<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission file number 1-12626
EASTMAN CHEMICAL COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 62-1539359
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 N. EASTMAN ROAD
KINGSPORT, TENNESSEE 37660
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (423) 229-2000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Number of Shares Outstanding at
Class March 31, 1999
<S> <C>
Common Stock, par value $0.01 per share 78,175,774
(including rights to purchase shares of
Common Stock or Participating Preferred Stock)
</TABLE>
- --------------------------------------------------------------------------------
PAGE 1 OF 44 TOTAL SEQUENTIALLY NUMBERED PAGES
EXHIBIT INDEX ON PAGE 22
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
ITEM PAGE
- -----------------------------------------------------------------------------------------------------
<S> <C>
PART I. FINANCIAL INFORMATION
1. Financial Statements 3-9
2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 10-18
PART II. OTHER INFORMATION
1. Legal Proceedings 19-20
2. Changes in Securities 20
6. Exhibits and Reports on Form 8-K 20
SIGNATURES
Signatures 21
</TABLE>
2
<PAGE> 3
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS, COMPREHENSIVE INCOME,
AND RETAINED EARNINGS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FIRST QUARTER
1999 1998
<S> <C> <C>
EARNINGS
Sales $ 1,023 $ 1,148
Cost of sales 829 894
------- -------
Gross profit 194 254
Selling and general administrative expenses 76 75
Research and development costs 47 46
------- -------
Operating earnings 71 133
Interest expense, net 26 21
Other (income) charges, net 8 (2)
------- -------
Earnings before income taxes 37 114
Provision for income taxes 12 40
------- -------
Net earnings $ 25 $ 74
======= =======
Earnings per share:
--Basic $ .32 $ .95
======= =======
--Diluted $ .31 $ .94
======= =======
COMPREHENSIVE INCOME
Net earnings $ 25 $ 74
Other comprehensive loss (29) (1)
------- -------
Comprehensive income (loss) $ (4) $ 73
======= =======
RETAINED EARNINGS
Retained earnings at beginning of period $ 2,188 $ 2,078
Net earnings 25 74
Cash dividends declared (35) (35)
------- -------
Retained earnings at end of period $ 2,178 $ 2,117
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 55 $ 29
Receivables 748 759
Inventories 521 493
Other current assets 147 117
------- -------
Total current assets 1,471 1,398
------- -------
Properties
Properties and equipment at cost 8,605 8,594
Less: Accumulated depreciation 4,633 4,560
------- -------
Net properties 3,972 4,034
------- -------
Other noncurrent assets 448 418
------- -------
Total assets $ 5,891 $ 5,850
======= =======
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities
Payables and other current liabilities $ 828 $ 959
------- -------
Total current liabilities 828 959
Long-term borrowings 1,851 1,649
Deferred income tax credits 443 415
Postemployment obligations 746 712
Other long-term liabilities 179 181
------- -------
Total liabilities 4,047 3,916
------- -------
Shareowners' equity
Common stock ($0.01 par - 350,000,000 shares authorized;
shares issued -- 84,439,140 and 84,432,114) 1 1
Paid-in capital 93 94
Retained earnings 2,178 2,188
Other comprehensive loss (47) (18)
------- -------
2,225 2,265
Less: Treasury stock at cost (6,421,790 and 5,326,990 shares) 381 331
------- -------
Total shareowners' equity 1,844 1,934
------- -------
Total liabilities and shareowners' equity $ 5,891 $ 5,850
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
FIRST QUARTER
1999 1998
<S> <C> <C>
Cash flows from operating activities
Net earnings $ 25 $ 74
----- -----
Adjustments to reconcile net earnings to net
cash provided by operating activities
Depreciation 87 82
Benefit for deferred income taxes (3) (6)
(Increase) decrease in receivables 28 (52)
Increase in inventories (28) (7)
Decrease in incentive pay and employee
benefit liabilities (107) (56)
Increase in liabilities excluding borrowings,
incentive pay, and employee benefit liabilities 9 10
Other items, net 7 5
----- -----
Total adjustments (7) (24)
----- -----
Net cash provided by operating activities 18 50
----- -----
Cash flows from investing activities
Additions to properties and equipment (76) (135)
Acquisitions and investments in joint ventures (12) -
Proceeds from sales of assets - 1
Capital advances to suppliers (21) (21)
----- -----
Net cash used in investing activities (109) (155)
----- -----
Cash flows from financing activities
Net increase in commercial paper borrowings 203 147
Dividends paid to shareowners (35) (34)
Treasury stock purchases (50) -
Other items (1) 6
----- -----
Net cash provided by financing activities 117 119
----- -----
Net change in cash and cash equivalents 26 14
Cash and cash equivalents at beginning of period 29 29
----- -----
Cash and cash equivalents at end of period $ 55 $ 43
===== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements
have been prepared by the Company in accordance and consistent with the
accounting policies stated in the Company's 1998 Annual Report on Form
10-K and should be read in conjunction with the consolidated financial
statements appearing therein. In the opinion of the Company, all
normally recurring adjustments necessary for a fair presentation have
been included in the interim unaudited consolidated financial
statements. The unaudited interim consolidated financial statements are
based in part on estimates made by management.
The Company has reclassified certain 1998 amounts to conform to the
1999 presentation.
2. INVENTORIES
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
(Dollars in millions) 1999 1998
<S> <C> <C>
At FIFO or average cost (approximates current cost):
Finished goods $ 407 $ 409
Work in process 154 138
Raw materials and supplies 199 203
----- -----
Total inventories 760 750
Reduction to LIFO value (239) (257)
----- -----
Total inventories at LIFO value $ 521 $ 493
===== =====
</TABLE>
Inventories valued on the LIFO method are approximately 70% of total
inventories in each of the periods.
3. HOLSTON DEFENSE CORPORATION
Holston Defense Corporation ("Holston"), a wholly owned subsidiary of
the Company, managed, as its primary business, the government-owned
Holston Army Ammunition Plant in Kingsport, Tennessee (the "Facility")
under a series of contracts with the Department of Army (the "DOA")
from 1949 until expiration of the Contract (the "Contract") on December
31, 1998. The DOA awarded a contract to manage the Facility to a third
party commencing January 1, 1999.
The Contract provides for payment of a management fee to Holston and
reimbursement by the DOA of allowable costs incurred for the operation
of the Facility. Holston's operating results historically have been
insignificant to the Company's consolidated sales and earnings.
Pension and other postretirement benefits have been provided to
Holston's present and past employees under the terms of Holston's
employee benefit plans. In prior reporting periods, the Company has
recognized, in accordance with generally accepted accounting
principles, a charge to earnings of approximately $89 million for
pension and other postretirement benefit obligations related to
Holston's management of the Facility under the Contract. The Company
expects that the DOA will reimburse these pension and other
postretirement benefit obligations and such amounts will be credited to
earnings at the time of receipt of reimbursement from the DOA. The
reimbursement may or may not occur in a single payment.
In addition to the above, the Company has recognized a receivable of
$48 million, which is expected to be reimbursed by the DOA, for pension
obligations and termination costs related to expiration of the
Contract.
6
<PAGE> 7
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Holston terminated its pension plan in a standard termination as of
January 1, 1999. In order to terminate the pension plan in a standard
termination, the assets of the plan had to be sufficient to provide all
benefit liabilities with respect to each participant. A delay in
reimbursement by the DOA resulted in the Company advancing
approximately $35 million in first quarter 1999 toward the funding of
these liabilities. The ending of Holston's operation of the Facility
also resulted in obligations for severance pay to eligible Holston
employees (the amount based on length of service). A delay in
reimbursement by the DOA resulted in the Company advancing
approximately $4 million for such obligations in first quarter 1999.
The Company will likely be required to advance additional funds to pay
pension benefit liabilities and termination costs if there are further
delays in payment or reimbursement by the DOA.
As previously reported, the Company is negotiating with the DOA the
settlement of certain postretirement benefit obligations. The Company's
potential obligation for these postretirement benefits, if any, in
excess of the negotiated amount will be recognized as a liability at
such time that it is probable and reasonably estimable that projected
benefit obligations exceed assets provided by the DOA. The Company
expects that the DOA will reimburse the Company for all costs
associated with operation of the Facility and expiration of the
Contract.
Although the DOA's position with respect to similar contracts is that
it has no legal liability for unfunded postretirement benefit costs,
other than pension obligations, and the DOA may disagree with the
specific amount of other postretirement obligations, it is the opinion
of the Company, based on the Contract terms, applicable law, and legal
and equitable precedents, that substantially all of the other
postretirement benefit costs will be paid by the DOA or recovered from
the government in related proceedings, and that the amounts, if any,
not paid or recovered, or the advancement of funds by the Company
pending such reimbursement or recovery, should not have a material
adverse effect on the consolidated financial position or results of
operations of the Company.
4. PAYABLES AND OTHER CURRENT LIABILITIES
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
(Dollars in millions) 1999 1998
<S> <C> <C>
Trade creditors $ 312 $ 316
Accrued payrolls and vacation 99 100
Accrued variable-incentive compensation 10 74
Accrued pension liabilities 112 182
Accrued taxes 90 58
Other 205 229
-------- ---------
Total $ 828 $ 959
======== =========
</TABLE>
5. DISTILLATION PRODUCTS INDUSTRIES
In first quarter 1999, the Company announced a phase-out of operations
at Distillation Products Industries in Rochester, New York. The Company
recorded a pre-tax charge to earnings of $8 million ($5.4 million after
tax) in first quarter 1999 for costs associated with employee
termination benefits, dismantlement costs, and the write-down of plant
and equipment used at the site. This charge was recorded in Cost of
Sales for the Specialty and Performance segment.
7
<PAGE> 8
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. IMPAIRMENT OF ASSETS
The Company recorded in first quarter 1999 a pre-tax charge to earnings
of $6.8 million ($4.6 million after tax) for the write-off of
construction in progress related to an epoxybutene ("EpB") plant
project which was determined to have no future value. This charge was
recorded in Cost of Sales for the Specialty and Performance segment.
7. DIVIDENDS
<TABLE>
<CAPTION>
FIRST QUARTER
1999 1998
<S> <C> <C>
Cash dividends declared per share $ .44 $.44
</TABLE>
8. EARNINGS PER SHARE
<TABLE>
<CAPTION>
FIRST QUARTER
1999 1998
Shares used for earnings per share calculation (in millions):
<S> <C> <C>
--Basic 78.7 78.4
--Diluted 78.8 79.2
</TABLE>
Certain shares underlying options outstanding during the first quarters
of 1999 and 1998 were excluded from the computation of diluted earnings
per share because the options' exercise prices were greater than the
average market price of the common shares. Excluded from first quarter
1999 and 1998 calculations were shares underlying options to purchase
1,919,940 shares of common stock at a range of prices from $44.16 to
$74.25 and 567,350 shares of common stock at a range of prices from
$62.88 to $74.25 outstanding at March 31, 1999 and 1998, respectively.
Additionally, 200,000 shares underlying an option issued to the Chief
Executive Officer in third quarter 1997 were excluded from diluted
earnings per share calculations because the conditions to exercise had
not been met as to any of the shares as of March 31, 1999.
9. SUPPLEMENTAL CASH FLOW INFORMATION
In March 1998, the Company issued 536,188 treasury shares to its
Employee Stock Ownership Plan as partial settlement of the Company's
Eastman Performance Plan payout. The shares issued had a market value
of $35 million and a carrying value of $33 million. This noncash
transaction is not reflected in the Consolidated Statement of Cash
Flows.
10. SUBSEQUENT EVENTS
SECURITIZATION OF ACCOUNTS RECEIVABLE
On April 13, 1999, the Company entered into an agreement that will
allow the Company to sell certain domestic accounts receivable under a
planned continuous sale program to a third party. Undivided interests
in designated receivable pools will be sold to the purchaser, with
recourse limited to the receivables purchased. As of the date of this
filing, no receivables had been sold to the third party. Fees to be
paid by the Company under this agreement will be based on certain
variable market rate indices.
8
<PAGE> 9
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MERGER AGREEMENT WITH LAWTER INTERNATIONAL, INC.
On April 28, 1999, the Company and Lawter International, Inc. announced
approval by their respective boards of directors of a definitive merger
agreement under which the Company expects to acquire the outstanding
shares of Lawter International, Inc. in a transaction valued at
approximately $500 million, including debt assumed. Lawter
International, Inc. develops, produces and markets specialty products
for the inks and coatings market. Under the terms of the agreement, the
Company will commence a tender offer to purchase all outstanding shares
of Lawter International, Inc. common stock for $12.25 per share.
Following completion of the tender offer, the Company expects to
consummate a cash merger to acquire any shares not previously tendered.
The Company expects that the tender offer will be accepted by
shareowners of Lawter International, Inc. by the end of second quarter
1999. The transaction will be financed with cash and other currently
available sources of liquidity.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the Company's Consolidated
Financial Statements and Management's Discussion and Analysis contained in the
1998 Annual Report on Form 10-K and the unaudited interim consolidated financial
statements included elsewhere in this report. All references to earnings per
share contained in this report are diluted earnings per share unless otherwise
noted.
