<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
-------------- --------------
Commission file number 1-12626
EASTMAN CHEMICAL COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 62-1539359
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 N. EASTMAN ROAD
KINGSPORT, TENNESSEE 37660
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (423) 229-2000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Number of Shares Outstanding at
Class September 30, 1998
<S> <C>
Common Stock, par value $0.01 per share 79,243,594
(including rights to purchase shares of
Common Stock or Participating Preferred Stock)
</TABLE>
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PAGE 1 OF 46 TOTAL SEQUENTIALLY NUMBERED PAGES
EXHIBIT INDEX ON PAGE 20
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
ITEM PAGE
- --------------------------------------------------------------------------------
PART I. FINANCIAL INFORMATION
<S> <C> <C>
1. Financial Statements 3 - 8
2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9-16
PART II. OTHER INFORMATION
1. Legal Proceedings 17
2. Changes in Securities 17
6. Exhibits and Reports on Form 8-K 18
SIGNATURES
Signatures 19
</TABLE>
2
<PAGE> 3
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS, COMPREHENSIVE INCOME,
AND RETAINED EARNINGS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THIRD QUARTER FIRST NINE MONTHS
1998 1997 1998 1997
<S> <C> <C> <C> <C>
EARNINGS
Sales $ 1,131 $ 1,145 $ 3,444 $ 3,524
Cost of sales 870 857 2,632 2,693
------- ------- ------- -------
Gross profit 261 288 812 831
Selling and general administrative expenses 75 85 235 247
Research and development costs 45 55 139 145
------- ------- ------- -------
Operating earnings 141 148 438 439
Interest expense, net 28 26 70 67
Other income, net 10 26 18 31
------- ------- ------- -------
Earnings before income taxes 123 148 386 403
Provision for income taxes 43 52 135 145
------- ------- ------- -------
Net earnings $ 80 $ 96 $ 251 $ 258
======= ======= ======= =======
Net earnings per share
--Basic earnings per share $ 1.01 $ 1.23 $ 3.18 $ 3.31
======= ======= ======= =======
--Diluted earnings per share $ 1.00 $ 1.22 $ 3.15 $ 3.28
======= ======= ======= =======
COMPREHENSIVE INCOME
Net earnings $ 80 $ 96 $ 251 $ 258
Other comprehensive income (loss) 32 (20) 29 (47)
------- ------- ------- -------
Comprehensive income $ 112 $ 76 $ 280 $ 211
======= ======= ======= =======
RETAINED EARNINGS
Retained earnings at beginning of period $ 2,179 $ 2,022 $ 2,078 $ 1,929
Net earnings 80 96 251 258
Cash dividends declared (35) (34) (105) (103)
------- ------- ------- -------
Retained earnings at end of period $ 2,224 $ 2,084 $ 2,224 $ 2,084
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 86 $ 29
Receivables 840 793
Inventories 568 511
Other current assets 185 157
------- -------
Total current assets 1,679 1,490
------- -------
Properties
Properties and equipment at cost 8,457 8,104
Less: Accumulated depreciation 4,451 4,223
------- -------
Net properties 4,006 3,881
------- -------
Other noncurrent assets 454 407
------- -------
Total assets $ 6,139 $ 5,778
======= =======
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities
Payables and other current liabilities $ 982 $ 954
------- -------
Total current liabilities 982 954
Long-term borrowings 1,821 1,714
Deferred income tax credits 439 397
Postemployment obligations 698 724
Other long-term liabilities 221 236
------- -------
Total liabilities 4,161 4,025
------- -------
Shareowners' equity
Common stock ($0.01 par - 350,000,000 shares authorized;
shares issued - 84,412,160 and 84,144,672) 1 1
Paid-in capital 93 77
Retained earnings 2,224 2,078
Other comprehensive income (loss) (8) (37)
------- -------
2,310 2,119
Less: Treasury stock at cost (5,353,123 and 5,889,311 shares) 332 366
------- -------
Total shareowners' equity 1,978 1,753
------- -------
Total liabilities and shareowners' equity $ 6,139 $ 5,778
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
FIRST NINE MONTHS
1998 1997
<S> <C> <C>
Cash flows from operating activities
Net earnings $ 251 $ 258
----- -----
Adjustments to reconcile net earnings to net
cash provided by operating activities
Depreciation 258 242
Provision for deferred income taxes 16 6
Increase in receivables (45) (54)
Increase in inventories (55) (76)
Increase in incentive pay and
employee benefit liabilities 18 49
Increase (decrease) in liabilities excluding borrowings,
incentive pay, and employee benefit liabilities (4) 91
Other items, net 20 (7)
Total adjustments 208 251
----- -----
Net cash provided by operating activities 459 509
----- -----
Cash flows from investing activities
Additions to properties and equipment (368) (567)
Acquisitions and investments in joint ventures (32) --
Proceeds from sales of assets 1 19
Capital advances to suppliers (21) (22)
Other items, net -- (2)
----- -----
Net cash used in investing activities (420) (572)
----- -----
Cash flows from financing activities
Net increase (decrease) in commercial paper borrowings 84 (113)
Proceeds from long-term borrowings 23 295
Dividends paid to shareowners (105) (104)
Treasury stock purchases -- (8)
Other items, net 16 5
----- -----
Net cash provided by financing activities 18 75
----- -----
Net change in cash and cash equivalents 57 12
Cash and cash equivalents at beginning of period 29 24
----- -----
Cash and cash equivalents at end of period $ 86 $ 36
===== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements have
been prepared by the Company in accordance and consistent with the
accounting policies stated in the Company's 1997 Annual Report on Form 10-K
and should be read in conjunction with the consolidated financial statements
appearing therein. In the opinion of the Company, all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation have been included in the interim consolidated financial
statements. The interim consolidated financial statements are based in part
on approximations and have not been audited by independent accountants.
2. INVENTORIES
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
(Dollars in millions) 1998 1997
At FIFO or average cost (approximates current cost):
<S> <C> <C>
Finished goods $ 444 $ 436
Work in process 147 140
Raw materials and supplies 220 211
----- -----
Total inventories at FIFO or average cost 811 787
Reduction to LIFO value (243) (276)
----- -----
Total inventories at LIFO value $ 568 $ 511
===== =====
</TABLE>
Inventories valued on the LIFO method are approximately 70-75% of total
inventories in each of the periods.
3. HOLSTON DEFENSE CORPORATION
Holston Defense Corporation ("Holston"), a wholly owned subsidiary of the
Company, has, as its sole business, managed the government-owned Holston
Army Ammunition Plant in Kingsport, Tennessee (the "Facility") since 1949
under a series of contracts with the Department of Army (the "DOA"). Holston
is currently managing the Facility under a contract that terminates on
December 31, 1998 (the "Contract"). The DOA has concluded the previously
reported bidding process and has awarded a contract to manage the Facility
to a third party commencing January 1, 1999. Accordingly, Holston will not
continue to manage the Facility after termination of the Contract.
The Contract generally provides for payment of a management fee to Holston
and reimbursement by the DOA of allowable costs incurred by Holston for the
operation of the Facility. Holston's operating results historically have
been insignificant to the Company's consolidated sales and earnings.
Pension and other postretirement benefits are currently provided to
Holston's present and past employees under the terms of Holston's plans. The
Company has previously recognized, in accordance with generally accepted
accounting principles, pension and other postretirement benefit obligations
related to Holston totaling approximately $95 million. The Company expects
that the DOA will reimburse these pension and other postretirement benefit
obligations and such amounts will be credited to earnings at the time of
receipt of reimbursement from the DOA. The reimbursement may or may not
occur in a single payment.
6
<PAGE> 7
Termination of Holston's management of the Facility will result in
termination payments to certain Holston employees and will require
additional funding for the acceleration of obligations under the pension and
other postretirement benefits plans. The Company has recognized additional
liabilities of approximately $35 million for termination and pension
curtailment. The recognition of these liabilities had no effect on earnings
because the Company recorded a receivable from the DOA for the reimbursement
of such amounts.
Holston plans to terminate its pension plan in a standard termination as of
January 1, 1999. In order to terminate the pension plan in a standard
termination, the assets of the plan must be sufficient to provide all
benefit liabilities with respect to each participant. Holston is in the
process of determining the amount to be funded. The Company will be
required to advance funds to pay such pension benefit liabilities, as well
as other termination costs, if there are delays in payment or reimbursement
by the DOA of all or portions of these costs.
The Company is negotiating with the DOA the settlement of certain
postretirement benefit obligations. The Company's potential obligation for
these postretirement benefit obligations, if any, in excess of the
negotiated amount will be recognized as a liability at such time that it is
probable and reasonably estimable that projected benefit obligations exceed
assets provided by the DOA. The Company expects that the DOA will reimburse
the Company for all costs associated with termination of the Contract.
Although the DOA's position with respect to similar contracts is that it has
no legal liability for unfunded postretirement benefit costs, other than
pension obligations, and the DOA may disagree with the specific amount of
other postretirement obligations, it is the opinion of the Company, based on
the Contract terms, applicable law, and legal and equitable precedents, that
substantially all of the other postretirement benefit costs will be paid by
the DOA or recovered from the government in related proceedings, and that
the amounts, if any, not paid or recovered, or the advancement of funds by
the Company pending such reimbursement or recovery, should not have a
material adverse effect on the consolidated financial position or results of
operations of the Company.
4. ACQUISITIONS AND INVESTMENTS
In September 1998 Eastman purchased for cash a European manufacturer of
specialty polymers. This transaction is accounted for as a purchase. The
Company expects to substantially complete the purchase accounting in the
fourth quarter 1998. This acquisition is not expected to have a material
effect on financial position or results of operations of the Company.
5. PAYABLES AND OTHER CURRENT LIABILITIES
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
(Dollars in millions) 1998 1997
<S> <C> <C>
Trade creditors $296 $281
Accrued payrolls and vacation 89 99
Accrued variable-incentive compensation 73 92
Accrued pension liabilities 168 140
Accrued taxes 127 95
Other 229 247
---- ----
Total $982 $954
==== ====
</TABLE>
6. LONG-TERM BORROWINGS
During third quarter 1998 the Company issued $23 million tax-exempt bonds
at variable interest rates, the proceeds of which are to be used for the
construction of certain solid waste disposal facilities in Kingsport,
Tennessee. The proceeds from this issuance are included in other noncurrent
assets and are held in trust until such time as needed to fund the
qualifying projects.
<TABLE>
<CAPTION>
7. DIVIDENDS THIRD QUARTER FIRST NINE MONTHS
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Cash dividends declared per share $ .44 $ .44 $ 1.32 $ 1.32
</TABLE>
7
<PAGE> 8
8. EARNINGS PER SHARE
<TABLE>
<CAPTION>
THIRD QUARTER FIRST NINE MONTHS
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Shares used for earnings per share
calculation
(in millions):
--Basic 79.1 78.2 78.8 78.0
--Diluted 79.5 78.9 79.5 78.6
</TABLE>
Certain shares underlying options outstanding during the third quarters of
1998 and 1997 and at September 30, 1998 and 1997 were excluded from the
computation of diluted earnings per share because the options' exercise
prices were greater than average market price of the common shares. Excluded
from third quarter of 1998 and 1997 calculations were shares underlying
options to purchase 1,462,714 common shares at a range of prices from
$56.8750 to $74.2500 and 569,887 common shares at a range of prices from
$60.4375 to $74.2500, respectively. Excluded from the year to date 1998 and
1997 calculations were shares underlying options to purchase 990,386 common
shares at a range of prices from $56.8750 to $74.2500 and 581,368 common
shares at a range of prices from $57.6250 to $74.2500, respectively.
Additionally, 200,000 shares underlying an option issued to the Chief
Executive Officer in third quarter 1997 were excluded from diluted earnings
per share calculations because the conditions to exercise had not been met
as to any of the shares as of September 30, 1998.
9. ANTITRUST VIOLATION AND SETTLEMENT
On September 30, 1998, Eastman entered into a voluntary plea agreement with
the Department of Justice and agreed to pay an $11 million fine to
resolve a charge brought against the Company for violation of Section One of
the Sherman Act. The charge, which is not deductible for federal income tax
purposes, was recorded in Cost of Sales in the third quarter and will be
paid in installments over a five year period.
10. COMPREHENSIVE INCOME
The Company adopted SFAS No. 130, "Reporting Comprehensive Income" in 1998.
Components of other comprehensive income (loss) are cumulative translation
adjustments and minimum pension liabilities. Amounts of other comprehensive
income (loss) are presented net of applicable taxes. Because cumulative
translation adjustments are considered a component of permanently invested
unremitted earnings of subsidiaries outside the United States, no taxes are
provided on such amounts.
