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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 with respect to the election of three directors to serve in the class for which the term in office expires at the 2009 Annual Meeting of Stockholders and until their successors are duly elected and qualified; | |
• | Ratify Appointment of Independent Accountants.To consider and act with respect to ratification of the action by the Audit Committee of the Board of Directors appointing PricewaterhouseCoopers LLP as independent accountants for the Company for 2006; 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 (888) 693-8683 and follow the instructions on your proxy card; | |
• | via the Internet: visit the www.cesvote.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 2009 | ||||
STEPHEN R. DEMERITT (director since February 2003) Mr. Demeritt served as Vice Chairman of General Mills, Inc. from 1999 until his retirement in 2005. General Mills is a leading producer of packaged consumer foods. He joined General Mills in 1969 and 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 62. | ||||
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 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 61. | ||||
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 appointed President of Cargill’s Financial Markets Division in 1988 and President of Cargill’s Trading Sector in 1993, was elected 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 56. | ||||
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MEMBERS OF BOARD OF DIRECTORS CONTINUING IN OFFICE Term Expiring Annual Meeting 2007 | ||||
RENÉE J. HORNBAKER (director since September 2003) Ms. Hornbaker has served as Consultant to the Chief Executive Officer of CompuCom Systems, Inc., an information technology services provider, since 2005. She was Vice President and Chief Financial Officer of Flowserve Corporation, a provider of industrial flow management products and services, from 1997 until 2004. 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 53. | ||||
THOMAS H. MCLAIN (director since February 2004) Mr. McLain has served as Chairman, Chief Executive Officer, and President of Nabi Biopharmaceuticals since 2004 and was Chief Executive Officer, President and a director of Nabi from 2002 until 2004. Nabi is a biotechnology company that applies its knowledge of the human immune system to develop and market products that address serious medical conditions. Previously, Mr. McLain served as President, Chief Operating Officer and a director in 2002 and 2003, and in 2001 and 2002, he served as Executive Vice President and Chief Operating Officer. From 1998 to 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 48. | ||||
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 2000 to 2004. He is also a member of the board of directors of Middlesex Mutual Assurance Company. Mr. Wood is 67. | ||||
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Term Expiring Annual Meeting 2008 | ||||
MICHAEL P. CONNORS (director since March 2005) Mr. Connors served as a member of the Executive Board of VNU N.V., a major worldwide media and marketing information company, from the merger of ACNielsen into VNU in 2001 until 2005, and served as Chairman and Chief Executive Officer of VNU Media Measurement & Information Group and Chairman of VNU World Directories until 2005. 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 1995, and before that was a Corporate Vice President of Sprint Corporation. Mr. Connors is also a member of the board of directors of R.H. Donnelley Corporation. Mr. Connors is 50. | ||||
J. BRIAN FERGUSON (director since January 2002) Mr. Ferguson has been Chairman of the Board and Chief Executive Officer of the Company since 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 is also a member of the board of directors of FPL Group, Inc., parent company of Florida Power & Light Company. Mr. Ferguson 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 51. | ||||
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 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 also 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 69. | ||||
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HOWARD L. LANCE (director since December 2005) Mr. Lance has served as President, Chief Executive Officer, and a director of Harris Corporation since January 2003, and was appointed Chairman of the Board in June 2003. Harris is an international communications and information technology company serving government and commercial markets. Mr. Lance was President of NCR Corporation, an information technology services provider, and Chief Operating Officer of its Retail and Financial Group from July 2001 until October 2002. Prior to joining NCR, he spent 17 years with Emerson Electric Company, an electronic products and systems company, where he held increasingly senior management positions. Earlier, Mr. Lance held sales and marketing positions with the Scott-Fetzer Company and Caterpillar, Inc. Mr. Lance is 50. | ||||
