UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
Arch Chemicals, Inc.
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(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(4) Date Filed:
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Notes:
Reg. (S) 240.14a-101.
SEC 1913 (3-99)
[LOGO]
ARCH/TM/
501 MERRITT 7, NORWALK, CONNECTICUT 06851
March 25, 2002
Dear Fellow Shareholder:
You are cordially invited to attend our 2002 Annual Meeting of Shareholders
at 9:30 a.m., local time, on Thursday, April 25th. The meeting will be held at
the Prudential Center for Learning and Innovation, 32 Weed Avenue, Norwalk,
Connecticut.
You will find information about the meeting in the enclosed Notice and Proxy
Statement.
Please be advised that we have not planned a communications segment or any
multimedia presentations for the 2002 Annual Meeting. The only items of
business on the agenda are the election of three directors and the ratification
of our independent auditors.
Whether or not you plan to attend and regardless of how many shares you own,
please vote your shares by using the telephone or via the Internet or by
signing and dating the enclosed proxy card and mailing the upper half of it in
the enclosed envelope as soon as possible. If you do plan to attend, please so
indicate by checking the appropriate box on the proxy card. Keep the lower half
to be used as your admission card to the meeting.
Sincerely,
/s/
MICHAEL E. CAMPBELL
Chairman, President and Chief
Executive Officer
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YOUR VOTE IS IMPORTANT
You are urged to vote by
telephone, via the
Internet or by signing,
dating and promptly
mailing your proxy card
in the enclosed envelope.
-------------------------
ARCH CHEMICALS, INC.
Notice of Annual Meeting of Shareholders
Norwalk, Connecticut
March 25, 2002
The Annual Meeting of Shareholders of ARCH CHEMICALS, INC. will be held at
the Prudential Center for Learning and Innovation, 32 Weed Avenue, Norwalk,
Connecticut, on Thursday, April 25, 2002, at 9:30 a.m., local time, to consider
and act upon the following:
(1) The election of three Directors.
(2) Ratification of the appointment of independent auditors for 2002.
(3) Such other business as may properly come before the meeting or any
adjournment.
The Board of Directors has fixed March 4, 2002 as the record date for
determining shareholders entitled to notice of and to vote at the meeting.
By order of the Board of Directors,
/s/
SARAH A. O'CONNOR
Secretary
ARCH CHEMICALS, INC.
PROXY STATEMENT
-----------------
ANNUAL MEETING OF SHAREHOLDERS
To be Held April 25, 2002
Who is Arch Chemicals?
Arch Chemicals, Inc. ("Arch" or the "Company") is a NYSE-listed, specialty
chemicals manufacturer. The Company was spun-off by Olin Corporation ("Olin")
as a separate independent public company (the "Spinoff") on February 8, 1999 to
the shareholders of Olin. The mailing address of the Company's principal
executive office is 501 Merritt 7, P.O. Box 5204, Norwalk, CT 06856-5204.
When and where will the Annual Meeting be held?
The Annual Meeting of Shareholders of the Company will be held at the
Prudential Center for Learning and Innovation, 32 Weed Avenue, Norwalk,
Connecticut, on Thursday, April 25, 2002, at 9:30 a.m., local time.
Who is asking for my vote and why are you sending me this document?
The Board of Directors of the Company (the "Board") asks that you vote on
the matters listed in the Notice of Annual Meeting of Shareholders. The votes
will be formally counted at the Annual Meeting on Thursday, April 25, 2002, or
if the Annual Meeting is adjourned or postponed, at any later meeting.
We are providing this Proxy Statement and related proxy card to the
shareholders of the Company in connection with the solicitation by the Board of
proxies to be voted at the Annual Meeting. Shares represented by duly executed
proxies in the accompanying form received by the Company prior to the meeting
will be voted at the meeting. We are mailing this Proxy Statement and the
related proxy card to shareholders beginning on or about March 25, 2002.
What am I being asked to vote on?
(1) The election of three Directors.
(2) Ratification of the appointment of independent auditors for 2002.
(3) Such other business as may properly come before the meeting or any
adjournment.
How does the Board recommend I vote on the proposals?
The Board recommends a vote FOR each of the nominees for director identified
in Item 1 and FOR Item 2.
Who is eligible to vote?
All shareholders of record at the close of business on March 4, 2002 (the
"Record Date") are entitled to vote at the Annual Meeting.
How many shares can vote?
At the close of business on the Record Date, the Company had outstanding
22,265,757 shares of common stock, par value $1 per share (the "Common Stock").
Each shareholder on the Record Date is entitled to one vote for each full share
owned by such shareholder on each of the matters voted on at the Annual
Meeting. Of those
1
shares of Common Stock outstanding, approximately 1,357,085 shares (or
approximately 6.1%) were held in the Arch Common Stock Fund of the Arch
Chemicals, Inc. Contributing Employee Ownership Plan ("CEOP"), all of which are
held by JPMorgan Chase Bank as the trustee of the CEOP ("CEOP Trustee").
How do I vote?
You may vote in person at the Annual Meeting or by returning your completed
proxy card in the enclosed postage-paid envelope. In addition, shareholders of
record, participants in the CEOP and participants in the Olin Corporation
Contributing Employee Ownership Plan ("Olin CEOP") also have a choice of voting
over the Internet or by using a toll-free telephone number. Please refer to the
proxy card for further information on how to vote electronically. However,
please note that Internet and telephone voting facilities for shares held of
record will close at 11:59 p.m., US Eastern time, on April 24, 2002 and for
shares held through the CEOP or Olin CEOP will close at 9:00 a.m., US Eastern
time, on April 24, 2002. If you do vote by telephone or the Internet, it is not
necessary to return your proxy card. Please note that participants in the CEOP
and in the Olin CEOP who do not vote by telephone or Internet must return their
proxy card in the accompanying envelope so that it is received no later than
Noon, US Eastern Time, on April 22, 2002 for their voting instructions to be
followed.
Please be aware that if you vote over the Internet, you may incur costs such
as telephone and Internet access charges for which you will be responsible.
The Internet and telephone voting procedures are designed to authenticate
shareholders and CEOP and Olin CEOP participants by use of a control number,
which appears on the proxy card, and to allow you to confirm that your
instructions have been properly recorded.
The method by which you vote will in no way limit your right to vote at the
meeting if you later decide to attend in person. However, please note that if
your shares are held in the name of a bank, broker or other holder of record,
you must obtain a proxy, executed in your favor, from the shareholder of
record, to be able to vote in person at the meeting. CEOP and Olin CEOP
participants must vote through the CEOP Trustee or trustee of the Olin CEOP and
may not vote their shares held in the CEOP or Olin CEOP in person at the Annual
Meeting.
To what shares does the proxy card apply?
The proxy card supplied by the Company will apply to the number of shares of
Common Stock that you hold of record and, if you are a participant in the CEOP
or a participant in the Olin CEOP, the number of shares held for your account
under the CEOP or Olin CEOP, as the case may be. CEOP and Olin CEOP
participants will not receive a separate voting instruction card. If you do not
execute and return this proxy card or vote electronically, your shares held of
record will not be voted and your shares held in the CEOP will be voted by the
CEOP Trustee in the same proportion as shares of Common Stock for which the
CEOP Trustee has received instructions from other CEOP participants. Olin CEOP
participants should consult with their plan administrator on how their shares
held in the Olin CEOP will or will not be voted if they do not return a proxy
card or otherwise give voting instructions to the trustee of the Olin CEOP.
Am I a shareholder of record?
If your shares are represented by a stock certificate registered in your
name or if the Company's stock transfer agent (EquiServe Trust Company, N.A.)
is holding your shares in a "book entry" account under your name, you are a
shareholder of record with respect to those shares so held. If your shares are
otherwise owned directly by a bank, broker, or other holder of record, you are
not a shareholder of record with respect to the shares so held by such bank,
broker or other holder of record.