11. SUPPLEMENTAL CASH FLOW INFORMATION
In March 1998 the Company issued 536,188 treasury shares to its Employee
Stock Ownership Plan as partial settlement of the Company's Eastman
Performance Plan payout. The shares issued had a market value of $35 million
and a carrying value of $33 million. In March 1997 the Company issued
611,962 shares of previously unissued common stock with a market value of
$34 million to the Employee Stock Ownership Plan as partial settlement of
the Eastman Performance Plan payout. These noncash transactions are not
reflected in the Consolidated Statements of Cash Flow.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the Company's Consolidated
Financial Statements and Management's Discussion and Analysis contained in the
1997 Annual Report on Form 10-K and the unaudited interim consolidated financial
statements included elsewhere in this report. All references to earnings per
share contained in this report are basic earnings per share unless otherwise
noted.
RESULTS OF OPERATIONS
EARNINGS
<TABLE>
<CAPTION>
(Dollars in millions, except THIRD QUARTER FIRST NINE MONTHS
per share amounts) 1998 1997 CHANGE 1998 1997 CHANGE
<S> <C> <C> <C> <C> <C> <C>
Operating earnings $ 141 $ 148 (5)% $ 438 $ 439 0%
Net earnings 80 96 (17)% 251 258 (3)%
Net earnings per share
--Basic Earnings Per Share 1.01 1.23 (18)% 3.18 3.31 (4)%
--Diluted Earnings Per Share 1.00 1.22 (18)% 3.15 3.28 (4)%
</TABLE>
Higher sales volumes in third quarter for all three segments, including
significantly higher volume for the Core Plastics segment, reflected good demand
overall for the Company's products. However, competitive markets resulting from
global economic conditions and industry overcapacities caused selling prices to
decline, negatively impacting revenues and earnings. Costs for most major raw
materials, including propane feedstock, paraxylene, purified terephthalic acid
("PTA"), ethylene glycol and natural gas, were below 1997 levels. Preproduction
costs for third quarter decreased following the second quarter startup of new
manufacturing facilities in Rotterdam, Argentina and Malaysia, although for nine
months preproduction costs were higher than in 1997.
As a result of good demand and new manufacturing capacity, sales volumes for the
quarter and nine months improved significantly for container plastics and
EASTAPAK polymers with gains experienced in Latin America, North America and
Europe. Although sales volume for fibers products improved for the quarter,
particularly in the Asia Pacific region, volume was still below nine months 1997
and selling prices were lower.
Productivity gains and cost structure improvements achieved as a result of the
Company's Advantaged Cost 2000 initiative and a lower effective tax rate had a
positive effect on results for the quarter and nine months. A stronger U.S.
dollar produced an unfavorable effect on sales denominated in currencies other
than U.S. dollars, although the earnings impact was offset by gains realized on
currency hedging transactions. Operating results for the third quarter and nine
months were negatively impacted by a charge for violation of the Sherman Act. In
1997, third quarter and nine months net earnings were favorably impacted by a
gain from a patent infringement award.
9
<PAGE> 10
SUMMARY BY INDUSTRY SEGMENT
SPECIALTY AND PERFORMANCE SEGMENT
<TABLE>
<CAPTION>
THIRD QUARTER FIRST NINE MONTHS
(Dollars in millions) 1998 1997 CHANGE 1998 1997 CHANGE
<S> <C> <C> <C> <C> <C> <C>
Sales $635 $645 (2)% $1,898 $1,989 (5)%
Operating earnings 111(1) 116 (4)% 311(1) 364 (15)%
</TABLE>
(1) Includes charge of $11 million for violation of the Sherman Act.
Sales volumes were higher during third quarter for most product lines, although
selling prices were generally under pressure. Operating earnings for the segment
overall were positively impacted by significantly lower costs for raw materials
and energy and cost structure improvements, but negatively impacted by
recognition of a charge for violation of the Sherman Act.
Specialty plastics sales volumes improved reflecting good markets and new
applications for EASTAR and SPECTAR. Although acetate tow prices were lower than
third quarter 1997, business conditions for acetate tow improved with higher
sales volume third quarter. Coatings, inks and resins sales volumes for the
quarter were strong, particularly for solvents, but the strong competitive
environment and industry overcapacity pressured selling prices. Performance
chemicals sales and earnings declined for third quarter and nine months,
reflecting the effect of discontinued businesses, industry overcapacity,
competitive pricing and recognition of a fine for violation of the Sherman Act.
Sales and earnings for fine chemicals improved third quarter, reflecting cost
recovery related to custom manufacturing projects.
CORE PLASTICS SEGMENT
<TABLE>
<CAPTION>
THIRD QUARTER FIRST NINE MONTHS
(Dollars in millions) 1998 1997 CHANGE 1998 1997 CHANGE
<S> <C> <C> <C> <C> <C> <C>
Sales $335 $325 3% $1,024 $994 3%
Operating earnings (loss) 3 (10) - 25 (35) -
</TABLE>
Container plastics results for third quarter and nine months reflected
substantially higher sales volume for EASTAPAK polymers following the second
quarter startup of new manufacturing facilities in Rotterdam and Argentina.
Preproduction costs for third quarter decreased, although for nine months were
higher than in 1997. EASTAPAK polymers selling prices, although significantly
higher for nine months, were pressured in third quarter by industry
overcapacity. Polyethylene selling prices and margins were negatively impacted
by the effect of excess industry capacities for ethylene and polyethylene.
However, this was offset partially by increased sales of specialty grade
polyethylene performance polymers and lower raw materials cost. Segment earnings
were positively impacted by cost structure improvements.
CHEMICAL INTERMEDIATES SEGMENT
<TABLE>
<CAPTION>
THIRD QUARTER FIRST NINE MONTHS
(Dollars in millions) 1998 1997 CHANGE 1998 1997 CHANGE
<S> <C> <C> <C> <C> <C> <C>
Sales $161 $175 (8)% $522 $541 (4)%
Operating earnings 27 42 (36)% 102 110 (7)%
</TABLE>
Generally lower selling prices attributable to excess industry capacity and
competitive market conditions negatively impacted sales and earnings for the
quarter and nine months, but the effect was partially offset by higher volumes,
cost structure improvements and favorable raw materials and energy costs.
(For supplemental analysis of Specialty and Performance, Core Plastics, and
Chemical Intermediates segment results, see Exhibit 99.01 to this Form 10-Q.)
10
<PAGE> 11
SUMMARY BY CUSTOMER LOCATION
SALES BY REGION
<TABLE>
<CAPTION>
THIRD QUARTER FIRST NINE MONTHS
(Dollars in millions) 1998 1997 CHANGE 1998 1997 CHANGE
<S> <C> <C> <C> <C> <C> <C>
United States and Canada $736 $763 (4)% $2,268 $2,310 (2)%
Asia Pacific 106 119 (11) 310 390 (21)
Europe, Middle East, and Africa 188 187 1 590 581 2
Latin America 101 76 33 276 243 14
</TABLE>
Sales in the United States for third quarter 1998 were $696 million, down 3%
from 1997 third quarter sales of $718 million. For nine months, sales in the
United States were $2.14 billion compared to $2.18 billion in 1997. For the
quarter and nine months, significant sales volume improvements were offset by
selling price declines reflecting global economic conditions.
Sales outside the United States for third quarter 1998 were $435 million, up 2%
from 1997 third quarter sales of $427 million. Sales outside the United States
were 38% of total sales in third quarter 1998 compared with 37% for third
quarter 1997. For nine months, sales outside the United States were $1.31
billion, a decrease of 3% from 1997 sales of $1.34 billion. Decreased sales in
Asia Pacific for nine months are mainly a result of lower sales volumes and
prices for acetate tow resulting from excess industry capacity, although for the
quarter, acetate tow volumes improved. Some decline in Asia Pacific is also
attributable to the region's weakened economies. Sales in Latin America reflect
strong demand and new capacity for EASTAPAK polymers following the second
quarter startup of a new manufacturing site in Argentina. A strong U.S. dollar
against foreign currencies resulted in unfavorable currency exchange effects,
primarily in Europe.
SUMMARY OF CONSOLIDATED RESULTS
<TABLE>
<CAPTION>
THIRD QUARTER FIRST NINE MONTHS
(Dollars in millions) 1998 1997 CHANGE 1998 1997 CHANGE
<S> <C> <C> <C> <C> <C> <C>
SALES $1,131 $1,145 (1)% $3,444 $3,524 (2)%
</TABLE>
Sales volumes for most product lines and regions improved for third quarter,
with significant improvement in the Core Plastics segment. However, the effect
of increased volumes was offset by generally lower selling prices reflecting
global economic conditions. For nine months overall volume was moderately ahead
of 1997 but the effect of generally lower selling prices and a shift in the mix
of products sold resulted in lower sales. For the quarter and nine months, sales
were negatively affected by the strength of the U.S. dollar against foreign
currencies, primarily in Europe.
<TABLE>
<CAPTION>
THIRD QUARTER FIRST NINE MONTHS
(Dollars in millions) 1998 1997 CHANGE 1998 1997 CHANGE
<S> <C> <C> <C> <C> <C> <C>
GROSS PROFIT $ 261 $ 288 (9)% $ 812 $ 831 (2)%
As a percentage of sales 23.1% 25.2% 23.6% 23.6%
</TABLE>
Although lower raw materials and energy costs and productivity gains had a
positive impact on gross profit, declining selling prices and a charge for
violation of the Sherman Act caused a decline in gross profit for the quarter
and nine months.
11
<PAGE> 12
<TABLE>
<CAPTION>
THIRD QUARTER FIRST NINE MONTHS
(Dollars in millions) 1998 1997 CHANGE 1998 1997 CHANGE
<S> <C> <C> <C> <C> <C> <C>
SELLING AND GENERAL
ADMINISTRATIVE EXPENSES $ 75 $ 85 (12)% $235 $247 (5)%
As a percentage of sales 6.6% 7.4% 6.8% 7.0%
</TABLE>
The decrease in selling and general administrative expenses reflects timing of
expenditures and a reduction in labor hours.
<TABLE>
<CAPTION>
THIRD QUARTER FIRST NINE MONTHS
(Dollars in millions) 1998 1997 CHANGE 1998 1997 CHANGE
<S> <C> <C> <C> <C> <C> <C>
RESEARCH AND
DEVELOPMENT COSTS $ 45 $ 55 (18)% $139 $145 (4)%
As a percentage of sales 4.0% 4.8% 4.0% 4.1%
</TABLE>
Due to timing of expenditures, research and development costs were lower for the
quarter, but were relatively unchanged for nine months.
<TABLE>
<CAPTION>
THIRD QUARTER FIRST NINE MONTHS
(Dollars in millions) 1998 1997 CHANGE 1998 1997 CHANGE
<S> <C> <C> <C> <C> <C> <C>
INTEREST COSTS $32 $31 $97 $91
LESS CAPITALIZED INTEREST 4 5 27 24
--- --- --- ---
NET INTEREST EXPENSE $28 $26 8% $70 $67 4%
=== === === ===
</TABLE>
Interest costs were higher for the quarter and nine months as a result of an
increase in long-term borrowings consistent with the Company's capital expansion
and operating activities.
<TABLE>
<CAPTION>
THIRD QUARTER FIRST NINE MONTHS
(Dollars in millions) 1998 1997 CHANGE 1998 1997 CHANGE
<S> <C> <C> <C> <C> <C> <C>
OTHER INCOME, NET $10 $26 (62)% $18 $31 (42)%
</TABLE>
Other income and other charges include interest income, royalty income, gains
and losses on asset sales, results from equity investments, foreign exchange
transactions, and other items. Amounts for third quarter 1997 and nine months
1997 include a gain from a patent infringement award.
LIQUIDITY, CAPITAL RESOURCES AND OTHER FINANCIAL DATA
<TABLE>
<CAPTION>
FINANCIAL INDICATORS 1998 1997
<S> <C> <C>
For the first nine months
Ratio of earnings to fixed charges 4.2x 4.6x
At the period ended September 30 and December 31
Current ratio 1.7x 1.6x
Percent of long-term borrowings to total capital 48% 49%
Percent of floating-rate borrowings to total borrowings 16% 12%
</TABLE>
<TABLE>
<CAPTION>
CASH FLOW FIRST NINE MONTHS
(Dollars in millions) 1998 1997
<S> <C> <C>
Net cash provided by (used in)
Operating activities $ 459 $ 509
Investing activities (420) (572)
Financing activities 18 75
----- -----
Net change in cash and cash equivalents $ 57 $ 12
===== =====
Cash and cash equivalents at end of period $ 86 $ 36
===== =====
</TABLE>
12
<PAGE> 13
Cash provided by operating activities decreased from nine months 1997 due to
changes in receivables and inventories and timing of expenditures, including
those related to pension funding. Cash used in investing activities declined as
a result of reduced capital expansion activity in 1998, slightly offset by the
acquisition of a specialty polymers business. Cash provided by financing
activities in 1998 reflects an increase in commercial paper borrowings and
proceeds received from a $23 million issuance of tax-exempt bonds. Cash provided
by financing activities in 1997 reflects treasury stock purchases and proceeds
received from a $300 million issuance of 7.60% debentures due February 1, 2027
which were used to repay commercial paper borrowings outstanding at that time.
