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SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Eastman Chemical Company
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(Name of Registrant as Specified In Its Charter)
N/A
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) 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:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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PRELIMINARY PROXY MATERIALS DATED MARCH 1, 2001
SUBJECT TO COMPLETION
(EASTMAN LOGO)
March [26], 2001
DEAR FELLOW SHAREOWNER:
Our Annual Meeting will be held at our Employee Center, located at 400
South Wilcox Drive, in Kingsport, Tennessee, on May 3, 2001, at 11:00 a.m. Doors
to the meeting will open at 10:00 a.m. The business to be considered and voted
upon at the meeting is explained in the accompanying proxy materials (consisting
of the Notice of Annual Meeting, the Proxy Statement, and the proxy card). A
copy of Eastman's 2000 Annual Report accompanies these materials.
Your vote is important for this year's Annual Meeting, regardless of the
number of shares you own. Signing and returning a proxy card or submitting your
proxy via the Internet or telephone will not prevent you from voting in person,
but will assure that your vote is counted if you are unable to attend the
meeting. WHETHER YOU CHOOSE TO VOTE BY PROXY CARD, TELEPHONE, OR COMPUTER, IT
WOULD HELP IF YOU VOTED AS SOON AS POSSIBLE. If you are a record holder, an
admission ticket for the Annual Meeting is included with your proxy card. If you
received our proxy materials from a broker or bank and do not have an admission
ticket and wish to attend the meeting, please call (423) 229-4647.
As you probably know, your Board of Directors has directed management to
pursue a plan that would result in Eastman becoming two independent public
companies by the end of 2001. We are working now to separate our businesses into
two companies -- a specialty chemicals and plastics company and a PET plastics
and acetate fibers company. Focusing on the distinctly different business,
operational, and strategic requirements and considerations inherent in Eastman's
current specialty and commodity businesses, I believe that the new companies
will be better able to concentrate their respective efforts and resources on
strategies specific to each business. And, you will have separate investments in
two companies with distinct characteristics.
The new companies are expected to be launched through a spin-off in the
form of a tax-free stock dividend to be effective at the end of 2001. You will
hear and receive more information later in the year. This time next year, we
expect that you will be receiving two sets of proxy materials for the annual
meetings of two exciting public companies.
Thank you for your support of our Company.
Sincerely,
/s/ EARNEST W. DEAVENPORT, JR.
Earnest W. Deavenport, Jr.
Chairman and Chief Executive Officer
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EASTMAN CHEMICAL COMPANY
100 NORTH EASTMAN ROAD
KINGSPORT, TENNESSEE 37660
(423) 229-2000
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NOTICE OF ANNUAL MEETING OF SHAREOWNERS
TO BE HELD ON MAY 3, 2001
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To Our Shareowners:
The 2001 Annual Meeting of Shareowners of Eastman Chemical Company
("Eastman" or the "Company") will be held at the Eastman Employee Center,
located at 400 South Wilcox Drive, Kingsport, Tennessee, on May 3, 2001, at
11:00 a.m., local time, for the following purposes:
- 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 Shareowners in 2004 and until their
successors are duly elected and qualified;
- AMEND CERTIFICATE OF INCORPORATION TO EFFECT 10:1 REVERSE/FORWARD
STOCK SPLIT. To consider and act upon an amendment to Eastman's
Certificate of Incorporation to effect a "reverse/forward split" of
the Corporation's common stock, by which registered holders of less
than 10 shares would have such shares cancelled and converted to the
right to receive the fair market value of such shares in cash;
- RATIFY APPOINTMENT OF INDEPENDENT ACCOUNTANTS. To consider and act
upon ratification of the appointment of PricewaterhouseCoopers LLP as
independent accountants for the Company until the Annual Meeting of
Shareowners in 2002;
- SHAREOWNER PROPOSALS. If properly presented, to consider and act upon
the two shareowner proposals set forth in the accompanying Proxy
Statement, both of which are opposed by the Board of Directors; and
- OTHER BUSINESS. To transact such other business as may come properly
before the Annual Meeting or any adjournments or postponements
thereof.
Only shareowners of record at the close of business on March 15, 2001 are
entitled to vote at the Annual Meeting. IT IS IMPORTANT THAT YOUR SHARES BE
REPRESENTED AND VOTED AT THE ANNUAL MEETING. Please vote by proxy in one of
these ways:
- USE THE TOLL-FREE TELEPHONE NUMBER shown 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.
Signing and returning the proxy card or submitting your proxy via Internet
or by telephone does not affect your right to vote in person if you attend the
Annual Meeting.
By order of the Board of Directors
/s/ Theresa K. Lee
Theresa K. Lee
General Counsel and Secretary
March [26], 2001
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PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREOWNERS OF
EASTMAN CHEMICAL COMPANY
TO BE HELD ON MAY 3, 2001
INTRODUCTION
PROXY STATEMENT AND ANNUAL MEETING
This Proxy Statement is dated March [26], 2001 and is first being mailed
and delivered electronically to Eastman shareowners, and made available on the
Internet (www.eastman.com), on or about March [30], 2001. This Proxy Statement
is being furnished to shareowners in connection with the solicitation of proxies
by the Company's Board of Directors for use at the Annual Meeting of Shareowners
of the Company to be held on May 3, 2001, and at any adjournments or
postponements thereof. At the Annual Meeting, shareowners will be asked to vote
on the five items of business listed in the accompanying Notice of Annual
Meeting and described in more detail under "Proposals To Be Voted Upon."
VOTING BY PROXY
By executing and returning the proxy (either by returning the paper proxy
card or by submitting your proxy electronically via the Internet or by
telephone), you appoint James P. Rogers, the Company's Chief Financial Officer
and Theresa K. Lee, the Company's General Counsel and Secretary, to represent
you at the Annual Meeting and direct them to vote your shares at the Annual
Meeting according to your instructions. Shares of common stock represented by
proxy will be voted by the proxy holders at the Annual Meeting in accordance
with the instructions indicated in the proxy appointment. IF YOU PROPERLY
EXECUTE AND RETURN YOUR PROXY (IN PAPER FORM, ELECTRONICALLY VIA THE INTERNET,
OR BY TELEPHONE) BUT DO NOT INDICATE ANY VOTING INSTRUCTIONS, YOUR SHARES WILL
BE VOTED IN ACCORDANCE WITH THE RECOMMENDATIONS OF THE BOARD OF DIRECTORS.
SHAREOWNERS OF RECORD MAY VOTE BY PROXY IN ONE OF THREE WAYS:
- By telephone: call 1-800-293-5876 and use the Control Number on your
personalized proxy card;
- Via Internet: visit the www.proxyvoting.com/eastman website and use the
Control Number on your personalized proxy card; or
- By mail: mark, sign, date and mail your proxy card in the enclosed
postage-paid envelope.
The Internet and telephone voting procedures are designed to authenticate
shareowner identities, to allow shareowners to give voting instructions, and to
confirm that shareowners' instructions have been recorded properly. Shareowners
voting by Internet should understand that there may be costs associated with
electronic access, such as usage charges from Internet access and telephone or
cable service providers, that must be borne by the shareowner.
IF YOUR SHARES ARE HELD IN "STREET NAME" THROUGH A BROKER, BANK OR OTHER
HOLDER OF RECORD, YOU WILL RECEIVE INSTRUCTIONS FROM THE REGISTERED HOLDER THAT
YOU MUST FOLLOW IN ORDER FOR YOUR SHARES TO BE VOTED FOR YOU BY SUCH RECORD
HOLDER. Telephone and Internet voting is also offered to shareowners who own
their Eastman shares through certain banks and brokers.
HOW TO REVOKE YOUR PROXY
You may revoke your proxy at any time before its exercise at the Annual
Meeting by either:
- giving written notice of revocation to the Secretary of the Company,
- executing and delivering a later-dated proxy, or
- voting in person at the Annual Meeting.
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All written notices of revocation or other communications with respect to
revocation of proxies should be addressed as follows: Eastman Chemical Company,
P.O. Box 511, Kingsport, Tennessee 37662-5075, Attention: Theresa K. Lee,
Secretary.
SHAREOWNERS ENTITLED TO VOTE
The Company's Board of Directors has fixed the close of business on March
15, 2001 as the record date for the determination of the shareowners entitled to
receive notice of and to vote at the Annual Meeting. Only holders of record of
shares of common stock as of the record date will be entitled to vote at the
Annual Meeting. If your shares are held in the name of a broker, bank or other
holder of record, you must obtain a proxy, executed in your favor, from the
holder of record to be able to vote in person at the Annual Meeting.
As of the record date, there were shares of common stock issued
and outstanding and entitled to be voted at the Annual Meeting. Holders of
common stock are entitled to one vote on each matter considered and voted upon
at the Annual Meeting for each share of common stock held of record as of the
record date.
QUORUM
The presence, in person or by proxy, of the holders of a majority of the
shares of common stock entitled to vote at the Annual Meeting is necessary to
constitute a quorum to conduct business at the Annual Meeting. Abstentions,
votes withheld, and "broker non-votes" are counted as present and entitled to
vote for purposes of determining a quorum. A "broker non-vote" occurs when a
nominee (such as a broker or bank) holding shares in "street name" as the
registered holder for a beneficial owner does not vote on a particular proposal
because the nominee does not have discretionary voting power for that particular
item and has not received voting instructions from the beneficial owner.
REQUIRED VOTE
A plurality of the votes cast is required for the election of directors.
With respect to the election of directors, shareowners may by proxy (1) vote
"for" all three nominees, (2) "withhold" authority to vote for all such
nominees, or (3) withhold authority to vote for any individual nominee or
nominees but vote for all other nominees. Because directors are elected by a
plurality of the votes cast (meaning the three nominees receiving the greatest
number of votes will be elected), withholding authority to vote with respect to
one or more nominees will have no effect on the outcome of the election.
Similarly, any broker non-votes are not considered to be votes cast and
therefore would have no effect on the outcome of the election of directors.
The affirmative vote of the holders of a majority of the shares outstanding
and entitled to be voted at the Annual Meeting is required to approve the
proposed amendment to the Certificate of Incorporation necessary to effect a
10:1 reverse/forward stock split. Shareowners may by proxy (1) vote "for", (2)
vote "against", or (3) "abstain" from voting on the proposed amendment.
Abstentions and broker non-votes would have the same effect as a vote against
the proposal to amend the Certificate of Incorporation.
The affirmative vote of a majority of the votes cast is required for
ratification of the appointment of independent accountants and adoption of each
of the two shareowner proposals. With respect to each of these three items,
shareowners may by proxy (1) vote "for," (2) vote "against," or (3) "abstain"
from voting. Abstentions and any broker non-votes are not considered to be votes
cast and therefore would have no effect on the outcome of any of these
proposals.
PROXY SOLICITATION COSTS
The cost of soliciting proxies and the cost of the Annual Meeting will be
paid by the Company. In addition to the solicitation of shareowners by mail and
electronic delivery, proxies may be solicited by
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telephone, facsimile, personal contact, and similar means by directors,
officers, or employees of the Company, none of whom will be specially
compensated for such activities. The Company also contacts brokerage houses,
banks, nominees, custodians, and fiduciaries who can be identified as record
holders of common stock. Such holders, after inquiry by the Company, provide
certain information concerning beneficial owners not objecting to the disclosure
of such information and the quantities of proxy materials and Annual Reports
needed to supply such materials to beneficial owners, and the Company reimburses
such record holders for the expense of providing such beneficial ownership
information and of mailing proxy materials and Annual Reports to beneficial
owners. Georgeson Shareholder Communications Inc. has been retained by the
Company to aid in the solicitation of proxies, at a cost of $10,000 plus
expenses.
MATTERS RAISED AT THE ANNUAL MEETING NOT INCLUDED IN THIS PROXY STATEMENT
The Company's management does not expect any matters to be acted upon at
the Annual Meeting other than those presented in this Proxy Statement under
"Proposals To Be Voted Upon". If any other matters were to be properly
presented, however, the persons designated as proxies would have the discretion
to vote on those matters for you.
Under Eastman's Bylaws, a shareowner may submit a matter for a vote of the
Company's shareowners at a meeting by giving adequate notice to the Secretary of
the Company. To be adequate, the notice must set forth certain information
specified in our Bylaws (which will be provided to any shareowner upon written
request) about the shareowner and the proposal and be delivered to the Secretary
not less than 60 days prior to the meeting. If, however, the meeting is an
annual meeting to be held before the first Thursday in May (the regular day
called for by the Bylaws) or a special meeting, notice of a proposal to be
brought before the meeting may be provided up to the 15th day following the date
notice of the meeting was given. Under our Bylaws, shareowners had until March
4, 2001 to provide notice of any matters to be presented at the Annual Meeting.
SHAREOWNER PROPOSALS FOR THE 2002 ANNUAL MEETING
In accordance with rules of the Securities and Exchange Commission (the
"SEC"), if you want to submit a proposal for presentation at Eastman's 2002
Annual Meeting of Shareowners, it must be received by the Company at its
principal executive offices on or before November , 2001 in order to be
included in the Company's proxy materials relating to its 2002 Annual Meeting of
Shareowners. In addition, as described under "Matters Raised at the Annual
Meeting not Included in this Proxy Statement", the Company's Bylaws require that
a proposal to be submitted by a shareowner for a vote of the Company's
shareowners, whether or not also submitted for inclusion in the Company's proxy
materials, must be preceded by adequate and timely notice to the Secretary of
the Company. If the 2002 Annual Meeting is held on Thursday, May 2, 2002 (the
regular day called for by the Bylaws), then such advance notice would be timely
if delivered on or before March 3, 2002.
NOMINATIONS BY SHAREOWNERS FOR ELECTION TO BOARD OF DIRECTORS
The Company's Bylaws provide that nominations by shareowners of persons for
election to the Board of Directors may be made by giving adequate notice to the
Secretary of the Company. To be adequate, the nomination notice must set forth
certain information specified in our Bylaws (which will be provided upon written
request) about each shareowner submitting a nomination and each person being
nominated and be delivered to the Secretary not less than 60 days prior to the
meeting. If, however, the meeting is an annual meeting to be held before the
first Thursday in May or a special meeting, the nomination notice may be
provided up to the 15th day following the date notice of the meeting was given.
The Committee on Directors of the Board of Directors will consider persons
nominated by shareowners and recommend to the full Board whether or not such
nominee should be included with the Board's nominees for election by
shareowners.
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ANNUAL REPORT TO SHAREOWNERS AND ANNUAL REPORT ON FORM 10-K
The Company's Annual Report to Shareowners for 2000, including consolidated
financial statements for the year ended December 31, 2000, is being mailed to
shareowners and made available via the Internet concurrently with this Proxy
Statement but does not form any part of the proxy solicitation material. Upon
the written request of any shareowner, the Company will furnish without charge a
copy of the Company's Annual Report on Form 10-K for the year ended December 31,
2000 as filed with the SEC. Requests may be made to Eastman Chemical Company,
P.O. Box 511, Kingsport, Tennessee 37662-5075, Attention: Investor Relations.
This information is also available via the Internet at the Company's World Wide
Web site (www.eastman.com), and the EDGAR version of such report (with exhibits)
is available at the SEC's World Wide Web site (www.sec.gov).
PROPOSALS TO BE VOTED UPON
ITEM 1 -- ELECTION OF DIRECTORS
The Company's Board of Directors is divided into three classes, with the
terms of office of the respective classes ending in successive years. Under the
Company's Bylaws, a director reaching age 70 during any term of office continues
to be qualified to serve only until the next annual meeting of shareowners
following his or her 70th birthday (or, if approved by unanimous action of the
Board of Directors, until the next annual meeting following his or her 71st
birthday). Three directors are in the class for which the term in office expires
at the Annual Meeting; these three directors have each been nominated for
re-election for a new three-year term. The terms of the other eight directors
continue after the Annual Meeting.
The shareowners are being asked to vote on the election of three directors
to the class for which the term of office shall expire at the Annual Meeting of
Shareowners in 2004 and until their successors are duly elected and qualified.
All shares of common stock represented by valid proxies received pursuant to
this solicitation, and not revoked before they are exercised, will be voted in
the manner specified. If you execute and return a proxy without instruction,
your shares will be voted for the election of the three nominees identified
below. If any nominee is unable or unwilling to serve (which is not
anticipated), the persons designated as proxies will vote your shares for the
remaining nominees and for another nominee proposed by the Board or, as an
alternative, the Board could reduce the number of directors to be elected at the
Annual Meeting.
THE NOMINEES HAVE BEEN RECOMMENDED TO THE BOARD OF DIRECTORS BY THE
COMMITTEE ON DIRECTORS OF THE BOARD. THE BOARD OF DIRECTORS RECOMMENDS THAT YOU
VOTE "FOR" ELECTION OF THE THREE NOMINEES IDENTIFIED BELOW.
Set forth below is certain information regarding each current director,
including a description of his or her positions and offices with the Company
(other than as a director), if any; a brief description of his or her principal
occupation and business experience during at least the last five years;
directorships presently held by him or her in certain publicly traded and other
companies, organizations, or associations; and his or her age. Mr. Deavenport
was first elected to the Board in November 1993, and Miss Marks, Messrs.
Arnelle, Campbell, and Liu, and Dr. White joined the Board on January 1, 1994,
immediately after completion of the Company's spin-off from Eastman Kodak
Company. Messrs. Dempsey, Donehower, Griffin, Wood, and Raisbeck were elected to
the Board on May 1, 1997, February 3, 1998, May 6, 1999, May 4, 2000, and
December 7, 2000, respectively.
As previously reported, the Board has authorized management to pursue a
plan that would result in Eastman becoming two independent public companies by
the end of 2001. The separation would be effected through a spin-off, after
which Eastman shareowners would own shares in both companies. While all aspects
of the transaction have not been finalized, the Board expects that it will be
divided between the new companies, and that Mr. Deavenport will retire at the
end of 2001.
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NOMINEES FOR DIRECTOR
TERM EXPIRING ANNUAL MEETING 2004
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[PHOTO] H. JESSE ARNELLE
Mr. Arnelle is of counsel to the Winston-Salem, North Carolina-based law firm
of Womble, Carlyle, Sandridge & Rice. He was a partner of the San
Francisco-based law firm of Arnelle, Hastie, McGee, Willis & Greene or its
predecessor from 1985 until 1996. Mr. Arnelle is Immediate Past Chairman of
the Board of Trustees of Pennsylvania State University, is a director of the
National Football Foundation and Collegiate Hall of Fame, and is a member of
the boards of directors of Armstrong World Industries, Inc., FPL Group, Inc.,
Gannett Corporation, Textron, Inc., and Waste Management, Inc. He is 67.
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[PHOTO] DR. JOHN A. WHITE
Dr. White is Chancellor of, and Distinguished Professor of Industrial
Engineering at, the University of Arkansas. From 1991 to 1997, he was Dean of
the College of Engineering at the Georgia Institute of Technology. From July
1988 to September 1991, he was Assistant Director of the National Science
Foundation in Washington, D.C., and served on the faculty of the Georgia
Institute of Technology from 1975 to 1997. Dr. White is also a member of the
National Science Board, a member of the National Academy of Engineering, and a
member of the boards of directors of J. B. Hunt Transport Services, Inc.,
Logility, Inc., Motorola, Inc., and Russell Corporation. He is 61.
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[PHOTO] PETER M. WOOD
Mr. Wood is non-executive Chairman of the Board of Stone & Webster, Incorpo-
rated, an engineering and construction firm, and served as Managing Director
of J. P. Morgan & Company, an investment banking firm, from 1986 until his
retirement in 1996. He is also a member of the boards of directors of Payless
Cashways, Inc. and Middlesex Mutual Assurance Company. Mr. Wood is 62.
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MEMBERS OF BOARD OF DIRECTORS CONTINUING IN OFFICE
TERM EXPIRING ANNUAL MEETING 2002
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[PHOTO] CALVIN A. CAMPBELL, JR.
Mr. Campbell has been Chairman of the Board, President and Chief Executive
Officer of Goodman Equipment Corporation since 1971. Goodman Equipment
designs, manufactures, and markets worldwide underground mining locomotives
and personnel carriers and services and parts for injection molding machinery.
He was also President and Chief Executive Officer of Cyprus Amax Minerals
Company in 1992, Chairman of the Board in 1991 and 1992, and a director from
1985 through 1994. Mr. Campbell is a member of the boards of directors of Mine
Safety Appliances, Inc. and of Bulley & Andrews Company. He is also a director
and former Chairman of the National Association of Manufacturers, is a
director of the National Mining Association, is a director and former Chairman
of the Illinois Manufacturers Association, and serves as a trustee of the
Illinois Institute of Technology. Mr. Campbell is 66.
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[PHOTO] EARNEST W. DEAVENPORT, JR.
