SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, For Use of the Commission
[X] Definitive Proxy Statement Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-12
----------
Eastman Kodak Company
(Name of Registrant as Specified in its Charter)
----------
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
NOTICE OF 2003 ANNUAL MEETING AND PROXY STATEMENT
Dear Shareholder:
You are cordially invited to attend our Annual Meeting of Shareholders on
Wednesday, May 7, 2003, at 10:00 a.m. at the Kodak Theatre, 6801 Hollywood
Blvd., Hollywood, California. You will be asked to vote on five proposals. We
will also review Kodak's performance and answer your questions.
You may vote by internet, telephone, written proxy, or written ballot at the
Meeting. We encourage you to use the internet; it is the most cost-effective way
to vote.
We look forward to seeing you on May 7 and would like to take this opportunity
to remind you that your vote is very important.
Sincerely,
/s/ Daniel A. Carp
Daniel A. Carp
Chairman of the Board
Notice of the 2003 Annual Meeting of Shareholders
The Annual Meeting of Shareholders of Eastman Kodak Company will be held
on Wednesday, May 7, 2003, at 10:00 a.m. at the Kodak Theatre, 6801
Hollywood Blvd., Hollywood, California. There are five proposals to be
voted on at the Meeting:
1. Election of four Class I directors for a term of three years:
Martha Layne Collins, Timothy M. Donahue, Delano E. Lewis and
Paul H. O'Neill,
and one Class II director for a term of one year:
William H. Hernandez.
2. Ratification of election of PricewaterhouseCoopers LLP as
independent accountants.
3. Shareholder proposal requesting indexed options.
4. Shareholder proposal requesting expensing of stock options.
5. Shareholder proposal requesting adoption of a chemicals policy.
The Board of Directors recommends a vote FOR items 1 and 2 and a vote
AGAINST items 3 through 5.
If you were a shareholder of record at the close of business on March 10,
2003, you are entitled to vote at the Annual Meeting.
If you have any questions about the Meeting, please contact: Coordinator,
Shareholder Services, Eastman Kodak Company, 343 State Street, Rochester,
New York 14650-0211, (585) 724-5492.
The Kodak Theatre is accessible by the handicapped. If you require special
assistance, call the Coordinator, Shareholder Services.
By Order of the Board of Directors,
/s/ James M. Quinn
James M. Quinn
Secretary and Assistant General Counsel
Eastman Kodak Company
March 28, 2003
80
Questions & Answers
Q. What am I voting on?
A. You are voting on five proposals:
1. Election of four Class I directors for a term of three years:
Martha Layne Collins
Timothy M. Donahue
Delano E. Lewis
Paul H. O'Neill
and one Class II director for a term of one year:
William H. Hernandez
2. Ratification of election of PricewaterhouseCoopers LLP as
independent accountants.
3. Shareholder proposal requesting indexed options.
4. Shareholder proposal requesting expensing of stock options.
5. Shareholder proposal requesting adoption of a chemicals policy.
Q. What are the voting recommendations of the Board?
A. The Board recommends the following votes:
o FOR each of the directors.
o FOR ratification of election of PricewaterhouseCoopers LLP as
independent accountants.
o AGAINST the shareholder proposal requesting indexed options.
o AGAINST the shareholder proposal requesting expensing of stock
options.
o AGAINST the shareholder proposal requesting adoption of a
chemicals policy.
Q. Will any other matter be voted on?
A. We are not aware of any other matters you will be asked to vote on at the
Meeting. If any other matter is properly brought before the Meeting,
Daniel A. Carp and James M. Quinn, acting as your proxies, will vote for
you in their discretion. New Jersey law (under which the Company is
incorporated) requires you be given notice of all matters to be voted on,
other than procedural matters such as adjournment of the Meeting.
Q. How do I vote?
A. There are four ways to vote:
o By internet at www.eproxyvote.com/ek. We encourage you to vote
this way.
o By toll-free telephone at (877) 779-8683.
o By completing and mailing your proxy card.
o By written ballot at the Meeting.
If you vote by internet or telephone, your vote must be received before
midnight of the day before the Meeting. Your shares will be voted as you
indicate. If you do not indicate your voting preferences, Daniel A. Carp
and James M. Quinn will vote your shares FOR items 1 and 2 and AGAINST
items 3 through 5.
Q. Who can vote?
A. You can vote at the Meeting if you were a shareholder of record as of the
close of business on March 10, 2003 (the Record Date). Each share of
common stock is entitled to one vote.
Q. Can I change my vote?
A. Yes. You can change your vote or revoke your proxy before the Meeting by:
o entering a timely new vote by internet or telephone;
o returning a later-dated proxy card; or
o notifying James M. Quinn, Secretary and Assistant General
Counsel.
You may also complete a written ballot at the Meeting.
81
Q. What vote is required to approve each proposal?
A. The four Class I director nominees and the one Class II director nominee
receiving the greatest number of votes will be elected as the four Class I
directors and the one Class II director, respectively. The ratification of
election of the independent accountants and the shareholder proposals
require the affirmative vote of a majority of the votes cast at the
Meeting.
Q. Is my vote confidential?
A. Yes. Only the inspectors of election and certain individuals who help with
processing and counting the vote have access to your vote. Directors and
employees of the Company may see your vote only if the Company needs to
defend itself against a claim or if there is a proxy solicitation by
someone other than the Company. Therefore, please do not write any
comments on your proxy card.
Q. Who will count the vote?
A. EquiServe Trust Company, N.A. will count the vote. Its representatives
will be the inspectors of election.
Q. What shares are covered by my proxy card?
A. The shares covered by your card represent all the shares of Kodak stock
you own, including those in the Eastman Kodak Shares Program and the
Employee Stock Purchase Plan, and those credited to your account in the
Eastman Kodak Employees' Savings and Investment Plan and the Kodak
Employees' Stock Ownership Plan. The trustees and custodians of these
plans will vote your shares in each plan as you direct.
Q. What does it mean if I get more than one proxy card?
A. It means your shares are in more than one account. You should vote the
shares on all your proxy cards. To provide better shareholder service, we
encourage you to have all your shares registered in the same name and
address. You may do this by contacting our transfer agent, EquiServe Trust
Company, N.A., at (800) 253-6057.
Q. Who can attend the Annual Meeting?
A. All shareholders of record as of the close of business on March 10, 2003,
can attend. Seating, however, is limited. Attendance at the Meeting will
be on a first-come, first-served basis, upon arrival at the Meeting.
Photographs will be taken at the Annual Meeting. We may use these
photographs in publications. If you attend the Meeting, we assume we have
your permission to use your picture.
Q. What do I need to do to attend the Annual Meeting?
A. To attend the Meeting, please follow these instructions:
o If you vote by using the enclosed proxy card, check the
appropriate box on the card.
o If you vote by internet or telephone, follow the instructions
provided for attendance.
o If a broker or other nominee holds your shares, bring proof of
your ownership with you to the Meeting.
o To enter the Meeting, bring the Admission Ticket attached to
your proxy card or printed from the internet.
o If you do not have an Admission Ticket, go to the Special
Registration desk upon arrival at the Meeting. Seating at the
Meeting will be on a first-come, first-served basis, upon
arrival at the Meeting.
Q. Can I bring a guest?
A. Yes. If you plan to bring a guest to the Meeting, check the appropriate
box on the enclosed proxy card or follow the instructions on the internet
or telephone. When you go through the registration area at the Meeting, be
sure your guest is with you.
82
Q. What is the quorum requirement of the Meeting?
A. A majority of the outstanding shares on March 10, 2003, constitutes a
quorum for voting at the Annual Meeting. If you vote, your shares will be
part of the quorum. Abstentions and broker non-votes will be counted in
determining the quorum, but neither will be counted as votes cast. On
March 3, 2003, there were 286,737,923 shares outstanding.
Q. How do I recommend someone to be a director?
A. You may recommend any person to be a director by writing to James M.
Quinn, Secretary and Assistant General Counsel, Eastman Kodak Company, 343
State Street, Rochester, New York 14650-0218. You must include a
description of your nominee's principal occupations or employment over the
last five years and a statement from your nominee indicating that he or
she will serve if elected. The Corporate Responsibility and Governance
Committee will consider persons recommended by shareholders.
Q. How much did this proxy solicitation cost?
A. The Company hired Georgeson Shareholder Communications Inc. to assist in
the distribution of proxy materials and solicitation of votes. The
estimated fee is $18,500 plus reasonable out-of-pocket expenses. In
addition, the Company will reimburse brokerage houses and other
custodians, nominees and fiduciaries for their reasonable out-of-pocket
expenses for forwarding proxy and solicitation material to shareholders.
Q. When are the shareholder proposals due for the 2004 Annual Meeting?
A. Shareholder proposals must be in writing, received by November 21, 2003,
and addressed to:
James M. Quinn, Secretary and Assistant General Counsel Eastman
Kodak Company 343
State Street
Rochester, New York 14650-0218
Q. What other information about Kodak is available?
A. The following information is available:
o Annual Report on Form 10-K.
o Transcript of the Annual Meeting.
o Plan descriptions, annual reports, and trust agreements and
contracts for the pension plans of the Company and its
subsidiaries.
o Diversity Report; Form EEO-1.
o Health, Safety and Environment Annual Report on Kodak's
website at www.kodak.com/go/HSE.
o Corporate Responsibility Principles on Kodak's website at
www.kodak.com/US/en/corp/principles.
o Governance Guidelines on Kodak's website at
www.kodak.com/US/en/corp/principles/governance.shtml.
o Business Conduct Guide on Kodak's website at
www.kodak.com/US/en/corp/principles/businessConduct.shtml.
You may request copies by contacting:
Coordinator, Shareholder Services
Eastman Kodak Company
343 State Street Rochester, New York 14650-0211
(585) 724-5492
83
Householding of Disclosure Documents
The Securities and Exchange Commission has adopted a rule concerning the
delivery of disclosure documents. The rule allows us to send a single set of any
proxy, information statement, annual report and prospectus to any household at
which two or more shareholders reside if we believe the shareholders are members
of the same family. This rule benefits both you and Kodak. It reduces the volume
of duplicate information received at your household and helps Kodak reduce
expenses. The rule applies to Kodak's annual reports, proxy statements,
information statements and prospectuses. Each shareholder will continue to
receive a separate proxy card or voting instruction card.
If your household received a single set of disclosure documents for this year,
but you would prefer to receive your own copy, please contact our transfer
agent, EquiServe Trust Company, N.A., by calling their toll free number, (800)
253-6057.
If you would like to receive your own set of Kodak's disclosure documents in
future years, follow the instructions described below. Similarly, if you share
an address with another Kodak shareholder and together both of you would like to
receive only a single set of Kodak's disclosure documents, follow these
instructions:
o If your Kodak shares are registered in your own name, please
contact our transfer agent, EquiServe Trust Company, N.A., and
inform them of your request by phone: (800) 253-6057, or by
mail: P.O. Box 43016, Providence, RI 02940-3016.
o If a broker or other nominee holds your Kodak shares, please
contact ADP and inform them of your request by phone: (800)
542-1061, or by mail: Householding Department, 51 Mercedes
Way, Edgewood, NY 11717. Be sure to include your name, the
name of your brokerage firm and your account number.
Audio Webcast of Annual Meeting Available on the Internet
Kodak's Annual Meeting will be webcast live. If you have internet access, you
can access the webcast by going to Kodak's Investor Center web page at the
following address:
www.kodak.com/US/en/corp/investorCenter/investorsCenterHome.shtml
This webcast is listen only. You will not be able to ask questions.
The Annual Meeting audio webcast will be available on Kodak's website for a
short period of time after the Meeting.
84
Proposals to be Voted On
MANAGEMENT PROPOSALS
ITEM 1 -- Election of Directors
Kodak's By-Laws require us to have at least nine directors but no more than 18.
The number of directors is set by the Board and is currently 12. Mr. Carp is the
only director who is an employee of the Company. The Board is divided into three
classes of directors with overlapping three-year terms. There are four Class I
directors whose terms expire at the 2003 Annual Meeting. Nominees for election
as Class I directors are:
Martha Layne Collins
Timothy M. Donahue
Delano E. Lewis
Paul H. O'Neill
These nominees agree to serve a three-year term. Mr. O'Neill was a director of
the Company from December 1997 to December 2000 and rejoined our Board of
Directors effective February 19, 2003. Gov. Collins and Messrs. Donahue and
Lewis were previously elected by shareholders. Information about them is
provided beginning on page 89.
The nominee for election as a Class II director is:
William H. Hernandez
The nominee agrees to serve a one-year term. Mr. Hernandez joined our Board of
Directors effective February 24, 2003, and is standing for election by you for
the first time. Information about him is provided beginning on page 90.
If a nominee is unable to stand for election, the Board may reduce the number of
directors or choose a substitute. If the Board chooses a substitute, the shares
represented by proxies will be voted for the substitute. If a director retires,
resigns, dies or is unable to serve for any reason, the Board may reduce the
number of directors or elect a new director to fill the vacancy. This new
director will serve until the next Annual Meeting.
The Board of Directors recommends a vote FOR the election of directors.
ITEM 2 -- Ratification of Election of Independent Accountants
PricewaterhouseCoopers LLP has been the Company's independent accountants for
many years. The Board, on the recommendation of its Audit Committee, elected
PricewaterhouseCoopers LLP the Company's independent accountants to serve until
the 2004 Annual Meeting.
Representatives of PricewaterhouseCoopers LLP will attend the Meeting to respond
to questions and, if they desire, to make a statement.
The Board of Directors recommends a vote FOR the ratification of election of
PricewaterhouseCoopers LLP as independent accountants.
SHAREHOLDER PROPOSALS
ITEM 3 -- Shareholder Proposal -- Indexed Options
Plumbers & Pipefitters National Pension Fund, 103 Oronoco St., Alexandria, VA,
22314-2105, owner of 15,400 shares, submitted the following proposal:
"Resolved, that the shareholders of Eastman Kodak (the "Company") request that
the Board of Directors adopt an executive compensation policy that all future
stock option grants to senior executives shall be performance-based. For the
purposes of this resolution, a stock option is performance-based if the option
exercise price is indexed or linked to an industry peer group stock performance
index so that the options have value only to the extent that the Company's stock
price performance exceeds the peer group performance level.
Statement of Support: As long-term shareholders of the Company, we support
executive compensation policies and practices that provide challenging
performance objectives and serve to motivate executives to achieve long-term
corporate value maximization goals. While salaries and bonuses compensate
management for short-term results, the grant of stock and stock options has
become the primary vehicle for focusing management on achieving long-term
results. Unfortunately, stock option grants can and do often provide levels of
compensation well beyond those merited. We believe it has become abundantly
clear that stock option grants without specific performance-based targets often
reward executives for stock price increases due solely to a general stock market
rise, rather than to extraordinary company performance. This resolution
advocates performance-based stock options. It defines performance-based stock
options as indexed options whose exercise price moves with an appropriate peer
group index composed of a company's primary competitors. It should be noted that
there are other forms of indexed options that use other types of market indices.
The resolution requests that the Company's Board ensure that future Company
stock option plans link the options exercise price to an industry performance
index associated with a peer group of companies selected by the Board, such as
those companies used in the Company's proxy statement to compare 5 year stock
price performance.
