SECURITIES AND EXCHANGE COMMISSION
Form 10-K
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For fiscal year ended December 31, 2003 | ||
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period from to |
Commission file number: 1-14310
IMATION CORP.
Delaware
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41-1838504 | |
(State or other jurisdiction of
incorporation or organization) |
(I.R.S. Employer
Identification No.) |
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1 Imation Place
Oakdale, Minnesota (Address of principal executive offices) |
55128
(Zip Code) |
(651) 704-4000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Name of each exchange on which registered | |
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Common Stock, $.01 per share
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New York Stock Exchange, Inc.;
Chicago Stock Exchange, Incorporated |
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Preferred Stock Purchase Rights
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New York Stock Exchange, Inc.;
Chicago Stock Exchange, Incorporated |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or Section 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b of the Act). Yes þ No o
Aggregate market value of voting stock of the Registrant held by non-affiliates of the Registrant, based on the closing price of $37.82 as reported on the New York Stock Exchange on June 30, 2003: $1,345.1 million.
The number of shares outstanding of the Registrants common stock on February 26, 2004 was 35,340,555.
DOCUMENTS INCORPORATED BY REFERENCE
Selected portions of Registrants Proxy Statement for Registrants 2004 Annual Meeting are incorporated by reference into Part III.
PART I
General
Imation Corp. (Imation or the Company), a
Delaware corporation formed in 1996, develops, manufactures,
sources and markets recordable magnetic and optical removable
data storage media products, categorized under the Standard
Industrial Classification (SIC) code as 3695;
Magnetic and Optical Recording Media or the North American
Industry Classification System (NAICS) code as
334613; Magnetic and Optical Recording Media
Manufacturing, for users of digital information technology
in more than 100 countries around the world.
The Company was formed in a spin-off of the
businesses which comprised substantially all of the data storage
and imaging systems groups of 3M Company. Since the spin-off,
the Company has divested most of the non-data storage
businesses, consolidated warehouses and physical infrastructure
it inherited with the spin-off, invested in information systems,
and focused the basic operational infrastructure to support the
Company more efficiently. Divestitures within the last three
years include: 1) the color proofing and color software
business that comprised most of the Color Technologies segment
sold on December 31, 2001 to Kodak Polychrome Graphics LLC
and Kodak Polychrome Graphics Company LTD (collectively referred
to as KPG), and 2) the Digital Solutions and Services
(DSS) business that provided field service on Imation and
other Original Equipment Manufacturers (OEMs) hardware
devices, manufactured microfilm aperture cards and sold document
imaging consumables and hardware systems. The North America DSS
business was sold effective August 30, 2002 to DecisionOne
Corporation while the remaining DSS businesses outside North
America were closed or sold by September 30, 2002 (see
Note 3 to the Consolidated Financial Statements).
Following its divestitures, the Company is now
almost singularly focused on the removable data storage media
industry (see Figure #1). The Company has a long history in
this industry dating from 1947, when this business was started
by 3M Company, resulting in the first commercialized data
storage tape introduced in 1953. The Companys vision is to
be the worldwide leader in removable data storage, to be the
most trusted source for digital data storage by consumers and
businesses alike, and to be recognized as an independent expert
in digital information back-up, archive, and protection. Key
elements of the Companys strategy are as follows:
Historical results are reported by the Company
for four business segments: Data Storage and Information
Management (DS&IM), Specialty Papers, Color Technologies,
and Digital Solutions and Services (DSS) outside of North
America. As noted in Note 3 to the Consolidated Financial
Statements, the North America DSS business was sold on
August 30, 2002 and was reclassified as discontinued
operations for all periods presented. The DSS businesses outside
of North America, which were sold or closed by
September 30, 2002, remained in the presentation of
continuing operations as did the Color Technologies business
sold as of December 31, 2001 (see Notes 3 and 11 to
the Consolidated Financial Statements). For 2003, the
Companys operations consisted of two segments, DS&IM
and Specialty Papers.
1
Approximately 54 percent of the
Companys revenues are derived from international sales in
over 100 countries outside the U.S. Financial information
by segment and geographic region can also be found in
Note 11 to the Consolidated Financial Statements.