Mr. Deavenport is Chairman of the Board and Chief Executive Officer of the
Company. He joined the Company in 1960. Mr. Deavenport was named President of
the Company in 1989. He also served as Group Vice President of Eastman Kodak
Company from 1989 through 1993. Mr. Deavenport is a member of the boards of
directors of AmSouth Bancorporation, King Pharmaceuticals, Inc., Milliken &
Company, and Theragenics Corporation. He also serves as a director of the
American Plastics Council, the American Chemistry Council, and the National
Association of Manufacturers, on the Board of Trustees of the Malcolm Baldrige
National Quality Award Foundation, and as Chairman of the Environmental and
Regulatory Committee of the Business Roundtable. Mr. Deavenport is 62.
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[PHOTO] JOHN W. DONEHOWER
Mr. Donehower is Senior Vice President and Chief Financial Officer of
Kimberly-Clark Corporation, a manufacturer and marketer of a wide range of
tissue, personal care, and health care products for personal, business and
industrial uses. He joined Kimberly-Clark in 1974, and served in a series of
management positions prior to election to his current position in 1993. Mr.
Donehower is also a member of the boards of directors of Factory Mutual
Insurance Company and Kimberly-Clark De Mexico S.A. de C.V. He is 54.
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[PHOTO] LEE LIU
Mr. Liu served as Chairman of the Board of Alliant Energy Corporation from
1999 until his retirement in 2000, and was Chairman of the Board of Alliant's
predecessor, Interstate Energy Corporation, from 1998 to 1999, and was
Chairman of the Board and Chief Executive Officer of IES Industries, Inc.,
predecessor of Interstate Energy Corporation, and of IES Utilities, the major
subsidiary of IES Industries, from 1993 to 1998. Mr. Liu was with Iowa
Electric Light & Power Company, predecessor of IES Industries, since 1957. He
is also a member of the boards of directors of Alliant Energy Corporation and
Principal Financial Group. Mr. Liu is 67.
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TERM EXPIRING ANNUAL MEETING 2003
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[PHOTO] JERRY E. DEMPSEY
Mr. Dempsey served as Chairman of the Board and Chief Executive Officer of PPG
Industries, Inc., a manufacturer of protective and decorative coatings,
fiberglass products, and specialty chemicals, from 1993 until his retirement
in 1997. From 1991 until he joined PPG, he was Senior Vice President of WMX
Technologies, Inc., a waste treatment and disposal company, and Chairman of
its publicly-traded, majority-owned subsidiary, Chemical Waste Management,
Inc., having served as President and Chief Executive Officer of Chemical Waste
Management, Inc. since 1985. Mr. Dempsey is also a member of the boards of
directors of Birmingham Steel Corporation and Navistar International Corpora-
tion. He is 68.
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[PHOTO] DONALD W. GRIFFIN
Mr. Griffin is Chairman of the Board, President and Chief Executive Officer of
Olin Corporation, a manufacturer of chemicals, metals, and ammunition. He
joined Olin in 1961, and served in a series of marketing and management
positions prior to appointment to the position of President and Chief
Operating Officer in 1994 and to his current positions in 1996. Mr. Griffin
also serves as a trustee of the University of Evansville and the Buffalo Bill
Historical Center. He is 64.
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[PHOTO] MARILYN R. MARKS
Miss Marks is Chairman of the Board of Dorsey Trailers, Inc., a truck trailer
manufacturer. She was Chairman, Chief Executive Officer and President of
Dorsey Trailers, Inc. from 1987 to 1997 and was Chairman and Chief Executive
Officer of Dorsey Trailers, Inc. from 1997 until 1999. Miss Marks was Chairman
and Chief Executive Officer of TruckBay.com, Inc., an Internet source of
goods, services, and information serving the trucking industry, from 1999 to
2000. On December 5, 2000, Dorsey Trailers, Inc. filed a voluntary petition
for Relief under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy
Court for the Middle District of Alabama, Montgomery, Alabama (Case No.
00-6792-WPS). Chapter 11 allows Dorsey Trailers to remain debtor-in-possession
of its assets and business while being subject to the supervision and orders
of the Bankruptcy Court. Miss Marks is also a member of the board of directors
of Dana Corporation. She is 48.
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[PHOTO] DAVID W. RAISBECK
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 Armstrong World Industries, Inc. Mr. Raisbeck is 51.
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BOARD COMMITTEES
The Board of Directors has an Audit Committee, a Committee on Directors, a
Compensation and Management Development Committee, a Finance Committee, and a
Health, Safety & Environmental and Public Policy Committee. All committee
members are non-employee, independent directors.
AUDIT COMMITTEE. The members of the Audit Committee are Dr. White (Chair)
and Messrs. Campbell, Donehower, Raisbeck, and Wood. The Audit Committee held
four meetings during 2000. The Audit Committee assists the Board in fulfilling
its oversight responsibilities relating to:
- the integrity of the financial statements of the Company;
- the Company's system of internal controls; and
- the independence and performance of the Company's internal and outside
auditors.
AUDIT COMMITTEE REPORT
The Board of Directors has adopted a written Audit Committee Charter, a
copy of which is included as Appendix A to this Proxy Statement. All members of
the Audit Committee are "independent" as defined in Section 303.01(B)(2)(a) and
(3) of the New York Stock Exchange's listing standards.
The Audit Committee has reviewed and discussed with the Company's
management and PricewaterhouseCoopers LLP, the Company's independent auditors,
the audited financial statements of the Company contained in the Company's
Annual Report to Shareowners for the year ended December 31, 2000. The Audit
Committee has also discussed with the Company's independent auditors the matters
required to be discussed pursuant to SAS No. 61 (Codification of Statements on
Auditing Standards, Communication with Audit Committees), as amended.
The Audit Committee has received and reviewed the written disclosures and
the letter from PricewaterhouseCoopers LLP required by Independence Standards
Board Standard No. 1 (titled, "Independence Discussions with Audit Committees"),
and has discussed with PricewaterhouseCoopers LLP their independence. The Audit
Committee has also considered whether the provision of non-audit services to the
Company by PricewaterhouseCoopers LLP is compatible with maintaining their
independence.
Based on the review and discussions referred to above, the Audit Committee
recommended to the Board of Directors that the audited financial statements be
included in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2000 filed with the SEC.
Audit Committee
John A. White, Chair
Calvin A. Campbell, Jr.
John W. Donehower
David W. Raisbeck
Peter M. Wood
COMMITTEE ON DIRECTORS. The members of the Committee on Directors are
Messrs. Campbell (Chair), Arnelle, Griffin, Liu, and Raisbeck. The Committee on
Directors held six meetings during 2000. The Committee on Directors:
- conducts a bi-annual assessment of the Board's performance, for
discussion with the full Board;
- recommends to the Board criteria for Board membership and annually
reviews the Board's composition for purposes of assessing its
independence, diversity and skills;
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- annually reviews and makes recommendations regarding compensation of
non-employee directors, and acts as the administrator of certain
non-employee director compensation plans, and can amend or take actions
with respect to such plans where permitted by such plans;
- reviews the qualifications of candidates for Board membership and
recommends to the Board the slate of director candidates to be proposed
for election by shareowners at each annual meeting;
- recommends to the Board criteria relating to the tenure of a director;
- when appropriate, recommends to the Board that it recommend to the
shareowners removal of a director for cause;
- periodically reviews the Board's committee structure and committee
assignments and recommends to the Board any appropriate changes thereto;
- periodically reviews the Company's Corporate Governance Guidelines and
recommends to the Board any appropriate changes thereto; and
- reviews and makes recommendations to the Board on other Board and
corporate governance matters.
COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE. The members of the
Compensation and Management Development Committee (the "Compensation Committee")
are Messrs. Liu (Chair), Dempsey, and Griffin, Miss Marks, and Dr. White. The
Compensation Committee held eight meetings during 2000. The Compensation
Committee:
- determines the compensation of employees who are members of the Board;
- determines, based upon the recommendations of the Chairman and Chief
Executive Officer, compensation of the Company's other executive
officers;
- reviews proposed employee benefit plans and executive compensation plans,
and proposed changes to existing plans under certain circumstances;
- acts as the administrator of certain employee benefit plans and executive
compensation plans;
- reviews management development and succession plans relating to the
Company's senior officers;
- makes recommendations to the Board regarding the foregoing matters; and
- can amend or take actions with respect to the Company's employee
compensation and benefit plans where permitted by such plans.
FINANCE COMMITTEE. The members of the Finance Committee are Miss Marks
(Chair) and Messrs. Dempsey, Donehower, Griffin, and Wood. The Finance Committee
held six meetings during 2000. The Finance Committee:
- reviews the Company's short-and long-term financing plans, its financial
position and forecasts, and its capital expenditure budgets and certain
capital projects;
- reviews transactions, such as acquisitions and divestitures, that may
have a material impact on the Company's financial profile;
- makes recommendations to the Board regarding those matters and regarding
dividends; and
- reviews the results of the Eastman Retirement Assistance Plan and the
activities of the Eastman Retirement Assistance Plan Committee.
HEALTH, SAFETY & ENVIRONMENTAL AND PUBLIC POLICY COMMITTEE. The members of
the Health, Safety & Environmental and Public Policy Committee are Messrs.
Arnelle (Chair), Dempsey, Donehower, Raisbeck,
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and Wood. The Health, Safety & Environmental and Public Policy Committee held
three meetings during 2000. The Health, Safety & Environmental Public Policy
Committee:
- reviews and makes recommendations to the Board regarding the Company's
policies and practices concerning health, safety, and environmental
matters;
- reviews with the Company's management and reports to the Board on the
Company's health, safety, and environment assessment practices, and its
processes for complying with related laws and regulations and on health,
safety, and environmental matters involving the Company, including any
significant liabilities or anticipated expenditures with respect thereto,
and periodically reviews with management the Company's public disclosure
policies and practices, and coordinates with the Audit and Finance
Committees, with respect thereto;
- reviews and monitors, and makes recommendations to the Board regarding,
significant matters of health, safety, and environmental public policy
concerning the Company;
- reviews and makes recommendations to the Board regarding certain
significant matters of public policy concerning the Company;
- periodically reviews with management the Company's list of public policy
issues; and
- monitors and periodically reports to the Board on federal and state
legislative and regulatory initiatives and the Company's lobbying and
advocacy activities.
MEETING ATTENDANCE
The Board of Directors held six meetings during 2000. Each director
attended at least 75% of the aggregate of the total number of meetings of the
Board (held during the period for which he or she was a director) and the total
number of meetings held by all committees of the Board on which he or she served
(during the period that he or she served) except Miss Marks, who attended 73%
(17 of 23) of such meetings.
DIRECTOR COMPENSATION
DIRECTORS' ANNUAL COMPENSATION. Each director who is not an employee of
the Company receives an annual cash retainer fee of $30,000, payable in
semi-annual installments of $15,000 each. In addition, each such director
receives a fee of $1,100 for each Board meeting attended and for each committee
meeting attended (and, in the case of the Finance Committee and the Health,
Safety & Environmental and Public Policy Committee, regardless of whether such
director is a member of such committee), and reimbursement of expenses related
to attendance. The chairperson of each committee receives an additional annual
retainer of $5,000, payable in semi-annual installments of $2,500 each.
Directors who are also employees of the Company receive no Board or committee
fees.
DIRECTOR LONG-TERM COMPENSATION PLAN. The Company's 1999 Director
Long-Term Compensation Plan (the "DLTP") provides for an automatic one-time
restricted stock award and annual option grants and restricted stock awards to
each non-employee director. (The DLTP replaced the 1994 Director Long-Term
Compensation Plan, under which each non-employee director received a one-time
restricted stock award and option grant on the first day of his or her initial
term of service as a director.) The maximum number of shares of common stock
that may be granted or subject to awards under the DLTP is 60,000, subject to
adjustment in the event of stock splits, stock dividends, or changes in capital
structure affecting common stock. No award may be made under the DLTP after the
later of May 1, 2004 or the 2004 annual meeting of shareowners of the Company.
ANNUAL OPTION GRANTS. Under the DLTP, immediately following each annual
meeting of the Company's shareowners, each non-employee director receives a
non-qualified stock option to purchase 2,000 shares of Eastman common stock.
Such options have an exercise price equal to the fair market value of the
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underlying shares of common stock on the date the options are granted. The
options vest and become exercisable with respect to one-half of the option
shares on the first anniversary of the date of the grant and with respect to the
remaining shares on the second anniversary of the date of the grant. Each such
option has a term of ten years and is nonassignable (except by will or the laws
of descent and distribution). If the grantee ceases to be a director for any
reason other than death, disability or completion of his or her normal term of
service, all outstanding unexercised options, whether or not vested, will
expire.
If an option is exercised by the surrender of previously-owned shares of
Eastman common stock while the director is still a director or within 60 days
thereafter, then the director exercising the option will be granted a new
"reload" option for the number of shares so surrendered. Such replacement option
will have a term equal to the remaining term of the original option, will have
an exercise price equal to the fair market value of the underlying shares as of
the date of exercise of the original option, and will otherwise have the same
terms and conditions as the original option. Reload options will not, however,
have similar replacement rights, and will be exercisable on the earlier of six
months from the date of grant or the date of the grantee's termination as a
director.
ANNUAL RESTRICTED STOCK AWARDS. Immediately following each annual
meeting of the Company's shareowners, each non-employee director is granted an
award of shares of common stock having a fair market value equal to $5,000 as of
such date, subject to certain restrictions. The restricted shares are not
transferable (except by will or the laws of descent and distribution) and are
subject to forfeiture until the earlier of: (i) the third anniversary of grant
(provided the grantee is still a director), (ii) death or disability during the
three years after grant, or (iii) departure from the Board at the end of the
term of service to which elected. If none of the three alternative vesting
events occurs by the third anniversary of the grant date, then the shares are
forfeited. During the restricted period, the director has all of the rights of a
shareowner (other than the right to transfer the shares) with respect to the
restricted shares, including voting and dividend rights.
ONE-TIME RESTRICTED STOCK AWARDS. In addition to the options and
restricted shares described above, each non-employee director is granted, on the
first date of such director's term of service as a director, an award of shares
of common stock having a fair market value equal to $10,000 as of such date,
subject to certain restrictions. These restricted shares are not transferable
(except by will or the laws of descent and distribution) and are subject to
forfeiture until the earlier of (i) the third anniversary of grant (provided the
grantee is still a director), (ii) death or disability during the three years
after grant, or (iii) failure to be reelected as a director during the three
years after grant. If none of the three alternative vesting events occurs by the
third anniversary of the grant date, then the shares are forfeited. During the
restricted period, the director has all of the rights of a shareowner (other
than the right to transfer the shares) with respect to the restricted shares,
including voting and dividend rights.
TREATMENT OF OPTIONS AND RESTRICTED STOCK UPON "CHANGE IN CONTROL." The
DLTP contains provisions regarding the treatment of options and restricted
shares in the event of a "change in control" of the Company (as defined in the
DLTP, generally involving circumstances in which the Company is acquired by
another entity or its controlling ownership is changed). In such event, all
outstanding options would immediately vest and become exercisable and all
outstanding shares of restricted stock would immediately vest and become
transferable, and such options and shares would be valued and cashed out on the
basis of the change in control price as soon as practicable but in no event more
than 90 days after the change in control. However, the Committee on Directors
has the discretion, notwithstanding any particular event constituting a change
in control, to determine that the event is of the type that does not warrant the
described consequences with respect to options and restricted shares under the
DLTP, in which case such consequences would not occur.
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN. Under the Company's 1996
Non-Employee Director Stock Option Plan (the "Director Stock Option Plan"), each
non-employee director may elect to receive options to purchase Eastman common
stock in lieu of his or her annual retainer (but not meeting fees or other
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compensation as a director). A maximum of 150,000 shares of common stock are
available for the grant of stock options under the Director Stock Option Plan,
subject to adjustment in the event of stock splits, stock dividends or changes
in capital structure affecting common stock. No grant may be made under the
Director Stock Option Plan after May 2, 2006.
OPTIONS IN LIEU OF RETAINER FEES. Each non-employee director may make
an annual advance irrevocable election to receive all or a portion of his or her
retainer to be earned in the following year in options to purchase Eastman
common stock. The number of shares of common stock underlying stock options
granted is determined by multiplying the amount of the semi-annual retainer the
director elects to receive in stock options by three and one-third, then
dividing by the fair market value per share of common stock on the date the
options are granted. The exercise price per share of all stock options granted
under the Director Stock Option Plan is 100% of the fair market value per share
of common stock on the grant date. Options granted under the Director Stock
Option Plan are not exercisable until six months from the date of grant, and
remain exercisable thereafter until the tenth anniversary of the date of grant,
regardless of whether the participant is still a director.
TREATMENT OF OPTIONS UPON "CHANGE IN CONTROL". Upon the occurrence of a
"change in control" of the Company (as defined in the Director Stock Option
Plan, generally circumstances in which the Company is acquired by another entity
or its controlling ownership is changed), any and all outstanding options under
the Director Stock Option Plan become immediately exercisable.
DIRECTORS' DEFERRED COMPENSATION PLAN. The Company maintains the
Directors' Deferred Compensation Plan (the "DDCP"), an unfunded, non-qualified,
deferred compensation plan under which non-employee directors of the Company may
elect to defer compensation received as a director until such time as they cease
to serve as a director. Non-employee directors may make an annual advance
irrevocable election to defer compensation for services to be rendered the
following year. Compensation that may be deferred includes all cash compensation
for service as a director, including retainer and meeting fees.
TERMS OF DEFERRAL OF DIRECTOR COMPENSATION. The deferred amounts may be
credited to individual "Interest Accounts" under the DDCP (which are credited
with interest until transfer or distribution at the prime rate as quoted in The
Wall Street Journal), to individual "Stock Accounts" under the DDCP (which
increase or decrease in value depending upon the market price of Eastman common
stock), or to a combination thereof. Under the Stock Account, dollar amounts are
"invested" in hypothetical shares of the Company's common stock. If cash
dividends are declared on shares of common stock, then any participant who has
hypothetical shares in the Stock Account receives a dividend equivalent which is
used to "purchase" additional hypothetical shares under the DDCP. A participant
may elect to transfer the dollar amount of all or any portion of his or her
Stock Account to the Interest Account, or vice versa.
Upon termination as a director, the value of a participant's Interest
Account and Stock Account will be paid, in cash, in a single lump sum or up to
ten annual installments, as determined in the sole discretion of the Committee
on Directors. Payment will commence in any year up through the tenth year
following termination of directorship, as determined by the Committee on
Directors, except that payment must commence no later than the year in which the
participant reaches age 71.
The DDCP provides that a participant, whether or not still a director,
may request that part or all of such participant's Interest Account and Stock
Account be distributed immediately in the event of a severe financial hardship.
The determination of whether a hardship exists will be made by the Committee on
Directors.
The DDCP also provides that a participant may withdraw at any time all
or a portion of his or her balances in the Interest and Stock Accounts, provided
that the participant forfeits 10% of the balance of his or her Accounts and not
be permitted to participate in the DDCP for a period of 36 months from the date
of the early withdrawal payment. In addition, if, within any six month period,
either 50% or more of the DDCP
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participants elect such early withdrawal from the DDCP or 20% or more of DDCP
participants with aggregate Account balances valued at 50% or more of the total
value of all DDCP Accounts elect such early withdrawal, then the Accounts of
each remaining DDCP participant will be distributed in a single lump sum.
TREATMENT OF DEFERRED COMPENSATION UPON "CHANGE IN CONTROL." If the
Company undergoes a "change in control" (as defined in the DDCP, generally
circumstances in which the Company is acquired by another entity or its
controlling ownership is changed), then the Accounts of each participant,
whether or not the participant is still a director, will be paid in a single
lump sum no later than 90 days following the change in control.
ITEM 2 -- AMENDMENT OF THE COMPANY'S AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION TO EFFECT A REVERSE STOCK SPLIT
FOLLOWED BY A FORWARD STOCK SPLIT OF EASTMAN'S COMMON STOCK
SUMMARY
The Board of Directors has authorized, and recommends for your approval, a
reverse 1-for-10 stock split followed immediately by a forward 10-for-1 stock
split of Eastman's common stock. As permitted under the Delaware General
Corporation Law, registered shareowners whose shares of stock are converted into
less than 1 share in the reverse split will receive cash payments equal to the
fair value of those fractional interests. We refer to the reverse and forward
stock splits, together with the related cash payments to shareowners with small
holdings, as the "Transaction." We also refer to our record shareowners whose
shares of Eastman stock are registered in their name as "registered
shareowners."
If approved, the Transaction will take place as soon as practicable
following the Annual Meeting upon filing with the Secretary of State of Delaware
of a Certificate of Amendment effecting the amendment necessary to complete the
Transaction (the "Effective Date"). In order to complete the Transaction, a
majority of the shares entitled to vote at the Annual Meeting must be voted in
favor of the proposed amendment to Eastman's Amended and Restated Certificate of
Incorporation (the "Charter"). We attach the proposed amendment to the Charter
to this Proxy Statement as Appendix B.
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The highlights of the Transaction are as follows:
EFFECT ON SHAREOWNERS:
If approved at the Annual Meeting, the Transaction will affect Eastman
shareowners as follows after completion:
SHAREOWNER AS OF EFFECTIVE DATE NET EFFECT AFTER TRANSACTION COMPLETION
- ------------------------------- ---------------------------------------
Registered shareowners holding 10 or more None.
shares of common stock in a record account.
