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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:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Eastman Chemical Company
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
N/A
- --------------------------------------------------------------------------------
(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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[EASTMAN LOGO]
March 27, 1999
DEAR FELLOW SHAREOWNER:
Our Annual Meeting will be held at our Employee Center, located at 400
South Wilcox Drive, in Kingsport, Tennessee, on May 6, 1999, at 10:00 a.m. Doors
to the meeting will open at 9:00 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 form of proxy). A
copy of Eastman's 1998 Annual Report accompanies these materials.
We are pleased to offer two new enhancements to our proxy solicitation and
Annual Meeting process this year.
- First, we enabled shareowners to elect to receive the proxy materials and
the Annual Report electronically via the Internet. This helps us hold
down proxy solicitation and printing costs, and we also hope that those
of you who chose this alternative found it convenient and useful.
- Second, we are offering two new ways to vote your shares by proxy, in
addition to the traditional paper proxy card. You may vote via the
Internet by accessing ADP's website at www.proxyvote.com, or you may vote
by telephone by calling 1-800-690-6903 (if you are the "record holder" of
shares registered in your name on the Company's stock ownership and
transfer records) or 1-800-454-8683 (if you are the beneficial owner of
shares held in "street name" by a broker, bank, or other record holder).
In either case, you will need the Control Number that is imprinted on
your personalized proxy card (or, if you received the proxy materials
from a broker or bank, your voting instruction form) or that you have
received from ADP electronically.
WHETHER YOU CHOOSE TO VOTE BY PROXY CARD, TELEPHONE, OR COMPUTER, IT WOULD
HELP IF YOU VOTED AS SOON AS POSSIBLE. Your vote is important, 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. If you are a record holder and have received our proxy materials by
mail in paper form, an admission ticket is included with the enclosed proxy
card. If you received our proxy materials electronically via the Internet or
from a broker or bank and do not have an admission ticket and wish to attend the
meeting, please call (423) 224-0905.
Thank you for your support of our Company.
Sincerely,
/s/ EARNIE DEAVENPORT
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 6, 1999
---------------------
To Our Shareowners:
The 1999 Annual Meeting of Shareowners (the "Annual Meeting") 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
6, 1999, at 10:00 a.m., local time, for the following purposes:
1. ELECT DIRECTORS. To consider and act upon the election of four
directors to serve in the class for which the term in office expires at the
Annual Meeting of Shareowners in 2002 and until their successors are duly
elected and qualified;
2. APPROVE 1999 DIRECTOR LONG-TERM COMPENSATION PLAN. To consider and
act upon the proposed 1999 Director Long-Term Compensation Plan;
3. 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 2000;
4. SHAREOWNER PROPOSAL. If properly presented, to consider and act
upon the shareowner proposal set forth in the accompanying Proxy Statement,
which is opposed by the Board of Directors; and
5. 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, 1999 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 the proxy card (if you
received the proxy materials in paper form) or voting instruction form
(if you received the proxy materials from a broker or bank) or that
you have received from ADP electronically (if you received the proxy
materials electronically);
- VISIT THE ADP WEBSITE at www.proxyvote.com; or
- MARK, SIGN, DATE AND PROMPTLY RETURN YOUR PROXY CARD in the
postage-paid envelope provided (if you received the proxy materials in
paper form).
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
Secretary
March 27, 1999
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PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREOWNERS OF
EASTMAN CHEMICAL COMPANY
TO BE HELD ON MAY 6, 1999
INTRODUCTION
PROXY STATEMENT AND ANNUAL MEETING
This Proxy Statement is dated March 27, 1999 and is first being mailed and
delivered electronically to Eastman shareowners, and made available on the
Internet (www.eastman.com), on or about April 1, 1999. 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 6, 1999, and at any adjournments or postponements
thereof. At the Annual Meeting, shareowners will be asked to vote on four
proposals, which are 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 Allan R. Rothwell, the Company's Chief Financial Officer
and Harold L. Henderson, the Company's General Counsel, 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 1-800-690-6903 and use the Control Number on your
personalized proxy card or that you received electronically from ADP;
- Via Internet: visit the ADP web site at www.proxyvote.com and use the
Control Number on your personalized proxy card or that you received
electronically from ADP; or
- By mail: if you received your proxy materials in paper form, 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 providers and
telephone companies, 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 being 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, 1999 as the record date (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 at the Annual Meeting.
As of the Record Date, there were 78,172,937 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 four 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 four 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 a majority of the votes cast is required for
approval of the proposed 1999 Director Long-Term Compensation Plan, ratification
of the appointment of independent accountants, and adoption of the shareowner
proposal. With respect to each proposal, 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 the 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 of record by
mail and electronic delivery, proxies may be solicited by 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 information concerning quantities
of proxy materials and Annual Reports needed to supply such materials to
beneficial owners, and the Company reimburses them for the expense of mailing
proxy materials and Annual Reports to such persons. Kissel-Blake, Inc. has been
retained by the Company to aid in the solicitation of proxies, at a cost of
$9,500 plus expenses.
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MATTERS RAISED AT THE ANNUAL MEETING NOT INCLUDED IN THIS PROXY STATEMENT
The Company's management does not know of 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, 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 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 this criteria, shareowners had until March 7, 1999, to provide
notice of any matters to be presented at the Annual Meeting.
SHAREOWNER PROPOSALS FOR THE 2000 ANNUAL MEETING
In accordance with rules of the Securities and Exchange Commission (the
"SEC"), if you want to submit a proposal for presentation at the 2000 Annual
Meeting of Shareowners, it must be received by the Company at its principal
executive offices on or before November 27, 1999 in order to be included in the
Company's proxy materials relating to the 2000 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
2000 Annual Meeting is held on Thursday, May 4, 2000 (the regular day called for
by the Bylaws), then such advance notice would be timely if delivered on or
before March 5, 2000.
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
recommended by shareowners.
ANNUAL REPORT TO SHAREOWNERS AND ANNUAL REPORT ON FORM 10-K
The Company's Annual Report to Shareowners for 1998, including consolidated
financial statements for the year ended December 31, 1998, is being mailed to
shareowners and made available via the Internet concurrently with this Proxy
Statement and does not form any part of the proxy solicitation material. Upon
the written request of any shareowner, the Company will furnish without charge
(other than for exhibits) a copy of the Company's Annual Report on Form 10-K for
the year ended December 31, 1998, including consolidated financial statements,
as filed with the SEC. Requests may be made to Eastman Chemical Company, P.O.
Box 431, Kingsport, Tennessee 37662-5371, Attention: Corporate Information
Center. 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).
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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). Four directors are in the class for which the term in office expires
at the Annual Meeting; these four directors have each been nominated for
re-election for a new three-year term. The terms of the other six directors
continue after the Annual Meeting although, under the current Board retirement
policy, Mr. Mitchell is retiring from the Board at the Annual Meeting. The Board
has elected Donald W. Griffin to fill the vacancy to be created by Mr.
Mitchell's retirement, effective upon Mr. Mitchell's resignation. Mr. Griffin
will serve in the class for which the term in office expires at the Annual
Meeting of Shareowners in 2000.
The shareowners are being asked to vote on the election of four directors
to the class for which the term of office shall expire at the Annual Meeting of
Shareowners in 2002 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 four 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 COMPANY'S BOARD OF DIRECTORS BY
THE COMMITTEE ON DIRECTORS OF THE BOARD. THE BOARD OF DIRECTORS RECOMMENDS THAT
YOU VOTE "FOR" ELECTION OF THE FOUR NOMINEES IDENTIFIED BELOW.
Set forth below is certain information regarding each current director and
Mr. Griffin, 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 and similar positions presently held by him or her in
certain other companies, organizations, or associations; and his or her age.
Messrs. Deavenport and Bourne were first elected to the Board in November 1993;
Miss Marks, Messrs. Arnelle, Campbell, Liu, and Mitchell, and Dr. White, joined
the Board on January 1, 1994, immediately after completion of the Company's
spin-off from Eastman Kodak Company. Mr. Dempsey was elected to the Board on May
1, 1997, and Mr. Donehower was elected to the Board on February 3, 1998. As
described above, Mr. Griffin is not currently a director, but will fill the
vacancy to be created by Mr. Mitchell's retirement at the Annual Meeting.
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NOMINEES FOR DIRECTOR
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 plastics blow 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 board of directors of Mine Safety Appliances
Company and of Bulley & Andrews Company. He also serves as 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 64.
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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 First American Corporation and Milliken & Company. He also serves
as a director of the Chemical Manufacturers Association, the American Plastics
Council, and the National Association of Manufacturers, on the Board of
Trustees of the Malcolm Baldridge National Quality Award Foundation, and on
the policy committee of the Business Roundtable. Mr. Deavenport is 60.
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[PHOTO] JOHN W. DONEHOWER
Mr. Donehower is Senior Vice President and Chief Financial Officer of
Kimberly-Clark Corporation. 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 board of directors of Allendale
Mutual Insurance Company and Kimberly-Clark De Mexico S.A. de C.V. He is 52.
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[PHOTO] LEE LIU
Mr. Liu is the Chairman of the Board of Interstate Energy Corporation, 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 has been with Iowa
Electric Light & Power Company, predecessor of IES Industries, since 1957. He
is also a member of the boards of directors of Principal Financial Group and
McLeod USA Incorporated. Mr. Liu is 65.
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MEMBERS OF BOARD OF DIRECTORS CONTINUING IN OFFICE
TERM EXPIRING ANNUAL MEETING 2000
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[PHOTO] JERRY E. DEMPSEY
Mr. Dempsey served as Chairman of the Board and Chief Executive Officer of PPG
Industries, Inc. 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, major-
ity-owned subsidiary, Chemical Waste Management, Inc., having served as Presi-
dent and Chief Executive Officer of Chemical Waste Management, Inc. since
1985. Mr. Dempsey is also a member of the board of directors of Navistar
International Corporation. He is 66.
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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 election to the position of President and Chief Operating
Officer in 1994 and to his current positions in 1996. Mr. Griffin is also a
member of the boards of directors of A.C. Nielsen Corporation and Rayonier,
Inc. He also serves as a director of the Chemical Manufacturers Association,
the National Shooting Sports Foundation, the Wildlife Management Institute,
and the Small Arms and Ammunition Manufacturers Institute, and as a trustee of
the University of Evansville and the Buffalo Bill Historical Center. He is 62.
Mr. Griffin is not currently a director of the Company, but has been appointed
to fill the vacancy to be created by Gerald B. Mitchell's retirement at the
Annual Meeting.
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[PHOTO] MARILYN R. MARKS
Miss Marks is Chairman of the Board and Chief Executive Officer of Dorsey
Trailers, Inc., positions she has held since 1987. She was also President of
Dorsey Trailers, Inc. from 1987 to November, 1997. Miss Marks is also a member
of the board of directors of Dana Corporation, and also serves as a director
of the American Trucking Associations Foundation. Miss Marks is 46.
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[PHOTO] GERALD B. MITCHELL
Mr. Mitchell retired from Dana Corporation, a vehicle parts supply company, in
1990, following 44 years of service. From 1980 until his retirement, Mr.
Mitchell was the Chairman of the Board and Chief Executive Officer. Mr.
Mitchell is a member of the boards of directors of West Point-Stevens, Inc.,
Worthington Industries, Inc., and George Weston Ltd. (Canada). He is 71. Under
the Bylaw provision governing Board retirement age, Mr. Mitchell will resign
from the Board at the Annual Meeting.
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TERM EXPIRING ANNUAL MEETING 2001
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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 1997. 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 Waste Management, Inc., FPL Group, Inc., Textron,
Inc., Armstrong World Industries, Inc., and Union Pacific Resources, Inc. He
is 65.
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[PHOTO] R. WILEY BOURNE, JR.
Mr. Bourne is Vice Chairman of the Board and Executive Vice President of the
Company, responsible for all business organizations. He joined the Company in
1959 and was named Executive Vice President in 1989. Mr. Bourne also served as
a Vice President of Eastman Kodak Company from 1986 through 1993. He is also a
member of the board of directors of Unifi, Inc. Mr. Bourne also serves as a
member of the Board of Trustees and vice chairman of the United States Council
for International Business, on the regional advisory Board of First Tennessee
Bank, as a director of the American Industrial Health Council, East Tennessee
State University Foundation, and the Massachusetts Institute of Technology
Society of Sloan Fellows, and on the Board of Trustees of Tennessee Wesleyan
College, the Visiting Committee of the James H. Quillen College of Medicine,
and the Board of Visitors of North Carolina A&T State University. Mr. Bourne
is 61.
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[PHOTO] DR. JOHN A. WHITE
Dr. White is Chancellor of 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 Motorola, Inc.,
Russell Corporation, J.B. Hunt Transport Services, Inc., and Logility, Inc. He
is 59.
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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. Certain committee assignments
will be changed following the Annual Meeting, as indicated below.
AUDIT COMMITTEE. The members of the Audit Committee are Dr. White (Chair)
and Messrs. Arnelle, Campbell, and Donehower. The Audit Committee held four
meetings during 1998. The Audit Committee:
- reviews the interim and annual financial statements;
- annually recommends to the Board of Directors the firm to be engaged as
independent accountants for the Company;
- reviews the scope of, and the reports and findings of, the audit
activities of the independent accountants and of the Company's internal
auditing staff;
- reviews the adequacy of the training of personnel and monitoring of the
internal audit function and the annual compensation paid to the
independent accountants;
- meets separately and privately with the independent accountants and with
the Company's general auditor and chief financial and accounting officers
to ascertain if any restrictions have been placed on the scope of their
activities or if there has been any lack of adequate response to their
recommendations;
- reviews the Company's corporate compliance program; and
- makes periodic reports and recommendations to the Board.
COMMITTEE ON DIRECTORS. The members of the Committee on Directors are
Messrs. Campbell (Chair), Arnelle, Liu and Mitchell. After the Annual Meeting,
the Committee on Directors will consist of Messrs. Campbell (Chair), Arnelle,
Griffin, and Liu. The Committee on Directors held five meetings during 1998. 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 diversity
and skills;
- 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; and
- periodically reviews the Board's committee structure and committee
assignments and recommends to the board any appropriate changes thereto.
COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE. The members of the
Compensation and Management Development Committee (the "Compensation Committee")
are Messrs. Mitchell (Chair), Dempsey, and Liu and Miss Marks. After the Annual
Meeting, the Compensation Committee will consist of Messrs. Liu (Chair) and
Dempsey, Miss Marks, and Dr. White. The Compensation Committee held five
meetings during 1998. The Compensation Committee:
- determines the compensation of employees who are members of the Board;
- determines, based upon the recommendations of the Chairman of the Board,
compensation of the Company's other executive officers;
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- 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, and Liu. The Finance Committee held six
meetings during 1998. 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, and Donehower and Dr. White. After the Annual Meeting,
the Health, Safety & Environmental and Public Policy Committee will consist of
Messrs. Arnelle (Chair), Dempsey, Donehower, and Griffin. The Health, Safety &
Environmental and Public Policy Committee held three meetings during 1998. 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 eight meetings during 1998. Each current
director attended at least 75% of the aggregate of the total number of meetings
of the Board and the total number of meetings held by all committees of the
Board on which he or she served.
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DIRECTOR COMPENSATION
DIRECTORS' ANNUAL COMPENSATION. Each director who is not an employee of
the Company receives an annual retainer fee of $30,000, payable in cash. 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. Directors who are
also employees of the Company receive no Board or committee fees.
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 on a voluntary basis 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. Mr.
Arnelle, Miss Marks, and Dr. White deferred compensation during 1998.
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 forfeit 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 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.
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.
1994 DIRECTOR LONG-TERM COMPENSATION PLAN. Under the Company's 1994
Director Long-Term Compensation Plan ("the Director Long-Term Plan"), each
non-employee director received, upon the later of January 1, 1994 and the first
day of his or her initial term of service as a director, an award of
nonqualified stock options covering shares of Eastman common stock having a fair
market value of $25,000 at the time of grant and an award of restricted shares
having a fair market value of $10,000 at the time of grant. Accordingly, on
January 1, 1994, Miss Marks, Messrs. Arnelle, Campbell, Liu, and Mitchell, and
Dr. White each received
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232 shares of restricted stock and an option to purchase 578 shares of common
stock at $43.2875 per share; on May 1, 1997, Mr. Dempsey received 191 shares of
restricted stock and an option to purchase 476 shares of common stock at
$52.6250 per share; and on February 3, 1998, Mr. Donehower received 163 shares
of restricted stock and an option to purchase 407 shares of common stock at
$61.4625 per share.
