Olin DEF 14A 2007
Documents found in this filing:
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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:
(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):
Reg. Section 240.14a-101.
SEC 1913 (3-99)
190 CARONDELET PLAZA, SUITE 1530, CLAYTON, MISSOURI 63105-3443
March 9, 2007
Dear Olin Shareholder:
We cordially invite you to attend our 2007 annual meeting of shareholders.
This booklet includes the notice and proxy statement, which describes the business we will conduct at the meeting and provides information about Olin that you should consider when you vote your shares. We have not planned a communications segment or any multimedia presentations for the 2007 annual meeting.
Mr. Donald W. Griffin, a Class I director, will retire from Olins board upon the expiration of his current term on April 25, 2007. The board thanks Mr. Griffin for his past contributions and extends its best wishes in his future endeavors.
Whether or not you plan to attend, it is important that your shares are represented and voted at the annual meeting. If you do not plan to attend the annual meeting, you may vote your shares on the Internet, by telephone or by completing and returning the proxy card in the enclosed envelope. If you plan to attend the annual meeting, please bring the lower half of your proxy card to use as your admission ticket for the meeting.
At last years annual meeting more than 92% of our shares were represented in person or by proxy. We hope for the same high level of representation at this years meeting and we urge you to vote as soon as possible.
Joseph D. Rupp
Chairman, President and
Chief Executive Officer
YOUR VOTE IS IMPORTANT
We urge you to promptly vote the shares on the Internet, by telephone or by completing, signing, dating and returning your proxy card in the enclosed envelope.
Notice of Annual Meeting of Shareholders
By Order of the Board of Directors:
George H. Pain
March 9, 2007
ANNUAL MEETING OF SHAREHOLDERS
To be Held April 26, 2007
Why did I receive this proxy statement?
You received this proxy statement because you owned shares of Olin common stock, par value $1 per share, which we sometimes refer to as common stock, at the close of business on February 28, 2007. Olins board of directors is asking you to vote at the 2007 annual meeting for each of the director nominees identified in Item 1 and for Item 2 listed in the notice of the annual meeting of shareholders. This proxy statement describes the matters on which we would like you to vote and provides information so that you can make an informed decision.
When was this proxy material mailed to shareholders?
We began to mail the proxy statement and form of proxy to shareholders on or about March 9, 2007.
What if I have questions?
If you have questions, please write them down and send them to the Secretary at Olins principal executive office at 190 Carondelet Plaza, Suite 1530, Clayton, MO 63105-3443.
What will I be voting on?
You will be voting on:
Could other matters be voted on at the annual meeting?
As of March 9, 2007, the items listed in the preceding question are the only matters being considered. 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 and opinion as to what is in the best interests of Olin.
How does the Board recommend I vote on the proposals?
The board recommends a vote for each of the director nominees identified in Item 1 and for Item 2.
Who can vote?
All shareholders of record at the close of business on February 28, 2007 are entitled to vote at the annual meeting.
How many votes can be cast by all shareholders?
At the close of business on February 28, 2007, the record date for voting, we had outstanding 73,643,645 shares of common stock. Each shareholder on the record date may cast one vote for each full share owned. The presence in person or by proxy of the holders of a majority of such shares constitutes a quorum.
How do I vote?
You may vote either in person at the annual meeting or by proxy. To vote by proxy, you must select one of the following options:
If you vote in a timely manner by the Internet or telephone, you do not have to return the proxy card for your vote to count. The Internet and telephone voting procedures appear on the bottom of the enclosed proxy card. You may also log on to change your vote or to confirm that your vote has been properly recorded.
If you want to vote in person at the annual meeting, and you own your common stock through a custodian, broker or other agent, you must obtain a proxy from that party in their capacity as owner of record for your shares and bring the proxy to the annual meeting.
How are votes counted?
If you specifically mark the proxy card (or vote by telephone or Internet) and indicate how you want your vote to be cast regarding any matter, your directions will be followed. If you submit the proxy card but do not specifically mark it with your instructions as to how you want to vote, the proxy will be voted for the election of the directors and in favor of Item 2 listed in the proxy.
Mellon Investor Services LLC tabulates the shareholder votes and provides an independent inspector of election as part of its services as our registrar and transfer agent. If you submit a proxy card marked abstain or withhold on any item, your shares will not be voted on the item so marked and your vote will not be included in determining the number of votes cast for that matter.
Can I change my vote?
Yes. Even if you vote by Internet or telephone or submit a proxy card with your voting instructions, you may revoke or change your vote at the meeting any time by:
When are the votes due?
Proxies submitted by shareholders by Internet or by telephone will be counted in the vote only if they are received by 11:59 p.m., Eastern Daylight Time on April 25, 2007. Shares represented by proxies on the enclosed proxy card will be counted in the vote at the annual meeting only if we receive your proxy card by April 25, 2007. Proxies submitted by CEOP participants will be counted in the vote only if they are received by 11:59 p.m., Eastern Daylight Time on April 23, 2007.
How do I vote my shares held in the Olin Contributing Employee Ownership Plan or the Arch Chemicals, Inc. Contributing Employee Ownership Plan?
On February 28, 2007, the Olin Corporation Contributing Employee Ownership Plan (Olin CEOP) held 6,091,475 shares of our common stock and the Arch Chemicals, Inc. Contributing Employee Ownership Plan (Arch CEOP) held 413,439 shares. We sometimes refer to one or both of these plans as the CEOP. State Street Bank and Trust Company serves as the Trustee of the Olin CEOP and JPMorgan Chase Bank serves as Trustee of the Arch CEOP. If you are a participant in either CEOP, you may instruct the Trustee of that CEOP how to vote shares of common stock credited to you by voting on the Internet or telephone or by indicating your instructions on your proxy card and returning it to us. The Trustees will vote shares of common stock held in the CEOP for which they do not receive voting instructions in the same manner proportionately as they vote the shares of common stock for which they do receive instructions.
How do I vote my shares held in the Automatic Dividend Reinvestment Plan?
Mellon Investor Services LLC is our registrar and transfer agent and administers the Automatic Dividend Reinvestment Plan. If you participate in our Automatic Dividend Reinvestment Plan, Mellon will vote any shares of common stock that it holds for you in accordance with your instructions indicated on the proxy card you return or the vote you make by Internet or telephone. If you do not submit a proxy card for your shares of record or vote by Internet or telephone, Mellon Investor Services LLC will not vote your dividend reinvestment shares.
Can I contact Board members directly?
Our audit committee has established the following methods for shareholders to communicate directly with the board and/or its members.
The Olin Board or (Name of the director)
c/o Office of the Secretary
190 Carondelet Plaza, Suite 1530
Clayton, MO 63105
Who pays for this proxy solicitation?
Olin will pay the entire expense of this proxy solicitation.
Who solicits the proxies and what is the cost of this proxy solicitation?
Our board is soliciting the proxies. We have hired The Proxy Advisory Group, LLC (Proxy Advisory Group), a proxy solicitation firm, to assist us with the distribution of proxy materials and vote solicitation. We will pay Proxy Advisory Group approximately $7,500 for its services and will reimburse Proxy Advisory Group for payments made to brokers and other nominees for their expenses in forwarding proxy solicitation materials.
How will the proxies be solicited?
Proxy Advisory Group will solicit proxies by personal interview, mail, and telephone, and will request brokerage houses and other custodians, brokers and other agents to forward proxy solicitation materials to the beneficial owners of Olin common stock for whom they hold shares. Our directors, officers and employees may also solicit proxies by personal interview and telephone.
How can I submit a shareholder proposal at the 2008 annual meeting?
If you want to present a proposal to be considered for inclusion in the 2008 proxy statement for the 2008 annual meeting, you must deliver the proposal in writing to the Secretary at Olin Corporation, 190 Carondelet Plaza, Suite 1530, Clayton, MO 63105 no later than November 10, 2007. You must then present your proposal in person at the 2008 annual meeting.
If you want to present a proposal for consideration at the 2008 annual meeting without including your proposal in the proxy statement, you must deliver a written notice (containing the information required by Olins By-laws) to the Secretary at Olin Corporation, 190 Carondelet Plaza, Suite 1530, Clayton, MO 63105 no later than January 28, 2008. You must also present your proposal in person at the 2008 annual meeting.
How can I directly nominate a director for election to the board at the 2008 annual meeting?
According to Olins By-laws, if you are a shareholder you may directly nominate an individual for election to the board if you deliver a written notice of the nomination to Olins Secretary no later than January 28, 2008. Your notice must include:
Although a shareholder may directly nominate an individual for election as a director, the board is not required to include such nominee in the proxy statement.
How can I recommend a Director for the slate of candidates to be nominated by Olins Board for election at the 2008 annual meeting?
In addition to directly nominating an individual for election to the board as discussed above, you can suggest that our Directors and Corporate Governance Committee consider a person for inclusion in the slate of candidates to be proposed by the board for election at the 2008 annual meeting. You can recommend a person by delivering written notice to Olins board no later than October 12, 2007. The notice must include the information described under the heading What is Olins Director Nomination Process? on pages 14 and 15, and must be sent to the address indicated under that heading.
How can I obtain shareholder information?
Shareholders may contact Mellon Investor Services LLC, our registrar and transfer agent, who also manages our Automatic Dividend Reinvestment Plan at:
Mellon Investor Services LLC
480 Washington Boulevard
Jersey City, NJ 07310
Telephone: (800) 306-8594
For technical assistance with this website, call (877) 978-7778 between 9 a.m 7 p.m. Eastern Time, Monday Friday.
Shareholders can sign up for MLinkSM through Mellon Investor Services LLC for fast, easy and secure access 24 hours a day, 7 days a week for future proxy materials, investment plan statements, tax documents and more. To sign up log on to Investor ServiceDirect® at www.melloninvestor.com/isd where step-by-step instructions will prompt you through enrollment or you may call (877) 978-7778 for Investor ServiceDirect® customer service.
CERTAIN BENEFICIAL OWNERS
Except as listed below, no person beneficially owned more than five percent of our common stock as of February 28, 2007.
ITEM 1PROPOSAL FOR THE ELECTION OF DIRECTORS
NOMINEES FOR THREE-YEAR TERMS EXPIRING IN 2010
The board recommends that you vote FOR the election of Mr. Bunch, Mr. Larrimore and Mr. Ruggiero as Class I directors.
Who are the individuals nominated by the Board to serve as Directors?
