Kodak 2004 Annual Report Download - page 123

Proposals
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2 0 0 5 ฀ N O T I C E ฀ O F ฀ A N N U A L ฀ M E E T I N G ฀ A N D ฀ P R O X Y ฀ S T A T E M E N T
Federal฀Tax฀Treatment฀
The฀following฀is฀a฀summary฀of฀the฀U.S.฀federal฀income฀tax฀consequences฀of฀participating฀in฀the฀Plan.฀This฀discussion฀does฀not฀address฀all฀aspects฀of฀the฀
U.S.฀federal฀income฀tax฀consequences,฀including฀any฀state,฀local฀or฀foreign฀tax฀consequences฀of฀participating฀in฀the฀Plan.฀This฀section฀is฀based฀on฀the฀
Internal฀Revenue฀Code,฀its฀legislative฀history,฀existing฀and฀proposed฀regulations฀under฀the฀Internal฀Revenue฀Code฀and฀published฀rulings฀and฀court฀decisions,฀
all฀as฀currently฀in฀effect.฀These฀laws฀are฀subject฀to฀change,฀possibly฀on฀a฀retroactive฀basis.฀฀
Incentive฀Stock฀Options.฀A฀participant฀will฀not฀be฀subject฀to฀tax฀upon฀the฀grant฀of฀an฀incentive฀stock฀option฀(ISO)฀or฀upon฀the฀exercise฀of฀an฀ISO.฀However,฀
the฀excess฀of฀the฀fair฀market฀value฀of฀the฀shares฀on฀the฀date฀of฀exercise฀over฀the฀exercise฀price฀paid฀will฀be฀included฀in฀a฀participant’s฀alternative฀minimum฀
taxable฀income.฀Whether฀a฀participant฀is฀subject฀to฀the฀alternative฀minimum฀tax฀will฀depend฀on฀the฀participant’s฀particular฀circumstances.฀The฀participant’s฀
basis฀in฀the฀shares฀received฀will฀be฀equal฀to฀the฀exercise฀price฀paid,฀and฀the฀participant’s฀holding฀period฀in฀such฀shares฀will฀begin฀on฀the฀day฀following฀the฀
date฀of฀exercise.฀฀
If฀a฀participant฀disposes฀of฀the฀shares฀on฀or฀after฀the฀later฀of:฀1)฀the฀second฀anniversary฀of฀the฀date฀of฀grant฀of฀the฀ISO฀and฀2)฀the฀first฀anniversary฀of฀the฀
date฀of฀exercise฀of฀the฀ISO฀(the฀statutory฀holding฀period),฀a฀participant฀will฀recognize฀a฀capital฀gain฀or฀loss฀in฀an฀amount฀equal฀to฀the฀difference฀between฀
the฀amount฀realized฀on฀such฀disposition฀and฀a฀participant’s฀basis฀in฀the฀shares.฀฀
If฀the฀participant฀disposes฀of฀the฀shares฀before฀the฀end฀of฀the฀statutory฀holding฀period,฀the฀participant฀will฀have฀engaged฀in฀a฀“disqualifying฀disposition.”฀As฀
a฀result,฀the฀participant฀will฀be฀subject฀to฀tax:฀1)฀on฀the฀excess฀of฀the฀fair฀market฀value฀of฀the฀shares฀on฀the฀date฀of฀exercise฀(or฀the฀amount฀realized฀on฀the฀
disqualifying฀disposition,฀if฀less)฀over฀the฀exercise฀price฀paid,฀as฀ordinary฀income฀and฀2)฀on฀the฀excess,฀if฀any,฀of฀the฀amount฀realized฀on฀such฀disqualify-
ing฀disposition฀over฀the฀fair฀market฀value฀of฀the฀shares฀on฀the฀date฀of฀exercise,฀as฀capital฀gain.฀If฀the฀amount฀a฀participant฀realizes฀from฀a฀disqualifying฀
disposition฀is฀less฀than฀the฀exercise฀price฀paid฀(i.e.,฀the฀participant’s฀basis)฀and฀the฀loss฀sustained฀upon฀such฀disposition฀would฀otherwise฀be฀recognized,฀a฀
participant฀will฀not฀recognize฀any฀ordinary฀income฀from฀such฀disqualifying฀disposition฀and฀instead฀the฀participant฀will฀recognize฀a฀capital฀loss.฀In฀the฀event฀
of฀a฀disqualifying฀disposition,฀the฀Company฀or฀one฀of฀its฀subsidiaries฀can฀generally฀deduct฀the฀amount฀recognized฀as฀ordinary฀income฀by฀the฀participant.