Implementing an indexed stock option plan would mean that our Company's
participating executives would receive payouts only if the Company's stock price
performance was better than that of the peer group average. By tying the
exercise price to a market index, indexed options reward participating
executives for outperforming the competition. Indexed options would have value
when our Company's stock price rises in excess of its peer group average or
declines less than its peer group average stock price decline. By downwardly
adjusting the exercise price of the option during a downturn in the industry,
indexed options remove pressure to reprice stock options.
At present, stock options granted by the Company are not indexed to peer group
performance standards. As long-term owners, we feel strongly that our Company
would benefit from the implementation of a stock option program that rewarded
superior long-term corporate performance. In response to strong negative public
and shareholder reactions to the excessive financial rewards provided executives
by non-performance based option plans, a growing number of shareholder
organizations, executive compensation experts, and companies are supporting the
implementation of performance-based stock option plans such as that advocated in
this resolution. We urge your support for this important governance reform."
85
The Board of Directors recommends a vote AGAINST this proposal for the following
reasons:
The Company's current stock option plan (the 2000 Omnibus Long-Term Compensation
Plan) was approved by the shareholders at the 1999 Annual Meeting. Like all of
the Company's executive compensation programs, this plan is overseen by the
Executive Compensation and Development Committee of the Board of Directors (the
"Committee"). Under this plan's management stock option program, options are
awarded to participating employees based in large part on their performance
potential. Management recommends grant levels for each of the Company's
executive officers, subject to review and approval by the Committee. Options are
priced at 100% of the fair market value of the Company's stock on the day of
grant.
The Company believes this program aligns its executives with the other owners of
the Company and provides its executives with the necessary incentives, while
still linking their awards to their performance. The proposed plan, tying an
option's exercise price to an industry peer group stock performance index, is
both unnecessary and unworkable.
An indexed options plan is unnecessary because the Company's current plan works
well. The current plan does not require that executives receive option awards at
specific levels. Under the plan management uses external survey data to set
suggested award ranges for different levels of executives, but reserves
substantial discretion as to the size of awards within, above or beneath these
ranges, based on performance potential. Individual performance with a
substantial positive impact on corporate results can be rewarded, and
distinguished from less superior performance.
The proposal is unworkable for a number of reasons. First, it does not take into
account the complex business environment in which the Company operates. The
Company currently consists of approximately fifty strategic product groups
within three major segments. The products sold by these groups are quite
diverse, ranging from scanners, to consumer film, to medical x-ray film, to
digital cameras and beyond. As a result, the Company competes in many different
marketplaces influenced by many different forces, and against many disparate
companies. Indexing exercise prices to any industry peer group, even the group
suggested by the proponent, would not allow the Company to distinguish among
different levels of performance by executives working under varying market
conditions in these very different strategic product groups.
In addition, an indexed options plan would raise complex financial and
accounting issues. Under such a plan strike prices would vary widely over time
in accordance with the relative performances of the Company and its peer group,
requiring elaborate and burdensome calculations each quarterly financial
reporting period.
Use of indexed options results in variable accounting treatment under GAAP,
requiring a quarterly charge to earnings. In contrast, GAAP does not require
expense treatment for fixed term stock options, e.g., options with no
performance conditions attached. Thus, regardless of the merits of indexed
options from a compensation standpoint, current accounting rules effectively
make it financially illogical to award them. The charges resulting from the use
of indexed options could depress and add artificial volatility to the Company's
earnings, clearly an outcome contrary to the best interests of shareholders.
In large part due to the concerns previously identified, extremely few companies
presently grant indexed stock options. Forcing the Company to grant indexed
options could place it at a substantial disadvantage in recruiting and retaining
executives in competition with other companies not burdened with similar
requirements.
The Board of Directors recommends a vote AGAINST this proposal.
ITEM 4 -- Shareholder Proposal -- Option Expensing
Massachusetts Laborers' Pension Fund, 14 New England Executive Park, Suite 200,
P.O. Box 4000, Burlington, MA 01803-0900, owner of 12,800 shares, submitted the
following proposal: "Resolved, that the shareholders of Eastman Kodak
Corporation ("Company") hereby request that the Company's Board of Directors
establish a policy of expensing in the Company's annual income statement the
costs of all future stock options issued by the Company.
Statement of Support: Current accounting rules give companies the choice of
reporting stock option expenses annually in the company income statement or as a
footnote in the annual report (See: Financial Accounting Standards Board
Statement 123). Most companies, including ours, report the cost of stock options
as a footnote in the annual report, rather than include the option costs in
determining operating income. We believe that expensing stock options would more
accurately reflect a company's operational earnings.
Stock options are an important component of our Company's executive compensation
program. Options have replaced salary and bonuses as the most significant
element of executive pay packages at numerous companies. The lack of option
expensing can promote excessive use of options in a company's compensation
plans, obscure and understate the cost of executive compensation and promote the
pursuit of corporate strategies designed to promote short-term stock price
rather than long-term corporate value.
A recent report issued by Standard & Poor's indicated that the expensing of
stock option grant costs would have lowered operational earnings at companies by
as much as 10%. "The failure to expense stock option grants has introduced a
significant distortion in reported earnings," stated Federal Reserve Board
Chairman Alan Greenspan. "Reporting stock options as expenses is a sensible and
positive step toward a clearer and more precise accounting of a company's
worth." Globe and Mail, "Expensing Options Is a Bandwagon Worth Joining," Aug.
16, 2002.
Warren Buffett wrote in a New York Times Op-Ed piece on July 24, 2002:
There is a crisis of confidence today about corporate earnings reports and
the credibility of chief executives. And it's justified.
For many years, I've had little confidence in the earnings numbers
reported by most corporations. I'm not talking about Enron and WorldCom --
examples of outright crookedness. Rather, I am referring to the legal, but
improper, accounting methods used by chief executives to inflate reported
earnings...
86
Options are a huge cost for many corporations and a huge benefit to
executives. No wonder, then, that they have fought ferociously to avoid
making a charge against their earnings. Without blushing, almost all
C.E.O.'s have told their shareholders that options are cost-free...
When a company gives something of value to its employees in return for
their services, it is clearly a compensation expense. And if expenses
don't belong in the earnings statement, where in the world do they belong?
Many companies have responded to investors' concerns about their failure to
expense stock options. In recent months, more than 100 companies, including such
prominent ones as Coca Cola, Washington Post, and General Electric, have decided
to expense stock options in order to provide their shareholders more accurate
financial statements. Our company has yet to act. We urge your support."
The Board of Directors recommends a vote AGAINST this proposal for the following
reasons:
The Shareholder proposal requests the Company to report the cost of its stock
options annually as an expense in its income statement. The proponent believes
that this would more accurately reflect the Company's operational earnings. The
Company understands and shares the proponent's desire that the Company's
operational earnings be reported in an accurate and sound manner. Moreover, the
Company does not object to the idea of uniformly requiring all public companies
to properly reflect the cost of stock options in their income statements. For
reasons stated below, however, we do not believe that expensing options would,
at the present time, be in the best interests of either the Company or its
shareholders.
As a starting point, the Company believes stock options are an important
component of its compensation program. They are a valuable tool for recruiting
and retaining the talent critical to the Company's long-term success. Options
encourage employees to act as owners, which helps align their interests with the
Company's shareholders. The Company's use of stock options has been, and will
continue to be, appropriate and judicious.
We should also mention by way of introduction that there is no present
requirement that the Company recognize an expense for stock options in its
income statement. The Company is presently in full compliance with the current
rules regarding accounting for stock options. Current accounting rules give
companies a choice in accounting for stock options. Companies may account for
stock-based compensation under either the fair value method under Statement of
Financial Accounting Standards No. 123 ("SFAS No. 123") or the intrinsic value
method provided by Accounting Principles Board Opinion No. 25 ("APB No. 25"). If
a company adopts the latter choice, it is required to make pro forma disclosure
in the footnotes to its financial statements using the measurement provisions of
SFAS No. 123.
The Company, like substantially all public companies, accounts for stock options
using the intrinsic value method prescribed by APB No. 25. The "intrinsic value"
of the option is the amount by which the quoted market price of the stock
exceeds the exercise price of the option on the date of grant. The Company's
stock options have always had a zero intrinsic value on the date of grant since
we have routinely set the exercise price equal to the market price on the date
of grant.
In contrast, the fair value method computes compensation expense based on the
fair value of the options at the date of grant. "Fair value" is determined using
an option-pricing model that takes into account multiple factors and assumptions
in estimating value.
The Company has two major concerns with regard to the use of the fair value
method. First, there is no present uniform, accurate and tested methodology for
computing the "fair value" of an employee stock option. One of the most widely
used valuation techniques, the Black-Scholes model, was developed to value
short-term publicly traded options. It was never intended to be used to value
employee stock options which, unlike publicly traded options, are private,
long-term, non-transferable, forfeitable and often subject to significant
restrictions.
Consequently, it is a very imprecise tool for measuring the "fair value" of an
employee stock option. Our other concern is that each of these valuation models
relies on a number of subjective assumptions, some of which, like stock price
volatility and expected option life, are particularly hard to predict. The
values determined using these models tend to be highly sensitive to these
assumptions and can vary significantly depending on the assumptions made.
Consequently, not only are companies not using the same valuation model, but
they are also using wildly different assumptions when applying these models.
Given these present uncertainties surrounding the application of the fair value
method, we believe it is presently premature for the Company to change its
accounting policy. This is especially true since current accounting rules
effectively make a decision to change to the fair value method irrevocable. The
Company feels it is in the best interest of our shareholders to continue to
follow the most widely used accounting standard, the intrinsic value method
prescribed by APB No. 25, and wait until this debate is resolved prior to
implementing any material change.
We also believe that the Company could be placed at a significant competitive
disadvantage if it were to begin at this time recognizing stock option expense
in its income statement. Almost all of the Company's competitors do not
presently recognize expense for stock options in their income statements.
Adoption of the proposal may disadvantage our shareholders by making it more
difficult for investors to compare the Company's performance with that of its
competitors. We feel it is in our shareholders' best interest to report our
financial statements in a manner that is not only consistent with GAAP, but also
allows for easy comparison with our competitors.
The Company already provides extensive financial disclosure regarding its stock
option activity. As required under current accounting practices, the Company
discloses in the footnotes to its financial statements the information that the
proposal would require to be included in the income statement itself. Thus,
adopting the proposal would not necessarily provide investors any additional
financial information. Moreover, the cost of stock options is already reflected
in the income statement in the diluted earnings per share calculation. In making
this calculation, the Company is required to
87
assume all in-the-money stock options have been exercised. If expensing were
also required, the impact of stock options could be double counted in the
calculation of diluted earnings per share; first as an increase in the number of
shares outstanding and second as a charge against reported earnings.
In summary, we share the proponent's concern for accurately reporting the
Company's operational earnings. We are committed to producing financial
information that is both accurate and subject to easy comparison with our
competitors. We believe, however, that the best way to accomplish these
objectives at this time is to retain the current accounting policy with respect
to stock options. When and if the pending debate results in new accounting rules
regarding the expensing of stock options, the Company will promptly take the
necessary action to conform to these changes.
The Board of Directors recommends a vote AGAINST this proposal.
ITEM 5 -- Shareholder Proposal -- Chemicals Policy
Donald Naulin, 8 Baymon Dr., Rochester, NY 14624, owner of 88 shares, submitted
the following proposal:
"Whereas, dioxins and many similar chemicals containing chlorine are extremely
toxic, get more concentrated higher on the food chain (bioaccumulate) and are
found in food and mothers' milk at levels that cause negative health effects in
children;
Whereas, while the Environmental Protection Agency has found that any emission
of these extremely toxic pollutants is of concern, and many governments are
working toward their virtual elimination, companies are not required to develop
and report options for eliminating these pollutants under existing federal laws;
Whereas, exposure to these pollutants is associated with many health effects,
including cancer, diabetes, endometriosis, immune dysfunctions and a range of
children's developmental and learning problems;
Whereas, these pollutants are often created inadvertently, by reactions
involving chlorine, in many industrial processes;
Whereas, generating these pollutants is known to be unnecessary and costly to
companies and economies, because their generation can be eliminated cost
effectively with sound planning based on sound information;
Whereas, processes used by Eastman Kodak at Kodak Park generate these
pollutants, including dioxins, the most toxic synthetic chemicals known; and
Kodak's Vision of Environmental Responsibility affirms: "Eastman Kodak is
recognized as a world-class company, and the leading imaging company, in
protecting the quality of the environment and the health and safety of its
employees, customers, and the community in which it operates"; indicating that
we have an obligation to demonstrate leadership in researching and implementing
processes which result in virtual elimination of these pollutants.
BE IT RESOLVED: The shareholders request that Kodak:
1) Adopt a plan for virtual elimination of persistent bioaccumulative pollutants
at Kodak Park which A) identifies, for each building, all inputs and uses of
chlorine, any sources of dioxin and other bioaccumulative pollutants, and
options for elimination of these chemicals, and B) implements the most effective
option; and 2) Provide an annual summary report to shareholders on these virtual
elimination options and progress toward these goals.
Supporting Statement: This policy makes business sense because preventing
pollution is cost effective in the short term and avoids costly long-term
liabilities related to toxic chemical exposures. It will improve our company's
image if Kodak goes beyond its existing policy to minimize pollution and joins
the new efforts for virtual elimination of toxic bioaccumulative pollutants.
This builds upon existing Kodak efforts to implement non-toxic production
strategies.
If you AGREE, please mark your proxy for this resolution."
The Board of Directors recommends a vote AGAINST this proposal for the following
reasons:
For many years the Company has designed, implemented and conducted far reaching
health, safety, and environmental programs, which have reduced the use and
release of toxic chemicals generally, including the use and release of
bioaccumulative materials. In 1998 the Company publicly announced a
comprehensive series of environmental performance improvement goals. The
Company's aggressive efforts toward achieving these goals have reduced
emissions, conserved natural resources and strengthened the environmental
management systems at its facilities worldwide. Significant reductions in the
use and release of bioaccumulative materials have been realized.
The Company's health, safety and environmental goals, the Company's progress in
achieving them, and the nature and results of the Company's programs are made
available to shareholders and the public generally in the Company's Health,
Safety and Environment Annual Report. Indeed, much of the information requested
in the proposal is already included in this report, which is available on-line
at: www.Kodak.com/go/HSE. In addition, the Company is required to disclose
extensive information about emissions of chemicals listed on the U.S.
government's Toxics Release Inventory, including bioaccumulative materials. This
information is available to the public at www.epa.gov/tri.
This shareholder proposal requests the Company to provide more extensive,
detailed information than is required by generally accepted accounting
principles (GAAP) and the SEC. The Company complies with all the requirements of
GAAP and the SEC, including those related to environmental matters. All material
information regarding the Company's environmental liabilities is disclosed.
The Company already has taken significant action to reduce the use and emission
of toxic chemicals including bioaccumulative materials. We believe the Company's
environmental disclosures in its Annual Report and on Forms 10-K and 10-Q, as
well as the availability of an easy-to-read description of the Company's
environmental programs and performance in its Health, Safety and Environment
Annual Report, meet the information needs of shareholders.
The Board of Directors recommends a vote AGAINST this proposal.
88
Board of Directors
Nominees to Serve a Three-Year Term Expiring at the 2006 Annual Meeting (Class I
Directors)
[PHOTO OMITTED]
MARTHA LAYNE COLLINS
MARTHA LAYNE COLLINS Director since May 1988
Governor Collins, 66, is Executive Scholar in Residence at Georgetown College, a
position she assumed in August 1998, after having been Director, International
Business and Management Center, at the University of Kentucky since July 1996.
