<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 22, 1998
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10/A
AMENDMENT NO. 1
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
NORWALK, CONNECTICUT 06851
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(203) 750-3000
----------------
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
COMMON STOCK, NEW YORK STOCK EXCHANGE
PAR VALUE $1.00 PER SHARE
SERIES A PARTICIPATING CUMULATIVE NEW YORK STOCK EXCHANGE
PREFERRED STOCK PURCHASE RIGHTS
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
---- ------- ---------------------------------
<C> <S> <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 "The Distribution" and "Beneficial Ownership."
Owners and Management..
5. Directors and Executive "Management and Executive Compensation" and
Officers............... "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
Agreement."
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
------- -----------
<C> <S>
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**
Amended and Restated Articles of Incorporation of Arch Chemicals
4.2 (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 ChaseMellon Shareholder
Services, L.L.C., 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)*
Form of Rights Certificate (attached as Exhibit B to the Rights
4.6 Agreement filed as Exhibit 4.4 hereto)*
10.1 Distribution Agreement (filed as Exhibit 2 hereto)*
10.2 Charleston Services Agreement*
10.3 Chlor-Alkali Supply Agreement*
10.4 Covenant Not To Compete Agreement*
10.5 Credit Agreement*
10.6 Employee Benefits Allocation Agreement*
10.7 Form of Executive Agreement*
10.8 Tax Sharing Agreement*
10.9 Intellectual Property Transfer and License Agreement*
10.10 Information Technology Services Agreement
10.11 Trade Name License Agreement*
10.12 Transition Services Agreement*
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.13 Arch Chemicals Stock Plan for Nonemployee Directors*
10.14 Arch Chemicals 1999 Long Term Incentive Plan*
10.15 Supplemental Contributing Employee Ownership Plan*
10.16 Excess Benefit Pension Plan*
10.17 Senior Executive Pension Plan*
10.18 Employee Deferral Plan*
10.19 Key Executive Death Benefits**
10.20 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.
*** Previously filed.
II-2
<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)
/s/ Johnnie M. Jackson, Jr.
By: _________________________________
Name: Johnnie M. Jackson, Jr.
Title: President and Secretary
Date: December 21, 1998
II-3
<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
------- -----------
<C> <S>
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 ChaseMellon Shareholder
Services, L.L.C., 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 Charleston Services Agreement*
10.3 Chlor-Alkali Supply Agreement*
10.4 Covenant Not To Compete Agreement*
10.5 Credit Agreement*
10.6 Employee Benefits Allocation Agreement*
10.7 Form of Executive Agreement*
10.8 Tax Sharing Agreement*
10.9 Intellectual Property Transfer and License Agreement*
10.10 Information Technology Services 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 Supplemental Contributing Employee Ownership Plan*
10.16 Excess Benefit Pension Plan*
10.17 Senior Executive Pension Plan*
10.18 Employee Deferral Plan*
10.19 Key Executive Death Benefits**
10.20 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.
*** Previously filed.
<PAGE>
Exhibit 4.1
NUMBER
AC
[LOGO]
[CORPORATE SEAL]
[ART APPEARS HERE] COMMON STOCK SHARES
PAR VALUE ONE DOLLAR
PER SHARE
($1)
ARCH CHEMICALS, INC.
INCORPORATED UNDER THE LAWS OF THE COMMONWEALTH OF
VIRGINIA
THIS CERTIFICATE IS TRANSFERABLE IN NEW YORK AND NEW
JERSEY
SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP 03937R 10 2
THIS CERTIFIES
THAT
IS THE OWNER OF
FULLY PAID AND NONASSSSSABLE SHARES OF COMMON STOCK OF
ARCH CHEMICALS, INC., transferable on the books of the Corporation by the holder
hereof in person or by duly authorized attorney upon surrender of this
Certificate properly endorsed. This Certificate and the shares represented
hereby are issued and shall be held subject to all the provisions of the
Corporation's Articles of Incorporation and Bylaws, both as amended, to all of
which each holder by acceptance hereof assents. This Certificate is not valid
unless countersigned by a Transfer Agent and registered by a Registrar.
Witness the facsimile signatures of the Corporation's proper officers
and a facsimile of its corporate seal.
Dated
COUNTERSIGNED AND REGISTERED
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
TRANSFER AGENT
AND REGISTRAR
/s/ Sarah A. O'Connor /s/ Michael E. Campbell BY
SECRETARY CHAIRMAN OF THE BOARD AUTHORIZED SIGNATURE
<PAGE>
2
EXPLANATION OF ABBREVIATIONS
The following abbreviations when used in the form of ownership on the face of
this certificate shall be construed as though they were written out in full
according to applicable laws or regulations. Abbreviations in addition to those
appearing below, may be used.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Phrase Abbreviation Equivalent Phrase Abbreviation Equivalent
JT TEN As joint tenants, TEN BY ENT As tenants by the
with right of entireties
survivorship and not
as tenants in common
TEN IN COM As tenants in common UNIF GIFT MIN ACT Uniform Gifts to
Minors Act
<CAPTION>
Word Word Word
Abbreviation Equivalent Abbreviation Equivalent Abbreviation Equivalent
<S> <C> <C> <C> <C> <C>
ADM Admistrator(s) EST Estate, Of PAR Paragraph
Administratrix EX estate of PL Public Law
Executor(s),
Executrix
AGMT Agreement FBO For the TR (As)
benefit of trustee(s)
for, of
ART Article FDN Foundation U Under
CH Chapter GDN Guardian(s) UA Under
agreement
CUST Custodian for GDNSHP Guardianship UW Under will of,
Of will of,
Under last
will &
testament
DEC Declaration MIN Minor(s)
</TABLE>
<PAGE>
3
ARCH CHEMICALS, INC.
A copy of the Articles of Incorporation, as amended, of the
Corporation containing a full statement of the designations, preferences,
limitations and relative rights of the shares of Common Stock and Preferred
Stock, and the variations in the relative rights, preferences and limitations
between the shares of each series of Preferred Stock so far as the same have
been fixed and determined, and of the authority of the Board of Directors to fix
and determine the relative rights, preferences and limitations of subsequent
series, may be obtained, without charge, from the Transfer Agent or the office
of the Secretary of the Corporation, upon written request by a Shareholder.
- --------------------------------------------------------------------------------
ASSIGNMENT FORM
For value received hereby sell, assign and transfer shares of the
--------- --------
(I or we) (amount)
capital stock represented by this certificate to
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE -----------------------------------------
[ ] (Print full name and address of Assignee)
----------------------------------------------
[ ] [ ] [ ] [ ] Assignee,
- --------------------------------------- zip code
and do irrevocably constitute and appoint ___________________________as Attorney
(Leave blank or fill in as explained in Notice below)
to transfer the said Stock on the books of the Corporation with full power of
substitution.
Dated
-----------------------
-------------------------------------
(Sign here exactly as name(s) is shown
on the face of this certificate
without any change or alteration
whatever.)
IMPORTANT NOTICE: When you sign your name to this Assignment Form without
filling in the name of your "Assignee" or "Attorney", this stock certificate
becomes fully negotiable, similar to a check endorsed in blank. Therefore, to
safeguard a signed certificate, it is recommended that you either (i) fill in
the name of the new owner in the "Assignee" blank, or (ii) if you are sending
the signed certificate to your bank or broker, fill in the name of the bank or
broker in the "Attorney" blank. Alternatively, instead of using this Assignment
Form, you may sign a separate "stock power" form and then mail the Assignment
Form, you may sign a separate "stock power" form and then mail the unsigned
stock certificate and the signed "stock power" in separate envelopes. For added
protection, use certified or registered mail for a stock certificate.
Keep this certificate in a safe place. If it is lost, stolen or
destroyed, the Corporation will require a bond of indemnity as a condition to
the issuance of a replacement certificate.
This certificate also evidences and entities the holder hereof to
certain Rights as set forth in a Rights Agreement, as it may be amended from
time to time (the "Rights Agreement"), between Arch Chemicals, Inc. (the
"Company") and ChaseMellon Shareholder Services, L.L.C., as Rights Agent (the
"Rights Agent"), the terms of which are hereby incorporated herein by reference
and a copy of which is on file at the principal executive offices of the
Company. Under certain circumstances, as set forth in the Rights Agreement, such
Rights will be evidenced by separate certificates and will no longer be
evidenced by this certificate. The Rights Agent will mail to the holder of this
certificate a copy of the Rights Agreement without charge after receipt of a
written request therefor. Rights beneficially owned by Acquiring Persons or
their Affiliates or Associates (as such terms are defined in the Rights
Agreement) and by any subsequent holder of such Rights are null and void and
nontransferable.
Signature(s) Guaranteed:
- -----------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED
BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCK- BROKERS, SAVINGS AND LOAN\
ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT TO
SEC RULE 17Ad 15.
<PAGE>
EXHIBIT 10.19
KEY EXECUTIVE DEATH BENEFITS
____________________________
<PAGE>
CONTENTS
--------
Summary of your Key Executive Death Benefits 1
Arch Chemicals Life Accumulation Program 1
Survivor Income Benefit 1
Emergency Death Benefit 1
Corporate Owned Life Insurance (COLI) 1
Accidental Death and Dismemberment 1
Group Universal Life Insurance 1
When Coverage Begins 2
Eligibility 2
Arch Chemicals Life Accumulation Program 2
Premiums 2
Retirement from Arch Chemicals at Age 55 or Later 3
Survivor Income Benefit 4
Emergency Death Benefit 4
Corporate Owned Life Insurance (COLI) 4
Taxes 5
Arch Chemicals Life Accumulation Program/Survivor Income Benefit 5
Emergency Death Benefit/Corporate Owned Life Insurance 5
Beneficiary 5
Changes in Amounts of Insurance 6
How Long the Key Executive Death Benefits Continue 6
Plan Limitations 7
Claiming Benefits 7
Plan Administration 7
Plan Administrator 7
Agent for Service of Process 8
Plan Amendment or Termination 8
Conversion 8
General Information 8
Definitions 9
i
<PAGE>
SUMMARY OF YOUR KEY EXECUTIVE DEATH BENEFITS
- --------------------------------------------
Employees who qualify as Key Executives have the following coverages that may
provide a death benefit if they die while in Active Service of the Arch
Chemicals, Inc. ("Arch Chemicals" or the "Company"). This is a brief summary;
you are encouraged to read the complete descriptions for more details.
ARCH CHEMICALS LIFE ACCUMULATION PROGRAM
(ALAP) Provides a life insurance death benefit equal to
at least two times Annual Salary rounded to the
next $10,000.