Also reflected in cash flows from financing activities is the payment of
dividends in both years.
CAPITAL EXPENDITURES AND OTHER COMMITMENTS
Eastman anticipates that total capital expenditures in 1998 will be
approximately $500-550 million and depreciation expense is expected to be
approximately $350 million. For 1999 the Company estimates that capital
expenditures will be approximately $450-500 million and depreciation is expected
to increase somewhat due to full year depreciation on facilities which began
operations in 1998. Long-term commitments related to planned capital
expenditures are not material.
LIQUIDITY
Eastman has access to an $800 million revolving credit facility ("Credit
Facility") expiring in December 2000. Although the Company does not have any
amounts outstanding under the Credit Facility, any such borrowings would be
subject to interest at varying spreads above quoted market rates, principally
LIBOR. The Credit Facility also requires a facility fee on the total commitment
that varies based on Eastman's credit rating. The annual rate for such fee was
.075% as of September 30, 1998. The Credit Facility contains a number of
covenants and events of default, including the maintenance of certain financial
ratios. Eastman was in compliance with all such covenants for all periods.
Eastman utilizes commercial paper, generally with maturities of 90 days or less,
to meet its liquidity needs. The Company's commercial paper, supported by the
Credit Facility, is classified as long-term borrowings because the Company has
the ability and intent to refinance such borrowings long term. As of September
30, 1998 the Company's commercial paper outstanding balance was $296 million at
an effective interest rate of 5.72%. At September 30, 1997 the Company's
commercial paper outstanding balance was $189 million at an effective interest
rate of 5.7%.
During the third quarter 1998 the Securities and Exchange Commission declared
effective the Company's registration statement to issue up to $1 billion of debt
or equity securities. No securities have been sold from this shelf registration.
Also during third quarter the Company issued $23 million tax-exempt bonds at
variable interest rates, the proceeds of which are to be used for the
construction of certain solid waste disposal facilities in Kingsport, Tennessee.
The proceeds from this issuance are held in trust as restricted cash and become
available to the Company as expenditures are made for construction of the
designated solid waste disposal facilities.
The Company repurchased a total of 5,935,301 shares of common stock during 1995,
1996 and 1997 at a cost of $369 million, and is currently authorized to purchase
up to an additional $231 million of its common stock. Repurchased shares may be
used to meet common stock requirements for compensation and benefit plans and
other corporate purposes. In March 1998 the Company issued 536,188 treasury
shares to the Eastman Employee Stock Ownership Plan in partial settlement of the
1997 Eastman Performance Plan obligation.
Existing sources of capital, together with cash flows from operations, are
expected to be sufficient to meet the Company's foreseeable cash flow
requirements.
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<TABLE>
<CAPTION>
DIVIDENDS THIRD QUARTER FIRST NINE MONTHS
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Cash dividends declared per share $ .44 $ .44 $ 1.32 $ 1.32
</TABLE>
YEAR 2000 ISSUE
The year 2000 issue is the result of computer programs written using two digits
rather than four to define the applicable year. Without corrective action,
programs with time-sensitive software could potentially recognize a date ending
in "00" as the year 1900 rather than the year 2000, causing many computer
applications to fail or create erroneous results. This is a significant issue
for most, if not all, companies, with far reaching implications, some of which
cannot be anticipated or predicted with any degree of certainty. Year 2000
problems could affect many of the Company's processes, including production,
distribution, research and development, financial, administrative and
communications operations.
The Company's date dependent systems can be summarized into three categories:
computerized business systems; computerized distributed control systems for
manufacturing; and other devices using embedded chips.
Internal identification of all business, manufacturing and embedded chip devices
for year 2000 compliance is complete. An outside consultant has evaluated our
identification, assessment, and testing process related to manufacturing and
embedded equipment and concluded that the results of our internal processes are
reliable.
Remediation and final acceptance testing of the Company's existing business
computer systems is on target for completion by yearend 1998. Very few problems
have surfaced in this area, primarily because of the Company's aggressive
implementation of enterprise software and standardized desktop/office software
earlier in this decade.
Parallel assessment and remediation of date dependent manufacturing control
systems and devices is proceeding. Manufacturers of these products are being
contacted to ascertain year 2000 compliance and product compliancy responses
have been received for more than seventy percent of identified products. A
minimal number of devices have been determined to be non-compliant, with most
requiring software upgrades at minimal cost.
A testing plan has been approved by senior management, which will evaluate all
control systems for date sensitive issues and test a representative sample of
manufacturing control systems. The Company's current goal for manufacturing
control systems is to complete assessment, testing and most of the remediation
or workaround solutions on critical control systems early in 1999. However,
because of plant scheduling and equipment lead times, some upgrade work may
occur later in the year. Some low priority embedded devices will not be tested
or remediated but will be managed by contingency plans. Although some risk is
inherent with this plan, the Company believes the risk is controllable with
contingency plans being developed and that this plan does not pose significant
problems for the Company's various manufacturing distributed control systems.
Testing, remediation or workaround solutions for other devices with embedded
chips continues on a schedule with a targeted completion date at end of first
quarter 1999.
As a result of assessments, modifications, upgrades, or replacements planned,
ongoing or already completed, the Company believes the year 2000 issue as it
relates to the Company's own date dependent systems will not pose significant
problems for the Company's business, processes and operations. The Company
believes that the costs of modifications, upgrades, or replacements of software,
hardware, or capital equipment which would not be incurred but for year 2000
compatibility requirements have not and will not have a material impact on the
Company's financial position or results of operations. Overall costs
attributable to the Company's year 2000 efforts, incurred over a period of
several years, are expected to be less than $20 million.
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<PAGE> 15
The Company has identified and is communicating with customers, suppliers, and
other critical service providers to determine if entities with which the Company
transacts business have an effective plan in place to address the year 2000
issue, and to determine the extent of the Company's vulnerability to the failure
of third parties to remediate their own year 2000 issue. The Company has
received affirmative readiness responses from approximately ninety percent of
its materials suppliers and seventy-five percent of other key service providers.
The Company is relying on statements of service and goods suppliers and is not
auditing suppliers' preparation plans. Risks associated with this approach are
being identified and contingency plans will be developed.
Based on current plans and efforts to date, the Company does not anticipate that
year 2000 problems will have a material effect on results of operations or
financial condition. However, the above expectations are subject to
uncertainties. For example, if the Company is unsuccessful in identifying or
remediating all year 2000 problems in its critical operations, or if it is
affected by the inability of suppliers or major customers to continue operations
due to such a problem, then the Company's results of operations or financial
condition could be materially impacted.
HOLSTON DEFENSE CORPORATION
Holston Defense Corporation ("Holston"), a wholly owned subsidiary of the
Company, has managed the government-owned Holston Army Ammunition Plant in
Kingsport, Tennessee (the "Facility") since 1949 under contract with the
Department of Army ("DOA"). The current contract will terminate December 31,
1998 (the "Contract"). The DOA has concluded the previously reported bidding
process and has awarded a contract to manage the Facility to a third party
commencing January 1, 1999. Accordingly, Holston will not continue to manage the
Facility after termination of the Contract.
The Contract provides for reimbursement of allowable costs incurred by Holston.
Reimbursement of certain previously recognized pension and postretirement
benefit costs will be credited to earnings at the time of receipt of
reimbursement from the DOA. The Company has recognized liabilities associated
with Holston's curtailment of pension, other postretirement benefits and other
termination costs in accordance with generally accepted accounting principles.
The recording of previously unrecognized liabilities second quarter had no
effect on earnings because the Company also recorded a receivable from the DOA
for reimbursement of such amounts. The Company expects the DOA to reimburse
substantially all such costs and payments, but delays in reimbursement may
require the Company to advance funds to pay such costs. The Company expects no
significant impact on financial position or results of operations related to
termination of the Contract. See Note 3 to Consolidated Financial Statements.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997 the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which requires enterprises to report
selected information about operating segments and related disclosures about
products and services, geographic areas, and major customers. The Company will
adopt this standard effective with yearend 1998 financial reporting and expects
no material change in its current segment structure.
In February 1998 the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits," which standardizes and improves
disclosures related to pensions and other postretirement benefits. The Company
will comply with the new disclosure requirements of this standard which become
effective for the Company's yearend 1998 financial reporting.
In June 1998 the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which standardizes the accounting for
derivative instruments, including certain derivative instruments embedded in
other contracts, by requiring that an entity recognize those items as assets or
liabilities in the statement of financial position and measure them at fair
value. The Company is evaluating the effect of this standard on its financial
statements and will comply with requirements of the new standard which become
effective for the Company's 2000 financial reporting cycle. Given current
activities, the Company expects no material effect on net earnings, but the
standard will likely have an impact on other comprehensive income.
Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use," was issued by the American
Institute of Certified Public Accountants in March 1998 and
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<PAGE> 16
requires capitalization of certain internal-use computer software costs which
will subsequently be amortized over a three year period. The Company will comply
with the requirements of this SOP effective for the Company's 1999 financial
reporting. The Company's current practice has been to expense such costs as
incurred. Consequently, the standard will result in a favorable effect on
earnings in the year of adoption.
OUTLOOK
Given the current economic environment, the Company anticipates it will be a
challenge to achieve an improvement in earnings before non-recurring charges for
the fourth quarter 1998. Current global economic conditions and industry
overcapacities are expected to continue to negatively impact selling prices for
many products.
Within the Core Plastics segment, demand and volume for EASTAPAK polymers are
expected to continue to grow. Continued SPECTAR copolymer volume growth is also
expected due to strong demand. Recently introduced polyethylene performance
polymers, MXSTEN and TENITE HIFOR, are expected to continue to gain market
acceptance. Within the Chemical Intermediates segment, the completed oxo plant
expansion is expected to produce continued volume gains.
The Company continues to explore options for diminishing the impact of the
container plastics business on its portfolio, although it is unlikely that any
action will be announced prior to year end 1998.
Interest expense and depreciation are expected to increase and capitalized
interest is expected to decline for the remainder of 1998 following the startup
earlier this year of three new manufacturing facilities.
The Company is making good progress toward its Advantaged Cost 2000 initiative
of $500 million in cost structure improvements by the year 2000. Improvements in
labor and material costs and productivity gains totaling over $100 million were
achieved in 1997. The Company expects to continue its progress through on-going
business process improvements and increased volumes from new and existing
plants.
The above-stated expectations, other forward-looking statements in this report,
and other statements of the Company relating to matters such as cost reduction
targets; additional available manufacturing capacity; capital spending and
depreciation; the year 2000 issue; global economic conditions; and supply and
demand, volumes, price, costs, margins, and sales and earnings expectations and
strategies for individual products, businesses, and segments, as well as for the
whole of the Company, are based upon certain underlying assumptions. These
assumptions are in turn based upon internal estimates and analyses of current
market conditions and trends, management plans and strategies, economic
conditions, and other factors and are subject to risks and uncertainties
inherent in projecting future conditions and results.
The forward-looking statements in this Management's Discussion and Analysis are
based upon the following assumptions and those mentioned in the context of the
specific statements: continued good overall demand for the Company's products;
no significant impact from further deterioration of global economic conditions;
downward pressure on selling prices overall; continued demand growth worldwide
for EASTAPAK polymers; continued capacity additions within the PET industry
worldwide; capacity additions within the ethylene industry worldwide; declines
in preproduction expenses related to new manufacturing facilities; stabilization
of acetate tow demand and volume; availability of key purchased raw materials
with stabilization of or no significant increase in costs; continuing good
market reception of new polyethylene products and continued shift of
polyethylene product mix to less commodity products; availability of recent or
planned manufacturing capacity increases for container plastics, SPECTAR,
coatings, and oxo products; and labor and material productivity gains sufficient
to meet targeted cost structure reductions. Actual results could differ
materially from current expectations if one or more of these assumptions prove
to be inaccurate or are unrealized.
- -----------------------------------
EASTAPAK, SPECTAR, EASTAR, MXSTEN, and TENITE HIFOR are trademarks of Eastman
Chemical Company.
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<PAGE> 17
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As previously announced, on September 30, 1998 Eastman entered into a
voluntary plea agreement with the Department of Justice and agreed to
pay an $11 million fine to resolve a charge brought against the
Company for violation of Section One of the Sherman Act. Under the
agreement, Eastman entered a plea of guilty to one count of
price-fixing for sorbates, a class of food preservatives, from
January 1995 through June 1997. The plea agreement was approved by
the United States District Court for the Northern District of
California in San Francisco on October 21, 1998. The Company
recognized the entire fine in third quarter 1998 and will pay the
fine in installments over a period of five years.