The board of directors is divided into three classes. Each class has a term of office for three years, and the term of each class ends in a different year. Virginia law and Olins By-laws require that any director elected by the board of directors shall serve only until the next election of directors by the shareholders. The board has nominated Messrs. Bunch, Larrimore and Ruggiero for re-election by the shareholders as Class I directors, with terms expiring in 2010.
How many votes are required to elect a director?
A nominee will be elected as a director if a plurality of the votes cast in the election is in favor of the nominee. Abstentions and shares held in street name that are not voted in the election of directors will not be included in determining the number of votes cast.
Who are the other remaining directors and when are their terms scheduled to expire?
The terms of the following directors will continue after the 2007 annual meeting, as indicated below.
DIRECTORS WHOSE TERMS CONTINUE UNTIL 2008
DIRECTORS WHOSE TERMS CONTINUE UNTIL 2009
In accordance with Olins Principles of Corporate Governance which provides that non-employee directors retire from the Board at the annual meeting following their 70th birthday, Mr. Donald W. Griffin, the remaining Class I director, will retire from the board upon the expiration of his current term on April 25, 2007. The board intends to amend Olins Bylaws to reduce the number of directors from ten to nine prior to the annual meeting and therefore no replacement nominee has been named. The terms of the other directors will continue after the annual meeting as indicated below. The board expects that all of the nominees will be able to serve as directors. If any nominee is unable to accept election, a proxy voting in favor of such nominee will be voted for the election of a substitute nominee selected by the board, unless the board reduces the number of directors.
CORPORATE GOVERNANCE MATTERS
How many meetings did Board members attend?
During 2006, the board held eight meetings. As part of each board meeting, the non-executive directors met in executive session. All directors attended at least 75% of the meetings of the board and committees of the board on which they served. All of our directors attended the 2006 annual shareholders meeting. Our policy regarding directors attendance at the annual shareholders meeting is that they are required to attend, absent serious extenuating circumstances.
Which Board members are independent?
Our board has determined that all of its members, except Messrs. Griffin, Ruggiero and Rupp, are independent in accordance with applicable New York Stock Exchange (NYSE) listing standards and applicable provisions of our Principles of Corporate Governance. In determining independence, the board confirms that a director has no relationship with Olin that violates the bright line standards under the NYSE listing standards. The board also reviews whether a director has any other material relationship with Olin, after consideration of all relevant facts and circumstances. In assessing the materiality of a directors relationship to Olin, the board considers the issues from the directors standpoint and from the perspective of the persons or organizations with which the director has an affiliation. The board reviews commercial, industrial, banking, consulting, legal, accounting, charitable and familial relationships.
In 2006, we sold an aggregate of approximately $5.8 million of chlor alkali products to Noveon, Inc. One of our directors, Donald Bogus, serves as the president of Noveon. Our board determined that Mr. Bogus had no material interest in these sales transactions because the transactions were made on our customary terms and conditions, and amounted to less than 0.4% of Noveons total sales.
In 2006, we purchased less than $1,000 of product from Maverick Tube Corporation. One of our directors, C. Robert Bunch, served as Chairman, President and Chief Executive Officer of Maverick until October 2006 when Maverick was purchased by another company. Our board determined that such minimal purchase transactions which were made on customary terms and conditions, do not impair Mr. Bunchs independence.
In 2006, we matched charitable contributions made by Messrs. Larrimore and Schulz of $5,000 each, under our 50% matching contribution program available to all employees. Our board determined that such minimal charitable contributions do not constitute the type of relationship that could impair a directors independence.
Does Olin have corporate governance guidelines and a code of business conduct?
The board has adopted Principles of Corporate Governance and a Code of Business Conduct. The Code of Business Conduct applies to our directors and all of our employees, including our chief executive officer, chief financial officer, and principal accounting officer/controller. We discuss certain provisions of these documents in more detail below under the heading Review, Approval or Ratification of Transactions with Related Persons.
Each member of our board of directors has completed a director education course, accredited by Institutional Shareholder Services.
Each of our three major standing board committees (Audit, Compensation and Directors and Corporate Governance) acts under a written charter adopted by the board. All of these documents can be viewed on our website at www.olin.com in the Corporate Governance section of the Investor section
or are available from the company by writing to: George H. Pain, Vice President, General Counsel and Secretary, Olin Corporation, 190 Carondelet Plaza, Suite 1530, Clayton, MO 63105. In addition, we will disclose any amendment to, or waiver from, a provision of our Code of Business Conduct for our chief executive officer, chief financial officer, principal accounting officer/controller or other employees performing similar functions on that website.
What are the committees of the Board?
Our committees of the board are:
The Audit Committee, which held seven meetings during 2006, advises the board on internal and external audit matters affecting us. The audit committee acts under a written Charter adopted by the board in 1997, and reviewed and updated in 2006, which is attached to this proxy statement as Appendix A. In accordance with NYSE listing standards and applicable provisions of our Principles of Corporate Governance, the audit committee is comprised solely of directors who meet the enhanced independence standards for audit committees in the Exchange Act and the rules thereunder as incorporated into the NYSE standard for independence. Its members are: Philip J. Schulz, Chair, Randall W. Larrimore, John M. B. OConnor and Richard M. Rompala. The board has determined that Philip J. Schulz meets the SEC definition of an audit committee financial expert and that each of the members of the audit committee is financially literate, as such term is interpreted by the board in its business judgment. The audit committee:
The Compensation Committee, which held five meetings during 2006, sets policy, develops and monitors strategies for, and administers the programs that are used to compensate the chief executive officer and other senior executives. In accordance with NYSE listing standards and applicable provisions of our Principles of Corporate Governance, the compensation committee is comprised solely of directors who meet the NYSE standard for independence. Its members are: Richard M. Rompala, Chair, Donald W. Bogus, C. Robert Bunch, Virginia A. Kamsky and Randall W. Larrimore. The compensation committee:
The Compensation Committees charter authorizes the committee to delegate certain responsibilities to internal and independent accountants, internal and outside lawyers and other internal staff.
The Directors and Corporate Governance Committee, which held three meetings during 2006, assists the board in fulfilling its responsibility to our shareholders relating to the selection and nomination of officers and directors. In accordance with NYSE listing standards and applicable provisions of our Principles of Corporate Governance, the directors and corporate governance committee is comprised solely of directors who meet the NYSE standard for independence. Its members are: Randall W. Larrimore, Chair, Donald W. Bogus, C. Robert Bunch, Virginia A. Kamsky, John M. B. OConnor, Richard M. Rompala and Philip J. Schulz. The directors and corporate governance committee:
The Executive Committee meets as needed in accordance with our By-laws. Between meetings of the board, the executive committee may exercise all the power and authority of the board (including authority and power over our financial affairs) except for matters reserved to the full board by Virginia law and matters for which the board gives specific directions. During 2006, this committee held no meetings. The executive committee members are: Joseph D. Rupp, Chair, Randall W. Larrimore, Richard M. Rompala and Philip J. Schulz.
Compensation Committee Interlocks and Insider Participation
No member of our Compensation Committee during the past fiscal year:
None of our executive officers:
What is Olins Director nomination process?
Our Directors and Corporate Governance Committee acts as our nominating committee. As a policy, the committee considers any director candidates suggested by shareholders if we receive the appropriate information in a timely manner. Our Principles of Corporate Governance provide that the Board Chair and Chief Executive Officer, Lead Director, other directors, employees and shareholders, may recommend director nominees to the committee. The committee uses the same process to review and evaluate all potential director nominees, regardless of who recommends the candidate. The committee reviews and evaluates each nominee and the Committee Chair, the Board Chair and CEO and Lead Director interview the potential board candidates selected by the committee. The interview results, along with the committees recommended nominees, are submitted to the full board.
Criteria for new board members include recognized achievement plus skills such as a special understanding or ability to contribute to some aspect of Olins business. Racial and gender diversity are important but not at the expense of particular qualifications and experience that are required to meet the needs of the Board. The committee also strives to include board members with the personal qualities and experience that taken together will ensure a strong board of directors. The principal qualities of an effective corporate director include strength of character, an inquiring and independent mind, practical wisdom, and mature judgment.
A shareholder can suggest a person for nomination as a director by providing the name and address of the candidate, and a detailed description of his or her experience and other qualifications for the position, in writing addressed to the board of directors in care of the Secretary, Olin Corporation, 190 Carondelet Plaza, Suite 1530, Clayton, MO 63105. The notice may be sent at any time, but for a candidate to be considered by the committee as a nominee for an annual shareholder meeting, we must receive the written information at least 150 days before the anniversary of the date of the prior years proxy statement. For example, for candidates to be considered for nomination by the committee at the 2008 annual meeting, we must receive the information from shareholders on or before October 12, 2007.
In addition to shareholders proposing candidates for consideration by the committee, Olins By-laws allow shareholders to directly nominate individuals at the annual shareholder meeting for election to the board by delivering a written notice as described under the heading How can I directly nominate a Director for election to the board at the 2008 meeting? on page 5 under the heading Miscellaneous above. Although a shareholder may directly nominate an individual for election as a director, the board is not required to include such nominee in the proxy statement.
Who presides at Executive Sessions of the Board of Directors?
In accordance with our Principles of Corporate Governance, Richard M. Rompala, our Lead Director, presides during executive sessions of the boards independent directors.
Report of the Audit Committee
The directors on the audit committee are Randall W. Larrimore, John M. B. OConnor, Richard M. Rompala and Philip J. Schulz.
All members of the Committee are independent Directors under New York Stock Exchange (NYSE) listing standards. In addition, all members of the Committee meet the financial literacy requirements outlined in the NYSE listing standards and Olins board of directors has determined that Mr. Schulz meets the definition of an audit committee financial expert under SEC rules.
The audit committees primary responsibility is to assist the board in its oversight of the integrity of the Corporations financial reporting process and systems of internal control, to evaluate the independence and performance of the Corporations independent registered public accounting firm, KPMG LLP, and internal audit functions and to encourage private communication between the audit committee and KPMG and the internal auditors.
The committee held five meetings during the year. During the second half of 2006, the audit committee also completed a self-assessment.
In discharging its responsibility, the audit committee reviewed and discussed the audited financial statements for fiscal year 2006 with Management and KPMG, including the matters required to be discussed by Statement on Auditing Standards (SAS) 61, Communication with Audit Committees, as amended.
