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 (AMENDMENT NO. )
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
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
(EASTMAN LOGO)
March 25, 2002
DEAR FELLOW STOCKHOLDER:
Our Annual Meeting will be held at the Toy F. Reid Employee Center, located
at 400 South Wilcox Drive, in Kingsport, Tennessee, on May 2, 2002, at 11:30
a.m. Doors to the meeting will open at 10:30 a.m. The business to be considered
and voted upon at the meeting is explained in the accompanying proxy materials
(consisting of the Notice of Annual Meeting, the Proxy Statement, and the proxy
card). A copy of Eastman's 2001 Annual Report accompanies these materials.
Your vote is important for this year's Annual Meeting, regardless of the
number of shares you own. Signing and returning a proxy card or submitting your
proxy via the Internet or telephone will not prevent you from voting in person,
but will assure that your vote is counted if you are unable to attend the
meeting. WHETHER YOU CHOOSE TO VOTE BY PROXY CARD, TELEPHONE, OR COMPUTER, IT
WOULD HELP IF YOU VOTED AS SOON AS POSSIBLE. If you are a record holder, an
admission ticket for the Annual Meeting is included with your proxy card. If you
received our proxy materials from a broker or bank and do not have an admission
ticket but wish to attend the meeting, please call (423) 229-4647.
I look forward to my first annual stockholders' meeting as Chairman and
CEO. Thank you for your support of our Company.
Sincerely,
/s/ J. BRIAN FERGUSON
J. Brian Ferguson
Chairman and Chief Executive Officer
EASTMAN CHEMICAL COMPANY
100 NORTH EASTMAN ROAD
KINGSPORT, TENNESSEE 37660
(423) 229-2000
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 2, 2002
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To Our Stockholders:
The 2002 Annual Meeting of Stockholders of Eastman Chemical Company
("Eastman" or the "Company") will be held at the Toy F. Reid Employee Center,
located at 400 South Wilcox Drive, Kingsport, Tennessee, on May 2, 2002, at
11:30 a.m., local time, for the following purposes:
- ELECT DIRECTORS. To consider and act upon the election of three
directors to serve in the class for which the term in office expires
at the Annual Meeting of Stockholders in 2005 and until their
successors are duly elected and qualified;
- APPROVE 2002 OMNIBUS LONG-TERM COMPENSATION PLAN. To consider and act
upon the proposed 2002 Omnibus Long-Term Compensation Plan;
- APPROVE 2002 DIRECTOR LONG-TERM COMPENSATION PLAN. To consider and
act upon the proposed 2002 Director Long-Term Compensation Plan;
- 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
Stockholders in 2003;
- STOCKHOLDER PROPOSALS. If properly presented, to consider and act
upon the two stockholder proposals set forth in the accompanying Proxy
Statement, both of which are opposed by the Board of Directors; and
- OTHER BUSINESS. To transact such other business as may come properly
before the Annual Meeting or any adjournments or postponements
thereof.
Only stockholders of record at the close of business on March 15, 2002 are
entitled to vote at the Annual Meeting. IT IS IMPORTANT THAT YOUR SHARES BE
REPRESENTED AND VOTED AT THE ANNUAL MEETING. Please vote by proxy in one of
these ways:
- USE THE TOLL-FREE TELEPHONE NUMBER shown on your proxy card or voting
instruction form (if you received the proxy materials by mail from a
broker or bank);
- BY INTERNET at the web address shown on your proxy card or voting
instruction form; or
- MARK, SIGN, DATE AND PROMPTLY RETURN YOUR PROXY CARD OR VOTING
INSTRUCTION FORM in the postage-paid envelope provided.
Signing and returning the proxy card or submitting your proxy via Internet
or by telephone does not affect your right to vote in person if you attend the
Annual Meeting.
By order of the Board of Directors
/s/ Theresa K. Lee
Theresa K. Lee
General Counsel and Secretary
March 25, 2002
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS OF
EASTMAN CHEMICAL COMPANY
TO BE HELD ON MAY 2, 2002
INFORMATION REGARDING THE ANNUAL MEETING
PROXY STATEMENT AND ANNUAL MEETING
This Proxy Statement is dated March 25, 2002 and is first being mailed and
delivered electronically to Eastman stockholders, and made available on the
Internet (www.eastman.com), on or about March 28, 2002. This Proxy Statement is
being furnished to stockholders in connection with the solicitation of proxies
by the Company's Board of Directors for use at the Annual Meeting of
Stockholders of the Company to be held on May 2, 2002, and at any adjournments
or postponements thereof. At the Annual Meeting, stockholders will be asked to
consider and vote on the six items of business listed in the accompanying Notice
of Annual Meeting and described in more detail under "Proposals to be Voted Upon
at the Annual Meeting."
VOTING BY PROXY
By executing and returning your proxy (either by returning the paper proxy
card or by submitting your proxy electronically via the Internet or by
telephone), you appoint James P. Rogers, the Company's Chief Financial Officer
and Theresa K. Lee, the Company's General Counsel and Secretary, to represent
you at the Annual Meeting and direct them to vote your shares at the Annual
Meeting according to your instructions. Shares of common stock represented by
proxy will be voted by the proxy holders at the Annual Meeting in accordance
with the instructions indicated in the proxy appointment. IF YOU PROPERLY
EXECUTE AND RETURN YOUR PROXY (IN PAPER FORM, ELECTRONICALLY VIA THE INTERNET,
OR BY TELEPHONE) BUT DO NOT INDICATE ANY VOTING INSTRUCTIONS, YOUR SHARES WILL
BE VOTED IN ACCORDANCE WITH THE RECOMMENDATIONS OF THE BOARD OF DIRECTORS.
STOCKHOLDERS OF RECORD MAY VOTE BY PROXY IN ONE OF THREE WAYS:
- by telephone: call (800) 542-1160 and use the control number on your proxy
card;
- via the Internet: visit the www.votefast.com website and use the control
number listed on your proxy card; or
- by mail: mark, sign, date and mail your proxy card in the enclosed
postage-paid envelope.
The Internet and telephone voting procedures are designed to authenticate
stockholder identities, to allow stockholders to give voting instructions, and
to confirm that stockholders' instructions have been recorded properly.
Stockholders voting by Internet should understand that there may be costs
associated with electronic access, such as usage charges from Internet access
and telephone or cable service providers, that must be borne by the stockholder.
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 THAT RECORD
HOLDER. Telephone and Internet voting is also offered to stockholders 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, signed proxy card or submitting a
later-dated proxy via the Internet or by telephone before the Annual
Meeting; or
- voting in person at the Annual Meeting.
All written notices of revocation or other communications with respect to
revocation of proxies should be sent to Eastman Chemical Company, P.O. Box 511,
Kingsport, Tennessee 37662-5075, Attention: Secretary, so that they are received
before the Annual Meeting.
RECORD DATE; STOCKHOLDERS ENTITLED TO VOTE; VOTING RIGHTS
The Company's Board of Directors has fixed the close of business on March
15, 2002 as the record date for the determination of stockholders entitled to
receive notice of, and to vote at, the Annual Meeting. Only holders of record of
shares of common stock as of the record date will be entitled to vote at the
Annual Meeting. If your shares are held in the name of a broker, bank or other
holder of record, you must obtain a proxy, executed in your favor, from the
holder of record to be able to vote in person at the Annual Meeting.
As of the record date, there were 77,445,580 shares of common stock issued
and outstanding. 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
they hold 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" will be counted as present and entitled
to vote for purposes of determining a quorum. A "broker non-vote" occurs when a
nominee (like 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.
VOTE REQUIRED FOR APPROVAL OF EACH MATTER TO BE CONSIDERED
A plurality of the votes cast is required for the election of directors.
With respect to the election of directors, stockholders may by proxy (1) vote
"for" all three nominees, (2) "withhold" authority to vote for all such
nominees, or (3) withhold authority to vote for any individual nominee or
nominees but vote for all other nominees. Because directors are elected by a
plurality of the votes cast (meaning the three nominees receiving the greatest
number of votes will be elected), withholding authority to vote with respect to
one or more nominees will have no effect on the outcome of the election.
Similarly, any broker non-votes are not considered to be votes cast and
therefore would have no effect on the outcome of the election of directors.
The affirmative vote of a majority of the votes cast is required for
approval of each of the two proposed compensation plans, ratification of the
appointment of independent accountants, and adoption of each of the two
stockholder proposals. With respect to each of these five items, stockholders
may by proxy (1) vote "for," (2) vote "against," or (3) "abstain" from voting.
Abstentions and broker non-votes are not considered to be votes cast and
therefore will have no effect on the outcome of any of these proposals.
PROXY SOLICITATION COSTS
The Company will bear the cost of soliciting proxies and the cost of the
Annual Meeting. In addition to the solicitation of stockholders 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 these activities. The Company
also contacts brokerage houses, banks, nominees, custodians, and fiduciaries who
can be identified as record holders of common stock. Such holders, after inquiry
by the Company, provide certain information concerning beneficial owners not
objecting to the disclosure of such information and the quantities of proxy
materials and annual reports needed to supply such materials to beneficial
owners, and the Company reimburses such record holders for the expense of
providing such beneficial ownership information and of mailing proxy materials
and annual reports to beneficial owners. Georgeson Shareholder Communications
has been retained by the Company to aid in the solicitation of proxies, at a
cost of $10,000 plus expenses.
MATTERS RAISED AT THE ANNUAL MEETING NOT INCLUDED IN THIS PROXY STATEMENT
The Company's management does not expect any business to be acted upon at
the Annual Meeting other than as described in this Proxy Statement under
"Proposals to be Voted Upon at the Annual Meeting". If,
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however, other matters are properly brought before the Annual Meeting, the
persons appointed as proxies will have the discretion to vote or act on those
matters for you according to their best judgment.
Under Eastman's Bylaws, a stockholder may submit a matter for a vote of the
Company's stockholders at a meeting by giving adequate notice to the Secretary
of the Company. To be adequate, the notice must set forth certain information
specified in our Bylaws (which will be provided to any stockholder upon written
request) about the stockholder and the proposal and be delivered to the
Secretary not less than 60 days prior to the meeting. If, however, the meeting
is an annual meeting to be held before the first Thursday in May (the regular
day called for by the Bylaws) or a special meeting, notice of a proposal to be
brought before the meeting may be provided up to the 15th day following the date
notice of the meeting was given. Under our Bylaws, stockholders had until March
3, 2002 to provide notice of any matters to be presented at the Annual Meeting.
STOCKHOLDER PROPOSALS FOR THE 2003 ANNUAL MEETING
In accordance with rules of the Securities and Exchange Commission (the
"SEC"), if you want to submit a proposal for presentation at Eastman's 2003
Annual Meeting of Stockholders, it must be received by the Company at its
principal executive offices on or before November 25, 2002 in order to be
included in the Company's proxy materials relating to its 2003 Annual Meeting of
Stockholders. 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 stockholder for a vote of the Company's
stockholders, 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 2003 Annual Meeting is held on Thursday, May 1, 2003 (the
regular day called for by the Bylaws), then such advance notice would be timely
if delivered on or before March 2, 2003.
NOMINATIONS BY STOCKHOLDERS FOR ELECTION TO BOARD OF DIRECTORS
The Company's Bylaws provide that nominations by stockholders 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 stockholder submitting a nomination and each person
being nominated and be delivered to the Secretary not less than 60 days prior to
the meeting. If, however, the meeting is an annual meeting to be held before the
first Thursday in May or a special meeting, the nomination notice may be
provided up to the 15th day following the date notice of the meeting was given.
The Committee on Directors of the Board of Directors will consider persons
nominated by stockholders and recommend to the full Board whether or not such
nominee should be included with the Board's nominees for election by
stockholders.
ANNUAL REPORT TO STOCKHOLDERS AND ANNUAL REPORT ON FORM 10-K
The Company's Annual Report to Stockholders for 2001, including
consolidated financial statements for the year ended December 31, 2001, is being
mailed and delivered electronically to stockholders, and made available on the
Internet, concurrently with this Proxy Statement but does not form any part of
the proxy solicitation material. Upon the written request of any stockholder,
the Company will furnish without charge a copy of the Company's Annual Report on
Form 10-K for the year ended December 31, 2001 as filed with the SEC. Requests
may be made to Eastman Chemical Company, P.O. Box 511, Kingsport, Tennessee
37662-5075, Attention: Investor Relations. This information is also available
via the Internet at the Company's web site (www.eastman.com), and the EDGAR
version of such report (with exhibits) is available at the SEC's web site
(www.sec.gov).
3
PROPOSALS TO BE VOTED UPON AT THE ANNUAL MEETING
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 stockholders
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), and, unless additional terms of office are approved by the Board of
Directors in certain circumstances, the maximum number of consecutive full
three-year terms of office that may be served by any director is three.
Three directors are in the class for which the term in office expires at
the Annual Meeting; two of these three directors have each been nominated for
re-election for a new three-year term. John W. Donehower has informed the
Company that he does not intend to stand for re-election at the Annual Meeting.
In order to allow the Board to apportion the number of directors among the
classes as nearly equal as reasonably possible in accordance with the Company's
Amended and Restated Certificate of Incorporation, Donald W. Griffin has agreed
to resign his current position as a director in the class for which the term in
office expires at the Annual Meeting of Stockholders in 2003 effective
immediately prior to the Annual Meeting, and to stand for re-election as a
director this year for a term in office ending at the Annual Meeting of
Stockholders in 2005. The terms of the other six directors continue after the
Annual Meeting. Lee Liu, a director since January 1994, retired from the Board
effective February 7, 2002 and Earnest W. Deavenport, Jr., Chairman of the Board
and Chief Executive Officer since November 1993, retired effective December 31,
2001. Messrs. Liu and Deavenport each served in the class for which the term in
office expires at the Annual Meeting. The Board elected J. Brian Ferguson to
fill the vacancy created by Mr. Deavenport's retirement and did not fill the
vacancy created by Mr. Liu's retirement, reducing the class whose term expires
at the Annual Meeting from four directors to three directors. Upon the
completion of Mr. Donehower's term as a director, the Board will reduce the
total number of directors from ten to nine.
The stockholders are being asked to vote on the election of three directors
to the class for which the term of office shall expire at the Annual Meeting of
Stockholders in 2005 and their successors are duly elected and qualified. All
shares of common stock represented by valid proxies received pursuant to this
solicitation, and not revoked before they are exercised, will be voted in the
manner specified. If you execute and return a proxy without instruction, your
shares will be voted for the election of the three nominees identified below. If
any nominee is unable or unwilling to serve (which is not anticipated), the
persons designated as proxies will vote your shares for the remaining nominees
and for another nominee proposed by the Board or, as an alternative, the Board
could reduce the number of directors to be elected at the Annual Meeting.
THE NOMINEES HAVE BEEN RECOMMENDED TO THE BOARD OF DIRECTORS BY THE
COMMITTEE ON DIRECTORS OF THE BOARD. THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS THAT YOU VOTE "FOR" ELECTION OF THE THREE NOMINEES IDENTIFIED BELOW.
Set forth below is certain information regarding each director nominated
for re-election or whose term in office will continue after the Annual Meeting,
including the date of his or her first election to the Board; 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 publicly traded and certain other
companies, organizations, or associations; and his or her age.
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NOMINEES FOR DIRECTOR
TERM EXPIRING ANNUAL MEETING 2005
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[PHOTO] CALVIN A. CAMPBELL, JR. (director since January 1994)
Mr. Campbell has been Chairman of the Board, President and Chief Executive
Officer of Goodman Equipment Corporation since 1971. Goodman Equipment
designs, manufactures, and markets worldwide underground mining locomotives
and personnel carriers and services and parts for injection molding machinery.
He was also President and Chief Executive Officer of Cyprus Amax Minerals
Company, a producer of copper and molybdenum, in 1992, Chairman of the Board
in 1991 and 1992, and a director from 1985 through 1994. Mr. Campbell is a
member of the boards of directors of Mine Safety Appliances Company and of
Bulley & Andrews Company. He is also a director and former Chairman of the
National Association of Manufacturers, is a director of the National Mining
Association, is a director and former Chairman of the Illinois Manufacturers
Association, and serves as Chairman of Armour College of Engineering and
Science, and as a trustee of the Illinois Institute of Technology. Mr.
Campbell is 67.
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[PHOTO] J. BRIAN FERGUSON (director since January 2002)
Mr. Ferguson is Chairman of the Board and Chief Executive Officer of the
Company. He joined Eastman in 1977. Mr. Ferguson was named Vice President,
Industry and Federal Affairs in 1994, became Managing Director, Greater China
in 1997, was named President, Eastman Chemical Asia Pacific in 1998, became
President, Polymers Group in 1999, and became President, Chemicals Group in
2001. He is 47.
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[PHOTO] DONALD W. GRIFFIN (director since May 1999)
Mr. Griffin is Chairman of the Board of Olin Corporation, a manufacturer of
chemicals, metals, and ammunition. He joined Olin in 1961, served in a series
of marketing and management positions prior to appointment to the position of
President and Chief Operating Officer in 1994, became Chairman, President, and
Chief Executive Officer in 1996, and retired as President and Chief Executive
Officer in 2002. Mr. Griffin is also a member of the board of directors of
Barnes Group, Inc., and serves as a trustee of the University of Evansville
and the Buffalo Bill Historical Center. He is 65.
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5
MEMBERS OF BOARD OF DIRECTORS CONTINUING IN OFFICE
TERM EXPIRING ANNUAL MEETING 2003
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[PHOTO] JERRY E. DEMPSEY (director since May 1997)
Mr. Dempsey served as Chairman of the Board and Chief Executive Officer of PPG
Industries, Inc., a manufacturer of protective and decorative coatings,
fiberglass products, and specialty chemicals, from 1993 until his retirement
in 1997. From 1991 until he joined PPG, he was Senior Vice President of WMX
Technologies, Inc., a waste treatment and disposal company, and Chairman of
its publicly-traded, majority-owned subsidiary, Chemical Waste Management,
Inc., having served as President and Chief Executive Officer of Chemical Waste
Management, Inc. since 1985. Mr. Dempsey is also a member of the boards of
directors of Birmingham Steel Corporation and Navistar International Corpora-
tion. He is 69.
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[PHOTO] MARILYN R. MARKS (director since January 1994)
Miss Marks was Chairman of the Board of Dorsey Trailers, Inc., a truck trailer
manufacturer, from 1987 until her resignation in March 2001. She was Chairman,
Chief Executive Officer and President of Dorsey from 1987 to 1997 and was
Chairman and Chief Executive Officer of Dorsey from 1997 until 1999. Miss
Marks was Chairman and Chief Executive Officer of TruckBay.com, Inc., an
Internet source of goods, services, and information serving the trucking
industry, from 1999 to 2000. On December 5, 2000, Dorsey filed a voluntary
petition for relief under Chapter 11 of the U.S. Bankruptcy Code in the U.S.
Bankruptcy Court for the Middle District of Alabama. Miss Marks is also a
member of the board of directors of Dana Corporation. She is 49.
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[PHOTO] DAVID W. RAISBECK (director since December 2000)
Mr. Raisbeck is Vice Chairman of Cargill, Incorporated, an agricultural
trading and processing company. He joined Cargill in 1971 and has held a
variety of merchandising and management positions focused primarily in the
commodity and financial trading businesses. Mr. Raisbeck was elected President
of Cargill's Financial Markets Division in 1988, President of Cargill's
Trading Sector in 1993, a director of Cargill in 1994, Executive Vice
President in 1995, and to his current position in 1999. He is also a member of
the board of directors of Armstrong World Industries, Inc. Mr. Raisbeck is 52.
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TERM EXPIRING ANNUAL MEETING 2004
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[PHOTO] H. JESSE ARNELLE (director since January 1994)
Mr. Arnelle is of counsel to the Winston-Salem, North Carolina-based law firm
of Womble, Carlyle, Sandridge & Rice. He was a partner of the San
Francisco-based law firm of Arnelle, Hastie, McGee, Willis & Greene or its
predecessor from 1985 until 1996. Mr. Arnelle is a Past Chairman of the Board
of Trustees of Pennsylvania State University, is a director of the National
Football Foundation and Collegiate Hall of Fame, and is a member of the boards
of directors of Armstrong World Industries, Inc., FPL Group, Inc., Gannett
Corporation, Metropolitan Series Funds, Inc., Textron, Inc., and Waste
Management, Inc. He is 68.
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[PHOTO] DR. JOHN A. WHITE (director since January 1994)
Dr. White is Chancellor of, and Distinguished Professor of Industrial
Engineering at, the University of Arkansas. From 1991 to 1997, he was Dean of
the College of Engineering at the Georgia Institute of Technology. From July
1988 to September 1991, he was Assistant Director of the National Science
Foundation in Washington, D.C., and served on the faculty of the Georgia
Institute of Technology from 1975 to 1997. Dr. White is also a member of the
National Science Board, a member of the National Academy of Engineering, and a
member of the boards of directors of J. B. Hunt Transport Services, Inc.,
Logility, Inc., Motorola, Inc., and Russell Corporation. He is 62.
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[PHOTO] PETER M. WOOD (director since May 2000)
Mr. Wood is non-executive Chairman of the Board of Stone & Webster, Incorpo-
rated, an engineering and construction firm, and served as Managing Director
of J. P. Morgan & Company, an investment banking firm, from 1986 until his
retirement in 1996. He is also a member of the boards of directors of Arthur
D. Little, Inc. and Middlesex Mutual Assurance Company. Mr. Wood is 63.
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7
BOARD COMMITTEES
The Board of Directors has an Audit Committee, a Committee on Directors, a
Compensation and Management Development Committee, a Finance Committee, and a
Health, Safety & Environmental and Public Policy Committee. All committee
members are non-employee, independent directors.
AUDIT COMMITTEE. The members of the Audit Committee are Messrs. Wood
(Chair), Campbell, and Raisbeck, and Dr. White. The Audit Committee held seven
meetings during 2001. The Audit Committee assists the Board in fulfilling its
oversight responsibilities relating to:
- the integrity of the financial statements of the Company;
- the Company's system of internal controls; and
- the independence and performance of the Company's internal and outside
auditors.
AUDIT COMMITTEE REPORT
The Board of Directors has adopted a written Audit Committee Charter, a
copy of which was included as Appendix A to the Company's Proxy Statement for
the 2001 Annual Meeting of Stockholders and which is also available in the
investor information section of the Eastman website (www.eastman.com). All
members of the Audit Committee are "independent" as defined in Section
303.01(B)(2)(a) and (3) of the New York Stock Exchange's listing standards.
The Audit Committee has reviewed and discussed with the Company's
management and PricewaterhouseCoopers LLP, the Company's independent auditors,
the audited financial statements of the Company contained in the Company's
Annual Report to Stockholders for the year ended December 31, 2001. The Audit
Committee has also discussed with the Company's independent auditors the matters
required to be discussed pursuant to SAS No. 61 (Codification of Statements on
Auditing Standards, Communication with Audit Committees), as amended.
The Audit Committee has received and reviewed the written disclosures and
the letter from PricewaterhouseCoopers LLP required by Independence Standards
Board Standard No. 1 (titled, "Independence Discussions with Audit Committees"),
and has discussed with PricewaterhouseCoopers LLP their independence. The Audit
Committee has also considered whether the provision of non-audit services to the
Company by PricewaterhouseCoopers LLP is compatible with maintaining their
independence.