Each option has an exercise price equal to the fair market value of the
shares on the date of grant. For purposes of determining the number of shares
underlying and the exercise price of any option and the number of restricted
shares, "fair market value" is determined based on the average of the closing
prices of the shares on the date of grant and the following nine days. One half
of the options vest upon the first anniversary of the date of grant and the
other half upon the second anniversary of the date of the grant. Each option has
a term of ten years. The options provide, with respect to exercises through the
surrender of previously owned shares of common stock, for the issuance of new
"reload" options covering the same number of shares as surrendered in the
exercise (with an exercise price equal to the fair market value of the shares on
the date of exercise of the original option). Restricted shares awarded under
the Director Long-Term Plan vest and become transferable three years from the
date of award if, and only if, the grantee is still a director of the Company at
that time or his or her tenure is terminated by reason of death, disability, or
failure to be reelected by the shareowners. During the restricted period, the
director is entitled to voting and dividend rights with respect to the stock.
The Director Long-Term Plan contains provisions regarding the treatment of
options and restricted stock in the event of a "change in control" (as defined
in the Director Long-Term Plan, generally circumstances in which the Company is
acquired by another entity or its controlling ownership is changed). In such
event, the options and restricted stock generally will be vested, 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. The maximum
number of shares that may be granted or subject to awards under the Director
Long-Term Plan is 60,000, but the Director Long-Term Plan provides that in the
event of certain changes in the capital or capital stock of the Company, the
Committee on Directors shall make appropriate adjustments in the number and kind
of shares that may be issued under the Director Long-Term Plan and any
adjustments or modifications to outstanding awards deemed appropriate by such
Committee. No new grant or award may be made under the Director Long-Term Plan
after December 31, 1998.
The Board of Directors has adopted a new 1999 Director Long-Term
Compensation Plan, subject to shareowner approval at the Annual Meeting, which
is substantially similar to, and intended to replace, the 1994 Director
Long-Term Plan. See "Item 2 -- Approval of the 1999 Director Long-Term
Compensation Plan."
1996 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
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 corporate structure affecting common stock. No grant may be made under the
Director Stock Option Plan after May 2, 2006.
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 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
(defined as the closing price per share reported by the New York Stock Exchange)
on the date the options are granted. Miss Marks and Dr. White received options
in lieu of retainer during 1998.
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, defined as the closing price per share reported by the
New York Stock Exchange. 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. Options may be
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exercised either by the payment of cash in the amount of the aggregate option
price or by surrendering shares of common stock, or a combination of both,
having a combined value equal to the aggregate option price of the shares
subject to the option or portion of the option being exercised. Any option or
portion thereof that is not exercised on or before the tenth anniversary of the
date of grant will expire.
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.
ITEM 2 -- APPROVAL OF THE
1999 DIRECTOR LONG-TERM COMPENSATION PLAN
On February 4, 1999, the Board of Directors adopted, subject to shareowner
approval at the Annual Meeting, the 1999 Director Long-Term Compensation Plan
(the "DLTP"), as a replacement for the 1994 Director Long-Term Compensation Plan
(the "Predecessor Plan"), under which no new grants or awards may be made after
December 31, 1998.
A summary of the DLTP is set forth below. The summary is qualified in its
entirety by the full text of the DLTP, which is attached to this Proxy Statement
as Appendix A.
OPERATION OF THE PLAN AND TERMS OF AWARDS
ELIGIBLE DIRECTORS. The DLTP is a compensation plan for the non-employee
directors of the Company, currently eight persons.
ANNUAL OPTION GRANTS. Under the DLTP, immediately following each annual
meeting of the Company's shareowners, each non-employee director will receive a
non-qualified stock option to purchase 1,000 shares of Eastman common stock.
Such options will have an exercise price equal to the fair market value (defined
as the closing price per share reported on the New York Stock Exchange) of the
underlying shares of common stock on the date the options are granted. The
options will 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 will have a term of ten years and be 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 grantee's termination as a director.
ONE-TIME RESTRICTED STOCK AWARDS. In addition to the options described
above, each non-employee director whose initial term of service as a director
begins on or after January 1, 1999 shall be 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 ("restricted shares"). The restricted shares granted pursuant to
the DLTP will not be transferable (except by will or the laws of descent and
distribution) and will be subject to certain risks of forfeiture as described
below. All restrictions on the shares awarded under the DLTP will lapse on the
earlier of the third anniversary of the date of grant (provided the grantee is
then still a director of the Company), the death or disability of the director,
or the grantee's failure to be reelected as a director in an election in which
he or she consented to be named as a director nominee. If, during the three-year
vesting period, the grantee ceases to be a director of the Company and his or
her directorship terminated for any reason other than death, disability or the
failure to be reelected as
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described above, then his or her restricted shares shall be cancelled and
forfeited. During the restricted period, the director will have all of the
rights of a shareowner (other than the right to transfer the shares) with
respect to the restricted shares, including voting, dividend and other rights
with respect to the stock.
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 the 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
will have 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 event such consequences would not occur.
SHARES AVAILABLE. The maximum number of shares of common stock that may be
granted or subject to awards under the DLTP is 60,000, and no award may be made
after the later of May 1, 2004 or the 2004 annual meeting of shareowners of the
Company.
ADJUSTMENT OF SHARES. In the event of certain changes in the capital or
capital stock of the Company, the Committee on Directors will make appropriate
adjustments in the number and kind of shares that may be issued under the DLTP
and any adjustments or modifications to outstanding awards as the Committee on
Directors deems appropriate.
TERMINATION AND AMENDMENT
The Board of Directors or the Committee on Directors may suspend, amend,
modify or terminate the DLTP at any time without the approval of the
shareowners. The Board or such Committee may condition any amendment or
modification on the approval of the shareowners if such approval is deemed
necessary or advisable with respect to tax, securities or other applicable laws,
policies or regulations.
CERTAIN FEDERAL INCOME TAX AND ACCOUNTING EFFECTS
Under present Internal Revenue Code provisions and Internal Revenue Service
regulations, the following are the general federal income tax consequences
arising with respect to grants and awards under the DLTP. The grant of a stock
option will have no tax consequences for the director or the Company. Upon
exercising a stock option, the director will recognize ordinary income in an
amount equal to the difference between the exercise price and the fair market
value of the stock on the exercise date and the Company will be entitled to take
a deduction for the same amount. With respect to restricted shares, the director
will recognize ordinary income in an amount equal to the fair market value of
the shares received at the time they become either transferable or not subject
to a substantial risk of forfeiture. The Company will be entitled to a deduction
for the same amount at that time. The tax treatment upon disposition of shares
acquired under the DLTP will depend upon how long the shares have been held.
There are no tax consequences to the Company upon a director's disposition of
shares acquired under the DLTP.
Under currently proposed accounting interpretations by the Financial
Accounting Standards Board (anticipated to become effective on or about
September 30, 1999), stock options granted to non-employee directors would be
accounted for under the fair value method. Under this accounting method, the
Company would recognize a charge to earnings equal to the value of the options
on the vesting date. Prior to the vesting date, there would be quarterly
accruals based on fair value calculations at the end of each quarter, amortized
over the vesting period. Prior to the effective date of such proposed accounting
interpretations, the Company would recognize no earnings charge with respect to
the options granted under the DLTP.
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BENEFITS TO NON-EMPLOYEE DIRECTORS
The DLTP is substantially similar to the Predecessor Plan. Under the
Predecessor Plan, all non-employee directors as a group received options to
purchase a total of 5,507 shares, a total of 2,210 restricted shares, and a
total of 2,216 unrestricted shares of common stock. Only non-employee directors
of the Company may receive grants and awards under the DLTP. As described above,
only Donald W. Griffin and any subsequent new directors (and no current
directors) would receive restricted shares under the DLTP, and each non-employee
director would receive an option to purchase 1,000 shares of common stock
immediately following each annual meeting of shareowners. The DLTP, unlike the
original version of the Predecessor Plan, does not provide for awards of
unrestricted shares of common stock. It is not presently determinable whether
any non-employee director will receive 5% or more of the total options or
restricted shares available under the DLTP. The closing price per share of
Eastman common stock on the New York Stock Exchange was $45.00 on March 26,
1999.
SHAREOWNER VOTE REQUIRED TO APPROVE THE DLTP
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 approval of the DLTP. Approval of the DLTP will
require the affirmative vote of the holders of a majority of the shares of
common stock which are represented in person or by proxy at the Annual Meeting
and voting on this proposal. If the DLTP is approved by the shareowners, it will
be effective as of its adoption by the shareowners. If the DLTP is not approved
by the shareowners, it will not be implemented.
SUBMISSION OF THE 1999 DIRECTOR LONG-TERM COMPENSATION PLAN TO SHAREOWNERS
FOR APPROVAL HAS BEEN RECOMMENDED TO THE COMPANY'S BOARD OF DIRECTORS BY THE
COMMITTEE ON DIRECTORS. THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR"
APPROVAL OF THE 1999 DIRECTOR LONG-TERM COMPENSATION PLAN.
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 2000.
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.
ITEM 4 -- SHAREOWNER PROPOSAL
The following shareowner proposal has been submitted for a vote of the
shareowners at the Annual Meeting. The proposal and proponent's statement in
support thereof are set forth below along with the Company's reasons for
recommending a vote AGAINST the 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, your shares will be voted against adoption
of the proposal.
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PROPOSAL TO DISCONTINUE USE OF "BONUSES" AND "OPTIONS,
RIGHTS, SARS, ETC." AS MANAGEMENT COMPENSATION
Shareowner Robert D. Morse, 212 Highland Avenue, Moorestown, New Jersey,
has given notice that he intends to submit the following proposal and statement
in support thereof:
I propose that the Officers and Directors consider the discontinuance of
all bonuses immediately, and options, rights, SAR's, etc. after termination of
any existing programs for top management.
This does not include any programs for employees.
Reasons:
Management and Directors are compensated enough to buy on open market,
just as you and I, if they are motivated.
Management is already well paid with base pay, life insurance,
retirement plans, paid vacations, free use of vehicles, etc.
Options, rights, SAR's, etc. are available elsewhere, and a higher
offer would induce transfers, not necessarily "hold and retain" qualified
persons.
Comparison with "peer groups", [other similar companies] pay is
unfair, as other management could be better or worse. Would they also
accept mistakes of others?
"Align management with shareowners" is a repeated ploy or "line" to
lull us as to continually increasing their take of our assets. Do we get
any purchase options at previous rates?
Please vote YES for this proposal.
If officers filled out a daily work sheet, what would the output show?
RESPONSE OF THE COMPANY
Elimination of annual variable pay (referred to as "bonuses" in the
proposal) and of options and other long-term, stock-based compensation from the
Company's management and director compensation programs would not serve the best
interests of the Company or its shareowners. As described in greater detail
under "Item 1 -- Election of Directors -- Director Compensation", "Stock
Ownership of Directors and Executive Officers", and "Executive Compensation and
Benefits -- Compensation and Management Development Committee Report on
Executive Compensation", the Company's annual variable pay and long-term, stock-
based compensation programs are designed to promote stock ownership, to align
the interests of employees and directors with those of shareowners, and to place
a significant portion of each manager's pay "at risk" based upon Company
performance and returns to shareowners.
The Company's annual variable pay plans and long-term, stock-based
compensation plans are carefully designed and reviewed by the Board's
Compensation and Management Development Committee and Committee on Directors, as
are the establishment each year of annual performance targets under variable pay
plans and each individual grant of options and other stock-based awards. These
plans provide needed flexibility in the administration of executive and director
compensation and contribute to the Company's ability to attract, retain, and
motivate highly qualified and capable key employees and non-employee directors
consistent with the Company's overall compensation policies, stock ownership
guidelines, and strategic business objectives.
THE COMPANY'S BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "AGAINST"
ADOPTION OF THIS PROPOSAL.
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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
and Benefits -- Historical Compensation"), and by all directors and executive
officers as a group, as of December 31, 1998.
NUMBER OF SHARES OF
COMMON STOCK BENEFICIALLY
NAME OWNED(1)(2)
---- -------------------------
Earnest W. Deavenport, Jr................................... 336,262(3)
R. Wiley Bourne, Jr......................................... 171,544(4)
Dr. James L. Chitwood....................................... 109,352(5)
Harold L. Henderson......................................... 50,922(6)
Tom O. Nethery.............................................. 120,665(7)
H. Jesse Arnelle............................................ 2,209(8)
Calvin A. Campbell, Jr...................................... 4,578(9)
Jerry E. Dempsey............................................ 3,429(10)
John W. Donehower........................................... 869(11)
Lee Liu..................................................... 1,740(12)
Marilyn R. Marks............................................ 5,768(13)
Gerald B. Mitchell.......................................... 1,487
Dr. John A. White........................................... 5,428(14)
Directors and executive officers as a group (20 persons).... 1,091,974(15)
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(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 1.36%
of the shares of common stock outstanding as of December 31, 1998. The
percentage beneficially owned by any individual director or executive
officer does not exceed one percent of the outstanding shares of common
stock. Shares not outstanding which are subject to options exercisable
within 60 days by persons in the group or a named individual are deemed to
be outstanding for the purpose of computing the percentage of outstanding
shares of common stock owned by the group or such individual.
(3) Includes 324,703 shares that may be acquired upon exercise of options
(including the option to purchase 40,000 shares only if certain stock price
targets are met) and 724 shares allocated to Mr. Deavenport's Eastman
Employee Stock Ownership Plan (the "ESOP") account.
(4) Includes 148,760 shares that may be acquired upon exercise of options and
724 shares allocated to Mr. Bourne's ESOP account.
(5) Includes 85,734 shares that may be acquired upon exercise of options and
710 shares allocated to Dr. Chitwood's 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.
(6) Includes 50,000 shares that may be acquired upon exercise of options and
876 restricted shares which generally vest on December 2, 1999, but as to
which Mr. Henderson currently has voting power. See "Executive Compensation
and Benefits -- Employment Agreement."
(7) Includes 100,840 shares that may be acquired upon exercise of options and
710 shares allocated to Mr. Nethery's ESOP account.
(8) Includes 278 shares that may be acquired upon exercise of options.
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(9) Includes 578 shares that may be acquired upon exercise of options.
(10) Includes 238 shares that may be acquired upon exercise of options and 191
restricted shares which generally vest on May 1, 2000, but as to which Mr.
Dempsey currently has voting power. See "Item 1 -- Election of
Directors -- Director Compensation -- 1994 Director Long-Term Compensation
Plan."
(11) Includes 203 shares that may be acquired upon exercise of options and 163
restricted shares which generally vest on February 3, 2001, but as to which
Mr. Donehower currently has voting power. See "Item 1 -- Election of
Directors -- Director Compensation -- 1994 Director Long-Term Compensation
Plan."
(12) Includes 578 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.
(13) Includes 2,758 shares that may be acquired upon exercise of options.
(14) Includes 2,188 shares that may be acquired upon exercise of options.
(15) Includes a total of 809,597 shares that may be acquired upon exercise of
options and 7,748 shares allocated to executive officers' ESOP accounts.
Includes shares held by and shares allocated to the ESOP accounts of the
spouses of executive officers not named above, as to which shares such
executive officers disclaim beneficial ownership. Includes 158,424 shares
owned by the Eastman Chemical Company Foundation, Inc., of which shares
three 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 and Benefits -- Company Compensation and Benefit Plans -- Executive
Deferred Compensation Plan", "-- Historical Compensation -- Summary Compensation
Table", and "-- Compensation and Management Development Committee Report on
Executive Compensation".
