DEFM14A 1 lyodefm14a-101207.htm DEFINITIVE PROXY STATEMENT lyodefm14a-101207.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A
(Rule 14a-101)

Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No.      )

 
Filed by the Registrant x
 
Filed by a Party other than the Registrant ¨
 
 
 
Check the appropriate box:
 
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Preliminary Proxy Statement
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material Pursuant to §240.14a-12
 
  

Lyondell Chemical Company 

(Name of Registrant as Specified In Its Charter)
 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
 

 
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Title of each class of securities to which transaction applies:
 
 
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 
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Lyondell Chemical Company
1221 McKinney Street, Suite 700
Houston, Texas 77010
 
 



October 12, 2007

Dear Shareholder:

You are invited to attend a special meeting of the shareholders of Lyondell Chemical Company to be held on November 20, 2007, beginning at 9:00 a.m. Central Time in Lyondell’s General Assembly Room, Two Houston Center, 909 Fannin, Suite 400, in Houston, Texas 77010.

On July 16, 2007, we entered into a merger agreement providing for the merger of Lyondell with a subsidiary of Basell AF.  If the merger is completed, you will be entitled to receive $48.00 in cash, without interest and less any applicable withholding tax, for each share of Lyondell’s common stock that you own.  At the special meeting, you will be asked to approve and adopt the merger agreement.

Lyondell’s board of directors has approved the merger agreement and the transactions contemplated thereby, including the merger.  Lyondell’s board of directors has determined that the merger agreement and those transactions are advisable, fair to, and in the best interests of, Lyondell’s shareholders.  Our board of directors recommends that Lyondell’s shareholders vote “FOR” the approval and adoption of the merger agreement.

The accompanying proxy statement provides you with detailed information about the special meeting, the background and reasons for the merger, and the terms of the merger agreement, and includes the merger agreement as Appendix A.  We urge you to read the entire proxy statement and the merger agreement carefully before voting.

Your vote is important, regardless of the number of shares of common stock you own.  We cannot complete the merger unless holders of a majority of all shares of Lyondell common stock outstanding on the record date vote to approve and adopt the merger agreement.  It is important that your shares be voted whether or not you plan to be present at the special meeting.  You may submit a proxy over the Internet, by telephone or by mailing a traditional proxy card.  Please either sign, date and return the enclosed proxy card in the enclosed postage-paid envelope or instruct us over the Internet or by telephone as to how you would like your shares voted.  Submitting a proxy over the Internet, by telephone or by written proxy will ensure your representation at the special meeting if you do not attend in person.  Instructions on how to submit a proxy over the Internet, by telephone or by written proxy are on the proxy card enclosed with the proxy statement.  If you do not vote, it will have the same effect as voting against the adoption of the merger agreement.  If your shares are held in “street name,” you must instruct your broker in order to vote.

Thank you for your cooperation and your continued support of Lyondell.

Sincerely yours,

/s/ Dan F. Smith

Dan F. Smith
Chairman, President and Chief Executive Officer

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the merger, passed upon the merits or fairness of the merger agreement or the transactions contemplated thereby, including the merger, or passed upon the adequacy or accuracy of the disclosure in the accompanying proxy statement.  Any representation to the contrary is a criminal offense.

This proxy statement is dated October 12, 2007, and is being sent to shareholders on or about October 17, 2007.



Lyondell Chemical Company
 
 

Notice of Special Meeting of Shareholders

TIME AND DATE
 
Tuesday, November 20, 2007, beginning at 9:00 a.m., Central Time
 
PLACE
 
Lyondell Chemical Company
General Assembly Room
Two Houston Center
909 Fannin, Suite 400
Houston, Texas 77010
 
ITEMS OF BUSINESS
 
·  
To consider and vote upon a proposal to approve and adopt the Agreement and Plan of Merger, dated as of July 16, 2007, among Basell AF, a Luxembourg company that is constituted as a Société en Commandite par Action (“Basell”), BIL Acquisition Holdings Limited, a Delaware corporation and wholly owned subsidiary of Basell (“Merger Sub”), and Lyondell Chemical Company, a Delaware corporation (“Lyondell”), as such agreement may be amended from time to time.  Among other things, the merger agreement provides for:
 
o  
the merger of Merger Sub with and into Lyondell, with Lyondell as the surviving corporation, and
 
o  
the conversion of each outstanding share of Lyondell common stock (other than shares held by Lyondell, Basell, Merger Sub or any of their direct or indirect subsidiaries and shares held by shareholders who validly perfect their appraisal rights under Delaware law) into the right to receive $48.00 in cash, without interest and less any applicable withholding tax.
 
·  
To consider and vote upon a proposal to adjourn the special meeting, if necessary, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve and adopt the merger agreement.
 
·  
To transact any other business that may properly come before the special meeting or any adjournments or postponements of the special meeting.
 
The merger agreement and the merger are described in the accompanying proxy statement, and a copy of the merger agreement is attached to the proxy statement as Appendix A.  We urge you to read the entire proxy statement and the merger agreement carefully before voting.
 
RECORD DATE
 
Shareholders of record at the close of business on October 9, 2007, the record date for the shareholder meeting, will be entitled to vote at the special meeting and, unless a new record date is set, at any adjournment or postponement of the special meeting.
 
VOTING
 
Your vote is very important.  We cannot complete the merger unless holders of a majority of all shares of Lyondell common stock outstanding on the record date vote to approve and adopt the merger agreement.  Your failure to vote in person at the special meeting or to otherwise submit a proxy will have the same effect as a vote “AGAINST” approval and adoption of the merger agreement.  Whether or not you plan to attend the special meeting, please cause your shares to be voted as soon as possible by submitting a proxy:
 
·  
over the Internet,
 
·  
by telephone or
 
·  
by mail.
 
See the instructions on the enclosed proxy card.
 

 
Shareholders who do not vote in favor of the approval and adoption of the merger agreement will have the right to seek appraisal of the fair market value of their shares if they deliver a demand for appraisal before the vote is taken on the merger agreement and comply with all requirements of Delaware law, which are summarized in the accompanying proxy statement.
 
ATTENDING THE SPECIAL MEETING
 
In order to attend the special meeting in person, you must be a shareholder of record on the record date, hold a valid proxy from a record holder or be an invited guest of Lyondell.  If you attend, please note that you may be asked to present valid picture identification.  If your shares of Lyondell common stock are held through a broker, bank or other nominee, you must bring to the special meeting an account statement or letter from the holder of record indicating that you beneficially owned the shares on the record date.
 
STOCK CERTIFICATES
 
If you have certificates representing shares of Lyondell common stock, please do not send your certificates to Lyondell at this time.  If the merger agreement is approved and adopted and the merger is completed, you will receive instructions regarding the surrender of your certificates to receive payment for your shares of Lyondell common stock.



By Order of the Board of Directors,

/s/ Michelle S. Miller

Michelle S. Miller                                                                                     Houston, Texas
Secretary                                                                                                   October 12, 2007
 
 

 
 
 
Page
1
7
12
13
14
     Date, Time and Place of the Special Meeting
14
     Purpose
 14
     Record Date and Quorum
 14
     Vote Required for Approval
 14
     Proxies and Revocation of Proxies
15
     Solicitation of Proxies
16
     Householding
16
     Adjournments
16
     Attending the Special Meeting
17
 THE MERGER
17
     Background of the Merger
17
     Reasons for the Merger; Recommendation of Lyondell's Board of Directors
24
     Financial Projections
27
     Opinion of Lyondell's Financial Advisor
29
     Certain Effects of the Merger
35
     Interests of Lyondell's Directors and Executive Officers in the Merger
36
     Financing Arrangements
42
     Regulatory Matters
45
     Amendment to Lyondell's Rights Agreement
45
     Material U.S. Federal Income Tax Consequences
46
     Litigation Related to the Merger
47
 TERMS OF THE MERGER AGREEMENT
48
     General; The Merger
48
     When the Merger Becomes Effective
49
     Merger Consideration
49
     Treatment of Options and Other Awards
49
     Payment for Shares of Lyondell Common Stock
50
     Representations and Warranties
50
     Lyondell's Conduct Pending Completion of the Merger
53
     No Solicitation of Competing Proposals
56
     Special Meeting of Lyondell's Shareholders; Recommendation of Lyondell's Board of Directors
58
     Regulatory Approvals; Other Agreements
58
     Employee Matters
59
     Indemnification and Insurance of Lyondell's Directors and Officers
59
     Agreements Regarding Financing
59
     Tender Offer
61
     Business of Basell
62
     Conditions to the Merger
62
     Termination of the Merger Agreement
64
     Effects of Termination of the Merger Agreement
64
     Expenses
65
     Specific Performance
65
     Amendment, Extension or Waiver of the Merger Agreement
65
 MARKETS AND MARKET PRICE
66
 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
67
 APPRAISAL RIGHTS
69
 FUTURE SHAREHOLDER PROPOSALS
71
 WHERE YOU CAN FIND MORE INFORMATION
72
 Appendix A: Agreement and Plan of Merger, dated as of July 16, 2007, among Basell AF, BIL Acquisition Holdings Limited and Lyondell Chemical Company
A-1
 Appendix B: Opinion of Deutsche Bank Securities Inc., dated as of July 16, 2007
B-1
 Appendix C: Delaware General Corporation Law (Section 262)
C-1
 

 
This summary term sheet briefly summarizes the most material terms of the proposed merger and the other transactions detailed in this proxy statement. You are urged to read carefully this proxy statement, including the appendices, and the documents referred to in this proxy statement.  See “Where You Can Find More Information” beginning on page 72.
 
In this proxy statement, the terms “we,” “us,” “our,” “Lyondell” and the “company” refer to Lyondell Chemical Company and, where appropriate, its subsidiaries. We refer to Basell AF as “Basell;” BIL Acquisition Holdings Limited as “Merger Sub;” and Deutsche Bank Securities Inc. as “Deutsche Bank.”
 
The Parties to the Merger (Page 13)
 
Lyondell is headquartered in Houston, Texas.  Lyondell is North America's third-largest independent, publicly traded chemical company and is a leading global manufacturer of chemicals and plastics, a refiner of heavy, high-sulfur crude oil and a significant producer of fuel products.
 
       Basell is the largest producer of polypropylene and advanced polyolefin products, a leading supplier of polyethylene and catalysts, and an industry leader in licensing polypropylene and polyethylene processes, including providing technical services for its proprietary technologies.  Merger Sub was formed by Basell for the sole purpose of entering into the merger agreement and completing the merger contemplated by the merger agreement, and has not conducted any business operations other than those incidental to its formation and in connection with the transactions contemplated by the merger agreement.

The Proposed Transaction (Page 48)
 
The proposed transaction is the acquisition of Lyondell by Basell pursuant to the Agreement and Plan of Merger, dated as of July 16, 2007, among Lyondell, Basell and Merger Sub. We refer to that Agreement and Plan of Merger, as it may be amended from time to time, as the “merger agreement.” The acquisition will be effected by the merger of Merger Sub, a wholly owned subsidiary of Basell, with and into Lyondell, with Lyondell surviving the merger and continuing its existence as a wholly owned subsidiary of Basell. We refer to that transaction as the “merger” and the date and time that the merger is completed as the “effective time.”  The parties currently expect to complete the merger in the fourth quarter of 2007 subject to satisfaction of the conditions described under “Terms of the Merger Agreement—Conditions to the Merger” beginning on page 62, although there can be no assurance that we will be able to do so.
 
The Special Meeting (Page 14)
 
Date, Time, Place and Purpose (Page 14).  The special meeting will be held on November 20, 2007 at 9:00 a.m. Central Time in Lyondell’s General Assembly Room, Two Houston Center, 909 Fannin, Suite 400, in Houston, Texas 77010.  At the special meeting, you will be asked to consider and vote upon proposals to:
 
·  
approve and adopt the merger agreement,
 
·  
adjourn the special meeting, if necessary, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve and adopt the merger agreement (we refer to this proposal in this proxy statement as the “meeting adjournment proposal”), and
 
·  
transact any other business that may properly come before the special meeting or any adjournments or postponements of the special meeting.
 
Record Date and Quorum (Page 14).  Only shareholders who hold shares of Lyondell common stock at the close of business on October 9, 2007, the record date for the special meeting, will be entitled to vote at the special meeting. Each outstanding share of Lyondell common stock on the record date will be entitled to one vote on each matter submitted to shareholders at the special meeting. As of the record date, there were 253,625,523 shares of common stock outstanding.  The holders of a majority of the outstanding shares of Lyondell common stock entitled to vote at the close of business on the record date will constitute a quorum for purposes of the special meeting. Abstentions and properly executed broker non-votes will be counted in determining the presence of a quorum.  A broker non-vote results as to a particular matter when a broker, bank or other nominee that is the record holder of shares properly executes and returns a proxy without specific voting instructions from the beneficial owner.  Under the rules of the New York Stock Exchange, brokers, banks and other nominees are precluded from exercising their voting discretion with respect to the approval of non-routine matters, such as the approval and adoption of the merger agreement.
 
 
Vote Required (Page 14).  Approval and adoption of the merger agreement requires the affirmative vote of a majority of the outstanding shares of Lyondell common stock on the record date. Approval of the meeting adjournment proposal requires the affirmative vote of a majority of the outstanding shares present in person or represented by proxy at the special meeting and entitled to vote on the matter, whether or not a quorum is present.
 
Share Ownership of Directors and Executive Officers (Page 15).  As of the record date, our directors and executive officers beneficially owned and were entitled to vote, in the aggregate, 1,099,650 shares of Lyondell common stock, representing less than 1% of the shares of Lyondell’s common stock outstanding at that date.  Lyondell’s directors and executive officers have indicated that they intend to vote all of their shares of common stock “FOR” the approval and adoption of the merger agreement and “FOR” any adjournment of the special meeting, if necessary, to solicit additional proxies.
 
Lyondell Shareholders Will Be Entitled to Receive $48.00 in Cash For Each Lyondell Share They Own (Page 49)
 
        Each issued and outstanding share of Lyondell common stock (including the shares owned by AI Chemical Investments LLC, which is an affiliate of Basell, but excluding (1) shares held by Lyondell, Basell, Merger Sub or any of their direct or indirect subsidiaries and (2) shares held by shareholders who validly perfect their appraisal rights under Delaware law) will be converted into the right to receive $48.00 in cash (which we refer to in this proxy statement as the “merger consideration”), without interest and less any applicable withholding tax. The $48.00 merger consideration was determined by arm’s-length negotiation between representatives of Lyondell and Basell. See “The Merger—Background of the Merger.” The total merger consideration expected to be paid in the merger for outstanding shares of Lyondell common stock is approximately $12.2 billion.

Treatment of Outstanding Options, Restricted Stock, and Other Equity-Based Compensation (Page 35)
 
Options to acquire shares of Lyondell common stock under Lyondell’s incentive plans, as well as phantom options, that are outstanding immediately prior to the effective time of the merger, vested or unvested, will be cancelled as of the effective time of the merger in exchange for a cash payment. Pursuant to the merger agreement, each option holder will receive a payment equal to $48.00 times the number of shares subject to each option, less the aggregate exercise price of the option. Restricted stock and associated matching cash payments related to the vesting of those shares of restricted stock, and phantom restricted stock and associated matching cash payments related to the vesting of those shares of phantom restricted stock, that have not vested immediately prior to the effective time of the merger generally will become fully vested and be converted into the right to receive the $48.00 merger consideration. Performance units also generally will be converted into the right to receive the $48.00 merger consideration. Deferred stock units outstanding immediately prior to the effective time of the merger will be paid out based on the closing price of Lyondell’s common stock on the last trading day of the month preceding the effective time of the merger.  Payments will be subject to applicable tax withholding. The total estimated amount expected to be paid in respect of options and phantom options, restricted stock and associated matching cash payments, phantom restricted stock and associated matching cash payments, performance units and deferred stock units, based on the $48.00 merger consideration, is approximately $335.0 million. See “The Merger—Interests of Lyondell’s Directors and Executive Officers in the Merger” for a description of the portion of these payments that will be made to Lyondell’s directors and executive officers in connection with the merger.
 
Recommendation of Lyondell’s Board of Directors (Page 24) 
 
 
Lyondell’s board of directors has determined that the merger agreement and the transactions contemplated thereby, including the merger, are advisable, fair to, and in the best interests of, the holders of the shares of Lyondell common stock, has approved the merger agreement and the transactions contemplated thereby, including the merger, and recommends that you vote “FOR” the approval and adoption of the merger agreement.  The board of directors reached its determination based on various factors, as more fully described in this proxy statement.
 
 
 
Opinion of Lyondell’s Financial Advisor (Page 29)
 
In connection with the merger, Deutsche Bank, Lyondell’s exclusive financial advisor, delivered an opinion to the board of directors as to the fairness from a financial point of view to Lyondell’s shareholders (other than Basell and Merger Sub) of the merger consideration to be received by holders of Lyondell common stock in the merger.
 
The full text of the opinion of Deutsche Bank, which sets forth the procedures followed, assumptions made, matters considered and limitations on review undertaken by Deutsche Bank in connection with its opinion, is attached as Appendix B to this proxy statement. Deutsche Bank provided its opinion for the information and assistance of our board of directors in connection with its consideration of the merger, and the opinion of Deutsche Bank is not a recommendation as to how any shareholder should vote or act with respect to any matter relating to the merger. We encourage you to read the opinion carefully and in its entirety.
 
Under our engagement letter with Deutsche Bank, we agreed to pay Deutsche Bank a cash fee of $10 million at the time of an announcement of a definitive agreement pursuant to which greater than 50% of all voting power of Lyondell would be transferred and an additional cash fee of $25 million upon consummation of such a transaction.  Lyondell also agreed that, if the price per Lyondell share paid in such a transaction were to exceed $48.00, Lyondell would pay Deutsche Bank an additional fee equal to 1.5% of the product of 265.5 million (the approximate number of fully diluted shares of Lyondell at July 14, 2007) multiplied by the amount by which such per share price exceeds $48.00. As provided under the engagement letter, we paid $10 million to Deutsche Bank after July 17, 2007, when the proposed merger was announced, and an additional payment of $25 million to Deutsche Bank is contingent upon consummation of the proposed merger.  Deutsche Bank and its affiliates have in the past provided, are currently providing and in the future may provide, investment banking, commercial banking and other financial services to Lyondell, Basell or their respective affiliates, for which Deutsche Bank has received, and would expect to receive, compensation. 
 
Interests of Lyondell’s Directors and Executive Officers in the Merger (Page 36)
 
In considering the recommendation of Lyondell’s board of directors, you should be aware that Lyondell’s directors and executive officers have interests in the merger that may be different from your interests as a shareholder and that may present actual or potential conflicts of interest. The payouts in connection with the merger set forth below are calculated as of September 5, 2007 and are based on the $48.00 merger consideration.  These interests include the following:
 
·  
directors and executive officers will receive cash payments of approximately $79.5 million in the aggregate (ranging from approximately $158,750 to $44.7 million per person) in respect of their vested and unvested stock options;
 
·  
directors and executive officers will receive cash payments of approximately $21.5 million in the aggregate (ranging from approximately $187,680 to $6.1 million per person) in respect of their outstanding restricted stock and associated matching cash payments;
 
·  
executive officers will receive cash payments of approximately $42.3 million in the aggregate (ranging from approximately $1.8 million to $17.4 million per person) in respect of their outstanding performance units;
 
·  
non-employee directors will receive cash payments in respect of their accrued balances of deferred cash and deferred stock units of approximately $7.8 million in the aggregate (ranging from approximately $45,474 to $2.2 million per person) under Lyondell’s non-employee director deferred compensation plan;
 
·  
executive officers will receive cash payments in respect of their accrued balances of approximately $12.2 million in the aggregate (ranging from approximately $283,472 to $5.2 million per person) under Lyondell’s executive deferred compensation plan;
 
·  
executive officers will receive lump sum cash payments of approximately $29.3 million in the aggregate (ranging from approximately $158,444 to $15.8 million per person) under Lyondell’s supplemental executive retirement plan;
 
·  
in the event of a termination of employment within two years after completion of the merger by Lyondell without cause or by the executive officers for good reason, the executive officers will be entitled to cash payments of approximately $28.7 million in the aggregate (ranging from approximately $1.7 million to $9.0 million per person), and the continuation of welfare benefits and certain other benefits under change in control arrangements, as well as potential excise tax gross up payments; and
 
 
 
3

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
·  
executive officers of Lyondell may enter into agreements or understandings with Basell regarding employment or other arrangements with the combined company following the effective time, although no such agreements or understandings have been entered into as of the date of this proxy statement.
 
For a more complete description of the interests of directors and executive officers, see “The Merger—Interests of Lyondell’s Directors and Executive Officers in the Merger.”
 
Lyondell’s board of directors was aware of these interests and considered them, among other matters, in approving the merger agreement and the transactions contemplated thereby, including the merger, and in determining to recommend that Lyondell shareholders vote “FOR” the approval and adoption of the merger agreement. You should consider these and other interests of Lyondell’s directors and executive officers that are described in this proxy statement.
 
Financing Arrangements (Page 42)
 
        The obligations of Basell and Merger Sub under the merger agreement are not subject to any financing condition.
 
Basell has informed us that it estimates that the total amount of funds necessary to complete the merger and the related transactions is approximately $21.0 billion, which includes approximately $12.2 billion to be paid to holders of outstanding shares of Lyondell common stock, with the remaining funds being used to pay amounts pursuant to change in control arrangements and to refinance certain existing indebtedness of both Basell and Lyondell, to pay customary fees and expenses in connection with the proposed merger, the financing arrangements and the related transactions as well as to fund ongoing working capital requirements of the combined group.
 
Basell has obtained debt financing commitments as of July 16, 2007 from Citigroup Global Markets Inc., Goldman Sachs International, Goldman Sachs Credit Partners L.P., Merrill Lynch, Pierce Fenner & Smith Incorporated and Merrill Lynch Capital Corporation, which were joined as of August 8, 2007 by ABN AMRO Incorporated and ABN AMRO Bank N.V., for the transactions contemplated by the merger agreement.  Subject to the conditions set forth therein, the debt commitments provide for:
 
·  
senior secured credit facilities in an aggregate principal amount equal to the U.S. dollar equivalent of up to $14.0 billion (plus a securitization facility backstop amount, if any); and
 
·  
to the extent that the senior notes referred to below are not issued on or prior to the initial funding under the senior secured credit facilities referred to above, up to $7.0 billion (or the Euro equivalent) in aggregate principal amount of senior secured second lien loans pursuant to a senior bridge facility.
 
        Basell may, at its option, issue up to $7.0 billion (or the Euro equivalent) in aggregate principal amount of senior secured second lien notes and/or senior unsecured notes (in lieu of the senior bridge facility referred to above).
 
Basell has substantial assets and, if the financing were not obtained and the merger did not occur, Lyondell would have recourse against Basell.
 
Conditions to the Merger (Page 62)
 
Lyondell’s and Basell’s obligations to complete the proposed transaction are subject to the prior satisfaction or waiver (to the extent permitted by law) of a number of conditions, including:
 
·  
adoption of the merger agreement by the requisite vote of the Lyondell shareholders;
 
·  
the expiration or termination of the waiting periods and the receipt of approvals applicable to the consummation of the proposed transaction required by the antitrust or competition authorities of certain non-U.S. jurisdictions;
 
·  
the absence of any order, decree, ruling, injunction, law, regulation or other action that restrains, enjoins, prohibits or renders illegal the consummation of the merger;
 
·  
that there has not been a material adverse effect on Lyondell since the date of the merger agreement; and
 
 
 
·  
other customary conditions, including that the representations and warranties of each party are true and correct (subject to qualifications) and performance in all material respects by each party of its obligations under the merger agreement, subject to a materiality standard.
 
“No Solicitation” Provisions (Page 56)
 
The merger agreement contains “no solicitation” provisions that prohibit Lyondell from taking any action to solicit an alternative takeover proposal.  The merger agreement does not, however, prohibit Lyondell or its board of directors from considering an unsolicited written proposal from a third party that is a superior proposal or could reasonably be expected to lead to a superior proposal.
 
Termination of the Merger Agreement (Page 64)
 
Lyondell and Basell may agree to terminate the merger agreement at any time upon the mutual written consent of the parties.  Other circumstances under which Lyondell or Basell may terminate the merger agreement are described under “Terms of the Merger Agreement—Termination of the Merger Agreement” beginning on page 64.  Under certain circumstances resulting in the termination of the merger agreement, Lyondell will be required to pay Basell a termination fee of $385 million.  These circumstances are described under “Terms of the Merger Agreement—Termination of the Merger Agreement” beginning on page 64.
 
U.S. Tax Considerations For Lyondell’s Shareholders (Page 46)
 
Generally, the merger will be taxable to Lyondell’s shareholders for U.S. federal income tax purposes.  A holder of shares of Lyondell common stock generally will recognize gain or loss for U.S. federal income tax purposes in an amount equal to the difference between the amount of cash received pursuant to the merger and the holder’s adjusted tax basis in the shares of Lyondell common stock surrendered.
 
