EX-10.32 12 exhibit1032.htm 2004-2005 PERFORMANCE SHARE AWARD PLAN

 

Exhibit

10.32

PERFORMANCE

SHARE AWARD SUBPLAN

OF

THE 2002 OMNIBUS LONG-TERM COMPENSATION PLAN

2004-2005

PERFORMANCE PERIOD

 

 

 

 

 

 

 

 

 

 

 

 

EASTMAN

CHEMICAL COMPANY

 

PERFORMANCE

SHARE AWARD SUBPLAN

OF

THE 2002 OMNIBUS LONG-TERM COMPENSATION PLAN

2004-2005

PERFORMANCE PERIOD

 

 



 

TABLE

OF CONTENTS

 

 

 

 

Section  

Title  

Page  

 

 

 

Section

1.

Background  

1

 

 

 

Section

2.

Definitions  

1

 

 

 

Section

3.

Administration  

2

 

 

 

Section

4.

Eligibility  

3

 

 

 

Section

5.

Form

of Awards

3

 

 

 

Section

6.

Size

of Awards

3

 

 

 

Section

7.

Composition

of Comparison Group

4

 

 

 

Section

8.

Preconditions

to Receipt of an Award

4

 

 

 

Section

9.

Manner

and Timing of Award Payments

5

 

 

 

Section

10.

No

Rights as Stockholder

6

 

 

 

Section

11.

Application

of Plan

6

 

 

 

Section

12.

Adjustment

of Actual Grant Amount

6

 

 

 

Section

13.

Amendments  

6

 

 

 

Exhibit

A.

 

7

 

 

 

Exhibit

B.

 

8

 

 

 

 

 

 

 

 

EASTMAN

CHEMICAL COMPANY

PERFORMANCE

SHARE AWARD SUBPLAN

OF

THE 2002 OMNIBUS LONG-TERM COMPENSATION PLAN

2004-2005

PERFORMANCE PERIOD

 

 

 

Section

1. Background.

Under Section 11 of the Eastman Chemical Company 2002 Omnibus Long-Term

Compensation Plan (the "Plan"), the "Committee" (as defined in the Plan), may,

among other things, award shares of the $.01 par value common stock ("Common

Stock") of Eastman Chemical Company (the "Company") to "Employees" (as defined

in the Plan), and such awards may take the form of performance shares, which are

contingent upon the attainment of certain performance objectives during a

specified period, and subject to such other terms, conditions, and restrictions

as the Committee deems appropriate. The purpose of this Performance Share Award

Subplan (this "Subplan") is to set forth the terms of the grant of performance

shares for the 2004-2005 Performance Period specified herein, effective as of

January 1, 2004 (the "Effective Date").

 

Section

2. Definitions.

 

 

(a)  The

following definitions shall apply to this Subplan:

 

    (i)  "Actual Grant Amount" means the number of

shares of Common Stock to which a participant is entitled under this Subplan,

calculated in accordance with Section 6 of this Subplan.

 

    (ii)  "Award Amount" means the performance

shares awarded to the participant under this Subplan at the beginning of the

Performance Period.

 

    (iii)  "Award

Payment Date" means the date the Compensation Committee approves the payout of

Common Stock covered by an award under this Subplan to a participant.

 

 

    (iv)  "Comparison

Group" is the group of companies comprising the "Materials Sector" from Standard

and Poor’s Super Composite 1500 Index, identified as Global Industry

Classification Standard ("GICS") 15.

 

    (v)  "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.

 

    (vi)  "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.

 

    (vii)  "Maximum Deductible Amount" means the

maximum amount deductible by the Company under Section 162(a), taking into

consideration the limitations under Section 162(m), of the Internal Revenue Code

of 1986, as amended, or any similar or successor provisions thereto.

 

    (viii)  "Participation Date" means April 2,

2004.

 

    (ix)  Performance Period" means January 1, 2004

through December 31, 2005.

 

    (x)  "    "Performance

Year" means one of the two calendar years in the Performance Period.

 

 

    (xi)  "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.a.(vi), 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%).

 

    (xii)  "Target

Award Range" means, with respect to any eligible Employee, the number of

performance shares within the range specified on Exhibit A hereto for the Salary

Grade applicable to such Employee.