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
which 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 and Benefits -- Compensation and Management Development Committee
Report on Executive Compensation." The table below is
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included to provide a better indication of the stake of the named individuals,
and of the current 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................................... 431,294
R. Wiley Bourne, Jr......................................... 214,851
Dr. James L. Chitwood....................................... 112,247
Harold L. Henderson......................................... 50,922
Tom O. Nethery.............................................. 121,255
H. Jesse Arnelle............................................ 3,398
Calvin A. Campbell, Jr...................................... 4,578
Jerry E. Dempsey............................................ 3,429
John W. Donehower........................................... 869
Lee Liu..................................................... 1,740
Marilyn R. Marks............................................ 6,863
Gerald B. Mitchell.......................................... 1,487
Dr. John A. White........................................... 7,875
Directors and executive officers as a group (20 persons).... 1,265,227(1)
- ---------------
(1) Includes 158,424 shares owned by the Eastman Chemical Company Foundation,
Inc., over which shares three 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.
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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)
- ------------------------------------ ------------------- --------
Sanford C. Bernstein & Co., Inc............................. 8,913,220(2) 11.40%
One State Street Plaza
New York, New York 10004
Putnam Investments, Inc..................................... 5,628,015(3) 7.20%
One Post Office Square
Boston, Massachusetts 02109
The Regents of The University of California................. 4,099,667(4) 5.24%
1111 Broadway, 14th Floor
Oakland, California 94607
- ---------------
(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, 1998, based on a Schedule 13G filed with the SEC by
Sanford C. Bernstein & Co., Inc., an investment adviser. According to the
Schedule 13G, Sanford C. Bernstein & Co., Inc. has sole investment power
with respect to all of such shares, sole voting power with respect to
5,302,301 of such shares, and shared voting power with respect to 837,165 of
such shares.
(3) As of December 31, 1998, based on a Schedule 13G filed with the SEC by
Putnam Investments, Inc. on behalf of itself, its parent company, and two
wholly-owned investment advisers. According to the Schedule 13G, Putnam
Investments, Inc.'s investment adviser subsidiaries share with their
respective mutual fund and institutional clients investment power with
respect to all of such shares, and one such investment adviser subsidiary
shares with its institutional clients voting power with respect to 194,274
of such shares.
(4) As of December 31, 1998, based on a Schedule 13G filed with the SEC by The
Regents of The University of California, a pension fund. According to the
Schedule 13G, The Regents of The University of California has sole voting
and investment power with respect to all of such shares.
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EXECUTIVE COMPENSATION AND BENEFITS
HISTORICAL COMPENSATION
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 1998.
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
----------------------------------
AWARDS PAYOUTS
------------ --------------
ANNUAL COMPENSATION(1) SECURITIES LONG-TERM
--------------------------------------- UNDERLYING INCENTIVE
NAME AND PRINCIPAL OTHER ANNUAL OPTIONS/ PLAN ALL OTHER
POSITION YEAR SALARY BONUS(2) COMPENSATION(3) SARS PAYOUTS(4) COMPENSATION(5)
------------------ ---- -------- -------- --------------- ------------ -------------- ---------------
Earnest W. Deavenport, Jr. 1998 $763,333 $502,998 $42,917 15,500 $239,459 $40,175
Chairman and Chief 1997 688,542 692,130 13,715 204,957(6)(7) 329,384 36,239
Executive Officer 1996 607,500 442,566 13,654 65,500 600,863 31,974
R. Wiley Bourne, Jr. 1998 440,100 212,387 22,650 12,920(7) 140,600 23,163
Vice Chairman 1997 421,900 296,158 8,238 9,250 193,400 22,205
and Executive 1996 399,967 221,429 3,412 12,195(7) 352,800 21,051
Vice President
Dr. James L. Chitwood 1998 354,033 170,407 306,876 8,750 103,253 18,633
Senior Vice President 1997 343,733 240,009 63,852 8,000 142,028 18,091
1996 377,091(8) 182,803 386 18,219(7) 259,088 17,386
Harold L. Henderson 1998 318,667 153,866 5,162 0(9) 0 16,772
Senior Vice President 1997 307,803 206,590 10,595 0(9) 0 0
and General Counsel 1996(9) -- -- -- -- -- --
Tom O. Nethery 1998 361,167 173,839 26,598 9,750 103,253 19,009
Senior Vice President 1997 348,400 244,614 7,906 12,719(7) 142,028 18,337
1996 330,333 182,803 6,104 11,435(7) 259,088 17,386
- ---------------
(1) Includes both amounts paid for the indicated years and amounts earned during
the indicated years but deferred.
(2) Cash payments in the year following for services rendered in the year
indicated under the Eastman Performance Plan and the Annual Performance
Plan. Amounts for 1998 were less than for 1997 because of lower payouts
under the Eastman Performance Plan and Annual Performance Plan. The amounts
reported were lower because under the Eastman Performance Plan, cost of
capital exceeded return on capital; and under the Annual Performance Plan,
corporate performance did not meet overall Plan targets. Accordingly, each
named executive officer lost a portion of his pay "at risk." See
"Compensation and Management Development Committee Report on Executive
Compensation."
(3) Includes amounts reimbursed for payment of taxes on certain 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 for 1998 and 1997 also include tax
gross-up payments attributed to his overseas assignment.
(4) 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. Henderson has
been awarded performance shares for the 1997-1999 and 1998-2000 performance
periods; accordingly, he will first be eligible to receive payouts, if any,
in 2000. See "Long-Term Incentive Plan -- Awards in Last Fiscal Year" table
and "Compensation and Management Development Committee Report on Executive
Compensation."
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(5) Represents 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. Pursuant to the time of service
condition to participation, the Company made no contribution or credit to
Mr. Henderson's accounts in the Eastman ESOP and Eastman ESOP Excess Plan
for 1997. See "Compensation and Management Development Committee Report on
Executive Compensation."
(6) Includes an option granted in September 1997 to purchase 200,000 shares of
common stock subject to stock price vesting and time vesting conditions,
both of which must be met for the option to become exercisable. Subject to
the price vesting conditions, the option becomes exercisable 20% per year
beginning one year from grant date. Subject to the time vesting conditions,
the option will become exercisable as to 50% of the underlying shares if the
average of the closing prices of the common stock for any twenty consecutive
trading days equals or exceeds $80.00 within three years from grant date,
and as to 100% of the underlying shares if the average of the closing prices
of the common stock for any twenty consecutive trading days equals or
exceeds $100 within five years from grant date. The option will be forfeited
on the fifth anniversary of the grant date as to any shares for which the
applicable stock price target is not met. The option is also subject to
forfeiture in the event of early termination of employment under certain
circumstances, and 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.
(7) Includes "reload" options received by Mr. Deavenport (4,957 in 1997), Mr.
Bourne (3,670 in 1998 and 2,945 in 1996), Dr. Chitwood (8,219 in 1996), and
Mr. Nethery (4,719 in 1997 and 4,685 in 1996) to purchase a number of shares
equal to the number of previously owned shares of common stock surrendered
in payment of the exercise price of options exercised during 1998, 1997, and
1996, respectively. See "Option Grants in Last Fiscal Year" and "Aggregated
Option Exercises in Last Fiscal Year and Fiscal Year-End Option/SAR Values"
tables.
(8) Includes $46,758 paid in 1996 to Dr. Chitwood as a premium payment
attributed to his overseas assignment.
(9) Mr. Henderson began service as an executive officer of the Company on
January 1, 1997 under the terms of an Employment Agreement dated December 1,
1996. See "Severance and Change-in-Control Arrangements and Employment
Agreement." Under the Employment Agreement, in December, 1996, he received
an award of 876 restricted shares of common stock and a special one-time
option to purchase 50,000 shares, which grant was in lieu of options that
would normally be granted during the term of the Employment Agreement under
the stock option program. See "Compensation and Management Development
Committee Report on Executive Compensation". At December 31, 1998, Mr.
Henderson's restricted shares had a fair market value of $39,201 based on
the per share closing price of Eastman common stock on the New York Stock
Exchange on December 31, 1998 ($44.75). Dividends are paid on these shares
as and when dividends are paid on common stock.
The following table sets forth certain information regarding options
granted during 1998 under the Company's Omnibus Long-Term Compensation Plans to
the individuals named in the Summary Compensation Table.
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM (1)
----------------------------------------------------------- -----------------------------
NUMBER OF PERCENTAGE OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED FISCAL YEAR PER SHARE DATE 0%(2) 5%(3) 10%(4)
- ---- ---------- ------------------- ----------- ---------- ----- -------- ----------
E. W. Deavenport, Jr. 15,500(5) 3.61% $56.8750 08/05/08 $0 $554,410 $1,404,984
R. W. Bourne, Jr. 9,250(5) 2.15% 56.8750 08/05/08 0 330,858 838,458
3,670(6) .85% 66.2500 11/09/98 0 12,157 24,314
Dr. J. L. Chitwood 8,750(5) 2.04% 56.8750 08/05/08 0 312,973 793,136
H. L. Henderson(7) 0 -- -- -- 0 0 0
T. O. Nethery 9,750(5) 2.27% 56.8750 08/05/08 0 348,742 883,780
- ---------------
(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.
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(3) Represents the appreciation in stock price from the exercise or base price
until the expiration date assuming a 5% per year appreciation in stock
price. For example, for the option expiring on August 5, 2008, a 5% per year
appreciation in stock price from $56.875 per share yields $92.64 per share.
(4) Represents the appreciation in stock price from the exercise or base price
until the expiration date assuming a 10% per year appreciation in stock
price. For example, for the option expiring on August 5, 2008, a 10% per
year appreciation in stock price from $56.875 per share yields $147.52 per
share.
(5) The options vest 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
"Company Compensation and Benefit Plans -- 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.
(6) "Reload" option received upon exercise of previously granted option through
surrender of shares of common stock and covering the same number of shares
as surrendered in the exercise. The option vests six months from 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 "Company
Compensation and Benefit Plans - Omnibus Long-Term Compensation Plans".
(7) Under the terms of his Employment Agreement, in December, 1996 Mr. Henderson
received a special one-time option to purchase 50,000 shares of common
stock, which grant was in lieu of options that would normally be granted
during the term of the Employment Agreement under the stock option program.
See "Severance and Change-in-Control Arrangements and Employment Agreement",
"Summary Compensation Table", and "Compensation and Management Development
Committee Report on Executive Compensation".
The following table sets forth certain information regarding exercises of
options during 1998, and total options and stock appreciation rights ("SARs")
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/SAR VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
NUMBER OF OPTIONS/SARS AT OPTIONS/SARS AT
SECURITIES FISCAL YEAR-END FISCAL YEAR-END(1)
UNDERLYING ---------------------- ----------------------
OPTIONS VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISED REALIZED UNEXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ---------------------- ----------------------
E. W. Deavenport, Jr............. 4,052 $ 9,230 308,990/215,500(2) $1,506,837/$0(2)
R. W. Bourne, Jr................. 6,534 189,707 164,911/13,875 908,960/0
Dr. J. L. Chitwood............... -- -- 85,734/12,750 109,733/0
H. L. Henderson.................. -- -- 50,000/0 0/0
T. O. Nethery.................... -- -- 100,840/13,750 283,678/0
- ---------------
(1) Represents the difference between the average of the high and low trading
prices on the New York Stock Exchange on December 31, 1998 of the common
stock underlying the options and SARs on December 31, 1998 and the exercise
or base price of the options and SARs.
(2) Includes an option to purchase 200,000 shares of common stock if specified
conditions tied to the price appreciation of Eastman common stock, and
certain other conditions, are met. See "Summary Compensation Table".
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The following table sets forth certain information regarding long-term
incentive plan awards during 1998 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................. 10,900 3 Years -0- 1,090 11,990 21,800
R. W. Bourne, Jr..... 6,400 3 Years -0- 640 7,040 12,800
Dr. J. L. Chitwood... 4,700 3 Years -0- 470 5,170 9,400
H. L. Henderson...... 3,100 3 Years -0- 310 3,410 6,200
T. O. Nethery........ 4,700 3 Years -0- 470 5,170 9,400
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
1998 for a 1998-2000 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
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 fifteenth company (threshold), no award will be
earned; if TSR ranks at threshold, 10% of the target awards will be earned; if
TSR ranks tenth (target), 110% 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.
COMPANY COMPENSATION AND BENEFIT PLANS
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 also
provides for the award of dividends and dividend equivalents on Awards. The 1997
Omnibus Plan was approved by shareowners at the Company's 1997 Annual Meeting of
Shareowners, and 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 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
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(in which event 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 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.
The maximum number of shares of common stock that may be granted or subject
to Awards under the 1997 Omnibus Plan is 7,000,000. Awards may not be granted
under the 1997 Omnibus Plan after April 30, 2002. The Omnibus Plans provide that
equitable adjustments will be made in the number of shares of common stock
covered by outstanding Awards, the price per share applicable to outstanding
Awards, and the number of shares that are thereafter available for Awards in the
event of a change in the capital or capital stock of the Company or any special
distribution to shareowners.
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.
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The following table sets forth the estimated annual 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 benefit.
PENSION PLAN TABLE
AVERAGE YEARS OF SERVICE
PARTICIPATING ---------------------------------------------------------------
COMPENSATION 15 20 25 30 35 40
- ------------- -------- -------- -------- -------- -------- --------
$ 100,000 $ 21,053 $ 28,070 $ 35,088 $ 42,105 $ 49,123 $ 51,579
125,000 27,053 36,070 45,088 54,105 63,123 66,279
150,000 33,053 44,070 55,088 66,105 77,123 80,979
175,000 39,053 52,070 65,088 78,105 91,123 95,676
200,000 45,053 60,070 75,088 90,105 105,123 110,379
225,000 51,053 68,070 85,088 102,105 119,123 125,079
250,000 57,053 76,070 95,088 114,105 133,123 139,779
300,000 69,053 92,070 115,088 138,105 161,123 169,179
350,000 81,053 108,070 135,088 162,105 189,123 198,579
400,000 93,053 124,070 155,088 186,105 217,123 227,979
450,000 105,053 140,070 175,088 210,105 245,123 257,379
500,000 117,053 156,070 195,088 234,105 273,123 286,779
550,000 129,053 172,070 215,088 258,105 301,123 316,179
600,000 141,053 188,070 235,088 282,105 329,123 345,579
650,000 153,053 204,070 255,088 306,105 357,123 374,979
700,000 165,053 220,070 275,088 330,105 385,123 404,379
750,000 177,053 236,070 295,088 354,105 413,123 433,779
800,000 189,053 252,070 315,088 378,105 441,123 463,179
850,000 201,053 268,070 335,088 402,105 469,123 492,579
900,000 213,053 284,070 355,088 426,105 497,123 521,979
950,000 225,053 300,070 375,088 450,105 525,123 551,379
1,000,000 237,053 316,070 395,088 474,105 553,123 580,779
1,050,000 249,053 332,070 415,088 498,105 581,123 610,179
1,100,000 261,053 348,070 435,088 522,105 609,123 639,579
1,150,000 273,053 364,070 455,088 546,105 637,123 668,979
1,200,000 285,053 380,070 475,088 570,105 665,123 698,379
1,250,000 297,053 396,070 495,088 594,105 693,123 727,779
1,300,000 309,053 412,070 515,088 618,105 721,123 757,179
1,350,000 321,053 428,070 535,088 642,105 749,123 786,579
To the extent that any individual's annual retirement income 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.
Retirement income benefits under the ERAP are currently based upon the
participant's "average participating compensation", which is the average of
three years of those earnings described in the ERAP as "participating
compensation." "Participating compensation," in the case of the executive
officers identified in the Summary Compensation Table, will consist 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 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 full unreduced benefits when such employee's aggregate age plus years of
eligible service totals 85 or at age 65.
Years of accrued service credited through 1998 and the amount of average
participating compensation at the end of 1998 for the individuals named in the
Summary Compensation Table were as follows: Mr. Deavenport, 38 years and
$1,316,499; Mr. Bourne, 39 years and $730,913; Dr. Chitwood, 30 years and
$600,321; Mr. Nethery, 38 years and $603,917; and Mr. Henderson, 2 years and
$381,109. See "Severance and Change-In-Control Arrangements and Employment
Agreement" for certain supplementary and alternative compensation and benefits
payable to Mr. Henderson upon his retirement.
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
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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 "Benefit Security Trust."
