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Exhibit 10.13
ARISTECH CHEMICAL CORPORATION
PHANTOM STOCK OPTION PLAN
1. INTRODUCTION
This is the Aristech Chemical Corporation (the "Company" or "Aristech") Phantom
Stock Option Plan (the "Plan"). The Plan is intended to replace the Aristech
Chemical Corporation Long Term Incentive Plan with a long term incentive plan of
at least equivalent value that better satisfies Aristech's business goals. The
Plan has the following key objectives:
o Focus executives on measures of performance that lead to the
sustained creation of value in the commodity chemicals industry
o Attract and retain talented executives
o Provide executives with competitive total remuneration, vis-a-vis
chemical industry norms, contingent on both Company and personal
performance
o Align long term incentive payments with creation of shareholder
value
2. OVERVIEW
The Plan provides for annual grants of options ("Options") on phantom stock
("Share(s)") to selected Aristech executives ("Participants") based on target
grant levels that are intended to be competitive with the opportunities granted
to similar executives at comparable companies. The size of grants to individual
Participants will be determined primarily as a percentage of salary, and
secondarily based on number of Shares, with the actual number of Option Shares
granted based on the Participant's performance and contribution to the success
of the Company. A Participant is vested, and may exercise fifty percent of the
Options granted three years after the grant date, and the remaining fifty
percent after four years. Options remain exercisable for up to eight years from
date of grant, absent earlier exercise or cancellation. Participants may
exercise vested Options during annual exercise periods. Upon exercise, a
Participant will receive the difference between the value of the Shares subject
to Option on the exercise date and the Share value on the date of grant.
Therefore, the Option operates as a Stock Appreciation Right (SAR). The Option
Shares are not dividend bearing and are non-voting. Book value and EBITDA
multiples, as defined under Section 11, shall be equally weighted to determine
Share value. Amounts due upon Option exercise will be paid in cash, although
Plan participants will have the opportunity to defer receipt of such awards, if
and to the extent permitted under the Company's deferred compensation plan(s).
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3. EFFECTIVE DATE
The Plan shall be effective January 1, 1999, contingent upon its approval by the
Compensation Committee of the Company (the "Compensation Committee").
4. PLAN ADMINISTRATION
(a) The Plan shall be administered by the Compensation Committee.
Subject to the terms of the Plan, the Compensation Committee shall have the
authority, in its sole discretion, to: (i) determine the number of Shares to be
subject to Options granted each year; (ii) select Participants to receive
Options; (iii) determine the number of shares in each Option grant to
Participants (including the authority to determine that a Participant shall not
receive an Option grant in any year); and (iv) calculate the value of the Shares
underlying each Option. Except as otherwise provided in Section 4(c), below, all
determinations of the Compensation Committee in the administration of the Plan
shall be binding and conclusive on all parties.
(b) The Compensation Committee may delegate all or any portion of its
administrative responsibilities hereunder to a subcommittee or any other
designated individual. In the event of such designation, references in this plan
to the Compensation Committee shall be deemed to refer to the Compensation
Committee's delegate.
(c) Notwithstanding anything in this Section 4 to the contrary,
Mitsubishi Corporation, which maintains majority control (i.e., more than 50% of
voting stock) of the Company, shall have the authority to designate a
representative or representatives (the "Mitsubishi Representative") to review
and approve all aspects of the Plan.
5. PHANTOM STOCK SHARES SUBJECT TO OPTION
A total of 250,000 Shares shall be subject to Options granted under the Plan.
If, during, the term of the Plan, an Option is cancelled prior to exercise, a
new Option or Options may be granted with respect to the Shares underlying such
cancelled Option. Based on estimated market and Company factors, the number of
shares authorized for grant under this Plan are intended to be sufficient for
annual grant cycles of five years or more.
6. PARTICIPATION: ELIGIBILITY AND NOTIFICATION
(a) Each executive of Aristech employed in a position with a grade of
at least 32 shall be eligible to receive Option grants under the Plan. The
Compensation Committee may select additional Participants from among executives
employed in position with a grade of 28 through 31 for participation in the
Plan.
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(b) Subject to the approval of the Compensation Committee, for each
year that Option grants are made under the Plan, additional Participants may be
designated to receive Options that year from among the group of employees in
positions with grades below 28 who are considered to be both "high performing"
and "high potential."
(c) Each Participant shall be informed by the Compensation Committee
that he or she has been selected to participate in the Plan, the number of
Shares subject to the Options granted, as determined under Section 7, the value
of such Shares on the date of grant, when such Options may be exercised
(including when such Options shall vest and when they may be cancelled), and
such other terms and conditions of the Plan as the Compensation Committee deems
appropriate.