SURVIVOR INCOME BENEFIT Provides monthly payments equal to 30% of
Monthly Salary (40% if you have eligible
children).
EMERGENCY DEATH BENEFIT Provides a timely payment of one month's salary.
This benefit is not available for an employee
who is receiving Long Term Disability payments
at the time of death.
CORPORATE OWNED LIFE INSURANCE
(COLI) Provides a $5,000 death benefit from Arch
Chemicals' Corporate Owned Life Insurance
Program. All Key Executives may not qualify for
this benefit.
ACCIDENTAL DEATH AND
DISMEMBERMENT (AD&D) Provides an additional life insurance death
benefit equal to two times Annual Salary rounded
to the next $10,000 if death was the result of
an accident. See the Accidental Death and
Dismemberment Plan for details.
GROUP UNIVERSAL LIFE INSURANCE In addition to the coverages described herein
that are provided by Arch Chemicals, you may
also purchase Group Universal Life Insurance.
This insurance coverage is not an Arch Chemical-
sponsored benefit and Arch Chemicals does not
pay any of its premiums, therefore, it is not
considered an "ERISA benefit" and is not subject
to ERISA regulations, Arch Chemicals does,
however, offer the convenience of payroll
deducted premiums should you elect to
participate in the Group Universal Life
Insurance program. This program is administered
by Johnson & Higgins KVI, 1776 West Lakes
Parkway, West Des Moines, IA 50398. The
telephone number is (800) 525-0518. Enrollment
materials are available from your Benefits
Administrator.
1
<PAGE>
WHEN COVERAGE BEGINS
- --------------------
ELIGIBILITY You are eligible for the coverages that are
described in this section if you are deemed to
be a Key Executive. A Key Executive, for this
purpose, is a Full-time employee of the Company
whose Hay Points have been determined to be
1,175 or higher. Hay Points are assigned to your
position through Arch Chemicals' job evaluation
process.
If your business unit does not use the Hay Point
system for job evaluation, you will be deemed to
be a Key Executive if your job content is
typical of the job content for other Arch
Chemicals Key Executives and your division
president approves your appointment as a Key
Executive with rights to benefits under this
program.
ARCH CHEMICALS LIFE ACCUMULATION PROGRAM
- ----------------------------------------
PREMIUMS
Under this program, Arch Chemicals pays premiums on your behalf to a universal
life insurance policy which will provide a death benefit that is at least equal
to two times your Annual Salary rounded to the next $10,000. Additionally,
because this is a universal life insurance policy, the policy may provide cash
values which will serve to increase the policy death benefits.
Starting when you are age 55, or when you have 10 years service, if later, Arch
Chemicals will pay additional premiums to your policy to enhance the cash values
in the policy, and, in so doing, "pre-fund" the death benefits coverage that is
provided upon your retirement from the Company.
In addition to the above premiums, Arch Chemicals may pay another premium,
called an Investment Premium, to further enhance the cash value in the policy.
At retirement or termination of employment, Arch Chemicals will recover the
amount paid as Investment Premium plus interest at 9% from the cash value in the
policy.
You may also choose to make voluntary contributions to the policy. Such
contributions (which are made on an after-tax basis) will serve to increase the
policy death benefit and cash values. You may withdraw the cash value
attributed to these voluntary contributions at any time.
The program is designed to ensure that the cash values in the policy are
sufficient to provide continued death benefits at retirement from the Company in
accordance with the following schedule:
2
<PAGE>
DEATH BENEFIT AS A PERCENT OF ANNUAL
AGE AT RETIREMENT SALARY ROUNDED TO THE NEXT $10,000
65 or older 50%
64 45%
63 40%
62 35%
61 30%
60 25%
59 20%
58 15%
57 10%
56 and 55 5%
For example, if your Annual Salary is $125,000 when you retire at age 62, the
cash value in the policy will be sufficient to provide death benefits of at
least $45,500 (130,000 x 35%).
RETIREMENT FROM ARCH CHEMICALS AT AGE 55 OR LATER
Upon retirement from the Company at age 55 or later, provided you have at least
10 years of service, Arch Chemicals will transfer ownership of the universal
life policy directly to you with the cash value (less Arch Chemicals' Investment
Premium, if any) and applicable death benefit. You will have the following
options at that time:
1. You may choose to leave the cash values in the policy and reduce the death
benefit as described in the schedule above. The cash value will be applied
towards premiums.
2. You may pay additional premiums and maintain your current level of death
benefit as if you were still employed.
3. You may withdraw some, or all, of the cash values in the policy and thereby
reduce or eliminate the policy death benefit.
The Arch Chemicals Life Accumulation program is administered by William Lynch
and Associates Inc., 13577 Feather Sound Drive, Suite 500, Clearwater, FL 34622.
The telephone number is (800) 648-6484.
You will receive a statement of your life insurance death benefit and cash
values from the program administrator on an annual basis.
Enrollment in the Arch Chemicals Life Accumulation Program requires you to
submit evidence of good health. If you are rejected for health reasons, Arch
Chemicals will provide term life insurance coverage equal to two times your
Annual Salary rounded to the next $10,000 while you are in Active Service of the
Company. Upon your retirement from Arch Chemicals, you will be provided term
life insurance in amounts equal to the death benefit in the previous schedule
for retirees who qualify for the Arch Chemicals Life Accumulation Program.
3
<PAGE>
SURVIVOR INCOME BENEFIT
- -----------------------
In the event you die while in the Active Service of the Company, your surviving
spouse will receive a monthly benefit equal to 30% of your Monthly Salary, up to
a maximum benefit of $6,000 per month, until he or she reaches age 65. If you
have eligible children, your spouse will receive an additional monthly payment
equal to 10% of your Monthly Salary up to a maximum payment of $2,000 per month.
This additional payment will continue until your children are all at least age
25 or married, whichever is earlier.
If your spouse should die following your death, your eligible children, or their
guardian, will continue to receive the monthly benefit equal to 10% of your
Monthly Salary until your children are all at least age 25, or married,
whichever is earlier.
The monthly benefit paid on behalf of the children is the same 10% of Monthly
Salary regardless of the number of eligible children. For example, if your
Monthly Salary was $10,000 at the time of your death and you had 2 eligible
children, the total monthly benefit paid on behalf of the children would be
$1,000 (10% of $10,000).
You may choose to waive the Survivor Income Benefit coverage, and instead, have
the premium that would otherwise have been paid for this coverage paid to the
Arch Chemicals Life Accumulation Program. In such event, this premium will
serve to increase the death benefits and cash values provided by that policy.
EMERGENCY DEATH BENEFIT
- -----------------------
In the event you die while in the Active Service of the Company, your spouse, or
your life insurance Beneficiary, if you do not have a spouse, will receive a
death benefit equal to one month's salary to help defray funeral expenses and
other costs associated with your death.
This benefit is administered locally by your business unit. The payment is made
through Arch Chemicals' payroll system.
Note: This benefit is not available for an employee who is receiving Long Term
Disability payments at the time of death.
CORPORATE OWNED LIFE INSURANCE
- ------------------------------
$5,000 COLI DEATH BENEFIT
The beneficiary of certain employees of the Company, or an affiliate, who die
while in Active Service of the Company, may be entitled to a special $5,000 COLI
death benefit. This benefit is payable to your Beneficiary if you die while in
the Active Service of the Company and you were a salaried or non-bargaining
hourly employee of Olin Corporation on December 31, 1992, or receiving Short
Term Disability payments on that date.
Beneficiaries for this Plan are deemed to be the Beneficiary of record for the
Arch Chemicals Life Accumulation Plan, or the term life insurance coverage if
you failed to qualify for ALAP for reasons of health.
4
<PAGE>
TAXES
- -----
ARCH CHEMICALS LIFE ACCUMULATION PROGRAM/SURVIVOR INCOME BENEFIT
Participants are subject to Federal, and State income tax as well as FICA tax on
the amount of premiums paid on their behalf each year to the Arch Chemicals Life
Accumulation Insurance Program. These premiums include the premium to purchase
the basic life insurance coverage, any premium paid to "pre-fund" the retiree
life insurance coverage and any extra premium that would be paid into the policy
if you chose to waive the Survivor Income Benefit coverage. If you chose to
keep the Survivor Income Benefit coverage, the actuarial value of the Survivor
Income Benefit coverage will be subject to Federal, State and FICA tax. Your
taxable income will be calculated for you and reported on your W-2 form each
year.
Death benefits paid from the ALAP are treated as a life insurance benefit and,
as such are not subject to Federal, State or FICA tax. However, the benefit may
be included in the participant's estate for estate tax purposes.
A portion of cash values withdrawn from the ALAP may be taxed as income for
Federal and State income tax purposes.
A portion of the Survivor Income Benefit may be subject to Federal and State
income tax.
EMERGENCY DEATH BENEFIT/CORPORATE OWNED LIFE INSURANCE
The death benefits paid as an Emergency Death Benefit and the $5,000 COLI death
benefit are included as taxable income for Federal and State income tax
purposes. However, for Federal income tax purposes there is a one-time
exclusion from income of up to $5,000 of cumulative death benefit proceeds.
NOTE: This is a very brief description of tax consequences. You should consult
with your tax advisor concerning the specific taxes associated with these
benefits.
BENEFICIARY
- -----------
When you become eligible for the Arch Chemicals Key Executive Death Benefits,
you will be asked to name a Beneficiary, someone who will receive payments from
the Plans if you die.
You may choose anyone you wish as your Beneficiary(ies). You may want to name a
contingent Beneficiary(ies) in case your primary Beneficiary dies before you do.
If the Beneficiary is not living when you die, your death benefits will be paid
to your estate.
It is important to review the names of your Beneficiaries periodically so that
the benefits will be paid to those you want protected. For example, if your
marital status changes or your dependents change, you may want to make a new
Beneficiary designation. You should also
5
<PAGE>
advise your local Benefits Administrator of address changes for your
Beneficiary(ies). This will help prevent delays in benefit payments.
CHANGES IN AMOUNTS OF INSURANCE
- -------------------------------
The minimum death benefit that is payable from ALAP and Survivor Income Benefit
will automatically keep pace with changes in your Annual Salary. Your coverage
will change on the day your salary changes. If you're not at work on the day
the amount of your coverage is scheduled to change, the change will be delayed
until you return to work Full-time.
HOW LONG THE KEY EXECUTIVE DEATH BENEFITS CONTINUE
- --------------------------------------------------
IN THIS SITUATION: THIS HAPPENS TO YOUR COVERAGE:
YOU TERMINATE EMPLOYMENT,
INCLUDING RETIREMENT Coverage for ALAP, Survivor Income Benefit,
Emergency Death Benefit and COLI continues
through the end of the month in which you
terminate Full-time employment. You may continue
the ALAP by paying the full premium.
