 notwithstanding the foregoing provisions of this clause (i), Lyondell shall not be required to take any such action that would have a material adverse effect on the Company and its Subsidiaries taken as a whole, to waive any material rights, or to take any action that would result in any of the consequences referred to in paragraph (a) of Item 14; and (ii) without limitation of the foregoing clause (i), the Company and Lyondell each agree to contest and resist any action seeking to have imposed any order, decree, judgment, injunction, ruling or other order (whether temporary, preliminary or permanent) (an "Order") that (x) would delay, restrain, enjoin or otherwise prohibit consummation of the Offer, the Merger or any of the other transactions contemplated by the Merger Agreement or (y) cause any conditions to the Offer set forth in Section 14 hereof not to be satisfied and, in the event that any such temporary or preliminary Order is entered in any proceeding, to take the steps contemplated by the foregoing clause (i) and to use its commercially reasonable efforts to take promptly any and all other steps (including, the appeal thereof and the posting of a bond) necessary to vacate, modify or suspend such Order so as to permit such consummation as promptly as practicable after the date of the Merger Agreement. Representations and Warranties. The Merger Agreement contains various customary representations and warranties. Amendment; Extension; Waiver. The Merger Agreement provides that: (a) it may be amended by the parties thereto, by action taken or authorized by their respective Boards of Directors, at any time before or after obtaining the approval of the Company's stockholders (if required by the DGCL), but, after any such approval, no amendment will be made which by law requires further approval by such stockholders without obtaining such further approval; and (b) it may not be amended except by an instrument in writing signed on behalf of each of the parties thereto. The Merger Agreement provides further that, at any time prior to the effective time of the Merger, the parties thereto, by action taken or authorized by their respective Boards of Directors, may, to the extent legally allowed, (a) extend the time for the performance of any of the obligations or other acts of the other parties thereto, (b) waive any inaccuracies in the representations and warranties contained therein or in any document delivered pursuant thereto or (c) subject to the first sentence of this paragraph, waive compliance with any of the agreements or conditions contained therein. The Merger Agreement provides that any agreement on the part of a party thereto to any such extension or waiver will be valid only if set forth in a written instrument signed on behalf of such party and that the failure of any party to the Merger Agreement to assert any of its rights thereunder or otherwise will not constitute a waiver of those rights. Other. In the Merger Agreement, the terms "material adverse change" or "material adverse effect" are defined generally to mean any change or effect that, individually or in the aggregate, with such other changes or effects, is materially adverse to the business, assets, financial condition or results of operations of the Company and its subsidiaries taken as a whole, except for changes or effects relating to the economy in general or resulting from actions expressly contemplated by the Merger Agreement. The foregoing summary of the Merger Agreement is qualified in its entirety by reference to the Merger Agreement, a copy of which is filed as Exhibit (c)(1) to the Schedule 14D-1. The Merger Agreement should be read in its entirety for a more complete description of the matters summarized above. THE TENDER AND VOTING AGREEMENT Pursuant to the Tender and Voting Agreement, ARCO has agreed that, if Purchaser commences the Offer, it will tender, or cause to be tendered prior to the expiration of the Offer, to the Purchaser, and not withdraw as long as the Tender and Voting Agreement remains in effect, all Shares over which it has sole voting and dispositive power (consisting of 80,000,001 Shares). ARCO has further agreed in the Tender and Voting Agreement that while such agreement is in effect, and except as contemplated thereby, ARCO will not (a) sell, transfer, pledge, encumber, assign or otherwise dispose of, or enter into any contract, option or other arrangement or understanding with respect to the sale, transfer, pledge, encumbrance, assignment or other disposition of, any of the Shares owned by ARCO, (b) grant any proxies, powers of attorney or other authorization or consent, deposit any shares of capital stock of the Company 26 into a voting trust or enter into a voting agreement with respect to any such Shares or (c) take any action that would make any representation or warranty of ARCO contained in the Tender and Voting Agreement untrue or incorrect or have the effect of preventing or disabling ARCO from performing its obligations under the Tender and Voting Agreement. ARCO also agreed that, while the Tender and Voting Agreement is in effect, it will promptly notify Lyondell and Purchaser of the number of new shares of Company Common Stock acquired by ARCO, if any, after the date thereof. Under the terms of the Tender and Voting Agreement, ARCO will, and will direct and use reasonable efforts to cause its officers, directors, employees, representatives, subsidiaries and agents to, immediately cease any discussions or negotiations with any parties other than Lyondell and Purchaser that may be ongoing with respect to a Takeover Proposal. While the Tender and Voting Agreement is in effect, ARCO has agreed that it will not, and will not authorize or permit any of its officers, directors, subsidiaries or employees or any investment banker, financial advisor, attorney, accountant or other representative retained by it or any of them to, directly or indirectly, (a) solicit, initiate or encourage any inquiries or the making of any proposal that constitutes, or may reasonably be expected to lead to, any Takeover Proposal, or (b) participate in any discussions or negotiations regarding any Takeover Proposal; provided, however, that if, at any time prior to the acceptance for payment of shares of Company Common Stock pursuant to the Offer, ARCO determines in good faith, after consultation with its financial advisers, that a Takeover Proposal that has not been solicited, initiated or encouraged after the date thereof in violation of clause (a) above or of similar provisions in the Merger Agreement constitutes a Superior Proposal (as defined in the Merger Agreement), ARCO and the Company may (i) furnish information with respect to the Company and its Subsidiaries to the third party that has made such Takeover Proposal (and to any investment banker, financial advisor, attorney, accountant or other representative retained by such party) pursuant to a customary and reasonable confidentiality agreement and (ii) participate in negotiations regarding such Takeover Proposal. In the Tender and Voting Agreement, ARCO agrees that, during the time the Tender and Voting Agreement is in effect, at any meeting of the stockholders of the Company, however called, and at every adjournment or postponement thereof, and in any action by written consent of the stockholders of the Company, it shall (a) appear at the meeting or otherwise cause the Shares to be counted as present thereat for purposes of establishing a quorum; (b) vote its Shares in favor of the Merger and approval and adoption of the Merger Agreement, and any action required in furtherance thereof; (c) vote its Shares against any action or agreement that would result in a breach in any material respect of any representation, warranty or covenant of the Company in the Merger Agreement; and (d) vote its Shares against any action or agreement (other than the Merger Agreement or the transactions contemplated thereby) that would impede, interfere with, delay, postpone or attempt to discourage the Merger or the Offer, including any other extraordinary corporate transaction, such as a merger, reorganization or liquidation involving the Company and a third party or any other proposal of a third party to acquire the Company. In furtherance of the foregoing, under the Tender and Voting Agreement, ARCO irrevocably constitutes and appoints Lyondell as its attorney and proxy pursuant to the provisions of Section 212(c) of the DGCL, with full power of substitution and resubstitution, to vote the Shares at any meeting of stockholders of the Company, however called, or in connection with any action by written consent by the stockholders of the Company, in each case only as and to the extent provided in clauses (a), (b) and (c) of the preceding sentence, provided, however, that, without limiting the foregoing, in any such vote or other action pursuant to such proxy, Lyondell will not in any event have the right (and such proxy will not confer the right) to vote against the Merger, to vote to reduce the Offer Price or the Merger consideration or otherwise modify or amend the Merger Agreement to reduce the rights or benefits of the Company or any stockholders of the Company (including ARCO) under the Offer or the Merger Agreement or to reduce the obligations of Lyondell thereunder; and provided, further, that the proxy granted pursuant to this paragraph will irrevocably cease and will be of no further force or effect upon (x) any breach by Lyondell of any of its obligations under Section 1.1(a) of the Merger Agreement, (y) any violation by Lyondell of any of the terms of the Tender and Voting Agreement or (z) the termination of the Merger Agreement or the Tender and Voting Agreement in accordance with its terms. The Tender and Voting Agreement provides that the Tender and Voting Agreement will terminate on the earliest of (i) payment to ARCO of the full purchase price for the Shares, (ii) the consummation of the Merger, and (iii) the termination of the Merger Agreement in accordance with its terms. The Tender and Voting 27 Agreement also provides that it may be terminated by ARCO if Lyondell fails to comply with certain of its obligations in connection with the making of the Offer pursuant to the Merger Agreement. The Tender and Voting Agreement provides that, in the event of a termination thereof, the Tender and Voting Agreement will forthwith become void and there will be no liability or obligation on the part of Lyondell, Purchaser or ARCO or their respective officers or directors under the Tender and Voting Agreement thereafter, except as specifically provided in the Tender and Voting Agreement. The foregoing summary of the Tender and Voting Agreement is qualified in its entirety by reference to the Tender and Voting Agreement, a copy of which is filed as Exhibit (c)(2) to the Schedule 14D-1. The Tender and Voting Agreement should be read in its entirety for a more complete description of the matters summarized above. THE TAX AGREEMENT In connection with the negotiation of the Merger Agreement and the Tender and Voting Agreement, ARCO, the Company and Lyondell also entered into a Tax Agreement dated as of June 18, 1998 (the "Tax Agreement"), and ARCO and Lyondell entered into a related Guaranty dated as of June 18, 1998, pursuant to which Lyondell, as of the date of the consummation of the Offer, will guarantee the obligations of the Company under the Tax Agreement and previous tax agreements between the Company and ARCO. The Tax Agreement provides that the parties will make a Section 338(h)(10) Election for federal income tax purposes and a similar election for certain state income tax purposes to treat the disposition of the Shares pursuant to the Offer and the Merger as, in effect, a sale of assets by the Company and its subsidiaries ("Company Group"). As a result, Lyondell will have a basis in the assets of the Company Group for such federal and state income tax purposes equal to the amount paid by Lyondell for the Shares plus the amount of Company Group liabilities ("Gross Purchase Price"), and the Company Group will recognize taxable gain equal to the excess of the Gross Purchase Price over its adjusted tax basis in the assets ("Sale Gain"). Because ARCO owns more than 80% of the outstanding Shares, the Company Group is currently a part of the affiliated group of corporations headed by ARCO that file a consolidated return ("ARCO Group"). Accordingly, the entire Sale Gain will be included in the consolidated tax return filed by the ARCO Group, and ARCO will be liable for the tax attributable thereto, even though ARCO owns less than 100% of the outstanding Shares. The Tax Agreement also provides that, other than taxes attributable to the Sale Gain, the Company and Lyondell will be responsible for the tax liabilities of the ARCO Group that are attributable to the Company Group. The Company and Lyondell will also indemnify ARCO against any taxes attributable to the recapture of dual consolidated losses incurred by the Company Group and reflected on an ARCO Group consolidated return. Lyondell does not expect the taxes for which it and the Company Group are liable to be materially different from the amounts previously paid or provided for. PLANS FOR THE COMPANY If a majority of the outstanding Shares are purchased by the Purchaser pursuant to the Offer, Lyondell currently intends to request the Company to reduce the number of its directors and to designate Lyondell representatives as a majority of the Company's Board of Directors. Following completion of the Offer and the Merger, Lyondell intends to integrate the Company's operations with those of Lyondell under the direction of Lyondell's management. Lyondell believes that, because of the strategic fit of the Company's operations with Lyondell's operations, the combination of Lyondell and the Company will serve to maximize Lyondell shareholder value. While Lyondell does not have any current plans with respect to the sale or other disposition of any other significant assets of the Company or any other material change in the Company's business, Lyondell 28 may determine to do so after further review. Lyondell currently intends to relocate the corporate headquarters of the Company to Houston, Texas. APPRAISAL RIGHTS The holders of Shares do not have appraisal rights as a result of the Offer. However, if the Merger is consummated, holders of Shares at the effective time of the Merger will have certain rights pursuant to the provisions of Section 262 of the DGCL ("Section 262") to dissent and demand appraisal of their Shares. Under Section 262, dissenting stockholders who comply with the applicable statutory procedures will be entitled to receive a judicial determination of the fair value of their Shares (exclusive of any element of value arising from the accomplishment or expectation of the Merger) and to receive payment of such fair value in cash, together with a fair rate of interest, if any. Any such judicial determination of the fair value of Shares could be based upon factors other than, or in addition to, the price per Share to be paid in the Merger or the market value of the Shares. The value so determined could be more or less than the price per Share to be paid in the Merger. The foregoing summary of Section 262 does not purport to be complete and is qualified in its entirety by reference to Section 262. FAILURE TO FOLLOW THE STEPS REQUIRED BY SECTION 262 OF THE DGCL FOR PERFECTING APPRAISAL RIGHTS MAY RESULT IN THE LOSS OF SUCH RIGHTS. GOING PRIVATE TRANSACTIONS The Commission has adopted Rule 13e-3 under the Exchange Act, which is applicable to certain "going private" transactions. The Purchaser does not believe that Rule 13e-3 will be applicable to the Merger unless the Merger is consummated more than one year after the termination of the Offer. If applicable, Rule 13e-3 requires, among other things, that certain financial information concerning the fairness of the Merger and the consideration offered to minority stockholders in the Merger be filed with the Commission and disclosed to stockholders prior to the consummation of the Merger. Except as otherwise described in this Offer to Purchase, the Purchaser and Lyondell have no current plans or proposals that would relate to, or result in, an extraordinary corporate transaction involving the Company, such as a merger, reorganization or liquidation involving the Company or any of its subsidiaries, a sale or transfer of a material amount of assets of the Company or any of its subsidiaries, any change in the present Board of Directors or management of the Company including, but not limited to, any plans or proposals to change the number or term of directors or to fill any existing vacancies on the Board of Directors, any material change in the Company's present capitalization or dividend policy, any other material change in the Company's corporate structure or business, causing a class of securities of the Company to be delisted from a national securities exchange or to cease to be authorized to be quoted in an inter-dealer quotation system of a registered national securities association or a class of equity securities of the Company becoming eligible for termination of registration pursuant to Section 12(g)(4) of the Exchange Act. 13. DIVIDENDS AND DISTRIBUTIONS Pursuant to the terms of the Merger Agreement, the Company is prohibited from taking any of the actions described in the two succeeding paragraphs, and nothing herein shall constitute a waiver by the Purchaser or Lyondell of any of its rights under the Merger Agreement or a limitation of remedies available to the Purchaser or Lyondell for any breach of the Merger Agreement, including termination thereof. If the Company should (a) split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock, (b) purchase, redeem or otherwise acquire any shares of capital stock of the Company or any of its subsidiaries or any other securities thereof or any rights, warrants or options to acquire any such shares or other securities (other than in connection with the exercise of currently outstanding Company Stock Options), or (c) issue, deliver, sell, 29 pledge or otherwise encumber any shares of its capital stock, any other voting securities or any securities convertible into, or any rights, warrants or options to acquire, any such shares, voting securities or convertible securities (other than the issuance of Shares upon the exercise of Company Stock Options outstanding on the date of the Merger Agreement in accordance with their present terms) or as provided for in the Merger Agreement; then, subject to the provisions described in Section 14, the Purchaser may, subject to the terms of the Merger Agreement (which restrict the Purchaser from taking certain actions without the consent of the Company), make such adjustments as it deems appropriate in the Offer Price and other terms of the Offer, including, without limitation, the number or type of securities offered to be purchased. If, on or after June 18, 1998, the Company should declare, set aside or pay any dividends on, or make any other distributions in respect of, any of its capital stock (other than the dividends permitted under the Merger Agreement as described in clause (b)(i) under the heading "The Merger Agreement--Conduct of Business" in Section 12), then, subject to the provisions described in Section 14 and subject to the terms of the Merger Agreement (which restrict the Purchaser from taking certain actions without the consent of the Company), (a) the Offer Price may be reduced by the amount of any such cash dividend or cash distribution and (b) the whole of any such noncash dividend, distribution or issuance to be received by the tendering stockholders will (i) be received and held by the tendering stockholders for the account of the Purchaser and will be required to be promptly remitted and transferred by each tendering stockholder to the Depositary for the account of the Purchaser, accompanied by appropriate documentation of transfer, or (ii) at the direction of the Purchaser, be exercised for the benefit of the Purchaser, in which case the proceeds of such exercise will promptly be remitted to the Purchaser. Pending such remittance and subject to applicable law, the Purchaser will be entitled to all rights and privileges as owner of any such noncash dividend, distribution, issuance or proceeds and may withhold the entire Offer Price or deduct from the Offer Price the amount or value thereof, as determined by the Purchaser in its sole discretion. 14. CERTAIN CONDITIONS OF THE OFFER Notwithstanding any other term of the Offer but subject to the terms and conditions of the Merger Agreement, Purchaser will not be required to accept for payment or, subject to any applicable rules and regulations of the Commission, including Rule 14e-l(c) under the Exchange Act (relating to Purchaser's obligation to pay for or return tendered Shares after the termination or withdrawal of the Offer), to pay for any Shares tendered pursuant to the Offer if (i) the Minimum Condition shall not have been satisfied or (ii) the HSR Condition shall not have been satisfied. Furthermore, Purchaser will not be required to accept for payment or, subject as aforesaid, to pay for any Shares not theretofore accepted for payment or paid for, and may terminate the Offer if after the date of the Merger Agreement and before acceptance of such Shares for payment or the payment therefor pursuant to the Offer, any of the following conditions has occurred and continues to exist as of a scheduled expiration date of the Offer (as extended, if required, pursuant to the Merger Agreement), other than as a result of a breach by Lyondell or Purchaser of any of their obligations under the Merger Agreement: (a) there shall have been entered and then in effect any order, preliminary or permanent injunction, decree, judgment or ruling in any action or proceeding before any court or governmental, administrative or regulatory authority or agency, or any statute, rule or regulation enacted, entered, enforced, promulgated, amended or issued that is applicable to Lyondell, Purchaser, the Company or any subsidiary or affiliate of Purchaser or the Company or the Offer or the Merger, by any legislative body, court, government or governmental, administrative or regulatory authority or agency that: (i) makes illegal or otherwise restrains or prohibits the consummation of the Offer in accordance with the terms of the Merger Agreement, the acceptance for payment of, or payment for, the Shares by Purchaser or any of its affiliates, or the consummation of the Merger; (ii) prohibits the ownership or operation by the Company or any of its subsidiaries, or Lyondell or any of its subsidiaries, of all or any material portion of the business or assets of the Company and its subsidiaries, taken as a whole, or Lyondell or its subsidiaries, taken as a whole, or materially limits the ownership or operation by the Company or any of its subsidiaries, or Lyondell or any of its subsidiaries, of all or any material portion of the business or assets of the Company and its subsidiaries, taken as a whole, or Lyondell and its subsidiaries, taken as a whole, or compels Lyondell or 30 any of its subsidiaries to dispose of or hold separate all or any material portion of the businesses or assets of the Company and its subsidiaries, taken as a whole, or Lyondell and its subsidiaries, taken as a whole, in any such case as a result of the transactions contemplated by the Offer or the Merger Agreement; (iii) imposes substantial limitations on the ability of Lyondell, Purchaser or any of Lyondell's affiliates effectively to acquire or hold or to exercise full rights of ownership of Shares; or (iv) requires divestiture by Lyondell or Purchaser or any of their affiliates of any material portion of the Shares; provided, however, that this paragraph (a) will not apply to or include any consent decree or agreement entered into by Lyondell, or any other action taken by Lyondell, in connection with satisfying its obligations under the Merger Agreement that are summarized under the heading "Purpose of the Offer; The Merger Agreement; The Tender and Voting Agreement--The Merger Agreement--Reasonable Efforts; Notification" in Section 12; (b) there shall have occurred any material adverse change (as defined in the Merger Agreement) in the Company and its subsidiaries taken as a whole; (c) any of the representations and warranties of the Company set forth in the Merger Agreement that are qualified by reference to a material adverse effect (as defined in the Merger Agreement) shall not be true and correct, or any such representations and warranties that are not so qualified shall not be true and correct in any respect that would have a material adverse effect (as defined in the Merger Agreement) on the Company and its subsidiaries taken as a whole, in each case as if such representations and warranties were made at the time of such determination; (d) the Company shall not have performed and complied with in all material respects any material agreement or covenant of the Company to be performed or complied with by it under this Agreement and shall not have cured such default after having been given five business days written notice of such default by Lyondell; or (e) the Merger Agreement shall have been terminated in accordance with its terms; (f) (i) the Board of Directors of the Company or any committee thereof shall have withdrawn or modified in a manner adverse to Lyondell or Purchaser its approval or recommendation of the Offer, the Merger or the Merger Agreement or (ii) the Company shall have entered into any agreement with respect to any Superior Proposal or (iii) the Board of Directors of the Company or any committee thereof shall have resolved to take any of the foregoing actions; provided, however, that clauses (i) and (iii) of this paragraph (f) shall not apply to or include (x) a determination that a Takeover Proposal is a Superior Proposal or (y) giving notice of a Superior Proposal to Purchaser as contemplated by the Merger Agreement; or (g) there shall have occurred and continued to exist for at least three business days (i) any general suspension of trading in, or limitation on prices for, securities on a national securities exchange in the U.S. (excluding any coordinated trading halt triggered solely as a result of a specified decrease in a market index), (ii) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (iii) a mandatory limitation by a U.S. federal Governmental Entity or a change in the general financial, banking or capital markets which results in a general inability of major financial institutions in the United States to fulfill their obligations under commitments to extend credit, or (iv) or in case of any of the foregoing existing on the date of the Merger Agreement, material acceleration or worsening thereof; which, in the sole judgment of Purchaser in any such case, and regardless of the circumstances (including any action or omission by Purchaser) giving rise to any such condition, makes it inadvisable to proceed with such acceptance for payment or payments. The foregoing conditions in paragraphs (a) through (g) are for the sole benefit of Purchaser and Lyondell and may, subject to the terms of the Merger Agreement be waived by Purchaser and Lyondell in whole or in part at any time and from time to time in their sole discretion. The failure by Lyondell or Purchaser at any time to exercise any of the foregoing rights will not be deemed a waiver of any such right, the waiver of any such 31 right with respect to particular facts and circumstances will not be deemed a waiver with respect to any other facts and circumstances and each such right will be deemed an ongoing right that may be asserted at any time and from time to time. 15. CERTAIN LEGAL MATTERS Except as described in this Section 15, based on a review of publicly available filings made by the Company with the Commission and other publicly available information concerning the Company and discussions of representatives of Lyondell with representatives of the Company, none of the Purchaser, Lyondell or the Company is aware of any license or regulatory permit that appears to be material to the business of the Company and its subsidiaries, taken as a whole, that might be adversely affected by the Purchaser's acquisition of Shares (and the indirect acquisition of the stock of the Company's subsidiaries) as contemplated herein or of any approval or other action by any Governmental Entity that would be required or desirable for the acquisition or ownership of Shares by the Purchaser as contemplated herein. Should any such approval or other action be required or desirable, the Purchaser and Lyondell currently contemplate that such approval or other action will be sought, except as described below under "State Takeover Laws". While (except as otherwise expressly described in this Section 15) the Purchaser does not presently intend to delay the acceptance for payment of or payment for Shares tendered pursuant to the Offer pending the outcome of any such matter, there can be no assurance that any such approval or other action, if needed, would be obtained or would be obtained without substantial conditions or that failure to obtain any such approval or other action might not result in consequences adverse to the Company's business or that certain parts of the Company's business might not have to be disposed of if such approvals were not obtained or such other actions were not taken or in order to obtain any such approval or other action. If certain types of adverse action are taken with respect to the matters discussed below, the Purchaser could decline to accept for payment or pay for any Shares tendered. See Section 14 for a description of certain conditions to the Offer. State Takeover Laws. A number of states throughout the United States have enacted takeover statutes that purport, in varying degrees, to be applicable to attempts to acquire securities of corporations that are incorporated or have assets, stockholders, executive offices or places of business in such states. In Edgar v. MITE Corp., the Supreme Court of the United States held that the Illinois Business Takeover Act, which involved state securities laws that made the takeover of certain corporations more difficult, imposed a substantial burden on interstate commerce and therefore was unconstitutional. In CTS Corp. v. Dynamics Corp. of America, however, the Supreme Court of the United States held that a state may, as a matter of corporate law and, in particular, those laws concerning corporate governance, constitutionally disqualify a potential acquiror from voting on the affairs of a target corporation without prior approval of the remaining stockholders, provided that such laws were applicable only under certain conditions. Subsequently, a number of Federal courts ruled that various state takeover statutes were unconstitutional insofar as they apply to corporations incorporated outside the state of enactment. Section 203 of the DGCL, in general, prohibits a Delaware corporation such as the Company from engaging in a "Business Combination" (defined as a variety of transactions, including mergers) with an "Interested Stockholder" (defined generally as a person that is the beneficial owner of 15% or more of a corporation's outstanding voting stock) for a period of three years following the time that such person became an Interested Stockholder unless, among other things, prior to the time such person became an Interested Stockholder, the board of directors of the corporation approved either the Business Combination or the transaction that resulted in the stockholder becoming an Interested Stockholder. The Company's Board of Directors has approved the Merger Agreement and the transactions contemplated thereby. Therefore, Section 203 of the DGCL is inapplicable to the Merger. In addition, Pennsylvania has adopted a Takeover Disclosure Law which purports to regulate attempts to acquire a corporation which (i) is incorporated in Pennsylvania or (ii) has its principal place of business and substantial assets located in Pennsylvania. The Company's executive offices are located in Newtown Square, Pennsylvania. Because the Company Board has recommended acceptance of the Offer, the Offer is exempt from 32 the registration requirements of such law provided that certain information is filed with the Pennsylvania Securities Commission and Purchaser undertakes to notify the Company's shareholders that such filing must be made with the Pennsylvania Securities Commission, must include substantial information about the Offer and must be available for inspection at the offices of the Pennsylvania Securities Commission, 1010 N. 7th Street, 2nd Floor, Harrisburg, Pennsylvania 17102 during normal business hours. Purchaser intends to make such filing, and the distribution of this Offer to Purchase to the Company's shareholders constitutes the required notification to them. Based on information supplied by the Company, the Purchaser does not believe that any other state takeover statutes or similar laws purport to apply to the Offer or the Merger. Neither the Purchaser nor Lyondell has currently complied with any other state takeover statute or regulation. The Purchaser reserves the right to challenge the applicability or validity of any state law purportedly applicable to the Offer or the Merger and nothing in this Offer to Purchase or any action taken in connection with the Offer or the Merger is intended as a waiver of such right. If it is asserted that any state takeover statute is applicable to the Offer or the Merger and an appropriate court does not determine that it is inapplicable or invalid as applied to the Offer or the Merger, the Purchaser might be required to file certain information with, or to receive approvals from, the relevant state authorities, and the Purchaser might be unable to accept for payment or pay for Shares tendered pursuant to the Offer, or be delayed in consummating the Offer or the Merger. In such case, the Purchaser may not be obligated to accept for payment or pay for any Shares tendered pursuant to the Offer. See Section 14. Antitrust. Under the provisions of the HSR Act applicable to the Offer, the acquisition of Shares under the Offer may be consummated after the expiration of a 15-calendar day waiting period commenced by the filing by Lyondell of a Notification and Report Form with respect to the Offer, unless Lyondell receives a request for additional information or documentary material from the Antitrust Division or the FTC or unless early termination of the waiting period is granted. Lyondell expects to make such filing on June 25, 1998. If, within the initial 15-day waiting period, either the Antitrust Division or the FTC requests additional information or material from Lyondell concerning the Offer, the waiting period will be extended and would expire at 11:59 p.m., New York City time, on the tenth calendar day after the date of substantial compliance by Lyondell with such request. Only one extension of the waiting period pursuant to a request for additional information is authorized by the HSR Act. Thereafter, such waiting period may be extended only by court order or with the consent of Lyondell. In practice, complying with a request for additional information or material can take a significant amount of time. In addition, if the Antitrust Division or the FTC raises substantive issues in connection with a proposed transaction, the parties frequently engage in negotiations with the relevant governmental agency concerning possible means of addressing those issues and may agree to delay consummation of the transaction while such negotiations continue. Expiration or termination of the applicable waiting period under the HSR Act is a condition to the Purchaser's obligation to accept for payment and pay for Shares tendered pursuant to the Offer. The Merger will not require an additional filing under the HSR Act if the Purchaser owns 50% or more of the outstanding Shares at the time of the Merger or if the Merger occurs within one year after the HSR Act waiting period applicable to the Offer expires or is terminated. The Antitrust Division and the FTC frequently scrutinize the legality under the antitrust laws of transactions such as the Purchaser's proposed acquisition of the Company. At any time before or after the Purchaser's acquisition of Shares pursuant to the Offer, the Antitrust Division or the FTC could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the purchase of Shares pursuant to the Offer or the consummation of the Merger or seeking the divestiture of Shares acquired by the Purchaser or the divestiture of substantial assets of the Company or its subsidiaries or Lyondell or its subsidiaries. Private parties may also bring legal action under the antitrust laws under certain circumstances. There can be no assurance that a challenge to the Offer on antitrust grounds will not be made or, if such a challenge is made, of the result thereof. Other Foreign Laws. The Company and certain of its subsidiaries conduct business in several foreign countries where regulatory filings or approvals may be required or desirable in connection with the 33 consummation of the Offer. Certain of such filings or approvals, if required or desirable, may not be made or obtained prior to the expiration of the Offer. The Purchaser is seeking further information regarding the applicability of any such laws and currently intends to take such action as may be required or desirable. If any foreign Governmental Entity takes any action prior to the completion of the Offer that might have certain adverse effects, the Purchaser will not be obligated to accept for payment or pay for any Shares tendered. See Section 14. 