<PAGE>
As filed with the Securities and Exchange Commission on November 6, 1998
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR (g) OF
THE SECURITIES EXCHANGE ACT OF 1934
----------------------
ARCH CHEMICALS, INC.
(Exact name of registrant as specified in its charter)
Virginia 06-1526315
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
501 Merritt 7
P.O. Box 4500 06856-4500
Norwalk, Connecticut (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code:
(203) 750-3000
----------------------
Securities to be registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Title of each class Name of each exchange on which
to be so registered each class is to be registered
------------------- ------------------------------
<S> <C>
Common Stock, New York Stock Exchange
par value $1.00 per share
Series A Participating Cumulative New York Stock Exchange
Preferred Stock Purchase Rights
</TABLE>
Securities to be registered pursuant to Section 12(g) of the Act:
None
================================================================================
<PAGE>
ARCH CHEMICALS, INC.
I. INFORMATION INCLUDED IN INFORMATION STATEMENT
AND INCORPORATED IN FORM 10 BY REFERENCE
CROSS-REFERENCE SHEET BETWEEN INFORMATION STATEMENT
AND ITEMS OF FORM 10
<TABLE>
<CAPTION>
ITEM
NO. CAPTION LOCATION IN INFORMATION STATEMENT
- ---- ------- ---------------------------------
<S> <C> <C>
1. Business.................................................... "Summary"; "The Distribution"; "Risk Factors";
"Business"; and "Management's Discussion and
Analysis of Financial Condition and Results of
Operations."
2. Financial Information....................................... "Summary"; "The Distribution"; "Selected Financial
and Operating Data"; and "Management's
Discussion and Analysis of Financial Condition and
Results of Operations."
3. Properties.................................................. "Properties."
4. Security Ownership of Certain Beneficial Owners and
Management.................................................. "The Distribution" and "Beneficial Ownership."
5. Directors and Executive Officers............................ "Management and Executive Compensation" and
"Liability and Indemnification of Officers and
Directors."
6. Executive Compensation...................................... "Summary"; "The Distribution"; "Relationship
between Olin and the Company after the
Distribution"; and "Certain Relationships and
Related Transactions."
7. Certain Relationships and Related Transactions.............. "Summary"; "The Distribution"; "Relationship
between Olin and the Company and the
Distribution"; and "Certain Relationships and
Related Transactions."
8. Legal Proceedings........................................... "Legal Proceedings."
9. Market Price of and Dividends on the Registrant's Common
Equity and Related Stockholder Matters...................... "Summary"; "The Distribution"; "Risk Factors"; and
"Dividend Policy."
11. Description of Registrant's Securities to be Registered..... "The Distribution"; "Dividend Policy";
"Description of Capital Stock"; and "Rights Plan."
12. Indemnification of Directors and Officers................... "Liability and Indemnification of Officers and
Directors."
13. Financial Statements and Supplementary Data................. "Summary"; "Selected Financial and Operating
Data"; and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
15. Financial Statements and Exhibits........................... "Selected Financial and Operating Data"; and
"Index to Combined Financial Statements."
</TABLE>
<PAGE>
II. INFORMATION NOT INCLUDED IN INFORMATION STATEMENT
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
Arch Chemicals, Inc. ("Arch Chemicals") was incorporated under the laws of
the Commonwealth of Virginia on August 25, 1998. Arch Chemicals issued 100
shares of its Common Stock, par value $1.00 per share, to Olin Corporation, a
Virginia corporation ("Olin"), as of October 13, 1998 in consideration of Olin's
capital contribution of $100.00. Such issuance was exempt from registration
under the Securities Act of 1933, as amended, pursuant to Section 4(2) thereof
because such issuance did not involve any public offering of securities.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statement Schedules:
Financial statement schedules are omitted because of the absence of the
conditions under which they are required or because the information required by
such omitted schedules is set forth in the financial statements or the notes
thereto.
(b) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --- -----------
<S> <C>
2 Distribution Agreement*
3.1 Amended and Restated Articles of Incorporation of Arch Chemicals*
3.2 By-laws of Arch Chemicals as amended*
4.1 Specimen Common Share certificate*
4.2 Amended and Restated Articles of Incorporation of Arch Chemicals (filed as Exhibit 3.1 hereto)*
4.3 By-laws of Arch Chemicals as amended (filed as Exhibit 3.2 hereto)*
4.4 Rights Agreement between Arch Chemicals and _________, as Rights Agent*
4.5 Form of Articles of Amendment of the Articles of Incorporation of Arch Chemicals (attached as Exhibit A
to the Rights Agreement filed as Exhibit 4.4 hereto)*
4.6 Form of Rights Certificate (attached as Exhibit B to the Rights Agreement filed as Exhibit 4.4 hereto)*
10.1 Distribution Agreement (filed as Exhibit 2 hereto)*
10.2 Assumption of Liabilities and Indemnity Agreement*
10.3 Charleston Services Agreement*
10.4 Chlor-Alkali Supply Agreement*
10.5 Covenant Not To Compete Agreement*
10.6 Credit Agreement*
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --- -----------
<S> <C>
10.7 Employee Benefits Allocation Agreement*
10.8 Form of Executive Agreement*
10.9 Tax Sharing Agreement*
10.10 Intellectual Property Transfer and License Agreement*
10.11 Trade Name License Agreement*
10.12 Transition Services Agreement*
10.13 Arch Chemicals Stock Plan for Nonemployee Directors*
10.14 Arch Chemicals 1999 Long Term Incentive Plan*
10.15 Arch Chemicals 1999 Stock Option Plan*
10.16 Supplemental Contributing Employee Ownership Plan*
10.17 Excess Benefit Pension Plan*
10.18 Senior Executive Pension Plan*
10.19 Employee Deferral Plan*
10.20 Key Executive Life Insurance Program*
10.21 Form of Arch Chemicals Endorsement Split Dollar Agreement*
21 List of Subsidiaries of Arch Chemicals**
27 Financial Data Schedule**
99.1 Arch Chemicals Information Statement dated _________ __, 1999**
</TABLE>
__________
* To be filed by amendment.
**Filed herewith.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
Arch Chemicals, Inc.
(Registrant)
By: /s/ Johnnie M. Jackson, Jr.
---------------------------------
Name: Johnnie M. Jackson, Jr.
Title: President and Secretary
Date: November 6, 1998
<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------
EXHIBITS TO
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
UNDER
THE SECURITIES EXCHANGE ACT OF 1934
-------------
ARCH CHEMICALS, INC.
(Exact name of registrant as specified in its charter)
================================================================================
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --- -----------
<S> <C>
2 Distribution Agreement*
3.1 Amended and Restated Articles of Incorporation of Arch Chemicals*
3.2 By-laws of Arch Chemicals as amended*
4.1 Specimen Common Share certificate*
4.2 Amended and Restated Articles of Incorporation of Arch Chemicals (filed as Exhibit 3.1 hereto)*
4.3 By-laws of Arch Chemicals as amended (filed as Exhibit 3.2 hereto)*
4.4 Rights Agreement between Arch Chemicals and ________, as Rights Agent*
4.5 Form of Articles of Amendment of the Articles of Incorporation of Arch Chemicals (attached as Exhibit A
to the Rights Agreement filed as Exhibit 4.4 hereto)*
4.6 Form of Rights Certificate (attached as Exhibit B to the Rights Agreement filed as Exhibit 4.4 hereto)*
10.1 Distribution Agreement (filed as Exhibit 2 hereto)*
10.2 Assumption of Liabilities and Indemnity Agreement*
10.3 Charleston Services Agreement*
10.4 Chlor-Alkali Supply Agreement*
10.5 Covenant Not To Compete Agreement*
10.6 Credit Agreement*
10.7 Employee Benefits Allocation Agreement*
10.8 Form of Executive Agreement*
10.9 Tax Sharing Agreement*
10.10 Intellectual Property Transfer and License Agreement*
10.11 Trade Name License Agreement*
10.12 Transition Services Agreement*
10.13 Arch Chemicals Stock Plan for Nonemployee Directors*
10.14 Arch Chemicals 1999 Long Term Incentive Plan*
10.15 Arch Chemicals 1999 Stock Option Plan*
10.16 Supplemental Contributing Employee Ownership Plan*
10.17 Excess Benefit Pension Plan*
10.18 Senior Executive Pension Plan*
10.19 Employee Deferral Plan*
10.20 Key Executive Life Insurance Program*
10.21 Form of Arch Chemicals Endorsement Split Dollar Agreement*
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --- -----------
<S> <C>
21 List of Subsidiaries of Arch Chemicals**
27 Financial Data Schedule**
99.1 Arch Chemicals Information Statement dated ________ __, 1999**
</TABLE>
__________
* To be filed by amendment.
**Filed herewith.
<PAGE>
Exhibit 21
SUBSIDIARIES OF ARCH CHEMICALS, INC.[F1]
(as of December 31, 1997)
<TABLE>
<CAPTION>
Percentage of
Direct/Indirect
Ownership by
Arch Chemicals,
Jurisdiction Inc. of Voting
Subsidiary Where Organized Securities
- ---------- --------------- ----------
<S> <C> <C>
Advanced Products, Inc. Massachusetts 100%
Doe Run Gas Marketing Company Kentucky 100%
Doe Run Gas Transmission Company Kentucky 100%
Etoxyl, C.A. Venezuela 100%
Fujifilm Olin Co., Ltd. Japan 49%
Hunt Foreign Investment Corp. Delaware 100%
Hunt Portfolio Corp. Delaware 100%
Hydrochim, S.A. France 100%
Hyrdomen Espana, S.L. Spain 100%
Nordesclor S.A. Brazil 50%
N.V. Olin Hunt Specialty Products Belgium 100%
N.V. Olin Hunt Trading Belgium 100%
Olin (Proprietary) Limited South Africa 100%
Olin (U.K.) Limited United Kingdom 100%
Olin Brasil Ltda. Brazil 100%
Olin Canada Inc. Canada 100%
Olin Chemicals B.V. The Netherlands 100%
Olin Electronic Chemicals, Inc. Pennsylvania 100%
Olin Far East, Limited Delaware 100%
Olin GmbH Germany 100%
Olin Hunt Specialty Products, Inc. Delaware 100%
Olin Hunt Specialty Products Limited United Kingdom 100%
Olin Industrial (Hong Kong) Limited Hong Kong 100%
Olin Japan, Inc. Japan 100%
Olin Kimya, A.S. Turkey 98.85%
Olin Microelectronic Chemicals, Inc. Delaware 100%
Olin Microelectronic Materials (Israel) Ltd. Israel 100%
Olin Microelectronic Materials AG Switzerland 100%
Olin Microelectronic Materials GmbH Germany 100%
Olin Microelectronic Materials Limited United Kingdom 100%
Olin Microelectronic Materials N.V. Belgium 100%
Olin Microelectronic Materials S.A. France 100%
Olin Pte. Ltd. Singapore 100%
Olin Quimica S.A. Delaware 100%
Olin Quimica S.A. de C.V. Mexico 100%
Olin S.A. France 100%
Olin S.R.L. Italy 100%
Superior Pool Products, Inc. Delaware 100%
</TABLE>
- --------
[F1] There are omitted from the following list the names of certain
subsidiaries which, if considered in the aggregate as a single subsidiary,
would not constitute a significant subsidiary.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS CONTAINED IN THE INFORMATION STATEMENT FOR THE PERIODS
ENDED SEPTEMBER 30, 1998 AND DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS. FIGURES ARE ROUNDED TO THE NEAREST
100,000.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 9-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> SEP-30-1998 DEC-31-1997
<CASH> 5,500 9,000
<SECURITIES> 0 0
<RECEIVABLES> 148,200 146,600
<ALLOWANCES> (7,100) (4,400)
<INVENTORY> 121,100 139,100
<CURRENT-ASSETS> 310,900 334,100
<PP&E> 821,300 780,000
<DEPRECIATION> (516,200) (499,600)
<TOTAL-ASSETS> 691,200 693,200
<CURRENT-LIABILITIES> 167,500 182,600
<BONDS> 5,500 5,500
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 473,500 455,600
<TOTAL-LIABILITY-AND-EQUITY> 691,200 693,200
<SALES> 694,400 929,900
<TOTAL-REVENUES> 694,400 929,900
<CGS> 493,700 676,300
<TOTAL-COSTS> 493,700 676,300
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 400
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 62,800 86,200
<INCOME-TAX> 21,400 29,900
<INCOME-CONTINUING> 41,400 56,300
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 41,400 56,300
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
<PAGE>
EXHIBIT 99.1
OLIN CORPORATION
501 MERRITT 7
P.O. BOX 4500
NORWALK, CT 06856-4500
__________, 1999
Dear Shareholder:
I am pleased to report that the previously announced spin-off of Olin's
specialty chemical businesses is expected to become effective on _____ __, 1999.
Arch Chemicals, Inc., a recently-formed Virginia corporation which will own all
of Olin's specialty chemical businesses ("Arch Chemicals"), will commence
operations on that day as an independent public company. Arch Chemicals' shares
will be listed on the New York Stock Exchange under the symbol ____.
Holders of Olin Common Stock of record as of the close of business on _____
__, 1999 (the "Record Date"), will receive one Arch Chemicals common share for
every ___ share(s) of Olin Common Stock held.
If you own Olin Common Stock on the Record Date, the Distribution Agent
will automatically credit your shares of Arch Chemicals Common Stock to a book-
entry account established to hold your Arch Chemicals Common Stock and will mail
you a statement of your Arch Chemicals Common Stock ownership as soon as
practicable after __________, 1999; no action is required on your part to
receive your Arch Chemicals shares. You will not be required either to pay
anything for the new shares or to surrender any Olin shares. No fractional
shares of Arch Chemicals stock will be issued. If you otherwise would be
entitled to a fractional share you will receive a check for the cash value
thereof, which may be taxable to you. In due course you will be provided with
information to enable you to compute your tax basis in both Olin and Arch
Chemicals stock. Olin expects to receive an opinion of counsel that for U.S.
federal income tax purposes, the distribution of the new Arch Chemicals shares
is tax-free to Olin and to you to the extent that you receive Arch Chemicals
shares.
The enclosed Information Statement describes the distribution of Arch
Chemicals shares and contains important information about Arch Chemicals,
including financial statements. I suggest that you read it carefully. If you
have questions regarding the distribution, please contact Richard Koch, Vice
President-Investor Relations at the following telephone number: (203) 750-3254.
I believe the distribution of Arch Chemicals shares will serve the business
interests of both Olin and Arch Chemicals. This action is demonstrative of and
in keeping with Olin's goal of further increasing shareholder value.
Sincerely,
Donald W. Griffin
Chairman of the Board, President &
Chief Executive Officer
<PAGE>
SUBJECT TO COMPLETION OR AMENDMENT, DATED NOVEMBER 6, 1998
INFORMATION STATEMENT
ARCH CHEMICALS, INC.
DISTRIBUTION OF APPROXIMATELY__________ SHARES OF COMMON STOCK
This Information Statement is being furnished in connection with the
distribution (the "Distribution") by Olin Corporation ("Olin") to holders of its
common stock, par value $1 per share ("Olin Common Stock"), of all the
outstanding shares of common stock, par value $1 per share ("Company Common
Stock"), of Arch Chemicals, Inc. (the "Company"). Olin has transferred or will
transfer to the Company all of the specialty chemical businesses formerly
conducted by Olin. See "Business."
Shares of Company Common Stock will be distributed to holders of Olin
Common Stock of record as of the close of business on _____ __, 1999 (the
"Record Date"). Each such holder will receive one share of Company Common Stock
for every ___ share(s) of Olin Common Stock held on the Record Date. The
Distribution will be effective at 12:01 a.m. on _____ __, 1999. The Company
currently intends to distribute whole shares of Company Common Stock by book-
entry. Instead of physical stock certificates, shareholders will receive a
statement of their book-entry accounts for Company Common Stock, which
statements are expected to be distributed as soon as practicable after
__________, 1999. Following the Distribution, shareholders may request that
their shares of Company Common Stock be transferred to a brokerage account or
that physical stock certificates for their shares be issued to them. No
consideration will be paid by Olin's shareholders for shares of Company Common
Stock. Each share of Company Common Stock distributed will be accompanied by
one preferred stock purchase right. There is no current trading market for
Company Common Stock. The Company has applied to list the Company Common Stock
on the New York Stock Exchange, Inc.
In reviewing this Information Statement, you should carefully consider the
matters described under the caption "Risk Factors" on pages 14-18.
______________
NO SHAREHOLDER APPROVAL OF THE DISTRIBUTION IS REQUIRED OR
SOUGHT. WE ARE NOT ASKING YOU FOR A PROXY AND YOU
ARE REQUESTED NOT TO SEND US A PROXY.
______________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS INFORMATION STATEMENT. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
______________
Shareholders of Olin with inquiries related to the Distribution should
contact Investor Relations, Olin Corporation, 501 Merritt 7, P.O. Box 4500,
Norwalk, Connecticut 06856-4500, telephone (203) 750-3254, or ____________
______________, ___________________, ___________________,
_____________, ____________, telephone (___) ________.
The date of this Information Statement is _____ __, 1999.
<PAGE>
INFORMATION STATEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SUMMARY.................................................................... 1
THE DISTRIBUTION........................................................... 7
General................................................................. 7
Manner of Effecting the Distribution.................................... 7
Reasons for the Distribution............................................ 8
Results of the Distribution............................................. 9
Federal Income Tax Consequences of the Distribution..................... 10
Listing and Trading of Company Common Stock............................. 12
Third Party Consents; Regulatory Approvals.............................. 13
Reasons for Furnishing this Information Statement....................... 13
RISK FACTORS............................................................... 14
Lack of Operating History As a Separate Entity.......................... 14
Dependance on the Semiconductor Industry................................ 15
Environmental Liabilities............................................... 15
Ability to Satisfy Indemnification Obligations.......................... 16
Certain Tax Risks of the Distribution................................... 16
Company Dividend Policy................................................. 17
Absence of Trading Market for Company Stock............................. 17
Changes in Trading Prices of Olin Common Stock.......................... 18
Competition............................................................. 18
Certain Antitakeover Effects............................................ 18
DIVIDEND POLICY............................................................ 19
CAPITALIZATION............................................................. 19
SELECTED FINANCIAL AND OPERATING DATA...................................... 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS...................................... 21
BUSINESS................................................................... 35
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
General................................................................. 35
Products and Services................................................... 35
Customers............................................................... 38
Raw Materials and Energy................................................ 38
Research and Development; Patents....................................... 39
Seasonality............................................................. 39
Backlog................................................................. 40
U.S. Government Contracts and Regulations............................... 40
Novation of U.S. Government Contracts................................... 40
Competition............................................................. 40
Export Sales............................................................ 41
Employees............................................................... 41
Environmental Matters................................................... 41
Credit Facility......................................................... 42
PROPERTIES................................................................. 43
Principal Manufacturing Facilities...................................... 44
LEGAL PROCEEDINGS.......................................................... 47
RELATIONSHIP BETWEEN OLIN AND THE COMPANY AFTER
THE DISTRIBUTION......................................................... 48
Distribution Agreement................................................... 48
Assumption of Liabilities and Indemnity Agreement........................ 49
Charleston Services Agreement............................................ 50
Chlor-Alkali Supply Agreement............................................ 50
Covenant Not To Compete Agreement........................................ 50
Employee Benefits Allocation Agreement................................... 50
Intellectual Property Transfer and License Agreement..................... 51
Tax Sharing Agreement.................................................... 52
Trade Name License Agreement............................................. 52
Transition Services Agreement............................................ 52
MANAGEMENT AND EXECUTIVE COMPENSATION...................................... 53
Board of Directors....................................................... 53
Committees of the Board of Directors..................................... 55
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Compensation of Directors................................................ 57
Executive Officers of the Company........................................ 57
Compensation of Executive Officers....................................... 58
Adjustment to Prior Olin Equity-Based Benefits........................... 62
Stock Plan for Nonemployee Directors..................................... 62
Pension Plans............................................................ 63
Savings Plan............................................................. 65
1999 Stock Option Plan................................................... 66
Arch Chemicals, Inc. 1999 Long Term Incentive Plan....................... 68
Retiree Medical and Life Insurance Benefits.............................. 70
Other Benefits........................................................... 70
Executive Agreements..................................................... 70
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION............................................................ 71
BENEFICIAL OWNERSHIP....................................................... 72
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................. 74
DESCRIPTION OF CAPITAL STOCK............................................... 74
Authorized Capital Stock................................................. 74
Common Stock............................................................. 74
Preferred Stock.......................................................... 75
Authorized But Unissued Capital Stock.................................... 75
Rights................................................................... 75
No Preemptive Rights..................................................... 76
Certain Provisions of the Articles, By-laws and Virginia Corporate Law... 76
RIGHTS PLAN................................................................ 77
LIABILITY AND INDEMNIFICATION OF OFFICERS AND
DIRECTORS................................................................ 78
AVAILABLE INFORMATION...................................................... 79
INDEX TO COMBINED FINANCIAL STATEMENTS..................................... F-1
</TABLE>
iii
<PAGE>
SUMMARY
The following is a summary (this "Summary") of certain information
contained in this Information Statement. This Summary is included for
convenience only and should not be considered complete. This Summary is
qualified in its entirety by the more detailed information contained elsewhere
in this Information Statement which should be read in its entirety. Certain
capitalized terms used in this Summary are defined elsewhere in this Information
Statement.
<TABLE>
<CAPTION>
THE DISTRIBUTION
<S> <C>
DISTRIBUTING COMPANY Olin Corporation, a Virginia corporation ("Olin"), a manufacturer
concentrated in the chemicals, metals and ammunition industries.
References to Olin include its consolidated subsidiaries except
where the context otherwise requires.
DISTRIBUTED COMPANY Arch Chemicals, Inc., a Virginia corporation (the "Company"),
which will own all of the specialty chemical businesses formerly
operated by Olin (the "Specialty Chemical Businesses"). References
herein to the Company prior to the Distribution mean the specialty
chemical businesses as conducted by Olin prior to the Distribution.
See "Business. "
DISTRIBUTION RATIO Each holder of Olin Common Stock will receive a dividend of one
share of Company Common Stock (and the associated preferred stock
purchase right) for every___ share(s) of Olin Common Stock held
on the Record Date (the "Distribution Ratio").
SECURITIES TO BE DISTRIBUTED Based on__________ shares of Olin Common Stock outstanding on
September 30, 1998, approximately__________ shares of Company
Common Stock, together with associated preferred stock purchase
rights (the "Rights" and, collectively with the Company Common
Stock, the "Shares") will be distributed. The Shares to be
distributed will constitute all of the outstanding Shares of the
Company immediately after the Distribution. No action is required
by an Olin shareholder to receive the Shares to which an Olin
shareholder is entitled.
FRACTIONAL SHARES Fractional Shares will not be distributed. Fractional Shares will be
aggregated and sold in the public market by the Distribution Agent
and the aggregate net cash proceeds will be distributed ratably to
those shareholders who would otherwise have received fractional
interests. See "The Distribution--Manner of Effecting the Distribution."
</TABLE>
1
<PAGE>
DISTRIBUTION AGENT, TRANSFER
AGENT AND REGISTRAR FOR
THE SHARES
<TABLE>
<CAPTION>
<S> <C>
___________________________ (the "Distribution Agent") will be the
Distribution Agent, Transfer Agent and Registrar for the Shares.
RECORD DATE _____ __, 1999 (close of business).
DISTRIBUTION DATE _____ __, 1999, 12:01 a.m. On the Distribution Date, Olin will transfer
the Shares to the Distribution Agent. The Distribution Agent will mail
shareholder statements of book-entry accounts as soon as practicable after
the Distribution Date. The Company does not plan to issue any physical
stock certificates for the Shares at the time of the Distribution.
FEDERAL INCOME TAX
CONSEQUENCES OF
THE DISTRIBUTION The Distribution is conditioned upon the receipt by Olin of an opinion of
its counsel that for Federal income tax purposes the receipt of Shares by
Olin shareholders will be tax-free. Cash received by shareholders in lieu
of fractional Share interests will be treated as payment in exchange for
such stock and may be taxable to the shareholder. No gain or loss with
respect to the Shares will be recognized by Olin on the Distribution. Such
opinion is subject to certain factual representations and assumptions. No
ruling has been or will be sought from the Internal Revenue Service with
respect to the Federal income tax consequences of the Distribution. See "The
Distribution--Federal Income Tax Consequences of the Distribution."
STOCK EXCHANGE LISTING There is not currently a public market for the Company Common Stock. The
Company has applied for the listing of the Company Common Stock on the New York
Stock Exchange, Inc. (the "NYSE"), under the symbol _____. If such listing is
approved, it is possible that trading may commence on a "when-issued" basis
prior to the Distribution. On the first NYSE trading day following the
Distribution Date, "when-issued" trading in respect of Company Common Stock
will end and "regular-way" trading will begin. See "The Distribution-- Listing
and Trading of Company Common Stock."
COMPANY INDEBTEDNESS Prior to the Distribution, the Company will succeed to a $___ million credit
facility (the "Credit Facility") established by Olin. Olin will previously have
borrowed $___ million under the Credit Facility, which liability will be assumed
by the Company. The Credit Facility is expected to have a five-year term and to
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
permit borrowings thereunder of up to $___ million. The amounts remaining under
the Credit Facility are expected to provide sufficient liquidity for the Company's
current funding needs. The Credit Facility is expected to have various borrowing
options and to contain customary commercial bank covenants. See "Business--Credit
Facility."
RELATIONSHIP WITH OLIN
AFTER THE DISTRIBUTION Following the Distribution, the Company will be an independent public company,
and Olin will have no continuing stock owner ship interest in the Company. No
officer or director of Olin or the Company will be an officer or director of the
other company immediately following the Distribution, and there is no present
intention to subsequently name any officer or director of Olin or the Company as an
officer or director of the other company. The Company and Olin will enter into
various agreements for the purpose of accomplishing the Distribution, governing their
relationship subsequent to the Distribution and providing for the allocation of
employee benefits, tax and certain other liabilities and obligations attributable to
periods prior to the Distribution. These include, without limitation, agreements
providing for the transfer of assets to the Company and the assumption of certain
liabilities of Olin by the Company, the transfer by Olin of certain technologies
and intellectual property rights to the Company, the transfer of certain Olin
trademarks to the Company, the supplying of certain services by Olin to the Company
with respect to adjoining plants located in Charleston, Tennessee, and the supplying
of chlorine and caustic soda by Olin to the Company following the Distribution. The
Company and Olin will also enter into an indemnification agreement whereby the Company
will generally indemnify Olin against liabilities, litigation and claims arising out
of the Specialty Chemical Businesses, as well as costs associated with the removal,
remediation or control of environmental conditions relating to the Company's current
facilities and certain off-site locations, and Olin generally will indemnify the Company
against liabilities, litigation and claims arising out of Olin's retained and former
businesses following the Distribution. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Environmental Matters,"
"Business--Environmental Matters" and "Relationship Between Olin and the Company
After the Distribution."
DIVIDEND POLICY The payment and level of cash dividends by the Company after the Distribution will
be subject to the discretion of the Board of Directors of the Company (the "Board").
Olin currently anticipates that the Company will initially pay quarterly cash
dividends which, on an annual basis, will aggregate $0.__ per
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Share. However, future dividend decisions will be based on, and affected by,
a number of factors, including the operating results and financial requirements of
the Company on an independent basis, and will be subject to the restrictive covenants
of the Credit Facility. See "Dividend Policy" and "Business--Credit Facility."
CERTAIN PROVISIONS OF THE
COMPANY'S ARTICLES,
BY-LAWS AND VIRGINIA
CORPORATE LAW;
RIGHTS AGREEMENT Certain provisions of the Company's Amended and Restated Articles of Incorporation
(the "Articles") and amended By-laws (the "By-laws"), as each will be in effect
following the Distribution, may have the effect of making more difficult an acquisition
of control of the Company in a transaction not approved by the Board. The Articles
authorize the Board to issue up to 10 million shares of preferred stock in one or
more series and to fix the relative rights and preferences and the voting powers of
the shares of any such series. See "Description of Capital Stock--Preferred Stock."
The Board consists of three classes of directors, each of which serves for three years.
Directors may be removed only with cause and vacancies on the Board may be filled only
by the Board unless the vacancy is to be filled at an annual meeting of the shareholders.
The Company's By-laws require that shareholders give the Secretary of the Company notice
of shareholder nominees for election as a director no later than 90 days before an annual
meeting of shareholders. Special meetings of shareholders may be called only by the
Board or designated officers of the Company. The By-laws also require shareholders to
give the Secretary of the Company notice of shareholder proposals to be presented at the
annual shareholders meeting no later than 90 days before the first anniversary of the
prior year's annual shareholder meeting. See "Description of Capital Stock--Certain
Provisions of the Articles, By-laws and Virginia Corporate Law." The Rights Agreement
and certain sections of the Virginia Stock Corporation Act described elsewhere herein
will also make more difficult an acquisition of control of the Company in a transaction
not approved by the Board. See "Rights Plan" and "Description of Capital Stock--Certain
Provisions of the Articles, By-laws and Virginia Corporate Law." The Company has elected
to "opt out" of the control share acquisition provisions under Article 14.1 of the
Virginia Stock Corporation Act, which imposes restrictions on the voting rights of
certain significant shareholders. See "Description of Capital Stock--Certain Provisions
of the Articles, By-laws and Virginia Corporate Law."
</TABLE>
4
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<TABLE>
<CAPTION>
<S> <C>
RISK FACTORS Shareholders should consider certain factors as discussed under "Risk Factors."
PRINCIPAL OFFICE OF THE
COMPANY 501 Merritt 7, Norwalk, Connecticut 06851
</TABLE>
5
<PAGE>
ARCH CHEMICALS, INC.
SUMMARY FINANCIAL INFORMATION
(DOLLARS IN MILLIONS)
The historical financial information presented below summarizes certain
financial information of the Company and is derived from the Combined Financial
Statements of the Company. Such historical financial data may not be indicative
of the Company's future performance as an independent company. The following
historical financial information includes an allocated share of Olin's
historical centralized activities. The summary data presented below should be
read in conjunction with the Combined Financial Statements and Notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Information Statement.
<TABLE>
<CAPTION>
Unaudited
Nine Months Ended Years Ended
September 30, December 31,
------------------- ------------------------
OPERATING DATA: 1998 1997 1997 1996 1995
------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Sales $694.4 $728.1 $929.9 $913.5 $872.8
Operating Income 59.7 68.5 79.0 85.7 54.7
Net Income(1) 41.4 48.1 56.3 61.1 43.9
Unaudited
September 30, December 31,
---------------- ------------------------
BALANCE SHEET DATA: 1998 1997 1997 1996 1995
------ ------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Total Assets $691.2 $678.2 $693.2 $651.2 $624.1
Short-Term Borrowings(1) 0.3 0.3 1.4 1.8 0.1
Total Liabilities 217.7 200.6 237.6 221.6 212.7
Equity and Cumulative
Translation Adjustment 473.5 477.6 455.6 429.6 411.4
</TABLE>
(1) The financial data above do not include any amount for short-term
borrowings or the related interest expense under the Credit Facility which
liability, if any, will be assumed by the Company. See Notes to Combined
Financial Statements--"Proforma Effect of Borrowings under the Credit
Facility (Unaudited)."
6
<PAGE>
THE DISTRIBUTION
GENERAL
The Board of Directors of Olin has approved the distribution of all of the
outstanding shares of Company Common Stock to the holders of Olin Common Stock.
In the Distribution, each holder of Olin Common Stock will receive as a dividend
one share of Company Common Stock (and the associated Right) for every___
share(s) of Olin Common Stock held on the Record Date.
MANNER OF EFFECTING THE DISTRIBUTION
The general terms and conditions relating to the Distribution are set forth
in the Distribution Agreement between the Company and Olin (the "Distribution
Agreement"). See "Relationship Between Olin and the Company After the
Distribution--Distribution Agreement."
Pursuant to the terms and conditions of the Distribution Agreement, the
Distribution will be effective _____ __, 1999 (the "Distribution Date") with the
Shares being distributed through a book-entry system to holders who are
shareholders of record of Olin at the close of business on the Record Date.
