Exhibit 10.2

 

 

 

LONG-TERM INCENTIVE PLAN

 

OF

 

CHEVRON PHILLIPS CHEMICAL COMPANY LLC

 

(As Amended and Restated Effective January 1, 2001)

 

 

 

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LONG-TERM INCENTIVE PLAN

OF

CHEVRON PHILLIPS CHEMICAL COMPANY LLC

(As Amended and Restated Effective January 1, 2001)

 

 

TABLE OF CONTENTS

 

1.

 

Interpretation and Definitions

 

1.1

 

General

 

1.2

 

Definitions

2.

 

Administration

3.

 

Eligibility and Participation

4.

 

Grants and Exercise of Grants

 

4.1

 

Grant and Exercise of Relative Performance Awards and Strategic Performance
Awards

 

4.2

 

Exercise of Phantom Share Options

 

4.3

 

Exercise of Target Awards

 

4.4

 

Provisions Common to Options and Awards

5.

 

Amendment or Discontinuance

6.

 

Recapitalization, Merger, and Consolidation; Change in Control

7.

 

Miscellaneous

 

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LONG-TERM INCENTIVE PLAN

OF

CHEVRON PHILLIPS CHEMICAL COMPANY LLC

(As Amended and Restated Effective January 1, 2001)

 

PURPOSE

 

The purpose of this amended and restated Long-Term Incentive Plan (the “Plan”)
is to attract, motivate, and retain qualified management personnel by providing
to them a long-term incentive compensation plan that will provide competitive
compensation opportunities similar to those of comparable companies in the
chemical industry, align the interests of key management with the interests of
the Company’s owners, and encourage the creation of additional owner value.

 

The Plan is intended to be a “bonus program” within the meaning of Labor Reg. §
2510.3-2(c) and; therefore, is not intended to be subject to the requirements of
ERISA.

 

The amended and restated Plan shall be effective as of January 1, 2001.

 

1.                                      INTERPRETATION AND DEFINITIONS

 

1.1                               GENERAL

 

(a)                                  Interpretation.  Unless a clear contrary
intention appears, for purposes of construction of this Plan and all related
Plan Documents:

 

(1)                                  the singular number includes the plural
number and vice versa;

 

(2)                                  reference to any person includes such
person’s successors and assigns but, if applicable, only if such successors and
assigns are permitted by the Plan Documents, and reference to a person in a
particular capacity excludes such person in any other capacity or individually;

 

(3)                                  reference to any gender includes the other
gender;

 

(4)                                  reference to any Plan Document or any other
agreement, document or instrument means the applicable Plan Document or such
other agreement, document or instrument as amended or modified and in effect
from time to time in accordance with the terms thereof;

 

(5)                                  reference to any law means such law as
amended, modified, codified, replaced or reenacted, in whole or in part, and in
effect from time to time, including rules and regulations promulgated
thereunder, and reference to any section or other provision of any law means
that provision of such law from time to time in effect and constituting the

 

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substantive amendment, modification, codification, replacement or reenactment of
such section or other provision;

 

(6)                                  reference in any Plan Document to any
article, section, appendix, schedule or exhibit means such article or section
thereof or appendix, schedule or exhibit thereto;

 

(7)                                  “hereunder”, “hereof”, and words of similar
import shall be deemed references to a Plan Document as a whole and not to any
particular article, section or other provision thereof;

 

(8)                                  “including” (and with the correlative
meaning “include”) means including without limiting the generality of any
description preceding such term;

 

(9)                                  “or” is not exclusive;

 

(10)                            relative to the determination of any period of
time, “from” means “from and including” and “to” means “to but excluding;” and

 

(11)                            references to days, weeks, months, quarters and
years are references to such periods as determined by the Gregorian calendar.

 

(b)                                 Accounting Terms.  In each Plan Document,
unless expressly otherwise provided, accounting terms shall be construed and
interpreted, and accounting determinations and computations shall be made, in
accordance with generally accepted accounting principles.

 

(c)                                  Conflict in Plan Documents.  If there is
any conflict between any two or more Plan Documents, such Plan Documents shall
be interpreted and construed, if possible, so as to avoid or minimize such
conflict but, to the extent (and only to the extent) of such conflict, the Plan
Document dealing most specifically with the matter as to which there is a
conflict shall prevail and control.  If it cannot be determined which Plan
Document deals most specifically with a matter as to which there is a conflict
then the Plan shall prevail and control.

 

1.2                               DEFINITIONS

 

(a)                                  “Average Return on Assets” means the
statistical mean of the Returns on Assets earned by a company in each year of a
given Performance Cycle.

 

(b)                                 “Board” means the Board of Directors of the
Company.

 

(c)                                  “Capital Charge” means the Company’s cost
of capital as determined by the Committee from time to time.

 

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(d)                                 “Change in Control” of the Company shall
mean an occurrence which the Board determines, in its sole discretion, to be a
change of control and generally may include instances when: (A) any person or
persons acting together as a single entity, other than ChevronTexaco Corporation
or ConocoPhillips, acquires more than fifty percent (50%) of the Company’s
assets or voting ownership interests; (B) a merger or consolidation of the
Company with any other corporation or entity is consummated; or (C) the owners
of the Company approve a plan of complete liquidation or dissolution of the
Company or an agreement for the sale or disposition by the Company of all or
substantially all of the Company’s assets.

 

(e)                                  “ChevronTexaco” means ChevronTexaco
Corporation, or such entity as may be controlled by ChevronTexaco, that directly
or indirectly holds a membership interest in the Company.

 

(f)                                    “Committee” means the Compensation
Committee of the Board.

 

(g)                                 “Company” means the Chevron Phillips
Chemical Company LLC and any successor entity.

