Document:

exhibit10_03.htm

    

      
        
           

        

        
           

          
          

        

        
           

        

      

      Exhibit
10.03

      

      

      PERFORMANCE
SHARE AWARD SUBPLAN

      OF
THE 2007 OMNIBUS LONG-TERM COMPENSATION PLAN

      2009-2011
PERFORMANCE PERIOD

      

      

      

      

      

      

      

      

      

      

      

      EASTMAN
CHEMICAL COMPANY

      

      

      
        
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      EASTMAN
CHEMICAL COMPANY

      PERFORMANCE
SHARE AWARD SUBPLAN

      OF
THE 2007 OMNIBUS LONG-TERM COMPENSATION PLAN

      2009-2011
PERFORMANCE PERIOD

      

      

      

      Section
1.  Background.  Under Article 4 of the Eastman
Chemical Company 2007 Omnibus Long-Term Compensation Plan (the "Plan"), the
"Committee" (as defined in the Plan), may, among other things, award shares of
the $.01 par value common stock ("Common Stock") of Eastman Chemical Company
(the "Company") to "Participants" (as defined in the Plan), and such awards may
take the form of Performance Awards which are contingent upon the attainment of
certain performance objectives during a specified period, and subject to such
other terms, conditions, and restrictions as the Committee deems
appropriate.  The purpose of this Performance Share Award Subplan
(this "Subplan") is to set forth the terms of the award
of  performance shares for the 2009-2011 Performance Period specified
herein, effective as of January 1, 2009 (the "Effective Date").

      

      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
      Amount” means the performance shares awarded to the Participant under this
      Subplan at the beginning of the Performance
  Period.

              

      

      

      
        	
                (iii)  

              	
                "Award
      Payment Date" means the date the Committee approves the payout of Common
      Stock covered by an award under this Subplan to a
    Participant.

              

      

      

      
        	
                (iv)  

              	
                "Comparison
      Group" is the group of companies within the S&P 1500 “Materials
      Sector” that are classified as Chemical companies.  The S&P
      “Materials Sector” index is an index of industrial companies selected from
      the S&P “Super Composite 1500” Index, identified as Global Industry
      Classification Standard (“GICS”)
15.

              

      

      

      
        	
                (v)  

              	
                “Cost
      of Capital” reflects the Company's cost of debt and the cost of equity,
      expressed as a percentage, reflecting the percentage of interest charged
      on debt and the percentage of expected return on
  equity.

              

      

      

      
        	
                (vi)  

              	
                “Earnings
      from Continuing Operations” shall be defined as the total sales of the
      Company minus the costs of all operations of any nature used to produce
      such sales, including taxes, plus after-tax interest associated with the
      Company's capital debt.

              

      

      

      
        
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                (vii)  

              	
                "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.

              

      

      

      
        	
                (viii)  

              	
                “Participation
      Date” means October 28, 2008.

              

      

      

      
        	
                (ix)  

              	
                “Performance
      Period" means January 1, 2009 through December 31,
    2011.

              

      

      

      
        	
                (x)  

              	
                “Performance
      Year” means one of the three calendar years in the Performance
      Period.

              

      

      

      
        	
                (xi)  

              	
                “Return
      on Capital” shall mean the return produced by funds invested in the
      Company and shall be determined as Earnings from Continuing Operations, as
      defined in Section 2.a.(vi), divided by the Average Capital
      Employed.  Average Capital Employed shall be derived by adding
      the Company's capital debt plus equity at the close of the last day of the
      year preceding the Performance Year, to the Company's capital debt plus
      equity at the close of the last day of the present Performance Year, with
      the resulting sum being divided by two.  Capital debt is defined
      as the sum of borrowing by the Company due within one year and long-term
      borrowing, as designated on the Company's balance sheet.  The
      resulting ratio shall be multiplied by One Hundred (100) in order to
      convert such to a percentage.  Such percentage shall be
      calculated to the third place after the decimal point (i.e., xx.xxx%), and
      then rounded to the second place after the decimal point (i.e.,
      xx.xx%).

              

      

      

      
        	
                (xii)  

              	
                "Target
      Award Range" means, with respect to any eligible Participant, the number
      of performance shares within the range specified on Exhibit A hereto for
      the Salary Grade applicable to such
Participant.

              

      

      

      
        	
                (xiii)  

              	
                “TSR”
      means total stockholder return, as reflected by the sum of (A) change in
      stock price (measured as the difference between (I) the average of the
      closing prices of a company’s common stock on the New York Stock Exchange,
      or of the last sale prices or closing prices of such stock on another
      national trading exchange, as applicable, in the period beginning on the
      tenth trading day preceding the beginning of the Performance Period and
      ending on the tenth trading day of the Performance Period and (II) the
      average of such closing or last sale prices for such stock in the period
      beginning on the tenth trading day preceding the end of the Performance
      Period and ending on the tenth trading day following the end of the
      Performance Period) plus (B) dividends declared, assuming reinvestment of
      dividends, and expressed as a percentage return on a stockholder’s
      hypothetical investment.

              

      

      

      
        	
                (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 Compensation and Management Development Committee of the
Board of Directors.  The Committee shall have authority to interpret
this Subplan, to prescribe rules and regulations relating to this Subplan, and
to take any other actions it deems necessary or advisable for the administration
of this Subplan, and shall retain all general authority granted to it under
Article 4 of the Plan.  At the end of the Performance Period, the
Committee shall approve Actual Grant Amounts awarded to participants under this
Subplan.

      

      Section
4.  Eligibility.  The Participants who are eligible
to participate in this Subplan are those employees who, as of the Participation
Date, are at Salary Grade 49 and 105 and above.  Employees who are
promoted during the Performance Period to a position that would meet the above
criteria, but who do not hold such position as of the Participation Date, are
not eligible to participate in this Subplan.

      

      Section 5.  Form
of Payout of Awards.  Subject to the terms and conditions of
the Plan and this Subplan, earned Awards under this Subplan shall be paid out in
the form of unrestricted shares of Common Stock, except for conversions to cash
and deferrals under Section 9 of this Subplan, and except that if a participant
is entitled to any fraction of a share of Common Stock, as a result of Section
10 of this Subplan or otherwise, then in lieu of receiving such fraction of a
share, the participant shall be paid a cash amount representing the market value
of such fraction of a share at the time of payment.

      

      Section 6.  Size
of Awards.

      

      
        	
                (a)

              	
                Target Award
      Range.  Exhibit A hereto shows by Salary Grade the Target
      Award Range. The Salary Grade to be used in determining the size of any
      Award Amount to a participant under this Subplan shall be the Salary Grade
      applicable to the position held by the participant on the Participation
      Date. The actual size of the Award Amount to the participant shall be
      determined based on an assessment by his or her senior management (and, in
      the case of executive officers, by the Committee) of the participant’s
      past performance and potential for contributions to the Company’s future
      long term success.  Based on this assessment, the participant
      may receive no award, the target award amount, or any amount within the
      Target Award Range in increments of 10 performance shares.  Each
      member of senior management will have a performance share budget, based on
      the cumulative award targets for their reports, which must be balanced for
      their organizations.

