Eastman Kodak on Monday granted its executive chairman choices for 1.75 million shares as the results of what an individual acquainted with the association described as an “understanding” with its board that had beforehand neither been listed in his employment contract nor made public.
One day later, the administration of President Donald Trump introduced a $765 million financing deal with Eastman Kodak, and within the days that adopted the inventory soared, making these extra choices now held by executive chairman Jim Continenza price tens of hundreds of thousands.
The resolution to grant Continenza choices was by no means formalized or made right into a binding settlement, which is why it was not disclosed beforehand, in keeping with the individual acquainted with the association. The choices have been granted to defend Continenza’s total stake within the firm from being diluted by a $100 million convertible bond deal clinched in May 2019 to assist Eastman Kodak keep afloat, in keeping with the individual’s account.
While Kodak’s method is permissible, it’s uncommon as a result of executives are paid to develop an organization’s long-term worth and will not be often given further compensation personally to cowl occasions which will harm share costs, a number of consultants mentioned.
Kodak disclosed the inventory choices award to Continenza in a submitting to the U.S. Securities and Exchange Commission, which was beforehand reported. But the individual acquainted with the association instructed Reuters that the transaction occurred due to the understanding with the board.
That association reported by Reuters for the primary time sheds new gentle on Eastman Kodak’s dealing with of the sudden windfall for its top executives.
An Eastman Kodak spokeswoman mentioned that Continenza had no remark. The spokeswoman mentioned the features mirrored by the rise within the share value are solely on paper: Continenza, she mentioned, “is a strong believer in the future of the company, and has never sold a single share of stock.”
Prior to this week’s financing deal, the corporate warned buyers it was prone to not persevering with as a going concern, but it surely was boosted by the settlement with the Trump administration on Tuesday to produce drug components.
As a end result, Continenza’s features on the finish of this week amounted to about $83 million following a roughly 10-fold enhance in Eastman Kodak’s inventory, in comparison with the roughly $53 million in features he would have seen have been it not for the extra choices, in keeping with a Reuters evaluation of firm filings.
Roughly 29% of the choices Continenza obtained on Monday vested instantly, giving him the appropriate to money them out as quickly as attainable.
While most company boards and their committees have huge latitude in awarding choices, three company governance consultants interviewed by Reuters mentioned the transfer to mitigate the influence of dilution on Continenza’s stake within the firm with out a prior contractual obligation was uncommon.
“The compensation committee’s job is not to protect the CEO from every adverse effect on the stock price,” mentioned Sanjai Bhagat, a finance professor on the University of Colorado. “It’s to get the CEO to think about long-term value.”
A fourth professional, Robin Ferracone, chief executive of compensation guide Farient Advisors, mentioned the corporate could have supplied the prospect of extra choices to executives as they labored towards the convertible bond providing — to keep away from them being “disincentivized” to seal a deal that will assist the agency however doubtlessly water down their holdings.
The extra choices awarded to Continenza, a former telecommunications executive, have been authorised by the board’s compensation committee on Monday, the spokeswoman mentioned. Shareholders had voted in May of this yr to extend the shares out there for executive compensation.
“The issue is the board wanted to make sure the CEO had the same economic alignment as was contemplated when he took the job,” mentioned an individual near the corporate.
The firm’s market capitalization jumped from a bit over $100 million initially of the week to virtually $1 billion by Friday following the deal.
Eastman Kodak additionally granted choices on Monday to a few different executives, price $712,000 every, in keeping with regulatory filings. Kodak declined to remark on the rationale for these awards.
The firm has struggled to reinvent itself from a flagging digital camera firm after rising from chapter in 2013. Its choice by the U.S. authorities for the manufacturing of key pharmaceutical components stunned many trade analysts who anticipated such a deal to go to a significant generic drug maker.
The authorities’s U.S. International Development Finance Corp. launched a July 28 assertion quoting Continenza as saying: “Kodak will play a critical role in the return of a reliable American pharmaceutical supply chain.”
President Trump, too, hailed the event. “I want to congratulate the people in Kodak,” he mentioned at a press briefing. “They’ve been working very hard.”