RESULTS OF OPERATIONS
EARNINGS
<TABLE>
<CAPTION>
(Dollars in millions, except per share amounts) FIRST QUARTER
1999 1998 CHANGE
<S> <C> <C> <C>
Operating earnings $ 71 $ 133 (47)%
Net earnings 25 74 (66)
Earnings per share:
- --Basic .32 .95 (66)%
- --Diluted .31 .94 (67)
</TABLE>
Although sales volume improved overall for the quarter, results reflect a
continuation of global economic conditions which exerted extreme pressure on
selling prices. Selling prices declined for most products, negatively impacting
every segment and region. Lower selling prices were particularly evident for
EASTAPAK polymers and commodity grade polyethylenes sold in North America and
Europe, a result of excess industry capacity for polyethylene terephthalate
("PET") and competitive polyethylene market conditions. Lower selling prices for
oxo products sold in North America also significantly impacted results for the
quarter.
The decline in selling prices was mitigated somewhat by lower costs for major
raw materials including propane feedstock, paraxylene, purified terephthalic
acid, and ethylene glycol. Cost structure improvements resulting from the
Company's Advantaged Cost 2000 initiative also positively impacted results.
Results for the quarter were negatively impacted by charges related to a
discontinued capital project and the phase-out of operations at Distillation
Products Industries in Rochester, New York. See Notes 5 and 6 to Consolidated
Financial Statements.
Foreign currency fluctuations, net of currency hedging transactions, had a
slight negative impact on earnings.
10
<PAGE> 11
SUMMARY BY INDUSTRY SEGMENT
(Dollars in millions)
SPECIALTY AND PERFORMANCE SEGMENT
<TABLE>
<CAPTION>
FIRST QUARTER
1999 1998 CHANGE
<S> <C> <C> <C>
Sales $ 632 $ 685 (8)%
Operating earnings 83 105 (21)
</TABLE>
Sales volumes improved slightly overall but revenues declined as economic
conditions and competitive markets pressured selling prices for all product
lines. Specialty plastics volumes declined slightly as a result of lower volumes
for EASTAPAK polymers and cellulosic plastics, while SPECTAR volume continued to
grow. Sales volumes for fibers and performance chemicals were relatively
unchanged from first quarter last year. Coatings, inks and resins results
reflected a continuation of lower prices for neopentyl glycols but slightly
higher volumes overall. Sales volumes for fine chemicals improved but a shift in
the mix of products sold had a negative impact on revenues.
Operating earnings were negatively impacted by the decline in selling prices and
charges related to a discontinued capital project and the phase-out of
operations at Distillation Products Industries in Rochester, New York (see Notes
5 and 6 to Consolidated Financial Statements). The effect of lower selling
prices was partially offset by lower raw materials costs and cost structure
improvements resulting from the Company's Advantaged Cost 2000 initiative.
CORE PLASTICS SEGMENT
<TABLE>
<CAPTION>
FIRST QUARTER
1999 1998 CHANGE
<S> <C> <C> <C>
Sales $ 229 $ 275 (17)%
Operating loss (36) (10) >(100)
</TABLE>
Significantly lower selling prices attributable to excess PET industry capacity
resulted in substantially lower revenues for EASTAPAK polymers in all regions.
Although sales volumes for EASTAPAK polymers reflected the Company's additional
available capacity at manufacturing sites which began production mid-year 1998,
volumes were impacted somewhat by operational problems in North America and
Europe and the weakened Brazilian economy. Sales volumes improved significantly
for commodity grade polyethylenes, but the impact was more than offset by lower
selling prices.
Operating earnings were negatively impacted by the decline in selling prices,
partially offset by lower raw materials costs and cost structure improvements
resulting from the Company's Advantaged Cost 2000 initiative.
CHEMICAL INTERMEDIATES SEGMENT
<TABLE>
<CAPTION>
FIRST QUARTER
1999 1998 CHANGE
<S> <C> <C> <C>
Sales $ 162 $ 188 (14)%
Operating earnings 24 38 (37)
</TABLE>
Sales and earnings were significantly lower due to lower selling prices,
particularly for oxo products. Lower costs for major raw materials and cost
structure improvements resulting from the Company's Advantaged Cost 2000
initiative partially offset the impact of lower selling prices.
11
<PAGE> 12
(For supplemental analysis of Specialty and Performance, Core Plastics, and
Chemical Intermediates segment results, see Exhibit 99.01 to this Form 10-Q.)
SUMMARY BY CUSTOMER LOCATION
(Dollars in millions)
SALES BY REGION
<TABLE>
<CAPTION>
FIRST QUARTER
1999 1998 CHANGE
<S> <C> <C> <C>
United States and Canada $ 662 $ 754 (12)%
Europe, Middle East, and Africa 174 207 (16)
Asia Pacific 111 98 13
Latin America 76 89 (15)
</TABLE>
Sales in the United States for first quarter 1999 declined in all segments and
were $619 million, down 13% from 1998 first quarter sales of $713 million. The
decrease was primarily due to lower selling prices. Significantly lower selling
prices were experienced for EASTAPAK polymers, commodity polyethylenes, and
chemical intermediates.
Sales outside the United States for first quarter 1999 were $404 million, down
7% from 1998 first quarter sales of $435 million. Sales outside the United
States were 39% of total sales in first quarter 1999 compared with 38% for first
quarter 1998. Selling prices declined in all regions. Increased sales in Asia
Pacific mainly resulted from higher volume for fibers, specialty plastics,
coatings, inks and resins. In Europe, volumes were relatively unchanged and the
decline was attributable to lower selling prices for EASTAPAK polymers. Sales
volumes improved in Latin America, but lower selling prices, particularly for
EASTAPAK polymers, resulted in lower sales.
SUMMARY OF CONSOLIDATED RESULTS
(Dollars in millions)
<TABLE>
<CAPTION>
FIRST QUARTER
1999 1998 CHANGE
<S> <C> <C> <C>
SALES $ 1,023 $ 1,148 (11)%
</TABLE>
Sales volumes overall were slightly higher in first quarter 1999, but revenues
declined as a result of lower selling prices attributable to the global economy
and competitive market conditions. Sales in first quarter 1999 were not
significantly impacted by foreign currency fluctuations.
<TABLE>
<CAPTION>
FIRST QUARTER
1999 1998 CHANGE
<S> <C> <C> <C>
GROSS PROFIT $ 194 $ 254 (24)%
As a percentage of sales 19.0% 22.1%
</TABLE>
Gross profit declined primarily as a result of significantly lower selling
prices. Also impacting gross profit were charges related to a discontinued
capital project and the phase-out of operations at Distillation Products
Industries in Rochester, New York. Lower raw materials costs and cost structure
improvements had a positive effect on gross profit.
12
<PAGE> 13
<TABLE>
<CAPTION>
FIRST QUARTER
1999 1998 CHANGE
<S> <C> <C> <C>
GROSS INTEREST COSTS $31 $32
LESS CAPITALIZED INTEREST 5 11
--- ---
NET INTEREST EXPENSE $26 $21 24%
=== ===
</TABLE>
Capitalized interest declined in 1999 as several substantial projects in the
Company's major capital investment program were completed during 1998.
<TABLE>
<CAPTION>
FIRST QUARTER
1999 1998 CHANGE
<S> <C> <C> <C>
OTHER (INCOME) CHARGES, NET $ 8 $ (2) >(100)%
</TABLE>
Other income and other charges include interest income and royalty income, gains
and losses on asset sales, results from equity investments, foreign exchange
transactions, and other items. The change in other income was due primarily to
losses on foreign exchange transactions.
LIQUIDITY, CAPITAL RESOURCES AND OTHER FINANCIAL DATA
<TABLE>
<CAPTION>
FINANCIAL INDICATORS 1999 1998
<S> <C> <C>
For the first three months:
Ratio of earnings to fixed charges 2.0x 3.8x
At the periods ended March 31, 1999 and December 31, 1998:
Current ratio 1.8x 1.5x
Percent of long-term borrowings to total capital 50% 46%
Percent of floating-rate borrowings to total borrowings 18% 13%
</TABLE>
CASH FLOW
<TABLE>
<CAPTION>
FIRST QUARTER
(Dollars in millions) 1999 1998
<S> <C> <C>
Net cash provided by (used in)
Operating activities $ 18 $ 50
Investing activities (109) (155)
Financing activities 117 119
----- -----
Net change in cash and cash equivalents $ 26 $ 14
===== =====
Cash and cash equivalents at end of period $ 55 $ 43
===== =====
</TABLE>
Cash provided by operating activities declined from first quarter 1998, mainly
due to lower selling prices, offset somewhat by lower costs for major raw
materials. Cash provided by operations also declined due to funding of Company
obligations to the Employee Stock Ownership Plan, such obligation having been
funded with treasury stock in 1998, and funding of pension plans. Cash used in
investing activities declined as a result of reduced capital expansion activity
in 1999. Cash provided by financing activities reflects an increase in
commercial paper borrowings and the payment of dividends in both years and
treasury stock purchases in 1999.
13
<PAGE> 14
CAPITAL EXPENDITURES AND OTHER COMMITMENTS
For 1999, the Company estimates that depreciation will be $360 million and that
capital expenditures will be equal to or less than depreciation. Long-term
commitments related to planned capital expenditures are not material. The
Company had various purchase commitments at the end of 1998 for materials,
supplies, and energy incident to the ordinary conduct of business. These
commitments approximate $2 billion over 15 years.
LIQUIDITY
Eastman has access to an $800 million revolving credit facility (the "Credit
Facility") expiring in December 2000. Although the Company does not have any
amounts outstanding under the Credit Facility, any such borrowings would be
subject to interest at varying spreads above quoted market rates, principally
LIBOR. The Credit Facility also requires a facility fee on the total commitment
that varies based on Eastman's credit rating. The rate for such fee was .075% as
of March 31, 1999. The Credit Facility contains a number of covenants and events
of default, including the maintenance of certain financial ratios. Eastman was
in compliance with all such covenants for all periods.
Eastman utilizes commercial paper, generally with maturities of 90 days or less,
to meet its liquidity needs. The Company's commercial paper, supported by the
Credit Facility, is classified as long-term borrowings because the Company has
the ability and intent to refinance such borrowings long term. As of March 31,
1999, the Company's commercial paper outstanding balance was $326 million at an
effective interest rate of 5.01%. At March 31, 1998, the Company's commercial
paper outstanding balance was $360 million at an effective interest rate of
5.72%.
The Company has an effective registration statement on file with the Securities
and Exchange Commission to issue up to $1 billion of debt or equity securities.
No securities have been sold from this shelf registration.
During 1998, the Company issued $23 million tax-exempt bonds at variable
interest rates, the proceeds of which are to be used for the construction of
certain solid waste disposal facilities in Kingsport, Tennessee. The proceeds
from this issuance are held in trust and become available to the Company as
expenditures are made for construction of the designated solid waste disposal
facilities. Approximately $4 million of qualifying expenditures related to these
projects had been made as of March 31, 1999.
On April 13, 1999, the Company entered into an agreement that will allow the
Company to sell certain domestic accounts receivable under a planned continuous
sale program to a third party. Undivided interests in designated receivable
pools will be sold to the purchaser, with recourse limited to the receivables
purchased. As of the date of this filing, no receivables had been sold to the
third party. Fees to be paid by the Company under this agreement will be based
on certain variable market rate indices.
On April 28, 1999, the Company and Lawter International, Inc. announced approval
by their respective boards of directors of a definitive merger agreement under
which the Company expects to acquire the outstanding shares of Lawter
International, Inc. in a transaction valued at approximately $500 million,
including debt assumed. Under the terms of the agreement, the Company will
commence a tender offer to purchase all outstanding shares of Lawter
International, Inc. common stock for $12.25 per share. Following completion of
the tender offer, the Company expects to consummate a cash merger to acquire any
shares not previously tendered. The transaction will be financed with cash and
other currently available sources of liquidity.
The Company is currently authorized to purchase up to $400 million of its common
stock. During first quarter 1999, a total of 1,094,800 shares of common stock at
a cost of approximately $50 million was repurchased. Repurchased shares may be
used to meet common stock requirements for compensation and benefit plans and
other corporate purposes.
Existing sources of capital, together with cash flows from operations, are
expected to be sufficient to meet foreseeable cash flow requirements.
14
<PAGE> 15
<TABLE>
<CAPTION>
DIVIDENDS FIRST QUARTER
1999 1998
<S> <C> <C>
Cash dividends declared per share $ .44 $ .44
</TABLE>
YEAR 2000 ISSUE
The year 2000 issue is the result of computer programs written using two digits
rather than four to define the applicable year. Without corrective action,
programs with date-sensitive software could potentially recognize a date ending
in "00" as the year 1900 rather than the year 2000, causing many computer
applications to fail or create erroneous results. This is a significant issue
for most, if not all, companies, with far reaching implications, some of which
cannot be anticipated or predicted with any degree of certainty. Year 2000
problems could affect many of the Company's processes, including production,
distribution, research and development, financial, administrative and
communications operations. The Company's date-dependent systems can be
summarized in three categories: computerized business systems; computerized
distributed control systems for manufacturing; and other devices using embedded
chips.
Internal identification of all business systems, manufacturing systems and
embedded chip devices for year 2000 compliance is complete. An outside
consultant has evaluated the Company's identification, assessment, and testing
process related to manufacturing and embedded equipment and concluded that the
results of the internal processes are reliable.
