FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2004
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________to____________
Commission file number 1-3247
CORNING INCORPORATED
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(Registrant)
New York 16-0393470
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(State of incorporation) (I.R.S. Employer Identification No.)
One Riverfront Plaza, Corning, New York 14831
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 607-974-9000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to the filing requirements for
at least the past 90 days.
Yes X No ____
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Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes X No ____
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
1,372,202,544 shares of Corning's Common Stock, $0.50 Par Value, were
outstanding as of March 31, 2004.
INDEX
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PART I - FINANCIAL INFORMATION
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Item 1. Financial Statements
Page
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Consolidated Statements of Operations (Unaudited) for the
three months ended March 31, 2004 and 2003 3
Consolidated Balance Sheets at March 31, 2004 (Unaudited)
and December 31, 2003 4
Consolidated Statements of Cash Flows (Unaudited) for the
three months ended March 31, 2004 and 2003 5
Notes to Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 18
Item 3. Quantitative and Qualitative Disclosures About Market Risk 28
Item 4. Controls and Procedures 28
PART II - OTHER INFORMATION
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Item 1. Legal Proceedings 29
Item 2. Changes in Securities, Use of Proceeds and Issuer
Purchases of Equity Securities 34
Item 4. Submission of Matters to a Vote of Security Holders 34
Item 6. Exhibits and Reports on Form 8-K 35
Signatures 37
Exhibit Index 38
Certifications 84
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; in millions, except per share amounts)
For the three months ended
March 31,
---------------------------
2004 2003
--------- ---------
Net sales $ 844 $ 746
Cost of sales 544 546
--------- ---------
Gross margin 300 200
Operating expenses:
Selling, general and administrative expenses 160 152
Research, development and engineering expenses 84 93
Amortization of purchased intangibles 10 9
Restructuring, impairment and other charges and
(credits) (Note 4) 34 51
Asbestos settlement (Note 5) 19 298
--------- ---------
Operating loss (7) (403)
Interest income 6 8
Interest expense (36) (40)
(Loss) gain on repurchases and retirement of debt, net (Note 10) (23) 4
Other expense, net (4) (14)
--------- ---------
Loss before income taxes (64) (445)
Benefit for income taxes 12 144
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Loss before minority interests and equity earnings (52) (301)
Minority interests 37
Equity in earnings of associated companies 107 59
--------- ---------
Net income (loss) $ 55 $ (205)
========= =========
Basic and diluted earnings (loss) per common share (Note 13) $ 0.04 $ (0.17)
========= =========
The accompanying notes are an integral part of these statements.
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(Unaudited; in millions, except per share amounts)
March 31, December 31,
2004 2003
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Assets
Current assets:
Cash and cash equivalents $ 1,010 $ 833
Short-term investments, at fair value 451 433
--------- ---------
Total cash, cash equivalents and short-term investments 1,461 1,266
Trade accounts receivable, net of doubtful accounts and allowances - $35 and $38 544 525
Inventories (Note 6) 504 467
Deferred income taxes 242 242
Other current assets 190 194
--------- ---------
Total current assets 2,941 2,694
Investments (Note 7) 1,065 1,045
Property, net of accumulated depreciation - $3,543 and $3,415 3,640 3,620
Goodwill (Note 8) 1,730 1,735
Other intangible assets, net (Note 8) 155 166
Deferred income taxes 1,277 1,225
Other assets 265 267
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Total Assets $ 11,073 $ 10,752
========= =========
Liabilities and Shareholders' Equity
Current liabilities:
Loans payable $ 313 $ 146
Accounts payable 376 333
Other accrued liabilities (Note 9) 1,008 1,074
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Total current liabilities 1,697 1,553
Long-term debt (Note 10) 2,553 2,668
Postretirement benefits other than pensions 609 619
Other liabilities 414 412
Commitments and contingencies (Note 11)
Minority interests 30 36
Shareholders' equity:
Preferred stock - Par value $100.00 per share; Shares authorized: 10 million
Series C mandatory convertible preferred stock - Shares issued: 5.75 million;
Shares outstanding: 789 thousand and 854 thousand 79 85
Common stock - Par value $0.50 per share; Shares authorized: 3.8 billion;
Shares issued: 1,407 million and 1,401 million 703 701
Additional paid-in capital 10,323 10,298
Accumulated deficit (5,089) (5,144)
Treasury stock, at cost; Shares held: 35 million and 58 million (346) (574)
Accumulated other comprehensive income 100 98
--------- ---------
Total shareholders' equity 5,770 5,464
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Total Liabilities and Shareholders' Equity $ 11,073 $ 10,752
========= =========
The accompanying notes are an integral part of these statements.
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in millions)
For the three months ended
March 31,
--------------------------
2004 2003
--------- ---------
Cash flows from operating activities:
Net income (loss) $ 55 $ (205)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Amortization of purchased intangibles 10 9
Depreciation 120 118
Restructuring, impairment and other charges and credits 34 51
Asbestos settlement 19 298
Loss (gain) on repurchases and retirement of debt, net 23 (4)
Undistributed earnings of associated companies (29) 7
Minority interests, net of dividends paid (37)
Deferred tax benefit (40) (178)
Interest expense on convertible debentures 2 7
Restructuring payments (34) (94)
Income tax refund 191
Tax benefit on stock options 6
Changes in certain working capital items:
Trade accounts receivable (17) (13)
Inventories (32) 7
Other current assets 3 10
Accounts payable and other current liabilities, net of restructuring payments (66) (118)
Other, net (9) (26)
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Net cash provided by operating activities 45 23
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Cash flows from investing activities:
Capital expenditures (134) (55)
Net proceeds from sale of precision lens business 9
Net proceeds from sale or disposal of assets 9 13
Short-term investments - acquisitions (302) (427)
Short-term investments - liquidations 284 369
Restricted investments - liquidations 2 3
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Net cash used in investing activities (141) (88)
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Cash flows from financing activities:
Net repayments of loans payable (2) (62)
Proceeds from issuance of long-term debt, net 396
Repayments of long-term debt (141) (189)
Proceeds from issuance of common stock, net 11 3
Cash dividends paid to preferred shareholders (2) (3)
Proceeds from the exercise of stock options 12
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Net cash provided by (used in) financing activities 274 (251)
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Effect of exchange rates on cash (1) 17
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Net increase (decrease) in cash and cash equivalents 177 (299)
Cash and cash equivalents at beginning of period 833 1,426
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Cash and cash equivalents at end of period $ 1,010 $ 1,127
======== =======
The accompanying notes are an integral part of these statements.
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
General
Corning Incorporated and its consolidated subsidiaries is hereinafter sometimes
referred to as "the Company," "Registrant," "Corning," "we," "our" or "us."
Corning Incorporated is a diversified technology company that concentrates its
efforts on high-impact growth opportunities. Corning combines its expertise in
specialty glass, ceramic materials, polymers and the manipulation of the
properties of light, with strong process and manufacturing capabilities to
develop, engineer and commercialize significant innovative products for the
telecommunications, flat panel display, environmental, life sciences and
semiconductor industries.
The unaudited consolidated financial statements reflect all adjustments which,
in the opinion of management, are necessary for a fair statement of the results
of operations, financial position and cash flows for the interim periods
presented. All such adjustments are of a normal recurring nature. The
consolidated financial statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission and in accordance with
accounting principles generally accepted in the United States of America
("GAAP") for interim financial information.
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect amounts reported
therein. Significant estimates and assumptions in these consolidated financial
statements include restructuring and other charges and credits, allowances for
doubtful accounts receivable, estimates of future cash flows and other
assumptions associated with goodwill and long-lived asset impairment tests,
estimates of the fair value of assets held for disposal, environmental and legal
liabilities, income taxes and deferred tax valuation allowances, and the
determination of discount and other rate assumptions for pension and
postretirement employee benefit expenses. Due to the inherent uncertainty
involved in making estimates, actual results reported in future periods may be
different from these estimates.
The results for interim periods are not necessarily indicative of results which
may be expected for any other interim period, or for the full year. These
interim consolidated financial statements should be read in conjunction with
Corning's Annual Report on Form 10-K for the year ended December 31, 2003.
Certain amounts for 2003 were reclassified to conform with 2004 classifications.
Stock-Based Compensation
We apply Accounting Principles Board Opinion No. 25 (APB No. 25), "Accounting
for Stock Issued to Employees," for our stock-based compensation plans. The
following table illustrates the effect on income (loss) and earnings (loss) per
share if we had applied the fair value recognition provisions of Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation," to stock-based employee compensation. The estimated fair value of
each Corning option is calculated using the Black-Scholes option-pricing model.
(In millions, except per share amounts):
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For the three months ended March 31,
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2004 2003
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Net income (loss) - as reported $ 55 $ (205)
Add: Stock-based employee compensation expense
determined under APB No. 25, included in reported net income
(loss), net of tax 2 1
Less: Stock-based employee compensation expense
determined under fair value based method, net of tax (29) (35)
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Net income (loss) - pro forma $ 28 $ (239)
Earnings (loss) per common share:
Basic - as reported $ 0.04 $ (0.17)
Basic - pro forma $ 0.02 $ (0.20)
Diluted - as reported $ 0.04 $ (0.17)
Diluted - pro forma $ 0.02 $ (0.20)
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For purposes of SFAS No. 123 the fair value of each option grant is estimated on
the date of grant using the Black-Scholes option-pricing model. The following
are weighted-average assumptions used for grants under our stock plans in 2004
and 2003, respectively:
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For the three months ended March 31,
For Options ------------------------------------
Granted During 2004 2003
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Expected life in years 4 5
Risk free interest rate 3.2% 2.9%
Expected volatility 50.0% 78.3%
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During the first quarter of 2004, Corning updated its analysis of the historical
stock option exercise behavior of its employees, among other relevant factors,
and determined that the best estimate of expected term of stock options granted
in the first quarter was 4 years, compared to our previous estimate of an
expected term of 5 years. Additionally, Corning used a 10 year mean reversion
analysis, as allowed by SFAS 123, to determine the volatility assumption also
used to estimate the fair value of options granted in the first quarter. Prior
to 2004, Corning used historical trailing volatility for a period equal to the
expected term of our stock options. Corning believes a mean reversion analysis
provides the best estimate of future expectations of volatility.
Changes in the status of outstanding options were as follows:
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Number of Shares Weighted-Average
(in thousands) Exercise Price
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Options outstanding December 31, 2003 135,352 $ 20.58
Options granted under plans 6,156 $ 11.81
Options exercised (2,339) $ 5.63
Options terminated (211) $ 25.91
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Options outstanding March 31, 2004 138,958 $ 20.08
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Options exercisable March 31, 2004 85,538 $ 24.87
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New Accounting Standards
In December 2003, the FASB revised SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits." The revised standard requires
incremental pension and other postretirement benefit plan disclosures, but does
not change the measurement or recognition of those plans. Therefore, the
adoption of this accounting standard did not have any effect on our results of
operations or financial position.
In December 2003, the Medicare Prescription Drug, Improvement and Modernization
Act of 2003 ("the Act") was passed which expands Medicare to include an
outpatient prescription drug benefit beginning in 2006. In January 2004, the
FASB issued Staff Position No. FAS 106-1, "Accounting and Disclosure
Requirements Related to the Medicare Prescription Drug, Improvement and
Modernization Act of 2003," which provides preliminary accounting guidance on
how to account for the effects of the Act on postretirement benefit plans. As
permitted, we have elected to defer accounting for the impact of the Act until
the FASB issues final accounting guidance later in 2004. Such guidance from the
FASB is pending and that guidance, when issued, could require us to change
previously reported information. We are currently evaluating the impact of the
Act on our postretirement benefit plans.
2. Employee Retirement Plans
Defined Benefit Plans
We have defined benefit pension plans covering certain domestic and
international employees. Corning also offers certain domestic employees
postretirement plans that provide health care and life insurance benefits for
retirees and eligible dependents. Employees may become eligible for such
retirement benefits upon reaching retirement age.
Service cost is used as a guideline for determining minimum annual contribution
levels. All plan design changes are reviewed to determine their impact on the
liability and whether additional contributions should be made to "pay for" these
design changes. The funded status of the plan will also impact the annual
contribution level.We expect to contribute $45 million to our domestic and
international pension plans in 2004.
The following table summarizes the components of net periodic benefit cost (in millions):
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Pension benefits Postretirement benefits
Three months ended March 31, Three months ended March 31,
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2004 2003 2004 2003
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Service cost $ 11 $ 8 $ 2 $ 2
Interest cost 38 30 13 11
Expected return on plan assets (43) (36)
Amortization of net loss 6 1 3 1
Amortization of prior service cost 3 3 (2) (1)
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Total expense $ 15 $ 6 $ 16 $ 13
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3. Discontinued Operations
On December 13, 2002, we completed the sale of our precision lens business to 3M
Company ("3M") for cash proceeds up to $850 million, of which $50 million was
deposited in an escrow account. 3M has notified Corning that 3M believes it has
certain claims arising out of the representations and warranties made by Corning
in connection with the sale of the precision lens business to 3M. The parties
are attempting to resolve such claims. At March 31, 2004, approximately $49
million remained in the escrow account, and no other gain on the sale of the
precision lens business will be recognized until such claims are resolved. In
April 2004, Corning and 3M began negotiating a settlement agreement that will
likely result in Corning receiving less than half of the amount in escrow.
4. Restructuring, Impairment and Other Charges and Credits
2004 Restructuring Actions
In the first quarter of 2004, we recorded net restructuring, impairment and
other charges and credits totaling $34 million ($21 million after tax and
minority interest). A summary of these charges and credits follow:
.. We recorded $39 million of accelerated depreciation and $1 million of exit
costs relating to the final shutdown of our semiconductor materials
manufacturing facility in Charleston, South Carolina, which we previously
announced in the fourth quarter of 2003.
.. We recorded credits of $6 million, primarily related to proceeds in excess
of assumed salvage values for assets that were previously impaired.
The following table illustrates the charges, credits and balances of the restructuring reserves as of and for the three months ended
March 31, 2004 (in millions):
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Quarter Remaining
ended March Revisions Net Cash reserve at
January 1, 31, 2004 to existing charges/ payments March 31,
2004 charge plans (reversals) in 2004 2004
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Restructuring charges:
Employee related costs $ 78 $ (28) $ 50
Other charges 108 $ 1 $ 1 (6) 103
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Total restructuring charges $ 186 $ 1 $ 1 $ (34) $ 153
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Impairment of long-lived assets:
Assets to be disposed of by sale
or abandonment $ (6) $ (6)
Other:
Accelerated depreciation $ 39 $ 39
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Total restructuring, impairment and other
charges and (credits) $ 40 $ (6) $ 34
Tax benefit and minority interest (15) 2 (13)
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Restructuring, impairment and other
charges and (credits), net $ 25 $ (4) $ 21
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Cash payments for employee related costs will be substantially complete by the
end of 2005, while payments for exit activities will be substantially completed
by the end of 2006. As of March 31, 2004, approximately 1,850 of the 1,975
employees had been separated under the 2003 plans.
2003 Restructuring Actions
In the first quarter of 2003 we recorded net restructuring, impairment and other
charges and credits totaling $51 million ($12 million after tax and minority
interest). A summary of these charges and credits follows:
.. a charge of $17 million ($11 million after tax) associated with the
discontinuance of optical switching, which was a photonic product, due to
the downturn in the telecommunications industry. The charge included $13
million for employee separation costs and $4 million for asset impairments
related to equipment,
.. a $5 million ($3 million after tax) charge for other than temporary
declines in certain cost investments in the Telecommunications segment,
.. reversal of $33 million ($21 million after tax) related to revised cost
estimates of existing restructuring plans of which $24 million related to
employee separation and exit costs which were less than estimated, while $9
million related to proceeds in excess of assumed salvage values for assets
that were previously impaired, and
.. recorded a $62 million ($19 million after tax and minority interest) asset
impairment charge related to our 51% owned venture Corning Asahi Video
Products Company ("CAV"), which was a manufacturer of glass panel and
funnels for use in conventional tube televisions. We agreed with our
partner to cease production and shut-down CAV in April 2003.
The following table illustrates the charge, credits and balances of the restructuring reserves as of and for the three months ended
March 31, 2003 (in millions):
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Quarter Quarter ended Remaining
ended March Revisions Net March 31, 2003 Cash reserve at
January 1, 31, 2003 to existing charges/ Non-cash payments March 31,
2003 charge plans (reversals) uses in 2003 2003
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Restructuring charges:
Employee related costs $ 273 $ 13 $ (11) $ 2 $ 1 $ 79 $ 195
Other charges 132 (13) (13) 15 104
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Total restructuring charges $ 405 $ 13 $ (24) $ (11) $ 1 $ 94 $ 299
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Impairment of long-lived assets:
Assets to be held and used $ 62 $ 62
Assets to be disposed of by sale
or abandonment 4 $ (9) (5)
Cost investments 5 5
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Total impairment charges $ 71 $ (9) $ 62
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Total restructuring and impairment
charges and (credits) $ 84 $ (33) $ 51
Tax benefit and minority interest (51) 12 (39)
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Restructuring and impairment
charges and (credits), net $ 33 $ (21) $ 12
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5. Asbestos Settlement
On March 28, 2003, we announced that we had reached agreement with the
representatives of asbestos claimants for the settlement of all current and
future non-premises asbestos claims against us and Pittsburgh Corning
Corporation (PCC), which might arise from PCC products or operations.
The agreement is expected to be incorporated into a settlement fund as part of a
reorganization plan for PCC. The plan will be submitted to the federal
bankruptcy court in Pittsburgh for approval, and is subject to a number of
contingencies, including the resolution of legal objections that may be raised
at confirmation hearings to be held in May 2004. We will make our contributions
to the settlement trust under the agreement after the plan is approved, becomes
effective and is no longer subject to appeal. We expect the approval process to
be completed in 2004.
When the plan becomes effective, our settlement will require the contribution of
our equity interest in PCC, our one-half equity interest in Pittsburgh Corning
Europe N.V. (PCE), and 25 million shares of our common stock. The common stock
will be marked-to-market each quarter until the settlement plan is approved,
thus resulting in adjustments to income and the settlement liability as
appropriate. The agreement also includes the contribution of cash payments with
a current value of $138 million over six years beginning in June 2005, which we
may accelerate the full payment to as early as 2005, as needed, to maximize the
related tax benefits. In addition, we will assign insurance policy proceeds from
our primary insurance and a portion of our excess insurance as part of the
settlement.
We recorded an additional charge of $19 million ($18 million after tax) in the
first quarter of 2004 to reflect the mark-to-market value of our common stock
compared to the initial charge of $298 million in the first quarter of 2003. The
minimum tax effect on this quarter's charge reflects the fact that the
cumulative asbestos settlement charge recorded to date is in excess of the
amount realizable for tax purposes. Beginning with the first quarter of 2003, we
have recorded charges of $432 million ($282 million after tax) to reflect the
settlement and to mark-to-market the value of our common stock.
The carrying value of our stock in PCE and the fair value of 25 million shares
of our common stock as of March 31, 2004, have been reflected in current
liabilities. The remaining $138 million, representing the net present value of
the cash payments discounted at 5.5%, is recorded in non-current liabilities.
See Part II-Other Information, Item 1. Legal Proceedings for a history of this
matter.
6. Inventories
Inventories shown on the accompanying balance sheets were comprised of the
following (in millions):
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March 31, 2004 December 31, 2003
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Finished goods $ 144 $ 141
Work in process 145 113
Raw materials and accessories 134 138
Supplies and packing materials 81 75
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Total inventories $ 504 $ 467
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7. Investments
At March 31, 2004 and December 31, 2003, our total investments accounted for by
the equity method were $1.0 billion and $978 million, respectively. Summarized
results of operations for our two significant investments accounted for by the
equity method follow (in millions):
Samsung Corning Precision
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For the three months ended March 31,
------------------------------------
2004 2003
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Statement of Operations:
Net sales $ 235 $ 107
Gross profit $ 179 $ 76
Net income $ 126 $ 50
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Our investment in Samsung Corning Precision Glass Co., Ltd. ("Samsung Corning
Precision"), a 50%-owned South Korean based manufacturer of liquid crystal
display glass, was $319 million and $299 million at March 31, 2004 and December
31, 2003, respectively.
Sales to Samsung Corning Precision totaled $6 million and $5 million for the
quarters ended March 31, 2004 and 2003, respectively. Purchases from Samsung
Corning Precision totaled $22 million and $3 million for the quarters ended
March 31, 2004 and 2003, respectively. Balances due to and from Samsung Corning
Precision were immaterial at March 31, 2004 and December 31, 2003.
Dow Corning
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For the three months ended March 31,
------------------------------------
2004 2003
--------------------------------------------------------------------------------
Statement of Operations:
Net sales $ 814 $ 659
Gross profit $ 288 $ 186
Net income $ 52 $ 36
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Our investment in Dow Corning Corporation ("Dow Corning"), a 50%-owned U.S.
based manufacturer of silicone products, was $191 million and $185 million at
March 31, 2004 and December 31, 2003, respectively. For information related to
Dow Corning litigation and bankruptcy proceedings see Part II-Other Information,
Item 1. Legal Proceedings.
8. Goodwill and Other Intangible Assets
The changes in the carrying amount of goodwill for the three months ended March 31, 2004, were as follows (in millions):
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Telecom- Display Unallocated
munications Technologies and Other Total
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Balance at January 1, 2004 $ 1,576 $ 9 $ 150 $ 1,735
Foreign currency translation (2) (2)
Other (3) (3)
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Balance at March 31, 2004 $ 1,571 $ 9 $ 150 $ 1,730
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We must exercise judgment in assessing the recoverability of goodwill. See Risk
Factors and Critical Accounting Estimates of our Annual Report on Form 10-K for
more information.
Other intangible assets consisted of the following (in millions):
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March 31, 2004 December 31, 2003
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Accumulated Accumulated
Gross Amortization Net Gross Amortization Net
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Amortized intangible assets:
Patents and trademarks $ 144 $ 61 $ 83 $ 145 $ 57 $ 88
Non-competition agreements 112 94 18 113 89 24
Other 4 1 3 4 1 3
----------------------------------- -----------------------------------
Total amortized intangible assets 260 156 104 262 147 115
----------------------------------- -----------------------------------
Other intangible assets:
Intangible pension assets 51 51 51 51
----------------------------------- -----------------------------------
Total $ 311 $ 156 $ 155 $ 313 $ 147 $ 166
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Amortized intangible assets are primarily related to the Telecommunications
segment.
Amortization expense related to these intangible assets is expected to be
approximately $16 million in 2005, $11 million in 2006, $11 million in 2007, and
insignificant thereafter.
9. Product Warranty Liability
Our product warranty reserves relate primarily to our Telecommunications segment. A reconciliation of the changes in the product
warranty liability during the three months ended March 31 follows (in millions):
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2004 2003
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Balance at January 1 $ 41 $ 64
Provision based on current year sales 1
Adjustments to liability existing on January 1 (2) (6)
Foreign currency translation (1)
Settlements made during the current quarter (1) (4)
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Balance at March 31 $ 38 $ 54
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10. Long-Term Debt
During the first quarter of 2004 we issued $400 million of senior unsecured notes and repurchased and retired $332 million of our
long term debt. A summary of our long-term debt and debentures that were affected follows (in millions):
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March 31, 2004 December 31, 2003
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Long-Term Debt $ 2,839 $ 2,788
Less current portion of long-term debt 286 120
----------------------------------------
Long-Term Debt $ 2,553 $ 2,668
Summary of debentures affected:
Debentures, 5.9%, due 2014, redeemable $ 200
Debentures, 6.2%, due 2016, redeemable $ 200
Convertible debentures, 3.5%, due 2008 $ 452 $ 665
Zero coupon convertible debentures, 2% due 2015,
redeemable and callable in 2005 $ 268 $ 385
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Issuance of Long-Term Debt
In March 2004, we issued $400 million of senior unsecured notes, of which $200
million aggregate principal amount of 5.90% notes mature on March 15, 2014 and
$200 million aggregate principal amount of 6.20% notes mature on March 15, 2016.
These senior unsecured notes were issued under our existing $5 billion universal
shelf registration statement, which became effective in March 2001. We realized
net proceeds of approximately $396 million from the issuance of these notes. We
will pay interest on these senior unsecured notes on each March 15 and September
15.
Loss on Repurchases and Retirement of Debt, Net
3.5% convertible debentures
---------------------------
During the first quarter of 2004, we issued 22 million shares of common stock
and paid $24 million in cash in exchange for our 3.5% convertible debentures
with a book value of $213 million resulting in a loss of $23 million ($21
million after tax).
Zero coupon convertible debentures
----------------------------------
During the three months ended March 31, 2004 and 2003, we repurchased and
retired a significant portion of our zero coupon convertible debentures as
follows (dollars in millions):
--------------------------------------------------------------------------------
For the three months ended March 31,
------------------------------------
2004 2003
--------------------------------------------------------------------------------
Bonds repurchased or exchanged for equity 150,000 353,500
Book value $ 119 $ 274
Fair value $ 117 $ 226
Pre-tax gain (a) $ 4
After-tax gain (a) $ 3
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(a) Net of the write-off of unamortized issuance and deal costs.
In the first quarter of 2003, we also issued 6.5 million shares of common stock
from treasury in exchange for 55,000 debentures with an accreted value of $43
million, and recognized a charge of $35 million reflecting the fair value of the
incremental shares issued beyond those required by the terms of the debentures.
The increase in equity due to the issuance of shares from treasury stock was $77
million.
11. Commitments and Contingencies
In 2003, we adopted the initial recognition and measurement provisions of FASB
Interpretation No. 45 (FIN 45). We do not routinely provide significant
third-party guarantees and, as a result, this interpretation has not had a
material effect on our financial statements.
We provide financial guarantees and incur contingent liabilities in the form of
purchase price adjustments related to attainment of milestones, stand-by letters
of credit and performance bonds. These guarantees have various terms, and none
of these guarantees are individually significant. We have also agreed to provide
a credit facility related to Dow Corning as discussed in Note 10 to the
Consolidated Financial Statements in our 2003 Form 10-K. The funding of the Dow
Corning $150 million credit facility is subject to events connected to the
Bankruptcy Plan. As of March 31, 2004, we were contingently liable for the items
described above totaling $394 million, compared with $445 million at December
31, 2003. We believe a significant majority of these guarantees and contingent
liabilities will expire without being funded.
From time to time, we are subject to uncertainties and litigation and are not
always able to predict the outcome of these items with assurance. Various legal
actions, claims and proceedings are pending against us, including those arising
out of alleged product defects, shareholder matters, product warranties,
patents, asbestos and environmental matters. These issues are discussed in Part
II-Other Information, Item 1. Legal Proceedings of this Form 10-Q.
