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SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
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[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
Eastman Chemical Company
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
(EASTMAN LOGO)
March 30, 1998
TO THE SHAREOWNERS OF EASTMAN CHEMICAL COMPANY:
You are cordially invited to attend the 1998 Annual Meeting of Shareowners
of Eastman Chemical Company, which will be held at our Employee Center, located
at 400 South Wilcox Drive, in Kingsport, Tennessee, on May 7, 1998, at 10:00
a.m., Eastern Daylight Savings Time. Doors to the meeting will open at 9:00 a.m.
An admission ticket is included with the enclosed proxy card. If you do not have
an admission ticket and wish to attend the meeting, please call (423) 224-0905.
The business to be considered and voted upon at the meeting is explained in
the accompanying Notice of Annual Meeting and Proxy Statement.
ON BEHALF OF THE BOARD OF DIRECTORS, WE URGE YOU TO SIGN, DATE, AND RETURN
THE ENCLOSED PROXY CARD AS SOON AS POSSIBLE, EVEN IF YOU CURRENTLY PLAN TO
ATTEND THE MEETING. Your vote is important, regardless of the number of shares
you own. Returning the enclosed proxy card will not prevent you from voting in
person but will assure that your vote is counted if you are unable to attend the
meeting.
Thank you for your support of our Company.
Sincerely,
/s/ EARNEST W. DEAVENPORT, JR.
Earnest W. Deavenport, Jr.
Chairman and Chief Executive Officer
(LOGO)
<PAGE> 3
EASTMAN CHEMICAL COMPANY
100 NORTH EASTMAN ROAD
KINGSPORT, TENNESSEE 37660
---------------------
NOTICE OF ANNUAL MEETING OF SHAREOWNERS
TO BE HELD ON MAY 7, 1998
---------------------
NOTICE IS HEREBY GIVEN that the 1998 Annual Meeting of Shareowners (the
"Annual Meeting") of Eastman Chemical Company (the "Company") will be held at
the Company's Employee Center, located at 400 South Wilcox Drive, Kingsport,
Tennessee, on May 7, 1998, at 10:00 a.m., Eastern Daylight Savings Time, for the
following purposes:
1. ELECT DIRECTORS. To consider and act upon the election of three
directors to serve in the class for which the term in office expires at the
Annual Meeting of Shareowners in 2001 and until their successors are duly
elected and qualified;
2. RATIFY APPOINTMENT OF INDEPENDENT ACCOUNTANTS. To consider and act
upon ratification of the appointment of Price Waterhouse LLP as independent
accountants for the Company until the Annual Meeting of Shareowners in
1999; and
3. OTHER BUSINESS. To transact such other business as may come
properly before the Annual Meeting or any adjournments thereof.
Only shareowners of record at the close of business on March 9, 1998 are
entitled to receive notice of and to vote at the Annual Meeting or any
adjournments thereof. All shareowners, whether or not they expect to attend the
Annual Meeting in person, are requested to complete, date, sign, and return the
enclosed proxy card in the accompanying envelope. The proxy may be revoked by
the person who executed it by filing with the Secretary of the Company an
instrument of revocation or a duly executed proxy card or other written
appointment of proxy bearing a later date, or by voting in person at the Annual
Meeting.
By order of the Board of Directors
/s/ Theresa K. Lee
Theresa K. Lee
Secretary
March 30, 1998
PLEASE COMPLETE, DATE, AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT
PROMPTLY IN THE ENVELOPE PROVIDED, WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL
MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE YOUR SHARES IN PERSON IF YOU
WISH, EVEN IF YOU PREVIOUSLY RETURNED YOUR PROXY CARD.
<PAGE> 4
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREOWNERS OF
EASTMAN CHEMICAL COMPANY
TO BE HELD ON MAY 7, 1998
INTRODUCTION
GENERAL
This Proxy Statement is being furnished to the shareowners of Eastman
Chemical Company, a Delaware corporation (the "Company"), in connection with the
solicitation of proxies by the Company's Board of Directors from holders of the
outstanding shares of the $.01 par value common stock of the Company ("Common
Stock"), for use at the Annual Meeting of Shareowners of the Company to be held
on May 7, 1998, and at any adjournments thereof (the "Annual Meeting"). The
Annual Meeting is being held to consider and act upon (1) the election of three
directors to serve in the class for which the term in office expires at the
Annual Meeting of Shareowners in 2001 and until their successors are duly
elected and qualified; and (2) ratification of the appointment of Price
Waterhouse LLP as independent accountants for the Company until the Annual
Meeting of Shareowners in 1999.
The principal executive offices of the Company are located at 100 North
Eastman Road, Kingsport, Tennessee 37660. The telephone number of the Company at
such offices is (423) 229-2000.
This Proxy Statement is dated March 30, 1998 and is first being mailed to
the Company's shareowners on or about April 3, 1998.
RECORD DATE, SOLICITATION, AND REVOCABILITY OF PROXIES
The Company's Board of Directors has fixed the close of business on March
9, 1998 as the record date (the "Record Date") for the determination of the
shareowners entitled to receive notice of and to vote at the Annual Meeting.
Only holders of record of shares of Common Stock as of the Record Date will be
entitled to vote at the Annual Meeting. As of the Record Date, there were
78,551,432 shares of Common Stock issued and outstanding and held by
approximately 85,760 shareowners of record. Holders of Common Stock are entitled
to one vote on each matter considered and voted upon at the Annual Meeting for
each share of Common Stock held of record as of the Record Date. Shares of
Common Stock represented by proxy, if such proxy is not revoked, will be voted
at the Annual Meeting in accordance with the instructions indicated on the proxy
card. IF A PROXY CARD IS SIGNED AND RETURNED BUT NO INSTRUCTIONS ARE INDICATED,
THE SHARES REPRESENTED BY PROXY WILL BE VOTED IN ACCORDANCE WITH THE
RECOMMENDATIONS OF THE BOARD OF DIRECTORS.
A shareowner who has given a proxy may revoke it at any time prior to its
exercise at the Annual Meeting by either (1) giving written notice of revocation
to the Secretary of the Company, (2) properly submitting to the Company a duly
executed proxy card or other written appointment of proxy bearing a later date,
or (3) voting in person at the Annual Meeting. All written notices of revocation
or other communications with respect to revocation of proxies should be
addressed as follows: Eastman Chemical Company, P.0. Box 511, Kingsport,
Tennessee 37662-5075, Attention: Theresa K. Lee, Secretary.
The 1997 Annual Report to Shareowners, including consolidated financial
statements for the year ended December 31, 1997, accompanies this Proxy
Statement.
QUORUM AND VOTING REQUIREMENTS
The presence, in person or by proxy, of the holders of a majority of the
shares of Common Stock entitled to vote at the Annual Meeting will constitute a
quorum to conduct business at the Annual Meeting. A plurality of the votes cast
at the Annual Meeting is required for the election of the directors identified
in this
<PAGE> 5
Proxy Statement. With respect to the election of directors, shareowners may (1)
vote "for" all three nominees, (2) "withhold" authority to vote for all such
nominees, or (3) withhold authority to vote for any individual nominee or
nominees but vote for all other nominees. Because directors are elected by a
plurality of the votes cast, withholding authority to vote with respect to one
or more nominees will have no effect on the outcome of the election, although
such shares would be counted as present for purposes of determining the
existence of a quorum. Similarly, any "broker nonvotes" (which occur when shares
held by brokers or nominees for beneficial owners are voted on some matters but
not on others in absence of instructions from the beneficial owner) are not
considered to be votes cast and therefore would have no effect on the outcome of
the election of directors, although they would be counted as present for
purposes of determining the existence of a quorum.
With respect to ratification of independent accountants, shareowners may
(1) vote "for," (2) vote "against," or (3) "abstain" from voting on the
proposal. The affirmative vote of a majority of the votes cast is required for
ratification of the appointment of independent accountants. Abstentions and any
broker nonvotes are not considered to be votes cast and therefore would have no
effect on the outcome of the proposal.
ELECTION OF DIRECTORS
ITEM 1 ON PROXY CARD
GENERAL
The Company's Board of Directors is divided into three classes, with the
terms of office of the respective classes ending in successive years. Under the
Company's Bylaws, a director reaching age 70 during any term of office continues
to be qualified to serve only until the next annual meeting of shareowners
following his or her 70th birthday (or, if approved by unanimous action of the
Board of Directors, until the next annual meeting following his or her 71st
birthday). Three directors are in the class for which the term in office expires
at the Annual Meeting. The terms of the other seven directors continue after the
Annual Meeting. The shareowners are being asked to vote on the election of three
directors to the class for which the term in office shall expire at the Annual
Meeting of Shareowners in 2001 and until their successors are duly elected and
qualified.
All shares of Common Stock represented by valid proxies received pursuant
to this solicitation, and not revoked before they are exercised, will be voted
in the manner specified therein. If a proxy card is signed and returned but no
specification is made, the shares represented by proxy will be voted for the
election of the three directors identified below. If any nominee is unable to
serve (which is not anticipated), the persons designated as proxies will cast
votes for the remaining nominees and for such other persons as they may select.
THE NOMINEES HAVE BEEN RECOMMENDED TO THE COMPANY'S BOARD OF DIRECTORS BY
THE COMMITTEE ON DIRECTORS OF THE BOARD. THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS A VOTE "FOR" ELECTION OF THE THREE NOMINEES IDENTIFIED BELOW.
Set forth below is certain information regarding each nominee or director
continuing in office, including a description of his or her positions and
offices with the Company (other than as a director), if any; a brief description
of his or her principal occupation and business experience during at least the
last five years; directorships and similar positions presently held by him or
her in certain other companies, organizations, or associations; and his or her
age. Messrs. Deavenport and Bourne were first elected to the Board in November
1993; Miss Marks, Messrs. Arnelle, Campbell, Liu and Mitchell, and Dr. White,
joined the Board on January 1, 1994, immediately after completion of the
Company's spin-off from Eastman Kodak Company. Mr. Dempsey was first elected to
the Board on May 1, 1997. Mr. Donehower was elected by the Board of Directors on
February 3, 1998 to the Board position formerly held by the late Dr. Michael von
Clemm.
2
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NOMINEES FOR DIRECTOR
TERM EXPIRING ANNUAL MEETING 2001
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[PHOTO] H. JESSE ARNELLE
Mr. Arnelle is of counsel to the Winston-Salem, North Carolina-based law firm
of Womble, Carlyle, Sandridge & Rice. He was a partner of the San
Francisco-based law firm of Arnelle, Hastie, McGee, Willis & Greene or its
predecessor from 1985 until 1997. Mr. Arnelle is Immediate Past Chairman of
the Board of Trustees of Pennsylvania State University and is a member of the
boards of directors of Wells Fargo & Company and subsidiary Wells Fargo Bank,
N.A., Waste Management, Inc., FPL Group, Inc., Textron Inc., Armstrong World
Industries, Inc., and Union Pacific Resources Group, Inc. He is 64.
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[PHOTO] R. WILEY BOURNE, JR.
Mr. Bourne is Vice Chairman of the Board and Executive Vice President of the
Company, responsible for all business organizations. He joined the Company in
1959 and was named Executive Vice President in 1989. Mr. Bourne also served as
a Vice President of Eastman Kodak Company from 1986 through 1993. He is a
member of the Board of Trustees and the executive committee of the United
States Council for International Business. Mr. Bourne serves on the board of
directors and executive committee of the American Industrial Health Council,
the regional advisory Board of First Tennessee Bank, and the boards of
directors of Unifi, Inc., East Tennessee State University Foundation, and the
Massachusetts Institute of Technology Society of Sloan Fellows. Mr. Bourne is
on the Board of Trustees of Tennessee Wesleyan College, the Visiting Committee
of the James H. Quillen College of Medicine, and the Board of Visitors of
North Carolina A&T State University. He is 60.
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[PHOTO] DR. JOHN A. WHITE
Dr. White is Chancellor of the University of Arkansas. From 1991 to 1997, he
was Dean of the College of Engineering at the Georgia Institute of Technology.
From July 1988 to September 1991, he was Assistant Director of the National
Science Foundation in Washington, D.C., and served on the faculty of the
Georgia Institute of Technology from 1975 to 1997. Dr. White is also a member
of the National Science Board; a member of the National Academy of
Engineering; and a member of the boards of directors of Motorola, Inc.,
Russell Corporation, CAPS Logistics, Inc., and Logility, Inc. He is 58.
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3
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MEMBERS OF BOARD OF DIRECTORS CONTINUING IN OFFICE
TERM EXPIRING ANNUAL MEETING 1999
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[PHOTO] CALVIN A. CAMPBELL, JR.