Shareholders Have Appraisal Rights (Page 69)
 
You have the right under Delaware law to exercise appraisal rights and receive payment in cash for the fair value of your shares of Lyondell common stock in the event the merger is completed.  The fair value of your shares of Lyondell common stock as determined in accordance with Delaware law may be more, the same, or less than the merger consideration to be paid to non-dissenting shareholders pursuant to the merger.  To preserve your appraisal rights:
 
·  
you must not vote in favor of approval and adoption of the merger agreement,
 
·  
you must not return a proxy card that is signed but not voted,
 
·  
you must file a written demand for appraisal before the voting on the merger agreement at the special meeting on November 20, 2007, and
 
·  
you must follow specific procedures required under Delaware law.
 
You must follow these procedures precisely in order to exercise your appraisal rights, or you may lose them.  These procedures are described in this proxy statement, and the provisions of Delaware law that grant appraisal rights and govern those procedures are attached as Appendix C.  We encourage you to read these provisions carefully and in their entirety and consult your legal advisor.
 
Litigation Related to the Merger (Page 47)
 
       Two shareholder lawsuits styled as class actions have been filed against Lyondell and its directors and Basell and Merger Sub. The complaints generally allege, among other things, that Lyondell’s board of directors breached their fiduciary duties and engaged in self dealing in connection with approval of the merger, and that Lyondell and its board of directors failed to disclose in the preliminary proxy statement certain information regarding the merger.
 
 
 
Market Price of Common Stock (Page 66)
 
On July 13, 2007, the last trading day before the announced execution of the merger agreement, the closing sale price of Lyondell common stock on the New York Stock Exchange was $41.16.  On May 10, 2007, the business day prior to the date of the filing by Leonard Blavatnik and AI Chemical Investments LLC, which are affiliates of Basell, of the initial Schedule 13D disclosing AI Chemical Investments LLC’s entrance into a postpaid forward contract for Lyondell shares, the closing sale price of Lyondell common stock on the New York Stock Exchange was $33.07.  The merger consideration of $48.00 per share in cash represents a premium of (1) 16.6% above the $41.16 closing sale price of Lyondell common stock on July 13, 2007 and (2) 45.1% above the $33.07 closing sale price on May 10, 2007.  In addition, the merger consideration of $48.00 per share in cash represents a premium of (1) 25.4% and 56.8% above the volume weighted average price for Lyondell shares for the 30 calendar days ($38.29) and one year ($30.61) ended July 13, 2007, respectively; and (2) 16.2% over the all time highest reported sales price per share ($41.30, reported intraday on July 13, 2007).
 
LYONDELL’S SPECIAL MEETING AND THE MERGER
 
        The following questions and answers are intended to address briefly some commonly asked questions regarding the merger, the merger agreement and the special meeting. These questions and answers do not address all questions that may be important to you as a Lyondell shareholder. Please refer to the “Summary Term Sheet” and the more detailed information contained elsewhere in this proxy statement, the appendices to this proxy statement and the documents referred to in this proxy statement, which you should read carefully.
 
Why am I receiving these materials?
 
You are receiving this proxy statement and proxy card because you own shares of Lyondell common stock. Our board of directors is providing these proxy materials to give you information for use in determining how to vote in connection with the special meeting of shareholders.
 
When and where is the special meeting?
 
The special meeting of Lyondell’s shareholders will be held on November 20, 2007, beginning at 9:00 a.m. Central Time in Lyondell’s General Assembly Room, Two Houston Center, 909 Fannin, Suite 400, in Houston, Texas 77010.
 
What is the proposed transaction?
 
The proposed transaction is the merger of Lyondell with a subsidiary of Basell pursuant to the merger agreement. Once the merger agreement has been approved and adopted by Lyondell’s shareholders and the other closing conditions under the merger agreement have been satisfied or waived, Merger Sub, a wholly owned subsidiary of Basell, will merge with and into Lyondell. Lyondell will be the surviving corporation and a wholly owned subsidiary of Basell.
 
What will I be entitled to receive pursuant to the merger?
 
If the merger is completed, you will be entitled to receive $48.00 in cash, without interest and less any applicable withholding tax, in exchange for each share of Lyondell common stock that you own at the time of the merger, unless you have exercised your appraisal rights with respect to the merger. For example, if you own 100 shares of common stock, you will receive $4,800 in cash in exchange for your shares of common stock, less any applicable withholding tax. You will not own any shares in the surviving corporation.
 
What matters will be voted on at the special meeting?
 
You will be asked to consider and vote on proposals to:
 
·  
approve and adopt the merger agreement,
 
·  
approve the adjournment of the special meeting, if necessary, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve and adopt the merger agreement, and
 
·  
act upon other business that may properly come before the special meeting or any adjournments or postponements of the special meeting.
 
How does Lyondell’s board of directors recommend that I vote my shares?
 
The board of directors recommends that you vote:
 
·  
“FOR” the proposal to approve and adopt the merger agreement, and
 
·  
“FOR” the adjournment of the special meeting, if necessary, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve and adopt the merger agreement.
 
You should read “The Merger—Reasons for the Merger; Recommendation of Lyondell’s Board of Directors” beginning on page 24 for a discussion of the factors that Lyondell’s board of directors considered in deciding to recommend the approval and adoption of the merger agreement. In considering the proposed merger, you should be aware that some of our directors and executive officers have interests in the merger that may be different from, or in addition to, the interests of our shareholders generally. See “The Merger—Interests of Lyondell’s Directors and Executive Officers in the Merger” beginning on page 36.
Who is entitled to vote?
 
Holders of record at the close of business on October 9, 2007, which is the record date, will be entitled to one vote per share.  On the record date, Lyondell had 253,625,523 shares of common stock outstanding.  
 
What vote is required to approve the merger and the meeting adjournment proposal?
 
Approval and adoption of the merger agreement requires the affirmative vote of the holders of a majority of the outstanding shares of Lyondell common stock on the record date.  Approval of the meeting adjournment proposal requires the affirmative vote of a majority of the outstanding shares present in person or represented by proxy at the special meeting and entitled to vote on the matter, whether or not a quorum is present.  Each share of Lyondell common stock outstanding on the record date will be entitled to one vote on each matter submitted to shareholders at the special meeting. As of the record date, there were 253,625,523 shares of common stock outstanding, of which our directors and executive officers beneficially owned and were entitled to vote, in the aggregate, 1,099,650 shares, representing, in the aggregate, less than 1% of the votes entitled to be cast by all outstanding shares of Lyondell common stock.  Lyondell’s directors and executive officers have indicated that they intend to vote all of their shares of common stock “FOR” the approval and adoption of the merger agreement and “FOR” any adjournment of the special meeting, if necessary, to solicit additional proxies.
 
How do I vote my Lyondell shares?
 
For shares of Lyondell’s common stock not held in the 401(k) plans:  As described on the enclosed proxy card, proxies may be submitted:
 
·  
over the Internet,
 
·  
by telephone, or
 
·  
by mail.
 
Proxies submitted over the Internet or by telephone must be received by 11:59 p.m. Eastern Time on November 19, 2007.
 
If you hold your Lyondell stock in a brokerage account (that is, in “street name”), your ability to cause your shares to be voted over the Internet or by telephone depends on your broker’s voting process.  Please follow the directions on your proxy card or the voter instruction form from your broker carefully.
 
Even if you plan to attend the meeting, we encourage you to cause your shares to be voted by proxy.  If you plan to vote in person at the meeting, and you hold your Lyondell stock in street name, you must obtain a proxy or voter instruction form from your broker and bring that proxy to the meeting.
 
For shares of Lyondell’s common stock held in the 401(k) plans:  The 401(k) and Savings Plans of Lyondell, and of Equistar Chemicals, LP, Millennium Chemicals Inc. and Houston Refining LP (each a wholly owned subsidiary of Lyondell) permit plan participants to direct the plan trustee on how to vote the Lyondell common stock allocated to their accounts. Your instructions to the plan trustee regarding how to vote your plan shares will be delivered via the attached proxy, which may be returned, as described on the enclosed proxy card:
 
·  
over the Internet,
 
·  
by telephone, or
 
·  
by mail.
 

Your proxy for shares held in the 401(k) plans must be received by 11:59 p.m. Eastern Time on November 15, 2007.

The Benefits Administrative Committee, which includes executive officers and senior managers, will direct the trustee to vote shares as to which no instructions are received, according to plan terms and its fiduciary responsibilities.  However, the terms of the trust agreements provide that the trustee will vote such shares in the Lyondell plan in proportion to voting directions received by the trustee from Lyondell plan participants and will not vote such shares in the Millennium plan unless otherwise required by law.  The trustee will vote shares as to which no instructions are received in the Equistar and Houston Refining plans according to the Benefits Administrative Committee's directions as provided in the trust agreements.
Can I change my vote?
 
For shares of Lyondell’s common stock not held in the 401(k) plans:  A proxy may be revoked by a shareholder at any time before it is voted by:
 
·  
giving notice of the revocation in writing to Lyondell’s Corporate Secretary at 1221 McKinney Street, Suite 700, Houston, Texas 77010,
 
·  
submitting another valid proxy by mail, telephone or over the Internet that is later dated and, if mailed, is properly signed,
 
·  
voting in person at the meeting, or
 
·  
if you have instructed a broker or other nominee to vote your shares, by following the directions received from your broker or nominee to change those instructions.
 
For shares of Lyondell’s common stock held in the 401(k) plans: A proxy from a 401(k) plan participant may be revoked by submitting another valid proxy by mail, telephone or over the Internet that is later dated and, if mailed, is properly signed.  This new 401(k) plan participant proxy must be received by 11:59 p.m. Eastern Time on November 15, 2007.
 
If my shares are held in “street name” by my broker or other nominee, will my broker vote my shares for me?
 
Your broker or other nominee will not be able to vote your shares unless you have properly instructed your broker or other nominee on how to vote. If you do not provide your broker or other nominee with voting instructions, it will have the same effect as a vote “AGAINST” the proposal to approve and adopt the merger agreement.  If your broker or other nominee properly executes and returns a proxy card without specific instructions from you, a “broker non-vote” will result.  In that case, your shares will be considered present at the special meeting for purposes of determining a quorum, but will not be voted on the merger proposal and will have the same effect as a vote “AGAINST” the proposal to approve and adopt the merger agreement.  The failure to provide voting instructions to a broker or other nominee will have no effect on the meeting adjournment proposal.
 
What happens if I abstain?
 
If you return your proxy card with instructions to abstain from voting on a proposal, your shares will be counted for determining whether a quorum is present at the special meeting. An abstention with respect to a proposal has the same effect as a vote “AGAINST” the proposal.
 
What if I return my proxy but don’t indicate how I want to vote?
 
For shares of Lyondell’s common stock not held in the 401(k) plans: If you return a signed proxy card without indicating your vote, your shares will be voted:
 
·  
“FOR” the approval and adoption of the merger agreement and
 
·  
“FOR” the approval of the meeting adjournment proposal.
 
For shares of Lyondell’s common stock held in the 401(k) plans:  The Benefits Administrative Committee will direct the trustee to vote shares as to which no instructions are received, according to plan terms and its fiduciary responsibilities.  However, the terms of the trust agreements provide that the trustee will vote such shares in the Lyondell plan in proportion to voting directions received by the trustee from Lyondell plan participants and will not vote such shares in the Millennium plan unless otherwise required by law.  The trustee will vote shares as to which no instructions are received in the Equistar and Houston Refining plans according to the Benefits Administrative Committee's directions as provided in the trust agreements.
What happens if I do not return a proxy card or otherwise do not vote?
 
For shares of Lyondell’s common stock not held in the 401(k) plans: Your failure to return a proxy card or otherwise vote will mean that your shares will not be counted toward determining whether a quorum is present at the special meeting and will have the effect of a vote “AGAINST” the proposal to approve and adopt the merger agreement. Such failure will have no effect with respect to the vote on the meeting adjournment proposal.
 
For shares of Lyondell’s common stock held in the 401(k) plans:  The Benefits Administrative Committee will direct the trustee to vote shares as to which no instructions are received, according to plan terms and its fiduciary responsibilities.  However, the terms of the trust agreements provide that the trustee will vote such shares in the Lyondell plan in proportion to voting directions received by the trustee from Lyondell plan participants and will not vote such shares in the Millennium plan unless otherwise required by law.  The trustee will vote shares as to which no instructions are received in the Equistar and Houston Refining plans according to the Benefits Administrative Committee's directions as provided in the trust agreements.
 
What is “householding”?
 
In accordance with notices that Lyondell sent to certain shareholders, Lyondell is sending only one copy of this proxy statement to those shareholders who share the same address, unless they have notified Lyondell that they want to continue receiving multiple copies. This practice, known as “householding,” is designed to reduce duplicate mailings and save significant printing and postage costs.
 
If you received a householded mailing and you would like to have additional copies mailed to you, we will deliver promptly upon oral or written request a separate copy of the proxy statement, including the attached appendices, to any shareholder at your address. If you wish to receive a separate copy of the proxy statement, you can contact Morrow & Co. Inc. at the contact information listed below under “Who can help answer my questions?”  If you would like to revoke your consent to the householding of documents, please submit your request to Broadridge Financial Solutions, Inc. either by calling toll-free at 1-800-542-1061 or by writing to Broadridge, Householding Department, 51 Mercedes Way, Edgewood, New York, 11717.
 
Unfortunately, householding for bank and brokerage accounts is limited to accounts within the same bank or brokerage firm. For example, if you and your spouse share the same last name and address, and you and your spouse each have two accounts containing Lyondell stock at two different brokerage firms, your household will receive two copies of the Lyondell meeting materials—one from each brokerage firm.
 
When do you expect the merger to be completed?  What is the “marketing period?”
 
The parties to the merger agreement are working toward completing the merger as quickly as possible.  The parties currently expect to complete the merger in the fourth quarter of 2007, although there can be no assurance that we will be able to do so. In order to complete the merger, we must obtain shareholder approval and the other closing conditions under the merger agreement must be satisfied or waived.  In addition, Basell is not obligated to complete the merger until the expiration of a “marketing period” that it may use to complete its financing for the merger.  The marketing period begins on the second business day after we have obtained shareholder approval and satisfied other conditions under the merger agreement and lasts for up to 20 business days, except that the marketing period may not extend beyond February 15, 2008.  See “Terms of the Merger Agreement—When the Merger Becomes Effective” and “Terms of the Merger Agreement—Termination of the Merger Agreement” beginning on pages 49 and 64, respectively.
 
If the merger is completed, how will I receive the cash for my shares?
 
If the merger is completed, you will receive a letter of transmittal with instructions on how to send your stock certificates to the paying agent in connection with the merger. You will receive cash for your shares from the paying agent after you comply with these instructions. If your Lyondell shares are held for you in “street name” by your broker, you will receive instructions from your broker as to how to effect the surrender of your “street name” shares and receive cash for those shares.  If your shares are held in a 401(k) plan, you will receive instructions regarding your right to direct investment of the proceeds of those shares.


 
Should I send in my stock certificates now?
 
No.  If the merger is completed, you will receive shortly thereafter the letter of transmittal instructing you to send your stock certificates to the paying agent in order to receive the cash payment of the merger consideration for each Lyondell share represented by your stock certificates. You should use the letter of transmittal to exchange your stock certificates for the cash payment to which you are entitled upon completion of the merger.
 
Who can help answer my questions?
 
If you would like additional copies, without charge, of this proxy statement or if you have questions about the merger agreement or the merger, including the procedures for voting your shares, you should contact Lyondell’s proxy solicitor at:
 
Morrow & Co. Inc.
470 West Avenue, 3rd Floor
Stamford, CT 06902
Banks and Brokers Call: (203) 658-9400
All Others Call Toll Free: (800) 607-0088
 
This proxy statement, and the documents to which we refer you in this proxy statement, contain “forward-looking statements” within the meaning of the federal securities laws.  Forward-looking statements include information about Lyondell’s results of operations, the expected completion and timing of the merger, as well as other information relating to the merger.  Forward-looking statements can be identified by words such as “estimate,” “believe,” “expect,” “anticipate,” “plan,” “budget” or other words that convey the uncertainty of future events or outcomes.  Many of these forward-looking statements have been based on expectations and assumptions about future events that may prove to be inaccurate.  While management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond Lyondell’s control.  Actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including but not limited to:
 
·  
Lyondell’s ability to implement its business strategies, including the ability of Lyondell and Basell to complete the proposed merger,
 
·  
failure to obtain shareholder approval or to satisfy other closing conditions, including regulatory approvals, with respect to the proposed merger, or the failure of the proposed merger to close for any other reason,
 
·  
the occurrence of any event, change or circumstance that could give rise to the termination of the merger agreement or delays in completing the proposed merger,
 
·  
uncertainty concerning the effects of the proposed merger, including the diversion of attention from the day-to-day business of Lyondell and the potential disruption to employees and relationships with customers, suppliers, distributors and business partners,
 
·  
the amount of the costs, fees, expenses and charges relating to the proposed merger,
 
·  
the failure by Basell and Merger Sub to obtain the expected debt financing arrangements set forth in the debt commitment letter or replacement debt financing,
 
·  
the availability, cost and price volatility of raw materials and utilities,
 
·  
the supply/demand balances for Lyondell’s and its joint ventures’ products, and the related effects of industry production capacities and operating rates,
 
·  
uncertainties associated with the U.S. and worldwide economies, including those due to political tensions in the Middle East and elsewhere,
 
·  
legal, tax and environmental proceedings,
 
·  
the cyclical nature of the chemical and refining industries,
 
·  
operating interruptions (including leaks, explosions, fires, weather-related incidents, mechanical failure, unscheduled downtime, supplier disruptions, labor shortages or other labor difficulties, transportation interruptions, spills and releases and other environmental risks),
 
·  
current and potential governmental regulatory actions in the U.S. and in other countries,
 
·  
terrorist acts and international political unrest,
 
·  
competitive products and pricing pressures,
 
·  
technological developments,
 
·  
risks of doing business outside the U.S., including foreign currency fluctuations, and
 
·  
access to capital markets.
 
Any of these factors, or a combination of these factors, could materially affect future results of operations and the ultimate accuracy of the forward-looking statements.  These forward-looking statements are not guarantees of future performance, and actual results and future developments may differ materially from those projected in the forward-looking statements.  Management cautions against putting undue reliance on forward-looking statements or projecting any future results based on such statements or present or prior earnings levels.
 

 
All forward-looking statements in this proxy statement, and in the documents to which we refer you in this proxy statement, are qualified in their entirety by the cautionary statements contained in this section, elsewhere in this proxy statement and in Lyondell’s Annual Report on Form 10-K for the year ended December 31, 2006 and subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.  These factors are not necessarily all of the important factors that could affect us.  Use caution and common sense when considering these forward-looking statements.  We do not intend to update these statements unless securities laws require us to do so.
 
In addition, this proxy statement contains summaries of contracts and other documents.  These summaries may not contain all of the information that is important to an investor, and reference is made to the actual contract or document for a more complete understanding of the contract or document involved.
 

PARTIES INVOLVED IN THE PROPOSED TRANSACTION
 
Lyondell
 
Lyondell Chemical Company
1221 McKinney Street, Suite 700
Houston, Texas 77010
Telephone: (713) 652-7200

       Lyondell Chemical Company, a Delaware corporation headquartered in Houston, Texas, is North America's third-largest independent, publicly traded chemical company. Lyondell is a leading global manufacturer of chemicals and plastics, a refiner of heavy, high-sulfur crude oil and a significant producer of fuel products. Key products include ethylene, polyethylene, styrene, propylene, propylene oxide, gasoline, ultra low-sulfur diesel, methyl tertiary butyl ether and ethyl tertiary butyl ether.
 
         Detailed descriptions about Lyondell’s business and financial results are contained in its Annual Report on Form 10-K for the year ended December 31, 2006 and subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.  See “Where You Can Find More Information” beginning on page 72 of this proxy statement.

 
 
 
Basell
 
Basell AF 
BIL Acquisition Holdings Limited 
PO Box 625, 2130 AP Hoofddorp
Hoofddorp, Netherlands
Telephone: +31 20 44 68 644
 
Basell AF, a Luxembourg company that is constituted as a Société en Commandite par Action, is the global leader in polyolefin technology, production and marketing. It is the largest producer of polypropylene and advanced polyolefin products; a leading supplier of polyethylene and catalysts, and an industry leader in licensing polypropylene and polyethylene processes, including providing technical services for its proprietary technologies. Basell, together with its joint ventures, has manufacturing facilities in 19 countries and sells products in more than 120 countries. Basell is privately owned by Access Industries.
 
BIL Acquisition Holdings Limited, a newly formed Delaware corporation, was formed by Basell for the sole purpose of entering into the merger agreement and completing the merger contemplated by the merger agreement. BIL Acquisition Holdings Limited is wholly owned by Basell and has not conducted any business operations other than those incidental to its formation and in connection with the transactions contemplated by the merger agreement.
 
This proxy statement is furnished to Lyondell’s shareholders in connection with the solicitation of proxies by Lyondell’s board of directors in connection with the special meeting of shareholders relating to the merger.
 
 
The special meeting will be held on Tuesday, November 20, 2007 at 9:00 a.m. Central Time in Lyondell’s General Assembly Room located in Two Houston Center, 909 Fannin, Suite 400, Houston, Texas 77010.
 
 
At the special meeting, shareholders will be asked to consider and vote on proposals to:
 
·  
approve and adopt the merger agreement,
 
·  
approve the adjournment of the special meeting, if necessary, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve and adopt the merger agreement, and
 
·  
transact any other business that may properly come before the special meeting or any adjournments or postponements of the special meeting.
 
 
Lyondell has fixed the close of business on October 9, 2007 as the record date for the special meeting.  Only holders of record of Lyondell’s common stock on the record date are entitled to vote at the special meeting and any adjournment or postponement of the special meeting.  On the record date, Lyondell had 253,625,523 shares of common stock outstanding.
 
Each share of Lyondell’s common stock entitles its holder to one vote on all matters properly coming before the special meeting.  The presence at the special meeting, in person or by proxy, of the holders of a majority of the outstanding shares of Lyondell common stock entitled to vote will constitute a quorum at the special meeting.  As described below, all shares of Lyondell common stock represented at the meeting, including shares for which proxies have been received but for which shareholders have abstained and broker non-votes, will be treated as present at the special meeting for purposes of determining the presence or absence of a quorum for the transaction of all business.  In the event that a quorum is not present at the special meeting, it is expected that the meeting will be adjourned to solicit additional proxies.
 
 
Approval and adoption of the merger agreement requires the affirmative vote of the holders of a majority of the outstanding shares of Lyondell common stock. For the proposal to approve and adopt the merger agreement, you may vote FOR, AGAINST or ABSTAIN. Abstentions will be counted for the purpose of determining whether a quorum is present, but will have the same effect as a vote “AGAINST” the approval and adoption of the merger agreement. Your failure to return a proxy card or otherwise vote will mean that your shares will not be counted toward determining whether a quorum is present at the special meeting and will have the effect of a vote “AGAINST” the proposal to approve and adopt the merger agreement.
 
Under the rules of the New York Stock Exchange, brokers who hold shares in street name for customers have the authority to vote on “routine” proposals when they have not received instructions from beneficial owners. However, brokers cannot exercise their voting discretion with respect to approving non-routine matters such as the approval and adoption of the merger agreement.  As a result, without specific instructions from the beneficial owner of the shares, brokers are not permitted to vote those shares.  If a broker properly executes and returns a proxy card without specific instructions from the beneficial holder, that is referred to as a “broker non-vote.” These “broker non-votes” will be counted for purposes of determining a quorum, but will have the same effect as a vote “AGAINST” the approval and adoption of the merger agreement.
 
The proposal to adjourn the special meeting, if necessary, to solicit additional proxies requires the affirmative vote of the holders of a majority of the outstanding shares of Lyondell common stock present in person or represented by proxy at the special meeting and entitled to vote on the matter, whether or not a quorum is present. For the meeting adjournment proposal, you may vote FOR, AGAINST or ABSTAIN. Abstentions and broker non-votes will count for the purpose of determining whether a quorum is present. If you abstain, it will have the same effect as a vote “AGAINST” the meeting adjournment proposal.  Broker non-votes will have no effect on the vote to adjourn the special meeting.  Your failure to return a proxy card or otherwise vote will have no effect with respect to the vote on the meeting adjournment proposal.
If the special meeting is adjourned or postponed for any reason, at any subsequent reconvening of the special meeting, all proxies will be voted in the same manner as they would have been voted at the original convening of the meeting, except for any proxies that have been revoked or withdrawn.
 
The proxy card also confers discretionary authority on the people named in the proxy card to vote the shares represented by the proxy card on any other matter that is properly presented for action at the special meeting.  As of the date of this proxy statement, Lyondell is not aware of any other matter to be raised at the special meeting.
 
As of the record date, Lyondell’s directors and executive officers beneficially owned, and had the right to vote, in the aggregate, 1,099,650 shares of Lyondell common stock, representing less than 1% of the votes entitled to be cast by all outstanding shares of Lyondell’s common stock. Lyondell’s directors and executive officers have indicated that they intend to vote all of their shares of common stock “FOR” the approval and adoption of the merger agreement and “FOR” any adjournment of the special meeting, if necessary, to solicit additional proxies.
 
 
Voting a Proxy
 
As described on the enclosed proxy card, proxies may be submitted:
 
·  
over the Internet,
 
·  
by telephone, or
 
·  
by mail.
 
If you submit a proxy by telephone or the Internet or by returning a signed proxy card by mail, your shares will be voted at the special meeting as you indicate on your proxy card or by such other method. If you sign your proxy card without indicating your vote, your shares will be voted:
 
·  
“FOR” the approval and adoption of the merger agreement,
 
·  
“FOR” the adjournment of the special meeting, if necessary, to solicit additional proxies, and
 
·  
in accordance with the recommendations of our board of directors on any other matters properly brought before the special meeting for a vote.
 