              

      

      

      

      
        
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                (b)  

              	
                Actual Grant
      Amount. Subject to the Committee’s authority to adjust the Actual
      Grant Amount described in Section 12, the Actual Grant Amount awarded to
      the participant at the end of the Performance Period is determined by
      applying a multiplier to the participant’s Award Amount.  The
      multiplier shall be determined by comparing Company performance relative
      to two measures:

              

      

      

      
        	
                (i)  

              	
                The Company's TSR
      during the Performance Period relative to the TSRs of the companies in the
      Comparison Group during the Performance Period.  The
      Company and each company in the Comparison Group shall be ranked by TSR,
      in descending order, with the company having the highest TSR during the
      Performance Period being ranked number one.  The Comparison
      Group shall further be separated into quintiles (first 20%, second 20%,
      etc.) and the Company's position, in relation to the Comparison Group,
      shall be expressed as a position in the applicable quintile ranking;
      and

              

      

      

      
        	
                (ii)  

              	
                (ii)The arithmetic
      average, for each of the Performance Years during the Performance Period,
      of the Company’s average Return on Capital minus a Return on Capital
      target. The Return on Capital target will be determined by the
      Committee.

              

      

      

      An award multiplier table is shown in
Exhibit B.  The award multiplier is based on the Company’s performance
relative to its quintile ranking relative to the Comparison Group, and its
average Return on Capital relative to a target during the Performance Period.
The award multipliers range from 3.0 (i.e. 300%), if the Company's TSR is in the
top performing quintile (top 20%) of companies in the Comparison Group, and the
average Return on Capital minus the target Return on Capital is greater than 10
percentage points, to 0.0 (with no shares of Common Stock being delivered to
participants under this Subplan), if the Company does not meet certain levels of
performance relative to the two measures.

      

      Section
7.  Composition of Comparison Group.   The
Comparison Group is composed of companies relevant for purposes of TSR
comparisons under this Subplan.  However, during the Performance
Period, a company in the Comparison Group may be dropped from the Comparison
Group if a company's common stock ceases to be publicly traded on a national
stock exchange or market; or a company is a party to a significant merger,
acquisition, or other reorganization. Under these, or similar, circumstances,
the company or companies may be removed from the Comparison Group, and may be
replaced with another company or companies by Standard & Poor’s, consistent
with their established criteria for selection of companies for the Comparison
Group.  In any case where the Comparison Group ceases to exist, or is
otherwise determined to no longer be appropriate as the basis for a measure
under this Subplan, the Committee may designate a replacement Comparison Group.
In any such case, the Committee shall have authority to determine the
appropriate method of calculating the TSR of such former and/or replacement
Comparison Group, whether by complete substitution of the replacement Comparison
Group (and disregard of the former Comparison Group) over the entire Performance
Period or by pro rata calculations for each Comparison Group or
otherwise.

      

      
        
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      Section
8.  Preconditions to Payout Under Award.

      

      
        	
                (a)

              	
                Continuous
      Employment.  Except as specified in paragraph (b) below,
      to remain eligible for payout under an Award under this Subplan, a
      Participant must remain continuously employed with the Company or a
      Subsidiary at all times from 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 as determined by the Committee (in the case of an
      executive officer) or the executive officer responsible for Human
      Resources (in the case of non-executive officers)  (including
      reduction in force, divestiture, special separation, termination by mutual
      consent) 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
      employed 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).

              

      

      

      Section 9.  Manner
and Timing of Award Payments.

      

      
        	
                (a)

              	
                Timing of Award
      Payment.  Except for deferrals under Section 9(c), if any
      Awards are payable under this Subplan, the payment of such Awards to
      Participants shall be made as soon as is administratively practicable
      after the end of the Performance Period and final approval by the
      Committee.

              

      

      

      
        	
                (b)

              	
                Tax
      Withholding.  The Company may withhold or require the
      grantee to remit a cash amount sufficient to satisfy federal, state, and
      local taxes (including the participant’s FICA obligation) required by law
      to be withheld.  Further, either the Company or the grantee may
      elect to satisfy the withholding requirement by having the Company
      withhold shares of Common Stock having a Fair Market Value on the date the
      tax is to be determined equal to the minimum statutory total tax which
      could be imposed on the
transaction.

              

      

      
        
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                (c)

              	
                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 may, at the sole
      discretion of the Committee, 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,
      provided that such deferral is compliant with the requirements of Internal
      Revenue Code Section 409A and Treasury Regulations and guidance
      thereunder.

              

      

      

      
        	
                (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 Section
      9(c) (except as otherwise provided in this Section with respect to
      Participants who are subject to Section 16(a) of the 1934
      Act),  an amount representing the Fair Market Value, as of the
      date the shares of Common Stock covered by the Award otherwise would be
      issued to the participant, of the Actual Grant Amount (or the deferred
      portion thereof) will be credited to the Stock Account of the Executive
      Deferred Compensation Plan (the “EDCP”), and hypothetically invested in
      units of Common Stock. Notwithstanding the foregoing, for each Participant
      who is subject to Section 16(a) of the 1934 Act. the deferrable amount,
      when initially credited to the participant's EDCP Account, shall be held
      in a participant's Interest Account until the next date that dividends are
      paid on Common Stock, and on such date the deferrable amount that would
      have been initially credited to the participant's Stock Account but for
      this sentence shall be transferred, together with allocable interest
      thereon, to the participant's Stock Account, subject to provisions set
      forth in the EDCP. 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 Stockholder.  No certificates for shares of Common
Stock shall be issued under this Subplan, nor shall any participant have any
rights as a stockholder 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. 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.

      

      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.

      

      Section
12.  Adjustment of Actual Grant Amount.  The
Committee may, in its sole discretion, adjust the Actual Grant Amount to reflect
overall Company performance and business and financial conditions.

      

      Section
13.  Amendments.  The Committee may, from time to
time, amend this Subplan in any manner.