>From 1988 to 1997, she was President of Martha Layne Collins and Associates, a
consulting firm, and from July 1990 to July 1996, she was President of St.
Catharine College in Springfield, Kentucky. Following her receipt of a BS degree
from the University of Kentucky, Governor Collins taught from 1959 to 1970.
After acting as Coordinator of Women's Activities in a number of political
campaigns, she served as Clerk of the Supreme Court of the Commonwealth of
Kentucky from 1975 to 1979. She was elected to a four-year term as Governor of
the Commonwealth of Kentucky in 1983 after having served as Lieutenant Governor
from 1979 to 1983. Governor Collins, who has served as a Fellow at the Institute
of Politics, Harvard University, is a director of R. R. Donnelley & Sons Company
and BB&T.
[PHOTO OMITTED]
TIMOTHY M. DONAHUE
TIMOTHY M. DONAHUE Director since October 2001
Mr. Donahue, 53, has served as President and Chief Executive Officer of Nextel
Communications, Inc. since August 1999. He began his career with Nextel in
January 1996 as President and Chief Operating Officer. Mr. Donahue has served as
Chairman of the Cellular Telecommunications & Internet Association (CTIA), the
industry's largest and most respected association. Mr. Donahue has also been
named by BusinessWeek as "One of the Best Managers in 2002." Before joining
Nextel, he served as Northeast Regional President for AT&T Wireless Services
operations from 1991 to 1996. Mr. Donahue started his career with AT&T Wireless
Services (formerly McCaw Cellular Communications) in 1986 as President for McCaw
Cellular's paging division. In 1989, he was named McCaw Cellular's President for
the US central region. He is a graduate of John Carroll University with a BA in
English Literature.
[PHOTO OMITTED]
DELANO E. LEWIS
DELANO E. LEWIS Director since July 2001
Mr. Lewis, 64, is the former Ambassador to South Africa, a position he held from
December 1999 to July 2001. Prior to his ambassadorship, Mr. Lewis was President
and Chief Executive Officer of National Public Radio Corporation, a position he
held from January 1994 until August 1998. He was President and Chief Executive
Officer of C&P Telephone Company, a subsidiary of Bell Atlantic Corporation,
from 1988 to 1993, after having served as Vice President since 1983. Mr. Lewis
held several positions in the public sector prior to joining C&P Telephone
Company. Mr. Lewis received a BA from University of Kansas and a JD from
Washburn School of Law. Mr. Lewis previously served as a director of Eastman
Kodak Company from May 1998 to December 1999. He is a director of
Colgate-Palmolive Co.
[PHOTO OMITTED]
PAUL H. O'NEILL
PAUL H. O'NEILL Director since February 2003
Mr. O'Neill, 67, served as Secretary of the Treasury of the United States from
2001 to 2002. Previously he was Chairman of Alcoa and held that position from
April 1987 to December 2000. From April 1987 until May 1999, he also held the
position of Chief Executive Officer. Prior to joining Alcoa, Mr. O'Neill served
as President of International Paper Company from 1985 to 1987, after having
joined that company in 1977. Mr. O'Neill began his career as an engineer for
Morrison-Knudsen, Inc., worked as a computer systems analyst with the U.S.
Veterans Administration from 1961 to 1966, and served on the staff of the U.S.
Office of Management and Budget from 1967 to 1977. He was Deputy Director of OMB
from 1974 to 1977. Mr. O'Neill received a BA degree in economics from Fresno
State College and a master's degree in public administration from Indiana
University. Mr. O'Neill previously served as a director of Eastman Kodak Company
from December 1997 to December 2000.
89
Nominee to Serve a One-Year Term Expiring at the 2004 Annual Meeting
(Class II Director)
[PHOTO OMITTED]
WILLIAM H. HERNANDEZ
WILLIAM H. HERNANDEZ Director since February 2003
Mr. Hernandez, 54, is Senior Vice President, Finance and Chief Financial Officer
of PPG Industries, Inc., a diversified manufacturer of protective and decorative
coatings, flat glass, fabricated glass products, continuous strand fiberglass,
and industrial and specialty chemicals for a variety of industries. Prior to
assuming his current duties in 1995, Mr. Hernandez served as PPG's Corporate
Controller from 1990 to 1994 and as Vice President and Controller in 1994. From
1974 until 1990, Mr. Hernandez held a number of positions at Borg- Warner
Corporation, including Assistant Controller, Chemicals; Controller, Chemicals;
Business Director, ABS Polymers; Assistant Corporate Controller; Vice President,
Finance; and Chief Financial Officer, Borg-Warner Automotive, Inc. Earlier in
his career, he was a financial analyst for Ford Motor Company. Mr. Hernandez
received a BS degree from the Wharton School of the University of Pennsylvania
and an MBA from Harvard Business School. Mr. Hernandez is a Certified Management
Accountant. He is also a director of Pentair, Inc.
Directors Continuing to Serve a Three-Year Term Expiring at the 2004 Annual
Meeting
(Class II Directors)
[PHOTO OMITTED]
WILLIAM W. BRADLEY
WILLIAM W. BRADLEY Director since May 2001
Senator Bradley, 59, is a Managing Director of Allen & Company LLC.
Additionally, he is Chief outside advisor to McKinsey & Company's non-profit
practice. From 1997 to 1999, he was a Senior Advisor and Vice Chairman-of-the
International Council of JP Morgan & Co., Inc. During that time, he also served
as an essayist for CBS evening news, a visiting professor at Stanford
University, Notre Dame University and the University of Maryland. Senator
Bradley served in the U.S. Senate from 1979 to 1997 representing the state of
New Jersey. Prior to serving in the Senate, he was an Olympic gold medalist in
1964 and a professional basketball player with the New York Knicks from 1967 to
1977 during which time they won two world championships. Senator Bradley holds a
BA degree in American History from Princeton University and an MA degree from
Oxford University where he was a Rhodes Scholar. He has authored five books on
American politics, culture and economy.
[PHOTO OMITTED]
HECTOR DE J. RUIZ
HECTOR DE J. RUIZ Director since January 2001
Dr. Ruiz, 57, joined AMD in January of 2000. Prior to being appointed President
and Chief Executive Officer, Dr. Ruiz served as AMD's President and Chief
Operating Officer. His career spans more than 30 years with leading technology
firms including Texas Instruments and Motorola, where he served as President of
the company's Semiconductor Products Sector. Dr. Ruiz is actively committed to
education, and serves on the Foundation Advisory Council for the College of
Engineering at the University of Texas. He was appointed to the Texas Higher
Education Coordinating Board in 1999. Dr. Ruiz earned a bachelor's and a
master's degree in electrical engineering from the University of Texas at Austin
before earning his doctorate in electronics from Rice University in Houston.
[PHOTO OMITTED]
LAURA D'ANDREA TYSON
LAURA D'ANDREA TYSON Director since May 1997
Dr. Tyson, 55, is Dean of London Business School, a position she accepted in
January 2002. She was formerly the Dean of the Walter A. Haas School of Business
at the University of California, Berkeley, a position she held since July 1998.
Previously, she was Professor of, and holder of the Class of 1939 Chair in,
Economics and Business Administration at the University of California, Berkeley,
a position she held from January 1997 to July 1998. Prior to this position, Dr.
Tyson served in the first Clinton Administration as Chairman of the President's
National Economic Council and 16th Chairman of the White House Council of
Economic Advisers. Prior to joining the Administration, Dr. Tyson was Professor
of Economics and Business Administration, Director of the Institute of
International Studies, and Research Director of the Berkeley Roundtable on the
International Economy at the University of California, Berkeley. Dr. Tyson holds
a BA degree from Smith College and a Ph.D. degree in economics from the
Massachusetts Institute of Technology. Dr. Tyson is the author of numerous
articles on economics, economic policy and international competition. She is a
director of Human Genome Sciences, Inc., Morgan Stanley and SBC Communications,
Inc.
90
Directors Continuing to Serve a Three-Year Term Expiring at the 2005 Annual
Meeting
(Class III Directors)
[PHOTO OMITTED]
RICHARD S. BRADDOCK
RICHARD S. BRADDOCK Director since May 1987
Mr. Braddock, 61, is Chairman of priceline.com. He has been Chairman since
August 1998. He was CEO from July 1998 to June 2000 and from May 2001 to
December 2002. He was Chairman of True North Communications from July 1997 to
January 1999. He was a principal of Clayton, Dubilier & Rice from June 1994
until September 1995. From January 1993 until October 1993, he was Chief
Executive Officer of Medco Containment Services, Inc. From January 1990 through
October 1992, he served as President and Chief Operating Officer of Citicorp and
its principal subsidiary, Citibank, N.A. Prior to that, he served for
approximately five years as Sector Executive in charge of Citicorp's Individual
Bank, one of the financial services company's three core businesses. Mr.
Braddock graduated from Dartmouth College with a degree in history, and received
his MBA degree from the Harvard School of Business Administration. He is a
Director of Cadbury Schweppes and priceline.com.
[PHOTO OMITTED]
DANIEL A. CARP
DANIEL A. CARP Director since December 1997
Mr. Carp, 54, is Chairman, Chief Executive Officer, President and Chief
Operating Officer of Eastman Kodak Company. He became Chairman on December 8,
2000. He was elected CEO effective January 1, 2000. He was President from
January 1, 1997 until April 2001 and was re-elected President in January 2002.
Mr. Carp served as Executive Vice President and Assistant Chief Operating
Officer from November 1995 to January 1997. Mr. Carp began his career with Kodak
in 1970 and has held a number of increasingly responsible positions in market
research, business planning, marketing management and line of business
management. In 1986, Mr. Carp was named Assistant General Manager of the Latin
American Region and in September 1988, he was elected a Vice President and named
General Manager of that region. In 1991, he was named General Manager of the
European Marketing Companies and, later that same year, General Manager,
European, African and Middle Eastern Region. He holds a BBA degree in
quantitative methods from Ohio University, an MBA degree from Rochester
Institute of Technology and an MS degree in management from the Sloan School of
Management, Massachusetts Institute of Technology. Mr. Carp is a director of
Texas Instruments Inc.
[PHOTO OMITTED]
DURK I. JAGER
DURK I. JAGER Director since January 1998
Mr. Jager, 59, is the former Chairman of the Board, President and Chief
Executive Officer of The Procter & Gamble Company. He left these positions in
July 2000. He was elected to the position of Chief Executive Officer in January
1999 and Chairman of the Board effective September 1999, while continuing to
serve as President since 1995. He served as Executive Vice President from 1990
to 1995. Mr. Jager joined The Procter & Gamble Company in 1970 and was named
Vice President in 1987. He graduated from Erasmus Universiteit, Rotterdam, The
Netherlands. Mr. Jager is a member of the supervisory Board of Royal KPN (The
Netherlands) and a director of Chiquita Brands International, Inc. and Polycom
Inc.
[PHOTO OMITTED]
DEBRA L. LEE
DEBRA L. LEE Director since September 1999
Ms. Lee, 48, is President and Chief Operating Officer of BET Holdings, Inc.
(BET). She joined BET in 1986 as Vice President and General Counsel. In 1992,
she was elected Executive Vice President of Legal Affairs and named Publisher of
BET's magazine division, in addition to serving as General Counsel. She was
placed in charge of strategic business development in 1995. Ms. Lee holds a BA
degree from Brown University and MA and JD degrees from Harvard University. She
is affiliated with several professional and civic organizations. Ms. Lee is a
director of WGL Holdings, Inc. and Genuity, Inc.
91
BOARD COMMITTEES
The Board has the committees listed below. All committee members are
non-employee, independent directors as defined by the New York Stock Exchange
(NYSE) listing standards.
Audit Committee -- 11 meetings in 2002
o discussed the independence of the independent accountants;
o discussed the quality of the accounting principles used to prepare the
Company's financial statements;
o reviewed the Company's periodic financial statements;
o oversaw the Company's compliance with requirements of the Sarbanes-Oxley
Act, SEC rules and draft New York Stock Exchange listing requirements;
o recommended the firm that Kodak should retain as independent accountants;
o reviewed the audit and non-audit activities of both the independent
accountants and the internal audit staff of the Company;
o received and analyzed reports from the Company's independent accountants
and internal audit staff;
o met separately and privately with the independent accountants and with the
Company's Director, Corporate Auditing, to ensure that the scope of their
activities has not been restricted and that adequate responses to their
recommendations have been received; and
o revised the Committee's written charter.
Corporate Responsibility and Governance Committee -- 3 meetings in 2002
o approved a charter that anticipates the requirements of the proposed new
listing standards of the New York Stock Exchange regarding corporate
governance policies and processes;
o reviewed and analyzed the Company's governance in light of the provisions
of the Sarbanes-Oxley Act and the new listing standards of the New York
Stock Exchange;
o discussed revisions to the Company's governance guidelines;
o approved the formation of a director education program;
o reviewed the Company's corporate responsibility principles;
o recommended the appointment of a presiding director;
o met with the Company's Diversity Advisory Panel to discuss its preliminary
findings; and
o made recommendations regarding Board candidates.
Executive Compensation and Development Committee -- 8 meetings in 2002
o completed a study of the market competitiveness of the compensation paid
to the Company's senior executive officers;
o revised the Committee's charter in anticipation of the adoption of the
proposed new listing standards of the New York Stock Exchange regarding
corporate governance policies and processes;
o reviewed the Company's executive compensation practices in light of the
enactment of the Sarbanes-Oxley Act;
o reviewed and revised the Company's executive compensation strategy and
principles;
o selected a peer group to assist in measuring the market competitiveness of
the compensation paid to the Company's senior executive officers;
o reviewed the Company's executive development process;
o set the compensation for the CEO and reviewed the compensation
recommendation for the Company's other executive officers;
o approved the Executive Incentive Program; and
o granted and certified awards under the Company's compensation plans.
Finance Committee -- 4 meetings in 2002
o reviewed the Company's financing strategies including dividend
declaration, capital expenditures, debt issuances and foreign exchange and
commodity hedging;
o reviewed cash flow, balance sheet performance and credit ratings;
o reviewed significant acquisitions, divestitures, and joint ventures; and
o reviewed the investment performance and the administration of the
Company's defined benefit pension plan.
92
Committee Membership
====================================================================================================================
Corporate Executive
Director Audit Responsibility and Compensation and Finance
Name Committee Governance Committee Development Committee Committee
--------------------------------------------------------------------------------------------------------------------
Richard S. Braddock X X*
--------------------------------------------------------------------------------------------------------------------
William M. Bradley X X
--------------------------------------------------------------------------------------------------------------------
Martha Layne Collins X X
--------------------------------------------------------------------------------------------------------------------
Timothy M. Donahue X X
--------------------------------------------------------------------------------------------------------------------
William H. Hernandez X X
--------------------------------------------------------------------------------------------------------------------
Durk I. Jager X X*
--------------------------------------------------------------------------------------------------------------------
Debra L. Lee X* X
--------------------------------------------------------------------------------------------------------------------
Delano E. Lewis X X
--------------------------------------------------------------------------------------------------------------------
Paul H. O'Neill X X
--------------------------------------------------------------------------------------------------------------------
Hector de J. Ruiz X* X
--------------------------------------------------------------------------------------------------------------------
Laura D'Andrea Tyson X X
--------------------------------------------------------------------------------------------------------------------
* Chairman
MEETING ATTENDANCE
The Board held a total of eleven meetings in 2002. Each director attended at
least 76% of the meetings of the Board and committees of the Board on which the
director served. The average attendance by all directors was over 90%.