Registered shareowners holding fewer than 10 Shares will be cashed out at a price based on
shares of common stock in a record account. the trading value of the shares at that time
(see "Determination of Trading Value" below).
You will not have to pay any commissions or
other fees on this cash-out. Holders of these
shares will not have any continuing equity
interest in Eastman.
Shareowners holding common stock in "street Eastman does not intend for the Transaction
name" through a nominee (such as a bank or to affect shareowners holding common stock in
broker). street name through a nominee (such as a bank
or broker). However, nominees may have
different procedures and Eastman shareowners
holding common stock in street name should
contact their nominees to determine whether
they will be affected by the Transaction.
REASONS FOR THE TRANSACTION:
The Board recommends that the shareowners approve the Transaction for the
following reasons, among other things (as described in detail under "Background
and Purpose of the Transaction" below):
ISSUE SOLUTION
- ----- --------
As a result of the spin-off of the Company The Transaction will reduce the number of
from Eastman Kodak Company at the end of registered shareowners with small accounts
1993, Eastman has a large number of small and is thereby expected to result in
shareowners. Of the Company's approximately significant cost savings for Eastman.
[70,000] registered shareowners,
approximately [20,000] hold fewer than 10
shares of Eastman common stock in their
record accounts. Continuing to maintain
accounts for these shareowners costs Eastman
over $175,000 per year.
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ISSUE SOLUTION
- ----- --------
In many cases, it is prohibitively expensive The Transaction cashes out shareowners with
for shareowners with fewer than 10 shares to small record accounts without transaction
sell their shares on the open market. costs such as brokerage fees. However, if
these shareowners do not want to cash-out
their holdings of Eastman stock, they may
purchase additional shares on the open market
to increase their record account to at least
10 shares, transfer their shares to a "street
name" account so that they own such shares
through a nominee (such as a bank or broker),
or, if applicable, consolidate/transfer their
record accounts that are registered with the
transfer agent in the same way. In addition,
if beneficial owners of fewer than 10 shares
of stock want to have those shares cashed out
in the Transaction, they should instruct
their nominee to transfer their shares into a
record account far enough in advance of the
Annual Meeting (May 3, 2001) so that the
shares are registered in their names by the
Effective Date.
STRUCTURE OF THE TRANSACTION
The Transaction includes both a reverse stock split and a forward stock
split of Eastman common stock. If this Transaction is approved and occurs, the
reverse split will occur at 6:00 p.m. on the Effective Date. All registered
shareowners on the Effective Date will receive 1 share of Eastman common stock
for every 10 shares of Eastman common stock held in their record accounts at
that time. Any registered shareowner who holds fewer than 10 shares of Eastman
stock in a record account at 6:00 p.m. on the Effective Date (also referred to
as a "Cashed-Out Shareowner") will receive a cash payment instead of fractional
shares. This cash payment will be based on the trading value of the cashed-out
shares at the time. (See "Determination of Trading Value" below for a
description of how the trading value will be determined upon completion of the
Transaction.) Immediately following the reverse split, at 6:01 p.m. on the
Effective Date, all registered shareowners who are not Cashed-Out Shareowners
will receive 10 shares of Eastman common stock for every 1 share of stock they
received after the reverse stock split. If a shareowner holds 10 or more shares
in a record account, any fractional share in the account will not be cashed out
after the reverse split and the total number of shares held in that account will
not change as a result of the Transaction.
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In general, the Transaction can be illustrated by the following examples:
HYPOTHETICAL SCENARIO RESULTS
- --------------------- -------
Ms. Thomas is a registered shareowner who Instead of receiving a fractional share
holds 9 shares of Eastman common stock in her (9/10 of a share) of common stock after the
record account as of 6 p.m. on the Effective reverse split, Ms. Thomas' 9 shares will be
Date. At that time, the trading value of 1 converted into the right to receive cash.
share of Eastman common stock was $45 (see Using the hypothetical trading value of $45
"Determination of Trading Value" below). per share, Ms. Thomas will receive $405.00
($45 x 9 shares).
Note: If Ms. Thomas wants to continue her
investment in Eastman, she can buy at least 1
more share of Eastman common stock and hold
it in her record account. Alternatively, Ms.
Thomas could transfer her 9 shares into a
"street name" account so that she owns such
shares through a nominee (such as a bank or
broker). In either case, Ms. Thomas would
have to act far enough in advance of the
Annual Meeting (May 3, 2001) so that the
purchase or transfer is completed by the
close of business on the Effective Date.
Mrs. Turner has 2 record accounts. As of the Mrs. Turner will receive cash payments equal
Effective Date, she holds 5 shares of Eastman to the trading value of her shares of Eastman
common stock in one account and 7 shares of common stock in each record account instead
Eastman common stock in the other. All of her of receiving fractional shares (1/2 share
shares are registered in her name only. and 7/10 share). Assuming a hypothetical
trading value of Eastman stock at $45 per
share, Mrs. Turner would receive two checks
totaling $540 (5 x $45 = $225; 7 x $45 =
$315; $225 + $315 = $540).
Note: If Mrs. Turner wants to continue her
investment in Eastman, she can
consolidate/transfer her two record accounts
prior to the Effective Date. In that case,
her holdings will not be cashed out in
connection with the Transaction because she
will hold more than 10 shares in one record
account. She would have to act far enough in
advance of the Annual Meeting (May 3, 2001)
so that the consolidation is completed by the
close of business on the Effective Date.
Mr. Phillips holds 15.5 shares of Eastman After the Transaction, Mr. Phillips will
stock in his record account as of the continue to hold all 15.5 shares of Eastman
Effective Date. common stock.
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HYPOTHETICAL SCENARIO RESULTS
- --------------------- -------
Mr. Adams holds shares of Eastman stock in a Eastman does not intend for the Transaction
brokerage account as of the Effective Date. to affect shareowners holding Eastman stock
in street name through a nominee (such as a
bank or broker). However, nominees may have
different procedures and Eastman shareowners
holding Eastman common stock in street name
should contact their nominees to determine
whether they will be affected by the
Transaction.
Note: If Mr. Adams holds fewer than 10 shares
and desires to have his shares cashed out in
the Transaction, he should contact his broker
to transfer them to his record name prior to
the Effective Date. He would have to act far
enough in advance of the Annual Meeting (May
3, 2001) so that the transfer is completed by
the close of business on the Effective Date.
The hypothetical trading value of Eastman common stock used in the examples
above does not represent our prediction of the future performance of the common
stock. There is no guarantee that the trading value of the common stock will be
$45 per share on the Effective Date or any other price. Because the trading
value of Eastman common stock for purposes of the Transaction cannot be known
until the Effective Date, Cashed-Out Shareowners will not know the amount they
will receive for their shares prior to the Annual Meeting.
BACKGROUND AND PURPOSE OF THE TRANSACTION
The Company has an unusually large shareowner base for a chemical company
of its size, with approximately shareowners, including almost
[70,000] registered shareowners. This large base is principally the result of
the spin-off of the Company from Eastman Kodak Company at the end of 1993. In
the spin-off, each of the registered Eastman Kodak stockholders received one
share of Company common stock for every four shares of their Eastman Kodak
common stock, resulting in a large number of Company shareowners owning a
relatively small number of shares of Company common stock. Since that time, the
Company has been able to reduce its total number of shareowners by offering
several programs that have allowed shareowners with small accounts to sell their
holdings cost-effectively. However, the effect of Eastman Kodak's large
stockholder base continues.
As of March 15, 2001, approximately [20,000] registered holders of Company
common stock owned fewer than 10 shares of stock. At that time, these
shareowners represented approximately [28%] of the total number of registered
holders of Eastman stock, but they owned less than [ ]% of the total number
of outstanding shares of Company stock.
The Transaction will provide these registered shareowners owning fewer than
10 shares with a cost-effective way to cash out their investments, because
Eastman will pay all transaction costs in connection with the Transaction. In
most other cases, small shareowners would likely incur brokerage fees
disproportionately high relative to the market value of their shares if they
wanted to sell their stock. In addition, some small shareowners might even have
difficulty finding a broker willing to handle such small transactions. The
Transaction, however, eliminates these problems for most small shareowners.
Moreover, Eastman expects to benefit from substantial cost savings as a
result of the Transaction. The costs of administering each shareowner's account
is the same regardless of the number of shares held in each account. Therefore,
the Company's costs to maintain thousands of small accounts are
disproportionately high when compared to the total number of shares involved. In
2000, each registered shareowner cost the Company
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in excess of $8.00 for transfer agent fees and the printing and postage costs to
mail the proxy materials, annual report, and dividend checks.
In light of these disproportionate costs, the Board believes that it is in
the best interests of the Company and its shareowners as a whole to eliminate
the administrative burden and costs associated with approximately [20,000] small
accounts with fewer than 10 shares of Eastman common stock. We expect that we
will reduce the total direct cost of administering shareowner accounts by at
least $175,000 per year if we complete the Transaction.
The Company may in the future pursue alternative methods of reducing its
shareowner base, whether or not the Transaction is approved, including
additional odd-lot tender offers and programs to facilitate sales by shareowners
of odd-lot holdings. However, there can be no assurance that Eastman will decide
to engage in any such transaction.
EFFECT OF THE TRANSACTION ON EASTMAN SHAREOWNERS
SHAREOWNERS WITH A RECORD ACCOUNT OF FEWER THAN 10 SHARES:
If we complete the Transaction and you are a Cashed-Out Shareowner (i.e., a
shareowner holding fewer than 10 shares of Eastman common stock in a record
account immediately prior to the reverse stock split):
- You will not receive a fractional share of Eastman stock as a result of
the reverse split.
- Instead of receiving a fractional share of Eastman stock, you will
receive cash equal to the trading value of your affected shares. See
"Determination of Trading Value" below.
- After the reverse split, you will have no further interest in the Company
with respect to your cashed-out shares. These shares will no longer
entitle you to the right to vote as a shareowner or share in the
Company's assets, earnings, or profits. In other words, you will no
longer hold your cashed-out shares, you will just have the right to
receive cash for these shares.
- You will not have to pay any service charges or brokerage commissions in
connection with the Transaction.
- As soon as practicable after the Effective Date, you will receive cash
for the Eastman common stock you held in your record account immediately
prior to the reverse split. You will receive a transmittal letter from
Eastman as soon as practicable after the Effective Date. The letter of
transmittal will contain instructions on how to surrender your
certificate(s) to the Company's transfer agent, American Stock Transfer &
Trust Company, for your cash payment. You will not receive your cash
payment until you surrender your outstanding certificate(s) to American
Stock Transfer & Trust Company, together with a completed and executed
copy of the letter of transmittal. Please do not send your certificates
until you receive your letter of transmittal. For further information,
see "Stock Certificates" below.
- All amounts owed to you will be subject to applicable income tax.
- All amounts owed in connection with the Transaction to a shareowner that
cannot be located will be subject to state abandoned property laws.
- You will not receive any interest on cash payments owed to you as a
result of the Transaction.
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NOTE: If you want to continue to hold Eastman stock after the Transaction, you
may do so by taking any of the following actions far enough in advance of the
Annual Meeting (May 3, 2001) so that it is completed by the Effective Date:
(1) purchase a sufficient number of shares of Eastman common stock on
the open market and have them registered in your name so that you hold at
least 10 shares in your record account immediately prior to the reverse
split;
(2) if applicable, consolidate your record accounts so that you hold
at least 10 shares of Eastman common stock in one record account
immediately prior to the reverse split; or
(3) transfer your record account shares into a "street name" account
so that you own such shares through a nominee (such as a bank or broker).
REGISTERED SHAREOWNERS WITH 10 OR MORE SHARES:
If you are a registered shareowner with 10 or more shares of common stock
in your record account as of 6:00 p.m. on the Effective Date, we will first
convert your shares into one tenth ( 1/10) of the number of shares you held
immediately prior to the reverse split. One minute after the reverse split, at
6:01 p.m., we will reconvert your shares in the forward stock split into 10
times the number of shares you held after the reverse split, which is the same
number of shares you held before the reverse split. For example, if you were a
registered owner of 25 shares of Eastman stock immediately prior to the reverse
split, your shares would be converted to 2.5 shares in the reverse split and
back to 25 shares in the forward split. As a result, the Transaction will not
affect the number of shares that you hold in record name if you hold 10 or more
shares of Eastman stock in your record account immediately prior to the reverse
split.
BENEFICIAL OWNERS OF EASTMAN STOCK:
The Company does not intend for the Transaction to affect shareowners
holding Eastman stock in street name through a nominee (such as a bank or
broker). This would include all shares owned through the Eastman Employee Stock
Ownership Plan and the Eastman Investment Plan. However, nominees may have
different procedures and Eastman shareowners holding Eastman stock in street
name should contact their nominees to determine whether they will be affected by
the Transaction.
NOTE: If you are a beneficial owner of fewer than 10 shares of Eastman stock and
want to have your shares exchanged for cash in the Transaction, you should
instruct your nominee to transfer your shares into a record account in your name
in a timely manner so that you will be considered a holder of record immediately
prior to the reverse split.
DETERMINATION OF TRADING VALUE
In lieu of issuing fractional shares to registered shareowners who hold
fewer than 1 share in a record account after the reverse split, under the
Delaware General Corporation Law the Company may pay cash for the fair value of
such fractional shares. If shareowners approve the Transaction at the Annual
Meeting and the Transaction is completed, the Company will pay to Cashed-Out
Shareowners cash equal to the trading value of the shares they held immediately
prior to the reverse split in record accounts with fewer than 10 shares of
Eastman stock. For purposes of the Transaction, the trading value of each
outstanding share of Eastman common stock at that time will be the average of
the closing sale prices per share of Eastman common stock on the New York Stock
Exchange for the twenty (20) consecutive trading days immediately preceding the
Effective Date. The Company will pay no interest on cash sums due to any
shareowner pursuant to the Transaction.
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EFFECT OF THE TRANSACTION ON THE COMPANY
The Transaction will not affect the public registration of Eastman's common
stock with the SEC under the Securities Exchange Act of 1934. Similarly, we do
not expect that the Transaction will affect the continued listing of Eastman
common stock on the New York Stock Exchange.
Eastman's Charter currently authorizes the issuance of 350 million shares
of common stock. The number of shares of authorized common stock will not change
as a result of the Transaction. On March 15, 2001, there were
shares of common stock issued and outstanding. The total number of outstanding
shares of Eastman common stock will be reduced by the number of shares held by
the Cashed-Out Shareowners immediately prior to the reverse split. Based on our
best estimates if the Transaction had taken place on March 15, 2001, the number
of outstanding shares of Eastman common stock would have been reduced by the
Transaction from to , or by approximately [71,000]
shares. In addition, the number of registered holders of Eastman common stock
would have been reduced from approximately to , or
by approximately [20,000] shareowners.
We have no current plans to issue common stock other than pursuant to the
Company's existing stock plans. However, the additional number of authorized but
unissued shares from the Transaction would be available to the Board in its
management of the Company's capitalization. Unless legally required to do so, we
will not seek further shareowner authorization before issuing Eastman stock.
Shareowners will not have any preemptive or other preferential rights to
purchase any of the Company's stock that may be issued by the Company in the
future, unless such rights are specifically granted to the shareowners.
If the Transaction is approved and completed, the total number of
fractional shares that would be purchased from the Cashed-Out Shareowners and
the total cash to be paid by the Company are unknown. However, if the
Transaction had been completed on March 15, 2001, when the average daily closing
price per share of Eastman common stock on the New York Stock Exchange for the
twenty (20) trading days immediately preceding such date was $ ,
then the cash payments that would have been made to Cashed-Out Shareowners
instead of fractional shares would have been approximately [$3.2 million], with
approximately [71,000] shares purchased by the Company. The actual amounts will
depend on the number of Cashed-Out Shareowners on the Effective Date, which will
vary from the number of such shareowners on March 15, 2001. In addition, we do
not know what the average daily closing price per share of Eastman stock on the
New York Stock Exchange for the twenty (20) trading days prior to the Effective
Date will be.
The par value of the Company's common stock will remain at $.01 per share
after the Transaction.
STOCK CERTIFICATES
The Transaction will not affect any stock certificates representing shares
of common stock held by registered shareowners owning 10 or more shares
immediately prior to the reverse split. Old certificates held by any of these
shareowners will continue to evidence ownership of the same number of shares as
is set forth on the face of the certificate. As described above, each Cashed-Out
Shareowner will receive a letter of transmittal after the Transaction is
completed. These shareowners must complete and sign the letter of transmittal
and return it with their stock certificate(s) to the Company's transfer agent
before they can receive cash payment for those shares. Completion and signing of
the letter of transmittal will constitute the Cashed-Out Shareowner's warranty
to the Company that he or she owns the cashed-out shares free of any
encumbrances.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
We have summarized below certain federal income tax consequences to the
Company and shareowners resulting from the Transaction. This summary is based on
existing U.S. federal income tax law, which may change, even retroactively. This
summary does not discuss all aspects of federal income taxation which may be
important to you in light of your individual circumstances. Many shareowners
(such as financial institutions, insurance companies, broker-dealers, tax-exempt
organizations, and foreign persons) may be subject to special
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tax rules. Other shareowners may also be subject to special tax rules, including
but not limited to: shareowners who received Eastman stock as compensation for
services or pursuant to the exercise of an employee stock option, or shareowners
who have held, or will hold, stock as part of a straddle, hedging, or conversion
transaction for federal income tax purposes. In addition, this summary does not
discuss any state, local, foreign, or other tax considerations. This summary
assumes that you are a U.S. citizen and have held, and will hold, your shares as
capital assets for investment purposes under the Internal Revenue Code of 1986,
as amended (the "Code"). You should consult your tax advisor as to the
particular federal, state, local, foreign, and other tax consequences, in light
of your specific circumstances.
The Transaction will not be a taxable transaction to the Company.
Accordingly, the Transaction will result in no material federal income tax
consequences to the Company.
FEDERAL INCOME TAX CONSEQUENCES TO SHAREOWNERS WHO ARE NOT CASHED OUT BY THE
TRANSACTION:
If you (1) continue to hold Eastman stock immediately after the
Transaction, and (2) receive no cash as a result of the Transaction, you will
not recognize any gain or loss in the Transaction and you will have the same
adjusted tax basis and holding period in your Eastman stock as you had in such
stock immediately prior to the Transaction.
FEDERAL INCOME TAX CONSEQUENCES TO CASHED-OUT SHAREOWNERS:
If you receive cash as a result of the Transaction, your tax consequences
will depend on whether, in addition to receiving cash, you continue to hold,
either actually or constructively within the meaning of Section 302(c) of the
Code, Eastman stock immediately after the Transaction, as explained below.
1. SHAREOWNERS WHO EXCHANGE ALL OF THEIR EASTMAN STOCK FOR CASH AND DO NOT
CONSTRUCTIVELY OWN EASTMAN STOCK AFTER THE TRANSACTION.
If you (1) receive cash in exchange for a fractional share as a result of
the Transaction and (2) do not continue to hold, actually or constructively, any
Eastman stock immediately after the Transaction, you will recognize capital gain
or loss. The amount of capital gain or loss you recognize will equal the
difference between the cash you receive for your cashed-out stock and your
aggregate adjusted tax basis in such stock.
2. SHAREOWNERS WHO BOTH RECEIVE CASH AND CONTINUE TO HOLD, EITHER ACTUALLY OR
CONSTRUCTIVELY, EASTMAN STOCK IMMEDIATELY AFTER THE TRANSACTION.
If you both receive cash as a result of the Transaction and continue to
hold, either actually or constructively, Eastman stock immediately after the
Transaction, you generally will recognize gain or loss in the same manner as set
forth in the previous paragraph, provided that your receipt of cash either (1)
is "not essentially equivalent to a dividend," or (2) is a "substantially
disproportionate redemption of stock," as described below.
- "Not Essentially Equivalent to a Dividend." You will satisfy the "not
essentially equivalent to a dividend" test if the reduction in your
proportionate interest in the Company, based on your actual and
constructive ownership of Eastman stock, resulting from the Transaction
is considered a "meaningful reduction" given your particular facts and
circumstances. The Internal Revenue Service has ruled that a small
reduction by a minority stockholder whose relative stock interest is
minimal and who exercises no control over the affairs of the corporation
will meet this test.
- "Substantially Disproportionate Redemption of Stock." The receipt of cash
in the Transaction will be a "substantially disproportionate redemption
of stock" for you if the percentage of the outstanding shares of Eastman
common stock owned by you, actually and constructively, immediately after
the
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Transaction is less than 80% of the percentage of shares of Eastman
common stock owned by you, actually and constructively, immediately
before the Transaction.
In applying these tests, you will be treated as owning shares actually or
constructively owned by certain individuals and entities related to you, as
determined under Section 302 of the Code. In addition, you may possibly take
into account sales and purchases of shares of Eastman stock that occur
substantially contemporaneously with the Transaction. If the taxable amount is
not treated as capital gain under any of the tests, it will be treated first as
ordinary dividend income to the extent of your ratable share of the Company's
undistributed earnings and profits, then as a tax-free return of capital to the
extent of your aggregate adjusted tax basis in your shares, and any remaining
gain will be treated as capital gain.
