<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
Eastman Chemical Company
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
N/A
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
[EASTMAN LOGO]
March 25, 2000
DEAR FELLOW SHAREOWNER:
Our Annual Meeting will be held at our Employee Center, located at 400
South Wilcox Drive, in Kingsport, Tennessee, on May 4, 2000, at 11:00 a.m. Doors
to the meeting will open at 10:00 a.m. The business to be considered and voted
upon at the meeting is explained in the accompanying proxy materials (consisting
of the Notice of Annual Meeting, the Proxy Statement, and the form of proxy). A
copy of Eastman's 1999 Annual Report accompanies these materials.
We are pleased to offer again this year two enhancements to our proxy
solicitation and Annual Meeting process.
- First, we have again enabled shareowners to elect to receive the proxy
materials and the Annual Report electronically via the Internet. In
addition, this year we are sending the Proxy Statement and Annual Report
to employee shareowners electronically via intracompany e-mail.
Electronic delivery of Annual Meeting materials helps us hold down
printing, delivery, and tabulation costs, while providing shareowners
with a quick, easy alternative to the traditional system for these
activities.
- Second, we are offering two ways to vote your shares by proxy, in
addition to the traditional paper proxy card. You may vote via the
Internet by accessing ADP's website at www.proxyvote.com, or you may vote
by telephone by calling 1-800-690-6903 (if you are the "record holder" of
shares registered in your name on the Company's stock ownership and
transfer records) or 1-800-454-8683 (if you are the beneficial owner of
shares held in "street name" by a broker, bank, or other record holder).
In either case, you will need the Control Number that is imprinted on
your personalized proxy card (or, if you received the proxy materials
from a broker or bank, your voting instruction form) or that you have
received from ADP electronically.
WHETHER YOU CHOOSE TO VOTE BY PROXY CARD, TELEPHONE, OR COMPUTER, IT WOULD
HELP IF YOU VOTED AS SOON AS POSSIBLE. Your vote is important, regardless of the
number of shares you own. Signing and returning a proxy card or submitting your
proxy via the Internet or telephone will not prevent you from voting in person,
but will assure that your vote is counted if you are unable to attend the
meeting. If you are a record holder and have received a proxy card by mail in
paper form, an admission ticket is included. If you received our proxy materials
electronically via the Internet or from a broker or bank and do not have an
admission ticket and wish to attend the meeting, please call (423) 229-4647.
Thank you for your support of our Company.
Sincerely,
/s/ EARNIE DEAVENPORT
Earnest W. Deavenport, Jr.
Chairman and Chief Executive Officer
<PAGE> 3
EASTMAN CHEMICAL COMPANY
100 NORTH EASTMAN ROAD
KINGSPORT, TENNESSEE 37660
(423) 229-2000
---------------------
NOTICE OF ANNUAL MEETING OF SHAREOWNERS
TO BE HELD ON MAY 4, 2000
---------------------
To Our Shareowners:
The 2000 Annual Meeting of Shareowners of Eastman Chemical Company
("Eastman" or the "Company") will be held at the Eastman Employee Center,
located at 400 South Wilcox Drive, Kingsport, Tennessee, on May 4, 2000, at
11:00 a.m., local time, for the following purposes:
- ELECT DIRECTORS. To consider and act upon the election of three
directors to serve in the class for which the term in office expires
at the Annual Meeting of Shareowners in 2003 and until their
successors are duly elected and qualified;
- RATIFY APPOINTMENT OF INDEPENDENT ACCOUNTANTS. To consider and act
upon ratification of the appointment of PricewaterhouseCoopers LLP as
independent accountants for the Company until the Annual Meeting of
Shareowners in 2001;
- SHAREOWNER PROPOSALS. If properly presented, to consider and act upon
the two shareowner proposals set forth in the accompanying Proxy
Statement, both of which are opposed by the Board of Directors; and
- OTHER BUSINESS. To transact such other business as may come properly
before the Annual Meeting or any adjournments or postponements
thereof.
Only shareowners of record at the close of business on March 15, 2000 are
entitled to vote at the Annual Meeting. IT IS IMPORTANT THAT YOUR SHARES BE
REPRESENTED AND VOTED AT THE ANNUAL MEETING. Please vote by proxy in one of
these ways:
- USE THE TOLL-FREE TELEPHONE NUMBER shown on the proxy card (if you
received a proxy card in paper form) or voting instruction form (if
you received the proxy materials by mail from a broker or bank) or
that you have received from ADP electronically;
- VISIT THE ADP WEBSITE at www.proxyvote.com; or
- MARK, SIGN, DATE AND PROMPTLY RETURN YOUR PROXY CARD OR VOTING
INSTRUCTION FORM in the postage-paid envelope provided (if you
received a proxy card or voting instruction form by mail in paper
form).
Signing and returning the proxy card or submitting your proxy via Internet
or by telephone does not affect your right to vote in person if you attend the
Annual Meeting.
By order of the Board of Directors
/s/ THERESA K. LEE
Theresa K. Lee
General Counsel and Secretary
March 25, 2000
<PAGE> 4
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREOWNERS OF
EASTMAN CHEMICAL COMPANY
TO BE HELD ON MAY 4, 2000
INTRODUCTION
PROXY STATEMENT AND ANNUAL MEETING
This Proxy Statement is dated March 25, 2000 and is first being mailed and
delivered electronically to Eastman shareowners, and made available on the
Internet (www.eastman.com), on or about March 30, 2000. This Proxy Statement is
being furnished to shareowners in connection with the solicitation of proxies by
the Company's Board of Directors for use at the Annual Meeting of Shareowners of
the Company to be held on May 4, 2000, and at any adjournments or postponements
thereof. At the Annual Meeting, shareowners will be asked to vote on the four
items of business listed in the accompanying Notice of Annual Meeting and
described in more detail under "Proposals To Be Voted Upon."
VOTING BY PROXY
By executing and returning the proxy (either by returning the paper proxy
card or by submitting your proxy electronically via the Internet or by
telephone), you appoint James P. Rogers, the Company's Chief Financial Officer
and Theresa K. Lee, the Company's General Counsel and Secretary, to represent
you at the Annual Meeting and direct them to vote your shares at the Annual
Meeting according to your instructions. Shares of common stock represented by
proxy will be voted by the proxy holders at the Annual Meeting in accordance
with the instructions indicated in the proxy appointment. IF YOU PROPERLY
EXECUTE AND RETURN YOUR PROXY (IN PAPER FORM, ELECTRONICALLY VIA THE INTERNET,
OR BY TELEPHONE) BUT DO NOT INDICATE ANY VOTING INSTRUCTIONS, YOUR SHARES WILL
BE VOTED IN ACCORDANCE WITH THE RECOMMENDATIONS OF THE BOARD OF DIRECTORS.
SHAREOWNERS OF RECORD MAY VOTE BY PROXY IN ONE OF THREE WAYS:
- By telephone: call 1-800-690-6903 and use the Control Number on your
personalized proxy card or that you received electronically from ADP;
- Via Internet: visit the ADP web site at www.proxyvote.com and use the
Control Number on your personalized proxy card or that you received
electronically from ADP; or
- By mail: if you received a proxy card in paper form, mark, sign, date and
mail your proxy card in the enclosed postage-paid envelope.
The Internet and telephone voting procedures are designed to authenticate
shareowner identities, to allow shareowners to give voting instructions, and to
confirm that shareowners' instructions have been recorded properly. Shareowners
voting by Internet should understand that there may be costs associated with
electronic access, such as usage charges from Internet access and telephone or
cable service providers, that must be borne by the shareowner.
IF YOUR SHARES ARE HELD IN "STREET NAME" THROUGH A BROKER, BANK OR OTHER
HOLDER OF RECORD, YOU WILL RECEIVE INSTRUCTIONS FROM THE REGISTERED HOLDER THAT
YOU MUST FOLLOW IN ORDER FOR YOUR SHARES TO BE VOTED FOR YOU BY SUCH RECORD
HOLDER. Telephone and Internet voting is also being offered to shareowners who
own their Eastman shares through certain banks and brokers.
HOW TO REVOKE YOUR PROXY
You may revoke your proxy at any time before its exercise at the Annual
Meeting by either:
- giving written notice of revocation to the Secretary of the Company,
- executing and delivering a later-dated proxy, or
- voting in person at the Annual Meeting.
<PAGE> 5
All written notices of revocation or other communications with respect to
revocation of proxies should be addressed as follows: Eastman Chemical Company,
P.O. Box 511, Kingsport, Tennessee 37662-5075, Attention: Theresa K. Lee,
Secretary.
SHAREOWNERS ENTITLED TO VOTE
The Company's Board of Directors has fixed the close of business on March
15, 2000 as the record date for the determination of the shareowners entitled to
receive notice of and to vote at the Annual Meeting. Only holders of record of
shares of common stock as of the record date will be entitled to vote at the
Annual Meeting. If your shares are held in the name of a broker, bank or other
holder of record, you must obtain a proxy, executed in your favor, from the
holder of record to be able to vote in person at the Annual Meeting.
As of the record date, there were 76,693,503 shares of common stock issued
and outstanding and entitled to be voted at the Annual Meeting. Holders of
common stock are entitled to one vote on each matter considered and voted upon
at the Annual Meeting for each share of common stock held of record as of the
record date.
QUORUM
The presence, in person or by proxy, of the holders of a majority of the
shares of common stock entitled to vote at the Annual Meeting is necessary to
constitute a quorum to conduct business at the Annual Meeting. Abstentions,
votes withheld, and "broker non-votes" are counted as present and entitled to
vote for purposes of determining a quorum. A "broker non-vote" occurs when a
nominee (such as a broker or bank) holding shares in "street name" as the
registered holder for a beneficial owner does not vote on a particular proposal
because the nominee does not have discretionary voting power for that particular
item and has not received voting instructions from the beneficial owner.
REQUIRED VOTE
A plurality of the votes cast is required for the election of directors.
With respect to the election of directors, shareowners may by proxy (1) vote
"for" all three nominees, (2) "withhold" authority to vote for all such
nominees, or (3) withhold authority to vote for any individual nominee or
nominees but vote for all other nominees. Because directors are elected by a
plurality of the votes cast (meaning the three nominees receiving the greatest
number of votes will be elected), withholding authority to vote with respect to
one or more nominees will have no effect on the outcome of the election.
Similarly, any broker non-votes are not considered to be votes cast and
therefore would have no effect on the outcome of the election of directors.
The affirmative vote of a majority of the votes cast is required for
ratification of the appointment of independent accountants and adoption of each
of the two shareowner proposals. With respect to each of these three items,
shareowners may by proxy (1) vote "for," (2) vote "against," or (3) "abstain"
from voting. Abstentions and any broker non-votes are not considered to be votes
cast and therefore would have no effect on the outcome of any of these
proposals.
PROXY SOLICITATION COSTS
The cost of soliciting proxies and the cost of the Annual Meeting will be
paid by the Company. In addition to the solicitation of shareowners by mail and
electronic delivery, proxies may be solicited by telephone, facsimile, personal
contact, and similar means by directors, officers, or employees of the Company,
none of whom will be specially compensated for such activities. The Company also
contacts brokerage houses, banks, nominees, custodians, and fiduciaries who can
be identified as record holders of common stock. Such holders, after inquiry by
the Company, provide certain information concerning beneficial owners not
objecting to the disclosure of such information and the quantities of proxy
materials and Annual Reports needed to supply such materials to beneficial
owners, and the Company reimburses such record holders for the expense of
providing such beneficial ownership information and of mailing proxy materials
and Annual Reports to beneficial owners. Georgeson Shareholder Communications
Inc. has been retained by the Company to aid in the solicitation of proxies, at
a cost of $9,500 plus expenses.
2
<PAGE> 6
MATTERS RAISED AT THE ANNUAL MEETING NOT INCLUDED IN THIS PROXY STATEMENT
The Company's management does not expect any matters to be acted upon at
the Annual Meeting other than those presented in this Proxy Statement under
"Proposals To Be Voted Upon". If any other matters were to be properly
presented, however, the persons designated as proxies would have the discretion
to vote on those matters for you.
Under Eastman's Bylaws, a shareowner may submit a matter for a vote of the
Company's shareowners at a meeting by giving adequate notice to the Secretary of
the Company. To be adequate, the notice must set forth certain information
specified in our Bylaws (which will be provided upon written request) about the
shareowner and the proposal and be delivered to the Secretary not less than 60
days prior to the meeting. If, however, the meeting is an annual meeting to be
held before the first Thursday in May (the regular day called for by the Bylaws)
or a special meeting, notice of a proposal to be brought before the meeting may
be provided up to the 15th day following the date notice of the meeting was
given. Under this criteria, shareowners had until March 5, 2000, to provide
notice of any matters to be presented at the Annual Meeting.
SHAREOWNER PROPOSALS FOR THE 2001 ANNUAL MEETING
In accordance with rules of the Securities and Exchange Commission (the
"SEC"), if you want to submit a proposal for presentation at the 2001 Annual
Meeting of Shareowners, it must be received by the Company at its principal
executive offices on or before November 25, 2000 in order to be included in the
Company's proxy materials relating to the 2001 Annual Meeting of Shareowners. In
addition, as described under "Matters Raised at the Annual Meeting not Included
in this Proxy Statement", the Company's Bylaws require that a proposal to be
submitted by a shareowner for a vote of the Company's shareowners, whether or
not also submitted for inclusion in the Company's proxy materials, must be
preceded by adequate and timely notice to the Secretary of the Company. If the
2001 Annual Meeting is held on Thursday, May 3, 2001 (the regular day called for
by the Bylaws), then such advance notice would be timely if delivered on or
before March 4, 2001.
NOMINATIONS BY SHAREOWNERS FOR ELECTION TO BOARD OF DIRECTORS
The Company's Bylaws provide that nominations by shareowners of persons for
election to the Board of Directors may be made by giving adequate notice to the
Secretary of the Company. To be adequate, the nomination notice must set forth
certain information specified in our Bylaws (which will be provided upon written
request) about each shareowner submitting a nomination and each person being
nominated and be delivered to the Secretary not less than 60 days prior to the
meeting. If, however, the meeting is an annual meeting to be held before the
first Thursday in May or a special meeting, the nomination notice may be
provided up to the 15th day following the date notice of the meeting was given.
The Committee on Directors of the Board of Directors will consider persons
nominated by shareowners and recommend to the full Board whether or not such
nominee should be included with the Board's nominees for election by
shareowners.
ANNUAL REPORT TO SHAREOWNERS AND ANNUAL REPORT ON FORM 10-K
The Company's Annual Report to Shareowners for 1999, including consolidated
financial statements for the year ended December 31, 1999, is being mailed to
shareowners and made available via the Internet concurrently with this Proxy
Statement but does not form any part of the proxy solicitation material. Upon
the written request of any shareowner, the Company will furnish without charge a
copy of the Company's Annual Report on Form 10-K for the year ended December 31,
1999 as filed with the SEC. Requests may be made to Eastman Chemical Company,
P.O. Box 511, Kingsport, Tennessee 37662-5075, Attention: Investor Relations.
This information is also available via the Internet at the Company's World Wide
Web site (www.eastman.com), and the EDGAR version of such report (with exhibits)
is available at the SEC's World Wide Web site (www.sec.gov).
3
<PAGE> 7
PROPOSALS TO BE VOTED UPON
ITEM 1 -- ELECTION OF DIRECTORS
The Company's Board of Directors is divided into three classes, with the
terms of office of the respective classes ending in successive years. Under the
Company's Bylaws, a director reaching age 70 during any term of office continues
to be qualified to serve only until the next annual meeting of shareowners
following his or her 70th birthday (or, if approved by unanimous action of the
Board of Directors, until the next annual meeting following his or her 71st
birthday). Three directors are in the class for which the term in office expires
at the Annual Meeting; these three directors have each been nominated for
re-election for a new three-year term. The terms of the other six directors
continue after the Annual Meeting. R. Wiley Bourne, Jr., Vice Chairman since
November 1993, retired from the Board effective March 1, 2000.
The shareowners are being asked to vote on the election of three directors
to the class for which the term of office shall expire at the Annual Meeting of
Shareowners in 2003 and until their successors are duly elected and qualified.
All shares of common stock represented by valid proxies received pursuant to
this solicitation, and not revoked before they are exercised, will be voted in
the manner specified. If you execute and return a proxy without instruction,
your shares will be voted for the election of the three nominees identified
below. If any nominee is unable or unwilling to serve (which is not
anticipated), the persons designated as proxies will vote your shares for the
remaining nominees and for another nominee proposed by the Board or, as an
alternative, the Board could reduce the number of directors to be elected at the
Annual Meeting.
THE NOMINEES HAVE BEEN RECOMMENDED TO THE BOARD OF DIRECTORS BY THE
COMMITTEE ON DIRECTORS OF THE BOARD. THE BOARD OF DIRECTORS RECOMMENDS THAT YOU
VOTE "FOR" ELECTION OF THE THREE NOMINEES IDENTIFIED BELOW.
Set forth below is certain information regarding each current director,
including a description of his or her positions and offices with the Company
(other than as a director), if any; a brief description of his or her principal
occupation and business experience during at least the last five years;
directorships and similar positions presently held by him or her in certain
other companies, organizations, or associations; and his or her age. Mr.
Deavenport was first elected to the Board in November 1993, and Miss Marks,
Messrs. Arnelle, Campbell, and Liu, and Dr. White joined the Board on January 1,
1994, immediately after completion of the Company's spin-off from Eastman Kodak
Company. Mr. Dempsey was elected to the Board on May 1, 1997, Mr. Donehower was
elected to the Board on February 3, 1998, and Mr. Griffin was elected to the
Board on May 6, 1999. As described above, R. Wiley Bourne, Jr. retired from the
Board on March 1, 2000. The Board expects to fill the vacancy created by Mr.
Bourne's retirement, in which case the director so appointed would serve in the
class for which the term in office expires at the Annual Meeting of Shareowners
in 2001.
4
<PAGE> 8
<TABLE>
<S> <C> <C>
NOMINEES FOR DIRECTOR
TERM EXPIRING ANNUAL MEETING 2003
- -------------------------------------------------------------------------------------------------------
[PHOTO] JERRY E. DEMPSEY
Mr. Dempsey served as Chairman of the Board and Chief Executive Officer of PPG
Industries, Inc. from 1993 until his retirement in 1997. From 1991 until he
joined PPG, he was Senior Vice President of WMX Technologies, Inc., a waste
treatment and disposal company, and Chairman of its publicly-traded, major-
ity-owned subsidiary, Chemical Waste Management, Inc., having served as Presi-
dent and Chief Executive Officer of Chemical Waste Management, Inc. since
1985. Mr. Dempsey is also a member of the boards of directors of Birmingham
Steel Corporation and Navistar International Corporation. He is 67.
- -------------------------------------------------------------------------------------------------------
[PHOTO] DONALD W. GRIFFIN
Mr. Griffin is Chairman of the Board, President, and Chief Executive Officer
of Olin Corporation, a manufacturer of chemicals, metals, and ammunition. He
joined Olin in 1961, and served in a series of marketing and management
positions prior to election to the position of President and Chief Operating
Officer in 1994 and to his current positions in 1996. Mr. Griffin is also a
member of the board of directors of A.C. Nielsen Corporation. He also serves
as a trustee of the University of Evansville and the Buffalo Bill Historical
Center. He is 63.
- -------------------------------------------------------------------------------------------------------
[PHOTO] MARILYN R. MARKS
Miss Marks is Chairman of the Board and Chief Executive Officer of Truck
Bay.com, Inc., an Internet source for goods, services and information serving
the trucking industry, and Chairman of the Board of Dorsey Trailers, Inc., a
truck trailer manufacturer. She was Chief Executive Officer and President of
Dorsey Trailers, Inc. from 1987 to 1997 and was President of Dorsey Trailers,
Inc. until 1999. Miss Marks is also a member of the board of directors of Dana
Corporation, and also serves as a director of the American Trucking
Associations Foundation. Miss Marks is 47.
- -------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE> 9
<TABLE>
<S> <C> <C>
MEMBERS OF BOARD OF DIRECTORS CONTINUING IN OFFICE
TERM EXPIRING ANNUAL MEETING 2001
- -------------------------------------------------------------------------------------------------------
[PHOTO] H. JESSE ARNELLE
Mr. Arnelle is of counsel to the Winston-Salem, North Carolina-based law firm
of Womble, Carlyle, Sandridge & Rice. He was a partner of the San
Francisco-based law firm of Arnelle, Hastie, McGee, Willis & Greene or its
predecessor from 1985 until 1996. Mr. Arnelle is Immediate Past Chairman of
the Board of Trustees of Pennsylvania State University, is a director of the
National Football Foundation and Collegiate Hall of Fame, and is a member of
the boards of directors of Armstrong World Industries, Inc., FPL Group, Inc.,
Gannett Corporation, Textron, Inc., Union Pacific Resources, Inc., and Waste
Management, Inc. He is 66.