 

(h)                                 “ConocoPhillips” means ConocoPhillips, or
such entity as may be controlled by ConocoPhillips, that directly or indirectly
holds a membership interest in the Company.

 

(i)                                     “Date of Grant” means the effective date
on which a Phantom Share Option, Target Award, Relative Performance Award or a
Strategic Performance Award, as the case may be, is granted to a Participant.

 

(j)                                     “Date of Termination” means the date on
which a Participant ceases to be a regular, full-time Employee.

 

(k)                                  “Deferred Compensation Plan” means the
Chevron Phillips Chemical Company LP Executive Deferred Compensation Plan.

 

(l)                                     “Disability” means disability as
determined under the Chevron Phillips Chemical Company LP Long-Term Disability
Plan.

 

(m)                               “EBITDA” means earnings before interest,
taxes, depreciation, and amortization as reported in the financial records of
the Company, or the financial records of any other company, or segment thereof,
against whom the performance of the Company is being compared.

 

(n)                                 “EBITDA Multiple” means the average of the
quotients obtained by dividing the market value of each company listed from time
to time on Exhibit A as of any relevant date by the EBITDA of that company as of
the same date. For purposes of the foregoing calculation, the “market value” of
a company shall be deemed to be the product of the publicly quoted price per
share of common stock

 

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of that company as of the close of business on the relevant date (or, in the
event that such day is not a day on which shares of such company are traded on
the principal exchange on which such shares are listed, on the next day
preceding the relevant date on which such shares are traded) multiplied by the
number of issued and outstanding shares of such company. In the event that the
EBITDA Multiple of a segment of a company, as opposed to the company as a whole,
is being obtained, the Committee may make such determinations, as to market
value and other considerations, as it deems necessary for purposes of arriving
at an EBITDA Multiple which it deems fair and appropriate in all the
circumstances.

 

(o)                                 “Effective Date” means, for purposes of this
Plan, January 1, 2001, the effective date of the amendment and restatement of
the Plan.

 

(p)                                 “Employee” means any full-time employee of a
Participating Employer.

 

(q)                                 “ERISA” means the Employee Retirement Income
Security Act of 1974, as amended.

 

(r)                                    “EVA” or “Economic Value Added” means
EBITDA minus the product of Capital Charge multiplied by Total Assets .

 

(s)                                  “Grant” means the award of a Phantom Share
Option, Target Award, Relative Performance Award or a Strategic Performance
Award, as the case may be, subject to such terms and conditions as may be set
forth in a Grant Agreement accompanying such award.  Notwithstanding the
foregoing, effective for Performance Cycles beginning on or after January 1,
2003 Grants of Phantom Share Options and Target Awards will no longer be
available under the Plan.

 

(t)                                    “Grant Agreement” or “Agreement” means:

 

(1)                                  in the case of a Grant of Phantom Share
Options the agreement accompanying such Grant which sets forth the number of
Phantom Shares, the initial Market Value Per Share, vesting, exercise rights,
and other terms and conditions pertaining to that Grant as established by the
Committee;

 

(2)                                  in the case of a Grant of a Target Award,
Relative Performance Award or a Strategic Performance Award the agreement
accompanying such Grant which sets forth the Performance Schedule, Performance
Cycle vesting and other terms and conditions pertaining to that Grant, as
established by the Committee;

 

(u)                                 “Market Value” means the estimated market
value of the Company as determined as of each Valuation Date by the Committee by
multiplying the Company’s average annual EBITDA by the EBITDA Multiple of the
group of comparable chemical companies. For the calculation to be made January
1, 2001,

 

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the Committee shall use the Company’s EBITDA for the preceding twelve (12)
months, and for the calculation, if any, to be made July 1, 2001, the Committee
shall use the Company’s EBITDA for the preceding eighteen (18) months.
Thereafter, the Committee shall utilize the Company’s EBITDA for the preceding
twenty-four (24) months.

 

(v)                                 “Market Value Per Share” means the Company’s
Market Value divided by one hundred million (100,000,000).

 

(w)                               “Parent Company” means ChevronTexaco
Corporation, ConocoPhillips, and their respective successors.

 

(x)                                   “Participant” means an Employee to whom a
Phantom Share Option, Target Award, Relative Performance Award and/or a
Strategic Performance Award, as the case may be, may be granted pursuant to the
Plan.

 

(y)                                 “Participating Employer” means any direct or
indirect subsidiary entity of the Company which, with the Company’s consent, has
adopted the Plan.

 

(z)                                   “Performance Award” means the amount
payable to a Participant based on the Company’s Relative Return during a
Performance Cycle, calculated as described in the Performance Schedule of the
Grant Agreement accompanying the Participant’s Target Award. Notwithstanding any
other provision of this Plan to the contrary, effective for Performance Cycles
beginning on or after January 1, 2003 Grants of Performance Awards will no
longer be available under the Plan.

 

(aa)                            “Performance Cycle” means the continuous period
as established in the respective Grant Agreement during which a Target Award,
Relative Performance Award or a Strategic Performance Award is earned by a
Participant.

 

(bb)                          “Performance Schedule” means with respect to a
Target Award the schedule relating a Participant’s Performance Award amount to
the Company’s Relative Return during the applicable Performance Cycle.
“Performance Schedule” means with respect to a Participant’s Relative
Performance Award the schedule relating a Participant’s Relative Performance
Award amount to the Company’s Relative Performance during the applicable
Performance Cycle. “Performance Schedule” means with respect to a Participant’s
Strategic Performance Award the schedule relating a Participant’s Strategic
Performance Award amount to the Company’s Strategic Performance during the
applicable Performance Cycle.