12. Comprehensive Income (Loss)
Comprehensive income (loss), net of tax, was as follows (in millions):
--------------------------------------------------------------------------------
For the three months ended March 31,
------------------------------------
2004 2003
--------------------------------------------------------------------------------
Net income (loss) $ 55 $ (205)
Other comprehensive income 2 37
--------------------------------------------------------------------------------
Total comprehensive income (loss) $ 57 $ (168)
--------------------------------------------------------------------------------
13. Earnings (Loss) Per Common Share
The reconciliation of the amounts used in the basic and diluted earnings (loss) per common share computations was as follows
(in millions, except per share amounts):
------------------------------------------------------------------------------------------------------------------------------------
For the three months ended March 31,
--------------------------------------------------------------------------------
2004 2003
---------------------------------------- -------------------------------------
Net Weighted- Per Share Net Weighted- Per Share
Income Average Shares Amount Loss Average Shares Amount
------------------------------------------------------------------------------------------------------------------------------------
Basic earnings (loss) per common share $ 55 1,358 $ 0.04 $ (205) 1,200 $ (0.17)
------------------------------------------------------------------------------------------------------------------------------------
Effect of dilutive securities:
Stock options 37
7% mandatory convertible preferred stock 42
------------------------------------------------------------------------------------------------------------------------------------
Diluted earnings (loss) per common share $ 55 1,437 $ 0.04 $ (205) 1,200 $ (0.17)
------------------------------------------------------------------------------------------------------------------------------------
The potential common shares excluded from the calculation of diluted earnings (loss) per common share because their effect would be
anti-dilutive and the amount of stock options excluded from the calculation of diluted earnings (loss) per common share because
their exercise price was greater than the average market price of the common shares of the periods presented were as follows
(in millions):
------------------------------------------------------------------------------------------------------------------------------------
For the three months ended March 31,
------------------------------------
2004 2003
------------------------------------------------------------------------------------------------------------------------------------
Potential common shares excluded from the calculation of diluted earnings (loss)
per common share:
Stock options 8
7% mandatory convertible preferred stock 79
4.875% convertible notes 6 6
3.5% convertible debentures 57 69
Zero coupon convertible debentures 4 16
-----------------
Total 67 178
=================
Stock options excluded from the calculation of diluted earnings (loss) per share
because the exercise price was greater
than the average market price of the common shares 55 88
------------------------------------------------------------------------------------------------------------------------------------
14. Operating Segments
Effective with this Quarterly Report on Form 10-Q, we have revised our segments
from Telecommunications and Technologies to four key operating segments:
.. Telecommunications - manufactures optical fiber and cable, and hardware and
equipment components for the worldwide telecommunications industry;
.. Display Technologies - manufactures liquid crystal display glass for flat
panel displays (previously included in the Technologies segment);
.. Environmental Technologies - manufactures ceramic substrates for automobile
and diesel applications (previously included in the Technologies segment);
and
.. Life Sciences - manufactures glass and plastic consumables for scientific
applications (previously included in the Technologies segment).
The change in our segment presentation reflects how Corning's Chief Operating
Decision Making ("CODM") group allocates resources and assesses the performance
of its businesses. Specifically, the CODM group is increasing its level of
review of the Display Technologies segment significantly due to the recent
increase in growth and capital spending in that segment. In addition, Corning's
CODM group is increasing its review of the Environmental Technologies and Life
Sciences products to strengthen the overall balance and stability of Corning's
portfolio of businesses.
All other businesses or product lines that do not meet the quantitative
threshold for determining reportable segments (e.g. conventional video
components, semiconductor materials, and ophthalmic products), certain corporate
investments (e.g. Dow Corning and Steuben), and unallocated expenses (e.g.
research and other expenses related to new business development and other
corporate items) have been grouped as "Unallocated and Other". Unallocated and
Other also represents the reconciliation between the totals for the reportable
segments and our consolidated total.
We prepared the financial results for our operating segments on a basis that is
consistent with the manner in which we internally disaggregate financial
information to assist in making internal operating decisions. We include the
earnings of equity affiliates that are closely associated with our operating
segments in segment results. We have allocated certain common expenses among
segments differently than we would for stand-alone financial information
prepared in accordance with GAAP. These expenses include interest, taxes and
corporate functions. This method of preparation may not be consistent with
methods used by other companies. The accounting policies of our operating
segments are the same as those applied in the consolidated financial statements.
------------------------------------------------------------------------------------------------------------------------------------
Operating Segments Telecom- Display Environmental Life Unallocated Consolidated
(in millions) munications Technologies Technologies Sciences and Other Total
------------------------------------------------------------------------------------------------------------------------------------
For the three months ended March 31, 2004
Net sales $ 312 $ 230 $ 141 $ 79 $ 82 $ 844
Research, development and engineering
expenses (1) $ 25 $ 16 $ 20 $ 9 $ 14 $ 84
Restructuring, impairment and other charges
and (credits) (2) $ (4) $ 38 $ 34
Interest expense (3) $ 16 $ 11 $ 5 $ 1 $ 3 $ 36
(Benefit) provision for income taxes $ (23) $ 26 $ 3 $ 3 $ (21) $ (12)
(Loss) income before minority interests and
equity earnings (4)(5) $ (47) $ 53 $ 6 $ 5 $ (69) $ (52)
Minority interests 1 (1)
Equity in earnings of associated
companies 3 65 39 107
------- -------- -------- ------- -------- --------
Net (loss) income $ (43) $ 118 $ 6 $ 5 $ (31) $ 55
------------------------------------------------------------------------------------------------------------------------------------
For the three months ended March 31, 2003
Net sales $ 352 $ 117 $ 115 $ 73 $ 89 $ 746
Research, development and engineering
expenses (1) $ 38 $ 12 $ 21 $ 7 $ 15 $ 93
Restructuring, impairment and other charges
and (credits) (2) $ (9) $ 60 $ 51
Interest expense (3) $ 21 $ 9 $ 5 $ 2 $ 3 $ 40
(Benefit) provision for income taxes $ (25) $ 6 $ 2 $ 4 $ (131) $ (144)
(Loss) income before minority interests and
equity (losses) earnings (4)(5) $ (60) $ 13 $ 3 $ 8 $ (265) $ (301)
Minority interests (6) 37 37
Equity in (losses) earnings of associated
companies (3) 24 2 36 59
------- -------- -------- ------- -------- --------
Net (loss) income $ (63) $ 37 $ 5 $ 8 $ (192) $ (205)
------------------------------------------------------------------------------------------------------------------------------------
(1) Non-direct research, development and engineering expenses are allocated
based upon direct project spending for each segment.
(2) Related tax (expense) benefit:
Three months ended March 31, 2004: $(1), $0, $0, $0, $15 and $14.
Three months ended March 31, 2003: $(4), $0, $0, $0, $12 and $8.
(3) Interest expense is allocated to segments based on a percentage of segment
net operating assets. Consolidated subsidiaries with independent capital
structures do not receive additional allocations of interest expense.
(4) Many of Corning's administrative and staff functions are performed on a
centralized basis. Where practicable, Corning charges these expenses to
segments based upon the extent to which each business uses a centralized
function. Other staff functions, such as corporate finance, human resources
and legal are allocated to segments, primarily as a percentage of sales.
(5) Includes an allocation of depreciation of corporate property, plant and
equipment not specifically identifiable to a segment. Related depreciable
assets are not allocated to segment assets.
(6) Includes $30 related to impairment of long-lived assets of CAV for the
three months ended March 31, 2003.
A reconciliation of reportable segment net income (loss) to consolidated net
income (loss) follows (in millions):
----------------------------------------------------------------------------------------------------------------
For the three months ended March 31,
------------------------------------
2004 2003
----------------------------------------------------------------------------------------------------------------
Net income (loss) of reportable segments $ 86 $ (13)
Non-reportable operating segments net loss (1) (18) (21)
Unallocated amounts:
Non-segment loss and other (2) (3) (15)
Non-segment restructuring, impairment and
other (charges) and credits
Asbestos settlement (19) (298)
Interest income 6 8
(Loss) gain on repurchases of debt (23) 4
Benefit for income taxes (3) 2 112
Equity in earnings of associated companies (4) 24 18
--------- ---------
Net income (loss) $ 55 $ (205)
----------------------------------------------------------------------------------------------------------------
(1) Includes the results of non-reportable operating segments.
(2) Includes the results of non-segment operations and other corporate
activities.
(3) Includes tax associated with non-segment restructuring, impairment and
other charges.
(4) Includes amounts derived from corporate investments, primarily Dow Corning
Corporation.
ITEM 2.
Management's Discussion and Analysis of
---------------------------------------
Financial Condition and Results of Operations
---------------------------------------------
Overview
We continue to focus on three key priorities in 2004: to protect our financial
health, to improve our profitability, and to invest in the future. We continue
to make progress towards all three in 2004.
Financial Health
In the first quarter of 2004, we improved our balance sheet through several
transactions including issuing $400 million in principal of senior unsecured
notes at historically low rates and at very attractive terms. The new capital
will enable us to repay existing debt to extend the duration of our debt
portfolio and to fund capital spending. In addition, we reduced our zero coupon
and 3.5% debentures by $332 million through our ongoing debt reduction program.
Our debt to capital ratio improved to 33% at March 31, 2004 compared to 34% at
December 31, 2003.
Profitability
For the first quarter of 2004, we had net income of $55 million, or $0.04 per
share, compared to a net loss of $205 million or $0.17 per share for the first
quarter of 2003. Our profitability in the first quarter of 2004 was driven
primarily by the smaller charge related to the asbestos settlement, significant
growth of our Display Technologies segment, and improved operating results from
our Telecommunications segment.
Investing in our Future
We are investing in a wide variety of technologies including liquid crystal
displays, diesel filters and substrates, and the optical fiber, cable, and
hardware and equipment that will enable fiber-to-the-premises. Our research,
development and engineering expenses were 10% of our sales in the first quarter
of 2004. The decline from the first quarter of 2003 was due to the exit of the
photonics product line within the Telecommunications segment in mid 2003.
Capital spending in the first quarter of 2004 and 2003 was $134 million and $55
million, respectively. The majority of our capital spending was to expand
capacity for our Display Technologies segment. As a result of market expansion,
we expect our 2004 consolidated capital spending to approximate $650 million to
$700 million, of which $425 million to $475 million will be to expand capacity
for liquid crystal display glass production.
RESULTS OF CONTINUING OPERATIONS
Selected highlights for the first quarter were as follows (dollars in millions):
-----------------------------------------------------------------------------------------------------------------------
For the three months ended March 31,
------------------------------------
2004 2003
-----------------------------------------------------------------------------------------------------------------------
Net sales $ 844 $ 746
Gross margin $ 300 $ 200
(gross margin %) 36% 27%
Selling, general and administrative expenses $ 160 $ 152
(as a % of net sales) 19% 20%
Research, development and engineering expenses $ 84 $ 93
(as a % of net sales) 10% 12%
Restructuring, impairment and other charges and credits $ 34 $ 51
(as a % of net sales) 4% 7%
Asbestos settlement $ 19 $ 298
(as a % of net sales) 2% 40%
Operating loss $ (7) $ (403)
(as a % of net sales) (1)% (54)%
Benefit for income taxes $ (12) $ (144)
(as a % of net sales) (1)% (19)%
Equity in earnings of associated companies $ 107 $ 59
(as a % of net sales) 13% 8%
Net income (loss) $ 55 $ (205)
(as a % of net sales) 7% (27)%
-----------------------------------------------------------------------------------------------------------------------
Net Sales
Consolidated net sales for the first three months of 2004 increased 13%, or $98
million, from sales reported in the prior year quarter. The increase was due
primarily to our Display Technologies segment where higher demand for liquid
crystal display glass continues to grow significantly and favorable exchange
rates, offset by sales decreases totaling $41 million related to the exit of CAV
and our photonics product line within the Telecommunications segment in mid
2003.
Gross Margin
As a percentage of net sales, gross margin improved 9 points in the first
quarter of 2004 to 36%, compared to the prior year quarter. The improvement is
primarily due to improved manufacturing efficiencies in our Display
Technologies, Environmental Technologies and Life Sciences segments.
Selling, General and Administrative Expenses
Selling, general and administrative (SG&A) expenses increased 5%, or $8 million,
in the first quarter of 2004, compared to the prior year quarter but as a
percentage of net sales improved 1 point compared with the first quarter of
2003.
Research, Development and Engineering
Research, development and engineering expenses (RD&E) decreased 10%, or $9
million, for the first quarter of 2004, compared to the first quarter of 2003.
As a percentage of net sales, RD&E decreased 2 points for the same period. This
decrease is the result of our exit of the photonics product line within the
Telecommunications segment in mid 2003.
Restructuring, Impairment and Other Charges and Credits
Restructuring, impairment and other charges and credits decreased 33%, or $17
million, for the first quarter of 2004, compared to the first quarter of 2003.
See Note 4 for additional information.
Asbestos Settlement
We incurred a $19 million charge related to the quarterly mark-to-market of
Corning's common stock in the first quarter of 2004, compared to our initial
$298 million charge in the first quarter of 2003. See Note 5 for additional
information.
Operating Loss
We incurred an operating loss of $7 million in the first quarter of 2004,
compared to an operating loss of $403 million in 2003. The decrease in the
operating loss was primarily due to the improvements in gross margin and a
decrease in the asbestos charge. As a percentage of net sales, the operating
loss improved 53 points over the prior year quarter.
Income Taxes
Our benefit for income taxes and the related effective benefit rates were as
follows (in millions):
--------------------------------------------------------------------------------
For the three months ended March 31,
------------------------------------
2004 2003
--------------------------------------------------------------------------------
Benefit for income taxes $ (12) $ (144)
Effective benefit rate (19.2)% (32.4)%
--------------------------------------------------------------------------------
The effective benefit rate for the first quarter of 2004 and 2003 is lower than
the U.S. statutory income tax rate of 35%. Our effective benefit rate was
impacted by restructuring, impairment and other charges, asbestos settlement and
debt transactions. The effective benefit rate without consideration of these
items was 33% for the first quarter of 2004 and 30% for the first quarter of
2003.
At March 31, 2004, we have recorded gross deferred tax assets of approximately
$2.0 billion with a valuation allowance of approximately $450 million. The
valuation allowance is primarily attributable to the uncertainty regarding the
realization of specific foreign and state tax benefits, net operating losses and
tax credits. The net deferred tax assets of approximately $1.5 billion consist
of a combination of domestic (U.S. federal, state and local) and foreign tax
benefits for: (a) items which have been recognized for financial reporting
purposes, but which will be reported on tax returns to be filed in the future,
and (b) loss and tax credit carryforwards. We have performed the required
assessment of positive and negative evidence regarding the realization of the
net deferred tax assets in accordance with SFAS No. 109. This assessment
included the evaluation of scheduled reversals of deferred tax liabilities,
estimates of projected future taxable income and tax-planning strategies as well
as related key assumptions, which are further described in Note 9 - Income Taxes
to the consolidated financial statements in Corning's 2003 Annual Report on Form
10-K. We believe the key assumptions underlying our assessment continue to be
appropriate. Although realization is not assured, based on our assessment, we
have concluded that it is more likely than not that such assets, net of the
existing valuation allowance, will be realized. See Risk Factors and Critical
Accounting Estimates in our Annual Report on Form 10-K for more information.
Equity Earnings
Equity earnings increased $48 million, or 81%, compared to the prior year
quarter, primarily due to the strong performance of Samsung Corning Precision
and Dow Corning. A summary of equity earnings follows (in millions):
--------------------------------------------------------------------------------
For the three months ended March 31,
------------------------------------
2004 2003
--------------------------------------------------------------------------------
Samsung Corning Precision $ 65 $ 24
Dow Corning 24 18
All other 18 17
------- -----
Total equity earnings $ 107 $ 59
--------------------------------------------------------------------------------
Dow Corning will take a charge in the second quarter as a result of their
restructuring and cost reduction program. Our share of these charges will be
approximately $10 million, and will be reported within equity earnings in the
second quarter of 2004.
See Note 7 for additional information relating to Samsung Corning Precision and
Dow Corning's operating results.
Net Income (Loss)
As a result of the above, our net income (loss) and per share data was as
follows (in millions, except per share amounts):
--------------------------------------------------------------------------------
For the three months ended March 31,
------------------------------------
2004 2003
--------------------------------------------------------------------------------
Net income (loss) $ 55 $ (205)
Basic earnings (loss) per common share $ 0.04 $ (0.17)
Diluted earnings (loss) per common share $ 0.04 $ (0.17)
Shares used in computing per share amounts:
Basic 1,358 1,200
Diluted 1,437 1,200
--------------------------------------------------------------------------------
OPERATING SEGMENTS
Effective with this Quarterly Report on Form 10-Q, we have revised our segments
from Telecommunications and Technologies to four key operating segments:
.. Telecommunications - manufactures optical fiber and cable, and hardware and
equipment components for the worldwide telecommunications industry;
.. Display Technologies - manufactures liquid crystal display glass for flat
panel displays (previously included in the Technologies segment);
.. Environmental Technologies - manufactures ceramic substrates for automobile
and diesel applications (previously included in the Technologies segment);
and
.. Life Sciences - manufactures glass and plastic consumables for scientific
applications (previously included in the Technologies segment).
The change in our segment presentation reflects how Corning's Chief Operating
Decision Making ("CODM") group allocates resources and assesses the performance
of its businesses. Specifically, the CODM group is increasing its level of
review of the Display Technologies segment significantly due to the recent
increase in growth and capital spending in that segment. In addition, Corning's
CODM group is increasing its review of the Environmental Technologies and Life
Sciences products to strengthen the overall balance and stability of Corning's
portfolio of businesses.
All other businesses or product lines that do not meet the quantitative
threshold for determining reportable segments (e.g. conventional video
components, semiconductor materials, and ophthalmic products), certain corporate
investments (e.g. Dow Corning and Steuben), and unallocated expenses (e.g.
research and other expenses related to new business development and other
corporate items) have been grouped as "Unallocated and Other". Unallocated and
Other also represents the reconciliation between the totals for the reportable
segments and our consolidated total.
We prepared the financial results for our operating segments on a basis that is
consistent with the manner in which we internally disaggregate financial
information to assist in making internal operating decisions. We include the
earnings of equity affiliates that are closely associated with our operating
segments in segment results. We have allocated certain common expenses among
segments differently than we would for stand-alone financial information
prepared in accordance with GAAP. These expenses include interest, taxes and
corporate functions. This method of preparation may not be consistent with
methods used by other companies. The accounting policies of our operating
segments are the same as those applied in the consolidated financial statements.
See Exhibit 99.1 for revised segment data related to the years ended 2003, 2002
and 2001.
Telecommunications
In 2003, we exited the photonic technologies product line. The following table
provides net sales and other data (in millions):
--------------------------------------------------------------------------------
For the three months ended March 31,
------------------------------------
2004 2003
--------------------------------------------------------------------------------
Net sales:
Optical fiber and cable $ 149 $ 193
Hardware and equipment 163 141
Photonic technologies 18
------- -------
Total net sales $ 312 $ 352
======= =======
Net (loss) $ (43) $ (63)
======= =======
Segment net loss as a percentage of segment sales (14)% (18)%
--------------------------------------------------------------------------------
Sales decreased 11%, or $40 million, for the first quarter of 2004 compared to
the prior year quarter. This decrease was primarily due to unusually strong
demand in Japan and China in the first quarter of 2003 that was not repeated in
the first quarter of 2004, price reductions and the exit of the photonics
business in 2003. Net loss decreased 32%, or $20 million, for the first quarter
of 2004 compared to the prior year quarter. This improvement was due to the exit
of the photonics business in 2003 and the full benefit of 2002 restructuring
actions.
Outlook:
--------
We expect sales in the second quarter of 2004 to increase compared to the first
quarter of 2004 due primarily to volume increases associated with the market's
historical seasonal cycle and moderate pricing declines.
Display Technologies
The following table provides net sales and other data (in millions):
----------------------------------------------------------------------------------------------------------
For the three months ended March 31,
------------------------------------
2004 2003
----------------------------------------------------------------------------------------------------------
Sales $ 230 $ 117
Income before equity earnings $ 53 $ 13
Equity earnings of associated companies $ 65 $ 24
Net income $ 118 $ 37
Segment income before equity earnings as a percentage
of segment sales 23% 11%
Segment net income as a percentage of segment sales 51% 32%
----------------------------------------------------------------------------------------------------------
Sales of liquid crystal display glass increased 97%, or $113 million, for the
first quarter of 2004, compared to the prior year quarter due primarily to
volume increases of more than 70%, favorable foreign exchange rates, and modest
pricing increases due to product mix. Income before equity earnings more than
quadrupled due to the significant increase in sales as well as improved
manufacturing efficiencies. Equity earnings from Samsung Corning Precision more
than doubled compared to the prior year quarter due to sales volume increases
and improved manufacturing performance. As a result of sales growth,
manufacturing improvements, and increased equity earnings, net income more than
tripled.
Outlook:
--------
We expect sales volume in the second quarter of 2004 to increase between 10% and
15% compared to the first quarter and pricing to be stable. In addition, we
expect to remain sold out throughout the quarter and plan to bring on additional
capacity throughout the year.
Environmental Technologies
The following table provides net sales and other data (in millions):
----------------------------------------------------------------------------------------------------------
For the three months ended March 31,
------------------------------------
2004 2003
----------------------------------------------------------------------------------------------------------
Sales $ 141 $ 115
Net income $ 6 $ 5
Segment net income as a percentage of segment sales 4% 4%
----------------------------------------------------------------------------------------------------------
Sales in the Environmental Technologies segment increased 23%, or $26 million,
for the first quarter of 2004, compared to the prior year quarter, primarily due
to strong demand for our thin-wall automotive substrate and diesel products.
Income increased for the quarter compared to the prior year quarter, primarily
due to higher sales, offset by higher development spending related to our diesel
products.
Outlook:
--------
For the second quarter of 2004, we expect sales to be comparable with the first
quarter.
Life Sciences
The Life Sciences segment produces scientific laboratory products. The following
table provides net sales and other data (in millions):
--------------------------------------------------------------------------------
For the three months ended March 31,
------------------------------------
2004 2003
--------------------------------------------------------------------------------
Sales $ 79 $ 73
Net income $ 5 $ 8
Segment net income as a percentage
of segment sales 6% 11%
--------------------------------------------------------------------------------
Sales in the life sciences segment increased 8%, or $6 million, for the first
quarter of 2004, compared to the prior year quarter primarily due to volume.
Income decreased compared to the prior year quarter primarily due to a gain from
the disposition of a minor product line in the first quarter of 2003.
Outlook:
--------
For the second quarter of 2004, we expect sales to be comparable with the first
quarter.
Unallocated and Other
The following table provides net sales and other data (in millions):
---------------------------------------------------------------------------------------------------------------
For the three months ended March 31,
------------------------------------
2004 2003
---------------------------------------------------------------------------------------------------------------
Net sales:
Conventional Video Components $ 2 $ 25
Other businesses 75 58
--------- --------
Total net sales $ 77 $ 83
========= ========
Non-reportable operating segments net loss $ (18) $ (21)
Non-reportable operating segments net loss as a percentage
of non-reportable operating segment sales (23)% (25)%
---------------------------------------------------------------------------------------------------------------
Sales decreased 7%, or $6 million, due primarily to our decision with our
partner to shut down CAV, a 51% owned venture that manufactured conventional
video components, offset by sales increases from our other businesses. Losses
decreased compared to the prior year quarter due primarily to lower
restructuring, impairment and other charges and an improvement in gross margins.
LIQUIDITY AND CAPITAL RESOURCES
Financing Structure
In March 2004, we issued $400 million of senior unsecured notes under our
existing $5 billion universal shelf registration statement, which became
effective in March 2001. We realized net proceeds of approximately $396 million
from the issuance of these notes. As of May 4, 2004, our remaining capacity
under the shelf registration was approximately $2.5 billion.
During the first quarter of 2004, we issued 22 million shares of common stock
and paid $24 million in cash in exchange for our 3.5% convertible debentures
with a book value of $213 million. In addition, we repurchased 150 thousand of
our zero coupon convertible debentures with a book value $119 million for $117
million in cash. As a result of these transactions, we recorded a loss of $23
million ($21 million after tax). See Note 10 for additional information related
to our debt activity in the first quarter.
As an additional source of funds, we currently have full unrestricted access to
a $2 billion revolving credit facility with 17 banks, expiring on August 17,
2005. As of March 31, 2004, there were no borrowings under the credit facility.
The facility includes one financial covenant limiting the ratio of total debt to
total capital, as defined, to not greater than 60%. At March 31, 2004 this ratio
was 33%.
Capital Spending
Capital spending totaled $134 million and $55 million in the first quarter ended
March 31, 2004 and 2003, respectively. We expect our 2004 consolidated capital
spending to approximate $650 million to $700 million.
Restructuring
During the first quarter of 2004, we made payments of $28 million related to
employee severance and termination costs and $6 million in other exit costs
resulting from restructuring actions. We expect additional payments for actions
taken in 2001, 2002 and 2003 to range from $50 million to $65 million in 2004.
Key Balance Sheet Data
At March 31, 2004, cash and short-term investments totaled $1.5 billion,
compared with $1.3 billion at December 31, 2003. The increase was primarily due
to cash proceeds received from the issuance of the $400 in senior unsecured
notes, offset by repurchases of long-term debt and capital spending in the first
quarter.
Balance sheet and working capital measures are provided in the following table (dollars in millions):
----------------------------------------------------------------------------------------------------------------------------
As of March 31, As of December 31,
--------------- ------------------
2004 2003
----------------------------------------------------------------------------------------------------------------------------
Working capital $ 1,244 $ 1,141
Working capital, excluding cash and short-term investments $ (217) $ (125)
Current ratio 1.7:1 1.7:1
Trade accounts receivable, net of allowances $ 544 $ 525
Days sales outstanding 58 58
Inventories $ 504 $ 467
Inventory turns 4.5 4.8
Days payable outstanding 62 52
Long-term debt $ 2,553 $ 2,668
Total debt to total capital 33% 34%
----------------------------------------------------------------------------------------------------------------------------
Credit Ratings
Our credit ratings remain unchanged from those disclosed in the 2003 Form 10-K as follows:
----------------------------------------------------------------------------------------------------------------------------
RATING AGENCY Rating Rating Outlook
Last Update Long-Term Debt Commercial Paper Last Update
----------------------------------------------------------------------------------------------------------------------------
Standard & Poor's BB+ B Stable
July 29, 2002 January 16, 2004
Moody's Ba2 Not Prime Stable
July 29, 2002 November 19, 2003
Fitch BB B Stable
July 24, 2002 July 24, 2003
----------------------------------------------------------------------------------------------------------------------------
Management Assessment of Liquidity
Our major source of funding for 2004 and beyond will be our existing balance of
cash, cash equivalents and short-term investments. We believe we have sufficient
liquidity for the next several years to fund operations, restructuring, the
asbestos settlement, research and development, capital expenditures and
scheduled debt repayments.
Off Balance Sheet Arrangements
We have two variable interest entities ("VIEs") that are not consolidated as we
are not the primary beneficiary. The assets and debt of these entities total $11
million. Our maximum loss exposure as a result of our involvement with these
VIEs is approximately $18 million. This amount represents payments that would be
due to the lessor in the event of a total loss of the assets. We carry insurance
coverage for this risk.
Contractual Obligations
There have been no material changes outside the ordinary course of business in
the contractual obligations disclosed in our Annual Report on Form 10-K under
the caption "Contractual Obligations."
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements requires management to make estimates
and assumptions that affect amounts reported therein. The estimates that
required management's most difficult, subjective or complex judgments are
described in our 2003 Annual Report on Form 10-K and remain unchanged through
the first quarter of 2004.
ENVIRONMENT
We have been named by the Environmental Protection Agency under the Superfund
Act, or by state governments under similar state laws, as a potentially
responsible party for 13 active hazardous waste sites. Under the Superfund Act,
all parties who may have contributed any waste to a hazardous waste site,
identified by such Agency, are jointly and severally liable for the cost of
cleanup unless the Agency agrees otherwise. It is our policy to accrue for the
estimated liability related to Superfund sites and other environmental
liabilities related to property owned and operated by us based on expert
analysis and continual monitoring by both internal and external consultants. We
have accrued approximately $21 million for the estimated liability for
environmental cleanup and related litigation at March 31, 2004. Based upon the
information developed to date, we believe that the accrued amount is a
reasonable estimate of our liability and that the risk of an additional loss in
an amount materially higher than that accrued is remote.