• | 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, in any 12-month period within the previous three years more than $100,000 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 (but not tax planning) 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; |
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• | 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% 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% 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. |
• | 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. |
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• | 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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Number of Shares of | ||||
Common Stock Beneficially | ||||
Name | Owned(1)(2) | |||
J. Brian Ferguson | 338,707 | (3) | ||
Theresa K. Lee | 43,397 | (4) | ||
Richard A. Lorraine | 134,468 | (5) | ||
James P. Rogers | 308,699 | (6) | ||
Allan R. Rothwell | 77,310 | (7) | ||
Michael P. Connors | 250 | (8) | ||
Stephen R. Demeritt | 4,658 | (9) | ||
Donald W. Griffin | 11,787 | (10) | ||
Robert M. Hernandez | 6,589 | (11) | ||
Renée J. Hornbaker | 3,493 | (12) | ||
Howard L. Lance | 179 | (13) | ||
Thomas H. McLain | 1,523 | (14) | ||
David W. Raisbeck | 7,793 | (15) | ||
Peter M. Wood | 10,763 | (16) | ||
Directors, named executive officers, and other executive officers as a group (17 persons) | 1,017,758 | (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 1.24% of the shares of common stock outstanding as of December 31, 2005. 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 292,845 shares that may be acquired upon exercise of options, 578 shares allocated to Mr. Ferguson’s Employee Stock Ownership Plan (“ESOP”) account, and 18,680 restricted shares that generally vest as to one-half of the shares in October 2006 and 2007, respectively, but as to which Mr. Ferguson currently has voting power. |
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(4) | Includes 32,356 shares that may be acquired upon exercise of options, 737 shares allocated to Ms. Lee’s ESOP account, and 2,500 restricted shares that generally vest in December 2006 but as to which Ms. Lee currently has voting power. | |
(5) | Includes 198 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 106,771 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. | |
(6) | Includes 280,453 shares that may be acquired upon exercise of options and 1,027 shares allocated to Mr. Rogers’ ESOP account. | |
(7) | Includes 57,736 shares that may be acquired upon exercise of options and 769 shares allocated to Mr. Rothwell’s ESOP account. | |
(8) | Consists of 165 restricted shares that generally vest in March 2008, but as to which Mr. Connors currently has voting power, and 85 restricted shares that generally vest in May 2008, but as to which he currently has voting power. | |
(9) | Includes 3,000 shares that may be acquired upon exercise of options, 293 restricted shares that generally vest in February 2006, but as to which Mr. Demeritt currently has voting power, 166 restricted shares that generally vest in May 2006, but as to which he currently has voting power, 114 restricted shares that generally vest in May 2007, but as to which he currently has voting power, and 85 restricted shares that generally vest in May 2008, but as to which he currently has voting power. |
(10) | Includes 9,000 shares that may be acquired upon exercise of options, 166 restricted shares that generally vest in May 2006, but as to which Mr. Griffin currently has voting power, 114 restricted shares that generally vest in May 2007, but as to which he currently has voting power, and 85 restricted shares that generally vest in May 2008, but as to which he currently has voting power. |
(11) | Includes 3,000 shares that may be acquired upon exercise of options, 166 restricted shares that generally vest in May 2006, but as to which Mr. Hernandez currently has voting power, 114 restricted shares that generally vest in May 2007, but as to which he currently has voting power, and 85 restricted shares that generally vest in May 2008, but as to which he currently has voting power. |
(12) | Includes 1,000 shares that may be acquired upon exercise of options, 278 restricted shares that generally vest in September 2006, but as to which Ms. Hornbaker currently has voting power, 114 restricted shares that generally vest in May 2007, but as to which she currently has voting power, and 85 restricted shares that generally vest in May 2008, but as to which she currently has voting power. |