The฀current฀position฀of฀the฀Internal฀Revenue฀Service฀is฀that฀income฀tax฀withholding฀and฀FICA฀and฀FUTA฀taxes฀(employment฀taxes)฀do฀not฀apply฀upon฀the฀
exercise฀of฀an฀ISO฀or฀upon฀any฀subsequent฀disposition,฀including฀a฀disqualifying฀disposition,฀of฀shares฀acquired฀pursuant฀to฀the฀exercise฀of฀the฀ISO.฀฀
Nonstatutory฀Stock฀Options.฀The฀participant฀will฀not฀be฀subject฀to฀tax฀upon฀the฀grant฀of฀an฀option฀which฀is฀not฀intended฀to฀be฀(or฀does฀not฀qualify฀as)฀
an฀ISO฀(a฀nonstatutory฀stock฀option).฀Upon฀exercise฀of฀a฀nonstatutory฀stock฀option,฀an฀amount฀equal฀to฀the฀excess฀of฀the฀fair฀market฀value฀of฀the฀shares฀
acquired฀on฀the฀date฀of฀exercise฀over฀the฀exercise฀price฀paid฀is฀taxable฀to฀the฀participant฀as฀ordinary฀income,฀and฀such฀amount฀is฀generally฀deductible฀by฀
the฀Company฀or฀one฀of฀its฀subsidiaries.฀This฀amount฀of฀income฀will฀be฀subject฀to฀income฀tax฀withholding฀and฀employment฀taxes.฀The฀participant’s฀basis฀in฀
the฀shares฀received฀will฀equal฀the฀fair฀market฀value฀of฀the฀shares฀on฀the฀date฀of฀exercise,฀and฀the฀participant’s฀holding฀period฀in฀such฀shares฀will฀begin.
Limitation฀on฀Income฀Tax฀Deduction
Under฀Section฀162(m)฀of฀the฀Internal฀Revenue฀Code,฀the฀Company’s฀federal฀income฀tax฀deductions฀may฀be฀limited฀to฀the฀extent฀that฀total฀compensation฀
paid฀to฀a฀“covered฀employee”฀exceeds฀$1,000,000฀in฀any฀one฀year.฀The฀Company฀can,฀however,฀preserve฀the฀deductibility฀of฀certain฀compensation฀in฀
excess฀of฀$1,000,000฀provided฀it฀complies฀with฀the฀conditions฀imposed฀by฀Section฀162(m),฀including฀the฀payment฀of฀performance-based฀compensation฀
pursuant฀to฀a฀plan฀approved฀by฀shareholders.฀The฀Plan฀has฀been฀designed฀to฀enable฀any฀award฀granted฀by฀the฀Committee฀to฀a฀“covered฀employee”฀to฀
qualify฀as฀performance-based฀compensation฀under฀Section฀162(m).
Other฀Information฀
The฀closing฀price฀of฀the฀Company’s฀common฀stock฀reported฀on฀the฀NYSE฀for฀March฀15,฀2005,฀was฀$33.50฀per฀share.
Approval฀of฀the฀2005฀Omnibus฀Plan฀requires฀the฀affirmative฀vote฀of฀a฀majority฀of฀the฀votes฀cast฀by฀the฀holders฀of฀shares฀entitled฀to฀vote.
The฀Board฀of฀Directors฀recommends฀a฀vote฀FOR฀the฀approval฀of฀the฀2005฀Omnibus฀Long-Term฀Compensation฀Plan.฀
ITEM฀4 — ฀Approval฀of฀Amendment฀to,฀and฀Re-Approval฀of฀the฀Material฀Terms฀of,฀the฀Executive฀฀
Compensation฀for฀Excellence฀and฀Leadership฀Plan
Introduction
You฀are฀being฀asked฀to฀approve฀an฀amendment฀to฀the฀Executive฀Compensation฀for฀Excellence฀and฀Leadership฀Plan฀(EXCEL฀or฀Plan)฀to฀modify฀the฀Plan’s฀
performance฀metrics.฀As฀a฀result฀of฀this฀amendment,฀the฀performance฀metrics฀available฀for฀use฀under฀EXCEL฀will฀be฀the฀same฀as฀those฀available฀for฀use฀
under฀the฀new฀2005฀Omnibus฀Plan.฀We฀are฀also฀asking฀you฀to฀re-approve฀the฀other฀material฀terms฀of฀EXCEL฀for฀purposes฀of฀Section฀162(m)฀of฀the฀Internal฀
Revenue฀Code.฀This฀re-approval฀will฀preserve฀the฀Company’s฀federal฀tax฀deduction฀for฀the฀next฀five฀years฀for฀payments฀made฀under฀the฀Plan฀to฀the฀“cov-
ered฀employees.”฀Taking฀this฀action฀now฀will฀have฀the฀benefit฀of฀placing฀EXCEL฀and฀the฀new฀2005฀Omnibus฀Plan฀on฀the฀same฀five-year฀re-approval฀cycle฀
for฀purposes฀of฀Section฀162(m).฀Thus,฀the฀next฀time฀your฀approval฀of฀both฀plans฀will฀be฀required฀for฀purposes฀of฀Section฀162(m)฀will฀be฀at฀the฀2010฀annual฀
meeting.฀฀