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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Filed by the Registrant x
Filed by a Party other than the Registrant o
Check the appropriate box:
o Preliminary Proxy Statement | ||||
o Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) | ||||
x Definitive Proxy Statement | ||||
o Definitive Additional Materials | ||||
o Soliciting Material Pursuant to §240.14a-12 |
Eastman Chemical Company
Payment of Filing Fee (Check the appropriate box):
x | No fee required. |
o | 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: |
(2) | Aggregate number of securities to which transaction applies: |
(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): |
(4) | Proposed maximum aggregate value of transaction: |
(5) | Total fee paid: |
o | Fee paid previously with preliminary materials. |
o | 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: |
(2) | Form, Schedule or Registration Statement No.: |
(3) | Filing Party: |
(4) | Date Filed: |
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Sincerely, | |
J. Brian Ferguson | |
Chairman and Chief Executive Officer |
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• | Elect Directors.To consider and act upon the election of three directors to serve in the class for which the term in office expires at the Annual Meeting of Stockholders in 2008 and until their successors are duly elected and qualified; | |
• | Ratify Appointment of Independent Accountants.To consider and act upon ratification of the action by the Audit Committee of the Board of Directors appointing PricewaterhouseCoopers LLP as independent accountants for the Company for 2005; and | |
• | Other Business.To transact such other business as may come properly before the Annual Meeting or any adjournments or postponements thereof. |
• | Use the toll-free telephone numbershown on your proxy card or voting instruction form (if you received the proxy materials by mail from a broker or bank); | |
• | By Internet at the web address shown on your proxy card or voting instruction form; or | |
• | Mark, sign, date and promptly return your proxy card or voting instruction form in the postage-paid envelope provided. |
By order of the Board of Directors | |
Theresa K. Lee | |
Chief Legal Officer and Corporate Secretary |
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• | by telephone: call (800) 542-1160 and follow the instructions on your proxy card; | |
• | via the Internet: visit the www.votefast.com website and follow the instructions on your proxy card; or | |
• | by mail: mark, sign, date and mail your proxy card in the enclosed postage-paid envelope. |
• | giving written notice of revocation to the Corporate Secretary of the Company; | |
• | executing and delivering a later-dated, signed proxy card or submitting a later-dated proxy via the Internet or by telephone before the Annual Meeting; or | |
• | voting in person at the Annual Meeting. |
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NOMINEES FOR DIRECTOR Term Expiring Annual Meeting 2008 | ||||
MICHAEL P. CONNORS (director since March 2005) Mr. Connors has served as a member of the Executive Board of VNU N.V., a major worldwide media and marketing information company, since the merger of ACNielsen into VNU in February 2001, and also currently serves as Chairman and Chief Executive Officer of VNU Media Measurement & Information Group and Chairman of VNU World Directories. He previously was Vice Chairman of the Board of ACNielsen from its spin-off from the Dun & Bradstreet Corporation in 1996 until 2001, was Senior Vice President of American Express Travel Related Services from 1989 until 1996, and before that was a Corporate Vice President of Sprint Corporation. In January 2005, VNU announced that Mr. Connors was resigning from the VNU Executive Board effective April 1, 2005 and as Chairman and Chief Executive Officer of VNU Media Measurement & Information Group effective June 30, 2005 to pursue other opportunities. Mr. Connors is also a member of the board of directors of NetRatings, Inc. Mr. Connors is 49. | ||||
J. BRIAN FERGUSON (director since January 2002) Mr. Ferguson has been Chairman of the Board and Chief Executive Officer of the Company since January 2002. He joined Eastman in 1977. Mr. Ferguson was named Vice President, Industry and Federal Affairs in 1994, became Managing Director, Greater China in 1997, was named President, Eastman Chemical Asia Pacific in 1998, became President, Polymers Group in 1999, and became President, Chemicals Group in 2001. He serves as a member of the American Chemistry Council Board of Directors and the National Association of Manufacturers Board of Directors, on the Executive Committee of the Business Roundtable, on the President’s Export Council, and as a Trustee of the United States Council for International Business. Mr. Ferguson is 50. | ||||
DONALD W. GRIFFIN (director since May 1999) Mr. Griffin was Chairman of the Board of Olin Corporation, a manufacturer of chemicals, metals, and ammunition, from 1996 until his retirement in April 2003. He joined Olin in 1961, served in a series of marketing and management positions prior to appointment to the position of President and Chief Operating Officer in 1994, became Chairman, President, and Chief Executive Officer in 1996, and retired as President and Chief Executive Officer in 2002. Mr. Griffin is a member of the boards of directors of Olin Corporation and of Barnes Group, Inc., and serves as a trustee of the University of Evansville and the Buffalo Bill Historical Center. Mr. Griffin is 68. | ||||
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MEMBERS OF BOARD OF DIRECTORS CONTINUING IN OFFICE Term Expiring Annual Meeting 2006 | ||||
STEPHEN R. DEMERITT (director since February 2003) Mr. Demeritt has served as Vice Chairman of General Mills, Inc. since 1999. General Mills is a leading producer of packaged consumer foods. He joined General Mills in 1969 and has served in a variety of marketing positions, including President, International Foods from 1991 to 1993 and Chief Executive Officer of Cereal Partners Worldwide, General Mills’ global cereal joint venture with Nestle, from 1993 to 1999. Mr. Demeritt is 61. | ||||
ROBERT M. HERNANDEZ (director since August 2002) Mr. Hernandez has been Chairman of the Board of RTI International Metals, Inc. since 1990, and was Vice Chairman of the Board and Chief Financial Officer of USX Corporation from 1994 until his retirement in December 2001. He joined U.S. Steel Corporation, the predecessor of USX, in 1968, and held positions of increasing responsibility in the financial and operating organizations, including Vice President and Treasurer from 1984 to 1987, Senior Vice President and Controller from 1987 to 1989, President, U.S. Diversified Group from 1989 to 1990, Senior Vice President, Finance from 1990 to 1991, and Executive Vice President and Chief Financial Officer from 1991 to 1994. RTI, a NYSE listed company, is a leading U.S. producer of titanium mill products and fabricated-metal parts for the global market, and was affiliated with USX prior to 2000. Mr. Hernandez is also Lead Director of American Casualty Excess (ACE) Ltd. and Vice Chairman of the Board of Trustees of BlackRock Mutual Funds. Mr. Hernandez is 60. | ||||
DAVID W. RAISBECK (director since December 2000) Mr. Raisbeck is Vice Chairman of Cargill, Incorporated, an agricultural trading and processing company. He joined Cargill in 1971 and has held a variety of merchandising and management positions focused primarily in the commodity and financial trading businesses. Mr. Raisbeck was elected President of Cargill’s Financial Markets Division in 1988, President of Cargill’s Trading Sector in 1993, a director of Cargill in 1994, Executive Vice President in 1995, and to his current position in 1999. He is also a member of the board of directors of Cardinal Health, Inc. Mr. Raisbeck is 55. | ||||
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Term Expiring Annual Meeting 2007 | ||||
RENÉE J. HORNBAKER (director since September 2003) Ms. Hornbaker served as Vice President and Chief Financial Officer of Flowserve Corporation from 1997 until her resignation in June 2004. Flowserve is a leading provider of industrial flow management products and services. In 1977, Ms. Hornbaker joined the accounting firm Deloitte, Haskins & Sells, now Deloitte & Touche Tohmatsu, where she became a senior manager of its audit practice in the firm’s Chicago office. Following that, she served in senior financial positions with several major companies from 1986 until 1996, when she joined BW/IP, Inc., a predecessor of Flowserve, as Vice President, Business Development. Ms. Hornbaker is 52. | ||||
THOMAS H. MCLAIN (director since February 2004) Mr. McLain has served as Chairman, Chief Executive Officer, and President of Nabi Biopharmaceuticals since May 2004 and was Chief Executive Officer, President and a director of Nabi from June 2002 until May 2004. Nabi is a biotechnology company that applies its knowledge of the human immune system to commercialize and develop products that address serious, unmet medical needs in the areas of infectious, autoimmune and addictive diseases. Previously, Mr. McLain served as President, Chief Operating Officer and a director from November 2002 to June 2003, and from April 2001 to November 2002, he served as Executive Vice President and Chief Operating Officer. From 1998 to April 2001, Mr. McLain served as Senior Vice President, Corporate Services and Chief Financial Officer. From 1988 to 1998, Mr. McLain was employed by Bausch & Lomb, Inc., a global eye care company, where he held various senior financial management positions of increasing responsibility. Before joining Bausch & Lomb, Mr. McLain practiced with the accounting firm of Ernst & Young LLP. Mr. McLain is 47. | ||||
