Earlier this week, the Eastman Kodak Company handed over 1.75 million stock options to its chief executive.
It was the kind of compensation decision that would generally not attract much attention, except for one thing: A day after the stock options were granted, the White House announced that the company would take out a $ 765 million federal loan to produce ingredients for it. made pharmaceuticals in the United States.
The news of the deal caused Kodak shares to soar more than 1,000 percent. Within 48 hours of the option grants, their value had been reduced, at least on paper, to about $ 50 million.
The government loan is part of a broader federal effort to increase the country’s ability to respond to future coronavirus and pandemics.
Giving options to Kodak CEO and CEO Jim Continenza is the latest example of executives and board members in companies receiving such federal support to take advantage of an extremely good time. A number of those companies are involved in tracking vaccines and treatments for Covid-19.
Insiders at Vaxart, for example, took stock options shortly before biotech company California announced in June that its potential coronavirus vaccine was being tested in a program run by a federal agency, causing its shares to double immediately. .
A Kodak spokeswoman declined to comment on the timing of the stock options grants and stressed that the value of the options could change before Mr. Continenza use them to buy Kodak shares.
Kodak, best known for his portico camera and film business, has struggled for years to recreate himself. The company emerged from bankruptcy protection in 2013, and its shares in recent years have largely traded at $ 2 or $ 3, giving it a market value of about $ 100 million.
Starting in May, Kodak began talks with the Trump administration regarding the production of ingredients for pharmaceuticals, said Mr. Continenza in a TV interview this week.
The deal was announced on Tuesday. President Trump said the federal loan from the U.S. International Finance Corporation will help reduce U.S. trust in other countries, particularly China and India, for the vast majority of ingredients used to make generic medicines. Mr Trump called the Kodak deal “a breakthrough in the return of pharmaceuticals to the United States”.
Kodak said it was creating a new pharmaceutical division and would expand its facilities in Rochester, NY and St. Louis. Paul, Minn. The division will eventually have the ability to produce as much as 25 percent of the active ingredients used in generic medicines in the United States. Kodak has been in the chemicals business for over a century and “has the facilities that sit there ready to go,” said Mr. Continenza in a TV interview this week.
It is unclear whether the ingredients made by Kodak will play a role in the fight against coronavirus. Kodak will coordinate with the federal government and other manufacturers to figure out what ingredients to make, prioritizing those considered critical to Americans and national security.
A day before the announcement of the loan, trading in Kodak shares rose, and its stock rose about 25 percent, closing at $ 2.62 a share. That event raised suspicions of improper trade ahead of news moving in the market, but the Wall Street Journal reported that it was apparently the result of media reports in Rochester, where Kodak is based, regarding the pending announcement.
Around the time Kodak began talking to the federal government this spring, Kodak insiders began taking stock options. The model was first reported by Non-GAAP Thoughts, a digital newsletter.
On May 20, Kodak awarded 240,000 stock options to board members – an addition to its usual equity distribution in January.
The May stock options granted to directors are now worth about $ 4 million. These opportunities have the right to be exercised gradually during this year.
Arielle Patrick, a Kodak spokeswoman, declined to answer questions about why directors were given stock options in May.
On the same day that Kodak was warning local media about his expected deal to be announced with the Trump administration, the company board compensation committee voted to give Mr. Continenza 1.75 million stock options allow him to buy shares at prices ranging from $ 3.03 to $ 12.
On Wednesday morning, Kodak shares had risen to $ 60 each. Those have since retreated to around $ 24, which means stock options give Mr Continenza the right to buy shares at a deep discount.
Mr. Continenza can exercise some but not all options at once.
Ms Patrick said Mr Continenza’s rapid rise in the value of Mr Continenza’s new stock options “is just letters. Mr Continenza has not received any revenue nor has any intention of selling.”
She added that the Kodak board gave the bids to Mr Continenza because when the company last year issued some sort of debt-converting capital, the CEO’s share value and options were diluted.
She said Kodak received shareholder approval in May to issue additional shares, and that the compensation committee approved the options “at the first meeting of this committee since the annual shareholders’ meeting,” which was Monday, July 27th.
She declined to comment on why Kodak did not wait until after the White House was notified to give the options.
Kodak’s share increase this week also transformed some of the stock options that Mr. Continenza took when he became chief executive. They had been effectively worthless due to the low stock price of Kodak. This week, their value rose to about $ 59 million, Reuters reported.