 

(cc)                            “Phantom Share” means a fictitious share of
Company stock, having a value, as of each Valuation Date, equal to the Company’s
Market Value Per Share.

 

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(dd)                          “Phantom Share Option” or “Option” means the right
to receive the gain in the Company’s Market Value Per Share for each Phantom
Share granted. Notwithstanding any other provision of this Plan to the contrary,
effective for Performance Cycles beginning on or after January 1, 2003 Grants of
Phantom Share Options will no longer be available under the Plan.

 

(ee)                            “Plan” means the Chevron Phillips Chemical
Company LLC Long-Term Incentive Plan.

 

(ff)                                “Plan Document” means this Plan, any Grant
Agreement executed in respect of any award, and any other document defining the
rights and liabilities of any Participant.

 

(gg)                          “Relative Performance” means any measure
established by the Committee in its sole and absolute discretion that compares
the Company’s performance to a group of peer companies. Relative Performance
measures considered may include by are not limited to EBITDA divided by Total
Assets; comparison to Chem Systems Leader or other relevant third party data;
and/or EVA.  The evaluation by the Committee may consider adjustments to
normalize portfolio and geographic differences and to account for special
events.

 

(hh)                          “Relative Performance Award” means the award which
will be paid to a Participant, if the Company’s Relative Performance for a
Performance Cycle satisfies the Performance Schedule contained in a Grant
Agreement.

 

(ii)                                  “Relative Return” means the percentile
ranking of the Company’s Average Return on Assets, as measured at the end of a
Performance Cycle, based on the Average Returns on Assets earned by a group of
comparable chemical companies.

 

(jj)                                  “Retirement” means an Employee’s
Termination of Service in connection with the attainment of any applicable early
retirement age or normal retirement age as defined in (A) the Chevron Phillips
Chemical Company LP Retirement Plan, (B) any retirement plan of any
Participating Employer, or (C) the retirement plan of any Parent Company or any
of its respective subsidiaries other than Chevron Phillips Chemical Company LLC.
A Participant whose Termination of Service occurs while eligible to retire under
any of such plans, but who does not elect to immediately commence the receipt of
benefits thereunder, shall nevertheless be deemed to have retired under such
plan for purposes of this Plan.

 

(kk)                            “Return on Assets” means operating income of a
company divided by the average of that company’s assets over the fiscal period
during which such operating income was earned.  The operating income and assets
data to be used shall be derived from publicly available information reported by
the Company and each component company of a group of comparable chemical
companies, with allowance  for such adjustments, as are deemed necessary by the
Committee (A) to achieve a degree of  accuracy acceptable to the Committee and
(B) to

 

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ensure that the results obtained are consistent with the return on assets
calculations made for purposes of the Employee Incentive Plan available
generally to Employees.

 

(ll)                                  “Strategic Performance” means any measure
established by the Committee in its sole and absolute discretion that compares
the Company’s performance to the attainment of internal strategic objectives.
Strategic Performance measures may initially include but are not limited to gap
closure/synergies; major projects; portfolio management, effective management of
capital projects, unit cost reductions versus baseline measurements, reliability
versus baseline measurements, and achievement of effective growth goals.  The
Committee will annually review the internal strategic objectives to be measured
for each succeeding Performance Cycle and may alter, amend or revise, in its
sole and absolute discretion, such measures.

 

(mm)                      “Strategic Performance Award” means the award which
will be paid to a Participant, if the Company’s Strategic Performance for a
Performance Cycle when compared to attainment of defined, internal, strategic
objectives satisfies the Performance Schedule contained in a Grant Agreement.

 

(nn)                          “Target Award” means the Performance Award which
will be paid to a Participant, assuming that the Company’s actual Relative
Return equals the Relative Return level required for the payment of awards at a
one hundred percent (100%) level, as established by the Committee at the
beginning of each Performance Cycle, and as set forth in Participants’ Grant
Agreements. Notwithstanding any other provision of this Plan to the contrary,
effective for Performance Cycles beginning on or after January 1, 2003 Grants of
Target Awards will no longer be available under the Plan.

 

(oo)                          “Termination of Service” occurs when a Participant
ceases to serve as an Employee for any reason.

 

(pp)                          “Total Assets” means the sum of current and
long-term assets owned by a  company.

 

(qq)                          “Valuation Date” means each January 1, July 1 or
such other date as the Committee may select.

 

(rr)                                “Vest,” and the correlative term “Vested,”
shall mean that the holding period for Options described in Section 4.2(b) has
been satisfied.

 

2.                                      ADMINISTRATION

 

(a)                                  The Plan shall be administered by the
Committee.

 

(b)                                 The Committee may establish, from time to
time and at any time, subject to the limitations of the Plan as set forth
herein, such rules and regulations and

 

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amendments and supplements thereto, as it deems necessary to comply with
applicable law and for the proper administration of the Plan.

 

(c)                                  The Committee shall from time to time
determine the names of those executives or other key Employees who, in its
opinion, should receive Phantom Share Options, Target Awards, Relative
Performance Awards, and/or Strategic Performance Awards, and shall determine the
value of the Phantom Share Options, Target Awards, Relative Performance Awards
and/or Strategic Performance Awards which should be granted to such person, and
the terms and conditions of any such Grant to be made; provided, in those cases
in which the Committee has delegated to the Chief Executive Officer of the
Company (the “CEO”) or other officers of the Company the authority to make such
determination with respect to certain classes of Employees, such determinations
shall be made by the CEO or such officers, as applicable.  Notwithstanding the
foregoing, if a Participant who received a Grant of Phantom Share Options and/or
Target Awards for the 2001 and the 2002 Performance Cycle fails to execute a
written consent agreeing to exchange such Phantom Share Options and/or Target
Awards for the 2001 and the 2002 Performance Cycle for new Relative Performance
Awards and/or Strategic Performance Awards, as applicable, for the 2001 and the
2002 Performance Cycles, such Participant’s total Grants under the Plan shall be
limited to the Phantom Share Options and/or Target Awards for the 2001 and the
2002 Performance Cycles, and the Participant will not be eligible to receive
Grants under the Plan for any Performance Cycle which begins on or after January
1, 2003.