PETER M. WOOD (director since May 2000) Mr. Wood served as Managing Director of J.P. Morgan & Company, an investment banking firm, from 1986 until his retirement in 1996, and was Vice President, Mergers & Acquisitions, of Kidder, Peabody & Company, Inc., an investment banking firm, from 1981 to 1986. From 1966 to 1981 Mr. Wood was a member (and a partner since 1971) of the international management consulting firm of McKinsey & Company. Mr. Wood was non-executive Chairman of the Board of Stone & Webster, Incorporated from August 2000 to February 2004. He is also a member of the board of directors of Middlesex Mutual Assurance Company. Mr. Wood is 66. | ||||
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• | has not been employed by the Company or any of its subsidiaries or affiliates, and who has no immediate family member who has been an executive officer of the Company, within the previous three years; | |
• | has not received, and whose immediate family member has not received, within the previous three years more than $100,000 per year in direct compensation from the Company, other than director and committee fees and pension or other forms of deferred compensation for prior service, provided such compensation is not contingent in any way on continued service; | |
• | as to the Company’s internal or external auditor, is not, and whose immediate family member is not, a partner; is not employed by, and whose immediate family member is not employed by and does not participate in the firm’s audit, assurance, or tax compliance practice; has not been, and whose immediate family member has not been, within the last three years, and is not currently, a partner or employee and personally worked on the Company’s audit; | |
• | is not and has not in the past three years been employed, and whose immediate family member is not and has not in the past three years been employed, as an executive officer of another company where any of the Company’s present executives at the same time serve or served on that company’s compensation committee; | |
• | is not an employee of, and whose immediate family member is not an executive officer of, another company that has made payments to, or received payments from, the Company for property or services in an amount that exceeds, in any of the last three years, the greater of $1 million or 2% of such other company’s consolidated gross revenues; | |
• | has no personal services contract with the Company, any subsidiary or affiliate of the Company or any executive officer; | |
• | does not have any other business relationship with the Company or any of its subsidiaries or affiliates (other than service as a director) that the Company would be required to disclose in proxy statements or in annual reports on Form 10-K filed with the SEC; | |
• | is not an executive officer of another company that is indebted to the Company or to which the Company is indebted and the total amount of either company’s indebtedness to the other is more than 1 percent of the total consolidated assets of the company that he or she serves as an executive officer; | |
• | is not an officer, director, or trustee of a charitable organization to which discretionary charitable contributions to the organization by the Company or an affiliate are more than 1 percent of that organization’s total annual charitable receipts or $100,000, whichever is less; and | |
• | is not a director, executive officer, partner, or greater than 10% equity holder of an entity that provides advisory, consulting, or professional services to the Company, any of its affiliates, or any executive officer. |
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• | the integrity of the financial statements of the Company and the Company’s system of internal controls; | |
• | the Company’s management of and compliance with legal and regulatory requirements; | |
• | the independence and performance of the Company’s internal auditors; | |
• | the qualifications, independence, and performance of the Company’s independent auditors; and | |
• | the retention and termination of the Company’s independent auditors, including the approval of fees and other terms of their engagement, and the approval of non-audit relationships with the independent auditors. See“Item 2 — Ratification of Appointment of Independent Accountants.” |
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• | identify individuals qualified to become Board members; | |
• | recommend to the Board candidates to fill Board vacancies and newly-created director positions; | |
• | recommend to the Board whether incumbent directors should be nominated for re-election to the Board upon the expiration of their terms; | |
• | develop and recommend corporate governance principles; | |
• | review and make recommendations to the Board regarding director compensation; and | |
• | recommend committee structures, membership, and chairs. |
• | integrity and demonstrated high ethical standards; | |
• | experience with business administration processes and principles; | |
• | the ability to express opinions, raise difficult questions, and make informed, independent judgments; | |
• | knowledge, experience, and skills in at least one specialty area, for example: |
• | accounting or finance, | |
• | corporate management, | |
• | marketing, | |
• | manufacturing, | |
• | technology, | |
• | information systems, | |
• | the chemical industry, | |
• | international business, or | |
• | legal or governmental expertise; |
• | the ability to devote sufficient time to prepare for and attend Board of Directors meetings (it is assumed that service on up to three other boards of directors will not impair a director’s service on the Company’s Board; the Nominating and Corporate Governance Committee will review instances in which a director serves on more than three other for-profit companies’ boards of directors); | |
• | willingness and ability to work with other members of the Board of Directors in an open and constructive manner; | |
• | the ability to communicate clearly and persuasively; and | |
• | diversity in gender, ethnic background, geographic origin, or personal and professional experience. |
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Annual Retainer for Serving as Director | $ | 80,000 | ||
Annual Deferred Retainer (into Stock Account of Directors’ Deferred Compensation Plan) | 15,000 | |||
Annual Retainer for Serving as Chair of Audit Committee | 12,000 | |||
Annual Retainer for Serving as Chair of Compensation and Management Development Committee | 9,000 | |||
Annual Retainer for Serving as Chair of Nominating and Corporate Governance Committee | 9,000 | |||
Annual Retainer for Serving as Chair of Finance Committee | 6,000 | |||
Annual Retainer for Serving as Chair of Health, Safety, Environmental and Security Committee | 6,000 | |||
Annual Retainer for Serving as a Member of the Audit Committee | 6,000 |
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Audit Fees: $5,825,550, in the aggregate, for the year ended December 31, 2004, and $2,722,250, in the aggregate, for the year ended December 31, 2003, for professional services rendered for the audits of the consolidated financial statements of the Company (including the audit of internal controls over financial reporting as of December 31, 2004), statutory and subsidiary audits, issuance of comfort letters, and assistance with review of documents filed with the SEC. | |
Audit-Related Fees: $3,135,661, in the aggregate, for the year ended December 31, 2004, and $502,877, in the aggregate, for the year ended December 31, 2003, for assurance and related services, including employee benefit plan audits, other audit procedures, and consultations concerning financial accounting and reporting standards. In addition, included as part of the “Audit-Related Fees” for 2004 was approximately $3,000,000 for services rendered in connection with carve out financial statement audits associated with divested assets, businesses and product lines. (Under the terms of the sale of such assets, businesses and product lines, the Company is entitled to reimbursement by the purchaser for such fee payments.) | |
Tax Fees: $1,481,225, in the aggregate, for the year ended December 31, 2004, and $1,283,956, in the aggregate, for the year ended December 31, 2003, for services related to tax compliance, including expatriate tax services and preparation of tax returns and claims for refunds, tax planning and tax advice, assistance with respect to tax audits, and requests for rulings for technical advice from tax authorities. | |
All Other Fees: $12,900, in the aggregate, for the year ended December 31, 2004, and $10,950, in the aggregate, for the year ended December 31, 2003, for all services other than those covered above under “Audit Fees,” “Audit-Related Fees,” and “Tax Fees.” “All Other Fees” were for services rendered related to technology licensing. |
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Number of Shares of | ||||
Common Stock Beneficially | ||||
Name | Owned(1)(2) | |||
J. Brian Ferguson | 402,572 | (3) | ||
Theresa K. Lee | 76,136 | (4) | ||
Richard A. Lorraine | 142,746 | (5) | ||
James P. Rogers | 317,707 | (6) | ||
Allan R. Rothwell | 132,310 | (7) | ||
Calvin A. Campbell, Jr. | 12,358 | (8) | ||
Michael P. Connors | 165 | (9) | ||
Stephen R. Demeritt | 2,573 | (10) | ||
Donald W. Griffin | 9,697 | (11) | ||
Robert M. Hernandez | 4,504 | (12) | ||
Renée J. Hornbaker | 1,392 | (13) | ||
Thomas H. McLain | 438 | (14) | ||
David W. Raisbeck | 5,708 | (15) | ||
Peter M. Wood | 8,678 | (16) | ||
Directors, named executives, and other executive officers as a group (17 persons) | 1,189,714 | (17) |
