Preliminary Proxy Statement
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.    )

 

 

Filed by the Registrant  x                            Filed by a Party other than the Registrant  ¨

Check the appropriate box:

 

x Preliminary Proxy Statement
¨ CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE 14A-6(E)(2))
¨ Definitive Proxy Statement
¨ Definitive Additional Materials
¨ Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12

OLIN CORPORATION

(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):

¨ No fee required.
¨ Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1)

Title of each class of securities to which transaction applies:

 

 

Common stock of Olin Corporation, par value $1 per share

2)

Aggregate number of securities to which transaction applies:

 

87,482,759 (represents an estimate of the maximum number of shares of common stock of Olin Corporation issuable upon completion of the transactions contemplated by the Merger Agreement among the Dow Chemical Company, Blue Cube Spinco Inc., Olin Corporation and Blue Cube Acquisition Corp., dated as of March 26, 2015, as described in this proxy statement).

 

3)

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined):

 

$29.56 (calculated in accordance with Rule 457(c) and 457(f) under the Securities Act of 1933, as amended, based on the average of the high and low prices of shares of common stock of Olin Corporation as reported on the New York Stock Exchange on May 6, 2015).

 

4)

Proposed maximum aggregate value of transaction:

 

 

$2,585,990,356.04

Total fee paid:

 

 

$300,492.08

¨ Fee paid previously with preliminary materials.
x Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
1)

Amount Previously Paid:

 

The filing fee in the amount of $300,492.08 was paid in connection with Olin Corporation’s Registration Statement on Form S-4, which was filed on May 8, 2015 (Registration No. 333-203990), calculated as set forth therein.

 

2)

Form, Schedule or Registration Statement No.:

 

 

Registration No. 333-203990

3)

Filing Party:

 

 

Olin Corporation

4)

Date Filed:

 

 

May 8, 2015

 

 

 


Table of Contents

EXPLANATORY NOTE

This proxy statement relates to the special meeting of shareholders of Olin Corporation (“Olin”) to approve the proposals described herein with respect to the merger (the “Merger”) of Blue Cube Acquisition Corp., a Delaware corporation (“Merger Sub”), which is a wholly-owned subsidiary of Olin, with and into Blue Cube Spinco Inc., a Delaware corporation (“Splitco”), which is a wholly-owned subsidiary of The Dow Chemical Company (“TDCC”), whereby the separate corporate existence of Merger Sub will cease and Splitco will continue as the surviving company and as a wholly-owned subsidiary of Olin. Splitco has filed a registration statement on Form S-4 and Form S-1 (Reg. No. 333-[                    ]) to register the shares of its common stock, par value $0.001 per share, which will be distributed to TDCC’s shareholders pursuant to a spin-off or a split-off in connection with the Merger, which shares of Splitco common stock will be immediately converted into shares of Olin common stock in the Merger. In addition, Olin has filed a registration statement on Form S-4 (Reg. No. 333-203990) to register the shares of its common stock, par value $1 per share, that will be issued in the Merger.

Based on market conditions prior to the closing of the Merger, TDCC will determine whether the shares of Splitco common stock will be distributed to TDCC’s shareholders in a spin-off or a split-off. In a spin-off, all TDCC shareholders would receive a pro rata number of shares of Splitco common stock. In a split-off, TDCC would offer its shareholders the option to exchange their shares of TDCC common stock for shares of Splitco common stock in an exchange offer, which shares would immediately be converted into shares of Olin common stock in the Merger, resulting in a reduction in TDCC’s outstanding shares. If the exchange offer is undertaken and consummated but the exchange offer is not fully subscribed because less than all shares of Splitco common stock owned by TDCC are exchanged, the remaining shares of Splitco common stock owned by TDCC would be distributed on a pro rata basis to TDCC shareholders whose shares of TDCC common stock remain outstanding after consummation of the exchange offer. Splitco is filing its registration statement on Form S-4 and Form S-1 under the assumption that the shares of Splitco common stock will be distributed to TDCC shareholders pursuant to a split-off. This proxy statement and Olin’s registration statement on Form S-4 also assume that the shares of Splitco common stock will be distributed to TDCC shareholders pursuant to a split-off. Once a final decision is made regarding the manner of distribution of the shares, this proxy statement, Splitco’s registration statement on Form S-4 and Form S-1 and Olin’s registration statement on Form S-4 will be amended to reflect that decision, if necessary.


Table of Contents

Preliminary Copy

 

LOGO

[                    ], 2015

MERGER PROPOSED—YOUR VOTE IS IMPORTANT

Dear Olin Shareholder:

You are cordially invited to attend the special meeting of shareholders of Olin Corporation (“Olin”) at [                    ] local time, on [                    ], 2015, at [                    ]. A notice of the special meeting and the proxy statement follow.

As previously announced, on March 26, 2015, Olin entered into an Agreement and Plan of Merger with The Dow Chemical Company (“TDCC”), Blue Cube Acquisition Corp., a Delaware corporation (“Merger Sub”) and a wholly-owned subsidiary of Olin, and Blue Cube Spinco Inc., a Delaware corporation (“Splitco”) and a wholly-owned subsidiary of TDCC, providing for the combination of Olin’s business with the U.S. chlor-alkali and vinyl, global epoxy and global chlorinated organic and global epoxy businesses of TDCC (the “Dow Chlorine Products Business”) through the merger (the “Merger”) of Merger Sub with and into Splitco, whereby the separate corporate existence of Merger Sub will cease and Splitco will continue as the surviving company and as a wholly-owned subsidiary of Olin.

In connection with the Merger, at the special meeting you will be asked to approve:

 

    the issuance of shares of Olin common stock in the Merger (the “Share Issuance”);

 

    an amendment to Olin’s Amended and Restated Articles of Incorporation (the “Olin Charter”) to increase the number of authorized shares of Olin common stock from 120,000,000 to 240,000,000 (the “Charter Amendment”); and

 

    adjournments or postponements of the special meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes at the time of the special meeting to approve the Share Issuance or the Charter Amendment.

If the proposals to approve the Share Issuance and to approve the Charter Amendment are not approved, the Merger cannot be completed.

As more fully described in the accompanying proxy statement, in order to complete the Merger and the related transactions, TDCC will transfer the Dow Chlorine Products business to Splitco and TDCC will distribute Splitco’s stock to TDCC’s shareholders, at TDCC’s option, by way of a spin-off, a split-off or a combination thereof (the “Distribution”). Prior to the Distribution, TDCC will receive from Splitco distributions of cash and debt instruments of Splitco with an aggregate value of approximately $2,030 million. Immediately after the Distribution, the Merger will be completed, and each outstanding share of Splitco common stock will be converted automatically into the right to receive 0.80586207 shares of common stock of Olin, assuming that there is no Tag Event (as defined in this proxy statement), or 0.87482759 shares of common stock of Olin, if there is a Tag Event.

Immediately after the consummation of the Merger, approximately 50.5 percent of the outstanding shares of Olin common stock are expected to be held by pre-Merger holders of Splitco common stock and approximately 49.5 percent of the outstanding shares of Olin common stock are expected to be held by pre-Merger Olin shareholders, assuming there is no Tag Event. After the Merger, Olin common stock issued will continue to be listed on the New York Stock Exchange (“NYSE”) under Olin’s current symbol, “OLN.”

The board of directors of Olin (the “Olin Board”) recommends that shareholders vote “FOR” the proposal to approve the Share Issuance, “FOR” the proposal to approve the Charter Amendment and


Table of Contents

“FOR” the proposal to approve adjournments or postponements of the special meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes at the time of the special meeting to approve the Share Issuance or the Charter Amendment.

Only those shareholders of record at the close of business on [                    ], 2015 are entitled to notice of the special meeting and to vote at the special meeting and any adjournments or postponements of the special meeting.

Your vote is very important. Please vote by completing, signing and dating the enclosed proxy card for the special meeting and mailing the proxy card to us, whether or not you plan to attend the special meeting. If you sign, date and mail your proxy card without indicating how you want to vote, your proxy will be counted as a vote “FOR” each of the proposals presented at the special meeting. In addition, you may vote by proxy by calling the toll-free telephone number or by using the Internet as described in the instructions included with the enclosed proxy card. If you do not return your card, vote by telephone or by using the Internet, or if you do not specifically instruct your bank, broker or other nominee how to vote any shares held for you in “street name,” your shares will not be voted at the special meeting.

This document is a proxy statement of Olin for its use in soliciting proxies for the special meeting. This document answers questions about the Merger, the related transactions and the special meeting, and includes a summary description of the Merger and the related transactions. We urge you to review this entire document carefully. In particular, you should consider the matters discussed under “Risk Factors” beginning on page 27.

We thank you for your consideration and continued support.

Sincerely,

Joseph D. Rupp

Chairman and Chief Executive Officer

This document is dated [                    ], 2015 and is first being mailed to Olin’s shareholders on or about [                    ], 2015.


Table of Contents

OLIN CORPORATION

Notice of Special Meeting of Shareholders

To all the Shareholders:

A special meeting of shareholders (the “special meeting”) of Olin Corporation (“Olin”) will be held at [                    ] local time on [                    ], 2015 at [                    ]. The special meeting will be held to consider and act upon the following:

 

  1. to approve the Share Issuance;

 

  2. to approve the Charter Amendment;

 

  3. to adjourn or postpone the special meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes at the time of the special meeting to approve the Share Issuance or the Charter Amendment; and

 

  4. to transact any other business that may properly come before the special meeting or any adjourned or postponed session of the special meeting.

The Olin Board has determined that the Transactions (as defined in this proxy statement), including the Merger, the Share Issuance and the Charter Amendment, are advisable and in the best interests of Olin and its shareholders, approved the Merger Agreement and the other transaction agreements relating to the Transactions, approved the Transactions, including the Merger, the Share Issuance and the Charter Amendment, and authorized and adopted the Charter Amendment. The Olin Board recommends that shareholders vote “FOR” the proposal to approve the Share Issuance, “FOR” the proposal to approve the Charter Amendment and “FOR” the proposal to approve adjournments or postponements of the special meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes at the time of the special meeting to approve the Share Issuance or the Charter Amendment. If the proposals to approve the Share Issuance and the Charter Amendment are not approved, the Merger cannot be completed.

All Olin shareholders are cordially invited to attend the special meeting, although only those shareholders of record at the close of business on [                    ], 2015 are entitled to notice of the special meeting and to vote at the special meeting and any adjournments or postponements of the special meeting.

WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON, PLEASE COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE OR VOTE YOUR SHARES OF OLIN COMMON STOCK BY CALLING THE TOLL-FREE TELEPHONE NUMBER OR BY USING THE INTERNET AS DESCRIBED IN THE INSTRUCTIONS PRINTED ON YOUR PROXY CARD AT YOUR EARLIEST CONVENIENCE.

By Order of the Board of Directors:

George H. Pain

Secretary

Please vote your shares promptly. You can find instructions for voting on the enclosed proxy card.

[                    ], 2015


Table of Contents

TABLE OF CONTENTS

 

     Page  

REFERENCES TO ADDITIONAL INFORMATION

     1   

HELPFUL INFORMATION

     2   

QUESTIONS AND ANSWERS ABOUT THE TRANSACTIONS AND THE SPECIAL MEETING

     5   

SUMMARY

     15   

The Companies

     15   

The Transactions

     16   

SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA

     21   

Summary Historical Combined Financial Data of the Dow Chlorine Products Business

     21   

Summary Historical Consolidated Financial Data of Olin

     22   

Summary Unaudited Pro Forma Condensed Combined Financial Data of Olin and the Dow Chlorine Products Business

     23   

Summary Comparative Historical and Pro Forma Per Share Data

     25   

Historical Common Stock Market Price and Dividend Data

     25   

Olin Dividend Policy

     26   

RISK FACTORS

     27   

Risks Related to the Transactions

     27   

Other Risks that Relate to Olin, Including the Dow Chlorine Products Business after Consummation of the Transactions

     33   

CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS

     44   

INFORMATION ABOUT THE SPECIAL MEETING

     46   

General; Date; Time and Place; Purposes of the Meeting

     46   

Record Date; Quorum; Voting Information; Required Votes

     46   

Recommendation of Board of Directors

     47   

How to Vote

     47   

Solicitation of Proxies

     49   

Revocation of Proxies

     49   

Adjournments and Postponements

     49   

Attending the Special Meeting

     50   

Questions and Additional Information

     50   

INFORMATION ON TDCC’S OFFER TO EXCHANGE

     51   

INFORMATION ON OLIN

     52   

Overview

     52   

Olin’s Business After the Consummation of the Transactions

     52   

Olin’s Liquidity and Capital Resources After the Consummation of the Transactions

     53   

Directors and Officers of Olin Before and After the Consummation of the Transactions

     54   

INFORMATION ON THE DOW CHLORINE PRODUCTS BUSINESS

     60   

General

     60   

Products

     60   

Manufacturing and Facilities

     61   

Sales and Distribution

     62   

Raw Materials and Energy

     63   

Research and Development

     63   

Seasonality

     63   

Competition

     63   

 

i


Table of Contents
     Page  

Environmental Regulation

     64   

Legal Proceedings

     64   

Employees

     64   

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE DOW CHLORINE PRODUCTS BUSINESS

     65   

Overview

     65   

Separation of the Dow Chlorine Products Business from TDCC

     65   

Results of Operations

     66   

Segment Analysis

     67   

Liquidity and Capital Resources

     69   

Off-Balance Sheet Arrangements

     69   

Quantitative and Qualitative Disclosures About Market Risk

     70   

Contractual Obligations

     70   

Critical Accounting Estimates

     71   

SELECTED HISTORICAL FINANCIAL DATA

     73   

Selected Historical Combined Financial Data of the Dow Chlorine Products Business

     73   

Selected Historical Consolidated Financial Data of Olin

     74   

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS OF OLIN AND THE DOW CHLORINE PRODUCTS BUSINESS

     76   

THE TRANSACTIONS

     91   

Determination of Number of Shares of Splitco Common Stock to Be Distributed to TDCC Shareholders

     95   

Background of the Transactions

     95   

Olin’s Reasons for the Transactions

     105   

Opinion of J.P. Morgan Securities LLC

     108   

Certain Financial Projections

     119   

Interests of TDCC’s and Splitco’s Directors and Executive Officers in the Transactions

     122   

Interests of Olin’s Directors and Executive Officers in the Transactions

     122   

Accounting Treatment and Considerations

     129   

Regulatory Approvals

     130   

Federal Securities Law Consequences; Resale Restrictions

     130   

No Appraisal or Dissenters’ Rights

     130   

THE MERGER AGREEMENT

     131   

The Merger

     131   

Closing; Effective Time

     131   

Merger Consideration

     131   

Distribution of Per Share Merger Consideration

     132   

Treatment of TDCC Equity Awards

     132   

Distributions With Respect to Shares of Olin Common Stock after the Effective Time of the Merger

     133   

Termination of the Exchange Fund

     133   

Post-Closing Olin Board of Directors and Officers

     133   

Shareholders’ Meeting

     133   

Representations and Warranties

     134   

Conduct of Business Pending the Merger

     136   

Tax Matters

     140   

SEC Filings

     140   

Regulatory Matters

     140   

 

ii


Table of Contents
     Page  

No Solicitation

     141   

Board Recommendation

     143   

Financing

     144   

Debt Exchange

     145   

Non-Solicitation of Employees

     145   

Certain Other Covenants and Agreements

     145   

Conditions to the Merger

     146   

Termination

     147   

Termination Fee and Expenses Payable in Certain Circumstances

     148   

Specific Performance

     149   

Amendments

     149   

THE SEPARATION AGREEMENT

     150   

Overview

     150   

Separation of the Dow Chlorine Products Business

     150   

Contribution

     154   

Issuance of Splitco Common Stock, Incurrence of Debt, Splitco Securities and Special Payment

     155   

Distribution

     155   

Conditions to the Distribution

     155   

Mutual Releases and Indemnification

     155   

Environmental Provisions

     156   

Working Capital Adjustment

     157   

Covenants

     157   

Termination

     158   

Third-Party Beneficiary; Amendment and Waiver

     158   

DEBT FINANCING

     159   

Overview

     159   

Splitco Securities

     159   

Debt Exchange

     160   

Other Senior Debt Securities of Splitco

     160   

New Senior Unsecured Credit Facility

     160   

Senior Unsecured Bridge Facility

     160   

Existing Senior Unsecured Credit Facility of Olin

     162   

OTHER AGREEMENTS

     163   

Employee Matters Agreement

     163   

Tax Matters Agreement

     165   

Other Ancillary Agreements

     166   

DESCRIPTION OF OLIN CAPITAL STOCK

     171   

General

     171   

Common Stock

     171   

Preferred Stock

     171   

Certain Anti-Takeover Effects of Provisions of Virginia Law, the Olin Charter and the Olin Bylaws

     172   

Listing

     173   

Transfer Agent

     173   

OWNERSHIP OF OLIN COMMON STOCK

     174   

PROPOSAL NO. 1—PROPOSAL TO APPROVE THE ISSUANCE OF SHARES OF OLIN COMMON STOCK IN THE MERGER

     176   

 

iii


Table of Contents
     Page  

PROPOSAL NO. 2—PROPOSAL TO APPROVE THE AMENDMENT OF OLIN’S AMENDED AND RESTATED ARTICLES OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF OLIN COMMON STOCK

     177   

PROPOSAL NO. 3—PROPOSAL TO APPROVE THE ADJOURNMENT OR POSTPONEMENT OF THE SPECIAL MEETING, IF NECESSARY OR APPROPRIATE

     179   

SHAREHOLDER PROPOSALS FOR 2016 ANNUAL MEETING

     180   

WHERE YOU CAN FIND MORE INFORMATION; INCORPORATION BY REFERENCE

     181   

INDEX TO FINANCIAL PAGES

     F-1   

ANNEXES

  

The Merger Agreement

     A-1   

The Separation Agreement

     B-1   

Opinion of J.P. Morgan Securities LLC

     C-1   

The Employee Matters Agreement

     D-1   

The Tax Matters Agreement

     E-1   

Form of Articles of Amendment

     G-1   

 

iv


Table of Contents

REFERENCES TO ADDITIONAL INFORMATION

This document incorporates important business and financial information about Olin from documents filed with the Securities and Exchange Commission (“SEC”) that have not been included or delivered with this document. This information is available to Olin shareholders without charge by accessing the SEC’s website maintained at www.sec.gov, or upon written request to Olin Corporation, 190 Carondelet Plaza, Suite 1530, Clayton, Missouri 63105, Attention: Investor Relations. See “Where You Can Find More Information; Incorporation by Reference.”

All information contained or incorporated by reference in this document with respect to Olin and Merger Sub and their respective subsidiaries, as well as information on Olin after the consummation of the Transactions, has been provided by Olin. All other information contained or incorporated by reference in this document with respect to TDCC, Splitco or their respective subsidiaries or the Dow Chlorine Products Business and with respect to the terms and conditions of TDCC’s exchange offer has been provided by TDCC.

The information included in this document regarding TDCC’s exchange offer is being provided for informational purposes only and does not purport to be complete. For additional information on TDCC’s exchange offer and the terms and conditions of TDCC’s exchange offer, Olin’s shareholders are urged to read Splitco’s registration statement on Form S-4 and Form S-1 (Reg. No. 333-[                    ]), Olin’s registration statement on Form S-4 (Reg. No. 333-203990), when each is available, and all other documents Splitco or Olin file with the SEC relating to the Merger. This document constitutes only a proxy statement for Olin shareholders relating to the special meeting and is not an offer to sell or a solicitation of an offer to purchase shares of Olin common stock, TDCC common stock or Splitco common stock.

 

1


Table of Contents

HELPFUL INFORMATION

In this document:

 

    “Above Basis Amount” means $2,030 million less the Below Basis Amount, subject to a possible adjustment based on Splitco’s working capital in accordance with the terms of the Separation Agreement;

 

    “ASC” means the Financial Accounting Standards Board Accounting Standards Codification;

 

    “Backstop Commitment Letter” means the Commitment Letter dated March 26, 2015, among JPMorgan Chase Bank, N.A., J.P. Morgan Securities LLC, Wells Fargo Bank, N.A., Wells Fargo Securities, LLC and Olin;

 

    “Below Basis Amount” means $875 million, subject to increase or decrease if elected by TDCC in accordance with the terms of the Separation Agreement, but not more than $1,050 million without the consent of Olin;

 

    “Bridge Commitment Letter” means the bridge commitment letter dated March 26, 2015, among JPMorgan Chase Bank, N.A., J.P. Morgan Securities LLC, Wells Fargo Bank, N.A., Wells Fargo Securities, LLC and Olin;

 

    “Charter Amendment” means the proposed amendment to the Olin Charter to increase the number of authorized shares of Olin common stock from 120,000,000 to 240,000,000;

 

    “CEOP” means the Olin Contributing Employee Ownership Plan;

 

    “CEOP Trustee” means the trustee of the CEOP, Voya National Trust;

 

    “Code” means the Internal Revenue Code of 1986, as amended;

 

    “Commitment Letters” means, collectively, the Backstop Commitment Letter and the Bridge Commitment Letter;

 

    “Commitment Parties” means, collectively, JPMorgan Chase Bank, N.A., J.P. Morgan Securities LLC, Wells Fargo Bank N.A. and Wells Fargo Securities, LLC, together with all additional lenders added to the Commitment Letters;

 

    “Contribution” means the contribution by TDCC, directly or indirectly, of the equity interests in the DCP Subsidiaries to Splitco pursuant to the Separation Agreement;

 

    “DCP Subsidiaries” means the newly-formed direct and indirect subsidiaries of TDCC that will hold the transferred assets and certain assumed liabilities related to DCP following the Separation and will be contributed to Splitco prior to the consummation of the Distribution, pursuant to the Contribution;

 

    “Debt Exchange” means the transfer of the Splitco Securities by TDCC on or about the closing date of the Merger to the investment banks and/or commercial banks in exchange for existing TDCC debt as described in the section of this document entitled “Debt Financing—Debt Exchange”;

 

    “Distribution” means the distribution by TDCC of its shares of Splitco common stock to the holders of shares of TDCC common stock by way of an exchange offer and, with respect to any shares of Splitco common stock that are not subscribed for in the exchange offer, a pro rata distribution to the holders of shares of TDCC common stock;

 

    “Dow Chlorine Products Business” or “DCP” means TDCC’s U.S. chlor-alkali and vinyl, global epoxy and global chlorinated organics business, including TDCC’s equity interests in the JV Entity;

 

    “Dow Savings Plan” means The Dow Chemical Company Employees’ Savings Plan, as may be amended from time to time;

 

    “ERISA” means the Employee Retirement Income Security Act of 1974, as amended;

 

    “Exchange Act” means the Securities Exchange Act of 1934, as amended;

 

    “GAAP” means generally accepted accounting principles in the United States;

 

2


Table of Contents
    “HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended;

 

    “JV Entity” means Dow-Mitsui Chlor-Alkali LLC, a joint venture between TDCC and Mitsui & Co. Texas Chlor-Alkali, Inc. For more information about the transfer of TDCC’s interest in the JV Entity to Splitco, see “The Separation Agreement—Separation of the Dow Chlorine Products Business—Transfer of the JV Entity Interests”;

 

    “JV Partner” means Mitsui & Co. Texas Chlor-Alkali, Inc.;

 

    “Merger” means the combination of Olin’s business and the Dow Chlorine Products Business through the merger of Merger Sub with and into Splitco, whereby the separate corporate existence of Merger Sub will cease and Splitco will continue as the surviving company and as a wholly-owned subsidiary of Olin, as contemplated by the Merger Agreement;

 

    “Merger Agreement” means the Merger Agreement, dated as of March 26, 2015, among TDCC, Splitco, Olin and Merger Sub;

 

    “Merger Sub” means Blue Cube Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of Olin;

 

    “NYSE” means The New York Stock Exchange;

 

    “Olin” means Olin Corporation, a Virginia corporation, and, unless the context otherwise requires, its subsidiaries including, after the consummation of the Merger, Splitco and the DCP Subsidiaries;

 

    “Olin Charter” means the Amended and Restated Articles of Incorporation of Olin;

 

    “Olin common stock” means the common stock, par value $1 per share, of Olin;

 

    “Other Splitco Debt Securities” means other senior debt securities, term loans or a combination thereof that Splitco expects to issue and sell as described in the section of this document entitled “Debt Financing”;

 

    “Private Letter Ruling” means a private letter ruling from the IRS including rulings substantially to the effect that (a) the continuing arrangements between TDCC and Splitco will not preclude TDCC and Splitco from satisfying the active trade or business requirement of Section 355(a) of the Code; (b) the receipt of Olin stock by a TDCC shareholder will be treated for federal income tax purposes as if the TDCC shareholder received Splitco common stock in the Distribution and exchanged such Splitco stock for Olin stock in the Merger; (c) the sale of fractional shares in the market will not be treated as acquisitions that are part of a plan that includes the Distribution for purposes of Section 355(e); (d) TDCC will not recognize gain or loss on the receipt of the Special Payment under Section 361(b)(3) of the Code (it being understood that the Special Payment does not include any additional cash distributed pursuant to the Merger Agreement and the Separation Agreement); (e) unless TDCC shall have elected to receive cash from Splitco in lieu of the Splitco Securities, as described below under “The Merger Agreement—Debt Exchange,” TDCC will not recognize gain or loss upon the Debt Exchange under Section 361(c) of the Code; (f) TDCC will not recognize gain under Section 357(c) of the Code in the Contribution and the Distribution; and (g) such additional or supplemental tax rulings material to TDCC’s tax treatment of the Separation or Merger as have been or will be requested by TDCC subject to the prior written consent of Olin (not to be unreasonably withheld, conditioned or delayed);

 

    “SEC” means the U.S. Securities and Exchange Commission;

 

    “Securities Act” means the Securities Act of 1933, as amended;

 

    “Separation” means the transfer by TDCC to Splitco or the DCP Subsidiaries directly or indirectly of the transferred assets and certain assumed liabilities related to DCP pursuant to the Separation Agreement;

 

    “Separation Agreement” means the Separation Agreement, dated as of March 26, 2015, between TDCC and Splitco;

 

3


Table of Contents
    “Share Issuance” means the issuance of shares of Olin common stock to the shareholders of Splitco in the Merger;

 

    “Special Payment” means the cash payment to be made in connection with the Transactions by Splitco to TDCC in an amount equal to the Below Basis Amount;

 

    “Splitco” means Blue Cube Spinco Inc., a Delaware corporation, and prior to the Merger, a wholly-owned subsidiary of TDCC;

 

    “Splitco common stock” means the common stock, par value $0.001, of Splitco;

 

    “Splitco Securities” means debt instruments in a principal face amount equal to the Above Basis Amount (subject to increase to account for customary underwriting fees) that Splitco will issue to TDCC (unless TDCC elects to receive cash from Splitco in lieu of the Splitco Securities), that TDCC thereafter expects to exchange for existing debt obligations of TDCC in the Debt Exchange, and that will be the debt obligations of Splitco, and are expected to be guaranteed by Olin after the consummation of the Merger;

 

    “Tag Event” means the exercise by the JV Partner prior to the closing date of the Merger of its right to transfer all of its equity interests in the JV Entity to TDCC or TDCC’s designee in connection with the Transactions pursuant to the organizational documents of the JV Entity;

 

    “Tax Matters Agreement” means the Tax Matters Agreement, dated as of March 26, 2015, among Olin, TDCC and Splitco;

 

    “TDCC” means The Dow Chemical Company, a Delaware corporation, and, unless the context otherwise requires, its subsidiaries, which, after consummation of the Distribution, will not include Splitco and the DCP Subsidiaries;

 

    “TDCC common stock” means the common stock, par value $2.50 per share, of TDCC;

 

    “TDCC RMT Tax Opinion” means an opinion from Shearman & Sterling LLP, tax counsel to TDCC, as to the tax-free status of the Separation, Contribution, Distribution and Merger, including that (i) the Separation, Contribution and Distribution will constitute a “reorganization” within the meaning of Section 368(a) of the Code and each of TDCC and Splitco will be a party to the reorganization within the meaning of Section 368(b) of the Code, (ii) TDCC will not recognize a gain or loss for U.S. federal income tax purposes in connection with the receipt of the Splitco Securities under the Separation Agreement and the Debt Exchange, and (iii) the Merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code and each of TDCC and Splitco will be a party to the reorganization within the meaning of Section 368(b) of the Code;

 

    “TDCC shareholders” means the holders of TDCC common stock;

 

    “Transaction Documents” means the Separation Agreement, the Merger Agreement, the Employee Matters Agreement and the Tax Matters Agreement, as well as the Additional Agreements and the Local Conveyances (as described under “The Separation Agreement—Separation of the Dow Chlorine Products Business—Local Conveyances and Additional Agreements”), each of which have been entered into or will be entered into in connection with the Transactions; and

 

    “Transactions” means the transactions contemplated by the Merger Agreement and the Separation Agreement, which provide for, among other things, the Separation, the Contribution, the Distribution and the Merger, as described in the section of this document entitled “The Transactions”.

 

4


Table of Contents

QUESTIONS AND ANSWERS ABOUT THE TRANSACTIONS AND THE SPECIAL MEETING

The following are some of the questions that Olin shareholders may have, and answers to those questions. These questions and answers, as well as the following summary, are not meant to be a substitute for the information contained in the remainder of this document, and this information is qualified in its entirety by the more detailed descriptions and explanations contained elsewhere in this document. You are urged to read this document in its entirety prior to making any decision.

 

Q: Why am I receiving this document?

 

A: Olin and TDCC have entered into the Merger Agreement pursuant to which DCP will combine with Olin’s business. Olin is holding a special meeting of its shareholders in order to obtain shareholder approval of the Share Issuance and the Charter Amendment. Olin cannot complete the Merger unless the Share Issuance is approved by the affirmative vote of a majority of votes cast on the proposal at the special meeting, either in person or by proxy, and the Charter Amendment is approved by the affirmative vote of a majority of the shares of Olin common stock entitled to vote on the proposal.

This document includes important information about the Transactions and the special meeting of Olin shareholders. Olin shareholders should read this information carefully and in its entirety. A copy of the Merger Agreement is attached as Annex A to this document and a copy of the Separation Agreement is attached as Annex B to this document. The enclosed voting materials allow Olin shareholders to vote their shares without attending the Olin special meeting. The vote of Olin shareholders is very important and Olin encourages its shareholders to vote their proxy as soon as possible. Please follow the instructions set forth on the enclosed proxy card (or on the voting instruction form provided by the record holder if shares of Olin stock are held in the name of a bank, broker or other nominee).

 

Q: What is Olin proposing?

 

A: Olin is proposing to combine DCP with Olin’s business. The Merger will be effected through a series of transactions that are described in more detail below and elsewhere in this document. After the consummation of these transactions:

 

    DCP will be owned by Splitco, which will be a wholly-owned subsidiary of Olin;

 

    Splitco will have incurred new indebtedness and will have paid to TDCC the Special Payment in an amount equal to the Below Basis Amount, and Splitco will have issued directly to TDCC the Splitco Securities, unless TDCC elects to receive a cash dividend from Splitco in lieu of the Splitco Securities, in which case Splitco will have paid to TDCC a cash dividend in an amount equal to the Above Basis Amount and will have incurred new indebtedness in the form of debt securities, term loans or a combination thereof to finance such cash payment; and

 

    approximately 50.5 percent of the outstanding shares of Olin common stock are expected to be held by pre-Merger holders of Splitco common stock and approximately 49.5 percent of the outstanding shares of Olin common stock are expected to be held by pre-Merger Olin shareholders, assuming there is no Tag Event.

 

Q: What are the key steps of the Transactions?

 

A: Below is a summary of the key steps of the Transactions. A step-by-step description of material events relating to the Transactions is set forth under “The Transactions.”

 

    TDCC will transfer DCP, directly or indirectly, to Splitco or the DCP Subsidiaries. This transfer will include, among other assets and liabilities of DCP, TDCC’s equity interests in the JV Entity, which may constitute 50 percent of the equity interests in the JV Entity or, if there is a Tag Event, 100 percent of the equity interests in the JV Entity. Olin and TDCC will know prior to the closing date of the Merger whether a Tag Event will occur. Once it is known whether a Tag Event will occur, this disclosure will be updated accordingly.

 

5


Table of Contents
    Immediately prior to the Distribution, and on the closing date of the Merger, TDCC will effect the Contribution, pursuant to which all of the DCP Subsidiaries will become direct or indirect subsidiaries of Splitco.

 

    Immediately prior to the Distribution, Splitco will incur new indebtedness and will pay to TDCC the Special Payment in an amount equal to the Below Basis Amount. In addition, immediately prior to the Distribution, Splitco expects to issue to TDCC the Splitco Securities or, at TDCC’s election, pay to TDCC as a dividend an amount in cash equal to the Above Basis Amount. TDCC expects to transfer the Splitco Securities, if issued, on or about the date of the Distribution to the investment banks and/or commercial banks in exchange for existing TDCC debt in the Debt Exchange. The Splitco Securities are expected to be subsequently sold to third-party investors as described below. As a result, TDCC expects to receive approximately $2,030 million from the Special Payment and the Debt Exchange. If TDCC determines that the Debt Exchange is not reasonably likely to be consummated at the time of the Distribution and elects to receive cash from Splitco in lieu of the Splitco Securities as described under “The Merger Agreement—Debt Exchange,” Splitco will incur new indebtedness in the form of debt securities, term loans or a combination thereof to finance such cash payment.

 

    Immediately prior to the Distribution, Splitco will also issue to TDCC additional shares of Splitco common stock. Following this issuance, TDCC will own 100,000,000 shares of Splitco common stock, which will constitute all of the outstanding stock of Splitco.

 

    TDCC will offer to TDCC shareholders the right to exchange all or a portion of their shares of TDCC common stock for shares of Splitco common stock at a discount to the equivalent per-share value of Olin common stock in an exchange offer. If the exchange offer is consummated but is not fully subscribed, TDCC will distribute the remaining shares of Splitco common stock on a pro rata basis to TDCC shareholders whose shares of TDCC common stock remain outstanding after the consummation of the exchange offer. Any TDCC shareholder who validly tenders (and does not properly withdraw) shares of TDCC common stock for shares of Splitco common stock in the exchange offer will waive their rights with respect to such shares to receive, and forfeit any rights to, shares of Splitco common stock distributed on a pro rata basis to TDCC shareholders in the event the exchange offer is not fully subscribed. If there is a pro rata distribution, the exchange agent will calculate the exact number of shares of Splitco common stock not exchanged in the exchange offer and to be distributed on a pro rata basis, and the number of shares of Olin common stock into which the remaining shares of Splitco common stock will be converted in the Merger will be transferred to TDCC shareholders (after giving effect to the consummation of the exchange offer) as promptly as practicable thereafter. As previously noted, this disclosure has been prepared under the assumption that the shares of Splitco will be distributed to TDCC shareholders pursuant to a split-off. Based on market conditions prior to closing, TDCC will determine whether the Splitco shares will be distributed to TDCC’s shareholders in a spin-off or a split-off and, once a final decision is made, this disclosure will be amended to reflect that decision, if necessary.

 

    Immediately after the Distribution, Merger Sub will merge with and into Splitco, whereby the separate corporate existence of Merger Sub will cease and Splitco will continue as the surviving company and as a wholly-owned subsidiary of Olin. In the Merger, each share of Splitco common stock will be converted into the right to receive 0.80586207 shares of Olin common stock assuming there is no Tag Event, as described in the section of this document entitled “The Merger Agreement—Merger Consideration.” Immediately after the consummation of the Merger, approximately 50.5 percent of the outstanding shares of Olin common stock is expected to be held by pre-Merger holders of Splitco common stock and approximately 49.5 percent of the outstanding shares of Olin common stock is expected to be held by pre-Merger Olin shareholders, assuming there is no Tag Event.

 

    TDCC and Olin expect the Splitco Securities to be transferred by TDCC on or about the closing date of the Merger to the investment banks and/or commercial banks in the Debt Exchange in exchange for existing TDCC debt. The Splitco Securities will then be sold by the investment banks and/or commercial banks to third-party investors.

 

6


Table of Contents
Q: What are the material U.S. federal income tax consequences to Olin and Olin’s shareholders resulting from the Transactions?

 

A: Olin will not recognize any gain or loss for U.S. federal income tax purposes as a result of the Merger. Because Olin shareholders will not participate in the Distribution or the Merger, Olin shareholders will generally not recognize gain or loss upon either the Distribution or the Merger.

 

Q: What will Olin shareholders receive in the Merger?

 

A: Olin shareholders will not directly receive any consideration in the Merger. All shares of Olin common stock issued and outstanding immediately before the Merger will remain issued and outstanding after the consummation of the Merger. Immediately after the Merger, Olin shareholders will continue to own shares in Olin, which will include DCP. Splitco, as a wholly-owned subsidiary of Olin, will be responsible for repaying the approximately $2,727 million of debt that will be incurred in connection with the Transactions, and these debt obligations are expected to be guaranteed by Olin after the consummation of the Merger.

 

Q: What are the principal adverse effects of the Transactions to Olin shareholders?

 

A: Following the consummation of the Transactions, Olin shareholders will participate in a company that holds DCP, but their percentage interest in this company will be diluted. Immediately after consummation of the Merger, pre-Merger Olin shareholders are expected to own no more than 49.5 percent of Olin common stock, assuming there is no Tag Event. Therefore, the voting power represented by the shares held by pre-Merger Olin shareholders will be lower immediately following the Merger than immediately prior to the Merger. In addition, TDCC shareholders that participate in the exchange offer will be exchanging their shares of TDCC common stock for shares of Splitco common stock at a discount to the per-share value of Olin common stock. The existence of a discount, along with the issuance of shares of Olin common stock pursuant to the Merger, may negatively affect the market price of Olin common stock. Further, Splitco will be the obligor on the New Term Facility, the Splitco Securities, the Other Splitco Debt Securities and the Bridge Facility (each as described in more detail in “Debt Financing”), if any, after the consummation of the Transactions, which New Term Facility, Splitco Securities, Other Splitco Debt Securities and Bridge Facility, if any, are expected to be guaranteed by Olin after the consummation of the Merger, subject to certain exceptions. This additional indebtedness could materially and adversely affect the liquidity, results of operations and financial condition of Olin. Olin also expects to incur significant one time costs in connection with the Transactions, which may have an adverse impact on Olin’s liquidity, cash flows and operating results in the periods in which they are incurred. Finally, Olin’s management will be required to devote a significant amount of time and attention to the process of integrating the operations of Olin’s business and DCP. If Olin management is not able to manage the integration process effectively, or if any significant business activities are interrupted as a result of the integration process, Olin’s business could suffer and its stock price may decline. See “Risk Factors” for a further discussion of the material risks associated with the Transactions.

 

Q: How will the Transactions impact the future liquidity and capital resources of Olin?

 

A:

The approximately $2,727 million of indebtedness expected to be incurred under the New Term Facility, Splitco Securities, Other Splitco Debt Securities and the Bridge Facility, if any, will be the debt obligations of Splitco, and, after the consummation of the Merger, are expected to be guaranteed by Olin. Olin anticipates that its primary sources of liquidity for working capital and operating activities, including any future acquisitions, will be cash from operations and borrowings under existing debt arrangements, including the Existing Credit Facilities (as described in more detail in “Debt Financing—New Senior Unsecured Credit Facility”), or a new credit facility. Olin expects that these sources of liquidity will be sufficient to make required payments of interest on the outstanding Olin debt and to fund working capital and capital expenditure requirements, including the significant one-time costs relating to the Transactions described above. Olin expects that it will be able to comply with the financial and other covenants of its

 

7


Table of Contents
  existing debt arrangements, including the credit agreement governing the Existing Credit Facilities, and the covenants under the agreements governing the Pro Rata Facilities, the indentures or other instruments governing the Splitco Securities and the Other Splitco Debt Securities and the Credit Agreement governing the Bridge Facility, if any. Olin believes that the combination of DCP with Olin’s existing business will result in estimated annualized cost synergies of approximately $200 million within three years from the consummation of the Transactions as a result of (1) approximately $50 million in expected savings from procurement and logistics, (2) approximately $70 million in expected savings from improved operating efficiencies and (3) approximately $80 million in expected savings from asset optimization. If Olin is able to increase sales to new third-party customers and access new product markets as a result of the Transactions, Olin estimates that additional annualized synergies of up to $100 million may potentially be achievable within three years from the consummation of the Transactions. Olin expects to incur significant, one-time costs in connection with the Transactions, including approximately (1) $40 to $45 million during 2015 of advisory, legal, accounting and other professional fees related to the Transactions, (2) $25 to $30 million of financing-related fees, (3) $50 million of costs associated with the change in control mandatory acceleration of expenses under deferred compensation plans as a result of the Transactions, (4) $100 to $150 million in transition-related costs during the first three years following the consummation of the Transactions and (5) $200 million in incremental capital spending during the first three years following the consummation of the Transactions that Olin management believes are necessary to realize the anticipated synergies from the Transactions. See “Information on Olin—Olin’s Liquidity and Capital Resources After the Consummation of the Transactions.” The incurrence of these costs may have an adverse impact on Olin’s liquidity, cash flows and operating results in the periods in which they are incurred.

 

Q: How do the Transactions impact Olin’s dividend policy?

 

A: Since the second quarter of 1999, Olin has paid quarterly dividends of $0.20 per share. The payment of cash dividends is subject to the discretion of the Olin Board and will be determined in light of then-current conditions, including Olin’s earnings, Olin’s operations, Olin’s financial condition, Olin’s capital requirements and other factors deemed relevant by the Olin Board. Pursuant to the Merger Agreement, Olin has agreed that prior to the consummation of the Merger, Olin will not declare or pay any dividends or other distributions, except for the declaration and payment of regular quarterly cash dividends of no more than $0.20 per share. In the future, the Olin Board may change its dividend policy, including the frequency or amount of any dividend, in light of then-existing conditions.

 

Q: What will TDCC and TDCC shareholders receive in the Transactions?