(13) | Consists of restricted shares that generally vest in December 2008, but as to which Mr. Lance currently has voting power. |
(14) | Includes 1,000 shares that maybe acquired upon exercise of options, 252 restricted shares that generally vest in February 2007, but as to which Mr. McLain currently has voting power, 114 restricted shares that generally vest in May 2007, but as to which he currently has voting power, and 85 restricted shares that generally vest in May 2008, but as to which he currently has voting power. Also includes 52 shares held by Mr. McLain’s spouse, as to which shares Mr. McLain disclaims beneficial ownership. |
(15) | Includes 7,000 shares that may be acquired upon exercise of options, 166 restricted shares that generally vest in May 2006, but as to which Mr. Raisbeck currently has voting power, 114 restricted shares that generally vest in May 2007, but as to which he currently has voting power, and 85 restricted shares that generally vest in May 2008, but as to which he currently has voting power. |
(16) | Includes 8,000 shares that may be acquired upon exercise of options, 166 restricted shares that generally vest in May 2006, but as to which Mr. Wood currently has voting power, 114 restricted shares that generally vest in May 2007, but as to which he currently has voting power, and 85 restricted shares that generally vest in May 2008, but as to which he currently has voting power. Also includes 1,000 shares held by Mr. Wood’s spouse, as to which shares Mr. Wood disclaims beneficial ownership. |
(17) | Includes a total of 753,092 shares that may be acquired upon exercise of options and 5,192 shares allocated to executive officers’ ESOP accounts. Also includes 106,771 shares owned by the Eastman Chemical Company Foundation, Inc., of which shares Mr. Lorraine and one other executive officer not named above may each be deemed a beneficial owner by virtue of their shared voting and investment power as directors of the Foundation. |
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Number of Shares of | ||||
Common Stock and | ||||
Common Stock Units | ||||
Name | Beneficially Owned | |||
J. Brian Ferguson | 354,038 | |||
Theresa K. Lee | 49,946 | |||
Richard A. Lorraine | 134,468 | (1) | ||
James P. Rogers | 311,239 | |||
Allan R. Rothwell | 81,698 | |||
Michael P. Connors | 488 | |||
Stephen R. Demeritt | 6,516 | |||
Donald W. Griffin | 12,080 | |||
Robert M. Hernandez | 6,882 | |||
Renée J. Hornbaker | 4,714 | |||
Howard L. Lance | 203 | |||
Thomas H. McLain | 1,816 | |||
David W. Raisbeck | 15,147 | |||
Peter M. Wood | 11,056 | |||
Directors, named executive officers, and other executive officers as a group (17 persons) | 1,058,433 | (1) |
(1) | Includes 106,771 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) | |||||||
Barclays Global Investors, NA | 9,030,029 | (2) | 11.05 | % | |||||
45 Fremont Street | |||||||||
San Francisco, California 94105 | |||||||||
Lord, Abbett & Co. LLC | 8,978,700 | (3) | 10.98 | % | |||||
90 Hudson Street | |||||||||
Jersey City, New Jersey 07302 |
(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, 2005, based on a Schedule 13G filed with the SEC by Barclays Global Investors, NA, 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 8,214,629 of such shares. |
(3) | As of December 31, 2005, 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. |
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Long-Term Compensation | |||||||||||||||||||||||||||||||||
Awards | Payouts | ||||||||||||||||||||||||||||||||
Annual Compensation(1) | |||||||||||||||||||||||||||||||||
Restricted | |||||||||||||||||||||||||||||||||
Other Annual | Stock | Securities | Long-Term | ||||||||||||||||||||||||||||||
Compensation | Awards | Underlying | Incentive Plan | All Other | |||||||||||||||||||||||||||||
Name and Principal Position | Year | Salary(2) | Bonus(2)(3) | (4)(5)(6) | ($)(7) | Options(#) | Payouts($)(8) | Compensation(9) | |||||||||||||||||||||||||
J. Brian Ferguson | 2005 | $ | 951,538 | $ | 2,500,000 | $ | 5,443 | $ | 0 | (10) | 191,149 | (11) | $ | 2,437,908 | $ | 111,327 | |||||||||||||||||
Chairman and Chief | 2004 | 825,046 | 1,275,000 | 1,616 | 0 | 129,700 | (11) | 0 | 56,502 | ||||||||||||||||||||||||
Executive Officer | 2003 | 787,831 | 305,000 | 1,907 | 0 | 200,000 | 183,876 | 55,312 | |||||||||||||||||||||||||
James P. Rogers | 2005 | 496,923 | 1,100,000 | 51,089 | 0 | 59,420 | (11) | 590,639 | 56,596 | ||||||||||||||||||||||||
Executive Vice | 2004 | 477,923 | 1,281,800 | (12) | 4,996 | 0 | 43,000 | (11) | 0 | 31,204 | |||||||||||||||||||||||
President and | 2003 | 426,778 | 145,000 | 155 | 0 | 49,200 | 183,876 | 28,113 | |||||||||||||||||||||||||