16. FEES AND EXPENSES J.P. Morgan is acting as Dealer Manager in connection with the Offer and is acting as financial advisor to Lyondell in connection with its efforts to acquire the Company. Pursuant to an engagement letter dated February 17, 1998, between Lyondell and J.P. Morgan, Lyondell paid J.P. Morgan a fee of $250,000. In addition, Lyondell will pay J.P. Morgan a fee of $7,500,000 upon the earlier to occur of (i) consummation of the Merger and (ii) six months following consummation of the Offer. Lyondell has also agreed to reimburse J.P. Morgan for its expenses, including the fees and expenses of its counsel, in connection with its engagement, and to indemnify J.P. Morgan and certain related persons against certain liabilities and expenses, including certain liabilities under federal securities laws. J.P. Morgan has rendered various investment banking and other advisory services to Lyondell and its affiliates in the past and is expected to continue to render such services for which it has received and will continue to receive customary compensation from Lyondell and its affiliates. The Purchaser and Lyondell have retained Georgeson & Company Inc. to act as the Information Agent and The Bank of New York to serve as the Depositary in connection with the Offer. The Information Agent and the Depositary each will receive reasonable and customary compensation for their services, be reimbursed for certain reasonable out-of-pocket expenses and be indemnified against certain liabilities and expenses in connection therewith, including certain liabilities and expenses under the U.S. federal securities laws. Neither the Purchaser nor Lyondell will pay any fees or commissions to any broker or dealer or other person (other than the Dealer Manager and the Information Agent) in connection with the solicitation of tenders of Shares pursuant to the Offer. Brokers, dealers, banks and trust companies will be reimbursed by the Purchaser upon request for customary mailing and handling expenses incurred by them in forwarding material to their customers. 17. MISCELLANEOUS The Offer is not being made to (nor will tenders be accepted from or on behalf of) holders of Shares in any jurisdiction in which the making of the Offer or the acceptance thereof would not be in compliance with the laws of such jurisdiction. Neither the Purchaser nor Lyondell is aware of any jurisdiction in which the making of the Offer or the acceptance thereof would not be in compliance with the laws of such jurisdiction. To the extent the Purchaser or Lyondell becomes aware of any state law that would limit the class of offerees in the Offer, the Purchaser will amend the Offer and, depending on the timing of such amendment, if any, will extend the Offer to provide adequate dissemination of such information to holders of Shares prior to the expiration of the Offer. In any jurisdiction the securities, blue sky or other laws of which require the Offer to be made by a licensed broker or dealer, the Offer is being made on behalf of the Purchaser by the Dealer Manager or one or more registered brokers or dealers licensed under the laws of such jurisdiction. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION ON BEHALF OF THE PURCHASER OR LYONDELL NOT CONTAINED HEREIN OR IN THE LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. 34 The Purchaser and Lyondell have filed with the Commission the Schedule 14D-1 pursuant to Rule 14d-3 under the Exchange Act, together with exhibits, furnishing certain additional information with respect to the Offer, and may file amendments thereto. In addition, the Company has filed the Schedule 14D-9 pursuant to Rule 14d-9 under the Exchange Act, together with exhibits, setting forth its recommendation with respect to the Offer and the reasons for such recommendation and furnishing certain additional related information. Such Schedules and any amendments thereto, including exhibits, should be available for inspection and copies should be obtainable in the manner set forth in Section 8 (except that such material will not be available at the regional offices of the Commission). Lyondell Acquisition Corporation June 24, 1998 35 SCHEDULE I DIRECTORS AND EXECUTIVE OFFICERS OF LYONDELL AND THE PURCHASER 1. DIRECTORS AND EXECUTIVE OFFICERS OF LYONDELL. The name, business address, present principal occupation or employment and employment history of each of the directors and executive officers of Lyondell are set forth below. All such directors and executive officers listed below are citizens of the United States. Unless otherwise indicated, the principal business address of each director or executive officer is Lyondell Petrochemical Company, 1221 McKinney, Suite 1600, Houston, Texas 77010 PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT; MATERIAL POSITIONS HELD DURING THE PAST FIVE YEARS NAME, AGE AND BUSINESS ADDRESS --------------------------- - -------------------------- William T. Butler, 65............ Chiarman of the Board of Directors of Baylor College of Medicine Lyondell since June 30, 1997. Director of One Baylor Plaza Lyondell since January 1989. Chancellor Room 177A of Baylor College of Medicine since Houston, Texas 77030 January 1996. President and Chief Executive Officer of Baylor College of Medicine from 1979 until January 1996. Director of C. R. Bard, Inc. and Browning-Ferris Industires Inc. Travis Engen, 53................. Director of Lyondell since April 1995. ITT Industries, Inc. Chairman, President and Chief Executive 4 West Red Oak Lane of ITT Industries, Inc. (a diversified White Plains, New York 10604 manufacturing company) since December 1995. Executive Vice President and a member of the Management Policy Committee of ITT Corporation from 1991 to December 1995. Director of Alcan Aluminium Limited. Stephen F. Hinchliffe, Jr., 64... Director of Lyondell since March 1991. 445 South Figueroa, Suite 3250 Chairman of the Board and Chief Executive Los Angeles, California 90071 Officer of BHH Management, Inc., the managing partner of Leisure Group, Inc. (a manufacturer of consumer products) since 1988. Dudley C. Mecum II, 63........... Director of Lyondell since January 1989. Managing Director of Capricorn Holdings LLC (a firm specializing in leveraged buyouts) since July 1997. Partner with the merchant banking firm of G. L. Ohrstrom & Company from August 1989 until January 1997. Director of The Travelers Group, Dynacorp, VICORP Restaurants, Inc., Fingerhut Companies, Inc., Travelers Property Casualty Corporation, Metris Companies, Inc. and Suburban Propane LLP. Dan F. Smith, 52................. Chief Executive Officer of Lyondell since December 1996, President of Lyondell since August 1994 and Director of Lyondell since October 1988. Chief Executive Officer of Equistar Chemicals, LP ("Equistar"), a petrochemicals and polymers joint venture owned 57 percent by Lyondell, since December 1, 1997. Chief Operating Officer of Lyondell from May 1993 to December 1996. Paul R. Staley, 68............... Director of Lyondell since January 1989. Chairman of the National Vision Foundation since August 1994. Chairman of the Executive Committee of the Board of Directors of P. 36 PRESENT PRINCIPAL OCCUPATION OR NAME, AGE AND BUSINESS EMPLOYMENT; MATERIAL POSITIONS HELD ADDRESS DURING THE PAST FIVE YEARS - -------------------------- --------------------------- Q. Corporation (an industry supplier of silicates) from January 1991 until August 1994. T. Kevin DeNicola, 44............ Vice President, Corporate Development of Lyondell since May 1998. Director, Investor Relations of Lyondell from March 1996 until May 1998. Product Manager of Lyondell from March 1993 until March 1996. Kerry A. Galvin, 37.............. Chief Corporate Counsel and Corporate Secretary of Lyondell since December 1997. Finance and Securities Counsel and Assistant Secretary of Lyondell prior thereto. Allen C. Holmes, 50.............. Vice President, Tax and Business Systems of Lyondell since May 1998. Vice President and General Tax Officer of Atlantic Richfield Company from March 1991 through December 1997. Jeffrey R. Pendergraft, 50....... Senior Vice President and Chief Administrative Officer of Lyondell since December 1997. Senior Vice President of Lyondell since May 1993. Vice President, General Counsel and Secretary of Lyondell since 1988. Edward W. Rich, 48............... Vice President, Finance and Treasurer of Lyondell since February 1998. Treasurer of Dow Corning Corporation from February 1993 through January 1998. 2. DIRECTORS AND EXECUTIVE OFFICERS OF THE PURCHASER. The name, business address, present principal occupation or employment and five-year employment history of each of the directors and executive officers of the Purchaser are set forth below. The business address of each such director and executive officer is Lyondell Acquisition Corporation in care of Lyondell, 1221 McKinney, Suite 1600, Houston, Texas 77010. All such directors and executive officers listed below are citizens of the United States. Further information concerning the directors and executive officers listed below, each of whom also serves as an executive officer of Lyondell, is provided above. PRESENT PRINCIPAL OCCUPATION OR NAME, AGE AND BUSINESS EMPLOYMENT; MATERIAL POSITIONS HELD ADDRESS DURING THE PAST FIVE YEARS - -------------------------- --------------------------- Dan F. Smith, 51................. Chairman, President, Chief Executive Officer and Director of Purchaser T. Kevin DeNicola, 44............ Vice President of Purchaser Kerry A. Galvin, 37.............. Vice President, Secretary and General Counsel of Purchaser Jeffrey R. Pendergraft, 50....... Executive Vice President and Director of Purchaser Edward W. Rich, 48............... Vice President and Treasurer of Purchaser 37 Facsimile copies of the Letter of Transmittal, properly completed and duly executed, will be accepted. The Letter of Transmittal, certificates for Shares and any other required documents should be sent or delivered by each stockholder of the Company or his broker, dealer, commercial bank, trust company or other nominee to the Depositary as follows: The Depositary for the Offer is: THE BANK OF NEW YORK By Mail: By Facsimile By Hand or Overnight Transmission: Delivery: (for Eligible Institutions only) Tender & Exchange Tender & Exchange Department (212) 815-6213 Department P.O. Box 11248 101 Barclay Street Church Street Station Receive and Deliver New York, New York 10286- Window 1248 New York, New York 10286 For Information Telephone: (800) 507-9357 Questions and requests for assistance or for additional copies of this Offer to Purchase, the Letter of Transmittal and the Notice of Guaranteed Delivery may be directed to the Information Agent or to the Dealer Manager at their respective telephone numbers and location listed below. You may also contact your broker, dealer, bank, trust company or other nominee for assistance concerning the Offer. The Information Agent for the Offer is: GEORGESON & COMPANY INC. ---------------- Wall Street Plaza New York, New York 10005 Banks and Brokers call collect (212) 440-9800 CALL TOLL FREE: 1-800-223-2064 THE DEALER MANAGER FOR THE OFFER IS: J.P. MORGAN & CO. 60 WALL STREET NEW YORK, NEW YORK 10260 (212) 648-9827 38 EX-99.A2 3 LETTER OF TRANSMITTAL LETTER OF TRANSMITTAL TO TENDER SHARES OF COMMON STOCK OF ARCO CHEMICAL COMPANY PURSUANT TO THE OFFER TO PURCHASE DATED JUNE 24, 1998 BY LYONDELL ACQUISITION CORPORATION, A WHOLLY OWNED SUBSIDIARY OF LYONDELL PETROCHEMICAL COMPANY THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME ON WEDNESDAY, JULY 22, 1998, UNLESS THE OFFER IS EXTENDED. TO: THE BANK OF NEW YORK By Mail: By Facsimile By Hand or Overnight Transmission: Delivery: (for Eligible Institutions only) Tender & Exchange Department Tender & Exchange Department P.O. Box 11248 Church Street Station (212) 815-6213 101 Barclay Street New York, New York Receive and Deliver 10286-1248 Window New York, New York 10286 For Information Telephone: (800) 507-9357 DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS, OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER, OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. This Letter of Transmittal is to be used either if certificates for Shares (as defined below) are to be forwarded herewith or, unless an Agent's Message (as defined in Section 2 of the Offer to Purchase (as defined below)) is utilized, if delivery of Shares is to be made by book-entry transfer to an account maintained by the Depositary at the Book-Entry Transfer Facility as defined in and pursuant to the procedures described in Section 2 of the Offer to Purchase. Stockholders who deliver Shares by book-entry transfer are referred to herein as "Book-Entry Stockholders" and other stockholders are referred to herein as "Certificated Stockholders". Stockholders whose certificates for Shares are not immediately available or who cannot deliver either the certificates for, or a Book-Entry Confirmation (as defined in Section 2 of the Offer to Purchase) with respect to, their Shares and all other documents required hereby to the Depositary prior to the Expiration Date (as defined in Section 1 of the Offer to Purchase) must tender their Shares in accordance with the guaranteed delivery procedures described in Section 2 of the Offer to Purchase. See Instruction 2. DELIVERY OF DOCUMENTS TO THE BOOK-- ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY. DESCRIPTION OF SHARES TENDERED NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) (PLEASE FILL IN EXACTLY AS NAME(S) APPEAR(S) ON SHARES TENDERED CERTIFICATE(S) (ATTACH LIST IF NECESSARY) - ----------------
SHARE NUMBER OF SHARES NUMBER OF CERTIFICATE REPRESENTED BY SHARES NUMBER(S)(1) CERTIFICATE(S)(1) TENDERED(2) - -------------------------------------------------- ----- ----- ----- ----- ----- ----- ----- TOTAL SHARES - --------------------------------------------------
(1)Need not be completed by Book-Entry Stockholders. (2)Unless otherwise indicated, it will be assumed that all Shares described above are being tendered. See Instruction 4. DESCRIPTION OF SHARES TENDERED - -------------------------------------------------- NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) (PLEASE FILL IN EXACTLY AS NAME(S) APPEAR(S) ON SHARES TENDERED CERTIFICATE(S) (ATTACH LIST IF NECESSARY) - ----------------
SHARE NUMBER OF SHARES NUMBER OF CERTIFICATE REPRESENTED BY SHARES NUMBER(S)(1) CERTIFICATE(S)(1) TENDERED(2) - -------------------------------------------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ TOTAL SHARES - --------------------------------------------------
(1)Need not be completed by Book-Entry Stockholders. (2)Unless otherwise indicated, it will be assumed that all Shares described above are being tendered. See Instruction 4. [_] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO AN ACCOUNT MAINTAINED BY THE DEPOSITARY WITH THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING (ONLY PARTICIPANTS IN THE BOOK-ENTRY TRANSFER FACILITY MAY DELIVER SHARES BY BOOK-ENTRY TRANSFER): Name of Tendering Institution__________________________________________________ Account Number_________________________________________________________________ Transaction Code Number________________________________________________________ [_] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE FOLLOWING: Name(s) of Registered Owners(s)________________________________________________ Date of Execution of Notice of Guaranteed Delivery_____________________________ Name of Institution that Guaranteed Delivery___________________________________ If delivered by book-entry transfer: Account Number at Book-Entry Transfer Facility_________________________________ Transaction Code Number________________________________________________________ 2 NOTE: SIGNATURES MUST BE PROVIDED BELOW PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY Ladies and Gentlemen: The undersigned hereby tenders to Lyondell Acquisition Corporation, a Delaware corporation (the "Purchaser"), which is a wholly owned subsidiary of Lyondell Petrochemical Company, a Delaware corporation, the above-described shares of common stock, par value $1.00 per share (the "Shares"), of ARCO Chemical Company, a Delaware corporation (the "Company"), upon the terms and subject to the conditions set forth in the Purchaser's Offer to Purchase dated June 24, 1998 (the "Offer to Purchase"), and this Letter of Transmittal (which, together with any amendments or supplements thereto or hereto, collectively constitute the "Offer"), receipt of which is hereby acknowledged. Upon the terms of the Offer, subject to, and effective upon, acceptance for payment of, and payment for, the Shares tendered herewith in accordance with the terms of the Offer, the undersigned hereby sells, assigns and transfers to, or upon the order of, the Purchaser all right, title and interest in and to all the Shares that are being tendered hereby (and any and all other Shares or other securities or rights issued or issuable in respect thereof on or after June 18, 1998), and irrevocably constitutes and appoints The Bank of New York (the "Depositary"), the true and lawful agent and attorney-in-fact of the undersigned, with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), to the full extent of the undersigned's rights with respect to such Shares (and any such other Shares or securities or rights), (a) to deliver certificates for such Shares (and any such other Shares or securities or rights) or transfer ownership of such Shares (and any such other Shares or securities or rights) on the account books maintained by the Book-Entry Transfer Facility together, in any such case, with all accompanying evidences of transfer and authenticity to, or upon the order of, the Purchaser, (b) to present such Shares (and any such other Shares or securities or rights) for transfer on the Company's books and (c) to receive all benefits and otherwise exercise all rights of beneficial ownership of such Shares (and any such other Shares or securities or rights), all in accordance with the terms of the Offer. The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, sell, assign and transfer the tendered Shares (and any and all other Shares or other securities or rights issued or issuable in respect of such Shares on or after June 18, 1998 and, when the same are accepted for payment by the Purchaser, the Purchaser will acquire good title thereto, free and clear of all liens, restrictions, claims and encumbrances, and the same will not be subject to any adverse claim. The undersigned will, upon request, execute any additional documents deemed by the Depositary or the Purchaser to be necessary or desirable to complete the sale, assignment and transfer of the tendered Shares (and any and all such other Shares or securities or rights). All authority conferred or agreed to be conferred pursuant to this Letter of Transmittal shall be binding upon the successors, assigns, heirs, executors, administrators and legal representatives of the undersigned and shall not be affected by, and shall survive, the death or incapacity of the undersigned. Except as stated in the Offer to Purchase this tender is irrevocable. The undersigned hereby irrevocably appoints Dan F. Smith, Jeffrey R. Pendergraft, Edward W. Rich and Kerry A. Galvin, and each of them, and any other designees of the Purchaser, the attorneys-in-fact and proxies of the undersigned, each with full power of substitution, to vote at any annual, special or adjourned meeting of the Company's stockholders or otherwise in such manner as each such attorney-in-fact and proxy or his substitute shall in his sole discretion deem proper with respect to, to execute any written consent concerning any matter as each such attorney-in-fact and proxy or his substitute shall in his sole discretion deem proper with respect to, and to otherwise act as each such attorney-in-fact and proxy or his substitute shall in his sole discretion deem proper with respect to, the Shares tendered hereby that have been accepted for payment by the Purchaser prior to the time any such action is taken and with respect to which the undersigned is entitled to vote (and any and all other Shares or other securities or rights issued or issuable in respect of such Shares on or after June 18, 1998). This appointment is effective when, and only to the extent that, the Purchaser accepts for payment such Shares as provided in the Offer to Purchase. This power of attorney and proxy are irrevocable and are granted in consideration of the acceptance for payment of such Shares in accordance with the terms of the Offer. Upon such acceptance for payment, all prior powers of attorney, proxies and consents given by the undersigned with respect to such Shares (and any such other Shares or securities or rights) will, without further action, be revoked and no subsequent powers of attorney, proxies, consents or revocations may be given (and, if given, will not be effective) by the undersigned. The undersigned understands that the valid tender of Shares pursuant to any of the procedures described in Section 2 of the Offer to Purchase and in the Instructions hereto will constitute a binding agreement between the undersigned and the Purchaser upon the terms and subject to the conditions of the Offer. Unless otherwise indicated herein under "Special Payment Instructions", please issue the check for the purchase price and/or return any certificates for Shares not tendered or accepted for payment in the name(s) of the registered holder(s) appearing under "Description of Shares Tendered". Similarly, unless otherwise indicated under "Special Delivery Instructions", please mail the check for the purchase price and/or return any certificates for Shares not tendered or accepted for payment (and accompanying documents, as appropriate) to the address(es) of the registered holder(s) appearing under "Description of Shares Tendered". In the event that both "Special Delivery Instructions" and "Special Payment Instructions" are completed, please issue the check for the purchase price and/or return any certificates for Shares not tendered or accepted for payment (and any accompanying documents, as appropriate) in the name of, and deliver such check and/or return such certificates (and any accompanying documents, as appropriate) to, the person or persons so indicated. Please credit any Shares tendered herewith by book- entry transfer that are not accepted for payment by crediting the account at the Book-Entry Transfer Facility designated above. The undersigned recognizes that the Purchaser has no obligation pursuant to "Special Payment Instructions" to transfer any Shares from the name of the registered holder thereof if the Purchaser does not accept for payment any of the Shares so tendered. [_CHECK]HERE IF ANY OF THE CERTIFICATES REPRESENTING SHARES THAT YOU OWN HAVE BEEN LOST OR DESTROYED AND SEE INSTRUCTION 11. Number of Shares represented by the lost or destroyed certificates:____________ SPECIAL PAYMENT INSTRUCTIONS (SEE INSTRUCTIONS 5, 6 AND 7) To be completed ONLY if certificates for Shares not tendered or not accepted for payment and/or the check for the purchase price of Shares accepted for payment are to be issued in the name of someone other than the undersigned. Issue [_] Check [_] Certificate(s) to: Name _____________________________ (Please Print) Address __________________________ ---------------------------------- ---------------------------------- (Include Zip Code) ---------------------------------- (Taxpayer Identification or Social Security Number) SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 5, 6 AND 7) To be completed ONLY if certificates for Shares not tendered or not accepted for payment and/or the check for the purchase price of Shares accepted for payment are to be sent to someone other than the undersigned, or to the undersigned at an address other than that above. Mail [_] Check [_] Certificate(s) to: Name _____________________________ (Please Print) Address __________________________ ---------------------------------- ---------------------------------- (Include Zip Code) ---------------------------------- (Taxpayer Identification or Social Security Number) SIGN HERE (ALSO COMPLETE SUBSTITUTE FORM W-9 BELOW) ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ (SIGNATURE(S) OF STOCKHOLDER(S)) Dated:________________________________________________________________________ (Must be signed by registered holder(s) as name(s) appear(s) on the Certificate(s) for the Shares or on a security position listing or by person(s) authorized to become registered holder(s) by certificates and documents transmitted herewith. If signature is by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, please provide the following information and see Instruction 5.) Name(s) ______________________________________________________________________ (PLEASE PRINT) Capacity (Full Title)_________________________________________________________ Address ______________________________________________________________________ (INCLUDE ZIP CODE) Daytime Area Code and Telephone No.___________________________________________ Taxpayer Identification or Social Security Number_____________________________ (SEE SUBSTITUTE FORM W-9) GUARANTEE OF SIGNATURE(S) (IF REQUIRED--SEE INSTRUCTIONS 1 AND 5) ------------------------------------------------------------------------------ AUTHORIZED SIGNATURE ------------------------------------------------------------------------------ NAME (PLEASE PRINT) ------------------------------------------------------------------------------ NAME OF FIRM ------------------------------------------------------------------------------ ADDRESS ------------------------------------------------------------------------------ (INCLUDE ZIP CODE) ------------------------------------------------------------------------------ DAYTIME AREA CODE AND TELEPHONE NO. Dated:________________________________________________________________________ INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER 1. GUARANTEE OF SIGNATURES. No signature guarantee is required on this Letter of Transmittal (a) if this Letter of Transmittal is signed by the registered holder(s) (which term, for purposes of this Instruction 1, includes any participant in the Book-Entry Transfer Facility's system whose name appears on a security position listing as the owner of the Shares) of Shares tendered herewith, unless such registered holder(s) has completed either the box entitled "Special Payment Instructions" or the box entitled "Special Delivery Instructions" on this Letter of Transmittal or (b) if such Shares are tendered for the account of a financial institution (including most commercial banks, savings and loan associations and brokerage houses) that is a participant in the Security Transfer Agents Medallion Program, the New York Stock Exchange Medallion Signature Guarantee Program or the Stock Exchange Medallion Program (such participant, an "Eligible Institution"). In all other cases, all signatures on this Letter of Transmittal must be guaranteed by an Eligible Institution. See Instruction 5. 2. REQUIREMENTS OF TENDER. This Letter of Transmittal is to be completed by stockholders either if certificates are to be forwarded herewith or, unless an Agent's Message (as defined below) is utilized, if delivery of Shares is to be made pursuant to the procedures for book-entry transfer set forth in Section 2 of the Offer to Purchase. For a stockholder validly to tender Shares pursuant to the Offer, either (a) a Letter of Transmittal (or a facsimile thereof), property completed and duly executed, together with any required signature guarantees, or, in the case of a book-entry transfer, an Agent's Message, and any other required documents, must be received by the Depositary at one of its addresses set forth herein prior to the Expiration Date and either certificates for tendered Shares must be received by the Depositary at one of such addresses or Shares must be delivered pursuant to the procedures for book-entry transfer described herein (and a Book-Entry Confirmation received by the Depositary), in each case prior to the Expiration Date, or (b) the tendering stockholder must comply with the guaranteed delivery procedures described below and in Section 2 of the Offer to Purchase. Stockholders whose certificates for Shares are not immediately available or who cannot deliver their certificates and all other required documents to the Depositary or complete the procedures for book-entry transfer prior to the Expiration Date may tender their Shares by properly completing and duly executing the Notice of Guaranteed Delivery pursuant to the guaranteed delivery procedures described in Section 2 of the Offer to Purchase. Pursuant to such procedures, (a) such tender must be made by or through an Eligible Institution, (b) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form provided by the Purchaser, must be received by the Depositary prior to the Expiration Date and (c) the certificates for all tendered Shares in proper form for transfer (or a Book- Entry Confirmation with respect to all such Shares), together with a Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, with any required signature guarantees, or, in the case of a book-entry transfer, an Agent's Message, and any other required documents, must be received by the Depositary within three trading days after the date of execution of such Notice of Guaranteed Delivery as provided in Section 2 of the Offer to Purchase. A trading day is any day on which the New York Stock Exchange is open for business. The term "Agent's Message" means a message transmitted by the Book-Entry Transfer Facility to, and received by, the Depositary and forming a part of a Book-Entry Confirmation which states that such Book-Entry Transfer Facility has received an express acknowledgment from the participant in such Book-Entry Transfer Facility tendering the Shares that such participant has received and agrees to be bound by the terms of the Letter of Transmittal and that the Purchaser may enforce such agreement against the participant. THE METHOD OF DELIVERY OF SHARES, THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY TRANSFER FACILITY, IS AT THE ELECTION AND RISK OF THE TENDERING STOCKHOLDER. SHARES WILL BE DEEMED DELIVERED ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY (INCLUDING, IN THE CASE OF A BOOK-ENTRY TRANSFER, BY BOOK-ENTRY CONFIRMATION). IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. No alternative, conditional or contingent tenders will be accepted. All tendering stockholders, by execution of this Letter of Transmittal (or facsimile hereof), waive any right to receive any notice of the acceptance of their Shares for payment. 3. INADEQUATE SPACE. If the space provided herein is inadequate, the certificate numbers and/or the number of Shares should be listed on a separate schedule attached hereto. 4. PARTIAL TENDERS (APPLICABLE TO CERTIFICATE STOCKHOLDERS ONLY). If fewer than all the Shares evidenced by any certificate submitted are to be tendered, fill in the number of Shares that are to be tendered in the box entitled "Number of Shares Tendered". In any case, new certificate(s) for the remainder of the Shares that were evidenced by the old certificate(s) will be sent to the registered holder, unless otherwise provided in the appropriate box on this Letter of Transmittal, as soon as practicable after the acceptance for payment of, and payment for, the Shares tendered herewith. All Shares represented by certificates delivered to the Depositary will be deemed to have been tendered unless otherwise indicated. 5. SIGNATURES ON LETTER OF TRANSMITTAL, STOCK POWERS AND ENDORSEMENTS. If this Letter of Transmittal is signed by the registered holder of the Shares tendered hereby, the signature must correspond with the name as written on the face of the certificate(s) without any change whatsoever. If any of the Shares tendered hereby are owned of record by two or more joint owners, all such owners must sign this Letter of Transmittal. If any tendered Shares are registered in different names on several certificates, it will be necessary to complete, sign and submit as many separate Letters of Transmittal as there are different registrations of certificates. If this Letter of Transmittal or any certificates or stock powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and proper evidence satisfactory to the Purchaser of their authority so to act must be submitted. When this Letter of Transmittal is signed by the registered owner(s) of the Shares listed and transmitted hereby, no endorsements of certificates or separate stock powers are required unless payment is to be made to, or certificates for Shares not tendered or accepted for payment are to be issued to, a person other than the registered owner(s). Signatures on such certificates or stock powers must be guaranteed by an Eligible Institution. If this Letter of Transmittal is signed by a person other than the registered owner(s) of the certificates listed, the certificates must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name or names of the registered owner or owners appear on the certificates. Signatures on such certificates or stock powers must be guaranteed by an Eligible Institution. 