 

A: Immediately prior to the Distribution, TDCC will receive the Special Payment as a dividend and the Splitco Securities to be used in the Debt Exchange (or cash if TDCC elects to receive a cash dividend from Splitco in lieu of the Splitco Securities). The Splitco Securities are expected to be issued by Splitco directly to TDCC prior to the Distribution. The Splitco Securities will be the debt obligations of Splitco and, following the consummation of the Merger, are expected to be guaranteed by Olin. As a result, TDCC expects to receive approximately $2,030 million from the Special Payment and the Debt Exchange in connection with the Separation, the Contribution and the Distribution, subject to adjustments.

In the exchange offer, TDCC will offer to TDCC shareholders the right to exchange all or a portion of their shares of TDCC common stock for shares of Splitco common stock at a discount to the per-share value of Olin common stock, subject to proration in the event of oversubscription. If the exchange offer is consummated but is not fully subscribed, TDCC will distribute the remaining shares of Splitco common stock owned by TDCC on a pro rata basis to TDCC shareholders whose shares of TDCC common stock remain outstanding after the consummation of the exchange offer. Any TDCC shareholder who validly tenders (and does not properly withdraw) shares of TDCC common stock for shares of Splitco common stock in the exchange offer will waive their rights with respect to such shares to receive, and forfeit any rights to, shares of Splitco common stock distributed on a pro rata basis to TDCC shareholders in the event

 

8


Table of Contents

the exchange offer is not fully subscribed. In all cases, the exchange agent will hold all issued and outstanding shares of Splitco common stock in trust until the shares of Splitco common stock are converted into the right to receive shares of Olin common stock in the Merger. TDCC shareholders who receive shares of Splitco common stock will not be able to trade shares of Splitco common stock during this period or at any time before or after the consummation of the Merger. In the Merger, each share of Splitco common stock will be converted into the right to receive Olin common stock based on the exchange ratio set forth in the Merger Agreement, as described in the section of this document entitled “The Merger Agreement—Merger Consideration.”

 

Q: Are there any conditions to the consummation of the Transactions?

 

A: Yes. The consummation of the Transactions is subject to a number of conditions, including:

 

    the approval by Olin’s shareholders of the Share Issuance and the Charter Amendment;

 

    the termination or expiration of the waiting period under the HSR Act, and the receipt of any governmental approvals required under the antitrust laws in certain other jurisdictions;

 

    the approval for listing on the NYSE of the shares of Olin common stock to be issued in the Merger;

 

    the effectiveness under the Securities Act of Splitco’s registration statement on Form S-4 and Form S-1 (Reg. No. 333-[                    ]) and Olin’s registration statement on Form S-4 (Reg. No. 333-203990), and the absence of any stop order issued by the SEC or any pending proceeding before the SEC seeking a stop order with respect thereto;

 

    the receipt of certain rulings from the Internal Revenue Service (the “IRS”);

 

    the receipt of the TDCC RMT Tax Opinion by TDCC and the receipt by Olin of an opinion from Olin’s tax counsel with respect to the Merger;

 

    the completion of the various transaction steps contemplated by the Merger Agreement and the Separation Agreement, including the Separation, the Contribution and the Distribution;

 

    the consummation of the Debt Exchange immediately before the Distribution, unless TDCC elects to receive a cash dividend from Splitco in lieu of the Splitco Securities; and

 

    other customary conditions.

To the extent permitted by applicable law, TDCC and Splitco, on the one hand, and Olin and Merger Sub, on the other hand, may waive the satisfaction of the conditions to their respective obligations to consummate the Transactions. If Olin waives the satisfaction of a material condition to the consummation of the Transactions, Olin will evaluate the appropriate facts and circumstances at that time and re-solicit shareholder approval of the issuance of shares of Olin common stock in the Merger if required to do so by law or the rules of the NYSE. The Merger Agreement provides that TDCC or Olin may terminate the Merger Agreement if the Merger is not consummated on or before December 26, 2015 (or, if such date is extended as described under “The Merger Agreement—Termination,” March 26, 2016).

This document describes these conditions in more detail under “The Merger Agreement—Conditions to the Merger.”

 

Q: When will the Transactions be completed?

 

A: The Transactions are expected to be completed by the end of 2015. However, it is possible that the Transactions could be completed at a later time or not at all. For a discussion of the conditions, see “The Merger Agreement—Conditions to the Merger.”

 

9


Table of Contents
Q: Are there risks associated with the Transactions?

 

A: Yes. The material risks and uncertainties associated with the Transactions are discussed in the section of this document entitled “Risk Factors” and the section of this document entitled “Cautionary Statement on Forward-Looking Statements.” Those risks include, among others, the possibility that the Transactions may not be completed, the possibility that Olin may fail to realize the anticipated benefits of the Merger, the uncertainty that Olin will be able to integrate DCP successfully, the possibility that Olin may be unable to provide benefits and services or access to equivalent financial strength and resources to DCP that historically have been provided by TDCC, the additional long-term indebtedness and liabilities that Olin and its subsidiaries will have following the consummation of the Transactions and the substantial dilution to the ownership interest of current Olin shareholders following the consummation of the Merger.

 

Q: Will there be any change to the Olin Board or executive officers of Olin after the consummation of the Transactions?

 

A: Yes. In connection with the Transactions, the size of the Olin Board will be increased to include three additional directors to be designated by TDCC, effective at the time of closing of the Merger. The Merger Agreement provides that at the next annual election of directors of Olin, the Olin Board will take all actions necessary to include each of the TDCC designees as nominees for the Olin Board for election by Olin’s shareholders. The executive officers of Olin immediately prior to consummation of the Merger are expected to be the executive officers of Olin immediately following consummation of the Merger.

 

Q: What shareholder approvals are needed in connection with the Transactions?

 

A: Olin cannot complete the Transactions unless the proposal relating to the Share Issuance is approved by the affirmative vote of a majority of votes cast on the proposal at the special meeting and the proposal relating to the Charter Amendment is approved by the affirmative vote of a majority of the shares of Olin common stock entitled to vote on the proposal.

 

Q: What is the proposed Charter Amendment on which I am being asked to vote?

 

A: Olin is seeking shareholder approval of a proposal to amend the Olin Charter to increase the number of authorized shares of Olin common stock from 120,000,000 shares to 240,000,000 shares. Please see the section of this document entitled “Proposal No. 2—Proposal to Approve the Amendment of Olin’s Amended and Restated Articles of Incorporation to Increase the Number of Authorized Shares of Olin Common Stock” for a further discussion of this proposal.

 

Q: Why is Olin proposing to amend the Olin Charter to increase the number of authorized shares of Olin common stock?

 

A: The Olin Charter currently authorizes the issuance of 120,000,000 shares of common stock. As of April 30, 2015, there were 77,513,605 shares of Olin common stock issued and outstanding. In addition, as of May 1, 2015, awards were outstanding under Olin’s equity incentive plans that represented rights to acquire approximately 5,883,800 shares of Olin common stock and Olin had reserved approximately 4,125,890 additional shares of Olin common stock for future issuances under these plans. Olin expects to issue 80,586,207 shares of Olin common stock in the Merger, or, if there is a Tag Event, 87,482,759 shares of Olin common stock. Olin does not have sufficient authorized and unissued shares of Olin common stock to complete that issuance unless the Charter Amendment is adopted.

Although the Olin Board could have selected a different number of authorized shares for the Olin shareholders to approve in order to have a sufficient amount of shares to complete the Share Issuance, the Olin Board selected 240,000,000 because it believes it is in Olin’s best interest to increase the number of

 

10


Table of Contents

authorized shares to an amount that is sufficient to accommodate the Share Issuance and to assure that additional shares of common stock are available for general corporate purposes, which may include:

 

    raising capital through sales of equity securities (issuances of shares of Olin common stock or debt or equity securities that are convertible into Olin common stock);

 

    acquiring other businesses or assets;

 

    establishing strategic relationships with other companies;

 

    providing equity incentives to employees, officers or directors;

 

    declaring stock dividends or effecting stock splits; or

 

    achieving other corporate purposes.

 

Q: Why is shareholder approval needed in connection with the Charter Amendment?

 

A: Under Virginia law and the Olin Charter, Olin cannot amend the Olin Charter to increase the number of authorized shares of Olin common stock unless the Charter Amendment is approved by the affirmative vote of a majority of the shares of Olin common stock entitled to vote on the proposal.

 

Q: What vote is required to approve the Share Issuance?

 

A: Pursuant to the NYSE rules, the proposal to approve the Share Issuance must be approved by a majority of the votes cast on the proposal at the special meeting. An abstention from voting will be treated as a vote cast under NYSE rules with regard to the proposal to approve the Share Issuance and will have the same effect as a vote “AGAINST” the proposal to approve the Share Issuance. In accordance with applicable rules, banks, brokers and other nominees who hold shares of common stock in “street name” for their customers do not have discretionary authority to vote the shares with respect to the proposal to approve the Share Issuance. Accordingly, there will be no “broker non-votes” and shares held in “street name” (that is, shares held through a bank, broker or other nominee) will not be voted on the proposal to approve the Share Issuance unless the bank, broker or nominee has received voting instructions from its customer. If this proposal is not approved, the Merger cannot be completed.

 

Q: What vote is required to approve the Charter Amendment?

 

A: The proposal to approve the Charter Amendment must be approved by the affirmative vote of a majority of the shares of Olin common stock entitled to vote on the proposal. An abstention from voting will have the same effect as a vote “AGAINST” the proposal to approve the Charter Amendment. In accordance with applicable rules, banks, brokers and other nominees who hold shares of common stock in “street name” for their customers do not have discretionary authority to vote the shares with respect to the proposal to approve the Charter Amendment. Accordingly, there will be no “broker non-votes” and shares held in “street name” (that is, shares held through a bank, broker or other nominee) will not be voted on the proposal to approve the Charter Amendment unless the bank, broker or nominee has received voting instructions from its customer. If this proposal is not approved, the Merger cannot be completed.

 

Q: Do TDCC shareholders have to vote to approve the Transactions?

 

A: No.

 

Q: What if an Olin shareholder does not vote on the Share Issuance or Charter Amendment proposals?

 

A: The outcome depends on how the Olin common stock is held and whether any vote is cast or not.

 

    If an Olin shareholder submits a proxy to Olin but the proxy does not indicate how it should be voted on the proposals, the proxy will be counted as a vote “FOR” the proposals.

 

11


Table of Contents
    If an Olin shareholder submits a proxy to Olin and the proxy indicates that the shareholder abstains from voting as to a proposal, it will have the same effect as a vote “AGAINST” the proposal.

 

    If an Olin shareholder fails to submit a proxy to Olin, that shareholder’s shares will not count towards the required quorum of a majority of the votes entitled to be cast on the proposals. Such a failure to submit a proxy to Olin will have the same effect as a vote “AGAINST” the proposal to approve the Charter Amendment.

 

    If an Olin shareholder holds shares in “street name” through a bank, broker or other nominee, those shares will not be counted for purposes of determining the presence of a quorum unless the bank, broker or other nominee has been instructed to vote on at least one of the proposals presented in this proxy statement. In accordance with applicable rules, banks, brokers and other nominees who hold shares of common stock in “street name” for their customers do not have discretionary authority to vote the shares with respect to the proposals to approve the Share Issuance and the Charter Amendment. Accordingly, there will be no “broker non-votes” and shares held in “street name” will not be voted on the proposal to approve the Share Issuance or the proposal to approve the Charter Amendment unless the bank, broker or other nominee has received voting instructions from its customer with respect to such proposal. As a result, if an Olin shareholder holds shares in “street name” and fails to instruct its bank, broker or other nominee how to vote that shareholder’s shares, such failure will have the same effect as a vote “AGAINST” the Charter Amendment and will not affect the vote on the Share Issuance unless the bank, broker or other nominee has been instructed to vote on at least one of the proposals presented in this proxy statement.

 

Q: How does the Olin Board recommend shareholders vote?

 

A: The Olin Board recommends that shareholders vote “FOR” the proposal to approve the Share Issuance, “FOR” the proposal to approve the Charter Amendment and “FOR” the proposal to approve adjournments or postponements of the special meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes at the time of the special meeting to approve the Share Issuance or the Charter Amendment.

 

Q: Have any Olin shareholders already agreed to vote for the issuance of Olin common stock in the Merger?

 

A: No.

 

Q: How can Olin shareholders cast their vote?

 

A: Olin shareholders may vote before the special meeting in one of the following ways:

 

    by Internet, by following the Internet voting instructions printed on the proxy card;

 

    by telephone, by following the telephone voting instructions printed on the proxy card;

 

    by mail, by completing all of the required information on the proxy card and signing, dating and returning the proxy card in the enclosed postage-paid envelope; or

 

    in person, by attending the special meeting and completing a ballot.

 

Q: How do Olin shareholders with shares held in the Olin Contributing Employee Ownership Plan (the “CEOP”) cast their vote?

 

A:

Participants in the CEOP may instruct the trustee of the CEOP, Voya National Trust (the “CEOP Trustee”), on how to vote shares of Olin common stock credited to such shareholder on the proposals listed on the proxy card by voting on the Internet or telephone or by indicating such shareholders instructions on its

 

12


Table of Contents
  proxy card and returning it to Olin before the required deadline, [                    ] on [                    ], 2015. The CEOP Trustee will vote shares of Olin 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 Olin common stock for which they do receive voting instructions.

 

Q: If an Olin shareholder is not going to attend the special meeting, should that shareholder return its proxy card or otherwise vote its shares?

 

A: Yes. Returning the proxy card or voting by calling the toll-free number shown on the proxy card or visiting the website shown on the proxy card before the required deadline, [                    ] on [                    ], 2015 (or [                    ] on [                    ], 2015 for CEOP participants), ensures that the shares will be represented and voted at the special meeting, even if an Olin shareholder will be unable to or does not attend.

 

Q: If an Olin shareholder’s shares are held in “street name” through its bank, broker or other nominee, will that bank, broker or other nominee vote those shares?

 

A: If your shares are held by a bank, broker or other nominee on your behalf in “street name,” your bank, broker or other nominee will send you instructions as to how to provide voting instructions for your shares by proxy. Many banks and brokerage firms have a process for their customers to provide voting instructions by telephone or via the Internet, in addition to providing voting instructions by proxy card.

In accordance with the applicable rules, banks, brokers and other nominees who hold shares of common stock in “street name” for their customers do not have discretionary authority to vote the shares with respect to the proposals to approve the Share Issuance, the Charter Amendment or the adjournment or postponement of the special meeting, if necessary or appropriate. Accordingly, there will be no “broker non-votes” and shares held in “street name” will not be voted on the proposals unless the bank, broker or other nominee has received voting instructions from its customer.

 

Q: Can an Olin shareholder change its vote after mailing its proxy card or submitting voting instructions by Internet or telephone?

 

A: Yes. If a holder of record of Olin common stock has properly completed and submitted its proxy card or submitted voting instructions by Internet or telephone, the Olin shareholder can change its vote in any of the following ways:

 

    by sending a signed notice of revocation to the Corporate Secretary of Olin that is received prior to the special meeting stating that the Olin shareholder revokes its proxy;

 

    by properly completing a new proxy card bearing a later date and properly submitting it so that it is received prior to the special meeting;

 

    by logging onto the Internet website specified on the proxy card in the same manner a shareholder would to submit its proxy electronically or by calling the toll-free number specified on the proxy card prior to the special meeting, in each case if the Olin shareholder is eligible to do so and following the instructions on the proxy card; or

 

    by attending the special meeting and voting in person.

Simply attending the special meeting will not revoke a proxy. In the event of multiple online or telephone votes by a shareholder, each vote will supersede the previous vote and the last vote cast will be deemed to be the final vote of the shareholder unless such vote is revoked in person at the special meeting.

If an Olin shareholder holds shares in “street name” through its bank, broker or other nominee, and has directed such person to vote its shares, it should instruct such person to change its vote, or if in the alternative an Olin shareholder wishes to vote in person at the special meeting, it must bring to the special meeting a letter from the bank, broker or other nominee confirming its beneficial ownership of the shares and that the bank, broker or other nominee is not voting the shares at the special meeting.

 

13


Table of Contents
Q: What should Olin shareholders do now?

 

A: After carefully reading and considering the information contained in this document, Olin shareholders should vote their shares as soon as possible so that their shares will be represented and voted at the special meeting. Olin shareholders should follow the voting instructions set forth on the enclosed proxy card.

 

Q: Can Olin shareholders dissent and require appraisal of their shares?

 

A: No.

 

Q: Will the instruments that govern the rights of Olin shareholders with respect to their shares of Olin common stock after the consummation of the Transactions be different from those that govern the rights of current Olin shareholders?

 

A: The rights of Olin shareholders with respect to their shares of Olin common stock after the consummation of the Transactions will continue to be governed by federal and state laws and Olin’s governing documents, including:

 

    the corporate law of the Commonwealth of Virginia, including the VSCA;

 

    the Olin Charter; and

 

    the Olin Bylaws.

If the Charter Amendment proposal is approved by the Olin shareholders and the Merger is consummated, the Olin Charter will be amended to increase the number of authorized shares of Olin common stock from 120,000,000 shares to 240,000,000 shares. The additional shares of authorized Olin common stock would be identical to the shares of common stock now authorized and outstanding, and the Charter Amendment would not otherwise affect the rights of current holders of Olin common stock.

 

Q: Who can answer my questions?

 

A: If you have any questions about the Transactions or the special meeting, need assistance in voting your shares or need additional copies of this document or the enclosed proxy card, you should contact:

The Proxy Advisory Group, LLC

18 East 41st Street, Suite 2000

New York, New York 10017-6219

[                    ]

or

Olin Corporation

190 Carondelet Plaza, Suite 1530

Clayton, Missouri 63105

Attention: Investor Relations

 

Q: Where can I find more information about Olin and DCP?

 

A: Olin shareholders can find more information about Olin and DCP in “Information on Olin” and “Information on DCP” and from the various sources described in “Where You Can Find More Information; Incorporation by Reference.”

 

14


Table of Contents

SUMMARY

The following summary contains certain information described in more detail elsewhere in this document. It does not contain all the details concerning the Transactions, including information that may be important to you. To better understand the Transactions, you should carefully review this entire document and the documents it refers to. See “Where You Can Find More Information; Incorporation by Reference.”

The Companies

Olin Corporation

Olin Corporation

190 Carondelet Plaza, Suite 1530

Clayton, Missouri 63105

Telephone: (314) 480-1400

Olin Corporation, incorporated in 1892, is a Virginia corporation having its principal executive offices in Clayton, MO. Olin Corporation is a manufacturer concentrated in three business segments: Chlor Alkali Products, Chemical Distribution and Winchester.

Blue Cube Acquisition Corp.

Blue Cube Acquisition Corp.

c/o Olin Corporation

190 Carondelet Plaza, Suite 1530

Clayton, Missouri 63105

Telephone: (314) 480-1400

Blue Cube Acquisition Corp., a Delaware corporation referred to in this document as Merger Sub, is a newly formed, direct wholly-owned subsidiary of Olin that was organized specifically for the purpose of completing the Merger. Merger Sub has engaged in no business activities to date and it has no material assets or liabilities of any kind, other than those incident to its formation and in connection with the Transactions.

The Dow Chemical Company

The Dow Chemical Company

2030 Dow Center

Midland, Michigan 48674

Telephone: (989) 636-1000

The Dow Chemical Company, incorporated in 1947 under Delaware law, is the successor to a Michigan corporation of the same name, organized in 1897. TDCC’s principal executive offices are located at 2030 Dow Center, Midland, Michigan 48674. In 2014, TDCC had annual sales of more than $58 billion and employed approximately 53,000 people worldwide. TDCC’s more than 6,000 product families are manufactured at 201 sites in 35 countries across the globe.

Blue Cube Spinco Inc.

Blue Cube Spinco Inc.

c/o The Dow Chemical Company

2030 Dow Center

Midland, Michigan 48674

Telephone: (989) 636-1000

Blue Cube Spinco Inc., a Delaware corporation referred to in this document as Splitco, is a newly formed, direct, wholly-owned subsidiary of TDCC that was organized specifically for the purpose of effecting the Separation. Splitco has engaged in no business activities to date and it has no material assets or liabilities of any kind, other than those incident to its formation and in connection with the Transactions.

 

 

15


Table of Contents

Splitco is a holding company. In the Transactions, TDCC will transfer, directly or indirectly, certain assets and liabilities related to DCP to Splitco or the DCP Subsidiaries and will contribute the equity interests in the DCP Subsidiaries to Splitco. In exchange therefor, Splitco will incur new indebtedness and will pay to TDCC the Special Payment in an amount equal to the Below Basis Amount. Splitco will also issue to TDCC the Splitco Securities or, at TDCC’s election, pay to TDCC as a dividend an amount in cash equal to the Above Basis Amount. For the fiscal year ended December 31, 2014, DCP generated net sales of $4,776 million and a net loss of $7 million.

The Transactions

On March 27, 2015, Olin and TDCC announced that they, along with Splitco and Merger Sub, had entered into the Merger Agreement, and that TDCC and Splitco had entered into the Separation Agreement, which together provide for the combination of Olin’s business and DCP. In the Transactions, TDCC will transfer DCP to Splitco. Prior to the Distribution, Splitco will incur new indebtedness and will pay to TDCC the Special Payment. Splitco will also issue to TDCC the Splitco Securities or, at TDCC’s election, pay to TDCC as a dividend an amount in cash equal to the Above Basis Amount. If issued, the Splitco Securities are expected to be transferred by TDCC to the investment banks and/or commercial banks on or about the closing date of the Merger in exchange for existing TDCC Debt in the Debt Exchange. As a result, TDCC expects to receive approximately $2,030 million from the Special Payment and the Debt Exchange.

Olin expects to issue approximately 80.6 million shares of Olin common stock in the Merger, or approximately 87.5 million shares if there is a Tag Event. Based upon the reported closing sale price of $                     per share for Olin common stock on the NYSE on [                    ], 2015, the total value of the shares to be issued by Olin and the cash and debt instruments expected to be received by TDCC in the Transactions, including the Splitco Securities (which, if issued, together with the new indebtedness to be incurred by Splitco on the date of the Distribution, will be obligations of Splitco and, following the consummation of the Merger, are expected to be guaranteed by Olin) would have been approximately $[                    ] million (assuming there is no Tag Event). The actual value of the Olin common stock to be issued in the Merger will depend on the market price of shares of Olin common stock at the time of determination, and will also depend on whether a Tag Event has occurred. Olin and TDCC will know prior to the closing date of the Merger whether a Tag Event will occur. Once it is known whether a Tag Event will occur, this disclosure will be updated accordingly.

After the Merger, Olin will own and operate DCP through Splitco, which will be Olin’s wholly-owned subsidiary, and will also continue its current businesses. All shares of Olin common stock, including those issued in the Merger, will be listed on the NYSE under Olin’s current trading symbol “OLN.”

Below is a step-by-step description of the sequence of material events relating to the Transactions.

Step 1    Separation

On or prior to the date of the Distribution, TDCC will transfer DCP to Splitco or the DCP Subsidiaries. Splitco and the DCP Subsidiaries are newly formed, direct and indirect wholly-owned subsidiaries of TDCC. This transfer will include, among other assets and liabilities of DCP, TDCC’s equity interests in the JV Entity, which may constitute 50 percent of the equity interests in the JV Entity or, if there is a Tag Event, 100 percent of the equity interests in the JV Entity, as more fully described under “The Separation Agreement—Separation of the Dow Chlorine Products Business—Transfer of the JV Entity Interests.” Olin and TDCC will know prior to the closing date of the Merger whether a Tag Event will occur. Once it is known whether a Tag Event will occur, this disclosure will be updated accordingly.

Step 2    Contribution

Immediately prior to the Distribution, and on the closing date of the Merger, TDCC will effect the Contribution, pursuant to which all of the DCP Subsidiaries will become direct or indirect subsidiaries of Splitco.

 

 

16


Table of Contents

Step 3    Incurrence of Debt and Issuance of Splitco Common Stock to TDCC

Immediately prior to the Distribution, Splitco will incur new indebtedness and will pay to TDCC the Special Payment. In addition, immediately prior to the Distribution, Splitco expects to issue to TDCC the Splitco Securities or, at TDCC’s election, pay to TDCC as a dividend an amount in cash equal to the Above Basis Amount. TDCC expects to transfer the Splitco Securities, if issued, on or about the date of the Distribution to the investment banks and/or commercial banks in exchange for existing TDCC debt. The Splitco Securities are expected to be subsequently sold to third-party investors as described below. As a result, TDCC expects to receive approximately $2,030 million from the Special Payment and the Debt Exchange. If TDCC determines that the Debt Exchange is not reasonably likely to be consummated at the time of the Distribution and elects to receive cash from Splitco in lieu of the Splitco Securities as described under “The Merger Agreement—Debt Exchange,” Splitco will incur new indebtedness in the form of debt securities, term loans or a combination thereof to finance such cash payment.

Immediately prior to the Distribution, Splitco will also issue to TDCC additional shares of Splitco common stock. Following this issuance, TDCC will own 100,000,000 shares of Splitco common stock, which will constitute all of the outstanding stock of Splitco.

Step 4    Distribution—Exchange Offer

TDCC will offer to TDCC shareholders the right to exchange all or a portion of their shares of TDCC common stock for shares of Splitco common stock at a discount to the equivalent per-share value of Olin common stock in an exchange offer.

If the exchange offer is consummated but is not fully subscribed, TDCC will distribute the remaining shares of Splitco common stock on a pro rata basis to TDCC shareholders whose shares of TDCC common stock remain outstanding after the consummation of the exchange offer. If there is a pro rata distribution, the exchange agent will calculate the exact number of shares of Splitco common stock not exchanged in the exchange offer and to be distributed on a pro rata basis, and the number of shares of Olin common stock into which the remaining shares of Splitco common stock will be converted in the Merger will be transferred to TDCC shareholders (after giving effect to the consummation of the exchange offer) as promptly as practicable thereafter.

The exchange agent will hold, for the account of the relevant TDCC shareholders, the global certificate(s) representing all of the outstanding shares of Splitco common stock, pending the consummation of the Merger. Shares of Splitco common stock will not be able to be traded during this period.

As previously noted, this disclosure has been prepared under the assumption that the shares of Splitco will be distributed to TDCC shareholders pursuant to a split-off. Based on market conditions prior to closing, TDCC will determine whether the Splitco shares will be distributed to TDCC’s shareholders in a spin-off or a split-off and, once a final decision is made, this disclosure will be amended to reflect that decision, if necessary.

Step 5    Merger

Immediately after the Distribution, Merger Sub will merge with and into Splitco, whereby the separate corporate existence of Merger Sub will cease and Splitco will continue as the surviving company and as a wholly-owned subsidiary of Olin. In the Merger, each share of Splitco common stock will be converted into the right to receive Olin common stock based on the exchange ratio set forth in the Merger Agreement, as described in the section of this document entitled “The Merger Agreement—Merger Consideration.”

 

 

17


Table of Contents

Immediately after the consummation of the Merger, approximately 50.5 percent of the outstanding shares of Olin common stock is expected to be held by pre-Merger holders of Splitco common stock and approximately 49.5 percent of the outstanding shares of Olin common stock is expected to be held by pre-Merger Olin shareholders, assuming there is no Tag Event.

Step 6    Sale of Splitco Securities to Third-Party Investors

As described in Step 3 above, TDCC and Olin expect the Splitco Securities to be transferred by TDCC on or about the closing date of the Merger to investment banks and/or commercial banks in the Debt Exchange in exchange for existing TDCC debt. The Splitco Securities will then be sold by the investment banks and/or commercial banks to third-party investors.

Set forth below are diagrams that graphically illustrate, in simplified form, the existing corporate structures, the corporate structures immediately following the Distribution, and the corporate structures immediately following the consummation of the Transactions contemplated by the Merger Agreement.

 

 

LOGO

 

 

18


Table of Contents

LOGO

 

LOGO

 

 

19


Table of Contents

After completion of all of the steps described above, Olin’s wholly-owned subsidiary, Splitco, will hold DCP through its subsidiaries and will be the obligor under the Splitco Securities, if issued, and the other new indebtedness to be incurred by Splitco on the date of the Distribution, which, after the consummation of the Merger, are expected to be guaranteed by Olin.

In connection with the Transactions, on the date of the Distribution, TDCC or its subsidiaries and Splitco or the DCP Subsidiaries will enter into the Additional Agreements relating to, among other things, intellectual property agreements, real property agreements, site and business services agreements, agreements relating to the supply of electricity and agreements for the purchase and sale of certain raw materials and finished products. See “Other Agreements—Other Ancillary Agreements.”

 

 

20


Table of Contents

SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA

The following summary combined financial data of DCP and summary consolidated financial data of TDCC and Olin are being provided to help you in your analysis of the financial aspects of the Transactions. You should read this information in conjunction with the financial information included elsewhere and incorporated by reference in this document. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations for the Dow Chlorine Products Business,” “Where You Can Find More Information; Incorporation by Reference,” “Information on the Dow Chlorine Products Business,” “Information on TDCC,” “Information on Olin,” “Selected Historical Financial Data” and “Unaudited Pro Forma Condensed Combined Financial Statements of Olin and the Dow Chlorine Products Business.”

Summary Historical Combined Financial Data of the Dow Chlorine Products Business

The following summary historical combined financial data of DCP for each of the years ended December 31, 2014, 2013 and 2012 have been derived from audited combined financial statements of DCP. This information is only a summary and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations for the Dow Chlorine Products Business,” the financial statements of DCP and the notes thereto and the unaudited pro forma condensed combined financial statements of Olin and the Dow Chlorine Products Business included elsewhere in this document.

 

     For the Years Ended December 31,  
         2014              2013              2012      
     (in millions)  

Results of Operations Data

        

Net sales

   $ 4,776       $ 4,375       $ 4,762   

Cost of sales

   $ 4,573       $ 4,257       $ 4,350   

Income (loss) before income taxes

   $ 1       $ (76    $ 185   

Net (loss) income

   $ (7    $ (49    $ 146   

Balance Sheet Data

        

Total assets

   $ 2,275       $ 2,438       $ 2,553   

Working capital(1)

   $ 61       $ 58       $ 140   

Long-term debt(2)

   $ 553       $ 578       $ 499   

Total combined equity

   $ 958       $ 1,073       $ 1,137   

Cash Flow Data

        

Cash provided by operating activities

   $ 223       $ 148       $ 313   

Cash used in investing activities

   $ (107    $ (236    $ (542

Cash (used in) provided by financing activities

   $ (116    $ 88       $ 229   

 

  (1) Working capital is defined as current assets less current liabilities.
  (2) Consists of debt of the JV Entity, which is non-recourse to DCP.

 

 

21


Table of Contents

Summary Historical Consolidated Financial Data of Olin

The following summary historical consolidated financial data of Olin as of and for the years ended December 31, 2014, 2013 and 2012 have been derived from Olin’s audited consolidated financial statements incorporated by reference in this document. Since August 22, 2012, Olin’s summary historical financial data reflects the acquisition of KA Steel. This information is only a summary and should be read in conjunction with the financial statements of Olin and the notes thereto and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section contained in Olin’s Annual Report on Form 10-K for the year ended December 31, 2014 which is incorporated by reference in this document. See “Where You Can Find More Information; Incorporation by Reference.”

 

     As of and for the Years Ended December 31,  
             2014                     2013                     2012          
     (in millions, except per share data)  

Results of Operations Data

      

Sales

   $ 2,241      $ 2,515      $ 2,185   

Cost of goods sold

     1,853        2,034        1,748   

Selling and administration

     170        190        177   

Restructuring charges

     (16     (6     (9

Other operating income

     2        1        8   

Earnings of non-consolidated affiliates

     2        3        3   

Interest expense

     44        39        26   

Interest and other income (expense)

     1               (10
  

 

 

   

 

 

   

 

 

 

Income before taxes from continuing operations

  163      250      226   

Income tax provision

  58      71      76   
  

 

 

   

 

 

   

 

 

 

Income from continuing operations

  105      179      150   

Discontinued operations, net

  1             
  

 

 

   

 

 

   

 

 

 

Net income

$ 106    $ 179    $ 150   
  

 

 

   

 

 

   

 

 

 

Balance Sheet Data

Cash and cash equivalents, short-term investments and restricted cash

$ 257    $ 312    $ 177   

Working capital, excluding cash and cash equivalents and short-term investments

  182      125      150   

Property, plant and equipment, net

  931      988      1,034   

Total assets

  2,698      2,803      2,778   

Capitalization

Short-term debt

  16      13      24   

Long-term debt

  659      678      690   

Shareholders’ equity

  1,013      1,101      998   
  

 

 

   

 

 

   

 

 

 

Total capitalization

$ 1,688    $ 1,792    $ 1,712   
  

 

 

   

 

 

   

 

 

 

Per Share Data

Basic

Continuing operations

$ 1.33    $ 2.24    $ 1.87   

Discontinued operations, net

  0.01             
  

 

 

   

 

 

   

 

 

 

Net income

$ 1.34    $ 2.24    $ 1.87   
  

 

 

   

 

 

   

 

 

 

Diluted

Continuing operations

$ 1.32    $ 2.21    $ 1.85   

Discontinued operations, net

  0.01             
  

 

 

   

 

 

   

 

 

 

Net income

$ 1.33    $ 2.21    $ 1.85   
  

 

 

   

 

 

   

 

 

 

Common cash dividends

$ 0.80    $ 0.80    $ 0.80   
  

 

 

   

 

 

   

 

 

 

Other Data

Capital expenditures

$ 72    $ 91    $ 256   

Depreciation and amortization

  138      135      111   

Current ratio

  2.2      2.1      1.7   

Total debt to total capitalization

  40.0   38.6   41.7

Average common shares outstanding—diluted

  79.7      80.9      81.0   

 

 

22


Table of Contents

Summary Unaudited Pro Forma Condensed Combined Financial Data of Olin and the Dow Chlorine Products Business

The following summary unaudited pro forma condensed combined financial data present the pro forma condensed financial position and results of operations of Olin based upon the historical financial statements of each of Olin and DCP, after giving effect to the Merger and the other Transactions, and are intended to reflect the impact of the Merger and the other Transactions on Olin’s consolidated financial statements as if the relevant transactions occurred on the dates indicated below. The accompanying unaudited pro forma condensed combined financial information have been prepared using, and should be read in conjunction with, the respective audited consolidated or combined (as the case may be) financial statements of each of Olin and DCP as of and for the fiscal year ended December 31, 2014. The accompanying unaudited pro forma condensed combined financial data is presented for illustrative purposes only and does not purport to be indicative of the actual results that would have been achieved by Olin if the Transactions had been consummated for the period presented or that will be achieved in the future. See “Risk Factors—Risks Related to the Transactions—The unaudited pro forma combined financial information of Olin and DCP is not intended to reflect what actual results of operations and financial condition would have been had Olin and DCP been a combined company for the periods presented, and therefore these results may not be indicative of Olin’s future operating performance.” This information is only a summary and has been derived from and should be read in conjunction with the financial statements of Olin and the notes thereto contained in Olin’s Annual Report on Form 10-K for the year ended December 31, 2014 which is incorporated by reference in this document, the financial statements of DCP and the notes thereto included elsewhere in this document and the more detailed unaudited pro forma condensed combined financial statements of Olin and DCP and the notes thereto included elsewhere in this document. See “Where You Can Find More Information; Incorporation by Reference,” “Unaudited Pro Forma Condensed Combined Financial Statements of Olin and the Dow Chlorine Products Business” and the Audited Financial Statements of the Dow Chlorine Products Business included elsewhere in this document.

 

    

  Pro Forma  

 
     As of and for
the Year Ended December 31, 2014
 
     (in millions, except per share data)  

Results of operations

  

Net sales

   $ 6,948   

Cost of goods sold

   $ 6,360   

Income from continuing operations

   $ 19   

Income from continuing operations attributable to controlling shareholders

   $ 24   

Income from continuing operations per common share attributable to the business:

  

Basic

   $ 0.15   

Diluted

   $ 0.15   

Balance sheet data

  

Total assets

   $ 10,313   

Total liabilities

   $ 6,730   

Other selected data

  

EBITDA (1)

   $ 714   

Weighted average common shares outstanding—basic (2)

     159.2   

Weighted average common shares outstanding—diluted (2)

     160.3   

 

(1)

Olin’s definition of EBITDA (Earnings before interest, taxes, depreciation, and amortization) is income from continuing operations plus an add-back for depreciation and amortization, interest expense (income), and income tax expense. EBITDA is a non-GAAP financial measure used by Olin’s management to enhance the understanding of Olin’s operating results. Olin’s management believes that this measure is meaningful to investors as a supplemental financial measure to assess the financial performance of Olin’s assets without regard to financing methods, capital structures, taxes, or historical cost basis. The use of non-GAAP financial measures is not intended to replace any measures of performance determined in accordance with GAAP and EBITDA presented may not be comparable to similarly

 

 

23


Table of Contents
  titled measures of other companies, limiting its usefulness as a comparative measure. As a result, this financial measure has limitations as an analytical and comparative tool, and you should not consider EBITDA in isolation, or as a substitute for Olin’s results as reported under GAAP. Some of these limitations are:

 

    it does not reflect the significant interest expense or the cash requirements necessary to service interest or principal payments on debt;

 

    it does not reflect income tax expense or the cash requirements to pay taxes; and

 

    although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA does not reflect any cash requirements for such replacements.

A reconciliation of EBITDA to income (loss) from continuing operations determined in accordance with GAAP for the year ended December 31, 2014 is provided below:

 

     Historical         
     Olin
Corporation
     Dow Chlorine
Products

Business
     Pro forma
adjustments
     Pro forma
combined
 

Income (loss) from continuing operations

   $ 105       $ (7    $ (79    $ 19   

Add Back

           

Interest income

     (1                      (1

Interest expense

     44         13         142         199   

Provision (Benefit) for income taxes

     58         8         (46      20   

Depreciation and amortization expense

     138         221         118         477   
  

 

 

    

 

 

    

 

 

    

 

 

 

EBITDA

   $ 344       $ 235       $ 135       $ 714   

 

(2) Assumes there is no Tag Event.

Included in DCP’s combined statement of operations from which the unaudited pro forma condensed combined financial statements have been derived are allocations of certain expenses for services including, but not limited to, general corporate expenses related to finance, legal, information technology, human resources, ethics and compliance, shared services, employee benefits and incentives, insurance and stock-based compensation. These expenses have been allocated on the basis of direct usage when identifiable with the remainder allocated on the basis of headcount or other measures. Olin management estimates that approximately $250 million of costs would not have been incurred had DCP been a part of Olin for the year ended December 31, 2014.

The unaudited pro forma condensed combined financial statements also do not reflect benefits that may result from the realization of approximately $200 million of annualized cost synergies expected to be realized within three years following the consummation of the Transactions, or, if Olin is able to increase sales to new third-party customers and access new product markets as a result of the Transactions, the potential additional annualized synergies of up to $100 million that Olin estimates may potentially be achievable within three years from the consummation of the Transactions. Olin expects to incur approximately $100 to $150 million in transition-related costs and approximately $200 million in incremental capital spending during the first three years following the consummation of the Transactions that Olin management believes are necessary to realize the anticipated synergies from the Transactions.

 

 

24


Table of Contents

Summary Comparative Historical and Pro Forma Per Share Data

The following table sets forth certain historical and pro forma per share data for Olin. The Olin historical data has been derived from and should be read together with Olin’s audited consolidated financial statements and related notes thereto contained in Olin’s Annual Report on Form 10-K for the year ended December 31, 2014 which is incorporated by reference in this document. See “Where You Can Find More Information; Incorporation by Reference.” The pro forma data has been derived from the unaudited pro forma condensed combined financial statements of Olin and DCP included elsewhere in this document. See the section of this document entitled “Unaudited Pro Forma Condensed Combined Consolidated Financial Information of Olin and the Dow Chlorine Products Business.”

This summary comparative historical and pro forma per share data is being presented for illustrative purposes only. Olin and DCP may have performed differently had the Transactions occurred prior to the periods or at the date presented. You should not rely on the pro forma per share data presented as being indicative of the results that would have been achieved had Olin and DCP been combined during the periods or at the date presented or of the actual future results or financial condition of Olin or DCP to be achieved following the consummation of the Transactions.

 

     As of and for the Year Ended
December 31, 2014
 

Olin

   Historical      Pro Forma (1)  
     (in millions, except per
share data)
 

Basic earnings per share (1)

   $ 1.34       $ 0.15   

Diluted earnings per share (1)

   $ 1.33       $ 0.15   

Weighted average common shares outstanding—Basic (1)

     78.6         159.2   

Weighted average common shares outstanding—Diluted (1)

     79.7         160.3   

Book value per share of common stock (1)

   $ 12.89       $ 21.21   

Dividends declared per share of common stock

   $ 0.80       $ 0.80   

 

(1) Assumes there is no Tag Event.

Historical Common Stock Market Price and Dividend Data

Historical market price data for Splitco has not been presented as DCP is currently operated by TDCC and there is no established trading market in Splitco common stock. Shares of Splitco common stock do not currently trade separately from TDCC common stock.

Shares of TDCC common stock currently trade on the NYSE under the symbol “DOW.” On March 26, 2015, the last trading day before the announcement of the Transactions, the last sale price of TDCC common stock reported by the NYSE was $46.86. On [                    ], the last trading day prior to this document, the last sale price of TDCC common stock reported by the NYSE was $[                    ].

Shares of Olin common stock currently trade on the NYSE under the symbol “OLN.” On March 26, 2015, the last trading day before the announcement of the Transactions, the last sale price of Olin common stock reported by the NYSE was $27.19. On [                    ], the last trading day prior to this document, the last sale price of Olin common stock reported by the NYSE was $[                    ].