President, Eastman Division | |||||||||||||||||||||||||||||||||
Allan R. Rothwell(13) | 2005 | 476,923 | 1,000,000 | 16,559 | 0 | 37,214 | (11) | 590,639 | 45,096 | ||||||||||||||||||||||||
Executive Vice | 2004 | 457,800 | 425,000 | 958 | 790,600 | (14) | 29,000 | (11) | 0 | 32,390 | |||||||||||||||||||||||
President and | 2003 | 437,150 | 190,000 | 186 | 0 | 49,200 | 183,876 | 29,898 | |||||||||||||||||||||||||
President, Voridian Division | |||||||||||||||||||||||||||||||||
Richard A. Lorraine(15) | 2005 | 414,615 | 682,500 | 1,301 | 0 | 31,000 | 418,877 | 41,481 | |||||||||||||||||||||||||
Senior Vice President | 2004 | 415,385 | 415,000 | 22,585 | (16) | 0 | 22,500 | 0 | 21,769 | ||||||||||||||||||||||||
and Chief Financial Officer | 2003 | 30,769 | 120,000 | 0 | 741,000 | (17) | 0 | 0 | 923 | ||||||||||||||||||||||||
Theresa K. Lee | 2005 | 368,269 | 562,500 | 4,498 | 0 | 33,300 | (11) | 332,442 | 34,663 | ||||||||||||||||||||||||
Senior Vice President, | 2004 | 321,139 | 325,000 | 679 | 199,000 | (18) | 23,743 | (11) | 0 | 19,057 | |||||||||||||||||||||||
Chief Legal Officer | 2003 | 297,839 | 60,000 | 289 | 0 | 25,000 | 74,028 | 17,937 | |||||||||||||||||||||||||
and Secretary |
(1) | Includes both amounts paid for the indicated years and amounts earned during the indicated years but deferred under the Executive Deferred Compensation Plan (“the EDCP”). | |
(2) | 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.” | |
(3) | Includes cash payments in the following year for services rendered in the year indicated under the Unit Performance Plan. The Unit Performance Plan is a variable pay program which makes a portion of participants’ total annual compensation dependent upon corporate, organizational, and individual performance. Amounts in the “Bonus” column also include the value of an award of Eastman common stock to Mr. Rogers under a special incentive arrangement for 2004, and a signing bonus paid to Mr. Lorraine upon commencement of his employment with the Company in November 2003. | |
(4) | Amounts reimbursed for payment of taxes on certain compensation and benefits for all three years and above-market earnings on deferred compensation for 2005. | |
(5) | Deferred Compensation. Executive officers may participate in the EDCP, an unfunded, nonqualified, deferred compensation plan, which allows certain managers to defer compensation until retirement or termination from the Company. The deferred amounts are credited to individual Interest Accounts and Stock Accounts. Amounts deferred to the Interest Account are credited with interest at the prime rate, and amounts deferred to the Stock Account increase or decrease in value depending on the market price of Eastman common stock. When cash dividends are declared on the common stock, each Stock Account receives a dividend equivalent which is used to “purchase” additional hypothetical shares. |
For 2003 and 2004, since there were no preferential or above-market earnings (interest on amounts deferred to the Interest Account at a rate exceeding 120% of the federal long-term rate, and appreciation |
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in value of and dividend equivalents earned on amounts deferred to the Stock Account at a rate higher than appreciation in value of 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. For 2005, the above-market portion of interest accrued on amounts deferred to Interest Accounts under the EDCP is included in the amounts reported as “Other Annual Compensation.” |
(6) | Perquisites and Personal Benefits. The aggregate value, based upon the incremental cost to the Company, of perquisites and personal benefits to each named executive officer for each year was less than $50,000 and, under the SEC’s disclosure rules, is not included. Company provided perquisites and personal benefits made available to executive officers were: personal umbrella liability insurance coverage; home security system; financial counseling; and, subject to compliance with written policies, non-business flights on corporate aircraft by executives, their families, and invited guests when the aircraft is otherwise traveling for business purposes. The aggregate incremental cost to the Company for flying as additional passengers on business flights is ade minimis amount, and no amount is included for these flights for purposes of determining “Other Annual Compensation.” | |
(7) | 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. | |