Mr. Campbell has been Chairman, President and Chief Executive Officer of
Goodman Equipment Corporation since 1971. Goodman Equipment designs,
manufactures, and markets worldwide underground mining locomotives and per-
sonnel carriers and plastics blow molding machinery. He was also President and
Chief Executive Officer of Cyprus Amax Minerals Company in 1992, Chairman of
the Board in 1991 and 1992, and a director from 1985 through 1994. Mr.
Campbell is a member of the boards of directors of Mine Safety Appliances
Company and Acheson Industries, Inc. He also serves as a director of the
National Association of Manufacturers and of the National Mining Association,
is a director and former Chairman of the Illinois Manufacturers Association,
and serves as a trustee of the Illinois Institute of Technology. Mr. Campbell
is 63.
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[PHOTO] EARNEST W. DEAVENPORT, JR.
Mr. Deavenport is Chairman of the Board and Chief Executive Officer of the
Company. He joined the Company in 1960. Mr. Deavenport was named President of
the Company in 1989. He also served as Group Vice President of Eastman Kodak
Company from 1989 through 1993. Mr. Deavenport is a member of the boards of
directors of First American Corporation, Milliken & Company, the Chemical
Manufacturers Association, and the American Plastics Council. He also serves
as chairman of the National Association of Manufacturers, on the Board of
Trustees of the Malcolm Baldridge National Quality Award Foundation, and on
the policy committee of the Business Roundtable. Mr. Deavenport is 59.
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[PHOTO] JOHN W. DONEHOWER
Mr. Donehower is Senior Vice President and Chief Financial Officer of
Kimberly-Clark Corporation. He joined Kimberly-Clark in 1974, and served in a
series of management positions prior to election to his current position in
1993. Mr. Donehower is also a member of the boards of directors of Allendale
Mutual Insurance Company and Kimberly-Clark De Mexico S.A. de C.V. He is 51.
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[PHOTO] LEE LIU
Mr. Liu is Chairman and Chief Executive Officer of IES Industries Inc. He is
also Chairman of the Board and Chief Executive Officer of IES Utilities, the
major subsidiary of IES Industries. Mr. Liu has been with Iowa Electric Light
& Power Company, predecessor of IES Industries, since 1957. He is also a
member of the boards of directors of Hon Industries Inc., Principal Financial
Group, and McLeod USA Incorporated Mr. Liu is 64.
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</TABLE>
4
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TERM EXPIRING ANNUAL MEETING 2000
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[PHOTO] JERRY E. DEMPSEY
Mr. Dempsey served as Chairman of the Board and Chief Executive Officer of PPG
Industries, Inc. from 1993 until his retirement in 1997. From 1991 until he
joined PPG, he was Senior Vice President of WMX Technologies, Inc., a waste
treatment and disposal company, and Chairman of its publicly-traded, majority-
owned subsidiary, Chemical Waste Management, Inc., having served as President
and Chief Executive Officer of Chemical Waste Management, Inc. since 1985. Mr.
Dempsey is a member of the boards of directors of Waste Management, Inc. and
Navistar International Corporation. He is 65.
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[PHOTO] MARILYN R. MARKS
Miss Marks is Chairman and Chief Executive Officer of Dorsey Trailers, Inc.,
positions she has held since 1987. She was also President of Dorsey Trailers,
Inc. from 1987 to November, 1997. Miss Marks is also a member of the boards of
directors of Dana Corporation, the American Trucking Associations Foundation,
and the Truck Trailer Manufacturers Association. She is 45.
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[PHOTO] GERALD B. MITCHELL
Mr. Mitchell retired from Dana Corporation, a vehicle parts supply company, in
1990, following 44 years of service. From 1980 until his retirement, Mr.
Mitchell was the Chairman of the Board and Chief Executive Officer. Mr.
Mitchell is a member of the boards of directors of West Point-Stevens, Inc.,
Worthington Industries, Inc., and George Weston, Ltd. (Canada). He is 70.
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</TABLE>
5
<PAGE> 9
INFORMATION ABOUT THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Company's Board of Directors presently has five standing committees:
Audit; Finance; Compensation and Management Development; Health, Safety &
Environmental and Public Policy; and the Committee on Directors. Information
regarding the functions of those committees and their membership as of the date
of this Proxy Statement follows. Certain committee assignments are expected to
be changed following the Annual Meeting.
AUDIT COMMITTEE. The Audit Committee reviews the interim and annual
financial statements; annually recommends to the Board of Directors the firm to
be engaged as independent accountants for the Company; reviews the scope of, and
the reports and findings of, the audit activities of the independent accountants
and of the Company's internal auditing staff; reviews the adequacy of the
training of personnel and monitoring of the internal audit function and the
annual compensation paid to the independent accountants; meets separately and
privately with the independent accountants and with the Company's general
auditor and chief financial and accounting officers to ascertain if any
restrictions have been placed on the scope of their activities or if there has
been any lack of adequate response to their recommendations; reviews the
Company's corporate compliance program; and makes periodic reports and
recommendations to the Board. The members of the Audit Committee are Dr. White
(Chair) and Messrs. Arnelle, Campbell, and Donehower. The Audit Committee held
three meetings during 1997.
FINANCE COMMITTEE. The Finance Committee reviews the Company's short-and
long-term financing plans, its financial position and forecasts, and its capital
expenditure budgets and certain capital projects; reviews transactions, such as
acquisitions and divestitures, that may have a material impact on the Company's
financial profile; makes recommendations to the Board regarding those matters
and regarding dividends; and reviews the results of the Eastman Retirement
Assistance Plan and the activities of the Eastman Retirement Assistance Plan
Committee. The members of the Finance Committee are Miss Marks (Chair), and
Messrs. Dempsey, Donehower, and Liu. The Finance Committee held six meetings
during 1997.
COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE. The Compensation and
Management Development Committee (the "Compensation Committee") determines the
compensation of employees who are members of the Board; reviews the
recommendations of the Chairman of the Board regarding compensation of the
Company's other executive officers; reviews proposed employee benefit plans and
executive compensation plans, and proposed changes to existing plans under
certain circumstances; acts as the administrator of certain employee benefit
plans and executive compensation plans; reviews management development and
succession plans relating to the Company's executive officers; makes
recommendations to the Board regarding the foregoing matters; and can amend or
take actions with respect to the Company's employee compensation and benefit
plans where permitted by such plans. The members of the Compensation Committee
are Messrs. Mitchell (Chair) and Liu and Miss Marks. The Compensation Committee
held seven meetings during 1997.
HEALTH, SAFETY & ENVIRONMENTAL AND PUBLIC POLICY COMMITTEE. The Health,
Safety & Environmental and Public Policy Committee reviews and makes
recommendations to the Board regarding the Company's policies and practices
concerning health, safety, and environmental matters; reviews with the Company's
management and reports to the Board on the Company's health, safety, and
environment assessment practices, and its processes for complying with related
laws and regulations and on health, safety, and environmental matters involving
the Company, including any significant liabilities or anticipated expenditures
with respect thereto, and periodically reviews with management the Company's
public disclosure policies and practices, and coordinates with the Audit and
Finance Committees, with respect thereto; reviews and monitors, and makes
recommendations to the Board regarding, significant matters of health, safety,
and environmental public policy concerning the Company; reviews and makes
recommendations to the Board regarding certain significant matters of public
policy concerning the Company; periodically reviews with management the
Company's list of public policy issues; and monitors and periodically reports to
the Board on federal and state legislative and regulatory initiatives and the
Company's lobbying and advocacy activities. The members of the Health, Safety &
Environmental and Public Policy Committee are Messrs. Arnelle (Chair) and
Dempsey and Dr. White. The Health, Safety & Environmental and Public Policy
Committee held three meetings during 1997.
6
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COMMITTEE ON DIRECTORS. The Committee on Directors conducts a bi-annual
assessment of the Board's performance, for discussion with the full Board;
recommends to the Board criteria for Board membership and annually reviews the
Board's composition for purposes of assessing its diversity and skills; makes
recommendations regarding compensation of non-employee directors, and acts as
the administrator of certain non-employee director compensation plans, and can
amend or take actions with respect to such plans where permitted by such plans;
reviews the qualifications of candidates for Board membership and recommends to
the Board the slate of director candidates to be proposed for election by
shareowners at each annual meeting; recommends to the Board criteria relating to
the tenure of a director; when appropriate, recommends to the Board that it
recommend to the shareowners removal of a director for cause; and periodically
reviews the Board's committee structure and committee assignments and recommends
to the board any appropriate changes thereto. The members of the Committee on
Directors are Messrs. Campbell (Chair), Liu and Mitchell. The Committee on
Directors held four meetings during 1997.
The Company's Bylaws provide that nominations by shareowners of persons for
election to the Board of Directors may be made only by delivering written notice
(a "Nomination Notice") to the Secretary of the Company (1) at least 60 days
before any annual meeting, if the annual meeting is to be held on or after the
regular date called for by the Company's Bylaws (the first Thursday in May), or
(2) by the close of business on the 15th day following the giving of notice of
the date of the meeting, if the meeting is a special meeting or an annual
meeting held before the regular date. Any Nomination Notice must set forth
certain background information about each person being nominated, including the
following: information concerning such person's business and employment
experience during the past five years; any position as a director, officer, or
5%-or-more owner of any entity; and whether, in the last five years, the person
has been involved in certain proceedings that may be material to an evaluation
of his or her ability or integrity as a nominee. Any Nomination Notice also must
set forth certain information about the person submitting the Nomination Notice
and all persons acting in concert with such person, including the number of
shares of Company stock beneficially owned by such persons. A written consent to
being named in the proxy statement for the annual meeting as a nominee, and to
serve as a director if elected, signed by the nominee, shall be delivered with
any Nomination Notice.
The Company's Board of Directors held five meetings during 1997. Each
current director attended at least 75% of the aggregate of the total number of
meetings of the Board (held during the period for which he or she was a
director) and the total number of meetings held by all committees of the Board
on which he or she served (during the period that he or she served).
COMPENSATION OF DIRECTORS
DIRECTORS' ANNUAL COMPENSATION. Each director who is not an employee of
the Company receives an annual retainer fee of $25,000, payable in cash. In
addition, each such director receives a fee of $1,000 for each Board meeting
attended and for each committee meeting attended (and, in the case of the
Finance Committee and the Health, Safety & Environmental and Public Policy
Committee, regardless of whether such director is a member of such committee).
The chairperson of each committee receives an additional annual retainer of
$5,000. Directors who are also employees of the Company receive no Board or
committee fees.
DIRECTOR'S DEFERRED COMPENSATION PLAN. The Company maintains the
Directors' Deferred Compensation Plan (the "DDCP"), an unfunded, non-qualified,
deferred compensation plan under which non-employee directors of the Company may
elect on a voluntary basis to defer compensation received as a director until
such time as they cease to serve as a director. Non-employee directors may make
an annual advance irrevocable election to defer compensation for services to be
rendered the following year. Compensation that may be deferred includes all cash
compensation for service as a director, including retainer and meeting fees.
The deferred amounts may be credited (i) to individual "Interest Accounts"
under the DDCP, which will be credited with interest until transfer or
distribution at the prime rate as quoted in The Wall Street Journal, (ii) to
individual "Stock Accounts" under the DDCP, which increase or decrease in value
depending upon the market price of shares of Common Stock, or (iii) to a
combination thereof. Under the Stock Account, dollar amounts are "invested" in
hypothetical shares of the Company's Common Stock. If cash
7
<PAGE> 11
dividends are declared on shares of Common Stock, then any participant who has
hypothetical shares in the Stock Account will receive a dividend equivalent
which will be used to "purchase" additional hypothetical shares under the DDCP.
A participant may elect during specified periods to transfer the dollar amount
of all or any portion of his or her Stock Account to the Interest Account, or
vice versa.
Upon termination as a director, the value of a participant's Interest
Account and Stock Account will be paid, in cash, in a single lump sum or up to
ten annual installments, as determined in the sole discretion of the Committee
on Directors. Payment will commence in any year up through the tenth year
following termination of directorship, as determined by the Committee on
Directors, except that payment must commence no later than the year in which the
participant reaches age 71.
The DDCP provides that a participant, whether or not still a director, may
request that part or all of such participant's Interest Account and Stock
Account be distributed immediately in the event of a severe financial hardship.
The determination of whether a hardship exists will be made by the Committee on
Directors.
The DDCP also provides that a participant may withdraw at any time all or a
portion of his or her balances in the Interest and Stock Accounts, provided that
the participant forfeit 10% of the balance of his or her Accounts or $50,000,
whichever is less, and is not permitted to participate in the DDCP for a period
of 36 months from the date of the early withdrawal payment. In addition, if
within any six month period either (i) 50% or more of the DDCP participants
elect such early withdrawal from the DDCP or (ii) 20% or more of DDCP
participants with aggregate Account balances valued at 50% or more of the total
value of all DDCP Accounts elect such early withdrawal, then the Accounts of
each remaining DDCP participant will be distributed in a single lump sum.
