Items
1.01 and 1.02 -- Entry into Material Definitive Agreements and Termination
of
Material Definitive Agreements
On
November 30, 2005, the Compensation and Management Development Committee
(the
"Compensation Committee") of the Board of Directors of Eastman Chemical
Company
("Eastman" or "the Company") approved, and the Company entered into, Change
in
Control Agreements (the "Agreements") with the Chief Executive Officer;
the
Executive Vice Presidents of the Company's Eastman and Voridian Divisions;
the
Senior Vice President, Chief Financial Officer; the Senior Vice President,
Chief
Legal Officer; the Chief Technology Officer and Senior Vice President,
Developing Businesses; and the Senior Vice President, Human Resources and
Public
Affairs. The form of the Agreements is filed as Exhibit 99.01 to this Form
8-K,
and is incorporated herein by reference.
The
Agreements, which provide for specified compensation and benefits following
a
change of control of the Company, are intended to ensure that the Company
will
have the continued attention and dedication of the executives in the event
of
any threatened or pending change of control of the Company.
The
Agreements superseded and terminated the prior Severance Agreements between
these same executive officers and the Company, the form of which is on
file with
the Securities and Exchange Commission as Exhibit 10.12 to the Company's
Annual
Report on Form 10-K for the year ended December 31, 2001, and is available
through the "Investors - SEC Filings" section of the Company's Internet
website
(www.eastman.com)
and the
SEC's Internet site at http://www.sec.gov.
Pursuant
to the Agreements, in the event that a change of control of the Company
(as
defined in the Agreements) occurs during the “change of control period,” the
Company agrees to continue to employ the executive for a period of two
years
after the occurrence of such change of control (the “Employment Period”). The
“change of control period” means the period commencing on November 30, 2005, and
ending three years after such date; provided that on each anniversary of
the
Agreements, the “change of control” period is automatically extended so as to
terminate three years after such anniversary, unless the Company provides
timely
notice to the executive that it will not extend the period.
During
the Employment Period, the executive will receive (i) an annual base salary
at a
rate at least equal to the greater of the base salary in effect on November
30,
2005 or on the effective date of a change of control (which shall be reviewed
and may be increased annually); (ii) an annual bonus at least equal to
the
executive’s target bonus opportunity for the last full fiscal year prior to the
change of control; and (iii) continued participation in all incentive,
savings,
retirement, welfare benefit, and fringe benefit plans applicable to other
peer
executives of the Company on terms no less favorable than those in effect
during
the 120-day period preceding the change of control.
The
Agreements also specify the payments and benefits to which an executive
is
entitled upon a termination of employment during the Employment Period
for
specified reasons, including death, retirement, disability, termination
by the
Company with and without cause, and termination by the executive for or
without
good reason (as such terms are defined in the agreement). If an executive’s
employment is terminated by the Company for any reason other than for cause
or
disability, or by the executive for good reason, during the Employment
Period,
the Company must (i) pay to the executive a lump sum cash payment equal
to his
“accrued obligations” (unpaid base salary through the date of termination, a
prorated target bonus for the year of termination, and any accrued vacation
pay), (ii) pay to the executive a lump sum severance payment equal to
three-times his or her then-current annual base salary plus the amount
of his or
her target annual bonus for the year in which the termination occurs, (iii)
continue to provide all welfare benefits to the executive and his or her
eligible dependents, subject to certain limitations, for 36 months following
termination, and (iv) accelerate the vesting of the executive’s unvested
benefits under the Company’s retirement plans, and pay to the executive a lump
sum cash payment equal to the value of such unvested benefits, plus an
amount
calculated to provide the executive with the additional benefits he or
she would
have been entitled to had he or she accumulated three additional years
of
service under the Company’s retirement plans. In addition, the Company will pay
or provide to the executive any other amounts or benefits to which he or
she is
entitled under any of the Company’s plans, programs, policies, practices,
contracts, or agreements then in effect.
Upon
the
termination of an executive’s employment by reason of death, disability or
retirement, or upon a termination by the Company for cause or by the executive
without good reason, the Agreement will terminate without further obligations
of
the Company other than the payment of base salary through the date of
termination and any other amounts or benefits to which the executive is
entitled
under any of the Company’s plans, programs, policies, practices, contracts, or
agreements then in effect.
The
Agreements provide that if a payment to or for the benefit of an executive
would
be subject to the excise tax imposed by Section 4999 of the Internal Revenue
Code, then the executive will be entitled to a full gross-up for any excise
tax
imposed, including any income and excise taxes on such gross-up amount
(subject
to a net after-tax benefit threshold of $75,000).
The
Agreements require that the executive not disclose any confidential information
of the Company following termination of employment, and provide that the
Company
will reimburse the executive on a current basis for reasonable fees and
expenses
in seeking to enforce the Agreement (subject to repayment if his or her
claims
are determined to be frivolous or in bad faith).
Any
action by the Company under the Agreements must be taken by the Board of
Directors or by the Compensation and Management Development Committee of
the
Board.
Item
9.01 Financial Statements and Exhibits:
(c)
Exhibits
The
following exhibit is furnished pursuant to Item 9.01(c):
99.01
Form of Change in Control Agreements between Eastman Chemical Company and
certain executive officers dated November 30, 2005