 

(d)                                 Phantom Share Options, Target Awards,
Relative Performance Awards and/or Strategic Performance Awards shall be granted
to an Employee by the Company only upon the prior approval of the Committee and
upon the execution of a Grant Agreement between the Company and the Participant.
All such Grant Agreements may be entered into by the Company as agent for the
Participating Employers, and all Phantom Share Options, Target Awards, Relative
Performance Awards and/or Strategic Performance Awards shall be and remain the
liability of the Participating Employer employing the Participant at the time of
such Grants.

 

(e)                                  The Committee’s interpretation and
construction of the provisions of the Plan and rules and regulations adopted by
the Committee shall be final.  No member of the Committee or the Board shall be
liable for any action taken, or determination made, in respect of the Plan in
good faith. Each member of the Committee and each member of the Board shall be
fully justified in relying upon or acting in good faith upon any opinion,
report, or information furnished in connection with the Plan by any accountant,
counsel, or other specialist (including financial officers of the Company,
whether or not such persons are Participants in the Plan).

 

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(f)                                    This Plan may be adopted by such
subsidiary entities of the Company as the Board or Committee may approve,
whereupon such entities shall become Participating Employers.

 

(g)                                 The Committee shall periodically evaluate
the effectiveness of the various forms of Grants available under the Plan in
meeting the purposes for which the Plan was adopted. Subject to the limitations
and requirements of Section 5, the Committee, based on such an evaluation, may
in its sole and absolute discretion, add a new optional form of Grant, eliminate
an optional form of Grant, modify the terms of an existing form of Grant, or
offer one form of Grant in exchange for an existing Grant made to a Participant
for a Performance Cycle.  Any exchange of an existing Grant for a new Grant
under the Plan shall be for good and valuable consideration and subject to
consent of the Participant and the provisions of Section 5.

 

3.                                      ELIGIBILITY AND PARTICIPATION

 

(a)                                  Any Employee (including an Employee who is
also a director or an officer) is eligible to participate in the Plan.
Participants shall be selected, however, in consideration of the purpose of the
Plan. Notwithstanding the foregoing, if a Participant who received a Grant of
Phantom Share Options and/or Target Awards for the 2001 and the 2002 Performance
Cycles fails to execute a written consent agreeing to exchange such Phantom
Share Options and/or Target Awards for the 2001 and the 2002 Performance Cycles
for new Relative Performance Awards and/or Strategic Performance Awards, as
applicable, for the 2001 and the 2002 Performance Cycles, such Participant may
not continue to participate in the Plan, except with respect to Grants already
received, and will not be eligible to receive Grants under the Plan for any
Performance Cycle beginning on or after January 1, 2003.

 

(b)                                 The Committee, upon its own action, may
grant, but shall not be required to grant, Phantom Share Options, Target Awards,
Relative Performance Awards and/or Strategic Performance Awards to any
Employee.  Grants may be made by the Committee at any time and from time to time
to new Participants, or to then Participants, or to a greater or lesser number
of Participants, and may include or exclude previous Participants, as the
Committee shall determine.  Notwithstanding any other provision of this Plan to
the contrary, effective for Performance Cycles beginning on or after January 1,
2003 Grants of Phantom Share Options and Target Awards will no longer be
available under the Plan.

 

(c)                                  Each Grant shall be evidenced by a Grant
Agreement in such form and with such terms and conditions, as the Committee may
from time to time determine. The rights of a Participant with respect to any
Grant shall at all times be subject to the terms and conditions set forth in the
Grant Agreement relating thereto and in the Plan Documents. Except as required
by this Plan, different Grants need not contain terms or conditions similar to
any Grant made prior thereto or contemporaneously therewith.  The Committee’s
determinations under

 

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the Plan (including determinations of which Employees, if any, are to receive
Grants, the form, amount and timing of such Grants, the terms and provisions of
such Grants and the agreements evidencing same) need not be uniform and may be
made by it selectively among Employees who receive, or are eligible to receive,
Grants under the Plan.

 

4.                                      GRANTS AND EXERCISE OF GRANTS

 

4.1                               GRANT AND EXERCISE OF RELATIVE PERFORMANCE
AWARDS AND STRATEGIC PERFORMANCE AWARDS

 

(a)                                  The Performance Schedule for each Relative
Performance Award and Strategic Performance Award (for purposes of this Section
4.1, collectively the “Award” or “Awards”) shall be established by the Committee
at the time of Grant.  At the conclusion of each Performance Cycle, Grants
shall, subject to the provisions of the Plan Documents, become payable.

 

(b)                                 Each Performance Cycle, subject to the other
limitations set forth in the Plan, may extend for a period of up to three (3)
years from the Date of Grant.  The length of each Performance Cycle shall be
determined by the Committee at the time of Grant; provided, however, if no term
is established by the Committee the term of the Performance Cycle shall be three
(3) years from the Date of Grant.