 

 

25


Table of Contents

Olin Dividend Policy

Since the second quarter of 1999, Olin has paid quarterly dividends of $0.20 per share. The payment of cash dividends is subject to the discretion of the Olin Board and will be determined in light of then-current conditions, including Olin’s earnings, Olin’s operations, Olin’s financial condition, Olin’s capital requirements and other factors deemed relevant by the Olin Board. Pursuant to the Merger Agreement, Olin has agreed that prior to the consummation of the Merger, Olin will not declare or pay any dividends or other distributions, except for the declaration and payment of regular quarterly cash dividends of no more than $0.20 per share. In the future, the Olin Board may change its dividend policy, including the frequency or amount of any dividend, in light of then-existing conditions.

 

 

26


Table of Contents

RISK FACTORS

You should carefully consider each of the following risks and all of the other information contained and incorporated by reference in this document and the exhibits hereto. Some of the risks described below relate principally to the business and the industry in which Olin, including DCP, will operate after the consummation of the Transactions, while others relate principally to the Transactions. The remaining risks relate principally to the securities markets generally and ownership of shares of Olin common stock. The risks described below are not the only risks that Olin currently faces or will face after the consummation of the Transactions. Additional risks and uncertainties not currently known or that are currently expected to be immaterial may also materially and adversely affect Olin’s business and financial condition or the price of Olin common stock following the consummation of the Transactions.

Risks Related to the Transactions

The Transactions may not be completed on the terms or timeline currently contemplated, or at all.

The consummation of the Transactions is subject to numerous conditions, including (1) the expiration or termination of any applicable waiting period under the HSR Act, and the receipt of regulatory approvals in certain other jurisdictions, (2) the effectiveness of registration statements filed with the SEC in connection with the Transactions, (3) the approval by Olin’s shareholders of the Share Issuance and the Charter Amendment, (4) the receipt by TDCC of the IRS Private Letter Ruling and an opinion from its counsel with respect to certain federal income tax matters related to the Separation, Contribution, Distribution and Debt Exchange, (5) the receipt by TDCC, on the one hand, and Olin, on the other hand, of an opinion from their respective counsel to the effect that the Merger will be treated as a “reorganization” for U.S. federal income tax purposes, (6) the consummation of the Debt Exchange (unless TDCC elects to receive cash equal to the Above Basis Amount as described in the section of this document entitled “The Merger Agreement—Debt Exchange”) and (7) other customary closing conditions. See “The Merger Agreement—Conditions to the Merger.” There is no assurance that the Transactions will be consummated on the terms or timeline currently contemplated, or at all. Olin and TDCC have expended and will continue to expend significant management time and resources and have incurred and will continue to incur significant expenses due to legal, advisory and financial services fees related to the Transactions. These expenses must be paid regardless of whether the Transactions are consummated.

Governmental agencies may not approve the Transactions or the related transactions necessary to complete them, or may impose conditions to any such approval or require changes to the terms of the Transactions. Any such conditions or changes could have the effect of delaying the consummation of the Transactions, imposing costs on or limiting the revenues of the combined company following the consummation of the Transactions or otherwise reducing the anticipated benefits of the Transactions.

Olin and Splitco will need to obtain debt financing to complete the Transactions. Although the Commitment Letters have been obtained from various lenders, the obligations of the lenders under the Commitment Letters are subject to the satisfaction or waiver of customary conditions, including, among others, the absence of any “material adverse effect,” as the term is described in “The Merger Agreement—Representations and Warranties.” Accordingly, there can be no assurance that these conditions will be satisfied or, if not satisfied, waived by the lenders. If Olin is not able to obtain alternative financing on commercially reasonable terms, it could prevent the consummation of the Merger or materially and adversely affect Olin’s business, liquidity, financial condition and results of operations if the Merger is ultimately consummated.

The calculation of the merger consideration will not be adjusted if there is a change in the value of DCP or its assets or the value of Olin before the Merger is completed.

The calculation of the number of shares of Olin common stock to be distributed in the Merger will not be adjusted if there is a change in the value of DCP or its assets or the value of Olin prior to the consummation of the Merger. Olin will not be required to consummate the Merger if there has been any “material adverse effect”

 

27


Table of Contents

(as this term is described in the section of this document entitled “The Merger Agreement—Representations and Warranties”) on DCP. However, Olin will not be permitted to terminate the Merger Agreement or resolicit the vote of Olin shareholders because of any changes in the market prices of Olin’s common stock or any changes in the value of DCP that do not constitute a material adverse effect on DCP.

Olin will incur significant costs related to the Transactions that could have a material adverse effect on its liquidity, cash flows and operating results.

Olin expects to incur significant one-time costs in connection with the Transactions, including approximately (1) $40 to $45 million during 2015 of advisory, legal, accounting and other professional fees related to the Transactions, (2) $25 to $30 million of financing-related fees, (3) $50 million of costs associated with the change in control mandatory acceleration of expenses under deferred compensation plans as a result of the Transactions, (4) $100 to $150 million in transition-related costs during the first three years following the consummation of the Transactions, and (5) $200 million in incremental capital spending during the first three years following the consummation of the Transactions that Olin management believes is necessary to realize the anticipated synergies from the Transactions. The incurrence of these costs may have a material adverse effect on Olin’s liquidity, cash flows and operating results in the periods in which they are incurred.

Current Olin shareholders’ percentage ownership interest in Olin will be substantially diluted in the Merger.

After the consummation of the Merger, the Olin common stock outstanding immediately prior to the consummation of the Merger will represent, in the aggregate, approximately 49.5 percent of Olin’s issued and outstanding shares of common stock (assuming that there is no Tag Event). If there is a Tag Event, additional shares of Olin common stock would be issued in the Merger and the Olin common stock outstanding immediately prior to the consummation of the Merger would represent, in the aggregate, approximately 47.4 percent of Olin’s issued and outstanding shares of common stock. In addition, as a result of the true-up provision in the Merger Agreement, it is possible that Olin could be required to issue additional shares of its common stock in the Merger, even if a Tag Event does not occur. See “The Merger Agreement—Merger Consideration.” Consequently, Olin’s pre-Merger shareholders, as a group, will be able to exercise less influence over the management and policies of Olin following the consummation of the Merger than immediately prior to the consummation of the Merger.

Some of Olin’s directors and executive officers have interests in seeing the Transactions completed that may be different from, or in addition to, those of other Olin shareholders. Therefore, some of Olin’s directors and executive officers may have a conflict of interest in recommending the proposals being voted on at Olin’s special meeting.

In considering the recommendations of the Olin Board that Olin’s shareholders vote to approve the Share Issuance and the Charter Amendment, you should be aware that certain of Olin’s directors and executive officers have financial interests in the Transactions that may be different from, or in addition to, the interests of Olin’s shareholders generally. The members of the Olin Board were aware of and considered these interests, among other matters, in reaching the determination to approve the terms of the Transactions, including the Merger, and in recommending to Olin’s shareholders that they vote to approve the Share Issuance and the Charter Amendment.

The interests of Olin’s non-employee directors generally include the right to receive, upon the effective time of the Merger, accelerated payment of amounts related to previously earned cash and stock retainers deferred under Olin’s Amended and Restated 1997 Stock Plan for Non-employee Directors (the “Directors Plan”), payable as a lump-sum cash amount.

The interests of Olin’s executive officers generally include the rights to receive:

 

   

upon the effective time of the Merger, accelerated payment of benefits under each of Olin’s Senior Executive Pension Plan, as amended, and Olin’s Supplementary and Deferral Benefit Pension Plan, as

 

28


Table of Contents
 

amended (together, the “Supplemental Pension Plans”), in each case, payable as a lump-sum cash payment that is sufficient to purchase an annuity that will provide the executive officer with the same after tax benefit he or she would have received under the applicable Supplemental Pension Plan;

 

    upon the effective time of the Merger, accelerated payment of the executive officer’s account balance under Olin’s Supplemental Contributing Employee Ownership Plan, as amended (the “Supplemental CEOP,” and collectively with the Directors Plan and the Supplemental Pension Plan, the “Deferred Compensation Plans”), payable as a lump-sum cash amount; and

 

    in the event of a qualifying termination of employment, certain contractual severance payments and benefits.

Sales of Olin common stock after the Transactions may negatively affect the market price of Olin common stock.

The shares of Olin common stock to be issued in the Merger to holders of Splitco common stock will generally be eligible for immediate resale. The market price of Olin common stock could decline as a result of sales of a large number of shares of Olin common stock in the market after the consummation of the Transactions or even the perception that these sales could occur.

Currently, TDCC shareholders may include index funds that have performance tied to the Standard & Poor’s 500 Index or other stock indices, and institutional investors subject to various investing guidelines. Because Olin may not be included in these indices following the consummation of the Transactions or may not meet the investing guidelines of some of these institutional investors, these index funds and institutional investors may decide to or may be required to sell the Olin common stock that they receive in the Merger. In addition, the investment fiduciaries of TDCC’s defined benefit pension plans may decide to sell any Olin common stock that the trusts for these plans receive in the Transactions, or may decide not to participate in the exchange offer, in response to their fiduciary obligations under applicable law. Similarly, the fiduciaries to the Dow Savings Plan may determine that Olin common stock is not a permissible investment under the Dow Savings Plan, triggering a sale of Olin common stock (or possibly even precluding applicants from participating in the exchange). These sales, or the possibility that these sales may occur, may also make it more difficult for Olin to obtain additional capital by selling equity securities in the future at a time and at a price that it deems appropriate.

The historical financial information of DCP may not be representative of its results or financial condition if it had been operated independently of TDCC and, as a result, may not be a reliable indicator of its future results.

DCP is currently operated by TDCC. Consequently, the financial information of DCP included in this document has been derived from the consolidated financial statements and accounting records of TDCC and reflects all direct costs as well as assumptions and allocations made by TDCC management. The financial position, results of operations and cash flows of DCP presented may be different from those that would have resulted had DCP been operated independently of TDCC during the applicable periods or at the applicable dates. For example, in preparing the financial statements of DCP, TDCC made allocations of costs and TDCC corporate expenses deemed to be attributable to DCP. However, these costs and expenses reflect the costs and expenses attributable to DCP operated as part of a larger organization and do not necessarily reflect costs and expenses that would be incurred by DCP had it been operated independently. As a result, the historical financial information of DCP may not be a reliable indicator of future results.

The unaudited pro forma combined financial information of Olin and DCP is not intended to reflect what actual results of operations and financial condition would have been had Olin and DCP been a combined company for the periods presented, and therefore these results may not be indicative of Olin’s future operating performance.

Because Olin will acquire DCP only upon completion of the Transactions, it has no available historical financial information that consolidates the financial results for DCP and Olin. The historical financial statements contained or incorporated by reference in this document consist of the separate financial statements of TDCC, DCP and Olin.

 

29


Table of Contents

The unaudited pro forma combined financial information presented in this document is for illustrative purposes only and is not intended to, and does not purport to, represent what Olin’s actual results or financial condition would have been if the Transactions had occurred on the relevant date. In addition, such unaudited pro forma combined financial information is based in part on certain assumptions regarding the Transactions that Olin believes are reasonable. These assumptions, however, are only preliminary and will be updated only after the consummation of the Transactions. The unaudited pro forma combined financial information has been prepared using the acquisition method of accounting, with Olin considered the acquirer of DCP. Under the acquisition method of accounting, the purchase price is allocated to the underlying tangible and intangible assets acquired and liabilities assumed based on their respective fair values with any excess purchase price allocated to goodwill. The pro forma purchase price allocation was based on an estimate of the fair values of the tangible and intangible assets and liabilities of DCP. In arriving at the estimated fair values, Olin has considered the preliminary appraisals of independent consultants which were based on a preliminary and limited review of the assets and liabilities related to DCP to be transferred to, or assumed by, Splitco in the Transactions. Following the effective date of the Merger, Olin expects to complete the purchase price allocation after considering the fair value of DCP’s assets and liabilities at the level of detail necessary to finalize the required purchase price allocation. The final purchase price allocation may be different than that reflected in the pro forma purchase price allocation presented herein, and this difference may be material.

The unaudited pro forma combined financial information does not reflect the costs of any integration activities or transaction-related costs or incremental capital spending that Olin management believes are necessary to realize the anticipated synergies from the Transactions. Accordingly, the pro forma financial information included in this document does not reflect what Olin’s results of operations or operating condition would have been had Olin and DCP been a consolidated entity during all periods presented, or what Olin’s results of operations and financial condition will be in the future.

Olin may be unable to provide the same types and level of benefits, services and resources to DCP that historically have been provided by TDCC, or may be unable to provide them at the same cost.

As part of TDCC, DCP has been able to receive benefits and services from TDCC and has been able to benefit from TDCC’s financial strength and extensive business relationships. After the consummation of the Transactions, DCP will be owned by Olin and will no longer benefit from TDCC’s resources. While Olin will enter into agreements under which TDCC will agree to provide certain transition services and site-related services following the consummation of the Transactions, it cannot be assured that Olin will be able to adequately replace those resources or replace them at the same cost. If Olin is not able to replace the resources provided by TDCC or is unable to replace them at the same cost or is delayed in replacing the resources provided by TDCC, Olin’s business, financial condition and results of operations may be materially adversely impacted.

Olin’s business, financial condition and results of operations may be adversely affected following the Transactions if Olin cannot negotiate contract terms that are as favorable as those TDCC has received when Olin replaces certain of Splitco’s contracts after the closing of the Transactions.

Prior to the consummation of the Transactions, certain functions (such as purchasing, accounts payable processing, accounts receivable management, information systems, logistics and distribution) for DCP are generally being performed under TDCC’s centralized systems and, in some cases, under contracts that are also used for TDCC’s other businesses and which are not intended to be assigned in whole or in part to Olin with DCP. In addition, some other contracts to which TDCC is a party on behalf of DCP will require consents of third parties to assign them to Splitco. There can be no assurance that Olin will be able to negotiate contract terms that are as favorable as those TDCC received when and if Olin replaces these contracts with its own agreements for similar services, including any contracts that may need to be replaced as a result of a failure to obtain required third-party consents. Although Olin believes that it will be able to enter into new agreements for similar services and that TDCC and Olin will be able to obtain all material third-party consents required to assign contracts to Splitco, it is possible that the failure to enter into new agreements for similar services or to obtain required consents to assign contracts could have a material adverse impact on Olin’s business, financial condition and results of operations following the consummation of the Transactions.

 

30


Table of Contents

If the Distribution, including the Debt Exchange, does not qualify as a tax-free transaction under Section 368(a)(1)(D) or 355 of the Code or the Merger does not qualify as a tax-free “reorganization” under Section 368(a) of the Code, including as a result of actions taken in connection with the Distribution or the Merger or as a result of subsequent acquisitions of shares of TDCC, Olin or Splitco common stock, then TDCC and/or TDCC shareholders may be required to pay substantial U.S. federal income taxes, and, in certain circumstances and subject to certain conditions, Splitco and Olin may be required to indemnify TDCC for any such tax liability.

The consummation of the Transactions is conditioned on TDCC’s receipt of the Private Letter Ruling. The consummation of the Transactions is also conditioned on the receipt by TDCC of the TDCC RMT Tax Opinion (as defined above in “Helpful Information”), and by Olin of a tax opinion (the “Merger Tax Opinion”) from its tax counsel substantially to the effect that the Merger will be treated as a “reorganization” within Section 368(a) of the Code.

Although a private letter ruling from the IRS generally is binding on the IRS, TDCC and Splitco will not be able to rely on the Private Letter Ruling if the factual representations made to the IRS in connection with the request for the Private Letter Ruling prove to be inaccurate, or incomplete, in any material respect, or if undertakings made to the IRS in connection with the request for the Private Letter Ruling are not satisfied. In addition, the TDCC RMT Tax Opinion and the Merger Tax Opinion will be based on, among other things, currently applicable law and certain representations and assumptions as to factual matters made by TDCC, Splitco, Olin, and Merger Sub. Any change in currently applicable law, which may be retroactive, or the failure of any representation or assumption to be true, correct and complete in all material respects, could adversely affect the conclusions reached by counsel in the opinions.

Even if the Distribution were otherwise to qualify as a tax-free transaction under Sections 368(a)(1)(D) and 355 of the Code, it would be taxable to TDCC (but not to TDCC shareholders) pursuant to Section 355(e) of the Code if there is a 50 percent or greater change in ownership of either TDCC or Splitco (including stock of Olin after the Merger), directly or indirectly, as part of a plan or series of related transactions that include the Distribution. For this purpose, any acquisitions of TDCC, Splitco or Olin stock within the period beginning two years before the Distribution and ending two years after the Distribution are presumed to be part of such a plan, although TDCC, Splitco or Olin may be able to rebut that presumption. While the Merger will be treated as part of such a plan for purposes of the test, standing alone it should not cause the Distribution to be taxable to TDCC under Section 355(e) of the Code because TDCC shareholders will hold at least 50.5 percent of Olin’s outstanding stock immediately following the Merger. However, if the IRS were to determine that other acquisitions of TDCC, Splitco or Olin stock, either before or after the Distribution, were part of a plan or series of related transactions that included the Distribution, such determination could result in significant tax to TDCC. In connection with the Private Letter Ruling and the TDCC RMT Tax Opinion, TDCC and Olin have represented or will represent that the Distribution is not part of any such plan or series of related transactions.

In certain circumstances and subject to certain limitations, under the Tax Matters Agreement, Splitco is required to indemnify TDCC in the event that the Distribution becomes taxable as a result of certain actions by Olin or Splitco (a “disqualifying action”) or as a result of certain changes in ownership of the stock of Olin or Splitco after the Merger. If TDCC were to recognize gain on the Distribution for reasons not related to a disqualifying action by Splitco or Olin, TDCC would not be entitled to be indemnified under the Tax Matters Agreement and the resulting tax to TDCC could have a material adverse effect on TDCC. If Splitco is required to indemnify TDCC if the Distribution or the Merger is taxable, this indemnification obligation would be substantial and could have a material adverse effect on Olin, including with respect to its financial condition and results of operations.

 

31


Table of Contents

Splitco and Olin may be affected by significant restrictions following the Transactions in order to avoid significant tax-related liabilities.

The Tax Matters Agreement generally prohibits Splitco, Olin and their affiliates from taking certain actions that could cause the Distribution, the Merger and certain related transactions to fail to qualify as tax-free transactions. In particular, unless an exception applies, for a two-year period following the date of the Distribution, Splitco may not:

 

    enter into any transaction or series of transactions (or any agreement, understanding or arrangement) as a result of which one or more persons would acquire (directly or indirectly) stock comprising 50 percent or more of the vote or value of Splitco (taking into account the stock of Splitco acquired pursuant to the Merger);

 

    redeem or repurchase any stock or stock rights;

 

    amend its certificate of incorporation or take any other action affecting the relative voting rights of its capital stock;

 

    merge or consolidate with any other person (other than pursuant to the Merger);

 

    take any other action that would, when combined with any other direct or indirect changes in ownership of Splitco capital stock (including pursuant to the Merger), have the effect of causing one or more persons to acquire stock comprising 50 percent or more of the vote or value of Splitco, or would reasonably be expected to adversely affect the tax-free status of the Transactions;

 

    liquidate or partially liquidate;

 

    discontinue the active conduct of DCP; or

 

    sell, transfer or otherwise dispose of assets (including stock of subsidiaries) that constitute more than 35 percent of the consolidated gross assets of Splitco and/or its subsidiaries (subject to exceptions for, among other things, ordinary course dispositions and repayments or prepayments of Splitco debt).

If Splitco intends to take any such restricted action, Splitco will be required to cooperate with TDCC in obtaining a supplemental IRS ruling or an unqualified tax opinion acceptable to TDCC to the effect that such action will not affect the status of the Distribution, the Merger and certain related transactions as tax-free transactions. However, if Splitco takes any of the actions above and such actions result in tax-related losses to TDCC, then Splitco generally will be required to indemnify TDCC for such losses, without regard to whether TDCC has given Splitco prior consent. See “Other Agreements—Tax Matters Agreement.”

Due to these restrictions and indemnification obligations under the Tax Matters Agreement, Olin may be limited in its ability to pursue strategic transactions, equity or convertible debt financings or other transactions that may otherwise be in Olin’s best interests. Also, Olin’s potential indemnity obligation to TDCC might discourage, delay or prevent a change of control during this two-year period that Olin shareholders may consider favorable to its ability to pursue strategic transactions, equity or convertible debt financings, or other transactions that may otherwise be in Olin’s best interests.

Failure to consummate the Transactions could materially and adversely impact the market price of Olin’s common stock as well as Olin’s business, liquidity, financial condition and results of operations.

If the Transactions are not consummated for any reason, the price of Olin common stock may decline significantly. In addition, Olin is subject to additional risks, including, among others:

 

    depending on the reasons for and timing of the termination of the Merger Agreement, the requirement in the Merger Agreement that Olin pay TDCC a termination fee of $100 million or reimburse TDCC for expenses of up to $50 million relating to the Transactions;

 

    substantial costs related to the Transactions, such as advisory, legal, accounting and other professional fees and regulatory filing and financial printing fees, which must be paid regardless of whether the Transactions are completed; and

 

    potential disruption of the business of Olin and distraction of its workforce and management team.

 

32


Table of Contents

Olin will have more shares of its common stock outstanding after the Transactions, which may discourage other companies from trying to acquire Olin.

Olin expects to issue approximately 80.6 million shares of its common stock in the Merger, if there is no Tag Event, or approximately 87.5 million shares, if there is a Tag Event. In addition, as a result of the true-up provision in the Merger Agreement in certain circumstances, it is possible that Olin could be required to issue more than 80.6 million shares of its common stock in the Merger, even if a Tag Event does not occur. See “The Merger Agreement—Merger Consideration.” Because Olin will be a significantly larger company and have significantly more shares of its common stock outstanding after the consummation of the Transactions, an acquisition of Olin may become more expensive. As a result, some companies may not seek to acquire Olin, and the reduction in potential parties that may seek to acquire Olin could negatively impact the prices at which Olin’s common stock trades.

Other Risks that Relate to Olin Including the Dow Chlorine Products Business after the Consummation of the Transactions

Integration—The integration of Olin and DCP may not be successful or the anticipated benefits from the Transactions may not be realized.

After the consummation of the Transactions, Olin will have significantly more sales, assets and employees than it did prior to the consummation of the Transactions. The integration process will require Olin to expend capital and significantly expand the scope of its operations and financial systems. Olin’s management will be required to devote a significant amount of time and attention to the process of integrating the operations of Olin’s business and DCP. There is a significant degree of difficulty and management involvement inherent in that process. These difficulties include, but are not limited to:

 

    integrating the operations of DCP while carrying on the ongoing operations of Olin’s business;

 

    managing a significantly larger company than before the consummation of the Transactions;

 

    the possibility of faulty assumptions underlying Olin’s expectations regarding the integration process;

 

    coordinating a greater number of diverse businesses located in a greater number of geographic locations, including in global regions and countries where Olin does not currently have operations;

 

    operating in geographic markets or industry sectors in which Olin may have little or no experience;

 

    complying with laws of new jurisdictions in which Olin has not previously operated;

 

    integrating business systems and models;

 

    attracting and retaining the necessary personnel associated with DCP following the consummation of the Transactions;

 

    creating and implementing uniform standards, controls, procedures, policies and information systems and controlling the costs associated with such matters; and

 

    integrating information technology, purchasing, accounting, finance, sales, billing, payroll and regulatory compliance systems, and meeting external reporting requirements following the consummation of the Transactions.

All of the risks associated with the integration process could be exacerbated by the fact that Olin may not have a sufficient number of employees with the requisite expertise to integrate the businesses or to operate Olin’s business after the Transactions. If Olin does not hire or retain employees with the requisite skills and knowledge to run Olin after the Transactions, it may have a material adverse effect on Olin’s business, financial condition and results of operations.

Even if Olin is able to combine the two business operations successfully, it may not be possible to realize the benefits of the increased sales volume and other benefits, including the expected synergies, that are expected to result from the Transactions, or realize these benefits within the time frame that is expected. For example, the

 

33


Table of Contents

elimination of duplicative costs may not be possible or may take longer than anticipated, or the benefits from the Transactions may be offset by costs incurred or delays in integrating the companies. In addition, the quantification of synergies expected to result from the Transactions is based on significant estimates and assumptions that are subjective in nature and inherently uncertain. The amount of synergies actually realized in the Transactions, if any, and the time periods in which any such synergies are realized, could differ materially from the expected synergies discussed in this document, regardless of whether Olin is able to combine the two business operations successfully.

If Olin is unable to successfully integrate DCP or if it is unable to realize the anticipated synergies and other benefits of the Transactions, there could be a material adverse effect on Olin’s business, financial condition and results of operations.

Sensitivity to Global Economic Conditions and Cyclicality—Olin’s operating results could be negatively affected during economic downturns.

The business of most of Olin’s customers, particularly vinyl, urethanes and pulp and paper customers, are and will continue to be, to varying degrees, cyclical and have historically experienced periodic downturns. These economic and industry downturns have been characterized by diminished product demand, excess manufacturing capacity and, in some cases, lower average selling prices. Therefore, any significant downturn in Olin’s customers’ businesses or in global economic conditions could result in a reduction in demand for Olin’s products and could materially adversely affect Olin’s results of operations or financial condition.

Although Olin historically has not generally sold a large percentage of its products directly to customers abroad, a large part of Olin’s financial performance is dependent upon a healthy economy beyond North America because Olin’s customers sell their products abroad. Additionally, the percentage of Olin’s sales to customers abroad is expected to increase significantly following the consummation of the Transactions since DCP derives a larger portion of its sales from customers outside the United States. As a result, Olin’s business is and, following the consummation of the Transactions, will continue to be affected by general economic conditions and other factors in Western Europe, South America and most of East Asia, particularly China and Japan, including fluctuations in interest rates, customer demand, labor and energy costs, currency changes and other factors beyond Olin’s control. The demand for Olin’s customers’ products, and therefore, Olin’s products, is directly affected by such fluctuations. In addition, Olin’s customers could decide to move some or all of their production to lower cost, offshore locations, and this could reduce demand in North America for Olin’s products. There can be no assurance that events having an adverse effect on the industries in which Olin (including DCP following the consummation of the Transactions) operates will not occur or continue, such as a downturn in the Western European, South American, Asian or world economies, increases in interest rates or unfavorable currency fluctuations. Economic conditions in other regions of the world, predominantly Asia and Europe, can increase the amount of caustic soda produced and available for export to North America. The increased caustic soda supply can put downward pressure on caustic soda prices charged by Olin, negatively impacting Olin’s profitability.

Cyclical Pricing Pressure—Olin’s profitability could be reduced by declines in average selling prices of Olin’s products, particularly declines in the electrochemical unit (“ECU”) netbacks for chlorine and caustic soda.

Olin’s historical operating results reflect the cyclical and sometimes volatile nature of the chemical and ammunition industries. Olin expects to continue to be subject to this cyclicality and volatility following the consummation of the Transactions. Olin experiences, and expects to continue to experience, cycles of fluctuating supply and demand in each of its business segments, particularly in chlor alkali products, which result in changes in selling prices. Periods of high demand, tight supply and increasing operating margins tend to result in increases in capacity and production until supply exceeds demand, generally followed by periods of oversupply and declining prices. Another factor influencing demand and pricing for chlorine and caustic soda is the price of natural gas. Higher natural gas prices increase the manufacturing costs of Olin’s customers and competitors, and depending on the ratio of crude oil to natural gas prices, could make them less competitive in world markets. Continued expansion offshore, particularly in Asia, will continue to have an impact on the ECU values as imported caustic soda replaces some capacity in North America.

 

34


Table of Contents

In the chlor alkali industry, price is the major supplier selection criterion. Olin has little or no ability to influence prices in this large commodity market. Decreases in the average selling prices of Olin’s products could have a material adverse effect on Olin’s profitability. While Olin strives to maintain or increase its profitability by reducing costs through improving production efficiency, emphasizing higher margin products and by controlling transportation, selling and administration expense, there can be no assurance that these efforts will be sufficient to offset fully the effect of possible decreases in pricing on operating results.

Because of the cyclical nature of Olin’s businesses, there can be no assurance that pricing or profitability in the future will be comparable to any particular historical period, including the most recent period shown in Olin’s and DCP’s respective operating results or the pro forma operating results presented in this document. There can also be no assurance that the chlor alkali industry will not experience adverse trends in the future, or that Olin’s business, financial condition and results of operations will not be adversely affected by them.

Olin’s chemical distribution segment is also subject to changes in operating results as a result of cyclical pricing pressures. The prices at which Olin resells the products that it distributes often fluctuate in accordance with the prices that Olin pays for these products, which in turn are driven by the underlying commodity prices, such as caustic soda, in accordance with supply and demand economics. Olin attempts to pass commodity pricing changes to its customers, but may be unable to do so or be delayed in doing so. The inability to pass through price increases or any limitation or delays in passing through price increases in Olin’s chemical distribution segment could adversely affect Olin’s profitability.

Olin’s Winchester segment is also subject to changes in operating results as a result of cyclical pricing pressures, but to a lesser extent than Olin’s chlor alkali products segment. Selling prices of ammunition are affected by changes in raw material costs and availability and customer demand, and declines in average selling prices of products of Olin’s Winchester segment could adversely affect Olin’s profitability.

Raw Materials—Availability of purchased feedstocks and energy, and the volatility of these costs, impact Olin’s operating costs and add variability to earnings.

Purchased feedstock and energy costs account, and will continue to account, for a substantial portion of Olin’s total production costs and operating expenses. Olin purchases, and will continue to purchase certain raw materials as feedstocks. Olin also purchases, and will continue to purchase, natural gas and electric power.

Feedstock and energy costs generally follow price trends in crude oil and natural gas, which are sometimes volatile. Ultimately, the ability to pass on underlying cost increases is dependent on market conditions. Conversely, when feedstock and energy costs decline, selling prices generally decline as well. As a result, volatility in these costs could impact Olin’s business, financial condition and results of operations.

If the availability of any of Olin’s principal feedstocks is limited or Olin is unable to obtain natural gas or energy from any of its energy sources, Olin may be unable to produce some of its products in the quantities demanded by its customers, which could have a material adverse effect on plant utilization and its sales of products requiring such raw materials. In connection with the Transactions, Olin and DCP will enter into long-term supply agreements with TDCC for certain raw materials, including ethylene, propylene and benzene. The initial term of the majority of these supply agreements is either five or ten years (a small number of agreements have shorter or longer initial terms) beginning on the date of the Distribution. As these contracts with TDCC and other third-party contracts expire, Olin may be unable to renew these contracts or obtain new long-term supply agreements on terms comparable or as favorable to Olin, depending on market conditions, which may have a material adverse effect on Olin’s business, financial condition and results of operations.

In addition, many of Olin’s and DCP’s long-term contracts contain provisions that allow their suppliers to limit the amount of raw materials shipped to Olin below the contracted amount in force majeure circumstances. If Olin is required to obtain alternate sources for raw materials because TDCC or any other supplier is unwilling or

 

35


Table of Contents

unable to perform under raw material supply agreements or if a supplier terminates its agreements with Olin, Olin may not be able to obtain these raw materials from alternative suppliers or obtain new long-term supply agreements on terms comparable or favorable to Olin.

Suppliers—Olin relies and will continue to rely on a limited number of outside suppliers for specified feedstocks and services.

Olin obtains, and following the consummation of the Transactions, will continue to obtain, a significant portion of its raw materials from a few key suppliers. If any of these suppliers are unable to meet their obligations under present or any future supply agreements, Olin may be forced to pay higher prices to obtain the necessary raw materials. Any interruption of supply or any price increase of raw materials could have a material adverse effect on Olin’s business, financial condition and results of operations. Upon the consummation of the Transactions, Olin will enter into agreements with TDCC to provide specified feedstocks and services for the facilities operated by DCP. These facilities will be dependent upon TDCC’s infrastructure for services such as wastewater and ground water treatment. Any failure of TDCC to perform its obligations under those agreements could adversely affect the operation of the affected facilities and Olin’s business, financial condition and results of operations. Many of the agreements relating to these feedstocks and services have initial terms ranging from several years to 20 years. Most of these agreements are automatically renewable, but may be terminated by Olin or TDCC after specified notice periods. If Olin is required to obtain an alternate source for these feedstocks or services, Olin may not be able to obtain pricing on as favorable terms. Additionally, Olin may be forced to pay additional transportation costs or to invest in capital projects for pipelines or alternate facilities to accommodate railcar or other delivery methods or to replace other services.

A vendor may choose, subject to existing contracts, to modify its relationship due to general economic concerns or concerns relating to the vendor or Olin, at any time. Any significant change in the terms that Olin has with its key suppliers could materially adversely affect Olin’s business, financial condition and results of operation, as could significant additional requirements from its suppliers that Olin provide them additional security in the form of prepayments or posting letters of credit.

Imbalance in Demand for Olin’s Chlor Alkali Products—A loss of a substantial customer for Olin’s chlorine or caustic soda could cause an imbalance in customer demand for these products, which could have an adverse effect on Olin’s results of operations.

Chlorine and caustic soda are produced simultaneously and in a fixed ratio of 1.0 ton of chlorine to 1.1 tons of caustic soda. The loss of a substantial chlorine or caustic soda customer could cause an imbalance in customer demand for Olin’s chlorine and caustic soda products. An imbalance in customer demand may require Olin to reduce production of both chlorine and caustic soda or take other steps to correct the imbalance. Since Olin cannot store large quantities of chlorine, Olin may not be able to respond to an imbalance in customer demand for these products as quickly or efficiently as some of Olin’s competitors. If a substantial imbalance occurred, Olin would need to reduce prices or take other actions that could have a material adverse impact on Olin’s business, results of operations and financial condition.

Security and Chemicals Transportation—Regulations on the transportation of hazardous chemicals and/or the security of chemical manufacturing facilities and public policy changes related to transportation safety could result in significantly higher operating costs.

The transportation of Olin’s products and feedstocks, including transportation by pipeline, and the security of Olin’s chemical manufacturing facilities are subject to extensive regulation. Government authorities at the local, state and federal levels could implement new or stricter regulations that would impact the security of chemical plant locations and the transportation of hazardous chemicals. Olin’s chlor alkali products business, including DCP, could be materially adversely impacted by the cost of complying with any new regulations. Olin’s business also could be adversely affected if an incident were to occur at one of Olin’s facilities or while transporting product. The extent of the impact would depend on the requirements of future regulations and the nature of an incident, which are unknown at this time.

 

36


Table of Contents

Effects of Regulation—Changes in legislation or government regulations or policies could have a material adverse effect on Olin’s financial position or results of operations.

Legislation that may be passed by Congress or other legislative bodies or new regulations that may be issued by federal and other administrative agencies, including import and export duties and quotas, anti-dumping regulations and related tariffs, could significantly affect the sales, costs and profitability of Olin’s business. The chemical and ammunition industries are subject to legislative and regulatory actions, which could have a material adverse effect on Olin’s business, financial position or results of operations. Existing and future government regulations and laws may reduce the demand for Olin’s products, including certain chlorinated organic products, such as dry cleaning solvents, produced by DCP. Any decrease in the demand for chlorinated organic products could result in lower unit sales and lower selling prices for such chlorinated organic products, which would have a material adverse effect on Olin’s business, financial condition and results of operations.

Cost Control—Olin’s profitability could be reduced if Olin experiences increasing raw material, utility, transportation or logistics costs, or if Olin fails to achieve targeted cost reductions, including cost reductions expected to be realized following the consummation of the Transactions.

Olin’s operating results and profitability are, and will continue to be, dependent upon its continued ability to control, and in some cases reduce, its costs. In addition, Olin’s expected benefits from the Transactions are dependent upon Olin’s ability to reduce its costs following the consummation of the Transactions. If Olin is unable to do so, or if costs outside of Olin’s control, particularly Olin’s costs of raw materials, utilities, transportation and similar costs, increase beyond anticipated levels, Olin’s profitability will decline and Olin will not realize the level of cost reductions anticipated following the Transactions.

For example, Olin’s chlor alkali product transportation costs, particularly railroad shipment costs, are a significant portion of Olin’s cost of goods sold, and have been increasing over the past several years. Part of the anticipated cost reductions from the Transactions are due to transportation cost efficiencies from the increased number of manufacturing locations and the Dow Chlorine Product Business’s utilization of diverse modes of delivery for products which Olin currently delivers by rail. If transportation costs continue to increase, and Olin is unable to control those costs or pass the increased costs on to customers, Olin’s profitability in its chlor alkali business would be negatively affected. Similarly, costs of commodity metals and other materials used in Olin’s Winchester business, such as copper and lead, can vary. If Olin experiences significant increases in these costs and is unable to raise its prices to offset the higher costs, the profitability in Olin’s Winchester business would be negatively affected.

Environmental Costs—Olin has, and will continue to have, ongoing environmental costs, which could have a material adverse effect on Olin’s financial position or results of operations.

The nature of Olin’s operations and products, including the raw materials it handles, exposes Olin to the risk of liabilities, obligations or claims with respect to environmental matters. In addition, Olin is party to various governmental and private environmental actions associated with past manufacturing facilities and former waste disposal sites. Olin has incurred, and expects to incur, significant costs and capital expenditures in complying with environmental laws and regulations.

The ultimate costs and timing of environmental liabilities are difficult to predict. Liabilities under environmental laws relating to contaminated sites can be imposed retroactively and on a joint and several basis. One liable party could be held responsible for all costs at a site, regardless of fault, percentage of contribution to the site or the legality of the original disposal. Olin could incur significant costs, including cleanup costs, natural resource damages, civil or criminal fines and sanctions and third-party lawsuits claiming, for example, personal injury and/or property damage, as a result of past or future violations of, or liabilities under, environmental or other laws.

In addition, future events, such as changes to or more rigorous enforcement of environmental laws, could require Olin to make additional expenditures, modify or curtail its operations and/or install pollution control

 

37


Table of Contents

equipment. It is possible that regulatory agencies may enact new or more stringent clean-up standards for chemicals of concern, including chlorinated organic products manufactured by DCP. This could lead to expenditures for environmental remediation in the future that are additional to existing estimates.

Accordingly, it is possible that some of the matters in which Olin is involved or may become involved may be resolved unfavorably to Olin, which could materially adversely affect Olin’s business, financial position, cash flows or results of operations.

Litigation and Claims—Olin is subject to litigation and other claims, which could cause Olin to incur significant expenses.

Olin is a defendant in a number of pending legal proceedings relating to its present and former operations. These include product liability claims relating to ammunition and firearms and proceedings alleging injurious exposure of plaintiffs to various chemicals and other substances (including proceedings based on alleged exposures to asbestos). Frequently, the proceedings alleging injurious exposure involve claims made by numerous plaintiffs against many defendants. Olin’s exposure to potential losses from products liability, personal injury and other claims is expected to increase as a result of the Transactions due to the increased size of Olin’s business and product portfolio. Because of the inherent uncertainties of litigation, Olin is unable to predict the outcome of these proceedings and therefore cannot determine whether the financial impact, if any, will be material to Olin’s financial position, cash flows or results of operations.

Integration of Information Technology Systems—Operation on multiple Enterprise Resource Planning (“ERP”) information systems, and the conversion from multiple systems to a single system, may negatively impact Olin’s operations.

Olin is, and after consummation of the Transactions will continue to be, highly dependent on its information systems infrastructure in order to process orders, track inventory, ship products in a timely manner, prepare invoices to its customers, maintain regulatory compliance and otherwise carry on its business in the ordinary course. Olin currently operates on an ERP information system. In addition, DCP currently operates on a separate ERP system. Since Olin will be required to process and reconcile its information from multiple systems, after the consummation of the Transactions, the chance of errors will be increased, and Olin may incur significant additional costs related thereto. Inconsistencies in the information from multiple ERP systems could adversely impact Olin’s ability to manage its business efficiently and may result in heightened risk to its ability to maintain its books and records and comply with regulatory requirements. Following the consummation of the Transactions, Olin expects that it may transition all or a portion of the operations of DCP from one ERP system to another. The transition to a different ERP system involves numerous risks, including:

 

    diversion of management’s attention away from normal daily business operations;

 

    loss of, or delays in accessing, data;

 

    increased demand on its operations support personnel;

 

    increased costs;

 

    initial dependence on unfamiliar systems while training personnel to use new systems; and

 

    increased operating expenses resulting from training, conversion and transition support activities.

Any of the foregoing could result in a material increase in information technology compliance or other related costs, and could materially and negatively impact Olin’s business, results of operations or financial condition.

 

38


Table of Contents

Information Security—A failure of Olin’s information technology systems, or an interruption in their operation, could have a material adverse effect on Olin’s business, financial condition or results of operations.

Olin’s operations are, and after consummation of the Transactions will continue to be, dependent on its ability to protect its information systems, computer equipment and information databases from systems failures. Olin relies on its information technology systems generally to manage the day-to-day operation of Olin’s business, operate elements of its chlor alkali and ammunition manufacturing facilities, manage relationships with its customers, fulfill customer orders and maintain its financial and accounting records. Failures of Olin’s information technology systems could be caused by internal or external events, such as incursions by intruders or hackers, computer viruses, cyber-attacks, failures in hardware or software, or power or telecommunication fluctuations or failures. The failure of Olin’s information technology systems to perform as anticipated for any reason or any significant breach of security could disrupt its business and result in numerous adverse consequences, including reduced effectiveness and efficiency of operations, increased costs or loss of important information, any of which could have a material adverse effect on Olin’s business, financial condition or results of operations. Olin has technology and information security processes and disaster recovery plans in place to mitigate its risk to these vulnerabilities. However, these measures may not be adequate to ensure that Olin’s operations will not be disrupted, should such an event occur.

Production Hazards—Olin’s facilities are subject to operating hazards, which may disrupt Olin’s business.