DIRECTOR COMPENSATION Annual Payments
Non-employee directors receive:
o $ 65,000 as a retainer, at least half of which must be taken in
stock or deferred into stock units;
o 2,000 stock options; and
o reimbursement of out-of-pocket expenses for the meetings they
attend.
The employee director receives no additional compensation for serving on the
Board.
A change in the timing of the annual stock option grant to the non-employee
directors was approved by the Board of Directors in October 2002. In order for
it to coincide with the Company's annual management stock option grant, this
grant will now be made in the fourth quarter, rather than the first quarter, of
each year. As a result of this change, two grants were made in 2002; one in
January 2002 and the other in November 2002. The next stock option grant to the
Company's non-employee directors will be awarded in the fourth quarter of 2003.
Mr. Braddock will receive a retainer of $100,000 per year for his services as
presiding director in addition to his annual retainer as a director.
Deferred Compensation
Non-employee directors may defer some or all of their compensation into a
phantom Kodak stock account or into a phantom interest-bearing account. Four
current directors deferred compensation in 2002. In the event of a change in
control, the amounts in the phantom accounts will generally be paid in a single
cash payment.
Life Insurance
The Company provides $100,000 of group term life insurance to each non-employee
director. This decreases to $50,000 at retirement or age 65, whichever occurs
later.
Charitable Award Program
This program, which was closed to new participants effective January 1, 1997,
provides for a contribution by the Company of up to $1,000,000 following a
director's death to a maximum of four charitable institutions recommended by the
director. The individual directors derive no financial benefits from this
program. It is funded by self-insurance and joint life insurance policies
purchased by the Company. Mr. Braddock and Gov. Collins continue to participate
in the program.
93
Beneficial Security Ownership
of Directors, Nominees and Executive Officers
--------------------------------------------------------------------------------
Directors, Nominees Number of Common Shares
and Executive Officers Owned on January 2, 2003
--------------------------------------------------------------------------------
Richard S. Braddock 26,893 (a) (b)
--------------------------------------------------------------------------------
William W. Bradley 6,120 (a) (b)
--------------------------------------------------------------------------------
Robert H. Brust 216,994 (a) (b)
--------------------------------------------------------------------------------
Daniel A. Carp 1,126,870 (a) (b)
--------------------------------------------------------------------------------
Martha Layne Collins 18,889 (a) (b)
--------------------------------------------------------------------------------
Martin M. Coyne 259,439 (a) (b)
--------------------------------------------------------------------------------
Timothy M. Donahue 8,292 (a) (b)
--------------------------------------------------------------------------------
William H. Hernandez(d) 2,055 (a)
--------------------------------------------------------------------------------
Durk I. Jager 18,171 (a) (b)
--------------------------------------------------------------------------------
Debra L. Lee 11,180 (b)
--------------------------------------------------------------------------------
Delano E. Lewis 6,236 (a) (b)
--------------------------------------------------------------------------------
Michael P. Morley 305,023 (a) (b)
--------------------------------------------------------------------------------
Paul H. O'Neill(d) 2,090 (a)
--------------------------------------------------------------------------------
Daniel P. Palumbo 92,587 (a) (b)
--------------------------------------------------------------------------------
Hector de J. Ruiz 8,697 (b)
--------------------------------------------------------------------------------
Laura D'Andrea Tyson 10,235 (a) (b)
--------------------------------------------------------------------------------
All Directors, Nominees and
Executive Officers as a
Group (27), including the above 2,930,227 (a) (b) (c)
--------------------------------------------------------------------------------
(a) Includes the following Kodak common stock equivalents, which are held in
deferred compensation plans: R. S. Braddock - 6,006; W. W. Bradley - 458;
R. H. Brust - 11,673; D. A. Carp - 193,803 ; M. L. Collins - 9,689; M. M.
Coyne - 15,010; T. M. Donahue -2,292; W. H. Hernandez - 555; D. I. Jager -
9,171; D. E. Lewis - 2,036; M. P. Morley - 42,016; P. H. O'Neill - 1,090;
D. P. Palumbo - 12,505; L. D. Tyson - 1,315; and all directors, nominees
and executive officers as a group - 400,125.
(b) Includes the following number of shares which may be acquired by exercise
of stock options: R. S. Braddock - 6,000; W. W. Bradley - 4,000; R. H.
Brust - 184,622; D. A. Carp - 891,086; M. L. Collins - 6,000; M. M. Coyne
- 231,473; T. M. Donahue - 4,000; D. I. Jager - 6,000; D. L. Lee - 6,000;
D. E. Lewis - 4,000; M. P. Morley - 259,671; D. P. Palumbo -70,977; H. de
J. Ruiz - 4,000; L. D. Tyson - 6,000; and all directors, nominees and
executive officers as a group - 2,284,195.
(c) The total number of shares beneficially owned by all directors, nominees
and executive officers as a group is less than 1% of the Company's
outstanding shares.
(d) Messrs. O'Neill and Hernandez joined the Company's Board of Directors in
February 2003, and they are included here for informational purposes only.
Their shareholdings, shown here as of March 14, 2003, are not included in
the totals shown above and in these footnotes for all directors, nominees
and executive officers as a group.
The above table reports beneficial ownership in accordance with Rule 13d-3 under
the Securities Exchange Act of 1934. This means all Company securities over
which the directors, nominees and executive officers directly or indirectly have
or share voting or investment power are listed as beneficially owned. The
figures above include shares held for the account of the above persons in the
Eastman Kodak Shares Program and the Kodak Employees' Stock Ownership Plan, and
the interests of the above persons in the Kodak Stock Fund of the Eastman Kodak
Employees' Savings and Investment Plan, stated in terms of Kodak shares.
94
Transactions with Management
Under Mr. Brust's December 20, 1999, offer letter, the Company loaned Mr. Brust,
Chief Financial Officer and Executive Vice President, the sum of $3,000,000 at
an annual interest rate of 6.21%, the applicable federal rate for mid-term
loans, compounded annually, in effect for January 2000. The unsecured loan is
evidenced by a promissory note dated January 6, 2000. Under Mr. Brust's November
12, 2001, amended offer letter, a portion of the principal and all of the
accrued interest on the loan is to be forgiven on each of the first seven
anniversaries of the loan. Mr. Brust is not entitled to forgiveness on any
anniversary date if he voluntarily terminates his employment or is terminated
for cause on or before the anniversary date. The balance due under the loan on
December 31, 2002, was $2,100,000.
In March 2001, the Company loaned Mr. Carp, Chairman, President and Chief
Executive Officer, $1,000,000 for the purchase of a home. The loan is unsecured
and bears interest at 5.07% per year, the applicable federal rate for mid-term
loans, compounded annually, in effect for March 2001. The entire amount of the
loan and all accrued interest is due upon the earlier of March 1, 2006, or the
date of Mr. Carp's termination of employment from the Company. The loan is
evidenced by a promissory note dated March 2, 2001. The balance due under the
loan on December 31, 2002, was $1,095,068.
95
Compensation of Named Executive Officers
The individuals named in the following table are the Company's Chief Executive
Officer and the four other named executive officers under Section 229.402(a)(3)
of Volume 17 of the Code of Federal Regulations during 2002. The figures shown
include both amounts paid and amounts deferred.
SUMMARY COMPENSATION TABLE
------------------------------------------------------------------------------------------------------------------------------------
Annual Compensation Long-Term Compensation
-------------------------------------
Awards Payouts
--------------------------------------------------------------------------------
Other Restricted Securities
Name and Annual Stock Underlying LTIP All Other
Principal Position Year Salary Bonus(a) Compensation(b) Awards(c) Options/SARs(d) Payouts(e) Compensation(f)
------------------------------------------------------------------------------------------------------------------------------------
D. A. Carp 2002 $1,030,769 $2,327,325 $26,030 $4,249,010 175,000 0 $0
Chairman & CEO 2001 1,000,000 507,500 25,695 2,968,751 410,000 0 0
2000 1,000,000 598,500 -- -- 100,000 0 0
------------------------------------------------------------------------------------------------------------------------------------
R. H. Brust 2002 635,828 669,240 -- 424,162 42,000 0 487,768
Exec. V. P. & CFO 2001 585,003 151,200 -- 430,414 78,000 0 827,923
2000 492,764 225,720 -- 467,542 228,000 0 1,269
------------------------------------------------------------------------------------------------------------------------------------
M. M. Coyne 2002 719,692 889,746 20,953 291,332 36,000 0 0
Exec. V. P. 2001 667,984 176,400 -- 553,447 95,000 0 0
2000 449,449 400,075 -- 409,375 146,000 0 0
------------------------------------------------------------------------------------------------------------------------------------
M. P. Morley 2002 491,154 514,800 -- 368,669 35,000 0 0
Exec. V. P. & CAO 2001 466,095 136,000 -- 430,414 42,000 0 0
2000 393,186 184,680 -- -- 73,000 0 0
------------------------------------------------------------------------------------------------------------------------------------
D. P. Palumbo 2002 514,154 517,195 -- 365,915 169,443 0 32,055
Sr. V. P. 2001 490,384 132,680 -- 461,070 36,400 0 30,547
2000 353,346 154,465 -- 310,000 120,000 0 50,048
------------------------------------------------------------------------------------------------------------------------------------
96
(a) This column shows Executive Compensation for Excellence and Leadership
Plan (EXCEL), and its predecessor, Management Variable Compensation Plan,
awards for services performed, not paid, in each year indicated. For M. P.
Morley for 2002, the amount also includes a retention bonus of $20,000
paid under his March 13, 2001 retention agreement.
(b) Where no amount is shown, the value of personal benefits provided was less
than the minimum amount required to be reported. For D. A. Carp, the
amounts shown in this column represent tax payments made by the Company
relating to his use of Company transportation. The Company requires D. A.
Carp to use Company transportation for security reasons. For M. M. Coyne,
the amount shown in this column represents tax payments made by the
Company relating to his use of Company transportation and other Company
paid travel expenses.
(c) The awards shown represent grants of restricted stock or restricted stock
units valued as of the date of grant. Dividends are paid on the restricted
shares and restricted units as and when dividends are paid on Kodak common
stock. The restrictions on the awards granted under the Executive
Incentive Program lapse on December 31, 2003.
D. A. Carp - For 2002, 100,000 shares granted as a retention based award,
valued on December 2, 2002 at $36.73 per share and 18,611 shares awarded
under the Executive Incentive Program, valued on February 18, 2003 at
$30.95 per share. For 2001, 20,000 shares granted in recognition of his
election as Chairman, valued on January 12, 2001, at $40.875 per share and
52,630 shares granted in substitution of, and not in addition to, the
stock option grants the named executives would otherwise have received in
January 2001 under the management stock option program, valued on January
16, 2001, at $40.875 per share.
R. H. Brust - For 2002, 5,000 shares granted as a retention based award,
valued on December 2, 2002 at $36.73 per share and 7,771 shares awarded
under the Executive Incentive Program, valued on February 18, 2003 at
$30.95 per share. For 2001, 10,530 shares granted in substitution of, and
not in addition to, the stock option grants the named executives would
otherwise have received in January 2001 under the management stock option
program, valued on January 16, 2001, at $40.875 per share. For 2000,
11,625 shares granted as a signing bonus valued on January 3, 2000, at
$40.2187 per share.
M. M. Coyne - For 2002, 9,413 shares awarded under the Executive Incentive
Program, valued on February 18, 2003 at $30.95 per share. For 2001, 13,540
shares granted in substitution of, and not in addition to, the stock
option grants the named executives would otherwise have received in
January 2001 under the management stock option program, valued on January
16, 2001, at $40.875 per share. For 2000, 10,000 shares granted in
recognition of his appointment as Group Executive of the Photography
Group, valued on October 2, 2000 at $40.9375.
M. P. Morley - For 2002, 5,000 shares granted as a retention based award,
valued on December 2, 2002 at $36.73 per share and 5,978 shares awarded
under the Executive Incentive Program, valued on February 18, 2003 at
$30.95 per share. For 2001, 10,530 shares granted in substitution of, and
not in addition to, the stock option grants the named executives would
otherwise have received in January 2001 under the management stock option
program, valued on January 16, 2001, at $40.875 per share.
D. P. Palumbo - For 2002, 5,000 shares granted as a retention based award,
valued on December 2, 2002 at $36.73 per share and 5,889 shares awarded
under the Executive Incentive Program, valued on February 18, 2003 at
$30.95 per share. For 2001, 11,280 shares granted in substitution of, and
not in addition to, the stock option grants the named executives would
otherwise have received in January 2001 under the management stock option
program, valued on January 16, 2001, at $40.875 per share. For 2000, 5,000
shares granted in recognition of his appointment as President, Consumer
Imaging, valued on September 11, 2000, at $62.00 per share.
The total number and value of restricted stock held as of December 31,
2002 for each named individual (valued at $35.04 per share) were: D. A.
Carp - 208,706 shares - $7,313,058 (includes 25,000 shares awarded in
2002, but granted on 01/01/03); R. H. Brust - 27,155 shares - $951,511; M.
M. Coyne - 25,180 shares - $742,147; M. P. Morley - 35,857 shares -
$1,256,429; D. P. Palumbo - 18,780 shares - $658,051.
(d) On August 26, 2002, D. P. Palumbo received stock options to purchase
133,043 shares under the Stock Option Exchange Program. The remaining
amounts for 2002 represent grants made in the fourth quarter of 2002 under
the management stock option program. For D. A. Carp for 2001, the amount
includes a grant of stock options to purchase 160,000 shares in
recognition of his election as Chairman.
(e) No awards were paid for the periods 2000-2002, 1999-2001, and 1998-2000
under the Performance Stock Program.
(f) For R. H. Brust for 2002, the amount represents $446,400 of principal and
interest forgiven in connection with the loan from the Company as
described on page 95 and $41,639 as the Company contribution to the cash
balance feature of the Kodak Retirement Income Plan; for 2001 the amount
represents $786,300 of principal and interest forgiven in connection with
the loan and $41,623 as the Company contribution to the cash balance
feature. For D. P. Palumbo the amounts represent Company contributions to
the cash balance feature of the Kodak Retirement Income Plan in the years
indicated.
97
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants
------------------------------------------------------------------------------------------------------------------
Number of Percentage
Securities of Total
Underlying Options/SARs
Options/ Granted to Exercise or Grant Date
SARs Employees Base Price Expiration Present
Name Granted in Fiscal Year Per Share Date Value(c)
------------------------------------------------------------------------------------------------------------------
D. A. Carp 175,000(a) .00868 $36.66 11/21/12 $1,438,500
------------------------------------------------------------------------------------------------------------------
R. H. Brust 42,000(a) .00208 36.66 11/21/12 345,240
------------------------------------------------------------------------------------------------------------------
M. M. Coyne 36,000(a) .00179 36.66 11/21/12 295,920
------------------------------------------------------------------------------------------------------------------
M. P. Morley 35,000(a) .00174 36.66 11/21/12 287,700
------------------------------------------------------------------------------------------------------------------
D. P. Palumbo 36,400(a) .00181 36.66 11/21/12 299,208
133,043(b) .00660 31.30 5/18/07-11/15/11 796,928
------------------------------------------------------------------------------------------------------------------
(a) These options were granted in November 2002 under the management stock
option program. Termination of employment, for other than death or a
permitted reason, prior to the first anniversary of the grant date results
in forfeiture of the options. Thereafter, termination of employment prior
to vesting results in forfeiture of the options unless the termination is
due to retirement, death, disability or an approved reason. Vesting
accelerates upon death. One third of the options vest on each of the first
three anniversaries of the date of grant.
