-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TgOrKLEnh6VozYzHbh0n4QfI0zcn9A27KIwfe7FUSusJO5rSq/FB4Y9QbFurfZpR IOJ8vUF6TAp5qfR/rpaMRw== 0000950144-00-005954.txt : 20000508 0000950144-00-005954.hdr.sgml : 20000508 ACCESSION NUMBER: 0000950144-00-005954 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000505 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EASTMAN CHEMICAL CO CENTRAL INDEX KEY: 0000915389 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS, MATERIALS, SYNTH RESINS & NONVULCAN ELASTOMERS [2821] IRS NUMBER: 621539359 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12626 FILM NUMBER: 620554 BUSINESS ADDRESS: STREET 1: PO BOX 511 STREET 2: 100 N EASTMAN ROAD CITY: KINGSPORT STATE: TN ZIP: 37660 BUSINESS PHONE: 4232292000 MAIL ADDRESS: STREET 1: P O BOX BOX 511 B-54D CITY: KINGSPORT STATE: TN ZIP: 37662 10-Q 1 EASTMAN CHEMICAL COMPANY 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ to ______________ Commission file number 1-12626 EASTMAN CHEMICAL COMPANY (Exact name of registrant as specified in its charter) DELAWARE 62-1539359 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 100 N. EASTMAN ROAD KINGSPORT, TENNESSEE 37660 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (423) 229-2000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Number of Shares Outstanding at Class March 31, 2000 Common Stock, par value $0.01 per share 76,694,503 including rights to purchase shares of Common Stock or Participating Preferred Stock) - -------------------------------------------------------------------------------- PAGE 1 OF 49 TOTAL SEQUENTIALLY NUMBERED PAGES EXHIBIT INDEX ON PAGE 23 2 TABLE OF CONTENTS
----------------------------------------------------------------------------------------------------- ITEM PAGE ----------------------------------------------------------------------------------------------------- PART I. FINANCIAL INFORMATION 1. Financial Statements 3-11 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12-19 PART II. OTHER INFORMATION 1. Legal Proceedings 20-21 2. Changes in Securities 21 6. Exhibits and Reports on Form 8-K 21 SIGNATURES Signatures 22
2 3 EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS, COMPREHENSIVE INCOME, AND RETAINED EARNINGS (Dollars in millions, except per share amounts)
FIRST QUARTER 2000 1999 Sales $ 1,217 $ 1,023 Cost of sales 967 829 ------- ------- Gross profit 250 194 Selling and general administrative expenses 80 76 Research and development costs 38 47 ------- ------- Operating earnings 132 71 Interest expense, net 33 26 Other (income) charges, net (3) 8 ------- ------- Earnings before income taxes 102 37 Provision for income taxes 34 12 ------- ------- Net earnings $ 68 $ 25 ======= ======= Basic earnings per share $ .88 $ .32 ======= ======= Diluted earnings per share $ .88 $ .31 ======= ======= COMPREHENSIVE INCOME Net earnings $ 68 $ 25 Other comprehensive loss (1) (29) ------- ------- Comprehensive income (loss) $ 67 $ (4) ======= ======= RETAINED EARNINGS Retained earnings at beginning of period $ 2,098 $ 2,188 Net earnings 68 25 Cash dividends declared (33) (35) ------- ------- Retained earnings at end of period $ 2,133 $ 2,178 ======= =======
The accompanying notes are an integral part of these financial statements. 3 4 EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Dollars in millions)
MARCH 31, DECEMBER 31, 2000 1999 ASSETS Current assets Cash and cash equivalents $ 52 $ 186 Trade receivables, net of allowance of $14 and $13 580 572 Miscellaneous receivables 71 59 Inventories 526 485 Other current assets 151 187 ------- ------- Total current assets 1,380 1,489 ------- ------- Properties Properties and equipment at cost 8,881 8,820 Less: Accumulated depreciation 4,945 4,870 ------- ------- Net properties 3,936 3,950 ------- ------- Goodwill, net of accumulated amortization of $17 and $14 268 271 Other intangibles, net of accumulated amortization of $9 and $6 172 175 Other noncurrent assets 482 418 ------- ------- Total assets $ 6,238 $ 6,303 ======= ======= LIABILITIES AND SHAREOWNERS' EQUITY Current liabilities Payables and other current liabilities $ 963 $ 1,009 Borrowings due within one year 522 599 ------- ------- Total current liabilities 1,485 1,608 Long-term borrowings 1,508 1,506 Deferred income tax credits 504 485 Postemployment obligations 804 789 Other long-term liabilities 201 156 ------- ------- Total liabilities 4,502 4,544 ------- ------- Shareowners' equity Common stock ($0.01 par - 350,000,000 shares authorized; shares issued -- 84,532,869 and 84,512,004) 1 1 Paid-in capital 95 95 Retained earnings 2,133 2,098 Other comprehensive loss (55) (54) ------- ------- 2,174 2,140 Less: Treasury stock at cost (7,996,790 and 6,421,790 shares) 438 381 ------- ------- Total shareowners' equity 1,736 1,759 ------- ------- Total liabilities and shareowners' equity $ 6,238 $ 6,303 ======= =======
The accompanying notes are an integral part of these financial statements. 4 5 EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in millions)
FIRST QUARTER 2000 1999 Cash flows from operating activities Net earnings $ 68 $ 25 ------- ------- Adjustments to reconcile net earnings to net cash provided by operating activities, net of effect of acquisitions Depreciation and amortization 96 88 Write-off of impaired assets -- 13 Provision (benefit) for deferred income taxes 18 (3) (Increase) decrease in receivables (19) 28 Increase in inventories (44) (28) Decrease in liabilities for incentive pay and employee benefits (23) (107) Increase in liabilities excluding borrowings, employee benefit liabilities, and incentive pay 32 9 Other items, net 14 (3) ------- ------- Total adjustments 74 (3) ------- ------- Net cash provided by operating activities 142 22 ------- ------- Cash flows from investing activities Additions to properties and equipment (34) (76) Acquisitions (45) (12) Capital advances to suppliers -- (21) Other investments (16) -- Proceeds from sales of assets 10 -- Additions to capitalized software (4) (4) ------- ------- Net cash used in investing activities (89) (113) ------- ------- Cash flows from financing activities Net increase in commercial paper borrowings 104 203 Repayment of borrowings (201) -- Dividends paid to shareowners (34) (35) Treasury stock purchases (57) (50) Other items 1 (1) ------- ------- Net cash provided by (used in) financing activities (187) 117 ------- ------- Net change in cash and cash equivalents (134) 26 Cash and cash equivalents at beginning of period 186 29 ------- ------- Cash and cash equivalents at end of period $ 52 $ 55 ======= =======
The accompanying notes are an integral part of these financial statements. 5 6 EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The accompanying unaudited interim consolidated financial statements have been prepared by the Company in accordance and consistent with the accounting policies stated in the Company's 1999 Annual Report on Form 10-K and should be read in conjunction with the consolidated financial statements appearing therein. In the opinion of the Company, all normally recurring adjustments necessary for a fair presentation have been included in the interim unaudited consolidated financial statements. The unaudited interim consolidated financial statements are based in part on estimates made by management. The Company has reclassified certain 1999 amounts to conform to the 2000 presentation. 2. INVENTORIES
MARCH 31, DECEMBER 31, (Dollars in millions) 2000 1999 At FIFO or average cost (approximates current cost) Finished goods $ 448 $ 404 Work in process 134 128 Raw materials and supplies 207 210 ----- ----- Total inventories 789 742 Reduction to LIFO value (263) (257) ----- ----- Total inventories at LIFO value $ 526 $ 485 ===== =====
Inventories valued on the LIFO method were approximately 70% of total inventories in each of the periods. 3. PAYABLES AND OTHER CURRENT LIABILITIES
MARCH 31, DECEMBER 31, (Dollars in millions) 2000 1999 Trade creditors $ 331 $ 323 Accrued payrolls, vacation, and variable-incentive compensation 116 143 Accrued restructuring charge 56 76 Accrued taxes 122 112 Other 338 355 ----- ------ Total $ 963 $1,009 ===== ======
6 7 EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4. BORROWINGS DUE WITHIN ONE YEAR
MARCH 31, DECEMBER 31, (Dollars in millions) 2000 1999 Commercial paper $ 502 $ 398 Notes payable -- 125 Other 20 76 ----- ----- Total $ 522 $ 599 ===== =====
In January 2000, the Company retired $125 million of Lawter International, Inc.'s ("Lawter") notes, with interest rates of 6.33% and 6.91%, and financed this with commercial paper. During the first quarter 2000, the Company retired $76 million of other short-term borrowings, also financed with commercial paper, and acquired additional short-term borrowings totaling $21 million in the Chemicke Zavody Sokolov ("Sokolov") acquisition. 5. EARNINGS AND DIVIDENDS PER SHARE
FIRST QUARTER 2000 1999 Shares used for earnings per share calculation (in millions): --Basic 77.5 78.7 --Diluted 77.6 78.8
Certain shares underlying options outstanding during the first quarters of 2000 and 1999 were excluded from the computation of diluted earnings per share because the options' exercise prices were greater than the average market price of the common shares. Excluded from first quarter 2000 and 1999 calculations were shares underlying options to purchase 4,527,246 shares of common stock at a range of prices from $42.125 to $74.25 and 1,919,940 shares of common stock at a range of prices from $44.16 to $74.25 outstanding at March 31, 2000 and 1999, respectively. In 1999, several key executive officers were awarded performance-based stock options to further align their compensation 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. Options to purchase a total of 574,000 shares will become exercisable through October 19, 2001, if both the stock price and time vesting conditions are met. The options will be cancelled and forfeited on October 19, 2001 as to any shares for which the applicable stock price target is not met. At March 31, 2000, 80,360 shares underlying such options were included in diluted earnings per share calculations as a result of the stock price conditions for vesting being met. Additionally, 200,000 shares underlying an option issued to the Chief Executive Officer in third quarter 1997 were excluded from diluted earnings per share calculations because the stock price vesting conditions to exercise had not been met as to any of the shares as of March 31, 2000. The Company declared cash dividends of $0.44 per share in the first quarter 2000 and the first quarter 1999. 7 8 EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6. ACQUISITIONS CHEMICKE ZAVODY SOKOLOV As of February 21, 2000, the Company acquired 76 percent of the shares of Sokolov, a manufacturer of waterborne polymer products, acrylic acid and acrylic esters located in the Czech Republic, for cash consideration of approximately $45 million and the assumption of $21 million of Sokolov debt. This transaction was financed with available cash and commercial paper borrowings. In April 2000, the Company commenced a contractual tender offer under Czech law to acquire the remaining shares and will finance the acquisition of purchased shares with available cash and commercial paper borrowings. The Company expects that the tender offer will be completed in the second quarter 2000. The acquisition of Sokolov will be accounted for by the purchase method of accounting and, accordingly, the results of operation of Sokolov for the period from February 21, 2000 are included in the accompanying consolidated financial statements. Assets acquired and liabilities assumed have been recorded at their preliminary fair values. The minority interest, which is included in other long-term liabilities in the Consolidated Statements of Financial Position, is not significant. Assuming this transaction had been made at January 1, 2000 and 1999, the proforma results for the quarters ending March 31, 2000, and 1999 would not be materially different from reported results. LAWTER INTERNATIONAL, INC. On June 9, 1999, the Company completed its acquisition of Lawter for cash consideration of approximately $370 million (net of $41 million cash acquired) and the assumption of $145 million of Lawter's debt. Lawter develops, produces and markets specialty products for the inks and coatings market. The acquisition of Lawter has been accounted for by the purchase method of accounting. Assets acquired and liabilities assumed have been recorded at their fair values. Goodwill and other intangible assets of approximately $455 million, representing the excess of cost over the estimated fair value of net tangible assets acquired, are being amortized on a straight-line basis over 5-40 years. Assuming this transaction had been made at January 1, 1999, the proforma results for the quarter ending March 31, 1999 would not be materially different from reported results. 7. DERIVATIVE FINANCIAL INSTRUMENTS Eastman had currency options with maturities of not more than three years to exchange various foreign currencies for U.S. dollars in the aggregate notional amount of $639 million at December 31, 1999. In February 2000, currency options denominated in French franc, German mark, and Italian lira with a notional amount of $545 million were effectively settled, resulting in cash proceeds of $106 million. Of this amount, $15 million was recognized in operating earnings in the first quarter 2000 and the balance, deferred until the underlying hedged transactions are realized, is recorded in other liabilities in the Consolidated Statements of Financial Position. The deferred gain will be recognized over a period ending fourth quarter 2001. During the first quarter 2000, option contracts with maturities of not more than two years to exchange euros for U.S. dollars in the aggregate notional amount of $361 million were put in place. 8 9 EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8. EMPLOYEE SEPARATIONS In the fourth quarter 1999, the Company accrued costs associated with employee terminations which resulted from voluntary and involuntary employee separations which occurred during the fourth quarter 1999. The voluntary and involuntary separations resulted in a reduction of about 1,200 employees. About 760 employees who were eligible for full retirement benefits left the Company under a voluntary separation program and approximately 400 additional employees were involuntarily separated from the Company. Employees separated under these programs each received a separation package equaling two weeks' pay for each year of employment, up to a maximum of one year's pay and subject to certain minimum payments. Approximately $71 million was accrued in 1999 for termination allowance payments associated with the separations, of which $6 million was paid in 1999 and $19 million was paid during the first quarter 2000. As of March 31, 2000, a balance of $46 million remains to be paid substantially during 2000 and is included in other current liabilities in the Consolidated Statements of Financial Position. 9. SEGMENT INFORMATION The Company recently reorganized its management structure into two major business groups and, effective with the first quarter 2000, reports financial results in two operating segments--Chemicals and Polymers. The Chemicals segment includes fine chemicals; performance chemicals and intermediates; and chemicals and specialty polymers supplied to the inks, coatings, adhesives, sealants, and textile industries. The Polymers segment includes container plastics, specialty plastics and fiber products. Through 1999, the Company managed its operations in three segments--Specialty and Performance, Core Plastics, and Chemical Intermediates. Prior year amounts have been reclassified to conform to the 2000 presentation.