Figure #1
The Company competes within the global
information technology (IT) industry. Specifically, the Company
develops, manufactures, sources, and markets removable data
storage media for organizations and individuals that must store,
retain and protect vital digital information. The Companys
primary products include magnetic tape cartridges, magnetic
diskettes and recordable optical disks. The need to capture,
manipulate, store and protect ever-larger amounts of this
digital information is driving demand for a variety of data
storage media formats that are differentiated by total storage
capacity, reliability, data transfer rates, cost, portability,
permanency, and physical media size. According to various
industry analysts and Company estimates, the total global data
storage market, including hardware and services, is estimated to
be in excess of $70 billion. Removable media provide
certain advantages due to their portability, low overall cost of
ownership, and scalability, which make the removable media
market an attractive market. The removable storage media market
is estimated to exceed $7 billion, which includes the
removable flash memory market where the Company has not competed
through 2003. The Companys market share in the removable
media storage sectors where it directly competes is estimated to
be 18 percent.
There are many diverse ways to store digital
information, depending on the application and the amount of
information to be retained. In a commercial environment,
decisions about the kind of data storage platform to use depend
on a multitude of factors including storage capacity, access
speed, performance, scalability, portability, compatibility with
other components, and total cost. For example, live
data that is directly accessed and manipulated typically will be
treated differently than data which is copied for purposes of
back-up or archiving. As a result, storage implementations in a
commercial environment typically include more than one platform
and media format.
The demand for removable data storage media is
driven by the rapid growth of digital information, a trend that
has accelerated with the emergence of the digital economy where
increasing quantity and diversity of information is created and
managed digitally. As data storage hardware, software, and
transmission networks continue to deliver improved
2
There are many removable storage formats, in both
magnetic and optical technologies, ranging from tape cartridges
and diskettes to CDs and DVDs. Removable data storage products
such as those offered by the Company allow the customer to
easily expand capacity, and provide data transportability, data
management, and data security at a significantly lower relative
cost than fixed disk storage. The Company develops,
manufactures, sources, and markets removable data storage media
products in nearly every capacity range a user may
require from 2 megabyte to hundreds of gigabytes or
from data that could occupy one book up to data occupying
thousands of libraries. The Companys data storage media
products are used across all major application areas
enterprise data centers, the network server environment at both
the mid-range and entry-level, and personal storage applications
for both consumer electronics devices and desktop or laptop
computers.
The digital economy, as discussed above, is at a
different level of development and penetration in different
geographies. As a result, growth rates will typically vary in
different application areas and product categories in different
parts of the world.
Data Center
Imation is the leading supplier of
magnetic tape cartridges to large data centers worldwide. Large
data centers are found in a wide variety of industries,
including financial services, geophysical exploration,
transportation, government, and telecommunications. In the data
center, Imations products are used in both mainframe and
open systems environments, in large data libraries for back-up,
business and operational continuance planning, near-line data
storage and retrieval, cost-effective mass storage, and archival
storage. Imations tape cartridges are often used in an
automated tape library that can either be direct-attached
storage or part of networked storage infrastructure such as a
Storage Area Network (SAN). Enterprise level tape storage
cartridges are used to store large amounts of data
up to 400 gigabytes (GB) of data on some cartridges and
data transfer rates as high as 40 megabytes (MB) per
second. Imation is the exclusive manufacturer of certain
cartridges used in enterprise-class applications including
BlackWatch 9840 and 9940 cartridges developed for use with
StorageTek drives, and BlackWatch 3480, 3490, 3590, and 3590E
cartridges, developed for use with IBM drives.
Network Server
Imation manufactures and distributes
data tape cartridges for the wide variety of tape drives that
are used in the network server environment, providing back-up,
archive, and near-line storage in open systems environments. For
mid-range to high-end network servers, Imations BlackWatch
DLTtape IV and BlackWatch SuperDLTtape cartridges are used in
DLT and SDLT tape drives sold by several drive manufacturers.
BlackWatch Ultrium cartridges are used in Linear Tape Open
drives manufactured by IBM Corp. (IBM), Certance LLC, and
Hewlett-Packard Company (HP).
Small-Medium Business
Imation also manufactures and
distributes data tape cartridges for small to mid-sized
businesses, primarily for back-up and archival applications.
Imation cartridges work with tape drive systems that support the
major operating environments including Unix, Linux, and
Microsoft Windows® NT. Imation cartridges include
Travan tape cartridges for use with Certance Travan
drives, and SLR tape cartridges for use with drives sold by
Tandberg Data ASA (Tandberg). Imation also distributes VXA and
other cartridges for use with Exabyte tape drives.