If the Company undergoes a "change in control" (as defined in the DDCP,
generally circumstances in which the Company is acquired by another entity or
its controlling ownership is changed), then the Accounts of each participant,
whether or not the participant is still a director, will be paid in a single
lump sum no later than 90 days following the change in control.
1994 DIRECTOR LONG-TERM COMPENSATION PLAN. Under the Company's 1994
Director Long-Term Compensation Plan ("the Director Long-Term Plan"), each
non-employee director receives, upon the later of January 1, 1994 and the first
day of his or her initial term of service as a director, an award of
nonqualified stock options covering shares of Common Stock having a fair market
value of $25,000 at the time of grant and an award of restricted shares having a
fair market value of $10,000 at the time of grant. Accordingly, on January 1,
1994, Miss Marks, Messrs. Arnelle, Campbell, Liu, and Mitchell, and Dr. White
each received 232 shares of restricted stock and an option to purchase 578
shares of Common Stock at $43.2875 per share; on May 1, 1997, Mr. Dempsey
received 191 shares of restricted stock and an option to purchase 476 shares of
Common Stock at $52.6250 per share; and on February 3, 1998, Mr. Donehower
received 163 shares of restricted stock and an option to purchase 407 shares of
Common Stock at $61.4625 per share.
Each option has an exercise price equal to the fair market value of the
shares on the date of grant. For purposes of determining both the number of
shares underlying and the exercise price of any option, "fair market value" is
determined based on the average of the closing prices of the shares on the date
of grant and the following nine days. One half of the options vest upon the
first anniversary of the date of grant and the other half upon the second
anniversary of the date of the grant. Each option has a term of ten years. The
options provide, with respect to exercises through the surrender of previously
owned shares of Common Stock, for the issuance of new "reload" options covering
the same number of shares as surrendered in the exercise (with an exercise price
equal to the fair market value of the shares on the date of exercise of the
original option). Restricted shares awarded under the Director Long-Term Plan
vest and become transferable three years from the date of award if, and only if,
the grantee is still a director of the Company at that time or his or her tenure
is terminated by reason of death, disability, or failure to be reelected by the
shareowners. During the restricted period, the director is entitled to voting
and dividend rights with respect to the stock.
The Director Long-Term Plan contains provisions regarding the treatment of
options and restricted stock in the event of a "change in control" (as defined
in the Director Long-Term Plan, generally circumstances in which the Company is
acquired by another entity or its controlling ownership is changed). In such
event, the
8
<PAGE> 12
options and restricted stock generally will be vested, valued, and cashed out on
the basis of the change in control price as soon as practicable but in no event
more than 90 days after the change in control. There is no discretion in the
granting of awards under the Director Long-Term Plan; grants are made only
pursuant to the preceding formula. The maximum number of shares that may be
granted or subject to awards under the Director Long-Term Plan is 60,000, but
the Director Long-Term Plan provides that in the event of certain changes in the
capital or capital stock of the Company, the Committee on Directors shall make
appropriate adjustments in the number and kind of shares that may be issued
under the Director Long-Term Plan and any adjustments or modifications to
outstanding awards deemed appropriate by such Committee. No grant or award may
be made under the Director Long-Term Plan after December 31, 1998.
1996 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN. Under the Company's 1996
Non-Employee Director Stock Option Plan (the "Director Stock Option Plan"), each
non-employee director may elect to receive options to purchase Common Stock in
lieu of his or her annual retainer (but not meeting fees or other compensation
as a director). A maximum of 150,000 shares of Common Stock are available for
the grant of stock options under the Director Stock Option Plan, subject to
adjustment in the event of stock splits, stock dividends or changes in corporate
structure affecting Common Stock. No grant may be made under the Director Stock
Option Plan after May 2, 2006.
Each non-employee director may make an annual advance irrevocable election
to receive all or a portion of his or her retainer to be earned in the following
year in options to purchase Common Stock. The number of shares of Common Stock
underlying stock options granted is determined by multiplying the amount of the
semi-annual retainer the director elects to receive in stock options by three
and one-third, then dividing by the fair market value per share of Common Stock
(defined as the closing price per share reported by the New York Stock Exchange)
on the date the options are granted.
The exercise price per share of all stock options granted under the
Director Stock Option Plan is 100% of the fair market value per share of Common
Stock on the grant date, defined as the closing price per share reported by the
New York Stock Exchange. Options granted under the Director Stock Option Plan
are not exercisable until six months from the date of grant, and remain
exercisable thereafter until the tenth anniversary of the date of grant,
regardless of whether the participant is still a director. Options may be
exercised either by the payment of cash in the amount of the aggregate option
price or by surrendering shares of Common Stock, or a combination of both,
having a combined value equal to the aggregate option price of the shares
subject to the option or portion of the option being exercised. Any option or
portion thereof that is not exercised on or before the tenth anniversary of the
date of grant shall expire.
Upon the occurrence of a "change in control" of the Company (as defined in
the Director Stock Option Plan, generally circumstances in which the Company is
acquired by another entity or its controlling ownership is changed), any and all
outstanding options under the Director Stock Option Plan become immediately
exercisable.
9
<PAGE> 13
STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
COMMON STOCK
The following table sets forth certain information regarding the beneficial
ownership of Common Stock by each director, by each executive officer named in
the Summary Compensation Table and by all directors and executive officers as a
group, as of January 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK BENEFICIALLY
NAME OWNED(1)(2)
---- -------------------------
<S> <C>
Earnest W. Deavenport, Jr................................... 270,168(3)
R. Wiley Bourne, Jr......................................... 164,586(4)
Dr. James L. Chitwood....................................... 99,985(5)
Tom O. Nethery.............................................. 112,910(6)
H. Virgil Stephens.......................................... 264,631(7)
H. Jesse Arnelle............................................ 2,189(8)
Calvin A. Campbell, Jr...................................... 4,328(9)
Jerry E. Dempsey............................................ 1,191(10)
John W. Donehower........................................... --(11)
Lee Liu..................................................... 1,733(12)
Marilyn R. Marks............................................ 5,010(13)
Gerald B. Mitchell.......................................... 1,487
Dr. John A. White........................................... 4,505(14)
Directors and executive officers as a group (19 persons).... 1,047,059(15)
</TABLE>
- ---------------
(1) Information relating to beneficial ownership is based upon information
furnished by each person using "beneficial ownership" concepts set forth in
rules of the Securities and Exchange Commission (the "SEC") under Section
13 of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
Under those rules, a person is deemed to be a "beneficial owner" of a
security if that person has or shares "voting power," which includes the
power to vote or to direct the voting of such security, or "investment
power," which includes the power to dispose or to direct the disposition of
such security. The person is also deemed to be a beneficial owner of any
security of which that person has a right to acquire beneficial ownership
(such as by exercise of options) within 60 days. Under such rules, more
than one person may be deemed to be a beneficial owner of the same
securities, and a person may be deemed to be a beneficial owner of
securities as to which he or she may disclaim any beneficial interest.
Except as indicated in other notes to this table, directors and executive
officers possessed sole voting and investment power with respect to all
shares of Common Stock referred to in the table.
(2) The total number of shares of Common Stock beneficially owned by all
directors and executive officers as a group represents approximately 1.32%
of the shares of Common Stock outstanding as of January 31, 1998. The
percentage beneficially owned by any individual director or executive
officer does not exceed one percent of the outstanding shares of Common
Stock. Shares not outstanding which are subject to options exercisable
within 60 days by persons in the group or a named individual are deemed to
be outstanding for the purpose of computing the percentage of outstanding
shares of Common Stock owned by the group or such individual.
(3) Includes 256,005 shares that may be acquired upon exercise of options;
5,000 restricted shares which generally vest on May 4, 1998, but as to
which Mr. Deavenport currently has voting power; and 593 shares allocated
to Mr. Deavenport's Eastman Employee Stock Ownership Plan (the "ESOP")
account.
(4) Includes 146,044 shares that may be acquired upon exercise of options;
5,000 restricted shares which generally vest on May 4, 1998, but as to
which Mr. Bourne currently has voting power; and 593 shares allocated to
Mr. Bourne's ESOP account.
(5) Includes 76,734 shares that may be acquired upon exercise of options and
579 shares allocated to Dr. Chitwood's ESOP account. Also includes 101
shares held by Dr. Chitwood's spouse as custodian for his adult children,
as to which shares Dr. Chitwood disclaims beneficial ownership.
(6) Includes 93,465 shares that may be acquired upon exercise of options and
579 shares allocated to Mr. Nethery's ESOP account.
10
<PAGE> 14
(7) Includes 71,413 shares that may be acquired upon exercise of options. Also
includes 184,557 shares owned by the Eastman Chemical Company Foundation,
Inc., of which shares Mr. Stephens may also be deemed a beneficial owner by
virtue of his shared voting and investment power as a director of the
Foundation.
(8) Includes 278 shares that may be acquired upon exercise of options.
(9) Includes 578 shares that may be acquired upon exercise of options.
(10) Includes 191 restricted shares, which generally vest on May 1, 2000, but as
to which Mr. Dempsey currently has voting power. See "Compensation of
Directors -- 1994 Director Long-Term Compensation Plan."
(11) Mr. Donehower received 163 shares of restricted stock on February 3, 1998,
which shares are not included in the table. See "Compensation of
Directors -- 1994 Director Long-Term Compensation Plan."
(12) Includes 578 shares that may be acquired upon exercise of options. Also
includes 600 shares held by Mr. Liu's spouse, as to which shares Mr. Liu
disclaims beneficial ownership.
(13) Includes 2,000 shares that may be acquired upon exercise of options.
(14) Includes 1,290 shares that may be acquired upon exercise of options.
(15) Includes a total of 742,258 shares that may be acquired upon exercise of
options and 5,259 shares allocated to executive officers' ESOP accounts.
Includes shares held by and shares allocated to the ESOP accounts of the
spouses of executive officers not named above, as to which shares such
executive officers disclaim beneficial ownership. Includes 184,557 shares
owned by the Eastman Chemical Company Foundation, Inc., of which shares Mr.
Stephens and two other executive officers not named above may each be
deemed a beneficial owner by virtue of their shared voting and investment
power as directors of the Foundation.
COMMON STOCK AND COMMON STOCK UNITS
In addition to shares of Common Stock beneficially owned, certain of the
executive officers have units of Common Stock ("Common Stock Units") credited to
their individual Stock Accounts in the Eastman Executive Deferred Compensation
Plan (the "EDCP") and in the Eastman ESOP Excess Plan, and certain of the
directors have Common Stock Units credited to their individual Stock Accounts in
the DDCP. See "Compensation of Directors -- Directors' Deferred Compensation
Plan" and "Executive Compensation and Benefits -- Company Compensation and
Benefit Plans -- Executive Deferred Compensation Plan", "-- Historical
Compensation -- Summary Compensation Table", and "-- Compensation and Management
Development Committee Report on Executive Compensation".
The following table shows, for each director and executive officer named in
the Summary Compensation Table, and for all directors and executive officers as
a group, the aggregate of (1) the number of shares of Common Stock beneficially
owned by such person and group, as set forth in the preceding table, and (2) the
number of Common Stock Units credited to the Stock Accounts of such person and
group. Common Stock Units represent hypothetical "investments" in Common Stock.
The value of one Common Stock Unit is equal to the market value of one share of
Common Stock. Although the DDCP, EDCP, and ESOP Excess Plan allow Common Stock
Units to be paid out only in the form of cash, and not in shares of Common
Stock, Common Stock Units create essentially the same stake in the market
performance of the Common Stock as do actual shares of Common Stock. As a
result, Common Stock Units are counted with certain shares of Common Stock
beneficially owned (excluding certain shares which may be deemed beneficially
owned under SEC rules, such as shares underlying options, shares owned by the
individual's spouse, and shares over which the individual shares voting and
investment power but in which the individual has no pecuniary interest) for
purposes of the Company's stock ownership guidelines -- four times target total
annual compensation for the Chief Executive Officer, three times target total
annual compensation for the other executive officers named in the Summary
Compensation Table, and three times the annual retainer fee for non-employee
directors. See "Executive Compensation and Benefits -- Compensation and
Management Development Committee Report
11
<PAGE> 15
on Executive Compensation." The table below is included to provide a better
indication of the stake of the named individuals, and of the directors and
executive officers as a group, with respect to the Common Stock.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK AND
COMMON STOCK UNITS
NAME BENEFICIALLY OWNED
- ---- -------------------
<S> <C>
Earnest W. Deavenport, Jr................................... 353,838
R. Wiley Bourne, Jr......................................... 206,147
Dr. James L. Chitwood....................................... 100,394
Tom O. Nethery.............................................. 118,001
H. Virgil Stephens.......................................... 271,016(1)
H. Jesse Arnelle............................................ 3,215
Calvin A. Campbell, Jr...................................... 4,328
Jerry E. Dempsey............................................ 1,191
John W. Donehower........................................... --(2)
Lee Liu..................................................... 1,733
Marilyn R. Marks............................................ 5,946
Gerald B. Mitchell.......................................... 1,487
Dr. John A. White........................................... 6,424
Directors and executive officers as a group (19 persons).... 1,201,164(3)
</TABLE>
- ---------------
(1) Includes 184,557 shares owned by the Eastman Chemical Company Foundation,
Inc., over which shares Mr. Stephens shares voting and investment power as a
director of the Foundation but in which shares Mr. Stephens has no pecuniary
interest.