(Dollars in millions) FIRST QUARTER 2000 1999 SALES Chemicals $ 556 $ 460 Polymers 661 563 ------ ------ Consolidated Eastman total $1,217 $1,023 ====== ====== OPERATING EARNINGS Chemicals $ 55 $ 51 Polymers 77 20 ------ ------ Consolidated Eastman total $ 132 $ 71 ====== ====== ASSETS Chemicals $2,945 $2,938 Polymers 3,293 3,365 ------ ------ Consolidated Eastman total $6,238 $6,303 ====== ======
9 10 EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 10. SORBATES LITIGATION As previously reported, on September 30, 1998, the Company entered into a voluntary plea agreement with the U. S. Department of Justice and agreed to pay an $11 million fine to resolve a charge brought against the Company for violation of Section One of the Sherman Act. Under the agreement, the Company entered a plea of guilty to one count of price-fixing for sorbates, a class of food preservatives, from January 1995 through June 1997. The plea agreement was approved by the United States District Court for the Northern District of California on October 21, 1998. The Company recognized the entire fine in third quarter 1998 and is paying the fine in installments over a period of five years. On October 26, 1999, the Company pleaded guilty in a Federal Court of Canada to a violation of the Competition Act of Canada and was fined $780,000 (Canadian). The plea admitted that the same conduct that was the subject of the September 30, 1998, plea in the United States had occurred with respect to sorbates sold in Canada, and prohibited repetition of the conduct and provides for future monitoring. The fine has been paid and was recognized as a charge against earnings in the fourth quarter 1999. In addition, the Company, along with other companies, is currently a defendant in twenty antitrust lawsuits brought subsequent to the Company's plea agreements as putative class actions on behalf of certain purchasers of sorbates in the United States and Canada. In each case, the plaintiffs allege that the defendants engaged in a conspiracy to fix the price of sorbates and that the class members paid more for sorbates than they would have paid absent the defendants' conspiracy. Six of the suits (five of which have since been consolidated) were filed in Superior Courts for the State of California under various state antitrust and consumer protection laws on behalf of classes of indirect purchasers of sorbates; six of the proceedings (which have subsequently been consolidated or found to be related cases) were filed in the United States District Court for the Northern District of California under federal antitrust laws on behalf of classes of direct purchasers of sorbates; two cases were filed in Circuit Courts for the State of Tennessee under the antitrust and consumer protection laws of various states, including Tennessee, on behalf of classes of indirect purchasers of sorbates in those states; one case was filed in the United States District Court for the Southern District of New York (and has been transferred to the Northern District of California) under federal antitrust laws on behalf of a class of direct purchasers of sorbates; one action was filed in the Circuit Court for the State of Wisconsin under various state antitrust laws on behalf of a class of indirect purchasers of sorbates in those states; one action was filed in the District Court for the State of Kansas under Kansas antitrust laws on behalf of a class of indirect purchasers of sorbates in that state; one case was filed in the Second Judicial District Court for the State of New Mexico under New Mexico antitrust laws on behalf of a class of indirect purchasers of sorbates in that state; one lawsuit was filed in the Ontario Superior Court of Justice under the federal competition law and pursuant to common law causes of action on behalf of a class of direct and indirect purchasers of sorbates in Canada; and one suit was filed in the Quebec Superior Court under the federal competition law on behalf of a class of direct and indirect purchasers of sorbates in the Province of Quebec. The plaintiffs in most cases seek treble damages of unspecified amounts, 10 11 EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS attorneys' fees and costs, and other unspecified relief; in addition, certain of the actions claim restitution, injunction against alleged illegal conduct, and other equitable relief. Each proceeding is in preliminary pretrial motion and discovery stage, and the only proposed class which has been certified is a conditional settlement class relating to other defendants in the federal direct purchaser cases pending in California. The Company intends vigorously to defend these actions unless they can be settled on terms acceptable to the parties. These matters could result in the Company being subject to monetary damages and expenses. The Company recognized charges to earnings in the fourth quarter 1998, the fourth quarter 1999, and the first quarter 2000 for estimated costs, including legal fees, related to the pending sorbates litigation described above. Because of the early stage of these putative class action lawsuits, however, the ultimate outcome of these matters cannot presently be determined, and they may result in greater or lesser liability than that currently provided for in the Company's financial statements. 11. SUBSEQUENT EVENTS SECURITIZATION OF ACCOUNTS RECEIVABLE In 1999, the Company entered into an agreement that allows the Company to sell undivided interests in certain domestic trade accounts receivable under a planned continuous sale program to a third party. Under this agreement, at March 31, 2000, receivables totaling $150 million were sold to the third party, and at April 11, 2000, an aggregate of $200 million of receivables were sold to the third party. DECLINE IN MARKET VALUE OF AVAILABLE-FOR-SALE SECURITIES Included in shareowners' equity and other comprehensive income at March 31, 2000, are unrealized gains (net of tax) totaling $28 million associated with Eastman's investments in available-for-sale securities. The market values of these securities have declined significantly since March 31, 2000. The unrealized gains (net of tax) associated with these investments at May 4, 2000, total $9 million. Gains and losses on available-for-sale securities are not recognized in earnings until realized. MERGER AGREEMENT WITH MCWHORTER TECHNOLOGIES, INC. On May 4, 2000, the Company and McWhorter Technologies, Inc. ("McWhorter") entered into a definitive merger agreement under which the Company expects to acquire the outstanding shares of McWhorter for approximately $200 million in cash (excluding estimated acquisition-related costs) and the assumption of approximately $155 million in debt. The transaction will be accounted for as a purchase. McWhorter is a leading manufacturer of specialty resins and colorants used in the production of consumer and industrial coatings and reinforced fiberglass plastics. Under the terms of the agreement, the Company will commence a tender offer to purchase all outstanding shares of McWhorter common stock for $19.70 per share. Following completion of the tender offer, the Company expects to consummate a cash merger to acquire any shares not previously tendered. Consummation of the transaction is conditioned upon, among other things, obtaining antitrust and competition authority reviews and approvals. The Company expects that the tender offer and merger will be completed by July 2000. The transaction will be financed with currently available sources of liquidity. 11 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Company's Consolidated Financial Statements and Management's Discussion and Analysis contained in the 1999 Annual Report on Form 10-K and the unaudited interim consolidated financial statements included elsewhere in this report. All references to earnings per share contained in this report are diluted earnings per share unless otherwise noted. RESULTS OF OPERATIONS SUMMARY OF CONSOLIDATED RESULTS Net earnings increased significantly reflecting lower manufacturing and non-manufacturing costs resulting from cost reductions throughout 1999, 12% overall volume growth, and higher selling prices, particularly for EASTAPAK polymers. Lower costs resulting from cost reduction efforts and the increase in sales volumes and pricing more than offset higher costs for major raw materials. Diluted earnings per share were $0.88 compared with $0.31 for the first quarter 1999. First quarter 1999 included approximately $15 million of pre-tax nonrecurring charges described below.
FIRST QUARTER (Dollars in millions) 2000 1999 CHANGE SALES $1,217 $1,023 19%
Sales were significantly higher in the Chemicals and Polymers segments and in all regions, driven by higher selling prices for EASTAPAK polymers, specialty plastics products, and performance chemicals and intermediates, strong worldwide demand across most product lines, and volume attributable to acquisitions. Foreign currency exchange, particularly in Europe, had a slight negative impact on sales.
FIRST QUARTER (Dollars in millions) 2000 1999 CHANGE GROSS PROFIT $ 250 $ 194 29% As a percentage of sales 20.5% 19.0%
Lower manufacturing costs attributable to cost reductions and increased capacity utilization, and higher volumes and selling prices resulted in a significant improvement in gross profit, although the impact was partially offset by increased costs for major raw materials. Costs for raw materials such as propane, paraxylene, and ethylene glycol increased significantly, but the impact on earnings was diminished somewhat by the use of risk management tools. Distribution expense reflected higher sales volumes, but declined as a percentage of sales. Incentive compensation, based on Company performance, was higher than the first quarter 1999. First quarter 1999 included approximately $15 million of pre-tax charges related to a discontinued capital project and phase out of operations at Distillation Products Industries in Rochester, NY. 12 13
FIRST QUARTER (Dollars in millions) 2000 1999 CHANGE SELLING AND GENERAL ADMINISTRATIVE EXPENSES $ 80 $ 76 5% As a percentage of sales 6.6% 7.4%
An increase in selling and general administrative expenses due to expenses assumed from acquisitions and higher incentive-based compensation expense was partially offset by benefits derived from cost reduction efforts.
FIRST QUARTER (Dollars in millions) 2000 1999 CHANGE RESEARCH AND DEVELOPMENT COSTS $ 38 $ 47 (19)% As a percentage of sales 3.1% 4.6%
Research and development costs declined reflecting cost reduction efforts and timing of expenditures.
FIRST QUARTER (Dollars in millions) 2000 1999 CHANGE INTEREST COSTS $ 35 $ 31 LESS CAPITALIZED INTEREST 2 5 ------ ------ NET INTEREST EXPENSE $ 33 $ 26 27% ====== ======
Increased net interest expense in the first quarter 2000 reflects debt related to the Lawter acquisition and decreased capitalized interest resulting from the 1999 completion of capital expansion projects.
