PERFORMANCE SHARE AWARD
SUBPLAN
OF THE
2002 OMNIBUS LONG-TERM COMPENSATION PLAN
2005-2007 PERFORMANCE
PERIOD
EFFECTIVE JANUARY 1,
2005
AMENDED OCTOBER 5,
2005
EASTMAN CHEMICAL COMPANY
PERFORMANCE SHARE AWARD
SUBPLAN
OF THE
2002 OMNIBUS LONG-TERM COMPENSATION PLAN
2005-2007 PERFORMANCE PERIOD
Section 3.
Administration 2
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
PERFORMANCE SHARE AWARD
SUBPLAN
OF THE
2002 OMNIBUS LONG-TERM COMPENSATION PLAN
2005-2007 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
2005-2007 Performance Period specified herein, effective as of
January 1, 2005 (the "Effective Date").
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The following
definitions shall apply to this Subplan:
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(i)
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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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(ii)
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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 Compensation 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 comprising the “Materials
Sector” from Standard and Poor’s Super Composite 1500
Index, identified as Global Industry Classification Standard
(“GICS”) 15.
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“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.
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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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(vii)
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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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(viii)
“Participation Date”
means November 2, 2004.
(ix)
“Performance Period" means
January 1, 2005 through December 31, 2007.
(x)
“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 Employee, the number of
performance shares within the range specified on Exhibit A hereto
for the Salary Grade applicable to such Employee.
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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 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 C
