On Monday, Eastman Kodak Co. granted its executive chairman options for 1.75 million shares following what one person familiar with the deal described as a “deal” with its board of directors. which had previously neither been listed in his employment contract nor made public.
A day later, President Donald Trump’s administration announced a $ 765 million financing deal with Eastman Kodak, and in the days that followed, the stock soared, making those additional options now held. by Executive Chairman Jim Continenza worth tens of millions.
The decision to grant options to Mr. Continenza was never formalized or turned into a binding agreement, which is why it was not disclosed before, according to the person familiar with the arrangement. The options were granted to prevent Mr. Continenza’s overall stake in the company from being diluted by a US $ 100 million convertible bond deal reached in May 2019, to help Eastman Kodak stay afloat, according to the account of the person.
While Kodak’s approach is permissible, it is unusual because executives are paid to increase the long-term value of a business and generally do not receive additional compensation to cover events that could adversely affect stock prices. several experts said.
Kodak disclosed the grant of stock options to Mr. Continenza in a previously reported filing with the U.S. Securities and Exchange Commission. But the person familiar with the arrangement told Reuters the transaction took place due to the deal with the council.
This arrangement, reported by Reuters for the first time, sheds new light on Eastman Kodak’s handling of the unexpected windfall for its top executives.
A spokeswoman for Eastman Kodak said Mr. Continenza had no comment. The spokesperson said the gains reflected in the rise in the share price are only on paper: Mr. Continenza, she said, “strongly believes in the future of the company and has never sold a single share ”.
Prior to this week’s funding deal, the company warned investors it might not continue to operate, but it was bolstered by the deal with the Trump administration on Tuesday to supply pharmaceutical ingredients.
As a result, Mr. Continenza’s earnings at the end of this week were approximately US $ 83 million following an approximately 10-fold increase in Eastman Kodak shares, compared to approximately US $ 53 million in earnings. he could have seen if that was not the case. for additional options, according to a Reuters analysis of business filings.
About 29% of the options Mr. Continenza received on Monday vested immediately, giving him the right to cash them as soon as possible.
While most boards and their committees have wide latitude in granting options, three corporate governance experts interviewed by Reuters said the move to mitigate the impact of the dilution on Mr. Continenza’s stake in the business without prior contractual obligation was unusual.
“The job of the compensation committee is not to protect the CEO from any negative effect on stock prices,” said Sanjai Bhagat, professor of finance at the University of Colorado. “It’s to get the CEO to think about long-term value.”
A fourth expert, Robin Ferracone, chief executive of compensation consultant Farient Advisors, said the company may have offered the prospect of additional options to executives as they work on the convertible bond offering – to avoid let them not be “discouraged” to strike a deal that would help the company but potentially dilute its holdings.
The additional options granted to Mr. Continenza, a former telecommunications executive, were approved by the board’s compensation committee on Monday, the spokesperson said. Shareholders voted in May this year to increase the shares available for executive compensation.
“The problem was, the board wanted to make sure the CEO had the same economic alignment that they envisioned when he took the job,” said a person close to the company.
The company’s market capitalization fell from just over US $ 100 million earlier this week to nearly US $ 1 billion on Friday after the transaction.
Eastman Kodak also granted 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 failed camera company after its bankruptcy in 2013. Its selection by the US government for the production of key pharmaceutical ingredients surprised many industry analysts who expected that such an agreement be concluded with a major manufacturer of generic drugs.
The US International Development Finance Corporation issued a statement on July 28 citing Continenza: “Kodak will play a critical role in returning a reliable US pharmaceutical supply chain.”
President Trump also praised the development. “I want to congratulate the people of Kodak,” he said during a press briefing. “They worked very hard.”