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Eastman Kodak has entered into an agreement with Shutterfly, an Internet-based social expression and personal publishing service, for the proposed sale of certain assets of its KODAK Gallery on-line photo services business for $23.8 million.

The terms of the agreement include the transfer of Gallery customer accounts and images in the U.S. and Canada to Shutterfly. The agreement comprises the initial, stalking horse bid in a Court-supervised auction process under Section 363 of the U.S. Bankruptcy Code that will ensure the maximization of value for the assets.

Kodak Gallery enables users to store and share their own images and create custom printed photobooks, cards and albums. The service has more than 75 million users.

"This sale is consistent with our objective of focusing Kodak on a core set of businesses in which we can most profitably leverage our technology and brand strengths, and provides a well-proven mechanism for ensuring that Kodak receives maximum value from these assets," said Pradeep Jotwani, President, Consumer Businesses and Chief Marketing Officer. "KODAK Gallery is a unique property, with more than 75 million users, and an ability to attract new members through innovative customer offerings such as its category-leading popular mobile apps."

Jotwani emphasized that under the agreement, Kodak will work closely with Shutterfly to ensure a smooth transition and that customer photos will continue to be safeguarded throughout the process.

"We appreciate the loyalty of the KODAK Gallery customers in the U.S. and Canada who have entrusted us with their photo memories. We know how much they value their photos, so we will ensure that a transition is smooth and easy for them, and that their images will be preserved and protected," Jotwani said. "We are pleased that under this stalking horse agreement with Shutterfly, our customers will continue to enjoy a rewarding on-line photo experience."

Kodak will give its customers who do not want their photos transferred to Shutterfly the opportunity to opt out of the transition process. Those customers could then retrieve their images through free downloads or by purchasing DVDs from KODAK Gallery.

Jotwani noted that Kodak is focusing its consumer business on retail and destination photo solutions as well as home printing products. "Those businesses have attractive and growing sales of consumables," he said. "We are by far the leader in retail print solutions, with an installed base that has grown now to 105,000 picture kiosks, while our consumer inkjet printers offer high-quality, affordable ink."

Under the terms of the Agreement, Kodak will seek U.S. Bankruptcy Court approval of sale and auction procedures by late March. Under these proposed procedures, other potential buyers may submit alternative bids to Kodak and seek to establish the superiority of their alternative bid. Kodak is targeting completion of the sale process this spring.