In addition, the audit committee received a written report from KPMG covering disclosures required by Independence Standards Board Standard No. 1, INDEPENDENCE DISCUSSIONS WITH AUDIT COMMITTEES. The audit committee discussed with KPMG the issue of its independence from Olin and reviewed KPMGs reports on the firms quality review procedures and findings, results of peer reviews and investigations and inquiries, including corrective actions taken. The audit committee also
negotiated the hiring of KPMG for the 2006 audit and pre-approved all fees which SEC rules require the committee to approve to ensure that the work performed was permissible under applicable standards and would not impair KPMGs independence.
Based on the audit committees discussions with management and KPMG and the audit committees review of KPMGs written report and the other materials discussed above, the audit committee recommended that the board of directors include the audited consolidated financial statements in Olins Annual Report on Form 10-K for the year ended December 31, 2006, to be filed with the SEC.
February 22, 2007
Philip J. Schulz, Chair
Randall W. Larrimore
John M. B. OConnor
Richard M. Rompala
SECURITY OWNERSHIP OF DIRECTORS AND OFFICERS
How much stock is beneficially owned by each director and nominee for director and by the named executive officers in the Summary Compensation Table?
This table shows how many shares of our common stock certain persons beneficially owned on January 15, 2007. Those persons include each director and director nominee, each named executive officer in the Summary Compensation Table on page 26, and all directors and executive officers as a group. A person has beneficial ownership of shares if the person has voting or investment power over the shares or the right to acquire such power within 60 days. Investment power means the power to direct the sale or other disposition of the shares. Each person has sole voting and investment power over the number of shares listed, except as noted in the following table.
Review, Approval or Ratification of Transactions with Related Persons
Our Principles of Corporate Governance and our Code of Business Conduct include policies and procedures requiring pre-approval of certain transactions involving our directors and employees and their family members and affiliated organizations if Olin is a direct or indirect participant. The policies define family member to mean a spouse, child, sibling, stepchild, stepparent, mother-, father-, son-, daughter-, or sister- in-law, or any other person living with the individual (except tenants and household employees). Affiliated organizations include those entities where the individual or family member serves as a director, executive officer or holder of 5% or more of the equity interests.
Our Principles of Corporate Governance require the Directors and Corporate Governance Committee (or, if that committee determines it is appropriate, the Board) to pre-approve the following transactions with directors, family members and affiliated organizations:
Our Code of Business Conduct and related Corporate Policy Statement require the approval of the board of directors before an officer may serve as a director or provide services to another organization (as an officer, employee, consultant, etc.). Any such service by other employees must be pre-approved by our President and CEO, if the potential for a conflict of interest exists. These provisions also prohibit any employee or family member from having any direct or indirect interest in, or any involvement with or obligation to, any business organization (including any non-profit entity to which Olin makes contributions) which does or seeks to do business with Olin, or any Olin competitor, without pre-approval from the employees department head.
In granting pre-approval, the Directors and Corporate Governance Committee, board members and management focus on the best interests of Olin.
In addition to the pre-approval process described above, our Code of Business Conduct and related Corporate Policy Statements prohibit any director or employee from engaging in a transaction that might conflict with the best interests of Olin.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our officers and directors, and persons who beneficially own more than ten percent of our common stock, to file reports of ownership and changes in ownership with the SEC, and these persons must furnish us with copies of the forms they file. Officers, directors and ten-percent beneficial owners complied with all Section 16(a) filing requirements in 2006.
COMPENSATION DISCUSSION AND ANALYSIS
We design our shareholder-return focused executive compensation policies and programs with the objectives of attracting, motivating and retaining the highest quality executives. Our goal is to compete in the market for high caliber individuals with the talent and capabilities we believe necessary to our success. We construct our executive compensation program and its various components to reflect market practices. Several components of executive compensation vary with our results, aligning our executives interests with those of our shareholders, and providing a motivational element. We also design our executive compensation to provide an incentive to executives to achieve other strategic objectives in a manner consistent with our goals.
General Executive Compensation Process
Our compensation committee is composed of Board members determined to be independent under the NYSE listing criteria. That committee establishes total compensation opportunities (and each of the individual elements) for Joseph D. Rupp, Chairman, President and Chief Executive Officer (the CEO). The committee also approves the compensation of the other executive officers, with input from the CEO. In establishing executive compensation, the committee considers shareholder return and shareholder value. To assist it in performing its duties, the committee engages independent executive compensation consultants. Since 2000, our compensation committee has retained Hewitt Associates, Inc. on an annual basis. These consultants provide significant market data, including an annual assessment of our relative position among a group of approximately 350 companies the consultants identify as a cross-section of U.S. manufacturing and service companies. The consultants size-adjust data from this cross-section of companies based on revenues, to align it with Olins revenue. We refer to this size-adjusted group as the comparator group. Companies are included in the comparator group as representative of the general labor market. For example, the chemicals companies in the comparator group are selected from a broad group of chemicals companies, including some that compete directly with Olin.
The consultants also advise the committee with respect to the competitiveness of our executive compensation programs as well as on general regulatory changes and other matters related to executive compensation practices. The compensation committee routinely meets in executive session (without the CEO or other officers present). As appropriate, the independent compensation consultants attend some of those executive sessions.
The committee considers and determines the compensation package for the CEO based on a competitive analysis prepared by the compensation consultants and focused on the comparator group, that includes consideration of shareholder return and shareholder value. The committee first determines the total targeted compensation opportunity for the CEO and then the appropriate mix of the elements of compensation, based on the comparator group analysis. The CEO recommends the compensation levels for all other officers to the compensation committee, based on comparator group levels. The committee specifically approves all compensation for our executive officers.
Elements of Compensation
The primary elements of our executive compensation are (1) an annual base salary, (2) an annual incentive award opportunity, (3) a long term incentive component and (4) retirement and severance benefits. Our executives also participate in certain other benefits, such as general health, life and disability insurance plans, most of which are available to all salaried employees. The base salary reflects the value an individual brings to our organization on a day-to-day basis. The annual incentive is designed to reward achievements during a given year, and the long-term incentive serves to drive
performance that reflects shareholder interests and provides rewards commensurate with investor returns. Retirement and severance benefits reward long-term service and provide some measure of financial security. The compensation committee determines the appropriate mix of these elements, with the assistance of its independent executive compensation consultants.
In setting compensation levels for the four primary compensation categories, we generally follow the competitive practices in the comparator group. The percentage of total compensation allocated to salary, annual incentive and long-term incentive varies by individual, and that individual determination is based on the responsibilities of the individual executive, consistent with executives at other companies in similar positions. We allocate a higher percentage of total executive compensation to incentive-based payments, as is typical of other companies. For 2006, annual incentive payments and long-term incentive awards comprised 73% of the CEOs total annual compensation, and from 52% to 64% of the total annual compensation for our other named executive officers.
For annual incentives, we use earnings per share as the performance metric for our named executive officers in the corporate group. We use four numeric performance criteria for annual incentives for our named executive officers who head operating units: earnings per share, cash flow, return on capital and operating income. For long-term incentive compensation, we use return on capital (tied to our performance relative to the S&P 1000 Materials companies plus six direct competitors) as the performance criterion for performance share payouts and we determine the number of stock options to grant each year based on total return to shareholders. We establish a target level for each of the various performance criteria at a level high enough that there is no certainty it is achievable. The individual target level for a numerical performance criterion may change from year to year. These target performance levels reflect challenges for various factors such as volume, pricing, cost management and working capital management.
Our general practice for an executive who is new in his/her position is to establish compensation below the market, and to increase it to market level over the first several years in the position, assuming that performance warrants such increases. Other material increases in compensation generally relate to promotions or added responsibilities. The total 2006 salary, target annual incentive and long term incentive compensation for our named executive officers were 15.3% below the comparator group median.
Salary. Base salary provides an executive with basic compensation and reflects the value of the employee in the market as well as his or her historic contribution to our success. As a guideline, we generally establish base salary at approximately the median compensation level among the comparator group. In 2006, salaries of our CEO and other named executive officers were 6.0% below that market median. The compensation committee generally makes salary adjustments for the named executive officers on an annual basis, but when warranted by cash flow considerations, this period has been extended to 18 months or more, and we have frozen executive base salaries for periods of time. In the past 10 years, we have not decreased base salary for any of our named executive officers.
In determining the CEOs base salary, the compensation committee considers a number of factors, including data regarding CEO salaries in the comparator group, the scope of his responsibilities, and his time in the position. For example, when he became CEO in 2002, Mr. Rupps base salary was well below the median of the comparator group, largely to reflect his short tenure as our CEO. To reflect his tenure and high level of performance in that position during a challenging year that included relocation, restaffing, and restructuring of Olin and its headquarters, effective April 1, 2006, the committee increased his base salary by 4%, to $780,000, approximately at the median level of the comparator group. Effective April 1, 2007, Mr. Rupps base salary will increase to $820,000, which remains approximately at the median level of the comparator group. In making base salary recommendations to the compensation committee for the other named executive officers, the CEO considers similar factors.
Annual Incentive (Non-equity Incentive Plan Compensation). We structure annual incentive compensation based on our yearly results. The annual incentive thus ensures that a significant portion of an executives compensation varies with our results in a given year, while providing financial incentives to executives to achieve our short term financial and strategic objectives. The annual incentive communicates to executives the key accomplishments the compensation committee wishes to reward and ensures that overall executive compensation correlates with our goals. We structure the annual incentive component to reward not only increased value for shareholders but also performance with respect to key operational factors and non-financial goals we believe important to our long-term success that may not be immediately reflected in financial performance metrics such as revenue or net income.
Named executive officers participate in the Senior Management Incentive Compensation Plan, or SMICP, which provides for a maximum annual incentive payment based on specific performance criteria and a formula established by the compensation committee. After the end of the year, the compensation committee certifies the results and determines the maximum incentive amount under the formula. The committee has historically applied negative discretion to these amounts, based on the process described below.
Each year we review data provided by our compensation consultants regarding the median percentage of net income allocated by the comparator group to annual incentives. Based on this information, the CEO makes a recommendation to the compensation committee regarding the maximum percentage of our net income to be allocated for annual incentives for all members of our senior management (including named executive officers) for the year. During the first quarter of each year, the committee sets the maximum percentage of net income available for total annual incentives for that year (6% for 2006 and 6% for 2007), including annual incentives for the named executive officers under the SMICP. At that time, the committee also determines the maximum portion of the total annual incentive pool payable to each named executive officer. The allocation of a percentage of the maximum annual incentive pool to each of the named executive officers is discretionary with the compensation committee, but generally is based on the named executive officers compensation relative to the other named executive officers. Regardless of the size of the annual incentive pool, the annual incentive program limits the maximum annual incentive payment to the CEO and each other named executive officer to 200% of his or her base salary.