FORWARD-LOOKING STATEMENTS
The statements in this Quarterly Report on Form 10-Q, in reports subsequently
filed by Corning with the SEC on Forms 8-K, and related comments by management
which are not historical facts or information and contain words such as
"believes," "expects," "anticipates," "estimates," "forecasts," and similar
expressions are forward-looking statements. These forward-looking statements
involve risks and uncertainties that may cause the actual outcome to be
materially different. Such risks and uncertainties include, but are not limited
to:
- global economic and political conditions;
- tariffs, import duties and currency fluctuations;
- product demand and industry capacity;
- competitive products and pricing;
- sufficiency of manufacturing capacity and efficiencies;
- cost reductions;
- availability and costs of critical components and materials;
- new product development and commercialization;
- order activity and demand from major customers;
- fluctuations in capital spending by customers in the liquid crystal display
industry and other business segments;
- changes in the mix of sales between premium and non-premium products;
- possible disruption in commercial activities due to terrorist activity,
armed conflict, political instability or major health concerns;
- facility expansions and new plant start-up costs;
- effect of regulatory and legal developments;
- capital resource and cash flow activities;
- ability to pace capital spending to anticipated levels of customer demand,
which may fluctuate;
- equity company activities;
- interest costs;
- credit rating and ability to obtain financing and capital on commercially
reasonable terms;
- adequacy and availability of insurance;
- financial risk management;
- acquisition and divestiture activities;
- rate of technology change;
- level of excess or obsolete inventory;
- ability to enforce patents;
- adverse litigation;
- product and components performance issues;
- stock price fluctuations, and
- other risks detailed in Corning's SEC filings.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk Disclosures
There have been no material changes to our market risk exposure during the first
three months of 2004. For a discussion of our exposure to market risk, refer to
Item 7A, Quantitative and Qualitative Disclosures About Market Risks, contained
in our 2003 Annual Report on Form 10-K.
ITEM 4. CONTROLS AND PROCEDURES
The company carried out an evaluation, under the supervision and with the
participation of the company's management, including the company's chief
executive officer and its chief financial officer, of the effectiveness of the
design and operation of the company's disclosure controls and procedures as of
March 31, 2004, the end of the period covered by this report. Based upon the
evaluation, the chief executive officer and chief financial officer concluded
that as of the Evaluation Date, the company's disclosure controls and procedures
are effective to ensure that information required to be disclosed by the company
in reports that it files or submits under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms.
During the fiscal quarter ended March 31, 2004, there has been no change in our
internal control over financial reporting that has materially affected or is
reasonably likely to materially affect, our internal control over financial
reporting.
Part II - Other Information
ITEM 1. LEGAL PROCEEDINGS
Environmental Litigation. Corning has been named by the Environmental Protection
Agency under the Superfund Act, or by state governments under similar state
laws, as a potentially responsible party at 13 active hazardous waste sites.
Under the Superfund Act, all parties who may have contributed any waste to a
hazardous waste site, identified by such Agency, are jointly and severally
liable for the cost of cleanup unless the Agency agrees otherwise. It is
Corning's policy to accrue for its estimated liability related to Superfund
sites and other environmental liabilities related to property owned by Corning
based on expert analysis and continual monitoring by both internal and external
consultants. Corning has accrued approximately $21 million for its estimated
liability for environmental cleanup and litigation at March 31, 2004. Based upon
the information developed to date, management believes that the accrued reserve
is a reasonable estimate of the Company's estimated liability and that the risk
of an additional loss in an amount materially higher than that accrued is
remote.
Schwinger and Stevens Toxins Lawsuits. In April 2002, Corning was named as a
defendant in two actions, Schwinger and Stevens, filed in the U.S. District
Court for the Eastern District of New York, which asserted various personal
injury and property damage claims against a number of corporate defendants.
These claims allegedly arise from the release of toxic substances from a
Sylvania nuclear materials processing facility near Hicksville, New York.
Amended complaints naming 205 plaintiffs and seeking damages in excess of $3
billion were served in September 2002. The sole basis of liability against
Corning was plaintiffs' claim that Corning was the successor to Sylvania-Corning
Nuclear Corporation, a Delaware corporation formed in 1957 and dissolved in
1960. Management intends to vigorously contest all claims against Corning for
the reason that Corning is not the successor to Sylvania-Corning. Management
will also defend on the grounds that almost all of the wrongful death claims and
personal injury claims are time-barred. At a status conference in December 2002,
the Court decided to "administratively close" the Schwinger and Stevens cases
and ordered plaintiffs' counsel to bring new amended complaints with
"bellwether" plaintiffs. In these actions, known as Schwinger II and Astuto, the
plaintiffs have not named Corning as a defendant. Although it appears that
plaintiffs may proceed only against the other corporate defendants, the original
Schwinger and Stevens cases remain pending and no order has been entered
dismissing Corning. Based upon the information developed to date, and
recognizing that the outcome of litigation is uncertain, management believes
that the likelihood of a materially adverse impact to Corning's financial
statements is remote.
Dow Corning Bankruptcy. Corning and Dow Chemical each own 50% of the common
stock of Dow Corning, which has been in reorganization proceedings under Chapter
11 of the U.S. Bankruptcy Code since May 1995. Dow Corning filed for bankruptcy
protection to address pending and claimed liabilities arising from many thousand
breast-implant product lawsuits each of which typically sought damages in excess
of one million dollars. On November 8, 1998, Dow Corning and the Tort Claimants
Committee jointly filed a revised Plan of Reorganization (Joint Plan) which
provided for the settlement or other resolution of implant claims. The Joint
Plan included releases for third parties (including Corning and Dow Chemical as
shareholders) in exchange for contributions to the Joint Plan. By an order dated
November 30, 1999, the Bankruptcy Court confirmed the Joint Plan, but with
certain limitations concerning the third party releases as reflected in an
opinion issued on December 21, 1999. On November 13, 2000, the U.S. District
Court for the Eastern District of Michigan reversed the Bankruptcy Court's
order, restored the third-party releases, and confirmed the Joint Plan. Certain
foreign claimants, the U.S. government, and certain other tort claimants
appealed from the District Court's order. On January 29, 2002, the U.S. Court of
Appeals for the Sixth Circuit affirmed the determinations made in the District
Court with respect to the foreign claimants, but remanded to the District Court
for further proceedings with respect to certain lien claims of the U.S.
government and with respect to the findings supporting the non-debtor releases
in favor of Dow Corning's shareholders, foreign subsidiaries and insurers. The
Plan proponents have settled the lien claims of the U.S. government for $9.8
million to be paid from the Settlement Fund under the Plan. On December 11,
2002, the District Court entered further findings and conclusions supporting the
non-debtor releases. Certain tort claimants filed appeals to the U.S. Court of
Appeals for the Sixth Circuit from the District Court's order, but all such
appeals were later dismissed. On April 2, 2004 the District Court established
June 1, 2004 as the effective date of the Plan. Any remaining personal injury
claims against Corning in these matters will be channeled to the resolution
procedures under the Joint Plan.
Under the terms of the Joint Plan, Dow Corning will establish a Settlement Trust
and a Litigation Facility to provide a means for tort claimants to settle or
litigate their claims. Dow Corning would have the obligation to fund the Trust
and the Facility, over a period of up to 16 years, in an amount up to
approximately $3.3 billion, subject to the limitations, terms and conditions
stated in the Joint Plan. Corning and Dow Chemical have each agreed to provide a
credit facility to Dow Corning of up to $150 million ($300 million in the
aggregate), subject to the terms and conditions stated in the Joint Plan. The
Joint Plan also provides for Dow Corning to make full payment, through cash and
issuance of senior notes, to its commercial creditors. These creditors claim
approximately $810 million in principal plus an additional sum for pendency
interest, costs and fees from the petition date (May 15, 1995) through the
effective date under the Plan when payment is made. The commercial creditors
have contested the Bankruptcy Court's disallowance of their claims for
post-petition interest at default rates of interest, and have appealed to the
District Court. The District Court heard oral arguments on this appeal on May 2,
2002, and on March 31, 2004 affirmed the ruling by the Bankruptcy Court. It is
possible that the commercial creditors will seek further consideration in the
District Court or pursue an appeal.
In 1995, Corning fully impaired its investment in Dow Corning upon its entry
into bankruptcy proceedings and did not recognize equity earnings from the
second quarter of 1995 through the end of 2002. Corning began recognizing equity
earnings in the first quarter of 2003 when management concluded that its
emergence from bankruptcy protection was probable based upon the Bankruptcy
Court's findings on December 11, 2002. With the exception of the possibility of
a future bankruptcy related charge, Corning considers the difference between the
carrying value of its investment in Dow Corning and its 50% share of Dow
Corning's equity to be permanent. This difference is $270 million.
Corning received no dividends from Dow Corning in 2003 and does not expect to
receive any in 2004.
Implant Tort Lawsuits. Corning and Dow Chemical, the shareholders of Dow
Corning, were named in a number of state and federal tort lawsuits alleging
injuries arising from Dow Corning's implant products. The claims against the
shareholders alleged a variety of direct or indirect theories of liability. In
1992, the federal breast implants cases were coordinated for pretrial purposes
in the U.S. District Court, Northern District of Alabama (Judge Sam C. Pointer,
Jr.). In April 1995, the District Court granted Corning a summary judgment
dismissing it from over 4,000 federal court cases. On March 12, 1996, the U.S.
Court of Appeals for the Eleventh Circuit dismissed the plaintiffs' appeal from
that judgment. In state court litigation, Corning was awarded summary judgment
in California, Connecticut, Illinois, Indiana, Michigan, Mississippi, New
Jersey, New York, Pennsylvania, Tennessee, and Dallas, Harris and Travis
Counties in Texas, thereby dismissing approximately 7,000 state cases. In
Louisiana, Corning's summary judgment was vacated by an intermediate appeals
court in Louisiana as premature. The Louisiana cases were transferred to the
U.S. District Court for the Eastern District of Michigan (Michigan Federal
Court) to which substantially all breast implant cases were transferred in 1997.
In the Michigan Federal Court, Corning is named as a defendant in approximately
70 pending cases (including some cases with multiple claimants), in addition to
the transferred Louisiana cases. The Michigan Federal Court heard Corning's
motion for summary judgment on February 27, 1998, but has not ruled. In light of
the confirmation of the Plan of Reorganization, providing a channeling of all
claims into facilities established by the Plan and releasing the shareholders,
management believes that the likelihood of a materially adverse impact to
Corning's financial statements is remote.
Federal Securities Cases. A federal securities class action lawsuit was filed in
1992 against Corning and certain individual defendants by a class of purchasers
of Corning stock who allege misrepresentations and omissions of material facts
relative to the silicone gel breast implant business conducted by Dow Corning.
This action is pending in the U.S. District Court for the Southern District of
New York. The class consists of those purchasers of Corning stock in the period
from June 14, 1989 to January 13, 1992, who allegedly purchased at inflated
prices due to the non-disclosure or concealment of material information. No
amount of damages is specified in the complaint. In 1997, the Court dismissed
the individual defendants from the case. In December 1998, Corning filed a
motion for summary judgment requesting that all claims against it be dismissed.
Plaintiffs requested the opportunity to take depositions before responding to
the motion for summary judgment. In June 2003, Corning renewed its motion for
summary judgment upon papers incorporating additional discovery materials.
Corning intends to continue to defend this action vigorously. Based upon the
information developed to date and recognizing that the outcome of litigation is
uncertain, management believes that the likelihood of a materially adverse
impact to Corning's financial statements is remote.
From December 2001 through April 2002, Corning and three of its officers and
directors were named defendants in lawsuits alleging violations of the U.S.
securities laws in connection with Corning's November 2000 offering of 30
million shares of common stock and $2.7 billion zero coupon convertible
debentures, due November 2015. In addition, the Company and the same three
officers and directors were named in lawsuits alleging misleading disclosures
and non-disclosures that allegedly inflated the price of Corning's common stock
in the period from September 2000 through July 9, 2001. The plaintiffs in these
actions seek to represent classes of purchasers of Corning's stock in all or
part of the period indicated. On August 2, 2002, the U.S. District Court of the
Western District of New York entered an order consolidating these actions for
all purposes, designating lead plaintiffs and lead counsel, and directing
service of a consolidated complaint. The consolidated amended complaint requests
"substantial" damages in an unspecified amount to be provided at trial. In
February 2003, defendants filed a motion to dismiss the complaint for failure to
allege the requisite elements of the claims with particularity. Plaintiffs
responded with opposing papers on April 7, 2003. The Court heard arguments on
May 29 and June 9, 2003, and on April 9, 2004 entered a Decision and Order
dismissing the complaint. The time to appeal will expire on May 12, 2004.
Another lawsuit has been filed, also in the Western District of New York, on
behalf of participants in the Company's Investment Plan for Salaried Employees,
purportedly as a class action on behalf of participants in the Plan who
purchased or held Corning stock in a Plan account. The defendants responded with
a motion to dismiss the lawsuit, which was granted by the District Court in a
judgment entered on December 12, 2002. On December 19, 2002, plaintiffs filed a
motion to open the judgment and for leave to file an amended complaint. This
motion was argued on April 10, 2003 and denied in a decision and order entered
on January 14, 2004. Plaintiffs have filed notice of an appeal. Management is
prepared to defend these lawsuits vigorously. Recognizing that the outcome of
litigation is uncertain, management believes that the likelihood of a materially
adverse impact to Corning's financial statements, net of applicable insurance,
is remote.
Pittsburgh Corning Corporation. Corning and PPG Industries, Inc. ("PPG") each
own 50% of the capital stock of PCC. Over a period of more than two decades, PCC
and several other defendants have been named in numerous lawsuits involving
claims alleging personal injury from exposure to asbestos. On April 16, 2000,
PCC filed for Chapter 11 reorganization in the U.S. Bankruptcy Court for the
Western District of Pennsylvania. As of the bankruptcy filing, PCC had in excess
of 140,000 open claims and had insufficient remaining insurance and assets to
deal with its alleged current and future liabilities. More than 100,000
additional claims have been filed with PCC after its bankruptcy filing. At the
time PCC filed for bankruptcy protection, there were approximately 12,400 claims
pending against Corning in state court lawsuits alleging various theories of
liability based on exposure to PCC's asbestos products and typically requesting
monetary damages in excess of one million dollars per claim. Corning has
defended those claims on the basis of the separate corporate status of PCC and
the absence of any facts supporting claims of direct liability arising from
PCC's asbestos products. Corning is also currently named in approximately 11,200
other cases (approximately 40,700 claims) alleging injuries from asbestos and
similar amounts of monetary damages per claim. Those cases have been covered by
insurance without material impact to Corning to date. Asbestos litigation is
inherently difficult, and past trends in resolving these claims may not be
indicators of future outcomes.
In the bankruptcy court, PCC in April 2000 obtained a preliminary injunction
against the prosecution of asbestos actions arising from PCC's products against
its two shareholders to afford the parties a period of time (the Injunction
Period) in which to negotiate a plan of reorganization for PCC ("PCC Plan"). The
Injunction Period was extended on several occasions and will now continue,
pending developments with respect to the PCC Plan as described below.
On May 14, 2002, PPG announced that it had agreed with certain of its insurance
carriers and representatives of current and future asbestos claimants on the
terms of a settlement arrangement applicable to claims arising from PCC's
products. The announced arrangement would permit PPG and certain of its insurers
to make contributions of cash over a period of years, PPG's shares in PCC and
Pittsburgh Corning Europe N.V. (PCE), a Belgian corporation, and an agreed
number of shares of PPG's common stock in return for a release and injunction
channeling claims against PPG into a settlement trust under the PCC Plan.
On March 28, 2003, Corning announced that it had also reached agreement with
representatives of current and future asbestos claimants on a settlement
arrangement that will be incorporated into the PCC Plan. This settlement is
subject to a number of contingencies, including a favorable vote by 75% of the
asbestos claimants voting on the PCC Plan, and approval by the bankruptcy court.
Corning's settlement will require the contribution, when the Plan becomes
effective, of its equity interest in PCC, its one-half equity interest in PCE,
and 25 million shares of Corning common stock. Corning also will be making cash
payments of $138 million (net present value as of March 31, 2004) in six
installments beginning in June 2005 assuming the Plan is effective. In addition,
Corning will assign policy rights or proceeds under primary insurance from 1962
through 1984, as well as rights to sell proceeds under certain excess insurance,
most of which falls within the period from 1962 through 1973. In return for
these contributions, Corning expects to receive a release and an injunction
channeling asbestos claims against it into a settlement trust under the PCC
Plan.
Corning recorded an initial charge of $298 million ($192 million after-tax) in
the period ending March 31, 2003 to reflect the settlement terms. However, the
amount of the charge for this settlement requires adjustment each quarter based
upon movement in Corning's common stock price prior to contribution of the
shares to the trust. In the first quarter of 2004, Corning recorded an
additional charge of $19 million ($18 million after tax) to reflect the
mark-to-market of Corning common stock. Beginning with the first quarter of
2003, Corning recorded total charges of $432 million ($282 million after-tax) to
reflect the settlement and to mark-to-market the value of Corning common stock.
Two of Corning's primary insurers and several excess insurers have commenced
litigation for a declaration of the rights and obligations of the parties under
insurance policies, including rights that may be affected by the settlement
arrangement described above. Corning is vigorously contesting these cases.
Management is unable to predict the outcome of this insurance litigation.
The PCC Plan, a disclosure statement and various supplement Plan documents were
mailed to creditors for voting completed in March 2004. The Plan received a
favorable vote. Hearings to confirm the Plan will be held in May 2004. Although
the confirmation of the PCC Plan is subject to a number of contingencies, apart
from the quarterly adjustment in the value of 25 million shares of Corning
common stock, management believes that the likelihood of a material adverse
impact to Corning's financial statements is remote.
Astrium. In December of 2000, Astrium, SAS and Astrium, Ltd. filed a complaint
for negligence in the U.S. District Court for the Central District of California
against TRW, Inc., Pilkington Optronics Inc., Corning NetOptix, Inc., OFC
Corporation and Optical Filter Corporation claiming damages in excess of $150
million. The complaint alleges that certain cover glasses for solar arrays used
to generate electricity from solar energy on satellites sold by Astrium's
corporate successor were negligently coated by NetOptix or its subsidiaries
(prior to Corning's acquisition of NetOptix) in such a way that the amount of
electricity the satellite can produce and their effective life were materially
reduced. NetOptix has denied that the coatings produced by NetOptix or its
subsidiaries caused the damage alleged in the complaint, or that it is legally
liable for any damages that Astrium may have experienced. In April 2002, the
Court granted motions for summary judgment by NetOptix and other defendants to
dismiss the negligence claims, but permitted plaintiffs to add fraud and
negligent misrepresentation claims against all defendants and a breach of
warranty claim against NetOptix and its subsidiaries. In October 2002, the Court
again granted defendants' motions for summary judgment and dismissed the
negligent misrepresentation and breach of warranty claims. The intentional fraud
claims were dismissed against all non-settling defendants on February 25, 2003.
On March 19, 2003, Astrium appealed all of the Court's Rulings regarding the
various summary judgment motions to the Ninth Circuit Court of Appeals. The
Circuit Court has stayed the appeal pending a decision in a case being appealed
to the California Supreme Court involving similar issues of law. Recognizing
that the outcome of litigation is uncertain, management believes that the
likelihood of a materially adverse impact to Corning's financial statements is
remote.
Astarte/Tellium. In July of 2002, Corning filed a demand for binding arbitration
between Corning and Astarte Fiber Networks Inc.; Tellium, Inc.; AFN, LLC; and
their related parties. The arbitration concerns a contract relating to certain
patents and patent applications previously owned by Astarte and now held by AFN
and Tellium, Astarte's successor. Corning's demand includes a claim for
approximately $38 million from those parties due to material misrepresentations
and fraud, as well as claims for unjust enrichment and to have the contract
canceled for breach. AFN has counterclaimed in the arbitration, asking the
arbitrators to decide that Corning remains obligated under the contract for
future contingent payments to AFN of up to $50 million. In January 2004, upon
application by Tellium, the U.S. District Court for the Southern District of New
York granted a preliminary injunction preventing the arbitration from proceeding
against Tellium. The arbitration hearings began in March 2004, and additional
sessions are scheduled in April and May 2004. A range of outcomes is reasonably
possible. This range is within the limits of Corning's claim for approximately
$38 million and AFN's counterclaim of up to $50 million.
Furukawa Electric Company. On February 3, 2003, The Furukawa Electric Company
filed suit in the Tokyo District Court in Japan against Corning Cable Systems
International Corporation ("CCS International") alleging infringement of
Furukawa's Japanese Patent No. 2,023,966 which relates to separable fiber ribbon
units used in optical cable. Furukawa's complaint requests slightly over (Y)6
billion in damages (approximately $56 million) and an injunction against further
sales in Japan of these fiber ribbon units. CCS International has denied the
allegation of infringement, asserted that the patent is invalid, and is
defending vigorously against this lawsuit. Management believes that the
likelihood of a materially adverse impact to Corning's financial statements is
remote.
Chinese Anti-Dumping Investigation. On July 1, 2003, the Chinese Ministry of
Commerce announced an anti-dumping investigation against manufacturers of
optical fiber based in the U.S, Korea and Japan, alleging that standard
single-mode optical fiber was sold in China at lower prices than in the
respective home country. This matter does not present a claim for damages, but
the Ministry may impose an additional prospective duty on important fiber
products. The Ministry's preliminary determination is anticipated in the second
quarter of 2004 and a final determination is possible by July 1, 2004. Corning
is defending vigorously. Corning management is not able to estimate the impact
of this proceeding upon its export business to China pending a final
determination nor to express assurances regarding the likelihood that an
additional duty may be imposed.
PicVue Electronics Ltd., PicVue OptoElectronics International, Inc. and
Eglasstrek Gmbh. In June 2002, Corning brought an action seeking to restrain the
use of its trade secrets and for copyright infringement relating to certain
aspects of the fusion draw machine used for liquid crystal display glass
melting. This action is pending in the U.S. District Court for the Western
District of New York against these three named defendants. The District Court in
July 2003 denied the PicVue motion to dismiss and granted a preliminary
injunction in favor of Corning, subject to posting a bond in an amount to be
determined. PicVue, a Taiwanese company, responded in July 2003 with a
counterclaim alleging violations of the antitrust laws and claiming damages of
more than $120 million as well as requesting trebled damages. PicVue has
appealed the District Court's ruling and the District Court has deferred ruling
on the bond amount until the completion of such appeal. In April 2004, the
Second Circuit Court Court of Appeals vacated the preliminary injunction order
because specificity requirements were not met and remanded that to the District
Court, which has set a June 23, 2004 rehearing date. Recognizing that the
outcome of litigation is uncertain, management believes that the PicVue
counterclaim is without merit and that the likelihood of a materially adverse
impact to Corning's financial statements is remote.
Tyco Electronics Corporation and Tyco Technology Resources, Inc. On August 13,
2003, CCS Holdings Inc. ("CCS"), a Corning subsidiary, filed an action in the
U.S. District Court for the Middle District of North Carolina against Tyco
Electronics Corporation and Tyco Technology Resources, Inc. ("Tyco"), asking the
court to declare a Tyco patent invalid and not infringed by CCS. The patent
generally relates to a type of connector for optical fiber cables. Tyco has
responded with a motion to dismiss the action for lack of jurisdiction. That
motion has been fully briefed by the parties, and Tyco has requested a hearing.
Management has not estimated the range of monetary damages that may be claimed
if CCS does not prevail on its claim that the Tyco patent is invalid or not
infringed. Recognizing that the outcome of litigation is uncertain, management
believes that the risk of a material impact on Corning's financial statements is
remote.
Grand Jury Investigation of Conventional Cathode Ray Television Glass Business.
In August 2003, CAV was served with a federal grand jury document subpoena
related to pricing, bidding and customer practices involving conventional
cathode ray television glass picture tube components. Eight employees or former
employees have each received a related subpoena. CAV is a general partnership,
51% owned by Corning and 49% owned by Asahi Glass America, Inc. CAV's only
manufacturing facility in State College, Pennsylvania closed in the first half
of 2003 due to declining sales. CAV is cooperating with the government
investigation. Management is not able to estimate the likelihood that any
charges will be filed as a result of the investigation.
ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY
SECURITIES
During the quarter ended March 31, 2004, we did not have a publicly announced
program for repurchase of shares of our common stock and did not repurchase our
common stock in open-market transactions outside of such a program.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
We will include voting results of our annual meeting of shareholders held on
April 29, 2004 as part of our quarterly report on Form 10-Q for the quarter
ended June 30, 2004, which we expect to file with the Securities and Exchange
Commission on or before August 9, 2004.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
------- --------------------------------
(a) Exhibits
Exhibit Number Exhibit Name
-------------- ------------
10.1 Form of Officer Severance Agreement dated as of February 1, 2004 between Corning
Incorporated and each of the following four individuals: James B. Flaws,
James R. Houghton, Peter F. Volanakis and Wendell P. Weeks.
10.2 Officer Severance Agreement dated as of February 1, 2004 between Corning Incorporated
and Joseph A. Miller, Jr.
10.3 Change In Control Agreement dated as of February 1, 2004 between Corning Incorporated
and James R. Houghton.
10.4 Form of Amendment dated as of February 1, 2004 to Change In Control Agreement dated
as of October 4, 2000 between Corning Incorporated and the following two individuals:
James B. Flaws and Peter F. Volanakis.
10.5 Form of Change In Control Amendment dated as of October 4, 2000 between Corning
Incorporated and the following two individuals: James B. Flaws and Peter F. Volanakis.
10.6 Amendment dated as of February 1, 2004 to Change In Control Agreement dated as of
June 1, 2001 between Corning Incorporated and Joseph A. Miller, Jr.
10.7 Change In Control Agreement dated as of June 1, 2001 between Corning Incorporated and
Joseph A. Miller, Jr.
10.8 Amendment dated as of February 1, 2004 to Change In Control Agreement dated as of
April 23, 2002 between Corning Incorporated and Wendell P. Weeks.
10.9 Change In Control Agreement dated as of April 23, 2002 between Corning Incorporated
and Wendell P. Weeks.
12 Computation of Ratio of Earnings to Fixed Charges.
31.1 Certification Pursuant to Rule 13a-15(e) and 15d-15(e), As adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification Pursuant to Rule 13a-15(e) and 15d-15(e), As adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification Pursuant to 18 U.S.C. Section 1350, As adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
99.1 Amended Operating Segment Data for the years ended 2003, 2002, and 2001.
99.2 Non-GAAP Reconciliation.
(b) Reports on Form 8-K
A report on Form 8-K was filed January 22, 2004, in connection with the
registrant's 2003 results, furnishing material pursuant to Item 12 and
Item 9.*
A report on Form 8-K was filed February 5, 2004, regarding Eugene C.
Sit joining the Board of Directors, furnishing material pursuant to
Item 9.*
A report on Form 8-K was filed March 12, 2004, in connection with our
agreement to sell $200,000,000 principal amount of our 5.90% Notes due
2014 and $200,000,000 principal amount of our 6.20% Notes due 2016,
under Item 5 and Item 7 and furnishing material pursuant to Item 9.*
* Information furnished under Item 9 or Item 12 of Form 8-K is not
incorporated by reference, is not deemed filed and is not subject to
liability under Section 18 of the Securities and Exchange Act of 1934,
as amended.
* Other items under Part II are not applicable.
SIGNATURES
----------
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CORNING INCORPORATED
(Registrant)
May 4, 2004 /s/ JAMES B. FLAWS
-------------------- --------------------------------------------
Date James B. Flaws
Vice Chairman and Chief Financial Officer
(Principal Financial Officer)
May 4, 2004 /s/ KATHERINE A. ASBECK
-------------------- --------------------------------------------
Date Katherine A. Asbeck
Senior Vice President and Controller
(Principal Accounting Officer)
EXHIBIT INDEX
-------------
Exhibit Number Exhibit Name
------------- ------------
10.1 Form of Officer Severance Agreement dated as of February 1, 2004 between Corning
Incorporated and each of the following four individuals: James B. Flaws, James R. Houghton,
Peter F. Volanakis and Wendell P. Weeks.
10.2 Officer Severance Agreement dated as of February 1, 2004 between Corning Incorporated and
Joseph A. Miller, Jr.