- -------------------------------------------------------------------------------------------------------
[PHOTO] DR. JOHN A. WHITE
Dr. White is Chancellor of the University of Arkansas. From 1991 to 1997, he
was Dean of the College of Engineering at the Georgia Institute of Technology.
From July 1988 to September 1991, he was Assistant Director of the National
Science Foundation in Washington, D.C., and served on the faculty of the
Georgia Institute of Technology from 1975 to 1997. Dr. White is also a member
of the National Science Board, a member of the National Academy of
Engineering, and a member of the boards of directors of J.B. Hunt Transport
Services, Inc., Logility, Inc., Motorola, Inc., and Russell Corporation. He is
60.
- -------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE> 10
<TABLE>
<S> <C> <C>
TERM EXPIRING ANNUAL MEETING 2002
- -------------------------------------------------------------------------------------------------------
[PHOTO] CALVIN A. CAMPBELL, JR.
Mr. Campbell has been Chairman of the Board, President and Chief Executive
Officer of Goodman Equipment Corporation since 1971. Goodman Equipment
designs, manufactures, and markets worldwide underground mining locomotives
and personnel carriers and plastics blow molding machinery. He was also
President and Chief Executive Officer of Cyprus Amax Minerals Company in 1992,
Chairman of the Board in 1991 and 1992, and a director from 1985 through 1994.
Mr. Campbell is a member of the boards of directors of Mine Safety Appliances
Company and Bulley & Andrews Company. He is also a director and immediate past
Chairman of the National Association of Manufacturers, is a director of the
National Mining Association, is a director and former Chairman of the Illinois
Manufacturers Association, and serves as a trustee of the Illinois Institute
of Technology. Mr. Campbell is 65.
- -------------------------------------------------------------------------------------------------------
[PHOTO] EARNEST W. DEAVENPORT, JR.
Mr. Deavenport is Chairman of the Board and Chief Executive Officer of the
Company. He joined the Company in 1960. Mr. Deavenport was named President of
the Company in 1989. He also served as Group Vice President of Eastman Kodak
Company from 1989 through 1993. Mr. Deavenport is a member of the boards of
directors of AmSouth Bancorporation and Milliken & Company. He also serves as
a director of the American Plastics Council and the National Association of
Manufacturers, on the Board of Trustees of the Malcolm Baldridge National
Quality Award Foundation, and on the policy committee of the Business Round-
table. Mr. Deavenport is 61.
- -------------------------------------------------------------------------------------------------------
[PHOTO] JOHN W. DONEHOWER
Mr. Donehower is Senior Vice President and Chief Financial Officer of
Kimberly-Clark Corporation. He joined Kimberly-Clark in 1974, and served in a
series of management positions prior to election to his current position in
1993. Mr. Donehower is also a member of the boards of directors of Factory
Mutual Insurance Company and Kimberly-Clark De Mexico S.A. de C.V. He is 53.
- -------------------------------------------------------------------------------------------------------
[PHOTO] LEE LIU
Mr. Liu is the Chairman of the Board of Alliant Energy Corporation, was
Chairman of the Board of Alliant's predecessor, Interstate Energy Corporation,
from 1998 to 1999, and was Chairman of the Board and Chief Executive Officer
of IES Industries, Inc., predecessor of Interstate Energy Corporation, and of
IES Utilities, the major subsidiary of IES Industries, from 1993 to 1998. Mr.
Liu has been with Iowa Electric Light & Power Company, predecessor of IES
Industries, since 1957. He is also a member of the boards of directors of
Principal Financial Group and McLeod USA Incorporated. Mr. Liu is 66.
- -------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE> 11
BOARD COMMITTEES
The Board of Directors has an Audit Committee, a Committee on Directors, a
Compensation and Management Development Committee, a Finance Committee, and a
Health, Safety & Environmental and Public Policy Committee. All committee
members are non-employee, independent directors. Certain committee assignments
will be changed following the Annual Meeting, as indicated below.
AUDIT COMMITTEE. The members of the Audit Committee are Dr. White (Chair)
and Messrs. Arnelle, Campbell, and Donehower. The Audit Committee held three
meetings during 1999. The Audit Committee:
- reviews the interim and annual financial statements;
- annually recommends to the Board of Directors the firm to be engaged as
independent accountants for the Company;
- reviews the scope of, and the reports and findings of, the audit
activities of the independent accountants and of the Company's internal
auditing staff;
- reviews the adequacy of the training of personnel and monitoring of the
internal audit function and the annual compensation paid to the
independent accountants;
- meets separately and privately with the independent accountants and with
the Company's general auditor and chief financial and accounting officers
to ascertain if any restrictions have been placed on the scope of their
activities or if there has been any lack of adequate response to their
recommendations;
- reviews the Company's corporate compliance program; and
- makes periodic reports and recommendations to the Board.
COMMITTEE ON DIRECTORS. The members of the Committee on Directors are
Messrs. Campbell (Chair), Arnelle, Griffin, and Liu. The Committee on Directors
held four meetings during 1999. The Committee on Directors:
- conducts a bi-annual assessment of the Board's performance, for
discussion with the full Board;
- recommends to the Board criteria for Board membership and annually
reviews the Board's composition for purposes of assessing its
independence, diversity and skills;
- annually reviews and makes recommendations regarding compensation of
non-employee directors, and acts as the administrator of certain
non-employee director compensation plans, and can amend or take actions
with respect to such plans where permitted by such plans;
- reviews the qualifications of candidates for Board membership and
recommends to the Board the slate of director candidates to be proposed
for election by shareowners at each annual meeting;
- recommends to the Board criteria relating to the tenure of a director;
- when appropriate, recommends to the Board that it recommend to the
shareowners removal of a director for cause;
- periodically reviews the Board's committee structure and committee
assignments and recommends to the Board any appropriate changes thereto;
- periodically reviews the Company's Corporate Governance Guidelines and
recommends to the Board any appropriate changes thereto; and
- reviews and makes recommendations to the Board on other Board and
corporate governance matters.
COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE. The members of the
Compensation and Management Development Committee (the "Compensation Committee")
are Messrs. Liu (Chair) and Dempsey, Miss Marks, and Dr. White. The Compensation
Committee held nine meetings during 1999. The Compensation Committee:
- determines the compensation of employees who are members of the Board;
8
<PAGE> 12
- determines, based upon the recommendations of the Chairman and Chief
Executive Officer, compensation of the Company's other executive
officers;
- reviews proposed employee benefit plans and executive compensation plans,
and proposed changes to existing plans under certain circumstances;
- acts as the administrator of certain employee benefit plans and executive
compensation plans;
- reviews management development and succession plans relating to the
Company's senior officers;
- makes recommendations to the Board regarding the foregoing matters; and
- can amend or take actions with respect to the Company's employee
compensation and benefit plans where permitted by such plans.
FINANCE COMMITTEE. The members of the Finance Committee are Miss Marks
(Chair) and Messrs. Dempsey, Donehower, and Liu. After the Annual Meeting, the
Finance Committee will consist of Miss Marks (Chair) and Messrs. Dempsey,
Donehower, and Griffin. The Finance Committee held six meetings during 1999. The
Finance Committee:
- reviews the Company's short-and long-term financing plans, its financial
position and forecasts, and its capital expenditure budgets and certain
capital projects;
- reviews transactions, such as acquisitions and divestitures, that may
have a material impact on the Company's financial profile;
- makes recommendations to the Board regarding those matters and regarding
dividends; and
- reviews the results of the Eastman Retirement Assistance Plan and the
activities of the Eastman Retirement Assistance Plan Committee.
HEALTH, SAFETY & ENVIRONMENTAL AND PUBLIC POLICY COMMITTEE. The members of
the Health, Safety & Environmental and Public Policy Committee are Messrs.
Arnelle (Chair), Dempsey, Donehower, and Griffin. The Health, Safety &
Environmental and Public Policy Committee held three meetings during 1999. The
Health, Safety & Environmental Public Policy Committee:
- reviews and makes recommendations to the Board regarding the Company's
policies and practices concerning health, safety, and environmental
matters;
- reviews with the Company's management and reports to the Board on the
Company's health, safety, and environment assessment practices, and its
processes for complying with related laws and regulations and on health,
safety, and environmental matters involving the Company, including any
significant liabilities or anticipated expenditures with respect thereto,
and periodically reviews with management the Company's public disclosure
policies and practices, and coordinates with the Audit and Finance
Committees, with respect thereto;
- reviews and monitors, and makes recommendations to the Board regarding,
significant matters of health, safety, and environmental public policy
concerning the Company;
- reviews and makes recommendations to the Board regarding certain
significant matters of public policy concerning the Company;
- periodically reviews with management the Company's list of public policy
issues; and
- monitors and periodically reports to the Board on federal and state
legislative and regulatory initiatives and the Company's lobbying and
advocacy activities.
MEETING ATTENDANCE
The Board of Directors held nine meetings during 1999. Each director
attended at least 75% of the aggregate of the total number of meetings of the
Board (held during the period for which he or she was a director) and the total
number of meetings held by all committees of the Board on which he or she served
(during the period that he or she served).
9
<PAGE> 13
DIRECTOR COMPENSATION
DIRECTORS' ANNUAL COMPENSATION. Each director who is not an employee of
the Company receives an annual cash retainer fee of $30,000. In addition, each
such director receives a fee of $1,100 for each Board meeting attended and for
each committee meeting attended (and, in the case of the Finance Committee and
the Health, Safety & Environmental and Public Policy Committee, regardless of
whether such director is a member of such committee), and reimbursement of
expenses related to attendance. The chairperson of each committee receives an
additional annual retainer of $5,000. Directors who are also employees of the
Company receive no Board or committee fees.
DIRECTOR LONG-TERM COMPENSATION PLAN. The Company's 1999 Director
Long-Term Compensation Plan (the "DLTP") provides for an automatic restricted
stock award and annual option grants to each non-employee director. (The DLTP
replaced the 1994 Director Long-Term Compensation Plan, under which each
non-employee director received a one-time restricted stock award and option
grant on the first day of his or her initial term of service as a director.) The
maximum number of shares of common stock that may be granted or subject to
awards under the DLTP is 60,000, subject to adjustment in the event of stock
splits, stock dividends, or changes in capital structure affecting common stock.
No award may be made under the DLTP after the later of May 1, 2004 or the 2004
annual meeting of shareowners of the Company.
ANNUAL OPTION GRANTS. Under the DLTP, immediately following each annual
meeting of the Company's shareowners, each non-employee director receives a
non-qualified stock option to purchase 1,000 shares of Eastman common stock.
Such options have an exercise price equal to the fair market value of the
underlying shares of common stock on the date the options are granted. The
options vest and become exercisable with respect to one-half of the option
shares on the first anniversary of the date of the grant and with respect to the
remaining shares on the second anniversary of the date of the grant. Each such
option has a term of ten years and is nonassignable (except by will or the laws
of descent and distribution). If the grantee ceases to be a director for any
reason other than death, disability or completion of his or her normal term of
service, all outstanding unexercised options, whether or not vested, will
expire.
If an option is exercised by the surrender of previously-owned shares of
Eastman common stock while the director is still a director or within 60 days
thereafter, then the director exercising the option will be granted a new
"reload" option for the number of shares so surrendered. Such replacement option
will have a term equal to the remaining term of the original option, will have
an exercise price equal to the fair market value of the underlying shares as of
the date of exercise of the original option, and will otherwise have the same
terms and conditions as the original option. Reload options will not, however,
have similar replacement rights, and will be exercisable on the earlier of six
months from the date of grant or the date of the grantee's termination as a
director.
Each non-employee director received an option to purchase 1,000 shares
of common stock at a price of $57.25 per share under the DLTP immediately
following the 1999 Annual Meeting of Shareowners on May 6, 1999.
ONE-TIME RESTRICTED STOCK AWARDS. In addition to the options described
above, each non-employee director whose initial term of service as a director
begins on or after January 1, 1999 is granted, on the first date of such
director's term of service as a director, an award of shares of common stock
having a fair market value equal to $10,000 as of such date, subject to certain
restrictions. The restricted shares granted pursuant to the DLTP are not
transferable (except by will or the laws of descent and distribution) and are
subject to certain risks of forfeiture as described below. All restrictions on
the shares awarded under the DLTP lapse on the earlier of the third anniversary
of the date of grant (provided the grantee is then still a director of the
Company), the death or disability of the director, or the grantee's failure to
be reelected as a director in an election in which he or she consented to be
named as a director nominee. If, during the three-year vesting period, the
grantee ceases to be a director of the Company and his or her directorship
terminates for any reason other than death, disability or the failure to be
reelected as described above, then his or her restricted shares shall be
cancelled and forfeited. During the restricted period, the director has all of
the rights of a shareowner (other than the right to transfer the shares) with
respect to the restricted shares, including voting, dividend and other rights
with respect to the stock.
10
<PAGE> 14
Mr. Griffin received 175 shares of restricted stock under the DLTP on
May 6, 1999, the first date of his term of service as a director.
TREATMENT OF OPTIONS AND RESTRICTED STOCK UPON "CHANGE IN CONTROL." The
DLTP contains provisions regarding the treatment of options and restricted
shares in the event of a "change in control" of the Company (as defined in the
DLTP, generally involving circumstances in which the Company is acquired by
another entity or the controlling ownership is changed). In such event, all
outstanding options would immediately vest and become exercisable and all
outstanding shares of restricted stock would immediately vest and become
transferable, and such options and shares would be valued and cashed out on the
basis of the change in control price as soon as practicable but in no event more
than 90 days after the change in control. However, the Committee on Directors
has the discretion, notwithstanding any particular event constituting a change
in control, to determine that the event is of the type that does not warrant the
described consequences with respect to options and restricted shares under the
DLTP, in which case such consequences would not occur.
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN. Under the Company's 1996
Non-Employee Director Stock Option Plan (the "Director Stock Option Plan"), each
non-employee director may elect to receive options to purchase Eastman common
stock in lieu of his or her annual retainer (but not meeting fees or other
compensation as a director). A maximum of 150,000 shares of common stock are
available for the grant of stock options under the Director Stock Option Plan,
subject to adjustment in the event of stock splits, stock dividends or changes
in capital structure affecting common stock. No grant may be made under the
Director Stock Option Plan after May 2, 2006.
OPTIONS IN LIEU OF RETAINER FEES. Each non-employee director may make
an annual advance irrevocable election to receive all or a portion of his or her
retainer to be earned in the following year in options to purchase Eastman
common stock. The number of shares of common stock underlying stock options
granted is determined by multiplying the amount of the semi-annual retainer the
director elects to receive in stock options by three and one-third, then
dividing by the fair market value per share of common stock on the date the
options are granted. Mr. Liu received options in lieu of retainer during 1999.
The exercise price per share of all stock options granted under the Director
Stock Option Plan is 100% of the fair market value per share of common stock on
the grant date. Options granted under the Director Stock Option Plan are not
exercisable until six months from the date of grant, and remain exercisable
thereafter until the tenth anniversary of the date of grant, regardless of
whether the participant is still a director.
TREATMENT OF OPTIONS UPON "CHANGE IN CONTROL". Upon the occurrence of a
"change in control" of the Company (as defined in the Director Stock Option
Plan, generally circumstances in which the Company is acquired by another entity
or its controlling ownership is changed), any and all outstanding options under
the Director Stock Option Plan become immediately exercisable.
DIRECTORS' DEFERRED COMPENSATION PLAN. The Company maintains the
Directors' Deferred Compensation Plan (the "DDCP"), an unfunded, non-qualified,
deferred compensation plan under which non-employee directors of the Company may
elect to defer compensation received as a director until such time as they cease
to serve as a director. Non-employee directors may make an annual advance
irrevocable election to defer compensation for services to be rendered the
following year. Compensation that may be deferred includes all cash compensation
for service as a director, including retainer and meeting fees. Messrs. Arnelle
and Donehower deferred compensation during 1999.
TERMS OF DEFERRAL OF DIRECTOR COMPENSATION. The deferred amounts may be
credited to individual "Interest Accounts" under the DDCP (which are credited
with interest until transfer or distribution at the prime rate as quoted in The
Wall Street Journal), to individual "Stock Accounts" under the DDCP (which
increase or decrease in value depending upon the market price of Eastman common
stock), or to a combination thereof. Under the Stock Account, dollar amounts are
"invested" in hypothetical shares of the Company's common stock. If cash
dividends are declared on shares of common stock, then any participant who has
hypothetical shares in the Stock Account receives a dividend equivalent which is
used to "purchase" additional hypothetical shares under the DDCP. A participant
may elect to transfer the dollar amount of all or any portion of his or her
Stock Account to the Interest Account, or vice versa.
11
<PAGE> 15
Upon termination as a director, the value of a participant's Interest
Account and Stock Account will be paid, in cash, in a single lump sum or up to
ten annual installments, as determined in the sole discretion of the Committee
on Directors. Payment will commence in any year up through the tenth year
following termination of directorship, as determined by the Committee on
Directors, except that payment must commence no later than the year in which the
participant reaches age 71.
The DDCP provides that a participant, whether or not still a director,
may request that part or all of such participant's Interest Account and Stock
Account be distributed immediately in the event of a severe financial hardship.
The determination of whether a hardship exists will be made by the Committee on
Directors.
The DDCP also provides that a participant may withdraw at any time all
or a portion of his or her balances in the Interest and Stock Accounts, provided
that the participant forfeit 10% of the balance of his or her Accounts and not
be permitted to participate in the DDCP for a period of 36 months from the date
of the early withdrawal payment. In addition, if, within any six month period,
either 50% or more of the DDCP participants elect such early withdrawal from the
DDCP or 20% or more of DDCP participants with aggregate Account balances valued
at 50% or more of the total value of all DDCP Accounts elect such early
withdrawal, then the Accounts of each remaining DDCP participant will be
distributed in a single lump sum.
TREATMENT OF DEFERRED COMPENSATION UPON "CHANGE IN CONTROL." If the
Company undergoes a "change in control" (as defined in the DDCP, generally
circumstances in which the Company is acquired by another entity or its
controlling ownership is changed), then the Accounts of each participant,
whether or not the participant is still a director, will be paid in a single
lump sum no later than 90 days following the change in control.
ITEM 2 -- RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors, upon the recommendation of the Audit Committee, has
appointed PricewaterhouseCoopers LLP as independent accountants for the Company
and its subsidiaries until the Annual Meeting of Shareowners in 2001.
The shareowners are being asked to ratify the Board's appointment of
PricewaterhouseCoopers LLP. All shares of common stock represented by valid
proxies received pursuant to this solicitation, and not revoked before they are
exercised, will be voted in the manner specified. If you execute and return a
proxy without instruction, your shares will be voted for ratification of the
appointment of PricewaterhouseCoopers LLP as independent accountants for the
Company.
A representative of PricewaterhouseCoopers LLP is expected to attend the
Annual Meeting and will have the opportunity to make a statement on behalf of
the firm if he desires to do so. The representative is also expected to be
available to respond to appropriate questions from shareowners.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" RATIFICATION OF THE
APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT ACCOUNTANTS.
12
<PAGE> 16
SHAREOWNER PROPOSALS
The following two shareowner proposals have been submitted for a vote of
the shareowners at the Annual Meeting. The proposals and the proponents'
supporting statements are set forth below along with the Company's reasons for
recommending a vote AGAINST each proposal. All shares of common stock
represented by valid proxies received pursuant to this solicitation, and not
revoked before they are exercised, will be voted in the manner specified. If you
execute and return a proxy without instruction concerning a proposal, your
shares will be voted against adoption of the proposal.
ITEM 3 -- PROPOSAL TO DECLASSIFY THE BOARD OF DIRECTORS
Shareowner the New York City Police Department Pension Fund, Office of the
Comptroller of the City of New York, 1 Centre Street, New York, New York
10007-2341, holder of 40,400 shares of Eastman common stock, has given notice
that it intends to submit the following proposal and supporting statement:
BE IT RESOLVED, that the stockholders of Eastman Chemical Co. request that
the Board of Directors take the necessary steps to declassify the Board of
Directors and establish annual elections of directors, whereby directors would
be elected annually and not by classes. This policy would take effect
immediately, and be applicable to the re-election of any incumbent director
whose term, under the current classified system, subsequently expires.