Olin is, and after consummation of the Transactions will continue to be, dependent upon the continued safe operation of its production facilities. Olin’s production facilities are subject to hazards associated with the manufacture, handling, storage and transportation of chemical materials and products and ammunition, including leaks and ruptures, explosions, fires, inclement weather and natural disasters, unexpected utility disruptions or outages, unscheduled downtime and environmental hazards. From time to time in the past, Olin has had incidents that have temporarily shut down or otherwise disrupted its manufacturing, causing production delays and resulting in liability for workplace injuries and fatalities. Some of Olin’s products involve the manufacture and/or handling of a variety of explosive and flammable materials. Use of these products by Olin’s customers could also result in liability if an explosion, fire, spill or other accident were to occur. Olin cannot assure you that it will not experience these types of incidents in the future or that these incidents will not result in production delays or otherwise have a material adverse effect on Olin’s business, results of operations or financial condition. In the past, major hurricanes have caused significant disruption in DCP’s operations on the U.S. Gulf Coast, logistics across the region and the supply of certain raw materials, which had an adverse impact on volume and cost for some of DCP’s products. Due to the substantial presence of Olin and DCP on the U.S. Gulf Coast, historically and after the consummation of the Transactions, similar severe weather conditions or other natural phenomena in the future could negatively affect Olin’s results of operations.

Indebtedness—Olin will have a substantial amount of indebtedness following the Transactions, which could materially adversely affect its financial condition.

Olin has a significant amount of indebtedness and its leverage will increase as a result of the Transactions. As of December 31, 2014, Olin had $675 million of indebtedness outstanding, and as of December 31, 2014 on a pro forma basis after giving effect to the Transactions, Olin would have had outstanding indebtedness of $3,859 million. Outstanding indebtedness does not include amounts that could be borrowed under Olin’s $265 million senior revolving credit facility, under which $258 million was available for borrowing as of December 31, 2014 because Olin had issued $7 million of letters of credit. In connection with the Transactions, Olin expects to increase the size of its senior revolving credit facility to $500 million. Despite its level of indebtedness, Olin has and expects to continue to have the ability to borrow additional debt.

 

39


Table of Contents

After the consummation of the Transactions, Olin’s indebtedness could have important consequences, including but not limited to:

 

    limiting its ability to fund working capital, capital expenditures and other general corporate purposes;

 

    limiting its ability to accommodate growth by reducing funds otherwise available for other corporate purposes and to compete, which in turn could prevent Olin from fulfilling its obligations under its indebtedness;

 

    limiting its operational flexibility due to the covenants contained in its debt agreements;

 

    requiring it to dispose of significant assets in order to satisfy its debt service and other obligations if it is not able to satisfy these obligations from cash from operations or other sources;

 

    to the extent that Olin’s debt is subject to floating interest rates, increasing Olin’s vulnerability to fluctuations in market interest rates;

 

    limiting Olin’s ability to buy back Olin common stock or pay cash dividends;

 

    limiting its flexibility in planning for, or reacting to, changes in its business or industry or economic conditions, thereby limiting its ability to compete with companies that are not as highly leveraged; and

 

    increasing its vulnerability to economic downturns.

Olin’s ability to generate sufficient cash flow from operations to make scheduled payments on Olin’s debt will depend on a range of economic, competitive and business factors, many of which are outside its control. There can be no assurance that Olin’s business will generate sufficient cash flow from operations to make these payments. If Olin is unable to meet its expenses and debt obligations, Olin may need to refinance all or a portion of its indebtedness before maturity, sell assets or issue additional equity. Olin may not be able to refinance any of its indebtedness, sell assets or issue additional equity on commercially reasonable terms or at all, which could cause Olin to default on its obligations and impair its liquidity. Olin’s inability to generate sufficient cash flow to satisfy its debt obligations, or to refinance its debt obligations on commercially reasonable terms, would have a material adverse effect on Olin’s business, financial condition and results of operations, as well as on Olin’s ability to satisfy its debt obligations.

Credit Facilities—Weak industry conditions could affect Olin’s ability to comply with the financial maintenance covenants in Olin’s senior credit facility and certain tax-exempt bonds.

Olin’s senior credit facility and Olin’s Gulf Opportunity Zone Act of 2005 (Go Zone) and American Recovery and Reinvestment Act of 2009 (Recovery Zone) tax-exempt bonds include certain financial maintenance covenants requiring Olin to not exceed a maximum leverage ratio and to maintain a minimum coverage ratio. In addition, Olin expects that the financing agreements to be entered into in connection with the Transactions and described in the section of this document entitled “Debt Financing” may contain similar restrictions.

Depending on the magnitude and duration of chlor alkali cyclical downturns, including deterioration in prices and volumes, there can be no assurance that Olin will continue to be in compliance with these ratios. If Olin failed to comply with either of these covenants in a future period and was not able to obtain waivers from the lenders thereunder, Olin would need to refinance its current senior credit facility and the Go Zone and Recovery Zone bonds, or, when entered into, the Pro Rata Facilities. However, there can be no assurance that such refinancing would be available to Olin on terms that would be acceptable to it or at all.

Credit and Capital Market Conditions—Adverse conditions in the credit and capital markets may limit or prevent Olin’s ability to borrow or raise capital.

While Olin believes it has and will continue to have facilities in place that should allow Olin to borrow funds as needed to meet its ordinary course business activities, adverse conditions in the credit and financial

 

40


Table of Contents

markets could prevent Olin from obtaining financing, if the need arises. Olin’s ability to invest in its businesses and refinance or repay maturing debt obligations could require access to the credit and capital markets and sufficient bank credit lines to support cash requirements. If Olin is unable to access the credit and capital markets on commercially reasonable terms, Olin could experience a material adverse effect on its business, financial position or results of operations.

Pension Plans—The impact of declines in global equity and fixed income markets on asset values and any declines in interest rates and/or improvements in mortality assumptions used to value the liabilities in Olin’s pension plans may result in higher pension costs and the need to fund Olin’s existing pension plans in future years in material amounts.

Under Accounting Standard Codification (ASC) 715 “Compensation-Retirement Benefits” (ASC 715), Olin recorded an after-tax charge of $87 million ($142 million pretax) to shareholders’ equity as of December 31, 2014 for its pension and other postretirement plans. This charge reflected a 60-basis point decrease in the plans’ discount rate and the negative impact of the newly mandated mortality tables, partially offset by favorable performance on plan assets during 2014. In 2013, Olin recorded an after-tax charge of $8 million ($13 million pretax) to shareholders’ equity as of December 31, 2013 for its pension and other postretirement plans. This charge reflected unfavorable performance on plan assets during 2013, partially offset by a 60-basis point increase in the plans’ discount rate. In 2012, Olin recorded an after-tax charge of $102 million ($167 million pretax) to shareholders’ equity as of December 31, 2012 for its pension and other postretirement plans. This charge reflected a 100-basis point decrease in the plans’ discount rate, partially offset by the favorable performance on plan assets during 2012. These non-cash charges to shareholders’ equity do not affect Olin’s ability to borrow under its senior credit facility.

The determinations of pension expense and pension funding are based on a variety of rules and regulations. Changes in these rules and regulations could impact the calculation of pension plan liabilities and the valuation of pension plan assets. They may also result in higher pension costs, additional financial statement disclosure, and accelerate the need to fully fund the pension plan. During the fourth quarter of 2014, the Society of Actuaries (SOA) issued the final report of its mortality tables and mortality improvement scales. The updated mortality data reflected increasing life expectancies in the United States. During the third quarter of 2012, the “Moving Ahead for Progress in the 21st Century Act” (MAP-21) became law. The new law changes the mechanism for determining interest rates to be used for calculating minimum defined benefit pension plan funding requirements. Interest rates are determined using an average of rates for a 25-year period, which can have the effect of increasing the annual discount rate, reducing the defined benefit pension plan obligation and potentially reducing or eliminating the minimum annual funding requirement. The new law also increased premiums paid to the Pension Benefit Guaranty Corporation (PBGC). During the third quarter of 2014, the “Highway and Transportation Funding Act” (HATFA 2014) became law, which includes an extension of MAP-21’s defined benefit plan funding stabilization relief. Based on Olin’s plan assumptions and estimates, Olin will not be required to make any cash contributions to the domestic qualified defined benefit pension plan at least through 2015 and under the new law may not be required to make any additional contributions for at least the next five years. Olin does have a small Canadian qualified defined benefit pension plan to which Olin made cash contributions of $1 million in 2014, $1 million in 2013 and $1 million in 2012, and Olin anticipates approximately $1 million of cash contributions in 2015. At December 31, 2014, the projected benefit obligation of $2,117 million exceeded the market value of assets in Olin’s qualified defined benefit pension plans by $139 million, as calculated under ASC 715.

In addition, the impact of declines in global equity and fixed income markets on asset values may result in higher pension costs and may increase and accelerate the need to fund the pension plans in future years. For example, holding all other assumptions constant, a 100-basis point decrease or increase in the assumed long-term rate of return on plan assets would have decreased or increased, respectively, the 2014 defined benefit pension plans income by approximately $17 million.

Holding all other assumptions constant, a 50-basis point decrease in the discount rate used to calculate pension income for 2014 and the projected benefit obligation as of December 31, 2014 would have decreased

 

41


Table of Contents

pension income by $1 million and increased the projected benefit obligation by $118 million. A 50-basis point increase in the discount rate used to calculate pension income for 2014 and the projected benefit obligation as of December 31, 2014 would have increased pension income by $1 million and decreased the projected benefit obligation by $115 million.

Olin will assume certain material pension benefit obligations associated with DCP. These liabilities and the related future funding obligations could restrict cash available for Olin operations, capital expenditures and other requirements, and may materially adversely affect its financial condition and liquidity.

In the Transactions, Olin’s U.S. tax-qualified defined benefit pension plan may assume certain U.S. tax-qualified defined benefit pension obligations related to active employees and certain terminated, vested retirees of DCP with a net liability of up to $400 million. In connection therewith, pension assets may be transferred from TDCC’s U.S. tax-qualified defined benefit pension plans to an existing U.S. tax-qualified defined benefit pension plan maintained by Olin. In addition to the standard minimum funding requirements, the Pension Protection Act of 2006 (as amended by the Worker, Retiree and Employer Recovery Act of 2008) (the “Pension Act”) requires companies with U.S. tax-qualified defined benefit pension plans to make contributions to such plans as frequently as quarterly in order to meet the “funding target” for such plans, as defined in the Pension Act. The failure to meet a minimum required percentage of the funding target in any given year could result in adverse consequences, including the imposition of fines or penalties. Funding obligations with respect to U.S. tax-qualified defined benefit pension plans change due to, among other things, the actual investment return on plan assets and changes in interest rates and/or mortality assumptions. Continued volatility in the capital markets may have a further negative impact on the funded status of U.S. tax-qualified defined benefit pension plans, which may in turn increase attendant funding obligations. Given the amount of pension assets that may be transferred from TDCC’s U.S. tax-qualified defined benefit pension plans to Olin’s U.S. tax-qualified defined benefit pension plan, and subject to the foregoing and other variables, and the uncertainties associated therewith, it is possible that Olin could be required to make substantial additional contributions in future years to Olin’s tax-qualified defined benefit pension plan attributable to the transferred pension liabilities. These contributions could restrict available cash for Olin’s operations, capital expenditures and other requirements, and may materially adversely affect its financial condition and liquidity.

In addition, in the Transactions, Olin will assume certain accrued defined benefit pension liabilities relating to employees of TDCC in Germany and Switzerland who transfer to Olin in connection with the Transactions. These liabilities and the related future payment obligations could restrict cash available for Olin operations, capital expenditures and other requirements, and may materially adversely affect its financial condition and liquidity.

Labor Matters—Olin may not be able to conclude future labor contracts or any other labor agreements without work stoppages.

Various labor unions represent, and after consummation of the Transactions will continue to represent, a majority of Olin’s hourly paid employees for collective bargaining purposes.

While Olin believes its relations with its employees and their various representatives are generally satisfactory, Olin cannot assure that it can conclude any labor agreements without work stoppages and cannot assure that any work stoppages will not have a material adverse effect on Olin’s business, financial condition or results of operations.

Joint Ventures—Participation in joint ventures exposes Olin to a number of risks, including risks of shared control.

From time to time, Olin enters into joint ventures. Following the consummation of the Transactions, unless there is a Tag Event, Olin will have a 50 percent ownership interest in the JV Entity, which is currently a joint venture between TDCC and the JV Partner. Olin expects that it will evaluate opportunities to enter into additional joint ventures in the future, subject to any limits that may be imposed on Olin in connection with the

 

42


Table of Contents

Transactions or otherwise. The nature of a joint venture requires Olin to share control with unaffiliated third parties. If there are differences in views among joint venture participants on how to operate the joint venture that result in delayed decisions or the failure to make decisions, or its joint venture partners do not fulfill their obligations, the affected joint venture may not be able to operate according to its business plan. In that case, Olin may be required to write down the value of its investment in a joint venture, increase the level of financial or other commitments to the joint venture or, if Olin has contractual agreements with the joint venture, Olin’s business, financial condition and results of operations may be materially adversely affected. Any of the foregoing could have a material adverse effect on Olin’s business, financial condition or results of operations.

Foreign Exchange Rates—Fluctuations in foreign currency exchange could affect Olin’s consolidated financial results.

Olin currently earns revenues, pays expenses, owns assets and incurs liabilities in countries using currencies other than the U.S. dollar. Following the consummation of the Transactions, Olin expects the percentage of its revenues earned, expenses paid, assets owned and liabilities incurred in currencies other than the U.S. dollar to significantly increase. Because Olin’s consolidated financial statements are presented in U.S. dollars, it must translate revenues and expenses into U.S. dollars at the average exchange rate during each reporting period, as well as assets and liabilities into U.S. dollars at exchange rates in effect at the end of each reporting period. Therefore, increases or decreases in the value of the U.S. dollar against other major currencies will affect Olin’s net revenues, operating income and the value of balance sheet items denominated in foreign currencies. Because of the geographic diversity of Olin’s operations, including, after the consummation of the Transactions, DCP, weaknesses in various currencies might occur in one or many of such currencies over time. From time to time, Olin may use derivative financial instruments to further reduce its net exposure to currency exchange rate fluctuations. However, Olin cannot assure you that fluctuations in foreign currency exchange rates, particularly the strengthening of the U.S. dollar against major currencies, would not materially adversely affect its financial results.

 

43


Table of Contents

CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS

This document contains and incorporates by reference certain statements relating to future events and each of TDCC’s, Splitco’s and Olin’s intentions, beliefs, expectations, and predictions for the future. Any such statements other than statements of historical fact are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words or phrases such as “will likely result,” “are expected to,” “will continue,” “is anticipated,” “we believe,” “we expect,” “estimate,” “project,” “may,” “will,” “intend,” “plan,” “believe,” “target,” “forecast,” “would” or “could” (including the negative variations thereof) or similar terminology used in connection with any discussion of future plans, actions or events, including with respect to the Transactions, generally identify forward-looking statements. These forward-looking statements include, but are not limited to, statements regarding expected benefits of the Transactions, integration plans and expected synergies therefrom, the expected timing of the consummation of the Transactions, and each of TDCC’s, Splitco’s and Olin’s anticipated future financial and operating performance and results, including its estimates for growth. These statements are based on the current expectations of management of each of TDCC, Splitco and Olin. There are a number of risks and uncertainties that could cause each company’s actual results to differ materially from the forward-looking statements included or incorporated by reference in this document. These risks and uncertainties include, but are not limited to, risks relating to:

 

    Olin’s ability to obtain requisite shareholder approval to complete the Transactions;

 

    TDCC’s being unable to obtain the necessary tax authority and other regulatory approvals required to complete the Transactions, or such required approvals delaying the Transactions or resulting in the imposition of conditions that could have a material adverse effect on the combined company or causing the companies to abandon the Transactions;

 

    other conditions to the closing of the Transactions not being satisfied;

 

    a material adverse change, event or occurrence affecting Olin or DCP prior to the closing of the Transactions delaying the Transactions or causing the companies to abandon the Transactions;

 

    problems arising in successfully integrating DCP and Olin, which may result in the combined company not operating as effectively and efficiently as expected;

 

    Olin’s ability to achieve the synergies expected to result from the Transactions in the estimated amounts and within the anticipated timeframe, if at all;

 

    the possibility that the Transactions may involve other unexpected costs, liabilities or delays;

 

    the businesses of each respective company being negatively impacted as a result of uncertainty surrounding the Transactions;

 

    disruptions from the Transactions harming relationships with customers, employees or suppliers; and

 

    uncertainties regarding:

 

    future prices;

 

    industry capacity levels and demand for each company’s products;

 

    raw materials and energy costs and availability, feedstock availability and prices;

 

    changes in governmental regulations or the adoption of new laws or regulations that may make it more difficult or expensive to operate each company’s businesses or manufacture its products before or after the Transactions;

 

    each company’s ability to generate sufficient cash flows from its businesses before and after the Transactions;

 

    future economic conditions in the specific industries to which its respective products are sold; and

 

    global economic conditions.

 

44


Table of Contents

In light of these risks, uncertainties, assumptions and other factors, the forward-looking statements discussed or incorporated by reference in this document may not occur. Other unknown or unpredictable factors could also have a material adverse effect on each of TDCC’s, Splitco’s and Olin’s actual future results, performance, or achievements. For a further discussion of these and other risks and uncertainties, see the section of this document entitled “Risk Factors.” As a result of the foregoing, readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this document. None of TDCC, Splitco or Olin undertakes, and each expressly disclaims, any duty to update any forward-looking statement whether as a result of new information, future events, or changes in its respective expectations, except as required by law.

 

45


Table of Contents

INFORMATION ABOUT THE SPECIAL MEETING

General; Date; Time and Place; Purposes of the Meeting

The enclosed proxy is solicited on behalf of the Olin Board for use at a special meeting of shareholders to be held at [                    ] local time, on [                    ], [                    ], 2015, or at any adjournments or postponements of the special meeting, for the purposes set forth in this document and in the accompanying notice of special meeting. The special meeting will be held at the [                    ]. This document and the accompanying proxy card are being mailed on or about [                    ], 2015 to all shareholders entitled to vote at the special meeting.

At the special meeting, shareholders will be asked to:

 

    approve the Share Issuance;

 

    approve the Charter Amendment;

 

    approve adjournments or postponements of the special meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes at the time of the special meeting to approve the Share Issuance or the Charter Amendment; and

 

    transact any other business that may properly come before the special meeting or any adjourned or postponed session of the special meeting.

Copies of the Merger Agreement and the Separation Agreement are attached to this document as Annex A and Annex B, respectively. All Olin shareholders are urged to read the Merger Agreement and the Separation Agreement carefully and in their entirety.

Olin does not expect a vote to be taken on any other matters at the special meeting. If any other matters are properly presented at the special meeting for consideration, however, the holders of the proxies, if properly authorized, will have discretion to vote on these matters in accordance with their best judgment.

When this document refers to the “special meeting,” it is also referring to any adjourned or postponed session of the special meeting, if necessary or appropriate.

Record Date; Quorum; Voting Information; Required Votes

The holders of record of common stock as of the close of business on [                    ], 2015, the record date for the special meeting, are entitled to receive notice of, and to vote at, the special meeting and any adjourned or postponed session thereof. As of the close of business on the record date, [                    ] shares of Olin common stock were outstanding and entitled to vote. Each shareholder is entitled to cast one vote on each matter submitted to the shareholders for each share of Olin common stock held on the record date.

Shares entitled to vote at the special meeting may take action on a matter at the special meeting only if a quorum of those shares exists with respect to that matter. The presence at the special meeting, in person or by proxy, of the holders of shares of Olin common stock representing a majority of the votes entitled to be cast on a matter at the special meeting will constitute a quorum for the transaction of business at the special meeting. Once a share is represented for any purpose at the special meeting, it will be deemed present for the purpose of determining whether a quorum exists. Shares voted “FOR” and “AGAINST” and abstentions will be counted for purposes of determining the presence of a quorum. In accordance with applicable rules, banks, brokers and other nominees who hold shares of common stock in “street name” for their customers do not have discretionary authority to vote the shares with respect to the proposals to approve the Share Issuance, the Charter Amendment or the adjournment or postponement of the special meeting, if necessary or appropriate. Accordingly, shares held in “street name” (that is, shares held through a bank, broker or other nominee) will not be counted for purposes of determining the presence of a quorum unless the bank, broker or other nominee has been instructed to vote on at least one of the proposals presented in this proxy statement.

 

46


Table of Contents

The Share Issuance must be approved by the affirmative vote of a majority of the votes cast on that proposal at the special meeting. If Olin’s shareholders fail to approve the Share Issuance upon a vote at the special meeting, each of TDCC and Olin will have the right to terminate the Merger Agreement, as described in the section of this document entitled “The Merger Agreement—Termination.”

The Charter Amendment must be approved by the affirmative vote of a majority of the shares of Olin common stock entitled to vote on the proposal. The Charter Amendment will be effected only if the proposal relating to the Share Issuance is approved by Olin’s shareholders and the Merger is consummated. If Olin’s shareholders fail to approve the Charter Amendment upon a vote at the special meeting, each of TDCC and Olin will have the right to terminate the Merger Agreement, as described in the section of this document entitled “The Merger Agreement—Termination.”

The adjournment or postponement of the special meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes at the time of the special meeting to approve the Share Issuance or the Charter Amendment must be approved by the affirmative vote of a majority of the votes cast on that proposal at the special meeting.

An abstention from voting will be treated as a vote cast under NYSE rules with regard to the proposal to approve the Share Issuance and will have the same effect as a vote “AGAINST” the proposals to approve the Share Issuance and the Charter Amendment. An abstention will have no effect on the outcome of the proposal to approve the adjournment or postponement of the special meeting, if necessary or appropriate.

As of April 30, 2015, Olin’s directors and executive officers held 5.4 percent of the shares entitled to vote at Olin’s special meeting of shareholders. As of April 30, 2015, no affiliates of Olin’s directors and executive officers held shares entitled to vote at Olin’s special meeting of shareholders. As of April 30, 2015, Splitco’s directors, executive officers and their affiliates did not hold shares entitled to vote at Olin’s special meeting of shareholders. Splitco’s shareholders are not required to vote on any of the special meeting proposals, and Splitco will not hold a special meeting of shareholders in connection with the Transactions.

Recommendation of Board of Directors

After careful consideration, the Olin Board has determined that the Transactions, including the Merger, the Share Issuance and the Charter Amendment, are advisable and in the best interests of Olin and its shareholders, approved the Merger Agreement and the other transaction agreements relating to the Transactions, approved the Transactions, including the Merger, the Share Issuance and the Charter Amendment, and authorized and adopted the Charter Amendment.

The Olin Board recommends that shareholders vote “FOR” the proposal to approve the Share Issuance, “FOR” the proposal to approve the Charter Amendment and “FOR” the proposal to approve adjournments or postponements of the special meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes at the time of the special meeting to approve the Share Issuance or the Charter Amendment.

How to Vote

Olin shareholders can vote in person by completing a ballot at the special meeting, or Olin shareholders can vote before the special meeting by proxy. Even if Olin shareholders plan to attend the special meeting, Olin encourages its shareholders to vote their shares as soon as possible by proxy. Olin shareholders can vote by proxy using the Internet, by telephone, or by mail, as follows:

Vote on the Internet (Internet voting instructions are printed on the proxy card):

 

    Have the proxy card in hand.

 

    Access the Internet website specified on the proxy card.

 

47


Table of Contents
    Follow the instructions provided on the website.

 

    Submit the electronic proxy before the required deadline, [                    ] on [                    ], 2015 for shareholders (or [                    ] on [                    ], 2015 for CEOP participants). Internet voting is available twenty-four hours a day, seven days a week until this deadline.

 

    If you are not the shareholder of record but hold shares through a bank, broker or other nominee, such bank, broker or other nominee may have special voting instructions that you should follow.

Vote by telephone (telephone voting instructions are printed on the proxy card):

 

    Have the proxy card in hand.

 

    Call the toll-free telephone number specified on the proxy card.

 

    Follow and comply with the recorded instructions by the required deadline, [                    ] on [                    ], 2015 for shareholders (or [                    ] on [                    ], 2015 for CEOP participants). Telephone voting is available twenty-four hours a day, seven days a week until this deadline.

 

    If you are not the shareholder of record but hold shares through a bank, broker or other nominee, such bank, broker or other nominee may have special voting instructions that you should follow.

Vote by mail:

 

    Complete all of the required information on the proxy card.

 

    Sign and date the proxy card.

 

    Return the proxy card in the enclosed postage-paid envelope. Olin must receive the proxy card by [                    ] on [                    ], 2015 for shareholders (or [                    ] on [                    ], 2015 for CEOP participants) for your vote to count.

 

    If you are not the shareholder of record but hold shares through a bank, broker or other nominee, such bank, broker or other nominee may have special voting instructions that you should follow.

Registered Owners: If an Olin shareholder’s shares of common stock are registered directly in its name with Olin’s transfer agent, Wells Fargo Shareowner Services, the Olin shareholder is considered a “registered shareholder” with respect to those shares. If this is the case, the proxy materials have been sent or provided directly to the Olin shareholder by Wells Fargo Shareowner Services.

Beneficial Owners: If an Olin shareholder holds shares of Olin common stock in “street name” (that is, the shares are held through a bank, broker or other nominee), the shareholder must obtain the proxy materials from that bank, broker or other nominee in its capacity as owner of record of the shares. As the beneficial owner, an Olin shareholder has the right to direct its bank, broker or other nominee as to how to vote its shares held in “street name” by using the voting instruction form or proxy card included in the proxy materials, or by voting via the Internet or by telephone, but the scope of its rights depends upon the voting processes of the bank, broker or other nominee. Please carefully follow the voting instructions provided by the bank, broker or other nominee or its respective agent.

If an Olin shareholder signs its proxy card without indicating its vote, its shares will be voted “FOR” the proposal to approve the Share Issuance, “FOR” the proposal to approve the Charter Amendment and “FOR” the proposal to approve the adjournment or postponement of the special meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes at the time of the special meeting to approve the Share Issuance or the Charter Amendment.

 

48


Table of Contents

CEOP Participants: As of [                    ], 2015, the CEOP held [                    ] shares of Olin common stock. If you are a participant in the CEOP, you may instruct the CEOP Trustee, Voya National Trust, on how to vote shares of Olin common stock credited to you on the proposals listed by using the voting instruction form or proxy card included in the proxy materials, or by voting via the Internet or by telephone before the required deadline, [                    ] on [                    ], 2015. The CEOP Trustee will vote shares of Olin common stock held in the CEOP for which it does not receive instructions in the same manner proportionately as it votes the shares of Olin common stock for which it does receive instructions.

Solicitation of Proxies

Olin will bear the entire cost of soliciting proxies from its shareholders. In addition to solicitation of proxies by mail, proxies may be solicited in person, by telephone or other electronic communications, such as emails or postings on Olin’s website by Olin’s directors, officers and employees, who will not receive additional compensation for these services. Olin has retained The Proxy Advisory Group, LLC to assist in the solicitation of proxies for an initial fee of $35,000 plus reimbursement for certain expenses incurred in conjunction with the delivery of its services. Brokerage houses, nominees, custodians and fiduciaries will be requested to forward soliciting material to beneficial owners of stock held of record by them, and Olin will reimburse those persons for their reasonable expenses in doing so.

Revocation of Proxies

If a holder of record of Olin common stock has properly completed and submitted its proxy card or submitted voting instructions by Internet or telephone, the Olin shareholder can change its vote in any of the following ways:

 

    by sending a signed notice of revocation to the Corporate Secretary of Olin that is received prior to the special meeting stating that the Olin shareholder revokes its proxy;

 

    by properly completing a new proxy card bearing a later date and properly submitting it so that it is received prior to the special meeting;

 

    by logging onto the Internet website specified on the proxy card in the same manner a shareholder would to submit its proxy electronically or by calling the toll-free number specified on the proxy card prior to the special meeting, in each case if the Olin shareholder is eligible to do so and following the instructions on the proxy card; or

 

    by attending the special meeting and voting in person.

Simply attending the special meeting will not revoke a proxy. In the event of multiple online or telephone votes by a shareholder, each vote will supersede the previous vote and the last vote cast will be deemed to be the final vote of the shareholder unless such vote is revoked in person at the special meeting.

If an Olin shareholder holds shares in “street name” through its bank, broker or other nominee, and has directed such person to vote its shares and wants to change its vote, it should instruct such person to change its vote, or if in the alternative an Olin shareholder wishes to vote in person at the special meeting, it must bring to the special meeting a letter from the bank, broker or other nominee confirming its beneficial ownership of the shares and that the bank, broker or other nominee is not voting the shares at the special meeting.

Adjournments and Postponements

Although it is not currently expected, the special meeting may be adjourned or postponed, if necessary or appropriate, for the purpose of soliciting additional proxies if there are not sufficient votes at the time of the special meeting to approve the Share Issuance and the Charter Amendment. Any adjournment or postponement of the special meeting may be made from time to time if approved by the affirmative vote of a majority of the votes cast on a proposal at the special meeting to adjourn or postpone the meeting. Any adjournment or postponement of the special meeting for the purpose of soliciting additional proxies will allow Olin shareholders who have already sent in their proxies to revoke them at any time prior to their use at the special meeting as adjourned or postponed.

 

49


Table of Contents

The proposal to approve the adjournment or postponement of the special meeting, if necessary or appropriate, relates only to an adjournment or postponement of the special meeting occurring for purposes of soliciting additional proxies for the approval of the Share Issuance and the Charter Amendment. The Olin Board retains full authority to adjourn or postpone the special meeting for any other purpose, including the absence of a quorum, or to postpone the special meeting before it is convened, without the consent or approval of any shareholders.

Attending the Special Meeting

Shareholders of record can vote in person at the special meeting. Each attendee must bring a valid, government-issued photo identification, such as a driver’s license or passport, as well as other verification of Olin common stock ownership. For a shareholder of record or CEOP participant, please bring your proxy card. If you are a beneficial owner of Olin common stock, but do not hold your shares in your own name (i.e., your shares are held in street name), please bring the notice or voting instruction form you received from your bank, broker or other nominee. You may also bring your bank or brokerage account statement reflecting your ownership of Olin common stock as of [                    ], 2015, the record date. Please note that cameras, sound or video recording equipment, cellular telephones, smartphones and other similar devices, as well as purses, briefcases, backpacks and packages, will not be allowed in the meeting room.

Olin expects representatives of KPMG LLP to be present at the meeting and available to respond to appropriate questions.

Questions and Additional Information

If Olin shareholders have more questions about the Transactions or how to submit their proxy, or if they need additional copies of this document or the enclosed proxy card or voting instructions, please contact:

The Proxy Advisory Group, LLC

18 East 41st Street, Suite 2000

New York, New York 10017-6219

[                    ]

or

Olin Corporation 190 Carondelet Plaza, Suite 1530 Clayton, Missouri 63105 Attention: Investor Relations

The vote of Olin shareholders is important. Please sign, date, and return the proxy card or submit the proxy and/or voting instructions via the Internet or by telephone promptly.

 

50


Table of Contents

INFORMATION ON TDCC’S OFFER TO EXCHANGE

In the Transactions, TDCC will offer to holders of TDCC common stock the right to exchange all or a portion of their TDCC common stock for shares of Splitco common stock at a discount to the per-share value of Olin common stock. See “The Transactions.” Splitco has filed a registration statement on Form S-4 and Form S-1 to register shares of its common stock which will be distributed to TDCC shareholders pursuant to a spin-off or a split-off in connection with the Merger. The shares of Splitco common stock will be immediately converted into shares of Olin common stock in the Merger. Olin has filed a registration statement on Form S-4 to register the shares of its common stock which will be issued in the Merger. The terms and conditions of the exchange offer are described in Splitco’s registration statement and Olin’s registration statement. Olin and Olin shareholders are not a party to the exchange offer and are not being asked to separately vote on the exchange offer or to otherwise participate in the exchange offer.

Upon the consummation of the exchange offer, TDCC will deliver to the exchange agent a global certificate representing all of the Splitco common stock being distributed in the exchange offer, with irrevocable instructions to hold the shares of Splitco common stock in trust for the holders of TDCC common stock validly tendered and not withdrawn in the exchange offer and, in the case of a pro rata distribution, holders of TDCC common stock whose shares of TDCC common stock remain outstanding after the consummation of the exchange offer. Olin will deposit with the exchange agent for the benefit of persons who received shares of Splitco common stock in the exchange offer book-entry authorizations representing shares of Olin common stock, with irrevocable instructions to hold the shares of Olin common stock in trust for the holders of Splitco common stock.

Olin expects to issue approximately 80.6 million shares of Olin common stock in the Merger, or approximately 87.5 million shares if there is a Tag Event. Based upon the reported closing sale price of $[                    ] per share for Olin common stock on the NYSE on [                    ], 2015, the total value of the shares to be issued by Olin and the cash and debt instruments expected to be received by TDCC in the Transactions, including the Splitco Securities (which, if issued, together with the new indebtedness to be incurred by Splitco on the date of the Distribution, will be obligations of Splitco and, following the consummation of the Merger, are expected to be guaranteed by Olin) would have been approximately $[                    ] million (assuming there is no Tag Event). The actual value of the Olin common stock to be issued in the Merger will depend on the market price of shares of Olin common stock at the time of determination, and will also depend on whether a Tag Event has occurred. Olin and TDCC will know prior to the closing date of the Merger whether a Tag Event will occur. Once it is known whether a Tag Event will occur, this disclosure will be updated accordingly.

TDCC’s exchange offer is subject to various conditions listed in Splitco’s registration statement and Olin’s registration statement.

The information included in this section regarding TDCC’s exchange offer is being provided to Olin’s shareholders for informational purposes only and does not purport to be complete. For additional information on TDCC’s exchange offer and the terms and conditions of TDCC’s exchange offer, Olin shareholders are urged to read Splitco’s registration statement on Form S-4 and Form S-1, or Olin’s registration statement on Form S-4, and all other documents Splitco or Olin have filed or will file with the SEC. This document constitutes only a proxy statement for Olin shareholders relating to the approval of the Share Issuance and the Charter Amendment and is not an offer to sell or an offer to purchase shares of Olin common stock.

 

51


Table of Contents

INFORMATION ON OLIN

Overview

Olin Corporation is a Virginia corporation, incorporated in 1892, having its principal executive offices in Clayton, Missouri. Olin is a manufacturer concentrated in three business segments: Chlor Alkali Products, Chemical Distribution and Winchester. Chlor Alkali Products manufactures and sells chlorine and caustic soda, hydrochloric acid, hydrogen, bleach products and potassium hydroxide, which represented 56 percent of Olin’s 2014 sales. Chemical Distribution manufactures bleach products and distributes caustic soda, bleach products, potassium hydroxide and hydrochloric acid, which represented 12 percent of Olin’s 2014 sales. Winchester products, which represented 32 percent of Olin’s 2014 sales, include sporting ammunition, reloading components, small caliber military ammunition and components, and industrial cartridges.

On August 22, 2012, Olin acquired 100 percent of privately-held K. A. Steel Chemicals Inc. (“KA Steel”), whose operating results are included in Olin’s historical financial statements since the date of the acquisition. For segment reporting purposes, KA Steel comprises the Chemical Distribution segment. KA Steel is one of the largest distributors of caustic soda in North America and manufactures and sells bleach in the Midwest.

For a more detailed description of the business of Olin, see Olin’s Annual Report on Form 10-K for the year ended December 31, 2014, which is incorporated by reference in this document. See “Where You Can Find More Information; Incorporation by Reference.”

Olin’s Business After the Consummation of the Transactions

The combination of DCP with Olin’s existing business is intended to make Olin a leading, low-cost global player in chlor-alkali and related derivatives. Upon the consummation of the Transactions, Olin believes it will be: (1) the largest chlor-alkali producer in the world, (2) the largest seller of merchant chlorine, industrial bleach and on-purpose hydrochloric acid in North America, (3) the largest seller of chlorinated organics in the world, and (4) the largest global supplier of epoxy materials.

Olin expects the Transactions to have the following strategic benefits:

 

    Increased production capacity and diversification of Olin’s product portfolio. As a result of the Transactions, Olin expects the combined company’s chlorine production capacity to increase by nearly 200 percent over Olin’s existing production capacity on a stand-alone basis. Accordingly, Olin expects that the combined company will be able to access new product segments and increase sales to new third-party customers. Additionally, Olin believes that the combined company will have a more diverse portfolio of product offerings, with the increase of the number of downstream applications of Olin’s chlorine from three downstream applications to 19 downstream applications.

 

    Enhanced size and geographic presence. Olin will significantly increase its size and broaden its geographic footprint with the addition of DCP, providing enhanced presence in markets in North America, Europe, Latin America and Asia. Olin expects that this enhanced size and geographic presence will enable Olin to improve its cost structure and increase profitability.

 

    Increased market capitalization and liquidity. The consummation of the Transactions will increase Olin’s market capitalization and shares outstanding. Moreover, the Transactions will also improve Olin’s access to the capital markets by providing it with more diversified operations, a substantially increased portfolio of assets and increased scale, all of which will make Olin more attractive to both debt and equity investors and institutional lenders.

Prior to the consummation of the Transactions, certain functions (such as purchasing, information systems, accounts payable processing, accounts receivable management, logistics and distribution) for DCP have generally been performed under TDCC’s centralized systems and, in some cases, under contracts that are also

 

52


Table of Contents

used for TDCC’s other businesses which are not being assigned to Splitco as part of the Transactions. To enable Olin to manage an orderly transition in its operation of DCP, Splitco and TDCC will enter into the General Services Agreement. Pursuant to the General Services Agreement, TDCC will provide Splitco with certain transition services from the period beginning on the date of the Distribution and generally ending within one year, or a shorter or longer period for certain specific services. See “Other Agreements—Other Ancillary Agreements—General Services Agreement.”

Olin’s Liquidity and Capital Resources After the Consummation of the Transactions

As of December 31, 2014, Olin had total assets of $2,698 million, current liabilities of $378 million and long-term debt of $659 million. Following the consummation of the Transactions, Olin’s total assets and liabilities will increase significantly. As of December 31, 2014, on a pro forma basis (as described in “Unaudited Pro Forma Condensed Combined Financial Statements of Olin and the Dow Chlorine Products Business”), Olin would have had total assets of $10,313 million, current liabilities of $2,413 million and long-term debt of $2,218 million. Olin’s cash from operations was $159 million for the year ended December 31, 2014. Olin also expects its cash from operations to increase significantly as a result of the consummation of the Transactions and the integration of DCP.

Olin believes that the combination of DCP with Olin’s existing business will result in anticipated annualized cost synergies of approximately $200 million within three years following the consummation of the Transactions as a result of (1) approximately $50 million in expected savings from procurement and logistics, (2) approximately $70 million in expected savings from improved operating efficiencies and (3) approximately $80 million in expected savings from asset optimization. If Olin is able to increase sales to new third-party customers and access new product markets as a result of the Transactions, Olin estimates that additional annualized synergies of up to $100 million may potentially be achievable within three years from the consummation of the Transactions. Olin expects to incur significant, one-time costs in connection with the Transactions, including approximately (1) $40 to $45 million during 2015 of advisory, legal, accounting and other professional fees related to the Transactions, (2) $25 to $30 million of financing-related fees, (3) $50 million of costs associated with the change in control mandatory acceleration of expenses under deferred compensation plans as a result of the Transactions, (4) $100 to $150 million in transition-related costs during the first three years following the consummation of the Transactions and (5) $200 million in incremental capital spending during the first three years following the consummation of the Transactions that Olin management believes are necessary to realize the anticipated synergies from the Transactions. No assurances of the timing or amount of synergies able to be captured, or the costs necessary to achieve those synergies, can be provided.

Following the consummation of the Transactions, Splitco, a wholly-owned subsidiary of Olin, will have incurred new indebtedness in the form of debt securities, term loans or a combination thereof, a portion of which will be used to finance the Special Payment in an amount equal to the Below Basis Amount, and issued directly to TDCC the Splitco Securities in an amount equal to the Above Basis Amount, and these obligations are expected to be guaranteed by Olin following the consummation of the Merger. In connection with the Transactions, Olin expects to increase the amount of its senior revolving credit facility to $500 million.

In the Transactions, Olin’s U.S. tax-qualified defined benefit pension plan may assume certain U.S. tax-qualified defined benefit pension obligations related to active employees and certain terminated, vested retirees of DCP with a net liability of up to $400 million. In connection therewith, pension assets may be transferred from TDCC’s U.S. tax-qualified defined benefit pension plans to an existing U.S. tax-qualified defined benefit pension plan maintained by Olin. In addition to the standard minimum funding requirements, the Pension Act requires companies with U.S. tax-qualified defined benefit pension plans to make contributions to such plans as frequently as quarterly in order to meet the “funding target” for such plans, as defined in the Pension Act. The failure to meet a minimum required percentage of the funding target in any given year could result in adverse consequences, including the imposition of fines or penalties. Funding obligations with respect to U.S. tax-qualified defined benefit pension plans change due to, among other things, the actual investment return on plan

 

53


Table of Contents

assets and changes in interest rates. Continued volatility in the capital markets may have a further negative impact on the funded status of U.S. tax-qualified defined benefit pension plans, which may in turn increase attendant funding obligations. Given the amount of pension assets that may be transferred from TDCC’s U.S. tax-qualified defined benefit pension plans to Olin’s U.S. tax-qualified defined benefit pension plan, and subject to the foregoing and other variables, and the uncertainties associated therewith, it is possible that Olin could be required to make substantial additional contributions in future years to Olin’s tax-qualified defined benefit pension plan attributable to the transferred pension liabilities. These contributions could restrict available cash for Olin’s operations, capital expenditures and other requirements, and may materially adversely affect its financial condition and liquidity.

In addition, in the Transactions, Olin will assume certain accrued defined benefit pension liabilities relating to employees of TDCC in Germany and Switzerland who transfer to Olin in connection with the Transactions. These liabilities and the related future payment obligations could restrict cash available for Olin operations, capital expenditures and other requirements, and may materially adversely affect its financial condition and liquidity.

Olin anticipates that its primary sources of liquidity for working capital and operating activities, including any future acquisitions, will be cash from operations and borrowings under existing debt arrangements, including the Existing Credit Facilities, or a new credit facility. Olin expects that these sources of liquidity will be sufficient to make required payments of interest on the outstanding Olin debt and to fund working capital and capital expenditure requirements, including the significant one-time costs relating to the Transactions described above. Olin expects that it will be able to comply with the financial and other covenants of its existing debt arrangements, including the Existing Credit Facilities, and the covenants under the agreements governing the Pro Rata Facilities and the indenture governing the Splitco Securities.