Proxies submitted over the Internet or by telephone must be received by 11:59 p.m. Eastern Time on November 19, 2007.
 
If you hold your Lyondell common stock in a brokerage account, your ability to provide voting instructions over the Internet or by telephone depends on your broker’s voting process.  Please follow the directions on your proxy card or the voter instruction form from your broker carefully.  If your shares of common stock are held in street name, you will receive instructions from your broker that you must follow in order to have your shares voted.  If you do not instruct your broker to vote your shares, it has the same effect as a vote “AGAINST” approval and adoption of the merger agreement and has no effect on the meeting adjournment proposal.
 
Even if you plan to attend the special meeting, we encourage you to cause your shares to be voted by proxy.  If you plan to vote in person at the meeting, and you hold your Lyondell common stock in street name, you must obtain a proxy or voter instruction form from your broker and bring that proxy to the meeting.
 
For participants in the 401(k) and Savings Plans of Lyondell, and of Equistar Chemicals, LP, Millennium Chemicals Inc. and Houston Refining LP (each a wholly owned subsidiary of Lyondell), the plans permit you to direct the plan trustee on how to vote the Lyondell common stock allocated to your accounts. Your instructions to the plan trustee regarding how to vote your plan shares will be delivered via the attached proxy, which may be returned, as described on the enclosed proxy card:
 
·  
over the Internet,
 
·  
by telephone, or
 
·  
by mail.
Your proxy for shares held in the 401(k) plans must be received by 11:59 p.m. Eastern Time on November 15, 2007.

       The Benefits Administrative Committee, which includes executive officers and senior managers, will direct the trustee to vote shares as to which no instructions are received, according to plan terms and its fiduciary responsibilities.  However, the terms of the trust agreements provide that the trustee will vote such shares in the Lyondell plan in proportion to voting directions received by the trustee from Lyondell plan participants and will not vote such shares in the Millennium plan unless otherwise required by law.  The trustee will vote shares as to which no instructions are received in the Equistar and Houston Refining plans according to the Benefits Administrative Committee's directions as provided in the trust agreements.
 
Please do not send in your stock certificates with your proxy card. If the merger is completed, a separate letter of transmittal will be mailed to you that will enable you to receive the merger consideration in exchange for your Lyondell stock certificates.
 
Revoking a Proxy
 
Proxies received at any time before the special meeting, and not revoked or superseded before being voted, will be voted at the special meeting. You have the right to change or revoke your proxy at any time before the vote taken at the special meeting by:
 
·  
giving notice of the revocation in writing to Lyondell’s Corporate Secretary at 1221 McKinney Street, Suite 700, Houston, Texas 77010,
 
·  
submitting another valid proxy by mail, telephone or over the Internet that is later dated and, if mailed, is properly signed,
 
·  
voting in person at the special meeting, or
 
·  
if you have instructed a broker or other nominee to vote your shares, by following the directions received from your broker or nominee to change those instructions.
 
If your shares of Lyondell’s common stock are held in the 401(k) plans, you also may revoke your proxy by submitting another valid proxy by mail, telephone or over the Internet that is later dated and, if mailed, is properly signed.  This new 401(k) plan participant proxy must be received by 11:59 p.m. Eastern Time on November 15, 2007.
 
 
This proxy solicitation is being made and paid for by Lyondell on behalf of its board of directors.  Lyondell has retained Morrow & Co., Inc. to assist with the solicitation of proxies at an estimated fee of $10,000 plus expenses.  Some of the executive officers and other employees of Lyondell also may solicit proxies personally, by telephone, mail, facsimile or other means of communication, if deemed appropriate.  Lyondell will reimburse brokers or other persons holding stock in their names or in the names of their nominees for their reasonable expenses in forwarding proxy materials to beneficial owners of Lyondell common stock.
 
 
In accordance with notices that Lyondell sent to certain shareholders, Lyondell is sending only one copy of this proxy statement to multiple shareholders sharing an address, unless we have received instructions from one or more of the shareholders to continue to deliver multiple copies. We will deliver promptly upon oral or written request a separate copy of the proxy statement, including the attached appendices, to any shareholder at your address. If you wish to receive a separate copy of the proxy statement, you can contact Morrow & Co. Inc. at the contact information listed under “Who can help answer my questions?” in the “Questions and Answers About Lyondell’s Special Meeting and the Merger” section of this proxy statement.  If you would like to revoke your consent to the householding of documents, please submit your request to Broadridge Financial Solutions, Inc., Householding Department, 51 Mercedes Way, Edgewood, New York, 11717.
 
 
Although it is not currently expected, the special meeting may be adjourned for the purpose of soliciting additional proxies. Any adjournment may be made without notice, other than by an announcement made at the special meeting of the time, date and place of the adjourned meeting. Whether or not a quorum exists, holders of a majority of the voting power of Lyondell’s common stock present in person or represented by proxy at the special meeting and entitled to vote on the adjournment proposal may adjourn the special meeting. Any signed proxies received by Lyondell in which no voting instructions are provided on the matter will be voted “FOR” an adjournment of the special meeting, if necessary, to solicit additional proxies. Any adjournment of the special meeting for the purpose of soliciting additional proxies will allow Lyondell’s shareholders who have already sent in their proxies to revoke them at any time prior to their use at the special meeting, as adjourned.
 
Only shareholders entitled to vote at the special meeting or their proxy holders and Lyondell’s guests may attend the special meeting. Your ownership of shares of Lyondell’s common stock on the record date will be verified prior to your admittance to the special meeting. Each shareholder or proxy holder and each guest will be asked to present valid picture identification, such as a driver’s license or passport, before being admitted to the meeting. If your shares of Lyondell common stock are held through a broker or other nominee, you must bring to the special meeting an account statement or letter from the holder of record indicating that you beneficially owned the shares on the record date.
 
 

 
This discussion of the merger is qualified by reference to the merger agreement, which is attached to this proxy statement as Appendix A.  You should read the entire merger agreement carefully as it is the legal document that governs the merger.
 
 
On April 6, 2006, Lyondell announced that Lyondell and CITGO Petroleum Corporation intended to jointly explore the sale of their LYONDELL-CITGO Refining LP partnership (now known as Houston Refining LP) to a third party.  The refining joint venture was formed by Lyondell and CITGO in 1993 to operate a refinery in Houston, Texas.
 
On April 10, 2006, Dan F. Smith, Lyondell’s president and chief executive officer, met with Leonard Blavatnik, chairman of Access Industries, and Philip Kassin, senior vice president and head of M&A and financing of Access Industries, in New York for an introductory meeting requested by Mr. Blavatnik.  Mr. Kassin also informed Mr. Smith that he had plans to meet with Stephen I. Chazen, senior executive vice president and chief financial officer of Occidental Petroleum Corporation and a director of Lyondell, to introduce Mr. Chazen to Access Industries, and that meeting occurred on April 18 at Mr. Chazen’s Los Angeles office.  At that time, Occidental beneficially owned approximately 14% of the outstanding shares of Lyondell common stock.
 
On April 19, 2006, Mr. Kassin called Mr. Smith and T. Kevin DeNicola, Lyondell’s senior vice president and chief financial officer, to request that Mr. Smith and Mr. DeNicola meet with Mr. Kassin in Houston to discuss the interest of Access Industries in exploring a potential acquisition of Lyondell by Basell, a subsidiary of Access Industries, and to discuss the potential business logic of a business combination between Basell and Lyondell.  Mr. Kassin also said that he had recently contacted Mr. Chazen.  Mr. Smith indicated that Lyondell was not for sale but that Lyondell would always be interested in creating value for its shareholders.  Mr. Smith further stated that he would need to discuss any indication of interest with Lyondell’s board of directors.  Mr. Kassin subsequently contacted Mr. DeNicola on April 26, 2006 to reiterate Access Industries’ interest in exploring a potential acquisition of Lyondell.  Mr. Kassin suggested a potential purchase price range of $24 to $27 per share based solely on publicly available information.
 
On May 4, 2006, a regular meeting of the Lyondell board was held. Mr. Smith advised the board of the expression of interest by Access Industries.  Mr. Chazen told the board (as he had earlier told Mr. Smith) that representatives of Access Industries had approached him regarding an interest in Lyondell, and that Mr. Chazen advised Access Industries that they should contact Lyondell regarding their interest in Lyondell.  The board discussed the indication of interest and the implications for valuation of Lyondell and determined that they believed that the proposed price range was insufficient. Mr. Smith thereafter conveyed the board’s determination to Mr. Blavatnik.
 
On June 2, 2006, Mr. Kassin called Mr. Smith to advise him that Access Industries was interested in participating in the bidding process for the potential sale of Lyondell’s refining joint venture with CITGO.  Mr. Smith said Lyondell would welcome Access Industries’ participation.  On June 16, 2006, Access Industries submitted a non-binding indication of interest to purchase the refining joint venture.
 
 
On July 12, 2006, Mr. Blavatnik called Mr. Smith regarding Access Industries’ interest in the refinery and said that it also remained interested in a larger transaction, potentially involving all of Lyondell.
 
On July 12-13, 2006, Lyondell held a regular board meeting at which management reviewed with the board the four proposals received for the acquisition of the refining joint venture, including the proposal from Access Industries.  The board discussed the strengths and weaknesses of the bids and the various alternatives relating to the refinery, including Lyondell seeking to acquire full ownership of the refinery.  The board scheduled a special meeting for July 14, 2006 to discuss the matter further.  In connection with the meeting, Mr. Smith advised the board that additional contacts had been made by Mr. Blavatnik and Access and that he anticipated a more formal expression of interest in the future about a possible business combination between Access and Lyondell.  He also told the board that Volker Trautz, president and chief executive officer of Basell, had requested a face-to-face meeting with him.
 
On July 13, 2006, Mr. Trautz met, at his request, with Mr. Smith and Mr. DeNicola in Houston for a general discussion regarding the chemical business and the two companies.  At this meeting, Mr. Trautz also offered his preliminary views regarding potential synergies between Basell and Lyondell.
 
On July 14, 2006, a special meeting of the board was held at which the board received additional information regarding the possible acquisition by Lyondell of CITGO’s interest in the refining joint venture.  The board discussed the value of the refinery, the impact of a market-based crude supply agreement, the potential effect of an acquisition on the Lyondell stock price, financing for the acquisition and related matters.  After further discussion, the board authorized management to pursue an acquisition of CITGO’s interest in the refining joint venture, subject to final approval by the board or the executive committee of the board.
 
On July 20, 2006, at a special meeting of the board, more information regarding Lyondell’s proposed acquisition of CITGO’s interest in the refining joint venture and its financing was reviewed with the board.  After discussion, the board reaffirmed its previous approval of negotiation of the acquisition by management and authorized management to effect the acquisition and the financing for the acquisition on the terms described to the board.
 
On July 20, 2006, Lyondell and CITGO announced that they had discontinued the exploration of the sale of the refining joint venture to a third party.  Lyondell stated that, while significant interest was expressed and multiple offers exceeded $5 billion, Lyondell had determined that the offers were insufficient to overcome the significant benefit of retaining an ownership position in the refinery.  The announcement stated that Lyondell and CITGO would continue to evaluate alternatives, including the possible acquisition by Lyondell of CITGO’s position in the joint venture or the continuation of the joint venture.  Thereafter, Lyondell and CITGO negotiated the terms of an agreement pursuant to which Lyondell would acquire CITGO’s interest in the joint venture.
 
On August 9, 2006, Mr. Blavatnik called Mr. Smith to say that Mr. Blavatnik would be sending Mr. Smith a written indication of interest in acquiring Lyondell.  On August 10, 2006, Access Industries and Basell sent a letter to Lyondell proposing an acquisition of all of the outstanding shares of Lyondell for a cash price of $26.50 to $28.50 per share.  The letter provided that the definitive agreement for the acquisition would not be subject to financing and was accompanied by a “highly confident” letter from a financial institution regarding financing for the transaction.  The letter from Access Industries and Basell stated that they were prepared to complete due diligence and negotiate and execute a definitive merger agreement in 30 to 45 days, but would require exclusivity for that period.  The letter stated that Access Industries and Basell understood that Lyondell was in discussions with CITGO regarding a potential transaction whereby Lyondell would acquire CITGO’s interest in the refining joint venture, and thereby own 100% of the joint venture.  The letter stated that Access Industries and Basell would be prepared to consider a mechanism whereby, in the event that such refinery transaction was announced, Access Industries, Basell and Lyondell would need to reconfirm within one week that the exclusivity provisions would remain in effect, failing which confirmation, discussions would be terminated.  The letter stated that it represented an indication of interest only.  Also on August 10, 2006, representatives of Access Industries and Basell discussed the letter with representatives of Lyondell.
 
On August 14, 2006, a special meeting of the Lyondell board of directors was held.  At that meeting, the board of directors was advised of the letter from Access Industries and Basell.  A representative of Lyondell’s external legal counsel reviewed with the board its fiduciary obligations.  Mr. Smith also advised the board that management and the investment banking firm that was acting as Lyondell's financial advisor for this purpose had worked to evaluate the indication of interest from a financial point of view.  Mr. Smith advised the board that this work had concluded that Lyondell’s long-range plan, plus the increased value anticipated as a result of the acquisition of CITGO’s interest in the refining joint venture, supported a share value in excess of the Basell indication of interest.  He also noted that Lyondell’s balance sheet was expected to strengthen within the next several years.  The board discussed the timing of the indication of interest in light of Lyondell’s then-current efforts to acquire CITGO’s interest in the refinery and the long-range potential for Lyondell as compared to the amount offered.  After discussion, the board instructed Mr. Smith to advise Access Industries and Basell that the board had determined that the proposal was not in the best interests of Lyondell’s shareholders and had concluded that it did not wish to explore the proposal further.
 
 
On August 16, 2006, Lyondell acquired CITGO’s interest in the refining joint venture and entered into a new crude supply agreement with the Venezuelan national oil company for the supply of crude oil for the refinery.  The acquisition and entry into the new crude supply agreement were announced in a press release by Lyondell on the same day.
 
On August 17, 2006, Mr. Smith delivered a letter, which had been reviewed by the Lyondell board, to Mr. Blavatnik and Mr. Trautz stating that the Lyondell board had determined that the proposal by Access Industries and Basell was not in the best interests of Lyondell’s shareholders and that the board did not wish to explore the proposal further because it believed that better value would be achieved for shareholders by following Lyondell’s strategic plan, particularly in light of the acquisition from CITGO.  Subsequently to sending the letter to Mr. Blavatnik and Mr. Trautz, Mr. Smith called Mr. Blavatnik to confirm receipt of the letter.
 
From August 2002 through July 10, 2007, Occidental Petroleum Corporation (including certain of its subsidiaries) was a beneficial holder of shares of Lyondell common stock.  It acquired Lyondell shares pursuant to an August 2002 transaction between Lyondell and Occidental, in which Lyondell issued equity securities to Occidental and Occidental sold its interest in Equistar Chemicals, LP (then a joint venture between Occidental, Lyondell and Millennium Chemicals Inc.) to Lyondell.  As a part of the August 2002 transaction, Occidental and Lyondell entered into a shareholders agreement, which contained, among other things, a standstill provision and limitations on the disposition of the Lyondell equity securities acquired by Occidental.  The shareholders agreement also provided for specified representation of Occidental on the Lyondell board, depending on the number of shares of common stock beneficially owned by Occidental.  Occidental acquired additional Lyondell shares subsequently to the August 2002 transaction in a public offering of Lyondell common stock in October 2003 and as a result of payment-in-kind dividends.  As of March 10, 2005, Occidental beneficially owned a total of 46,307,860 shares of Lyondell common stock, or approximately 19% of Lyondell’s outstanding shares.
 
After selling portions of its Lyondell shares in May 2005 and November 2006, Occidental beneficially owned a total of 20,990,070 shares of Lyondell common stock, or approximately 8.5% of Lyondell’s outstanding shares as of March 1, 2007.  Pursuant to the terms of the shareholders agreement between Lyondell and Occidental, Mr. Chazen has served as a director of Lyondell since August 2002.  From August 2002 to May 2006, Dr. Ray R. Irani, chairman, president and chief executive officer of Occidental, also served as a director of Lyondell.
 
On April 5, 2007, Mr. Chazen called Mr. Smith to advise him that Occidental was considering selling its remaining Lyondell shares.  After that call, various discussions regarding such a possible sale took place between Mr. Chazen and internal and external legal counsel for Occidental and Mr. Smith and Mr. DeNicola and internal and external legal counsel for Lyondell.  At Lyondell board meetings held on April 25, 2007 and May 3, 2007, Mr. Chazen also informed the Lyondell board regarding the possible sale.  He said that Occidental contemplated that it would sell approximately 7,000,000 shares to a financial institution that was a qualified institutional buyer and that this would, by reducing Occidental’s holdings to less than 17 million shares, result in the termination of the shareholders agreement, including the restrictions on further dispositions by Occidental thereunder.  Occidental would contemporaneously enter into a derivative contract that would permit it to sell the remainder of its Lyondell stock holdings at a fixed price over the next several months.  Mr. Chazen also stated that he had been informed that the party to which the financial institution anticipated reselling the shares would be required to make a filing under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (“HSR Act”) prior to consummating the transactions and that he believed the party was Access Industries and Mr. Blavatnik.
 
After May 3, 2007, various discussions regarding logistics of the transfer of 6,990,070 shares took place between Occidental and Lyondell legal counsel, and those shares were sold by Occidental to Merrill Lynch, Pierce, Fenner & Smith Incorporated on May 9, 2007.  On May 11, 2007, Occidental amended its Schedule 13D on file with the SEC regarding its ownership interest in Lyondell, and also issued a press release, which it furnished on a current report on Form 8-K.  In these filings, Occidental reported that it had sold 6,990,070 shares of Lyondell common stock to Merrill Lynch in a private transaction for a price of approximately $32.08 per share. Occidental also reported that it had entered into a total return swap agreement with respect to its remaining 14,000,000 shares of Lyondell common stock. Occidental stated that the swap agreement would enable Occidental to realize a similar market price with respect to future sales of such shares. Occidental also disclosed that although it intended to dispose of the remaining 14,000,000 shares in open market sales over the next few months utilizing Rule 144, it had no obligation to do so.
 
On May 11, 2007, AI Chemical Investments LLC, an affiliate of Access Industries, and its sole member, Mr. Blavatnik, filed a Schedule 13D with the SEC regarding Lyondell common stock, and reporting that, on May 4, 2007, AI Chemical had entered into a postpaid share forward agreement with Merrill Lynch International with respect to 20,990,070 shares of Lyondell common stock, with an effective date of May 9, 2007.   The Schedule 13D reported that the forward contract allowed AI Chemical to elect either to physically settle the forward contract (that is, to take delivery of the underlying shares), or to cash or net share settle the transaction (that is, to receive or pay the change in the value of the underlying shares, or to receive or deliver shares with a value equal to such change in value of the underlying shares), in May 2008 or at an earlier date elected by AI Chemical. The filing stated that if AI Chemical elected to settle the forward contract through physical settlement, Merrill Lynch would be obligated to deliver to AI Chemical 20,990,070 shares against payment by AI Chemical of the price of approximately $32.11 per share. The filing also disclosed that any such physical settlement would be subject to the condition that AI Chemical had made all filings required under the HSR Act and that the waiting period under the HSR Act had expired or been terminated.
 
The Schedule 13D filed on May 11, 2007 stated that AI Chemical had entered into the forward contract as a strategic investment and currently intended to elect physical settlement under the forward contract, subject to the satisfaction of the conditions to physical settlement therein and further subject to market conditions, the trading prices of shares, alternative investment opportunities, the availability of funds, and the outlook for the petrochemicals industry and Lyondell.  The Schedule 13D provided that Mr. Blavatnik and AI Chemical might, depending on market conditions, the trading prices of shares, alternative investment opportunities, the availability of funds and the outlook for the petrochemicals industry and Lyondell, acquire additional shares in the open market, block trades, negotiated transactions, or otherwise.  The Schedule 13D further stated that Mr. Blavatnik and AI Chemical might also consider a sale of all or part of any shares acquired by AI Chemical, in the open market, subject to limitations under applicable law, or in privately negotiated transactions.
 
The Schedule 13D also stated that, upon acquiring the shares pursuant to the forward contract, AI Chemical intended to assess its ownership and voting position in Lyondell, and that Mr. Blavatnik and AI Chemical might seek to engage in discussions with Lyondell concerning, among other possible scenarios, the merits of an offer to acquire all of the shares of Lyondell and the merits of a merger, combination or similar transaction between Lyondell and affiliates of AI Chemical, including Access Industries, Inc. or Basell Holdings B.V.  The Schedule 13D also reported that Mr. Blavatnik and AI Chemical had not yet determined which, if any, of the above courses of action they might ultimately take, and that their future actions with regard to Lyondell would be dependent on their evaluation of the factors listed above, circumstances affecting Lyondell in the future, including prospects of Lyondell, general market and economic conditions and other factors deemed relevant.
 
On May 11, 2007, Lyondell received a letter, sent on behalf of AI Chemical and Mr. Blavatnik, pursuant to the HSR Act, stating that Mr. Blavatnik, through AI Chemical, was seeking to acquire and would acquire shares of Lyondell common stock in an acquisition that might be subject to the HSR Act and that it was anticipated that Mr. Blavatnik would file a notification under the HSR Act on May 11, 2007.  The notification stated that AI Chemical would acquire at least $567 million of common stock and might, depending on market conditions and other circumstances, acquire over 50% of the outstanding Lyondell stock.
 
On May 11, 2007, Mr. Smith was contacted by Mr. Blavatnik by telephone.  Mr. Blavatnik noted that he had attempted to reach Mr. Smith on May 10, 2007 to provide advance notice of the filings, but Mr. Smith had been traveling.  Mr. Blavatnik indicated his respect for Lyondell and its accomplishments and his desire to have discussions with Lyondell in the future.  Mr. Blavatnik also noted that he was traveling for the following two weeks, indicating he would not be available for discussions in that time period.  Mr. Smith thanked him for the call.
 
On May 11, 2007, at a special meeting of the Lyondell board, Mr. Smith, Mr. DeNicola and Kerry A. Galvin, Lyondell’s senior vice president and general counsel, reviewed with the board the SEC filings by Occidental, AI Chemical and Mr. Blavatnik, the HSR notification filing, and Mr. Smith’s call from Mr. Blavatnik.  The board discussed the possible intentions of Mr. Blavatnik, the desire to assess the reaction of the market and major shareholders to the Basell disclosures and whether other parties might have an interest in acquiring Lyondell.
 
 
On May 14, 2007, Merrill Lynch and certain affiliates, including Merrill Lynch International, filed a Schedule 13G with the SEC regarding their ownership interest in Lyondell.  They reported ownership, in total, of 7,934,753 shares of common stock, including 6,990,070 shares acquired from Occidental.   They also reported that one of the Merrill Lynch affiliates was a party to the total return swap with Occidental with respect to 14,000,000 shares and that Merrill Lynch International was a party to a postpaid forward agreement with AI Chemical with regard to 20,990,770 shares.
 
On May 14, 2007, a representative of Apollo Management, L.P. called Mr. Smith and said that such firm would be happy to talk if Lyondell management were to become interested in exploring a “going private” transaction.  Mr. Smith said that management was not interested in any discussions for a management-led going private transaction.
 
On May 17, 2007, Occidental filed a Form 144 with the SEC indicating that it proposed to sell up to 14,000,000 Lyondell shares under Rule 144 of the Securities Act to or through Citigroup Global Markets, Inc.
 
On May 22, 2007, Lyondell received formal notification from the Federal Trade Commission of the filing under the HSR Act made by Mr. Blavatnik.
 
On May 24, 2007, Mr. Smith called Mr. Blavatnik, from whom he had not heard since May 11, to inquire of Mr. Blavatnik's intentions regarding Lyondell, but he did not reach Mr. Blavatnik.  The next day, Mr. Blavatnik returned Mr. Smith's call and suggested that they arrange a meeting, but they were unable to agree on a date to meet due to conflicting travel schedules.  A conference call between Mr. Smith and Mr. Blavatnik was then tentatively scheduled for June 13, 2007, by their respective executive assistants, but was later cancelled by Mr. Blavatnik’s assistant.
 
On May 29, 2007, Lyondell made its filing under the HSR Act with the Federal Trade Commission, which was required by the filing under the HSR Act by Mr. Blavatnik.
 
On June 7, 2007, Mr. Smith, who was in London for unrelated meetings, met for dinner with Mr. Trautz, at Mr. Trautz’s request.  Mr. Smith and Mr. Trautz exchanged views of the chemical business.
 
On June 26, 2007, Basell and Huntsman Corporation announced that they had entered into a definitive agreement pursuant to which Basell would acquire Huntsman in a transaction valued at approximately $9.6 billion, including the assumption of debt.  Under the agreement, holders of Huntsman common stock would receive $25.25 per share in cash.  Huntsman manufactures and markets differentiated chemicals and pigments.
 
On June 28, 2007, the waiting period under the HSR Act for the filing made by Mr. Blavatnik expired.
 