 

(c)                                  Except as provided in Sections 4.1(d) and
4.4(c), upon a Participant’s voluntary or involuntary Termination of Service,
the Participant’s Grants and all rights thereunder shall terminate effective at
the close of business on the date the Participant’s Date of Termination;
provided, however, that in the case of a Participant’s Termination of Service
due to Retirement, transfer to a Parent Company, Disability or death, the
Participant shall be entitled, with respect to each Grant of a Strategic
Performance Award still outstanding, to a pro-rated Strategic Performance Award
for the period beginning as of the Date of Grant for each respective Strategic
Performance Award and ending on the date of the Participant’s Termination of
Service, based on the Committee’s evaluation of the Company’s Strategic
Performance through the end of the active Performance Cycle applicable to each
such Grant.

 

A Participant’s Termination of Service due to Retirement, Disability or death,
shall have no effect on any Grant of a Relative Performance Award still
outstanding as of the date of such Termination of Service.  If a Participant’s
Termination of Service is a result of the Participant’s transferring to a Parent
Company, the Participant shall be entitled, with respect to each Grant of a
Relative Performance Award still outstanding, to a pro-rated Relative
Performance Award for the period beginning as of the Date of Grant for each
respective Relative Performance award and ending on the date the Participant
transfers to the Parent Company, based on the Committee’s evaluation of the
Company’s Relative Performance through the end of the active Performance Cycle
applicable to each such Grant.

 

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(d)                                 Notwithstanding Section 4.1(c), in the event
a Participant (i) takes a leave of absence from the Company for personal reasons
or as a result of entry into the Armed Forces of the United States, or (ii)
terminates employment for reasons which, in the judgment of the Committee, are
deemed to be special circumstances, the Committee may consider such
circumstances and may take such action in respect of the related Grant and Grant
Agreement as it may deem appropriate under the circumstances, including
extending the rights of a Participant to continue participation in the Plan
beyond his Date of Termination; provided in no event may participation be
extended beyond the term of the Performance Cycle.

 

(e)                                  At the end of each Performance Cycle, the
Committee shall evaluate the Company’s Relative Performance for the purpose of
the Relative Performance Awards and the Company’s Strategic Performance for
purpose of the Strategic Performance Awards to determine the percent, if any, of
the Performance Schedule applicable to the respective award to be earned for the
Performance Cycle.  Any resultant award may be further adjusted as a result of
the application of the provisions in Section 4.1(c) or by the Committee in its
sole and absolute discretion either in individual cases or in the aggregate.

 

(f)                                    Unless modified by the Committee pursuant
to the authority granted to it herein, Relative Performance Awards reward
Participants for changes in the Company’s Relative Performance compared to a
group of peer companies as initially composed of the chemical companies, or
chemical segments thereof, set forth in Exhibit C.

 

(g)                                 Unless modified by the Committee pursuant to
the authority granted to it herein, Strategic Performance Awards reward
Participants based on the Company’s Strategic Performance compared to defined
strategic objectives.

 

(h)                                 Upon final determination by the Committee of
a Participant’s right to receive a distribution of a Relative Performance Award
or a Strategic Performance Award, the distribution shall be paid in cash as a
lump sum as soon as practicable after such final determination by the Committee.

 

(i)                                     If a participant is eligible to
participate in the Deferred Compensation Plan, then the Participant may
voluntarily elect to defer receipt of his Award and to cause such amount to be
credited to his account with the Deferred Compensation Plan.  The rules and
procedures governing the Deferred Compensation shall govern and be binding upon
any Participants who elect to make such deferrals.

 

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4.2                               GRANTS AND EXERCISE OF PHANTOM SHARE OPTIONS

 

(a)                                  Upon the Grant of any Phantom Share
Options, the Committee shall establish a Market Value Per Share for the
fictitious shares underlying such Options.

 

(b)                                 Except as otherwise provided in this Section
4.2 or in any other Plan Document, (i) one third (1/3) of the Phantom Share
Options granted pursuant to any Grant Agreement shall become exercisable by the
Participant twelve (12) months, twenty-four (24) months, and thirty-six (36)
months, respectively, following the effective Date of Grant, and (ii) Phantom
Share Options which have become exercisable shall remain exercisable until the
tenth (10th) anniversary of the effective Date of Grant.  Notwithstanding any
provision to the contrary in this Section 4.2, Phantom Share Options may not be
increased after the tenth (10th) anniversary of the effective Date of Grant.

 

(c)                                  Upon a Participant’s Retirement or
Termination of Service due to transfer to a Parent Company, all Phantom Share
Options previously granted shall Vest according to the schedule described in
Section 4.2(b), and all Options granted must be exercised within three (3) years
of the Participant’s date of Retirement. In the event a Participant does not
elect to exercise any such Option prior to the expiration of such period, the
same shall be deemed to have been exercised on the final day thereof.

 

(d)                                 Upon a Participant’s other voluntary
Termination of Service, the Participant shall be deemed to have elected to
exercise all Vested Options, and the value thereof shall be paid to the
Participant as promptly as reasonably practicable following the calculation of
such value. All Options not Vested as of the Participant’s Date of Termination
shall be forfeited.

 

(e)                                  Upon a Participant’s involuntary
Termination of Service, the Participant shall have a period of ninety (90) days
from the Participant’s Date of Termination within which to exercise all Vested
Options, and the value thereof shall be paid to the Participant as promptly as
reasonably practicable following such exercise and the calculation of such
value. In the event a Participant does not elect to exercise any such Option
prior to the expiration of such period, the same shall be deemed to have been
exercised on the final day thereof. All Options not Vested as of the
Participant’s Date of Termination shall be forfeited.

 

(f)                                    Upon a Participant’s Disability, the
Participant shall have a period of twelve (12) months from the Participant’s
date of Disability within which to exercise all Vested Options, and the value
thereof shall be paid to the Participant as promptly as reasonably practicable
following such exercise and the calculation of such value. In the event a
Participant does not elect to exercise any such Option prior to the expiration
of such period, the same shall be deemed to have been exercised on the final day
thereof. All Options not Vested as of the Participant’s date of Disability shall
be forfeited.