(2) Mr. Donehower received 163 shares of restricted stock on February 3, 1998,
which shares are not included in the table. See "Compensation of
Directors -- 1994 Director Long-Term Compensation Plan."
(3) Includes 184,557 shares owned by the Eastman Chemical Company Foundation,
Inc., over which shares Mr. Stephens and two other executive officers not
named above share voting and investment power as directors of the Foundation
but in which shares such executive officers have no pecuniary interest.
12
<PAGE> 16
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information regarding the only known
beneficial owners of more than 5% of the Common Stock.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF PERCENT
COMMON STOCK OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED CLASS(1)
- ------------------------------------ ------------------- --------
<S> <C> <C>
Putnam Investments, Inc..................................... 5,171,785(2) 6.58%
One Post Office Square
Boston, Massachusetts 02109
The Regents of The University of California................. 4,220,467(3) 5.37%
300 Lakeside Drive
Oakland, California 94612
</TABLE>
- ---------------
(1) Based upon the number of shares of Common Stock outstanding as of the Record
Date.
(2) As of December 31, 1997, based on a Schedule 13G filed with the SEC by
Putnam Investments, Inc. on behalf of itself, its parent company, and two
wholly-owned investment advisers. According to the Schedule 13G, Putnam
Investments, Inc.'s investment adviser subsidiaries share with their
respective mutual fund and institutional clients investment power with
respect to all of such shares, and one such investment adviser subsidiary
shares with its institutional clients voting power with respect to 75,348
of such shares.
(3) As of December 31, 1997, based on a Schedule 13G filed with the SEC by The
Regents of The University of California, a pension fund. According to the
Schedule 13G, The Regents of The University of California has sole voting
and investment power with respect to all of such shares.
13
<PAGE> 17
EXECUTIVE COMPENSATION AND BENEFITS
HISTORICAL COMPENSATION
The following Summary Compensation Table sets forth certain information
concerning compensation of the Company's Chief Executive Officer and each of the
Company's four other most highly compensated executive officers for 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
--------------------------------------
AWARDS PAYOUTS
------------------------- ----------
ANNUAL COMPENSATION(1) SECURITIES LONG-TERM
------------------------------------- RESTRICTED UNDERLYING INCENTIVE
NAME AND PRINCIPAL OTHER ANNUAL STOCK AWARDS OPTIONS/ PLAN ALL OTHER
POSITION YEAR SALARY BONUS(2) COMPENSATION(3) ($)(4) SARS PAYOUTS COMPENSATION(5)
------------------ ---- -------- -------- --------------- ------------ ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Earnest W. 1997 $688,542 $692,130 $13,715 $ 0 204,957(6)(7) $329,384(8) $36,239
Deavenport, Jr. 1996 607,500 442,566 13,654 0 65,500 600,863(8) 31,974
Chairman and 1995 563,333 755,427 4,980 284,375 15,500 961,553(9) 29,649
Chief Executive
Officer
R. Wiley Bourne, 1997 421,900 296,158 8,238 0 9,250 193,400(8) 22,205
Jr. 1996 399,967 221,429 3,412 0 12,195(7) 352,800(8) 21,051
Vice Chairman 1995 377,000 390,427 4,355 284,375 10,636(7) 641,061(9) 19,842
and Executive
Vice President
Dr. James L. 1997 343,733 240,009 63,852 0 8,000 142,028(8) 18,091
Chitwood 1996 377,091(10) 182,803 386 0 18,219(7) 259,088(8) 17,386
Senior Vice 1995 311,700 319,198 991 0 10,975(7) 480,776(9) 15,918
President
Tom O. Nethery 1997 348,400 244,614 7,906 0 12,719(7) 142,028(8) 18,337
Senior Vice 1996 330,333 182,803 6,104 0 11,435(7) 259,088(8) 17,386
President 1995 311,700 322,859 3,328 0 10,842(7) 480,776(9) 16,405
H. Virgil Stephens 1997 308,333 216,850 6,536 0 5,500 93,678(8) 16,228
Senior Vice 1996 290,333 160,951 1,487 0 11,545(7) 170,888(8) 15,281
President and 1995 257,733 271,360 2,052 0 5,696(7) 0 13,565
Chief Financial
Officer
</TABLE>
- ---------------
(1) Includes both amounts paid for the indicated years and amounts earned
during the indicated years but deferred.
(2) Cash payments in the year following for services rendered in the year
indicated under the Eastman Performance Plan and the Annual Performance
Plan. See "Compensation and Management Development Committee Report on
Executive Compensation."
(3) Includes amounts reimbursed for payment of taxes on certain benefits, and
the portion of interest accrued on deferred compensation under the
Executive Deferred Compensation Plan and on certain stock options at a rate
that exceeded 120 percent of the then applicable Federal long-term rate.
The amount reported for Dr. Chitwood in 1997 also includes tax gross-up
payments attributed to his overseas assignment.
(4) Represents fair market value of awards of restricted stock, based upon the
closing price of the Common Stock on the New York Stock Exchange on the
date of grant. The amounts reported do not take into account the transfer
restrictions on the shares. At December 31, 1997, Mr. Deavenport and Mr.
Bourne each held 5,000 restricted shares of Common Stock, in both cases
with a fair market value of $297,813 based on the per share closing price
of the Common Stock on the New York Stock Exchange on December 31, 1997
($59.5625). Dividends are paid on these shares as and when dividends are
paid on Common Stock.
(5) Represents the portion of the Eastman Performance Plan payment which was
contributed or credited by the Company to the employee's accounts in the
ESOP and ESOP Excess Plan. See "Compensation and Management Development
Committee Report on Executive Compensation."
(6) Includes an option to purchase 200,000 shares of Common Stock only if
specified conditions tied to the price appreciation of Eastman Common
Stock, and other conditions, are met. See "Compensation and Management
Development Committee Report on Executive Compensation" and "Option/SAR
Grants in Last Fiscal Year" table.
(7) Includes "reload" options received by Mr. Deavenport (4,957 in 1997), Mr.
Bourne (2,945 in 1996 and 1,386 in 1995), Dr. Chitwood (8,219 in 1996 and
4,225 in 1995), Mr. Nethery (4,719 in 1997, 4,685 in 1996 and 842 in
14
<PAGE> 18
1995), and Mr. Stephens (2,295 in 1996 and 1,446 in 1995) to purchase a
number of shares equal to the number of previously owned shares of Common
Stock surrendered in payment of the exercise price of options exercised
during 1997, 1996 and 1995, respectively. See "Option/SAR Grants in Last
Fiscal Year" and "Aggregated Option/SAR Exercises in Last Fiscal Year and
Fiscal Year-End Option/SAR Values" tables.
(8) Represents fair market value of payout during the year following of stock
earned under performance shares awarded at the beginning of the three-year
performance period ended in the year indicated, with shares earned based
upon total return to shareowners during the three-year performance period
relative to that of peer companies. The payout, unless deferred at the
election of the participant, is in the form of unrestricted shares of
Common Stock. The amount reported represents the fair market value of the
shares earned, based upon the per share closing price of the Common Stock
on the New York Stock Exchange on the payment date. See "Compensation and
Management Development Committee Report on Executive Compensation."
(9) The 1995 payout was for the 1993 participation in a three-year (1993-1995)
award cycle under a long-term incentive plan of Eastman Kodak Company when
the Company operated as a wholly-owned business of Kodak. The payout was
made in Kodak common stock, with the fair market value of the stock on the
date of payment equal to $76.875 per share, the closing price of the stock
on the New York Stock Exchange on that date.
(10) Includes $46,758 paid to Dr. Chitwood as a premium payment attributed to
his overseas assignment.
15
<PAGE> 19
The following table sets forth certain information regarding options
granted during 1997 under the Company's Omnibus Long-Term Compensation Plans to
the individuals named in the Summary Compensation Table.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM(1)
-------------------------------------------------------- ----------------------------------
NUMBER OF
SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS/SARS
OPTIONS/ GRANTED TO EXERCISE OR
SARS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED FISCAL YEAR PER SHARE DATE 0%(2) 5%(3) 10%(4)
---- ---------- ---------------- ----------- ---------- ------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
E. W. Deavenport, Jr. 200,000(5) 31.92% $60.7500 09/15/07(5) $0 $7,641,070(6) $19,363,971(6)
4,052(7) 0.65% 60.0000 11/09/98 0 12,156 24,312
905(7) 0.14% 60.0000 05/08/00 0 8,559 17,973
R. W. Bourne, Jr. 9,250(8) 1.48% 60.1875 08/03/07 0 350,127 887,291
Dr. J. L. Chitwood 8,000(8) 1.28% 60.1875 08/03/07 0 302,813 767,387
T. O. Nethery 8,000(8) 1.28% 60.1875 08/03/07 0 302,813 767,387
4,719(7) 0.75% 63.2190 05/08/00 0 47,024 98,747
H.V. Stephens 5,500(8) 0.88% 60.1875 08/03/07 0 208,184 527,579
</TABLE>
- ---------------
(1) The dollar amounts under these columns are the result of calculations
projected for the term of each individual grant, assuming 0%, and the 5%
and 10% rates set by the SEC, of compounded annual appreciation, and are
not intended to forecast possible future appreciation, if any, of the
market price of the Common Stock.
(2) No gain to the optionee is possible without an increase in stock price,
which would benefit all shareowners commensurately. A 0% appreciation in
stock price would result in zero dollars for the optionee.
(3) Represents the appreciation in stock price from the exercise or base price
until the expiration date assuming a 5% per year appreciation in stock
price. For example, for the option expiring on August 3, 2007, a 5% per
year appreciation in stock price from $60.1875 per share yields $98.04 per
share.
(4) Represents the appreciation in stock price from the exercise or base price
until the expiration date assuming a 10% per year appreciation in stock
price. For example, for the option expiring on August 3, 2007, a 10% per
year appreciation in stock price from $60.1875 per share yields $156.11 per
share.
(5) Performance-based stock option with stock price vesting and time vesting
conditions, both of which must be met for the option to become exercisable.
Subject to the price vesting conditions, the option becomes exercisable 20%
per year beginning one year from grant date. Subject to the time vesting
conditions, the option will become exercisable (i) as to 50% of the
underlying shares if the average of the closing prices of the Common Stock
for any twenty consecutive trading days equals or exceeds $80 within three
years from grant date; (ii) as to 100% of the underlying shares if the
average of the closing prices of the Common Stock for any twenty
consecutive trading days equals or exceeds $100 within five years from
grant date. The option will be forfeited on the fifth anniversary of the
grant date as to any shares for which the applicable stock price target is
not met. In addition, if Mr. Deavenport were to terminate his employment
for approved reasons such as death, disability, or retirement, if prior to
the first anniversary of the grant date, then the option would be forfeited
as to two-thirds of the underlying shares; or, if between the first and
second anniversary of the grant date, then the option would be forfeited as
to one-third of the underlying shares. The option also provides for
forfeiture in the event of certain activity adverse to the interests of the
Company. In the event of a "change in ownership," or in certain
circumstances following a "change in control," conditions to vesting would
be deemed to have been satisfied. See "Company Compensation and Benefits
Plans -- Omnibus Long-Term Compensation Plans." The exercise price may be
paid by either the payment of cash or by surrendering previously owned
shares of Common Stock.
16
<PAGE> 20
(6) If the price vesting conditions of the performance-based stock option are
not met, then the hypothetical appreciation of the stock price shown would
not be realized, because the option would be forfeited prior to the end of
the option term.
(7) "Reload" options received upon exercise of previously granted options
through surrender of shares of Common Stock and covering the same number of
shares as surrendered in the exercise. The options vest six months from the
grant date, with acceleration of vesting in the event of a "change in
ownership" or in certain circumstances following a "change in control." See
"Company Compensation and Benefit Plans -- Omnibus Long-Term Compensation
Plans."