After the end of each year, the committee reviews our financial results, and computes the dollar amount of the maximum annual incentive available for all participants (6% of net income for 2006) and determines the portion of that maximum pool payable to each named executive officer. As noted above, the compensation committee may exercise negative discretion, by reducing the annual incentive pool from the maximum amount, and, historically, actual annual incentives paid have totaled less than the maximum annual incentive pool. The committee also retains discretion to reduce the annual incentive payable to any individual executive, but any reduction in the amount of one executive officers annual incentive payment cannot result in an increase in the annual incentive payment of another executive officer. In exercising its negative discretion to establish actual annual incentive amounts for the named executive officers, the committee reviews the individual amounts that the CEO and the other named executive officers would have received had they been participants in the management incentive compensation plan used for all other officers and senior managers. These amounts reflect the various elements of performance, including numerical financial targets and individual goals tied to other performance criteria, on a company-wide or divisional basis, as appropriate.
Our CEO received an annual incentive of $760,266 for 2006 performance. The compensation committees determination of this amount (which is less than the maximum annual incentive available under the total annual incentive pool) reflected approximately 79% based on our generation of 2006
adjusted earnings per share at approximately 114% of target 2006 adjusted earnings per share, and 21% based on the accomplishment of certain strategic objectives, including:
The compensation committees determination of the annual incentives for the other named executive officers were also based in part on our 2006 adjusted earnings per share performance and in part on other strategic objectives described above. In the case of divisional offices, the committee also considered 2006 divisional performance against targeted levels of pre-tax profit, cash flow and return on capital. The weight of the various factors varied depending on the individual executives duties. Despite an increase in our 2006 adjusted earnings per share from 2005, Mr. Rupps 2006 annual incentive payment decreased from his 2005 level of $962,400, because the 2006 target adjusted earnings per share increased significantly from 2005 performance, reflecting the compensation committees desire to establish challenging performance criteria tied to shareholder value.
Long Term Incentive Compensation. We design the long term incentive component of our executive compensation to ensure commonality of interests between management and our investors. We do this by connecting shareholder return and long-term compensation, motivating executives to achieve long-range goals that directly benefit our shareholders. The compensation committee has determined that median values for long term incentive awards in the comparator group are an appropriate guideline for our target awards as a way to attract, motivate, and retain the quality executive talent Olin needs. We determine a target long-term incentive award (expressed as a dollar value) for each named executive officer early in the calendar year, based on management input and the outside compensation consultants analysis of target incentive awards to persons in similar positions in the comparator group. Actual target long term incentive awards for an individual named executive officer in a given year may be below or above the median level for the comparator group.
We allocate the target long-term component of executive compensation equally between stock options and performance shares (the two types of long-term compensation selected by the compensation committee for the past several years). We choose to grant stock options because we believe they ensure alignment of financial interests among executives and shareholders. We believe our decision to award performance shares promotes decision making among executives geared toward maximizing the principal drivers of share value. All awards to executive officers (both stock options and performance shares) are made by the compensation committee. The number of options granted and the performance share award payouts are tied to Olins performance in comparison to the materials companies included in the S&P 1000 Materials plus six additional companies that compete with us (Mueller Industries, Inc., Wolverine Tube, Inc., Occidental Petroleum Corporation, Alliant Techsystems, PPG Industries, Inc., and The Dow Chemical Company). We believe this group of companies represents our primary competition for investment capital, and therefore comprises an appropriate comparison group for performance purposes. We refer to this group of companies as the Modified S&P 1000.
Each year, our outside compensation consultants calculate the modified Black-Scholes value of options for our common stock. Based on that valuation, shares with a modified Black-Scholes value equal to one-half of the total target long-term incentive for all employees make up the aggregate pool of shares available for stock option grants that year. Because any Black-Scholes valuation includes a number of factors that can vary from year to year, such as stock price and volatility, the number of shares available for option awards will also vary. Beginning in 2007, the compensation committee determined that if the modified Black-Scholes value calculated by the compensation consultants is less than 20% of the fair market value of our common stock, we will use 20% of the fair market value to establish the aggregate number of shares available for option grants.
This aggregate pool of shares available for options is increased or decreased based on our trailing three-year total shareholder return (TSR) relative to the Modified S&P 1000. TSR represents the increase in the fair market value of our common stock over the relevant three-year period, including reinvestment of dividends, and is calculated using the method used for the Performance Graph included elsewhere in this Proxy Statement. The aggregate pool of shares available for option grants in a year increases by 25% if our TSR falls within the top third relative to the TSR for the Modified S&P 1000, and the aggregate pool of options shrinks by 25% if our TSR falls within the bottom third relative to the TSR for the Modified S&P 1000. Our 2006 stock option grant pool was set at 100% of the aggregate pool of options because our trailing three-year TSR for the three years ended December 31, 2005 of 12.9% fell in the middle third of the Modified S&P 1000.
As noted above, the preliminary option grant level for an individual is based on one-half of his or her total target long-term incentive award for the year. The committee (or the CEO, in the case of non-officers) may increase or decrease the actual grant for an individual by up to 25% from the target option level, although that discretion has never been exercised. The total of all option grants (as adjusted by the committee and the CEO) may not exceed the aggregate pool of available options for the year, however.
The remaining half of an individual executives target long term incentive award takes the form of performance shares. Each executive officer receives a target performance share award valued at one-half of his or her total target long term incentive compensation award. Our performance shares are described in more detail under the heading Performance Shares (following the table entitled Grants of Plan-Based Awards). The economic value of a performance share is calculated by the outside compensation consultants, and the target number of performance shares awarded is based on this economic value.
Other Compensation. We structure our other compensation to provide competitive benefit packages to employees, including our executives. We offer certain perquisites and other personal benefits to executives, primarily consisting of automobile expenses, financial counseling services and life insurance premiums (as well as the retirement and change in control benefits described below). We tie these benefits to competitive practices in the market, a practice the compensation committee believes enables us to attract and retain executives with the talents and skill sets we require.
We offer certain benefits, such as a portion of health insurance premiums, to all salaried employees, while others, such as certain life insurance benefits, are provided only to the named executive officers and other senior managers. We also compensate all salaried employees by matching their contributions to our 401(k) plan, the Olin Corporation Contributing Employee Ownership Plan (the CEOP), where the match varies based on Olins earnings per share performance, up to specified levels and as limited under the Internal Revenue Code of 1986, as amended (the Code), and we offer defined benefit retirement benefits through a tax qualified pension plan, the Olin Corporation Employees Pension Plan (Qualified Plan). We try to structure our benefit programs to be comparable to those offered by most companies.
Retirement Benefits. Our pension plan and other retirement benefits are designed to include pension benefits as part of the benefit package we offer to recruit and retain employees and to provide an element of security in an executives post-employment years. Our retirement benefits also reflect an individuals contribution over his or her service with the company, as an element of those plans ties to the employees longevity.
We offer the Supplemental Contributing Employee Ownership Plan, or Supplemental CEOP, to provide highly compensated employees, whose contributions to the CEOP are limited under the Code, with supplemental benefits to make up for such Code-imposed limitations. We also offer two non-qualified plans, the Olin Supplementary and Deferral Benefit Pension Plan (Supplemental Plan)
and the Olin Senior Executive Pension Plan (Senior Plan). Our Supplemental Plan provides pension benefits to highly compensated employees whose benefits from the Qualified Plan are limited by the Code. The Supplemental Plan also provides benefits on certain compensation that has been deferred and is excluded from eligible compensation under the Qualified Plan. The Senior Plan provides benefits in excess of those provided by the Supplemental and Qualified Plans, based on a higher percentage of compensation. The Supplemental CEOP, the Supplemental Plan and the Senior Plan are unfunded, nonqualified deferred compensation plans for the named executive officers and a small group of other senior management employees. Because each of these three plans is unfunded, participants receive benefits only if we have the financial resources to make the payments when due. The compensation committee believes these nonqualified supplements are commonly extended to executives at other companies, and by offering these benefits we remain competitive in the market for qualified senior-level executive talent.
We describe the terms of these plans in more detail in the narrative discussion following the table entitled Pension Benefits below. In general, we establish retirement benefits for executives based on comparable programs offered by competitors, and we periodically re-evaluate and update those plans to respond to changes in the market. For example, in 2005, we amended the Qualified Plan to eliminate participation for salaried employees hired after January 1, 2005. Instead, each such employee receives a company contribution equal to 5% of their eligible compensation, credited to their Retirement Contribution Accounts maintained within the CEOP. The Retirement Contribution Account is in addition to any employee or other company contributions under the CEOP, and separate CEOP provisions apply to the Retirement Contribution Account. Accordingly, executives hired on or after January 1, 2005 who might otherwise be eligible for the Supplemental Plan or the Senior Plan will be ineligible for those plans and instead will be eligible for a credit to the Supplemental CEOP that corresponds to the CEOP contribution.
Change in Control Agreements. We provide a severance plan to executives, as a retention incentive and to ensure that in a potential change in control situation that could benefit our shareholders, members of our management are personally indifferent to the outcome of the transaction. Our change in control program ensures that our executives work to secure the best outcome for shareholders in the event of a possible change in control, even if it means that they lose their jobs as a result. Each of our senior executives also has an Executive Agreement that provides that if the executives employment is terminated without cause, the executive will receive specified benefits.
We have provided notice to Messrs. Rupp, McIntosh and Pain that their current agreements will terminate on November 1, 2007. We also indicated that, at that time, we intend to offer each of those officers the opportunity to enter into an agreement in the form held by our other executive officers. The two types of these agreements are described in detail under the discussion following the Summary Compensation Table and under the caption Potential Payments Upon Termination or Change in Control.
The compensation committee gives careful attention to all aspects of executive compensation and for the reasons discussed above remains confident that our executive compensation program satisfies our objectives.
Option Grant Practices
We establish incentive compensation at the first regularly-scheduled compensation committee meeting of each calendar year. In the past few years, those meetings were scheduled around the time of the public release of our year end earnings report. As a result, the compensation committee granted stock options:
This practice avoided any effect on the value of the stock option as the result of an increase or decrease in our stock price based on the release of our earnings information. The practice also ensured that the exercise prices of stock options were not based on a market price as of a date prior to public dissemination of our year end results.