7. OPTION GRANTS
(a) Options under the Plan shall be granted within the first quarter of
each year that the Plan is in effect (the "Grant Date"). The Compensation
Committee first shall attribute a fixed number of Shares to which to each
Participant designated in Section 6 shall be granted Options, based upon the
recommendations of the Chief Executive Officer ("CEO"). For the initial year,
such action shall be taken within the first 60 days after the date the Plan is
adopted with a Share price based on year end 1998 results. For each subsequent
year, such action shall be taken no later than March 31 of that calendar year.
(b) The number of Shares attributed to a Participant in any year shall
be that number of Shares required to produce the target award recommended by the
CEO for that Participant for that year, expressed as a percentage of base
salary, based upon the Participant's performance and contribution to the success
of the Company. The target award level shall be set annually at an amount equal
to the 50th percentile for the Chemical Industry with the CEO exercising
discretion to determine an appropriate individual award recommendation within
25% above or below the target amount; and, the recommended target award will be
structured to result in the Participant's total compensation falling within the
25th to 75th percentile of compensation for executives with comparable duties
and responsibilities in the Chemical Industry, as determined by the Hay
Executive Compensation Survey, or such other executive compensation survey as
may be designated by the Compensation Committee; provided, however, that the CEO
may recommend that a Participant shall not receive any grant that year.
(c) The number of Shares required to produce the target award shall be
based upon the value of the desired grant divided by the value of underlying
Shares at the beginning of the Option grant year.
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8. EXERCISE OF OPTIONS
Except as otherwise provided in this Plan, in the case of certain terminations
of employment, as set forth in Section 14, or a Change of Control, as defined in
Section 16, a Participant may exercise his or her Options subject to the
following terms:
(a) A Participant may first exercise in the third calendar year after
the grant an Option or Options with respect to (i) fifty percent of the Shares
for which such Option or Options have been granted, and (ii) the remaining fifty
percent of such Shares in the fourth calendar year following the year of the
grant. This vesting period specifies the right, and not the obligation to
exercise the options.
(b) Options may be exercised within one time period per year after
vesting. The "Exercise Period" is specified as being within the 30 day period
following the official release of the Share price based on prior year's
performance. The Share price will be determined within the first quarter of each
calendar year.
(c) Options shall cease to be exercisable no later than the end of the
eighth calendar year following the grant.
(d) A Participant shall exercise his or her Options by written notice
to the officer or other official of the Company designated by the Compensation
Committee for this purpose. Such notice shall specify the number of Shares to
which the exercise relates. A Participant shall be deemed to have exercised an
Option only when a signed copy of the written notice is received; provided,
however, that exercises by fax or other electronic media may be deemed effective
if a signed copy of the communication is promptly received.
9. RIGHTS UPON EXERCISE
Upon exercise of an Option, a Participant shall have the right to receive an
amount equal to the exercise value of the Shares based on formulae as determined
in accordance with Section 10 minus the grant value of the Shares based on the
same formulae methodology times the number of Shares exercised. In calculating
Share value, a dividend distribution to shareholders is determined to be fixed
at 25% of net income. This guideline will be reviewed periodically to ensure
comparability with comparator companies dividend policies.
10. PHANTOM STOCK SHARE VALUE
(a) Each Share shall have an initial value of $100 as of December 31,
1998.
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(b) The value of Shares thereafter shall be determined once annually,
as of the last day of the year immediately preceding the date of exercise.
(c) The determination of Share value under the Plan is based on two
performance measures: Book Value and EBITDA, as defined in Section 11. To
calculate Share value, Book Value is multiplied by 2.5 and EBITDA is multiplied
by 6.0. These values were selected based on reviewing comparable organizations
and their value ratios. Each multiple is weighted 50% to determine overall Share
value.
11. CALCULATION OF PERFORMANCE
For the purpose of determining Share values under the Plan, Aristech's
performance shall be calculated in accordance with the following definitions:
Book Value:
Total Assets
Less Liabilities
Equals Stockholder Equity, or Book Value
EBITDA (Earnings before Interest, Taxes, Depreciation and Amortization:
Net Income
Plus Taxes
Plus Interest expense
Plus Depreciation
Plus Amortization
The Plan is designed to measure "steady-state" operating performance as it
contributes to shareholder value. The Compensation Committee may consider, as
appropriate, modifications in the formulae to account for material events
impacting the balance sheet and income statement.
12. PAYMENT UNDER THE PLAN
(a) Payments of amounts due upon exercise under Section 9 shall be made
in cash no later than 30 days following the date of exercise. Plan Participants
shall have the opportunity to defer receipt of such awards, if and to the extent
permitted under the Company's deferred compensation plan(s).