(8) The options vest in 50% increments on each of the first two anniversaries of
the grant date, with acceleration of vesting in the event of a "change in
ownership" or in certain circumstances following a "change in control." See
"Company Compensation and Benefit Plans -- Omnibus Long-Term Compensation
Plans." The exercise price may be paid by surrendering previously owned
shares of Common Stock, in which case the optionee will receive a new
option to purchase the same number of shares as surrendered in the
exercise. Such "reload" options have an exercise price equal to the fair
market value of the underlying Common Stock on the date of the new grant.
The following table sets forth certain information regarding exercises of
options during 1997, and total options and stock appreciation rights ("SARs")
held at year end, by the individuals named in the Summary Compensation Table.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
NUMBER OF OPTIONS/SARS AT OPTIONS/SARS AT
SECURITIES FISCAL YEAR-END FISCAL YEAR-END(1)
UNDERLYING ---------------------- --------------------
OPTIONS/SARS VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISED REALIZED UNEXERCISABLE UNEXERCISABLE
---- ------------ -------- ---------------------- --------------------
<S> <C> <C> <C> <C>
E. W. Deavenport, Jr......... 11,539 $264,871 251,048/237,707 $4,292,276/50,617
R. W. Bourne, Jr............. 3,237 66,876 146,044/13,875 2,701,923/30,207
Dr. J. L. Chitwood........... 0 0 76,734/13,000 923,922/32,656
T. O. Nethery................ 9,711 315,531 88,746/16,094 1,346,887/22,043
H. V. Stephens............... 0 0 71,413/10,125 1,214,035/30,207
</TABLE>
- ---------------
(1) Represents the difference between (a) the average of the high and low
trading prices on the New York Stock Exchange on December 31, 1997 of the
Common Stock underlying the options and SARs on December 31, 1997 and (b)
the exercise or base price of the options and SARs.
The following table sets forth certain information regarding long-term
incentive plan awards during 1997 to the individuals named in the Summary
Compensation Table.
LONG-TERM INCENTIVE PLAN -- AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS UNDER
NON-STOCK PRICE-BASED PLANS
NUMBER OF PERFORMANCE OR ----------------------------------------------------
SHARES, UNITS OR OTHER PERIOD UNTIL BELOW
NAME OTHER RIGHTS MATURATION OR PAYOUT THRESHOLD(#) THRESHOLD(#) TARGET(#) MAXIMUM(#)
- --------------------- ---------------- -------------------- ------------ ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C>
E.W. Deavenport,
Jr................. 10,900 3 years -0- 1,090 11,990 21,800
R.W. Bourne, Jr...... 6,400 3 years -0- 640 7,040 12,800
Dr. J. L. Chitwood... 4,700 3 years -0- 470 5,170 9,400
T.O. Nethery......... 4,700 3 years -0- 470 5,170 9,400
H.V. Stephens........ 3,900 3 years -0- 390 4,290 7,800
</TABLE>
The above table reflects performance shares awarded under the 1994 Omnibus
Long-Term Compensation Plan. Such awards were made under a three-year Long-Term
Performance Subplan. The awards reflected
17
<PAGE> 21
in the table were granted in February 1997 for a 1997-1999 cycle. Performance is
measured by the Company's total return to shareowners (change in stock price
plus dividends declared during the relevant period, assuming reinvestment of
dividends) relative to that of the companies identified in the Performance
Graph. Future payouts, if any, are based upon the Company's position in a
ranking of the unweighted total shareholder returns of the compared companies.
If the Company's total shareowner return ("TSR") ranks below the fifteenth
company (threshold), no award will be earned; if TSR ranks at threshold, 10% of
the target awards will be earned; if TSR ranks tenth (target), 110% of the
target awards will be earned; and if TSR ranks first of the compared companies
(maximum), 200% of the target awards will be earned. If earned, awards will be
paid after the end of the performance period in unrestricted shares of Common
Stock, or participants may irrevocably elect in advance to defer the award
payout into the Executive Deferred Compensation Plan.
COMPANY COMPENSATION AND BENEFIT PLANS
OMNIBUS LONG-TERM COMPENSATION PLANS. The Company's 1997 Omnibus Long-Term
Compensation Plan (the "1997 Omnibus Plan"), which is administered by the
Compensation Committee, provides for grants to employees of nonqualified and
incentive stock options, SARs, stock awards, performance shares, and other stock
and stock-based awards (collectively, "Awards"). The 1997 Omnibus Plan also
provides for the award of dividends and dividend equivalents on Awards. The 1997
Omnibus Plan was approved by shareowners at the Company's 1997 Annual Meeting of
Shareowners, and is substantially similar to, and intended to replace, the 1994
Omnibus Long-Term Compensation Plan (the "1994 Omnibus Plan"). (Either of the
1994 Omnibus Plan and 1997 Omnibus Plan are sometimes referred to in this Proxy
Statement as the "Omnibus Long-Term Compensation Plan" or the "Omnibus Plan,"
and the 1994 Omnibus Plan and 1997 Omnibus Plan are sometimes collectively
referred to as the "Omnibus Long-Term Compensation Plans" or the "Omnibus
Plans.") No new awards have been made under the 1994 Omnibus Plan following the
effectiveness of the 1997 Omnibus Plan, and outstanding grants and awards under
the 1994 Omnibus Plan are unaffected by the replacement of the 1994 Omnibus Plan
with the 1997 Omnibus Plan.
The Omnibus Plans contain provisions regarding the treatment of Awards in
the event of a "change in ownership" (as defined in the Omnibus Plans, generally
concerning circumstances in which the Common Stock is no longer publicly traded)
and of a "change in control" (as defined in the Omnibus Plans, generally
concerning circumstances in which the Company is acquired by another entity or
its controlling ownership is changed). Upon a change in ownership or change in
control, the rules described below will apply to Awards granted under the
Omnibus Plans. However, the Compensation Committee will have the discretion,
notwithstanding any particular transaction constituting a change in ownership or
a change in control, either to determine that such transaction is of the type
that does not warrant the described consequences with respect to Awards (in
which event such consequences would not occur) or to alter the way in which
Awards are treated from the consequences outlined in the Omnibus Plans.
If a change in ownership occurs (and the Compensation Committee has not
exercised its discretion outlined above) during the term of one or more
performance periods for which the Compensation Committee has granted performance
shares, the term of such performance period will immediately terminate and,
except with respect to performance periods for which the Compensation Committee
has previously reached a determination regarding the degree to which the
performance objectives have been attained, it will be assumed that the
performance objectives have been attained at a level of 100%. Participants, as a
result, will be considered to have earned and therefore be entitled to receive a
prorated share of the Awards previously granted for such performance period. In
addition, upon a change in ownership, all outstanding Awards will be valued and
cashed out on the basis of the change in ownership price as soon as practicable
but in no event more than 90 days after the change in ownership.
In the event of a change in control (assuming the Compensation Committee
has not exercised its discretion outlined above), if a participant's employment
terminates within two years following the change in control, unless such
termination is due to (i) death, (ii) disability (as defined in the Omnibus
Plans), (iii) cause (as defined in the Omnibus Plans), (iv) resignation (other
than as a result of certain actions by the Company and any successor) or (v)
retirement, participants will be entitled to the following treatment. All
conditions, restrictions, and limitations in effect with respect to any
unexercised Award will immediately lapse
18
<PAGE> 22
and no other terms or conditions will be applied. Any unexercised, unvested,
unearned, or unpaid Award will automatically become 100% vested. Performance
shares will be treated in a manner similar to that described above in the case
of a change in ownership. A participant will be entitled to a lump sum cash
payment as soon as practicable but in no event more than 90 days after the date
of such participant's termination of employment with respect to all of such
participant's Awards.
The maximum number of shares of Common Stock that may be granted or subject
to Awards under the 1997 Omnibus Plan is 7,000,000. Awards may not be granted
under the 1997 Omnibus Plan after April 30, 2002. The Omnibus Plans provide that
equitable adjustments will be made in the number of shares of Common Stock
covered by outstanding Awards, the price per share applicable to outstanding
Awards, and the number of shares that are thereafter available for Awards in the
event of a change in the capital or capital stock of the Company or any special
distribution to shareowners.
EASTMAN RETIREMENT ASSISTANCE PLAN. Prior to the spin-off of the Company
from Eastman Kodak Company at the end of 1993, most of the Company's employees
participated in a tax-qualified, defined benefit pension plan known as the Kodak
Retirement Income Plan ("KRIP"). The Company has adopted the Eastman Retirement
Assistance Plan ("ERAP"), a plan similar to KRIP, for substantially all active
U.S. employees. The ERAP will recognize earnings and service with Kodak and its
affiliates prior to the spin-off. The ERAP assumed its proportionate share of
KRIP benefit obligations relating to the Company's active employees as of the
date of the spin-off. Effective July 1, 1997, the KRIP transferred to the ERAP a
proportionate share of its assets, based upon the ratio of the benefit
liabilities assumed by ERAP to the total benefit liabilities of KRIP immediately
prior to the spin-off. Subsequent to the transfer, KRIP retained sole liability
for benefit liabilities with respect to employees of Kodak and ERAP retained
sole liability for benefit liabilities with respect to employees of the Company.
The transfer was deemed to be effective as of January 1, 1994.
19
<PAGE> 23
The following table sets forth the estimated annual benefits payable upon
retirement (including any amounts attributable to the plans described under
"Supplemental Pension Plans" below) to persons in the specified compensation and
years-of-service classifications who are eligible for a full unreduced benefit.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
AVERAGE YEARS OF SERVICE
PARTICIPATING ---------------------------------------------------------------
COMPENSATION 15 20 25 30 35 40
- ------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$ 100,000 $ 21,161 $ 28,214 $ 35,268 $ 42,321 $ 49,375 $ 51,843
125,000 27,161 36,214 45,268 54,321 63,375 66,543
150,000 33,161 44,214 55,268 66,321 77,375 81,423
175,000 39,161 52,214 65,268 78,321 91,375 95,943
200,000 45,161 60,214 75,268 90,321 105,375 110,643
225,000 51,161 68,214 85,268 102,321 119,375 125,343
250,000 57,161 76,214 95,268 114,321 133,375 140,043
300,000 69,161 92,214 115,268 138,321 161,375 169,443
350,000 81,161 108,214 135,268 162,321 189,375 198,843
400,000 93,161 124,214 155,268 186,321 217,375 228,243
450,000 105,161 140,214 175,268 210,321 245,375 257,643
500,000 117,161 156,214 195,268 234,321 273,375 287,043
550,000 129,161 172,214 215,268 258,321 301,375 316,443
600,000 141,161 188,214 235,268 282,321 329,375 345,843
650,000 153,161 204,214 255,268 306,321 357,375 375,243
700,000 165,161 220,214 275,268 330,321 385,375 404,643
750,000 177,161 236,214 295,268 354,321 413,375 434,043
800,000 189,161 252,214 315,268 378,321 441,375 463,443
850,000 201,161 268,214 335,268 402,321 469,375 492,843
900,000 213,161 284,214 355,268 426,321 497,375 522,243
950,000 225,161 300,214 375,268 450,321 525,375 551,643
1,000,000 237,161 316,214 395,268 474,321 553,375 581,043
1,050,000 249,161 332,214 415,268 498,321 581,375 610,443
1,100,000 261,161 348,214 435,268 522,321 609,375 639,843
1,150,000 273,161 364,214 455,268 546,321 637,375 669,243
1,200,000 285,161 380,214 475,268 570,321 665,375 698,643
1,250,000 297,161 396,214 495,268 594,321 693,375 728,043
1,300,000 309,161 412,214 515,268 618,321 721,375 757,443
</TABLE>
To the extent that any individual's annual retirement income benefit, as
reflected in the foregoing table, exceeds the amount payable from the ERAP, such
excess will be paid from one or more unfunded, supplementary plans. See
"Supplemental Pension Plans" below.
Retirement income benefits under the ERAP will be based upon the
participant's "average participating compensation" ("APC"), which is the average
of three years of those earnings described in the ERAP as "participating
compensation." "Participating compensation," in the case of the executive
officers identified in the Summary Compensation Table, will consist of salary
and bonus payments, including allowance in lieu of salary for authorized periods
of absence, such as illness, vacation, or holidays.
The estimated annual benefits reflected in the preceding Pension Plan Table
have been computed in straight-life annuity amounts and are not subject to any
deductions for Social Security or other offset amounts. An employee is eligible
for full unreduced benefits when such employee's aggregate age plus years of
eligible service totals 85 or at age 65.
Years of accrued service credited through 1997 and the amount of APC at the
end of 1997 for the individuals named in the Summary Compensation Table were as
follows: Mr. Deavenport, 37 years and $1,275,072; Mr. Bourne, 38 years and
$730,913; Dr. Chitwood, 29 years and $600,321; Mr. Nethery, 37 years and
$603,917; and Mr. Stephens, 19 years and $511,691.