      
        
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      EXHIBIT
A

      

      

      Eastman
Chemical Company

      Performance
Share Award Grant Table

      2009-2011
Cycle

      

      

      

      

      

      ON FILE
IN GLOBAL COMPENSATION

      

      

      

      

      

      

      
        
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      EXHIBIT
B

      
Award
Multiplier Table

      

      
        
          	 
      	
                  Differential
      from Target Return on Capital

                
	
                  Eastman
      TSR Relative to Comparison Companies

                	
                  <-7%

                	
                  -7%
      to  -5%

                	
                  -4.99
      to -3%

                	
                  -2.99
      to -1%

                	
                  -0.99
      to 0%

                	
                  .01
      to +1%

                	
                  +1.01
      to +3%

                	
                  +3.01
      to +5%

                	
                  +5.01
      to +7%

                	
                  +7.01
      to +10%

                	
                  >10%

                
	
                  5th
      quintile

                	
                  0

                	
                  0

                	
                  0

                	
                  0

                	
                  .4

                	
                  .5

                	
                  .6

                	
                  .7

                	
                  .8

                	
                  1.1

                	
                  1.5

                
	
                  4th
      quintile

                	
                  0

                	
                  0

                	
                  0

                	
                  .4

                	
                  .5

                	
                  .7

                	
                  .8

                	
                  .9

                	
                  1.1

                	
                  1.5

                	
                  2

                
	
                  3rd
      quintile

                	
                  0

                	
                  0

                	
                  .4

                	
                  .5

                	
                  .8

                	
                  1

                	
                  1.2

                	
                  1.5

                	
                  1.8

                	
                  2.1

                	
                  2.4

                
	
                  2nd
      quintile

                	
                  0

                	
                  .4

                	
                  .6

                	
                  .8

                	
                  1

                	
                  1.3

                	
                  1.6

                	
                  1.9

                	
                  2.2

                	
                  2.5

                	
                  2.8

                
	
                  1st
      quintile

                	
                  0

                	
                  .6

                	
                  .8

                	
                  1

                	
                  1.3

                	
                  1.6

                	
                  1.9

                	
                  2.2

                	
                  2.5

                	
                  2.8

                	
                  3

                

        

      

      

      
        
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      AWARD
NOTICE

       

      

      NOTICE
OF PERFORMANCE SHARES

      AWARDED
PURSUANT TO THE

      EASTMAN
CHEMICAL COMPANY

      2007 OMNIBUS LONG-TERM
COMPENSATION PLAN

      

      Recipient:

      

      Performance Period: 2009 –
2011

      

      Target Award:

      

      1.         Award of Performance
Shares.  This Award Notice serves to notify you that the
Compensation and Management Development Committee of the Board of Directors (the
“Committee”) of Eastman Chemical Company ("Company") has awarded to you, under
the 2009-2011 Performance Share Award Subplan ("Subplan") of the 2007 Omnibus
Long-Term Compensation Plan ("Plan"), on the terms and conditions set forth in
the Subplan and the Plan, the number of performance shares (the "Performance
Shares") of its $.01 par value Common Stock ("Common Stock") specified
above.  The Performance Shares are rights to receive Awards in the
form of shares of Common Stock, subject to the attainment of specified
performance conditions by the Company.  Subject to satisfaction of the
minimum performance conditions and the other terms of the Subplan, Awards under
the Subplan will ultimately be paid in the form of unrestricted shares of Common
Stock.

      

      This Award Notice provides a summary of
the terms and conditions of your performance shares, all of which terms and
conditions are contained in the Subplan and the Plan.  Capitalized
terms not defined herein have the respective meanings set forth in the Subplan
and the Plan, as applicable.

      

      2.         Performance
Conditions.  The performance conditions for the Subplan
involve: 1)  a comparison of the total stockholder return (referred to
in the Subplan as "TSR," and reflecting both the change in stock price and the
amount of dividends declared) of the Company during the period from January 1,
2009 through December 31, 2011 (the "Performance Period"), to the TSRs of the
companies in the Comparison Group (the group of companies within the Standard
and Poor’s “Materials Sector” that are classified as Chemical
companies.  The S&P “Materials Sector” index, identified as Global
Industry Classification Standard (“GICS”) 15, is an index of industrial
companies selected from the S&P “Super Composite 1500” index; and 2) the
arithmetic average for each of the Performance Years during the Performance
Period, of the Company’s average Return on Capital minus a Return on Capital
target.   The specific terms of the performance conditions are
summarized in Section 3 of this Award Notice and are detailed in Section 6 of
the Subplan.

      

      3.         Number of Performance Shares
Awarded.  The number of Performance Shares that you have been
awarded is shown above (the "Target Award").  However, the actual
number of shares of Common Stock to which you will be entitled under the Subplan
(the "Actual Grant Amount") may be more or less than the Target Award, depending
upon the quintile ranking of the Company's TSR when ranked among the TSRs of the
Comparison Group, and the Company’s average Return on Capital relative to a
Return on Capital target for each of the Performance Years during the
Performance Period.  The Company’s performance relative to these
measures shall determine a multiplier to be applied to the Target Grant
Amount.  Multipliers range from 3.0 (i.e. 300%), if the Company’s TSR
is ranked in the top performing quintile (top 20%) of companies in the
Comparison Group, and the average Return on Capital minus the target Return on
Capital is greater than 10 percentage points, to 0.0 (with no shares of Common
Stock being delivered to participants), if the Company does not meet certain
levels of performance relative to the two measures.  The award
multiplier table is shown in Exhibit A.  Subject to the Committee’s
authority to adjust the Actual Grant Amount described in Section 12 of this
Award Notice, your Actual Grant Amount is determined by applying the multiplier
corresponding to the Company’s performance (Exhibit A) to your Target
Award.

       

       

      
        
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      4.         Payment of
Award.  If you are entitled to payment of an Award under the
Subplan, such payment will be made as soon as administratively practicable after
the end of the Performance Period and final approval by the Committee; provided,
however, that if payment of the Award could, in the reasonable estimation of the
Committee, result in your receiving compensation, in the year of scheduled
payment, in excess of the amount deductible by the Company under Section 162(m)
of the Internal Revenue Code, then such portion (or all, as applicable) of the
Award as could, in the reasonable estimation of the Committee,  create
such excess compensation, may, at the sole discretion of the Committee, be
converted into the right to receive a cash payment, which will be deferred until
after you terminate employment with the Company and its Subsidiaries, provided
that such deferral is compliant with the requirements of Internal Revenue Code
Section 409A and Treasury Regulations and guidance thereunder, as specified in
Section 9 of the Subplan.

      

      If any portion of an Award is converted
into a right to receive a cash payment as described above, an amount
representing the Fair Market Value of the deferred portion of the Actual Grant
Amount will be credited to the Stock Account of the Executive Deferred
Compensation Plan (the “EDCP”) and hypothetically invested in units of Common
Stock.  Thereafter, such amount will be treated in the same manner as
other investments in the EDCP, all as specified in Section 9 of the
Subplan.

      

      The Company may withhold or require you
to remit a cash amount sufficient to satisfy federal, state, and local taxes
(including your FICA obligation) required by law to be
withheld.  Further, either the Company or you may elect to satisfy the
withholding requirement by having the Company withhold shares of common stock
having a Fair Market Value on the date the tax is to be determined equal to the
minimum statutory total tax which could be imposed on the
transaction.

      

      5.         Nontransferability.  Unless
and until unrestricted shares of Common Stock are delivered or, if applicable,
an amount is credited  under the EDCP to you in payment of an earned
Award of the Performance Shares, the Performance Shares are not transferable
except by will or by the laws of descent and distribution, and may not be sold,
assigned, pledged or encumbered in any way, whether by operation of law or
otherwise.