If you retire on early or normal retirement, a
portion of your ALAP will continue.
Your pension plan also provides for the payment
of a $5,000 death benefit if you die following
early or normal retirement from Arch Chemicals.
See the Pension Plan section in this handbook
for details.
YOU ARE RECEIVING SEVERANCE
OR JOB TRANSITION BENEFITS Coverage for ALAP, Survivor Income Benefit,
Emergency Death Benefit and COLI continues as
though you were actively at work while you are
receiving Job Transition Benefits or Severance
payments.
YOU ARE RECEIVING SHORT TERM
DISABILITY BENEFITS Coverage for ALAP, Survivor Income Benefit,
Emergency Death Benefit and COLI will be equal
to the amount of coverage you had immediately
before your disability began.
YOU ARE RECEIVING LONG TERM
DISABILITY (LTD) BENEFITS Coverage for ALAP, Survivor Income Benefit and
COLI will be equal to the amount of coverage you
had immediately before your disability began.
Coverage will continue for the period you are
entitled to LTD payments and cease upon your
retirement.
6
<PAGE>
Your Emergency Death Benefit coverage ends when
you are on Long Term Disability.
YOU ARE ON AN UNPAID
LEAVE OF ABSENCE Coverage for ALAP, Survivor Income Benefit,
Emergency Death Benefit and COLI ceases at the
end of the month in which your leave begins. You
may continue coverage for ALAP and Survivor
Income Benefit for the length of your leave
provided you pay the entire premiums.
THE PLAN IS TERMINATED OR
CHANGED SO THAT IT NO LONGER
COVERS YOUR EMPLOYEE GROUP Your ALAP is an individual policy and is
portable. All other coverages end.
PLAN LIMITATIONS
- ----------------
Each state has different rules regarding payment to a particular Beneficiary.
For example, in some states, the Beneficiary who is convicted of having caused
the death of the participant may not be entitled to death benefits. In this
case, the benefit would be paid to the estate.
In the event of your death as a result of suicide during the first two years of
employment with Arch Chemicals, no ALAP or Survivor Income Benefit will be paid.
Your Emergency Death Benefit and the $5,000 COLI Death Benefit will be paid to
your Beneficiary.
CLAIMING BENEFITS
- -----------------
If you die, the Company will contact your beneficiary(ies) as soon as possible
to explain what benefits are payable and the forms of payment available.
It is very important to be sure that your beneficiary designation reflects the
person(s) you want to receive the benefit, and that their name(s) and
address(es) are correct.
If the person(s) can't be found, the benefit is automatically paid to your
estate. This will delay or prevent the funds from reaching those you want
protected.
PLAN ADMINISTRATION
- -------------------
PLAN ADMINISTRATOR
The Plan Administrator is the Welfare and Fringe Benefit Plan Committee (the
Committee) of Arch Chemicals, Inc., 501 Merritt Seven, P.O. Box 4500, Norwalk,
CT 06856-4500.
The Plan Administrator has absolute authority to interpret the terms of the Plan
and to determine any and all matters arising under the Plan or in connection
with its administration, including, without limitation, questions concerning
eligibility for, and entitlement to, Plan benefits. Any interpretation or
determination made pursuant to such discretionary authority
7
<PAGE>
shall be binding on all persons claiming to have an interest under the Plan and
given full force and effect.
The Committee may adopt rules for the administration of the Plan and the conduct
of its business. A majority of the members of such Committee shall constitute a
quorum for transaction of business. All resolutions or other action taken by
the Committee shall be by the vote of at least a majority of the members present
at a meeting, or without a meeting by an instrument signed by a majority of the
members.
The Plan Administrator and any other fiduciary designated in this Plan may use,
employ, discharge, or consult with one or more individuals, corporations, or
other entities with respect to advice regarding responsibilities, obligations,
or duties in connection with this Plan. Arch Chemicals may also designate other
individuals, corporations, or other entities, who are not named fiduciaries in
this Plan to carry out fiduciary responsibilities, obligations and duties with
respect to this Plan. Such delegation may be revoked or modified at any time.
AGENT FOR SERVICE OF PROCESS
The Secretary of Arch Chemicals, Inc. has been designated as agent for service
of legal process upon this Plan. Service of process may also be made on the
Plan Administrator.
PLAN AMENDMENT OR TERMINATION
Arch Chemicals fully expects that the Key Executive Death Benefits will continue
indefinitely, but reserves the right by resolution of its Board of Directors or
any duly authorized Committee or officer to amend, modify or terminate the Plan
at any time and without notice. This includes the right to amend, modify, or
terminate benefits available to retirees or any other group of employees.
CONVERSION
Coverage for ALAP is portable.
There are no provisions that allow the Survivor Income Benefit, COLI, or the
Emergency Death Benefit coverages to be converted to an individual policy.
GENERAL INFORMATION
- -------------------
QUESTIONS
Questions about ALAP should be directed to William Lynch and Associates, Inc.,
13577 Feather Sound Drive, Suite 500, Clearwater, FL 34622. Telephone number
(800) 648-6484. All other questions should be directed to your local Benefits
Administrator.
SOURCE OF BENEFITS
Arch Chemicals' contributions for ALAP are paid in premiums to a universal life
insurance policy administered by William Lynch and Associates, Inc., 13577
Feather Sound Drive, Suite 500, Clearwater, FL 34622. Arch Chemicals'
contributions for Survivor Income
8
<PAGE>
Benefit are paid in premiums to Metropolitan Life Insurance Company, P.O. Box
102047, Atlanta, GA 30368-0047. Metropolitan Life Insurance Company determines
the benefits payable under the provisions of the Plan. Arch Chemicals pays the
full cost of the Emergency Death Benefit and the $5,000 COLI Death Benefit from
its general operating funds.
PLAN DOCUMENTS
The Plan Documents are this Plan description. In addition, ALAP, the
individual's split dollar agreement and the applicable insurance policy and the
Metropolitan SIB Life Insurance master policy would also serve as Plan
Documents.
FINANCIAL RECORDS
Records are kept on a Plan-year basis, from January 1 to December 31 of each
calendar year.
PLAN IDENTIFICATION
The Plan Numbers are: Emergency Death Benefit: 510; Company-provided Basic
Life Insurance: 500; Corporate Owned Life Insurance: 520; Arch Chemicals Life
Accumulation Program: 530 for Employer Identification Number 06-152631513.
PLAN SPONSOR
The Plan sponsor is Arch Chemicals. An updated, complete list of participating
Arch Chemicals-related or affiliated employers and employee organizations also
sponsoring the Plan may be obtained by participants and their beneficiaries upon
written request to the Plan Administrator, and is available for examination by
participants and beneficiaries. Participants and beneficiaries may receive,
upon written request, information as to whether a particular employer or
employee organization is a sponsor of the Plan, and if so, the sponsor's
address.
ERISA RIGHTS
See the ERISA section of your benefits handbook for details regarding your
rights under ERISA.
DEFINITIONS
- -----------
ACTIVE SERVICE The period in which a Full-time employee is
receiving regular salary payments, or Short Term
Disability payments.
Additionally, periods in which the employee is
receiving Long Term Disability payments.
Job Transition Benefits or Severance benefits
may also be included as periods of Active
Service.
ANNUAL SALARY Your annual earnings, not including overtime,
shift differential, bonus, or other premium pay.
9
<PAGE>
BENEFICIARY(IES) The person or persons who will receive death
benefits from the Plan if you die.
BENEFITS ADMINISTRATOR The individual at your work location who is
responsible for assisting employees with
benefits.
FULL-TIME EMPLOYEE An employee who is scheduled to work at least 20
hours a week on a continuous basis.
MONTHLY SALARY Your monthly earnings, not including overtime,
shift differential, bonus, or other premium pay.
10
<PAGE>
EXHIBIT 10.20
ENDORSEMENT SPLIT DOLLAR AGREEMENT
Olin Corporation, a Virginia corporation, hereinafter referred to as the
"Corporation", and ________________ hereinafter referred to as the "Executive",
have applied to the Pacific Mutual Life Insurance Company (the "Insurance
Company") for life insurance on the life of the Executive, pursuant to policy
number __________, such policy hereinafter referred to as the "Policy". In
consideration of the Corporation acquiring the Policy and agreeing to keep such
Policy in force in accordance with the terms and conditions of this Agreement,
the parties agree as follows:
1. Corporation's Rights in Policy.
The Corporation shall own all rights in and to the Policy except for
those Policy rights expressly granted to Executive by the Corporation in this
Agreement.
2. Executive's Rights in Policy.
The Executive shall have the right and power to designate a
beneficiary or beneficiaries to receive Policy proceeds payable upon his or her
death and to elect and change a payment option for such beneficiaries, but
subject always to any right or
<PAGE>
2
interest the Corporation may have in such Policy proceeds as set forth in this
Agreement. The Executive shall also own all rights to and be fully vested in the
Executive's Contributions, as such term is hereinafter defined.
3. Executive's Contributions.
The Executive's Contributions shall mean an amount equal to the sum of
the following: (i) all amounts paid into the Policy directly by the Executive;
(ii) all amounts paid into the Policy by the Executive through payroll
deductions from the Executive's compensation (but not including the Term Premium
---
referred to in Paragraph 4 of this Agreement); (iii) all amounts paid into the
Policy on behalf of the Executive by the Corporation pursuant to the
Corporation's Survivors Income Benefit Plan presently maintained by the
Corporation and (iv) all Policy net earnings attributable to items 3(i) through
(iii), above. The Executive shall be fully vested at all times in the
Executive's Contributions. The Corporation shall request the Insurance Company
or its agents to periodically determine the amount of the Executive's
Contributions, and on an annual basis the Corporation shall provide to the
Executive a statement which sets forth the balance of the Executive's
Contributions. The Executive shall be entitled to withdraw all or any portion
of the balance of the Executive's Contributions by making a written request to
the Corporation. Upon the Corporation receiving such written request, it shall
promptly request the Insurance
<PAGE>
3
Company to make such distribution to the Executive. Any such withdrawals shall
reduce the balance of the Executive's Contributions to which the Executive is
entitled.