Based on the review and discussions referred to above, the Audit Committee
recommended to the Board of Directors that the audited financial statements be
included in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2001 filed with the SEC.
Audit Committee
Peter M. Wood (Chair)
Calvin A. Campbell, Jr.
David W. Raisbeck
John A. White
COMMITTEE ON DIRECTORS. The members of the Committee on Directors are
Messrs. Dempsey (Chair), Arnelle, and Griffin, and Miss Marks. The Committee on
Directors held three meetings during 2001. The Committee on Directors:
- conducts an assessment of the Board's performance every two years, for
discussion with the full Board;
- recommends to the Board criteria for Board membership and annually
reviews the Board's composition for purposes of assessing its
independence, diversity and skills;
- annually reviews and makes recommendations regarding compensation of
non-employee directors, and acts as the administrator of certain
non-employee director compensation plans, and can amend or take actions
with respect to such plans where permitted by such plans;
8
- reviews the qualifications of candidates for Board membership and
recommends to the Board the slate of director candidates to be proposed
for election by stockholders 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
stockholders removal of a director for cause;
- periodically reviews the Board's committee structure and committee
assignments and recommends to the Board any appropriate changes thereto;
- periodically reviews the Company's Corporate Governance Guidelines and
recommends to the Board any appropriate changes thereto; and
- reviews and makes recommendations to the Board on other Board and
corporate governance matters.
COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE. The members of the
Compensation and Management Development Committee (the "Compensation Committee")
are Messrs. Griffin (Chair), Arnelle, and Dempsey, and Miss Marks. The
Compensation Committee held seven meetings during 2001. The Compensation
Committee:
- determines the compensation of employees who are members of the Board;
- determines, based upon the recommendations of the Chairman and Chief
Executive Officer, compensation of the Company's other executive
officers;
- reviews proposed employee benefit plans and executive compensation plans,
and proposed changes to existing plans under certain circumstances;
- acts as the administrator of certain employee benefit plans and executive
compensation plans;
- reviews management development and succession plans relating to the
Company's senior officers;
- makes recommendations to the Board regarding the foregoing matters; and
- can amend or take actions with respect to the Company's employee
compensation and benefit plans where permitted by such plans.
FINANCE COMMITTEE. All of the directors except Mr. Ferguson are members,
and Mr. Raisbeck is the Chair, of the Finance Committee. The Finance Committee
held four meetings during 2001. 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. All of the
directors except Mr. Ferguson are members, and Miss Marks is the Chair, of the
Health, Safety & Environmental and Public Policy Committee. The Health, Safety &
Environmental and Public Policy Committee held three meetings during 2001. 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
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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 13 meetings during 2001. Each director attended
at least 75% of the aggregate of the total number of meetings of the Board (held
during the period for which he or she was a director) and the total number of
meetings held by all committees of the Board on which he or she served (during
the period that he or she served).
DIRECTOR COMPENSATION
DIRECTORS' ANNUAL COMPENSATION. Each director who is not an employee of
the Company receives an annual cash retainer fee of $30,000, payable in
semi-annual installments of $15,000 each. In addition, each such director
receives a fee of $1,100 for each Board meeting attended and for each committee
meeting attended, and reimbursement of expenses related to attendance. The
chairperson of each committee receives an additional annual retainer of $5,000,
payable in semi-annual installments of $2,500 each. Directors who are also
employees of the Company receive no Board or committee fees.
DIRECTOR LONG-TERM COMPENSATION PLAN. The Company's 1999 Director
Long-Term Compensation Plan (the "DLTP") provides for an automatic one-time
restricted stock award and annual option grants and restricted stock awards to
each non-employee director. (The DLTP replaced the 1994 Director Long-Term
Compensation Plan, under which each non-employee director received a one-time
restricted stock award and option grant on the first day of his or her initial
term of service as a director.) The maximum number of shares of common stock
that may be granted or subject to awards under the DLTP is 60,000, subject to
adjustment in the event of stock splits, stock dividends, or changes in capital
structure affecting common stock. No award may be made under the DLTP after the
later of May 1, 2004 or the 2004 Annual Meeting of Stockholders of the Company.
The Board of Directors has adopted a new 2002 Director Long-Term Compensation
Plan, subject to stockholder approval at the Annual Meeting, which is
substantially similar to, and intended to replace, the current DLTP. See "Item
3 -- Approval of the 2002 Director Long-Term Compensation Plan."
ANNUAL OPTION GRANTS. Under the DLTP, immediately following each annual
meeting of the Company's stockholders, each non-employee director receives a
non-qualified stock option to purchase 2,000 shares of Eastman common stock.
Such options have an exercise price equal to the fair market value of the
underlying shares of common stock on the date the options are granted. The
options vest and become exercisable with respect to one-half of the option
shares on the first anniversary of the date of the grant and with respect to the
remaining shares on the second anniversary of the date of the grant. Each such
option has a term of ten years and is nonassignable (except by will or the laws
of descent and distribution). If the grantee ceases to be a director for any
reason other than death, disability or completion of his or her normal term of
service, all outstanding unexercised options, whether or not vested, will
expire.
If an option is exercised by the surrender of previously-owned shares of
Eastman common stock while the director is still a director or within 60 days
thereafter, then the director exercising the option will be granted a new
"reload" option for the number of shares so surrendered. Such replacement option
will have a
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term equal to the remaining term of the original option, will have an exercise
price equal to the fair market value of the underlying shares as of the date of
exercise of the original option, and will otherwise have the same terms and
conditions as the original option. Reload options will not, however, have
similar replacement rights, and will be exercisable on the earlier of six months
from the date of grant or the date of the grantee's termination as a director.
ANNUAL RESTRICTED STOCK AWARDS. Immediately following each annual
meeting of the Company's stockholders, each non-employee director is granted an
award of shares of common stock having a fair market value equal to $5,000 as of
such date, subject to certain restrictions. The restricted shares are not
transferable (except by will or the laws of descent and distribution) and are
subject to forfeiture until the earlier of: (i) the third anniversary of grant
(provided the grantee is still a director), (ii) death, disability or
resignation due to term limit or retirement age during the three years after
grant, or (iii) departure from the Board at the end of the term of service to
which elected. If none of the three alternative vesting events occurs by the
third anniversary of the grant date, then the shares are forfeited. During the
restricted period, the director has all of the rights of a stockholder (other
than the right to transfer the shares) with respect to the restricted shares,
including voting and dividend rights.
ONE-TIME RESTRICTED STOCK AWARDS. In addition to the options and
restricted shares described above, each non-employee director is granted, on the
first date of such director's term of service as a director, an award of shares
of common stock having a fair market value equal to $10,000 as of such date,
subject to certain restrictions. These restricted shares are not transferable
(except by will or the laws of descent and distribution) and are subject to
forfeiture until the earlier of: (i) the third anniversary of grant (provided
the grantee is still a director), (ii) death, disability or resignation due to
term limit or retirement age during the three years after grant, or (iii)
failure to be reelected as a director during the three years after grant. If
none of the three alternative vesting events occurs by the third anniversary of
the grant date, then the shares are forfeited. During the restricted period, the
director has all of the rights of a stockholder (other than the right to
transfer the shares) with respect to the restricted shares, including voting and
dividend rights.
TREATMENT OF OPTIONS AND RESTRICTED STOCK UPON "CHANGE IN CONTROL." The
DLTP contains provisions regarding the treatment of options and restricted
shares in the event of a "change in control" of the Company (as defined in the
DLTP, generally involving circumstances in which the Company is acquired by
another entity or its controlling ownership is changed). In such event, all
outstanding options would immediately vest and become exercisable and all
outstanding shares of restricted stock would immediately vest and become
transferable, and such options and shares would be valued and cashed out on the
basis of the change in control price as soon as practicable but in no event more
than 90 days after the change in control. However, the Committee on Directors
has the discretion, notwithstanding any particular event constituting a change
in control, to determine that the event is of the type that does not warrant the
described consequences with respect to options and restricted shares under the
DLTP, in which case such consequences would not occur.
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN. Under the Company's 1996
Non-Employee Director Stock Option Plan (the "Director Stock Option Plan"), each
non-employee director may elect to receive options to purchase Eastman common
stock in lieu of his or her annual retainer (but not meeting fees or other
compensation as a director). A maximum of 150,000 shares of common stock are
available for the grant of stock options under the Director Stock Option Plan,
subject to adjustment in the event of stock splits, stock dividends or changes
in capital structure affecting common stock. No grant may be made under the
Director Stock Option Plan after May 2, 2006.
OPTIONS IN LIEU OF RETAINER FEES. Each non-employee director may make
an annual advance irrevocable election to receive all or a portion of his or her
retainer to be earned in the following year in options to purchase Eastman
common stock. The number of shares of common stock underlying stock options
granted is determined by multiplying the amount of the semi-annual retainer the
director elects to receive in stock options by three and one-third, then
dividing by the fair market value per share of common stock on the date the
options are granted. The exercise price per share of all stock options granted
under the Director Stock Option Plan is the fair market value per share of
common stock on the grant date. Options granted under the
11
Director Stock Option Plan are not exercisable until six months from the date of
grant, and remain exercisable thereafter until the tenth anniversary of the date
of grant, regardless of whether the participant is still a director.
TREATMENT OF OPTIONS UPON "CHANGE IN CONTROL." Upon the occurrence of a
"change in control" of the Company (as defined in the Director Stock Option
Plan, generally circumstances in which the Company is acquired by another entity
or its controlling ownership is changed), any and all outstanding options under
the Director Stock Option Plan become immediately exercisable.
DIRECTORS' DEFERRED COMPENSATION PLAN. The Company maintains the
Directors' Deferred Compensation Plan (the "DDCP"), an unfunded, non-qualified,
deferred compensation plan under which non-employee directors of the Company may
elect to defer compensation received as a director until such time as they cease
to serve as a director. Non-employee directors may make an annual advance
irrevocable election to defer compensation for services to be rendered the
following year. Compensation that may be deferred includes all cash compensation
for service as a director, including retainer and meeting fees.
TERMS OF DEFERRAL OF DIRECTOR COMPENSATION. The deferred amounts may be
credited to individual "Interest Accounts" under the DDCP (which are credited
with interest until transfer or distribution at the prime rate as quoted in The
Wall Street Journal), to individual "Stock Accounts" under the DDCP (which
increase or decrease in value depending upon the market price of Eastman common
stock), or to a combination thereof. Under the Stock Account, dollar amounts are
"invested" in hypothetical shares of the Company's common stock. If cash
dividends are declared on shares of common stock, then any participant who has
hypothetical shares in the Stock Account receives a dividend equivalent which is
used to "purchase" additional hypothetical shares under the DDCP. A participant
may elect to transfer the dollar amount of all or any portion of his or her
Stock Account to the Interest Account, or vice versa.
Upon termination as a director, the value of a participant's Interest
Account and Stock Account will be paid, in cash, in a single lump sum or up to
ten annual installments, as determined in the sole discretion of the Committee
on Directors. Payment will commence in any year up through the tenth year
following termination of directorship, as determined by the Committee on
Directors, except that payment must commence no later than the year in which the
participant reaches age 71.
The DDCP provides that a participant, whether or not still a director,
may request that part or all of such participant's Interest Account and Stock
Account be distributed immediately in the event of a severe financial hardship.
The determination of whether a hardship exists will be made by the Committee on
Directors.
The DDCP also provides that a participant may withdraw at any time all
or a portion of his or her balances in the Interest and Stock Accounts, provided
that the participant forfeits 10% of the balance of his or her Accounts and not
be permitted to participate in the DDCP for a period of 36 months from the date
of the early withdrawal payment. In addition, if, within any six month period,
either 50% or more of the DDCP participants elect such early withdrawal from the
DDCP or 20% or more of DDCP participants with aggregate Account balances valued
at 50% or more of the total value of all DDCP Accounts elect such early
withdrawal, then the Accounts of each remaining DDCP participant will be
distributed in a single lump sum.
TREATMENT OF DEFERRED COMPENSATION UPON "CHANGE IN CONTROL." If the
Company undergoes a "change in control" (as defined in the DDCP, generally
circumstances in which the Company is acquired by another entity or its
controlling ownership is changed), then the Accounts of each participant,
whether or not the participant is still a director, will be paid in a single
lump sum no later than 90 days following the change in control.
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ITEM 2 -- APPROVAL OF THE 2002 OMNIBUS LONG-TERM COMPENSATION PLAN
The Board of Directors adopted the Eastman Chemical Company 2002 Omnibus
Long-Term Compensation Plan (the "2002 Omnibus Plan") on March 7, 2002, subject
to approval by stockholders at the Annual Meeting. The 2002 Omnibus Plan is
substantially similar to, and is intended to replace, the Company's 1997 Omnibus
Long-Term Compensation Plan (the "1997 Omnibus Plan"), under which no new awards
may be made after April 30, 2002. See "Executive Compensation -- Compensation
and Management Development Committee Report on Executive
Compensation -- Components of Executive Compensation -- Long-Term Stock-Based
Incentive Pay" for a description of the current option award program, which is
expected to be continued under the 2002 Omnibus Plan.
A summary of the 2002 Omnibus Plan is set forth below. The summary is
qualified in its entirety by the full text of the 2002 Omnibus Plan, which is
attached to this Proxy Statement as Appendix A.
PLAN PURPOSE AND ELIGIBLE PARTICIPANTS
Like the 1997 Omnibus Plan, the purpose of the 2002 Omnibus Plan is to
provide motivation to employees of the Company and its subsidiaries to put forth
maximum efforts toward the growth, profitability, and success of the Company by
providing incentives through the ownership and performance of common stock of
the Company. As described under "Compensation and Management Development
Committee Report on Executive Compensation," equity-based compensation is
designed to facilitate stock ownership and to make a portion of employee pay
dependent on long-term return to all stockholders. Employees of the Company or
its subsidiaries will be eligible to receive awards under the 2002 Omnibus Plan.
As of December 31, 2001, the Company had approximately 15,800 employees.
ADMINISTRATION
The 2002 Omnibus Plan will be administered by the Compensation Committee or
another committee designated by the Board of Directors to administer the Plan
(the "Committee"). The Committee will have the authority to interpret the 2002
Omnibus Plan, establish rules and regulations for the operation and
administration of the Plan, select employees to receive awards, determine the
form, size, terms, conditions, limitations, and restrictions of awards, and take
all other action it deems necessary or advisable to administer the 2002 Omnibus
Plan.
AWARDS
The 2002 Omnibus Plan authorizes the grant to employees of the Company or
its subsidiaries of non-qualified and incentive stock options, stock
appreciation rights ("SARs"), stock awards, performance shares (which are stock
or stock-based awards contingent upon the attainment during a performance period
of certain performance objectives), and other stock or stock-based incentive
awards (collectively, "Awards"). The 2002 Omnibus Plan also provides for the
award of dividends and dividend equivalents on Awards. Options and SARs granted
under the 2002 Omnibus Plan must be exercisable at a price not less than the
fair market value of the underlying common stock on the date of grant, and may
not have a term of more than 10 years. The original term of any stock option or
SAR may not be extended, and the exercise price of any stock option or SAR may
not be reduced, without the prior approval of stockholders.
The 2002 Omnibus Plan contains provisions regarding the treatment of Awards
in the event of a "change in ownership" (as defined in the Plan, generally
concerning circumstances in which the common stock is no longer publicly traded)
and of a "change in control" (as defined in the Plan, 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 2002
Omnibus Plan. However, the Committee will have the discretion in certain
circumstances, notwithstanding any particular transaction constituting a change
in ownership or a change in control, either to determine that such transaction
is of the type that does not warrant the described consequences with respect to
Awards (in which event such consequences would not occur) or to alter the way in
which Awards are treated from the consequences outlined in the 2002 Omnibus
Plan.
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If a change in ownership occurs (and the Committee has not exercised its
discretion outlined above) during the term of one or more performance periods
for which the Committee has granted performance shares, the term of such
performance period will immediately terminate and, except with respect to
performance periods for which the 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 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 (i) death, (ii) disability (as defined in the 2002 Omnibus
Plan), (iii) cause (as defined in the 2002 Omnibus Plan), (iv) resignation
(other than as a result of certain actions by the Company and any successor), or
(v) 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.
A participant's rights under the 2002 Omnibus Plan will be forfeited, and
all outstanding Awards cancelled, if, in the determination of the Committee the
participant has breached certain noncompete or confidentiality obligations, or
if the participant terminates employment for an unapproved reason (as defined
under the 2002 Omnibus Plan).
The 2002 Omnibus Plan provides 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 stockholders.
SECTION 162(M)
Pursuant to Section 162(m) of the Internal Revenue Code, the Company may
not deduct compensation in excess of $1 million paid to the Chief Executive
Officer and the four next most highly compensated executive officers of the
Company (each, a "Covered Employee"), except that compensation that qualifies as
"performance-based" is excluded from such limitation. The Board has submitted
the 2002 Omnibus Plan for approval by stockholders in order to permit the grant
of certain Awards thereunder, such as options, SARs and certain performance
shares, that will constitute "performance-based" compensation, which will be
excluded from the calculation of annual compensation of Covered Employees for
purposes of Section 162(m) and will be fully deductible by the Company. The
Committee may grant Awards under the Plan that do not qualify as
performance-based compensation under Section 162(m). The payment of any such
non-qualifying Awards to a Covered Employee could be non-deductible by the
Company, in whole or in part, under Section 162(m), depending on such Covered
Employee's total compensation in the applicable year. See "Executive
Compensation -- Compensation and Management Development Committee Report on
Executive Compensation -- Omnibus Budget Reconciliation Act of 1993."
Performance Goals for Certain Section 162(m) Awards. Under the 2002
Omnibus Plan, the Committee may determine that, in order to meet the
"performance-based" award criteria of Section 162(m) and the regulations
thereunder, a particular Award granted under the 2002 Omnibus Plan will be
determined solely on the basis of one or more of the following measures of
corporate performance, alone or in combination, for the Company as a whole or
for a subsidiary, division, region, department, or function within the Company:
(a) return on capital, equity or assets (including economic value created,
defined as after-tax operating profit minus a computed capital charge for
average debt and equity employed during the year), (b) productivity,
14
(c) cost improvement, (d) cash flow, (e) sales revenue growth, (f) net income,
earnings per share, or earnings from operations, (g) quality, (h) customer
satisfaction, or (i) stock price or total stockholder return. Measurement of the
Company's performance against such goals established by the Committee shall be
objectively determinable, and to the extent such goals are expressed in standard
accounting terms, performance shall be measured in accordance with generally
accepted accounting principles. The Committee shall have the right for any
reason to reduce (but not increase) any such Award, notwithstanding the
achievement of a specified goal. If an Award is made on such basis, the
Committee shall establish goals prior to the beginning of the period to which
such performance goal relates (or such later date as may be permitted under
Section 162(m) or the regulations thereunder). Any payment of an Award granted
with performance goals under this section of the 2002 Omnibus Plan will be
conditioned on the written certification of the Committee in each case that the
performance goals and any other material conditions were satisfied.
SHARES AVAILABLE FOR AWARDS
Subject to adjustment as provided in the 2002 Omnibus Plan, the maximum
number of shares of common stock that will be available for grant of Awards
during the term of the 2002 Omnibus Plan is 7,500,000, of which no more than
1,500,000 are available for Awards in the form of shares of common stock or
performance shares. Awards may not be granted under the 2002 Omnibus Plan after
May 2, 2007. The maximum number of shares of common stock with respect to one or
more options and/or SARs that may be granted during any one calendar year under
the 2002 Omnibus Plan to any one employee is 300,000. The maximum fair market
value of any Awards (other than options and SARs) that may be received by an
employee (less any consideration paid by the employee for such Award) during any
one calendar year under the 2002 Omnibus Plan is equal to the fair market value
of 200,000 shares of common stock as of January 1 of that year.
TERMINATION AND AMENDMENT
The Board of Directors or the Committee may, at any time and from time to
time, suspend, amend, modify or terminate the 2002 Omnibus Plan without
stockholder approval; provided, however, that stockholder approval would be
required for any amendment that would materially increase the benefits to 2002
Omnibus Plan participants, materially increase the number of shares of common
stock available under the 2002 Omnibus Plan, or materially modify the
requirements for eligibility under the 2002 Omnibus Plan. In addition, the Board
or Committee may condition any amendment or modification on the approval of
stockholders if such approval is necessary or deemed advisable with respect to
certain tax, securities or other applicable laws, policies or regulations.
CERTAIN FEDERAL INCOME TAX EFFECTS
Non-qualified Stock Options. Under present federal income tax regulations,
there will be no federal income tax consequences to either the Company or the
participant upon the grant of a non-qualified stock option. However, the
participant will realize ordinary income on the exercise of the option in an
amount equal to the excess of the fair market value of the common stock acquired
upon the exercise of such option over the exercise price, and the Company will
receive a corresponding deduction. The gain, if any, realized upon the
subsequent disposition by the participant of the common stock will constitute
short- or long-term capital gain, depending on the participant's holding period.
Incentive Stock Options. Under present federal income tax regulations,
there will be no federal income tax consequences to either the Company or the
participant upon the grant of a non-discounted incentive stock option (an option
that meets the requirement of Section 422 of the Internal Revenue Code) or the
exercise thereof by the participant. If the participant holds the shares of
common stock underlying the option for the greater of two years after the date
the option was granted or one year after the acquisition of such shares of
common stock (the "required holding period"), the difference between the
aggregate exercise price and the amount realized upon disposition of the shares
of common stock will constitute a long-term capital gain or loss, and the
Company will not be entitled to a federal income tax deduction. If the shares of
common stock are disposed of in a sale, exchange or other disqualifying
disposition during the required holding period, the
15
participant will realize taxable ordinary income in an amount equal to the
lesser of (i) the excess of the fair market value of the common stock purchased
at the time of exercise over the aggregate exercise price or (ii) the excess of
the amount realized upon disposition of the shares over the aggregate exercise
price, and the Company will be entitled to a federal income tax deduction equal
to such amount.
SARs. Under present federal income tax regulations, a participant
receiving an SAR will not recognize income, and the Company will not be allowed
a tax deduction, at the time the Award is granted. When a participant exercises
the SAR, the amount of cash and the fair market value of any shares of common
stock received will be ordinary income to the participant and will be allowed as
a deduction for federal income tax purposes to the Company. The gain, if any,
realized upon the subsequent disposition by the participant of any shares of
common stock acquired upon exercise of the SAR will constitute short- or
long-term capital gain, depending on the participant's holding period.
Performance Shares. Under present federal income tax regulations, a
participant receiving performance shares will not recognize income and the
Company will not be allowed a tax deduction at the time the Award is granted.
When a participant receives payment of performance shares, the amount of cash
and the fair market value of any shares of Common Stock received will be
ordinary income to the participant and, subject to Code Section 162(m)
limitations, if applicable, will be allowed as a deduction for federal income
tax purposes to the Company.