On July 4, 2007, Huntsman announced that it had received a proposal to acquire all of the outstanding common stock of Huntsman for $27.25 per share in cash from Hexion Specialty Chemicals, Inc., an entity owned by an affiliate of Apollo.  Huntsman also disclosed that its board of directors and special committee had concluded that the Hexion proposal could reasonably lead to a superior proposal, as defined in the merger agreement with Basell, that the special committee was continuing to evaluate the terms of the Hexion proposal, and that Huntsman and its advisers were engaged in discussions with Hexion regarding its proposal.
 
On July 4, 2007, Mr. Blavatnik contacted Mr. Smith to request a meeting with Mr. Smith, and Mr. Smith agreed to meet with Mr. Blavatnik in New York on July 9, 2007 before Mr. Smith left to travel to The Netherlands for a regularly scheduled Lyondell board meeting.  
 
        On July 6, 2007, Hexion announced that Huntsman’s board of directors had notified Basell that it had concluded that the Hexion proposal was a superior proposal to the Basell agreement.  On July 9, 2007, Hexion increased the price in its proposal to $28.00 per share.

        On July 9, 2007, Mr. Blavatnik met with Mr. Smith and indicated that Basell might be interested in purchasing all outstanding Lyondell shares in an all-cash transaction.  Mr. Blavatnik initially suggested a price of $40.00 per share.  Later in the conversation, after discussion, Mr. Blavatnik suggested that Basell could pay $44.00-$45.00 per share.  Mr. Smith responded that he did not think that such a price would be sufficient to cause the Lyondell board of directors to be interested in exploring the proposal, and suggested that if Mr. Blavatnik was serious, he needed to make his best offer.  Mr. Blavatnik requested that Mr. Smith contact him later that same day to further discuss the matter before Mr. Smith left to travel to The Netherlands for the Lyondell board meeting.  Later that same day, Mr. Smith called Mr. Blavatnik from the airport.  After some discussion, Mr. Blavatnik indicated to Mr. Smith that Basell could pay $48.00 per share if Lyondell could sign an agreement by Monday, July 16, and agree to a $400 million break up fee.  Mr. Blavatnik said the transaction would have fully committed financing and that consummation of the transaction would not be conditioned on obtaining financing.  Mr. Smith responded that he would report that information to the Lyondell board.
 
On July 10, 2007, most members of the Lyondell board were already present in The Hague, The Netherlands, near certain Lyondell manufacturing facilities, in preparation for a regular Lyondell board meeting and related activities to be held there on July 11 and 12, 2007.  Following his July 9 meeting with Mr. Blavatnik, Mr. Smith called a special meeting of the board on July 10, 2007 in The Hague.  Mr. Smith reviewed with the board his discussion with Mr. Blavatnik.  The board also discussed the status of the Basell and Hexion offers for Huntsman, valuation materials regarding Lyondell that had been prepared by management for the regular board meeting, and changes in Lyondell’s shareholder base since the Occidental and AI Chemical 13D filings in May.  The directors also discussed and considered the likelihood that other parties might have a potential interest in a business combination transaction.  Ms. Galvin discussed the board’s fiduciary duties under Delaware law under the circumstances.  The board directed Mr. Smith to request further information from Mr. Blavatnik, including information regarding financing for a transaction.  Mr. Smith noted that another special meeting of the board would be called for July 11 to provide the board with the opportunity to discuss the matter further.
 
Following the board meeting, Mr. DeNicola and Ms. Galvin held telephone conferences with the three directors who had not been present at the meeting to brief them regarding Mr. Blavatnik’s indication of interest. In addition, Mr. Smith called Mr. Blavatnik and requested further information regarding his indication of interest, including the absence of any financing contingency.  In the conversation, Mr. Blavatnik stated that he would like to have an indication of Lyondell’s interest in moving forward in discussions prior to the end of the day on July 11, 2007, as that was the deadline for Basell to respond to Huntsman if it wanted to propose a higher price in that transaction.
 
On July 11, 2007, the previously scheduled special meeting of the Lyondell board was held in The Hague.  At the meeting, the board discussed further the potential offer from Mr. Blavatnik and reviewed the terms indicated by Mr. Blavatnik.  The board also compared the benefits to the Lyondell shareholders of such a transaction with those of remaining independent, and discussed the valuation of certain Lyondell assets and the likely process that would be involved if a transaction were to be pursued.  The board also discussed the impact of Basell’s potential transaction with Huntsman on the ability of Basell to complete a potential transaction with Lyondell.  Mr. Smith also noted that there had been no discussions with Mr. Blavatnik regarding whether there would be continuing roles for members of Lyondell management following any such transaction.  The board discussed engagement of an investment banking firm to serve as financial advisor to Lyondell and authorized management to continue the discussions with Mr. Blavatnik regarding a possible transaction.  The board scheduled another special meeting for July 16, 2007 in New York.  After the board meeting, Mr. Smith called Mr. Blavatnik to say that the board had authorized management to continue the discussions with Mr. Blavatnik.

On July 11, 2007, Mr. DeNicola and Ms. Galvin called Mr. Kassin to discuss a confidentiality agreement and logistics for the due diligence process and negotiations.
 
On July 11, 2007, legal counsel for Lyondell and Basell exchanged drafts of a confidentiality agreement and Basell sent Lyondell a preliminary diligence request list.
 
On July 11, 2007, Lyondell called Deutsche Bank Securities Inc. to engage Deutsche Bank as Lyondell’s exclusive financial advisor in connection with exploration of strategic alternatives, including the potential transaction with Access and Basell.  A written engagement letter with Deutsche Bank was signed on July 14, 2007.
 
Late on July 11, 2007, Basell issued a press release stating that it would not increase the price it was willing to pay for Huntsman.
 
On July 12, 2007, Basell signed a counterpart of the confidentiality agreement, and counsel for Lyondell indicated that an appropriate officer of Lyondell would sign a counterpart the next morning.  Shortly thereafter, Lyondell commenced providing materials to Basell and Access in response to the preliminary due diligence request of Basell and Access.  Meetings between representatives of Lyondell and representatives of Basell and Access took place on July 13, 2007 through July 15, 2007 in New York and Houston to enable Basell and Access to conduct a due diligence review of certain business, financial and legal matters.
 
On July 12, 2007, Occidental amended its Schedule 13D with regard to Lyondell, reporting that during the period from May 21, 2007 through July 10, 2007, it had sold in daily open market transactions its remaining 14,000,000 shares and that it no longer held any ownership interest in Lyondell.
 
On July 12, 2007, Huntsman announced that the Hexion proposal was deemed to be a superior proposal to the Basell agreement and that, pursuant to the authorization of its board of directors, it had terminated its merger agreement with Basell and had entered into a definitive merger agreement with Hexion, pursuant to which Hexion would acquire Huntsman.  Huntsman also stated that a $200 million break-up fee had been paid to Basell.
 
On July 12, 2007, the Lyondell board met in The Hague for a regularly scheduled meeting to conduct previously scheduled business.  In addition, the board reconfirmed that it would have a special meeting on July 16, 2007.  The board also discussed the merits of, and the terms of, the potential transaction with Basell in an executive session of the board, with Mr. Smith but without any other members of management present.
 
On July 12, 2007, counsel for Basell provided a draft of the proposed representations and warranties section for the proposed merger agreement, followed by a draft of the entire proposed agreement on July 13, 2007.  Basell’s counsel noted that both drafts would be largely based on the fully negotiated agreement that Basell had signed with Huntsman, and that this should expedite negotiation of the agreement between Lyondell and Basell.  From July 12, 2007 through July 16, 2007, the parties and their external and internal legal counsel prepared and negotiated the form of a definitive agreement for the transaction and related documentation.  Representatives of Basell also provided Lyondell drafts of Basell’s proposed commitment letter for debt financing for the proposed transaction from Citigroup Global Markets Inc., Goldman Sachs International and Merrill Lynch, Pierce, Fenner & Smith Incorporated and discussed the proposed financing arrangements with Lyondell representatives.
 
On July 15, 2007, Mr. Smith and Mr. Blavatnik discussed by phone the status of the negotiations.  Mr. Smith said that the proposed transaction had moved very quickly and that the Lyondell board wanted to assure itself, if Lyondell was to be sold, that the board had obtained the best deal available.  Mr. Smith raised four issues with Mr. Blavatnik: increasing the proposed price; adding to the merger agreement a “go-shop” provision that would allow Lyondell to actively solicit other offers for 45 days after signing a merger agreement with Basell; providing for a 1% break up fee during that 45 day period; and reducing the break up fee after the end of the “go-shop” period to less than the $400 million that Mr. Blavatnik had proposed.  After discussion, Mr. Blavatnik responded that he had already provided his best and final proposal on price, that he would not agree to a go-shop and that it was essential to him that the transaction be agreed upon very quickly.  Mr. Blavatnik said he would consider reducing the size of the break up fee.  Counsel for Basell later communicated to counsel for Lyondell that Mr. Blavatnik would agree to a break up fee of $385 million. Counsel for Basell also reiterated Basell’s unwillingness to include a “go-shop” provision in the merger agreement.
 
On July 15, 2007, Lyondell management provided the members of the board a draft of the proposed merger agreement and related materials.
 
On July 16, 2007, Mr. Blavatnik advised Mr. Smith that Lyondell would be receiving a written proposal from Basell for the proposed transaction, with fully committed financing.  Following that discussion, Lyondell received the letter, which stated that it was a definitive proposal to acquire all of the common stock of Lyondell for a cash purchase price of $48.00 per share and outlined the other terms of Basell’s offer, as reflected in the proposed form of merger agreement and financing commitment letter.
 
Later in the day on July 16, 2007, a special meeting of the Lyondell board with all directors present was convened in New York to consider the proposed transaction.  At the meeting, the board was provided with a copy of the Basell offer letter, the proposed form of the merger agreement, a draft of the commitment letter for Basell’s financing and related materials.  Lyondell’s board of directors reviewed and discussed the terms and conditions of the transaction and management’s assessment of the transaction. Legal counsel discussed the structure of the transaction and the material terms of the agreement and plan of merger, including the ability of the board of directors to negotiate and enter into a superior alternative transaction should Lyondell receive a bona fide unsolicited offer. Lyondell’s external legal counsel also discussed with the directors their fiduciary obligations under the circumstances.  Deutsche Bank reviewed its financial analysis of the per share merger consideration to be received by Lyondell shareholders in the proposed transaction and rendered to Lyondell’s board of directors Deutsche Bank’s oral opinion, which was confirmed in a written opinion dated July 16, 2007, to the effect that, as of that date and based on and subject to the matters described in the opinion, the per share merger consideration was fair, from a financial point of view, to Lyondell shareholders.  There were also discussions of Basell’s financing for the transaction and the consequences of the transaction under Lyondell’s executive compensation arrangements and employee benefit plans.  The non-employee members of the board of directors also discussed the transaction in executive session, without Mr. Smith or other members of management present.  After the executive session and further discussion, Lyondell’s board of directors, by a unanimous vote of those present, approved the merger agreement and voted to recommend to Lyondell’s shareholders that they adopt the merger agreement.  One director was not present at the time of the vote but participated in a portion of the meeting by telephone and confirmed in writing that he approved the merger agreement and associated recommendations to Lyondell’s shareholders.
 
Following the Lyondell board meeting on July 16, 2007, Mr. Smith advised Mr. Blavatnik that the board had approved the merger and the merger agreement and the parties subsequently executed and delivered the merger agreement.
 
On July 17, 2007, prior to the opening of trading on the New York Stock Exchange, Lyondell and Basell issued a joint press release announcing the proposed transaction.
 
On July 18, 2007, AI Chemical and Mr. Blavatnik filed an amendment to their Schedule 13D reporting that Lyondell, Basell and Merger Sub had entered into the merger agreement and that each of Basell and Merger Sub was an affiliate of AI Chemicals and Mr. Blavatnik.  The amendment also reported that the waiting period under the HSR Act had expired and that, as a result, the condition for physical settlement under the postpaid forward share contract with Merrill Lynch International had been satisfied.  The amendment stated that AI Chemical and Mr. Blavatnik had not yet elected to settle the forward contract.
 
On August 21, 2007, AI Chemical and Mr. Blavatnik filed an amendment to their Schedule 13D reporting that they had acquired beneficial ownership of 3,971,400 additional shares of Lyondell common stock, which were purchased in open market transactions at an average purchase price of $44.21.  The Schedule 13D amendment also stated that AI Chemical had given notice to Merrill Lynch irrevocably agreeing to physically settle the postpaid share forward agreement with Merrill Lynch described above, when the contract is settled.
 
 
Lyondell’s board of directors believes that the merger agreement and the merger are fair to, and in the best interests of, Lyondell’s shareholders. In reaching these conclusions, Lyondell’s board of directors consulted with our management and legal and financial advisors. In reaching the foregoing determinations, the board of directors considered the following material factors that it believed supported its determinations:
 
·  
the current and historical market price of Lyondell stock relative to the merger consideration, including the fact that the merger consideration of $48.00 per share in cash represented a premium of (1) 16.6% above the $41.16 closing price of Lyondell common stock on July 13, 2007, the business day prior to the date of the Lyondell board meeting to approve the transaction; (2) 45.1% above the $33.07 closing price on May 10, 2007, the business day prior to the date of the initial Schedule 13D filing by Mr. Blavatnik and AI Chemical; (3) 25.4% and 56.8% above the volume weighted average price for the 30 calendar days ($38.29) and one year ($30.61) ended July 13, 2007, respectively; and (4) 16.2% over the all time highest reported sales price per share ($41.30, reported intraday on July 13, 2007);
 
·  
the current and historical market prices of Lyondell common stock, including the market price performance of our common stock relative to those of other industry participants;
 
·  
the merger consideration compared to (a) analysts’ price targets for Lyondell stock; (b) implied EBITDA multiples of similar companies, (c) discounted cash flow analyses of Lyondell and related implied values, and (d) comparable transactions based on EBITDA multiples of the acquired companies;
 
·  
the fact that the merger consideration is all cash, which will provide liquidity and certainty of value to Lyondell’s shareholders compared to other transactions in which shareholders would receive non-cash consideration;
 
·  
the potential shareholder value that might result from other alternatives available to Lyondell, including the alternatives of remaining an independent public company, considering, in particular, the potential for shareholders to share in any future earnings growth of Lyondell and continued costs, risks and uncertainties associated with continuing to operate as a public company, or of pursuing a leveraged recapitalization;
·  
the current and historical financial condition and results of operations of Lyondell, and the prospects of Lyondell if it were to remain a publicly owned corporation in light of the competitive nature of the industry in which Lyondell operates, the cyclical nature of Lyondell’s business and current expectations regarding future industry performance, and the risks that Lyondell might not achieve its strategic objectives;
 
·  
Deutsche Bank’s financial presentation to our board of directors, including Deutsche Bank’s opinion, dated July 16, 2007, to Lyondell’s board of directors as to the fairness, from a financial point of view, of the merger consideration provided for in the merger agreement;
 
·  
the board’s view, in consultation with management and taking into consideration certain information from Deutsche Bank, of other potentially interested parties and whether any of them would be likely to propose an acquisition at a higher price;
 
 
·  
that only one party approached Lyondell to indicate any interest in a business combination with Lyondell subsequent to the filing of the Schedule 13D by Mr. Blavatnik and AI Chemical indicating their possible interest in a business combination involving Lyondell and the resulting media coverage and market speculation, and such other party subsequently entered into an agreement to acquire Huntsman;
 
·  
that the waiting period under the HSR Act for the transaction had already expired;
 
·  
the terms and conditions of the merger agreement and the course of negotiations thereof; the board of directors considered in particular:
 
o  
the conditions to the closing of the merger, including the fact that the obligations of Basell and Merger Sub under the merger agreement are not subject to a financing condition and the exceptions to the events and other effects that would constitute a material adverse effect on Lyondell;
 
o  
the structure of the transaction as a merger, requiring approval by Lyondell’s shareholders, which would result in detailed public disclosure and a relatively lengthy period of time prior to completion of the merger during which an unsolicited superior proposal could be brought forth, and that, although the merger agreement permits Basell to proceed instead with a tender offer, which might shorten the time period to closing as compared with a merger, the closing of the tender offer could generally not occur sooner than 60 days after the date of the merger agreement and would be conditioned on the tender of at least 90% of the outstanding Lyondell shares;
 
o  
Lyondell’s right to engage in negotiations with, and provide information to, a third party that makes an unsolicited acquisition proposal, if the board of directors determines in good faith, after consultation with its legal and financial advisors, that such proposal could reasonably be expected to result in a transaction that is more favorable to Lyondell’s shareholders than the merger;
 
o  
Lyondell’s right to terminate the merger agreement in order to accept a superior proposal, subject to certain conditions and payment of a termination fee to Basell;
 
o  
the termination fee of $385 million, representing approximately 3.0% of the total equity value (on a fully diluted basis) of the proposed transaction and approximately 2.0% of the total enterprise value of the proposed transaction, payable by Lyondell to Basell under specified circumstances;
 
o  
subject to certain limitations, the obligation of Basell to take all action needed, including the divestiture of assets, to secure non-U.S. antitrust and competitive approvals; and
 
o  
that Lyondell’s shareholders will be entitled to appraisal rights under Delaware law;
 
·  
the likelihood that the merger will be completed in a timely fashion, including the fact that Basell has arranged financing commitments for the transaction from Citigroup, Goldman Sachs and Merrill Lynch such that the board believed that the necessary financing would be obtained by Basell;
 
·  
that Basell has substantial assets and that if the financing were not obtained and the merger did not occur, Lyondell would have recourse against Basell; and
 
·  
based upon the advice of management after consultation with its legal counsel, that the regulatory approvals necessary to consummate the merger could be obtained.
 
        The board of directors also considered a variety of risks and other potentially negative factors concerning the merger. These factors included the following:
 
·  
that, following the merger, Lyondell’s shareholders will cease to participate in any future earnings growth of Lyondell or benefit from any future increase in its value;
 
·  
the conditions to the closing of the merger, including regulatory approvals;
 
·  
that, for U.S. federal income tax purposes, the cash merger consideration will be taxable to Lyondell’s shareholders;
 
·  
the absence of an auction process or other effort to solicit interest from other potential buyers prior to the execution and delivery of the merger agreement;
   
·  
that the merger agreement does not provide for a “go-shop” period that would permit Lyondell to solicit interest from other potential buyers after the execution and delivery of the merger agreement or for a reverse termination fee payable to Lyondell;
 
·  
that Lyondell’s executive officers and directors have interests in the merger that may be different from, or in addition to, those of Lyondell’s shareholders generally (see “—Interests of Lyondell’s Directors and Executive Officers in the Merger”);
 
·  
the risks and costs to Lyondell if the merger is not completed, including the diversion of management and employee attention, potential employee attrition, the potential effect on Lyondell’s business and its relationships with suppliers, customers, joint venture partners and others, and the likely negative effect on the trading price of the common stock;
 
·  
the restrictions on the conduct of Lyondell’s business prior to completion of the merger, requiring Lyondell to conduct its business only in the ordinary course, subject to specific limitations, which may delay or prevent Lyondell from undertaking business opportunities that may arise pending completion of the merger;
 
·  
that there is a risk that, notwithstanding the financing commitments that Basell has obtained, Basell will not be able to obtain all necessary financing to consummate the merger;
 
·  
that, while the merger is expected to be completed, there is no assurance that all conditions to the parties’ obligations to complete the merger will be satisfied or waived, and as a result, it is possible that the merger might not be completed even if approved by Lyondell’s shareholders;
 
·  
the requirement that, unless the merger agreement is earlier terminated by Lyondell’s board of directors as a result of a receipt of a superior proposal, Lyondell must submit the merger agreement for adoption by Lyondell’s shareholders even if the board withdraws its recommendation of the merger;
 
·  
that, under the terms of the merger agreement, Lyondell must pay to Basell a termination fee if the merger agreement is terminated under certain circumstances, which may deter others from proposing an alternative transaction that may be more advantageous to Lyondell shareholders; and
 
·  
the possible disruption to Lyondell’s business that might result from the announcement of the merger and the resulting distraction of the attention of Lyondell’s management.
 
Lyondell’s board of directors considered all of these factors as a whole and, on balance, concluded that they supported a favorable determination to enter into the merger agreement.  The foregoing discussion of the information and factors considered by the board of directors is not exhaustive.  In view of the wide variety of factors considered by the board of directors in connection with its evaluation of the proposed transaction and the complexity of these matters, the board did not consider it practical to, nor did it attempt to, quantify, rank or otherwise assign relative weights to the specific factors that it considered in reaching its decision.  The board of directors evaluated the factors described above and reached a consensus that the proposed transaction was advisable to, fair to, and in the best interests of, Lyondell and its shareholders.  In considering the factors described above and any other factors, individual members of the board of directors may have viewed factors differently or given different weights or merits to different factors.
 
Lyondell’s board of directors believes that the merger is advisable to, fair to, and in the best interests of, holders of Lyondell common stock. Lyondell’s board of directors recommends that you vote “FOR” the approval and adoption of the merger agreement.
 
 
Lyondell does not as a matter of course make public projections as to its future financial performance and believes that forecasts are inherently uncertain, especially those for extended periods of time, due to the unpredictability of the underlying assumptions and estimates.
 
    However, Lyondell provided certain non-public internal financial projections to Deutsche Bank in connection with its fairness opinion.  Similar projections were also provided to Basell and the lenders for Basell’s financing in connection with the due diligence review of Lyondell, although those projections were not so provided until after Basell had proposed to acquire Lyondell at $48.00 per share on July 9, 2007, and thus Basell has advised Lyondell that they were not used or relied on by Basell in connection with the making of its offer for Lyondell.  Lyondell has included below a summary of the projections provided to Deutsche Bank to give Lyondell’s shareholders access to certain non-public information that was furnished to Deutsche Bank and was considered by it for purposes of evaluating the merger.
 
Lyondell provided the internal financial projections that are set forth below for use by Deutsche Bank in connection with its fairness opinion, and not with a view toward public disclosure or toward compliance with generally accepted accounting principles (“GAAP”), the published guidelines of the SEC regarding projections, or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. Neither Lyondell’s independent auditors nor any other independent accountants have compiled, examined or performed any procedures with respect to the prospective financial information contained in the projections, nor have they expressed any opinion or given any form of assurance on the projections or their achievability.
 
Lyondell based these internal financial projections on numerous estimates, variables and assumptions that are inherently subject to general business, economic, competitive and other uncertainties, all of which are difficult to predict and beyond the control of Lyondell’s management and may not prove to have been, or may no longer be, accurate, and the projections are subjective in many respects. Important factors that may affect actual results and result in the projected results not being achieved include, but are not limited to, the factors referenced under the “Forward-Looking Statements” section of this proxy statement and other risks described in Lyondell’s Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2006 and subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.
 
Furthermore, the internal financial projections do not necessarily reflect, and have not been updated for, actual or expected results of operations for periods since the projections were prepared, revised prospects for Lyondell’s business, changes in general business or economic conditions, or any other transaction or event that has occurred since the date the projections were prepared or that may occur and that was not anticipated at the time the projections were prepared. Moreover, the projections are not necessarily indicative of future performance, which may be significantly more or less favorable than as contemplated by the projections and accordingly should not be regarded as a representation that they will be achieved. In addition, Lyondell prepared the projections prior to the board’s approval of the merger and, accordingly, the projections do not reflect the effects of the merger and the related financing, which may cause actual results to differ materially. Since the projections were provided to Deutsche Bank, Lyondell has made publicly available the results of operations for the quarter ended June 30, 2007. Shareholders should review Lyondell’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007 for this information.  In addition, Lyondell expects to announce its results of operations for the quarter ended September 30, 2007 in late October 2007 and to file its Quarterly Report on Form 10-Q for that quarter in early November 2007.  Accordingly, shareholders should review such earnings release and quarterly report for information relating to the third quarter and business outlook.
 
You should not regard the inclusion of the internal financial projections in this proxy statement as an indication that Lyondell or its affiliates, advisors or representatives considered or consider the projections to be predictive of actual future events, and the projections should not be relied upon as such. None of Lyondell or its affiliates, advisors, officers, directors or representatives can give you any assurance that actual results will not differ from the projections, and none of them undertakes any obligation to update or otherwise revise or reconcile the projections to reflect circumstances existing after the date such projections were generated or to reflect the occurrence of future events even in the event that any or all of the assumptions underlying the projections are shown to be in error. Lyondell does not intend to make publicly available any update or other revisions to the projections.
 
None of Lyondell or its affiliates, advisors, officers, directors or representatives has made or makes any representation to any shareholder or other person regarding the ultimate performance of Lyondell compared to the information contained in the projections or that projected results will be achieved. Lyondell has made no representation to any party, in the merger agreement or otherwise, concerning the projections.
 
Lyondell Projected Financial Information
 
Unless otherwise stated, the information set forth below relates to Lyondell’s continuing business and excludes amounts related to the inorganic chemicals business, which Lyondell sold on May 15, 2007.
 