      

      6.         Limitation of
Rights.  You  will not have any rights as a
stockholder with respect to the Performance Shares unless and until certificates
for shares of Common Stock have been issued to you.  No such
certificates will be issued under the Subplan until the Actual Grant Amount has
been determined and you have otherwise become entitled to payment of an Award
under the terms of the Plan and the Subplan.    Neither the
Plan, the Subplan, the granting of these Performance Shares nor this Award
Notice gives you any right to remain employed by the Company and its
Subsidiaries.

      

      7.         Termination.  Upon
termination of your employment with the Company and its Subsidiaries by reason
of death, disability or retirement, or for another approved reason (e.g.,
reduction in force, divestiture, special separation, termination by mutual
consent), as determined by the Committee (in the case of executive officers) or
the executive officer responsible for Human Resources (in the case of
non-executive employees), you will receive, subject to the terms and conditions
of the Plan and the Subplan, an Award representing a prorated portion of the
Actual Grant Amount to which you otherwise would be entitled, based on the
number of full calendar months from January 1, 2009 through the effective date
of such termination.  Upon termination of your employment with the
Company and its Subsidiaries for a reason other than death, disability,
retirement or another approved reason prior to the date the shares of Common
Stock covered by the Award are delivered to you, you will not be eligible or
entitled to receive any Award under the Subplan.

      

      
        
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      8.         Noncompetition;
Confidentiality.  You will not, without the written consent of
the Company, either during your employment by the Company or thereafter,
disclose to anyone or make use of any confidential information which you have
acquired during your employment relating to any of the business of the Company,
except as such disclosure or use may be required in connection with your work as
an employee of the Company.  During your employment by the Company,
and for a period of two years after the termination of such employment, you will
not, either as principal, agent, consultant, employee or otherwise, engage in
any work or other activity in competition with the Company in the field or
fields in which you have worked for the Company.  The agreement in
this Section 8 applies separately in the United States and in other countries
but only to the extent that its application shall be reasonably necessary for
the protection of the Company.  You will forfeit all rights under this
Award Notice to or related to the Performance Shares if,. in the determination
of the Committee (in the case of executive officers) or of the executive officer
responsible for Human Resources (in the case of non-executive employees), you
have violated any of the provisions of this Section 8, and in that event any
issuance of shares, payment or other action with respect to the Performance
Shares shall be made or taken, if at all, in the sole discretion of the
Committee or the executive officer responsible for Human Resources

      

      9.         Restrictions on Issuance of
Shares.  If at any time the Company determines that listing,
registration or qualification of the shares covered by an Award upon any
securities exchange or under any state or federal law, or the approval of any
governmental agency, is necessary or advisable prior to the delivery of any
certificate for shares of Common Stock subject to the Award, no such certificate
may be delivered unless and until such listing, registration, qualification or
approval shall have been effected or obtained free of any conditions not
acceptable to the Company.

      

      10.         Change in Ownership; Change
in Control.  Article 14 of the Plan contain certain special
provisions that will apply in the event of a Change in Ownership or Change in
Control, respectively.

      

      11.         Adjustment of Terms.  The
adjustment provisions Article 15 of the Plan will control in the event of a
nonreciprocal transaction between the company and its stockholders that causes
the per-share value of the Common Stock to change (including, without
limitation, any stock dividend, stock split, spin-off, rights offering, or large
nonrecurring cash dividend) or upon the occurrence of in anticipation of any
other corporate event or transaction involving the Company (including, without
limitation, any merger, combination, or exchange of shares).

      

      12.         Adjustment of Actual Grant
Amount.  The Committee may, in its sole discretion, adjust the
Actual Grant Amount to reflect overall Company performance and business and
financial conditions.

      

      13.         Plan and Subplan
Control.  In the event of any conflict between the provisions
of the Plan or the Subplan and the provisions of this Award Notice, the
provisions of the Plan or the Subplan, as applicable, will be controlling and
determinative.

      

      

      
        
          69 

        

        
           

          
            

          

        

        
           

        

      

      

      

      

      

      EXHIBIT
A

      

      Award
Multiplier Table

      

      
        
          	 
      	
                  Differential
      from Target Return on Capital

                
	
                  Eastman
      TSR Relative to Comparison Companies

                	
                  <-7%

                	
                  -7%
      to -5%

                	
                  -4.99
      to -3%

                	
                  -2.99
      to -1%

                	
                  -0.99
      to 0%

                	
                  .01
      to +1%

                	
                  +1.01
      to +3%

                	
                  +3.01
      to +5%

                	
                  +5.01
      to +7%

                	
                  +7.01
      to +10%

                	
                  >10%

                
	
                  5th
      quintile

                	
                  0

                	
                  0

                	
                  0

                	
                  0

                	
                  .4

                	
                  .5

                	
                  .6

                	
                  .7

                	
                  .8

                	
                  1.1

                	
                  1.5

                
	
                  4th
      quintile

                	
                  0

                	
                  0

                	
                  0

                	
                  .4

                	
                  .5

                	
                  .7

                	
                  .8

                	
                  .9

                	
                  1.1

                	
                  1.5

                	
                  2

                
	
                  3rd
      quintile

                	
                  0

                	
                  0

                	
                  .4

                	
                  .5

                	
                  .8

                	
                  1

                	
                  1.2

                	
                  1.5

                	
                  1.8

                	
                  2.1

                	
                  2.4

                
	
                  2nd
      quintile

                	
                  0

                	
                  .4

                	
                  .6

                	
                  .8

                	
                  1

                	
                  1.3

                	
                  1.6

                	
                  1.9

                	
                  2.2

                	
                  2.5

                	
                  2.8

                
	
                  1st
      quintile

                	
                  0

                	
                  .6

                	
                  .8

                	
                  1

                	
                  1.3

                	
                  1.6

                	
                  1.9

                	
                  2.2

                	
                  2.5

                	
                  2.8

                	
                  3

                

        

      

      

      

      

      

      

      
        
          70exhibit10_04.htm

    
      
         

      

      
         

        
        

      

      
         

      

    

    Exhibit
10.04

    

    

    PERFORMANCE
SHARE AWARD SUBPLAN

    OF
THE 2007 OMNIBUS LONG-TERM COMPENSATION PLAN

    2009-2011
PERFORMANCE PERIOD

    Mark
J. Costa

    

    

    

    

    

    

    

    

    

    

    

    EASTMAN
CHEMICAL COMPANY

    

    

    
      
        71 

      

      
         

        
          

        

      

      
         

      

    

    EASTMAN
CHEMICAL COMPANY

    PERFORMANCE
SHARE AWARD SUBPLAN

    OF
THE 2007 OMNIBUS LONG-TERM COMPENSATION PLAN

    2009-2011
PERFORMANCE PERIOD

    Mark
J. Costa

    

    

    

    Section
1.  Background.  Under Article 4 of the Eastman
Chemical Company 2007 Omnibus Long-Term Compensation Plan (the "Plan"), the
"Committee" (as defined in the Plan), may, among other things, award shares of
the $.01 par value common stock ("Common Stock") of Eastman Chemical Company
(the "Company") to "Participants" (as defined in the Plan), and such awards may
take the form of Performance Awards which are contingent upon the attainment of
certain performance objectives during a specified period, and subject to such
other terms, conditions, and restrictions as the Committee deems
appropriate.  The purpose of this Performance Share Award Subplan
(this "Subplan") is to set forth the terms of the award
of  performance shares for the 2009-2011 Performance Period specified
herein, effective as of January 1, 2009 (the "Effective Date").