Olin currently intends to use a book-entry system to implement the distribution
of the Shares in the Distribution. Prior to the Distribution Date, a
certificate representing all issued and outstanding Shares will be delivered by
Olin to the Distribution Agent. As soon as practicable after the Distribution
Date, a shareholder statement of book-entry account will be mailed to each
shareholder stating the number of whole Shares received by such shareholder in
the Distribution; fractional Shares will not be distributed. Following the
Distribution, shareholders may request that their Shares be transferred to a
brokerage or other account or may request delivery of physical stock
certificates for their Shares. Each Olin shareholder will receive one Share for
every ___ share(s) of Olin Common Stock held on the Record Date. Olin
shareholders will not be required to pay for Shares received in the
Distribution, or to surrender or exchange Olin shares in order to receive Shares
of the Company. No vote of Olin shareholders is required or sought in
connection with the Distribution, and Olin shareholders have no appraisal rights
in connection with the Distribution.
Fractional Shares will not be issued to Olin shareholders as part of the
Distribution nor credited to book-entry accounts. In lieu of receiving
fractional Shares, each holder of Olin Common Stock who would otherwise be
entitled to receive a fractional Share will receive cash for such fractional
interest. The Distribution Agent will, as soon as practicable after the
Distribution Date, aggregate fractional Shares into whole Shares and sell them
in the open market at then prevailing market prices and distribute the aggregate
proceeds (net of brokerage fees) ratably to Olin shareholders otherwise entitled
to fractional interests. The amount of such payment will depend on the prices at
which the aggregated fractional Shares are sold by the Distribution Agent in the
open market shortly after the Distribution Date.
In addition, at the time of the Distribution, each outstanding option to
purchase Olin Common Stock held by an employee of the Company or Olin on the
Distribution Date will be converted into both an option to purchase Company
Common Stock and a separate option to purchase Olin Common Stock. See
"Relationship Between Olin and the Company After the Distribution--Employee
Benefits Allocation Agreement" and "Management and Executive Compensation--
Adjustment to Prior Olin Equity-Based Benefits."
7
<PAGE>
In order to be entitled to receive Shares of the Company in the
Distribution, Olin shareholders must be shareholders at the close of business on
the Record Date, _____ __, 1999.
REASONS FOR THE DISTRIBUTION
DIFFERENT BUSINESSES. Olin currently operates directly and through its
subsidiaries primarily in four major lines of business that have substantially
different characteristics. The metals, chlor-alkali and ammunition businesses
(the "Retained Businesses") have exhibited different growth characteristics,
capital requirements and competitive dynamics than the Specialty Chemical
Businesses and these differences are expected to continue in the future.
Moreover, the different businesses require inherently different strategies in
order to maximize their long-term value. Consequently, Olin's current structure,
which involves the operation of each of these businesses under a single
corporate entity, is not the most effective structure to design and implement
the distinct strategies necessary to operate each business successfully in a
manner that maximizes its long-term value.
The Retained Businesses are cyclical, capital intensive, cash-flow
generating commodity-type businesses that have low industry growth rates and
little pricing leverage. Their success depends largely on attaining scale-
related benefits by reducing manufacturing costs through the use of low cost
manufacturing processes at high levels of capacity, and by engaging in strategic
acquisitions to enable the consolidation of operations and to produce increased
efficiencies of scale.
By contrast, the Specialty Chemical Businesses are high growth, value-added
businesses with less cyclicality. These businesses also have higher pricing
leverage because product prices are more value-driven. The success of the
Specialty Chemical Businesses depends on developing close customer relationships
and new technology-driven product solutions to benefit specific customers. The
projected high growth of the Specialty Chemical Businesses through internally
developed products and products produced through joint ventures is expected to
make the Company Common Stock a valuable pure-play currency that can be used to
make acquisitions to further grow the Specialty Chemical Businesses.
MORE EFFECTIVE CAPITAL DEPLOYMENT. Consistent with recent experience,
Olin's management anticipates that the Retained Businesses and Specialty
Chemical Businesses will require substantial amounts of capital in order to fund
their expansion plans. As has been the case in the past, it is expected that
the funds required for such capital spending will exceed the amount of funds
that will be approved for such usage. In the past this situation has caused
competition for these capital resources to fund the projects of the Retained
Businesses and the Specialty Chemical Businesses. Accordingly, the creation of
two separate, publicly-traded entities will facilitate the more effective
deployment of capital by Olin and the Company, since each would be free to
obtain and employ its own capital resources, without competing with the other
businesses, in the areas each believes it has the greatest opportunity to
produce attractive returns.
MANAGEMENT FOCUS AND INCENTIVES. The Retained Businesses and the Specialty
Chemical Businesses are different businesses with few common characteristics and
a number of markedly different growth characteristics. As a result, Olin
currently faces difficulty in maintaining the appropriate balance of management
focus on each of its separate businesses. By separating Olin into two
independent companies, the management of each independent company will be able
to focus
8
<PAGE>
its attention and financial resources wholly on its respective businesses,
enabling management to respond solely to the characteristics and competitive
disciplines of its particular industries.
Moreover, in multi-industry companies, it is difficult to structure
management incentives that encourage management to focus on its own businesses,
rather than on overall corporate performance, by rewarding managers in a manner
directly related to the performance of their respective businesses. For
example, many companies design stock option programs to provide management with
proper incentives to enhance shareholder value, but to the extent that the
overall financial performance, and therefore the stock price performance, of a
multi-industry company such as Olin is based in part on factors that are
unrelated to the performance of any particular business, this incentive is
diluted and consequently is less effective. Although Olin currently employs
stock option programs for its management, the value and effectiveness of these
programs in creating the desired incentives will be enhanced by separating Olin
into the Retained Businesses and the Specialty Chemical Businesses and providing
the management of each with the opportunity for future incentives based on the
direct performance of its business.
ADDITIONAL BENEFITS TO BE ACHIEVED FROM THE DISTRIBUTION. As a result of
the above factors, several additional benefits should result from the
Distribution. The ability for each of the Retained Businesses and the Specialty
Chemical Businesses to pursue acquisitions and other investment opportunities is
expected to be enhanced by providing differentiated access to the capital
markets for each operation and by creating more focused acquisition currencies
for each business (i.e., separately traded common stock). Moreover, research
----
coverage for each of the businesses also should be enhanced as a result of
creating the Company as a focused, pure-play specialty chemical company and
establishing Olin as a more focused commodity materials company, each of which
will be easier to analyze and compare to other companies within its respective
industry sector. Finally, broader and more tailored investor ownership will be
encouraged in light of the disparate risk/reward profiles of the Retained
Businesses and the Specialty Chemical Businesses. As a result of the foregoing,
Olin has determined that the best means of improving the fit and focus of Olin's
businesses is to distribute the Company Common Stock to Olin's public
shareholders.
For information concerning certain relationships between the Company and
Olin following the Distribution, see "Relationship Between Olin and the Company
After the Distribution" elsewhere herein.
RESULTS OF THE DISTRIBUTION
After the Distribution, the Company will be an independent public company
owning and operating the Specialty Chemical Businesses. The number and identity
of shareholders of the Company immediately after the Distribution will be the
same as the number and identity of the shareholders of Olin on the Record Date.
Immediately after the Distribution, the Company expects to have approximately
10,000 holders of record of Shares and approximately__________ Shares
outstanding, based on the number of record shareholders and outstanding shares
of Olin Common Stock on September 30, 1998, and the Distribution Ratio of one
Share for every___ share(s) of Olin Common Stock. The actual number of Shares
to be distributed will be determined as of the Record Date. The Distribution
will not affect the number of outstanding shares of Olin Common Stock or any
rights of Olin shareholders.
9
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION
The Distribution is conditioned upon the receipt by Olin of an opinion from
Cravath, Swaine & Moore, counsel to Olin, that for Federal income tax purposes:
1. The Distribution will qualify as a tax-free spin-off under
Sections 355 and 368(a)(1)(D) of the Internal Revenue Code of 1986, as
amended (the "Code").
2. No gain or loss with respect to the Shares will be recognized by
Olin on the Distribution.
3. No gain or loss will be recognized by the holders of Olin Common
Stock solely as a result of their receipt of Shares in the Distribution.
4. The tax basis of the Olin Common Stock and the Shares (including
any fractional Shares for which cash is received) held immediately after
the Distribution by any holder will equal such holder's tax basis in its
Olin Common Stock immediately before the Distribution, allocated in
proportion to the relative fair market values of the Olin Common Stock and
the Shares on the Distribution Date.
5. The holding period of the Shares received in the Distribution
(including any fractional Shares for which cash is received) will include
the holding period of the Olin Common Stock with respect to which the
Shares were distributed, provided that such Olin Common Stock was held as a
capital asset on the Distribution Date.
6. Cash received in lieu of fractional Shares will be treated as
payment in exchange for such stock. The difference between the amount of
cash received and basis allocable to such fractional Shares will be a
capital gain or loss (long-term if the Olin Common Stock has been held for
more than one year), as the case may be, provided that the Olin Common
stock is held as a capital asset on the Distribution Date.
This opinion of counsel is subject to certain assumptions and the
accuracy of certain factual representations made by Olin and the Company.
Neither Olin nor the Company is aware of any present facts or circumstances
that would cause such assumptions or representations to be untrue. No
ruling has been or will be sought from the Internal Revenue Service (the
"IRS") with respect to the Federal income tax consequences of the
Distribution, and there can be no assurance that the IRS will not take a
position contrary to that expressed in the opinion of Cravath, Swaine &
Moore.
If the Distribution were not to qualify as a tax-free spin-off under
Sections 355 and 368(a)(1)(D) of the Code, then (i) Olin would recognize capital
gain equal to the excess of (x) the fair market value of the Shares on the
Distribution Date, over (y) Olin's adjusted tax basis in the Shares on such
date, and (ii) each holder of Olin Common Stock who receives Shares in the
Distribution would be treated as receiving a taxable distribution in an amount
equal to the fair market value of such Shares on the Distribution Date, taxed
first as a dividend to the extent of such holder's pro rata share of Olin's
current and accumulated earnings and profits, and then as a
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<PAGE>
nontaxable return of capital to the extent of such holder's basis in the Olin
Common Stock, with any remaining amount being taxed as capital gain.
Even if the Distribution qualifies as a tax-free spin-off under Sections
355 and 368(a)(1)(D) of the Code, Olin (but not Olin shareholders) also would
recognize taxable gain on the Distribution (determined as if Olin had sold all
the Shares for fair market value on the Distribution Date) if (a) 50% or more of
the outstanding stock of the Company or Olin were acquired (or deemed to be
acquired pursuant to certain transactions involving the stock or assets of Olin,
the Company, or their subsidiaries), and (b) the Distribution and such
acquisition were treated as part of a plan or series of related transactions
(such a transaction, a "Change in Control Transaction"). For that purpose, any
acquisition of stock of Olin or the Company within the period beginning two
years prior to the Distribution Date and ending two years after the Distribution
Date would be presumed to be part of such a plan or series of related
transactions, although Olin or the Company, as the case may be, may be able to
rebut such presumption.
Pursuant to the Tax Sharing Agreement, the Company and Olin will each bear
50% of any corporate level tax arising on the Distribution, except that the
Company or Olin, as the case may be, will be obligated to indemnify the other
party on an after-tax basis for 100% of such corporate level tax if such tax is
primarily attributable to (i) actions of the Company or Olin after the
Distribution (including any cessation, transfer to affiliates or disposition of
its active trades or businesses, and certain reacquisitions of its stock and
payments of extraordinary dividends to its shareholders), (ii) involvement by
the Company or Olin in a Change in Control Transaction, or (iii) the breach of
one or more representations with respect to the Company or Olin made to Cravath,
Swaine & Moore in connection with its opinion. Notwithstanding the Tax Sharing
Agreement, under the consolidated return regulations, the Company and Olin will
each be severally liable to the IRS for the full amount of any corporate level
tax arising on the Distribution that is not paid by the other party. Neither
the Company nor Olin will indemnify any holder of Olin Common Stock who receives
shares in the Distribution for any tax liabilities.
Certain restructuring transactions that Olin will effect prior to the
Distributions will trigger tax liabilities, and other such transactions may
trigger tax liabilities. Under the Tax Sharing Agreement, Olin will bear 100%
of all such tax liabilities. It is not expected that such tax liabilities would
be material, and Olin will adequately provide for all such liabilities prior to
the Distribution.
Current U.S. Treasury Regulations require each holder of Olin Common Stock
who receives Company Common Stock pursuant to the Distribution to attach to his
or her U.S. federal Income tax return for the year in which the Distribution
occurs a detailed statement setting forth such data as may be appropriate in
order to show the applicability of Section 355 to the Distribution. Following
the Distribution, Olin will convey the appropriate information to each holder of
record of Olin Common Stock as of the Record Date.
This discussion of the anticipated Federal income tax consequences of the
Distribution is for general information only and may not be applicable to
shareholders who received their shares of Olin Common Stock through the exercise
of an employee stock option or otherwise as compensation or who are not citizens
or residents of the United States or who are otherwise subject to special
treatment under the Code. Olin stockholders should consult their own advisers
as to the specific tax consequences of the Distribution, including the effects
of foreign, state and local tax laws and the
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<PAGE>
effect of possible changes in tax laws. See also "Risk Factors--Certain Tax
Risks of the Distribution."
LISTING AND TRADING OF COMPANY COMMON STOCK
There is not currently a public market for the Company Common Stock. The
Company has applied for the listing of the Company Common Stock on the NYSE.
Assuming such listing is approved, it is possible that trading may commence on a
"when-issued" basis prior to the Distribution. On the first NYSE trading day
following the Distribution Date, "when-issued" trading in respect of Company
Common Stock will end and "regular-way" trading will begin. The NYSE will not
approve any trading in respect of Company Common Stock until the Securities and
Exchange Commission (the "Commission") has declared effective the Company's
Registration Statement on Form 10 (the "Registration Statement") in respect of
the Shares.
There can be no assurance as to the price at which the Company Common Stock
will trade before, on or after the Distribution Date. Until the Company Common
Stock is fully distributed and an orderly market develops in the Company Common
Stock, the price at which such stock trades may fluctuate significantly and may
be lower than the price that would be expected for a fully distributed issue.
The price of the Company Common Stock will be determined in the marketplace and
may be influenced by many factors, including without limitation (i) the depth
and liquidity of the market for the Company Common Stock, (ii) developments
affecting the chemical industry generally, (iii) developments affecting
semiconductor demand, (iv) the Company's dividend policy, (v) investor
perception of the Company and the industries in which the Company participates
and (vi) general economic and market conditions. In addition, the combined
trading prices of Company Common Stock and Olin Common Stock held by
stockholders after the Distribution may be less than, equal to or greater than
the trading price of Olin Common Stock prior to the Distribution.
The Company initially will have approximately 10,000 stockholders of record
based upon the number of stockholders of record of Olin as of September 30,
1998. For certain information regarding options to purchase Company Common
Stock that will be outstanding after the Distribution, see "Relationship Between
Olin and the Company After the Distribution--Employee Benefits Allocation
Agreement" and "Management and Executive Compensation--Arch Chemicals, Inc. 1999
Stock Option Plan."
The Shares distributed to Olin shareholders will be freely transferable,
except for Shares received by persons who may be deemed to be "affiliates" of
the Company under the Securities Act of 1933, as amended (the "Securities Act").
Persons who may be deemed affiliates of the Company after the Distribution
generally include individuals or entities that control, are controlled by, or
are under common control with the Company and may include certain officers and
directors of the Company. Persons who are affiliates of the Company will be
permitted to sell their Shares only pursuant to an effective registration
statement under the Securities Act or an exemption from the registration
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
such as exemptions afforded by Section 4(2) of the Securities Act or Rule 144
thereunder.
12
<PAGE>
THIRD PARTY CONSENTS; REGULATORY APPROVALS
In connection with the transfer of assets from Olin to the Company, certain
consents may be required from third parties, including commercial customers.
Olin has no reason to believe that these consents will not be obtained or that
the failure to obtain such consents will be material to Olin or the Company.
Federal procurement regulations will require Olin to enter into novation
agreements with the Company and the U.S. Government relating to U.S. Government
contracts to which Olin is a party, pursuant to which Olin will guarantee or
otherwise become liable for the Company's obligations under such contracts which
are being transferred to the Company in connection with the Distribution. See
"Business-Novation of U.S. Government Contracts." Except for the U.S.
Government consents set forth herein, Olin does not believe that there are any
other material governmental regulatory approvals that will be required by law in
connection with the Distribution.
REASONS FOR FURNISHING THIS INFORMATION STATEMENT
This Information Statement is being furnished by Olin solely to provide
information to shareholders of Olin who will receive Shares in the Distribution.
It is not, and is not to be construed as, an inducement or encouragement to buy
or sell any securities of Olin or the Company. The information contained in
this Information Statement is believed by Olin and the Company to be accurate as
of the date set forth on its cover. Changes may occur after that date, and
neither Olin nor the Company will update the information except in the normal
course of their respective public disclosure practices.
13
<PAGE>
RISK FACTORS
Certain factors, including those described below, should be considered
carefully in evaluating the Company, the Company Common Stock and its
businesses. Neither Olin nor the Company makes, nor is any other person
authorized to make, any representation as to the future market value of the
Shares.
This Information Statement includes forward-looking statements within the
meaning of Section 27A of the Securities Act, and Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), that are based on
management's beliefs, certain assumptions made by management and management's
current expectations, estimates and projections about the markets and economy in
which the Company operates. Such forward-looking statements can be identified
by the use of words such as "anticipates," "believes," "estimates," "expects,"
"forecasts," "plans," "projects," "should," "will," and variations of such words
and similar expressions. All statements regarding Olin's or the Company's
expected future financial position, results of operations, cash flows,
dividends, financing plans, business strategy, budgets, projected costs and
capital expenditures, competitive positions, growth opportunities for existing
products, benefits from new technology, plans and objectives of management for
future operations, and markets for stock are forward-looking statements.. See,
e.g., "The Distribution," "Management's Discussion and Analysis of Financial
- -----
Condition and Results of Operations," "Business," "Legal Proceedings" and
"Relationship Between Olin and the Company After the Distribution." Forward-
looking statements are not guarantees of future performance and involve certain
risks, uncertainties and assumptions ("Future Factors") which are difficult to
predict. Therefore, actual outcomes and results may differ materially from what
is expected or forecasted in such forward-looking statements. Olin and the
Company undertake no obligation to update publicly any forward-looking
statements, whether as a result of future events, new information or otherwise.
Future Factors which could cause actual results to differ materially from those
discussed include but are not limited to general economic and business and
market conditions, lack of moderate growth in the U.S. economy or even a slight
recession in 1998, worsening economic conditions in Asia, customer acceptance of
new products, efficacy of new technology, changes in U.S. and non-U.S. laws and
regulations, costs or difficulties relating to the establishment of the Company
as an independent entity and increased competitive and/or customer pressure, the
Company's ability to maintain chemical price increases, higher-than-expected raw
material costs for certain chemical product lines, increased foreign competition
in the calcium hypochlorite markets and lack of stability in the semiconductor
industry. Although Olin and the Company believe their expectations reflected in
such forward-looking statements are based on reasonable assumptions, no
assurance can be given that such expectations will prove to have been correct.
LACK OF OPERATING HISTORY AS A SEPARATE ENTITY
Upon completion of the Distribution, the Company will own and operate the
Specialty Chemical Businesses. These businesses have no operating history as a
separate company, and have historically been able to rely on the earnings,
assets and cash flow of the other businesses of Olin. In addition, the Company
has not operated as a public company, and following the Distribution may incur
additional costs and expenses associated with the management of a public
company. Olin is not required to provide assistance or services to the Company
except as described in the Distribution Agreement, the Transition Services
Agreement and the other agreements entered into between the
14
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companies in connection with the Distribution. In addition, some of this
assistance or these services may be terminated upon certain events, including a
change in control of the Company. See "Relationship Between Olin and the Company
After the Distribution."
After the Distribution, each of Olin and the Company will be a smaller and
less diversified company than Olin was prior to the Distribution. In addition,
the Distribution may result in some temporary dislocation and inefficiencies to
the business operations, as well as the organization and personnel structure, of
each company.
Finally, the Company will not have the right to use the Olin name except
during a transition period. The Company has previously had the benefit of the
Olin name and reputation in the marketing of its products and in dealings with
government officials. One of the challenges facing the Company will be to
develop an identity for itself independent of the Olin name. The Company may
have to make additional advertising and promotion expenditures to position its
new name in its markets and cannot predict with certainty the extent to which
the substitution of a new name may adversely affect its retention and
acquisition of customers, its relations with governmental agencies or its
financial performance.
DEPENDENCE ON THE SEMICONDUCTOR INDUSTRY
Approximately 25% of the Company's 1997 sales were sales of microelectronic
chemical products to companies that manufacture semiconductors for use in a
variety of industrial and consumer electronic products. Such sales are
dependent upon demand for semiconductors and a decrease in such demand will
adversely affect the operating results of the Company. Over the past two years,
prices for semiconductors have declined, putting pricing pressure on suppliers,
such as the Company, to lower prices for microelectronic chemical products sold
to such manufacturers. In addition, during such period, the Company believes
that the number of semiconductors sold has not grown as quickly as in recent
years and in the case of certain semiconductor devices, the number has actually
declined. The future of the semiconductor market is difficult to predict.
Accordingly, there can be no assurance that the continued decline in prices in
the semiconductor industry (and the resulting increased pricing pressure on the
Company) or a continued lack of growth or decrease in the number of
semiconductors sold will not have a material adverse effect upon the Company.
ENVIRONMENTAL LIABILITIES
The establishment and implementation of federal, state and local standards
to regulate air and water quality and to govern contamination of land and
groundwater has affected, and will continue to affect, substantially all of the
Company's manufacturing locations. Federal legislation providing for regulation
of the manufacture, transportation, use and disposal of hazardous and toxic
substances has imposed additional regulatory requirements on industry in
general, and particularly on the chemicals industry. In addition,
implementation of environmental laws, such as the Resource Conservation and
Recovery Act, the Clean Air Act and the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended by the Superfund Amendments
and Reauthorization Act of 1986, has required and will continue to require new
capital expenditures and will increase operating costs. In addition, U.S. state
and federal authorities may seek fines and penalties for violation of these
laws.
15
<PAGE>
The Company may be, from time to time, a party to governmental and private
environmental actions associated with its waste disposal sites and manufacturing
facilities. Charges to income for investigatory and remedial efforts were not
material to operating results in 1997, 1996 and 1995 but may be material to net
income in future years. Annual environmental-related cash outlays by the Company
for site investigation and remediation, capital projects and normal plant
operations are expected to range between $10 to $15 million over each of the
next several years. While the Company does not anticipate a material increase in
the projected annual level of its environmental-related costs, such increases
may occur in the future and may have a material adverse effect on the Company's
operating results and financial condition. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations-Environmental
Matters."
ABILITY TO SATISFY INDEMNIFICATION OBLIGATIONS
The Distribution Agreement, the Assumption of Liabilities and Indemnity
Agreement and various other agreements entered into by Olin and the Company
allocate responsibility between them for various debts, liabilities and
obligations, including certain environmental liabilities. See "Relationship
Between Olin and the Company After the Distribution." These agreements provide
that the Company will indemnify Olin for the liabilities assumed by the Company
pursuant to these agreements (including certain liabilities related to the
Specialty Chemical Businesses which will be contingent liabilities of Olin by
virtue of the structure of the Distribution) and Olin will indemnify the Company
for the liabilities retained by Olin. However, the availability of such
indemnities will depend upon the future financial strength of Olin and the
Company. No assurance can be given that the relevant company will be in a
position to fund such indemnities and if such company cannot fund such
liability, such liability may fall on the other party, adversely affecting its
financial condition or results of operations.
CERTAIN TAX RISKS OF THE DISTRIBUTION
The Distribution is conditioned upon the receipt by Olin of an opinion of
its counsel that no gain or loss with respect to the Shares will be recognized
by Olin on the Distribution. See "The Distribution-Federal Income Tax
Consequences of the Distribution." However, such an opinion is not binding upon
the IRS and is subject to certain assumptions, and to certain factual
representations provided by Olin and the Company. If these assumptions and
factual representations were incorrect in a material respect, the conclusions
set forth in the opinion may not be correct. Neither Olin nor the Company is
aware of any facts or circumstances which would cause such representations and
assumptions to be untrue. The Company would be obligated to indemnify Olin on
an after-tax basis for any corporate level tax arising on the Distribution if
the Distribution fails to qualify as a tax-free spin-off primarily as a result
of (i) an action taken by the Company (including any cessation, disposition or
transfer to affiliates of its active trades or businesses, and certain
reacquisitions of its stock and payments of extraordinary dividends to its
shareholders), (ii) the Company's involvement in a Change in Control
Transaction or (iii) the breach of one or more
16
<PAGE>
representations with respect to the Company made to Cravath, Swaine & Moore in
connection with its opinion. See "Relationship Between Olin and the Company
After the Distribution-Tax Sharing Agreement." Such tax liability would be
substantial and there is no assurance that the Company would be able to satisfy
its indemnification obligation. See "Risk Factors-Ability to Satisfy
Indemnification Obligations." In addition, under the consolidated return
regulations, the Company would be severally liable to the IRS for the full
amount of any corporate level tax arising on the Distribution that is not paid
by Olin.
Furthermore, if the Distribution were not to qualify as a tax-free spin-off
under Sections 355 and 368(a)(1)(D) of the Code, each holder of Olin Common
Stock who receives Shares in the Distribution would be treated as if such
stockholder received a taxable distribution in an amount equal to the fair
market value of the Shares received, which would result in a dividend to the
extent paid out of Olin's current and accumulated earnings and profits.
COMPANY DIVIDEND POLICY
The payment and level of cash dividends by the Company after the
Distribution will be subject to the discretion of the Board. Olin initially
expects the Company to declare quarterly cash dividends of $0.__ per share.
However, future dividend decisions will be based on, and affected by, a number
of factors, including the operating results and financial requirements of the
Company on an independent basis. As a result, there can be no assurance that
the dividend will remain at its initial level. In addition, the payment of
dividends may be restricted in certain circumstances by financial covenants
contained in the Credit Facility.
ABSENCE OF TRADING MARKET FOR COMPANY STOCK
There has not been any established public trading market for the Company
Common Stock. The Company has applied for the listing of the Company Common
Stock on the NYSE and it is anticipated that the Company Common Stock will be
approved for listing on the NYSE under the symbol "____." Trading in the
Company Common Stock to be distributed may commence on a "when issued" basis
prior to the Distribution Date. There can be no assurance as to the prices at
which the Company Common Stock will trade before, on, or after the Distribution
Date. Until the Company Common Stock is fully distributed and an orderly market
develops, the prices at which such stock trades may fluctuate significantly and
may be lower than prices that would be expected for a fully distributed issue.
Prices for the Company Common Stock will be determined in the marketplace and
may be influenced by many factors, including, without limitation, the depth and
liquidity of the market for the Company Common Stock, developments affecting the
chemicals industry generally, developments affecting semiconductor demand, the
Company's dividend policy, investor perception of the Company and the industries
in which it participates and general economic and market conditions.
Substantially all of the shares of Company Common Stock will be eligible
for immediate resale in the public market after the Distribution. Any sales of
substantial amounts of Company Common Stock in the public market, or the
perception that such sales might occur, whether as a result of the Distribution
or otherwise, could materially adversely affect the market price of Company
Common Stock. See "The Distribution-Listing and Trading of Company Common
Stock."
17
<PAGE>
CHANGES IN TRADING PRICES OF OLIN COMMON STOCK
After the Distribution, Olin Common Stock will continue to be listed for
trading on the NYSE and the Pacific and Chicago Stock Exchanges under the symbol
"OLN." As a result of the Distribution, the trading prices of Olin Common Stock
may be lower immediately following the Distribution as compared to the trading
prices of Olin Common Stock immediately prior to the Distribution. The
aggregate market values of Olin Common Stock and Company Common Stock after the
Distribution may be less than, equal to, or greater than the market value of
Olin Common Stock prior to the Distribution.
COMPETITION
The Company's Specialty Chemical Businesses are in highly competitive
industries, and the Company encounters strong competition in each of its product
lines from other manufacturers worldwide. Certain of the Company's competitors
are larger and have greater financial resources than the Company. See
"Business."
CERTAIN ANTITAKEOVER EFFECTS
The Articles and By-laws of the Company, certain sections of the Virginia
Stock Corporation Act and the Rights Agreement contain several provisions that
may make the acquisition of control of the Company more difficult or expensive.
See "Description of Capital Stock-Certain Provisions of the Articles, By-laws
and Virginia Corporate Law" and "Rights Plan."
18
<PAGE>
DIVIDEND POLICY
The payment and level of cash dividends by the Company after the
Distribution will be subject to the discretion of the Board. Although it is
anticipated that following the Distribution the Company initially will declare
quarterly cash dividends, which on an annual basis will aggregate $0.__ per
Share, future dividend decisions will be based on, and affected by, a number of
factors, including the operating results and financial requirements of the
Company on an independent basis. As a result, there can be no assurance that the
dividend rate will remain at its initial level. In addition, the payment of
dividends, as well as any other distribution, liquidation, purchase or other
acquisition of the Company's stock by it or any subsidiary, may be restricted in
certain circumstances by financial covenants in the Credit Facility. At
September 30, 1998, the Credit Facility would have permitted approximately $__
million to be paid in dividends.
CAPITALIZATION
(DOLLARS IN MILLIONS)
The following table sets forth the combined capitalization of the Company
as of September 30, 1998 on a historical basis and as adjusted to reflect (i)
the Distribution and (ii) the assumption by the Company of $_______ of
indebtedness incurred by Olin prior to the Distribution Date, as if they
occurred as of that date. This data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the historical Combined Financial Statements and Notes thereto
of the Company included elsewhere herein.
<TABLE>
<CAPTION>
September 30, 1998
----------------------------------
Pro Forma As
Actual(1) Adjustments Adjusted
--------- ----------- --------
<S> <C> <C> <C>
Short-Term Borrowings $ .3 $ $
Long-Term Debt 5.5
------ ------- ------
Total Debt 5.8
------ ------- ------
Preferred Stock - - -
Common Stock -
Additional Paid-In Capital -
Cumulative Translation Adjustment (14.1)
Equity 487.6
------ ------- ------
Total Shareholders' Equity 473.5
------ ------- ------
Total Capitalization $479.3 $ $
====== ======= ======
</TABLE>
(1) The financial data above do not include any amount for short-term
borrowings or the related interest expense under the Credit Facility which
liability, if any, will be assumed by the Company. See Notes to the
Combined Financial Statements--"Proforma Effect of Borrowings under the
Credit Facility (Unaudited)."
The foregoing table is based on each holder of Olin Common Stock receiving
a dividend of one share of Company Common Stock for every ___ share(s) of Olin
Common Stock. The number of shares of Olin Common Stock outstanding as of the
Distribution Date is anticipated to be approximately ____ million.
It is anticipated that the Company will succeed to the $_______ Credit
Facility executed by Olin prior to the Distribution. Olin intends to borrow an
amount under that facility prior to the Distribution, currently estimated to be
$_______, which liability will be assumed by the Company. Amounts remaining
under the Credit Facility are expected to provide sufficient liquidity for the
Company's current funding needs. The Company expects that the Credit Facility
will have a five-year term.
19
<PAGE>
ARCH CHEMICALS, INC.
SELECTED FINANCIAL AND OPERATING DATA
(DOLLARS IN MILLIONS)
The following table summarizes certain selected historical financial and
operating information with respect to the Company and is derived from the
Combined Financial Statements of the Company. The financial data as of and for
each of the three years ended December 31, 1997 were derived from the audited
financial statements included elsewhere herein. The financial data for the nine
months ended September 30, 1998 and 1997 were derived from the unaudited
financial statements included elsewhere herein. Such historical financial data
may not be indicative of the Company's future performance as an independent
company. The information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the historical Combined Financial Statements and Notes thereto
included elsewhere in this Information Statement. The historical financial
information includes an allocated share of Olin's historical centralized
activities. The following information is qualified in its entirety by the
information and financial statements appearing elsewhere in this Information
Statement.