(1) Information relating to beneficial ownership is based upon information furnished by each person using “beneficial ownership” concepts set forth in rules of the SEC. Under those rules, a person is deemed to be a “beneficial owner” of a security if that person has or shares “voting power,” which includes the power to vote or to direct the voting of such security, or “investment power,” which includes the power to dispose of, or to direct the disposition of, such security. The person is also deemed to be a beneficial owner of any security of which that person has a right to acquire beneficial ownership (such as by exercise of options) within 60 days. Under such rules, more than one person may be deemed to be a beneficial owner of the same securities, and a person may be deemed to be a beneficial owner of securities as to which he or she may disclaim any beneficial interest. Except as indicated in other notes to this table, directors and executive officers possessed sole voting and investment power with respect to all shares of common stock referred to in the table. | |
(2) The total number of shares of common stock beneficially owned by the directors, the named executive officers, and the other executive officers as a group represents approximately 1.48% of the shares of common stock outstanding as of December 31, 2004. The percentage beneficially owned by any individual director or executive officer does not exceed one percent of the outstanding shares of common stock. Shares not outstanding which are subject to options exercisable within 60 days by persons in the group or a named individual are deemed to be outstanding for the purpose of computing the percentage of outstanding shares of common stock owned by the group or such individual. | |
(3) Includes 362,544 shares that may be acquired upon exercise of options, 578 shares allocated to Mr. Ferguson’s Employee Stock Ownership Plan (“ESOP”) account, and 28,020 restricted shares that generally vest as to one-third of the shares in each of October 2005, 2006 and 2007, but as to which Mr. Ferguson currently has voting power. | |
(4) Includes 65,060 shares that may be acquired upon exercise of options, 737 shares allocated to Ms. Lee’s ESOP account, and 5,000 restricted shares that generally vest as to one-half of the shares in December 2005 and 2006, respectively, but as to which Ms. Lee currently has voting power. | |
(5) Includes 21 shares allocated to Mr. Lorraine’s ESOP account and 20,000 restricted shares that generally vest in December 2006 but as to which Mr. Lorraine currently has voting power. Also includes 122,725 shares owned by the Eastman Chemical Company Foundation, Inc., of which shares Mr. Lorraine may also be deemed a beneficial owner by virtue of his shared voting and investment power as a director of the Foundation. |
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(6) Includes 295,087 shares that may be acquired upon exercise of options and 1,025 shares allocated to Mr. Rogers’ ESOP account. | |
(7) Includes 109,100 shares that may be acquired upon exercise of options, 769 shares allocated to Mr. Rothwell’s ESOP account, and 10,000 restricted shares that generally vest in December 2005 but as to which Mr. Rothwell currently has voting power. | |
(8) Includes 7,000 shares that may be acquired upon exercise of options, 111 restricted shares that generally vest in May 2005, but as to which Mr. Campbell currently has voting power, 166 restricted shares that generally vest in May 2006, but as to which he currently has voting power, and 114 restricted shares that generally vest in May 2007, but as to which he currently has voting power. | |
(9) As of March 15, 2005, the date of Mr. Connors’ election to the Board. Consists of 165 restricted shares that generally vest in March 2008, but as to which he currently has voting power. |
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Number of Shares of | ||||
Common Stock and | ||||
Common Stock Units | ||||
Name | Beneficially Owned | |||
J. Brian Ferguson | 417,414 | |||
Theresa K. Lee | 88,927 | |||
Richard A. Lorraine | 142,746 | (1) | ||
James P. Rogers | 317,707 | |||
Allan R. Rothwell | 136,558 | |||
Calvin A. Campbell, Jr. | 12,358 | |||
Michael P. Connors | 165 | |||
Stephen R. Demeritt | 2,573 | |||
Donald W. Griffin | 9,697 | |||
Robert M. Hernandez | 4,504 | |||
Renée J. Hornbaker | 2,290 | |||
Thomas H. McLain | 438 | |||
David W. Raisbeck | 12,308 | |||
Peter M. Wood | 8,678 | |||
Directors, named executives, and other executive officers as a group (17 persons) | 1,232,813 | (1) |
(1) | Includes 122,725 shares owned by the Eastman Chemical Company Foundation, Inc., over which shares Mr. Lorraine and one other executive officer not named share voting and investment power as directors of the Foundation but in which shares such executive officers have no pecuniary interest. |
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Number of Shares of | Percent | ||||||||
Common Stock | of | ||||||||
Name and Address of Beneficial Owner | Beneficially Owned | Class(1) | |||||||
FMR Corp. (Fidelity) | 7,794,089 | (2) | 9.71 | % | |||||
82 Devonshire Street | |||||||||
Boston, Massachusetts 02109 | |||||||||
Lord, Abbett & Co. LLC | 7,464,870 | (3) | 9.29 | % | |||||
90 Hudson Street | |||||||||
Jersey City, New Jersey 07302 | |||||||||
Barclays Global Investors N.A. | 4,987,572 | (4) | 6.21 | % | |||||
45 Fremont Street | |||||||||
San Francisco, California 94105 |
(1) | Based upon the number of shares of common stock outstanding and entitled to be voted at the Annual Meeting as of the record date. |
(2) | As of December 31, 2004, based on a Schedule 13G filed with the SEC by FMR Corp. (Fidelity), a parent holding company, and affiliated investment advisers, investment companies, trusts, and controlling individuals. According to the Schedule 13G, FMR Corp. and such affiliated entities and persons together have sole investment power with respect to all of such shares and sole voting power with respect to 595,926 of such shares. |
(3) | As of December 31, 2004, based on a Schedule 13G filed with the SEC by Lord, Abbett & Co. LLC, an investment adviser. According to the Schedule 13G, Lord, Abbett has sole investment and voting power with respect to all of such shares. |
(4) | As of December 31, 2004, based on a Schedule 13G filed with the SEC by Barclays Global Investors N.A., a bank, and certain affiliated bank, broker-dealer, and investment adviser entities. According to the Schedule 13G, Barclays Global Investors and such affiliated entities together have sole investment power with respect to all of such shares and sole voting power with respect to 4,657,494 of such shares. |
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Long-Term Compensation | |||||||||||||||||||||||||||||||||
Awards | Payouts | ||||||||||||||||||||||||||||||||
Annual Compensation(1) | |||||||||||||||||||||||||||||||||
Restricted | |||||||||||||||||||||||||||||||||
Other Annual | Stock | Securities | Long-Term | ||||||||||||||||||||||||||||||
Name and Principal | Compensation | Awards | Underlying | Incentive Plan | All Other | ||||||||||||||||||||||||||||
Position | Year | Salary(2)(3) | Bonus(3)(4) | (5)(6)(7) | ($)(8) | Options(#) | Payouts($)(9) | Compensation(10) | |||||||||||||||||||||||||
J. Brian Ferguson | 2004 | $ | 825,046 | $ | 1,275,000 | $ | 1,616 | $ | 0 | 129,700 | (11) | $ | 0 | $ | 56,502 | ||||||||||||||||||
Chairman and Chief | 2003 | 787,831 | 305,000 | 1,907 | 0 | 200,000 | 183,876 | 55,312 | |||||||||||||||||||||||||
Executive Officer | 2002 | 689,051 | 318,416 | 86 | 1,000,034 | (12) | 200,000 | 296,736 | 34,453 | ||||||||||||||||||||||||
James P. Rogers(13) | 2004 | 477,923 | 635,000 | (14) | 4,996 | 0 | 43,000 | (11) | 0 | 31,204 | |||||||||||||||||||||||
Executive Vice | 2003 | 426,778 | 145,000 | 155 | 0 | 49,200 | 183,876 | 28,113 | |||||||||||||||||||||||||
President and | 2002 | 428,099 | 135,488 | 4,083 | 507,822 | (15) | 49,200 | 296,736 | 21,405 | ||||||||||||||||||||||||
President, Eastman Division | |||||||||||||||||||||||||||||||||
Allan R. Rothwell | 2004 | 457,800 | 425,000 | 958 | 790,600 | (16) | 29,000 | (11) | 0 | 32,390 | |||||||||||||||||||||||
Executive Vice | 2003 | 437,150 | 190,000 | 186 | 0 | 49,200 | 183,876 | 29,898 | |||||||||||||||||||||||||
President and | 2002 | 443,448 | 200,807 | 205 | 0 | 49,200 | 296,736 | 24,172 | |||||||||||||||||||||||||
President, Voridian Division | |||||||||||||||||||||||||||||||||
Richard A. Lorraine (17) | 2004 | 415,385 | 415,000 | 22,585 | 0 | 22,500 | 0 | 21,769 | |||||||||||||||||||||||||
Senior Vice President | 2003 | 30,769 | 120,000 | 0 | 741,000 | (18) | 0 | 0 | 923 | ||||||||||||||||||||||||
and Chief Financial Officer | 2002 | — | — | — | — | — | — | — | |||||||||||||||||||||||||
Theresa K. Lee | 2004 | 321,139 | 325,000 | 679 | 199,000 | (19) | 23,743 | (11) | 0 | 19,057 | |||||||||||||||||||||||
Senior Vice President, | 2003 | 297,839 | 60,000 | 289 | 0 | 25,000 | 74,028 | 17,937 | |||||||||||||||||||||||||
Chief Legal Officer | 2002 | 281,388 | 60,909 | �� | 1,384 | 0 | 25,000 | 124,090 | 14,069 | ||||||||||||||||||||||||
and Secretary |
(1) | Includes both amounts paid for the indicated years and amounts earned during the indicated years but deferred under the EDCP. | |
(2) | In April 2003, following a review of business conditions, the Company reduced all employees’ base salaries by 3%. At the same time, at the recommendation of the Chief Executive Officer, the Compensation Committee reduced base salary for executive officers by 6%. Increases for 2004 over 2003 reflect the restoration of base salary levels for all employees, including executive officers, in April 2004, and in the case of one executive officer, an adjustment to base salary resulting from a review of competitive pay levels. See “Compensation and Management Development Committee Report on Executive Compensation.” | |
(3) | Total annual cash compensation, which consists of base salary (“Salary”) and variable pay (“Bonus”), is targeted at competitive levels. See “Compensation and Management Development Committee Report on Executive Compensation.” | |