We have not engaged in back dating of options, and do not grant options with an exercise price below the average of the high and low sale prices on the effective date of the option grant.
Tax and Accounting Considerations
All elements of compensation, including salaries, generate charges to earnings under generally accepted accounting principles (GAAP). We generally do not adjust compensation components based on accounting factors. With respect to tax treatment, we consider the tax effect of types of compensation. Generally, we attempt to structure incentive compensation to secure the deduction for performance-based compensation under Section 162(m) of the Code. Section 162(m) denies a deduction for compensation paid to a named executive officer in a taxable year for compensation in excess of $1,000,000 unless such excess amount meets the definition of performance-based compensation. We attempt to structure our stock options and the largest portion of our performance shares, as well as significant portions of the annual incentive, to meet the criteria for performance-based compensation. It is possible, however, that portions of these awards will not qualify as performance-based compensation, and, when combined with salary and other compensation to a named executive officer, may exceed this limitation in any particular year.
The American Jobs Creation Act of 2004 changed tax rules applicable to nonqualified deferred compensation arrangements. Although the final regulations have not become effective, we believe we are operating in good faith compliance with the statutory provisions that became effective on January 1, 2005.
We have no policy addressing recovery of performance-based awards to the extent financial results underlying those awards are restated, but that situation has never arisen. If it does occur, our compensation committee would determine the appropriate action under the circumstances.
Stock Ownership Guidelines
We have established management and board member stock ownership guidelines. Our guidelines for directors are described under the heading Director Compensation below. Guidelines for our employees require executive officers and certain other senior managers to acquire and maintain specified ownership levels of our stock, based upon their management positions. Under our current guidelines, our CEO is expected to attain stock ownership of at least 150,000 shares, and our other named executive officers are expected to hold at least 20,000 shares of our common stock.
An executive is expected to achieve the appropriate ownership level within five years. Our compensation committee monitors compliance with the stock ownership guidelines annually. We include in shares owned by an executive, his or her restricted stock (if any), shares held in his or her CEOP account, shares subject to vested stock options with an exercise price below the current market price for our stock and one-half of the portion of his or her unvested target performance share awards payable in stock.
SUMMARY COMPENSATION TABLE
The table below summarizes the total compensation paid to or earned by each of the named executive officers for the fiscal year ended December 31, 2006.
Amounts reported in this column represent the total increase in the present value of the pension benefits during 2006 under all of our defined benefit pension plans, and are comprised of the following items:
The changes in the present value of the pension benefits are determined using the assumptions we use for financial reporting purposes. The discount rate for December 31, 2005, was 5.75% and for December 31, 2006, was 6.00%. The 1983 Group Annuity Mortality table was used for mortality for both years. Please see the note entitled Pension Plans and Retirement Benefits in the notes to our audited financial statements included in our 2006 annual report on Form 10-K for a discussion of these assumptions.
We used age 62, the first age at which unreduced pension benefits are payable under the Qualified Plan, the Supplemental Plan and the Senior Plan, to determine the change in the present value of the pension benefits under these plans.
Generally, the Senior Plan provides a 50% benefit to the executives surviving spouse (which we refer to as a joint and survivorship benefit) without an actuarial reduction in payments during the executives lifetime. An executive also can elect to have payments under the Qualified Plan and the Supplemental Plan extend for the remainder of his or her spouses lifetime, but such an election results in an actuarial reduction to benefits paid under those plans. Benefits paid from the Senior Plan are increased by the amount of the actuarial reduction under the Qualified Plan and the Supplemental Plan for a 50% joint and survivorship benefit. In accordance with the SEC regulations, the pension benefits in the Summary Compensation Table reflect benefits payable in the form of a single life annuity payable only during the life of the executive, and do not reflect any joint and survivorship benefit.
Each of the named executive officers has one or more agreements that provide for certain severance benefits (including additional benefits in the event of a change in control). The provisions of those agreements are described in more detail under the section entitled Potential Payments Upon Termination or Change in Control.
In connection with the move of our corporate headquarters from Norwalk, Connecticut to our current location, we executed a letter agreement with Mr. Pain. Under the terms of that letter agreement, during 2006, we paid:
Under the terms of the letter agreement, these benefits terminated on December 31, 2006, and the letter agreement terminated as of January 31, 2007.
Mr. Rupps salary and annual incentive payment for 2006 performance represented approximately 45% of his total compensation for that year. For the other officers named in the table above, their aggregate salary and annual incentive payment represented approximately 49% of their total 2006 compensation. These percentages are based on the FAS 123R value of equity awards granted to named executive officers in 2006. Because the Summary Compensation Table above reflects the dollar amount we recognized in our 2006 income statement for all outstanding equity awards to the named executive officers, calculated in accordance with FAS 123R, and thus includes amounts from awards granted in 2006 and in prior years, these percentages may not be able to be derived using the amounts reflected in that table.
GRANTS OF PLAN-BASED AWARDS
Annually, we grant options to purchase shares of our common stock to a group of key employees, including our executive officers. We describe our stock option program in more detail above under the heading Compensation Discussion and AnalysisLong Term Incentive Compensation, and Option Grant Practices. All options granted in 2006 were non-qualified options vesting in three equal annual installments beginning on the first anniversary of the grant date. The options may be exercised until ten years after the grant date.
Under our option plans, the option exercise price must be at least equal to the average of the high and low sale prices of our common stock on the date of the grant. Our option plans specifically prohibit repricing, and, except for certain anti-dilution adjustments, other adjustments to the exercise price. We discuss the timing of our option grants above, under the heading Option Grant Practices in the Compensation Discussion and Analysis section of this proxy statement. Our internal auditors recently completed an audit of our option grants and confirmed that we have not engaged in any option back-dating practices.
Each executive received a target number of performance shares in early 2006, which vest after the end of 2008. The total number of performance shares that vest will vary between 25% and 150% of the total target number of performance shares. Performance shares are paid approximately half in cash and half in stock. The actual number of performance shares that vest depends on our average annual return on capital for the three years ending December 31, 2008, in relation to the average annual return on capital among the Modified S&P 1000 for that period, as set forth in more detail in the chart below:
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
OPTION EXERCISES AND STOCK VESTED
The shares listed in column (d) above represent performance shares paid in the summer of 2006 (vested based on our performance for the three years ended December 31, 2005) under a performance share award made in early 2003. Performance shares are paid approximately half in cash and half in stock. The cash portion of the performance shares payment was based on the fair market value of the shares as of December 30, 2005 ($19.61), and dollar amounts listed in column (e) for the stock portion of the payment of performance shares are based on the average of the high and low sales prices for our common stock as of the date the shares were issued ($16.67), July 25, 2006. Of the total performance shares included in column (d) above, 50% vested automatically, and the remaining shares vested based on our average annual return on capital for the three-year period ended December 31, 2005, compared to that of the S&P MidCap 400. We describe our performance share program in more detail in our Compensation Disclosure and Analysis Elements of Compensation and in the text following the table entitled Grants of Plan-Based Awards.
The present value of the accumulated benefits for each of the named executives shown in the table below reflects the present value of the benefits earned under each of the pension plans as of December 31, 2006. The pension benefits that form the basis for the present values of the accumulated benefits shown are calculated using the executives average compensation, generally the average cash compensation (salary and annual incentive, and specific inclusions and exclusions that vary by plan) for the three highest years out of the last ten years of employment, including the year of retirement and years of creditable service under each of the plans as of December 31, 2006. We used age 62, the first age at which unreduced pension benefits are payable under each of the pension plans, to determine the present value of the pension benefits under these plans.
Unless the executive elects otherwise, benefits from the Senior Plan and the Supplemental Plan will be paid in the form of a lump sum if the present value is $100,000 or greater, one year following the executives retirement date.
The present values of the pension benefits in the table below are determined using the assumptions we use for financial reporting as of December 31, 2006, including a 6.00% discount rate and the 1983 Group Annuity Mortality table. Please see the note entitled Pension Plans and Retirement Benefits in the notes to our audited financial statements included in our 2006 annual report on Form 10-K for a discussion of these assumptions.
Each of these plans provides benefits to the executive for the remainder of his or her life (which we sometimes refer to as a single life annuity). In addition, the executive may elect to have payments continue after his or her death for the remainder of the life of his or her spouse (which we refer to as a joint and survivorship benefit) at some percentage of the amount paid during the executives life. Under the Qualified Plan and the Supplemental Plan, if the executive selects the joint and survivorship benefit, the annual payments are reduced based on actuarial calculations. The Senior Plan generally provides a 50% joint and survivorship benefit without any actuarial reduction, and also provides the executive with an additional amount equal to the amount of the actuarial reduction of benefits payable from the Qualified Plan and the Supplemental Plan for a 50% joint and survivorship benefit election. The following chart shows the present value of accrued benefits for each of the named executives under each of the pension plans, assuming the executive elected the 50% joint and survivorship benefit form of payment and benefits at age 62, the first age at which unreduced pension benefits are payable under the Qualified Plan, the Supplemental Plan and the Senior Plan:
As part of a competitive benefits program and to contribute to employees financial security in retirement, we offer defined benefit retirement benefits to salaried employees hired prior to January 1, 2005 through our tax qualified pension plan (Qualified Plan). Pension benefits under the Qualified Plan are calculated based on the average cash compensation (salary and annual incentive) for the highest three years out of the last ten years the individual is employed by Olin, including the year of retirement. The law requires that in determining compensation, the Qualified Plan ignore compensation in excess of a legally-imposed cap (which for 2006 was $220,000). An employees benefit is generally 1.5% of his or her average compensation multiplied by the number of years of service, less a percentage of his or her primary Social Security benefit based on years of service (not to exceed 50% of such Social Security benefit). A participant may retire early, with benefits commencing as early as age 55, provided he or she has completed at least 10 years of service. Benefits are reduced by 4% per year for each year the benefits commence prior to the participant reaching age 62. Participants who terminate employment before age 55 (with 10 or more years of service) may elect to receive an actuarially reduced benefit with payments beginning at age 55 or later. Participants who terminate employment before age 65 with at least 5 years of service (but less than 10 years of service) are eligible to receive a vested retirement benefit, beginning the month following their 65th birthday. Benefits from the Qualified Plan generally are paid as an annuity with the form of payment (e.g. joint and survivorship benefit, guaranteed period, etc.) selected by the participant, subject to any applicable actuarial reduction for such form.
