Earlier this week, Eastman Kodak Company released 1.75 million stock options to its chairman.
It was the type of compensation decision that usually didn’t get much attention, except for one thing: The day after the stock options were granted, the White House announced that the company would do the a federal loan of $ 765 million Manufacture of ingredients for the manufacture of medicines in the United States.
News of the deal sent Kodak’s shares up more than 1,000 percent. Within 48 hours of the options being granted, their value had risen to about $ 50 million, at least on paper.
The state loan is part of a broader federal effort to improve the country’s ability to respond to the coronavirus and future pandemics.
The options granted to Kodak’s executive chairman and chief executive officer Jim Continenza are the latest example of exceptional timing to the executives and board members of companies receiving such government support. Some of these companies are involved in the hunt for vaccines and treatments for Covid-19.
Insider at Vaxart, for example, received stock options just before the California-based biotech announced in June that its potential coronavirus vaccine was being tested in a federal agency-run program, instantly doubling its shares.
A Kodak spokeswoman declined to comment at the time stock options were granted, stressing that the value of the options could change before Mr. Continenza uses them to buy Kodak stock.
Known for its iconic camera and film business, Kodak has struggled to reinvent itself for years. The company emerged from bankruptcy protection in 2013, and its shares have traded mostly at $ 2 or $ 3 for the past several years, which equates to a market value of around $ 100 million.
As of May, Kodak started talks with the Trump administration about manufacturing the ingredients for pharmaceuticals, Mr Continenza said in a television interview this week.
The deal was announced on Tuesday. President Trump said the federal loan from the U.S. International Development Finance Corporation would help reduce the United States’ dependence on other countries, particularly China and India, for the vast majority of ingredients used to make generic drugs. Trump called the Kodak deal “a breakthrough in bringing pharmaceutical production back to the United States.”
Kodak announced that it will establish a new pharmaceutical division and expand its facilities in Rochester, NY and St. Paul, Minn. to expand. The division will eventually have the capacity to produce up to 25 percent of the active ingredients used in generics in the United States. Kodak has been in the chemical industry for more than a century and “has the facilities up and running,” said Mr. Continenza in a television interview this week.
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It’s unclear whether the ingredients Kodak makes will play a role in the fight against the coronavirus. Kodak will work with the federal government and other manufacturers to figure out what ingredients to make and prioritize those that are deemed critical to Americans and national security.
The day before the loan is announced Trading in Kodak shares soared, and the stock rose about 25 percent to close at $ 2.62 per share. This activity raised suspicions of inappropriate trading ahead of the moving market news, however The Wall Street Journal reported that it was apparently the result of media reports in Rochester, Kodak’s headquarters, about the upcoming announcement.
Around the time Kodak began talks with the federal government this spring, Kodak insiders were receiving stock options. The pattern was first reported by Non-GAAP thinking, a digital newsletter.
On May 20, Kodak released 240,000 stock options to board members – an addition to its usual January share distribution.
The stock options granted to Directors in May are valued at approximately $ 4 million. These options can be exercised gradually over the course of this year.
Arielle Patrick, a spokeswoman for Kodak, declined to answer questions about why directors were granted stock options in May.
On the same day that Kodak brought local media to the attention of its soon-to-be-announced deal with the Trump administration, the company’s Board of Directors Compensation Committee voted to award Mr. Continenza 1.75 million stock options that allow him to purchase shares at a price from prices between $ 3.03 and $ 12.
Kodak’s shares rose to $ 60 each by Wednesday morning. Since then, they have dropped to around $ 24, meaning the stock options give Mr. Continenza the right to buy stocks at a high discount.
Mr. Continenza may immediately exercise some but not all of the options.
Ms. Patrick said the rapid appreciation of Mr. Continenza’s new stock options “is just paper. Mr. Continenza has neither received proceeds nor does he intend to sell. “
She added that Kodak’s board of directors granted the options to Mr. Continenza because the value of the chairman’s stock and options were diluted when the company issued some type of debt that was converted into equity last year.
She said Kodak received shareholder approval to issue additional shares in May and that the Compensation Committee approved the options “at the first meeting of that committee since the AGM” on Monday, July 27th.
She did not want to comment on why Kodak did not wait until after the White House announcement to grant the options.
The rise in Kodak stock that week also changed some of the stock options Mr. Continenza received when he became chief executive. They had been practically worthless because of Kodak’s low stock price. This week, its value grew to about $ 59 million. Reuters reported.