(4) | Includes cash payments in the following year for services rendered in the year indicated under the Unit Performance Plan for 2004 and 2003, and the Eastman Performance Plan and the Unit Performance Plan for 2002. The Eastman Performance Plan was a variable pay program that made a portion of participants’ total annual compensation dependent upon the financial success of the Company. Beginning 2003, executive officers no longer participated in the Eastman Performance Plan. The Unit Performance Plan is a variable pay program which makes a portion of participants’ total annual compensation dependent upon organizational and individual performance. Amounts in the “Bonus” column also include the value of an award of Eastman common stock paid to Mr. Rogers under a special incentive arrangement for 2004, a signing bonus paid to Mr. Lorraine upon commencement of his employment with the Company in November 2003, and a special recognition and incentive award paid |
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to Mr. Rothwell in 2002. See “Compensation and Management Development Committee Report on Executive Compensation.” | ||
(5) | Amounts reimbursed for payment of taxes on certain compensation and benefits. For 2004, the amount reported for Mr. Lorraine also includes tax gross-up payments related to his relocation upon commencement of his employment with the Company. | |
(6) | The aggregate value of perquisites and other personal benefits to each named executive officer is less than $50,000 and, under the SEC’s disclosure rules, is not included. | |
(7) | Executive officers may participate in the EDCP, an unfunded, nonqualified, deferred compensation plan, which allows employees to defer compensation until retirement or termination from the Company. The deferred amounts may be credited to an individual Interest Account or Stock Account. Amounts deferred to the Interest Account are credited with interest at the prime rate until distribution, and amounts deferred to the Stock Account are “invested” in hypothetical shares of Eastman common stock. If cash dividends are declared on the common stock, each Stock Account will receive a dividend equivalent which is used to “purchase” additional hypothetical shares. For 2004, since there were no preferential or above-market earnings (interest on deferred compensation at a rate exceeding 120% of the federal long-term rate, and appreciation in value and dividend equivalents earned at a rate higher than appreciation in value and dividends on common stock) on these accounts for any participants, under the SEC’s disclosure rules, no earnings accrued on deferred compensation are included. | |
(8) | Fair market value of awards of restricted stock, based upon the closing price of the common stock on the New York Stock Exchange on the date of grant. Dividends are paid on these shares as and when dividends are paid on common stock. | |
(9) | Fair market value of payout during the following year of stock earned under performance shares awarded at the beginning of the three-year performance period ended in the year indicated, with shares earned based upon total return to stockholders during the three-year performance period relative to that of peer companies. The payout, unless deferred at the election of the participant, was in the form of unrestricted shares of Eastman common stock. The amount reported represents the fair market value of the shares earned, based upon the closing price of the common stock on the New York Stock Exchange on the payment date. No performance shares were awarded for the three-year performance period ending in 2004. Also, as a new employee, Mr. Lorraine did not receive performance share awards for the performance periods ending in 2002 and 2003. See “Compensation and Management Development Committee Report on Executive Compensation.” |
(10) | Annual Company contributions to the accounts of Messrs. Ferguson and Rothwell, and Ms. Lee, for all three years, and to Mr. Rogers in 2004, in the Eastman Investment Plan, a 401(k) retirement plan, and in the EDCP, and to Mr. Rogers’ accounts (in 2003 and 2002) and Mr. Lorraine’s accounts (in 2004 and 2003) in the Eastman ESOP and EDCP. Annual Company contributions were based upon actual compensation paid during the calendar year. |
(11) | Includes new “reload” options received in 2004 by Messrs. Ferguson (4,700), Rogers (15,000), and Rothwell (1,000), and Ms. Lee (2,993), to purchase a number of shares equal to the number of previously owned shares of Eastman common stock surrendered in payment of the exercise price of previously granted options. See “Option Grants in Last Fiscal Year” and “Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values” tables. |
(12) | Mr. Ferguson was awarded 28,020 restricted shares of common stock with restrictions lapsing as to one-third of the shares on the third anniversary of the award date, one-third of the shares on the fourth anniversary of the award date, and the remainder of the shares on the fifth anniversary of the award date. These shares are also subject to forfeiture in the event of termination for an unapproved reason, or violation of prohibitions concerning competition, confidentiality, and other activity adverse to the interests of the Company. At December 31, 2004, Mr. Ferguson held 28,020 restricted shares of common stock with a fair market value of $1,617,595, based on the per share closing price of the common stock on the New York Stock Exchange on December 31, 2004. |
(13) | Before he joined the Company in August 1999, Mr. Rogers was Executive Vice President and Chief Financial Officer of GAF Corporation and of certain affiliated and successor entities of GAF, including G-I Holdings, Inc. On January 5, 2001, G-I Holdings announced that it had filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the |
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District of New Jersey to resolve asbestos liability claims. This information is included in the Proxy Statement pursuant to Item 7(b) of Regulation 14A of the SEC’s proxy rules, which requires the description of the filing of a petition in bankruptcy during the past five years by a corporation of which an executive officer of the Company was an executive officer within two years before the time of such filing. | |
(14) | Includes the fair market value, based upon the closing price of the common stock on the New York Stock Exchange on the payment date, of a payout to Mr. Rogers of 12,000 shares of stock in February 2005 as a result of meeting certain organizational and financial objectives in 2004 under a special incentive arrangement. See “Compensation and Management Development Committee Report on Executive Compensation.” |
(15) | In August 2002, Mr. Rogers was awarded 11,300 restricted shares of common stock, with restrictions lapsing on the first anniversary of the award. |
(16) | Mr. Rothwell was awarded 20,000 restricted shares of common stock, with restrictions lapsing as to one-half of the shares on November 30, 2004 and as to the remaining restricted shares on November 30, 2005. The shares are also subject to forfeiture in the event of termination for an unapproved reason. At December 31, 2004, Mr. Rothwell held 10,000 restricted shares of common stock with a fair market value of $577,300, based on the per share closing price of the common stock on the New York Stock Exchange on December 31, 2004. See “Compensation and Management Development Committee Report on Executive Compensation.” |
(17) | Mr. Lorraine joined the Company in November 2003. |
(18) | Mr. Lorraine was awarded 20,000 restricted shares of common stock, with restrictions lapsing on November 30, 2006. The shares are also subject to forfeiture in the event of termination for an unapproved reason. At December 31, 2004, Mr. Lorraine held 20,000 restricted shares of common stock with a fair market value of $1,154,600, based on the per share closing price of the common stock on the New York Stock Exchange on December 31, 2004. See “Compensation and Management Development Committee Report on Executive Compensation.” |
(19) | Ms. Lee was awarded 5,000 restricted shares of common stock, with restrictions lapsing as to one-half of the shares on December 31, 2005 and as to the remaining restricted shares on December 31, 2006. The shares are also subject to forfeiture in the event of termination for an unapproved reason. At December 31, 2004, Ms. Lee held 5,000 restricted shares of common stock with a fair market value of $288,650, based on the per share closing price of the common stock on the New York Stock Exchange on December 31, 2004. See “Compensation and Management Development Committee Report on Executive Compensation.” |
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Potential Realizable Value at | ||||||||||||||||||||||||||||
Assumed Annual Rates of Stock | ||||||||||||||||||||||||||||
Price Appreciation for Option | ||||||||||||||||||||||||||||
Individual Grants | Term(1) | |||||||||||||||||||||||||||
Percentage of Total | ||||||||||||||||||||||||||||
Number of | Options/SARs | |||||||||||||||||||||||||||
Securities | Granted to | Exercise or | ||||||||||||||||||||||||||
Underlying Options | Employees in | Base Price Per | Expiration | |||||||||||||||||||||||||
Name | Granted | Fiscal Year | Share | Date | 0%(2) | 5%(3) | 10%(4) | |||||||||||||||||||||
J. B. Ferguson | 50,000 | (5) | 4.75 | % | $ | 43.66 | 04/01/14 | $ | 0 | $ | 1,372,877 | $ | 3,479,140 | |||||||||||||||
4,700 | (6) | 0.45 | % | 46.28 | 04/03/13 | 0 | 117,227 | 287,401 | ||||||||||||||||||||
75,000 | (5) | 7.13 | % | 46.98 | 11/01/14 | 0 | 2,215,910 | 5,615,552 | ||||||||||||||||||||
J. P. Rogers | 12,000 | (5) | 1.14 | % | 43.66 | 04/01/14 | 0 | 329,490 | 834,994 | |||||||||||||||||||
15,000 | (6) | 1.43 | % | 46.27 | 04/03/13 | 0 | 373,334 | 914,938 | ||||||||||||||||||||
16,000 | (5) | 1.52 | % | 46.98 | 11/01/14 | 0 | 472,728 | 1,197,984 | ||||||||||||||||||||
A. R. Rothwell | 12,000 | (5) | 1.14 | % | 43.66 | 04/01/14 | 0 | 329,490 | 834,994 | |||||||||||||||||||
16,000 | (5) | 1.52 | % | 46.98 | 11/01/14 | 0 | 472,728 | 1,197,984 | ||||||||||||||||||||
1,000 | (6) | 0.10 | % | 47.82 | 04/03/13 | 0 | 24,553 | 59,620 | ||||||||||||||||||||