6. STOCK TRANSFER TAXES. The Purchaser will pay any stock transfer taxes with respect to the transfer and sale of Shares to it or its order pursuant to the Offer. If, however, payment of the purchase price is to be made to, or if certificates for Shares not tendered or accepted for payment are to be registered in the name of, any person(s) other than the person(s) signing this Letter of Transmittal, the amount of any stock transfer taxes (whether imposed on the registered owner(s) or such person(s)) payable on account of the transfer to such person(s) will be deducted from the purchase price unless satisfactory evidence of the payment of such taxes or exemption therefrom is submitted. EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR TRANSFER TAX STAMPS TO BE AFFIXED TO THE CERTIFICATES LISTED IN THIS LETTER OF TRANSMITTAL. 7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If a check is to be issued in the name of, and/or certificates for Shares not accepted for payment are to be returned to, a person other than the signer of this Letter of Transmittal or if a check is to be sent and/or such certificates are to be returned to a person other than the signer of this Letter of Transmittal or to an address other than that shown above, the appropriate boxes on this Letter of Transmittal should be completed. 8. WAIVER OF CONDITIONS. The Purchaser reserves the right, subject to the terms and conditions contained in the Merger Agreement and to the applicable rules and regulations of the Commission, to waive any of the specified conditions of the Offer, in whole or in part, in the case of any Shares tendered. 9. 31% BACKUP WITHHOLDING. In order to avoid backup withholding of Federal income tax on payments of cash pursuant to the Offer, a stockholder surrendering Shares in the Offer must, unless an exemption applies, provide the Depositary with such stockholder's correct taxpayer identification number ("TIN") on Substitute Form W-9 below in this Letter of Transmittal and certify under penalties of perjury that such TIN is correct and that such stockholder is not subject to backup withholding. If a stockholder does not provide such stockholder's correct TIN or fails to provide the certifications described above, the Internal Revenue Service (the "IRS") may impose a $50 penalty on such stockholder and payment of cash to such stockholder pursuant to the Offer may be subject to backup withholding of 31%. Backup withholding is not an additional income tax. Rather, the amount of the backup withholding can be credited against the U.S. federal income tax liability of the person subject to the backup withholding, provided that the required information is given to the IRS. If backup withholding results in an overpayment of tax, a refund can be obtained by the stockholder upon filing an income tax return. The stockholder is required to give the Depositary the TIN (i.e., social security number or employer identification number) of the record owner of the Shares. If the Shares are held in more than one name or are not in the name of the actual owner, consult the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for additional guidance on which number to report. The box in Part 3 of the Substitute Form W-9 may be checked if the tendering stockholder has not been issued a TIN and has applied for a TIN or intends to apply for a TIN in the near future. If the box in Part 3 is checked, the stockholder or other payee must also complete the Certificate of Awaiting Taxpayer Identification Number below. Notwithstanding that the box in Part 3 is checked and the Certificate of Awaiting Taxpayer Identification Number is completed, the Depositary may withhold 31% on all payments made prior to the time a properly certified TIN is provided to the Depositary. Certain stockholders (including, among others, all corporations and certain foreign individuals and entities) are not subject to backup withholding. Noncorporate foreign stockholders should complete and sign the main signature form and a Form W-8, Certificate of Foreign Status, a copy of which may be obtained from the Depositary, in order to avoid backup withholding. See the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for more instructions. 10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests for assistance or additional copies of the Offer to Purchase, this Letter of Transmittal, the Notice of Guaranteed Delivery and the Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 may be directed to the Information Agent at its address set forth below. 11. LOST, DESTROYED OR STOLEN CERTIFICATES. If any certificate representing Shares has been lost, destroyed or stolen, the stockholder should promptly notify the Depositary by checking the box immediately preceding the special payment/special delivery instructions and indicating the number of Shares lost. The stockholder will then be instructed as to the steps that must be taken in order to replace the certificate. This Letter of Transmittal and related documents cannot be processed until the procedures for replacing lost or destroyed certificates have been followed. IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A FACSIMILE HEREOF), TOGETHER WITH ANY REQUIRED SIGNATURE GUARANTEES, OR, IN THE CASE OF A BOOK-ENTRY TRANSFER, AN AGENT'S MESSAGE, AND ANY OTHER REQUIRED DOCUMENTS, MUST BE RECEIVED BY THE DEPOSITARY PRIOR TO THE EXPIRATION DATE AND EITHER CERTIFICATES FOR TENDERED SHARES MUST BE RECEIVED BY THE DEPOSITARY OR SHARES MUST BE DELIVERED PURSUANT TO THE PROCEDURES FOR BOOK-ENTRY TRANSFER, IN EACH CASE PRIOR TO THE EXPIRATION DATE, OR THE TENDERING STOCKHOLDER MUST COMPLY WITH THE PROCEDURES FOR GUARANTEED DELIVERY. PAYOR'S NAME: THE BANK OF NEW YORK PART 1--PLEASE PROVIDE ------------------------ YOUR TIN IN THE BOX AT Social Security RIGHT AND CERTIFY BY Number(s) SIGNING AND DATING BELOW. or ------------------------ SUBSTITUTE Taxpayer Identification Number(s) --------------------------------------------------------- FORM W-9 PART 2--CERTIFICATIONS--Under penalties of perjury, I certify that: DEPARTMENT OF THE TREASURY (1) The number shown on this form is my correct INTERNAL REVENUE Taxpayer Identification Number (or I am waiting SERVICE for a number to be issued to me) and PAYER'S REQUEST (2) I am not subject to backup withholding because (a) FOR TAXPAYER I am exempt from backup withholding or (b) I have IDENTIFICATION not been notified by the Internal Revenue Service NUMBER ("TIN") ("IRS") that I am subject to backup withholding as a result of a failure to report all interest or dividends or (c) the IRS has notified me that I am no longer subject to backup withholding. Certification Instructions--You must cross out item (2) in Part 2 above if you have been notified by the IRS that you are subject to backup withholding because of under reporting interest or dividends on your tax returns. However, if after being notified by the IRS that you were subject to backup withholding you received another notification from the IRS stating that you are no longer subject to backup withholding, do not cross out such item (2). If you are exempt from backup withholding, check the box in Part 4 above. --------------------------------------------------------- PART 3 SIGNATURE _________________DATE Awaiting TIN [_] PART 4 Exempt TIN [_] NOTE: FAILURE TO COMPLETE AND RETURN THIS SUBSTITUTE FORM W-9 MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL INFORMATION. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 3 OF SUBSTITUTE FORM W-9 CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and either (a) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office or (b) I intend to mail or deliver such an application in the near future. I understand that, if I do not provide a taxpayer identification number to the Depositary, all reportable payments made to me may be subject to a 31% backup withholding tax. Signature _______________________________ Date _______________________________ The Information Agent for the Offer is: GEORGESON & COMPANY INC. -------------- Wall Street Plaza New York, New York 10005 Banks and Brokers call collect (212) 440-9800 CALL TOLL FREE: 1-800-223-2064 THE DEALER MANAGER FOR THE OFFER IS: J.P. MORGAN & CO. 60 WALL STREET NEW YORK, NEW YORK 10260 (212) 648-9827 JUNE 24, 1998 EX-99.A3 4 NOTICE OF GUARANTEED EXHIBIT 99(A)(3) NOTICE OF GUARANTEED DELIVERY FOR TENDER OF SHARES OF COMMON STOCK OF ARCO CHEMICAL COMPANY As set forth in Section 2 of the Offer to Purchase (as defined below), this form or one substantially equivalent hereto must be used to accept the Offer (as defined below) if certificates for shares of Common Stock, par value $1.00 per share (the "Shares"), of ARCO Chemical Company, a Delaware corporation (the "Company"), are not immediately available or if the procedure for book- entry transfer cannot be completed on a timely basis or time will not permit all required documents to reach the Depositary prior to the Expiration Date (as defined in Section 1 of the Offer to Purchase). This form may be delivered by hand to the Depositary or transmitted by telegram, facsimile transmission or mail to the Depositary and must include a guarantee by an Eligible Institution (as defined in Section 2 of the Offer to Purchase). See Section 2 of the Offer to Purchase. The Depositary for the Offer is: THE BANK OF NEW YORK By Mail: By Facsimile By Hand or Overnight Transmission: Delivery: (for Eligible Institutions only) (212) 815-6213 Tender & Exchange Department Tender & Exchange P.O. Box 11248 101 Barclay Street Church Street Station Receive and Deliver Window New York, New York 10286-1248 New York, New York 10286 For Information Telephone: (800) 507-9357 DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER, OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY. This form is not to be used to guarantee signatures. If a signature on a Letter of Transmittal is required to be guaranteed by an Eligible Institution under the instructions thereto, such signature guarantee must appear in the applicable space provided in the signature box on the Letter of Transmittal. LADIES AND GENTLEMEN: The undersigned hereby tenders to Lyondell Acquisition Corporation, a Delaware corporation (the "Purchaser"), which is a wholly owned subsidiary of Lyondell Petrochemical Company, a Delaware corporation, upon the terms and subject to the conditions set forth in the Purchaser's Offer to Purchase dated June 24, 1998 (the "Offer to Purchase"), and the related Letter of Transmittal (which, together with any amendments or supplements thereto, collectively constitute the "Offer"), receipt of which is hereby acknowledged, the number of Shares set forth below, all pursuant to the guaranteed delivery procedures described in Section 2 of the Offer to Purchase. Number of Shares ____________________ Signature(s): _______________________ Name(s) of Record Holder(s) _________ ------------------------------------- - ------------------------------------- Dated:_______________________________ Please Print If Shares will be tendered by book- Address(es) _________________________ entry transfer: - ------------------------------------- Zip Code Account Number at Book-Entry Daytime Area Code and Tel. No.:______ Transfer Facility ___________________ Certificate Nos. (if available): ____ 2 GUARANTEE (Not To Be Used For Signature Guarantee) The undersigned, a participant in the Security Transfer Agents Medallion Program, the New York Stock Exchange Medallion Signature Guarantee Program or the Stock Exchange Medallion Program, hereby guarantees to deliver to the Depositary either the certificates representing the Shares tendered hereby, in proper form for transfer, or a Book-Entry Confirmation (as defined in the Offer to Purchase) with respect to such Shares, in any such case together with a properly completed and duly executed Letter of Transmittal (or facsimile thereof), with any required signature guarantees, or an Agent's Message (as defined in the Offer to Purchase), and any other required documents, within three trading days (as defined in the Offer to Purchase) after the date hereof. The Eligible Institution that completes this form must communicate this guarantee to the Depositary and must deliver the Letter of Transmittal and certificates for Shares to the Depositary within the time period shown herein. Failure to do so could result in a financial loss to such Eligible Institution. Name of Firm:__________________________________________________________________ - ------------------------------------------------------------------------------- Authorized Signature Name:__________________________________________________________________________ Please Print Title:_________________________________________________________________________ Address:_______________________________________________________________________ - ------------------------------------------------------------------------------- Zip Code Area Code and Tel No.:_________________________________________________________ Dated:_________________________________________________________________________ NOTE: DO NOT SEND CERTIFICATES FOR SHARES WITH THIS NOTICE. CERTIFICATES FOR SHARES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL. 3 EX-99.A4 5 LETTER OF BROKERS OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK OF ARCO CHEMICAL COMPANY AT $57.75 NET PER SHARE BY LYONDELL ACQUISITION CORPORATION, A WHOLLY OWNED SUBSIDIARY OF LYONDELL PETROCHEMICAL COMPANY THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON WEDNESDAY, JULY 22, 1998, UNLESS EXTENDED. June 24, 1998 To Brokers, Dealers, Banks, Trust Companies and Other Nominees: We have been appointed by Lyondell Acquisition Corporation, a Delaware corporation (the "Purchaser") and a wholly owned subsidiary of Lyondell Petrochemical Company, a Delaware corporation ("Lyondell"), to act as financial advisor and Dealer Manager in connection with the Purchaser's offer to purchase all outstanding shares of common stock, par value $1.00 per share (the "Shares"), of ARCO Chemical Company, a Delaware corporation (the "Company"), at $57.75 per Share, net to the seller in cash, upon the terms and subject to the conditions set forth in the Purchaser's Offer to Purchase dated June 24, 1998 (the "Offer to Purchase"), and the related Letter of Transmittal (which, together with any supplements or amendments thereto, collectively constitute the "Offer"). Please furnish copies of the enclosed materials to those of your clients for whom you hold Shares registered in your name or in the name of your nominee. Enclosed herewith are copies of the following documents: 1. Offer to Purchase dated June 24, 1998; 2. Letter of Transmittal to be used by stockholders of the Company accepting the Offer; 3. Letter to Stockholders of the Company from the President and Chief Executive Officer of the Company, accompanied by the Company's Solicitation/Recommendation Statement on Schedule 14D-9; 4. A printed form of letter that may be sent to your clients for whose account you hold Shares in your name or in the name of a nominee, with space provided for obtaining such client's instructions with regard to the Offer; 5. Notice of Guaranteed Delivery; 6. Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9; and 7. Return envelope address to The Bank of New York, the Depositary. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (1) THERE BEING VALIDLY TENDERED AND NOT PROPERLY WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER SUCH NUMBER OF SHARES THAT, TOGETHER WITH ANY SHARES OWNED BY PURCHASER, LYONDELL AND THEIR AFFILIATES, WOULD REPRESENT AT LEAST A MAJORITY OF ALL OUTSTANDING SHARES ON A FULLY DILUTED BASIS AND (2) ANY WAITING PERIOD UNDER THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF 1976 APPLICABLE TO THE PURCHASE OF SHARES PURSUANT TO THE OFFER HAVING EXPIRED OR BEEN TERMINATED. WE URGE YOU TO CONTACT YOUR CLIENTS PROMPTLY. PLEASE NOTE THAT THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON WEDNESDAY, JULY 22, 1998, UNLESS EXTENDED. The Board of Directors of the Company has unanimously approved the Merger Agreement (as defined below) and the transactions contemplated thereby and determined that the Offer and the Merger are fair to, and in the best interests of, stockholders of the Company and unanimously recommends that stockholders of the Company accept the Offer and tender their Shares pursuant to the Offer. The Offer is being made pursuant to the Agreement and Plan of Merger dated as of June 18, 1998 (the "Merger Agreement"), among Lyondell, the Purchaser and the Company pursuant to which, following the consummation of the Offer and the satisfaction or waiver of certain conditions, the Purchaser will be merged with and into the Company, with the Company surviving the merger as a wholly owned subsidiary of Lyondell (the "Merger"). In the Merger, each outstanding Share (other than Shares owned by stockholders, if any, who are entitled to and who properly exercise appraisal rights under Delaware law) will be converted into the right to receive $57.75 per Share, without interest, as set forth in the Merger Agreement and described in the Offer to Purchase. In all cases, payment for Shares accepted for payment pursuant to the Offer will be made only after timely receipt by The Bank of New York (the "Depositary") of (a) certificates for (or a timely Book-Entry Confirmation (as defined in the Offer to Purchase) with respect to) such Shares, (b) a Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, with any required signature guarantees, or, in the case of a book-entry transfer effected pursuant to the procedures described in Section 2 of the Offer to Purchase, an Agent's Message (as defined in the Offer to Purchase), and (c) any other documents required by the Letter of Transmittal. Accordingly, tendering stockholders may be paid at different times depending upon when certificates for Shares or Book-Entry Confirmations with respect to Shares are actually received by the Depositary. THE PURCHASER SHALL NOT HAVE ANY OBLIGATION TO PAY INTEREST ON THE PURCHASE PRICE FOR TENDERED SHARES, WHETHER OR NOT THE PURCHASER EXERCISES ITS RIGHT TO EXTEND THE OFFER. Neither the Purchaser nor Lyondell will pay any fees or commissions to any broker or dealer or other person (other than the Dealer Manager (as defined in the Offer to Purchase) and the Information Agent as described in the Offer to Purchase) in connection with the solicitation of tenders of Shares pursuant to the Offer. You will be reimbursed upon request for customary mailing and handling expenses incurred by you in forwarding the enclosed offering materials to your customers. 2 Questions and requests for additional copies of the enclosed material may be directed to the Information Agent or the Dealer Manager at their respective addresses and telephone numbers set forth on the back cover of the enclosed Offer to Purchase. Very truly yours, J.P. MORGAN & CO. NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL RENDER YOU OR ANY OTHER PERSON THE AGENT OF THE PURCHASER, LYONDELL, THE DEALER MANAGER, THE DEPOSITARY, THE INFORMATION AGENT OR ANY AFFILIATE THEREOF OR AUTHORIZE YOU OR ANY OTHER PERSON TO GIVE ANY INFORMATION OR USE ANY DOCUMENT OR MAKE ANY STATEMENTS ON BEHALF OF ANY OF THEM WITH RESPECT TO THE OFFER OTHER THAN THE ENCLOSED DOCUMENTS AND THE STATEMENT CONTAINED THEREIN. 3 EX-99.A5 6 LETTER TO CLIENTS OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK OF ARCO CHEMICAL COMPANY AT $57.75 NET PER SHARE BY LYONDELL ACQUISITION CORPORATION, A WHOLLY OWNED SUBSIDIARY OF LYONDELL PETROCHEMICAL COMPANY THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON WEDNESDAY, JULY 22, 1998, UNLESS EXTENDED. June 24, 1998 To Our Clients: Enclosed for your consideration is an Offer to Purchase dated June 24, 1998 (the "Offer to Purchase"), and a related Letter of Transmittal (which, together with any amendments or supplements thereto, collectively constitute the "Offer") relating to an offer by Lyondell Acquisition Corporation, a Delaware corporation (the "Purchaser") and a wholly owned subsidiary of Lyondell Petrochemical Company, a Delaware corporation ("Lyondell"), to purchase shares of common stock, par value $1.00 per share (the "Shares"), of ARCO Chemical Company, a Delaware corporation (the "Company"), at $57.75 per Share, net to the seller in cash, upon the terms and subject to the conditions set forth in the Offer. Also enclosed is the Letter to stockholders of the Company from the President and Chief Executive Officer of the Company accompanied by the Company's Solicitation/Recommendation Statement on Schedule 14D-9. WE ARE THE HOLDER OF RECORD OF SHARES HELD BY US FOR YOUR ACCOUNT. A TENDER OF SUCH SHARES CAN BE MADE ONLY BY US AS THE HOLDER OF RECORD AND PURSUANT TO YOUR INSTRUCTIONS. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USED TO TENDER SHARES HELD BY US FOR YOUR ACCOUNT. We request instructions as to whether you wish to tender any of or all the Shares held by us for your account, pursuant to the terms and conditions set forth in the Offer. Your attention is directed to the following: 1. The tender price is $57.75 per Share, net to the seller in cash, upon the terms and subject to the conditions set forth in the Offer. 2. The Board of Directors of the Company has unanimously approved the Merger Agreement (as defined below) and the transactions contemplated thereby and determined that the Offer and the Merger are fair to, and in the best interests of, stockholders of the Company and unanimously recommends that stockholders of the Company accept the Offer and tender their Shares pursuant to the Offer. 3. The Offer is being made for all outstanding Shares. 4. The Offer is being made pursuant to the Agreement and Plan of Merger dated as of June 18, 1998 (the "Merger Agreement"), among Lyondell, the Purchaser and the Company pursuant to which, following the consummation of the Offer and the satisfaction or waiver of certain conditions, the Purchaser will be merged with and into the Company, with the Company surviving the merger as a wholly owned subsidiary of Lyondell (the "Merger"). In the Merger, each outstanding Share (other than Shares owned by stockholders, if any, who are entitled to and who properly exercise appraisal rights under Delaware law) will be converted into the right to receive $57.75 per Share, without interest, as set forth in the Merger Agreement and described in the Offer to Purchase. 5. The Offer is conditioned upon, among other things, (1) there being validly tendered and not properly withdrawn prior to the expiration of the Offer such number of Shares that, together with any Shares owned by Purchaser, Lyondell and their affiliates, would represent at least a majority of all outstanding Shares on a fully diluted basis and (2) the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 applicable to the purchase of Shares pursuant to the Offer having expired or been terminated. 6. The Offer and withdrawal rights will expire at 12:00 Midnight, New York City time, on Thursday, July 23, 1998, unless the Offer is extended by the Purchaser. 7. The Purchaser will pay any stock transfer taxes with respect to the transfer and sale of Shares to it or its order pursuant to the Offer, except as otherwise provided in Instruction 6 of the Letter of Transmittal. If you wish to have us tender any of or all your Shares, please so instruct us by completing, executing, detaching and returning to us the instruction form set forth below. An envelope to return your instructions to us is enclosed. If you authorize tender of your Shares, all such Shares will be tendered unless otherwise specified below. Your instructions to us should be forwarded promptly to permit us to submit a tender on your behalf prior to the expiration of the Offer. In all cases, payment for Shares accepted for payment pursuant to the Offer will be made only after timely receipt by The Bank of New York (the "Depositary"), of (a) certificates for (or a timely Book-Entry Confirmation (as defined in the Offer to Purchase) with respect to) such Shares, (b) a Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, with any required signature guarantees, or, in the case of a book- entry transfer effected pursuant to the procedures described in Section 2 of the Offer to Purchase, an Agent's Message (as defined in the Offer to Purchase), and (c) any other documents required by the Letter of Transmittal. Accordingly, tendering shareholders may be paid at different times depending upon when certificates for Shares or Book-Entry Confirmations with respect to Shares are actually received by the Depositary. THE PURCHASER SHALL NOT HAVE ANY OBLIGATION TO PAY INTEREST ON THE PURCHASE PRICE FOR TENDERED SHARES, WHETHER OR NOT THE PURCHASER EXERCISES ITS RIGHT TO EXTEND THE OFFER. The Offer is not being made to, nor will tenders be accepted from or on behalf of, holders of Shares in any jurisdiction in which the making or acceptance of the Offer would not be in compliance with the laws of such jurisdiction. 2 INSTRUCTIONS WITH RESPECT TO THE OFFER TO PURCHASE ALL OUTSTANDING SHARES OF COMMON STOCK OF ARCO CHEMICAL COMPANY BY LYONDELL ACQUISITION CORPORATION A WHOLLY OWNED SUBSIDIARY OF LYONDELL PETROCHEMICAL COMPANY The undersigned acknowledges receipt of your letter enclosing the Offer to Purchase, dated June 24, 1998 of Lyondell Acquisition Corporation, a Delaware corporation and a wholly owned subsidiary of Lyondell Petrochemical Company, a Delaware corporation, and the related Letter of Transmittal, relating to shares of common stock, par value $1.00 per share of ARCO Chemical Company, a Delaware corporation (the "Shares"). This will instruct you to tender the number of Shares indicated below held by you for the account of the undersigned on the terms and conditions set forth in such Offer to Purchase and the related Letter of Transmittal. Dated: , 1998 ------------------------------------- ------------------------------------- Number of Shares SIGNATURE(S) to be Tendered* ------------------------------------- ------------------------------------- Shares PLEASE PRINT NAME(S) Address ------------------------------------- ------------------------------------- ------------------------------------- ------------------------------------- (INCLUDE ZIP CODE) Area Code and Telephone No. ------------------------------------- Taxpayer Identification or Social Security No._________________________ - -------- * Unless otherwise indicated, it will be assumed that all your Shares are to be tendered. 3 EX-99.A6 7 W-9 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER.--Social Security numbers have nine digits separated by two hyphens: i.e. 000-00-0000. Employer identification numbers have nine digits separated by only one hyphen: i.e. 00-0000000. The table below will help determine the number to give the payer. - --------------------------------------- ---------------------------------------
GIVE THE SOCIAL SECURITY FOR THIS TYPE OF ACCOUNT: NUMBER OF-- - ----------------------------------------------- 1. An individual's account The individual 2. Two or more individuals The actual owner (joint account) of the account or, if combined funds, any one of the individuals(1) 3. Husband and wife (joint The actual owner account) of the account or, if joint funds, either person(1) 4. Custodian account of a The minor(2) minor (Uniform Gift to Minors Act) 5. Adult and minor (joint The adult or, if account) the minor is the only contributor, the minor(1) 6. Account in the name of The ward, minor, guardian or committee for a or incompetent designated ward, minor, or person(3) incompetent person 7. a. The usual revocable The grantor- savings trust account trustee(1) (grantor is also trustee) b. So-called trust account The actual that is not a legal or owner(1) valid trust under State law 8. Sole proprietorship The owner(4) account
GIVE THE EMPLOYER IDENTIFICATION FOR THIS TYPE OF ACCOUNT: NUMBER OF -- -------- 9. A valid trust, estate, or The legal entity pension trust (Do not furnish the identifying number of the personal representative or trustee unless the legal entity itself is not designated in the account title.)(5) 10. Corporate account The corporation 11. Religious, charitable, The organization educational or other exempt organization account 12. Partnership account held The partnership in the name of the business 13. Association, club, or The organization other tax-exempt 14. A broker or registered The broker or nominee nominee 15. Account with the The public entity Department of Agriculture in the name of a public entity (such as a State or local government, school district, or prison) that receives agricultural program payments
--------------------------------------- - --------------------------------------- (1) List all names first and circle the name of the person whose number you furnish. If only one person on a joint account has a Social Security number, that person's number must be furnished. (2) Circle the minor's name and furnish the minor's social security number. (3) Circle the ward's, minor's or incompetent person's name and furnish such person's social security number. (4) You must show your individual name, but you may also enter your business or "doing business as" name. You may use either your Social Security number or employer identification number (if you have one). (5) List first and circle the name of the legal trust, estate, or pension trust. NOTE: If no name is circled when there is more than one name, the number will be considered to be that of the first name listed. GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 OBTAINING A NUMBER If you don't have a taxpayer identification number or you don't know your number, obtain Form SS-5, Application for a Social Security Number Card, or Form SS-4, Application for Employer Identification Number (for business and all other entities), at the local office of the Social Security Administration or the Internal Revenue Service and apply for a number. PAYEES EXEMPT FROM BACKUP WITHHOLDING Payees specifically exempted from backup withholding include the following: . A corporation. A financial institution. An organization exempt from tax under section 501(a), of the Internal Revenue Code of 1986, as amended (the "Code"), or an individual retirement plan, or a custodial account under Section 403(b)(7), if the account satisfies the requirements of Section 401(f)(7). . The United States or any agency or instrumentalities. A State, the District of Columbia, a possession of the United States, or any political subdivision or instrumentality thereof. . A foreign government, a political subdivision of a foreign government, or any agency or instrumentality thereof. . An international organization or any agency, or instrumentality thereof. A registered dealer in securities or commodities registered in the U.S., the District of Columbia or a possession of the U.S. . A real estate investment trust. A common trust fund operated by a bank under section 584(a) of the Code. . An entity registered at all times under the Investment Company Act of 1940. . A foreign central bank of issue. Exempt payees described above should file Form W-9 to avoid possible erroneous backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, SIGN AND DATE THE FORM AND RETURN IT TO THE PAYER. IF YOU ARE A NONRESIDENT ALIEN OR A FOREIGN ENTITY NOT SUBJECT TO BACKUP WITHHOLDING, FILE WITH A PAYER A COMPLETED INTERNAL REVENUE FORM W-8 (CERTIFICATE OF FOREIGN STATUS). Certain payments other than interest, dividends, and patronage dividends that are not subject to information reporting are also not subject to backup withholding. For details, see the regulations under sections 6041, 6041A(a), 6045, and 6050(A) of the Code and the regulations promulgated thereunder. PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividends, interest, or other payments to give taxpayer identification numbers to payers who must report the payments to the IRS. The IRS uses the numbers for identification purposes. Payers must be given the numbers whether or not recipients are required to file tax returns. Payers must generally withhold 31% of taxable interest, dividends, and certain other payments to a payee who does not furnish a taxpayer identification number to a payer. Certain penalties may also apply. PENALTIES (1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail to furnish your taxpayer identification number to a payer, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. (2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you make a false statement with no reasonable basis that results in no imposition of backup withholding, you are subject to a penalty of $500. (3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Willfully falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE. 2 EX-99.A7 8 SUMMARY ADVERTISEMENT Exhibit 99(a)(7) This announcement is neither an offer to purchase nor a solicitation of an offer to sell Shares. The Offer is made solely by the Offer to Purchase dated June 24, 1998, and the related Letter of Transmittal, and is not being made to (nor will tenders be accepted from or on behalf of) holders of Shares in any jurisdiction in which the making of the Offer or the acceptance thereof would not be in compliance with the laws of such jurisdiction. In any jurisdictions where securities, blue sky or other laws require the Offer to be made by a licensed broker or dealer, the Offer shall be deemed to be made on behalf of the Purchaser by J.P. Morgan Securities Inc. or one or more registered brokers or dealers licensed under the laws of such jurisdictions. NOTICE OF OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK OF ARCO CHEMICAL COMPANY AT $57.75 NET PER SHARE BY LYONDELL ACQUISITION CORPORATION A WHOLLY OWNED SUBSIDIARY OF LYONDELL PETROCHEMICAL COMPANY Lyondell Acquisition Corporation, a Delaware corporation (the "Purchaser"), which is a wholly owned subsidiary of Lyondell Petrochemical Company, a Delaware corporation ("Lyondell"), is offering to purchase all outstanding shares of Common Stock, par value $1.00 per share (the "Shares"), of ARCO Chemical Company, a Delaware corporation (the "Company"), at a price of $57.75 per Share, net to the seller in cash (the "Offer Price"), without interest thereon, upon the terms and subject to the conditions set forth in the Offer to Purchase dated June 24, 1998, and in the related Letter of Transmittal (which, together with any amendments or supplements thereto, collectively constitute the "Offer"). THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON WEDNESDAY, JULY 22, 1998, UNLESS THE OFFER IS EXTENDED. The Offer is being made pursuant to an Agreement and Plan of Merger dated as of June 18, 1998 (the "Merger Agreement"), among Lyondell, the Purchaser and the Company pursuant to which, following the consummation of the Offer and the satisfaction or waiver of certain conditions, the Purchaser will be merged with the Company (the "Merger"). In the Merger, each issued Share (other than Shares owned by Lyondell, the Purchaser or the Company or any of their wholly owned subsidiaries, or by stockholders, if any, who are entitled to and properly exercise appraisal rights under Delaware law) will be converted into $57.75 in cash, without interest. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (1) THERE BEING VALIDLY TENDERED AND NOT PROPERLY WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER SUCH NUMBER OF SHARES THAT, TOGETHER WITH ANY SHARES OWNED BY PURCHASER, LYONDELL AND THEIR AFFILIATES, WOULD CONSTITUTE AT LEAST A MAJORITY OF ALL OUTSTANDING SHARES ON A FULLY DILUTED BASIS AND (2) THE WAITING PERIOD UNDER THE HART- SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF 1976 APPLICABLE TO THE PURCHASE OF SHARES PURSUANT TO THE OFFER HAVING EXPIRED OR BEEN TERMINATED. LYONDELL AND THE PURCHASER HAVE ENTERED INTO A TENDER AND VOTING AGREEMENT DATED AS OF JUNE 18, 1998 WITH ATLANTIC RICHFIELD COMPANY, WHICH HAS REPRESENTED THAT IT HAS SOLE VOTING AND DISPOSITIVE POWER OVER 80,000,001 SHARES (APPROXIMATELY 80.1% OF THE OUTSTANDING SHARES ON A FULLY DILUTED BASIS). PURSUANT TO THE TENDER AND VOTING AGREEMENT, AMONG OTHER THINGS, ATLANTIC RICHFIELD COMPANY HAS AGREED TO TENDER ALL SUCH SHARES PURSUANT TO THE OFFER AND NOT WITHDRAW SUCH SHARES AS LONG AS THE TENDER AND VOTING AGREEMENT REMAINS IN EFFECT. THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY AND DETERMINED THAT THE OFFER AND THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, STOCKHOLDERS OF THE COMPANY AND UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS OF THE COMPANY ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER. For purposes of the Offer, the Purchaser will be deemed to have accepted for payment, and thereby purchased, Shares properly tendered to the Purchaser and not withdrawn as, if and when the Purchaser gives oral or written notice to the Depositary set forth below of the Purchaser's acceptance for payment of such Shares. Upon the terms and subject to the conditions of the Offer, payment for Shares accepted for payment pursuant to the Offer will be made by deposit of the purchase price therefor with the Depositary, which will act as an agent for tendering stockholders for the purpose of receiving payment from the Purchaser and transmitting payment to tendering stockholders. In all cases, payment for Shares accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of (a) certificates for such Shares or timely confirmation of book-entry transfer of such Shares into the Depositary's account at a Book-Entry Transfer Facility (as defined in the Offer to Purchase) pursuant to the procedures described in Section 2 of the Offer to Purchase, (b) a Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, with any required signature guarantees, or, in the case of a book-entry transfer, an Agent's Message (as defined in the Offer to Purchase) and (c) any other documents required by the Letter of Transmittal. Under no circumstances will interest be paid on the purchase price of the Shares to be paid by the Purchaser, regardless of any extension of the Offer or any delay in making such payment. The term "Expiration Date" means 12:00 Midnight, New York City time, on Wednesday, July 22, 1998, unless and until the Purchaser, in its sole discretion (but subject to the terms of the Merger Agreement), shall have extended the period of time during which the Offer is open, in which event the term "Expiration Date" shall mean the latest time and date on which the Offer, as so extended by the Purchaser, shall expire. Subject to the terms of the Merger Agreement (which prohibits amendments to the Offer to (a) reduce the number of Shares subject to the Offer, (b) reduce the Offer Price, (c) add to or modify the conditions of the Offer, (d) except as set forth in the Merger Agreement, extend the Offer, (e) change the form of consideration payable in the Offer or (f) amend or alter any other term of the Offer in any manner adverse to the Company's stockholders, without the consent of the Company) and the applicable rules and regulations of the Securities and Exchange Commission, the Purchaser reserves the right (but shall not be obligated), at any time and from time to time, and regardless of whether or not any of the events or facts set forth in Section 14 of the Offer to Purchase shall have occurred, (i) to extend the period of time during which the Offer is open, and thereby delay acceptance for payment of and the payment for any Shares, by giving oral or written notice of such extension to the Depositary and (ii) to amend the Offer in any other respect by giving oral or written notice of such amendment to the Depositary. Under no circumstances will interest be paid on the purchase price for tendered Shares, whether or not the Purchaser exercises its right to extend the Offer. Any such extension will be followed by a public announcement thereof no later than 9:00 A.M., New York City time, on the next business day after the previously scheduled Expiration Date. During any such extension, all Shares previously tendered and not withdrawn will remain subject to the Offer, subject to the right of a tendering stockholder to withdraw such stockholder's Shares. Except as otherwise provided below, tenders of Shares are irrevocable. Shares tendered pursuant to the Offer may be withdrawn pursuant to the procedures set forth below at any time prior to the Expiration Date and, unless theretofore accepted for payment and paid for by the Purchaser pursuant to the Offer, may also be withdrawn at any time after August 22, 1998. For a withdrawal to be effective, a written notice of withdrawal must be timely received by the Depositary at one of its addresses set forth on the back cover of the Offer to Purchase and must specify the name of the person having tendered the Shares to be withdrawn, the number of Shares to be withdrawn and the name of the registered holder of the Shares to be withdrawn, if different from the name of the person who tendered the Shares. If certificates for Shares have been delivered or otherwise identified to the Depositary, then, prior to the physical release of such certificates, the serial numbers shown on such certificates must be submitted to the Depositary and, unless such Shares have been tendered by an Eligible Institution (as defined in Section 2 of the Offer to Purchase), the signatures on the notice of withdrawal must be guaranteed by an Eligible Institution. If Shares have been delivered pursuant to the procedures for book-entry transfer described in Section 2 of the Offer to Purchase, any notice of withdrawal must also specify the name and number of the account at the appropriate Book-Entry Transfer Facility to be credited with the withdrawn Shares and otherwise comply with such Book-Entry Transfer Facility's procedures. Withdrawals of tenders of Shares may not be rescinded, and any Shares properly withdrawn will thereafter be deemed not validly tendered for purposes of the Offer. However, withdrawn Shares may be retendered by again following one of the procedures described in Section 2 of the Offer to Purchase at any time prior to the Expiration Date. All questions as to the form and validity (including time of receipt) of notices of withdrawal will be determined by the Purchaser in its sole discretion, which determination will be final and binding. The Company has provided the Purchaser with the Company's stockholder lists and security position listings for the purpose of disseminating the Offer to holders of Shares. The Offer to Purchase, the related Letter of Transmittal and other relevant materials will be mailed to record holders of Shares and will be furnished to brokers, dealers, banks, trust companies and similar persons whose names, or the names of whose nominees, appear on the stockholder lists or, if applicable, who are listed as participants in a clearing agency's security position listing for subsequent transmittal to beneficial owners of Shares. The information required to be disclosed by Rule 14d-6(e)(1)(vii) of the Securities Exchange Act of 1934, as amended, is contained in the Offer to Purchase and is incorporated herein by reference. THE OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT INFORMATION WHICH SHOULD BE READ BEFORE ANY DECISION IS MADE WITH RESPECT TO THE OFFER. Requests for copies of the Offer to Purchase, the Letter of Transmittal and other tender offer materials may be directed to the Information Agent or the Dealer Manager as set forth below, and copies will be furnished promptly at the Purchaser's expense. No fees or commissions will be payable to brokers, dealers or other persons other than the Dealer Manager and the Information Agent for soliciting tenders of Shares pursuant to the Offer. Brokers, dealers, banks and trust companies will be reimbursed by the Purchaser upon request for customary mailing and handling expenses incurred by them in forwarding material to their customers. The Information Agent for the Offer is: GEORGESON & COMPANY INC. ------------------ Wall Street Plaza New York, New York 10005 Banks and Brokers call collect (212) 440-9800 CALL TOLL FREE: 1-800-223-2064 THE DEALER MANAGER FOR THE OFFER IS: J.P. MORGAN & CO. 60 WALL STREET NEW YORK, NEW YORK 10260 (212) 648-9827 JUNE 24, 1998 EX-99.A9 9 PRESS RELEASE EXHIBIT (a)(9) [LYONDELL LOGO APPEARS HERE]
NEWS - ---------------------------------------------------------------------------------------------- One Houston Center, 1221 McKinney Ave., P.O. Box 3646, Houston, Texas 77253-3646 (713)652-7200
LYONDELL COMMENCES ALL-CASH TENDER OFFER FOR ARCO CHEMICAL COMPANY COMMON SHARES HOUSTON, June 24, 1998 -- Lyondell Petrochemical Company (NYSE:LYO) today commenced its previously announced all-cash tender offer for all outstanding shares of ARCO Chemical Company (NYSE:RCM) common stock at a price of $57.75 per share. The offer is scheduled to expire at 12:00 midnight, Eastern Daylight Time, on Wednesday, July 22, 1998, unless extended. A notice of the tender offer appears in today's Wall Street Journal. A Schedule 14 D-1 and related documents are being filed today with the Securities and Exchange Commission. Offer documents will be mailed to all ARCO Chemical shareholders promptly. ARCO Chemical has approximately 97 million shares outstanding. Atlantic Richfield Company (ARCO), which owns over 80 percent of the outstanding shares of ARCO Chemical, has agreed to tender its shares to Lyondell. As previously announced, the offer has been approved by the ARCO Chemical Company Board of Directors. J.P. Morgan & Co. is acting as dealer-manager for the offer. Georgeson & Company Inc. is acting as the information agent. Copies of the offering documents may be obtained by calling Georgeson & Company at (toll-free) 1-800- 223-2064. LYONDELL PETROCHEMICAL COMPANY-headquartered in Houston, Texas- is a major chemical and refining company, with majority ownership positions in the premier olefins, polymers and refining companies in North America. Lyondell is: . The largest producer of ethylene, propylene and polyethylene in North America and a leading producer of high value-added specialty polymers, color concentrates and polymeric powder through its 41% interest in Equistar Chemicals, LP. . One of the largest and most profitable refiners in the United States, processing very heavy Venezuelan crude oil to produce gasoline, low sulfur diesel and jet fuel, through its 58.75% interest in LYONDELL-CITGO Refining Company Ltd. . The third largest methanol producer in the U.S., through its 75% interest in Lyondell Methanol Company L.P. # # # For information, contact: Media - Jackie Wilson (713) 652-4596 Investors - Kevin DeNicola (713) 652-4590 EX-99.B1 10 COMMITMENT LETTER EXHIBIT (b)(1) June 17, 1998 Lyondell Petrochemical Company One Houston Center, Suite 1600 1221 McKinney Street Houston, TX 77253-3646 Attention: Mr. Dan F. Smith Ladies and Gentlemen: You have requested J.P. Morgan Securities Inc. ("JPMSI") as Arranger, Donaldson, Lufkin & Jenrette Securities Corporation ("DLJSC"), BancAmerica Robertson Stephens and Chase Securities, Inc., as Co-Arrangers (collectively the "Co-Arrangers"), to arrange financing in the amount of $7.0 billion for Lyondell Petrochemical Company (the "Borrower"). Attached is an outline of the principal terms and conditions of proposed loans to be made by Morgan Guaranty Trust Company of New York, DLJ Capital Funding, Inc. ("DLJCF"), Bank of America National Trust and Savings Association, Citibank, N.A. ("Citibank"), The Chase Manhattan Bank and NationsBank, N.A. (collectively the "Co-Underwriters") and other Lenders acceptable to the Co-Underwriters and the Borrower (the Co-Underwriters and such other Lenders being herein called the "Lenders"), pursuant to loan documentation mutually acceptable to the Lenders and the Borrower. You have advised us that this financing would provide sufficient funds to support your offer of up to $57.75 per share for ARCO Chemical Company, as well as to effect refinancing of certain debt in connection therewith and meet ongoing working capital needs. Each Co-Underwriter hereby severally commits to lend up to the amount set forth opposite its name on the signature pages hereof on the attached terms and conditions. All commitments will be subject to (i) the absence of adverse changes in the market for syndicated bank loans or in the regulatory environment that are likely to materially and adversely affect the syndication of the proposed financing; (ii) representations by the Borrower to us of its willingness to cooperate with us in structuring and syndication an appropriate credit facility, including its willingness to make reasonable changes to the documents as requested by participants; (iii) our current understanding of the proposed capital structure of the Borrower after giving effect to the financing referred to herein; (iv) the absence of adverse changes in the financial condition, business, assets, results of operations, or prospects of the Borrower and the business to be acquired by the Borrower taken as a whole; (v) our satisfaction that prior to and during the syndication of the credit facility there shall be no competing offering, placement or arrangement of debt securities or lender financing on behalf of the Borrower and (vi) the negotiation, execution and delivery of mutually acceptable definitive loan documentation (to be prepared by the Co-Underwriters' counsel, Davis Polk and Wardwell) within 90 days of the date hereof. It is the Co-Underwriters' intention to syndicate the Credit Facility to a group of lenders acceptable to the Co-Underwriters, the Co-Arrangers and the Borrower. The Borrower agrees to provide such assistance in the Syndication effort as may be reasonably requested, including making members of management of the Company and its subsidiaries available to meet with the prospective syndicate members and assisting the Co-Arrangers in the preparation of a financing memorandum. The Borrower acknowledges its obligation to pay an underwriter fee as specified in the Underwriting Fee Letter of even date signed by the parties hereto. The Borrower by signing below agrees to indemnify and defend the Co-Underwriters, the Co-Arrangers and each other Lender, their respective affiliates and the respective directors, officers, agents and employees of the foregoing from, and hold each of them harmless against, any and all losses, liabilities, claims, damages or expenses of any kind, including without limitation the reasonable fees and disbursements of counsel, incurred by any of them arising out of or by reason of their role hereunder or any investigation, litigation or other proceeding brought or threatened relating to any loan made or proposed to be made to the Borrower in connection with the matters herein referred to (including, but without limitation, any use made or proposed to be made by the Borrower or any of its affiliates of the proceeds of such loans, but excluding any such losses, liabilities, claims, damage or expenses incurred by reason of the gross negligence or willful misconduct of the indemnitee as determined by a final judgment of a court of competent jurisdiction). Finally, the Borrower hereby agrees to pay the Co-Arrangers' and Co-Underwriters' reasonable out-of-pocket costs and reasonable expenses in connection herewith, including reasonable fees and disbursements of the Arranger's counsel, regardless of whether any loan documents are agreed to and signed by the Lenders and the Borrower and regardless of whether any loans are actually made. This letter is intended solely for the use of the Borrower and not any other person and may not be used or relied upon by, or disclosed, referred to or communicated by you (in whole or in part) to any third party for any purpose whatsoever (except, upon acceptance, to your professional advisors and to ARCO 2 Chemical Company, Atlantic Richfield Company and their professional advisors for their purposes in evaluating the Borrower's bid and as may otherwise be required by law) except with our prior written permission. This letter agreement may be executed in counterparts which, taken together, shall constitute an original. This letter agreement shall be governed by and construed in accordance with laws of the State of New York. If you accept and agree to this proposal, please so indicate by signing in the space provided below and returning a copy of this letter to us. This proposal will expire at the close of business on June 18, 1998 if not accepted by you in writing by that time. Very truly yours, Commitment Amount - ----------------- $1,400,000,000 MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: /s/ CHRISTOPHER C. KUNHARDT ---------------------------- Name: CHRISTOPHER C. KUNHARDT Title: VICE PRESIDENT 60 Wall Street New York, New York 10260-0060 3 $1,400,000,000 DLJ CAPITAL FUNDING, INC. By: /s/ ERIC SWANSON --------------------------- Name: ERIC SWANSON Title: MANAGING DIRECTOR 277 Park Avenue New York, New York 10172 4 $1,100,000,000 BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION BY: /s/ J. STEPHEN MERRICK --------------------------- Name: J. STEPHEN MERRICK Title: MANAGING DIRECTOR Address: 335 Madison Avenue New York, NY 10017 5 $1,100,000,000 THE CHASE MANHATTAN BANK BY: /s/ LAWRENCE PALUMBO, JR. --------------------------- Name: LAWRENCE PALUMBO, JR. Title: VICE PRESIDENT Address: 6 $1,000,000,000 CITIBANK, N.A. BY: /s/ E. OGIMACHI --------------------------- Name: EILEEN G. OGIMACHI Title: Attorney-In-Fact 399 Park Avenue New York, New York 10043 7 $1,000,000,000 NATIONSBANK, N.A. BY: /s/ JAMES R. ALLRED --------------------------- Name: JAMES R. ALLRED Title: SENIOR VICE PRESIDENT Address: 8 J.P. MORGAN SECURITIES INC. By: /s/ J. E. C. --------------------------- Name: JAMES E. CONDOR Title: VICE PRESIDENT 60 Wall Street New York, New York 10260-0060 9 DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION By: /s/ ERIC SWANSON --------------------------- Name: ERIC SWANSON Title: MANAGING DIRECTOR 277 Park Avenue New York, New York 10172 10 BANCAMERICA ROBERTSON STEPHENS By: /s/ Keith C. Barnisto --------------------------- Name: Keith C. Barnisto Title: SR. MANAGING DIRECTOR Address: 11 CHASE SECURITIES INC. By: /s/ MICHEAL J. MCGOVERN --------------------------- Name: MICHEAL J. MCGOVERN Title: MANAGING DIRECTOR Address: 270 Park Avenue New York, NY 10017 12 ACCEPTED AND AGREED TO this 17th day of June, 1998: LYONDELL PETROCHEMICAL COMPANY By: /s/ E.W. RICH - ----------------------------- Name: EDWARD W. RICH Title: VP FINANCE & TREASURER One Houston Center, Suite 1600 1221 McKinney Street P.O. Box 3646 Houston, TX 77253-3646 13 SUMMARY OF TERMS AND CONDITIONS FOR LYONDELL PETROCHEMICAL COMPANY BORROWER: Lyondell Petrochemical Company AMOUNT: $7,000,000,000 divided into five tranches: Revolving Credit $ 500,000,000 Term Loan A $2,500,000,000 Term Loan B $ 750,000,000 Term Loan C $1,250,000,000 Term Loan D $2,000,000,000 The Arranger and the Co-Arrangers, with the consent of the Borrower, may increase the size of Term Loan B up to $1,000,000,000 with a comparable decrease in the size of the Term Loan A. Term Loan C and Term Loan D are bridges to the capital markets. CO-UNDERWRITERS' As set forth in the Commitment INITIAL COMMITMENTS: Letter each pro-rated across the Revolving Credit, Term Loan A, Term Loan B, Term Loan C, and Term Loan D. PURPOSE: Term Loans: Fund the acquisition of Berlin. Revolving Credit: General Corporate Purposes. ARRANGER: J.P. Morgan Securities Inc. ("JPMSI"). CO-ARRANGERS: Donaldson, Lufkin & Jenrette Securities Corporation, BancAmerica Robertson Stephens and Chase Securities, Inc. ADMINISTRATIVE AGENT: Morgan Guaranty Trust Company of New York ("Morgan"). SYNDICATION AGENT: DLJ Capital Funding, Inc. DOCUMENTATION AGENTS: Bank of America National Trust and Savings Association, Citibank, N.A. ("Citibank"), The Chase Manhattan Bank and NationsBank, N.A. LENDERS: Syndicate of lenders acceptable to the Borrower and Co-Underwriters. FACILITY DESCRIPTION: Revolver: 5 years on a fully revolving basis. Term Loan A: 5-year term loan. Single drawdown concurrent with the closing of the Berlin acquisition. Amortization schedule to be determined. Term Loan B: 7-year term loan. Single drawdown concurrent with the closing of the Berlin acquisition. Amortization schedule to be determined. Term Loan C: 1-year term loan with a bullet maturity. Single drawdown concurrent with the closing of the Berlin acquisition. Term Loan D: 2-year term loan with a bullet maturity. Single drawdown concurrent with the closing of the Berlin acquisition. PARTICIPATION FEE: At rates to be determined according to each Lender's initial commitment and payable upon final allocation amounts [timing of payments due to participants to be determined]. BORROWING OPTIONS: LIBOR and Base Rate. LIBOR adjustments for Regulation D will be charged by Lenders individually. 2 Base Rate means the higher of Morgan's prime rate or the federal funds rate + 0.50%. PRICING: See attached Pricing Schedule. COLLATERAL: The credit facilities shall be secured by a perfected first priority security interest in (i) substantially all the assets directly owned by the Borrower including the stock and inter- company indebtedness of any material subsidiaries, including Acquisition Co., Berlin and the subsidiaries (the "JV Subsidiaries") that hold the Borrower's interests in Equistar Chemicals, LP ("Equistar"), Lyondell Citgo Refining Company, Ltd. ("LCR"), and Lyondell Methanol Company, Ltd. ("LMC", and together with Equistar and LCR, the "JVs"), and (ii) the rights of the JV Subsidiaries to receive distributions from the JVs. GUARANTORS: Acquisition Co., Berlin and any other material domestic subsidiaries, excluding the JVs and the JV Subsidiaries. INTEREST PAYMENTS: At the end of each applicable Interest Period or quarterly, if earlier. INTEREST PERIODS: LIBOR Loans - 1, 2, 3, or 6 months; 9 or 12 months if available. REVOLVER DRAWDOWNS: Minimum amounts of $20 million with additional increments of $1 million. Drawdowns are at the Borrower's option with same day notice for Base Rate Loans and three business days for LIBOR Loans. PREPAYMENTS: Base Rate and LIBOR Loans may be prepaid at any time on one or three business day's notice, respectively, 3 without premium or penalty, but subject, in the case of LIBOR Loans to compensation for breakfunding costs. TERMINATION OR REDUCTION OF COMMITMENTS: The Borrower may terminate the commitments in their entirety or reduce the commitments in amounts of at least $25 million at any time on three business days' notice. MANDATORY PREPAYMENTS: Until the Mandatory Prepayment Release Date, defined as the date Term Loan C and Term Loan D are repaid in full, including accrued interest and fees, and the Borrower has achieved investment grade ratings of at least BBB-and Baa3 from Standard & Poors and Moody's, respectively, Mandatory Prepayments will apply according to the following schedule: 1. 100 percent of the net proceeds from the issuance of any equity, preferred or convertible debt security (subject to customary exceptions, including the net cash proceeds form the issuance of stock in connection with employee benefit plans and dividend reinvestment plans). 2. 100 percent of the net proceeds from the issuance of any debt security with a maturity in excess of one year. 3. 100 percent of the net cash proceeds of any sale or other disposition of any assets (excluding (i) the sale of inventory in the ordinary course of business, and (ii) individual asset sales, the proceeds of which do not exceed $10 million). 4. 100 percent of the proceeds from any property or casualty insurance unless such proceeds are committed within 4 six months of receipt and used within 18 months of receipt to replace the insured assets. 5. 50 percent of any Excess Cash Flow, to be defined. Mandatory repayments related to items 1. and 2. above will be applied first to Term Loan C and Term Loan D in order of maturity, and related to items 3., 4., and 5. above will be applied first to Term Loan A and Term Loan B pro rata with Term Loan B having the right to refuse prepayment. REPRESENTATIONS AND WARRANTIES: Customary for credit agreements of this nature, with respect to the Borrower, its subsidiaries and the JVs, including but not limited to: 1. Corporate existence. 2. Corporate and governmental authorization; no contravention; binding effect. 3. Financial information. 4. No material adverse change. 5. Environmental matters. 6. Compliance with laws, including ERISA. 7. No material litigation. 8. Existence, incorporation, etc. of subsidiaries. 9. Payment of taxes. 10. Full disclosure. 11. Regulatory restrictions on borrowing. 12. Acquisition documents. 13. Lien perfection and priority. CONDITIONS TO BORROWING: Customary in credit agreements of this nature, including but not limited to: 1. Absence of default. 5 2. Accuracy of representations and warranties. 3. Negotiation and execution of satisfactory closing documentation. 4. Closing of the Berlin acquisition on terms acceptable to the Lenders. 5. Deal-specific requirements if any; regulatory approvals, licenses. COVENANTS: Customary in credit agreements of this nature, with respect to the Borrower and its subsidiaries (excluding except as specifically indicated the JVs) including but not limited to: 1. Information. 2. Payment of taxes and similar claims. 3. Maintenance of property; insurance. 4. Conduct of business and maintenance of existence. 5. Compliance with laws. 6. Inspection of property, books and records. 7. Mergers and sales of assets. 8. Use of proceeds. 9. Negative pledge. 10. Debt to Adjusted EBITDA. 11. Subsidiary debt limitation. 12. Minimum consolidated tangible net worth. [Step-up for Net Income and Equity Issuances] 13. Fixed charge coverage ratio. 14. Restricted payments. 15. Lease payments. 16. Investments. 17. Transactions with affiliates. 18. The Borrower will use its best efforts, including exercising its right to vote at meetings of the governing bodies, to limit investments in fixed assets of joint ventures to incremental levels, to be agreed upon, over the annual 6 investment levels in the five year plans of LCR, LMC, and Equistar. 19. The Borrower will use its best efforts, including the exercise, through its subsidiaries, of the right to vote at meetings of the governing bodies of Equistar, LCR, and LMC, to maintain without material change the current cash distribution policy at Equistar, LCR (as may be adjusted related to the currently contemplated financing), and LMC as stated in the partnership agreements for Equistar (dated October 10, 1997 and last amended and restated on May 15, 1998) and LMC (dated December 12, 1996) and in the limited liability company regulations for LCR (dated July 1, 1993 and last amended on January 27, 1997). 20. The Borrower will use its best efforts, including the exercise, through its subsidiaries, of the right to vote at meetings of the governing bodies of Equistar, LCR, and LMC, to limit debt incurred at Equistar, LCR and LMC to amounts to be agreed upon. 21. The Borrower will use its best efforts, including the exercise, through its subsidiaries, of the right to vote at meetings of the governing bodies of Equistar, LCR, and LMC, to prohibit Equistar, LCR, and LMC from entering into any contract that would be materially more restrictive on their ability to make distributions than currently exist. 22. The Borrower will use its best efforts, including the exercise, through its subsidiaries, of the right to vote at meetings of the governing bodies of Equistar, LCR, and LMC, to maintain the right of Lyondell 7 Petrochemical G.P. Inc to appoint the Chief Executive Officer of Equistar as currently stated in the partnership agreement for Equistar, and the right, jointly held with CITGO Refining Investment Company, to appoint the Chief Executive Officer of LCR, as currently stated in the company regulations for LCR, and the right to act as managing partner of LMC, as currently stated in the company regulations for LMC. 23. The Borrower must issue equity or equity equivalents for gross proceeds of at least $1.25 billion within 1 year of the effective date. EVENTS OF DEFAULT: Customary in credit agreements of this nature, including but not limited to the following: 1. Failure to pay any interest, principal, or fees payable under the Credit Agreement when due, with a grace period of 5 days for interest and fees. 2. Failure to meet covenants (with grace periods, when appropriate). 3. Representations or warranties false in any material respect when made. 4. Cross default to other debt (exceeding an agreed amount) of the Borrower and its Subsidiaries as well as of Equistar, LCR, and LMC which is triggered by an event which permits or, with the giving of notice or lapse of time (or both), would permit the holder to accelerate its debt or terminate its commitment. 5. Change of ownership or control. 6. Loss of lien perfection or priority. 7. Other usual defaults with respect to the Borrower and Subsidiaries, as well as Equistar, LCR, and LMC, 8 including but not limited to insolvency, bankruptcy, ERISA, and judgment defaults. INCREASED COSTS/CHANGE OF CIRCUMSTANCES: The credit agreement will contain customary provisions protecting the Lenders in the event of unavailability of funding, illegality, increased costs and funding losses. Capital adequacy compensation will be required only with respect to capital requirements adopted after the date hereof. INDEMNIFICATION: The Borrower will indemnify the Lenders against all losses, liabilities, claims, damages, or expenses relating to their loans, the Borrower's use of loan proceeds or the commitments, including but not limited to reasonable attorneys' fees and settlement costs (except such as result from the indemnitee's gross negligence or willful misconduct). TRANSFERS AND PARTICIPATIONS: Lenders will have the right to transfer or sell participations in their loans or commitments with the transferability of voting rights in the case of participations limited to changes in principal, rate, fees and term. Assignments, which must be in amounts of at least $5 million, will be allowed with the consent of the Borrower, such consent not to be unreasonably withheld. Assignment will be allowed within the Lender group and the Lenders' affiliates. EXPENSES: Borrower will pay all reasonable legal and other out-of-pocket expenses of Co-Underwriters related to this transaction and any subsequent amendments or 9 waivers, including the reasonable fees and expenses of Davis Polk & Wardwell, special counsel to the Co- Underwriters. GOVERNING LAW: State of New York. 10 PRICING GRID . Initial LIBOR margins will be as follows: Revolving Credit L + 200 Term Loan A L + 200 Term Loan B L + 250 Term Loan C L + 200 Term Loan D L + 200 . LIBOR margins will be the higher of the initial margins or the grid- based margins for a minimum of six months; grid will commence on the later of the retirement of Term Loans C and D or six months following the effective date of the Credit Agreement. . GRID: - ------------------------------------------------------------------------------- Senior Debt Revolver, Term Level Rating Loans A, C and D Term Loan B - ------------------------------------------------------------------------------- I B1 or B+ or 2.50% 3.00% lower/*/ - ------------------------------------------------------------------------------- II Ba3 and BB-/*/ 2.00% 2.50% - ------------------------------------------------------------------------------- III Ba2 and BB/*/ 1.75% 2.25% - ------------------------------------------------------------------------------- IV Ba1 or BB+/**/ 1.50% 2.00% - ------------------------------------------------------------------------------- V Baa3 or BBB- or 1.25% 2.00% higher/**/ - ------------------------------------------------------------------------------- - ------------------- /*/ In the event of split ratings from S&P and Moody's, the lower rating governs. /**/ In the event of split ratings from S&P and Moody's, the higher rating governs; provided that if the split is more than one full rating category, the rating at the midpoint (or the higher of two intermediate ratings) governs. 