The Code imposes certain limits on pension benefits payable from the Qualified Plan. Our Supplemental Plan restores pension benefits to highly compensated employees whose benefits from the Qualified Plan are limited by the Code. The Supplemental Plan also provides benefits on certain compensation that has been deferred and is excluded from eligible compensation under the Qualified Plan. The Supplemental Plan provides benefits equal to the reduction in the benefits from the Qualified Plan as the result of these Code limitations on benefits and eligible compensation. Employees affected by these limitations are eligible to participate in the Supplemental Plan. The formula to calculate pension benefits under the Supplemental Plan is the same as under the Qualified Plan, except without the Code limitations on benefits and eligible compensation and reduced for the amount payable under the Qualified Plan. Early retirement benefits are payable on an immediate basis to a participant whose employment terminates at age 55 or later, with at least 10 years of service, using the same reduction factors as under the Qualified Plan.
The Supplemental Plan and the Senior Plan (described below) are unfunded, nonqualified deferred compensation plans, so participants receive benefits only if we have the financial resources to make the payments when due.
The purpose of our Senior Plan is to attract and retain a management group capable of assuring our future success by providing them with supplemental retirement income. The Senior Plan is an unfunded, nonqualified deferred compensation plan for select management employees. An employee who is a Section 16(b) reporting officer, and who is selected by the Compensation Committee may participate in the Senior Plan. Under the Senior Plan, pension benefits are based on the average of the executives compensation (salary and annual incentive) for the three highest years out of the last ten that he or she is employed by Olin, including the year of retirement. Eligible compensation is not subject to the Code and other limitations that apply under the Qualified Plan. The benefits are generally equal to 3% of the executives average compensation multiplied by the number of years of participation
in the Senior Plan, plus 1.5% of the executives average compensation for his years of service in the Qualified Plan and Supplemental Plan less his years of service in the Senior Plan, reduced by the pension benefits that accrued under the Qualified Plan and the Supplemental Plan. The benefits are further reduced by 50% of the employees primary Social Security benefit. Early retirement benefits are payable on an immediate basis to a participant whose employment terminates at age 55 or later, regardless of years of service. Such early retirement benefits are reduced by 4% per year for each year they commence prior to the participants attainment of age 62. The maximum benefit payable from the Senior Plan is 50% of the employees average compensation reduced by amounts payable from the Qualified and Supplemental Plans, 50% of the employees primary Social Security benefit, and certain other adjustments set forth in the plan documents, if applicable. The Senior Plan provides a joint and survivorship benefit to an executives surviving spouse generally equal to 50% of the executives benefits from the Senior Plan. In addition, the Senior Plan pension benefits are increased by the amount of the actuarial reduction to benefits under the Qualified and Supplemental Plans if the executive elects the 50% joint and survivorship option under those plans.
To the extent that benefits under the Senior Plan and Supplemental Plan have an actuarial present value in excess of $100,000, such benefits are paid in a lump sum in the form of an accelerated distribution, unless the executive has elected to receive monthly benefits. Payment of this lump sum is made one year following retirement, provided the employee was eligible for early retirement. Otherwise the lump sum is paid when the employee reaches age 65. When such benefits are paid as an accelerated distribution, benefits from the Supplemental and Senior Plans are paid in monthly installments for the first year that an executive is retired. The actuarial present value of the remaining benefits is paid in a single lump sum installment, one year following the executives retirement.
If a participant in the Senior Plan and Supplemental Plan is a specified employee as defined in Code Section 409A, benefits subject to that Code provision may not be paid in the first six months after retirement, but will be paid in a lump sum as soon as practicable thereafter.
Health Insurance and Death Benefits
In general, salaried employees who retire at age 55 or later with at least 10 years of service may elect to continue to be covered under our health plan and continue to pay the same premium for the health plan as active salaried employees pay. When the average per capita cost for our health plan exceeds $10,000, the premium the salaried retiree will be required to pay will be the sum of the amount of the premium paid by active salaried employees plus the amount by which our average per capita cost for the plan exceeds $10,000. On the first day of the month they attain age 65, salaried retirees who retired after age 55 with 10 or more years of service are eligible for an Olin Medicare supplemental health care plan. We contribute $20 per covered person per month toward the cost of that plan only. We make no contributions if a retiree chooses to participate in a plan other than the Olin plan.
In general, salaried employees who retire from Olin on an immediate basis at age 55 or later with at least 10 years of service are eligible for a $5,000 death benefit payable from the Qualified Plan. In addition, full-time employees with job responsibilities at a specified level (based on Hay Points) are eligible to retain a percentage of their life insurance coverage when they retire, based on age at retirement, at our cost.
NONQUALIFIED DEFERRED COMPENSATION
The following table sets forth information with respect to our Supplemental CEOP for each of our named executive officers for 2006:
In addition to our CEOP, discussed above under the heading Compensation Discussion & AnalysisElements of CompensationOther Compensation, our Supplemental CEOP provides deferral and company matching opportunities to employees whose base pay exceeds the Codes compensation limit (which for 2006 was $220,000), and whose contributions to the qualified 401(k) plan (CEOP) are thus limited under the Code. These employees can make pre-tax contributions to the Supplemental CEOP, once their eligible compensation reaches the limit specified in the Code. Employees who elect to contribute to the Supplemental CEOP are also eligible to receive matching contributions from Olin.
We establish individual, notional accounts for each employee who makes contributions to the Supplemental CEOP. Employees may elect to have their contributions invested in phantom shares of Olin common stock or phantom units in an interest bearing fund. Dividends are credited to the phantom stock account based on the dividend rate paid on outstanding shares of our common stock. Interest is credited to the phantom interest bearing fund at a rate determined as of the end of each quarter for the following quarter, equal to (i) the Federal Reserve A1/P1 Composite rate for 90-day commercial paper plus 10 basis points or (ii) such other rate as our Board or Compensation Committee (or any delegate thereof) may select prospectively from time to time.
Distributions are available only upon termination of employment, and are made only in cash. Upon becoming a Supplemental CEOP participant, employees make an election to receive the value of their Supplemental CEOP account balance either (i) in a lump sum, or (ii) in annual installments for a period not to exceed fifteen (15) years. The value of our phantom shares of Common stock is equal to the average of the daily closing prices of our common stock on the New York Stock Exchange for the month preceding the distribution. Distributions from the interest bearing fund equal the dollar value of the fund which consists of principal and interest. If a participant in the Supplemental CEOP is a specified employee as defined in Code Section 409A, benefit payments subject to that Code provision begin as soon as practicable after the date which is six months after the participants termination.
We amended our Employee Deferral Plan to eliminate any additional deferrals after December 31, 2005. None of the officers listed in the table above had amounts deferred under that plan prior to that amendment.
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
We have certain agreements that require us to provide compensation to our named executive officers in the event of a termination of employment or a change in control of Olin. The tables below show estimated compensation payable to each named executive officer upon various triggering events. Actual amounts can only be determined upon the triggering event.
Annual Payments Assuming Election for Life of Executive
Payments Upon Death or Disability
Upon an executives death, his or her estate would receive life insurance benefits based on his or her base salary at the time of retirement, provided the executive was at least age 55 when his employment terminated. If Mr. Rupps employment terminated on December 31, 2006, he would have $78,000 of life insurance coverage. Mr. Pain would have $17,500 of life insurance coverage if his employment terminated on that date. Messrs. Fischer, McIntosh and Haferkamp are not eligible for these life insurance benefits until age 55.
An executive who is terminated due to disability would receive disability benefits equal to 60% or 75% of his or her base salary, depending on the level of coverage he has elected, until such time as the executive is no longer disabled, reaches age 65, or elects to take early retirement benefits, whichever is the first to occur. At that time, the executive would receive benefits described in the appropriate column above. Messrs. Rupp and McIntosh have elected the 75% level of coverage. Messrs. Fischer, Pain, and Haferkamp have elected the 60% level of coverage.
Executive Severance Agreements
We have executive severance agreements with John McIntosh, George Pain and Joseph Rupp which will terminate on November 1, 2007 (the pre-2005 executive agreements). At that time we intend to offer each of these executives an executive severance agreement and an executive change in control agreement in substantially the form described below under the heading Current Executive Severance and Executive Change in Control Agreements.
Change in control. If a change in control or a potential change in control of Olin occurs before the pre-2005 executive agreement expires, the pre-2005 executive agreement extends to the later of three years following the date of the potential change in control or three years following the date of the change in control. A change in control is defined as any one of the following events:
(i) individuals who, on the Effective Date, constitute the Board (the Incumbent Directors) cease for any reason to constitute at least a majority of the Board; provided that any person becoming a director subsequent to the Effective Date, whose election or nomination for election was approved (either by a specific vote or by approval of the proxy statement of Olin in which such person is named as a nominee for director, without written objection to such nomination) by a vote of at least two-thirds of the directors who were, as of the date of such approval, Incumbent Directors, shall be an Incumbent Director; provided, however, that no individual initially appointed, elected or nominated as a director of Olin as a result of an actual or threatened election contest with respect to directors or as a result of any other actual or threatened solicitation of proxies or consents by or on behalf of any person other than the Board shall be deemed to be an Incumbent Director;
(ii) any person (as such term is defined in Section 3(a)(9) of the Securities Exchange Act of 1934 (the Exchange Act) and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) is or becomes a beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of Olin representing 20% or more of the combined voting power of Olins then outstanding securities eligible to vote for the election of the Board (the Olin Voting Securities); provided, however, that the event described in this paragraph (ii) shall not be deemed to be a Change in Control if such event results from any of the following: (A) the acquisition of Olin Voting Securities by Olin or any of its subsidiaries, (B) the acquisition of Olin Voting Securities by any employee benefit plan (or related trust) sponsored or maintained by Olin or any of its subsidiaries, (C) the acquisition of Olin Voting Securities by any underwriter temporarily holding securities pursuant to an offering of such securities, (D) the acquisition of Olin Voting Securities pursuant to a Non-Qualifying Transaction (as defined in paragraph (iii)), or (E) the acquisition of
Olin Voting Securities by Executive or any group of persons including Executive (or any entity controlled by Executive or any group of persons including Executive);
(iii) the consummation of a merger, consolidation, statutory share exchange or similar form of corporate transaction involving Olin or any of its subsidiaries (a Reorganization) or sale or other disposition of all or substantially all of the assets of Olin to an entity that is not an affiliate of Olin (a Sale), unless immediately following such Reorganization or Sale: (A) more than 50% of the total voting power (in respect of the election of directors, or similar officials in the case of an entity other than a corporation) of (x) the entity resulting from such Reorganization, or the entity which has acquired all or substantially all of the assets of Olin (in either case, the Surviving Entity), or (y) if applicable, the ultimate parent entity that directly or indirectly has beneficial ownership of more than 50% of the total voting power (in respect of the election of directors, or similar officials in the case of an entity other than a corporation) of the Surviving Entity (the Parent Entity), is represented by Olin Voting Securities that were outstanding immediately prior to such Reorganization or Sale (or, if applicable, is represented by shares into which such Olin Voting Securities were converted pursuant to such Reorganization or Sale), and such voting power among the holders thereof is in substantially the same proportion as the voting power of such Olin Voting Securities among the holders thereof immediately prior to the Reorganization or Sale, (B) no person (other than any employee benefit plan (or related trust) sponsored or maintained by the Surviving Entity or the Parent Entity), is or becomes the beneficial owner, directly or indirectly, of 20% or more of the total voting power (in respect of the election of directors, or similar officials in the case of an entity other than a corporation) of the outstanding voting securities of the Parent Entity (or, if there is no Parent Entity, the Surviving Entity) and (C) at least a majority of the members of the board of directors (or similar officials in the case of an entity other than a corporation) of the Parent Entity (or, if there is no Parent Entity, the Surviving Entity) following the consummation of the Reorganization or Sale were, at the time of the approval by the Board of the execution of the initial agreement providing for such Reorganization or Sale, Incumbent Directors (any Reorganization or Sale which satisfies all of the criteria specified in (A), (B) and (C) above being deemed to be a Non-Qualifying Transaction);
(iv) the stockholders of Olin approve a plan of complete liquidation or dissolution of Olin.