(8) | Fair market value of payout during the following year of stock earned under performance shares awarded at the beginning of the performance period ended in the year indicated, with shares earned under the 2004-2005 Performance Share Award Subplan of the 2002 Omnibus Long-Term Compensation Plan based upon total return to stockholders during the two-year performance period relative to a peer group of industrial companies and performance as measured against a return on capital goal, and shares earned under the 2001-2003 Performance Share Award Subplan based upon total return to stockholders during the three-year performance period relative to a peer group of chemical companies. The payouts, unless deferred at the election of the participant, were in the form of unrestricted shares of Eastman common stock. The amounts reported represent 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. As a new employee, Mr. Lorraine did not receive performance share awards for the performance period ending in 2003. See “Compensation and Management Development Committee Report on Executive Compensation.” | |
(9) | Annual Company contributions to the accounts of Messrs. Ferguson and Rothwell and Ms. Lee for all three years, and of Mr. Rogers in 2005 and 2004, in the Eastman Investment Plan, a 401(k) retirement plan, and in the EDCP, and to Mr. Rogers’ accounts (in 2003) and Mr. Lorraine’s accounts in the Eastman ESOP and EDCP. Annual Company contributions were based upon actual compensation paid during the calendar year. |
(10) | At December 31, 2005, Mr. Ferguson held 18,680 restricted shares of common stock with a fair market value of $963,701, based on the per share closing price of the common stock on the New York Stock Exchange on December 31, 2005. |
(11) | Includes new “reload” options received in 2005 and 2004 by Messrs. Ferguson (21,149 and 4,700, respectively), Rogers (26,420 and 15,000, respectively), and Rothwell (4,214 and 1,000, respectively), and Ms. Lee (2,300 and 2,993, respectively), 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) | 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 value equivalent to 12,000 shares of Eastman common stock in February 2005 as a result of meeting certain organizational and financial objectives in 2004 under a special incentive arrangement. Mr. Rogers received 9,227 shares of Eastman common stock and, under the terms of the award, the remaining portion of the payout (2,773 shares) which was nondeductible under Internal Revenue Code Section 162(m) was converted to cash and deferred into his EDCP account. The fair market value of this payment ($646,800) was not included in the “Bonus” amount for 2004 in the Proxy Statement for Eastman’s 2005 Annual Meeting of Stockholders. |
(13) | Mr. Rothwell is retiring from Eastman on April 1, 2006. |
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(14) | As a special retention incentive, Mr. Rothwell was awarded 20,000 restricted shares of common stock, which restrictions lapsed as to one-half of the shares on November 30, 2004 and as to the remaining shares on November 30, 2005. |
(15) | Mr. Lorraine joined the Company in November 2003. |
(16) | Includes taxgross-up payments related to Mr. Lorraine’s relocation upon commencement of his employment with the Company. |
(17) | As inducement for his employment with the Company and as a special retention incentive, 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, 2005, Mr. Lorraine’s restricted shares had a fair market value of $1,031,800, based on the per share closing price of the common stock on the New York Stock Exchange on December 31, 2005. |
(18) | In recognition of special contributions to the Company, 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 remaining shares are also subject to forfeiture in the event of termination for an unapproved reason. After December 31, 2005, Ms. Lee held 2,500 restricted shares of common stock with a fair market value of $128,975, based on the per share closing price of the common stock on the New York Stock Exchange on December 31, 2005. |
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Individual Grants | ||||||||||||||||||||||||||||
Potential Realizable Value at Assumed | ||||||||||||||||||||||||||||
Percentage of Total | Annual Rates of Stock Price | |||||||||||||||||||||||||||
Number of Securities | Options/SARs | Appreciation For Option Term(1) | ||||||||||||||||||||||||||
Underlying Options | Granted to Employees | Exercise or Base | Expiration | |||||||||||||||||||||||||
Name | Granted | in Fiscal Year | Price Per Share | Date | 0%(2) | 5%(3) | 10%(4) | |||||||||||||||||||||
J. B. Ferguson | 7,613 | (5) | 0.59 | % | $ | 53.57 | 04/13/13 | $ | 0 | $ | 201,044 | $ | 484,402 | |||||||||||||||
170,000 | (6) | 13.10 | % | 53.51 | 10/31/15 | 0 | 5,720,866 | 14,497,797 | ||||||||||||||||||||
1,414 | (5) | 0.11 | % | 55.06 | 02/16/09 | 0 | 13,498 | 28,542 | ||||||||||||||||||||
12,122 | (5) | 0.93 | % | 55.06 | 04/07/10 | 0 | 160,391 | 349,087 | ||||||||||||||||||||
J. P. Rogers | 14,755 | (5) | 1.14 | % | 52.66 | 04/04/13 | 0 | 368,353 | 881,122 | |||||||||||||||||||