The above discussion is based on our conclusion that the cash received
should be treated as a distribution in redemption of the cashed-out stock.
However, it could conceivably be argued that the cash should be treated as cash
received in connection with a "recapitalization." If such an argument were
successful, the tax consequences to shareowners who receive cash and continue to
hold, either actually or constructively, Eastman stock immediately after the
Transaction may differ from those discussed above.
CAPITAL GAIN AND LOSS:
For individuals, net capital gain (defined generally as your total capital
gains in excess of capital losses for the year) recognized upon the sale of
capital assets that have been held for more than 12 months generally will be
subject to tax at a rate not to exceed 20%. Net capital gain recognized from the
sale of capital assets that have been held for 12 months or less will continue
to be subject to tax at ordinary income tax rates. In addition, capital gain
recognized by a corporate taxpayer will continue to be subject to tax at the
ordinary income tax rates applicable to corporations. There are limitations on
the deductibility of capital losses.
As explained above, the amounts paid to you as a result of the Transaction
may result in dividend income, capital gain income, or some combination of
dividend and capital gain income to you depending on your individual
circumstances. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR FEDERAL,
STATE, LOCAL, FOREIGN, AND OTHER TAX CONSEQUENCES OF THE TRANSACTION, IN LIGHT
OF YOUR SPECIFIC CIRCUMSTANCES.
APPRAISAL RIGHTS
Dissenting shareowners do not have appraisal rights under the Delaware
General Corporation Law or under the Company's Charter or Bylaws in connection
with the Transaction.
RESERVATION OF RIGHTS
The Board of Directors reserves the right to abandon the Transaction
without further action by the shareowners at any time before the filing of the
proposed Charter amendment with the Delaware Secretary of State, even if the
Transaction has been authorized by the shareowners at the Annual Meeting.
All shares of common stock represented by valid proxies received pursuant
to this solicitation, and not revoked before they are exercised, will be voted
in the manner specified. If you execute and return a proxy without instruction,
your shares will be voted for the proposed Charter amendment.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" APPROVAL OF THIS
PROPOSAL TO AMEND THE CERTIFICATE OF INCORPORATION TO EFFECT A 10:1
REVERSE/FORWARD STOCK SPLIT.
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ITEM 3 -- RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors, upon the recommendation of the Audit Committee, has
appointed PricewaterhouseCoopers LLP as independent accountants for the Company
and its subsidiaries until the Annual Meeting of Shareowners in 2002.
PricewaterhouseCoopers LLP has billed the Company the following amounts for
professional services rendered during 2000:
AUDIT FEES: $1,399,274, in the aggregate, for the audit of the
Company's and its subsidiaries' annual financial statements for the fiscal
year ended December 31, 2000 and the reviews of the interim financial
statements included in the Company's Forms 10-Q filed during the fiscal
year ended December 31, 2000; and
ALL OTHER FEES: $2,630,436, in the aggregate, for all services other
than those covered above under "Audit Fees". "All Other Fees" consist
primarily of tax compliance and consulting services, expatriate tax
compliance services, benefit plan audits, assistance in the assessment of
impending accounting pronouncements, and due diligence services.
PricewaterhouseCoopers LLP did not during 2000 render any of the financial
information systems design and implementation services described in
Paragraph (c)(4)(ii) of Rule 2-01 of Regulation S-X.
The shareowners are being asked to ratify the Board's appointment of
PricewaterhouseCoopers LLP. All shares of common stock represented by valid
proxies received pursuant to this solicitation, and not revoked before they are
exercised, will be voted in the manner specified. If you execute and return a
proxy without instruction, your shares will be voted for ratification of the
appointment of PricewaterhouseCoopers LLP as independent accountants for the
Company.
A representative of PricewaterhouseCoopers LLP is expected to attend the
Annual Meeting and will have the opportunity to make a statement on behalf of
the firm if he desires to do so. The representative is also expected to be
available to respond to appropriate questions from shareowners.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" RATIFICATION OF THE
APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT ACCOUNTANTS.
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SHAREOWNER PROPOSALS
The following two shareowner proposals have been submitted for a vote of
the shareowners at the Annual Meeting. The proposals and the proponents'
supporting statements are set forth below along with the Company's reasons for
recommending a vote "AGAINST" each proposal. All shares of common stock
represented by valid proxies received pursuant to this solicitation, and not
revoked before they are exercised, will be voted in the manner specified. If you
execute and return a proxy without instruction concerning a proposal, your
shares will be voted against adoption of the proposal.
ITEM 4 -- PROPOSAL TO STUDY HEALTH RISKS FROM CELLULOSE ACETATE FIBERS
Shareowner Sisters of Mercy Regional Community of Detroit, 29000 Eleven
Mile Road, Farmington Hills, Michigan 48336, holder of 575 shares of Eastman
common stock, has given notice that it intends to submit the following proposal
and supporting statement:
WHEREAS Eastman Chemical is a major producer of cellulose acetate tow,
which is used in the manufacture of cigarette filters:
- During smoking, cigarette filter fibers become coated with
carcinogen-laden deposits from cigarette smoke;
- Also cellulose acetate cigarette filter fibers can dislodge from
cigarettes and become transported into the lungs of consumers;
- Scientists at the Roswell Park Cancer Institute have demonstrated the
presence of cigarette filter fibers like the ones this company
manufactures in the lungs of smokers;
- These scientists have hypothesized that such fibers in the lungs of
smokers might serve as reservoirs for carcinogens over a long period of
time. This suggests that cellulose acetate filters may contribute to
diseases caused by cigarettes in smokers;
- If cellulose acetate filters contribute to cigarette-caused disease,
Eastman Chemical may be liable for injuries to smokers as the tobacco
litigation net gets thrown wider and wider.
RESOLVED: That shareholders request that management conduct a study
examining possible health risks posed by our filter tows among consumers who
smoke cigarettes with cellulose acetate filters. This study shall include a
review of all information known or available to the company on this subject but
need not involve any new primary research. The study and any recommendations
that emerge from it are to be completed within one year of the 2000 Annual
Meeting. Copies of the complete report shall be made available to requesting
shareholders.
Supporting Statement of Proponent
Cigarette smoke contains dozens of potent carcinogens. Cellulose acetate
fibers that are supposed to trap these poisons can themselves be transported
into the lungs, laden with these dangerous substances. We believe this
resolution and the study it requests are in the best interests of consumers as
well as in the interests of our company and shareholders.
Certainly it is in our interest as management and investors to be fully
informed about any and all health risks to smokers to which Eastman Chemical
contributes. We need to know, for example, if our products are deemed to
contribute to cancer or if we may be faced with legal and financial liabilities.
It is only fair to consumers as well that they are fully aware of all of the
dangers of smoking.
If you believe that Eastman Chemical and its shareholders should be fully
apprised as to whether the cellulose acetate tow the company sells to the
cigarette manufacturers is contributing to the various illnesses caused by
cigarettes, please vote YES in support of this resolution.
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RESPONSE OF THE COMPANY
Eastman is committed to protecting health, safety, and the environment. The
Company subscribes to the Responsible Care(R) program of the American Chemistry
Council, which includes product stewardship principles. Management continually
evaluates the opportunities and challenges facing each of the Company's
businesses and major products and develops information and plans in view of
changing environments. The Board and management are cognizant of the scientific,
legal, and business developments relative to acetate tow and its uses. The
Board, as elected by the shareowners, and the officers, as the Board's agents,
manage the myriad of factors that affect the Company's business and make
business policy to conduct the Company's affairs. The report called for by this
proposal is clearly within the purview of management. The Board does not believe
the expenditure of management time and effort and Company resources required for
the preparation of the report requested by the proposal is in the best interests
of the Company or its shareowners.
The proposal on its face requests that management conduct a "study" of
health issues related to our cellulose acetate tow product line. In fact, the
proposal concerns substantially the same subject matter as proposals concerning
this product line which have been submitted in past years to the Company by
members of the Interfaith Center on Corporate Responsibility, of which the
proponent is also a member. One such proposal, seeking divestiture of the
cellulose acetate tow business, also raised litigation, liability, and health
issues and received only 2.8% of the votes cast at the 1996 Annual Meeting of
Shareowners. Your management's views on the current proposal are essentially the
same as those it had concerning that proposal, which views were supported
overwhelmingly by the shareowners.
THE COMPANY'S BOARD OF DIRECTORS RECOMMENDS A VOTE "AGAINST" ADOPTION OF
THIS PROPOSAL.
ITEM 5 -- PROPOSAL TO ISSUE REPORT CONCERNING EMISSION OF "GREENHOUSE GASES" AND
POTENTIAL CLIMATE CHANGE
Shareowner Missionary Oblates of Mary Immaculate, 391 Michigan Avenue, NE,
Washington, DC 20017, holder of 2,000 shares of Eastman common stock, has given
notice that it intends to submit the following proposal and supporting
statement:
WHEREAS: The overwhelming majority of independent, peer-reviewed
atmospheric scientists agree that global warming is a real, existing problem
posing serious challenges to our country;
The Intergovernmental Panel on Climate Change, composed of more than 2000
government selected scientists, warns that global warming caused by burning
fossil fuels and emitting greenhouse gases is already under way;
More frequent and deadly heat waves have claimed the lives of increasing
numbers of poor, asthmatic and elderly people nationwide;
Spring comes a week earlier across the Northern Hemisphere than it did 30
years ago;
Severe rainstorms have grown by almost 20%;
The Arctic ice sheet is in many places 40 inches thinner than its normal
10ft;
Warmer waters have bleached coral reefs around the globe;
Glaciers are melting;
Sea levels are rising.
WE BELIEVE: In order to leave the children of the world a safe and healthy
environment, and protect threatened plants and animals, it is time for Eastman
Chemical to live up to its responsibility as a producer of the pollution which
causes global warming. A variety of companies including Enron, BP Amoco, 3M,
Toyota and others have stated that they "accept the views of most scientists
that enough is known about the science and environmental impacts of climate
change for us to take actions to address its consequences." These
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companies are preparing for the future now by taking the concrete steps
necessary to assess their opportunities for reducing the amount of carbon
pollution they produce. Failing to rise to the challenge set by these industry
leaders will hurt our company's competitiveness and cost our shareholders
increasing amounts of money.
RESOLVED: that the shareholders of Eastman Chemical request that the Board
of Directors report (at reasonable costs and omitting proprietary information),
to shareholders by August 2001 on the greenhouse gas emissions from our
company's own operations and products, including (with dollars amounts where
relevant) (i) what our company is doing in research and/or action to reduce
those emissions and ameliorate the problem, and (ii) the financial exposure of
our company and its shareholders due to the likely costs of reducing those
emissions for damages associated with climate change.
Supporting Statement of Proponent
We believe that Eastman Chemical is exposing its shareholders to financial
risk by continuing to produce unnecessary amounts of the pollution which causes
global warming, even as the problem of climate change becomes more severe, more
widely understood, and more likely to lead to legislation that will penalize
excessive carbon polluters. Furthermore, we believe that our company is using
shareholder money for advertising and lobbying to suggest that the problem of
global warming is exaggerated, not real, or too costly to deal with; and thus
using our prestige and influence to obstruct efforts to address climate change.
RESPONSE OF THE COMPANY
This proposal is almost identical to a proposal considered by shareowners
at the 2000 Annual Meeting of Shareowners. That proposal received only 6.9% of
the votes cast, and your management's views, which were supported overwhelmingly
by the shareowners, are unchanged.
At Eastman, environmental accountability is not taken lightly. The
Company's policy is to operate its plants and facilities in a manner that
protects the environment and the health and safety of its employees and the
public, and in full compliance with all applicable laws and regulations. Health,
safety, and environmental considerations are a priority in the Company's
planning for all existing and new products and processes. The Company makes
significant expenditures for environmental protection and improvement.
The Company's careful consideration of health, safety, and the environment
includes the issue of potential climate change. The Company's expenditures for
environmental protection and improvement include significant capital
expenditures for the updating and maintenance of facilities to enhance energy
efficiency and reduce emissions. The quality of air is monitored at all of our
plant sites and continues to meet stringent federal and state standards. The
Company advocates increased funding of both public and private scientific
research to enhance the understanding of the possible causes and implications of
climate change. The Company also supports voluntary measures by all economic
sectors that lead to emission reductions, improved energy efficiency, removal of
greenhouse gases from the atmosphere, and the development and deployment of
advanced technologies that support these goals. As with any matter potentially
affecting the Company's operations, the Company will continue to monitor the
global warming issue and, if and when material information regarding its
potential impact upon the Company is known, will fulfill its obligation to
convey such information to shareowners. However, the Board does not believe that
a report of the type requested by the proponent would be useful or informative
for shareowners.
The Board believes that, given the lack of consensus within the scientific
community regarding the potential implications of the climate change issue, any
report attempting to quantify potential financial effects on the Company would
be entirely speculative and, consequently, of little, if any, value to
shareowners. Clearly, the Company is not in a position to assess the costs of
compliance with legislation that has not been enacted, or potential damages to
as yet unknown parties. Moreover, while the Company, like most manufacturing
companies, emits some level of "greenhouse gases" (such as carbon dioxide) in
the course of
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its operations, the Board does not believe that the nature of its products or
operations renders the Company more vulnerable to liability in connection with
potential climate change than manufacturers generally.
To the extent that the Company's research or other activities undertaken to
address the climate change issue are material, information regarding such
activities will necessarily be communicated to shareowners through the Company's
regular reports filed with the SEC. We believe, therefore, that an additional
report of the type requested by the proponent would be duplicative and
unnecessary.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "AGAINST" ADOPTION OF THIS
PROPOSAL.
STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
COMMON STOCK
The following table sets forth certain information regarding the beneficial
ownership of Eastman common stock by each current director, by each executive
officer named in the Summary Compensation Table (under "Executive
Compensation -- Compensation Tables"), and by all directors and executive
officers as a group, as of December 31, 2000.
NUMBER OF SHARES OF
COMMON STOCK BENEFICIALLY
NAME OWNED(1)(2)
- ---- -------------------------
Earnest W. Deavenport, Jr................................... 504,011(3)
James L. Chitwood........................................... 149,807(4)
J. Brian Ferguson........................................... 49,871(5)
James P. Rogers............................................. 377,151(6)
Allan R. Rothwell........................................... 68,205(7)
H. Jesse Arnelle............................................ 3,621(8)
Calvin A. Campbell, Jr...................................... 5,950(9)
Jerry E. Dempsey............................................ 6,314(10)
John W. Donehower........................................... 1,787(11)
Donald W. Griffin........................................... 685(12)
Lee Liu..................................................... 8,191(13)
Marilyn R. Marks............................................ 6,268(14)
David W. Raisbeck........................................... 222(15)
John A. White............................................... 6,007(16)
Peter M. Wood............................................... 192(17)
Directors and executive officers as a group (21 persons).... 1,451,291(18)
- ---------------
(1) Information relating to beneficial ownership is based upon information
furnished by each person using "beneficial ownership" concepts set forth in
rules of the Securities and Exchange Commission (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 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 all
directors and executive officers as a group represents approximately 1.88%
of the shares of common stock outstanding as of December 31, 2000. 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.
29
33
PRELIMINARY PROXY MATERIALS DATED MARCH 1, 2001
SUBJECT TO COMPLETION
(3) Includes 473,375 shares that may be acquired upon exercise of options
(including options to purchase a total of 204,500 shares only if certain
stock price targets are met).
(4) Includes 122,578 shares that may be acquired upon exercise of options
(including an option to purchase 20,000 shares only if certain stock price
targets are met) and 893 shares allocated to Dr. Chitwood's Employee Stock
Ownership Plan (the "ESOP") account. Also includes 101 shares held by Dr.
Chitwood's spouse as custodian for his adult children, as to which shares
Dr. Chitwood disclaims beneficial ownership.
(5) Includes 44,420 shares that may be acquired upon exercise of options
(including option to purchase 40,000 shares only if certain stock price
targets are met) and 578 shares allocated to Mr. Ferguson's ESOP account.
(6) Includes 192,000 shares that may be acquired upon exercise of options, 139
shares allocated to Mr. Rogers' ESOP account, and 11,300 restricted shares
which generally vest in August 2001 but as to which Mr. Rogers currently
has voting rights. Also includes 158,424 shares owned by the Eastman
Chemical Company Foundation, Inc., of which shares Mr. Rogers may also be
deemed a beneficial owner by virtue of his shared voting and investment
power as a director of the foundation.
(7) Includes 66,200 shares that may be acquired upon exercise of options
(including an option to purchase 40,000 shares only if certain stock price
targets are met) and 770 shares allocated to Mr. Rothwell's ESOP account.
(8) Includes 778 shares that may be acquired upon exercise of options.
(9) Includes 1,078 shares that may be acquired upon exercise of options.
(10) Includes 976 shares that may be acquired upon exercise of options.
(11) Includes 907 shares that may be acquired upon exercise of options.
(12) Includes 500 shares that may be acquired upon exercise of options and 175
restricted shares which generally vest on May 6, 2002, but as to which Mr.
Griffin currently has voting power.
(13) Includes 3,916 shares that may be acquired upon exercise of options. Also
includes 600 shares held by Mr. Liu's spouse, as to which shares Mr. Liu
disclaims beneficial ownership, and 1,090 shares held by the Lee and Andrea
Liu Foundation.
(14) Includes 3,258 shares that may be acquired upon exercise of options.
(15) Consists of restricted shares that generally vest on December 7, 2003, but
as to which Mr. Raisbeck currently has voting rights.
(16) Includes 2,688 shares that may be acquired upon exercise of options.
(17) Consists of restricted shares that generally vest on May 4, 2003, but as to
which Mr. Wood currently has voting rights.
(18) Includes a total of 1,115,482 shares that may be acquired upon exercise of
options and 6,645 shares allocated to executive officers' ESOP accounts.
Includes shares and options held by and shares allocated to the ESOP
account of the spouse of an executive officer not named above, as to which
shares and options such executive officer disclaims beneficial ownership.
Includes 158,424 shares owned by the Eastman Chemical Company Foundation,
Inc., of which shares Mr. Rogers and two other executive officers not named
above may each be deemed a beneficial owner by virtue of their shared
voting and investment power as directors of the Foundation.
COMMON STOCK AND COMMON STOCK UNITS
In addition to shares of Eastman common stock beneficially owned, certain
of the executive officers have units of common stock ("Common Stock Units")
credited to their individual Stock Accounts in the Eastman Executive Deferred
Compensation Plan (the "EDCP") and in the Eastman ESOP Excess Plan, and certain
of the directors have Common Stock Units credited to their individual Stock
Accounts in the DDCP. See "Item 1 -- Election of Directors -- Director
Compensation -- Directors' Deferred Compensation Plan" and "Executive
Compensation -- Compensation Tables -- Summary Compensation Table" and
"-- Compensation and Management Development Committee Report on Executive
Compensation".
30
34
PRELIMINARY PROXY MATERIALS DATED MARCH 1, 2001
SUBJECT TO COMPLETION
The following table shows, for each current director and each executive
officer named in the Summary Compensation Table, and for all directors and
executive officers as a group, the aggregate of the number of shares of common
stock beneficially owned by such person and group, as set forth in the preceding
table, and the number of Common Stock Units credited to the Stock Accounts of
such person and group. Common Stock Units represent hypothetical "investments"
in Eastman common stock. The value of one Common Stock Unit is equal to the
market value of one share of Eastman common stock. Although the DDCP, EDCP, and
ESOP Excess Plan allow Common Stock Units to be paid out only in the form of
cash, and not in shares of common stock, Common Stock Units create essentially
the same stake in the market performance of the Company's common stock as do
actual shares of common stock. As a result, Common Stock Units are counted with
certain shares of common stock beneficially owned (excluding certain shares that
may be deemed beneficially owned under SEC rules, such as shares underlying
options, shares owned by the individual's spouse, and shares over which the
individual shares voting and investment power, but in which the individual has
no pecuniary interest) for purposes of the Company's stock ownership
guidelines -- four times target total annual compensation for the Chief
Executive Officer, three times target total annual compensation for the other
executive officers named in the Summary Compensation Table, and three times the
annual retainer fee for non-employee directors. See "Executive
Compensation -- Compensation and Management Development Committee Report on
Executive Compensation." The table below is included to provide a better
indication of the stake of the named individuals, and of the directors and
executive officers as a group, with respect to Eastman common stock.
NUMBER OF SHARES OF
COMMON STOCK AND
COMMON STOCK UNITS
NAME BENEFICIALLY OWNED
- ---- -------------------
Earnest W. Deavenport, Jr................................... 587,854
James L. Chitwood........................................... 151,610
J. Brian Ferguson........................................... 49,907
James P. Rogers............................................. 377,509(1)
Allan R. Rothwell........................................... 80,104
H. Jesse Arnelle............................................ 4,993
Calvin A. Campbell, Jr...................................... 5,950
Jerry E. Dempsey............................................ 6,314
John W. Donehower........................................... 1,787
Donald W. Griffin........................................... 685
Lee Liu..................................................... 8,191
Marilyn R. Marks............................................ 7,397
David W. Raisbeck........................................... 222
John A. White............................................... 9,862
Peter M. Wood............................................... 192
Directors and executive officers as a group (21 persons).... 1,590,013(2)
- ---------------
(1) Includes 158,424 shares owned by the Eastman Chemical Company Foundation,
Inc., over which shares Mr. Rogers shares voting and investment power as a
director of the Foundation but in which shares Mr. Rogers has no pecuniary
interest.