EXECUTIVE DEFERRED COMPENSATION PLAN. The Company maintains the Eastman
Executive Deferred Compensation Plan (the "EDCP"), an unfunded, non-qualified,
deferred compensation plan under which eligible employees of the Company may
elect on a voluntary basis to defer compensation until retirement or termination
from the Company. Eligible employees are employees of the Company or its
subsidiaries employed in the United States who are above a specified salary
grade level. Eligible employees may make an annual advance irrevocable election
to defer compensation which will first be paid, earned, or awarded in the
following year. Compensation that may be deferred includes all annual cash
compensation and certain stock and stock-based awards which are payable in cash.
The deferred amounts may be credited to individual "Interest Accounts"
under the EDCP (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 EDCP (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
will receive a dividend equivalent which will be used to "purchase" additional
hypothetical shares under the EDCP. 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.
For participants who retire or otherwise terminate from the Company on or
after January 1, 2000, 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 elected by the participant at least one year prior to the
participant's termination of employment. For participants who terminate
employment from the Company prior to January 1, 2000, the value of a
participants' Interest Account and Stock Account will be paid as determined in
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. If a participant does not
have a valid election in force at the time of termination of employment, the
value of his or her Interest Account and Stock Account will be paid as either a
single lump sum or in ten annual installments based upon the total value of the
Interest Account and Stock Account. Payment will commence in any year up through
the tenth year following termination of employment, as determined by the same
parties, except that payment must commence no later than the year in which the
participant reaches age 71.
The EDCP provides that a participant may request that part or all of such
participant's Interest Account or 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 same parties who determine the timing of
payout upon a participant's retirement or termination of employment.
The EDCP 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 forfeit 10% of the balance of his or her Accounts and not be
permitted to participate in the EDCP 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 EDCP participants elect such early withdrawal from the
EDCP or 20% or more of EDCP participants with aggregate Account balances valued
at 50% or more of the total value of all EDCP Accounts elect such early
withdrawal, then the Accounts of each remaining EDCP participant will be
distributed in a single lump sum.
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If the Company undergoes a "change in control" (as defined in the EDCP,
generally circumstances in which the Company is acquired by another entity or
its controlling ownership is changed), then the Accounts of each participant
will be paid in a single lump sum no later than 90 days following the change in
control.
The Company has established a "Rabbi Trust" to provide a degree of
financial security for the participants' unfunded Account balances under the
EDCP. 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 spin-off. 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, 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 the excise tax imposed by Section 4999 of the
Internal Revenue Code. 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.
SEVERANCE AND CHANGE-IN-CONTROL ARRANGEMENTS AND EMPLOYMENT AGREEMENT
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 as of
January 1, 1994 (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. 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
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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 "Eastman Retirement Assistance
Plan" and "Supplemental 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 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 which may become payable to officers under
the Severance Agreements. See "Benefit Security Trust."
EMPLOYMENT AGREEMENT. The Employment Agreement with Mr. Henderson, as
Senior Vice President and General Counsel of the Company, provides for a term of
employment through December 31, 2000 at an annual base salary of $300,000,
subject to increase at the discretion of the Board or Compensation Committee.
Pursuant to the Employment Agreement, Mr. Henderson received as of December 1,
1996 under the Omnibus Plan a grant of restricted stock valued at $50,000 and
options to purchase 50,000 shares of Eastman common stock at fair market value
as of the date of grant.
In lieu of any annual monetary retirement benefit to which Mr. Henderson
might otherwise be entitled under the Company's non-qualified retirement plans,
Mr. Henderson will receive, upon termination of employment as described below, a
lump sum payment (the "Retirement Payment") equal to the actuarial equivalent at
age 65 of (a) Mr. Henderson's assumed benefit under the ERAP if he had retired
at age 65 having accrued 36 years of service and making certain assumptions as
to his average participating compensation, minus (b) the sum of (i) the amount
Mr. Henderson would actually be entitled to receive under the ERAP at age 65 and
(ii) a single life annuity at age 65 of approximately $200,000 per year
representing certain retirement benefits received by Mr. Henderson from his
prior employers. The Retirement Payment will be paid in full if Mr. Henderson is
employed on December 31, 2000, and will be reduced prorata, but not below 50%,
if Mr. Henderson terminates employment before December 31, 2000 by reason of his
disability, termination by the Company without cause or voluntary termination
for "good reason" (as defined in the agreement). If Mr. Henderson's termination
of employment prior to December 31, 2000 is due to his death, his estate will
receive 50% of the Retirement Payment that would have been payable as if he had
terminated for good reason on the date of his death. The Retirement Payment will
not be made in the case of termination by the Company for cause or voluntary
termination without good reason.
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If Mr. Henderson is employed on December 31, 2000, and if the Company has
failed to perform, in the aggregate, at or above target performance levels under
its annual cash variable pay plans over the employment period, the Company will
pay to Mr. Henderson no later than May 1, 2001 an amount equal to the aggregate
cash payments Mr. Henderson would have received under such annual variable pay
plans if target performance levels had been achieved by the Company, reduced by
the actual payments received by Mr. Henderson under such annual variable pay
plans for such years. In addition, if Mr. Henderson is employed on December 31,
2000, then, in lieu of receiving any payments under Long-Term Performance
Subplans ("LTPSs") under the Omnibus Plan after December 31, 2000, Mr. Henderson
may elect to receive, on or before May 1, 2001, an amount equal to the aggregate
amount he would have received under the LTPSs with respect to each performance
cycle beginning during the employment term as if the target performance levels
had been achieved by the Company, minus the actual payments received by him
under the LTPSs by May 1, 2001.
If the Company terminates Mr. Henderson's employment without cause, or if
Mr. Henderson terminates his employment for good reason, he will also receive a
lump sum cash payment equal to the aggregate value of all variable compensation
and other awards under each annual cash variable pay plan to which Mr. Henderson
was entitled on the date of termination (and, if he so elects, the LTPSs), or to
which he would reasonably become entitled during the remaining portion of the
employment period due to his salary grade and position in the Company, making
certain assumptions concerning length of employment and satisfaction of all
conditions to payment. If Mr. Henderson does not elect to receive immediate
payment of future LTPS awards, as described above, he would continue to
participate in the LTPSs until December 31, 2000, and would receive stock awards
thereunder with respect to uncompleted performance cycles determined as though
he had remained employed for such additional period and as though the greater of
actual or target performance had been achieved.
In addition, if the Company terminates Mr. Henderson's employment without
cause or if Mr. Henderson terminates for good reason then, in either case: Mr.
Henderson's outstanding stock options will continue to vest in accordance with
the normal vesting schedule and will remain exercisable for the period of time
that such exercise would have been permitted had Mr. Henderson's employment been
terminated without cause on the last day of the employment period; all
restrictions on restricted stock held by Mr. Henderson will lapse; and Mr.
Henderson and his family members may continue to participate in all Company
welfare plans on the same terms and conditions and at the same cost as to which
they were entitled to participate immediately prior to such termination of
employment, or the Company will provide substantially equivalent benefits,
throughout the remainder of the employment period.
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 EDCP, 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 as of January 1, 1997 (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. 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
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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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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 four outside non-employee directors. This
report sets out the Compensation Committee's policies governing compensation to
executive officers for 1998, 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.
COMPANY-WIDE COMPENSATION PHILOSOPHY AND PROGRAM
In overseeing the Company's management compensation program, the
Compensation Committee seeks to ensure that compensation policies are consistent
with the Company's strategic business objectives and provide incentives for the
attainment of those objectives. This is done in the context of a Company-wide
compensation program that includes three components for all employees:
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.
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.
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.
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 Company 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, employees
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may lose the at risk amount, receive some or all of the amount at risk, or
receive an amount in excess of the pay at risk.
For 1998, 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 was available,
including 16 of the companies in the peer group identified in the Performance
Graph which follows this report. 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 16 of the peer companies in the Performance
Graph. Total cash compensation to the executive officers named in the Summary
Compensation Table for 1998 is reported in the "Salary" (base pay) and "Bonus"
(variable pay) columns.
CASH COMPENSATION FOR 1998
BASE PAY. Base salaries reported in the Summary Compensation Table for
1998 were increased from 1997 levels to reflect an increase in the median range
of total cash compensation of the companies in the comparison group.
VARIABLE PAY. The "at risk" portion of cash compensation, and the amount
of variable pay actually received, are determined under the Eastman Performance
Plan and the Annual Performance Plan.
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).
- Payout levels range from six times (6x) the "at risk" amount for above
goal performance, to no award if minimum performance levels are not
achieved. If minimum performance levels are not met and no award is
earned, employees lose the amount of pay at risk.
- Portion of payout equal to 5% of target annual compensation is
contributed to employee's account in the Eastman Employee Stock
Ownership Plan (the "ESOP"), and to the extent not payable under
Internal Revenue Code limitations, is credited to the Eastman ESOP
Excess Plan.
- Contributions to the ESOP and ESOP Excess Plan are invested in shares
of Eastman common stock and common stock equivalents, respectively. See
"Stock Ownership of Directors and Executive Officers -- Common Stock
and Common Stock Units."
Accordingly, at the maximum award level (30% of target annual
compensation) for above goal performance, 5% of target compensation would
be contributed to the employee's ESOP account, the 5% of target annual
compensation placed at risk would be returned to the employee in cash,
and an additional 20% of target annual compensation would be earned and
paid to the employee in cash. On the other hand, if the Company's
performance is below the target level, the employee will lose all or a
portion of his or her at risk amount.
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1998 PAYOUT:
- Awards of 8.83% (of a possible maximum of 30%) of target annual cash
compensation were made to all employees under the Eastman Performance
Plan, corresponding to the Company's return on capital being less than
the cost of capital by 1.17% for 1998:
- Of the total award amount, 3.83% of target annual cash compensation
represents the cash portion of the payout and is included in the
bonuses reported for the executive officers in the Summary
Compensation Table.
- The portion of the award not paid in cash is made as a contribution or
credit to each named executive officer's ESOP or ESOP Excess Plan
accounts and is reported in the "All Other Compensation" column of the
Summary Compensation Table.
ANNUAL PERFORMANCE PLAN
KEY FEATURES:
- Approximately 600 Company managers, including executive officers,
participate.
- The portion of pay at risk depends upon the level of responsibility
within the Company. In 1998, executive officers named in the Summary
Compensation Table had 28% to 35% of their target annual cash
compensation at risk.
- Payout is based on annual corporate performance versus pre-set goals
for specified measures.
- Measures 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.
- Each measure weighted for importance in determining final awards.
- 1998 measures were: cost savings, labor productivity, economic value
created (defined as after-tax operating profit minus a computed
capital charge for average debt and equity employed during the year),
unit volume growth, and a working capital measure (defined as
receivables plus inventory minus payables divided by sales).
- For participants having direct influence on the working capital
measure (including each executive officer), cost savings, labor
productivity, economic value created, unit volume growth, and working
capital measures were each equally weighted at 20%; for all other
participants, the measures were each weighted 25%, except for the
working capital measure, which was weighted 0%.
- Payout levels range from two times (2x) the "at risk" amount for above
goal performance, to no award if minimum performance levels are not
achieved. If minimum performance levels are not met and no award is
earned, the participant loses the amount of pay at risk.
1998 PAYOUT:
- Awards of 0.953x of target award (of a possible maximum of 2x) were
made to participants with direct influence on the working capital
measure, including the named executive officers, under the Annual
Performance Plan. All other participants received an award of 1.191x of
target award:
- Award levels were based upon Company performance in 1998 that was
above the target level of performance for cost savings and labor
productivity, at the minimum threshold level for unit volume growth
and economic value created, and below the minimum threshold level for
the working capital measure.
- The award amount is included in the bonuses reported for the executive
officers in the Summary Compensation Table.
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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 and ESOP
Excess Plan........................ A portion of the Eastman Performance Plan payout is
contributed or credited to each employee's ESOP or
Eastman Excess ESOP Plan account. See "Eastman
Performance Plan" above.
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 "Company Compensation and Benefit
Plans -- 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 will 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." 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 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
option-pricing model. In addition, the Compensation Committee has from
time-to-time awarded stock-based compensation in addition to the regular option
and performance share awards, in order to recognize certain performance or
provide additional incentive to achieve specific business objectives.
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The estimated current values of total long-term stock-based incentive
pay for 1998 range from approximately 10% of total compensation at lower
levels of management to approximately 50% of total compensation for the
Chief Executive Officer.
STOCK-BASED INCENTIVE PAY FOR 1998
STOCK OPTIONS:
- When the Company began operating as an independent, publicly held
company in 1994, approximately 350 of the approximately 500 key Company
managers eligible for option grants had not previously received
options. To promote stock ownership, the 1994 option grant was
"front-loaded" so that three years' worth of option grants under the
above guidelines were awarded to managers (including executive
officers) in the first year.
- The total of all grants from 1995-1998 was equivalent to two years'
worth of option grants (i.e., one-half the normal amount). As a result,
option grants for 1995, 1996, 1997, and 1998 (excluding "reload"
options) were generally one-sixth the level of the grant in 1994.
- Except as described below, the size of the stock option grants reported
in the "Option Grants in Last Fiscal Year" table was determined by
applying the methodology described under "How Stock-Based Incentive Pay
Levels are Determined."
- The Compensation Committee also awarded an additional option to Mr.
Nethery to purchase 3,000 shares of Eastman common stock, and to Dr.
Chitwood to purchase 2,000 shares of Eastman common stock. These awards
were in recognition of their leadership of key Company initiatives.
- Options granted in 1998 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 1998 generally have 10-year terms.
- Under the terms of his Employment Agreement, in December 1996 Mr.
Henderson received a special one-time option to purchase 50,000 shares
of common stock, which grant was in lieu of options that would normally
be granted during the term of the Employment Agreement under the stock
option program.
PERFORMANCE SHARES -- LONG TERM PERFORMANCE SUBPLANS:
- Performance shares were awarded to 42 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.
- Under LTPSs for the 1994-1996, 1995-1997, and 1996-1998 performance
periods, payouts were based upon the Company's position in a quartile
ranking of the unweighted total shareowner return of the compared
companies. If the Company's total shareowner return ranked in the
fourth quartile (below threshold), no awards were earned; if in the
third quartile (threshold), 50% of the target awards were earned; if in
the second quartile (target), 100% of the target awards were earned;
and, if in the first quartile (maximum), 200% of the target awards were
earned.
- Under LTPSs for the 1997-1999 and 1998-2000 performance periods,
payouts will be based upon the Company's position in a ranking of the
unweighted total shareowner returns of the compared companies.
- 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.
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- The payout reported in the Summary Compensation Table for the executive
officers for the 1996-1998 LTPS performance period represents 50% of
the target award (of a possible maximum of 200% of the target award)
based upon the Company's total shareowner return ranking in the third
quartile of the compared companies for the performance period.
The total return comparisons under the LTPSs 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. Mr. Deavenport's base salary was increased on May 1,
1998 by $35,000 as a result of comparisons with the base salaries paid to chief
executive officers of the companies described above under "How Base Pay and
Variable Pay Levels are Determined."
In March 1999, Mr. Deavenport received an Annual Performance Plan award in
the amount of $430,836 and an award of $112,337 under the Eastman Performance
Plan ($40,175 of which was contributed to his accounts in the ESOP and ESOP
Excess Plan). Such awards were based upon the same overall performance levels in
1998 as were all other awards under the Annual Performance Plan and Eastman
Performance Plan. Mr. Deavenport's awards for 1998 under the Annual Performance
Plan and the Eastman Performance Plan were less than for 1997 because corporate
performance did not meet overall plan targets. Accordingly, he lost a portion of
his pay "at risk".
Mr. Deavenport received an award of 10,900 performance shares under the
LTPS for the 1998-2000 performance period, which represents approximately
two-thirds of his stock-based incentive pay for 1998. The other portion of Mr.
Deavenport's stock-based incentive pay for 1998 was in the form of an option to
purchase 15,500 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 were determined by applying the same guidelines as those used for
the grants to all other key Company executives as described above under "How
Stock-Based Incentive Pay Levels are Determined."
In February 1999, Mr. Deavenport received a payout for the 1996-1998 LTPS
performance period equal to 5,450 shares, which represents 50% of his target
award. Such payout was based upon the same relative total shareowner returns as
were the other payouts under the 1996-1998 LTPS.
