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Kodak C.E.O. Got Stock Options Day Before News of Loan Sent Stock Soaring


At the beginning of this week, the Eastman Kodak Company handed its chief executive 1.75 million stock options.

It was the type of compensation decision that generally wouldn’t attract much notice, except for one thing: The day after the stock options were granted, the White House announced that the company would receive a $765 million federal loan to produce ingredients to make pharmaceuticals in the United States.

The news of the deal caused Kodak’s shares to soar more than 1,000 percent. Within 48 hours of the options grants, their value had ballooned, 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 the coronavirus and future pandemics.

The options grant to Kodak’s executive chairman and chief executive officer, Jim Continenza, is the latest example of executives and board members at companies receiving such federal support to benefit from extraordinarily good timing. A number of those companies are involved in the hunt for vaccines and treatments for Covid-19.

Insiders at Vaxart, for example, received stock options shortly before the California biotech company announced in June that its potential coronavirus vaccine was being tested in a program organized by a federal agency, causing its shares to instantly double.

A Kodak spokeswoman declined to comment on the timing of the stock-options grants and emphasized 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 been struggling for years to reinvent itself. The company emerged from bankruptcy protection in 2013, and its shares in recent years have mostly been 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 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’ reliance on other countries, in particular China and India, for the vast majority of ingredients used to make generic drugs. Mr. Trump called the Kodak deal “a breakthrough in bringing pharmaceutical manufacturing back to the United States.”

Kodak said it was creating a new pharmaceuticals division and will expand its facilities in Rochester, N.Y., and St. Paul, Minn. The division will eventually have the capacity to produce as much as 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 sitting there ready to go,” Mr. Continenza said in a TV interview this week.

It’s unclear whether the ingredients that Kodak makes will have any role in the fight against the coronavirus. Kodak will coordinate with the federal government and other manufacturers to figure out which ingredients to make, prioritizing those that are deemed critical to Americans and national security.

The day before the loan was announced, trading in Kodak shares surged, and its stock jumped about 25 percent, closing at $2.62 a share. That activity raised suspicion about improper trading ahead of the market-moving news, but The Wall Street Journal reported that it was apparently the result of reports by the media in Rochester, where Kodak is headquartered, about the pending announcement.

Around the time that Kodak began talking with the federal government this spring, Kodak insiders began receiving stock options. The pattern was first reported by Non-GAAP Thoughts, a digital newsletter.

On May 20, Kodak handed out 240,000 stock options to board members — an addition to its usual equity distribution in January.

The May stock options awarded to directors are now worth about $4 million. Those options are eligible to be exercised gradually over the course of this year.

Arielle Patrick, a spokeswoman for Kodak, declined to answer questions about why the directors were granted stock options in May.

On the same day that Kodak was alerting the local media to its about-to-be-announced deal with the Trump administration, the compensation committee of the company’s board voted to award Mr. Continenza 1.75 million stock options that allow him to purchase shares at prices ranging from $3.03 to $12.

By Wednesday morning, Kodak’s shares had soared as high as $60 each. They have since retreated to about $24, which means the stock options give Mr. Continenza the right to buy shares at a deep discount.

Mr. Continenza can exercise some but not all of the options immediately.

Ms. Patrick said that the rapid increase in the values of Mr. Continenza’s new stock options “are paper only. Mr. Continenza has not received any proceeds nor does he have any intention of selling.”

She added that Kodak’s board awarded the options to Mr. Continenza because when the company last year issued a type of debt that converts into equity, the value of the chief executive’s stock and options were diluted.

She said that 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 stockholders meeting,” which was on Monday, July 27.

She declined to comment on why Kodak did not wait until after the White House announcement to grant the options.

The increase in Kodak’s shares this week also transformed some stock options that Mr. Continenza received when he became chief executive. They had been effectively worthless because of Kodak’s low stock price. This week, their value grew to about $59 million, Reuters reported.



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