    

    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
      Amount” means the performance shares awarded to the Participant under this
      Subplan at the beginning of the Performance
  Period.

            

    

    

    
      	
              (iii)  

            	
              "Award
      Payment Date" means the date the Committee approves the payout of Common
      Stock covered by an award under this Subplan to a
    Participant.

            

    

    

    
      	
              (iv)  

            	
              "Comparison
      Group" is the group of companies within the S&P 1500 “Materials
      Sector” that are classified as Chemical companies.  The S&P
      “Materials Sector” index is an index of industrial companies selected from
      the S&P “Super Composite 1500” Index, identified as Global Industry
      Classification Standard (“GICS”)
15.

            

    

    

    
      	
              (v)  

            	
               “Cost
      of Capital” reflects the Company's cost of debt and the cost of equity,
      expressed as a percentage, reflecting the percentage of interest charged
      on debt and the percentage of expected return on
  equity.

            

    

    

    
      	
              (vi)  

            	
               “Earnings
      from Continuing Operations” shall be defined as the total sales of the
      Company minus the costs of all operations of any nature used to produce
      such sales, including taxes, plus after-tax interest associated with the
      Company's capital debt.

            

    

    

    
      
        72 

      

      
         

        
          

        

      

      
         

      

    

    

    
      	
              (vii)  

            	
              "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.

            

    

    

    
      	
              (viii)  

            	
               “Participation
      Date” means October 28, 2008.

            

    

    

    
      	
              (ix)  

            	
               “Performance
      Period" means January 1, 2009 through December 31,
    2011.

            

    

    

    
      	
              (x)  

            	
               “Performance
      Year” means one of the three calendar years in the Performance
      Period.

            

    

    

    
      	
              (xi)  

            	
               “Return
      on Capital” shall mean the return produced by funds invested in the
      Company and shall be determined as Earnings from Continuing Operations, as
      defined in Section 2.a.(vi), divided by the Average Capital
      Employed.  Average Capital Employed shall be derived by adding
      the Company's capital debt plus equity at the close of the last day of the
      year preceding the Performance Year, to the Company's capital debt plus
      equity at the close of the last day of the present Performance Year, with
      the resulting sum being divided by two.  Capital debt is defined
      as the sum of borrowing by the Company due within one year and long-term
      borrowing, as designated on the Company's balance sheet.  The
      resulting ratio shall be multiplied by One Hundred (100) in order to
      convert such to a percentage.  Such percentage shall be
      calculated to the third place after the decimal point (i.e., xx.xxx%), and
      then rounded to the second place after the decimal point (i.e.,
      xx.xx%).

            

    

    

    
      	
              (xii)  

            	
              "Target
      Award Range" means, with respect to any eligible Participant, the number
      of performance shares within the range specified on Exhibit A hereto for
      the Salary Grade applicable to such
Participant.

            

    

    

    
      	
              (xiii)  

            	
               “TSR”
      means total stockholder return, as reflected by the sum of (A) change in
      stock price (measured as the difference between (I) the average of the
      closing prices of a company’s common stock on the New York Stock Exchange,
      or of the last sale prices or closing prices of such stock on another
      national trading exchange, as applicable, in the period beginning on the
      tenth trading day preceding the beginning of the Performance Period and
      ending on the tenth trading day of the Performance Period and (II) the
      average of such closing or last sale prices for such stock in the period
      beginning on the tenth trading day preceding the end of the Performance
      Period and ending on the tenth trading day following the end of the
      Performance Period) plus (B) dividends declared, assuming reinvestment of
      dividends, and expressed as a percentage return on a stockholder’s
      hypothetical investment.

            

    

    

    
      	
              (b)

            	
              Any
      capitalized terms used but not otherwise defined in this Subplan shall
      have the respective meanings set forth in the
  Plan.

            

    

    

    
      
        73 

      

      
         

        
          

        

      

      
         

      

    

    

    Section
3.  Administration.  This Subplan shall be
administered by the Compensation and Management Development Committee of the
Board of Directors.  The Committee shall have authority to interpret
this Subplan, to prescribe rules and regulations relating to this Subplan, and
to take any other actions it deems necessary or advisable for the administration
of this Subplan, and shall retain all general authority granted to it under
Article 4 of the Plan.  At the end of the Performance Period, the
Committee shall approve Actual Grant Amounts awarded to participants under this
Subplan.

    

    Section
4.  Eligibility.  The Participants who are eligible
to participate in this Subplan are those employees who, as of the Participation
Date, are at Salary Grade 49 and 105 and above.  Employees who are
promoted during the Performance Period to a position that would meet the above
criteria, but who do not hold such position as of the Participation Date, are
not eligible to participate in this Subplan.

    

    Section 5.  Form
of Payout of Awards.  Subject to the terms and conditions of
the Plan and this Subplan, earned Awards under this Subplan shall be paid out in
the form of unrestricted shares of Common Stock, except for conversions to cash
and deferrals under Section 9 of this Subplan, and except that if a participant
is entitled to any fraction of a share of Common Stock, as a result of Section
10 of this Subplan or otherwise, then in lieu of receiving such fraction of a
share, the participant shall be paid a cash amount representing the market value
of such fraction of a share at the time of payment.

    

    Section 6.  Size
of Awards.

    

    
      	
              (a)

            	
              Target Award
      Range.  Exhibit A hereto shows by Salary Grade the Target
      Award Range. The Salary Grade to be used in determining the size of any
      Award Amount to a participant under this Subplan shall be the Salary Grade
      applicable to the position held by the participant on the Participation
      Date. The actual size of the Award Amount to the participant shall be
      determined based on an assessment by his or her senior management (and, in
      the case of executive officers, by the Committee) of the participant’s
      past performance and potential for contributions to the Company’s future
      long term success.  Based on this assessment, the participant
      may receive no award, the target award amount, or any amount within the
      Target Award Range in increments of 10 performance shares.  Each
      member of senior management will have a performance share budget, based on
      the cumulative award targets for their reports, which must be balanced for
      their organizations.