OMNIBUS BUDGET RECONCILIATION ACT OF 1993
The Compensation Committee intends 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, 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, LTPSs under the Omnibus Plans,
and outstanding
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restricted stock awards under the Omnibus Plans each provide for the automatic
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). The Chief Executive Officer was required to receive a
portion of a restricted stock award which vested during 1998 in the form of
deferred compensation into the EDCP.
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 in 1997. These plans were
approved by shareowners in 1997 and meet the requirements of Section 162(m) with
respect to stock option and performance share awards (under the 1997 Omnibus
Plan) and annual variable pay (under the Eastman Performance Plan and the Annual
Performance Plan). This will result in such compensation being
"performance-based" and fully deductible by the Company.
Compensation and Management Development Committee
Gerald B. Mitchell (Chair)
Jerry E. Dempsey
Lee Liu
Marilyn R. Marks
PERFORMANCE GRAPH
The following graph compares the cumulative total return on Eastman common
stock from December 31, 1993 through December 31, 1998, 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 19 chemical companies which best meet three
objective criteria: (i) common shares traded on the New York Stock Exchange;
(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, 1993. The data in the graph has been provided by Standard & Poor's
Compustat. 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.
(GRAPH)
12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
-------- -------- -------- -------- -------- --------
Eastman Chemical Co. 100 109.93 139.52 127.14 141.16 109.51
S&P 500 Index 100 101.32 139.40 171.40 228.59 293.91
Peer Group(1) 100 113.01 136.87 164.28 206.14 182.16
- ----------------
(1) The peer group for 1998 consists of the following issuers: Air Products and
Chemicals, Inc.; ARCO Chemical Company (acquired by Lyondell Petrochemical
Company in August 1998); Crompton & Knowles Corporation; The Dow Chemical
Company; E. I. du Pont de Nemours and Company; H. B. Fuller Company; The
Geon Company; Georgia Gulf Corporation; Great Lakes Chemical Corporation;
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M. A. Hanna Company; Hercules Incorporated; Lyondell Chemical Company
(formerly Lyondell Petrochemical Company); Millennium Chemicals Inc.;
Morton International, Inc.; Rohm and Haas Company; Solutia Inc.; Union
Carbide Corporation; Wellman, Inc.; and Witco Corporation. W.R. Grace &
Co., which was included in the peer group in the Company's proxy statement
last year, has been excluded from the Company's peer comparison group, and
Solutia Inc., which was not included in the peer group in the Company's
proxy statement last year, has been added to 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
EASTMAN CHEMICAL COMPANY
1999 DIRECTOR LONG-TERM COMPENSATION PLAN
1. Purpose
The purpose of the Plan is to provide motivation to non-employee members of
the Board of Directors of the Company to put forth maximum efforts toward the
continued growth, profitability, and success of the Company and its Subsidiaries
by providing incentives to such Directors through the ownership and performance
of Common Stock of the Company. Toward this objective, this Plan provides for
regular, automatic grants of stock options and one-time, automatic awards of
restricted stock on the terms and subject to the conditions set forth in the
Plan.
2. Definitions
2.1 "Award" means a stock option grant or restricted stock award under the
Plan to a Participant pursuant to the terms, conditions, restrictions and/or
limitations established herein.
2.2 "Board" means the Board of Directors of the Company.
2.3 "Change In Control" means a change in control of the Company of a
nature that would be required to be reported (assuming such event has not been
"previously reported") in response to Item 1(a) of a Current Report on Form 8-K,
as in effect on December 31, 1998, pursuant to Section 13 or 15(d) of the
Exchange Act; provided that, without limitation, a Change In Control shall be
deemed to have occurred at such time as (i) any "person" within the meaning of
Section 14(d) of the Exchange Act, other than the Company, a Subsidiary, or any
employee benefit plan(s) sponsored by the Company or any Subsidiary, is or has
become the "beneficial owner," as defined in Rule 13d-3 under the Exchange Act,
directly or indirectly, of 25% or more of the combined voting power of the
outstanding securities of the Company ordinarily having the right to vote in the
election of directors; provided, however, that the following will not constitute
a Change In Control: any acquisition by any corporation if, immediately
following such acquisition, more than 75% of the outstanding securities of the
acquiring corporation ordinarily having the right to vote in the election of
directors is beneficially owned by all or substantially all of those persons
who, immediately prior to such acquisition, were the beneficial owners of the
outstanding securities of the Company ordinarily having the right to vote in the
election of directors, or (ii) individuals who constitute the Board on January
1, 1999 (the "Incumbent Board") have ceased for any reason to constitute at
least a majority thereof, provided that: any person becoming a director
subsequent to January 1, 1999 whose election, or nomination for election by the
Company's shareowners, was approved by a vote of at least three-quarters ( 3/4)
of the directors comprising the Incumbent Board (either by a specific vote or by
approval of the proxy statement of the Company in which such person is named as
a nominee for director without objection to such nomination) shall be, for
purposes of the Plan, considered as though such person were a member of the
Incumbent Board, (iii) upon approval by the Company's shareowners of a
reorganization, merger or consolidation, other than one with respect to which
all or substantially all of those persons who were the beneficial owners,
immediately prior to such reorganization, merger or consolidation, of
outstanding securities of the Company ordinarily having the right to vote in the
election of directors own, immediately after such transaction, more than 75% of
the outstanding securities of the resulting corporation ordinarily having the
right to vote in the election of directors; or (iv) upon approval by the
Company's shareowners of a complete liquidation and dissolution of the Company
or the sale or other disposition of all or substantially all of the assets of
the Company other than to a Subsidiary. Notwithstanding the occurrence of any of
the foregoing, the Committee may determine, if it deems it to be in the best
interest of the Company, that an event or events otherwise constituting a Change
In Control shall not be so considered. Such determination shall be effective
only if: (i) it is made by the Committee prior to the occurrence of an event
that otherwise would be or probably will lead to a Change In Control or after
such event if made by the Committee a majority of which is composed of directors
who were members of the Board immediately prior to the event that otherwise
would be or probably will lead to a Change In Control; and (ii) it would not, in
the opinion of the Company's accountants, preclude the use of
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"pooling of interest" accounting treatment for a Change in Control transaction
that would otherwise qualify for such accounting treatment and which is
contingent upon qualifying for such accounting treatment.
2.4 "Change In Control Price" means the highest closing price (or, if the
shares are not traded on an exchange, the highest last sale price or closing
"asked" price) per share paid for the purchase of Common Stock in a national
securities market during the ninety (90) day period ending on the date the
Change In Control occurs.
2.5 "Code" means the Internal Revenue Code of 1986, as amended from time to
time.
2.6 "Committee" means the Committee on Directors of the Board or such other
committee, designated by the Board, authorized to administer the Plan under
Section 3 hereof. The Committee shall consist of not less than two members, each
of whom is intended to be a "non-employee director" as such term is defined in
Rule 16b-3 under the Exchange Act or any successor rule.
2.7 "Common Stock" means the $.01 par value common stock of the Company.
2.8 "Company" means Eastman Chemical Company.
2.9 "Exchange Act" means the Securities and Exchange Act of 1934, as
amended.
2.10 "Fair Market Value" means the closing price of the shares of Common
Stock on the New York Stock Exchange on the day on which such value is to be
determined or, if no shares were traded on such day, on the next preceding day
on which shares were traded; provided, however, that if at any relevant time the
shares of Common Stock are not traded on the New York Stock Exchange, the "Fair
Market Value" shall be determined by reference to the closing price of the
shares of Common Stock on another national securities exchange, if applicable,
or if the shares are not traded on an exchange but are traded in the
over-the-counter market, by reference to the last sale price or the closing
"asked" price of the shares in the over-the-counter market as reported by the
National Association of Securities Dealers Automatic Quotation System (NASDAQ)
or other national quotation service.
2.11 "Participant" means any Director of the Company who is not an employee
of the Company or a Subsidiary or a former Director, to the extent provided in
Section 6(f).
2.12 "Plan" means the Eastman Chemical Company 1999 Director Long-Term
Compensation Plan.
2.13 "Subsidiary" means a corporation or other business entity in which the
Company directly or indirectly has an ownership interest of 80 percent or more.
3. Administration
The Plan shall be administered by the Committee. The Committee shall have
the authority to: (a) interpret the Plan; (b) establish such rules and
regulations as it deems necessary for the proper operation and administration of
the Plan; and (c) take any and all other action it deems necessary or advisable
for the proper operation or administration of the Plan. Notwithstanding the
foregoing, the Committee shall have no authority to vary the Directors who are
Participants under the Plan or the form, type, timing, terms, conditions,
restrictions, or limitations of, or other aspects of, Awards. All determinations
of the Committee shall be made by a majority of its members, and its
determinations shall be final, binding and conclusive. The Committee, in its
discretion, may delegate its authority and duties under the Plan to the Chief
Executive Officer and/or to other senior officers of the Company under such
conditions and/or limitations as the Committee may establish.
4. Shares Available
The maximum number of shares of Common Stock that shall be available for
grant of Awards under the Plan during its term shall not exceed 60,000. Such
amount shall be subject to adjustment as provided in Section 10. Any shares of
Common Stock related to Awards that terminate by expiration, forfeiture,
cancellation or otherwise without the issuance or vesting of such shares shall
be available again for grant under the Plan. Further, any shares of Common Stock
that are used by a Participant for the full or partial payment to
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the Company of the purchase price of Common Stock upon exercise of a stock
option, or for withholding taxes due as a result of such exercise or as a result
of the vesting of restricted stock, shall again be available for Awards under
the Plan. The shares of Common Stock available for issuance under the Plan may
be authorized and unissued shares or treasury shares.
5. Effective Date; Term
The Plan shall become effective as of the date upon which it is approved by
the shareowners of the Company. No Awards shall be exercisable or vest before
the Plan shall have become effective. No Awards (other than subsequent options
granted pursuant to Section 6(f)) may be made pursuant to the Plan after the
later of May 1, 2004 or the date of the Annual Meeting of Shareowners of the
Company for the year 2004.
6. Annual Option Grants
(a) Grant of Options. Immediately following each annual election of
directors at an Annual Meeting of Shareowners of the Company, each Participant
shall be granted, effective as of the date of such Annual Meeting, an option to
purchase 1,000 shares of Common Stock. The foregoing number of shares shall be
adjusted in accordance with the principles of Section 10 in the event of the
occurrence of an event described therein.
(b) Exercise Price. The exercise price of an option granted pursuant to
this Section 6 shall equal the Fair Market Value of the Common Stock on the date
the option is granted.
(c) Medium and Time of Payment. The exercise price shall be payable in
full upon the exercise of the option in cash, by check, or in shares of Common
Stock held by the Participant for at least six months. Such shares shall be
valued at their Fair Market Value as of the date of exercise.
(d) Exercise. Each option granted under this Section 6 shall become
exercisable as to one-half of the shares on the first anniversary of the date of
grant and with respect to the remaining shares subject to such option on the
second anniversary of the date of grant.
(e) Term. Options granted under this Section 6 shall have a term of ten
(10) years.
(f) Subsequent Option. The option granted pursuant to Section 6(a) shall
provide that, upon exercise of such option by the surrender of previously owned
shares of Common Stock during such time as the Participant is a member of the
Board or during the first 60 days following termination of the Participant's
tenure on the Board, the Participant shall be granted a new option to acquire a
number of shares of Common Stock equal to the number of shares surrendered in
such exercise, having a term equal to the remaining term of the initial option,
and having an exercise price equal to the Fair Market Value of the Common Stock
at the time of exercise of the initial option. In other respects, such new
option shall have the same terms and conditions as the initially granted option;
provided, however, that (i) such new option shall not provide for the issuance
of another option upon exercise of such new option with previously owned shares
of Common Stock and, (ii) the new option shall become exercisable on the earlier
of six months from the date of grant or such time as the Participant is no
longer a member of the Board.
(g) Stock Option Award Notice. Each option granted under this Plan shall
be evidenced by a Stock Option Award Notice, substantially in the form attached
hereto as Exhibit A.
7. One-Time Restricted Stock Awards
(a) Grant of Award. Subject to the restrictions provided below, each
Participant whose initial term of service on the Board begins on or after
January 1, 1999 shall be granted an Award of shares of Common Stock having an
aggregate Fair Market Value equal to $10,000, such grant to be effective as of
the first day of such Participant's initial term of service on the Board of
Directors, or, if later, the effective date of the Plan. The foregoing number of
shares shall be adjusted in accordance with the principles of Section 10 in the
event of an occurrence of an event described therein.
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(b) Award Restrictions. Common Stock awarded under Section 7(a) may not be
transferred or sold by the Participant and is subject to forfeiture until vested
in accordance with the following sentence. A restricted stock Award under
Section 7(a) will vest and all restrictions with respect thereto will lapse
three (3) years from the date of such Award if and only if (i) the Participant
is still a director of the Company at the end of such three-year period, or (ii)
his or her tenure as director of the Company terminated during such three-year
period by reason of death or disability, or (iii) his or her tenure as director
of the Company terminated during such three-year period by reason of his or her
failure to be reelected as a director in an election in which he or she
consented to be named as a director nominee. If at the end of the three-year
period referred to above the Participant is not still a director of the Company
and his or her directorship terminated by any reason other than death,
disability or the failure to be reelected as aforesaid, then the Participant's
stock Award under Section 7(a) shall be canceled and forfeited.
(c) Rights as Shareowners. During the period in which any shares of Common
Stock are subject to the restrictions on transfer imposed under Section 7(b),
the Participant shall have all of the rights of a shareowner with respect to
such shares, including, without limitation, the right to vote such shares and to
receive dividends.
(d) Restricted Stock Award Notice; Evidence of Award. Each stock Award
granted under this Plan shall be evidenced by a Restricted Stock Award Notice,
substantially in the form attached hereto as Exhibit B. In addition, the
restricted shares under any such Award may be evidenced in such manner as the
Committee deems appropriate, including, without limitation, book-entry
registration or issuance of a stock certificate or certificates.
8. Termination of Tenure
If a Participant's tenure on the Board terminates for a reason other than
death, disability, or completion of such Participant's current term in office,
all unexercised, unearned, unvested and/or unpaid Awards, including without
limitation, Awards earned but not yet paid shall be canceled or forfeited;
provided, however, that any vested stock Award under Section 7 shall not be
canceled or forfeited. The Committee shall have the authority to promulgate
rules and regulations to administer the foregoing.
9. Nonassignability
No Awards or any other payment under the Plan shall be subject in any
manner to alienation, anticipation, sale, transfer (except by will or the laws
of descent and distribution), assignment, pledge, or encumbrance, nor during the
lifetime of the Participant shall any Award be payable to or exercisable by
anyone other than the Participant to whom it was granted, other than in the case
of a permanent disability involving a mental incapacity (in which case such
Award would be payable to or exercisable by the disabled Participant's legal
representative).
10. Adjustment of Shares Available
If there is a change in the number of outstanding shares of Common Stock
through the declaration of stock dividends or stock splits, the number of shares
available for Awards, the shares subject to any Award and the option prices or
exercise prices of Awards shall be automatically adjusted. If there is a change
in the number of outstanding shares of Common Stock or any change in the
outstanding stock of the Company (or any successor to the Company), or any other
transaction described in Section 424(a) of the Code, the Committee shall make
appropriate adjustments in the number and kind of shares of stock that may be
issued under the Plan and any adjustments and/or modifications to outstanding
Awards as it deems appropriate. In the event of any other change in the capital
structure or in the Common Stock of the Company, the Committee shall also be
authorized to make such appropriate adjustments in the shares of stock available
for issuance under the Plan and any adjustments and/or modifications to
outstanding Awards as it deems appropriate.
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11. Withholding Taxes
The Company shall have the power and the right to deduct or withhold, or
require a Participant to remit to the Company, an amount sufficient to satisfy
Federal, state, and local taxes (including the Participant's FICA obligation)
required by law to be withheld with respect to any taxable event arising as a
result of this Plan. With respect to withholding required upon any taxable event
hereunder, the Company may elect in its discretion, and Participants may elect,
to satisfy the withholding requirement, in whole or in part, by withholding or
having the Company withhold shares of Common Stock having a Fair Market Value on
the date the tax is to be determined equal to the minimum statutory total tax
which could be imposed on the transaction. All elections by Participants shall
be irrevocable, made in writing, and signed by the Participant.
