Kodak 2004 Annual Report Download - page 151

Compensation
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CHANGE฀IN฀CONTROL฀ARRANGEMENTS
Background
As฀required฀under฀the฀term฀of฀its฀charter,฀the฀Compensation฀Committee฀periodically฀undertakes฀a฀review฀of฀the฀different฀components฀of฀the฀Company’s฀
executive฀compensation฀program.฀In฀2001,฀the฀Compensation฀Committee฀conducted฀an฀in-depth฀study฀of฀the฀Company’s฀short-term฀variable฀pay฀plan฀
for฀its฀executives.฀During฀2003,฀the฀Compensation฀Committee฀conducted฀an฀extensive฀review฀of฀the฀Company’s฀long-term฀compensation฀practices.฀Last฀
summer,฀the฀Compensation฀Committee฀began฀a฀review฀of฀the฀Company’s฀change฀in฀control฀program.฀As฀a฀first฀step,฀the฀Compensation฀Committee฀had฀its฀
own฀independent฀external฀compensation฀consultant฀summarize฀the฀material฀terms฀of฀the฀Company’s฀present฀change฀in฀control฀program฀and฀compare฀them฀
with฀emerging฀best฀practices.฀Upon฀reviewing฀these฀findings,฀the฀Compensation฀Committee฀then฀requested฀its฀consultant฀to฀undertake฀a฀cost฀analysis฀of฀
the฀current฀program.฀The฀Compensation฀Committee฀anticipates฀reviewing฀the฀results฀of฀this฀analysis฀in฀the฀spring฀of฀2005฀so฀that฀it฀can฀be฀positioned฀to฀
discuss฀proposed฀recommendations฀to฀the฀program฀this฀summer.฀Set฀forth฀below฀is฀a฀summary฀of฀the฀Company’s฀change฀in฀control฀program฀as฀it฀presently฀
exists.
Current฀Program
The฀Company฀maintains฀a฀change฀in฀control฀program฀to฀provide฀severance฀pay฀and฀continuation฀of฀certain฀welfare฀benefits฀for฀virtually฀all฀U.S.฀employees.฀
A฀“change฀in฀control”฀is฀generally฀defined฀under฀the฀program฀as:
฀ •฀฀the฀incumbent฀directors฀cease฀to฀constitute฀a฀majority฀of฀the฀Board,฀unless฀the฀election฀of฀the฀new฀directors฀was฀approved฀by฀at฀least฀two-thirds฀of฀
the฀incumbent฀directors฀then฀on฀the฀Board;
฀ •฀the฀acquisition฀of฀25%฀or฀more฀of฀the฀combined฀voting฀power฀of฀the฀Company’s฀then฀outstanding฀securities;
฀ •฀฀a฀merger,฀consolidation,฀statutory฀share฀exchange฀or฀similar฀form฀of฀corporate฀transaction฀involving฀the฀Company฀or฀any฀of฀its฀subsidiaries฀that฀
requires฀the฀approval฀of฀the฀Company’s฀shareholders;฀or
฀ •฀a฀vote฀by฀the฀shareholders฀to฀completely฀liquidate฀or฀dissolve฀the฀Company.
The฀purpose฀of฀the฀program฀is฀to฀assure฀the฀continued฀employment฀and฀dedication฀of฀all฀employees฀without฀distraction฀from฀the฀possibility฀of฀a฀change฀in฀
control.฀The฀program฀provides฀for฀severance฀payments฀and฀continuation฀of฀certain฀welfare฀benefits฀to฀eligible฀employees฀whose฀employment฀is฀terminated,฀
either฀voluntarily฀with฀“good฀cause”฀or฀involuntarily,฀during฀the฀two-year฀period฀following฀a฀change฀in฀control.฀The฀amount฀of฀the฀severance฀pay฀and฀length฀
of฀benefit฀continuation฀is฀based฀on฀the฀employee’s฀position.฀The฀named฀executive฀officers฀would฀be฀eligible฀for฀severance฀pay฀equal฀to฀three฀times฀their฀
total฀target฀annual฀compensation.฀In฀addition,฀the฀named฀executive฀officers฀would฀be฀eligible฀to฀participate฀in฀the฀Company’s฀medical,฀dental,฀disability฀and฀
life฀insurance฀plans฀until฀the฀first฀anniversary฀of฀the฀date฀of฀their฀termination฀of฀employment.฀The฀Company’s฀change฀in฀control฀program฀also฀requires,฀sub-
ject฀to฀certain฀limitations,฀tax฀gross-up฀payments฀to฀all฀employees฀to฀mitigate฀any฀excise฀tax฀imposed฀upon฀the฀employee฀under฀the฀Internal฀Revenue฀Code.