11 EX-99.C1 11 AGREEMENT AND PLAN OF MERGER EXHIBIT (c)(1) AGREEMENT AND PLAN OF MERGER among LYONDELL PETROCHEMICAL COMPANY, LYONDELL ACQUISITION CORPORATION and ARCO CHEMICAL COMPANY Dated as of June 18, 1998 TABLE OF CONTENTS AGREEMENT AND PLAN OF MERGER Page ---- ARTICLE I OFFER SECTION 1.1. The Offer SECTION 1.2. Company Actions SECTION 1.3. Directors ARTICLE II THE MERGER SECTION 2.1. The Merger SECTION 2.2. Closing SECTION 2.3. Effective Time SECTION 2.4. Effects of the Merger SECTION 2.5. Certificate of Incorporation and By-laws SECTION 2.6. Directors SECTION 2.7. Officers ARTICLE III CONVERSION OF SECURITIES SECTION 3.1. Effect on Capital Stock SECTION 3.2. Exchange of Certificates ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY SECTION 4.1. Organization SECTION 4.2. Subsidiaries SECTION 4.3. Capitalization SECTION 4.4. Authority SECTION 4.5. Consents and Approvals; No Violations SECTION 4.6. SEC Documents; Financial Statements SECTION 4.7. Information Supplied SECTION 4.8. Absence of Certain Changes or Events SECTION 4.9. Litigation SECTION 4.10. Benefit Plans and Matters SECTION 4.11. Compliance with Laws SECTION 4.12. Environmental Matters SECTION 4.13. Taxes SECTION 4.14. Technology and Intellectual Property SECTION 4.15. Opinion of Financial Advisor SECTION 4.16. Brokers; Schedule of Fees and Expenses SECTION 4.17. Affiliated Written Transactions SECTION 4.18. State Takeover Statutes SECTION 4.19. Title ARTICLE V REPRESENTATIONS AND WARRANTIES OF PURCHASER AND MERGER SUB SECTION 5.1. Organization SECTION 5.2. Authority SECTION 5.3. Consents and Approvals; No Violations SECTION 5.4. Information Supplied SECTION 5.5. Financing SECTION 5.6. Ownership of Shares SECTION 5.7. Brokers ARTICLE VI COVENANTS SECTION 6.1. Conduct of Business SECTION 6.2. No Solicitation SECTION 6.3. Use of Names and Logos ARTICLE VII ADDITIONAL AGREEMENTS SECTION 7.1. Company Stockholder Approval SECTION 7.2. Access to Information; Confidentiality SECTION 7.3. Reasonable Efforts; Notification SECTION 7.4. Stock Incentive Plans SECTION 7.5. Indemnification, Exculpation and Insurance SECTION 7.6. Fees and Expenses SECTION 7.7. Public Announcements SECTION 7.8. Employee Benefits Matters SECTION 7.9. Termination of Other Agreements SECTION 7.10. Insurance ARTICLE VIII CONDITIONS SECTION 8.1. Conditions to Each Party's Obligation to Effect the Merger ARTICLE IX TERMINATION AND AMENDMENT SECTION 9.1. Termination SECTION 9.2. Effect of Termination SECTION 9.3. Amendment SECTION 9.4. Extension; Waiver SECTION 9.5. Procedure for Termination, Amendment, Extension or Waiver ARTICLE X MISCELLANEOUS SECTION 10.1. Nonsurvival of Representations, Warranties and Agreements SECTION 10.2. Notices SECTION 10.3. Interpretation SECTION 10.4. Counterparts SECTION 10.5. Entire Agreement; Third Party Beneficiaries SECTION 10.6. Governing Law SECTION 10.7. Assignment SECTION 10.8. Enforcement EXHIBIT A CONDITIONS OF THE OFFER -7- AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of June 18, 1998, among Lyondell Petrochemical Company, a Delaware corporation ("Purchaser"), Lyondell Acquisition Corporation, a Delaware corporation and a wholly-owned subsidiary of Purchaser ("Merger Sub"), and ARCO Chemical Company, a Delaware corporation (the "Company"). WHEREAS, the respective Boards of Directors of Purchaser, Merger Sub and the Company have approved the acquisition of the Company by Purchaser upon the terms and subject to the conditions set forth in this Agreement; WHEREAS, in furtherance of such acquisition, Purchaser proposes to cause Merger Sub to make a tender offer to purchase all the outstanding shares of Common Stock, par value $1.00 per share, of the Company (the "Company Common Stock"; all the outstanding shares of Company Common Stock being hereinafter collectively referred to as the "Shares") at a purchase price of $57.75 per Share (the "Offer Price"), net to the seller in cash, without interest thereon, upon the terms and subject to the conditions set forth in this Agreement (as it may be amended from time to time as permitted under this Agreement, the "Offer"); and the Board of Directors of the Company has adopted resolutions approving the Offer, the Merger (as defined below), the Tax Agreement (as defined below) and, for purposes of Section 203 of the DGCL (defined in Section 1.2), the Tender and Voting Agreement (as defined below), recommending that the Company's stockholders accept the Offer and approving the acquisition of Shares by Merger Sub pursuant to the Offer; WHEREAS, the respective Boards of Directors of Purchaser, Merger Sub and the Company have each approved the merger of Merger Sub into the Company (the "Merger"), upon the terms and subject to the conditions set forth in this Agreement, whereby each Share, other than Dissenting Shares (as defined in Section 3.1(d) hereof), shall be converted into the right to receive the price per Share paid in the Offer, and the Company shall become a wholly-owned subsidiary of Purchaser; WHEREAS, concurrently with the execution of this Agreement and as an inducement to Purchaser to enter into this Agreement, Purchaser and Atlantic Richfield Company, a Delaware corporation and the majority stockholder of the Company ("Parent"), are entering into a Tender and Voting Agreement of even date herewith (the "Tender and Voting Agreement") pursuant to which Parent has agreed, upon the terms and subject to the conditions set therein, to tender all of the Shares owned by Parent to Merger Sub pursuant to the Offer; and WHEREAS, concurrently with the execution of this Agreement, Purchaser, Parent and the Company are entering into a Tax Agreement of even date herewith relating to certain tax matters; NOW, THEREFORE, in consideration of the foregoing and the representations, warranties and agreements contained herein, and intending to be legally bound hereby, Purchaser, Merger Sub and the Company hereby agree as follows: -8- ARTICLE I OFFER SECTION 1.1. The Offer. (a)__As promptly as practicable but in no event later than five business days after the date of the public announcement (on the date hereof or the following day) by Purchaser and the Company of this Agreement, Merger Sub shall, and Purchaser shall cause Merger Sub to, commence the Offer (within the meaning of Rule 14d-2 under the Securities Exchange Act of 1934, as amended (the "Exchange Act")). The obligation of Merger Sub to, and of Purchaser to cause Merger Sub to, commence the Offer, conduct and consummate the Offer and accept for payment, and pay for, any Shares tendered and not withdrawn pursuant to the Offer shall be subject only to the conditions set forth on Exhibit A hereto (the "Offer Conditions") (any of which (other than the Minimum Condition and the Antitrust Condition (as such terms are defined in Exhibit A)) may be waived in whole or in part by Merger Sub in its sole discretion). Merger Sub expressly reserves the right, subject to compliance with the Exchange Act, to modify the terms of the Offer, except that, without the express written consent of the Company, Merger Sub shall not (i)__reduce the number of Shares subject to the Offer, (ii)__reduce the Offer Price, (iii)__add to or modify the Offer Conditions, (iv)__except as provided in the following sentence, extend the Offer, (v)__change the form of consideration payable in the Offer or (vi)__amend or alter any other term of the Offer in any manner adverse to the holders of the Shares. Notwithstanding the foregoing, Merger Sub may, without the consent of the Company, (A) extend the Offer for any period required by any rule, regulation, interpretation or position of the Securities and Exchange Commission (the "SEC") or the staff thereof applicable to the Offer, (B) extend the Offer, if at the scheduled or extended expiration date of the Offer, any of the Offer Conditions shall not be satisfied or waived, until such time as such conditions are satisfied or waived and (C) extend the Offer on one occasion for a period of not more than 10 business days beyond the latest expiration date that would otherwise be permitted under clause (A) or (B) of this sentence, if on such expiration date there shall not have been tendered at least 90% of the outstanding Shares. Notwithstanding the foregoing, Merger Sub may not, without the Company's prior written consent, extend the Offer pursuant to clause (B) of the prior sentence if the failure to satisfy any of the Offer Conditions was directly or indirectly caused by an act or omission of Purchaser or Merger Sub that constitutes a breach of this Agreement. Purchaser and Merger Sub agree that if any Offer Condition (other than the Minimum Condition and the Offer Condition set forth in paragraph (e) of Exhibit A) is not satisfied on any scheduled expiration date of the Offer, then Merger Sub shall extend the Offer from time to time until all the Offer Conditions have been satisfied or waived, provided that (i)__any such unsatisfied condition is reasonably capable of being satisfied, (ii)__any Takeover Proposal theretofore received by the Company has been rejected by the Company (or, if such Takeover Proposal has not been rejected by the Company as of such scheduled expiration date, such Takeover Proposal was received by the Company less than ten days prior to such scheduled -9- expiration date), as confirmed in writing by the Company to Purchaser setting forth the date any such Takeover Proposal was received, and (iii) Merger Sub shall not be required to extend the Offer to a date that is later than the Outside Date (as defined in 9.1(c)). Subject to the terms and conditions of the Offer and this Section 1.1(a), Merger Sub shall, and Purchaser shall cause Merger Sub to, accept for payment, and pay for, all Shares validly tendered and not withdrawn pursuant to the Offer as soon as practicable after the expiration of the Offer. (b) On the date of commencement of the Offer, Purchaser and Merger Sub shall file with the SEC a Tender Offer Statement on Schedule 14D-1 (the "Schedule 14D-1") with respect to the Offer, which shall contain an offer to purchase and a related letter of transmittal, a summary advertisement and such other documents as are customarily filed with a Schedule 14D-1 (such Schedule 14D-1 and the documents included therein pursuant to which the Offer shall be made, together with any supplements or amendments thereto, being hereinafter collectively referred to as the "Offer Documents"). Each of Purchaser, Merger Sub and the Company agrees promptly to correct any written information provided by it for use in the Offer Documents if and to the extent that such information shall have become false or misleading in any material respect, and Purchaser and Merger Sub further agree to take all steps necessary to cause the Schedule 14D-1 as so corrected to be filed with the SEC and the other Offer Documents as so corrected to be disseminated to holders of Shares, in each case as and to the extent required by applicable Federal securities laws. The Company and its counsel shall be given reasonable opportunity to review and comment upon the Offer Documents prior to their filing with the SEC or dissemination to stockholders of the Company. Purchaser and Merger Sub agree to provide the Company and its counsel any comments Purchaser, Merger Sub or their counsel may receive from the SEC or its staff with respect to the Offer Documents promptly after the receipt of such comments. (c) Purchaser shall provide or cause to be provided to Merger Sub on a timely basis the funds sufficient to accept for payment and pay for, any and all Shares that Merger Sub becomes obligated to accept for payment, and pay for, pursuant to the Offer. SECTION 1.2. Company Actions. (a)__The Company hereby approves of and consents to the Offer and represents that the Board of Directors of the Company, at a meeting duly called and held, duly adopted resolutions (i) approving this Agreement, the Offer, the Merger, the Tax Agreement, and, for purposes of Section 203 of the Delaware General Corporation Law (the "DGCL"), the Tender and Voting Agreement, (ii) determining that the terms of the Offer and the Merger are fair to, and in the best interests of, the Company's stockholders and (iii) recommending that the Company's stockholders accept the Offer, tender their Shares pursuant to the Offer and (if required by the DGCL) approve and adopt this Agreement. The Company represents that the foregoing action of the Board of Directors of the Company in approving this Agreement, the Offer, the Merger and the Tender and Voting Agreement is sufficient to render inapplicable to this Agreement (and the transactions provided -10- for herein) and the Tender and Voting Agreement the restrictions on "business combinations" (as defined in Section 203 of the DGCL) set forth in Section 203 of the DGCL. (b) On the date the Offer Documents are filed with the SEC, or promptly thereafter, the Company shall file with the SEC a Solicitation/Recommendation Statement on Schedule 14D-9 with respect to the Offer (such Schedule 14D-9, as amended from time to time, being hereinafter referred to as the "Schedule 14D-9") containing the recommendation described in Section 1.2(a) hereof and shall mail the Schedule 14D-9 to the stockholders of the Company. Each of the Company, Purchaser and Merger Sub agrees promptly to correct any written information provided by it for use in the Schedule 14D-9 if and to the extent that such information shall have become false or misleading in any material respect, and the Company further agrees to take all steps necessary to amend or supplement the Schedule 14D-9 and to cause the Schedule 14D-9 as so amended or supplemented to be filed with the SEC and disseminated to the Company's stockholders, in each case as and to the extent required by applicable Federal securities laws. Purchaser and its counsel shall be given reasonable opportunity to review and comment upon the Schedule 14D-9 prior to its filing with the SEC or dissemination to stockholders of the Company. The Company agrees to provide Purchaser and its counsel any comments the Company or its counsel may receive from the SEC or its staff with respect to the Schedule 14D-9 promptly after the receipt of such comments. (c) In connection with the Offer and the Merger, the Company shall cause its transfer agent to furnish Merger Sub promptly with mailing labels containing the names and addresses of the record holders of Shares as of a recent date and of those persons becoming record holders subsequent to such date, together with copies of all lists of stockholders, security position listings and computer files and all other information in the Company's possession regarding the beneficial owners of Shares, and shall furnish to Merger Sub such information and assistance (including updated lists of stockholders, security position listings and computer files) as Purchaser may reasonably request in communicating the Offer to the Company's stockholders. Subject to the requirements of applicable law, and except for such steps as are necessary to disseminate the Offer Documents and any other documents necessary to consummate the Merger, Purchaser and Merger Sub and their agents shall hold in confidence the information contained in any such labels, listings and files, shall use such information only in connection with the Offer and the Merger and, if this Agreement shall be terminated, shall, upon request, promptly deliver, and shall cause their agents promptly to deliver, to the Company all copies of such information then in their possession or control. SECTION 1.3. Directors. Promptly upon the acceptance for payment of, and payment for, any Shares by Merger Sub pursuant to the Offer and, from time to time thereafter, Merger Sub shall be entitled to designate such number of directors on the Board of Directors of the Company as will give Merger Sub, subject to compliance with Section 14(f) of the Exchange Act and subject to the final sentence of this Section 1.3, representation on the Board equal to at -11- least that number of directors (rounded up to the next whole number) equal to the product of (i) the total number of directors on the Board and (ii) the percentage that the number of Shares owned by Merger Sub bears to the number of Shares outstanding, and the Company shall, at such time, cause Merger Sub's designees to be so elected or appointed to the Board of Directors of the Company. Subject to applicable law, the Company shall take all action requested by Purchaser necessary to effect any such election, including mailing to its stockholders the information statement (as amended from time to time, the "Information Statement") containing the information required by Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder, and the Company agrees to make such mailing with the mailing of the Schedule 14D-9 (provided that Merger Sub shall have provided to the Company on a timely basis in writing all information required to be included in the Information Statement with respect to Merger Sub's designees). In connection with the foregoing, the Company will promptly, at the option of Purchaser, either increase the size of the Company's Board of Directors and/or use its commercially reasonable efforts to obtain the resignation of such number of its current directors as is necessary to enable Merger Sub's designees to be elected or appointed to the Company's Board of Directors as provided above. In addition, subject to applicable law, at such time as Merger Sub shall be entitled to designate a number of directors as provided by this Section 1.3, at the request of Purchaser, the Company will use its best efforts to cause individuals designated by Merger Sub to constitute the same percentage as such individuals represent on the Board of Directors of (x)__each committee of the Board of Directors, (y)__each board of directors of each Subsidiary (as defined below) of the Company and (z)__each committee of each such board. Notwithstanding the foregoing, until the Effective Time (as defined in Section 2.3 hereof), there shall be at least two directors who are directors on the date hereof and who are not designees nor officers, directors, employees or affiliates of Purchaser or Merger Sub nor officers or employees of the Company or Parent ("Independent Directors"), provided that if the number of Independent Directors shall be reduced below two for any reason, the Board of Directors shall, subject to the approval of the remaining Independent Directors (or Independent Director, if there be only one remaining), if any, designate a person or persons to fill the vacancy or vacancies who are not designees nor officers, directors, employees or affiliates of Purchaser or Merger Sub nor officers or employees of the Company, and such persons shall be deemed to be Independent Directors for purposes of this Agreement. ARTICLE II THE MERGER SECTION 2.1. The Merger. Upon the terms and subject to the conditions set forth in this Agreement, and in accordance with the DGCL, Merger Sub shall be merged with and into the Company at the Effective Time (as defined in Section 2.3). Following the Effective Time, the separate corporate existence of Merger Sub shall cease and the Company shall continue as the surviving corporation (the "Surviving Corporation") and shall succeed to and -12- assume all the rights and obligations of Merger Sub in accordance with the DGCL. At the election of Purchaser, any direct or indirect wholly owned subsidiary of Purchaser may be substituted for Merger Sub as a constituent corporation in the Merger, provided that no such substitution shall be made if it would materially delay or impede the transactions contemplated hereby. In such event, the parties agree to execute an appropriate amendment to this Agreement in order to reflect the foregoing. SECTION 2.2. Closing. The closing of the Merger will take place at 10:00 a.m. (Houston time) on a date to be specified by Purchaser or Merger Sub, which shall be no later than the second business day after satisfaction or waiver of the conditions set forth in Article VIII (the "Closing Date"), at the offices of Baker & Botts, L.L.P., One Shell Plaza, 910 Louisiana Street, Houston, Texas, unless another date, time or place is agreed to in writing by the parties hereto. SECTION 2.3. Effective Time. Subject to the provisions of this Agreement, on the Closing Date the parties shall file a certificate of merger or, if applicable, certificate of ownership and merger (in any such case, the "Certificate of Merger") executed in accordance with the relevant provisions of the DGCL and shall make all other filings or recordings required under the DGCL and other applicable law. The Merger shall become effective at such time as the Certificate of Merger is duly filed with the Delaware Secretary of State, or at such other time specified in the Certificate of Merger as Merger Sub and the Company shall agree (the time the Merger becomes effective being hereinafter referred to as the "Effective Time"). SECTION 2.4. Effects of the Merger. The Merger shall have the effects set forth in Section 259 of the DGCL. SECTION 2.5. Certificate of Incorporation and By-laws. (a) The Certificate of Incorporation of the Company (the "Certificate of Incorporation"), as in effect immediately prior to the Effective Time, shall be the certificate of incorporation of the Surviving Corporation until thereafter changed or amended as provided therein or by applicable law. (b) The By-laws of Merger Sub as in effect immediately prior to the Effective Time shall be the by-laws of the Surviving Corporation, until thereafter changed or amended as provided therein or by applicable law. SECTION 2.6. Directors. The directors of Merger Sub immediately prior to the Effective Time shall be the directors of the Surviving Corporation, until the earlier of their resignation or removal or until their respective successors are duly elected and qualified, as the case may be. SECTION 2.7. Officers. The officers of Merger Sub immediately prior to the Effective Time shall be the officers of the Surviving Corporation, until the earlier of their resignation or removal or until their respective successors are duly elected and qualified, as the case may be. -13- ARTICLE III CONVERSION OF SECURITIES SECTION 3.1. Effect on Capital Stock. As of the Effective Time, by virtue of the Merger and without any action on the part of Purchaser, Merger Sub or the Company or any holder of any of the following securities: (a) Capital Stock of Merger Sub. Each share of capital stock of Merger Sub which is issued and outstanding immediately prior to the Effective Time shall be converted into and become one fully paid and nonassessable share of Common Stock, par value $1.00 per share, of the Surviving Corporation. (b) Cancellation of Treasury Stock and Purchaser Owned Stock. Each Share which immediately prior to the Effective Time is held in the treasury of the Company or owned by Purchaser, Merger Sub or any other subsidiary of Purchaser shall automatically be canceled and retired and shall cease to exist, and no consideration shall be delivered in exchange therefor. (c) Conversion of Company Common Stock. Subject to Section 3.1(d) hereof, each Share issued and outstanding immediately prior to the Effective Time (other than Shares to be canceled in accordance with Section 3.1(b) hereof) shall be converted into the right to receive from the Surviving Corporation an amount in cash equal to the price per Share paid in the Offer, without interest thereon (the "Merger Consideration"). As of the Effective Time, all such Shares shall no longer be outstanding and shall automatically be canceled and shall cease to exist, and each holder of a certificate representing any such Shares shall cease to have any rights with respect thereto, except the right to receive the Merger Consideration, without interest. (d) Shares of Dissenting Stockholders. Notwithstanding anything in this Agreement to the contrary, each Share issued and outstanding immediately prior to the Effective Time and held by a person (a "Dissenting Stockholder") who has neither voted in favor of the Merger nor consented in writing thereto and who otherwise complies with all the applicable provisions of the DGCL concerning the right of holders of Company Common Stock to require appraisal of their Shares ("Dissenting Shares") shall not be converted as described in Section 3.1(c) hereof but shall become the right to receive such consideration as may be determined to be due to such Dissenting Stockholder pursuant to the laws of the State of Delaware. If, after the Effective Time, such Dissenting Stockholder withdraws his demand for appraisal or fails to perfect or otherwise loses his right of appraisal, in any case pursuant to the DGCL, his Shares shall be deemed to be converted as of the Effective Time into the right to receive the Merger Consideration. The Company shall give Purchaser (i)__prompt notice of any demands for appraisal of Shares received by the Company and (ii)__the opportunity to participate in and direct all negotiations and proceedings with respect to any such demands. The Company shall not, without the prior written consent of Purchaser, make any payment with respect to, or settle, offer to settle or otherwise negotiate, any such demands. (e) Withholding Tax. The right of any stockholder to receive a distribution of the Merger Consideration shall be subject to and reduced by the amount of any required tax withholding obligation. -14- SECTION 3.2. Exchange of Certificates. (a)__Paying Agent. Prior to the Effective Time, Purchaser shall (with the approval of the Company, which approval shall not be unreasonably withheld) designate a bank or trust company to act as paying agent in the Merger (the "Paying Agent"). Purchaser shall deposit or cause the Surviving Corporation to deposit with the Paying Agent in separate trust for holders of the Certificates (as hereinafter defined) immediately available funds in an amount sufficient for the payment of the aggregate Merger Consideration upon surrender of Certificates (as hereinafter defined) representing Shares converted pursuant to Section 3.1(c) hereof (it being understood that any and all interest earned on funds made available to the Paying Agent pursuant to this Agreement shall be turned over to Purchaser). (b) Exchange Procedure. Promptly after the Effective Time, Purchaser shall cause to be mailed to each holder of record of a certificate or certificates that immediately prior to the Effective Time represented Shares (the "Certificates"), (i)__a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to the Paying Agent and shall be in a form and have such other provisions as Purchaser may reasonably specify) and (ii)__instructions for use in effecting the surrender of the Certificates in exchange for the Merger Consideration. Upon surrender of a Certificate for cancellation to the Paying Agent or to such other agent or agents as may be appointed by Purchaser, together with such letter of transmittal, duly executed, and such other documents as may reasonably be required by the Paying Agent, the holder of such Certificate shall be entitled to receive in exchange therefor, and the Paying Agent shall pay pursuant to irrevocable instructions given by Merger Sub or Purchaser, the Merger Consideration for each Share formerly evidenced by such Certificate, and such Certificate shall thereupon be canceled. If payment of the Merger Consideration is to be made to a person other than the person in whose name the surrendered Certificate is registered on the stock transfer books of the Company, it shall be a condition of payment to the holder of a Certificate that it be endorsed properly or otherwise be in proper form for transfer and that the person requesting such payment shall have paid all transfer and other taxes required by reason of the payment of the Merger Consideration to a person other than the registered holder thereof or shall have established to the satisfaction of the Surviving Corporation that such taxes are not applicable. Until surrendered as contemplated by this Section 3.2, each Certificate shall be deemed at any time after the Effective Time to represent only the right to receive upon such surrender the Merger Consideration into which the Shares theretofore represented by such Certificate shall have been converted pursuant to Section 3.1 hereof. No interest will be paid or will accrue on the cash payable upon the surrender of any Certificate. (c) Stock Transfer Books. At the close of business on the day of the Effective Time, the stock transfer books of the Company shall be closed and, thereafter, there shall be no -15- further registration of transfers of Shares on the records of the Company. If, after the Effective Time, Certificates are presented to the Surviving Corporation or the Paying Agent for any reason, they shall be canceled and exchanged as provided in this Article III. All cash paid upon the surrender of Certificates in accordance with the terms of this Article III shall be deemed to have been paid in full satisfaction of all rights pertaining to the Shares theretofore represented by such Certificates. (d) No Liability. None of Purchaser, Merger Sub, the Company or the Paying Agent shall be liable to any person in respect of any cash delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants to each of Purchaser and Merger Sub that, except as set forth in the Disclosure Letter delivered by the Company to Purchaser and Merger Sub concurrently with the execution and delivery of this Agreement (the "Disclosure Letter"): SECTION 4.1. Organization. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to carry on its business as now being conducted. The Company is duly qualified to do business and in good standing in each jurisdiction where qualification as a foreign corporation is necessary, except in such jurisdictions where the failure to be so duly qualified and in good standing, when taken together with all other such failures of the Company and its Subsidiaries (as defined in Section 4.2 hereof), would not have a material adverse effect (as defined in Section 10.3 hereof) on the Company and its Subsidiaries taken as a whole or prevent or materially delay the consummation of the Offer and/or the Merger. The Company has made available to Purchaser complete and correct copies of its Certificate of Incorporation and By-laws, as amended to the date of this Agreement. SECTION 4.2. Subsidiaries. Each "significant subsidiary" (as defined in Rule 1-02(v) of Regulation S-X of the SEC) of the Company (a "Subsidiary") is listed in the Disclosure Letter. Each of the Subsidiaries is a corporation, partnership or other business entity (as the case may be) duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, as applicable, and has all requisite corporate, partnership or similar (as the case may be) power and authority to carry on its business as now being conducted. Each of the Subsidiaries is duly qualified to do business and in good standing in each jurisdiction where qualification as a foreign corporation, partnership or other business entity (as the case may be) is necessary, except in such jurisdictions where the failure to be so duly qualified and in good standing, when taken together with all other such failures of the Company and its Subsidiaries, would not have a material adverse effect on the Company and its Subsidiaries taken as a whole or prevent or materially delay the consummation of the Offer and/or the Merger. -16- SECTION 4.3. Capitalization. (a) The authorized capital stock of the Company consists of 250,000,000 shares of Company Common Stock. At the close of business on June 16, 1998, (i) 97,393,822 Shares were issued and outstanding, (ii) 2,156,179 shares of Company Common Stock were held by the Company in its treasury, and (iii) 2,507,990 shares of Company Common Stock were reserved for issuance under outstanding Company Stock Options (as defined in Section 7.4 hereof), and contingent and performance-based restricted stock. All outstanding Shares are, and all Shares which may be issued will be, when issued, duly authorized, validly issued, fully paid and nonassessable. There are no bonds, debentures, notes or other indebtedness of the Company having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any matters on which stockholders of the Company may vote. Except for the Company Stock Options, DSCs (as defined in Section 7.4 hereof) and contingent and performance-based restricted stock granted on or prior to March 31, 1998 under any stock option or incentive plan of the Company, and outstanding as of the date of this Agreement, there are not any securities, options, warrants, calls, rights, commitments, agreements, arrangements or undertakings of any kind to which the Company or any of its Subsidiaries is a party or by which it is bound obligating the Company or any of its Subsidiaries to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock or other voting securities of the Company or any of its Subsidiaries or obligating the Company or any of its Subsidiaries to issue, grant, extend or enter into any such security, option, warrant, call, right, commitment, agreement, arrangement or undertaking. As of the date of this Agreement, there are not any outstanding contractual obligations of the Company or any of its Subsidiaries to repurchase, redeem or otherwise acquire any shares of capital stock of the Company or any of its Subsidiaries. (b) The Company will make available immediately following the date of this Agreement the certificates of incorporation and by-laws or other organizational documents of its Subsidiaries, in each case as amended to the date of this Agreement. The respective certificates of incorporation and by- laws or other organizational documents of the Subsidiaries of the Company do not contain any provision limiting or otherwise restricting the ability of the Company to control such Subsidiaries. Except as set forth in the Disclosure Letter, all of the outstanding shares of capital stock of the Subsidiaries are beneficially owned by the Company (or by another wholly owned Subsidiary of the Company or by the Company and another wholly owned subsidiary of the Company) free and clear of any lien, charge, encumbrance or claim of whatever nature and are duly authorized, validly issued, fully paid and nonassessable. There are not any securities, options, warrants, calls, rights, commitments, agreements, arrangements or undertakings of any kind to which any Subsidiary is a party or by which any Subsidiary is bound obligating such Subsidiary to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock or other voting securities of such Subsidiary or obligating such Subsidiary to issue, grant, extend or enter into any such security, option, warrant, call, right, commitment, agreement, arrangement or undertaking. -17- SECTION 4.4. Authority. The Company has the requisite corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby (other than, with respect to the Merger, the approval and adoption of this Agreement by the holders of a majority of the Shares (the "Company Stockholder Approval"), if any such approval is required by the DGCL). The execution, delivery and performance of this Agreement and the consummation by the Company of the Merger and of the other transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of the Company and no other corporate proceedings on the part of the Company are necessary to authorize this Agreement or to consummate the transactions so contemplated (in each case, other than, with respect to the Merger, the Company Stockholder Approval, if required by the DGCL). This Agreement has been duly executed and delivered by the Company and, assuming this Agreement constitutes a valid and binding obligation of Purchaser and Merger Sub, constitutes a valid and binding obligation of the Company enforceable against the Company in accordance with its terms, subject to the effect of any applicable bankruptcy, reorganization, insolvency, moratorium or similar laws affecting creditors' rights generally and subject, as to enforceability, to the effect of general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). SECTION 4.5. Consents and Approvals; No Violations. Except for filings, permits, authorizations, consents and approvals as may be required under, and other applicable requirements of, the Exchange Act (including the filing with the SEC of the Schedule 14D-9 and a proxy or information statement relating to any required approval by the Company's stockholders of this Agreement (the "Proxy Statement")), the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), the DGCL, foreign and state antitrust and competition laws (as set forth in the Disclosure Letter) of jurisdictions in which the Company or any of its Subsidiaries is qualified to do or is doing business, state takeover laws, and the rules of the New York Stock Exchange ("NYSE"), neither the execution, delivery or performance of this Agreement by the Company nor the consummation by the Company of the transactions contemplated hereby will (i) conflict with or result in any breach of any provision of the Certificate of Incorporation or