(2) Includes 158,424 shares owned by the Eastman Chemical Company Foundation,
Inc., over which shares Mr. Rogers and two other executive officers not
named above share voting and investment power as directors of the Foundation
but in which shares such executive officers have no pecuniary interest.
31
35
PRELIMINARY PROXY MATERIALS DATED MARCH 1, 2001
SUBJECT TO COMPLETION
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information regarding the only known
beneficial owners of more than 5% of Eastman common stock.
NUMBER OF SHARES OF PERCENT
COMMON STOCK OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED CLASS(1)
- ------------------------------------ ------------------- --------
AXA Financial, Inc.......................................... 9,898,203(2) %
1290 Avenue of the Americas
New York, New York 10104
Barclays Global Investors N.A............................... 4,814,440(3) %
45 Fremont Street
San Francisco, California 94105
Dodge & Cox................................................. 5,299,485(4) %
One Sansome St., 35th Floor
San Francisco, California 94104
- ---------------
(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, 2000, based on a Schedule 13G filed with the SEC by AXA
Financial, Inc., an investment company, and certain investment advisor,
insurance company, and broker-dealer subsidiaries of AXA Financial.
According to the Schedule 13G, AXA Financial and such subsidiaries together
have sole investment power with respect to 9,895,753 of such shares, sole
voting power with respect to 5,894,682 of such shares, shared investment
power with respect to 2,450 of such shares and shared voting power with
respect to 1,606,270 of such shares.
(3) As of December 31, 2000, based on a Schedule 13G filed with the SEC by
Barclays Global Investors N.A., a bank, and certain affiliated bank
entities. According to the Schedule 13G, Barclays Global Investors and such
entities together have sole investment power with respect to all of such
shares and sole voting power with respect to 4,437,160 of such shares.
(4) As of December 31, 2000, based on a Schedule 13G filed with the SEC by Dodge
& Cox, an investment advisor. According to the Schedule 13G, Dodge & Cox has
sole investment power with respect to all of such shares, sole voting power
with respect to 4,946,275 of such shares, and shared voting power with
respect to 46,200 of such shares.
32
36
PRELIMINARY PROXY MATERIALS DATED MARCH 1, 2001
SUBJECT TO COMPLETION
EXECUTIVE COMPENSATION
COMPENSATION TABLES
The following Summary Compensation Table sets forth certain information
concerning compensation of the Company's Chief Executive Officer and each of the
Company's four other most highly compensated executive officers for 2000.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION(1)
------------------------------------------
NAME AND PRINCIPAL OTHER ANNUAL
POSITION YEAR SALARY(2) BONUS(3) COMPENSATION(4)
------------------ ---- --------- ----------- ---------------
Earnest W. Deavenport, Jr. 2000 $960,000 $ 1,171,035 $ 51,982
Chairman and Chief 1999 775,000 732,375 28,810
Executive Officer 1998 763,333 502,998 42,917
James L. Chitwood 2000 360,125 275,340 113,165
Senior Vice President, 1999 391,589(11) 242,033 321,967
Corporate Strategy and Chief 1998 354,033 170,407 306,876
Technology Officer
J. Brian Ferguson(12) 2000 332,450 324,314 88,038
President 1999 228,559 95,772 66,443
Chemicals Group 1998 126,700 36,057 62,727
James P. Rogers(12)(13) 2000 357,500 306,323 2,100
Senior Vice President 1999 127,273 253,923 5,714
and Chief Financial 1998 -- -- --
Officer
Allan R. Rothwell(12) 2000 359,500 197,775 2,784
President 1999 265,700 235,315 3,073
Polymers Group 1998 217,850 98,096 2,738
LONG-TERM COMPENSATION
------------------------------------------------
AWARDS PAYOUTS
----------------------------- --------------
RESTRICTED STOCK SECURITIES LONG-TERM
NAME AND PRINCIPAL AWARDS UNDERLYING INCENTIVE PLAN ALL OTHER
POSITION ($)(5) OPTIONS PAYOUTS(6) COMPENSATION(7)
------------------ ---------------- ---------- -------------- ---------------
Earnest W. Deavenport, Jr. $ 0 101,481(8) $767,960 $50,527
Chairman and Chief 0 200,000(9) 0 40,789
Executive Officer 0 15,500 239,459 40,175
James L. Chitwood 0 30,000(10) 331,139 18,954
Senior Vice President, 0 60,441(8)(9) 0 18,816
Corporate Strategy and Chief 0 8,750 103,253 18,633
Technology Officer
J. Brian Ferguson(12) 0 15,000 24,659 17,500
President 0 81,700(9) 0 9,707
Chemicals Group 0 270 0 6,668
James P. Rogers(12)(13) 520,506 15,000 0 20,395
Senior Vice President 579,125 192,000(14) 0 8,756
and Chief Financial -- -- -- --
Officer
Allan R. Rothwell(12) 0 15,000 218,411 18,921
President 0 91,000(9) 0 14,611
Polymers Group 0 7,010 13,181 11,466
- ---------------
(1) Includes both amounts paid for the indicated years and amounts earned
during the indicated years but deferred under the Executive Deferred
Compensation Plan.
(2) Base salary amount is reduced to below competitive pay levels, and the
difference between base salary and competitive pay level is made variable
and is placed "at risk" under the Eastman Performance Plan, the Annual
Performance Plan, and, beginning 2000, the Unit Performance Plan. For 2000,
45% of Mr. Deavenport's annual compensation and 35% of the annual
compensation for Messrs. Ferguson, Rogers, and Rothwell, and Dr. Chitwood
was at risk under the Eastman Performance Plan, Annual Performance Plan,
and Unit Performance Plan. See "Bonus" column and "Compensation and
Management Development Committee Report on Executive Compensation."
(3) Cash payments in the year following for services rendered in the year
indicated under the Eastman Performance Plan, the Annual Performance Plan,
and for 2000, the Unit Performance Plan. The Eastman Performance Plan,
Annual Performance Plan, and Unit Performance Plan, unlike traditional
bonus plans, require participants to place a portion of their annual
compensation "at risk" by reducing their base salary levels to
below-competitive pay levels. A significant portion of the compensation
reported in the "Bonus" column constitutes annual cash compensation which
was placed "at risk" at the beginning of the indicated year and earned
during the year based upon Company, and for 2000, individual performance.
Also includes special recognition awards paid to Mr. Rogers in 2000 and to
Mr. Rothwell in 1999, and a signing bonus paid to Mr. Rogers upon
commencement his employment with the Company in August 1999. Under the
terms of his employment, the Company waived the then-normal time of service
condition for participation and paid Mr. Rogers a prorated award under the
Eastman Performance Plan for 1999. See "Compensation and Management
Development Committee Report on Executive Compensation."
33
37
PRELIMINARY PROXY MATERIALS DATED MARCH 1, 2001
SUBJECT TO COMPLETION
(4) Includes amounts reimbursed for payment of taxes on certain compensation
and benefits, and the portion of interest accrued on deferred compensation
under the Executive Deferred Compensation Plan and on certain stock options
at a rate that exceeded 120 percent of the then-applicable Federal long-
term rate. The amounts reported for Dr. Chitwood and Mr. Ferguson also
include tax gross-up payments attributed to overseas assignments.
(5) Represents 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. The amounts reported do not take into account the transfer
restrictions on the shares. Upon the commencement of his employment with
the Company in August 1999, Mr. Rogers was awarded 11,300 restricted shares
of common stock, which restrictions lapsed on the first anniversary of his
employment. In August 2000, he was awarded an additional 11,300 restricted
shares of common stock, with restrictions lapsing on the second anniversary
of his employment. Subject to continued employment with the Company, Mr.
Rogers will be awarded 11,300 restricted shares of common stock on the
second anniversary of his employment with the Company, with restrictions
lapsing on the third anniversary of his employment date. At December 31,
2000, Mr. Rogers held 11,300 restricted shares of common stock, with a fair
market value of $550,875 based on the per share closing price of the common
stock on the New York Stock Exchange on December 29, 2000 ($48.75).
Dividends are paid on these shares as and when dividends are paid on common
stock.
(6) Represents fair market value of payout during the year following 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 shareowners during the three-year performance period
relative to that of peer companies. The payout, unless deferred at the
election of the participant, is 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 per share closing price of the common
stock on the New York Stock Exchange on the payment date. Mr. Ferguson was
first awarded performance shares for the 1998-2000 performance period;
accordingly, he was not eligible to receive payouts for the performance
periods ended 1998 and 1999. Mr. Rogers was first awarded performance
shares for the 2000-2002 performance period, and was not eligible to
receive payouts for the performance periods ended 1999 and 2000. See
"Long-Term Incentive Plan -- Awards in Last Fiscal Year" table and
"Compensation and Management Development Committee Report on Executive
Compensation."
(7) The amounts for 1998 are the portion of the Eastman Performance Plan
payment which was contributed or credited by the Company to the employee's
accounts in the Eastman ESOP and Eastman ESOP Excess Plan. The amounts for
2000 and 1999 are annual Company contributions to the accounts of Messrs.
Deavenport, Ferguson, and Rothwell and Dr. Chitwood in the Eastman
Investment Plan, a 401(k) retirement plan, and to Mr. Rogers' accounts in
the Eastman ESOP and Eastman ESOP Excess Plan. Under the terms of his
employment, the Company waived the then-normal time of service condition
for participation under the Eastman ESOP and Eastman ESOP Excess Plan for
Mr. Rogers. See "Compensation and Management Development Committee Report
on Executive Compensation."
(8) Includes "reload" options received by Mr. Deavenport (36,481 in 2000) and
Dr. Chitwood (6,941 in 1999) 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 options. See "Option Grants in Last Fiscal
Year" and "Aggregated Option Exercises in Last Fiscal Year and Fiscal
Year-End Option Values" tables.
(9) Includes performance-based options granted on October 19, 1999 at an
exercise price of $37.9375 to Mr. Deavenport (169,000), Dr. Chitwood
(40,000), Mr. Ferguson (80,000), and Mr. Rothwell (80,000).
Performance-based stock options are subject to stock price vesting and time
vesting conditions, both of which must be met for the options to become
exercisable. Subject to the price vesting conditions, the options become
exercisable in 50% increments on each of the first two anniversaries of the
grant date. Subject to the time vesting conditions, the options will become
exercisable as to 1% of the underlying shares if the average daily closing
price of Eastman common stock
34
38
PRELIMINARY PROXY MATERIALS DATED MARCH 1, 2001
SUBJECT TO COMPLETION
on the New York Stock Exchange for any twenty consecutive trading days
equals or exceeds $39.00 on or before October 19, 2001; as to 100% of the
underlying shares if the average daily closing price for any twenty
consecutive trading days equals or exceeds $70.00 on or before October 19,
2001; and, as to specified numbers between 1% and 100% of the underlying
shares if the average daily closing prices for any twenty consecutive days
equal or exceed specified prices between $39.00 and $70.00 on or before
October 19, 2001. As of December 31, 2000, the options had become
exercisable as to 26% of the underlying shares, subject to time vesting
conditions. The options will be cancelled and forfeited on October 19, 2001
as to any shares for which the applicable stock price target is not met.
The options are also subject to forfeiture in the event of early
termination of employment under certain circumstances and in the event of
violation by an optionee of specified prohibitions concerning competition,
confidentiality, and other activity adverse to the interests of the
Company. In the event of a "change in ownership", or in certain
circumstances following a "change in control", conditions to vesting would
be deemed to have been satisfied. See "Change in Control
Arrangements -- Omnibus Long-Term Compensation Plans."
(10) Includes an option granted on October 4, 2000 to purchase 15,000 shares of
Eastman common stock, in recognition of Dr. Chitwood's leadership of
strategic initiatives involving the Company's business portfolio. See
"Option Grants in Last Fiscal Year" table.
(11) Includes an amount paid to Dr. Chitwood attributed to a previous overseas
assignment.
(12) As part of a reorganization of the Company, effective September 1, 1999,
Mr. Rothwell was named President, Chemicals Group and Mr. Ferguson was
named President, Polymers Group. Mr. Rothwell was formerly Senior Vice
President and Chief Financial Officer. Mr. Rogers succeeded Mr. Rothwell as
Senior Vice President and Chief Financial Officer. In connection with the
Company's previously reported plan to create two independent public
companies at the end of 2001, with Messrs. Ferguson and Rothwell becoming
the chief executive officers, Mr. Ferguson was named President, Chemicals
Group and Mr. Rothwell was named President, Polymers Group effective
February 1, 2001.
(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 District of New Jersey to resolve
asbestos liability claims. This information is included in this 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 any corporation of which an executive officer
of the Company was an executive officer within two years before the time of
such filing.
(14) Upon the commencement of his employment with the Company in August 1999,
Mr. Rogers was granted a special option to purchase 192,000 shares of
Eastman common stock at an exercise price of $51.25. This option has a term
of 10 years and vested and became exercisable as to 50% of the underlying
shares upon the commencement of his employment with the Company and as to
the remaining 50% upon the first anniversary of his employment date. See
"Compensation and Management Development Committee Report on Executive
Compensation."
35
39
PRELIMINARY PROXY MATERIALS DATED MARCH 1, 2001
SUBJECT TO COMPLETION
The following table sets forth certain information regarding options
granted during 2000 under the Company's Omnibus Long-Term Compensation Plans to
the individuals named in the Summary Compensation Table.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
-----------------------------------------------------------------------
PERCENTAGE OF TOTAL
NUMBER OF OPTIONS/SARS
SECURITIES GRANTED TO EXERCISE OR
UNDERLYING OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED FISCAL YEAR PER SHARE DATE
- ---- ------------------ ------------------- -------------- ----------
E. W. Deavenport, Jr....... 13,992(5) 1.32% $42.2188 05/08/00
11,223(5) 1.06% 36.8438 11/07/00
11,266(5) 1.06% 43.3400 11/11/02
65,000(6) 6.13% 46.0625 04/06/10
J. L. Chitwood............. 15,000(6) 1.41% 46.0625 04/06/10
15,000(6)(7) 1.41% 39.6250 10/03/10
J. B. Ferguson............. 15,000(6) 1.41% 46.0625 04/06/10
J. P. Rogers............... 15,000(6) 1.41% 46.0625 04/06/10
A. R. Rothwell............. 15,000(6) 1.41% 46.0625 04/06/10
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION FOR
OPTION TERM(1)
-------------------------------
NAME 0%(2) 5%(3) 10%(4)
- ---- ----- ---------- ----------
E. W. Deavenport, Jr....... $0 $ 8,087 $ 15,901
0 1,759 2,267
0 50,335 103,154
0 1,882,950 4,771,765
J. L. Chitwood............. 0 434,527 1,011,176
0 373,799 947,281
J. B. Ferguson............. 0 434,527 1,011,176
J. P. Rogers............... 0 434,527 1,011,176
A. R. Rothwell............. 0 434,527 1,011,176
- ---------------
(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 shareowners 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 the option expiring on April 6, 2010, a 5% per year
appreciation in stock price from $46.0625 per share yields $75.03 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 the option expiring on April 6, 2010, a 10% per year
appreciation in stock price from $46.0625 per share yields $119.47 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 is vested and exercisable
immediately upon grant, and would be valued and cashed out 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) The options vest and become exercisable in 50% increments on each of the
first two 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." The exercise price may be paid by
surrendering previously owned shares of Eastman common stock, in which case
the optionee will receive a new option to purchase the same number of shares
as surrendered in the exercise. Such "reload" options have an exercise price
equal to the fair market value of the underlying common stock on the date of
the new grant.
(7) Option granted in recognition of Dr. Chitwood's leadership of strategic
initiatives involving the Company's business portfolio.
36
40
PRELIMINARY PROXY MATERIALS DATED MARCH 1, 2001
SUBJECT TO COMPLETION
The following table sets forth certain information regarding exercises of
options during 2000, and total options held at year end, by the individuals
named in the Summary Compensation Table.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
NUMBER OF OPTIONS OPTIONS
SECURITIES AT FISCAL YEAR-END AT FISCAL YEAR-END(1)
UNDERLYING ---------------------- ---------------------
OPTIONS VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISED REALIZED UNEXERCISABLE UNEXERCISABLE
- ---- ---------- -------- ---------------------- ---------------------
E. W. Deavenport, Jr.......... 86,562 $788,014 275,345/427,530(2) $1,230,704/1,810,012(2)
J. L. Chitwood................ 0 0 101,028/71,550(2) 361,004/573,298(2)
J. B. Ferguson................ 0 0 13,970/85,450(2) 114,946/795,366(2)
J. P. Rogers.................. 0 0 192,000/15,000 0/40,320
A. R. Rothwell................ 0 0 31,100/90,100(2) 157,406/809,026(2)
- ---------------
(1) Represents the difference between the closing price on the New York Stock
Exchange of Eastman common stock underlying the options on December 31,
2000, and the exercise price of the options.
(2) Includes options to purchase shares of common stock only if specified
conditions tied to the price appreciation of Eastman common stock, and
certain other conditions, are met. See "Summary Compensation Table."
The following table sets forth certain information regarding long-term
incentive plan awards during 2000 to the individuals named in the Summary
Compensation Table.
LONG-TERM INCENTIVE PLAN -- AWARDS IN LAST FISCAL YEAR
ESTIMATED FUTURE PAYOUTS UNDER
NON-STOCK PRICE-BASED PLANS
NUMBER OF PERFORMANCE OR ----------------------------------------------------
SHARES, UNITS OR OTHER PERIOD UNTIL BELOW
NAME OTHER RIGHTS MATURATION OR PAYOUT THRESHOLD(#) THRESHOLD(#) TARGET(#) MAXIMUM(#)
---- ---------------- -------------------- ------------ ------------ --------- ----------
E. W. Deavenport, Jr...... 23,800 3 Years -0- 4,760 23,800 47,600
J. L. Chitwood............ 5,500 3 Years -0- 1,100 5,500 11,000
J. B. Ferguson............ 5,500 3 Years -0- 1,100 5,500 11,000
J. P. Rogers.............. 5,500 3 Years -0- 1,100 5,500 11,000
A. R. Rothwell............ 5,500 3 Years -0- 1,100 5,500 11,000
The above table reflects performance shares awarded under the 1997 Omnibus
Long-Term Compensation Plan. Such awards were made under a three-year Long-Term
Performance Subplan. The awards reflected in the table were granted in February
2000 for a 2000-2002 cycle. Performance is measured by the Company's total
return to shareowners (change in stock price plus dividends declared during the
relevant period, assuming reinvestment of dividends) relative to that of the 16
peer companies identified in the Performance Graph. Future payouts, if any, are
based upon the Company's position in a ranking of the unweighted total
shareowner returns of the compared companies. If the Company's total shareowner
return ("TSR") ranks below the twelfth company (threshold), no award will be
earned; if TSR ranks at threshold, 20% of the target awards will be earned; if
TSR ranks eighth (target), 100% of the target awards will be earned; and if TSR
ranks first of the compared companies (maximum), 200% of the target awards will
be earned. If earned, awards will be paid after the end of the performance
period in unrestricted shares of Eastman common stock, or participants may
irrevocably elect in advance to defer the award payout into the Executive
Deferred Compensation Plan.
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SUBJECT TO COMPLETION
PENSION PLANS
EASTMAN RETIREMENT ASSISTANCE PLAN. The Company presently has in effect a
tax-qualified, non-contributory defined benefit pension plan known as the
Eastman Retirement Assistance Plan ("ERAP") for substantially all active U.S.
employees, other than employees of Lawter International, Inc. and McWhorter
Technologies, Inc. and certain other subsidiaries. A participant's total ERAP
benefit consists of his "Pre-2000 Benefit" and "Pension Equity Benefit", as
described below.
PRE-2000 BENEFIT. Prior to 2000, the ERAP used a traditional pension
formula which gave each participant a life annuity commencing at age 65. The
following table sets forth the estimated annual Pre-2000 Benefits payable upon
retirement (including any amounts attributable to the plans described under
"Supplemental Pension Plans" below) to persons in the specified compensation and
years-of-service classifications who are eligible for a full unreduced Pre-2000
Benefit.