SUPPLEMENTAL PENSION PLANS. The Company maintains two unfunded,
nonqualified plans that will restore to participants in the ERAP benefits that
cannot be paid under the ERAP because of restrictions under the Internal Revenue
Code of 1986, as amended (the "Internal Revenue Code"), and benefits that are
not accrued under the ERAP because of a voluntary deferral by the participant of
compensation that would
20
<PAGE> 24
otherwise be counted under the ERAP. These supplemental pension plans also
assumed the liabilities accrued under comparable Eastman Kodak Company plans as
of January 1, 1994, with respect to active Company employees. The timing and
form of payment of amounts accrued under these supplemental pension plans have
not yet been determined. Those determinations will be made at the sole
discretion of the Vice President, Human Resources, with respect to participants
other than executive officers, or the Compensation Committee, with respect to
participants who are executive officers.
The Company has established a "Rabbi Trust" to provide a degree of
financial security for the participants' unfunded account balances under the
supplemental pension plans. See "Company Compensation and Benefit
Plans -- Benefit Security Trust."
EXECUTIVE DEFERRED COMPENSATION PLAN. The Company maintains the Eastman
Executive Deferred Compensation Plan (the "EDCP"), an unfunded, non qualified,
deferred compensation plan under which eligible employees of the Company may
elect on a voluntary basis to defer compensation until retirement or termination
from the Company. Eligible employees are employees of the Company or its
subsidiaries employed in the United States who are above a specified salary
grade level. Eligible employees may make an annual advance irrevocable election
to defer compensation which will first be paid, earned, or awarded in the
following year. Compensation that may be deferred includes all annual cash
compensation and certain stock and stock-based awards which are payable in cash.
The deferred amounts may be credited (i) to individual "Interest Accounts"
under the EDCP, which will be credited with interest until transfer or
distribution at the prime rate as quoted in The Wall Street Journal, (ii) to
individual "Stock Accounts" under the EDCP, which increase or decrease in value
depending upon the market price of shares of Common Stock, or (iii) to a
combination thereof. Under the Stock Account, dollar amounts are "invested" in
hypothetical shares of the Company's Common Stock. If cash dividends are
declared on shares of Common Stock, then any participant who has hypothetical
shares in the Stock Account will receive a dividend equivalent which will be
used to "purchase" additional hypothetical shares under the EDCP. A participant
may elect during specified periods to transfer the dollar amount of all or any
portion of his or her Stock Account to the Interest Account, or vice versa.
Upon retirement or termination from the Company, the value of a
participant's Interest Account and Stock Account will be paid, in cash, in a
single lump sum or up to ten annual installments, as determined in the sole
discretion of the Vice President, Human Resources, with respect to participants
other than executive officers, or the Compensation Committee, with respect to
participants who are executive officers. Payment will commence in any year up
through the tenth year following termination of employment, as determined by the
same parties, except that payment must commence no later than the year in which
the participant reaches age 71.
The EDCP provides that a participant may request that part or all of such
participant's Interest Account or Stock Account be distributed immediately in
the event of a severe financial hardship. The determination of whether a
hardship exists will be made by the same parties who determine the timing of
payout upon a participant's retirement or termination of employment.
The EDCP also provides that a participant may withdraw at any time all or a
portion of his or her balances in the Interest and Stock Accounts, provided that
the participant forfeit 10% of the balance of his or her Accounts or $50,000,
whichever is less, and is not permitted to participate in the EDCP for a period
of 36 months from the date of the early withdrawal payment. In addition, if
within any six month period either (i) 50% or more of the EDCP participants
elect such early withdrawal from the EDCP or (ii) 20% or more of EDCP
participants with aggregate Account balances valued at 50% or more of the total
value of all EDCP Accounts elect such early withdrawal, then the Accounts of
each remaining EDCP participant will be distributed in a single lump sum.
If the Company undergoes a "change in control" (as defined in the EDCP,
generally circumstances in which the Company is acquired by another entity or
its controlling ownership is changed), then the Accounts of each participant
will be paid in a single lump sum no later than 90 days following the change in
control.
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<PAGE> 25
The Company has established a "Rabbi Trust" to provide a degree of
financial security for the participants' unfunded Account balances under the
EDCP. See "Company Compensation and Benefit Plans -- Benefit Security Trust."
EMPLOYEE PROTECTION PLAN. The Company has adopted an Employee Protection
Plan, to provide severance pay, health, dental, disability, and life insurance
continuation, and a retraining allowance (of up to $5,000) for substantially all
of its employees whose employment is terminated within two years following a
"change in control" (as defined in such plan, generally circumstances in which
the Company is acquired by another entity or its controlling ownership is
changed). For purposes of the Employee Protection Plan, participants have been
credited with service with Eastman Kodak Company and its affiliates prior to the
spin-off. The Employee Protection Plan provides for a lump sum severance payment
of three weeks of "pay" (as defined in the plan) for each year of service up to
16 years and four weeks of pay for each year of service in excess of 16, with a
minimum of six weeks of pay and a maximum of 104 weeks. Health, dental,
disability, and life insurance would be continued at the Company's expense for
up to 12 months, depending on years of service, on the same basis as in effect
on the date of employment termination (except that no employee contributions
would be required). In addition, the Employee Protection Plan provides for the
payment of certain bonuses declared in the year in which employment terminates.
The plan provides for a "gross-up payment" in the event the total payments
("Total Payments") under the Employee Protection Plan and any other plan or
agreement of an employee with the Company subject the employee to the excise tax
imposed by Section 4999 of the Internal Revenue Code. The gross-up payment would
be in an amount such that the net amount retained by the employee, after
deduction of any such excise tax and any tax on the gross-up payment, would
equal the Total Payments.
SEVERANCE AND CHANGE-IN-CONTROL ARRANGEMENTS. The Company has entered into
Severance Agreements (the "Severance Agreements" or the "Agreements") with the
five individuals named in the Summary Compensation Table and certain other
officers of the Company. Each Agreement has a term of three years (with
automatic one-year extensions absent advance notice otherwise from the Company);
provided, however, that upon the occurrence of a "change in control" or a
"potential change in control" (as defined in the Agreements) prior to such
termination date, the term of the Agreement will automatically be extended for
two years from the date of the change in control or potential change in control,
as the case may be. If, at any time during the term of the Agreement and before
the occurrence of a change in control or a potential change in control, there
occurs a reduction in the employee's level of responsibility, position,
authority or duties, the Company may in its sole discretion terminate the
Agreement.
A "change in control" is defined in the Agreements to include the
following, and with certain exceptions: the acquisition by a person of 19% or
more of the voting stock of the Company; the incumbent Board members as of
January 1, 1994 (and subsequent directors approved by them) ceasing to
constitute a majority of the Board; approval by the Company's shareowners of a
reorganization or merger unless, after such proposed transaction, the former
shareowners of the Company will own more than 75% of the resulting corporation's
voting stock; or approval by the Company's shareowners of a complete liquidation
and dissolution of the Company or the sale or other disposition of substantially
all of the assets of the Company other than to a subsidiary. A "potential change
in control" will be deemed to have occurred if the Company enters into an
agreement, the consummation of which would result in the occurrence of a change
in control; any person (including the Company) publicly announces an intention
to take action which, if consummated, would constitute a change in control; any
person (other than the Company or certain affiliated entities) becomes the
beneficial owner of 10% or more of the combined voting power of the Company's
then-outstanding securities; or the Board adopts a resolution to the effect that
a potential change in control has occurred.
If during the term of the Agreements and following a change in control (or
within 120 days before or after a potential change in control) of the Company,
the employee's employment with the Company is terminated by the Company other
than for "cause" (as defined), death or disability, or by the employee for "good
reason" (which includes a reduction in the employee's compensation, certain
relocations of the employee's office, the exclusion of the employee from new
compensation arrangements offered to similarly situated employees, or a material
reduction in the employee's responsibility, position, authority, or duties, and
also includes a termination by the employee for any reason or no reason during
the 30-day period beginning on
22
<PAGE> 26
the first anniversary of the change in control), then, in addition to any other
benefits accruing to the employee outside the scope of the Agreement, (1) the
acquiror will pay the employee any unpaid salary, benefits or awards that shall
have been earned or become payable through the date of termination; (2) the
acquiror will pay to the employee as severance an amount equal to three times
(or four times in the case of Mr. Deavenport) the employee's "pay" (defined as
the average of the three highest out of the last ten years of the employee's
total annual compensation, including base annual salary, bonus, the grant date
value of stock grants, and incentive compensation); (3) the acquiror will
maintain in effect for three years (or four years in the case of Mr. Deavenport)
after the date of termination for the employee and his dependents all welfare
benefit plans in which the employee was entitled to participate immediately
prior to termination; and (4) the acquiror will pay the employee a single lump
sum amount equal to the actuarial equivalent of (a) the retirement benefit to
which the employee would have been entitled under the ERAP and the excess
retirement plans described above under "Eastman Retirement Assistance Plan" and
"Supplemental Pension Plans" if the employee had five additional years of
service and was five years older, minus (b) the retirement benefit to which the
employee is actually entitled under the ERAP and the excess retirement plans.
If the amount payable to the employee under these Agreements exceeds
certain threshold amounts, federal excise tax could be imposed on the employee
and the Company could lose a tax deduction for a portion of the payment. If the
amount payable would result in such effects, but exceeds the applicable
threshold by $30,000 or less, the amount payable will be reduced by the amount
the payment exceeds the threshold. If the payment exceeds the threshold by more
than $30,000, the employee will be entitled to full benefits under the Agreement
and to additional amounts to compensate him or her fully for the imposition of
the federal excise tax (including federal, state, and excise taxes applicable to
the receipt of such additional amount).
The Company has established a "Rabbi Trust" to provide a degree of
financial security for any amounts which may become payable to officers under
the Agreements. See "Company Compensation and Benefit Plans -- Benefit Security
Trust."
BENEFIT SECURITY TRUST. The Company has established a Benefit Security
Trust (the "Rabbi Trust") to provide a degree of financial security for its
unfunded obligations under the EDCP, the ESOP Excess Plan, the supplemental ERAP
plans, and the Severance Agreements. The assets of the Rabbi Trust would be
subject to the claims of the Company's creditors in the event of insolvency.
Upon the occurrence of a "change in control" or a "potential change in control"
(as defined), or if the Company fails to meet its payment obligations under the
covered plans and agreements, the Company would be required to transfer to the
trustee cash or other liquid funds in an amount equal to the value of the
Company's obligations under the covered plans and agreements. The Company has
conveyed to the trustee rights to certain assets as partial security for the
Company's funding obligations under the Rabbi Trust.
A "change in control" is defined to include the following, and with certain
exceptions: the acquisition by a person of 19% or more of the voting stock of
the Company; the incumbent Board members as of January 1, 1997 (and subsequent
directors approved by them) ceasing to constitute a majority of the Board;
approval by the Company's shareowners of a reorganization or merger unless,
after such proposed transaction, the former shareowners of the Company will own
more than 75% of the resulting corporation's voting stock; or approval by the
Company's shareowners of a complete liquidation and dissolution of the Company
or the sale or other disposition of substantially all of the assets of the
Company other than to a subsidiary. A "potential change in control" will be
deemed to have occurred if the Company enters into an agreement, the
consummation of which would result in the occurrence of a change in control; any
person (including the Company) publicly announces an intention to take action
which, if consummated, would constitute a change in control; or any person
(other than the Company, certain affiliated entities, or certain institutional
investors) becomes the beneficial owner of 10% or more of the combined voting
power of the Company's then-outstanding securities.
The Rabbi Trust is irrevocable until participants and their beneficiaries
are no longer entitled to payments under the covered plans and agreements, but
may be amended or revoked by agreement of the trustee, the Company, and a
committee of individual beneficiaries of the Rabbi Trust.
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<PAGE> 27
COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Company's Board of Directors is composed
of three outside directors, none of whom are current or former officers or
employees of the Company. This report sets out the Committee's policies
governing compensation to executive officers for 1997, including those in the
Summary Compensation Table, and the specific relationship of corporate
performance to that compensation. In addition, this report discusses
specifically the Committee's bases for the compensation reported for the Chief
Executive Officer for the past year.
COMPENSATION PHILOSOPHY
The overall goal of the Compensation Committee is to ensure that
compensation policies are established that are consistent with the Company's
strategic business objectives and that provide incentives for the attainment of
those objectives. This is done in the context of a compensation program that
includes three components for all Company employees:
- Base pay, which is intended to provide a stable annual salary at a level
consistent with the individual's position and contributions.
- Variable pay (pay at risk), which links individual income to the success
of the Company.
- Stock ownership, which encourages actions to maximize shareowner value.
Another goal of the Compensation Committee is to ensure that the Chief
Executive Officer and other executive officers are compensated in a manner that
is consistent with the Company's compensation strategy, that is competitive with
identified peer companies, and that is equitable within the Company.