SUPPORTING STATEMENT OF PROPONENT
We believe that the ability to elect directors is the single most important
use of the shareholder franchise. Accordingly, directors should be accountable
to shareholders on an annual basis. The election of directors by classes, for
three-year terms, in our opinion, minimizes accountability and precludes the
full exercise of the rights of shareholders to approve or disapprove annually
the performance of a director or directors.
In addition, since only one-third of the Board of Directors is elected
annually, we believe that classified boards could frustrate, to the detriment of
long-term shareholder interest, the efforts of a bidder to acquire control or a
challenger to engage successfully in a proxy contest.
We urge your support for the proposal to repeal the classified board and
establish that all directors be elected annually.
RESPONSE OF THE COMPANY
When the Company became independent in 1994, management and the Board
determined that a classified board structure, where the Board of Directors is
divided into three classes and directors are elected to staggered three-year
terms with one of the three classes being elected every year, was in the best
interests of the Company and its shareowners. We continue to believe that a
classified board structure remains in the best interests of the Company and its
shareowners.
Maintaining a classified board promotes stability in the planning and
operations of the Board, as it ensures that at all times a majority of our Board
will consist of experienced directors with in-depth knowledge of the Company's
industry and affairs. A classified board also promotes stability by allowing
directors to develop and more effectively oversee long-range strategic planning
for the Company. This is especially true in the case of the Company, in light of
the cyclical nature of the industry in which it operates. With annual election
of directors, directors may be pressured to improperly focus only on producing
short term results, to the ultimate detriment of the Company. In addition, the
existence of three-year, as opposed to one-year, terms for directors assists the
Company in attracting director candidates who are willing to make long-term
commitments to the Company, which in turn increases the overall knowledge and
experience of the Board with respect to the Company's operations.
The proponent asserts that annual election of directors would foster
greater accountability of the Board for the performance of the Company. In fact,
a classified board fosters accountability for the performance of
13
<PAGE> 17
the Company by enabling directors to maintain independence from, and evaluate
more critically, the performance of the Company's executive officers, without
fear that management may recommend to the Committee on Directors of the Board
that they not be nominated by the Board to stand for re-election at the end of a
one-year term. At the same time, a classified board still affords shareowners
the opportunity to renew and reinvigorate corporate decision making by voting on
several directors each year. The Company also believes that accountability and
independence is fostered by the composition of the Board's membership, which
presently consists of eight outside directors and only one executive officer of
the Company serving as a director.
The proponent also asserts that a classified board could frustrate, to the
detriment of long-term shareowner interest, the efforts of a third party to
acquire control of the Company. It is true that a classified board may help
prevent a third party from acquiring control of the Company without the
cooperation of the Board, as maintaining a classified board prevents the abrupt
removal of the entire Board in a single election. However, the Board does not
believe that this is detrimental to the interests of our shareowners. Rather, a
classified board, along with other "takeover defenses," is a useful tool in
ensuring that the Board obtains fair value for our shareowners in the event of
an unsolicited bid to purchase the Company. Studies have shown that the premiums
paid by bidders to shareholders of companies with structural defenses, including
a classified board, are typically greater than premiums paid to shareholders of
companies without these defenses.
If approved by the shareowners, the proposal would not itself declassify
the Board. Rather, adoption of the proposal would serve as a recommendation to
the Board to take the necessary steps to declassify the Board. Because
declassifying the Board would require an amendment to our Company's Certificate
of Incorporation, this would require that both a majority of the members of the
Board and a majority of all outstanding shares of the Company vote in favor of a
resolution to amend the Certificate of Incorporation to declassify the Board.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "AGAINST" ADOPTION OF THIS
PROPOSAL.
ITEM 4 -- PROPOSAL TO ISSUE REPORT CONCERNING EMISSION OF "GREENHOUSE GASES" AND
POTENTIAL CLIMATE CHANGE
Shareowner Sisters of Charity of the Incarnate Word Retirement Trust, 2600
North Loop West, Houston, Texas 77092, holder of 200 shares of Eastman common
stock, has given notice that it intends to submit the following proposal and
supporting statement:
WHEREAS: The overwhelming majority of independent peer-reviewed atmospheric
scientists agree that global warming is a real, existing problem posing serious
challenges to our country;
The Intergovernmental Panel on Climate Change, composed of more than 2000
government selected scientists, warns that global warming caused by burning
fossil fuels and emitting greenhouse gases is already under way;
More frequent and deadly heat waves have claimed the lives increasing
numbers of poor, asthmatic and elderly people nationwide;
Spring comes a week earlier across the Northern Hemisphere than it did 30
years ago;
Severe rainstorms have grown by almost 20%;
The Arctic ice sheet is in many places 40 inches thinner than its normal
10ft;
Warmer waters have bleached coral reefs around the globe;
Glaciers are melting;
Sea levels are rising.
WE BELIEVE: In order to leave the children of the world a safe and healthy
environment, and protect threatened plants and animals, it is time for Eastman
Chemical to live up to its responsibility as a producer of the pollution which
causes global warming. A variety of companies including Enron, BP Amoco, 3M,
Toyota and others have stated that they "accept the views of most scientists
that enough is known about the science and environmental impacts of climate
change for us to take actions to address its consequences." These
14
<PAGE> 18
companies are preparing for the future now by taking the concrete steps
necessary to assess their opportunities for reducing the amount of carbon
pollution they produce. Failing to rise to the challenge set by these industry
leaders will hurt our company's competitiveness and cost our shareholders
increasing amounts of money.
RESOLVED: that the shareholder of Eastman Chemical request that the Board
of Directors report (at reasonable costs and omitting proprietary information),
to shareholders by August 2000, on the greenhouse gas emissions from our
company's own operations and products, including (with dollars amounts where
relevant) (i) what our company is doing in research and/or action to reduce
those emissions and ameliorate the problem, (ii) the financial exposure of our
company and its shareholders due to the likely costs of reducing those emissions
and potential liability for damages associated with climate change, and (iii)
actions by our company, or by the industry association to which it pays dues,
promoting the view that the issue of climate change is exaggerated, not real, or
that global warming may be beneficial.
SUPPORTING STATEMENT OF PROPONENT
We believe that Eastman Chemical is exposing its shareholders to financial
risk by continuing to produce unnecessary amounts of the pollution which causes
global warming, even as the problem of climate change becomes more severe, more
widely understood, and more likely to lead to legislation that will penalize
excessive carbon polluters. Furthermore, we believe that our company is using
shareholder money for advertising and lobbying to suggest that the problem of
global warming is exaggerated, not real, or too costly to deal with; and thus
using our prestige and influence to obstruct efforts to address climate change.
RESPONSE OF THE COMPANY
At Eastman, environmental accountability is not taken lightly. The
Company's policy is to operate its plants and facilities in a manner that
protects the environment and the health and safety of its employees and the
public, and in full compliance with all applicable laws and regulations. Health,
safety, and environmental considerations are a priority in the Company's
planning for all existing and new products and processes. The Health, Safety &
Environmental and Public Policy Committee of Eastman's Board of Directors
reviews the Company's policies and practices concerning health, safety, and the
environment, and its processes for complying with related laws and regulations,
and monitors significant related matters. See "Item 1 -- Election of
Directors -- Board Committees". The Company makes significant expenditures for
environmental protection and improvement.
The Company's careful consideration of health, safety, and the environment
includes the issue of potential climate change. The Company's expenditures for
environmental protection and improvement include significant capital
expenditures for the updating and maintenance of facilities to enhance energy
efficiency and reduce emissions. The quality of air is monitored at all of our
plant sites and continues to meet stringent federal and state standards.
Eastman's TRI emissions, which are reported to the public every year, have been
reduced by 80% since 1988. The Company has won numerous awards for its energy
efficiency efforts, including a total of eight Chemical Manufacturers
Association Energy Efficiency Awards in 1999. Additionally, the Company's Global
Climate Issue Management Team studies and addresses this specific issue. Based
upon recommendations from this team, the Company advocates increased funding of
both public and private scientific research to enhance the understanding of the
possible causes and implications of climate change. The Company also supports
voluntary measures by all economic sectors that lead to emission reductions,
improved energy efficiency, removal of greenhouse gases from the atmosphere, and
the development and deployment of advanced technologies that support these
goals. As with any matter potentially affecting the Company's operations, the
Company will continue to monitor the global warming issue and, if and when
material information regarding its potential impact upon the Company is known,
will fulfill its obligation to convey such information to shareowners. However,
the Board does not believe that a report of the type requested by the proponent
would be useful or informative for shareowners.
The proposal requests, in part, that the Board report upon "the financial
exposure of our company and its shareholders due to the likely costs of reducing
those [greenhouse gas] emissions and potential liability for
15
<PAGE> 19
damages associated with climate change." The supporting statement accompanying
the proposal alludes to potential "legislation that will penalize excessive
carbon polluters." The Board believes that, given the lack of consensus within
the scientific community regarding the potential implications of the climate
change issue, any report attempting to quantify potential financial effects on
the Company would be entirely speculative and, consequently, of little, if any,
value to shareowners. Clearly, the Company is not in a position to assess the
costs of compliance with legislation that has not been enacted, or potential
damages to as yet unknown parties. Moreover, while the Company, like most
manufacturing companies, emits some level of "greenhouse gases" (such as carbon
dioxide) in the course of its operations, the Board does not believe that the
nature of its products or operations renders the Company more vulnerable to
liability in connection with potential climate change than manufacturers
generally.
The proposal also requests that the report describe the Company's research
efforts in connection with global climate change and "actions by our company, or
by the industry association to which it pays dues. . ." promoting views that
call into question the existence, extent or harmful nature of global warming. To
the extent that the Company's research, lobbying or other activities undertaken
to address the climate change issue are material, information regarding such
activities will necessarily be communicated to shareowners through the Company's
regular reports filed with the SEC. We believe, therefore, that an additional
report of the type requested by the proponent would be duplicative and
unnecessary.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "AGAINST" ADOPTION OF THIS
PROPOSAL.
STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
COMMON STOCK
The following table sets forth certain information regarding the beneficial
ownership of Eastman common stock by each current director, by each executive
officer named in the Summary Compensation Table (under "Executive
Compensation -- Compensation Tables"), and by all directors and executive
officers as a group, as of December 31, 1999.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK BENEFICIALLY
NAME OWNED(1)(2)
---- -------------------------
<S> <C>
Earnest W. Deavenport, Jr................................... 350,757(3)
R. Wiley Bourne, Jr......................................... 186,687(4)
James L. Chitwood........................................... 126,658(5)
Harold L. Henderson......................................... 57,142(6)
Allan R. Rothwell........................................... 18,967(7)
H. Jesse Arnelle............................................ 2,545(8)
Calvin A. Campbell, Jr...................................... 4,850(9)
Jerry E. Dempsey............................................ 5,801(10)
John W. Donehower........................................... 1,080(11)
Donald W. Griffin........................................... 178(12)
Lee Liu..................................................... 4,363(13)
Marilyn R. Marks............................................ 5,768(14)
John A. White............................................... 5,470(15)
Directors and executive officers as a group (20 persons).... 1,054,698(16)
</TABLE>
- ---------------
(1) Information relating to beneficial ownership is based upon information
furnished by each person using "beneficial ownership" concepts set forth in
rules of the Securities and Exchange Commission (the "SEC"). Under those
rules, a person is deemed to be a "beneficial owner" of a security if that
person has or shares "voting power," which includes the power to vote or to
direct the voting of such security, or "investment power," which includes
the power to dispose or to direct the disposition of such security. The
person is also deemed to be a beneficial owner of any security of which
that person has a right to acquire beneficial ownership (such as by
exercise of options) within 60 days. Under such rules, more than one person
may be deemed to be a beneficial owner of the same securities, and a person
may be deemed to be a beneficial owner of securities as to which he or she
may disclaim any beneficial interest. Except as indicated in other notes to
this table, directors and executive officers possessed sole voting and
investment power with respect to all shares of common stock referred to in
the table.
16
<PAGE> 20
(2) The total number of shares of common stock beneficially owned by all
directors and executive officers as a group represents approximately 1.33%
of the shares of common stock outstanding as of December 31, 1999. The
percentage beneficially owned by any individual director or executive
officer does not exceed one percent of the outstanding shares of common
stock. Shares not outstanding which are subject to options exercisable
within 60 days by persons in the group or a named individual are deemed to
be outstanding for the purpose of computing the percentage of outstanding
shares of common stock owned by the group or such individual.
(3) Includes 336,611 shares that may be acquired upon exercise of options
(including the option to purchase 80,000 shares only if certain stock price
targets are met).
(4) Includes 159,739 shares that may be acquired upon exercise of options and
907 shares allocated to Mr. Bourne's Eastman Employee Stock Ownership Plan
(the "ESOP") account.
(5) Includes 99,662 shares that may be acquired upon exercise of options and
893 shares allocated to Dr. Chitwood's ESOP account. Also includes 101
shares held by Dr. Chitwood's spouse as custodian for his adult children,
as to which shares Dr. Chitwood disclaims beneficial ownership.
(6) Includes 50,000 shares that may be acquired upon exercise of options and
183 shares allocated to Mr. Henderson's ESOP account.
(7) Includes 17,195 shares that may be acquired upon exercise of options and
770 shares allocated to Mr. Rothwell's ESOP account.
(8) Includes 278 shares that may be acquired upon exercise of options.
(9) Includes 578 shares that may be acquired upon exercise of options.
(10) Includes 476 shares that may be acquired upon exercise of options and 191
restricted shares which generally vest on May 1, 2000, but as to which Mr.
Dempsey currently has voting power. See "Item 1 -- Election of
Directors -- Director Compensation -- Director Long-Term Compensation
Plan."
(11) Includes 407 shares that may be acquired upon exercise of options and 163
restricted shares which generally vest on February 3, 2001, but as to which
Mr. Donehower currently has voting power. See "Item 1 -- Election of
Directors -- Director Compensation -- Director Long-Term Compensation
Plan."
(12) Includes 175 restricted shares which generally vest on May 6, 2002, but as
to which Mr. Griffin currently has voting power. See "Item 1 -- Election of
Directors -- Director Compensation -- Director Long-Term Compensation
Plan."
(13) Includes 2,190 shares that may be acquired upon exercise of options. Also
includes 600 shares held by Mr. Liu's spouse, as to which shares Mr. Liu
disclaims beneficial ownership, and 1,000 shares held by the Lee and Andrea
Liu Foundation.
(14) Includes 2,758 shares that may be acquired upon exercise of options.
(15) Includes 2,188 shares that may be acquired upon exercise of options.
(16) Includes a total of 757,034 shares that may be acquired upon exercise of
options and 7,941 shares allocated to executive officers' ESOP accounts.
Includes shares and options held by and shares allocated to the ESOP
accounts of the spouses of executive officers not named above, as to which
shares and options such executive officers disclaim beneficial ownership.
Includes 158,424 shares owned by the Eastman Chemical Company Foundation,
Inc., of which shares three executive officers not named above may each be
deemed a beneficial owner by virtue of their shared voting and investment
power as directors of the Foundation.
COMMON STOCK AND COMMON STOCK UNITS
In addition to shares of Eastman common stock beneficially owned, certain
of the executive officers have units of common stock ("Common Stock Units")
credited to their individual Stock Accounts in the Eastman Executive Deferred
Compensation Plan (the "EDCP") and in the Eastman ESOP Excess Plan, and certain
of the directors have Common Stock Units credited to their individual Stock
Accounts in the DDCP. See "Item 1 -- Election of Directors -- Director
Compensation -- Directors' Deferred Compensation Plan" and "Executive
Compensation -- Compensation Tables -- Summary Compensation Table" and
"-- Compensation and Management Development Committee Report on Executive
Compensation".
17
<PAGE> 21
The following table shows, for each current director and each executive
officer named in the Summary Compensation Table, and for all directors and
executive officers as a group, the aggregate of the number of shares of common
stock beneficially owned by such person and group, as set forth in the preceding
table, and the number of Common Stock Units credited to the Stock Accounts of
such person and group. Common Stock Units represent hypothetical "investments"
in Eastman common stock. The value of one Common Stock Unit is equal to the
market value of one share of Eastman common stock. Although the DDCP, EDCP, and
ESOP Excess Plan allow Common Stock Units to be paid out only in the form of
cash, and not in shares of common stock, Common Stock Units create essentially
the same stake in the market performance of the Company's common stock as do
actual shares of common stock. As a result, Common Stock Units are counted with
certain shares of common stock beneficially owned (excluding certain shares
which may be deemed beneficially owned under SEC rules, such as shares
underlying options, shares owned by the individual's spouse, and shares over
which the individual shares voting and investment power, but in which the
individual has no pecuniary interest) for purposes of the Company's stock
ownership guidelines -- four times target total annual compensation for the
Chief Executive Officer, three times target total annual compensation for the
other executive officers named in the Summary Compensation Table, and three
times the annual retainer fee for non-employee directors. See "Executive
Compensation -- Compensation and Management Development Committee Report on
Executive Compensation." The table below is included to provide a better
indication of the stake of the named individuals, and of the directors and
executive officers as a group, with respect to Eastman common stock.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK AND
COMMON STOCK UNITS
NAME BENEFICIALLY OWNED
- ---- -------------------
<S> <C>
Earnest W. Deavenport, Jr................................... 454,898
R. Wiley Bourne, Jr......................................... 231,648
James L. Chitwood........................................... 132,160
Harold L. Henderson......................................... 57,327
Allan R. Rothwell........................................... 22,667
H. Jesse Arnelle............................................ 3,917
Calvin A. Campbell, Jr...................................... 4,850
Jerry E. Dempsey............................................ 5,801
John W. Donehower........................................... 1,080
Donald W. Griffin........................................... 178
Lee Liu..................................................... 4,363
Marilyn R. Marks............................................ 6,887
John A. White............................................... 9,302
Directors and executive officers as a group (20 persons).... 1,249,981(1)
</TABLE>
- ---------------
(1) Includes 158,424 shares owned by the Eastman Chemical Company Foundation,
Inc., over which shares three executive officers not named above share
voting and investment power as directors of the Foundation but in which
shares such executive officers have no pecuniary interest.
18
<PAGE> 22
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNER
The following table sets forth certain information regarding the only known
beneficial owner of more than 5% of Eastman common stock.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF PERCENT
COMMON STOCK OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED CLASS(1)
- ------------------------------------ ------------------- --------
<S> <C> <C>
Sanford C. Bernstein & Co., Inc............................. 8,894,046(2) 11.6%
767 Fifth Avenue
New York, New York 10153
</TABLE>
- ---------------
(1) Based upon the number of shares of common stock outstanding and entitled to
be voted at the Annual Meeting as of the record date.
(2) As of December 31, 1999, based on a Schedule 13G filed with the SEC by
Sanford C. Bernstein & Co., Inc., an investment adviser. According to the
Schedule 13G, Sanford C. Bernstein & Co., Inc. has sole investment power
with respect to all of such shares, sole voting power with respect to
5,341,882 of such shares, and shared voting power with respect to 808,295 of
such shares.
19
<PAGE> 23
EXECUTIVE COMPENSATION
COMPENSATION TABLES
The following Summary Compensation Table sets forth certain information
concerning compensation of the Company's Chief Executive Officer and each of the
Company's four other most highly compensated executive officers for 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
--------------------------------
AWARDS PAYOUTS
ANNUAL COMPENSATION(1) ---------- --------------
--------------------------------------- SECURITIES LONG-TERM
NAME AND PRINCIPAL OTHER ANNUAL UNDERLYING INCENTIVE PLAN ALL OTHER
POSITION YEAR SALARY(2) BONUS(3) COMPENSATION(4) OPTIONS PAYOUTS(5) COMPENSATION(6)
------------------ ---- ---------- -------- --------------- ---------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnest W. Deavenport, Jr. 1999 $775,000 $732,375 $ 28,810 200,000(7) $ 0 $40,789
Chairman and Chief 1998 763,333 502,998 42,917 15,500 239,459 40,175
Executive Officer 1997 688,542 692,130 13,715 204,957(8)(9) 329,384 36,239
R. Wiley Bourne, Jr.(10) 1999 445,800 269,052 14,539 18,500 0 22,741
Vice Chairman 1998 440,100 212,387 22,650 12,920(8) 140,600 23,163
and Executive 1997 421,900 296,158 8,238 9,250 193,400 22,205
Vice President
James L. Chitwood 1999 391,589 242,033 321,967 60,441(7)(8) 0 18,816
Senior Vice President, 1998 354,033 170,407 306,876 8,750 103,253 18,633
Corporate Strategy and 1997 343,733 240,009 63,852 8,000 142,028 18,091
Chief Technology Officer
Harold L. Henderson(11) 1999 323,000 218,676 5,933 0(12) 0 12,619
Senior Vice President 1998 318,667 153,866 5,162 0(12) 0 16,772
and General Counsel 1997 307,803 206,590 10,595 0(12) 0 0
Allan R. Rothwell(13) 1999 265,700 235,315 3,073 91,000(7) 0 14,611
President 1998 217,850 98,096 2,738 7,010 13,181 11,466
Chemicals Group 1997 161,725 71,013 255 2,050 12,087 8,512
</TABLE>
- ---------------
(1) Includes both amounts paid for the indicated years and amounts earned
during the indicated years but deferred under the Executive Deferred
Compensation Plan.