12. Confidentiality
A Participant will not, without the written consent of the Company, either
during his or her term in office or thereafter, disclose to anyone or make use
of any confidential information which he or she has acquired during his or her
term in office relating to any of the business of the Company, except as such
disclosure or use may be required in connection with his or her position as a
director of the Company. A Participant shall forfeit all rights under this Plan
to any unexercised, unpaid, or unvested Awards if the Participant has violated
the agreement set forth in this Section 12.
13. Regulatory Approvals and Listings
Notwithstanding anything contained in the Plan to the contrary, the Company
shall have no obligation to issue or deliver certificates of Common Stock
evidencing stock Awards or any other Award resulting in the payment of Common
Stock prior to (a) the obtaining of any approval from any governmental agency
which the Company shall, in its sole discretion, determine to be necessary or
advisable, (b) the admission of such shares to listing on the stock exchange on
which the Common Stock may be listed, and (c) the completion of any registration
or other qualification of said shares under any state or Federal law or ruling
of any governmental body which the Company shall, in its sole discretion,
determine to be necessary or advisable.
14. No Right to Continued Position on Board
Participation in the Plan shall not give any Participant any right to
remain on the Board.
15. Amendment
The Board or the Committee may, at any time and from time to time, suspend,
amend, modify, or terminate the Plan without shareowner approval; provided,
however, that the Board or Committee may condition any amendment or modification
on the approval of shareowners of the Company if such approval is necessary or
deemed advisable with respect to tax, securities, or other applicable laws,
policies, or regulations.
16. Governing Law
The Plan shall be governed by and construed in accordance with the laws of
the State of Delaware, except as superseded by applicable Federal law.
17. Change In Control
(a) Background. Upon a Change In Control: (i) the terms of this
Section 17 shall immediately become operative, without further action or
consent by any person or entity; (ii) all conditions, restrictions, and
limitations in effect on any unexercised, unearned, unpaid, unvested,
and/or deferred Award, or any other outstanding Award, shall immediately
lapse as of the date of such event; (iii) no other terms, conditions,
restrictions and/or limitations shall be imposed upon any Awards on or
after such date, and in no circumstance shall an Award be forfeited on or
after such date; and (iv) all unexercised, unvested, unearned, and/or
unpaid Awards or any other outstanding Awards shall automatically become
one hundred percent (100%) vested immediately.
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(b) Valuation and Payment of Awards. Upon a Change In Control, all
outstanding stock options and stock Awards shall be valued and paid in cash as
soon as practicable but in no event later than 90 days after the Change In
Control on the basis of the Change In Control Price; provided, however, that
this Section 17(b) shall not apply if, in the opinion of the Company's
accountants, its effect would be to preclude the use of "pooling of interest"
accounting treatment for a Change In Control transaction that would otherwise
qualify for such accounting treatment and which is contingent upon qualifying
for such accounting treatment.
(c) Miscellaneous. Upon a Change In Control, (i) the provisions of
Sections 8 shall become null and void and of no further force and effect; and
(ii) no action, including, without limitation, the amendment, suspension, or
termination of the Plan, shall be taken which would affect the rights of any
Participant or the operation of the Plan with respect to any Award to which the
Participant may have become entitled hereunder on or prior to the date of such
action or as a result of such Change In Control.
(d) Legal Fees. The Company shall pay all reasonable legal fees and
related expenses incurred by a Participant in seeking to obtain or enforce any
payment, benefit or right such Participant may be entitled to under the Plan
after a Change In Control; provided, however, the Participant shall be required
to repay any such amounts to the Company to the extent a court of competent
jurisdiction issues a final and non-appealable order setting forth the
determination that the position taken by the Participant was frivolous or
advanced in bad faith.
18. No Right, Title, or Interest in Company Assets
No Participant shall have any rights as a shareowner as a result of
participation in the Plan until the date of issuance of a stock certificate in
the Participant's name, or, in the case of restricted shares of Common Stock,
such rights are granted to the Participant under Section 7 hereof. To the extent
any person acquires a right to receive payments from the Company under the Plan,
such rights shall be no greater than the rights of an unsecured creditor of the
Company.
19. Securities Laws
Transactions under this Plan are intended to comply with all applicable
conditions of Rule 16b-3 or its successors under the Exchange Act. To the extent
any provision of the Plan or action by the Committee fails so to comply, it
shall be deemed null and void, to the extent permitted by law and deemed
advisable by the Committee.
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EXHIBIT A
TO
1999 DIRECTOR LONG-TERM COMPENSATION PLAN
---------------------
FORM OF STOCK OPTION AWARD NOTICE
---------------------
NOTICE OF NONQUALIFIED STOCK OPTION
GRANTED PURSUANT TO THE
EASTMAN CHEMICAL COMPANY
1999 DIRECTOR LONG-TERM COMPENSATION PLAN
GRANTEE:
NUMBER OF SHARES: 1,000
OPTION PRICE:
DATE OF GRANT:
1. Grant of Option. This Award Notice serves to notify you that Eastman
Chemical Company ("Company") has granted to you, under its 1999 Director
Long-Term Compensation Plan ("Plan"), a nonqualified stock option ("Option") to
purchase, on the terms and conditions set forth in this Award Notice and the
Plan, the number of shares of its $.01 par value Common Stock ("Common Stock")
set forth above, at a price equal to $ per share. The Plan is
incorporated herein by reference and made a part of this Award Notice.
Capitalized terms not defined herein have the respective meanings set forth in
the Plan.
2. Period of Option Exercise. The Option shall expire at 5:00 p.m.,
Eastern Standard Time, on ("Expiration Date").
3. Exercise of Option. The terms, times and conditions of exercise of the
Option are as follows:
(a) Subject to the terms set forth in this Award Notice, the Option
shall become exercisable as to one half of the shares covered hereby on
, and as to the remaining shares on .
(b) Upon your death, your personal representative may exercise the
Option, subject to the terms set forth in this Award Notice, until the
Expiration Date.
(c) The Option, may be exercised in whole or in part by completing and
returning the exercise form delivered with the Option. The exercise form
generally must be accompanied by, or make provision for, full payment in
cash; by check; or by surrendering unrestricted shares of Common Stock
having a value on the date of exercise equal to the exercise price,
together with proof that such shares, if acquired through a previous option
exercise, have been owned by the optionee for at least six months prior to
the date of exercise of the Option; or in any combination of the foregoing;
however, if you wish to pay with shares of Common Stock already held by
you, you may submit a Stock Validation form attesting to the ownership of
the shares instead of sending in actual share certificates.
(d) Except under the circumstances described in Section 6 of this
Award Notice, and subject to the final sentence of this Section 3(d), if
you exercise the Option through the use of previously owned Common Stock
(pursuant to Section 3(c)) that you have held for at least six months, you
will be granted a new Option ("Reload Option") to acquire a number of
shares of Common Stock equal to the number of shares so used, at an
exercise price equal to the Fair Market Value of the Common Stock at the
time of exercise of the Option, and having a term equal to the remaining
term of the Option. The Reload Option will become exercisable six months
from the date of grant. The Reload Option may be exercised through the use
of previously owned shares of Common Stock (as described in Section 3(c) of
this Award Notice), but you will not be granted an additional Option in
connection with the exercise of the Reload Options. The Committee shall
have the right, in its sole discretion, to discontinue the grant of Reload
Options under the Plan at any time, effective upon written notice to you.
A-7
49
4. Nontransferability. The Option is not transferable except by will or by
the laws of descent and distribution, and may not be sold, assigned, pledged or
encumbered in any way, whether by operation of law or otherwise. The Option may
be granted only to, and exercised only by you during your lifetime, except in
the case of a permanent disability involving mental incapacity.
5. Limitation of Rights. You will not have any rights as a shareowner with
respect to the shares covered by the Option until you become the holder of
record of such shares by exercising the Option. Neither the Plan, the granting
of the Option nor this Award Notice gives you any right to be retained in the
service of the Company or a Subsidiary.
6. Termination. Upon termination of your directorship by reason of death,
disability or retirement, or for another approved reason, as determined by the
Committee, the Option will remain exercisable in accordance with its original
terms, except that the Reload Option described in Section 3(d) of this Award
Notice will not be granted in connection with any exercise of the Option
occurring more than 60 days after the date of such termination. Upon termination
of your directorship for a reason other than death, disability, retirement or
another approved reason, any portion of the Option not previously exercised by
you will be canceled and forfeited by you, without payment of any consideration
by the Company.
7. Confidentiality. You will forfeit all rights under the Option if you
violate the confidentiality provisions contained in Section 12 of the Plan.
8. Restrictions on Issuance of Shares. If at any time the Company
determines that listing, registration or qualification of the shares covered by
the Option upon any securities exchange or under any state or federal law, or
the approval of any governmental agency, is necessary or advisable as a
condition to the exercise of the Option, the Option may not be exercised in
whole or in part unless and until such listing, registration, qualification or
approval shall have been effected or obtained free of any conditions not
acceptable to the Company.
9. Change in Control. Section 17 of the Plan contains certain special
provisions that will apply to the Option in the event of a Change in Control.
10. Adjustment of Shares. If the number of outstanding shares of Common
Stock changes through the declaration of stock dividends or stock splits, the
number of shares subject to the Option and the exercise price of the Option will
be appropriately adjusted. If there is a change in the number of outstanding
shares of Common Stock or any change in the outstanding stock in the Company,
the Committee will make any adjustments and modifications to the Option that it
deems appropriate. In the event of any other change in the capital structure or
in the Common Stock of the Company, the Committee is authorized to make
appropriate adjustments to the Option.
11. Plan Controls. In the event of any conflict between the provisions of
the Plan and the provisions of this Award Notice, the provisions of the Plan
will be controlling and determinative.
A-8
50
EXHIBIT B
TO
1999 DIRECTOR LONG-TERM COMPENSATION PLAN
---------------------
FORM OF RESTRICTED STOCK AWARD NOTICE
---------------------
NOTICE OF LONG-TERM STOCK AWARD
PURSUANT TO THE
EASTMAN CHEMICAL COMPANY
1999 DIRECTOR LONG-TERM COMPENSATION PLAN
GRANTEE:
NUMBER OF SHARES:
DATE OF GRANT:
1. Award of Long-Term Stock. Eastman Chemical Company ("Company") has
granted to you, under its 1999 Director Long-Term Compensation Plan ("Plan"),
( ) shares ("Long-Term Stock") of its $.01 par
value Common Stock ("Common Stock") to be held as restricted stock under the
terms of the Plan and this Award Notice ("Award Notice"). The Plan is
incorporated herein by reference and made a part of this Award Notice.
Capitalized terms not defined herein shall have the respective meanings set
forth in the Plan. The principal terms of the Plan, and the issuance by the
Company of the Long-Term Stock under the terms of the Plan and this Award
Notice, are described in the Prospectus for the Plan, which Prospectus has been
delivered to you by the Company.
2. Lapse of Restrictions. The restrictions on transfer described below
with respect to the Long-Term Stock awarded to you hereunder shall lapse at 5:00
p.m., Eastern Standard Time, on (the "Vesting Date"), if and only
if (a) you are still a director of the Company at that time or (b) your tenure
as a director terminated during such three-year period by reason of death or
disability or by reason of failure to be reelected as a director in an election
in which you consented to be named as a nominee.
3. Book-Entry Registration. The Long-Term Stock awarded pursuant to this
Award Notice initially will be evidenced by book-entry registration only,
without the issuance of a certificate representing such shares.
4. Issuance of Shares. Subject to the provisions of Section(s) 7 and 10 of
this Award Notice, the Company shall, provided that the conditions to vesting
specified in Section 2 of this Award Notice are satisfied, issue a certificate
or certificates representing the Long-Term Stock as promptly as practicable
following the Vesting Date.
5. Restrictions on Transfer of Shares. Shares of Long-Term Stock awarded
under the Plan, and the right to vote such shares and to receive dividends
thereon, may not, except as otherwise provided in the Plan, be sold, assigned,
transferred, pledged or encumbered in any way prior to the Vesting Date, whether
by operation of law or otherwise, except by will or the laws of descent and
distribution. After the Vesting Date, the unrestricted shares of Long-Term Stock
may be issued during your lifetime only to you, except in the case of a
permanent disability involving mental incapacity.
6. Rights as a Shareowner. Except as otherwise provided in the Plan or
this Award Notice, prior to the Vesting Date, you will have all of the other
rights of a shareowner with respect to the Long-Term Stock, including, but not
limited to, the right to receive such cash dividends, if any, as may be declared
on such shares from time to time and the right to vote (in person or by proxy)
such shares at any meeting of shareowners of the Company.
7. Termination of Tenure as a Director. Upon termination of your tenure as
a director of the Company, prior to the Vesting Date, other than by reason of
death, disability or completion of your current term in office,
A-9
51
all of the Long-Term Stock awarded to you shall be canceled and forfeited by you
to the Company without the payment of any consideration by the Company. In such
event, neither you nor your successors, heirs, assigns or personal
representatives will thereafter have any further rights or interest in or with
respect to such shares.
8. Change in Control. Upon a Change in Control of the Company, the
provisions of Section 17 of the Plan shall automatically and immediately become
operative with respect to the Long-Term Stock.
9. No Right to Continued Position on Board. Neither the Plan, the award of
Long-Term Stock, nor this Award Notice shall give you any right to remain on the
Company's Board of Directors.
10. Confidentiality. It is a condition to your continued rights under the
Plan, this Award Notice, and the Long-Term Stock that you not, without the
Company's written consent, disclose to anyone or make use of any confidential
information which you shall acquire during your term in office relating to any
of the business of the Company, except as such disclosure or use may be required
in connection with your position as a director of the Company. You will forfeit
all rights with respect to any unvested shares of the Long-Term stock if you
violate this confidentiality obligation.
11. Restrictions on Issuance of Shares. If at any time the Company shall
determine, in its sole discretion, that listing, registration or qualification
of the shares of Long-Term Stock upon any securities exchange or under any state
or federal law, or the consent or approval of any governmental regulatory body,
is necessary or advisable as a condition to the award or issuance of
certificate(s) for such Long-Term Stock hereunder, such award or issuance may
not be made in whole or in part unless and until such listing, registration,
qualification, consent or approval shall have been effected or obtained free of
any conditions not acceptable to the Company.
12. Plan Controls. In the event of any actual or alleged conflict between
the provisions of the Plan and the provisions of this Award Notice, the
provisions of the Plan shall be controlling and determinative.
A-10
52
FORM OF PAPER PROXY (FRONT)
---------------------------
[EASTMAN LOGO]
PROXY SERVICES
P.O. BOX 9079
FARMINGDALE, NY 11735
ADMISSION TICKET
RETAIN FOR ADMITTANCE
This is your Admission Ticket to Eastman's 1999 Annual Meeting of Shareowners.
The meeting will be held at Eastman's Employee Center, 400 South Wilcox Drive,
Kingsport, Tennessee, on Thursday, May 6, 1999 at 10:00 am. If you plan to
attend the Annual Meeting, please so indicate by checking the box on your proxy
card. Directions and a regional map are on the reverse side of this insert.
1999 ANNUAL MEETING PROXY VOTING
YOUR VOTE IS IMPORTANT
It is important that your shares be represented and voted. Please vote by proxy,
even if you plan to attend the Annual Meeting. This year you can vote your
shares by proxy by telephone, through the Internet, or by mail.
The shares represented by proxy will be voted in accordance with your
specifications. In the absence of specifications, your proxies will vote FOR
items 1, 2 and 3, AGAINST item 4, and will vote in their discretion on any other
matters that come before the meeting or any adjournment thereof.
SUBMIT YOUR PROXY BY PHONE - 1-800-690-6903
Use any touch-tone telephone to submit your proxy 24 hours a day, 7 days a week.
Have your proxy card in hand when you call. You will be prompted to enter your
12-digit Control Number, which is located below. You will then be asked to
provide voting instructions on each proposal. Your voting instructions will be
repeated to you and you will be asked to confirm them.