11,665 | (5) | 0.90 | % | 59.23 | 04/07/10 | 0 | 187,238 | 412,834 | ||||||||||||||||||||
33,000 | (6) | 2.54 | % | 53.51 | 10/31/15 | 0 | 1,110,521 | 2,814,278 | ||||||||||||||||||||
A. R. Rothwell | 4,214 | (5) | 0.32 | % | 56.55 | 04/04/13 | 0 | 112,048 | 267,625 | |||||||||||||||||||
33,000 | (6) | 2.54 | % | 53.51 | 10/31/15 | 0 | 1,110,521 | 2,814,278 | ||||||||||||||||||||
R. A. Lorraine | 31,000 | (6) | 2.39 | % | 53.51 | 10/31/15 | 0 | 1,043,217 | 2,643,716 | |||||||||||||||||||
T. K. Lee | 2,300 | (5) | 0.18 | % | 58.80 | 04/04/13 | 0 | 63,666 | 152,101 | |||||||||||||||||||
31,000 | (6) | 2.39 | % | 53.51 | 10/31/15 | 0 | 1,043,217 | 2,643,716 |
(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 $53.51 per share yields $87.16 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 $53.51 per share yields $138.79 per share. |
(5) | “Reload” option received upon exercise of previously granted option through surrender of shares of common stock and covering the same number of shares as surrendered in the exercise. The reload option vested and became exercisable immediately upon grant, and would be valued and cashed out in the event of “change in ownership,” or in certain circumstances following a “change in control.” See“Change-in-Control Arrangements — Omnibus Long-Term Compensation Plans.” |
(6) | The option vests and becomes exercisable in one-third increments on each of the first three anniversaries of the grant date, with acceleration of vesting in the event of a “change in ownership” or in certain circumstances following a “change in control.” See“Change-in-Control Arrangements — Omnibus Long-Term Compensation Plans.” |
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Number of Securities | Value of Unexercised | |||||||||||||||||||||||
Shares | Underlying Unexercised Options | In-the-Money Options | ||||||||||||||||||||||
Acquired on | at Fiscal Year-End | at Fiscal Year-End(1) | ||||||||||||||||||||||
Option | Value | |||||||||||||||||||||||
Name | Exercise(#) | Realized($) | Exercisable(#) | Unexercisable(#) | Exercisable($) | Unexercisable($) | ||||||||||||||||||
J. B. Ferguson | 29,830 | $ | 468,953 | 495,129 | 253,334 | $ | 5,337,582 | $ | 494,839 | |||||||||||||||
J. P. Rogers | 59,987 | 1,049,224 | 295,453 | 51,667 | 341,958 | 112,615 | ||||||||||||||||||
A. R. Rothwell | 89,511 | 1,195,793 | 57,736 | 51,667 | 438,593 | 112,615 | ||||||||||||||||||
R. A. Lorraine | 0 | 0 | 7,499 | 46,001 | 43,976 | 87,969 | ||||||||||||||||||
T. K. Lee | 52,720 | 990,229 | 32,356 | 44,834 | 122,510 | 78,715 |
(1) | Represents the difference between the closing price on the New York Stock Exchange of common stock underlying thein-the-money options on December 31, 2005, 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 | 40,000 | 3 Years | 0 | 16,000 | 40,000 | 120,000 | ||||||||||||||||||
J. P. Rogers | 8,500 | 3 Years | 0 | 3,400 | 8,500 | 25,500 | ||||||||||||||||||
A. R. Rothwell | 8,500 | 3 Years | 0 | 3,400 | 8,500 | 25,500 | ||||||||||||||||||
R. A. Lorraine | 7,500 | 3 Years | 0 | 3,000 | 7,500 | 22,500 | ||||||||||||||||||
T. K. Lee | 7,500 | 3 Years | 0 | 3,000 | 7,500 | 22,500 |
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Average | Years of Service | |||||||||||||||||||||||||
Participating | ||||||||||||||||||||||||||
Compensation | 15 | 20 | 25 | 30 | 35 | 40 | ||||||||||||||||||||
$ | 200,000 | $ | 43,950 | $ | 58,600 | $ | 73,250 | $ | 87,900 | $ | 102,550 | $ | 107,678 | |||||||||||||
$ | 225,000 | $ | 49,950 | $ | 66,600 | $ | 83,250 | $ | 99,900 | $ | 116,550 | $ | 122,378 | |||||||||||||
$ | 250,000 | $ | 55,950 | $ | 74,600 | $ | 93,250 | $ | 111,900 | $ | 130,550 | $ | 137,078 | |||||||||||||
$ | 300,000 | $ | 67,950 | $ | 90,600 | $ | 113,250 | $ | 135,900 | $ | 158,550 | $ | 166,478 | |||||||||||||
$ | 350,000 | $ | 79,950 | $ | 106,600 | $ | 133,250 | $ | 159,900 | $ | 186,550 | $ | 195,878 | |||||||||||||
$ | 400,000 | $ | 91,950 | $ | 122,600 | $ | 153,250 | $ | 183,900 | $ | 214,550 | $ | 225,278 | |||||||||||||
$ | 450,000 | $ | 103,950 | $ | 138,600 | $ | 173,250 | $ | 207,900 | $ | 242,550 | $ | 254,678 | |||||||||||||
$ | 500,000 | $ | 115,950 | $ | 154,600 | $ | 193,250 | $ | 231,900 | $ | 270,550 | $ | 284,078 | |||||||||||||
$ | 550,000 | $ | 127,950 | $ | 170,600 | $ | 213,250 | $ | 255,900 | $ | 298,550 | $ | 313,478 | |||||||||||||
$ | 600,000 | $ | 139,950 | $ | 186,600 | $ | 233,250 | $ | 279,900 | $ | 326,550 | $ | 342,878 | |||||||||||||
$ | 650,000 | $ | 151,950 | $ | 202,600 | $ | 253,250 | $ | 303,900 | $ | 354,550 | $ | 372,278 | |||||||||||||
$ | 700,000 | $ | 163,950 | $ | 218,600 | $ | 273,250 | $ | 327,900 | $ | 382,550 | $ | 401,678 | |||||||||||||
$ | 750,000 | $ | 175,950 | $ | 234,600 | $ | 293,250 | $ | 351,900 | $ | 410,550 | $ | 431,078 | |||||||||||||