4. Executive's Share of Premium.
The Corporation shall remit Policy premiums annually as of the date of
issue and upon each subsequent premium due date during the term of this
Agreement. The Executive shall pay such portion of the total annual Policy
premium as is set forth in the ledger column designated as the "Term Premium" in
the Executive's individual ledger maintained as a part of the master agreement
for the Corporation's Life Accumulation Program. The Corporation shall cause
such individual ledger to be maintained and updated on a regular basis. Such
premium amount may vary from year to year, depending upon the financial
performance of the Policy and other factors such as the Executive's length of
employment with the Corporation. The Executive's share of such annual premium
(the Term Premium) shall be paid by the Corporation paying to the Executive
additional compensation in an amount equal to the Term Premium for such year.
The Executive acknowledges and agrees that such additional compensation will be
reported on the Executive's appropriate federal income tax reporting form
(presently form W-2) and the Executive by his execution of this Agreement,
authorizes and directs the Corporation to pay the Term Premium from his
compensation. The Executive acknowledges and agrees that his share of the
annual
<PAGE>
4
premium (the Term Premium) shall not be considered part of the Executive's
---
Contributions, as such term is defined in paragraph 3 of this Agreement.
5. Corporation's Share of Premiums.
The Corporation's share of the annual Policy premium shall be that
amount set forth in the ledger column designated as the "Investment Premium" in
the Executive's individual ledger maintained as a part of the master agreement
for the Corporation's Life Accumulation Program. Such premium amount may vary
from year to year, depending upon the financial performance of the Policy and
other factors such as the Executive's length of employment with the Corporation.
The Corporation's Investment Premium shall earn interest at the rate
of 9% per annum, compounded annually, and the Investment Premium plus the
accrued interest thereon shall hereafter be referred to as the "Cash Value
Investment". The Cash Value Investment shall be that amount set forth in the
ledger column designated "Cash Value Investment" in the Executive's individual
ledger maintained as a part of the master agreement for the Corporation's Life
Accumulation Program.
<PAGE>
5
6. Agreement to maintain death benefit.
During the term of this Agreement for so long as the Executive is
employed by the Corporation, and until the Executive is older than age sixty-
five, the Corporation agrees to maintain insurance on the Executive's life which
provides for a death benefit equal to two times the Executive's then annual
salary. If the Executive continues employment with the Corporation past age
sixty-five, the Corporation agrees to maintain insurance on the Executive's life
which provides for a death benefit in an amount equal to seventy percent of the
Executive's then annual salary after age sixty-five.
By way of example, assume the Executive is still employed by the
Corporation at age sixty-six. If the Executive's annual salary at age sixty-six
is $150,000.00, the Corporation shall maintain a death benefit of $105,000.00
($150,000.00 x 70%) on the Executive's life during such employment year.
The Corporation reserves the right to maintain such death benefit
coverage through a combination of the Policy and the Corporation's group term
life insurance program if the Executive is not insurable at the insurance
carrier's standard rates under the Policy. Notwithstanding anything in this
Agreement to the contrary, the Corporation's obligation to make any death
benefit payments to the Executive or his designated beneficiaries or heirs under
the terms of this Agreement shall be
<PAGE>
6
payable only to the extent of any insurance proceeds on the Executive's life
received by the Corporation from a life insurance company issuing the Policy or
other life insurance policy.
7. Division of Policy Proceeds upon Death, Termination of Employment or
Termination of this Agreement.
Upon the earlier of the Executive's death, termination of employment
with the Corporation, or upon the termination of this Agreement in accordance
with the provisions of paragraph 8 of this Agreement, the Corporation shall take
the following actions in the following order:
A. The Corporation shall be paid from the Policy the Cash Value
Investment as of the date of the Executive's death, termination of employment,
or termination of this Agreement.
B. The Corporation shall assign without warranty all other
rights in the Policy to the Executive or to his or her executor, as the case may
be.
Upon the division of the Policy in the manner described in this Paragraph 7, the
Agreement shall terminate and the parties shall have no further rights or
obligations under it.
<PAGE>
7
8. Termination of Agreement.
This Agreement shall terminate upon the occurrence of either of the
following events:
(a) Notice of intention to terminate this Agreement given by either
party to the other, such notice to be in writing and to be
effective thirty days after delivery of such notice. Such notice
shall be mailed or delivered to the Corporation at its then
corporate headquarters and to the Executive at his or her address
then on file with the personnel department of the Corporation.
(b) The Executive's failure or refusal to consent to pay, by payroll
withholding, his or her share of premiums, if any, as mutually
agreed upon by the Corporation and the Executive under the
provisions of Paragraph 4 of this Agreement.
Upon such termination, the provisions of Paragraph 7 of this Agreement
shall apply.
<PAGE>
8
9. Executive's Assignment Rights.
The Executive may, at any time, assign to any individual, trust or other
organization, the Executive's right, title and interest in the Executive's
Contributions. The Executive shall not be entitled to assign any other rights
under this Agreement.
10. Special Provisions.
The following provisions are part of this Agreement and are intended to
meet the requirements of the Employee Retirement Income Security Act of 1974:
(a) The named fiduciary is: the Corporation's Administrative Pension
Committee.
(b) The funding policy under this Agreement is that all premiums on
the Policy be remitted to the Insurance Company when due.
(c) Direct payment by the Insurance Company is the basis of payment
of benefits under this Agreement, with those benefits in turn
being based on the payment of premiums as provided in the
Agreement.
<PAGE>
9
(d) For claims procedure purposes, the "Claims Manager" shall be the
Corporation's Director of Employee Benefits.
(1) If for any reason a claim for benefits under this Agreement
is denied by the Corporation, the Claims Manager shall
deliver to the claimant a written explanation setting forth
the specific reasons for the denial, pertinent references to
the Agreement section on which the denial is based, such
other data as may be pertinent and information on the
procedures to be followed by the claimant in obtaining a
review of his claim, written in a manner calculated to be
understood by the claimant. For this purpose:
(a) The claimant's claim shall be deemed filed when
presented orally or in writing to the Claims Manager.
(b) The Claims Manager's explanation shall be in writing
delivered to the claimant within 90 days of the date
the claim is filed.
<PAGE>
10
(2) The claimant shall have 60 days following the receipt of the
denial of the claim to file with the Claims Manager a
written request for review of the denial. For such review,
the claimant or his representative may submit pertinent
documents and written issues and comments.
(3) The Claims Manager shall decide the issue on review and
furnish the claimant with a copy within 60 days of receipt
of the claimant's request for review of his claim. The
decision on review shall be in writing and shall include
specific reasons for the decision written in a manner
calculated to be understood by the claimant, as well as
specific references to the pertinent Agreement provisions on
which the decision is based. The determination of the
Executive's claim denial shall be made by the Claims Manager
and shall be binding and conclusive upon the Executive. If
a copy of the decision is not so furnished to the claimant
within such 60 days, the claim shall be deemed denied on
review.
<PAGE>
11
11. Agreement Binding Upon Parties.
This Agreement shall bind the Corporation and the Executive, their
heirs, successors, personal representatives and their assigns as permitted in
Paragraph 9 of this Agreement.
12. Amendment.
This Agreement may be amended only by a writing signed by both the
Corporation and the Executive.
13. Governing Law.
This Agreement shall be governed by the laws of Connecticut.
14. Insurance Company Not a Party to Agreement.
The Insurance Company shall not be deemed a party to this Agreement,
but will respect the rights of the parties as herein developed upon receiving an
executed copy of this Agreement.
Payment or other performance of its contractual obligations in
accordance with the Policy provisions shall fully discharge the Insurance
Company for any and all liability.
<PAGE>
12
IN WITNESS WHEREOF, the parties have executed this Agreement as of
___________________, 19__.
_______________________________________
Corporation
_______________________________________
Executive
<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 "ARJ".
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 two shares 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 DECEMBER 22, 1998
INFORMATION STATEMENT
ARCH CHEMICALS, INC.
DISTRIBUTION OF APPROXIMATELY 23,266,567 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 two
shares 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 11-14.
----------------
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 Olin's stock
transfer agent, ChaseMellon Shareholder Services, L.L.C., 85 Challenger Road,
Ridgefield Park, New Jersey 07660, telephone (800) 306-8594.
The date of this Information Statement is , 1999.
<PAGE>
INFORMATION STATEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
SUMMARY.................................................................. 1
THE DISTRIBUTION......................................................... 6
General................................................................ 6
Manner of Effecting the Distribution................................... 6
Reasons for the Distribution........................................... 6
Results of the Distribution............................................ 8
Federal Income Tax Consequences of the Distribution.................... 8
Listing and Trading of Company Common Stock............................ 10
Third Party Consents; Regulatory Approvals............................. 10
Reasons for Furnishing this Information Statement...................... 10
RISK FACTORS............................................................. 11
Lack of Operating History As a Separate Entity......................... 11
Dependance on the Semiconductor Industry............................... 12
Environmental Liabilities.............................................. 12
Ability to Satisfy Indemnification Obligations......................... 12
Certain Tax Risks of the Distribution.................................. 13
International Operations............................................... 13
Company Dividend Policy................................................ 13
Absence of Trading Market for Company Stock............................ 14
Changes in Trading Prices of Olin Common Stock......................... 14
Competition............................................................ 14
Certain Anti-takeover Effects.......................................... 14
DIVIDEND POLICY.......................................................... 14
CAPITALIZATION........................................................... 15
SELECTED FINANCIAL AND OPERATING DATA.................................... 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS........................................................... 17
BUSINESS................................................................. 28
General................................................................ 28
Products and Services.................................................. 28
Customers.............................................................. 30
Raw Materials and Energy............................................... 31
Research and Development; Patents...................................... 31
Seasonality............................................................ 31
Backlog................................................................ 32
U.S. Government Contracts and Regulations.............................. 32
Novation of U.S. Government Contracts.................................. 32
Competition............................................................ 32
Export Sales........................................................... 32
Employees.............................................................. 32
Environmental Matters.................................................. 33
Credit Facility........................................................ 33
PROPERTIES............................................................... 34
Principal Manufacturing Facilities..................................... 35
LEGAL PROCEEDINGS........................................................ 37
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
RELATIONSHIP BETWEEN OLIN AND THE COMPANY AFTER THE DISTRIBUTION........... 38
Distribution Agreement................................................... 38
Charleston Services Agreement............................................ 39
Chlor-Alkali Supply Agreement............................................ 39
Covenant Not To Compete Agreement........................................ 39
Employee Benefits Allocation Agreement................................... 40
Intellectual Property Transfer and License Agreement..................... 41
Information Technology Services Agreement................................ 41
Tax Sharing Agreement.................................................... 41
Trade Name License Agreement............................................. 41
Transition Services Agreement............................................ 41
MANAGEMENT AND EXECUTIVE COMPENSATION...................................... 42
Board of Directors....................................................... 42
Committees of the Board of Directors..................................... 43
Compensation of Directors................................................ 45
Executive Officers of the Company........................................ 45
Compensation of Executive Officers....................................... 47
Adjustment to Prior Olin Equity-Based Benefits........................... 49
Stock Plan for Nonemployee Directors..................................... 49
Pension Plans............................................................ 50
Savings Plan............................................................. 52
Arch Chemicals, Inc. 1999 Long Term Incentive Plan....................... 52
Retiree Medical and Life Insurance Benefits.............................. 53
Other Benefits........................................................... 54
Executive Agreements..................................................... 54
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION................ 54
BENEFICIAL OWNERSHIP....................................................... 55
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................. 57
DESCRIPTION OF CAPITAL STOCK............................................... 57
Authorized Capital Stock................................................. 57
Common Stock............................................................. 57
Preferred Stock.......................................................... 57
Authorized But Unissued Capital Stock.................................... 58
Rights................................................................... 58
No Preemptive Rights..................................................... 58
Certain Provisions of the Articles, By-laws and Virginia Corporate Law... 58
RIGHTS AGREEMENT........................................................... 60
LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS.................... 61
AVAILABLE INFORMATION...................................................... 61
INDEX TO COMBINED FINANCIAL STATEMENTS..................................... F-1
</TABLE>
ii
<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.