For more information on DCP’s and Olin’s existing sources of liquidity, see the section of this document entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations for the Dow Chlorine Products Business” and the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Olin’s Annual Report on Form 10-K for the year ended December 31, 2014, filed with the SEC and incorporated by reference in this document. See “Where You Can Find More Information; Incorporation by Reference.”

Directors and Officers of Olin Before and After the Consummation of the Transactions

Board of Directors

The Olin Board currently consists of nine directors, which are divided into three classes as follows:

 

    Class I directors (terms expire in 2016): C. Robert Bunch, Randall W. Larrimore and John M. B. O’Connor

 

    Class II directors (terms expire in 2017): Gray G. Benoist, Richard M. Rompala and Joseph D. Rupp

 

    Class III directors (terms expire in 2018): Donald W. Bogus, Philip J. Schulz and Vincent J. Smith

In connection with the Transactions, the size of the Olin Board will be increased to include three additional directors to be designated by TDCC, effective at the time of closing of the Merger.

Listed below is the biographical information for each person who is currently a member of the Olin Board:

GRAY G. BENOIST, 63, served as Senior Vice President, Finance, Chief Financial Officer and Chief Accounting Officer of Belden, Inc. (a designer, manufacturer and marketer of signal transmission solutions, including cable, connectivity and active components for mission-critical applications in markets ranging from industrial automation to data centers, broadcast studios, and aerospace) until January 1, 2012, and as an Officer

 

54


Table of Contents

on Special Assignment until his retirement on March 15, 2012. From August 2006 until January 1, 2012 he served as Senior Vice President, Finance and Chief Financial Officer of Belden and from November 2009 until January 2012 he also served as Chief Accounting Officer. Prior to that time, Mr. Benoist was Senior Vice President, Director of Finance of the Networks Segment of Motorola Inc. (a business unit responsible for the global design, manufacturing, and distribution of wireless and wired telecom system solutions). During more than 25 years with Motorola, Mr. Benoist served in senior financial and general management roles across Motorola’s portfolio of businesses, including the Personal Communications Sector, Integrated and Electronic Systems Sector, Multimedia Group, Wireless Data Group, and Cellular Infrastructure Group. He has a bachelor’s degree in Finance & Accounting from Southern Illinois University and a master’s in business administration degree from the University of Chicago. Mr. Benoist serves on the board of directors of Exceptional Minds (a not-for-profit organization established to educate and prepare young adults on the autistic spectrum for employment in the graphic arts industry). He is also a principal of MindSpark, Inc. (a registered benefit corporation in California delivering software testing services through the employment of young adults with autism spectrum disorder). Olin director since February 2009; member of the Audit Committee and the Directors and Corporate Governance Committee. Mr. Benoist’s chief financial officer experience provides him with valuable financial and accounting expertise.

DONALD W. BOGUS, 69, retired in January 2009 from his position as Senior Vice President of The Lubrizol Corporation and President of Lubrizol Advanced Materials, Inc., a wholly-owned subsidiary of The Lubrizol Corporation (a global supplier of high performance specialty products for personal care, coatings, plastics, and various industrial products), a position he had held since June 2004. Mr. Bogus joined Lubrizol in April 2000 as Vice President and his duties included responsibility for the Fluid Technologies for Industry business section and he served as the head of mergers and acquisitions. Prior to joining Lubrizol, he was an Executive Officer at PPG Industries, Inc. (a manufacturer of coatings and glass products) where he served as Vice President of Specialty Chemicals and Vice President of Industrial Coatings. Mr. Bogus earned a bachelor’s degree in biology and chemistry from Baldwin Wallace University. He serves on the board of trustees for Baldwin Wallace University and on their Business Division’s advisory board. Olin director since July 2005; member of the Compensation Committee and the Directors and Corporate Governance Committee. Mr. Bogus’ executive management positions have provided him with expertise in the chemicals industry, as well as merger and acquisition experience.

C. ROBERT BUNCH, 60, served as Chairman of the Board and Chief Executive Officer of Global Tubing, LLC (a privately held company formed in April 2007 to manufacture and sell coiled tubing and related products and services to the energy industry which was acquired by Forum Energy Technologies, Inc. (NYSE: FET) and Quantum Energy Partners in July 2013) from May 2007 until June 2013. Mr. Bunch served as Chairman of Maverick Tube Corporation (a producer of welded tubular steel products used in energy and industrial applications which was acquired by Tenaris, S.A. in October 2006) from January 2005 until October 2006 and as President and Chief Executive Officer from October 2004 until October 2006. Prior to joining Maverick, he was an independent oil service consultant from 2003 until 2004, and from 2002 to 2003 he served as President and Chief Operating Officer at Input/Output, Inc. (an independent provider of seismic imaging technologies and digital, full-wave imaging solutions for the oil and gas industry). From 1999 to 2002, he served as Vice President and Chief Administrative Officer of Input/Output, Inc. Mr. Bunch earned a bachelor’s degree in economics and a master’s degree in accounting from Rice University and a juris doctorate degree from the University of Houston. From May 2004 until August 2008, Mr. Bunch served on the board of directors (and as Chairman from January 2007 to August 2008) of Pioneer Drilling Company (a provider of land contract drilling services to independent and major oil and gas exploration and production companies). Olin director since December 2005; member of the Compensation Committee and the Directors and Corporate Governance Committee. Mr. Bunch’s broad management responsibilities provide relevant experience in a number of strategic and operational areas.

RANDALL W. LARRIMORE, 68, served as the Chairman of Olin from April 2003 through June 2005. From 1997 until his retirement in December 2002, he served as President and Chief Executive Officer of United Stationers Inc. (a $4 billion wholesaler/distributor of office products). From 1988 until 1997, he was President

 

55


Table of Contents

and Chief Executive Officer of MasterBrand Industries, Inc., now called Fortune Brands Home & Security LLC (FBHS) (a consumer products company). He holds a bachelor’s degree from Swarthmore College with a major in economics and a minor in chemistry and a master’s in business administration degree from Harvard Business School. He is co-chair of the governance committee and a member of the board of directors and compensation committee of Campbell Soup Company (a manufacturer and marketer of soup and other food products) and a member of the board of directors of Nixon Uniform Service and Medical Wear (a privately held company that provides, launders, and delivers medical apparel, linens, and other reusable products, primarily to healthcare providers). Olin director since January 1998; Chair of the Directors and Corporate Governance Committee and a member of the Audit Committee, Compensation Committee and the Executive Committee. Mr. Larrimore brings expertise in marketing, sales, strategic planning, mergers and acquisitions and general management.

JOHN M. B. O’CONNOR, 61, is Chairman and Chief Executive Officer of J.H. Whitney Investment Management, LLC (a company which specializes in financing sustainable and resilient energy technologies and projects), a position he has held since 2011. From January 2009 through March 2011, he served as Chief Executive Officer of Tactronics Holdings, LLC (a Whitney Capital Partners portfolio holding company that provided tactical integrated electronic systems to U.S. and foreign military customers as well as the composite armor solutions for military vehicles through its Armostruxx division). Previously, Mr. O’Connor was Chairman of JP Morgan Alternative Asset Management, Inc. (part of the investment manager arm of JP Morgan) and an Executive Partner of JP Morgan Partners (a private equity firm). He was also a member of the Risk Management Committee of JP Morgan Chase, which was responsible for policy formulation and oversight of all market and credit risk taking activities globally. Mr. O’Connor earned a bachelor’s degree in economics from Tulane University and a master’s in business administration degree from Columbia University Graduate School of Business. Mr. O’Connor is a member of the board of directors at Integrico, Inc. (a privately held specialized composite products manufacturer). He also serves on the advisory board of Cornell University College of Veterinary Medicine, Game Conservancy USA and Grayson-Jockey Club Research Foundation. He is also on the advisory committees of Global Guardian and New York Green Bank. He is also chairman of the American Friends of the Clock Tower Fund and treasurer of the UK Game Conservancy and Wildlife Trust. Mr. O’Connor serves as a special consultant in a pro-bono capacity for the U.S. Department of Defense and is an appointed special consultant to the Department of Defense Business Board. Mr. O’Connor has been appointed to be the Civic Aide to the Secretary of the Army (CASA) for New York (South). He is a member of the Air Force Chief of Staff Civic Leaders Board. Olin director since January 2006; member of the Audit Committee and the Directors and Corporate Governance Committee. Mr. O’Connor’s hedge fund and investment banking experience allow him to contribute broad financial and global expertise.

RICHARD M. ROMPALA, 68, retired in July 2005 from his position as Chairman of The Valspar Corporation (a manufacturer and distributor of paints and coatings). Mr. Rompala served as Chairman of Valspar from 1998 until July 2005, Chief Executive Officer from 1995 through February 2005 and President from 1994 through 2001. Prior to 1994, Mr. Rompala served as Group Vice President-Coatings and Resins for two years and Group Vice President-Chemicals for five years at PPG Industries, Inc. (a manufacturer of coatings and glass products). Mr. Rompala holds a bachelor’s degree in chemistry and a bachelor’s degree in chemical engineering from Columbia University and a master’s in business administration degree from Harvard Business School. Olin director since January 1998; Lead Director, Chair of the Compensation Committee and member of the Audit Committee, Directors and Corporate Governance Committee and the Executive Committee. Mr. Rompala’s broad executive management experience provides him with in-depth knowledge of manufacturing and chemicals companies.

JOSEPH D. RUPP, 65, is Chairman and Chief Executive Officer of Olin. He has served as Chairman of Olin since July 2005 and held the positions of President from January 2002 until May 2014 and Chief Executive Officer since January 2002. Prior to that and since March 2001, he was Executive Vice President, Operations, and was responsible for all Olin business operations including the former Brass Division (which became part of the former Metals Group in 2002), Winchester and Chlor Alkali Products. He joined Olin’s Brass Division in 1972 and held a number of positions of increasing responsibility in the Brass Division manufacturing and

 

56


Table of Contents

engineering organization. In 1985, he was appointed Vice President, Manufacturing and Engineering. He was appointed President of Olin Brass and a Corporate Vice President in 1996. He holds a bachelor’s degree in metallurgical engineering from the University of Missouri, Rolla. Mr. Rupp serves on the board of directors of Quanex Building Products Corporation (a manufacturer of value-added engineered materials and components serving building products markets). Olin director since January 2002; Chair of the Executive Committee. Mr. Rupp’s extensive history at Olin, together with his board service at other companies, provides him with in-depth knowledge of Olin’s business and the industry.

PHILIP J. SCHULZ, 70, was Managing Partner of PricewaterhouseCoopers (a registered public accounting firm) Hartford, Connecticut office until his retirement in July 2003. Mr. Schulz also served as the Hartford office leader of PwC’s Consumer & Industrial Products & Services industry group. He joined Coopers & Lybrand in 1967 and was Managing Partner of the Hartford office at the time of the merger of Coopers & Lybrand and Price Waterhouse in 1998. He was a member of the Firm Council and was a trustee of the PwC Foundation. He also served as a regional technical consultant and SEC reviewer and was assigned to the firm’s national office for two years. The Olin Board has determined that Mr. Schulz qualifies as an “audit committee financial expert” for Olin under applicable SEC rules. Mr. Schulz earned a bachelor’s degree in accounting from Niagara University and also completed the Tuck Executive Program at Dartmouth College. He is on the board of directors of Interim HealthCare of Hartford, Inc. Mr. Schulz is also trustee emeritus of the University of St. Joseph; a director of St. Francis Hospital; a director of the Lake Sunapee Protective Association and is on the board of trustees of The McLean Fund. Olin director since July 2003; Chair of the Audit Committee and a member of the Directors and Corporate Governance Committee and the Executive Committee. Mr. Schulz’s public accounting background provides him with invaluable financial and accounting expertise.

VINCENT J. SMITH, 66, served as President and Chief Executive Officer of Dow Chemical Canada, a subsidiary of TDCC from 2001 until his retirement in 2004. From 1972 to 2000, he held positions of increasing responsibility in engineering, manufacturing and management, including the position of Business Director for TDCC’s global chlor alkali assets. Mr. Smith earned a bachelor’s degree in chemical engineering from McMaster University. Olin director since August 2008; member of the Compensation Committee and the Directors and Corporate Governance Committee. Mr. Smith’s executive service has provided him with valuable international and manufacturing experience, together with extensive knowledge of the Chlor Alkali industry.

The Olin Board has determined that all of its members, except Mr. Rupp, constituting a majority, satisfy the listing standards for independence of the NYSE and Rule 10A-3 under the Exchange Act.

TDCC is in the process of identifying the individuals whom it will designate for appointment to the Olin Board upon the consummation of the Merger, and details regarding these individuals will be provided when available.

Executive Officers

The executive officers of Olin immediately prior to the consummation of the Merger are expected to be the executive officers of Olin immediately following the consummation of the Merger. Listed below is the biographical information for each person who is currently an executive officer of Olin:

JOSEPH D. RUPP, 65, is Chairman and Chief Executive Officer of Olin. He has served as Chairman of Olin since July 2005 and held the positions of President from January 2002 until May 2014 and Chief Executive Officer since January 2002. Prior to that and since March 2001, he was Executive Vice President, Operations, and was responsible for all Olin business operations including the former Brass Division (which became part of the former Metals Group in 2002), Winchester and Chlor Alkali Products. He joined Olin’s Brass Division in 1972 and held a number of positions of increasing responsibility in the Brass Division manufacturing and engineering organization. In 1985, he was appointed Vice President, Manufacturing and Engineering. He was appointed President of Olin Brass and a Corporate Vice President in 1996. He holds a bachelor’s degree in metallurgical engineering from the University of Missouri, Rolla. Mr. Rupp serves on the board of directors of

 

57


Table of Contents

Quanex Building Products Corporation (a manufacturer of value-added engineered materials and components serving building products markets). Olin director since January 2002; Chair of the Executive Committee. Mr. Rupp’s extensive history at Olin, together with his board service at other companies, provides him with in-depth knowledge of Olin’s business and the industry.

TODD A. SLATER, 51, has served as Vice President and Chief Financial Officer of Olin since May 4, 2014. Before then, he had served as Vice President, Finance and Controller since October 2010, Controller from May 27, 2005 until October 2010, Operations Controller from April 2004 until May 2005, and Vice President and Financial Officer for Olin’s Metals Group from January 2003 until April 2004. Prior to 2003, Mr. Slater served as Vice President, Chief Financial Officer and Secretary for Chase Industries Inc. (which was merged into Olin on September 27, 2002).

JOHN E. FISCHER, 59, has served as President and Chief Operating Officer of Olin since May 4, 2014. Before then, he served as Senior Vice President and Chief Financial Officer since October 2010, Vice President and Chief Financial Officer from May 27, 2005 until October 2010, Vice President, Finance and Controller from June 24, 2004 until May 27, 2005, and Vice President, Finance from January 2, 2004, when he re-joined Olin, until June 24, 2004. Prior to 2004, from 1997-2001, Mr. Fischer served as Vice President and Chief Financial Officer of Primex Technologies, Inc. During 2002 and 2003, Mr. Fischer did independent consulting for several companies including Olin.

JOHN L. MCINTOSH, 61, has served as Senior Vice President, Chemicals, of Olin since May 4, 2014. Before then, he served as Senior Vice President, Operations, since 2011, Senior Vice President, Chemicals from October 2010 until January 2011, Vice President and President, Chlor Alkali Products Division, from 1999 until 2010, Vice President Operations and Specialty Chemicals from 1998 until 1999, and in a variety of management positions within Olin’s chemicals and Chlor Alkali Products businesses prior to that time since he joined Olin in 1997.

GEORGE H. PAIN, 64, has served as Senior Vice President, General Counsel and Secretary of Olin since October 2010. Before then, he served as Vice President, General Counsel, and Secretary since April 15, 2002, when he re-joined Olin. Prior to that, since 2001, he served as Vice President and General Counsel of General Dynamics Ordnance and Tactical Systems, Inc., an operating unit of General Dynamics Corporation, a manufacturer of mission-critical information systems and technologies; land and expeditionary combat systems, armaments and munitions; shipbuilding and marine systems; and business aviation. From 1997-2001, he served as Vice President, General Counsel and Secretary of Primex Technologies, Inc.

FRANK W. CHIRUMBOLE, 57, has served as Vice President and President, Chlor Alkali Products, of Olin since April 28, 2012. Before then, he served as President, Chlor Alkali Products, since October 2010, as Vice President, General Manager—Bleach from 2009 until September 2010, as Vice President, Supply Chain Management from 2007 to 2009, and as Vice President, Manufacturing and Engineering, from 2001 to 2007.

SCOTT R. ABEL, 51, has served as Vice President and President, Chemical Distribution, of Olin since April 23, 2015. He joined Olin in April 2014 and served as President, K.A. Steel Chemicals Inc. from August 22, 2014 until April 22, 2015. From 2012 to 2014, he served as Commercial Vice President at KOST USA, Inc. and from 2009 to 2012, he served as Business Director—Glycols at Archer Daniels Midland Company. From 2008 to 2009, he served as Global Marketing Director—Acrylic Monomers; from 2003 to 2007, he served as Senior Marketing Manager—Chlor Alkali; and from 1989 through 2007, he served in various sales and marketing positions, all at TDCC.

THOMAS J. O’KEEFE, 56, has served as Vice President and President, Winchester, of Olin since April 26, 2012. From 2010 to 2011, he served as President, Winchester; from 2008 to 2010, he served as Vice President, Operations and Planning and from 2006 to 2008 he was Vice President, Manufacturing Operations, in each case, in the Winchester Division. From 2001 to 2006, he was Vice President, Manufacturing and Engineering for Olin’s former Brass Division.

 

58


Table of Contents

RANDEE N. SUMNER, 41, has served as Vice President and Controller of Olin since May 4, 2014. From December 2012 until April 2014, she served as Division Financial Officer for Chemical Distribution. From 2010 until December 2012, she served as Assistant Controller; from 2008 to 2010, she served as Director, Corporate Accounting and Financial Reporting; and from 2006 to 2008, she served as Manager, Corporate Accounting and Financial Reporting, all for Olin Corporation.

DOLORES J. ENNICO, 62, has served as Vice President, Human Resources, of Olin since May 1, 2009. Prior to that time and since October 2005, she served as Corporate Vice President, Human Resources. From March 2004 to September 2005, she served as Vice President, Administration for Olin’s Winchester Division and former Metals group.

STEPHEN C. CURLEY, 63, has served as Vice President and Treasurer of Olin since January 1, 2005. Before then, he had served as Chief Tax Counsel of Olin since re-joining Olin on August 18, 2003. Prior to that time, he served as Vice President and Treasurer of Primex Technologies, Inc., a manufacturer and provider of ordnance and aerospace products and services, which was spun off from Olin in 1996.

G. BRUCE GREER, JR., 54, has served as Vice President, Strategic Planning and Information Technology since 2010. Before then, he served as Vice President, Strategic Planning from May 2005, when he joined Olin, until 2010. Prior to joining Olin and since 1997, Mr. Greer was employed by Solutia, Inc., an applied chemicals company. From 2003 to April 2005, he served as President of Pharma Services, a Division of Solutia and Chairman of Flexsys, an international rubber chemicals company which was a joint venture partially owned by Solutia and Akzo Nobel. Prior to that, Mr. Greer served as a Vice President of Corporate Development, Technology, and Information Technology for Solutia.

 

59


Table of Contents

INFORMATION ON THE DOW CHLORINE PRODUCTS BUSINESS

General

DCP is a leading vertically-integrated producer of sodium hydroxide (caustic soda) and chlorine (together, chlor-alkali) and derivatives. DCP operates three businesses: Chlor-Alkali and Vinyl (“CAV”), Global Epoxy (“Epoxy”) and Global Chlorinated Organics (“GCO”). These businesses benefit from access to key natural resources including water, brine and natural gas and production facilities in the U.S. Gulf Coast. DCP leverages its production economics through sales of caustic soda, chlorine, and a broad spectrum of downstream chlorine derivatives and epoxy products for a variety of end uses in global markets.

In the Transactions, TDCC will transfer certain assets and liabilities related to DCP, directly or indirectly, to Splitco, which is a newly formed, wholly-owned subsidiary of TDCC that was organized specifically for the purpose of effecting the Separation. In exchange, TDCC will receive additional shares of common stock of Splitco, the Special Payment and the Splitco Securities (or cash in the amount of the Above Basis Amount if TDCC elects to receive a cash dividend from Splitco in lieu of the Splitco Securities). Splitco has engaged in no business activities to date and it has no material assets or liabilities of any kind, other than those incident to its formation and those incurred in connection with the Transactions. See “The Transactions.”

Products

Chlor-Alkali and Vinyl. DCP’s CAV business segment has the largest chlor-alkali capacity in North America and globally. With access to U.S. Gulf Coast natural gas, integrated power, low-cost brine mining and in-house maintenance, DCP’s CAV business sells its products into a broad range of end-use applications including pulp and paper, alumina, urethanes, chlorine derivatives and epoxy products. CAV serves as the foundation of the overall DCP business, providing a low-cost source of chlorine and caustic soda for high-value derivative products sold into merchant markets and through long-term supply relationships, as well as through its GCO and Epoxy businesses.

CAV is one of the largest global marketers of caustic soda with access to internally produced caustic soda in the U.S. Gulf Coast, re-marketing of material produced by other parties including the JV Entity, and off-take material produced by TDCC in Brazil. The off-take arrangement with TDCC in Brazil entitles DCP to 100 percent ownership of the caustic soda produced at TDCC’s Aratu, Brazil site, which DCP sells into the South American market. This allows DCP to leverage relationships with alumina, pulp and paper and chemical companies in multiple locations.

CAV is also one of the largest global marketers of ethylene dichloride (“EDC”) and vinyl chloride monomer (“VCM”). EDC and VCM sales provide key access into housing construction markets in both North America and globally. These products facilitate higher asset utilization, hydrochloric acid (“HCL”) management at DCP’s integrated production sites and incremental caustic soda sales.

Global Epoxy. DCP’s Epoxy business segment is one of the largest integrated global producers of epoxy resins, curing agents and intermediates. Epoxy serves a diverse array of applications, including electrical laminates, marine coatings, consumer goods and composites, as well as numerous applications in civil engineering and infrastructure products. DCP has a favorable manufacturing cost position in epoxy materials which is driven by a combination of scale and integration into low-cost feedstocks (including chlorine, caustic, allylics and aromatics).

Epoxy is an integrated epoxy producer with upstream, midstream and downstream epoxy products. Epoxy produces and sells a full range of epoxy materials, including upstream products such as allyl chloride (“Allyl”) and epichlorohydrin (“Epi”), midstream products such as liquid epoxy resins (“LER”) and downstream products such as converted epoxy resins (“CER”) and additives. DCP leverages its economies of scale at each stage of the epoxy value chain by selling both to the market as well as supplying internal downstream derivative epoxy needs.

 

60


Table of Contents

DCP Epoxy production economics benefits from its integration into chlor-alkali and aromatics which are key inputs in epoxy production. The Epoxy business segment’s consumption of chlorine allows DCP’s CAV business to enable caustic soda sales as well as utilize Epoxy’s production of byproduct HCL across different DCP manufacturing processes.

Allyl has widespread use, not only as feedstock in the production of DCP Epoxy’s Epi, but also as a chemical intermediate in multiple industries and applications, including water purification chemicals. Similarly, DCP produces Epi, primarily as a feedstock for use in its own epoxy resins, but also as a merchant marketer of Epi to epoxy producers globally who produce their own resins for end use segments such as coatings and electronic materials. LER is manufactured in liquid form and cures with the addition of a hardener into a thermoset solid material offering a unique combination of strength, adhesion and chemical resistance that is well-suited to coatings and composites applications. While DCP sells its LER externally, a large share of LER production is further converted by DCP into CER where value-added modifications produce higher margin customer-specific resins.

DCP also operates an integrated aromatics production chain producing cumene, phenol, acetone and bisphenol (“BisA”) for internal consumption and sale.

Global Chlorinated Organics. GCO is one of the largest global producers of chlorinated organic products, including chloromethanes (methyl chloride, methylene chloride, chloroform and carbon tetrachloride), and chloroethenes (perchloroethylene, trichloroethylene, and vinylidene chloride). GCO participates in both the “solvent” and the “intermediate” segments of the global chlorocarbon industry with a focus on sustainable applications and in markets where it can benefit from its cost and technology advantages. GCO’s products are sold as intermediates that are used as feedstocks in the production of fluoropolymers, fluorocarbon refrigerants and blowing agents, silicones, cellulosics, and agricultural chemicals. Solvent products are sold into end uses such as surface preparation, dry cleaning, pharmaceuticals, and regeneration of refining catalysts.

GCO’s manufacturing facilities consume chlorine produced by the CAV business, which enables caustic soda sales. GCO’s unique production technology also allows it to recycle byproduct streams from other DCP and TDCC businesses, which are used as raw materials by GCO. Through its recycling technology, GCO is able to transform byproduct streams into high-value-added products while simultaneously avoiding otherwise costly incineration costs. The business is often compensated to utilize these byproduct streams, generating negative cost inputs.

Manufacturing and Facilities

Chlor-Alkali and Vinyl. DCP’s CAV business segment is comprised of facilities in Freeport, Texas and Plaquemine, Louisiana. Both are strategically located in areas close to brine mining and low-cost power and steam cogeneration. The CAV operations are also supported by in-house production technology which includes chlorine cell production, repair and maintenance services based in DCP’s facility in Russellville, Arkansas.

DCP’s Freeport CAV assets are situated within TDCC’s Texas operations site, the hub and original location of TDCC’s U.S. Gulf Coast presence since the 1940s. The DCP CAV assets at the Freeport complex consist of four chlor-alkali facilities, including TDCC’s share of the JV Entity described below, one caustic soda evaporator, five EDC facilities and one VCM facility. The JV Entity is a 50:50 manufacturing joint venture between TDCC and JV Partner that owns the world’s largest grassroots chlor-alkali membrane facility, which began production in the first quarter of 2014.

DCP’s Plaquemine CAV assets are situated within TDCC’s 1,500 acre petrochemical facility in that location and consist of one chlor-alkali facility, one caustic soda evaporator and one EDC facility.

Both sites also include supporting assets and storage facilities associated with the CAV business as well as the brine mining operations at Stratton Ridge near Freeport, and Grand Bayou near Plaquemine, and onsite cell

 

61


Table of Contents

repair and maintenance operations. The Freeport assets also include two dedicated natural gas power cogeneration plants and the onsite chlorinated hydrocarbon byproduct (“RCL”)/HCL (chlor-alkali byproduct) management system.

The Russellville site is a fabricator and parts distributor to DCP and TDCC chlor-alkali sites, including DCP’s Freeport and Plaquemine facilities and TDCC’s sites in Germany and Brazil. It also manufactures cathodes and anodes used in ECU production, assembles and regaskets chlor-alkali production cells, and handles logistics for parts repair. Russellville covers global cell services for both membrane and diaphragm chlor-alkali technologies and assembles membrane cells for DCP from parts supplied by a third-party using a DCP design.

Global Epoxy. DCP has a global manufacturing footprint for its Epoxy business. Allyl and Epi are produced at facilities at Freeport, Texas and at Stade, Germany. LER is produced at Freeport and Stade as well as at a facility in Guaruja, Brazil. Downstream CER products are produced in North America at Freeport and Roberta, Georgia; in Europe at Stade, Germany, Rheinmunster, Germany, Baltringen, Germany and Pisticci, Italy; in Asia at Zhangjiagang, China and Gumi, South Korea; and in South America at Guaruja, Brazil. Epoxy also produces Phenol, Acetone and BisA at Freeport, BisA at Stade, and Cumene at Terneuzen, Netherlands to provide key aromatics inputs for the Epoxy business.

Global Chlorinated Organics. DCP’s GCO business segment operates three integrated manufacturing facilities at the Freeport, Plaquemine and Stade sites. Chloromethanes products are produced at Freeport, Texas and Stade, Germany. Perchloroethylene is produced at Plaquemine, Louisiana and Stade, Germany. Trichloroethylene is produced at Freeport, Texas and Stade, Germany. VDC is produced only at Freeport, Texas. At all three sites, GCO plays an important role in RCL/HCL production, consumption and system management.

Sales and Distribution

Sales and marketing of CAV products is focused on merchant caustic soda, chlorine and EDC sales. DCP currently only sells chlorine through long-term supply agreements with TDCC primarily by pipeline or rail in North America. Caustic soda is sold under one to three-year contracts from the U.S. Gulf Coast and Brazil to a wide array of customers mainly in the United States, Canada and Latin America. The CAV business serves a broad range of applications with significant participation in the pulp and paper, alumina, water treatment and chemical industries. Most of CAV’s EDC production is converted into VCM and sold and transferred via pipeline to a fenceline customer that produces polyvinyl chloride (“PVC”), but CAV also participates in the merchant EDC market. Most chlorine is distributed to DCP’s downstream GCO and Epoxy businesses and sold to TDCC through DCP pipelines at Freeport and Plaquemine. Caustic soda is distributed by barge, shipped from deep water ports or transported by rail through a fleet of approximately 800 railcars.

Epoxy sells a wide range of products and has a dedicated sales force and significant logistical capabilities. Epoxy focuses on developing downstream, higher value add products, such as CER, but it also sells midstream and upstream materials to optimize utilization of production assets. Epoxy has important relationships with established merchant customers, some of which span decades. The segment’s product is delivered primarily by marine vessel, deep-water and coastal barge, railcar and truck.

GCO has dedicated sales and marketing resources in each of the major geographies, maintaining a wide array of long-standing customer relationships from long-term contracts to short-term spot arrangements. GCO accesses its geographically diverse and fragmented market through direct key customer interfaces and preferred contractual relationships with distribution and channel leaders. It maintains strong, long-term strategic relationships and its average relationship with its top ten customers exceeds 13 years. GCO uses approximately 20 terminal locations globally to transport product by marine vessel, rail and truck transportation and maintains a fleet of approximately 390 rail cars in North America.

 

62


Table of Contents

Raw Materials and Energy

The primary manufacturing components for the CAV business—water, brine and electricity—are largely sourced from DCP’s supporting assets. The water and brine are provided in the form of a brine solution from DCP’s brine mining operations. Electricity and steam are supplied by DCP’s power assets and supplemented with purchases from the utility grid. DCP’s integrated power generation capabilities are gas based and the CAV business has benefited from low natural gas prices as power represents approximately 80 percent of CAV’s ECU variable production costs. The business has access to ethylene raw material through a contractual supply from TDCC.

In North America, Epoxy produces Phenol, Acetone and BisA at Freeport and purchases Cumene, as well as imports some Cumene from Terneuzen. For Allyl production, Chlorine is sourced from the CAV business in the U.S. Gulf Coast and hydrocarbons are purchased from TDCC under long-term contracts. CAV also supplies caustic soda that is a raw material for Epi production. In Europe, Epoxy produces Cumene at Terneuzen where it receives benzene and a portion of its propylene from TDCC. Cumene is then converted into phenol and acetone through a tolling arrangement and the output is used to produce BisA at Stade. Chlorine and propylene are received onsite in Stade from TDCC. LER and BisA are shipped by rail from Stade to other European sites for CER processing. In Asia, LER is shipped to Zhangjiagang and Gumi from Freeport and Stade, mostly by marine bulk transport, for use in CER production and for direct trade sales.

Key raw materials for the GCO business are chlorine and EDC from the CAV business in the U.S. Gulf Coast and chlorine from TDCC in Europe. Methanol is GCO’s most significant third-party raw material cost and is obtained through multiple contracts in Europe and North America.

Research and Development

In 2014, DCP reported research and development expense of $34 million, or less than one percent of sales. Current research and development is primarily focused in the Epoxy business, supporting niche products and applications aligned with the midstream and downstream portions of the value chain due to their profitability and future growth potential. Historically, DCP has also invested research and development expense toward process optimization and development of next-generation refrigerant feedstock technology.

Seasonality

DCP’s sales are affected by the cyclicality of the economy and the seasonality of several industries, including building and construction, coatings, infrastructure, electronics, automotive and refrigerants. The chlor-alkali industry is cyclical, both as a result of changes in demand for each of its co-products (chlorine and caustic soda) and as a result of changes in manufacturing capacity. Chlorine and caustic soda are co-products and are produced in a fixed ratio. Therefore, the production of one co-product can be constrained both by manufacturing capacity and/or by the ability to sell the co-product. Consequently, prices for both products respond rapidly to changes in supply and demand conditions in the industry. The cyclicality of the chlor-alkali industry has further impacts on downstream products in GCO and Epoxy. Pricing for GCO and Epoxy products have historically been impacted by the changing level of pricing for chlorine and, to a greater extent, caustic soda. In general, DCP’s businesses experience their highest level of activity during the spring and summer months, particularly when construction, refrigerants, coatings and infrastructure activity is higher.

Competition

Competition faced by DCP varies based on the business segment. Key competitors include large, international chemical companies. DCP competes worldwide on the basis of quality, technology and price.

DCP currently competes with a range of major domestic and international producers. CAV’s key competitors include: Axiall Corporation, Formosa Plastics Corporation, U.S.A., Occidental Chemical

 

63


Table of Contents

Corporation, Shintech, Inc. and Westlake Chemical Corporation. Epoxy competes with global participants, including Huntsman Corporation, Hexion Inc., as well as local participants with assets primarily in Asia Pacific. GCO key competitors include: Axiall Corporation, Occidental Chemical Corporation, Ineos, Akzo Nobel, Solvay and large Chinese producers such as Juhua.

Environmental Regulation

In all of the jurisdictions in which DCP operates, it is subject to environmental laws and regulations, including those related to air emissions, the discharge of waste water, and the use, handling, generation, transportation, storage and disposal of chemicals, hazardous and toxic substances and waste. Among other obligations, these laws and regulations may require DCP to apply for, obtain, comply with and periodically renew environmental permits. They may also require the installation and maintenance of pollution control equipment. In the event of any future accidental spills, leaks or other releases of hazardous or toxic substances or wastes, these laws and regulations would govern any required investigation and, if applicable, cleanup and remediation. DCP expends significant capital and operating expenses to maintain compliance with these laws and regulations. Developments such as the passage of more stringent environmental laws and regulations, or more rigorous enforcement of existing laws and regulations, could require DCP to increase the resources needed to maintain or achieve compliance.

At the two largest DCP manufacturing operations located in Freeport, Texas and Plaquemine, Louisiana, DCP operates under the terms and conditions of Title 5 permits issued pursuant to the U.S. Clean Air Act (“CAA”), as well as other applicable air permits issued under the authority of the CAA and similar state laws. Hazardous waste generation and management activities are subject to the U.S. Resource Conservation and Recovery Act (“RCRA”) and RCRA regulations, and both the Freeport, Texas and Plaquemine, Louisiana facilities hold RCRA permits. In addition, DCP manufacturing operations generate incidental polychlorinated biphenyls (“PCBs”), and the management of the PCBs is subject to permits issued under the U.S. Toxic Substances Control Act (“TSCA”).

The sale, distribution and use of DCP’s chemical products are subject to chemical registration regimes such as those created by TSCA in the United States and the Registration, Evaluation, and Restriction of Chemical regulations, commonly referred to as REACH, in the European Union. The U.S. Congress is currently considering legislation that would update and revise TSCA, although at this time it is unclear how any updates and/or revisions would impact the DCP business.

Legal Proceedings

TDCC is involved in a number of lawsuits and claims, both actual and potential, including some that it has asserted against others, in which monetary damages are sought and some of which relate to or arise out of the current or past operation of DCP. These lawsuits and claims relate to, among other things, environmental, product liability and contractual matters.

The results of any current or future litigation are inherently unpredictable. However, TDCC believes that, in the aggregate, the outcome of all lawsuits and claims involving DCP will not have a material effect on DCP’s combined financial position or liquidity. Furthermore, TDCC has generally agreed in the Separation Agreement to retain claims, including certain environmental and product liabilities, relating to the conduct of DCP prior to the Distribution.

Employees

DCP has approximately 2,100 employees, with the majority located at the Freeport, Plaquemine and Stade sites. Some of the employees in Freeport are represented by labor unions. Employees at locations in Europe, including employees at Stade, are represented by work councils typical for the relevant location. DCP considers its relationships with the employees, unions and work councils to be good.

 

64


Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE DOW CHLORINE PRODUCTS BUSINESS

Overview

DCP is a leading vertically-integrated producer of caustic soda, chlorine and related derivatives with businesses in chlor-alkali, epoxy and chlorinated organics products. DCP produces chlorine and sodium hydroxide (“caustic soda”), which together are referred to as “electrochemical units” or “ECUs”, at its plant locations in the U.S. Gulf Coast (“USGC”), which enjoy access to shale gas as a source of power and brine as a raw material. DCP monetizes these ECUs through merchant sales of caustic soda, chlorine and a broad spectrum of integrated downstream chlorine products and associated end uses. DCP operates in three strategic business segments: Chlor-Alkali and Vinyl (“CAV”), Global Epoxy (“Epoxy”) and Global Chlorinated Organics (“GCO”).

In the Transactions, TDCC will transfer certain assets and liabilities related to DCP, directly or indirectly, to a newly formed, direct, wholly-owned subsidiary of TDCC, Splitco, that was organized specifically for the purpose of effecting the Separation. In exchange, TDCC will receive additional shares of common stock of Splitco, the Special Payment as a dividend and the Splitco Securities to be used in the Debt Exchange (or cash in the amount of the Above Basis Amount if TDCC elects to receive a cash dividend from Splitco in lieu of the Splitco Securities). See “The Transactions.” Splitco has engaged in no business activities to date and it has no material assets or liabilities of any kind, other than those incident to its formation and those incurred in connection with the Transactions.

Separation of the Dow Chlorine Products Business from TDCC

On March 27, 2015, TDCC and Olin announced that they had entered into the Merger Agreement, and that TDCC and Splitco had entered into the Separation Agreement, which together provide for the combination of Olin’s business and DCP. The terms of the Transactions require TDCC, prior to the Distribution, to transfer DCP to Splitco and then distribute to TDCC shareholders all of the shares of Splitco common stock held by TDCC, through a spin-off or split-off, and then immediately merge Merger Sub with and into Splitco, whereby the separate corporate existence of Merger Sub will cease and Splitco will continue as the surviving company and a wholly-owned subsidiary of Olin in a tax efficient Reverse Morris Trust transaction. Immediately after the completion of the Merger, approximately 50.5 percent of the outstanding shares of Olin common stock is expected to be held by pre-Merger holders of Splitco common stock and approximately 49.5 percent of the outstanding shares of Olin common stock is expected to be held by pre-Merger holders of Olin common stock, assuming there is no Tag Event. Consummation of the Transactions is subject to approval by Olin shareholders and customary closing conditions, relevant tax authority rulings and regulatory approvals.

 

65


Table of Contents

Results of Operations

 

     For the years ended December 31,  
         2014              2013              2012      
     (in millions)  

Net sales—external

   $ 3,849       $ 3,637       $ 4,044   

Net sales—related party

     927         738         718   
  

 

 

    

 

 

    

 

 

 

Net Sales

  4,776      4,375      4,762   

Cost of sales

  4,573      4,257      4,350   

Research and development expenses

  34      51      54   

Selling, general and administrative expenses

  152      145      139   

Restructuring charges

            33   

Sundry expense (income)—net

  3      (2   1   

Interest expense

  13             
  

 

 

    

 

 

    

 

 

 

Income (Loss) Before Income Taxes

  1      (76   185   
  

 

 

    

 

 

    

 

 

 

Provision (benefit) for income taxes

  8      (27   39   
  

 

 

    

 

 

    

 

 

 

Net Income (Loss)

  (7   (49   146   
  

 

 

    

 

 

    

 

 

 

Net loss attributable to noncontrolling interests

  (5   (4   (5
  

 

 

    

 

 

    

 

 

 

Net Income (Loss) Attributable to DCP

$ (2 $ (45 $ 151   
  

 

 

    

 

 

    

 

 

 

Results of Operations—2014 Versus 2013

DCP’s net sales in 2014 were $4,776 million, up nine percent compared with net sales of $4,375 million in 2013. Net sales—external, which represents sales to third parties, was $3,849 million, up six percent. The increase in net sales—external was driven in large part by a substantial increase in sales of Epoxy products, reflecting actions taken to recapture customer demand lost in previous periods. Net sales—related party, which is comprised of sales to TDCC, rose 26 percent to $927 million. The increase in net sales—related party was driven by robust demand from TDCC, particularly in urethanes applications.

DCP’s cost of sales rose seven percent to $4,573 million in 2014. Cost of sales include purchased raw materials, utilities, salaries and wages, maintenance expenses, environmental services (e.g., wastewater treatment, waste disposal) and depreciation and amortization, among others. The increase in cost of sales compared with prior year resulted from higher production and sales volume, as well as higher unit costs of purchased raw materials, particularly propylene, benzene, and methanol. Higher prices for natural gas, a key feedstock for power production, and planned maintenance turnaround activity in the U.S. Gulf Coast also contributed to the increase. DCP was able to partially offset these higher costs with targeted spending reductions, as well as actions to increase sales volumes and drive higher operating rates.

DCP’s research and development expenses in 2014 were $34 million, down 33 percent from $51 million in 2013. The reduction in spending primarily reflects actions to streamline and reprioritize its innovation project pipeline, as well as cost management actions in response to lower sales volumes.

DCP’s selling, general and administrative expenses were $152 million in 2014, an increase of five percent as compared to 2013. This increase reflected typical year-over-year overhead inflation, as well as additional spending associated with management and operation of the JV Entity facility.

Interest expense in 2014 related to the debt financing of the JV Entity, which started up in early 2014. The JV Entity is a consolidated variable interest entity of DCP.