(b) The general funds of the Company shall be the sole source of
payments under the Plan, and the Company shall have no obligation to establish
any separate fund or trust or other segregation of assets to provide for
payments under the Plan. Nothing contained in this Plan, and no action taken
pursuant to its provisions, shall create or be
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construed to create a trust of any kind, or a fiduciary relationship, between
the Company and a participant or any other person. To the extent any person
acquires rights to receive payments hereunder from the Company, such rights
shall be no greater than those of an unsecured creditor.
13. WITHHOLDING
The Company shall, to the extent required by law, have the right to deduct from
payments of any kind otherwise due to the recipient the amount of any federal,
state, local taxes required by law to be withheld with respect to the amounts
due under the Plan.
14. TERMINATION OF EMPLOYMENT
A participant's right to exercise Options under the Plan in the event of
termination of employment prior to exercise shall depend on the reason for
termination:
(a) Retirement, disability or sale of assets. If a Participant
terminates employment as a result of retirement, disability, or the sale of the
assets of the trade or business in which he or she is engaged, all outstanding
Options held by the Participant at such time shall be exercisable when vested in
the first or second Exercise Period following termination of employment, whether
or not vested at the time of employment termination. Any Options that remain
outstanding following the conclusion of the second Exercise Period shall be
cancelled; provided, however, that if the Participant is disabled during such
Exercise Periods, the CEO shall have the authority to extend them on an
individual basis.
(b) Death. In the event of a Participant's termination of employment as
a result of death, all outstanding Options held at the time of death shall be
exercisable by the beneficiary designated by the Participant in accordance with
Section 19, whether or not vested at the time of death. Such beneficiary may
exercise the Options within a 60 day period designated by the CEO following the
Participant's death. Share value shall be determined as of the year preceding
the Participant's death. Any Options that remain outstanding following the
conclusion of the special exercise period shall be cancelled.
(c) Involuntary termination without cause. A Participant whose
employment is terminated by the Company without cause shall be entitled to
exercise all vested Options held at the time of termination in the first
Exercise Period following termination of employment. Any Options that remain
outstanding following the conclusion of the Exercise Period shall be cancelled.
(d) Voluntary termination or involuntary termination for cause. If a
Participant voluntarily terminates employment or is terminated for cause, all
Options held at the time of termination shall be cancelled.
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(e) Termination to enter a joint venture operation. If a Participant
terminates employment to become an employee of a joint venture operation between
the Company and another business entity, the CEO shall determine if and when
such Participant may exercise his or her outstanding Options.
Notwithstanding anything in this Section to the contrary, if, following
retirement, disability, or involuntary termination without cause, a Participant
commences employment or a consulting relationship with another company deemed by
the Compensation Committee to be a competitor of the Company, his or her Options
shall be immediately cancelled. Regardless of the reason for employment
termination, a Participant shall not forfeit amounts deferred at the election of
the Participant under a deferred compensation plan, except to the extent
expressly provided in such plan.
For the purpose of this provision, "disability" shall be defined as the
inability of a Participant to complete the duties of the position that resulted
in his selection as a Participant in the Plan, for a period of at least 180
consecutive days. "Cause" shall be defined as (i) action by a Participant
involving willful and wanton malfeasance involving specifically a wholly
wrongful and unlawful act; (ii) a Participant being convicted of a felony; (iii)
a material violation by a Participant of any rule, regulation or policy of the
Company generally applicable to all employees; or (iv) a Participant's failure
or refusal to substantially perform a material duty of such Participant's
employment, as determined in the unanimous judgment of the Compensation
Committee of the Board, other than the Participant if such Participant is a
member of the Compensation Committee of the Board. For the purpose of the Plan,
a Participant shall not be subject to termination for "Cause" without (A)
reasonable written notice to the Participant setting forth the reasons for the
Company's intent to terminate the Participant and (B) and opportunity for the
Participant to cure any of the actions or omissions forming the basis for such
intended termination, if possible, within 15 days after receipt of such written
notice.
15. TERMINATION, AMENDMENT AND EXPIRATION OF THE PLAN
(a) The Plan shall expire on December 31, 2003, unless extended by the
Compensation Committee (or the Executive Committee if it chooses to rescind the
authority currently delegated to the Compensation Committee for executive
compensation matters). Notwithstanding the expiration of the Plan, Options
granted under the Plan shall continue to be exercisable through the Exercise
Period through the eighth calendar year beginning on the Grant Date, unless
earlier cancelled in accordance with the terms of the Plan.