            

    

    

    
      
        74 

      

      
         

        
          

        

      

      
         

      

    

    

    
      	
              (b)  

            	
              Actual Grant
      Amount. Subject to the Committee’s authority to adjust the Actual
      Grant Amount described in Section 12, the Actual Grant Amount awarded to
      the participant at the end of the Performance Period is determined by
      applying a multiplier to the participant’s Award Amount.  The
      multiplier shall be determined by comparing Company performance relative
      to two measures:

            

    

    

    
      	
              (i)  

            	
              The Company's TSR
      during the Performance Period relative to the TSRs of the companies in the
      Comparison Group during the Performance Period.  The
      Company and each company in the Comparison Group shall be ranked by TSR,
      in descending order, with the company having the highest TSR during the
      Performance Period being ranked number one.  The Comparison
      Group shall further be separated into quintiles (first 20%, second 20%,
      etc.) and the Company's position, in relation to the Comparison Group,
      shall be expressed as a position in the applicable quintile ranking;
      and

            

    

    

    
      	
              (ii)  

            	
              The arithmetic
      average, for each of the Performance Years during the Performance Period,
      of the Company’s average Return on Capital minus a Return on Capital
      target. The Return on Capital target will be determined by the
      Committee.

            

    

    

    An award multiplier table is shown in
Exhibit B.  The award multiplier is based on the Company’s performance
relative to its quintile ranking relative to the Comparison Group, and its
average Return on Capital relative to a target during the Performance Period.
The award multipliers range from 3.0 (i.e. 300%), if the Company's TSR is in the
top performing quintile (top 20%) of companies in the Comparison Group, and the
average Return on Capital minus the target Return on Capital is greater than 10
percentage points, to 0.0 (with no shares of Common Stock being delivered to
participants under this Subplan), if the Company does not meet certain levels of
performance relative to the two measures.

    

    Section
7.  Composition of Comparison Group.   The
Comparison Group is composed of companies relevant for purposes of TSR
comparisons under this Subplan.  However, during the Performance
Period, a company in the Comparison Group may be dropped from the Comparison
Group if a company's common stock ceases to be publicly traded on a national
stock exchange or market; or a company is a party to a significant merger,
acquisition, or other reorganization. Under these, or similar, circumstances,
the company or companies may be removed from the Comparison Group, and may be
replaced with another company or companies by Standard & Poor’s, consistent
with their established criteria for selection of companies for the Comparison
Group.  In any case where the Comparison Group ceases to exist, or is
otherwise determined to no longer be appropriate as the basis for a measure
under this Subplan, the Committee may designate a replacement Comparison Group.
In any such case, the Committee shall have authority to determine the
appropriate method of calculating the TSR of such former and/or replacement
Comparison Group, whether by complete substitution of the replacement Comparison
Group (and disregard of the former Comparison Group) over the entire Performance
Period or by pro rata calculations for each Comparison Group or
otherwise.

    

    

    
      
        75 

      

      
         

        
          

        

      

      
         

      

    

    

    Section
8.  Preconditions to Payout of an Award.

    

    
      	
              (a)

            	
              Continuous
      Employment.  Except as specified in paragraphs (b) and
      (c) below, to remain eligible for an Award under this Subplan, an eligible
      Employee must remain continuously employed with the Company or a
      Subsidiary at all times from the Effective Date through the Award Payment
      Date.

            

    

    

    
      	
              (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 as determined by the Committee prior to the Award Payment
      Date, the participant shall receive, subject to the terms and conditions
      of the Plan and this Subplan, an Award representing a prorated portion of
      the Actual Grant 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 employed 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).

            

    

    

    
      	
              (c)

            	
              Termination Without
      Cause or for Good Reason Before the Award Payment
      Date.  If a participant's employment with the Company or
      a Subsidiary is terminated without "Cause" or for "Good Reason" (as such
      terms are defined in the participants' Employment Agreement dated May 4,
      2006) prior to the Award Payment Date, the participant shall receive,
      subject to the terms and conditions of the Plan and this Subplan, within
      30 days of termination (or such other date as may be required under
      Internal Revenue Code Section 409A), shares of Common Stock underlying
      outstanding performance shares (as if all performance objectives with
      respect thereto had been met at a level of 100%) on a pro rata basis based
      upon the number of full calendar months employed in the Performance Period
      from the Effective Date through and including the effective date of such
      termination.

            

    

    

    

    Section 9.  Manner
and Timing of Award Payments.

    

    
      	
              (a)

            	
              Timing of Award
      Payment.  Except for deferrals under Section 9(c), if any
      Awards are payable under this Subplan, the payment of such Awards to
      Participants shall be made as soon as is administratively practicable
      after the end of the Performance Period and final approval by the
      Committee.

            

    

    

    
      	
              (b)

            	
              Tax
      Withholding.  The Company may withhold or require the
      grantee to remit a cash amount sufficient to satisfy federal, state, and
      local taxes (including the participant’s FICA obligation) required by law
      to be withheld.  Further, either the Company or the grantee may
      elect to satisfy the withholding requirement by having the Company
      withhold shares of Common Stock having a Fair Market Value on the date the
      tax is to be determined equal to the minimum statutory total tax which
      could be imposed on the
transaction.

            

    

    
      
        76 

      

      
         

        
          

        

      

      
         

      

    

    

    
      	
              (c)

            	
              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 may, at the sole
      discretion of the Committee, 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,
      provided that such deferral is compliant with the requirements of Internal
      Revenue Code Section 409A and Treasury Regulations and guidance
      thereunder.

            

    

    

    
      	
              (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 Section
      9(c) (except as otherwise provided in this Section with respect to
      Participants who are subject to Section 16(a) of the 1934
      Act),  an amount representing the Fair Market Value, as of the
      date the shares of Common Stock covered by the Award otherwise would be
      issued to the participant, of the Actual Grant Amount (or the deferred
      portion thereof) will be credited to the Stock Account of the Executive
      Deferred Compensation Plan (the “EDCP”), and hypothetically invested in
      units of Common Stock. Notwithstanding the foregoing, for each Participant
      who is subject to Section 16(a) of the 1934 Act. the deferrable amount,
      when initially credited to the participant's EDCP Account, shall be held
      in a participant's Interest Account until the next date that dividends are
      paid on Common Stock, and on such date the deferrable amount that would
      have been initially credited to the participant's Stock Account but for
      this sentence shall be transferred, together with allocable interest
      thereon, to the participant's Stock Account, subject to provisions set
      forth in the EDCP. 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 Stockholder.  No certificates for shares of Common
Stock shall be issued under this Subplan, nor shall any participant have any
rights as a stockholder 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. 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.

    

    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.

    

    Section
12.  Adjustment of Actual Grant Amount.  The
Committee may, in its sole discretion, adjust the Actual Grant Amount to reflect
overall Company performance and business and financial conditions.

    

    Section
13.  Amendments.  The Committee may, from time to
time, amend this Subplan in any manner.