 

66


Table of Contents

Results of Operations—2013 Versus 2012

DCP’s net sales in 2013 were $4,375 million, down eight percent from net sales of $4,762 million in 2012. Net sales—external was $3,637 million, down 10 percent. The decline in net sales—external was predominantly driven by broad-based volume contraction resulting from substantial competitive pressures and soft industry fundamentals in the Epoxy segment. Net sales—related party increased three percent to $738 million primarily due to increased price.

DCP’s cost of sales in 2013 declined two percent versus 2012 to $4,257 million in 2013. Compared with prior year, the decline primarily reflected reduced sales volumes resulting from weak industry fundamentals and soft end-market conditions, particularly in the Epoxy segment. Despite the decrease in costs, DCP was not able to expand its profitability year-over-year, as the impact of declining sales volumes and lower operating rates was coupled with additional costs related to planned maintenance and turnaround spending, particularly in the CAV segment.

DCP’s research and development expenses were $51 million in 2013, down six percent versus 2012, primarily due to lower spending incurred for projects in the Epoxy segment.

DCP’s selling, general and administrative expenses were $145 million in 2013, up four percent versus 2012, due in part to additional spending associated with the administration of the JV Entity during its construction phase.

Income Taxes

During the periods presented, DCP did not file separate tax returns, as it was included in the tax returns of TDCC entities within the respective tax jurisdictions. The income tax provision (benefit) included in the historical financial statements was calculated using a separate return basis as if DCP were a separate taxpayer.

DCP’s tax rates for 2014, 2013 and 2012 were favorably impacted by earnings in foreign locations taxed at rates less than the U.S. statutory rate, which was partially offset by dividends repatriated to the United States. The tax rate was unfavorably impacted by the establishment of valuation allowances outside the United States, primarily in Brazil, Canada, China and Japan. These factors resulted in an effective tax rate of 35.7 percent for 2013 and 21.2 percent for 2012. The tax rate for 2014 was not meaningful.

Segment Analysis

 

     For the Years Ended December 31,  

Net Sales and EBITDA by Segment

   2014      2013      2012  
     (in millions)  

Segment:

        

Chlor-Alkali & Vinyl

   $ 1,432       $ 1,380       $ 1,470   

Global Epoxy

     2,872         2,503         2,768   

Global Chlorinated Organics

     472         492         524   
  

 

 

    

 

 

    

 

 

 

Total Net Sales

$ 4,776    $ 4,375    $ 4,762   
  

 

 

    

 

 

    

 

 

 

Segment:

Chlor-Alkali & Vinyl

$ 208    $ 73    $ 210   

Global Epoxy

  5      (38   77   

Global Chlorinated Organics

  22      37      57   
  

 

 

    

 

 

    

 

 

 

Total EBITDA (1)

$ 235    $ 72    $ 344   
  

 

 

    

 

 

    

 

 

 

 

  (1)

DCP defines EBITDA as earnings (i.e. “Net Income (Loss)”) before interest, income taxes, depreciation and amortization. EBITDA is a non-GAAP financial measure. DCP believes that this measure is meaningful to investors as a supplemental financial measure to assess the financial performance of its business. The use of non-GAAP financial measures is not intended

 

67


Table of Contents
  to replace any measures of performance determined in accordance with GAAP, and EBITDA as presented may not be comparable to similarly titled measures of other companies, limiting its usefulness as a comparative measure. As a result, this financial measure has limitations as an analytical and comparative tool, and you should not consider EBITDA in isolation, or as a substitute for DCP’s results as reported under GAAP. A reconciliation of EBITDA to “Income (Loss) Before Income Taxes” is provided below.

 

Reconciliation of EBITDA to “Income (Loss) Before Income Taxes”    For the Years Ended
December 31,
 
     2014      2013      2012  
     (in millions)  

EBITDA

   $ 235       $ 72       $ 344   

Depreciation and amortization

     221         148         159   

Interest expense and amortization of debt discount

     13                   
  

 

 

    

 

 

    

 

 

 

Income (Loss) Before Income Taxes

   $ 1       $ (76    $ 185   
  

 

 

    

 

 

    

 

 

 

Segment Results—2014 Versus 2013

CAV. Net sales in the CAV segment rose four percent in 2014 to $1,432 million as compared to 2013, driven by increased sales volume with TDCC, particularly for urethanes applications. This increase was partially offset by a reduction in global caustic soda pricing, resulting from greater supply as new production capacity came online in 2014. CAV reported lower vinyl chloride monomer (“VCM”) sales volume as a result of planned maintenance turnaround activity that limited production.

The CAV segment reported an increase in natural gas prices, which rose sharply year-over-year. CAV’s depreciation and amortization expense increased substantially due to the start-up of the JV Entity facility in early 2014. These increases were partly offset by a reduction in utilities expense in CAV related to the planned shutdown of a diaphragm caustic facility in the United States in the first quarter of 2014.

CAV’s EBITDA was $208 million in 2014, an increase of $135 million as compared to 2013. The increase was in part achieved through selected spending reductions, as well as higher sales volume, particularly with TDCC.

Epoxy. Net sales in the Epoxy segment rose sharply to $2,872 million in 2014, an increase of 15 percent versus 2013. This increase was primarily driven by increased sales volume, reflecting a focus on recapturing end-market share by leveraging low-cost position and scale.

Epoxy’s costs increased in 2014, in part reflecting higher production volumes and higher unit prices for hydrocarbon raw materials, particularly propylene and benzene. Higher natural gas prices led to higher cost chlorine and caustic soda.

Epoxy’s EBITDA was $5 million in 2014, up from a loss of $38 million in 2013. The increase in EBITDA was driven by disciplined expense control in response to soft industry fundamentals, as well as focused efforts to drive higher sales volumes.

GCO. Net sales for the GCO segment fell four percent to $472 million in 2014, mainly due to reduced sales volume following the closure of a chloromethanes plant in the United States at the end of 2013, upon which GCO exited two contractual relationships.

GCO’s costs increased in 2014, primarily as a result of the higher unit cost of purchased methanol raw material. Additionally, GCO received higher cost chlorine and caustic soda supplied internally by DCP’s CAV segment.

GCO’s EBITDA in 2014 was $22 million, down from $37 million in 2013, primarily due to challenging business conditions throughout the year, which resulted in soft demand and downward pressure on profit margins.

 

68


Table of Contents

Segment Results—2013 Versus 2012

CAV. The CAV segment’s net sales were $1,380 million in 2013, down six percent compared with 2012. This decline in net sales was primarily driven by lower sales of caustic soda resulting from two factors: (1) planned maintenance turnaround activity that limited availability of product for sales, and (2) reduced internal DCP demand for chlorine, which lowered the amount of associated caustic soda produced.

CAV’s costs increased as a result of higher planned maintenance turnaround spending, as well as higher natural gas costs used for power production and reduced downstream DCP demand resulting from soft industry conditions. These increases were partially offset by lower supply chain costs resulting from the end of a tolling relationship, and a decrease in freight costs due to lower caustic soda sales volume.

CAV’s EBITDA in 2013 was $73 million, down from $210 million in 2012. The decline in profitability was in part driven by the sales volume reductions in caustic soda, as well as soft internal DCP demand that led to reduced operating rates.

Epoxy. Net sales in the Epoxy segment were $2,503 million in 2013, down ten percent as compared to 2012. The sales reduction was the result of a broad-based volume contraction as Epoxy faced significant competitive pricing pressures stemming from industry oversupply, leading to a loss of end-market share.

The Epoxy segment reported increases in raw material costs, particularly propylene in the United States and benzene globally. These higher raw material costs were more than offset by the reduction in sales volumes.

Epoxy’s EBITDA was a loss of $38 million in 2013, a decline of $115 million compared with 2012. Epoxy’s decline in profitability was primarily driven by its downturn in sales volumes, reflecting the global competitive pressures and its end-market share losses.

GCO. GCO’s net sales in 2013 were $492 million, down six percent from 2012, reflecting deterioration in global pricing as industry conditions softened as a result of significant new capacity additions, predominantly in Asia Pacific, coupled with aggressive competitor behavior.

GCO’s costs fell as an increase in methanol raw material costs was more than offset by the reduction in sales volumes.

GCO’s EBITDA was $37 million in 2013, $20 million lower than 2012, as profitability was impacted by both higher raw material costs and the deterioration of global pricing.

Liquidity and Capital Resources

Globally, TDCC utilizes a centralized cash management system. Therefore, DCP cash requirements are provided by TDCC and affiliates. Cash generated by DCP is remitted directly to TDCC.

In connection with the Transactions, Splitco expects to incur new indebtedness. See “Debt Financing.”

In 2014, cash provided by operating activities of $223 million was more than sufficient to fund capital expenditures of $88 million.

Off-Balance Sheet Arrangements

DCP has no off-balance sheet arrangements.

 

69


Table of Contents

Quantitative and Qualitative Disclosures About Market Risk

DCP’s business operations give rise to market risk exposure due to changes in foreign exchange rates, interest rates, commodity prices and other market factors. TDCC monitors and manages these risks as an integral part of its overall risk management program. To manage such risks effectively, hedging transactions may be entered into, pursuant to established guidelines and policies to mitigate the adverse effects of financial market risk. No derivative instruments will be transferred to DCP as part of the Distribution.

Foreign Currency Risk

The global nature of DCP’s business introduces currency exposures. In addition to production facilities and operations located in different geographies, DCP has assets, liabilities and cash flows denominated in currencies other than the U.S. dollar. The primary objective of TDCC’s foreign exchange risk management is to optimize the U.S. dollar value of net assets and cash flows, keeping the adverse impact of currency movements to a minimum. Foreign currency exposure is due to non-dollar denominated inter-company loans resulting from the Distribution. In addition, there are U.S. dollar exposures on non-U.S. dollar functional companies located in Europe and Latin America derived from commercial activities. Where currency exposure is identified which has no natural offset, TDCC typically enters into hedging arrangements intended to mitigate the effects of currency fluctuations affecting current period earnings. Derivatives are utilized to do so and effective hedging relationships are pursued where an exposure requires a cash flow hedge. Management of Olin will define currency risk management strategies and policies after consummation of the Merger.

Commodity Risk

Inherent in DCP’s chlor-alkali business is exposure to price changes for several commodities. The main commodity exposure is related to changes in the market price of natural gas. The natural gas exposure stems primarily from energy consumption and generation. Physical and financial instruments are, at times, used to hedge these commodity market risks, when feasible. Derivatives utilized may vary in tenor depending on the hedging horizon and market liquidity for specific exposures. Management of Olin will define commodity risk management strategies and policies after consummation of the Merger.

Interest Rate Risk

DCP’s primary exposure is to the U.S. dollar yield curve. Through the consolidation of the JV Entity as a variable-interest entity, DCP has long-term project finance debt exposure outstanding of $553 million, the vast majority of which is floating rate debt. The small portion of fixed rate debt, which totals $10 million, has an estimated duration of 8.5 years. Management of Olin will define interest rate risk management strategies and policies after consummation of the Merger.

Contractual Obligations

DCP has various commitments for take-or-pay and throughput agreements. These commitments are at prices not in excess of current market prices. The remaining terms for all agreements extend from one to nine years. The fixed and determinable future commitments at December 31, 2014 are included in the following table:

 

Fixed and Determinable Portion of Take-or-Pay
and Throughput Obligations at December 31, 2014

 
(in millions)  

2015

   $ 7   

2016

     5   

2017

     36   

2018

     36   

2019

     33   

2020 and beyond

     260   
  

 

 

 

TOTAL

$ 377   

 

70


Table of Contents

The combined balance sheet of DCP at December 31, 2014 includes $606 million of debt of the JV Entity, a consolidated variable interest entity, which is non-recourse to DCP.

Critical Accounting Estimates

The preparation of financial statements and related disclosures in accordance with GAAP requires management to make judgments, assumptions and estimates that affect the amounts reported in the combined financial statements and accompanying notes. Note 2 to the combined financial statements of DCP included elsewhere in this document describes the significant accounting policies and methods used in the preparation of the combined financial statements. The following are DCP’s critical accounting policies impacted by judgments, assumptions and estimates.

Allocations

The combined statements of income (loss) and comprehensive income (loss) include allocations of certain expenses for services including, but not limited to, general corporate expenses related to finance, legal, information technology, human resources, ethics and compliance, shared services, employee benefits and incentives, insurance and stock-based compensation. These expenses have been allocated on the basis of direct usage when identifiable with the remainder allocated on the basis of headcount or other measures. DCP considers the basis on which the expenses have been allocated to be a reasonable reflection of the utilization of services provided. The allocations may not, however, reflect the expense DCP would have incurred as a stand-alone company. Actual costs that may have been incurred if DCP were a stand-alone company would depend on a number of factors including DCP’s chosen organizational structure, what functions were outsourced or performed by DCP employees and strategic decisions made in areas such as information technology and infrastructure.

Environmental Matters

The costs of environmental remediation of facilities are determined based on evaluations of current law and existing technologies. Inherent uncertainties exist in such evaluations primarily due to unknown environmental conditions, changing governmental regulations and legal standards regarding liability, and emerging remediation technologies. The recorded liabilities are adjusted periodically as remediation efforts progress, or as additional technical or legal information becomes available. At December 31, 2014, DCP had accrued obligations of $64 million for probable environmental remediation and restoration costs, which represents management’s best estimate of the costs for remediation and restoration with respect to environmental matters for which DCP has accrued liabilities, although it is reasonably possible that the ultimate cost with respect to these particular matters could range up to approximately one and a half times that amount. For further discussion, see Note 11 to the combined financial statements of DCP included elsewhere in this document.

Pension and Other Postretirement Benefits

A majority of DCP employees participate in various defined benefit pension and other postretirement plans administered and sponsored by TDCC. The pension and other postretirement benefit obligations and net service costs of TDCC’s plans are determined from actuarial valuations. Inherent in these valuations are assumptions including expected return on plan assets, discount rates at which the liabilities could have been settled at December 31, 2014, rate of increase in future compensation levels, mortality rates and health care cost trend rates. These assumptions are updated annually. The combined financial statements reflect periodic pension and postretirement costs as if they were multi-employer plans. Costs associated with the pension and other postretirement plans were allocated based on DCP employees’ proportionate share of costs for the respective Dow plans in which they participate. For further discussion, see Note 12 to the combined financial statements of DCP included elsewhere in this document.

Income Taxes

DCP did not file separate tax returns as it was included in the tax returns of Dow entities within the respective tax jurisdictions. The income tax provision and related balance sheet amounts included in the

 

71


Table of Contents

combined financial statements of DCP included elsewhere in this document were calculated using a separate return basis as if DCP were a separate taxpayer. The provision for income taxes has been determined using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences of temporary differences between the carrying amounts and tax bases of assets and liabilities using enacted rates. The effect of a change in tax rates on deferred tax assets is recognized in income in the period that includes the enactment date.

Deferred taxes are not provided on the unremitted earnings of subsidiaries outside of the United States when it is expected that these earnings will be permanently reinvested. Annual tax provisions include amounts considered sufficient to pay assessments that may result from examinations of prior year tax returns; however, the amount ultimately paid upon resolution of issues raised may differ from the amounts accrued.

The financial statement effect of an uncertain income tax position is recognized when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. Accruals are recorded for other tax contingencies when it is probable that a liability to a taxing authority has been incurred and the amount of the contingency can be reasonably estimated. For further information, see Note 17 to the combined financial statements of DCP included elsewhere in this document.

 

72


Table of Contents

SELECTED HISTORICAL FINANCIAL DATA

The following selected historical combined financial data of the Dow Chlorine Products Business, selected historical consolidated financial data of Olin, unaudited pro forma combined financial data of Olin and the Dow Chlorine Products Business, comparative historical and pro forma per share data of Olin, historical common stock market price data and Olin dividend policy information are being provided to help you in your analysis of the financial aspects of the Transactions. You should read this information in conjunction with the financial information included elsewhere and incorporated by reference in this document. See “Where You Can Find More Information; Incorporation by Reference,” “Information on the Dow Chlorine Products Business,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations for the Dow Chlorine Products Business,” “Information on Olin” and the audited financial statements of each of Olin and the Dow Chlorine Products Business incorporated by reference and included elsewhere in this document, respectively.

Selected Historical Combined Financial Data of the Dow Chlorine Products Business

Splitco is a newly formed holding company organized for the purpose of holding DCP and consummating the Transactions. The data below as of December 31, 2014 and 2013 and for the three years in the period ending December 31, 2014 have been derived from the audited combined financial statements included elsewhere in this document. The data below as of December 31, 2012 has been derived from the audited combined balance sheet not included or incorporated by reference in this document. The data below as of December 31, 2011 and 2010 and for each of the years ending December 31, 2011 and 2010 have been derived from unaudited combined financial information not included or incorporated by reference in this document. The selected historical consolidated financial data presented below is not necessarily indicative of the results of operations or financial condition that may be expected for any future period or date. This information is only a summary and you should read the table below in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations for the Dow Chlorine Products Business” and the combined financial statements of DCP and the notes thereto included elsewhere in this document. The historical financial statements of DCP reflect the business as it was operated within TDCC. While substantially all of DCP is being transferred in the Transactions, the historical financial statements should be read in conjunction with the Unaudited Pro Forma Condensed Combined Financial Statements of Olin and the Dow Chlorine Products Business, which include adjustments for the impact of the Transactions.

 

     As of and for the Years Ended December 31,  
     2014     2013     2012      2011     2010  
     (in millions)  
                        (unaudited)     (unaudited)  

Results of Operations Data

           

Net sales

   $ 4,776      $ 4,375      $ 4,762       $ 4,950      $ 4,460   

Net income (loss)

   $ (7   $ (49   $ 146       $ (23   $ (185

Balance Sheet Data

           

Total assets

   $ 2,275      $ 2,438      $ 2,553       $ 2,140      $ 1,861   

Long-term debt(1)

   $ 553      $ 578      $ 499       $ 184      $   

 

(1) Consists of debt of the JV Entity, which is non-recourse to DCP.

 

 

73


Table of Contents

Selected Historical Consolidated Financial Data of Olin

The following selected historical consolidated financial data of Olin as of and for the years ended December 31, 2014, 2013 and 2012 has been derived from Olin’s audited consolidated financial statements incorporated by reference in this document. The selected historical consolidated financial data of Olin as of and for the years ended December 31, 2011 and 2010 has been derived from Olin’s audited consolidated financial statements which are not included in or incorporated by reference in this document. Since February 28, 2011, the selected historical consolidated financial data of Olin reflects the acquisition of the remaining 50 percent of the SunBelt Chlor Alkali Partnership. Since August 22, 2012, the selected historical consolidated financial data of Olin reflects the acquisition of KA Steel. The selected historical consolidated financial data presented below is not necessarily indicative of the results of operations or financial condition that may be expected for any future period or date. You should read the table below in conjunction with the financial statements of Olin and the notes thereto and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section contained in Olin’s Annual Report on Form 10-K for the year ended December 31, 2014 which is incorporated by reference in this document. See “Where You Can Find More Information; Incorporation by Reference.”

 

     As of and for the Years Ended December 31,  
     2014     2013     2012     2011     2010  
     (in millions, except per share data)  

Results of Operations Data

  

Sales

   $ 2,241      $ 2,515      $ 2,185      $ 1,961      $ 1,586   

Cost of goods sold

     1,853        2,034        1,748        1,574        1,350   

Selling and administration

     170        190        177        161        134   

Restructuring charges

     (16     (6     (9     (11     (34

Other operating income

     2        1        8        9        2   

Earnings of non-consolidated affiliates

     2        3        3        10        30   

Interest expense

     44        39        26        30        25   

Interest and other income (expense)

     1               (10     176        2   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before taxes from continuing operations

  163      250      226      380      77   

Income tax provision

  58      71      76      138      12   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations

  105      179      150      242      65   

Discontinued operations, net

  1                       
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

$ 106    $ 179    $ 150    $ 242    $ 65   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance Sheet Data

Cash and cash equivalents, short-term investments and restricted cash

$ 257    $ 312    $ 177      357      561   

Working capital, excluding cash and cash equivalents and short-term investments

  182      125      150      76      33   

Property, plant and equipment, net

  931      988      1,034      885      675   

Total assets

  2,698      2,803      2,778      2,450      2,049   

Capitalization

Short-term debt

  16      13      24      12      78   

Long-term debt

  659      678      690      524      418   

Shareholders’ equity

  1,013      1,101      998      986      830   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total capitalization

$ 1,688    $ 1,792    $ 1,712    $ 1,522    $ 1,326   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

74


Table of Contents
     2014     2013     2012     2011     2010  

Per Share Data

        

Basic

        

Continuing operations

   $ 1.33      $ 2.24      $ 1.87      $ 3.02      $ 0.82   

Discontinued operations, net

     0.01                               
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

$ 1.34    $ 2.24    $ 1.87    $ 3.02    $ 0.82   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

Continuing operations

$ 1.32    $ 2.21    $ 1.85    $ 2.99    $ 0.81   

Discontinued operations, net

  0.01                       
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

$ 1.33    $ 2.21    $ 1.85    $ 2.99    $ 0.81   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Common cash dividends

$ 0.80    $ 0.80    $ 0.80    $ 0.80    $ 0.80   

Other Data

Capital expenditures

$ 72    $ 91    $ 256    $ 201    $ 85   

Depreciation and amortization

  138      135      111      99      87   

Current ratio

  2.2      2.1      1.7      2.0      2.3   

Total debt to total capitalization

  40.0   38.6   41.7   35.2   37.4

Average common shares outstanding—diluted

  79.7      80.9      81.0      80.8      79.9   

 

75


Table of Contents

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS OF OLIN AND THE DOW CHLORINE PRODUCTS BUSINESS

The following unaudited pro forma condensed combined financial statements present the combination of the historical financial statements of Olin and DCP, adjusted to give effect to: (1) the Merger and (2) the other Transactions.

The unaudited pro forma condensed combined statement of operations for the fiscal year ended December 31, 2014 combines the historical consolidated statement of operations of Olin and the historical combined statement of loss for DCP, giving effect to the Merger and the other Transactions as if they had been consummated on January 1, 2014, the beginning of the earliest period presented. The unaudited pro forma condensed combined balance sheet combines the historical condensed consolidated balance sheet of Olin and the historical condensed combined balance sheet of DCP as of December 31, 2014, giving effect to the Merger and the other Transactions as if they had been consummated on December 31, 2014.

The unaudited pro forma condensed combined financial statements were prepared using the acquisition method of accounting with Olin considered the acquirer of DCP. Under the acquisition method of accounting, the purchase price is allocated to the underlying tangible and intangible assets acquired and liabilities assumed based on their respective fair values, with any excess purchase price allocated to goodwill. The pro forma purchase price allocation was based on a preliminary estimate of the fair values of the tangible and intangible assets and liabilities of DCP. In arriving at the estimated fair values, Olin has considered the preliminary appraisals of independent consultants which were based on a preliminary and limited review of the assets and liabilities related to DCP to be transferred to, or assumed by, Splitco in the Transactions. Following the effective date of the Merger, Olin expects to complete the purchase price allocation after considering the fair value of DCP’s assets and liabilities at the level of detail necessary to finalize the required purchase price allocation. The final purchase price allocation may be different than that reflected in the pro forma purchase price allocation presented herein, and this difference may be material.

The historical combined financial statements of DCP have been “carved-out” from TDCC’s consolidated financial statements and reflect assumptions and allocations made by TDCC. DCP’s historical combined financial statements include all revenues, costs, assets and liabilities that are directly attributable to DCP. In addition, certain expenses reflected in DCP’s combined financial statements are an allocation from TDCC. Such expenses include, but are not limited to, general corporate expenses related to finance, legal, information technology, human resources, ethics and compliance, shared services, employee benefits and incentive, insurance and stock-based compensation. The actual costs that may have been incurred if DCP had been a stand-alone company would depend on a number of factors, including the chosen organizational structure and strategic decisions made as to information technology and infrastructure requirements. As such, DCP’s combined financial statements do not necessarily reflect what DCP’s financial condition and results of operations would have been had DCP operated as a stand-alone company during the period or at the date presented.

The unaudited pro forma condensed combined financial statements do not reflect the costs of any integration activities or benefits that may result from realization of approximately $200 million of annualized cost synergies expected to be realized within three years following the consummation of the Transactions, or, if Olin is able to increase sales to new third-party customers and access new product markets as a result of the Transactions, the potential additional annualized synergies of up to $100 million that Olin estimates may potentially be achievable within three years from the consummation of the Transactions. Olin expects to incur approximately $100 to $150 million in transition-related costs and approximately $200 million in incremental capital spending during the first three years following the consummation of the Transactions that Olin management believes are necessary to realize the anticipated synergies from the Transactions.

The unaudited pro forma adjustments are based upon current available information and assumptions that Olin believes to be reasonable. The pro forma adjustments and related assumptions are described in the accompanying notes presented on the following pages.

 

76


Table of Contents

The unaudited pro forma condensed combined financial statements are for informational purposes only and are not intended to represent or to be indicative of the actual results of operations or financial position that the combined Olin and DCP would have reported had the Transactions been completed as of the dates set forth in the unaudited pro forma condensed combined financial statements and should not be taken as being indicative of Olin’s future consolidated results of operations or financial position. The actual results may differ significantly from those reflected in the unaudited pro forma condensed combined financial statements for a number of reasons, including, but not limited to, differences between the assumptions used to prepare the unaudited pro forma condensed combined financial statements and actual amounts. As a result, the pro forma combined information does not purport to be indicative of what the financial condition or results of operations would have been had the Transactions been completed on the applicable dates of the unaudited pro forma condensed combined financial statements.

The unaudited pro forma condensed combined financial statements, including the notes thereto, should be read in conjunction with:

 

    the accompanying notes to the unaudited pro forma condensed combined financial statements;

 

    Olin’s audited historical consolidated financial statements and related notes as of and for the year ended December 31, 2014, which are incorporated by reference in this document; and

 

    DCP’s audited historical combined financial statements and related notes as of and for the year ended December 31, 2014, which are included elsewhere in this document.

 

77


Table of Contents

Unaudited Pro Forma Condensed Combined Balance Sheet

As of December 31, 2014

 

     Historical              
     Olin
Corporation
    Dow Chlorine
Products
Business
     Pro forma
adjustments
    Note 3    Pro forma
condensed
combined
 
     (in millions)  

Current assets

            

Cash and cash equivalents

   $ 257      $       $      A    $ 257   

Receivables, net

            

Trade

     242        175         (4   B      413   

Other

     21        16                   37   

Income taxes receivable

     22                          22   

Inventories

     210        354         75      C      639   

Current deferred income taxes

     54        23         (14   D      63   

Restricted cash

            20                   20   

Other current assets

     10                          10   
  

 

 

   

 

 

    

 

 

      

 

 

 

Total current assets

  816      588      57      1,461   

Property, plant and equipment, net

  931      1,613      1,900    E   4,444   

Intangibles, net

  124      3      1,269    F   1,396   

Deferred income taxes

  13      1      (1 D   13   

Other assets

  67      14      19    H   100   

Goodwill

  747      56      2,096    G   2,899   
  

 

 

   

 

 

    

 

 

      

 

 

 

Total assets

$ 2,698    $ 2,275    $ 5,340    $ 10,313   
  

 

 

   

 

 

    

 

 

      

 

 

 

Current liabilities

Current installments of long-term debt

  16      53      1,572    H $ 1,641   

Accounts payable

  147      380      (5 I   522   

Income taxes payable

       29      (29 D     

Current deferred income taxes

            25    D   25   

Accrued liabilities

  215      65      (55 J   225   
  

 

 

   

 

 

    

 

 

      

 

 

 

Total current liabilities

  378      527      1,508      2,413   

Long-term debt

  659      553      1,006    H   2,218   

Accrued pension liability

  182           516    K   698   

Deferred income taxes

  107      93      840    D   1,040   

Other liabilities

  359      144      (142 L   361   
  

 

 

   

 

 

    

 

 

      

 

 

 

Total liabilities

  1,685      1,317      3,728      6,730   

Commitments and contingencies

Noncontrolling interest

            207    M   207   
  

 

 

   

 

 

    

 

 

      

 

 

 

Shareholders’ equity

Common stock

  77           81    N   158   

Additional paid-in capital

  788           2,338    N   3,126   

Accumulated other comprehensive (loss) income

  (443   29      5    N   (409

Retained earnings

  591           (90 N   501   

Net parent investment

       809      (809 N     
  

 

 

   

 

 

    

 

 

      

 

 

 

Total shareholders’ equity

  1,013      838      1,525    N   3,376   
  

 

 

   

 

 

    

 

 

      

 

 

 

Noncontrolling Interest

       120      (120 M     
  

 

 

   

 

 

    

 

 

      

 

 

 

Total combined shareholders’ equity

  1,013      958      1,405      3,376   
  

 

 

   

 

 

    

 

 

      

 

 

 

Total liabilities and shareholders’ equity

$ 2,698    $ 2,275    $ 5,340    $ 10,313   
  

 

 

   

 

 

    

 

 

      

 

 

 

See accompanying notes to the unaudited pro forma condensed combined financial statements.

 

78


Table of Contents

Unaudited Pro Forma Condensed Combined Statement of Operations

For the Year Ended December 31, 2014

 

     Historical               
     Olin
Corporation
     Dow Chlorine
Products
Business
    Pro Forma
Adjustments
    Note 4      Pro Forma
Condensed
Combined
 
     (in millions, except per share data)  

Sales

   $ 2,241       $ 4,776      $ (69     O       $ 6,948   

Operating expenses

            

Cost of goods sold

     1,853         4,573        (66     P         6,360   

Selling and administration

     170         186        (20     Q         336   

Restructuring charges

     16                          16   

Other operating income (loss)

     2         (3               (1
  

 

 

    

 

 

   

 

 

      

 

 

 

Operating income (loss)

  204      14      17      235   

Earnings of non-consolidated affiliates

  2                2   

Interest expense

  44      13      142      R      199   

Interest income

  1                1   
  

 

 

    

 

 

   

 

 

      

 

 

 

Income (loss) from continuing operations before taxes

  163      1      (125   39   

Income tax provisions

  58      8      (46   S      20   
  

 

 

    

 

 

   

 

 

      

 

 

 

Income (loss) from continuing operations

$ 105    $ (7 $ (79 $ 19   

Net income (loss) from continuing operations attributable to non-controlling interests

       (5        (5
  

 

 

    

 

 

   

 

 

      

 

 

 

Net income (loss) from continuing operations attributable to the business

$ 105    $ (2 $ (79 $ 24   
  

 

 

    

 

 

   

 

 

      

 

 

 

Net income per common share attributable to the business

Basic

$ 1.33              $ 0.15   

Diluted

$ 1.32              $ 0.15   

Average common shares outstanding

Basic

  78.6           80.6      T      159.2   

Diluted

  79.7           80.6      T      160.3   

See accompanying notes to the unaudited pro forma condensed combined financial statements.

 

79


Table of Contents

Olin Corporation and Subsidiaries

Notes to the Unaudited Pro Forma Condensed

Combined Financial Statements

Note 1. Basis of Presentation

The accompanying unaudited pro forma condensed combined financial statements were prepared in accordance with Article 11 of Regulation S-X and present the pro forma combined financial position and results of operations of Olin based upon the historical financial statements of each of Olin and DCP, after giving effect to the Merger and the other Transactions, and are intended to reflect the impact of the Merger and the other Transactions on Olin’s consolidated financial statements. The accompanying unaudited pro forma condensed combined financial statements have been prepared using, and should be read in conjunction with, the respective audited consolidated or combined (as the case may be) financial statements of each of Olin and DCP as of and for the fiscal year ended December 31, 2014. Assumptions and estimates underlying the pro forma adjustments are described in these notes. Since the accompanying unaudited pro forma condensed combined financial statements have been prepared based upon preliminary estimates and assumptions, the final amounts recorded at the date of consummation of the Transactions may be different from that presented, and this difference may be material.

The accompanying unaudited pro forma condensed combined financial statements are presented for illustrative purposes only and do not purport to be indicative of the actual results that would have been achieved by Olin if the Transactions had been consummated for the periods presented or that will be achieved in the future. The unaudited pro forma condensed combined financial statements do not reflect the costs of any integration activities or benefits that may result from realization of synergies expected to result from the Transactions. In addition, throughout the period presented in the unaudited pro forma condensed combined financial statements, the operations of DCP were conducted and accounted for as part of TDCC. DCP’s audited condensed financial statements have been derived from TDCC’s historical accounting records and reflect certain allocations of direct costs and expenses. All of the allocations and estimates in such financial statements are based on assumptions that the management of TDCC believes are reasonable. In the opinion of management, the unaudited pro forma condensed combined financial statements include all normal and recurring adjustments that are considered necessary for the fair presentation of the results for the period presented. DCP’s financial statements do not necessarily represent the financial position of DCP had it been operated as a stand-alone company during the period or at the date presented.

The unaudited pro forma condensed combined statement of operations combines the historical consolidated statement of operations of Olin and the historical combined statement of income (loss) of DCP for the year ended December 31, 2014, giving effect to the Merger and the other Transactions as if they had been consummated on January 1, 2014. The unaudited pro forma condensed combined balance sheet combines the historical condensed consolidated balance sheet of Olin and the historical condensed combined balance sheet of DCP as of December 31, 2014, giving effect to the Merger and the other Transactions and adjustments described in these notes, as if the Transactions had been consummated on December 31, 2014.

The unaudited pro forma condensed combined financial statements were prepared using the acquisition method of accounting with Olin considered the acquirer of DCP. The audited historical combined financial statements of DCP have been adjusted to reflect certain reclassifications in order to conform to Olin’s financial statement presentation.

Note 2. Purchase Price Allocation

The unaudited pro forma condensed combined balance sheet has been adjusted to reflect the allocation of the preliminary estimated purchase price to identifiable assets to be acquired and liabilities to be assumed, with the excess recorded as goodwill. The final purchase price allocation may be different than that reflected in the pro forma purchase price allocation presented herein, and this difference may be material. The purchase price allocation in these unaudited pro forma condensed combined financial statements is based upon an estimated

 

80


Table of Contents

purchase price of approximately $5,672 million. This amount was derived in accordance with the Merger Agreement, as described further below, based on the closing price of Olin common stock on April 29, 2015 and 80,586,207 shares of Olin common stock being issued in the Merger, assuming there is no Tag Event, and is subject to adjustment based on Splitco’s working capital in accordance with the terms of the Separation Agreement, as described under “Separation Agreement—Working Capital Adjustment.”

The following table represents the preliminary estimate of the purchase price to be paid in the Merger ($ in millions, except per share data):

 

New shares issued (par value $1) (1)

  80.6   

Closing price of Olin common stock on April 29, 2015

$ 30.02   
  

 

 

 

Stock consideration transferred

  2,419   

Cash and debt instruments to be received by TDCC

  2,030   

Up-front payments under the Ethylene Agreement

  393   
  

 

 

 

Consideration to be transferred

$ 4,842   
  

 

 

 

Debt assumed (50% of projected indebtedness of the JV Entity) (1)

  272   

Pension liabilities assumed (U.S. and German)

  558   
  

 

 

 

Total purchase price

$ 5,672   
  

 

 

 

 

  (1) Assumes there is no Tag Event.

The actual value of the Olin common stock to be issued in the Merger will depend on the market price of shares of Olin common stock at the closing date of the Merger, and therefore the actual purchase price will fluctuate with the market price of Olin common stock until the Merger is consummated. The value of the Olin common stock to be issued in the Merger will also depend on whether a Tag Event has occurred. As a result, the final purchase price could differ significantly from the current estimate, which could materially impact the unaudited pro forma condensed combined financial statements. A 10% difference in Olin’s stock price would change the purchase price by approximately $242 million, with a corresponding change to goodwill. A 20% difference in Olin’s stock price would change the purchase price by approximately $484 million, with a corresponding change to goodwill.

The assumption of the U.S. and German pension liabilities reflects the maximum U.S. net pension liability that TDCC may transfer to Olin on the closing date of the Merger based on the Employee Matters Agreement. This amount is subject to uncertainty as TDCC may elect to transfer less than $400 million of U.S. pension liability. If TDCC transfers less than $400 million in net pension liability at the closing date, Olin is obligated to pay TDCC an amount in cash equal to the product of (x) and (y), where (x) equals (1) $400 million minus (2) the net pension liability transferred and (y) equals 0.5. This means if TDCC does not transfer any liability, Olin would be required to pay $200 million in cash consideration. As a result, the final purchase price could differ from the current estimate, which could impact the unaudited pro forma condensed combined financial statements.

 

81


Table of Contents

The preliminary estimated purchase price is allocated as follows ($ in millions):

 

Total current assets

$ 645   

Property, plant and equipment, net

  3,513   

Intangible assets

  1,272   

Other assets

  14   
  

 

 

 

Total assets acquired

  5,444   

Total current liabilities

  485   

Long-term debt

  553   

Accrued pension liabilities

  558   

Deferred income taxes

  933   

Other liabilities

  18   
  

 

 

 

Total liabilities assumed

  2,547   
  

 

 

 

Net identifiable assets acquired

  2,897   

Fair value of noncontrolling interest

  207   

Goodwill

  2,152   
  

 

 

 

Total consideration to be transferred

$ 4,842   
  

 

 

 

Note 3. Balance Sheet Adjustments

The unaudited pro forma condensed combined balance sheet reflects the following adjustments ($ in millions):

 

  (A) Cash and cash equivalents were adjusted as follows:

 

Payment of non-qualified pension plans and deferred compensation (1)

$ (96

Expected transaction costs (2)

  (40

Special Payment to TDCC (3)

  (875

Up-front payments under the Ethylene Agreement (4)

  (393

Olin Term Loan repayment (5)

  (149

Debt issuance costs (5)

  (19

Bridge Facility (5)

  1,572   
  

 

 

 

Total pro forma adjustment to cash and cash equivalents

$   

 

  (1) Represents the payment of Olin liabilities associated with the non-qualified pension plans and the deferred compensation plan in the form of benefits to participants. The plans with which these payments are associated will be terminated as a result of the Transactions, which, if consummated, will trigger a change in control under these plans and require the payment of benefits.
  (2) Expected transaction costs are expenses that Olin expects to incur prior to the consummation of the Transactions in connection with the Transactions for advisory, legal, accounting and other professional fees.
  (3) Represents the Special Payment that Splitco will pay to TDCC in the amount of the Below Basis Amount. The amount of the Special Payment is subject to increase or decrease if elected by TDCC in accordance with the terms of the Separation Agreement.
  (4) Reflects $393 million in up-front payments expected to be made upon consummation of the Transactions pursuant to the Ethylene Agreement, assuming Olin exercises its option for additional ethylene supply under the Ethylene Agreement. The Ethylene Agreement is a 20-year long-term capacity rights agreement for the supply of ethylene by TDCC at integrated producer economics.
  (5) For a discussion of the Olin term loan repayment and the Bridge Facility, see Note 5, Financing Adjustments, below.

 

  (B) Trade and other receivables were adjusted as follows:

 

Excluded assets (1)

$     (4)   
  

 

 

 

Total pro forma adjustment to excluded assets

$     (4)   

 

  (1) Represents certain trade receivables included in DCP’s historical balance sheet which will not be transferred under the Separation Agreement.

 

82


Table of Contents
  (C) Inventories were adjusted as follows:

 

Preliminary fair value adjustment (1)

$    75   
  

 

 

 

Total pro forma adjustment to inventories

$    75   

 

  (1) Represents the estimated fair value adjustment to DCP’s inventory of $75 million based upon a preliminary fair value estimate of $429 million. This amount has not been reflected as a pro forma adjustment in the unaudited pro forma condensed combined statement of operations.

 

  (D) Deferred taxes and income taxes payable were adjusted as follows (1):

 

Current portion of deferred tax assets

Environmental liabilities that will not be assumed

$ (4

Pension liabilities adjustments

  (9

Reclassification of deferred taxes

  (1
  

 

 

 

Reduction to current deferred income tax assets

  (14 ) 

Income taxes payable

Elimination of liability that will not be assumed

  (29
  

 

 

 

Reduction to income taxes payable

  (29

Current portion of deferred tax liability

Inventory fair value adjustment

  25   
  

 

 

 

Increase to current deferred income tax liability

  25   

Non-current portion of deferred tax asset

Investment of foreign earnings that will not be assumed

  (1
  

 

 

 

Reduction to non-current deferred income tax assets

  (1

Non-current portion of deferred tax liability

Identifiable intangible assets fair value adjustment

  289   

Property, plant and equipment fair value adjustment

  619   

Domestic pension liabilities that will be assumed

  (156

Foreign pension liabilities that will be assumed

  (47

Pension liabilities adjustments

  16   

Environmental liabilities that will not be assumed

  18   

Net operating losses and tax credit carryforwards that will not be retained

  237   

Removal of valuation allowances

  (90

Goodwill that will not be retained

  (6

Investment of foreign earnings that will not be assumed

  (37

Reclassification of deferred taxes

  (3
  

 

 

 

Increase to non-current deferred income tax liabilities

$ 840   

 

  (1) Reflects an adjustment to deferred tax assets and liabilities representing a blended global statutory rate of 36.8% multiplied by either (i) the preliminary fair value adjustments made to the assets to be acquired and liabilities to be assumed, excluding goodwill, or (ii) the applicable pro forma adjustments to related assets and liabilities that will or will not be assumed by the combined company included herein. For purposes of these unaudited pro forma condensed financial statements, a global blended statutory tax rate of 36.8% has been used. This does not reflect Olin’s expected effective tax rate, which will include other tax charges and benefits, and does not take in to account any historical or possible future tax events that may impact Olin following the consummation of the Transactions.

 

83


Table of Contents
  (E) Property, plant and equipment, net were adjusted as follows:

 

Included/excluded assets (1)

$ 14   

Preliminary fair value adjustment (2)

  1,886   
  

 

 

 

Total pro forma adjustment to property, plant and equipment, net

$ 1,900   

 

  (1) To adjust certain assets included in DCP’s historical balance sheet to align with what is being transferred in accordance with the Separation Agreement. This adjustment includes additional assets being transferred that were not reflected in the condensed combined financial statements of DCP, net of certain assets that will not be transferred.
  (2) Represents the estimated fair value adjustment to DCP’s property, plant and equipment of $1,886 million based upon a preliminary fair value estimate of $3,513 million. For purposes of determining the impact on the unaudited pro forma condensed combined statement of operations, the fair value of property, plant and equipment is being depreciated over an estimated remaining weighted-average useful life of 14 years.