As previously reported, in May 1997 the Company received notice from
the Tennessee Department of Environment and Conservation ("TDEC")
alleging that the manner in which hazardous waste was fed into
certain boilers at the Tennessee Eastman facility in Kingsport,
Tennessee violated provisions of the Tennessee Hazardous Waste
Management Act. Based upon subsequent communications with the TDEC
and the U.S. Environmental Protection Agency, the Company believes
that these agencies may be contemplating enforcement proceedings
which, if commenced, could result in monetary sanctions in excess of
the $100,000 threshold of Regulation S-K, Item 103, Instruction 5.C.
under the Securities Exchange Act of 1934 for reporting such
contemplated proceedings in this Report.
The Company's operations are parties to or targets of lawsuits,
claims, investigations, and proceedings, including product liability,
personal injury, patent, commercial, contract, environmental,
antitrust, health and safety, and employment matters, which are being
handled and defended in the ordinary course of business. While the
Company is unable to predict the outcome of these matters, it does
not believe, based upon currently available facts, that the ultimate
resolution of any of such pending matters, including the TDEC
allegations described in the preceding paragraph, will have a
material adverse effect on the Company's financial position or
results of operations.
ITEM 2. CHANGES IN SECURITIES
(c) On July 1, 1998, the Company granted options to purchase an
aggregate of 816 shares of its common stock on or after January 1,
1999 at an exercise price of $61.375 per share. Such options were
granted to non-employee directors who elected under the 1996
Non-Employee Director Stock Option Plan to receive options in lieu of
all or a portion of their semi-annual cash retainer fee. The Company
issued the options in reliance upon the exemption from registration of
Section 4(2) of the Securities Act of 1933.
17
<PAGE> 18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits filed as part of this report are listed in the Exhibit
Index appearing on page 20.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the
quarter ended September 30, 1998.
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<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Eastman Chemical Company
Date: October 28, 1998 By: /s/ Allan R. Rothwell
----------------------------------
Allan R. Rothwell
Senior Vice President and
Chief Financial Officer
(On behalf of the Registrant and as
Principal Financial Officer)
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<TABLE>
<CAPTION>
EXHIBIT INDEX
EXHIBIT DESCRIPTION SEQUENTIAL
NUMBER PAGE
NUMBER
<S> <C> <C>
3.01 Amended and Restated Certificate of Incorporation of Eastman
Chemical Company (incorporated herein by reference to Exhibit 3.01
to Eastman Chemical Company's Registration Statement on Form S-1,
File No. 33-72364, as amended)
3.02 Amended and Restated By-laws of Eastman Chemical Company, as
amended October 1, 1994 (incorporated by reference to Exhibit 3.02
to Eastman Chemical Company's Annual Report on Form 10-K for the
year ended December 31, 1994)
4.01 Form of Eastman Chemical Company Common Stock certificate
(incorporated herein by reference to Exhibit 3.02 to Eastman
Chemical Company's Annual Report on Form 10-K for the year ended
December 31, 1993)
4.02 Stockholder Protection Rights Agreement dated as of December 13,
1993, between Eastman Chemical Company and First Chicago Trust
Company of New York, as Rights Agent (incorporated herein by
reference to Exhibit 4.4 to Eastman Chemical Company's Registration
Statement on Form S-8 relating to the Eastman Investment Plan, File
No. 33-73810)
4.03 Indenture, dated as of January 10, 1994, between Eastman Chemical
Company and The Bank of New York, as Trustee (incorporated herein
by reference to Exhibit 4(a) to Eastman Chemical Company's current
report on Form 8-K dated January 10, 1994 (the "8-K"))
4.04 Form of 6 3/8% Notes due January 15, 2004 (incorporated herein by
reference to Exhibit 4(c) to the 8-K)
4.05 Form of 7 1/4% Debentures due January 15, 2024 (incorporated herein
by reference to Exhibit 4(d) to the 8-K)
4.06 Officers' Certificate pursuant to Sections 201 and 301 of the
Indenture (incorporated herein by reference to Exhibit 4(a) to
Eastman Chemical Company's Current Report on Form 8-K dated June 8,
1994 (the "June 8-K"))
4.07 Form of 7 5/8% Debentures due June 15, 2024 (incorporated herein by
reference to Exhibit 4(b) to the June 8-K)
4.08 Form of 7.60% Debentures due February 1, 2027 (incorporated herein
by reference to Exhibit 4.08 to Eastman Chemical Company's Annual
Report on Form 10-K for the year ended December 31, 1996 (the "1996
10-K"))
</TABLE>
20
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<TABLE>
<CAPTION>
EXHIBIT INDEX
EXHIBIT DESCRIPTION SEQUENTIAL
NUMBER PAGE
NUMBER
<S> <C> <C>
4.09 Officer's Certificate pursuant to Sections 201 and 301 of the
Indenture related to 7.60% Debentures due February 1, 2027
(incorporated herein by reference to Exhibit 4.09 to the 1996 10-K)
4.10 Credit Agreement, dated as of December 19, 1995 (the "Credit
Agreement") among Eastman Chemical Company, the Lenders named
therein, and The Chase Manhattan Bank, as Agent (incorporated
herein by reference to Exhibit 4.08 to Eastman Chemical
Company's Annual Report on Form 10-K for the year ended
December 31, 1995)
*10.01 Eastman ESOP Excess Plan (as amended) 22
*10.02 Eastman Executive Deferred Compensation Plan (as amended) 32
12.01 Statement re: Computation of Ratios of Earnings to Fixed Charges 45
27.01 Financial Data Schedule (for SEC use only)
99.01 Supplemental Business Segment Information 46
- -----------------------------------------------------------------------------------------------
</TABLE>
*Management contract or compensatory plan or arrangement filed pursuant to Item
601(b)(10)(ii) of Regulation S-K.
21
<PAGE> 1
EXHIBIT 10.01
EASTMAN ESOP EXCESS PLAN
EASTMAN CHEMICAL COMPANY
22
<PAGE> 2
EASTMAN ESOP EXCESS PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
TITLE PAGE
<S> <C> <C>
Preamble
Section 1. DEFINITIONS
Section 2. ALLOCATIONS
Section 3. DESCRIPTION OF STOCK ACCOUNT
Section 4. TRANSFERS TO INTEREST-BEARING ACCOUNT
Section 5. PAYMENT OF ACCOUNTS
Section 6. PAYMENT OF DEFERRED COMPENSATION AFTER DEATH
Section 7. ACCELERATION OF PAYMENT FOR HARDSHIP
Section 8. PARTICIPANT'S RIGHTS UNSECURED
Section 9. NO RIGHT TO CONTINUED EMPLOYMENT
Section 10. STATEMENT OF ACCOUNT
Section 11. DEDUCTIONS
Section 12. ADMINISTRATION
Section 13. AMENDMENT
Section 14. GOVERNING LAW
Section 15. CHANGE IN CONTROL
Section 16. COMPLIANCE WITH SECURITIES LAWS
Section 17. SUCCESSORS AND ASSIGNS
</TABLE>
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<PAGE> 3
EASTMAN ESOP EXCESS PLAN
PREAMBLE. The Eastman ESOP Excess Plan is intended to be an unfunded,
non-qualified deferred compensation arrangement for a select group of management
or highly compensated employees of Eastman Chemical Company ("the Company") and
certain of its subsidiaries, under the Employee Retirement Income Security Act
of 1974, as amended, and shall be so interpreted. This Plan is designed to
provide benefits payable out of the Company's general assets where certain
benefits cannot be paid under the Eastman Employee Stock Ownership Plan (the
"ESOP") because of Internal Revenue Code Section 401(a)(17) and the provisions
of the ESOP that implement that Section. This Eastman ESOP Excess Plan is
adopted effective February 2, 1995.
SECTION 1. DEFINITIONS.
SECTION 1.1. "Account" means the individual Interest-Bearing Account or
Stock Account maintained for a Participant.
SECTION 1.2. "Affiliated Company" has the same meaning as in the ESOP.
SECTION 1.3. "Board" means the Board of Directors of the Company.
SECTION 1.4. "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 August 1, 1993,
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 of the
Company, or any employee benefit plan(s) sponsored by the Company or
any subsidiary of the Company, 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 at 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, 1994 (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,
1994 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 of the Company.
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 to be so considered. Such determination shall be
effective only if it is made by the Committee prior to the occurrence
of an event that
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<PAGE> 4
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.
SECTION 1.5. "Committee" means the Compensation and Management
Development Committee of the Board.
SECTION 1.6. "Common Stock" means the $.01 par value common stock of
the Company.
SECTION 1.7. "Company" means Eastman Chemical Company.
SECTION 1.8. "Effective Date" of an election means (i) the date such
election is made, if such election is made prior to the close of
trading on the New York Stock Exchange on a day on which the Common
Stock is traded on the New York Stock Exchange, or (ii) if such
election is made after the close of trading on the New York Stock
Exchange on a given day or at any time on a day on which no sales of
Common Stock are made on the New York Stock Exchange, then on the next
business day on which the Common Stock is traded on the New York Stock
Exchange.
SECTION 1.9. "Eligible Employee" means any Participant in the ESOP.
SECTION 1.10. "ESOP" means the Eastman Employee Stock Ownership Plan,
as the same now exists or may be amended hereafter.
SECTION 1.11. "ESOP Contribution Date" means the date, if any, on which
the Trustee of the ESOP receives the Company's contributions to the
ESOP for a particular Plan Year.
SECTION 1.12. "ESOP Payout Percentage" means the percentage amount of
an Eligible Employee's "Compensation" (as defined in the ESOP) to which
such Eligible Employee is entitled as an allocation, whether such
allocation is in the form of cash, Common Stock, or a combination
thereof, under the ESOP for a particular Plan Year.
SECTION 1.13. "Excess Compensation" means the excess, if any, of (1)
an Employee's "Participating Earnings," as specified in Section 2.11(a)
of the ESOP, over (2) the dollar amount referred to in Section 2.11(b)
of the ESOP.
SECTION 1.14. "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
SECTION 1.15. "Interest-Bearing Account" means the account established
by the Company for a Participant pursuant to Section 4, which shall
bear interest as described in Section 4. The maintenance of individual
Interest-Bearing Accounts is for bookkeeping purposes only.
SECTION 1.16. "Interest Rate" means the monthly average of bank prime
lending rates to most favored customers as published in The Wall Street
Journal, such average to be determined as of the last day of each
month.
SECTION 1.17. "Participant" means a person who in one or more years
receives an allocation pursuant to this Plan.
SECTION 1.18. "Plan" means this Eastman ESOP Excess Plan.
SECTION 1.19. "Plan Year" has the same meaning as in the ESOP.
SECTION 1.20. "Section 16 Insider" means a Participant who is, with
respect to the Company, subject to Section 16 of the Exchange Act.
SECTION 1.21. "Stock Account" means the account established by the
Company for each Participant, the performance of which shall be
measured by reference to the performance of the
25
<PAGE> 5
ESOP accounts maintained for participants in the ESOP. The maintenance
of individual Stock Accounts is for bookkeeping purposes only.
SECTION 1.22. "Valuation Date" means each business day.
SECTION 2. ALLOCATIONS. For any Plan Year (including, without limitations,
the 1994 Plan Year) in which an Eligible Employee has Excess
Compensation, at such time, if any, as the Company makes a contribution
to the ESOP with respect to such Plan Year, the Company shall credit to
the Eligible Employee's Stock Account under this Plan, an amount equal
to the product of (1) the amount of such Eligible Employee's Excess
Compensation multiplied by (2) the ESOP Payout Percentage.
SECTION 3. DESCRIPTION OF STOCK ACCOUNT
SECTION 3.1. GENERAL. The performance results of the Stock Account
(i.e., the return on hypothetical investments in the Stock Account)
generally are intended to mirror the results of the ESOP accounts
maintained for ESOP participants. Except as described below, amounts in
a Participant's Stock Account are hypothetically invested in the same
manner as funds held in the ESOP. ESOP funds are invested primarily in
Common Stock, but may also be invested in other types of securities or
in cash. "Units" representing hypothetical investments in Common Stock
and other ESOP assets are allocated to each participant's account. Unit
values will increase or decrease based on the market prices of the
securities held in the ESOP and on dividends and interest received on
ESOP assets.
Notwithstanding the foregoing, in the event that any dividend is paid
on the Common Stock and such dividend is paid directly to ESOP
participants, rather than remaining in the ESOP's assets, then the
Stock Account of each Participant who had a balance in his or her Stock
Account on the record date for such dividend shall be credited with the
number of additional units, and fractions thereof, obtained by
multiplying (i) the dollar value with which each unit in the ESOP would
have been credited had such dividend not been paid through to ESOP
participants by (ii) the number of units credited to such Participant's
Stock Account as of the ex dividend date with respect to such dividend.