<TABLE>
<CAPTION>
UNAUDITED NINE
MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
--------------- -----------------------------------------------
OPERATIONS 1998 1997 1997 1996 1995 1994 1993
------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales $694.4 $728.1 $929.9 $913.5 $872.8 $686.5 $646.7
Cost of Goods Sold 493.7 525.8 676.3 647.8 659.6 515.1 484.6
Selling and Administration 127.9 118.3 153.5 159.0 141.1 120.0 126.3
Charge for Strategic Action Plan(1) - - - - - - 25.0
Research and Development 13.1 15.5 21.1 21.0 17.4 12.5 14.9
------ ------ ------ ------ ------ ------ ------
Operating Income (Loss) 59.7 68.5 79.0 85.7 54.7 38.9 (4.1)
Interest and Other Income, net(2)(3) 3.1 5.2 7.2 8.4 12.6 3.3 0.9
------ ------ ------ ------ ------ ------ ------
Income (Loss) Before Taxes 62.8 73.7 86.2 94.1 67.3 42.2 (3.2)
Income Tax Provision (Benefit) 21.4 25.6 29.9 33.0 23.4 14.7 (1.1)
------ ------ ------ ------ ------ ------ ------
Net Income (Loss) 41.4 48.1 56.3 61.1 43.9 27.5 (2.1)
------ ------ ------ ------ ------ ------ ------
</TABLE>
<TABLE>
<CAPTION>
UNAUDITED
SEPTEMBER 30, DECEMBER 31,
----------------- -----------------------------------------------
1998 1997 1997 1996 1995 1994 1993
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL POSITION
Property, Plant and Equipment, net $305.1 $263.2 $280.4 $257.3 $261.4 $225.5 $252.6
Total Assets 691.2 678.2 693.2 651.2 624.1 500.3 501.5
Capitalization (3):
Short-Term Borrowings 0.3 0.3 1.4 1.8 0.1 0.4 7.7
Long-Term Debt 5.5 5.5 5.5 5.5 5.5 - -
Equity and Cumulative Translation
Adjustment 473.5 477.6 455.6 429.6 411.4 329.2 347.2
------ ------ ------ ------ ------ ------ ------
Total Capitalization 479.3 483.4 462.5 436.9 417.0 329.6 354.9
====== ====== ====== ====== ====== ====== ======
OTHER
Capital Expenditures 52.2 43.0 71.0 53.2 65.4 51.4 38.7
Depreciation 31.4 32.4 43.6 40.2 41.4 39.4 42.5
Effective Tax Rate 34.1% 34.7% 34.7% 35.1% 34.8% 34.8% 34.4%
</TABLE>
(1) Charge for strategic action plan includes a charge for personnel reductions
and for streamlining existing businesses by relocating and consolidating
several facilities.
(2) Interest and other income, net in 1995 includes a gain from the sale of the
Sun(R) brand trademark, a dry sanitizer plant in Charleston, West Virginia
and a related tableting facility in Livonia, Michigan.
(3) The financial data above do not include any amount for short-term
borrowings or the related interest expense under the Credit Facility which
liability, if any, will be assumed by the Company. See Notes to the
Combined Financial Statements--"Proforma Effect of Borrowings under the
Credit Facility (Unaudited)."
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and
Results of Operations covers periods when the Company operated as the specialty
chemical businesses of Olin. However, this discussion and analysis of financial
condition and results of operations has been prepared as if the Company were a
separate entity for all periods discussed. It should be read in conjunction
with the Company's historical Combined Financial Statements and Notes thereto
included elsewhere herein.
RESULTS OF OPERATIONS
COMBINED
<TABLE>
<CAPTION>
Unaudited
Nine Months Ended
September 30, Years Ended December 31,
--------------------- ---------------------------
($ in millions) 1998 1997 1997 1996 1995
- --------------- ---- ---- ------ ----- -----
<S> <C> <C> <C> <C> <C>
Sales $694.4 $728.1 $929.9 $913.5 $872.8
Gross Margin 200.7 202.3 253.6 265.7 213.2
Selling and Administration 127.9 118.3 153.5 159.0 141.1
Research and Development 13.1 15.5 21.1 21.0 17.4
Operating Income 62.5 73.5 86.1 93.3 60.3
Net Income 41.4 48.1 56.3 61.1 43.9
- --------------------------------------------------------------------------------------
</TABLE>
Notes:
(1) Operating income includes operating income and the equity income in
affiliated companies.
(2) The financial data above do not include any interest expense for any
borrowings under the Credit Facility, which liability, if any, will be
assumed by the Company. See Notes to the Combined Financial Statements -
"Proforma Effect of Borrowings under the Credit Facility (Unaudited)."
Nine Months Ended September 30, 1998 Compared to 1997
- -----------------------------------------------------
Sales and operating income decreased 4.6% and 15.0%, respectively. Sales
decrease was attributable to a 1% decrease in prices and a 5.9% decrease due to
the sales of the surfactants, fluids, non-urethane polypropylene glycol and
polyethylene glycol (collectively, "surfactants") businesses and the conversion
of the flexible polyol business to a tolling operation, partially offset by a
2.3% increase in volume.
Gross margin percentage was 28.9% in 1998 and 27.8% in 1997. Higher gross
margin as a result of the conversion of the polyols business to a tolling
operation was primarily the main contributor to the increased gross margin
percentage.
21
<PAGE>
Selling and administration expenses as a percentage of sales were 18.4% in
1998 and 16.2% in 1997. Selling and administration expenses increased in amount
due to higher administration expenses for information technology systems and
increased international operating expenses.
Research and development expenses decreased due to the consolidation of the
foreign research efforts for photopolymers into the U.S. operations and the sale
of the surfactants businesses to BASF in November 1997.
The effective tax rate decreased to 34.1% in 1998 from 34.7% in 1997,
resulting from a lower state tax rate in 1998.
Year Ended December 31, 1997 Compared to 1996
- ---------------------------------------------
Sales increased 1.8% while operating income decreased 7.7%. Sales increase
was attributable to a 1.1% increase in prices and a 0.7% increase in volume.
Gross margin percentage was 27.3% in 1997 and 29.1% in 1996. Higher raw
materials and manufacturing costs more than offset the impact of increased
volumes and contributed to the decreased gross margin percentage.
Selling and administration expenses as a percentage of sales were 16.5% in
1997 and 17.4% in 1996. Selling and administration expenses decreased in amount
due to lower advertising and sales promotion expenses for water chemicals,
reduced legal expenses and lower international operating expenses.
Research and development expenses were about equal.
The effective tax rate decreased to 34.7% in 1997 from 35.1% in 1996 due to
lower foreign taxes.
In November 1997, the Company sold its surfactants businesses to BASF. This
transaction did not have a material effect on the Company's results of
operations.
Year Ended December 31, 1996 Compared to 1995
- ---------------------------------------------
Sales increased 4.7% while operating income increased 54.7%. The sales
increase was attributable to a 2.8% increase in prices, a 1.7% decrease in
volumes and a 3.6% increase due to the inclusion of sales for a full year from
the acquisition of OCG Microelectronic Materials ("OCG") partially offset by the
reduction in sales relating to the sale of the chlorinated isocyanurate pool
chemical business in 1995.
Gross margin percentage was 29.1% in 1996 and 24.4% in 1995, as higher
prices, lower raw materials costs and an improved product mix contributed to the
gross margin improvement.
22
<PAGE>
Selling and administration expenses as a percentage of sales were 17.4% in
1996 and 16.2% in 1995. Selling and administration expenses increased in amount
due primarily to the inclusion of OCG's operating expenses for a full year and
higher advertising and sales promotion expenses for water chemicals.
Research and development expenditures increased due to the inclusion of
OCG's research and development expenses for a full year in 1996.
Other income in 1995 included the $7 million gain on the sale of the
Company's chlorinated isocyanurate pool chemical assets (SUN(R) brand trademark,
a dry sanitizer plant in South Charleston, West Virginia, and a related
tableting operation in Livonia, Michigan).
The effective tax increased to 35.1% in 1996 from 34.8%.
MICROELECTRONIC CHEMICALS
<TABLE>
<CAPTION>
Nine Months Ended Years Ended
RESULTS OF OPERATIONS September 30, December 31,
------------------ -----------------------
($ in millions) 1998 1997 1997 1996 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Sales $176.5 $179.9 $242.6 $232.9 $168.1
Operating Income (Loss) (0.6) 9.2 9.5 16.9 21.0
</TABLE>
Nine Months Ended September 30, 1998 Compared to 1997
- -----------------------------------------------------
Sales decreased 1.9% while an operating loss resulted in 1998 compared to
an operating profit in 1997. Sales of all products weakened in the second and
third quarters of 1998 as the Company's business continued to be adversely
impacted by the poor conditions in the worldwide semiconductor market. Also,
major semiconductor customers were undergoing extended shutdowns and some
delaying or canceling fab construction projects. In addition to the market
condition of the semiconductor industry, start-up costs for the Company's new
process chemicals facility in Belgium, unfavorable operating performance from a
foreign affiliate and higher administration expenses for information technology
systems contributed to the operating loss. The existing market conditions in
the semiconductor industry are expected to continue to negatively impact the
microelectronic chemicals operations for the remainder of 1998. The Company is
experiencing lower demand from customers whose products are sold directly into
Asia. Additionally, the operating performance of the Company's foreign
affiliate in Japan has been adversely impacted by the continued weakness in the
semiconductor market.
Year Ended December 31, 1997 Compared to 1996
- ---------------------------------------------
Sales increased 4.2% while operating income decreased 43.8%. Since
microelectronic chemicals sales are a direct result of the demand for
semiconductor products, process chemicals sales increased as the semiconductor
industry began to improve and recover from its depressed levels of 1996. Sales
of chemical management services increased due to price increases and the
addition of new customers and services. Higher photopolymer sales more than
offset reduced
23
<PAGE>
demand from certain customers whose operations were undergoing technological
changes and improvements. Operating income decreased as higher manufacturing
costs at several plants, additional operating expenses and an unfavorable
product mix more than offset the profit impact from the higher volumes and
prices.
Year Ended December 31, 1996 Compared to 1995
- ---------------------------------------------
Sales increased 38.5% while operating income decreased 19.5%. Sales
increased due to the inclusion of OCG's sales for twelve months in 1996 compared
to six months in 1995. Operating income was negatively impacted by the
semiconductor industry slowdown in the second half of 1996. Operating income
was also affected by higher costs associated with delays and startup costs of
the new Mesa, Arizona facility and the continued operations of two other
manufacturing plants, until the Mesa facility became fully operational.
WATER CHEMICALS
<TABLE>
<CAPTION>
Nine Months Ended Years Ended
RESULTS OF OPERATIONS September 30, December 31,
-----------------------------------------------
<S> <C> <C> <C> <C> <C>
($ in millions) 1998 1997 1997 1996 1995
------ ------ ------ ------ ------
Sales $258.0 $253.6 $286.9 $293.7 $304.9
Operating Income 21.7 29.8 26.5 24.1 7.9
</TABLE>
Nine Months Ended September 30, 1998 Compared to 1997
- -----------------------------------------------------
Sales increased 1.7% while operating income decreased 27.2%. Increased
sales from international operations and higher volumes of Pace (R) brand
products more than offset lower calcium hypochlorite volumes and prices.
Chinese calcium hypochlorite producers have increased their exports of product,
which has disrupted the supply/demand balance and affected prices on a worldwide
basis. The decrease in operating income was primarily attributable to the
decline in calcium hypochlorite prices and higher manufacturing costs and
operating expenses. Lower production volumes, higher depreciation expense and
other plant costs, along with higher distribution costs in connection with a new
customer accounted for the increased manufacturing costs.
Due to the fact that approximately 40% of the sales in the water chemicals
business occur in the second calendar quarter of the year, the results of the
Company's operations for the nine months ended September 30, 1998 and 1997 may
not be indicative of the Company's full year results.
Year Ended December 31, 1997 Compared to 1996
- ---------------------------------------------
Sales decreased 2.3% while operating income increased 10.0%. The sales
decline was attributable to reduced volumes of chlorinated isocyanurates ("iso")
due to a strategy to enhance product mix and reduced volumes of calcium
hypochlorite due to increased competition and unfavorable weather conditions.
Lower volumes, principally from lower iso sales, more than offset higher prices.
24
<PAGE>
Operating income was higher due to the profit impact from the improved pricing,
lower operating expenses and an improved product mix. Lower advertising, sales
promotion and legal expenses along with lower international operating expenses
due to lower spending and a stronger U.S. dollar contributed to the decrease in
operating expenses. The increased pricing more than offset the higher cost of a
raw material used in the production of Pace(R) brand products, and other
additional manufacturing costs.
Year Ended December 31, 1996 Compared to 1995
- ---------------------------------------------
Sales decreased 3.7% while operating income increased significantly. The
sales decline was primarily due to lower iso and calcium hypochlorite volumes
which more than offset increased pricing. Iso sales declined as the Company
began to transition out of the bulk isocyanurate business subsequent to the
divestitures of the South Charleston manufacturing plant in 1995 and the Lake
Charles facility in 1994. The Company's transition from being a manufacturer to
a purchaser of iso's necessitated this strategy which enriched product mix.
Pricing for domestic calcium hypochlorite and Pace(R) brand products increased
and more than offset the decline in volumes. This price increase enhanced gross
margin and, along with higher Pace(R) brand volumes, more than offset increased
raw material, manufacturing and packaging costs and advertising and sales
promotion expenses.
PERFORMANCE CHEMICALS
<TABLE>
<CAPTION>
Nine Months Ended Years Ended
RESULTS OF OPERATIONS September 30, December 31,
-----------------------------------------------
($ in millions) 1998 1997 1997 1996 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Sales $259.9 $294.6 $400.4 $386.9 $399.8
Operating Income 41.4 34.5 50.1 52.3 31.4
</TABLE>
Nine Months Ended September 30, 1998 Compared to 1997
- ------------------------------------------------------
Sales decreased 11.8%, while operating income increased 20.0%.
The sales decrease was attributable primarily to sale of the surfactants
businesses to BASF in November 1997 and the conversion of the flexible polyols
business from a merchant business to a tolling operation. Higher sales of IPBC-
based biocide, which is used primarily in metalworking and the coatings markets,
and Copper Omadine(R) biocide, which is used in the marine antifoulant paint
market, were partially offset by a decline in volume in the Asian antidandruff
agent market along with lower pricing due to the relatively stronger value of
the U.S. dollar. The Company expects that the Asian economies will continue to
adversely impact its antidandruff agent volumes for the remainder of 1998.
The operating income increase was attributable primarily to the conversion
of the flexible polyols business to a tolling operation. This increase along
with the profit impact from higher IPBC-based biocide and Copper Omadine(R)
biocide volumes were offset in part by lower
25
<PAGE>
antidandruff agent volumes to the Asia market, and higher administration expense
for additional international personnel and legal expenses.
Year Ended December 31, 1997 Compared to 1996
- ---------------------------------------------
Sales increased 3.5%, while operating income decreased 4.2%.
Sales increase was due in part to higher volumes of antidandruff agents and
marine antifoulant agents which benefited from capacity expansions, enabling
many products to set annual production and sales records due to growth in market
demand and market share. Higher specialty polyol sales were more than offset by
lower flexible polyol sales. Additionally the Company's subsidiary in Venezuela
was adversely impacted by approximately a 40% reduction in price for its product
which is used in the production of oil emulsions. Higher propellant sales were
due to increased volumes of Ultra Pure(TM) hydrazine and MMH. Sales and
production of Ultra Pure(TM) hydrazine achieved record levels in 1997.
Additional propellant volumes more than offset lower hydrate volumes and
pricing. Sulfuric acid volumes were enhanced by the addition of a new refinery
account and the Company becoming a sole supplier to another refinery.
Operating income decreased due to higher raw material, maintenance and
manufacturing costs and more than offset the profit impact from additional
antidandruff agents, marine antifoulant agents and IPBC-based biocide volumes.
In November 1997, the Company sold its surfactants businesses to BASF. The
Company will continue to produce certain products for BASF under a three-year
supply agreement.
Year Ended December 31, 1996 Compared to 1995
- ---------------------------------------------
Sales decreased 3.2%, while operating income increased 66.6%.
The sales decrease was attributable primarily to lower flexible polyol
sales. This decrease more than offset higher worldwide volumes for antidandruff
agents, marine antifoulant paints, coatings and adhesives for industrial uses,
resulting from higher foreign, and new product sales, and higher prices and
volumes of sulfuric acid. Ultra Pure(TM) hydrazine volumes increased over 1995
and benefited from a government contract.
Operating income increased due to increased prices for glycols and polyols,
higher volumes of surfactants and fluids, higher prices and volumes of sulfuric
acid, and record operating profits from its Venezuelan subsidiary.
Additionally, lower raw materials, manufacturing and operating costs contributed
to the operating income improvement. Profits were negatively impacted due to
the Company having to purchase supplemental product at higher prices from
outside sources. In addition, higher operating costs came from toxicology
studies in efforts to gain registrations for the new IPBC-based biocides.
26
<PAGE>
ENVIRONMENTAL
The establishment and implementation of federal, state and local standards
to regulate air and water quality and to govern contamination of land and
groundwater has affected, and will continue to affect, substantially all of the
Company's manufacturing locations. Federal legislation providing for regulation
of the manufacture, transportation, use and disposal of hazardous and toxic
substances has imposed additional regulatory requirements on industry in
general, and particularly on the chemicals industry. In addition, the
implementation of environmental laws, such as the Resource Conservation and
Recovery Act, the Clean Air Act and the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended by the Superfund Amendments
and Reauthorization Act of 1986, has required and will continue to require new
capital expenditures and will increase operating costs. The Company employs
waste minimization and pollution prevention programs at its manufacturing sites.
In connection with the Distribution, Olin and the Company have entered into
the Assumption of Liabilities and Indemnity Agreement which specifies that the
Company is only responsible for environmental liabilities at the Company's
current facilities and certain off-site locations. Associated costs of
investigatory and remedial activities are provided for in accordance with
generally accepted accounting principles governing probability and the ability
to reasonably estimate future costs. Charges to income for investigatory and
remedial efforts were not material to operating results in 1997, 1996 and 1995
but may be material to net income in future years. In 1997, in connection with
the sale of the surfactants, fluids and non-urethane polypropylene glycol
businesses to BASF, a $2.3 million provision was recorded to provide for future
environmental spending at the Brandenburg, Kentucky site.
Cash outlays for remedial and investigatory activities associated with
former waste sites and past operations were incurred by Olin. Cash outlays for
normal plant operations for the disposal of waste and the operation and
maintenance of pollution control equipment and facilities to ensure compliance
with mandated and voluntarily imposed environmental quality standards were
charged to income. Cash outlays for environmental related activities totaled
$10.8 million in 1997, $12.5 million in 1996 and $11.3 million in 1995. During
1997, $2.8 million ($4.0 million in 1996; $2.3 million in 1995) was spent on
capital projects and $8.0 million ($8.5 million in 1996; $9.0 million in 1995)
was spent on normal plant operations. Historically, the Company has funded its
environmental capital expenditures through cash flow from operations and expects
to do so in the future.
The Company's combined balance sheets included liabilities for future
environmental expenditures to investigate and remediate known sites amounting to
$3.2 million at September 30, 1998 and December 31, 1997 and $.9 million at
December 31, 1996, all of which were classified as other noncurrent liabilities.
These amounts did not take into account any discounting of future expenditures,
any consideration of insurance recoveries or any advances in technology. These
liabilities are reassessed periodically to determine if environmental
circumstances have changed or if the costs of remediation efforts can be better
estimated. As a result of these reassessments, future charges to income may be
made for additional liabilities.
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<PAGE>
Total environmental-related cash outlays for 1998 are estimated to be $13
million, of which $5 million is expected to be spent on capital projects and $8
million on normal plant operations.
Annual environmental-related cash outlays for site investigation and
remediation, capital projects and normal plant operations are expected to range
between $10 to $15 million over the next several years. While the Company does
not anticipate a material increase in the projected annual level of its
environmental-related costs, there is always the possibility that such increases
may occur in the future in view of the uncertainties associated with
environmental exposures. Environmental exposures are difficult to assess for
numerous reasons, including the identification of new sites, developments at
sites resulting from investigatory studies, advances in technology, changes in
environmental laws and regulations and their application, the scarcity of
reliable data pertaining to identified sites, the difficulty in assessing the
involvement and financial capability of other potentially responsible parties
and the Company's ability to obtain contributions from other parties and the
lengthy time periods over which site remediation occurs.
INCOME TAXES
Prior to the Distribution, the Company's operations were included in the
U.S. federal consolidated income tax returns of Olin. The provision for income
taxes includes the Company's allocated share of Olin's consolidated income tax
provision and is calculated on a separate Company basis pursuant to the
requirements of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." Allocated current income taxes payable are settled with Olin on a
current basis. Deferred taxes are provided for the differences between the
financial statement and the tax bases of assets and liabilities using enacted
tax rates in effect for the year in which the differences are expected to
reverse.
FUTURE SERVICE COSTS
For a transition period following the Distribution, Olin and the Company
will provide to one another certain services such as payroll and benefits
administration, mainframe computing services and telecommunications support.
Historically, these services were provided by Olin to the Company. Each company
will be reimbursed for the services provided at rates comparable to the current
intercompany accounting charges. By the end of such transition period, the
Company will develop and establish these services on its own at costs that may
be more or less than the rates charged by Olin. Costs for such services
historically provided by Olin were $23.1 million and $23.9 million for the nine
months ended September 30, 1998 and 1997, respectively and $31.8 million in
1997, $27.7 million in 1996 and $25.3 million in 1995. It is anticipated that
when the Company becomes a separate public company, the cost of other types of
services, in addition to these previously mentioned, will increase by
approximately $4 million per year as a result of additional financial reporting
requirements, stock transfer fees, directors' fees, insurance and executive
compensation and benefits. Pro forma net income for the nine months ended
September 30, 1998, would have been $38.9 million, as compared to the reported
net income of $41.4 million, and pro forma net income for the year ended
December 31, 1997, would have been $53.8 million, as compared to the reported
net income of $56.3 million, after
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giving effect to the additional $4 million of annual pretax costs expected to be
incurred in the future as a separate public company.
LIQUIDITY, INVESTMENT ACTIVITY AND OTHER FINANCIAL DATA
Cash flows from operations supplemented by credit provided by Olin and
proceeds from the sales of businesses were used to finance the Company's working
capital requirements, capital and investment projects, and the 1995 acquisition
of the remaining balance of OCG. In the past and until the Distribution, the
Company's financing requirements have been and will be provided by Olin.
Prior to the Distribution, it is anticipated that the Company will succeed
to a Credit Facility established by Olin which is intended to provide sufficient
liquidity for the Company's current funding needs. The Company expects that the
Credit Facility will have a five-year term.
CASH FLOW DATA
<TABLE>
<CAPTION>
Nine Months Ended Years Ended
Provided By (Used For) September 30, December 31,
---------------------------------------------------
($ in millions) 1998 1997 1997 1996 1995
-------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Operating Activities $ 75.7 $ 30.8 $ 83.5 $ 86.1 $ 67.5
Capital Expenditures (52.2) (43.0) (71.0) (53.2) (65.4)
Net Investing Activities (54.7) (43.1) (59.4) (49.4) (80.8)
Net Financing Activities (26.6) 5.2 (21.6) (37.0) 16.4
</TABLE>
For the nine months ended September 30, 1998, the increase in cash flow
from operating activities was primarily attributable to a reduced investment in
working capital. Lower accounts receivable levels due primarily from exiting
the merchant flexible polyols business and the lower accounts receivable and
inventory levels resulting from the depressed semiconductor industry, along with
reduced inventory levels of water chemicals, were the main contributors to the
reduced investment in working capital.
For the 1997 year, the decrease in cash flow from operating activities was
primarily attributable to an additional investment in working capital to support
higher accounts receivable and inventory levels in microelectronic chemicals,
partially offset by a prepayment on a three-year supply agreement in connection
with the sale of the surfactants businesses to BASF. In 1996, the increase in
cash flow from operating activities was primarily attributable to higher
operating income and a reduced investment in working capital.
Capital spending for the nine months ended September 30, 1998 increased
21.4% from the comparable period in 1997. In microelectronic chemicals, there
are two major capital projects: an ultra high-purity chemicals plant and
distribution center in Zwijndrecht, Belgium to better serve the semiconductor
industry in Europe and a photoresist facility in North Kingston,
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Rhode Island to support the rapid commercialization of advanced photoresist
products. The high-purity chemicals plant in Belgium started up operations in
the third quarter of 1998 while the photoresist facility in Rhode Island is
expected to start up in the fourth quarter of 1998. These two projects were
approved by Olin's Board of Directors in 1996 (Belgium) and 1997 (Rhode Island)
and represent a total investment of approximately $50 million, of which
approximately $20.5 million was spent during the first nine months of 1998. In
performance chemicals, the Company is investing in a $55 million expansion plan
over the next several years for the expanded capacity for key intermediate
materials, including a new plant to be built in China to support increasing
demand in China and the rest of Asia for antidandruff shampoos and other
personal care products that use biocides. This plant is scheduled to be on
stream in the year 2001. During the first nine months of 1998, $3.9 million was
spent at the Rochester, New York and Swords, Ireland facilities related to the
expanded capacity for key intermediate materials.
Capital spending for the 1997 year increased 33.5%. During 1997, $20
million was spent in microelectronic chemicals for the Belgium and the Rhode
Island facilities and approximately $5 million was spent for the Rochester, New
York and Swords, Ireland facilities related to the expanded capacity for key
intermediate materials used in the production of performance chemicals. Capital
spending in 1996 decreased 18.7% from the prior year due to a planned reduction
to control capital costs. Also contributing to this lower level of spending in
1996 was the completion of the Mesa, Arizona project in 1995.
Capital spending in 1998 is estimated to increase approximately 40-50% from
1997. This increase is due primarily to the two microelectronic chemicals
projects and spending for the performance chemicals expansion.
In November 1997, the Company sold its surfactants businesses to BASF for
$12 million. In 1996, the Company sold its electrostatics business, generating
proceeds of $5.5 million.
In 1995, the Company completed its acquisition for $64.6 million of Ciba-
Geigy's 50% share of OCG, a joint venture formed by Ciba-Geigy and the Company
in 1990. Also, the Company acquired the remaining 51% of Etoxyl, C.A., a
Venezuelan joint venture. The purchase price is subject to adjustment based
upon the future earnings of this venture. During 1995, the Company sold its
Sun(R) brand trademark and its dry sanitizer plant in South Charleston, West
Virginia, and a related tableting operation in Livonia, Michigan. These
divestments generated total proceeds of $48.7 million.
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued SFAS No.131,
"Disclosure about Segments of an Enterprise and Related Information," which
establishes standards for the way that segment information is to be disclosed in
financial statements along with additional information on products and services,
geographic areas and major customers. The Company's current disclosure complies
with this standard.
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<PAGE>
In February 1998, the Financial Accounting Standards Board issued SFAS No.
132 "Employers' Disclosures about Pensions and Other Post Retirement Benefits,
an amendment to FASB Statements No. 87, 88, and 106," which modifies the
disclosure requirements related to pensions and other post-retirement benefits.
The statement is effective for fiscal years beginning after December 15, 1997.
The Company is currently evaluating the changes in the disclosure requirements
and will comply with the new standard for the year ended December 31, 1998.
In 1998, the Financial Accounting Standards Board issued Statement No. 133
("Statement 133") "Accounting for Derivative Instruments and Hedging
Activities." It requires an entity to recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. This statement is effective for all fiscal quarters
of fiscal years beginning after June 15, 1999. The Company is currently
evaluating the effect this statement will have on its financial position and
results of operations in the period of adoption.
In 1998, the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position 98-1 ("SOP 98-1"), "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." SOP 98-1 is
effective for fiscal years beginning after December 15, 1998. The Company is
currently evaluating the effect this Statement of Position will have on its
financial position and results of operations in the period of adoption.
Also in 1998, the AICPA issued Statement of Position 98-5 ("SOP 98-5"),
"Reporting on the Costs of Start-up Activities." This Statement of Position
requires the expensing of certain costs such as pre-operating expenses and
organizational costs associated with the Company's start-up activities, and is
effective for fiscal years beginning after December 15, 1998. The effect of
adoption is required to be accounted for as a cumulative effect of change in
accounting principle. The Company is still evaluating the effect of this
statement on results of operations and financial position. The Company does not
expect however that the amount recognized as a cumulative effect of change in
accounting principle, if any, would be material.
After determining the effect of Statement 133, SOP 98-1 and SOP 98-5, the
Company may consider early adoption of one or more of these pronouncements.
EURO CONVERSION
On January 1, 1999, eleven of the fifteen member countries of the European
Union are scheduled to adopt the euro as their common legal currency and to
establish fixed conversion rates between their existing sovereign currencies and
the euro. The Company does not expect the conversion to the euro to have a
material impact on its business, operations, or financial position.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company enters into forward sales and purchase contracts and currency
options to manage currency risk resulting from purchase and sale commitments
denominated in foreign currencies (principally Belgian franc, Canadian dollar,
Irish punt and Japanese yen) and relating to particular anticipated but not yet
committed purchases and sales expected to be denominated in those
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<PAGE>
currencies. All of the currency derivatives expire within one year and are for
United States dollar equivalents. At December 31, 1997, the Company had forward
contracts to sell foreign currencies with face values of $4.1 million (1996-
$22.4 million) and forward contracts to buy foreign currencies with face values
of $5.1 million (1996-$23.3 million). At December 31, 1996, the Company had
outstanding option contracts to sell foreign currencies with face values of $6.4
million and to buy foreign currencies with face values of $14.7 million.
In accordance with Statement of Financial Accounting Standards No. 52
("SFAS 52"), "Foreign Currency Translation," a transaction is classified as a
hedge when the foreign currency is designated as, and is effective as, a hedge
of a foreign currency commitment and the foreign currency commitment is firm. A
hedge is considered by the Company to be effective when the transaction reduces
the currency risk on its foreign currency commitments. If a transaction does
not meet the criteria to qualify as a hedge, it is considered to be speculative.
For a foreign currency commitment that is classified as a hedge, any gain or
loss on the commitment is deferred and included in the basis of the underlying
instrument. Any realized and unrealized gains or losses associated with foreign
currency commitments that are classified as speculative are recognized in the
current period and are included in Selling and Administration in the combined
statements of income. If a foreign currency transaction previously considered
as a hedge is terminated before the transaction date of the related commitment,
any deferred gain or loss shall continue to be deferred. Premiums paid for
currency options and gains or losses on forward sales and purchase contracts are
not material to operating results.
YEAR 2000 COMPUTER SYSTEMS
The Company views the impact of the Year 2000 as a critical business issue.
It manages the process by having each business identify its own Year 2000 issues
and develop appropriate corrective action steps, while instituting a series of
management processes that coordinate and manage the process across business
boundaries and the corporate center. The process includes corporate oversight
and provides for consistent attention to progress made against planned
activities and a forum for issue resolution at the business and corporate levels
with periodic assessments made by independent parties which are periodically
reported to the Board.
The Company recognizes that the Year 2000 issue is not limited to computer
programs normally associated with the processing of business information, but
can also be found in certain equipment and processes used in manufacturing and
operation of facilities. Furthermore, it also recognizes that the potential
exists for Year 2000 issues within the supply chain. The Company's approach was
to subdivide the program into four distinct segments: 1) Business Systems; 2)
Manufacturing; 3) Supply Chain; and 4) Infrastructure.
In the business systems segment, the Company has positioned itself very
favorably with respect to software and equipment that is Year 2000 compliant.
In 1994, the Company began implementing a Year 2000 compliant client-server
system, Peoplesoft, to address payroll and human resource needs and it presently
uses such system in all businesses. In 1993, the Company began
implementing for all domestic businesses a client-server system, SAP, for core
business requirements as a vehicle to obtain certain improvements in the
business processes. SAP is currently utilized in a majority of its domestic
businesses. Since SAP was also a certified
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<PAGE>
Year 2000 compliant solution, migration plans were adjusted to take advantage of
the business benefit while eliminating the cost of remediating old legacy system
code. Deployment has been aggressive with all domestic functions and locations
transferred to SAP with the exception of the microelectronic chemicals business
which is scheduled for January 1999. In the few instances where SAP is not
utilized, replacement systems are scheduled for June 1999. Offshore processing
systems will continue using existing systems until conversion to SAP during 2000
and beyond. All systems have been examined with Year 2000 upgrades targeted for
completion by the second quarter of 1999.