(b) These options were granted to D. P. Palumbo on August 26, 2002, under the
Stock Option Exchange Program; they expire on the following dates: 733 on
May 18, 2007; 2,500 on February 11, 2008; 69 on March 12, 2008; 4,700 on
April 1, 2008; 390 on March 11, 2009; 8,251 on March 31, 2009; 13,333 on
February 29, 2010; 66,667 on October 1, 2010, and 36,400 on November 15,
2011.
(c) The present value of these options was determined using the Black-Scholes
model of option valuation in a manner consistent with the requirements of
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation." For the options granted in November 2002 under
the management stock option program, the following weighted-average
assumptions were used: risk-free interest rate - 3.8%, expected option
life - 7 years, expected volatility - 34%, and expected dividend yield
-5.76%. For the options granted under the Stock Option Exchange Program,
the following weighted-average assumptions were used: risk-free interest
rate - 2.9%, expected option life - 4 years, expected volatility - 37%,
and expected dividend yield - 5.76%.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
-----------------------------------------------------------------------------------------------------------------------------
Number of
Securities Underlying Value of Unexercised
Unexercised Options/SARs In-the-Money Options/
Number of at Fiscal Year-End SARs at Fiscal Year-End*Value
Shares Acquired Value ---------------------------------------------------------------------
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
-----------------------------------------------------------------------------------------------------------------------------
D. A. Carp 7,638 $15,757 891,086 528,590 $477,023 $954,046
-----------------------------------------------------------------------------------------------------------------------------
R. H. Brust 0 0 184,622 163,378 148,831 298,109
-----------------------------------------------------------------------------------------------------------------------------
M. M. Coyne 2,630 6,188 231,473 161,389 181,269 362,538
-----------------------------------------------------------------------------------------------------------------------------
M. P. Morley 0 0 259,671 95,696 80,140 160,520
-----------------------------------------------------------------------------------------------------------------------------
D. P. Palumbo 0 0 70,977 98,466 265,454 232,127
-----------------------------------------------------------------------------------------------------------------------------
* Based on the closing price on the New York Stock Exchange - Composite
Transactions of the Company's common stock on December 31, 2002, of $35.04
per share.
98
TEN-YEAR OPTION/SAR REPRICINGS
The table below lists certain information regarding our executive officers that
elected to participate in our Stock Option Exchange Program, which you approved
at a Special Meeting on January 25, 2002. Even though our Stock Option Exchange
Program was not a "repricing" under GAAP, we are, nevertheless, required to
provide this information. Under the Program, all of our employees, excluding our
then six most senior executive officers, were given a one-time opportunity to
exchange all of their then current options for proportionately fewer options at
a new exercise price. The only named executive officer eligible to participate
in the Program was Mr. Palumbo. He was not one of our six most senior executive
officers at the time the Program was offered. More information about the Program
can be found on page 113 in the Report of the Executive Compensation and
Development Committee.
--------------------------------------------------------------------------------------------------------------------------------
Number of Length of
Securities Market Price Exercise Original
Underlying of Stock at Price at Option Term
Options/SARs Time of Time of New Remaining at
Repriced or Repricing or Repricing or Exercise Date of
Amended Amendment Amendment Price Repricing or
Name Date (#)(a) ($) ($)(b) ($) Amendment (c)
--------------------------------------------------------------------------------------------------------------------------------
M. P. Benard 8/26/02 56,068 $31.30 $54.12 $31.30 69 months
Vice President
--------------------------------------------------------------------------------------------------------------------------------
R. L. Berman 8/26/02 49,923 $31.30 $45.93 $31.30 92 months
Vice President
--------------------------------------------------------------------------------------------------------------------------------
C. S. Brown, Jr. 8/26/02 120,489 $31.30 $51.08 $31.30 75 months
Senior Vice President
--------------------------------------------------------------------------------------------------------------------------------
C. E. Gustin, Jr 8/26/02 125,197 $31.30 $55.38 $31.30 66 months
Senior Vice President
--------------------------------------------------------------------------------------------------------------------------------
C. A. Marchetto 8/26/02 58,701 $31.30 $45.10 $31.30 96 months
Senior Vice President
--------------------------------------------------------------------------------------------------------------------------------
D. P. Palumbo 8/26/02 133,043 $31.30 $44.29 $31.30 100 months
Senior Vice President
--------------------------------------------------------------------------------------------------------------------------------
E. G. Rodli 8/26/02 60,501 $31.30 $40.48 $31.30 103 months
Senior Vice President
--------------------------------------------------------------------------------------------------------------------------------
R. P. Rozek 8/26/02 21,967 $31.30 $35.07 $31.30 109 months
Controller
--------------------------------------------------------------------------------------------------------------------------------
W. C. Shih 8/26/02 104,700 $31.30 $51.21 $31.30 89 months
Senior Vice President
--------------------------------------------------------------------------------------------------------------------------------
K. A. Smith-Pilkington 8/26/02 48,867 $31.30 $48.36 $31.30 90 months
Senior Vice President
--------------------------------------------------------------------------------------------------------------------------------
J. C. Stoffel 8/26/02 82,581 $31.30 $49.36 $31.30 89 months
Senior Vice President
--------------------------------------------------------------------------------------------------------------------------------
G. P. Van Graafeiland 8/26/02 114,226 $31.30 $52.73 $31.30 66 month
Senior Vice President
--------------------------------------------------------------------------------------------------------------------------------
(a) The amounts shown are the aggregate numbers of shares underlying the
options granted to the executive officers under the Stock Option Exchange
Program.
(b) The amounts shown are the weighted averages of the exercise prices at the
time of the exchange of the options granted to the executive officers
under the Stock Option Exchange Program.
(c) The amounts shown are the weighted average number of months remaining in
the option terms of the options granted to the executive officers under
the Stock Option Exchange Program.
99
LONG-TERM INCENTIVE PLAN
Each February the Executive Compensation and Development Committee approves a
three-year performance cycle under the Performance Stock Program. Participation
in the program is limited to selected senior executives. The program's
performance goal is total shareholder return equal to at least that earned by a
company at the 50th percentile in terms of total shareholder return within the
Standard & Poor's 500 Composite Stock Price Index.
After the close of a cycle, the Committee calculates the percentage earned of
each participant's target award. No awards are paid unless the performance goal
is achieved. Fifty percent of the target award is earned if the performance goal
is achieved. One hundred percent is earned if total shareholder return for the
cycle equals that of a company at the 60th percentile within the Standard &
Poor's 500 Composite Stock Price Index.
The Committee has the discretion to reduce or eliminate the award earned by any
participant based upon any criteria it deems appropriate. Awards are paid in the
form of restricted stock, which restrictions lapse at age 60. The table below
shows the threshold (i.e., attainment of the performance goal), target and
maximum number of shares for the named executive officers for each cycle. No
awards were earned for the 2000-2002 performance cycle as shown in the "LTIP
Payouts" column of the Summary Compensation Table on page 96.
The Executive Compensation and Development Committee approved a
performance-based, long-term award program, i.e., the Executive Incentive
Program, under the 2002-2004 cycle of the Performance Stock Program. The
purposes of this one-time program are to increase by year-end 2003 investable
cash flow and the financial performance of certain strategic product groups. In
this regard, certain target and threshold performance goals were established by
the Committee based on these two metrics for the two-year period commencing
January 1, 2002, and ending December 31, 2003.
Awards under the Executive Incentive Program will be coordinated with awards
received under the 2002-2004 performance cycle of the Performance Stock Program.
As a result, any award earned by a participant under the 2002-2004 performance
cycle of the Performance Stock Program will be reduced by the amount of any
award earned by the participant under the Executive Incentive Program.
Participation in the Executive Incentive Program is limited to 18 selected key
executive officers, including the five named executive officers. Each
participant's target award under the program is 75% of the participant's total
target annual compensation (annual base salary plus target EXCEL award)
expressed in the form of shares of common stock based on a March 8, 2002, stock
price of $32.37 per share. Any awards earned under the program will be paid in
the form of the Company's common stock.
In order to encourage strong performance against the program's two metrics in
2002, participants were given the opportunity to earn a portion of their target
award after the first year of the program's two-year performance cycle. Payment
of this interim award was based on achieving certain pre-established interim
goals by year-end 2002. Each participant was eligible for an interim award equal
to 30% of his or her target award under the program. The interim awards were
payable in the form of restricted shares of the Company's common stock, the
restrictions on which lapse at year-end 2003. In determining a participant's
award for the entire two-year cycle, any interim award earned by a participant
will be subtracted from the award the participant would otherwise receive under
the program.
As explained in the Report of the Executive Compensation and Development
Committee on page 112, both of the program's interim goals were achieved by
year-end 2002. As a result, each program participant received an interim award.
The interim awards paid to the named executive officers are included in the
amounts shown under the column entitled "Restricted Stock Awards" in the Summary
Compensation Table on page 96.
100
LONG-TERM INCENTIVE PLAN -- AWARDS IN LAST FISCAL YEAR
------------------------------------------------------------------------------------------------------------------------
Estimated Future Payouts Under
Non-Stock Price-Based Plans
-----------------------------------------------------
Number of Performance or
Shares, Units Other Period Until Threshold Target Maximum
Name or Other Rights Maturation or Payout # of Shares # of Shares # of Shares(b)
------------------------------------------------------------------------------------------------------------------------
D. A. Carp N/A 2000-2002 10,000 20,000 30,000
2001-2003 10,000 20,000 30,000
2002-2004 10,000 20,000 [62,037] 30,000
------------------------------------------------------------------------------------------------------------------------
R. H. Brust N/A 2000-2002 2,625 5,250 7,875
2001-2003 2,625 5,250 7,875
2002-2004 2,625 5,250 [25,904] 7,875
------------------------------------------------------------------------------------------------------------------------
M. M. Coyne N/A 2000-2002 1,813 3,625 5,438
2001-2003 3,400 6,800 10,200
2002-2004 3,400 6,800 [31,376] 10,200
------------------------------------------------------------------------------------------------------------------------
M. P. Morley N/A 2000-2002 1,813 3,625 5,438
2001-2003 2,625 5,250 7,875
2002-2004 2,625 5,250 [19,926] 7,875
------------------------------------------------------------------------------------------------------------------------
D. P. Palumbo N/A 2000-2002 N/A(a) N/A(a) N/A(a)
2001-2003 1,988 3,975 5,963
2002-2004 1,988 3,975 [19,631] 5,963
------------------------------------------------------------------------------------------------------------------------
(a) D. P. Palumbo did not participate in the 2000-2002 performance cycle of
the Performance Stock Program.
(b) The shares in brackets are the named executive officers' target awards
under the Executive Incentive Program.
101
EMPLOYMENT CONTRACTS AND ARRANGEMENTS
DANIEL A. CARP
Effective December 10, 1999, the Company entered into a letter agreement with
Mr. Carp providing for his employment as President and Chief Executive Officer.
The letter agreement provides for a base salary of $1,000,000, subject to annual
adjustment, and a target annual bonus of 105% of his base salary. Mr. Carp's
compensation will be reviewed annually by the Executive Compensation and
Development Committee. The Executive Compensation and Development Committee
approved an increase of Mr. Carp's annual base salary to $1,100,000 effective
May 5, 2003. Mr Carp's target award under the Company's variable pay plan will
remain at 155% of his base salary.
If the Company terminates Mr. Carp's employment without cause, Mr. Carp will be
permitted to retain his stock options and restricted stock. He will also receive
severance pay equal to three times his base salary plus target annual bonus and
prorated awards under the Company's bonus plans. The letter agreement also
provides that for pension purposes, Mr. Carp will be treated as if he were age
55, if he is less than age 55 at the time of his termination, or age 60, if he
is age 55 or older but less than age 60, at the time of his termination of
employment.
In the event of Mr. Carp's disability, he will receive the same severance pay as
he would receive upon termination without cause; except it will be reduced by
the present value of any Company-provided disability benefits he receives. The
letter agreement also states that upon Mr. Carp's disability, he will be
permitted to retain all of his stock options.
ROBERT H. BRUST
The Company employed Mr. Brust under an offer letter dated December 20, 1999,
that was amended on November 12, 2001. In addition to the information provided
elsewhere in this Proxy Statement, the amended offer letter provides Mr. Brust a
special severance benefit. If, during the first seven years of Mr. Brust's
employment, the Company terminates his employment without cause, he will receive
severance pay equal to two times his base salary plus target annual bonus. After
completing five years of service with the Company, Mr. Brust will be allowed to
keep his stock options upon his termination of employment for other than cause.
MARTIN M. COYNE
Effective November 15, 2001, the Company entered into a retention agreement with
Mr. Coyne. In addition to the information provided elsewhere in this Proxy
Statement, the letter agreement provides Mr. Coyne a special severance benefit
equal to two times his total target annual compensation if he is terminated
without cause prior to February 7, 2004. In such event, the letter agreement
also requires the Company to recommend to the Executive Compensation and
Development Committee that Mr. Coyne be permitted to retain his stock options,
restricted stock and awards under the Performance Stock Program. The letter
agreement sets Mr. Coyne's target award under the Company's variable pay plan at
85% of his annual base salary.
MICHAEL P. MORLEY
Effective March 13, 2001, the Company entered into a retention agreement with
Mr. Morley to encourage him to delay his retirement until at least January 1,
2003. This letter agreement was subsequently amended on December 12, 2002. In
addition to the information provided elsewhere in this Proxy Statement, the
letter agreement provided Mr. Morley a retention benefit of $370,000 if he
remained employed through December 31, 2002. Twenty thousand dollars of this
amount was paid in March 2002, the balance was paid in January 2003. The letter
agreement also made Mr. Morley eligible for a severance allowance equal to one
times his total target annual compensation, less the amount of any base salary
paid to him in 2002, if he was terminated without cause prior to December 31,
2002. The letter agreement required the Company to recommend to the Executive
Compensation and Development Committee that Mr. Morley be permitted, upon his
termination of employment, to retain his stock options, restricted stock,
restricted stock units and awards under the Performance Stock Program.
102
CHANGE IN CONTROL ARRANGEMENTS
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:
o 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;
o the acquisition of 25% or more of the combined voting power of the
Company's then outstanding securities;
o 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
o 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, subject 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 credit for 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:
o to determine eligibility for early and normal retirement;
o to determine eligibility for a vested right; and
o 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 New York Stock Exchange, the Company's compensation plans
will generally be affected as follows:
o under the Executive Deferred Compensation Plan, each participant
will be paid the amount in his or her account;
o under EXCEL, each participant will be paid a pro rata target award
for the year in which the change in control occurs;
o 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;
o 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; and
o 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.
103
RETIREMENT PLAN
The Company funds a tax-qualified defined benefit pension plan for virtually all
U.S. employees. Effective January 1, 2000, the Company amended the plan to
include a cash balance feature. All of the named executive officers, with the
exception of Mr. Brust and Mr. Palumbo, participate in the non-cash balance
portion of the plan. The cash balance feature covers all new employees hired
after March 31, 1999, including Mr. Brust, and all other employees who elected
to participate, including Mr. Palumbo.
Retirement income benefits are based upon an employee's average participating
compensation (APC). The plan defines APC as one third of the sum of the
employee's participating compensation for the highest consecutive 39 periods of
earnings over the 10 years ending immediately prior to retirement or termination
of employment. Participating compensation, in the case of the named executive
officers, is base salary and EXCEL awards, including allowances in lieu of
salary for authorized periods of absence, such as illness, vacation or holidays.