By-laws of the Company or any of its Subsidiaries, (ii) require any filing with, or permit, authorization, consent or approval of, any Federal, state or local government or any court, tribunal, administrative agency or commission or other governmental or other regulatory authority or agency, domestic, foreign or supranational (a "Governmental Entity") (except where the failure to obtain such permits, authorizations, consents or approvals or to make such filings would not have a material adverse effect on the Company and its Subsidiaries taken as a whole or prevent or materially delay the consummation of the Offer and/or the Merger), (iii) result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, -18- amendment, cancellation or acceleration) under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, lease, license, contract, agreement or other instrument or obligation to which the Company or any of its Subsidiaries is a party or by which it or any of its properties or assets may be bound or (iv) violate any order, writ, injunction, decree, statute, rule or regulation applicable to the Company, any of its Subsidiaries or any of their respective properties or assets, except in the case of clauses (iii) or (iv) for violations, breaches, defaults or terminations that would not have a material adverse effect on the Company and its Subsidiaries taken as a whole or prevent or materially delay the consummation of the Offer and/or the Merger. SECTION 4.6. SEC Documents; Financial Statements. The Company has filed with the SEC all reports, forms, schedules and statements and other documents required to be filed by it since January 1, 1996 (the "SEC Documents"). As of their respective filing dates, (i) the SEC Documents complied in all material respects with the requirements of the Securities Act of 1933, as amended (the "Securities Act"), or the Exchange Act, as the case may be, and the rules and regulations of the SEC promulgated thereunder applicable to such SEC Documents, and (ii) none of the SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The financial statements of the Company included in the SEC Documents comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with generally accepted accounting principles (except, in the case of unaudited statements, as permitted by Form 10-Q of the SEC) applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto) and fairly present, in all material respects, the consolidated financial position of the Company as of the dates thereof and the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). SECTION 4.7. Information Supplied. None of the information supplied or to be supplied by the Company in writing for inclusion or incorporation by reference in (i) the Offer Documents, (ii) the Schedule 14D-9, (iii) the Information Statement or (iv) the Proxy Statement, will, in the case of the Offer Documents, the Schedule 14D-9 and the Information Statement at the respective times the Offer Documents, the Schedule 14D-9 and the Information Statement are filed with the SEC or first published, sent or given to the Company's stockholders, or in the case of the Proxy Statement, at the time the Proxy Statement is first mailed to the Company's stockholders or at the time of the Stockholders Meeting (as defined in Section 7.1 hereof), as such Proxy Statement may be amended or supplemented, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. The Schedule 14D-9, the Information Statement and the Proxy -19- Statement will comply as to form in all material respects with the requirements of the Exchange Act and the rules and regulations thereunder, except that no representation or warranty is made by the Company with respect to statements made or incorporated by reference therein based on information supplied by Purchaser or Merger Sub specifically for inclusion or incorporation by reference therein. SECTION 4.8. Absence of Certain Changes or Events. Except as disclosed in the SEC Documents (including exhibits thereto) filed and publicly available prior to the date of this Agreement and the proof dated June 13, 1998 of Amendment No. 1 to the Registration Statement on Form S-3 of the Company (Registration No. 333-55883) (the "S-3 Amendment") in the form heretofore delivered to Purchaser (the "Filed SEC Documents"), or in the Disclosure Letter, from the date of the most recent audited financial statements included in the Filed SEC Documents to the date of this Agreement, the Company and each of its Subsidiaries has conducted its business only in the ordinary course and there has not been (i) any material adverse effect on the Company and its Subsidiaries taken as a whole, (ii) any event or occurrence that would have a material adverse effect on the Company and its Subsidiaries taken as a whole, (iii) any declaration, setting aside or payment of any dividends or distributions in respect of the Shares other than the regular quarterly dividend in the amount of $0.70 per Share, (iv) any split, combinations or reclassification of any of its capital stock or any issuance or the authorization of any issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock, (v) except as contemplated by Section 7.4 hereof, (A) any granting by the Company or any of its Subsidiaries to any executive officer of the Company or any of its Subsidiaries of any increase in compensation, except as was required under employment agreements or benefit plans in effect as of the date of the most recent audited financial statements included in the Filed SEC Documents, (B) any granting by the Company or any of its Subsidiaries to any such officer of any increase in severance or termination pay, except as was required under employment, severance or termination agreements in effect as of the date of the most recent audited financial statements included in the Filed SEC Documents, (C) any entry by the Company or any of its Subsidiaries into any employment, severance or termination agreement or arrangement with any officer or employee or (D) any increase in benefits available under or establishment of any Benefit Plan (as defined in Section 4.10) (including the granting of stock options, stock appreciation rights, performance awards or restricted stock awards or the amendment or acceleration of vesting of any existing stock options, stock appreciation rights, performance awards or restricted stock awards), except in the ordinary course of business consistent with past practice, (vi) any damage, destruction or loss to physical properties owned or used by the Company, whether or not covered by insurance, that would have a material adverse effect on the Company and its Subsidiaries, taken as a whole, (vii) any revaluation by the Company of any of its material assets, (viii) except as provided in Section 7.4, any actual or approved acceleration of vesting or conversion of contingent restricted shares of stock or other -20- amendment to or modification of outstanding Company Stock Options, DSCs, phantom stock units or contingent of performance-based restricted stock, or (ix) any material change by the Company in its accounting principles or practices except insofar as may have been required by a change in generally accepted accounting principles. Except as and to the extent set forth in the Company's Annual Report on Form 10-K for the year ended December 31, 1997, or in any subsequent Filed SEC Document or the Disclosure Letter, neither the Company nor any of its Subsidiaries has any liabilities or obligations of any nature, whether or not accrued, contingent or otherwise, that would be required by generally accepted accounting principles to be reflected on a consolidated balance sheet of the Company and its Subsidiaries (including the notes thereto), except for liabilities or obligations incurred in the ordinary course of business since December 31, 1997, that would not, individually or in the aggregate, have a material adverse effect. SECTION 4.9. Litigation. Except as disclosed in the Filed SEC Documents, there is no suit, action or proceeding pending or, to the knowledge of the Company, threatened against or affecting the Company or any of its Subsidiaries that, individually or in the aggregate, would have a material adverse effect on the Company and its Subsidiaries taken as a whole, or prevent or materially delay the consummation of the Offer and/or the Merger, nor is there any judgment, decree, injunction, rule or order of any Governmental Entity or arbitrator outstanding against the Company or any of its Subsidiaries having any such effect. SECTION 4.10. Benefit Plans and Matters. (a) (i) Each employee benefit plan as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), maintained by the Company which is required to comply with ERISA ("Employee Plans") complies in all material respects with all applicable requirements of ERISA and of the Internal Revenue Code of 1986, as amended (the "Code"), and other applicable laws. To the knowledge of the Company, no "reportable event" or "prohibited transaction" (as such terms are defined in ERISA) or termination has occurred with respect to any such plan which may result in liability to any Governmental Entity or other person which would have a material adverse effect on the Company and its Subsidiaries taken as a whole. Each Employee Plan that is intended to be qualified under Section 401(a) of the Code currently has a favorable determination letter from the Internal Revenue Service as to that Plan's qualification under Section 401(a) of the Code and nothing has occurred since the date of such letter that could reasonably be expected to cause the loss of such qualification. (ii) The Company has in all material respects performed all obligations required to be performed by it under ERISA, the Code and any other applicable legal requirements and under the terms of each Employee Plan. The Company has not received any written notice of the existence of any material default or violation by any other party of any of such legal requirements or terms applicable to any of the Employee Plans. -21- (iii) Other than routine claims for benefits, the Company has not received any written notice of any pending material claims or lawsuits which have been asserted or instituted against any of the Employee Plans, the assets of the trust or funds under the Employee Plans, the sponsor or administrator of any of the Employee Plans, or against any fiduciary of any of the Employee Plans with respect to the operation of such Plan. (iv) The Company has not received any written notice of any pending investigation or pending enforcement action by the Pension Benefit Guaranty Corporation, the Department of Labor, the Internal Revenue Service or any other Governmental Entity with respect to any of the Employee Plans. (v) To the best knowledge of the Company, all contributions required to be made under the terms of the Employee Plans have been timely made. No Employee Plan has an "accumulated funding deficiency" (within the meaning of section 412 of the Code or Section 302 of ERISA). (vi) The cash value of the corporate-owned life insurance policies and other assets held in the Supplemental Executive Benefit Plans Trust Agreement equals or exceeds the ABO liability of the Company under all plans funded by such Trust, assuming for purposes of calculating such cash value, that any corporate-owned life insurance policies are canceled. Within 30 days after the date hereof, the Company will provide to Purchaser a currently dated actuarial report and valuation prepared by Mullin Consulting Inc., based on reasonable assumptions, evidencing the foregoing. (b) Each of the Company's "group health plans" (within the meaning of Code Section 5000(b)(1)) have been operated in substantial compliance with the group health plan continuation coverage requirements of Section 4980B of the Code and Sections 601 through 608 of ERISA, Title XXII of the Public Health Service Act and the provisions of the Social Security Act. (c) To the best knowledge of the Company, there has been no act or omission by the Company that has given rise to or may give rise to material fines, penalties, taxes, or related charges under Section 502(c), (i) or (1) or Section 4071 of ERISA or Chapter 43 of the Code or the imposition of a lien pursuant to Sections 401(a)(29) or 412(n) of the Code or pursuant to ERISA. (d) True and complete copies of the following documents with respect to each of the Employee Plans and other employee benefit plans, programs, policies or arrangements maintained by the Company for domestic or international employees (as applicable) have been delivered by the Company to Purchaser: (i) any current written plans, related trust documents and group annuity contracts, if any, and all amendments thereto (or, if no written plan document exists, a written description of the terms of the plan), (ii) the most recent summary plan description, and (iii) the most recent actuarial report, valuation and/or trust statement relating to such plan. -22- (e) Except as provided in the Company's Change of Control Plan adopted effective on February 19, 1998 (the "Change of Control Plan") with respect to not more than 12 employees, neither the Company nor any of its Subsidiaries is a party to or obligated under any agreement, plan, contract or other arrangement pursuant to which the Company, any Subsidiary or Purchaser is or might be required to make payments that would not be deductible for federal income tax purposes by reason of the application of Section 280G of the Code. SECTION 4.11. Compliance with Laws. Except as disclosed in the Filed SEC Documents, the Company and its Subsidiaries are in compliance with all applicable statutes, laws, ordinances, regulations, rules, judgments, decrees and orders of any Governmental Entity applicable to their respective business or operations, except for instances of actual or possible noncompliance that, individually or in the aggregate, would not have a material adverse effect on the Company and its Subsidiaries taken as a whole or prevent or materially delay the consummation of the Offer and/or the Merger. As of the date of this Agreement, no investigation or review by any Governmental Entity with respect to the Company or any of its Subsidiaries is pending or, to the best knowledge of the Company, threatened, nor has any Governmental Entity indicated an intention to conduct any such investigation or review, other than, in each case, those the outcome of which would not be reasonably expected to have a material adverse effect on the Company and its Subsidiaries taken as a whole or prevent or materially delay the consummation of the Offer or the Merger. SECTION 4.12. Environmental Matters. Except as disclosed in the Filed SEC Documents or as would not, individually or in the aggregate, have a material adverse effect on the Company and its Subsidiaries taken as a whole: (i) the Company and each of its Subsidiaries is in compliance with all applicable Environmental Laws (as defined below); (ii) the Company and each of its Subsidiaries has all permits, authorizations and approvals required under any applicable Environmental Laws and is in compliance with their respective requirements; (iii) to the knowledge of the Company and its Subsidiaries, there are no pending or threatened claims against or governmental investigations involving the Company or any of its Subsidiaries alleging a violation of or response or remedial requirements under Environmental Laws; and (iv) to the knowledge of the Company and its Subsidiaries, under applicable law, there are no circumstances with respect to any current or former property or operations of the Company or any of its Subsidiaries or of any entity for which any of them have assumed liability that would form the basis of a claim against the Company or any of its Subsidiaries alleging a material violation of Environmental Laws that would have a material adverse effect on the Company and its Subsidiaries, taken as a whole. As used herein, "Environmental Laws" means any and all applicable foreign, Federal, state or local statutes, laws (including, with respect to clauses (iii) and (iv) above, common law), regulations, ordinances, rules or codes now in effect relating to the environment, or protection of public or employee health, safety or welfare or to the use, generation, manufacturing, treatment, disposal, storage, transportation, discharge, release or -23- emission of any hazardous, toxic or radioactive substance, including petroleum and its derivatives, into the environment, including but not limited to ambient air, indoor air, surface water, groundwater or land, or the remediation thereof, including without limitation the Comprehensive Environmental Response, Compensation and Liability Act, in each case as amended and in effect as of the date hereof. There are no matters relating to Environmental Laws required under applicable laws to be disclosed in the Filed SEC Documents that have not been disclosed therein. SECTION 4.13. Taxes. The Company and its Subsidiaries have filed all material tax returns and reports required to be filed by them, or, in the case of consolidated returns, such returns have been filed by Parent, and have paid all material taxes due and required to be paid by them. All such tax returns and reports are true and correct in all material respects. The most recent financial statements contained in the Filed SEC Documents reflect an adequate reserve for all taxes payable by the Company for all taxable periods and portions thereof through the date of such financial statements, except for such taxes as to which the failure to pay, individually or in the aggregate, would not have a material adverse effect on the Company and its Subsidiaries taken as a whole. No deficiencies for any taxes which remain outstanding have been proposed, asserted or assessed against the Company or any of its Subsidiaries except for such taxes as to which such deficiency, individually or in the aggregate, would not have a material adverse effect on the Company and its Subsidiaries taken as a whole. As used herein, "taxes" shall mean all Federal, state, local and foreign income, property, sales, excise and other taxes, tariffs or other governmental charges in the nature of a tax as well as any interest, penalties and additions to tax. SECTION 4.14. Technology and Intellectual Property. Except as provided in Section 6.3 and except as would not have a material adverse effect on the Company and its Subsidiaries, taken as a whole, the Company and its Subsidiaries own or have valid licenses or otherwise have the right to make, have made, use, have used, and sell products resulting therefrom, all material technology, technology rights, patents, patent rights, trade secrets, trade secret rights, trademarks, trademark rights, trade names, trade name rights, service marks, service mark rights, trade dress, trade dress rights, copyrights and other proprietary intellectual property rights that are employed or necessary in the conduct of their respective business as now operated (collectively, "Technology and Intellectual Property Rights"), and to transfer Technology and Intellectual Property Rights pursuant to the terms and conditions of this Agreement. No claims are final, pending or, to the knowledge of the Company and its Subsidiaries, threatened that the Company or any of its Subsidiaries is infringing or otherwise adversely affecting the rights of any person, company or other entity with regard to any Technology and Intellectual Property Right that would have a material adverse effect on the Company and its Subsidiaries, taken as a whole. To the knowledge of the Company and its Subsidiaries, no person, company or other entity is infringing the rights of the Company or any of its Subsidiaries with respect to any Technology and Intellectual Property Right. -24- SECTION 4.15. Opinion of Financial Advisor. The Board of Directors of the Company has received the opinion dated June 18, 1998 of Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), that, as of such date and based upon and subject to the matters set forth therein, the consideration to be received by holders of Shares (other than Parent) pursuant to the Offer and the Merger was fair from a financial point of view to such holders, a final draft of which opinion has been delivered to Purchaser. Each of Purchaser and Merger Sub acknowledges and agrees that it may not, and is not entitled to, rely on the opinion of Merrill Lynch delivered to the Board of Directors of the Company. SECTION 4.16. Brokers; Schedule of Fees and Expenses. No broker, investment banker, financial advisor or other person, other than Merrill Lynch, is entitled to any broker's, finder's, financial advisor's or other similar fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by the Company. The estimated fees and expenses incurred and to be incurred by the Company in connection with this Agreement and the transactions contemplated by this Agreement (including the fees of the Company's legal counsel and the legal counsel for its financial advisor) are set forth in the Disclosure Letter. The Company has provided Purchaser true and correct copies of all agreements between the Company and Merrill Lynch. SECTION 4.17. Affiliated Written Transactions. Section 4.17 of the Disclosure Letter sets forth a complete and accurate list of all contracts, agreements, leases, licenses and other arrangements as of the date of this Agreement to which Parent or any of its Subsidiaries (other than the Company and its Subsidiaries), on the one hand, and the Company or any of its Subsidiaries, on the other hand, is a party or by which the Company or any of its Subsidiaries is bound involving more than $5 million per annum, but excluding any such contracts solely with respect to any indebtedness between Parent or any of its Subsidiaries (other than the Company and its Subsidiaries), on the one hand, and the Company or any of its Subsidiaries, on the other hand. The Company has furnished to Purchaser copies of all such items that are listed in Section 4.17 of the Disclosure Letter. SECTION 4.18. State Takeover Statutes. No state takeover statute or similar statute or regulations (except for Section 203 of the DGCL) applies or purports to apply to the Offer, the Merger, this Agreement or any of the transactions contemplated by this Agreement other than any of the foregoing that would not prevent or materially delay the consummation of the Offer or the Merger, provided that the Purchaser, Merger Sub and the Company use reasonable commercial efforts to comply with and/or contest the applicability or constitutionality of any such statute or regulation. SECTION 4.19. Title. With such exceptions as would not in the aggregate have a material adverse affect on the Company and its Subsidiaries, each of the Company and its Subsidiaries has good and valid title to all of their respective properties and assets free and clear -25- of all Liens except Permitted Liens (as defined below). For purposes of this Agreement, "Lien" means any lien (including any tax lien), mortgage or security interest, defect in title or encumbrance, and "Permitted Liens" means (i) Liens for taxes not yet due and payable, that are payable without penalty or that are being contested in good faith and for which proper reserves have been taken, (ii) inchoate mechanic and materialmen liens for construction in progress, and (iii) inchoate workmen, repairmen, warehousemen, customer, employee and carriers liens arising in the ordinary course of business, in each case with respect to obligations or claims which are either not delinquent or are being contested in good faith and by appropriate proceedings conducted with due diligence, (iv) Liens arising under this Agreement or the agreements contemplated by this Agreement, (v) zoning restrictions, easements, licenses or other restrictions on the use of real property of other minor irregularities in title thereto or encumbrances thereon, so long as the same do not, individually or in the aggregate, materially interfere with or impair the use of such real property in the manner normally used, (vi) Liens arising out of judgments or awards with respect to which at the time an appeal or proceeding for review is being prosecuted in good faith if adequate reserves with respect thereto have been established and are being maintained and with respect to which there shall have been secured a stay of execution pending such appeal or proceeding for review, and (vii) Liens and imperfections of title (including Liens created by the operation of law) that, singly or in the aggregate, would not materially affect the value or operation of the asset subject to such Lien in the hands of a purchaser thereof. ARTICLE V REPRESENTATIONS AND WARRANTIES OF PURCHASER AND MERGER SUB Purchaser and Merger Sub represent and warrant to the Company as follows: SECTION 5.1. Organization. Each of Purchaser and Merger Sub is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all requisite corporate power and authority to carry on its business as now being conducted. Each of Purchaser and Merger Sub is duly qualified to do business and is in good standing in each jurisdiction where qualification as a foreign corporation is necessary, other than in such jurisdictions where the failure to be so qualified and in good standing would not prevent or materially delay the consummation of the Offer and/or the Merger. Each of Purchaser and Merger Sub has delivered to the Company complete and correct copies of its certificate of incorporation and by-laws (or other comparable organizational documents) as amended to the date of this Agreement. Merger Sub is a direct wholly-owned subsidiary of Purchaser and was formed solely for the purpose of engaging in the transactions contemplated by this Agreement, has engaged in no other business activities and has conducted only such operations as are required for the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby. SECTION 5.2. Authority. Each of Purchaser and Merger Sub has the requisite corporate power and authority to execute and deliver this Agreement and to consummate the -26- transactions contemplated by this Agreement. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated by this Agreement have been duly authorized by all necessary corporate action on the part of Purchaser and Merger Sub and no other corporate proceedings on the part of Purchaser and Merger Sub are necessary to authorize this Agreement or to consummate the transactions contemplated hereby or thereby. No vote of Purchaser stockholders is required to approve this Agreement or the transactions contemplated hereby. This Agreement has been duly executed and delivered by Purchaser and Merger Sub, and, assuming such Agreement constitutes a valid and binding obligation of the Company, constitutes a valid and binding obligation of Purchaser and Merger Sub enforceable against Purchaser and Merger Sub in accordance with its terms, subject to the effect of any applicable bankruptcy, reorganization, insolvency, moratorium or similar laws affecting creditors' rights generally and subject, as to enforceability, to the effect of general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). SECTION 5.3. Consents and Approvals; No Violations. Except for filings, permits, authorizations, consents and approvals as may be required under, and other applicable requirements of the Exchange Act (including the filing with the SEC of the Offer Documents), the HSR Act, the DGCL, foreign and state antitrust and competition laws of jurisdictions in which Purchaser or Merger Sub is qualified to do or is doing business as set forth in Schedule 5.3 hereto, and state takeover laws neither the execution, delivery or performance of this Agreement by Purchaser and Merger Sub, nor the consummation by Purchaser and Merger Sub of the transactions contemplated hereby, will (i) conflict with or result in any breach of any provision of the respective certificate of incorporation or by-laws of Purchaser and Merger Sub, (ii) require any filing with, or permit, authorization, consent or approval of, any Governmental Entity (except where the failure to obtain such permits, authorizations, consents or approvals or to make such filings would not prevent or materially delay the consummation of the Offer and/or the Merger), (iii) result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, amendment, cancellation or acceleration) under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, license, lease, contract, agreement or other instrument or obligation to which Purchaser or any of its Subsidiaries is a party or by which any of them or any of their properties or assets may be bound or (iv) violate any order, writ, injunction, decree, statute, rule or regulation applicable to Purchaser, any of its Subsidiaries or any of their properties or assets, except in the case of clauses (iii) and (iv) for violations, breaches, defaults or terminations which individually or in the aggregate, would not prevent or materially delay the consummation of the Offer and/or the Merger. No filing, permit, authorization, consent or approval is required under the European Merger Regulation No. 4064/89, as amended by Regulation No. 1310/97, in connection with the transactions contemplated by this Agreement. SECTION 5.4. Information Supplied. None of the information supplied or to -27- be supplied by Purchaser or Merger Sub specifically for inclusion or incorporation by reference in (i) the Offer Documents, (ii) the Schedule 14D-9, (iii) the Information Statement or (iv) the Proxy Statement will, in the case of the Offer Documents, the Schedule 14D-9 and the Information Statement, at the respective times the Offer Documents, the Schedule 14D-9 and the Information Statement are filed with the SEC or first published, sent or given to the Company's stockholders, or, in the case of the Proxy Statement, at the time the Proxy Statement is first mailed to the Company's stockholders or at the time of the Stockholders Meeting as such Proxy Statement may be amended or supplemented, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. The Offer Documents will comply in all material respects with the requirements of the Exchange Act and the rules and regulations thereunder, except that no representation or warranty is made by Purchaser or Merger Sub with respect to statements made or incorporated by reference therein based on information supplied by the Company specifically for inclusion or incorporation by reference therein. SECTION 5.5. Financing. Purchaser has obtained written commitments that would provide sufficient funds to purchase, or to cause Merger Sub to purchase, all of the Shares pursuant to the Offer and the Merger and to pay all fees and expenses payable by Purchaser or Merger Sub related to the transactions contemplated by this Agreement and has provided copies of such commitments to the Company. Purchaser expressly acknowledges that Purchaser's ability to obtain financing is not a condition to the obligations of Purchaser pursuant to the Offer and under this Agreement and the Tender and Voting Agreement. SECTION 5.6. Ownership of Shares. Neither Purchaser, Merger Sub nor any other direct or indirect subsidiary of Purchaser beneficially owns any Shares (other than pursuant to the Tender and Voting Agreement). SECTION 5.7. Brokers. No broker, investment banker, financial advisor or other person, other than J.P. Morgan Securities, Inc., is entitled to any broker's, finder's, financial advisor's or other similar fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Purchaser or Merger Sub. ARTICLE VI COVENANTS SECTION 6.1. Conduct of Business. During the period from the date of this Agreement until such time as Merger Sub's designees shall constitute a majority of the Board of Directors of the Company, except as otherwise contemplated hereby or to the extent that Purchaser shall otherwise consent in writing, the Company shall, and shall cause its Subsidiaries to, carry on their respective businesses in the ordinary course consistent with the manner as heretofore conducted and, to the extent consistent therewith, use commercially reasonable efforts -28- to preserve intact their current business organization, keep available the services of their current officers and employees and preserve their relationships with customers, suppliers, licensors, licensees, distributors and others having significant business dealings with them. Without limiting the generality of the foregoing, during the period from the date of this Agreement until such time as Merger Sub's designees shall constitute a majority of the Board of Directors of the Company, except as expressly contemplated or permitted by this Agreement or the Disclosure Letter, or to the extent that Purchaser shall otherwise consent in writing, the Company shall (a) use its commercially reasonable efforts to operate and maintain its business in all material respects only in the usual, regular and ordinary manner consistent with past practice (including undertaking scheduled or necessary "turnarounds" or other maintenance work and including offsite storage, treatment and disposal of chemical substances generated prior to such time as Merger Sub's designees shall constitute a majority of the Board of Directors of the Company) and, to the extent consistent with such operation and maintenance, use commercially reasonable efforts to preserve the present business organization of its business intact, keep available the services of, and good relations with, the present employees and preserve present relationships with all persons having business dealings with its business, except in each case for such matters that, individually and in the aggregate, do not and are not reasonably likely to have a material adverse effect on the Company and its Subsidiaries taken as a whole and (b) except to the extent required by clause (a) of this Section 6.1, the Company shall not, and shall not permit any of its Subsidiaries to: (i) (x) other than dividends and distributions by a direct or indirect wholly owned subsidiary of the Company to its parent and other than the regular quarterly dividend in respect of the Shares in the amount of $0.70 per Share, declare, set aside or pay any dividends on, or make any other distributions in respect of, any of its capital stock, (y) split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock, or (z) purchase, redeem or otherwise acquire any shares of capital stock of the Company or any of its Subsidiaries or any other securities thereof or any rights, warrants or options to acquire any such shares or other securities (other than in connection with the exercise of currently outstanding Company Stock Options); (ii) issue, deliver, sell, pledge or otherwise encumber any shares of its capital stock, any other voting securities or any securities convertible into, or any rights, warrants or options to acquire, any such shares, voting securities or convertible securities (other than the issuance of Shares upon the exercise of Company Stock Options outstanding on the date of this Agreement in accordance with their present terms) or as provided for herein; (iii) amend its Certificate of Incorporation or By-laws or other comparable organizational documents; -29- (iv) acquire or