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1996-1998 LONG-TERM PERFORMANCE SUBPLAN
OF THE 1994 OMNIBUS LONG-TERM COMPENSATION PLAN (AS AMENDED)
EASTMAN CHEMICAL COMPANY
Effective January 1, 1996
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1996-1998 LONG-TERM PERFORMANCE SUBPLAN
OF THE 1994 OMNIBUS LONG-TERM COMPENSATION PLAN (AS AMENDED)
TABLE OF CONTENTS
Section Title
- ------- -----
Section 1. Background
Section 2. Definitions
Section 3. Administration
Section 4. Eligibility
Section 5. Form of Awards
Section 6. Size of Awards
Section 7. Composition of Peer Group
Section 8. Preconditions to Receipt of an Award
Section 9. Manner and Timing of Award Payments
Section 10. No Rights as Shareowner
Section 11. Application of Plan
Section 12. Amendments
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EASTMAN CHEMICAL COMPANY
1996-1998 LONG-TERM PERFORMANCE SUBPLAN
OF THE 1994 OMNIBUS LONG-TERM COMPENSATION PLAN (AS AMENDED)
Section 1. Background. Under Section 11 of the Eastman Chemical Company 1994
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 1996-1998 Long-Term Performance Subplan (this "Subplan") is to
set forth the terms of the grant of performance shares specified herein,
effective as of January 1, 1996 (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 Payment Date" means the date the shares of Common Stock
covered by an award under this Subplan are delivered to a
participant.
(iii) "Compared Group" means the Company and the companies in the
Peer Group.
(iv) "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.
(v) "Normal Grant Amount" means, with respect to any eligible
Employee, the number of shares of Common Stock specified on
Exhibit A hereto for the Salary Grade applicable to such
Employee.
(vi) "Participation Date" means June 30, 1996.
(vii) "Peer Group" means the group of companies identified in
Exhibit B hereto, with any changes made by the Committee
pursuant to Section 7 of this Subplan.
(viii) "Performance Period" means January 1, 1996 through December
31, 1998.
(ix) "TSR" means total return to shareowners, 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 of such stock on the Nasdaq Stock Market, as
applicable, over the first 20 trading days of the period for
which such change is being measured and (II) the average of
such closing or last sale prices for such stock over the final
20 trading days of the period for which such change is being
measured) plus (B) dividends declared, assuming reinvestment
of dividends, and expressed as a percentage return on a
shareowner'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.
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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.
Section 4. Eligibility. The Employees who are eligible to participate in this
Subplan are those Employees who, as of the Effective Date, have been designated
as "officers" of the Company for purposes of Section 16 of the Exchange Act and
those Employees designated by the Company's Chief Executive Officer during 1996,
which shall generally include Employees who, as of the Effective Date or the
Participation Date, held positions with the Company considered by the Chief
Executive Officer to carry 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; however, the ability of the Chief Executive Officer
under this Section 4 to designate eligible Employees at any time during 1996 is
intended to allow the participation of Employees who, as of the Participation
Date, held positions with the Company that may not have been considered to carry
responsibilities and functions generally associated with a vice-president-level
position but which positions are or were evaluated during 1996 and determined by
the Chief Executive Officer to carry such responsibilities and functions.
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. Exhibit A hereto shows by Salary Grade the Normal
Grant Amount. The Salary Grade to be used in calculating the size of any Award
to a participant under this Subplan shall be the higher of (a) the Salary Grade
applicable to the position held by the participant on the Participation Date
(or, in the case of participants whose employment is terminated prior to the
Participation Date, the Effective Date) and (b) the Salary Grade assigned to
such position during 1996 as a result of any reevaluation of the Salary Grade
appropriate for such position. The Actual Grant Amount shall be determined by
comparing the Company's TSR during the Performance Period to the TSRs of the
companies in the Peer Group during the Performance Period. Specifically, the
Company and each company in the Peer Group shall be ranked by TSR, in descending
order, with the company having the highest TSR during the Performance Period
being ranked number one. If the Company ranks in the highest quartile of the
Compared Group on that basis, then the Normal Grant Amount shall be multiplied
by 2.0 (i.e., 200%) to determine the Actual Grant Amount; if in the second
highest quartile, then the Actual Grant Amount shall be equal to the Normal
Grant Amount; if in the third highest quartile, then the Normal Grant Amount
shall be multiplied by 0.5 (i.e., 50%) to determine the Actual Grant Amount; and
if in the lowest quartile, then the Actual Grant Amount shall be 0 and no shares
of Common Stock shall be delivered to participants under this Subplan.