(in millions)
   
2007
 
2008
 
2009
 
2010
 
2011
 
EBITDA(a)
                     
Ethylene, Co-products and Derivatives Segment
 
                   $950
 
$1,150
 
$800
 
$600
 
$600
 
Propylene Oxide & Related Products Segment
 
                        730(b)
 
657
 
664
 
701
 
676
 
Refining Segment(c)
 
                     1,568(d)
 
1,700
 
1,600
 
1,500
 
1,300
 
Total EBITDA(e)
 
                  $3,248(f)
 
$3,507
 
$3,064
 
$2,801
 
$2,576
 
Depreciation and amortization
 
                 $904
 
$911
 
$919
 
$929
 
$941
 
Capital expenditures(g)
 
                  $521
 
$434
 
$409
 
$341
 
$285
 
_________
 
(a)
EBITDA represents earnings before interest, taxes, depreciation and amortization of long-lived assets.  EBITDA is not a financial measure prepared in accordance with U.S. GAAP and should not be considered as a substitute for net income (loss) or cash flow data prepared in accordance with U.S. GAAP.
 
(b)
Reflects an adjustment to the segment’s historical EBITDA for the first quarter of 2007 to eliminate $60 million in charges related to commercial disputes associated with the 2005 shutdown of the Lake Charles TDI facility.  Excluding this adjustment, the segment’s projected 2007 EBITDA would have been $670 million.
 
(c)
In addition to providing EBITDA for 2007 to 2011, management also provided a long-term EBITDA projection of $1.0 billion for the refining segment.
 
(d)
Reflects an adjustment to the segment’s historical EBITDA for the first half of 2007 to reflect the $170 million negative operational impact of a planned maintenance turnaround at Lyondell’s refinery and a 10-day outage of one of the production units at the refinery.  Excluding this adjustment, the segment’s projected 2007 EBITDA would have been $1,398 million.
 
(e)
Total EBITDA only includes EBITDA for the ethylene, co-products and derivatives segment, propylene oxide and related products segment and refining segment.
 
(f)
See notes (b) and (d) above.  Excluding these adjustments, the total of segment EBITDA projected for 2007 would have been $3,018 million.
 
(g)
In addition to the capital expenditures above, cash spending for significant maintenance and repairs incurred as part of turnarounds of major units at manufacturing facilities, significant software development costs, and certain catalyst costs is projected to be $144 million, $117 million, $208 million, $175 million and $175 million for the five years 2007 through 2011 (which includes an immaterial amount attributable to the inorganic chemicals business in the years 2008 through 2011 and $16 million for 2007).  These costs are deferred and amortized over 3 to 10 years.  Such amortization (none of which relates to the inorganic chemicals business) is included in the depreciation and amortization above.
 
 
Deutsche Bank Securities Inc. has acted as exclusive financial advisor to Lyondell in connection with the merger.  At the July 16, 2007 meeting of the Lyondell board of directors, Deutsche Bank delivered its oral opinion, subsequently confirmed in writing to the Lyondell board of directors, to the effect that, as of the date of such opinion, based upon and subject to the assumptions made, matters considered and limits of the review undertaken by Deutsche Bank, the merger consideration was fair, from a financial point of view, to the holders of Lyondell common stock.
 
The full text of Deutsche Bank's written opinion, dated July 16, 2007 (the "Deutsche Bank Opinion"), which sets forth, among other things, the assumptions made, matters considered and limits on the review undertaken by Deutsche Bank in connection with the opinion, is attached as Appendix B to this proxy statement.  Lyondell shareholders are urged to read the Deutsche Bank Opinion in its entirety.  The summary of the Deutsche Bank Opinion set forth in this proxy statement is qualified in its entirety by reference to the full text of the Deutsche Bank Opinion.
 
In connection with Deutsche Bank’s role as financial advisor to Lyondell, and in arriving at its opinion, Deutsche Bank has, among other things, reviewed certain publicly available financial information and other information concerning Lyondell and certain internal analyses and other information furnished to it by Lyondell.  Deutsche Bank has also held discussions with members of the senior management of Lyondell regarding the businesses and prospects of Lyondell.  In addition, Deutsche Bank has (1) reviewed the reported prices and trading activity for Lyondell common stock, (2) compared certain financial and stock market information for Lyondell with similar information for certain selected companies whose securities are publicly traded, (3) reviewed the financial terms of certain selected recent business combinations which it deemed comparable in whole or in part, (4) reviewed the terms of the merger agreement, dated July 16, 2007, and certain related documents, including the Commitment Letter, dated July 16, 2007, between Citigroup Global Markets Inc., Goldman Sachs International, Goldman Sachs Credit Partners L.P., Merrill Lynch Pierce Fenner & Smith Incorporated, and Merrill Lynch Capital Corporation, and (5) performed such other studies and analyses and considered such other factors as it deemed appropriate.
 
In preparing its opinion, Deutsche Bank did not assume responsibility for the independent verification of, and did not independently verify, any information, whether publicly available or furnished to it, concerning Lyondell, including, without limitation, any financial information, forecasts or projections, considered in connection with the rendering of its opinion.  Accordingly, for purposes of its opinion, Deutsche Bank assumed and relied upon the accuracy and completeness of all such information.  Deutsche Bank did not conduct a physical inspection of any of the properties or assets of Lyondell, and did not prepare or obtain any independent evaluation or appraisal of any of these assets or of any of the liabilities of Lyondell.  With respect to the financial forecasts and projections made available to Deutsche Bank by management and used in its analysis (see “−Financial Projections” above), Deutsche Bank assumed that they were reasonably prepared on bases reflecting the best currently available estimates and judgments of the management of Lyondell as to the matters covered thereby.  In rendering its opinion, Deutsche Bank expressed no view as to the reasonableness of such forecasts and projections or the assumptions on which they are based.  The Deutsche Bank Opinion was necessarily based upon economic, market and other conditions as in effect on, and the information made available to Deutsche Bank as of, the date of such opinion.
 
For purposes of rendering its opinion, Deutsche Bank assumed that, in all respects material to its analysis, the representations and warranties of Lyondell, Basell and Merger Sub contained in the merger agreement are true and correct, that Lyondell, Basell and Merger Sub will each perform all of the covenants and agreements to be performed by it under the merger agreement and all conditions to the obligation of each of Lyondell, Basell and Merger Sub to consummate the merger will be satisfied without any waiver thereof.  Deutsche Bank also assumed that all material governmental, regulatory or other approvals and consents required in connection with the consummation of the transactions contemplated by the merger agreement will be obtained and that in connection with obtaining any necessary governmental, regulatory or other approvals and consents, or any amendments, modifications or waivers to any agreements, instruments or orders to which any of Lyondell, Basell and Merger Sub is a party or subject or by which any of them is bound, no limitations, restrictions or conditions will be imposed or amendments, modifications or waivers made that would have a material adverse effect on Lyondell, Basell or Merger Sub or materially reduce the contemplated benefits of the merger.
 
In connection with Deutsche Bank’s role as financial advisor to Lyondell and in arriving at its opinion, Deutsche Bank was not authorized to solicit, and did not solicit, interest from any other person with respect to the acquisition of Lyondell or any of its assets, nor did Deutsche Bank have discussions or negotiate with any other person in connection with the merger.
 
In rendering its opinion to the Lyondell board, Deutsche Bank performed a variety of financial and comparative analyses including those described below.  This summary of Deutsche Bank’s analyses is not a complete description of the analyses underlying Deutsche Bank’s opinion.  The preparation of a fairness opinion is a complex analytical process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances, and, therefore, a fairness opinion is not readily susceptible to a summary description.  Deutsche Bank believes that all of its analyses and judgments are important foundation components of its opinion.  Nevertheless, set forth below is a brief summary of certain of the financial analyses that were performed by Deutsche Bank in connection with its opinion and that were reviewed with the Lyondell board of directors at its meeting on July 16, 2007.
 
General Financial Observations
 
Deutsche Bank advised the Lyondell board that recent trading prices of the common stock are an important element in certain of the financial analyses performed by it.  Deutsche Bank further explained that, because an affiliate of Basell filed a Schedule 13D on May 11, 2007, announcing that it had acquired beneficial ownership of 8.3% of Lyondell’s stock and that it might be considering an acquisition transaction and because the price of the common stock generally had increased since that date, Deutsche Bank believes that it is appropriate to consider the merger consideration in comparison to the common stock price both just prior to the announcement of the merger and just prior to the filing of the Schedule 13D by a Basell affiliate.
 
In certain of its financial analyses Deutsche Bank determined the implied value of the Lyondell common stock by reference to financial projections for Lyondell.  Deutsche Bank relied on the management projections dated July 13, 2007 which are referred to herein as the “Management” case.  See “−Financial Projections” above.  Management explained to Deutsche Bank that the Management case projections were based on Lyondell’s December 2006 long range plan (“LRP”) and then were subsequently adjusted based on the macro economic outlook and current market environment for each business segment in May and July 2007.  Management further explained that the LRP represented Lyondell’s detailed bottoms up full financial forecast.
 
Deutsche Bank advised the Lyondell board that the Management case is more positive with respect to future performance of Lyondell than the consensus equity analyst view, which is referred to herein as the “Street” case.  Deutsche Bank explained to the board that the Street case projections are based on consensus estimates for 2007, 2008 and 2009, as reported by the Institutional Brokers Estimate System ("IBES"), with revenue and EBITDA segment allocations based on available equity research and that those projections had been extended to cover the years 2010 and 2011.  Deutsche Bank further explained that IBES is a data service that monitors and publishes compilations of earnings estimates by selected research analysts regarding companies of interest to institutional investors and that Deutsche Bank expressed no view as to the reasonableness of the estimates, forecasts and projections made by IBES or the assumptions upon which they are based.
 
In view of the differences between Management’s projections and the Street case projections, Deutsche Bank informed the board that, with respect to certain of its financial analyses, Deutsche Bank had evaluated the merger consideration using both the Management case and the Street case.
 
Historical Stock Performance Analysis
 
Deutsche Bank reviewed and analyzed recent and historical market prices and trading volume for Lyondell common stock and compared such market prices to certain stock market and industry indices.  Deutsche Bank evaluated the merger consideration in comparison to the market price for the common stock on July 13, 2007, the last trading day prior to delivery of its opinion; May 10, 2007, the day before the filing of the Schedule 13D by a Basell affiliate; the volume weighted average trading price of the common stock during the 30 calendar day period ended July 13, 2007; the volume weighted average trading price of the common stock during the 365 calendar day period ended July 13, 2007; and the all time high trading price for the common stock.  The results of Deutsche Bank’s analysis are set forth below:
 
 
Premium to
 
Price
 
Premium
As of 07/13/2007
$41.16
 
16.6%
As of 05/10/2007 (prior to 13D filing)
$33.07
 
45.1%
30 day VWAP (calendar days)
$38.29
 
25.4%
1 year VWAP (calendar days)
$30.61
 
56.8%
All time high (07/13/2007 intraday)
$41.30
 
16.2%

Deutsche Bank also informed the Lyondell board that price target reports for the common stock had been published by Wall Street equity analysts at various points in time between April 18, 2007 and July 12, 2007 and that these reports specified target prices for the common stock ranging from $32 per share to $44 per share.
 
Analysis of Selected Publicly Traded Companies
 
Deutsche Bank compared certain financial information and commonly used valuation measurements for Lyondell’s two principal lines of business, commodity chemicals (including ethylene and propylene oxide) and refining, to corresponding information and measurements for selected other publicly traded companies engaged in the same lines of business.  Specifically, Deutsche Bank compared Lyondell’s commodity chemicals information with that of Celanese Corporation, Dow Chemical Company, Nova Chemicals Corporation and Westlake Chemical Company (collectively, the "Selected Commodity Chemical Companies") and compared Lyondell’s refining information with that of Holly Corporation, Frontier Oil Corporation, Sunoco Inc., Valero Energy Corporation and Tesoro Corporation (collectively, the "Selected Refinery Companies" and, collectively with the Selected Commodity Chemical Companies, the “Selected Companies”).  The financial information and valuation measurements of the Selected Companies analyzed by Deutsche Bank included, among other things, their respective: (1) common equity market valuations (“Equity Value”); (2) operating performance; (3) ratios of common equity market value as adjusted for debt and cash ("Enterprise Value") to revenues and earnings before interest expense, income taxes and depreciation and amortization ("EBITDA"); and (4) ratios of common equity market prices per share ("Share Price") to earnings per share ("EPS").
 
To calculate the trading multiples for the Selected Companies, Deutsche Bank used publicly available information concerning historical and projected financial performance, including published historical financial information and earnings estimates reported by IBES.  Based on this analysis and its business judgment, Deutsche Bank selected a range of 6.0X to 7.0X 2007 commodity chemicals EBITDA based on the Selected Commodity Chemical Companies and 5.0X to 6.5X 2007 refining EBITDA based on Selected Refining Companies.
 
        After determining these ranges of multiples, Deutsche Bank calculated an implied per share valuation range for Lyondell by multiplying the estimated 2007 EBITDA figures set forth in the Management case and those set forth in the Street case by these ranges, applying in each case the multiples for the Selected Commodity Chemical Companies to estimated EBITDA from Lyondell’s chemical division and the multiples for the Selected Refining Companies to estimated EBITDA from Lyondell’s refining division.  Based on this analysis, Deutsche Bank derived an implied per share range of values for Lyondell of approximately $43.50 to $58.50 based on estimated 2007 EBITDA as set forth in the Management case and $38.50 to $51.75 based on estimated 2007 EBITDA as set forth in the Street case.
 
None of the Selected Companies is identical to Lyondell.  Accordingly, Deutsche Bank believes the analysis of publicly traded comparable companies is not simply mathematical.  Rather, it involves complex considerations and qualitative judgments, reflected in Deutsche Bank’s opinion, concerning differences in financial and operating characteristics of the comparable companies and other factors that could affect the public trading value of the comparable companies.
 
Analysis of Selected Precedent Transactions
 
Deutsche Bank reviewed the financial terms, to the extent publicly available, of nine proposed, pending or completed mergers and acquisition transactions since 1998 involving companies in the commodity chemicals industry (the "Selected Commodity Chemical Transactions") and nine proposed, pending or completed mergers and acquisition transactions since 2005 involving companies in the refinery industry (the "Selected Refinery Transactions" and, with the Selected Commodity Chemical Transactions, the “Selected Transactions”).
The Selected Commodity Chemical Transactions reviewed were:
 
Target
Aquiror
Announcement Date
Huntsman Corp’s US Base/Polymers
Koch Industries
2/15/2007
Huntsman Corp’s European Base/Polymers
Saudi Basic Industries Corporation
9/27/2006
Innovene Inc.
Ineos Enterprises Limited
10/7/2005
Basell
Access Industries
5/5/2005
Millennium Chemicals Inc.
Lyondell Chemical Company
3/28/2004
DSM Petrochemicals
Saudi Basic Industries Corporation
4/3/2002
Equistar Chemicals, LP (29.5% stake)
Lyondell Chemical Company
1/31/2002
Union Carbide Corporation
Dow Chemical Company
8/4/1999
Arco Chemical Company
Lyondell Chemical Company
6/18/1998
 
The Selected Refinery Transactions reviewed were:
 
Target
Aquiror
Announcement Date
Valero Energy Corporation (Lima refinery)
Husky Energy Inc.
5/2/2007
Shell Oil Products US (Wilmington refinery)
Tesoro Corporation
1/29/2007
Giant Industries Inc.
Western Refining Inc.
8/28/2006
Vitol Refinery Group B.V. (North Atlantic Refinery Limited)
Harvest Energy Trust
8/23/2006
CITGO Petroleum Corporation - 41.25% stake in LCR
Lyondell Chemical Company
8/16/2006
Paramount Petroleum Corporation
Alon USA Energy Inc.
5/1/2006
Coffeyville Resources LLC (Pegasus Capital Advisors)
Kelso & Co. / Goldman Sachs & Co.
7/12/2005
Ashland Inc.
Marathon Oil Corporation
4/28/2005
Premcor Inc.
Valero Energy Corporation
4/25/2005
 
Deutsche Bank calculated various financial multiples based on certain publicly available information for each of the Selected Transactions and compared them to corresponding financial multiples for the merger, based on the merger consideration.  Specifically, Deutsche Bank calculated enterprise values as a multiple of last twelve months EBITDA for both the Selected Commodity Chemical Transactions and the Selected Refinery Transactions.  With respect to the Selected Refinery Transactions, Deutsche Bank selected a range of multiples from 4.0X to 6.0X.
 
With respect to the Selected Commodity Chemical Transactions, Deutsche Bank informed the board that commodity chemical company valuation levels are volatile and are dependent on the stage of the chemicals cycle and market at the time a transaction is announced.  Consequently, Deutsche Bank advised that, in its view, it is most appropriate for the board to focus its attention on the three most recent Selected Commodity Chemical Transactions as the basis of its comparison in this line of business   Applying this focus, Deutsche Bank selected a range of comparable transaction multiples for the Selected Commodity Chemical Transactions as 5.0X to 6.0X.  Deutsche Bank explained that alternatively, it would be appropriate, with respect to these transactions to calculate the multiple of Enterprise Value to an average EBITDA over a longer period of time rather than simply using the trailing 12 months preceding the announcement of the transaction.  Accordingly, Deutsche Bank calculated a cycle average EBITDA for the Selected Commodity Chemical Companies by computing the average EBITDA for the ten years, or maximum of publicly available information, preceding the date of the announcement of the transactions.  Applying this cycle average methodology, Deutsche Bank selected a range of multiples for the Selected Commodity Chemical Transactions from 7.5X to 8.5X.
 
After determining these ranges of multiples, Deutsche Bank derived an implied per share valuation range for Lyondell by applying selected multiple ranges to the trailing 12 month EBITDA contributed by Lyondell’s commodity chemical and refining divisions, respectively.  With respect to Lyondell’s commodity chemical division, Deutsche Bank applied two different sets of multiples, one derived from the three most recent Selected Commodity Chemical Transactions and one derived from the application of the cycle average methodology.  The multiples selected based on the three most recent Selected Commodity Chemical Transactions were 5.0X to 6.0X and the multiples selected based on the cycle average methodology were 7.5X to 8.5X.  With respect to Lyondell’s refining division, Deutsche Bank applied a range of 4.0X to 6.0X based on the Selected Refinery Transactions.  Based on this comparable transaction analysis (and in the case of the commodity chemical division, using the multiples derived from the three most recent Selected Commodity Chemical Transactions), Deutsche Bank derived an implied per share range of values for Lyondell of approximately $29.50 to $46.00.
 
        All multiples for the Selected Transactions were based on public information available at the time of announcement of such transaction, without taking into account differing market and other conditions at the time the Selected Transactions were consummated.
 
Because the reasons for, and circumstances surrounding, each of the precedent transactions analyzed were so diverse, and due to the inherent differences between the operations and financial conditions of Lyondell and the companies involved in the Selected Transactions, Deutsche Bank believes that a comparable transaction analysis is not simply mathematical.  Rather, it involves complex considerations and qualitative judgments, reflected in Deutsche Bank’s opinion, concerning differences between the characteristics of these transactions and the merger that could affect the value of the subject companies and businesses and Lyondell.
 
Discounted Cash Flow Analysis
 
Deutsche Bank performed a discounted cash flow analysis for Lyondell based on both the Management case projections and Street case projections.  Deutsche Bank calculated the discounted cash flow values for Lyondell as the sum of the net present values of (1) the estimated future cash flow that Lyondell will generate for the time period from July 1, 2007, through December 31, 2011, plus (2) the value of Lyondell at the end of such period (the “terminal value”).  The terminal values of Lyondell were calculated (1) for the commodity chemical division, based on the projected 2007 to 2011 cycle average EBITDA using both the Management and Street cases and applying multiples ranging from 7.5X to 8.5X and (2) for the refining division, based on a terminal value provided by Management based on their long-term outlook, the projected 2011 EBITDA under the Street case projection and a range of multiples of 5.0X to 6.0X.  Deutsche Bank used discount rates ranging from 9.5% to 11.5%.  Deutsche Bank used such discount rates based on its judgment of the estimated weighted average cost of capital of the Selected Companies, and used such multiples based on its review of the trading characteristics of the common stock of the Selected Companies.  This analysis indicated a range of values of approximately $37.00 to $47.00 per share for the Management case and $30.00 to $39.00 per share for the Street case.
 
Leveraged Buyout Analysis
 
Deutsche Bank also analyzed Lyondell from the perspective of a potential financial buyer that would effect a leveraged buyout of Lyondell.  Deutsche Bank preformed the analysis based on both the Management case projections and Street case projections.  For purposes of the Management case, the analysis was performed assuming a range of required rates of return to the equity sponsor of 20% to 25%, a range of total pro forma leverage from 4.25X to 4.75X and EBITDA exit multiples of (1) 8.0X for the commodity chemicals division, based on the projected 2007 to 2011 cycle average EBITDA, and (2) 5.5X for the refining division, based on the projected 2011 EBITDA.  For purposes of the Street case, the analysis was performed assuming a range of required rates of return to the equity sponsor of 20% to 25%, a range of minimum sponsor equity contributions from 20% to 25% and EBITDA exit multiples of (1) 8.0X for the commodity chemicals division, based on the projected 2007 to 2011 cycle average EBITDA, and (2) 5.5X for the refining division, based on the projected 2011 EBITDA.  The analysis yielded a range of per share implied values for Lyondell of approximately $44.75 to $51.50 for the Management case and $32.25 to $38.50 for the Street case.
 
Additional Deutsche Bank Analysis
 
The financial information upon which Deutsche Bank relied in preparing its opinion included estimates and projections with respect to Lyondell’s capital expenditures.  The estimates and projections used by Deutsche Bank included expenditures with respect to Lyondell’s Inorganic Chemicals business, a business that Lyondell sold in May of 2007.  The discounted cash flow analysis and the leveraged buyout analysis performed by Deutsche Bank take into account the projected capital expenditures of Lyondell.  Had Deutsche Bank eliminated from its discounted cash flow analysis the capital expenditures associated with the Inorganic Chemicals business, the range of values for the Lyondell shares under the Management case would have been $37.75 to $48.00 per share instead of $37.00 to $47.00 per share.  Had Deutsche Bank eliminated the capital expenditures associated with the Inorganic Chemicals business, the range of values resulting from the leveraged buyout analysis under the Management case would have been $45.00 to $52.00 instead of $44.75 to $51.50.  Deutsche Bank has confirmed to Lyondell that the exclusion of the capital expenditures relating to the Inorganic Chemicals business would not have changed its conclusion that the merger consideration was fair, from a financial point of view, to the holders of the Lyondell common stock.
 
 
Deutsche Bank Engagement
 
    The foregoing summary describes all analyses and factors that Deutsche Bank deemed material in its presentation to the Lyondell board of directors, but is not a comprehensive description of all analyses performed and factors considered by Deutsche Bank in connection with preparing its opinion.  The preparation of a fairness opinion is a complex process involving the application of subjective business judgment in determining the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances and, therefore, is not readily susceptible to summary description.  Deutsche Bank believes that its analyses must be considered as a whole and that considering any portion of such analyses and of the factors considered without considering all analyses and factors could create a misleading view of the process underlying the opinion.  In arriving at its fairness determination, Deutsche Bank did not assign specific weights to any particular analyses.
 
In conducting its analyses and arriving at its opinions, Deutsche Bank utilized a variety of generally accepted valuation methods.  The analyses were prepared solely for the purpose of enabling Deutsche Bank to provide its opinion to the Lyondell board of directors as to the fairness, from a financial point of view, to the holders of Lyondell common stock of the merger consideration and do not purport to be appraisals or necessarily reflect the prices at which businesses or securities actually may be sold, which are inherently subject to uncertainty.  In connection with its analyses, Deutsche Bank made, and was provided by Lyondell management with, numerous assumptions with respect to industry performance, general business and economic conditions and other matters, many of which are beyond Lyondell’s control.  Analyses based on estimates or forecasts of future results are not necessarily indicative of actual past or future values or results, which may be significantly more or less favorable than suggested by such analyses.  Because such analyses are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of Lyondell or their respective advisors, neither Lyondell nor Deutsche Bank nor any other person assumes responsibility if future results or actual values are materially different from these forecasts or assumptions.
 
The terms of the merger were determined through negotiations between Lyondell and Basell and were approved by the Lyondell board of directors.  Although Deutsche Bank provided advice to Lyondell during the course of these negotiations, the decision to enter into the merger was solely that of the Lyondell board of directors.  As described above, the opinion and presentation of Deutsche Bank to the Lyondell board of directors were only one of a number of factors taken into consideration by the Lyondell board of directors in making its determination to approve the merger.  Deutsche Bank’s opinion was provided to the Lyondell board of directors to assist it in connection with its consideration of the merger and does not constitute a recommendation to any holder of Lyondell common stock as to how to vote with respect to the merger.
 
Lyondell selected Deutsche Bank as exclusive financial advisor in connection with the merger based on Deutsche Bank’s qualifications, expertise, reputation and experience in mergers and acquisitions.  Lyondell retained Deutsche Bank pursuant to a letter agreement dated July 14, 2007 (the "Engagement Letter").  Lyondell agreed to pay Deutsche Bank a cash fee of $10 million at the time of an announcement of a definitive agreement pursuant to which greater than 50% of all voting power of Lyondell would be transferred and a cash fee of $25 million upon consummation of such a transaction.  Lyondell also agreed that, if the price per share paid in such a transaction were to exceed $48.00, Lyondell would pay Deutsche Bank, upon consummation of the transaction, an additional fee equal to 1.5% of the product of 265.5 million (the approximate number of fully diluted shares of Lyondell at July 14, 2007) multiplied by the amount by which such per share price exceeds $48.00.  As provided under the engagement letter, Lyondell paid $10 million to Deutsche Bank after July 17, 2007, when the proposed merger was announced, and an additional payment of $25 million to Deutsche Bank is contingent upon consummation of the proposed merger.  Regardless of whether the merger is consummated, Lyondell has agreed to reimburse Deutsche Bank for reasonable fees and disbursements of Deutsche Bank’s counsel and all of Deutsche Bank's reasonable travel and other out-of-pocket expenses incurred in connection with the merger or otherwise arising out of the retention of Deutsche Bank under the Engagement Letter.  Lyondell has also agreed to indemnify Deutsche Bank and certain related persons to the full extent lawful against certain liabilities, including certain liabilities under the federal securities laws arising out of its engagement or the merger.
 