The Company considers its key enterprise business computer systems capable of
accurately handling year 2000 dates. Final integrated acceptance testing of the
Company's existing key enterprise business computer systems was completed
successfully during 1998. Very few problems were encountered in this area,
primarily because of the Company's aggressive implementation of enterprise
software and standardized desktop/office software earlier this decade. The
Company will continue its year 2000 assessment and testing efforts for new or
modified business computer systems throughout 1999.
Assessment of statements of product compliance from the manufacturers of our
date-dependent manufacturing control systems and embedded chip devices is
complete. A minimal number of devices have been determined to be non-compliant,
with most requiring software upgrades at minimal cost. Remediation of the
non-compliant equipment and software identified by vendors to have possible date
compliancy problems is proceeding on schedule. A testing plan approved by senior
management is being used to evaluate all manufacturing control systems for
date-sensitive issues and to test a representative sample of these control
systems. The majority of upgrades to the manufacturer's stated level of
compliance for our manufacturing control systems and embedded chip devices has
been completed. The Company plans to complete assessment, testing, and most of
the remediation or workaround solutions on critical control systems and embedded
chip devices by June 1999 and is on target to meet that completion date.
However, because of plant scheduling and equipment lead times, some upgrade work
may not occur until the second half of 1999. Additionally, some lower priority
embedded chip devices may not be tested or remediated but will be managed by
contingency plans. Although some risk is inherent with this plan, the Company
believes the risk is controllable with contingency plans being developed and
that this plan does not pose significant problems for the Company's various
manufacturing control systems.
As a result of assessments, modifications, upgrades, or replacements planned,
ongoing or already completed, the Company believes the year 2000 issue as it
relates to the Company's own date-dependent systems will not pose significant
problems for the Company's business, processes and operations. The Company
believes that the costs of modifications, upgrades, or replacements of software,
hardware, or capital equipment which would not be incurred but for year 2000
compatibility requirements have not and will not have a material impact on the
Company's financial position or results of operations. Overall costs
attributable to the Company's year 2000 efforts, incurred over a period of
several years, are expected to be less than $20 million.
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<PAGE> 16
The Company has identified and is communicating with key suppliers and other
service providers to determine if entities with which the Company transacts
business have an effective plan in place to address the year 2000 issue, and to
determine the extent of the Company's vulnerability to the failure of third
parties to remediate their own year 2000 issue. While all customers have not
been surveyed directly, the Company has exchanged information with certain
customers as they contact Eastman about its year 2000 compliance. In addition,
the Company has identified key customers with whom it is exchanging more
detailed information. The Company has received year 2000 disclosure statements
from 96% of companies surveyed which includes our raw materials suppliers,
indirect suppliers and other key service providers. The Company is proceeding
with a more detailed assessment of selected critical suppliers, service
providers and key customers to further assess the Company's risk. The Company
expects to complete these assessments by June 1999. Assessment of suppliers,
service providers and customers is dependent upon the accuracy and validity of
their year 2000 disclosure statements.
A business contingency planning team composed of key business managers has been
assigned to develop company-wide contingency plans. This team is actively
assessing the internal and external risks posed by the year 2000 issue such as
energy, telecommunications, financial, transportation and material supply
disruptions. Existing business continuity plans adjusted for unique year 2000
issues provide the basis for contingency planning. Major elements of the plan
will be completed by June 1999 with refinement and execution continuing up to
and through the year 2000 rollover.
Based on current plans and efforts to date, the Company does not anticipate that
the year 2000 issue will have a material effect on results of operations or
financial condition. However, a number of customers have indicated a potential
change in their buying patterns such that they may increase inventories during
the fourth quarter 1999, which could defer purchases during the first quarter
2000. If this were to occur, it could have a material impact upon operating
results for each of these quarters. The Company will continue to assess and work
with customers to determine the likelihood of these changes occurring and their
impact on the Company. The above expectations are subject to uncertainties. For
example, if the Company is unsuccessful in identifying or remediating all year
2000 problems in its critical operations, or if it is affected by the inability
of suppliers or major customers to continue operations due to such a problem,
then the Company's results of operations or financial condition could be
materially impacted.
HOLSTON DEFENSE CORPORATION
Holston Defense Corporation ("Holston"), a wholly owned subsidiary of the
Company, managed the government-owned Holston Army Ammunition Plant in
Kingsport, Tennessee (the "Facility") under contract with the Department of Army
("DOA") from 1949 until expiration of the contract (the "Contract") on December
31, 1998. The DOA awarded a contract to manage the Facility to a third party
effective January 1, 1999.
The Contract provides for reimbursement of allowable costs incurred by Holston.
The Company has recognized liabilities associated with Holston's curtailment of
pension, other postretirement benefits and other termination costs in accordance
with generally accepted accounting principles and expects the DOA to reimburse
substantially all such costs and payments. The recording of previously
unrecognized liabilities for pension and other termination costs had no effect
on earnings because the Company also recorded a receivable from the DOA for
reimbursement of such amounts. Reimbursement of certain previously recognized
pension and postretirement benefit costs will be credited to earnings at the
time of receipt of reimbursement from the DOA. A delay in reimbursement by the
DOA resulted in the Company advancing funds in early 1999 to pay a portion of
such costs. The Company will likely be required to advance additional funds to
pay pension benefit liabilities, as well as other postretirement and termination
costs, if there are further delays in payment or reimbursement by the DOA. The
Company expects no significant impact on financial position or results of
operations related to expiration of the Contract. See Note 3 to Consolidated
Financial Statements.
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<PAGE> 17
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998 the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which standardizes the accounting for
derivative instruments, including certain derivative instruments embedded in
other contracts, by requiring that an entity recognize those items as assets or
liabilities in the statement of financial position and measure them at fair
value. The Company is evaluating the effect of this standard on its financial
statements and will comply with requirements of the new standard which become
effective for the Company's 2000 financial reporting cycle.
OUTLOOK
Although encouraged by recent volume gains for some products, the Company
remains cautious about the next few months. Given the current economic
environment and continued pressure on selling prices, the Company anticipates
that it will be a challenge to improve earnings in 1999 over those of 1998.
Current global economic conditions and industry overcapacities are expected to
continue to pressure selling prices for most products. Demand for EASTAPAK
polymers, SPECTAR copolymers, and new polyethylene performance polymers, MXSTEN
and TENITE HIFOR, are expected to continue to grow. The 1999 start up of the new
oxo facility in Singapore is expected to provide volume growth capacities in the
Asia Pacific region.
The Company expects growth in the coatings, inks, resins and adhesives markets
as a result of the recently announced pending acquisition of Lawter
International, Inc. Based upon expected cost savings and revenue synergies, the
Company expects the transaction to be accretive to earnings in the first full
year after the merger.
The Company expects Asia Pacific sales volume will continue to improve due to
new available capacities, although selling prices in the region will likely be
depressed. Given current Brazilian economic conditions and the impact on the
region, the Company anticipates it will be a challenge to improve sales and
earnings for Latin America. Growth in Europe is expected to continue to be a
challenge in 1999. The Company anticipates that sales prices and volumes in
North America will continue to be pressured.
The Company will continue to pursue alternatives to diminish the impact of the
container plastics business on its portfolio, while focusing on improving cash
flow from this business.
The Company estimates that depreciation in 1999 will be approximately $360
million and plans capital expenditures equal to or less than depreciation. Gross
interest cost is expected to remain level with 1998, but capitalized interest is
expected to decrease as capital expenditures decline and capital improvements
now underway are completed.
In 1999, the Company has placed an increased priority on cash flow through
increased sales volumes, reduced capital expenditures, working capital reduction
efforts, continued emphasis on cost structure improvements and productivity
gains through its Advantaged Cost 2000 initiative, reinforced by basing a
portion of annual incentive payments for senior management on free cash flow.
The above-stated expectations, other forward-looking statements in this report,
and other statements of the Company relating to matters such as cost reduction
targets; additional available manufacturing capacity; capital spending and
depreciation; the year 2000 issue; legal proceedings; global economic
conditions; and supply and demand, volumes, prices, costs, margins, and sales
and earnings and cash flow expectations and strategies for individual products,
businesses, and segments, as well as for the whole of the Company, are based
upon certain underlying assumptions. These underlying assumptions are in turn
based upon internal estimates and analyses of current market conditions and
trends, management plans and strategies, economic conditions, and other factors
and are subject to risks and uncertainties inherent in projecting future
conditions and results.
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<PAGE> 18
The forward-looking statements in this Management's Discussion and Analysis are
based upon the following assumptions and those mentioned in the context of the
specific statements: continued pressure on selling prices from global economic
conditions and industry overcapacities; continued good demand overall for the
Company's products; continued demand growth worldwide for EASTAPAK polymers;
continued capacity additions within the PET industry worldwide; capacity
additions within the ethylene industry worldwide; availability of key purchased
raw materials with no significant increase in costs; continued market reception
of new polyethylene products and continued shift of polyethylene product mix to
less commodity products; availability of recent or planned manufacturing
capacity increases for container plastics, SPECTAR, coatings, and oxo products;
realization of expected cost savings and revenue synergies related to the
pending acquisition of Lawter International, Inc.; improved manufacturing plant
operations and maintenance; and labor and material productivity gains sufficient
to meet targeted cost structure reductions.
______________
EASTAPAK, EpB, SPECTAR, MXSTEN, and TENITE HIFOR are trademarks of Eastman
Chemical Company.
18
<PAGE> 19
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
GENERAL
The Company's operations are parties to or targets of lawsuits, claims,
investigations, and proceedings, including product liability, personal
injury, patent and intellectual property, commercial, contract,
environmental, antitrust, health and safety, and employment matters,
which are being handled and defended in the ordinary course of
business. While the Company is unable to predict the outcome of these
matters, it does not believe, based upon currently available facts,
that the ultimate resolution of any of such pending matters, including
those described in the following paragraphs, will have a material
adverse effect on the Company's overall financial position or results
of operations. However, adverse developments could negatively impact
earnings in a particular period.
SORBATES LITIGATION
As previously reported, on September 30, 1998, Eastman entered into a
voluntary plea agreement with the Department of Justice and agreed to
pay an $11 million fine to resolve a charge brought against the Company
for violation of Section One of the Sherman Act. Under the agreement,
Eastman entered a plea of guilty to one count of price-fixing for
sorbates, a class of food preservatives, from January 1995 through June
1997. The plea agreement was approved by the United States District
Court for the Northern District of California on October 21, 1998. The
Company recognized the entire fine in third quarter 1998 and is paying
the fine in installments over a period of five years.
In addition, the Company, along with other companies, has been named as
a defendant in ten antitrust lawsuits brought subsequent to the
Company's plea agreement as putative class actions on behalf of certain
purchasers of sorbates. In each case, the plaintiffs allege that the
defendants engaged in a conspiracy to fix the price of sorbates and
that the class members paid more for sorbates than they would have paid
absent the defendants' conspiracy. Four of the suits were filed in
Superior Courts for the State of California under various state
antitrust and consumer protection laws on behalf of classes of indirect
purchasers of sorbates; four of the proceedings are pending in United
States District Court for the Northern District of California, three
under federal antitrust laws on behalf of classes of direct purchasers
of sorbates and one under California's antitrust and consumer
protection laws on behalf of a class of all indirect purchasers of
sorbates; and two cases were filed in Circuit Courts for the State of
Tennessee under the antitrust and consumer protection laws of various
states, including Tennessee, on behalf of classes of indirect
purchasers of sorbates in those states. The plaintiffs in each case
seek treble damages of unspecified amounts, attorneys' fees and costs,
and other unspecified relief; in addition, certain of the actions claim
restitution, injunction against alleged illegal conduct, and other
equitable relief. Each proceeding is in preliminary pretrial motion and
discovery stage, and none of the proposed classes has been certified.
The Company intends vigorously to defend these actions unless they can
be settled on terms acceptable to the parties. These matters could
result in the Company being subject to monetary damages and expenses.
The Company recognized a charge to earnings in the fourth quarter of
1998 of $8 million for the estimated costs, including legal fees,
related to the pending sorbates litigation described above. Because of
the early stage of these putative class action lawsuits, however, the
ultimate outcome of these matters cannot presently be determined, and
they may result in greater or lesser liability than that currently
provided for in the Company's financial statements.
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<PAGE> 20
ENVIRONMENTAL MATTER
As previously reported, in May 1997 the Company received notice from
the Tennessee Department of Environment and Conservation ("TDEC")
alleging that the manner in which hazardous waste was fed into certain
boilers at the Tennessee Eastman facility in Kingsport, Tennessee
violated provisions of the Tennessee Hazardous Waste Management Act.
Based upon recent communications with the TDEC and the U.S.
Environmental Protection Agency, the Company believes that these
agencies are contemplating enforcement proceedings which, if commenced,
could result in monetary sanctions in excess of the $100,000 threshold
of Regulation S-K, Item 103, Instruction 5.C. under the Securities
Exchange Act of 1934 for reporting such contemplated proceedings in
this Report.
