Date: Wed , 16 September 2020
Source: Bloomberg Quint
Authors: Eric Newcomer
Shares of Kodak rose sharply by 60% shortly after the start of trading in New York, after an independent legal review found that while there were flaws in how Eastman Kodak issued stock option grants to its CEO just before revealing a major development that sent its stock soaring, no illegality was involved.
The review by the law firm Akin Gump Strauss Hauer & Feld, commissioned by a special Kodak board committee, found that Kodak’s general counsel failed to warn the company’s board that the timing of the grants for Executive Chairman and CEO Jim Continenza could look bad regardless of whether the grants were determined to be legal. Continenza and other senior Kodak executives were awarded the grants the day before the potential loan was announced that it had been awarded $765 million to manufacture pharmaceutical materials as part of a Covid-19 government loan program.
“The manner in which the options grants were awarded was sub-optimal in a number of respects,” the lawyers at Akin Gump Strauss Hauer & Feld LLP wrote in the report released Tuesday evening. The lawyers determined that Kodak’s conduct didn’t violate the law, although the situation remains under investigation by U.S. securities regulators and Congress.
Separately, Kodak said it planned to review and implement the committee’s recommended measures, which include amending Continenza’s share grants and reconsidering the board’s composition.
The photography giant of yesteryear, Kodak was trading at less than $3 before the surprise move into Covid-19 pharmaceuticals in late July drove the stock price to as high as $60. In the resulting scandal, the federal agency that awarded the loan placed it on hold pending the investigations. Kodak’s stock closed at $6.23 on Tuesday, before spiking on Wednesday.
The company’s report addressed a number of legal quandaries facing Kodak. It said stock transactions by Continenza and another board member, Philippe Katz, didn’t constitute insider trading because the company’s general counsel had said at the time that the government loan was at “a highly uncertain stage.”
Kodak said it will consider beefing up the company’s legal team, in addition to revising the grants and reassessing the boardroom makeup. “Kodak is committed to the highest levels of governance and transparency, and it is clear from the review’s findings that we need to take action to strengthen our practices, policies and procedures,” Continenza said in a statement.
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