Restricted Stock. Under present federal income tax regulations, and unless
the participant makes an election to accelerate recognition of the income to the
date of grant as described below, a participant receiving a restricted stock
award will not recognize income, and the Company will not be allowed a tax
deduction, at the time the Award is granted. When the restrictions lapse, the
participant will recognize ordinary income equal to the fair market value of the
shares, as to which the restrictions are lapsing, measured as of that date, and
the Company will be entitled to a corresponding tax deduction at that time,
subject to Code Section 162(m) limitations, if applicable. If the participant
elects, pursuant to Code Section 83(b), to accelerate the recognition of income
to the date of grant, the participant will recognize income equal to the fair
market value of the shares at the time the Award is granted, and the Company
will be entitled to a corresponding deduction at that time, subject to Code
Section 162(m) limitations, if applicable. If a participant making an
accelerated tax election subsequently forfeits the restricted shares, he or she
will not be entitled to recover the tax paid.
Unrestricted Stock. Under present federal income tax regulations, at the
time an unrestricted stock award is granted, the participant will recognize
ordinary income and the Company will be allowed a tax deduction, subject to Code
Section 162(m) limitations, if applicable.
BENEFITS TO NAMED EXECUTIVE OFFICERS AND OTHERS
No Awards have been granted or approved for grant under the 2002 Omnibus
Plan. Future Awards under the 2002 Omnibus Plan will be made at the discretion
of the Committee. Therefore, it is not presently possible to determine, with
respect to the executive officers named in the Summary Compensation Table, all
current executive officers, or all employees, including all current officers who
are not executive officers, either the benefits or amounts that will be received
by such persons or groups pursuant to the 2002 Omnibus Plan or the benefits or
amounts that would have been received by such persons or groups under the 2002
Omnibus Plan if it had been in effect during 2001. See "Compensation and
Management Development Committee Report on Executive Compensation" for
information concerning grants and awards under the 1997 Omnibus Plan during 2001
and for the Compensation Committee's current philosophy, policies and practices
concerning long-term, stock-based compensation. The closing price per share of
Eastman common stock on the New York Stock Exchange was $46.20 on March 15,
2002.
VOTE REQUIRED TO APPROVE THE 2002 OMNIBUS PLAN
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 2002 Omnibus Plan. Approval of the
2002
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Omnibus Plan 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 2002 Omnibus Plan is approved
by stockholders, it will be effective immediately. If the 2002 Omnibus Plan is
not approved by stockholders, it will not be implemented.
THE 2002 OMNIBUS LONG-TERM COMPENSATION PLAN HAS BEEN RECOMMENDED TO THE
COMPANY'S BOARD OF DIRECTORS BY THE COMPENSATION AND MANAGEMENT DEVELOPMENT
COMMITTEE OF THE BOARD. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU
VOTE "FOR" APPROVAL OF THE 2002 OMNIBUS LONG-TERM COMPENSATION PLAN.
ITEM 3 -- APPROVAL OF THE
2002 DIRECTOR LONG-TERM COMPENSATION PLAN
On March 7, 2002, the Board of Directors adopted, subject to stockholder
approval at the Annual Meeting, the 2002 Director Long-Term Compensation Plan
(the "2002 DLTP"), as a replacement for the 1999 Director Long-Term Compensation
Plan (the "Predecessor DLTP"), under which the shares available for awards have
been exhausted. If the 2002 DLTP becomes effective, no new awards may be made
under the Predecessor DLTP.
A summary of the 2002 DLTP is set forth below. The summary is qualified in
its entirety by the full text of the 2002 DLTP, which is attached to this Proxy
Statement as Appendix B.
OPERATION OF AND AWARDS UNDER PLAN
PLAN PURPOSE AND DESIGN. Like the Predecessor DLTP, the purpose of the
2002 DLTP is to provide motivation to non-employee directors to put forth
maximum efforts toward the growth, profitability and success of the Company by
providing incentives through the ownership and performance of common stock. The
2002 DLTP provides for an automatic, one-time restricted stock award and annual
option grants and restricted stock awards to each non-employee director.
ELIGIBLE DIRECTORS. The 2002 DLTP is a compensation plan for all
non-employee directors of the Company.
ADMINISTRATION. The 2002 DLTP will be administered by the Committee on
Directors. The Committee will have the authority to interpret the 2002 DLTP and
establish rules and regulations for the operation and administration of the 2002
DLTP. The Committee may not, however, vary the directors eligible to participate
under the 2002 DLTP or the form, type, terms, timing, conditions, restrictions,
or limitations of, or other aspects of, the automatic stock option grants and
restricted stock awards provided for by the 2002 DLTP.
ANNUAL OPTION GRANTS. Under the 2002 DLTP, immediately following each
annual meeting of the Company's stockholders, each non-employee director will
receive a non-qualified stock option to purchase 2,000 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
17
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.
ANNUAL RESTRICTED STOCK AWARDS. Immediately following each annual meeting
of the Company's stockholders, each non-employee director will be granted an
award of shares of common stock having a fair market value equal to $5,000 as of
such date, subject to certain restrictions. The restricted shares will not be
transferable (except by will or the laws of descent and distribution) and will
be subject to forfeiture until the earlier of: (i) the third anniversary of
grant (provided the grantee is still a director), (ii) death, disability or
resignation due to term limit or retirement age during the three years after
grant, or (iii) departure from the Board at the end of the term of service to
which elected. If none of the three alternative vesting events occurs by the
third anniversary of the grant date, then the shares will be forfeited. During
the restricted period, the director will have all of the rights of a stockholder
(other than the right to transfer the shares) with respect to the restricted
shares, including voting and dividend rights
ONE-TIME RESTRICTED STOCK AWARDS. In addition to the options and
restricted shares described above, each non-employee director whose initial term
of service as a director begins on or after January 1, 2002 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. These restricted shares will not be
transferable (except by will or the laws of descent and distribution) and will
be subject to forfeiture until the earlier of: (i) the third anniversary of
grant (provided the grantee is still a director), (ii) death, disability or
resignation due to term limit or retirement age during the three years after
grant, or (iii) failure to be reelected as a director during the three years
after grant. If none of the three alternative vesting events occurs by the third
anniversary of the grant date, then the shares will be forfeited. During the
restricted period, the director will have all of the rights of a stockholder
(other than the right to transfer the shares) with respect to the restricted
shares, including voting and dividend rights.
TREATMENT OF OPTIONS AND RESTRICTED STOCK UPON "CHANGE IN CONTROL." The
2002 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
2002 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 FOR AWARDS. Subject to adjustment as provided in the 2002
DLTP, the maximum number of shares of common stock that may be granted or
subject to awards under the 2002 DLTP is 200,000. No award may be made after the
later of May 1, 2007 or the 2007 annual meeting of stockholders of the Company.
TERMINATION AND AMENDMENT OF PLAN; MODIFICATION OF OUTSTANDING AWARDS
The Board of Directors or the Committee on Directors may suspend, amend,
modify or terminate the 2002 DLTP at any time without stockholder approval.
However, the Board or such Committee may condition any amendment or modification
on the approval of stockholders if such approval is necessary or deemed
advisable with respect to tax, securities or other applicable laws, policies or
regulations. The Committee on Directors may not amend, modify or terminate any
outstanding option previously granted or restricted shares previously awarded
under the 2002 DLTP without the approval of the affected non-employee directors.
The original term of any stock option may not be extended, and the exercise
price of any stock option may not be reduced, without the prior approval of
stockholders.
18
CERTAIN FEDERAL INCOME TAX EFFECTS
Under present federal income tax regulations, the following are the general
federal income tax consequences arising with respect to grants and awards under
the 2002 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. The gain,
if any, realized upon the subsequent disposition of the shares acquired upon
exercise of a stock option will constitute short- or long-term capital gain
depending upon how long such shares were held. With respect to restricted
shares, absent an election to accelerate recognition of income to the date of
grant, 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. If the
director elects, pursuant to Code Section 83(b), to accelerate the recognition
of income to the date of grant, the director will recognize income equal to the
fair market value of the shares at the date of grant, and the Company will be
entitled to a corresponding deduction at that time. If a participant making an
accelerated tax election subsequently forfeits the restricted shares, he or she
will not be entitled to recover the tax paid. The tax treatment upon disposition
of shares acquired under the 2002 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 2002 DLTP.
BENEFITS TO NON-EMPLOYEE DIRECTORS
The 2002 DLTP is substantially similar to the Predecessor DLTP and the 1994
Director Long-Term Compensation Plan (under which each non-employee director
received a one-time restricted stock award and option grant on the first day of
his or her initial term of service as a director). Under the Predecessor DLTP
and the 1994 Director Long-Term Compensation Plan, all current and former
non-employee directors as a group have received options to purchase a total of
42,507 shares, a total of 3,749 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 2002 DLTP. As described above, only new
directors (and no current directors) would receive a one-time award of
restricted shares under the 2002 DLTP, and each non-employee director would
receive an option to purchase 2,000 shares of common stock and additional shares
of restricted stock immediately following each annual meeting of stockholders.
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 2002
DLTP. The closing price per share of Eastman common stock on the New York Stock
Exchange was $46.20 on March 15, 2002.
VOTE REQUIRED TO APPROVE THE 2002 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 2002 DLTP. Approval of the 2002
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 2002 DLTP is approved by
stockholders, it will be effective immediately. If the 2002 DLTP is not approved
by stockholders, it will not be implemented.
THE 2002 DIRECTOR LONG-TERM COMPENSATION PLAN HAS BEEN RECOMMENDED TO THE
COMPANY'S BOARD OF DIRECTORS BY THE COMMITTEE ON DIRECTORS OF THE BOARD. THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" APPROVAL OF THE
2002 DIRECTOR LONG-TERM COMPENSATION PLAN.
19
ITEM 4 -- 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 Stockholders in 2003.
PricewaterhouseCoopers LLP has billed the Company the following amounts for
professional services rendered during 2001:
AUDIT FEES: $1,623,077, in the aggregate, for the audit of the
Company's and its subsidiaries' annual financial statements for the fiscal
year ended December 31, 2001 and the reviews of the interim financial
statements included in the Company's Forms 10-Q filed during the fiscal
year ended December 31, 2001; and
ALL OTHER FEES: $4,517,160, in the aggregate, for all services other
than those covered above under "Audit Fees". "All Other Fees" consist
primarily of the audit of separate company financial statements and
assistance in accounting and financial reporting matters related to the
proposed spin-off of the Company's specialty chemicals and plastics
businesses, tax compliance and consulting services, expatriate tax
compliance services, benefit plan audits, and limited internal audit
projects. PricewaterhouseCoopers LLP did not during 2001 render any of the
financial information systems design and implementation services described
in Paragraph (c)(4)(ii) of Rule 2-01 of Regulation S-X.
The stockholders 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 stockholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR"
RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT
ACCOUNTANTS.
20
STOCKHOLDER PROPOSALS
The following two stockholder proposals have been submitted for a vote of
the stockholders at the Annual Meeting. The proposals and the proponents'
supporting statements are set forth below along with the Company's reasons for
recommending a vote "AGAINST" each proposal. All shares of common stock
represented by valid proxies received pursuant to this solicitation, and not
revoked before they are exercised, will be voted in the manner specified. If you
execute and return a proxy without instruction concerning a proposal, your
shares will be voted against adoption of the proposal.
ITEM 5 -- PROPOSAL TO STUDY POTENTIAL HEALTH RISKS FROM CELLULOSE
ACETATE FIBERS
Stockholders Trinity Health, 29000 Eleven Mile Road, Farmington Hills,
Michigan 48336, holder of 775 shares of Eastman common stock; Walden/BBT
Domestic Social Index Fund, 40 Court Street, Boston, Massachusetts 02108, holder
of 300 shares of Eastman common stock; and Carla A. Kleefeld, 711 Atlantic
Avenue, Boston, Massachusetts 02111-2809, holder of 150 shares of Eastman common
stock, have given notice that they intend to submit the following proposal and
supporting statement:
WHEREAS Eastman Chemical is a major producer of cellulose acetate tow,
which is used in the manufacture of cigarette filters:
- During smoking, cigarette filter fibers become coated with
carcinogen-laden deposits from cigarette smoke;
- Also cellulose acetate cigarette filter fibers can dislodge from
cigarettes and become transported into the lungs of consumers;
- Scientists at the Roswell Park Cancer Institute have demonstrated the
presence of cigarette filter fibers like the ones this company
manufactures in the lungs of smokers;
- These scientists have hypothesized that such fibers in the lungs of
smokers might serve as reservoirs for carcinogens over a long period of
time. This suggests that cellulose acetate filters may contribute to
diseases caused by cigarettes in smokers;
- If cellulose acetate filters contribute to cigarette-caused disease,
Eastman Chemical may be liable for injuries to smokers as the tobacco
litigation net gets thrown wider and wider;
- The importance of studying the health impact of Eastman Chemical's
cigarette filters is highlighted by a recent federal appeals court
decision supporting a Massachusetts State law requiring tobacco companies
to disclose the ingredients in their products. The law requires tobacco
companies to submit lists and amounts of substances added so that they
can be studied and the public warned about additional health risks.
RESOLVED: That shareholders request that management conduct a study
examining possible health risks posed by our filter tows among consumers who
smoke cigarettes with cellulose acetate filters. This study shall include a
review of all information known or available to the company on this subject but
need not involve any new primary research. The study and any recommendations
that emerge from it are to be completed within one year of the 2002 Annual
Meeting. Copies of the complete report shall be made available to requesting
shareholders.
Supporting Statement of Proponent
Cigarette smoke contains dozens of potent carcinogens. Cellulose acetate
fibers that are supposed to trap these poisons can themselves be transported
into the lungs, laden with these dangerous substances. We believe this
resolution and the study it requests are in the best interests of consumers as
well as in the interests of our company and shareholders.
Certainly it is in our interest as management and investors to be fully
informed about any and all health risks to smokers to which Eastman Chemical
contributes. We need to know, for example, if our products are
21
deemed to contribute to cancer or if we may be faced with legal and financial
liabilities. It is only fair to consumers as well that they are fully aware of
all of the dangers of smoking.
If you believe that Eastman Chemical and its shareholders should be fully
apprised as to whether the cellulose acetate tow the company sells to the
cigarette manufacturers is contributing to the various illnesses caused by
cigarettes, please vote YES in support of this resolution.
RESPONSE OF THE COMPANY
The proposal on its face requests that management conduct a "study" of
health issues related to our cellulose acetate tow product line. In fact, the
proposal concerns substantially the same subject matter as proposals concerning
this product line which have been submitted in past years to the Company by
members of the Interfaith Center on Corporate Responsibility, of which the
proponent is also a member. One such proposal, seeking divestiture of the
cellulose acetate tow business, also raised litigation, liability, and health
issues and received only 2.8% of the votes cast at the 1996 Annual Meeting of
Stockholders. A proposal almost identical to the current proposal was submitted
last year and was supported by only 7.98% of the votes cast and 6.82% of the
shares represented at the 2001 Annual Meeting of Stockholders. Your management's
views on the current proposal are the same as those it had concerning these
previous proposals, which views have been supported overwhelmingly by
stockholders.
Eastman is committed to protecting health, safety, and the environment. The
Company subscribes to the Responsible Care(R) program of the American Chemistry
Council, which includes product stewardship principles. Management continually
evaluates the opportunities and challenges facing each of the Company's
businesses and major products and develops information and plans in view of
changing environments. The Board, as elected by the stockholders, and the
officers, as the Board's agents, manage the myriad of factors that affect the
Company's business and make business policy to conduct the Company's affairs.
The Board and management are cognizant of the scientific, legal, and business
developments relative to acetate tow and its uses. The Board believes
appropriate management attention and Company resources are directed to these
issues.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "AGAINST"
ADOPTION OF THIS PROPOSAL.
ITEM 6 -- PROPOSAL TO ISSUE REPORT CONCERNING EMISSION OF "GREENHOUSE GASES" AND
POTENTIAL CLIMATE CHANGE
Stockholders Missionary Oblates of Mary Immaculate, 391 Michigan Avenue,
NE, Washington, DC 20017, holder of 2,400 shares of Eastman common stock, and
Carla A. Kleefeld, 711 Atlantic Avenue, Boston, Massachusetts 02111-2809, holder
of 150 shares of Eastman common stock, have given notice that they intend to
submit the following proposal and supporting statements:
WHEREAS:
- The Intergovernmental Panel on Climate Change has found "new and stronger
evidence that most of the warming observed over the last 50 years is
attributed to human activity." (IPCC, 2001)
- Growing evidence indicates that environmental damage from fossil fuel
burning will be major and worldwide. Threats to human health and habitats
include (IPCC, 2001):
- widespread increase in the risk of floods inundating the homes of tens
of millions of people, resulting in increased drowning, disease and,
in developing countries, hunger;
- increases, in some geographic areas, in droughts, floods, landslides,
storms, and incidences of water-borne (cholera) and vector-borne
(malaria) diseases; and
- irreversible damage to vulnerable ecosystems, with increased risk of
extinction of more vulnerable species and loss of biodiversity.
22
- In July 2001, 178 nations signed the Bonn agreement, requiring
industrialized nations to reduce greenhouse emissions to 5.2% less than
1990 levels, by 2008 (Wall Street Journal, 7/24/01)
- Dupont's CEO stated, "We are preparing our company for a long journey to
a more climate-friendly . . . global economy. We have already reduced our
global greenhouse gases by nearly 60%; [and are] committed to . . .
setting new goals for 2010: reducing global carbon-equivalent greenhouse
gas emissions by 65% [from 1990 levels]; holding total energy use flat
[at 1990 levels]; and using renewable resources for 10% of our global
energy use." (11/00)
- Major automakers are developing alternative non-combustion engines and
technologies to reduce vehicles' fossil fuel demands. Ford's Chairman has
said, "We are committed to an improvement in fuel economy for all of our
vehicles . . . [and] a reduction in carbon dioxide emissions. We know
greenhouse gases and global temperatures are increasing." (4/14/00)
- Royal Dutch/Shell and BP have invested in renewables for years. Royal
Dutch/Shell added a penalty of $5/ton of carbon produced when evaluating
investment returns on new projects, anticipating more stringent
carbon-related regulatory regimes. (Financial Times, 9/12/00).
- Companies with top-rated environmental records are faring significantly
better financially than those with worse records. From 1997-2000, they
had 3.53% higher annual returns on investment than a broader universe of
companies, and 7.80% higher annual returns than companies with low-rated
environmental records. (QED International , 2001)
- Thirty-nine top religious leaders stated, ". . . global warming is a
scientific fact. . . . More investment in renewable energy and fuel
efficiency is now a moral imperative, especially because these are
technologically feasible and economically viable." (National Council of
Churches, 5/21/01)
- We believe that good stewardship of Eastman Chemical resources requires
that we reduce polluting emissions when possible and prudent.
RESOLVED: that Eastman Chemical report to shareholders (at reasonable cost
and omitting proprietary information) by August 2002 on (a) total annual
greenhouse gas emissions (i) from our company's own operations and (ii) from its
products (as best as the Company can estimate); and (b) an estimate of the
feasibility and cost of substantially reducing these emissions, together with an
evaluation of whether our Company would need such changes to be made on an
industry-wide basis and, if so, how that could be accomplished.
RESPONSE OF THE COMPANY
This proposal is substantially the same as proposals considered by
stockholders at the 2000 and 2001 Annual Meetings of Stockholders. These
proposals received only 6.9% and 7.9% of the votes cast, respectively, and your
management's views, which have been supported overwhelmingly by stockholders,
are unchanged.
At Eastman, environmental accountability is not taken lightly. The
Company's policy is to operate its plants and facilities in a manner that
protects the environment and the health and safety of its employees and the
public, and in full compliance with all applicable laws and regulations. Health,
safety, and environmental considerations are a priority in the Company's
planning for all existing and new products and processes. The Company makes
significant expenditures for environmental protection and improvement.
The Company's careful consideration of health, safety, and the environment
includes the issue of potential climate change. The Company's expenditures for
environmental protection and improvement include significant capital
expenditures for the updating and maintenance of facilities to enhance energy
efficiency and reduce emissions. The Company advocates increased funding of both
public and private scientific research to enhance the understanding of the
possible causes and implications of climate change. The Company also supports
voluntary measures by all economic sectors that lead to emission reductions,
improved energy efficiency, removal of greenhouse gases from the atmosphere, and
the development and deployment of advanced technologies that support these
goals. As with any matter potentially affecting the Company's operations, the
Company will continue to monitor the global warming issue and, if and when
material
23
information regarding its potential impact upon the Company is known, will
fulfill its obligation to convey such information to stockholders. However, the
Board does not believe that a report of the type requested by the proponents
would be useful or informative for stockholders.
The Board believes that any report attempting to quantify potential
financial effects of the climate change issue on the Company at this time would
be entirely speculative and, consequently, of little, if any, value to
stockholders. To the extent that the Company's research or other activities
undertaken to address the climate change issue are material, information
regarding such activities will necessarily be communicated to stockholders
through the Company's regular reports filed with the SEC. We believe, therefore,
that an additional report of the type requested by the proponent would be
duplicative and unnecessary.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "AGAINST"
ADOPTION OF THIS PROPOSAL.
STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
COMMON STOCK
The following table sets forth certain information regarding the beneficial
ownership of Eastman common stock as of December 31, 2001 by each current
director, by each executive officer named in the Summary Compensation Table
(under "Executive Compensation -- Compensation Tables"), and by the current
directors, the named executive officers, and the other current executive
officers, as a group.
NUMBER OF SHARES OF
COMMON STOCK BENEFICIALLY
NAME OWNED(1)(2)
---- -------------------------
Earnest W. Deavenport, Jr................................... 412,726(3)
J. Brian Ferguson........................................... 41,367(4)
Roger K. Mowen, Jr.......................................... 40,839(5)
James P. Rogers............................................. 385,058(6)
Allan R. Rothwell........................................... 62,128(7)
H. Jesse Arnelle............................................ 2,641(8)
Calvin A. Campbell, Jr...................................... 7,045(9)
Jerry E. Dempsey............................................ 7,600(10)
John W. Donehower........................................... 2,889(11)
Donald W. Griffin........................................... 1,782(12)
Marilyn R. Marks............................................ 7,363(13)
David W. Raisbeck........................................... 317(14)
John A. White............................................... 7,140(15)
Peter M. Wood............................................... 1,787(16)
Current directors, named executives, and other current
executive officers, as a group (18 persons)............... 1,108,520(17)
---------------
(1) Information relating to beneficial ownership is based upon information
furnished by each person using "beneficial ownership" concepts set forth in
rules of the 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 the
current directors, the named executive officers, and the other current
executive officers, as a group represents approximately 1.42% of the shares
of common stock outstanding as of December 31, 2001. 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
24
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 328,940 shares that may be acquired upon exercise of options and
30,000 restricted shares that generally vest on December 7, 2004, but as to
which Mr. Deavenport currently has voting power.
(4) Includes 35,120 shares that may be acquired upon exercise of options and
578 shares allocated to Mr. Ferguson's ESOP account.
(5) Includes 37,442 shares that may be acquired upon exercise of options and
784 shares allocated to Mr. Mowen's ESOP account.
(6) Includes 199,500 shares that may be acquired upon exercise of options, 322
shares allocated to Mr. Rogers' ESOP account, and 11,300 restricted shares
that generally vest in August 2002 but as to which Mr. Rogers currently has
voting power. Also includes 158,424 shares owned by the Eastman Chemical
Company Foundation, Inc., of which shares Mr. Rogers may also be deemed a
beneficial owner by virtue of his shared voting and investment power as a
director of the foundation.