ITEM 2. CHANGES IN SECURITIES
(c) On January 1, 1999, the Company granted options to purchase an
aggregate of 551 shares of its common stock on or after July
1, 1999 at an exercise price of $45.4375 per share. Such
options were granted to non-employee directors who elected
under the 1996 Non-Employee Director Stock Option Plan to
receive options in lieu of all or a portion of their
semi-annual cash retainer fee. The Company issued the options
in reliance upon the exemption from registration of Section
4(2) of the Securities Act of 1933.
The Company did not sell any other equity securities during
the quarterly period ended March 31, 1999 in transactions not
registered under the Securities Act of 1933.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits filed as part of this report are listed in the
Exhibit Index appearing on page 22.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the
quarter ended March 31, 1999.
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<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Eastman Chemical Company
Date: April 29, 1999 By: /s/ Allan R. Rothwell
---------------------
Allan R. Rothwell
Senior Vice President and
Chief Financial Officer
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<PAGE> 22
<TABLE>
<CAPTION>
EXHIBIT INDEX
EXHIBIT DESCRIPTION SEQUENTIAL
NUMBER PAGE
NUMBER
<S> <C> <C>
3.01 Amended and Restated Certificate of Incorporation of Eastman
Chemical Company (incorporated herein by reference to Exhibit 3.01
to Eastman Chemical Company's Registration Statement on Form S-1,
File No. 33-72364, as amended)
3.02 Amended and Restated By-laws of Eastman Chemical Company, as
amended October 1, 1994 (incorporated by reference to Exhibit 3.02
to Eastman Chemical Company's Annual Report on Form 10-K for the
year ended December 31, 1994)
4.01 Form of Eastman Chemical Company Common Stock certificate
(incorporated herein by reference to Exhibit 3.02 to Eastman
Chemical Company's Annual Report on Form 10-K for the year ended
December 31, 1993)
4.02 Stockholder Protection Rights Agreement dated as of
December 13, 1993, between Eastman Chemical Company and First Chicago
Trust Company of New York, as Rights Agent (incorporated herein by
reference to Exhibit 4.4 to Eastman Chemical Company's Registration
Statement on Form S-8 relating to the Eastman Investment Plan, File
No. 33-73810)
4.03 Indenture, dated as of January 10, 1994, between Eastman Chemical
Company and The Bank of New York, as Trustee (incorporated herein
by reference to Exhibit 4(a) to Eastman Chemical Company's current
report on Form 8-K dated January 10, 1994 (the "8-K"))
4.04 Form of 6 3/8% Notes due January 15, 2004 (incorporated herein by
reference to Exhibit 4(c) to the 8-K)
4.05 Form of 7 1/4% Debentures due January 15, 2024 (incorporated herein
by reference to Exhibit 4(d) to the 8-K)
4.06 Officers' Certificate pursuant to Sections 201 and 301 of the
Indenture (incorporated herein by reference to Exhibit 4(a) to
Eastman Chemical Company's Current Report on Form 8-K dated
June 8, 1994 (the "June 8-K"))
4.07 Form of 7 5/8% Debentures due June 15, 2024 (incorporated herein by
reference to Exhibit 4(b) to the June 8-K)
</TABLE>
22
<PAGE> 23
<TABLE>
<CAPTION>
EXHIBIT INDEX
EXHIBIT DESCRIPTION SEQUENTIAL
NUMBER PAGE
NUMBER
<S> <C> <C>
4.08 Form of 7.60% Debenture due February 1, 2027 (incorporated herein
by reference to Exhibit 4.08 to Eastman Chemical Company's Annual
Report on Form 10-K for the year ended December 31, 1996 (the "1996
10-K")
4.09 Officer's Certificate pursuant to Sections 201 and 301 of the
Indenture related to 7.60% Debentures due February 1, 2027
(incorporated herein by reference to Exhibit 4.09 to the 1996 10-K)
4.10 Credit Agreement, dated as of December 19, 1995 (the "Credit
Agreement") among Eastman Chemical Company, the Lenders named
therein, and The Chase Manhattan Bank, as Agent (incorporated
herein by reference to Exhibit 4.08 to Eastman Chemical Company's
Annual Report on Form 10-K for the year ended December 31, 1995)
*10.01 Eastman ESOP Excess Plan (as amended) 24-31
*10.02 Eastman Executive Deferred Compensation Plan (as amended) 32-42
12.01 Statement re Computation of Ratios of Earnings to Fixed Charges 43
27.01 Financial Data Schedule for First Quarter 1999 (for SEC use only)
99.01 Supplemental Business Segment Information 44
</TABLE>
- -------------------------------------------------------------------------------
* Management contract or compensatory plan or arrangement filed pursuant
to Item 601(b)(10)(iii) of Regulation S-K.
23
<PAGE> 1
EXHIBIT 10.1
EASTMAN ESOP EXCESS PLAN
PREAMBLE. The Eastman ESOP Excess Plan is intended to be an unfunded,
non-qualified deferred compensation arrangement for a select group of management
or highly compensated employees of Eastman Chemical Company ("the Company") and
certain of its subsidiaries, under the Employee Retirement Income Security Act
of 1974, as amended, and shall be so interpreted. This Plan is designed to
provide benefits payable out of the Company's general assets where certain
benefits cannot be paid under the Eastman Employee Stock Ownership Plan (the
"ESOP") because of Internal Revenue Code Section 401(a)(17) and the provisions
of the ESOP that implement that Section. This Eastman ESOP Excess Plan is
adopted effective February 2, 1995.
SECTION 1. DEFINITIONS.
SECTION 1.1. "Account" means the individual Interest-Bearing Account or
Stock Account maintained for a Participant.
SECTION 1.2. "Affiliated Company" has the same meaning as in the ESOP.
SECTION 1.3. "Board" means the Board of Directors of the Company.
SECTION 1.4. "Change In Control" means a change in control of the
Company of a nature that would be required to be reported (assuming
such event has not been "previously reported") in response to Item 1(a)
of a Current Report on Form 8-K, as in effect on August 1, 1993,
pursuant to Section 13 or 15(d) of the Exchange Act; provided that,
without limitation, a Change In Control shall be deemed to have
occurred at such time as (i) any "person" within the meaning of Section
14(d) of the Exchange Act, other than the Company, a subsidiary of the
Company, or any employee benefit plan(s) sponsored by the Company or
any subsidiary of the Company, is or has become the "beneficial owner,"
as defined in Rule 13d-3 under the Exchange Act, directly or
indirectly, of 25% or more of the combined voting power of the
outstanding securities of the Company ordinarily having the right to
vote at the election of directors; provided, however, that the
following will not constitute a Change In Control: any acquisition by
any corporation if, immediately following such acquisition, more than
75% of the outstanding securities of the acquiring corporation
ordinarily having the right to vote in the election of directors is
beneficially owned by all or substantially all of those persons who,
immediately prior to such acquisition, were the beneficial owners of
the outstanding securities of the Company ordinarily having the right
to Vote in the election of directors, or (ii) individuals who
constitute the Board on January 1, 1994 (the "Incumbent Board") have
ceased for any reason to constitute at least a majority thereof,
provided that: any person becoming a director subsequent to January 1,
1994 whose election, or nomination for election by the Company's
stockholders, was approved by a vote of at least three-quarters (3/4)
of the directors comprising the Incumbent Board (either by a specific
vote or by approval of the proxy statement of the Company in which such
person is named as a nominee for director without objection to such
nomination) shall be, for purposes of the Plan, considered as though
such person were a member of the Incumbent Board, (iii) upon approval
by the Company's stockholders of a reorganization, merger or
consolidation, other than one with respect to which all or
substantially all of those persons who were the beneficial owners,
immediately prior to such reorganization, merger or consolidation, of
outstanding securities of the Company ordinarily having the right to
vote in the election of directors own, immediately after such
transaction, more than 75% of the outstanding securities of the
resulting corporation ordinarily having the right to vote in the
election of directors; or (iv) upon approval by the Company's
stockholders of a complete liquidation and dissolution of the Company
or the sale or other disposition of all or substantially all of the
assets of the Company other than to a subsidiary of the Company.
Notwithstanding the occurrence of any of the foregoing, the Committee
may determine, if it deems it to be in the best interest of the
Company, that an event or events otherwise constituting a Change In
Control shall not to be so considered. Such determination shall be
effective only if it is made by the Committee prior to the occurrence
of an event that otherwise would be or probably will lead to
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<PAGE> 2
a Change In Control or after such event if made by the Committee a
majority of which is composed of directors who were members of the
Board immediately prior to the event that otherwise would be or
probably will lead to a Change In Control.
SECTION 1.5. "Committee" means the Compensation and Management
Development Committee of the Board.
SECTION 1.6. "Common Stock" means the $.01 par value common stock of
the Company.
SECTION 1.7. "Company" means Eastman Chemical Company.
SECTION 1.8. "Effective Date" of an election means (i) the date such
election is made, if such election is made prior to the close of
trading on the New York Stock Exchange on a day on which the Common
Stock is traded on the New York Stock Exchange, or (ii) if such
election is made after the close of trading on the New York Stock
Exchange on a given day or at any time on a day on which no sales of
Common Stock are made on the New York Stock Exchange, then on the next
business day on which the Common Stock is traded on the New York Stock
Exchange.
SECTION 1.9. "Eligible Employee" means any Participant in the ESOP.
SECTION 1.10. "ESOP" means the Eastman Employee Stock Ownership Plan,
as the same now exists or may be amended hereafter.
SECTION 1.11. "ESOP Contribution Date" means the date, if any, on which
the Trustee of the ESOP receives the Company's contributions to the
ESOP for a particular Plan Year.
SECTION 1.12. "ESOP Payout Percentage" means the percentage amount of
an Eligible Employee's "Compensation" (as defined in the ESOP) to which
such Eligible Employee is entitled as an allocation, whether such
allocation is in the form of cash, Common Stock, or a combination
thereof, under the ESOP for a particular Plan Year.
SECTION 1.13. "Excess Compensation, means the excess, if any, of (1) an
Employee's "Participating Earnings," as specified in Section 2.11(a) of
the ESOP, over (2) the dollar amount referred to in Section 2.11(b) of
the ESOP.
SECTION 1.14. "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
SECTION 1.15. "Interest-Bearing Account" means the account established
by the Company for a Participant pursuant to Section 4, which shall
bear interest as described in Section 4. The maintenance of individual
Interest-Bearing Accounts is for bookkeeping purposes only.
SECTION 1.16. "Interest Rate" means the monthly average of bank prime
lending rates to most favored customers as published in The Wall Street
Journal, such average to be determined as of the last day of each
month.
SECTION 1.17. "Participant" means a person who in one or more years
receives an allocation pursuant to this Plan.
SECTION 1.18. "Plan" means this Eastman ESOP Excess Plan.
SECTION 1.19. "Plan Year" has the same meaning as in the ESOP.
SECTION 1.20. "Section 16 Insider" means a Participant who is, with
respect to the Company, subject to Section 16 of the Exchange Act.
25
<PAGE> 3
SECTION 1.21. "Stock Account" means the account established by the
Company for each Participant, the performance of which shall be
measured by reference to the performance of the ESOP accounts
maintained for participants in the ESOP. The maintenance of individual
Stock Accounts is for bookkeeping purposes only.
SECTION 1.22. "Valuation Date" means each business day.
SECTION 2. ALLOCATIONS. For any Plan Year (including, without limitations, the
1994 Plan Year) in which an Eligible Employee has Excess Compensation, at such
time, if any, as the Company makes a contribution to the ESOP with respect to
such Plan Year, the Company shall credit to the Eligible Employee's Stock
Account under this Plan, an amount equal to the product of (1) the amount of
such Eligible Employee's Excess Compensation multiplied by (2) the ESOP Payout
Percentage.
SECTION 3. DESCRIPTION OF STOCK ACCOUNT
SECTION 3.1. GENERAL. The performance results of the Stock Account
(i.e., the return on hypothetical investments in the Stock Account)
generally are intended to mirror the results of the ESOP accounts
maintained for ESOP participants. Except as described below, amounts in
a Participant's Stock Account are hypothetically invested in the same
manner as funds held in the ESOP. ESOP funds are invested primarily in
Common Stock, but may also be invested in other types of securities or
in cash. "Units" representing hypothetical investments in Common Stock
and other ESOP assets are allocated to each participant's account. Unit
values will increase or decrease based on the market prices of the
securities held in the ESOP and on dividends and interest received on
ESOP assets.
Notwithstanding the foregoing, in the event that any dividend is paid
on the Common Stock and such dividend is paid directly to ESOP
participants, rather than remaining in the ESOP's assets, then the
Stock Account of each Participant who had a balance in his or her Stock
Account on the record date for such dividend shall be credited with the
number of additional units, and fractions thereof, obtained by
multiplying (i) the dollar value with which each unit in the ESOP would
have been credited had such dividend not been paid through to ESOP
participants by (ii) the number of units credited to such Participant's
Stock Account as of the ex dividend date with respect to such dividend.
The use of units is merely a bookkeeping convenience; the units are not
actual shares of Common Stock. The Company will not reserve or
otherwise set aside any Common Stock for or to any Stock Account. The
maximum number of shares of Common Stock that may be hypothetically
purchased through allocations to Stock Accounts under this Plan is
100,000.
SECTION 3.2. MANNER OF CREDITING STOCK ACCOUNT. If a Participant is
entitled to an allocation pursuant to Section 2, effective as of the
ESOP Contribution Date, his or her Stock Account shall be credited with
that number of units, and fractions thereof, obtained by dividing (1)
the dollar amount of such allocation as described in Section 2 by (2)
the unit value on the ESOP Contribution Date.