    
      
        77 

      

      
         

        
          

        

      

      
         

      

    

    

    EXHIBIT
A

    

    

    Eastman
Chemical Company

    Performance
Share Award Grant Table

    2009-2011
Cycle

    

    

    

    

    

    ON FILE
IN GLOBAL COMPENSATION

    

    

    

    

    

    

    
      
        78

      

      
         

        
          

        

      

      
         

      

    

    

    

    

    

    

    

    EXHIBIT
B

    

    Award
Multiplier Table

    

    
      
        	 
      	
                Differential
      from Target Return on Capital

              
	
                Eastman
      TSR Relative to Comparison Companies

              	
                <-7%

              	
                -7%
      to  -5%

              	
                -4.99
      to -3%

              	
                -2.99
      to -1%

              	
                -0.99
      to 0%

              	
                .01
      to +1%

              	
                +1.01
      to +3%

              	
                +3.01
      to +5%

              	
                +5.01
      to +7%

              	
                +7.01
      to +10%

              	
                >10%

              
	
                5th
      quintile

              	
                0

              	
                0

              	
                0

              	
                0

              	
                .4

              	
                .5

              	
                .6

              	
                .7

              	
                .8

              	
                1.1

              	
                1.5

              
	
                4th
      quintile

              	
                0

              	
                0

              	
                0

              	
                .4

              	
                .5

              	
                .7

              	
                .8

              	
                .9

              	
                1.1

              	
                1.5

              	
                2

              
	
                3rd
      quintile

              	
                0

              	
                0

              	
                .4

              	
                .5

              	
                .8

              	
                1

              	
                1.2

              	
                1.5

              	
                1.8

              	
                2.1

              	
                2.4

              
	
                2nd
      quintile

              	
                0

              	
                .4

              	
                .6

              	
                .8

              	
                1

              	
                1.3

              	
                1.6

              	
                1.9

              	
                2.2

              	
                2.5

              	
                2.8

              
	
                1st
      quintile

              	
                0

              	
                .6

              	
                .8

              	
                1

              	
                1.3

              	
                1.6

              	
                1.9

              	
                2.2

              	
                2.5

              	
                2.8

              	
                3

              

      

    

    

    
      
        79 

      

      
         

        
          

        

      

      
         

      

    

    

    AWARD
NOTICE

     

    

    NOTICE
OF PERFORMANCE SHARES

    AWARDED
PURSUANT TO THE

    EASTMAN
CHEMICAL COMPANY

    2007 OMNIBUS LONG-TERM
COMPENSATION PLAN

    

    Recipient:  Mark J.
Costa

    

    Performance Period: 2009 –
2011

    

    Target Award:

    

    1.         Award of Performance
Shares.  This Award Notice serves to notify you that the
Compensation and Management Development Committee of the Board of Directors (the
“Committee”) of Eastman Chemical Company ("Company") has awarded to you, under
the 2009-2011 Performance Share Award Subplan ("Subplan") of the 2007 Omnibus
Long-Term Compensation Plan ("Plan"), on the terms and conditions set forth in
the Subplan and the Plan, the number of performance shares (the "Performance
Shares") of its $.01 par value Common Stock ("Common Stock") specified
above.  The Performance Shares are rights to receive Awards in the
form of shares of Common Stock, subject to the attainment of specified
performance conditions by the Company.  Subject to satisfaction of the
minimum performance conditions and the other terms of the Subplan, Awards under
the Subplan will ultimately be paid in the form of unrestricted shares of Common
Stock.

    

    This Award Notice provides a summary of
the terms and conditions of your performance shares, all of which terms and
conditions are contained in the Subplan and the Plan.  Capitalized
terms not defined herein have the respective meanings set forth in the Subplan
and the Plan, as applicable.

    

    2.         Performance
Conditions.  The performance conditions for the Subplan
involve: 1)  a comparison of the total stockholder return (referred to
in the Subplan as "TSR," and reflecting both the change in stock price and the
amount of dividends declared) of the Company during the period from January 1,
2009 through December 31, 2011 (the "Performance Period"), to the TSRs of the
companies in the Comparison Group (the group of companies within the Standard
and Poor’s “Materials Sector” that are classified as Chemical
companies.  The S&P “Materials Sector” index, identified as Global
Industry Classification Standard (“GICS”) 15, is an index of industrial
companies selected from the S&P “Super Composite 1500” index; and 2) the
arithmetic average for each of the Performance Years during the Performance
Period, of the Company’s average Return on Capital minus a Return on Capital
target.   The specific terms of the performance conditions are
summarized in Section 3 of this Award Notice and are detailed in Section 6 of
the Subplan.

    

    3.         Number of Performance Shares
Awarded.  The number of Performance Shares that you have been
awarded is shown above (the "Target Award").  However, the actual
number of shares of Common Stock to which you will be entitled under the Subplan
(the "Actual Grant Amount") may be more or less than the Target Award, depending
upon the quintile ranking of the Company's TSR when ranked among the TSRs of the
Comparison Group, and the Company’s average Return on Capital relative to a
Return on Capital target for each of the Performance Years during the
Performance Period.  The Company’s performance relative to these
measures shall determine a multiplier to be applied to the Target Grant
Amount.  Multipliers range from 3.0 (i.e. 300%), if the Company’s TSR
is ranked in the top performing quintile (top 20%) of companies in the
Comparison Group, and the average Return on Capital minus the target Return on
Capital is greater than 10 percentage points, to 0.0 (with no shares of Common
Stock being delivered to participants), if the Company does not meet certain
levels of performance relative to the two measures.  The award
multiplier table is shown in Exhibit A.  Subject to the Committee’s
authority to adjust the Actual Grant Amount described in Section 12 of this
Award Notice, your Actual Grant Amount is determined by applying the multiplier
corresponding to the Company’s performance (Exhibit A) to your Target
Award.

    
      
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    4.         Payment of
Award.  If you are entitled to payment of an Award under the
Subplan, such payment will be made as soon as administratively practicable after
the end of the Performance Period and final approval by the Committee; provided,
however, that if payment of the Award could, in the reasonable estimation of the
Committee, result in your receiving compensation, in the year of scheduled
payment, in excess of the amount deductible by the Company under Section 162(m)
of the Internal Revenue Code, then such portion (or all, as applicable) of the
Award as could, in the reasonable estimation of the Committee,  create
such excess compensation, may, at the sole discretion of the Committee, be
converted into the right to receive a cash payment, which will be deferred until
after you terminate employment with the Company and its Subsidiaries, provided
that such deferral is compliant with the requirements of Internal Revenue Code
Section 409A and Treasury Regulations and guidance thereunder, as specified in
Section 9 of the Subplan.

    

    If any portion of an Award is converted
into a right to receive a cash payment as described above, an amount
representing the Fair Market Value of the deferred portion of the Actual Grant
Amount will be credited to the Stock Account of the Executive Deferred
Compensation Plan (the “EDCP”) and hypothetically invested in units of Common
Stock.  Thereafter, such amount will be treated in the same manner as
other investments in the EDCP, all as specified in Section 9 of the
Subplan.

