Optical jukebox manufacturer Cynet Systems Inc, San Jose, California has filed for Chapter 11 bankruptcy protection from its creditors, and is blaming it all on Eastman Kodak Co. The company says that after four years of negotiations and legal disputes, Kodak has forced Cygnet to seek court protection. The filing came after Kodak rejected numerous substantial offers from its investors and most recently from three publicly held companies that issued proposals to Kodak to acquire Cygnet. The company says Kodak recently took aggressive action in an effort to attach the company’s assets, despite the fact that Cygnet had complied with an out-of-court settlement agreement. We can only surmise that Kodak, which competes with Cygnet in supplying optical storage products for the document imaging industry, is trying to drive a more successful competitor out of the optical storage business, the company commented. Cygnet says it plans a rapid and successful exit from the Chapter 11 protection and has secured the backing and support of its bank and the majority of its key OEM partners.
Commitment
Prior to filing, it obtained a commitment from its current bank, CoastFed Business Credit Corp, that it would continue to fund Cygnet’s operating expenses during the Chapter 11 proceedings. CoastFed comments that Cygnet is a profitable company with a strong product line and it should emerge from the Chapter 11 protection in a reasonably short period of time. The background is that in June 1992, Kodak filed a $7m lawsuit against Cygnet to seek immediate payment for a vendor assistance loan made in 1986. Cygnet responded to Kodak’s complaint by countersuing, asserting that Kodak caused Cygnet to enter into a loan agreement in 1989 with a promise to take additional units and that it then reneged on this business arrangement. In February, Kodak and Cygnet reached an agreement that included a stipulated judgement in favour of Kodak and Cygnet’s agreement to drop its counterclaim over Kodak’s default on the purchase agreement. In exchange, Kodak agreed to give Cygnet time to either recapitalise or to seek acquisition. After the settlement, Cygnet fired international mergers and acquisitions firm Von Gehr International Inc, and in less than 90 days, it came up with a significant number of prospective partners, which was narrowed to three publicly traded companies. All three submitted serious and substantial acquisition proposals, which Von Gehr and Cygnet felt would be acceptable to Kodak. ACMA USA, one of the suitors, exhausted their best efforts to conclude a deal prior to the filing with what they considered to be a reasonable and generous cash offer. Kodak refused to negotiate with any of the companies face-to-face, Cygnet says, leaving Chapter 11 the only alternative.
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