SECTION 3.1. ELECTION OUT OF THE STOCK ACCOUNT. If a Participant elects
pursuant to Section 4 to transfer an amount from his or her Stock
Account to his or her Interest-Bearing Account, effective as of the
election's Effective Date, (i) his or her Interest-Bearing Account
shall be credited with a dollar amount equal to the amount obtained by
multiplying the number of units to be transferred by the unit value on
the election's Effective Date, and (ii) his or her Stock Account shall
be reduced by the number of units elected to be transferred.
SECTION 3.4. DISTRIBUTIONS. Amounts in respect of units shall be
distributed in cash in accordance with Sections 5. 6, 7 and 15. For
purposes of a distribution pursuant to Sections 5, 6, 7
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<PAGE> 4
and 15, the number of units to be distributed from a Participant's
Stock Account shall be valued by multiplying the number of such units
by the unit value as of the Valuation Date immediately preceding the
date such distribution is to occur.
SECTION 3.5. PROVISION FOR SECTION 16 INSIDERS. The Stock Account of a
Section 16 Insider is not transferable by him or her to any other
person or entity other than by will or the laws of descent and
distribution. The designation of a beneficiary by a Section 16 Insider
does not constitute a transfer for this purpose.
SECTION 4. TRANSFERS TO INTEREST-BEARING ACCOUNT.
SECTION 4.1. GENERAL. Each Participant who has become a "Qualified
Participant" under Article 9 of the ESOP, or any successor provisions
thereto, may direct that an amount determined under Section 4.2 be
transferred from the Participant's Stock Account to his or her
Interest-Bearing Account at such time or times as such Participant
could make a diversification election pursuant to Article 9 of the
ESOP, or any successor provisions thereto. Amounts in a Participant's
Interest-Bearing Account are hypothetically invested in an account
which bears interest computed at the Interest Rate, compounded monthly.
SECTION 4.2. AMOUNT OF TRANSFER. A Participant who is a Qualified
Participant under the ESOP may direct the Plan to transfer from the
Participant's Stock Account to the Participant's Interest-Bearing
Account, a dollar amount equal to the value of the same portion (or
all, if applicable) of the total number of units credited to the
Participant's Stock Account as the portion of the total number of
shares of "Employer Securities" treated as acquired after 1986 which
the Participant could direct the ESOP to distribute pursuant to Article
9 of the ESOP, or any successor provisions thereto; provided, however,
that if a Participant does not transfer to the Interest-Bearing Account
the full number of units eligible for transfer in a given year, then
such untransferred units may be carried forward and eligible for
transfer in future years using substantially the same methodology as is
used for carry-forward of unused shares eligible for diversification
under Article 9 of the ESOP, or any successor provisions thereto.
SECTION 4.3. MANNER OF DIRECTING TRANSFER. A Participant's election to
transfer under this Section 4 shall be provided to the Company's Vice
President, Human Resources, during the same period during which any
diversification election pursuant to Article 9 of the ESOP, or any
successor provisions thereto, must be provided and shall be in writing.
Notwithstanding the provisions of the ESOP, any such election may not
be modified or revoked, but shall be effective as of the election's
Effective, Date. No amounts transferred from a Participant's Stock
Account to a Participant's Interest-Bearing Account may subsequently be
transferred back to the Participant's Stock Account.
SECTION 5. PAYMENT OF ACCOUNTS.
SECTION 5.1. BACKGROUND. No withdrawal may be made from a Participant's
Accounts except as provided in this Section 5 and Sections 6, 7 and 15.
SECTION 5.2. MANNER OF PAYMENT. Payment of a Participant's Accounts
shall be made in a single lump sum or installments, as elected by the
Participant pursuant to this Section 5. The maximum number of annual
installments is ten. The minimum annual installment payment permitted
under such election (determined based on the value of the Participant's
Accounts as of the last Valuation Date of the calendar year in which
the Participant terminates employment, and disregarding any earnings
under this Plan after such date) shall be one thousand dollars
($1,000); this minimum shall be applied by dividing by $1,000 the value
of the Participant's Accounts as of the last Valuation Date of the
calendar year in which the Participant terminates employment, and the
result, rounded down to the next largest whole number, shall be the
maximum number of annual installments permitted. All payments from the
Plan shall be made in cash.
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<PAGE> 5
SECTION 5.3. TIMING OF PAYMENTS. Payments shall be made by the fifth
business day in March and shall commence in any year elected by the
Participant pursuant to this Section 5 up through the tenth year
following the year in which the Participant retires, becomes disabled,
or for any other reason ceases to be an employee of the Company or any
of its Affiliated Companies, but in no event shall commence later than
the year the Participant reaches age 71.
SECTION 5.4. VALUATION. The amount of each payment shall be equal to
the value, as of the preceding Valuation Date, of the Participant's
Accounts, divided by the number of installments remaining to be paid.
If a Participant's Accounts are to be paid in installments and the
Participant has a balance in both his or her Stock Account and his or
her Interest-Bearing Account at the time of the payment of an
installment, the amount that shall be distributed from each Account
shall be proportional to the value of the balance in each such Account
as of the immediately preceding Valuation Date.
SECTION 5.5. PARTICIPANT PAYMENT ELECTIONS. Except as provided in
Section 5.6, an election by a Participant concerning the method of
payment under Section 5.2 or the commencement of payments under Section
5.3 must be made at least one (1) year before the Participant's
termination of employment, and must be made on forms provided by the
Company. If a Participant does not have a valid election in force at
the time of termination of employment, then (i) if the value of his
Accounts as of the last Valuation Date of the calendar year in which he
terminates employment is less than ten thousand dollars ($10,000), then
his Accounts shall be paid in a single lump sum; (ii) if the value of
his Accounts as of the last Valuation Date of the calendar year in
which he terminates employment is ten thousand dollars ($10,000) or
more, then his Accounts shall be paid in ten (10) annual installments;
and (iii) regardless of whether payment is made in a single lump sum or
installments, payment shall commence by the fifth business day in March
following the calendar year in which the Participant terminates
employment.
SECTION 5.6. SPECIAL PAYMENT ELECTION RULES. Notwithstanding Sections
5.2, 5.3, and 5.5, if a Participant terminates employment less than one
(1) year before the date he first becomes eligible to participate in
this Plan, then an election made by the Participant under this Section
5 no later than thirty (30) days after the date he first becomes
eligible to participate in this Plan shall be valid. Also
notwithstanding Sections 5.2, 5.3, and 5.5, Participants who retire or
otherwise terminate employment no later than January 1, 2000 shall,
subject to the restrictions of Sections 5.2 and 5.3, have the manner
and commencement of payment of their Account determined by the Vice
President, Human Resources, with respect to Participants who are not
executive officers of the Company, and by the Compensation Committee,
with respect to Participants who are executive officers of the Company;
and in such event (i) 5the Vice President, Human Resources and the
Compensation Committee, as applicable, may expressly designate any such
decision under Sections 5.2 or 5.3 concerning time of payment of
benefits and/or form of payment as being irrevocable, and if such
designation is made, such decision may be changed only with the consent
of the Participant, or, if the Participant is deceased, the
Participant's beneficiary under this Plan (if any); and (ii) once
payments have commenced to a Participant or beneficiary under this
Plan, the form of payment shall be considered irrevocable within the
meaning of the immediately preceding sentence, regardless of whether it
is designated as such by the Vice President, Human Resources or the
Compensation Committee.
SECTION 6. PAYMENT OF DEFERRED COMPENSATION AFTER DEATH. If a Participant dies
prior to complete payment of his or her Accounts, the balance of such Accounts,
valued as of the Valuation Date immediately preceding the date payment is made,
shall be paid in a single, lump-sum payment to the same person who would be
entitled to receive survivor benefits with respect to the Participant under the
ESOP.
SECTION 7.
SECTION 7.1. ACCELERATION OF PAYMENT FOR HARDSHIP. Upon written
approval from the Company's Vice President, Human Resources, with
respect to Participants other than executive officers of the Company,
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<PAGE> 6
and by the Committee, with respect to Participants who are executive
officers of the Company, a Participant, whether or not he or she is
still employed by the Company or any of its Affiliated Companies, may
be permitted to receive all or part of his or her Accounts if the
Company's Vice President, Human Resources, or the Committee, as
applicable, determines that an emergency event beyond the Participant's
control exists which would cause such Participant severe financial
hardship if the payment of his or her Accounts were not approved. Any
such distribution for hardship shall be limited to the amount needed to
meet such emergency. If at the time of such distribution for hardship a
Participant has a balance in both his or her Stock Account and his or
her Interest-Bearing Account, then the amount to be distributed from
each Account shall be determined in accordance with the principles
described in Section 5.4.
SECTION 7.2. PAYMENT TO INDIVIDUALS. Any participant in the Eastman
ESOP Excess Plan may at his or her discretion withdraw at any time all
or part of that person's account balance under the Plan. If this option
is exercised the individual will forfeit to the Corporation 10% of his
or her account balance, and will not be permitted to participate in
this plan for a period of 36 months from date any payment to a
participant is made under this section.
SECTION 7.3. ACCELERATED PAYMENT. If under Eastman ESOP Excess Plan
one-half or more of the participants or one-fifth of the participants
with one-half of the value of all benefits owed exercise their option
for immediate distribution in a six month period then this will trigger
immediate payout to all participants of all benefits owed under the
plans. Immediate payout under this section will not involve reduction
of the amounts paid to participants as set forth in section 7.2. Any
individual that has been penalized in this six month period for
electing immediate withdrawal will be paid that penalty if payout to
all participants under this section occurs.
SECTION 8. PARTICIPANT'S RIGHTS UNSECURED. The benefits payable under this Plan
shall be paid by the Company out of its general assets. To the extent a
Participant acquires the right to receive a payment under this Plan, such right
shall be no greater than that of an unsecured general creditor of the Company.
No amount payable under this Plan may be assigned, transferred, encumbered or
subject to any legal process for the payment of any claim against a Participant.
No Participant shall have the right to exercise any of the rights or privileges
of a stockholder with respect to the units credited to his or her Stock Account.
SECTION 9. NO RIGHT TO CONTINUED EMPLOYMENT. Participation in this Plan shall
not give any employee any right to remain in the employ of the Company or any of
its Affiliated Companies. The Company and each employer Affiliated Company
reserve the right to terminate any Participant at any time.
SECTION 10 STATEMENT OF ACCOUNT. Statements will be sent no less frequently than
annually to each participant or his or her estate showing the value of the
Participant's Accounts.
SECTION 11. DEDUCTION. The Company will withhold to the extent required by law
all applicable income and other taxes with respect to amounts deferred or paid
under the Plan. Such withholding shall be deducted from sources outside of this
Plan unless the Company's Vice President, Human Resources, with respect to
Participants other than executive officers of the Company, or the Committee,
with respect to Participants who are executive officers of the Company,
determines that such withholding should be deducted from amounts that would
otherwise be credited to this Plan.
SECTION 12. ADMINISTRATION.
SECTION 12.1. RESPONSIBILITY. Except as expressly provided otherwise
herein, the Committee shall have total and exclusive responsibility to
control, operate, manage and administer the Plan in accordance with its
terms.
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<PAGE> 7
SECTION 12.2. AUTHORITY OF THE COMMITTEE. The Committee shall have all
the authority that may be necessary or helpful to enable it to
discharge its responsibilities with respect to the Plan. Without
limiting the generality of the preceding sentence, the Committee shall
have the exclusive right: to interpret the Plan, to determine
eligibility for participation in the Plan, to decide all questions
concerning eligibility for and the amount of benefits payable under the
Plan, to construe any ambiguous provision of the Plan, to correct any
default, to supply any omission, to reconcile any inconsistency, and to
decide any and all questions arising in the administration,
interpretation, and application of the Plan.
SECTION 12.3. DISCRETION AUTHORITY. The Committee shall have full
discretionary authority in all matters related to the discharge of its
responsibilities and the exercise of its authority under the Plan
including, without limitation, its construction of the terms of the
Plan and its determination of eligibility for participation and
benefits under the Plan. It is the intent of the Plan that the
decisions of the Committee and its action with respect to the Plan
shall be final and binding upon all persons having or claiming to have
any right or interest in or under the Plan and that no such decision or
action shall be modified upon judicial review unless such decision or
action is proven to be arbitrary or capricious.
SECTION 12.4. AUTHORITY OF VICE PRESIDENT, HUMAN RESOURCES. Where
expressly provided for under Sections 4, 7 and 11, the authority of the
Committee is delegated to the Company's Vice President, Human
Resources, and to that extent the provisions of Section 12.1 through
12.3 above shall be deemed to apply to such Vice President.
SECTION 12.5. DELEGATION OF AUTHORITY. The Committee may provide for an
additional delegation of some or all of its authority under the Plan to
any person or persons provided that any such delegation be in writing.
SECTION 13. AMENDMENT. The Board may suspend or terminate the Plan at any time,
and may, from time to time, amend the Plan in any manner. However, no amendment,
modification, or termination shall, without the consent of a Participant,
adversely affect such Participant's accruals in his or her Accounts as of the
date of such amendment, modification, or termination.