Deutsche Bank is an internationally recognized investment banking firm experienced in providing advice in connection with mergers and acquisitions and related transactions.  Deutsche Bank is an affiliate of Deutsche Bank AG (together with its affiliates, the “DB Group”).  One or more members of the DB Group have, from time to time, provided investment banking, commercial banking (including extension of credit) and other financial services to Lyondell and Basell or their affiliates for which it has received compensation, including participating in Lyondell’s credit facility and acting as joint bookrunner on Lyondell’s high yield bond offering in June 2007 as well as assisting Basell with various corporate financing transactions, advisory assignments and acting as lead arranger of Basell’s €1.7 billion term loan in June 2007.  In the ordinary course of business, members of the DB Group may actively trade in the securities and other instruments and obligations of Lyondell and Basell for their own accounts and for the accounts of their customers.  Accordingly, the DB Group may at any time hold a long or short position in such securities, instruments and obligations.
 
 
 
If the merger agreement is approved by Lyondell’s shareholders and the other conditions to the completion of the merger are either satisfied or waived, Merger Sub will be merged with and into Lyondell, with Lyondell continuing as the surviving corporation in the merger. Upon the completion of the merger, each issued and outstanding share of Lyondell common stock, other than shares held by Lyondell, Basell, Merger Sub or any of their direct or indirect subsidiaries and shares held by shareholders who validly perfect their appraisal rights under Delaware law, will be converted into the right to receive the $48.00 merger consideration, without interest and less any applicable withholding tax. Lyondell’s shareholders will be required to surrender their shares upon the completion of the merger in exchange for a cash payment equal to the merger consideration.  If all eligible shares of common stock outstanding are converted, as of September 5, 2007 the total merger consideration expected to be paid for those shares is approximately $12.2 billion.
 
In the case of a substantial majority of the equity-based compensation awards referenced below, the occurrence of the merger itself triggers the vesting of the award and associated payments.  However, in the case of some awards, the approval of the merger by shareholders triggers the vesting of the award and the related payments for those awards are in some instances based on the market price of the Lyondell common stock on the date of shareholder approval or on the average price over a specified range of dates prior thereto.  For purposes of all the amounts set forth below, the $48.00 per share merger consideration is assumed, which may differ from the market price of the stock on or prior to or on the date of shareholder approval.
 
The Lyondell common stock to be converted in connection with the merger includes up to 259,127 shares of outstanding unvested restricted stock. In general, immediately prior to the effective time of the merger, these shares of restricted stock will become fully vested and will be converted in the merger into the right to receive $48.00 times the number of shares of restricted stock, on the same basis as the other shares of outstanding common stock. Awards of associated cash payments related to the vesting of those shares of restricted stock generally will also be converted in the merger into the right to receive $48.00 times the number of shares of restricted stock.  As of September 5, 2007 the total amount expected to be paid in respect of restricted stock and associated matching cash, based on the $48.00 merger consideration, is approximately $24.7 million.
 
Upon completion of the merger, options to acquire shares of Lyondell common stock that are outstanding immediately prior to the effective time of the merger under Lyondell’s incentive plans, vested or unvested, will be cancelled as of the effective time of the merger in exchange for a cash payment. Pursuant to the merger agreement, each option holder will receive a payment equal to $48.00 times the number of shares subject to each option, less the aggregate exercise price of the option. As of September 5, 2007, the total amount expected to be paid in respect of options is approximately $113.4 million.
 
Upon completion of the merger, phantom options that are outstanding immediately prior to the effective time of the merger under Lyondell’s incentive plans, vested or unvested, will be cancelled as of the effective time of the merger in exchange for a cash payment. Pursuant to the merger agreement, each phantom option holder will receive a payment equal to $48.00 times the number of shares of phantom options, less the aggregate exercise price of the phantom option. As of September 5, 2007, the total amount expected to be paid in respect of phantom options is approximately $51.2 million.
 
Upon completion of the merger, shares of phantom restricted stock that are outstanding immediately prior to the effective time of the merger will become fully vested and will be converted in the merger into the right to receive $48.00 times the number of shares of phantom restricted stock. In addition, awards of associated cash payments related to the vesting of those phantom restricted stock will also be converted in the merger into the right to receive $48.00 times the number of shares of phantom restricted stock.  As of September 5, 2007, the total amount expected to be paid in respect of phantom restricted stock and associated matching cash is approximately $25.7 million.
 
Upon completion of the merger, performance units that are outstanding immediately prior to the effective time of the merger generally will become fully vested at 100% of the target performance level and will be converted in the merger into the right to receive $48.00 times the number of performance units. As of September 5, 2007 and based on the $48.00 per share merger consideration, the total estimated amount expected to be paid for performance units in connection with the merger is approximately $116.8 million.
 
        Upon completion of the merger, the balance accrued as deferred stock units immediately prior to the effective time of the merger under the deferred compensation plan for non-employee directors will be paid out in lump sum.  The deferred stock units will be paid based on the closing price of Lyondell’s common stock on the last trading day of the month preceding the effective time of the merger.  As of September 5, 2007 and based on the $48.00 per share merger consideration, the total estimated amount expected to be paid in respect of deferred stock units is approximately $3.1 million.
 
See “−Interests of Lyondell’s Directors and Executive Officers in the Merger” below for a description of the portion of these payments that will be made to Lyondell’s directors and executive officers in connection with the merger.
 
Lyondell common stock is registered as a class of equity securities under the Securities Exchange Act of 1934, as amended, and is quoted on the New York Stock Exchange under the symbol “LYO.” As a result of the merger, Lyondell will be a privately held company, with no public market for its common stock. After the merger, Lyondell common stock will cease to be quoted on the New York Stock Exchange, and price quotations with respect to sales of shares of Lyondell common stock in the public market will no longer be available. In addition, registration of Lyondell common stock under the Exchange Act will be terminated. This termination and the delisting of Lyondell’s common stock from the New York Stock Exchange will make certain provisions of the Exchange Act, such as the short-swing recovery provisions of Section 16(b) and the requirement to furnish a proxy or an information statement in connection with a shareholders’ meeting, the liability provisions of the Exchange Act and the corporate governance requirements under New York Stock Exchange rules and regulations, no longer applicable to Lyondell as a stand-alone company.  In addition, unless Lyondell continues to have publicly traded debt securities after the completion of the merger, the provisions of the Sarbanes-Oxley Act of 2002, such as the requirement that certain executive officers of Lyondell certify the accuracy of Lyondell’s financial statements and that annual reports contain management’s report on the effectiveness of Lyondell’s internal controls, will no longer apply to Lyondell as a stand-alone company and Lyondell will no longer be required to file periodic reports with the SEC.
 
In considering the recommendation of Lyondell’s board of directors, you should be aware that Lyondell’s directors and executive officers have interests in the merger that may be different from, or are in addition to, your interests as a shareholder. The board of directors was aware of these actual and potential conflicts of interest and considered them along with other matters when they determined to recommend the merger.
 
Beneficial Ownership 
 
As of the record date, our directors and executive officers beneficially owned and were entitled to vote, in the aggregate, 1,099,650 shares of our common stock, representing less than 1% of all outstanding Lyondell shares. These numbers do not give effect to outstanding stock options, which are not entitled to vote at the special meeting.
 
Change in Control Arrangements
 
Upon the completion of the merger, a change in control will have occurred for purposes of change in control arrangements and various benefit and incentive plans in which Lyondell’s executive officers and directors are participants.  In addition, in the case of some awards, the approval of the merger by shareholders will constitute a change in control.  A change in control results in the triggering, accelerating or vesting of certain rights under those plans and arrangements.  For purposes of all the amounts set forth below, the $48.00 per share merger consideration is assumed.  In the case of awards as to which the approval of the merger by shareholders constitutes a change in control, the related payment in some cases is based on the market price of the Lyondell common stock on the date of shareholder approval or on the average price over a specified range of dates prior thereto, which may differ from the merger consideration.  The effects of the change in control described for each of the following arrangements will occur regardless of whether there is a termination of employment which would entitle an executive officer to benefits under the Executive Severance Pay Plan.  The provisions of the Executive Severance Pay Plan are described below under “−Executive Severance Pay Plan.”
 
 
Lyondell Stock Options.  Upon completion of the merger, options to acquire shares of Lyondell common stock that are outstanding under Lyondell’s incentive plans immediately prior to the effective time of the merger, whether or not vested, will be cancelled as of the effective time of the merger in exchange for a cash payment. Pursuant to the merger agreement, each option holder will receive a payment equal to $48.00 times the number of shares subject to each option, less the aggregate exercise price of the option. Payments made in respect of options will be subject to applicable withholding taxes.
 
The table below sets forth, as of September 5, 2007, for each of Lyondell’s directors and executive officers:
 
·  
the number of those shares of Lyondell common stock subject to vested options, the weighted average exercise price of those vested options and the value of those vested options,
 
·  
the number of options that will vest upon a change in control, the weighted average exercise price of those unvested options and the value of those unvested options, and
 
·  
the aggregate number of shares subject to vested options and options that will vest as a result of a change in control, the weighted average exercise price of those options and the aggregate value of all vested options and options that will vest as a result of a change in control.
 
Name
Number of Shares Underlying Vested Options
Weighted Average Exercise Price of Vested Options($)
Value of Vested Options(a)($)
Number of Shares Underlying UnvestedOptions
Weighted Average Exercise Price of Unvested Options ($)
Value of Unvested Options (a)($)
Aggregate Shares Subject to Options
Weighted Average Exercise Price of Vested and Unvested Options ($)
Value of Vested and Unvested Options (a)($)
Executive Officers
                 
Dan F. Smith
 1,130,923
16.16
36,012,150
457,421
29.10
8,644,121
1,588,344
19.89
44,656,271
Morris Gelb
180,458
29.07
3,415,209
   180,458
29.07
  3,415,209
T. Kevin DeNicola
    265,955
16.71
  8,321,740
107,166
29.10
2,025,428
   373,121
20.27
10,347,168
Edward J. Dineen
      71,785
22.15
  1,855,947
  88,242
29.07
1,670,324
   160,027
25.96
  3,526,271
Kerry A. Galvin
    102,639
18.46
  3,031,465
  77,010
29.08
1,457,022
   179,649
23.02
  4,488,487
John A. Hollinshead
    156,103
16.10
  4,979,931
  50,055
29.11
   945,686
   206,158
19.26
  5,925,617
James W. Bayer
      40,448
22.16
 1,045,043
  49,524
29.08
   936,776
    89,972
25.97
  1,981,819
W. Norman Phillips
     18,759
26.95
    394,943
  45,120
29.07
   854,131
    63,879
28.45
  1,249,074
C. Bart de Jong
     66,854
19.94
 1,875,994
  45,282
28.98
   861,416
   112,136
23.59
  2,737,410
                   
Directors
                 
Carol A. Anderson
       5,000
16.25
    158,750
      5,000
16.25
    158,750
Travis Engen
     15,000
14.32
    505,188
    15,000
14.32
    505,188
Dr. William R. Spivey
     15,000
14.32
    505,188
    15,000
14.32
    505,188
 
___________
(a)
The value (without regard to deductions for income taxes) is calculated by multiplying (1) the excess of $48.00 over the per share exercise price of the option by (2) the number of shares subject to the options.
 
        Lyondell Restricted Stock.  Executive officers and directors have awards of (1) restricted stock and (2) an associated cash payment which tracks the market value of Lyondell’s common stock. The associated cash payment is made when and if the shares of restricted stock vest.  Upon a change in control, the restrictions on these outstanding awards held by executive officers and directors will lapse. Pursuant to the terms of the merger agreement, each award of associated cash payments generally will be converted into the right to receive a payment equal to $48.00 times the number of shares of restricted stock associated with the cash payment award. Payments made in respect of awards of associated cash payments, as well as restricted stock, will be subject to applicable withholding taxes. The table below sets forth, as of September 5, 2007 and based on the $48.00 per share merger consideration, for each of Lyondell’s executive officers and directors:
 
·  
the number of shares of restricted stock held that will vest as a result of a change in control, and the estimated value of such restricted stock that will vest,
 
·  
the notional number of shares represented by the associated cash payment award that will vest as a result of a change in control, and the estimated total cash payment with respect to the vesting of each award of associated cash payment, and
 
·  
the total value of the restricted stock and cash payment that will vest as a result of a change in control.
 
 
Restricted Stock that Vests as a Result of a
Change in Control
 
Associated Cash Payments with Respect to Vesting of the Restricted Stock
 
Total Value ($)
Name
 
Shares
Value ($)
 
Shares
Value ($)
 
Executive Officers
             
Dan F. Smith
63,110
3,029,280
 
63,110
3,029,280
 
6,058,560
Morris Gelb
24,986
1,199,328
 
24,986
1,199,328
 
2,398,656
T. Kevin DeNicola
14,803
710,544
 
14,803
710,544
 
1,421,088
Edward J. Dineen
12,203
585,744
 
12,203
585,744
 
1,171,488
Kerry A. Galvin
10,649
511,152
 
10,649
511,152
 
1,022,304
John A. Hollinshead
6,916
331,968
 
6,916
331,968
 
663,936
James W. Bayer
6,851
328,848
 
6,851
328,848
 
657,696
W. Norman Phillips
6,251
300,048
 
6,251
300,048
 
600,096
C. Bart de Jong
6,272
301,056
 
6,272
301,056
 
602,112
               
Directors
             
Carol A. Anderson
9,436
452,928
 
9,436
452,928
 
905,856
Susan K. Carter
1,955
93,840
 
1,955
93,840
 
187,680
Stephen I. Chazen
9,436
452,928
 
9,436
452,928
 
905,856
Travis Engen
12,537
601,776
 
9,436
452,928
 
1,054,704
Paul S. Halata
3,704
177,792
 
3,704
177,792
 
355,584
Danny W. Huff
8,186
392,928
 
8,186
392,928
 
785,856
David J. Lesar
9,436
452,928
 
9,436
452,928
 
905,856
David J.P. Meachin
5,497
263,856
 
5,497
263,856
 
527,712
Daniel J. Murphy
3,704
177,792
 
3,704
177,792
 
355,584
Dr. William R. Spivey
9,436
452,928
 
9,436
452,928
 
905,856
 
Performance Units.  Upon a change in control, all outstanding performance units will be paid out at 100% of the target performance level.  Pursuant to the terms of the merger agreement, each holder of a performance unit generally will receive a payment equal to $48.00 times the number of performance units.  In addition, if the shareholders do not approve the merger prior to December 31, 2007, performance units granted in 2005 will pay out in accordance with their terms and the payout may be more than the target performance level.  Payments made in respect of performance units will be subject to applicable withholding taxes. The table below sets forth, as of September 5, 2007, for each of Lyondell’s executive officers (for purposes of this proxy statement, amounts for the 2005 awards also are based on the $48.00 per share merger consideration):
 
·  
the number of performance units held that will be payable as a result of a change in control, and
 
·  
the estimated total cash payment with respect to those performance units.
 

 
 
Performance Units Payable as a Result of Merger
Name
 
Units
 
Value ($)
Dan F. Smith
362,143
 
17,382,864
Morris Gelb
146,481
 
7,031,088
T. Kevin DeNicola
85,553
 
4,106,544
Edward J. Dineen
70,986
 
3,407,328
Kerry A. Galvin
61,888
 
2,970,624
John A. Hollinshead
40,067
 
1,923,216
James W. Bayer
39,925
 
1,916,400
W. Norman Phillips
36,792
 
1,766,016
C. Bart de Jong
36,714
 
1,762,272

        Executive Deferral Plan.  Upon completion of the merger, the full amount of contributions and earnings accrued or credited to each executive officer on the date immediately before the completion of the merger will be distributed in a lump sum form. Payments made will be subject to applicable withholding taxes. The following table quantifies, as of September 5, 2007 for each executive officer, the estimated benefit payable following the merger:
 
Name
 
Value under Deferral Plan ($)
Dan F. Smith
555,752
Morris Gelb
5,200,830
T. Kevin DeNicola
465,078
Edward J. Dineen
881,306
Kerry A. Galvin
439,457
John A. Hollinshead
2,910,320
James W. Bayer
283,472
W. Norman Phillips
477,632
C. Bart de Jong
1,015,257

Supplemental Executive Retirement Plan.  Upon the completion of the merger, an amount will be paid out to each executive officer as soon as administratively possible.  The SERP benefit is calculated in the benefit form available to the participant under the qualified retirement plan (lump sum or monthly annuity), is actuarially reduced based on the participant’s current age, and paid as a single payment. Payments made will be subject to applicable withholding taxes. The following table quantifies, as of September 5, 2007 for each executive officer, the estimated benefit payable following the merger:
 
Name
 
Value of SERP Benefit ($)
Dan F. Smith
15,759,482
Morris Gelb
6,996,903
T. Kevin DeNicola
1,007,654
Edward J. Dineen
1,393,877
Kerry A. Galvin
649,810
John A. Hollinshead
1,886,029
James W. Bayer
822,792
W. Norman Phillips
647,113
C. Bart de Jong
158,444

Elective Deferral Plan for Non-Employee Directors.Under the Elective Deferral Plan for Non-Employee Directors, non-employee directors currently may elect to have all or a portion of their annual cash retainer deferred as either cash or deferred stock units. Deferred stock units track the market value of Lyondell’s stock and are paid in cash. Upon completion of the merger, the full amount of contributions and earnings accrued or credited to each non-employee director (either as cash amounts or as deferred stock units) immediately prior to the effective time of the merger will be distributed in a lump sum form. The value of the deferred stock units will be based on the closing price of Lyondell’s common stock on the last trading day of the month preceding the effective time of the merger. The table below sets forth, as of September 5, 2007, for each of Lyondell’s non-employee directors:
 
·  
the number of deferred stock units for which payment will be made in connection with the merger,
 
·  
the total estimated cash payment for deferred stock units, based on the $48.00 merger consideration,
 
·  
the value of the cash amounts deferred, and
 
·  
the aggregate value of the deferred stock units and deferred cash.
 
 
 
 
Name
Deferred Stock Units
 
Value of Cash Amounts Deferred ($)
 
Total Value under
Deferral Plan ($)
Units
Value ($)
   
Carol A. Anderson
30,158
1,447,571
 
 
1,447,571
Susan K. Carter
 
     45,474
 
     45,474
Stephen I. Chazen
  1,215
     58,318
 
 
     58,318
Travis Engen
 
2,207,793
 
2,207,793
Danny W. Huff
 
   217,942
 
   217,942
David J. Lesar
18,078
   867,737
 
   695,249
 
1,562,987
Dr. William R. Spivey
15,267
   732,806
 
   225,240
 
   958,046
 
 
In addition, upon completion of the merger, Stephen F. Hinchliffe, Jr., who retired from the board of directors on May 4, 2006 and who has been receiving monthly benefit payments under this deferral plan for non-employee directors since June 2006, will receive a lump sum payment for his remaining benefits under the plan, estimated to be approximately $1.3 million.  
 
Discontinued Retirement Plan for Non-Employee Directors. In October 1998, the board of directors amended and restated the Retirement Plan for Non-Employee Directors to close the plan to new directors. With the exception of Dr. Butler, there are no members of the board of directors since the beginning of the last fiscal year who continued to accrue benefits under the discontinued Directors’ Retirement Plan. Upon completion of the merger, Dr. Butler, who retired on May 3, 2007 and who has been receiving monthly benefit payments under the plan since June 2007, will receive an actuarial equivalent of his lump sum payment for his remaining benefits under the plan, estimated to be approximately $310,000.  
 
Executive Severance Pay Plan.  In the case of a termination after a change in control, Lyondell’s executive officers would be covered by Lyondell’s Executive Severance Pay Plan, or ESPP, which provides severance benefits to compensate for the loss of employment.  If, within two years after a change in control, an executive officer covered under the ESPP is terminated without cause or terminates his or her employment for good reason, the executive officer is entitled to receive the following from Lyondell:
 
·  
a payment equal to three times annual earnings (base salary and target annual cash bonus award amount),
 
·  
automatic vesting of SERP and retirement benefits,
 
·  
if the executive officer is less than age 55 or has less than 10 years of service at employment termination, SERP and Retirement Plan benefits will be calculated as if the participant had terminated at age 55 with 10 or more years of service, further reduced to current age using the actuarial equivalence factors in accordance with the Retirement Plan, and the value will be paid from the SERP,
 
·  
continuation of welfare benefit coverages for 24 months after termination,
 
·  
retiree coverage provided under the executive medical plan, regardless of age and service at termination,
 
·  
up to $40,000 of outplacement services for a period of one year, and
 
·  
a gross-up payment for the amount of any excise tax liability imposed pursuant to Section 4999 of the Internal Revenue Code (or similar excise tax), and for any additional excise, income or payroll taxes resulting from a gross-up, with respect to any benefits paid in connection with the change in control.
 
Termination for cause means upon (1) the participant’s continued and willful refusal to substantially perform his duties (other than a willful refusal to perform a duty which constitutes constructive termination for good reason or refusal resulting from the participant’s incapacity due to physical or mental illness), after a demand for substantial performance where the participant’s performance is not cured within 30 days from that demand; (2) the participant’s engagement in willful misconduct or dishonesty that is materially injurious, monetarily or otherwise to the employer; or (3) a participant’s final conviction of a felony.
 
 

       Constructive termination for good reason means (1) the participant is assigned to any duties or responsibilities that are not comparable to the participant’s position, offices, duties, responsibilities or status with the employer at the time of the change in control, or the participant’s reporting responsibilities or titles are changed and the change results in a reduction of the participant’s responsibilities or position with the employer; (2) the participant’s level of benefits is reduced below the comparable level payable to similarly situated executives at the employer; or (3) the participant is actually transferred, or offered a proposed transfer to a location other than the location where the participant was primarily employed immediately preceding the change in control, unless that new location is a major operating unit or facility of the employer that is located within 50 miles of the participant’s primary location on the date immediately preceding a transfer.
 
An estimate of the benefits payable to executive officers related to base salary and annual cash bonus award, welfare benefits, outplacement services, gross-up payments for excise tax liability and benefits under the SERP, assuming a change in control and termination of employment on September 5, 2007, is set forth below.
 

Name
 
Salary and Annual Cash Award (a)($)
 
Welfare
Benefits (b)($)
 
Outplacement Services ($)
 
Accelerated Payments Under ESPP and SERP (c)($)
 
Excise Tax
Gross Up (d)($)
Dan F. Smith
8,910,000
 
86,516
 
40,000
 
 
Morris Gelb
4,334,429
 
103,333
 
40,000
 
 
T. Kevin DeNicola
2,862,803
 
222,250
 
40,000
 
256,219
 
2,948,091
Edward J. Dineen
2,589,187
 
212,466
 
40,000
 
69,544
 
Kerry A. Galvin
2,446,330
 
565,728
 
40,000
 
208,072
 
2,338,661
John A. Hollinshead
1,897,888
 
79,310
 
40,000
 
 
1,405,052
James W. Bayer
1,860,893
 
295,682
 
40,000
 
193,138
 
1,444,090
W. Norman Phillips
1,777,230
 
232,990
 
40,000
 
79,357
 
C. Bart de Jong
1,666,727
 
491,390
 
40,000
 
21,283
 
1,450,217
__________
(a)  
The payment amount is equal to three times the sum of each executive officer’s base salary plus target annual cash bonus award.
 
(b)  
Amounts shown represent an estimate of the value of welfare benefits. Values shown for executive medical and executive life insurance, as applicable, are for continued premium payments. The executive long term disability plan amounts include a discount rate of 5.75% and the disabled mortality rates used in that valuation, and premium amounts continue for two years.
 
(c)  
Amounts shown represent the value of the acceleration of the SERP payment that is included in the calculation in column (d) for purposes of Section 4999 of the Internal Revenue Code (or similar excise tax).
 
(d)  
The gross up for the excise and other taxes is with respect to the cash severance award, $40,000 in outplacement services, present value of continued life, medical and disability coverages, stock options and restricted stock that vest upon a change in control, payment of the performance unit awards at 100% of the target performance level and any SERP enhancement.
 
Management Arrangements
 
As of the date of this proxy statement, we have not entered into any employment agreements with our management in connection with the merger, nor amended or modified any agreements or plans.  Dan F. Smith, Lyondell’s chairman, president and chief executive officer, has recently been offered the position of chairman of the combined company after the merger, and is considering that opportunity.  Volker Trautz, Basell’s president and chief executive officer, will serve as chief executive officer of the combined company after the merger.  Basell has begun discussions with other Lyondell executive officers regarding future employment opportunities with the combined company.  As of the date of this proxy statement, none of the Lyondell executive officers have entered into any agreement or understanding with Basell regarding employment or other arrangements with Basell after the effective time, although they may do so.
 