10.3 Change In Control Agreement dated as of February 1, 2004 between Corning Incorporated and
James R. Houghton.
10.4 Form of Amendment dated as of February 1, 2004 to Change In Control Agreement dated
as of October 4, 2000 between Corning Incorporated and the following two individuals:
James B. Flaws and Peter F. Volanakis.
10.5 Form of Change In Control Amendment dated as of October 4, 2000 between Corning
Incorporated and the following two individuals: James B. Flaws and Peter F. Volanakis.
10.6 Amendment dated as of February 1, 2004 to Change In Control Agreement dated as of
June 1, 2001 between Corning Incorporated and Joseph A. Miller, Jr.
10.7 Change In Control Agreement dated as of June 1, 2001 between Corning Incorporated and
Joseph A. Miller, Jr.
10.8 Amendment dated as of February 1, 2004 to Change In Control Agreement dated as of
April 23, 2002 between Corning Incorporated and Wendell P. Weeks.
10.9 Change In Control Agreement dated as of April 23, 2002 between Corning Incorporated and
Wendell P. Weeks.
12 Computation of Ratio of Earnings to Fixed Charges.
31.1 Certification Pursuant to Rule 13a-15(e) and 15d-15(e), As adopted Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
31.2 Certification Pursuant to Rule 13a-15(e) and 15d-15(e), As adopted Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
32.1 Certification Pursuant to 18 U.S.C. Section 1350, As adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.1 Amended Operating Segment Data for the years ended 2003, 2002, and 2001.
99.2 Non-GAAP Reconciliation.
EXHIBIT 10.1
CORNING INCORPORATED
OFFICER SEVERANCE AGREEMENT
This Agreement, dated as of February 1, 2004, is entered into between
Corning Incorporated, a corporation organized under the laws of the State of New
York ("Corning" or the "Company"), and [James B. Flaws, James R. Houghton, Peter
F. Volanakis and Wendell P. Weeks each individually] (the "Executive").
WHEREAS, the Board of Directors of the Company (the "Board") recognizes
that the possibility of an Involuntary Termination (as hereinafter defined)
exists and that the occurrence of an Involuntary Termination can result in
significant uncertainties inherent in such a situation; and
WHEREAS, the Company has had both informal and formal practices in this
area in the past, and the Board has determined that it is in the best interest
of the Company and its stockholders to have clarity over the obligations of the
Company to the Executive as a result of an Involuntary Termination; and
WHEREAS, the Company and Executive agree that this Agreement shall
replace all previous plans, agreements and provisions, written or oral, and
become the sole agreement relating to Executive's Involuntary Termination from
the Company.
NOW, THEREFORE, in consideration of the respective agreements of the
parties contained herein, it is agreed as follows:
1. TERM OF AGREEMENT. This Agreement shall commence as of
February 1, 2004 (the "Effective Date") and shall continue in effect until the
Executive leaves the employ of the Company for any reason or until the Executive
ceases to be an officer of Corning Incorporated. In the event that Executive
continues as an active employee of the Company but ceases to be an officer of
Corning Incorporated (except as a result of an assignment based outside the
United States), this Agreement shall become null and void and Executive shall
then be eligible for Corning's standard severance policy (in effect on the
Termination Date) provided to other salaried employees.
2. DEFINITIONS.
a. ACCRUED COMPENSATION. For purposes of this Agreement,
"Accrued Compensation" shall mean an amount which shall include all amounts
earned or accrued through the "Termination Date" (as hereinafter defined) but
not paid as of the Termination Date, including (i) base salary, (ii)
reimbursement for reasonable and necessary expenses incurred by the Executive on
behalf of the Company during the period ending on the Termination Date, (iii)
vacation pay and (iv) the Executive's target percentage for the annual
Management Variable Compensation and GoalSharing plans (collectively, the "Bonus
Plans") times the Executive's base salary, pro-rated to the last day of the
month closest to the Termination Date.
b. BASE AMOUNT. For purposes of this Agreement, "Base Amount"
shall mean the Executive's annual base salary at the rate in effect on the
termination date, including all amounts of base salary that are deferred under
the employee benefit plans of the Company or any other agreement or arrangement.
c. BONUS AMOUNT. For purposes of this Agreement, "Bonus
Amount" shall mean the Executive's Base Amount times the sum of a) Executive's
target percentage in effect on the termination date under the Company's
Management Variable Compensation Plan (also referred to as the Performance
Incentive Plan), and b) 5% target under the Company's GoalSharing plan.
d. CAUSE. For purposes of this Agreement, "Cause" shall mean
the Executive's:
(i) conviction of a felony or conviction of a
misdemeanor involving moral turpitude (from which no further appeals have been
or can be taken);
(ii) a material breach of Corning's Code of Conduct;
(iii) gross abdication of his duties as an employee
and officer of the Company (other than due to the Executive's illness or
personal family problems), which conduct remains uncured by the Executive for a
period of at least 30 days following written notice thereof to the Executive by
the Company, in each case as determined in good faith by the Company; or
(iv) misappropriation of Company assets, personal
dishonesty or business conduct which causes material or potentially material
financial or reputational harm for the Company. For purposes of this Section
2(d), no act or failure to act on the Executive's part shall be deemed to be a
termination for Cause if done, or omitted to be done, in good faith, and with
the reasonable belief that the action or omission was in the best interests of
the Company.
e. INVOLUNTARY TERMINATION. For purposes of this Agreement, an
"Involuntary Termination" shall mean that Executive's employment with the
Company is severed by the Company for reasons other than Cause. For purposes of
clarification, an Involuntary Termination does not include the following:
(i) a voluntary termination of employment (or
resignation) by the Executive for any reason;
(ii) the voluntary retirement of the Executive at or
after age 55 (or retirement at the eligible age under the
terms of a Selective Voluntary Early Retirement Program
(SVERP) offered by the Company);
(iii) a termination of employment as a result of
Disability or death of the Executive;
(iv) Executive's termination of employment as a
result of a sale of all or a part of its business (or
otherwise where it merges, divides, consolidates or
reorganizes) and Executive has the opportunity to continue
employment with the buyer (or one of the resulting entities in
any merger, division, consolidation or reorganization) with
comparable total compensation regardless of whether the job or
terms and conditions of employment are the same as applicable
during the Executive's prior employment with Corning and
regardless of whether the individual accepts or rejects such
employment opportunity; or
(v) a termination of employment as a result of a
Change In Control of the Company to the extent Executive has a
separate Change In Control agreement with the Company which
separately addresses that situation.
f. COMPANY. For purposes of this Agreement, "Company" shall
include Corning's "Successors and Assigns" (as hereinafter defined).
g. DISABILITY. For purposes of this Agreement, "Disability"
shall mean a physical or mental infirmity which impairs the Executive's ability
to substantially perform the Executive's duties with the Company for a period
of: (i) one hundred eighty (180) consecutive days; or (ii) 180 days during any
twelve (12) month period, and the Executive has not returned to full time
employment prior to the Termination Date as stated in the "Notice of
Termination".
h. PERFORMANCE SHARES. For purposes of this Agreement,
"Performance Shares" shall mean any restricted stock award granted to the
Executive under the Company's Corporate Performance Plan or other long-term
incentive plan (to the extent Performance Shares are used in such plan(s)) while
the Executive was actively employed.
i. NOTICE OF TERMINATION. For purposes of this Agreement,
"Notice of Termination" shall mean a written notice of termination of the
Executive's employment from the Company, which notice indicates the last day of
active employment with the Company (the "Termination Date"), the benefits to be
received by the Executive and any applicable terms and conditions (which shall
include a release of all claims and liabilities arising out of Executive's
employment or termination of employment and an ongoing requirement to protect
the Company's confidential information). The Notice of Termination will not
become effective until it is signed by Executive and an authorized
representative of the Company within the time period specified in the Notice of
Termination.
j. SUCCESSORS AND ASSIGNS. For purposes of this Agreement,
"Successors and Assigns" shall mean a corporation or other entity acquiring all
or substantially all of the assets and business of the Company whether by
operation of law or otherwise.
3. SEVERANCE BENEFITS
a. If, during the term of this Agreement, an Involuntary
Termination occurs, the Executive shall be entitled to the following
compensation and benefits:
(i) The Company shall pay Executive all Accrued
Compensation;
(ii) The Company shall pay Executive 2.99 times
the sum of (A) the Base Amount and (B) the Bonus Amount;
(iii) Executive shall receive all vested benefits
earned under any Company-sponsored retirement or benefit plan in accordance
with the terms of those plans, including (only to the extent applicable) any
special terms previously provided to Executive in writing by the Company;
(iv) Notwithstanding anything to the contrary,
Executive shall receive an additional 2.99 years of service credit for purposes
of eligibility and vesting only under the Company's various qualified and
nonqualified retirement plan(s) that Executive participates in. In addition, to
the extent that Executive has been notified that he is an eligible participant
under the Company's Executive Supplemental Pension Plan (generally Senior Vice
President and above unless otherwise notified in writing), Executive shall
receive the following enhanced benefits:
(A) Executive shall receive an additional 2.99 years of service credit
added to Executive's actual service with Corning for purposes of the
years of service multiplier under the Executive Supplemental Pension
Plan pension formula; and
(B) Executive's Final Average Pay shall be based on Executive's actual
earnings with Corning and will take into consideration (to the extent
it may be to Executive's advantage) Executive's severance benefits
(i.e. the 2.99 years of Base Amount and Bonus Amount only). For
purposes of this subsection only, and regardless of the lump-sum form
of payment specified in Section 3(b), Executive's Base Amount will be
divided by twelve and deemed to be paid on a monthly basis for three
(3) years (commencing in the month following the month in which the
Termination Date occurs) and Executive's Bonus Amount will be deemed to
be paid each subsequent February for three (3) years following
Executive's Termination Date.
(v) Executive shall be eligible for comprehensive
outplacement assistance equal to 20% of the Base Amount (up to a maximum of
$50,000) at the time of termination payable by the Company within one year
directly to an outside vendor selected by the Executive. At the election of the
Executive, a one-time taxable payment up to a maximum of $25,000 may be paid in
lieu of the outplacement benefit provided in the preceding sentence.
(vi) the restrictions on any outstanding equity
incentive awards, including stock options, Performance Shares and restricted
stock, granted to the Executive under the Company's stock option and other stock
incentive plans shall be governed solely by the terms of those specific plans
and agreements. Nothing in this Agreement is intended to modify the terms and
conditions of such plans and agreements discussed in this section.
(vii) for a number of months equal to twenty-four
(24) months (the "Continuation Period"), the Company shall continue on behalf
of the Executive and the Executive's eligible dependents, the medical, dental
and hospitalization benefits provided (A) to the Executive at any time during
the 90-day period prior to the Involuntary Termination or at any time thereafter
or (B) to other similarly situated executives who continue in the employ of the
Company during the Continuation Period. The coverage and benefits (including
deductibles, copays and employee contribution costs) provided in this Section
3(a)(vii) during the Continuation Period shall be no less favorable to the
Executive and the Executive's dependents than coverage provided to other
similarly situated active employees of the Company. The Company's obligation
under this Section 3(a)(vii) shall cease as soon as Executive becomes eligible
for another employer's medical, dental and hospitalization benefits during the
Continuation Period.
(viii) the Executive may request the Company to
purchase the Executive's principal residence in the Corning, New York area.
Such purchase must be finalized within 12 months of the Termination Date and
shall be made at the greater of (i) the residence's appraised value at the
Termination Date, as determined in accordance with the Company's relocation
policies in effect immediately prior to the Involuntary Termination, or (ii)
the total cost of the residence plus improvements and tax gross-up as applicable
("Protected Value"), as determined in accordance with the Company's Protected
Value policy in effect as of the date of this Agreement.
b. The amounts provided for in subsections 3(a)(i), 3(a)(ii)
and 3(a)(v) shall be paid in a single lump sum cash payment within thirty (30)
days of the Date of Termination (or the date the Notice of Termination becomes
effective, if later).
c. Except as otherwise provided in Section 3(a)(vii), the
Executive shall not be required to mitigate the amount of any payment provided
for in this Agreement by seeking other employment or otherwise, and no such
payment shall be offset or reduced by the amount of any compensation or benefits
provided to the Executive in any subsequent employment.
4. EMPLOYMENT TAXES. All payments made pursuant to this Agreement
will be subject to all applicable withholdings of income and employment taxes.
5. SUCCESSORS; BINDING AGREEMENT. This Agreement shall be binding
upon and shall inure to the benefit of the Company, its Successors and Assigns
and the Company shall require any Successors and Assigns to expressly assume and
agree to perform this Agreement in the same manner and to the same extent that
the Company would be required to perform it if no such succession or assignment
had taken place. Neither this Agreement nor any right or interest hereunder
shall be assignable or transferable by the Executive or the Executive's
beneficiaries or legal representatives. This Agreement shall inure to the
benefit of and be enforceable by the Executive's legal personal representative.
6. NOTICE. For the purposes of this Agreement, notices and all
other communications provided for in the Agreement (including the Notice of
Termination) shall be in writing and shall be deemed to have been duly given
when personally delivered or sent by certified mail, return receipt requested,
postage prepaid, addressed to the respective addresses last given by each party
to the other, provided that all notices to the Company shall be directed to the
attention of the Vice President of Compensation & Benefits or the Vice President
of Human Resources of the Company.
7. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any
benefit, bonus, incentive or other plan or program provided by the Company
(except for any severance or termination policies, plans, programs or practices)
and for which the Executive may qualify, nor shall anything herein limit or
reduce such rights as the Executive may have under any other agreements with the
Company. Amounts which are vested benefits or which the Executive is otherwise
entitled to receive under any plan or program of the Company shall be payable in
accordance with such plan or program, except as explicitly modified by this
Agreement.
8. NO IMPLIED EMPLOYMENT RIGHTS. Nothing in this Agreement shall
alter the Executive's status as an "at will" employee of the Company or be
construed to imply that the Executive's employment is guaranteed for any period
of time except as otherwise agreed in a written agreement signed by a duly
authorized officer of the Company.
9. MISCELLANEOUS. No provision of this Agreement may be modified,
waived or discharged, unless such waiver, modification or discharge is agreed to
in writing and signed by the Executive and the Company. No waiver by either
party hereto at any time of any breach by the other party hereto, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time. No agreement or representation,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not expressly set forth in this
Agreement.
10. GOVERNING LAW. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York
without giving effect to the conflict of law principles thereof.
11. ARBITRATION. Any dispute or controversy arising under or in
connection with the subject matter, the interpretation, the application, or
alleged breach of this Agreement ("Arbitrable Claims") shall be resolved by
binding arbitration in the City of New York, New York, in accordance with the
then-current National Rules for the Resolution of Employment Disputes of the
American Arbitration Association. Arbitration shall be final and binding upon
the parties and shall be the exclusive remedy for all Arbitrable Claims.
Notwithstanding the foregoing, either party may bring an action in court to
compel arbitration under this Agreement, to enforce an arbitration award, or to
seek injunctive relief. THE PARTIES HEREBY WAIVE ANY RIGHT TO JURY TRIAL AS TO
ARBITRABLE CLAIMS.
12. SEVERABILITY. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
13. ENTIRE AGREEMENT. The parties agree that the terms of this
Agreement are intended to be the final expression of their agreement with
respect to the subject matter of this Agreement and may not be contradicted by
evidence of any prior or contemporaneous Agreement, except to the extent that
the provisions of any such agreement have been expressly referred to in this
Agreement as having continued effect. Any and all previous agreements, practices
and programs between the Company and the Executive dealing with severance or a
Termination of Employment are null and void and given no effect.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer and the Executive has executed this
Agreement as of the day and year first above written.
Corning Incorporated:
By: /s/ John P. MacMahon
------------------------------------------------
John P. MacMahon
Vice President, Global Compensation & Benefits
Executive:
/s/
------------------------------------------------
[each signed separately by James B. Flaws, James R. Houghton,
Peter F. Volanakis and Wendell P. Weeks.]
EXHIBIT 10.2
CORNING INCORPORATED
OFFICER SEVERANCE AGREEMENT
This Agreement, dated as of February 1, 2004, is entered into between
Corning Incorporated, a corporation organized under the laws of the State of
New York ("Corning" or the "Company"), and Joseph A. Miller, Jr.
(the "Executive").
WHEREAS, the Board of Directors of the Company (the "Board") recognizes
that the possibility of an Involuntary Termination (as hereinafter defined)
exists and that the occurrence of an Involuntary Termination can result in
significant uncertainties inherent in such a situation; and
WHEREAS, the Company has had both informal and formal practices in this
area in the past, and the Board has determined that it is in the best interest
of the Company and its stockholders to have clarity over the obligations of the
Company to the Executive as a result of an Involuntary Termination; and
WHEREAS, the Company and Executive agree that this Agreement shall
replace all previous plans, agreements and provisions, written or oral, and
become the sole agreement relating to Executive's Involuntary Termination from
the Company.
NOW, THEREFORE, in consideration of the respective agreements of the
parties contained herein, it is agreed as follows:
1. TERM OF AGREEMENT. This Agreement shall commence as of
February 1, 2004 (the "Effective Date") and shall continue in effect until the
Executive leaves the employ of the Company for any reason or until the Executive
ceases to be an officer of Corning Incorporated. In the event that Executive
continues as an active employee of the Company but ceases to be an officer of
Corning Incorporated (except as a result of an assignment based outside the
United States), this Agreement shall become null and void and Executive shall
then be eligible for Corning's standard severance policy (in effect on the
Termination Date) provided to other salaried employees.
2. DEFINITIONS.
a. ACCRUED COMPENSATION. For purposes of this Agreement,
"Accrued Compensation" shall mean an amount which shall include all amounts
earned or accrued through the "Termination Date" (as hereinafter defined) but
not paid as of the Termination Date, including (i) base salary, (ii)
reimbursement for reasonable and necessary expenses incurred by the Executive on
behalf of the Company during the period ending on the Termination Date, (iii)
vacation pay and (iv) the Executive's target percentage for the annual
Management Variable Compensation and GoalSharing plans (collectively, the "Bonus
Plans") times the Executive's base salary, pro-rated to the last day of the
month closest to the Termination Date.
b. BASE AMOUNT. For purposes of this Agreement, "Base Amount"
shall mean the Executive's annual base salary at the rate in effect on the
termination date, including all amounts of base salary that are deferred under
the employee benefit plans of the Company or any other agreement or arrangement.
c. BONUS AMOUNT. For purposes of this Agreement, "Bonus
Amount" shall mean the Executive's Base Amount times the sum of a) Executive's
target percentage in effect on the termination date under the Company's
Management Variable Compensation Plan (also referred to as the Performance
Incentive Plan), and b) 5% target under the Company's GoalSharing plan.
d. CAUSE. For purposes of this Agreement, "Cause" shall mean
the Executive's:
(i) conviction of a felony or conviction of a
misdemeanor involving moral turpitude (from which no
further appeals have been or can be taken);
(ii) a material breach of Corning's Code of Conduct;
(iii) gross abdication of his duties as an employee
and officer of the Company (other than due to the
Executive's illness or personal family problems), which conduct remains uncured
by the Executive for a period of at least 30 days following written notice
thereof to the Executive by the Company, in each case as determined in good
faith by the Company; or
(iv) misappropriation of Company assets, personal
dishonesty or business conduct which causes material
or potentially material financial or reputational harm for the Company. For
purposes of this Section 2(d), no act or failure to act on the Executive's part
shall be deemed to be a termination for Cause if done, or omitted to be done, in
good faith, and with the reasonable belief that the action or omission was in
the best interests of the Company.
e. INVOLUNTARY TERMINATION. For purposes of this Agreement, an
"Involuntary Termination" shall mean that Executive's employment with the
Company is severed by the Company for reasons other than Cause. For purposes of
clarification, an Involuntary Termination does not include the following:
(i) a voluntary termination of employment (or
resignation) by the Executive for any reason;
(ii) the voluntary retirement of the Executive at or
after age 55 (or retirement at the eligible age under the
terms of a Selective Voluntary Early Retirement Program
(SVERP) offered by the Company);
(iii) a termination of employment as a result of
Disability or death of the Executive;
(iv) Executive's termination of employment as a
result of a sale of all or a part of its business (or
otherwise where it merges, divides, consolidates or
reorganizes) and Executive has the opportunity to continue
employment with the buyer (or one of the resulting entities in
any merger, division, consolidation or reorganization) with
comparable total compensation regardless of whether the job or
terms and conditions of employment are the same as applicable
during the Executive's prior employment with Corning and
regardless of whether the individual accepts or rejects such
employment opportunity; or
(v) a termination of employment as a result of a
Change In Control of the Company to the extent Executive has a
separate Change In Control agreement with the Company which
separately addresses that situation.
f. COMPANY. For purposes of this Agreement, "Company" shall
include Corning's "Successors and Assigns" (as hereinafter defined).
g. DISABILITY. For purposes of this Agreement, "Disability"
shall mean a physical or mental infirmity which impairs the Executive's ability
to substantially perform the Executive's duties with the Company for a period
of: (i) one hundred eighty (180) consecutive days; or (ii) 180 days during any
twelve (12) month period, and the Executive has not returned to full time
employment prior to the Termination Date as stated in the "Notice of
Termination".
h. PERFORMANCE SHARES. For purposes of this Agreement,
"Performance Shares" shall mean any restricted stock award granted to the
Executive under the Company's Corporate Performance Plan or other long-term
incentive plan (to the extent Performance Shares are used in such plan(s)) while
the Executive was actively employed.
i. NOTICE OF TERMINATION. For purposes of this Agreement,
"Notice of Termination" shall mean a written notice of termination of the
Executive's employment from the Company, which notice indicates the last day of
active employment with the Company (the "Termination Date"), the benefits to be
received by the Executive and any applicable terms and conditions (which shall
include a release of all claims and liabilities arising out of Executive's
employment or termination of employment and an ongoing requirement to protect
the Company's confidential information). The Notice of Termination will not
become effective until it is signed by Executive and an authorized
representative of the Company within the time period specified in the Notice of
Termination.
j. SUCCESSORS AND ASSIGNS. For purposes of this Agreement,
"Successors and Assigns" shall mean a corporation or other entity acquiring all
or substantially all of the assets and business of the Company whether by
operation of law or otherwise.
3. SEVERANCE BENEFITS
a. If, during the term of this Agreement, an Involuntary
Termination occurs, the Executive shall be entitled to the following
compensation and benefits:
(i) The Company shall pay Executive all Accrued
Compensation;
(ii) The Company shall pay Executive two (2) times
the sum of (A) the Base Amount and (B) the Bonus Amount;
(iii) Executive shall receive all vested benefits
earned under any Company-sponsored retirement or benefit plan in accordance
with the terms of those plans, including (only to the extent applicable) any
special terms previously provided to Executive in writing by the Company;
(iv) Notwithstanding anything to the contrary,
Executive shall receive an additional two (2) years of service credit for
purposes of eligibility and vesting only under the Company's various qualified
and nonqualified retirement plan(s) that Executive participates in. In addition,
to the extent that Executive has been notified that he is an eligible
participant under the Company's Executive Supplemental Pension Plan (generally
Senior Vice President and above unless otherwise notified in writing), Executive
shall receive the following enhanced benefits:
(A) Executive shall receive an additional two (2) years of service
credit added to Executive's actual service with Corning for purposes of
the years of service multiplier under the Executive Supplemental
Pension Plan pension formula; and
(B) Executive's Final Average Pay shall be based on Executive's actual
earnings with Corning and will take into consideration (to the extent
it may be to Executive's advantage) Executive's severance benefits
(i.e. the two (2) years of Base Amount and Bonus Amount only). For
purposes of this subsection only, and regardless of the lump-sum form
of payment specified in Section 3(b), Executive's Base Amount will be
divided by twelve and deemed to be paid on a monthly basis for two (2)
years (commencing in the month following the month in which the
Termination Date occurs) and Executive's Bonus Amount will be deemed to
be paid each subsequent February for two (2) years following
Executive's Termination Date.
(v) Executive shall be eligible for comprehensive
outplacement assistance equal to 20% of the Base Amount (up to a maximum of
$50,000) at the time of termination payable by the Company within one year
directly to an outside vendor selected by the Executive. At the election of the
Executive, a one-time taxable payment up to a maximum of $25,000 may be paid in
lieu of the outplacement benefit provided in the preceding sentence.
(vi) the restrictions on any outstanding equity
incentive awards, including stock options, Performance Shares and restricted
stock, granted to the Executive under the Company's stock option and other stock
incentive plans shall be governed solely by the terms of those specific plans
and agreements. Nothing in this Agreement is intended to modify the terms and
conditions of such plans and agreements discussed in this section.
(vii) for a number of months equal to twenty-four
(24) months (the "Continuation Period"), the Company shall continue on behalf
of the Executive and the Executive's eligible dependents, the medical, dental
and hospitalization benefits provided (A) to the Executive at any time during
the 90-day period prior to the Involuntary Termination or at any time thereafter
or (B) to other similarly situated executives who continue in the employ of the
Company during the Continuation Period. The coverage and benefits (including
deductibles, copays and employee contribution costs) provided in this Section
3(a)(vii) during the Continuation Period shall be no less favorable to the
Executive and the Executive's dependents than coverage provided to other
similarly situated active employees of the Company. The Company's obligation
under this Section 3(a)(vii) shall cease as soon as Executive becomes eligible
for another employer's medical, dental and hospitalization benefits during the
Continuation Period.
(viii) the Executive may request the Company to
purchase the Executive's principal residence in the Corning, New York area.
Such purchase must be finalized within 12 months of the Termination Date and
shall be made at the greater of (i) the residence's appraised value at the
Termination Date, as determined in accordance with the Company's relocation
policies in effect immediately prior to the Involuntary Termination, or (ii)
the total cost of the residence plus improvements and tax gross-up as applicable
("Protected Value"), as determined in accordance with the Company's Protected
Value policy in effect as of the date of this Agreement.
b. The amounts provided for in subsections 3(a)(i), 3(a)(ii)
and 3(a)(v) shall be paid in a single lump sum cash payment within thirty (30)
days of the Date of Termination (or the date the Notice of Termination becomes
effective, if later).
c. Except as otherwise provided in Section 3(a)(vii), the
Executive shall not be required to mitigate the amount of any payment provided
for in this Agreement by seeking other employment or otherwise, and no such
payment shall be offset or reduced by the amount of any compensation or benefits
provided to the Executive in any subsequent employment.
4. EMPLOYMENT TAXES. All payments made pursuant to this Agreement
will be subject to all applicable withholdings of income and employment taxes.
5. SUCCESSORS; BINDING AGREEMENT. This Agreement shall be binding
upon and shall inure to the benefit of the Company, its Successors and Assigns
and the Company shall require any Successors and Assigns to expressly assume and
agree to perform this Agreement in the same manner and to the same extent that
the Company would be required to perform it if no such succession or assignment
had taken place. Neither this Agreement nor any right or interest hereunder
shall be assignable or transferable by the Executive or the Executive's
beneficiaries or legal representatives. This Agreement shall inure to the
benefit of and be enforceable by the Executive's legal personal representative.
6. NOTICE. For the purposes of this Agreement, notices and all
other communications provided for in the Agreement (including the Notice of
Termination) shall be in writing and shall be deemed to have been duly given
when personally delivered or sent by certified mail, return receipt requested,
postage prepaid, addressed to the respective addresses last given by each party
to the other, provided that all notices to the Company shall be directed to the
attention of the Vice President of Compensation & Benefits or the Vice President
of Human Resources of the Company.
7. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any
benefit, bonus, incentive or other plan or program provided by the Company
(except for any severance or termination policies, plans, programs or practices)
and for which the Executive may qualify, nor shall anything herein limit or
reduce such rights as the Executive may have under any other agreements with
the Company. Amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any plan or program of the Company shall be
payable in accordance with such plan or program, except as explicitly modified
by this Agreement.