 

  (F) Intangibles, net were adjusted as follows:

 

Preliminary fair value adjustment (1)

$ 1,272   

Elimination of DCP historical intangibles

  (3
  

 

 

 

Total pro forma adjustment to intangibles, net

$ 1,269   

 

  (1) The preliminary fair value adjustment is the estimated intangible assets attributable to the Transactions and is comprised of the following:

 

  Estimated
Fair Value
  Estimated
Useful Life
  Weighted
Average
Useful Life
 

Developed Technologies (a)

   $ 152         7      

Customer Relationships (b)

     727         15      

Up-front payments under the Ethylene Agreement (c)

     393         20      
  

 

 

       

Total intangibles

$ 1,272      15   

 

  (a) The estimated fair value for this pro forma presentation for technology was measured using the relief-from-royalty method. Developed technology reflects the entire portfolio of patents to be transferred to Splitco. This method assumes the technology has value to the extent that the owner is relieved of the obligation to pay royalties for the benefits received from them. Significant assumptions required to develop estimates using this method are revenue growth rates for similar developed technology, the appropriate royalty rate, an appropriate discount rate and obsolescence of technology.
  (b) The estimated fair values for this pro forma presentation for customer relationships were measured using the multi-period excess earnings method. This principle behind the multi-period excess earnings method is that the value of an intangible is equal to the present value of the incremental after-tax cash flows attributable to the subject intangible asset, after taking charges for the use of other assets employed by the business. Significant assumptions required for this method are revenue growth rates and probability related to customers, customer attrition rates, contributory asset charges and an appropriate discount rate.
  (c) The estimated fair value for this pro forma presentation for the up-front payments under the Ethylene Agreement was $393 million, which is the up-front payments that are expected to be made upon consummation of the Transactions pursuant to the Ethylene Agreement, assuming Olin exercises its option for additional ethylene supply under the Ethylene Agreement. The Ethylene Agreement is a 20-year long-term capacity rights agreement for the supply of ethylene by TDCC at integrated producer economics.

 

  (G) Goodwill was adjusted as follows:

 

Estimated transaction goodwill (1)

$ 2,152   

Elimination of DCP historical goodwill

  (56
  

 

 

 

Total pro forma adjustment to goodwill

$ 2,096   

 

  (1) Reflects the preliminary adjustment to goodwill. The significant goodwill resulting from the Transactions is primarily due to the combination of Olin and DCP providing increased production capacity and diversification of Olin’s product portfolio and enhanced size and geographic presence. The cost-saving opportunities include improved operating efficiencies and asset optimization.

 

84


Table of Contents
  (H) Other assets, current installments of long-term debt and long-term debt was adjusted as described below in Note 5, Financing Adjustments.

 

  (I) Accounts payable were adjusted as follows:

 

Excluded liabilities (1)

$  (5
  

 

 

 

Total pro forma adjustment to accounts payable

$ (5

 

  (1) To adjust certain liabilities included in DCP’s historical balance sheet to align with what is being assumed in accordance with the Separation Agreement.

 

  (J) Accrued liabilities were adjusted as follows:

 

Excluded liabilities (1)

$  (33

Payment of non-qualified pension plans (2)

  (22
  

 

 

 

Total pro forma adjustment to accrued liabilities

$ (55

 

  (1) To adjust certain liabilities included in DCP’s historical balance sheet to align with what is being assumed in accordance with the Separation Agreement. Certain environmental, legal and other liabilities relating to periods prior to the closing date of the Merger will be retained by TDCC in accordance with the Separation Agreement.
  (2) Represents the payment of Olin liabilities associated with the non-qualified pension plans in the form of benefits to participants. The plans with which these payments are associated will be terminated as a result of the Transactions, which, if consummated, will trigger a change in control under the plans and require the payment of benefits.

 

  (K) Accrued pension liability was adjusted as follows:

 

Assumption of German pension liability (1)

$  158   

Assumption of U.S. pension liability (2)

  400   

Payment of non-qualified pension plans (3)

  (42
  

 

 

 

Total pro forma adjustment to accrued pension liability

$ 516   

 

  (1) Represents an adjustment for certain accrued defined benefit pension liabilities relating to employees of TDCC in Germany who will transfer to Olin in connection with the Transactions in accordance with the Separation Agreement. The adjustment to the pension liability is estimated based on the preliminary fair value for the German pension plan assets, the discount rate at December 31, 2014, and other actuarial assumptions.
  (2) Represents the maximum U.S. net pension liability that TDCC may transfer to Olin on the closing date of the Merger based on the Employee Matters Agreement. This amount is subject to uncertainty as TDCC may elect to transfer less than $400 million. If TDCC transfers less than $400 million in net pension liability at the closing date, Olin is obligated to pay TDCC an amount in cash equal to the product of (x) and (y), where (x) equals (1) $400 million minus (2) the net pension liability transferred and (y) equals 0.5. This means if TDCC does not transfer any liability, Olin would be required to pay $200 million in cash consideration.
  (3) Represents the payment of Olin liabilities associated with the non-qualified pension plans in the form of benefits to participants. The plans with which these payments are associated will be terminated as a result of the Transactions, which, if consummated, will trigger a change in control under these plans and require the payment of benefits.

 

  (L) Other liabilities were adjusted as follows:

 

Excluded liabilities (1)

$  (126

Payment of deferred compensation plans (2)

  (16
  

 

 

 

Total pro forma adjustments to other liabilities

$ (142

 

  (1) To adjust certain liabilities included in DCP’s historical balance sheet to align with what is being transferred in accordance with the Separation Agreement. Certain environmental, legal and other liabilities relating to periods prior to the closing date of the Merger will be retained by TDCC in accordance with the Separation Agreement.
  (2) Represents the payment of Olin liabilities associated with the deferred compensation plans in the form of benefits to participants. The plans with which these payments are associated will be terminated as a result of the Transactions, which, if consummated, will trigger a change in control under these plans and require the payment of benefits, see “The Transactions—Interests of Olin’s Directors and Executive Officers in the Transactions—Deferred Compensation Plans” for more detail.

 

85


Table of Contents
  (M) Noncontrolling interest was adjusted to estimated fair value of the noncontrolling interest in the JV Entity. Due to the JV Partner’s option to exercise its rights for a Tag Event, the classification of the noncontrolling interest on the balance sheet also changed, moving the noncontrolling interest out of Shareholders’ Equity. This classification outside of permanent equity was used as the noncontrolling interest is redeemable for cash at a fixed price.

 

  (N) Shareholders’ equity was adjusted as follows:

 

Issuance of shares of Olin common stock (1)

$ 2,419   

Elimination of total combined DCP shareholders’ equity (2)

  (838

Expected transaction costs (3)

  (40

Payment of non-qualified pension plans (4)

  (16
  

 

 

 

Total pro forma adjustment to shareholders’ equity

$ 1,525   

 

  (1) Relates to the shares of Olin common stock to be issued in the Merger. The pro forma adjustment is based upon the closing price of Olin common stock as of April 29, 2015. The actual value of the Olin common stock to be used in the Merger will depend upon the market price of Olin common stock on the closing date of the Merger. This adjustment assumes that a Tag Event has not occurred. Of the new stock to be issued, $81 million is recorded as par value of common stock and $2,338 million is recorded as additional paid-in capital.
  (2) Relates to the elimination of DCP’s parent company investment of $809 million and $29 million of accumulated other comprehensive loss.
  (3) Reflects costs that Olin expects to incur prior to the consummation of the Transactions in connection with the Transactions for advisory, legal, accounting and other professional fees.
  (4) Represents the payment of Olin liabilities associated with the non-qualified pension plans in the form of benefits to participants. The plans with which these payments are associated will be terminated as a result of the Transactions, which, if consummated, will trigger a change in control under the plans and require the payment of benefits.

Note 4. Income Statement Adjustments

The unaudited pro forma condensed combined statement of operations reflects the following adjustments ($ in millions):

 

  (O) Sales were adjusted as follows:

 

Excluded assets/liabilities (1)

$ (88

Re-pricing of sales to TDCC (2)

      31   

Olin and DCP eliminations (3)

  (12
  

 

 

 

Total pro forma adjustment to sales

$ (69

 

  (1) Relates to adjustments to sales related to operations and commercial arrangements that will not be transferred and commercial arrangements to be transferred in accordance with the Separation Agreement.
  (2) Represents the re-pricing of sales to TDCC relating to arrangements for long-term supply agreements for the sale of raw materials, including ethylene and benzene to TDCC, and services pursuant to the Separation Agreement. These agreements will be executed on the closing date of the Merger. This pro forma adjustment represents changes in sales that would have been generated due to these agreements had they been in place on January 1, 2014.
  (3) Represents the elimination of DCP’s sales to Olin as reported in DCP’s historical statement of operations. There were no sales transactions from Olin to DCP for the fiscal year ended December 31, 2014.

 

86


Table of Contents
  (P) Cost of goods sold were adjusted as follows:

 

Adjustment to depreciation and amortization of DCP assets acquired (1)

$ 117   

Excluded assets/liabilities (2)

  (125

Re-pricing of raw materials and services to/from DCP/TDCC (3)

  (46

Olin and DCP eliminations (4)

  (12
  

 

 

 

Total pro forma adjustment to cost of goods sold

$ (66

 

  (1) Represents the adjustment to DCP’s historical depreciation and amortization as a result of preliminary fair value adjustments to the acquired depreciable assets and amortizable intangible assets and adjustments to their respective estimated remaining useful lives, see Notes 3(E) and 3(F).
  (2) Represents adjustments to expenses related to operations and commercial arrangements that will not be transferred and additional assets and commercial arrangements to be transferred in accordance with the Separation Agreement. This adjustment also includes a reduction of $12 million associated with environmental expenses that were attributable to production sites not being transferred. See Note 6, Items Not Included.
  (3) Relates to arrangements for long-term supply agreements for raw materials, including ethylene and benzene, and services pursuant to the Separation Agreement. These agreements will be executed on the closing date of the Merger. This pro forma adjustment represents changes in raw material costs and operating expenses that would have been incurred due to these agreements had they been in place on January 1, 2014.
  (4) Represents the elimination of DCP’s sales to Olin as reported in DCP’s historical statement of operations. There were no sales transactions from Olin to DCP for the fiscal year ended December 31, 2014.

 

  (Q) Selling and administration was adjusted as follows:

 

Adjustment to depreciation of DCP assets acquired (1)

$       1   

Excluded assets/liabilities (2)

  (8

Re-pricing of services to/from DCP/TDCC (3)

  (6

Transaction costs (4)

  (4

Non-qualified pension change in control (5)

  (3
  

 

 

 

Total pro forma adjustment to selling and administration

$ (20

 

  (1) Represents the adjustment to DCP’s historical depreciation as a result of preliminary fair value adjustments to the acquired depreciable assets and adjustment to their respective remaining useful lives.
  (2) Represents adjustments to expenses related to operations that will not be transferred in accordance with the Separation Agreement.
  (3) Relates to arrangements for services between DCP and TDCC following the consummation of the Transactions pursuant to the Separation Agreement. These agreements will be executed on the closing date of the merger. This pro forma adjustment represents changes in operating expenses that would have been incurred due to these agreements had they been in place on January 1, 2014.
  (4) Relates to advisory and legal fees incurred in the year ended December 31, 2014, which are directly attributable to the Merger, but which are not expected to have a continuing impact on results following the consummation of the Transactions.
  (5) Relates to the elimination of the Olin non-qualified pension expense incurred in the year ended December 31, 2014. The plan with which these expenses were associated is terminated as a direct result of the Merger, which triggered a change in control clause for the pension plan. As a result, these expenses are not expected to have a continuing impact on results following the consummation of the Transactions.

 

  (R) Interest expense was adjusted as described below in Note 5, Financing Adjustments.

 

  (S) For purposes of the unaudited pro forma condensed combined financial statements, a global blended statutory tax rate of 36.8% has been used. This does not reflect Olin’s effective tax rate, which will include other tax items such as state and foreign taxes as well as other tax charges and benefits, and does not take into account any historical or possible future tax events that may impact Olin following the consummation of the Transactions.

 

  (T) The adjustment to both weighted average shares outstanding and diluted weighted average shares outstanding is to reflect the 80.6 million shares of Olin common stock expected to be issued in the Merger, assuming there is no Tag Event.

 

87


Table of Contents

Note 5. Financing Adjustments

On the closing date of the Merger, Splitco expects to incur indebtedness of up to $1,572 million in the form of debt securities, term loans or a combination thereof to (i) finance the Special Payment, (ii) pay fees and expenses of Olin in connection with the Transactions, (iii) refinance the terms loans outstanding under Olin’s Existing Credit Facilities and (iv) obtain additional funds for general corporate purposes. In addition, Splitco expects to issue the Splitco Securities to TDCC or, if TDCC determines that the Debt Exchange is not reasonably likely to be consummated at the time of the Distribution and elects to receive cash from Splitco in lieu of the Splitco Securities, Splitco expects to incur indebtedness in the form of debt securities, term loans or a combination thereof to finance the payment by Splitco to TDCC of cash equal to the Above Basis Amount. Upon consummation of the Transactions, Olin expects to guarantee this indebtedness of Splitco. To the extent Splitco does not obtain debt financing as described above, Splitco expects to incur senior unsecured bridge loans on the terms, and subject to the conditions, in the Bridge Commitment Letter.

Current installments of long-term debt were adjusted as follows ($ in millions):

 

Bridge Facility (1)

$ 1,572   
  

 

 

 

Total pro forma adjustment to current installments of long-term debt

$ 1,572   

 

  (1) Represents assumed borrowings by Splitco under the Bridge Facility. As described above, Splitco expects to incur indebtedness of up to $1,572 million in the form of debt securities, term loans or a combination thereof. This permanent financing is expected to be concluded prior to consummation of the Transactions. To the extent Splitco does not obtain this debt financing, Splitco expects to borrow under the Bridge Facility. The actual amount of borrowings under the Bridge Facility, if any, will not be known until the closing date of the Merger. The maximum amount available under the Bridge Facility is $3,355 million.

Long-term debt was adjusted as follows ($ in millions):

 

Splitco Securities (1)

$ 1,155   

Olin term loan repayment (2)

  (149
  

 

 

 

Total pro forma adjustment to long-term debt

$ 1,006   

 

  (1) Represents the Splitco Securities expected to be issued by Splitco to TDCC immediately prior to the Distribution. The Splitco Securities are expected to have a maturity date of at least eight years and are expected to be non-callable for a period of at least five years. If the Debt Exchange is consummated, the Splitco Securities may be transferred by TDCC on or about the closing date of the Merger to investment banks and/or commercial banks in exchange for existing debt securities of TDCC. The actual amount of the Splitco Securities will depend on the amount of the Above Basis Amount, which is subject to adjustment in accordance with the terms of the Separation Agreement. In addition, the aggregate principal amount of the Splitco Securities is subject to increase to account for customary underwriting fees. If TDCC determines that the Debt Exchange is not reasonably likely to be consummated at the time of the Distribution, TDCC may elect to receive the Splitco Securities in any event or may elect to receive cash from Splitco in lieu of the Splitco Securities as described in the section of this document entitled “The Merger Agreement—Debt Exchange.”
  (2) Represents repayment by Olin of the term loans outstanding under Olin’s Existing Credit Facilities. These term loans are expected to be repaid with proceeds of the new indebtedness to be incurred by Splitco.

The unaudited pro forma condensed combined statement of operations reflects adjustments to include an estimate of the interest expense on the additional indebtedness to be incurred in connection with the Transactions.

 

88


Table of Contents

A summary of the adjustments to current installments of long-term debt and interest expense are as follows ($ in millions):

 

    Average
Interest
Rate
    Principal
Amount as of
December 31,
2014
    Interest
Expense for the
Year Ended
December 31,
2014
 

Bridge Facility (1) (2)

    4.84   $ 1,572      $ 76   

Splitco Securities (1) (2)

    4.84     1,155        56   

Olin term loan repayment (3)

    6.04     (149     (9

Amortization of new debt issuance costs

             19   
   

 

 

   

 

 

 
$ 2,578    $   142   

 

  (1) The interest rates included in the unaudited pro forma condensed combined statement of operations with respect to the Bridge Facility and the Splitco Securities are based on the terms of the Bridge Facility that is currently in place. Prior to consummation of the Transactions, Splitco expects to issue and sell the Other Splitco Debt Securities in an aggregate principal amount of up to $572 million and to enter into the New Term Facility providing for up to $1,000 million in aggregate principal amount of senior unsecured term loans, as described in the section of this document entitled “Debt Financing.” The proceeds from this permanent financing are expected to decrease the amount of borrowings under the Bridge Facility. The Other Splitco Debt Securities would carry an interest rate based on then current market conditions at the time of issuance. The actual interest rate of the Splitco Securities is expected to be based on then current market conditions at the time of issuance (but not to exceed an agreed cap). The interest rate used in the unaudited pro forma condensed combined financial statements reflects the interest rate applicable under the Bridge Facility which represents a current prevailing market interest rate for bridge financing.
  (2) For each one-eighth of 1% change in estimated interest rate associated with the assumed $1,572 million in borrowings under the Bridge Facility and the assumed $1,155 million aggregate principal amount of Splitco Securities, interest expense would increase or decrease by approximately $3 million.
  (3) Represents repayment by Olin of the term loans outstanding under Olin’s existing credit facilities. These term loans are expected to be repaid with the proceeds of the new indebtedness to be incurred by Splitco.

Note 6. Items Not Included

The following expected material nonrecurring charges related to the Merger and the other Transactions, are not included or provided for in the unaudited pro forma condensed combined statement of operations:

 

    $40 to $45 million of advisory, legal, accounting and other professional fees expected to be incurred in connection with the Transactions during 2015; and

 

    approximately $50 million of costs associated with the change in control mandatory acceleration of expenses under the Olin non-qualified pension plan expected to result from consummation of the Transactions, see “The Transactions—Interests of Certain Persons in the Transactions—Deferred Compensation Plans” below.

The unaudited pro forma condensed combined financial statements do not reflect benefits that may result from the realization of savings for costs allocated to DCP from TDCC. Included in DCP’s combined statement of operations within the unaudited pro forma condensed combined financial statements are allocations of certain expenses for services including, but not limited to, general corporate expenses related to finance, legal, information technology, human resources, ethics and compliance, shared services, employee benefits and incentives, insurance and stock-based compensation. These expenses have been allocated on the basis of direct usage when identifiable with the remainder allocated on the basis of headcount or other measures. The allocations may not reflect the expense that would have been incurred as a part of Olin. Olin management estimates that approximately $250 million of costs would not have been incurred had DCP been a part of Olin for the year ended December 31, 2014.

The unaudited pro forma condensed combined financial statements also do not reflect benefits that may result from the realization of approximately $200 million of annualized cost synergies expected to be realized

 

89


Table of Contents

within three years following the consummation of the Transaction, or, if Olin is able to increase sales to new third-party customers and access new product markets as a result of the Transactions, the potential additional annualized synergies of up to $100 million that Olin estimates may potentially be achievable within three years from the consummation of the Transactions. Olin expects to incur approximately $100 to $150 million in transition-related costs and approximately $200 million in incremental capital spending during the first three years following the consummation of the Transactions that Olin management believes are necessary to realize the anticipated synergies from the Transactions.

The unaudited pro forma condensed combined balance sheet does not include an environmental liability for DCP, which is consistent with the Separation Agreement. The historical combined statements of operations for DCP included $30 million of environmental remediation expense. The unaudited pro forma condensed combined statements of operations include a reduction of $12 million attributable to production sites not being transferred.

The unaudited pro forma condensed combined balance sheet includes a de-recognition of trade accounts receivable of $191 million in DCP’s audited historical balance sheet. DCP’s trade accounts receivable were subject to inclusion in TDCC’s various trade accounts receivable securitization programs whereby trade accounts receivable of select entities were sold on a revolving basis to certain multi-seller commercial paper conduit entities. Upon consummation of the Merger, the trade accounts receivable assigned to Olin will include the full trade accounts receivable of DCP with no similar de-recognition.

The unaudited pro forma condensed combined balance sheet does not include a working capital adjustment agreed upon in the Separation Agreement.

As of December 31, 2014, Olin had a valuation allowance of $17 million recorded on its deferred tax assets. This valuation allowance relates predominately to Olin’s state net operating losses, state tax credit and capital loss carry-forwards. As part of the purchase price allocation process resulting from the Merger, it is possible that deferred tax liabilities will be recorded in the various domestic jurisdictions that, if recorded, could result in a release of a portion of the valuation allowance. Any release of a valuation allowance on Olin’s pre-Merger deferred tax assets will be recorded in the income statement in the period that the Merger is completed; however no such adjustment is included in the unaudited pro forma condensed combined financial statements due to its nonrecurring nature.

 

90


Table of Contents

THE TRANSACTIONS

On March 27, 2015, Olin and TDCC announced that they, along with Splitco and Merger Sub, had entered into the Merger Agreement, and that TDCC and Splitco had entered into the Separation Agreement, which together provide for the combination of Olin’s business and DCP. In the Transactions, TDCC will transfer DCP to Splitco. Prior to the Distribution, Splitco will incur new indebtedness and will pay to TDCC the Special Payment. Splitco will also issue to TDCC the Splitco Securities or, at TDCC’s election, pay to TDCC as a dividend an amount in cash equal to the Above Basis Amount. If issued, the Splitco Securities are expected to be transferred by TDCC to the investment banks and/or commercial banks on or about the closing date of the Merger in exchange for existing TDCC Debt in the Debt Exchange. As a result, TDCC expects to receive approximately $2,030 million from the Special Payment and the Debt Exchange.

On the closing date of the Merger, TDCC will distribute shares of Splitco common stock to its participating shareholders in an exchange offer. If the exchange offer is consummated but is not fully subscribed, TDCC will distribute the remaining shares of Splitco common stock on a pro rata basis to TDCC shareholders whose shares of TDCC common stock remain outstanding after the consummation of the exchange offer. Any TDCC shareholder who validly tenders (and does not properly withdraw) shares of TDCC common stock for shares of Splitco common stock in the exchange offer will waive its rights with respect to such shares to receive, and forfeit any rights to, shares of Splitco common stock distributed on a pro rata basis to TDCC shareholders in the event the exchange offer is not fully subscribed. If there is a pro rata distribution, the exchange agent will calculate the exact number of shares of Splitco common stock not exchanged in the exchange offer and to be distributed on a pro rata basis, and the number of shares of Olin common stock into which the remaining shares of Splitco common stock will be converted in the Merger will be transferred to TDCC shareholders (after giving effect to the consummation of the exchange offer) as promptly as practicable thereafter. Immediately after the Distribution and on the closing date of the Merger, Merger Sub will merge with and into Splitco, whereby the separate corporate existence of Merger Sub will cease and Splitco will continue as the surviving company and a wholly-owned subsidiary of Olin. In the Merger, each share of Splitco common stock will be converted into the right to receive Olin common stock based on the exchange ratio set forth in the Merger Agreement, as described in the section of this document entitled “The Merger Agreement—Merger Consideration.”

Olin expects to issue approximately 80.6 million shares of Olin common stock in the Merger, or approximately 87.5 million shares if there is a Tag Event. Based upon the reported closing sale price of $         per share for Olin common stock on the NYSE on[                     ], 2015, the total value of the shares to be issued by Olin and the cash and debt instruments expected to be received by TDCC in the Transactions, including the Splitco Securities (which, if issued, together with the new indebtedness to be incurred by Splitco on the date of the Distribution, will be obligations of Splitco and, following the consummation of the Merger, are expected to be guaranteed by Olin) would have been approximately $]                    ] million (assuming there is no Tag Event). The actual value of the Olin common stock to be issued in the Merger will depend on the market price of shares of Olin common stock at the time of determination, and will also depend on whether a Tag Event has occurred. Olin and TDCC will know prior to the closing date of the Merger whether a Tag Event will occur. Once it is known whether a Tag Event will occur, this disclosure will be updated accordingly.

After the Merger, Olin will own and operate DCP through Splitco, which will be Olin’s wholly-owned subsidiary, and will also continue its current businesses. All shares of Olin common stock, including those issued in the Merger, will be listed on the NYSE under Olin’s current trading symbol “OLN.”

Below is a step-by-step description of the sequence of material events relating to the Transactions.

Step 1    Separation

On or prior to the date of the Distribution, TDCC will transfer to Splitco or the DCP Subsidiaries DCP. Splitco and the DCP Subsidiaries are newly formed, direct and indirect wholly-owned subsidiaries of TDCC. This transfer will include, among other assets and liabilities of DCP, TDCC’s equity interests in

 

91


Table of Contents

the JV Entity, which may constitute 50 percent of the equity interests in the JV Entity or, if there is a Tag Event, 100 percent of the equity interests in the JV Entity, as more fully described under “The Separation Agreement—Separation of the Dow Chlorine Products Business—Transfer of the JV Entity Interests.” Olin and TDCC will know prior to the closing date of the Merger whether a Tag Event will occur. Once it is known whether a Tag Event will occur, this disclosure will be updated accordingly.

Step 2    Contribution

Immediately prior to the Distribution, and on the closing date of the Merger, TDCC will effect the Contribution, pursuant to which all of the DCP Subsidiaries will become direct or indirect subsidiaries of Splitco.

Step 3    Incurrence of Debt and Issuance of Splitco Common Stock to TDCC

Immediately prior to the Distribution, Splitco will incur new indebtedness and will pay to TDCC the Special Payment. In addition, immediately prior to the Distribution, Splitco expects to issue to TDCC the Splitco Securities or, at TDCC’s election, pay to TDCC as a dividend an amount in cash equal to the Above Basis Amount. TDCC expects to transfer the Splitco Securities, if issued, on or about the date of the Distribution to the investment banks and/or commercial banks in exchange for existing TDCC debt. The Splitco Securities are expected to be subsequently sold to third-party investors as described below. As a result, TDCC expects to receive approximately $2,030 million from the Special Payment and the Debt Exchange. If TDCC determines that the Debt Exchange is not reasonably likely to be consummated at the time of the Distribution and elects to receive cash from Splitco in lieu of the Splitco Securities as described under “The Merger Agreement—Debt Exchange,” Splitco will incur new indebtedness in the form of debt securities, term loans or a combination thereof to finance such cash payment.

Immediately prior to the Distribution, Splitco will also issue to TDCC additional shares of Splitco common stock. Following this issuance, TDCC will own 100,000,000 shares of Splitco common stock, which will constitute all of the outstanding stock of Splitco.

Step 4    Distribution—Exchange Offer

TDCC will offer to TDCC shareholders the right to exchange all or a portion of their shares of TDCC common stock for shares of Splitco common stock at a discount to the equivalent per-share value of Olin common stock in an exchange offer.

If the exchange offer is consummated but is not fully subscribed, TDCC will distribute the remaining shares of Splitco common stock on a pro rata basis to TDCC shareholders whose shares of TDCC common stock remain outstanding after the consummation of the exchange offer. If there is a pro rata distribution, the exchange agent will calculate the exact number of shares of Splitco common stock not exchanged in the exchange offer and to be distributed on a pro rata basis, and the number of shares of Olin common stock into which the remaining shares of Splitco common stock will be converted in the Merger will be transferred to TDCC shareholders (after giving effect to the consummation of the exchange offer) as promptly as practicable thereafter.

The exchange agent will hold, for the account of the relevant TDCC shareholders, the global certificate(s) representing all of the outstanding shares of Splitco common stock, pending the consummation of the Merger. Shares of Splitco common stock will not be able to be traded during this period.

As previously noted, this disclosure has been prepared under the assumption that the shares of Splitco will be distributed to TDCC shareholders pursuant to a split-off. Based on market conditions prior to closing, TDCC will determine whether Splitco shares will be distributed to TDCC’s shareholders in a spin-off or a split-off and, once a final decision is made, this disclosure will be amended to reflect that decision, if necessary.

 

92


Table of Contents

Step 5    Merger

Immediately after the Distribution, Merger Sub will merge with and into Splitco, whereby the separate corporate existence of Merger Sub will cease and Splitco will continue as the surviving company and as a wholly-owned subsidiary of Olin. In the Merger, each share of Splitco common stock will be converted into the right to receive Olin common stock based on the exchange ratio set forth in the Merger Agreement, as described in the section of this document entitled “The Merger Agreement—Merger Consideration.”

Immediately after the consummation of the Merger, approximately 50.5 percent of the outstanding shares of Olin common stock is expected to be held by pre-Merger holders of Splitco common stock and approximately 49.5 percent of the outstanding shares of Olin common stock are expected to be held by pre-Merger Olin shareholders, assuming there is no Tag Event.

Step 6    Sale of Splitco Securities to Third-Party Investors

As described in Step 3 above, TDCC and Olin expect the Splitco Securities to be transferred by TDCC on or about the closing date of the Merger to the investment banks and/or commercial banks in the Debt Exchange in exchange for existing TDCC debt. The Splitco Securities will then be sold by investment banks and/or commercial banks to third-party investors.

Set forth below are diagrams that graphically illustrate, in simplified form, the existing corporate structures, the corporate structures immediately following the Distribution, and the corporate structures immediately following the consummation of the Transactions contemplated by the Merger Agreement.

 

 

LOGO

 

93


Table of Contents

LOGO

 

 

LOGO

 

94


Table of Contents

After completion of all of the steps described above, Olin’s wholly-owned subsidiary, Splitco, will hold DCP through its subsidiaries and will be the obligor under the Splitco Securities, if issued, and the other new indebtedness to be incurred by Splitco on the date of the Distribution, which, after the consummation of the Merger, are expected to be guaranteed by Olin.

In connection with the Transactions, on the date of the Distribution, TDCC or its subsidiaries and Splitco or its subsidiaries will enter into the Additional Agreements relating to, among other things, intellectual property agreements, real property agreements, site and business services agreements, agreements relating to the supply of electricity and agreements for the purchase and sale of certain raw materials and finished products. See “Other Agreements—Other Ancillary Agreements.”

Determination of Number of Shares of Splitco Common Stock to Be Distributed to TDCC Shareholders

TDCC is offering to exchange all shares of Splitco common stock for shares of TDCC common stock validly tendered and not properly withdrawn. Splitco has authorized the issuance of 100,000,000 shares of Splitco common stock. Immediately prior to the effective time of the Merger, the total number of shares of Splitco common stock outstanding will equal 100,000,000 shares. Accordingly, the total number of shares of Splitco common stock to be exchanged for shares of TDCC common stock in the exchange offer will be equal to 100,000,000 shares.

No Fractional Shares; Exchange of Certificates

In the conversion of shares of Splitco common stock into shares of Olin common stock, no fractional shares of Olin common stock will be delivered to holders of Splitco common stock. All fractional shares of Olin common stock that a holder of shares of Splitco common stock would otherwise be entitled to receive as a result of the Merger will be aggregated by the exchange agent. The exchange agent will cause the whole shares obtained thereby to be sold on behalf of such holders of shares of Splitco common stock that would otherwise be entitled to receive such fractional shares of Olin common stock in the Merger, in the open market or otherwise as reasonably directed by TDCC, and in no case later than five business days after the Merger. The exchange agent will make available the net proceeds thereof, after deducting any required withholding taxes and brokerage charges, commissions and transfer taxes, on a pro rata basis, without interest, as soon as practicable to the holders of Splitco common stock that would otherwise be entitled to receive such fractional shares of Olin common stock in the Merger.

Upon consummation of the Merger, shares of Splitco common stock will no longer be outstanding and will automatically be canceled and retired. Prior to the Merger, Olin will deposit with the exchange agent the certificates or book-entry authorizations representing the shares of Olin common stock issuable in the Merger. To the extent not previously distributed in connection with the Distribution, the exchange agent will mail to each holder of record of Splitco common stock a letter of transmittal and instructions for use in effecting the surrender of any certificates in the Merger.

Background of the Transactions

The Olin Board of Directors (the “Olin Board”) and Olin management regularly review and consider various strategic opportunities, prospects and industry developments. As part of these reviews, Olin has considered potential strategic transactions involving assets of TDCC from time to time.

During a regular meeting of the Olin Board held on April 25, 2013, the Olin Board and Olin management discussed a variety of strategic opportunities, including the possibility of pursuing a strategic transaction involving one or more of TDCC’s businesses.

The TDCC Board of Directors (the “TDCC Board”) and TDCC’s senior management regularly review the various businesses conducted by TDCC and consider possible strategic opportunities, including potential

 

95


Table of Contents

disposition transactions. As part of that review, and following discussions at a regular meeting of the TDCC Board on July 11-12, TDCC announced on July 25, 2013, during its quarterly earnings call, that it was open to exploring possibilities relating to its epoxy and commodity chlorine derivatives businesses, including through joint ventures or divestiture of these businesses.

In August 2013, Joseph Rupp, then Olin’s Chairman, President and Chief Executive Officer (and currently Olin’s Chairman and Chief Executive Officer), called Andrew Liveris, TDCC’s President, Chairman and Chief Executive Officer, to express Olin’s interest in discussing a potential transaction involving TDCC’s epoxy and commodity chlorine derivatives businesses. Mr. Liveris indicated that TDCC would be willing to engage in preliminary discussions. Prior to this discussion, Olin had an existing business relationship with TDCC through Olin’s Chemical Distribution segment, which distributes certain products on behalf of TDCC under distribution contracts between TDCC and an Olin subsidiary.

In the summer of 2013, Olin management began reviewing regulatory considerations relating to a potential strategic transaction involving TDCC with the assistance of Baker Botts L.L.P. (“Baker Botts”), Olin’s legal advisor on regulatory matters.

On September 20, 2013, Mr. Rupp and John Fischer, then Olin’s Senior Vice President and Chief Financial Officer (and currently Olin’s President and Chief Operating Officer), attended an industry presentation at which Mr. Liveris was present. Messrs. Rupp and Fischer and Mr. Liveris had a brief discussion during which Mr. Liveris invited Mr. Rupp to follow up with him regarding Olin’s interest in pursuing a potential transaction.

Over the next few days, Mr. Rupp communicated by phone and email with Mr. Liveris to arrange for a phone call between Mr. Rupp and Jim Fitterling, then an Executive Vice President of TDCC, to continue preliminary discussions concerning the possibility of a potential transaction between Olin and TDCC.

On September 26, 2013, Mr. Rupp had a telephonic discussion with Mr. Fitterling, who indicated that TDCC was interested in pursuing a transaction involving its chlorine-related assets. They discussed several aspects of a possible transaction, including the possibility of effecting a transaction using a Reverse Morris Trust structure. In a Reverse Morris Trust transaction, TDCC would transfer the relevant businesses to a new subsidiary and then distribute the stock of the subsidiary to TDCC’s shareholders, and immediately thereafter the subsidiary would merge with a subsidiary of Olin. In the merger, the TDCC shareholders would receive more than 50 percent of the shares of the combined entity. The principal advantage to a Reverse Morris Trust transaction structure is that it would allow TDCC to divest assets in a tax-efficient manner. In addition, as the requirements of a Reverse Morris Trust transaction structure would dictate the issuance of equity by Olin as a component of the consideration in the transaction, this structure would allow Olin to complete the transaction using the issuance of its common stock as a portion of the consideration, as opposed to paying all-cash consideration, which would require additional leverage.

During a regular meeting of the TDCC Board held on October 10, 2013, the TDCC Board reviewed and confirmed the interest in considering the divestiture of TDCC’s epoxy and commodity chlorine derivatives businesses over the next 18 to 24 months.

During a regular in-person meeting of the Olin Board held on October 24, 2013, Mr. Rupp reported to the Olin Board on the preliminary discussions between TDCC and Olin and the Olin Board and Olin management discussed the possibility of pursuing a strategic transaction involving TDCC.

Also on October 24, 2013, TDCC announced during its quarterly earnings call that it was accelerating its financial goal for divestitures, with a goal of $3 billion to $4 billion of divestitures over the next 18 to 24 months. TDCC stated that the additional divestiture proceeds would come from strategic decisions to be made by TDCC regarding markets and value chains within TDCC’s chlorine portfolio.

On November 8, 2013, Mr. Rupp had a telephonic discussion with Mr. Fitterling to further discuss the possibility of a potential transaction.

 

96


Table of Contents

On November 25, 2013, Mr. Fitterling sent Mr. Rupp a draft of a confidentiality agreement. The parties exchanged drafts of the confidentiality agreement over the following week, and TDCC and Olin executed the confidentiality agreement on December 2, 2013.

On December 2, 2013, TDCC issued a press release announcing an intention to carve-out DCP and disclosed that TDCC had retained financial advisors to explore separation alternatives for DCP, including potential ownership structures and partnerships such as joint ventures, spin-offs and divestitures. In its December 2, 2013 announcement, TDCC stated that it expected to execute transaction activities related to DCP within the next 12 to 24 months and that the transactions could involve the entirety of DCP or parts of DCP.

During a regular in-person meeting of the Olin Board held on December 12, 2013, Mr. Rupp reported to the Olin Board on the preliminary discussions between TDCC and Olin and provided an overview of DCP. The Olin Board directed Mr. Rupp to continue to explore such a potential transaction.

On December 13, 2013, members of management of Olin, which included Messrs. Rupp and Fischer as well as George Pain, Olin’s General Counsel and Secretary, and John McIntosh, then Olin’s Senior Vice President, Operations (and currently Olin’s Senior Vice President, Chemicals), met with members of TDCC’s management, which included Mr. Fitterling and Stephen Doktycz, TDCC’s Director, Corporate Development, in St. Louis, Missouri, to discuss Olin’s interest in a strategic transaction involving DCP in light of TDCC’s December 2 press release. In advance of the meeting, Mr. Doktycz provided Mr. Rupp with a confidential information memorandum providing an overview of DCP.

Beginning in January 2014, TDCC executed confidentiality agreements with other bidders interested in participating in TDCC’s auction process with respect to DCP.

On January 16, 2014, Olin engaged J.P. Morgan Securities LLC (“JPMorgan”) to act as Olin’s financial advisor in connection with exploring a potential transaction involving DCP.

Over the next several months and continuing through the fall of 2014, Mr. Rupp and representatives of TDCC spoke by phone on a number of occasions to generally discuss the status of TDCC’s carve-out process and Olin’s continued interest in pursuing a potential transaction.

During a regular telephonic meeting of the Olin Board held on January 24, 2014 and a regular in-person meeting of the Olin Board held on February 20, 2014, members of Olin management reviewed the status of discussions with TDCC. The Olin Board directed Olin management to continue to explore a potential combination of Olin and DCP. Representatives of JPMorgan and Cravath, Swaine & Moore LLP (“Cravath”), Olin’s legal advisor, participated in the February 20 meeting.

On April 3, 2014, Messrs. Rupp, Fischer, Pain and McIntosh met with members of TDCC’s management, which included Messrs. Doktycz and Torsten Kraef, TDCC’s Corporate Vice President, Strategy Development, as well as John Sampson, Dow’s Vice President, Manufacturing, and Kate Glasser, TDCC’s Director, Strategy Development, in Chicago, Illinois. Representatives of JPMorgan and representatives of Barclays Capital Inc. (“Barclays”) and Goldman, Sachs & Co. (“Goldman Sachs”), TDCC’s financial advisors, were also in attendance. During the meeting, the parties reviewed background materials regarding Olin’s business and DCP and discussed potential transaction structures, and JPMorgan led a discussion regarding the possible use of the Reverse Morris Trust transaction structure.

On April 7, 2014, to facilitate the exchange of additional information regarding Olin’s business as a result of the potential Reverse Morris Trust transaction structure, TDCC and Olin executed an amended and restated confidentiality agreement that provided for confidential treatment of Olin’s non-public information.

 

97


Table of Contents

During the spring and summer of 2014, Olin management, with the assistance of JPMorgan and Cravath, continued to analyze a potential transaction involving DCP, including the possible use of a Reverse Morris Trust transaction structure to effect a combination of Olin with DCP, including the structural requirements of such a transaction, the types of potential operating and other synergies that could be achieved in such a transaction, the effects on Olin’s businesses from such a transaction and the resulting capitalization of Olin. During this time period, Olin management also continued to review regulatory considerations relating to a potential transaction with the assistance of Baker Botts.

During the spring and summer of 2014 and continuing until execution of the Merger Agreement on March 26, 2015, the parties continued to exchange information regarding DCP and Olin’s business and as part of Olin’s and TDCC’s evaluation and due diligence review of DCP and Olin’s business, respectively.

During a regular in-person meeting of the Olin Board held on April 24, 2014 and a regular telephonic meeting of the Olin Board held on May 4, 2014, the Olin Board and Olin management discussed a number of strategic options, including a potential transaction involving DCP. The Olin Board directed Olin management to continue to explore a potential transaction with TDCC. Representatives of JPMorgan and Cravath participated in the April 24 meeting.

On June 13, 2014, Messrs. Rupp, Fischer, Pain and McIntosh met with representatives of TDCC, including Messrs. Doktycz and Sampson and Ms. Glasser, in Midland, Michigan to further discuss a potential combination of Olin with DCP. During the meeting, the Olin representatives provided additional information regarding Olin’s business and the TDCC representatives provided an overview of TDCC’s chlorinated organics and epoxy businesses. Representatives of JPMorgan, Barclays and Goldman Sachs also participated in this meeting.

During a regular in-person meeting of the Olin Board held on June 18, 2014 and a regular telephonic meeting of the Olin Board held on July 24, 2014, members of Olin management reviewed the status of Olin’s participation in TDCC’s auction process. The Olin Board directed Olin Management to continue to explore a potential combination of Olin and DCP.

On August 8, 2014, Mr. Rupp and Mr. Doktycz had a telephonic discussion regarding the process and expected timetable for TDCC’s auction process for DCP.