The Compensation Committee believes that the compensation program for
Company executive officers should be consistent with the following principles:
<TABLE>
<S> <C>
INTEGRATION.......................... Executive compensation is integrated and consistent
with the total Company compensation program, as
described above.
COMPETITIVE POSITION................. Executives are provided competitive compensation for
competitive Company performance in the chemical
industry and compensation that is consistent with
compensation for companies of comparable size,
complexity, and operational challenge.
PERFORMANCE FOCUS.................... At higher levels of the organization, an increasing
proportion of compensation is dependent on Company
performance and return to shareowners.
</TABLE>
The Compensation Committee periodically reviews the compensation of the
Chief Executive Officer and the other executive officers to ensure that their
compensation is consistent with the principles described above. The Committee
applies the Company's pay policies in determining each component of executive
compensation as discussed below.
COMPONENTS OF EXECUTIVE COMPENSATION
CASH COMPENSATION
Total cash compensation for all Company employees consists of base pay and
variable pay. Total cash compensation is designed to be competitive with pay in
the applicable labor market and in the chemical industry for similar jobs when
target levels of Company performance are achieved. The targeted levels of cash
compensation are based on surveys of other companies. Accordingly, a portion of
each employee's target pay level is placed "at risk." Base pay is reduced to
below competitive pay levels, and the difference between the resulting pay level
and the competitive pay level is made variable and is "at risk." Depending upon
Company performance, employees may lose the at risk amount, receive some or all
of the amount at risk, or receive an amount in excess of the pay at risk. The
Compensation Committee applies the same philosophy and
24
<PAGE> 28
methodology to determine base pay and variable pay of executive officers, with
the intent that total cash compensation for the executive be at or near the
median of the range of similar pay for similar positions when Company
performance meets annual plan objectives.
For 1997, the Compensation Committee compared total cash compensation
levels for executive officers with companies in the chemical industry with which
the Company competes for executive talent and for which data was available,
including 14 of the 19 companies in the peer group identified in the performance
graph which follows this report (the "Performance Graph"). In addition, in
determining the Chief Executive Officer's base salary and variable compensation,
the Committee also considered chief executive officer pay reported in surveys of
a broader group of manufacturing, industrial, and chemical companies of a size
(based on revenues) comparable to the Company, including all but one of the 19
peer companies in the Performance Graph. Total cash compensation to the
executive officers named in the Summary Compensation Table for 1997 is reported
in the "Salary" (base pay) and "Bonus" (variable pay) columns.
Base salaries reported in the Summary Compensation Table for 1997 were
increased from 1996 levels to reflect an increase in the median range of total
cash compensation of the companies in the comparison group.
Variable pay is determined under the Eastman Performance Plan and the
Annual Performance Plan.
Under the Eastman Performance Plan, 5% of the annual cash compensation of
each of the Company's employees, including executive officers, is placed at risk
based on Company performance as measured by return on capital (the return
produced by funds invested in the Company, determined as the net operating
profit after taxes divided by the sum of average debt and equity employed during
the year) minus cost of capital (the cost of debt and equity, expressed as the
interest charged on debt and expected return on equity). If minimum levels of
performance are not met, no award will be earned, and the employee will lose the
amount at risk. Opportunities to earn up to six times (6x) the "at risk" annual
cash compensation under the Eastman Performance Plan are established for
specified levels of above goal performance. A specified portion of each
employee's payout under the Eastman Performance Plan is made as a Company
contribution to the employee's account in the Eastman Employee Stock Ownership
Plan (the "ESOP") and, to the extent not payable into the ESOP under Internal
Revenue Code limitations, is credited to the Eastman ESOP Excess Plan.
Contributions to the ESOP and the ESOP Excess Plan are invested in shares of
Common Stock and Common Stock Units, respectively. See "Stock Ownership of
Directors and Executive Officers." Accordingly, at the maximum award level (30%
of target annual compensation) for above goal performance, 5% of target annual
compensation would be contributed to the employee's ESOP account, the 5% of
target annual compensation placed at risk would be returned to the employee in
cash, and an additional 20% of target annual compensation would be earned and
paid to the employee in cash.
Approximately 600 Company managers, including executive officers, also
participate in an Annual Performance Plan, which places an additional 5% to 35%,
depending on position, of annual cash compensation at risk based on annual
corporate performance versus pre-set goals for specified measures. Those
performance measures and goals are established annually by the Compensation
Committee based upon the Company's strategic emphasis for the following year.
Target levels of performance are established for one or more of the following
objective business and financial measures: sales revenue growth, earnings from
operations, cost improvements, cash flow, economic value created, productivity,
quality, and customer satisfaction. Each measure is weighted for importance in
determining final awards. For 1997, Annual Performance Plan performance was
measured by evaluating cost savings (weighted 25%), labor productivity (weighted
25%), and economic value created (defined as after-tax operating profit minus a
computed capital charge for average debt and equity employed during the year)
(weighted 50%) against the pre-set goals for each area of Company performance.
If minimum levels of performance are not met, no award is earned, and the
participant loses the at risk amount. Opportunities to earn up to two times (2x)
the target award level under the Annual Performance Plan are established for
specified levels of above goal performance.
To encourage optimum performance of the Company as a whole rather than
optimum performance in individual units, and to recognize the integrated nature
of the Company, awards under both variable pay plans are based on overall
Company results rather than individual or unit performance.
25
<PAGE> 29
Awards of 10.47% (of a possible maximum of 30%) of target annual cash
compensation were made to all employees under the Eastman Performance Plan for
1997, the payout corresponding to the Company's return on capital which exceeded
the cost of capital by 0.31% for the past year. The bonuses reported for the
executive officers for 1997 represent the cash portion of the payout under the
Eastman Performance Plan (5.47% of target annual cash compensation) and an award
under the Annual Performance Plan of 1.409x (of a possible maximum of 2x) target
award based upon Company performance in 1997 which was above the target level of
performance for cost savings and labor productivity and at the minimum threshold
level of performance for economic value created. The portion of the Eastman
Performance Plan award made as a contribution or credit to each named executive
officer's ESOP and ESOP Excess Plan accounts is reported in the "All Other
Compensation" column of the Summary Compensation Table.
LONG-TERM, EQUITY-BASED COMPENSATION
Equity-based compensation plans are designed to promote stock ownership and
to link employee asset accumulation to return to shareowners. The Company has
established the ESOP and the ESOP Excess Plan, which are designed to encourage
an ownership mindset throughout the Company. Additionally, a stock option
program, implemented through the Company's Omnibus Long-Term Compensation Plans,
is used to create a direct link between compensation of key Company managers and
long-term performance of the Company. See "Company Compensation and Benefit
Plans -- Omnibus Long-Term Compensation Plans." Under the Omnibus Plan, the
Compensation Committee may also award stock (with or without restrictions),
performance shares or additional options to Company managers. Stock ownership
guidelines have been established for those same managers to encourage long-term
stock ownership and the holding of shares awarded under the Omnibus Plans or
acquired upon exercise of options. Over a five- to seven-year period, these
managers will invest one-half to four times their target-level total annual
compensation in Company stock or stock equivalents. See "Stock Ownership of
Directors and Executive Officers -- Common Stock and Common Stock Units." An
annual review of progress toward these guidelines is conducted and reported to
the Chief Executive Officer.
The Compensation Committee establishes the size of annual option awards
under the current stock option program by considering recommendations from
outside compensation consultants based upon long-term compensation reported by
the peer companies in the chemical industry described above under "Cash
Compensation." Options are granted at a level so that the estimated value of
options and other long-term compensation as a proportion of total annual
compensation approximates the median of the range of similar compensation of the
compared companies. In determining the size of option awards, the Company
utilizes the services of an external compensation consultant to derive
approximate values of options using a variation of the Black-Scholes option
pricing model. Because the Company began operating as an independent publicly
held company in 1994, approximately 350 of the approximately 500 key Company
managers eligible at that time for option grants had not previously received
options. Accordingly, and further to promote stock ownership, all option grants
for 1994 (including those to executive officers named in the Summary
Compensation Table) were "front-loaded" so that three years worth of option
grants under the above guidelines were awarded in the first year. The total of
all annual grants to key managers over the subsequent four years are generally
expected to be equivalent to two years worth of option grants (i.e., one-half
the normal amount), applying the above guidelines. Consistent with this
expectation, option grants in 1995, 1996, and 1997 (excluding "reload" options),
respectively, were generally one-sixth the level of grants in 1994. Options
granted under the Omnibus Plan in 1997 generally have an exercise price equal to
100% of the fair market value of the underlying Common Stock as of the date of
grant and have 10-year terms. As described below, the Compensation Committee
granted a special, performance-based stock option to the Chief Executive Officer
in 1997 but did not award him the normal option grant under the guidelines
described above.
Approximately 45 key managers (including the named executive officers in
the Summary Compensation Table) have also received performance share awards
under the Omnibus Plan. Such awards are made under Long-Term Performance
Subplans ("LTPSs") operating in three-year performance periods. Performance is
measured by the Company's total return to shareowners (change in stock price
plus dividends declared during the relevant period, assuming reinvestment of
dividends) relative to that of the companies identified in the
26
<PAGE> 30
Performance Graph. Payouts for the 1994-1996, 1995-1997, and 1996-1998
performance periods were or will be based upon the Company's position in a
quartile ranking of the unweighted total shareowner returns of the compared
companies. If the Company's Total Shareowner Return ("TSR") ranks in the fourth
quartile (below threshold), no awards are earned; if in the third quartile
(threshold), 50% of the target awards are earned; if in the second quartile
(target), 100% of the target awards are earned; and, if in the first quartile
(maximum), 200% of the target awards are earned. For the 1997-1999 LTPS
performance period, awards will be paid based upon the Company's position in a
ranking of the unweighted total shareholder returns of the compared companies.
See "Long-Term Incentive Plan -- Awards in Last Fiscal Year" table. If earned,
awards are paid after the end of the performance period in unrestricted shares
of Common Stock, or participants may irrevocably elect in advance to defer the
award payout into the EDCP.
The total return comparison under the LTPSs differs from that shown in the
Performance Graph. For LTPS purposes, total percentage return on the Common
Stock for the applicable three-year period is ranked with the total percentage
returns on the common shares of each of the LTPS peer companies. The Performance
Graph, on the other hand, compares the cumulative total return on an initial
fixed investment in the Company's Common Stock and in an index comprised of the
peer companies as a group, with the return of each component issuer weighted
according to the respective issuer's market capitalization at the beginning of
each period for which a return is indicated.
Awards for new three-year performance periods have been made annually since
1994, and it is anticipated that additional three-year performance periods will
begin in subsequent years. LTPS target award levels, when combined with
normalized, annual stock option grant levels, are established such that total
long-term compensation for all executives is consistent with competitive
practices, as determined by the analysis of outside compensation consultants
described above. The size of the performance share awards reported in the
"Long-Term Incentive Plan -- Awards in Last Fiscal Year" table for the 1997-1999
LTPS performance period was determined by applying this methodology. The payout
reported in the Summary Compensation Table for the executive officers for the
1995-1997 LTPS performance period represents 50% of the target award (of a
possible maximum of 200% of the target award) based upon the Company's total
shareowner return ranking in the third quartile of the compared companies for
the performance period.
The estimated current values of total long-term equity-based compensation
for 1997 range from approximately 10% of total compensation at lower levels of
management to approximately 70% of total compensation for the Chief Executive
Officer. For the CEO, the long-term equity-based compensation was higher
relative to his total compensation for 1997 than in prior years because of the
special performance-based option grant described below.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
The Compensation Committee determines the compensation of the Company's
Chief Executive Officer in substantially the same manner as the compensation for
the other executive officers. Mr. Deavenport's base salary was increased on May
1, 1997 by $62,500 and on August 1, 1997 by $52,500 as a result of comparisons
with the base salaries paid to chief executive officers of the companies
described above under "Components of Executive Compensation -- Cash
Compensation." These increases are the last in a series of actions taken by the
Compensation Committee since the spin-off from Eastman Kodak Company which place
Mr. Deavenport's base salary at a level which is comparable to the median base
salaries paid to chief executive officers of comparable companies. Accordingly,
the Compensation Committee believes that Mr. Deavenport's targeted total cash
compensation is now comparable to the median of the survey group.
In March 1998, Mr. Deavenport received an Annual Performance Plan award in
the amount of $608,219 and an award of $120,151 under the Eastman Performance
Plan ($36,239 of which was contributed or credited to his accounts in the ESOP
and the ESOP Excess Plan). Such awards were based upon the same overall
corporate performance in 1997 as were all other awards under the Annual
Performance Plan and Eastman Performance Plan.