(7) Includes 56,900 shares that may be acquired upon exercise of options and
770 shares allocated to Mr. Rothwell's ESOP account.
(8) Includes 1,778 shares that may be acquired upon exercise of options and 95
restricted shares that generally vest on May 3, 2004, but as to which Mr.
Arnelle currently has voting power.
(9) Includes 2,078 shares that may be acquired upon exercise of options and 95
restricted shares that generally vest on May 3, 2004, but as to which Mr.
Campbell currently has voting power.
(10) Includes 1,976 shares that may be acquired upon exercise of options and 95
restricted shares that generally vest on May 3, 2004, but as to which Mr.
Dempsey currently has voting power.
(11) Includes 1,907 shares that may be acquired upon exercise of options and 95
restricted shares that generally vest on May 3, 2004, but as to which Mr.
Donehower currently has voting power.
(12) Includes 1,500 shares that may be acquired upon exercise of options, 175
restricted shares that generally vest on May 6, 2002, but as to which Mr.
Griffin currently has voting power, and 95 restricted shares that generally
vest on May 3, 2004, but as to which Mr. Griffin currently has voting
power.
(13) Includes 4,258 shares that may be acquired upon exercise of options and 95
restricted shares that generally vest on May 3, 2004, but as to which Miss
Marks currently has voting power.
(14) Consists of 222 restricted shares that generally vest on December 7, 2003,
but as to which Mr. Raisbeck currently has voting power, and 95 restricted
shares that generally vest on May 3, 2004, but as to which Mr. Raisbeck
currently has voting power.
(15) Includes 3,688 shares that may be acquired upon exercise of options and 95
restricted shares that generally vest on May 3, 2004, but as to which Dr.
White currently has voting power.
(16) Includes 500 shares that may be acquired upon exercise of options, 192
restricted shares that generally vest on May 4, 2003, but as to which Mr.
Wood currently has voting power, and 95 restricted shares that generally
vest on May 3, 2004, but as to which Mr. Wood currently has voting power.
(17) Includes a total of 763,142 shares that may be acquired upon exercise of
options and 4,686 shares allocated to executive officers' ESOP accounts.
Includes options held by the spouse of an executive officer not named
above, as to which shares and options such executive officer disclaims
beneficial ownership. Includes 158,424 shares owned by the Eastman Chemical
Company Foundation, Inc., of which shares Mr. Rogers and two other
executive officers not named above may each be deemed a beneficial owner by
virtue of their shared voting and investment power as directors of the
Foundation.
COMMON STOCK AND COMMON STOCK UNITS
In addition to shares of Eastman common stock beneficially owned, 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 certain of the directors have Common Stock Units credited
to their individual Stock Accounts in the DDCP. See "Item 1 -- Election of
Directors -- Director Compensation -- Directors' Deferred Compensation Plan" and
"Executive Compensation -- Compensation Tables -- Summary Compensation Table"
and "-- Compensation and Management Development Committee Report on Executive
Compensation."
25
The following table shows, for each current director and each executive
officer named in the Summary Compensation Table, and for the current directors,
the named executive officers, and the other current 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 as of
December 31, 2001. 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 and EDCP allow
Common Stock Units to be paid out only in the form of cash, and not in shares of
common stock, Common Stock Units create essentially the same stake in the market
performance of the Company's common stock as do actual shares of common stock.
As a result, Common Stock Units are counted with certain shares of common stock
beneficially owned (excluding certain shares that may be deemed beneficially
owned under SEC rules, such as shares underlying options, shares owned by the
individual's spouse, and shares over which the individual shares voting and
investment power, but in which the individual has no pecuniary interest) for
purposes of the Company's stock ownership guidelines -- four times target total
annual compensation for the Chief Executive Officer, three times target total
annual compensation for the other executive officers named in the Summary
Compensation Table, and three times the annual retainer fee for non-employee
directors. See "Executive Compensation -- Compensation and Management
Development Committee Report on Executive Compensation." The table below is
included to provide a better indication of the stake of the named individuals,
and of the group, with respect to Eastman common stock.
NUMBER OF SHARES OF
COMMON STOCK AND
COMMON STOCK UNITS
NAME BENEFICIALLY OWNED
---- -------------------
Earnest W. Deavenport, Jr. ................................. 421,185
J. Brian Ferguson........................................... 41,565
Roger K. Mowen, Jr. ........................................ 50,035
James P. Rogers............................................. 452,924(1)
Allan R. Rothwell........................................... 65,571
H. Jesse Arnelle............................................ 4,834
Calvin A. Campbell, Jr. .................................... 7,045
Jerry E. Dempsey............................................ 7,600
John W. Donehower........................................... 5,119
Donald W. Griffin........................................... 1,782
Marilyn R. Marks............................................ 8,537
David W. Raisbeck........................................... 1,575
John A. White............................................... 11,824
Peter M. Wood............................................... 1,787
Current directors, named executives, and other current
executive officers, as a group (18 persons)............... 1,231,109(2)
---------------
(1) Includes 158,424 shares owned by the Eastman Chemical Company Foundation,
Inc., over which shares Mr. Rogers shares voting and investment power as a
director of the Foundation but in which shares Mr. Rogers has no pecuniary
interest.
(2) Includes 158,424 shares owned by the Eastman Chemical Company Foundation,
Inc., over which shares Mr. Rogers and two other executive officers not
named above share voting and investment power as directors of the Foundation
but in which shares such executive officers have no pecuniary interest.
26
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information regarding the only known
beneficial owners of more than 5% of Eastman common stock.
NUMBER OF SHARES OF PERCENT
COMMON STOCK OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED CLASS(1)
------------------------------------ ------------------- --------
AXA Financial, Inc.......................................... 10,447,046(2) 13.49%
1290 Avenue of the Americas
New York, New York 10104
Barclays Global Investors N.A............................... 4,069,706(3) 5.25%
45 Fremont Street
San Francisco, California 94105
Dodge & Cox................................................. 6,094,961(4) 7.87%
One Sansome St., 35th Floor
San Francisco, California 94104
---------------
(1) Based upon the number of shares of common stock outstanding and entitled to
be voted at the Annual Meeting as of the record date.
(2) As of December 31, 2001, based on a Schedule 13G filed with the SEC by AXA
Financial, Inc., an investment company, and certain investment advisor,
insurance company, and broker-dealer subsidiaries of AXA Financial.
According to the Schedule 13G, AXA Financial and such subsidiaries together
have sole investment power with respect to 10,444,246 of such shares, sole
voting power with respect to 5,633,803 of such shares, shared investment
power with respect to 2,800 of such shares, and shared voting power with
respect to 1,618,577 of such shares.
(3) As of December 31, 2001, based on a Schedule 13G filed with the SEC by
Barclays Global Investors N.A., a bank, and certain affiliated bank
entities. According to the Schedule 13G, Barclays Global Investors and such
entities together have sole investment power with respect to all of such
shares and sole voting power with respect to 4,004,636 of such shares.
(4) As of December 31, 2001, based on a Schedule 13G filed with the SEC by Dodge
& Cox, an investment advisor. According to the Schedule 13G, Dodge & Cox has
sole investment power with respect to all of such shares, sole voting power
with respect to 5,711,151 of such shares, and shared voting power with
respect to 67,200 of such shares.
27
EXECUTIVE COMPENSATION
COMPENSATION TABLES
The following Summary Compensation Table sets forth certain information
concerning compensation of Eastman Chemical Company's Chief Executive Officer
and each of the company's four other most highly compensated executive officers
for 2001.
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
-----------------------------------------------------
AWARDS PAYOUTS
ANNUAL COMPENSATION(1) ------------------------------- --------------
---------------------------------------- RESTRICTED STOCK SECURITIES LONG-TERM
NAME AND PRINCIPAL OTHER ANNUAL AWARDS UNDERLYING INCENTIVE PLAN
POSITION YEAR SALARY(2) BONUS(3) COMPENSATION(4) ($)(5) OPTIONS(#) PAYOUTS(6)
------------------ ---- --------- ---------- --------------- ---------------- ---------- --------------
Earnest W Deavenport,
Jr. 2001 $990,000 $ 0 $27,410 $ 1,083,30(8) 238,599(9)(10) $583,848
Chairman and Chief 2000 960,000 1,171,035 51,982 0 101,481(9) 767,960
Executive Officer 1999 775,000 732,375 28,810 0 200,000(11) 0
(retired effective
December 31, 2001)
J. Brian Ferguson 2001 375,268 0 98,132 0 22,500 32,138
President, 2000 332,450 324,314 88,038 0 15,000 24,659
Chemicals Group 1999 228,559 95,772 66,443 0 81,700(11) 0
(elected Chairman and
Chief Executive
Officer effective
January 1, 2002)
Roger K. Mowen, Jr. 2001 326,013 50,000 779 0 15,000 117,841
Senior Vice President, 2000 284,450 246,314 1,163 0 8,800 77,501
Global Customer 1999 227,217 105,805 247 0 56,000(11) 0
Services Group
James P. Rogers (12) 2001 384,981 25,000 6,154 469,628(13) 22,500 0
Senior Vice President 2000 357,500 306,323 2,100 520,506(13) 15,000 0
and Chief Financial 1999 127,273 253,923 5,714 579,125(13) 192,000(14) 0
Officer
Allan R. Rothwell 2001 404,763 0 2,689 0 22,500 208,900
President, 2000 359,500 197,775 2,784 0 15,000 218,411
Polymers Group 1999 265,700 235,315 3,073 0 91,000(11) 0
(named Executive Vice
President effective
January 1, 2002)
NAME AND PRINCIPAL ALL OTHER
POSITION COMPENSATION(7)
------------------ ---------------
Earnest W Deavenport,
Jr. $106,148
Chairman and Chief 50,527
Executive Officer 40,789
(retired effective
December 31, 2001)
J. Brian Ferguson 34,224
President, 17,500
Chemicals Group 9,707
(elected Chairman and
Chief Executive
Officer effective
January 1, 2002)
Roger K. Mowen, Jr. 29,211
Senior Vice President, 14,974
Global Customer 11,915
Services Group
James P. Rogers (12) 33,543
Senior Vice President 20,395
and Chief Financial 8,756
Officer
Allan R. Rothwell 29,318
President, 18,921
Polymers Group 14,611
(named Executive Vice
President effective
January 1, 2002)
---------------
(1) Includes both amounts paid for the indicated years and amounts earned
during the indicated years but deferred under the Executive Deferred
Compensation Plan.
(2) Base salary amount is reduced to below competitive base pay levels, and the
difference between base salary and competitive base pay levels is made
variable under the Eastman Performance Plan. See "Bonus" column and
"Compensation and Management Development Committee Report on Executive
Compensation."
(3) Cash payments in the year following for services rendered in the year
indicated under the Eastman Performance Plan and the Unit Performance Plan
for 2000, and for 1999 under the Eastman Performance Plan and the Annual
Performance Plan. The Eastman Performance Plan, unlike traditional bonus
plans, reduces participants' base salary levels to below-competitive base
salary levels and puts such pay "at risk." The Eastman Performance Plan and
Annual Performance Plan are both variable pay programs which make a portion
of participants' total annual compensation dependent upon the success of
the Company. The Unit Performance Plan is a variable pay program which
makes a portion of participants' total annual compensation dependent upon
organizational unit and individual performance. For 2001, 45% of Mr.
Deavenport's target annual compensation and 35% of the target annual
compensation for Messrs. Ferguson, Mowen, Rogers, and Rothwell, was made
variable under the Eastman Performance Plan and Unit Performance Plan. For
2001, no awards were made under the Eastman Performance Plan or the Unit
Performance Plan. Amounts in the "Bonus" column also
28
include special recognition awards paid to Mr. Rogers in 2001 and 2000, and
to Mr. Rothwell in 1999; awards paid to Mr. Mowen in 2001 and 2000 under a
compensation program for employees supporting Company initiatives in
e-business and digital business ventures; and a signing bonus paid to Mr.
Rogers upon commencement of his employment with the Company in August 1999.
Under the terms of his employment, the Company waived the then-normal time
of service condition for participation and paid Mr. Rogers a prorated award
under the Eastman Performance Plan for 1999. See "Compensation and
Management Development Committee Report on Executive Compensation."
(4) Includes amounts reimbursed for payment of taxes on certain compensation
and benefits, and the portion of interest accrued on deferred compensation
under the Executive Deferred Compensation Plan and on certain stock options
at a rate that exceeded 120 percent of the then-applicable Federal long-
term rate. The amounts reported for Mr. Ferguson also include tax gross-up
payments attributed to an overseas assignment.
(5) Represents fair market value of awards of restricted stock, based upon the
closing price of the common stock on the New York Stock Exchange on the
date of grant. At December 31, 2001, Mr. Deavenport and Mr. Rogers held
30,000 and 11,300 restricted shares of common stock, respectively, with a
fair market value of $1,170,600 and $440,926, respectively, based on the
per share closing price of the common stock on the New York Stock Exchange
on December 31, 2001. Dividends are paid on these shares as and when
dividends are paid on common stock.
(6) Represents fair market value of payout during the year following of stock
earned under performance shares awarded at the beginning of the three-year
performance period ended in the year indicated, with shares earned based
upon total return to stockholders during the three-year performance period
relative to that of peer companies. The payout, unless deferred at the
election of the participant, is in the form of unrestricted shares of
Eastman common stock. The amount reported represents the fair market value
of the shares earned, based upon the per share closing price of the common
stock on the New York Stock Exchange on the payment date. Mr. Ferguson was
first awarded performance shares for the 1998-2000 performance period;
accordingly, he was not eligible to receive a payout for the performance
period ended 1999. Mr. Rogers was first awarded performance shares for the
2000-2002 performance period, and was not eligible to receive payouts for
the performance periods ended 1999, 2000, and 2001. See "Long-Term
Incentive Plan -- Awards in Last Fiscal Year" table and "Compensation and
Management Development Committee Report on Executive Compensation."
(7) The amounts are annual Company contributions to the accounts of Messrs.
Deavenport, Ferguson, Mowen, and Rothwell in the Eastman Investment Plan, a
401(k) retirement plan, and to Mr. Rogers' accounts in the ESOP and
Executive Deferred Compensation Plan. Under the terms of his employment,
the Company waived the then-normal time of service condition for
participation under the ESOP for Mr. Rogers. Beginning in 2001, the formula
for calculating annual Company contributions for all employees was changed
in order to align the calculation more closely with Company retirement
plans. The annual Company contribution for 2001 was based upon actual
compensation paid during the calendar year, rather than targeted annual
compensation. See "Compensation and Management Development Committee Report
on Executive Compensation."
(8) Pursuant to an agreement with the Company in December 2001, Mr. Deavenport
was awarded 30,000 restricted shares of common stock, with restrictions
lapsing on the third anniversary of the date of the award. These shares are
also subject to forfeiture in the event of violation of specific
prohibitions concerning competition, solicitation, confidentiality, and
other activity adverse to the interests of the Company. See "Retirement and
Change-in-Control Arrangements."
(9) Includes "reload" options received by Mr. Deavenport (38,599 in 2001 and
36,481 in 2000) to purchase a number of shares equal to the number of
previously owned shares of Eastman common stock surrendered in payment of
the exercise price of options. See "Option Grants in Last Fiscal Year" and
"Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values" tables.
(10) Includes an option granted to Mr. Deavenport to purchase 100,000 shares of
Eastman common stock pursuant to an agreement with the Company in December
2001. See "Option Grants in Last Fiscal Year" table and "Retirement and
Change-in-Control Arrangements."
(11) Includes performance-based options granted on October 19, 1999 at an
exercise price of $37.9375 to Mr. Deavenport (169,000), Mr. Ferguson
(80,000), Mr. Mowen (50,000), and Mr. Rothwell (80,000).
29
These options were subject to stock price vesting and time vesting
conditions, both of which had to be met for the options to become
exercisable. Subject to the price vesting conditions, the options became
exercisable in 50% increments on each of the first two anniversaries of the
grant date. Accordingly, the options became exercisable as to specified
numbers between 1% and 100% of the underlying shares to the extent the
average daily closing prices for any twenty consecutive days equaled or
exceeded specified prices between $39.00 and $70.00 on or before December
31, 2001. As of December 31, 2001, the options became exercisable as to 29%
of the underlying shares, based upon a twenty consecutive trading day
average above $53.00 reached in May 2001. The options were cancelled and
forfeited on December 31, 2001 as to 71% of the underlying shares for which
the applicable stock price target was not met. The options remain subject
to forfeiture in the event of early termination of employment under certain
circumstances and in the event of violation by an optionee of specified
prohibitions concerning competition, confidentiality, and other activity
adverse to the interests of the Company.
(12) Before he joined the Company in August 1999, Mr. Rogers was Executive Vice
President and Chief Financial Officer of GAF Corporation and of certain
affiliated and successor entities of GAF, including G-I Holdings, Inc. On
January 5, 2001, G-I Holdings announced that it had filed a voluntary
petition for reorganization under Chapter 11 of the U. S. Bankruptcy Code
in the U. S. Bankruptcy Court for the District of New Jersey to resolve
asbestos liability claims. This information is included in this Proxy
Statement pursuant to Item 7(b) of Regulation 14A of the SEC's proxy rules,
which requires the description of the filing of a petition in bankruptcy
during the past five years by a corporation of which an executive officer
of the Company was an executive officer within two years before the time of
such filing.
(13) Upon the commencement of his employment with the company in August 1999,
Mr. Rogers was awarded 11,300 restricted shares of common stock, which
restrictions lapsed on the first anniversary of his employment. In August
2000, he was awarded an additional 11,300 restricted shares of common
stock, which restrictions lapsed on the second anniversary of his
employment. In August 2001, Mr. Rogers was awarded an additional 11,300
restricted shares of common stock, with restrictions lapsing on the third
anniversary of his employment.
(14) Upon the commencement of his employment with the Company in August 1999,
Mr. Rogers was granted an option to purchase 192,000 shares of Eastman
common stock at an exercise price of $51.25. This option has a term of 10
years and vested and became exercisable as to 50% of the underlying shares
upon the commencement of his employment with the Company and as to the
remaining 50% upon the first anniversary of his employment date.
30
The following table sets forth certain information regarding options
granted during 2001 under the 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)
---------------------------------------------------------------------- -------------------------------
PERCENTAGE OF TOTAL
NUMBER OF OPTIONS/SARS
SECURITIES GRANTED TO EXERCISE OR
UNDERLYING OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED FISCAL YEAR PER SHARE DATE 0%(2) 5%(3) 10%(4)
---- ------------------ ------------------- -------------- ---------- ----- ---------- ----------
E. W. Deavenport,
Jr................... 8,147(5) 0.60% $44.0800 02/12/02 $0 $ 9,238 $ 18,267
15,662(5) 1.15% 52.7750 02/02/04 0 118,339 246,917
13,890(5) 1.02% 53.0700 02/02/04 0 107,680 224,966
900(5) 0.07% 54.5400 02/02/04 0 6,923 14,431
100,000(6) 7.35% 49.2200 04/05/11 0 3,095,419 7,844,400
100,000(7) 7.35% 36.1100 12/06/11 0 2,270,938 5,755,004
J. B. Ferguson......... 22,500(6) 1.65% 49.2200 04/05/11 0 696,469 1,764,990
R. K. Mowen, Jr........ 15,000(6) 1.10% 49.2200 04/05/11 0 464,313 1,176,660
J. P. Rogers........... 22,500(6) 1.65% 49.2200 04/05/11 0 696,469 1,764,990
A. R. Rothwell......... 22,500(6) 1.65% 49.2200 04/05/11 0 696,469 1,764,990
---------------
(1) The dollar amounts under these columns are the result of calculations
projected for the term of each individual grant, assuming 0%, and the 5% and
10% rates set by the SEC, of compounded annual appreciation, and are not
intended to forecast possible future appreciation, if any, of the market
price of Eastman common stock.
(2) No gain to the optionee is possible without an increase in stock price,
which would benefit all stockholders commensurately. A 0% appreciation in
stock price would result in zero dollars for the optionee.
(3) Represents the appreciation in stock price from the exercise price until the
expiration date assuming a 5% per year appreciation in stock price. For
example, for the option expiring on April 5, 2011, a 5% per year
appreciation in stock price from $49.22 per share yields $80.17 per share.
(4) Represents the appreciation in stock price from the exercise price until the
expiration date assuming a 10% per year appreciation in stock price. For
example, for the option expiring on April 5, 2011, a 10% per year
appreciation in stock price from $49.22 per share yields $127.66 per share.
(5) "Reload" option received upon exercise of previously granted option through
surrender of shares of common stock and covering the same number of shares
as surrendered in the exercise. The reload option is vested and exercisable
immediately upon grant, and would be valued and cashed out in the event of a
"change in ownership", or in certain circumstances following a "change in
control." See "Retirement and Change-in-Control Arrangements -- Omnibus
Long-Term Compensation Plans."
(6) The options vest and become exercisable in 50% increments on each of the
first two anniversaries of the grant date, with acceleration of vesting in
the event of a "change in ownership" or in certain circumstances following a
"change in control." See "Retirement and Change-in-Control
Arrangements -- Omnibus Long-Term Compensation Plans." The exercise price
may be paid by surrendering previously owned shares of Eastman common stock,
in which case the optionee will receive a new option to purchase the same
number of shares as surrendered in the exercise. Such "reload" options have
an exercise price equal to the fair market value of the underlying common
stock on the date of the new grant.
(7) The option becomes exercisable six months from the grant date. The option is
also subject to forfeiture in the event of violation of specified
prohibitions concerning competition, solicitation, confidentiality, and
other activity adverse to the interests of the Company. See "Compensation
and Management Development Committee Report on Executive
Compensation -- Compensation of Chief Executive Officer" and "Retirement and
Change-in-Control Arrangements."
31
The following table sets forth certain information regarding exercises of
options during 2001, and total options held at year end, by the individuals
named in the Summary Compensation Table.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
NUMBER OF OPTIONS OPTIONS
SECURITIES AT FISCAL YEAR-END AT FISCAL YEAR-END(1)
UNDERLYING ---------------------- ---------------------
OPTIONS VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISED REALIZED UNEXERCISABLE UNEXERCISABLE
---- ---------- -------- ---------------------- ---------------------
E. W. Deavenport, Jr.......... 60,044 $652,924 328,940/432,500(2) $53,053/291,000(2)
J. B. Ferguson................ 0 0 35,120/30,000 25,114/0
R. K. Mowen, Jr............... 0 0 37,442/19,400 15,696/0
J. P. Rogers.................. 0 0 199,500/30,000 0/0
A. R. Rothwell................ 0 0 56,900/30,000 25,114/0
---------------
(1) Represents the difference between the closing price on the New York Stock
Exchange of Eastman common stock underlying the options on December 31,
2001, and the exercise price of the options.
(2) Includes options to purchase shares of common stock only if specified
conditions tied to the price appreciation of Eastman common stock, and
certain other conditions, are met.