SECTION 14. GOVERNING LAW. The Plan shall be construed, governed and enforced in
accordance with the law of Tennessee, except as such laws are preempted by
applicable federal law.
SECTION 15. CHANGE IN CONTROL.
SECTION 15.1. BACKGROUND. The terms of this Section 15 shall
immediately become operative, without further action or consent by any
person or entity, upon a Change In Control, and once operative shall
supersede and control over any other provisions of this Plan.
SECTION 15.2. [RESERVED]
SECTION 15.3. AMENDMENT ON OR AFTER CHANGE IN CONTROL. On or after a
Change In Control, no action, including, but not by way of limitation,
the amendment, suspension or termination of the Plan, shall be taken
which would affect the rights of any Participant or the operation of
this Plan with respect to the balance in the Participant's Accounts
without the written consent of the Participant, or, if the Participant
is deceased, the Participant's beneficiary under this Plan (if any).
SECTION 15.4. ATTORNEY FEES The Corporation shall pay all reasonable
legal fees and related expenses incurred by a participant in seeking to
obtain or enforce any payment, benefit or right such participant may be
entitled to under the plan after a Change in Control; provided,
however, the participant shall be required to repay any such amounts to
the Corporation to the extent a court of competent jurisdiction issues
a final and non-appealable order setting forth the determination that
the position taken by the participant was frivolous or advanced in bad
faith.
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SECTION 16. COMPLIANCE WITH SECURITIES LAWS. The hypothetical units of Common
Stock provided for by this Plan are intended not to constitute "derivative
securities" for purposes of Rule l6a-1(c), or any successor provisions, under
the Exchange Act. To the extent any provision of this Plan or action by the
Committee would cause such units to constitute "derivative securities" for those
purposes, it shall be deemed to be null and void, to the extent permitted by law
and deemed advisable by the Committee.
The Committee may, from time to time, impose additional restrictions upon
Participants as it deems necessary, advisable or appropriate in order to comply
with applicable federal and state securities laws. All such restrictions shall
be accomplished by way of written guidelines adopted by the Committee.
SECTION 17. SUCCESSORS AND ASSIGNS. This Plan shall be binding upon the
successors and assigns of the parties hereto.
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<PAGE> 1
EXHIBIT 10.02
AMENDED AND RESTATED
EASTMAN EXECUTIVE DEFERRED COMPENSATION PLAN
PREAMBLE. The Amended and Restated Eastman Executive Deferred
Compensation Plan is an unfunded, nonqualified deferred compensation arrangement
for eligible employees of Eastman Chemical Company ("the Company") and certain
of its subsidiaries. Under the Plan, each Eligible Employee is annually given an
opportunity to elect to defer payment of part of his or her cash compensation.
This Plan also assumed the liabilities accrued under the Kodak Executive
Deferred Compensation Plan, as of January 1, 1994, in respect of each Eligible
Employee who was actively employed by the Company as of such date and who chose
to transfer his or her deferred compensation account to the Company. This Plan
originally was adopted effective January 1, 1994, was amended effective March 2,
1994, and is further amended and restated effective as of October 10, 1996.
SECTION 1: DEFINITIONS.
SECTION 1.1. "Account" means the Interest Account or the Stock Account.
SECTION 1.2. "Board" means the Board of Directors of the Company.
SECTION 1.3. "Change In Control" means a change in control of the
Company of a nature that would be required to be reported (assuming
such event has not been "previously reported") in response to Item 1
(a) of a Current Report on Form 8-K, as in effect on August 1, 1993,
pursuant to Section 13 or 15(d) of the Exchange Act; provided that,
without limitation, a Change In Control shall be deemed to have
occurred at such time as (i) any "person" within the meaning of Section
14(d) of the Exchange Act, other than the Company, a subsidiary of the
Company, or any employee benefit plan(s) sponsored by the Company or
any subsidiary of the Company, is or has become the "beneficial owner,"
as defined in Rule 13d-3 under the Exchange Act, directly or
indirectly, of 25% or more of the combined voting power of the
outstanding securities of the Company ordinarily having the right to
vote at the election of directors; provided, however, that the
following will not constitute a Change In Control: any acquisition by
any corporation if, immediately following such acquisition, more than
75% of the outstanding securities of the acquiring corporation
ordinarily having the right to vote in the election of directors is
beneficially owned by all or substantially all of those persons who,
immediately prior to such acquisition, were the beneficial owners of
the outstanding securities of the Company ordinarily having the right
to vote in the election of directors, or (ii) individuals who
constitute the Board on January 1, 1994 (the "Incumbent Board") have
ceased for any reason to constitute at least a majority thereof,
provided that: any person becoming a director subsequent to January 1,
1994 whose election, or nomination for election by the Company's
stockholders, was approved by a vote of at least three-quarters (3/4)
of the directors comprising the Incumbent Board (either by a specific
vote or by approval of the proxy statement of the Company in which such
person is named as a nominee for director without objection to such
nomination) shall be, for purposes of the Plan, considered as though
such person were a member of the Incumbent Board, (iii) upon approval
by the Company's stockholders of a reorganization, merger or
consolidation, other than one with respect to which all or
substantially all of those persons who were the beneficial owners,
immediately prior to such reorganization, merger or consolidation, of
outstanding securities of the Company ordinarily having the right to
vote in the election of directors own, immediately after such
transaction, more than 75% of the outstanding securities of the
resulting corporation ordinarily having the right to vote in the
election of directors; or (iv) upon approval by the Company's
stockholders of a complete liquidation and dissolution of the Company
or the sale or other disposition of all or substantially all of the
assets of the Company other than to a subsidiary of the Company.
Notwithstanding the occurrence of any of the foregoing, the
Compensation Committee may determine, if it deems it to be in the best
interest of the Company, that an event or events otherwise
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constituting a Change In Control shall not be so considered. Such
determination shall be effective only if it is made by the Compensation
Committee prior to the occurrence of an event that otherwise would be
or probably will lead to a Change In Control or after such event if
made by the Compensation Committee a majority of which is composed of
directors who were members of the Board immediately prior to the event
that otherwise would be or probably will lead to a Change In Control.
SECTION 1.4. "Common Stock" means the $.01 par value common stock of
the Company.
SECTION 1.5. "Company" means Eastman Chemical Company.
SECTION 1.6. "Compensation Committee" shall mean the Compensation and
Management Development Committee of the Board.
SECTION 1.7. "Deferrable Amount" means, for a given fiscal year of the
Company, an amount equal to the sum of the Eligible Employee's (i)
annual base cash compensation; (ii) annual cash payments under the
Eastman Performance Plan and the Annual Performance Plan of the
Company; and (iii) stock and stock-based awards under the Omnibus Plan
which, under the terms of the Omnibus Plan and the award, are payable
in cash and required or allowed to be deferred into this Plan;
provided, however, that the Deferrable Amount shall not include any
amount that must be withheld from the Eligible Employee's wages for
income or employment tax purposes. In addition, each Eligible Employee
as of January 1, 1994, who had previously participated in the Kodak
Executive Deferred Compensation Plan could elect to transfer the amount
then in his or her account in the Kodak Executive Deferred Compensation
Plan into the Plan. Furthermore, "Deferred Amount" included, for 1993,
annual cash payments under the Kodak Wage Dividend policy and Success
Sharing program payable in 1994 and attributable to 1993 service.
SECTION 1.8. "Eligible Employee" means a U.S.-based employee of the
Company or any of its U.S. Subsidiaries who, as of the first day of the
applicable Enrollment Period (i) has a salary grade classification of
SG 49 or above; or (ii) is not covered under clause (i), but who was an
Eligible Employee under the Kodak Executive Deferred Compensation Plan,
as in effect on January 1, 1994. Any employee who becomes eligible to
participate in this Plan and in a future year does not qualify as an
Eligible Employee because of a change in position level shall
nevertheless be eligible to participate in such year.
SECTION 1.9. "Enrollment Period" means the period designated by the
Compensation Committee each year, provided however, that such period
shall end on or before the last business day before the last Sunday in
December of each year.
SECTION 1.10. "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
SECTION 1.11. "Interest Account" means the account established by the
Company for each Participant for compensation deferred pursuant to this
Plan and which shall bear interest as described in Section 4.1 below.
The maintenance of individual Interest Accounts is for bookkeeping
purposes only.
SECTION 1.12. "Interest Rate" means the monthly average of bank prime
lending rates to most favored customers as published in The Wall Street
Journal, such average to be determined as of the last day of each
month.
SECTION 1.13. "Market Value" means the closing price of the shares of
Common Stock on the Now York Stock Exchange on the day on which such
value is to be determined or, if no such. shares were traded on such
day, said closing price on the next business day on which such shares
33
are traded, provided, however, that if at any relevant time the shares
of Common Stock are not traded on the New York Stock Exchange, then
"Market Value" shall be determined by reference to the closing price of
the shares of Common Stock on another national securities exchange, if
applicable, or if the shares are not traded on an exchange but are
traded in the over-the-counter market, by reference to the last sale
price or the closing "asked" price of the shares in the
over-the-counter market as reported by the National Association of
Securities Dealers Automated Quotation System (NASDAQ) or other
national quotation service.
SECTION 1.14. "Omnibus Plan" means the Eastman Chemical Company 1994
Omnibus Long-Term Compensation Plan or any successor plan to the
Omnibus Plan providing for awards of stock and stock-based compensation
to Company employees.
SECTION 1.15. "Participant" means an Eligible Employee who elects for
one or more years to defer compensation pursuant to this Plan.
SECTION 1.16. "Plan" means this Amended and Restated Eastman Executive
Deferred Compensation Plan.
SECTION 1.17. "Section 16 Insider" means a Participant who is, with
respect to the Company, subject to Section 16 of the Exchange Act.
SECTION 1.18. "Stock Account" means the account established by the
Company for each Participant, the performance of which shall be
measured by reference to the Market Value of Common Stock. The
maintenance of individual Stock Accounts is for bookkeeping purposes
only.
SECTION 1.19. "U.S. Subsidiaries" means the United States subsidiaries
of the Company listed on Schedule A.
SECTION 1.20. "Valuation Date" means each business day.
SECTION 2. DEFERRAL OF COMPENSATION. An Eligible Employee may elect to defer
receipt of all or any portion of his or her Deferrable Amount to his or her
Interest Account and/or Stock Account. A Participant in this Plan need not
participate in the Eastman Investment Plan. If an Eligible Employee terminates
employment with the Company or any of its U.S. Subsidiaries, any previous
deferral election with respect to a Wage Dividend, Success Sharing, Eastman
Performance Plan, Annual Performance Plan or Omnibus Plan payment or award shall
remain in effect with respect to such items of compensation payable after
termination of employment.
SECTION 3. TIME OF ELECTION OF DEFERRAL. An Eligible Employee who wishes to
defer compensation must irrevocably elect to do so during the applicable
Enrollment Period. Except as provided in the next sentence, the Enrollment
Period shall end prior to the first day of the calendar year in which the
applicable Deferrable Amount will first be paid, earned, or awarded. The
Enrollment Period with respect to payouts (if any) in 1997 under the 1994-1996
Long-Term Performance Subplan of the Omnibus Plan shall end prior to October 31,
1996. Elections shall be made annually.
This Plan was first adopted January 1, 1994, and is generally effective with
respect to compensation earned on or after such date. However, (i) if a person
who is eligible to participate in this Plan made an election under the Kodak
Executive Deferred Compensation Plan with respect to a payment under the
Management Annual Performance Plan (MAPP) that would be paid in calendar year
1994, such election remained in force and was effective under this Plan for such
MAPP payment, and (ii) Participants could elect to defer under this Plan a Wage
Dividend or Success Sharing payment payable in calendar year 1994 but
attributable to 1993 service.
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<PAGE> 3
SECTION 4. HYPOTHETICAL INVESTMENTS.
SECTION 4. 1. INTEREST ACCOUNT. Amounts in a Participant's Interest
Account are hypothetically invested in an interest bearing account
which bears interest computed at the Interest Rate, compounded monthly.
SECTION 4.2. STOCK ACCOUNT. Amounts in a Participant's Stock Account
are hypothetically invested in units of Common Stock. Amounts deferred
into a Stock Account are recorded as units of Common Stock, and
fractions thereof with one unit equating to a single share of Common
Stock. Thus, the value of one unit shall be the Market Value of a
single share of Common Stock. The use of units is merely a bookkeeping
convenience; the units are not actual shares of Common Stock. The
Company will not reserve or otherwise set aside any Common Stock for or
to any Stock Account the maximum number of Common Stock units that may
be hypothetically purchased by deferral of compensation to Stock
Accounts under this Plan is 4,500,000.
SECTION 5. DEFERRALS AND CREDITING AMOUNTS TO ACCOUNTS.
SECTION 5.1. MANNER OF ELECTING DEFERRAL. An Eligible Employee may
elect to defer compensation by executing and returning to the
Compensation Committee a deferred compensation form provided by the
Company. The form shall indicate (i) the amount and sources of
Deferrable Amount to be deferred; (ii) whether deferral of annual base
cash compensation is to be at the same rate throughout the year, or at
one rate for part of the year and at a second rate for the remainder of
the year; and (iii) the portion of the deferral to be credited to the
Participant's Interest Account and Stock Account respectively. An
election to defer compensation shall be irrevocable following the end
of the applicable Enrollment Period, but the portion of the deferral to
be credited to the Participant's Interest Account and Stock Account,
respectively, may be reallocated by the Participant in the manner
specified by the Compensation Committee or its authorized designee
through and including the business day immediately preceding the date
on which the deferred amount is credited to the Participant's Accounts
pursuant to Section 5.2.