PENSION PLAN TABLE
AVERAGE YEARS OF SERVICE
PARTICIPATING -------------------------------------------------------------------
COMPENSATION 15 20 25 30 35 40
- ------------- -------- -------- -------- -------- ---------- ----------
$ 200,000 $ 44,904 $ 59,872 $ 74,840 $ 89,808 $ 104,776 $ 110,015
250,000 56,904 75,872 94,840 113,808 132,776 139,415
300,000 68,904 91,872 114,840 137,808 160,776 168,815
350,000 80,904 107,872 134,840 161,808 188,776 198,215
400,000 92,904 123,872 154,840 185,808 216,776 227,615
450,000 104,904 139,872 174,840 209,808 244,776 257,015
500,000 116,904 155,872 194,840 233,808 272,776 286,415
550,000 128,904 171,872 214,840 257,808 300,776 315,815
600,000 140,904 187,872 234,840 281,808 328,776 345,215
650,000 152,904 203,872 254,840 305,808 356,776 374,615
700,000 164,904 219,872 274,840 329,808 384,776 404,015
750,000 176,904 235,872 294,840 353,808 412,776 433,415
800,000 188,904 251,872 314,840 377,808 440,776 462,815
850,000 200,904 267,872 334,840 401,808 468,776 492,215
900,000 212,904 283,872 354,840 425,808 496,776 521,615
950,000 224,904 299,872 374,840 449,808 524,776 551,015
1,000,000 236,904 315,872 394,840 473,808 552,776 580,415
1,050,000 248,904 331,872 414,840 497,808 580,776 609,815
1,100,000 260,904 347,872 434,840 521,808 608,776 639,215
1,150,000 272,904 363,872 454,840 545,808 636,776 668,615
1,200,000 284,904 379,872 474,840 569,808 664,776 698,015
1,250,000 296,904 395,872 494,840 593,808 692,776 727,415
1,300,000 308,904 411,872 514,840 617,808 720,776 756,815
1,350,000 320,904 427,872 534,840 641,808 748,776 786,215
1,400,000 332,904 443,872 554,840 665,808 776,776 815,615
1,450,000 344,904 459,872 574,840 689,808 804,776 845,015
1,500,000 356,904 475,872 594,840 713,808 832,776 874,415
1,550,000 368,904 491,872 614,840 737,808 860,776 903,815
1,600,000 380,904 507,872 634,840 761,808 888,776 933,215
1,650,000 392,904 523,872 654,840 785,808 916,776 968,615
1,700,000 404,904 539,872 674,840 809,808 944,776 992,015
1,750,000 416,904 555,872 694,840 833,808 972,776 1,021,415
1,800,000 428,904 571,872 714,840 857,808 1,000,776 1,050,815
To the extent that any individual's annual Pre-2000 Benefit, as
reflected in the foregoing table, exceeds the amount payable from the ERAP, such
excess will be paid from one or more unfunded, supplementary plans. See
"Supplemental Pension Plans" below.
Pre-2000 Benefits under the ERAP are based upon the participant's
"average participating compensation", which is the average of three years of
those earnings described in the ERAP as "participating
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PRELIMINARY PROXY MATERIALS DATED MARCH 1, 2001
SUBJECT TO COMPLETION
compensation." "Participating compensation," in the case of the executive
officers identified in the Summary Compensation Table, consists of salary and
bonus payments, including allowance in lieu of salary for authorized periods of
absence, such as illness, vacation, or holidays.
The estimated annual Pre-2000 Benefits reflected in the preceding
Pension Plan Table have been computed in straight-life annuity amounts and are
not subject to any deductions for Social Security or other offset amounts. An
employee is eligible for an unreduced Pre-2000 Benefit when such employee's
aggregate age plus years of eligible service totals 85 or at age 65.
Years of accrued service credited through 2000 and the amount of average
participating compensation at the end of 2000 for the individuals named in the
Summary Compensation Table were as follows: Mr. Deavenport, 40 years and
$1,475,496; Dr. Chitwood, 32 years and $600,321; Mr. Ferguson, 23 years and
$267,481; Mr. Rogers, 1 year and $482,903; and Mr. Rothwell, 31 years and
$416,044.
PENSION EQUITY BENEFIT. Effective January 1, 2000, the Company
redesigned the ERAP to use a pension equity formula. Under the new formula,
beginning January 1, 2000, a participant earns a certain pension equity
percentage each year based on his age and total service with the Company, using
the following chart:
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%
When a participant terminates, he is entitled to a pension lump sum,
payable over five years, which is equal to the accumulated percentages in the
second column times his average participating compensation, plus the accumulated
percentages in the third column times his average participating compensation in
excess of his average Social Security wage base. The lump sum may also be
converted to various forms of annuities.
To the extent that any individual's Pension Equity Benefit exceeds the
amount payable from the ERAP, such excess will be paid from one or more
unfunded, supplementary plans. See "Supplemental Pension Plans" below.
SUPPLEMENTAL PENSION PLANS. The Company maintains two unfunded,
nonqualified plans that will restore to participants in the ERAP benefits that
cannot be paid under the ERAP because of restrictions under the Internal Revenue
Code of 1986, as amended, and benefits that are not accrued under the ERAP
because of a voluntary deferral by the participant of compensation that would
otherwise be counted under the ERAP. The timing and form of payment of amounts
accrued under these supplemental pension plans have not yet been determined.
Those determinations will be made at the sole discretion of the Vice President,
Human Resources, with respect to participants other than executive officers, or
the Compensation Committee, with respect to participants who are executive
officers.
The Company has established a "Rabbi Trust" to provide a degree of
financial security for the participants' unfunded account balances under the
supplemental pension plans. See "Change-in-Control Arrangements -- Benefit
Security Trust."
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SUBJECT TO COMPLETION
CHANGE-IN-CONTROL ARRANGEMENTS
SEVERANCE AGREEMENTS. The Company has entered into Severance Agreements
with the five individuals named in the Summary Compensation Table and certain
other officers of the Company. Each Agreement has a term of three years (with
automatic one-year extensions absent advance notice otherwise from the Company);
provided, however, that upon the occurrence of a "change in control" or a
"potential change in control" (as defined in the Agreements) prior to such
termination date, the term of the Agreement will automatically be extended for
two years from the date of the change in control or potential change in control,
as the case may be. If, at any time during the term of the Agreement and before
the occurrence of a change in control or a potential change in control, there
occurs a reduction in the employee's level of responsibility, position,
authority or duties, the Company may in its sole discretion terminate the
Agreement.
A "change in control" is defined in the Agreements to include the
following, and with certain exceptions: the acquisition by a person of 19% or
more of the voting stock of the Company; the incumbent Board members (and
subsequent directors approved by them) ceasing to constitute a majority of the
Board; approval by the Company's shareowners of a reorganization or merger
unless, after such proposed transaction, the former shareowners of the Company
will own more than 75% of the resulting corporation's voting stock; or approval
by the Company's shareowners of a complete liquidation and dissolution of the
Company or the sale or other disposition of substantially all of the assets of
the Company other than to a subsidiary or in a spin-off transaction. A
"potential change in control" will be deemed to have occurred if the Company
enters into an agreement, the consummation of which would result in the
occurrence of a change in control; any person (including the Company) publicly
announces an intention to take action which, if consummated, would constitute a
change in control; any person (other than the Company or certain affiliated
entities) becomes the beneficial owner of 10% or more of the combined voting
power of the Company's then-outstanding securities; or the Board adopts a
resolution to the effect that a potential change in control has occurred.
If during the term of the Agreements and following a change in control (or
within 120 days before or after a potential change in control) of the Company,
the employee's employment with the Company is terminated by the Company other
than for "cause" (as defined), death or disability, or by the employee for "good
reason" (which includes a reduction in the employee's compensation, certain
relocations of the employee's office, the exclusion of the employee from new
compensation arrangements offered to similarly situated employees, or a material
reduction in the employee's responsibility, position, authority, or duties, and
also includes a termination by the employee for any reason or no reason during
the 30-day period beginning on the first anniversary of the change in control),
then, in addition to any other benefits accruing to the employee outside the
scope of the Agreement: (1) the acquiror will pay the employee any unpaid
salary, benefits or awards that shall have been earned or become payable through
the date of termination; (2) the acquiror will pay to the employee as severance
an amount equal to three times (or four times in the case of Mr. Deavenport) the
employee's "pay" (defined as the average of the three highest out of the last
ten years of the employee's total annual compensation, including base annual
salary, bonus, the grant date value of stock grants, and incentive
compensation); (3) the acquiror will maintain in effect for three years (or four
years in the case of Mr. Deavenport) after the date of termination for the
employee and his dependents all welfare benefit plans in which the employee was
entitled to participate immediately prior to termination; and (4) the acquiror
will pay the employee a single lump sum amount equal to the actuarial equivalent
of (a) the retirement benefit to which the employee would have been entitled
under the ERAP and the excess retirement plans described above under "Pension
Plans" if the employee had five additional years of service and was five years
older, minus (b) the retirement benefit to which the employee is actually
entitled under the ERAP and the excess retirement plans.
If the amount payable to the employee under these Agreements exceeds
certain threshold amounts, federal excise tax could be imposed on the employee
and the Company could lose a tax deduction for a portion of the payment. If the
amount payable would result in such effects, but exceeds the applicable
threshold by $30,000 or less, the amount payable will be reduced by the amount
the payment exceeds the threshold. If the
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PRELIMINARY PROXY MATERIALS DATED MARCH 1, 2001
SUBJECT TO COMPLETION
payment exceeds the threshold by more than $30,000, the employee will be
entitled to full benefits under the Agreement and to additional amounts to
compensate him or her fully for the imposition of the federal excise tax
(including federal, state, and excise taxes applicable to the receipt of such
additional amount).
The Company has established a "Rabbi Trust" to provide a degree of
financial security for any amounts that may become payable to officers under the
Severance Agreements. See "Benefit Security Trust."
EMPLOYEE PROTECTION PLAN. The Company's Employee Protection Plan provides
severance pay, health, dental, disability, and life insurance continuation, and
a retraining allowance (of up to $5,000) for substantially all employees whose
employment is terminated within two years following a "change in control" (as
defined in such plan, generally circumstances in which the Company is acquired
by another entity or its controlling ownership is changed). For purposes of the
Employee Protection Plan, participants have been credited with service with
Eastman Kodak Company and its affiliates prior to the Company's spin-off from
Eastman Kodak. The Employee Protection Plan provides for a lump sum severance
payment of three weeks of "pay" (as defined in the plan) for each year of
service up to 16 years and four weeks of pay for each year of service in excess
of 16 years, with a minimum of six weeks of pay and a maximum of 104 weeks.
Health, dental, disability, and life insurance would be continued at the
Company's expense for up to 12 months, depending on years of service, on the
same basis as in effect on the date of employment termination (except that no
employee contributions would be required). In addition, the Employee Protection
Plan provides for the payment of certain bonuses declared in the year in which
employment terminates. The plan provides for a "gross-up payment" in the event
the total payments under the Employee Protection Plan and any other plan or
agreement of an employee with the Company subject the employee to certain
federal excise taxes. The gross-up payment would be in an amount such that the
net amount retained by the employee, after deduction of any such excise tax and
any tax on the gross-up payment, would equal the total payments under the
Employee Protection Plan and other plans or agreements.
OMNIBUS LONG-TERM COMPENSATION PLANS. The Company's 1997 Omnibus Long-Term
Compensation Plan (the "1997 Omnibus Plan"), which is administered by the
Compensation Committee, provides for grants to employees of nonqualified and
incentive stock options, SARs, stock awards, performance shares, and other stock
and stock-based awards (collectively, "Awards"). The 1997 Omnibus Plan is
substantially similar to, and intended to replace, the 1994 Omnibus Long-Term
Compensation Plan (the "1994 Omnibus Plan"). (Either of the 1994 Omnibus Plan
and 1997 Omnibus Plan are sometimes referred to in this Proxy Statement as the
"Omnibus Long-Term Compensation Plan" or the "Omnibus Plan," and the 1994
Omnibus Plan and 1997 Omnibus Plan are sometimes collectively referred to as the
"Omnibus Long-Term Compensation Plans" or the "Omnibus Plans.") No new awards
have been made under the 1994 Omnibus Plan following the effectiveness of the
1997 Omnibus Plan, and outstanding grants and awards under the 1994 Omnibus Plan
are unaffected by the replacement of the 1994 Omnibus Plan with the 1997 Omnibus
Plan.
The Omnibus Plans contain provisions regarding the treatment of Awards in
the event of a "change in ownership" (as defined in the Omnibus Plans, generally
concerning circumstances in which the Company's common stock is no longer
publicly traded) and of a "change in control" (as defined in the Omnibus Plans,
generally concerning circumstances in which the Company is acquired by another
entity or its controlling ownership is changed). Upon a change in ownership or
change in control, the rules described below will apply to Awards granted under
the Omnibus Plans. However, the Compensation Committee has the discretion,
notwithstanding any particular transaction constituting a change in ownership or
a change in control, either to determine that such transaction is of the type
that does not warrant the described consequences with respect to Awards (in
which case such consequences would not occur) or to alter the way in which
Awards are treated from the consequences outlined in the Omnibus Plans.
If a change in ownership occurs (and the Compensation Committee has not
exercised its discretion outlined above) during the term of one or more
performance periods for which the Compensation Committee has granted performance
shares, the term of such performance period will immediately terminate and,
except
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PRELIMINARY PROXY MATERIALS DATED MARCH 1, 2001
SUBJECT TO COMPLETION
with respect to performance periods for which the Compensation Committee has
previously reached a determination regarding the degree to which the performance
objectives have been attained, it will be assumed that the performance
objectives have been attained at a level of 100%. Participants, as a result,
will be considered to have earned and therefore be entitled to receive a
prorated share of the Awards previously granted for such performance period. In
addition, upon a change in ownership, all outstanding Awards will be valued and
cashed out on the basis of the change in ownership price as soon as practicable
but in no event more than 90 days after the change in ownership.
In the event of a change in control (assuming the Compensation Committee
has not exercised its discretion outlined above), if a participant's employment
terminates within two years following the change in control, unless such
termination is due to death, disability (as defined in the Omnibus Plans), cause
(as defined in the Omnibus Plans), resignation (other than as a result of
certain actions by the Company and any successor), or retirement, participants
will be entitled to the following treatment. All conditions, restrictions, and
limitations in effect with respect to any unexercised Award will immediately
lapse and no other terms or conditions will be applied. Any unexercised,
unvested, unearned, or unpaid Award will automatically become 100% vested.
Performance shares will be treated in a manner similar to that described above
in the case of a change in ownership. A participant will be entitled to a lump
sum cash payment as soon as practicable but in no event more than 90 days after
the date of such participant's termination of employment with respect to all of
such participant's Awards.
BENEFIT SECURITY TRUST. The Company has established a Benefit Security
Trust (sometimes referred to as the "Rabbi Trust") to provide a degree of
financial security for its unfunded obligations under the Executive Deferred
Compensation Plan, the ESOP Excess Plan, the supplemental ERAP plans, and the
Severance Agreements. The assets of the Rabbi Trust would be subject to the
claims of the Company's creditors in the event of insolvency. Upon the
occurrence of a "change in control" or a "potential change in control" (as
defined), or if the Company fails to meet its payment obligations under the
covered plans and agreements, the Company would be required to transfer to the
trustee cash or other liquid funds in an amount equal to the value of the
Company's obligations under the covered plans and agreements. The Company has
conveyed to the trustee rights to certain assets as partial security for the
Company's funding obligations under the Rabbi Trust.
A "change in control" is defined to include the following, and with certain
exceptions: the acquisition by a person of 19% or more of the voting stock of
the Company; the incumbent Board members (and subsequent directors approved by
them) ceasing to constitute a majority of the Board; approval by the Company's
shareowners of a reorganization or merger unless, after such proposed
transaction, the former shareowners of the Company will own more than 75% of the
resulting corporation's voting stock; or approval by the Company's shareowners
of a complete liquidation and dissolution of the Company or the sale or other
disposition of substantially all of the assets of the Company, other than to a
subsidiary or in a spin-off transaction. A "potential change in control" will be
deemed to have occurred if the Company enters into an agreement, the
consummation of which would result in the occurrence of a change in control; any
person (including the Company) publicly announces an intention to take action
which, if consummated, would constitute a change in control; or any person
(other than the Company, certain affiliated entities, or certain institutional
investors) becomes the beneficial owner of 10% or more of the combined voting
power of the Company's then-outstanding securities.
The Rabbi Trust is irrevocable until participants and their beneficiaries
are no longer entitled to payments under the covered plans and agreements, but
may be amended or revoked by agreement of the trustee, the Company, and a
committee of individual beneficiaries of the Rabbi Trust.
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PRELIMINARY PROXY MATERIALS DATED MARCH 1, 2001
SUBJECT TO COMPLETION
COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
The Compensation and Management Development Committee of the Company's
Board of Directors is composed of five outside non-employee directors. This
report summarizes the Compensation Committee's policies governing compensation
to executive officers for 2000, including those in the Summary Compensation
Table, and the relationship of corporate performance to that compensation. In
addition, this report discusses specifically the Compensation Committee's bases
for the compensation reported for the Chief Executive Officer for the past year.
As previously reported, the Company is pursuing a plan that would result in
Eastman becoming two independent public companies at the end of 2001. Each new
company would have its own management, and, accordingly, its own board of
directors, compensation committee, executive officers, and management
compensation philosophy and programs consistent with the company's own strategic
business objectives.
COMPENSATION PHILOSOPHY AND PROGRAM
The Compensation Committee seeks to ensure that the Company's management
compensation program is consistent with the Company's strategic business
objectives and provides incentives for the attainment of those objectives. For
2000, the Company's compensation program included three components:
BASE PAY............................. Provides a stable annual salary at a level
consistent with the individual's position and
contributions.
VARIABLE PAY......................... Puts a portion of each individual's annual
income "at risk", based upon the success of
the Company, and for certain management-level
employees, also based upon organizational unit
performance and attainment of individual
objectives.
STOCK-BASED INCENTIVE PAY............ Encourages an ownership mindset throughout the
Company.
PRINCIPLES FOR DETERMINING EXECUTIVE COMPENSATION
The Compensation Committee applies the following principles when it
determines the compensation of the executive officers under the Company's
compensation program:
INTEGRATION.......................... Executive compensation is integrated and
consistent with the total Company compensation
program, as described above.
COMPETITIVE POSITION................. Executives are provided competitive
compensation for competitive Company
performance in the chemical industry and
compensation that is consistent with
compensation for companies of comparable size,
complexity, and operational challenge.
PERFORMANCE FOCUS.................... At higher levels of the organization, an
increasing proportion of compensation is
dependent upon Company performance and return
to shareowners, organizational unit
performance and attainment of individual
objectives.
The Compensation Committee follows these principles in periodically
reviewing overall compensation of the Chief Executive Officer and other
executive officers, and in determining each component of executive compensation
as discussed in the remainder of this report.
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PRELIMINARY PROXY MATERIALS DATED MARCH 1, 2001
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COMPONENTS OF EXECUTIVE COMPENSATION
ANNUAL CASH COMPENSATION -- BASE PAY AND VARIABLE PAY
HOW BASE PAY AND VARIABLE PAY LEVELS ARE DETERMINED. Total cash
compensation for all Company employees, including executive officers, is
intended to be competitive with pay in the applicable labor market and in the
chemical industry for similar jobs when target levels of performance are
achieved. The targeted levels of cash compensation are based upon information
provided by outside consultants and publicly available information. Accordingly,
a portion of each employee's target pay level is placed "at risk." Base pay is
reduced to below competitive pay levels, and the difference between the
resulting pay level and the competitive pay level is made variable and is "at
risk." Depending upon Company performance (and, for management-level employees,
also depending upon organizational unit and individual performance), employees
may lose the at risk amount, receive some or the entire amount at risk, or
receive an amount in excess of the pay at risk.
For 2000, the Compensation Committee compared total cash compensation
levels for executive officers with companies in the chemical industry with which
the Company competes for executive talent and for which data were available,
including 15 of the companies in the peer group identified in the performance
graph which follows this report (the "Performance Graph"). In addition, in
determining the Chief Executive Officer's base salary and variable compensation,
the Committee also considered chief executive officer pay reported in surveys of
a broader group of manufacturing, industrial, and chemical companies of a size
(based on revenues) comparable to the Company, including 15 of the peer
companies in the Performance Graph. Total cash compensation to the executive
officers named in the Summary Compensation Table for 2000 is reported in the
"Salary" (base pay) and "Bonus" (variable pay) columns.
CASH COMPENSATION FOR 2000
BASE PAY. During 2000, the Compensation Committee determined that the
targeted total cash compensation of the executive officers named in the Summary
Compensation Table, and of certain other senior managers, was below competitive
pay levels. The increases in the base pay amounts reported in the Summary
Compensation Table reflect the Committee's corresponding increase of the total
cash compensation levels for the executive officers.
VARIABLE PAY. For 2000, the Compensation Committee determined that the "at
risk" portion of total cash compensation of senior managers was below
competitive levels, and increased the percentage of targeted cash compensation
for executive officers, including the Chief Executive Officer, that is made
variable and is "at risk." For 2000, the "at risk" portion of cash compensation,
and the amount of variable pay actually received, were determined under the
Eastman Performance Plan, the Annual Performance Plan (the "APP"), and the new
Unit Performance Plan (the "UPP").
EASTMAN PERFORMANCE PLAN
KEY FEATURES:
- All employees eligible to participate.
- 5% of each employee's (including executive officers') target annual cash
compensation is placed at risk based on Company performance.