Mr. Deavenport received an award of 10,900 performance shares under the
LTPS for the 1997-1999 performance period, which represents approximately
one-fourth of his long-term equity-based compensation
27
<PAGE> 31
for 1997. The other portion of Mr. Deavenport's long-term equity-based
compensation for 1997 was provided in the form of a performance-based stock
option to purchase 200,000 shares of Common Stock at an exercise price of $60.75
per share. The Compensation Committee did not award Mr. Deavenport his normal
grant of stock options under the stock option program described above. For a
description of the stock price, time vesting, and other conditions to exercise,
and the forfeiture and other terms of the performance-based stock option, see
"Option/SAR Grants in Last Fiscal Year" table.
The option was designed further to incent the CEO to take actions that will
create shareowner value over the long-term. The size of the option award was not
determined by applying the option valuation methodology described above under
"Components of Executive Compensation -- Long-Term, Equity-Based Compensation."
This option grant was determined by considering the significantly higher risk of
forfeiture intrinsic in the option due to both price and time vesting conditions
to exercise, and by establishing stock price hurdles that, if met, will yield
compounded annual growth rates of 10 percent or greater.
In February 1998, Mr. Deavenport received a payout for the 1995-1997 LTPS
performance period equal to 5,450 shares, which represents 50% of his target
award. Such payout was based upon the same relative total shareowner returns as
were the other payouts under the 1995-1997 LTPS.
OMNIBUS BUDGET RECONCILIATION ACT OF 1993
The Compensation Committee intends to maximize the tax deductibility of
compensation paid to the Company's Chief Executive Officer and other executive
officers while maintaining the flexibility to compensate the officers in
accordance with the Company's compensation policies.
Section 162(m) of the Internal Revenue Code enacted pursuant to the Omnibus
Budget Reconciliation Act of 1993 generally limits the deductibility to the
Company of annual compensation (other than qualified "performance-based"
compensation) in excess of $1 million paid to each of the Company's five highest
paid executive officers. Base salaries, stock and stock-based compensation
without performance conditions are generally subject to the $1 million limit on
deductible compensation.
Based on transition rules under Section 162(m), compensation attributable
to stock options granted and performance shares awarded under the Company's 1994
Omnibus Plan prior to the approval by shareowners of the 1997 Omnibus Plan is
expected to qualify for deductibility under Section 162(m). The Eastman
Performance Plan, the Annual Performance Plan, LTPSs under the Omnibus Plans,
and outstanding restricted stock awards under the Omnibus Plans, each provide
for the automatic deferral of compensation into the EDCP to the extent that
payout or vesting would result in the recipient receiving compensation in excess
of the $1 million cap under Section 162(m). The Chief Executive Officer was
required to receive a portion of a restricted stock award which vested during
1997 in the form of deferred compensation into the EDCP.
Based on a review of developments under Section 162(m), the Company adopted
the 1997 Omnibus Plan and certain amendments to the Eastman Performance Plan and
the Annual Performance Plan in 1997. These plans were approved by shareowners in
1997 and meet the requirements of Section 162(m) with respect to stock option
and performance share awards (under the 1997 Omnibus Plan) and annual bonus
awards (under the Eastman Performance Plan and the Annual Performance Plan).
This will result in compensation attributable to such awards being
"performance-based" and excluded from the $1 million deductibility cap.
Compensation and Management Development Committee
Gerald B. Mitchell (Chair)
Lee Liu
Marilyn R. Marks
28
<PAGE> 32
PERFORMANCE GRAPH
The following graph compares the cumulative total return on Common Stock
from December 14, 1993, the date on which the Common Stock began trading on the
New York Stock Exchange (the "NYSE"), through December 31, 1997, to that of the
Standard & Poor's 500 Stock Index and a group of peer issuers in the chemical
industry. The peer group consists of the 19 chemical companies which best meet
three objective criteria: (i) common shares traded on the NYSE; (ii) similar
lines of business to those of the Company; and (iii) more than $1 billion in
annual sales. Cumulative total return represents the change in stock price and
the amount of dividends received during the indicated period, assuming
reinvestment of dividends. The graph assumes an investment of $100 on December
14, 1993. Because the Company's spin-off from Eastman Kodak Company was not
completed until midnight on December 31, 1993, the Common Stock was trading on
the NYSE on a "when-issued" basis during the first period shown in the graph.
The Common Stock began trading on the NYSE without the "when-issued" designation
on January 4, 1994, following completion of the spin-off. The data in the graph
has been provided by Standard & Poor's Compustat. The stock performance shown in
the graph is included in response to SEC requirements and is not intended to
forecast or to be indicative of future performance.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
12/14/93 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
Eastman Chemical Co. 100 104.97 115.40 146.45 133.45 148.18
S&P 500 Index 100 101.40 102.74 141.35 173.80 231.79
Peer Group (1) 100 99.13 111.42 137.78 175.87 222.53
</TABLE>
(1) The peer group for 1997 consists of the following issuers: Air Products and
Chemicals, Inc.; ARCO Chemical Company; Crompton & Knowles Corporation; The
Dow Chemical Company; E. I. du Pont de Nemours and Company; H. B. Fuller
Company; The Geon Company; Georgia Gulf Corporation; W.R. Grace & Co.;
Great Lakes Chemical Corporation; M. A. Hanna Company; Hercules
Incorporated; Lyondell Petrochemical Company; Millennium Chemicals Inc.;
Morton International, Inc.; Rohm and Haas Company; Union Carbide
Corporation; Wellman, Inc.; and Witco Corporation. Monsanto Company and A.
Schulman, Inc., which were included in the peer group in the Company's
proxy statement last year, have been excluded from the Company's peer
comparison group, and W.R. Grace & Co., Hercules Incorporated, and
Millennium Chemicals Inc., which were not included in the peer group in the
Company's proxy statement last year, have been added to the Company's peer
comparison group. In accordance with SEC requirements, the return for each
issuer has been weighted according to the respective issuer's stock market
capitalization at the beginning of each period for which a return is
indicated.
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<PAGE> 33
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
ITEM 2 ON PROXY CARD
The Board of Directors, upon the recommendation of the Audit Committee, has
appointed Price Waterhouse LLP as independent accountants for the Company and
its subsidiaries until the Annual Meeting of Shareowners in 1999. The
shareowners are being asked to ratify the Board's appointment of Price
Waterhouse LLP.
All shares of Common Stock represented by valid proxies received pursuant
to this solicitation, and not revoked before they are exercised, will be voted
in the manner specified therein. If a proxy card is signed and returned but no
specification is made, the shares represented by proxy will be voted for
ratification of the appointment of Price Waterhouse LLP as independent
accountants for the Company.
A representative of Price Waterhouse LLP is expected to attend the Annual
Meeting and will have the opportunity to make a statement on behalf of the Firm
if he desires to do so. The representative is also expected to be available to
respond to appropriate questions from shareowners.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR"
RATIFICATION OF THE APPOINTMENT OF PRICE WATERHOUSE LLP AS INDEPENDENT
ACCOUNTANTS FOR THE COMPANY AND ITS SUBSIDIARIES UNTIL THE ANNUAL MEETING OF
SHAREOWNERS IN 1999.
SHAREOWNER PROPOSALS FOR 1999 ANNUAL MEETING
In accordance with SEC rules, proposals of Company shareowners intended to
be presented at the 1999 Annual Meeting of Shareowners must be received by the
Company at its principal executive offices on or before November 30, 1998 in
order to be included in the Company's proxy materials relating to the 1999
Annual Meeting of Shareowners. In addition, the Company's Bylaws provide that no
proposal may be submitted by a shareowner for a vote of the Company's
shareowners unless the shareowner submitting the proposal files a written notice
setting forth with particularity certain information about the shareowner and
all persons acting in concert with him or her, including the following
information: (1) such persons' names and business addresses; (2) such persons'
names and addresses as they appear on the Company's books (if they so appear);
and (3) the number of shares of Company stock beneficially owned by such
persons. The notice must also include a description of the proposal containing
all material information relating thereto and such other information as the
Board of Directors reasonably determines is necessary or appropriate to enable
the Board and the Company's shareowners to consider the proposal. The notice
must be delivered to the Secretary of the Company (1) at least sixty days before
any annual meeting, if the annual meeting is to be held on or after the first
Thursday in May, or (2) by the close of business on the 15th day following the
giving of notice of the date of the meeting, if the meeting is a special meeting
or an annual meeting held before the regular date.
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<PAGE> 34
OTHER INFORMATION
PROXY SOLICITATION
The cost of soliciting proxies and the cost of the Annual Meeting will be
paid by the Company. In addition to the solicitation of shareowners of record by
mail, proxies may be solicited by telephone, facsimile, personal contact, and
similar means by directors, officers, or employees of the Company, none of whom
will be specially compensated for such activities. The Company also contacts
brokerage houses, banks, nominees, custodians, and fiduciaries, who can be
identified as record holders of Common Stock. Such holders, after inquiry by the
Company, provide information concerning quantities of proxy materials and Annual
Reports needed to supply such materials to beneficial owners, and the Company
reimburses them for the expense of mailing proxy materials and Annual Reports to
such persons. Kissel-Blake, Inc. has been retained by the Company to aid in the
solicitation of proxies, at a cost of $8,500 plus expenses.
OTHER MATTERS
If other matters which the Company does not know as of the date of this
Proxy Statement will be presented at the Annual Meeting come properly before the
Annual Meeting, the persons designated as proxies will vote on such matters in
accordance with their best judgment.
UPON THE WRITTEN REQUEST OF ANY PERSON WHOSE PROXY IS SOLICITED BY THIS
PROXY STATEMENT, THE COMPANY WILL FURNISH TO SUCH PERSON WITHOUT CHARGE (OTHER
THAN FOR EXHIBITS) A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE
YEAR ENDED DECEMBER 31, 1997, INCLUDING CONSOLIDATED FINANCIAL STATEMENTS, AS
FILED WITH THE SEC. REQUESTS MAY BE MADE TO EASTMAN CHEMICAL COMPANY, P.0. BOX
431, KINGSPORT, TENNESSEE 37662-5371, ATTENTION: CORPORATE INFORMATION CENTER.
THIS INFORMATION IS ALSO AVAILABLE OVER THE INTERNET AT HTTP://WWW. SEC. GOV.
31
<PAGE> 35
APPENDIX
EASTMAN CHEMICAL COMPANY
P PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREOWNERS TO BE HELD ON MAY 7, 1998
R
O The undersigned hereby appoints Harold L. Henderson and Theresa
K. Lee, and each of them, with individual power of substitution,
X proxies to vote all shares of Common Stock of Eastman Chemical Company
(the "Company") that the undersigned may be entitled to vote at the
Y Annual Meeting of Shareowners to be held at the Company's Employee
Center, 400 South Wilcox Drive, Kingsport, Tennessee, on May 7, 1998, at
10:00 a.m., Eastern Daylight Savings Time, and at any adjournments or
postponements thereof.
Said proxies will vote on the proposals set forth in the Notice of
Annual Meeting and Proxy Statement as specified on the reverse side of
this card and are authorized to vote in their discretion as to any other
business that may come properly before the meeting. IF A VOTE IS NOT
SPECIFIED, SAID PROXIES WILL VOTE FOR ITEMS 1 AND 2.
Nominees for election of three directors to serve in the class for which
the term in office expires at the Annual Meeting of Shareowners in 2001
and until their successors are duly elected and qualified:
H. Jesse Arnelle
R. Wiley Bourne, Jr.
Dr. John A. White
-----------
SEE REVERSE
SIDE
-----------
/X/ Please mark your 0683
votes as in this
example.
The proxies are directed to vote as specified below and in their
discretion on all other matters. If this proxy card is signed and returned but
no specification is made, said proxies will vote FOR Items 1 and 2
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
The Board of Directors recommends a vote FOR Items 1 and 2.
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FOR WITHHELD FOR AGAINST ABSTAIN
1. Election of / / / / 2. Ratification of the appointment / / / / / /
Directors. of Price Waterhouse LLP as
(see reverse) independent accountants.
To withhold authority to vote
for less than all nominees,
write name(s) of
individual(s) for whom
authority is withheld
below:
- -----------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
If you plan to attend the Annual Meeting, / /
please check the box.
To help us eliminate duplicate mailings to / /
the same beneficial holders, please check
the box if you hold shares in more than one
account and wish to discontinue Annual
Report mailing for this account.
--------------------------------------------------------
PLEASE MARK, DATE AND SIGN BELOW, AND RETURN
THIS PROXY PROMPTLY IN THE ENVELOPE FURNISHED.
Please sign exactly as name appears hereon. When shares
are held by joint tenants, both should sign. When
signing as attorney, executor, administrator, trustee or
guardian, please give full title as such. If a
corporation, please sign in full corporate name by
president or other authorized officer. If a
partnership, please sign in partnership name by
authorized person.
--------------------------------------------------------
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SIGNATURE(S) DATE
</TABLE>
