Earlier this week, Eastman Kodak delivered 1.75 million stock options to its CEO.
It was the kind of compensation decision that would generally not attract much news, except for one thing: the day after the stock options were granted, the White House announced that the company would receive a federal loan of 765 millions of dollars to produce ingredients to make pharmaceuticals. in the United States.
News of the deal caused Kodak shares to rise more than 1,000 percent. Within 48 hours of granting options, their value has increased, 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 coronavirus and future pandemics.
The options granted to Kodak CEO and CEO Jim Continenza are the latest example of executives and corporate board members receiving this federal support to benefit from an extraordinarily good schedule. Some of these companies are involved in research into vaccines and treatments for Covid-19.
Vaxart residents, for example, received stock options shortly before the California biotechnology company announced in June that its potential coronavirus vaccine was being tested in a program organized by a federal agency, prompting its actions they were duplicated immediately.
A Kodak spokeswoman declined to comment on the timing of the stock-based grants and stressed that the value of the options could change before Mr. Continenza uses them to buy Kodak shares.
Kodak, known for its iconic camera and film company, has been struggling for years to reinvent itself. The company emerged from bankruptcy protection in 2013 and its shares in recent years have been mostly trading at $ 2 or $ 3, giving it a market value of about $ 100 million.
Starting in May, Kodak began talks with the Trump administration about making ingredients for pharmaceuticals, Mr. Continenza said in a television interview this week.
The deal was announced Tuesday. President Trump said the federal loan from the U.S. International Development Finance Corporation would help reduce U.S. confidence in other countries, particularly China and India, for the vast majority of ingredients that are used for the preparation of generic drugs. Trump called the Kodak deal “a breakthrough to return to pharmaceutical manufacturing in the United States.”
Kodak said it was creating a new pharmaceutical division and will expand its facilities in Rochester, New York and St. Louis. Paul, Minn. The division will eventually have the capacity to produce up to 25 percent of the active ingredients used in generic drugs in the United States. Kodak has been in the chemicals business for more than a century and “has the facilities seated ready to go,” Mr. Continenza said in a television interview this week.
It is unclear whether the ingredients Kodak makes 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 that are considered critical to Americans and national security.
The day before the loan announcement, Kodak’s stock trading rose, and its stock jumped about 25 percent, closing at $ 2.62 per share. This activity raised suspicions about improper negotiation ahead of the news on the move, but the Wall Street Journal reported that it was apparently the result of media reports in Rochester, where Kodak is headquartered, about the pending announcement.
Around the time Kodak began talking to the federal government during the spring, Kodak insiders began receiving stock options. The pattern was first reported by Non-GAAP Thoughts, a digital newsletter.
On May 20, Kodak delivered 240,000 stock options to board members, in addition to its usual equity distribution in January.
May stock options granted to directors are now worth about $ 4 million. These options may be exercised progressively during this year.
Kodak spokeswoman Arielle Patrick declined to answer questions about why shareholders were granted stock options in May.
On the same day that Kodak alerted local media about its point of trying to announce with the Trump administration, the company’s board compensation committee voted to grant 1.75 million stock options for to Mr. Continence that would allow him to buy shares at prices ranging from $ 3.03 to $ 12.
By Wednesday morning, Kodak shares had risen to $ 60 each. Since then, they have fallen back to about $ 24, which means stock options give Mr. Continenza the right to buy shares at a deep discount.
Mr. Continenza can immediately exercise some options, but not all.
Mrs. Patrick said the rapid rise in the values of Mr Continenza’s new stock options “is only on paper. Mr. Continenza has not received any products or intends to sell. “
He added that Kodak’s board awarded the options to Mr. Continenza, as when the company issued a debt type that becomes capital last year, the value of the CEO’s shares and options was diluted.
He said Kodak received shareholder approval in May to issue additional shares, and that the clearing committee approved the options “at the first meeting of that committee since the annual shareholders’ meeting,” which was the Monday, July 27th.
She declined to comment on why Kodak didn’t wait until after the White House announcement to grant options.
The increase in Kodak shares this week also transformed some stock options that Mr. Continenza received when he became CEO. They were effectively useless due to the low price of Kodak shares. This week, its value grew to about $ 59 million, Reuters reported.