R. A. Lorraine | 8,500 | (5) | 0.81 | % | 43.66 | 04/01/14 | 0 | 233,389 | 591,454 | |||||||||||||||||||
14,000 | (5) | 1.33 | % | 46.98 | 11/01/14 | 0 | 413,637 | 1,048,236 | ||||||||||||||||||||
T. K. Lee | 6,750 | (5) | 0.64 | % | 43.66 | 04/01/14 | 0 | 185,338 | 469,684 | |||||||||||||||||||
693 | (6) | 0.07 | % | 44.20 | 04/03/13 | 0 | 16,691 | 41,013 | ||||||||||||||||||||
14,000 | (5) | 1.33 | % | 46.98 | 11/01/14 | 0 | 413,637 | 1,048,236 | ||||||||||||||||||||
2,300 | (6) | 0.22 | % | 50.11 | 04/03/13 | 0 | 58,199 | 140,867 |
(1) | The dollar amounts under these columns are the result of calculations projected for the term of each individual grant, assuming 0%, and the 5% and 10% rates set by the SEC, of compounded annual appreciation, and are not intended to forecast possible future appreciation, if any, of the market price of Eastman common stock. |
(2) | No gain to the optionee is possible without an increase in stock price, which would benefit all stockholders commensurately. A 0% appreciation in stock price would result in zero dollars for the optionee. |
(3) | Represents the appreciation in stock price from the exercise price until the expiration date assuming a 5% per year appreciation in stock price. For example, for options reported in the table, a 5% per year appreciation in stock price from $43.66 per share yields $71.12 per share. |
(4) | Represents the appreciation in stock price from the exercise price until the expiration date assuming a 10% per year appreciation in stock price. For example, for options reported in the table, a 10% per year appreciation in stock price from $43.66 per share yields $113.24 per share. |
(5) | The option vests and becomes exercisable in one-third increments on each of the first three anniversaries of the grant date, with acceleration of vesting in the event of a “change in ownership” or in certain circumstances following a “change in control.” See “Change-in-Control Arrangements — Omnibus Long-Term Compensation Plans.” |
(6) | “Reload” option received upon exercise of previously granted option through surrender of shares of common stock and covering the same number of shares as surrendered in the exercise. The reload option vested and became exercisable immediately upon grant, and would be valued and cashed out in the event of “change in ownership,” or in certain circumstances following a “change in control.” See “Change-in-Control Arrangements — Omnibus Long-Term Compensation Plans.” |
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Number of Securities | Value of Unexercised | |||||||||||||||||||||||
Shares | Underlying Unexercised Options | In-the-Money Options | ||||||||||||||||||||||
Acquired on | at Fiscal Year-End | at Fiscal Year-End(1) | ||||||||||||||||||||||
Option | Value | |||||||||||||||||||||||
Name | Exercise(#) | Realized($) | Exercisable(#) | Unexercisable(#) | Exercisable($) | Unexercisable($) | ||||||||||||||||||
J. B. Ferguson | 7,276 | $ | 119,181 | 362,544 | 225,000 | $ | 5,523,110 | $ | 4,292,750 | |||||||||||||||
J. P. Rogers | 23,213 | 379,997 | 295,087 | 52,600 | 2,322,004 | 1,025,458 | ||||||||||||||||||
A. R. Rothwell | 47,800 | 835,517 | 109,100 | 52,600 | 1,020,678 | 1,025,458 | ||||||||||||||||||
R. A. Lorraine | 0 | 0 | 0 | 22,500 | 0 | 270,095 | ||||||||||||||||||
T. K. Lee | 4,873 | 92,156 | 65,060 | 33,250 | 802,841 | 593,348 |
(1) | Represents the difference between the closing price on the New York Stock Exchange of common stock underlying the in-the-money options on December 31, 2004, and the exercise price of the options. |
Performance or | ||||||||||||||||||||||||
Number of Shares, | Other Period Until | Estimated Future Payouts Under Non-Stock Price-Based Plans | ||||||||||||||||||||||
Units or Other | Maturation or | |||||||||||||||||||||||
Name | Rights(#) | Payout | Below Threshold(#) | Threshold(#) | Target(#) | Maximum(#) | ||||||||||||||||||
J. B. Ferguson | 22,000 | 2 Years | 0 | 8,800 | 22,000 | 66,000 | ||||||||||||||||||
33,000 | 3 Years | 0 | 13,200 | 33,000 | 99,000 | |||||||||||||||||||
J. P. Rogers | 5,330 | 2 Years | 0 | 2,132 | 5,330 | 15,990 | ||||||||||||||||||
8,000 | 3 Years | 0 | 3,200 | 8,000 | 24,000 | |||||||||||||||||||
A. R. Rothwell | 5,330 | 2 Years | 0 | 2,132 | 5,330 | 15,990 | ||||||||||||||||||
8,000 | 3 Years | 0 | 3,200 | 8,000 | 24,000 | |||||||||||||||||||
R. A. Lorraine | 3,780 | 2 Years | 0 | 1,512 | 3,780 | 11,340 | ||||||||||||||||||
5,670 | 3 Years | 0 | 2,268 | 5,670 | 17,010 | |||||||||||||||||||
T. K. Lee | 3,000 | 2 Years | 0 | 1,200 | 3,000 | 9,000 | ||||||||||||||||||
4,500 | 3 Years | 0 | 1,800 | 4,500 | 13,500 |
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Average | Years of Service | |||||||||||||||||||||||||
Participating | ||||||||||||||||||||||||||
Compensation | 15 | 20 | 25 | 30 | 35 | 40 | ||||||||||||||||||||
$ | 200,000 | $ | 44,216 | $ | 58,954 | $ | 73,693 | $ | 88,431 | $ | 103,170 | $ | 108,328 | |||||||||||||
250,000 | 56,216 | 74,954 | 93,693 | 112,431 | 131,170 | 137,728 | ||||||||||||||||||||
300,000 | 68,216 | 90,954 | 113,693 | 136,431 | 159,170 | 167,128 | ||||||||||||||||||||
350,000 | 80,216 | 106,954 | 133,693 | 160,431 | 187,170 | 196,528 | ||||||||||||||||||||
400,000 | 92,216 | 122,954 | 153,693 | 184,431 | 215,170 | 225,928 | ||||||||||||||||||||
450,000 | 104,216 | 138,954 | 173,693 | 208,431 | 243,170 | 255,328 | ||||||||||||||||||||
500,000 | 116,216 | 154,954 | 193,693 | 232,431 | 271,170 | 284,728 | ||||||||||||||||||||
550,000 | 128,216 | 170,954 | 213,693 | 256,431 | 299,170 | 314,128 | ||||||||||||||||||||
600,000 | 140,216 | 186,954 | 233,693 | 280,431 | 327,170 | 343,528 | ||||||||||||||||||||
650,000 | 152,216 | 202,954 | 253,693 | 304,431 | 355,170 | 372,928 | ||||||||||||||||||||
700,000 | 164,216 | 218,954 | 273,693 | 328,431 | 383,170 | 402,328 | ||||||||||||||||||||
750,000 | 176,216 | 234,954 | 293,693 | 352,431 | 411,170 | 431,728 | ||||||||||||||||||||
800,000 | 188,216 | 250,954 | 313,693 | 376,431 | 439,170 | 461,128 | ||||||||||||||||||||
850,000 | 200,216 | 266,954 | 333,693 | 400,431 | 467,170 | 490,528 | ||||||||||||||||||||
900,000 | 212,216 | 282,954 | 353,693 | 424,431 | 495,170 | 519,928 | ||||||||||||||||||||
950,000 | 224,216 | 298,954 | 373,693 | 448,431 | 523,170 | 549,328 | ||||||||||||||||||||
1,000,000 | 236,216 | 314,954 | 393,693 | 472,431 | 551,170 | 578,728 | ||||||||||||||||||||
1,100,000 | 236,228 | 314,970 | 393,713 | 472,455 | 551,198 | 578,757 | ||||||||||||||||||||
1,150,000 | 236,240 | 314,986 | 393,733 | 472,479 | 551,226 | 578,787 |
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For Average Participating | ||||||||||
Compensation over the | ||||||||||
Points | For All Average | Average Social Security | ||||||||
(Age + Service) | Participating Compensation | Wage Base | ||||||||
Under 35 | 2 | % | 2 | % | ||||||
35-44 | 2.5 | % | 2 | % | ||||||
45-54 | 3 | % | 3 | % | ||||||
55-64 | 4.5 | % | 3 | % | ||||||
65-74 | 6 | % | 5 | % | ||||||
75-84 | 9 | % | 8 | % | ||||||
85-94 | 12.5 | % | 10 | % | ||||||
95 & Over | 16 | % | 10 | % | ||||||
After 40 Years of Service | 8 | % | 5 | % |
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Base pay | Provides a stable annual salary at a level consistent with the individual’s position and contributions. | |
Variable pay | Makes a portion of each manager’s annual income dependent upon the success of the Company, organizational performance and attainment of individual objectives. | |
Stock-based incentive pay | Encourages an ownership mindset by aligning the interests of senior managers and other stockholders. |
• | Terminating the Eastman Performance Plan (a variable pay program which made a portion of each employee’s total annual compensation dependent on Company financial performance) and including such pay in other forms of compensation. | |
• | Providing annual cash variable incentive pay opportunities for management-level employees through the Unit Performance Plan (“UPP”). | |
• | Modifying long-term stock-based incentive programs. |
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Annual Cash Compensation — Base Pay and Variable Pay |
Cash Compensation for 2004 |
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• | For 2004, approximately 800 Company managers, including executive officers, participated. | |
• | The portion of total annual compensation that is made variable under the UPP is determined by the Compensation Committee. | |
• | The amount of the award pool from which payouts are made is determined by annual performance of the Company versus pre-set goals for specified measures. The Compensation Committee establishes annual performance goals for each operating division and segment and the Company as a whole. For 2004, the measure of performance under the UPP was earnings from operations. | |
• | An award pool is generated for the Company, equal to the aggregate of the UPP payouts for each participant if the individual’s organizational and individual performance were at target levels, multiplied by a performance factor determined by applicable corporate performance compared to the pre-set performance goal. The performance factor can range from 0% if performance is below the threshold level, to a maximum of 250% for performance significantly above target levels of corporate performance. The Compensation Committee may, in its discretion, adjust the award pool to reflect overall corporate performance and business and financial conditions. | |