In the manufacturing segment, plant level employees and independent
assessments were used to identify places where embedded systems exist and
categorize them by the potential impact to the business. Forty-eight items
which have the potential for causing process shutdowns or unsafe conditions
remain to be remediated or replaced in the manufacturing segment. The plan,
which takes maximum advantage of "planned outages" in order to minimize impact
on operations, targets completion by May 1999.
The supply chain segment has seen much activity in terms of assessing
vendor Year 2000 preparedness, identifying alternate sources, as well as
insertion of certain Year 2000 compliance language in all purchase orders
issued. The Company is expecting to complete a review of single source and
critical suppliers by year-end 1998. During 1999, the Company will continue to
re-evaluate its suppliers on a periodic basis.
Personal computers, networks, and PBX's represent the majority of items in
the Company's infrastructure segment. The Company has deployed new Pentium Year
2000 compliant equipment in large numbers to support its SAP deployment program
and for internal standards compliance. In addition, the Company is currently
utilizing software tools to test the entire PC inventory for Year 2000
compliance and this is expected to be completed by year end 1998. The Company's
wide area network is already Year 2000 compliant as is most of it's PBX's and
voice mail systems. The non-compliant equipment is planned to be replaced with
compliant versions as leases expire but no later than June 1999.
The Company believes its Year 2000 initiative is on track to address all
significant Year 2000 issues by the middle of 1999, and is supported by the
findings of an independent assessment completed in July 1998. Plans include
additional assessments throughout 1999.
Plans for a worst case scenario in the unlikely event of a major failure
due to a Year 2000 problem which causes significant disruptions to business
operations have been formulated. In the area of business systems, management
believes that the Company, with most of its' operating units already migrated to
Year 2000 compliant solutions, has already significantly reduced its' potential
risk. As added protection, software migration plans to new releases of SAP and
Peoplesoft which are planned in 1999, include Year 2000 testing scenarios. It
will continue to monitor progress in the system testing of the converted legacy
systems and will redirect existing resources and / or utilize outside assistance
in the event of slippage against plans.
The Company continues to focus attention to the manufacturing segment. It
has deployed several independent initiatives to identify embedded systems,
develop comprehensive
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<PAGE>
equipment lists, and obtain vendor certifications of Year 2000 compliance. It
has developed plans for further testing with respect to key manufacturing
equipment and systems, during periods of scheduled outages.
The Company will continue to monitor progress against plans in the business
systems, manufacturing, infrastructure, and supply chain segments, and take
corrective action should slippage occur. The use of vendor-supplied Year 2000
compliant solutions, coupled with substantive pre-testing of key systems and a
strong management commitment and oversight are the cornerstone of the Company's
Year 2000 program.
Nonetheless, in the unlikely occurrence of some unforeseen event,
divisional emergency teams skilled in each of the disciplines will be formed
during the last half of 1999. They will be deployed to assist local personnel
in the event of a Year 2000 issue at the turn of the millennium.
The Company does not expect Year 2000 initiative costs to exceed $5.0
million exclusive of the cost for deploying SAP and Peoplesoft and related
infrastructure over the next 15 months. Decisions were made to deploy SAP and
Peoplesoft independent of the Year 2000 issue.
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<PAGE>
BUSINESS
GENERAL
The Company was organized under the laws of the Commonwealth of Virginia on
August 25, 1998 for the purpose of effecting the distribution of the Specialty
Chemical Businesses to Olin's shareholders. The Company will be a specialty
chemicals manufacturer which supplies value added products and services to
several industries on a worldwide basis, including the consumer products and the
semiconductor industries. The principal businesses in which the Company will
compete are microelectronic chemicals, water chemicals and performance
chemicals. The Company's ability and willingness to provide superior levels of
technical customer support, the manufacturing flexibility of many of its
facilities, and the cultivation of close customer relationships are the common
skills on which the Company relies in servicing its global markets and
customers.
PRODUCTS AND SERVICES
The Company's principal products and services fall within three businesses:
microelectronic chemicals, water chemicals and performance chemicals. For
financial information about each of the Company's industry segments, and foreign
and domestic and export sales, see Notes to Combined Financial Statements--
"Segment Information." The principal products of each business are described
below.
Microelectronic Chemicals
The Company manufactures and supplies a range of products and services to
semiconductor manufacturers and to flat panel display manufacturers throughout
the world. The microelectronic chemicals sold by the Company include a variety
of high purity acids, bases, oxidizers, etchants and solvents (collectively
referred to as "process chemicals"). The Company plans to expand its process
chemicals product line of ultra high purity, parts per trillion (ppt) chemicals
in 1999. These leading edge products will service the newest generation
semiconductor fabs. Another microelectronic chemical product line, referred to
as diffusion systems, includes film deposition precursors, dopants, chlorine
sources and chemical refill equipment. The Company also offers a range of
semiconductor photopolymers, which include photoresists, ancillary materials and
polyimides. In addition to the range of products offered, the Company provides
semiconductor manufacturers with a variety of chemical usage related services,
including inventory management and chemical handling.
The Company manufactures a wide range of photoresist and ancillary products
encompassing negative, g-line, i-line and 248nm deep UV technologies to meet the
constantly evolving needs of the semiconductor industry. Within the past twelve
months, the Company has announced new products based on two new series of 248nm
deep UV resists, new advanced i-line products and environmentally-friendly
strippers and has begun sampling both bi-layer and single-layer 193nm resist
materials. The current focus of the photoresist research and development
efforts is aimed at evolving the technology platforms underlying these products
through modification of the respective materials chemistries to meet the ongoing
demands of the semiconductor industry. The Company is pursuing advanced
photoresist development through internal development, strategic alliances and
licensing agreements.
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The Company's microelectronic chemicals business competes against other
suppliers on the basis of performance, product quality, service, technology and
pricing. The Company has a broad patent portfolio encompassing the technologies
underlying the design of its products which the Company believes provides a
competitive advantage against other suppliers. The Company enhances its
technological competitive advantage by entering into technology licenses and
joint development agreements with third parties to meet the rapidly evolving
needs of the semiconductor industry. The current semiconductor industry
downturn and the addition of several new suppliers to the market has
significantly intensified price-based competition. Numerous programs have been
implemented, are planned or in progress which are expected to improve the cost
structure and are designed to make this business a low cost industry supplier.
The Company's extensive product line and global infrastructure are distinct
advantages that enhance its competitiveness. This enables this business to
service virtually all semiconductor industry wet chemical requirements on a
worldwide basis. Product performance and quality and the technology associated
with quality are generally considered an industry prerequisite. The high
quality standards of the semiconductor industry serve as a hurdle, which limit
the number of new entrants as suppliers to the market.
The Company's microelectronic chemicals are sold on a direct basis or
through independent third party distributors. Chemical management services are
offered on a direct basis only.
Water Chemicals
The Company manufactures and sells chemicals and distributes equipment on a
worldwide basis for the sanitization and recreational use of residential and
commercial pool water, and the purification of potable water. The Company sells
both calcium hypochlorite and chlorinated isocyanurates for the sanitization of
residential and commercial pool water. The Company is a leading worldwide
producer of calcium hypochlorite and is one of the largest purchasers of
chlorinated isocyanurates. The Company has a competitive advantage through
ownership of the J3 technology which enables it to produce calcium hypochlorite
with superior dissolving characteristics and 75% available chlorine as
compared to calcium hypochlorite with 65% available chlorine.
The Company owns widely recognized brand names for both calcium
hypochlorite (HTH(R)) and chlorinated isocyanurates (Pace(R)). The Company's
water chemical products are sold under a variety of brand names, including
Company-owned trademarks such as Sock-It(R), Super Sock-It(R), Duration(R) and
Pulsar(R). The Company's water chemical products are also distributed as
private label brands. In addition to the pool water sanitizers calcium
hypochlorite and chlorinated isocyanurates, the Company sells ancillary
chemicals and accessories for the maintenance and recreational use of
residential and commercial pools.
The Company's water chemical products are also sold in the municipal water
market for the purification of potable water. Currently, the Company sells
calcium hypochlorite to purify potable water mainly outside the U.S. in a number
of countries. The Company has plans to expand its presence in the municipal
water market both domestically and internationally.
Seventy-five percent of the Company's water chemical sales are within North
America, and the remaining 25% are throughout the rest of the world. In North
America, the Company sells water chemical products either directly to retail or
through independent third party distributors. The
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Company also has subsidiaries and ownership interests in joint ventures in South
Africa and Brazil which manufacture and distribute calcium hypochlorite to local
markets.
In addition to the manufacture and sale of water chemicals, the Company
distributes chemicals, equipment, parts and accessories for pools mainly through
two wholly owned subsidiaries. One subsidiary, Superior Pool Products, Inc., is
headquartered in Anaheim, California with 18 locations throughout Arizona,
California and Nevada. Another subsidiary, Hydrochim, S.A., located in France,
distributes chemicals and equipment throughout Europe.
Performance Chemicals
The Company's performance chemicals business consists of the manufacture
and sale of a broad range of products with diverse end uses. The performance
chemicals sold by the Company are critical to the performance and value of the
customer's end use products. As a result, there is a high level of operational
integration with many customers. The performance chemicals business is
characterized by technology driven product solutions that benefit specific
customers and provide manufacturing flexibility. In addition, the business is
characterized by close customer relationships with entities who are leaders in
the markets in which they compete. The flexibility afforded by batch
manufacturing in some operations combined with the Company's ability and
willingness to provide superior technical support enables it to respond to the
specific needs of a diverse group of customers. This gives the Company a
competitive advantage over competitors whose manufacturing processes and related
cost structure constrain their ability to respond cost effectively to smaller
volume customers. Customers include industry leaders such as Procter & Gamble,
Unilever and Uniroyal.
The Company's performance chemicals business manufactures flexible polyols,
specialty polyols, urethane systems and glycol and glycol ethers. Flexible
polyols, which are used in the furniture, bedding, carpet and packaging
industries, are manufactured by the Company's wholly-owned, Venezuelan
subsidiary for South American markets. Specialty polyols, which are used as an
ingredient for elastomers, adhesives, coatings, sealants and rigid foam, are
manufactured at the Company's Brandenburg, Kentucky site, as well as by its
Venezuelan subsidiary. The Brandenburg facility also manufactures glycol and
glycol ethers for use as an ingredient in cleaners, personal care products and
antifreeze and provides specialty chemicals custom manufacturing for a small
group of companies.
The performance chemicals business also manufactures biocides that control
the growth of micro-organisms, particularly fungus and algae, and control
dandruff on the scalp. All of the biocide products are marketed under the well
recognized trademarks, Omadine(R), Omacide(R) and Triadine(R) biocides. The
majority of the biocide chemicals produced by the Company are based on the zinc,
sodium and copper salts of the pyrithione molecule. These pyrithione-based
biocides include over twenty products with differing concentrates, forms and
salts and the Company is a worldwide leader in these biocide products. Other
biocide chemicals are based on iodopropargyl-n-butylcarbamate ("IPBC"), a broad
spectrum fungicide, which was introduced by the Company in 1995, and serves the
metalworking fluids and coatings markets. The IPBC-based biocides currently
consist of five variations with others in the development stages. Biocides make
up a small portion of the customers' end products, and therefore must be highly
effective at low concentrations as well as compatible with the formulation's
other components. Meeting the biocide customer's needs
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requires a high degree of technical support and the expertise to do business in
a highly regulated environment. The Company's ability to meet these needs makes
it a preferred supplier in the high growth, anti-dandruff market. The Company is
also uniquely positioned as the only pyrithione supplier with U.S. Environmental
Protection Agency registrations for metalworking fluids, coatings and anti-
foulant paints. The manufacturing flexibility of the biocides assets also
permits the Company to offer fine chemical custom manufacturing services.
The Company's performance chemicals business also supplies hydrazine
hydrates as well as propellant grade hydrazine and hydrazine derivatives.
Hydrazine hydrate products are sold for use in chemical blowing agents, water
treatment chemicals, agricultural products, pharmaceutical intermediates and
other chemical products. Hydrazine hydrates are produced at its Lake Charles,
Louisiana production facility. The hydrazine hydrates are supplied in various
concentrations, ranging from 51-100%, and packaging containers including bulk,
tote bins and drums.
The performance chemicals business also supplies propellant grade hydrazine
and hydrazine derivatives for use as fuel in satellites, expendable launch
vehicles and auxiliary and emergency power units. These propellant grade
hydrazine products include Ultra Pure Hydrazine (UPH), anhydrous hydrazine (AH),
unsymmetrical dimethyl hydrazine (UDMH), monomethyl hydrazine (MMH) and
hydrazine fuel blends. In addition to space-related applications in satellites
and launch vehicles, auxiliary power from hydrazine-driven units is supplied to
the NASA Space Shuttle for maneuvering its rocket engine nozzles and for
operating valves, control surfaces, brakes and landing gear on the Shuttle
Orbiter. Emergency power from hydrazine is also provided to jet aircraft like
the F-16 to operate electrical and hydraulic units in the event of an engine
flameout. The Company also supplies launch services and special packaging
containers including cylinders to improve the safe handling and storage of
propellants and to reduce launch costs.
The Company's performance chemicals business is also a major regional
supplier of sulfuric acid regeneration services and virgin sulfuric acid sales
to the U.S. Gulf Coast market with manufacturing facilities located in Beaumont,
Texas and Shreveport, Louisiana. The Company supplies sulfuric acid to
refineries for their petroleum alkylation process and to pulp and paper
manufacturers for use as a reagent for chlorine dioxide generation and water
treatment neutralization for pH control.
CUSTOMERS
No single customer has accounted for more than 10% of the Company's total
annual sales over the last three fiscal years. The Company's customer base is
diverse and includes semiconductor manufacturers, flat panel display
manufacturers, world-renowned consumer product companies, national and regional
chemical and equipment distributors, other chemical manufacturers and the U.S.
Government. See "Risk Factors--Dependence on the Semiconductor Industry."
RAW MATERIALS AND ENERGY
The Company utilizes a variety of raw materials in the manufacture of
products for its three businesses. With the exception of product allocations
due to temporary, unplanned plant outages, the Company has not experienced any
difficulty in securing raw materials. Outlined below are the
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principal raw materials for the product businesses. The majority of the
Company's raw material requirements shall be purchased and many are provided
under the terms and conditions of written agreements.
Microelectronic Chemicals The principal raw materials for the
microelectronic chemicals business include sulfuric acid, hydrofluoric acid,
nitric acid, phosphoric hydrochloric acid, hydrogen peroxide, ammonia, isopropyl
alcohol, acetone, tetraethylorthosilicate (TEOS), dichloroethylene (DCE),
trichloroethane (TCA), phosphorous oxychloride (POCL\\3\\), hexamethyldisilazone
(HMDS), custom polymers, photoinitiators, tetra methyl ammonium hydroxide (TMAH)
and custom polyimide resins and photosensitizers.
Water Chemicals The principal raw materials for the water chemicals
business include chlorine, sodium hydroxide, lime, urea and chlorinated
isocyanurates. Chlorine and sodium hydroxide will be provided by Olin pursuant
to the Chlor-Alkali Supply Agreement and with respect to the Company's
Charleston facility, will be delivered via a pipeline from the adjacent Olin
facility. The balance of the raw materials are purchased from other suppliers
and are readily available.
Performance Chemicals The raw materials for the performance chemicals
business include a variety of chemicals including propylene oxide, ethylene
oxide, pyridine, iodine, propargyl butyl carbamate, chlorine, caustic soda,
sulfur and ammonia.
Electricity is the predominant energy source for the Company's
manufacturing facilities and is supplied to the Company by public or government
utilities. Natural gas used for steam production is an important energy source
for the Company's Brandenburg, Kentucky site.
RESEARCH AND DEVELOPMENT; PATENTS
The Company's research activities are conducted at a number of facilities.
Company-sponsored research expenditures were approximately $21.1 million, $21.0
million and $17.4 million for 1997, 1996 and 1995, respectively.
In general, intellectual property is important to the Company, but no one
technology, patent, or license or group thereof related to a specific process or
product is of material importance to the Company as a whole. The Company
believes that its broad patent portfolio in the microelectronic chemicals
segment provides a sustainable competitive advantage for that product line. The
Company owns the technology for the manufacture of J3 calcium hypochlorite which
is materially important to the water chemicals business. The Company owns a
patent covering a process for producing Ultra Pure /TM/ Hydrazine, the world's
purest grade of anhydrous hydrazine, which makes it the preferred propellant for
monopropellant satellite thruster applications. This patent expires in 2006.
SEASONALITY
Although the businesses of the Company as a whole are not seasonal in
nature, 40% of the sales in the water chemicals business occur in the second
quarter of the calendar year. The purchase of water chemical products by
consumers in the residential pool market is concentrated in the United
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States between Memorial Day and the Fourth of July. In addition, the weather can
also have a significant effect on water chemical sales during any given year.
BACKLOG
The amount of backlog orders is immaterial to the Company as a whole.
U.S. GOVERNMENT CONTRACTS AND REGULATIONS
The Company's performance chemicals business sells hydrazine to the U.S.
Government. Consequently, as a government contractor the Company is subject to
extensive and complex U.S. Government procurement laws and regulations. These
laws and regulations provide for ongoing government audits and reviews of
contract procurement, performance and administration. Failure to comply, even
inadvertently, with these laws and regulations and with laws governing the
export of controlled products and commodities could subject the Company or one
or more of its businesses to civil and criminal penalties and under certain
circumstances, suspension and debarment from future government contracts and the
exporting of products for a specified period of time.
NOVATION OF U.S. GOVERNMENT CONTRACTS
As required by Federal procurement regulations providing for the U.S.
Government to recognize the Company as the successor in interest to Olin on
contracts between Olin and the U.S. Government, Olin will be required to enter
into novation agreements with the Company and the U.S. Government which will
provide, among other things, for Olin to directly or indirectly guarantee or
otherwise become liable for the performance of the Company's obligations under
such contracts which are being transferred to the Company in connection with the
Distribution (the "Guaranteed Contracts"), including post-novation modifications
to the Guaranteed Contracts. Such novation agreements also provide that the
Company assumes all obligations under the Guaranteed Contracts and that the U.S.
Government recognizes the transfer of such Guaranteed Contracts and related
assets. While these Guaranteed Contracts are scheduled to be performed over a
period of time, it is not expected that they will be fully and finally
discharged for approximately two years.
The Company has agreed in the Assumption of Liabilities and Indemnity
Agreement to perform all of its obligations under each Guaranteed Contract and
to indemnify Olin against any liability Olin may incur under the novation
agreements by reason of any failure by the Company to perform such obligations.
COMPETITION
The Company's microelectronic chemicals, water chemicals and performance
chemicals businesses are in highly competitive industries, and the Company
encounters strong competition with respect to each of its product lines from
other manufacturers worldwide. This competition, from other manufacturers of
the same products and from manufacturers of different products designed for the
same uses, is expected to continue in both U.S. and foreign markets. More
recently, the Company has experienced increased price competition as a result of
the recent downturn in the semiconductor market. Depending on the product
involved, various types of
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competition are encountered, including price, delivery, service, performance,
product innovation, product recognition and quality. Overall, the Company
regards its principal product groups to be competitive with many other products
of other producers, and believes that it is an important producer of many such
product groups. See "Risk Factors--Dependence on the Semiconductor Industry."
EXPORT SALES
The Company's export sales from the United States to unaffiliated customers
were $93.6 million, $102.4 million and $92.8 million in 1997, 1996 and 1995,
respectively.
EMPLOYEES
As of December 31, 1997, the Company had approximately 2,950 employees,
approximately 760 of whom were working in foreign countries. Approximately 390
of the hourly paid employees of the Company located at its Brandenburg,
Kentucky, Lake Charles, Louisiana, Shreveport, Louisiana and Beaumont, Texas
facilities are represented, for purposes of collective bargaining, by several
different labor organizations and the Company is party to nine labor contracts
relating to such employees. These labor contracts extend for three or four year
terms which expire in the years 2000, 2001 and 2002. No major work stoppages
have occurred in the last three years. While relations between the Company and
its employees and their various representatives are generally considered
satisfactory, there can be no assurance that new labor contracts can be entered
into without work stoppages.
ENVIRONMENTAL MATTERS
The establishment and implementation of Federal, state and local standards
to regulate air and water quality and to govern contamination of land and
groundwater has affected, and will continue to affect, substantially all of the
Company's manufacturing locations. Federal legislation providing for regulation
of the manufacture, transportation, use and disposal of hazardous and toxic
substances has imposed additional regulatory requirements on industry in general
and particularly on the chemicals industry. In addition, the implementation of
environmental laws, such as the Resource Conservation and Recovery Act, the
Clean Air Act and the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended by the Superfund Amendments and
Reauthorization Act of 1986, has required and will continue to require new
capital expenditures and will increase operating costs. The Company employs
waste minimization programs at most of its manufacturing sites. See the
discussion of environmental matters contained in "Risk Factors--Environmental
Liabilities" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Environmental."
The Company and Olin have agreed, pursuant to the Assumption of Liabilities
and Indemnity Agreement, that the Company will assume, and indemnify and hold
Olin harmless against, all liabilities associated with the removal, remediation
or control of environmental conditions at the Company's current facilities and
at certain off-site locations. Such liabilities are not expected to have a
material adverse effect upon the Company's financial condition or results of
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operations. See "Relationship Between Olin and the Company after the
Distribution--Assumption of Liabilities and Indemnity Agreement."
CREDIT FACILITY
Prior to the Distribution Date, the Company will succeed to a $____ million
Credit Facility established by Olin. Olin will previously have borrowed $___
million under the Credit Facility, which liability will be assumed by the
Company. The Credit Facility is expected to have a five-year term. The amounts
remaining under the Credit Facility are expected to provide sufficient liquidity
for the Company's current funding needs. It is expected that the Credit
Facility will permit various borrowing options and will contain customary
commercial bank covenants which may under certain financial circumstances
prohibit the payment of dividends by the Company and the acquisition by the
Company of its capital stock.
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PROPERTIES
The table below sets forth the locations where the Company conducts its
business and a brief description of the activities conducted at each identified
location. A more detailed description of the Company's principal manufacturing
facilities follows the table. The Company believes that its facilities are
sufficiently maintained and suitable and adequate for its immediate needs and
that additional space is available to accommodate expansion. Unless otherwise
noted below, the identified location is owned by the Company.
<TABLE>
<CAPTION>
LOCATION PRIMARY ACTIVITIES
- -------- ------------------
<S> <C>
McIntosh, Alabama Blending facility for performance chemicals
Chandler, Arizona(1) Warehouse and office facility for microelectronic
chemicals
Mesa, Arizona Manufacturing facility for microelectronic chemicals
Anaheim, California(1) Office and warehouse space for water chemicals
Cheshire, Connecticut Research and development facility and offices
Norwalk, Connecticut(1) Corporate headquarters
Naperville, Illinois(1) Water chemicals service center
Seward, Illinois Manufacturing facility for microelectronic chemicals
Brandenburg, Kentucky Manufacturing facility for microelectronic and
performance chemicals
Lake Charles, Louisiana Manufacturing facility for performance chemicals
Shreveport, Louisiana Manufacturing facility for performance chemicals
Rochester, New York Manufacturing facility for performance chemicals
East Providence, Rhode Island Manufacturing facility and materials research center for
microelectronic chemicals
North Kingston, Rhode Island Manufacturing facility of microelectronic chemicals;
North American technical support center; new product
development center for microelectronic chemicals
Charleston, Tennessee Manufacturing facility for water chemicals
Beaumont, Texas Manufacturing facility for performance chemicals
Zwijndrecht, Belgium(2) Manufacturing facility for microelectronic chemicals and
European technical support center
Igarassu, Brazil Facility of a joint venture for the manufacture of water
chemicals
Salto, Brazil Repackaging facility for water chemicals and
manufacturing facility for performance chemicals
Amboise, France Repackaging, distribution and warehouse facility for
water chemicals
Swords, Ireland Manufacturing facility for performance chemicals
Kempton Park, South Africa Facility of a joint venture for the manufacture of water
chemicals
Maricaibo, Venezuela Manufacturing facility for performance chemicals
</TABLE>
_________
(1) Leased.
(2) Land is leased.
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The Company also leases several warehouse facilities in Arizona,
California, Idaho, Nevada and Texas and several overseas sales offices and
warehouses.
PRINCIPAL MANUFACTURING FACILITIES
The principal manufacturing properties of the Company described below are
all owned by the Company, except for the land under the Belgium facility which
is leased until 2041 and except for properties held by joint ventures as noted
below.
MCINTOSH, ALABAMA. The Company's facility located in McIntosh, Alabama
blends, packages and stores propellant grade hydrazine products. Special
hydrazine fuel blends are produced as the principal propellant for several U.S.
Air Force launch vehicle programs including the Titan and Delta rockets.
MESA, ARIZONA. The Company has a state-of-the-art microelectronic chemical
manufacturing facility in Mesa, Arizona. This facility manufactures, purifies,
formulates and packages extensive product lines of ultra high purity process
chemicals. This facility is ISO-9002 certified. A second facility for diffusion
chemicals is under construction at Mesa. The Company expects this second
facility to be ISO-9002 certified by the end of 1999.
In addition to manufacturing operations, the Company has extensive
analytical testing, applications testing and warehousing capabilities for both
process and diffusion chemicals at the Mesa plant site. Current operations
(including the diffusion chemicals plant under construction) occupy
approximately 30 acres of the 52 acre plant site. The remaining acreage is
available for future expansions.
BRANDENBURG, KENTUCKY. The ISO 9000-certified Brandenburg plant covers an
area of 200 acres, surrounded by 1,200 acres of land which provides both a
buffer zone and expansion capability. The plant contains multiple manufacturing
facilities producing a wide range of products. Many of these products are
derivatives of ethylene oxide and propylene oxide. A broad line of specialty
polyols are produced in a flexible batch facility and sold into urethane
coatings, adhesives, sealant and elastomer applications. Chemical intermediates
for the Company's microelectronic materials business are produced in a separate
manufacturing facility dedicated to this purpose. There is a research and
development center at the site which supports the development and technical
service needs of the polyol and glycol products and new product scale up for the
microelectronics business. Ethylene oxide is produced on site in a facility
owned by Sun Company and operated by the Company. The Company also operates
other facilities on the site to produce commodity and specialty chemicals for
third parties under long-term contractual arrangements.
LAKE CHARLES, LOUISIANA. The Company's facility located in Lake Charles,
Louisiana consists of three manufacturing plants that produce various hydrazine
products. One ISO 9002-certified plant, built in 1979, produces solution grade
hydrazine products for use in chemical blowing agents, water treatment
chemicals, agricultural products, pharmaceutical intermediates and other
chemical products. A second ISO 9002-certified plant, built in 1953, produces
propellant grade hydrazine products including anhydrous hydrazine (AH),
unsymmetrical dimethyl hydrazine (UDMH) and monomethyl hydrazine (MMH) for use
as fuel in satellites, expendable launch
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vehicles and auxiliary power units. A third plant, built in 1988, produces
propellant grade Ultra Pure /TM/ Hydrazine (UPH), the world's purest grade of
anhydrous hydrazine, for satellite propulsion.
SHREVEPORT, LOUISIANA. This ISO 9002-certified plant produces industrial
grade virgin sulfuric acid for delivery to the U.S. Gulf Coast and provides
regeneration services primarily to local refineries. In addition, this site
provides non-hazardous waste fuel burning services and markets sodium bisulfite
solution.
ROCHESTER, NEW YORK. This facility manufactures a large number of
chemicals for the specialty chemicals industry. Many of these chemicals are
biocides used to control the growth of microorganisms, particularly, fungus and
algae and to control dandruff on the scalp. The largest 2-chloropyridine
production facility in the world is located here. 2-Chloropyridine is the key
intermediate used to produce the Company's Omadine(R) biocides. These products
are based on the salts of the pyrithione molecule. The Company manufactures
over a dozen pyrithione products at this site by modifying these salts by
concentration, form or combining them with other biocides. The Company's
Triadine(R) brand of biocides is a combination of pyrithione and triazine, a
bactericide purchased from a supplier. This facility also produces the
Omacide(R) IPBC brand, which is based upon iodopropargyl-n-butylcarbamate
(IPBC), a broad-spectrum fungicide. In addition, this facility also
manufactures several chemicals custom-made for specific customers for widely
diverse markets.
EAST PROVIDENCE, RHODE ISLAND. This ISO 9001-certified facility is located
in an industrial park in East Providence, Rhode Island. Originally built as a
materials research center in 1974, the facility was expanded in 1984 to
manufacture photoresists, photoresist developers, and photoresist strippers used
in the semiconductor industry. The materials research center at this site
develops new compounds used in the manufacture of photoactive products and has
on site capabilities for chemical synthesis, testing, and product formulation.
This capability allows for rapid commercialization of new technologies and is
augmented by scale-up facilities at the Brandenburg, Kentucky site. The
manufacturing plant at the site receives raw materials, formulates, filters and
packages finished goods in a high purity, clean environment. Full quality
control capabilities are located on-site or at the nearby Quonset Point
facility. The high degree of flexibility required to custom manufacture
specific products is maintained through the number of and multiple sized
formulation vessels available here.
NORTH KINGSTON, RHODE ISLAND. This facility is located in a new industrial
park in North Kingston, Rhode Island (Quonset Point Industrial Park) which
originally housed a distribution warehouse. A new state-of-the-art
manufacturing facility and product development center for advanced photoresists
is being built on-site in 1998 to expand the Company's capabilities in the
development and manufacture of advanced technology photoresists. A technical
service center is located on site with advanced photolithography equipment
identical to that of the customer base and provides technical service support to
North America. The equipment is also used by the advanced product development
groups to develop state-of-the-art products in anticipation of customer
requirements. The manufacturing plant will receive raw materials and will
formulate, filter and package finished goods in a high purity, clean
environment. Full test capabilities are located on-site or at the nearby East
Providence facility. The high degree of flexibility required to custom
manufacture specific products is maintained through the number of and multiple
sized formulation
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vessels available here. Packaging and manufacturing facilities were designed for
a new generation of purity requirements. The Company is in the process of
applying for ISO-9001 certification for the site.
CHARLESTON, TENNESSEE. The Company's ISO 9002-certified facility located
in Charleston, Tennessee produces, packages, and stores calcium hypochlorite for
the water chemicals business. There are two distinct manufacturing operations at
this site. One produces our 65% (nominal) available chlorine product while the
other produces our patented, 75% high available chlorine product. Products are
packaged into containers that range in size from 5 pounds to 2,000 pounds per
container. The site also stores as much as 10-14 million pounds of product
during peak periods. Purchased chemicals are also stored in warehouses at this
site. These products, along with those manufactured at the site, are often
combined on shipments to meet the requests of customers.
BEAUMONT, TEXAS. The company is a major regional manufacturer and supplier
of industrial grade virgin sulfuric acid to the U.S. Gulf Coast and provides
regeneration services primary to local refineries. In addition, the Company
provides limited hazardous and non-hazardous waste fuel burning services and
markets sodium bisulfite solution. This facility has achieved and maintained
ISO 9002 certification since 1993.
ZWIJNDRECHT, BELGIUM. The original facility located in Zwijndrecht,
Belgium has been operational since 1993 and primarily manufactures, tests, and
provides technical support for photoresists, photoresist developers, and
photoresist strippers used in the semiconductor industry. In 1998, the facility
was expanded to manufacture and test high purity acids, etchants, and diffusion
chemicals also used in the semiconductor industry. This expanded facility is
ISO 9002-certified. A technical service center is also located on the site with
photolithography equipment identical to that of the customer base and provides
technical service support to European customers.
IGARASSU, BRAZIL. The Company's facility located in Igarassu, Brazil is a
joint venture operation (Nordesclor S.A.) that produces and packages calcium
hypochlorite for the water chemicals business within Brazil. Products for the
swimming pool market and the water treatment market are manufactured and
packaged at this site. The Company also has a small repackaging facility in
Salto, Brazil. This facility is currently shared with Olin Reductone
operations.
SWORDS, IRELAND. This facility is located just north of Dublin, Ireland
and has been producing biocides for over twenty-five years. 2-Chloropyridine is
imported from the Company's Rochester, New York plant and converted into zinc,
copper and sodium salts of the pyrithione molecule. The finished product is
shipped to customers in over fifty countries around the world. This facility is
both ISO 9002 and ISO 14001 certified.