SUBMIT YOUR PROXY BY INTERNET - WWW.PROXYVOTE.COM
Use the Internet to submit your proxy 24 hours a day, 7 days a week. Have your
proxy card in hand when you access the website. You will be prompted to enter
your 12-digit Control Number, which is located below, to obtain your records and
create an electronic ballot. You will then be asked to provide instructions on
each proposal and confirm your submission.
SUBMIT YOUR PROXY BY MAIL
Mark, sign and date your attached proxy card and return it in the postage-paid
envelope we've provided or return it to Eastman Chemical Company, c/o ADP, 51
Mercedes Way, Edgewood, NY 11717. Please sign exactly as your name appears
hereon. When shares are held by joint tenants, both should sign. When signing as
attorney, executor, administrator, trustee, or guardian, please give full title
as such. If a corporation, please sign in full corporation name by president or
other authorized officer. If a partnership, please sign in partnership name by
authorized person.
IF YOU SUBMIT YOUR PROXY BY PHONE OR BY INTERNET, PLEASE DO NOT
MAIL YOUR PROXY CARD.
THANK YOU FOR VOTING
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: [X]
KEEP THIS PORTION FOR YOUR RECORDS
- --------------------------------------------------------------------------------
DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
EASTMAN CHEMICAL COMPANY
The Board of Directors recommends a vote FOR Items 1, 2, and 3 AGAINST Item 4.
FOR WITHHOLD FOR ALL To withhold authority to vote for less than all nominees,
ALL ALL EXCEPT: mark "For All Except" and write the name(s) of
1. Election of Directors. (see reverse) individual(s) for whom authority is withheld
(1) Calvin A. Campbell, Jr. [ ] [ ] [ ]
(2) Earnest W. Deavenport, Jr.
(3) John W. Donehower ---------------------------------------------------------
(4) Lee Liu
FOR AGAINST ABSTAIN
FOR AGAINST ABSTAIN [ ] [ ] [ ]
2. Approval of 1999 Director Long-Term [ ] [ ] [ ] 4. Adoption of shareowner proposal to discontinue use of
Compensation Plan. "Bonuses" and "Options, Rights, SARs, etc." as
management compensation.
3. Ratification of the appointment of [ ] [ ] [ ] If you plan to attend the Annual Meeting, please check
PricewaterhouseCoopers LLP as this box [ ]
Independent accountants
To help us eliminate duplicate mailings to the same
beneficial holders, please check the box if you hold
shares in more than one account and wish to
discontinue Annual Report mailing for this account [ ]
- --------------------------------------------- ---------------------------------------------
Signature [PLEASE SIGN WITHIN BOX] DATE Signature [Joint Owners] DATE
53
FORM OF PAPER PROXY (BACK)
--------------------------
EASTMAN
Annual Meeting of Shareowners
Thursday, May 6, 1999
10:00 a.m.
Eastman Employee Center
400 South Wilcox Drive
Kingsport, Tennessee
(423) 224-0905
FROM INTERSTATE - 81:
Take exit 57B north to Kingsport.
Take exit 51 onto Business Route 93
(Wilcox Drive) north to Eastman Employee Center.
Located on left at corner of Wilcox Drive and Lincoln
Street.
FROM INTERSTATE - 181:
Take exit 51 onto Business Route 93 (Wilcox Drive) [GRAPHIC OF MAP]
north to Eastman Employee Center.
Located on left corner of Wilcox Drive and Lincoln
Street.
FROM JOHN B. DENNIS BYPASS (ROUTE 93):
Exit north onto Lincoln Street to Wilcox Drive.
Take left onto Wilcox Drive.
Eastman Employee Center is the first entrance on right,
building on left.
- -------------------------------------------------------------------------------
EASTMAN CHEMICAL COMPANY
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE ANNUAL MEETING OF SHAREOWNERS
TO BE HELD ON MAY 6, 1999
The undersigned hereby appoints Allan R. Rothwell and Harold L. Henderson, and
each of them, with individual power of substitution, proxies to vote all shares
of Common Stock of Eastman Chemical Company that the undersigned may be
entitled to vote at the Annual Meeting of Shareowners to be held at Eastman's
Employee Center, 400 South Wilcox Drive, Kingsport, Tennessee, on May 6, 1999
at 10:00 a.m., local time, and at any adjournments 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 ITEM 4.
Nominees for election of four directors to serve in the class for which the
term in office expires at the Annual Meeting of Shareowners in 2002 and until
their successors are duly elected and qualified:
1) Calvin A. Campbell, Jr.
2) Earnest W. Deavenport, Jr.
3) John W. Donehower
4) Lee Liu
54
SCRIPT OF DIALOGUE FOR PROXY VOTING BY TELEPHONE
------------------------------------------------
DIALOGUE TYPE OF
NUMBER DIALOGUE DIALOGUE
- -------- -------- --------
1 GREETING 1 HELLO. THANK YOU FOR CALLING THE TELEPHONE PROXY VOTING SERVICE.
- GO TO DIALOGUE #2.
2 GREETING 2 PRESS ONE IF YOU ARE CALLING FROM A TOUCH-TONE PHONE AND HAVE YOUR PROXY
FORM IN FRONT OF YOU.
- Enter "1".
- GO TO DIALOGUE #3.
- Enter INVALID response. "Please call back when you have your Proxy Form.
Thank you for calling the Telephone Proxy Voting Service. This concludes
your transaction."
- DISCONNECT.
- WHEN AN INVALID RESPONSE OF MORE THAN 1 DIGIT IS ENTERED, THE CALLER IS
DISCONNECTED WITHOUT A MESSAGE.
- Enter NOTHING. "Please call back when you have your Proxy Form. Thank you
for calling the Telephone Proxy Voting Service. This concludes your
transaction."
- DISCONNECT.
3 LET'S BEGIN LET'S BEGIN.
- GO TO DIALOGUE #4.
Page 1
55
SCRIPT OF DIALOGUE FOR PROXY VOTING BY TELEPHONE
------------------------------------------------
DIALOGUE TYPE OF
NUMBER DIALOGUE DIALOGUE
- -------- -------- --------
4 ENTER CN PLEASE ENTER THE TWELVE DIGIT CONTROL NUMBER LOCATED ON
THE PROXY FORM.
- Enter 12 VALID CONTROL NUMBER DIGITS during or after
dialogue #s 3 & 4.
- GO TO DIALOGUE #5.
- Enter 12 INVALID CONTROL NUMBER DIGITS during or after
dialogue #s 3 & 4. "Sorry, your Control Number is
invalid."
- GO TO DIALOGUE #4.
- A THIRD INVALID attempt triggers the "Sorry
Problems" message and disconnects.
- Enter 1 TO 11 INVALID DIGITS/CHARACTERS during or after
dialogue #s 3 & 4. "Sorry, your input was invalid."
- GO TO DIALOGUE #4
- A THIRD INVALID attempt triggers the "Sorry
Problems" message and disconnects -.
- Enter NOTHING. "I have not received your response." OR
"Sorry, your input was invalid."
- GO TO DIALOGUE #4.
- A THIRD NO RESPONSE triggers the "Sorry
Problems" message and disconnects-.
5 THANK YOU THANK YOU.
WHEN VOTE IS IN ADVANCE OF THE MEETING DATE...
- GO TO DIALOGUE #6.
OR
WHEN VOTE IS ON THE DAY OF OR PASSED THE MEETING DATE...
"Your vote cannot be accepted. It is the day of the
meeting or the vote is late."
- GO TO DIALOGUE #4.
Page 2
56
SCRIPT OF DIALOGUE FOR PROXY VOTING BY TELEPHONE
------------------------------------------------
DIALOGUE TYPE OF
NUMBER DIALOGUE DIALOGUE
- -------- -------- --------
6 ACCEPT DEFAULT IF YOU ELECT TO VOTE AS THE BOARD OF DIRECTORS RECOMMENDS,
PRESS ONE. IF YOU ELECT TO VOTE ON DIRECTORS AND PROPOSALS
INDIVIDUALLY, PRESS TWO.
- Enter "1".
- GO TO DIALOGUE #24.
- Enter "2".
- GO TO DIALOGUE #7.
- Enter NOTHING or an INVALID response. "I have not
received your response." or "Sorry, you input was
invalid."
- GO TO DIALOGUE #6.
- A THIRD NO RESPONSE or INVALID RESPONSE
triggers the "Sorry Problems" message and
disconnects-.
Page 3
57
SCRIPT OF DIALOGUE FOR PROXY VOTING BY TELEPHONE
------------------------------------------------
DIALOGUE TYPE OF
NUMBER DIALOGUE DIALOGUE
- ------ -------- --------
7 NOMINEE VOTE IF YOU WISH TO VOTE FOR ALL NOMINEES, PRESS ONE.
TO WITHHOLD ALL NOMINEES, PRESS TWO.
TO WITHHOLD SPECIFIC NOMINEES, PRESS THREE.
- Enter "1"
- GO TO DIALOGUE #8.
- Enter "2"
- GO TO DIALOGUE #9.
- Enter "3"
- GO TO DIALOGUE #10.
- Enter NOTHING or an INVALID response. "I have not
receive your response" OR "Sorry, your input was
invalid."
- GO TO DIALOGUE #7
- A THIRD NO RESPONSE or INVALID RESPONSE
triggers the "Sorry Problems" message and
disconnects -.
Page 4
58
SCRIPT OF DIALOGUE FOR PROXY VOTING BY TELEPHONE
------------------------------------------------
DIALOGUE TYPE OF
NUMBER DIALOGUE DIALOGUE
- -------- -------- --------
8 FOR ALL YOU HAVE VOTED FOR ALL NOMINEES. IF THIS IS
NOMINEES CORRECT, PRESS ONE. IF THIS IS NOT CORRECT, PRESS
TWO.
- Enter "1".
- GO TO DIALOGUE #16.
- Enter "2".
- GO TO DIALOGUE #7.
- Enter NOTHING or an INVALID response. "I have
not received your response." OR "Sorry, your
input was invalid."
- GO TO DIALOGUE #8.
- A THIRD NO RESPONSE or INVALID
RESPONSE triggers the "Sorry Problems"
message and disconnects -.
9 WITHHOLD YOU HAVE VOTED TO WITHHOLD ALL NOMINEES. IF THIS IS
ALL NOMINEES CORRECT, PRESS ONE. IF THIS IS NOT CORRECT, PRESS
TWO.
- Enter "1".
- GO TO DIALOGUE #16.
- Enter "2".
- GO TO DIALOGUE #7.
- Enter NOTHING or an INVALID response. "I have
not received your response." OR "Sorry, your
input was invalid."
- GO TO DIALOGUE #9.
- A THIRD NO RESPONSE or INVALID
RESPONSE triggers the "Sorry Problems"
message and disconnects -.
Page 5
59
SCRIPT OF DIALOGUE FOR PROXY VOTING BY TELEPHONE
------------------------------------------------
DIALOGUE TYPE OF
NUMBER DIALOGUE DIALOGUE
- -------- -------- --------
10 SPECIFIC NOMINEE YOU HAVE CHOSEN TO WITHHOLD SPECIFIC NOMINEES.
- GO TO DIALOGUE # 11.
11 ENTER NOMINEE ENTER THE NUMBER THAT IS IN FRONT
OF THE NAME OF THE NOMINEE YOU WISH TO
WITHHOLD. IF YOU ARE FINISHED, ENTER ZERO
ZERO.
- Enter VALID number between 1 and
4.
- GO TO DIALOGUE # 12.
- Enter VALID number between 1 and
4 that was previously entered - therefore
a duplicate nominee number.
- GO TO DIALOGUE # 13.
- Enter "00".
- GO TO DIALOGUE # 16.
- Enter INVALID digit(s).
- GO TO DIALOGUE # 14.
- Enter NOTHING.
- GO TO DIALOGUE # 16.
12 VERIFY NOMINEE YOU HAVE ENTERED NOMINEE NUMBER [NUMBER FOR
NOMINEE FOR WHOM AUTHORITY WITHHELD]. IF
THIS IS CORRECT, PRESS ONE. IF THIS IS NOT
CORRECT, PRESS TWO.
- Enter "1".
- GO TO DIALOGUE # 15.
- Enter "2".
- GO TO DIALOGUE # 15.
- Enter NOTHING or an INVALID RESPONSE. "I
have not received your response." OR
"Sorry, your input was invalid."
- GO TO DIALOGUE # 12. -- (Only "if . . .
correct, press one - if . . . not
correct, press two" is repeated.)
- A THIRD NO RESPONSE or INVALID RESPONSE
triggers "Sorry Problems" message and
disconnects -.
Page 6
60
SCRIPT OF DIALOGUE FOR PROXY VOTING BY TELEPHONE
------------------------------------------------
DIALOGUE TYPE OF
NUMBER DIALOGUE DIALOGUE
- -------- -------- --------
13 DUP NOMINEE YOU HAVE ALREADY SELECTED NOMINEE NUMBER [NUMBER FOR DUPLICATE NOMINEE]
- GO TO DIALOGUE #15.
14 INVALID YOUR ENTRY WAS INVALID. THE NOMINEE NUMBER
NOMINEE MUST BE BETWEEN ONE AND FOUR.
- GO TO DIALOGUE #15.
15 ANOTHER IF YOU WISH TO WITHHOLD ANOTHER NOMINEE,
NOMINEE ENTER THE NUMBER THAT IS IN
FRONT OF THE NAME OF THE NOMINEE YOU WISH
TO WITHHOLD. IF YOU ARE FINISHED, ENTER
ZERO ZERO.
- Enter VALID number between
1 and 4 to withhold another nominee.
- GO TO DIALOGUE #12.
- Enter VALID number between
1 and 4 that was previously entered -
therefore a duplicate nominee number.
- GO TO DIALOGUE #13.
- Enter "00".
- GO TO DIALOGUE #16.
- Enter INVALID nominee number.
- GO TO DIALOGUE #14.
- Enter NOTHING.
- GO TO DIALOGUE #16.
16 PROPOSAL PROXY VOTING CONTINUES WITH PROPOSAL VOTING.
VOTING - GO TO DIALOGUE #17.
17 PROPOSAL WE ARE READY TO ACCEPT YOUR VOTE FOR PROPOSAL...
NAME - GO TO DIALOGUE #18.
Page 7
61
SCRIPT OF DIALOGUE FOR PROXY VOTING BY TELEPHONE
------------------------------------------------
DIALOGUE TYPE OF
NUMBER DIALOGUE DIALOGUE
- -------- -------- --------
18 PROPOSAL VOTE IF YOU ARE VOTING FOR THIS PROPOSAL, PRESS ONE. IF YOU ARE
VOTING AGAINST THIS PROPOSAL, PRESS TWO. IF YOU WISH TO
ABSTAIN, PRESS THREE.
- Enter "1", "2", "3", ETC. (proposal numbers may vary) to
vote on a specific proposal.
- GO TO DIALOGUE #17 to vote on another proposal.
- GO TO DIALOGUE #19 after all proposals are voted.
- Enter NOTHING or INVALID RESPONSE. "I have not received
your response." OR "Sorry, your input was invalid."
- GO TO DIALOGUE #17.
- A THIRD NO RESPONSE OR INVALID RESPONSE
triggers "Sorry Problems" message and
disconnects -.
19 NOMINEE VOTE YOU HAVE VOTED FOR ALL NOMINEES.
CONFIRMATION OR
YOU HAVE VOTED TO WITHHOLD ALL NOMINEES.
OR
YOU HAVE VOTED TO WITHHOLD NOMINEE
[LIST WITHHELD NOMINEES]. . .
- GO TO DIALOGUE #20.
20 FOR PROPOSAL YOU HAVE VOTED FOR PROPOSAL . . .
21 AGAINST YOU HAVE VOTED AGAINST PROPOSAL . . .
PROPOSAL
Page 8
62
SCRIPT OF DIALOGUE FOR PROXY VOTING BY TELEPHONE
------------------------------------------------
DIALOGUE TYPE OF
NUMBER DIALOGUE DIALOGUE
- -------- -------- --------
22 ABSTAIN YOU HAVE VOTED TO ABSTAIN FROM PROPOSAL...
PROPOSAL
- Dialogues 20, 21 and 22 are repeated until all proposal
votes are verified.
- GO TO DIALOGUE #23.
23 CONFIRM VOTES IF THIS IS CORRECT, PRESS ONE. IF THIS IS NOT CORRECT, PRESS
TWO. IF YOU WOULD LIKE YOUR VOTE REPEATED TO YOU, PRESS
THREE.