• | The Chief Executive Officer, in consultation with executive officers responsible for major organizations, determines the allocation of the Company award pool to each of the organizations within the Company based on his assessment of the performance of all the organizations relative to objectives established at the beginning of the performance year. There were seven such organizations for 2004. Once each organization’s award pool is determined, management within each organization (or in the case of the Chief Executive Officer, the Compensation Committee) allocates the organization’s portion of the Company award pool for individual payouts, based upon attainment of individual and organizational objectives and expectations established at the beginning of the performance year. An actual individual award could exceed an individual’s target award, based on the manager’s assessment of individual and organizational performance. However, the sum of all individual awards within an organization cannot exceed the amount of the organization’s allocated portion of the total Company award pool without specific approval by the Committee. | |
• | Mr. Ferguson participated in the UPP in an organization established for the Chief Executive Officer. The Compensation Committee established individual performance objectives and expectations for Mr. Ferguson, and determined his payout considering his allocated portion of the Company total award pool and the Committee’s assessment of his attainment of these objectives for 2004. See “Compensation of Chief Executive Officer.” |
• | Earnings from operations for 2004, as adjusted as described below, exceeded the target level of performance established under the UPP for the Company as a whole. This resulted in a Company award pool equivalent to 154% of target award (of a possible maximum of 250%). | |
• | Allocation of the Company award pool to organizations, and payouts to individuals within each organization, were determined as described under “Key Features” above. | |
• | Executive officers named in the Summary Compensation Table participated in an organization consisting of all executive officers reporting to the Chief Executive Officer. The amount of the Company award pool allocated to the executive officers was determined by aggregating their individual target variable pay amounts, multiplied by a “performance factor” corresponding to their overall performance compared to pre-established targets related to organizational results and personal performance objectives. For 2004, the target variable pay under the UPP (expressed as a |
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percentage of annual base pay) was 100% for Mr. Ferguson, 75% for Messrs. Rogers and Rothwell, 65% for Mr. Lorraine, and 60% for Ms. Lee. | ||
• | Following determination of the total amount of the Company award pool available to the executive officers as a group, the Chief Executive Officer assessed individual performance against established goals and expectations for each other executive officer, including the executive officers named in the Summary Compensation Table, and determined the amounts of the individual payouts from the portion of the allocated award pool. The Chief Executive Officer’s assessment was based upon measurement of each other executive officer’s performance against individual goals and expectations related to corporate and organizational performance compared to established earnings from operations targets and the officer’s contributions to support value-creating growth, improving gross margins, and building organizational capabilities for future growth. Based on the Chief Executive Officer’s assessment, the Compensation Committee approved payouts to the named executive officers in the amounts reported in the “Bonus” column of the Summary Compensation Table. | |
• | The Compensation Committee reviewed Mr. Ferguson’s performance against his 2004 financial, organizational, and strategic objectives and determined his payout for 2004. See “Compensation of Chief Executive Officer.” | |
• | In determining earnings from operations for the purpose of measuring performance of the Company, the UPP provides for adjustments by the Compensation Committee for charges, income items, or other events that are distortive of financial results. The calculation of earnings from operations under the UPP for 2004 was adjusted to exclude the distortive impact on financial results of asset impairment and restructuring charges associated with the Coatings, Adhesives, Specialty Polymers, and Inks (“CASPI”) segment, the Performance Chemicals and Intermediates segment, and the Specialty Plastics segment; charges associated with severance benefits provided as part of employee separation programs and ongoing cost efforts; and the gain from the divestiture of the resins, inks, and monomers businesses and product lines in the CASPI segment. Exclusion of these items resulted in a net increase in the calculated earnings from operations for the purpose of determining the size of the Company award pool. |
• | Upon commencement of his employment in 2003, the Compensation Committee approved the payment to Mr. Lorraine of a $100,000 cash signing bonus. This amount is reported in the “Bonus” column of the Summary Compensation Table. |
Stock Option | Stock option program, implemented under the Company’s Omnibus Long-Term Compensation Plans, creates a direct link between compensation of key Company managers and long-term performance of the Company. See “Change-in-Control Arrangements — Omnibus Long-Term Compensation Plans.” | |
Performance Shares | Awarded from time-to-time under the Company’s Omnibus Plans to provide an incentive for key managers to meet specified business or individual performance goals by providing opportunities to earn stock awards. | |
Other Stock-Based Incentive Pay | Under the Omnibus Plans, the Compensation Committee may also award additional stock-based compensation |
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(with or without restrictions), performance shares or units, or additional options, including options with performance-based or other conditions to exercise. | ||
Stock Ownership Expectations | Established for executive officers to encourage long-term stock ownership and the holding of shares awarded under the Omnibus Plans or acquired upon exercise of options. Over a five year period, executive officers invest two times their annual base pay (three times base pay for the Chief Executive Officer) in Company stock or stock equivalents. See “Stock Ownership of Directors and Executive Officers — Common Stock and Common Stock Units.” |
• | The size and terms of the stock option grants reported in the “Option Grants in Last Fiscal Year” table were determined by applying the methodology described above under “How Stock-Based Incentive Pay Levels Were Determined.” | |
• | Options granted in 2004 have an exercise price equal to 100% of the fair market value of the underlying common stock as of the date of grant and generally expire 10 years from the date of grant. | |
• | As inducement for his employment with the Company and as a special retention incentive, in 2003 Mr. Lorraine was awarded 20,000 restricted shares of common stock, with restrictions lapsing on the third anniversary of the date of the award. These shares are also subject to forfeiture in the event of termination for an unapproved reason. | |
• | As a special retention incentive, Mr. Rothwell was awarded 20,000 restricted shares of common stock, with restrictions lapsing as to 10,000 shares in November 2004 and with the restrictions on the remaining shares lapsing in November 2005. The remaining shares are also subject to forfeiture in the event of termination for an unapproved reason. | |
• | To recognize special contributions to the Company, Ms. Lee was awarded 5,000 restricted shares of common stock, with restrictions lapsing as to one-half the shares in December 2005 and as to the remainder of the shares in December 2006. These shares are also subject to forfeiture in the event of termination for an unapproved reason. | |
• | Mr. Rogers received a special award of 12,000 performance shares in January 2004. This award was intended as an incentive for Mr. Rogers to meet special transformational objectives during 2004. |
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Payment of up to 75% of the award (9,000 shares) was subject to successful divestiture or restructuring of businesses and product lines in the Coatings, Adhesives, Specialty Polymers, and Inks segment during 2004, and payment of up to an additional 25% (3,000 shares) was determined based upon specific structural changes resulting in improved financial performance measured by earnings from operations for Eastman Division. Based upon an assessment of his performance relative to the objectives, Mr. Rogers was awarded 12,000 shares of stock in February 2005. The value of such stock award is included in the “Bonus” column in the Summary Compensation Table. |
• | Performance shares were awarded to 44 key managers (including the executive officers in the Summary Compensation Table) under the 2004-2006 Performance Share Award Subplan (“PSAS”) and the 2004-2005 Performance Share Award Subplan of the Omnibus Plan. The 2004-2005 PSAS was intended to provide a special one-time transition award as a result of the reduction in stock option award levels and an increase in the vesting period of stock options. |
• | The size of the performance share awards reported in the “Long-Term Incentive Plan — Awards in the Last Fiscal Year” table was determined by applying the methodology described under “How Stock-Base Pay Levels Were Determined.” | |
• | Performance is measured by comparing the Company’s multi-year performance as measured against a return on capital goal and the Company’s total return to stockholders (change in stock price plus dividends declared during the performance period, assuming reinvestment of dividends) relative to a peer group of industrial companies comprising the Standard and Poor’s “Materials Sector” from Standard and Poor’s Super Composite 1500 Index. See “Long-Term Incentive Plan — Awards in Last Fiscal Year” table. | |
• | If earned, awards will be paid after the end of the performance periods in unrestricted shares of Eastman common stock, or participants may irrevocably elect in advance to defer any award payouts into the Executive Deferred Compensation Plan. |
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162(m).