KEMPTON PARK, SOUTH AFRICA. The Company's facility located in Kempton
Park, South Africa is a joint venture operation (Aquachlor (Pty) Ltd.), that
produces and packages calcium hypochlorite for the water chemicals business
within the Southern Africa region. Products for the swimming pool and water
treatment markets are also packaged at this site.
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MARICAIBO, VENEZUELA. The Company's ISO 9000-certified facility in
Venezuela is a multi product manufacturing plant producing a broad range of
polyols and surfactants to support regional markets. Specialty polyols are also
produced for local consumption and export.
LEGAL PROCEEDINGS
At the time of the Distribution, the Company will assume from Olin,
pursuant to the Assumption of Liabilities and Indemnity Agreement, liabilities
related to specific legal proceedings. As a result, although Olin will remain
the named defendant, the Company will manage the litigation and indemnify Olin
for costs, expenses and judgments arising from such litigation. Most of these
proceedings have arisen in the ordinary course of business and involve claims
for money damages. While the results of litigation cannot be predicted with
certainty, the Company does not believe these matters or their ultimate
disposition will have a material adverse effect on its combined financial
condition, profitability or liquidity in any one year, as applicable.
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RELATIONSHIP BETWEEN OLIN AND THE COMPANY
AFTER THE DISTRIBUTION
The Company was organized by Olin as a wholly owned subsidiary in
anticipation of the Distribution. After the Distribution, Olin will not have
any ownership interest in the Company, and the Company will be an independent
public company.
Prior to the Distribution, the Company and Olin will enter into certain
agreements, described below, for the purpose of giving effect to the
Distribution, governing their relationship subsequent to the Distribution and
providing for the allocation of employee benefits, tax and certain other
liabilities and obligations arising from periods prior to the Distribution.
While the agreements contain terms which are thought to be comparable to those
which would have been reached in arms-length negotiations with unaffiliated
parties, these agreements were reached while the Company was wholly owned by
Olin and therefore are not the result of arm's-length negotiations between
independent parties.
Following the Distribution, additional or modified agreements, arrangements
and transactions may be entered into by the Company, Olin and their respective
subsidiaries. Any such future agreements, arrangements and transactions will be
determined through arm's-length negotiation between the parties in the ordinary
course.
Copies of the forms of the principal agreements between the Company and
Olin are filed as exhibits to the Company's Registration Statement filed with
the Commission registering the Company Common Stock (and associated Rights)
under the Exchange Act. The following description summarizes certain terms of
such agreements, but the following descriptions do not purport to be complete
and are qualified in their entirety by reference to such exhibits.
DISTRIBUTION AGREEMENT
Olin and the Company will enter into a Distribution Agreement providing
for, among other things, certain corporate transactions required to effect the
Distribution and other arrangements between Olin and the Company subsequent to
the Distribution.
The Distribution Agreement provides for the transfer by Olin to the Company
of the assets and business entities comprising the Specialty Chemical
Businesses. The assets of the Specialty Chemical Businesses will be transferred
to the Company on an "as is, where is" basis and no representations will be made
by Olin with respect thereto. The Distribution Agreement also provides that
prior to the Distribution, the Company will assume approximately $___ million of
indebtedness incurred by Olin pursuant to the Credit Facility. The Distribution
Agreement also provides for the allocation of coverage between the Company and
Olin under existing insurance policies after the Distribution and sets forth
procedures for the administration of insured claims.
The Distribution Agreement provides that the Distribution is conditioned
upon the satisfaction of several conditions, including (1) certain transactions
(including the transfers of assets and liabilities contemplated by the
Distribution Agreement) having been consummated; (2) the Shares having been
approved for listing on the NYSE, subject to official notice of issuance; (3)
the
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Registration Statement having become effective under the Exchange Act and no
stop order or similar proceeding being in effect or instituted for such purpose;
(4) all material authorizations, consents, approvals and clearances of U.S.
federal, state and local, and foreign governmental agencies having been
obtained; (5) no preliminary or permanent injunction or other order, decree or
ruling issued by a court of competent jurisdiction or by a government,
regulatory or administrative agency or commission, and no statute, rule,
regulation or executive order promulgated or enacted by any governmental
authority, being in effect preventing the consummation of the Distribution; (6)
the Company's Board of Directors, as named in this Information Statement, shall
have been elected by Olin, as sole shareholder of the Company, and the Articles
and By-laws shall be in effect; (7) the Olin Board of Directors shall have
formally approved the Distribution; (8) each of the Assumption of Liabilities
and Indemnity Agreement, the Charleston Services Agreement, the Chlor-Alkali
Supply Agreement, the Covenant Not to Compete Agreement, the Employee Benefits
Allocation Agreement, the Tax Sharing Agreement, the Intellectual Property
Transfer and License Agreement, the Trade Name Agreement and the Transition
Services Agreement shall have been executed and delivered by the applicable
parties; and (9) receipt by Olin of an opinion from Cravath, Swaine & Moore
substantially in the form described in the section "Federal Income Tax
Consequences of the Distribution." If the conditions are not satisfied, Olin
could decide to cancel the Distribution or waive the conditions and complete the
Distribution. Even if all the above conditions are satisfied, Olin has reserved
the right to cancel or defer the Distribution and the related transactions
described in this Information Statement at any time prior to the Distribution
Date. The foregoing conditions are for the sole benefit of Olin and shall not
give rise to any duty on the part of Olin or its Board of Directors to waive or
not waive such conditions or in any way limit Olin's right to terminate the
Distribution Agreement or alter the consequences of any such termination.
The Distribution Agreement provides that each of Olin and the Company will
be granted access to certain records and information in the possession of the
other and requires each of Olin and the Company to provide to the other copies
of all documents filed with the Commission pursuant to the periodic and interim
reporting requirements of the Exchange Act.
The Distribution Agreement provides that, in general, except as otherwise
set forth therein or in any related agreement, all costs and expenses incurred
in connection with the Distribution will be paid by Olin, other than costs and
expenses expressly incurred by the Company (including fees of attorneys or
financial advisors retained by the Company, if any).
ASSUMPTION OF LIABILITIES AND INDEMNITY AGREEMENT
The Company and Olin will enter into an assumption of liabilities and
indemnity agreement (the "Assumption of Liabilities and Indemnity Agreement")
which generally provides for the assumption of liabilities and cross indemnities
designed to place with the Company responsibility for liabilities of the
Specialty Chemical Businesses and with Olin responsibility for liabilities of
the Retained Businesses and prior discontinued businesses of Olin.
Specifically, the Company has agreed, subject to certain exceptions, to assume,
and indemnify and hold Olin harmless from and against, all damages, losses,
liabilities, fines, penalties, costs and expenses arising out of or associated
with the business, conduct, operations, assets, properties or status of the
Company prior to, on or after the Distribution.
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The Assumption of Liabilities and Indemnity Agreement also provides that
the Company will assume, and indemnify and hold Olin harmless from, all
liabilities in connection with the removal, remediation or control of
environmental conditions at the Company's current facilities and at certain off-
site locations. See "Business--Environmental Matters."
CHARLESTON SERVICES AGREEMENT
As part of the Distribution, Olin's Charleston, Tennessee plant site which
contains several manufacturing facilities will be divided between Olin and the
Company. As a result, the Company and Olin will enter into a Charleston
Services Agreement pursuant to which the Company and Olin will provide each
other with services in connection with the continued operations at this site.
The services to be provided include environmental services, water treatment
services, steam power, administrative services regarding the plant site, and raw
material storage. Some of the services are for a transitional period. The fees
for the services vary by service but generally are at cost.
CHLOR-ALKALI SUPPLY AGREEMENT
Olin and the Company will enter into a supply agreement whereby Olin will
supply to the Company chlorine and caustic soda for the Company's plants. Under
the terms of the agreement, Olin will supply all of the Company's requirements
for chlorine and caustic soda for a five-year period, with extensions unless
canceled on two years' prior notice by either party. Purchases of
electrochemical units (ECUs) of chlorine and caustic soda will be at a fixed
price which approximates the current market price. Excess chlorine purchases
will be at Olin's then lowest price for comparable volumes of chlorine sold to
third parties.
COVENANT NOT TO COMPETE AGREEMENT
The Company and Olin will enter into a Covenant Not to Compete ("Covenant
Not to Compete") which generally provides that for a period of five years after
the Distribution Date Olin shall not, with certain limited exceptions, directly
or indirectly manufacture, sell or distribute products or product-related
services that are identical or substantially similar to those which the
Specialty Chemical Businesses are manufacturing, selling or distributing at the
time of the Distribution and that the Company shall not, with certain limited
exceptions, directly or indirectly manufacture, sell or distribute products or
product-related services that are identical or substantially similar to those
which Olin's Retained Businesses are manufacturing, selling or distributing at
the time of the Distribution.
EMPLOYEE BENEFITS ALLOCATION AGREEMENT
Olin and the Company will enter into an employee benefits and compensation
allocation agreement (the "Employee Benefits Allocation Agreement") which sets
forth the manner in which assets and liabilities under employee benefit plans
and other employment-related liabilities will be divided between them. In
general, the Company will be responsible for compensation and employee benefits
relating to its employees but not persons who became former employees of the
Specialty Chemical Businesses prior to the Distribution. The Company will
receive no assets under employee benefit plans except as provided below.
Certain liabilities relating to former employees of the
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Company will be retained by Olin (along with any corresponding assets),
including liabilities and assets for defined benefit pension plan benefits
accrued by employees of the Specialty Chemical Businesses who ceased to be Olin
employees prior to the Distribution, liabilities and assets under the Olin
Corporation Contributing Employee Ownership Plan and the corresponding
supplemental executive plan for such former employees and unfunded deferred
compensation liabilities for such persons. The Company intends to establish its
own pension plan and related trust for its employees and will assume the pension
liabilities for these persons from Olin. Olin will transfer assets from its tax-
qualified pension plan trust to the Company's pension trust relating to the
Company's employees who were previously participants in Olin's tax-qualified
pension plan. Olin's obligations relating to nonqualified, unfunded pension
liabilities for Company employees who were prior employees of Olin will also be
assumed by the Company. However, since these are unfunded obligations, no assets
will be transferred from Olin to the Company with respect to these obligations.
The Company further intends to establish its own long-term disability plan
and related trust for its employees. The Company will assume the liability for
long-term disability benefits for employees of the Company and for former
employees of Olin who were employed in the Specialty Chemical Businesses. Olin
will transfer a proportionate amount of assets from its tax qualified Voluntary
Employee Benefit Association Trust ("VEBA") based on an equitable allocation.
The Employee Benefits Allocation Agreement also provides for the treatment
of outstanding employee stock options to purchase Olin Common Stock ("Olin
Options"). At the time of the Distribution, with limited exceptions, Olin
Options will be converted into adjusted Olin Options ("New Olin Options") and
employee stock options to purchase Company Common Stock ("Company Options"),
with adjustments to preserve the "intrinsic value" inherent in the Olin Options
immediately prior to the Distribution. The Company will be responsible for
delivering shares of Company Common Stock upon exercise of Company Options, and
Olin will be responsible for the delivery of shares of Olin Common Stock upon
exercise of New Olin Options. The holders of restricted stock units of Olin
Common Stock ("Olin Restricted Units") (whether employed by the Company or Olin
after the Distribution) will be entitled to receive a distribution of units of
Company Common Stock ("Company Restricted Units") in the same proportion as the
Distribution Ratio with respect to their Olin Restricted Units, and the Company
Restricted Units so distributed and representing shares of Company Common Stock
will generally be subject to the same restrictions as the Olin Restricted Units.
The Employee Benefits Allocation Agreement also provides for the treatment
of employee obligations and benefit plans of certain employees of the Company in
the manner described under "Management and Executive Compensation--Pension
Plans" and "--Savings Plan."
INTELLECTUAL PROPERTY TRANSFER AND LICENSE AGREEMENT
The Company and Olin will enter into an intellectual property transfer and
license agreement (the "Intellectual Property Transfer and License Agreement"),
which provides for the transfer by Olin to the Company of certain intellectual
property and proprietary technology and certain trademarks relating to the
Company's businesses. The Intellectual Property Transfer and License Agreement
provides for the grant of licenses by the Company to Olin to use such
transferred intellectual property and technology in certain of Olin's retained
businesses following the
51
<PAGE>
Distribution and for the granting of licenses between Olin and the Company
relating to the use of certain intellectual property and technology.
TAX SHARING AGREEMENT
The Company and Olin will enter into a Tax Sharing Agreement providing that
Olin will be responsible for the Federal tax liability of the Company for each
year that the Company was included in Olin's consolidated Federal income tax
return, and for state, local and foreign taxes of the Company attributable to
periods prior to the Distribution, in each case including tax subsequently
assessed pursuant to the audit of, or other adjustment to, previously filed tax
returns. The Tax Sharing Agreement will also provide that the Company and Olin
will each bear 50% of any corporate level tax arising on the Distribution,
except that the Company or Olin, as the case may be, will be obligated to
indemnify the other party on an after-tax basis for 100% of such corporate level
tax if such tax is primarily attributable to (i) actions of the Company or Olin
after the Distribution (including any cessation, transfer to affiliates or
disposition of its active trades or businesses, and certain reacquisitions of
its stock and payments of extraordinary dividends to its shareholders), (ii)
involvement by the Company or Olin in a Change in Control Transaction, or (iii)
the breach of one or more representations with respect to the Company or Olin
made to Cravath, Swaine & Moore in connection with its opinion. Notwithstanding
the Tax Sharing Agreement, under the consolidated return regulations, the
Company and Olin will each be severally liable to the IRS for the full amount of
any corporate level tax arising on the Distribution that is not paid by the
other party.
TRADE NAME LICENSE AGREEMENT
The Company and Olin will enter into an agreement to permit the Company and
its subsidiaries to use the "Olin" name and its derivatives on a royalty-free
basis in certain limited circumstances for a certain limited period of time.
TRANSITION SERVICES AGREEMENT
The Company and Olin will enter into a transition services agreement (the
"Transition Services Agreement") pursuant to which Olin and the Company will
provide each other with certain services which have been provided by Olin and
the Company prior to the Distribution. The length of time for which any such
service shall be provided, and the compensation therefor, vary based upon the
mutual agreement of the Company and Olin. Pursuant to Olin's management of the
receipts and disbursements of the Company for an interim period which is not
expected to exceed six months, periodic intercompany indebtedness may arise in
an amount which is not expected to exceed $___ million.
52
<PAGE>
MANAGEMENT AND EXECUTIVE COMPENSATION
BOARD OF DIRECTORS
The following table sets forth information as to persons who serve or who
are expected to serve as directors of the Company immediately following the
Distribution. The Company's Board of Directors will be comprised of ____
directors, only one of whom will be an officer of the Company. The following
table contains information concerning directors selected as of the date hereof.
<TABLE>
<CAPTION>
NAME AND AGE YEAR TERM EXPIRES
- ------------ -----------------
<S> <C>
Michael E. Campbell, 51.............................
Richard E. Cavanagh, 52.............................
John W. Johnstone, Jr., 65..........................
Jack D. Kuehler, 65.................................
H. William Lichtenberger, 62........................
John P. Schaefer, 64................................
</TABLE>
Mr. Campbell will serve as Chairman of the Board and Chief Executive
Officer of the Company following the Distribution. He is currently Executive
Vice President of Olin and has global management responsibility for all of
Olin's businesses. Prior to his election as Executive Vice President, Mr.
Campbell served as President of the Microelectronic Materials Division. Mr.
Campbell joined Olin in 1978 as Counsel in the Chemicals Group Legal Department,
following his association with Howrey & Simon, a law firm in Washington, D.C.
In 1981, he was named Group Counsel for Olin's Consumer Products. The Consumer
Product businesses were consolidated into the Chemicals Group in 1983 and he was
then appointed Group Counsel for the Chemicals Group. Three years later he was
named Vice President Administration and assumed additional responsibility for
the Human Resource department in the Chemicals Group. In 1987, Mr. Campbell was
elected Olin's Corporate Vice President, Human Resources, reporting to Olin's
Chief Executive Officer. He is a graduate of the University of New Hampshire and
received a J.D. degree from George Washington University. He is also a director
of Westvaco Corporation.
Mr. Cavanagh is President and Chief Executive Officer of The Conference
Board, Inc., a leading research and business membership organization. He has
held this position since November 1995. Previously, he was Executive Dean of the
John F. Kennedy School of Government at Harvard University for eight years.
Prior to the position with Harvard, he spent 17 years with McKinsey & Company,
Inc., the international management consulting firm, where he led the firm's
public issues consulting practice. Mr. Cavanagh is a Trustee of the BlackRock
Mutual Funds. He is also a Trustee of Wesleyan University and The Educational
Testing Service and a director of Fremont Group, Olin and The Guardian Life
Insurance Company. He holds a BA degree from Wesleyan University and an MBA
degree from the Harvard Business School.
Mr. Johnstone retired in April 1996 as Chairman of the Board of Olin. In
1954, he joined Hooker Chemicals and Plastics Corporation, where he spent 22
years in various sales, marketing and
53
<PAGE>
management positions of increasing responsibility, leaving in 1975 to become
President of the Airco Alloys division of Airco, Inc. He joined Olin in 1979 as
Vice President and General Manager of the Chemicals Group's Industrial Products
department. Mr. Johnstone became a corporate Vice President and President of the
Chemicals Group in 1980, and an Executive Vice President of Olin in 1983. He was
named President of Olin in 1985, Chief Operating Officer in 1986, Chief
Executive Officer in 1987 and Chairman of the Board in 1988. He is a graduate of
Hartwick College, where he received a BA degree in chemistry and physics and a
Doctor of Science (Hon.). He has attended the Harvard Business School's Advanced
Management Program. Mr. Johnstone is a trustee of Hartwick College and Research
Corporation Technologies, Inc. He is former Chairman of the Soap and Detergent
Association and the Chemical Manufacturers Association. He is a director of
Phoenix Home Life Mutual Insurance Company, McDermott International, Inc.,
Fortune Brands, Inc. and Olin.
Mr. Kuehler retired in 1993 as Vice Chairman of the Board of International
Business Machines Corporation, a computer manufacturing corporation. He joined
IBM in 1958 as an associate engineer in the San Jose Research Laboratory. Over
the years, he played a significant management role in many of the corporation's
advanced technologies. He served as Director of the Raleigh Communications
Laboratory, Director of the San Jose Storage Products Laboratory and President
of the Systems Product Division. In 1980, he was elected an IBM Vice President
and named President of the General Technology Division. He became a member of
the IBM Board in 1986, Executive Vice President in 1987, Vice Chairman and
member of the Executive Committee in 1988 and President in 1989. He resumed the
title of Vice Chairman in January 1993. He is a member of the National Academy
of Engineering, a fellow of the Institute of Electrical and Electronics
Engineers and a trustee of Santa Clara University (from which he graduated with
a BS degree in mechanical engineering and an MS degree in electrical
engineering). He is a director of Aetna Life and Casualty Company, Olin and the
Parsons Corporation. Mr. Kuehler holds an honorary doctorate of science from
Clarkson University and an honorary doctorate of engineering science from Santa
Clara University.
Mr. Lichtenberger is Chairman and Chief Executive Officer of Praxair, Inc.,
an industrial gases company, a position he assumed in 1992 when Praxair was spun
off from Union Carbide Corporation. In 1986, Mr. Lichtenberger was elected a
Vice President of Union Carbide Corporation and was appointed President of the
Union Carbide Chemicals and Plastics Company, Inc. He was elected President and
Chief Operating Officer and a director of Union Carbide Corporation in 1990. He
resigned as an officer and director of Union Carbide Corporation upon Praxair's
spin-off. Mr. Lichtenberger is a graduate of the University of Iowa where he
majored in chemical engineering and has a masters degree in business
administration from the State University of New York, Buffalo. He is a director
of Ingersoll-Rand Company and Olin. He is on the Advisory Board of Western
Connecticut State University, a director of the National Association of
Manufacturers and a member of The Business Roundtable. He is a director of the
Fairfield County Boy Scouts Advisory Board.
Mr. Schaefer is President of the Research Corporation, a foundation, and
Chairman of Research Corporation Technologies, Inc. Previously, he was
President of the University of Arizona (1971-1982) and Professor of Chemistry at
the University where he had been a member of the faculty since 1960. Before his
appointment as President of the University, he served as head of its
54
<PAGE>
Department of Chemistry and Dean of its College of Liberal Arts. Dr. Schaefer
received his BS degree in chemistry from the Polytechnic Institute of Brooklyn
in 1955 and his Ph.D. degree from the University of Illinois in 1958. After
postdoctoral studies at the California Institute of Technology, he taught
chemistry at the University of California (Berkeley). Dr. Schaefer's research
interests have been in the area of synthetic and structural chemistry. He served
on the Board of Governors of the U.S.-Israeli Binational Science Foundation
(1973-1978). He is a director of Olin, Research Corporation and Research
Corporation Technologies, Inc.
Effective with the Distribution, Messrs. Cavanagh, Johnstone, Kuehler,
Lichtenberger and Schaefer will cease to be members of the Board of Directors of
Olin.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company will be managed under the direction of its Board. The
Company's By-laws also provide for an Audit Committee, Compensation Committee, a
Directors and Corporate Governance Committee and a Finance Committee of the
Board.
The Audit Committee will be composed solely of directors who are not
employees of the Company or any of its subsidiaries. The Audit Committee will
advise the Board on internal and external audit matters affecting the Company,
including recommendation of the appointment of independent auditors of the
Company; review with such auditors the scope and results of their examination of
the financial statements of the Company, and any investigations and surveys by
such auditors; and review the presentation of the Company's financial results.
The committee will also advise the Board on government and other compliance
programs, on corporate and governmental security matters, and monitor major
litigation with a particular interest in the event there are claims that the
Company has acted unethically or unlawfully. The members of the Audit Committee
are expected to be ________, ________ and ________.
The Compensation Committee will set policy, develop and monitor strategies
for and administer the programs which compensate the Chief Executive Officer
(the "CEO") and other senior executives of the Company. The committee,
comprised solely of outside directors, will approve the salary plans for the CEO
and other senior executives including total direct compensation opportunity and
the mix of base salary, annual incentive standards and long term incentive
awards. It will approve the measures, goals, objectives, weighting, payout
matrices and actual payouts and will certify performance for and administer the
incentive compensation plans. The Committee will administer the Arch Chemicals,
Inc. 1999 Long-Term Incentive Plan described herein and the Arch Chemicals, Inc.
Stock Option Plan described herein, including making grants of awards
thereunder. It will also administer the Company's Contributing Employee
Ownership Plan ("CEOP") described herein and the Company's Stock Plan for
Nonemployee Directors described herein, issue the annual report on executive
compensation, approve executive employment and change in control agreements,
approve and adopt new qualified and nonqualified pension plans and approve
amendments and terminations of such pension plans. The Committee will also
advise the Board on remuneration for members of the Board. The members of the
Compensation Committee are expected to be _______, ________ and _____________.
55
<PAGE>
The Directors and Corporate Governance Committee will assist the Board in
fulfilling its responsibility to the Corporation's shareholders relating to the
selection and nomination of Directors, make recommendations to the Board
regarding the election of the Chief Executive Officer, reviews the nominees for
other offices of the Company, annually evaluate the performance of the Chief
Executive Officer, periodically review corporate governance trends, issues and
best practices and make recommendations to the Board regarding the adoption of
best practices most appropriate for the governance of the affairs of the Board,
recommend to the Board a slate of nominees to be proposed for election to the
Board by shareholders at annual meetings and at other appropriate times,
recommend individuals to fill any vacancies created on the Board, make
recommendations to the Board regarding the size and composition of the Board and
the particular qualifications and experience that might be sought in Board
nominees, assess whether the qualifications and experience of candidates for
nomination and renomination to the Board meet the then current needs of the
Board, seek out possible candidates for nomination and consider suggestions by
shareholders, Management, employees and others for candidates for nomination and
renomination as Directors, review and make recommendations to the Board
regarding the composition, duties and responsibilities of various Board
committees from time to time as may be appropriate, review and advise the Board
on such matters as protection against liability and indemnification, and assess
and report annually to the Board on the performance of the Board itself as a
whole. This committee will consider candidates recommended by shareholders for
election as directors at annual meetings. Such recommendations must be in
writing and submitted to the Secretary of the Company by December 1, accompanied
by a biography and the written consent of the candidate. The members of the
Directors and Corporate Governance Committee are expected to be ______,
__________ and ________.
The Finance Committee will review and evaluate Management's recommendations
on long-term financial planning, policies and programs and recommend to the
Board actions that most soundly accommodate the Company's needs for capital to
meet its operating and growth objectives, review and evaluate Management's
recommendations on such matters as may bear upon the Company short-term
liquidity and financial flexibility, and recommends to the Board actions that
most soundly accommodate the Company's financial objectives, review and evaluate
Management's recommendations relative to: quarterly dividend policy and
payments, capital structure, financial risk management policy, and major capital
and investment programs exceeding the authority of the Chief Executive Officer
or not otherwise approved as part of the Company's capital plan, review and
evaluate the investment and financial performance of the Company's pension plan
and CEOP funds, review and approve investment policies with respect to the
Company's pension plan and CEOP funds, approve the selection of CEOP investment
options, consult with, and obtain reports from, the pension plans' and CEOP
trustees and other fiduciaries, make recommendations to the Board for charitable
contributions (including recommendations for contributions to, and by, the
Company's Charitable Trust), review and evaluate the Charitable Trust investment
performance, annually review the contributions, financial condition and
administration of the Company Good Government Fund, and review and provide
advice to Management's programs to maintain and improve shareholder relations.
The members of the Finance Committee are expected to be ______, ________ and
________.
56
<PAGE>
COMPENSATION OF DIRECTORS
Each director who is not an employee of the Company will receive a fixed
annual retainer of $30,000 and a fee of $1,500 for each meeting of the Board and
for each meeting of a committee of the Board attended, together with expenses
incurred in the performance of his or her duties as a director. Each director
who serves as the chair of a Board committee also will receive an additional
annual meeting fee of $5,000. Of the $30,000 retainer, at least $25,000 will be
paid in Company Common Stock, and each director may elect to receive the balance
thereof in cash or Company Common Stock. All meeting fees may be payable in
cash or Company Common Stock, at the election of the director. Directors may
defer the cash portions of their annual retainer and meetings fees into cash
accounts which will bear interest and/or into stock accounts which will be
credited with dividend equivalents. The Company's Stock Plan for Non-employee
Directors described elsewhere herein also provides that each non-employee
director serving in such capacity on January 1 of each year will be credited
with a fixed number of shares of Company Common Stock (such number to be
determined by the Compensation Committee following the Distribution) and the
deferral of the payment of such shares until after such director ceases to be a
member of the Board, and for an additional annual grant of a fixed number of
shares of Company Common Stock (such number to be determined by the Compensation
Committee following the Distribution) to each nonemployee director who is not
eligible for any other pension benefits from the Company and the deferral of
such shares to such director's deferred stock account. See "Management and
Executive Compensation--Stock Plan for Non-employee Directors."
Directors who are not officers or employees of Olin or one of its
subsidiaries are covered while on Company business under Olin's business travel
accident insurance policy which covers employees of the Company generally.
EXECUTIVE OFFICERS OF THE COMPANY
Set forth below is certain information as to the Company's executive
officers who will serve as such after the Distribution. Effective with the
Distribution, such individuals will resign from any position then held with
Olin.
<TABLE>
<CAPTION>
NAME AND AGE POSITION
- ------------ --------
<S> <C>
Michael E. Campbell, 51 Chairman of the Board and Chief Executive Officer
Leon B. Anziano, 55 President and Chief Operating Officer
Sarah Y. Kienzle, 40 Vice President, Strategic Development
Mark A. Killian, 51 Vice President, Human Resources
Louis S. Massimo, 40 Vice President and Chief Financial Officer
Sarah A. O'Connor, 39 Vice President, General Counsel and Secretary
</TABLE>
For information regarding Mr. Campbell, see "Management and Executive
Compensation--Board of Directors."
57
<PAGE>
Mr. Anziano has served as a Corporate Vice President of Olin since April
29, 1993 and in April 1998 was also given the additional title of President of
Olin's Specialty Chemical Businesses. Previously he served as President of the
Chlor-Alkali Products Division of Olin.
Prior to the Distribution, Mrs. Kienzle served as a Corporate Vice
President of Olin since September 25, 1997. Prior to that time, since August
1996, she was a Vice President of SRI Consulting, a consulting firm, where she
had responsibility for the chemical industry strategy consulting practice.
Since 1993, she was employed as a Manager and later a Principal of A.T. Kearney,
Inc., a consulting firm, where she managed operations consulting for certain
industrial clients. Since prior to 1993 she held various managerial positions
at Amoco Chemical Company, a chemicals manufacturing corporation, where her
responsibilities included commercial development, capital investment and product
line management.
Prior to the Distribution, Mr. Killian served as Director, Human Resources
for Olin since his appointment in February 1991.
Mr. Massimo was elected Controller of Olin effective April 1, 1996 and, in
addition, a Corporate Vice President effective January 1, 1997. Since November
1994 and until April 1996, he had served as Olin's Director of Corporate
Accounting. Since prior to 1993, he was an Audit Senior Manager for KPMG Peat
Marwick LLP, an accounting firm, where he had overall responsibility for
services provided in connection with audits, Commission filings, and merger and
acquisition activities for certain multinational clients.
Prior to the Distribution and since 1995, Ms. O'Connor served as Olin's
Director, Planning and Development. Ms. O'Connor became an Associate Counsel in
the Olin Corporate Legal Department in 1989 and was promoted to Counsel in 1992
and to Senior Counsel in January 1995.
COMPENSATION OF EXECUTIVE OFFICERS
The Company was formed on August 25, 1998. The following table discloses
compensation received by the Company's Chief Executive Officer and the four
other most highly compensated executive officers of the Company (the "Named
Executive Officers") for services rendered to Olin for the fiscal year ended
December 31, 1997.
58
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
1997 ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------------------------- ------------------------------------
AWARDS(A) PAYOUTS
------------------------ -------
NAME AND PRINCIPAL POSITION RESTRICTED SECURITIES
WITH OLIN OTHER ANNUAL STOCK UNIT UNDERLYING LTIP ALL OTHER
AT DECEMBER 31, 1997 SALARY BONUS COMPENSATION(B) AWARDS OPTIONS(C) PAYOUTS COMPENSATION(D)
- -------------------------- -------- -------- --------------- ---------- ---------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Michael E. Campbell $350,004 $287,529 $14,928 $ 0 30,000 $79,759 $30,654
Executive Vice President
Leon B. Anziano $275,004 $207,118 $ 9,228 $ 0 15,000 $79,759 $28,357
Vice President and President,
Chlor-alkali Division
Sarah Y. Kienzle(e)
Vice President,
Planning and Development
Mark A. Killian
Director, Human Resources
Louis S. Massimo
Vice President and Controller
</TABLE>
(a) All awards shown reflect an equitable adjustment made pursuant to the anti-
dilution provisions of the plans for a 2-for-1 stock split effective
October 30, 1996 and an equitable adjustment made pursuant to such
provisions as a result of the spin-off of Primex Technologies, Inc.
(b) Includes dividend equivalents on outstanding performance share units paid
at the same rate as dividends paid on Olin Common Stock. Also includes tax
gross-ups paid for imputed income on use of company-provided automobiles.
(c) The stock options reported are for Olin Common Stock and do not represent
options to acquire Company Common Stock. In the event options are
exercised and shares of Olin Common Stock are issued prior to the Record
Date, the option holder will receive Company Common Stock in the
Distribution on the same basis as all other shareholders of record of Olin
Common Stock on the Record Date.