If I return the proxy card or vote electronically, how will my shares be voted?
Where a shareholder of record or CEOP participant timely directs in the
proxy (including an electronic vote) a choice regarding any matter that is to
be voted on, that direction will be followed. If no direction is made, returned
proxies of shareholders of record and CEOP participants will have their
registered shares and shares
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held in the CEOP voted for the election of directors as set forth below and in
favor of the ratification of the appointment of independent auditors.
As of the date hereof, the Company does not know of any matters other than
those referred to in the accompanying Notice which are to come before the
meeting. If any other matters are properly presented for action, the persons
named in the accompanying form of proxy will vote the proxy in accordance with
their best judgment.
If I do not return the enclosed proxy card and do not vote electronically, how
will the shares I own of record and through the CEOP or Olin CEOP be voted?
If you do not vote by returning the enclosed proxy card, do not vote
electronically and do not vote at the meeting in person or other proxy, your
shares held of record by you will not be voted at the meeting. CEOP
participants who do not return the proxy card or vote electronically in a
timely manner will have their shares of Common Stock held in the CEOP voted by
the CEOP Trustee in the same proportion as shares of Common Stock for which the
CEOP Trustee has received instructions from other CEOP participants. Olin CEOP
participants should consult with their plan administrator on how their shares
held in the Olin CEOP will or will not be voted if they do not return their
proxy card or otherwise give voting instructions to the trustee of the Olin
CEOP.
What if I own shares of the Company through a bank, broker or other holder of
record or in another company's employee savings plan (other than the CEOP or
Olin CEOP)?
If you hold Common Stock through a bank, broker or other holder of record or
through another company's stock savings plan (other than the CEOP or Olin
CEOP), you will most likely receive voting instructions from such bank, broker
or other holder or from that plan's administrator. In any case, please follow
those instructions to assure that your shares are voted and represented at the
meeting.
If your shares are owned directly in the name of a bank, broker or other
holder of record, you must obtain a proxy, executed in your favor, from the
shareholder of record, to be able to vote in person at the meeting. CEOP
participants must vote the shares held in the CEOP through the CEOP Trustee.
How are the shares held in The DirectSERVICE(TM) Investment Program voted?
EquiServe Trust Company, N.A. ("EquiServe"), is the Company's registrar and
stock transfer agent. For holders of Common Stock who participate in The
DirectSERVICE(TM) Investment Program offered by EquiServe, EquiServe will vote
any shares of Common Stock that it holds for the participant's account in
accordance with the participant's electronic vote or with the proxy returned by
the participant covering his or her shares of record. If a DirectSERVICE(TM)
participant does not send in a proxy for shares held of record or otherwise
vote electronically, EquiServe will not vote the shares of such participant
held in such program.
Can I change my vote after I have returned my proxy card or voted over the
telephone or via the Internet?
Yes. Any person who has returned a proxy or voted electronically has the
power to revoke it at any time before it is exercised by submitting a
subsequently dated proxy, by voting again via the Internet or by telephone, by
giving notice in writing to the Corporate Secretary or by voting in person at
the meeting. Please note telephone and Internet voting ends for shares held of
record at 11:59 p.m., US Eastern time, on April 24, 2002 and for shares held
through the CEOP and Olin CEOP at 9:00 a.m., US Eastern time, on April 24,
2002. Please note that participants in the CEOP and in the Olin CEOP who do not
vote by telephone or Internet must return their proxy card in the accompanying
envelope so that EquiServe receives it no later than Noon, US Eastern time, on
April 22, 2002 if their voting instructions are to be followed. If your shares
are held in the name of a bank, broker or other holder of record, you must
obtain a proxy, executed in your favor, from the shareholder of record to be
able to vote in person at the meeting.
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What does it mean if I get more than one proxy or voting instruction card?
You will receive one proxy card for each way in which your shares are
registered. If you receive more than one proxy card (other than because you are
a participant in the CEOP, Olin CEOP or a savings plan of another company), it
is because your shares are registered in different names or with different
addresses or are held in different accounts. Please sign and return each proxy
card that you receive to ensure that all your shares are voted. To enable us to
provide better shareholder service, we encourage shareholders to have all their
shares registered in the same name with the same address. You should contact
EquiServe at (800) 519-3111 for instructions on how to change the way your
shares are held if you receive more than one mailing.
CERTAIN BENEFICIAL OWNERS
Except as indicated below, the Company knows of no person who was the
beneficial owner of more than five percent of Common Stock as of December 31,
2001.
Amount and
Nature of
Beneficial Percent
Name and Address of Beneficial Owner Ownership of Class
------------------------------------ ---------- --------
FMR Corp.(a)....................... 2,832,650 12.75
82 Devonshire Street
Boston, MA 02109
T. Rowe Price Associates, Inc.(b).. 2,291,200 10.32
100 East Pratt Street
Baltimore, MD 21202
Snyder Capital Management, L.P.(c). 1,392,200 6.27
350 California Street, Suite 1460
San Francisco, CA 94104
Dimensional Fund Advisors Inc.(d).. 1,142,015 5.14
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
- --------
(a) The Company has been advised in an amended Schedule 13G filing as follows
with respect to these shares: Fidelity Management & Research Company
("Fidelity") beneficially owns 1,639,100 shares and Fidelity Management
Trust Company ("FMTC") beneficially owns 1,193,550 shares. 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 1,639,100 shares owned
by such 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 1,193,550 shares and sole voting power over
1,193,550 shares.
(b) T. Rowe Price Associates, Inc., a registered investment adviser, has
advised the Company in an amended Schedule 13G filing that it has sole
voting power with respect to 818,600 of such shares and sole dispositive
power with respect to all the shares. T. Rowe Price Associates, Inc.
expressly disclaims that it is, in fact, the beneficial owner of the shares.
(c) Snyder Capital Management, L.P., a registered investment adviser, has
advised the Company in a Schedule 13G filing that it has shared voting
power with respect to 1,239,800 of the shares and shared dispositive power
with respect to 1,392,200 of the shares.
(d) Dimensional Fund Advisors Inc., a registered investment adviser, has
advised the Company in a Schedule 13G filing that it has sole voting power
with respect to 1,142,015 of such shares and sole dispositive power with
respect to 1,142,015 of the shares. Dimensional Fund Advisors Inc.
expressly disclaims that it is, in fact, the beneficial owner of such
shares.
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ITEM 1--ELECTION OF DIRECTORS
Who are the persons nominated by the Board in this election to serve as
directors?
The Board of Directors is divided into three classes with the term of office
of each class being three years, ending in different years. Messrs. Michael E.
Campbell, H. William Lichtenberger and John P. Schaefer, whose biographies are
shown below, have been nominated by the Board for election as Class III
Directors to serve until the 2005 Annual Meeting of Shareholders and until
their successors have been elected.
CLASS III
NOMINEES FOR THREE YEAR TERMS EXPIRING AT THE 2005 ANNUAL MEETING
[PHOTO] MICHAEL E. CAMPBELL, 54, is Chairman of the Board, President and Chief
Executive Officer of the Company. Previously, he was Executive Vice President of
Michael E. Campbell Olin and had 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 is a graduate of the University of
New Hampshire and received a J.D. degree from George Washington University.
He is a director of MeadWestvaco Corporation. Mr. Campbell is also a member of
the Board of Directors of the American Chemistry Council, and serves as Chairman
of its Responsible Care(R) Committee. In addition, he serves as a member of the
Board of Directors of The Maritime Aquarium, Norwalk, Connecticut.
[PHOTO] H. WILLIAM LICHTENBERGER, 66, retired in 2000 as Chairman and Chief
Executive Officer of Praxair, Inc., an industrial gases company, a position he
H. William Lichtenberger 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. He was formerly a
director of the National Association of Manufacturers, a director of the Chemical
Manufacturers Association (currently known as the American Chemistry Council)
and a member of The Business Roundtable.