- Award based upon overall Company results rather than individual or unit
performance.
- Company performance measured by return on capital (the return produced
by funds invested in the Company, determined as the net operating profit
after taxes divided by the sum of average debt and equity employed
during the year) minus cost of capital (the cost of debt and equity,
expressed as the interest charged on debt and expected return on
equity).
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PRELIMINARY PROXY MATERIALS DATED MARCH 1, 2001
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- Payout levels range from no payout if cost of capital exceeds return on
capital by five or more percentage points, to five times (5x) the "at
risk" amount if return on capital exceeds cost of capital by ten or more
percentage points. If return on capital equals the cost of capital, then
an award is earned equal to the amount of pay at risk.
- The Compensation Committee may in its discretion defer payment of an
individual's award into the Executive Deferred Compensation Plan if the
Compensation Committee determines that payment of the award could result
in the participant receiving compensation in excess of the maximum
amount deductible by the Company for federal income tax purposes.
2000 PAYOUT:
- Cash awards of 8.29% (of a possible maximum of 25%) of target annual
cash compensation were made to all employees under the Eastman
Performance Plan.
- Award levels corresponded to the Company's return on capital being
greater than the cost of capital by 2.19% for 2000.
- The Eastman Performance Plan award is included in the amounts reported
for the executive officers in the "Bonus" column of the Summary
Compensation Table.
- In determining return on capital, the Eastman Performance Plan provides
for adjustments by the Compensation Committee for unusual charges,
income items, or other events that are distortive of financial results.
Accordingly, the calculation of return on capital under the Eastman
Performance Plan for 2000 was adjusted to exclude the effect on the
calculated net operating profit of business acquisitions during 2000.
Without such adjustments, the calculated return on capital would have
exceeded the cost of capital by 1.36%, and the corresponding payout
would have been 7.04% of target annual cash compensation.
- The Eastman Performance Plan was amended so that, beginning 2000, the
payout to the executive officers named in the Summary Compensation Table
is adjusted for unusual items on the same basis as for all other
employees.
ANNUAL PERFORMANCE PLAN
KEY FEATURES:
- For 2000, approximately 190 Company managers, including executive
officers, participated.
- For 2000, the Compensation Committee determined that the Chief Executive
Officer's variable pay would be based entirely upon the business and
financial performance of the Company as a whole. Accordingly, Mr.
Deavenport's amount of target annual cash compensation at risk under the
Annual Performance Plan was 40%. With the introduction of the Unit
Performance Plan in 2000, the other executive officers named in the
Summary Compensation Table had 5% of their target annual cash
compensation at risk under the Annual Performance Plan, and 25% of their
target annual cash compensation at risk under the Unit Performance Plan.
Mr. Deavenport did not participate in the Unit Performance Plan during
2000. See "Unit Performance Plan" below.
- Payout is based on annual corporate performance versus pre-set goals for
specified measures.
- Measures are established annually by the Compensation Committee based
upon the Company's strategic emphasis for the following year:
- Target levels of performance are established for one or more of the
following objective business and financial measures: sales revenue
growth, earnings from operations, cost improvements, cash flow,
economic value created, productivity, quality, and customer
satisfaction.
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PRELIMINARY PROXY MATERIALS DATED MARCH 1, 2001
SUBJECT TO COMPLETION
- Each measure is weighted for importance in determining final awards.
- 2000 measures were: earnings from operations (weighted 70%), capital
expenditures (weighted 15%), and a working capital measure (defined as
total receivables plus inventory minus trade payables divided by
sales, weighted 15%).
- Payout levels range from no award if minimum performance levels are not
achieved, to two times (2x) the "at risk" amount for above-goal
performance. If minimum performance levels are not met and no award is
earned, the participant loses the amount of pay at risk.
- The Compensation Committee may in its discretion defer payment of an
individual's award into the Executive Deferred Compensation Plan if the
Compensation Committee determines that payment of the award could result
in the participant receiving compensation in excess of the maximum
amount deductible by the Company for federal income tax purposes.
- For 2001, all Eastman managers, including Mr. Deavenport, will
participate in the UPP and not in the APP. Accordingly, the portion of
each participant's total pay that was formerly at risk under the APP
will instead be at risk under the UPP.
2000 PAYOUT:
- Payouts under the Annual Performance Plan were 1.428x of target award
(of a possible maximum of 2x).
- Award levels were based upon corporate performance in 2000 that was
above the maximum target level of performance for capital spending,
near the maximum target level of performance for the working capital
measure, and at the target level for earnings from operations.
- The Annual Performance Plan award is included in the amounts reported
for the executive officers in the "Bonus" column of the Summary
Compensation Table.
- In determining actual performance for each measure, the Annual
Performance Plan provides for adjustments by the Compensation Committee
for unusual charges, income items, or other events that are distortive
of financial results. The calculations of earnings from operations,
capital spending, and the working capital measure were adjusted to
exclude the effect of business acquisitions during 2000. Without such
adjustments, the calculated payout would have been 1.049x of target
award.
- The Annual Performance Plan was amended so that, beginning 2000, the
payout to the executive officers named in the Summary Compensation Table
is adjusted for unusual items on the same basis as for all other
employees.
UNIT PERFORMANCE PLAN
Beginning with the 2000 performance year, a new variable compensation
plan, the Unit Performance Plan, was implemented for management-level
employees. The UPP is designed to deliver a portion of annual cash
compensation according to organizational unit performance and the
attainment of individual objectives and expectations. The UPP is intended
to provide additional incentive for superior business and individual
performance, and further to tie the interests of management-level
individuals to performance of the Company's business and the interests of
the Company's shareowners.
KEY FEATURES:
- For 2000, approximately 580 Company managers, including executive
officers, participated.
- The portion of pay "at risk" under the UPP is determined for each
performance year by the Compensation Committee, based on the
recommendation of the Chief Executive Officer. Amounts
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PRELIMINARY PROXY MATERIALS DATED MARCH 1, 2001
SUBJECT TO COMPLETION
at risk under the UPP are in addition to any pay "at risk" under the
Eastman Performance Plan and Annual Performance Plan. For 2000, the
portion of a participant's targeted pay at risk under the Annual
Performance Plan and the UPP was equal to the portion of the targeted
pay that was formerly at risk under the Annual Performance Plan.
- The amount of the award pools from which payouts are made for each
organizational unit are determined by annual performance of the
organizational units for which quantitative performance can be
objectively measured versus pre-set goals for specified measures. The
Compensation Committee establishes organizational unit performance goals
annually.
- For 2000, organizational units whose performance was measured under
the UPP were those in the Company's two reporting segments--Chemicals
and Polymers. The amounts of the award pools for the organizations
supporting the Chemicals and Polymers organizations (e.g., Human
Resources, Financial, etc.) were determined based upon an average of
the performance versus goals for specified measures for the Chemicals
and Polymers organizational units. For 2000, there were 57 separate
organizational units under the UPP.
- For 2000, measures for both the Chemicals and Polymers reporting
segments were: earnings from operations (weighted 70%), capital
expenditures (weighted 15%), and a working capital measure (defined as
trade receivables plus inventory minus trade payables divided by
sales, weighted 15%).
- An award pool is generated for each of the organizational units within
the Company, equal to the aggregate of the UPP pay at risk for each
eligible participant in the organization, multiplied by a performance
factor determined by the Chemicals and Polymers segments' performance
compared to the pre-set performance goals. The performance factor can
range from 0% if organizational unit performance goals are not met, to
200% for specified above-goal performance.
- Management within each organizational unit allocates that organization's
award pool for individual payouts, based upon attainment of individual
objectives and expectations established at the beginning of the
performance period for each individual participant. Maximum potential
for an individual award could exceed an individual's UPP pay at risk,
based on the manager's assessment of individual performance. However,
the sum of all individual awards within an organizational unit cannot
exceed the total award pool for that organization.
- The Compensation Committee may in its discretion defer payment of an
individual's award into the Executive Deferred Compensation Plan if the
Compensation Committee determines that payment of the award could result
in the participant receiving compensation in excess of the maximum
amount deductible by the Company for federal income tax purposes.
- In 2001, Mr. Deavenport will participate in the Unit Performance Plan in
an organizational unit established for the CEO. The Compensation
Committee will establish individual objectives and expectations, and
determine the award level, for the CEO.
2000 PAYOUT:
- 2000 corporate performance resulted in award pools under the Unit
Performance Plan equivalent to 0.6x of target award (of a possible
maximum of 2x) for the Chemicals organizational units and 1.816x of
target award (of a possible maximum of 2x) for the Polymers
organizational units. For organizational units supporting Chemicals and
Polymers organizations, award pools were equivalent to 1.208x of target
award. Payouts to individuals within each organizational unit were based
upon management's assessment of the performance of each individual in
the unit.
- Corporate performance in 2000 was below the target level for the
Chemicals segment and above target level for the Polymers segment.
Chemicals performance was below the minimum threshold
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PRELIMINARY PROXY MATERIALS DATED MARCH 1, 2001
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for earnings from operations, and above the maximum target level for
capital expenditures and working capital. Polymers performance was
above the maximum target level for earnings from operations and
capital expenditures, and below the target level for working capital.
- Except for Mr. Deavenport, who did not participate in the Unit
Performance Plan in 2000, the executive officers named in the Summary
Compensation Table participated in an award pool established for all
executive officers reporting to Mr. Deavenport. The amount of the
award pool for the executive officers was determined by aggregating
their individual pay at risk levels, subject to Chemicals and Polymers
segment performance in 2000. Specifically, the aggregate award pool
amount was based on i) Messrs. Rothwell's and Ferguson's targeted pay
at risk levels and performance against established goals for the
Chemicals and Polymers segments, respectively; and ii) Mr. Rogers' and
Dr. Chitwood's (and the other executive officers') targeted pay at
risk levels and the average of performance versus goals for the
Chemicals and Polymers segments. The total amount of the award pool
for the executive officers was equal to 1.208x of their aggregate
targeted pay at risk under the UPP. Following determination of the
award pool, the CEO assessed individual performance against
established goals and expectations for each member of the executive
team, including executive officers named in the Summary Compensation
Table, and made individual payouts from the award pool. Dr. Chitwood's
payout was based upon his performance against objectives for enhancing
the Company's strategic portfolio; Mr. Ferguson's payout was based
upon the financial performance of the Polymers Group versus targets
and upon his leadership of the Polymers Group; Mr. Rogers' payout was
based upon the overall financial performance of the Company and his
leadership in restructuring the Financial organization; and Mr.
Rothwell's payout was based upon the financial performance of the
Chemicals Group versus targets, his efforts to restructure the
portfolio of Chemicals businesses, and his leadership of the Chemicals
Group.
- Except for Mr. Deavenport, the Unit Performance Plan award is included
in the amounts reported for the executive officers in the "Bonus"
column of the Summary Compensation Table.
- In determining actual performance for each measure, the Unit Performance
Plan provides for adjustments by the Compensation Committee for unusual
charges, income items, or other events that are distortive of financial
results. The calculations of earnings from operations, capital spending,
and working capital were adjusted to exclude the effect of business
acquisitions during 2000. Without such adjustments, the calculated award
pool would have equaled .300x of target award for the Chemicals segment,
1.700x of target award for the Polymers segment, and 1.000x of target
award for the organizational units that support Chemicals and Polymers.
OTHER BONUSES
RECOGNITION AWARD. In 2000, in consideration of his contributions to the
Financial organization, Mr. Rogers received an award of $30,000 under a
program designed to recognize employees making extraordinary contributions
to the Company. See Summary Compensation Table.
BONUS PLANS FOR VENTURES. In 2000, the Company instituted a compensation
program for employees supporting Company initiatives in e-business and
digital business ventures. The program was designed to develop competitive
incentives for employees directly involved in these ventures and to
promote retention of these employees. Participants in this plan may share
in an award pool generated from excess returns actually realized from
investments, with awards vesting over a five-year period. Awards are
allocated on the basis of management's assessment of an employee's
influence on a group of investments. For 2000, one executive officer not
named in the Summary Compensation Table received a bonus under the
program.
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SUBJECT TO COMPLETION
LONG-TERM STOCK-BASED INCENTIVE PAY
EQUITY-BASED COMPENSATION PROGRAM. Equity-based compensation plans are
designed to facilitate employee stock ownership and to make a portion of every
employee's pay dependent on long-term return to all shareowners. Important
aspects of the current equity-based compensation program are:
Common Stock Under ESOP,
ESOP Excess Plan, and
Eastman Investment Plan.... Each year, an amount is contributed or
credited to each employee's ESOP and/or
ESOP Excess Plan account or Eastman
Investment Plan account.
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 under the Company's Omnibus Plans
to provide an incentive for key managers
to maximize return to shareowners
relative to a peer group of chemical
companies over three-year performance
periods. See "Performance
Shares -- Long-Term Performance Subplans"
below.
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 Company managers 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,
managers invest one-half to four times
their target-level total annual cash
compensation in Company stock or stock
equivalents. See "Stock Ownership of
Directors and Executive
Officers -- Common Stock and Common Stock
Units." Normally, an annual review of
progress towards these guidelines is
conducted and reported to the Chief
Executive Officer.
HOW STOCK-BASED INCENTIVE PAY LEVELS ARE DETERMINED. The Compensation
Committee establishes the size and other terms of annual option awards under the
current stock option program, and the number of performance shares under the
Long-Term Performance Subplans ("LTPSs"), by considering recommendations from
outside compensation consultants based upon long-term compensation reported by
the peer companies in the chemical industry described above under "How Base Pay
and Variable Pay Levels are Determined." These stock options are granted, and
performance shares are awarded, at a level so that the estimated value of
normalized annual option grants and LTPS target award levels, as a proportion of
total annual compensation, approximates the median of the range of similar
compensation of the compared companies. In determining the size of option
awards, the Company utilizes the services of an external compensation consultant
to derive approximate values of options using a variation of the Black-Scholes
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SUBJECT TO COMPLETION
option-pricing model. In addition, in order to recognize certain performance or
provide additional incentive to achieve specific business objectives, the
Compensation Committee from time-to-time awards stock-based compensation in
addition to the regular option and performance share awards.
The estimated current values of total long-term stock-based incentive pay
for 2000 range from approximately 13% of total compensation at lower levels of
management to approximately 65% of total compensation for the Chief Executive
Officer.
STOCK-BASED INCENTIVE PAY FOR 2000
STOCK OPTIONS AND RESTRICTED STOCK:
- 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
are Determined."
- During 2000, the Compensation Committee determined that the targeted
level of equity-based incentive pay was below competitive pay levels,
and increased the level of equity compensation -- stock options and
performance shares -- to Eastman managers.
- Options granted in 2000 have an exercise price equal to 100% of the fair
market value of the underlying common stock as of the date of grant.
- Options granted in 2000 generally expire 10 years from the date of
grant.
- Upon the commencement of his employment with the Company in August 1999,
Mr. Rogers was granted a special option to purchase 192,000 shares of
Eastman common stock at an exercise price of $51.25. This option has a
term of 10 years and vested and became exercisable as to 50% of the
underlying shares upon the commencement of his employment with the
Company and as to the remaining 50% upon the first anniversary of his
employment date. Also in August 1999, Mr. Rogers was awarded 11,300
restricted shares of common stock, which restrictions lapsed on the
first anniversary of his employment. In August 2000, he was awarded an
additional 11,300 restricted shares of common stock, with restrictions
lapsing on the second anniversary of his employment. Subject to
continued employment with the Company, Mr. Rogers will be awarded 11,300
restricted shares of common stock on the second anniversary of his
employment with the Company, with restrictions lapsing on the third
anniversary of his employment date.
- The Compensation Committee also awarded to Dr. Chitwood an additional
option to purchase 15,000 shares of Eastman common stock in recognition
of his leadership of key initiatives relating to the Company's business
portfolio.
PERFORMANCE SHARES -- LONG TERM PERFORMANCE SUBPLANS:
- Performance shares were awarded to 39 key managers (including the
executive officers in the Summary Compensation Table) under an LTPS of
the Omnibus Plan.
- 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 are Determined."
- Performance is measured by the Company's total return to shareowners
(change in stock price plus dividends declared during the three-year
performance period, assuming reinvestment of dividends) relative to that
of the companies identified in the Performance Graph.
- Currently, payouts are based upon the Company's position in a ranking of
the unweighted total return to shareowners of the compared companies.
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- If earned, awards are paid after the end of the performance period in
unrestricted shares of Eastman common stock, or participants may
irrevocably elect in advance to defer the award payout into the
Executive Deferred Compensation Plan.
- The payouts reported in the Summary Compensation Table for Messrs.
Deavenport, Ferguson, and Rothwell and Dr. Chitwood for the 1998-2000
LTPS performance period represent 150% of the target award (of a
possible maximum of 200% of the target award) based upon the Company's
total shareowner return ranking of 6th of the compared companies for the
performance period. Mr. Rogers was first awarded performance shares for
the 2000-2002 performance period, and was not eligible to receive a
payout for the performance period ending in 2000.
The total return comparisons under the Long Term Performance Subplans
differ from that shown in the Performance Graph. For LTPS purposes, total
percentage return on the common stock for the applicable three-year period
is ranked with the total percentage returns on the common shares of each
of the LTPS peer companies. The Performance Graph, on the other hand,
compares the cumulative total return on an initial fixed investment in the
Company's common stock and in an index comprised of the peer companies as
a group, with the return of each component issuer weighted according to
the respective issuer's market capitalization at the beginning of each
period for which a return is indicated.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
The Compensation Committee determines the compensation of the Company's
Chief Executive Officer in substantially the same manner as the compensation for
other executive officers. Following a review of base salary and variable
compensation of chief executive officers of comparable companies, and
considering the continued trend in increasing CEO compensation at these
companies, as well as the deferral of base pay increases for the Company's named
executive officers in 1999, Mr. Deavenport's base salary and amount of pay at
risk were increased in 2000 to ensure a competitive level of pay with these
companies for comparable performance. Accordingly, during 2000 his annual base
pay increased by $215,000 and his amount of pay at risk was increased from 40%
to 45%. See "How Base Pay and Variable Pay Levels are Determined," and "Cash
Compensation for 2000 -- Base pay."
In March 2001, Mr. Deavenport received an Annual Performance Plan award in
the amount of $1,028,160 and an award of $142,875 under the Eastman Performance
Plan. Mr. Deavenport's awards were based upon the same performance versus goals
in 2000 as were all other awards to other Company employees under the Annual
Performance Plan and Eastman Performance Plan. See "Cash Compensation for
2000 -- Variable pay."
Mr. Deavenport received an award of 23,800 performance shares under the
LTPS for the 2000-2002 performance period, which represents approximately 60% of
his stock-based incentive pay for 2000. The other portion of Mr. Deavenport's
stock-based incentive pay for 2000 was in the form of an option to purchase
65,000 shares of Eastman common stock with an exercise price equal to the grant
date market price of the underlying common stock. The size and terms of the
option award and the award of performance shares were determined as described
above under "Long-Term Stock-Based Incentive Pay -- How Stock Based Incentive
Pay Levels are Determined."
In February 2001, Mr. Deavenport received a payout for the 1998-2000 LTPS
performance period equal to 16,350 shares, which represents 150% of his target
award. Such payout was based upon the same relative total shareowner returns as
were the other payouts under the 1998-2000 LTPS. See "Performance Shares -- Long
Term Performance Subplans" above.
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OMNIBUS BUDGET RECONCILIATION ACT OF 1993
The Compensation Committee intends to continue to maximize the tax
deductibility of compensation paid to the Company's Chief Executive Officer and
other executive officers while maintaining the flexibility to compensate the
officers in accordance with the Company's compensation policies.
Section 162(m) of the Internal Revenue Code enacted pursuant to the Omnibus
Budget Reconciliation Act of 1993 generally limits the deductibility to the
Company of annual compensation (other than qualified "performance-based"
compensation) in excess of $1 million paid to each of the Company's five highest
paid executive officers. Base salaries, variable compensation under the Annual
Performance Plan, Eastman Performance Plan, and Unit Performance Plan, any bonus
payments outside the Eastman Performance Plan, Annual Performance Plan, and Unit
Performance Plan, and stock and stock-based compensation without performance
conditions are generally subject to the $1 million limit on deductible
compensation.
Based on transition rules under Section 162(m), compensation attributable
to stock options granted and performance shares awarded under the Company's 1994
Omnibus Plan prior to the approval by shareowners of the 1997 Omnibus Plan is
expected to qualify for deductibility under Section 162(m). The Eastman
Performance Plan, the Annual Performance Plan, and the Unit Performance Plan
allow the Compensation Committee to require, and Long Term Performance Subplans
under the Omnibus Plans and outstanding restricted stock awards under the
Omnibus Plans each provide for, the deferral of compensation into the EDCP to
the extent that payout or vesting would result in the recipient receiving
compensation in excess of the $1 million cap under Section 162(m). Based on a
review of developments under Section 162(m), the Company adopted the 1997
Omnibus Plan and established certain amendments to the Eastman Performance Plan
and the Annual Performance Plan, and these plans were approved by shareowners in
1997. The 1997 Omnibus Plan continues to meet the requirements of Section 162(m)
with respect to stock option and performance share awards. To provide additional
flexibility consistent with the Company's current compensation philosophy and
program, the Compensation Committee amended the Annual Performance Plan and the
Eastman Performance Plan in 2000 so that adjustments to financial results for
unusual charges, income items, or other events distortive of financial results
would apply on the same basis for all employees. As a result, annual variable
pay under the Eastman Performance Plan and Annual Performance Plan is no longer
"performance-based" under Section 162(m) because the amount of payouts under
these plans may in some circumstances be subject to the discretion of the
Compensation Committee. Annual variable pay under the Unit Performance Plan is
not "performance-based" under Section 162(m) because payouts, if any, depend in
part upon individual performance of participants.