(2) Base salary amount is reduced to below competitive pay levels, and the
difference between base salary and competitive pay level is made variable
and is placed "at risk" under the Eastman Performance Plan and the Annual
Performance Plan (and, beginning 2000, the Unit Performance Plan). For
1999, 40% of Mr. Deavenport's annual compensation and 33% of the annual
compensation for Messrs. Bourne, Henderson, and Rothwell and Dr. Chitwood
was at risk under the Eastman Performance Plan and Annual Performance Plan.
See "Bonus" column and "Compensation and Management Development Committee
Report on Executive Compensation."
(3) Cash payments in the year following for services rendered in the year
indicated under the Eastman Performance Plan (for 1998 and 1997) and the
Annual Performance Plan (for 1999, 1998, and 1997). The Eastman Performance
Plan and the Annual Performance Plan, unlike traditional bonus plans,
require participants to place a portion of their annual compensation "at
risk" by reducing their base salary levels to below competitive pay levels.
A significant portion of the compensation reported in the "Bonus" column
constitutes annual cash compensation which was placed "at risk" at the
beginning of the indicated year and earned during the year based upon
Company performance. Also includes a length-of-service recognition award
paid to Mr. Bourne in 1999 and an extraordinary contribution recognition
award paid to Mr. Rothwell in 1999. See "Compensation and Management
Development Committee Report on Executive Compensation."
(4) Includes amounts reimbursed for payment of taxes on certain compensation
and benefits, and the portion of interest accrued on deferred compensation
under the Executive Deferred Compensation Plan and on certain stock options
at a rate that exceeded 120 percent of the then applicable Federal
long-term rate. The amounts reported for Dr. Chitwood also include tax
gross-up payments attributed to his overseas assignment.
(5) Represents fair market value of payout during the year following of stock
earned under performance shares awarded at the beginning of the three-year
performance period ended in the year indicated, with shares earned based
upon total return to shareowners during the three-year performance period
relative to that of peer companies. The payout, unless deferred at the
election of the participant, is in the form of unrestricted shares of
Eastman common stock. The amount reported represents the fair market value
of the shares earned, based upon the per share closing price of the common
stock on the New York Stock Exchange on the payment date. Mr. Henderson was
first awarded performance shares for the 1997-1999 performance period;
accordingly, he was not eligible to receive payouts for the performance
periods ended 1997 and 1998. See "Long-
20
<PAGE> 24
Term Incentive Plan -- Awards in Last Fiscal Year" table and "Compensation
and Management Development Committee Report on Executive Compensation."
(6) The amounts for 1998 and 1997 are the portion of the Eastman Performance
Plan payment which was contributed or credited by the Company to the
employee's accounts in the Eastman ESOP and Eastman ESOP Excess Plan, and
the amounts for 1999 are annual Company contributions to the accounts of
Messrs. Deavenport, Bourne, and Rothwell and Dr. Chitwood in the Eastman
Investment Plan, a 401(k) retirement plan, and to Mr. Henderson's accounts
in the Eastman ESOP and Eastman ESOP Excess Plan. Pursuant to the time of
service condition to participation, the Company made no contribution or
credit to Mr. Henderson's accounts in the Eastman ESOP and Eastman ESOP
Excess Plan for 1997. See "Compensation and Management Development
Committee Report on Executive Compensation."
(7) Includes an option to purchase shares of Eastman common stock only if
specified conditions tied to the price appreciation of Eastman common
stock, and other conditions, are met. See "Option Grants in Last Fiscal
Year" table and "Compensation and Management Development Committee Report
on Executive Compensation."
(8) Includes "reload" options received by Mr. Deavenport (4,957 in 1997), Mr.
Bourne (3,670 in 1998), and Dr. Chitwood (6,941 in 1999) to purchase a
number of shares equal to the number of previously owned shares of Eastman
common stock surrendered in payment of the exercise price of options. See
"Option Grants in Last Fiscal Year" and "Aggregated Option Exercises in
Last Fiscal Year and Fiscal Year-End Option/SAR Values" tables.
(9) Includes an option granted in September 1997 to purchase 200,000 shares of
Eastman common stock at an exercise price of $60.75 per share subject to
stock price vesting and time vesting conditions, both of which must be met
for the option to become exercisable. Subject to the price vesting
conditions, the option becomes exercisable 20% per year beginning one year
from grant date. Subject to the time vesting conditions, the option will
become exercisable as to 50% of the underlying shares if the average of the
closing prices of Eastman common stock for any twenty consecutive trading
days equals or exceeds $80 within three years from grant date, and as to
100% of the underlying shares if the average of the closing prices of
Eastman common stock for any twenty consecutive trading days equals or
exceeds $100 within five years from grant date. The option will be
forfeited on the fifth anniversary of the grant date as to any shares for
which the applicable stock price target is not met. The option is also
subject to forfeiture in the event of early termination of employment under
certain circumstances and in the event of violation of specified
prohibitions concerning competition, confidentiality, and other activity
adverse to the interests of the Company. In the event of a "change of
ownership", or in certain circumstances following a "change in control",
conditions to vesting would be deemed to have been satisfied. See
"Change-In-Control Arrangements and Employment Agreement -- Omnibus
Long-Term Compensation Plans."
(10) During 1999, Mr. Bourne announced his retirement effective March 1, 2000.
(11) Effective January 1, 2000, Mr. Henderson assumed responsibility for
coordinating special initiatives under the direction of the Chief Executive
Officer. Theresa K. Lee, formerly Vice President, Associate General Counsel
and Secretary, was appointed Vice President, General Counsel and Secretary.
(12) Under the terms of his Employment Agreement, in December 1996 Mr. Henderson
received an award of 876 restricted shares of Common Stock and a special
one-time option to purchase 50,000 shares, which grant was in lieu of
options that would normally be granted during the term of the Employment
Agreement under the stock option program. See "Change-in-Control
Arrangements and Employment Agreement" and "Compensation and Management
Development Committee Report on Executive Compensation."
(13) As part of a reorganization of the Company, effective September 1, 1999,
Mr. Rothwell was named President, Chemicals Group and J. Brian Ferguson was
named President, Polymers Group. Mr. Rothwell was formerly Senior Vice
President and Chief Financial Officer. James P. Rogers succeeded Mr.
Rothwell as Senior Vice President and Chief Financial Officer.
21
<PAGE> 25
The following table sets forth certain information regarding options
granted during 1999 under the Company's Omnibus Long-Term Compensation Plans to
the individuals named in the Summary Compensation Table.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------------------------
PERCENTAGE OF TOTAL
NUMBER OF OPTIONS/SARS
SECURITIES GRANTED TO EXERCISE OR
UNDERLYING OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED FISCAL YEAR PER SHARE DATE
- ---- ------------------ ------------------- -------------- ----------
<S> <C> <C> <C> <C>
E. W. Deavenport, Jr...... 169,000(5) 10.92% $37.9375 10/18/09
31,000(7) 2.00% 45.8125 02/15/09
R. W. Bourne, Jr.......... 18,500(7) 1.20% 45.8125 02/15/09
J. L. Chitwood............ 40,000(5) 2.58% 37.9375 10/18/09
13,500(7) 0.87% 45.8125 02/15/09
5,839(8) 0.38% 50.0000 03/10/03
1,102(8) 0.07% 58.8750 03/10/03
H. L. Henderson(9)........ 0 -- -- --
A. R. Rothwell............ 80,000(5) 5.17% 37.9375 10/18/09
11,000(7) 0.71% 45.8125 02/15/09
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION FOR
OPTION TERM(1)
----------------------------------
NAME 0%(2) 5%(3) 10%(4)
- ---- ----- ---------- -----------
<S> <C> <C> <C>
E. W. Deavenport, Jr...... $0 $4,032,119(6) $10,218,180(6)
0 893,148 2,263,413
R. W. Bourne, Jr.......... 0 533,008 1,350,747
J. L. Chitwood............ 0 954,348(6) 2,418,504(6)
0 388,952 985,680
0 62,917 135,494
0 13,982 30,111
H. L. Henderson(9)........ 0 0 0
A. R. Rothwell............ 0 1,908,695(6) 4,837,008(6)
0 316,924 803,147
</TABLE>
- ---------------
(1) The dollar amounts under these columns are the result of calculations
projected for the term of each individual grant, assuming 0%, and the 5% and
10% rates set by the SEC, of compounded annual appreciation, and are not
intended to forecast possible future appreciation, if any, of the market
price of Eastman common stock.
(2) No gain to the optionee is possible without an increase in stock price,
which would benefit all shareowners commensurately. A 0% appreciation in
stock price would result in zero dollars for the optionee.
(3) Represents the appreciation in stock price from the exercise price until the
expiration date assuming a 5% per year appreciation in stock price. For
example, for the option expiring on February 15, 2009, a 5% per year
appreciation in stock price from $45.8125 per share yields $74.62 per share.
(4) Represents the appreciation in stock price from the exercise price until the
expiration date assuming a 10% per year appreciation in stock price. For
example, for the option expiring on February 15, 2009, a 10% per year
appreciation in stock price from $45.8125 per share yields $118.83 per
share.
(5) Performance-based stock option with stock price vesting and time vesting
conditions, both of which must be met for the option to become exercisable.
Subject to the price vesting conditions, the option becomes exercisable in
50% increments on each of the first two anniversaries of the grant date.
Subject to the time vesting conditions, the option will become exercisable
as to 1% of the underlying shares if the average daily closing price of
Eastman common stock on the New York Stock Exchange for any twenty
consecutive trading days equals or exceeds $39.00 on or before October 19,
2001; as to 100% of the underlying shares if the average daily closing price
for any twenty consecutive trading days equals or exceeds $70.00 on or
before October 19, 2001; and, as to specified numbers between 1% and 100% of
the underlying shares if the average daily closing prices for any twenty
consecutive days equal or exceed specified prices between $39.00 and $70.00
on or before October 19, 2001. The option will be cancelled and forfeited on
October 19, 2001 as to any shares for which the applicable stock price
target is not met. In addition, if the optionee terminates his employment
for approved reasons such as death, disability, or retirement, if prior to
the first anniversary of the grant date, then the option will be forfeited
as to two-thirds of the underlying shares; or, if between the first and
second anniversary of the grant date, then the option would be forfeited as
to one-third the underlying shares. The option also provides for forfeiture
in the event of violation by the optionee of specified prohibitions
concerning competition, confidentiality, and other activity adverse to the
interests of the Company. In the event of a "change in ownership", or in
certain circumstances following a "change in control", conditions to vesting
would be deemed to have
22
<PAGE> 26
been satisfied. See "Change-In-Control Arrangements and Employment
Agreement -- Omnibus Long-Term Compensation Plans."
(6) If the price vesting conditions of the performance-based stock options are
not met, then the hypothetical appreciation of the stock price shown would
not be realized, because the option would be forfeited prior to the end of
the option term.
(7) The options vest and become exercisable in 50% increments on each of the
first two anniversaries of the grant date, with acceleration of vesting in
the event of a "change in ownership" or in certain circumstances following a
"change in control." See "Change-In-Control Arrangements and Employment
Agreement -- Omnibus Long-Term Compensation Plans." The exercise price may
be paid by surrendering previously owned shares of Eastman common stock, in
which case the optionee will receive a new option to purchase the same
number of shares as surrendered in the exercise. Such "reload" options have
an exercise price equal to the fair market value of the underlying common
stock on the date of the new grant.
(8) "Reload" option received upon exercise of previously granted option through
surrender of shares of common stock and covering the same number of shares
as surrendered in the exercise. The reload option is vested and exercisable
immediately upon grant.
(9) Under the terms of his Employment Agreement, in December, 1996 Mr. Henderson
received a special one-time option to purchase 50,000 shares of common
stock, which grant was in lieu of options that would normally be granted
during the term of the Employment Agreement under the stock option program.
See "Severance and Change-in-Control Arrangements and Employment Agreement",
"Summary Compensation Table", and "Compensation and Management Development
Committee Report on Executive Compensation."
The following table sets forth certain information regarding exercises of
options during 1999, and total options and stock appreciation rights ("SARs")
held at year end, by the individuals named in the Summary Compensation Table.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
NUMBER OF OPTIONS/SARS AT OPTIONS/SARS AT
SECURITIES FISCAL YEAR-END FISCAL YEAR-END(1)
UNDERLYING ---------------------- ---------------------
OPTIONS VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISED REALIZED UNEXERCISABLE UNEXERCISABLE
---- ---------- -------- ---------------------- ---------------------
<S> <C> <C> <C> <C>
E. W. Deavenport, Jr.......... 11,342 $213,931 281,111/407,750(2) $1,652,250/$1,668,759(2)
R. W. Bourne, Jr.............. 7,521 31,672 150,489/23,125 967,338/31,218
J. L. Chitwood................ 8,138 63,172 92,912/57,875(2) 229,449/405,301(2)
H. L. Henderson............... -- -- 50,000/0 0/0
A. R. Rothwell................ -- -- 11,695/94,505(2) 22,800/783,602(2)
</TABLE>
- ---------------
(1) Represents the difference between the average of the high and low trading
prices on the New York Stock Exchange on December 31, 1999 of the common
stock underlying the options and SARs on December 31, 1999 and the exercise
or base price of the options and SARs.
(2) Includes options to purchase shares of common stock if specified conditions
tied to the price appreciation of Eastman common stock, and certain other
conditions, are met. See "Summary Compensation Table" and "Option Grants in
Last Fiscal Year" table.
23
<PAGE> 27
The following table sets forth certain information regarding long-term
incentive plan awards during 1999 to the individuals named in the Summary
Compensation Table.
LONG-TERM INCENTIVE PLAN -- AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS UNDER
NON-STOCK PRICE-BASED PLANS
NUMBER OF PERFORMANCE OR ----------------------------------------------------
SHARES, UNITS OR OTHER PERIOD UNTIL BELOW
NAME OTHER RIGHTS MATURATION OR PAYOUT THRESHOLD(#) THRESHOLD(#) TARGET(#) MAXIMUM(#)
---- ---------------- -------------------- ------------ ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C>
E. W. Deavenport,
Jr................... 10,900 3 Years -0- 1,090 11,990 21,800
R. W. Bourne, Jr....... 6,400 3 Years -0- 640 7,040 12,800
J. L. Chitwood......... 4,700 3 Years -0- 470 5,170 9,400
H. L. Henderson........ 3,100 3 Years -0- 310 3,410 6,200
A. R. Rothwell......... 3,900 3 Years -0- 390 4,290 7,800
</TABLE>
The above table reflects performance shares awarded under the 1997 Omnibus
Long-Term Compensation Plan. Such awards were made under a three-year Long-Term
Performance Subplan. The awards reflected in the table were granted in February
1999 for a 1999-2001 cycle. Performance is measured by the Company's total
return to shareowners (change in stock price plus dividends declared during the
relevant period, assuming reinvestment of dividends) relative to that of the
peer companies identified in the Performance Graph. Future payouts, if any, are
based upon the Company's position in a ranking of the unweighted total
shareowner returns of the compared companies. If the Company's total shareowner
return ("TSR") ranks below the fifteenth company (threshold), no award will be
earned; if TSR ranks at threshold, 10% of the target awards will be earned; if
TSR ranks tenth (target), 110% of the target awards will be earned; and if TSR
ranks first of the compared companies (maximum), 200% of the target awards will
be earned. If earned, awards will be paid after the end of the performance
period in unrestricted shares of Eastman common stock, or participants may
irrevocably elect in advance to defer the award payout into the Executive
Deferred Compensation Plan.
PENSION PLANS
EASTMAN RETIREMENT ASSISTANCE PLAN. The Company presently has in effect a
tax-qualified, non-contributory defined benefit pension plan known as the
Eastman Retirement Assistance Plan ("ERAP") for substantially all active U.S.
employees, other than employees of Lawter International, Inc. and certain other
subsidiaries. A participant's total ERAP benefit consists of his "Pre-2000
Benefit" and "Pension Equity Benefit", as described below.
PRE-2000 BENEFIT. Prior to 2000, the ERAP used a traditional pension
formula which gave each participant a life annuity commencing at age 65. The
following table sets forth the estimated annual Pre-2000 Benefits payable upon
retirement (including any amounts attributable to the plans described under
"Supplemental Pension Plans" below) to persons in the specified compensation and
years-of-service classifications who are eligible for a full unreduced Pre-2000
Benefit.
24
<PAGE> 28
PENSION PLAN TABLE
<TABLE>
<CAPTION>
AVERAGE YEARS OF SERVICE
PARTICIPATING ---------------------------------------------------------------
COMPENSATION 15 20 25 30 35 40
- ------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$ 200,000 $ 44,904 $ 59,872 $ 74,840 $ 89,808 $104,776 $110,015
250,000 56,904 75,872 94,840 113,808 132,776 139,415
300,000 68,904 91,872 114,840 137,808 160,776 168,815
350,000 80,904 107,872 134,840 161,808 188,776 198,215
400,000 92,904 123,872 154,840 185,808 216,776 227,615
450,000 104,904 139,872 174,840 209,808 244,776 257,015
500,000 116,904 155,872 194,840 233,808 272,776 286,415
550,000 128,904 171,872 214,840 257,808 300,776 315,815
600,000 140,904 187,872 234,840 281,808 328,776 345,215
650,000 152,904 203,872 254,840 305,808 356,776 374,615
700,000 164,904 219,872 274,840 329,808 384,776 404,015
750,000 176,904 235,872 294,840 353,808 412,776 433,415
800,000 188,904 251,872 314,840 377,808 440,776 462,815
850,000 200,904 267,872 334,840 401,808 468,776 492,215
900,000 212,904 283,872 354,840 425,808 496,776 521,615
950,000 224,904 299,872 374,840 449,808 524,776 551,015
1,000,000 236,904 315,872 394,840 473,808 552,776 580,415
1,050,000 248,904 331,872 414,840 497,808 580,776 609,815
1,100,000 260,904 347,872 434,840 521,808 608,776 639,215
1,150,000 272,904 363,872 454,840 545,808 636,776 668,615
1,200,000 284,904 379,872 474,840 569,808 664,776 698,015
1,250,000 296,904 395,872 494,840 593,808 692,776 727,415
1,300,000 308,904 411,872 514,840 617,808 720,776 756,815
1,350,000 320,904 427,872 534,840 641,808 748,776 786,215
1,400,000 332,904 443,872 554,840 665,808 776,776 815,615
1,450,000 344,904 459,872 574,840 689,808 804,776 845,015
1,500,000 356,904 475,872 594,840 713,808 832,776 874,415
1,550,000 368,904 491,872 614,840 737,808 860,776 903,815
1,600,000 380,904 507,872 634,840 761,808 888,776 933,215
</TABLE>
To the extent that any individual's annual Pre-2000 Benefit, as
reflected in the foregoing table, exceeds the amount payable from the ERAP, such
excess will be paid from one or more unfunded, supplementary plans. See
"Supplemental Pension Plans" below.
Pre-2000 Benefits under the ERAP are based upon the participant's
"average participating compensation", which is the average of three years of
those earnings described in the ERAP as "participating compensation."
"Participating compensation," in the case of the executive officers identified
in the Summary Compensation Table, consists of salary and bonus payments,
including allowance in lieu of salary for authorized periods of absence, such as
illness, vacation, or holidays.
The estimated annual Pre-2000 Benefits reflected in the preceding
Pension Plan Table have been computed in straight-life annuity amounts and are
not subject to any deductions for Social Security or other offset amounts. An
employee is eligible for an unreduced Pre-2000 Benefit when such employee's
aggregate age plus years of eligible service totals 85 or at age 65.
Years of accrued service credited through 1999 and the amount of average
participating compensation at the end of 1999 for the individuals named in the
Summary Compensation Table were as follows: Mr. Deavenport, 39 years and
$1,316,499; Mr. Bourne, 40 years and $730,913; Dr. Chitwood, 31 years and
$600,321; Mr. Henderson, 3 years and $440,065; and Mr. Rothwell, 30 years and
$289,977. See "Change-In-Control Arrangements and Employment Agreement" for
certain supplementary and alternative compensation and benefits payable to Mr.