- Enter "1". "A vote has been recorded for
Control Number............".
- GO TO DIALOGUE #26.
- Enter "2"
- GO TO DIALOGUE #6.
- A THIRD ENTRY OF THIS RESPONSE triggers
the "Too Many Incorrect" message, followed
by the "Sorry Problems" message and
disconnects.
- Enter "3".
- GO TO DIALOGUE #19.
- Enter NOTHING or INVALID response. "I have not received
your response." OR "Sorry, your input was invalid."
- GO TO DIALOGUE #19, 20, 21, 22.
- A THIRD NO RESPONSE OR INVALID RESPONSE
triggers "Sorry Problems" message and
disconnects-.
24 VOTE YOU HAVE ELECTED TO VOTE AS THE BOARD OF DIRECTORS HAS
RECOMMEND RECOMMENDED.
- GO TO DIALOGUE #25.
Page 9
63
SCRIPT OF DIALOGUE FOR PROXY VOTING BY TELEPHONE
------------------------------------------------
DIALOGUE TYPE OF
NUMBER DIALOGUE DIALOGUE
- -------- -------- --------
25 BOARD THE BOARD RECOMMENDED A VOTE TO ELECT
RECOMMENDS ALL PROPOSED NOMINEES AND A VOTE
FOR PROPOSALS TWO AND THREE AND AGAINST
PROPOSAL FOUR. IF THIS IS CORRECT, PRESS
ONE. IF THIS IS NOT CORRECT, PRESS TWO. IF
YOU WOULD LIKE YOUR VOTE REPEATED TO YOU,
PRESS THREE.
- Enter "1". "A vote has been recorded for
Control Number .............".
- GO TO DIALOGUE #26.
- Enter "2".
- GO TO DIALOGUE #6.
- A THIRD ENTRY OF THIS response
triggers the "Too Many Incorrect"
message, followed by the "Sorry
Problems" message and disconnects-.
- Enter "3".
- GO TO DIALOGUE #24.
- Enter NOTHING or an INVALID RESPONSE. "I
have not received your response." OR
"Sorry, your input was invalid."
- GO TO DIALOGUE #24.
- A THIRD NO RESPONSE or INVALID
response triggers "Sorry Problems"
message and disconnects -.
Page 10
64
SCRIPT OF DIALOGUE FOR PROXY VOTING BY TELEPHONE
------------------------------------------------
DIALOGUE TYPE OF
NUMBER DIALOGUE DIALOGUE
- -------- -------- --------
26 CONCLUDE IF THIS CONCLUDES YOUR BUSINESS, PRESS ONE. IF
BUSINESS YOU WOULD LIKE TO VOTE FOR ANOTHER PROXY ELECTION,
PRESS TWO.
- Enter "1".
- GO TO DIALOGUE #27.
- Enter "2".
- GO TO DIALOGUE #27.
- Enter NOTHING or INVALID response. "I have
not received your response." OR "Sorry, your
input was invalid."
- GO TO DIALOGUE #26.
- A THIRD NO RESPONSE or INVALID
RESPONSE triggers "Sorry Problems"
message and disconnects -.
27 RECORD VOTES ALL OF YOUR VOTES HAVE BEEN RECORDED BY THE
TELEPHONE PROXY VOTING SERVICE. DO NOT MAIL IN
YOUR PROXY CARD. KEEP IT AS A RECORD OF YOUR VOTE.
- GO TO DIALOGUE #4 - if voting for another
Proxy Election based on voter's response
to dialogue #26.
- GO TO DIALOGUE #28 - if not voting for
another Proxy Election based on voter's
response to dialogue #26.
28 THANK YOU THANK YOU FOR CALLING THE TELEPHONE PROXY VOTING
SERVICE. THIS CONCLUDES YOUR TRANSACTION.
- Disconnect.
Page 11
65
SCRIPT OF DIALOGUE FOR PROXY VOTING BY TELEPHONE
------------------------------------------------
STANDARD DIALOGUES REPEATED UNDER VARIOUS CONDITIONS
THE DIALOGUES BELOW ARE SPOKEN UNDER VARIOUS CIRCUMSTANCES. GENERALLY, THE
"SORRY PROBLEMS" DIALOGUE IS REPEATED ON THE THIRD ATTEMPT TO GET VALID
INFORMATION.
TYPE OF INSTRUCTION DIALOGUE
- ------------------- --------
SORRY PROBLEMS We are sorry you are experiencing problems entering your vote.
please call later and try again.
- NOTE
THE "SORRY PROBLEMS" DIALOGUE IS GENERALLY REPEATED AFTER ANY
COMBINATION OF THREE INVALID RESPONSES OR NON RESPONSES TO A SET
OF DIALOGUES. THIS IS FOLLOWED BY A DISCONNECTION.
TOO MANY INCORRECTS You have made too many incorrect entries. Please call back when
you have the correct information.
- NOTE
THE "TOO MANY INCORRECTS" DIALOGUE IS GENERALLY REPEATED WHEN
THERE ARE SEVERAL CHANGES AND INCONSISTENCIES RESPONDING TO A
SET OF DIALOGUES. THIS IS FOLLOWED BY THE "SORRY PROBLEMS"
DIALOGUE AND A DISCONNECTION.
INVALID INPUT Sorry, your input was invalid.
PAUSE .5 [ 500 ms of silence ] (Amount of pause time permitted between
caller's vote and continuation of telephone dialogue.)
Page 12
66
TEXT OF E-MAIL MESSAGE FOR ELECTRONIC DELIVERY OF
PROXY STATEMENT AND ANNUAL REPORT AND INTERNET PROXY VOTING
-----------------------------------------------------------
PROXYVOTE.COM
You elected to receive shareholder communications and submit voting
instructions via electronic means on the Internet by enrolling at
www.InvestorDelivery.com, or during a prior vote at www.ProxyVote.com. This
E-mail contains information specific to your holding in the corporation
identified below. Please read the instructions carefully before proceeding.
This is a NOTIFICATION of the:
1999 EASTMAN CHEMICAL COMPANY Annual Meeting of Shareowners
Meeting Date: May 6, 1999
For Holders as of: March 15, 1999
CUSIP Number: 277432100
ACCOUNT NUMBER:
CONTROL NUMBER:
You can enter your voting instructions and view the shareholder material at the
following Internet site:
http://www.ProxyVote.com
Note: If your E-mail software supports it, you can simply click on the above
link. To access www.ProxyVote.com, you will need the above CONTROL NUMBER and
the four digit PIN number you enrolled with at either www.ProxyVote.com or
www.InvestorDelivery.com (we suggested the last four digits of your Social
Security number or Tax ID). Internet voting is accepted up to 11:59 p.m. (ET)
the day before the meeting date. The relevant corporate materials can also be
found at the following Internet sites:
ANNUAL REPORT
http://www.eastman.com/fin/ar98/ar.pdf
PROXY STATEMENT
http://www.eastman.com/fin/ar98/images/G52752.pdf
There are no charges for this service. There may be costs associated with
electronic access, such as usage charges from Internet access providers and
telephone companies, that must be borne by the stockholder. Please REPLY to this
email with any comments or questions about www.ProxyVote.com.
67
TEXT OF COMPUTER SCREENS FOR INTERNET PROXY VOTING
--------------------------------------------------
WELCOME TO PROXYVOTE.COM
Please select one of the links below...
If you received your proxy material in the mail, please have your material and
your control number ready.
If you received a notification via e-mail, please have your control number and
Personal Identification Number ready.
To submit your voting instructions over our secure site, click HERE.
If your browser cannot support secure transactions via SSL encryption, click
HERE.
Need to update to a security enabled browser? Click HERE.
68
INTERNET PROXY VOTING
You can submit your proxy voting instructions right over the Internet
It's fast, convenient, and your voting instructions are immediately posted.
If you received notification by postal mail:
1. Read the Proxy Statement. The accompanying Voting Instruction Form or
Proxy Card contains your Control Number.
2. Enter the 12 digit Control Number to access an electronic ballot.
3. Complete the electronic ballot and submit your voting instructions.
4. Provide your E-Mail address if you want confirmation of your voting
instructions.
If you received notification by E-Mail:
1. To access an electronic ballot, enter the 12 digit Control Number
contained in your E-Mail message and the PIN you used when you enrolled
for electronic delivery.
2. The ballot displayed contains Internet Links to the Proxy Statement and
the Annual Report; read them carefully.
3. Complete the ballot and submit your voting instructions.
Enter your CONTROL NUMBER [ ] (Please skip any spaces)
Enter your PIN NUMBER [ ] (last 4 digits of your SS#):
(Required for the E-Mail option only)
Click to continue
2
69
Sample Ballot (scroll 1)
INTERNET PROXY VOTING
EASTMAN CHEMICAL COMPANY ANNUAL MEETING
TO BE HELD ON 5/6/99 FOR HOLDERS AS OF 3/15/99
CUSIP 277432100
THE FOLLOWING ARE LINKS TO THE EASTMAN CHEMICAL COMPANY SHAREHOLDER
MATERIALS.
CLICK TO VIEW THEM. WHEN YOU HAVE FINISHED, USE YOUR BROWSER'S "BACK" BUTTON
TO RETURN TO PROXYVOTE
PROXY STATEMENT
ANNUAL REPORT
Your CONTROL NUMBER:
3
70
Ballot (scroll 2)
Management Recommendations:
Choose this if you would like to vote your shares following management's
recommendations. See below for the detailed recommendations. Please read it
carefully.
Vote my shares per management's recommendations
- -------------------------------------------------------------------------------
Proxy Ballot:
Directors:
Directors Recommend: A vote for election of the following nominees:
___ For All Nominees ___ Withhold All Nominees
___ Withhold Authority to Vote for any Individual Nominee.
Select Nominee(s) Below.
[ ] Calvin A. Campbell, Jr.
[ ] Earnest W. Deavenport, Jr.
[ ] John W. Donehower
[ ] Lee Liu
4
71
Ballot (scroll 3)
PROPOSALS:
Please indicate your proposal selections by clicking on the fields below.
02. APPROVAL OF 1999 DIRECTOR LONG-TERM COMPENSATION PLAN.
Directors Recommend: FOR
[ ] For [ ] Against [ ] Abstain
03. RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS
INDEPENDENT ACCOUNTANTS.
Directors Recommend: FOR
[ ] For [ ] Against [ ] Abstain
04. ADOPTION OF SHAREOWNER PROPOSAL TO DISCONTINUE USE OF "BONUSES" AND
"OPTIONS, RIGHTS, SARs, ETC.," AS MANAGEMENT COMPENSATION.
Directors Recommend: AGAINST
[ ] For [ ] Against [ ] Abstain
5
72
Verification/Submission
(common to all votes)
(scroll 1)
INTERNET PROXY VOTING
PROXY FINAL SUBMISSION
Please check all of the information below for accuracy.
See instructions below and click on Final Submission
--------------------------------------------------
Your Control Number:
EASTMAN CHEMICAL COMPANY Annual Meeting
To be held on 5/6/99 for holders as of 3/15/99
CUSIP 277432100
6
73
Verification / Submission
(with management's recommendations)
(scroll 2)
YOU ELECTED TO VOTE WITH MANAGEMENT'S RECOMMENDATION
DIRECTORS: CALVIN A. CAMPBELL, JR., EARNEST W. DEAVENPORT, JR.,
JOHN W. DONEHOWER, LEE LIU
Directors Recommend and Will Vote For All Directors
- ------------------------------------------------------------------------------
PROPOSALS:
02 APPROVAL OF 1999 DIRECTOR LONG-TERM COMPENSATION PLAN.
Directors Recommend and Will Vote For This Proposal
- ------------------------------------------------------------------------------
03 RATIFICATION OF APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT
ACCOUNTANTS.
Directors Recommend and Will Vote For This Proposal
- ------------------------------------------------------------------------------
04 ADOPTION OF SHAREOWNER PROPOSAL TO DISCONTINUE USE OF "BONUSES" AND
"OPTIONS, RIGHTS, SARs, ETC." AS MANAGEMENT COMPENSATION.
Directors Recommend and Will Vote Against This Proposal
- ------------------------------------------------------------------------------
If any of the above information is incorrect, return to the proxy ballot form
by using the BACK feature of your Browser Program.
7
74
Verification/Submission
(specific voting instructions)
(scroll 2)
DIRECTORS:
CALVIN A. CAMPBELL JR., EARNEST W. DEAVENPORT, JR., JOHN W. DONEHOWER, LEE LIU
You Voted: To Withhold Authority to Vote for the Following Individual Nominees.
[LIST OF NAMES OF NOMINEES FOR WHOM AUTHORITY WITHHELD]
- -------------------------------------------------------------------------------
PROPOSALS:
02. APPROVAL OF 1999 DIRECTOR LONG-TERM COMPENSATION PLAN.
YOU VOTED: [FOR] [AGAINST] This Proposal
03. RATIFICATION OF APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT
ACCOUNTANTS.
YOU VOTED: [FOR] [AGAINST] This Proposal
04. ADOPTION OF SHAREOWNER PROPOSAL TO DISCONTINUE USE OF "BONUSES" AND
"OPTIONS, RIGHTS, SARS, ETC. "AS MANAGEMENT COMPENSATION.
YOU VOTED: [FOR] [AGAINST] This Proposal
8
75
VERIFICATION/SUBMISSION
(unmarked ballot)
(scroll 2)
Directors:
CALVIN A. CAMPBELL, JR., EARNEST W. DEAVENPORT, JR., JOHN W. DONEHOWER, LEE LIU
YOU DID NOT VOTE: Directors Recommend and will Vote For All Directors
- --------------------------------------------------------------------------------
Proposals:
02. APPROVAL OF 1999 DIRECTOR LONG-TERM COMPENSATION PLAN.
YOU DID NOT VOTE: Directors Recommend and will Vote For This Proposal
- --------------------------------------------------------------------------------
03. RATIFICATION OF APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT
ACCOUNTANTS.
YOU DID NOT VOTE: Directors Recommend and will Vote For This Proposal
- --------------------------------------------------------------------------------
04. APPROVAL OF SHAREOWNER PROPOSAL TO DISCONTINUE USE OF "BONUSES" AND
"OPTIONS, RIGHTS, SARs, ETC." AS MANAGEMENT COMPENSATION.
YOU DID NOT VOTE: Directors Recommend and will Vote Against This Proposal
- --------------------------------------------------------------------------------
If any of the above information is incorrect, return to the proxy ballot form by
using the Back feature of your Browser Program.
- --------------------------------------------------------------------------------
9
76
Verification/Submission
(common to all votes)
If you would like to receive an electronic confirmation when this vote is
recorded enter your E-Mail address here:
E-Mail:
--------------------------------
You now have the option to receive future shareholder communications (Annual
Reports, Proxy Statements, etc.) electronically, instead of in print. This
will save postage and mailing costs for the company(s) in which you have
invested. It also means that you can vote future proxies electronically, without
a trip to the Post Office.
Participation is completely your choice. To send future shareholder
communications to you electronically, we require your permission. We also
require you to choose a four digit personal identification number. Most people
prefer to use the last four digits of their Social Security number. In the
future, when, and if, material is available electronically, we will send you an
e-mail which will contain information that will point you to an Internet
location where the material is available.
You only have to enroll this investment account once. It will automatically
apply to any other company that offers electronic distribution. We hope you will
give this option your serious consideration.
ENROLLMENT
I wish to receive future shareholder communications electronically at the
E-MAIL address supplied above. I have chosen an my four digit personal
identification number __________.
- -------------------------------------------------------------------------------
If all of the above information is correct then click on Final Submission below.
If any of the above information is incorrect, return to the proxy ballot form
by using the Back feature of your Browser Program.
Final Submission
10
77
INTERNET PROXY VOTING
Thank You For Voting
To cast another vote Click Here
----------
11
78
(Typical Error page)
INTERNET PROXY VOTING
Proxy Voting Error
------------------------------------------------------------
The Following Was Reported By The ProxyVote Server:
Sorry, you have entered the Control Number from the voting instruction form
incorrectly.
Please click on the Internet browser "Back" button, check the number and try
again.
12