The following table sets forth certain information regarding long-term
incentive plan awards during 2001 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. ............... 36,900 3 Years -0- 7,380 36,900 73,800
J. B. Ferguson....... 7,700 3 Years -0- 1,540 7,700 15,400
R. K. Mowen, Jr. .... 5,500 3 Years -0- 1,100 5,500 11,000
J. P. Rogers......... 7,700 3 Years -0- 1,540 7,700 15,400
A. R. Rothwell....... 7,700 3 Years -0- 1,540 7,700 15,400
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
2001 for a 2001-2003 cycle. Performance is measured by the Company's total
return to stockholders (change in stock price plus dividends declared during the
relevant period, assuming reinvestment of dividends) relative to that of the
peer companies identified in this Proxy Statement under "Performance Graph".
Future payouts, if any, are based upon the Company's position in a ranking of
the unweighted total stockholder returns of the compared companies. If the
Company's total stockholder return ("TSR") ranks below the twelfth company
(threshold), no award will be earned; if TSR ranks at threshold, 20% of the
target awards will be earned; if TSR ranks eighth (target), 100% of the target
awards will be earned; and if TSR ranks first of the compared companies
(maximum), 200% of the target awards will be earned. If earned, awards will be
paid after the end of the performance period in unrestricted shares of Eastman
common stock, or participants may irrevocably elect in advance to defer the
award payout into the Executive Deferred Compensation Plan.
32
PENSION PLANS
EASTMAN RETIREMENT ASSISTANCE PLAN. The Company presently has in effect a
tax-qualified, non-contributory defined benefit pension plan known as the
Eastman Retirement Assistance Plan ("ERAP") for substantially all active U.S.
employees, other than employees of Lawter International, Inc. and McWhorter
Technologies, Inc. and certain other subsidiaries. A participant's total ERAP
benefit consists of his "Pre-2000 Benefit" and "Pension Equity Benefit," as
described below.
PRE-2000 BENEFIT. Prior to 2000, the ERAP used a traditional pension
formula which gave each participant a life annuity commencing at age 65. The
following table sets forth the estimated annual Pre-2000 Benefits payable upon
retirement (including any amounts attributable to the plans described under
"Supplemental Pension Plans" below) to persons in the specified compensation and
years-of-service classifications who are eligible for a full unreduced Pre-2000
Benefit.
PENSION PLAN TABLE
AVERAGE YEARS OF SERVICE
PARTICIPATING -------------------------------------------------------------------
COMPENSATION 15 20 25 30 35 40
------------- -------- -------- -------- -------- ---------- ----------
$ 200,000 $ 44,904 $ 59,872 $ 74,840 $ 89,808 $ 104,776 $ 110,015
250,000 56,904 75,872 94,840 113,808 132,776 139,415
300,000 68,904 91,872 114,840 137,808 160,776 168,815
350,000 80,904 107,872 134,840 161,808 188,776 198,215
400,000 92,904 123,872 154,840 185,808 216,776 227,615
450,000 104,904 139,872 174,840 209,808 244,776 257,015
500,000 116,904 155,872 194,840 233,808 272,776 286,415
550,000 128,904 171,872 214,840 257,808 300,776 315,815
600,000 140,904 187,872 234,840 281,808 328,776 345,215
650,000 152,904 203,872 254,840 305,808 356,776 374,615
700,000 164,904 219,872 274,840 329,808 384,776 404,015
750,000 176,904 235,872 294,840 353,808 412,776 433,415
800,000 188,904 251,872 314,840 377,808 440,776 462,815
850,000 200,904 267,872 334,840 401,808 468,776 492,215
900,000 212,904 283,872 354,840 425,808 496,776 521,615
950,000 224,904 299,872 374,840 449,808 524,776 551,015
1,000,000 236,904 315,872 394,840 473,808 552,776 580,415
1,050,000 248,904 331,872 414,840 497,808 580,776 609,815
1,100,000 260,904 347,872 434,840 521,808 608,776 639,215
1,150,000 272,904 363,872 454,840 545,808 636,776 668,615
1,200,000 284,904 379,872 474,840 569,808 664,776 698,015
1,250,000 296,904 395,872 494,840 593,808 692,776 727,415
1,300,000 308,904 411,872 514,840 617,808 720,776 756,815
1,350,000 320,904 427,872 534,840 641,808 748,776 786,215
1,400,000 332,904 443,872 554,840 665,808 776,776 815,615
1,450,000 344,904 459,872 574,840 689,808 804,776 845,015
1,500,000 356,904 475,872 594,840 713,808 832,776 874,415
1,550,000 368,904 491,872 614,840 737,808 860,776 903,815
1,600,000 380,904 507,872 634,840 761,808 888,776 933,215
1,650,000 392,904 523,872 654,840 785,808 916,776 968,615
1,700,000 404,904 539,872 674,840 809,808 944,776 992,015
1,750,000 416,904 555,872 694,840 833,808 972,776 1,021,415
1,800,000 428,904 571,872 714,840 857,808 1,000,776 1,050,815
To the extent that any individual's annual Pre-2000 Benefit, as
reflected in the foregoing table, exceeds the amount payable from the ERAP, such
excess will be paid from one or more unfunded, supplementary plans. See
"Supplemental Pension Plans" below.
Pre-2000 Benefits under the ERAP are based upon the participant's
"average participating compensation," which is the average of three years of
those earnings described in the ERAP as "participating compensation,"
"Participating compensation," in the case of the executive officers identified
in the Summary Compensation Table, consists of salary and bonus payments,
including allowance in lieu of salary for authorized periods of absence, such as
illness, vacation, or holidays.
33
The estimated annual Pre-2000 Benefits reflected in the preceding
Pension Plan Table have been computed in straight-life annuity amounts and are
not subject to any deductions for Social Security or other offset amounts. An
employee is eligible for an unreduced Pre-2000 Benefit when such employee's
aggregate age plus years of eligible service totals 85 or at age 65.
Years of accrued service credited through 2001 and the amount of average
participating compensation at the end of 2001 for the individuals named in the
Summary Compensation Table were as follows: Mr. Deavenport, 41 years and
$1,475,496; Mr. Ferguson, 24 years and $454,192; Mr. Mowen, 31 years and
$426,981; Mr. Rogers, 2 years and $595,004; and Mr. Rothwell, 32 years and
$426,981.
PENSION EQUITY BENEFIT. Effective January 1, 2000, the Company
redesigned the ERAP to use a pension equity formula. Under the new formula,
beginning January 1, 2000, a participant earns a certain pension equity
percentage each year based on his age and total service with the Company, using
the following chart:
FOR AVERAGE PARTICIPATING
COMPENSATION OVER THE
POINTS FOR ALL AVERAGE AVERAGE SOCIAL SECURITY
(AGE + SERVICE) PARTICIPATING COMPENSATION WAGE BASE
--------------- -------------------------- -------------------------
Under 35................................... 2% 2%
35-44...................................... 2.5% 2%
45-54...................................... 3% 3%
55-64...................................... 4.5% 3%
65-74...................................... 6% 5%
75-84...................................... 9% 8%
85-94...................................... 12.5% 10%
95 & Over.................................. 16% 10%
After 40 Years of Service.................. 8% 5%
When a participant terminates, he is entitled to a pension lump sum,
payable over five years, which is equal to the accumulated percentages in the
second column times his average participating compensation, plus the accumulated
percentages in the third column times his average participating compensation in
excess of his average Social Security wage base. The lump sum may also be
converted to various forms of annuities.
To the extent that any individual's Pension Equity Benefit exceeds the
amount payable from the ERAP, such excess will be paid from one or more
unfunded, supplementary plans. See "Supplemental Pension Plans" below.
SUPPLEMENTAL PENSION PLANS. The Company maintains two unfunded,
nonqualified plans that will restore to participants in the ERAP benefits that
cannot be paid under the ERAP because of restrictions under the Internal Revenue
Code of 1986, as amended, and benefits that are not accrued under the ERAP
because of a voluntary deferral by the participant of compensation that would
otherwise be counted under the ERAP.
The 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 "Retirement and Change-in-Control
Arrangements -- Benefit Security Trust."
RETIREMENT AND CHANGE-IN-CONTROL ARRANGEMENTS
SEVERANCE AGREEMENTS. The Company has entered into Severance Agreements
with the five individuals named in the Summary Compensation Table and certain
other officers of the Company. Each Agreement has a term of three years (with
automatic one-year extensions absent advance notice otherwise from the Company);
provided, however, that upon the occurrence of a "change in control" or a
"potential change in control" (as defined in the Agreements) prior to such
termination date, the term of the Agreement will automatically be extended for
two years from the date of the change in control or potential change in control,
as the case may be. If, at any time during the term of the Agreement and before
the occurrence of a change in control or a potential change in control, there
occurs a reduction in the employee's level of responsibility, position,
authority or duties, the Company may in its sole discretion terminate the
Agreement.
34
A "change in control" is defined in the Agreements to include the
following, and with certain exceptions: the acquisition by a person of 19% or
more of the voting stock of the Company; the incumbent Board members (and
subsequent directors approved by them) ceasing to constitute a majority of the
Board; approval by the Company's stockholders of a reorganization or merger
unless, after such proposed transaction, the former stockholders of the Company
will own more than 75% of the resulting corporation's voting stock; or approval
by the Company's stockholders of a complete liquidation and dissolution of the
Company or the sale or other disposition of substantially all of the assets of
the Company other than to a subsidiary or in a spin-off transaction. A
"potential change in control" will be deemed to have occurred if the Company
enters into an agreement, the consummation of which would result in the
occurrence of a change in control; any person (including the Company) publicly
announces an intention to take action which, if consummated, would constitute a
change in control; any person (other than the Company or certain affiliated
entities) becomes the beneficial owner of 10% or more of the combined voting
power of the Company's then-outstanding securities; or the Board adopts a
resolution to the effect that a potential change in control has occurred.
If during the term of the Agreements and following a change in control (or
within 120 days before or after a potential change in control) of the Company,
the employee's employment with the Company is terminated by the Company other
than for "cause" (as defined), death or disability, or by the employee for "good
reason" (which includes a reduction in the employee's compensation, certain
relocations of the employee's office, the exclusion of the employee from new
compensation arrangements offered to similarly situated employees, or a material
reduction in the employee's responsibility, position, authority, or duties, and
also includes a termination by the employee for any reason or no reason during
the 30-day period beginning on the first anniversary of the change in control),
then, in addition to any other benefits accruing to the employee outside the
scope of the Agreement: (1) the acquiror will pay the employee any unpaid
salary, benefits or awards that shall have been earned or become payable through
the date of termination; (2) the acquiror will pay to the employee as severance
an amount equal to three times (or four times in the case of Mr. Ferguson) 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. Ferguson) after the date of termination for the
employee and his dependents all welfare benefit plans in which the employee was
entitled to participate immediately prior to termination; and (4) the acquiror
will pay the employee a single lump sum amount equal to the actuarial equivalent
of (a) the retirement benefit to which the employee would have been entitled
under the ERAP and the excess retirement plans described above under "Pension
Plans" if the employee had five additional years of service and was five years
older, minus (b) the retirement benefit to which the employee is actually
entitled under the ERAP and the excess retirement plans.
If the amount payable to the employee under these Agreements exceeds
certain threshold amounts, federal excise tax could be imposed on the employee
and the Company could lose a tax deduction for a portion of the payment. If the
amount payable would result in such effects, but exceeds the applicable
threshold by $30,000 or less, the amount payable will be reduced by the amount
the payment exceeds the threshold. If the payment exceeds the threshold by more
than $30,000, the employee will be entitled to full benefits under the Agreement
and to additional amounts to compensate him or her fully for the imposition of
the federal excise tax (including federal, state, and excise taxes applicable to
the receipt of such additional amount).
The Company has established a "Rabbi Trust" to provide a degree of
financial security for any amounts that may become payable to officers under the
Severance Agreements. See "Benefit Security Trust."
RETIREMENT AGREEMENT. Pursuant to an agreement with the Company that,
following his retirement, Mr. Deavenport would assist the Company, if requested
by the Company, and will refrain from competition with or other activities
adverse to the interests of the Company, he was granted an option to purchase
100,000 shares of Eastman common stock and was awarded 30,000 restricted shares
of common stock, with both the option and the restricted shares subject to
forfeiture in the event of violation of specified prohibitions concerning
competition, solicitation, confidentiality, and other activity adverse to the
interests of the Company. Under the agreement, the Company also agrees to
provide Mr. Deavenport with certain post-retirement benefits, including
financial consulting services, home security systems, and personal liability
35
insurance for three years; secretarial and information technology equipment and
services until his 70th birthday; relocation assistance; and continued access to
the Company's executive health plan.
EMPLOYEE PROTECTION PLAN. The Company's Employee Protection Plan provides
severance pay, health, dental, disability, and life insurance continuation, and
a retraining allowance (of up to $5,000) for substantially all employees whose
employment is terminated within two years following a "change in control" (as
defined in such plan, generally circumstances in which the Company is acquired
by another entity or its controlling ownership is changed). For purposes of the
Employee Protection Plan, participants have been credited with service with
Eastman Kodak Company and its affiliates prior to the Company's spin-off from
Eastman Kodak. The Employee Protection Plan provides for a lump sum severance
payment of three weeks of "pay" (as defined in the plan) for each year of
service up to 16 years and four weeks of pay for each year of service in excess
of 16 years, with a minimum of six weeks of pay and a maximum of 104 weeks.
Health, dental, disability, and life insurance would be continued at the
Company's expense for up to 12 months, depending on years of service, on the
same basis as in effect on the date of employment termination (except that no
employee contributions would be required). In addition, the Employee Protection
Plan provides for the payment of certain bonuses declared in the year in which
employment terminates. The plan provides for a "gross-up payment" in the event
the total payments under the Employee Protection Plan and any other plan or
agreement of an employee with the Company subject the employee to certain
federal excise taxes. The gross-up payment would be in an amount such that the
net amount retained by the employee, after deduction of any such excise tax and
any tax on the gross-up payment, would equal the total payments under the
Employee Protection Plan and other plans or agreements.
OMNIBUS LONG-TERM COMPENSATION PLANS. The Company's 1997 Omnibus Long-Term
Compensation Plan (the "1997 Omnibus Plan"), which is administered by the
Compensation Committee, provides for grants to employees of nonqualified and
incentive stock options, SARs, stock awards, performance shares, and other stock
and stock-based awards (collectively, "Awards"). The 1997 Omnibus Plan is
substantially similar to, and was intended to replace, the 1994 Omnibus
Long-Term Compensation Plan (the "1994 Omnibus Plan"). (Either of the 1994
Omnibus Plan and 1997 Omnibus Plan are sometimes referred to in this Proxy
Statement as the "Omnibus Long-Term Compensation Plan" or the "Omnibus Plan,"
and the 1994 Omnibus Plan and 1997 Omnibus Plan are sometimes collectively
referred to as the "Omnibus Long-Term Compensation Plans" or the "Omnibus
Plans.") No new awards have been made under the 1994 Omnibus Plan following the
effectiveness of the 1997 Omnibus Plan, and outstanding grants and awards under
the 1994 Omnibus Plan are unaffected by the replacement of the 1994 Omnibus Plan
with the 1997 Omnibus Plan.
The Omnibus Plans contain provisions regarding the treatment of Awards in
the event of a "change in ownership" (as defined in the Omnibus Plans, generally
concerning circumstances in which the Company's common stock is no longer
publicly traded) and of a "change in control" (as defined in the Omnibus Plans,
generally concerning circumstances in which the Company is acquired by another
entity or its controlling ownership is changed). Upon a change in ownership or
change in control, the rules described below will apply to Awards granted under
the Omnibus Plans. However, the Compensation Committee of the Board of Directors
has the discretion, notwithstanding any particular transaction constituting a
change in ownership or a change in control, either to determine that such
transaction is of the type that does not warrant the described consequences with
respect to Awards (in which case such consequences would not occur) or to alter
the way in which Awards are treated from the consequences outlined in the
Omnibus Plans.
If a change in ownership occurs (and the Compensation Committee has not
exercised its discretion outlined above) during the term of one or more
performance periods for which the Compensation Committee has granted performance
shares, the term of such performance period will immediately terminate and,
except 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.
36
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 Board of Directors has adopted a new 2002 Omnibus Long-Term
Compensation Plan, subject to stockholder approval at the Annual Meeting, which
is substantially similar to, and intended to replace, the 1997 Omnibus Plan. See
"Proposals to be Voted Upon at the Annual Meeting -- Item 2 -- Approval of the
2002 Omnibus Long-Term Compensation Plan."
BENEFIT SECURITY TRUST. The Company has established a Benefit Security
Trust (sometimes referred to as the "Rabbi Trust") to provide a degree of
financial security for its unfunded obligations under the Executive Deferred
Compensation Plan, the supplemental ERAP plans, and the Severance Agreements.
The assets of the Rabbi Trust would be subject to the claims of the Company's
creditors in the event of insolvency. Upon the occurrence of a "change in
control" or a "potential change in control" (as defined), or if the Company
fails to meet its payment obligations under the covered plans and agreements,
the Company would be required to transfer to the trustee cash or other liquid
funds in an amount equal to the value of the Company's obligations under the
covered plans and agreements. The Company has conveyed to the trustee rights to
certain assets as partial security for the Company's funding obligations under
the Rabbi Trust.
A "change in control" is defined to include the following, and with certain
exceptions: the acquisition by a person of 19% or more of the voting stock of
the Company; the incumbent Board members (and subsequent directors approved by
them) ceasing to constitute a majority of the Board; approval by the Company's
stockholders of a reorganization or merger unless, after such proposed
transaction, the former stockholders of the Company will own more than 75% of
the resulting corporation's voting stock; or approval by the Company's
stockholders of a complete liquidation and dissolution of the Company or the
sale or other disposition of substantially all of the assets of the Company,
other than to a subsidiary or in a spin-off transaction. A "potential change in
control" will be deemed to have occurred if the Company enters into an
agreement, the consummation of which would result in the occurrence of a change
in control; any person (including the Company) publicly announces an intention
to take action which, if consummated, would constitute a change in control; or
any person (other than the Company, certain affiliated entities, or certain
institutional investors) becomes the beneficial owner of 10% or more of the
combined voting power of the Company's then-outstanding securities.
The Rabbi Trust is irrevocable until participants and their beneficiaries
are no longer entitled to payments under the covered plans and agreements, but
may be amended or revoked by agreement of the trustee, the Company, and a
committee of individual beneficiaries of the Rabbi Trust.
37
COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
The Compensation and Management Development Committee of Eastman's Board of
Directors is composed of four outside non-employee directors. This report
summarizes the Compensation Committee's policies governing compensation to
executive officers for 2001, 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.
COMPENSATION PHILOSOPHY AND PROGRAM
The Compensation Committee seeks to ensure that the Company's management
compensation program is consistent with the Company's strategic business
objectives and provides incentives for the attainment of those objectives. For
2001, the Company's compensation program included three components:
BASE PAY............................. Provides a stable annual salary at a level
consistent with the individual's position and
contributions.
VARIABLE PAY......................... Makes a portion of each individual's annual
income dependent upon the success of the
Company, and for certain management-level
employees, also based upon organizational unit
performance and attainment of individual
objectives.
STOCK-BASED INCENTIVE PAY............ Encourages an ownership mindset throughout the
Company.
PRINCIPLES FOR DETERMINING EXECUTIVE COMPENSATION
The Compensation Committee applies the following principles when it
determines the compensation of the executive officers under the Company's
compensation program:
INTEGRATION.......................... Executive compensation is integrated and
consistent with the total Company compensation
program, as described above.
COMPETITIVE POSITION................. Executives are provided competitive
compensation for competitive company
performance in the chemical industry and
compensation that is consistent with
compensation for companies of comparable size,
complexity, and operational challenge.
PERFORMANCE FOCUS.................... At higher levels of the organization, an
increasing proportion of compensation is
dependent upon company performance and return
to stockholders, organizational unit
performance and attainment of individual
objectives.
The Compensation Committee follows these principles in periodically
reviewing overall compensation of the Chief Executive Officer and other
executive officers, and in determining each component of executive compensation
as discussed in the remainder of this report.
COMPONENTS OF EXECUTIVE COMPENSATION
ANNUAL CASH COMPENSATION - BASE PAY AND VARIABLE PAY
HOW BASE PAY AND VARIABLE PAY LEVELS ARE DETERMINED. Total cash
compensation for all Company employees, including executive officers, is
intended to be competitive with pay in the applicable labor market and in the
chemical industry for similar jobs when target levels of performance are
achieved. The targeted levels of cash compensation are based upon information
provided by outside consultants and publicly available
38
information. Accordingly, a portion of each employee's target pay level is
placed "at risk." Depending upon Company performance, employees may lose the at
risk amount, receive some or the entire amount at risk, or receive an amount in
excess of the pay at risk. In addition, management-level employees may also earn
additional variable pay based upon organizational unit and individual
performance.
For 2001, the Compensation Committee compared total cash compensation
levels for executive officers with companies in the chemical industry with which
the Company competes for executive talent and for which data were available,
including 13 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 13 of the peer companies in the Performance
Graph. Total cash compensation to the executive officers named in the Summary
Compensation Table for 2001 is reported in the "Salary" (base pay) and "Bonus"
(variable pay) columns.
CASH COMPENSATION FOR 2001
BASE PAY. During 2001, the Compensation Committee determined that the
targeted total cash compensation of the executive officers named in the Summary
Compensation Table, and of certain other senior managers, was below competitive
pay levels. The increases in the base pay amounts reported in the Summary
Compensation Table reflect the Committee's corresponding increase of the total
cash compensation levels for the executive officers.
VARIABLE PAY. For 2001, the variable portion of cash compensation, and the
amount of variable pay actually received, were determined under the Eastman
Performance Plan and the Unit Performance Plan (the "UPP").
EASTMAN PERFORMANCE PLAN
KEY FEATURES:
- All employees eligible to participate.
- 5% of each employee's (including executive officers') base pay 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 no payout if cost of capital exceeds return on
capital by five or more percentage points, to five times (5x) the "at
risk" amount if return on capital exceeds cost of capital by ten or more
percentage points. If return on capital equals the cost of capital, then
an award is earned equal to the amount of pay at risk.
- The Compensation Committee may in its discretion defer payment of an
individual's award into the Executive Deferred Compensation Plan if the
Compensation Committee determines that payment of the award could result
in the participant receiving compensation in excess of the maximum
amount deductible by the Company for federal income tax purposes.
2001 PAYOUT:
- For 2001, no cash awards were made under the Eastman Performance Plan
because the Company's performance measured by return on capital minus
the cost of capital was below the minimum threshold for a payout.
39
UNIT PERFORMANCE PLAN
Beginning with the 2000 performance year, a new variable compensation plan,
the Unit Performance Plan, was implemented for management-level employees.
Management-level employees formerly participated in the Annual Performance Plan,
a variable compensation plan designed to provide incentives for management to
meet corporate performance objectives. Beginning in 2001, no employees
participated in the Annual Performance Plan, but instead participated in the
UPP.
The UPP is designed to deliver a portion of annual cash compensation
according to organizational unit performance and the attainment of individual
objectives and expectations. The UPP is intended to provide additional incentive
for superior business and individual performance, and further to tie the
interests of management-level individuals to performance of the Company's
business and the interests of the Company's stockholders.
KEY FEATURES:
- For 2001, approximately 600 company managers, including executive
officers, participated.