THE DISTRIBUTION
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
two shares of Olin Common Stock held on the Record Date
(the "Distribution Ratio").
Securities to be
Distributed Based on 46,533,134 shares of Olin Common Stock
outstanding on November 30, 1998, approximately
23,266,567 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."
Distribution Agent,
Transfer Agent and ChaseMellon Shareholder Services, L.L.C. (the
Registrar for the "Distribution Agent") will be the Distribution Agent,
Shares Transfer Agent and Registrar for the Shares.
Record Date , 1999 (close of business).
Distribution Date
, 1999, 12:01 a.m. (the "Distribution Date"). 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.
1
<PAGE>
Federal Income Tax The Distribution is conditioned upon the receipt by
Consequences of the Olin of an opinion of its counsel that for Federal
Distribution 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 "ARJ". 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 $100 million, five-year revolving credit facility
(the "Five-year Facility") and a $100 million, 364-day
credit facility (the "364-day Facility" and, together
with the Five-year Facility, the "Credit Facility"),
each established by Olin. Olin will have previously
borrowed $75 million under the Five-year Facility,
which liability will be assumed by the Company. 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, including
certain restrictions on the payment of dividends by the
Company. See "Business--Credit Facility."
Relationship with
Olin After the Following the Distribution, the Company will be an
Distribution independent public company, and Olin will have no
continuing stock ownership 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 (i) the transfer of assets to
the Company and the assumption of certain liabilities
of Olin by the Company, the indemnification by the
Company of Olin against liabilities, litigation and
claims arising out of the Speciality 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 the indemnification
by Olin of the Company against liabilities, litigation
and claims arising out of Olin's retained and former
businesses following the Distribution, (ii) the
transfer by Olin of
2
<PAGE>
certain technologies and intellectual property rights
to the Company, (iii) the transfer of certain Olin
trademarks to the Company, (iv) the supplying of
certain services by Olin to the Company with respect to
adjoining plants located in Charleston, Tennessee and
(v) the supplying of chlorine and caustic soda by Olin
to the Company 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 $0.80 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, 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 Certain provisions of the Company's Amended and
Articles, By-laws and Restated Articles of Incorporation (the "Articles") and
Virginia Corporate amended By-laws (the "By-laws"), as each will be in
Law; Rights Agreement 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 upon the affirmative vote of 80% of
the voting power of the outstanding voting shares,
voting together as a single voting group, 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 affirmative vote of 80% of the voting
power of the outstanding voting shares, voting as a
single voting group, is required to amend the
provisions of the Articles relating to the parameters
of the Board. The Company's By-laws require that
shareholders give the Secretary of the Company notice
of shareholder nominees for election as a director no
more than 120 days and no later than 90 days before the
previous year's anniversary date of the first mailing
of the Company's proxy statement. 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 more than 120
days and no later than 90 days before the previous
year's anniversary date of the first mailing of the
Company's proxy statement. The Board has the power to
amend the By-laws, but shareholders may not amend any
provision of the By-laws without the affirmative vote
of 80% of the voting power of the outstanding voting
shares, voting as a single voting group. 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
3
<PAGE>
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 Agreement" 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."
Risk Factors
Shareholders should consider certain factors as
discussed under "Risk Factors."
Principal Office of
the Company 501 Merritt 7, Norwalk, Connecticut 06851.
4
<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
</TABLE>
<TABLE>
<CAPTION>
UNAUDITED
SEPTEMBER 30, 1998 DECEMBER 31,
------------------ --------------------
BALANCE SHEET DATA: 1997 1996 1995
- ------------------- ------ ------ ------
<S> <C> <C> <C> <C>
Total Assets $691.2 $693.2 $651.2 $624.1
Short-Term Borrowings(1) 0.3 1.4 1.8 0.1
Total Liabilities 217.7 237.6 221.6 212.7
Equity and Cumulative Translation Ad-
justment 473.5 455.6 429.6 411.4
</TABLE>
- --------
(1) The financial data above do not include any amount for borrowings or the
related interest expense relating to the Credit Facility. Prior to the
Distribution Date, Olin will borrow $75 million under the Five-year
Facility, which liability will be assumed by the Company. See Notes to
Combined Financial Statements--"Pro forma Effect of Borrowings under the
Credit Facility (Unaudited)."
5
<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 two shares 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, one or more certificates 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 two shares 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."
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
6
<PAGE>
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 more highly valued with
investors and thus more valuable to the Company for use in making 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 funds
requested for such capital spending will exceed the amount of funds that will
be approved for usage due to self-imposed limitations on Olin's capital
expenditures. 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 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
7
<PAGE>
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 23,266,567
Shares outstanding, based on the number of record shareholders and outstanding
shares of Olin Common Stock on November 30, 1998, and the Distribution Ratio
of one Share for every two shares 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.
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.
8
<PAGE>
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 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 effect of possible
changes in tax laws. See also "Risk Factors--Certain Tax Risks of the
Distribution."
9
<PAGE>
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 November 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 Long Term Incentive 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, such as exemptions
afforded by Section 4(2) of the Securities Act or Rule 144 thereunder.
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
10
<PAGE>
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.
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 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.
11
<PAGE>
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.
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 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
12
<PAGE>
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 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.
INTERNATIONAL OPERATIONS
The Company operates manufacturing facilities in six countries and sells
products in over 60 countries. Approximately 15 percent of the Company's sales
are denominated in currencies other than the U.S. dollar. In addition, certain
expenses are denominated in foreign currencies. As a result of its
international operations, the Company is subject to risks associated with
operating in foreign countries, including currency devaluations and
fluctuations in currency exchange rates. Although such risks have not had a
material adverse effect on the Company in the past, no assurance can be given
that such risks will not have a material adverse effect on the Company in the
future. 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.
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 $0.20 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.
13
<PAGE>
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 "ARJ." 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."
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 Agreement."
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 $0.80 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, will be
restricted in certain circumstances by negative covenants in the Credit
Facility.
14
<PAGE>
CAPITALIZATION
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 $75 million 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 ADJUSTMENTS ADJUSTED
------ ----------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Short-Term Borrowings $ .3 $ -- $ .3
Long-Term Debt 5.5 75.0 80.5
------ ------ ------
Total Debt 5.8 75.0 80.8
------ ------ ------
Common Stock -- 23.3 23.3
Additional Paid-In Capital -- 389.3 389.3
Cumulative Translation Adjustment (14.1) -- (14.1)
Equity 487.6 (487.6) --
------ ------ ------
Total Shareholders' Equity 473.5 (75.0) 398.5
------ ------ ------
Total Capitalization $479.3 $ -- $479.3
====== ====== ======
</TABLE>
The foregoing table is based on each holder of Olin Common Stock receiving a
dividend of one share of Company Common Stock for every two shares of Olin
Common Stock. The pro forma number of shares is based on 46,533,134 shares of
Olin Common Stock outstanding as of November 30, 1998.
Prior to the Distribution, the Company will succeed to the Credit Facility
established by Olin. Olin will have previously borrowed $75 million under the
Five-year Facility, which liability will be assumed by the Company. 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, including certain restrictions on the payment of dividends by
the Company. See "Business--Credit Facility."
15
<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,
------------------ --------------------------------------
1998 1997 1997 1996 1995 1994 1993
OPERATIONS -------- -------- ------ ------ ------ ------ ------
<S> <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 Administra-
tion 127.9 118.3 153.5 159.0 141.1 120.0 126.3
Charge for Strategic Ac-
tion 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 In-
come, 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)
======== ======== ====== ====== ====== ====== ======
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>
<TABLE>
<CAPTION>
UNAUDITED
SEPTEMBER 30, 1998 DECEMBER 31,
------------------ ----------------------------------
1997 1996 1995 1994 1993
FINANCIAL POSITION ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Property, Plant and
Equipment, net $305.1 $280.4 $257.3 $261.4 $225.5 $252.6
Total Assets 691.2 693.2 651.2 624.1 500.3 501.5
Capitalization (3):
Short-Term Borrowings 0.3 1.4 1.8 0.1 0.4 7.7
Long-Term Debt 5.5 5.5 5.5 5.5 -- --
Equity and Cumulative
Translation Adjustment 473.5 455.6 429.6 411.4 329.2 347.2
------ ------ ------ ------ ------ ------
Total Capitalization 479.3 462.5 436.9 417.0 329.6 354.9
====== ====== ====== ====== ====== ======
</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 borrowings or the
related interest expense relating to the Credit Facility. Prior to the
Distribution Date, Olin will borrow $75 million under the Five-year
Facility, which liability will be assumed by the Company. See Notes to
Combined Financial Statements--"Pro forma Effect of Borrowings under the
Credit Facility (Unaudited)."
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results
of Operations covers periods when the Company operated as the specialty
chemical businesses of Olin. However, this discussion and analysis of
financial condition and results of operations has been prepared as if the
Company were a separate entity for all periods discussed. It should be read in
conjunction with the Company's historical Combined Financial Statements and
Notes thereto included elsewhere herein. Sales consist of sales to third
parties net of any discounts. Gross Margin is defined as Sales less Cost of
Goods Sold which include raw materials, labor, overhead and depreciation
associated with the manufacture of the Company's various products. Other
operating expenses include selling, administration, research and development.