FIRST QUARTER (Dollars in millions) 2000 1999 CHANGE OTHER (INCOME) CHARGES, NET $ (3) $ 8 >100%
Other income and charges include interest income and royalty income, gains and losses on asset sales, results from equity investments, foreign exchange transactions, and other items. First quarter 2000 includes a non-operating gain from an investment held by a joint venture, a charge for litigation, and other items. First quarter 1999 includes a loss on foreign exchange transactions and other items. EARNINGS
FIRST QUARTER (Dollars in millions, except per share amounts) 2000 1999 CHANGE Operating earnings $ 132 $ 71 86% Net earnings 68 25 172 Earnings per share - --Basic .88 .32 175 - --Diluted .88 .31 184
13 14 SUMMARY BY OPERATING SEGMENT The Company recently reorganized its management structure into two major business groups and has reported financial results in two operating segments--Chemicals and Polymers. The Chemicals segment includes fine chemicals; performance chemicals and intermediates; and chemicals and specialty polymers supplied to the inks, coatings, adhesives, sealants, and textile industries. The Polymers segment includes container plastics, specialty plastics, and fiber products. Through 1999, the Company managed its operations in three segments--Specialty and Performance, Core Plastics, and Chemical Intermediates. Prior year amounts have been reclassified to conform to the 2000 presentation. CHEMICALS SEGMENT
FIRST QUARTER (Dollars in millions) 2000 1999 CHANGE Sales $ 556 $ 460 21% Operating earnings 55 51 8
Higher sales volume, mainly attributable to acquisitions, and increased selling prices for performance chemicals and intermediates resulted in a significant increase in sales. First quarter 1999 operating earnings included approximately $15 million of pre-tax charges related to a discontinued capital project and phase out of operations at Distillation Products Industries in Rochester, NY. Excluding this charge, first quarter 2000 operating earnings declined because raw material increases were only partially offset by benefits attributable to cost reduction efforts throughout 1999, increased sales volumes, and higher selling prices. POLYMERS SEGMENT
FIRST QUARTER (Dollars in millions) 2000 1999 CHANGE Sales $ 661 $ 563 17% Operating earnings 77 20 285
Sales volume and prices for EASTAPAK polymers increased significantly as market conditions for container plastics continue to improve. Specialty plastics volumes and prices increased for all plastics except cellulosics. Selling prices and volumes for fibers declined. Benefits attributable to cost reduction efforts throughout 1999, overall higher sales volume, and higher selling prices more than offset the impact of higher raw materials costs. 14 15 SUMMARY BY CUSTOMER LOCATION SALES BY REGION
FIRST QUARTER (Dollars in millions) 2000 1999 CHANGE United States and Canada $ 747 $ 662 13% Europe, Middle East, and Africa 235 174 35 Asia Pacific 133 111 20 Latin America 102 76 34
Sales in the United States for first quarter 2000 were $692 million, up 12% from 1999 first quarter sales of $619 million. The increase was primarily attributable to higher volumes resulting from the Lawter acquisition and greatly improved selling prices for EASTAPAK polymers, polyethylene, and oxo chemical products. Sales outside the United States for first quarter 2000 were $525 million, up 30% from 1999 first quarter sales of $404 million due to higher sales volume and prices, and were 43% of total sales in the first quarter 2000 compared with 39% for the first quarter 1999. Good demand for fibers, oxo chemical products, and volume attributable to acquisitions resulted in higher sales in Asia Pacific. In Europe, higher selling prices and increased demand for EASTAPAK polymers and the additional volumes associated with acquisitions contributed to the increase in sales. Higher sales volumes and selling prices for EASTAPAK polymers resulted in increased sales for Latin America. LIQUIDITY, CAPITAL RESOURCES AND OTHER FINANCIAL DATA
2000 1999 FINANCIAL INDICATORS For the first three months: Ratio of earnings to fixed charges 3.6x 2.0x At the periods ended March 31, 2000 and December 31, 1999: Current ratio 0.9x 0.9x Percent of total borrowings to total capital 54% 54% Percent of floating-rate borrowings to total borrowings 26% 23%
CASH FLOW FIRST QUARTER (Dollars in millions) 2000 1999 Net cash provided by (used in) Operating activities $ 142 $ 22 Investing activities (89) (113) Financing activities (187) 117 ------- ------- Net change in cash and cash equivalents $ (134) $ 26 ======= ======= Cash and cash equivalents at end of period $ 52 $ 55 ======= =======
15 16 Cash provided by operating activities increased from first quarter 1999 primarily due to settlement of strategic foreign currency hedging transactions. (see Note 7 to Consolidated Financial Statements). Cash used in investing activities reflects lower capital expenditures and capital advances to suppliers, the acquisition of Sokolov, and e-commerce investments. Cash used in financing activities in first quarter 2000 reflects an increase in commercial paper borrowings, repayment of Lawter and other debt, and in both years the payment of dividends and treasury stock purchases. CAPITAL EXPENDITURES AND OTHER COMMITMENTS For 2000, the Company estimates that depreciation will be about $370 million and that capital expenditures will be approximately $250 million. Long-term commitments related to planned capital expenditures are not material. The Company had various purchase commitments at March 31, 2000 for materials, supplies, and energy incident to the ordinary conduct of business. These commitments, over a period of several years, approximate $1.5 billion. LIQUIDITY Eastman has access to an $800 million revolving credit facility (the "Credit Facility") expiring in December 2000. Although the Company does not have any amounts outstanding under the Credit Facility, any such borrowings would be subject to interest at varying spreads above quoted market rates, principally LIBOR. The Credit Facility also requires a facility fee on the total commitment that varies based on Eastman's credit rating. The rate for such fee was 0.085% as of March 31, 2000. The Credit Facility contains a number of covenants and events of default, including the maintenance of certain financial ratios. Eastman was in compliance with all such covenants for all periods. Management expects to renegotiate or replace the Credit Facility with a similar source of funds before the Credit Facility expires in December 2000. Eastman utilizes commercial paper, generally with maturities of 90 days or less, to meet its liquidity needs. Because the Credit Facility, which provides liquidity support for the commercial paper, expires in December 2000, the commercial paper borrowings are classified as short-term borrowings. At March 31, 2000, the Company's short-term borrowings totaled $522 million, at an effective interest rate of 6.12%. At March 31, 1999, the Company's commercial paper outstanding balance was $326 million at an effective interest rate of 5.01%. The Company has an effective registration statement on file with the Securities and Exchange Commission to issue up to $1 billion of debt or equity securities. No securities have been sold from this shelf registration. In 1999, the Company entered into an agreement that allows the Company to sell undivided interests in certain domestic trade accounts receivable under a planned continuous sale program to a third party. Under this agreement, at March 31, 2000, receivables totaling $150 million were sold to the third party, and at April 11, 2000, an aggregate of $200 million of receivables had been sold to the third party. Undivided interests in designated receivable pools were sold to the purchaser with recourse limited to the receivables purchased. Fees to be paid by the Company under this agreement are based on certain variable market rate indices and are included in other (income) charges, net, in the Consolidated Statements of Earnings, Comprehensive Income, and Retained Earnings. As of February 21, 2000, the Company acquired 76 percent of the shares of Sokolov, for cash consideration of approximately $45 million and the assumption of $21 million of Sokolov debt. The transaction was financed with available cash and commercial paper borrowings. In April 2000, the Company commenced a contractual tender offer under Czech law to acquire the remaining shares and will finance the purchase of tendered shares with available cash and commercial paper borrowings. The Company expects that the tender offer will be completed in the second quarter 2000. 16 17 The Company is currently authorized to repurchase up to $400 million of its common stock. During the first quarter 2000, 1,575,000 shares of common stock at a total cost of approximately $57 million were repurchased under this authorization. A total of 2,669,800 shares of common stock at a cost of approximately $107 million have been repurchased under the authorization. Repurchased shares may be used to meet common stock requirements for compensation and benefit plans and other corporate purposes. Share repurchases are weighed against alternative uses for available cash. The Company expects that no contribution to its defined benefit pension plan will be required in 2000. Proceeds of $106 million from the settlement in first quarter 2000 of strategic foreign currency hedging transactions were used to reduce commercial paper borrowings and repurchase stock (see Note 7 to Consolidated Financial Statements). Existing sources of capital, together with cash flows from operations, are expected to be sufficient to meet foreseeable cash flow requirements. DIVIDENDS The Company declared cash dividends of $0.44 per share in the first quarter 2000 and the first quarter 1999. RECENTLY ISSUED ACCOUNTING STANDARDS In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which standardizes the accounting for derivative instruments, including certain derivative instruments embedded in other contracts, by requiring that an entity recognize those items as assets or liabilities in the statement of financial position and measure them at fair value. SFAS No. 133 is effective for all fiscal quarters of all fiscal years beginning after June 15, 2000. The Company is evaluating the effect of this standard on its financial statements and will comply with requirements of the new standard which become effective for the Company's 2001 financial reporting cycle. OUTLOOK Sales volume growth is expected to continue, driving higher utilization of plant capacity that the Company brought on-line in recent years. Although higher costs for raw materials are expected to continue in the near-term, it is anticipated that the impact on earnings will be offset by selling price increases, cost structure improvements and improved margins due to volume gains. The supply and demand balance for many of the Company's products, particularly EASTAPAK polymers, is expected to continue to improve, but sales volume for fibers is expected to continue to decline. Through aggressive cost management and actions taken during the fourth quarter 1999, the Company expects to achieve $100 million savings in labor-related costs during 2000 and to implement strategies by the end of 2000 which will achieve an additional $100 million savings in non-labor costs. The Company will continue to focus on creating shareowner value by improving earnings and return on capital and by implementing its strategic initiatives. To develop a portfolio which management believes would achieve the Company's strategies for growth and value creation, the Company has made and may continue to make acquisitions and divestitures and form alliances. The Company will continue to examine alternatives for diminishing the impact of specific product lines such as fibers, polyethylene, and polyethylene terephthalate ("PET"), while growing the coatings and specialty plastics product lines through new product development and value-creating acquisitions. 17 18 E-BUSINESS A major initiative is Eastman's intent to be a leading e-business company in the chemical industry. The Company believes e-commerce technology is fundamentally changing the way business is done in the chemical industry. Aggressively pursuing this technology, the Company is focused on ensuring the readiness of its internal systems and infrastructure to be able to meet and exceed customer expectations for products and services in an e-business environment. During the first quarter 2000, the Company continued its e-business development with the formation of two joint ventures and additional investments in other e-commerce businesses. In the first quarter 2000, the Company formed a joint venture, ShipChem.com, to address the high cost of transporting raw materials and hazardous materials in the chemical industry. The establishment of ShipChem.com's e-logistics portal provides a foundation from which manufacturers and distributors can manage their transportation activities as a single integrated global process. Additionally during the first quarter 2000, the Company announced the formation of PaintandCoatings.com, Inc., a joint venture to create an independent Internet marketplace for the paint and coatings industry. The Company has made a number of minority investments in Internet-based businesses that it believes have potential to significantly impact the way business is conducted in the chemical industry. These investments include e-Chemicals, Inc., a company that provides Internet-enabled solutions for procurement, sales, financial settlement, transportation and logistics, environmental health and safety, and sales support for the chemical industry; ChemConnect, a company that enables online trading of chemicals and plastics; webMethods, Inc., a company that provides a platform which enables companies to pursue direct integration with trading partners; e-Credit, a company that provides financial services; Moai Technologies, Inc., a company that provides Internet-based, dynamic pricing software services; and The Patent and License Exchange, Inc., a marketplace to facilitate the identification, valuation and trading of intellectual property. FORWARD-LOOKING STATEMENTS The above-stated expectations and certain statements in this report may be forward-looking in nature as defined in the Private Securities Litigation Reform Act of 1995. These statements and other forward-looking statements made by the Company from time to time relate to such matters as planned capacity increases and utilization; capital spending; expected tax rates and depreciation; environmental matters; legal proceedings; global and regional economic conditions; supply and demand, volume, price, costs, margin, and sales and earnings and cash flow expectations and strategies for individual products, businesses, and segments as well as for the whole of Eastman Chemical Company; cost reduction targets; and development, production, commercialization, and acceptance of new products and technologies. These plans and expectations are based upon certain underlying assumptions, including those mentioned within the text of the specific statements. Such assumptions are in turn based upon internal estimates and analyses of current market conditions and trends, management plans and strategies, economic conditions, and other factors. These plans and expectations and the assumptions underlying them are necessarily subject to risks and uncertainties inherent in projecting future conditions and results. Actual results could differ materially from expectations expressed in the forward-looking statements if one or more of the underlying assumptions and expectations proves to be inaccurate or is unrealized. In addition to the factors discussed in this report, the following are some of the important factors that could cause the Company's actual results to differ materially from those projected in any such forward-looking statements: - - The Company has manufacturing and marketing operations throughout the world, with over 40% of the Company's revenues attributable to sales outside the United States. Economic factors, including foreign currency exchange rates, could affect the Company's revenues, expenses and results. 