- The portion of total annual compensation that is made variable under the
UPP is determined by the Compensation Committee, based on the
recommendation of the Chief Executive Officer. Payouts, if any, under
the UPP are in addition to pay "at risk" under the Eastman Performance
Plan.
- The amount of the award pools from which payouts are made for each
organizational unit are determined by annual performance of the
organizational units for which quantitative performance can be
objectively measured versus pre-set goals for specified measures. The
Compensation Committee establishes organizational unit performance goals
annually.
- For 2001, organizational units whose performance was measured under
the UPP were those in the Company's two reporting
segments -- Chemicals and Polymers. The amounts of the award pools for
the organizations supporting the Chemicals and Polymers organizations
(for example, Human Resources and Financial) were determined based
upon an average of the performance versus goals for specified measures
for the Chemicals and Polymers organizational units. For 2001, there
were 57 separate organizational units under the UPP. In the case of
the Chief Executive Officer, his award pool was determined based upon
overall company performance.
- For 2001, measures for both the Chemicals and Polymers reporting
segments, and for the company as a whole, were: earnings from
operations (weighted 70%), capital expenditures (weighted 15%), and a
working capital measure (defined as trade receivables plus inventory
minus trade payables divided by sales, weighted 15%).
- An award pool is generated for each of the organizational units within
the Company, equal to the aggregate of the UPP payout for each eligible
participant if organizational unit and individual performance were at
target levels, multiplied by a performance factor determined by the
Chemicals and Polymers segments' performance, and, in the case of the
Chief Executive Officer, overall Company performance, compared to the
pre-set performance goals. The performance factor can range from 0% if
organizational unit performance goals are not met, to 200% for specified
above-goal performance. The Committee may, in its discretion, adjust the
award pools to reflect overall corporate performance and business and
financial conditions.
- Management within each organizational unit (or in the case of the Chief
Executive Officer, the Compensation Committee) allocates that
organization's award pool for individual payouts, based upon attainment
of individual objectives and expectations established at the beginning
of the performance period for each individual participant. Maximum
potential for an individual award could exceed an individual's target
award, based on the manager's assessment of individual performance.
However, the sum of all individual awards within an organizational unit
cannot exceed the total award pool for that organization.
40
- In 2001, Mr. Deavenport participated in the Unit Performance Plan in an
organizational unit established for the CEO. The Compensation Committee
established individual objectives and expectations, with 75% of the
payout based upon earnings from operations (weighted 70%), capital
expenditures (weighted 15%), and a working capital measure (defined as
trade receivables plus inventory minus trade payables divided by sales,
weighted 15%), for both the Chemicals and Polymers segments, and 25% of
the payout based upon the Compensation Committee's evaluation of Mr.
Deavenport's leadership of the Company's efforts to spin off its
specialty chemicals and plastics businesses.
- The Compensation Committee may in its discretion defer payment of an
individual's award into the Executive Deferred Compensation Plan if the
Compensation Committee determines that payment of the award could result
in the participant receiving compensation in excess of the maximum
amount deductible by the Company for federal income tax purposes.
2001 PAYOUT:
- 2001 corporate performance would have resulted in award pools under the
Unit Performance Plan equivalent to 0.3x of target award (of a possible
maximum of 2x) for each of the organizational units. However, because of
overall corporate performance and business and financial conditions, the
Compensation Committee determined that no award pools would be generated
for 2001. As a result, no participants received a payout under the UPP
for 2001.
OTHER BONUSES
RECOGNITION AWARDS. From time to time, the CEO has awarded special cash
compensation to executive officers under a program designed to recognize
extraordinary contributions to the Company. In 2001, in consideration of
his contributions to the Financial organization, Mr. Rogers received an
award of $25,000 under this program. See "Summary Compensation Table".
BONUS PLANS FOR VENTURES. In 2000, the company instituted a compensation
program for employees supporting Company initiatives in e-business and
digital business ventures. The program was designed to develop competitive
incentives for employees directly involved in these ventures and to
promote retention of these employees. Participants in this plan may share
in an award pool generated from returns actually realized from
investments, with awards vesting over a five-year period. Awards are
allocated on the basis of management's assessment of an employee's
influence on a group of investments. For 2001, Mr. Mowen received a
$50,000 bonus under the program.
41
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 stockholders. Important
aspects of the current equity-based compensation program are:
Common Stock Under ESOP
and Eastman Investment
Plan....................... Each year, an amount is contributed or
credited to each Employee's ESOP and/or
Executive Deferred Compensation Plan
account or Eastman Investment Plan
account.
Stock Options................. Stock option program, implemented under
the Company's Omnibus Long-Term
Compensation Plans, creates a direct link
between compensation of key company
managers and long-term performance of the
company. See "Retirement and
Change-in-Control Arrangements -- Omnibus
Long-Term Compensation Plans."
Performance Shares............ Awarded under the Company's Omnibus Plans
to provide an incentive for key managers
to maximize return to stockholders
relative to a peer group of chemical
companies over three-year performance
periods. See "Performance
Shares -- Long-Term Performance Subplans"
below.
Other Stock-Based
Incentive Pay.............. Under the Omnibus Plans, the Compensation
Committee may also award additional
stock-based compensation (with or without
restrictions), performance shares or
units, or additional options, including
options with performance-based or other
conditions to exercise.
Stock Ownership
Expectations............... Established for Company managers to
encourage long-term stock ownership and
the holding of shares awarded under the
Omnibus Plans or acquired upon exercise
of options. Over a five year period,
managers invest one-half to four times
their target-level total annual cash
compensation in company stock or stock
equivalents. See "Stock Ownership of
Directors and Executive
Officers -- Common Stock and Common Stock
Units."
HOW STOCK-BASED INCENTIVE PAY LEVELS ARE DETERMINED. The Compensation
Committee establishes the size and other terms of annual option awards under the
current stock option program, and the number of performance shares under the
Long-Term Performance Subplans ("LTPSs"), by considering recommendations from
outside compensation consultants based upon long-term compensation reported by
the peer companies in the chemical industry described above under "How Base Pay
and Variable Pay Levels are Determined." These stock options are granted, and
performance shares are awarded, at a level so that the estimated value of
normalized annual option grants and LTPS target award levels, as a proportion of
total annual compensation, approximates the median of the range of similar
compensation of the compared companies. In determining the size of option
awards, the company utilizes the services of an external compensation consultant
to derive approximate values of options using a variation of the Black-Scholes
option-pricing model. In addition, in order to recognize certain performance or
provide additional incentive to achieve specific business objectives, the
Compensation Committee from time-to-time awards stock-based compensation in
addition to the regular option and performance share awards.
42
The estimated current values of total long-term stock-based incentive pay
for 2001 range from approximately 15% of total compensation at lower levels of
management to approximately 80% of total compensation for the Chief Executive
Officer.
STOCK-BASED INCENTIVE PAY FOR 2001
STOCK OPTIONS AND RESTRICTED STOCK:
- The size and terms of the stock option grants reported in the "Option
Grants in Last Fiscal Year" table were determined by applying the
methodology described above under "How Stock-Based Incentive Pay Levels
are Determined."
- Options granted in 2001 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 2001 generally expire 10 years from the date of
grant.
- Upon the commencement of his employment with the Company in August 1999,
Mr. Rogers was granted a special option to purchase 192,000 shares of
Eastman common stock at an exercise price of $51.25. This option has a
term of 10 years and vested and became exercisable as to 50% of the
underlying shares upon the commencement of his employment with the
company and as to the remaining 50% upon the first anniversary of his
employment date. Also in August 1999, Mr. Rogers was awarded 11,300
restricted shares of common stock, which restrictions lapsed on the
first anniversary of his employment. In August 2000, he was awarded an
additional 11,300 restricted shares of common stock, which restrictions
lapsed on the second anniversary of his employment. In August 2001, Mr.
Rogers was awarded an additional 11,300 restricted shares of common
stock with restrictions lapsing on the third anniversary of his
employment.
- Pursuant to an agreement with the Company, Mr. Deavenport was granted an
option to purchase 100,000 shares of Eastman common stock. The option
will vest 6 months from the date of grant, and will expire 10 years from
the date of grant. In addition, Mr. Deavenport was awarded 30,000
restricted shares of common stock, with restrictions lapsing on the
third anniversary of the date of the award. These options and shares are
also subject to forfeiture in the event of violation of specific
prohibitions concerning competition, solicitation, confidentiality, and
other activity adverse to the interests of the Company. See "Summary
Compensation Table", "Option Grants in Last Fiscal Year" table, and
"Retirement and Change-in-Control Arrangements."
- In 2001, two executive officers not named in the Summary Compensation
Table each received an option to purchase 50,000 shares of Eastman
common stock in connection with their retirement. The options will vest
as to half the underlying grant on the first anniversary of the date of
grant, and the remainder vest on the second anniversary of the date of
grant. The options expire 10 years from the date of grant.
PERFORMANCE SHARES - LONG TERM PERFORMANCE SUBPLANS:
- Performance shares were awarded to 34 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 stockholders
(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.
- Payouts are based upon the Company's position in a ranking of the
unweighted total return to shareowners of the compared companies.
43
- If earned, awards are paid after the end of the performance period in
unrestricted shares of Eastman common stock, or participants may
irrevocably elect in advance to defer the award payout into the
Executive Deferred Compensation Plan.
- The payouts reported in the Summary Compensation Table for Messrs.
Deavenport, Ferguson, Mowen, and Rothwell for the 1999-2001 LTPS
performance period represent 140% of the target award (of a possible
maximum of 200% of the target award) based upon the Company's total
stockholder return ranking of seventh of the compared companies for the
performance period. Mr. Rogers was first awarded performance shares for
the 2000-2002 performance period, and was not eligible to receive a
payout for the performance period ending in 2001.
- In 2002, the Compensation Committee will not award performance shares,
but expects to award additional forms of stock-based pay having an
approximate value equal to the performance shares that would have been
awarded for a three-year performance period.
The total return comparisons under the Long Term Performance Subplans
differ from that shown in the Performance Graph. For LTPS purposes, total
percentage return on the common stock for the applicable three-year period
is ranked with the total percentage returns on the common shares of each
of the LTPS peer companies. The Performance Graph, on the other hand,
compares the cumulative total return on an initial fixed investment in the
Company's common stock and in an index comprised of the peer companies as
a group, with the return of each component issuer weighted according to
the respective issuer's market capitalization at the beginning of each
period for which a return is indicated.
RETIREMENT COMPENSATION
As previously disclosed, in 2001, two executive officers not named in the
Summary Compensation Table were awarded cash compensation in addition to pay and
benefits under the company's plans in connection with their retirement.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
The Compensation Committee determines the compensation of the Company's
Chief Executive Officer in substantially the same manner as the compensation for
other executive officers. Following a review of base salary and variable
compensation of chief executive officers of comparable companies, the
Compensation Committee did not increase Mr. Deavenport's base salary during
2001. See "How Base Pay and Variable Pay Levels are Determined," and "Cash
Compensation for 2001 -- Base pay."
For 2001, Mr. Deavenport did not receive a Unit Performance Plan award or
an award under the Eastman Performance Plan. See "Cash Compensation for
2001 -- Variable pay."
Mr. Deavenport received a grant of 36,900 performance shares under the LTPS
for the 2001-2003 performance period, which represents approximately 30% of his
stock-based incentive pay for 2001. Another portion of Mr. Deavenport's
stock-based incentive pay for 2001 was in the form of an option to purchase
100,000 shares of Eastman common stock with an exercise price equal to the grant
date market price of the underlying common stock. The size and terms of this
option award and the award of performance shares were determined as described
above under "Long-Term Stock-Based Incentive Pay -- How Stock Based Incentive
Pay Levels are Determined."
Pursuant to an agreement with the Company, Mr. Deavenport was granted an
option to purchase 100,000 shares of Eastman common stock, vesting 6 months from
the date of grant, and expiring 10 years from the date of grant. In addition,
Mr. Deavenport was awarded 30,000 restricted shares of common stock, with
restrictions lapsing on the third anniversary of the date of the award. The
option grant and restricted shares are subject to forfeiture in the event of
violation of specific prohibitions concerning competition, solicitation,
confidentiality, and other activity adverse to the interests of the Company. See
"Summary Compensation Table", "Option Grants in Last Fiscal Year" table, and
"Retirement and Change-in-Control Arrangements."
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In February 2002, Mr. Deavenport received a payout for the 1999-2001 LTPS
performance period equal to 15,260 shares, which represents 140% of his target
award. Such payout was based upon the same relative total stockholder returns as
were the other payouts under the 1999-2001 LTPS. See "Performance Shares -- Long
Term Performance Subplans" above.
Mr. Deavenport retired effective December 31, 2001, and J. Brian Ferguson
was elected Chairman and Chief Executive Officer effective January 1, 2002. In
early 2002, the Compensation Committee reviewed Mr. Ferguson's compensation in
comparison with short-term and long-term compensation packages of other chief
executive officers and adjusted his base pay level, amount of target variable
pay, and eligibility level for long-term compensation, effective January 1,
2002.
OMNIBUS BUDGET RECONCILIATION ACT OF 1993
The Compensation Committee intends to continue to maximize the tax
deductibility of compensation paid to the company's Chief Executive Officer and
other executive officers while maintaining the flexibility to compensate the
officers in accordance with the company's compensation policies.
Section 162(m) of the Internal Revenue Code enacted pursuant to the Omnibus
Budget Reconciliation Act of 1993 generally limits the deductibility to the
Company of annual compensation (other than qualified "performance-based"
compensation) in excess of $1 million paid to each of the Company's five highest
paid executive officers. Base salaries, variable compensation under the Eastman
Performance Plan and Unit Performance Plan, any bonus payments outside the
Eastman Performance Plan and Unit Performance Plan, and stock and stock-based
compensation without performance conditions are generally subject to the $1
million limit on deductible compensation.
Based on transition rules under Section 162(m), compensation attributable
to stock options granted and performance shares awarded under the company's 1994
Omnibus Plan prior to the approval by stockholders of the 1997 Omnibus Plan is
expected to qualify for deductibility under Section 162(m). The Eastman
Performance Plan and the Unit Performance Plan allow the Compensation Committee
to require, and Long Term Performance Subplans under the Omnibus Plans and
outstanding restricted stock awards under the Omnibus Plans each provide for,
the deferral of compensation into the Executive Deferred Compensation Plan to
the extent that payout or vesting would result in the recipient receiving
compensation in excess of the $1 million cap under Section 162(m). Based on a
review of developments under Section 162(m), the company adopted the 1997
Omnibus Plan, and established certain amendments to the Eastman Performance
Plan, and these plans were approved by stockholders in 1997. The 1997 Omnibus
Plan continues to meet the requirements of Section 162(m) with respect to stock
option and certain performance share awards, as will the proposed 2002 Omnibus
Plan, if approved by stockholders. See "Proposals to be Voted Upon at the Annual
Meeting -- Item 2 -- Approval of the 2002 Omnibus Long-Term Compensation Plan".
To provide additional flexibility consistent with the Company's current
compensation philosophy and program, the Compensation Committee amended the
Eastman Performance Plan in 2000 so that adjustments to financial results for
unusual charges, income items, or other events distortive of financial results
would apply on the same basis for all employees. As a result, annual variable
pay under the Eastman Performance Plan is no longer "performance-based" under
Section 162(m) because the amount of payouts under the plan may in some
circumstances be subject to the discretion of the Compensation Committee. Annual
variable pay under the Unit Performance Plan is not "performance-based" under
Section 162(m) because payouts, if any, depend in part upon individual
performance of participants.
45
For 2001, the Compensation Committee deferred a portion of Mr. Deavenport's
base salary and other compensation that otherwise would have resulted in
non-deductible compensation. The Compensation Committee will continue to
consider the deferral of any payouts under the Eastman Performance Plan and the
Unit Performance Plan, or any other compensation, to the extent that such
compensation would not be deductible to the Company.
Compensation and Management Development Committee
Donald W. Griffin (Chair)
H. Jesse Arnelle
Jerry E. Dempsey
Marilyn R. Marks
46
PERFORMANCE GRAPH
The following graph compares the cumulative total return on Eastman common
stock from December 31, 1996 through December 31, 2001 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 15 chemical companies which meet three objective
criteria: (i) common shares traded on a major trading market; (ii) similar lines
of business to those of the Company; and (iii) more than $1 billion in annual
sales. Cumulative total return represents the change in stock price and the
amount of dividends received during the indicated period, assuming reinvestment
of dividends. The graph assumes an investment of $100 on December 31, 1996. The
data in the graph have been provided by Standard & Poor's Institutional Market
Services. The stock performance shown in the graph is included in response to
SEC requirements and is not intended to forecast or to be indicative of future
performance.
COMPARISON OF TOTAL RETURN TO STOCKHOLDERS
(PERFORMANCE GRAPH)
-------------------------------------------------------------------------------------------
COMPANY NAME/INDEX 12/31/96 12/31/97 12/31/98 12/31/99 12/31/00 12/31/01
-------------------------------------------------------------------------------------------
EASTMAN CHEMICAL COMPANY 100 111.03 86.13 95.44 101.51 84.68
S&P 500 INDEX 100 133.36 171.48 207.56 188.66 166.24
PEER GROUP(1) 100 128.56 112.37 140.38 117.92 110.62
(1) The peer group for 2001 consists of the following issuers: Air Products &
Chemicals, Inc.; Celanese AG; Crompton Corporation; Cytec Industries, Inc.;
The Dow Chemical Company; E.I. du Pont de Nemours and Company; H.B. Fuller
Company; Great Lakes Chemical Corporation; Imperial Chemicals Industries
PLC; Lyondell Chemical Company; Millennium Chemicals Inc.; PolyOne
Corporation; Rohm & Haas Co; Solutia Inc.; and Wellman, Inc. The Geon
Company, Hercules Incorporated, and Union Carbide Corporation (which merged
with The Dow Chemical Company in 2001), which were included in the peer
group in the Company's proxy statement last year, have been excluded from
the Company's peer comparison group. In accordance with SEC requirements,
the return for each issuer has been weighted according to the respective
issuer's stock market capitalization at the beginning of each period for
which a return is indicated.
47
APPENDIX A
EASTMAN CHEMICAL COMPANY
2002 OMNIBUS LONG-TERM COMPENSATION PLAN
1. Purpose
The purpose of the Plan is to provide motivation to Employees of the
Company and its Subsidiaries to put forth maximum efforts toward the continued
growth, profitability, and success of the Company and its Subsidiaries by
providing incentives to such Employees through the ownership and performance of
Common Stock of the Company. Toward this objective, the Committee may grant
stock options, stock appreciation rights ("SARs"), Stock Awards, performance
shares, and/or other incentive awards to Employees of the Company and its
Subsidiaries on the terms and subject to the conditions set forth in the Plan.
2. Definitions
2.1 "Award" means any form of stock option, SAR, Stock Award, performance
shares, or other incentive award granted under the Plan, whether singly, in
combination, or in tandem, to a Participant by the Committee pursuant to such
terms, conditions, restrictions and/or limitations, if any, as the Committee may
establish by the Award Notice or otherwise.
2.2 "Award Notice" means a written notice from the Company to a Participant
that establishes the terms, conditions, restrictions, and/or limitations
applicable to an Award in addition to those established by the Plan and by the
Committee's exercise of its administrative powers.
2.3 "Board" means the Board of Directors of the Company.
2.4 "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, 2001, 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, 2002 (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, 2002 whose election, or nomination for election by the
Company's stockholders, 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 stockholders 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 stockholders 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
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Control shall not be so considered. Such determination shall be effective only
if 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.
2.5 "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.
2.6 "Change In Ownership" means a Change In Control that results directly
or indirectly in the Common Stock (or the stock of any successor to the Company
received in exchange for Common Stock) ceasing to be publicly traded in a
national securities market.
2.7 "Code" means the Internal Revenue Code of 1986, as amended from time to
time.
2.8 "Committee" means the Compensation and Management Development Committee
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. It is intended that the directors appointed to serve on
the Committee shall be "non-employee directors" (within the meaning of Rule
16b-3 under the Exchange Act) and "outside directors" (within the meaning of
Code Section 162(m) and the regulations thereunder). However, the mere fact that
a Committee member shall fail to qualify under either of the foregoing
requirements shall not invalidate any Award made by the Committee which Award is
otherwise validly made under the Plan.
2.9 "Common Stock" means the $.01 par value common stock of the Company.
2.10 "Company" means Eastman Chemical Company.
2.11 "Covered Employee" means an individual defined in Code Section
162(m)(3).
2.12 "Disability" has the same meaning as provided in the long-term
disability plan or policy maintained by the Company or if applicable, most
recently maintained, by the Company or if applicable, a Subsidiary, for the
Participant, whether or not such Participant actually receives disability
benefits under such plan or policy. If no long-term disability plan or policy
was ever maintained on behalf of Participant or if the determination of
Disability relates to an Incentive Stock Option, Disability means Permanent and
Total Disability as defined in Section 22(e)(3) of the Code. In the event of a
dispute, the determination whether a Participant has suffered a Disability will
be made by the Committee and may be supported by the advice of a physician
competent in the area to which such Disability relates.
2.13 "Employee" means an employee of the Company or a Subsidiary.
2.14 "Exchange Act" means the Securities and Exchange Act of 1934, as
amended.
2.15 "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.
2.16 "Participant" means any individual to whom an Award has been granted
by the Committee under the Plan.
2.17 "Plan" means the Eastman Chemical Company 2002 Omnibus Long-Term
Compensation Plan.
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2.18 "Qualified Performance-Based Award" means (i) any stock option or SAR
granted under the Plan, or (ii) any other Award that is intended to qualify for
the Section 162(m) Exemption and is made subject to performance goals based on
Qualified Performance Measures as set forth in Section 12.
2.19 "Qualified Performance Measures" means one or more of the performance
measures listed in Section 12(b) upon which performance goals for certain
Qualified Performance-Based Awards may be established by the Committee.
2.20 "SAR" is an Award that shall entitle the recipient to receive a
payment equal to the appreciation in value of a stated number of shares of
Common Stock from the price established in the Award to the market value of such
number of shares of Common Stock on the date of exercise.
2.21 "Section 162(m) Exemption" means the exemption from the limitation on
deductibility imposed by Section 162(m) of the Code that is set forth in Section
162(m)(4)(C) of the Code or any successor provision thereto.
2.22 "Section 16 Insider" means a Participant who is subject to the
reporting requirements of Section 16 of the Exchange Act with respect to the
Company.
2.23 "Stock Award" means an Award granted pursuant to Section 10 hereof in
the form of shares of Common Stock, restricted shares of Common Stock and/or
Units of Common Stock.
2.24 "Subsidiary" means a corporation or other business entity in which the
Company directly or indirectly has an ownership interest of eighty percent (80%)
or more.
2.25 "Unit" means a bookkeeping entry used by the Company to record and
account for the grant of the following Awards until such time as the Award is
paid, canceled, forfeited or terminated, as the case may be: Units of Common
Stock, SARs and performance shares that are expressed in terms of Units of
Common Stock.