Henderson upon his retirement.
25
<PAGE> 29
PENSION EQUITY BENEFIT. Effective January 1, 2000, the Company
redesigned the ERAP to use a pension equity formula. Under the new formula,
beginning January 1, 2000, a participant earns a certain pension equity
percentage each year based on his age and total service with the Company, using
the following chart:
<TABLE>
<CAPTION>
FOR AVERAGE PARTICIPATING
COMPENSATION OVER THE
POINTS FOR ALL AVERAGE AVERAGE SOCIAL SECURITY
(AGE + SERVICE) PARTICIPATING COMPENSATION WAGE BASE
--------------- -------------------------- -------------------------
<S> <C> <C>
Under 35................................... 2% 2%
35-44...................................... 2.5% 2%
45-54...................................... 3% 3%
55-64...................................... 4.5% 3%
65-74...................................... 6% 5%
75-84...................................... 9% 8%
85-94...................................... 12.5% 10%
95 & Over.................................. 16% 10%
After 40 Years of Service.................. 8% 5%
</TABLE>
When a participant terminates, he is entitled to a pension lump sum,
payable over five years, which is equal to the accumulated percentages in the
second column times his average participating compensation, plus the accumulated
percentages in the third column times his average participating compensation in
excess of his average Social Security wage base. The lump sum may also be
converted to various forms of annuities.
To the extent that any individual's Pension Equity Benefit exceeds the
amount payable from the ERAP, such excess will be paid from one or more
unfunded, supplementary plans. See "Supplemental Pension Plans" below.
SUPPLEMENTAL PENSION PLANS. The Company maintains two unfunded,
nonqualified plans that will restore to participants in the ERAP benefits that
cannot be paid under the ERAP because of restrictions under the Internal Revenue
Code of 1986, as amended, and benefits that are not accrued under the ERAP
because of a voluntary deferral by the participant of compensation that would
otherwise be counted under the ERAP. The timing and form of payment of amounts
accrued under these supplemental pension plans have not yet been determined.
Those determinations will be made at the sole discretion of the Vice President,
Human Resources, with respect to participants other than executive officers, or
the Compensation Committee, with respect to participants who are executive
officers.
The Company has established a "Rabbi Trust" to provide a degree of
financial security for the participants' unfunded account balances under the
supplemental pension plans. See "Change-in-Control Arrangements and Employment
Agreement -- Benefit Security Trust."
CHANGE-IN-CONTROL ARRANGEMENTS AND EMPLOYMENT AGREEMENT
SEVERANCE AGREEMENTS. The Company has entered into Severance Agreements
with the five individuals named in the Summary Compensation Table and certain
other officers of the Company. Each Agreement has a term of three years (with
automatic one-year extensions absent advance notice otherwise from the Company);
provided, however, that upon the occurrence of a "change in control" or a
"potential change in control" (as defined in the Agreements) prior to such
termination date, the term of the Agreement will automatically be extended for
two years from the date of the change in control or potential change in control,
as the case may be. If, at any time during the term of the Agreement and before
the occurrence of a change in control or a potential change in control, there
occurs a reduction in the employee's level of responsibility, position,
authority or duties, the Company may in its sole discretion terminate the
Agreement.
A "change in control" is defined in the Agreements to include the
following, and with certain exceptions: the acquisition by a person of 19% or
more of the voting stock of the Company; the incumbent Board members (and
subsequent directors approved by them) ceasing to constitute a majority of the
Board; approval by the Company's shareowners of a reorganization or merger
unless, after such proposed transaction, the former
26
<PAGE> 30
shareowners of the Company will own more than 75% of the resulting corporation's
voting stock; or approval by the Company's shareowners of a complete liquidation
and dissolution of the Company or the sale or other disposition of substantially
all of the assets of the Company other than to a subsidiary. A "potential change
in control" will be deemed to have occurred if the Company enters into an
agreement, the consummation of which would result in the occurrence of a change
in control; any person (including the Company) publicly announces an intention
to take action which, if consummated, would constitute a change in control; any
person (other than the Company or certain affiliated entities) becomes the
beneficial owner of 10% or more of the combined voting power of the Company's
then-outstanding securities; or the Board adopts a resolution to the effect that
a potential change in control has occurred.
If during the term of the Agreements and following a change in control (or
within 120 days before or after a potential change in control) of the Company,
the employee's employment with the Company is terminated by the Company other
than for "cause" (as defined), death or disability, or by the employee for "good
reason" (which includes a reduction in the employee's compensation, certain
relocations of the employee's office, the exclusion of the employee from new
compensation arrangements offered to similarly situated employees, or a material
reduction in the employee's responsibility, position, authority, or duties, and
also includes a termination by the employee for any reason or no reason during
the 30-day period beginning on the first anniversary of the change in control),
then, in addition to any other benefits accruing to the employee outside the
scope of the Agreement: (1) the acquiror will pay the employee any unpaid
salary, benefits or awards that shall have been earned or become payable through
the date of termination; (2) the acquiror will pay to the employee as severance
an amount equal to three times (or four times in the case of Mr. Deavenport) the
employee's "pay" (defined as the average of the three highest out of the last
ten years of the employee's total annual compensation, including base annual
salary, bonus, the grant date value of stock grants, and incentive
compensation); (3) the acquiror will maintain in effect for three years (or four
years in the case of Mr. Deavenport) after the date of termination for the
employee and his dependents all welfare benefit plans in which the employee was
entitled to participate immediately prior to termination; and (4) the acquiror
will pay the employee a single lump sum amount equal to the actuarial equivalent
of (a) the retirement benefit to which the employee would have been entitled
under the ERAP and the excess retirement plans described above under "Pension
Plans" if the employee had five additional years of service and was five years
older, minus (b) the retirement benefit to which the employee is actually
entitled under the ERAP and the excess retirement plans.
If the amount payable to the employee under these Agreements exceeds
certain threshold amounts, federal excise tax could be imposed on the employee
and the Company could lose a tax deduction for a portion of the payment. If the
amount payable would result in such effects, but exceeds the applicable
threshold by $30,000 or less, the amount payable will be reduced by the amount
the payment exceeds the threshold. If the payment exceeds the threshold by more
than $30,000, the employee will be entitled to full benefits under the Agreement
and to additional amounts to compensate him or her fully for the imposition of
the federal excise tax (including federal, state, and excise taxes applicable to
the receipt of such additional amount).
The Company has established a "Rabbi Trust" to provide a degree of
financial security for any amounts which may become payable to officers under
the Severance Agreements. See "Benefit Security Trust."
EMPLOYEE PROTECTION PLAN. The Company's Employee Protection Plan provides
severance pay, health, dental, disability, and life insurance continuation, and
a retraining allowance (of up to $5,000) for substantially all employees whose
employment is terminated within two years following a "change in control" (as
defined in such plan, generally circumstances in which the Company is acquired
by another entity or its controlling ownership is changed). For purposes of the
Employee Protection Plan, participants have been credited with service with
Eastman Kodak Company and its affiliates prior to the Company's spin-off from
Eastman Kodak. The Employee Protection Plan provides for a lump sum severance
payment of three weeks of "pay" (as defined in the plan) for each year of
service up to 16 years and four weeks of pay for each year of service in excess
of 16, with a minimum of six weeks of pay and a maximum of 104 weeks. Health,
dental, disability, and life insurance would be continued at the Company's
expense for up to 12 months, depending on years of service, on the same basis as
in effect on the date of employment termination (except that no employee
contributions would be required). In addition, the Employee Protection Plan
provides for the
27
<PAGE> 31
payment of certain bonuses declared in the year in which employment terminates.
The plan provides for a "gross-up payment" in the event the total payments under
the Employee Protection Plan and any other plan or agreement of an employee with
the Company subject the employee to certain federal excise taxes. The gross-up
payment would be in an amount such that the net amount retained by the employee,
after deduction of any such excise tax and any tax on the gross-up payment,
would equal the total payments under the Employee Protection Plan and other
plans or agreements.
OMNIBUS LONG-TERM COMPENSATION PLANS. The Company's 1997 Omnibus Long-Term
Compensation Plan (the "1997 Omnibus Plan"), which is administered by the
Compensation Committee, provides for grants to employees of nonqualified and
incentive stock options, SARs, stock awards, performance shares, and other stock
and stock-based awards (collectively, "Awards"). The 1997 Omnibus Plan is
substantially similar to, and intended to replace, the 1994 Omnibus Long-Term
Compensation Plan (the "1994 Omnibus Plan"). (Either of the 1994 Omnibus Plan
and 1997 Omnibus Plan are sometimes referred to in this Proxy Statement as the
"Omnibus Long-Term Compensation Plan" or the "Omnibus Plan," and the 1994
Omnibus Plan and 1997 Omnibus Plan are sometimes collectively referred to as the
"Omnibus Long-Term Compensation Plans" or the "Omnibus Plans.") No new awards
have been made under the 1994 Omnibus Plan following the effectiveness of the
1997 Omnibus Plan, and outstanding grants and awards under the 1994 Omnibus Plan
are unaffected by the replacement of the 1994 Omnibus Plan with the 1997 Omnibus
Plan.
The Omnibus Plans contain provisions regarding the treatment of Awards in
the event of a "change in ownership" (as defined in the Omnibus Plans, generally
concerning circumstances in which the Company's common stock is no longer
publicly traded) and of a "change in control" (as defined in the Omnibus Plans,
generally concerning circumstances in which the Company is acquired by another
entity or its controlling ownership is changed). Upon a change in ownership or
change in control, the rules described below will apply to Awards granted under
the Omnibus Plans. However, the Compensation Committee has the discretion,
notwithstanding any particular transaction constituting a change in ownership or
a change in control, either to determine that such transaction is of the type
that does not warrant the described consequences with respect to Awards (in
which case such consequences would not occur) or to alter the way in which
Awards are treated from the consequences outlined in the Omnibus Plans.
If a change in ownership occurs (and the Compensation Committee has not
exercised its discretion outlined above) during the term of one or more
performance periods for which the Compensation Committee has granted performance
shares, the term of such performance period will immediately terminate and,
except with respect to performance periods for which the Compensation Committee
has previously reached a determination regarding the degree to which the
performance objectives have been attained, it will be assumed that the
performance objectives have been attained at a level of 100%. Participants, as a
result, will be considered to have earned and therefore be entitled to receive a
prorated share of the Awards previously granted for such performance period. In
addition, upon a change in ownership, all outstanding Awards will be valued and
cashed out on the basis of the change in ownership price as soon as practicable
but in no event more than 90 days after the change in ownership.
In the event of a change in control (assuming the Compensation Committee
has not exercised its discretion outlined above), if a participant's employment
terminates within two years following the change in control, unless such
termination is due to death, disability (as defined in the Omnibus Plans), cause
(as defined in the Omnibus Plans), resignation (other than as a result of
certain actions by the Company and any successor), or retirement, participants
will be entitled to the following treatment. All conditions, restrictions, and
limitations in effect with respect to any unexercised Award will immediately
lapse and no other terms or conditions will be applied. Any unexercised,
unvested, unearned, or unpaid Award will automatically become 100% vested.
Performance shares will be treated in a manner similar to that described above
in the case of a change in ownership. A participant will be entitled to a lump
sum cash payment as soon as practicable but in no event more than 90 days after
the date of such participant's termination of employment with respect to all of
such participant's Awards.
BENEFIT SECURITY TRUST. The Company has established a Benefit Security
Trust (sometimes referred to as the "Rabbi Trust") to provide a degree of
financial security for its unfunded obligations under the
28
<PAGE> 32
Executive Deferred Compensation Plan, the ESOP Excess Plan, the supplemental
ERAP plans, and the Severance Agreements. The assets of the Rabbi Trust would be
subject to the claims of the Company's creditors in the event of insolvency.
Upon the occurrence of a "change in control" or a "potential change in control"
(as defined), or if the Company fails to meet its payment obligations under the
covered plans and agreements, the Company would be required to transfer to the
trustee cash or other liquid funds in an amount equal to the value of the
Company's obligations under the covered plans and agreements. The Company has
conveyed to the trustee rights to certain assets as partial security for the
Company's funding obligations under the Rabbi Trust.
A "change in control" is defined to include the following, and with certain
exceptions: the acquisition by a person of 19% or more of the voting stock of
the Company; the incumbent Board members (and subsequent directors approved by
them) ceasing to constitute a majority of the Board; approval by the Company's
shareowners of a reorganization or merger unless, after such proposed
transaction, the former shareowners of the Company will own more than 75% of the
resulting corporation's voting stock; or approval by the Company's shareowners
of a complete liquidation and dissolution of the Company or the sale or other
disposition of substantially all of the assets of the Company other than to a
subsidiary. A "potential change in control" will be deemed to have occurred if
the Company enters into an agreement, the consummation of which would result in
the occurrence of a change in control; any person (including the Company)
publicly announces an intention to take action which, if consummated, would
constitute a change in control; or any person (other than the Company, certain
affiliated entities, or certain institutional investors) becomes the beneficial
owner of 10% or more of the combined voting power of the Company's
then-outstanding securities.
The Rabbi Trust is irrevocable until participants and their beneficiaries
are no longer entitled to payments under the covered plans and agreements, but
may be amended or revoked by agreement of the trustee, the Company, and a
committee of individual beneficiaries of the Rabbi Trust.
EMPLOYMENT AGREEMENT. The Employment Agreement with Harold L. Henderson
provides for a term of employment through December 31, 2000 at an annual base
salary of $300,000, subject to increase at the discretion of the Board or
Compensation Committee. Pursuant to the Employment Agreement, Mr. Henderson
received as of December 1, 1996 under the Omnibus Plan a grant of restricted
stock valued at $50,000 and options to purchase 50,000 shares of Eastman common
stock at fair market value as of the date of grant.
In lieu of any annual monetary retirement benefit to which Mr. Henderson
might otherwise be entitled under the Company's non-qualified retirement plans,
Mr. Henderson will receive, upon termination of employment as described below, a
lump sum payment (the "Retirement Payment") equal to the actuarial equivalent at
age 65 of (a) Mr. Henderson's assumed benefit under the ERAP if he had retired
at age 65 having accrued 36 years of service and making certain assumptions as
to his average participating compensation, minus (b) the sum of (i) the amount
Mr. Henderson would actually be entitled to receive under the ERAP at age 65 and
(ii) a single life annuity at age 65 of approximately $200,000 per year
representing certain retirement benefits received by Mr. Henderson from his
prior employers. The Retirement Payment will be paid in full if Mr. Henderson is
employed on December 31, 2000, and will be reduced pro rata, but not below 50%,
if Mr. Henderson terminates employment before December 31, 2000 by reason of his
disability, termination by the Company without cause or voluntary termination
for "good reason" (as defined in the agreement). If Mr. Henderson's termination
of employment prior to December 31, 2000 is due to his death, his estate will
receive 50% of the Retirement Payment that would have been payable as if he had
terminated for good reason on the date of his death. The Retirement Payment will
not be made in the case of termination by the Company for cause or voluntary
termination without good reason.
If Mr. Henderson is employed on December 31, 2000, and if the Company has
failed to perform, in the aggregate, at or above target performance levels under
its annual cash variable pay plans over the employment period, the Company will
pay to Mr. Henderson no later than May 1, 2001 an amount equal to the aggregate
cash payments Mr. Henderson would have received under such annual variable pay
plans if target performance levels had been achieved by the Company, reduced by
the actual payments received by Mr. Henderson under such annual variable pay
plans for such years. In addition, if Mr. Henderson is
29
<PAGE> 33
employed on December 31, 2000, then, in lieu of receiving any payments under
Long-Term Performance Subplans ("LTPSs") under the Omnibus Plan after December
31, 2000, Mr. Henderson may elect to receive, on or before May 1, 2001, an
amount equal to the aggregate amount he would have received under the LTPSs with
respect to each performance cycle beginning during the employment term as if the
target performance levels had been achieved by the Company, minus the actual
payments received by him under the LTPSs by May 1, 2001.
If the Company terminates Mr. Henderson's employment without cause, or if
Mr. Henderson terminates his employment for good reason, he will also receive a
lump sum cash payment equal to the aggregate value of all variable compensation
and other awards under each annual cash variable pay plan to which Mr. Henderson
was entitled on the date of termination (and, if he so elects, the LTPSs), or to
which he would reasonably become entitled during the remaining portion of the
employment period due to his salary grade and position in the Company, making
certain assumptions concerning length of employment and satisfaction of all
conditions to payment. If Mr. Henderson does not elect to receive immediate
payment of future LTPS awards, as described above, he would continue to
participate in the LTPSs until December 31, 2000, and would receive stock awards
thereunder with respect to uncompleted performance cycles determined as though
he had remained employed for such additional period and as though the greater of
actual or target performance had been achieved.
In addition, if the Company terminates Mr. Henderson's employment without
cause or if Mr. Henderson terminates for good reason then, in either case: Mr.
Henderson's outstanding stock options will continue to vest in accordance with
the normal vesting schedule and will remain exercisable for the period of time
that such exercise would have been permitted had Mr. Henderson's employment been
terminated without cause on the last day of the employment period; all
restrictions on any shares of restricted stock held by Mr. Henderson will lapse;
and Mr. Henderson and his family members may continue to participate in all
Company welfare plans on the same terms and conditions and at the same cost as
to which they were entitled to participate immediately prior to such termination
of employment, or the Company will provide substantially equivalent benefits,
throughout the remainder of the employment period.
30
<PAGE> 34
COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
The Compensation and Management Development Committee of the Company's
Board of Directors is composed of four outside non-employee directors. This
report summarizes the Compensation Committee's policies governing compensation
to executive officers for 1999, including those in the Summary Compensation
Table, and the relationship of corporate performance to that compensation. In
addition, this report discusses specifically the Compensation Committee's bases
for the compensation reported for the Chief Executive Officer for the past year.
COMPENSATION PHILOSOPHY AND PROGRAM
The Compensation Committee seeks to ensure that the Company's management
compensation program is consistent with the Company's strategic business
objectives and provides incentives for the attainment of those objectives. For
1999, the Company's compensation program included three components:
<TABLE>
<S> <C>
BASE PAY............................. Provides a stable annual salary at a level
consistent with the individual's position and
contributions.
VARIABLE PAY......................... Puts a portion of each individual's annual
income "at risk", based upon the success of
the Company, and, for certain management-level
employees, also based upon organizational unit
performance.
STOCK-BASED INCENTIVE PAY............ Encourages an ownership mindset throughout the
Company.
</TABLE>
Historically, variable pay has been based only upon the achievement of
business results for the Company as a whole. Beginning in 2000, the Compensation
Committee has redesigned the management compensation program to include
incentives for attainment of organizational unit and individual objectives.
PRINCIPLES FOR DETERMINING EXECUTIVE COMPENSATION
The Compensation Committee applies the following principles when it
determines the compensation of the executive officers under the Company's
compensation program:
<TABLE>
<S> <C>
INTEGRATION.......................... Executive compensation is integrated and
consistent with the total Company compensation
program, as described above.
COMPETITIVE POSITION................. Executives are provided competitive
compensation for competitive Company
performance in the chemical industry and
compensation that is consistent with
compensation for companies of comparable size,
complexity, and operational challenge.
PERFORMANCE FOCUS.................... At higher levels of the organization, an
increasing proportion of compensation is
dependent upon Company performance and return
to shareowners, (and beginning 2000,
organizational unit performance and attainment
of individual objectives).
</TABLE>
The Compensation Committee follows these principles in periodically
reviewing overall compensation of the Chief Executive Officer and other
executive officers, and in determining each component of executive compensation
as discussed in the remainder of this report.
31
<PAGE> 35
COMPONENTS OF EXECUTIVE COMPENSATION
ANNUAL CASH COMPENSATION -- BASE PAY AND VARIABLE PAY
HOW BASE PAY AND VARIABLE PAY LEVELS ARE DETERMINED. Total cash
compensation for all Company employees, including executive officers, is
intended to be competitive with pay in the applicable labor market and in the
chemical industry for similar jobs when target levels of performance are
achieved. The targeted levels of cash compensation are based upon information
provided by outside consultants and publicly available information. Accordingly,
a portion of each employee's target pay level is placed "at risk." Base pay is
reduced to below competitive pay levels, and the difference between the
resulting pay level and the competitive pay level is made variable and is "at
risk." Depending upon Company performance (and, beginning in 2000 for
management-level employees, also depending upon organizational unit and
individual performance), employees may lose the at risk amount, receive some or
all of the amount at risk, or receive an amount in excess of the pay at risk.