$ | 800,000 | $ | 187,950 | $ | 250,600 | $ | 313,250 | $ | 375,900 | $ | 438,550 | $ | 460,478 | |||||||||||||
$ | 850,000 | $ | 199,950 | $ | 266,600 | $ | 333,250 | $ | 399,900 | $ | 466,550 | $ | 489,878 | |||||||||||||
$ | 900,000 | $ | 211,950 | $ | 282,600 | $ | 353,250 | $ | 423,900 | $ | 494,550 | $ | 519,278 | |||||||||||||
$ | 950,000 | $ | 223,950 | $ | 298,600 | $ | 373,250 | $ | 447,900 | $ | 522,550 | $ | 548,678 | |||||||||||||
$ | 1,000,000 | $ | 235,950 | $ | 314,600 | $ | 393,250 | $ | 471,900 | $ | 550,550 | $ | 578,078 | |||||||||||||
$ | 1,000,050 | $ | 235,962 | $ | 314,616 | $ | 393,270 | $ | 471,924 | $ | 550,578 | $ | 578,107 | |||||||||||||
$ | 1,000,100 | $ | 235,974 | $ | 314,632 | $ | 393,290 | $ | 471,948 | $ | 550,606 | $ | 578,136 | |||||||||||||
$ | 1,000,150 | $ | 235,986 | $ | 314,648 | $ | 393,310 | $ | 471,972 | $ | 550,634 | $ | 578,166 | |||||||||||||
$ | 1,000,200 | $ | 235,998 | $ | 314,664 | $ | 393,330 | $ | 471,996 | $ | 550,662 | $ | 578,195 | |||||||||||||
$ | 1,100,000 | $ | 259,950 | $ | 346,600 | $ | 433,250 | $ | 519,900 | $ | 606,550 | $ | 636,878 | |||||||||||||
$ | 1,200,000 | $ | 283,950 | $ | 378,600 | $ | 473,250 | $ | 567,900 | $ | 662,550 | $ | 695,678 | |||||||||||||
$ | 1,300,000 | $ | 307,950 | $ | 410,600 | $ | 513,250 | $ | 615,900 | $ | 718,550 | $ | 754,478 | |||||||||||||
$ | 1,400,000 | $ | 331,950 | $ | 442,600 | $ | 553,250 | $ | 663,900 | $ | 774,550 | $ | 813,278 | |||||||||||||
$ | 1,500,000 | $ | 355,950 | $ | 474,600 | $ | 593,250 | $ | 711,900 | $ | 830,550 | $ | 872,078 |
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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. |
Annual Cash Compensation — Base Pay and Variable Pay |
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• | For 2005, 722 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 2005, the measure of performance under the UPP was earnings from operations. The Company’s overall earnings from operations was the performance measure for Messrs. Ferguson and Lorraine and Ms. Lee. For Messrs. Rogers and Rothwell, UPP performance was measured 50% Company earnings from operations and 50% earnings from operations of their respective Divisions. | |
• | 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 or a combination of corporate and business organization performance compared to the pre-set performance goal. The performance factor can range from 0% if threshold performance goals are not met, to 250% for specified above-goal performance. The 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 within the Company, determines the allocation of the Company award pool to each of the organizations based on his assessment of the performance of all the organizations relative to objectives established at the beginning of the performance year. There were ten such organizations |
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for 2005. 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, but 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. In 2005, the Committee did not increase the total Company award pool. | ||
• | 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 2005. See “Compensation of Chief Executive Officer.” |
• | Earnings from operations for 2005, as adjusted as described below, significantly exceeded the target level of performance for the Company as a whole and for the Eastman Division and for the Voridian Division under the UPP. This resulted in a Company award pool equivalent to the maximum of 250% of target award. | |
• | 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 2005, the target variable pay for performance that meets pre-established objectives under the UPP (expressed as a 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 other performance targets and the officer’s contributions to improving financial results, value-creating growth, and building organizational capabilities to continue to deliver successful results. 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 2005 financial, organizational, and strategic objectives and determined his payout for 2005. 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 certain unusual charges, income items, or other events. The calculation of earnings from operations under the UPP for 2005 was adjusted to exclude the impact on financial results of asset impairment and restructuring charges |
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associated with the Coatings, Adhesives, Specialty Polymers, and Inks (“CASPI”) segment, and the Performance Chemicals and Intermediates segment; asset impairment related to certain businesses in the Developing Businesses segment; and other operating income associated with the divestiture of certain 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 but had no impact on the final payout level. |