The use of units is merely a bookkeeping convenience; the units are not
actual shares of Common Stock. The Company will not reserve or
otherwise set aside any Common Stock for or to any Stock Account. The
maximum number of shares of Common Stock that may be hypothetically
purchased through allocations to Stock Accounts under this Plan is
100,000.
SECTION 3.2. MANNER OF CREDITING STOCK ACCOUNT. If a Participant is
entitled to an allocation pursuant to Section 2, effective as of the
ESOP Contribution Date, his or her Stock Account shall be credited with
that number of units, and fractions thereof, obtained by dividing (1)
the dollar amount of such allocation as described in Section 2 by (2)
the unit value on the ESOP Contribution Date.
SECTION 3.1. ELECTION OUT OF THE STOCK ACCOUNT. If a Participant elects
pursuant to Section 4 to transfer an amount from his or her Stock
Account to his or her Interest-Bearing Account, effective as of the
election's Effective Date, (i) his or her Interest-Bearing Account
shall be credited with a dollar amount equal to the amount obtained by
multiplying the number of units to be transferred by the unit value on
the election's Effective Date, and (ii) his or her Stock Account shall
be reduced by the number of units elected to be transferred.
SECTION 3.4. DISTRIBUTIONS. Amounts in respect of units shall be
distributed in cash in accordance with Sections 5, 6, 7 and 15. For
purposes of a distribution pursuant to Sections 5, 6, 7 and 15, the
number of units to be distributed from a Participant's Stock Account
shall be valued by multiplying the number of such units by the unit
value as of the Valuation Date immediately preceding the date such
distribution is to occur.
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SECTION 3.5. PROVISION FOR SECTION 16 INSIDERS. The Stock Account of a
Section 16 Insider is not transferable by him or her to any other
person or entity other than by will or the laws of descent and
distribution. The designation of a beneficiary by a Section 16 Insider
does not constitute a transfer for this purpose.
SECTION 4. TRANSFERS TO INTEREST-BEARING ACCOUNT.
SECTION 4.1. GENERAL. Each Participant who has become a "Qualified
Participant" under Article 9 of the ESOP, or any successor provisions
thereto, may direct that an amount determined under Section 4.2 be
transferred from the Participant's Stock Account to his or her
Interest-Bearing Account at such time or times as such Participant
could make a diversification election pursuant to Article 9 of the
ESOP, or any successor provisions thereto. Amounts in a Participant's
Interest-Bearing Account are hypothetically invested in an account
which bears interest computed at the Interest Rate, compounded monthly.
SECTION 4.2. AMOUNT OF TRANSFER. A Participant who is a Qualified
Participant under the ESOP may direct the Plan to transfer from the
Participant's Stock Account to the Participant's Interest-Bearing
Account, a dollar amount equal to the value of the same portion (or
all, if applicable) of the total number of units credited to the
Participant's Stock Account as the portion of the total number of
shares of "Employer Securities" treated as acquired after 1986 which
the Participant could direct the ESOP to distribute pursuant to Article
9 of the ESOP, or any successor provisions thereto; provided, however,
that if a Participant does not transfer to the Interest-Bearing Account
the full number of units eligible for transfer in a given year, then
such untransferred units may be carried forward and eligible for
transfer in future years using substantially the same methodology as is
used for carry-forward of unused shares eligible for diversification
under Article 9 of the ESOP, or any successor provisions thereto.
SECTION 4.3. MANNER OF DIRECTING TRANSFER. A Participant's election to
transfer under this Section 4 shall be provided to the Company's Vice
President, Human Resources, during the same period during which any
diversification election pursuant to Article 9 of the ESOP, or any
successor provisions thereto, must be provided and shall be in writing.
Notwithstanding the provisions of the ESOP, any such election may not
be modified or revoked, but shall be effective as of the election's
Effective Date. No amounts transferred from a Participant's Stock
Account to a Participant's Interest-Bearing Account may subsequently be
transferred back to the Participant's Stock Account.
SECTION 5. PAYMENT OF ACCOUNTS.
SECTION 5.1. BACKGROUND. No withdrawal may be made from a Participant's
Accounts except as provided in this Section 5 and Sections 6, 7 and 15.
SECTION 5.2. MANNER OF PAYMENT. Payment of a Participant's Accounts
shall be made in a single lump sum or installments, as elected by the
Participant pursuant to this Section 5. The maximum number of annual
installments is ten. The minimum annual installment payment permitted
under such election (determined based on the value of the Participant's
Accounts as of the last Valuation Date of the calendar year in which
the Participant terminates employment, and disregarding any earnings
under this Plan after such date) shall be one thousand dollars
($1,000); this minimum shall be applied by dividing by $1,000 the value
of the Participant's Accounts as of the last Valuation Date of the
calendar year in which the Participant terminates employment, and the
result, rounded down to the next largest whole number, shall be the
maximum number of annual installments permitted. All payments from the
Plan shall be made in cash.
SECTION 5.3. TIMING OF PAYMENTS. Payments shall be made by the fifth
business day in March and shall commence in any year elected by the
Participant pursuant to this Section 5 up
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<PAGE> 7
through the tenth year following the year in which the Participant
retires, becomes disabled, or for any other reason ceases to be an
employee of the Company or any of its Affiliated Companies, but in no
event shall commence later than the year the Participant reaches age
71.
SECTION 5.4. VALUATION. The amount of each payment shall be equal to
the value, as of the preceding Valuation Date, of the Participant's
Accounts, divided by the number of installments remaining to be paid.
If a Participant's Accounts are to be paid in installments and the
Participant has a balance in both his or her Stock Account and his or
her Interest-Bearing Account at the time of the payment of an
installment, the amount that shall be distributed from each Account
shall be proportional to the value of the balance in each such Account
as of the immediately preceding Valuation Date.
SECTION 5.5. PARTICIPANT PAYMENT ELECTIONS. Except as provided in
Section 5.6, an election by a Participant concerning the method of
payment under Section 5.2 or the commencement of payments under Section
5.3 must be made at least one (1) year before the Participant's
termination of employment, and must be made on forms provided by the
Company. If a Participant does not have a valid election in force at
the time of termination of employment, then (i) if the value of his
Accounts as of the last Valuation Date of the calendar year in which he
terminates employment is less than ten thousand dollars ($10,000), then
his Accounts shall be paid in a single lump sum; (ii) if the value of
his Accounts as of the last Valuation Date of the calendar year in
which he terminates employment is ten thousand dollars ($10,000) or
more, then his Accounts shall be paid in ten (10) annual installments;
and (iii) regardless of whether payment is made in a single lump sum or
installments, payment shall commence by the fifth business day in March
following the calendar year in which the Participant terminates
employment.
Section 5.6. SPECIAL PAYMENT ELECTION RULES. Notwithstanding Sections
5.2, 5.3, and 5.5, if a Participant terminates employment less than one
(1) year before the date he first becomes eligible to participate in
this plan, then an election made by the Participant under this Section
5 no later than thirty (30) days after the date he first becomes
eligible to participate in this Plan shall be valid. Also
notwithstanding Sections 5.2, 5.3, and 5.5, Participants who retire or
otherwise terminate employment no later than January 1, 1999 shall,
subject to the restrictions of Sections 5.2 and 5.3, have the manner
and commencement of payment of their Account determined by the Vice
President, Human Resources, with respect to Participants who are not
executive officers of the Company, and by the Compensation Committee,
with respect to participants who are executive officers of the Company;
and in such event (i) the Vice President, Human Resources and the
Compensation Committee, as applicable, may expressly designate any such
decision under Sections 5.2 or 5.3 concerning time of payment of
benefits and/or form of payment as being irrevocable, and if such
designation is made, such decision may be changed only with the consent
of the Participant, or, if the Participant is deceased, the
Participant's beneficiary under this Plan (if any); and (ii) once
payments have commenced to a Participant or beneficiary under this
Plan, the form of payment shall be considered irrevocable within the
meaning of the immediately preceding sentence, regardless of whether it
is designated as such by the Vice President, Human Resources or the
Compensation Committee.
SECTION 6. PAYMENT OF DEFERRED COMPENSATION AFTER DEATH. If a
Participant dies prior to complete payment of his or her Accounts, the
balance of such Accounts, valued as of the Valuation Date immediately
preceding the date payment is made, shall be paid in a single, lump-sum
payment to the same person who would be entitled to receive survivor
benefits with respect to the Participant under the ESOP.
SECTION 7.1. ACCELERATION OF PAYMENT FOR HARDSHIP. Upon written
approval from the Company's Vice President, Human Resources, with
respect to Participants other than executive officers of the Company,
and by the Committee, with respect to Participants who are executive
officers of the
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<PAGE> 8
Company, a Participant, whether or not he or she is still employed by the
Company or any of its Affiliated Companies, may be permitted to receive all or
part of his or her Accounts if the Company's Vice President, Human Resources, or
the Committee, as applicable, determines that an emergency event beyond the
Participant's control exists which would cause such Participant severe financial
hardship if the payment of his or her Accounts were not approved. Any such
distribution for hardship shall be limited to the amount needed to meet such
emergency. If at the time of such distribution for hardship a Participant has a
balance in both his or her Stock Account and his or her Interest-Bearing
Account, then the amount to be distributed from each Account shall be determined
in accordance with the principles described in Section 5.4.
SECTION 7.2. PAYMENT TO INDIVIDUALS. Any participant in the Eastman ESOP Excess
Plan may at his or her discretion withdraw at any time all or part of that
person's account balance under the Plan. If this option is exercised the
individual will forfeit to the Corporation 10% of his or her account balance,
and will not be permitted to participate in this plan for a period of 36 months
from date any payment to a participant is made under this section.
SECTION 7.3. ACCELERATED PAYMENT. If under Eastman ESOP Excess Plan one-half or
more of the participants or one-fifth of the participants with one-half of the
value of all benefits owed exercise their option for immediate distribution in a
six month period then this will trigger immediate payout to all participants of
all benefits owed under the plans. Immediate payout under this section will not
involve reduction of the amounts paid to participants as set forth in section
7.2. Any individual that has been penalized in this six month period for
electing immediate withdrawal will be paid that penalty if payout to all
participants under this section occurs.
SECTION 8. PARTICIPANT'S RIGHTS UNSECURED. The benefits payable under this Plan
shall be paid by the Company out of its general assets. To the extent a
Participant acquires the right to receive a payment under this Plan, such right
shall be no greater than that of an unsecured general creditor of the Company.
No amount payable under this Plan may be assigned, transferred, encumbered or
subject to any legal process for the payment of any claim against a Participant.
No Participant shall have the right to exercise any of the rights or privileges
of a stockholder with respect to the units credited to his or her Stock Account.
SECTION 9. NO RIGHT TO CONTINUED EMPLOYMENT. Participation in this Plan shall
not give any employee any right to remain in the employ of the Company or any of
its Affiliated Companies. The Company and each employer Affiliated Company
reserve the right to terminate any Participant at any time.
SECTION 10. STATEMENT OF ACCOUNT. Statements will be sent no less frequently
than annually to each participant or his or her estate showing the value of the
Participant's Accounts.
SECTION 11. DEDUCTION. The Company will withhold to the extent required by law
all applicable income and other taxes with respect to amounts deferred or paid
under the Plan. Such withholding shall be deducted from sources outside of this
Plan unless the Company's Vice President, Human Resources, with respect to
Participants other than executive officers of the Company, or the Committee,
with respect to Participants who are executive officers of the Company,
determines that such withholding should be deducted from amounts that would
otherwise be credited to this Plan.
SECTION 12. ADMINISTRATION.
SECTION 12.1. RESPONSIBILITY. Except as expressly provided otherwise
herein, the Committee shall have total and exclusive responsibility to
control, operate, manage and administer the Plan in accordance with its
terms.
SECTION 12.2. AUTHORITY OF THE COMMITTEE. The Committee shall have all
the authority that may be necessary or helpful to enable it to
discharge its responsibilities with respect to the Plan. Without
limiting the generality of the preceding sentence, the Committee shall
have
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<PAGE> 9
the exclusive right: to interpret the Plan, to determine eligibility
for participation in the Plan, to decide all questions concerning
eligibility for and the amount of benefits payable under the Plan, to
construe any ambiguous provision of the Plan, to correct any default,
to supply any omission, to reconcile any inconsistency, and to decide
any and all questions arising in the administration, interpretation,
and application of the Plan.
SECTION 12.3. DISCRETION AUTHORITY. The Committee shall have full
discretionary authority in all matters related to the discharge of its
responsibilities and the exercise of its authority under the Plan
including, without limitation, its construction of the terms of the
Plan and its determination of eligibility for participation and
benefits under the Plan. It is the intent of the Plan that the
decisions of the Committee and its action with respect to the Plan
shall be final and binding upon all persons having or claiming to have
any right or interest in or under the Plan and that no such decision or
action shall be modified upon judicial review unless such decision or
action is proven to be arbitrary or capricious.