For 1999, the Compensation Committee compared total cash compensation
levels for executive officers with companies in the chemical industry with which
the Company competes for executive talent and for which data was available,
including 16 of the companies in the peer group identified in the performance
graph which follows this report (the "Performance Graph"). In addition, in
determining the Chief Executive Officer's base salary and variable compensation,
the Committee also considered chief executive officer pay reported in surveys of
a broader group of manufacturing, industrial, and chemical companies of a size
(based on revenues) comparable to the Company, including 16 of the peer
companies in the Performance Graph. Total cash compensation to the executive
officers named in the Summary Compensation Table for 1999 is reported in the
"Salary" (base pay) and "Bonus" (variable pay) columns.
CASH COMPENSATION FOR 1999
BASE PAY. As the result of uncertain business conditions, during March
1999, the Company deferred consideration of base salary increases until October
1999 for all employees including executive officers. Following a review of the
base pay levels for executive officers named in the Summary Compensation Table,
and in light of continuing business conditions, the Compensation Committee did
not increase the annual base pay levels in October for Messrs. Deavenport,
Bourne, and Henderson and Dr. Chitwood. The change in base salary level reported
in the Summary Compensation Table for Mr. Rothwell reflects a change in his
responsibilities associated with the Company reorganization effective September
1, 1999. For all of the named executive officers, the base salary amount
reported in the Summary Compensation Table for 1999 is greater than the 1998
salary amount only because the mid-year 1998 base salary increases were
effective for the entire year 1999.
VARIABLE PAY. For 1999, the "at risk" portion of cash compensation, and
the amount of variable pay actually received, were determined under the Eastman
Performance Plan and the Annual Performance Plan. Beginning 2000, a major
portion of the variable pay to management-level employees will be determined
under the new Unit Performance Plan.
EASTMAN PERFORMANCE PLAN
KEY FEATURES:
- All employees eligible to participate.
- 5% of each employee's (including executive officers') target
annual cash compensation is placed at risk based on Company
performance.
- Award based upon overall Company results rather than individual
or unit performance.
- Company performance measured by return on capital (the return produced
by funds invested in the Company, determined as the net operating profit
after taxes divided by the sum of average debt and equity employed
during the year) minus cost of capital (the cost of debt and equity,
expressed as the interest charged on debt and expected return on
equity).
32
<PAGE> 36
- Payout levels range from no payout if cost of capital exceeds return on
capital by five or more percentage points, to five times (5x) the "at
risk" amount if return on capital exceeds cost of capital by ten or more
percentage points. If return on capital equals the cost of capital, then
an award is earned equal to the amount of pay at risk.
1999 PAYOUT:
- Cash awards of 0.37% (of a possible maximum of 25%) of target annual
cash compensation were made to all employees (except for named executive
officers) under the Eastman Performance Plan, corresponding to the
Company's return on capital being less than the cost of capital by 4.63%
for 1999. In determining return on capital, the Eastman Performance Plan
provides for adjustments by the Compensation Committee for unusual
charges that are distortive of financial results. Accordingly, the
calculation of return on capital under the Eastman Performance Plan for
1999 included an increase in the calculated net operating profit to
adjust for accounting charges associated with employee separations and a
business acquisition.
- Under the Eastman Performance Plan, the payout to the executive officers
named in the Summary Compensation Table cannot be increased by
adjustments made to the return on capital calculation for unusual
charges that are distortive of financial results. Accordingly, Messrs.
Deavenport, Bourne, Henderson, and Rothwell and Dr. Chitwood received no
payout under the Eastman Performance Plan for 1999.
- Beginning with the payout in March 2000 for the 1999 performance year,
an amount which was formerly contributed out of the total payout from
the Eastman Performance Plan to an employee's account in the Eastman
Stock Ownership Plan (the "ESOP"), and to the extent not payable under
Internal Revenue Code limitations, credited to the Eastman ESOP Excess
Plan, was contributed directly by the Company either to an employee's
account in the ESOP and ESOP Excess Plan (if the employee had not
received five annual contributions to the ESOP and ESOP Excess Plan) or
to an employee's Eastman Investment Plan (a 401(k) retirement plan)
account (if the employee had received five or more annual contributions
to the ESOP and credits to the ESOP Excess Plan). The amounts
contributed or credited to the accounts of the executive officers were
equivalent to 5.26316% of their "participating earnings" (essentially
their base pay for time worked) during 1999. Amounts contributed or
credited to each named executive officer's ESOP, ESOP Excess Plan, or
Eastman Investment Plan accounts are reported in the "All Other
Compensation" column of the Summary Compensation Table.
ANNUAL PERFORMANCE PLAN
KEY FEATURES:
- For 1999, approximately 600 Company managers, including executive
officers, participated.
- In 1999, the Chief Executive Officer had 35% of his target annual cash
compensation placed at risk under the Annual Performance Plan. The other
executive officers named in the Summary Compensation Table had 28% of
their target annual cash compensation at risk.
- Payout is based on annual corporate performance versus pre-set goals for
specified measures.
- Measures are established annually by the Compensation Committee based
upon the Company's strategic emphasis for the following year:
- Target levels of performance are established for one or more of the
following objective business and financial measures: sales revenue
growth, earnings from operations, cost improvements, cash flow,
economic value created, productivity, quality, and customer
satisfaction.
- Each measure weighted for importance in determining final awards.
33
<PAGE> 37
- 1999 measures were: free cash flow (defined as net earnings plus
depreciation plus or minus changes in working capital minus capital
expenditures, and applicable to all participants), labor productivity
for certain organizations (applicable only to participants within
those organizations), unit volume growth (applicable only to
participants in organizations having influence over such performance),
and a working capital measure (defined as receivables plus inventory
minus payables divided by sales, and applicable only to participants
in organizations having influence over such performance).
- Except for Mr. Bourne, executive officers named in the Summary
Compensation Table had 100% of their Annual Performance Plan payout
based upon free cash flow. Mr. Bourne's measures were free cash flow
(weighted 50%), unit volume growth (weighted 20%), working capital
(weighted 20%), and labor productivity (weighted 10%).
- Payout levels range from no award if minimum performance levels are not
achieved, to two times (2x) the "at risk" amount for above goal
performance. If minimum performance levels are not met and no award is
earned, the participant loses the amount of pay at risk.
- The Compensation Committee has approved the Unit Performance Plan, a new
variable pay plan for Eastman managers. Beginning 2000, except for Mr.
Deavenport, eligible Annual Performance Plan participants will have all
or a significant portion of their variable pay determined under the Unit
Performance Plan. For 2000, the Compensation Committee has determined
that the Chief Executive Officer's variable pay should be based entirely
upon the business and financial performance of the Company as a whole.
Accordingly, Mr. Deavenport's amount of target annual cash compensation
at risk under the Annual Performance Plan will remain at 35%, and he
will not participate in the new Unit Performance Plan during 2000. See
"Unit Performance Plan" below.
1999 PAYOUT:
- Payouts under the Annual Performance Plan ranged from 1.442x to 1.696x
of target award (of a possible maximum of 2x), with the payout to each
participant based upon the measures applicable to such participant and
the weighting of such measures.
- The named executive officers, except for Mr. Bourne, received an award
of 1.620x of target. Mr. Bourne received an award of 1.442x of target.
- Award levels were based upon corporate performance in 1999 that was
near the maximum target level of performance for unit volume growth,
and above target level for free cash flow and the working capital
measure. Labor productivity performance in applicable organizations
ranged from below the minimum threshold level to above the maximum
target level. Labor productivity performance applicable to Mr.
Bourne's payout was below the minimum threshold level.
- The Annual Performance Plan award is included in the amounts reported
for the executive officers in the "Bonus" column of the Summary
Compensation Table.
- In determining actual performance for each measure, the Annual
Performance Plan provides for adjustments by the Compensation Committee
for unusual charges that are distortive of financial results. The
accounting charges associated with the employee separations and a
business acquisition that were applied to adjust the Eastman Performance
Plan payout were determined by the Compensation Committee not to be
applicable to any of the Annual Performance Plan measures for 1999.
Accordingly, there were no adjustments to the calculations of free cash
flow, labor productivity, unit volume growth, and working capital levels
as computed under the Annual Performance Plan.
OTHER BONUSES
In 1999, Mr. Bourne received a $400 payment under a program that provides
recognition for all employees with 40 years of service to the Company. In
addition, Mr. Rothwell received an award of
34
<PAGE> 38
$11,900 under a program designed to recognize Company employees making
extraordinary contributions to the Company. See "Summary Compensation
Table."
UNIT PERFORMANCE PLAN
Following a comprehensive review, during 1999 the Compensation Committee
approved a change in the strategic focus for variable pay plans. Beginning
with the 2000 performance year, a new variable compensation plan, the Unit
Performance Plan (the "UPP"), will be implemented for management-level
employees. The UPP is designed to deliver a portion of annual cash
compensation according to organizational unit performance and the
attainment of individual objectives and expectations. The UPP is intended
to provide additional incentive for superior business and individual
performance, and further to tie the interests of management-level
individuals to performance of the Company's business and the interests of
the Company's shareowners.
KEY FEATURES:
- For 2000, approximately 570 Company managers, including executive
officers, will participate.
- The portion of pay "at risk" under the UPP is determined for each
performance year by the Compensation Committee, based on the
recommendation of the Chief Executive Officer. Amounts at risk under the
UPP are in addition to any pay "at risk" under the Eastman Performance
Plan and Annual Performance Plan. It is anticipated that, beginning in
2000, the portion of a participant's targeted pay that is at risk under
the Annual Performance Plan and the new UPP will be equal to the portion
of the targeted pay that would have been at risk under the Annual
Performance Plan.
- Payout is based upon annual performance of the organizational units for
which quantitative performance can be objectively measured versus
pre-set goals for specified measures. For 2000, the Company's two
reporting segments -- Chemicals and Polymers -- will constitute the
organizational units whose performance will be measured under the UPP.
Organizations supporting the Chemicals and Polymers organizations,
(e.g., Human Resources, Corporate Finance, etc.) will have payouts based
upon an average of the performance versus goals for specified measures
for the Chemicals and Polymers organizational units.
- Organizational unit performance goals are established annually by the
Compensation Committee.
- An award pool is generated for each organizational unit within the
Company, equal to the aggregate of the UPP pay at risk for each eligible
participant in the organization, multiplied by a performance factor
determined by the performance of the organizational units whose
performance is measured compared to their pre-set performance goals. The
performance factor can range from 0% if organizational unit performance
goals are not met, to 200% for specified above-goal performance.
- Management within each organizational unit allocates that organization's
award pool for individual payouts, based upon attainment of individual
objectives and expectations established at the beginning of the
performance period for each individual participant. Maximum potential
for an individual award could exceed an individual's UPP pay at risk,
based on the manager's assessment of individual performance. However,
the sum of all individual awards within an organizational unit cannot
exceed the total award pool for that organization.
- The Committee intends to defer payment of an individual's award into the
Executive Deferred Compensation Plan if the Committee determines that
payment of the award could result in the participant receiving
compensation in excess of the maximum amount deductible by the Company
for federal income tax purposes.
35
<PAGE> 39
LONG-TERM STOCK-BASED INCENTIVE PAY
EQUITY-BASED COMPENSATION PROGRAM. Equity-based compensation plans are
designed to facilitate employee stock ownership and to make a portion of every
employee's pay dependent on long-term return to all shareowners. Important
aspects of the current equity-based compensation program are:
Common Stock Under ESOP,
ESOP Excess Plan, and
Eastman Investment Plan.... Each year, an amount is contributed or
credited to each employee's ESOP and ESOP
Excess Plan account or Eastman Investment
Plan account. See "Eastman Performance
Plan" above.
Stock Options................. Stock option program, implemented under
the Company's Omnibus Long-Term
Compensation Plans, creates a direct link
between compensation of key Company
managers and long-term performance of the
Company. See "Change-in Control
Arrangements and Employment
Agreement-Omnibus Long-Term Compensation
Plans."
Performance Shares............ Awarded under the Company's Omnibus Plans
to provide an incentive for key managers
to maximize return to shareowners
relative to a peer group of chemical
companies over three-year performance
periods. See "Performance
Shares -- Long-Term Performance Subplans"
below.
Other Stock-Based
Incentive Pay.............. Under the Omnibus Plans, the Compensation
Committee may also award additional
stock-based compensation (with or without
restrictions), performance shares or
units, or additional options, including
options with performance-based or other
conditions to exercise.
Stock Ownership
Expectations............... Established for Company managers to
encourage long-term stock ownership and
the holding of shares awarded under the
Omnibus Plans or acquired upon exercise
of options. Over a five year period,
managers invest one-half to four times
their target-level total annual cash
compensation in Company stock or stock
equivalents. See "Stock Ownership of
Directors and Executive
Officers -- Common Stock and Common Stock
Units." An annual review of progress
towards these guidelines is conducted and
reported to the Chief Executive Officer.
HOW STOCK-BASED INCENTIVE PAY LEVELS ARE DETERMINED. The Compensation
Committee establishes the size and other terms of annual option awards under the
current stock option program, and the number of performance shares under the
Long-Term Performance Subplans ("LTPSs"), by considering recommendations from
outside compensation consultants based upon long-term compensation reported by
the peer companies in the chemical industry described above under "How Base Pay
and Variable Pay Levels are Determined." These stock options are granted, and
performance shares are awarded, at a level so that the estimated value of
normalized annual option grants and LTPS target award levels, as a proportion of
total annual compensation, approximates the median of the range of similar
compensation of the compared companies. In determining the size of option
awards, the Company utilizes the services of an external compensation consultant
to derive approximate values of options using a variation of the Black-Scholes
option-pricing model. In addition, in order to recognize certain performance or
provide additional incentive to
36
<PAGE> 40
achieve specific business objectives, the Compensation Committee from
time-to-time awards stock-based compensation in addition to the regular option
and performance share awards.
The estimated current values of total long-term stock-based incentive pay
for 1999 range from approximately 10% of total compensation at lower levels of
management to approximately 60% of total compensation for the Chief Executive
Officer.
STOCK-BASED INCENTIVE PAY FOR 1999
STOCK OPTIONS:
- Except as described below, the size and terms of the stock option grants
reported in the "Option Grants in Last Fiscal Year" table were
determined by applying the methodology described above under "How
Stock-Based Incentive Pay Levels are Determined."
- The Compensation Committee awarded several key executive officers
performance-based stock options with stock price vesting and time
vesting conditions, both of which must be met for the option to become
exercisable. These stock options were awarded to further align the
compensation of these key managers with the return to Eastman's
shareowners and to provide additional incentive and opportunity for
reward to individuals in key positions having direct influence over
corporate actions that are expected to impact the market price of
Eastman's stock. For a description of the stock price vesting, time
vesting, and other conditions to exercise, and the forfeiture and other
terms of the performance-based stock options, see "Option Grants in Last
Fiscal Year" table. The size and other terms of these option awards were
not determined by applying the option valuation methodology described
above under "How Stock-Based Incentive Pay Levels are Determined."
Rather, the size and terms of these option grants were determined by
considering the significantly higher risk of forfeiture intrinsic in the
options due to both price and time vesting conditions to exercise.
- Options granted in 1999 have an exercise price equal to 100% of the fair
market value of the underlying common stock as of the date of grant.
- Options granted in 1999 generally expire 10 years from the date of
grant.
- Under the terms of his Employment Agreement, in December 1996 Mr.
Henderson received a special one-time option to purchase 50,000 shares
of common stock, which grant was in lieu of options that would normally
be granted during the term of the Employment Agreement under the stock
option program.
PERFORMANCE SHARES -- LONG TERM PERFORMANCE SUBPLANS:
- Performance shares were awarded to 42 key managers (including the
executive officers in the Summary Compensation Table) under an LTPS of
the Omnibus Plan.
- The size of the performance share awards reported in the "Long-Term
Incentive Plan -- Awards in Last Fiscal Year" table was determined by
applying the methodology described under "How Stock-Based Incentive Pay
Levels are Determined."
- Performance is measured by the Company's total return to shareowners
(change in stock price plus dividends declared during the three-year
performance period, assuming reinvestment of dividends) relative to that
of the companies identified in the Performance Graph.
- Currently, payouts are based upon the Company's position in a ranking of
the unweighted total return to shareowners of the compared companies.
- If earned, awards are paid after the end of the performance period in
unrestricted shares of Eastman common stock, or participants may
irrevocably elect in advance to defer the award payout into the
Executive Deferred Compensation Plan.
- No payouts were made to the executive officers for the 1997-1999 LTPS
performance period because the Company's total return to shareowners
ranked below the minimum threshold level of performance.
37
<PAGE> 41
The total return comparisons under the LTPSs differ from that shown in
the Performance Graph. For LTPS purposes, total percentage return on the
common stock for the applicable three-year period is ranked with the
total percentage returns on the common shares of each of the LTPS peer
companies. The Performance Graph, on the other hand, compares the
cumulative total return on an initial fixed investment in the Company's
common stock and in an index comprised of the peer companies as a group,
with the return of each component issuer weighted according to the
respective issuer's market capitalization at the beginning of each
period for which a return is indicated.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
The Compensation Committee determines the compensation of the Company's
Chief Executive Officer in substantially the same manner as the compensation for
other executive officers. In light of the general business outlook, the
Compensation Committee did not increase Mr. Deavenport's base salary during
1999. See "Cash Compensation for 1999 -- Base pay."
In March 2000, Mr. Deavenport received an Annual Performance Plan award in
the amount of $732,375 and no award under the Eastman Performance Plan. Mr.
Deavenport's award was based upon the same performance levels in 1999 as were
all other awards under the Annual Performance Plan. See "Cash Compensation for
1999 -- Variable pay."
Mr. Deavenport received an award of 10,900 performance shares under the
LTPS for the 1999-2001 performance period, which represents approximately 25% of
his stock-based incentive pay for 1999. The other portion of Mr. Deavenport's
stock-based incentive pay for 1999 was in the form of two option grants. First,
Mr. Deavenport was granted an option to purchase 31,000 shares of Eastman common
stock with an exercise price equal to the grant date market price of the
underlying common stock. In addition to this normal grant under the option
program, Mr. Deavenport received a performance-based stock option to purchase
169,000 shares of Eastman common stock at an exercise price of $37.9375. For a
description of the stock price vesting, time vesting, and other conditions to
exercise, and the forfeiture and other terms of the performance-based option,
see "Option Grants in Last Fiscal Year" table. The size and terms of the Chief
Executive Officer's performance share and option awards were determined as
described above under "Long-Term Stock-Based Incentive Pay -- Stock Based
Incentive Pay for 1999."
Mr. Deavenport did not receive a payout for the 1997-1999 LTPS performance
period because the Company's total return to shareowners relative to the peer
group of chemical companies ranked below the minimum threshold level of
performance.
OMNIBUS BUDGET RECONCILIATION ACT OF 1993
The Compensation Committee intends to continue to maximize the tax
deductibility of compensation paid to the Company's Chief Executive Officer and
other executive officers while maintaining the flexibility to compensate the
officers in accordance with the Company's compensation policies.
Section 162(m) of the Internal Revenue Code enacted pursuant to the Omnibus
Budget Reconciliation Act of 1993 generally limits the deductibility to the
Company of annual compensation (other than qualified "performance-based"
compensation) in excess of $1 million paid to each of the Company's five highest
paid executive officers. Base salaries, any bonus payments outside the Eastman
Performance Plan and the Annual Performance Plan, variable compensation under
the Unit Performance Plan, and stock and stock-based compensation without
performance conditions are generally subject to the $1 million limit on
deductible compensation.
Based on transition rules under Section 162(m), compensation attributable
to stock options granted and performance shares awarded under the Company's 1994
Omnibus Plan prior to the approval by shareowners of the 1997 Omnibus Plan is
expected to qualify for deductibility under Section 162(m). The Eastman
Performance Plan, the Annual Performance Plan, the Unit Performance Plan, LTPSs
under the Omnibus Plans, and restricted stock awards under the Omnibus Plans
each provide for the automatic deferral of compensation into the Executive
Deferred Compensation Plan to the extent that payout or vesting would
38
<PAGE> 42
result in the recipient receiving compensation in excess of the $1 million cap
under Section 162(m). Based on a review of developments under Section 162(m),
the Company adopted the 1997 Omnibus Plan and established certain amendments to
the Eastman Performance Plan and the Annual Performance Plan in 1997. These
plans were approved by shareowners in 1997 and meet the requirements of Section
162(m) with respect to stock option and performance share awards (under the 1997
Omnibus Plan) and annual variable pay (under the Eastman Performance Plan and
the Annual Performance Plan). This will result in such compensation being
"performance-based" and fully deductible by the Company. Annual variable pay
under the new Unit Performance Plan will not be "performance-based" under
Section 162(m) because payouts, if any, will depend in part upon individual
performance.