agree to acquire (y) by merging or consolidating with, or by purchasing a substantial portion of the assets of, or by any other manner, any business or any corporation (other than any subsidiary of the Company), partnership, joint venture, association or other business organization or division therefor or (z) any assets that are material, individually or in the aggregate, to the Company and its Subsidiaries taken as a whole, except acquisitions in the ordinary course of business consistent with past practice and acquisitions permitted by clause (vii) below; (v) sell, lease, license, mortgage or otherwise encumber or subject to any Lien or otherwise dispose of any of its properties or assets, which are material, in the aggregate, to the Company and its Subsidiaries taken as a whole, except (x) sales, leases or other dispositions of inventory or (y) sales or licenses in the ordinary course of business consistent with past practice which, individually, are not in excess of $5 million and, in the aggregate, are not in excess of $25 million; (vi) (y) incur any indebtedness for borrowed money (other than (i) the issuance or roll-over of commercial paper in the ordinary course of business and consistent with past practice and (ii) indebtedness to or from Parent that will be repaid in full prior to the expiration of the Offer), or guarantee any such indebtedness or issue or sell any debt securities or warrants or rights to acquire any debt securities of the Company or any of its Subsidiaries or guarantee any debt securities of others, or (z) make any loans, advances (other than to employees of the Company and its Subsidiaries in the ordinary course of business) or capital contributions to, or investments in, any other person (other than any subsidiary of the Company); (vii) make or agree to make any capital expenditures regarding the BDO-II or PO-11 projects, other than those reasonably necessary to avoid payment of penalties or cancellation fees, or make or agree to make any other capital expenditure or expenditures with respect to property, plant or equipment which, individually, is in excess of $10 million or, in the aggregate, are in excess of $25 million other than caretaker, maintenance and turnaround capital expenditures in the ordinary course of business; (viii) pay, discharge, settle or satisfy any material claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction, in the ordinary course of business consistent with past practice or in accordance with their terms, of liabilities reflected or reserved against in, or contemplated by, the most recent consolidated financial statements (or the notes thereto) of the Company included in the Filed SEC Documents or incurred thereafter in the ordinary course of business consistent with past practice, or waive any material benefits of, or agree to modify in any material respect, any confidentiality, standstill or similar agreements to which the Company is a party; (ix) (x) adopt, enter into or amend any bonus, profit sharing, compensation, -30- stock option, warrant, pension, retirement, deferred compensation, employment, consulting, indemnification, severance, termination or other employee benefit plan, agreement, trust fund or arrangement for the benefit or welfare of any officer, director or employee (y) except as reasonably called for pursuant to formulas contained in existing employee benefit plans or arrangements and except for salary increases in the ordinary course of business and consistent with past practices, agree to any increase in the compensation (including bonuses) payable or to become payable to any officer, director or employee or (z) change the performance objective or performance period under any employee benefit plans; (x) make any tax election that would have a material adverse effect on the Company and its Subsidiaries taken as a whole (and the Company shall, before filing or causing to be filed any material tax return of the Company or any of its Subsidiaries, consult with Purchaser and its advisors as to the positions and elections that may be taken or made with respect to such return and to the extent practical the Company shall defer settlement or compromise of any income tax liability of the Company or any of its Subsidiaries that would have a material adverse effect on the Company and its Subsidiaries taken as a whole until such time as Merger Sub's designees shall constitute a majority of the Board of Directors of the Company); (xi) waive any material rights or claims relating to the Company's business; (xii) accelerate vesting or conversion or approve the acceleration or conversion of any shares of restricted stock, except as provided in Section 7.4, or grant or approve the grant of any additional shares of restricted stock, phantom stock units, or stock options under any existing plan, except as provided in Section 7.4, or modify the term of any performance period or the performance objective to be attained for that performance period under any existing plan; or (xiii) authorize any of, or commit or agree to take any of, the foregoing actions. SECTION 6.2. No Solicitation. (a)__The Company shall, and shall direct and use reasonable efforts to cause its officers, directors, employees, representatives and agents to, immediately cease any discussions or negotiations with any parties other than Purchaser and Merger Sub that may be ongoing with respect to a Takeover Proposal (as hereinafter defined). The Company shall not, and shall not authorize or permit any of its officers, directors or employees or any investment banker, financial advisor, attorney, accountant or other representative retained by it to, directly or indirectly, (i) solicit, initiate or encourage any inquiries or the making of any proposal that constitutes, or may reasonably be expected to lead to, any Takeover Proposal or (ii) participate in any discussions or negotiations regarding any Takeover Proposal; provided, however, that if, at any time prior to the acceptance for payment of Shares pursuant to the Offer, the Board of Directors of the Company determines in good faith, after consultation with its financial advisers, that a Takeover Proposal that has not been solicited, -31- initiated or encouraged after the date hereof in violation of clause (i) above (or Section 5.3 of the Tender and Voting Agreement) constitutes a Superior Proposal (as defined in Section 9.1(d)(ii) hereof), the Company may (x) furnish information with respect to the Company and its Subsidiaries to the third party that has made such Takeover Proposal (and to any investment banker, financial advisor, attorney, accountant or other representative retained by such party) pursuant to a customary and reasonable confidentiality agreement and (y) participate in negotiations regarding such Takeover Proposal. For purposes of this Agreement, "Takeover Proposal" means any bona fide proposal made by a third party to acquire, directly or indirectly, more than 30% of the voting power of the Shares or of the assets of the Company; provided, however, that a change in the terms of a proposal submitted prior to the date hereof shall be deemed a new "Takeover Proposal." (b) In addition to the obligations of the Company set forth in Section 6.2(a) hereof, the Company shall immediately advise Purchaser orally and in writing of any request for information or of any Takeover Proposal or any inquiry regarding the making of a Takeover Proposal. (c) Nothing contained in this Section 6.2 shall prohibit the Company from at any time taking and disclosing to its stockholders a position (including the withdrawal or modification of any recommendation with respect to the Offer and the Merger) contemplated by Rule 14e-2(a) promulgated under the Exchange Act or from making any disclosure to the Company's stockholders if, in the good faith judgment of the Board of Directors of the Company, after consultation with outside counsel, failure so to disclose would create a risk of liability for breach of its fiduciary duties to its stockholders under applicable law; provided, however, that neither the Company nor its Board of Directors nor any committee thereof shall, except as permitted by this Section 6.2(c) or as contemplated by Section 9.1(d)(ii) hereof, withdraw or modify, or propose to withdraw or modify, its position with respect to the Offer or the Merger or approve or recommend, or propose to approve or recommend, a Takeover Proposal. SECTION 6.3. Use of Names and Logos. Section 4.14 notwithstanding, it is expressly agreed that Purchaser and Merger Sub are not purchasing or acquiring any right, title or interest in the name of Parent or Company or any trade names, trademarks, identifying logos, trade dress or service marks employing or associated with the words "Atlantic Richfield Company" or "ARCO Chemical Company" or any respective part or variation thereof, including, without limitation, the name "ARCO", ARCO prefix marks, the Spark Logo, or any confusingly similar trade name, trademark, initials or logo (collectively, the "ARCO Trademarks and Logos"). Except to the extent permitted by licensing arrangements with Purchaser and its affiliates, Purchaser and Merger Sub agree that neither they nor any of their affiliates shall make any use of the ARCO Trademarks and Logos from and after the Closing Date, except that the Surviving Corporation may continue to use materials containing ARCO Trademarks and Logos for the period after the -32- Closing Date permitted under the immediately following sentence of this Section 6.3. Purchaser shall cause the Surviving Corporation, as promptly as practicable but in no event later than 180 days following the Closing Date, to remove "ARCO" from the names of all companies, to remove, strike over or otherwise obliterate all ARCO Trademarks and Logos from all printed or consumable materials, including, without limitation, any business cards, schedules, stationery, promotional materials, manuals, forms and other similar materials, if such materials are distributed or made available or proposed to be distributed or made available to third parties. The Purchaser shall cause the Surviving Corporation, with reasonable promptness, to prepare its own stock of business cards, schedules, stationery, displays, signs, promotional materials, manuals, forms and other materials to replace those materials included in its properties and assets. The Purchaser shall cause the Surviving Corporation, within two years following the Closing Date, to remove all ARCO Trademarks and Logos from all durable materials, including without limitation, any signage or other fixed assets, vehicles, rail cars and other similar durable assets, and Purchaser shall indemnify and defend Parent from all claims and causes of action relating to or arising out of the carry-over use of the ARCO Trademarks and Logos herein after such two year period. ARTICLE VII ADDITIONAL AGREEMENTS SECTION 7.1. Company Stockholder Approval. (a)__If the Company Stockholder Approval is required by the DGCL, the Company shall and Purchaser shall cause the Company to, as soon as practicable following the acceptance for payment of, and payment for, Shares by Merger Sub pursuant to the Offer, (i) duly call, give notice of, convene and hold a meeting of the Company's stockholders (the "Stockholders Meeting") for the purpose of obtaining the Company Stockholder Approval and (ii) acting through its Board of Directors, recommend to its stockholders that the Company Stockholder Approval be given. Notwithstanding the foregoing, if Merger Sub (together with all Affiliates of Merger Sub) shall acquire at least 90% of the outstanding Shares, the parties shall take all necessary and appropriate action to cause the Merger to become effective as soon as practicable after the expiration of the Offer without a Stockholders Meeting in accordance with Section 253 of the DGCL. Without limiting the generality of the foregoing, the Company agrees that its obligations pursuant to the first sentence of this Section 7.1(a) shall not be affected by the commencement, public proposal, public disclosure or communication to the Company of any Takeover Proposal. (b) If the Company Stockholder Approval is required by the DGCL, the Company shall, and Purchaser shall cause the Company to, as soon as practicable following the expiration of the Offer, prepare and file a preliminary Information or Proxy Statement with the SEC and use its best efforts to respond to any comments of the SEC or its staff and to cause the Information or Proxy Statement to be mailed to the Company's stockholders as promptly as practicable after responding to all such comments to the satisfaction of the staff. The Company -33- will notify Purchaser promptly of the receipt of any comments from the SEC or its staff and of any request by the SEC or its staff for amendments or supplements to the Information or Proxy Statement or for additional information and will supply Purchaser with copies of all correspondence between the Company or any of its representatives, on the one hand, and the SEC or its staff, on the other hand, with respect to the Information or Proxy Statement or the Merger. If at any time prior to the Stockholders Meeting there shall occur any event that should be set forth in an amendment or supplement to the Information or Proxy Statement, the Company will, and Purchaser shall cause the Company to, promptly prepare and mail to its stockholders such an amendment or supplement. The Company will not mail any Proxy Statement, or any amendment or supplement thereto, to which Purchaser reasonably objects; provided, that Purchaser shall identify its objections and fully cooperate with the Company to create a mutually satisfactory Information or Proxy Statement. (c) Purchaser agrees to cause all Shares purchased pursuant to the Offer to be voted in favor of, or shall consent to, the Company Stockholder Approval. SECTION 7.2. Access to Information; Confidentiality. (a) The Company shall afford to Purchaser, and to Purchaser's officers, employees, accountants, counsel, financial advisers and other representatives, reasonable access, without causing undue disruption to the business of the Company, during normal business hours during the period prior to the purchase of Shares pursuant to the Offer to its properties, books, contracts, personnel and records and, during such period, the Company shall furnish promptly to Purchaser (i) a copy of each report, schedule, registration statement and other document filed by it during such period pursuant to the requirements of Federal or state securities laws and (ii) all other information concerning its business, properties and personnel as Purchaser may reasonably request, in each case only to the extent, in the judgment of counsel to the Company, permitted by law, including antitrust law. Except as otherwise agreed to by the Company, unless and until Purchaser and Merger Sub shall have purchased at least a majority of the outstanding Shares pursuant to the Offer, Purchaser shall hold, and shall cause its officers, employees, accountants, counsel, financial advisers and other representatives and affiliates to hold, any and all information received from the Company, directly or indirectly, in confidence, according to the terms of the confidentiality agreement dated as of April 22, 1998, between the Company, Purchaser and Parent (the "Confidentiality Agreement"). SECTION 7.3. Reasonable Efforts; Notification. (a)__Upon the terms and subject to the conditions hereof, each of the parties hereto shall use its commercially reasonable efforts to take, or cause to be taken, all appropriate action, and to do or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement as soon as practicable, including but not limited to (i) cooperation in the preparation and filing of the Offer Documents, the Schedule 14D-9, the Information Statement, the Proxy Statement, any required filings under the -34- HSR Act or other foreign filings and any amendments or supplements to any thereof and (ii) using its commercially reasonable efforts to promptly make all required regulatory filings and applications including, without limitation, responding promptly to requests for further information and to obtain all licenses, permits, consents, approvals, authorizations, qualifications and orders of Governmental Entities as are necessary for the consummation of the transactions contemplated by this Agreement and to fulfill the conditions to the Offer and the Merger. In case at any time after the Effective Time any further action is necessary or desirable to carry out the purposes of this Agreement, the proper officers and directors of each party to this Agreement shall use their commercially reasonable efforts to take all such necessary action. (b) The Company and Purchaser each shall keep the other apprised of the status of matters relating to completion of the transactions contemplated hereby, including promptly furnishing the other with copies of notices or other communications received by Purchaser or the Company, as the case may be, or any of their subsidiaries, from any Governmental Entity with respect to the Offer, the Merger or any of the other transactions contemplated by this Agreement. The parties hereto will consult and cooperate with one another, and consider in good faith the views of one another in connection with, and shall provide each other the opportunity to review and comment upon, any analyses, appearances, presentations, memoranda, briefs, arguments, opinions and proposals made or submitted by or on behalf of any party hereto in connection with proceedings under or relating to the HSR Act or any other antitrust law. (c) Without limiting the generality of the undertakings pursuant to this Section 7.3: (i) Purchaser agrees that, if necessary to prevent any Governmental Entity from taking steps to obtain, or from issuing, any order, injunction, decree, judgment or ruling or the taking of any other action that would (x) restrain, enjoin or otherwise prohibit the Offer, the Merger or any of the other transactions contemplated by this Agreement or (y) cause any Offer Condition not to be satisfied, Purchaser shall (A) offer to accept an order to divest (and to enter into a consent decree or other agreement giving effect thereto) such of the Company's or Purchaser's assets and business, and agree to hold separate such assets and business pending such divestiture, and (B) enter into any supply, license, tolling, joint venture or other agreement or take any other action, as may be necessary to forestall such order, decree, ruling or action; provided, however, that notwithstanding the foregoing provisions of this clause (i), Purchaser shall not be required to take any such action that would have a material adverse effect on the Company and its Subsidiaries taken as a whole, to waive any material rights, or to take any action that would result in any of the consequences referred to in paragraph (a) of Exhibit A and (ii) without limitation of clause (i) of this Section 7.3(c), the Company and Purchaser each agree to contest and resist any action seeking to have imposed any order, decree, judgment, injunction, ruling or other order (whether temporary, preliminary or permanent) (an "Order") that (x) would delay, restrain, enjoin or otherwise prohibit consummation of the Offer, the Merger or any of the -35- other transactions contemplated by this Agreement or (y) cause any Offer Condition not to be satisfied and, in the event that any such temporary or preliminary Order is entered in any proceeding, to take the steps contemplated by clause (i) of this Section 7.3(c) and to use its commercially reasonable efforts to take promptly any and all other steps (including, the appeal thereof and the posting of a bond) necessary to vacate, modify or suspend such Order so as to permit such consummation as promptly as practicable after the date hereof. SECTION 7.4. Stock Incentive Plans. (a)__Upon the consummation of the Offer, as and to the extent provided in the Company's Change of Control Plan (i) each outstanding option to purchase Shares (a "Company Stock Option") heretofore granted under any stock option, stock appreciation rights or stock purchase plan, program or arrangement of the Company (collectively, the "Stock Incentive Plans") outstanding immediately prior to the consummation of the Offer, whether or not then exercisable, shall be canceled by the Company in exchange for an amount in cash, payable at the time of such cancellation, equal to the product of (x) the number of Shares subject to such Company Stock Option immediately prior to the consummation of the Offer and (y) the excess of the price per Share to be paid in the Offer over the per Share exercise price of such Company Stock Option (the "Net Amount"); (ii) each phantom stock unit granted under the Company's Value Incentive Plan outstanding immediately prior to the consummation of the Offer shall, whether or not exercisable, be canceled in exchange for an amount in cash, payable at the time of such cancellation, equal to (x) the excess of (1) the price per Share paid in the Offer over (2) the award price assigned to the phantom stock unit, multiplied by (y) the number of Shares subject to such unit (the "SAR Amount"); (iii) each dividend share credit ("DSCs") accrued, credited or issued immediately prior to the consummation of the Offer in connection with a Company Stock Option or phantom stock unit, and each DSC that would have been accrued, credited or issued (as determined in accordance with the Company's Change of Control Plan) through the remainder of the term of each such Company Stock Option or phantom stock unit, shall, whether or not vested, be canceled in exchange for an amount in cash, payable at the time of such cancellation, equal to the price per Share paid in the Offer (the "DSC Amount"); (iv) each share of contingent restricted stock issued under the Company's 1998 Long Term Incentive Plan (the "1998 LTIP") that is eligible for conversion upon achievement of the current Return on Capital Managed target (the "RCM") performance level established under the 1998 LTIP shall, immediately prior to the consummation of the Offer, be converted to performance-based restricted stock on a pro-rated basis based on a calculation of the percentage of the current RCM performance objective achieved as of the consummation of the Offer (but not to exceed 25% of the outstanding shares of contingent restricted stock issued under the 1998 LTIP); (v) the performance supplement related to the contingent restricted stock referred to in clause; (iv) above shall be calculated immediately prior to the consummation of the Offer using the price per Share to be paid in the Offer, and the resulting number of shares of performance-based restricted stock shall be issued to the -36- Company's employees in accordance with the 1998 LTIP; and (vi) each share of performance-based restricted stock outstanding immediately prior to the consummation of the Offer (including amounts issued under clauses (iv) and (v) of this Section 7.4(a)) shall, whether or not vested, be canceled in exchange for an amount in cash, payable at the time of such cancellation, equal to the price per Share paid in the Offer (the "Restricted Stock Amount"). (b) Subject to Section 7.4(a) hereof, all Stock Incentive Plans shall terminate as of the Effective Time. Notwithstanding the foregoing, the Surviving Corporation shall continue to be obligated to pay the Net Amount, the SAR Amount, the DSC Amount and the Restricted Stock Amount. (c) All calculations required to be made pursuant to this Section 7.4 shall be made in accordance with Article IV of the Company's Change of Control Plan and the terms of the relevant Stock Incentive Plan. (d) The Company represents that Parent has taken all such actions as are necessary so that options to acquire Parent shares and DSCs with respect to Parent shares held by or credited to employees of the Company and its subsidiaries are not forfeited upon consummation of the Offer and remain outstanding for the duration of their terms. SECTION 7.5. Indemnification, Exculpation and Insurance. (a)__Purchaser agrees that all rights to indemnification and exculpation (including the advancement of expenses) from liabilities for acts or omissions occurring at or prior to the Effective Time (including with respect to the transactions contemplated by this Agreement) existing now or at the Effective Time in favor of the current or former directors or officers of the Company as provided in its Certificate of Incorporation, its By-laws (each as in effect on the date hereof) and indemnification agreements shall be assumed by the Surviving Corporation in the Merger, without further action, as of the Effective Time and shall survive the Merger and shall continue in full force and effect without amendment, modification or repeal in accordance with their terms for a period of not less than six years after the Effective Time; provided, however, that if any claims are asserted or made within such six-year period, all rights to indemnification (and to advancement of expenses) hereunder in respect of any such claims shall continue, without diminution, until disposition of any and all such claims. (b) For six years after the Effective Time, Purchaser agrees that it shall and shall cause the Surviving Corporation to indemnify and hold harmless each present and former director and officer of the Company, determined as of the Effective Time (the "Indemnified Parties"), against any costs or expenses (including reasonable attorneys' fees), judgments, fines, losses, claims, damages or liabilities (collectively, "Costs") (but only to the extent such Costs are not otherwise covered by insurance and paid) incurred in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, arising out of or pertaining to matters existing or occurring at or prior to the Effective Time, including in connection with this Agreement and the transactions contemplated hereby, whether asserted or -37- claimed prior to, at or after the Effective Time, to the fullest extent permitted under applicable law (and Purchaser shall, or shall cause the Surviving Corporation to, also advance expenses as incurred to the fullest extent permitted under applicable law); provided, however, that, with respect to any Indemnified Person that is an officer or employee of Parent as of the date hereof, such Indemnified Person shall first have pursued all available rights to indemnification (and advancement of expenses) from Parent. Parent shall indemnify and hold harmless any such Indemnified Person that is at the date hereof an officer or employee of Parent against any such Costs (not covered by insurance and paid) to the fullest extent permitted under applicable law (and Parent shall also advance expenses as incurred to the fullest extent permitted under applicable law). (c) In the event that Purchaser, the Surviving Corporation or any of their successors or assigns (i) consolidates with or merges into any other person and is not the continuing or surviving corporation or entity of such consolidation or merger or (ii) transfers or conveys all or substantially all of its properties and assets to any person, then, and in each such case, proper provision will be made so that the successors and assigns of Purchaser or the Surviving Corporation, as the case may be, shall assume the obligations set forth in Sections 7.5(a) and (b). In the event the Surviving Corporation transfers any material portion of its assets, in a single transaction or in a series of transactions, Purchaser will either guarantee the indemnification obligations referred to in Sections 7.5(a) and (b) hereof or take such other action to insure that the ability of the Surviving Corporation, legal and financial, to satisfy such indemnification obligations will not be diminished in any material respect. (d) For a period of six years after the Effective Time, Parent shall cause to be maintained in effect policies of directors' and officers' liability insurance substantially in the amounts currently maintained by Parent and covering the officers, directors and employees of the Company currently covered by Parent's directors' and officers' liability insurance with similar terms and conditions with respect to claims arising from or related to facts or events which occurred at or before the Effective Time; provided, however, that Parent shall not be obligated to make annual premium payments for such insurance to the extent such premiums exceed 200% of the annual premiums paid as of the date hereof by Parent for such insurance (such 200% amount, the "Maximum Premium"). If such insurance coverage cannot be obtained at all, or can only be obtained at an annual premium in excess of the Maximum Premium, Parent shall maintain the most advantageous policies of directors' and officers' insurance obtainable for an annual premium equal to the Maximum Premium; provided further, if such insurance coverage cannot be obtained at all, Parent shall purchase extended reporting periods with respect to such insurance for an amount which, together with all other insurance purchased pursuant to this Section 7.5(d), does not exceed the Maximum Premium. It is understood that Parent will not take any action that would have the effect of limiting the aggregate amount of insurance coverage required to be maintained for the individuals referred to in this Section 7.5(d). -38- (e) The provisions of this Section 7.5 (x) are intended to be for the benefit of, and shall be enforceable by, each indemnified party, his or her heirs and his or her representatives and (y) are in addition to, and not in substitution for, any other rights to indemnification or contribution that any such person may have by contract or otherwise. SECTION 7.6. Fees and Expenses. All fees and expenses incurred in connection with the Offer, the Merger, this Agreement and the transactions contemplated by this Agreement shall be paid by the party incurring such fees or expenses, whether or not the Offer or the Merger is consummated. SECTION 7.7. Public Announcements. Purchaser and Merger Sub, on the one hand, and the Company, on the other hand, shall consult with each other before issuing, and provide each other the opportunity to review and comment upon, any press release or other public statements with respect to the transactions contemplated by this Agreement, including the Offer and the Merger, and shall not issue any such press release or make any such public statement prior to such consultation, except as may be required by applicable law, court process or by obligations pursuant to any listing agreement with any national securities exchange or national securities quotation system. The parties agree that the initial press release to be issued with respect to the transactions contemplated by this Agreement shall be in the form heretofore agreed to by the parties. SECTION 7.8. Employee Benefits Matters. (a)__At and after the consummation of the Offer, Purchaser shall cause the Company and its subsidiaries to promptly pay or provide when due all compensation and benefits provided for pursuant to the terms of any compensation arrangements, employment agreements and employee or director benefit plans (including, without limitation, deferred compensation and change of control plans), programs and policies in existence as of the consummation of the Offer for any employee (and/or former employee) and director (and/or former director) of the Company and its subsidiaries; provided, however, that this Section 7.8(a) shall not preclude Purchaser from amending or terminating any such plans, arrangements, programs or policies after the consummation of the Offer. Purchaser and the Company agree that the Company and its subsidiaries shall pay promptly or provide when due all compensation and benefits required to be paid pursuant to the terms of any individual agreement with any employee, former employee, director or former director in effect as of the date hereof. (b) Purchaser shall cause the Company, for the period commencing upon the consummation of the Offer and ending on the end of the calendar year following the year in which the consummation of the Offer occurs (the "Continuation Period"), to provide employee benefits under plans, programs and arrangements which, in the aggregate for all current employees of the Company and its Subsidiaries as a group (other than employees covered by a collective bargaining agreement), will provide benefits to such employees which are not materially less favorable than those provided pursuant to the plans, programs and arrangements -39- of the Company and its subsidiaries in effect on the date hereof and employees covered by collective bargaining agreements shall be provided with such benefits as shall be required under the terms of any applicable collective bargaining agreement; provided, however, that, without limiting the generality of the foregoing, the Purchaser shall not be required to provide compensation which is based upon the equity of the Company or any of its subsidiaries; and provided, however, that, without limiting the generality of the foregoing, nothing herein shall prevent the amendment or termination of any specific plan, program or arrangement, require that the Surviving Corporation provide or permit investment in the securities of Purchaser, the Company or the Surviving Corporation or interfere with the Surviving Corporation's right or obligation to make such changes as are necessary to conform with applicable law. During the Continuation Period, the Purchaser shall provide, or cause the Surviving Corporation to provide post-retirement health, dental, life insurance and other welfare benefits that are not materially less favorable than those that are provided by the Company immediately prior to the consummation of the Offer to those employees or directors or former employees or directors of the Company and any of its subsidiaries who at such time (x) were receiving any such benefits, (y) would have been eligible to receive any of such benefits upon his or her termination at such time or (z) would have become eligible within one (1) year of such time to receive any of such benefits upon his or her termination with such one-year period. Employees of the Company and its subsidiaries shall be given credit for all service with the Parent and its affiliates and with the Company and its subsidiaries, under each employee benefit plan, program, or arrangement of the Purchaser or its affiliates in which such employees are eligible to participate for purposes of eligibility, vesting and benefit accrual; provided, however, that in no event shall such employees be entitled to any credit to the extent that it would result in any duplication of benefits with respect to the same period of service under any plans of the Parent and its affiliates, the Company and the Purchaser. (c) If employees of the Company and its subsidiaries become eligible to participate in a medical, dental, disability, life insurance or other welfare plan of Purchaser or its subsidiaries, Purchaser shall cause such plan to (i) waive any preexisting condition limitations for conditions covered under the applicable plan of the Parent or the Company and its or their subsidiaries and (ii) give