For an employee with up to 35 years of accrued service, the annual normal
retirement income benefit is calculated by multiplying the employee's years of
accrued service by the sum of (a) 1.3% of APC, plus (b) 0.3% of APC in excess of
the average Social Security wage base. For an employee with more than 35 years
of accrued service, the resulting amount is increased by 1% for each year in
excess of 35 years.
The retirement income benefit is not subject to any deductions for Social
Security benefits or other offsets. The normal form of benefit is an annuity,
but a lump sum payment is available in limited situations.
PENSION PLAN TABLE
ANNUAL RETIREMENT INCOME BENEFIT
STRAIGHT LIFE ANNUITY BEGINNING AT AGE 65
------------------------------------------------------------------------------------------------------------
Years of Service
------------------------------------------------------------------------------------------
Remuneration 3 20 25 30 35 40
------------------------------------------------------------------------------------------------------------
$ 500,000 $24,000 $160,000 $200,000 $240,000 $ 280,000 $ 294,000
------------------------------------------------------------------------------------------------------------
750,000 36,000 240,000 300,000 360,000 420,000 441,000
------------------------------------------------------------------------------------------------------------
1,000,000 48,000 320,000 400,000 480,000 560,000 588,000
------------------------------------------------------------------------------------------------------------
1,250,000 60,000 400,000 500,000 600,000 700,000 735,000
------------------------------------------------------------------------------------------------------------
1,500,000 72,000 480,000 600,000 720,000 840,000 877,000
------------------------------------------------------------------------------------------------------------
1,750,000 84,000 560,000 700,000 840,000 980,000 1,029,000
------------------------------------------------------------------------------------------------------------
2,000,000 96,000 640,000 800,000 960,000 1,120,000 1,176,000
------------------------------------------------------------------------------------------------------------
NOTE: For purposes of this table, Remuneration means APC. To the extent that an
employee's annual retirement income benefit exceeds the amount payable from the
Company's funded plan, it is paid from one or more unfunded supplementary plans.
104
The following table shows the years of service credited as of December 31, 2002,
to each of the named executive officers. This table also shows the amount of
each named executive officer's APC at the end of 2002. Mr. Brust and Mr.
Palumbo, who participated in the cash balance feature in 2002, are not listed.
Retirement Plan
--------------------------------------------------------------------------------
Name Years of Service Average Participating Compensation
--------------------------------------------------------------------------------
D. A. Carp 32 $1,711,871
--------------------------------------------------------------------------------
M. M. Coyne 20(a) 916,032
--------------------------------------------------------------------------------
M. P. Morley 38(b) 647,702
--------------------------------------------------------------------------------
(a) If Mr. Coyne remains employed until February 7, 2004, he will be credited
with eight extra years of service for purposes of calculating his
retirement benefit.
(b) Under Mr. Morley's retention agreement, if he elects upon his retirement
to take a lump sum distribution of his retirement benefit, the amount of
his benefit will be calculated using a discount rate no less favorable
than the discount rate used under the Company's pension plan to calculate
the retirement benefits of participants who retired effective January 1,
2003.
Cash Balance Feature
Under the cash balance feature of the Company's pension plan, the Company
establishes an account for each participating employee. Every month the employee
works, the Company credits the employee's account with an amount equal to four
percent of the employee's monthly pay. In addition, the ongoing balance of the
employee's account earns interest at the 30-year Treasury bond rate. To the
extent federal laws place limitations on the amount of pay that may be taken
into account under the plan, four percent of the excess pay is credited to an
account established for the employee in an unfunded supplementary plan. If a
participating employee leaves the Company and is vested (five or more years of
service), the employee's account balance will be distributed to the employee in
the form of a lump sum or monthly annuity. Participating employees whose account
balance exceeds $5,000, also have the choice of leaving their account balances
in the plan to continue to earn interest.
In addition to the benefits described above, Mr. Brust is covered under a
special supplemental pension arrangement established under his amended offer
letter. This arrangement provides Mr. Brust a single life annuity of $12,500 per
month upon his retirement if he remains employed with the Company for at least
five years. If Mr. Brust remains employed until January 3, 2007, he will, in
lieu of receiving the $12,500 per month annuity, be treated as if eligible for
the non-cash balance portion of the plan. For this purpose, Mr. Brust will be
credited with 18 years of extra service in addition to his actual service. In
either case, Mr. Brust's supplemental benefit will be offset by his cash balance
benefit.
105
Report of the Audit Committee
The Audit Committee is composed solely of independent directors and operates
under a written charter adopted by the Committee and the Board, and most
recently amended in May, 2002. A copy of the Committee's charter is attached to
this Proxy Statement as Exhibit I. The members of the Audit Committee, as of
December 31, 2002, were Dr. Hector de J. Ruiz (Chairman), Martha Layne Collins,
Timothy M. Donahue and Richard S. Braddock.
Committee Responsibilities
The Committee performs a number of key functions, including:
o Overseeing and evaluating the Company's financial reporting process,
including evaluating the adequacy of its system of disclosure
controls and procedures and internal controls, and the acceptability
and appropriateness of the financial accounting and disclosure
principles it employs;
o Selecting and retaining the Company's independent accountants,
subject to approval of the Board and ratification by the
shareholders;
o Approving the budget for fees to be paid to the independent
accountants for audit services and for appropriate non-audit
services;
o Overseeing the relationship between the Company and the independent
accountants and acting as the Board's primary avenue of
communication with them;
o Serving as the Board's primary avenue of communication with the
Company's internal auditors, with the express purpose of ensuring,
through a variety of means, that they are adequately staffed and
funded and free from any potentially improper influences;
o Approving the audit plans of the Company's internal auditors and
independent accountants;
o Overseeing and reviewing the preparation and disclosure of the
Company's consolidated financial statements and the preparation and
filing of the Company's periodic financial reports, including their
certification by the Company's Chief Executive Officer and Chief
Financial Officer, as required;
o Discussing with the independent accountants matters required to be
discussed by Statement on Auditing Standards No. 61 "Communications
with Audit Committee;"
o Monitoring significant risks and exposures to the Company;
o Monitoring legal and other liabilities to which the Company is
exposed;
o Overseeing the Company's ethics and compliance programs; and
o Other matters as set forth in the Committee's charter.
The Committee's Response to Corporate Reform Initiatives
The year 2002 brought a wave of new legislation and regulations in the area of
corporate governance and financial reporting as the U.S. government took
unprecedented measures to set new standards for corporate behavior and to
restore investor confidence. The Company has a long history of corporate
responsibility and good citizenship, and has taken appropriate measures to
respond to the new standards. The Audit Committee took a lead role in overseeing
the efforts of the Company's Controller's Group, Internal Audit Department,
Legal Department, and independent accountants in ensuring the Company's
compliance with these reforms.
In particular, the Audit Committee was instrumental in monitoring the Company's
compliance with an SEC order of June 27, 2002, which required the CEOs and CFOs
of nearly 1000 large publicly traded companies to attest to the accuracy of
their companies' most recent Annual Reports on Form 10-K and other subsequent
"covered reports." The Company's Chief Executive Officer and Chief Financial
Officer have signed all certifications required by Sections 302 and 906 of the
Sarbanes-Oxley Act in connection with the Company's reports on Form 10-Q and
Form 10-K.
The Company has created a Corporate Disclosure Committee that is responsible for
ensuring that all events potentially subject to disclosure are identified, and
for reviewing those events and recommending to senior management whether they
should be disclosed. This Committee leverages the efforts of the Controller's
Group with respect to the Company's certification roll-up process undertaken at
the end of each financial reporting period.
The Company has also established a Steering Committee composed of
representatives of the Internal Audit Department, the Controller's Group, and
the Legal Department, led by an experienced financial manager, to coordinate the
Company's compliance with all relevant laws and regulations in this area,
including the Sarbanes-Oxley Act, SEC Regulations and the New York Stock
Exchange Listing Standards. This group and the operational teams working under
it will be very active in the months ahead, ensuring the Company's continued
compliance as revised listing standards are issued and as new SEC regulations
become effective.
106
The Company has advised the Audit Committee of its plans to expand its Internal
Audit Department significantly, and the Committee approved an increase in scope
of work performed by the independent accountants in 2002.
Other Important Committee Activities
The Committee has met and held discussions with management and the independent
accountants on a regular basis. Management represented to the Committee that the
Company's consolidated financial statements were prepared in accordance with
accounting principles generally accepted in the U.S., and the Committee has
reviewed and discussed the consolidated financial statements with management and
the independent accountants.
The Committee discussed with PricewaterhouseCoopers LLP, the independent
accountants, matters required to be discussed by Statement on Auditing Standards
No. 61 "Communications with Audit Committee." The independent accountants
provided to the Committee the written disclosures required by the Independence
Standards Board Standard No. 1 "Independence Discussion With Audit Committees."
The Committee discussed with the independent accountants their independence.
The Committee discussed with the Company's internal auditors and independent
accountants the plans for their respective audits. The Committee met with the
internal auditors and independent accountants, with and without management
present, and discussed the results of their examinations, their evaluations of
the Company's internal controls, and the quality of the Company's financial
reporting.
In reliance on the reviews and discussions referred to above, the Committee
recommended that the Board approve the audited financial statements for
inclusion in the Company's Annual Report on Form 10-K for the year ended
December 31, 2002, and the Board accepted the Committee's recommendations.
The following fees were paid to PricewaterhouseCoopers LLP for services
rendered in 2002:
Audit Fees: $7.9 million
Financial Systems Design and Implementation Fees $0.7 million
All Other Fees $7.9 million
All other fees presented above primarily comprise amounts paid in connection
with tax services, controls review services, and due diligence in connection
with contemplated mergers and acquisitions. The Committee has reviewed the above
fees for non-audit services and believes they are compatible with the
independent accountants' independence.
The Committee recommended to the Board, subject to shareholder ratification, the
election of PricewaterhouseCoopers LLP as the Company's independent accountants.
In addition the Committee has approved the scope of non-audit services
anticipated to be performed by PricewaterhouseCoopers LLP in 2003 and the
estimated budget for those services.
Hector de J. Ruiz, Chair
Richard S. Braddock
Martha Layne Collins
Timothy M. Donahue
107
Report of the Corporate Responsibility and Governance Committee
BACKGROUND
In July 2002, the Board merged its Committee on Directors and Public Policy
Committee to form a newly created committee entitled the "Corporate
Responsibility and Governance Committee." While the Board of Directors has long
believed that strong corporate governance is key to the Company's long-term
success, this action was taken largely to heighten the awareness and importance
of good corporate governance within the Company.
The purpose of this new Committee is to oversee the Company's corporate
governance structure, recommend individuals to the Board for nomination as
members of the Board and its committees, lead the Board in its periodic review
of Board performance and oversee the Company's activities in the areas of
environmental and social responsibility, diversity and equal employment
opportunity. The Committee is required to consist of at least three directors,
all of whom meet the independence requirements of the New York Stock Exchange.
NEW LEGISLATIVE AND REGULATORY REQUIREMENTS
During its first year, the Committee, as did both the Audit Committee and
Executive Compensation and Development Committee, spent considerable time
reviewing, analyzing and evaluating the provisions of the Sarbanes-Oxley Act and
the proposed new listing standards of the New York Stock Exchange regarding
corporate governance policies and processes. The results of these reviews found
that the Company's current policies, procedures and standards already satisfy
many of these requirements. As a result of its reviews, the Committee took a
number of steps in anticipation of the adoption of the requirements in final
form. These include incorporating conforming requirements into its new charter,
reviewing the Company's standards for determining director independence,
deliberating revisions to the Company's governance guidelines, approving the
formation of a director education program, and recommending the appointment of a
presiding director. With the Company's assistance, the Committee, the Board and
each of the Board's other committees will continue to monitor the progress of
pending legislative and regulatory initiatives and review all applicable
charters, policies, procedures and practices to ensure full compliance by the
Company.
PRESIDING DIRECTOR
At the Committee's recommendation, the Board of Directors created the new
position of presiding director effective February 18, 2003. Absent a Board
decision to the contrary, the presiding director of the Board will be the
longest tenured independent member of the Board. The primary function of the
presiding director is to ensure that the Board operates independent of
management. As the longest-tenured member of the Board, Richard Braddock was
designated the Company's presiding director, effective February 18, 2003.
GOVERNANCE GUIDELINES
The Board of Directors adopted a set of governance guidelines on July 27, 2001.
These governance guidelines reflect the principles by which the Company
operates. As previously mentioned, the Committee has already reviewed and
proposed changes to these guidelines in anticipation of the finalization of the
NYSE proposed standards. In their current form, the guidelines address an array
of governance issues and principles including: director independence, committee
independence, management succession, mandatory director retirement, annual Board
evaluation, periodic director evaluation, director stock ownership, director
nominations, and executive sessions of the independent directors. The Company's
governance guidelines are available for viewing on the Company's website at
www.kodak.com/US/en/corp/principles/governance.shtml.
CORPORATE RESPONSIBILITY PRINCIPLES
Upon recommendation of the Committee, the Company adopted in November 2002
corporate responsibility principles. Underlying these principles is the belief
that "doing well by shareholders, also means doing right by customers,
employees, neighbors, and suppliers."
Among the principles addressed are the following:
o Kodak conducts its business activities to high and ethical
standards;
o Kodak respects internationally accepted legal principles, and obeys
the laws of countries in which it does business;
o Kodak is committed to sound corporate governance;
o Kodak conducts its business activities in an environmentally
responsible manner;
o Kodak promotes a work environment of equal opportunity for all
employees, and treats its employees in non-discriminatory manner;
and
o Kodak is committed to employing a diverse work force, and to
building and maintaining an inclusive work environment.
The full text of the Company's corporate responsibility principles is available
for viewing in the "About Kodak" section of the Company's web site at
www.kodak.com/US/en/corp/principles.
108
DIVERSITY INITIATIVES
A principal function of the Committee is to oversee the Company's policies and
procedures relating to diversity and equal employment opportunity. During 2002,
the Committee met with the Company's external Diversity Advisory Panel to
discuss its preliminary findings. The Committee found the Panel's guidance and
preliminary recommendations positive, productive and instructive and is
committed to the belief that a diverse and inclusive environment is critical to
the Company's long-term success. The Panel is scheduled to make a final
presentation of its findings to the Board later in 2003. For more information
regarding the Company's Diversity Advisory Panel and Kodak's diversity
initiatives see the section entitled "2002 Global Diversity" on page 121.
CORPORATE GOVERNANCE INITIATIVES
Sound corporate governance is not a new practice at Kodak. The Company and its
Board have long felt that good corporate governance is a prerequisite to
providing sustained, long-term value to the Company's shareholders. Highlighted
below are some activities that demonstrate this belief.
o Board Independence For a number of years, a substantial majority of the
Company's Board has been comprised of independent directors. The Company's
existing standards for determining director independence are listed in the
Company's governance guidelines. Today, the only non-independent member of
the Board is the CEO. All of the members of the Audit Committee, Corporate
Responsibility and Governance Committee, Executive Compensation and
Development Committee and Finance Committee are independent directors.
None of the Company's outside directors receives any consulting, legal or
any other non-director fees from the Company.