 

    (xiii)  "TSR"

means total stockholder return, as reflected by the sum of (A) change in stock

price (measured as the difference between (I) the average of the closing prices

of a company’s common stock on the New York Stock Exchange, or of the last sale

prices or closing prices of such stock on another national trading exchange, as

applicable, in the period beginning on the tenth trading day preceding the

beginning of the Performance Period and ending on the tenth trading day of the

Performance Period and (II) the average of such closing or last sale prices for

such stock in the period beginning on the tenth trading day preceding the end of

the Performance Period and ending on the tenth trading day following the end of

the Performance Period) plus (B) dividends declared, assuming reinvestment of

dividends, and expressed as a percentage return on a stockholder’s hypothetical

investment.

 

(b)  Any

capitalized terms used but not otherwise defined in this Subplan shall have the

respective meanings set forth in the Plan.

 

Section

3. Administration.

This Subplan shall be administered by the Committee. The Committee shall have

authority to interpret this Subplan, to prescribe rules and regulations relating

to this Subplan, and to take any other actions it deems necessary or advisable

for the administration of this Subplan, and shall retain all general authority

granted to it under Section 3 of the Plan. At the end of the Performance Period,

the Committee shall approve Actual Grant Amounts awarded to participants under

this Subplan.

 

 Section

4. Eligibility.

The Employees who are eligible to participate in this Subplan are those

Employees who, as of the Participation Date, are at Salary Grade 53 and above.

These Salary Grades generally include Employees who, as of the Participation

Date, have been designated as "officers" of the Company for purposes of Section

16 of the Exchange Act, and held positions with the Company considered carrying

responsibilities and functions generally associated with a vice-president-level

position. Employees who are promoted during the Performance Period to a position

that would meet the above criteria, but who do not hold such position as of the

Participation Date, are not

eligible

to participate in this Subplan.

 

Section

5. Form of Awards.

Subject to the terms and conditions of the Plan and this Subplan, Awards under

this Subplan shall be paid in the form of unrestricted shares of Common Stock,

except for conversions to cash and deferrals under Section 9 of this Subplan,

and except that if a participant is entitled to any fraction of a share of

Common Stock, as a result of Section 10 of this Subplan or otherwise, then in

lieu of receiving such fraction of a share, the participant shall be paid a cash

amount representing the market value, as determined by the Committee, of such

fraction of a share at the time of payment.

 

Section

6. Size of Awards .

 

 

(a)  Target

Award Range. Exhibit

A hereto shows by Salary Grade the Target Award Range. The Salary Grade to be

used in determining the size of any Award Amount to a participant under this

Subplan shall be the Salary Grade applicable to the position held by the

participant on the Participation Date. The actual size of the Award Amount to

the participant shall be determined based on an assessment by his or her senior

management, of the participant’s past performance and potential for

contributions to the Company’s future long term success. Based on this

assessment, the participant may receive no award, the target award amount, or

any amount within the Target Award Range to the nearest 10 performance shares.

Each member of senior management will have a performance share budget, based on

the cumulative award targets for their reports, which must be balanced for their

organizations.

 

(b)  Actual

Grant Amount. Subject

to the Committee’s authority to adjust the Actual Grant Amount described in

Section 12, the Actual Grant Amount awarded to the participant at the end of the

Performance Period is determined by applying a multiplier to the participant’s

Award Amount. The multiplier shall be determined by comparing Company

performance relative to two measures:

 

    (i)  The

Company's TSR during the Performance Period relative to the TSRs of the

companies in the Comparison Group during the Performance Period. The

Company and each company in the Comparison Group shall be ranked by TSR, in

descending order, with the company having the highest TSR during the Performance

Period being ranked number one. The Comparison Group shall further be separated

into quintiles (first 20%, second 20%, etc.) and the Company's position, in

relation to the Comparison Group, shall be expressed as a position in the

applicable quintile ranking; and

 

    (ii)  The

arithmetic average, for each of the Performance Years during the Performance

Period, of the Company’s average Return on Capital minus a Return on Capital

target. The

Return on Capital target will be determined by the Committee.

 

 

 

  An award multiplier table is shown

in Exhibit B. The award multiplier is based on the Company’s performance

relative to its quintile ranking relative to the Comparison Group, and its

average Return on Capital relative to a target during the Performance Period.