    

    The Company may withhold or require you
to remit a cash amount sufficient to satisfy federal, state, and local taxes
(including your FICA obligation) required by law to be
withheld.  Further, either the Company or you may elect to satisfy the
withholding requirement by having the Company withhold shares of common stock
having a Fair Market Value on the date the tax is to be determined equal to the
minimum statutory total tax which could be imposed on the
transaction.

    

    5.         Nontransferability.  Unless
and until unrestricted shares of Common Stock are delivered or, if applicable,
an amount is credited  under the EDCP to you in payment of an earned
Award of the Performance Shares, the Performance Shares are not transferable
except by will or by the laws of descent and distribution, and may not be sold,
assigned, pledged or encumbered in any way, whether by operation of law or
otherwise.

    

    6.         Limitation of
Rights.  You  will not have any rights as a
stockholder with respect to the Performance Shares unless and until certificates
for shares of Common Stock have been issued to you.  No such
certificates will be issued under the Subplan until the Actual Grant Amount has
been determined and you have otherwise become entitled to payment of an Award
under the terms of the Plan and the Subplan.    Neither the
Plan, the Subplan, the granting of these Performance Shares nor this Award
Notice gives you any right to remain employed by the Company and its
Subsidiaries.

    

    7.         Termination.  Upon
termination of your employment with the Company and its Subsidiaries
("termination")  by reason of death, disability or retirement, or for
another approved reason as determine by the Committee, you will receive, subject
to the terms and conditions of the Plan and the Subplan, an Award representing a
prorated portion of the Actual Grant Amount to which you otherwise would be
entitled, based on the number of full calendar months employed from January 1,
2009 through the effective date of such termination.  Upon termination
without "Cause" or for "Good Reason" (as such terms are defined in your
Employment Agreement dated May 4, 2006) Eastman will issue to you, within 30
days of your termination (or such other date as may be required under Internal
Revenue Code Section 409A), shares of Common Stock underlying outstanding
performance shares (as if all performance objectives with respect thereto had
been met at a level of 100%) on a pro rata basis based upon the number of full
calendar months employed during the performance period.  Upon
termination for a reason other than death, disability, retirement or another
reason described above prior to the date the shares of Common Stock covered by
the Award are delivered to you, you will not be eligible or entitled to receive
any Award under the Subplan.

    

    
      
        81 

      

      
         

        
          

        

      

      
         

      

    

    

    8.         Noncompetition;
Confidentiality.  You will not, without the written consent of
the Company, either during your employment by the Company or thereafter,
disclose to anyone or make use of any confidential information which you have
acquired during your employment relating to any of the business of the Company,
except as such disclosure or use may be required in connection with your work as
an employee of the Company.  During your employment by the Company,
and for a period of two years after the termination of such employment, you will
not, either as principal, agent, consultant, employee or otherwise, engage in
any work or other activity in competition with the Company in the field or
fields in which you have worked for the Company.  The agreement in
this Section 8 applies separately in the United States and in other countries
but only to the extent that its application shall be reasonably necessary for
the protection of the Company.  You will forfeit all rights under this
Award Notice to or related to the Performance Shares if,. in the determination
of the Committee (in the case of executive officers) or of the executive officer
responsible for Human Resources (in the case of non-executive employees), you
have violated any of the provisions of this Section 8, and in that event any
issuance of shares, payment or other action with respect to the Performance
Shares shall be made or taken, if at all, in the sole discretion of the
Committee or the executive officer responsible for Human Resources

    

    9.         Restrictions on Issuance of
Shares.  If at any time the Company determines that listing,
registration or qualification of the shares covered by an Award upon any
securities exchange or under any state or federal law, or the approval of any
governmental agency, is necessary or advisable prior to the delivery of any
certificate for shares of Common Stock subject to the Award, no such certificate
may be delivered unless and until such listing, registration, qualification or
approval shall have been effected or obtained free of any conditions not
acceptable to the Company.

    

    10.         Change in Ownership; Change
in Control.  Article 14 of the Plan contain certain special
provisions that will apply in the event of a Change in Ownership or Change in
Control, respectively.

    

    11.         Adjustment of Terms.  The
adjustment provisions Article 15 of the Plan will control in the event of a
nonreciprocal transaction between the company and its stockholders that causes
the per-share value of the Common Stock to change (including, without
limitation, any stock dividend, stock split, spin-off, rights offering, or large
nonrecurring cash dividend) or upon the occurrence of in anticipation of any
other corporate event or transaction involving the Company (including, without
limitation, any merger, combination, or exchange of shares).

    

    12.         Adjustment of Actual Grant
Amount.  The Committee may, in its sole discretion, adjust the
Actual Grant Amount to reflect overall Company performance and business and
financial conditions.

    

    13.         Plan and Subplan
Control.  In the event of any conflict between the provisions
of the Plan or the Subplan and the provisions of this Award Notice, the
provisions of the Plan or the Subplan, as applicable, will be controlling and
determinative.

    

    

    
      
        82 

      

      
         

        
          

        

      

      
         

      

    

    

    

    

    

    EXHIBIT
A

    

    Award
Multiplier Table

    

    
      
        	 
      	
                Differential
      from Target Return on Capital

              
	
                Eastman
      TSR Relative to Comparison Companies

              	
                <-7%

              	
                -7%
      to -5%

              	
                -4.99
      to -3%

              	
                -2.99
      to -1%

              	
                -0.99
      to 0%

              	
                .01
      to +1%

              	
                +1.01
      to +3%

              	
                +3.01
      to +5%

              	
                +5.01
      to +7%

              	
                +7.01
      to +10%

              	
                >10%

              
	
                5th
      quintile

              	
                0

              	
                0

              	
                0

              	
                0

              	
                .4

              	
                .5

              	
                .6

              	
                .7

              	
                .8

              	
                1.1

              	
                1.5

              
	
                4th
      quintile

              	
                0

              	
                0

              	
                0

              	
                .4

              	
                .5

              	
                .7

              	
                .8

              	
                .9

              	
                1.1

              	
                1.5

              	
                2

              
	
                3rd
      quintile

              	
                0

              	
                0

              	
                .4

              	
                .5

              	
                .8

              	
                1

              	
                1.2

              	
                1.5

              	
                1.8

              	
                2.1

              	
                2.4

              
	
                2nd
      quintile

              	
                0

              	
                .4

              	
                .6

              	
                .8

              	
                1

              	
                1.3

              	
                1.6

              	
                1.9

              	
                2.2

              	
                2.5

              	
                2.8

              
	
                1st
      quintile

              	
                0

              	
                .6

              	
                .8

              	
                1

              	
                1.3

              	
                1.6

              	
                1.9

              	
                2.2

              	
                2.5

              	
                2.8

              	
                3

              

      

    

    

    

    

    

    
      
        83

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