Business Context and Reporting Period
Company: Eastman Kodak Company
Filing Type: Form 8-K (Current Report)
Date of Report: April 8, 2019
Event: Completion of the sale of the Company's flexographic packaging segment (the "Business") to MIR Bidco SA, an investment vehicle for Montagu Private Equity LLP.
Key Financial Metrics and Transaction Details
- Gross Purchase Price: $340 million.
- Cash Proceeds at Closing: $320 million (net of agreed indebtedness, other items, and a $7.5 million deferred payment for the China Business).
- Potential Earn-Out: Up to $25 million in additional cash consideration contingent on EBITDA targets ($10 million for 2019; $15 million for 2020).
- Prepayment Agreement: $15 million prepayment for future services and products (subject to conditions).
- Use of Proceeds: Intended to repay outstanding term loans.
Material Changes and Transaction Structure
The transaction involved the transfer of shares of subsidiaries holding Business assets and the purchase of assets by Acquisition Subsidiaries. Key structural elements include:
- Deferred Transfer: The transfer of the China Business operations was deferred until after the Closing, with economic benefits/detracts during the interim period accruing to the Purchaser.
- Post-Closing Adjustments: The $320 million payment is subject to customary adjustments.
- Non-Compete: Kodak agreed not to compete with the Business for five years (three years in the UK and EU).
- Transition Services: Kodak will provide transition services and enter into ongoing supply, service, and license agreements with the Purchaser.
Outlook, Risks, and Contingencies
- Earn-Out Uncertainty: There is no assurance that Kodak will earn any future amounts under the Earn-Out Agreement; the Company did not receive a potential $10 million earn-out based on 2018 performance.
- Prepayment Risk: There is no assurance that conditions for the $15 million prepayment will be satisfied or that the payment will be received.
- Indemnification: Parties agreed to mutual indemnification for breaches of representations and certain liabilities; the Purchaser obtained representation and warranty insurance.
- Legal Disclaimer: Representations and warranties in the agreement are not intended to establish facts for investors and may differ from standards applicable to public disclosures.
Investor Verification Checklist
- Verify the final post-closing adjustment amount to determine the exact net proceeds received.
- Monitor the performance of the sold Business against 2019 and 2020 EBITDA targets to assess the likelihood of receiving the $25 million earn-out.
- Confirm the satisfaction of collateral arrangements required to receive the $15 million prepayment.
- Review the impact of the deferred China Business transfer on future revenue streams and operational synergies.
- Assess the reduction in outstanding term loans resulting from the transaction proceeds.