 

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(g)                                 Upon a Participant’s death, the
Participant’s beneficiary, executor, administrator or other personal
representative, as the case may be, shall have a period of three (3) years from
the Participant’s date of death within which to exercise all Vested Options, and
the value thereof shall be paid to the Participant’s beneficiary or estate as
promptly as reasonably practicable following such exercise and the calculation
of such value. In the event a Participant’s beneficiary, executor, administrator
or other personal representative does not exercise any such Option prior to the
expiration of such period, the same shall be deemed to have been exercised on
the final day thereof. All Options not Vested as of the Participant’s date of
death shall be forfeited.

 

(h)                                 Notwithstanding the foregoing provisions of
this Section 4.2, in the event a Phantom Share Option holder (i) takes a leave
of absence for personal reasons or as a result of entry into the Armed Forces of
the United States, or (ii) terminates employment for reasons which, in the
judgment of the Committee are deemed to be special circumstances, the Committee
may consider such circumstances and may take such action in respect of the
related Grant and Grant Agreement as it may deem appropriate, including reducing
or canceling such Grant, and accelerating and/or extending the time rights with
respect to previously granted Phantom Share Options may be exercised; provided
in no event may any Option be exercised after the expiration of the term of the
Option.

 

(i)                                     The Committee shall determine the Market
Value of the Company as of each Valuation Date.  For purposes of such
determination, the comparator group shall be initially composed of the
publicly-traded chemical companies set forth in Exhibit B.  The Committee, in
its sole discretion and judgment, may make such changes to the comparator group
from time to time as it deems advisable to reflect industry merger and
acquisition activity, shifts in market or business strategy, or other
considerations which could influence the Company’s Market Value determination.

 

(j)                                     The Market Value Per Share shall always
be based upon the most recent calculation as set forth in Section 4.2(i).  The
calculated Market Value Per Share will always be in effect for a period of six
(6) months and until such time as a new calculation is made based upon
publicly-available market and financial data.  The calculated Market Value Per
Share shall be the prevailing value for all grant and exercise activity pursuant
to the Plan.

 

(k)                                  A Phantom Share Option holder desiring to
exercise rights with respect to an Option shall notify the Company in writing in
such manner as shall be specified in the Grant Agreement.

 

(l)                                     The Phantom Share Option holder must be
Vested with respect to the number of Phantom Share Options he elects to exercise
as set forth in the Grant

 

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Agreement and must make each election to exercise on or before the end of the
Option’s term.

 

(m)                               Upon the exercise of rights with respect to a
Phantom Share Option, the Participant will receive the appreciation in value, if
any, between the Company’s Market Value Per Share on the Date of Grant and the
date of exercise.  The Market Value Per Share on the date of exercise will be
based upon the same calculation methodology as is set forth in Section 4.2(i). 
Except as otherwise provided, the appreciation in value, if any, will be paid to
the Participant in the form of cash as a lump sum as soon as is practicable
following the Participant’s written notification to the Company of his exercise
election.  Such cash payment will be made consistent with the Company’s regular
payroll policy and procedures and will be subject to applicable tax and
withholding regulations and procedures in effect at that time.

 

(n)                                 On a date at least six (6) months in advance
of the Participant’s election to exercise a Grant, the Participant may
voluntarily elect to defer receipt of his Phantom Share appreciation and to
cause such amount to be credited to his account with the Company’s nonqualified
deferred compensation plan for executives.  The rules and procedures governing
the nonqualified deferred compensation plan shall govern and be binding upon any
Participants who elect to make such deferrals.

 

(o)                                 A Participant shall not make payment for or
in any way contribute to the exercise of a Phantom Share Option.  Any applicable
withholding and payroll taxes may be taken from the applicable appreciation in
Market Value Per Share due to the Participant following exercise.

 

(p)                                 Notwithstanding the foregoing, effective for
Performance Cycles beginning on or after January 1, 2003, Grants of Phantom
Share Options will no longer be made under the Plan.

 

4.3                               GRANT AND EXERCISE OF TARGET AWARDS

 

(a)                                  The Performance Schedule for each Target
Award will be established by the Committee at the time of Grant.  At the
conclusion of each Performance Cycle, Grants shall, subject to the provisions of
the Plan Documents, become payable.

 

(b)                                 Each Performance Cycle, subject to the other
limitations set forth in the Plan, may extend for a period of up to three (3)
years from the Date of Grant.  The length of each Performance Cycle shall be
determined by the Committee at the time of Grant: provided, if no term is
established by the Committee the term of the Performance Cycle shall be three
(3) years from the Date of Grant.

 

(c)                                  Except as provided in Sections 4.3(e) and
4.4(c), upon voluntary or involuntary Termination of Service, the Participant’s
Target Award and all rights

 

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thereunder shall terminate effective at the close of business on the date the
Participant’s Date of Termination; provided, in the case of termination due to
Retirement, transfer to a Parent Company, Disability or death, the Participant
shall be entitled to a pro-rated Performance Award based on the Relative Return
of the Company through the end of the year in which the Date of Termination
occurs.

 

(d)                                 Notwithstanding Section 4.3(d), in the event
a Participant (i) takes a leave of absence from the Company for personal reasons
or as a result of entry into the Armed Forces of the United States, or (ii)
terminates employment for reasons which, in the judgment of the Committee, are
deemed to be special circumstances, the Committee may consider such
circumstances and may take such action in respect of the related Grant and Grant
Agreement as it may deem appropriate under the circumstances, including
extending the rights of a Participant to continue participation in the Plan
beyond his Date of Termination; provided in no event may participation be
extended beyond the term of the Performance Cycle.