Personal Storage Applications
In the personal storage media sector,
businesses and consumers use Imations broad range of
digital storage media to store business information,
spreadsheets, presentations, digital photos, data, music, and
more. Imation products provide storage media capacities ranging
from 1.44MB diskettes to 650 MB CD-R (recordable) and CD-RW
(re-recordable) optical disks to 9.4GB DVD optical disks.
3
The installed base of tape drives globally has
been estimated by various market researchers to range between
16 million and 25 million units. This substantial
installed base of tape drives presents a recurring revenue
opportunity for much of the Companys tape products. The
application areas described above are overlapping with no
definitive boundaries. The Companys products are
frequently used in more than one environment, depending on the
specific customer need for functionality or capacity. In
addition, the way these application areas are defined frequently
changes as storage capacities and functionality needs increase.
The following chart is intended to represent the Companys
data storage media offerings on a continuum of capacities and
typical applications:
As described above, the Companys products
are used by business customers in a variety of industries and by
individual consumers. The Companys removable data storage
products and accessories are produced in multiple formats,
including both magnetic and optical, across a wide spectrum of
data storage drives, many with multiple manufacturers. The
products are also often used in more than one storage
environment, depending on the needed capacity. No one customer
constituted 10 percent or more of the Companys
revenues in 2003.
The Company works with Original Equipment
Manufacturers (OEMs) which develop tape drives for differing
customer applications in various market sectors. Significant
OEMs include StorageTek Technology Company (StorageTek), IBM,
HP, Exabyte Corp. (Exabyte) and Tandberg. StorageTek and IBM are
both customers of and OEM partners with the Company. As
described above, the Company is the sole source of supply for
tape cartridges for use with StorageTek and IBM drives used in
the high end data center. The development of future formats with
key OEMs, such as StorageTek and IBM, is critical to the
Companys future success and the loss of such a
relationship could have a material effect on the Companys
business. During the past year, the Company announced it had
entered into a joint development agreement with StorageTek for
their next generation of automated tape drives. The Company
believes it is well positioned to maintain its relationship as a
key media development partner with important OEMs.
The global markets for the Companys
products are intensely competitive and subject to continuous
pricing pressure, frequent product performance improvement, and
rapid technological change. Removable magnetic and optical media
competes to some extent against other forms of data storage,
including hard disk and solid state (semi-conductor based) flash
memory. Hard disk storage typically has been used for on-line
applications whereas removable storage has been used for
near-line and off-line applications such as back-up and archive,
and in various consumer applications.
4
The Companys primary competitors in the
removable data storage market include Fuji Photo Film Co., Ltd.,
Hitachi Maxell, Ltd., Memorex, Inc., Verbatim Corporation, TDK
Corp., and Sony Corp. In addition, the Company has various
agreements with other companies such that it is possible to be,
at various times, a competitor of, supplier to, or customer of
those companies. While these companies compete in the removable
media market, they do not generally report financial results for
these businesses on a stand alone basis. Therefore it is
difficult for the Company to estimate its relative market share.
However, the Company uses a variety of industry sources to
estimate market size and share and estimates that in 2002, the
latest period for which data is available, it held more than
18 percent of the total market sectors in which it competes
for removable media, one to two percentage points greater than
its nearest competitor. The Companys market share in 2001
was estimated to be 15 to 17 percent.
The Company has engaged in a variety of
transactions from time to time with other companies, including
acquisitions, licensing, distribution, joint venture and joint
development agreements in order to expand its presence in
various market sectors. Such transactions since the beginning of
2003 include the following.
Marketing and
Distribution
Imations data storage products are sold
through a combination of distributors and value-added resellers,
OEMs, and retailers. World-wide, approximately 64 percent
of revenues come from distributors, 21 percent from OEMs and
5
Approximately 56 percent of the
Companys data storage revenues come from sales outside the
United States, primarily through subsidiaries, sales offices,
distributors and relationships with OEMs throughout Europe,
Asia, Latin America, and Canada.
Manufacturing
The Company manufactures data storage products at
its facilities located in the U.S. at plants in Camarillo,
California; Tucson, Arizona; Wahpeton, North Dakota; and
Weatherford, Oklahoma. All of these manufacturing facilities are
certified to ISO 9001:2000 quality standards. The Company
manufactures most of the components for its magnetic data
storage products, including magnetic tape and plastic
components, but sources some material from outside suppliers.