8. NO IMPLIED EMPLOYMENT RIGHTS. Nothing in this Agreement shall
alter the Executive's status as an "at will" employee of the Company or be
construed to imply that the Executive's employment is guaranteed for any period
of time except as otherwise agreed in a written agreement signed by a duly
authorized officer of the Company.
9. MISCELLANEOUS. No provision of this Agreement may be modified,
waived or discharged, unless such waiver, modification or discharge is agreed to
in writing and signed by the Executive and the Company. No waiver by either
party hereto at any time of any breach by the other party hereto, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time. No agreement or representation,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not expressly set forth in this
Agreement.
10. GOVERNING LAW. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York
without giving effect to the conflict of law principles thereof.
11. ARBITRATION. Any dispute or controversy arising under or in
connection with the subject matter, the interpretation, the application, or
alleged breach of this Agreement ("Arbitrable Claims") shall be resolved by
binding arbitration in the City of New York, New York, in accordance with the
then-current National Rules for the Resolution of Employment Disputes of the
American Arbitration Association. Arbitration shall be final and binding upon
the parties and shall be the exclusive remedy for all Arbitrable Claims.
Notwithstanding the foregoing, either party may bring an action in court to
compel arbitration under this Agreement, to enforce an arbitration award, or to
seek injunctive relief. THE PARTIES HEREBY WAIVE ANY RIGHT TO JURY TRIAL AS TO
ARBITRABLE CLAIMS.
12. SEVERABILITY. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
13. ENTIRE AGREEMENT. The parties agree that the terms of this
Agreement are intended to be the final expression of their agreement with
respect to the subject matter of this Agreement and may not be contradicted by
evidence of any prior or contemporaneous Agreement, except to the extent that
the provisions of any such agreement have been expressly referred to in this
Agreement as having continued effect. Any and all previous agreements, practices
and programs between the Company and the Executive dealing with severance or a
Termination of Employment are null and void and given no effect.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer and the Executive has executed this
Agreement as of the day and year first above written.
Corning Incorporated:
By: /s/ John P. MacMahon
---------------------------------------------------------
John P. MacMahon
Vice President, Global Compensation & Benefits
Executive:
/s/ Joseph A. Miller, Jr.
---------------------------------------------------------
Joseph A. Miller, Jr.
EXHIBIT 10.3
CORNING INCORPORATED
CHANGE IN CONTROL AGREEMENT
This Agreement, dated as of February 1, 2004, is entered into between
Corning Incorporated, a corporation organized under the laws of the State of New
York ("Corning" or the "Company"), and James R. Houghton (the "Executive").
WHEREAS, the Board of Directors of the Company (the "Board") recognizes
that the possibility of a Change in Control (as hereinafter defined) exists and
that the threat or the occurrence of a Change in Control can result in
significant distractions to its key management personnel because of the
uncertainties inherent in such a situation; and
WHEREAS, the Board has determined that it is essential and in the best
interest of the Company and its stockholders to retain the services of the
Executive in the event of a threat or occurrence of a Change in Control and to
ensure the Executive's continued dedication and efforts in such event without
undue concern for the Executive's personal, financial and employment security;
and
WHEREAS, in order to induce the Executive to remain in the employ of
the Company, particularly in the event of a threat or the occurrence of a Change
in Control, the Company desires to enter into this Agreement with the Executive
to provide the Executive with certain benefits in connection with a Change in
Control or a Potential Change in Control; and
WHEREAS, this Agreement was originally authorized and approved by the
Compensation Committee of the Corning Board of Directors at its meeting on April
25, 2002, and supersede any other agreements, written or oral, dealing with the
Company's Change-in-Control Policy (the "CIC Policy").
NOW, THEREFORE, in consideration of the respective agreements of the
parties contained herein, it is agreed as follows:
1. TERM OF AGREEMENT. This Agreement shall commence as of February 1,
2004 (the "Effective Date") and shall continue in effect until the Executive
leaves the employ of the Company for any reason or until the Executive ceases to
be an officer of Corning Incorporated and is also notified in writing (within 90
days of ceasing to be an officer of Corning) that this Agreement is null and
void.
2. DEFINITIONS.
a. ACCRUED COMPENSATION. For purposes of this Agreement,
"Accrued Compensation" shall mean an amount which shall include all amounts
earned or accrued through the "Termination Date" (as hereinafter defined) but
not paid as of the Termination Date, including (i) base salary, (ii)
reimbursement for reasonable and necessary expenses incurred by the Executive on
behalf of the Company during the period ending on the Termination Date, (iii)
vacation pay and (iv) the Executive's target percentage for the annual
Management Variable Compensation and GoalSharing plans (collectively, the "Bonus
Plans") times the Executive's base salary, pro-rated to the last day of the
month closest to the Termination Date.
b. BASE AMOUNT. For purposes of this Agreement, "Base Amount"
shall mean the Executive's annual base salary at the rate in effect on the
Termination Date, including all amounts of base salary that are deferred under
the employee benefit plans of the Company or any other agreement or arrangement.
c. BONUS AMOUNT. For purposes of this Agreement, "Bonus
Amount" shall mean the greater of (i) the average amount paid or payable to the
Executive under the Bonus Plans in the two (2) full calendar years preceding the
calendar year in which the Termination Date occurred, or (ii) the Executive's
target percentage (or, if higher, the percentage amount the Executive would have
been entitled to under the Bonus Plans for performance in the Termination Year
determined as of the last day of the month closest to the Termination Date)
times the Base Amount.
d. CAUSE. For purposes of this Agreement, "Cause" shall mean
the Executive's:
(i) conviction of a felony or conviction of a
misdemeanor involving moral turpitude (from which no further appeals have been
or can be taken);
(ii) gross abdication of his duties as an employee
and officer of the Company (other than due to the Executive's illness or
personal family problems), which conduct remains uncured by the Executive for
a period of at least 30 days following written notice thereof to the Executive
by the Company, in each case as determined in good faith by the Company; or
(iii) misappropriation of Company assets, personal
dishonesty or business conduct which causes material or potentially material
financial or reputational harm for the Company. For purposes of this Section
2(d), no act or failure to act on the Executive's part shall be deemed to be a
termination for Cause if done, or omitted to be done, in good faith, and with
the reasonable belief that the action or omission was in the best interests of
the Company.
e. CHANGE IN CONTROL. For purposes of this Agreement, a
"Change in Control" shall mean any of the following events:
(i) Any person (as such term is used in Sections
13(d) and 14(d)(2) of the Securities Exchange Act of 1934) is or becomes the
beneficial owner, directly or indirectly, of securities of the Company
representing 30% or more of the combined voting power of the Company's then
outstanding securities, or such beneficial owner increases its ownership in
securities of the Company from 30% or more to 50% or more of the combined voting
power of the Company's then outstanding securities (thereby resulting in a
second Change in Control with respect to such beneficial owner and, accordingly,
an extension of the term of this Agreement pursuant to Section 1 hereof);
(ii) The individuals who are members of the Board as
of the date this Agreement is approved by the Board (the "Incumbent Board")
cease for any reason to constitute at least a majority of the Board; PROVIDED,
HOWEVER, that if the appointment, election or nomination for election by the
Company's stockholders, of any new director is approved by a vote of at least
two-thirds of the Incumbent Board, such new director shall, for purposes of
this Agreement, be considered a member of the Incumbent Board; PROVIDED,
FURTHER, HOWEVER, that no individual shall be considered a member of the
Incumbent Board if such individual initially assumed office as a result of
either an actual or threatened "Election Contest" (as described in Rule 14a-11
promulgated under the 1934 Act) or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than the Board (a "Proxy
Contest") including by reason of any agreement intended to avoid or settle any
Election Contest or Proxy Contest;
(iii) Consummation of a merger, consolidation or
reorganization involving the Company, unless such merger, consolidation or
reorganization results in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity or parent thereof) more than fifty percent (50%) of the total voting
power represented by the voting securities of the Company or such surviving
entity or parent thereof outstanding immediately after such merger,
consolidation, or reorganization;
(iv) A complete liquidation or dissolution of the
Company; or
(v) The sale or other disposition of all or
substantially all of the assets of the Company to any Person (other than a
transfer to a subsidiary).
f. COMPANY. For purposes of this Agreement, "Company" shall
include Corning's "Successors and Assigns" (as hereinafter defined).
g. DISABILITY. For purposes of this Agreement, "Disability"
shall mean a physical or mental infirmity which impairs the Executive's ability
to substantially perform the Executive's duties with the Company for a period
of: (i) one hundred eighty (180) consecutive days; or (ii) 180 days during any
twelve (12) month period, and the Executive has not returned to full time
employment prior to the Termination Date as stated in the "Notice of
Termination".
h. LONG-TERM CASH AMOUNT. For purposes of this Agreement,
"Long-Term Cash Amount" shall mean any cash award granted to the Executive under
the Company's Corporate Performance Plan while the Executive was actively
employed. For purpose of this Section, the cash award shall be multiplied by a
factor of 150%.
i. NOTICE OF TERMINATION. For purposes of this Agreement,
"Notice of Termination" shall mean a written notice of termination of the
Executive's employment from the Company, which notice indicates the Termination
Date (as defined below), the specific termination provision in this Agreement
relied upon and which sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated.
j. POTENTIAL CHANGE IN CONTROL PERIOD. For purposes of this
Agreement, "Potential Change in Control Period" shall mean the period beginning
on the date of execution (during the term of this Agreement) of an agreement
with respect to a transaction the consummation of which would constitute or
result in a Change in Control, and ending on the date immediately following the
Change in Control date or the date on which such agreement is terminated or the
transaction contemplated therein otherwise is abandoned.
k. SUCCESSORS AND ASSIGNS. For purposes of this Agreement,
"Successors and Assigns" shall mean a corporation or other entity acquiring all
or substantially all of the assets and business of the Company whether by
operation of law or otherwise.
l. TERMINATION DATE. For purposes of this Agreement,
"Termination Date" shall mean, in the case of the Executive's death, the
Executive's date of death and, in all other cases, the date specified in the
Notice of Termination; PROVIDED, HOWEVER, that if the Executive's employment is
terminated by the Company due to Disability, the date specified in the Notice of
Termination shall be at least 30 days from the date the Notice of Termination is
given to the Executive, provided that, in the case of Disability, the Executive
shall not have returned to the full-time performance of the Executive's duties
during such period of at least 30 days.
3. CHANGE IN CONTROL BENEFITS
a. If, during the term of this Agreement, a Change in Control
occurs, the Executive shall be entitled to the following compensation and
benefits:
(i) Following Executive's Termination Date, the
Company shall pay to the Executive the Accrued Compensation;
(ii) the restrictions on any Long-Term Cash Amount
shall lapse and such cash award shall become 100% vested and payable;
(iii) the restrictions on any outstanding equity
incentive awards, including stock options and restricted stock, granted to the
Executive under the Company's stock option and other stock incentive plans or
under any other incentive plan or arrangement shall lapse and such incentive
award shall become 100% vested and, in the case of stock options, immediately
exercisable
(iv) the Company shall pay the Executive as severance
pay and in lieu of any further compensation for periods subsequent to the
Termination Date, in a single lump-sum payment, an amount in cash equal to
2.99 times the sum of (A) the Base Amount, and (B) the Bonus Amount. To the
extent Executive's employment with the Company continues after the Change in
Control and Executive subsequently receives a Notice of Termination within 12
months following the Change in Control, Executive shall not be entitled to
further severance pay during that period.
(v) following Executive's Termination Date and for a
number of months equal to thirty-six (36) months (the "Continuation Period"),
the Company shall, at its expense, continue on behalf of the Executive and the
Executive's dependents and beneficiaries the life insurance, disability,
medical, dental and hospitalization benefits provided (A) to the Executive at
any time during the 90-day period prior to the Change in Control or at any time
thereafter or (B) to other similarly situated executives who continue in the
employ of the Company during the Continuation Period. The coverage and benefits
(including deductibles and costs) provided in this Section 3(b)(ii)(4) during
the Continuation Period shall be no less favorable to the Executive and the
Executive's dependents and beneficiaries, than the most favorable of such
coverage and benefits provided to Corning executives in general during any of
the periods referred to in clauses (A) and (B), above, of this subsection. This
subsection 3(b)(ii)(4) shall not be interpreted so as to limit any benefits to
which the Executive or the Executive's dependents or beneficiaries may be
entitled under any of the Company's employee benefit plans, programs or
practices following the Executive's termination of employment, including without
limitation, retiree medical and life insurance benefits. In lieu of the
continuation of benefits referenced in this subsection 3(b)(ii)(4), the
Executive may elect to waive such benefits and receive a one-time cash payment
of $75,000 within 30 days of the Executive's Termination Date in full
satisfaction of this provision;
(vi) the Executive may request the Company to
purchase the Executive's principal residence. Such purchase shall be made at the
greater of (i) the residence's appraised value at the Termination Date, as
determined in accordance with the Company's relocation policies in effect
immediately prior to the Potential Change in Control Period or Change in Control
(as applicable); (ii) the total cost of the residence plus improvements
("Protected Value"), as determined in accordance with the Company's
Protected Value policy in effect as of the date of this Agreement, or (iii) the
modified appraised market value defined to be the appraised market value of the
Executive's principal residence at a point in time prior to the Change in
Control announcement (the "Baseline") updated annually by an appropriate housing
inflation index, or until the next "Baseline" is established. For purposes of
this modified appraised value, the Company will undertake to obtain the
appraised market value of the Executive's principal residence, to establish the
Baseline, at least once every ten (10) years and no more frequently than once
every four (4) years, and will maintain records of the values calculated under
this modified appraised market value;
(vii) following Executive's Termination Date, the
Executive's pension benefit ("Pension Benefit") will be calculated under the
terms of the Company's Executive Supplemental Pension Plan after providing the
Executive with an additional five (5) years of credited service under the plan.
The Pension Benefit determined under this subsection 3(b)(ii)(7) shall commence
at age 55, or as of the Termination Date if the Executive is already at least
age 55, without giving effect to any actuarial reductions that may otherwise be
imposed by the plan; and
(viii) following Executive's Termination Date, the
Executive shall be eligible for comprehensive outplacement assistance up to a
maximum benefit equal to 20% of base pay at the time of termination payable by
the Company within one year directly to an outside vendor selected by the
Executive. At the election of the Executive, a one-time taxable payment of 20%
of base salary (up to a maximum of $65,000) may be paid in lieu of the benefit
provided in the preceding sentence.
b. The amount provided for in subsection 3(a)(iv) shall be
paid in a single lump sum cash payment within fourteen (14) days of a Change in
Control. Any other amounts provided for in this section after Executive's
Termination Date shall be paid or processed as soon as administratively
possible.
c. The Executive shall not be required to mitigate the amount
of any payment provided for in this Agreement by seeking other employment or
otherwise, and no such payment shall be offset or reduced by the amount of any
compensation or benefits provided to the Executive in any subsequent employment.
4. NOTICE OF TERMINATION. During the Potential Change in Control
Period and on or following a Change in Control, any purported termination of the
Executive's employment shall be communicated by a Notice of Termination to the
Executive. For purposes of this Agreement, no such purported termination shall
be effective without such Notice of Termination.
5. TAX GROSS-UP PAYMENTS
a. In the event that the severance and any other payments or
benefits (including, without limitation, any accelerated vesting of equity-based
awards) provided for in this Agreement or any other payments or benefits due to
the Executive (individually, a "Payment", and collectively, the "Payments") (i)
constitute "parachute payments" within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code"), and (ii) but for this
Section, would be subject to the excise tax imposed by Section 4999 of the Code
(the "Excise Tax"), then the Executive shall receive a full gross-up ("Tax
Gross-up") for any and all Excise Taxes imposed.
b. An initial determination as to whether the Excise Tax will
be imposed, the amount of the Excise Tax and the calculated Tax Gross-up shall
be made, at the Company's expense, by the accounting firm that is the Company's
independent accounting firm as of the date of the Change in Control (the
"Accounting Firm"). The Accounting Firm shall provide its determination (the
"Determination"), together with detailed supporting calculations and
documentation, to the Company and the Executive within ten (10) days of the
Termination Date, if applicable, or such other time as requested by the Company
or by the Executive (provided the Executive reasonably believes that any of the
Payments may be subject to the Excise Tax) and, if the Accounting Firm
determines that no Excise Tax is payable by the Executive with respect to a
Payment or Payments, it shall furnish the Executive with an opinion reasonably
acceptable to the Executive that no Excise Tax will be imposed with respect to
any such Payment or Payments. Within ten (10) days of the delivery of the
Determination to the Executive, the Executive shall have the right to dispute
the Determination (the "Dispute"). If there is no Dispute, the Determination
shall be binding, final and conclusive upon the Company and the Executive.
c. As a result of uncertainty in the application of Section
4999 of the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Tax Gross-Up payments not made by the Company
should have been made ("Underpayment"), or that Tax Gross-Up payments will have
been made by the Company which should not have been made ("Overpayments"). In
either such event, the Accounting Firm shall determine the amount of the
Underpayment or Overpayment that has occurred. In the case of an Underpayment,
the amount of such Underpayment shall be promptly paid by the Company to or for
the benefit of the Executive. In the case of an Overpayment, the Executive
shall, at the direction and expense of the Company, take such steps as are
reasonably necessary (including the filing of returns and claims for refund),
follow reasonable instructions from, and procedures established by, the Company,
and otherwise reasonably cooperate with the Company to correct such Overpayment.
d. Any other provision of this Section 5 notwithstanding, if
the Excise Tax could be avoided by reducing the Payments by a present value
(determined in accordance with any proposed, temporary or final regulations
under Sections 280G or 4999 of the Code) of $45,000 or less, then the Payments
shall be reduced to the extent necessary to avoid the Excise Tax and no Tax
Gross-Up payment shall be made. If the Accounting Firm determines that the
Payments are to be reduced under the preceding sentence, then the Company shall
promptly give the Executive notice to that effect and a copy of the detailed
calculation thereof. The Executive may then elect, in the Executive's sole
discretion, which and how much of the Payments are to be eliminated or reduced
(as long as after such election no Excise Tax will be payable) and shall advise
the Company in writing of the Executive's election within 10 days of receipt of
notice. If no such election is made by the Executive within such 10-day period,
then the Company may elect which and how much of the Payments are to be
eliminated or reduced (as long as after such election no Excise Tax will be
payable) and shall notify the Executive promptly of such election.
6. EMPLOYMENT TAXES. All payments made pursuant to this Agreement
will be subject to applicable withholdings of income and employment taxes.
7. SUCCESSORS; BINDING AGREEMENT. This Agreement shall be binding
upon and shall inure to the benefit of the Company, its Successors and Assigns
and the Company shall require any Successors and Assigns to expressly assume and
agree to perform this Agreement in the same manner and to the same extent that
the Company would be required to perform it if no such succession or assignment
had taken place. Neither this Agreement nor any right or interest hereunder
shall be assignable or transferable by the Executive or the Executive's
beneficiaries or legal representatives, except by will or by the laws of descent
and distribution. This Agreement shall inure to the benefit of and be
enforceable by the Executive's legal personal representative.
8. NOTICE. For the purposes of this Agreement, notices and all
other communications provided for in the Agreement (including the Notice of
Termination) shall be in writing and shall be deemed to have been duly given
when personally delivered or sent by certified mail, return receipt requested,
postage prepaid, addressed to the respective addresses last given by each party
to the other, provided that all notices to the Company shall be directed to the
attention of the Chairman of the Board with a copy to the Secretary of the
Company. All notices and communications shall be denied to have been received on
the date of delivery thereof or on the third business day after the mailing
thereof, except that notice of change of address shall be effective only upon
receipt.
9. NON-EXCLUSIVITY OF RIGHTS; EFFECT ON CIC POLICY. Nothing in
this Agreement shall prevent or limit the Executive's continuing or future
participation in any benefit, bonus, incentive or other plan or program provided
by the Company (except for any severance or termination policies, plans,
programs or practices) and for which the Executive may qualify, nor shall
anything herein limit or reduce such rights as the Executive may have under any
other agreements with the Company. Amounts which are vested benefits or which
the Executive is otherwise entitled to receive under any plan or program of the
Company shall be payable in accordance with such plan or program, except as
explicitly modified by this Agreement.
10. NO IMPLIED EMPLOYMENT RIGHTS. Nothing in this Agreement shall
alter the Executive's status as an "at will" employee of the Company or be
construed to imply that the Executive's employment is guaranteed for any period
of time except as otherwise agreed in a written agreement signed by a duly
authorized officer of the Company.
11. MISCELLANEOUS. No provision of this Agreement may be modified,
waived or discharged, unless such waiver, modification or discharge is agreed to
in writing and signed by the Executive and the Company. No waiver by either
party hereto at any time of any breach by the other party hereto, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time. No agreement or representation,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not expressly set forth in this
Agreement.
12. GOVERNING LAW. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York
without giving effect to the conflict of law principles thereof.
13. ARBITRATION. Any dispute or controversy arising under or in
connection with the subject matter, the interpretation, the application, or
alleged breach of this Agreement ("Arbitrable Claims") shall be resolved by
binding arbitration in the City of New York, New York, in accordance with the
then-current National Rules for the Resolution of Employment Disputes of the
American Arbitration Association. Arbitration shall be final and binding upon
the parties and shall be the exclusive remedy for all Arbitrable Claims.
Notwithstanding the foregoing, either party may bring an action in court to
compel arbitration under this Agreement, to enforce an arbitration award, or to
seek injunctive relief. THE PARTIES HEREBY WAIVE ANY RIGHT TO JURY TRIAL AS TO
ARBITRABLE CLAIMS.
14. LEGAL FEES AND EXPENSES. The Company shall pay or reimburse
the Executive on an after-tax basis for all costs and expenses (including,
without limitation, court and arbitrations cost and reasonable legal fees and
expenses which reflect common practice with respect to the matters involved)
incurred by the Executive as a result of any claim, action or proceeding arising
out of this Agreement or the contesting, disputing or enforcing of any
provision, right or obligation under this Agreement, except where it is finally
determined that the Executive's position was entirely without merit and asserted
in bad faith.
15. SEVERABILITY. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
16. ENTIRE AGREEMENT. The parties agree that the terms of this
Agreement are intended to be the final expression of their agreement with
respect to the subject matter of this Agreement and may not be contradicted by
evidence of any prior or contemporaneous Agreement, except to the extent that
the provisions of any such agreement have been expressly referred to in this
Agreement as having continued effect.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer and the Executive has executed this
Agreement as of the day and year first above written.
Corning Incorporated:
By: /s/ John P. MacMahon
------------------------------------------------
John P. MacMahon
Vice President, Worldwide Compensation & Benefits
Executive:
/s/ James R. Houghton
------------------------------------------------
James R. Houghton
EXHIBIT 10.4
Amendment to Corning Incorporated
Change-In-Control Agreement
This amendment (the "Amendment"), dated as of February 1, 2004, is
entered into between Corning Incorporated, a corporation organized under the
laws of the State of New York ("Corning" or the "Company"), and [James B. Flaws
and Peter F. Volanakis each individually] (the "Executive") and amends the
Change In Control Agreement (the "CIC Agreement") originally entered into
between the Company and Executive on October 4, 2000.
1. Section 1 of the CIC Agreement is hereby deleted in its
entirety and is replaced with the following:
"TERM OF AGREEMENT. This Agreement shall commence as of
October 4, 2000 (the "Effective Date") and shall continue in effect until the
Executive leaves the employ of the Company for any reason or until the Executive
ceases to be an officer of Corning Incorporated and is also notified in writing
(within 90 days of ceasing to be an officer of Corning) that this Agreement is
null and void."
Except as noted above, all other provisions of the CIC Agreement remain
in effect with no changes.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its
duly authorized officer and the Executive has executed this Agreement as of the
day and year first above written.
Corning Incorporated:
By: /s/ John P. MacMahon
------------------------------------------------
John P. MacMahon
VP, Global Compensation & Benefits
Executive:
/s/
------------------------------------------------
[each signed separately by James B. Flaws and Peter F. Volanakis]
EXHIBIT 10.5
CORNING INCORPORATED
CHANGE IN CONTROL AGREEMENT
This Agreement, dated as of October 4, 2000, is entered into between
Corning Incorporated, a corporation organized under the laws of the State of New
York ("Corning" or the "Company"), and [James B. Flaws and Peter F. Volanakis
each individually] (the "Executive").
WHEREAS, the Board of Directors of the Company (the "Board") recognizes
that the possibility of a Change in Control (as hereinafter defined) exists and
that the threat or the occurrence of a Change in Control can result in
significant distractions to its key management personnel because of the
uncertainties inherent in such a situation; and
WHEREAS, the Board has determined that it is essential and in the best
interest of the Company and its stockholders to retain the services of the
Executive in the event of a threat or occurrence of a Change in Control and to
ensure the Executive's continued dedication and efforts in such event without
undue concern for the Executive's personal, financial and employment security;
and
WHEREAS, in order to induce the Executive to remain in the employ of
the Company, particularly in the event of a threat or the occurrence of a Change
in Control, the Company desires to enter into this Agreement with the Executive
to provide the Executive with certain benefits in connection with a Change in
Control or a Potential Change in Control; and
WHEREAS, this Agreement is intended to supersede: (i) the existing
Change in Control agreement executed as of July 1, 2000; and (ii) the Change in
Control provisions of the "comfort letter", dated June 1, 1998, regarding the
Company's Executive Severance and Change-in-Control Policy (the "CIC Policy").
NOW, THEREFORE, in consideration of the respective agreements of the
parties contained herein, it is agreed as follows:
1. TERM OF AGREEMENT. This Agreement shall commence as of October
4, 2000 (the "Effective Date") and shall continue in effect until the third
anniversary of the Effective Date, provided, that commencing on the second
anniversary of the Effective Date and on each subsequent anniversary thereof,
the term of this Agreement shall be automatically extended for one (1) year
unless either the Company or the Executive shall have given written notice to
the other at least ninety (90) days prior thereto that the term of this
Agreement shall not be so extended; and provided, further, that notwithstanding
any such notice by the Company not to extend, the term of this Agreement shall
not expire during a Potential Change in Control Period (as hereinafter defined)
or prior to the expiration of four (4) years after the date of a Change in
Control that occurs during the term hereof (including during a Potential Change
in Control Period).