[PHOTO] JOHN P. SCHAEFER, 67, is President of the Research Corporation, a foundation,
and Chairman of Research Corporation Technologies, Inc. Previously, he was
John P. Schaefer 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
Research Corporation and Research Corporation Technologies, Inc. He is also a
trustee of the Polytechnic Institute of New York.
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Who are the other remaining directors and when are their terms scheduled to end?
CLASS I
DIRECTORS WHOSE TERMS CONTINUE UNTIL THE 2003 ANNUAL MEETING
[PHOTO] JOHN W. JOHNSTONE, JR., 69, retired in April 1996 as Chairman of the Board of
Olin. In 1954, he joined Hooker Chemicals and Plastics Corporation, where he
John W. Johnstone, Jr. 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. He is former
Chairman of the Soap and Detergent Association and the Chemical Manufacturers
Association (currently known as the American Chemistry Council). He is a director
of Phoenix Home Life Mutual Insurance Company, McDermott International, Inc.,
Fortune Brands, Inc. and Research Corporation Technologies Inc.
[PHOTO] JACK D. KUEHLER, 69, retired in 1993 as Vice Chairman of the Board of
International Business Machines Corporation, a computer manufacturing corporation.
Jack D. Kuehler 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,
Inc., the Parsons Corporation and Mail.com. Mr. Kuehler holds an honorary doctorate
of science from Clarkson University and an honorary doctorate of engineering science
from Santa Clara University.
CLASS II
DIRECTORS WHOSE TERMS CONTINUE UNTIL THE 2004 ANNUAL MEETING
[PHOTO] RICHARD E. CAVANAGH, 55, is President and Chief Executive Officer and a
Trustee of The Conference Board, Inc., a leading research and business membership
Richard E. Cavanagh 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, Airplanes Group and Aircraft Finance Trust (AFT), and
The Educational Testing Service; and a director of Fremont Group and The
Guardian Life Insurance Company. He holds a BA degree from Wesleyan
University and an MBA degree from the Harvard Business School.
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[PHOTO] MICHAEL O. MAGDOL, 64, is Vice Chairman of the Board and Chief Financial
Officer of Fiduciary Trust Company International, a global investment manager for
Michael O. Magdol families and institutions, and has held this position since 1987. Prior to 1987, he
was Executive Vice President and Director of J. Henry Schroder Bank. He is a
Director of The Ronald McDonald House of New York, and a Trustee of The
Lingnan Foundation. He holds a BSE degree from the University of Pennsylvania.
How will the returned proxies be voted for directors?
If the proxy card is returned and marked with a direction on how to vote
with respect to directors or if a person directs a vote electronically as
provided on the proxy card, that direction will be followed. If an individual
returns a proxy card without a direction on how to vote marked thereon, such
individual's shares of record and shares held in the CEOP, if any, will be
voted for the election of Messrs. Campbell, Lichtenberger and Schaefer. Each of
the nominees is a director at the present time. It is not expected that any of
the nominees will be unable to serve as a director, but if any are unable to
accept election, it is intended that shares represented by proxies in the
accompanying form or voted electronically will be voted for the election of
substitute nominees selected by the Board, unless the number of directors is
reduced.
What vote is required to elect the directors?
The election of each nominee as a director requires the affirmative vote of
a plurality of the votes cast in the election. Votes withheld and shares held
in street name ("Broker Shares") that are not voted in the election of
directors will not be included in determining the number of votes cast.
ADDITIONAL INFORMATION REGARDING THE BOARD OF DIRECTORS
What are the committees of the Board? How often did the Board and each
committee meet in 2001?
During 2001, the Board held six meetings. The average attendance by
directors at meetings of the Board and committees of the Board on which they
served was 97%. Each director attended at least 90% of such meetings.
The current standing committees of the Board are an Audit Committee, a
Compensation Committee and a Corporate Governance Committee.
The Audit Committee advises the Board on internal and external audit matters
affecting the Company, including recommendation of the appointment of internal
financial, auditing and regulatory personnel and independent auditors of the
Company; reviews with such auditors the scope and results of their examination
of the financial statements of the Company; reviews the Company's financial,
regulatory and computer annual audit plans; reviews reports and audits of the
Company's internal audit service provider; discusses with independent auditors
matters required to be discussed by Independent Standards Board No. 1 and
Statement on Auditing Standards No. 61; reviews and approves the Audit
Committee Report that appears in the Company's Proxy Statement; and reviews the
presentation of the Company's financial results and monitors the adequacy of
the Company's internal financial controls. The committee also advises the Board
on compliance with the Company's Standards of Ethical Business Practices, on
government and other compliance programs, on corporate and governmental
security matters, monitors major litigation and pending internal or external
special investigations, with a particular interest in the event there are
claims that the Company has acted unethically or unlawfully and reviews the
Company's insurance and risk management process. The committee also reviews
audits of expenses of the Company's senior executives and Directors. The
committee also has oversight responsibility for the implementation of the
Company's Responsible Care(R) Codes and for compliance with legal mandates in
the
7
environmental, health, safety and other regulatory areas. The committee also
reviews and evaluates the investment and financial performance of the Company's
pension plan, voluntary employee benefit associations ("VEBAs") and any thrift
plan investment funds, reviews and approves investment policies with respect to
the pension plan, VEBAs and any thrift plan funds, approves the selection of
thrift plan investment options, approves the appointment of pension plan, VEBA
and thrift plan trustees and investment managers and their respective
agreements, consults with, and obtains reports from, the pension plan, VEBA and
thrift plan trustees and other fiduciaries, approves the charitable
contributions budget and program and those other charitable contributions in
excess of the CEO's authority, annually reviews the contributions, financial
condition and administration of the Arch Chemicals Government Participation
Fund, and reviews, provides advice, and recommends changes, as appropriate, to
Management's programs to maintain and improve shareholder relations. The Audit
Committee currently consists of Messrs. Johnstone, Magdol and Schaefer (chair).
During 2001, four meetings of this committee were held.
The Compensation Committee sets policy, develops and monitors strategies
for, and administers the programs which compensate the Chief Executive Officer
("CEO") and other senior executives. The committee approves the salary plans
for the CEO and certain other senior executives including total direct
compensation opportunity, and the mix of base salary, annual incentive standard
and long term incentive guideline awards. It approves the measures, goals,
objectives, weighting, payout matrices and actual payouts and certifies
performance for and administers the incentive compensation plans. The committee
also administers the 1999 Long Term Incentive Plan, issues an annual Report on
Executive Compensation that appears in the Proxy Statement, approves Executive
and Change in Control Agreements, approves and adopts new qualified and
non-qualified pension plans, adopts amendments thereto, approves terminations
of qualified and non-qualified pension plans, approves the interest rate for
deferred compensation arrangements, administers the Senior Executive Pension
Plan, makes recommendations to the Board on any other matters pertaining to the
pension, CEOP and other plans which the committee deems appropriate and reviews
plans for management development and succession. The committee also advises the
Board on the remuneration for members of the Board. The Compensation Committee
currently consists of Messrs. Cavanagh, Kuehler and Lichtenberger (chair).
During 2001, three meetings of this committee were held.