 

Historically, a portion of the compensation for senior executives of Lyondell has been equity-based.  Following the acquisition of Basell by Access, an equity-based plan was developed for the senior executives of Basell.  As of the date of this proxy statement, there are no definitive plans regarding equity-based plans for the combined company after the merger, but it is possible that Lyondell executive officers who accept positions with the combined company will be given the opportunity to participate in an equity-based plan that has yet to be developed.

        Indemnification and Insurance 
 
The merger agreement provides that Basell will, or will cause the surviving corporation to:
 
·  
honor all rights to indemnification existing in favor of our current and former officers and directors for acts and omissions occurring before the completion of the merger,
 
·  
not amend the provisions relating to indemnification, exculpation and advancement rights of directors and officers in the surviving corporation’s organizational documents in a manner adverse to the current or former directors and officers and
 
·  
subject to certain conditions, prepay "tail" officers’ and directors’ liability insurance for six years after the completion of the merger. See “Terms of the Merger Agreement—Indemnification and Insurance of Lyondell’s Directors and Officers” beginning on page 59 of this proxy statement.
 
 
Basell has informed us that it estimates that the total amount of funds necessary to complete the merger and the related transactions is approximately $21.0 billion, which includes approximately $12.2 billion to be paid to holders of outstanding shares of Lyondell’s common stock, with the remaining funds being used to pay amounts pursuant to change in control arrangements and to refinance certain existing indebtedness of both the Basell group of companies (the “Basell Group”) as well as the Lyondell group of companies (the “Lyondell Group”), to pay customary fees and expenses in connection with the proposed merger, the financing arrangements and the related transactions as well as to fund ongoing working capital requirements of the combined group.
 
Basell has obtained debt financing commitments for the transactions contemplated by the merger agreement. The following arrangements are intended to provide the necessary financing for the merger and related transactions.  Notwithstanding such arrangements, the obligations of Basell and Merger Sub under the merger agreement are not subject to any financing condition.
 
Debt Commitments
 
Basell has received a debt commitment letter (the “Commitment Letter”), dated as of July 16, 2007, from Citigroup Global Markets Inc. (“Citigroup”), Goldman Sachs International (“GSI”), Goldman Sachs Credit Partners L.P. (“GSCP” and, together with GSI, "GS"), Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S”) and Merrill Lynch Capital Corporation (“MLCC” and, together with MLPF&S, "Merrill Lynch") and a joinder agreement, dated as of August 8, 2007, from ABN AMRO Incorporated (“ABN Inc.”) and ABN AMRO Bank N.V. (“ABN Bank” and, together with ABN Inc., "ABN" and, together with ABN Inc., Citigroup, GSI, GSCP, MLPF&S and MLCC, the “Debt Financing Sources”) pursuant to which, subject to the conditions set forth in the Commitment Letter:
 
·  
the Debt Financing Sources have, in the aggregate, committed to provide to one or more wholly owned subsidiaries of Basell (a) an aggregate principal amount equal to the U.S. dollar equivalent of up to $14.0 billion (plus a securitization facility backstop amount, if any) of senior secured credit facilities (the “Senior Secured Credit Facilities”) and (b) to the extent that the Senior Notes (as described below) are not issued on or prior to the initial funding under the Senior Secured Credit Facilities, up to $7.0 billion or the Euro equivalent in aggregate principal amount of senior secured second lien loans pursuant to a senior bridge facility (the “Senior Bridge Facility”); and
 
·  
Basell or Basell Funding S.ar.l. (guaranteed by Basell) (at its option and in lieu of the Senior Bridge Facility) will issue up to $7.0 billion or the Euro equivalent in aggregate principal amount of senior secured second lien notes and/or senior unsecured notes (at the option of the Debt Financing Sources) (the “Senior Notes”) in a Rule 144A or other private placement (the “High-Yield Debt Financing”); and
 
 
·  
the Senior Secured Credit Facilities, together with either the proceeds of the Senior Notes or the borrowings under the Senior Bridge Facility will be used for the purpose of financing the merger, repaying or refinancing certain existing indebtedness of both the Lyondell Group and the Basell Group, paying fees and expenses incurred in connection with the merger, the financing arrangements and the related transactions, funding ongoing working capital requirements and funding other general corporate purposes of the combined Basell/Lyondell group following completion of the merger.
 
Unless otherwise agreed by the Debt Financing Sources, the debt commitments expire on February 15, 2008. The documentation governing the financing arrangements has not been finalized and, accordingly, the actual terms of such arrangements may differ from those described in this proxy statement (including any changes to the terms as a result of any “market flex” provisions invoked as a result of the syndication of the debt commitments). As of the date of this proxy statement, no alternative financing arrangements or alternative financing plans have been made in the event the debt financing described herein is not available as anticipated.
 
Conditions Precedent to the Debt Commitments
 
The debt financing commitments are subject to, among other things, (1) consummation of the merger in accordance with the merger agreement (without giving effect to any amendments or waivers thereto by Basell that are materially adverse to the lenders without the reasonable consent of the joint lead arrangers), (2) the absence of a “Company Material Adverse Effect” (as defined in the merger agreement), (3) delivery of “know your customer” and PATRIOT Act information and documentation, (4) delivery of certain historical and pro forma financial information, (5) absence of any competing issues of debt securities or commercial bank or other credit facilities being offered, placed or arranged by Basell or its subsidiaries (subject to agreed exceptions), (6) the refinancing of certain indebtedness, (7) the execution of certain guarantees and the creation of certain security interests, (8) the negotiation, execution and delivery of definitive documentation, and (9) Basell using commercially reasonable best efforts to deliver not later than 20 business days prior to the closing date, a complete printed preliminary offering memorandum (the “Preliminary Offering Memorandum”) relating to the High-Yield Debt Financing and afford the joint lead arrangers a period of at least 20 consecutive days following receipt of the Preliminary Offering Memorandum to seek to place the Senior Notes.
 
Senior Secured Credit Facilities
 
General.  The borrower under the Senior Secured Credit Facilities will be one or more wholly owned subsidiaries of Basell. The Senior Secured Credit Facilities will consist of an up to $13.0 billion senior secured term loan facility with a term of seven years, plus an amount up to $750.0 million equal to the amounts outstanding under securitization or asset backed facilities of Lyondell and its subsidiaries, and a $1.0 billion senior secured revolving credit facility with a term of six years. The senior secured term loan facility may, at the option of the borrower, include a Euro-denominated tranche in an amount to be determined. The revolving credit facility may be drawn in U.S. dollars and Euros and will include sublimits for the issuance of letters of credit and swingline loans.
 
Citigroup, GSI, Merrill Lynch and ABN have been appointed as joint lead arrangers, bookrunners and global coordinators for the Senior Secured Credit Facilities. In addition, additional agents or co-agents for the Senior Secured Credit Facilities may be appointed prior to completion of the merger.
 
Interest Rate and Fees.  Loans under the Senior Secured Credit Facilities are expected to bear interest, at the borrower's option, at either (1) a rate equal to Adjusted LIBOR (London Interbank Offered Rate) (or in the case of loans denominated in Euros, Adjusted EURIBOR (Euro Interbank Offered Rate)) plus an applicable margin or (2) a rate equal to the higher of (a) the administrative agent’s “prime rate” and (b) the Federal Funds effective rate plus 0.50%, plus (in either case) an applicable margin. After the completion of the merger, the applicable margins may be subject to decrease pursuant to a leverage-based pricing grid.
 
In addition, the borrower will pay customary commitment fees (subject to a decrease based on leverage) and letter of credit fees in respect of the revolving credit facility. Upon the initial funding of the Senior Secured Credit Facilities, the borrower has also agreed to pay an underwriting and arrangement fee to the joint lead arrangers.
 
Guarantors.  Subject to certain limitations, all obligations under the Senior Secured Credit Facilities and under any interest rate protection, currency exchange, or other hedging or swap arrangement entered into with a lender or any of its affiliates will be unconditionally guaranteed jointly and severally on a senior secured basis by Basell, each borrower and each of the existing and subsequently acquired or organized material direct and indirect, wholly owned subsidiaries of Basell (other than certain subsidiaries to be mutually agreed upon).
 
 
Security.  Subject to certain limitations, the obligations of the borrowers and the guarantors under the Senior Secured Credit Facilities and under any interest rate protection, currency exchange, or other hedging or swap arrangement entered into with a lender or any of its affiliates will be secured by first priority liens on substantially all the present and after-acquired material assets of each borrower and any guarantor (other than Basell).
 
Other Terms.  The Senior Secured Credit Facilities will contain customary mandatory prepayment provisions, customary representations and warranties and customary affirmative and negative covenants, including, among other things, restrictions on indebtedness, liens, investments and acquisitions, sales of assets, mergers and consolidations, dividends and other distributions on or redemptions of stock and prepayments of certain subordinated indebtedness. The Senior Secured Credit Facilities will also include certain customary financial covenants and events of default, including a change of control default.
 
        High-Yield Debt Financing
 
General.  Basell or Basell Funding S.ar.l. (guaranteed by Basell) is expected to issue up to $7.0 billion or the Euro equivalent in aggregate principal amount of senior secured second lien notes and/or senior unsecured notes (at the option of the Debt Financing Sources). The Senior Notes will not be registered under the Securities Act of 1933, as amended, and may not be offered in the United States absent registration under, or an applicable exemption from the registration requirements of, the Securities Act. The Senior Notes will be offered to “qualified institutional buyers”, as such term is defined in Rule 144A under the Securities Act, and to non-U.S. persons outside the United States in compliance with Regulation S under the Securities Act.
 
Citigroup, GS, Merrill Lynch and ABN have been appointed as joint bookrunning managing underwriters of, joint bookrunning managing placing agents for, joint global coordinators of or joint bookrunning managing initial purchasers of the Senior Notes offering (the “Underwriters”).
 
Fees.  Basell will pay (or cause the issuer of the Senior Notes to pay) an underwriting fee (subject to a decrease based on certain percentages of any senior bridge conversion fee which may have been paid pursuant to the terms of the Senior Bridge Facility) to the Underwriters at the time of the issuance of the Senior Notes.
 
Guarantors.  Subject to certain limitations, all obligations under the Senior Notes may be unconditionally guaranteed jointly and severally on a senior or a senior subordinated basis by certain of the existing and subsequently acquired or organized material direct and indirect, wholly owned subsidiaries of Basell (other than certain subsidiaries to be mutually agreed upon).
 
Security.  Subject to certain limitations, if requested by the joint lead arrangers, the obligations under the Senior Notes and the guarantees may be secured by second priority liens on substantially all of the present and after-acquired material assets of the issuer and certain guarantors (other than Basell).
 
Other Terms.  The Senior Notes will be issued on terms which are customary for Rule 144A high yield debt securities issued by issuers of this type.
 
Senior Bridge Facility
 
General.  If the offering of Senior Notes by either Basell or Basell Funding S.ar.l. is not completed on or prior to the initial funding under the Senior Secured Credit Facilities, the Debt Financing Sources have committed (subject to the terms and conditions of the Commitment Letter) to provide to Basell or Basell Funding S.ar.l. (with a guarantee by Basell) up to $7.0 billion or the Euro equivalent of senior secured second lien bridge loans (the “Bridge Loans”).
 
If the Bridge Loans are not paid in full on or before the first anniversary of the completion of the merger (the “Maturity Date”), the Bridge Loans will automatically convert into senior unsecured loans maturing on the eighth anniversary of the completion of the merger. Holders of any such senior unsecured loans may at any time choose to exchange such senior unsecured loans for exchange notes maturing on the eighth anniversary of the completion of the merger, respectively; provided that the issuer shall have received requests to issue at least $100.0 million of exchange notes.
 
Citigroup, GS, Merrill Lynch and ABN have been appointed as joint lead arrangers, bookrunners and global coordinators for the Senior Bridge Facility. In addition, additional agents or co-agents for the Senior Bridge Facility may be appointed prior to completion of the merger.
 
 
Interest Rate and Fees.  The Bridge Loans will bear interest at a rate equal to LIBOR or EURIBOR, as applicable, plus a spread that increases over time after the expiry of determined intervals.
 
In addition, the borrower will pay to the joint lead arrangers a senior bridge commitment fee as well as, to the extent the Bridge Loans are made, a takedown fee as well as a fee based on either (1) the principal amount of the Bridge Loans outstanding on the Maturity Date or (2) the principal amount of any unsecured Bridge Loans.
 
Guarantors.  Subject to certain limitations, all obligations under the Senior Bridge Facility will be unconditionally guaranteed jointly and severally on either a senior or a senior subordinated basis by each of the existing and subsequently acquired or organized material direct and indirect, wholly owned subsidiaries of Basell (other than certain subsidiaries to be mutually agreed upon).
 
Security.  Subject to certain limitations, if requested by the joint lead arrangers until the Maturity Date, the obligations of the borrower and the guarantors under the Senior Bridge Facility will be secured by second priority liens on substantially all the present and after-acquired material assets of the borrower and any guarantor (other than Basell).
 
Other Terms.  The Senior Bridge Facility will contain customary mandatory prepayment provisions, customary representations and warranties and customary affirmative and negative incurrence-based covenants (which shall be based on those contained in the Preliminary Offering Memorandum and no more restrictive than the corresponding covenants contained in the Senior Secured Credit Facilities). The Senior Bridge Facility will also include certain customary events of default.
 
 
The merger is subject to various antitrust and competition laws. To the extent required, the parties have made merger filings in certain non-U.S. jurisdictions such as the European Union, China and Israel, and will observe the applicable waiting periods prior to completing the merger.  In the United States, the necessary filings under the HSR Act were made following the entry by an affiliate of Basell into a forward swap agreement with Merrill Lynch on May 4, 2007 (see “The Merger — Background of the Merger”), and the waiting period under the HSR Act expired on June 28, 2007.  The parties received clearance from the Israel Antitrust Authority on September 25, 2007.
 
Although we do not expect these regulatory authorities to raise any significant concerns in connection with their review of the merger, there is no assurance that all applicable waiting periods will expire and that we will obtain all required regulatory clearances.  Basell has agreed to promptly take all necessary steps to secure antitrust or competition clearance of the merger from all regulatory authorities, which steps could include selling and/or holding separate properties of Lyondell or Basell or their subsidiaries, so long as such steps would not be reasonably likely to result in a material adverse effect on the business, operations, financial condition or results of operations of the combined business of Basell and Lyondell.
 
Federal and state laws and regulations may also require that Lyondell or Basell file new license and/or permit applications with applicable governmental authorities in connection with the merger.
 
Other than the filings described above, we are not aware of any mandatory regulatory filings to be made or waiting periods to expire, in order to complete the merger. If the parties discover that other filings or waiting periods are necessary, they will seek to comply with them.
 
Notwithstanding the expiration of the waiting period under the HSR Act, at any time before or after consummation of the merger, the Antitrust Division of the United States Department of Justice or the Federal Trade Commission could take such action under the U.S. antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the consummation of the merger or seeking divestiture of substantial assets of Lyondell or Basell. At any time before or after the consummation of the merger, any state could take such action under antitrust laws as it deems necessary or desirable in the public interest. Such action could include seeking to enjoin the consummation of the merger or seeking divestiture of substantial assets of Lyondell or Basell. Private parties may also seek to take legal action under antitrust laws under certain circumstances.
 
 
On December 8, 1995, Lyondell entered into a shareholder rights agreement. In general, the rights agreement imposes significant dilution upon any person or group that acquires 15% or more of Lyondell’s outstanding common equity without the prior approval of Lyondell’s board of directors.
 
On July 16, 2007, before the execution of the merger agreement, Lyondell entered into an amendment to the rights agreement, which provides that none of the execution, delivery or performance of the merger agreement nor the completion of the merger will trigger the provisions of the rights agreement.
 
In particular, the amendment to the rights agreement provides that none of Basell, Merger Sub or any of their respective subsidiaries or affiliates will become an “Acquiring Person,” and no “Flip−In Event,” “Flip−Over Event,” “Distribution Date” or “Stock Acquisition Date” will occur, in each case, as a result of:
 
·  
the public announcement of the merger,
 
·  
the execution and delivery of the merger agreement,
 
·  
the conversion of Lyondell shares into the right to receive cash in the merger, or
 
·  
the consummation of the merger or any other transactions contemplated by the merger agreement.
 
 
The following is a summary of the material U.S. federal income tax consequences of the merger to certain holders of Lyondell common stock. This summary is based on the Internal Revenue Code of 1986, as amended, referred to as the “Code” in this proxy statement, Treasury regulations promulgated under the Code, administrative rulings by the Internal Revenue Service and court decisions now in effect. All of these authorities are subject to change, possibly with retroactive effect so as to result in tax consequences different from those described below. This summary does not address all of the U.S. federal income tax consequences that may be applicable to a particular holder of Lyondell common stock. In addition, this summary does not address the U.S. federal income tax consequences of the merger to holders of Lyondell common stock who are subject to special treatment under U.S. federal income tax laws, including, for example, banks and other financial institutions, insurance companies, tax-exempt investors, S corporations, real estate investment trusts, holders that are properly treated as “partnerships” for U.S. federal income tax purposes, dealers in securities, holders who hold their common stock as part of a hedge, straddle or conversion transaction, holders whose functional currency is not the U.S. dollar, holders who acquired Lyondell’s common stock through the exercise of employee stock options or other compensatory arrangements, holders who are subject to the alternative minimum tax provisions of the Code and holders who do not hold their shares of Lyondell common stock as “capital assets” within the meaning of Section 1221 of the Code. This summary does not address the U.S. federal income tax consequences to any holder of Lyondell common stock who, for U.S. federal income tax purposes, is a nonresident alien individual, a foreign corporation or a foreign estate or trust and this summary does not address the tax consequences of the merger under state, local or foreign tax laws.
 
This summary is provided for general information purposes only and is not intended as a substitute for individual tax advice. Each holder of Lyondell common stock should consult the holder's individual tax advisor as to the particular tax consequences of the merger to such holder, including the application and effect of any state, local, foreign or other tax laws and the possible effect of changes to such laws.
 
Exchange of Common Stock for Cash
 
Generally, the merger will be taxable to Lyondell’s shareholders for U.S. federal income tax purposes. A holder of Lyondell common stock receiving cash pursuant to the merger generally will recognize gain or loss for U.S. federal income tax purposes in an amount equal to the difference between the amount of cash received and the holder's adjusted tax basis in the Lyondell common stock surrendered. Any such gain or loss generally will be capital gain or loss if the Lyondell common stock is held as a capital asset at the effective time of the merger. Any capital gain or loss will be taxed as long-term capital gain or loss if the holder has held the Lyondell common stock for more than one year prior to the effective time of the merger. If the holder has held the Lyondell common stock for one year or less prior to the effective time of the merger, any capital gain or loss will be taxed as short-term capital gain or loss. Currently, long-term capital gain for non-corporate taxpayers is taxed at a maximum federal tax rate of 15%. The deductibility of capital losses is subject to certain limitations.
 
Dissenting Shareholders
 
Lyondell’s shareholders who perfect appraisal rights with respect to the merger, as discussed under “Appraisal Rights” beginning on page 69 of this proxy statement, and who receive cash in respect of their shares of Lyondell common stock, generally will recognize gain or loss for U.S. federal income tax purposes in an amount equal to the difference between the amount of cash received and the holder's adjusted tax basis in the Lyondell common stock surrendered. Each such shareholder should consult the holder's own tax advisor as to the tax consequences of the receipt of cash as a result of exercising appraisal rights.
 
 
Backup Withholding
 
Under the U.S. federal backup withholding tax rules, unless an exemption applies, the paying agent will be required to withhold, and will withhold, 28% of all cash payments to which a holder of Lyondell common stock is entitled in connection with the merger unless the holder provides a tax identification number (social security number in the case of an individual or employer identification number in the case of other holders), certifies that such number is correct and that no backup withholding is otherwise required and otherwise complies with such backup withholding rules. Each holder of Lyondell common stock should complete, sign and return to the paying agent the Substitute Form W-9 in order to provide the information and certification necessary to avoid backup withholding, unless an exemption applies and is satisfied in a manner satisfactory to the paying agent. The Substitute Form W-9 will be included as part of the letter of transmittal mailed to each record holder of Lyondell common stock.
 
 
Two shareholder lawsuits styled as class actions have been filed against Lyondell and its directors.  The lawsuits are entitled Plumbers and Pipefitters Local 51 Pension Fund, On Behalf of Itself and Others Similarly Situated v. Lyondell Chemical Company, et al. (filed July 23, 2007 in the District Court of Harris County, Texas) and Walter E. Ryan Jr, Individually and on Behalf of All Other Similarly Situated v. Lyondell Chemical Company, et al. (filed August 20, 2007 in the Court of Chancery of the State of Delaware).  The Ryan case also named as defendants Basell and Merger Sub. On August 29, 2007, the Plumbers petition was amended to add as defendants Basell and Merger Sub. The complaints generally allege that (1) Lyondell’s board of directors breached their fiduciary duties in negotiating and approving the merger and by administering an unfair sale process that failed to maximize shareholder value, and engaged in self dealing by obtaining unspecified personal benefits in connection with the merger not shared equally by other shareholders; and (2) Lyondell, Basell and Merger Sub aided and abetted the Lyondell board of directors in breaching their fiduciary duties.  In addition, the complaints allege that Lyondell and its board of directors failed to disclose in the preliminary proxy statement certain information regarding the merger and the process leading up to the merger, including, but not limited to:

·  
material information relating to Lyondell's available strategic alternatives, including a description of and the relative merits of strategic alternatives, if any, considered by Lyondell’s board of directors aside from a sale of Lyondell to Basell, and information regarding Lyondell’s board of directors decision to abandon or relegate other strategic alternatives in favor of a sale to Basell;
 
·  
the consideration, if any, of a sale of any of Lyondell's numerous businesses, including Equistar, Houston Refining, and Millennium, and information regarding the impact that the sale of any or all of Lyondell’s numerous satellite businesses, such as the foregoing, would have on Lyondell’s cash flows or financial prospects, and whether Basell intends to sell or otherwise dispose of any of those assets;
 
·  
the value of all or one of Lyondell’s businesses;
 
·  
Basell's future plans for the Lyondell entities, i.e.,  whether it will operate all or some of the brands, and/or spin-off all or some of the brands;
 
·  
what terms were proposed by Apollo, if any, including whether Apollo proposed any price or terms of a management-led going private transaction when it contacted Lyondell on May 14, 2007, and whether any proposed terms were more or less favorable than the terms of the agreement with Basell;
 
·  
material information regarding Deutsche Bank's sum-of-the-parts analysis (or if one was prepared), Deutsche Bank’s methodology for selecting comparable companies, and what consideration, if any, Lyondell’s board of directors gave to its “Selected Companies Valuation”, which valued Lyondell as high as $51.25 per share for the “Street Case” and $58.50 per share based on management's projections;
 
·  
material information regarding what consideration, if any, Lyondell’s board of directors gave to Deutsche Bank's analysis of its Inorganic Chemicals business, and whether eliminating those capital expenditures would provide shareholders with more value;
 
·  
material information regarding Deutsche Bank's “Analysis of Selected Precedent Transactions”, including its criteria for selection of comparable transactions and the multiples derived from the comparable transactions, and material information concerning Deutsche Bank's “Analysis of Selected Publicly Traded Companies”, including the key inputs and assumptions made in order to select comparable companies and the multiples derived from the comparable companies;
 
 
·  
material information regarding the rationale and assumptions made by Deutsche Bank in arriving at the key inputs used in the discounted cash flows analysis, the rationale for Deutsche Bank failing to incorporate the capital expenditures associated with the Inorganic Chemicals business, and the rationale behind Deutsche Bank's use of long-term EBITDA projections in the “Analysis of Precedent Transactions”, but not in the other analyses;
 
·  
material information regarding the standard applied by the advisors to determine "fair from a financial point of view," such as whether the advisor applied a "fair value," "fair market value" or other standard; and
 
·  
material information concerning any actual and potential conflicts of interest that burdened Lyondell’s board of directors and its advisors.
 
The plaintiffs in these lawsuits seek, among other things, to enjoin the merger and to rescind the merger agreement.  Discovery has commenced.  In the Delaware case, defendants have filed motions for summary judgment, for dismissal for failure to state a claim and for certification of the plaintiff class.  In the Texas case, at the plaintiff's request, the court has reserved November 9, 2007 for a hearing on a motion to be filed by plaintiff for a preliminary injunction against the merger.  Lyondell believes that the lawsuits are without merit and that it has valid defenses to all claims and will vigorously defend this litigation.
 
 
 
 
The following is a summary of the material terms of the merger agreement.  This summary does not purport to describe all the terms of the merger agreement and is qualified by reference to the complete merger agreement, which is attached as Appendix A to this proxy statement.  Lyondell urges you to read the merger agreement carefully and in its entirety because it, and not this proxy statement, is the legal document that governs the merger.
 
You are cautioned that the representations, warranties and covenants included in the merger agreement were made by Lyondell and Basell and Merger Sub to each other.  These representations, warranties and covenants were made as of specific dates and only for purposes of the merger agreement and are subject to important exceptions and limitations, including a contractual standard of materiality different from that generally relevant to investors, and are qualified by information in confidential disclosures that the parties exchanged in connection with the execution of the merger agreement.  In addition, the representations and warranties may have been included in the merger agreement for the purpose of allocating risk between Lyondell and Basell, rather than to establish matters as facts.  The merger agreement is described in this proxy statement and attached as Appendix A hereto only to provide you with information regarding its terms and conditions, and, except for its status as a contractual document that establishes and governs the legal relationship among the parties thereto with respect to the merger, not to provide any other factual information regarding Lyondell, Basell or their respective businesses or the actual conduct of their respective businesses during the pendency of the merger agreement.  You should not rely on the representations and warranties in the merger agreement as characterizations of the actual state of facts about Lyondell or Basell.  Furthermore, you should not rely on the covenants in the merger agreement as actual limitations on the respective businesses of Lyondell and Basell, because either party may take certain actions that are either expressly permitted in the confidential disclosures to the merger agreement or as otherwise consented to by the appropriate party, which consent may be given without prior notice to the public.
 