2. DEFINITIONS.
a. ACCRUED COMPENSATION. For purposes of this Agreement,
"Accrued Compensation" shall mean an amount which shall include all amounts
earned or accrued through the "Termination Date" (as hereinafter defined) but
not paid as of the Termination Date, including (i) base salary, (ii)
reimbursement for reasonable and necessary expenses incurred by the Executive on
behalf of the Company during the period ending on the Termination Date, (iii)
vacation pay and (iv) the Executive's target percentage for the annual
Management Variable Compensation and GoalSharing plans (collectively, the "Bonus
Plans") times the Executive's base salary, pro-rated to the last day of the
month closest to the Termination Date.
b. BASE AMOUNT. For purposes of this Agreement, "Base Amount"
shall mean the Executive's annual base salary at the rate in effect on the
Termination Date, including all amounts of base salary that are deferred under
the employee benefit plans of the Company or any other agreement or arrangement.
c. BONUS AMOUNT. For purposes of this Agreement, "Bonus
Amount" shall mean the greater of (i) the average amount paid or payable to the
Executive under the Bonus Plans in the two (2) full calendar years preceding the
calendar year in which the Termination Date occurred, or (ii) the Executive's
target percentage (or, if higher, the percentage amount the Executive would have
been entitled to under the Bonus Plans for performance in the Termination Year
determined as of the last day of the month closest to the Termination Date)
times the Base Amount.
d. CAUSE. For purposes of this Agreement, "Cause" shall mean
the Executive's:
(i) conviction of a felony or conviction of a
misdemeanor involving moral turpitude (from which no further appeals have been
or can be taken);
(ii) gross abdication of his duties as an employee
and officer of the Company (other than due to the Executive's illness or
personal family problems), which conduct remains uncured by the Executive for
a period of at least 30 days following written notice thereof to the Executive
by the Company, in each case as determined in good faith by the Company; or
(iii) misappropriation of Company assets, personal
dishonesty or business conduct which causes material or potentially material
financial or reputational harm for the Company. For purposes of this Section
2(d), no act or failure to act on the Executive's part shall be deemed to be a
termination for Cause if done, or omitted to be done, in good faith, and with
the reasonable belief that the action or omission was in the best interests of
the Company.
e. CHANGE IN CONTROL. For purposes of this Agreement, a
"Change in Control" shall mean any of the following events:
(i) Any person (as such term is used in Sections
13(d) and 14(d)(2) of the Securities Exchange Act of 1934) is or becomes the
beneficial owner, directly or indirectly, of securities of the Company
representing 30% or more of the combined voting power of the Company's then
outstanding securities, or such beneficial owner increases its ownership in
securities of the Company from 30% or more to 50% or more of the combined voting
power of the Company's then outstanding securities (thereby resulting in a
second Change in Control with respect to such beneficial owner and, accordingly,
an extension of the term of this Agreement pursuant to Section 1 hereof);
(ii) The individuals who are members of the Board as
of the date this Agreement is approved by the Board (the "Incumbent Board")
cease for any reason to constitute at least a majority of the Board; PROVIDED,
HOWEVER, that if the appointment, election or nomination for election by the
Company's stockholders, of any new director is approved by a vote of at least
two-thirds of the Incumbent Board, such new director shall, for purposes of
this Agreement, be considered a member of the Incumbent Board; PROVIDED,
FURTHER, HOWEVER, that no individual shall be considered a member of the
Incumbent Board if such individual initially assumed office as a result of
either an actual or threatened "Election Contest" (as described in Rule 14a-11
promulgated under the 1934 Act) or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than the Board
(a "Proxy Contest") including by reason of any agreement intended to avoid or
settle any Election Contest or Proxy Contest;
(iii) Consummation of a merger, consolidation or
reorganization involving the Company, unless such merger, consolidation or
reorganization results in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity or parent thereof) more than fifty percent (50%) of the total
voting power represented by the voting securities of the Company or such
surviving entity or parent thereof outstanding immediately after such merger,
consolidation, or reorganization;
(iv) A complete liquidation or dissolution of the
Company; or
(v) The sale or other disposition of all or
substantially all of the assets of the Company to any Person (other than a
transfer to a subsidiary).
f. COMPANY. For purposes of this Agreement, "Company" shall
include Corning's "Successors and Assigns" (as hereinafter defined).
g. DISABILITY. For purposes of this Agreement, "Disability"
shall mean a physical or mental infirmity which impairs the Executive's ability
to substantially perform the Executive's duties with the Company for a period
of: (i) one hundred eighty (180) consecutive days; or (ii) 180 days during any
twelve (12) month period, and the Executive has not returned to full time
employment prior to the Termination Date as stated in the "Notice of
Termination".
h. GOOD REASON. For purposes of this Agreement, "Good Reason"
shall mean the occurrence of any of the events or conditions described in
subsections (i) through (vi) below, PROVIDED, HOWEVER, that the Executive gives
the Company thirty (30) days' Notice of Termination (as defined below) (during
which time the Company will have an opportunity to correct the condition
constituting "Good Reason"), and PROVIDED, FURTHER, that such notice is
submitted by the Executive no later than six (6) months after the occurrence of
the event that is the basis for the "Good Reason":
(i) The Executive's good faith determination that any
of the following has occurred:
(1) a material change in the Executive's
status, title, position or responsibilities which
represents a material and adverse change from the Executive's status, title,
position or responsibilities as in effect immediately prior to such change;
(2) the assignment to the Executive of any
duties or responsibilities which are substantially inconsistent with the
Executive's status, title, position or responsibilities as in effect immediately
prior to such assignment; or
(3) any removal of the Executive from or
failure to reappoint or reelect the Executive to any of such offices or
positions, except in connection with the termination of the Executive's
employment for Disability, Cause, as a result of the Executive's death or by
the Executive other than for Good Reason;
(ii) a reduction in the Executive's base salary;
(iii) the Company's requiring the Executive to change
the location of his principal office which results in Executive having to
commute more than 30 miles from his residence, without Executive's express
consent, except for reasonably required travel on the Company's business which
is not materially greater than such travel requirements prior to the Change
in Control;
(iv) a material reduction by the Company in the kind
or level of employee benefits (other than base, bonus or long-term salary or
compensation) to which the Executive is entitled at any time within ninety
(90) days preceding the commencement of a Potential Change in Control Period
or the date of a Change in Control or at any time thereafter, (other than any
such reduction which is part of, and generally consistent with, a general
reduction applicable to all officers of the Company);
(v) any material breach by the Company of any
provision of this Agreement or any Employment Agreement between the Company
and the Executive; or
(vi) the failure of the Company to obtain an
agreement from any Successors and Assigns to assume and agree to perform this
Agreement, as contemplated in Section 8 hereof.
i. LONG-TERM CASH AMOUNT. For purposes of this Agreement,
"Long-Term Cash Amount" shall mean any cash award granted to the Executive under
the Company's Corporate Performance Plan while the Executive was actively
employed. For purpose of this Section, the cash award shall be multiplied by a
factor of 150%.
j. NOTICE OF TERMINATION. For purposes of this Agreement,
"Notice of Termination" shall mean a written notice of termination of the
Executive's employment from the Company, which notice indicates the Termination
Date (as defined below), the specific termination provision in this Agreement
relied upon and which sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated.
k. POTENTIAL CHANGE IN CONTROL PERIOD. For purposes of this
Agreement, "Potential Change in Control Period" shall mean the period beginning
on the date of execution (during the term of this Agreement) of an agreement
with respect to a transaction the consummation of which would constitute or
result in a Change in Control, and ending on the date immediately following the
Change in Control date or the date on which such agreement is terminated or the
transaction contemplated therein otherwise is abandoned.
l. SUCCESSORS AND ASSIGNS. For purposes of this Agreement,
"Successors and Assigns" shall mean a corporation or other entity acquiring all
or substantially all of the assets and business of the Company whether by
operation of law or otherwise.
m. TERMINATION DATE. For purposes of this Agreement,
"Termination Date" shall mean, in the case of the Executive's death, the
Executive's date of death, in the case of Good Reason, the last day of the
Executive's employment (which shall be no sooner than thirty (30) days after the
Executive submits his Notice of Termination), and, in all other cases, the date
specified in the Notice of Termination; PROVIDED, HOWEVER, that if the
Executive's employment is terminated by the Company due to Disability, the date
specified in the Notice of Termination shall be at least 30 days from the date
the Notice of Termination is given to the Executive, provided that, in the case
of Disability, the Executive shall not have returned to the full-time
performance of the Executive's duties during such period of at least 30 days.
3. CHANGE IN CONTROL BENEFITS
a. If, during the term of this Agreement, a Change in Control
occurs, the Executive shall be entitled to the following compensation and
benefits:
(i) the restrictions on any Long-Term Cash Amount
shall lapse and such cash award shall become 100% vested and payable;
(ii) the restrictions on any outstanding equity
incentive awards, including stock options and restricted stock, granted to the
Executive under the Company's stock option and other stock incentive plans or
under any other incentive plan or arrangement shall lapse and such incentive
award shall become 100% vested and, in the case of stock options, immediately
exercisable.
b. If, during the term of this Agreement, the Executive's
employment with the Company shall be terminated within the Potential Change in
Control Period or within four (4) years following a Change in Control, the
Executive shall be entitled to the following compensation and benefits:
(i) If the Executive's employment with the Company
shall be terminated (1) by the Company for Cause, (2) by the Executive other
than for Good Reason, or (3) by reason of death or Disability, the Company
shall pay to the Executive the Accrued Compensation.
(ii) If the Executive's employment with the Company
shall be terminated for any reason other than as specified in Section 3(b)(i),
the Executive shall be entitled to the following:
(1) the Company shall pay the Executive all
Accrued Compensation;
(2) the Company shall pay the Executive as
severance pay and in lieu of any further compensation for periods subsequent
to the Termination Date, in a single lump-sum payment, an amount in cash equal
to three (3) times the sum of (A) the Base Amount, and (B) the Bonus Amount;
(3) the restrictions on any Long-Term Cash
Amount shall lapse and such cash award shall
become 100% vested and payable;
(4) for a number of months equal to
thirty-six (36) months (the "Continuation Period"), the Company shall, at its
expense, continue on behalf of the Executive and the Executive's dependents and
beneficiaries the life insurance, disability, medical, dental and
hospitalization benefits provided (A) to the Executive at any time during the
90-day period prior to the Change in Control or at any time thereafter or (B)
to other similarly situated executives who continue in the employ of the Company
during the Continuation Period. The coverage and benefits (including deductibles
and costs) provided in this Section 3(b)(ii)(4) during the Continuation Period
shall be no less favorable to the Executive and the Executive's dependents and
beneficiaries, than the most favorable of such coverage and benefits provided
to Corning executives in general during any of the periods referred to in
clauses (A) and (B), above, of this subsection. This subsection 3(b)(ii)(4)
shall not be interpreted so as to limit any benefits to which the Executive or
the Executive's dependents or beneficiaries may be entitled under any of the
Company's employee benefit plans, programs or practices following the
Executive's termination of employment, including without limitation, retiree
medical and life insurance benefits. In lieu of the continuation of benefits
referenced in this subsection 3(b)(ii)(4), the Executive may elect to waive
such benefits and receive a one-time cash payment of $75,000 within 30 days of
the Executive's Termination Date in full satisfaction of this provision;
(5) the Executive may request the Company to
purchase the Executive's principal residence. Such purchase shall be made at
the greater of (i) the residence's appraised value at the Termination Date, as
determined in accordance with the Company's relocation policies in effect
immediately prior to the Potential Change in Control Period or Change in Control
(as applicable); (ii) the total cost of the residence plus improvements
("Protected Value"), as determined in accordance with the Company's Protected
Value policy in effect as of the date of this Agreement, or (iii) the modified
appraised market value defined to be the appraised market value of the
Executive's principal residence at a point in time prior to the Change in
Control announcement (the "Baseline") updated annually by an appropriate housing
inflation index, or until the next "Baseline" is established. For purposes of
this modified appraised value, the Company will undertake to obtain the
appraised market value of the Executive's principal residence, to establish
the Baseline, at least once every ten (10) years and no more frequently than
once every four (4) years, and will maintain records of the values calculated
under this modified appraised market value;
(6) the restrictions on any outstanding
equity incentive awards, including stock options and restricted stock, granted
to the Executive under the Company's stock option and other stock incentive
plans or under any other incentive plan or arrangement shall lapse and such
incentive award shall become 100% vested and, in the case of stock options,
immediately exercisable;
(7) the Executive's pension benefit
("Pension Benefit") will be calculated under the terms of the Company's
Executive Supplemental Pension Plan after providing the Executive with an
additional five (5) years of credited service under the plan. The Pension
Benefit determined under this subsection 3(b)(ii)(7) shall commence at
age 55, or as of the Termination Date if the Executive is already at least age
55, without giving effect to any actuarial reductions that may otherwise be
imposed by the plan; and
(8) the Executive shall be eligible for
comprehensive outplacement assistance up to a maximum benefit equal to 20% of
base pay at the time of termination payable by the Company within one year
directly to an outside vendor selected by the Executive. At the election of
the Executive, a one-time taxable payment of 20% of base salary (up to a
maximum of $65,000) may be paid in lieu of the benefit provided in the
preceding sentence.
c. The amount provided for in subsection 3(a)(i) shall be paid
in a single lump sum cash payment within fourteen (14) days of a Change in
Control. The amounts provided for in subsection 3(b)(i), and subsections
3(b)(ii)(1) through 3(b)(ii)(4) inclusive and subsection 3(b)(ii)(8) shall be
paid in a single lump sum cash payment within fourteen (14) days after the
Executive's Termination Date (or earlier, if required by applicable law).
d. The Executive shall not be required to mitigate the amount
of any payment provided for in this Agreement by seeking other employment or
otherwise, and no such payment shall be offset or reduced by the amount of any
compensation or benefits provided to the Executive in any subsequent employment.
4. NOTICE OF TERMINATION. During the Potential Change in Control
Period and on or following a Change in Control, any purported termination of the
Executive's employment shall be communicated by a Notice of Termination to the
Executive. For purposes of this Agreement, no such purported termination shall
be effective without such Notice of Termination.
5. TAX GROSS-UP PAYMENTS
a. In the event that the severance and any other payments or
benefits (including, without limitation, any accelerated vesting of equity-based
awards) provided for in this Agreement or any other payments or benefits due to
the Executive (individually, a "Payment", and collectively, the "Payments") (i)
constitute "parachute payments" within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code"), and (ii) but for this
Section, would be subject to the excise tax imposed by Section 4999 of the Code
(the "Excise Tax"), then the Executive shall receive a full gross-up ("Tax
Gross-up") for any and all Excise Taxes imposed.
b. An initial determination as to whether the Excise Tax will
be imposed, the amount of the Excise Tax and the calculated Tax Gross-up shall
be made, at the Company's expense, by the accounting firm that is the Company's
independent accounting firm as of the date of the Change in Control (the
"Accounting Firm"). The Accounting Firm shall provide its determination (the
"Determination"), together with detailed supporting calculations and
documentation, to the Company and the Executive within ten (10) days of the
Termination Date, if applicable, or such other time as requested by the Company
or by the Executive (provided the Executive reasonably believes that any of the
Payments may be subject to the Excise Tax) and, if the Accounting Firm
determines that no Excise Tax is payable by the Executive with respect to a
Payment or Payments, it shall furnish the Executive with an opinion reasonably
acceptable to the Executive that no Excise Tax will be imposed with respect to
any such Payment or Payments. Within ten (10) days of the delivery of the
Determination to the Executive, the Executive shall have the right to dispute
the Determination (the "Dispute"). If there is no Dispute, the Determination
shall be binding, final and conclusive upon the Company and the Executive.
c. As a result of uncertainty in the application of Section
4999 of the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Tax Gross-Up payments not made by the Company
should have been made ("Underpayment"), or that Tax Gross-Up payments will have
been made by the Company which should not have been made ("Overpayments"). In
either such event, the Accounting Firm shall determine the amount of the
Underpayment or Overpayment that has occurred. In the case of an Underpayment,
the amount of such Underpayment shall be promptly paid by the Company to or for
the benefit of the Executive. In the case of an Overpayment, the Executive
shall, at the direction and expense of the Company, take such steps as are
reasonably necessary (including the filing of returns and claims for refund),
follow reasonable instructions from, and procedures established by, the Company,
and otherwise reasonably cooperate with the Company to correct such Overpayment.
d. Any other provision of this Section 5 notwithstanding, if
the Excise Tax could be avoided by reducing the Payments by a present value
(determined in accordance with any proposed, temporary or final regulations
under Sections 280G or 4999 of the Code) of $45,000 or less, then the Payments
shall be reduced to the extent necessary to avoid the Excise Tax and no Tax
Gross-Up payment shall be made. If the Accounting Firm determines that the
Payments are to be reduced under the preceding sentence, then the Company shall
promptly give the Executive notice to that effect and a copy of the detailed
calculation thereof. The Executive may then elect, in the Executive's sole
discretion, which and how much of the Payments are to be eliminated or reduced
(as long as after such election no Excise Tax will be payable) and shall advise
the Company in writing of the Executive's election within 10 days of receipt of
notice. If no such election is made by the Executive within such 10-day period,
then the Company may elect which and how much of the Payments are to be
eliminated or reduced (as long as after such election no Excise Tax will be
payable) and shall notify the Executive promptly of such election.
6. EMPLOYMENT TAXES. All payments made pursuant to this Agreement
will be subject to applicable withholdings of income and employment taxes.
7. SUCCESSORS; BINDING AGREEMENT. This Agreement shall be binding
upon and shall inure to the benefit of the Company, its Successors and Assigns
and the Company shall require any Successors and Assigns to expressly assume and
agree to perform this Agreement in the same manner and to the same extent that
the Company would be required to perform it if no such succession or assignment
had taken place. Neither this Agreement nor any right or interest hereunder
shall be assignable or transferable by the Executive or the Executive's
beneficiaries or legal representatives, except by will or by the laws of descent
and distribution. This Agreement shall inure to the benefit of and be
enforceable by the Executive's legal personal representative.
8. NOTICE. For the purposes of this Agreement, notices and all
other communications provided for in the Agreement (including the Notice of
Termination) shall be in writing and shall be deemed to have been duly given
when personally delivered or sent by certified mail, return receipt requested,
postage prepaid, addressed to the respective addresses last given by each party
to the other, provided that all notices to the Company shall be directed to the
attention of the Chairman of the Board with a copy to the Secretary of the
Company. All notices and communications shall be denied to have been received on
the date of delivery thereof or on the third business day after the mailing
thereof, except that notice of change of address shall be effective only upon
receipt.
9. NON-EXCLUSIVITY OF RIGHTS; EFFECT ON CIC POLICY. Nothing in
this Agreement shall prevent or limit the Executive's continuing or future
participation in any benefit, bonus, incentive or other plan or program provided
by the Company (except for any severance or termination policies, plans,
programs or practices) and for which the Executive may qualify, nor shall
anything herein limit or reduce such rights as the Executive may have under any
other agreements with the Company. Amounts which are vested benefits or which
the Executive is otherwise entitled to receive under any plan or program of the
Company shall be payable in accordance with such plan or program, except as
explicitly modified by this Agreement. This Agreement shall supersede the
existing Change in Control agreement executed as of July 1, 2000 and the Change
in Control provisions of the CIC Policy.
10. NO IMPLIED EMPLOYMENT RIGHTS. Nothing in this Agreement shall
alter the Executive's status as an "at will" employee of the Company or be
construed to imply that the Executive's employment is guaranteed for any period
of time except as otherwise agreed in a written agreement signed by a duly
authorized officer of the Company.
11. MISCELLANEOUS. No provision of this Agreement may be modified,
waived or discharged, unless such waiver, modification or discharge is agreed to
in writing and signed by the Executive and the Company. No waiver by either
party hereto at any time of any breach by the other party hereto, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time. No agreement or representation,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not expressly set forth in this
Agreement.
12. GOVERNING LAW. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York
without giving effect to the conflict of law principles thereof.
13. ARBITRATION. Any dispute or controversy arising under or in
connection with the subject matter, the interpretation, the application, or
alleged breach of this Agreement ("Arbitrable Claims") shall be resolved by
binding arbitration in the City of New York, New York, in accordance with the
then-current National Rules for the Resolution of Employment Disputes of the
American Arbitration Association. Arbitration shall be final and binding upon
the parties and shall be the exclusive remedy for all Arbitrable Claims.
Notwithstanding the foregoing, either party may bring an action in court to
compel arbitration under this Agreement, to enforce an arbitration award, or to
seek injunctive relief. THE PARTIES HEREBY WAIVE ANY RIGHT TO JURY TRIAL AS TO
ARBITRABLE CLAIMS.
14. LEGAL FEES AND EXPENSES. The Company shall pay or reimburse
the Executive on an after-tax basis for all costs and expenses (including,
without limitation, court and arbitrations cost and reasonable legal fees and
expenses which reflect common practice with respect to the matters involved)
incurred by the Executive as a result of any claim, action or proceeding arising
out of this Agreement or the contesting, disputing or enforcing of any
provision, right or obligation under this Agreement, except where it is finally
determined that the Executive's position was entirely without merit and asserted
in bad faith.
15. SEVERABILITY. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
16. ENTIRE AGREEMENT. The parties agree that the terms of this
Agreement are intended to be the final expression of their agreement with
respect to the subject matter of this Agreement and may not be contradicted by
evidence of any prior or contemporaneous Agreement, except to the extent that
the provisions of any such agreement have been expressly referred to in this
Agreement as having continued effect (including, without limitation, the Change
of Control Agreement executed as of July 1, 2000 and the Change in Control
provisions of the "comfort letter" dated June 1, 1998, pursuant to the CIC
Policy) are null and void and given no effect.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer and the Executive has executed this
Agreement as of the day and year first above written.
Corning Incorporated:
By: /s/ Kirk P. Gregg
---------------------------------------------------------
Kirk P. Gregg
Senior Vice President, Administration
Executive:
/s/
---------------------------------------------------------
[each signed separately by James B. Flaws and Peter F. Volanakis]
EXHIBIT 10.6
Amendment to Corning Incorporated
Change-In-Control Agreement
This amendment (the "Amendment"), dated as of February 1, 2004, is
entered into between Corning Incorporated, a corporation organized under the
laws of the State of New York ("Corning" or the "Company"), and Joseph A.
Miller, Jr. (the "Executive") and amends the Change In Control Agreement (the
"CIC Agreement") originally entered into between the Company and Executive on
July 2, 2001.
1. Section 1 of the CIC Agreement is hereby deleted in its
entirety and is replaced with the following:
"TERM OF AGREEMENT. This Agreement shall commence as of July
2, 2001 (the "Effective Date") and shall continue in effect until the Executive
leaves the employ of the Company for any reason or until the Executive ceases to
be an officer of Corning Incorporated and is also notified in writing (within 90
days of ceasing to be an officer of Corning) that this Agreement is null and
void."
Except as noted above, all other provisions of the CIC Agreement remain
in effect with no changes.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its
duly authorized officer and the Executive has executed this Agreement as of the
day and year first above written.
Corning Incorporated:
By: /s/ John P. MacMahon
------------------------------------------------
John P. MacMahon
VP, Global Compensation & Benefits
Executive:
/s/ Joseph A. Miller, Jr.
------------------------------------------------
Joseph A. Miller, Jr.
EXHIBIT 10.7
CORNING INCORPORATED
CHANGE IN CONTROL AGREEMENT
This Agreement, dated as of June 1, 2001, is entered into between
Corning Incorporated, a corporation organized under the laws of the State of New
York ("Corning" or the "Company"), and Joseph A. Miller (the "Executive").
WHEREAS, the Board of Directors of the Company (the "Board") recognizes
that the possibility of a Change in Control (as hereinafter defined) exists and
that the threat or the occurrence of a Change in Control can result in
significant distractions to its key management personnel because of the
uncertainties inherent in such a situation; and
WHEREAS, the Board has determined that it is essential and in the best
interest of the Company and its stockholders to retain the services of the
Executive in the event of a threat or occurrence of a Change in Control and to
ensure the Executive's continued dedication and efforts in such event without
undue concern for the Executive's personal, financial and employment security;
and
WHEREAS, in order to induce the Executive to remain in the employ of
the Company, particularly in the event of a threat or the occurrence of a Change
in Control, the Company desires to enter into this Agreement with the Executive
to provide the Executive with certain benefits in connection with a Change in
Control or a Potential Change in Control.
NOW, THEREFORE, in consideration of the respective agreements of the
parties contained herein, it is agreed as follows:
1. TERM OF AGREEMENT. This Agreement shall commence as of June 1,
2001 (the "Effective Date") and shall continue in effect until the third
anniversary of the Effective Date, provided, that commencing on the second
anniversary of the Effective Date and on each subsequent anniversary thereof,
the term of this Agreement shall be automatically extended for one (1) year
unless either the Company or the Executive shall have given written notice to
the other at least ninety (90) days prior thereto that the term of this
Agreement shall not be so extended; and provided, further, that notwithstanding
any such notice by the Company not to extend, the term of this Agreement shall
not expire during a Potential Change in Control Period (as hereinafter defined)
or prior to the expiration of four (4) years after the date of a Change in
Control that occurs during the term hereof (including during a Potential Change
in Control Period).
2. DEFINITIONS.
a. ACCRUED COMPENSATION. For purposes of this Agreement,
"Accrued Compensation" shall mean an amount which shall include all amounts
earned or accrued through the "Termination Date" (as hereinafter defined) but
not paid as of the Termination Date, including (i) base salary, (ii)
reimbursement for reasonable and necessary expenses incurred by the Executive on
behalf of the Company during the period ending on the Termination Date, (iii)
vacation pay and (iv) the Executive's target percentage for the annual
Management Variable Compensation and GoalSharing plans (collectively, the "Bonus
Plans") times the Executive's base salary, pro-rated to the last day of the
month closest to the Termination Date.
b. BASE AMOUNT. For purposes of this Agreement, "Base Amount"
shall mean the Executive's annual base salary at the rate in effect on the
Termination Date, including all amounts of base salary that are deferred under
the employee benefit plans of the Company or any other agreement or arrangement.
c. BONUS AMOUNT. For purposes of this Agreement, "Bonus
Amount" shall mean the greater of (i) the average amount paid or payable to the
Executive under the Bonus Plans in the two (2) full calendar years preceding the
calendar year in which the Termination Date occurred, or (ii) the Executive's
target percentage (or, if higher, the percentage amount the Executive would have
been entitled to under the Bonus Plans for performance in the Termination Year
determined as of the last day of the month closest to the Termination Date)
times the Base Amount.
d. CAUSE. For purposes of this Agreement, "Cause" shall mean
the Executive's:
(i) conviction of a felony or conviction of a
misdemeanor involving moral turpitude (from which no further appeals have been
or can be taken);
(ii) gross abdication of his duties as an employee
and officer of the Company (other than due to the Executive's illness or
personal family problems), which conduct remains uncured by the Executive for a
period of at least 30 days following written notice thereof to the Executive by
the Company, in each case as determined in good faith by the Company; or
(iii) misappropriation of Company assets, personal
dishonesty or business conduct which causes material or potentially material
financial or reputational harm for the Company. For purposes of this Section
2(d), no act or failure to act on the Executive's part shall be deemed to be a
termination for Cause if done, or omitted to be done, in good faith, and with
the reasonable belief that the action or omission was in the best interests of
the Company.
e. CHANGE IN CONTROL. For purposes of this Agreement, a
"Change in Control" shall mean any of the following events:
(i) Any person (as such term is used in Sections
13(d) and 14(d)(2) of the Securities Exchange Act of 1934) is or becomes the
beneficial owner, directly or indirectly, of securities of the Company
representing 30% or more of the combined voting power of the Company's then
outstanding securities, or such beneficial owner increases its ownership in
securities of the Company from 30% or more to 50% or more of the combined
voting power of the Company's then outstanding securities (thereby resulting in
a second Change in Control with respect to such beneficial owner and,
accordingly, an extension of the term of this Agreement pursuant to Section
1 hereof);
(ii) The individuals who are members of the Board as
of the date this Agreement is approved by the Board (the "Incumbent Board")
cease for any reason to constitute at least a majority of the Board; PROVIDED,
HOWEVER, that if the appointment, election or nomination for election by the
Company's stockholders, of any new director is approved by a vote of at least
two-thirds of the Incumbent Board, such new director shall, for purposes of
this Agreement, be considered a member of the Incumbent Board; PROVIDED,
FURTHER, HOWEVER, that no individual shall be considered a member of the
Incumbent Board if such individual initially assumed office as a result of
either an actual or threatened "Election Contest" (as described in Rule 14a-11
promulgated under the 1934 Act) or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than the Board (a "Proxy
Contest") including by reason of any agreement intended to avoid or settle any
Election Contest or Proxy Contest;
(iii) Consummation of a merger, consolidation or
reorganization involving the Company, unless such merger, consolidation or
reorganization results in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity or parent thereof) more than fifty percent (50%) of the total voting
power represented by the voting securities of the Company or such surviving
entity or parent thereof outstanding immediately after such merger,
consolidation, or reorganization;
(iv) A complete liquidation or dissolution of the
Company; or
(v) The sale or other disposition of all or
substantially all of the assets of the Company to any Person (other than a
transfer to a subsidiary).
f. COMPANY. For purposes of this Agreement, "Company" shall
include Corning's "Successors and Assigns" (as hereinafter defined).
g. DISABILITY. For purposes of this Agreement, "Disability"
shall mean a physical or mental infirmity which impairs the Executive's ability
to substantially perform the Executive's duties with the Company for a period
of: (i) one hundred eighty (180) consecutive days; or (ii) 180 days during any
twelve (12) month period, and the Executive has not returned to full time
employment prior to the Termination Date as stated in the "Notice of
Termination".
h. GOOD REASON. For purposes of this Agreement, "Good Reason"
shall mean the occurrence of any of the events or conditions described in
subsections (i) through (vi) below, PROVIDED, HOWEVER, that the Executive gives
the Company thirty (30) days' Notice of Termination (as defined below) (during
which time the Company will have an opportunity to correct the condition
constituting "Good Reason"), and PROVIDED, FURTHER, that such notice is
submitted by the Executive no later than six (6) months after the occurrence of
the event that is the basis for the "Good Reason":
(i) The Executive's good faith determination that any
of the following has occurred:
(1) a material change in the Executive's
status, title, position or responsibilities which represents a material and
adverse change from the Executive's status, title, position or responsibilities
as in effect immediately prior to such change;
(2) the assignment to the Executive of any
duties or responsibilities which are substantially inconsistent with the
Executive's status, title, position or responsibilities as in effect immediately
prior to such assignment; or
(3) any removal of the Executive from or
failure to reappoint or reelect the Executive to any of such offices or
positions, except in connection with the termination of the Executive's
employment for Disability, Cause, as a result of the Executive's death or by
the Executive other than for Good Reason;
(ii) a reduction in the Executive's base salary;
(iii) the Company's requiring the Executive to change
the location of his principal office which results in Executive having to
commute more than 30 miles from his residence, without Executive's express
consent, except for reasonably required travel on the Company's business which
is not materially greater than such travel requirements prior to the Change in
Control;
(iv) a material reduction by the Company in the kind
or level of employee benefits (other than base, bonus or long-term salary or
compensation) to which the Executive is entitled at any time within ninety
(90) days preceding the commencement of a Potential Change in Control Period
or the date of a Change in Control or at any time thereafter, (other than any
such reduction which is part of, and generally consistent with, a general
reduction applicable to all officers of the Company);
(v) any material breach by the Company of any
provision of this Agreement or any Employment Agreement between the Company
and the Executive; or
(vi) the failure of the Company to obtain an
agreement from any Successors and Assigns to assume and agree to perform this
Agreement, as contemplated in Section 8 hereof.
i. LONG-TERM CASH AMOUNT. For purposes of this Agreement,
"Long-Term Cash Amount" shall mean any cash award granted to the Executive under
the Company's Corporate Performance Plan while the Executive was actively
employed. For purpose of this Section, the cash award shall be multiplied by a
factor of 150%.
j. NOTICE OF TERMINATION. For purposes of this Agreement,
"Notice of Termination" shall mean a written notice of termination of the
Executive's employment from the Company, which notice indicates the Termination
Date (as defined below), the specific termination provision in this Agreement
relied upon and which sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated.
k. POTENTIAL CHANGE IN CONTROL PERIOD. For purposes of this
Agreement, "Potential Change in Control Period" shall mean the period beginning
on the date of execution (during the term of this Agreement) of an agreement
with respect to a transaction the consummation of which would constitute or
result in a Change in Control, and ending on the date immediately following the
Change in Control date or the date on which such agreement is terminated or the
transaction contemplated therein otherwise is abandoned.
l. SUCCESSORS AND ASSIGNS. For purposes of this Agreement,
"Successors and Assigns" shall mean a corporation or other entity acquiring all
or substantially all of the assets and business of the Company whether by
operation of law or otherwise.
m. TERMINATION DATE. For purposes of this Agreement,
"Termination Date" shall mean, in the case of the Executive's death, the
Executive's date of death, in the case of Good Reason, the last day of the
Executive's employment (which shall be no sooner than thirty (30) days after the
Executive submits his Notice of Termination), and, in all other cases, the date
specified in the Notice of Termination; PROVIDED, HOWEVER, that if the
Executive's employment is terminated by the Company due to Disability, the date
specified in the Notice of Termination shall be at least 30 days from the date
the Notice of Termination is given to the Executive, provided that, in the case
of Disability, the Executive shall not have returned to the full-time
performance of the Executive's duties during such period of at least 30 days.