 

(e)                                  At the end of each year, the Committee
shall determine the Return on Assets earned by the Company and each of the
companies composing the group of comparable chemical companies selected by the
Committee for each complete fiscal year covered by the relevant Performance
Cycle. The comparator group shall be initially composed of the chemical
companies, or chemical segments thereof, set forth in Exhibit A.

 

(f)                                    The statistical mean average of the
Company’s Return on Assets for the duration of the Performance Cycle (the
Average Return on Assets) will be compared to those of each of the component
companies of the group of comparable companies selected by the Committee.  The
comparison of the Company’s results against those of the component companies
will yield a percentile ranking, which will be used to determine the amount of
the Performance Award as a percentage of Participants’ Target Award. The
Committee may make such further adjustments in such calculations as it deems
appropriate with respect to individual Participants or to Participants in the
aggregate.

 

(g)                                 For purposes of assessing the Company’s
Relative Return, only companies against which relative performance can be
reasonably determined for each component year of the Performance Cycle shall be
considered.

 

(h)                                 Upon final determination of the
Participants’ Performance awards by the Committee, Participants will become
eligible to receive payment.  Performance Award amounts shall be paid in cash as
a lump sum as soon as practicable after the final determination by the
Committee.

 

(i)                                     On a date at least six (6) months in
advance of the end of a given Performance Cycle, the Participant may voluntarily
elect to defer receipt of his

 

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Performance Award and to cause such amount to be credited to his account with
the Company’s nonqualified deferred compensation plan for executives.  The rules
and procedures governing the nonqualified deferred compensation plan shall
govern and be binding upon any Participants who elect to make such deferrals.

 

(j)                                     Notwithstanding the foregoing, effective
for Performance Cycles beginning on or after January 1, 2003, Grants of Target
Awards will no longer be made under the Plan.

 

4.4                               PROVISIONS COMMON TO OPTIONS AND AWARDS

 

(a)                                  Phantom Share Options, Relative Performance
Awards, Strategic Performance Awards and Target Awards shall be nontransferable
and nonassignable, except that any such Grant may be transferred (i) to such
beneficiary as the Participant may designate in the event of death, Disability
or other incapacity, or (ii) by testamentary instrument or by the laws of
descent and distribution. The Committee shall prescribe the form and manner in
which beneficiary designations shall be made, revoked or amended. Any valid
beneficiary designation on file with the Company shall take priority over any
conflicting provision of any testamentary or similar instrument.

 

(b)                                 The establishment of the Plan shall not
confer any legal rights upon any Employee or other person to continued of
employment, nor shall it interfere with the right of any Participating Employer
(which right is hereby reserved) to discharge any Employee and to treat him
without regard to the effect which that treatment might have upon him as a
Participant or potential Participant.

 

(c)                                  In the event that any Participant engages
in any activity which the Committee judges to be detrimental to the Company or
any Participating Employer, or otherwise fails to substantially perform his or
her obligations as an Employee, the Committee may, at any time prior to payment
of an award to a Participant, cancel or reduce the award in whole or in part.

 

(d)                                 If, during a Performance Cycle, an Employee
is promoted to a pay grade of 90 or above the Employee becomes eligible to
participate in the Plan.  If the Employee is otherwise selected by the Committee
to participate in the Plan, the Employee will receive a Grant of a Relative
Performance Award and/or a Strategic Performance Award for the most recent,
active Performance Cycle.  Such Grant will be pro-rated for the period which
begins on the Date of Grant and ends as of the end of the applicable Performance
Cycle.  If, during a Performance Cycle, an individual is hired as an Employee in
a pay grade of 90 or above the Employee becomes eligible to participate in the
Plan.  If the Employee is otherwise selected by the Committee to participate in
the Plan, the Employee will receive a Grant of a Relative Performance Award
and/or a Strategic Performance Award for the most recent, active Performance
Cycle.  Such Grant will be pro-rated for the period which begins on the Date of
Grant and ends as of the end of the applicable Performance Cycle. 
Notwithstanding the foregoing, when an

 

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Employee is hired in a pay grade of 90 or above, the CEO will have the authority
to give pro-rated Grants for all active Performance Cycles when required for
competitive reasons.  In the event a Participant is demoted to a pay grade lower
than 90, outstanding Grants will be pro-rated for all active Performance Cycles
to which such outstanding Grants apply.  For this purpose, the pro-ration period
will begin as of the Date of Grant for each applicable Grant Award and will end
on the effective date of the Employee’s demotion

 

5.                                      AMENDMENT OR DISCONTINUANCE

 

Subject to the limitations set forth in this Section 5, the Board may at any
time and from time to time, without the consent of the Participants, alter,
amend, revise, suspend, or discontinue the Plan in whole or in part.  Any such
amendment shall, to the extent deemed necessary or advisable by the Committee,
be applicable to any outstanding Grants theretofore awarded under the Plan,
notwithstanding any contrary provisions contained in any Grant Agreement.  In
the event of any such amendment to the Plan, the holder of any Grant outstanding
under the Plan shall, upon request of the Committee and as a condition to the
exercisability thereof, execute a conforming amendment in the form prescribed by
the Committee to any Grant Agreement relating thereto.  Notwithstanding anything
contained in this Plan to the contrary, unless required by law, no action
contemplated or permitted by this Section 5 shall adversely affect any rights of
Participants or obligations of the Company to Participants with respect to any
award theretofore granted under the Plan without the consent of the affected
Participant.

