Exhibit 10.04
PERFORMANCE SHARE AWARD
SUBPLAN
OF THE 2007 OMNIBUS LONG-TERM
COMPENSATION PLAN
2009-2011 PERFORMANCE
PERIOD
Mark J. Costa
EASTMAN CHEMICAL COMPANY
EASTMAN CHEMICAL
COMPANY
PERFORMANCE SHARE AWARD
SUBPLAN
OF THE 2007 OMNIBUS LONG-TERM
COMPENSATION PLAN
2009-2011 PERFORMANCE
PERIOD
Mark J. Costa
Section
1. Background . Under Article 4 of the Eastman
Chemical Company 2007 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
"Participants" (as defined in the Plan), and such awards may take
the form of Performance Awards 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 award of performance
shares for the 2009-2011 Performance Period specified herein,
effective as of January 1, 2009 (the "Effective Date").
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The following
definitions shall apply to this Subplan:
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"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.
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“Award
Amount” means the performance shares awarded to the
Participant under this Subplan at the beginning of the Performance
Period.
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"Award Payment
Date" means the date the Committee approves the payout of Common
Stock covered by an award under this Subplan to a
Participant.
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"Comparison
Group" is the group of companies within the S&P 1500
“Materials Sector” that are classified as Chemical
companies. The S&P “Materials Sector”
index is an index of industrial companies selected from the S&P
“Super Composite 1500” Index, identified as Global
Industry Classification Standard (“GICS”)
15.
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“Cost of Capital” reflects the
Company's 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.
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“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.
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"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.
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“Participation Date” means
October 28, 2008.
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“Performance Period" means January
1, 2009 through December 31, 2011.
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“Performance Year” means one
of the three calendar years in the Performance Period.
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“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%).
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"Target Award
Range" means, with respect to any eligible Participant, the number
of performance shares within the range specified on Exhibit A
hereto for the Salary Grade applicable to such
Participant.
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“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.
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Any capitalized
terms used but not otherwise defined in this Subplan shall have the
respective meanings set forth in the Plan.
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Section
3. Administration . This Subplan shall be administered
by the Compensation and Management Development Committee of the
Board of Directors. 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 Article 4 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 Participants who are eligible
to participate in this Subplan are those employees who, as of the
Participation Date, are at Salary Grade 49 and 105 and
above. 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 Payout of Awards . Subject to the terms and conditions
of the Plan and this Subplan, earned Awards under this Subplan
shall be paid out 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 of such fraction of a share at the
time of payment.
Section
6. Size of Awards .
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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 (and, in the case of
executive officers, by the Committee) 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 in increments
of 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.
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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:
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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
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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.
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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 Payout of an Award
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Continuous
Employment . Except as specified in paragraphs
(b) and (c) 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.
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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 as determined by the Committee
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
A
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