SECTION 5.2. CREDITING OF AMOUNTS TO ACCOUNTS. Amounts to be deferred
shall be credited to the Participant's Interest Account and/or Stock
Account, as applicable, as of the date such amounts are otherwise
payable.
SECTION 6. DEFERRAL PERIOD. Subject to Sections 9, 10, and 19 hereof, the
compensation which a Participant elects to defer under the Plan will be deferred
until the Participant retires or otherwise terminates employment with the
Company or any of its U.S. Subsidiaries. Any such election shall be made during
the applicable Enrollment Period on the deferred compensation form referenced in
Section 5 above. The payment of a Participant's Account shall be governed by
Sections 8, 9, 10, and 19, as applicable.
Notwithstanding the foregoing, any fixed date election made by an Eligible
Employee under the Kodak Executive Deferred Compensation Plan shall remain in
force under this Plan, provided he or she continues as an employee of the
Company or any of its U.S. Subsidiaries during the period of deferral. Payment
of such amount pursuant to a deferral election made under such Kodak Plan shall
be made in cash in a single lump sum on the fifth business day in March in the
year following the termination of such deferral period, and the amount of the
lump sum due the Participant shall be valued as of the last Valuation Date in
February in the year following the termination of the deferral period. If such
Participant ceases to be an employee of the Company or any of its U.S.
Subsidiaries prior to the end of the fixed period, Section 8 shall govern the
payment of his or her Accounts.
SECTION 7. INVESTMENT IN THE STOCK ACCOUNT AND TRANSFERS BETWEEN ACCOUNTS.
SECTION 7.1 ELECTION INTO THE STOCK ACCOUNT. If a Participant elects to
defer compensation into his or her Stock Account, his or her Stock
Account shall be credited, as of the date described in Section 5.2,
with that number of units of Common Stock, and fractions thereof,
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<PAGE> 4
obtained by dividing the dollar amount to be deferred into the Stock
Account by the Market Value of the Common Stock as of such date.
SECTION 7.2. TRANSFERS BETWEEN ACCOUNTS. A Participant may direct that
all or any portion, designated as a whole dollar amount, of the
existing balance of one of his or her Accounts be transferred to his or
her other Account, effective as of (i) the date such election is made,
if and only if such election is made prior to the close of trading on
the New York Stock Exchange on a day on which the Common Stock is
traded on the New York Stock Exchange, or (ii) if such election is made
after the close of trading on the Now York Stock Exchange on a given
day or at any time on a day on which no sales of Common Stock are made
on the New York Stock Exchange, then on the next business day on which
the Common Stock is traded on the New York Stock Exchange (the date
described in (i) or (ii), as applicable, is referred to hereinafter as
the election's "Effective Date"). Such election shall be made in the
manner specified by the Committee or its authorized designee during the
period that begins on the third business day following the public
release of the Company's quarterly earnings report and that ends on the
last business day of the second calendar month following the end of
each fiscal quarter of the Company; provided however, that a Section 16
Insider may only elect to transfer between his or her Accounts if he or
she has made no election within the previous six months to effect an
"opposite way" fund-switching (i.e., transfer out versus transfer in)
transfer into or out of the Stock Account or the Eastman Stock Funds of
the Eastman Investment Plan or the Savings and Investment Plan
Appendix, or any other "opposite way" intra-plan transfer or plan
distribution involving a Company equity securities fund which
constitutes a "Discretionary Transaction" as defined in Rule 16b-3
under the Exchange Act.
SECTION 7.3. TRANSFER INTO THE STOCK ACCOUNT. If a Participant elects
pursuant to Section 7.2 to transfer an amount from his or her Interest
Account to his or her Stock Account, effective as of the election's
Effective Date, (his or her Stock Account shall be credited with that
number of units of Common Stock; and fractions thereof, obtained by
dividing the dollar amount elected to be transferred by the Market
Value of the Common Stock on the Valuation Date immediately preceding
the election's Effective Date; and (ii) his or her Interest Account
shall be reduced by the amount elected to be transferred.
SECTION 7.4. TRANSFER OUT OF THE STOCK ACCOUNT. If a Participant elects
pursuant to Section 7.2 to transfer an amount from his or her Stock
Account to his or her Interest Account, effective as of the election's
Effective Date; (i) his or her Interest Account shall be credited with
a dollar amount equal to the amount obtained by multiplying the number
of units to be transferred by the Market Value of the Common Stock on
the Valuation Date immediately preceding the election's Effective Date;
and (ii) his or her Stock Account shall be reduced by the number of
units elected to be transferred.
SECTION 7.5. DIVIDEND EQUIVALENTS. Effective as of the payment date for
each cash dividend on the Common Stock, the Stock Account of each
Participant who had a balance in his or her Stock Account on the record
date for such dividend shall be credited with a number of units of
Common Stock, and fractions thereof, obtained by dividing (i) the
aggregate dollar amount of such cash dividend payable in respect of
such Participant's Stock Account (determined by multiplying the dollar
value of the dividend paid upon a single share of Common Stock by the
number of units of Common Stock held in the Participant's Stock Account
on the record date for such dividend); by (ii) the Market Value of the
Common Stock on the Valuation Date immediately preceding the payment
date for such cash dividend.
SECTION 7.6. STOCK DIVIDENDS. Effective as of the payment date for each
stock dividend on the Common Stock, additional units of Common Stock
shall be credited to the Stock Account of each Participant who had a
balance in his or her Stock Account on the record date for such
dividend. The number of units that shall be credited to the Stock
Account of such a Participant shall equal the number of shares of
36
<PAGE> 5
Common Stock and fractions thereof, which the Participant would have
received as stock dividends had he or she been the owner on the record
date for such stock dividend of the number of shares of Common Stock
equal to the number of units credited to his or her Stock Account on
such record date.
SECTION 7.7. RECAPITALIZATION. If, as a result of a recapitalization of
the Company, the outstanding shares of Common Stock shall be changed
into a greater number or smaller number of shares, the number of units
credited to a Participant's Stock Account shall be appropriately
adjusted on the same basis.
SECTION 7.8. DISTRIBUTIONS. Amounts in respect of units of Common Stock
may only be distributed out of the Stock Account by transfer to the
interest Account (pursuant to Sections 7.2 and 7.4 or 7.10) or
withdrawal from the Stock Account (pursuant to Section 8, 9, 10, or
19), and shall be distributed in cash. The number of units to be
distributed from a Participant's Stock Account shall be valued by
multiplying the number of such units by the Market Value of the Common
Stock as of the Valuation Date immediately preceding the date such
distribution is to occur. Pending the complete distribution under
Section 8.2 or liquidation under Section 7. 10 of the Stock Account of
a Participant who has terminated his or her employment with the Company
or any of its U.S. Subsidiaries, the Participant shall continue to be
able to make elections pursuant to Sections 7.2, 7.3, and 7.4 and his
or her Stock Account shall continue to be credited with additional
units of Common Stock pursuant to Sections 7.5, 7.6, and 7.7.
SECTION 7.9. RESPONSIBILITY FOR INVESTMENT CHOICES. Each Participant is
solely responsible for any decision to defer compensation into his or
her Stock Account and to transfer amounts to and from his or her Stock
Account and accepts all investment risks entailed by decision,
including the risk of loss and a decrease in the value of the amounts
he or she elects to transfer into his or her Stock Account.
SECTION 7.10. LIQUIDATION OF STOCK. The provisions of this Section 7.10
shall be applicable if the Vice President, Human Resources, or the
Compensation Committee, as applicable, determines pursuant to Section 8
to pay a Participant's Accounts in annual and, on the second
Anniversary of the Participant's retirement or, if earlier, termination
of employment from the Company or any of its U.S. Subsidiaries, the
Participant has a balance remaining in his or her Stock Account. In
such case, effective as of the first day of the first calendar month
immediately following the date of such second anniversary, the entire
balance of the Participant's Stock Account shall automatically be
transferred to his or her Interest Account and he or she shall
thereafter be ineligible to transfer any amounts to his or her Stock
Account. For purposes of valuing the units of Common Stock subject to
such a transfer, the approach described in Section 7.8 shall be used.
SECTION 8. PAYMENT OF DEFERRED COMPENSATION.
SECTION 8.1. BACKGROUND. No withdrawal may be made from a Participant's
Accounts except as provided in this Section 8 and Sections 9, 10, and
19.
SECTION 8.2. MANNER OF PAYMENT. Payment of a Participant's Accounts
shall be made in a single lump sum or annual installments, as elected
by the Participant pursuant to this Section 8. The maximum number of
annual installments is ten. The minimum annual installment payment
permitted under such election (determined based on the value of the
Participant's Accounts as of the last Valuation Date of the calendar
year in which the Participant terminates employment, and disregarding
any earnings under this Plan after such date) shall be one thousand
dollars ($1,000); this minimum shall be applied by dividing by $1,000
the value of the Participant's Accounts as of the last Valuation Date
of the calendar year in which the Participant terminates employment,
and the result, rounded down to the next largest whole number, shall be
the maximum number of annual installments permitted. All payments from
the Plan shall be made in cash.
37
<PAGE> 6
SECTION 8.3. TIMING OF PAYMENTS. Payments shall be made by the fifth
business day in March and shall commence in any year elected by the
Participant pursuant to this Section 8, up through the tenth year
following the year in which the Participant retires, becomes disabled,
or for any other reason, ceases to be an employee of the Company or any
of its U.S. Subsidiaries, but in no event shall payment commence later
than the year the Participant reaches age 71.
SECTION 8.4. VALUATION. The amount of each payment shall be equal to
the value, as of the preceding Valuation Date, of the Participant's
Accounts, divided by the number of remaining to be paid. If payment of
a Participant's Accounts is to be paid in installments and the
Participant has a balance in his or her Stock Account at the time of
the payment of an installment, the amount that shall be distributed
from his or her Stock Account shall be the amount obtained by
multiplying the total amount of the installment determined in
accordance with the immediately preceding sentence by the percentage
obtained by dividing the balance in the Stock Account as of the
immediately preceding Valuation Date by the total value of the
Participant's Accounts as of such date. Similarly, in such case, the
amount that shall be distributed from the Participant's Interest
Account shall be the amount obtained by multiplying the total amount of
the installment determined in accordance with the first sentence of
this Section 8.4 by the percentage obtained by dividing the balance in
the Interest Account as of the immediately preceding Valuation Date by
the total value of the Participant's Accounts as of such date.
SECTION 8.5. PARTICIPANT PAYMENT ELECTIONS. Except as provided in
Section 8.6, an election by a Participant concerning the method of
payment under Section 8.2 or the commencement of payments under Section
8.3 must be made at least one (1) year before the Participant's
termination of employment, and must be made on forms provided by the
Company. If a Participant does not have a valid election in force at
the time of termination of employment, then (i) if the value of his
Accounts as of the last Valuation Date of the calendar year in which he
terminates employment is less than ten thousand dollars ($10,000), then
his Accounts shall be paid in a single lump sum; (ii) if the value of
his Accounts as of the last Valuation Date of the calendar year in
which he terminates employment is ten thousand dollars ($10,000) or
more, then his Accounts shall be paid in ten (10) annual installments;
and (iii) regardless of whether payment is made in a single lump sum or
installments, payment shall commence by the fifth business day in March
following the calendar year in which the Participant terminates
employment.
SECTION 8.6. SPECIAL PAYMENT ELECTION RULES. Notwithstanding Sections
8.2, 8.3, and 8.5, if a Participant terminates employment less than one
(1) year before the date he first becomes eligible to participate in
this Plan, then an election made by the Participant under this Section
8 no later than thirty (30) days after the date he first becomes
eligible to participate in this Plan shall be valid. Also
notwithstanding Sections 8.2, 8.3, and 8.5, Participants who retire or
otherwise terminate employment no later than January 1, 2000 shall,
subject to the restrictions of Sections 8.2 and 8.3, have the manner
and commencement of payment of their Account determined by the Vice
President, Human Resources, with respect to Participants who are not
executive officers of the Company, and by the Compensation Committee,
with respect to Participants who are executive officers of the Company;
and in such event (i) the Vice President, Human Resources and the
Compensation Committee, as applicable, may expressly designate any such
decision under Sections 8.2 or 8.3 concerning time of payment of
benefits and/or form of payment as being irrevocable, and if such
designation is made, such decision may be changed only with the consent
of the Participant, or, if the Participant is deceased, the
Participant's beneficiary under this Plan (if any); and (ii) once
payments have commenced to a Participant or beneficiary under this
Plan, the form of payment shall be considered irrevocable within the
meaning of the immediately preceding sentence, regardless of whether it
is designated as such by the Vice President, Human Resources or the
Compensation Committee.