The award multipliers range from 3.0 (i.e. 300%), if the Company's TSR is in the

top performing quintile (top 20%) of companies in the Comparison Group, and the

average Return on Capital minus the target Return on Capital is greater than 10

percentage points, to 0.0 (with no shares of Common Stock being delivered to

participants under this Subplan), if the Company does not meet certain levels of

performance relative to the two measures.

 

Section

7. Composition of Comparison Group.

The Comparison Group is composed of companies relevant for purposes of TSR

comparisons under this Subplan. However, during the Performance Period, a

company in the Comparison Group may be dropped from the Comparison Group if a

company's common stock ceases to be publicly traded on a national stock exchange

or market; or a company is a party to a significant merger, acquisition, or

other reorganization. Under these, or similar circumstances, the company or

companies may be removed from the Comparison Group, and may be replaced with

another company or companies by Standard & Poor’s, consistent with their

established criteria for selection of companies for the Comparison Group. In any

case where the Comparison Group ceases to exist, or is otherwise determined to

no longer be appropriate as the basis for a measure under this Subplan, the

Committee may designate a replacement Comparison Group. In any such case, the

Committee shall have authority to determine the appropriate method of

calculating the TSR of such former and/or replacement Comparison Group, whether

by complete substitution of the replacement Comparison Group (and disregard of

the former Comparison Group) over the entire Performance Period or by pro rata

calculations for each Comparison Group or otherwise.

 

Section

8. Preconditions to Receipt of an Award.

 

 

(a)  Continuous

Employment .

Except as specified in paragraph (b) below, to remain eligible for an Award

under this Subplan, an eligible Employee must remain continuously employed with

the Company or a Subsidiary at all times from the Effective Date through the

Award Payment Date.

 

(b)  Death,

Disability, Retirement, or Termination for an Approved Reason Before the Award

Payment Date. If

a participant's employment with the Company or a Subsidiary is terminated due to

death, disability, retirement, or any approved reason prior to the Award Payment

Date, the participant shall receive, subject to the terms and conditions of the

Plan and this Subplan, an Award representing a prorated portion of the Actual

Grant Amount to which such participant otherwise would be entitled, with the

precise amount of such Award to be determined by multiplying the Actual Grant

Amount by a fraction, the numerator of which is the number of full calendar

months employed in the Performance Period from the Effective Date through and

including the effective date of such termination, and the denominator of which

is 24 (the total number of months in the Performance Period).

 Section

9. Manner and Timing of Award Payments.

 

 

(a)  Timing

of Award Payment .

Except for deferrals under Sections 9(c) and 9(d), if any Awards are payable

under this Subplan, the payment of such Awards to eligible Employees shall be

made as soon as is administratively practicable after the end of the Performance

Period and final approval by the Committee.

 

(b)  Tax

Withholding .

The company may withhold or require the grantee to remit a cash amount

sufficient to satisfy federal, state, and local taxes (including the

participant’s FICA obligation) required by law to be withheld. Further, either

the Company or the grantee may elect to satisfy the withholding requirement by

having the Company withhold shares of common stock having a F

air

M

arket

V

alue

on the date the tax is to be determined equal to the minimum statutory total tax

which could be imposed on the transaction.

 

(c)  Deferral

of Award in Excess of the Maximum Deductible Amount .

If payment of the Award would, or could in the reasonable estimation of the

Committee, result in the participant's receiving compensation in excess of the

Maximum Deductible Amount in a given year, then such portion (or all, as

applicable) of the Award as would, or could in the reasonable estimation of the

Committee, cause such participant to receive compensation from the Company in

excess of the Maximum Deductible Amount shall be converted into the right to

receive a cash payment, which shall be deferred until after the participant

retires or otherwise terminates employment with the Company and its

Subsidiaries.

 

(d)   Election

to Defer the Award .

Any participant in this Subplan may elect to defer the Award until after the

participant retires or otherwise terminates employment with the Company and its

Subsidiaries under the terms and subject to the conditions of the Eastman

Executive Deferred Compensation Plan, as the same now exists or may be amended

hereafter (the "EDCP"). If the participant chooses to defer the Award, the Award

shall be converted into the right to receive a cash payment.

 

(e)   Award

Deferral to the EDCP .