The Committee has reviewed and proposed changes to the Company's standards
for determining director independence in light of the NYSE's proposed new
listing standards. Upon approval of these rules, the Committee will
recommend to the Board that the Company's governance guidelines be amended
as necessary to ensure that the standards for director independence are
consistent with the final rules. Based on the rules as proposed, all of
the Company's non-employee directors would be independent under the
proposed rules.
o Board Membership Criteria and Diversity As demonstrated by the Board's
current composition, Board nominees are selected based on such factors as
experience, wisdom, Board needs, diversity and independence. Among the
eleven current independent members of the Board, six are women or people
of color.
o Director Compensation Since 1994, at least half of each director's annual
retainer has been paid in the form of the Company's common stock. Since
1999, every non-employee director has also received an annual stock option
grant. The Company terminated its retirement plan for non-employee
directors in 1999.
o Corporate Governance Principles As reported earlier, the Board has had
formal governance guidelines in place since 2001.
o Board Meetings For a number of years, the independent members of the Board
have met at least annually in executive session.
o Strategic Planning The Board plays a significant role in the Company's
strategic planning process. Each year the Board has an all day planning
session during which senior management reviews the Company's strategic
business plans. Periodically throughout the year, management advises the
Board on its progress against these plans.
o Committee Charters The roles, responsibilities and duties of each of the
Board's committees have, for a number of years, been formalized in written
charters.
o Code of Conduct Since April 1995, the Company has periodically published
and circulated to all employees worldwide its Business Conduct Guide. The
purpose of this guide is to foster the highest levels of ethical behavior
within the Company consistent with the Company's corporate values. The
Company's Business Conduct Guide is posted and available for viewing at
www.kodak.com/US/en/corp/principles/governance.shtml.
o Succession Planning The Company's governance principles provide that
succession planning for the Company's CEO and President is the entire
Board's responsibility.
Debra L. Lee, Chair
William W. Bradley
Martha Layne Collins
Delano E. Lewis
Laura D'Andrea Tyson
109
Report of the Executive Compensation and Development Committee
ROLE OF THE COMMITTEE
The Executive Compensation and Development Committee, as of December 31, 2002,
was made up of four independent members of the Board of Directors. The Committee
members are neither employees nor former employees of the Company. The principal
functions of the Committee include:
o periodically reviewing and approving the Company's executive
compensation strategy and principles to ensure that they are aligned
with the Company's business strategy and objectives, shareholder
interests, desired behaviors and corporate culture;
o periodically reviewing the Company's executive compensation plans to
ensure that they are consistent with the Company's executive
compensation strategy and principles;
o reviewing and approving the adoption of, and changes to, the
Company's executive compensation and its equity-based compensation
plans;
o overseeing the administration of the Company's executive
compensation plans;
o annually reviewing and approving the goals and objectives relevant
to the compensation of the CEO, evaluating the CEO's performance in
light of these goals and objectives, and setting the CEO's
individual elements of total compensation based on this evaluation;
o overseeing the compensation of the Company's executive officers;
o reviewing the process and plans for the assessment and selection of
candidates for the positions of CEO and President; and
o periodically reviewing the Company's executive staffing plan for
meeting present and future leadership needs.
To help it perform its functions, the Committee makes use of Company resources
and periodically uses the services of outside compensation consultants. In the
past, the Company alone has retained the services of such consultants. In order
to play a more significant role in the selection and engagement of these
consultants, the Committee recently revised its policy concerning the use of
outside compensation consultants. As a result of this change, the Committee will
retain the services of outside consultants to assist in the fulfilling of its
responsibilities.
EXECUTIVE COMPENSATION PHILOSOPHY
The goal of the Company's executive compensation program is to attract, retain
and motivate world-class executive talent to achieve the Company's short- and
long-term business goals. Towards this end, the Company's executive compensation
strategy leverages all elements of market competitive total compensation to
drive profitable growth and superior long-term shareholder value consistent with
the Company's values. Plan design and performance-based differentiation are
designed to drive extraordinary rewards for outstanding performance.
Consistent with this strategy, the following principles provide a framework for
the Company's executive compensation program:
o total target compensation for executives should be market
competitive. Market competitive is defined as the 50th percentile
with differences where warranted;
o the mix of total compensation elements will reflect competitive
market requirements and strategic business needs;
o a significant portion of each executive's compensation should be at
risk, the degree of which will positively correlate to the level of
the executive's responsibility;
o compensation is linked to both qualitative and behavioral
expectations, and key operational and strategic metrics;
o interests of executives are linked with the Company's owners through
stock ownership; and
o executive compensation will be differentiated on the following
bases:
o base salaries - on relative responsibility,
o short-term variable elements - on performance, and
o long-term variable elements - on performance and potential.
EXECUTIVE COMPENSATION PRACTICES
Each year, the Company participates in surveys conducted by external
consultants. The companies included in these surveys are those the Company
competes with for executive talent. Most, but not all, of these companies are
included in the Dow Jones Industrial Index shown in the Performance Graph on
page 115. Starting in 2002, the Company also began measuring the competitiveness
of its executive compensation program against a comparison group of
approximately 15 other leading companies, referred to in this Report as the
"Peer Group." The following criteria was used to select the Peer Group: market
capitalization, revenue, consumer/commercial/hi-tech mix, mix of high growth and
steady growth companies, similar industry and data availability. The data
received from the Peer Group is size adjusted so proper comparisons may be
drawn. Based on the survey data and Peer Group results and consistent with the
Company's executive compensation principles, the target compensation of the
Company's senior executives is set at market competitive levels.
110
In the summer of 2002, the Committee conducted an in depth analysis of the
compensation it pays to its executive officers. With the assistance of the
Company and an independent compensation consultant, the market competitiveness
of each of the three components of executive compensation paid to its executive
officers, i.e., base salary, target short-term variable pay and long-term
incentives, was evaluated. The results of this study reveal that the base salary
and target short-term variable pay paid to the Company's executive officers is
market competitive. With regard to the long-term incentive compensation paid to
the Company's executive officers, the study found that this component was also
market competitive due in significant part to the adoption of the Executive
Incentive Program described later in this Report and awards of restricted stock
to selected executive officers.
COMPONENTS OF EXECUTIVE COMPENSATION PROGRAM
The three components of the Company's executive compensation program are:
o base salary,
o short-term variable pay, and
o long-term incentives.
Base Salary
Base salary is the only fixed portion of an executive's compensation. Each
executive's base salary is reviewed annually based on the executive's relative
responsibility.
Short-Term Variable Pay
Effective January 1, 2002, Kodak implemented EXCEL (Executive Compensation for
Excellence and Leadership), a new executive assessment and short-term variable
pay plan for its executives. Three key principles underlie EXCEL: alignment,
simplicity and discretion. Alignment to Company objectives is achieved through
the two performance metrics used to fund the plan: revenue growth and economic
profit. The inclusion of revenue growth as a performance metric emphasizes the
Company's need for sustained profitable growth. The use of economic profit
stresses the continuing need for earnings growth and balance sheet management.
Simplicity is accomplished through ease of plan administration. Under EXCEL,
each participant has 3-4 key performance goals. Discretion, the third key
principle, may be used to adjust the size of the plan's funding pool, modify the
funding pool's allocation to the Company's units, and determine the performance
and rewards of the plan's participants.
Participants in EXCEL are assigned target awards for the year based on a
percentage of their base salaries as of the end of that year. This percentage is
determined by the participant's wage grade. For 2002, target awards ranged from
25% of base salary, to 155% of base salary for the CEO.
Each year the Compensation Committee establishes a performance matrix for the
year based on the plan's two performance metrics of revenue growth and economic
profit. This matrix determines the percentage of the plan's target corporate
funding pool that will be earned for the year based on the Company's actual
performance against these two metrics. The target corporate funding pool is the
aggregate of all participants' target awards for the year. Under the performance
matrix, the corporate funding pool will fund at 100% if target performance for
each performance metric is met.
The Compensation Committee may use its discretion to adjust (upward or downward)
the amount of the corporate funding pool for any year. Examples of situations
where the Compensation Committee may choose to exercise this discretion include
unanticipated economic or market changes, extreme currency exchange effects,
management of significant workforce issues, significant changes in investable
cash flow, inventory turns, receivables, or capital expenditures, or dramatic
shifts in customer satisfaction.
The CEO allocates the corporate funding pool among the Company's units. Each
business unit has its own targets for revenue growth and economic profit for the
year. Actual performance against these targets accounts for 75% of the business
unit's allocation. The remaining 25% is determined based on overall Company
performance for the year measured against the Company's revenue growth and
economic profit targets.
Within each staff, regional, functional, and business unit, local senior
management allocates the unit's funds to its participants based on each
participant's individual performance.
In 2002, Kodak substantially beat its performance target for economic profit. In
terms of revenue, Kodak exceeded its threshold performance goal and came close
to achieving its performance target in 2002. As a result of these strong
results, EXCEL's corporate funding pool funded at a level sufficient to pay out
at a 143% of target level under the performance matrix established for the year.
111
In fixing the corporate funding pool for the year, the Committee noted that this
performance was accomplished despite continuing difficult industry and global
economic conditions. The Committee also took into account management's
performance in maintaining worldwide film market share, exceeding its 2002
operating cash flow plan by $658 million, satisfying its target inventory and
receivables goals for 2002, and effectively managing other discretionary parts
of the business. Against these positive results, the Committee also considered
management's inability to satisfy its target customer satisfaction goals for the
year.
After looking at these extraordinary results, the Committee increased the size
of the award pool by 12% so that larger allocations could be made to the
Company's units where appropriate. None of the named executive officers, with
the exception of Mr. Palumbo, benefited from this adjustment. The Summary
Compensation Table on page 96 lists for 2002 the awards to the named executive
officers.
Long-Term Incentives
Long-term compensation is delivered through stock options, the Performance Stock
Program and restricted stock.
The Company maintains a management stock option program. Stock options encourage
the Company's executives to act as owners, which helps to further align their
interests with the interests of the Company's shareholders. The Committee
generally grants stock options once per year under this program. The options are
priced at 100% of the fair market value of the Company's stock on the day of
grant. The Company bases target grant ranges on the median survey values of the
companies it surveys. Grants to individual executives are then adjusted based in
large part on the executive's performance potential. Management recommends the
size of the stock option awards to the executive officers which are then
reviewed and approved by the Committee.
The Performance Stock Program places a portion of the Company's top executives'
long-term compensation at risk. The program measures performance over a
three-year period based on the Company's total shareholder return relative to
those companies within the Standard & Poor's 500 Composite Price Index. A
description of the program, as well as the threshold, target and maximum awards
for the named executive officers appears on page 101. Based on the Company's
performance over the three-year performance cycle ending in 2002, no awards were
paid for this cycle.
To incent the accomplishment of several, specific Company-wide objectives, the
Committee approved a one-time, performance-based, long-term award program, i.e.,
the Executive Incentive Program, under the 2002-2004 cycle of the Performance
Stock Program. A description of the Executive Incentive Program appears on page
100. The program contains an interim award opportunity to encourage its
participants to achieve the program's goals before year-end 2003. Under this
feature, each participant was eligible to receive an interim award equal to 30%
of their target award if two pre-established performance goals were achieved by
year-end 2002. Since both of these goals were achieved, each program participant
received an interim award in the form of restricted shares or units of the
Company's common stock, the restrictions on which lapse on December 31, 2003.
The interim awards paid to the named executive officers are listed under the
column entitled "Restricted Stock Awards" in the Summary Compensation Table on
page 96.
>From time to time, the Company grants restricted stock awards to selected
executives. These awards are generally made to either (1) induce the recipients
to remain with or to become employed by the Company; or (2) recognize
exceptional performance.
SHARE OWNERSHIP PROGRAM
The interests of the Company's executives should be inseparable from those of
its shareholders. The Company aims to link these interests by encouraging stock
ownership on the part of its executives.
One program designed to meet this objective is the Company's share ownership
program. Under this program, each senior executive is required to own stock of
the Company worth a multiple of their base salary. These multiples range from
one times base salary to four times base salary for the CEO.
Today, the program applies to approximately 20 senior executives, all of whom
have either satisfied or are on track to satisfy the requirements.
112
STOCK OPTION EXCHANGE PROGRAM
On November 12, 2001, the Board of Directors approved the Stock Option Exchange
Program. The Company's shareholders subsequently approved the plan amendments
necessary to implement this program at their Special Meeting on January 25,
2002. Under this program, all of the Company's employees, excluding its six then
most senior executive officers, were given a one-time opportunity to exchange
all of their current options for a proportionately fewer options at a new
exercise price.
The exchange ratio for the program, i.e., how many current options an employee
had to surrender in order to receive one new option, was based on the
Black-Scholes option valuation model. Using this model, the value of each option
was determined both before and after the exchange. For purposes of determining
current value, the Company used 90% of an option's current Black-Scholes value.
These values were then compared to determine an appropriate exchange ratio based
on the current option's existing exercise price. While some options were
exchanged on a one-for-one basis, in the vast majority of cases, an employee
exchanged two or three existing options for a single new one.
The exercise price of the new options was $31.30, the mean between the high and
low trading price at which the Company's common stock traded on August 26, 2002,
the date the new options were granted. All of the new options had the same
vesting terms as the surrendered options they replaced. Each new option also had
a term equal to the remaining term of the option it replaced. The other terms
and conditions of the new options were generally identical to the surrendered
options they replaced.
The only named executive officer eligible to participate in the program was Mr.
Palumbo. He was not one of the Company's six most senior executive officers at
the time the program was offered. The table on page 99, entitled "Ten-Year
Option/SAR Repricing," describes the number of options Mr. Palumbo, as well as
all of the other executive officers who elected to participate in the program,
received as a result of the exchange.
CHIEF EXECUTIVE OFFICER COMPENSATION
The Committee determined Mr. Carp's compensation for 2002 in line with the
executive compensation philosophy and practices described above in this Report.
Mr. Carp's compensation for 2002 is described below:
Base Salary
The Committee increased Mr. Carp's base salary to $1,100,000 effective May 5,
2003. Consistent with the Company's executive compensation policy, the Committee
established Mr. Carp's new base salary based on his relative responsibility. Mr.
Carp's new base salary is market competitive when viewed in comparison to the
survey data and Peer Group data mentioned earlier in this Report. To preserve
the Company's deductibility of all of Mr. Carp's base salary for U.S. income tax
purposes, payment of $100,000 of his base salary will not be made until after
his retirement from the Company.
Short-Term Variable Pay
Mr. Carp's short term variable pay, like that of all the Company's other
executives, is payable based upon the successful attainment of specific
financial goals established by the Committee at the start of each year under its
short-term variable pay plan, EXCEL. For 2002, these financial goals were based
on revenue growth and economic profit. As reported earlier, the Company
significantly exceeded its economic profit goal for the year and nearly achieved
its revenue goal. Based on these strong results, the plan's performance matrix
provided for funding at a level sufficient to pay out at 143% of target. The
Committee also considered Mr. Carp's performance against his key EXCEL
performance goals. The Committee noted Mr. Carp's strong performance against his
diversity and leadership excellence goals, generally good results with regard to
his strategy and development execution goals, and inability to fully achieve his
customer satisfaction goals. Based on these results, the Committee fixed Mr.
Carp's 2002 award at level equal to what was generated by the performance matrix
under EXCEL. The amount of the award is listed in the Summary Compensation Table
on page 96.
Stock Options
Effective November 22, 2002, the Committee granted a stock option award to Mr.
Carp of 175,000 shares. These options were granted under the same terms and
conditions as awards made to all executives generally under the Company's
management stock option program. Mr. Carp's award was approved by the Committee
based on its review of benchmark data and assessment of the contributions Mr.