SECTION 9. PAYMENT OF DEFERRED COMPENSATION AFTER DEATH. If a Participant dies
prior to complete payment of his or her Accounts, the balance of such Accounts,
valued as of the Valuation Date immediately preceding the date payment is made,
38
<PAGE> 7
shall be paid in a single, lump sum Payment to: (i) the beneficiary or
contingent beneficiary designated by the Participant on forms supplied by the
Compensation Committee; or, in the absence of a valid designation of a
beneficiary or contingent beneficiary, (ii) the Participant's estate within 30
days after appointment of a legal representative of the deceased Participant.
SECTION 10.
SECTION 10.1 ACCELERATION OF PAYMENT FOR HARDSHIP. Upon written
approval from the Company's Vice President, Human Resources, with
respect to Participants other than executive officers of the Company,
and by the Compensation Committee, with respect to Participants who are
executive officers of the Company, and subject to the restrictions in
the next two sentences, a Participant, whether or not he or she is
still employed by the Company or any of its U.S. Subsidiaries, may be
permitted to receive all or part of his or her Accounts if the
Company's Vice President, Human Resources, or the Compensation
Committee, as applicable, determines that an emergency event beyond the
Participant's control exists which would cause such Participant severe
financial hardship if the payment of his or her Accounts were not
approved. Any such distribution for hardship shall be limited to the
amount needed to meet such emergency.
SECTION 10.2. PAYMENT TO INDIVIDUALS. Any participant in the Eastman
Executive Deferred Compensation Plan may at his or her discretion
withdraw at any time all or part of that person's account balance under
the Plan; provided, if this option is exercised the individual will
forfeit to the Corporation 10% of his or her account balance, and will
not be permitted to participate in this plan for a period of 36 months
from date any payment to a participant is made under this section.
SECTION 10.3 ACCELERATED PAYMENT. If under Eastman Executive Deferred
Compensation Plan one-half or more of the Participants or one-fifth or
more of the Participants with one-half or more of the value of all
benefits owed exercise their option for immediate distribution in any
consecutive six-month period this will trigger immediate payment to all
Participants of all benefits owed under the terms of the plan,
immediate payout under this section will not involve reduction of the
amounts paid to Participants as set forth in section 10.2. Any
individual that has been penalized in this six-month period for
electing immediate withdrawal will be paid that penalty, and continuing
participation will be allowed, if payout to all Participants under this
section occurs.
SECTION 10.4. A Section 16 Insider may only receive a withdrawal from
his or her Stock Account pursuant to this Section 10 if he or she has
made no election within the previous six months to effect a
fund-switching transfer into the Stock Account or the Eastman Stock
Fund of the Eastman Investment Plan or the Savings and Investment Plan
Appendix, or any other "opposite way" intra-plan transfer into a
Company equity securities fund which constitutes a "Discretionary
Transaction" as defined in Rule 16b-3 under the Exchange Act. If such a
distribution occurs while the Participant is employed by the Company or
any of its U.S. Subsidiaries, any election to defer compensation for
the year in which the Participant receives a withdrawal shall be
ineffective as to compensation earned for the pay period following the
pay period during which the withdrawal is made and thereafter for the
remainder of such year and shall be ineffective as to any other
compensation elected to be deferred for such year.
SECTION 11. NON-COMPETITION AND NON-DISCLOSURE PROVISION. Participant will not,
without the written consent of the Company, either during his or her employment
by Company or any of its U.S. Subsidiaries or thereafter, disclose to anyone or
make use of any confidential information which he or she has acquired during his
or her employment relating to any of the business of the Company or any of its
subsidiaries, except as such disclosure or use may be required in connection
with his or her work as an employee of Company or any of its U.S. Subsidiaries.
During Participant's employment by the Company or any of its U.S. Subsidiaries,
and for a period of two years after the termination of such employment, he or
she will not, without the written consent of the Company, either as principal,
agent, consultant, employee or otherwise, engage in any work or other activity
39
<PAGE> 8
in competition with the Company in the field or fields in which he or she has
worked for the Company or any of its U.S. Subsidiaries. The agreement in this
Section 11 applies separately in the United States and in other countries but
only to the extent that its application shall be reasonably necessary for the
protection of the Company. if the Participant does. not comply with the terms of
this Section 11, the Company's Vice President, Human Resources, with respect to
Participants other than executive officers of the Company, or the Compensation
Committee, with respect to executive officers of the Company may, in his or its
sole discretion, direct the Company to pay to the Participant the balance
credited to his or her Interest Account and/or Stock Account.
SECTION 12. PARTICIPANT'S RIGHTS UNSECURED. The benefits payable under this
Plan shall be paid by the Company each year out of its general assets. To the
extent a Participant acquires the right to receive a payment under this Plan,
such right shall be no greater than that of an unsecured general creditor of the
Company. No amount payable under this Plan may be assigned, transferred,
encumbered or subject to any legal process for the payment of any claim against
a Participant. No Participant shall have the right to exercise any of the rights
or privileges of a shareowner with respect to the units credited to his or her
Stock Account.
SECTION 13. NO RIGHT TO CONTINUED EMPLOYMENT. Participation in the Plan shall
not give any employee any right to remain in the employ of the Company or any of
its U.S. Subsidiaries. The Company and each employer U S. Subsidiary reserve the
right to terminate any Participant at any time.
SECTION 14. STATEMENT OF ACCOUNT. Statements will be sent no less frequently
than annually to each Participant or his or her estate showing the value of the
Participant's Accounts.
SECTION 15. DEDUCTIONS. The Company will withhold to the extent required by
law a applicable income and other taxes from amounts deferred or paid under the
Plan.
SECTION 16. ADMINISTRATION.
SECTION 16.1. RESPONSIBILITY. Except as expressly provided otherwise
herein, the Compensation Committee shall have total and exclusive
responsibility to control, operate, manage and administer the Plan in
accordance with its terms.
SECTION 16.2. AUTHORITY OF THE COMPENSATION COMMITTEE. The Compensation
Committee shall have all the authority that may be necessary or helpful
to enable it to discharge its responsibilities with respect to the
Plan. Without limiting the generality of the preceding sentence, the
Compensation Committee shall have the exclusive right to interpret the
Plan, to determine eligibility for participation in the Plan, to decide
all questions concerning eligibility for and the amount of benefits
payable under the Plan, to construe any ambiguous provision of the
Plan, to correct any default, to supply any omission, to reconcile any
inconsistency, and to decide any and all questions arising in the
administration, interpretation, and application of the Plan.
SECTION 16.3. DISCRETIONARY AUTHORITY. The Compensation Committee shall
have full discretionary authority in all matters related to the
discharge of its responsibilities and the exercise of its authority
under the Plan including, without limitation, its construction of the
terms of the Plan and its determination of eligibility for
participation and benefits under the Plan. It is the intent that the
decisions of the Compensation Committee and its action with respect to
the Plan shall be final and binding upon all persons having or claiming
to have any right or interest in or under the Plan and that no such
decision or action shall be modified upon judicial review unless such
decision or action is proven to be arbitrary or capricious.
SECTION 16.4. AUTHORITY OF VICE PRESIDENT HUMAN RESOURCES. Where
expressly provided for under Sections 8, 10 and 11, the authority of
the Compensation Committee is delegated to the Company's Vice
President, Human Resources, and to that extent the provisions of
Section 16.1 through 16.3 above shall be deemed to apply to such Vice
President.
40
<PAGE> 9
SECTION 16.5. DELEGATION OF AUTHORITY. The Compensation Committee may
provide additional delegation of some or all of its authority under the
Plan to any person or persons provided that any such delegation be in
writing.
SECTION 17. AMENDMENT. The Board may suspend or terminate the Plan at any time.
In addition, the Board may, from time to time, amend the Plan in any manner
without shareowner approval; provided however, that the Board may condition any
amendment on the approval of shareowners if such approval is necessary or
advisable with respect to tax, securities, or other applicable laws. However, no
amendment, modification, or termination shall, without the consent of a
Participant, adversely affect such Participant's accruals in his or her Accounts
as of the date of such amendment, modification, or termination.
SECTION 18. GOVERNING LAW. The Plan shall be construed, governed and enforced
in accordance with the law of Tennessee, except as such laws are preempted by
applicable federal law.
SECTION 19. CHANGE IN CONTROL.
SECTION 19.1. BACKGROUND. The terms of this Section 19 shall
immediately become operative, without further action or consent by any
person or entity, upon a Change in Control, and once operative shall
supersede and control over any other provisions of this Plan.
SECTION 19.2. [RESERVED]
SECTION 19.3. AMENDMENT ON OR AFTER CHANGE IN CONTROL. On or after a
Change in Control, no action, including, but not by way of limitation,
the amendment, suspension or termination of the Plan, shall be taken
which would affect the rights of any Participant or the operation of
this Plan with respect to the balance in the Participant's Accounts
without the written consent of the Participant, or, if the Participant
is deceased, the Participant's beneficiary under this Plan (if any).
SECTION 19.4. ATTORNEY FEES. The Corporation shall pay all reasonable
legal fees and related expenses incurred by a participant in seeking to
obtain or enforce any payment, benefit or right such participant may be
entitled to under the plan after a Change in Control; provided,
however, the participant shall be required to repay any such amounts to
the Corporation to the extent a court of competent jurisdiction issues
a final and non-appealable order setting forth the determination that
the position taken by the participant was frivolous or advanced in bad
faith.
SECTION 20. COMPLIANCE WITH SEC REGULATIONS. It is the Company's intent that
the Plan comply in all respects with Rule 16b-3 of the Exchange Act, and any
regulations promulgated thereunder. If any provision of the Plan is found not to
be in compliance with such rule, the provision shall be deemed null and void.
All transactions under the plan, including, but not by way of limitation, a
Participant's election to defer compensation or transfer Account balances under
Section 7 and hardship withdrawals under Section 10, shall be executed in
accordance with the requirements of Section 16 of the Exchange Act, as amended
and any regulations promulgated thereunder. To the extent that any of the
provisions contained herein do not conform with Rule 16b-3 of the Exchange Act
or any amendments thereto or any successor regulation, then the Committee may
make such modifications so as to conform the Plan to the Rule's requirements.
SECTION 21. SUCCESSORS AND ASSIGNS. This Plan shall be binding upon the
successors and assigns of the parties hereto.
41
<PAGE> 10
SCHEDULE A
Holston Defense Corporation
42
<PAGE> 1
EXHIBIT 12.01
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
(Dollars in millions)
<TABLE>
<CAPTION>
FIRST QUARTER
1999 1998
<S> <C> <C>
Earnings before provision for income taxes $ 37 $114
Add:
Interest expense, net 26 21
Rental expense (1) 6 6
Amortization of capitalized interest 5 4
---- ----
Earnings as adjusted $ 74 $145
==== ====
Fixed charges:
Interest expense, net $ 26 $ 21
Rental expense (1) 6 6
Capitalized interest 5 11
---- ----
Total fixed charges $ 37 $ 38
==== ====
Ratio of earnings to fixed charges 2.0x 3.8x
==== ====
</TABLE>
- ----------------
(1) For all periods presented, interest component of rental expense is
estimated to equal one-third of such expense.
43
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF EASTMAN CHEMICAL COMPANY FOR THE THREE MONTHS ENDED
MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 55
<SECURITIES> 0
<RECEIVABLES> 748<F1>
<ALLOWANCES> 0
<INVENTORY> 521
<CURRENT-ASSETS> 1,471
<PP&E> 8,605
<DEPRECIATION> 4,633
<TOTAL-ASSETS> 5,891
<CURRENT-LIABILITIES> 828
<BONDS> 1,851
0
0
<COMMON> 1
<OTHER-SE> 1,844
<TOTAL-LIABILITY-AND-EQUITY> 5,891
<SALES> 1,023
<TOTAL-REVENUES> 1,023
<CGS> 829
<TOTAL-COSTS> 829
<OTHER-EXPENSES> 123
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26
<INCOME-PRETAX> 37
<INCOME-TAX> 12
<INCOME-CONTINUING> 25
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25
<EPS-PRIMARY> .32
<EPS-DILUTED> .31
<FN>
<F1>Asset values represent net amounts.
</FN>
</TABLE>
<PAGE> 1
EXHIBIT 99.01
EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES
SUPPLEMENTAL OPERATING SEGMENT INFORMATION
1999 CHANGE FROM 1998
<TABLE>
<CAPTION>
FIRST QUARTER
% CHANGE
SALES OPER. (1)
REVENUE EARNINGS
<S> <C> <C>
====================================================
SPECIALTY & PERFORMANCE
SEGMENT (8)% (21)%
====================================================
Products primarily included:
Specialty plastics (7)% --
Performance chemicals (8)% --
Fine chemicals (16)% --
Fibers (7)% ++
Coatings, inks & resins (3)% -
====================================================
CORE PLASTICS SEGMENT (17)% >(100)%
====================================================
Products primarily included:
Container plastics (17)% --
Flexible plastics (16)% --
====================================================
CHEMICAL INTERMEDIATES
SEGMENT (14)% (37)%
====================================================
====================================================
TOTAL EASTMAN (11)% (47)%
====================================================
</TABLE>
(1) 0 = Change of approximately 0 - 2% (+ or -)
+ = Increase of approximately 2 - 10%
++ = Increase of greater than 10%
- = Decrease of approximately 2 - 10%
-- = Decrease of greater than 10%
Sm = Negligible change in dollar amount
Nm = Not meaningful
44