The Corporate Governance Committee assists the Board in fulfilling its
responsibility to the Company's shareholders relating to the selection and
nomination of Directors, makes recommendations to the Board regarding the
selection of the CEO, reviews the nominees for other offices of the Company,
periodically reviews corporate governance trends, issues and best practices and
makes recommendations to the Board regarding the adoption of best practices
most appropriate for the governance of the affairs of the Board, recommends 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, recommends
individuals to fill any vacancies created on the Board, makes recommendations
to the Board regarding the size and composition of the Board, the particular
qualifications and experience that might be sought in Board nominees, assesses
whether the qualifications and experience of candidates for nomination and
renomination to the Board meet the then current needs of the Board, seeks out
possible candidates for nomination and considers suggestions by shareholders,
Management, employees and others for candidates for nomination and renomination
as Directors, reviews and makes recommendations to the Board regarding the
composition, duties and responsibilities of various Board committees from time
to time as may be appropriate, reviews and advises the Board on such matters as
protection against liability and indemnification, and assesses and reports
annually to the Board on the performance of the Board itself as a whole. The
Corporate Governance Committee currently consists of Messrs. Cavanagh,
Johnstone (chair), Kuehler, Lichtenberger, Magdol and Schaefer. During 2001,
one meeting of this committee was held.
The Corporate Governance Committee will consider candidates recommended by
shareholders for election as directors at future annual meetings.
Recommendations must be in writing and submitted to the Corporate Secretary of
the Company by December 1, accompanied by the written consent of the candidate
along with the information required for director nominations as set forth in
the Company's Bylaws.
8
Report of the Audit Committee
The Audit Committee is established by the Board of Directors. The Board has
adopted a written charter for this committee setting out the functions it is to
perform. Management has primary responsibility for the Company's financial
statements and the overall reporting process, including the Company's system of
internal controls. The Directors who serve on the committee are all
"Independent" for purposes of the New York Stock Exchange listing standards.
Thus, the Board of Directors has determined that no Audit Committee member has
a relationship to the Company that may interfere with our independence from the
Company and its management.
The Audit Committee reviewed the Company's audited financial statements for
the year ended December 31, 2001 and met with both management and KPMG LLP
("KPMG"), the Company's independent auditors, to discuss those financial
statements. Management has represented to the Committee that the financial
statements were prepared in accordance with accounting principles generally
accepted in the United States of America.
The Audit Committee has received from and discussed with KPMG the written
disclosure and the letter required by Independence Standards Board Standard No.
1 (Independence Discussions with Audit Committees). These items relate to that
firm's independence from the Company. We also discussed with KPMG any matters
required to be discussed by Statement on Auditing Standards No. 61
(Communication with Audit Committees).
Based on these reviews and discussions, the Audit Committee recommended to
the Board that the Company's audited financial statements be included in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
2001.
John P. Schaefer, Chair
John W. Johnstone, Jr.
Michael O. Magdol
9
What are the directors paid for their services?
Generally speaking, the Stock Plan for Nonemployee Directors (the "Director
Plan") (i) provides for the granting annually, at the election of the Board, of
a number of shares of Common Stock, options to purchase shares of Common Stock,
performance shares or a combination of the foregoing (as determined by the
Board) to each Nonemployee Director and, in the case of a grant of shares of
Common Stock, the deferral of the payment of such shares until after such
director ceases to be a member of the Board, (ii) permits the Board to
determine if all or part of the annual retainer shall be paid in shares of
Common Stock, (iii) permits such director, subject to the approval of the
Board, to elect to receive his or her meeting fees in the form of shares of
Common Stock in lieu of cash, (iv) permits such director, subject to the
approval of the Board, to elect to receive in the form of shares of Common
Stock the amount by which the annual retainer exceeds the amount payable in
shares of Common Stock ("Excess Retainer") in lieu of cash for such excess and
(v) permits such director, subject to the approval of the Board, to elect to
defer any meeting fees and Excess Retainer paid in cash and any shares to be
delivered under the Directors Plan. Interest on deferred cash and dividends on
deferred shares are paid to the Nonemployee Director unless the director,
subject to the approval of the Board, elects to defer such amounts in which
case interest is credited quarterly and dividend equivalents are reinvested in
phantom shares of Common Stock on the dividend payment date. Deferred shares
are paid out in shares of Common Stock unless the Board decides otherwise.
Performance shares vest and are paid out, unless deferred by the director, upon
the satisfaction of performance goals established by the Compensation
Committee. Deferred accounts under the Directors Plan are paid out if there is
a "Change in Control" as defined in such plan.
In 2001, each Nonemployee Director received or was credited with 1,800
shares of Common Stock and $16,500 in cash as the annual retainer under the
Directors Plan. In addition, the Directors were granted 3,600 stock options on
January 2, 2001 with an exercise price of $18.04 per share, which in each case
was the fair market value of the Common Stock on the grant date. Such options
are currently exercisable and have a ten-year term.
In 2002, each Nonemployee Director was credited with 2,500 shares of Common
Stock to a deferred stock account. Such shares will be paid out to a Director
in cash when he ceases to be a director. In addition for 2002, each Nonemployee
Director received $20,000 in cash and was granted 2,000 stock options on
January 2, 2002 with an exercise price of $23.00 per share, which was the fair
market value of the Common Stock on the grant date. Such options are currently
exercisable and have a ten-year term.
If director meetings exceed eight meetings in a calendar year, each
Nonemployee Director will receive a $1,500 meeting fee for each Board meeting
attended in excess of eight meetings. In 2001, there were less than nine Board
meetings. Each Committee chair received a $5,000 annual committee meeting fee
in 2001 and will receive such fee in 2002. The shares, cash retainer and fees
may be deferred by the Director as provided in the Directors Plan.
Directors participate in the Arch charitable giving program with a 100%
match for gifts up to $2,500 to eligible charities. Directors who are not
officers or employees of the Company or one of its subsidiaries are covered
while on Company business under the Company's business travel accident
insurance policy which covers employees of the Company generally. Directors
also are reimbursed during the year for expenses incurred in the performance of
their duties as directors, such as travel expenses. The Company also provides
Mr. Johnstone with an off-site office and reimbursement of his tax preparation
costs.
10
SECURITY OWNERSHIP OF DIRECTORS AND OFFICERS
How much stock is beneficially owned by directors and the individuals named in
the Summary Compensation Table?
The following table sets forth the number of shares of Common Stock
beneficially owned by each director and nominee for director, by the
individuals named in the summary compensation table on page 14, and by all
directors and current executive officers of the Company as a group, as reported
to the Company by such persons as of January 15, 2002. Unless otherwise
indicated in the footnotes below, the officers, directors, nominees and
individuals had sole voting and investment power over such shares. Also
included in the table are shares of Common Stock which may be acquired within
60 days.
No. of
Common Shares Percent of
Beneficially Class of
Name of Beneficial Owner Owned(a,b) Common Stock(c)
------------------------ ------------- ---------------
Michael E. Campbell..................................................... 299,692 1.33
Richard E. Cavanagh..................................................... 16,627 --
Paul J. Craney.......................................................... 50,582 --
John W. Johnstone, Jr................................................... 149,570 --
Jack D. Kuehler......................................................... 20,955 --
H. William Lichtenberger................................................ 19,369 --
Michael O. Magdol....................................................... 17,806 --
John H. Markham......................................................... 15,000 --
Louis S. Massimo........................................................ 70,923 --
Sarah A. O'Connor....................................................... 43,340 --
John P. Schaefer........................................................ 23,090 --
Directors and executive officers as a group, including those named above
(16 persons).......................................................... 828,972 3.62
- --------
(a) Included in this table with respect to officers are shares credited under
the CEOP. Also included in the case of the incumbent directors (other than
Mr. Campbell) are certain shares of Common Stock credited to a deferred
account for such directors pursuant to the arrangements described above
under "What are the directors paid for their services?" in the amounts of
7,304 for Mr. Cavanagh; 5,380 for Mr. Johnstone; 11,755 for Mr. Kuehler;
9,969 for Mr. Lichtenberger; 8,606 for Mr. Magdol; and 9,701 for Mr.
Schaefer. Such shares so credited to these directors have no voting power
and are paid out in shares of Common Stock at the end of the deferral
period.