RESULTS OF OPERATIONS
COMBINED
<TABLE>
<CAPTION>
UNAUDITED
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
----------------- --------------------------
1998 1997 1997 1996 1995
-------- -------- -------- -------- --------
($ IN MILLIONS)
<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 amount for borrowings or the
related interest expense relating to the Credit Facility. Prior to the
Distribution Date, Olin will borrow $75 million under the Five-year
Facility, which liability will be assumed by the Company. See Notes to
Combined Financial Statements--"Pro forma 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. Under the tolling operation, the Company
does contract manufacturing for a third party who sells the manufactured
product to other parties.
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.
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.
17
<PAGE>
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 businessses 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.
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 $7 million gain on the sale of the
Company's chlorinated isocyanurate pool chemical assets (SUN(R) brand
trademark, a dry sanitizer plant in South Charleston, West Virginia, and a
related tableting operation in Livonia, Michigan).
The effective tax increased to 35.1% in 1996 from 34.8%.
MICROELECTRONIC CHEMICALS
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
------------------ --------------------
1998 1997 1997 1996 1995
-------- -------- ------ ------ ------
($ IN MILLIONS)
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
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
18
<PAGE>
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 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
SEPTEMBER 30, DECEMBER 31,
----------------- --------------------
1998 1997 1997 1996 1995
-------- -------- ------ ------ ------
($ IN MILLIONS)
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
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
19
<PAGE>
volumes of calcium hypochlorite due to increased competition and unfavorable
weather conditions. Lower volumes, principally from lower iso sales, more than
offset higher prices. 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
SEPTEMBER 30, DECEMBER 31,
------------- --------------------
1998 1997 1997 1996 1995
------ ------ ------ ------ ------
($ IN MILLIONS)
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
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 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
20
<PAGE>
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.
ENVIRONMENTAL
The establishment and implementation of federal, state and local standards
to regulate air and water quality and to govern contamination of land and
goundwater 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 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
21
<PAGE>
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 $2.3 million, $3.2 million and $0.9 million at September 30, 1998, December
31, 1997 and December 31, 1996, respectively, 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.
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
22
<PAGE>
compared to the reported net income of $56.3 million, after 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, the Company will succeed to the Credit Facility
established by Olin. Olin will have previously borrowed $75 million under the
Five-year Facility, which liability will be assumed by the Company. The
amounts remaining under the Credit Facility are expected to provide sufficient
liquidity for the Company's current funding needs. The Credit Facility is
expected to have various borrowing options and to contain customary commercial
bank covenants, including certain restrictions on the payment of dividends by
the Company. See "Business--Credit Facility."
CASH FLOW DATA
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
------------------ ----------------------
1998 1997 1997 1996 1995
-------- -------- ------ ------ ------
($ IN MILLIONS)
<S> <C> <C> <C> <C> <C>
PROVIDED BY (USED FOR)
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, 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.
23
<PAGE>
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.
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.
24
<PAGE>
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
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
25
<PAGE>
client-server system, Peoplesoft, to address payroll and human resource needs
and it presently uses such system in all businesses. Deployment of Peoplesoft
was completed in 1997. 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 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. The independent
assessment does not address the accuracy of the Company's cost estimates.
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 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.
26
<PAGE>
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 $10 million
over the next 15 months, inclusive of the cost for continued deployment of SAP
and related infrastructure.
27
<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.
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
28
<PAGE>
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 with 65% to 70% available
chlorine. 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 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.
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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 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
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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. The Company has not experienced any
difficulty in securing raw materials. Outlined below are the 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 three process patents for the technology relating to the
manufacture of J3 calcium hypochlorite which are materially important to the
water chemicals business. One of these patents expires in 2009 and the others
expire in 2010. 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 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.
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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 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
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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 Distribution 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
operations. See "Relationship Between Olin and the Company after the
Distribution--Distribution Agreement."
CREDIT FACILITY
Prior to the Distribution Date, the Company will succeed to a $100 million,
five-year revolving credit facility (the "Five-year Facility") and a $100
million, 364-day credit facility (the "364-day Facility" and, together with
the Five-year Facility, the "Credit Facility"), each established by Olin. Olin
will previously have borrowed $75 million under the Five-year Facility, which
liability will be assumed by the Company. 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 financial covenants restricting the
amount of total leverage to earnings before interest, taxes, depreciation and
amortization and limiting the ratio of earnings before interest, taxes,
depreciation and amortization to interest expense and will contain negative
covenants that, among other things, restrict the payment of dividends and
repurchases of 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.
LOCATION PRIMARY ACTIVITIES
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 Manufacturing facility and materials research
Island 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
- --------
(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 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
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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 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.
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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.
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 Distribution 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, 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, among other things, the transfer by
Olin to the Company of the assets and business entities comprising the
Specialty Chemical Businesses and 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. 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 $75 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 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 described in this Information
Statement, shall have been elected by Olin, as sole shareholder of the
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Company, and the Articles, By-laws and Rights Agreement shall be in effect;
(7) the Olin Board of Directors shall have formally approved the Distribution;
(8) each of 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 Information Technology Services 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 also provides that, subject to certain
exceptions, the Company and Olin have each agreed to assume and indemnify and
hold the other 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 or
Olin, respectively, prior to, on or after the Distribution. The Distribution
Agreement further 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."
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. 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.
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 being provided 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 Agreement
("Covenant Not to Compete Agreement") which generally provides that for a
period of five years after the Distribution Date (i) Olin shall
39
<PAGE>
not, with certain limited exceptions, directly or indirectly manufacture,
sell, market or distribute products or product-related services that are
substantially similar to those which the Specialty Chemical Businesses are
manufacturing, selling, marketing or distributing at the time of the
Distribution and (ii) the Company shall not, with certain limited exceptions,
directly or indirectly manufacture, sell, market or distribute products or
product-related services that are substantially similar to those which Olin's
Retained Businesses are manufacturing, selling, marketing 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 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. Options (including Olin
Options) held by Company employees will be provided under an Arch Plan. 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."
40
<PAGE>
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 Distribution and for the granting of
licenses between Olin and the Company relating to the use of certain
intellectual property and technology.
INFORMATION TECHNOLOGIES SERVICES AGREEMENT
The Company and Olin will enter into an information technologies services
agreement (the "Information Technology Services Agreement") pursuant to which
the Company will provide Olin after the Distribution Date with certain
computer and communication services previously provided by Olin prior to the
Distribution. These services include data center services, computer software
and hardware technical support and network operations support. The agreement
will have an initial term of two years with limited exceptions for certain
services, related to third party contracts, which will extend beyond two
years. Services are to be provided on a cost allocation basis.
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.
41
<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 seven
directors, only one of whom will be an officer of the Company. Currently, six
individuals have been selected as directors, and the seventh director will be
selected prior to the Distribution Date. The following table contains
information concerning the six 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 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.
42
<PAGE>
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
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.
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
43
<PAGE>
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 .
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
44
<PAGE>
other fiduciaries, make recommendations to the Board for charitable
contributions 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 .
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, 41 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."
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
45
<PAGE>
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.
46
<PAGE>
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, 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
1998 ANNUAL COMPENSATION COMPENSATION
------------------------------ ------------
AWARDS(A) PAYOUTS
------------ --------
NAME AND PRINCIPAL SECURITIES
POSITION WITH OLIN OTHER ANNUAL UNDERLYING LTIP ALL OTHER
AT DECEMBER 31, 1998 SALARY BONUS COMPENSATION(B) OPTIONS(C) PAYOUTS COMPENSATION(D)
-------------------- -------- ----- --------------- ------------ -------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Michael E. Campbell $425,004 (e) $17,743 50,000 $207,140 $32,168
Executive Vice
President
Leon B. Anziano $362,796 (e) $15,535 20,000 $203,733 $65,576
Vice President and
President,
Chlor-alkali Division
Sarah Y. Kienzle $225,000 (e) $ 0 20,000 $ 0 $11,355
Vice President,
Planning and
Development
Mark A. Killian $186,400 (e) $ 1,537 7,500 $63,507 $13,095
Director, Human
Resources
Louis S. Massimo $200,004 (e) $ 0 12,500 $ 0 $12,214
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 1998 are comprised of the following
items:
<TABLE>
<CAPTION>
OLIN CONTRIBUTING OLIN SUPPLEMENTAL OLIN VALUE OF SPLIT-
EMPLOYEE CONTRIBUTING OLIN TERM DOLLAR LIFE
OWNERSHIP PLAN EMPLOYEE LIFE INSURANCE
COMPANY MATCH OWNERSHIP PLAN(1) INSURANCE(2) PREMIUMS(3)
----------------- ----------------- ------------ --------------------
<S> <C> <C> <C> <C>
M. E. Campbell $8,310 $11,756 $1,390 $10,712
L. B. Anziano 8,258 6,594 1,390 6,125
S. Y. Kienzle 3,067 5,563 1,303 1,422
M. A. Killian 5,941 313 1,087 5,754
L. S. Massimo 5,038 4,613 1,158 1,405
</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 1998 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)Bonus amounts for 1998 have not yet been determined.
47
<PAGE>
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, 1998 through
December 31, 1998. In addition, options to 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)
---------------------------------------------------------------------------------------
% OF TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED POTENTIAL REALIZABLE VALUE AT
UNDERLYING TO ALL ASSUMED RATES OF STOCK PRICE
OPTIONS EMPLOYEES APPRECIATION FOR OPTION TERM(D)(E)
GRANTED IN FISCAL EXERCISE EXPIRATION ------------------------------------------
NAME (A,B) YEAR PRICE(C) DATE 0% 5% 10%
---- ---------- ---------- -------- ---------- ----------------------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
M. E. Campbell 50,000 6.0% $43.13 1/28/08 0
L. B. Anziano 20,000 2.4% $43.13 1/28/08 0
S. Y. Kienzle 20,000 2.4% $43.13 1/28/08
M. A. Killian 7,500 1.0% $43.13 1/28/08
L. S. Massimo 12,500 1.5% $43.13 1/28/08
All Stockholders N/A N/A N/A N/A 0
All Optionees 835,700 100.0% $43.05 (f) 0
</TABLE>
- --------
(a) Options were awarded to the Named Executive Officers on January 29, 1998.
One-third of the grant becomes exercisable on each January 28 beginning in
1999.
(b) Under the 1996 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 1998 and which were still outstanding at year-end.
(f) The expiration dates of options granted during fiscal 1998 are January 29,
2008, May 1, 2008 and September 24, 2008.