3. CHANGE IN CONTROL BENEFITS
a. If, during the term of this Agreement, a Change in Control
occurs, the Executive shall be entitled to the following compensation and
benefits:
(i) the restrictions on any Long-Term Cash Amount
shall lapse and such cash award shall become 100% vested and payable;
(ii) the restrictions on any outstanding equity
incentive awards, including stock options and restricted stock, granted to the
Executive under the Company's stock option and other stock incentive plans or
under any other incentive plan or arrangement shall lapse and such incentive
award shall become 100% vested and, in the case of stock options, immediately
exercisable.
b. If, during the term of this Agreement, the Executive's
employment with the Company shall be terminated within the Potential Change in
Control Period or within four (4) years following a Change in Control, the
Executive shall be entitled to the following compensation and benefits:
(i) If the Executive's employment with the Company
shall be terminated (1) by the Company for Cause, (2) by the Executive other
than for Good Reason, or (3) by reason of death or Disability, the Company
shall pay to the Executive the Accrued Compensation.
(ii) If the Executive's employment with the Company
shall be terminated for any reason other than as specified in Section 3(b)(i),
the Executive shall be entitled to the following:
(1) the Company shall pay the Executive all
Accrued Compensation;
(2) the Company shall pay the Executive as
severance pay and in lieu of any further compensation for periods subsequent to
the Termination Date, in a single lump-sum payment, an amount in cash equal to
two (2) times the sum of (A) the Base Amount, and (B) the Bonus Amount;
(3) the restrictions on any Long-Term Cash
Amount shall lapse and such cash award shall become 100% vested and payable;
(4) for a number of months equal to
twenty-four (24) months (the "Continuation Period"), the Company shall, at
its expense, continue on behalf of the Executive and the Executive's dependents
and beneficiaries the life insurance, disability, medical, dental and
hospitalization benefits provided (A) to the Executive at any time during the
90-day period prior to the Change in Control or at any time thereafter or (B)
to other similarly situated executives who continue in the employ of the Company
during the Continuation Period. The coverage and benefits (including deductibles
and costs) provided in this Section 3(b)(ii)(4) during the Continuation Period
shall be no less favorable to the Executive and the Executive's dependents and
beneficiaries, than the most favorable of such coverage and benefits provided
to Corning executives in general during any of the periods referred to in
clauses (A) and (B), above, of this subsection. This subsection 3(b)(ii)(4)
shall not be interpreted so as to limit any benefits to which the Executive or
the Executive's dependents or beneficiaries may be entitled under any of the
Company's employee benefit plans, programs or practices following the
Executive's termination of employment, including without limitation, retiree
medical and life insurance benefits. In lieu of the continuation of benefits
referenced in this subsection 3(b)(ii)(4), the Executive may elect to waive
such benefits and receive a one-time cash payment of $75,000 within 30 days of
the Executive's Termination Date in full satisfaction of this provision;
(5) the Executive may request the Company to
purchase the Executive's principal residence. Such purchase shall be made at
the greater of (i) the residence's appraised value at the Termination Date, as
determined in accordance with the Company's relocation policies in effect
immediately prior to the Potential Change in Control Period or Change in
Control (as applicable); (ii) the total cost of the residence plus improvements
("Protected Value"), as determined in accordance with the Company's Protected
Value policy in effect as of the date of this Agreement, or (iii) the modified
appraised market value defined to be the appraised market value of the
Executive's principal residence at a point in time prior to the Change in
Control announcement (the "Baseline") updated annually by an appropriate housing
inflation index, or until the next "Baseline" is established. For purposes of
this modified appraised value, the Company will undertake to obtain the
appraised market value of the Executive's principal residence, to establish the
Baseline, at least once every ten (10) years and no more frequently than once
every four (4) years, and will maintain records of the values calculated under
this modified appraised market value;
(6) the restrictions on any outstanding
equity incentive awards, including stock options and restricted stock, granted
to the Executive under the Company's stock option and other stock incentive
plans or under any other incentive plan or arrangement shall lapse and such
incentive award shall become 100% vested and, in the case of stock options,
immediately exercisable;
(7) the Executive's pension benefit
("Pension Benefit") will be calculated under the terms of the Company's
Executive Supplemental Pension Plan after providing the Executive with an
additional five (5) years of credited service under the plan. The Pension
Benefit determined under this subsection 3(b)(ii)(7) shall commence at
age 55, or as of the Termination Date if the Executive is already at least age
55, without giving effect to any actuarial reductions that may otherwise be
imposed by the plan; and
(8) the Executive shall be eligible for
comprehensive outplacement assistance up to a maximum benefit equal to 20% of
base pay at the time of termination payable by the Company within one year
directly to an outside vendor selected by the Executive. At the election of the
Executive, a one-time taxable payment of 20% of base salary (up to a maximum of
$65,000) may be paid in lieu of the benefit provided in the preceding sentence.
c. The amount provided for in subsection 3(a)(i) shall be paid
in a single lump sum cash payment within fourteen (14) days of a Change in
Control. The amounts provided for in subsection 3(b)(i), and subsections
3(b)(ii)(1) through 3(b)(ii)(4) inclusive and subsection 3(b)(ii)(8) shall be
paid in a single lump sum cash payment within fourteen (14) days after the
Executive's Termination Date (or earlier, if required by applicable law).
d. The Executive shall not be required to mitigate the amount
of any payment provided for in this Agreement by seeking other employment or
otherwise, and no such payment shall be offset or reduced by the amount of any
compensation or benefits provided to the Executive in any subsequent employment.
4. NOTICE OF TERMINATION. During the Potential Change in Control
Period and on or following a Change in Control, any purported termination of the
Executive's employment shall be communicated by a Notice of Termination to the
Executive. For purposes of this Agreement, no such purported termination shall
be effective without such Notice of Termination.
5. TAX GROSS-UP PAYMENTS
a. In the event that the severance and any other payments or
benefits (including, without limitation, any accelerated vesting of equity-based
awards) provided for in this Agreement or any other payments or benefits due to
the Executive (individually, a "Payment", and collectively, the "Payments") (i)
constitute "parachute payments" within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code"), and (ii) but for this
Section, would be subject to the excise tax imposed by Section 4999 of the Code
(the "Excise Tax"), then the Executive shall receive a full gross-up ("Tax
Gross-up") for any and all Excise Taxes imposed.
b. An initial determination as to whether the Excise Tax will
be imposed, the amount of the Excise Tax and the calculated Tax Gross-up shall
be made, at the Company's expense, by the accounting firm that is the Company's
independent accounting firm as of the date of the Change in Control (the
"Accounting Firm"). The Accounting Firm shall provide its determination (the
"Determination"), together with detailed supporting calculations and
documentation, to the Company and the Executive within ten (10) days of the
Termination Date, if applicable, or such other time as requested by the Company
or by the Executive (provided the Executive reasonably believes that any of the
Payments may be subject to the Excise Tax) and, if the Accounting Firm
determines that no Excise Tax is payable by the Executive with respect to a
Payment or Payments, it shall furnish the Executive with an opinion reasonably
acceptable to the Executive that no Excise Tax will be imposed with respect to
any such Payment or Payments. Within ten (10) days of the delivery of the
Determination to the Executive, the Executive shall have the right to dispute
the Determination (the "Dispute"). If there is no Dispute, the Determination
shall be binding, final and conclusive upon the Company and the Executive.
c. As a result of uncertainty in the application of Section
4999 of the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Tax Gross-Up payments not made by the Company
should have been made ("Underpayment"), or that Tax Gross-Up payments will have
been made by the Company which should not have been made ("Overpayments"). In
either such event, the Accounting Firm shall determine the amount of the
Underpayment or Overpayment that has occurred. In the case of an Underpayment,
the amount of such Underpayment shall be promptly paid by the Company to or for
the benefit of the Executive. In the case of an Overpayment, the Executive
shall, at the direction and expense of the Company, take such steps as are
reasonably necessary (including the filing of returns and claims for refund),
follow reasonable instructions from, and procedures established by, the Company,
and otherwise reasonably cooperate with the Company to correct such Overpayment.
d. Any other provision of this Section 5 notwithstanding, if
the Excise Tax could be avoided by reducing the Payments by a present value
(determined in accordance with any proposed, temporary or final regulations
under Sections 280G or 4999 of the Code) of $45,000 or less, then the Payments
shall be reduced to the extent necessary to avoid the Excise Tax and no Tax
Gross-Up payment shall be made. If the Accounting Firm determines that the
Payments are to be reduced under the preceding sentence, then the Company shall
promptly give the Executive notice to that effect and a copy of the detailed
calculation thereof. The Executive may then elect, in the Executive's sole
discretion, which and how much of the Payments are to be eliminated or reduced
(as long as after such election no Excise Tax will be payable) and shall advise
the Company in writing of the Executive's election within 10 days of receipt of
notice. If no such election is made by the Executive within such 10-day period,
then the Company may elect which and how much of the Payments are to be
eliminated or reduced (as long as after such election no Excise Tax will be
payable) and shall notify the Executive promptly of such election.
6. EMPLOYMENT TAXES. All payments made pursuant to this Agreement
will be subject to applicable withholdings of income and employment taxes.
7. SUCCESSORS; BINDING AGREEMENT. This Agreement shall be binding
upon and shall inure to the benefit of the Company, its Successors and Assigns
and the Company shall require any Successors and Assigns to expressly assume and
agree to perform this Agreement in the same manner and to the same extent that
the Company would be required to perform it if no such succession or assignment
had taken place. Neither this Agreement nor any right or interest hereunder
shall be assignable or transferable by the Executive or the Executive's
beneficiaries or legal representatives, except by will or by the laws of descent
and distribution. This Agreement shall inure to the benefit of and be
enforceable by the Executive's legal personal representative.
8. NOTICE. For the purposes of this Agreement, notices and all
other communications provided for in the Agreement (including the Notice of
Termination) shall be in writing and shall be deemed to have been duly given
when personally delivered or sent by certified mail, return receipt requested,
postage prepaid, addressed to the respective addresses last given by each party
to the other, provided that all notices to the Company shall be directed to the
attention of the Chairman of the Board with a copy to the Secretary of the
Company. All notices and communications shall be denied to have been received on
the date of delivery thereof or on the third business day after the mailing
thereof, except that notice of change of address shall be effective only upon
receipt.
9. NON-EXCLUSIVITY OF RIGHTS; EFFECT ON CIC POLICY. Nothing in
this Agreement shall prevent or limit the Executive's continuing or future
participation in any benefit, bonus, incentive or other plan or program provided
by the Company (except for any severance or termination policies, plans,
programs or practices) and for which the Executive may qualify, nor shall
anything herein limit or reduce such rights as the Executive may have under any
other agreements with the Company. Amounts which are vested benefits or which
the Executive is otherwise entitled to receive under any plan or program of the
Company shall be payable in accordance with such plan or program, except as
explicitly modified by this Agreement.
10. NO IMPLIED EMPLOYMENT RIGHTS. Nothing in this Agreement shall
alter the Executive's status as an "at will" employee of the Company or be
construed to imply that the Executive's employment is guaranteed for any period
of time except as otherwise agreed in a written agreement signed by a duly
authorized officer of the Company.
11. MISCELLANEOUS. No provision of this Agreement may be modified,
waived or discharged, unless such waiver, modification or discharge is agreed to
in writing and signed by the Executive and the Company. No waiver by either
party hereto at any time of any breach by the other party hereto, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time. No agreement or representation,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not expressly set forth in this
Agreement.
12. GOVERNING LAW. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York
without giving effect to the conflict of law principles thereof.
13. ARBITRATION. Any dispute or controversy arising under or in
connection with the subject matter, the interpretation, the application, or
alleged breach of this Agreement ("Arbitrable Claims") shall be resolved by
binding arbitration in the City of New York, New York, in accordance with the
then-current National Rules for the Resolution of Employment Disputes of the
American Arbitration Association. Arbitration shall be final and binding upon
the parties and shall be the exclusive remedy for all Arbitrable Claims.
Notwithstanding the foregoing, either party may bring an action in court to
compel arbitration under this Agreement, to enforce an arbitration award, or to
seek injunctive relief. THE PARTIES HEREBY WAIVE ANY RIGHT TO JURY TRIAL AS TO
ARBITRABLE CLAIMS.
14. LEGAL FEES AND EXPENSES. The Company shall pay or reimburse
the Executive on an after-tax basis for all costs and expenses (including,
without limitation, court and arbitrations cost and reasonable legal fees and
expenses which reflect common practice with respect to the matters involved)
incurred by the Executive as a result of any claim, action or proceeding arising
out of this Agreement or the contesting, disputing or enforcing of any
provision, right or obligation under this Agreement, except where it is finally
determined that the Executive's position was entirely without merit and asserted
in bad faith.
15. SEVERABILITY. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
16. ENTIRE AGREEMENT. The parties agree that the terms of this
Agreement are intended to be the final expression of their agreement with
respect to the subject matter of this Agreement and may not be contradicted by
evidence of any prior or contemporaneous Agreement, except to the extent that
the provisions of any such agreement have been expressly referred to in this
Agreement as having continued effect. Any and all previous change in control
agreements between the Company and the Executive are null and void and given no
effect.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its
duly authorized officer and the Executive has executed this Agreement as of the
day and year first above written.
Corning Incorporated:
By: /s/ Kirk P. Gregg
---------------------------------------------------------
Kirk P. Gregg
Senior Vice President, Administration
Executive:
/s/ Joseph A. Miller
---------------------------------------------------------
Joseph A. Miller
EXHIBIT 10.8
Amendment to Corning Incorporated
Change-In-Control Agreement
This amendment (the "Amendment"), dated as of February 1, 2004, is
entered into between Corning Incorporated, a corporation organized under the
laws of the State of New York ("Corning" or the "Company"), and Wendell P. Weeks
(the "Executive") and amends the Change In Control Agreement - Version 2 (the
"CIC Agreement") originally entered into between the Company and Executive on
April 23, 2002.
1. Section 1 of the CIC Agreement is hereby deleted in its
entirety and is replaced with the following:
"TERM OF AGREEMENT. This Agreement shall commence as of April
23, 2002 (the "Effective Date") and shall continue in effect until the Executive
leaves the employ of the Company for any reason or until the Executive ceases to
be an officer of Corning Incorporated and is also notified in writing (within 90
days of ceasing to be an officer of Corning) that this Agreement is null and
void."
Except as noted above, all other provisions of the CIC Agreement remain
in effect with no changes.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its
duly authorized officer and the Executive has executed this Agreement as of the
day and year first above written.
Corning Incorporated:
By: /s/ John P. MacMahon
------------------------------------------------
John P. MacMahon
VP, Global Compensation & Benefits
Executive:
/s/ Wendell P. Weeks
------------------------------------------------
Wendell P. Weeks
EXHIBIT 10.9
CORNING INCORPORATED
CHANGE IN CONTROL AGREEMENT (Version 2)
This Agreement, dated as of April 23, 2002, is entered into between
Corning Incorporated, a corporation organized under the laws of the State of New
York ("Corning" or "Company"), and Wendell P. Weeks (the "Executive").
WHEREAS, the Board of Directors of the Company (the "Board") recognizes
that the possibility of a Change in Control (as hereinafter defined) exists and
that the threat or the occurrence of a Change in Control can result in
significant distractions to its key management personnel because of the
uncertainties inherent in such a situation; and
WHEREAS, the Board has determined that it is essential and in the best
interest of the Company and its stockholders to retain the services of the
Executive in the event of a threat or occurrence of a Change in Control and to
ensure the Executive's continued dedication and efforts in such event without
undue concern for the Executive's personal, financial and employment security;
and
WHEREAS, in order to induce the Executive to remain in the employ of
the Company, particularly in the event of a threat or the occurrence of a Change
in Control, the Company desires to enter into this Agreement with the Executive
to provide the Executive with certain benefits in connection with a Change in
Control or a potential Change in Control; and
WHEREAS, this Agreement is intended to supersede both the prior Change
in Control provisions of the "comfort letter", dated June 1, 1998, regarding the
Company's Executive Severance and Change-in-Control Policy (the "CIC Policy")
and the Change in Control provisions of a certain Employment Agreement between
the Company and Executive dated December 6, 2000,
NOW, THEREFORE, in consideration of the respective agreements of the
parties contained herein, it is agreed as follows:
1. TERM OF AGREEMENT. This Agreement shall commence as of April
23, 2002 (the "Effective Date") and shall continue in effect until the third
anniversary of the Effective Date, provided, that commencing on the second
anniversary of the Effective Date and on each subsequent anniversary thereof,
the term of this Agreement shall be automatically extended for one (1) year
unless either the Company or the Executive shall have given written notice to
the other at least ninety (90) days prior thereto that the term of this
Agreement shall not be so extended; and provided, further, that notwithstanding
any such notice by the Company not to extend, the term of this Agreement shall
not expire during a Potential Change in Control Period (as hereinafter defined)
or prior to the expiration of four (4) years after the date of a Change in
Control that occurs during the term hereof (including during a Potential Change
in Control Period).
2. DEFINITIONS.
a. ACCRUED COMPENSATION. For purposes of this Agreement,
"Accrued Compensation" shall mean an amount which shall include all amounts
earned or accrued through the "Termination Date" (as hereinafter defined) but
not paid as of the Termination Date, including (i) base salary, (ii)
reimbursement for reasonable and necessary expenses incurred by the Executive on
behalf of the Company during the period ending on the Termination Date, (iii)
vacation pay, (iv) the Executive's target percentage for the annual Management
Variable Compensation and GoalSharing plans (collectively, the "Bonus Plans")
times the Executive's base salary, pro-rated to the last day of the month
closest to the Termination Date, and (v) all other accrued and unpaid amounts
under the Letter of Understanding between the Executive and the Company dated
April 23, 2002.
b. BASE AMOUNT. For purposes of this Agreement, "Base Amount"
shall mean the Executive's annual base salary at the rate in effect on the
Termination Date, including all amounts of base salary that are deferred under
the employee benefit plans of the Company or any other agreement or arrangement.
c. BONUS AMOUNT. For purposes of this Agreement, "Bonus
Amount" shall mean the greater of (i) the amount paid or payable to the
Executive under the Bonus Plans in the full calendar year preceding the calendar
year in which the Termination Date occurred, or (ii) the Executive's target
percentage (or, if higher, the percentage amount the Executive would have been
entitled to under the Bonus Plans for performance in the Termination Year
determined as of the last day of the month closest to the Termination Date)
times the Base Amount.
d. CAUSE. For purposes of this Agreement, "Cause" shall mean:
(i) conviction of the Executive for a felony; (ii) the commission by the
Executive of fraud or theft against, or embezzlement from, the Company, in each
case that is materially and demonstrably damaging to the financial condition of
the Company; and (iii) gross abdication in the performance of his duties (other
than as a result of a disability or personal family problems) that has resulted
in substantial and material damage to the Company, after a written demand for
substantial performance is delivered to the Executive by the Board which
specifically identifies the manner in which the Board believes he has not
substantially performed his duties and he has been provided with a reasonable
opportunity to cure any alleged gross abdication. For purposes of this section,
no act or failure to act on Executive's part shall be considered to be reason
for termination for Cause if done, or omitted to be done, by Executive in good
faith and with the reasonable belief that the action or omission was in the best
interests of the Company. Cause shall not exist unless and until there shall
have been delivered to the Executive a copy of a resolution, duly adopted by the
affirmative vote of not less than two thirds of the entire membership of the
Board at a meeting of the Board held for the purpose (after ten (10) days' prior
written notice to the Executive of such meeting and the purpose thereof and an
opportunity for him, together with his counsel, to be heard before the Board at
such meeting), of finding that in the good faith opinion of the Board, the
Executive was guilty of the conduct set forth above in this Section and
specifying the particulars thereof in detail. Anything herein to the contrary
notwithstanding, if, following a termination of the Executive's employment by
the Company for Cause based upon the conviction of the Executive for a felony,
such conviction is overturned in a final determination on appeal, the Executive
shall be entitled to the payments and the economic equivalent of the benefits
the Executive would have received if his employment had been terminated by the
Company without Cause.
e. CHANGE IN CONTROL. For purposes of this Agreement, a
"Change in Control" shall mean any of the following events:
(i) Any person (as such term is used in Sections
13(d) and 14(d)(2) of the Securities Exchange Act of 1934) is or becomes the
beneficial owner, directly or indirectly, of securities of the Company
representing 30% or more of the combined voting power of the Company's then
outstanding securities, or such beneficial owner increases its ownership in
securities of the Company from 30% or more to 50% or more of the combined
voting power of the Company's then outstanding securities (thereby resulting in
a second Change in Control with respect to such beneficial owner and,
accordingly, an extension of the term of this Agreement pursuant to Section
1 hereof);
(ii) The individuals who are members of the Board as
of the date this Agreement is approved by the Board (the "Incumbent Board")
cease for any reason to constitute at least a majority of the Board; PROVIDED,
HOWEVER, that if the appointment, election or nomination for election by the
Company's stockholders, of any new director is approved by a vote of at least
two-thirds of the Incumbent Board, such new director shall, for purposes of
this Agreement, be considered a member of the Incumbent Board; PROVIDED,
FURTHER, HOWEVER, that no individual shall be considered a member of the
Incumbent Board if such individual initially assumed office as a result of
either an actual or threatened "Election Contest" (as described in Rule 14a-11
promulgated under the 1934 Act) or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than the Board (a
"Proxy Contest") including by reason of any agreement intended to avoid or
settle any Election Contest or Proxy Contest;
(iii) Consummation of a merger, consolidation or
reorganization involving the Company, unless such merger, consolidation or
reorganization results in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity or parent thereof) more than (50%) of the total voting power represented
by the voting securities of the Company or such surviving entity or parent
thereof outstanding immediately after such merger, consolidation, or
reorganization;
(iv) A complete liquidation or dissolution of the
Company; or
(v) The sale or other disposition of all or
substantially all of the assets of the Company to any
Person (other than a transfer to a subsidiary).
f. COMPANY. For purposes of this Agreement, "Company" shall
include Corning's "Successors and Assigns" (as hereinafter defined).
g. DISABILITY. For purposes of this Agreement, "Disability"
shall mean a physical or mental infirmity which impairs the Executive's ability
to substantially perform the Executive's duties with the Company for a period
of: (i) one hundred eighty (180) consecutive days; or (ii) 180 days during any
twelve (12) month period, and the Executive has not returned to full time
employment prior to the Termination Date as stated in the "Notice of
Termination".
h. GOOD REASON. For purposes of this Agreement, "Good Reason"
shall mean the occurrence of any of the events or conditions described in
subsections (i) through (vi) below, PROVIDED, HOWEVER, that the Executive gives
the Company thirty (30) days' Notice of Termination (as defined below) (during
which time the Company will have an opportunity to correct the condition
constituting "Good Reason"):
(i) a material change in the Executive's status,
title, position or responsibilities which represents a material and adverse
change from the Executive's status, title, position or responsibilities as in
effect immediately prior to such change; the assignment to the Executive of any
duties or responsibilities which are substantially inconsistent with the
Executive's status, title, position or responsibilities as in effect
immediately prior to such assignment; or any removal of the Executive from or
failure to reappoint or reelect the Executive to any of such offices or
positions, except in connection with the termination of the Executive's
employment for Disability, Cause, as a result of the Executive's death or by the
Executive other than for Good Reason;
(ii) a reduction in the Executive's base salary;
(iii) the Company's requiring the Executive to change
the location of his principal office which results in Executive having to
commute more than 30 miles from his residence, without Executive's express
consent, except for reasonably required travel on the Company's business which
is not materially greater than such travel requirements prior to thePotential
Change in Control Period;
(iv) a material reduction by the Company in the kind
or level of employee benefits (other than base, bonus or long-term salary or
compensation) to which the Executive is entitled at any time within ninety
(90) days preceding the commencement of a Potential Change in Control Period
or the date of a Change in Control or at any time thereafter, (other than any
such reduction which is part of, and generally consistent with, a general
reduction applicable to all officers of the Company);
(v) any material breach by the Company of any
material provision of this Agreement or any Employment Agreement between the
Company and the Executive;
(vi) the failure of the Company to obtain an
agreement from any Successors and Assigns to assume and agree to perform this
Agreement, as contemplated in Section 8 hereof.
i. LONG-TERM CASH AMOUNT. For purposes of this Agreement,
"Long-Term Cash Amount" shall mean any cash award granted to the Executive under
the Company's Corporate Performance Plan while the Executive was actively
employed. For purpose of this Section, the cash award shall be multiplied by a
factor of 150%.
j. NOTICE OF TERMINATION. For purposes of this Agreement,
"Notice of Termination" shall mean a written notice of termination of the
Executive's employment from the Company, which notice indicates the Termination
Date (as defined below), the specific termination provision in this Agreement
relied upon and which sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated.
k. POTENTIAL CHANGE IN CONTROL PERIOD. For purposes of this
Agreement, "Potential Change in Control Period" shall mean the period beginning
on the date of execution (during the term of this Agreement) of an agreement
with respect to a transaction the consummation of which would constitute or
result in a Change in Control, and ending on the date immediately following the
Change in Control date or the date on which such agreement is terminated or the
transaction contemplated therein otherwise is abandoned.
l. SUCCESSORS AND ASSIGNS. For purposes of this Agreement,
"Successors and Assigns" shall mean a corporation or other entity acquiring all
or substantially all of the assets and business of the Company, whether by
operation of law or otherwise.
m. TERMINATION DATE. For purposes of this Agreement,
"Termination Date" shall mean, in the case of the Executive's death, the
Executive's date of death, in the case of Good Reason, the last day of the
Executive's employment (which shall be no sooner than thirty (30) days after the
Executive submits his Notice of Termination), and, in all other cases, the date
specified in the Notice of Termination; PROVIDED, HOWEVER, that if the
Executive's employment is terminated by the Company due to Disability, the date
specified in the Notice of Termination shall be at least 30 days from the date
the Notice of Termination is given to the Executive, provided that, in the case
of Disability, the Executive shall not have returned to the full-time
performance of the Executive's duties during such period of at least 30 days.