(b) The amounts shown include shares that may be acquired within 60 days
following January 15, 2002 through the exercise of stock options, as
follows: Mr. Campbell, 282,138; Mr. Cavanagh, 9,200; Mr. Craney, 45,033;
Mr. Johnstone, 98,801; Mr. Kuehler, 9,200; Mr. Lichtenberger, 9,200; Mr.
Magdol, 9,200; Mr. Markham, 15,000; Mr. Massimo, 67,358; Ms. O'Connor,
40,500; Mr. Schaefer, 9,200; and all directors and executive officers as a
group, including the named individuals, 679,433.
(c) Unless otherwise indicated, beneficial ownership of any named individual
does not exceed 1% of the outstanding shares of Common Stock.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent of a
registered class of Arch's equity securities, to file reports of ownership and
changes in ownership with the SEC and the New York Stock Exchange. Officers,
directors and greater than ten-percent shareholders are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms they
file. Based solely on review of the copies of such forms furnished to the
Company, or written representations that no Forms 5 were required, the Company
believes that during the period January 1, 2001 to December 31, 2001 all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten-percent beneficial owners were complied with.
11
EXECUTIVE COMPENSATION
Report of the Compensation Committee on Executive Compensation
Compensation Philosophy
It is the philosophy of the Company to incent and compensate its executives
to maximize shareholder value. This philosophy incorporates the following
principles:
1. Compensation should attract and retain qualified employees and
stimulate their profitable efforts on behalf of the Company;
2. Compensation should be internally equitable and externally
competitive; and
3. Performance metrics should be directly linked to profitability and
shareholder value creation of the Company.
Executive Compensation Program as Administered in 2001
Generally speaking, the Compensation Committee establishes competitive total
compensation opportunities for the CEO and other executive officers that are
targeted to the median of a group of 23 specialty chemical companies (the
"comparator group") that are similar to Arch in terms of size and scope of
operations. An independent consultant provides the Committee with an annual
assessment of Arch's relative position within this comparator group with
respect to operating performance and total compensation including each of the
following components:
. Annual Base Salary
. Annual Incentive Bonus
. Long Term Incentive Award
Together, these three components comprise the total targeted compensation
opportunity determined by targeting the median of the group cited above. Once
the total targeted compensation opportunity is determined for the CEO and other
named executive officers, the Compensation Committee, also with the advice of
an outside consultant, determines the appropriate mix of these three
components, again using the competitive analysis. With the focus on creating
alignment between the compensation program and shareholders' interest, the
emphasis of the Company's executive compensation is on variable compensation
that is at risk for performance.
The objectives of the Company's executive compensation policies are to:
. Unite the Company's management as a team
. Reward enhancement of earnings per share ("EPS") growth and shareholder
value
. Stress at risk variable pay programs with an emphasis on the long term
financial performance
. Insure "line of sight" strategic objectives are clearly articulated and
their achievement appropriately rewarded
Under Section 162(m) of the Internal Revenue Code, publicly traded
corporations generally are not permitted to deduct compensation in excess of $1
million paid to certain top executives unless the compensation qualifies as
"performance-based compensation." The company will weigh the benefits of
compliance with Section 162(m) against the potential burdens, and reserves the
right to pay compensation that may not be fully deductible if it determines, in
good faith, that it is in the company's best interest to do so.
Annual Base Salary
There was no increase in the base salary of Mr. Campbell and three of the
other named executives. The remaining executive (Mr. Markham) received a 3.35%
annual increase in salary.
12
Annual Incentive Bonus
Incentive bonuses for Arch named executive officers were determined by a
comparison of pre-established 2001 targets for EPS, profit margin performance,
return on total assets and, if applicable, business unit profitability with
actual 2001 financial performance for these measures. The financial measures
were weighted 80% with the remaining 20% applied to achieving personal
strategic objectives. In addition, several named executive officers, including
the CEO, had included in their eligible opportunity bonus amount a portion of
their Olin EVA bonus bank balances that were transferred over to the Company
from Olin Corporation in the spin-off. These balances at Olin represented
deferred bonus amounts that were "at risk" for future years. Participants who
had positive bank balances in the Olin EVA Bonus Plan who became Arch employees
were to have one-third of the bank balance at risk for each of the years 1999,
2000 and 2001. In 2001, at the end of this "at risk" period, the Compensation
Committee chose to pay the remaining bank balances. These balances included an
amount that had been carried over from 2000.
The CEO's bonus was determined under the Senior Management Incentive
Compensation Plan in accordance with the specified performance metrics and
weightings using the three financial performance measures outlined above. This
resulted in a 0% payout for the CEO under such plan. For 2001, the CEO's total
bonus payout was $302,412. This consisted of a zero payout from the Company's
Senior Management Incentive Compensation Plan, $152,412 which represented the
payout of the Olin EVA bank balance and $150,000 which represented an
additional payment regarding the CEO's performance with respect to the CEO's
accomplishment of strategic, non-financial objectives that were established
earlier in the year. Moreover, other criteria regarding business performance
such as health, safety and environmental performance, improvements in business
processes, and human resource development also were considered. For 2001, a
major goal of the CEO was accomplishing the successful integration of the
Hickson International businesses acquired in August of 2000 and Brooks
Industries personal care intermediates acquired in November 2000.
Long Term Incentive Award
As indicated earlier, the Committee, with the advice of its independent
consultant, established target values for all three components of compensation,
including the Long Term Incentive Plan award. This first grant was designed to
deliver three years of target value and was made in the form of stock options
and performance share units in 1999. With a view consistent with aligning
Arch's senior executives with the interests of shareholders, the award of
performance shares was designed to recognize and reward cumulative EPS growth
over a three-year performance period ending with 2001 for the named executive
officers. The performance share units can be earned at the end of the
three-year performance cycle provided that the EPS growth targets are achieved
during that period. The three-year EPS growth targets were not achieved at the
end of December 31, 2001 and therefore, the performance share units were
forfeited. In 1999, stock options were also awarded that will be of value only
through share price appreciation. The stock options were granted at the fair
market value of Arch shares on February 9, 1999, became exercisable on February
9, 2002 and have a ten-year term.
H. William Lichtenberger, Chair
Richard E. Cavanagh
Jack D. Kuehler
January 24, 2002
13
The following table shows for the Chief Executive Officer and the other four
most highly compensated executive officers of Arch (collectively, the "named
executive officers") cash compensation for the fiscal years 1999-2001. Amounts
shown in the table and related footnotes include payments by Olin for services
to Olin in the periods prior to the Spinoff.
Summary Compensation Table
Long Term
Annual Compensation Compensation
-------------------------------- ---------------------
Awards Payouts
---------- ----------
Name and Principal Other Securities All Other
Position as of Annual Underlying LTIP Compen-
December 31, 2001 Year Salary Bonus Compen- Options Payouts(b) sation(c)(d)
----------------- ---- -------- -------- sation(a) ---------- ---------- ------------
Michael E. Campbell.......................... 2001 $600,000 $302,412 $12,965 0 $ 0 $ 42,444
Chairman, President & Chief Executive 2000 600,000 150,000 13,616 0 0 41,575
Officer 1999 539,591 401,306 10,381 200,000 81,579 30,808
Paul J. Craney............................... 2001 235,008 253,488 0 0 0 12,581
Vice President and General Manager, 2000 235,008 99,448 0 0 0 12,550
Treatment 1999 209,167 109,546 0 30,000 10,729 11,717
Louis S. Massimo............................. 2001 300,000 127,639 0 0 0 14,870
Vice President & 2000 300,000 60,000 0 0 0 14,849
Chief Financial Officer 1999 268,754 122,721 0 50,000 0 12,674
John H. Markham(d)........................... 2001 293,847 24,898 0 0 0 511,235
Vice President, International Operations 2000 83,882 75,555 0 30,000 0 383,690
Sarah A. O'Connor............................ 2001 250,008 64,579 0 0 0 10,193
Vice President, General Counsel & 2000 250,008 50,000 0 0 0 10,061
Secretary 1999 194,337 83,218 0 40,000 0 7,825
- --------
(a) Includes tax gross-ups paid for imputed income on use of company-provided
automobiles or automobile allowance and for an outside personal financial
advisor.