Through the end of 2003, the Company spent approximately
$45 million in capital to design and build a new facility,
with state-of-the-art tape coating capability, at its Oklahoma
plant. In 2004, the Company expects to spend less than
$10 million in capital, excluding any potential start-up
costs associated with bringing the new coater on-line, to
complete the project. The new coating facility is expected to
begin operation by the end of the second quarter of 2004. While
the Company manufactures most of its own magnetic tape products,
the Company does not manufacture the vast majority of the
optical media products it sells. Most optical products are
sourced from manufacturers outside the U.S.
The manufacture of high quality, competitive
removable data storage media requires exacting manufacturing
process steps with precise physical, electrical, and chemical
tolerances as well as significant technical expertise in several
areas including coating process, servo-writing, media and
component design, fine particle dispersion, plastic injection
molding, automated high volume assembly, and magnetic and
optical physical and material science. To manufacture magnetic
media, a thin plastic film material is coated precisely and
uniformly with a magnetic dispersion solution. To meet the
market requirements for future advanced tape media products with
higher data transfer rates, greater data density, and faster
tape speeds, the Company must produce tape coated with smaller
particle sizes, increasing uniformity and surface smoothness,
and greater bit and track density on thinner substrates.
Significant experience is required to keep pace with these
requirements and the technical expertise within its
manufacturing and engineering organization is viewed as a
critical element of the Companys overall competitiveness.
The Company employs certain critical process technology,
intellectual property, and technical know-how in the manufacture
of its magnetic data storage media and invests to maintain
research and development facilities and pilot manufacturing
lines for potential future products in both magnetic and optical
media. The Company believes its application of key proprietary
design and manufacturing technologies in the production of its
media provides it with a competitive edge for certain products.
The Company relies upon the availability of experienced and
skilled personnel and invests in both R&D and capital
equipment in order to successfully develop, manufacture and
source magnetic and optical media that meet market requirements.
Servo-writing technology in linear tape and tape
drives provides precise positioning of read/write heads to
achieve higher data densities on tape and is a critical
technology to achieve increased storage capacities. Tape
handling through the cartridge is an increasingly critical
element of system robustness for the cartridge and the drive as
tape transport speeds in the drives increase and the distance
between the read/write head and the tape media decreases.
Cartridge design and manufacturing includes the manufacture and
assembly of plastic moldings and components, metal part stamping
and modeling of the tape path and tape handling through the
cartridge. The Company believes its servo-writing and cartridge
design and manufacturing capabilities in particular give it a
competitive advantage for certain products.
Raw Materials
and Other Purchased Products
The principal raw materials the Company uses for
the manufacture of data storage products include plastic resins,
polyester films, magnetic pigments, specialty chemicals, and
solvents. The Company makes significant purchases of these and
other materials and components used in the manufacturing
operations from many domestic and foreign sources. There are two
sources of supply for the base film and two for the MP (metal
particulate) pigments on which the industry relies. If supply
were disrupted for any of these key materials, the business of
the Company and its
6
The Company has an agreement to acquire chrome
pigments, a key raw material for certain legacy tape formats. As
a result of this agreement, the Company believes it has adequate
supplies of this raw material for the foreseeable future.
Except for the instances cited above, the Company
is not overly dependent on any single supplier of raw materials.
The Company also makes significant purchases of other finished
and semi-finished products, including optical media and certain
finished tape and tape cartridges, primarily from Asian
suppliers. As noted above, during 2003, the Company entered into
a non-exclusive sourcing agreement with MBI for certain optical
products.
Specialty
Papers
The Companys Specialty Papers unit
manufactures a wide variety of carbonless paper products that
are used to make multi-part business forms at its specialty
coating and converting production facility located in Nekoosa,
Wisconsin. The Specialty Papers business represented less than
five percent of the Companys total revenues in 2003.
The Specialty Papers unit has been an innovative
leader in the carbonless paper industry for over 40 years,
specializing in cut sheet products. These products are used by
most industry segments and are distributed through distribution
channels including traditional fine paper merchants. The primary
competitors to this business include Appleton Papers, Inc. and
MeadWestvaco Corporation. The Specialty Papers business also
manufacturers private label carbonless paper products and
provides contract manufacturing for various third party
organizations.