Notwithstanding the foregoing, the acquisition by any person of beneficial ownership of 20% or more of the combined voting power of Olin Voting Securities solely as a result of the acquisition of Olin Voting Securities by Olin which reduces the number of Olin Voting Securities outstanding shall be deemed not to result in a Change in Control; provided, however, that if such person subsequently becomes the beneficial owner of additional Olin Voting Securities that increases the percentage of outstanding Olin Voting Securities beneficially owned by such person, a Change in Control of Olin shall then be deemed to occur.
Under the pre-2005 executive agreement, the executive agrees that if a potential change in control occurs, he or she will remain in Olins employ until the earlier of (1) the end of the six-month period following the potential change in control or (2) the occurrence of a change in control, so long as Olin continues to provide the executive with no less favorable office, title, duties and responsibilities.
An active employee on the date on which a change in control occurs who is less than 55 and participates in our Senior Executive Pension Plan will be entitled to a lump sum payment under that plan in an amount that, when combined with the value of his or her accrued pension benefits from all other Olin pension plans (assuming for such purpose that the executive had terminated employment upon the change in control), preserves the payment of such accrued benefits based on the subsidized early retirement factor that would be applicable if he or she had been 55 at the time of such termination of employment.
Termination without Cause by Olin, or by Executive for Reduction in Benefits or Disability. If the executives employment is terminated by Olin without cause or by the executive as a result of disability or adverse changes in the terms and conditions of the executives employment, the executive will receive, in lieu of severance benefits under any other Olin severance plans or programs:
If any such termination of employment (other than as a result of disability) occurs following a change in control of Olin, the executive also will receive (a) an additional cash severance payment in an amount equal to two times the executive severance amount and (b) an additional 24 months of pension plan service credit and insurance coverage. In addition, if the executive at the end of the 36-month period following termination of employment has satisfied the eligibility requirements to participate in Olins post-retirement medical and dental plan, he or she will be entitled to continue in Olins medical and dental coverage (including dependent coverage) until the executive reaches age 65, on terms and conditions no less favorable than those in effect prior to the change in control, provided that such coverage will be secondary coverage to any coverage provided to the executive by any new employer.
Sale or Transfer of Olin Business. If, in connection with the sale or transfer of an Olin business or assets to a third party or to a joint venture, the executive becomes an employee of the buyer or joint venture, he or she receives the benefits listed in items (1) through (4) above if his or her employment terminates under circumstances described above within twelve months of becoming employed by such buyer or joint venture. Payments are reduced for any cash severance or similar benefits from such buyer or joint venture.
Tax Gross Up. If any payments made to the executive subject him or her to the excise tax under Section 4999 of the Code, the payment will be increased so that the executive will receive the same net payment as if such tax did not apply.
Current Executive Severance and Executive Change in Control Agreements
As of December 31, 2006, we had executive severance agreements (current executive agreement) and executive change in control agreements (CIC agreement) with two named executive officers, John Fischer and Jeffrey Haferkamp, and with four other executive officers. Each current executive agreement and CIC agreement has an initial three-year term, which is automatically extended annually for an additional year unless we provide at least 90 days notice that the term will not be so extended. Under the CIC agreement, if a change in control (as defined in the CIC agreement) occurs before the CIC agreement expires, the CIC agreement extends for at least three years following the date of the change in control.
Current Executive Agreement (non-change in control). Pursuant to the current executive agreement, if we terminate the executives employment without cause, the executive will receive, in
lieu of severance benefits under any other Olin severance plans or programs, the payments and benefits set forth in (1) through (5) above under the pre-2005 executive agreements, except that the executive severance amount will be paid in installments over the twelve-month period following termination of employment. In addition, no severance payments will be made until the executive has signed a waiver and general release of claims that has become effective in accordance with its terms. If the executive becomes entitled to receive severance benefits under the current executive agreement, he or she must agree to one-year noncompetition and nonsolicitation covenants that are substantially identical to those currently applicable under Olins stock and incentive compensation plans. As under the pre-2005 executive agreements, if, in connection with the sale or transfer of an Olin business or assets to a third party or to a joint venture, the executive becomes an employee of the buyer or joint venture, he or she receives the benefits listed in items (1) through (4) above if his or her employment terminates under circumstances described above within twelve months of becoming employed by such buyer or joint venture, and such payments are reduced for any cash severance or similar benefits from such buyer or joint venture.
CIC Agreements. The CIC agreements define a change in control in the same manner as the pre-2005 executive agreements. Pursuant to the CIC agreements, if, following a change in control, the executives employment is terminated by Olin without cause or by the executive as a result of disability or adverse changes in the terms and conditions of the executives employment, the executive will be entitled to the same payments and benefits described above under the pre-2005 executive agreements for terminations of employment occurring following a change in control, other than the special lump sum payment described above for participants in the Senior Executive Pension Plan (which is described below) who are under age 55 at the time of the change in control. In addition, the payments and benefits described in the preceding sentence are not conditioned on the executives providing a waiver and general release of claims or on the executive complying with one-year noncompetition and nonsolicitation covenants. As under the pre-2005 executive agreements, the CIC agreements also provide that if any payments made to the executive subject the executive to the excise tax under Section 4999 of the Code, the payment will be increased so that the executive will receive the same net payment as if such tax did not apply.
Treatment of Equity Awards
Retirement. When an employee retires, vested stock options may be exercised for the remaining term of the option. If a performance share award has not vested at the time of an employees retirement, the employee will be entitled to a pro rata performance share award payable in cash. If the performance shares have vested, but have not been issued or paid, the performance share award will be paid as specified in the performance share program. In the case of performance-accelerated vesting options (PAVOs) granted in 2000, unvested PAVOs will not terminate upon retirement. If the PAVOs vest under applicable performance criteria they may be exercised at any time prior to January 26, 2010, but if performance criteria are not met before the earlier of the fifth anniversary of such retirement or January 26, 2010, PAVOs terminate and are cancelled.
Change in Control. In the event of a change in control (as defined under the CIC agreements), all options and Stock Appreciation Rights become immediately and fully exercisable. In certain cases, the options convert to stock appreciation rights. In addition, all restrictions and conditions on restricted stock will be deemed satisfied and performance share awards will be vested and deemed earned in full, and promptly paid to employees.
For all salaried employees hired prior to January 1, 2005, we provide defined benefit retirement benefits through a tax qualified pension plan (our Qualified Plan) and two non-qualified plans (the
Supplemental Plan and the Senior Plan) described in more detail under the table Pension Benefits above.
Qualified Plan. The Qualified Plan provides that if within three years following a change in control (as defined in the Qualified Plan) 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 increase for affected participants (and retired participants) to absorb any surplus plan assets. Under the Qualified Plan, a change in control is defined as:
(a) the Company ceases to be publicly owned with at least 1,000 stockholders; or
(b) a person, partnership, joint venture, corporation or other entity, or two or more of any of the foregoing acting as a group (or a person within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the Exchange Act)), other than the Company, a majority-owned subsidiary of the Company or an employee benefit plan of the Company or such subsidiary, become(s) the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of 20% or more of the then outstanding voting stock of the Company; or
(c) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors (together with any new director whose election by the Board of Directors or whose nomination for election by the Companys stockholders, was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the directors then in office; or
(d) all or substantially all of the business of the Company is disposed of pursuant to a merger, consolidation or other transaction in which the Company is not the surviving corporation (unless the shareholders of the Company immediately following such transaction beneficially own, directly or indirectly, more than 50% of the aggregate voting stock or other ownership interests of (I) the entity or entities, if any, that succeed to the business of the Company or (II) the combined company); or
(e) approval by the Companys shareholders of (I) a sale of all or substantially all of the assets of the Company or (II) liquidation or dissolution of the Company.
Supplemental Plan. In the event of a change in control (as defined in the Supplemental Plan), we will pay each eligible employee a lump sum amount in cash sufficient to purchase an annuity which will provide the same monthly after tax benefit as the employee would have received under the Supplemental Plan based on benefits accrued as of the date of the change in control. The lump sum payment will be reduced to take into consideration monthly payments provided under trust arrangements or other annuities we establish or purchase in order to make payments under this plan. The definition of change in control in the Supplemental Plan includes each of the items listed under the definition of change of control in the Qualified Plan and also includes mergers, consolidations, or other transactions where Olin is the surviving corporation.
Senior Plan. In the event of a change in control (as defined in the Senior Plan), the Senior Plan will pay qualified executives a lump sum amount in cash sufficient to purchase an annuity, which will provide the same after-tax benefit the employee would have received under the Senior Plan based on benefits accrued as of the date of the change in control. In addition, the pre-2005 executive agreements described above provide that an executive officer who is less than age 55 at the time of a change in control, will be treated as if he or she had retired at age 55, and the lump sum payment will be calculated based on the years of service at the date of a change in control. The definition of change in control in the Senior Plan is the same as it is in the Supplemental Plan.
