By Jessica DiNapoli and Tom Bergin
NEW YORK / LONDON (Reuters) ̵
The next day, the administration of President Donald Trump announced a $ 765 million financing agreement with Eastman Kodak and in the following days the stock skyrocketed, making these additional options now held by executive president Jim Continenza for tens of millions. .
The decision to grant Continenza options was never formalized or entered into a binding agreement, which is why it was not previously disclosed, according to the person familiar with the agreement. Options were granted to protect Continenza’s overall stake in the company from the dilution of a $ 100 million convertible bond agreement signed in May 2019 to help Eastman Kodak stay afloat, according to the person’s report.
Although Kodak’s approach is admissible, it is unusual because executives are paid to increase a company’s long-term value and usually do not receive additional personal compensation to cover events that could harm share prices, several experts said.
Kodak disclosed the stock option premium to Continenza in a filing with the United States Securities and Exchange Commission, which had previously been reported. But the person familiar with the deal told Reuters that the transaction occurred because of the agreement with the board.
That deal reported by Reuters for the first time sheds light on Eastman Kodak’s handling of the unexpected windfall for its executives.
An Eastman Kodak spokesman said Continenza had no comment. The spokeswoman said that the gains reflected by the increase in the share price are only on paper: Continenza, she said, “firmly believes in the future of the company and has never sold a single share”.
Prior to this week’s financing deal, the company had warned investors that it was at risk of not continuing as a concern, but was stepped up by Tuesday’s deal with the Trump administration to supply pharmaceutical ingredients.
As a result, Continenza’s earnings at the end of this week totaled approximately $ 83 million following an approximately 10-fold increase in Eastman Kodak’s shares, compared to approximately $ 53 million in earnings that it would have seen had it not been for the additional options, according to a Reuters analysis of the company’s documents.
About 29% of the options that Continenza received on Monday were acquired immediately, giving it the right to cash them out as soon as possible.
While most of the boards of directors of the companies and their committees have a broad latitude in granting options, three corporate governance experts interviewed by Reuters said the move to mitigate the impact of the dilution on Continenza’s participation in the company without a previous contractual obligation was unusual.
“The job of the compensation committee is not to protect the CEO from any negative effect on the share price,” said Sanjai Bhagat, a professor of finance at the University of Colorado. “It’s to convince the CEO to think about long-term value.”
A fourth expert, Robin Ferracone, chief executive officer of the remuneration consultant Farient Advisors, said the company may have offered prospects additional options to executives as they worked to offer convertible bonds, to prevent them from being “discouraged” by conclude a deal that would help the business but potentially water down their businesses.
The additional options assigned to Continenza, a former telecommunications executive, were approved by the board’s compensation committee on Monday, the spokesman said. In May of this year, shareholders voted to increase the shares available for executive compensation.
“The problem is that the board wanted to make sure that the CEO had the same economic alignment that had been taken into account when he took office,” said a person close to the company.
The company’s market capitalization went from just over $ 100 million earlier this week to nearly $ 1 billion by Friday after the deal.
Eastman Kodak also granted the options on Monday to three other executives, worth $ 712,000 each, according to regulatory documents. Kodak declined to comment on the reason for these awards.
The company struggled to reinvent itself from a flag camera company after it emerged from bankruptcy in 2013. Its selection by the United States government for the production of key pharmaceutical ingredients surprised many industry analysts who expected a deal. like that went to a major generic drug manufacturer.
The US government International Development Finance Corporation released a July 28 statement citing Continenza which states: “Kodak will play a vital role in the return of a reliable American pharmaceutical supply chain.”
President Trump also hailed the development. “I want to congratulate the people of Kodak,” he said at a press conference. “They worked very hard.”
(Reporting by Jessica DiNapoli and Tom Bergin; Editing by Greg Roumeliotis, Tom Lasseter and Daniel Wallis)