SECTION 12.4. AUTHORITY OF VICE PRESIDENT, HUMAN RESOURCES. Where
expressly provided for under Sections 4, 7 and 11, the authority of the
Committee is delegated to the Company's Vice President, Human
Resources, and to that extent the provisions of Section 12.1 through
12.3 above shall be deemed to apply to such Vice President.
SECTION 12.5. DELEGATION OF AUTHORITY. The Committee may provide for an
additional delegation of some or all of its authority under the Plan to
any person or persons provided that any such delegation be in writing.
SECTION 13. AMENDMENT. The Board may suspend or terminate the Plan at any time,
and may, from time to time, amend the Plan in any manner. However, no amendment,
modification, or termination shall, without the consent of a Participant,
adversely affect such Participant's accruals in his or her Accounts as of the
date of such amendment, modification, or termination.
SECTION 14. GOVERNING LAW. The Plan shall be construed, governed and enforced in
accordance with the law of Tennessee, except as such laws are preempted by
applicable federal law.
SECTION 15. CHANGE IN CONTROL.
SECTION 15.1. BACKGROUND. The terms of this Section 15 shall
immediately become operative, without further action or consent by any
person or entity, upon a Change In Control, and once operative shall
supersede and control over any other provisions of this Plan.
SECTION 15.2. [RESERVED]
SECTION 15.3. AMENDMENT ON OR AFTER CHANGE IN CONTROL. On or after a
Change In Control, no action, including, but not by way of limitation,
the amendment, suspension or termination of the Plan, shall be taken
which would affect the rights of any Participant or the operation of
this Plan with respect to the balance in the Participant's Accounts
without the written consent of the Participant, or, if the Participant
is deceased, the Participant's beneficiary under this Plan (if any).
SECTION 15.4. ATTORNEY FEES The Corporation 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 Corporation 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.
SECTION 16. COMPLIANCE WITH SECURITIES LAWS. The hypothetical units of Common
Stock provided for by this Plan are intended not to constitute "derivative
securities" for purposes of Rule l6a-1(c), or any successor provisions, under
the Exchange Act. To the extent any provision of this Plan or
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<PAGE> 10
action by the Committee would cause such units to constitute "derivative
securities" for those purposes, it shall be deemed to be null and void, to the
extent permitted by law and deemed advisable by the Committee.
The Committee may, from time to time, impose additional restrictions upon
Participants as it deems necessary, advisable or appropriate in order to comply
with applicable federal and state securities laws. All such restrictions shall
be accomplished by way of written guidelines adopted by the Committee.
SECTION 17. SUCCESSORS AND ASSIGNS. This Plan shall be binding upon the
successors and assigns of the parties hereto.
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EXHIBIT 10.02
AMENDED AND RESTATED
EASTMAN EXECUTIVE DEFERRED COMPENSATION PLAN
EASTMAN CHEMICAL COMPANY
32
<PAGE> 2
AMENDED AND RESTATED
EASTMAN EXECUTIVE DEFERRED COMPENSATION PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION TITLE PAGE
<S> <C> <C>
Preamble
Section 1. Definitions
Section 2. Deferral of Compensation
Section 3. Time of Election of Deferral
Section 4. Hypothetical Investments
Section 5. Deferrals and Crediting Amounts to Accounts
Section 6. Deferral Period
Section 7. Investment in the Stock Account and Transfers Between Accounts
Section 8. Payment of Deferred Compensation
Section 9. Payment of Deferred Compensation After Death
Section 10. Acceleration of Payment for Hardship
Section 12. Participant's Rights Unsecured
Section 13. No Right to Continued Employment
Section 14. Statement of Account
Section 15. Deductions
Section 16. Administration
Section 17. Amendment
Section 18. Governing Law
Section 19. Change in Control
Section 20. Compliance with SEC Regulations
</TABLE>
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<PAGE> 3
AMENDED AND RESTATED
EASTMAN EXECUTIVE DEFERRED COMPENSATION PLAN
PREAMBLE. The Amended and Restated Eastman Executive Deferred
Compensation Plan is an unfunded, nonqualified deferred compensation arrangement
for eligible employees of Eastman Chemical Company ("the Company") and certain
of its subsidiaries. Under the Plan, each Eligible Employee is annually given an
opportunity to elect to defer payment of part of his or her cash compensation.
This Plan also assumed the liabilities accrued under the Kodak Executive
Deferred Compensation Plan, as of January 1, 1994, in respect of each Eligible
Employee who was actively employed by the Company as of such date and who chose
to transfer his or her deferred compensation account to the Company. This Plan
originally was adopted effective January 1, 1994, was amended effective March 2,
1994, and is further amended and restated effective as of October 10, 1996.
SECTION 1: DEFINITIONS
SECTION 1.1. "Account" means the Interest Account or the Stock Account.
SECTION 1.2. "Board" means the Board of Directors of the Company.
SECTION 1.3. "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 August 1, 1993,
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 of the
Company, or any employee benefit plan(s) sponsored by the Company or
any subsidiary of the Company, 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 at 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, 1994 (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,
1994 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 of the Company.
Notwithstanding the occurrence of any of the foregoing, the
Compensation 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 Compensation Committee
prior to the occurrence of an event
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<PAGE> 4
that otherwise would be or probably will lead to a Change In Control or
after such event if made by the Compensation 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.
SECTION 1.4. "Common Stock" means the $.01 par value common stock of
the Company.
SECTION 1.5. "Company" means Eastman Chemical Company.
SECTION 1.6. "Compensation Committee" shall mean the Compensation and
Management Development Committee of the Board.
SECTION 1.7. "Deferrable Amount" means, for a given fiscal year of the
Company, an amount equal to the sum of the Eligible Employee's (i)
annual base cash compensation; (ii) annual cash payments under the
Eastman Performance Plan and the Annual Performance Plan of the
Company; and (iii) stock and stock-based awards under the Omnibus Plan
which, under the terms of the Omnibus Plan and the award, are payable
in cash and required or allowed to be deferred into this Plan;
provided, however, that the Deferrable Amount shall not include any
amount that must be withheld from the Eligible Employee's wages for
income or employment tax purposes. In addition, each Eligible Employee
as of January 1, 1994, who had previously participated in the Kodak
Executive Deferred Compensation Plan could elect to transfer the amount
then in his or her account in the Kodak Executive Deferred Compensation
Plan into the Plan. Furthermore, "Deferred Amount" included, for 1993,
annual cash payments under the Kodak Wage Dividend policy and Success
Sharing program payable in 1994 and attributable to 1993 service.
SECTION 1.8. "Eligible Employee" means a U.S.-based employee of the
Company or any of its U.S. Subsidiaries who, as of the first day of the
applicable Enrollment Period (i) has a salary grade classification of
SG 49 or above; or (ii) is not covered under clause (i), but who was an
Eligible Employee under the Kodak Executive Deferred Compensation Plan,
as in effect on January 1, 1994. Any employee who becomes eligible to
participate in this Plan and in a future year does not qualify as an
Eligible Employee because of a change in position level shall
nevertheless be eligible to participate in such year.
SECTION 1.9. "Enrollment Period" means the period designated by the
Compensation Committee each year, provided however, that such period
shall end on or before the last business day before the last Sunday in
December of each year.
SECTION 1.10. "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
SECTION 1.11. "Interest Account" means the account established by the
Company for each Participant for compensation deferred pursuant to this
Plan and which shall bear interest as described in Section 4.1 below.
The maintenance of individual Interest Accounts is for bookkeeping
purposes only.
SECTION 1.12. "Interest Rate" means the monthly average of bank prime
lending rates to most favored customers as published in The Wall Street
Journal, such average to be determined as of the last day of each
month.
SECTION 1.13. "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 such shares were traded on such
day, said closing price on the next business day on which such shares
are traded, provided, however, that if at any relevant time the shares
of Common Stock are not traded on the New York Stock Exchange, then
"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 Automated Quotation System (NASDAQ) or other
national quotation service.
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<PAGE> 5
SECTION 1.14. "Omnibus Plan" means the Eastman Chemical Company 1994
Omnibus Long-Term Compensation Plan or any successor plan to the
Omnibus Plan providing for awards of stock and stock-based compensation
to Company employees.
SECTION 1.15. "Participant" means an Eligible Employee who elects for
one or more years to defer compensation pursuant to this Plan.
SECTION 1.16. "Plan" means this Amended and Restated Eastman Executive
Deferred Compensation Plan.
SECTION 1.17. "Section 16 Insider" means a Participant who is, with
respect to the Company, subject to Section 16 of the Exchange Act.
SECTION 1.18. "Stock Account" means the account established by the
Company for each Participant, the performance of which shall be
measured by reference to the Market Value of Common Stock. The
maintenance of individual Stock Accounts is for bookkeeping purposes
only.
SECTION 1.19. "U.S. Subsidiaries" means the United States subsidiaries
of the Company listed on Schedule A.
SECTION 1.20. "Valuation Date" means each business day.
SECTION 2. DEFERRAL OF COMPENSATION. An Eligible Employee may elect to defer
receipt of all or any portion of his or her Deferrable Amount to his or her
Interest Account and/or Stock Account. A Participant in this Plan need not
participate in the Eastman Investment Plan. If an Eligible Employee terminates
employment with the Company or any of its U.S. Subsidiaries, any previous
deferral election with respect to a Wage Dividend, Success Sharing, Eastman
Performance Plan, Annual Performance Plan or Omnibus Plan payment or award shall
remain in effect with respect to such items of compensation payable after
termination of employment.
SECTION 3. TIME OF ELECTION OF DEFERRAL. An Eligible Employee who wishes to
defer compensation must irrevocably elect to do so during the applicable
Enrollment Period. Except as provided in the next sentence, the Enrollment
Period shall end prior to the first day of the calendar year in which the
applicable Deferrable Amount will first be paid, earned, or awarded. The
Enrollment Period with respect to payouts (if any) in 1997 under the 1994-1996
Long-Term Performance Subplan of the Omnibus Plan shall end prior to October 31,
1996. Elections shall be made annually.
This Plan was first adopted January 1, 1994, and is generally effective with
respect to compensation earned on or after such date. However, (i) if a person
who is eligible to participate in this Plan made an election under the Kodak
Executive Deferred Compensation Plan with respect to a payment under the
Management Annual Performance Plan (MAPP) that would be paid in calendar year
1994, such election remained in force and was effective under this Plan for such
MAPP payment, and (ii) Participants could elect to defer under this Plan a Wage
Dividend or Success Sharing payment payable in calendar year 1994 but
attributable to 1993 service.
SECTION 4. HYPOTHETICAL INVESTMENTS.
SECTION 4.1. INTEREST ACCOUNT. Amounts in a Participant's Interest
Account are hypothetically invested in an interest bearing account
which bears interest computed at the Interest Rate, compounded monthly.
SECTION 4.2. STOCK ACCOUNT. Amounts in a Participant's Stock Account
are hypothetically invested in units of Common Stock. Amounts deferred
into a Stock Account are recorded as units of Common Stock, and
fractions thereof with one unit equating to a single share of Common
Stock. Thus, the value of one unit shall be the Market Value of a
single share of Common Stock. The use of units is merely a bookkeeping
convenience; the units are not actual shares of Common Stock. The
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<PAGE> 6
Company will not reserve or otherwise set aside any Common Stock for or
to any Stock Account the maximum number of Common Stock units that may
be hypothetically purchased by deferral of compensation to Stock
Accounts under this Plan is 4,500,000.
SECTION 5. DEFERRALS AND CREDITING AMOUNTS TO ACCOUNTS
SECTION 5.1. MANNER OF ELECTING DEFERRAL. An Eligible Employee may
elect to defer compensation by executing and returning to the
Compensation Committee a deferred compensation form provided by the
Company. The form shall indicate (i) the amount and sources of
Deferrable Amount to be deferred; (ii) whether deferral of annual base
cash compensation is to be at the same rate throughout the year, or at
one rate for part of the year and at a second rate for the remainder of
the year; and (iii) the portion of the deferral to be credited to the
Participant's Interest Account and Stock Account respectively. An
election to defer compensation shall be irrevocable following the end
of the applicable Enrollment Period, but the portion of the deferral to
be credited to the Participant's Interest Account and Stock Account,
respectively, may be reallocated by the Participant in the manner
specified by the Compensation Committee or its authorized designee
through and including the business day immediately preceding the date
on which the deferred amount is credited to the Participant's Accounts
pursuant to Section 5.2.
SECTION 5.2. CREDITING OF AMOUNTS TO ACCOUNTS. Amounts to be deferred
shall be credited to the Participant's Interest Account and/or Stock
Account, as applicable, as of the date such amounts are otherwise
payable.