(b) For persons other than Mr. Markham, amounts include payouts of Olin
performance share units in the form of Olin common stock made prior to the
Spinoff.
(c) Amounts reported in this column for 2001 consist of the following items:
Value of
Split-Dollar
CEOP Supplemental Term Life Life Insurance
Match CEOP(1) Insurance(2) Premiums(3)
------ ------------ ------------ --------------
M. E. Campbell.. $5,150 $13,013 $3,145 $21,136
P. J. Craney.... 5,213 2,000 -- 5,368
L. S. Massimo... 5,188 3,975 1,370 4,337
J. H. Markham(4) 0 0 -- --
S. A. O'Connor.. 5,213 2,450 -- 2,530
- --------
(1) The Supplemental CEOP permits participants in the CEOP to make
contributions, and the Company 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. The 2001 contributions and
Company matching amounts made after the Spinoff were invested in an Arch
phantom stock account under this plan.
(2) Under Arch'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 the Company paid in 2001 for the whole life insurance and to fund
the retiree death benefit.
(4) The amount for Mr. Markham of $511,235 was paid in 2001 for settlement
for "loss of office" claims resulting from the acquisition of Hickson by
the Company. This figure was converted from Great Britain Pounds ("GBP")
into U.S. dollars using the exchange rate on the first of the month in
which the payment was made.
(d) Mr. Markham became an executive officer on September 13, 2000 and is the
former Chief Executive Officer of Hickson International Plc ("Hickson")
which was a UK publicly-traded company acquired by the Company in 2000.
Compensation shown includes only compensation paid after Hickson was
acquired by the Company in 2000. Figures shown for him were converted from
GBP into U.S. Dollars using the exchange rate as of the first day of each
month in the year shown. Salary figures include a pension supplement that
is paid monthly. Such supplement totaled $26,192 in 2001 and $7,283 for the
period 2000 compensation is shown. All other compensation in 2000 represent
cash outs of Hickson stock awards made under prior Hickson LTIP
arrangements. These cash outs were triggered by the acquisition of Hickson
by the Company.
14
How many 1999 Long Term Incentive Plan ("Long Term Plan") awards were granted
in 2001 as part of 2001 compensation to the individuals named in the Summary
Compensation Table?
No employee stock options and no performance share units were granted by the
Company from January 1, 2001 through December 31, 2001 to the individuals named
in the summary compensation table on page 14.
How many Arch stock options were exercised in 2001 by the individuals named in
the Summary Compensation Table and what is the value of the unexercised ones?
The following table sets forth as to the individuals named in the summary
compensation table on page 14, information regarding options exercised during
2001 and the value of in-the-money outstanding options at the end of 2001.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-end Option
Values
Number of Securities Aggregate Value of
Underlying Unexercised Unexercised, In-the-Money
Shares Options at 12/31/01 Options at 12/31/01(a)
Acquired Value ------------------------- -------------------------
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- -------- ----------- ------------- ----------- -------------
M.E. Campbell 2,912 $20,733 82,138 200,000 $53,717 $758,000
P.J. Craney.. 0 -- 15,033 30,000 50,715 113,700
L.S. Massimo. 0 -- 17,358 50,000 0 189,500
J.H. Markham. 0 -- 15,000 15,000 51,150 51,150
S.A. O'Connor 0 -- 500 40,000 0 151,600
- --------
(a) Value was computed as the difference between the exercise price and the
$23.20 per share closing price of Arch Common Stock on December 31, 2001,
as reported on the consolidated transaction reporting system relating to
New York Stock Exchange issues.
Comparison of 35 Month Cumulative Total Return Among Arch Chemicals, Inc., the
S & P 500 Index and the S & P Chemicals (Specialty) Index
The graph below compares the cumulative total shareholder return of the
Common Stock to the Standard & Poor's 500 Index and to the Standard & Poor's
Chemicals (Specialty) Index for the period from February 9, 1999, the day
shares of Common Stock began "regular way" trading on the New York Stock
Exchange, to December 31, 2001, the last trading day of the Company's fiscal
year. The graph assumes that the value of the investment in the Common Stock
and each index was $100 at February 9, 1999 and that all dividends were
reinvested.
[CHART]
Arch Chemicals S&P 500 S&P Chemicals (Specialty)
--------------- --------- ---------------------------
2/9/99 $100.00 $100.00 $100.00
3/99 89.04 100.77 100.18
6/99 130.35 107.87 132.45
9/99 87.61 101.14 107.40
12/99 114.78 116.19 111.61
3/00 110.80 118.85 96.93
6/00 122.49 115.69 95.21
9/00 103.35 114.57 84.21
12/00 101.62 105.61 99.28
3/01 123.16 93.09 97.91
6/01 127.48 98.53 92.88
9/01 133.87 84.07 88.85
12/01 138.18 93.06 93.94
15
Do the named executive officers have employment or change in control agreements?
Each of the executive officers named in the summary compensation table
(other than Mr. Markham) has an Executive Agreement with the Company which
provides, 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
by 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 (i) three times the severance payment and (ii)
another payment equal to three times the higher of the individual's long term
incentive target at the time of termination or immediately prior to the Change
in Control. 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; 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); or the shareholders of
the Company approve a sale of all or substantially all the Company's assets or
a liquidation or dissolution of the 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 also contain
"change-in-control" provisions.
Following the acquisition of Hickson by the Company, Mr. Markham and Hickson
entered into a settlement agreement pursuant to which Hickson agreed to settle
Mr. Markham's claims for "loss of office" under his earlier employment contract
resulting from the acquisition of Hickson by Arch in exchange for a payment of
GBP 357,000. Under the settlement, payment would be made only if Mr. Markham
remained an employee of Hickson through August 22, 2001. In addition, Hickson
entered into a new employment agreement with Mr. Markham in connection with his
new duties following the acquisition. The agreement provides for salary and
benefits and can be terminated by either party on three months' prior notice.
Upon termination (other than for cause) by Hickson, Mr. Markham is entitled to
a payment of GBP 169,932 plus a payment of two years' auto allowance (but not
less than GBP 19,500). This payment would also be made upon a Change in Control
(as defined above) of the Company but in such a case Mr. Markham would not be
entitled to any additional termination payment if his employment were
subsequently terminated following a Change in Control.
What are the retirement income benefits provided to the named executive
officers?
The Company has a tax-qualified, defined benefit pension plan for the
Company's U.S.-based employees ("Tax Qualified Pension Plan") that provides
benefits based on service with Olin and with the Company. The Company became
liable for the payment of all pension plan benefits accrued by Company
employees prior to and following the Spinoff who ceased to be Company employees
after the Spinoff. Olin transferred assets to the Company's pension plan and
the amount of the assets were sufficient to comply with Section 414(l) of the
Internal Revenue Code of 1986, as amended.
16
The Tax Qualified Pension Plan, together with a supplementary nonqualified
plan (collectively, the "Company Pension Plan"), 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 or older). 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 compensation that is not deferred under a nonqualified plan and
that does not exceed certain annual IRS imposed limits. Under the supplementary
plan mentioned above, the Company pays a supplemental pension, based on the
formula described below, on compensation deferred to nonqualified plans
(including deferred incentive compensation). Also under the supplementary plan,
the Company will pay employees affected by the limitations imposed by the
Internal Revenue Code on qualified plans a supplemental pension in an annual
amount equal to the reduction in pensions resulting from such limitations.