(d) Amounts reported in this column for 1997 are comprised of the following
items:
<TABLE>
<CAPTION>
OLIN VALUE OF
OLIN CONTRIBUTING OLIN SUPPLEMENTAL SPLIT-
EMPLOYEE CONTRIBUTING OLIN DOLLAR LIFE
OWNERSHIP PLAN EMPLOYEE TERM LIFE INSURANCE
COMPANY MATCH OWNERSHIP PLAN(1) INSURANCE(2) PREMIUMS(3)
----------------- ----------------- ------------ -------------
<S> <C> <C> <C> <C>
M. E. Campbell...................... $7,003 $6,950 $4,632 $12,069
L. B. Anziano....................... 6,641 4,538 4,632 12,546
S. Y. Kienzle.......................
M. A. Killian.......................
L. S. Massimo.......................
</TABLE>
- -------------
(1) The Olin Supplemental CEOP permits participants in the CEOP to make
contributions, and Olin to match the same, in amounts permitted by the
CEOP but which would otherwise be in excess of those permitted by certain
Internal Revenue Service limitations.
(2) Under Olin's key executive insurance program, additional life insurance
is provided and monthly payments are made to the spouse and dependent
children of deceased participants.
(3) The amount of the premium shown represents the full dollar amount of the
premium Olin paid in 1997 for the whole life insurance and to fund the
retiree death benefit. Such amounts also include retroactive premiums
which Olin paid to cover a period of time during which some premiums were
suspended due to the financial instability of the insurance carrier.
(e) Mrs. Kienzle's restricted stock units vest on September 25, 2002, subject to
continued employment, and are paid out on the vesting date in the form of
shares of Olin Common Stock on a 1-for-1 basis. At December 31, 1997 the
units totaled _____and were valued on such date at $_______using the closing
price of Olin Common Stock on December 31, 1997 as reported on the
consolidated transaction reporting system of the NYSE.
OPTION GRANTS OF OLIN COMMON STOCK TO COMPANY EXECUTIVES IN LAST FISCAL YEAR
The following table sets forth as to the Named Executive Officers
information relating to options granted by Olin from January 1, 1997 through
December 31, 1997. In addition, options to
59
<PAGE>
purchase Olin Common Stock outstanding under the 1980 Stock Option Plan of Olin
for such persons will be extended to terminate upon the earlier of (i) the end
of their term or (ii) two years following the Distribution. Options to purchase
Olin Common Stock granted under Olin's 1988 Stock Option Plan (the "1988 Plan")
and 1996 Stock Option Plan (the "1996 Plan") will not terminate for such persons
when the optionee ceases to be employed by Olin but instead will be extended to
their original terms. See "Management and Executive Compensation --Adjustment to
Prior Olin Equity-Based Benefits."
<TABLE>
<CAPTION>
Individual Grants(a)
------------------------------------------------------------------------------------------------------
NUMBER OF
SECURITIES
UNDERLYING % OF TOTAL POTENTIAL REALIZABLE VALUE AT
OPTIONS OPTIONS GRANTED ASSUMED RATES OF STOCK PRICE
GRANTED TO ALL EMPLOYEES EXERCISE EXPIRATION APPRECIATION FOR OPTION TERM(d)(e)
NAME (A,B) IN FISCAL YEAR PRICE (C) DATE 0% 5% 10%
---------- ---------------- -------- ---------- --- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
M. E. Campbell 30,000 5.0 $38.63 1/29/07 0 728,826 $ 1,846,988
%
L. B. Anziano 15,000 2.5 38.63 1/29/07 0 364,413 923,494
%
S. Y. Kienzle
M. A. Killian
L. S. Massimo
All Stockholders N/A N/A N/A N/A 0 1,187,498,862 3,009,355,204
All Optionees 599,200 100.0 38.77 (f) 0 14,473,196 36,806,621
%
</TABLE>
- -------------
(a) Options were awarded on January 30, 1997, except for Mrs. Kienzle's which
were awarded on September 25, 1997. One-third of the grant becomes
exercisable on each January 30 beginning in 1998, except for Mrs. Kienzle's
which become exercisable on each September 25 beginning in 1998.
(b) Under the Stock Option Plan, the Compensation Committee of Olin's Board of
Directors, in its discretion, may grant stock appreciation rights
("SAR's") to optionees. To date, no such SAR's have been granted. Each
such right will relate to and have the same terms and conditions, including
restrictions, as a specific option granted, together with such additional
terms and conditions as the Compensation Committee may prescribe.
(c) The exercise price of the options reflects the fair market value of Common
Stock on the date of grant.
(d) No gain to the optionees is possible without appreciation in the stock price
which will benefit all shareholders commensurately. The dollar amounts under
these columns are the result of calculations at the 5% and 10% assumption
rates set by the Commission and therefore are not intended to forecast
possible future appreciation of Olin's stock price or to establish any
present value of the options.
(e) Realizable values are computed based on the number of options which were
granted in 1997 and which were still outstanding at year-end.
(f) The expiration dates of options granted during fiscal 1997 are January 29,
2007 and September 24, 2007.
60
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth as to the Named Executive Officers
information regarding options to purchase Olin Common Stock exercised during
1997 and the value of in-the-money outstanding options to purchase Olin Common
Stock at the end of 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES AGGREGATE VALUE OF
UNDERLYING UNEXERCISED UNEXERCISED, IN-THE-MONEY
SHARES OPTIONS AT 12/31/97 OPTIONS AT 12/31/97(A)
ACQUIRED VALUE ------------------- ---------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
M. E. Campbell 1,328 $20,969 62,410 70,650 $1,089,950 $560,558
L. B. Anziano 0 0 29,480 35,326 475,852 280,287
S. Y. Kienzle 0 0
M. A. Killian 0 0
L. S. Massimo 0 0
</TABLE>
(a) Value was computed as the difference between the exercise price and the
$46.875 per share closing price of Olin Common Stock on December 31, 1997,
as reported on the consolidated transaction reporting system of the NYSE.
61
<PAGE>
ADJUSTMENT TO PRIOR OLIN EQUITY-BASED BENEFITS
Pursuant to the Employee Benefits Allocation Agreement, at the time of the
Distribution, Olin Options will generally be converted into both an option to
purchase Company Common Stock and an option to purchase Olin Common Stock with
adjustments designed to preserve the "intrinsic value" at the time of the
Distribution as the old award. The Company will be responsible for delivering
shares of Company Common Stock upon exercise of Company Options, and Olin will
be responsible for the delivery of shares of Olin Common Stock upon exercise of
New Olin Options. See "Relationship Between Olin and the Company After the
Distribution - Employee Benefits Allocation Agreement." Options granted under
the Olin 1980 Stock Option Plan to Olin employees who become Company employees
upon the Distribution will terminate upon the earlier of (i) the end of their
term or (ii) two years following the Distribution. Options granted to such
employees under the Olin 1988 Stock Option Plan or the Olin 1996 Stock Option
Plan will expire at the end of the original term of the option rather than
terminate when the employee ceases to be an Olin employee. Options granted to
such employees under the Olin 1996 Stock Option Plan which are not yet vested at
the time of the Distribution will continue to vest in accordance with their
respective vesting schedules so long as the optionee remains employed at the
Company.
Employees of Olin who become employees of the Company and who were
participating in Olin's EVA Incentive Plan (Management Incentive Compensation
Plan) will, assuming performance objectives are satisfied, receive annual
incentive bonus awards in respect of 1998 performance. All Company employees
holding Olin Performance Unit Plan retention units consisting of phantom shares
of Olin Common Stock will have those units accelerated and the units will be
paid out in the form of Olin Common Stock prior to the Record Date. Restricted
stock unit awards granted to Olin employees which have not yet vested will
receive restricted stock units of the Company in the same proportion as the
Distribution Ratio bears to restricted stock units held. Deferred Olin phantom
stock accounts, including Olin director accounts, will also be credited with
Company phantom stock also in the same proportion as the Distribution Ratio
bears to phantom stock held in the accounts.
STOCK PLAN FOR NONEMPLOYEE DIRECTORS
Each member of the Board of Directors of the Company will receive an annual
retainer of $30,000, at least $25,000 of which will be paid or credited in the
form of shares of Company Common Stock as provided in the Stock Plan for
Nonemployee Directors (the "Directors Plan"): Generally speaking, the Directors
Plan (i) provides for the granting annually of a fixed number of shares of
Common Stock (such number to be determined by the Compensation Committee
following the Distribution) to each nonemployee director and the deferral of the
payment of such shares until after such director ceases to be a member of the
Board, (ii) provides for an additional annual grant of a fixed number of shares
of Common Stock (such number to be determined by the Compensation Committee
following the Distribution) to each nonemployee director who is not eligible for
any other pension benefits from Olin and the deferral of such shares to such
directors' deferred stock account, (iii) provides for the granting to each
nonemployee director annually an amount of shares of Common Stock equal in value
to $25,000 in lieu of a cash retainer, (iv) permits such director to elect to
receive his or her quarterly meeting fees in the form of shares of Common Stock
in lieu of cash, (v) permits such director to elect to receive in the form of
shares of Common Stock the amount by which the annual retainer exceeds $25,000
("Excess Retainer") in lieu of cash for such excess and (vi) permits such
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<PAGE>
director to elect to defer any meeting fees and Excess Retainer paid in cash and
any shares to be delivered under the Directors Plan. Deferred cash is credited
with interest quarterly and deferred shares are credited with dividend
equivalents. Deferred shares are paid out in shares of Common Stock. Deferred
accounts under the Directors Plan are paid out if there is a "Change in Control"
as defined in such plan.
PENSION PLANS
Following the Distribution, the Company will establish a tax-qualified,
defined benefit pension plan for Company employees ("Tax Qualified Pension
Plan") that will provide benefits based on service with Olin and with the
Company. The Company will become liable for the payment of all pension plan
benefits accrued by Company employees prior to and following the Distribution
who cease to be Company employees after the Distribution. Olin will transfer
assets to the Company's pension plan and the amount of the assets will be
calculated as required using the asset allocation methodology set forth in
Section 4044 of the Employee Retirement Income Security Act of 1974, as amended
(the "ERISA 4044 Asset Allocation Method").
The Tax Qualified Pension Plan, together with two supplementary plans
(collectively, the "Company Pension Plan"), will provide for fixed benefits upon
retirement. The normal retirement age is 65, but early retirement is available
after attainment of age 55 with at least 10 years of service at a reduced
percentage of the normal retirement allowance (100% is payable if early
retirement is at age 62). Directors who are not also employees of the Company
are not eligible to participate in the Company Pension Plan. The Tax Qualified
Pension Plan is a tax-qualified plan, and benefits are payable only with respect
to non-deferred compensation. Under one of the supplementary plans mentioned
above, the Company pays a supplemental pension, based on the formula described
below, on deferred compensation (including deferred incentive compensation).
Under the other supplementary plan, the Company will pay employees affected by
the limitations imposed by the Code on qualified plans a supplemental pension in
an annual amount equal to the reduction in pensions resulting from such
limitations.
"Compensation" for purposes of the Company Pension Plan represents average
cash compensation per year (salary and bonus shown in the summary compensation
table on page 59), including deferred compensation, received for the highest
three years during the ten years up to and including the year in which an
employee retires, including compensation with Olin. The normal retirement
allowance is 1.5% of "Compensation" as so defined multiplied by the number of
years of benefit service, less an amount of the employee's primary Social
Security benefit not to exceed 50% of such Social Security benefit. Years of
benefit service shall also include benefit service with Olin.
Under the Company's Senior Executive Pension Plan (the "Senior Plan"),
which is a third nonqualified pension plan, the Company will pay retirement
benefits to certain senior executives upon their retirement after age 55, which
benefits are reduced if retirement is prior to age 62. Under the Senior Plan,
the maximum benefit will be 50% of "Compensation" (as defined above), less
payments from the Company Pension Plan, any other Olin or Company pension,
pension benefits from other employers, and certain Social Security benefits.
Subject to the above limitations, benefits under the Senior Plan will accrue at
the rate of 3% for each year of service that a senior executive is eligible to
participate in the Senior Plan and in all cases are reduced by payments under
the Pension Plan which
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accrued during the period the employee was in the Senior Plan and 50% of the
employee's primary Social Security benefit. The Senior Plan will also provide
benefits to the executive's surviving spouse equal to 50% of the executive's
benefits. Payment of benefits under the Senior Plan is not automatic,
notwithstanding satisfaction of its service requirements, but is subject to plan
provisions regarding suspension of benefit accruals and cessation of benefits.
The Senior Plan and the other two supplementary plans provide that unless the
participant elects installment payments, the participant will receive benefits
under these plans in a lump sum upon retirement if the lump sum would exceed
$100,000. The Compensation Committee may remove a participant from the Senior
Plan for cause as defined in such plan, and no payments will be made if the
participant voluntarily terminates employment without the committee's consent.
The Tax Qualified Pension Plan provides that if, within three years
following a "Change in Control" of the Company, any corporate action is taken or
filing made in contemplation of, among other things, a plan termination or
merger or other transfer of assets or liabilities of the plan, and such
termination, merger or other event thereafter takes place, plan benefits would
automatically be increased for affected participants (and retired participants)
to absorb any plan surplus.
Each of the Senior Plan and the two supplementary plans mentioned above
provides that in the event of a "Change in Control", the Company will pay each
participant a lump-sum amount sufficient to purchase an annuity which (together
with any monthly payment provided under trust arrangements or other annuities
established or purchased by the Company to make payments under such plan) will
provide the participant with the same monthly after-tax benefit as the
participant would have received under the plan, based on benefits accrued
thereunder to the date of the "Change in Control." The agreements described
under "Executive Agreements" below provide that an executive officer who is less
than age 55 at the time of a "Change in Control" will, for purposes of
calculating the above lump-sum payment under the Senior Plan, be treated as if
he had retired at age 55, with the lump-sum payment being calculated on the
basis of service to the date of the "Change in Control."
The following table shows the maximum combined amounts payable annually on
normal retirement under the Company Pension Plan and Senior Plan. Such amounts
will be reduced by Social Security benefits and the other offsets described
above.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
----------------
REMUNERATION 10 YEARS 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS 40 YEARS
- --------------------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
$200,000............. $ 60,000 $ 90,000 $100,000 $100,000 $100,000 $105,000 $120,000
300,000.............. 90,000 135,000 150,000 150,000 150,000 157,500 180,000
400,000.............. 120,000 180,000 200,000 200,000 200,000 210,000 240,000
500,000.............. 150,000 225,000 250,000 250,000 250,000 262,500 300,000
600,000.............. 180,000 270,000 300,000 300,000 300,000 315,000 360,000
700,000.............. 210,000 315,000 350,000 350,000 350,000 367,500 420,000
800,000.............. 240,000 360,000 400,000 400,000 400,000 420,000 480,000
</TABLE>
Credited years of service for the Named Executive Officers as of December
31, 1997 are as follows: Mr. Campbell, 19.6 years (10.3 years under the Senior
Plan); Mr. Anziano, 24.1 years (10.0 years under the Senior Plan), Ms. Kienzle,
3 months (3 months under the Senior Plan), Mr. Killian,
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<PAGE>
18.8 years (0 years under the Senior Plan), and Mr. Massimo, 3.1 years (1 month
under the Senior Plan).
The Company will be the "successor employer" under the union contracts
covering employees at its unionized sites. These contracts require the Company
essentially to replicate the benefits provided to covered employees by Olin
prior to the Distribution. The Tax Qualified Pension Plan will also provide for
the benefits accrued under these union contracts for union employees who become
employees of the Company at the time of the Distribution. Service credited
under Olin's pension plan for these unionized employees will be recognized for
the purpose of calculating benefits and for qualifying for vesting and early
retirement benefits under the terms of the Tax Qualified Pension Plan.
Following the Distribution, the Company will become liable for payment of
benefits accrued for employees of the Company under any Olin non-qualified
pension plans as of the Distribution. Such benefits will not be paid until the
participant retires from the Company.
SAVINGS PLAN
As of the Distribution Date, Olin and the Company will take such steps as
are necessary or desirable to convert the Olin Contributing Employee Ownership
Plan (the "Olin CEOP") into a multiple employer plan in which both Olin and the
Company participate. On and after the Distribution Date, employer contributions
made on behalf of employees of the Company will be made by the Company.
Employees of the Company who are not vested in the Olin CEOP at the time of the
Distribution or who are not participants in the Olin CEOP immediately prior to
the Distribution Date will become 100% vested in matching contributions
following completion of five years of service (including prior service with
Olin).
The Olin CEOP will provide compensation deferral, or savings opportunities
to employees of the Company following the Distribution. The Olin CEOP consists
of a defined contribution plan available to substantially all domestic employees
of the Company, pursuant to which employees may defer on a pre-tax or post-tax
basis a portion of their compensation. Employees of the Company may elect to
invest their contributions in Company Common Stock or in one or more of several
investment funds. Employee contributions will be based on base pay. The
Company will make a matching contribution equal to 100% of the first $25 of
monthly contributions a Participant makes to the Olin CEOP plus 50% of the
balance contributed by a participant (up to 6% of the participant's base pay) in
Company Common Stock for the account of such participant. Participants will be
eligible for a Performance Matching Contribution based on their eligible
contributions to the Savings Plan based on a performance formula. Olin Common
Stock held in the account of an employee of the Company under the Olin CEOP that
is attributable to Olin contributions may only be retained in Olin Common Stock
or reinvested in Company Common Stock. Dividends on Olin Common Stock held in
the account of an employee of the Company under the Olin CEOP will be reinvested
in Company Common Stock and after the Distribution Date, additional amounts may
not be invested in Olin Common Stock.
The Company will establish a non-qualified, unfunded Supplemental CEOP (the
"Supplemental Plan") that is intended to restore the benefit under the Savings
Plan that would otherwise be reduced as a consequence of certain compensation
limits contained in the Code applicable to highly-
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<PAGE>
compensated employees. Reserves held with respect to Olin's Supplemental CEOP
for Company employees will be assumed by the Company and credited to the
Supplemental Plan.
In addition, employees who are covered by the Supplemental Plan may be able
to defer before-tax contributions above the annual limitations imposed on
qualified contribution plans such as the Olin CEOP.
1999 STOCK OPTION PLAN
The Company has adopted the Arch Chemicals, Inc. 1999 Stock Option Plan
(the "1999 Plan"), which is designed to help the Company attract and retain key
employees by providing an incentive to increase their proprietary interest in
the Company in the form of stock options. The Company believes that stock
options provide a strong link to shareholder value.
A summary of the principal features of the 1999 Plan follows:
ADMINISTRATION. The terms of options and the optionees will be determined,
subject to 1999 Plan provisions, by a committee (the "Committee", currently the
Compensation Committee) of at least two directors of the Company who are
"outside directors" within the meaning of Section 162(m) of the Code and who are
"Non-employee directors" within the meaning of Rule 16b-3 promulgated under the
Exchange Act.
PARTICIPATION. Options may be granted under the 1999 Plan only to full-
time employees, including officers, of the Company or any of its present or
future subsidiaries. Directors who are not also employees are not eligible to
receive options under the 1999 Plan. Options under the 1999 Plan are granted in
the Committee's discretion to any present or future officer or key employee,
including officers and employees who, prior to any such grant, have received
options under the 1999 Plan.
SHARES RESERVED UNDER THE 1999 PLAN. __________________________
(__,000,000) shares of Company Common Stock (subject to proportionate adjustment
in the event of stock dividends, split-ups and the like) will be reserved for
issue on the exercise of options granted under the 1999 Plan. No person may be
granted options under the 1999 Plan for more than _______ shares (subject to
proportionate adjustment as aforesaid) during the term of the 1999 Plan. Any
shares as to which options are granted but not exercised for any reason
(including surrender or cancelation other than pursuant to the stock
appreciation provisions described below) will again be available for future
options under the 1999 Plan.
OPTIONS. Options granted under the 1999 Plan will have a term of and be
exercisable over a period not exceeding ten years from their respective dates of
grant. The purchase price of the Company Common Stock covered by each option
will be determined by the Committee but shall not be less than the fair market
value of the Company Common Stock at the date of grant. The Committee
administering the 1999 Plan will have authority in its discretion to prescribe
in any option agreement that the option will be exercisable in full at any time
or from time to time during the term of the option or to provide for the
exercise thereof in such installments at such times as it determines.
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Optionees may deliver already-owned Company Common Stock valued at fair
market value at date of exercise in payment for the exercise price of options,
in lieu of or in combination with cash.
If an option agreement so provides, initially or by amendment, the
Committee may require an optionee to surrender the option for cancelation as to
all or any portion of the number of shares covered by the intended exercise and
to accept in cash, or shares or both, the equivalent of the appreciated value of
the shares covered by the surrendered option. The appreciated value would be
the difference between the option price and the fair market value of the shares
covered thereby. The Committee will have five business days after receiving
notice of an intended exercise to make its election, and the option would be
surrendered as to the number of shares for which the appreciated value is paid.
That number of shares would not be available again for future options.
Options will not be transferable otherwise than by will or the laws of
descent and distribution except that an option may be transferred by gift to any
member of the optionee's immediate family or to a trust for the benefit of one
or more of such immediate family members if the Committee shall have adopted a
resolution indicating that such option shall be transferable.
TERMINATION OF EMPLOYMENT. Upon termination of an optionee's employment
with the Company or a subsidiary, either for cause or without the Company's
written consent, all options held by the optionee under the 1999 Plan, to the
extent not theretofore exercised, will immediately terminate. Retirement under
a Company retirement plan or a retirement plan of a subsidiary will be
considered a termination of employment with the Company's consent.
If the employment of an optionee is terminated as a result of disability,
the optionee may exercise the option within one year of such termination to the
extent the option was exercisable at the time of termination. If the employment
of an optionee is terminated with the Company's written consent, the optionee
may exercise his or her option at any time within three months after such
termination, to the extent of the number of shares purchasable by the optionee
on the date of termination of employment. If an optionee should die after
termination of employment and within the foregoing period, his or her personal
representatives or legatees or permitted transferee may exercise the option
within one year after the optionee's death, to the extent the option was
exercisable by the optionee at the time of death. If an optionee should die
while employed by the Company, the option may be exercised by his or her
personal representatives, legatees, or permitted transferee at any time within
one year after the optionee's death, to the extent of the remaining shares
covered by the option, whether or not such shares had become vested or
purchasable by the optionee at the date of his or her death. Each of the
foregoing periods may be extended by the Committee. No option will be
exercisable after the expiration date thereof.
The 1999 Plan also provides that if an optionee's employment is terminated,
other than by reason of death, an option may be canceled prior to exercise if
the optionee engages in business in competition with the Company or a subsidiary
or in conflict with their interests, or breaches the optionee's agreement with
the Company or a subsidiary regarding confidentiality or inventions. In
addition, the Company may recover from an optionee, who prior to or within six
months after an exercise engages in any of the actions for which an option may
be canceled, the difference between the fair market value on date of exercise of
the shares exercised and the option price. Such recovery may be obtained
following notice given by the Company within two years after the exercise date.
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<PAGE>
CHANGE OF CONTROL. In the event that (i) the Company ceases to be a
publicly owned company, (ii) more than 20% of its outstanding shares are
acquired by a group or person (other than by the Company, a subsidiary or a
Company employee benefit plan), (iii) the incumbent directors and their
successors cease over a two-year period to constitute a majority of the Board
(unless the change in the Board occurs after an event referred to in (i) or (ii)
above which was approved by the Board), or (iv) the Board determines that a
hostile tender offer has been made to acquire control of the Company, each
option then outstanding will be fully exercisable, whether or not previously
vested, and the optionee will be deemed to hold a stock appreciation right
related to such option.
ADJUSTMENTS. Provision is made for adjustment of the number and class of
shares subject to outstanding options and of the option prices in the event of
changes in the outstanding number of shares of Company Common Stock by reason of
stock dividends, split-ups, spin-offs, recapitalizations and the like. In the
event of any such change, the total number and class of shares available under
the 1999 Plan and the maximum number of shares to which options may be granted
to any employee will be appropriately adjusted by the Committee. In the event
of a spin-off or other distribution to shareholders of shares representing a
part of the Company's business or assets, the Committee may, with the optionee's
consent, modify outstanding options so that they relate to shares of Company
Common Stock and shares of capital stock of the corporation owning the business
or assets so spun off.
AMENDMENT OR TERMINATION OF THE 1999 PLAN. The 1999 Plan will become
effective prior to the Distribution and the period during which options may be
granted thereunder will expire on the tenth anniversary of the Plan's
effectiveness. The Board may also terminate the 1999 Plan or make such
modifications thereto as it deems advisable. However, the Board may not,
without further shareholder approval, (a) increase the maximum number of shares
for which options may be granted under the 1999 Plan, except for adjustments
permitted in the event of changes in capitalization and the like, (b) change the
manner of determining the fair market value of Company Common Stock for purposes
of determining option price, other than to conform to any then applicable
provisions of the Code, or (c) increase the period during which options may be
granted. Termination or modification of the 1999 Plan will not, without an
employee's consent, adversely affect the rights of such employee under an option
theretofore granted to him or her.
ARCH CHEMICALS, INC. 1999 LONG TERM INCENTIVE PLAN
The Company has adopted the Arch Chemicals, Inc. 1999 Long Term Incentive
Plan (the "Incentive Plan"), which is designed to help the Company attract and
retain key employees by providing an incentive to increase their proprietary
interest in the Company. Awards under the Incentive Plan may be in the form of
stock options (including ISOs), restricted stock and restricted stock units,
performance awards, dividend equivalents and in any other form (including
convertible securities) that the committee administering the Incentive Plan
(also the "Committee", which shall be the same Committee that administers the
1999 Plan) approves provided that such awards are valued in whole or in part by
reference to, or otherwise based on or related to, shares of Company Common
Stock. ____________________ shares of Company Common Stock (subject to
adjustment as provided below and for dividends, stock splits, mergers, spin-
offs, split-ups, recapitalizations and the like) will be available for awards
under the Incentive Plan.
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Awards may be granted under the Incentive Plan to salaried employees,
including officers, of the Company and any of its controlled subsidiaries.
Awards may also be granted to salaried employees of any other entity in which
the Company has a significant equity interest as determined by the Committee.
Awards will be granted for no cash consideration or for such minimal cash
consideration as may be required by applicable law. However, the exercise price
per share of stock purchasable under any stock option and the purchase price of
stock which may be purchased under any other award providing rights to purchase
Company Common Stock will not be less than the fair market value of such stock
on the date of grant of the option or other right.
Administration of the Incentive Plan is the responsibility of the
Committee, which shall be a committee of the Board consisting of at least two
non-employee Directors. The Committee will have the authority to designate
participants, determine the nature and size of, and terms and conditions
applicable to, awards, permit deferral of award payments; permit the settlement
or exercise of awards, and make all other determinations and interpretations
relating to the Plan. Committee determinations and interpretations will be
binding on all interested parties. Under the Incentive Plan, the Board may act
at any time in lieu of the Committee.
STOCK OPTIONS. The term of options granted under the Incentive Plan will
be fixed by the Committee; however, such term may not exceed ten years from the
date of grant. The purchase price per share of stock purchasable under any
option will be determined by the Committee but will not be less than the fair
market value of the stock on the date of grant of the option. The Committee
will determine the time or times at which an option may be exercised in whole or
in part, subject to the provisions of the Incentive Plan relating to changes in
control of the Company. Options may be exercised by payment in full of the
purchase price, either in cash or, at the discretion of the Committee, in whole
or in part in Company Common Stock or other consideration having a fair market
value on the date the option is exercised equal to the option price.
RESTRICTED STOCK. Restricted stock or restricted stock units may not be
disposed of by the recipient until certain restrictions established by the
Committee lapse. These restrictions will require recipients to remain in the
employ of the Company (or an affiliate participating in the Incentive Plan) for
at least six months in order to vest, except in the event of a Change in Control
(as defined in the Incentive Plan) or for such specified reasons as the
Committee may approve. Recipients will have with respect to restricted stock
all of the rights of a shareholder of the Company, including the right to vote
the shares and the right to receive any cash dividends unless the Committee
otherwise determines. Upon termination of employment during the restriction
period, the restricted stock and/or restricted stock units will be forfeited,
subject to such exceptions, if any, as may be authorized by the Committee.
PERFORMANCE AWARDS. From time to time, the Committee may select a period
during which performance criteria approved by the Committee will be measured for
the purpose of determining the extent to which a performance award has been
earned. Such period will not be less than six months, subject to the Change in
Control provisions of the Incentive Plan. Performance awards may be denominated
or payable in cash, shares of Common Stock, others securities, other awards or
other property.
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RETIREE MEDICAL AND LIFE INSURANCE BENEFITS
Following the Distribution, Olin will remain liable for medical and death
benefits provided to former employees of the Company who retire or have retired
prior to the Distribution. The Company has adopted retiree medical and death
benefit plans that largely replicate the Olin retiree benefit program, under
which eligible employees of the Company will be covered (with appropriate credit
for service with Olin) as of the Distribution Date. Other than possible
increases in employee contributions, the Company has agreed that it will not
reduce or terminate the retiree benefits provided by this program for a period
of five years. The Company also has agreed to indemnify Olin from and against
any claims brought against it by employees of the Company who retire after the
Distribution Date.
OTHER BENEFITS
Following the Distribution, the Company will be responsible for unpaid
health care claims and unpaid short-term and long-term disability claims of
employees of the Company, including disabled employees of Olin who were
previously employed in the Specialty Chemical Businesses and were receiving
short-term or long-term disability benefits at the time of the Distribution,
whether such claims were incurred prior to, on or after the Distribution. The
Company has adopted welfare plans (including plans providing life insurance,
health care and disability benefits) covering employees of the Company following
the Distribution which are expected to provide benefits substantially similar to
those currently provided by Olin. The Company will adopt a plan that provides
benefits substantially similar to the Flexible Spending Account Plan of Olin
Corporation ("Olin's FSA") and shall assume all liabilities of Company employees
under Olin's FSA. The Company will also adopt a deferral plan which will permit
certain employees to defer compensation to cash accounts and/or Company stock
accounts for payment at a later date.
EXECUTIVE AGREEMENTS
Each of the Named Executive Officers will have agreements with the Company
which provide, among other things, that in the event of a covered termination of
employment (which could include, among other things, termination of employment
by the Company (other than for cause) and termination at the election of the
individual to leave the Company under certain circumstances), the individual
will receive a lump sum severance payment from the Company equal to 12 months'
base pay plus the greater of (a) the average incentive compensation award paid
from the Company during the three years preceding the termination or (b) the
then standard annual incentive compensation award, less any amounts payable
under existing severance or disability plans of the Company. In the event that
a "Change in Control" of the Company occurs, and there is a covered termination,
the individual will receive three times the severance payment. Pension credit
and insurance coverage would be afforded for the period reflected in the
severance payment, and in certain cases, insurance coverage will be extended
beyond such period. The agreements also provide for certain outplacement
services. A "Change in Control" would occur if the Company ceases to be
publicly owned; 20% or more of its voting stock is acquired by others (other
than the Company, a Subsidiary or a Company employee benefit plan); the
incumbent Directors and their designated successors cease over a two-year period
to constitute a majority of the Board; or all or substantially all of the
Company's business is disposed of in a transaction in which the Company is not
the surviving corporation or the Company combines with another company and is
the surviving corporation (unless the Company's shareholders following the
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transaction own more than 50% of the voting stock or other ownership interest of
the surviving entity or combined company). Each agreement provides that the
individual agrees to remain in the Company's employ for six months after a
"Potential Change in Control" of the Company has occurred. The agreements
provide that payments made thereunder or under any change in control provision
of the Company's compensation or benefit plan which are subject to "excess
parachute payment" tax will be increased so that the individual will receive a
net payment equal to that which would have been received if such tax did not
apply. Certain of the Company's benefit and compensation plans, including its
annual incentive bonus plan, also contain "change-in-control" provisions.
COMPENSATION COMMITTEE INTERLOCKS AND
INSIDER PARTICIPATION
There are not expected to be any Compensation Committee interlocks. The
members of the Company's Compensation Committee are expected to be ______,
________and ______________________.
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BENEFICIAL OWNERSHIP
All of the outstanding shares of Company Common Stock are, and will be
prior to the Distribution, held beneficially and of record by Olin. The
following tables set forth information concerning shares of Company Common Stock
projected to be beneficially owned after the Distribution Date by (i) each
person or entity known by the Company to own more than five percent of the
outstanding Company Common Stock, (ii) each person who will be a director of the
Company at the time of the Distribution, (iii) each of the Named Executive
Officers of the Company and (iv) all persons who will be directors and executive
officers of the Company at the time of the Distribution as a group. The
projections are based on the number of shares of Olin Common Stock owned by such
person or entity at October 6, 1998, except with respect to Franklin Resources,
Inc., September 30, 1998 and with respect to Scudder, Kemper Investments, Inc.,
FMR Corp., and T. Rowe Price Associates, Inc., December 31, 1997. The figures
reflect the Distribution Ratio of one share of Company Common Stock for every
___ share(s) of Olin Common Stock. The percentage ownership of Company Common
Stock of each person or entity named below immediately following the
Distribution will be the same as the percentage ownership of such person or
entity immediately prior to the Distribution and is calculated based on the
number of shares of Olin Common Stock outstanding as of September 30, 1998.