Another฀component฀of฀the฀program฀provides฀enhanced฀benefits฀under฀the฀Company’s฀retirement฀plan.฀Any฀participant฀whose฀employment฀is฀terminated,฀for฀
a฀reason฀other฀than฀death,฀disability,฀cause฀or฀voluntary฀resignation,฀within฀five฀years฀of฀a฀change฀in฀control฀is฀given฀up฀to฀five฀additional฀years฀of฀service.฀
In฀addition,฀where฀the฀participant฀is฀age฀50฀or฀over฀on฀the฀date฀of฀the฀change฀in฀control,฀up฀to฀five฀additional฀years฀of฀age฀is฀given฀for฀the฀following฀plan฀
purposes:
฀ •฀to฀determine฀eligibility฀for฀early฀and฀normal฀retirement;
฀ •฀to฀determine฀eligibility฀for฀a฀vested฀right;฀and
฀ •฀to฀calculate฀the฀amount฀of฀retirement฀benefit.
The฀actual฀number฀of฀years฀of฀service฀and฀years฀of฀age฀that฀is฀given฀to฀such฀a฀participant฀decreases฀proportionately฀depending฀upon฀the฀number฀of฀years฀
that฀elapse฀between฀the฀date฀of฀a฀change฀in฀control฀and฀the฀date฀of฀the฀participant’s฀termination฀of฀employment.฀If฀the฀plan฀is฀terminated฀within฀five฀years฀
after฀a฀change฀in฀control,฀the฀benefit฀for฀each฀participant฀will฀be฀calculated฀as฀indicated฀above.
In฀the฀event฀of฀a฀change฀in฀control฀which฀causes฀the฀Company’s฀stock฀to฀cease฀active฀trading฀on฀the฀NYSE,฀the฀Company’s฀compensation฀plans฀(with฀the฀
exception฀of฀the฀new฀2005฀Omnibus฀Long-Term฀Compensation฀Plan)฀will฀generally฀be฀affected฀as฀follows,฀when฀Kodak฀common฀stock฀is฀not฀exchanged฀
solely฀for฀common฀stock฀of฀the฀surviving฀company฀or฀the฀surviving฀company฀does฀not฀assume฀all฀plan฀awards:
฀ •฀Under฀the฀Executive฀Deferred฀Compensation฀Plan,฀each฀participant฀will฀be฀paid฀the฀amount฀in฀his฀or฀her฀account.
฀ •฀Under฀EXCEL,฀each฀participant฀will฀be฀paid฀a฀pro฀rata฀target฀award฀for฀the฀year฀in฀which฀the฀change฀in฀control฀occurs.
฀ •฀฀Under฀the฀Performance฀Stock฀Program,฀each฀participant฀will฀be฀awarded฀a฀pro฀rata฀target฀award฀for฀each฀pending฀performance฀cycle฀and฀all฀
awards฀will฀be฀cashed฀out฀based฀on฀the฀change฀in฀control฀price.
฀ •฀฀Under฀the฀Company’s฀stock฀option฀plans,฀all฀outstanding฀options฀will฀vest฀in฀full฀and฀be฀cashed฀out฀based฀on฀the฀difference฀between฀the฀change฀in฀
control฀price฀and฀the฀option’s฀exercise฀price.
฀ •฀฀Under฀the฀Company’s฀restricted฀stock฀programs,฀all฀of฀the฀restrictions฀on฀the฀stock฀will฀lapse฀and฀the฀stock฀will฀be฀cashed฀out฀based฀on฀the฀change฀
in฀control฀price.