Stock Options | 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 fromtime-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 (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.” |
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• | 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 2005 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. |
• | Performance shares were awarded to 38 key managers (including the executive officers in the Summary Compensation Table) under the 2005-2007 Performance Share Award Subplan. |
• | The size of the performance share awards reported in the “Long-Term Incentive Plan — Awards in Last Fiscal Year” table was determined by applying the methodology described under “How Stock-Based Incentive Pay Levels Were Determined.” | |
• | Performance is measured by comparing the Company’s multi-year performance as measured against a return on capital target 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. |
• | The payouts reported in the Summary Compensation Table for the named executive officers for the 2004-2005 Performance Share Award Subplan represent 220% of the target award (of a possible 300% of the target award) based upon the Company’s total stockholder return ranking in the second quintile of the compared companies and an average return on capital substantially in excess of the return on capital target. |
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162(m). The Compensation Committee determined not to require deferral of any of the 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 | 12/31/00 | 12/31/01 | 12/31/02 | 12/31/03 | 12/31/04 | 12/31/05 | ||||||||||||||||||
EASTMAN CHEMICAL COMPANY | 100 | 83.42 | 81.96 | 92.90 | 140.72 | 130.00 | ||||||||||||||||||
S&P 500 INDEX | 100 | 88.11 | 68.64 | 88.33 | 97.94 | 102.75 | ||||||||||||||||||
PEER GROUP(1) | 100 | 93.37 | 89.65 | 112.65 | 132.51 | 125.06 |
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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 4, 2006
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 2009 and their successors are duly elected and qualified: |
(01) Stephen R. Demeritt | (02) Robert M. Hernandez | (03) David W. Raisbeck |
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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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, 2006 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 4, 2006 or any adjournment or postponement thereof.
Signature(s) | ||||||
Signature(s) | ||||||
Date: | , 2006 | |||||
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]
CES VOTE
When you submit your voting instructions through this site, it is the same as if you mark, sign and return your voting instruction form or proxy.
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1. | Election of Directors For Term Expiring At The Annual Meeting in 2009: | ooo | FOR all nominees listed below WITHHOLD AUTHORITY on all nominees listed below WITHHOLD AUTHORITY on checked nominees listed below |
Nominees: | ||||||||||||
o (1) | Stephen R. Demeritt | o (2) | Robert M. Hernandez | o (3) | David W. Raisbeck |
FOR | AGAINST | ABSTAIN | ||||||
2. | Ratification of Appointment of PricewaterhouseCoopers LLP as Independent Accountants. | o | o | o |
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[VOTING SUMMARY
[Eastman Chemical Company Logo]
Thank You for Voting
Your Voting Summary
Click Here to Cast Another Vote
Your Number Submitted Confirmation | ||||||||
1. | Election of Directors For Term Expiring At The Annual Meeting In 2009: | |||||||
Nominees: | ||||||||
(1) Stephen R. Demeritt | [FOR] | [WITHHOLD] | ||||||
(2) Robert M. Hernandez | [FOR] | [WITHHOLD] | ||||||
(3) David W. Raisbeck | [FOR] | [WITHHOLD] | ||||||
2. | Ratification of Appointment of PricewaterhouseCoopers LLP as Independent Accountants. | [FOR] | [AGAINST] | [ABSTAIN] | ||||
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[FORM OF LETTER TO EMPLOYEE STOCKHOLDERS WHO HOLD SHARES THROUGH PLANS]
Eastman Chemical Company P.O. Box 431 Kingsport, Tennessee 37662-5280 |
Theresa K. Lee Senior Vice President, Chief Legal Officer and Corporate Secretary Phone: (423) 229-2097 FAX: (423) 224-9399 tklee@eastman.com |
March 24, 2006
RE: 2006 ANNUAL MEETING MATERIALS
Dear Fellow Eastman Employee and Stockholder:
Our 2006 Annual Meeting of Stockholders will be held on May 4, 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 2005 Annual Report and the Notice and Proxy Statement for the 2006 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 1-800-516-1564 and enter the number in the box by the arrow on your proxy card.
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