162(m). The portion of the payout to Mr. Rogers under the special performance share award (described under “Stock-Based Incentive Pay for 2004”) which would have been non-deductible to the Company under Section 162(m) was deferred into the Executive Deferred Compensation Plan under the terms of the award. The Compensation Committee determined not to defer the portion of Messrs. Ferguson’s, Rogers’, and Rothwell’s 2004 UPP payout that resulted in non-deductible compensation. The Compensation Committee will continue to retain the discretion to pay non-deductible amounts. The Compensation Committee believes that such flexibility best serves the interests of the Company and its stockholders by allowing the Committee to recognize and motivate executive officers as circumstances warrant.
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Company Name/Index | 12/31/99 | 12/31/00 | 12/31/01 | 12/31/02 | 12/31/03 | 12/31/04 | ||||||||||||||||||
EASTMAN CHEMICAL COMPANY | 100 | 106.36 | 88.73 | 87.17 | 98.81 | 149.67 | ||||||||||||||||||
S&P 500 INDEX | 100 | 90.90 | 80.09 | 62.39 | 80.29 | 89.03 | ||||||||||||||||||
PEER GROUP(1) | 100 | 83.54 | 77.58 | 74.53 | 93.56 | 109.92 |
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• | the integrity of the financial statements of the Company and the Company’s system of internal controls; | |
• | the Company’s management of and compliance with legal and regulatory requirements; | |
• | the independence and performance of the Company’s internal auditors; | |
• | the qualifications, independence and performance of the Company’s independent auditors; and | |
• | the retention and termination of the Company’s independent auditors, including the approval of fees and other terms of their engagement, and the approval of non-audit relationships with the independent auditors. |
(i) appoint, retain, compensate, evaluate and terminate the Company’s independent auditors, who shall report directly to the committee; | |
(ii) approve all audit engagement fees, terms and services; and | |
(iii) approve all non-audit engagements with the Company’s independent auditors in accordance with applicable law. The committee may delegate the authority to grant any pre-approvals required by applicable law to one or more members of the committee as it designates, subject to the delegated member or members reporting any such pre-approvals to the committee at its next scheduled meeting. |
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(i) such firm’s internal quality control procedures; | |
(ii) any material issues raised by the most recent internal quality control review, or peer review, of such firm, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years, respecting one or more independent audits carried out by such firm; and | |
(iii) any steps taken to deal with any such issues. |
(i) ensuring that the independent auditors submit at least annually to the Committee a formal written statement delineating all relationships between the auditors and the Company consistent with Independence Standards Board Standard No. 1; | |
(ii) actively engaging in dialogue with the auditors with respect to any disclosed relationship or services that may impact the objectivity and independence of the auditors; and | |
(iii) taking appropriate action in response to the auditors’ report to satisfy itself of the auditors’ independence. In connection with the committee’s evaluation of the auditors’ independence, the committee shall also review and evaluate the lead partner of the independent auditors and ensure that he or she is rotated every five years. |
(i) any restriction on audit scope or on access to requested information; | |
(ii) any significant disagreements with management; and | |
(iii) significant issues discussed with the independent auditors’ national office. The committee is to decide all unresolved disagreements between management and the independent auditors regarding financial reporting. |
(i) the Company’s disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of Operations;” and | |
(ii) the disclosures regarding internal controls and other matters required to be reported to the committee by applicable law. |
The committee shall review the findings of any examinations by the SEC of any of the Company’s filings, and any observations of the independent auditors relative thereto. |
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(i) the report of their annual audit, or proposed report of their annual audit; | |
(ii) the accompanying management letter, if any; | |
(iii) the reports of their reviews of the Company’s interim financial statements conducted in accordance with Statement on Auditing Standards No. 71; and | |
(iv) the reports of the results of such other examinations outside of the course of the independent auditors’ normal audit procedures that the independent auditors may from time to time undertake. The foregoing shall include the reports required by applicable law and, as appropriate: |
(a) a review of major issues regarding: |
(1) accounting principles and financial statement presentations, including any significant changes in the Company’s selection or application of accounting principles; and | |
(2) the adequacy of the Company’s internal controls and any special audit steps adopted in light of material control deficiencies. |
(b) a review of analyses prepared by management and/or the independent auditors setting forth significant financial reporting issues and judgments made in connection with the preparation of the financial statements, including analyses of the effects of alternative GAAP methods on the financial statements, and | |
(c) a review of the effect of regulatory and accounting initiatives, as well as off-balance sheet structures, on the financial statements of the Company. |
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(i) the receipt, retention, and treatment of complaints received by the Company regarding accounting, internal accounting controls, or auditing matters; and | |
(ii) the confidential, anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters as required by applicable law. |
The committee is to discuss with management and the independent auditors any correspondence with regulators or governmental agencies and any complaints or concerns regarding the Company’s financial statements or accounting policies. | |
The current procedure established by the committee is as follows: (a) complaints or concerns regarding accounting or auditing matters may be communicated, anonymously and confidentially if desired, by employees (or others) via Eastman’s Corporate Compliance hotline 1-800-455-5622 (such communications will be forwarded, anonymously and confidentially if appropriate, by the hotline operator to Eastman’s Director of Ethics and Corporate Compliance, who will then promptly forward any such communication to Eastman’s Director, Corporate Audit Services); (b) complaints or concerns regarding accounting or auditing matters which are received by directors, officers, or other Company personnel will be directed to Eastman’s Director, Corporate Audit Services for handling and investigation, as appropriate. The Director, Corporate Audit Services will review with the Audit Committee the number, nature, and resolution of such complaints or concerns. |
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[FORM OF PAPER PROXY]
ADMISSION TICKET
Please bring this ticket if you choose to attend the Annual Meeting.
It will expedite your admittance when presented upon your arrival.
EASTMAN CHEMICAL COMPANY
Annual Meeting of Stockholders
Thursday, May 5, 2005
11:30 a.m.
Toy F. Reid Employee Center
400 South Wilcox Drive
Kingsport, Tennessee 37660
1-423-229-4647
Proxy | EASTMAN CHEMICAL COMPANY | Proxy |
1. | Election of Directors: | |||
Nominees for election of three directors to serve in the class for which the term in office expires at the Annual Meeting of Stockholders in 2008 and their successors are duly elected and qualified: |
(01) Michael P. Connors | (02) J. Brian Ferguson | (03) Donald W. Griffin |
q | FORall nominees listed above (except as listed to the contrary below) | q | WITHHOLD AUTHORITYto vote for all nominees listed above. | |||
To withhold authority to vote for one or more individual nominees, write each nominee’s name or number below. | ||||||
2. | Ratification of Appointment of PricewaterhouseCoopers LLP as Independent Accountants. |
qFOR | qAGAINST | qABSTAIN |
(CONTINUED, AND TO BE SIGNED AND DATED, ON THE OTHER SIDE.)
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→ |
Your telephone or Internet vote authorizes the named proxies to vote your shares in the same manner as if you marked, signed and returned your proxy card.