"Compensation" for purposes of the Company Pension Plan represents average
cash compensation per year (salary and bonus shown in the summary compensation
table on page 14), 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, reduced by 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 second nonqualified pension plan for U.S.-based employees, the Company
pays 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), reduced by 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. In all cases
benefits payable under the Senior Plan are reduced by (i) annual retirement
benefits payable under the Company Pension Plan, (ii) all qualified and
non-qualified deferred compensation plans of previous and subsequent employers
and (iii) 50% of the employee's primary Social Security benefit. The Senior
Plan also provides benefits to the executive's surviving spouse generally equal
to 50% of the executive's benefits. 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 non-collectively bargained participants
(and retired participants) to absorb any plan surplus.
Each of the Senior Plan and the supplementary plan 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 Executive Agreements
described above 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."
17
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
Years of Service
-----------------------------------------------------------------------
Remuneration 5 Years 10 Years 15 Years 20 Years 25 Years 30 Years 35 Years 40 Years
- ------------ -------- -------- -------- -------- -------- -------- -------- --------
$ 300,000 $ 45,000 $ 90,000 $135,000 $150,000 $150,000 $150,000 $157,500 $180,000
400,000 60,000 120,000 180,000 200,000 200,000 200,000 210,000 240,000
500,000 75,000 150,000 225,000 250,000 250,000 250,000 262,500 300,000
600,000 90,000 180,000 270,000 300,000 300,000 300,000 315,000 360,000
700,000 105,000 210,000 315,000 350,000 350,000 350,000 367,500 420,000
800,000 120,000 240,000 360,000 400,000 400,000 400,000 420,000 480,000
900,000 135,000 270,000 405,000 450,000 450,000 450,000 472,500 540,000
1,000,000 150,000 300,000 450,000 500,000 500,000 500,000 525,000 600,000
1,100,000 165,000 330,000 495,000 550,000 550,000 550,000 577,500 660,000
1,200,000 180,000 360,000 540,000 600,000 600,000 600,000 630,000 720,000
1,300,000 195,000 390,000 585,000 650,000 650,000 650,000 682,500 780,000
Credited years of service for the executive officers named in the summary
compensation table on page 14 as of December 31, 2001 are as follows: Mr.
Campbell, 23.6 years (14.3 years under the Senior Plan); Mr. Craney, 31.6 years
(2.3 years under the Senior Plan); Mr. Massimo, 7.1 years (5.0 years under the
Senior Plan); and Ms. O'Connor, 12.3 years (2.9 years under the Senior Plan).
Mr. Markham is not a US-based employee and therefore does not participate in
the above pension plans. Mr. Markham is a member of the Hickson UK Group
Pension Plan and the Hickson UK Senior Executives Pension Plan (collectively,
the "UK Plan"). These plans are tax-qualified, defined benefit pension
arrangements under UK law.
Mr. Markham's formal retirement age is 60 but early retirement is available
on reduced benefits after age 50, subject to the agreement of Hickson and the
Trustees of the UK Plan. At normal retirement age of 60, the UK Plan provides
Mr. Markham with a total pension equal to one-forty-fifth of final pensionable
salary for each year (and pro rata for complete months) of pensionable service
under the UK Plan, subject to limits imposed by UK tax authorities.
"Pensionable salary" is determined on April 1 each year and is basic annual
rate of salary at that time plus the annual average over the previous three
years of any overtime payments. "Final pensionable salary" is the highest
pensionable salary in the five full years of employment up to and including
normal retirement age or earlier termination of pensionable employment. In
determining the highest figure, pensionable salary (as calculated above) in
each year will be increased in line with general increases in pensionable
salaries from the end of that year to April 1 prior to normal retirement age or
earlier termination of pensionable employment, provided this does not exceed
the increase in the UK Government's retail inflation index ("inflation index").
Once he starts receiving pension payments, under the UK Plan, Mr. Markham's
pension will increase annually in line with increases in the inflation index
subject to an annual maximum of 5%.
The limits imposed by the UK tax authorities apply to the benefits that may
be taken from a defined benefit pension scheme. For employees joining pension
schemes on or after June 1, 1989, such as Mr. Markham, pension benefits are
restricted to one-thirtieth of the "Earnings Cap" for each year of completed
service, subject to an
18
overall maximum of two-thirds of the "Earnings Cap." The Earnings Cap is set by
the UK tax authorities each April 6, and is (Pounds)95,400 ($138,764 as of
December 31, 2001 exchange rate) for the year commencing April 6, 2001. As
such, Mr. Markham's benefits under the UK Plan are subject to restriction.
As of December 31 2001, Mr. Markham has accrued 6 years and 1 month of
pensionable service under the UK Plan. The following table shows the estimated
annual benefits payable to a member upon retirement at age 60. The benefits are
not subject to any reduction in respect of Social Security benefits or other
offsets, but include the restriction on benefits imposed by the UK tax
authority. Figures shown have been converted into US Dollars using the exchange
rate of GBP 0.6875 to one US Dollar on December 31, 2001.
Years of Service
----------------
Earnings Cap 5 Years 10 Years 15 Years 20 Years 25 Years
------------ ------- -------- -------- -------- --------
$138,764.. $23,127 $46,255 $69,382 $ 92,509 $ 92,509
$166,516.. $27,753 $55,505 $83,258 $111,011 $111,011
Does the Company have a compensation deferral program?
Under the Company's compensation plans and arrangements, all participants
therein, including directors, may defer payment of salaries, director
compensation and incentive compensation to cash and Arch phantom stock accounts.
ITEM 2--RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has appointed the firm of KPMG LLP ("KPMG") as
independent auditors of the Company for the year 2002. The appointment of this
firm was recommended to the Board by its Audit Committee.
Why are you asking for the shareholders to ratify the auditors?
The submission of this matter to shareholders at the Annual Meeting is not
required by law or by the Bylaws. The Board of Directors of the Company is,
nevertheless, submitting it to the shareholders to ascertain their views. If
this appointment is not ratified at the Annual Meeting, the Board of Directors
intends to reconsider its appointment of KPMG as independent auditors.
A representative of KPMG is expected to be present at the Annual Meeting and
will have an opportunity to make a statement if he or she desires to do so, and
to respond to appropriate questions.
What were 2001 KPMG audit fees?
Audit Fees
Fees for the fiscal year 2001 audit, including review of SEC quarterly and
annual report filings, were $783,000.
Financial Information Systems Design and Implementation Fees
No fees were incurred with KPMG for financial information systems design and
implementation in 2001.
All Other Fees
Aggregate fees for all other services rendered by KPMG for the 2001 fiscal
year were $2,178,000. These fees included tax services, accounting advice,
customs fees, certain statutory audits and other consulting and due diligence
assistance. Included in All Other Fees were fees of approximately $600,000 for
internal audit services. In 2002, KPMG will no longer provide internal audit
services to the Company.
19
The Audit Committee has considered whether the provision of services
described under All Other Fees is compatible with maintaining KPMG's
independence.
What vote is required to ratify the auditors?
The ratification of the appointment of independent auditors for 2002
requires that the votes cast in favor of the ratification exceed the votes cast
opposing such ratification. Abstentions and Broker Shares that are not voted
will not be included in determining the number of votes cast.
The Board of Directors recommends a vote FOR the ratification of the
appointment of KPMG LLP as the Company's independent auditors for 2002.
MISCELLANEOUS
Who will pay for this solicitation of proxies?
The Company will pay the entire expense of this solicitation of proxies.
Georgeson Shareholder Communications Inc., New York, New York, will solicit
proxies by personal interview, mail, telephone and telegram, and will request
brokerage houses and other custodians, nominees and fiduciaries to forward
soliciting material to the beneficial owners of the Common Stock held of record
by such persons. The Company will pay Georgeson Shareholder Communications Inc.
a fee of $9,500 covering its services and will reimburse Georgeson Shareholder
Communications Inc. for payments made to brokers and other nominees for their
expenses in forwarding soliciting material. In addition, proxies may be
solicited by personal interview, telephone, mail and telegram by directors,
officers and employees of the Company.