For 2000, the Compensation Committee deferred payouts to Mr. Deavenport
under the Eastman Performance Plan and the Annual Performance Plan that
otherwise would have resulted in non-deductible compensation. The Compensation
Committee will continue to consider the deferral of any payouts under the
Eastman Performance Plan, Annual Performance Plan, and Unit Performance Plan to
the extent that such compensation would not be deductible to the Company.
Compensation and Management Development Committee
Lee Liu (Chair)
Jerry E. Dempsey
Donald W. Griffin
Marilyn R. Marks
John A. White
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SUBJECT TO COMPLETION
PERFORMANCE GRAPH
The following graph compares the cumulative total return on Eastman common
stock from December 31, 1995 through December 31, 2000 to that of the Standard &
Poor's 500 Stock Index and a group of peer issuers in the chemical industry. The
peer group consists of the 16 chemical companies which meet three objective
criteria: (i) common shares traded on a major trading market; (ii) similar lines
of business to those of the Company; and (iii) more than $1 billion in annual
sales. Cumulative total return represents the change in stock price and the
amount of dividends received during the indicated period, assuming reinvestment
of dividends. The graph assumes an investment of $100 on December 31, 1995. The
data in the graph have been provided by Standard & Poor's Institutional Market
Services. The stock performance shown in the graph is included in response to
SEC requirements and is not intended to forecast or to be indicative of future
performance.
COMPARISON OF TOTAL RETURN TO SHAREOWNERS
EASTMAN CHEMICAL
COMPANY S&P 500 INDEX PEER GROUP(1)
---------------- ------------- -------------
12/31/1995 100 100 100
12/31/1996 91.13 122.96 121.93
12/31/1997 101.18 163.98 155.08
12/31/1998 78.49 210.85 134.79
12/31/1999 86.97 255.21 170.06
12/31/2000 92.50 231.98 141.97
(1) The peer group for 2000 consists of the following issuers: Air Products and
Chemicals, Inc.; Crompton Corporation (formerly Crompton and Knowles
Corporation); Cytec Industries, Inc.; The Dow Chemical Company; E. I. du
Pont de Nemours and Company; H. B. Fuller Company; The Geon Company; Great
Lakes Chemical Corporation; Hercules Incorporated; Imperial Chemical
Industries PLC; Lyondell Chemical Company; Millennium Chemicals Inc.; Rohm
and Haas Company; Solutia Inc.; Union Carbide Corporation; and Wellman, Inc.
M.A. Hanna Company, Morton International, Inc. and Witco Corporation, which
were included in the peer group in the Company's proxy statement last year,
have been excluded from the Company's peer comparison group. In accordance
with SEC requirements, the return for each issuer has been weighted
according to the respective issuer's stock market capitalization at the
beginning of each period for which a return is indicated.
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APPENDIX A -- AUDIT COMMITTEE CHARTER
FUNCTION OF THE AUDIT COMMITTEE
The Audit Committee is appointed by the Board of Directors to assist the
Board in fulfilling its oversight responsibilities relating to:
- the integrity of the financial statements of the corporation;
- the Corporation's system of internal controls; and
- the independence and performance of the Corporation's internal and
outside auditors.
The function of the Audit Committee is oversight. The management of the
Corporation is responsible for the preparation, presentation and integrity of
the Corporation's financial statements, and is responsible for maintaining
appropriate accounting and financial reporting principles and policies and
internal controls and procedures designed to assure compliance with accounting
standards and applicable laws and regulations. The internal auditing department
examines and evaluates the adequacy and effectiveness of the Corporation's
system of internal controls. The outside auditor is responsible for planning and
carrying out a proper audit and reviews in accordance with generally accepted
auditing standards. The Audit Committee has the powers and responsibilities set
forth in this Charter, but not the duty to plan or conduct audits or to
determine that the Corporation's financial statements are complete and accurate
and are in accordance with generally accepted accounting principles. While the
Audit Committee provides an avenue for communication among the internal auditing
department, the outside auditors, and management and the Board of Directors, it
is not the responsibility of the Audit Committee to conduct investigations, to
resolve disputes, if any, between management and the outside auditor or to
assure compliance with laws.
COMPOSITION AND MEETINGS OF THE AUDIT COMMITTEE
The Audit Committee will consist of at least three Board members. Each
member of the Audit Committee must be independent of management and free from
any relationship with the Corporation that would interfere with the exercise of
independent judgment as an Audit Committee member. In determining independence,
the Board will observe the requirements of the New York Stock Exchange.
Each member of the Audit Committee must be "financially literate" or must
become "financially literate" within a reasonable period of time after
appointment to the Audit Committee. The Board will determine, in its business
judgment, whether a director meets the financial literacy requirement.
At least one member of the Audit Committee must have "accounting or related
financial management expertise", as determined by the Board in its business
judgment.
In addition to such meetings of the Audit Committee as may be required to
discuss the matters set forth in this Charter, the Audit Committee shall meet
separately at least annually with management, the director of the internal
auditing department, the outside auditors, and as a Committee to discuss any
matters that the Audit Committee or any of these persons or firms believe should
be discussed privately. In addition, the Audit Committee, or at least its Chair,
shall communicate with senior financial management and the outside auditors
quarterly to review the Corporation's interim unaudited financial statements and
significant findings, if any, based upon the auditors' limited review
procedures.
OUTSIDE AUDITOR
The outside auditor for the Corporation is ultimately accountable to the
Board and the Audit Committee. The Audit Committee and the Board have the
ultimate authority and responsibility to select, evaluate and, where
appropriate, replace the outside auditor. Alternatively, the Audit Committee and
the Board may nominate the outside auditor to be proposed for shareowner
approval or appoint such auditor subject to ratification by shareowners.
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SUBJECT TO COMPLETION
POWERS AND RESPONSIBILITIES OF THE AUDIT COMMITTEE
The Audit Committee will:
- REVIEW AND RECOMMEND OUTSIDE AUDITORS. Review the performance of the
outside auditors and recommend to the Board annually, and at other
appropriate times, the firm to be retained as the Corporation's outside
auditors.
- REVIEW INDEPENDENCE OF OUTSIDE AUDITORS. In connection with recommending
the firm to be retained as the Corporation's outside auditors, review the
information provided by management and the outside auditors relating to
the independence of such firm, including, among other things, information
related to the non-audit services provided and expected to be provided by
the outside auditors.
The Audit Committee is responsible for: (i) ensuring that the outside
auditor submits on a periodic basis, and at least annually, to the Audit
Committee a formal written statement delineating all relationships
between the auditor and the Corporation consistent with Independence
Standards Board Standard No. 1, (ii) actively engaging in dialogue with
the outside auditor with respect to any disclosed relationship or
services that may impact the objectivity and independence of the outside
auditor and (iii) recommending that the Board take appropriate action in
response to the outside auditors' report to satisfy itself of the outside
auditors' independence.
- REVIEW COMPENSATION OF OUTSIDE AUDITORS. Review the fees paid to the
outside auditors for audit and non-audit services.
- REVIEW AUDIT PLAN. Review with the outside auditors their plans for, and
the scope of, their annual audit and other examinations.
- REVIEW ANNUAL FINANCIAL STATEMENTS AND AUDIT RESULTS. Review with
appropriate officers of the Corporation and the outside auditors the
annual audited financial statements to be included in the Corporation's
Annual Report on Form 10-K and Annual Report to Shareowners. Review with
the outside auditors the report of their annual audit, including matters
required to be discussed by Statement on Auditing Standards No. 61, as
may be modified or supplemented, relating to the conduct of the audit and
the quality and appropriateness of the Corporation's accounting
principles as applied in its financial reporting, and the accompanying
management letter, if any, and including whether any restrictions have
been placed on the scope of their activities or if there has been any
lack of adequate response to their recommendations. Based upon these
discussions and reviews, and on its assessment of the independence of the
outside auditor, the Audit Committee will advise the Board of Directors
whether it recommends that the audited financial statements be included
in the Annual Report on Form 10-K and Annual Report to Shareowners.
- REVIEW QUARTERLY FINANCIAL STATEMENTS. Review, prior to the
Corporation's public release of quarterly earnings, through the Audit
Committee Chairman or the Committee as a whole, with appropriate officers
of the Corporation and the outside auditors the quarterly financial
statements to be included in the Corporation's Quarterly Reports on Form
10-Q, and discuss with the outside auditors their reviews of the
Corporation's quarterly financial statements conducted in accordance with
Statement on Auditing Standards No. 71, and the matters, if any, required
to be discussed by Statement on Auditing Standards No. 61, as may be
modified or supplemented.
- REVIEW APPOINTMENT OF DIRECTOR OF INTERNAL AUDITING. Review the
appointment and replacement of the director of the internal auditing
department.
- REVIEW INTERNAL AUDIT PLANS. Review with the director of the internal
auditing department and appropriate members of the staff of the internal
auditing department the plans for and the scope of their ongoing audit
activities.
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PRELIMINARY PROXY MATERIALS DATED MARCH 1, 2001
SUBJECT TO COMPLETION
- REVIEW INTERNAL AUDIT REPORTS. Review with the director of the internal
auditing department and appropriate members of the staff of the internal
auditing department the periodic reports of the audit activities,
examinations and results thereof of the internal auditing department.
- REVIEW SYSTEMS OF INTERNAL ACCOUNTING CONTROLS. Review with the outside
auditors, the director of the internal auditing department, the Chief
Financial Officer and the Controller and, if and to the extent deemed
appropriate by the Chairman of the Audit Committee, members of their
respective staffs, the adequacy of the Corporation's internal accounting
controls and of the Corporation's financial, auditing and accounting
organizations and personnel.
- REVIEW LEGAL MATTERS. On a periodic basis, and at least annually, review
with the Corporation's General Counsel any legal matters that could have
a material impact on the financial statements.
- SECURITIES EXCHANGE ACT SECTION 10A. Obtain from the outside auditor
assurance that it will inform the Corporation's management concerning any
information indicating that an illegal act has or may have occurred that
could have a material effect on the Corporation's financial statements,
and assure that such information has been conveyed to the Audit
Committee.
- REVIEW CORPORATE COMPLIANCE PROGRAM. Review on a periodic basis, and at
least annually, management's monitoring of the Corporation's Corporate
Compliance Program.
- REVIEW OTHER MATTERS. Review such other matters in relation to the
accounting, auditing and financial reporting practices and procedures of
the Corporation as the Audit Committee may, in its own discretion, deem
desirable in connection with the review functions described above.
- BOARD REPORTS. Report its activities to the Board in such manner and at
such times as it deems appropriate.
ANNUAL REPORT
The Audit Committee will prepare, with the assistance of management,
including the General Counsel and the director of the internal auditing
department, and the outside auditors, a report for inclusion in the
Corporation's proxy statement relating to the annual meeting of shareowners at
which directors are to be elected in accordance with the rules of the Securities
and Exchange Commission.
ANNUAL REVIEW OF CHARTER
The Audit Committee will review and reassess, with the assistance of
management, including the General Counsel and the director of the internal
auditing department, and the outside auditors, the adequacy of the Audit
Committee's Charter at least annually. The Audit Committee will submit the
Charter to the Board of Directors for approval and have the document included in
the Corporation's annual meeting proxy statement at least every three years in
accordance with the rules of the Securities and Exchange Commission.
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PRELIMINARY PROXY MATERIALS DATED MARCH 1, 2001
SUBJECT TO COMPLETION
APPENDIX B -- PROPOSED CERTIFICATE OF AMENDMENT TO AMENDED
AND RESTATED CERTIFICATE OF INCORPORATION TO
EFFECT REVERSE/FORWARD STOCK SPLIT
CERTIFICATE OF AMENDMENT
TO
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
EASTMAN CHEMICAL COMPANY
Pursuant to Section 242 of the General Corporation Law of the State of Delaware
* * *
EASTMAN CHEMICAL COMPANY, a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of the Corporation,
resolutions were duly adopted setting forth a proposed amendment to the Amended
and Restated Certificate of Incorporation of the Corporation, declaring said
proposed amendment to be advisable and directing that said proposed amendment be
considered at the next annual meeting of the stockholders of the Corporation;
and that the resolution setting forth said proposed amendment is as follows:
RESOLVED, that the Amended and Restated Certificate of Incorporation of the
Corporation be amended by adding to Article IV thereof a new Section 4.4 at the
end thereof, which Article IV, Section 4.4 is to read in its entirety as
follows:
"4.4. (1) Effective at 6:00 p.m. (Eastern Time) on the effective date
of the certificate of amendment adding this Section 4.4 to the Certificate
of Incorporation (the "Reverse Split Effective Time"), each share of the
Common Stock, par value $.01 per share, of the Corporation outstanding at
the Reverse Split Effective Time shall, without any action on the part of
the holder thereof, automatically be reclassified and changed into one
tenth (1/10th) of a share of Common Stock, par value $.01 per share, of the
Corporation; provided, however, that (i) if the foregoing reverse stock
split (the "Reverse Split") would result in the record account of any
holder of Common Stock having a number of shares of Common Stock that is,
in the aggregate, less than one (1) share ("Fractional Shares"), such
Fractional Shares shall, without any action on the part of the holder
thereof, automatically be canceled in the Reverse Split; and (ii) in the
Reverse Split, all of the Fractional Shares shall automatically be
converted into the right to receive the Trading Value thereof upon
surrender by the holder thereof of the certificate or certificates
representing such Fractional Shares. For purposes hereof, the term "Trading
Value" of any Fractional Shares shall mean the product of: (A) the average
of the closing sale prices, as reported by The New York Stock Exchange
("NYSE"), per share of the Common Stock on each of the twenty (20)
consecutive NYSE trading days that ends with the NYSE trading day that
immediately precedes the date of the Reverse Split Effective Time,
multiplied by (B) the number of shares of Common Stock that were converted
into such Fractional Shares as a result of the Reverse Split. From and
after the Reverse Split Effective Time, each holder of Fractional Shares
shall have no further interest as a stockholder in the Corporation in
respect of such Fractional Shares.
(2) Effective at 6:01 p.m. (Eastern Time) on the effective date of the
certificate of amendment adding this Section 4.4 to the Certificate of
Incorporation (the "Forward Split Effective Time"): (i) each whole share of
the Common Stock, par value $.01 per share, of the Corporation outstanding
at the Forward Split Effective Time (after giving effect to the Reverse
Split at the Reverse Split Effective Time) shall, without any action on the
part of the holder thereof, automatically be reclassified and changed into
ten (10) shares of Common Stock, par value $.01 per share, of the
Corporation; and
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PRELIMINARY PROXY MATERIALS DATED MARCH 1, 2001
SUBJECT TO COMPLETION
(ii) fractions of a share outstanding at the Forward Split Effective Time
(after giving effect to the Reverse Split at the Reverse Split Effective
Time) shall be proportionately reclassified and changed."
SECOND: That thereafter, pursuant to resolutions of the Board of Directors
of the Corporation, an annual meeting of the stockholders of the corporation was
duly called and held, upon notice in accordance with Section 222 of the General
Corporation Law of the State of Delaware, at which meeting the number of shares
necessary to authorize said amendment were voted in favor of said amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by its officer thereunto duly authorized this day of May,
2001.
By:
------------------------------------
Earnest W. Deavenport, Jr.
Chairman and Chief Executive Officer
ATTEST:
By:
------------------------------------
Theresa K. Lee
General Counsel and Secretary
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PRELIMINARY PROXY MATERIALS DATED MARCH 1, 2001
SUBJECT TO COMPLETION
FORM OF PAPER PROXY
(FRONT)
- ------------------------------------------------------------------------------------------------------------------------------------
The Board of Directors Recommends a vote FOR proposals 1, 2, and 3 and AGAINST 4 and 5
- ------------------------------------------------------------------------------------------------------------------------------------
Please mark
your vote as
indicated in [x]
this sample
1. Election of Directors -- (see reverse) For Withhold For all 4. Adoption of Shareowner Proposal For Against Abstain
01 J. Arnelle 02 J. White All Except: to Study Health Risks From [ ] [ ] [ ]
03 P. Wood [ ] [ ] [ ] Cellulose Acetate Fibers
To withhold authority to vote for less than all nominees, mark "For all Except" and
write the name(s) of individual(s) for whom authority is withheld.
2. Amendment of Certificate of Incorporation For Against Abstain 5. Adoption of Shareowner Proposal For Against Abstain
to Effect 10:1 Reverse/Forward Stock Split [ ] [ ] [ ] to Issue Report Concerning [ ] [ ] [ ]
Emission of "Greenhouse Gases"
and Climate Change
3. Ratification of Appointment of PriceWater- For Against Abstain
houseCoopers LLP as Independent Accountants [ ] [ ] [ ] Date / /2000
--------------------------------------
--------------------------------------
Signature
--------------------------------------
Signature, If Jointly Held
If acting as Attorney, Executor, Trustee or in other
representative capacity, please sign name and title
- ------------------------------------------------------------------------------------------------------------------------------------
*FOLD AND DETACH HERE AND READ THE REVERSE SIDE*
VOTE BY TELEPHONE OR INTERNET
QUICK * * * EASY * * * IMMEDIATE
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.
VOTE BY PHONE: Call 1-800-293-5876. You will be asked to enter a CONTROL NUMBER located in the box in the lower right of this form.
OPTION A: To vote as the Board of Directors recommends on ALL proposals: Press 1
OPTION B: If you choose to vote on each item separately, press 0. You will hear these instructions:
Item 1: To vote FOR ALL nominees, press 1; to WITHHOLD FOR ALL nominees, press 9
To WITHHOLD FOR AN INDIVIDUAL nominee, press 0 and listen to the instructions
Item 2: To vote FOR, press 1; AGAINST, press 9; ABSTAIN, press 0. The instructions are the
same for all remaining items to be voted.
When asked, you must confirm your vote by pressing 1.
VOTE BY INTERNET: ACCESS THIS WEB ADDRESS: http://www.proxyvoting.com/eastman
IF YOU VOTE BY PHONE OR INTERNET -- DO NOT MAIL THE PROXY CARD
------
THANK YOU FOR VOTING
-----------------------------
| CONTROL NUMBER |
| 123 456 789 |
-----------------------------
for Telephone/Internet Voting
- ------------------------------------------------------------------------------------------------------------------------------------
*FOLD AND DETACH HERE*
EASTMAN 2001 ANNUAL MEETING OF SHAREOWNERS
May 3, 2001
2001 ANNUAL MEETING Eastman Chemical Company
11:00 a.m., Employee Center
ADMISSION TICKET 400 South Wilcox Drive, Kingsport, TN
(423) 229-4647
PLEASE PRESENT THIS TICKET FOR ADMISSION.
63
PRELIMINARY PROXY MATERIALS DATED MARCH 1, 2001
SUBJECT TO COMPLETION
FORM OF PAPER PROXY
(BACK)
EASTMAN CHEMICAL COMPANY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREOWNERS TO BE HELD ON MAY 3, 2001
The undersigned hereby appoints Theresa K. Lee and James P. Rogers 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, all the
shares of stock of Eastman Chemical Company standing in the name of the
undersigned with all the powers which the undersigned would possess if present
at the Annual Meeting of Shareowners of the Company to be held May 3, 2001 or
any adjournment or postponements thereof.
Said proxies will vote on the proposals set forth in the Notice of Annual
Meeting and Proxy Statement as specified on the reverse side of this card and
are authorized to vote in their discretion on any other business that may come
properly before the meeting. IF A VOTE IS NOT SPECIFIED, SAID PROXIES WILL VOTE
FOR ITEMS 1, 2, AND 3 AND AGAINST ITEMS 4 AND 5.
Nominees for election of three directors to serve in the class for which the
term in office expires at the Annual Meeting of Shareowners in 2004 and until
their successors are duly elected and qualified:
01) H. Jesse Arnelle
02) John A. White
03) Peter M. Wood
(Continued, and to be marked, dated and signed, on the other side.)
- --------------------------------------------------------------------------------
--FOLD AND DETACH HERE--
YOUR VOTE IS IMPORTANT
You can vote in one of three ways:
1. Call toll-free 1-800-293-5876 on a Touch-Tone telephone and follow the
instructions on the reverse side. There is NO CHARGE to you for this call.
OR
2. Vote by Internet at this Internet Address: http://www.proxyvoting.com/eastman
OR
3. Mark, sign and date your proxy card and return it promptly in the enclosed
envelope.
PLEASE VOTE