To Vote by Phone: | Call anytime toll free1-800-542-1160 There is no charge for this call. Follow the simple instructions to record your vote. | |
To Vote by Internet or | Access http://www.votefast.com | |
Review the Proxy Statement | Follow the simple instructions presented to record your vote. |
IF YOU VOTE BY TELEPHONE OR INTERNET, DO NOT MAIL THE PROXY CARD.
THANK YOU FOR VOTING.
Proxy | EASTMAN CHEMICAL COMPANY | Proxy |
The undersigned hereby appoints Theresa K. Lee and Richard A. Lorraine as proxies with power to act without the other and with power of substitution, and hereby authorizes them to represent and vote, as designated on the other side of this proxy card, all the shares of stock of Eastman Chemical Company held of record as of March 15, 2005 by the undersigned with all the powers that the undersigned would possess if present at the Annual Meeting of Stockholders of the Company to be held May 5, 2005 or any adjournment or postponement thereof.
Signature(s) | ||||||
Signature(s) | ||||||
Date: | , 2005 | |||||
Please sign exactly as your name(s) appears on this proxy. If shares are held jointly, all joint owners should sign. If signing as executor, administrator, attorney, trustee, guardian, or in any other representative capacity, please also give your full title. |
MARK (ON THE OTHER SIDE), SIGN AND DATE YOUR PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE.
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[SCRIPT OF DIALOGUE FOR REGISTERED STOCKHOLDER PROXY VOTING BY TELEPHONE]
STOCKHOLDER HEARS THIS SCRIPT
Speech 1 | Welcome. Please enter the control number located in the upper right hand corner of the proxy card. | |
Speech 2 | To vote as the Eastman Chemical Company Board recommends Press 1 now. | |
Speech 2A | You voted as the Board recommended. If correct, press 1. If incorrect, Press O. | |
Speech 3 | To vote on each proposal separately, press 0 now. | |
Speech 4 | Proposal 1: To vote FOR all nominees, Press 1 To WITHHOLD for all nominees, Press 9 To WITHHOLD for an individual nominee, press 0 | |
Speech 5 | Enter the two digit number that appears next to the nominee you DO NOT wish to vote for. | |
Speech 5A | Press 1 to withhold for another nominee or Press 0 if you have completed voting for Directors. | |
Speech 6 | Proposal 2: To vote FOR, Press 1; AGAINST, Press 9, ABSTAIN, Press 0 | |
Speech 7 | You voted as follows: Proposal 1: For ALL or Withhold All OR For ALL Except... Proposal 2: For, Against, Abstain. If this is correct, Press 1 now; if incorrect, Press 0 | |
Closing A | Thank you for voting. | |
Closing B* | Your vote has been canceled. Please call again, or mark, sign and return your proxy. |
• | Closing B — if stockholder indicates their vote was incorrect. |
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[TEXT OF COMPUTER SCREENS FOR ELECTRONIC DELIVERY
OF PROXY STATEMENT AND ANNUAL REPORT TO, AND
INTERNET PROXY VOTING BY, REGISTERED STOCKHOLDERS]
VoteFast.Com
Internet Proxy Voting
Please enter the 11-digit Control Number which is located by the arrow in the box on your proxy card and click on the “Submit’’ button.
Your internet vote authorizes the named proxies to vote your shares in the same manner as if you marked, signed and returned the proxy card.
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===============================================================================
[EASTMAN CHEMICAL COMPANY LOGO]
===============================================================================
Welcome to the Eastman Chemical Company
2005 Proxy Voting Site
Your Internet vote authorizes the Proxies to vote your shares in the same
manner as if you marked, signed, and returned your Proxy Card.
Before you vote, if you would like to review the 2004
Annual Report — Click Here [Link to Annual Report]
Return by simply closing the newly opened browser window.
Before you vote, if you would like to review the 2005
Annual Meeting Proxy Statement —Click Here [Link to Proxy Statement]
Return by simply closing the newly opened browser window.
The Board of Directors recommends a vote
FOR Proposals 1 and 2
Click Here To Vote As The Board Of Directors Recommends
Click Here To Vote Individually On Each Proposal
===============================================================================
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[VOTING SUMMARY — IF CLICKED “VOTE AS THE BOARD RECOMMENDS”]
[Eastman Chemical Company Logo]
I Vote As The Board Recommends
If you would like an email confirmation of your vote, please enter your email address below.
[ ]
In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting, or at any adjournment thereof.
[Click Here To Register Your Vote]
BACK
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[FIRST SCREEN IF CLICKING “VOTE INDIVIDUALLY ON EACH PROPOSAL”]
[EASTMAN CHEMICAL COMPANY LOGO]
TO VOTE SEPARATELY ON EACH PROPOSAL — CHECK THE BOXES BELOW:
THE BOARD RECOMMENDS A VOTE FOR PROPOSALS 1 AND 2.
PROPOSAL 1 | FOR ALL [ ] | WITHHOLD ALL [ ] | FOR ALL EXCEPT [ ] | |||
Election of Directors: Nominees for election of three directors to serve in the class for which the term in office expires at the Annual Meeting of Stockholders in 2008 and their successors are duly elected and qualified: | ||||||
[ ] (01) Michael P. Connors | ||||||
[ ] (02) J. Brian Ferguson | ||||||
[ ] (03) Donald W. Griffin | ||||||
PROPOSAL 2 | ||||||
Ratification of Appointment of PricewaterhouseCoopers LLP as Independent Accountants | For [ ] | Against [ ] | Abstain [ ] | |||
If you would like to receive an Email confirmation of your vote, please enter your email address below | ||||||
[ | ] | |||||
In their discretion, the Proxies are authorized to vote upon such other business as may properly come before the meeting, or at any adjournment thereof. | ||||||
Click Here To Register Your Vote |
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[VOTING SUMMARY — IF CLICK “VOTE INDIVIDUALLY ON EACH PROPOSAL”]
================================================================================
[Eastman Chemical Company Logo]
================================================================================
THANK YOU FOR VOTING ELECTRONICALLY
Voting Summary
Your Control Number: ____
Directors:
You Voted: [For All] [Withhold All] [For All Except [names of nominees for whom authority to vote withheld]]
Proposal 2:
You Voted: [For] [Against] [Abstain]
THANK YOU FOR VOTING
================================================================================================
If any of the above information is incorrect, return to the proxy ballot form by using the BACK feature of your browser program.
To vote another Proxy — CLICK HERE
If the above information is correct, THERE IS NO NEED TO MAIL BACK YOUR PROXY CARD. Please exit your browser program as you normally do.
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[FORM OF LETTER TO EMPLOYEE STOCKHOLDERS WHO HOLD SHARES THROUGH PLANS]
Legal Department Eastman Chemical Company P.O. Box 511 Kingsport, Tennessee 37662-5075 |
Theresa K. Lee Senior Vice President, Chief Legal Officer and Corporate Secretary Phone: (423) 229-2097 FAX: (423) 224-9399 tklee@eastman.com |
March 28, 2005
RE: 2005 ANNUAL MEETING MATERIALS
Dear Fellow Eastman Employee and Stockholder:
Our 2005 Annual Meeting of Stockholders will be held on May 5, and it is important that your shares be represented. Again this year, all employees who own Eastman shares through the ESOP or Eastman Investment Plan will access the Notice and Proxy Statement for the Annual Meeting and Eastman’s Annual Report to Stockholders electronically on the Internet. Making these materials available to you electronically rather than by sending printed material in the mail significantly reduces the Company’s printing and postage expenses and reflects our continuing efforts to increase efficiency and reduce costs through the expanded use of technology.
To access the 2004 Annual Report and the Notice and Proxy Statement for the 2005 Annual Meeting, please go to the Internet website address which appears in the voting instructions on the enclosed proxy card. (If you like, you may use your Eastman employee account to access the Internet website and review the materials). THE BUSINESS TO BE CONSIDERED AND VOTED UPON AT THE ANNUAL MEETING IS EXPLAINED IN THE PROXY STATEMENT. PLEASE REVIEW THE PROXY STATEMENT, AND THE ANNUAL REPORT, BEFORE VOTING YOUR SHARES. If you wish to receive paper copies of the Annual Report and Proxy Statement, call 1-800-742-7540.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AND VOTED AT THE ANNUAL MEETING. As explained on the enclosed proxy card, you can vote by proxy by Internet, by telephone, or by marking, signing, dating, and mailing your proxy card in the enclosed postage-paid envelope. WHETHER YOU CHOOSE TO VOTE BY COMPUTER, TELEPHONE, OR PROXY CARD, PLEASE VOTE AS SOON AS POSSIBLE. Your vote is important, regardless of the number of shares you own.
Yours very truly,
/s/ Theresa K. Lee
Theresa K. Lee
Senior Vice President, Chief Legal Officer and Corporate Secretary