The Companys videodisc replication
business, which was closed in the first quarter of 2002, was
also part of the Specialty Papers segment.
Digital
Solutions and Services (DSS)
The Company sold its North America DSS business
in August 2002 (see Note 3 to the Consolidated Financial
Statements). These operations are presented in the
Companys Consolidated Statements of Operations as
discontinued operations.
The Company also completed its planned exit of
the DSS business outside of North America in the third quarter
of 2002. As of the end of the third quarter, all DSS operations
outside of North America had been closed or sold. The operations
outside of North America are still included in continuing
operations (see Note 11 to the Consolidated Financial
Statements).
The Companys DSS business was a service
organization with a focus on two areas Field Service
and Document Imaging products. Through relationships with OEMs,
the Field Service group offered call center, help desk support,
spare parts logistics, and field service to end-user customers,
with a focus on providing services for the wide format color and
imaging equipment markets. In the Document Imaging products
area, the Company acted as a system integration coordinator to
help its customer base transition from analog to digital
systems, with an emphasis on providing integrated solutions in
the wide format engineering document imaging systems market by
combining hardware, software, supplies and services for its
customers. The business also manufactured microfilm aperture
cards.
Color
Technologies
Through 2001, the Company was an active
participant in the graphic arts industry as a manufacturer and
marketer of products and services for the capture, enhancement,
management, and transmission of color images. On
December 31, 2001, the Company consummated the sale of its
worldwide color proofing and color software business to KPG. KPG
acquired substantially all the assets and assumed substantially
all the liabilities associated with this business and paid the
Company $50 million in cash. Approximately 500 Imation
employees worldwide were transferred to KPG in connection with
the transaction, along with the portion of the Companys
Weatherford, Oklahoma plant associated with color proofing (see
Notes 3 and 11 to the Consolidated Financial Statements).
7
Research and Development
New product development is critical to the
Companys future success and Imation maintains advanced
research facilities and invests substantial resources in
developing new products, improving existing products and
researching potential new technologies for data storage media.
The Companys research and development expenses were
$57.0 million, $50.6 million, and $62.1 million,
for 2003, 2002, and 2001, respectively, averaging approximately
five percent of revenues. The increase in spending from 2002 to
2003 was due to investments in emerging new data storage format
areas, while the decline in spending from 2001 to 2002 was due
to the divestitures of the color proofing and software business
and the DSS business outside of North America. Most of the
Companys research and development spending was focused on
the development of existing and future formats of removable
magnetic and optical storage media. This includes development of
high density metal particulate tape such as the LTO Ultrium and
StorageTek next generation tape formats. These advanced formats
will deliver increased storage capacity per cartridge through
using more advanced metal particulate pigments with smaller
particle size, coating thinner layers on thinner substrates and
advanced tape handling characteristics within both manufacturing
processes and in tape cartridges. R&D spending is also
focused on extensions of existing magnetic tape products, and
advanced forms of optical storage media (which rely on shorter
wavelength laser light and improved optics).
Imations competitive capabilities are
dependent upon development and protection of intellectual
property. The Companys proprietary rights are protected
through a combination of patents, copyrights, trademarks, and
trade secrets. Over the last several years, the Company has had
a focused effort to increase its patent portfolio and creation
of invention records and filing of patent applications. During
2003, the Company was awarded 34 U.S. patents and at the
end of the year held over 330 patents in the U.S. relating
to its data storage business, including approximately 120
related to cartridge components, 80 related to optical, 60
related to magnetic tape coating and manufacturing, and 70
related to drive systems. The Company believes that no single
patent is material to its overall business. The chart below
summarizes the Companys patent activity for the past five
years:
The Company entered into a joint development
agreement with StorageTek in 2003 to develop and commercialize a
next generation data storage tape solution for the enterprise
data center market. The Company is also engaged in certain
programs both on its own and in collaboration with other
organizations that are more research in nature and which do not
yet have a specific product or product set in the market or soon
to be introduced. Examples of these efforts include:
8
International Operations
Imations products are sold in over 100
countries outside the U.S., primarily through subsidiaries,
sales offices, distributors and relationships with OEMs in more
than 60 countries. Approximately 54 percent of the
Companys total 2003 revenues come from outside the U.S.