credit for any deductible and out of pocket expenses incurred by the employees and their beneficiaries under such plans prior to such participation. (d) Nothing in this Section 7.8 shall require the continued employment of any person or, subject to paragraph (b) and (c) hereof, prevent the Company and/or the Surviving Corporation and their subsidiaries from taking any action or refraining from taking any action which the Company and its subsidiaries prior to the consummation of the offer, could have taken or refrained from taking. (e) Promptly following the execution of this Agreement, the Company and Parent will enter into an agreement providing that, effective upon the purchase of Shares -40- pursuant to the Offer, all administrative service agreements and arrangements between Parent and the Company relating to the Company's employee benefit plans and payroll services shall continue for a period no less than the Continuation Period; provided, however, that Parent shall have the right to (i) terminate such agreement if there are any change or changes in such benefit plans or payroll services that result in any additional costs or burdens to Parent in performing its obligations under such agreement and (ii) to remove AIMCO as designated fiduciary with respect to employee benefit plans within 90 days after the consummation of the Offer. SECTION 7.9. Termination of Other Agreements. The Company represents that the Company and Parent will terminate the Stock Repurchase Agreement, dated as of June 2, 1998 (the "Stock Repurchase Agreement"), the Stockholder Agreement, dated as of June 2, 1998, the Registration Rights Agreement dated as of June 2, 1998 and the Stockholder Agreement dated as of June 30, 1987, in each case between the Company and Parent, effective upon the consummation of the purchase of Shares by Purchaser under the Offer. SECTION 7.10. Insurance. In connection with the arranging of appropriate insurance coverage for the Company and its subsidiaries from and after the purchase of Shares pursuant to the Offer, the Company and Parent shall provide Purchaser on an expedited basis all reasonable assistance, including access to relevant personnel and copies of relevant information. ARTICLE VIII CONDITIONS SECTION 8.1. Conditions to Each Party's Obligation to Effect the Merger. The respective obligation of each party to effect the Merger shall be subject to the satisfaction prior to the Closing Date of the following conditions: (a) Company Stockholder Approval. If required by the DGCL, the Company Stockholder Approval shall have been obtained; provided, however, that neither Purchaser nor Merger Sub shall be entitled to assert the failure of this condition if Purchaser breaches its agreement set forth in Section 7.1(c) hereof. (b) No Injunctions, Etc. No statute, rule, regulation, executive order, decree, temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other Governmental Entity or other legal restraint or prohibition preventing the consummation of the Merger shall be in effect. (c) Purchase of Shares. Merger Sub shall have accepted for payment and paid for Shares pursuant to the Offer; provided, however, that neither Purchaser nor Merger Sub shall be entitled to assert the failure of this condition if Merger Sub breaches any of its obligations in Section 1.1(a) hereof or fails to purchase Shares pursuant to the Offer in breach of its obligations under this Agreement. ARTICLE IX TERMINATION AND AMENDMENT SECTION 9.1. Termination. This Agreement may be terminated at any time -41- prior to the Effective Time, whether before or after the Company Stockholder Approval (if required by the DGCL): (a) by mutual written consent of Purchaser and the Company; (b) by either Purchaser or the Company if (i) any Governmental Entity shall have issued an order, decree or ruling or taken any other action permanently enjoining, restraining or otherwise prohibiting the acceptance for payment of, or payment for, Shares pursuant to the Offer or the Merger and such order, decree or ruling or other action shall have become final and nonappealable; or (ii) the Merger shall not have been consummated by June 30, 1999. (c) by the Purchaser if as the result of a failure of an Offer Condition to be satisfied, Merger Sub shall not have accepted for payment any Shares pursuant to the Offer on or prior to the Outside Date; provided, however, that the right to terminate this Agreement pursuant to this Section 9.1(c) shall not be available to Purchaser if (x) Merger Sub shall have breached its obligations under the next to the last sentence of Section 1.1(a) hereof or (y) such failure to satisfy an Offer Condition is caused by or results from the failure of Purchaser or Merger Sub to perform in any material respect any of its covenants or agreements contained in this Agreement or the failure of any representation or warranty of Purchaser or Merger Sub contained herein to be true and correct in any material respect. As used herein, the "Outside Date" shall mean the later of (A) the 30th day after the initial expiration date of the Offer or (B) the date that all conditions to the Offer set forth in the Antitrust Condition and paragraph (a) of Exhibit A, the satisfaction of which involve compliance with or otherwise relate to any antitrust or competition laws or regulations (including any enforcement thereof), have been satisfied for a period of two business days, but in any event no later than the 60th day after the initial expiration date of the Offer; or (d) by the Company if: (i) Merger Sub shall not have accepted for payment any Shares pursuant to the Offer on or prior to the Outside Date, provided, however, that the right to terminate this Agreement pursuant to this Section 9.1(d)(i) shall not be available to the Company if the failure to accept Shares for payment is caused by or results from the failure of the Company to satisfy any condition set forth in paragraphs (c) or (d) of Exhibit A; or (ii) prior to the acceptance by Merger Sub of Shares for payment pursuant to the Offer, the Board of Directors of the Company determines that a Takeover Proposal constitutes a Superior Proposal (as defined below). For purposes of this Agreement, a "Superior Proposal" means any Takeover Proposal having terms which the Board of Directors of the Company determines in its good faith judgment (based, with respect to the consideration payable, on the opinion of a financial advisor of nationally -42- recognized reputation) (x) to be more favorable to the Company's stockholders than the Offer and the Merger and (y) to be reasonably capable of being completed (and for which financing has been committed on customary terms); provided, however, that at least two business days prior to such termination the Company shall have given Purchaser written notice advising Purchaser that the Board of Directors of the Company has received a Takeover Proposal that it has determined to be a Superior Proposal, specifying the material terms and conditions of such Superior Proposal and identifying the person making such Superior Proposal; and provided, further, however, that (i) prior to such termination, the Board of Directors has reaffirmed its determination that such Takeover Proposal, taking into account any amendment by Purchaser of the terms of the Offer and Merger or any offer by Purchaser to amend the terms of this Agreement, the Offer or the Merger, together with any subsequent amendments or modifications of such Takeover Proposal, is a Superior Proposal and (ii) no termination pursuant to this Section 9.1(d)(ii) shall be effective unless concurrently with such termination a termination fee equal to $140,000,000 is paid in cash by the Company to Purchaser. SECTION 9.2. Effect of Termination. In the event of a termination of this Agreement by either the Company or Purchaser as provided in Section 9.1, this Agreement shall forthwith become void and there shall be no liability or obligation on the part of Purchaser, Merger Sub or the Company or their respective officers or directors, except with respect to the last sentence of Section 1.2(c), Section 5.7, the last sentence of Section 7.2, Section 9.1, this Section 9.2 and Article X; provided, however, that nothing herein shall relieve any party for liability for any willful and material breach hereof. SECTION 9.3. Amendment. This Agreement may be amended by the parties hereto, by action taken or authorized by their respective Boards of Directors, at any time before or after obtaining the Company Stockholder Approval (if required by the DGCL), but, after any such approval, no amendment shall be made which by law requires further approval by such stockholders without obtaining such further approval. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto. SECTION 9.4. Extension; Waiver. At any time prior to the Effective Time, the parties hereto, by action taken or authorized by their respective Boards of Directors, may, to the extent legally allowed, (i) extend the time for the performance of any of the obligations or other acts of the other parties hereto, (ii) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto or (iii) subject to Section 9.3, waive compliance with any of the agreements or conditions contained herein. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in a written instrument signed on behalf of such party. The failure of any party to this Agreement to assert any of its rights under this Agreement or otherwise shall not constitute a waiver of those rights. -43- SECTION 9.5. Procedure for Termination, Amendment, Extension or Waiver. A termination of this Agreement pursuant to Section 9.1, an amendment of this Agreement pursuant to Section 9.3 or an extension or waiver pursuant to Section 9.4 shall, in order to be effective, require in the case of Purchaser, Merger Sub or the Company, action by its Board of Directors or the duly authorized designee of its Board of Directors; provided, however, that in the event that Merger Sub's designees are appointed or elected to the Board of Directors of the Company as provided in Section 1.3, after the acceptance for payment and payment of Shares pursuant to the Offer and prior to the Effective Time, the affirmative vote of a majority of the Independent Directors of the Company that were not designated by Purchaser or Merger Sub shall be required by the Company to take any action relating to this Agreement, the Offer, the Merger or any other transactions contemplated hereby, including (i) amending or terminating this Agreement, (ii) exercising or waiving any of the Company's, shareholders' or employees' rights or remedies under this Agreement, (iii) extending the time for performance of Purchaser's and Merger Sub's respective obligations under this Agreement, (iv) approving any other action by its Board of Directors with respect to this Agreement, or (v) amending or otherwise modifying the Company's Certificate of Incorporation or By-laws. ARTICLE X MISCELLANEOUS SECTION 10.1. Nonsurvival of Representations, Warranties and Agreements. None of the representations, warranties or covenants (subject to the succeeding sentence) in this Agreement or in any instrument delivered pursuant to this Agreement shall survive the Effective Time or, in the case of the Company, shall survive the acceptance for payment of, and payment for, Shares by Merger Sub pursuant to the Offer. This Section 10.1 shall not limit any covenant or agreement of the parties (or Parent) which by its terms contemplates performance after the Effective Time. SECTION 10.2. Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally, telecopied (which is confirmed), sent by overnight courier (providing proof of delivery) or mailed by registered or certified mail (return receipt requested) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (a) if to Purchaser or Merger Sub, to Lyondell Petrochemical Company 1221 McKinney Street Houston, Texas 77010 Attention: Kerry A. Galvin, Esq., Chief Corporate Counsel Telecopy No.: (713) 309-4718 with copies to: Baker & Botts, L.L.P. -44- One Shell Plaza 910 Louisiana Street Houston, Texas 77002 Attention: Stephen A. Massad, Esq. Telecopy No.: (713) 229-1522 and (b) if to the Company, to ARCO Chemical Company 3801 West Chester Pike Newtown Square, Pennsylvania 19073 Attention: Robert Millstone, Esq. Telecopy No.: (610) 359-3344 with copies to: Atlantic Richfield Company 515 South Flower Street Los Angeles, California 900071 Attention: John Lucas, Esq. Telecopy No.: (213) 486-1544 SECTION 10.3. Interpretation. When a reference is made in this Agreement to an Article or a Section, such reference shall be to an Article or a Section of this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "Aincludes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation". As used in this Agreement, (x) "material adverse change" or "material adverse effect" means, when used in connection with the Company and its Subsidiaries, any change or effect that, individually or in the aggregate, with any such other changes or effects (except that when used with respect to any representation or warranty (other than Section 4.8), covenant or agreement, such other changes or effects shall be limited to those resulting from a breach of such representation, warranty, covenant or agreement), is materially adverse to the business, assets, financial condition or results of operations of the Company and its Subsidiaries taken as a whole, except for changes or effects relating to the economy in general or resulting from actions expressly contemplated by this Agreement (including Section 7.3), (y) "person" means an individual, corporation, partnership, association, trust, unincorporated organization, other entity or group (as defined in Regulation 13D-G) of the Exchange Act) and (z) "knowledge of the Company", "the Company's knowledge" or variants thereof shall mean the actual knowledge as of the date of this Agreement, of the President and Chief Executive Officer; Senior Vice President, Manufacturing, Research, Engineering, and Environmental, Health and Safety; Senior Vice President, Chief Financial -45- Officer; Vice President and Controller; Vice President, General Counsel and Secretary; Vice President, Human Resources; and General Tax Officer in each case without specific investigation. Matters reflected in the Disclosure Letter are not necessarily limited to matters required or contemplated by this Agreement to be reflected therein. Such additional matters are set forth for informational purposes and do not necessarily include other matters of a similar nature. In no event shall the listing of such matters in the Disclosure Letter be deemed or interpreted to broaden or otherwise amplify the Company's representations, warranties, covenants or agreements contained in this Agreement. SECTION 10.4. Counterparts. This Agreement may be executed in two or more counterparts, all of which shall be considered one and the same agreement and shall become effective when two or more counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart. SECTION 10.5. Entire Agreement; Third Party Beneficiaries. This Agreement and the Confidentiality Agreement (including the documents and the instruments referred to herein) constitute the entire agreement and supersede all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof. The representations and warranties made by the Company in this Agreement and in the Disclosure Letter are in lieu of and are exclusive of all other representations and warranties, including any implied warranties. The Company and Parent hereby disclaim any such other or implied representations or warranties, notwithstanding the delivery or disclosure to Purchaser, Merger Sub or their officers, directors, employees, agents or representatives of any documentation or other information (including, without limitation, any financial projections or other supplemental data). Except as set forth below with respect to the provisions of Section 6.3, Section 7.1, and Articles II and III hereof, this Agreement is not intended to confer upon any person other than the parties hereto any rights or remedies hereunder. The provisions of Section 6.3 are intended to be for the benefit of, and shall be enforceable against Purchaser and Merger Sub by, Parent. Each person who is an Independent Director as of the date hereof or immediately prior to the Closing shall have the right (but shall have no obligation) to enforce (against Purchaser and the Surviving Corporation, as applicable) the provisions of Articles II and III and Section 7.1 on behalf of the Company or any person who is a stockholder of the Company immediately prior to the Closing. SECTION 10.6. Governing Law. This Agreement shall be governed and construed in accordance with the laws of the State of Delaware, without regard to principles of conflicts of law. SECTION 10.7. Assignment. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other parties. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and assigns. -46- SECTION 10.8. Enforcement. Each of the parties hereto (i) consents to submit such party to the non-exclusive jurisdiction of any Federal court located in the State of Delaware or any Delaware state court in the event any dispute arises out of this Agreement or any of the transactions contemplated hereby, (ii) agrees that such party will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court, (iii) agrees that such party will not bring any action relating to this Agreement or any of the transactions contemplated hereby in any court other than a Federal court sitting in the state of Delaware or a Delaware state court and (iv) waives any right to trial by jury with respect to any claim or proceeding related to or arising out of this Agreement or any of the transactions contemplated hereby. IN WITNESS WHEREOF, Purchaser, Merger Sub and the Company have caused this Agreement to be signed by their respective officers thereunto duly authorized as of the date first written above. LYONDELL PETROCHEMICAL COMPANY By /s/ Dan F. Smith ----------------------------- Name: Dan F. Smith Title: President and Chief Executive Officer LYONDELL ACQUISITION CORPORATION By /s/ Dan F. Smith ------------------------------ Name: Dan F. Smith Title: President and Chief Executive Officer ARCO CHEMICAL COMPANY By /s/ Marvin O. Schlanger ------------------------------ Name: Marvin O. Schlanger Title: Chief Executive Officer EXHIBIT A CONDITIONS OF THE OFFER The defined terms used in this Exhibit A for the meanings set forth in the attached Agreement, except that the term "Merger Agreement" shall be deemed to refer to the attached Agreement. Notwithstanding any other term of the Offer but subject to the terms and conditions of the Merger Agreement, Merger Sub shall not be required to accept for payment or, subject to any applicable rules and regulations of the SEC, including Rule 14e-l(c) under the Exchange Act (relating to Merger Sub's obligation to pay for or return tendered Shares after the termination or withdrawal of the Offer), to pay for any Shares tendered pursuant to the Offer if (i) there shall not have been validly tendered and not withdrawn as of the expiration of the Offer such number of Shares that, together with any Shares owned by Purchaser, Merger Sub and all of their affiliates, would constitute a majority of the fully diluted Shares as of the expiration of the Offer (determined on a fully diluted basis for all outstanding stock options and any other rights to acquire Shares that are or would be vested prior to the expiration of the Offer) (the "Minimum Condition") or (ii) any waiting period under the HSR Act applicable to the purchase of Shares pursuant to the Offer shall not have expired or been terminated (the "Antitrust Condition"). Furthermore, Merger Sub shall not be required to accept for payment or, subject as aforesaid, to pay for any Shares not theretofore accepted for payment or paid for, and may terminate the Offer if after the date of the Merger Agreement and before acceptance of such Shares for payment or the payment therefor pursuant to the Offer, any of the following conditions has occurred and continues to exist as of a scheduled expiration date of the Offer (as extended, if required, pursuant to the next to the last sentence of Section 1.1(a) of the Merger Agreement) (other than as a result of a breach by Purchaser or Merger Sub of any of their obligations under the Merger Agreement (including, without limitation, Section 7.3 thereof)): (a) there shall have been entered and then in effect any order, preliminary or permanent injunction, decree, judgment or ruling in any action or proceeding before any court or governmental, administrative or regulatory authority or agency, or any statute, rule or regulation enacted, entered, enforced, promulgated, amended or issued that is applicable to Purchaser, Merger Sub, the Company or any subsidiary or affiliate of Merger Sub or the Company or the Offer or the Merger, by any legislative body, court, government or governmental, administrative or regulatory authority or agency that: (i) makes illegal or otherwise restrains or prohibits the consummation of the Offer in accordance with the terms of the Merger Agreement, the acceptance for payment of, or payment for, the Shares by Merger Sub or any of its affiliates, or the consummation of the Merger; (ii) prohibits the ownership or operation by the Company or any of its subsidiaries, or Purchaser or any of its subsidiaries, of all or any material portion of the business or assets of the Company and its subsidiaries, taken as a whole, or Purchaser or its subsidiaries, taken as a whole, or materially limits the ownership or operation by the Company or any of its subsidiaries, or Purchaser or any of its subsidiaries, of all or any material portion of the business or assets of the Company and its subsidiaries, taken as a whole, or Purchaser and its subsidiaries, taken as a whole, or compels Purchaser or any of its subsidiaries to dispose of or hold separate all or any material portion of the businesses or assets of the Company and its subsidiaries, taken as a whole, or Purchaser and its subsidiaries, taken as a whole, in any such case as a result of the transactions contemplated by the Offer or the Merger Agreement; (iii) imposes substantial limitations on the ability of Purchaser, Merger Sub or any of Purchaser's affiliates effectively to acquire or hold or to exercise full rights of ownership of Shares; or (iv) requires divestiture by Purchaser or Merger Sub or any of their affiliates of any material portion of the Shares; provided, however, that this paragraph (a) shall not apply to or include any consent decree or agreement entered into by Purchaser, or any other action taken by Purchaser, in connection with satisfying its obligations under Section 7.3 of the Merger Agreement; (b) there shall have occurred any material adverse change (as defined in the Merger Agreement) in the Company and its Subsidiaries taken as a whole; (c) any of the representations and warranties of the Company set forth in the Merger Agreement that are qualified by reference to a material adverse effect shall not be true and correct, or any such representations and warranties that are not so qualified shall not be true and correct in any respect that would have a material adverse effect (as defined in the Merger Agreement) on the Company and its Subsidiaries taken as a whole, in each case as if such representations and warranties were made at the time of such determination; (d) the Company shall not have performed and complied with in all material respects any material agreement or covenant of the Company to be performed or complied with by it under this Agreement and shall not have cured such default after having been given five business days written notice of such default by Purchaser; (e) the Merger Agreement shall have been terminated in accordance with its terms; (f) (i) the Board of Directors of the Company or any committee thereof shall have withdrawn or modified in a manner adverse to Purchaser or Merger Sub its approval or recommendation of the Offer, the Merger or this Agreement or (ii) the Company shall have entered into any agreement with respect to any Superior Proposal or (iii) the Board of Directors of the Company or any committee therefor shall have resolved to take any of the foregoing actions; provided, however, that clauses (i) and (iii) of this paragraph (f) shall not apply to or include (x) a determination that a Takeover Proposal is a Superior Proposal or (y) giving notice of a Superior Proposal to Purchaser as contemplated by Section 9.1(d)(ii) of the Merger Agreement; or (g) there shall have occurred and continued to exist for at least three business days (i) any general suspension of trading in, or limitation on prices for, securities on a national securities exchange in the U.S. (excluding any coordinated trading halt triggered solely as a result of a specified decrease in a market index), (ii) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (iii) a mandatory limitation by a United States federal Governmental Entity or a change in the general financial, banking or capital markets which results in a general inability of major financial institutions in the United States to fulfill their obligations under commitments to extend credit or (iv) or in the case of any of the foregoing existing on the date of this Agreement, any material acceleration or worsening thereof; which, in the sole judgment of Merger Sub in any such case, and regardless of the circumstances (including any action or omission by Merger Sub) giving rise to any such condition, makes it inadvisable to proceed with such acceptance for payment or payments. The foregoing conditions in paragraphs (a) through (g) are for the sole benefit of Merger Sub and Purchaser and may, subject to the terms of this Agreement, be waived by Merger Sub and Purchaser in whole or in part at any time and from time to time in their sole discretion. The failure by Purchaser or Merger Sub at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right, the waiver of any such right with respect to particular facts and circumstances shall not be deemed a waiver with respect to any other facts and circumstances and each such right shall be deemed an ongoing right that may be asserted at any time and from time to time. EX-99.C4 12 GUARANTY EXHIBIT (c)(4) GUARANTY BY LYONDELL PETROCHEMICAL COMPANY FOR VALUE RECEIVED, effective as of the Purchase, Lyondell Petrochemical Company, a Delaware corporation ("Guarantor"), pursuant to the Tax Agreement (the "Tax Agreement"), dated as of June 18, 1998 , among Atlantic Richfield Company, a Delaware corporation ("ARCO"), ARCO Chemical Company, a Delaware corporation ("ACC"), and Guarantor, (ARCO, together with its successors and permitted assigns, the "Guaranteed Party"), does hereby unconditionally and irrevocably guarantee to Guaranteed Party (i) the due and punctual performance and observance by ARCO Chemical of each covenant, agreement, undertaking, and any other obligation or condition binding upon or to be performed or observed by it under and in accordance with the terms of the Tax Agreement, the Tax Sharing Agreement and the Prior Agreement (collectively, the "Tax Obligation Agreements") and (ii) the due and punctual payment of each amount that ARCO Chemical is or may become obligated to pay under and in accordance with the terms of the Tax Obligation Agreements, (such payment and other obligations of ARCO Chemical being herein referred to as the "Obligations"). Guarantor further agrees to pay all expenses (including, without limitation, all reasonable fees and disbursements of counsel) that may be paid or incurred by any Guaranteed Party in enforcing any rights with respect to, or collecting, any or all of the Obligations and/or enforcing any rights with respect to, or collecting against, Guarantor under this Guaranty. Capitalized terms used but not defined herein shall have the respective meanings set forth or incorporated by reference, and shall be construed and interpreted in the manner described, in the Tax Agreement. Guarantor hereby waives notice of acceptance of this Guaranty, and agrees that, in its capacity as a guarantor, it shall not be required to consent to, or to receive any notice of, any supplement to or amendment of, or waiver or modification of the terms of, any of the Tax Obligation Agreements that may be made or given as provided therein. Effective as of the Purchase, ARCO Chemical will be an affiliate of Guarantor, and this Guaranty is being furnished to induce Guaranteed Party to contract with ARCO Chemical and Guarantor as set forth in the Tax Agreement. Guarantor represents and warrants to Guaranteed Party that (a) Guarantor is duly incorporated, validly existing and in good standing under the laws of the State of Delaware; (b) the execution, delivery and performance of this Guaranty are within Guarantor's power and authority and do not contravene the charter or the by-laws of Guarantor or any indenture, mortgage, credit agreement, note, lease or other agreement to which Guarantor is a party or by which Guarantor is bound, or any law, governmental rule, regulation, judgment or order binding on Guarantor; and (c) this Guaranty has been duly authorized, executed and delivered on behalf of Guarantor and constitutes a legal, valid, binding and enforceable obligation of Guarantor. No failure or delay or lack of demand, notice or diligence in exercising any right under this Guaranty shall operate as a waiver thereof, nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right under this Guaranty. This Guaranty is an absolute, unconditional and continuing guaranty of payment and not of collection and Guarantor waives any right to require that any right to take action against ARCO Chemical be exhausted or that resort be made to any security prior to action being taken against Guarantor. In the event that this Guaranty or any of the Tax Obligation Agreements shall be terminated, rejected or disaffirmed as a result of bankruptcy, insolvency, reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar proceedings with respect to ARCO Chemical, Guarantor's obligations hereunder shall continue to the same extent as if the same had not been so terminated, rejected or disaffirmed. Guarantor shall and does hereby waive all rights and benefits that might, in whole or in part, relieve Guarantor from the performance of its duties and obligations by reason of any proceeding as specified in the preceding sentence, and Guarantor agrees that it shall be liable for all sums guaranteed, in respect of and without regard to, any modification, limitation or discharge of the liability of ARCO Chemical that may result from any such proceedings and notwithstanding any stay, injunction or other prohibition issued in any such proceedings. Furthermore, the obligation of Guarantor hereunder will not be discharged by: (a) any extension or renewal with respect to any obligation of ARCO Chemical under any of the Tax Obligation Agreements; (b) any modification of, or amendment or supplement to, any such agreement made in accordance with the terms of such agreement; (c) any furnishing or acceptance of additional security or any release of any security; (d) any waiver, consent or other action or inaction or any exercise or non-exercise of any right, remedy or power with respect to ARCO Chemical, or any change in the structure of ARCO Chemical; (e) any change in ownership of the shares of capital stock of Guarantor or ARCO Chemical or any merger or consolidation of either thereof into or with any other person; or (f) any other occurrence whatsoever, except payment in full of all amounts payable by ARCO Chemical under the Tax Obligation Agreements and performance in full of all the Obligations in accordance with the terms and conditions of the Tax Obligation Agreements. Guarantor understands and agrees that its obligations hereunder shall be continuing, absolute and unconditional without regard to, and Guarantor hereby waives any defense to, or right to seek a discharge of, its obligations hereunder with respect to: (a) the validity, legality, regularity or enforceability of any of the Tax Obligation Agreements, any of the Obligations or any collateral security therefor or guaranty or right of offset with respect thereto at any time or from time to time held by any Guaranteed Party; (b) any defense, setoff or counterclaim (other than a defense of payment or performance) that may at any time be available to or be asserted by Guarantor or ARCO Chemical against any Guaranteed Party; or (c) any other circumstances whatsoever (with or without notice to or knowledge of ARCO Chemical or Guarantor) that constitutes, or might be construed to constitute, an equitable or legal discharge of ARCO Chemical or the Obligations, or of Guarantor under this Guaranty, in bankruptcy or in any other instance. Notwithstanding any payment or payments made by Guarantor hereunder or any setoff or application of funds of Guarantor by any Guaranteed Party hereof, Guarantor shall not be entitled to be subrogated to any of the rights of any Guaranteed Party against ARCO Chemical or any collateral, security or guaranty or right of setoff held by any Guaranteed Party for the payment of the Obligations, nor shall Guarantor seek or be entitled to seek any reimbursement from ARCO Chemical in respect of payments made by Guarantor hereunder, until all amounts and performance owing to Guaranteed Party by ARCO Chemical on account of the Obligations are paid and performed in full. The obligations of Guarantor hereunder shall be automatically reinstated if and to the extent that any payment by or on behalf of ARCO Chemical in respect of any of the Obligations is rescinded or must be otherwise restored by any holder of any of the Obligations as a result of any proceedings in bankruptcy or reorganization or similar proceedings and Guarantor agrees that it will reimburse such holders on demand for all reasonable expenses (including, without limitation, all fees and disbursements of counsel) incurred by such holders in connection with such rescission or restoration. Any provision of this Guaranty that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. This Guaranty shall be binding upon the successors and assigns of Guarantor; provided, that no transfer, assignment or delegation by Guarantor without the consent of the Guaranteed Party shall release Guarantor from its liabilities hereunder. All notices, requests and demands to or upon Guarantor or any Guaranteed Party shall be made in accordance with the terms of Section_14 of the Tax Agreement. This Guaranty and the Guarantor's duties and obligations hereunder shall remain in full force and effect and be binding in accordance with its terms, until the date on which all Obligations and the obligations of the Guarantor hereunder shall have been satisfied by payment and performance in full. THIS GUARANTY SHALL IN ALL RESPECTS BE GOVERNED BY THE LAWS OF THE STATE OF DELAWARE, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE. Dated: As of June 18, 1998. LYONDELL PETROCHEMICAL COMPANY By /s/ Dan F. Smith --------------------------- Name: Dan F. Smith Title: President and Chief Executive Officer -----END PRIVACY-ENHANCED MESSAGE-----