Earlier this week, Eastman Kodak Company handed over 1.75 million shares to its CEO.
It is the compensation decision that will usually not attract much attention, except for one thing: The day after the stock options were released, the White House announced that the company would receive a $ 765 million federal loan to manufacture pharmaceutical ingredients in the United States.
The news of the deal caused Kodak shares to jump over 1,000 percent. Within 48 hours of the release of options, their value was equalized, at least on paper, to about $ 50 million.
The options given to Kodak CEO and CEO Jim Continenza are the latest example of executives and board members of companies receiving such federal support to take advantage of extremely good deadlines. A number of these companies are involved in hunting vaccines and treating Covid-19.
Insiders at Vaxart, for example, received stock options shortly before the California biotech company announced in June that its potential coronavirus vaccine had been tested in a program organized by a federal agency, prompting its stock to double immediately.
A Kodak spokesman declined to comment on the timing of the share grant and stressed that the value of the options could change before Mr Continenza uses them to buy Kodak shares.
Kodak, best known for its iconic camera and film business, has struggled for years to rediscover itself. The company came out of bankruptcy protection in 2013, and its shares have been traded mostly at $ 2 or $ 3 in recent years, giving it a market value of about $ 100 million.
Kodak began talks with the Trump administration in May on the production of pharmaceutical ingredients, Mr Continenza said in a television interview this week.
The deal was announced on Tuesday. President Trump has said that a federal loan from the United States Corporation for International Development Finance will help reduce the United States’ dependence on other countries, particularly China and India, for much of the ingredients used to make generic drugs. Mr Trump called the Kodak deal a “breakthrough in the return of pharmaceuticals to the United States”.
Kodak said it is setting up a new pharmaceutical division and will expand its facilities in Rochester, New York and St. Paul, Min. Ultimately, the division will have the capacity to produce up to 25 percent of the active ingredients used in generic drugs in the United States. Kodak has been dealing with chemicals for more than a century and “has facilities ready to work,” 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 the coronavirus. Kodak will coordinate with the federal government and other manufacturers to figure out which ingredients to make, giving priority to those considered critical to Americans and national security.
The day before the loan was announced, trading in Kodak shares jumped and its shares jumped about 25%, closing at $ 2.62 per share. The operation raised suspicions of improper trading ahead of market 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.
By the time Kodak began talking to the federal government this spring, Kodak insiders began receiving stock options. The model was first reported by Non-GAAP Thoughts, a digital newsletter.
On May 20, Kodak distributed 240,000 shares to board members in addition to its usual capital distribution in January.
The stock options in May, awarded to the directors, now cost about $ 4 million. These options meet the conditions for exercise gradually this year.
Kodak spokesman Ariel Patrick declined to answer questions about why directors receive stock options in May.
On the same day that Kodak warned local media about its impending announcement of a deal with the Trump administration, the company’s compensation committee voted to award Mr Continenza 1.75 million shares, allowing him to buy shares. from 3.03 to 12 dollars.
By Wednesday morning, Kodak shares were up $ 60 each. They have since withdrawn to about $ 24, which means that stock options entitle Mr Continenza to buy shares at a deep discount.
Mr Continenza may exercise some, but not all, options at once.
Ms Patrick said that the rapid increase in the value of Mr Continenza’s new options “is only on paper. Mr Continenza has not received any revenue, nor does he intend to sell. “
She added that Kodak’s board had granted Mr Continenza’s options 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 were diluted.
She said Kodak had received approval from shareholders in May to issue additional shares and that the compensation committee had approved the options “at the committee’s first meeting since the annual shareholders’ meeting” on Monday (July 27th).
She declined to comment on why Kodak did not wait after the White House announcement to provide options.
The increase in Kodak shares this week also transformed some of the share options that Mr Continenza received when he became CEO. They were really useless due to the low price of Kodak shares. Their value rose to about $ 59 million this week, Reuters reported.