The Company does not manufacture outside the U.S. Note 11
to the Consolidated Financial Statements shows financial
information by geographic region. The chart below breaks out the
Companys 2003 revenues by area:
Employees
As of December 31, 2003, Imation employed
approximately 2,800 people worldwide.
Environmental Matters
The Companys operations are subject to a
wide range of federal, state, and local environmental protection
laws. The Company has remedial activities underway at one of its
facilities. Environmental remediation costs are accrued when a
probable liability has been determined and the amount of such
liability has been reasonably estimated. These accruals are
reviewed periodically as remediation and investigatory
activities proceed, and are adjusted accordingly. Compliance
with environmental regulations has not had a material adverse
effect on the financial results of the Company. In 2003, the
Company spent approximately $50,000 on environmental related
matters. As of December 31, 2003, the Company had
environmental related accruals totaling approximately
$0.6 million. The Company believes that its accruals are
adequate, though there can be no assurance that the amount of
expenses relating to remedial actions and compliance with
applicable environmental laws will not exceed the amounts
reflected in the Companys accruals.
Executive Officers of the Company
The executive officers of the Company on
February 26, 2004, together with their ages and business
experiences, are set forth below.
William T. Monahan,
age 56, is Chairman of the
Board, President and Chief Executive Officer, positions he has
held since the Company was spun-off from 3M on July 1,
1996. From June 1993 to March 1996, he was Group Vice President
responsible for 3Ms Electro and Communications Group, and
from May 1992 to May 1993, he was Senior Managing Director of 3M
Italy. From September 1989 to May 1992, he was Vice President of
3Ms Data Storage Products Division. Mr. Monahan plans
to retire from the Company by the end of 2004.
Bradley D. Allen,
age 53, is Vice President,
Corporate Communications and Investor Relations. He has led the
Companys investor relations function since spin-off. From
October of 1994 to May of 1996, he held the senior investor
9
Jacqueline A. Chase,
age 50, is Vice President,
Human Resources, a position she has held since October 1998.
Prior to assuming her current responsibilities she was Director
of Human Resources. She has been with the Company since
spin-off. From 1991 to 1996, she held the position of Senior
Counsel in 3Ms legal department. Prior to joining 3M, she
was an associate attorney at the law firm of Oppenheimer, Wolff
and Donnelly.
Frank P. Russomanno,
age 56, is Executive Vice
President and Chief Operating Officer, a position he has held
since November 2003. He has been with the Company since
spin-off. Prior to assuming his current responsibilities he had
various managerial positions within the Company, including
President of DS&IM, Vice President and General Manager of
Data Storage and Media Services, DS&IM and General Manager
of Advanced Imaging Technologies. Prior to joining the Company,
he held several management positions with 3M, including European
Business Director.
John L. Sullivan,
age 49, is Senior Vice
President, General Counsel and Corporate Secretary. He joined
the Company in August 1998 from Silicon Graphics, where he most
recently was Vice President-General Counsel. Prior to joining
Silicon Graphics, he held several positions with Cray Research
from 1989 to 1997, including the positions of General Counsel
and Corporate Secretary from 1995 to 1997. Cray Research became
part of Silicon Graphics in 1996.
Colleen R. Willhite,
age 47, is Vice President,
DS&IM, Manufacturing and Supply Chain, a position she has
held since February 2002. She has been with the Company since
spin-off. Prior to assuming her current responsibilities she had
various managerial positions within the Company, including
Corporate Supply Chain Director, Global Application Migration
Project Leader, and Operations General Manager, Color
Technologies. Prior to joining the Company, she held several
management positions with 3M.
Paul R. Zeller,
age 43, is Vice President,
Corporate Controller. He was elected to his position as Vice
President in February 2000, and has held the Corporate
Controller position since May 1998. He has been with the Company
since spin-off and held accounting manager and division
controller positions with the Company prior to May 1998. Prior
to joining the Company, he held several accounting management
positions with 3M.
Availability of SEC Reports
The Companys website address is
www.imation.com. The Company makes available free of charge on
or through its internet website, its annual report on
Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K and amendments to these reports filed
or furnished pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended (the Exchange
Act) as soon as reasonably practicable after the Company
electronically files such material with or furnishes it to the
SEC. Materials posted on the Companys website are not
incorporated by reference into this annual report on
Form 10-K.
10
The Companys headquarters are located in
Oakdale, Minnesota. The Companys major facilities, and the
products manufactured at such facilities, are listed below. The
Companys facilities are in good operating condition
suitable for their respective uses and adequate for the
Companys current needs.