3. CHANGE IN CONTROL BENEFITS
a. If, during the term of this Agreement, a Change in Control
occurs, the Executive shall be entitled to the following compensation and
benefits:
(1) the restrictions on any Long-Term Cash Amount
shall lapse and such cash award shall become 100% vested and payable; and
(2) the restrictions on any outstanding equity
incentive awards, including stock options and restricted stock, granted to the
Executive under the Company's stock option and other stock incentive plans or
under any other incentive plan or arrangement shall lapse and such incentive
award shall become 100% vested and, in the case of stock options, immediately
exercisable.
b. If, during the term of this Agreement, either (x) the
Executive's employment is terminated by the Company without Cause or he resigns
for Good Reason during a Potential Change in Control Period, or (y) the
Executive's employment with the Company is terminated for any reason by the
Company or the Executive resigns for any reason on or within four (4) years
following a Change in Control, the Executive shall be entitled to the following
compensation and benefits:
(1) the Company shall pay the Executive in a single
lump-sum payment, an amount in cash equal to three (3) times the sum of (A) the
Base Amount, and (B) the Bonus Amount;
(2) the Company shall pay the Executive all Accrued
Compensation;
(3) the restrictions on any Long-Term Cash Amount
shall lapse and such cash award shall become 100% vested and payable;
(4) for a number of months equal to thirty-six
(36) months (the "Continuation Period"), the Company shall, at its expense,
continue on behalf of the Executive and the Executive's dependents and
beneficiaries the life insurance, disability, medical, dental and
hospitalization benefits provided (A) to the Executive at any time during the
90-day period prior to the Change in Control or at any time thereafter or (B) to
other similarly situated executives who continue in the employ of the Company
during the Continuation Period. The coverage and benefits (including deductibles
and costs) provided in this subsection 3(b)(4) during the Continuation Period
shall be no less favorable to the Executive and the Executive's dependents and
beneficiaries, than the most favorable of such coverage and benefits provided to
Corning executives in general during any of the periods referred to in clauses
(A) and (B), above, of this subsection. This subsection 3(b)(4) shall not be
interpreted so as to limit any benefits to which the Executive or the
Executive's dependents or beneficiaries may be entitled under any of the
Company's employee benefit plans, programs or practices following the
Executive's termination of employment, including without limitation, retiree
medical and life insurance benefits. In lieu of the continuation of benefits
referenced in this subsection 3(b)(4), the Executive may elect to waive such
benefits and receive a one-time cash payment of $75,000 within 30 days of the
Executive's Termination Date in full satisfaction of this provision;
(5) the Executive may request the Company to purchase
the Executive's principal residence. Such purchase shall be made at the greater
of (i) the residence's appraised value at the Termination Date, as determined
in accordance with the Company's relocation policies in effect immediately
prior to the Potential Change in Control Period or Change in Control (as
applicable); (ii) the total cost of the residence plus improvements
("Protected Value"), as determined in accordance with the Company's Protected
Value policy in effect as of the date of this Agreement, or (iii) the
modified appraised market value defined to be the appraised market value of the
Executive's principal residence at a point in time prior to the Change in
Control announcement (the "Baseline") updated annually by an appropriate housing
inflation index, or until the next "Baseline" is established. For purposes of
this modified appraised value, the Company will undertake to obtain the
appraised market value of the Executive's principal residence, to establish the
Baseline, at least once every ten (10) years and no more frequently than once
every four (4) years, and will maintain records of the values calculated under
this modified appraised market value;
(6) the restrictions on any outstanding equity
incentive awards, including stock options and restricted stock, granted to the
Executive under the Company's stock option and other stock incentive plans or
under any other incentive plan or arrangement shall lapse and such incentive
award shall become 100% vested and, in the case of stock options, immediately
exercisable;
(7) the Executive's pension benefit ("Pension
Benefit") will be calculated under the terms of the Company's Executive
Supplemental Pension Plan ("SERP") after providing the Executive with an
additional five (5) years age and service credit under the plan. The Executive
shall be credited as having received annual compensation during each year of
the 5-year period referenced above equal to the the sum of the Base Amount and
the Bonus Amount for purposes of determining Executive's final average
compensation under the SERP. The Pension Benefit determined under this
subsection 3(b)(7) shall commence at age 55, or as of the Termination Date
if the Executive is already at least age 55, without giving effect to any
actuarial reductions that may otherwise be imposed by the plan; and
(8) the Executive shall be eligible for comprehensive
outplacement assistance up to a maximum benefit equal to 20% of base pay at the
time of termination payable by the Company within one year directly to an
outside vendor selected by the Executive. At the election of the Executive, a
one-time taxable payment of 20% of base salary (up to a maximum of $65,000) may
be paid in lieu of the benefit provided in the preceding sentence.
c. The amount provided for in subsection 3(a)(1) shall be paid
in a single lump sum cash payment within fourteen (14) days of a Change in
Control. The amounts provided for in subsections 3(b)(1), 3(b)(2), 3(b)(3),
3(b)(4) and 3(b)(8) shall be paid in a single lump sum cash payment within
fourteen (14) days after the Executive's Termination Date (or earlier, if
required by applicable law).
d. The Executive shall not be required to mitigate the amount
of any payment provided for in this Agreement by seeking other employment or
otherwise, and no such payment shall be offset or reduced by the amount of any
compensation or benefits provided to the Executive in any subsequent employment.
4. NOTICE OF TERMINATION. During the Potential Change in Control
Period and on or following a Change in Control, any purported termination of the
Executive's employment shall be communicated by a Notice of Termination to the
Executive. For purposes of this Agreement, no such purported termination shall
be effective without such Notice of Termination.
5. TAX GROSS-UP PAYMENTS
a. In the event that the severance and any other payments or
benefits (including, without limitation, any accelerated vesting of equity-based
awards) due to the Executive provided for in this Agreement or any other
payments or benefits due to the Executive (individually, a "Payment" and
collectively, the "Payments") (i) constitute "parachute payments" within the
meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the
"Code"), and (ii) but for this Section, would be subject to the excise tax
imposed by Section 4999 of the Code (the "Excise Tax"), then the Executive shall
receive a full gross-up ("Tax Gross-up") for any and all Excise Taxes imposed.
b. An initial determination as to whether the Excise Tax will
be imposed, the amount of the Excise Tax and the calculated Tax Gross-up shall
be made, at the Company's expense, by the accounting firm that is the Company's
independent accounting firm as of the date of the Change in Control (the
"Accounting Firm"). The Accounting Firm shall provide its determination (the
"Determination"), together with detailed supporting calculations and
documentation, to the Company and the Executive within ten (10) days of the
Termination Date, if applicable, or such other time as requested by the Company
or by the Executive (provided the Executive reasonably believes that any of the
Payments may be subject to the Excise Tax) and, if the Accounting Firm
determines that no Excise Tax is payable by the Executive with respect to a
Payment or Payments, it shall furnish the Executive with an opinion reasonably
acceptable to the Executive that no Excise Tax will be imposed with respect to
any such Payment or Payments. Within ten (10) days of the delivery of the
Determination to the Executive, the Executive shall have the right to dispute
the Determination (the "Dispute"). If there is no Dispute, the Determination
shall be binding, final and conclusive upon the Company and the Executive.
c. As a result of uncertainty in the application of Section
4999 of the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Tax Gross-Up payments not made by the Company
should have been made ("Underpayment"), or that Tax Gross-Up payments will have
been made by the Company which should not have been made ("Overpayments"). In
either such event, the Accounting Firm shall determine the amount of the
Underpayment or Overpayment that has occurred. In the case of an Underpayment,
the amount of such Underpayment shall be promptly paid by the Company to or for
the benefit of the Executive. In the case of an Overpayment, the Executive
shall, at the direction and expense of the Company, take such steps as are
reasonably necessary (including the filing of returns and claims for refund),
follow reasonable instructions from, and procedures established by, the Company,
and otherwise reasonably cooperate with the Company to correct such Overpayment.
d. Any other provision of this Section 5 notwithstanding, if
the Excise Tax could be avoided by reducing the Payments by a present value
(determined in accordance with any proposed, temporary or final regulations
under Sections 280G or 4999 of the Code) of $45,000 or less, then the Payments
shall be reduced to the extent necessary to avoid the Excise Tax and no Tax
Gross-Up payment shall be made. If the Accounting Firm determines that the
Payments are to be reduced under the preceding sentence, then the Company shall
promptly give the Executive notice to that effect and a copy of the detailed
calculation thereof. The Executive may then elect, in the Executive's sole
discretion, which and how much of the Payments are to be eliminated or reduced
(as long as after such election no Excise Tax will be payable) and shall advise
the Company in writing of the Executive's election within 10 days of receipt of
notice. If no such election is made by the Executive within such 10-day period,
then the Company may elect which and how much of the Payments are to be
eliminated or reduced (as long as after such election no Excise Tax will be
payable) and shall notify the Executive promptly of such election.
6. EMPLOYMENT TAXES. All payments made pursuant to this Agreement
will be subject to applicable withholdings of income and employment taxes.
7. SUCCESSORS; BINDING AGREEMENT. This Agreement shall be binding
upon and shall inure to the benefit of the Company, its Successors and Assigns
and the Company shall require any Successors and Assigns to expressly assume and
agree to perform this Agreement in the same manner and to the same extent that
the Company would be required to perform it if no such succession or assignment
had taken place. Neither this Agreement nor any right or interest hereunder
shall be assignable or transferable by the Executive or the Executive's
beneficiaries or legal representatives, except by will or by the laws of descent
and distribution. This Agreement shall inure to the benefit of and be
enforceable by the Executive's legal personal representative.
8. NOTICE. For the purposes of this Agreement, notices and all
other communications provided for in the Agreement (including the Notice of
Termination) shall be in writing and shall be deemed to have been duly given
when personally delivered or sent by certified mail, return receipt requested,
postage prepaid, addressed to the respective addresses last given by each party
to the other, provided that all notices to the Company shall be directed to the
attention of the Chairman of the Board with a copy to the Secretary of the
Company. All notices and communications shall be denied to have been received on
the date of delivery thereof or on the third business day after the mailing
thereof, except that notice of change of address shall be effective only upon
receipt.
9. NON-EXCLUSIVITY OF RIGHTS; EFFECT ON CIC POLICY. Nothing in
this Agreement shall prevent or limit the Executive's continuing or future
participation in any benefit, bonus, incentive or other plan or program provided
by the Company (except for any severance or termination policies, plans,
programs or practices) and for which the Executive may qualify, nor shall
anything herein limit or reduce such rights as the Executive may have under any
other agreements with the Company. Amounts which are vested benefits or which
the Executive is otherwise entitled to receive under any plan or program of the
Company shall be payable in accordance with such plan or program, except as
explicitly modified by this Agreement. This Agreement shall supersede the Change
in Control provisions of the CIC Policy and the Employment Agreement dated
December 6, 2000.
10. NO IMPLIED EMPLOYMENT RIGHTS. Nothing in this Agreement shall
alter the Executive's status as an "at will" employee of the Company or be
construed to imply that the Executive's employment is guaranteed for any period
of time except as otherwise agreed in a written agreement signed by a duly
authorized officer of the Company.
11. MISCELLANEOUS. No provision of this Agreement may be modified,
waived or discharged, unless such waiver, modification or discharge is agreed to
in writing and signed by the Executive and the Company. No waiver by either
party hereto at any time of any breach by the other party hereto, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time. No agreement or representation,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not expressly set forth in this
Agreement.
12. GOVERNING LAW. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York
without giving effect to the conflict of law principles thereof.
13. ARBITRATION. Any dispute or controversy arising under or in
connection with the subject matter, the interpretation, the application, or
alleged breach of this Agreement ("Arbitrable Claims") shall be resolved by
binding arbitration in the City of New York, New York, in accordance with the
then-current National Rules for the Resolution of Employment Disputes of the
American Arbitration Association. Arbitration shall be final and binding upon
the parties and shall be the exclusive remedy for all Arbitrable Claims.
Notwithstanding the foregoing, either party may bring an action in court to
compel arbitration under this Agreement, to enforce an arbitration award, or to
seek injunctive relief. THE PARTIES HEREBY WAIVE ANY RIGHT TO JURY TRIAL AS TO
ARBITRABLE CLAIMS.
14. LEGAL FEES AND EXPENSES. The Company shall pay or reimburse
the Executive on an after-tax basis for all costs and expenses (including,
without limitation, court and arbitrations cost and reasonable legal fees and
expenses which reflect common practice with respect to the matters involved)
incurred by the Executive as a result of any claim, action or proceeding arising
out of this Agreement or the contesting, disputing or enforcing of any
provision, right or obligation under this Agreement, except where it is finally
determined that the Executive's position was entirely without merit and asserted
in bad faith.
15. SEVERABILITY. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
16. ENTIRE AGREEMENT. The parties agree that the terms of this
Agreement are intended to be the final expression of their agreement with
respect to the subject matter of this Agreement and may not be contradicted by
evidence of any prior or contemporaneous Agreement, except to the extent that
the provisions of any such agreement have been expressly referred to in this
Agreement as having continued effect. Any and all previous change in control
agreements between the Company and the Executive (including, without limitation,
the Change in Control provisions of the "comfort letter" pursuant to the CIC
Policy) are null and void and given no effect.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its
duly authorized officer and the Executive has executed this Agreement as of the
day and year first above written.
Corning Incorporated:
By: /s/ Kirk P. Gregg
------------------------------------------------
Kirk P. Gregg
Senior Vice President, Administration
Executive:
/s/ Wendell P. Weeks
------------------------------------------------
Wendell P. Weeks
Exhibit 12
CORNING INCORPORATED AND SUBSIDIARY COMPANIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In millions, except ratios)
For the three months ended
March 31, 2004
--------------------------
Loss before income taxes $ (64)
Adjustments:
Distributed income of equity investees 78
Amortization of capitalized interest 1
Fixed charges net of capitalized interest 41
-----------
Income before taxes and fixed charges, as adjusted 56
===========
Fixed charges:
Interest incurred 38
Portion of rent expense which represents an
appropriate interest factor 5
Amortization of debt costs 1
-----------
Total fixed charges 44
Capitalized interest (3)
-----------
Total fixed charges, net of capitalized interest 41
===========
Ratio of earnings to fixed charges 1.3
===========
Exhibit 31.1
CERTIFICATIONS
--------------
I, James R. Houghton, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Corning Incorporated;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this quarterly
report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we
have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
c) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent function):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls over financial reporting.
May 4, 2004 /s/ JAMES R. HOUGHTON
----------------------------- -------------------------------------
Date James R. Houghton
Chairman and Chief Executive Officer
Exhibit 31.2
CERTIFICATIONS
--------------
I, James B. Flaws, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Corning Incorporated;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this quarterly
report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we
have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
c) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent function):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls over financial reporting.
May 4, 2004 /s/ JAMES B. FLAWS
------------------------------ -----------------------------------------
Date James B. Flaws
Vice Chairman and Chief Financial Officer
Exhibit 32.1
CORNING INCORPORATED
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Corning Incorporated (the "Company")
on Form 10-Q for the period ended March 31, 2004 as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), we, James R. Houghton
and James B. Flaws, Chairman and Chief Executive Officer and Vice Chairman and
Chief Financial Officer, respectively, of the Company, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
May 4, 2004 /s/ JAMES R. HOUGHTON
--------------------------- -----------------------------------------
Date James R. Houghton
Chairman and Chief Executive Officer
May 4, 2004 /s/ JAMES B. FLAWS
--------------------------- -----------------------------------------
Date James B. Flaws
Vice Chairman and Chief Financial Officer
A signed original of this written statement required by Section 906 has been
provided to Corning Incorporated and will be retained by Corning Incorporated
and furnished to the Securities and Exchange Commission or its staff upon
request.
Exhibit 99.1
Revised Operating Segment Data
For the years ended 2003, 2002, and 2001
(Unaudited; in millions)
------------------------------------------------------------------------------------------------------------------------------------
Telecom- Display Environmental Life Unallocated Consolidated
munications Technologies Technologies Sciences and Other Total
------------------------------------------------------------------------------------------------------------------------------------
For the year ended December 31, 2003
Net sales $ 1,426 $ 595 $ 476 $ 281 $ 312 $ 3,090
Depreciation (1) $ 246 $ 110 $ 80 $ 38 $ 6 $ 480
Amortization of purchased intangibles $ 37 $ 37
Research, development and engineering expenses (2) $ 120 $ 55 $ 87 $ 28 $ 54 $ 344
Restructuring, impairment and other charges and
credits (3) $ (36) $ 147 $ 111
Interest expense (4) $ 75 $ 39 $ 19 $ 5 $ 16 $ 154
(Benefit) provision for income taxes $ (78) $ 45 $ 5 $ 7 $ (233) $ (254)
(Loss) earnings before minority interests and equity
(losses) earnings (5) $ (158) $ 91 $ 9 $ 14 $ (461) $ (505)
Minority interests (6) 73 73
Equity in (losses) earnings of associated companies,
net of impairments (11) 144 76 209
------------------------------------------------------------------------------------------------------------------------------------
Net (loss) income $ (169) $ 235 $ 9 $ 14 $ (312) $ (223)
------------------------------------------------------------------------------------------------------------------------------------
Investment in associated companies, at equity $ 59 $ 299 $ 30 $ 590 $ 978
Segment assets (7) $ 1,901 $ 1,297 $ 485 $ 111 $ 6,958 $ 10,752
Capital expenditures $ 15 $ 251 $ 69 $ 7 $ 49 $ 391
------------------------------------------------------------------------------------------------------------------------------------
For the year ended December 31, 2002
Net sales $ 1,631 $ 405 $ 394 $ 280 $ 454 $ 3,164
Depreciation (1) $ 379 $ 79 $ 50 $ 22 $ 88 $ 618
Amortization of purchased intangibles $ 41 $ 2 $ 43
Research, development and engineering expenses (2) $ 308 $ 41 $ 63 $ 17 $ 54 $ 483
Restructuring, impairment and other charges and
credits (3) $ 1,722 $ 2 $ 1 $ 355 $ 2,080
Interest expense (4) $ 99 $ 29 $ 16 $ 5 $ 30 $ 179
(Benefit) provision for income taxes $ (722) $ 20 $ 8 $ 13 $ (45) $ (726)
(Loss) earnings before minority interests and equity
(losses) earnings (5) $(1,838) $ 39 $ 16 $ 25 $ (236) $ (1,994)
Minority interests (6) 1 97 98
Equity in (losses) earnings of associated companies,
net of impairments (60) 80 16 80 116
Income from discontinued operations 478 478
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Net (loss) income $(1,897) $ 119 $ 32 $ 25 $ 419 $ (1,302)
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Investment in associated companies, at equity $ 72 $ 187 $ 30 $ 457 $ 746
Segment assets (7) $ 2,243 $ 913 $ 428 $ 126 $ 7,696 $ 11,406
Capital expenditures $ 49 $ 77 $ 74 $ 8 $ 108 $ 316
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For the year ended December 31, 2001
Net sales $ 4,458 $ 323 $ 379 $ 267 $ 620 $ 6,047
Depreciation (1) $ 401 $ 52 $ 45 $ 24 $ 99 $ 621
Amortization of purchased intangibles $ 76 $ 76
Research, development and engineering expenses (2) $ 474 $ 27 $ 50 $ 31 $ 40 $ 622
Restructuring, impairment and other charges and
credits (3) $ 5,404 $ 1 $ 11 $ 301 $ 5,717
Interest expense (4) $ 104 $ 16 $ 10 $ 4 $ 19 $ 153
Benefit for income taxes $ (336) $ 14 $ 12 $ (9) $ (149) $ (468)
Loss before minority interests and equity earnings (5) $(5,215) $ 28 $ 24 $ (17) $ (513) $ (5,693)
Minority interests (6) 13 13
Equity in earnings of associated companies 12 60 6 70 148
Income from discontinued operations 34 34
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Net (loss) income $(5,203) $ 88 $ 30 $ (17) $ (396) $ (5,498)
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Investment in associated companies, at equity $ 101 $ 118 $ 15 $ 402 $ 636
Segment assets (7) $ 3,972 $ 783 $ 352 $ 138 $ 7,548 $ 12,793
Capital expenditures $ 941 $ 232 $ 62 $ 14 $ 368 $ 1,617
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(1) Depreciation expense for Corning's reportable segments includes an
allocation of depreciation of corporate property not specifically
identifiable to a segment. Related depreciable assets are not allocated to
segment assets.
(2) Non-direct research, development and engineering expenses are allocated to
segments based upon direct project spending for each segment.
(3) Related tax benefit:
Year ended December 31, 2003: $17, $0, $0, $0, $32 and $49.
Year ended December 31, 2002: $452, $0, $1, $0, $95 and $548.
Year ended December 31, 2001: $282, $0, $0, $4, $113 and $399.
(4) Interest expense is allocated to segments based on a percentage of segment
net operating assets. Consolidated subsidiaries with independent capital
structures do not receive additional allocations of interest expense.
(5) Many of Corning's administrative and staff functions are performed on a
centralized basis. Where practicable, Corning charges these expenses to
segments based upon the extent to which each business uses a centralized
function. Other staff functions, such as corporate finance, human resources
and legal are allocated to segments, primarily as a percentage of sales.
(6) Includes $30 million and $68 million in 2003 and 2002, respectively,
related to impairment of long-lived assets of the conventional video
components business.
(7) Includes inventory, accounts receivable, property and investments in
associated equity companies.
A reconciliation of reportable segment net income (loss) to consolidated net loss follows (in millions):
-------------------------------------------------------------------------------------------------------------------------------
Years ended December 31,
---------------------------------------
2003 2002 2001
-------------------------------------------------------------------------------------------------------------------------------
Net income (loss) of reportable segments $ 89 $ (1,721) $ (5,102)
Non-reportable operating segments net (loss) income (1) (139) (29) 1
Unallocated amounts:
Non-segment loss and other (2) (51) (24) (43)
Amortization of goodwill (363)
Non-segment restructuring, impairment and
other (charges) and credits (13) (208) (191)
Asbestos settlement (413)
Interest income 32 41 68
Gain on repurchases of debt 19 176
Benefit (provision) for income taxes (3) 170 (24) 94
Minority interests 1
Equity in earnings of associated companies (4) 83 8 4
Income from discontinued operations 478 34
-------- --------- --------
Net loss $ (223) $ (1,302) $ (5,498)
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(1) Includes the results of non-reportable operating segments.
(2) Includes the results of non-segment operations and other corporate
activities.
(3) Includes tax associated with non-segment restructuring, impairment and
other charges.
(4) Includes amounts derived from corporate investments, primarily Dow Corning
Corporation in 2003.
The following table provides net sales for the Telecommunications segment (in millions):
-------------------------------------------------------------------------------------------------------------------------------
Years ended December 31,
---------------------------------------
2003 2002 2001
-------------------------------------------------------------------------------------------------------------------------------
Net sales:
Optical fiber and cable $ 760 $ 859 $ 2,889
Hardware and equipment 612 661 1,022
Photonic technologies 54 111 547
--------- --------- --------
Total net sales $ 1,426 $ 1,631 $ 4,458
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A reconciliation of reportable segment assets to consolidated assets follows (in millions):
-------------------------------------------------------------------------------------------------------------------------------
Years ended December 31,
---------------------------------------
2003 2002 2001
-------------------------------------------------------------------------------------------------------------------------------
Total assets of reportable segments $ 3,794 $ 3,710 $ 5,245
Non-reportable operating segments assets 683 915 1,298
Unallocated amounts:
Current assets (1) 1,698 2,746 2,723
Investments (2) 211 25 80
Property, net (3) 973 903 636
Other non-current assets (4) 3,393 3,107 2,811
-------- --------- --------
Total assets $ 10,752 $ 11,406 $ 12,793
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(1) Includes current corporate assets, primarily cash, short-term investments
and deferred taxes.
(2) Represents corporate investments in associated companies, at both cost and
equity.
(3) Represents corporate property not specifically identifiable to an operating
segment.
(4) Includes non-current corporate assets, pension assets and deferred taxes.
Exhibit 99.2
Reconciliation of Non-GAAP Financial Measures
---------------------------------------------
Quarter 1, 2004
(Unaudited; amounts in millions, except per share amounts)
After-tax
& minority
Per Share Pre tax interest
--------- ------ ----------
Earnings per share (EPS) and net income,
excluding certain items $ 0.08 $ 12 $ 115
Certain items:
Restructuring, impairment and other
charges and (credits) (1) (0.02) (34) (21)
Asbestos settlement (2) (0.01) (19) (18)
(Loss) gain on repurchases and
retirement of debt, net (3) (0.01) (23) (21)
-------- ------ -------
Total EPS and net income $ 0.04 $ (64) $ 55
======== ====== =======
(1) This charge primarily related to the consolidation of our high purity fused
silica manufacturing facility in Charleston, South Carolina. This charge also
included a credit related to prior years' restructuring charges, principally in
the Telecommunications segment.
(2) As part of Corning's asbestos settlement for Pittsburgh Corning, Corning
will be contributing 25 million shares of Corning common stock to the trust,
along with some cash. The common stock is currently expected to be contributed
to the trust in 2004, after the claimants have approved the plan and all appeals
have been resolved. Until the common stock is contributed to the trust, changes
in its market value will be recognized in our quarterly results. At the end of
the first quarter, we recorded a charge of $19 million pre tax and $18 million
after tax to reflect the increase in Corning's stock price over the past quarter
from $10.43 to $11.18.
(3) This charge is related to debt-for-equity exchanges pertaining to our 3.5%
convertible bonds due in 2008.