 
The merger agreement provides for the merger of Merger Sub with and into Lyondell upon the terms, and subject to the conditions, of the merger agreement.  As the surviving corporation, Lyondell will continue to exist as a Delaware corporation following the merger as a wholly owned subsidiary of Basell.
 
Upon consummation of the merger, the directors of Merger Sub will be the initial directors of the surviving corporation, and the officers of Lyondell immediately prior to the effective time of the merger will be the initial officers of the surviving corporation.  All officers of the surviving corporation will hold office until the earlier of their resignation or removal.
 
 
 
       Unless Basell elects to delay the closing as described below, Lyondell and Basell will consummate the merger two business days after the satisfaction or waiver of all the closing conditions to the merger (other than those conditions that by their nature are to be satisfied at the closing).  However, Basell may elect, after providing Lyondell with no less than five business days notice, to specify another date for the closing to occur which will be within 20 business days following the second business day after the satisfaction or waiver of all the closing conditions (and in any event not later than February 15, 2008).  This additional period is referred to as the “marketing period.”  See “—Agreements Regarding Financing” below and “The Merger—Financing Arrangements” for more information regarding the financing of the merger.  The merger will become effective at the time the certificate of merger is filed with the Secretary of State of the State of Delaware or at such other later time as Lyondell and Basell agree and specify in the certificate of merger.
 
If Lyondell’s shareholders approve the merger agreement, the parties intend to complete the merger as soon as practicable thereafter.  The parties to the merger agreement expect to complete the merger in the fourth quarter of 2007 subject to satisfaction of the conditions described under “—Conditions to the Merger” below, although there can be no assurance that we will be able to do so.
 
 
The merger agreement provides that, at the effective time of the merger:
 
·  
each Lyondell share issued and outstanding immediately prior to the effective time of the merger (including the shares owned by AI Chemical Investments LLC, which is an affiliate of Basell, but excluding (1) shares owned by Lyondell, Basell, Merger Sub or any of their direct or indirect subsidiaries and (2) shares owned by shareholders who have perfected their appraisal rights under Delaware law) will be converted into the right to receive $48.00 in cash, without interest and less any applicable withholding tax (resulting in total expected payments of approximately $12.2 billion);
 
·  
each Lyondell share owned by Lyondell, Basell or Merger Sub or by any of their respective subsidiaries will automatically be cancelled and will cease to exist, and no consideration will be paid in exchange for any such shares;
 
·  
dissenting shareholders who have perfected appraisal rights under Delaware law will be entitled to receive only the payment for their shares provided by Section 262 of the Delaware General Corporation Law, unless and until such dissenting shareholder effectively withdraws or loses appraisal rights; and
 
·  
each share of capital stock of Merger Sub will be converted into one share of common stock of the surviving corporation, Lyondell.
 
After the effective time of the merger, each holder of a certificate representing any shares of Lyondell stock (other than shares for which appraisal rights have been properly demanded and perfected) will no longer have any rights with respect to the shares, except for the right to receive the merger consideration.  See “Appraisal Rights” beginning on page 69.
 
 
Options
 
Each option under Lyondell’s stock plans to acquire shares that is outstanding immediately prior to the effective time of the merger, whether or not exercisable, will be cancelled in exchange for a single lump sum cash payment without interest (subject to any applicable income or employment tax withholding) equal to the excess, if any, of (1) the merger consideration for each Lyondell share over (2) the exercise price per share under the option.
 
Restricted Stock
 
The restrictions under each outstanding award of Lyondell restricted stock, including common stock underlying restricted stock units, under Lyondell’s restricted stock plans and long term incentive plan will, immediately prior to the effective time of the merger, lapse and at the effective time of the merger, each share of restricted stock, restricted stock units and phantom units will be converted into the right to receive the merger consideration (subject to any applicable income or employment tax withholding).
 
 
Performance Units
 
Each grant of performance units under Lyondell’s stock plans that is outstanding immediately prior to the effective time of the merger shall become fully vested and payable and will be converted into the right to receive a single lump sum payment (subject to any applicable income or employment tax withholding) equal to the product of (1) the number of shares of common stock the shareholder would have been entitled to under the terms of the performance unit and (2) the merger consideration.
 
Phantom Awards
 
Benefits payable in cash under outstanding performance unit awards, phantom option awards and phantom restricted stock awards under Lyondell’s subsidiaries’ incentive plans will be paid in full on the later of January 15, 2008 or thirty days after the effective time of the merger.  Benefits payable in cash under outstanding performance unit awards, phantom option awards and phantom restricted stock awards under the Lyondell incentive plan will be paid at or immediately after the effective time of the merger in accordance with the terms of those awards.  Payments will be calculated using the methodologies described under “—Options,” “—Restricted Stock” and “—Performance Units” above, as applicable.
 
 
Basell will designate a paying agent reasonably acceptable to Lyondell to make payment of the merger consideration as described above. Promptly after the effective time of the merger, Basell will deposit, or cause to be deposited, in trust with the paying agent the funds appropriate to pay the merger consideration to the shareholders and holders of options and performance units.
 
Following the effective time of the merger, Lyondell will close its stock ledger. After that time, there will be no further transfer of shares of Lyondell common stock.
 
Promptly after the effective time of the merger, Basell will cause the paying agent to send you a letter of transmittal and instructions advising you how to surrender your certificates in exchange for the merger consideration. The paying agent will pay you your merger consideration after you have (1) surrendered your certificates to the paying agent and (2) provided to the paying agent your signed letter of transmittal and any other items specified by the letter of transmittal. Interest will not be paid or accrue in respect of the merger consideration. Basell or the paying agent may reduce the amount of any merger consideration paid to you by any applicable withholding taxes. YOU SHOULD NOT FORWARD YOUR STOCK CERTIFICATES TO THE PAYING AGENT WITHOUT A LETTER OF TRANSMITTAL, AND YOU SHOULD NOT RETURN YOUR STOCK CERTIFICATES WITH THE ENCLOSED PROXY.
 
If any cash deposited with the paying agent is not claimed within 365 days following the effective time of the merger, such cash will be returned to Basell or Lyondell, as the surviving corporation, upon demand subject to any applicable unclaimed property laws.
 
If the paying agent is to pay some or all of your merger consideration to a person other than you, as the registered owner of a stock certificate, you must have your certificates properly endorsed or otherwise in proper form for transfer, and you must pay any transfer or other taxes payable by reason of the transfer or establish to the paying agent’s reasonable satisfaction that the taxes have been paid or are not required to be paid.
 
The transmittal instructions will tell you what to do if you have lost your certificate, or if it has been stolen or destroyed. You will have to provide an affidavit to that fact and, if required by Lyondell or Basell, post a bond in an amount that Lyondell or Basell directs as indemnity against any claim that may be made against Lyondell or Basell in respect of the lost, stolen or destroyed certificate.
 
 
Lyondell has made certain representations and warranties in the merger agreement to Basell and Merger Sub, including as to:
 
·  
corporate existence and power, qualification to conduct business and good standing;
 
·  
capital structure;
 
·  
corporate authority to enter into, and carry out the obligations under, the merger agreement the transactions contemplated by the merger agreement, and enforceability of the merger agreement;
 
 
·  
the absence of violations of organizational documents and contracts as a result of the transactions contemplated by the merger agreement;
 
·  
required governmental approvals;
 
·  
the accuracy of Lyondell’s reports filed with the SEC and the accuracy of the financial statements included in such reports;
 
·  
internal control over financial reporting and disclosure controls and procedures;
 
·  
accuracy of information supplied by Lyondell for inclusion in this proxy statement;
 
·  
absence of any material adverse effect and conduct of business since December 31, 2006;
 
·  
no undisclosed material liabilities;
 
·  
no default under organizational documents, agreements, or judgments, orders, decrees, statutes, laws, ordinances or regulations of any governmental authority;
 
·  
compliance with laws and licenses;
 
·  
litigation and other liabilities;
 
·  
taxes;
 
·  
compensation and employee benefits matters;
 
·  
labor matters;
 
·  
intellectual property matters;
 
·  
environmental matters;
 
·  
insurance;
 
·  
receipt of a fairness opinion of Lyondell’s financial advisor;
 
·  
vote and approval requirements;
 
·  
brokerage and similar fees;
 
·  
material contracts;
 
·  
inapplicability of anti-takeover statutes;
 
·  
title to real and personal property and related liens and encumbrances;
 
·  
related party transactions; and
 
·  
entry into an amendment to Lyondell’s shareholder rights agreement.
 
Certain aspects of the representations and warranties of Lyondell are qualified by the concept of “material adverse effect.” For the purposes of the merger agreement, a “material adverse effect” on Lyondell means any occurrence, condition, change, event or development, or series of any of the foregoing, that, individually or in the aggregate,
 
·  
is or is likely to be materially adverse to the properties, facilities, assets, liabilities, financial condition, business or results of operations of Lyondell and its subsidiaries, taken as a whole (taking into account the effects of any material disruption of production at a significant facility of Lyondell for an extended period of time), or
 
·  
materially impairs, prevents or delays the ability of Lyondell to consummate the transactions contemplated by the merger agreement or to perform its obligations under the merger agreement.
 
 
Notwithstanding the foregoing, in no event will any of the following constitute a “material adverse effect” on Lyondell:
 
·  
any occurrence, condition, change, event or effect resulting from or relating to changes in general economic or financial market conditions, including fluctuations in currency exchange rates;
 
·  
any occurrence, condition, change, event or effect that affects the chemical industry or refining industry generally (including changes in commodity prices, general market prices and regulatory changes affecting the chemical industry or refining industry generally);
 
·  
the outbreak or escalation of hostilities involving the United States, the declaration by the United States of a national emergency or war or the occurrence of any natural disasters and acts of terrorism (but not any such event resulting in any damage or destruction to or loss of Lyondell’s or its subsidiaries' physical properties to the extent such change or effect would otherwise constitute a material adverse effect);
 
·  
any changes resulting from the consummation of the transactions contemplated by, or the announcement of the execution of, the merger agreement;
 
·  
change in generally accepted accounting principles, or in the interpretation thereof, as imposed upon Lyondell, its subsidiaries or their respective businesses;
 
·  
any change in law or regulation, or in the interpretation thereof;
 
·  
the downgrade in rating of any debt securities of Lyondell or any of its subsidiaries by Standard & Poor’s Rating Group, Moody’s Investor Services, Inc. or Fitch Ratings, provided that this exception will not prevent a determination that any underlying cause of such changes resulted in a material adverse effect;
 
·  
changes in the price or trading volume of Lyondell’s stock, provided that this exception will not prevent a determination that any underlying cause of such changes has resulted in a material adverse effect;
 
·  
any legal proceedings made or brought by any of the current or former Lyondell shareholders (on their own behalf or on behalf of Lyondell) arising out of or related to the merger agreement or any of the transactions contemplated thereby;
 
·  
any failure by Lyondell to meet projections of revenue or earnings for a period ending after the execution of the merger agreement, provided that this exception will not prevent a determination that any underlying cause of such changes resulted in  a material adverse effect; and
 
·  
any occurrence, condition, change or event or effect resulting from compliance by Lyondell and its subsidiaries with the terms of merger agreement and each other agreement to be executed and delivered in connection with the merger agreement and such other agreements;
 
except, that with respect to the first three and sixth bullet points above, such occurrence, condition, change, event or effect will not be a material adverse effect in the event, and only to the extent, that it has had a disproportionate effect on Lyondell and its subsidiaries, taken as a whole, as compared to other companies engaged in the chemical industry or refining industry in the same geographic regions and segments as Lyondell and its subsidiaries.
 
Basell and Merger Sub have jointly and severally made certain representations and warranties in the merger agreement to Lyondell, including as to:
 
·  
corporate existence and power, qualification to conduct business and good standing;
 
·  
corporate authority to enter into, and carry out the obligations under, the merger agreement and the transactions contemplated by the merger agreement, and enforceability of the merger agreement;
 
·  
absence of violations of organizational documents and material contracts as a result of the transactions contemplated by the merger agreement;
 
·  
required governmental approvals;
 
·  
accuracy of information supplied by Basell for inclusion in this proxy statement;
 
·  
litigation;
 
·  
availability of funds and financial ability to pay the aggregate merger consideration and option consideration at the effective time of the merger;
 
 
·  
the debt commitment letter from Citigroup Global Markets Inc., Goldman Sachs International, Goldman Sachs Credit Partners L.P., Merrill Lynch Pierce Fenner & Smith Incorporated and Merrill Lynch Capital Corporation;
 
·  
solvency of Merger Sub;
 
·  
vote and approval requirements;
 
·  
ownership of Lyondell stock;
 
·  
conduct of business of Merger Sub;
 
·  
the accuracy of Basell’s financial statements for each fiscal quarter and year ended since August 1, 2005; and
 
·  
no material adverse effect since December 31, 2006.
 
Certain aspects of the representations and warranties of Basell and Merger Sub are qualified by the concept of “material adverse effect.” For the purposes of the merger agreement, a “material adverse effect” on Basell means any occurrence, circumstance, condition, change, event or effect that prevents or materially delays or impairs or is reasonably likely to prevent or materially delay or impair the ability of Basell and Merger Sub to consummate the transactions contemplated by the merger agreement.
 
The representations and warranties contained in the merger agreement do not survive the completion of the merger or the termination of the merger agreement.
 
 
Lyondell has agreed that, prior to the effective time of the merger, except as contemplated by the merger agreement, required by applicable law or consented to by Basell in writing (which consent shall not be unreasonably withheld, unreasonably delayed or unreasonably conditioned), Lyondell and each of its subsidiaries will:
 
·  
conduct its businesses in the ordinary course in substantially the same manner as previously conducted;
 
·  
use reasonable best efforts to preserve intact its present business organization and material permits, retain Lyondell’s current officers, and preserve its relationships with its key customers, suppliers and other persons with which it has significant business dealings and relations to the end that its goodwill, business and operations shall not be impaired in any material respect at the effective time of the merger.
 
Without limiting the generality of the foregoing, prior to the effective time of the merger, Lyondell has agreed that it and its subsidiaries will not:
 
·  
declare, set aside, make or pay any dividend or other distribution, with respect to any of its capital stock (except for Lyondell’s regular quarterly dividends or dividends paid by any direct or indirect wholly owned subsidiary to Lyondell or another such subsidiary);
 
·  
split, combine, reclassify, subdivide or redeem, purchase or otherwise acquire, directly or indirectly, any of its capital stock or securities convertible or exchangeable into or exercisable for any shares of its capital stock;
 
·  
offer, issue, deliver, grant, convey, pledge, transfer, dispose of, encumber or sell, or authorize or propose to offer, issue, deliver, grant, convey, pledge, transfer, dispose of, encumber or sell any shares of its capital stock, with certain exceptions, or securities convertible or exchangeable into or exercisable for any shares of such capital stock, or any options, warrants or other rights of any kind to acquire any shares of such capital stock or such convertible or exchange securities;
 
·  
adopt or propose any change in its certificate of incorporation or bylaws or other similar organizational documents;
 
·  
merge, consolidate, combine or amalgamate with any person other than another wholly owned subsidiary of Lyondell;
 
·  
acquire or agree to acquire (including by merging or consolidating with, purchasing any equity interest in or a substantial portion of the assets of, licensing, or by any other manner), any business or any corporation, partnership, association or other business organization or division thereof, other than acquisitions and licenses in the ordinary course of business or as to which the purchase price (including assumed indebtedness for borrowed money) is not in excess of $50 million individually;
 
 
·  
make or authorize any loans, advances or capital contributions to, or investments in, any person other than Lyondell or any wholly owned subsidiary of Lyondell or joint venture investment of Lyondell or any of its subsidiaries except for loans, advances or capital contributions pursuant to and in accordance with the terms of agreements or legal obligations, except in each case as existing as of the date of the merger agreement, in the ordinary course of business or not in excess of $50 million individually;
 
·  
sell, pledge, transfer, lease or encumber, or otherwise dispose of (including disposition on account of lease termination), any corporation, partnership, other business organization or division or any material assets thereof or equity interests therein, in each case other than:
 
o  
any sale, lease, license, or disposition in the ordinary course of business or pursuant to agreements existing on the date hereof or as contemplated by the merger agreement,
 
o  
any sale, lease or disposition for an amount below $15 million individually, and
 
o  
sales of receivables under the accounts receivable facilities existing on the date of the merger agreement as the same may be amended or replaced in accordance with the merger agreement;
 
·  
authorize, recommend, propose or announce an intention to adopt a plan of complete or partial liquidation or dissolution or consummate a recapitalization or other reorganization;
 
·  
change its accounting principles, methods or policies for the preparation of financial statements included in reports or registration statements filed with the SEC that has or is reasonably likely to have a material effect on the financial statements of Lyondell, except
 
o  
as required by generally accepted accounting principles or statutory accounting requirements or similar principles in Non-U.S. jurisdictions or
 
o  
as disclosed in Lyondell’s annual report on Form 10-K for the year ended December 31, 2006 and quarterly report on Form 10-Q for the quarter ended March 31, 2007;
 
·  
fail to maintain insurance coverage in amounts and against such risks and losses as are consistent with Lyondell’s past practices or permit any material insurance policy naming Lyondell or one of its subsidiaries as the beneficiary to be canceled or terminated other than in the ordinary course of business;
 
·  
make any material tax election (except for elections in the ordinary course of business or as required by law), settle any tax claim or change any method of tax accounting in excess of $2.5 million or fail to keep Basell reasonably informed of any settlement matter exceeding $1 million;
 
·  
grant any increases in the compensation payable or to become payable to any of its directors, officers or key employees, except increases made in the ordinary course of business substantially consistent with past practice;
 
·  
pay or agree to pay to any director, officer or key employee, whether past or present, any material pension, retirement allowance or other employee benefit not required by any of Lyondell’s existing employee benefit plans;
 
·  
enter into any new, or materially amend any existing, employment or severance or termination agreement with any director, officer or key employee;
 
·  
except as otherwise done pursuant to an acquisition permitted by the merger agreement, establish or become obligated under any collective bargaining agreement or employee benefit plan which was not in existence or approved by Lyondell’s board of directors prior to the date of the merger agreement (other than any new collective bargaining agreement, employee benefit plan that replaces an existing agreement or plan and contains terms that in the aggregate are not materially less favorable to Lyondell than the agreement or plan being replaced), or amend any such employee benefit plan in existence on the date of the merger agreement if such amendment would be on terms that are materially adverse to Lyondell;
 
 
·  
enter into or amend, in any manner materially adverse to Lyondell or any of its subsidiaries, arrangements that would constitute “related party transactions” under applicable SEC rules;
 
·  
incur, create or assume any indebtedness for borrowed money or guarantee such indebtedness of another person, or issue or sell any debt securities or warrants or other rights to acquire any debt security of Lyondell or any of its subsidiaries, except for incurrence of indebtedness for borrowed money and related guarantees
 
o  
under existing credit facilities, loans, debt or accounts receivable securitization facilities made in the ordinary course of Lyondell’s business,
 
o  
for extensions, renewals or refinancings of existing debt, provided that such refinancing or extension is at prevailing market rates and on terms not materially less favorable in the aggregate than the existing indebtedness being refinanced, renewed or extended,
 
o  
for additional borrowings in an amount not to exceed $50 million in the aggregate so long as the additional borrowings permit prepayment without penalty,
 
o  
related to working capital lines of credit, letters of credit, overdraft facilities, hedging transactions, bank guarantees, insurance premium financings, factoring transactions and other ordinary course forms of indebtedness to the extent permitted by Lyondell’s existing credit facilities, or
 
o  
indebtedness by Lyondell or its subsidiary that is owed to Lyondell or any of its 90% or greater owned subsidiaries;
 
·  
create any material encumbrances on any material property or assets of Lyondell or any of its subsidiaries in connection with any indebtedness, other than encumbrances permitted by the merger agreement;
 
·  
enter into or amend or modify in any manner materially adverse to Lyondell and its subsidiaries taken as a whole any material contract, except for renewals on substantially similar terms of existing contracts or replacements of existing contracts with new counterparties on substantially similar terms to the existing contract being replaced;
 
·  
authorize or make capital expenditures which are, in the aggregate (1) less than 85% or (2) greater than 125%, in each case of the aggregate amount of capital expenditures scheduled to be made in Lyondell’s capital expenditure budget, except for capital expenditures to repair damage resulting from insured casualty events;
 
·  
refinance or voluntarily redeem, repurchase, prepay, defease, cancel, or otherwise acquire, or modify in any material respect the terms of, any indebtedness for borrowed money in excess of $75 million, except for
 
o  
repayment of indebtedness under Lyondell’s existing revolving credit and term loan facilities,
 
o  
prepayments not involving the payment of any premium and
 
o  
refinancings permitted under the merger agreement;
 
·  
dispose of, grant or permit to lapse any rights to intellectual property, except in the ordinary course of business, or dispose of or disclose to any person any trade secret;
 
·  
except as required by applicable law, convene any shareholder meeting, other than for the purpose of considering the adoption of the merger agreement or a meeting called by a majority of Lyondell’s shareholders pursuant to Lyondell’s organizational documents;
 
·  
forgive any loans to any employees, officers, directors of Lyondell or any of its subsidiaries or affiliates that are not subsidiaries;
 
·  
settle or compromise any pending or threatened legal proceeding or pay, discharge or satisfy or agree to pay, discharge or satisfy any liability, other than the settlement, compromise, payment, discharge or satisfaction of legal proceedings and liabilities
 
o  
reflected or reserved against in full in the balance sheet included in Lyondell’s quarterly report on Form 10-Q for the quarter ended March 31, 2007,
 
 
o  
covered by existing insurance policies or indemnities,
 
o  
settled since the respective dates thereof in the ordinary course of business consistent with past practice, or
 
o  
otherwise less than $25 million individually; or
 
·  
agree, authorize or commit to do any of the foregoing actions.
 
 
The merger agreement provides that Lyondell, its subsidiaries and their respective officers, directors and other representatives will not, directly or indirectly:
 
·  
solicit, initiate, or knowingly encourage, or take any other action to knowingly facilitate, the making of any proposal that constitutes or is reasonably likely to lead to a “takeover proposal” (as defined below); or
 
·  
enter into, continue or otherwise participate in any discussions or negotiations regarding, or provide any non-public information or data to any third party relating to, any takeover proposal.
 
Lyondell also agreed to terminate, and to cause its subsidiaries and direct its officers and directors and other representatives to terminate, any negotiations relating to a takeover proposal existing at the date of the merger agreement.
 
However, at any time prior to the adoption of the merger agreement by the required vote of the Lyondell shareholders, Lyondell may, in response to an unsolicited bona fide written takeover proposal:
 
·  
furnish information about Lyondell and its subsidiaries to the person who has made such takeover proposal (and its representatives) pursuant to an executed confidentiality agreement containing confidentiality provisions substantially similar to those contained in the confidentiality agreement between Lyondell and Basell, provided Lyondell substantially concurrently discloses any non-public information to Basell that had not been provided previously to Basell; and
 
·  
participate in discussions or negotiations with the person who has made such takeover proposal (and its representatives) regarding such takeover proposal,
 
if and only to the extent that, prior to taking any action described in the two bullet points above, Lyondell’s board of directors determines in good faith:
 
·  
after consultation with its financial advisor and outside counsel, that such takeover proposal either constitutes a “superior proposal” (as defined below) or could reasonably be expected to lead to a “superior proposal” and
 
·  
after consultation with its outside counsel, that the failure to take such action would be inconsistent with the board’s fiduciary duties under applicable law.
 
The merger agreement also provides that Lyondell’s board of directors will not:
 
·  
withdraw or modify in a manner adverse to Basell (or publicly propose or resolve to withdraw or modify in a manner adverse to Basell), its approval, recommendation or declaration of advisability of the merger agreement or the merger, or recommend the approval or adoption of, or approve or adopt, or publicly propose to recommend, approve or adopt, any takeover proposal (such actions are referred to in this proxy statement as an “adverse recommendation change”); or
 
·  
approve or recommend, or publicly propose to approve or recommend, or cause or permit Lyondell or any of its subsidiaries to execute or enter into, any agreement related to any takeover proposal other than a confidentiality agreement.
 
However, in connection with a takeover proposal, at any time prior to the adoption of the merger agreement by the required vote of the Lyondell shareholders, Lyondell’s board of directors may make an adverse recommendation change if, after consultation with its financial advisor and outside counsel, it determines in good faith that the failure to take such action would be inconsistent with its fiduciary duties under applicable law.  However, Lyondell’s board of directors may only recommend the approval or adoption of, or approve or adopt, or publicly propose to recommend, approve or adopt, any takeover proposal or cause Lyondell to terminate the merger agreement if Lyondell’s board first determines in good faith after consultation with its financial advisor and outside counsel that the takeover proposal constitutes a superior proposal.