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As Eastman Kodak's (EKDKQ.PK) cash dwindles and its creditors battle in bankruptcy court for repayment, some objected that the photography company's CEO Antonio M. Perez continues putting his own interests first when it comes to compensation.

Kodak said Nov. 12 that it managed to swap $317 million of existing debt and to obtain $476 million in new loans. Mr. Perez said in a statement that the money would "accelerate (Kodak's) momentum" toward emerging from bankruptcy in the first half of 2013. He's betting on hitting milestones such as the successful sale of Kodak's digital imaging patent portfolio for no less than $500 million, but if such plans don't turn out as well as he and his team expect, Kodak won't get its financing.

On the same day, some second-priority debt holders filed documentation to the court in New York objecting to Kodak's request for another extension to the bankruptcy process that they alleged would "have the effect of providing the Debtors a 16-month monopoly." They also claimed that Kodak hadn't shown enough progress during the first ten months of its chapter 11, and noted issues ranging from the company's continued financial losses to their lost faith in the management.

Among the various allegations, the creditors say that Kodak's senior officers asked the court in July this year for the authority to implement an employee incentive plan that would reward them with incremental bonuses should unsecured creditors receive anything greater than a 10% recovery of their payments. Allegedly after it became clear that some creditors would object, the senior management adjourned its request. "Such inappropriate action reinforces the misplaced priorities of the Debtors' Current Leadership and its inability to lead this restructuring effectively," the creditors said.

It would not be the first time that Mr. Perez, who became CEO of Kodak in 2005, has attempted to receive a large payment for his services to the detriment of his company. We had concerns about Kodak's compensation policies in May 2010, when we noted practices such as Mr. Perez's having amended (for the fourth time) his initial employment agreement and received an ad hoc award of 500,000 stock options at a low exercise price of $4.54 in October 2009 for "retention purposes." Although Mr. Perez's compensation decreased by around 55% year over year to $5.7 million in 2010, it remained grossly disproportionate compared to those of his subordinates, given that the median pay for Kodak's other named executive officers was only $1.1 million. This suggests that Mr. Perez's board - which he also chairs - allowed him so much freedom that he was able to prioritize his own interest ahead of his staff, customers and investors.

Trading in the stock market for less than $1.00 and with a market capitalization of less than $100 million, Kodak already exposes its investors to risks such as unusually high price volatility. Stockholders also take a back seat to creditors in Chapter 11 battles over repayment rights, and frequently stand to lose everything.

This is the unhappy ending for a company whose CEO had so much power, he could continue earning millions regardless of Kodak's travails. In part due to such issues, Kodak is rated "D" on its environmental, social and governance (ESG) practices. Its financial statements reflect an AGR ® score of 9, indicating higher accounting and governance risk than 91% of comparable companies, owing to key indicators such as recent litigation.

For the moment, more eyes are watching Mr. Perez than usual. To be sure, it's positive that he succeeded in obtaining backing from lenders involved in the recently announced financing plan, including banks such as UBS and JPMorgan Chase & Co. Nonetheless, the fact that some of Kodak's second priority creditors have objected to Mr. Perez's compensation shows that even Wall Street players can call such behavior an abuse of power.

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Region: North America
Country: United States
Sector: Cyclical Consumer Goods / Services
Industry: Consumer Electronics
Market Cap: $ 58.3 mm (Micro Cap)
AGR Rating: Very Aggressive (9)
ESG Rating: D

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Source: Kodak's CEO Prioritizes His Compensation Even Amid Bankruptcy