Kodak 2011 Annual Report Download - page 78

right of payment to indebtedness under the Company’s Amended Credit Agreement (as defined below) to the extent of the collateral securing such
indebtedness on a first-priority basis; and effectively are subordinated in right of payment to all existing and future indebtedness and other liabilities of
the Company’s non-guarantor subsidiaries.
Certain events are considered events of default and may result in the acceleration of the maturity of the 2018 Senior Secured Notes including, but not
limited to: default in the payment of principal or interest when it becomes due and payable; subject to applicable grace periods, failure to purchase Senior
Secured Notes tendered when and as required; events of bankruptcy; and non-compliance with other provisions and covenants and the acceleration or
default in the payment of principal of other forms of debt. If an event of default occurs, the aggregate principal amount and accrued and unpaid interest
may become due and payable immediately.
The Bankruptcy Filing constituted an event of default with the 2018 Senior Secured Notes. The creditors are, however, stayed from taking any action as
a result of the default under Section 362 of the Bankruptcy Code.
Second Lien Holders Agreement
On February 14 , 2012, the Company reached an adequate protection agreement with a group representing at least 50.1% of the Second Lien Note
Holders (2019 Senior Secured Note Holders and 2018 Senior Secured Note Holders), which was reflected in the Final DIP Order. The Company agreed,
among other things, to provide all Second Lien Note Holders with a portion of the proceeds received from certain sales and settlements in respect of the
Company’s digital imaging portfolio subject to the following waterfall and the Company's right to retain a percentage of certain proceeds under the DIP
Credit Agreement: first, to repay any outstanding obligations under the DIP Credit Agreement, including cash collateralizing letters of credit (unless the
certain parties otherwise agree); second, to pay 50% of accrued second lien interest at the non-default rate; third, the Company retains $250 million;
fourth, to pay 50% of accrued second lien interest at the non-default rate; fifth, any remaining proceeds up to $2,250 million to be split 60% to the
Company and 40% to repay outstanding second lien debt at par; and sixth, the Company agreed that any proceeds above $2,250 million will be split 50%
to the Company and 50% to Second Lien Note Holders until second lien debt is fully paid. The Company also agreed to pay current interest to Second
Lien Note Holders upon the receipt of $250 million noted above. Subject to the satisfaction of certain conditions, the Company also agreed to pay
reasonable fees of certain advisors to the Second Lien Note Holders.
2017 Convertible Senior Notes
On September 23, 2009, the Company issued $400 million of aggregate principal amount of 7% convertible senior notes due April 1, 2017 (the “2017
Convertible Notes”). The Company will pay interest at an annual rate of 7% of the principal amount at issuance, payable semi-annually in arrears on
April 1 and October 1 of each year, beginning on April 1, 2010.
The 2017 Convertible Notes are convertible at an initial conversion rate of 134.9528 shares of the Company’s common stock per $1,000 principal
amount of convertible notes (representing an initial conversion price of approximately $7.41 per share of common stock) subject to adjustment in certain
circumstances. Holders may surrender their 2017 Convertible Notes for conversion at any time prior to the close of business on the business day
immediately preceding the maturity date for the notes. Upon conversion, the Company shall deliver or pay, at its election, solely shares of its common
stock or solely cash. Holders of the 2017 Convertible Notes may require the Company to purchase all or a portion of the convertible notes at a price
equal to 100% of the principal amount of the convertible notes to be purchased, plus accrued and unpaid interest, in cash, upon occurrence of certain
fundamental changes involving the Company including, but not limited to, a change in ownership, consolidation or merger, plan of dissolution, or
common stock delisting from a U.S. national securities exchange.
The Company may redeem the 2017 Convertible Notes in whole or in part for cash at any time on or after October 1, 2014 and before October 1, 2016 if
the closing sale price of the common stock for at least 20 of the 30 consecutive trading days ending within three trading days prior to the date the
Company provides notice of redemption exceeds 130% of the conversion price in effect on each such trading day, or at any time on or after October 1,
2016 and prior to maturity regardless of the sale price of the Company’s common stock. The redemption price will equal 100% of the principal amount
of the Notes to be redeemed, plus any accrued and unpaid interest.
In accordance with U.S. GAAP, the principal amount of the 2017 Convertible Notes was allocated to debt at the estimated fair value of the debt
component of the notes at the time of issuance, with the residual amount allocated to the equity component. Approximately $293 million and $107
million of the principal amount were initially allocated to the debt and equity components respectively, and reported as Long-term debt, net of current
portion and Additional paid-in capital, respectively. The initial carrying value of the debt of $293 million will be accreted up to the $400 million stated
principal amount using the effective interest method over the 7.5 year term of the notes. Accretion of the principal will be reported as a component of
interest expense. Accordingly, the Company will recognize annual interest expense on the debt at an effective interest rate of 12.75%.
76