18 19 Changes in laws, regulations, or other political factors in any of the countries in which the Company operates could affect business in that country or region, as well as the Company's results of operations. - - The Company has made and may continue to make acquisitions, divestitures, and investments, and enter into alliances as part of its growth strategy. There can be no assurance that these will be completed or that such transactions will be beneficial to the Company's results of operations. - - The Company has made and may continue to make strategic e-business investments, including formation of joint ventures and investments in other e-commerce businesses, in order to build Eastman's E-business capabilities. There can be no assurance that such investments will achieve their objectives or that they will be beneficial to the Company's results of operations. - - The Company has undertaken and may continue to undertake productivity and cost reduction initiatives and organizational restructurings to improve performance and generate cost savings. There can be no assurance that these will be completed or beneficial or that estimated cost savings from such activities will be realized. - - In addition to cost reduction initiatives, the Company is striving to improve margins on its products through price increases, where warranted and accepted by the market; however, the Company's earnings could be negatively impacted should such increases be unrealized or not be sufficient to cover increased raw materials costs. - - The Company is reliant on certain strategic raw materials for its operations and utilizes risk management tools, as appropriate, to mitigate short-term market fluctuations in raw materials costs. There can be no assurance, however, that such measures will achieve their objective or be beneficial to the Company's results of operations. - - The Company's competitive position in the markets in which it participates is, in part, subject to external factors. For example, supply and demand for certain of the Company's products is driven by end-use markets and worldwide capacities which, in turn, impact demand for and pricing of the Company's products. - - The Company has an extensive customer base; however, loss of certain top customers could adversely affect the Company's financial condition and results of operations until such business is replaced. - - Limitation of the Company's available manufacturing capacity due to significant disruption in its manufacturing operations could have a material adverse affect on revenues, expenses and results. - - The Company's facilities are subject to complex environmental laws and regulations which require and will continue to require significant expenditures to remain in compliance with such laws and regulations currently and in the future. The Company's accruals for such costs and liabilities are believed to be adequate, but are subject to changes in estimates on which the accruals are based and depend on a number of factors including the nature of the allegation, the complexity of the site, the nature of the remedy, the outcome of discussions with regulatory agencies and other potentially responsible parties at multi-party sites, and the number and financial viability of other potentially responsible parties. - - The Company's operations are parties to or targets of lawsuits, claims, investigations, and proceedings, including product liability, personal injury, patent and intellectual property, commercial, contract, environmental, antitrust, health and safety, and employment matters, which are being handled and defended in the ordinary course of business. The Company believes amounts reserved are adequate for such pending matters; however, results of operations could be affected by significant litigation adverse to the Company. The foregoing list of important factors does not include all such factors nor necessarily present them in order of importance. This disclosure represents management's best judgment as of the date of filing. The Company does not undertake responsibility for updating such information. - ---------------------------- EASTAPAK is a trademark of Eastman Chemical Company. 19 20 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS GENERAL The Company's operations are parties to or targets of lawsuits, claims, investigations, and proceedings, including product liability, personal injury, patent and intellectual property, commercial, contract, environmental, antitrust, health and safety, and employment matters, which are being handled and defended in the ordinary course of business. While the Company is unable to predict the outcome of these matters, it does not believe, based upon currently available facts, that the ultimate resolution of any of such pending matters, including those described in the following paragraphs, will have a material adverse effect on the Company's overall financial position or results of operations. However, adverse developments could negatively impact earnings in a particular period. SORBATES LITIGATION As previously reported, on September 30, 1998, the Company entered into a voluntary plea agreement with the U. S. Department of Justice and agreed to pay an $11 million fine to resolve a charge brought against the Company for violation of Section One of the Sherman Act. Under the agreement, the Company entered a plea of guilty to one count of price-fixing for sorbates, a class of food preservatives, from January 1995 through June 1997. The plea agreement was approved by the United States District Court for the Northern District of California on October 21, 1998. The Company recognized the entire fine in third quarter 1998 and is paying the fine in installments over a period of five years. On October 26, 1999, the Company pleaded guilty in a Federal Court of Canada to a violation of the Competition Act of Canada and was fined $780,000 (Canadian). The plea admitted that the same conduct that was the subject of the September 30, 1998, plea in the United States had occurred with respect to sorbates sold in Canada, and prohibited repetition of the conduct and provides for future monitoring. The fine has been paid and was recognized as a charge against earnings in the fourth quarter 1999. In addition, the Company, along with other companies, is currently a defendant in twenty antitrust lawsuits brought subsequent to the Company's plea agreements as putative class actions on behalf of certain purchasers of sorbates in the United States and Canada. In each case, the plaintiffs allege that the defendants engaged in a conspiracy to fix the price of sorbates and that the class members paid more for sorbates than they would have paid absent the defendants' conspiracy. Six of the suits (five of which have since been consolidated) were filed in Superior Courts for the State of California under various state antitrust and consumer protection laws on behalf of classes of indirect purchasers of sorbates; six of the proceedings (which have subsequently been consolidated or found to be related cases) were filed in the United States District Court for the Northern District of California under federal antitrust laws on behalf of classes of direct purchasers of sorbates; two cases were filed in Circuit Courts for the State of Tennessee under the antitrust and consumer protection laws of various states, including Tennessee, on behalf of classes of indirect purchasers of sorbates in those states; one case was filed in the United States District Court for the Southern District of New York (and has been transferred to the Northern District of California) under federal antitrust laws on behalf of a class of direct purchasers of sorbates; one action was filed in the Circuit Court for the State of Wisconsin under various state antitrust laws on behalf of a class of indirect purchasers of sorbates in those states; one action was filed in the District Court for the State of Kansas under Kansas antitrust laws on behalf of a class of indirect purchasers of sorbates in that state; one case was filed in the Second Judicial District Court for the State of New Mexico under New Mexico antitrust laws on behalf of a class of indirect purchasers of sorbates in that state; one lawsuit was filed in the Ontario Superior Court of 20 21 Justice under the federal competition law and pursuant to common law causes of action on behalf of a class of direct and indirect purchasers of sorbates in Canada; and one suit was filed in the Quebec Superior Court under the federal competition law on behalf of a class of direct and indirect purchasers of sorbates in the Province of Quebec. The plaintiffs in most cases seek treble damages of unspecified amounts, attorneys' fees and costs, and other unspecified relief; in addition, certain of the actions claim restitution, injunction against alleged illegal conduct, and other equitable relief. Each proceeding is in preliminary pretrial motion and discovery stage, and the only proposed class which has been certified is a conditional settlement class relating to other defendants in the federal direct purchaser cases pending in California. The Company intends vigorously to defend these actions unless they can be settled on terms acceptable to the parties. These matters could result in the Company being subject to monetary damages and expenses. The Company recognized charges to earnings in the fourth quarter 1998, the fourth quarter 1999, and the first quarter 2000 for estimated costs, including legal fees, related to the pending sorbates litigation described above. Because of the early stage of these putative class action lawsuits, however, the ultimate outcome of these matters cannot presently be determined, and they may result in greater or lesser liability than that currently provided for in the Company's financial statements. ENVIRONMENTAL MATTER As previously reported, in May 1997, the Company received notice from the Tennessee Department of Environment and Conservation ("TDEC") alleging that the manner in which hazardous waste was fed into certain boilers at the Tennessee Eastman facility in Kingsport, Tennessee violated provisions of the Tennessee Hazardous Waste Management Act. The Company had voluntarily disclosed this matter to TDEC in December 1996. Over the course of the last three years, the Company has provided extensive information relating to this matter to TDEC, the U.S. Environmental Protection Agency ("EPA"), and the U.S. Department of Justice. On September 7, 1999, the Company and EPA entered into a Consent Agreement and Consent Order whereby the Company agreed to pay a civil penalty of $2.75 million to EPA for an alleged violation concerning monitoring and recordkeeping. The Company recognized the fine in 1999 and is paying the fine in three installments over a period of one year. Various agencies are continuing to review the information submitted by the Company. ITEM 2. CHANGES IN SECURITIES (c) On January 1, 2000, the Company granted options to purchase an aggregate of 719 shares of its common stock on or after July 1, 2000 at an exercise price of $46.4375 per share. Such options were granted to non-employee directors who elected under the 1996 Non-Employee Director Stock Option Plan to receive options in lieu of all or a portion of their semi-annual cash retainer fee. The Company issued the options in reliance upon the exemption from registration of Section 4(2) of the Securities Act of 1933. The Company did not sell any other equity securities during the quarterly period ended March 31, 2000 in transactions not registered under the Securities Act of 1933. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits filed as part of this report are listed in the Exhibit Index appearing on page 23. (b) Reports on Form 8-K The Company did not file any reports on Form 8-K during the quarter ended March 31, 2000. 21 22 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Eastman Chemical Company Date: May 5, 2000 By: /s/ James P. Rogers ------------------------- James P. Rogers Senior Vice President and Chief Financial Officer 22 23 EXHIBIT INDEX
EXHIBIT SEQUENTIAL NUMBER DESCRIPTION PAGE NUMBER - ---------------- --------------------------------------------------------------------------- ----------------- 3.01 Amended and Restated Certificate of Incorporation of Eastman Chemical Company (incorporated herein by reference to Exhibit 3.01 to Eastman Chemical Company's Registration Statement on Form S-1, File No. 33-72364, as amended) 3.02 Amended and Restated Bylaws of Eastman Chemical Company, as amended May 4, 2000 25-35 4.01 Form of Eastman Chemical Company Common Stock certificate (incorporated herein by reference to Exhibit 3.02 to Eastman Chemical Company's Annual Report on Form 10-K for the year ended December 31, 1993) 4.02 Stockholder Protection Rights Agreement dated as of December 13, 1993, between Eastman Chemical Company and First Chicago Trust Company of New York, as Rights Agent (incorporated herein by reference to Exhibit 4.4 to Eastman Chemical Company's Registration Statement on Form S-8 relating to the Eastman Investment Plan, File No. 33-73810) 4.03 Indenture, dated as of January 10, 1994, between Eastman Chemical Company and The Bank of New York, as Trustee (the "Indenture") (incorporated herein by reference to Exhibit 4(a) to Eastman Chemical Company's current report on Form 8-K dated January 10, 1994 (the "8-K")) 4.04 Form of 6 3/8% Notes due January 15, 2004 (incorporated herein by reference to Exhibit 4(c) to the 8-K) 4.05 Form of 7 1/4% Debentures due January 15, 2024 (incorporated herein by reference to Exhibit 4(d) to the 8-K) 4.06 Officers' Certificate pursuant to Sections 201 and 301 of the Indenture (incorporated herein by reference to Exhibit 4(a) to Eastman Chemical Company's Current Report on Form 8-K dated June 8, 1994 (the "June 8-K")) 4.07 Form of 7 5/8% Debentures due June 15, 2024 (incorporated herein by reference to Exhibit 4(b) to the June 8-K) 4.08 Form of 7.60% Debentures due February 1, 2027 (incorporated herein by reference to Exhibit 4.08 to Eastman Chemical Company's Annual Report on Form 10-K for the year ended December 31, 1996 (the "1996 10-K"))
23 24 EXHIBIT INDEX (CONTINUED)
EXHIBIT SEQUENTIAL NUMBER DESCRIPTION PAGE NUMBER - ---------------- --------------------------------------------------------------------------- ----------------- 4.09 Officer's Certificate pursuant to Sections 201 and 301 of the Indenture related to 7.60% Debentures due February 1, 2027 (incorporated herein by reference to Exhibit 4.09 to the 1996 10-K) 4.10 Credit Agreement, dated as of December 19, 1995 (the "Credit Agreement") among Eastman Chemical Company, the Lenders named therein, and The Chase Manhattan Bank, as Agent (incorporated herein by reference to Exhibit 4.08 to Eastman Chemical Company's Annual Report on Form 10-K for the year ended December 31, 1995) 4.11 $200,000,000 Accounts Receivable Securitization agreement dated April 13, 1999 (amended April 11, 2000), between the Company and Bank One, NA, as agent. Pursuant to Item 601(b)(4)(iii) of Regulation S-K, in lieu of filing a copy of such agreement, the Company agrees to furnish a copy of such agreement to the Commission upon request. *10.01 Eastman Performance Plan, as amended May 3, 2000 36-48 12.01 Statement re Computation of Ratios of Earnings to Fixed Charges 49 27.01 Financial Data Schedule for First Quarter 2000 (for SEC use only)