Our compensation package for non-employee directors consists of:
The table below shows all cash and stock retainers and meeting fees we paid to each of our non-employee directors during 2006. Each of the directors listed below served for the entire year, except for Mr. OConnor who served for eleven months and Mr. Hascall who served for four months.
The board of directors determines the total amount of the annual retainer as well as the amounts of meeting, lead director and board/committee chair fees based upon recommendations from the Compensation Committee of the board and input from outside compensation consultants. All stock-based compensation for our directors is governed by our Amended and Restated 1997 Stock Plan for Non-employee Directors, which we refer to as our Directors Plan.
We have stock ownership guidelines for our non-employee directors that require each outside director to own shares of our common stock with a market value of at least five times the amount of the annual retainer, within five years after such director joins our board.
Under the Directors Plan, directors may elect to receive common stock instead of cash for any portion of their cash compensation. Directors may also elect to defer any cash payments and may elect deferred phantom stock units instead of an immediate stock grant. Amounts in a directors deferred cash account are credited with interest quarterly and phantom stock units are credited with dividend equivalents. Phantom stock units are paid out in shares of our common stock, or at the directors election, in cash. If there is a change in control as defined in the Directors Plan, the balance of any deferred account is paid to the directors.
Two of the directors held shares of Olin common stock held in their Directors Plan accounts at the time of the spin-off of Arch Chemicals, Inc. on February 8, 1999. Those directors were credited phantom shares of common stock of Arch Chemicals, Inc. as a dividend distribution in connection with the spin-off and those phantom shares are held in the Directors Plan. The Arch Chemicals, Inc. phantom shares are payable only in cash, unless a director transfers the Arch Chemicals, Inc. phantom shares into his or her Olin common stock account prior to the time he or she leaves our board.
COMPENSATION COMMITTEE REPORT
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with management and, based on the review and discussions, recommends that it be included in Olins annual report on Form 10-K and Proxy Statement for the 2007 Annual Shareholder Meeting.
Richard M. Rompala, Chairman
Donald W. Bogus
C. Robert Bunch
Virginia A. Kamsky
Randall W. Larrimore
February 21, 2007
This graph compares the total shareholder return on our common stock with the total return on the S&P Midcap 400 and our Peer Group, as defined below, for the five-year period from December 31, 2001 through December 31, 2006. The cumulative return includes reinvestment of dividends.
Our Peer Group consists of Georgia Gulf Corporation, Brush Engineered Materials Inc., Mueller Industries, Inc. and Wolverine Tube, Inc. Our Peer Group is weighted in accordance with market capitalization (closing stock price multiplied by the number of shares outstanding) as of the beginning of each of the five years covered by the performance graph. We calculated the weighted return for each year by multiplying (a) the percentage that each corporations market capitalization represented of the total market capitalization for all corporations in our Peer Group for such year by (b) the total shareholder return for that corporation for such year.
ITEM 2PROPOSAL TO RATIFY APPOINTMENT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
KPMG LLP was our independent registered public accounting firm for 2006 and 2005. A summary of the KPMG fees by year follows:
Our audit committee has a policy that all audit services by any independent registered public accounting firm and all non-audit services performed by our independent registered public accounting firm are subject to pre-approval by the audit committee at each scheduled meeting. The policy includes specific procedures for approval of such services. Excerpts from this policy follow:
Olins audit committee is solely responsible for pre-approving all audit services by any independent registered public accounting firm and all non-audit services performed by Olins independent registered public accounting firm. The process for such approval is as follows:
In 2006, the audit committee pre-approved all audit and audit-related services and all tax services.
Who has the Audit Committee selected as Olins independent registered public accounting firm for 2007?
Olins audit committee is solely responsible for hiring and compensating the Companys independent registered public accounting firm. After considering KPMGs 2006 performance and their proposed audit plan for 2007, the committee has selected KPMG as our independent registered public accounting firm for 2007.
Is a shareholder vote required to approve Olins independent registered public accounting firm?
The law and our By-laws do not require us to submit this matter to the shareholders at the annual meeting. However, the board and audit committee chose to submit it to the shareholders to ascertain their views.
Will I have an opportunity to hear from KPMG and ask them questions?
We expect representatives of KPMG to be present at the annual meeting. They will have an opportunity to make a statement, if they desire to do so, and to respond to appropriate questions.
How many votes are required to ratify the appointment of KPMG as Olins independent registered public accounting firm for 2007?
To ratify the appointment of KPMG as Olins independent registered public accounting firm for 2007, the votes cast in favor of KPMG must exceed the votes cast in opposition to KPMG. Abstentions and shares held in street name that are not voted will not be included in determining the number of votes cast. If the shareholders ratification vote does not support the audit committees decision to appoint KPMG as Olins independent registered public accounting firm for 2007, the audit committee will take the vote into consideration in making next years selection.
How does the Board recommend we vote?
The board recommends that you vote FOR ratification of the appointment of KPMG as our independent registered public accounting firm for 2007.
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
AMENDED AND RESTATED CHARTER
April 27, 2006
The Audit Committee (the Committee) is appointed by the Board of Directors. The purpose of the Committee is to:
The Committee will consist of no less than three Directors, all of whom are independent Directors, as defined in the Principles of Corporate Governance and applicable NYSE requirements.
Each member shall be financially literate, as such qualification is interpreted by the Board in its business judgment, or must become financially literate within a reasonable period of time after his or her appointment to the Committee.
In addition, at least one member of the Committee must have accounting or related financial management expertise, as the Corporations Board interprets such qualification in its business judgment. The Boards goal is that at least one member of the Committee will be an audit committee financial expert as defined in SEC regulations under Section 407 of the Sarbanes-Oxley Act of 2002. The Corporation will comply with all applicable disclosure requirements under the SECs rules related to audit committee financial experts.
If a Committee member simultaneously serves on the audit committees of more than three public companies (including the Corporation), the Board must determine that such service would not impair such members ability to serve effectively on the Corporations Committee. The Board must disclose any such determination in the Corporations annual proxy statement.
In addition to being an independent Director, each member of the Committee must not, other than in his or her capacity as a member of the Committee, the Board or any other Board committee: (1) accept, directly or indirectly, any consulting, advisory or other compensatory fee from the
Corporation or any subsidiary, other than fixed amounts of compensation under a retirement plan (including deferred compensation), for prior service with the Corporation (provided that such compensation is not contingent in any way on continued service); or (2) be an affiliated person of the Corporation or any subsidiary.
Committee members shall be appointed by the Board. The Board may remove any Committee member at any time. The Chair of the Committee will be rotated at three-year intervals, unless the Board believes there are compelling reasons at a given point in time to maintain an individual Directors chairmanship for a longer time. When feasible, the immediate past Chair will continue serving as a member of the Committee for at least one year to ensure an orderly transition.
The Committee shall meet no less than five times per year, and at such other times as may be necessary to fulfill its responsibilities. Periodically, the Committee shall meet separately with management, with the Corporate Secretary and General Counsel, with the Corporations internal auditors (or other personnel responsible for the internal audit functions) and with the Corporations independent auditors.
Regular meetings of the Committee will be at times during the year as approved by the Committee. Special meetings of the Committee may also be called and held as may be appropriate, subject to the Corporations By-laws. The Committee Chair shall prepare and/or approve an agenda in advance of each such meeting.
The Chair of the Committee will regularly report the Committees findings, conclusions and recommendations to the Board of Directors at the next meeting.
Duties and Responsibilities
The Audit Committee will:
Significant matters to be disclosed in Form 8-K filings with the SEC.
Internal Audit and EHS&T Audit
The Vice President Auditing and Business Ethics and Integrity shall report directly to the Audit Committee of the Board of Directors and shall have direct and unrestricted access to the Audit Committee.
The Audit Committee will:
Ethical and Legal Compliance
The Audit Committee will:
Other Committee Responsibilities
The Audit Committee will review the annual internal audit of the expenses and perquisites, including use of corporate assets, of the corporate officers and members of the Board of Directors.
At least annually, the Audit Committee will review the Companys Enterprise Risk Management (ERM) process. The review shall include discussion of the major risk exposures that have been identified by the Company, the steps management is taking to monitor and mitigate such exposures on an ongoing basis and the Companys Insurance strategy and programs.
The Committee shall have the right to use reasonable amounts of time of the Corporations internal and independent accountants, internal and outside lawyers and other internal staff and also shall have the right to hire independent accounting experts, lawyers and other consultants to assist and advise the Committee in connection with its responsibilities.
The Committee shall obtain advice and assistance from outside legal, accounting or other advisors as it deems necessary to carry out its duties, and shall receive appropriate funding, as determined by the Committee, from the Corporation for payment of compensation to the outside legal, accounting or other advisors employed by the Committee.
The Committee shall keep the Corporations accounting department advised as to the general range of anticipated expenses for outside consultants.
The Committee may meet privately with independent advisors and shall be free to talk directly and independently with any member of management in discharging its responsibilities.
The Board of Directors recommends a vote FOR each Item below.
Signature Signature Date
NOTE: Please sign as name appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such.
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ñ FOLD AND DETACH HERE ñ
WE ENCOURAGE YOU TO TAKE ADVANTAGE OF INTERNET OR TELEPHONE VOTING,
BOTH ARE AVAILABLE 24 HOURS A DAY, 7 DAYS A WEEK.
Internet and telephone voting is available for shareholders through 11:59 PM Eastern Time
on April 25, 2007 and for CEOP Participants through 11:59 PM Eastern Time on April 23, 2007.
Your Internet or telephone vote authorizes the named proxies to vote your shares in the same manner
as if you marked, signed and returned your proxy card.
If you vote your proxy by Internet or by telephone, you do NOT need to mail back your proxy card.
To vote by mail, mark, sign and date your proxy card and return it in the enclosed postage-paid envelope.
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ñ FOLD AND DETACH HERE ñ
190 Carondelet Plaza, Suite 1530, Clayton, MO 63105
You are invited to attend our 2007 Annual Meeting of Shareholders at 8:30 a.m. Central Daylight Time on Thursday, April 26th at The Crowne Plaza Hotel at 7750 Carondelet Avenue, Clayton, MO 63105.
This is the admission card. If you plan to attend, please mark the box on the proxy. Be sure to bring the card with you to the Meeting.