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; (c) select Employees to become Participants and receive Awards under
the Plan; (d) determine the form of an Award, whether a stock option, SAR, Stock
Award, performance share, or other incentive award established by the Committee,
the number of shares or Units subject to the Award, all the terms, conditions,
restrictions and/or limitations, if any, of an Award, including the time and
conditions of exercise or vesting, and the terms of any Award Notice; (e)
determine whether Awards should be granted singly, in combination or in tandem;
(f) grant waivers of Plan terms, conditions, restrictions and limitations; (g)
accelerate the vesting, exercise or payment of an Award or the performance
period of an Award in the event of a Participant's termination of employment or
when such action or actions would be in the best interest of the Company; (h)
establish such other types of Awards, besides those specifically enumerated in
Section 2.1 hereof, which the Committee determines are consistent with the
Plan's purpose; and (i) take any and all other action it deems necessary or
advisable for the proper operation or administration of the Plan. In addition,
in order to enable Employees who are foreign nationals or are employed outside
the United States or both to receive Awards under the Plan, the Committee may
adopt such amendments, procedures, regulations, subplans and the like as are
necessary or advisable, in the opinion of the Committee, to effectuate the
purposes of the Plan. Subject to Section 23, the Committee shall also have the
authority to grant Awards in replacement of Awards previously granted under the
Plan or any other executive compensation plan of the Company or a Subsidiary.
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; provided, however, that only the Committee may select, grant, and
establish the terms of Awards to Section 16 Insiders or Covered Employees.
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4. Eligibility
Any Employee is eligible to become a Participant in the Plan.
5. Shares Available
The maximum number of shares of Common Stock that shall be available for
grant of Awards under the Plan (including incentive stock options) during its
term shall not exceed 7,500,000, provided that the maximum number of shares of
Common Stock available for grant of Stock Awards or performance shares under the
Plan during its term shall not exceed 1,500,000. (Such amounts shall be subject
to adjustment as provided in Section 18.) Any shares of Common Stock related to
Awards that are settled in cash in lieu of Common Stock shall be available again
for grant under the Plan. Similarly, any shares of Common Stock related to
Awards that terminate by expiration, forfeiture, cancellation or otherwise
without the issuance of such shares or are exchanged with the Committee's
permission for Awards not involving Common Stock, 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 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, shall again be available for Awards under the Plan.
Notwithstanding any provision in the Plan to the contrary, the maximum number of
shares of Common Stock with respect to one or more options and/or SARs that may
be granted during any one calendar year under the Plan to any one Participant
shall be 300,000. The maximum fair market value of any Awards (other than
options and SARs) that may be received by a Participant (less any consideration
paid by the Participant for such Award) during any one calendar year under the
Plan shall be the equivalent value of 200,000 shares of Common Stock as of the
first business day of such calendar year. The shares of Common Stock available
for issuance under the Plan may be authorized and unissued shares or treasury
shares.
6. Effective Date; Term
The Plan shall become effective as of the date upon which it is approved by
the stockholders of the Company. No Awards shall be exercisable or payable
before the Plan shall have become effective. Awards shall not be granted
pursuant to the Plan after May 2, 2007.
7. Participation
The Committee shall select, from time to time, Participants from those
Employees who, in the opinion of the Committee, can further the Plan's purposes.
Once a Participant is so selected, the Committee shall determine the type or
types of Awards to be made to the Participant and shall establish in the related
Award Notices the terms, conditions, restrictions and/or limitations, if any,
applicable to the Awards in addition to those set forth in the Plan and the
administrative rules and regulations issued by the Committee.
8. Stock Options
(a) Grants. Awards may be granted in the form of stock options. These
stock options may be incentive stock options within the meaning of Section 422
of the Code, other tax-qualified stock options, or non-qualified stock options
(i.e., stock options that are not incentive or other tax-qualified stock
options), or a combination of any of the above.
(b) Terms and Conditions of Options. An option shall be exercisable in
whole or in such installments and at such times as may be determined by the
Committee. The Committee shall also determine the performance or other
conditions, if any, that must be satisfied before all or part of an option may
be exercised. The price at which Common Stock may be purchased upon exercise of
a stock option shall be established by the Committee, but such price shall not
be less than one hundred percent (100%) of the Fair Market Value of the Common
Stock on the date of the stock option's grant. Each stock option shall expire
not later than ten years from its date of grant, or, in the case of stock
options granted in countries outside the U.S., not later than ten years and six
months from the date of grant, to the extent that such term complies with local
country tax, legal, or accounting requirements.
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(c) Restrictions Relating to Incentive Stock Options. Stock options issued
in the form of incentive stock options shall, in addition to being subject to
all applicable terms, conditions, restrictions and/or limitations established by
the Committee, comply with Section 422 of the Code. Accordingly, the aggregate
market value (determined at the time the option was granted) of the Common Stock
with respect to which incentive stock options are exercisable for the first time
by a Participant during any calendar year (under the Plan or any other plan of
the Company or any of its Subsidiaries) shall not exceed $100,000 (or such other
limit as may be required by the Code). Each incentive stock option shall expire
not later than ten years from its date of grant.
(d) Additional Terms and Conditions. The Committee may, by way of the
Award Notice or otherwise, establish such other terms, conditions, restrictions
and/or limitations, if any, of any stock option Award, provided they are not
inconsistent with the Plan. Without limiting the generality of the foregoing,
options may provide for the automatic granting of new options at the time of
exercise.
(e) Exercise. The Committee shall determine the methods by which the
exercise price of an option may be paid, the form of payment, including, without
limitation, cash, shares of Common Stock, or other property (including "cashless
exercise" arrangements), and the methods by which shares of Common Stock shall
be delivered or deemed to be delivered by Participants; provided, however, that
if shares of Common Stock are used to pay the exercise price of a stock option,
such shares must have been held by the Participant for at least six months.
9. Stock Appreciation Rights
(a) Grants. Awards may be granted in the form of SARs. An SAR may be
granted in tandem with all or a portion of a related stock option under the Plan
("Tandem SARs"), or may be granted separately ("Freestanding SARs"). A Tandem
SAR may be granted either at the time of the grant of the related stock option
or at any time thereafter during the term of the stock option. In the case of
SARs granted in tandem with stock options granted prior to the grant of such
SARs, the appreciation in value is the difference between the option price of
such related stock option and the Fair Market Value of the Common Stock on the
date of exercise.
(b) Terms and Conditions of Tandem SARs. A Tandem SAR shall be exercisable
to the extent, and only to the extent, that the related stock option is
exercisable, and the "exercise price" of such an SAR (the base from which the
value of the SAR is measured at its exercise) shall be the option price under
the related stock option. If a related stock option is exercised as to some or
all of the shares covered by the Award, the related Tandem SAR, if any, shall be
canceled automatically to the extent of the number of shares covered by the
stock option exercise. Upon exercise of a Tandem SAR as to some or all of the
shares covered by the Award, the related stock option shall be canceled
automatically to the extent of the number of shares covered by such exercise.
(c) Terms and Conditions of Freestanding SARs. Freestanding SARs shall be
exercisable in whole or in such installments and at such times as may be
determined by the Committee. Freestanding SARs shall have a term specified by
the Committee, in no event to exceed ten years. The exercise price of a
Freestanding SAR shall also be determined by the Committee; provided, however,
that such price shall not be less than one hundred percent (100%) of the Fair
Market Value of the Common Stock on the date of the Freestanding SAR grant. The
Committee also shall determine the performance or other conditions, if any, that
must be satisfied before all or part of a Freestanding SAR may be exercised.
(d) Deemed Exercise. The Committee may provide that an SAR shall be deemed
to be exercised at the close of business on the scheduled expiration date of
such SAR if at such time the SAR by its terms remains exercisable and, if so
exercised, would result in a payment to the holder of such SAR.
(e) Additional Terms and Conditions. The Committee may, by way of the
Award Notice or otherwise, determine such other terms, conditions, restrictions
and/or limitations, if any, of any SAR Award, provided they are not inconsistent
with the Plan.
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10. Stock Awards
(a) Grants. Awards may be granted in the form of Stock Awards. Stock
Awards shall be awarded in such numbers and at such times during the term of the
Plan as the Committee shall determine. Stock Awards may be actual shares of
Common Stock or the economic equivalent thereof ("Stock Award Units").
(b) Award Restrictions. Stock Awards shall be subject to such terms,
conditions, restrictions, and/or limitations, if any, as the Committee deems
appropriate including, without limitation, restrictions on transferability and
continued employment of the Participant. The Committee shall also determine the
performance or other conditions, if any, that must be satisfied before all or
part of the applicable restrictions lapse.
(c) Rights as Stockholder. During the period in which any restricted
shares of Common Stock are subject to restrictions imposed pursuant to Section
10(b), the Committee may, in its discretion, grant to the Participant to whom
such restricted shares have been awarded all or any of the rights of a
stockholder with respect to such shares, including, without limitation, the
right to vote such shares and to receive dividends.
(d) Evidence of Award. Any Stock Award granted under the Plan 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.
11. Performance Shares
(a) Grants. Awards may be granted in the form of performance shares.
Performance shares, as that term is used in the Plan, shall refer to shares of
Common Stock or Units which are expressed in terms of Common Stock.
(b) Performance Criteria. Performance shares shall be contingent upon the
attainment during a performance period of certain performance objectives. The
length of the performance period, the performance objectives to be achieved
during the performance period, and the measure of whether and to what degree
such objectives have been attained shall be conclusively determined by the
Committee in the exercise of its absolute discretion. Performance objectives may
be revised by the Committee, at such times as it deems appropriate during the
performance period, in order to take into consideration any unforeseen events or
changes in circumstances.
(c) Additional Terms and Conditions. The Committee may, by way of the
Award Notice or otherwise, determine such other terms, conditions, restrictions
and/or limitations, if any, of any Award of performance shares, provided they
are not inconsistent with the Plan.
12. Performance Goals for Certain Section 162(m) Awards
(a) The provisions of the Plan are intended to ensure that all stock
options and SARs granted hereunder to any Covered Employee qualify for the
Section 162(m) Exemption.
(b) When granting any Award other than stock options or SARs, the Committee
may designate such Award as a Qualified Performance-Based Award, based upon a
determination that the recipient is or may be a Covered Employee with respect to
such Award, and the Committee wishes such Award to qualify for the Section
162(m) Exemption. If an Award is so designated, the Committee shall establish
performance goals for such Award within the time period prescribed by Section
162(m) of the Code based on one or more of the following Qualified Performance
Measures, which may be expressed in terms of Company-wide objectives or in terms
of objectives that relate to the performance of a Subsidiary or a division,
region, department or function within the Company or a Subsidiary: (1) return on
capital, equity, or assets (including economic value created), (2) productivity,
(3) cost improvements, (4) cash flow, (5) sales revenue growth, (6) net income,
earnings per share, or earnings from operations, (7) quality, (8) customer
satisfaction, or (9) stock price or total stockholder return. Measurement of the
Company's performance against the goals established by the Committee shall be
objectively determinable, and to the extent such goals are expressed in standard
accounting terms, performance shall be measured according to generally accepted
accounting principles as in
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existence on the date on which the performance goals are established and without
regard to any changes in such principles after such date.
(c) Each Qualified Performance-Based Award (other than a stock option or
SAR) shall be earned, vested and payable (as applicable) only upon the
achievement of performance goals established by the Committee based upon one or
more of the Qualified Performance Measures, together with the satisfaction of
any other conditions, such as continued employment, as the Committee may
determine to be appropriate; provided that (i) the Committee may provide, either
in connection with the grant of an Award or by amendment thereafter, that
achievement of such performance goals will be waived upon the death or
Disability of the Participant, and (ii) the provisions of Sections 25 and 26
shall apply notwithstanding this sentence.
(d) Any payment of a Qualified Performance-Based Award granted with
performance goals shall be conditioned on the written certification of the
Committee in each case that the performance goals and any other material
conditions were satisfied. Except as specifically provided in Subsection (c), no
Qualified Performance-Based Award may be amended, nor may the Committee exercise
any discretionary authority it may otherwise have under the Plan with respect to
a Qualified Performance-Based Award under the Plan, in any manner to waive the
achievement of the applicable performance goal based on Qualified Performance
Measures or to increase the amount payable pursuant thereto or the value
thereof, or otherwise in a manner that would cause the Qualified
Performance-Based Award to cease to qualify for the Section 162(m) Exemption.
13. Payment of Awards
At the discretion of the Committee, payment of Awards may be made in cash,
Common Stock, a combination of cash and Common Stock, or any other form of
property as the Committee shall determine. In addition, payment of Awards may
include such terms, conditions, restrictions and/or limitations, if any, as the
Committee deems appropriate, including, in the case of Awards paid in the form
of Common Stock, restrictions on transfer and forfeiture provisions. Further,
payment of Awards may be made in the form of a lump sum, or in installments, as
determined by the Committee.
14. Dividends and Dividend Equivalents
If an Award is granted in the form of a Stock Award, stock option, or
performance share, or in the form of any other stock-based grant, the Committee
may choose, at the time of the grant of the Award or any time thereafter up to
the time of the Award's payment, to include as part of such Award an entitlement
to receive dividends or dividend equivalents, subject to such terms, conditions,
restrictions and/or limitations, if any, as the Committee may establish.
Dividends and dividend equivalents shall be paid in such form and manner (i.e.,
lump sum or installments), and at such time or times as the Committee shall
determine. All dividends or dividend equivalents that are not paid currently
may, at the Committee's discretion, accrue interest, be reinvested in additional
shares of Common Stock or, in the case of dividends or dividend equivalents
credited in connection with performance shares, be credited as additional
performance shares and paid to the Participant if and when, and to the extent
that, payment is made pursuant to such Award.
15. Deferral of Awards
At the discretion of the Committee, payment of a Stock Award, performance
share, dividend, dividend equivalent, or any portion thereof may be deferred by
a Participant until such time as the Committee may establish. All such deferrals
shall be accomplished by the delivery of a written, irrevocable election by the
Participant prior to the time such payment would otherwise be made, on a form
provided by the Company. Further, all deferrals shall be made in accordance with
administrative guidelines established by the Committee to ensure that such
deferrals comply with all applicable requirements of the Code and its
regulations. Deferred payments shall be paid in a lump sum or installments, as
determined by the Committee. The Committee may also credit interest, at such
rates to be determined by the Committee, on cash payments that are deferred and
credit dividends or dividend equivalents on deferred payments denominated in the
form
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of Common Stock. The Committee may also, in its discretion, require deferral of
payment of any Award or portion thereof if payment of the Award would, or could
in the reasonable estimation of the Committee, result in the Participant
receiving compensation in excess of the maximum amount deductible by the Company
under the Code.
16. Termination of Employment
If a Participant's employment with the Company or a Subsidiary terminates
for a reason other than death, Disability, retirement, or any other approved
reason, all unexercised, unearned, and/or unpaid Awards, including without
limitation, Awards earned but not yet paid, all unpaid dividends and dividend
equivalents, and all interest accrued on the foregoing shall be canceled or
forfeited, as the case may be, unless the Participant's Award Notice provides
otherwise. The Committee shall have the authority to promulgate rules and
regulations to (i) determine what events constitute Disability, retirement or
termination for an approved reason for purposes of the Plan, and (ii) determine
the treatment of a Participant under the Plan in the event of such Participant's
death, Disability, retirement or termination for an approved reason.
17. Nonassignability
No Awards (other than unrestricted Stock 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; provided, however, that the Committee may (but need not)
permit other transfers where the Committee concludes that such transferability
(i) does not result in accelerated taxation, (ii) does not cause any option
intended to be an incentive stock option to fail to be described in Code Section
422(b), and (iii) is otherwise appropriate and desirable, taking into account
any state or federal securities laws applicable to transferable Awards. During
the lifetime of the Participant no Award shall be payable to or exercisable by
anyone other than the Participant to whom it was granted, other than (a) in the
case of a permanent Disability involving a mental incapacity or (b) in the case
of an Award transferred in accordance with the preceding sentence.
18. 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.
19. 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,
subject to the approval of the Committee, 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.
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20. Noncompetition; Confidentiality
A Participant will not, without the written consent of the Company, either
during his or her employment by the Company or thereafter, disclose to anyone or
make use of any confidential information which he or she has acquired during his
or her employment relating to any of the business of the Company, except as such
disclosure or use may be required in connection with his or her work as an
employee of Company. During Participant's employment by Company, and for a
period of two years after the termination of such employment, he or she will
not, either as principal, agent, consultant, employee or otherwise, engage in
any work or other activity in competition with the Company in the field or
fields in which he or she has worked for the Company. The agreement in this
Section applies separately in the United States and in other countries but only
to the extent that its application shall be reasonably necessary for the
protection of the Company. Unless the Award Notice specifies otherwise, a
Participant shall forfeit all rights under this Plan to any unexercised or
unpaid Awards or to the deferral of any Award, dividend, or dividend equivalent,
if, in the determination of the Committee, the Participant has violated the
Agreement set forth in this Section 20, and in that event any further payment,
deferral of payment, or other action with respect to any Award, dividend, or
dividend equivalent shall be made or taken, if at all, in the sole discretion of
the Committee. For purposes of this Section 20, "Company" shall include any
Subsidiary employing the Participant.
21. 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 that the Company shall, in its sole discretion,
determine to be necessary or advisable.
22. Plan Amendment
Except as provided in Section 25 and Section 26, the Board or the Committee
may, at any time and from time to time, suspend, amend, modify, or terminate the
Plan without stockholder approval; provided, however, that if an amendment to
the Plan would, in the reasonable opinion of the Board or the Committee, either
(i) materially increase the benefits accruing to Participants, (ii) materially
increase the number of shares of Common Stock issuable under the Plan, or (iii)
materially modify the requirements for eligibility, then such amendment shall be
subject to stockholder approval; and provided, further, that the Board or
Committee may condition any amendment or modification on the approval of
stockholders of the Company if such approval is necessary or deemed advisable to
(i) permit Awards made hereunder to be exempt from liability under Section 16(b)
of the Exchange Act, (ii) to comply with the listing or other requirements of a
stock exchange, or (iii) to satisfy any other tax, securities or other
applicable laws, policies or regulations.
23. Award Amendments
Except as provided in Section 25 or Section 26, the Committee may amend,
modify or terminate any outstanding Award without approval of the Participant;
provided, however:
(a) subject to the terms of the applicable Award Notice, such amendment,
modification or termination shall not, without the Participant's consent, reduce
or diminish the value of such Award determined as if the Award had been
exercised, vested, cashed in (at the spread value in the case of stock options
or SARs) or otherwise settled on the date of such amendment or termination;
(b) the original term of any stock option or SAR may not be extended
without the prior approval of the stockholders of the Company;
(c) except as otherwise provided in Section 18, the exercise price of any
stock option or SAR may not be reduced, directly or indirectly, without the
prior approval of the stockholders of the Company; and
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(d) no termination, amendment, or modification of the Plan shall adversely
affect any Award previously granted under the Plan, without the written consent
of the Participant affected thereby.
24. 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.
25. Change In Ownership
(a) Background. Upon a Change In Ownership: (i) the terms of this Section
25 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, 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.
(b) Dividends and Dividend Equivalents. Upon a Change In Ownership, all
unpaid dividends and dividend equivalents and all interest accrued thereon, if
any, shall be treated and paid under this Section 25 in the identical manner and
time as the Award with respect to which such dividends or dividend equivalents
have been credited. For example, if upon a Change In Ownership, an Award under
this Section 25 is to be paid in a prorated fashion, all unpaid dividends and
dividend equivalents with respect to such Award shall be paid according to the
same formula used to determine the amount of such prorated Award.
(c) Treatment of Performance Shares. If a Change In Ownership occurs
during the term of one or more performance periods for which the Committee has
granted performance shares (hereinafter a "current performance period"), the
term of each such current performance period shall immediately terminate upon
the occurrence of such event. Upon a Change In Ownership, for each current
performance period and each completed performance period for which the Committee
has not on or before such date made a determination as to whether and to what
degree the performance objectives for such period have been attained
(hereinafter a "completed performance period"), it shall be assumed that the
performance objectives have been attained at a level of one hundred percent
(100%) or the equivalent thereof.
A Participant in one or more current performance periods shall be
considered to have earned and, therefore, be entitled to receive, a prorated
portion of the Awards previously granted for each such performance period. Such
prorated portion shall be determined by multiplying the number of performance
shares granted to the Participant by a fraction, the numerator of which is the
total number of whole and partial years (with each partial year being treated as
a whole year) that have elapsed since the beginning of the performance period,
and the denominator of which is the total number of years in such performance
period.
A Participant in one or more completed performance periods shall be
considered to have earned and, therefore, be entitled to receive all the
performance shares previously granted during each such performance period.
(d) Valuation of Awards. Upon a Change In Ownership, all outstanding Units
of Common Stock, Freestanding SARs, stock options (including incentive stock
options), and performance shares (including those earned as a result of the
application of Subsection 25(c) above) and all other outstanding stock-based
Awards, shall be valued and cashed out on the basis of the Change In Control
Price.
(e) Payment of Awards. Upon a Change In Ownership, any Participant,
whether or not still employed by the Company or a Subsidiary, shall be paid, in
a single lump sum cash payment, as soon as practicable but in no event later
than 90 days after the Change In Ownership, the value of all of such
Participant's outstanding Units of Common Stock, Freestanding SARs, stock
options (including incentive stock options), and performance shares (including
those earned as a result of Subsection 25(c) above), and all other outstanding
Awards, including those granted by the Committee pursuant to its authority under
Subsection 3(h) hereof.
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For purposes of making any payment, the value of all Awards that are stock based
shall be determined by the Change In Control Price.
(f) Deferred Awards. Upon a Change in Ownership, all Awards deferred by a
Participant under Section 15 hereof, but for which such Participant has not
received payment as of such date, shall be paid in a single lump-sum cash
payment as soon as practicable, but in no event later than 90 days after the
Change In Ownership. For purposes of making any payment, the value of all Awards
that are stock based shall be determined by the Change In Control Price.
(g) Miscellaneous. Upon a Change In Ownership, (i) the provisions of
Sections 16 and 20 (solely as such Section relates to noncompetition and not as
such Section relates to confidentiality) 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 Ownership.
(h) 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 Ownership; 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.
(i) Adjustment to Provisions. Notwithstanding that a Change in Ownership
has occurred, the Committee may elect to deal with Awards in a manner different
from that contained in this Section 25, in which case the provisions of this
Section 25 shall not apply and such alternate terms shall apply. Such Committee
action shall be effective only if 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 Ownership 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 Ownership.
26. Change In Control.
(a) Background. All Participants shall be eligible for the treatment
afforded by this Section 26 if their employment terminates within two years
following a Change In Control, unless the termination is due to (i) death, (ii)
Disability, (iii) Cause, (iv) resignation other than (A) resignation from a
declined reassignment to a job that is not reasonably equivalent in
responsibility or compensation (as defined in the Company's termination
allowance plan, if any), or that is not in the same geographic area (as defined
in the Company's termination allowance plan, if any), or (B) resignation within
30 days following a reduction in base pay, or (v) retirement entitling the
Participant to benefits under his or her employer's retirement plan.
For purposes hereof, "Cause" means (a) the continued failure by an Employee
to substantially perform such Employee's duties of employment after warnings
identifying the lack of substantial performance are communicated to the Employee
by the employer to identify the manner in which the employer believes that the
Employee has not substantially performed such duties, or (b) the engaging by an
Employee in illegal conduct that is materially and demonstrably injurious to the
Company or a Subsidiary.