48
<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
1998 and the value of in-the-money outstanding options to purchase Olin Common
Stock at the end of 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES AGGREGATE VALUE OF
UNDERLYING UNEXERCISED UNEXERCISED, IN-THE-MONEY
OPTIONS AT 12/31/98 OPTIONS AT 12/31/98(A)
------------------------- -------------------------
SHARES
ACQUIRED VALUE
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
M. E. Campbell 4,289 $95,473 88,446 90,325
L. B. Anziano 0 0 44,643 40,163
S. Y. Kienzle 0 0 3,334 26,666
M. A. Killian 0 0 13,219 15,565
L. S. Massimo 0 0 11,477 23,238
</TABLE>
- --------
(a) Value was computed as the difference between the exercise price and the
$ per share closing price of Olin Common Stock on December 31, 1998, as
reported on the consolidated transaction reporting system of the NYSE.
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
49
<PAGE>
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 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. Existing accounts under The Olin
Corporation 1997 Stock Plan for Non-employee Directors (including Olin phantom
shares) held for the benefit of individuals who become non-employee directors
of the Company will be transferred to the Directors 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 under "--Compensation of Executive Officers"), 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 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,
50
<PAGE>
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, 1998 are as follows: Mr. Campbell, 20.6 years (11.3 years under the Senior
Plan); Mr. Anziano, 25.1 years (11.0 years under the Senior Plan), Ms.
Kienzle, 1.4 years (1.4 years under the Senior Plan), Mr. Killian, 19.8 years
(0 years under the Senior Plan), and Mr. Massimo, 4.1 years (1.1 years 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.
51
<PAGE>
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 fully vested in the Olin CEOP at
the time of the Distribution 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-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.
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.
52
<PAGE>
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.
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.
53
<PAGE>
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.
Existing accounts under the Olin Corporation Employee Deferral Plan (including
Olin stock units) held for the benefit of individuals who will become Company
employees will be transferred to the Company's deferral plan.
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 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 Messrs.
, and .
54
<PAGE>
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 two shares 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 2,425 --
John W. Johnstone, Jr. 179,124 --
Jack D. Kuehler 6,245 --
H. William Lichtenberger 4,863 --
John P. Schaefer 7,158 --
Michael E. Campbell 59,046 --
Leon B. Anziano 31,798 --
Sarah Y. Kienzle 2,255 --
Mark A. Killian 9,075 --
Louis S. Massimo 6,172 --
Directors and executive officers as a group, including
those named above (11 persons) 309,311 1.3
</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 2,302 for Mr. Cavanagh; 846
for Mr. Johnstone; 6,245 for Mr. Kuehler; 4,663 for Mr. Lichtenberger; and
4,478 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, 119,302; Mr. Campbell, 46,367; Mr. Anziano,
22,321; Ms. Kienzle, 1,667; Mr. Killian, 6,609; Mr. Massimo, 5,738; and
all directors and executive officers as a group, including the named
individuals, 202,006.
(c) Unless otherwise indicated, beneficial ownership of any named individual
does not exceed 1% of the outstanding shares of Company Common Stock.
55
<PAGE>
BY OTHERS
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT
NAME AND ADDRESS OF BENEFICIAL BENEFICIAL OF
OWNER OWNERSHIP CLASS
------------------------------ ----------- -------
<S> <C> <C>
Franklin Resources, Inc. 2,676,755(a) 11.0
777 Mariners Island Boulevard
San Mateo, CA 94403
Scudder, Kemper Investments, Inc. 2,166,956(b) 9.2
345 Park Avenue
New York, NY 10154
FMR Corp. 2,018,575(c) 8.5
82 Devonshire Street
Boston, MA 02109
T. Rowe Price Associates, Inc. 1,433,500(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 depositive 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 498,000 shares, and shared power to vote with respect
to 1,525,800 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 1,701,225 and 230,700 shares, respectively. Both are subsidiaries of
FMR Corp. ("FMR"). Edward C. Johnson 3rd ("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 230,700 shares, sole voting power over 173,450 shares and no
voting power with respect to 57,250 of the shares. Additionally, Fidelity
International Limited beneficially owns 86,650 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 250,400 shares.
T. Rowe Price Associates, Inc. expressly disclaims that it is, in fact,
the beneficial owner of such securities.
56
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the Distribution, the Company will assume $75 million of
indebtedness of Olin incurred pursuant to the Five-year 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 November
30, 1998, and the Distribution Ratio of one share of the Company for every two
shares of Olin Common Stock, it is expected that approximately 23,266,567
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
(as defined below).
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 ChaseMellon
Shareholder Services, L.L.C.
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
57
<PAGE>
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 Agreement."
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
Agreement."
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 in the
Articles at eight. The affirmative vote of 80% of the voting power of the
outstanding voting shares, voting as a single voting group, is required to
amend the provisions of the Articles relating to the parameters of the Board.
Special meetings of shareholders may be called only by the Board or certain
designated officers. Directors may be removed only with cause and by the
affirmative vote of 80% of the voting power of the outstanding voting shares,
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
more than 120 days and no later than 90 days before the previous year's
anniversary date of the first mailing of the Company's proxy statement. The
Board has the power to amend the By-laws, but shareholders may not amend any
provision of the By-laws without the affirmative vote of 80% of the voting
power of the outstanding voting shares, voting as a single voting group. 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
58
<PAGE>
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.
59
<PAGE>
RIGHTS AGREEMENT
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 ChaseMellon Shareholder Services, L.L.C.,
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 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.
60
<PAGE>
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.
AVAILABLE INFORMATION
The Company has filed with the Commission the 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
61
<PAGE>
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.
62
<PAGE>
INDEX TO COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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
</TABLE>
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
<TABLE>
<CAPTION>
UNAUDITED DECEMBER 31,
SEPTEMBER 30, --------------
1998 1997 1996
------------- ------ ------
($ IN MILLIONS)
<S> <C> <C> <C>
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 $651.2
====== ====== ======
</TABLE>
See accompanying notes to the combined financial statements
F-3
<PAGE>
ARCH CHEMICALS, INC.
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
UNAUDITED
NINE MONTHS ENDED YEARS ENDED DECEMBER
SEPTEMBER 30, 31,
----------------- --------------------
1998 1997 1997 1996 1995
-------- -------- ------ ------ ------
($ IN MILLIONS)
<S> <C> <C> <C> <C> <C>
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
======== ======== ====== ====== ======
</TABLE>
See accompanying notes to the combined financial statements
F-4
<PAGE>
ARCH CHEMICALS, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
UNAUDITED
NINE MONTHS
ENDED YEARS ENDED DECEMBER
SEPTEMBER 30, 31,
-------------- ----------------------
1998 1997 1997 1996 1995
------ ------ ------ ------ ------
($ IN MILLIONS)
<S> <C> <C> <C> <C> <C>
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-consolidated
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
====== ====== ====== ====== ======
</TABLE>
See accompanying notes to the combined financial statements
F-5
<PAGE>
ARCH CHEMICALS, INC.
COMBINED STATEMENTS OF EQUITY AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
CUMULATIVE
TRANSLATION COMPREHENSIVE
EQUITY ADJUSTMENT INCOME
------ ----------- -------------
($ IN MILLIONS)
<S> <C> <C> <C>
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 $(14.1)
====== ======
</TABLE>
See accompanying notes to the combined financial statements
F-6
<PAGE>
ARCH CHEMICALS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
($ 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 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.
F-7
<PAGE>
ARCH CHEMICALS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
($ IN MILLIONS)
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.
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 $18.6 related to these agreements.
INVENTORIES
Inventories are stated at the lower of cost or net realizable value. Certain
inventories are included in a larger pool of Olin inventories valued by the
dollar value last-in, first-out (LIFO) method of inventory accounting. The
F-8
<PAGE>
ARCH CHEMICALS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
($ IN MILLIONS)
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:
<TABLE>
<S> <C>
Improvements to land 10 to 20 years
Building and building equipment 10 to 25 years
Machinery and equipment 3 to 12 years
</TABLE>
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. Accumulated amortization was $20.9, $19.4 and
$17.3 at September 30, 1998, December 31, 1997 and 1996, respectively. The
Company periodically reviews the value of its goodwill to determine if any
impairment has occurred. The Company assesses the potential impairment of
recorded goodwill and other long-lived assets by comparing the undiscounted
value of the related expected future operating cash flows to the net book
value of the goodwill. An impairment would be recorded based on the estimated
fair value. Other intangibles, which consist primarily of patents, trademarks,
and various technology licensing agreements, are amortized on a straight-line
basis principally over 3 to 15 years.
ENVIRONMENTAL LIABILITIES AND EXPENDITURES
Accruals for environmental matters are recorded when it is probable that a
liability has been incurred and the amount of the liability can be reasonably
estimated, based upon current law and existing technologies. These amounts,
which are not discounted and are exclusive of claims against third parties,
are adjusted periodically as assessment and remediation efforts progress or
additional technical or legal information becomes available. Environmental
remediation costs are charged to expense. Environmental costs are capitalized
if the costs increase the value of the property and /or mitigate or prevent
contamination from future operations.
INCOME TAXES
Prior to the Distribution, the Company's operations are included in the U.S.
federal consolidated tax returns of Olin. The provision for income taxes
includes the Company's allocated share of Olin's consolidated income tax
provision and is calculated on a separate company basis pursuant to the
requirements of Statement of
F-9
<PAGE>
ARCH CHEMICALS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
($ IN MILLIONS)
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 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 $(.8) in 1995.
FINANCIAL INSTRUMENTS
The carrying values of cash and cash equivalents, accounts receivable and
accounts payable approximated fair values due to the short-term maturities of
these instruments. The fair value of the Company's long-term debt was
determined based on current market rates for debt of the same risk and
maturities. The fair values of currency forward and option contracts were
estimated based on quoted market prices for contracts with similar terms.
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation under SFAS No.
123 "Accounting for Stock-Based Compensation." As allowed under SFAS No. 123,
the Company has chosen to account for stock-based compensation cost in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees." Under this option, compensation cost is recorded
when the fair market value of the Company's stock at the date of grant for
fixed options exceeds the exercise price of the stock option. Olin's
F-10
<PAGE>
ARCH CHEMICALS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
($ IN MILLIONS)
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 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.
Pro forma net income was calculated based on the following assumptions as if
the Company had recorded compensation expense for the Olin stock options
granted to those employees of the Specialty Chemicals business since 1995. The
fair value of each Olin option granted during 1997, 1996, and 1995 was
estimated on the date of grant using the Black-Scholes option pricing model
with the following weighted-average assumptions used: dividend yield of 2.8%
in 1997, 4.0% in 1996 and 4.2% in 1995, risk free interest rate of 5.5% in
1997, 6.5% in 1996 and 1995, expected volatility of 21% in 1997, 22% in 1996
and 20% in 1995 and an expected life of 7 years. Pro forma net income as if
the Company had recorded compensation expense for the Olin stock options
granted was $55.6, $60.7, and $43.8 in 1997, 1996 and 1995, respectively.