- -------------------------------------------------------------------------------- *Management contract or compensatory plan or arrangement filed pursuant to Item 601(b)(10)(iii) of Regulation S-K. 24 EX-3.02 2 AMENDED AND RESTATED BY-LAWS 1 EXHIBIT 3.02 EASTMAN CHEMICAL COMPANY BYLAWS AMENDED AND RESTATED AS OF MAY 4, 2000 SECTION I CAPITAL STOCK SECTION 1.1. CERTIFICATES. Every holder of stock in the Corporation shall be entitled to have a certificate signed in the name of the Corporation by the Chairman of the Board of Directors or the Vice Chairman or a Vice President, and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the Corporation certifying the number of shares in the Corporation owned by such holder. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were such officer, transfer agent, or registrar at the date of issue. SECTION 1.2. RECORD OWNERSHIP. A record of the name and address of the holder of each certificate, the number of shares represented thereby and the date of issue thereof shall be made on the Corporation's books. The Corporation shall be entitled to treat the holder of record of any share of stock as the holder in fact thereof, and accordingly shall not be bound to recognize any equitable or other claim to or interest in any share on the part of any other person, whether or not it shall have express or other notice thereof, except as required by the laws of the State of Delaware. SECTION 1.3. TRANSFER OF RECORD OWNERSHIP. Transfers of stock shall be made on the books of the Corporation only by direction of the person named in the certificate or such person's attorney, lawfully constituted in writing, and only upon the surrender of the certificate therefor and a written assignment of the shares evidenced thereby, which certificate shall be canceled before the new certificate is issued. SECTION 1.4. LOST CERTIFICATES. Any person claiming a stock certificate in lieu of one lost, stolen or destroyed shall give the Corporation an affidavit as to such person's ownership of the certificate and of the facts which go to prove its loss, theft or destruction. Such person shall also, if required by policies adopted by the Board of Directors, give the Corporation a bond, in such form as may be approved by the Corporation, sufficient to indemnify the Corporation against any claim that may be made against it on account of the alleged loss of the certificate or the issuance of a new certificate. SECTION 1.5. TRANSFER AGENTS; REGISTRARS; RULES RESPECTING CERTIFICATES. The Board of Directors may appoint, or authorize any officer or officers to appoint, one or more transfer agents and one or more registrars. The Board of Directors may make such further rules and regulations as it may deem expedient concerning the issue, transfer and registration of stock certificates of the Corporation. SECTION 1.6. RECORD DATE. The Board of Directors may fix in advance a future date, not exceeding 60 days (nor, in the case of a stockholders' meeting, less than ten days) preceding the date of any meeting of stockholders, payment of dividend or other distribution, allotment of rights, or change, 25 2 conversion or exchange of capital stock or for the purpose of any other lawful action, as the record date for determination of the stockholders entitled to notice of and to vote at any such meeting and any adjournment thereof, or to receive any such dividend or other distribution or allotment of rights, or to exercise the rights in respect of any such change, conversion or exchange of capital stock, or to participate in any such other lawful action, and in such case such stockholders and only such stockholders as shall be stockholders of record on the date so fixed shall be entitled to such notice of and to vote at such meeting and any adjournment thereof, or to receive such dividend or other distribution or allotment of rights, or to exercise such rights, or to participate in any such other lawful action, as the case may be, notwithstanding any transfer of any stock on the books of the Corporation after any such record date fixed as aforesaid. SECTION II MEETINGS OF STOCKHOLDERS SECTION 2.1. ANNUAL. The annual meeting of stockholders for the election of directors and the transaction of such other proper business shall be held on the first Thursday in May, unless otherwise specified by resolution adopted by the Board of Directors, and at the time and place, within or without the State of Delaware, as determined by the Board of Directors. SECTION 2.2. SPECIAL. Special meetings of stockholders for any purpose or purposes may be called only by the Board of Directors, pursuant to a resolution adopted by a majority of the members of the Board of Directors then in office. Special meetings may be held at any place, within or without the State of Delaware, as determined by the Board of Directors. The only business which may be conducted at such a meeting, other than procedural matters and matters relating to the conduct of the meeting, shall be the matter or matters described in the notice of the meeting. SECTION 2.3. NOTICE. Notice of each meeting of stockholders, shall be made in writing, or electronically to such stockholders as have consented to the receipt of such notice by electronic means, or by any such other means permitted by the Delaware General Corporation Law. Such notice shall state the date, time, place and, in the case of a special meeting, the purpose thereof, shall be given as provided by law by the Secretary or an Assistant Secretary not less than ten days nor more than 60 days before such meeting (unless a different time is specified by law) to every stockholder entitled by law to notice of such meeting. SECTION 2.4. LIST OF STOCKHOLDERS. A complete list of the stockholders entitled to vote at any meeting of stockholders, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder, shall be prepared by the Secretary and shall be open to the examination of any stockholder, for any purpose germane to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified at the place where the meeting is to be held, for at least ten days before the meeting and at the place of the meeting during the whole time of the meeting. SECTION 2.5. QUORUM. The holders of shares of stock entitled to cast a majority of the votes on the matters at issue at a meeting of stockholders, present in person or represented by proxy, shall constitute a quorum, except as otherwise required by the Delaware General Corporation Law. In the event of a lack of a quorum, the chairman of the meeting or a majority in interest of the stockholders present in 26 3 person or represented by proxy may adjourn the meeting from time to time without notice other than announcement at the meeting, until a quorum shall be obtained. At any such adjourned meeting at which there is a quorum, any business may be transacted that might have been transacted at the meeting originally called. SECTION 2.6. ORGANIZATION AND PROCEDURE. (a) The Chairman of the Board, or, in the absence of the Chairman of the Board, the Vice Chairman, or, in the absence of the Vice Chairman, any other person designated by the Board of Directors, shall preside at meetings of stockholders. The Secretary of the Corporation shall act as secretary, but in the absence of the Secretary, the presiding officer may appoint a secretary. (b) At each meeting of stockholders, the chairman of the meeting shall fix and announce the date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at the meeting and shall determine the order of business and all other matters of procedure. Except to the extent inconsistent with any such rules and regulations as adopted by the Board of Directors, the chairman of the meeting may establish rules, which need not be in writing, to maintain order for the conduct of the meeting, including, without limitation, restricting attendance to bona fide stockholders of record and their proxies and other persons in attendance at the invitation of the chairman and making rules governing speeches and debates. The chairman of the meeting acts in his or her absolute discretion and his or her rulings are not subject to appeal. SECTION 2.7. STOCKHOLDER NOMINATIONS AND PROPOSALS. (a) No proposal for a stockholder vote shall be submitted by a stockholder (a "Stockholder Proposal") to the Corporation's stockholders unless the stockholder submitting such proposal (the "Proponent") shall have filed a written notice setting forth with particularity (i) the names and business addresses of the Proponent and all Persons (as such term is defined in Article V of the Certificate of Incorporation) acting in concert with the Proponent; (ii) the name and address of the Proponent and the Persons identified in clause (i), as they appear on the Corporation's books (if they so appear); (iii) the class and number of shares of the Corporation beneficially owned by the Proponent and the Persons identified in clause (i); (iv) a description of the Stockholder Proposal containing all material information relating thereto; and (v) such other information as the Board of Directors reasonably determines is necessary or appropriate to enable the Board of Directors and stockholders of the Corporation to consider the Stockholder Proposal. The presiding officer at any stockholders' meeting may determine that any Stockholder Proposal was not made in accordance with the procedures prescribed in these Bylaws or is otherwise not in accordance with law, and if it is so determined, such officer shall so declare at the meeting and the Stockholder Proposal shall be disregarded. (b) Only persons who are selected and recommended by the Board of Directors or the committee of the Board of Directors designated to make nominations, or who are nominated by stockholders in accordance with the procedures set forth in this Section 2.7, shall be eligible for election, or qualified to serve, as directors. Nominations of individuals for election to the Board of Directors of the Corporation at any annual meeting or any special meeting of stockholders at which directors are to be elected may be made by any stockholder of the Corporation entitled to vote for the election of directors at that meeting by compliance with the procedures set forth in this Section 2.7. Nominations by stockholders shall be made by written notice (a "Nomination Notice"), which shall set forth (i) as to each individual nominated, (A) the name, date of birth, business address and residence address of such individual; (B) the business experience during the past five years of such nominee, including his or her principal occupations and employment during such period, the name and principal business of any corporation or other organization in which such occupations and employment were carried on, and such other information as to the nature of his or her 27 4 responsibilities and level of professional competence as may be sufficient to permit assessment of his or her prior business experience; (C) whether the nominee is or has ever been at any time a director, officer or owner of 5% or more of any class of capital stock, partnership interests or other equity interest of any corporation, partnership or other entity; (D) any directorships held by such nominee in any company with a class of securities registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended, or subject to the requirements of Section 15(d) of such Act or any company registered as an investment company under the Investment Company Act of 1940, as amended; and (E) whether, in the last five years, such nominee has been convicted in a criminal proceeding or has been subject to a judgment, order, finding or decree of any federal, state or other governmental entity, concerning any violation of federal, state or other law, or any proceeding in bankruptcy, which conviction, order, finding, decree or proceeding may be material to an evaluation of the ability or integrity of the nominee; and (ii) as to the Person submitting the Nomination Notice and any Person acting in concert with such Person, (x) the name and business address of such Person, (y) the name and address of such Person as they appear on the Corporation's books (if they so appear), and (z) the class and number of shares of the Corporation that are beneficially owned by such Person. A written consent to being named in a proxy statement as a nominee, and to serve as a director if elected, signed by the nominee, shall be filed with any Nomination Notice. If the presiding officer at any stockholders' meeting determines that a nomination was not made in accordance with the procedures prescribed by these Bylaws, he shall so declare to the meeting and the defective nomination shall be disregarded. (c) Nomination Notices and Stockholder Proposals shall be delivered to the Secretary at the principal executive office of the Corporation 60 days or more before the date of the stockholders' meeting if such Nomination Notice or Stockholder Proposal is to be submitted at an annual stockholders' meeting (provided, however, that if such annual meeting is called to be held before the date specified in Section 2.1 hereof, such Nomination Notice or Stockholder Proposal shall be so delivered no later than the close of business on the 15th day following the day on which notice of the date of the annual stockholders' meeting was given). Nomination Notices and Stockholder Proposals shall be delivered to the Secretary at the principal executive office of the Corporation no later than the close of business on the 15th day following the day on which notice of the date of a special meeting of stockholders was given if the Nomination Notice or Stockholder Proposal is to be submitted at a special stockholders' meeting. SECTION 2.8. VOTING. Unless otherwise provided in a resolution or resolutions providing for any class or series of Preferred Stock pursuant to Article IV of the Certificate of Incorporation or by the Delaware General Corporation Law, each stockholder shall be entitled to one vote, in person or by proxy, for each share held of record by such stockholder who is entitled to vote generally in the election of directors. Each stockholder voting by proxy shall grant such authority in writing, by electronic or telephonic transmission or communication, or by any such other means permitted by the Delaware General Corporation Law. All elections for the Board of Directors shall be decided by a plurality of the votes cast and all other questions shall be decided by a majority of the votes cast, except as otherwise required by the Delaware General Corporation Law or as provided for in the Certificate of Incorporation or these Bylaws. Abstentions shall not be considered to be votes cast. SECTION 2.9. INSPECTORS. The Board of Directors by resolution shall, in advance of any meeting of stockholders, appoint one or more inspectors, which inspector or inspectors may include individuals who serve the Corporation in other capacities, including, without limitation, as officers, employees, agents or representatives of the Corporation, to act at the meeting and make a written report thereof. One or more persons may be designated by the Board of Directors as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the 28 5 chairman of the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before discharging his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability. The inspectors shall have the duties prescribed by the Delaware General Corporation Law. SECTION III BOARD OF DIRECTORS SECTION 3.1. NUMBER AND QUALIFICATIONS. The business and affairs of the Corporation shall be managed by or under the direction of its Board of Directors. The number of directors constituting the Board of Directors shall be as authorized from time to time exclusively by a vote of a majority of the members of the Board of Directors then in office. The maximum number of consecutive three-year terms of office that may be served by any director is three, and for purposes of calculating such maximum number of terms there shall not be counted as a three-year term any service during a partial term for which such director is serving or during any initial term; provided, however, that the Board of Directors is authorized in circumstances it deems appropriate to nominate and thereby render eligible a person for a fourth or subsequent consecutive three-year term. Notwithstanding the foregoing, (i) a person who is not serving as a director shall not be eligible for nomination, appointment, or election if such person has or will have reached age 70 on the date of his or her appointment or election; and (ii) any director reaching the age of 70 during any term of office shall continue to be qualified to serve as a director only until the next annual meeting of stockholders following his or her 70th birthday, provided, however, that the Board of Directors is authorized, in circumstances it deems appropriate and by unanimous approval of all of the directors then in office (excepting the director whose qualification is the subject of the action), to render a director then in office eligible to serve until the next annual meeting of stockholders following his or her 71st birthday. SECTION 3.2. RESIGNATION. A director may resign at any time by giving written notice to the Chairman of the Board, to the Vice Chairman or to the Secretary. Unless otherwise stated in such notice of resignation, the acceptance thereof shall not be necessary to make it effective; and such resignation shall take effect at the time specified therein or, in the absence of such specification, it shall take effect upon the receipt thereof. SECTION 3.3. REGULAR MEETINGS. Regular meetings of the Board of Directors may be held without further notice at such time as shall from time to time be determined by the Board of Directors. Unless otherwise determined by the Board of Directors, the locations of the regular meetings of the Board of Directors shall be in Kingsport, Tennessee. A meeting of the Board of Directors for the election of officers and the transaction of such other business as may come before it may be held without notice immediately following the annual meeting of stockholders. SECTION 3.4. SPECIAL MEETINGS. Special meetings of the Board of Directors may be called by the Chairman of the Board, or the Vice Chairman or at the request in writing of one third of the members of the Board of Directors then in office. SECTION 3.5. NOTICE OF SPECIAL MEETINGS. Notice of the date, time and place of each special meeting shall be mailed by regular mail to each director at his designated address at least six days before the meeting; or sent by overnight courier to each director at his designated address at least two days 29 6 before the meeting (with delivery scheduled to occur no later than the day before the meeting); or given orally by telephone or other means, or by telegraph or telecopy, or by any other means comparable to any of the foregoing, to each director at his designated address at least 24 hours before the meeting; provided, however, that if less than five days' notice is provided and one third of the members of the Board of Directors then in office object in writing prior to or at the commencement of the meeting, such meeting shall be postponed until five days after such notice was given pursuant to this sentence (or such shorter period to which a majority of those who objected in writing agree), provided that notice of such postponed meeting shall be given in accordance with this Section 3.5. The notice of the special meeting shall state the general purpose of the meeting, but other routine business may be conducted at the special meeting without such matter being stated in the notice. SECTION 3.6. PLACE OF MEETINGS. The Board of Directors may hold their meetings and have an office or offices inside or outside of the State of Delaware. SECTION 3.7. TELEPHONIC MEETING AND PARTICIPATION. Any or all of the directors may participate in a meeting of the Board of Directors or any committee thereof by conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation shall constitute presence in person at the meeting. SECTION 3.8. ACTION BY DIRECTORS WITHOUT A MEETING. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the Board or of such committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee. SECTION 3.9. QUORUM AND ADJOURNMENT. A majority of the directors then holding office shall constitute a quorum. The vote of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. Whether or not a quorum is present to conduct a meeting, any meeting of the Board of Directors (including an adjourned meeting) may be adjourned by a majority of the directors present, to reconvene at a specific time and place. It shall not be necessary to give to the directors present at the adjourned meeting notice of the reconvened meeting or of the business to be transacted, other than by announcement at the meeting that was adjourned; provided, however, notice of such reconvened meeting, stating the date, time, and place of the reconvened meeting, shall be given to the directors not present at the adjourned meeting in accordance with the requirements of Section 3.5 hereof. SECTION 3.10. ORGANIZATION. The Chairman of the Board, or, in the absence of the Chairman of the Board, the Vice Chairman, or in the absence of the Vice Chairman, a member of the Board selected by the members present, shall preside at meetings of the Board. The Secretary of the Corporation shall act as secretary, but in the absence of the Secretary, the presiding officer may appoint a secretary. SECTION 3.11. COMPENSATION OF DIRECTORS. Directors shall receive such compensation for their services as the Board of Directors may determine. Any director may serve the Corporation in any other capacity and receive compensation therefor. SECTION 3.12. PRESUMPTION OF ASSENT. A director of the Corporation who is present at a meeting of the Board of Directors when a vote on any matter is taken is deemed to have assented to the action taken unless he votes against or abstains from the action taken, or unless at the beginning of the 30 7 meeting or promptly upon arrival the director objects to the holding of the meeting or transacting specified business at the meeting. Any such dissenting votes, abstentions or objections shall be entered in the minutes of the meeting. SECTION IV COMMITTEES SECTION 4.1. COMMITTEES. The Board of Directors may, by resolutions passed by a majority of the members of the Board of Directors, designate members of the Board of Directors to constitute other committees which shall in each case consist of such number of directors, and shall have and may execute such powers as may be determined and specified in the respective resolutions appointing them. Any such committee may fix its rules of procedure, determine its manner of acting and the time and place, whether within or without the State of Delaware, of its meetings and specify what notice thereof, if any, shall be given, unless the Board of Directors shall otherwise by resolution provide. Unless otherwise provided by the Board of Directors or such committee, the quorum, voting and other procedures shall be the same as those applicable to actions taken by the Board of Directors. A majority of the members of the Board of Directors then in office shall have the power to change the membership of any such committee at any time, to fill vacancies therein and to discharge any such committee or to remove any member thereof, either with or without cause, at any time. SECTION V OFFICERS SECTION 5.1 DESIGNATION. The officers of the Corporation shall be a Chairman of the Board of Directors, a Chief Executive Officer, a Chief Financial Officer, a Treasurer, a Controller, and a Secretary, and such other officers as the Board of Directors may elect or appoint, or provide for the appointment of, as may from time to time appear necessary or advisable in the conduct of the business and affairs of the Corporation. Any number of offices may be held by the same persons, except that the Chairman of the Board must be a director of the Corporation and may also be the Chief Executive Officer. SECTION 5.2. ELECTION TERM. At its first meeting after each annual meeting of stockholders, the Board of Directors shall elect the officers or provide for the appointment thereof. Subject to Section 5.3 and Section 5.4 hereof, the term of each officer elected by the Board of Directors shall be until the first meeting of the Board of Directors following the next annual meeting of stockholders and until such officer's successor is chosen and qualified. SECTION 5.3. RESIGNATION. Any officer may resign at any time by giving written notice to the Secretary. Unless otherwise stated in such notice of resignation, the acceptance thereof shall not be necessary to make it effective; and such resignation shall take effect at the time specified therein or, in the absence of such specification, it shall take effect upon the receipt thereof. SECTION 5.4. REMOVAL. Any officer may be removed at any time with or without cause by affirmative vote of a majority of the members of the Board of Directors then in office. Any officer appointed by another officer may be removed with or without cause by such officer or the Chief Executive Officer. 31 8 SECTION 5.5. VACANCIES. A vacancy in any office may be filled for the unexpired portion of the term by the Board of Directors or, in the case of offices held by officers who may be appointed by other officers, by any officer authorized to appoint such officer. SECTION 5.6. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall be responsible for carrying out the policies adopted by the Board of Directors. SECTION 5.7. CHAIRMAN OF THE BOARD. The Chairman of the Board shall have such powers and perform such duties as may be provided for herein and as may be incident to the office and as may be assigned by the Board of Directors. SECTION 5.8. CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall act in an executive financial capacity, and assist the Chief Executive Officer in the general supervision of the Corporation's financial policies and affairs, and shall perform all acts incident to the position of Chief Financial Officer, subject to the control of the Board of Directors. SECTION 5.9. TREASURER. The Treasurer shall have charge of all funds of the Corporation and shall perform all acts incident to the position of Treasurer, subject to the control of the Board of Directors. SECTION 5.10. CONTROLLER. The Controller shall serve as principal accounting officer of the Corporation, having the custody and operation of the accounting books and records of the Corporation, and shall perform all acts incident to the position of Controller, subject to the control of the Board of Directors. SECTION 5.11. SECRETARY. The Secretary shall keep the minutes, and give notices, of all meetings of stockholders and directors and of such committees as directed by the Board of Directors. The Secretary shall have charge of such books and papers as the Board of Directors may require. The Secretary (or any Assistant Secretary) is authorized to certify copies of extracts from minutes and of documents in the Secretary's charge and anyone may rely on such certified copies to the same effect as if such copies were originals and may rely upon any statement of fact concerning the Corporation certified by the Secretary (or any Assistant Secretary). The Secretary shall perform all acts incident to the office of Secretary, subject to the control of the Board of Directors. SECTION 5.12. COMPENSATION OF OFFICERS. The officers of the Corporation shall receive such compensation for their services as the Board of Directors or the appropriate committee thereof may determine. The Board of Directors may delegate its authority to determine compensation to designated officers of the Corporation. SECTION 5.13. EXECUTION OF INSTRUMENTS. Checks, notes, drafts, other commercial instruments, assignments, guarantees of signatures and contracts (except as otherwise provided herein or by law) shall be executed by the Chief Executive Officer or other officers or employees or agents, in any such case as the Board of Directors may direct or authorize. SECTION 5.14. MECHANICAL ENDORSEMENTS. The Chief Executive Officer, the Secretary, or other authorized officers may authorize any endorsement on behalf of the Corporation to be made by such mechanical means or stamps as any of such officers may deem appropriate. 32 9 SECTION VI INDEMNIFICATION SECTION 6.1. INDEMNIFICATION PROVISIONS IN CERTIFICATE OF INCORPORATION. The provisions of this Section VI are intended to supplement Article VII of the Certificate of Incorporation pursuant to Sections 7.2 and 7.3 thereof. To the extent that this Section VI contains any provisions inconsistent with said Article VII, the provisions of the Certificate of Incorporation shall govern. Terms defined in such Article VII shall have the same meaning in this Section VI. SECTION 6.2. INDEMNIFICATION OF EMPLOYEES. The Corporation shall indemnify and advance expenses to its employees to the same extent as to its directors and officers, as set forth in the Certificate of Incorporation and in this Section VI of the Bylaws of the Corporation. SECTION 6.3. UNDERTAKINGS FOR ADVANCES OF EXPENSES. If and to the extent the Delaware General Corporation Law requires, an advancement by the Corporation of expenses incurred by an indemnitee pursuant to clause (iii) of the last sentence of Section 7.1 of the Certificate of Incorporation (hereinafter an "advancement of expenses") shall be made only upon delivery to the Corporation of an undertaking (hereinafter an "undertaking"), by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal (hereinafter a "final adjudication") that such indemnitee is not entitled to be indemnified for such expenses under Article VII of the Certificate of Incorporation or otherwise. SECTION 6.4. CLAIMS FOR INDEMNIFICATION. If a claim for indemnification under Section 7.1 of the Certificate of Incorporation is not paid in full by the Corporation within 60 days after it has been received in writing by the Corporation, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be 20 days, the indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim. If successful in whole or in part in any such suit, or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the indemnitee shall be entitled to be paid also the expense of prosecuting or defending such suit. In any suit brought by the indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the indemnitee to enforce a right to an advancement of expenses) it shall be a defense that, and in any suit by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking the Corporation shall be entitled to recover such expenses only upon a final adjudication that, the indemnitee has not met the applicable standard of conduct set forth in Section 145 of the Delaware General Corporation Law (or any successor provision or provisions). Neither the failure of the Corporation (including the Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such suit that indemnification of the indemnitee is proper in the circumstances because the indemnitee has met the applicable standard of conduct set forth in Section 145 of the Delaware General Corporation Law (or any successor provision or provisions), nor an actual determination by the Corporation (including the Board of Directors, independent legal counsel, or its stockholders) that the indemnitee has not met such applicable standard of conduct, shall create a presumption that the indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the indemnitee, be a defense to such suit. In any suit brought by the indemnitee to enforce a right to indemnification or to an advancement of expenses hereunder, or by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving 33 10 that the indemnitee is not entitled to be indemnified, or to have or retain such advancement of expenses, under Article VII of the Certificate of Incorporation or this Section VI or otherwise, shall be on the Corporation. SECTION 6.5. INSURANCE. The Corporation may maintain insurance, at its expense, to protect itself and any director, trustee, officer, employee or agent of the Corporation or another enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law. SECTION 6.6. SEVERABILITY. In the event that any of the provisions of this Section VI (including any provision within a single section, paragraph or sentence) is held by a court of competent jurisdiction to be invalid, void or otherwise unenforceable, the remaining provisions are severable and shall remain enforceable to the full extent permitted by law. SECTION VII MISCELLANEOUS SECTION 7.1. SEAL. The Corporation shall have a suitable seal, containing the name of the Corporation. The Secretary shall be in charge of the seal and may authorize one or more duplicate seals to be kept and used by any other officer or person. SECTION 7.2. WAIVER OF NOTICE. Whenever any notice is required to be given, a waiver thereof in writing, signed by the person or persons entitled to the notice, whether before or after the time stated therein shall be deemed equivalent thereto. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. SECTION 7.3. VOTING OF STOCK OWNED BY THE CORPORATION. Powers of attorney, proxies, waivers of notice of meeting, consents and other instruments relating to securities owned by the Corporation may be executed in the name of and on behalf of the Corporation by the Chairman of the Board, the Vice Chairman, any Vice President or such officers or employees or agents as the Board of Directors or any of such designated officers may direct. Any such officer may, in the name of and on behalf of the Corporation, take all such action as any such officer may deem advisable to vote in person or by proxy at any meeting of security holders of any corporation in which the Corporation may own securities and at any such meeting shall possess and may exercise any and all rights and powers incident to the ownership of such securities and which, as the owner thereof, the Corporation might have exercised and possessed if present. The Board of Directors may from time to time confer like powers upon any other person or persons. SECTION VIII AMENDMENT OF BYLAWS The Board of Directors shall have power to amend, alter, change, adopt or repeal the Bylaws of the Corporation at any regular or special meeting; provided, however, any action relating to the last sentence of 34 11 Section 3.1 of these Bylaws concerning the age 70 qualification limitation on Board service shall require the vote of 100 percent of the directors then in office. The stockholders also shall have the power to amend, alter, change, adopt or repeal the Bylaws of the Corporation at any annual or special meeting subject to the requirements of the Certificate of Incorporation. 