(b) Vesting and Lapse of Restrictions. If a Participant is eligible for
treatment under this Section 26, (i) all of the conditions, restrictions, and
limitations in effect on any of such Participant's unexercised, unearned, unpaid
and/or deferred Awards (or any other of such Participant's outstanding Awards)
shall immediately lapse as of the date of termination of employment; (ii) no
other terms, conditions, restrictions and/or limitations shall be imposed upon
any of such Participant's Awards on or after such date, and in no event shall
any of such Participant's Awards be forfeited on or after such date; and (iii)
all of such Participant's unexercised, unvested, unearned and/or unpaid Awards
(or any other of such Participant's outstanding Awards) shall automatically
become one hundred percent (100%) vested immediately upon termination of
employment.
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(c) Dividends and Dividend Equivalents. If a Participant is eligible for
treatment under this Section 26, all of such Participant's unpaid dividends and
dividend equivalents and all interest accrued thereon, if any, shall be paid
under this Section 26 in the identical manner and time as the Award with respect
to which such dividend or dividend equivalents have been credited. For example,
if upon a Change In Control, an Award under this Section 26 is to be paid in a
prorated fashion, all unpaid dividends and dividend equivalents with respect to
such Award shall be paid according to the same formula used to determine the
amount of such prorated Award.
(d) Treatment of Performance Shares. If a Participant holding performance
shares is terminated under the conditions described in Subsection (a) above, the
provisions of this Subsection (d) shall determine the manner in which such
performance shares shall be paid to such Participant. For purposes of making
such payment, each current performance period, as that term is defined in
Subsection 25(c) hereof, shall be treated as terminating upon the date of the
Participant's termination of employment, and for each such current performance
period and each completed performance period, as that term is defined in
Subsection 25(c) hereof, it shall be assumed that the performance objectives
have been attained at a level of one hundred percent (100%) or the equivalent
thereof. If the Participant is participating in one or more current performance
periods, he or she shall be considered to have earned and, therefore, be
entitled to receive that prorated portion of the Awards previously granted for
each such performance period, as determined in accordance with the formula
established in Subsection 25(c) hereof. A Participant in one or more completed
performance periods shall be considered to have earned and, therefore, be
entitled to receive all the performance shares previously granted during each
performance period.
(e) Valuation of Awards. If a Participant is eligible for treatment under
this Section 26, such Participant's Awards shall be valued and cashed out in
accordance with the provisions of Subsection 25(d) hereof.
(f) Payment of Awards. If a Participant is eligible for treatment under
this Section 26, such Participant shall be paid, in a single lump-sum cash
payment, as soon as practicable but in no event later than 90 days after the
date of such Participant's termination of employment, the value of all of such
Participant's outstanding Units of Common Stock, Freestanding SARs, stock
options (including incentive stock options), and performance shares (including
those earned as a result of Subsection 26(d) above), and all of such
Participant's other outstanding Awards. For purposes of making any payment, the
value of all Awards that are stock based shall be determined by the Change In
Control Price.
(g) Deferred Awards. If a Participant is eligible for treatment under this
Section 26, all of the deferred Awards for which such Participant has not
received payment as of the date of such Participant's termination of employment
shall be paid in a single lump-sum cash payment as soon as practicable, but in
no event later than 90 days after the date of such Participant's termination.
For purposes of making any payment, the value of all Awards that are stock based
shall be determined by the Change In Control Price.
(h) Miscellaneous. Upon a Change In Control, (i) the provisions of
Sections 16 and 20 (solely as such Section relates to noncompetition and not as
such Section relates to confidentiality) shall become null and void and of no
force and effect insofar as they apply to a Participant who has been terminated
under the conditions described in Subsection (a) above; and (ii) no action,
including, without limitation, the amendment, suspension or termination of the
Plan, shall be taken that would affect the rights of such 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 the Change In Control
or to which such Participant may become entitled as a result of such Change In
Control.
(i) 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.
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(j) Adjustment to Provisions. Notwithstanding that a Change in Control has
occurred, the Committee may elect to deal with Awards in a manner different from
that contained in this Section 26, in which case the provisions of this Section
26 shall not apply and such alternate terms shall apply. Such Committee action
shall be effective only if 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.
27. No Right to Employment or Participation
Participation in the Plan shall not give any Participant any right to
remain in the employ of the Company or any Subsidiary. The Company or, in the
case of employment with a Subsidiary, the Subsidiary, reserves the right to
terminate the employment of any Participant at any time. Further, the adoption
of the Plan shall not be deemed to give any Employee or any other individual any
right to be selected as a Participant or to be granted an Award.
28. No Right, Title, or Interest in Company Assets
No Participant shall have any rights as a stockholder as a result of
participation in the Plan until the date of issuance of a stock certificate in
such Participant's name, and, in the case of restricted shares of Common Stock,
such rights are granted to the Participant under Subsection 10(c) 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.
29. Securities Laws
With respect to Section 16 Insiders, 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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APPENDIX B
EASTMAN CHEMICAL COMPANY
2002 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 restricted stock and one-time,
automatic awards of restricted stock on the terms and subject to the conditions
set forth in the Plan. This Plan was originally adopted by the stockholders at
the May 2, 2002 Annual Meeting. From and after the Effective Date of this Plan,
no further awards will be made under the Eastman Chemical Company 1999 Director
Long-Term Compensation Plan or the 1994 Director Long-Term Compensation Plan,
other than reload stock options to be granted under such plans in accordance
with their respective terms.
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, 2001, 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, 2002 (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, 2002 whose election, or nomination for election by the
Company's stockholders, 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 stockholders 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 stockholders 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 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
B-1
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.
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. It
is intended that the directors appointed to serve on the Committee shall be
"non-employee directors" (within the meaning of Rule 16b-3 under the Exchange
Act) and "outside directors" (within the meaning of Code Section 162(m) and the
regulations thereunder). However, the mere fact that a Committee member shall
fail to qualify under either of the foregoing requirements shall not invalidate
any Award made by the Committee which Award is otherwise validly made under the
Plan.
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 2002 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. Except as provided
in Section 18, the Committee may not amend, modify, or terminate any outstanding
Award without the approval of the Participant; provided, however, that: (i) the
original term of any stock option may not be extended without the prior approval
of the stockholders of the Company; and, (ii) the exercise price of any stock
option may not be reduced, directly, or indirectly, without the prior approval
of the stockholders of the Company. 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.
B-2
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 200,000. Such
amount shall be subject to adjustment as provided in Section 11. 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 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 stockholders 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, 2007 or the date of the Annual Meeting of Stockholders of the
Company for the year 2007.
6. Annual Option Grants
(a) Grant of Options. Immediately following each annual election of
directors at an annual meeting of stockholders of the Company, each Participant
shall be granted, effective as of the date of such Annual Meeting, an option to
purchase 2,000 shares of Common Stock. The foregoing number of shares shall be
adjusted in accordance with the principles of Section 11 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.
B-3
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, 2002 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 11 in the
event of an occurrence of an event described therein.
(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 two sentences. A restricted stock Award under
Section 7(a) will vest and all restrictions with respect thereto will lapse only
upon the earliest to occur of: (i) three (3) years from the date of such Award,
but only if the Participant is still a director of the Company immediately prior
to the election of directors at the annual meeting of stockholders at the end of
such three-year period, or (ii) the date that his or her tenure as director of
the Company terminates by reason of death, disability, resignation effective at
an annual meeting of stockholders because he or she is no longer qualified to
serve as a director under Section 3.1 of the Bylaws of the Company, or for
another approved reason as determined by the Committee, or (iii) the date that
his or her tenure as director of the Company terminates 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 in (i) above none of the three alternative events in the
immediately preceding sentence has occurred, then the Participant's stock Award
under Section 7(a) shall be canceled and forfeited.
(c) Rights as Stockholders. 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 stockholder 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. Annual Restricted Stock Awards
(a) Grant of Award. Subject to the restrictions provided below,
immediately after each annual election of directors at an annual meeting of
stockholders of the Company, each Participant shall be granted, effective as of
the date of the annual meeting, an Award of shares of Common Stock having an
aggregate Fair Market Value equal to $5,000. The foregoing number of shares
shall be adjusted in accordance with the principles of Section 11 in the event
of an occurrence of an event described therein.
(b) Award Restrictions. Common Stock awarded under Section 8(a) may not be
transferred or sold by the Participant and is subject to forfeiture until vested
in accordance with the following two sentences. A restricted stock Award under
Section 8(a) will vest and all restrictions with respect thereto will lapse only
upon the earliest to occur of: (i) three (3) years from the date of such Award,
but only if the Participant is still a director of the Company immediately prior
to the election of directors at the annual meeting of stockholders at the end of
such three-year period, or (ii) the date that his or her tenure as director of
the Company terminates by reason of death, disability, resignation effective at
an annual meeting of stockholders because he or she is no longer qualified to
serve as a director under Section 3.1 of the Bylaws of the Company, or for
another approved reason as determined by the Committee, or (iii) the date that
his or her tenure as a director of the Company terminates by reason of
completion of his or her then-current term in office and failure to be nominated
for or reelected to another term. If at the end of the three-year period
referred to in (i) above none of the three alternative events in the immediately
preceding sentence has occurred, then the Participant's stock Award under
Section 8(a) shall be canceled and forfeited.
B-4
(c) Rights as Stockholders. During the period in which any shares of
Common Stock are subject to the restrictions on transfer imposed under Section
8(b), the Participant shall have all the rights of a stockholder 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.
9. Termination of Tenure
If a Participant's tenure on the Board terminates for a reason other than
death, disability, completion of such Participant's current term in office, or
for another approved reason as determined by the Committee, 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 or 8 shall not be canceled or forfeited.
The Committee shall have the authority to promulgate rules and regulations to
administer the foregoing.
10. 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).
11. 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.
12. 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.
B-5
13. 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 13.
14. 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.
15. No Right to Continued Position on Board
Participation in the Plan shall not give any Participant any right to
remain on the Board.
16. Amendment
The Board or the Committee may, at any time and from time to time, suspend,
amend, modify, or terminate the Plan without stockholder approval; provided,
however, that the Board or Committee may condition any amendment or modification
on the approval of stockholders of the Company if such approval is necessary or
deemed advisable with respect to tax, securities, or other applicable laws,
policies, or regulations.
17. 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.
18. Change In Control
(a) Background. Upon a Change In Control: (i) the terms of this Section 18
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.
(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
(c) Miscellaneous. Upon a Change In Control, (i) the provisions of Section
9 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.
B-6
(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.
19. No Right, Title, or Interest in Company Assets
No Participant shall have any rights as a stockholder 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 or Section 8 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.
20. 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.
B-7
EASTMAN
c/o Corporate Election Services
P.O. Box 1150
Pittsburgh, PA 15230-1150
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YOUR CONTROL NUMBER IS:
[ ]
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VOTE BY TELEPHONE OR INTERNET
QUICK *** EASY *** IMMEDIATE
Your telephone or Internet vote authorizes the named proxies to vote your
shares in the same manner as if you marked, signed and returned your proxy card.
TO VOTE BY PHONE: Call anytime toll free 1-800-542-1160
There is no charge for this call.
You will be asked to enter the control number
from the box above.
TO VOTE BY INTERNET OR Access http://www.votefast.com
REVIEW THE PROXY STATEMENT You will be asked to enter the control number
from the box above.
IF YOU VOTE BY TELEPHONE OR INTERNET, DO NOT MAIL THE PROXY CARD.
THANK YOU FOR VOTING.
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PROXY EASTMAN CHEMICAL COMPANY PROXY
_______________________________________________________________________________
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE ANNUAL
MEETING OF STOCKHOLDERS TO BE HELD ON MAY 2, 2002.
The undersigned hereby appoints Theresa K. Lee and James P. Rogers with power
to act without the other and with power of substitution, and hereby authorizes
them to represent and vote, as designated on the other side of this proxy card,
all the shares of stock of Eastman Chemical Company held of record as of March
15, 2002 by the undersigned with all the powers that the undersigned would
possess if present at the Annual Meeting of Stockholders of the Company to be
held May 2, 2002 or any adjournment or postponement 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 properly come before
the meeting. IF A VOTE IS NOT SPECIFIED, SAID PROXIES WILL VOTE FOR ITEMS 1,2,3
AND 4 AND AGAINST ITEMS 5 AND 6.
------------------------------------------
Signature(s)
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Signature(s)
Date:
------------------------------, 2002
Please sign exactly as your name(s) appears
on this proxy. If shares are held jointly
all joint owners should sign. If signing as
executor, administrator, attorney, trustee,
guardian, or in any other representative
capacity, please also give your full title.
MARK (ON THE OTHER SIDE), SIGN AND DATE YOUR PROXY CARD AND RETURN IT PROMPTLY
IN THE ENCLOSED ENVELOPE.
ADMISSION TICKET
PLEASE BRING THIS TICKET IF YOU CHOOSE TO ATTEND THE ANNUAL MEETING.
IT WILL EXPEDITE YOUR ADMITTANCE WHEN PRESENTED UPON YOUR ARRIVAL.
EASTMAN CHEMICAL COMPANY
ANNUAL MEETING OF STOCKHOLDERS
THURSDAY, MAY 2, 2002
11:30 A.M.
TOY F. REID EMPLOYEE CENTER
400 SOUTH WILCOX DRIVE
KINGSPORT, TENNESSEE 37660
1-423-229-4647
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-- PLEASE FOLD AND DETACH CARD AT PERFORATION. --
-- PLEASE FOLD AND DETACH CARD AT PERFORATION BEFORE MAILING. --
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PROXY EASTMAN CHEMICAL COMPANY PROXY
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2, 3 AND 4 AND AGAINST
ITEMS 5 AND 6. THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE SPECIFICATION
INDICATED. IF NO SPECIFICATION IS MADE, IT WILL BE VOTED FOR ITEMS 1, 2, 3 AND 4
AND AGAINST ITEMS 5 AND 6.
1. Election of Directors: Nominees for election of three directors to
serve in the class for which the term in office expires at the Annual
Meeting of Stockholders in 2005 and until their successors are duly
elected and qualified:
(01) Calvin A. Campbell, Jr. (02) J. Brian Ferguson (03) Donald W. Griffin
[ ] FOR all nominees listed above [ ] WITHHOLD for all [ ] FOR all except
To withhold authority to vote for less than all nominees, mark "FOR all except"
and write the name(s) of individual(s) for whom authority is withheld below.
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FOR AGAINST ABSTAIN
2. Approval of 2002 Omnibus Long-Term Compensation Plan [ ] [ ] [ ]
3. Approval of 2002 Director Long-Term Compensation Plan [ ] [ ] [ ]
4. Ratification of Appointment of PricewaterhouseCoopers LLP
as Independent Accountants [ ] [ ] [ ]
5. Adoption of Stockholder Proposal to Study Potential Health
Risks from Cellulose Acetate Fibers [ ] [ ] [ ]
6. Adoption of Stockholder Proposal to Issue Report Concerning
Emission of "Greenhouse Gases" and Potential Climate Change [ ] [ ] [ ]
(CONTINUED, AND TO BE SIGNED AND DATED, ON THE OTHER SIDE.)
[SCRIPT OF DIALOGUE FOR REGISTERED STOCKHOLDER PROXY VOTING BY TELEPHONE]
STOCKHOLDER HEARS THIS SCRIPT
Speech 1 Welcome. Please enter the control number located in the upper
right hand corner of the proxy card.
Speech 2 To vote as the Eastman Chemical Company Board recommends
Press 1 now.
Speech 2A You voted as the Board recommended. If correct, press 1.
If incorrect, Press O.
Speech 3 To vote on each proposal separately, press 0 now.
Speech 4 Proposal 1:
To vote FOR all nominees, Press 1
To WITHHOLD for all nominees, Press 9
To WITHHOLD for an individual nominee, press 0
Speech 5 Enter the two digit number that appears next to the nominee
you DO NOT wish to vote for.
Speech 5A Press 1 to withhold for another nominee or Press 0 if you
have completed voting for Directors.
Speech 6 Proposal 2:
To vote FOR, Press 1; AGAINST, Press 9, ABSTAIN, Press 0
All remaining proposals, same instructions
Speech 7 You voted as follows:
Proposal 1: For ALL or Withhold All OR For ALL Except...
Proposal 2: For, Against, Abstain
and so on. If this is correct, Press 1 now; if incorrect,
Press 0
Closing A Thank you for voting.
Closing B* Your vote has been canceled. Please try again, or mark, sign
and return your proxy.
Speech 9 In the future, if you wish to access the Annual Report and
Proxy Statement via the Internet and not receive them in the
mail, press 1 now.
*Closing B - if stockholder indicates their vote was incorrect.
[TEXT OF COMPUTER SCREENS FOR
ELECTRONIC DELIVERY OF PROXY STATEMENT AND ANNUAL REPORT TO, AND INTERNET PROXY
VOTING BY, REGISTERED STOCKHOLDERS]
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Eastman Chemical Company
2002 Proxy Voting Site
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Your Internet vote authorizes the Proxies to vote your shares in the same
manner as if you marked, signed, and returned your Proxy Card.
Before you vote, if you would like to review
the Annual Report and Proxy Statement - Click Here
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Return by simply closing the newly opened browser window.
The Board of Directors recommends a vote
FOR Proposals 1, 2, 3, and 4
and AGAINST Proposals 5 and 6.
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Click Here To Vote As The Board Of Directors Recommends
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Click Here To Vote Individually On Each Proposal
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[VOTING SUMMARY -- IF CLICKED "VOTE AS THE BOARD RECOMMENDS"]
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[Eastman Chemical Company Logo]
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I Vote As The Board Recommends
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PLEASE RESPOND TO THE QUESTION.
THEN SCROLL TO THE END OF
THE PAGE TO REGISTER YOUR VOTE.
In the future, I consent to viewing the Annual Report and Proxy Statement
electronically via the Internet, instead of receiving them in the mail.
Yes [ ] No [ ]
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In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting, or at any adjournment thereof.
Click Here To Register Your Vote
BACK
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[FIRST SCREEN IF CLICKING "VOTE INDIVIDUALLY ON EACH PROPOSAL"]
[EASTMAN CHEMICAL COMPANY LOGO]
TO VOTE SEPARATELY ON EACH PROPOSAL - CHECK THE BOXES BELOW:
THE BOARD RECOMMENDS A VOTE FOR PROPOSALS 1, 2, 3 AND 4.
PROPOSAL 1 FOR ALL [ ] WITHHOLD FOR ALL [ ] FOR ALL EXCEPT [ ]
Election of Directors [ ] 01 Calvin A. Campbell, Jr.
[ ] 02 J. Brian Ferguson
[ ] 03 Donald W. Griffin
PROPOSAL 2
Approval of 2002 For [ ] Against [ ] Abstain [ ]
Omnibus Long-Term
Compensation Plan
PROPOSAL 3
Approval of 2002 For [ ] Against [ ] Abstain [ ]
Director Long-Term
Compensation Plan
PROPOSAL 4
Ratification of For [ ] Against [ ] Abstain [ ]
Appointment of
PricewaterhouseCoopers
LLP as Independent
Accountants
THE BOARD RECOMMENDS A VOTE AGAINST PROPOSALS 5 AND 6.
PROPOSAL 5
Adoption of Stockholder For [ ] Against [ ] Abstain [ ]
Proposal to Study
Potential Health Risks
From Cellulose Acetate
Fibers
PROPOSAL 6
Adoption of Stockholder For [ ] Against [ ] Abstain [ ]
Proposal to Issue Report
Concerning Emission of
"Greenhouse Gases" and
Potential Climate Change
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[SECOND SCREEN IF CLICK "VOTE
INDIVIDUALLY ON EACH PROPOSAL"]
PLEASE RESPOND TO THE QUESTION.
THEN SCROLL TO THE END OF
THE PAGE TO REGISTER YOUR VOTE.
In the future, I consent to viewing the Annual Report and Proxy Statement
electronically via the Internet, instead of receiving them in the mail.
Yes [ ] No [ ]
In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting, or at any adjournment thereof.
--------------------------------------------------------------
Click Here To Register Your Vote
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BACK
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[VOTING SUMMARY -- IF CLICK "VOTE INDIVIDUALLY ON EACH PROPOSAL"]
================================================================================
[Eastman Chemical Company Logo]
================================================================================
THANK YOU FOR VOTING ELECTRONICALLY
Voting Summary
Your Registration Number: ____
Directors:
You Voted: [For All] [Withhold All] [For All Except [names of nominees for
whom authority to vote withheld]]
Proposal 2:
You Voted: [For] [Against] [Abstain]
Proposal 3:
You Voted: [For] [Against] [Abstain]
Proposal 4:
You Voted: [For] [Against] [Abstain]
Proposal 5:
You Voted: [For] [Against] [Abstain]
Proposal 6:
You Voted: [For] [Against] [Abstain]
Electronic Access: In the future, I [am] [am not] interested in viewing the
Annual Report and Proxy Statement via the Internet.
THANK YOU FOR VOTING
================================================================================
If any of the above information is incorrect, return to the proxy ballot form
by using the BACK feature of your browser program.
To vote another Proxy - CLICK HERE
If the above information is correct, THERE IS NO NEED TO MAIL BACK YOUR PROXY
CARD. Please exit your browser program as you normally do.
-7-
Legal Department
Eastman Chemical Company
P.O. Box 511
Kingsport, Tennessee 37662-5075
Theresa K. Lee
Senior Vice President, General Counsel
and Secretary
Phone: (423) 229-2097
FAX: (423) 229-1679
tklee@eastman.com
March 25, 2002
RE: 2002 ANNUAL MEETING MATERIALS
Dear Fellow Eastman Employee:
Again this year, all employees who own Eastman shares through the ESOP or
Eastman Investment Plan will access the Notice and Proxy Statement for Eastman's
Annual Meeting of Stockholders and Eastman's Annual Report to Stockholders
electronically on the Internet. Making these materials available to you
electronically rather than by sending printed material in the mail significantly
reduces the Company's printing and postage expenses and reflects our continuing
efforts to increase efficiency and reduce costs through the expanded use of
technology.
To access the 2001 Annual Report and the Notice and Proxy Statement for the 2002
Annual Meeting, please go to the Internet website address which appears in the
voting instructions on the enclosed proxy card. (If you like, you may use your
Eastman employee Internet account to access the website and review the
materials). THE BUSINESS TO BE CONSIDERED AND VOTED UPON AT THE ANNUAL MEETING
IS EXPLAINED IN THE PROXY STATEMENT. PLEASE REVIEW THE PROXY STATEMENT, AND THE
ANNUAL REPORT, BEFORE VOTING YOUR SHARES. If you wish to receive paper copies of
the Annual Report and Proxy Statement, call 1-800-742-7540.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AND VOTED AT THE ANNUAL MEETING.
As explained on the enclosed proxy card, you can vote by proxy by Internet, by
telephone, or by marking, signing, dating, and mailing your proxy card in the
enclosed postage-paid envelope. WHETHER YOU CHOOSE TO VOTE BY COMPUTER,
TELEPHONE, OR PROXY CARD, PLEASE VOTE AS SOON AS POSSIBLE. Your vote is
important, regardless of the number of shares you own.
Yours very truly,
/s/ Theresa K. Lee
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Theresa K. Lee
Senior Vice President, General Counsel and Secretary