Earlier this week, Eastman Kodak handed over 1.75 million stock options to its CEO.
It was the type of compensation decision that would generally not be too attractive, 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 million to produce raw materials for pharmaceuticals. in the United States.
Reports of the transaction caused Kodak shares to rise sharply by more than 1,000 percent. Within 48 hours of the options being granted, their value increased, at least on paper, to approximately $ 50 million.
The government loan is part of a broader federal effort to increase the country’s ability to respond to coronaviruses and future pandemics.
The opportunities given to Kodak’s CEO and CEO Jim Continenz are the latest example of executives and board members of companies using such federal support to benefit from extremely good timing. Several of these companies are involved in vaccine hunting and treatment for the Covid-19 vaccine.
For example, Vaxart’s insiders received it shortly before the California Biotechnology Company announced in June that its potential coronavirus vaccine had been tested in a program organized by a federal agency, causing its shares to immediately double.
A Kodak spokeswoman declined to comment on the timing of the grant of the share options, stressing that the value of the options could change before Mr Continenza used them to purchase Kodak shares.
Known for its iconic camera and film production, Kodak has been trying to rediscover for years. The company was formed from bankruptcy protection in 2013, and its shares have mostly traded for $ 2 or $ 3 in recent years, giving it a market value of around $ 100 million.
In May, Kodak began discussions with Trump’s report on the production of ingredients for pharmaceuticals, Mr Continenza said in a television interview this week.
The deal was announced on Tuesday. President Trump said a federal loan from International International Finance Finance Corporation would help reduce US dependence on other countries, particularly China and India, for the vast majority of ingredients used to make generic drugs. Trump called the Kodak agreement “a breakthrough in returning pharmaceutical production back to the United States.”
Kodak said it is creating a new pharmaceutical division and expanding its operations in Rochester, New York and St. Paul, Minn. This division will eventually be able to produce up to 25 percent of the active ingredients used in generic drugs in the United States. Kodak has been in the chemical industry for more than a century, and “the facilities are ready,” Mr. Continenza said in a television interview this week.
It is not clear whether the ingredients Kodak produces will have a role to play in the fight against coronavirus. Kodak will coordinate with the federal government and other manufacturers to determine which ingredients need to be produced, giving priority to those ingredients that are considered critical to Americans and national security.
The day before the loan was announced, trading in Kodak shares rose sharply and its shares jumped 25 percent as the shares closed at $ 2.62 per share. The activity raised suspicions of inappropriate trading ahead of market-related news, 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.
About the time Kodak began negotiations with the federal government this spring, Kodak insiders began receiving stock options. This pattern was first introduced in Non-GAAP Thoughts, a digital newsletter.
On May 20, Kodak granted 240,000 stock options to board members, in addition to the usual distribution of capital in January.
Mayan stock options granted to directors are now worth about $ 4 million. These options can be exercised gradually during the year.
Kodak’s spokeswoman Arielle Patrick declined to answer questions about why the director was granted stock options in May.
On the same day that Kodak alerted the local media to its announced deal with the Trump administration, the company’s remuneration committee voted to grant 1.75 million stock options to Continenza, which allows it to buy shares at prices ranging from 3.03 to $ 12.
Kodak shares rose to $ 60 on Wednesday morning. Since then, they have retreated to about $ 24, which means that stock options give Mr. Continenz the right to buy shares at a deep discount.
Mr Continenza can immediately apply some, but not all, of the options.
Ms. Patrick said that the rapid increase in the value of Mr. Continenza’s new stock options “is just paper. Mr Continenza has not received any income and does not intend to sell. “
She added that Kodak’s board of directors had granted options to Mr. Continenz because when the company issued a type of debt that was converted into equity last year, the value of the CEO’s shares and options decreased.
It stated that Kodak had received shareholder permission to issue additional shares in May and that the compensation committee had approved options “at the first meeting of that committee since the annual shareholders’ meeting” on Monday, July 27.
He declines to comment on why Kodak did not wait until after the White House announced the possibilities.
The increase in Kodak shares this week also changed some of the stock options that Mr. Continenza received when he became CEO. They were truly worthless because of Kodak’s low stock price. Their value rose to about $ 59 million this week.