ARCH CHEMICALS, INC.
SENIOR MANAGEMENT INCENTIVE COMPENSATION PLAN
(As amended effective January 27, 2000)
Section 1. PURPOSE. The purposes of the Senior Management Incentive
Compensation Plan (the "Plan") are (i) to compensate certain members of senior
management of Arch Chemicals, Inc. (the "Company") on an individual basis for
significant contributions to the Company and its subsidiaries and (ii) to
stimulate the efforts of such members by giving them a direct financial interest
in the performance of the Company.
Section 2. DEFINITIONS. The following terms utilized in this Plan
shall have the following meanings:
"Cash Flow" shall mean for a fiscal year consolidated net
income (loss), before the after-tax effect of any special charge or
gain or cumulative effect of any change in accounting principle, plus
depreciation and amortization, less capital and investment spending and
plus or minus changes in working capital at the end of such fiscal
year.
"Committee" shall mean the Compensation Committee of the Board
of Directors of the Company or such other committee of such Board as
such Board may from time to time designate; provided only those members
of the Compensation Committee (or other Committee designated by such
Board) who qualify as "Outside Directors" as defined in Section 162(m)
shall constitute members of the Committee for purposes of the Plan.
"Consolidated Net Assets" shall mean for a fiscal year
consolidated total assets less consolidated non-interest bearing
liabilities at the end of such fiscal year.
"Earnings Per Share" shall mean for a fiscal year the actual
diluted earnings per share at the end of such fiscal year (calculated
as the net income available to common stockholders divided by the
weighted average number of common stock plus any potential dilutive
common stock (such as stock options) outstanding at the end of such
fiscal year.
"EBIT" shall mean for a fiscal year consolidated net income
(loss) plus income tax expense, interest expense, extraordinary
expenses or losses and any special charges minus interest income and
any extraordinary gains or sales not in the ordinary course of business
at the end of such fiscal year.
"Participant" shall mean for a fiscal year, each salaried
employee who is designated as a Participant by the Committee prior to
the commencement of such fiscal year (or such later date, if any, as
permitted by Section 162(m)); provided for 1999, the Committee shall
designate the Participants prior to April 1, 1999.
"Performance Measures" shall mean for a fiscal year any one or
combination of the following: "Earnings Per Share," "Profit Margin,"
"Return on Total Assets," "Cash Flow," "Return on Equity" and "Return
on Capital" as the Committee determines from time to time with respect
to such fiscal year; provided such determination would not subject any
Incentive Award to Section 162(m).
"Profit Margin" shall mean for a fiscal year consolidated EBIT
(at the end of such fiscal year) divided by consolidated net sales at
the end of such fiscal year.
"Return on Capital" shall mean for a fiscal year consolidated
net income plus after-tax interest expense and the after-tax effect of
any special charge or gain and any cumulative effect of a change in
accounting principle (at the end of such fiscal year), divided by
average Consolidated Net Assets (the average calculated using
Consolidated Net Assets at the beginning and end of such fiscal year).
"Return on Equity" shall mean for a fiscal year consolidated
net income before the after tax effect of any special charge or gain
and any cumulative effect of any change in accounting principle (at the
end of such fiscal year), divided by average shareholders' equity (the
average calculated using shareholders' equity at the beginning and end
of such fiscal year).
"Return on Total Assets" shall mean for a fiscal year the
consolidated EBIT (at the end of such fiscal year) divided by
consolidated average total assets (the average calculated using the
consolidated total assets at the beginning and end of such fiscal
year).
"Section 162(m)" shall mean Section 162(m) of the Internal
Revenue Code of 1986, and the regulations promulgated thereunder, all
as amended from time to time.
Section 3. TERM. The Plan shall be effective as of February 25, 1999
(the "Effective Date"), and shall be applicable for 1999 and all future fiscal
years of the Company unless amended or terminated by the Company pursuant to
Section 7 or as provided in Section 14.
Section 4. INCENTIVE AWARD.
4.1 For each fiscal year of the Company, each Participant may be
entitled to receive an award payable in cash ("Incentive Award") in an amount
determined by the Committee as provided in this Plan. Prior to the commencement
of a fiscal year (or such later date, if any, as permitted by Section 162(m))
(but in the case of the 1999 fiscal year, prior to April 1, 1999), for the
Incentive Awards for such fiscal year, the Committee will designate or approve
(i) the individuals who will be Participants in the Plan, if any, (ii) the
Performance Measures, (iii) if there is more than one Performance Measure, the
weighting of the Performance Measures in determining the Incentive Award, (iv)
the performance goals and payout matrix or formula for each Performance Measure
and (v) the target Incentive Award for each Participant. Following the end of a
fiscal year, the Committee shall determine the Incentive Award for each
Participant by:
(i) comparing actual performance for each measure against the
payout matrix approved for such fiscal year,
(ii) multiplying the payout percentage from the payout matrix for
each Performance Measure by the appropriate weighting factor, and
(iii) summing the weighted payout percentages and multiplying their
overall payout percentage by the Participant's target Incentive Award.