 

6.                                      RECAPITALIZATION, MERGER, AND
CONSOLIDATION; CHANGE IN CONTROL

 

(a)                                  The existence of this Plan and the awards
granted hereunder shall not affect in any way the right or power of the Company
or those entities holding membership interests in the Company to make or
authorize any or all adjustments, reorganizations, or other changes in the
Company’s capital structure and its business, or any merger or consolidation of
the Company, or the dissolution or liquidation of the Company, or any sale or
transfer of all or part of its assets or business, or any other corporate act or
proceeding, whether of a similar character or otherwise.

 

(b)                                 In the event of a Change in Control, all
Grants outstanding shall thereupon automatically be accelerated and payable in
full. In the case of Performance Awards, payment shall be made at a Relative
Return level determined by the Committee, which shall be deemed payment in
full.  In the case of Relative Performance Awards, payment will be based on the
Company’s Relative Performance as of the date of the Change in Control as
determined by the Committee in its sole and absolute discretion. In the case of
Strategic Performance Awards, payment will be based on the Company’s Strategic
Performance as of the date of the Change in Control as determined by the
Committee in its sole and absolute discretion.  The determination of the
Committee that any of the foregoing conditions has been met shall be binding and
conclusive on all parties. Notwithstanding the foregoing, in the event that,

 

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incident to a Change in Control, provision is made for the transfer of rights
under this Plan to another or successor Plan, Participants shall be allowed to
make such transfer.

 

7.                                      MISCELLANEOUS

 

(a)                                  Neither the adoption of this Plan nor any
action of the Board or the Committee shall be deemed to give any person any
right to be granted an award or any other rights except as may be evidenced by a
Grant Agreement, or any amendment thereto, duly authorized by the Committee and
executed on behalf of the Company, and then only to the extent and upon the
terms and conditions expressly set forth therein.

 

(b)                                 The Company shall have the right to deduct
from all amounts hereunder paid in cash, any federal, state, local, or other
taxes required by law to be withheld with respect to such payments.

 

(c)                                  THE VALIDITY, CONSTRUCTION AND EFFECT OF
THE PLAN, ANY PLAN DOCUMENTS, AND ANY ACTIONS TAKEN OR RELATING TO THE PLAN
SHALL BE DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS APPLICABLE
TO CONTRACTS MADE AND TO BE PERFORMED WITHIN SUCH STATE.

 

(d)                                 The Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Company, expressly
to assume and agree to perform the Company’s obligations under this Plan in the
same manner and to the same extent that the Company would be required to perform
them if no such succession had taken place.

 

(e)                                  The Plan shall be unfunded. Neither the
Company, any Participating Employer, the Committee, nor the Board shall be
required to segregate any assets or secure any liability that may at any time be
represented by Grants made pursuant to the Plan.

 

(f)                                    The Plan shall have a term of ten (10)
years from its Effective Date.  After termination of the Plan, no future Grants
may be made, but Grants made before that date will continue to be effective in
accordance the terms and conditions of the respective Grant Agreement.

 

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EXHIBIT A

 

INITIAL

COMPARATOR COMPANIES

PERFORMANCE AWARDS

 

 

The following companies, or the chemicals segments thereof, shall be the initial
comparator companies for purposes of Performance Awards:

 

1.                                       BP, p.l.c. (chemicals segment)

 

2.                                       Borealis (polyolefins & chemicals
segment)

 

3.                                       The Dow Chemical Company

 

4.                                       Eastman Chemical Company

 

5.                                       Equistar Chemicals, LP

 

6.                                       ExxonMobil Corporation (chemicals
segment)

 

7.                                       Georgia Gulf Corporation

 

8.                                       NOVA Chemicals Corporation

 

9.                                       Royal Dutch/Shell Group (chemicals
segment)

 

10.                                 Solutia Inc.

 

11.                                 Sunoco, Inc. (chemicals segment)

 

THIS EXHIBIT A MAY BE MODIFIED FROM TIME TO TIME BY THE COMMITTEE IN ITS SOLE
AND ABSOLUTE DISCRETION.

 

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EXHIBIT B

 

INITIAL

COMPARATOR COMPANIES

PHANTOM SHARE OPTIONS

 

The following companies shall be the initial comparator companies for purposes
of Phantom Share Options:

 

1.               Air Products and Chemicals, Inc.

 

2.               The Dow Chemical Company

 

3.               E.I. du Pont de Nemours and Company

 

4.               Eastman Chemical Company

 

5.               Georgia Gulf Corporation

 

6.               Lyondell Chemical Company

 

7.               Millennium Chemicals Inc.

 

8.               NOVA Chemicals Corporation

 

9.               Rhom and Haas Company

 

10.         Solutia Inc.

 

THIS EXHIBIT B MAY BE MODIFIED FROM TIME TO TIME BY THE COMMITTEE IN ITS SOLE
AND ABSOLUTE DISCRETION.

 

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EXHIBIT C

 

INITIAL

COMPARATOR COMPANIES

RELATIVE PERFORMANCE AWARDS

 

 

The following companies, or the chemicals segments thereof, shall be the initial
comparator companies for purposes of Performance Awards:

 

1.                                       The Dow Chemical Company

 

2.                                       Borealis (polyolefins & chemicals
segment)

 

3.                                       NOVA Chemicals Corporation

 

4.                                       Equistar Chemicals, LP

 

5.                                       ExxonMobil Corporation (chemicals
segment)

 

6.                                       BP, p.l.c. (chemicals segment)

 

7.                                       Royal Dutch/Shell Group (chemicals
segment)

 

Chem Systems Data or other relevant third-party data may also be used to
determine relative performance.

 

THIS EXHIBIT C MAY BE MODIFIED FROM TIME TO TIME BY THE COMMITTEE IN ITS SOLE
AND ABSOLUTE DISCRETION.

 

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