Notwithstanding the foregoing, if the Peer Group produces fewer than 19 distinct
TSRs (as a result of the removal of a company from the Peer Group without
substitution of a replacement company therefor, as described in Section 7 of
this Subplan), then the Committee shall, in its sole discretion, determine the
appropriate means of calculating the Actual Grant Amount.
Section 7. Composition of Peer Group. The members of the Peer Group identified
in Exhibit B hereto have been identified as companies currently relevant for
purposes of TSR comparisons under this Subplan. However, the Committee shall
have the authority, at any time and from time to time, to determine that any
member of the Peer Group is no longer appropriate for inclusion. Circumstances
that might require such a determination include, without limitation, the
following events: a company's common stock ceasing to be publicly traded on an
exchange or on the Nasdaq Stock Market; a company's being a party to a
significant merger, acquisition, or other reorganization; or a company's ceasing
to operate in the chemical industry. In any case where the Committee determines
that a particular company is no longer appropriate for inclusion in the Peer
Group, the Committee may designate a replacement company, which shall then be
substituted in the Peer Group for the former member. In any such case, the
Committee shall have authority to determine the appropriate method of
calculating the TSR of such former and/or replacement company or companies,
whether by complete substitution of the replacement company (and disregard of
the former company) over the entire Performance Period or by pro rata
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calculations for each company or otherwise. Alternatively, in any case where the
Committee determines that a particular company is no longer appropriate for
inclusion in the Peer Group, the Committee may remove such company from the Peer
Group without substituting a replacement company therefor.
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 Participation Date (or 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 in the Performance Period
from the Effective Date through and including the effective date of
such termination, and the denominator of which is 36 (the total number
of months in the Performance Period). If the effective date of a
participant's termination of employment occurs on or after the last
business day of a particular calendar month, then such month shall be
considered a full calendar month and shall be counted in determining
the numerator of the fraction described in the preceding sentence; if
the effective date of such termination occurs prior to the last
business day of a particular calendar month, then such month shall not
be so counted.
Section 9. Manner and Timing of Award Payments.
(a) Timing of Award Payment. Except for deferrals under Sections 9(b) and
9(c), 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.
(b) 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.
(c) 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.
(d) 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(b) or 9(c), 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. 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 Shareowner. No certificates for shares of Common Stock
shall be issued under this Subplan nor shall any participant have any rights as
a shareowner 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.
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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 16 (relating to
nonassignability), Section 17 (relating to adjustment of shares available),
Section 18 (relating to withholding taxes), Section 19 (relating to
noncompetition and confidentiality), Section 20 (relating to regulatory
approvals and listings), Section 22 (relating to the governing law), Section 23
(relating to changes in ownership), Section 24 (relating to changes in control),
Section 25 (relating to no rights, title, or interest in Company assets), and
Section 26 (relating to securities laws) shall apply to this Subplan.
Section 12. Amendments. The Committee may, from time to time, amend this Subplan
in any manner.
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EXHIBIT A
EASTMAN CHEMICAL COMPANY LTPP GRANT TABLE
1996-1998 CYCLE
NORMAL GRANT AMOUNT
Original on File in
Personnel Resources
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EXHIBIT B
COMPANIES IN THE PEER GROUP
Air Products and Chemicals, Inc.
ARCO Chemical Company
Crompton & Knowles Corporation
Dow Chemical Company
E. I. du Pont de Nemours and Company
H. B. Fuller Company
The Geon Company
Georgia Gulf Corporation
Great Lakes Chemical Corporation
M. A. Hanna Company
Lyondell Petrochemical Company
Monsanto Replacement Index*
Morton International, Inc.
Rohm and Haas Company
A. Schulman, Inc.
Sterling Replacement Index*
Union Carbide Corporation
Wellman, Inc.
Witco Corporation
*By action of the Compensation and Management Development Committee, Monsanto
Company and Sterling Chemicals Inc. were removed from the Peer Group because
they no longer met Peer Group criteria. As a result, they were replaced by an
index which is calculated as the arithmetic average of the total shareowner
return of the remaining companies in the Peer Group.
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