Compensation and Management Development Committee
Lee Liu (Chair)
Jerry E. Dempsey
Marilyn Marks
John White
39
<PAGE> 43
PERFORMANCE GRAPH
The following graph compares the cumulative total return on Eastman common
stock from December 31, 1994 through December 31, 1999 to that of the Standard &
Poor's 500 Stock Index and a group of peer issuers in the chemical industry. The
peer group consists of the 19 chemical companies which best meet three objective
criteria: (i) common shares traded on a major trading market; (ii) similar lines
of business to those of the Company; and (iii) more than $1 billion in annual
sales. Cumulative total return represents the change in stock price and the
amount of dividends received during the indicated period, assuming reinvestment
of dividends. The graph assumes an investment of $100 on December 31, 1994. The
data in the graph has been provided by Standard & Poor's Institutional Market
Services. The stock performance shown in the graph is included in response to
SEC requirements and is not intended to forecast or to be indicative of future
performance.
COMPARISON OF TOTAL RETURN TO SHAREOWNERS
<TABLE>
<CAPTION>
12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
<S> <C> <C> <C> <C> <C> <C>
Eastman Chemical Co. 100 126.91 115.65 128.41 99.61 110.38
S&P 500 Index 100 137.58 169.71 225.60 290.08 351.12
Peer Group(1) 100 120.86 146.66 185.96 158.96 200.28
</TABLE>
(1) The peer group for 1999 consists of the following issuers: Air Products and
Chemicals, Inc.; Crompton & Knowles Corporation (C K Witco as of September
1999); Cytec Industries, Inc.; The Dow Chemical Company; E. I. du Pont de
Nemours and Company; H. B. Fuller Company; The Geon Company; Great Lakes
Chemical Corporation; M. A. Hanna Company; Hercules Incorporated; Imperial
Chemical Industries PLC; Lyondell Chemical Company; Millennium Chemicals
Inc.; Morton International, Inc. (acquired by Rohm and Haas Company in June
1999); Rohm and Haas Company; Solutia Inc.; Union Carbide Corporation;
Wellman, Inc.; and Witco Corporation (acquired by Crompton & Knowles in
September 1999). ARCO Chemical Company and Georgia Gulf Corporation, which
were included in the peer group in the Company's proxy statement last year,
have been excluded from the Company's peer comparison group, and Cytec
Industries, Inc. and Imperial Chemical Industries PLC, which were not
included in the peer group in the Company's proxy statement last year, have
been added to the Company's peer comparison group. In accordance with SEC
requirements, the return for each issuer has been weighted according to the
respective issuer's stock market capitalization at the beginning of each
period for which a return is indicated.
40
<PAGE> 44
FORM OF PAPER PROXY (FRONT)
---------------------------
[EASTMAN LOGO]
PROXY SERVICES
P.O. BOX 9079
FARMINGDALE, NY 11735
ADMISSION TICKET
RETAIN FOR ADMITTANCE
This is your Admission Ticket to Eastman's 2000 Annual Meeting of Shareowners.
The meeting will be held at Eastman's Employee Center, 400 South Wilcox Drive,
Kingsport, Tennessee, on Thursday, May 4, 2000 at 11:00 am. If you plan to
attend the Annual Meeting, please so indicate by checking the box on your proxy
card. Directions and a regional map are on the reverse side of this insert.
2000 ANNUAL MEETING PROXY VOTING
YOUR VOTE IS IMPORTANT
It is important that your shares be represented and voted. Please vote by proxy,
even if you plan to attend the Annual Meeting. This year you can vote your
shares by proxy by telephone, through the Internet, or by mail.
The shares represented by proxy will be voted in accordance with your
specifications. In the absence of specifications, your proxies will vote FOR
Items 1 and 2, AGAINST Items 3 and 4, and will vote in their discretion on any
other matters that come before the meeting or any adjournment thereof.
SUBMIT YOUR PROXY BY PHONE - 1-800-690-6903
Use any touch-tone telephone to submit your proxy 24 hours a day, 7 days a week.
Have your proxy card in hand when you call. You will be prompted to enter your
12-digit Control Number, which is located below. You will then be asked to
provide voting instructions on each proposal. Your voting instructions will be
repeated to you and you will be asked to confirm them.
SUBMIT YOUR PROXY BY INTERNET - WWW.PROXYVOTE.COM
Use the Internet to submit your proxy 24 hours a day, 7 days a week. Have your
proxy card in hand when you access the website. You will be prompted to enter
your 12-digit Control Number, which is located below, to obtain your records and
create an electronic ballot. You will then be asked to provide instructions on
each proposal and confirm your submission.
SUBMIT YOUR PROXY BY MAIL
Mark, sign and date your attached proxy card and return it in the postage-paid
envelope we've provided or return it to Eastman Chemical Company, c/o ADP, 51
Mercedes Way, Edgewood, NY 11717. Please sign exactly as your name appears
hereon. When shares are held by joint tenants, both should sign. When signing as
attorney, executor, administrator, trustee, or guardian, please give full title
as such. If a corporation, please sign in full corporation name by president or
other authorized officer. If a partnership, please sign in partnership name by
authorized person.
IF YOU SUBMIT YOUR PROXY BY PHONE OR BY INTERNET, PLEASE DO NOT
MAIL YOUR PROXY CARD.
THANK YOU FOR VOTING
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: [X]
KEEP THIS PORTION FOR YOUR RECORDS
- --------------------------------------------------------------------------------
DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
EASTMAN CHEMICAL COMPANY
<TABLE>
<S> <C>
The Board of Directors recommends a vote FOR Items 1 and 2 and AGAINST Items 3
and 4.
FOR WITHHOLD FOR ALL To withhold authority to vote for less than all nominees,
ALL ALL EXCEPT: mark "For All Except" and write the name(s) of
1. Election of Directors. (see reverse) individual(s) for whom authority is withheld
01) Jerry E. Dempsey [ ] [ ] [ ]
02) Donald W. Griffin
03) Marilyn R. Marks ---------------------------------------------------------
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
4. Adoption of shareowner proposal to issue report concern-
FOR AGAINST ABSTAIN ing emission of "greenhouse gases" and potential climate
change.
2. Ratification of the appointment of [ ] [ ] [ ] If you plan to attend the Annual Meeting, please check
PricewaterhouseCoopers LLP as this box [ ]
independent accountants
3. Adoption of shareowner proposal to [ ] [ ] [ ] To help us eliminate duplicate mailings to the same
declassify the Board of Directors. beneficial holders, please check the box if you hold
shares in more than one account and wish to
discontinue Annual Report mailing for this account [ ]
- --------------------------------------------- ---------------------------------------------
Signature [PLEASE SIGN WITHIN BOX] DATE Signature [Joint Owners] DATE
</TABLE>
<PAGE> 45
FORM OF PAPER PROXY (BACK)
--------------------------
[EASTMAN LOGO]
Annual Meeting of Shareowners
Thursday, May 4, 2000
11:00 a.m.
Eastman Employee Center
400 South Wilcox Drive
Kingsport, Tennessee
(423) 229-4647
FROM INTERSTATE - 81:
Take exit 57B north to Kingsport.
Take exit 51 onto Business Route 93
(Wilcox Drive) north to Eastman Employee Center.
Located on left at corner of Wilcox Drive and Lincoln
Street.
FROM INTERSTATE - 181:
Take exit 51 onto Business Route 93 (Wilcox Drive) [GRAPHIC OF MAP]
north to Eastman Employee Center.
Located on left corner of Wilcox Drive and Lincoln
Street.
FROM JOHN B. DENNIS BYPASS (ROUTE 93):
Exit north onto Lincoln Street to Wilcox Drive.
Take left onto Wilcox Drive.
Eastman Employee Center is the first entrance on right,
building on left.
- -------------------------------------------------------------------------------
EASTMAN CHEMICAL COMPANY
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE ANNUAL MEETING OF SHAREOWNERS
TO BE HELD ON MAY 4, 2000
The undersigned hereby appoints Theresa K. Lee and James P. Rogers, and
each of them, with individual power of substitution, proxies to vote all shares
of Common Stock of Eastman Chemical Company that the undersigned may be
entitled to vote at the Annual Meeting of Shareowners to be held at Eastman's
Employee Center, 400 South Wilcox Drive, Kingsport, Tennessee, on May 4, 2000
at 11:00 a.m., local time, and at any adjournments or postponements thereof.
Said proxies will vote on the proposals set forth in the Notice of Annual
Meeting and Proxy Statement as specified on the reverse side of this card and
are authorized to vote in their discretion on any other business that may come
properly before the meeting. IF A VOTE IS NOT SPECIFIED, SAID PROXIES WILL VOTE
FOR ITEMS 1 and 2 AND AGAINST ITEMS 3 AND 4.
Nominees for election of three directors to serve in the class for which the
term in office expires at the Annual Meeting of Shareowners in 2003 and until
their successors are duly elected and qualified:
01) Jerry E. Dempsey
02) Donald W. Griffin
03) Marilyn R. Marks
<PAGE> 46
SCRIPT OF DIALOGUE FOR PROXY VOTING BY TELEPHONE
------------------------------------------------
<TABLE>
<CAPTION>
DIALOGUE TYPE OF
NUMBER DIALOGUE DIALOGUE
- -------- -------- --------
<S> <C> <C>
1 GREETING 1 HELLO. THANK YOU FOR CALLING THE TELEPHONE PROXY VOTING SERVICE.
- GO TO DIALOGUE #2.
2 GREETING 2 PRESS ONE IF YOU ARE CALLING FROM A TOUCH-TONE PHONE AND HAVE YOUR PROXY
FORM IN FRONT OF YOU.
- Enter "1".
- GO TO DIALOGUE #3.
- Enter INVALID response. "Please call back when you have your Proxy Form.
Thank you for calling the Telephone Proxy Voting Service. This concludes
your transaction."
- DISCONNECT.
- WHEN AN INVALID RESPONSE OF MORE THAN 1 DIGIT IS ENTERED, THE CALLER IS
DISCONNECTED WITHOUT A MESSAGE.
- Enter NOTHING. "Please call back when you have your Proxy Form. Thank you
for calling the Telephone Proxy Voting Service. This concludes your
transaction."
- DISCONNECT.
3 LET'S BEGIN LET'S BEGIN.
- GO TO DIALOGUE #4.
</TABLE>
Page 1
<PAGE> 47
SCRIPT OF DIALOGUE FOR PROXY VOTING BY TELEPHONE
------------------------------------------------
<TABLE>
<CAPTION>
DIALOGUE TYPE OF
NUMBER DIALOGUE DIALOGUE
- -------- -------- --------
<S> <C> <C>
4 ENTER CN PLEASE ENTER THE TWELVE DIGIT CONTROL NUMBER LOCATED ON
THE PROXY FORM.
- Enter 12 VALID CONTROL NUMBER DIGITS during or after
dialogue #s 3 & 4.
- GO TO DIALOGUE #5.
- Enter 12 INVALID CONTROL NUMBER DIGITS during or after
dialogue #s 3 & 4. "Sorry, your Control Number is
invalid."
- GO TO DIALOGUE #4.
- A THIRD INVALID attempt triggers the "Sorry
Problems" message and disconnects.
- Enter 1 TO 11 INVALID DIGITS/CHARACTERS during or after
dialogue #s 3 & 4. "Sorry, your input was invalid."
- GO TO DIALOGUE #4
- A THIRD INVALID attempt triggers the "Sorry
Problems" message and disconnects -.
- Enter NOTHING. "I have not received your response." OR
"Sorry, your input was invalid."
- GO TO DIALOGUE #4.
- A THIRD NO RESPONSE triggers the "Sorry
Problems" message and disconnects-.
5 THANK YOU THANK YOU.
WHEN VOTE IS IN ADVANCE OF THE MEETING DATE...
- GO TO DIALOGUE #6.
OR
WHEN VOTE IS ON THE DAY OF OR PASSED THE MEETING DATE...
"Your vote cannot be accepted. It is the day of the
meeting or the vote is late."
- GO TO DIALOGUE #4.
</TABLE>
Page 2
<PAGE> 48
SCRIPT OF DIALOGUE FOR PROXY VOTING BY TELEPHONE
------------------------------------------------
<TABLE>
<CAPTION>
DIALOGUE TYPE OF
NUMBER DIALOGUE DIALOGUE
- -------- -------- --------
<S> <C> <C>
6 ACCEPT DEFAULT IF YOU ELECT TO VOTE AS THE BOARD OF DIRECTORS RECOMMENDS,
PRESS ONE. IF YOU ELECT TO VOTE ON DIRECTORS AND PROPOSALS
INDIVIDUALLY, PRESS TWO.
- Enter "1".
- GO TO DIALOGUE #24.
- Enter "2".
- GO TO DIALOGUE #7.
- Enter NOTHING or an INVALID response. "I have not
received your response." or "Sorry, you input was
invalid."
- GO TO DIALOGUE #6.
- A THIRD NO RESPONSE or INVALID RESPONSE
triggers the "Sorry Problems" message and
disconnects-.
</TABLE>
Page 3
<PAGE> 49
SCRIPT OF DIALOGUE FOR PROXY VOTING BY TELEPHONE
------------------------------------------------
<TABLE>
<CAPTION>
DIALOGUE TYPE OF
NUMBER DIALOGUE DIALOGUE
- ------ -------- --------
<S> <C> <C>
7 NOMINEE VOTE IF YOU WISH TO VOTE FOR ALL NOMINEES, PRESS ONE.
TO WITHHOLD ALL NOMINEES, PRESS TWO.
TO WITHHOLD SPECIFIC NOMINEES, PRESS THREE.
- Enter "1"
- GO TO DIALOGUE #8.
- Enter "2"
- GO TO DIALOGUE #9.
- Enter "3"
- GO TO DIALOGUE #10.
- Enter NOTHING or an INVALID response. "I have not
receive your response" OR "Sorry, your input was
invalid."
- GO TO DIALOGUE #7
- A THIRD NO RESPONSE or INVALID RESPONSE
triggers the "Sorry Problems" message and
disconnects -.
</TABLE>
Page 4
<PAGE> 50
SCRIPT OF DIALOGUE FOR PROXY VOTING BY TELEPHONE
------------------------------------------------
<TABLE>
<CAPTION>
DIALOGUE TYPE OF
NUMBER DIALOGUE DIALOGUE
- -------- -------- --------
<S> <C> <C>
8 FOR ALL YOU HAVE VOTED FOR ALL NOMINEES. IF THIS IS
NOMINEES CORRECT, PRESS ONE. IF THIS IS NOT CORRECT, PRESS
TWO.
- Enter "1".
- GO TO DIALOGUE #16.
- Enter "2".
- GO TO DIALOGUE #7.
- Enter NOTHING or an INVALID response. "I have
not received your response." OR "Sorry, your
input was invalid."
- GO TO DIALOGUE #8.
- A THIRD NO RESPONSE or INVALID
RESPONSE triggers the "Sorry Problems"
message and disconnects -.
9 WITHHOLD YOU HAVE VOTED TO WITHHOLD ALL NOMINEES. IF THIS IS
ALL NOMINEES CORRECT, PRESS ONE. IF THIS IS NOT CORRECT, PRESS
TWO.
- Enter "1".
- GO TO DIALOGUE #16.
- Enter "2".
- GO TO DIALOGUE #7.
- Enter NOTHING or an INVALID response. "I have
not received your response." OR "Sorry, your
input was invalid."
- GO TO DIALOGUE #9.
- A THIRD NO RESPONSE or INVALID
RESPONSE triggers the "Sorry Problems"
message and disconnects -.
</TABLE>
Page 5
<PAGE> 51
SCRIPT OF DIALOGUE FOR PROXY VOTING BY TELEPHONE
------------------------------------------------
<TABLE>
<CAPTION>
DIALOGUE TYPE OF
NUMBER DIALOGUE DIALOGUE
- -------- -------- --------
<S> <C> <C>
10 SPECIFIC NOMINEE YOU HAVE CHOSEN TO WITHHOLD SPECIFIC NOMINEES.
- GO TO DIALOGUE # 11.
11 ENTER NOMINEE ENTER THE TWO DIGIT NUMBER THAT IS IN FRONT
OF THE NAME OF THE NOMINEE YOU WISH TO
WITHHOLD. IF YOU ARE FINISHED, ENTER ZERO
ZERO.
- Enter VALID two digit number between 01 and
03.
- GO TO DIALOGUE # 12.
- Enter VALID two digit number between 01 and
03 that was previously entered - therefore
a duplicate nominee number.
- GO TO DIALOGUE # 13.
- Enter "00".
- GO TO DIALOGUE # 16.
- Enter INVALID digit(s).
- GO TO DIALOGUE # 14.
- Enter NOTHING.
- GO TO DIALOGUE # 16.
12 VERIFY NOMINEE YOU HAVE ENTERED NOMINEE NUMBER [NUMBER FOR
NOMINEE FOR WHOM AUTHORITY WITHHELD]. IF
THIS IS CORRECT, PRESS ONE. IF THIS IS NOT
CORRECT, PRESS TWO.
- Enter "1".
- GO TO DIALOGUE # 15.
- Enter "2".
- GO TO DIALOGUE # 15.
- Enter NOTHING or an INVALID RESPONSE. "I
have not received your response." OR
"Sorry, your input was invalid."
- GO TO DIALOGUE # 12. -- (Only "if . . .
correct, press one - if . . . not
correct, press two" is repeated.)
- A THIRD NO RESPONSE or INVALID RESPONSE
triggers "Sorry Problems" message and
disconnects -.
</TABLE>
Page 6
<PAGE> 52
SCRIPT OF DIALOGUE FOR PROXY VOTING BY TELEPHONE
------------------------------------------------
<TABLE>
<CAPTION>
DIALOGUE TYPE OF
NUMBER DIALOGUE DIALOGUE
- -------- -------- --------
<S> <C> <C>
13 DUP NOMINEE YOU HAVE ALREADY SELECTED NOMINEE NUMBER [NUMBER FOR DUPLICATE NOMINEE]
- GO TO DIALOGUE #15.
14 INVALID YOUR ENTRY WAS INVALID. THE NOMINEE NUMBER
NOMINEE MUST BE BETWEEN ONE AND THREE.
- GO TO DIALOGUE #15.
15 ANOTHER IF YOU WISH TO WITHHOLD ANOTHER NOMINEE,
NOMINEE ENTER THE TWO DIGIT NUMBER THAT IS IN
FRONT OF THE NAME OF THE NOMINEE YOU WISH
TO WITHHOLD. IF YOU ARE FINISHED, ENTER
ZERO ZERO.
- Enter VALID two digit number between
01 and 03 to withhold another nominee.
- GO TO DIALOGUE #12.
- Enter VALID two digit number between
01 and 03 that was previously entered -
therefore a duplicate nominee number.
- GO TO DIALOGUE #13.
- Enter "00".
- GO TO DIALOGUE #16.
- Enter INVALID nominee number.
- GO TO DIALOGUE #14.
- Enter NOTHING.
- GO TO DIALOGUE #16.
16 PROPOSAL PROXY VOTING CONTINUES WITH PROPOSAL VOTING.
VOTING - GO TO DIALOGUE #17.
17 PROPOSAL WE ARE READY TO ACCEPT YOUR VOTE FOR PROPOSAL...
NAME - GO TO DIALOGUE #18.
</TABLE>
Page 7
<PAGE> 53
SCRIPT OF DIALOGUE FOR PROXY VOTING BY TELEPHONE
------------------------------------------------
<TABLE>
<CAPTION>
DIALOGUE TYPE OF
NUMBER DIALOGUE DIALOGUE
- -------- -------- --------
<S> <C> <C>
18 PROPOSAL VOTE IF YOU ARE VOTING FOR THIS PROPOSAL, PRESS ONE. IF YOU ARE
VOTING AGAINST THIS PROPOSAL, PRESS TWO. IF YOU WISH TO
ABSTAIN, PRESS THREE.
- Enter "1", "2", or "3", to vote on a specific proposal.
- GO TO DIALOGUE #17 to vote on another proposal.
- GO TO DIALOGUE #19 after all proposals are voted.
- Enter NOTHING or INVALID RESPONSE. "I have not received
your response." OR "Sorry, your input was invalid."
- GO TO DIALOGUE #17.
- A THIRD NO RESPONSE OR INVALID RESPONSE
triggers "Sorry Problems" message and
disconnects -.
