Kodak recovers millions after share allocation error

Eastman Kodak has recovered almost all of the $ 3.9 million five former executives raised last year by exercising stock options they were supposed to have given up, in a embarrassing episode which forced the pioneer of the cinematic age to revise its internal controls.

Kodak has recovered $ 3.6 million of the proceeds and expects to collect $ 2 million of the $ 3 million in withholding taxes associated with former employee transactions, according to a securities depository that said it imposed new measures to address “control gaps”.

Former executives took advantage of a sharp rise in Kodak stock last July after signing a letter of intent on a possible US government loan of $ 765 million to start manufacturing generic drug ingredients.

The shares collapsed shortly after executives sold their shares, and Kodak said last September that the loan was “on hold.” He has since given up hope of receiving the money from the US International Development Finance Corporation, known as DFC, confirmed this week’s filing with the Securities and Exchange Commission.

But the loss-making imaging company still faces the fallout from the trading volatility it has witnessed during that time, which has drawn close scrutiny from politicians, regulators and shareholders. His case confirmed that he had not yet resolved investigations by the SEC, the New York attorney general and several congressional committees.

Although a review commissioned by independent members of the board found no evidence Insider trading, the company continues to face lawsuits for violating securities laws or breaching fiduciary duties.

Kodak’s comments came weeks after it landed a refinance that will bring in at least $ 210 million for the struggling company and push back its debt maturities in a way the company says would eliminate “substantial doubt.” on its ability to continue. worry.

“We set the balance sheet,” David Bullwinkle, Kodak’s chief financial officer, told the Financial Times. “We now have the opportunity to leverage this additional liquidity” to advance a growth strategy focused on the company’s expertise in advanced materials, printing and chemicals.

S&P Global, the credit rating company, said the new funds would reduce Kodak’s interest and dividend payments and leave it without “default catalysts” over the next two years. He warned, however, that the group’s capital structure remained “unsustainable without substantial improvement in operational performance”.

Regulatory, legal and financial issues hanging over the company have not deterred two new investors from backing Kodak in recent weeks.

The company has accepted new financing that includes a five-year, $ 275 million deferred term loan from the Kennedy Lewis investment group, with an interest rate of 12.5%. Kennedy Lewis, who previously worked with Kodak president and CEO Jim Continenza, also bought 1 million shares and invested $ 25 million in a new convertible note.

Kodak raised $ 75 million through a sale of convertible shares to investment firm Grand Oaks Capital, which was started by PayChex founder Tom Golisano, based in Kodak’s hometown of Rochester, New York. Grand Oaks has agreed to purchase an additional $ 25 million of convertible shares once the investment obtains regulatory approval.

Kodak used $ 100 million of the new funds to buy back some of its outstanding convertible shares.

Their investments gave Kennedy Lewis and Grand Oaks the right to appoint one person each to Kodak’s board of directors. The couple are expected to nominate Golisano and Kennedy Lewis co-founder Darren Richman, according to people briefed on the matter.

Kodak reported this week that revenues fell from $ 1.24 billion to $ 1.03 billion last year, after cutting 250 jobs and reporting a net loss of $ 541 million due to charges and expenses. punctual. Bullwinkle noted that he was successful in generating liquidity in the third and fourth quarters, saying, “We haven’t done this for a long time.”

The company continued to pursue its hopes of breaking into the pharmaceutical ingredients business, an expansion the DFC loan was supposed to supercharge. Kodak is using some of its newly raised cash for this work, added one of those familiar with the financing.

“They have the ability and the know-how when it comes to manufacturing,” said this person. “Yes, at one point the government was going to contract with Kodak to manufacture essential ingredients for antibiotics. It became a lightning rod politically and obviously there was no fault, but they should have understood that there would be a lot of publicity around it.

Kodak’s case nonetheless acknowledged the damage that had been done to its brand value, saying it noted the book value of its business name from $ 21 million to $ 18 million last year to reflect the impact of the Covid-19 pandemic.

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