Carp has made, and continues to make, to the Company.
113
Performance Stock Program
Based on the Company's financial performance over the three-year period ending
in 2002, Mr. Carp did not receive an award for the 2000-2002 performance cycle.
As reported previously, Mr. Carp did receive an interim award under the
Executive Incentive Plan, a special program established under the 2002-2004
performance cycle. The interim award earned by Mr. Carp is listed under the
column entitled "Restricted Stock Awards" in the Summary Compensation Table on
page 96.
Restricted Stock Unit Award
In November 2002, the Company approved a retention-based award to Mr. Carp
consisting of restricted stock units corresponding to 100,000 shares of common
stock. Effective December 2, 2002, 75,000 of these units were awarded; the
remaining 25,000 units were awarded effective January 1, 2003. All of the units
vest on the third anniversary of the date of grant, but payment for the units
may not be received before the fourth anniversary of the date of grant. The
award is listed in the Summary Compensation Table on page 96 under the column
entitled "Restricted Stock Awards."
COMPANY POLICY ON QUALIFYING COMPENSATION
Under Section 162(m) of the Internal Revenue Code, the Company may not deduct
certain forms of compensation in excess of $1,000,000 paid to any of the named
executive officers that are employed by the Company at year-end. The Committee
believes that it is generally in the Company's best interests to have
compensation be deductible under Section 162(m). The Committee also feels,
however, that there may be circumstances in which the Company's interests are
best served by maintaining flexibility regardless of whether compensation is
fully deductible under Section 162(m).
Richard S. Braddock, Chair
Timothy M. Donahue
Durk I. Jager
Hector de J. Ruiz
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16 of the Securities Exchange Act of 1934, as amended, requires our
executive officers (as defined under Section 16), directors and persons who
beneficially own greater than 10% of a registered class of our equity securities
to file reports of ownership and changes in ownership with the Securities and
Exchange Commission. We are required to disclose any failure of these executive
officers, directors and 10% stockholders to file these reports by the required
deadlines. Based solely on our review of the copies of these forms received by
us or written representations furnished to us, we believe that, for the
reporting period covering our 2002 fiscal year, our executive officers and
directors complied with all their reporting requirements under Section 16(a) for
this fiscal year, except that, due to an administrative error, each of the
Company's directors and executive officers made one late filing on Form 4
covering the grant of stock options to them on November 22, 2002.
114
Performance Graph -- Shareholder Return
The following graph compares the performance of the Company's common stock with
the performance of the Standard & Poor's 500 Composite Stock Price Index and the
Dow Jones Industrial Index, by measuring the changes in common stock prices from
December 31, 1997, plus assumed reinvested dividends.
[THE FOLLOWING WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
EK S&P 500 DJIA
12/31/97 $100.0 $100.0 $100.0
12/31/98 $121.8 $128.3 $118.0
12/31/99 $115.0 $155.1 $149.9
12/31/00 $71.4 $141.1 $142.8
12/31/01 $56.6 $124.4 $135.0
12/31/2002 $70.9 $97.1 $115.0
The graph assumes that $100 was invested on December 31, 1997, in each of the
Company's common stock, the Standard & Poor's 500 Composite Stock Price Index
and the Dow Jones Industrial Index, and that all dividends were reinvested. In
addition, the graph weighs the constituent companies on the basis of their
respective market capitalizations, measured at the beginning of each relevant
time period.
By Order of the Board of Directors
/s/ James M. Quinn
James M. Quinn
Secretary and Assistant General Counsel
Eastman Kodak Company
March 28, 2003
115
Exhibit I -- Audit Committee Charter
I. PURPOSE
The primary purpose of the Audit Committee is to assist the Board of Directors
in fulfilling its oversight responsibilities with respect to the Company's:
1. quarterly and annual consolidated financial statements and financial
information filed with the SEC,
2. system of internal controls,
3. financial accounting principles and policies,
4. internal and external audit processes, and
5. regulatory compliance programs.
II. COMPOSITION
The Audit Committee shall consist of at least three members of the Board who
meet the requirements of independence under the NYSE rules.
Prospective members shall be recommended by the Committee on Directors with
input from the Chairman and CEO of the Company and appointed by the Board. One
member shall be designated by the Board as the Chairman of the Committee.
All members shall be financially literate or become so in a reasonable amount of
time, as determined by the Board in its business judgement.
At least one member of the Committee shall have accounting or related financial
management expertise.
All members shall receive appropriate training and information necessary to
fulfill the Committee's responsibilities.
III. MEETINGS
The Audit Committee shall meet at least four times per year or more frequently
as circumstances require. The Audit Committee shall review its charter at least
annually.
The Committee may have in attendance at meetings such members of management or
others as it may deem necessary to provide the information to carry out its
duties.
IV. DUTIES AND RESPONSIBILITIES:
The Audit Committee shall have the following duties and responsibilities with
respect to:
1. Independent Accountant
(a) Serve as the Board's primary avenue of communication with the
independent accountant.
(b) Make recommendations to the Board regarding the selection,
evaluation, retention, or discharge of the independent accountant.
(c) Ensure understanding by the independent accountant and management
that the Board, as the shareholders' representative, is the
independent accountant's client and therefore the independent
accountant is ultimately accountable to the Board and the Audit
Committee.
(d) Provide the opportunity for the independent accountant to meet with
the full Board as deemed necessary and appropriate by the Committee.
(e) Confirm and assure the independence of the independent accountant
by:
(i) accepting receipt of their annual submission of a formal
written statement delineating all relationships between the
independent accountant and the Company,
(ii) monitoring fees paid to the independent accountant for
consulting and other non-audit services, and
(iii) engaging in a dialogue with the independent accountant with
regard to any disclosed relationships or services that may
impact the objectivity or independence of the independent
accountant.
(f) Review the annual audit plan and the audit results report of the
independent accountant.
116
2. Internal Auditors
(a) Serve as the Board's primary avenue of communication with the
Director of Corporate Auditing.
(b) Review and concur in the appointment, replacement, reassignment, or
dismissal of the Director of Corporate Auditing.
(c) Confirm and assure the independence of the internal auditors.
(d) Review the annual internal audit plan of the internal auditors and
its scope, and the degree of coordination of this plan with the
independent accountant.
(e) Review periodically the internal audit activities, staffing, and
budget.
3. Financial Statements
(a) Inquire of management and the independent accountant as to the
acceptability and appropriateness of financial accounting principles
and disclosures used or proposed by the Company.
(b) Review and discuss with management and the independent accountant
prior to releasing the year-end earnings and at the completion of
the annual audit examination:
(i) the Company's consolidated financial statements, footnote
disclosures and other financial information in Form 10-K,
(ii) the independent accountant's audit of the statements and its
report thereon,
(iii) any significant changes required in the scope of the
independent accountant's audit plan,
(iv) any serious difficulties or disputes with management
encountered during the course of the audit, and
(v) other matters related to the conduct of the audit which are to
be communicated to the Committee under generally accepted
auditing standards.
(c) Review legal matters that may have a material impact on the
financial statements with the General Counsel, Director of Corporate
Auditing, the Controller and the independent accountant.
(d) Review and discuss with management and the independent accountant,
the Company's quarterly financial information prior to releasing the
quarterly earnings, and any material changes thereto, prior to
filing the 10-Q. Assure that the independent accountant has reviewed
the financial information included in the Company's Quarterly
Reports on Form 10-Q prior to filing such reports with the SEC. Such
review is to be performed in accordance with AICPA Statement on
Auditing Standards No. 71 "Interim Financial Information."
(e) Recommend to the Board whether the audited financial statements be
included in the Company's Annual Report on Form 10-K, in advance of
filing such form with the SEC.
(f) Discuss with the independent accountant the matters required to be
discussed by Statement on Auditing Standards No. 61, including, but
not limited to:
(i) the quality and appropriateness of the accounting principles
and underlying estimates used in the preparation of the
Company's financial statements, and
(ii) the clarity of financial disclosures in the Company's
financial statements.
4. Risks and Uncertainties, Including Contingent Liabilities
(a) Inquire of management, the Director of Corporate Auditing, and the
independent accountant about significant risks or exposures and
review the steps management has taken to minimize such risks or
exposures to the Company.
(b) Consider and review management's analysis and evaluation of
significant financial accounting and reporting issues (including the
critical accounting policies) and the extent to which such issues
and policies affect the Company's consolidated financial statements.
5. Internal Control Environment
(a) Consider and review with management, the independent accountant, and
the Director of Corporate Auditing:
(i) the adequacy of the Company's internal controls, and
(ii) significant findings and recommendations of the independent
accountant and internal auditors together with management's
proposed responsive actions.
(b) Review the Company's regulatory compliance programs for legal and
ethical business conduct and meet periodically with the Company's
Compliance Officer.
117
6. Access and Communication
(a) Meet separately and privately with the independent accountant and
with the Director of Corporate Auditing and with the Company's chief
financial and accounting officers to ascertain if any restrictions
have been placed on the scope of their activities, and to discuss
any other matters that the Committee or these groups believe should
be discussed privately with the Audit Committee.
(b) Meet in executive session as necessary and appropriate.
(c) Report Committee actions to the Board of Directors with such
recommendations as the Committee may deem appropriate.
7. Reporting
(a) Review its charter annually and recommend changes, as necessary, to
the Board.
(b) Report its activities to the Board on a regular basis and make
recommendations to the Board with respect to matters within the
purview of the Audit Committee, as necessary or appropriate.
(c) Cause to be included with the Company's Proxy Statement once every
three years a copy of the Committee's Charter or whenever it is
amended.
(d) Cause to be included in the Company's Proxy Statement an Audit
Committee Report in accordance with Item 306 of Regulation S-K.
(e) Cause the Company to annually submit to the NYSE a written
affirmation in the form specified by the NYSE.
8. Other
(a) Periodically perform a self assessment of the Committee.
118
Eastman Kodak Company
2003 Annual Meeting
[MAP OMITTED]
KODAK THEATRE
6801 Hollywood Blvd.
Hollywood, California 90028
DIRECTIONS
From Orange County
Take the 405 North to the 55 North, towards Riverside. Take the 5 North, towards
Los Angeles, to the 101 North towards Los Angeles/Civic Center.
From Los Angeles Airport (LAX)
Take the 105 East to the 110 North, towards Los Angeles. From the 110, take the
101 North, towards Hollywood. Exit on Highland Ave/Hollywood Bowl; keep right at
the fork in the ramp. Merge onto Odin Street, then turn left onto Highland
Avenue.
From Beverly Hills
Take Santa Monica Boulevard (also called the 2 freeway North) to La Cienega and
turn left. Make a right on Sunset Boulevard, then a left on Fairfax Avenue. When
you get to Hollywood Boulevard, turn right, and then follow it down to Highland
Avenue. Hollywood & Highland will be on your left.
PARKING
$2 for up to 4 hours with validation from shops, restaurants, cinemas and
nightclubs. $1 for every 20 minutes thereafter. Daily maximum $10.00. Self
parking is available on 4 levels below the property. Entrances are on Highland
Avenue and Orange Drive.
119
NOTICE OF THE 2003 ANNUAL MEETING OF SHAREHOLDERS
The Annual Meeting of Shareholders of Eastman Kodak Company will be held on
Wednesday, May 7, 2003, at 10:00 AM, at the Kodak Theatre, 6801 Hollywood Blvd.,
Hollywood, CA.
There are five proposals to be voted on at the Meeting:
1. Election of four Class I directors for a term of three years: Martha Layne
Collins, Timothy M. Donahue, Delano E. Lewis, and Paul H. O'Neill; and one
Class II director for the term of one year: William H. Hernandez.
2. Ratification of election of PricewaterhouseCoopers LLP as independent
accountants.
3. Shareholder proposal requesting indexed options.
4. Shareholder proposal requesting expensing of options.
5. Shareholder proposal requesting adoption of a chemicals policy.
The Board of Directors recommends a vote FOR items 1 and 2 and AGAINST items 3
through 5.
If you were a shareholder of record at the close of business on March 10, 2003,
you are entitled to vote at the Annual Meeting.
If you have any questions about the Meeting, please contact the Coordinator,
Shareholder Services, Eastman Kodak Company, 343 State St., Rochester, NY
14650-0211, (585)724-5492.
The Kodak Theatre is accessible to the handicapped. If you require special
assistance, call the Coordinator, Shareholder Services.
By Order of the Board of Directors
/s/ James M. Quinn
James M. Quinn, Secretary and Assistant General Counsel
Eastman Kodak Company, March 28, 2003
--------------------------------------------------------------------------------
(Please detach Proxy Card at perforation.)
[LOGO] EASTMAN KODAK COMPANY
This Proxy is solicited on behalf of the Board of Directors
________________________________________________________________________________
The undersigned hereby appoints Daniel A. Carp and James M. Quinn, and each of
them, as Proxies with full power of substitution, to vote, as designated on the
reverse side, for director substitutes if any nominee becomes unavailable, and
in their discretion, on matters properly brought before the Meeting and on
matters incident to the conduct of the Meeting, all of the shares of common
stock of Eastman Kodak Company which the undersigned has power to vote at the
Annual Meeting of Shareholders to be held on May 7, 2003, or any adjournment
thereof.
NOMINEES FOR DIRECTOR: Class I: Martha Layne Collins, Timothy M. Donahue,
Delano E. Lewis, and Paul H. O'Neill
Class II: William H. Hernandez
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL NOMINEES FOR DIRECTOR, FOR THE
RATIFICATION OF ELECTION OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT
ACCOUNTANTS AND AGAINST THE SHAREHOLDER PROPOSALS.
This Proxy will be voted as directed. If no direction to the contrary is
indicated, it will be voted as follows:
FOR the election of all nominees for director;
FOR the ratification of election of independent accountants; and
AGAINST the shareholder proposal requesting indexed options;
AGAINST the shareholder proposal requesting expensing of options;
AGAINST the shareholder proposal requesting adoption of a chemicals
policy.
-------------
New MICR Bar SEE
REVERSE SIDE
-------------
(CONTINUED, and To Be Signed and Dated on the REVERSE SIDE)
--------------------------------------------------------------------------------
(Please detach Proxy Card at perforation.)
--------------------------------------------------------------------------------
Please mark
|X| votes as in
this example.
The Board of Directors recommends a vote FOR Items 1 and 2 and AGAINST
Items 3 through 5.
--------------------------------------------------------------------------------
WITHHOLD
FOR AUTHORITY
1. Election of Directors - |_| |_|
(01) Martha Layne Collins
(02) Timothy M. Donahue
(03) Delano E. Lewis
(04) Paul H. O'Neill
(05) William H. Hernandez
________________________________________________
To withhold authority to vote for any particular
nominee(s), write the name(s) above.
FOR AGAINST ABSTAIN
2. Ratification of Election |_| |_| |_|
of Independent
Accountants
3. Shareholder proposal |_| |_| |_|
requesting indexed options
4. Shareholder proposal |_| |_| |_|
requesting expensing of
options
5. Shareholder proposal |_| |_| |_|
requesting adoption of a
chemicals policy
--------------------------------------------------------------------------------
I plan to attend the Annual Meeting. [_]
I plan to bring a guest. [_]
When completed, promptly forward this card to: Proxy Services
EquiServe
P.O. Box 8561
Edison, NJ
08818-8561
Signature(s)____________________________________________________ Date___________
NOTE: Please sign exactly as the name(s) appears on this card. Joint
owners must each sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title.