19 NOMINEE VOTE YOU HAVE VOTED FOR ALL NOMINEES.
CONFIRMATION OR
YOU HAVE VOTED TO WITHHOLD ALL NOMINEES.
OR
YOU HAVE VOTED TO WITHHOLD NOMINEE
[LIST WITHHELD NOMINEES]. . .
- GO TO DIALOGUE #20.
20 FOR PROPOSAL YOU HAVE VOTED FOR PROPOSAL . . .
21 AGAINST YOU HAVE VOTED AGAINST PROPOSAL . . .
PROPOSAL
</TABLE>
Page 8
<PAGE> 54
SCRIPT OF DIALOGUE FOR PROXY VOTING BY TELEPHONE
------------------------------------------------
<TABLE>
<CAPTION>
DIALOGUE TYPE OF
NUMBER DIALOGUE DIALOGUE
- -------- -------- --------
<S> <C> <C>
22 ABSTAIN YOU HAVE VOTED TO ABSTAIN FROM PROPOSAL...
PROPOSAL
- Dialogues 20, 21 and 22 are repeated until all proposal
votes are verified.
- GO TO DIALOGUE #23.
23 CONFIRM VOTES IF THIS IS CORRECT, PRESS ONE. IF THIS IS NOT CORRECT, PRESS
TWO. IF YOU WOULD LIKE YOUR VOTE REPEATED TO YOU, PRESS
THREE.
- Enter "1". "A vote has been recorded for
Control Number............".
- GO TO DIALOGUE #26.
- Enter "2"
- GO TO DIALOGUE #6.
- A THIRD ENTRY OF THIS RESPONSE triggers
the "Too Many Incorrect" message, followed
by the "Sorry Problems" message and
disconnects.
- Enter "3".
- GO TO DIALOGUE #19.
- Enter NOTHING or INVALID response. "I have not received
your response." OR "Sorry, your input was invalid."
- GO TO DIALOGUE #19, 20, 21, 22.
- A THIRD NO RESPONSE OR INVALID RESPONSE
triggers "Sorry Problems" message and
disconnects-.
24 VOTE YOU HAVE ELECTED TO VOTE AS THE BOARD OF DIRECTORS HAS
RECOMMEND RECOMMENDED.
- GO TO DIALOGUE #25.
</TABLE>
Page 9
<PAGE> 55
SCRIPT OF DIALOGUE FOR PROXY VOTING BY TELEPHONE
------------------------------------------------
<TABLE>
<CAPTION>
DIALOGUE TYPE OF
NUMBER DIALOGUE DIALOGUE
- -------- -------- --------
<S> <C> <C>
25 BOARD THE BOARD RECOMMENDED A VOTE TO ELECT
RECOMMENDS ALL PROPOSED NOMINEES AND A VOTE
FOR PROPOSAL TWO AND AGAINST PROPOSALS THREE
AND FOUR. IF THIS IS CORRECT, PRESS
ONE. IF THIS IS NOT CORRECT, PRESS TWO. IF
YOU WOULD LIKE YOUR VOTE REPEATED TO YOU,
PRESS THREE.
- Enter "1". "A vote has been recorded for
Control Number .............".
- GO TO DIALOGUE #26.
- Enter "2".
- GO TO DIALOGUE #6.
- A THIRD ENTRY OF THIS response
triggers the "Too Many Incorrect"
message, followed by the "Sorry
Problems" message and disconnects-.
- Enter "3".
- GO TO DIALOGUE #24.
- Enter NOTHING or an INVALID RESPONSE. "I
have not received your response." OR
"Sorry, your input was invalid."
- GO TO DIALOGUE #24.
- A THIRD NO RESPONSE or INVALID
response triggers "Sorry Problems"
message and disconnects -.
</TABLE>
Page 10
<PAGE> 56
SCRIPT OF DIALOGUE FOR PROXY VOTING BY TELEPHONE
------------------------------------------------
<TABLE>
<CAPTION>
DIALOGUE TYPE OF
NUMBER DIALOGUE DIALOGUE
- -------- -------- --------
<S> <C> <C>
26 CONCLUDE IF THIS CONCLUDES YOUR BUSINESS, PRESS ONE. IF
BUSINESS YOU WOULD LIKE TO VOTE FOR ANOTHER PROXY ELECTION,
PRESS TWO.
- Enter "1".
- GO TO DIALOGUE #27.
- Enter "2".
- GO TO DIALOGUE #27.
- Enter NOTHING or INVALID response. "I have
not received your response." OR "Sorry, your
input was invalid."
- GO TO DIALOGUE #26.
- A THIRD NO RESPONSE or INVALID
RESPONSE triggers "Sorry Problems"
message and disconnects -.
27 RECORD VOTES ALL OF YOUR VOTES HAVE BEEN RECORDED BY THE
TELEPHONE PROXY VOTING SERVICE. DO NOT MAIL IN
YOUR PROXY CARD. KEEP IT AS A RECORD OF YOUR VOTE.
- GO TO DIALOGUE #4 - if voting for another
Proxy Election based on voter's response
to dialogue #26.
- GO TO DIALOGUE #28 - if not voting for
another Proxy Election based on voter's
response to dialogue #26.
28 THANK YOU THANK YOU FOR CALLING THE TELEPHONE PROXY VOTING
SERVICE. THIS CONCLUDES YOUR TRANSACTION.
- Disconnect.
</TABLE>
Page 11
<PAGE> 57
SCRIPT OF DIALOGUE FOR PROXY VOTING BY TELEPHONE
------------------------------------------------
STANDARD DIALOGUES REPEATED UNDER VARIOUS CONDITIONS
THE DIALOGUES BELOW ARE SPOKEN UNDER VARIOUS CIRCUMSTANCES. GENERALLY, THE
"SORRY PROBLEMS" DIALOGUE IS REPEATED ON THE THIRD ATTEMPT TO GET VALID
INFORMATION.
<TABLE>
<CAPTION>
TYPE OF INSTRUCTION DIALOGUE
- ------------------- --------
<S> <C>
SORRY PROBLEMS We are sorry you are experiencing problems entering your vote.
please call later and try again.
- NOTE
THE "SORRY PROBLEMS" DIALOGUE IS GENERALLY REPEATED AFTER ANY
COMBINATION OF THREE INVALID RESPONSES OR NON RESPONSES TO A SET
OF DIALOGUES. THIS IS FOLLOWED BY A DISCONNECTION.
TOO MANY INCORRECTS You have made too many incorrect entries. Please call back when
you have the correct information.
- NOTE
THE "TOO MANY INCORRECTS" DIALOGUE IS GENERALLY REPEATED WHEN
THERE ARE SEVERAL CHANGES AND INCONSISTENCIES RESPONDING TO A
SET OF DIALOGUES. THIS IS FOLLOWED BY THE "SORRY PROBLEMS"
DIALOGUE AND A DISCONNECTION.
INVALID INPUT Sorry, your input was invalid.
PAUSE .5 [ 500 ms of silence ] (Amount of pause time permitted between
caller's vote and continuation of telephone dialogue.)
</TABLE>
Page 12
<PAGE> 58
TEXT OF E-MAIL MESSAGES FOR ELECTRONIC DELIVERY OF
PROXY STATEMENT AND ANNUAL REPORT AND INTERNET PROXY VOTING
-----------------------------------------------------------
INVESTORDELIVERY.COM E-MAIL MESSAGE
PROXYVOTE.COM
You elected to receive shareholder communications and submit voting
instructions via electronic means on the Internet by enrolling at
www.InvestorDelivery.com, or during a prior vote at www.ProxyVote.com. This
E-mail contains information specific to your holding in the corporation
identified below. Please read the instructions carefully before proceeding.
This is a NOTIFICATION of the:
2000 EASTMAN CHEMICAL COMPANY Annual Meeting of Shareowners
Meeting Date: May 4, 2000
For Holders as of: March 15, 2000
CUSIP Number: 277432100
ACCOUNT NUMBER:
CONTROL NUMBER:
You can enter your voting instructions and view the shareholder material at the
following Internet site:
http://www.ProxyVote.com
Note: If your E-mail software supports it, you can simply click on the above
link. To access www.ProxyVote.com, you will need the above CONTROL NUMBER and
the four digit PIN number you enrolled with at either www.ProxyVote.com or
www.InvestorDelivery.com (we suggested the last four digits of your Social
Security number or Tax ID). Internet voting is accepted up to 11:59 p.m. (ET)
the day before the meeting date. The relevant corporate materials can also be
found at the following Internet site:
ANNUAL REPORT
http://www.eastman.com/proxy.htm
PROXY STATEMENT
http://www.eastman.com/proxy.htm
InvestorDelivery
You enrolled in InvestorDelivery by responding to a letter from a
corporation in which you hold shares. To view, cancel or change your
enrollment, please go to http://www.InvestorDelivery.com. You will need
the enrollment number below, and your four-digit PIN (we suggested the
last four digits of you Social Security number or Tax ID) If you have
forgotten your PIN, you can have it sent to your enrolled E-mail address.
Your InvestorDelivery Enrollment Number is:
There are no charges for this service. There may be costs associated with
electronic access, such as usage charges from Internet access providers and
telephone companies, that must be borne by the stockholder. Please REPLY to this
email with any comments or questions about www.ProxyVote.com.
(Include the original text of this message for identification purposes.)
EASTMAN INTRACOMPANY E-MAIL MESSAGE TO EMPLOYEES
To: All Eastman Employees
From: Theresa K. Lee, General Counsel and Secretary
Re: Annual Report and Proxy Materials Now Available Online
The following link contains your copies of the Notice and Proxy Statement for
the 2000 Annual Meeting of Shareowners and the 1999 Annual Report to
Shareowners:
http:\\www.eastman.com\proxy.htm
Delivering these shareowner materials to you electronically is a change from
previous years when employee shareowners received printed material in the mail,
and reflects our on-going efforts to reduce costs through the expanded use of
technology.
HOW DO I VOTE MY SHARES?
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AND VOTED AT THE ANNUAL MEETING.
If you own Eastman shares through the ESOP or Eastman Investment Plan, in a few
days you should receive a proxy card in the mail at your home address. Once you
have your personalized proxy card, you can vote by proxy on the business to be
conducted at the Annual Meeting in one of three ways:
- Electronically -- By following a link on the web site listed above,
you can go to Proxyvote.com where you'll be asked to enter your
individual Control Number (which is imprinted on your proxy card).
- Telephone -- The proxy card includes a telephone number
(1-800-690-6903) you may call to vote your shares. Again, you will
need your Control Number included with your proxy card.
- Mail -- A third option allows you to mark, sign, date and mail your
proxy card in the postage-paid envelope accompanying your proxy
card.
THE BUSINESS TO BE CONSIDERED AND VOTED UPON AT THE ANNUAL MEETING IS EXPLAINED
IN THE PROXY STATEMENT. PLEASE REVIEW THE PROXY STATEMENT, AND THE ANNUAL
REPORT, BEFORE VOTING YOUR SHARES. WHETHER YOU CHOOSE TO VOTE BY COMPUTER,
TELEPHONE, OR PROXY CARD, PLEASE VOTE AS SOON AS POSSIBLE. Your vote is
important, regardless of the number of shares you own.
CAN I RECEIVE PAPER COPIES OF THE ANNUAL REPORT AND PROXY STATEMENT? Yes. You
can receive paper copies by phoning Angie Tipton at Ext. 4647 or by sending her
an email at [email protected]
WHAT ABOUT NON-U.S. BASED EMPLOYEES?
Non-U.S. based employees who have not enrolled in ADP's "InvestorDelivery.com"
online program will also receive paper copies of the Annual Report and Proxy
Statement through the email.
2
<PAGE> 59
TEXT OF COMPUTER SCREENS FOR INTERNET PROXY VOTING
--------------------------------------------------
WELCOME TO PROXYVOTE.COM
Please select one of the links below...
If you received your proxy material in the mail, please have your material and
your control number ready.
If you received a notification via e-mail, please have your control number and
Personal Identification Number ready.
To submit your voting instructions over our secure site, click HERE.
If your browser cannot support secure transactions via SSL encryption, click
HERE.
Need to update to a security enabled browser? Click HERE.
<PAGE> 60
INTERNET PROXY VOTING
You can submit your proxy voting instructions right over the Internet
It's fast, convenient, and your voting instructions are immediately posted.
If you received notification by postal mail:
1. Read the Proxy Statement. The accompanying Voting Instruction Form or
Proxy Card contains your Control Number.
2. Enter the 12 digit Control Number to access an electronic ballot.
3. Complete the electronic ballot and submit your voting instructions.
4. Provide your E-Mail address if you want confirmation of your voting
instructions.
If you received notification by E-Mail:
1. To access an electronic ballot, enter the 12 digit Control Number
contained in your E-Mail message and the Personal Identification Number
(PIN) you used when you enrolled for electronic delivery.
2. The ballot displayed contains Internet Links to the Proxy Statement and
the Annual Report; read them carefully.
3. Complete the ballot and submit your voting instructions.
Enter your CONTROL NUMBER: [ ] (Please skip any spaces)
Enter your PIN NUMBER: [ ] (Required for the E-Mail option only)
Click to continue
2
<PAGE> 61
Sample Ballot (scroll 1)
INTERNET PROXY VOTING
EASTMAN CHEMICAL COMPANY ANNUAL MEETING
TO BE HELD ON 5/4/2000 FOR HOLDERS AS OF 3/15/2000
CUSIP 277432100
THE FOLLOWING ARE LINKS TO THE EASTMAN CHEMICAL COMPANY SHAREHOLDER
MATERIALS.
CLICK TO VIEW THEM. WHEN YOU HAVE FINISHED, USE YOUR BROWSER'S "BACK" BUTTON
TO RETURN TO PROXYVOTE
PROXY STATEMENT
ANNUAL REPORT
Your CONTROL NUMBER:
3
<PAGE> 62
Ballot (scroll 2)
Directors' Recommendations:
Choose this if you would like to vote your shares following directors'
recommendations. See below for the detailed recommendations. Please read it
carefully.
Vote my shares per directors' recommendations
- -------------------------------------------------------------------------------
Proxy Ballot:
Directors:
Directors Recommend: A vote for election of the following nominees:
___ For All Nominees ___ Withhold All Nominees
___ For All Nominees EXCEPT Those Selected Below.
[ ] JERRY E. DEMPSEY
[ ] DONALD W. GRIFFIN
[ ] MARILYN R. MARKS
4
<PAGE> 63
Ballot (scroll 3)
PROPOSALS:
Please indicate your proposal selections by clicking on the fields below.
02. RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS
INDEPENDENT ACCOUNTANTS.
Directors Recommend: FOR
[ ] For [ ] Against [ ] Abstain
03. ADOPTION OF SHAREOWNER PROPOSAL TO DECLASSIFY THE BOARD OF DIRECTORS.
Directors Recommend: AGAINST
[ ] For [ ] Against [ ] Abstain
04. ADOPTION OF SHAREOWNER PROPOSAL TO ISSUE REPORT CONCERNING EMISSION
OF "GREENHOUSE GASES" AND POTENTIAL CLIMATE CHANGE.
Directors Recommend: AGAINST
[ ] For [ ] Against [ ] Abstain
5
<PAGE> 64
Verification/Submission
(common to all votes)
(scroll 1)
INTERNET PROXY VOTING
PROXY FINAL SUBMISSION
Please check all of the information below for accuracy.
See instructions below and click on Final Submission
--------------------------------------------------
Your Control Number:
EASTMAN CHEMICAL COMPANY Annual Meeting
To be held on 5/4/00 for holders as of 3/15/00
CUSIP 277432100
6
<PAGE> 65
Verification / Submission
(with management's recommendations)
(scroll 2)
DIRECTORS: JERRY E. DEMPSEY, DONALD W. GRIFFIN, MARILYN R. MARKS
You voted: For all nominees
- ------------------------------------------------------------------------------
PROPOSALS:
02 RATIFICATION OF APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT
ACCOUNTANTS.
You Voted: For This Proposal
- ------------------------------------------------------------------------------
03 ADOPTION OF SHAREOWNER PROPOSAL TO DECLASSIFY THE BOARD OF DIRECTORS
You Voted: Against This Proposal
- ------------------------------------------------------------------------------
04 ADOPTION OF SHAREOWNER PROPOSAL TO ISSUE REPORT CONCERNING EMISSION OF
"GREENHOUSE GASES" AND POTENTIAL CLIMATE CHANGE.
You Voted: Against This Proposal
- ------------------------------------------------------------------------------
If any of the above information is incorrect, return to the proxy ballot form
by using the BACK feature of your Browser Program.
7
<PAGE> 66
Verification/Submission
(specific voting instructions)
(scroll 2)
DIRECTORS:
JERRY E. DEMPSEY, DONALD W. GRIFFIN, MARILYN R. MARKS
You Voted: To Withhold Authority to Vote for the Following Individual Nominees.
[LIST OF NAMES OF NOMINEES FOR WHOM AUTHORITY WITHHELD]
- -------------------------------------------------------------------------------
PROPOSALS:
02. RATIFICATION OF APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT
ACCOUNTANTS.
YOU VOTED: [FOR] [AGAINST] [ABSTAINED FROM VOTING ON] This Proposal
03. ADOPTION OF SHAREOWNER PROPOSAL TO DECLASSIFY BOARD OF DIRECTORS.
YOU VOTED: [FOR] [AGAINST] [ABSTAINED FROM VOTING ON] This Proposal
04. ADOPTION OF SHAREOWNER PROPOSAL TO ISSUE REPORT CONCERNING EMISSION OF
"GREENHOUSE GASES" AND POTENTIAL CLIMATE CHANGE.
YOU VOTED: [FOR] [AGAINST] [ABSTAINED FROM VOTING ON] This Proposal
8
<PAGE> 67
VERIFICATION/SUBMISSION
(unmarked ballot)
(scroll 2)
Directors:
JERRY R. DEMPSEY, DONALD W. GRIFFIN, MARILYN R. MARKS
YOU DID NOT VOTE: Directors Recommend and will Vote For All Directors
- --------------------------------------------------------------------------------
Proposals:
02. RATIFICATION OF APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT
ACCOUNTANTS.
YOU DID NOT VOTE: Directors Recommend and will Vote For This Proposal
- --------------------------------------------------------------------------------
03. APPROVAL OF SHAREOWNER PROPOSAL TO DECLASSIFY THE BOARD OF DIRECTORS.
YOU DID NOT VOTE: Directors Recommend and will Vote Against This Proposal
- --------------------------------------------------------------------------------
04. ADOPTION OF SHAREOWNER PROPOSAL TO ISSUE REPORT CONCERNING EMISSION OF
"GREENHOUSES GASES" AND POTENTIAL CLIMATE CHANGE.
YOU DID NOT VOTE: Directors Recommend and will Vote Against This Proposal
- --------------------------------------------------------------------------------
If any of the above information is incorrect, return to the proxy ballot form by
using the Back feature of your Browser Program.
- --------------------------------------------------------------------------------
9
<PAGE> 68
Verification/Submission
(common to all votes)
If you would like to receive an electronic confirmation when this vote is
recorded enter your E-Mail address here:
E-Mail:
--------------------------------
You now have the option to receive future shareholder communications (Annual
Reports, Proxy Statements, etc.) electronically, instead of in print. This
will save postage and mailing costs for the company(s) in which you have
invested. It also means that you can vote future proxies electronically, without
a trip to the Post Office.
Participation is completely your choice. To send future shareholder
communications to you electronically, we require your permission. We also
require you to choose a four digit personal identification number. Most people
prefer to use the last four digits of their Social Security number. In the
future, when, and if, material is available electronically, we will send you an
e-mail which will contain information that will point you to an Internet
location where the material is available.
You only have to enroll this investment account once. It will automatically
apply to any other company that offers electronic distribution. We hope you will
give this option your serious consideration.
ENROLLMENT
I wish to receive future shareholder communications electronically at the
E-MAIL address supplied above. I have chosen an my four digit personal
identification number __________.
- -------------------------------------------------------------------------------
If all of the above information is correct then click on Final Submission below.
If any of the above information is incorrect, return to the proxy ballot form
by using the Back feature of your Browser Program.
Final Submission
10
<PAGE> 69
INTERNET PROXY VOTING
Thank You For Voting
To cast another vote Click Here
----------
11
<PAGE> 70
(Typical Error page)
INTERNET PROXY VOTING
Proxy Voting Error
------------------------------------------------------------
The Following Was Reported By The ProxyVote Server:
Sorry, you have entered the Control Number from the voting instruction form
incorrectly.
Please click on the Internet browser "Back" button, check the number and try
again.
12