SECTION 6. DEFERRAL PERIOD. Subject to Sections 9, 10, and 19 hereof, the
compensation which a Participant elects to defer under the Plan will be deferred
until the Participant retires or otherwise terminates employment with the
Company or any of its U.S. Subsidiaries. Any such election shall be made during
the applicable Enrollment Period on the deferred compensation form referenced in
Section 5 above. The payment of a Participant's Account shall be governed by
Sections 8, 9, 10, and 19, as applicable.
Notwithstanding the foregoing, any fixed date election made by an Eligible
Employee under the Kodak Executive Deferred Compensation Plan shall remain in
force under this Plan, provided he or she continues as an employee of the
Company or any of its U.S. Subsidiaries during the period of deferral. Payment
of such amount pursuant to a deferral election made under such Kodak Plan shall
be made in cash in a single lump sum on the fifth business day in March in the
year following the termination of such deferral period, and the amount of the
lump sum due the Participant shall be valued as of the last Valuation Date in
February in the year following the termination of the deferral period. If such
Participant ceases to be an employee of the Company or any of its U.S.
Subsidiaries prior to the end of the fixed period, Section 8 shall govern the
payment of his or her Accounts.
SECTION 7. INVESTMENT IN THE STOCK ACCOUNT AND TRANSFERS BETWEEN ACCOUNTS.
SECTION 7.1 ELECTION INTO THE STOCK ACCOUNT. If a Participant elects to
defer compensation into his or her Stock Account, his or her Stock
Account shall be credited, as of the date described in Section 5.2,
with that number of units of Common Stock, and fractions thereof,
obtained by dividing the dollar amount to be deferred into the Stock
Account by the Market Value of the Common Stock as of such date.
SECTION 7.2. TRANSFERS BETWEEN ACCOUNTS. A Participant may direct that
all or any portion, designated as a whole dollar amount, of the
existing balance of one of his or her Accounts be transferred to his or
her other Account, effective as of (i) the date such election is made,
if and only if such election is made prior to the close of trading on
the New York Stock Exchange on a day on which the Common Stock is
traded on the New York Stock Exchange, or (ii) if such election is made
after the close of trading on the New York Stock Exchange on a given
day or at any time on a day on which no sales of Common Stock are made
on the New York Stock
37
<PAGE> 7
Exchange, then on the next business day on which the Common Stock is
traded on the New York Stock Exchange (the date described in (i) or
(ii), as applicable, is referred to hereinafter as the election's
"Effective Date"). Such election shall be made in the manner specified
by the Committee or its authorized designee during the period that
begins on the third business day following the public release of the
Company's quarterly earnings report and that ends on the last business
day of the second calendar month following the end of each fiscal
quarter of the Company; provided however, that a Section 16 Insider may
only elect to transfer between his or her Accounts if he or she has
made no election within the previous six months to effect an "opposite
way" fund-switching (i.e., transfer out versus transfer in) transfer
into or out of the Stock Account or the Eastman Stock Funds of the
Eastman Investment Plan or the Savings and Investment Plan Appendix, or
any other "opposite way" intra-plan transfer or plan distribution
involving a Company equity securities fund which constitutes a
"Discretionary Transaction" as defined in Rule 16b-3 under the Exchange
Act.
SECTION 7.3. TRANSFER INTO THE STOCK ACCOUNT. If a Participant elects
pursuant to Section 7.2 to transfer an amount from his or her Interest
Account to his or her Stock Account, effective as of the election's
Effective Date, (his or her Stock Account shall be credited with that
number of units of Common Stock; and fractions thereof, obtained by
dividing the dollar amount elected to be transferred by the Market
Value of the Common Stock on the Valuation Date immediately preceding
the election's Effective Date; and (ii) his or her Interest Account
shall be reduced by the amount elected to be transferred.
SECTION 7.4. TRANSFER OUT OF THE STOCK ACCOUNT. If a Participant elects
pursuant to Section 7.2 to transfer an amount from his or her Stock
Account to his or her Interest Account, effective as of the election's
Effective Date; (i) his or her Interest Account shall be credited with
a dollar amount equal to the amount obtained by multiplying the number
of units to be transferred by the Market Value of the Common Stock on
the Valuation Date immediately preceding the election's Effective Date;
and (ii) his or her Stock Account shall be reduced by the number of
units elected to be transferred.
SECTION 7.5. DIVIDEND EQUIVALENTS. Effective as of the payment date for
each cash dividend on the Common Stock, the Stock Account of each
Participant who had a balance in his or her Stock Account on the record
date for such dividend shall be credited with a number of units of
Common Stock, and fractions thereof, obtained by dividing (i) the
aggregate dollar amount of such cash dividend payable in respect of
such Participant's Stock Account (determined by multiplying the dollar
value of the dividend paid upon a single share of Common Stock by the
number of units of Common Stock held in the Participant's Stock Account
on the record date for such dividend); by (ii) the Market Value of the
Common Stock on the Valuation Date immediately preceding the payment
date for such cash dividend.
SECTION 7.6. STOCK DIVIDENDS. Effective as of the payment date for each
stock dividend on the Common Stock, additional units of Common Stock
shall be credited to the Stock Account of each Participant who had a
balance in his or her Stock Account on the record date for such
dividend. The number of units that shall be credited to the Stock
Account of such a Participant shall equal the number of shares of
Common Stock and fractions thereof, which the Participant would have
received as stock dividends had he or she been the owner on the record
date for such stock dividend of the number of shares of Common Stock
equal to the number of units credited to his or her Stock Account on
such record date.
SECTION 7.7. RECAPITALIZATION. If, as a result of a recapitalization of
the Company, the outstanding shares of Common Stock shall be changed
into a greater number or smaller number of shares, the number of units
credited to a Participant's Stock Account shall be appropriately
adjusted on the same basis.
SECTION 7.8. DISTRIBUTIONS. Amounts in respect of units of Common Stock
may only be distributed out of the Stock Account by transfer to the
Interest Account (pursuant to Sections 7.2 and 7.4 or 7.10) or
withdrawal from the Stock Account (pursuant to Section 8, 9, 10, or
19), and
38
<PAGE> 8
shall be distributed in cash. The number of units to be distributed
from a Participant's Stock Account shall be valued by multiplying the
number of such units by the Market Value of the Common Stock as of the
Valuation Date immediately preceding the date such distribution is to
occur. Pending the complete distribution under Section 8.2 or
liquidation under Section 7. 10 of the Stock Account of a Participant
who has terminated his or her employment with the Company or any of its
U.S. Subsidiaries, the Participant shall continue to be able to make
elections pursuant to Sections 7.2, 7.3, and 7.4 and his or her Stock
Account shall continue to be credited with additional units of Common
Stock pursuant to Sections 7.5, 7.6, and 7.7.
SECTION 7.9. RESPONSIBILITY FOR INVESTMENT CHOICES. Each Participant is
solely responsible for any decision to defer compensation into his or
her Stock Account and to transfer amounts to and from his or her Stock
Account and accepts all investment risks entailed by decision,
including the risk of loss and a decrease in the value of the amounts
he or she elects to transfer into his or her Stock Account.
SECTION 7.10. LIQUIDATION OF STOCK. The provisions of this Section 7.10
shall be applicable if the Vice President, Human Resources, or the
Compensation Committee, as applicable, determines pursuant to Section 8
to pay a Participant's Accounts in annual and, on the second
anniversary of the Participant's retirement or, if earlier, termination
of employment from the Company or any of its U.S. Subsidiaries, the
Participant has a balance remaining in his or her Stock Account. In
such case, effective as of the first day of the first calendar month
immediately following the date of such second anniversary, the entire
balance of the Participant's Stock Account shall automatically be
transferred to his or her Interest Account and he or she shall
thereafter be ineligible to transfer any amounts to his or her Stock
Account. For purposes of valuing the units of Common Stock subject to
such a transfer, the approach described in Section 7.8 shall be used.
SECTION 8. PAYMENT OF DEFERRED COMPENSATION.
SECTION 8.1. BACKGROUND. No withdrawal may be made from a Participant's
Accounts except as provided in this Section 8 and Sections 9, 10, and
19.
SECTION 8.2. MANNER OF PAYMENT. Payment of a Participant's Accounts
shall be made in a single lump sum or annual installments, as elected
by the Participant pursuant to this Section 8. The maximum number of
annual installments is ten. The minimum annual installment payment
permitted under such election (determined based on the value of the
Participant's Accounts as of the last Valuation Date of the calendar
year in which the Participant terminates employment, and disregarding
any earnings under this Plan after such date) shall be one thousand
dollars ($1,000); this minimum shall be applied by dividing by $1,000
the value of the Participant's Accounts as of the last Valuation Date
of the calendar year in which the Participant terminates employment,
and the result, rounded down to the next largest whole number, shall be
the maximum number of annual installments permitted. All payments from
the Plan shall be made in cash.
SECTION 8.3. TIMING OF PAYMENTS. Payments shall be made by the fifth
business day in March and shall commence in any year elected by the
Participant pursuant to this Section 8, up through the tenth year
following the year in which the Participant retires, becomes disabled,
or for any other reason, ceases to be an employee of the Company or any
of its U.S. Subsidiaries, but in no event shall payment commence later
than the year the Participant reaches age 71.
SECTION 8.4. VALUATION. The amount of each payment shall be equal to
the value, as of the preceding Valuation Date, of the Participant's
Accounts, divided by the number of remaining to be paid. If payment of
a Participant's Accounts is to be paid in installments and the
Participant has a balance in his or her Stock Account at the time of
the payment of an installment, the amount that shall be distributed
from his or her Stock Account shall be the amount obtained by
multiplying the total amount of the installment determined in
accordance with the immediately preceding sentence by the percentage
obtained by dividing the balance in the Stock Account as of
39
<PAGE> 9
the immediately preceding Valuation Date by the total value of the
Participant's Accounts as of such date. Similarly, in such case, the
amount that shall be distributed from the Participant's Interest
Account shall be the amount obtained by multiplying the total amount of
the installment determined in accordance with the first sentence of
this Section 8.4 by the percentage obtained by dividing the balance in
the Interest Account as of the immediately preceding Valuation Date by
the total value of the Participant's Accounts as of such date.
SECTION 8.5. PARTICIPANT PAYMENT ELECTIONS. Except as provided in
Section 8.6, an election by a Participant concerning the method of
payment under Section 8.2 or the commencement of payments under Section
8.3 must be made at least one (1) year before the Participant's
termination of employment, and must be made on forms provided by the
Company. If a Participant does not have a valid election in force at
the time of termination of employment, then (i) if the value of his
Accounts as of the last Valuation Date of the calendar year in which he
terminates employment is less than ten thousand dollars ($10,000), then
his Accounts shall be paid in a single lump sum; (ii) if the value of
his Accounts as of the last Valuation Date of the calendar year in
which he terminates employment is ten thousand dollars ($10,000) or
more, then his Accounts shall be paid in ten (10) annual installments;
and (iii) regardless of whether payment is made in a single lump sum or
installments, payment shall commence by the fifth business day in March
following the calendar year in which the Participant terminates
employment.
SECTION 8.6. SPECIAL PAYMENT ELECTION RULES. Notwithstanding Sections
8.2, 8.3, and 8.5, if a Participant terminates employment less than one
(1) year before the date he first becomes eligible to participate in
this Plan, then an election made by the Participant under this Section
8 no later than thirty (30) days after the date he first becomes
eligible to participate in this Plan shall be valid. Also
notwithstanding Sections 8.2, 8.3, and 8.5, Participants who retire or
otherwise terminate employment no later than January 1, 1999 shall,
subject to the restrictions of Sections 8.2 and 8.3, have the manner
and commencement of payment of their Account determined by the Vice
President, Human Resources, with respect to Participants who are not
executive officers of the Company, and by the Compensation Committee,
with respect to Participants who are executive officers of the Company;
and in such event (i) the Vice President, Human Resources and the
Compensation Committee, as applicable, may expressly designate any such
decision under Sections 8.2 or 8.3 concerning time of payment of
benefits and/or form of payment as being irrevocable, and if such
designation is made, such decision may be changed only with the consent
of the Participant, or, if the Participant is deceased, the
Participant's beneficiary under this Plan (if any); and (ii) once
payments have commenced to a Participant or beneficiary under this
Plan, the form of payment shall be considered irrevocable within the
meaning of the immediately preceding sentence, regardless of whether it
is designated as such by the Vice President, Human Resources or the
Compensation Committee.
SECTION 9. PAYMENT OF DEFERRED COMPENSATION AFTER DEATH. If a Participant dies
prior to complete payment of his or her Accounts, the balance of such Accounts,
valued as of the Valuation Date immediately preceding the date payment is made,
shall be paid in a single, lump sum payment to: (i) the beneficiary or
contingent beneficiary designated by the Participant on forms supplied by the
Compensation Committee; or, in the absence of a valid designation of a
beneficiary or contingent beneficiary, (ii) the Participant's estate within 30
days after appointment of a legal representative of the deceased Participant.