Notwithstanding anything contained in this Plan to the contrary, the
Committee in its sole discretion may reduce any Incentive Award to any
Participant to any amount, including zero, prior to the certification by
resolution of the Committee of the amount of such Incentive Award; however, the
Committee may not reduce an Incentive Award for a fiscal year after December 31
of such fiscal year for a Participant who is employed by the Company on such
date and such Incentive Award shall vest in such Participant on such date.
The Committee shall, by resolution of the Committee, certify, prior to
payment of an Incentive Award, that the Incentive Award has been determined in
accordance with the provisions of this Plan.
Incentive Awards for a fiscal year shall be determined as soon as
practicable after such fiscal year and shall be paid no later than 75 days
following such fiscal year unless deferred as provided in Section 4.4 hereof.
The maximum Incentive Award paid a Participant under this Plan with respect to a
fiscal year may not exceed 200% of such Participant's annual base salary in
effect on December 31 of the immediately preceding fiscal year.
4.2 A Participant whose employment terminates with cause or without the
Committee's written consent during a fiscal year shall forfeit such
Participant's Incentive Award for such fiscal year.
4.3 Incentive Awards shall be payable in a single, lump sum. However,
the Participant may defer payment if the participant so elects pursuant and
subject to the terms of Company's Employee Deferral Plan (or its successor).
4.4 The Company shall withhold from any Incentive Award or payments
made or to be made under this Plan any amount of withholding taxes due in
respect of an Incentive Award, its deferral or payment.
4.5 Participation in this Plan does not exclude Participants from
participation in any other benefit or compensation plans or arrangements of the
Company, including other bonus or incentive plans.
Section 5. ADMINISTRATION AND INTERPRETATION. The Plan shall be
administered by the Committee, which shall have the sole authority to make rules
and regulations for the administration of the Plan. The interpretations and
decisions of the Committee with regard to the Plan shall be final and
conclusive. The Committee may request advice or assistance or employ such
persons (including, without limitation, legal counsel and accountants) as it
deems necessary for the proper administration of the Plan.
Section 6. ADMINISTRATIVE EXPENSES. Any expense incurred in the
administration of the Plan shall be borne by the Company out of its general
funds.
Section 7. AMENDMENT OR TERMINATION. The Committee of the Company may
from time to time amend the Plan in any respect or terminate the Plan in whole
or in part, provided that no such action shall increase the amount of any
Incentive Award for which performance goals have been established but which has
not yet been earned or paid; provided further that such action will not cause an
Incentive Award to become subject to the deduction limitations contained in
Section 162(m).
Section 8. NO ASSIGNMENT. The rights hereunder, including without
limitation rights to receive an Incentive Award, shall not be pledged, assigned,
transferred, encumbered or hypothecated by an employee of the Company, and
during the lifetime of any Participant any payment of an Incentive Award shall
be payable only to such Participant.
Section 9. THE COMPANY. For purposes of this Plan, the "Company" shall
include the successors and assigns of the Company, and this Plan shall be
binding on any corporation or other person with which the Company is merged or
consolidated.
Section 10. NO RIGHT TO EMPLOYMENT. The designation of an employee as a
Participant or grant of an Incentive Award shall not be construed as giving a
Participant the right to be retained in the employ of the Company or any
affiliate or subsidiary.
Section 11. GOVERNING LAW. The validity, construction and effect of the
Plan and any rules and regulations relating to the Plan shall be determined in
accordance with the laws of the State of Connecticut and applicable federal law.
Section 12. NO TRUST. Neither the Plan nor any Incentive Award shall
create or be construed to create a trust or separate fund of any kind or a
fiduciary relationship between the Company or any Participant. To the extent any
Participant acquires a right to receive payments from the Company in respect to
any Incentive Award, such right shall be no greater than the right of any
unsecured general creditor of the Company.
Section 13. SECTION 162(m). It is the intention of the Company that all
payments made under the Plan be excluded from the deduction limitations
contained in Section 162(m). Therefore, if any Plan provision is found not to be
in compliance with the "performance-based" compensation exception contained in
Section 162(m), that provision shall be deemed amended so that the Plan does so
comply to the extent permitted by law and deemed advisable by the Committee, and
in all events the Plan shall be construed in favor of its meeting the
"performance-based" compensation exception contained in Section 162(m).
Section 14. SHAREHOLDER APPROVAL. This Plan shall be submitted for
approval to the shareholders of the Company at the Company's 2000 Annual Meeting
of Shareholders. If the Plan is not approved by such shareholders within the
meaning of Section 162(m), this Plan shall immediately terminate and all
Incentive Awards granted but unpaid at the time of such non-approval shall also
terminate.