When must a shareholder submit a proposal for the next annual meeting?
Shareholders who intend to present proposals for consideration at the 2003
Annual Meeting of Shareholders and who wish to have their proposals included in
the Company's proxy statement and proxy card for that meeting, must be certain
that their proposals are received by the Company at its principal executive
offices on or before November 25, 2002. Proposals should be sent to the
Corporate Secretary, Arch Chemicals, Inc., 501 Merritt 7, Norwalk, Connecticut
06851. All proposals must also comply with the applicable requirements of the
Federal securities laws in order to be included in the Company's proxy
statement and proxy card for the 2002 Annual Meeting. In addition, in order for
any shareholder proposal to be presented during next year's annual meeting,
written notice must be received by the Company at its headquarters on or after
November 25, 2002 and on or before December 25, 2002 as provided in the
Company's Bylaws, and shall contain such information as required under such
Bylaws. You may contact the Company's Corporate Secretary at the address
mentioned above for a copy of the relevant Bylaw provisions regarding the
requirements for making shareholder proposals.
By order of the Board of Directors,
SARAH A. O'CONNOR
Secretary
Dated: March 25, 2002
20
[LOGO]
PRINTED ON RECYCLED PAPER
PROXY
Arch Chemicals, Inc.
This Proxy is Solicited on Behalf of the Board of Directors of
Arch Chemicals, Inc.
The undersigned, having received the Notice of Annual Meeting and Proxy
Statement, hereby (i) appoints John W. Johnstone, Jr., Richard E. Cavanagh and
Michael O. Magdol, and each of them, proxies with full power of substitution,
for and in the name of the undersigned, to vote all shares of Common Stock of
Arch Chemicals, Inc. owned of record by the undersigned, and (ii) directs
JPMorgan Chase Bank, Trustee under the Olin Corporation Contributing Employee
Ownership Plan and Trustee under the Arch Chemicals, Inc. Contributing Employee
Ownership Plan (such plans collectively referred to as the "CEOP") to vote in
person or by proxy all shares of Common Stock of Arch Chemicals, Inc. allocated
to any accounts of the undersigned under such Plans, and which the undersigned
is entitled to vote, in each case of clause (i) and (ii), on all matters which
may come before the 2002 Annual Meeting of Shareholders to be held at The
Prudential Center for Learning and Innovation, 32 Weed Avenue, Norwalk,
Connecticut, on April 25, 2002, at 9:30 a.m., local time, and any adjournments
or postponements thereof. The proxies will vote using the directions on the
reverse side of this card. If no direction is provided, this proxy will be voted
as recommended by the Board of Directors. The proxies, in their discretion, are
further authorized to vote on other matters which may properly come before the
2002 Annual Meeting of Shareholders and any adjournments or postponements
thereof.
Comments/Change of Address. Please mark box on reverse side.
Please complete and sign the proxy on the reverse side and return it in the
enclosed envelope.
(triangle up) FOLD AND DETACH HERE (triangle up)
You are encouraged to specify your choices by marking the appropriate boxes (SEE
REVERSE SIDE), but you need not mark any boxes if you wish to vote in accordance
with the Board of Directors' recommendations.
SEE REVERSE
SIDE
It is important that your shares are represented at this meeting, whether or not
you attend the meeting in person. To make sure your shares are represented, we
urge you to complete and mail the proxy card on the reverse side or to use our
telephone or Internet voting system.
FOR TELEPHONE AND INTERNET VOTING INSTRUCTIONS, SEE REVERSE SIDE
(ADMISSION TICKET ON REVERSE)
(Bring the admission ticket with you if attending the meeting)
Directions to The Prudential Center for Learning and Innovation
via the New England Thruway/Connecticut Turnpike or Merritt Parkway
New England Thruway/Interstate 95/ Connecticut Turnpike -- Exit 13
From New York
1.Turn right onto the Boston Post Road/Connecticut Avenue (U.S. 1)
2.Proceed .3 mile to Richards Avenue.
3.At the traffic light turn left onto Richards Avenue and continue 1.5 miles to
Fillow Street.
4.At stop sign turn left onto Fillow Street, driving .2 mile to stop sign at
Weed Avenue.
5.Turn right onto Weed Avenue, and continue .3 mile to entrance of the
Prudential Center for Learning and Innovation.
6.The entrance is on the right side of Weed Avenue.
From New Haven -- Exit 13
1.Turn right onto the Boston Post Road/Connecticut Avenue (U.S. 1)
2.Proceed .5 mile to Richards Avenue.
3.Follow directions 3-6 above.
Hutchinson River Parkway/ Merritt Parkway -- Exit 38
From New York
1.Turn right onto New Canaan Avenue/Route 123 and, almost immediately, at
traffic light turn left onto Nursery Street.
2.Continue on Nursery Street for .8 mile, bearing right, until it ends at
Marvin Ridge Road.
3.Turn left onto Marvin Ridge Road, which becomes Weed Avenue.
4.Drive for .7 mile to the entrance of the Prudential Center for Learning and
Innovation.
5.The entrance is on the left side of Weed Avenue.
From New Haven -- Exit 38
1.Turn right onto New Canaan Avenue/Route 123.
2.Proceed .2 mile to traffic light and take right onto Nursery Street.
3.Follow directions 2-5 above.
[X] Please mark your votes as in this example.
5044
This Proxy when properly signed will be voted in the manner directed herein. If
no direction is made, this proxy will be voted "FOR" all of the Board of
Directors' nominees and "FOR" proposal 2.
The Board of Directors recommends a vote for all proposals below:
1. Election of Directors:
FOR [_]
WITHHELD [_]
For, except vote withheld from the following nominee(s).
01. Michael E. Campbell
02. H. William Lichtenberger
03. John P. Schaefer
2. Ratification of the appointment of KPMG LLP as independent auditors
FOR [_]
AGAINST [_]
ABSTAIN [_]
SPECIAL ACTION
Comments/Address Change (use space on reverse side) [_]
If available in the future, would you be interested in receiving your proxy
materials electronically? [_]
Mark here if you plan to attend the Annual Meeting [_]
Please sign exactly as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Signature(s) Date
- --------------------------------------------------------------------------------
/\ FOLD AND DETACH HERE /\
Control No. Above
Dear Shareholder:
Arch Chemicals, Inc. encourages you to take advantage of convenient ways by
which you can vote your shares. You can vote your shares electronically through
the Internet or the telephone. This eliminates the need to return the proxy
card.
To vote your shares electronically you must use the control number. The control
number is the series of numbers printed in the box above, just below the
perforation. This control number must be used to access the system.
To ensure that your vote will be counted, please cast your Internet or telephone
vote before 11:59 p.m., New York time, on April 24, 2002; however, for CEOP
participants, the deadline for Internet and telephone voting is 9:00 a.m., New
York time, on April 24, 2002.
1. To vote over the Internet:
o Log on to the Internet and go to the web site http://www.eproxyvote.com/arj
2. To vote over the telephone:
o On a touch-tone telephone call toll free 1-877-PRX-VOTE (1-877-779-8683) 24
hours a day, 7 days a week.
o Outside of the U.S. and Canada call 201-536-8073
Your electronic vote authorizes the named proxies in the same manner as if you
marked, signed, dated and returned the proxy card.
If you choose to vote your shares electronically, there is no need for you to
mail back your proxy card.
YOUR VOTE IS IMPORTANT. THANK YOU FOR VOTING
(Bring this ticket with you if attending the
meeting)
ADMISSION TICKET
[LOGO]
Annual Meeting of Shareholders
of Arch Chemicals, Inc.
Thursday, April 25, 2002
9:30 a.m., local time
Prudential Center for Learning and Innovation
32 Weed Avenue
Norwalk, Connecticut