In the event that all or any portion of an Award is converted into a right to

receive a cash payment pursuant to Sections 9(c) or 9(d), except as otherwise

provided in this Section with respect to Section 16 insiders, an amount

representing the Fair Market Value, as of the date the Common Stock covered by

the Award otherwise would be delivered to the participant, of the Actual Grant

Amount (or the deferred portion thereof) will be credited to the Stock Account

of the EDCP, and hypothetically invested in units of Common Stock. Notwithstanding

the foregoing, for each Section 16 insider electing to defer the Award, the

deferrable amount, when initially credited to the participant's EDCP Account,

shall be held in a participant's Interest Account until the next date that

dividends are paid on Common Stock, and on such date the deferrable amount that

would have been initially credited to the participant's Stock Account but for

this sentence shall be transferred, together with allocable interest thereon, to

the participant's Stock Account, subject to provisions set forth in the EDCP.

Thereafter,

such amount shall be treated in the same manner as other investments in the EDCP

and shall be subject to the terms and conditions thereof.

 

 

 

Section

10. No Rights as Stockholder.

No certificates for shares of Common Stock shall be issued under this Subplan

nor shall any participant have any rights as a stockholder as a result of

participation in this Subplan, until the Actual Grant Amount has been determined

and such participant has otherwise become entitled to an Award under the terms

of the Plan and this Subplan. In particular, no participant shall have any right

to vote or to receive dividends on any shares of Common Stock under this

Subplan, until certificates for such shares have been issued as described above;

provided, however, that if payment of all or any portion of an Award under this

Subplan has been deferred pursuant to Section 9 of this Subplan or otherwise,

but such Award otherwise has become payable hereunder, then during the period

during which payment is deferred, the deferred Award shall be credited with

additional units of Common Stock, and (if applicable) fractions thereof, based

on any dividends declared on the Common Stock, in accordance with the terms of

the EDCP.

 

Section

11. Application of Plan.

The provisions of the Plan shall apply to this Subplan, except to the extent

that any such provisions are inconsistent with specific provisions of this

Subplan. In particular, and without limitation, Section 11 (relating to

performance shares), Section 12 (relating to qualification of Awards as

"performance-based" under Code Section 162(m)), Section 17 (relating to

nonassignability), Section 18 (relating to adjustment of shares available),

Section 19 (relating to withholding taxes), Section 20 (relating to

noncompetition and confidentiality), Section 21 (relating to regulatory

approvals and listings), Section 24 (relating to the governing law), Section 25

(relating to changes in ownership), Section 26 (relating to changes in control),

Section 27 (relating to no rights to employment or participation), Section 28

(relating to no rights, title, or interest in Company assets), and Section 29

(relating to securities laws) shall apply to this Subplan.

 

Section

12. Adjustment of Actual Grant Amount.

The Committee may, in its sole discretion, adjust the Actual Grant Amount to

reflect overall Company performance and business and financial conditions.

 

 

Section

13. Amendments.

The Committee may, from time to time, amend this Subplan in any manner.

 

 

 

 

EXHIBIT

A

 

 

Eastman

Chemical Company

Performance

Share Award Grant Table

2004-2005

Cycle

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EXHIBIT

B

 

 

Award

Multiplier Table

 

Eastman

TSR Relative to Comparison Companies

 

Differential

from Target Return on Capital



 

<-7%  

-5%

to

-7%  

-3

to

-5%  

-1

to

-3%  

-1

to +1%

+1

to +3%

+3

to +5%

+5

to +7%

+7

to +10%

>10%  












0-19%(

5 th

quintile)  

0.0  

0.0  

0.0  

0.0  

0.6  

0.8  

1.0  

1.3  

1.6  

1.9  












20-39%(4

th

quintile)  

0.0  

0.0  

0.0  

0.4  

0.8  

1.0  

1.3  

1.6  

1.9  

2.2  












40-59%(3

rd

quintile)  

0.0  

0.0  

0.4  

0.6  

1.0  

1.3  

1.6  

1.9  

2.2  

2.5  












60-79%(2

nd

quintile)  

0.0  

0.4  

0.6  

1.0  

1.3  

1.6  

1.9  

2.2  

2.5  

2.8  












80-99%(1

st

quintile)  

0.0  

0.6  

0.8  

1.3  

1.6  

1.9  

2.2  

2.5  

2.8  

3.0