The pro forma amounts are not necessarily representative of the effects of
stock-based awards on future pro forma net income because (1) future grants of
employee stock options to Arch management may not be comparable to awards made
to employees while Arch was a part of Olin and (2) the assumptions used to
compute the fair value of any stock option awards may not be comparable to the
Olin assumptions used.
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 $.5 in 1997, 1996 and 1995,
respectively.
F-11
<PAGE>
ARCH CHEMICALS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
($ IN MILLIONS)
INVENTORIES
<TABLE>
<CAPTION>
UNAUDITED DECEMBER 31,
SEPTEMBER 30, --------------
1998 1997 1996
------------- ------ ------
<S> <C> <C> <C>
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
====== ====== ======
</TABLE>
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.
PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
UNAUDITED DECEMBER 31,
SEPTEMBER 30, -------------
1998 1997 1996
------------- ------ ------
<S> <C> <C> <C>
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
====== ====== ======
</TABLE>
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.
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.
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 will borrow $75 under the Five-year Facility prior
to the Distribution, which liability will be assumed by the Company.
F-12
<PAGE>
ARCH CHEMICALS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
($ IN MILLIONS)
The following represents the pro forma effects of borrowings assuming $75 is
outstanding under the Five-year Facility for one full year and that the
Company has seasonal weighted average borrowings related to the Water
Chemicals Segment of $20 under the 364-day Facility at an aggregate effective
rate of 7%.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED
1998 DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
Pro forma effect on:
Increase to Interest Expense........ $4.9 $6.6
Decrease to Net Income.............. 3.2 4.3
</TABLE>
The pro forma effect on equity assuming the $75 was borrowed under the
Credit Facility at September 30, 1998 and there were no outstanding borrowings
at September 30, 1998 related to the seasonal borrowing for the Water
Chemicals Segment is a reduction to equity of $75.
PENSION PLANS AND RETIREMENT BENEFITS
Virtually all U.S. employees of the Company are participants in one of
several Olin pension benefit plans covering employees of other Olin
businesses. Costs and expenses include accruals for pensions and post
retirement medical and death benefits.
Following the Distribution, the Company will establish a defined benefit
pension plan for Company employees that will provide benefits based on service
with Olin and with the Company. The Company will become liable for the payment
of all pension plan benefits earned by Company employees prior to and
following the Distribution who retire after the Distribution. Olin will
transfer assets to the Company's pension plan and the amount of the assets
will be calculated as required using the asset allocation methodology set
forth in Section 4044 of the Employee Retirement Income Security Act of 1974,
as amended. Olin will remain liable for post retirement medical and death
benefits provided to former employees of the Company who retire prior to the
Distribution. The Company will adopt a retiree medical and death benefits plan
which largely replicates the Olin retiree medical and death benefit program.
The Company will become liable for the payment of all retiree medical and
death benefits earned by Company employees prior to and following the
Distribution who retire after the Distribution. The Olin plan is an unfunded
plan, therefore no assets will be transferred. The following tables reflect
the components of the net pension cost, post retirement expense and the funded
status of the portion of the Olin retirement plans, which represents the
Company's share and are reflected in the Combined Financial Statements.
F-13
<PAGE>
ARCH CHEMICALS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
($ IN MILLIONS)
COMPONENTS OF NET PENSION EXPENSE
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------
1997 1996 1995
---- ----- -----
<S> <C> <C> <C>
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 compensation increase 4.5% 4.5% 4.5%
Long-term rate of return on assets 9.5% 9.5% 9.5%
</TABLE>
FUNDED STATUS OF THE PLANS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1997 1996
----- ------
<S> <C> <C>
Accumulated benefit obligation including vested benefits of
$52.9 and $39.3 $64.5 $ 46.5
----- ------
Plan assets at fair value, primarily equity and 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)
===== ======
</TABLE>
The Company's foreign subsidiaries maintain pension and other benefit plans
which are consistent with statutory practices and are not significant.
The Company provides certain post retirement health care and life insurance
benefits for eligible active employees.
COMPONENTS OF POST RETIREMENT EXPENSE
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
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
===== ===== =====
</TABLE>
F-14
<PAGE>
ARCH CHEMICALS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
($ IN MILLIONS)
UNFUNDED LIABILITY FOR POST RETIREMENT BENEFITS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1997 1996
------ ------
<S> <C> <C>
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
====== ======
</TABLE>
The accumulated post retirement 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
post retirement benefit obligation at December 31, 1997.
ACCRUED AND NON-CURRENT LIABILITIES
Included in accrued liabilities are the following items:
<TABLE>
<CAPTION>
DECEMBER
31,
-----------
1997 1996
----- -----
<S> <C> <C>
Deferred income $10.4 $ 1.3
Other 52.6 52.4
----- -----
Total accrued liabilities $63.0 $53.7
===== =====
</TABLE>
Included in other non-current liabilities are the following items:
<TABLE>
<CAPTION>
DECEMBER
31,
-----------
1997 1996
----- -----
<S> <C> <C>
Deferred income $20.9 $ 3.0
Other 28.6 27.1
----- -----
Total other non-current liabilities $49.5 $30.1
===== =====
</TABLE>
Deferred income relates primarily to a prepayment under a three-year supply
agreement entered into in 1997 in connection with the sale of the surfactants
business to BASF.
F-15
<PAGE>
ARCH CHEMICALS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
($ IN MILLIONS)
INCOME TAXES
COMPONENTS OF PRETAX INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
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
======== ======== ========
</TABLE>
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)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
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
======== ======== ========
</TABLE>
F-16
<PAGE>
ARCH CHEMICALS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
($ IN MILLIONS)
COMPONENTS OF DEFERRED TAX ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
DECEMBER
31,
-----------
1997 1996
----- -----
<S> <C> <C>
Deferred tax assets
Post retirement benefits $ 5.3 $ 5.3
Non-deductible reserves 22.3 16.8
Other miscellaneous items 4.5 5.3
----- -----
Total deferred tax assets 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
===== =====
</TABLE>
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.
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 $2.5 in
1997, 1996 and 1995, respectively. It is anticipated that the Company will
adopt a similar plan subsequent to the Distribution.
LONG-TERM INCENTIVE PLAN
At the time of the Distribution, stock options issued by Olin will be
converted into both an option to purchase Company common stock ("Company
Options") and an option to purchase Olin common stock ("New Olin Options")
with the same "intrinsic value" at the time of the Distribution as the old
award. The conversion of the options will not result in a charge to earnings
as no new measurement date will be created. The Company will be responsible
for delivering shares of Company common stock upon exercise of Company
Options, and Olin will be responsible for the delivery of shares of Olin
Common stock upon exercise of New Olin Options. Options granted under the Olin
1980 Stock Option Plan to Olin employees who become Company employees upon the
Distribution will terminate upon the earlier of (i) the end of their term or
(ii) two years following the Distribution. Options granted to such employees
under the Olin 1988 Stock Option Plan or the Olin 1996 Stock Option Plan will
retain the original term of the option. Options granted to such employees
under the Olin 1996 Stock Option Plan which are not yet vested at the time of
the Distribution will continue to vest in accordance with their vesting
schedule so long as the optionee remains employed at the Company. As of
December 31, 1997 there were 2,446,463 Olin options outstanding, of which
1,250,358 were exercisable.
F-17
<PAGE>
ARCH CHEMICALS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
($ IN MILLIONS)
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.
SEGMENT INFORMATION
The Company has adopted SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information."
<TABLE>
<CAPTION>
UNAUDITED
NINE MONTHS
ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
-------------- --------------------------
1998 1997 1997 1996 1995
------ ------ -------- -------- --------
<S> <C> <C> <C> <C> <C>
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
====== ====== ======== ======== ========
EQUITY INCOME IN AFFILIATED
COMPANIES, INCLUDED IN OPERATING
INCOME:
Microelectronic Chemicals $ 1.1 $ 3.0 $ 4.5 $ 4.4 $ 4.3
Water Chemicals 1.7 2.0 2.6 3.2 1.3
------ ------ -------- -------- --------
TOTAL EQUITY INCOME IN AFFILIATED
COMPANIES, INCLUDED IN OPERATING
INCOME $ 2.8 $ 5.0 $ 7.1 $ 7.6 $ 5.6
====== ====== ======== ======== ========
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
====== ====== ======== ======== ========
INVESTMENTS IN AND ADVANCES TO
AFFILIATED COMPANIES AT EQUITY:
Microelectronic Chemicals $ -- $ -- $ -- $ -- $ --
Water Chemicals -- -- -- 1.2 1.3
------ ------ -------- -------- --------
TOTAL INVESTMENTS IN AND ADVANCES TO
AFFILIATED COMPANIES AT EQUITY $ -- $ -- $ -- $ 1.2 $ 1.3
====== ====== ======== ======== ========
</TABLE>
F-18
<PAGE>
ARCH CHEMICALS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
($ IN MILLIONS)
<TABLE>
<CAPTION>
UNAUDITED DECEMBER 31,
SEPTEMBER 30, -------------
1998 1997 1996
------------- ------ ------
<S> <C> <C> <C>
TOTAL ASSETS:
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
====== ====== ======
</TABLE>
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.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
----------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
SALES
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
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1997 1996
------- ------
<S> <C> <C>
TOTAL ASSETS
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
======= ======
</TABLE>
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 $92.8 in 1997, 1996, and 1995, respectively.
F-19
<PAGE>
ARCH CHEMICALS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
($ IN MILLIONS)
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:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
------------
<S> <C>
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
======
</TABLE>
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.
During 1995, the Company sold its dry sanitizer plant in South Charleston,
West Virginia, a related tableting operation in Livonia, Michigan, and Sun(R)
brand of isocyanurates.
Supplemental cash flow information on the businesses sold is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Proceeds $ 12.0 $ 5.5 $ 48.7
Working Capital (9.0) (5.5) (4.0)
Property, Plant and Equipment -- (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
======= ======= ========
</TABLE>
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
F-20
<PAGE>
ARCH CHEMICALS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
($ IN MILLIONS)
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 liabilities
for future environmental expenditures to investigate and remediate known sites
amounting to $2.3, $3.2 and $.9 at September 30, 1998, December 31, 1997 and
December 31, 1996, respectively, 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.
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.
F-21