35 EX-10.01 3 EASTMAN PERFORMANCE PLAN, AS AMENDED 1 EXHIBIT 10.01 EASTMAN CHEMICAL COMPANY EASTMAN PERFORMANCE PLAN (amended and restated effective May 3, 2000) ARTICLE 1. INTRODUCTION The Eastman Performance Plan, as set forth in this document, has been approved by the Board of Directors of Eastman Chemical Company (the "Company") as a variable compensation program which provides eligible employees with tangible recognition for their contributions to the success of the Company. The Eastman Performance Plan is also intended to secure the full deductibility of Plan Payouts to Covered Employees, and all cash compensation payable hereunder to such persons is intended to qualify as "performance based compensation", as described in Section 162(m) of the Internal Revenue Code of 1986, as amended. The Company's Board of Directors is responsible for approving the declaration of Plan Payouts under this Plan each year, except for Plan payouts to Covered Employees, which shall be approved by the Compensation Committee. No declaration of Plan Payout by the Board or the Compensation Committee for any given year shall commit the Board or the Compensation Committee to any given level of Plan Payout in future years. ARTICLE 2. DEFINITIONS 2.00 AFFILIATED COMPANY. See Section 2.28A. 2.01 BOARD. The Board of Directors of the Company. 2.02 RESERVED. 2.03 CAPITAL. Capital shall designate the funds invested in the Company through either debt or equity, including funds loaned to the Company from financial institutions or through the issuance of bonds, debentures or other private debt instruments, plus the shareholders' cumulative investment in the Company through the ownership of all outstanding shares of all classes of stock. 2.04 CODE. The Internal Revenue Code of 1986, as amended. 2.05 COLLEGE COOPERATIVE STUDENT. College Cooperative Student shall refer to an employee who is a college student pursuing studies of interest to the Company and who generally works a full-time schedule on an alternate work/school block basis. 2.06 COMPANY. Eastman Chemical Company or its corporate successors. Notwithstanding the foregoing, whenever reference is made in this Plan to "the Company" in the context of financial performance, e.g., "the Company's capital debt", the "Company" shall mean Eastman Chemical Company and all of its affiliates that are included on its consolidated financial statements. 36 2 2.07 RESERVED. 2.08 COMPENSATION COMMITTEE. The Compensation and Management Development Committee of the Board, or such other committee designated by the Board, authorized to administer the Plan as provided herein. The Committee shall consist of not less than two members, each of whom shall be an "outside director" as that term is used in Code Section 162(m) and the regulations promulgated thereunder. 2.09 COST OF CAPITAL. The Cost of Capital reflects the cost of debt and the cost of equity, expressed as a percentage reflecting the percentage of interest charged on debt and the percentage of expected return on equity. 2.10 COVERED EMPLOYEE. An individual defined in Code Section 162(m)(3). 2.11 EARNINGS FROM CONTINUING OPERATIONS. Earnings from Continuing Operations shall be defined as the total sales of the Company minus the costs of all operations of any nature used to produce such sales, including taxes, plus after-tax interest associated with the Company's capital debt. 2.12 RESERVED. 2.13 EASTMAN INVESTMENT AND EMPLOYEE STOCK OWNERSHIP PLAN OR EIP/ESOP. The Eastman Investment and Employee Stock Ownership Plan, a qualified savings and employee stock ownership plan under Sections 401(a), 401(k), and 4975 of the Code, including any amendments which may from time to time be adopted thereto. 2.14 RESERVED. 2.15 ELIGIBLE EMPLOYEE. Eligible Employees shall be all those individuals who meet the eligibility criteria set forth under Article 3; provided however, that nonresident aliens working outside of the United States shall not be defined as Eligible Employees for the purposes of this Plan. 2.16 RESERVED. 2.17 LIMITED SERVICE EMPLOYEE. Limited Service Employee shall refer to any individual hired by the Company for the specific purpose of meeting needs of Nine Hundred (900) hours or less in any consecutive twelve (12) month period and who is designated as a Limited Service Employee when hired. 2.18 PARTICIPATING AFFILIATES. Participating Affiliates shall signify all those Subsidiaries or Affiliated Companies which from time to time accept the provisions of the Plan as applying to the employees of such Subsidiary or Affiliated Company. 2.19 PARTICIPATING EARNINGS. Participating Earnings for a given Performance Year shall be an Eligible Employee's Participating Earnings set forth in Appendix A for such Performance Year. 2.20 PAYOUT BASIS. The Payout Basis shall signify the applicable percentage set forth in accordance with the Payout Table contained in Section 4.04. 37 3 2.20A PAYOUT TABLE. The Payout Table shall be that Table set forth under Section 4.04 providing for the correlation between the Performance Indicator and the Payout Basis. 2.21 PERFORMANCE INDICATOR. The Performance Indicator shall mean the Return on Capital minus the Cost of Capital. Such calculation shall be expressed as a percentage, which shall be calculated to the third place after the decimal point (i.e., xx.xxx%), and then rounded to the second place after the decimal point (i.e., xx.xx%). 2.22 PERFORMANCE YEAR. The Performance Year shall be the calendar year, running from January 1 through December 31, with respect to which the financial performance of the Company shall be determined. 2.23 PLAN. The Eastman Performance Plan. 2.24 PLAN PAYOUT. The Plan Payout shall consist of those monies to which the Eligible Employee shall be entitled in accordance with the provisions of this Plan. 2.25 REGULAR FULL-TIME EMPLOYEE. Regular Full-Time Employee shall refer to those individuals who are defined as such on the payrolls of the Company or a Participating Affiliate and who work a regular schedule of: (a) 40 or more hours per week (or shorter time periods where required by law, by Company needs, or by the employee's health); or (b) Alternative work schedules such as alternating 36 and 48 hour workweeks comprised of 12-hour days. 2.26 REGULAR PART-TIME EMPLOYEE. Regular Part-Time Employee shall refer to those individuals who are defined as such on the payroll of the Company or a Participating Affiliate, who work a regular schedule of less than 40 hours per week, and who are not defined as Regular Full-Time Employees under Section 2.25. 2.27 RETURN ON CAPITAL. The Return on Capital shall mean the return produced by funds invested in the Company and shall be determined as Earnings from Continuing Operations, as defined in Section 2.11, divided by the Average Capital Employed. Average Capital Employed shall be derived by adding the Company's capital debt plus equity at the close of the last day of the year preceding the Performance Year, to the Company's capital debt plus equity at the close of the last day of the present Performance Year, with the resulting sum being divided by two. Capital debt is defined as the sum of Borrowing by the Company Due Within One Year and Long-Term Borrowing, as designated on the Company's balance sheet. The resulting ratio shall be multiplied by One Hundred (100) in order to convert such to a percentage. Such percentage shall be calculated to the third place after the decimal point (i.e., xx.xxx%), and then rounded to the second place after the decimal point (i.e., xx.xx%). 2.28 SPECIAL PROGRAM EMPLOYEE. Special Program Employee shall refer to a high school study-work student, a drafting trainee employed to work one quarter or semester, a clerical assistant trainee hired to work for one quarter or semester, a summer technical employee, a visiting scientist, or a normal temporary employee hired for a limited period. 2.28A SUBSIDIARY OR AFFILIATED COMPANY. Subsidiary or Affiliated Company shall mean (i) any business organization which is required to be affiliated with Eastman Chemical Company under 38 4 Code Sections 414(a) or (b); and (ii) any joint venture or other business organization in which Eastman Chemical Company or any entity described in clause (i) has a direct or indirect stock ownership or capital and profits interest of at least 20%. Not every Subsidiary or Affiliated Company is a Participating Affiliate under this Plan. 2.29 TERMINATION ALLOWANCE PLAN OR TAP. Termination Allowance Plan or TAP shall mean the Termination Allowance Plan adopted by the Company effective January 1, 1994, and as amended thereafter from time to time. ARTICLE 3. ELIGIBILITY 3.01 BASIC ELIGIBILITY All Regular Full-Time Employees and Regular Part-Time Employees of Eastman Chemical Company and any other Participating Affiliates as may from time to time participate under this Plan, are eligible to receive a Plan Payout as described herein if they: (a) Meet all of the following requirements; (i) Are employed by Eastman Chemical Company or one of the Participating Affiliates on the last scheduled workday for such employee during the Performance Year; and (ii) Receive Participating Earnings with respect to the Performance Year; and (iii) Are living at 11:59 p.m. on the last scheduled workday for such Employee during the Performance Year (e.g., if an Employee regularly works a Monday to Friday shift, his last scheduled workday for the 1996 Performance Year would be Tuesday, December 31, 1996); or (b) Meet the requirements of Section 3.02. (c) Are not on Company Final Warning as of December 31 of the Performance Year. 3.02 SPECIAL ELIGIBILITY Regular Full-Time Employees and Regular Part-Time Employees who are not actively employed with the Company or a Participating Affiliate as of December 31 of the Performance Year are eligible to participate under the provisions of this Plan provided that they meet one of the following criteria: (a) Such employee has retired in accordance with the Eastman Retirement Assistance Plan on or after February 1 of the Performance Year; or (b) Such employee has exhausted Short-Term Disability benefits during the Performance Year and: (i) Is approved for benefits under the Eastman Long-Term Disability Plan; or (ii) Is not approved for benefits under the Eastman Long-Term Disability Plan and is terminated by the Company due to lack of prescribed work; or 39 5 (c) Such employee's employment with the Company was terminated during the Performance Year and as a result of such termination the employee becomes entitled to a Termination Allowance Benefit under the Company's Termination Allowance Plan; or (d) All of the following conditions are met: (i) an employee's employment with the Company is terminated during the Performance Year under a layoff as defined in Section 4.01 of TAP, a special separation as defined in Section 4.02 of TAP, or a divestiture as defined in Section 4.03 of TAP; (ii) such employee does not become entitled to a Termination Allowance Benefit under TAP; and (iii) management of the Company nevertheless resolves in writing that such employee shall be entitled to participate in the Performance Plan for such Performance Year upon meeting such conditions as management shall determine in its sole discretion. For this purpose, "management of the Company" shall mean any of the following: the Board of Directors of the Company, a committee of the Board; a committee of the Company responsible for benefits plans oversight; or an officer of the Company; or (e) Such employee is (i) paid on a United States-based salary structure, and (ii) is temporarily employed with a non-participating affiliate of the Company and serving outside the borders of the United States at the direction or request of the Company or any Participating Affiliate; or (f) Such employee's employment with the Company was terminated during the Performance Year in order to accompany or follow their Eastman employee spouse who is transferred to a company unit or Subsidiary or Affiliated Company in a different geographic area which is not a Participating Affiliate. 3.03 TRANSFER INTO PLAN Employees who transfer to the Company during the course of any Performance Year from a Subsidiary or Affiliated Company which is not a Participating Affiliate in the Plan will be eligible for the Plan Payout payable for the Performance Year if they satisfy the eligibility requirements of Section 3.01 or 3.02 above. Earnings and allowances received from such Subsidiary or Affiliated Company are not included in Participating Earnings. 3.04 TRANSFER FROM PLAN Employees who are transferred during any Performance Year from the Company to employment with a Subsidiary or Affiliated Company which is not a Participating Affiliate will qualify for the Plan Payout payable for that Performance Year, provided that they are employed full-time or part time by the Subsidiary or Affiliated Company on the last scheduled workday for such employee during the Performance Year or meet the requirements of clause (a), (b), or (c) of the immediately following paragraph. However, earnings and allowances received from such Subsidiary or Affiliated Company are not included in Participating Earnings. If such a transferred regular full time or regular part time employee terminates employment with the Subsidiary or Affiliated Company prior to the last scheduled workday of the Performance Year for such employee, then such employee shall nevertheless be eligible to participate under this Plan if the employee meets one of the following criteria: (a) Such employee has retired in accordance with the defined benefit retirement plan for the Subsidiary or Affiliated Company. 40 6 (b) Such employee was terminated during the Performance Year and as a result of such termination, the employee becomes eligible for a benefit from such Subsidiary or Affiliated Company which in the judgment of the Compensation Committee or its delegate is comparable to the benefits under the Company's Termination Allowance Plan. (c) Such employee has exhausted Short-Term Disability benefits during the Performance Year; and is approved for benefits under the Subsidiary's or Affiliated Company's Long-Term Disability Plan; or is not approved for benefits under the Subsidiary's or Affiliated Company's Long-Term Disability Plan and is terminated due to lack of prescribed work. 3.05 EXCLUSIONS Limited Service Employees, Special Program Employees, College Cooperative Employees, and all other employees of the Company and Participating Affiliates not defined as Regular Full-Time Employees or Regular Part-Time Employees are not eligible to receive a Plan Payout as authorized herein unless reclassified before December 31 of the Performance Year into a class of employees eligible to receive a Plan Payout in accordance with Sections 3.01 and 3.02. For such reclassified employees, except those employees who were classified as Limited Service Employees prior to such reclassification, earnings before reclassification are included in Participating Earnings. 3.06 PARTICIPATION OF RECENTLY HIRED EMPLOYEES Notwithstanding any language to the contrary contained herein, for the Performance Year in which an Eligible Employee is first hired by the Company or by a Participating Affiliate, the Eligible Employee shall not receive a Plan Payout. For the first full Performance Year after the Eligible Employee's date of hire, the Eligible Employee shall receive a full (100%) Plan Payout as calculated under Section 4.06(a). Such allocation made shall be paid entirely in cash pursuant to the provisions of Section 5.01. 3.07 TERMINATION OF EMPLOYMENT SUBSEQUENT TO PERFORMANCE YEAR Any Eligible Employee who has met the requirements for participation contained in this Article 3 for the Performance Year and with whom the employment relationship with the Company or any Participating Affiliate is subsequently terminated for any reason prior to the distribution of the Plan Payout for that Performance Year shall be entitled to the Plan Payout for that Performance Year. Payment of such Plan Payout shall be made in accordance with the provisions set forth under Section 5.01. 