(b) Except as otherwise provided in Section 16, in the event of a
change of control, as defined in Section 16(b), the Compensation Committee may
modify, alter, amend, or terminate the Plan at any time. Any such action shall
take effect at the beginning of the year following the date such action is
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taken, unless stated otherwise by the Compensation Committee, and shall
continue until the Plan is terminated. Notwithstanding the foregoing, no
amendment to the Plan may adversely affect the rights of a Participant without
written consent.
(c) The Compensation Committee may terminate the Plan at any time. At
the time of such termination, the Compensation Committee has the option of
either allowing the Options granted under the Plan to continue to be exercisable
through the Exercise Period through the eighth calendar year beginning on the
Grant Date, unless earlier cancelled in accordance with the terms of the Plan,
or vesting all Options immediately upon termination of the Plan and deeming all
Options exercised, and a payment shall be made in cash, in an amount determined
in accordance with Section 9 as if the Participant had exercised the Option
himself.
16. CHANGE IN CONTROL
(a) The Plan shall terminate upon the consummation of a change in
control, as defined below, or an initial public offering of Company stock,
unless extended by the acquiring or continuing entity. If the Plan is terminated
in accordance with this provision, all Options shall immediately vest and shall
be deemed exercised, and a payment shall be made in cash, in an amount
determined in accordance with Section 9 as if the Participant had exercised the
Option himself. Payments shall be made to participants within 90 days following
the termination of the Plan under these provisions.
(b) A change in control shall be defined as: (i) any transaction that
results in Mitsubishi Corporation and its subsidiaries (collectively, the "MC
Group") no longer being the beneficial owner of stock possessing at least fifty
percent (50%) of the combined voting power of the issued and outstanding shares
of all classes of the Company's stock entitled to vote generally in the election
of directors ("Voting Stock"), whether as a result of the issuance of securities
of the Company, any direct or indirect transfer of securities of the Company or
otherwise; or (ii) approval by the stockholders of the Company of a
reorganization, merger or consolidation, unless, following such reorganization,
merger or consolidation, the MC Group beneficially owns, directly or indirectly,
stock possessing at least fifty percent (50%) of the total combined voting power
of the issued and outstanding shares of all classes of Voting Stock of the
corporation resulting from such reorganization, merger or consolidation; or
(iii) approval by the stockholders of the Company of a complete liquidation or
dissolution of the Company; or (iv) the sale or disposition of 50% or more by
value of the assets of the Company other than to a corporation with respect to
which, following such sale or disposition, the MC Group beneficially owns,
directly or indirectly, stock possessing at least fifty percent (50%) of the
total combined voting power of the issued and outstanding shares of all classes
of Voting Stock.]
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17. EXCLUSION FROM EMPLOYEE BENEFITS
Payments under the Plan shall in no circumstance be included as compensation for
the purpose of determining any retirement income, life insurance, or any other
related employee benefit program.
18. ASSIGNMENT OF EMPLOYEE RIGHTS
No employee has a claim or right to be a Participant in the Plan, to continue as
a Participant, or to be granted Options under the Plan. The Company is not
obligated to give uniform treatment (e.g., equal attribution of Shares, etc.) to
Participants. Participation in the Plan does not give a Participant the right to
be retained in the employment of the Company, nor does it imply or confer any
other employment rights.
19. BENEFICIARY DESIGNATION
A Participant may designate a beneficiary or beneficiaries to exercise, in the
event of the Participant's death, Options granted to the Participant under the
Plan. A designation of a beneficiary may be replaced by a new designation or may
be revoked by the Participant at any time. A designation or revocation shall be
on a form to be provided for such purpose and shall be signed by the Participant
and delivered to the Company prior to the Participant's death. Any Option that
would be exercisable by a beneficiary upon a Participant's death and is not
subject to such a designation shall be exercisable by the Participant's estate.
If there shall be any question as to the legal right of any beneficiary to
exercise an Option under the Plan, the Participant's estate may exercise the
Option, in accordance with Section 14(c), in which event the Company shall have
no further liability to any one with respect to such Options.
20. NONASSIGNABILITY
Options may not be pledged, assigned or transferred for any reason during the
Participant's lifetime, and any attempt to do so shall be void and the Option to
which the attempt relates shall be cancelled.
21. VALIDITY
In the event any provision of the Plan is held invalid, void, or unenforceable,
the same will not affect, in any respect whatsoever, the validity of any other
provision of the Plan.
22. APPLICABLE LAW
The Plan will be governed by and construed in accordance with the laws of the
Commonwealth of Pennsylvania other than the conflict of laws provisions thereof.
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