Unless otherwise indicated in the footnotes below, each person or entity has
sole voting and investment power with respect to the shares of Company Common
Stock set forth opposite such person's or entity's name. Also included in the
figures are shares of Company Common Stock which may be acquired within 60 days
through the exercise of employee stock options, if any.
BY DIRECTORS AND EXECUTIVE OFFICERS
- -----------------------------------
<TABLE>
<CAPTION>
NO. OF
SHARES
BENEFICIALLY PERCENT OF
NAME OF BENEFICIAL OWNER OWNED(a,b) CLASS (c)
------------------------- ------------- -
<S> <C> <C>
Richard E. Cavanagh........................................ --
John W. Johnstone, Jr...................................... --
Jack D. Kuehler............................................ --
H. William Lichtenberger................................... --
John P. Schaefer........................................... --
Michael E. Campbell........................................ --
Leon B. Anziano............................................ --
Sarah Y. Kienzle........................................... --
Mark A. Killian............................................ --
Louis S. Massimo........................................... --
Directors and executive officers as a group, including those
named above (__ persons)
</TABLE>
(a) Included in this table with respect to officers are shares credited under
the Olin CEOP. Also included in the case of the incumbent directors are
certain shares of Company Common Stock credited to a deferred account for
such directors pursuant to the arrangements described above under
''Compensation of Directors'' in the amounts of _____ for Mr. Cavanagh; ___
for Mr. Johnstone; _____ for Mr. Kuehler; _____ for Mr. Lichtenberger; and
_____ for Mr. Schaefer. Such shares so credited to these directors have no
voting power.
(b) The amounts shown include shares that may be acquired within 60 days
following October 6, 1998 through the exercise of stock options, as follows:
Mr. Johnstone, ______; Mr. Campbell, ______; Mr. Anziano, ______; Ms.
Kienzle, _____ Mr. Killian, _____; Mr. Massimo, _____; and all directors and
executive officers as a group, including the named individuals, _______.
(c) Unless otherwise indicated, beneficial ownership of any named individual
does not exceed 1% of the outstanding shares of Company Common Stock.
72
<PAGE>
BY OTHERS
- ---------
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP OF CLASS
- ------------------------------------------- ----------- --------
<S> <C> <C>
Franklin Resources, Inc. (a) 11.0
777 Mariners Island Boulevard
San Mateo, CA 94403
Scudder, Kemper Investments, Inc. (b) 9.2
345 Park Avenue
New York, NY 10154
FMR Corp. (c) 8.5
82 Devonshire Street
Boston, MA 02109
T. Rowe Price Associates, Inc. (d) 6.1
100 East Pratt Street
Baltimore, MD 21202
</TABLE>
________
(a) Charles B. Johnson, Rupert H. Johnson, Jr., Franklin Mutual Advisers, Inc.
and Franklin Resources, Inc. ("FRI") have advised Olin in an amended
Schedule 13G and Form 4 filings that the shares are owned by one or more
open or closed-end investment companies or other managed accounts which are
advised by direct or indirect investment subsidiaries ("Adviser
Subsidiaries") of FRI and such advisory contracts grant to such Adviser
Subsidiaries all voting and investment power over such shares. It also
reports that Franklin Mutual Advisers, Inc. has sole power to vote and sole
dispositive power with respect to such shares.
(b) Scudder, Kemper Investments, Inc., a registered investment adviser
("Scudder"), has advised Olin in an amended Schedule 13G filing that it has
sole dispositive power with respect to the shares, has sole power to vote
with respect to _______ shares, and shared power to vote with respect to
_________ shares. Scudder disclaims beneficial ownership of all the shares.
(c) Olin has been advised in an amended Schedule 13G filing as follows with
respect to these shares: Fidelity Management & Research Company
("Fidelity") and Fidelity Management Trust Company ("FMTC") beneficially own
_________ and _______ shares, respectively. Both are subsidiaries of FMR
Corp. ("FMR"). Edward C. Johnson 3/rd/ ("Johnson"), who is the Chairman of
FMR, FMR, through its control of Fidelity, and its Funds each has sole
dispositive power with respect to the 1,701,225 shares owned by the Funds.
Neither Johnson nor FMR has sole voting power with respect to the shares
owned by the Funds, which power rests with the Funds' Board of Trustees.
Johnson and FMR, through its control of FMTC, each has sole dispositive
power over _______ shares, sole voting power over _______ shares and no
voting power with respect to _______ of the shares. Additionally, Fidelity
International Limited beneficially owns ______ shares, as to which it has
sole voting power and sole dispositive power.
(d) T. Rowe Price Associates, Inc., a registered investment adviser, has advised
Olin in a Schedule 13G filing that it has sole dispositive power with
respect to the shares and sole power with respect to _______ shares. T.
Rowe Price Associates, Inc. expressly disclaims that it is, in fact, the
beneficial owner of such securities.
73
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the Distribution, the Company will assume approximately
$___ million of indebtedness of Olin incurred pursuant to the Credit Facility.
In addition, there will be certain ongoing relationships between Olin and the
Company. See "Relationship Between Olin and the Company After the
Distribution."
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
Under the Company's Articles, the Company has authority to issue ten
million shares of preferred stock, par value $1.00 per share ("Preferred
Stock"), and 100 million shares of Company Common Stock, par value $1.00 per
share. As of the date hereof, 100 shares of Company Common Stock were issued
and outstanding.
Based on the number of shares of Olin Common Stock outstanding at September
30, 1998, and the Distribution Ratio of one share of the Company for every ___
share(s) of Olin Common Stock, it is expected that approximately ________ shares
will be issued to shareholders of Olin in the Distribution. The Company Common
Stock to be distributed will constitute all of the outstanding Company Common
Stock immediately after the Distribution. All of the shares of Company Common
Stock to be distributed to Olin shareholders in the Distribution will be fully
paid and non-assessable.
The following statements with respect to the capital stock of the Company
are subject to the detailed provisions of the Company's Articles and By-laws as
in effect at the time of the Distribution. These statements do not purport to be
complete, or to give full effect to the provisions of statutory or common law,
and are subject to, and are qualified in their entirety by reference to, the
terms of the Articles, the By-laws and the Rights Agreement, dated as of
__________, 1999, between the Company and _______________________(the "Rights
Agreement").
COMMON STOCK
Holders of Company Common Stock are entitled to dividends as declared by
the Board from time to time after payment of, or provision for, full cumulative
dividends on and any required redemptions of shares of Preferred Stock then
outstanding. Holders of Company Common Stock are entitled to one vote per share
on all matters submitted to a vote of such holders and may not cumulate votes
for the election of directors. Holders of Company Common Stock have no
preemptive or subscription rights and have no liability for further calls or
assessments. In the event of the liquidation, dissolution or winding up of the
Company, holders of Company Common Stock are entitled to receive pro rata all
the remaining assets of the Company available for distribution, after
satisfaction of the prior preferential rights of the Preferred Stock and the
satisfaction of or provision for all debts and liabilities of the Company.
The Transfer Agent and Registrar for the Company Common Stock is
_____________________.
74
<PAGE>
PREFERRED STOCK
The Articles authorize the Board, without any vote or action by the holders
of Company Common Stock, to issue up to 10 million shares of Preferred Stock
from time to time in one or more series. The Board is authorized to determine
the number of shares and designation of any series of Preferred Stock and the
dividend rights, dividend rate, conversion rights and term, voting rights (full
or limited, if any), redemption rights and terms, liquidation preferences and
sinking fund and other terms of any series of Preferred Stock. Issuances of
Preferred Stock would be subject to the applicable rules of the NYSE or other
organizations on whose systems the stock of the Company may then be quoted or
listed. Depending upon the terms of the Preferred Stock established by the
Board, any or all series of Preferred Stock could have preference over the
Company Common Stock with respect to dividends and other distributions and upon
liquidation of the Company. Issuance of any such shares with voting powers, or
issuance of additional shares of Company Common Stock, would dilute the voting
power of the outstanding Company Common Stock. The Company has no present plans
to issue any Preferred Stock, except that the Rights Agreement provides for the
issuance of shares of Preferred Stock, under the circumstances specified in the
Rights Agreement, upon the exercise or exchange of Rights (as defined below)
issued thereunder. See "Rights Plan."
AUTHORIZED BUT UNISSUED CAPITAL STOCK
Virginia law does not require shareholder approval for any issuance of
authorized shares other than in connection with certain mergers to which the
Company may be a party. However, the NYSE rules, which would apply so long as
Company Common Stock remains listed thereon, require shareholder approval of
certain issuances of common stock or securities convertible into or exchangeable
for common stock equal to or exceeding 20% of the then outstanding voting power
or then outstanding number of shares of Company Common Stock. These additional
shares may be used for a variety of corporate purposes, including future public
offerings to raise additional capital or to facilitate corporate acquisitions.
RIGHTS
On ________ __, 1999, the Company declared a dividend of one right (a
"Right") for each outstanding share of Company Common Stock to the shareholders
of record on ________ __, 1999. Rights also will be issued with respect to
Company Common Stock issued thereafter, prior to the occurrence of certain
change-in-control events. The Rights become exercisable upon certain potential
change-in-control events. When exercisable and upon the occurrence of certain
events, the Rights entitle holders (other than an Acquiring Person (as defined
below)) to purchase shares of Preferred Stock, other securities of the Company
or shares of the Acquiring Person's common stock (or stock of one of its
affiliates or associates) at a substantial discount. Exercise of the Rights
will cause substantial dilution to a person or group attempting to acquire
control of the Company without the approval of the Board. Except under certain
circumstances, the Board may cause the Company to redeem the Rights in whole,
but not in part, at a price of $0.01 per Right. The Rights will not interfere
with any merger or other business combination approved by the Board. The Rights
expire on ________ __, 2009, if not redeemed earlier. The Rights have no voting
or dividend privileges. Until such time as the Rights become exercisable, they
are attached to, evidenced by and will not trade separately from the Company
Common Stock. For a more complete description of the Rights, see "Rights Plan."
75
<PAGE>
NO PREEMPTIVE RIGHTS
No holder of any class of stock of the Company authorized at the time of
the Distribution will have any preemptive right to subscribe to any securities
of the Company of any kind or class.
CERTAIN PROVISIONS OF THE ARTICLES, BY-LAWS AND VIRGINIA CORPORATE LAW
The Board's membership is divided into three classes as nearly equal in
number as possible, each of which serves for three years with one class being
elected each year. The total number of Directors is currently fixed at _____.
Special meetings of shareholders may be called only by the Board or certain
designated officers. Directors may be removed only with cause, and vacancies on
the Board, including any vacancy created by an increase in the number of
Directors, may be filled only by the Board unless the vacancy is required to be
filled at an annual meeting of shareholders. The By-laws require that advance
notice of nominees for election as Directors to be made by a shareholder and
proposals to be submitted by a shareholder be given to the Secretary of the
Company, together with certain specified information, no later than 90 days
before an annual meeting of shareholders. The provisions of the Articles and
By-laws described above may, in certain circumstances, make more difficult or
discourage a takeover of the Company.
In addition, the Virginia Stock Corporation Act contains certain anti-
takeover provisions regarding affiliated transactions, control share
acquisitions and the adoption of shareholder rights plans. In general, the
affiliated transactions provisions of the Virginia Stock Corporation Act prevent
a Virginia corporation from engaging in an "affiliated transaction" (as defined)
with an "interested shareholder" (generally defined as a person owning more than
10% of any class of voting securities of the corporation) for three years unless
approved by a majority of the "disinterested directors" (as defined) and the
holders of at least two-thirds of the outstanding voting stock not owned by the
interested shareholder, subject to certain exceptions. Thereafter, the
corporation may engage in such affiliated transaction only if approved by at
least two-thirds of the outstanding voting stock not owned by the interested
shareholder or if approved by a majority of the disinterested directors or if
certain fair price and procedure provisions are complied with. The Virginia
Stock Corporation Act also contains certain shareholder rights plan provisions
that permit the Board to adopt a shareholder rights plan (such as the Rights
Agreement) that could render a hostile takeover prohibitively expensive if the
Board determines that such a takeover is not in the best interests of the
Company. The existence of the shareholder rights plan provisions of the
Virginia Stock Corporation Act, as well as the affiliated transactions
provisions, could delay or prevent a change in control of the Company, impede a
merger, consolidation or other business combination involving the Company or
discourage a potential acquiror from making a tender offer or otherwise
attempting to obtain control of the Company. The Company has elected to "opt
out" of the control share acquisition provisions under Article 14.1 of the
Virginia Stock Corporation Act, which prohibits significant shareholders who
acquire specific amounts of Company Common Stock from voting certain shares of
Company Common Stock so acquired without obtaining the affirmative vote of a
majority of the shares of Company Common Stock held by persons other than such a
shareholder or officers and certain directors of the Company. As a result of
this election, a purchaser of Company Common Stock in a "control share
acquisition" will not have the right to cause a special meeting of shareholders
to be convened for the purpose of considering whether to grant voting rights
otherwise prohibited by the Virginia Stock Corporation Act to such an acquiring
shareholder.
76
<PAGE>
RIGHTS PLAN
The Company declared a dividend of one Right for each share of Company
Common Stock to the holders of record at the close of business on ________ __,
1999, and has approved the issuance of additional Rights with respect to Company
Common Stock issued thereafter and before the occurrence of certain change-of-
control events. Each Right, when it becomes exercisable as described below,
will entitle the registered holder to purchase from the Company one-thousandth
(1/1000) of a share of Series A Participating Cumulative Preferred Stock, par
value $1 per share, of the Company ("Preferred Shares") or, under certain
circumstances, Company Common Stock or other securities of the Company at a
price of $__ (the "Purchase Price"). The description and terms of the Rights
are set forth in a Rights Agreement dated as of __________ __, 1999 (the "Rights
Agreement"), between the Company and ________, as Rights Agent.
Until the earlier of (a) such time as the Company learns that a person or
group (including any affiliate or associate of such person or group) has
acquired, or has obtained the right to acquire, beneficial ownership of 15% or
more of the outstanding Company Common Stock (an "Acquiring Person"), unless
provisions preventing accidental triggering of the Rights apply, and (b) the
close of business on such date, if any, as may be designated by the Board
following the commencement of, or first public disclosure of an intent to
commence, a tender or exchange offer by any person (other than the Company, its
subsidiaries or benefit plans) for 15% of the outstanding Company Common Stock,
if upon consummation of such tender or exchange offer such person could be the
beneficial owner of more than 15% of the outstanding Company Common Stock, the
Rights will be evidenced by ownership of the Company Common Stock and will be
transferred only with the Company Common Stock.
The Rights will expire on ________ __, 2009 (the "Expiration Date"), unless
earlier redeemed by the Company as described below.
Upon a person becoming an Acquiring Person, the Rights Agreement provides
that proper provision will be made so that each Right (other than Rights that
are beneficially owned by an Acquiring Person or an affiliate or associate of an
Acquiring Person) will entitle its holder to purchase, for the Purchase Price, a
number of Preferred Shares having a market value at the time of the transaction
equal to two times the Purchase Price. The number of Preferred Shares or other
securities issuable upon exercise of the Rights is subject to adjustment from
time to time in the event of any change in the Company Common Stock or the
Preferred Shares.
In the event the Company is acquired in a merger or other business
combination by an Acquiring Person or an associate or affiliate of an Acquiring
Person that is a publicly traded corporation or 50% or more of the Company's
assets or assets representing 50% or more of the Company's revenues or cash flow
are sold, leased, exchanged or otherwise transferred (in one or more
transactions) to an Acquiring Person or an associate or affiliate of an
Acquiring Person that is a publicly traded corporation, each Right (other than
Rights that are beneficially owned by an Acquiring Person or any affiliate or
associate of an Acquiring Person) will entitle its holder to purchase, for the
Purchase Price, that number of common shares of such corporation which at the
time of the transaction would have a market value of twice the Purchase Price.
In the event the Company is acquired in a merger or other business combination
by an Acquiring Person or an associate or affiliate of an
77
<PAGE>
Acquiring Person that is not a publicly traded entity or 50% or more of the
Company's assets or assets representing 50% or more of the Company's revenues or
cash flow are sold, leased, exchanged or otherwise transferred (in one or more
transactions) to an Acquiring Person or an associate or affiliate of an
Acquiring Person that is not a publicly traded entity, each Right (other than
Rights that are beneficially owned by an Acquiring Person or any affiliate or
associate of an Acquiring Person) will entitle its holder to purchase, for the
Purchase Price, at such holder's option, (a) that number of shares of the
surviving corporation in the transaction with such entity (which surviving
corporation could be the Company) which at the time of the transaction would
have a book value of twice the Purchase Price, (b) that number of shares of such
entity which at the time of the transaction would have a book value of twice the
Purchase Price or (c) if such entity has an affiliate which has publicly traded
common shares, that number of common shares of such affiliate which at the time
of the transaction would have a market value of twice the Purchase Price.
At any time prior to the earlier of (a) such time as a person or group
becomes an Acquiring Person and (b) the Expiration Date, the Board may redeem
the Rights in whole, but not in part, at a price of $0.01 per Rights (subject to
adjustment as provided in the Rights Agreement).
Until a Right is exercised, the holder thereof, as such, will have no
rights as a shareholder of the Company, including, without limitation, the right
to vote or to receive dividends.
LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Virginia Stock Corporation Act permits, and the Company's Articles
require, indemnification of the Company's directors, officers, and employees in
a variety of circumstances. Under Section 13.1-697 and 13.1-704 of the Virginia
Stock Corporation Act, a Virginia corporation generally is authorized to
indemnify its directors, officers, and employees in civil or criminal actions if
such persons acted in good faith and believed their conduct to be in the best
interests of the corporation and, in the case of criminal actions, had no
reasonable cause to believe that their conduct was unlawful. The Company's
Articles require indemnification of directors, officers and employees with
respect to certain liabilities, expenses, and other amounts imposed upon such
persons by reason of having been directors, officers or employees unless such
persons engaged in willful misconduct or knowing violation of the criminal law.
Also, Section 13.1-692.1 of the Virginia Stock Corporation Act permits a
Virginia corporation to limit or totally eliminate the liability of a director
or officer in a shareholder or derivative proceeding under certain circumstances
and the Company's Articles contain a provision intended to eliminate such
liability.
Directors and officers of the Company are insured, subject to policy limits
and certain exclusions and limitations and to the extent not otherwise
indemnified by the Company, against loss (including expenses incurred in the
defense of actions, suits and proceedings in connection therewith) arising from
any error, misstatement, misleading statement, omission or other act made or
performed in their capacity as directors and officers. The policies also
reimburse the Company for liability incurred in the indemnification of its
directors and officers under common or statutory laws or the Company's Articles,
subject to the terms, conditions and exclusions of the policy. In addition,
directors and officers and other employees of the Company who may be
"fiduciaries" as that term is used in the Employee Retirement Income Security
Act of 1974, are insured with respect to liabilities under such Act.
78
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement under
the Exchange Act with respect to the Shares being issued in the Distribution.
This Information Statement does not contain all of the information set forth in
the Registration Statement and the exhibits thereto, to which reference is
hereby made. Statements made in this Information Statement as to the contents
of any contract, agreement or other document referred to herein are summaries
only and are not necessarily complete. With respect to each such contract,
agreement or other document filed as an exhibit to the Registration Statement,
reference is made to such exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference. The Registration Statement and the exhibits thereto filed by
the Company with the Commission may be inspected at the public reference
facilities of the Commission listed below.
After the Distribution, the Company will be subject to the informational
requirements of the Exchange Act, and in accordance therewith will file reports,
proxy statements and other information with the Commission. Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at its principal offices at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the Regional
Offices of the Commission at Seven World Trade Center, Suite 1300, New York, New
York 10048 and in the Citicorp Center, Suite 1400, 500 West Madison Street,
Chicago, Illinois 60661. Copies of such information may be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. The Commission also maintains a
World Wide Web site (http: //www.sec.gov) that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. In addition, it is expected that reports,
proxy statements and other information concerning the Company will be available
for inspection at the offices of the New York Stock Exchange, Inc., 20 Broad
Street, New York, New York 10005.
The Company intends to furnish holders of the Company's shares with annual
reports containing consolidated financial statements (beginning with the year
ending December 31, 1998) audited by independent accountants.
_______________
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS INFORMATION STATEMENT, AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED. NEITHER THE DELIVERY OF THIS INFORMATION STATEMENT NOR
ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL IMPLY THAT THERE HAS BEEN NO
CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF.
79
<PAGE>
INDEX TO COMBINED FINANCIAL STATEMENTS
Page
Independent Auditors' Report F-2
Combined Balance Sheets as of September 30, 1998 (unaudited) and
as of December 31, 1997 and 1996 F-3
Combined Statements of Income for the Nine Months Ended
September 30, 1998 and 1997 (unaudited) and for the
Years Ended December 31, 1997, 1996, and 1995 F-4
Combined Statements of Cash Flow for the Nine Months Ended
September 30, 1998 and 1997 (unaudited) and for the
Years Ended December 31, 1997, 1996, and 1995 F-5
Combined Statements of Equity and Comprehensive Income for
the Nine Months Ended September 30, 1998 and 1997
(unaudited) and for the Years Ended December 31, 1997,
1996 and 1995 F-6
Notes to Combined Financial Statements F-7
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors of Olin Corporation:
We have audited the accompanying combined balance sheets of Arch Chemicals, Inc.
as of December 31, 1997 and 1996, and the related combined statements of income,
equity and comprehensive income and cash flows for each of the years in the
three-year period ended December 31, 1997. These combined financial statements
are the responsibility of the company's management. Our responsibility is to
express an opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Arch Chemicals, Inc.
as of December 31, 1997 and 1996, and the results of their operations and their
cash flows for each of the years in the three-year period ended December 31,
1997, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Stamford, Connecticut
November 2, 1998
F-2
<PAGE>
Arch Chemicals, Inc.
Combined Balance Sheets
Unaudited December 31,
September 30, -----------------
1998 1997 1996
-------- -------- --------
($ in millions)
Assets
- ------
Current Assets:
Cash $ 5.5 $ 9.0 $ 5.5
Receivables, net:
Trade 141.1 142.2 128.1
Other 19.7 19.4 23.6
Inventories, net 121.1 139.1 129.6
Other Current Assets 23.5 24.4 24.1
-------- -------- --------
Total Current Assets 310.9 334.1 310.9
Investments & Advances - Affiliated
Companies at Equity 19.9 21.1 20.3
Property, Plant and Equipment, net 305.1 280.4 257.3
Goodwill 35.4 35.2 37.1
Other Assets 19.9 22.4 25.6
-------- -------- --------
Total Assets $ 691.2 $ 693.2 $ 651.2
======== ======== ========
Liabilities and Equity
- ----------------------
Current Liabilities:
Short - Term Borrowings $ 0.3 $ 1.4 $ 1.8
Accounts Payable 101.9 118.2 130.5
Accrued Liabilities 65.3 63.0 53.7
-------- -------- --------
Total Current Liabilities 167.5 182.6 186.0
Long - Term Debt 5.5 5.5 5.5
Other Liabilities 44.7 49.5 30.1
-------- -------- --------
Total Liabilities 217.7 237.6 221.6
Commitments & Contingencies
Cumulative Translation Adjustment (14.1) (16.2) (7.3)
Equity 487.6 471.8 436.9
-------- -------- --------
Total Liabilities and Equity $ 691.2 $ 693.2 $ 651.2
======== ======== ========
See accompanying notes to the combined financial statements
F-3
<PAGE>
Arch Chemicals, Inc.
Combined Statements of Income
Unaudited
Nine Months Ended
September 30, Years Ended December 31,
------------------ -------------------------
1998 1997 1997 1996 1995
------- ------- ------- ------- ------
($ in millions)
Sales $694.4 $728.1 $929.9 $913.5 $872.8
Operating Expenses:
Cost of Goods Sold 493.7 525.8 676.3 647.8 659.6
Selling and Administration 127.9 118.3 153.5 159.0 141.1
Research and Development 13.1 15.5 21.1 21.0 17.4
------- ------- ------- ------- ------
Operating Income 59.7 68.5 79.0 85.7 54.7
Interest Income, net 0.3 0.2 0.1 0.8 --
Other Income 2.8 5.0 7.1 7.6 12.6
------- ------- ------- ------- ------
Income Before Taxes 62.8 73.7 86.2 94.1 67.3
Income Taxes 21.4 25.6 29.9 33.0 23.4
------- ------- ------- ------- ------
Net Income $ 41.4 $ 48.1 $ 56.3 $ 61.1 $ 43.9
======= ======= ======= ======= ======
See accompanying notes to the combined financial statements
F-4
<PAGE>
Arch Chemicals, Inc.
Combined Statements of Cash Flows
Unaudited
Nine Months Ended
September 30, Years Ended December 31,
----------------- ---------------------------
1998 1997 1997 1996 1995
------ ------ ------ ------ ------
($ in millions)
Operating Activities
- ---------------------
Net Income $41.4 $48.1 $56.3 $61.1 $43.9
Adjustments to Reconcile
Net Income to Net Cash
and Cash Equivalents
Provided (Used) by
Operating Activities:
Earnings of Non-consol-
idated Affiliates (2.8) (5.0) (7.1) (7.6) (5.6)
Depreciation 31.4 32.4 43.6 40.2 41.4
Amortization of
Intangibles 2.9 2.8 3.8 4.0 2.2
Deferred Taxes 5.5 (3.9) (5.2) 4.3 (7.6)
Gain on Disposition
of Business -- -- -- -- (7.0)
Change in Assets and
Liabilities Net of
Purchases and Sales
of Businesses:
Receivables (0.6) (33.5) (13.7) (6.5) 8.6
Inventories 17.6 (0.9) (14.9) (27.8) (0.6)
Other Current Assets 0.9 2.0 0.7 3.4 (2.6)
Accounts Payable
& Accrued Liabilities (14.8) (16.1) (8.4) 35.1 (4.2)
Noncurrent Liabilities (6.1) (1.3) 17.4 (14.1) 1.4
Other Operating Activities 0.3 6.2 11.0 (6.0) (2.4)
------ ------ ------ ------ ------
Net Operating Activities 75.7 30.8 83.5 86.1 67.5
------ ------ ------ ------ ------
Investing Activities
- ----------------------
Capital Expenditures (52.2) (43.0) (71.0) (53.2) (65.4)
Business Acquired in Purchase
Transactions -- -- -- -- (64.6)
Proceeds from Sales of
Businesses -- -- 12.0 5.5 48.7
Investments and Advances -
Affiliated Companies at Equity -- -- (0.2) 1.2 1.3
Other Investing Activities (2.5) (0.1) (0.2) (2.9) (0.8)
------ ------ ------ ------ ------
Net Investing Activities (54.7) (43.1) (59.4) (49.4) (80.8)
------ ------ ------ ------ ------
Financing Activities
- -----------------------
Short-Term Debt Borrowings
(Repayments) (1.0) (1.2) (0.2) 1.7 (22.5)
Net Intercompany Activity (25.6) 6.4 (21.4) (38.7) 38.9
------ ------ ------ ------ ------
Net Financing Activities (26.6) 5.2 (21.6) (37.0) 16.4
------ ------ ------ ------ ------
Effect of Exchange Rate
Changes on Cash and Cash
Equivalents 2.1 5.4 1.0 -- (2.6)
------ ------ ------ ------ ------
Net Increase (Decrease) in
Cash and Cash Equivalents (3.5) (1.7) 3.5 (0.3) 0.5
Cash and Cash Equivalents,
Beginning of Period 9.0 5.5 5.5 5.8 5.3
------ ------ ------ ------ ------
Cash and Cash Equivalents,
End of Period $5.5 $3.8 $9.0 $5.5 $5.8
====== ====== ====== ====== ======
See accompanying notes to the combined financial statements
F-5
<PAGE>
Arch Chemicals, Inc.
Combined Statements of Equity and Comprehensive Income
Cumulative
Translation Comprehensive
Equity Adjustment Income
------ ----------- -------------
($ in millions)
Years Ended December 31,
- --------------------------
Balance at January 1, 1995 $ 331.7 $ (2.5)
Net Income 43.9 $ 43.9
Translation Adjustment (0.6) (0.6)
Net Intercompany Activity 38.9 --------
Comprehensive Income $ 43.3
-------- -------- ========
Balance at December 31, 1995 414.5 (3.1)
Net Income 61.1 $ 61.1
Translation Adjustment (4.2) (4.2)
Net Intercompany Activity (38.7) --------
Comprehensive Income $ 56.9
-------- -------- ========
Balance at December 31, 1996 436.9 (7.3)
Net Income 56.3 $ 56.3
Translation Adjustment (8.9) (8.9)
Net Intercompany Activity (21.4) --------
Comprehensive Income $ 47.4
-------- -------- ========
Balance at December 31, 1997 $ 471.8 $(16.2)
======== ========
Nine Months Ended September 30, (Unaudited)
- -------------------------------------------
Balance at January 1, 1997 $ 436.9 $ (7.3)
Net Income 48.1 $ 48.1
Translation Adjustment (6.5) (6.5)
Net Intercompany Activity 6.4 --------
Comprehensive Income $ 41.6
-------- -------- ========
Balance at September 30, 1997 $ 491.4 $(13.8)
======== ========
Balance at January 1, 1998 $ 471.8 $(16.2)
Net Income 41.4 $ 41.4
Translation Adjustment 2.1 2.1
Net Intercompany Activity (25.6) --------
Comprehensive Income $ 43.5
-------- -------- ========
Balance at September 30, 1998 $ 487.6 $(14.1)
======== ========
See accompanying notes to the combined financial statements
F-6
<PAGE>
Arch Chemicals, Inc.
Notes to Combined Financial Statements
($ in millions)
Olin Corporation's Proposed Distribution of Arch Chemicals, Inc.
On July 29, 1998 the Board of Directors of Olin Corporation ("Olin")
approved in principle a plan to distribute all of the outstanding shares of
Arch Chemicals, Inc. (the "Company") to shareholders on a date to be
determined (the "Distribution"). The Company will own the assets and assume
the liabilities of Olin's Specialty Chemicals businesses. The anticipated
Distribution will result in the Company operating as a free standing
corporation whose common shares will be publicly traded. Olin expects the
Distribution to be completed by the end of the first quarter of 1999, after
the appropriate approvals of third parties and the receipt of an opinion of
its counsel that the receipt of the Company shares by Olin shareholders
will be tax-free, and that no gain or loss with respect to the Company
shares will be recognized by Olin on the Distribution.
Prior to the Distribution, it is anticipated that the Company will succeed
to a credit facility established by Olin which is intended to provide
sufficient liquidity for the Company's current funding needs. The Company
expects that the credit facility will have a five-year term.
Olin and the Company will enter into a Tax Sharing Agreement providing that
Olin will be responsible for the Federal tax liability of the Company for
each year that the Company and its subsidiaries were included in Olin's
consolidated Federal income tax return, and for state, local and foreign
taxes of the Company and its subsidiaries attributable to periods prior to
the Distribution, in each case including tax subsequently assessed pursuant
to the audit of, or other adjustment to, previously filed tax returns.
Olin and the Company will enter into a Chlor-alkali Supply Agreement
providing for the supply by Olin of chlorine and caustic soda subsequent to
the Distribution. Olin and the Company will also enter into a Charleston
Service Agreement pursuant to which the Company and Olin will provide each
other with various services at the Charleston, Tennessee plant site. The
terms of these agreements are consistent with the amounts included in the
historical financial statements.
Accounting Policies
The preparation of the combined financial statements requires estimates and
assumptions that affect amounts reported and disclosed in the financial
statements and related notes. Actual results could differ from those
estimates.
Basis of Presentation
The Company is a business unit of Olin consisting of the Specialty
Chemicals Division. The Company has organized its segments around
differences in products and services, which is how the Company manages its
business.