During a regular in-person meeting of the Olin Board held on August 27 and 28, 2014, the Olin Board and Olin management further discussed a potential combination with DCP. The Olin Board directed Olin management to continue to explore the potential transaction.

In August and September 2014, at the direction of TDCC, Barclays and Goldman Sachs distributed an investment summary of DCP and a document setting forth a general timeline for TDCC’s anticipated auction process to prospective participants in the process.

On August 28, 2014, at the direction of TDCC, Barclays and Goldman Sachs provided to representatives of Olin and JPMorgan a document setting forth a general timeline for TDCC’s anticipated auction process.

On October 2, 2014, TDCC issued a press release providing an update on the progress of its planned divestitures. TDCC disclosed that it continued to make solid progress on the planned carve-out of DCP, noting that the carve-out was receiving strong interest from the market and that firm indications of interest were expected before year-end, with signed agreements expected early in the second quarter of 2015.

As part of the auction process, TDCC organized site visits for prospective bidders participating in the auction. On October 7 and October 8, 2014, certain members of Olin management conducted site visits of DCP’s facilities in Plaquemine, Louisiana and Freeport, Texas.

During a regular meeting of the TDCC Board held on October 9, 2014, members of TDCC’s management provided the TDCC Board with an update on the status of the auction process with respect to DCP.

 

98


Table of Contents

On October 17, 2014, Messrs. Rupp and Pain, Mr. Doktycz and representatives of JPMorgan, Barclays and Goldman Sachs participated on a conference call to discuss the status of Olin’s due diligence review and the timetable for the auction process.

In October and November 2014, at the direction of TDCC, Barclays and Goldman Sachs provided prospective bidders participating in the auction process with a confidential information memorandum containing certain information regarding DCP. Olin received such a confidential information memorandum on October 20, 2014.

During a regular in-person meeting of the Olin Board held on October 22 and 23, 2014, members of Olin management provided the Olin Board with an update on the status of Olin’s participation in TDCC’s auction process with respect to DCP. The Olin Board directed Olin management to continue to explore the potential transaction.

On November 14, 2014, at the direction of TDCC, Barclays and Goldman Sachs delivered a process letter to prospective bidders participating in the auction process, including Olin, outlining the envisaged steps of the transaction process being run by TDCC and the timing and procedures for submitting an indicative transaction proposal. The process letter indicated that TDCC was evaluating multiple strategic alternatives for DCP, and while TDCC was currently contemplating a divestiture of DCP, a number of factors, including the value received and the terms of the separation, would be critical in determining the transaction TDCC would choose to pursue. In the process letter, Barclays and Goldman Sachs, at the direction of TDCC, requested that parties submit an indicative transaction proposal by December 3, 2014.

In November and December 2014, TDCC organized management presentations with respect to DCP for interested bidders.

On November 17, 2014, as part of Olin’s due diligence review of DCP, certain members of management of Olin attended a management presentation in New York given by representatives of TDCC.

Subsequent to the November 17 management presentation, TDCC provided prospective bidders participating in the auction process, including representatives of Olin and Olin’s advisors, with access to an electronic data room which contained limited non-public information regarding DCP and certain aspects of the proposed separation of DCP from TDCC. From late November 2014 until late March 2015, Olin and its advisors reviewed material concerning DCP made available from time to time by TDCC.

On November 25, 2014, the Olin Board held a telephonic meeting during which members of Olin management, including Mr. Rupp, reviewed with the Olin Board the status of the proposed transaction and provided a summary of the due diligence completed to date. The Olin Board and representatives of Olin management and Olin’s advisors discussed the preliminary terms of an indicative proposal to be submitted in response to TDCC’s November 14 process letter, but Mr. Rupp noted that the Olin Board would not be requested to make any decisions about the potential transaction at this time. During the meeting, representatives of Cravath reviewed the process being used to evaluate the proposed transaction, representatives of JPMorgan discussed with the Olin Board financial analyses of DCP as well as several potential transaction structures, including the material elements of a Reverse Morris Trust transaction structure, and representatives of Baker Botts reviewed the regulatory considerations of the proposed transaction. After such discussion, the Olin Board directed Olin management to continue to explore a Reverse Morris Trust transaction with TDCC.

On December 2, 2014, the Olin Board held an in-person meeting during which members of Olin management and representatives of JPMorgan, Cravath and Baker Botts provided an update on the status of the proposed transaction and reviewed with the Olin Board the terms of a proposed indication of interest letter. During the meeting, representatives of Cravath reviewed various considerations relating to the transaction process, including the Olin Board’s fiduciary duties. Mr. Fischer and representatives of JPMorgan reviewed the financial analyses conducted by Olin management and JPMorgan, including assumptions with respect to

 

99


Table of Contents

synergies, and the Olin Board asked questions and engaged in discussion regarding the valuation and other terms to be proposed in Olin’s indication of interest. After such discussion, the Olin Board indicated support for the terms recommended by management and authorized the submission of a non-binding indication of interest to TDCC.

On December 3, 2014, Olin submitted to TDCC’s financial advisors a non-binding proposal for a combination of Olin and DCP via a Reverse Morris Trust transaction structure. Olin’s proposal valued 100 percent of DCP on a debt-free, cash-free basis at $3.8 billion, $1.8 billion of which would be delivered to TDCC directly in the form of a special cash dividend and/or debt retirement, with the remaining amount delivered in the form of shares of Olin common stock. Based on Olin’s market capitalization of approximately $2.0 billion as of December 2, 2014, Olin’s proposal contemplated that the pro forma equity ownership in the combined company for TDCC shareholders would be just over 50 percent.

Following submission of non-binding proposals from the bidders participating in the auction process, including Olin, TDCC’s management reviewed such proposals with its financial and legal advisors. At the direction of TDCC management, representatives of Barclays and Goldman Sachs then contacted a number of bidders following their submission of non-binding proposals and invited them to participate in a second round of the auction process.

During a regular meeting of the TDCC Board held on December 10, 2014, members of TDCC’s management provided the TDCC Board with an update on the bid process and status of the auction process with respect to DCP.

On December 10, 2014, representatives of Barclays and Goldman Sachs participated in a conference call with Messrs. Rupp, Fischer and Pain and representatives of JPMorgan and informed the representatives of Olin and JPMorgan that Olin would be invited to participate in the second round of the auction process.

To facilitate bidders’ due diligence during the second round of the auction process, TDCC gave access to representatives of bidders to an electronic data room containing additional documents and information with respect to DCP and organized telephonic due diligence sessions with representatives of TDCC.

From December 2014 through March 2015, Olin and other bidders and their advisors participated in numerous telephonic due diligence sessions with representatives of TDCC regarding DCP and the proposed terms of the separation of DCP from TDCC, including the proposed terms of services agreements, supply agreements and other ancillary agreements expected to be entered into between DCP and TDCC in connection with the proposed transaction. During this period, TDCC made available to Olin and other bidders and their advisors additional due diligence materials in the electronic data room and established a question and answer process for responding to questions raised by Olin and other bidders and their advisors in connection with the diligence review. TDCC also made available to Olin and other bidders and their advisors drafts of certain services agreements, supply agreements and other ancillary agreements.

On December 21, 2014, at the direction of TDCC, Barclays and Goldman Sachs delivered a second round process letter to prospective bidders, including Olin, providing additional information regarding the next steps of the transaction process and the anticipated timing of key components of due diligence.

On January 9, 2015, representatives of Barclays and Goldman Sachs participated in a conference call with Messrs. Rupp, Fischer, Pain and McIntosh and representatives of JPMorgan to discuss the status of the potential transaction and Olin’s due diligence review.

During a regular telephonic meeting of the Olin Board held on January 23, 2015, members of Olin management provided the Olin Board with an update on the status of Olin’s participation in TDCC’s auction process. The Olin Board directed Olin management to continue to pursue the potential transaction.

Given that the Reverse Morris Trust transaction structure contemplated by certain bidders for a potential transaction involving DCP would involve issuance by such bidders of their common stock to TDCC shareholders

 

100


Table of Contents

as a significant component of the consideration in the transaction, TDCC continued to conduct a reverse due diligence review of the business, financial condition and operations of such bidders, including Olin, during this time period.

On January 26, 2015, Messrs. Rupp, Fischer, Pain and McIntosh had a telephonic discussion with representatives of Barclays and Goldman Sachs regarding TDCC’s reverse due diligence process and on February 3, 2015, at the direction of TDCC, representatives of Barclays and Goldman Sachs sent to JPMorgan a list of questions and document requests relating to TDCC’s reverse due diligence review with respect to Olin’s business.

On February 3, 2015, certain members of Olin management and a representative of JPMorgan conducted a site visit of DCP’s facilities in Stade, Germany.

On February 9, 2015, Messrs. Rupp and Fischer had a telephonic discussion with Mr. Doktycz to discuss the parties’ expectations for the next steps of the transaction process.

On February 11, 2015, at the direction of TDCC, Barclays and Goldman Sachs delivered a final process letter to bidders participating in the auction process, including Olin, outlining the timing and procedures for submitting a final offer. The process letter requested that parties submit a final and binding, fully-financed offer by March 11, 2015. The process letter stated that the bidders’ final proposals should separately provide the value for 50 percent and 100 percent of the JV Entity, a joint venture between TDCC and the JV Partner. In addition, the process letter noted that drafts of the separation agreement and merger agreement would be made available to each bidder’s counsel and requested that the bidders submit an issues list with respect to the draft agreements by February 25, 2015 and submit markups of these agreements by March 4, 2015.

During a regular meeting of the TDCC Board held on February 12, 2015, members of TDCC’s management provided the TDCC Board with an update on the status of the auction process with respect to DCP, noting that the bidder pool had been narrowed, and reviewed the next steps in the negotiation process.

On February 12, 2015, Olin’s advisors provided representatives of TDCC and its advisors with access to an electronic data room which contained certain non-public information regarding Olin’s business. From mid-February 2015 to late March 2015, TDCC and its advisors continued to review materials concerning Olin’s business made available from time to time by Olin.

On February 13, 2015, as part of TDCC’s reverse due diligence review with respect to bidders contemplating a Reverse Morris Trust transaction structure, representatives of TDCC attended a more detailed management presentation by representatives of Olin in Chicago, Illinois given by members of Olin management. Representatives of TDCC’s and Olin’s financial and legal advisors were also in attendance. During February and March 2015, TDCC and its advisors also participated in several telephonic due diligence sessions with representatives of Olin and Olin’s advisors as part of TDCC’s reverse due diligence review.

On February 19 and 20, 2015, at a regular in-person meeting of the Olin Board, the Olin Board engaged in a detailed review of the status of the potential transaction. Among other things, members of Olin management reviewed with the Olin Board the due diligence conducted to date and discussed management’s valuation and synergy analysis and reviewed certain aspects of DCP, including an overview of the JV Entity. Members of Olin management also reviewed with the Olin Board the key terms of the services, supply and other ancillary agreements expected to be entered into between DCP and/or Olin and TDCC in connection with the proposed transaction and the Olin Board discussed certain issues of concern relating to the proposed ancillary agreements. During the meeting, representatives of Cravath reviewed various considerations relating to the transaction process, including the Olin Board’s fiduciary duties and key terms of typical transaction documents for Reverse Morris Trust transactions, representatives of Baker Botts provided an update on the regulatory considerations of the proposed transaction and representatives of JPMorgan provided an update on the valuation analysis, the contemplated post-transaction debt structure of Olin and other considerations relating to the proposed transaction.

 

101


Table of Contents

On February 20, 2015, Shearman & Sterling LLP (“Shearman”), TDCC’s legal advisor, sent to the legal advisors of bidders participating in the process, including Cravath, an initial draft of the separation agreement relating to the proposed transaction. On February 24, 2015, Shearman sent to the legal advisors of bidders participating in the process, including Cravath, an initial draft of the merger agreement.

As part of the second round of the auction process, TDCC conducted a number of meetings with bidders participating in the process.

On February 24, 2015, Mr. Rupp had in-person discussions in Midland, Michigan with Messrs. Fitterling and Doktycz and Brian Ames, TDCC’s Senior Vice President, Portfolio Developments, Feedstocks & Performance Plastics, regarding certain aspects of the proposed transaction, including relating to the JV Entity, concerns that Olin had expressed about certain terms of the ancillary agreements and potential alternatives to address Olin’s desire to secure long-term ethylene supply for DCP.

On February 25 and February 26, 2015, representatives of TDCC conducted site visits of Olin’s facilities in McIntosh, Alabama and Oxford, Mississippi.

On February 27, 2015, members of management of Olin and representatives of JPMorgan met with representatives of TDCC, Barclays and Goldman Sachs in Midland, Michigan to discuss a number of topics relating to the proposed transaction, including outstanding diligence matters, certain issues relating to the proposed terms of the ancillary agreements and questions raised by Olin relating to the JV Entity. During this meeting, TDCC’s representatives provided an estimate of 2014 EBITDA for DCP. The representatives of TDCC also indicated that it would increase the number of employees that would transfer with DCP, by including in the transaction certain employees that were previously contemplated to remain employed by TDCC and provide services to DCP under agreements with TDCC. This change had the effect of reducing the net service fee charges that Olin would have to bear after closing of the transaction. TDCC’s representatives indicated that this proposal and certain other proposed changes to the terms of the separation would have the effect of further increasing the projected EBITDA of DCP. In addition, in response to Olin’s request for long-term ethylene supply for DCP, TDCC proposed to make available to Olin a supply of cost-based ethylene for a fee, which increased the overall attractiveness of the potential transaction from Olin’s perspective.

On February 28, 2015, TDCC made available to bidders participating in the auction process, including Olin and their advisors initial drafts of the tax matters agreement and the employee matters agreement.

On March 2, 2015, representatives of Cravath and Shearman had a call to discuss certain preliminary issues concerning the draft separation agreement and merger agreement. Shearman conducted similar calls with legal advisors to other bidders.

On March 3, 2015, at the direction of TDCC, representatives of Barclays and Goldman Sachs emailed representatives of JPMorgan to provide an update on the recent financial performance of DCP and to confirm that TDCC was willing to agree to the improvements and clarifications of the terms of the proposed transaction as discussed during the parties’ February 27 meeting.

Later, on March 3, 2015, the Olin Board held a telephonic meeting during which members of Olin management, including Mr. Rupp, provided the Olin Board with an update on recent developments in connection with the proposed transaction, including a report on recent discussions between representatives of Olin and TDCC and the status of Olin’s ongoing due diligence. During the meeting, representatives of Cravath reviewed with the Olin Board key terms of the draft transaction agreements and the proposed responses thereto and the Olin Board asked a number of questions and engaged in a discussion with management and Olin’s advisors regarding certain terms of the agreements and the proposed responses thereto, including the covenants to obtain regulatory approvals, the termination fee and the treatment of severance liabilities. Representatives of JPMorgan provided the Olin Board with an update on the financing arrangements relating to the proposed transaction. The Olin Board authorized Olin management and Olin’s advisors to submit markups of the transaction documents and to seek to conclude a transaction with TDCC.

 

102


Table of Contents

On March 4, 2015, Cravath sent to Shearman revised drafts of the separation agreement and merger agreement on behalf of Olin. On March 5, 2015, Cravath sent to Shearman revised drafts of the tax matters agreement and employee matters agreement on behalf of Olin.

On March 10, 2015, the Olin Board held an in-person meeting to discuss the status of the proposed transaction. Members of Olin management and representatives of JPMorgan reviewed the significant changes that TDCC had made with respect to the value of the proposed transaction, including with respect to service charges and ethylene supply. Representatives of Cravath reviewed the changes to the terms of the draft transaction agreements and ancillary agreements since the prior meeting of the Olin Board. During the meeting, representatives of JPMorgan and Cravath also reviewed with the Olin Board the terms of the debt commitment papers relating to the debt financing for the proposed transaction. The Olin Board engaged in a discussion of the value of DCP and the relative values of the various components of Olin’s offer, especially in light of the latest changes proposed by TDCC and their positive impact on EBITDA. Following discussion with Olin’s outside advisors and members of management, the Olin Board authorized Olin management to submit a revised proposal to TDCC for the acquisition of DCP.

On March 11, 2015, TDCC received final offers for the acquisition of DCP from bidders participating in the auction process, including Olin. Olin submitted to TDCC’s advisors a revised non-binding proposal for a combination of Olin and DCP via a Reverse Morris Trust transaction structure. Olin’s proposal valued DCP at $5.4 billion on an enterprise value basis, comprised of the following:

 

    $2.337 billion of Olin common stock (based on Olin’s closing stock price on March 10, 2015) issued to TDCC shareholders, which may be distributed at TDCC’s option to TDCC’s shareholders via a spin-off or a split-off;

 

    assumption of 50 percent of the JV Entity’s debt (then projected to be approximately $264 million at December 31, 2015); and

 

    an additional aggregate amount of $2.799 billion to TDCC, which included:

 

  $2.030 billion in the form of a special cash dividend and debt retirement;

 

  an additional $369 million in up-front payments for a producer economics arrangement for ethylene supply; and

 

  assumption of $400 million of TDCC’s net U.S. pension liability.

Based on Olin’s market capitalization of approximately $2.291 billion as of March 10, 2015, Olin’s proposal contemplated that the pro forma equity ownership of the combined company for TDCC shareholders would be just over 50 percent. Olin’s proposal provided that the proposal valued 100 percent of the JV Entity at $400 million on an equity value basis (net of the debt projected to be outstanding at December 31, 2015), and valued 50 percent of the JV Entity at $200 million on an equity value basis (net of 50 percent of the debt projected to be outstanding at December 31, 2015). Olin’s proposal also provided, among other things, that Olin would expand its board of directors to add representatives designated by TDCC. Olin’s proposal included a description of the financing arrangements for the cash component of the consideration offered by Olin and was accompanied by copies of debt commitment papers signed by the applicable financing sources.

Also on March 11, 2015, TDCC’s management and TDCC’s legal and financial advisors reviewed the results of TDCC’s reverse due diligence review with respect to bidders contemplating a Reverse Morris Trust transaction structure, including Olin.

On March 12, 2015, at the direction of TDCC, representatives of Barclays and Goldman Sachs called representatives of JPMorgan to seek clarity on certain terms of Olin’s March 11 proposal. JPMorgan responded to Barclays and Goldman Sachs by phone call and email on March 13, 2015.

 

103


Table of Contents

On March 14, 2015, Mr. Doktycz had a telephonic discussion with Mr. Rupp to provide TDCC’s initial feedback on Olin’s March 11 proposal. Mr. Doktycz informed Mr. Rupp that TDCC desired to move forward with discussions with Olin regarding a potential transaction but also indicated that TDCC was also considering other alternatives. Mr. Doktycz proposed that representatives of Olin and TDCC meet in person in New York to discuss the transaction documents and ancillary agreements and certain other terms of Olin’s proposal.

From March 17, 2015 to March 20, 2015, representatives of Olin and TDCC and their respective financial and legal advisors met in person at Cravath’s offices in New York to negotiate the terms of the draft merger agreement, separation agreement and other transaction documents and certain terms of the draft ancillary agreements, including the terms of the ethylene supply arrangements.

From March 17, 2015 until execution of the Merger Agreement on March 26, 2015, representatives of Shearman and Cravath exchanged various drafts of the transaction agreements and the financing commitments being obtained by Olin from JPMorgan and Wells Fargo Bank, N.A. (“Wells Fargo”) and certain of their affiliates. During this time period, representatives of Shearman and Cravath also exchanged versions of supplements or amendments to the draft ancillary agreements previously made available by TDCC.

On March 19, 2015, the Olin Board held a telephonic meeting to discuss recent developments in connection with the potential transaction, during which Mr. Rupp and representatives of Cravath and JPMorgan summarized the recent negotiations with TDCC. Mr. Rupp noted that, subject to resolution of an outstanding issue relating to Olin’s debt financing arrangements, he believed that the TDCC deal team planned to recommend to the TDCC executive committee and to the TDCC Board that TDCC accept Olin’s proposal on substantially the terms proposed in Olin’s March 11, 2015 proposal letter, provided that Olin would agree to (i) the assumption of up to $400 million of TDCC’s U.S. pension liability as set forth in Olin’s proposal or the payment to TDCC in cash of 50 percent of such amount not assumed, (ii) increase the upfront reservation fee for ethylene capacity and (iii) the assumption of certain of TDCC’s foreign pension liabilities. Representatives of Cravath and JPMorgan described that TDCC had also requested that Olin obtain a bridge commitment from its lenders in respect of the amount of securities expected to be issued by Splitco to TDCC in connection with the debt exchange, in order to minimize TDCC’s exposure to market risk on being able to exchange the Splitco securities for existing debt obligations of TDCC. Representatives of JPMorgan indicated that JPMorgan and Wells Fargo were prepared to provide such a commitment, and Olin management described the terms of such commitment. After discussion, with questions of the Olin Board being answered by Olin management and advisors, the Olin Board directed Olin management to proceed with the financing proposal and the other terms of the transaction as outlined in the meeting.

Following the meeting of the Olin Board on March 19, 2015, Mr. Rupp met with Mr. Doktycz and reported that Olin was willing to obtain a bridge commitment from its lenders in respect of the securities expected to be issued by Splitco to TDCC in connection with the debt exchange.

On March 19, 2015, TDCC’s executive committee met with representatives of TDCC’s management and TDCC’s legal and financial advisors to discuss the status of negotiations with Olin and the proposed terms and conditions of the potential transaction with Olin.

Following the meeting of TDCC’s executive committee on March 19, 2015, Mr. Doktycz met with Mr. Rupp and indicated that TDCC was prepared to move forward with a transaction with Olin, subject to finalizing the terms of the transaction documents and obtaining approvals from the TDCC Board and the Olin Board.

On March 20, 2015, Messrs. Rupp, Fischer, Pain and McIntosh met with Messrs. Fitterling, Doktycz and Ames and Duncan Stuart, TDCC’s Deputy General Counsel, at Barclays’ offices in New York to discuss certain matters relating to the transaction and the contemplated timetable to finalize open matters.

Between March 20, 2015 and March 26, 2015, representatives of Olin and TDCC and their respective advisors finalized the terms of the draft transaction agreements and ancillary agreements and the related financing commitments. During this time period, Olin and TDCC also finalized their due diligence reviews of DCP and Olin’s business, respectively.

 

104


Table of Contents

On the morning of March 26, 2015, Olin received revised debt commitment documents to provide financing for the proposed transaction, executed by JPMorgan, Wells Fargo and certain of their affiliates.

On March 26, 2015, the Olin Board held a telephonic meeting to review the final structure and terms of the proposed transaction, including the related financing arrangements, and to discuss developments that had occurred since the Olin Board’s previous meeting. Members of Olin management reviewed with the Olin Board, among other things, the components of the consideration to be delivered to TDCC and its shareholders, the calculation of the exchange ratio that determined the amount of Olin common stock to be issued in the transaction, the working capital adjustment and the terms of the ethylene supply arrangements to be entered into in connection with the transaction. During the meeting, representatives of Cravath reviewed the fiduciary duties of the Olin Board in relation to the proposed transaction and reviewed the final versions of the transaction agreements and the impact of the proposed transaction on Olin, and representatives of JPMorgan provided an update on the financial analyses of the proposed transaction to Olin. Representatives of JPMorgan then delivered an oral opinion, which was subsequently confirmed in writing, that as of March 26, 2015, and based upon and subject to the assumptions, limitations, qualifications and conditions set forth in its opinion, the exchange ratio specified in the Merger Agreement was fair, from a financial point of view, to Olin. Following discussion with Olin management and Olin’s legal and financial advisors, the Olin Board unanimously determined that the Transactions, including the Merger, the Share Issuance and the Charter Amendment, were advisable and in the best interests of Olin and its shareholders, approved the Merger Agreement and the other transaction agreements and the Transactions, approved, authorized and adopted the Charter Amendment and recommended that Olin shareholders approve the Charter Amendment and the Share Issuance and approved certain other matters in connection with the Transactions.

On March 26, 2015, the TDCC Board held a meeting to review the final structure and terms of the proposed transaction. Charles J. Kalil, TDCC’s General Counsel and Executive Vice President, reviewed the fiduciary duties of the TDCC Board in relation to the proposed transaction. Members of TDCC management and TDCC’s legal and financial advisors reviewed with the TDCC Board, among other things, the auction process conducted by TDCC with respect to DCP and alternatives considered by TDCC, the final terms of the transaction agreements with Olin (including the consideration to be received by TDCC and its shareholders and the calculation of the exchange ratio specified in the Merger Agreement), the timeline for the closing of the Transactions, certain risk factors and corresponding mitigation factors associated with the Transactions, and the financial impact on TDCC and the key benefits to TDCC and its shareholders of the Transactions. Following discussion with TDCC management and TDCC’s legal and financial advisors, the TDCC Board unanimously determined that the Transactions, including the Merger, were advisable and in the best interests of TDCC and its shareholders, approved the Transactions and authorized TDCC’s entry into the Merger Agreement, the Separation Agreement and the other transaction agreements.

Following their respective board meetings, the appropriate parties then entered into the Merger Agreement, the Separation Agreement and the other applicable transaction documents.

On the morning of March 27, 2015, before the opening of trading on the NYSE, Olin and TDCC issued a joint press release announcing the Transactions.

Olin’s Reasons for the Transactions

In reaching its decision to approve the Merger Agreement and the other transaction documents and the Transactions and recommend that Olin shareholders approve the Charter Amendment and the Share Issuance, the Olin Board considered, among other things, the strategic and financial benefits that could be achieved by combining Olin and DCP relative to the future prospects of Olin on a stand-alone basis, the relative actual results of operations and prospects of Olin and of DCP and synergies expected to be realized in the combination, as well as other alternatives that may be available to Olin, and the risks and uncertainties associated with the Transactions and with such alternatives.

 

105


Table of Contents

In that process, the Olin Board consulted with its financial and legal advisors and considered the following factors as generally supporting its decision to approve the Merger Agreement and the other transaction documents and the Transactions and recommend that Olin shareholders approve the Charter Amendment and the Share Issuance:

 

    the increased size, economies of scale, geographic presence and total capabilities of Olin after the Transactions, which are expected to enable Olin to improve its cost structure and increase profitability;

 

    the nearly 200 percent increase in Olin’s chlorine capacity expected to result from the combination with DCP, from approximately 1.9 million tons to approximately 5.6 million tons, which is expected to enable Olin to access new product segments and increase sales to new third-party customers;

 

    the complementary asset portfolios and strengths of Olin and DCP and the expectation that the combination with DCP would diversify Olin’s mix of product offerings, including by increasing the number of downstream applications of Olin’s chlorine;

 

    the expectation that Olin would achieve approximately $200 million of estimated annual cost synergies anticipated to be realized within three years from the consummation of the Transactions as a result of anticipated cost savings in procurement and logistics, operational efficiencies and cost savings arising out of asset optimization, including through the consolidation of select operations and facilities, installation of new capacity and relocation of select manufacturing processes, and the expectation that, if Olin is able to increase sales to new third-party customers and access new product markets as a result of the Transactions, potential additional annualized synergies of up to $100 million may potentially be achievable within three years from the consummation of the Transactions;

 

    the opportunity to invest in capacity rights for ethylene supply at producer economics, which would support Olin’s ability to be a sustainable, integrated chlor-vinyl producer over the long-term;

 

    the ongoing operational and commercial relationship that Olin and TDCC would have after the Transactions, including the long-term supply, service and purchase agreements to be entered into at the closing of the Transactions;

 

    the expectation that the cash flow from the combined businesses after the Transactions would be strong enough to allow Olin to maintain its current annual dividend;

 

    the expectation that the combination with DCP would enhance Olin’s overall credit quality over time;

 

    the significant increase in total equity market capitalization of Olin, which could increase the trading volume, and therefore, the liquidity, of Olin’s common stock;

 

    the fact that a significant portion of the consideration payable by Olin in the Transaction consists of Olin’s common stock, enabling Olin to acquire DCP without incurring the additional indebtedness that would be required to fund an all-cash transaction;

 

    the opinion of JPMorgan, dated March 26, 2015, that, based upon and subject to assumptions, limitations, qualifications and conditions set forth in such opinion, the exchange ratio was fair, from a financial point of view, to Olin, as more fully described below in “Opinion of J.P. Morgan Securities, LLC”;

 

    the fact that the Olin Board following the closing of the Transactions would be composed of all of the current directors of Olin and three additional directors designated by TDCC;

 

    the fact that the management team of Olin following the closing of the Transactions would continue to be led by Olin’s Chief Executive Officer, with the other members of the executive team to be selected from the combined businesses;

 

    the fact that the Merger Agreement and the other transaction documents and the aggregate consideration to be paid by Olin pursuant to the Merger Agreement were the result of arms-length negotiations between representatives of Olin and TDCC; and

 

106


Table of Contents
    the fact that the Merger Agreement would allow the Olin Board, subject to the payment of a termination fee, to withdraw or modify its recommendation that Olin’s shareholders approve the Share Issuance and the Charter Amendment in certain circumstances.

The Olin Board also considered certain countervailing factors in its deliberations concerning the Merger and the other Transactions, including:

 

    the dilution of the ownership interests of Olin’s current shareholders that would result from the issuance of Olin common stock in the Merger;

 

    the challenges and difficulties, foreseen and unforeseen, relating to the separation of DCP from the other businesses of TDCC and the integration of DCP with Olin’s operations, given the size of DCP relative to Olin and its operations;

 

    the possibility that the increased revenues, earnings and synergies expected to result from the Transactions would fail to materialize or may not be realized within the expected time frame;

 

    the significant, one-time costs expected to be incurred in connection with the Transactions, including approximately $100 to $150 million in transaction-related costs and approximately $200 million in incremental capital during the first three years following the consummation of the Transactions that Olin management believes are necessary to realize the anticipated synergies from the Transactions;

 

    the risk that the Transactions and the integration process may divert management attention and resources away from other strategic opportunities and from operational matters;

 

    the substantial increase in Olin’s indebtedness that is expected to result from the Transactions and the related financing transactions;

 

    the fact that, in order to preserve the tax-free treatment of the Merger and the related transactions, Olin would be required to abide by certain restrictions that could limit its ability to engage in certain future business transactions that might be advantageous;

 

    the fact that certain provisions of the Merger Agreement may dissuade third parties from seeking to acquire Olin or otherwise increase the cost of any potential acquisition;

 

    the fact that under the Merger Agreement, Olin may be required to pay TDCC a termination fee or reimburse TDCC for certain expenses under certain circumstances;

 

    the risks inherent in requesting regulatory approval from multiple government agencies in multiple jurisdictions, as more fully described in the section entitled “Regulatory Approvals,” or that governmental authorities could attempt to condition their approval of the Transactions on compliance with certain burdensome conditions or that regulatory approvals may be delayed;

 

    the risk that the Transactions may not be completed in a timely manner or at all and the potential adverse consequences, including substantial costs that would be incurred and potential damage to Olin’s reputation, if the Transactions are not completed; and

 

    other risks of the type and nature described in the section entitled “Risk Factors.”

The foregoing discussion of the information and factors considered by the Olin Board is not exhaustive, but includes the material factors considered by the Olin Board, including factors that support the Transactions as well as those that weigh against them. In view of the wide variety of factors considered by the Olin Board in connection with its evaluation of the Transactions and the complexity of these matters, the Olin Board did not consider it practical to, nor did it attempt to, quantify, rank or otherwise assign relative weights to the specific factors that it considered in reaching its decision. Rather, the Olin Board based its recommendation on the totality of the information presented to and considered by it. The Olin Board evaluated the factors described above with the assistance of Olin management and its legal and financial advisors. In considering the factors described above, individual members of the Olin Board may have given different weights to other or different factors.

 

107


Table of Contents

This explanation of the factors considered by the Olin Board is in part forward-looking in nature and, therefore, should be read in light of the factors discussed in the sections of this document entitled “Cautionary Statement on Forward-Looking Statements” and “Risk Factors.”

After careful consideration, the Olin Board resolved that the Transactions, including the Merger, the Share Issuance and the Charter Amendment, are advisable and in the best interests of Olin and its shareholders and approved the Merger Agreement and the other transaction agreements and the Transactions.

Opinion of J.P. Morgan Securities LLC

Pursuant to an engagement letter, dated January 16, 2014, Olin retained JPMorgan as its financial advisor in connection with the proposed Transactions.

At the meeting of the Olin Board on March 26, 2015, JPMorgan rendered its oral opinion to the Olin Board, subsequently confirmed in writing on the same day, that, as of such date and based upon and subject to the factors and assumptions set forth in its opinion, the exchange ratio in the proposed Merger was fair, from a financial point of view, to Olin. No limitations were imposed by the Olin Board upon JPMorgan with respect to the investigations made or procedures followed by it in rendering its opinion.

The full text of the written opinion of JPMorgan, dated March 26, 2015, which sets forth, among other things, the assumptions made, matters considered and limits on the review undertaken, is attached as Annex C to this document and is incorporated herein by reference. Olin’s shareholders are urged to read the opinion in its entirety. JPMorgan’s written opinion is addressed to the Olin Board, is directed only to the exchange ratio in the Merger and does not constitute a recommendation to any shareholder of Olin as to how such shareholder should vote with respect to the Merger or any other matter. The summary of the opinion of JPMorgan set forth in this document is qualified in its entirety by reference to the full text of such opinion.

In arriving at its opinion, JPMorgan, among other things:

 

    reviewed drafts dated March 26, 2015 of the Separation Agreement and the Merger Agreement;

 

    reviewed certain publicly available business and financial information concerning DCP and Olin and the industries in which they operate;

 

    compared the proposed financial terms of the Merger with the publicly available financial terms of certain transactions involving companies JPMorgan deemed relevant and the consideration received for such companies;

 

    compared the financial and operating performance of DCP and Olin with publicly available information concerning certain other companies JPMorgan deemed relevant and reviewed the current and historical market prices of Olin’s common stock and certain publicly traded securities of such other companies;

 

    reviewed certain internal financial analyses and forecasts prepared by or at the direction of the managements of TDCC and Olin relating to DCP and Olin’s business, as well as the estimated amount and timing of the cost savings and related expenses and synergies expected to result from the Merger, which are referred to in this section as “synergies”; and

 

    performed such other financial studies and analyses and considered such other information as JPMorgan deemed appropriate for the purposes of its opinion.

JPMorgan also held discussions with certain members of the management of TDCC and Olin with respect to certain aspects of the Merger, and the past and current business operations of DCP and Olin, the financial condition and future prospects and operations of DCP and Olin, the effects of the Merger on the financial condition and future prospects of Olin, and certain other matters JPMorgan believed necessary or appropriate to its inquiry.

 

108


Table of Contents

JPMorgan relied upon and assumed the accuracy and completeness of all information that was publicly available or was furnished to or discussed with JPMorgan by TDCC and Olin or otherwise reviewed by or for JPMorgan, and JPMorgan has not independently verified (nor has JPMorgan assumed responsibility or liability for independently verifying) any such information or its accuracy or completeness. JPMorgan has not conducted or been provided with any valuation or appraisal of any assets or liabilities, nor has JPMorgan evaluated the solvency of TDCC, DCP or Olin under any state or federal laws relating to bankruptcy, insolvency or similar matters. In relying on financial analyses and forecasts provided to JPMorgan or derived therefrom, including the synergies, JPMorgan has assumed that they have been reasonably prepared based on assumptions reflecting the best currently available estimates and judgments by management of Olin as to the expected future results of operations and financial condition of DCP and Olin to which such analyses or forecasts relate. JPMorgan expressed no view as to such analyses or forecasts (including the synergies) or the assumptions on which they were based. JPMorgan also assumed that the Separation, the Merger and the other transactions contemplated by the Separation Agreement and the Merger Agreement will qualify as a tax-free reorganization for U.S. federal income tax purposes, and will be consummated as described in such agreements, and that the definitive Separation Agreement and Merger Agreement would not differ in any material respects from the drafts thereof furnished to JPMorgan. JPMorgan also assumed that the representations and warranties made by Olin, TDCC and Splitco in the Separation Agreement, the Merger Agreement and the related agreements were and will be true and correct in all respects material to its analysis, and that any adjustments to the exchange ratio pursuant to the Merger Agreement will not be material to its analysis. JPMorgan is not a legal, regulatory or tax expert and has relied on the assessments made by advisors to Olin with respect to such issues. JPMorgan has further assumed that all material governmental, regulatory or other consents and approvals necessary for the consummation of the Separation and the Merger will be obtained without any adverse effect on DCP or Olin or on the contemplated benefits of the Merger.

JPMorgan’s opinion is necessarily based on economic, market and other conditions as in effect on, and the information made available to JPMorgan as of the date of, such opinion. Subsequent developments may affect JPMorgan’s opinion and JPMorgan does not have any obligation to update, revise, or reaffirm its opinion. JPMorgan’s opinion is limited to the fairness, from a financial point of view, to Olin of the exchange ratio in the proposed Merger and JPMorgan has expressed no opinion as to the fairness of the exchange ratio to the holders of any class of securities, creditors or other constituencies of Olin or as to the underlying decision by Olin to engage in the Merger. Furthermore, JPMorgan expressed no opinion with respect to the amount or nature of any compensation to any officers, directors, or employees of any party to the Merger, or any class of such persons relative to the exchange ratio in the Merger or with respect to the fairness of any such compensation. JPMorgan expressed no opinion as to the price at which Olin’s common stock will trade at any future time.

In accordance with customary investment banking practice, JPMorgan employed generally accepted valuation methods in reaching its opinion. The following is a summary of the material financial analyses utilized by JPMorgan in connection with providing its opinion.

General

Based on information provided, JPMorgan performed its material analyses with respect to DCP under two scenarios:

 

    DCP including 50 percent of the equity interests in the JV Entity, which is referred to in this section as “DCP (with 50 percent of JV Entity)”; and

 

    DCP including 100 percent of the equity interests in the JV Entity and assuming that Olin exercises its option for additional ethylene supply under the Ethylene Agreement (as described in the section of this document entitled “Other Agreements—Other Ancillary Agreements—Supply Agreements for Raw Materials”), which is referred to in this section as “DCP (with 100 percent of JV Entity).”

JPMorgan calculated the enterprise value of DCP under each scenario.

For purposes of valuing the consideration offered by Olin for the DCP (with 50 percent of JV Entity) scenario, JPMorgan calculated the enterprise value of DCP of $5,351 million, which is referred to as the

 

109


Table of Contents

enterprise value of DCP (with 50 percent of JV Entity), as the value of the Olin common stock to be issued to TDCC shareholders of $2,337 million (based on the price per share of Olin common stock as of March 10, 2015), plus the value of the cash and debt instruments of Splitco to be received by TDCC of $2,030 million, plus the upfront payment and potential reservation fee to TDCC under the Ethylene Agreement, plus the after-tax U.S. pension liability of TDCC to be assumed by Olin, plus the approximate net present value of cash flows from DCP’s net German pension liability to be assumed by Olin, and plus $272 million representing 50 percent of the projected debt of the JV Entity to be assumed by Olin.

For purposes of valuing the consideration offered by Olin for the DCP (with 100 percent of JV Entity) scenario, JPMorgan calculated the enterprise value of DCP of $5,862 million, which is referred to as the enterprise value of DCP (with 100 percent of JV Entity), as the value of the Olin common stock to be issued to TDCC shareholders of $2,537 million (based on the price per share of Olin common stock as of March 10, 2015 and inclusive of $200 million in additional common stock Olin would issue for the remaining 50 percent of the JV Entity’s equity value), plus the value of the cash and debt instruments of Splitco to be received by TDCC of $2,030 million, plus the upfront payment and the potential reservation fees to TDCC under the Ethylene Agreement, plus the after-tax U.S. pension liability of TDCC to be assumed by Olin, plus the approximate net present value of cash flows from DCP’s net German pension liability to be assumed by Olin, and plus $543 million representing 100 percent of the projected debt of the JV Entity to be assumed by Olin.

For purposes of its analysis of Olin, JPMorgan calculated the enterprise value of Olin on a stand-alone basis, as of March 24, 2015, of $2,634 million, which is referred to as the stand-alone enterprise valuation of Olin, based on Olin’s market capitalization, as of March 24, 2015, of $2,215 million and projected net debt, as of December 31, 2014.

Analysis of the Dow Chlorine Products Business

Public Trading Multiples Analysis for the Dow Chlorine Products Business. Using publicly available information, JPMorgan compared selected financial data of DCP under each of the two alternate scenarios, i.e. DCP (with 50 percent of JV Entity) and DCP (with 100 percent of JV Entity), with similar data for selected publicly traded companies engaged in businesses which JPMorgan judged to be similar in certain respects to DCP.

The companies selected by JPMorgan were as follows:

 

    Axiall Corporation;

 

    LyondellBasell Industries N.V.;

 

    Olin; and

 

    Westlake Chemical Corporation.

These companies were selected, among other reasons, because they are publicly traded companies with operations and businesses that, for purposes of JPMorgan’s analysis, may be considered comparable to those of DCP based on sector participation, financial metrics and form of operations. However, certain of these companies may have characteristics that are materially different from those of DCP. The analyses necessarily involve complex considerations and judgments concerning differences in financial and operational characteristics of the companies involved and other factors that could affect the companies differently than would affect DCP.

For each company listed above, JPMorgan calculated and compared various financial multiples and ratios based on publicly available information as of March 24, 2015, and in all instances multiples were based on closing share prices on March 24, 2015. Among other calculations, the information JPMorgan calculated for each of the selected companies included:

 

    Multiple of firm value, which is referred to in this section as “FV” (calculated as equity value plus total debt and other adjustments, including minority interests, net of cash and cash equivalents), to estimated EBITDA (calculated as earnings before interest, taxes, depreciation and amortization) for fiscal year 2015, which is referred to in this section as “1-Year Forward EBITDA.”

 

110


Table of Contents
    Multiple of FV to estimated EBITDA for fiscal year 2016, which is referred to in this section as “2-Year Forward EBITDA.”

Results of the analysis were presented for the selected companies, as indicated in the following table:

Trading Multiples

 

     FV / 1-Year Forward
EBITDA
     FV / 2-Year Forward
EBITDA
 

Low

     7.2x         6.3x   

High

   &