40
<PAGE> 10
10.1 ACCELERATION OF PAYMENT FOR HARDSHIP. Upon written approval from the
Company's Vice President, Human Resources, with respect to Participants other
than executive officers of the Company, and by the Compensation Committee, with
respect to Participants who are executive officers of the Company, and subject
to the restrictions in the next two sentences, a Participant, whether or not he
or she is still employed by the Company or any of its U.S. Subsidiaries, may be
permitted to receive all or part of his or her Accounts if the Company's Vice
President, Human Resources, or the Compensation Committee, as applicable,
determines that an emergency event beyond the Participant's control exists which
would cause such Participant severe financial hardship if the payment of his or
her Accounts were not approved. Any such distribution for hardship shall be
limited to the amount needed to meet such emergency.
10.2. PAYMENT TO INDIVIDUALS. Any participant in the Eastman Executive Deferred
Compensation Plan may at his or her discretion withdraw at any time all or part
of that person's account balance under the Plan; provided, if this option is
exercised the individual will forfeit to the Corporation 10% of his or her
account balance, and will not be permitted to participate in this plan for a
period of 36 months from date any payment to a participant is made under this
section.
10.3 ACCELERATED PAYMENT. If under Eastman Executive Deferred Compensation Plan
one-half or more of the Participants or one-fifth or more of the Participants
with one-half or more of the value of all benefits owed exercise their option
for immediate distribution in any consecutive six-month period this will trigger
immediate payment to all Participants of all benefits owed under the terms of
the plan, immediate payout under this section will not involve reduction of the
amounts paid to Participants as set forth in section 10.2. Any individual that
has been penalized in this six-month period for electing immediate withdrawal
will be paid that penalty, and continuing participation will be allowed, if
payout to all Participants under this section occurs.
10.4 A Section 16 Insider may only receive a withdrawal from his or her Stock
Account pursuant to this Section 10 if he or she has made no election within the
previous six months to effect a fund-switching transfer into the Stock Account
or the Eastman Stock Fund of the Eastman Investment Plan or the Savings and
Investment Plan Appendix, or any other "opposite way" intra-plan transfer into a
Company equity securities fund which constitutes a "Discretionary Transaction"
as defined in Rule 16b-3 under the Exchange Act. If such a distribution occurs
while the Participant is employed by the Company or any of its U.S.
Subsidiaries, any election to defer compensation for the year in which the
Participant receives a withdrawal shall be ineffective as to compensation earned
for the pay period following the pay period during which the withdrawal is made
and thereafter for the remainder of such year and shall be ineffective as to any
other compensation elected to be deferred for such year.
SECTION 11. NON-COMPETITION AND NON-DISCLOSURE PROVISION. Participant will not,
without the written consent of the Company, either during his or her employment
by Company or any of its U.S. Subsidiaries 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 or any of its
subsidiaries, except as such disclosure or use may be required in connection
with his or her work as an employee of Company or any of its U.S. Subsidiaries.
During Participant's employment by the Company or any of its U.S. Subsidiaries,
and for a period of two years after the termination of such employment, he or
she will not, without the written consent of the Company, 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 or any of its U.S. Subsidiaries. The agreement in this
Section 11 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. If the Participant does not
41
<PAGE> 11
comply with the terms of this Section 11, the Company's Vice President, Human
Resources, with respect to Participants other than executive officers of the
Company, or the Compensation Committee, with respect to executive officers of
the Company may, in his or its sole discretion, direct the Company to pay to the
Participant the balance credited to his or her Interest Account and/or Stock
Account.
SECTION 12. PARTICIPANT'S RIGHTS UNSECURED. The benefits payable under this Plan
shall be paid by the Company each year out of its general assets. To the extent
a Participant acquires the right to receive a payment under this Plan, such
right shall be no greater than that of an unsecured general creditor of the
Company. No amount payable under this Plan may be assigned, transferred,
encumbered or subject to any legal process for the payment of any claim against
a Participant. No Participant shall have the right to exercise any of the rights
or privileges of a shareowner with respect to the units credited to his or her
Stock Account.
SECTION 13. NO RIGHT TO CONTINUED EMPLOYMENT. Participation in the Plan shall
not give any employee any right to remain in the employ of the Company or any of
its U.S. Subsidiaries. The Company and each employer U S. Subsidiary reserve the
right to terminate any Participant at any time.
SECTION 14. STATEMENT OF ACCOUNT. Statements will be sent no less frequently
than annually to each Participant or his or her estate showing the value of the
Participant's Accounts.
SECTION 15. DEDUCTIONS. The Company will withhold to the extent required by law
all applicable income and other taxes from amounts deferred or paid under the
Plan.
SECTION 16. ADMINISTRATION.
SECTION 16.1. RESPONSIBILITY. Except as expressly provided otherwise
herein, the Compensation Committee shall have total and exclusive
responsibility to control, operate, manage and administer the Plan in
accordance with its terms.
SECTION 16.2. AUTHORITY OF THE COMPENSATION COMMITTEE. The Compensation
Committee shall have all the authority that may be necessary or helpful
to enable it to discharge its responsibilities with respect to the
Plan. Without limiting the generality of the preceding sentence, the
Compensation Committee shall have the exclusive right to interpret the
Plan, to determine eligibility for participation in the Plan, to decide
all questions concerning eligibility for and the amount of benefits
payable under the Plan, to construe any ambiguous provision of the
Plan, to correct any default, to supply any omission, to reconcile any
inconsistency, and to decide any and all questions arising in the
administration, interpretation, and application of the Plan.
SECTION 16.3. DISCRETIONARY AUTHORITY. The Compensation Committee shall
have full discretionary authority in all matters related to the
discharge of its responsibilities and the exercise of its authority
under the Plan including, without limitation, its construction of the
terms of the Plan and its determination of eligibility for
participation and benefits under the Plan. It is the intent that the
decisions of the Compensation Committee and its action with respect to
the Plan shall be final and binding upon all persons having or claiming
to have any right or interest in or under the Plan and that no such
decision or action shall be modified upon judicial review unless such
decision or action is proven to be arbitrary or capricious.
SECTION 16.4. AUTHORITY OF VICE PRESIDENT, HUMAN RESOURCES. Where
expressly provided for under Sections 8, 10 and 11, the authority of
the Compensation Committee is delegated to the Company's Vice
President, Human Resources, and to that extent the provisions of
Section 16.1 through 16.3 above shall be deemed to apply to such Vice
President.
SECTION 16.5. DELEGATION OF AUTHORITY. The Compensation Committee may
provide additional delegation of some or all of its authority under the
Plan to any person or persons provided that any such delegation be in
writing.
42
<PAGE> 12
SECTION 17. AMENDMENT. The Board may suspend or terminate the Plan at any time.
In addition, the Board may, from time to time, amend the Plan in any manner
without shareowner approval; provided however, that the Board may condition any
amendment on the approval of shareowners if such approval is necessary or
advisable with respect to tax, securities, or other applicable laws. However, no
amendment, modification, or termination shall, without the consent of a
Participant, adversely affect such Participant's accruals in his or her Accounts
as of the date of such amendment, modification, or termination.
SECTION 18. GOVERNING LAW. The Plan shall be construed, governed and enforced in
accordance with the law of Tennessee, except as such laws are preempted by
applicable federal law.
SECTION 19. CHANGE IN CONTROL.
SECTION 19.1. BACKGROUND. The terms of this Section 19 shall
immediately become operative, without further action or consent by any
person or entity, upon a Change in Control, and once operative shall
supersede and control over any other provisions of this Plan.
SECTION 19.2. [RESERVED]
SECTION 19.3. AMENDMENT ON OR AFTER CHANGE IN CONTROL. On or after a
Change in Control, no action, including, but not by way of limitation,
the amendment, suspension or termination of the Plan, shall be taken
which would affect the rights of any Participant or the operation of
this Plan with respect to the balance in the Participant's Accounts
without the written consent of the Participant, or, if the Participant
is deceased, the Participant's beneficiary under this Plan (if any).
SECTION 19.4. ATTORNEY FEES. The Corporation 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 Corporation 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.
SECTION 20. COMPLIANCE WITH SEC REGULATIONS. It is the Company's intent that the
Plan comply in all respects with Rule 16b-3 of the Exchange Act, and any
regulations promulgated thereunder. If any provision of the Plan is found not to
be in compliance with such rule, the provision shall be deemed null and void.
All transactions under the plan, including, but not by way of limitation, a
Participant's election to defer compensation or transfer Account balances under
Section 7 and hardship withdrawals under Section 10, shall be executed in
accordance with the requirements of Section 16 of the Exchange Act, as amended
and any regulations promulgated thereunder. To the extent that any of the
provisions contained herein do not conform with Rule 16b-3 of the Exchange Act
or any amendments thereto or any successor regulation, then the Committee may
make such modifications so as to conform the Plan to the Rule's requirements.
SECTION 21. SUCCESSORS AND ASSIGNS. This Plan shall be binding upon the
successors and assigns of the parties hereto.
43
<PAGE> 13
SCHEDULE A
Holston Defense Corporation
44
<PAGE> 1
EXHIBIT 12.01
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
THIRD QUARTER FIRST NINE MONTHS
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Earnings before provision for income taxes $123 $148 $386 $403
Add:
Interest expense, net 28 26 70 67
Rental expense (1) 5 5 18 17
Amortization of capitalized interest 4 4 12 11
---- ---- ---- ----
Earnings as adjusted $160 $183 $486 $498
==== ==== ==== ====
Fixed charges:
Interest expense, net $ 28 $ 26 $ 70 $ 67
Rental expense (1) 5 5 18 17
Capitalized interest 4 5 27 24
---- ---- ---- ----
Total fixed charges $ 37 $ 36 $115 $108
==== ==== ==== ====
Ratio of earnings to fixed charges 4.3x 5.1x 4.2x 4.6x
==== ==== ==== ====
</TABLE>
- --------------------
(1) For all periods presented, interest component of rental expense is
estimated to equal one-third of such expense.
45
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF EASTMAN CHEMICAL COMPANY FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 86
<SECURITIES> 0
<RECEIVABLES> 840<F1>
<ALLOWANCES> 0
<INVENTORY> 568
<CURRENT-ASSETS> 1,679
<PP&E> 8,457
<DEPRECIATION> 4,451
<TOTAL-ASSETS> 6,139
<CURRENT-LIABILITIES> 982
<BONDS> 1,821
0
0
<COMMON> 1
<OTHER-SE> 1,977
<TOTAL-LIABILITY-AND-EQUITY> 6,139
<SALES> 3,444
<TOTAL-REVENUES> 3,444
<CGS> 2,632
<TOTAL-COSTS> 2,632
<OTHER-EXPENSES> 374
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 70
<INCOME-PRETAX> 386
<INCOME-TAX> 135
<INCOME-CONTINUING> 251
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 251
<EPS-PRIMARY> 3.18
<EPS-DILUTED> 3.15
<FN>
<F1>ASSET VALUES REPRESENT NET AMOUNTS.
</FN>
</TABLE>
<PAGE> 1
EXHIBIT 99.01
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
SUPPLEMENTAL BUSINESS SEGMENT INFORMATION
1998 CHANGE FROM 1997
<TABLE>
<CAPTION>
THIRD QUARTER FIRST NINE MONTHS
% CHANGE % CHANGE
OPERATING OPERATING
SALES EARNINGS (1) SALES EARNINGS (1)
----- ------------ ----- -----------
<S> <C> <C> <C> <C>
SPECIALTY & PERFORMANCE SEGMENT
Specialty plastics 5% ++ 8% ++
Performance chemicals (2) (15)% -- (12)% --
Fine chemicals 4% ++ (3)% --
Fibers (3)% + (11)% --
Coatings, inks & resins (2)% -- (3)% -
Total Segment (2) (2)% (4)% (5)% (15)%
== == == ==
CORE PLASTICS SEGMENT
Container plastics 13% ++ 12% ++
Flexible plastics (13)% -- (11)% --
Total Segment 3% Nm 3% Nm
== == == ==
CHEMICAL INTERMEDIATES SEGMENT
Industrial intermediates (8)% -- (4)% -
Total Segment (8)% (36)% (4)% (7)%
== == == ==
Total Eastman (2) (1)% (5)% (2)% 0%
== == == ==
</TABLE>
- ----------------------------------------
(1) 0 = Change of approximately 0 - 2% (+ or -)
+ = Increase of approximately 2 - 10%
++ = Increase of greater than 10%
- = Decrease of approximately (2) - (10)%
-- = Decrease of greater than (10)%
Sm = Negligible change in dollar amount
Nm = Not meaningful
(2) Operating Earnings for third quarter and nine months include a charge
of $11 million for violation of the Sherman Act.
46