The microelectronic chemicals segment supplies a range of products and
services to semiconductor manufacturers and flat panel display
manufacturers. These include a variety of high purity acids, bases,
oxidizers, etchants, solvents, photoresists, polyimides and ancillary
F-7
<PAGE>
Arch Chemicals, Inc.
Notes to Combined Financial Statements
($ in millions)
products. The water chemicals segment manufactures and sells chemicals and
distributes equipment for the santization and recreational use of residential
and commercial pool water and the purification of potable water. The performance
chemicals segment manufactures and sells a broad range of products with diverse
end uses. Performance Chemicals are characterized by technology driven
product solutions that benefit specific customers and provide manufacturing
flexibility. The products include flexible and specialty polyols, glycols and
glycol ethers, pyrithione-based and IPBC-based biocides, hydrazine hydrates and
propellants and virgin and regenerated sulfuric acid.
The accompanying combined financial statements, which have been prepared as if
the Company had operated as a separate stand-alone entity for all periods
presented except as discussed in the following paragraph and, include only those
assets, liabilities, revenues and expenses attributable to the Company's
operations. The combined financial statements include the accounts of the
Company and certain majority-owned subsidiaries of Olin which will become
subsidiaries of the Company prior to the Distribution. Intercompany balances and
transactions between entities included in these financial statements have been
eliminated. Investments in 20-50% owned affiliates of Olin which will become
investments of the Company prior to the Distribution are accounted for on the
equity method. Accordingly, the Company's share of earnings or losses of these
affiliates is included in other income in the combined statements of income.
See Exhibit 21 to the Form 10 for a listing of the subsidiaries and affiliates
of the Company.
The combined financial statements do not include an allocation of Olin's
consolidated debt and interest expense. An assessment of corporate overhead is
included in selling and administration expenses with the allocation based on
either effort committed or number of employees. Management believes that the
allocation methods used to allocate the costs and expenses are reasonable,
however, such allocated amounts may or may not necessarily be indicative of what
selling and administration expenses would have been if the Company operated
independently of Olin. It is anticipated that when the Company becomes a
separate public company administration expenses will increase by approximately
$4.0 (unaudited) per year as a result of additional financial reporting
requirements, stock transfer fees, directors' fees, insurance and executive
compensation and benefits.
Foreign Currency Translation
Foreign affiliate balance sheet amounts are translated at the exchange rates in
effect at year-end, and income statement and cash flow amounts are translated at
the average rates of exchange prevailing during the year. Translation
adjustments are recorded as a component of equity. Where foreign affiliates
operate in highly inflationary economies non-monetary amounts are translated at
historical exchange rates while monetary assets and liabilities are translated
at the current rate with the related adjustments reflected in the combined
statements of income.
F-8
<PAGE>
Arch Chemicals, Inc.
Notes to Combined Financial Statements
($ in millions)
Cash and Cash Equivalents
All highly liquid investments with a maturity of three months or less at
the date of purchase are considered to be cash equivalents.
U.S. Government Contracts
The Company has entered into a contract with the United States Department
of the Air Force to supply hydrazine based propellant. It is a one year
contract with four one year renewal options beginning January 1, 1995 and
expiring on December 31, 1999. The contract consists of a fixed priced
facility usage fee and a product purchase arrangement whereby the Company
supplies product at a fixed price per pound of product purchased adjusted
annually for agreed upon cost escalations. In 1997, 1996 and 1995 the
Company's sales include $20.2, $19.3, and $18.6 related to these
agreements.
Inventories
Inventories are stated at the lower of cost or net realizable value.
Certain inventories are included in a larger pool of Olin inventories
valued by the dollar value last-in, first-out (LIFO) method of inventory
accounting. The allocation of LIFO reserves is determined by the Company's
percentage share of the related inventory pool (based on first-in,
first-out). Costs for other inventories have been determined principally by
the first-in, first-out (FIFO) method. Elements of costs in inventories
include raw materials, direct labor and manufacturing overhead.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Depreciation is
computed on a straight-line basis over the following estimated useful
lives:
Improvements to land 10 to 20 years
Building and building equipment 10 to 25 years
Machinery and equipment 3 to 12 years
Leasehold improvements are amortized over the term of the lease or the
estimated useful life of the improvement, whichever is less. Start-up costs
are expensed as incurred.
Comprehensive Income
As of January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income," which established standards for the reporting and
display of comprehensive income and its components in the financial
statements. The Company does not provide for U.S. income taxes on foreign
currency translation adjustments since it does not provide for such taxes
on undistributed earnings of foreign subsidiaries.
Goodwill
Goodwill, the excess of the purchase price of the acquired businesses over
the fair value of the respective net assets, is amortized principally over
30 years on a straight-line basis.
F-9
<PAGE>
Arch Chemicals, Inc.
Notes to Combined Financial Statements
($ in millions)
Accumulated amortization was $20.9, $19.4 and $17.3 at September 30, 1998,
December 31, 1997 and 1996, respectively. The Company periodically reviews the
value of its goodwill to determine if any impairment has occurred. The Company
assesses the potential impairment of recorded goodwill and other long-lived
assets by comparing the undiscounted value of the related expected future
operating cash flows to the net book value of the goodwill. An impairment would
be recorded based on the estimated fair value. Other intangibles, which consist
primarily of patents, trademarks, and various technology licensing agreements,
are amortized on a straight-line basis principally over 3 to 15 years.
Environmental Liabilities and Expenditures
Accruals for environmental matters are recorded when it is probable that a
liability has been incurred and the amount of the liability can be reasonably
estimated, based upon current law and existing technologies. These amounts,
which are not discounted and are exclusive of claims against third parties, are
adjusted periodically as assessment and remediation efforts progress or
additional technical or legal information becomes available. Environmental
remediation costs are charged to expense. Environmental costs are capitalized if
the costs increase the value of the property and /or mitigate or prevent
contamination from future operations.
Income Taxes
Prior to the Distribution, the Company's operations are included in the U.S.
federal consolidated tax returns of Olin. The provision for income taxes
includes the Company's allocated share of Olin's consolidated income tax
provision and is calculated on a separate company basis pursuant to the
requirements of Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes." Allocated income taxes payable are reflected herein as being
settled with Olin on a current basis. Deferred taxes are provided for
differences between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
Derivative Financial Instruments
The Company enters into forward sales and purchase contracts and currency
options to manage currency risk resulting from purchase and sale commitments
denominated in foreign currencies (principally Belgian franc, Canadian dollar,
Irish punt and Japanese yen) and relating to particular anticipated but not yet
committed purchases and sales expected to be denominated in those currencies.
All of the currency derivatives expire within one year and are for United States
dollar equivalents. At December 31, 1997, the Company had forward contracts to
sell foreign currencies with face values of $4.1 (1996-$22.4) and forward
contracts to buy foreign currencies with face values of $5.1 (1996-$23.3). The
fair market value of these forward contracts to sell were $4.0 and $22.2 at
December 31, 1997 and 1996, respectively. The fair market value of the forward
contracts to buy were $4.9 and $23.2 at December 31, 1997 and 1996,
respectively. At
F-10
<PAGE>
Arch Chemicals, Inc.
Notes to Combined Financial Statements
($ in millions)
December 31, 1996, the Company had outstanding option contracts to sell
foreign currencies with face values of $6.4 and to buy foreign currencies
with face values of $14.7. The fair market value of these contracts was
$6.3 and $15.2, respectively, at December 31, 1996. The counterparties to
the options and contracts are major financial institutions. The risk of
loss to the Company in the event of nonperformance by a counterparty is not
significant.
In accordance with Statement of Financial Accounting Standards No. 52,
"Foreign Currency Translation" ("SFAS 52"), a transaction is classified as
a hedge when the foreign currency is designated as, and is effective as, a
hedge of a foreign currency commitment and the foreign currency commitment
is firm. A hedge is considered by the Company to be effective when the
transaction reduces the currency risk on its foreign currency commitments.
If a transaction does not meet the criteria to qualify as a hedge, it is
considered to be speculative. For a foreign currency commitment that is
classified as a hedge, any gain or loss on the commitment is deferred and
included in the basis of the underlying instrument. Any realized and
unrealized gains or losses associated with foreign currency commitments
that are classified as speculative are recognized in the current period and
are included in selling and administration in the combined statements of
income. If a foreign currency transaction previously considered as a hedge
is terminated before the transaction date of the related commitment, any
deferred gain or loss shall continue to be deferred and included in the
basis of the underlying instrument. Premiums paid for currency options and
gains or losses on forward sales and purchase contracts are not material to
operating results.
Foreign currency exchange gains (losses), net of taxes, were $.5 in 1997,
$(3.3) in 1996, and $(.8) in 1995.
Financial Instruments
The carrying values of cash and cash equivalents, accounts receivable and
accounts payable approximated fair values due to the short-term maturities
of these instruments. The fair value of the Company's long-term debt was
determined based on current market rates for debt of the same risk and
maturities. The fair values of currency forward and option contracts were
estimated based on quoted market prices for contracts with similar terms.
Stock-Based Compensation
As allowed under SFAS No. 123, the Company will make the appropriate
disclosures required under SFAS No. 123 and account for stock based
compensation cost in accordance with Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees." Under this option,
compensation cost is recorded when the fair market value of the Company's
stock at the date of grant for fixed options exceeds the exercise price of
the stock option. Olin's policy was to grant stock options with an exercise
price equal to its common stock fair value on the date of grant.
Accordingly, there are no charges reflected herein for stock options
granted to employees. Compensation cost for restricted stock awards is
accrued over the life of the award based on the quoted market price of the
Company's stock at the date of the award. Prior to the
F-11
<PAGE>
Arch Chemicals, Inc.
Notes to Combined Financial Statements
($ in millions)
Distribution, certain employees of the Company received restricted stock unit
awards under Olin's stock-based compensation plans. The cost associated with the
employees participating in these plans is included in the combined statements of
income and is not material to operating results.
Interim Financial Statements(Unaudited)
In the opinion of management, the information furnished in the unaudited interim
combined financial statements reflects all adjustments necessary for a fair
presentation of the financial position and results of operations as of September
30, 1998 and the nine month periods ended September 30, 1998 and 1997. The
unaudited interim combined financial statements have been prepared in accordance
with the instructions to Form 10-Q and therefore do not include some information
and notes necessary to conform with the annual reporting requirements.
Due to the fact that approximately 40% of the sales in the water chemicals
business occur in the second calendar quarter of the year, the results of the
Company's operations for the nine month's ended September 30, 1998 and 1997 may
not be indicative of the Company's full year results.
Trade Receivables
Allowance for doubtful accounts was $4.4 and $4.3 at December 31, 1997 and 1996,
respectively. Provision for doubtful accounts charged to operations was $.4, $0
and $1.4 in 1997, 1996 and 1995, respectively. Bad debt write-offs, net of
recoveries, amounted to $.3, $1.3 and $.5 in 1997, 1996 and 1995, respectively.
Inventories
Unaudited December 31,
September 30, ---------------------------
1998 1997 1996
------------- ----------- ------------
Raw materials and supplies $43.8 $48.2 $44.7
Work-in-Progress 18.5 13.1 17.2
Finished goods 113.1 129.4 122.6
------------- ----------- ------------
Inventories, gross 175.4 190.7 184.5
LIFO reserves (54.3) (51.6) (54.9)
------------- ----------- ------------
Inventories, net $121.1 $139.1 $129.6
============= =========== ============
Inventory valued using the LIFO method comprised 62% of the total inventory
at September 30, 1998, 64% at December 31, 1997 and 60% at December 31,
1996. Gross inventory values approximate replacement cost.
F-12
<PAGE>
Arch Chemicals, Inc.
Notes to Combined Financial Statements
($ in millions)
Property, Plant and Equipment
Unaudited December 31,
September 30, -------------------------
1998 1997 1996
------- ------- -------
Land and improvements to land $31.8 $31.8 $32.7
Building and building equipment 117.6 110.0 110.0
Machinery and equipment 576.5 576.5 535.0
Leasehold improvements 4.5 4.4 4.1
Construction-in-progress 90.9 57.3 44.7
------- ------- -------
Property, plant and equipment 821.3 780.0 726.5
Less accumulated depreciation 516.2 499.6 469.2
------- ------- -------
Property, plant and equipment, net $305.1 $280.4 $257.3
======= ======= =======
Leased assets capitalized and included above are not significant. Maintenance
and repairs charged to operations amounted to $37.9, $34.6 and $37.6 in 1997,
1996 and 1995, respectively.
Short-Term Borrowings
Prior to the Distribution, it is anticipated that the Company will succeed to a
credit facility established by Olin which is intended to provide sufficient
liquidity for the Company's current funding needs. The Company expects that the
credit facility will have a five year term.
Long-Term Debt
The financial statements include a $5.5 note floating with LIBOR which is due in
monthly installments of $.05 commencing April 1, 1999 through 2009. The fair
value of the Company's long-term debt was $4.4 at December 31, 1997 and 1996.
Pension Plans and Retirement Benefits
Virtually all U.S. employees of the Company are participants in one of several
Olin pension benefit plans covering employees of other Olin businesses. Costs
and expenses include accruals for pensions and post retirement medical and death
benefits.
Following the Distribution, the Company will establish a defined benefit pension
plan for Company employees that will provide benefits based on service with Olin
and with the Company. The Company will become liable for the payment of all
pension plan benefits earned by Company employees prior to and following the
Distribution who retire after the Distribution. Olin will transfer assets to the
Company's pension plan and the amount of the assets will be calculated as
required using the asset allocation methodology set forth in Section 4044 of the
Employee Retirement Income Security Act of 1974, as amended. Olin will remain
liable for post retirement medical and death benefits provided to former
employees of the Company who retire prior to the Distribution. The Company will
adopt a medical and retiree death benefits plan which largely replicates the
Olin retiree benefit program. There will be no assets transferred to
F-13
<PAGE>
Arch Chemicals, Inc.
Notes to Combined Financial Statements
($ in millions)
the Company's plan related to post retirement medical or death benefits.
The following tables reflect the components of net pension costs and the
funded status of the portion of the Olin retirement plans and those of
consolidated subsidiaries, which represent the Company's share.
Components of Net Pension Expense
Years Ended December 31,
-------------------------------------
1997 1996 1995
------- ------- -------
Service cost (benefits earned
during the period) $6.1 $5.8 $3.9
Interest cost on the projected
benefit obligation 4.6 4.2 3.2
Actual return on assets (5.8) (5.3) (4.8)
Net amortization of unrecognized
transition asset, prior service
cost and deferred gains and losses .2 .2 .2
------- ------- -------
Net pension expense $5.1 $4.9 $2.5
======= ======= =======
Principal Assumptions
Weighted average discount rate 7.25% 8.0% 7.5%
Weighted average rate of
increase compensation 4.5% 4.5% 4.5%
Long-term rate of return on assets 9.5% 9.5% 9.5%
Funded Status of the Plans
December 31,
--------------------------
1997 1996
------- -------
Accumulated benefit obligation including
vested benefits of $52.9 and $39.3 $64.5 $46.5
------- -------
Plan assets at fair value, primarily
equity fixed-income securities $73.4 $62.6
Projected benefit obligation for
service rendered to date 81.0 58.8
------- -------
Assets over (under) projected benefit
obligation (7.6) 3.8
Unrecognized net transition asset (1.6) (2.1)
Unrecognized gain (3.0) (14.5)
Unrecognized prior service cost 5.5 6.2
------- -------
Net pension liability $(6.7) $(6.6)
======= =======
The Company's foreign subsidiaries maintain pension and other benefit plans
which are consistent with statutory practices and are not significant.
F-14
<PAGE>
Arch Chemicals, Inc.
Notes to Combined Financial Statements
($ in millions)
The Company provides certain post retirement health care and life insurance
benefits for eligible active employees.
Components of Post Retirement Expense
Years Ended December 31,
-----------------------------------
1997 1996 1995
------- ------- -------
Service costs-benefits earned
during year $.4 $.5 $.4
Interest cost on accumulated
post retirement benefit obligation .4 .3 .3
Net amortization of unrecognized prior
service cost and deferred gains and
losses (.1) (.1) (.1)
------- ------- -------
Net post retirement expense $.7 $.7 $.6
======= ======= =======
Unfunded Liability for Post Retirement Benefits
December 31,
--------------------------
1997 1996
------- -------
Accumulated post retirement benefit
obligation:
Fully eligible active plan
participants $3.2 $2.6
Other active participants 3.2 2.3
------- -------
Cumulative accumulated post
retirement benefit obligation 6.4 4.9
Unrecognized loss (.9) (.3)
Unrecognized prior service cost .5 .6
------- -------
Net post retirement benefit liability $6.0 $5.2
======= =======
The accumulated postretirement benefit obligation was determined using the
projected unit credit method and an assumed discount rate of 7.25% in 1997,
8% in 1996 and 7.5% in 1995. The assumed health care cost trend rate used
for pre-65 retirees was 9.7% in 1997, 11% in 1996 and 12.5% in 1995,
declining one-half percent per annum to 5.5%. For post-65 retirees the
Company provides a fixed dollar benefit which is not subject to escalation.
A one percent increase each year in the health care cost trend rate used
would have resulted in a $.1 increase in the aggregate service and interest
components of expense for the year 1997, and a $.4 increase in the
accumulated postretirement benefit obligation at December 31, 1997.
F-15
<PAGE>
Arch Chemicals, Inc.
Notes to Combined Financial Statements
($ in millions)
Accrued and Non-Current Liabilities
Included in accrued liabilities are the following items:
December 31,
----------------------------
1997 1996
------- -------
Deferred income $10.4 $1.3
Other 52.6 52.4
------- -------
Total accrued liabilities $63.0 $53.7
======= =======
Included in other non-current liabilities are the following items:
December 31,
----------------------------
1997 1996
------- -------
Deferred income $20.9 $3.0
Other 28.6 27.1
------- -------
Total other non-current liabilities $49.5 $30.1
======= =======
Deferred income relates primarily to a prepayment under a three-year supply
agreement entered into in 1997 in connection with the sale of the surfactants
business to BASF.
Income Taxes
Components of Pretax Income
Years Ended December 31,
--------------------------------------
1997 1996 1995
------- ------- -------
Domestic $64.4 $62.6 $38.3
Foreign 21.8 31.5 29.0
------- ------- -------
Pretax income $86.2 $94.1 $67.3
======= ======= =======
Components of Income Tax Expense
Currently payable:
Federal $20.5 $12.7 $16.1
State 6.8 4.7 5.9
Foreign 7.8 11.3 9.0
Deferred (5.2) 4.3 (7.6)
------- ------- -------
Income tax expense $29.9 $33.0 $23.4
======= ======= =======
F-16
<PAGE>
Arch Chemicals, Inc.
Notes to Combined Financial Statements
($ in millions)
The following table accounts for the difference between the actual tax
provision and the amounts obtained by applying the statutory U.S. federal
income tax rate of 35% to the income before taxes.
Effective Tax Rate Reconciliation (Percent)
Years Ended December 31,
-----------------------------------
1997 1996 1995
------- ------- -------
Statutory federal tax rate 35.0 35.0 35.0
Foreign income tax (3.5) (1.7) (1.7)
State income taxes, net 4.2 2.5 2.5
Goodwill .7 .7 .6
Equity in net income of affiliates (1.5) (1.4) (1.8)
Other, net (.2) - .2
------- ------- -------
Effective tax rate 34.7 35.1 34.8
======= ======= =======
Components of Deferred Tax Assets and Liabilities
December 31,
-----------------------
1997 1996
------- -------
Deferred tax assets
Postretirement benefits $5.3 $5.3
Non-deductible reserves 22.3 16.8
Other miscellaneous items 4.5 5.3
------- -------
Total deferred tax asset 32.1 27.4
------- -------
Deferred tax liabilities
Property, plant and equipment 8.5 11.4
Other miscellaneous items 2.4 -
------- -------
Total deferred tax liabilities 10.9 11.4
------- -------
Net deferred tax asset $21.2 $16.0
======= =======
Included in Other Current Assets at December 31, 1997 and 1996, respectively,
are $17.0 and $15.9 of net current deferred assets. Taxable income is expected
to be sufficient to recover the net benefit within the period in which these
differences are expected to reverse and, therefore, no valuation allowance was
established.
At December 31, 1997, the Company's share of the cumulative undistributed
earnings of foreign subsidiaries was approximately $55.8. No provision has been
made for U.S. or additional foreign taxes on the undistributed earnings of
foreign subsidiaries since the Company intends to continue to reinvest these
earnings. Foreign tax credits would be available to substantially reduce or
eliminate any amount of additional U.S. tax that might be payable on these
foreign earnings in the event of distributions or sale.
F-17
<PAGE>
Arch Chemicals, Inc.
Notes to Combined Financial Statements
($ in millions)
Contributing Employee Ownership Plan
Prior to the Distribution, Company employees participated in the Olin
Corporation Contributing Employee Ownership Plan, which is a defined
contribution plan available to essentially all domestic Olin employees and
provides a match of employee contributions. The matching contribution
allocable to the Company employees has been included in costs and expenses
in the accompanying combined statements of income and was $3.1, $2.7 and
$2.5 in 1997, 1996 and 1995, respectively. It is anticipated that the
Company will adopt a similar plan subsequent to the Distribution.
Long-Term Incentive Plan
At the time of the Distribution, stock options issued by Olin will be
converted into both an option to purchase Company common stock ("Company
Options") and an option to purchase Olin common stock ("New Olin Options")
with the same "intrinsic value" at the time of the Distribution as the old
award. The Company will be responsible for delivering shares of Company
common stock upon exercise of Company Options, and Olin will be responsible
for the delivery of shares of Olin Common stock upon exercise of New Olin
Options. Options granted under the Olin 1980 Stock Option Plan to Olin
employees who become Company employees upon the Distribution will terminate
upon the earlier of (i) the end of their term or (ii) two years following
the Distribution. Options granted to such employees under the Olin 1988
Stock Option Plan or the Olin 1996 Stock Option Plan will retain the
original term of the option. Options granted to such employees under the
Olin 1996 Stock Option Plan which are not yet vested at the time of the
Distribution will continue to vest in accordance with their vesting
schedule so long as the optionee remains employed at the Company. As of
December 31, 1997 there were 2,446,463 Olin options outstanding, of which
1,250,358 were exercisable.
It is anticipated that the Company will adopt a long-term incentive plan to
encourage selected salaried employees to acquire a proprietary interest in
the Company's growth and performance and to attract and retain qualified
individuals. The plan will provide for the ability to issue stock options,
restricted stock and restricted stock units, and performance awards.
Shareholder Rights Plan
It is anticipated that the Company will adopt a Shareholder Rights Plan
which is designed to prevent an acquirer from gaining control of the
Company without offering a fair price to all shareholders.
F-18
<PAGE>
Arch Chemicals, Inc.
Notes to Combined Financial Statements
($ in millions)
Segment Information
The Company has adopted SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information." Operating income includes equity income in
affiliated companies.
Unaudited
Nine Months Ended
September 30, Years Ended December 31,
----------------- --------------------------
1998 1997 1997 1996 1995
Sales: ------- ------- ------- ------- -------
Microelectronic Chemicals $176.5 $179.9 $242.6 $232.9 $168.1
Water Chemicals 258.0 253.6 286.9 293.7 304.9
Performance Chemicals 259.9 294.6 400.4 386.9 399.8
------- ------- ------- ------- -------
Total Sales $694.4 $728.1 $929.9 $913.5 $872.8
======= ======= ======= ======= =======
Operating Income (Loss):
Microelectronic Chemicals $(0.6) $9.2 $9.5 $16.9 $21.0
Water Chemicals 21.7 29.8 26.5 24.1 7.9
Performance Chemicals 41.4 34.5 50.1 52.3 31.4
------- ------- ------- ------- -------
Total Operating Income $62.5 $73.5 $86.1 $93.3 $60.3
======= ======= ======= ======= =======
Depreciation Expense:
Microelectronic Chemicals $10.2 $8.7 $13.1 $8.9 $4.4
Water Chemicals 8.7 7.4 10.4 10.1 12.4
Performance Chemicals 12.5 16.3 20.1 21.2 24.6
------- ------- ------- ------- -------
Total Depreciation Expense $31.4 $32.4 $43.6 $40.2 $41.4
======= ======= ======= ======= =======
Amortization Expense:
Microelectronic Chemicals $2.8 $2.8 $3.7 $4.0 $2.2
Water Chemicals 0.1 - 0.1 - -
------- ------- ------- ------- -------
Total Amortization Expense $2.9 $2.8 $3.8 $4.0 $2.2
======= ======= ======= ======= =======
Capital Spending:
Microelectronic Chemicals $33.1 $24.9 $39.8 $22.2 $32.3
Water Chemicals 7.2 12.1 16.2 14.6 20.8
Performance Chemicals 11.9 6.0 15.0 16.4 12.3
------- ------- ------- ------- -------
Total Capital Spending $52.2 $43.0 $71.0 $53.2 $65.4
======= ======= ======= ======= =======
F-19
<PAGE>
Arch Chemicals, Inc.
Notes to Combined Financial Statements
($ in millions)
Unaudited December 31,
September 30, ---------------------
Total Assets: 1998 1997 1996
------- ------- -------
Microelectronic Chemicals $303.5 $286.5 $259.1
Water Chemicals 178.5 182.1 171.0
Performance Chemicals 172.6 171.6 178.2
Other 36.6 53.0 42.9
------- ------- -------
Total Assets $691.2 $693.2 $651.2
======= ======= =======
Investment & Advances -
Affiliated Companies at
Equity:
Microelectronic Chemicals $8.8 $10.0 $9.0
Water Chemicals 11.1 11.1 11.3
------- ------- -------
Total Investment &
Advances - Affiliated
Companies at Equity $19.9 $21.1 $20.3
======= ======= =======
Segment operating income includes the equity in the net income of investees
accounted for by the equity method which is included in other income on the
combined statements of income and does not include interest income or interest
expense. Segment operating income includes an allocation of corporate charges
based on various allocation basis. Segment assets include only those assets
which are directly identifiable to a segment and do not include such items as
cash, deferred taxes and other assets. Sales by segment substantially represent
sales for the three major product lines of the Company.
Years Ended December 31,
-----------------------------------
Sales 1997 1996 1995
------- ------- -------
United States $719.8 $690.6 $673.2
Foreign 210.1 222.9 199.6
Transfers between areas
United States 68.9 57.2 48.1
Foreign 1.9 1.6 2.0
Eliminations (70.8) (58.8) (50.1)
------- ------- -------
Total Sales $929.9 $913.5 $872.8
======= ======= =======
F-20
<PAGE>
Arch Chemicals, Inc.
Notes to Combined Financial Statements
($ in millions)
December 31,
------------------------
Total Assets 1997 1996
------- -------
United States $516.7 $459.7
Foreign 284.2 249.0
Investments 10.9 6.9
Eliminations (118.6) (64.4)
------- -------
Total Assets $693.2 $651.2
======= =======
Transfers between geographic areas are priced generally at prevailing
market prices. Export sales from the United States to unaffiliated
customers were $93.6, $102.4, and $92.8 in 1997, 1996, and 1995,
respectively.
Acquisitions
In 1995, the Company acquired the remaining 50% of OCG Microelectronic
Materials, a joint venture formed by Ciba-Geigy and the Company in 1990,
for approximately $65. In addition, the Company acquired the remaining 51%
of Etoxyl, C.A., a Venezuelan joint venture. The purchase price is
contingent upon future earnings of this venture. These acquisitions were
accounted for as purchases and accordingly, their results of operations,
which were not material, are included in the combined financial statements
from the dates of acquisition.
Supplemental cash flow information on businesses acquired is as follows:
Year Ended
December 31,
1995
-------
Working Capital $39.5
Property, Plant and Equipment 44.6
Other Assets 14.2
Goodwill 16.8
Debt (27.3)
Investments and Advances (23.2)
-------
Purchase Price $64.6
=======
Dispositions
In November 1997, the Company sold its surfactants, fluids, non-urethane
polypropylene glycol and polyethylene glycol businesses to BASF. The
Company will continue to produce certain products for BASF under a
three-year supply agreement.
During 1996 the Company sold its electrostatics business.
F-21
<PAGE>
Arch Chemicals, Inc.
Notes to Combined Financial Statements
($ in millions)
During 1995, the Company sold its dry sanitizer plant in South Charleston,
West Virginia, a related tableting operation in Livonia, Michigan, and Sun
[c] brand of isocyanurates.
Supplemental cash flow information on the businesses sold is as follows:
Years Ended December 31,
-------------------------------------
1997 1996 1995
------- ------- -------
Proceeds $12.0 $5.5 $48.7
Working Capital (9.0) (5.5) (4.0)
PP&E - (2.0) (33.8)
Other Assets (.2) 3.0 3.2
Other Liabilities (2.8) (1.0) (7.1)
------- ------- -------
Gain on Disposition of Business $ - $ - $ 7.0
======= ======= =======
Environmental
Olin and the Company have entered into an agreement which specifies that
the Company is only responsible for environmental liabilities at the
Company's current operating plant sites and certain offsite locations. Olin
will retain the liability for all former plant sites and former waste
disposal sites. In 1997, in connection with the sale of the surfactants
business a $2.3 provision was recorded to provide for future environmental
spending at the Brandenburg, Kentucky site. The combined balance sheets
include reserves for future environmental expenditures to investigate and
remediate known sites amounting to $3.2 at September 30, 1998 and December
31, 1997 and $.9 at December 31, 1996, all of which are classified as other
noncurrent liabilities.
Environmental exposures are difficult to assess for numerous reasons,
including the identification of new sites, developments at sites resulting
from investigatory studies, advances in technology, changes in
environmental laws and regulations and their application, the scarcity of
reliable data pertaining to identified sites, the difficulty in assessing
the involvement and financial capability of other potentially responsible
parties and the Company's ability to obtain contributions from other
parties and the length of time over which site remediation occurs.
Commitments and Contingencies
The Company leases certain properties, such as manufacturing, warehousing
and office space, data processing and office equipment. Leases covering
these properties generally contain escalation clauses based on increased
costs of the lessor, primarily property taxes, maintenance and insurance
and have renewal or purchase options. Total rent expense charged to
operations amounted to $17.4 in 1997, $17.5 in 1996 and $17.8 in 1995
(sublease income is not significant). Future minimum rent payments under
operating leases having initial or remaining noncancelable lease terms in
excess of one year at December 31, 1997 are as follows: $7.8 in 1998; $7.0
in 1999; $5.6 in 2000; $4.3 in 2001; $2.8 in 2002; and $11.9 thereafter.
F-22
<PAGE>
Arch Chemicals, Inc.
Notes to Combined Financial Statements
($ in millions)
There are a variety of non-environmental legal proceedings pending or
threatened against the Company. Those matters that are probable have been
accrued for in the accompanying financial statements. Any contingent
amounts in excess of amounts accrued are not expected to have a material
adverse effect on results of operations, financial position or liquidity of
the Company.
Related Party Transactions
Olin sells chlorine and caustic to the Company which is used primarily in
the production of calcium hypochlorite and chlorinated isocyanurates. These
product purchases aggregated $22.8 in 1997, $23.7 in 1996, and $23.5 in
1995 and are reflected in cost of goods sold on the combined statements of
income for the respective periods. Settlement of these inter-company sales
occurred at the time of shipments by way of the inter-company account.
The Company is charged by Olin for the Company's share of expenses of
certain centralized activities using various allocation bases. These
activities include, but are not limited to, administration of employee
benefit programs, tax compliance, management information systems, treasury,
legal and general corporate functions. Cumulative charges to the Company
for centralized corporate services were $31.8 in 1997, $27.7 in 1996 and
$25.3 in 1995.
Proforma Effect of Borrowings under the Credit Facility (Unaudited)
Prior to the Distribution, the Company will succeed to a Credit Facility
established by Olin. Olin may borrow under the Credit Facility prior to the
Distribution, which liability will be assumed by the Company. Since the
amount of the Credit Facility and related borrowing, if any, has not yet
been determined, no amount of short-term borrowing under this Credit
Facility has been included in the Company's balance sheet for any of the
periods presented in the accompanying financial statements. Accordingly,
the statements of income do not include any related interest expense on the
short-term borrowing under this Credit Facility. Prior to the Distribution,
when the amount of the borrowing is determined, if any, proforma
information will be provided, to reflect the borrowing and related interest
expense.
F-23