3.08 ELIGIBILITY IN CASE OF DEATH Notwithstanding any language contained herein, if an employee dies before qualifying for the Plan Payout for the Performance Year, the Company may, in its sole discretion, elect to pay all, part, or none of the Plan Payout to the estate of the employee or to a designated beneficiary thereof. However, if an Eligible Employee dies after qualifying for but before receiving a given Plan Payout, such Plan Payout will be paid to the decedent's estate as a legal right. 41 7 ARTICLE 4. DETERMINATION OF PLAN PAYOUT 4.01 IN GENERAL The Plan Payout, if any, is intended to reflect the financial performance of the Company over the course of the Performance Year. Financial performance shall be measured in terms of the Performance Indicator. Such Plan Payout, if any, shall be calculated as determined under Section 4.06. The resulting Plan Payout for each Eligible Employee shall be distributed pursuant to the provisions of Article 5 below. 4.02 DETERMINATION OF PERFORMANCE INDICATOR No later than the first day of a Performance Year (or such later date as may be permitted by Code Section 162(m)), the Compensation Committee shall establish in writing for that Performance Year, the Performance Indicator (including the Cost of Capital for the Performance Year), the Payout Basis, the General Payout Table, and the formula or method for calculating the Plan Payout payable to each Eligible Employee if certain levels of the Performance Indicator are attained. The Performance Indicator for any Performance Year shall be the Return on Capital (as defined in Section 2.27) minus the Cost of Capital (as defined in Section 2.09), expressed as a percentage, which shall be calculated to the third place after the decimal point (i.e., xx.xxx%), and then rounded to the second place after the decimal point (i.e., xx.xx%). Except as otherwise provided in the next two sentences, measurement of the Company's performance against the performance goals established by the Committee shall be objectively determinable and, to the extent they are expressed in standard accounting terms, shall be determined according to generally accepted accounting principles as in existence on the date on which the performance goals are established and without regard to any changes in such principles after such date. With respect to participants other than Covered Employees, in determining whether the performance goals established by the Committee have been met, the Committee may in its discretion adjust the financial results for a Performance Year to exclude the effect of unusual charges or income items or other events (including, without limitation, acquisitions or divestitures), which are distortive of financial results for the Performance Year. The Committee may in its discretion reduce (but not increase) the resulting award to Covered Employees if deemed necessary to exclude the effect of unusual charges or income items or other events (including, without limitation, acquisitions or divestitures), which are distortive of financial results for the Performance Year. No adjustment will be made with respect to a Covered Employee if the Committee determines that such adjustment will cause an award to such Covered Employee to fail to qualify as performance-based compensation under Section 162(m). 4.03 DETERMINATION OF PAYOUT BASIS The Payout Basis, expressed as a percentage as follows, shall be determined according to the Payout Table shown in Section 4.04. If the Return on Capital minus Cost of Capital is not an even percentage, then the exact Payout Basis shall be calculated by straight line interpolation, and shall be calculated to the third place after the decimal point (i.e., xx.xxx%), and then rounded to the second place after the decimal point (i.e., xx.xx%). 42 8 4.04 PAYOUT TABLE
RETURN ON CAPITAL MINUS COST OF CAPITAL PAYOUT BASIS* percentage) Cash % ----------- ------ 10 or More 25 9 22 8 19 7 17 6 15 5 13 4 11 3 9.5 2 8 1 6.5 0 5 -1 4 -2 3 -3 2 -4 1 <-5 0
* Actual Payout percentages may vary based on pay at risk as determined under Section 4.06. 4.05 BOARD ELECTION REGARDING 0% PAYOUT BASIS Neither the Board nor the Compensation Committee shall have discretion to increase or reduce the Plan Payout determined according to this Article 4. 4.06 CALCULATION OF INDIVIDUAL PLAN PAYOUT Calculations of the individual Plan Payout shall be done as follows: The Plan Payout for each Eligible Employee shall be calculated by multiplying the Participating Earnings of the Eligible Employee for the Performance Year by a fraction, the numerator of which is the Payout Basis derived from the Payout Table contained in Section 4.04 and the denominator of which is One (1) minus that percentage of the Eligible Employee's pay at risk as of December 31 of the Performance Year as defined under the regular employment practices of the Company. Such fraction shall be calculated to the 43 9 third place after the decimal point (i.e., xx.xxx%), and then rounded to the second place after the decimal point (i.e., xx.xx%). Thus, the calculation shall be expressed as follows: Plan Payout (Total) = Participating Earnings x Payout Basis ------------ 1 - % of Pay at Risk The maximum annual Plan Payout to any individual is $500,000. 4.07 ESTIMATED PLAN PAYOUT The Vice President and Chief Financial Officer, or his delegate shall, on or about the close of each quarter of the Company's fiscal year, estimate the annual Payout Basis for the Plan based upon financial performance for the Performance Year to date. The estimates thus generated shall subsequently be communicated to Eligible Employees in such a manner as determined by the Company. 4.08 FINAL DETERMINATIONS BY BOARD AND BY COMPENSATION COMMITTEE As soon as practicable following the availability of performance results for the completed Performance Year, the Committee shall determine the Company's performance in relation to the Performance Indicator for that period and certify in writing the Company's performance. Such certification shall include confirmation of the Return on Capital (determined as described in Section 2.27), and final approval and declaration of the Plan Payout to Covered Employees. Notwithstanding any language contained herein, final approval for any Plan Payout to Eligible Employees other than Covered Employees determined in conjunction with this Article 4 must be given by the Board of Directors of the Company. No declaration of Plan Payout by the Board or the Compensation Committee for any given year shall commit the Board or the Compensation Committee to any given level of Plan Payout in future years. 4.09 Shareowner Approval No Plan Payout payable in cash shall be paid under the Plan to any Covered Employee for any Performance Year after 1996 unless and until the material terms (within the meaning of Section 162(m) of the Code) of the Plan, including the performance goals on which the Plan Payout would be based, are disclosed to the Company's shareowners and are approved by the shareowners by a majority of the votes cast. ARTICLE 5. MECHANISM OF PLAN PAYOUT 5.01 PLAN PAYOUT Approved Plan Payouts for any Performance Year shall be made in the subsequent Performance Year and shall, at the discretion of the Company, be paid out in March of the subsequent Performance Year in cash by check or into an account designated by the Eligible Employee and held with a commercial bank. The Plan 44 10 Payout shall reflect any deductions made by the Company for purposes of Federal or other taxation or pursuant to request for deferral of benefits made by the Eligible Employee under the provisions of Article 5.02. 5.02 EASTMAN INVESTMENT AND EMPLOYEE STOCK OWNERSHIP PLAN AND EASTMAN EXECUTIVE DEFERRED COMPENSATION PLAN PARTICIPATION Eligible Employees who are also eligible to participate in the Eastman Investment and Employee Stock Ownership Plan may elect to defer the Plan Payout for a given Performance Year into the Eastman Investment and Employee Stock Ownership Plan, to the extent provided under such Plan. Eligible Employees who are also eligible to participate in the Eastman Executive Deferred Compensation Plan may elect to defer the Plan Payout for a given Performance Year into the Eastman Executive Deferred Compensation Plan, to the extent provided under such Plan. Any funds deferred pursuant to the provisions of this Section 5.02 shall become subject to the rules and regulations of the EIP/ESOP or the Executive Deferred Compensation Plan, and shall reflect any deductions made for purposes of payment of social security taxes due under the Code. 5.03 RESERVED 5.04 DEFERRAL OF AWARD Notwithstanding anything in this Article 5 to the contrary, if the Compensation Committee determines that the current payment of any award under this Article 5 could result in the Eligible Employee's receiving compensation in excess of the maximum amount deductible by the Company for Federal income tax purposes, then such Committee in its sole discretion may determine that such award shall not be paid currently, and instead shall be transferred to the Employee's account under the Eastman Executive Deferred Compensation Plan (and thereafter shall be subject to the provisions of the Executive Deferred Compensation Plan). ARTICLE 6. CLAIM AGAINST PERFORMANCE PAYMENT The payment of any Plan Payout which may be subject in whole or in part to execution, lien, assignment, or other claim, notice of which is received by the Company on or before the Plan Payout payment date, may be delayed for an appropriate time in order to facilitate proper handling of the claim and in order to make any necessary adjustments. ARTICLE 7. INABILITY TO LOCATE PAYEE If the Company is unable to make payment hereunder to any Eligible Employee to whom a Plan Payout is due because the Company is unable to ascertain the whereabouts of such Eligible Employee after reasonable efforts have been made, such payment otherwise due shall be forfeited one (1) year after the date the Plan Payout was to be made. 45 11 ARTICLE 8. PLAN DOCUMENT CONTROLS In the event of a conflict between this Plan document and any other information or enrollment materials provided to the Eligible Employees (whether written or oral), the provisions of this document shall control. ARTICLE 9. RIGHT TO AMEND OR TERMINATE Although the Company intends to continue the Plan indefinitely, the Plan may be terminated, suspended or modified, in whole or in part, at any time for any reason by action of the Compensation Committee. No amendment may be made to the class of individuals who are eligible to participate in the Plan, the performance criteria specified in Article 4, or the maximum annual Plan Payout payable to any individual, without shareowner approval unless shareowner approval is not required in order for Plan Payouts paid to Covered Employees to constitute qualified performance-based compensation under Section 162(m) of the Code. ARTICLE 10. NO EMPLOYMENT RIGHTS Nothing contained in this Plan shall give any Eligible Employee the right to be retained in the employment of the Company or affect the right of the Company to dismiss any employee. The adoption and maintenance of this Plan shall not constitute a contract between the Company and the Eligible Employee for consideration for, or inducement or condition of, the employment of the Eligible Employee. ARTICLE 11. CONCLUSIVENESS OF RECORDS The records of the Company with respect to financial data, Participating Earnings, and all other relevant matters shall be conclusive for purposes of the administration of the Plan described in this document. ARTICLE 12. ADMINISTRATION; ACTIONS BY THE COMPANY All members of the Compensation Committee shall be persons who qualify as "outside directors" as defined under Section 162(m) of the Code. The Committee shall have full power and authority to administer and interpret the provisions of the Plan and to adopt such rules, regulations, agreements, guidelines, and instruments for the administration of the Plan and for conduct of its business as the Committee deems appropriate or advisable. The Committee sets and interprets policy, establishes annual performance goals, evaluates Company performance against the goals, and confirms and certifies the extent to which Company performance goals were satisfied under the Plan. Except with respect to matters which under Section 162(m) of the Code are required to be determined in the sole and absolute discretion of the Committee, the Committee shall have full power to delegate to any officer or employee of the Company the authority to administer and interpret the procedural aspects of the Plan, subject to the Plan's terms, including adopting and enforcing rules to decide procedural and administrative issues. 46 12 APPENDIX A PARTICIPATING AND NON-PARTICIPATING EARNINGS PARTICIPATING EARNINGS Pay for all time worked including: Wages and salaries Pay for clothes change Pay for time spent attending meetings Paid lunch periods Pay for time in Eastman Medical Department (scheduled hours only) Pay for work on community campaigns and special community projects (at company request) Pay when serving as pallbearer (at company request) Overtime pay Shift premiums Shift supplements Compensating time off Holiday pay, premiums, and allowances (including payment for holiday during a full week of absence) Vacation pay (including payment in lieu of vacation and excluding purchased vacation cashout) Pay for travel status Lack of work allowance Time spent by Apprentices in supervised tests or labs Medical pay allowance (as recommended and arranged by the Eastman Medical Department) Jury duty Call-in allowance On-call allowance Adjustment for time spent on Final Warning (for 2000 Performance Year only)(1) Note 1: For the 2000 Performance Year only, Participating Earnings does not include pay during the period of time while an Employee is on Final Warning Status, as determined under the Company's regular employment practices. This adjustment is made by taking an Employee's Participating Earnings for the 2000 Performance Year, and excluding a pro rata portion based on the amount of time that the Employee was on Final Warning. 47 13 NON-PARTICIPATING EARNINGS Eastman Performance Plan payouts Annual Performance Plan payouts Omnibus Plan awards such as: Stock Option grants Restricted Stock grants Long-Term Performance Award Plan awards Tuition refunds Educational support payments Termination allowance and special separation allowance Moving expenses and allowances as the result of domestic relocation Additions to allowances on prizes for tax purposes Taxable awards and prizes such as: 25-year service awards 40-year service awards Safety awards Attendance awards Allowances for excused absences due to: accident at work death of a relative emergency blood donation emergency relief activities organized color guard employee medical or dental appointment serving in public office personal absences temporary military duty time spent voting voluntary community services other allowances not specifically identified under Participating Earnings Allowances for expatriates: cost-of-living allowance housing allowance tax makeup allowance travel allowance education allowance Foreign service premium payments Payment in lieu of notice of termination Short-Term Disability benefits Taxable portion of insurance premium paid by company Workers' Compensation payments and allowances: makeup payments statutory payments supplements All other payments or allowances not specifically identified as Participating Earnings 48 EX-12.01 4 COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES 1 EXHIBIT 12.01 EASTMAN CHEMICAL COMPANY AND SUBSIDIARIES COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES (Dollars in millions)
FIRST QUARTER 2000 1999 Earnings from continuing operations before provision for income taxes $102 $37 Add: Interest expense 33 26 Rental expense (1) 5 6 Amortization of capitalized interest 4 5 ---- --- Earnings as adjusted $144 $74 ==== === Fixed charges: Interest expense 33 26 Rental expense (1) 5 6 Capitalized interest 2 5 ---- --- Total fixed charges $ 40 $37 ==== === Ratio of earnings to fixed charges 3.6x 2.0x ==== ===
- -------------------------- (1) For all periods presented, the interest component of rental expense is estimated to equal one-third of such expense. 49 EX-27.01 5 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF EASTMAN CHEMICAL COMPANY FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 U.S. DOLLARS 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 1 52 0 651 0 526 1,380 8,881 4,945 6,238 1,485 1,508 0 0 1 1,735 6,238 1,217 1,217 967 967 118 0 33 102 34 68 0 0 0 68 0.88 0.88 ASSET VALUES REPRESENT NET AMOUNTS
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