* In December 2003, the Company sold one of
the buildings at its Camarillo, California facility in a
sale-leaseback transaction and will be leasing back a portion of
the building. In 2002, the Company sold one of the buildings at
its Wahpeton, North Dakota facility in a sale-leaseback
transaction and is leasing the entire facility back.
** The Companys new state-of-the-art
tape production line is expected to begin operation at this
facility in 2004.
The Company is the subject of various pending or
threatened legal actions in the ordinary course of its business.
All such matters are subject to many uncertainties and outcomes
that are not predictable with assurance. Consequently,
11
Jazz Photo Corp.
On May 10, 1999, Jazz Photo Corp. (Jazz
Photo) served the Company and its affiliate, Imation S.p.A.,
with a civil complaint filed in New Jersey Superior Court. The
complaint charges breach of contract, breach of warranty, fraud,
and racketeering activity in connection with the Companys
sale of allegedly defective film to Jazz Photo by its Photo
Color Systems business which was sold in 1999 (see Note 3
to the Consolidated Financial Statements). In the complaint,
Jazz Photo seeks unspecified compensatory damages, treble
damages, punitive damages, and equitable relief for both initial
purchases and subsequent additional purchases of film. In 2002,
the parties continued to litigate the scope of document
production and discovery, and depositions began in the third
quarter of 2002.
On February 24, 2003, the Company was served
with the reports of Jazz Photos testifying expert
witnesses in the case (the Jazz Photo Reports). In the opinion
of Jazz Photos experts as set forth in the Jazz Photo
Reports, the alleged damages to Jazz Photo were caused by a
combination of heat, moisture, and fumes from packaging
materials supplied by Jazz Photo. The Jazz Photo Reports do not
contain any opinions that the alleged damages to Jazz Photo were
caused by any error by the Company in the manufacture of the
film or by damage to the film during shipment to Jazz Photo. The
primary opinion set forth in the Jazz Photo Reports is that the
film was not fit for Jazz Photos particular use or purpose
(use in reloaded single use cameras) because the film design
made it more vulnerable to a combination of heat, moisture, and
chemical fumes than other film products. The Jazz Photo Reports
further conclude that the Company should have known that use in
reloaded cameras would expose the film to the damaging
combination of heat, moisture, and chemical fumes. The Company
vigorously disputes this theory of liability and believes that
it has meritorious defenses. The Jazz Photo Reports claim
alleged out-of-pocket damages of approximately $13 million,
lost profits through 2002 of approximately $41 million, and
lost future profits of approximately $32 million. The
Company vigorously disputes the amount of the out-of-pocket
damages claim and vigorously disputes that Jazz Photo has
suffered any lost profits as a result of any action by the
Company. Any claim for treble damages by Jazz Photo would have
to be based on a violation of the New Jersey Racketeer
Influenced and Corrupt Organizations Act or the New Jersey
Consumer Fraud Act. Even though Jazz Photo has asserted claims
under these acts, the Jazz Photo Reports contain no allegation
of damages related to the additional purchases of film by Jazz
Photo in 1999.
The Company is vigorously defending the action.
Factual discovery is now complete. On May 6, 2003, the
Company served reports of testifying expert witnesses, who
conclude that the Companys film was appropriately designed
and manufactured and was fit for use in single use cameras,
including reloaded single use cameras. The Companys
experts agree that the damage to the film was caused by a
combination of chemical fumes, excess moisture, and excess heat
occurring after the film was delivered to Jazz Photo. They
conclude that Jazz Photo was responsible for the damage because
it failed to put in place a quality control system consistent
with industry norms and failed to comply with manufacturer
instructions and industry standards concerning protecting film
from heat, humidity, and chemical fumes. Also on May 6,
2003, the Company served the report of a financial expert who
concludes that the plaintiffs financial analysis is
fundamentally flawed. Both sides filed rebuttal expert reports
and have taken expert depositions.
On October 2, 2003, the Company filed a
summary judgment motion for dismissal of the entire case against
it. On the same date, Jazz Photo filed a motion for partial
summary judgment in its favor on its New Jersey racketeering and
consumer fraud claims. Decisions by the Court on these motions
are pending. The final pre-trial conference was held on
October 30, 2003. A settlement conference and hearing on
the parties summary judgment motions took place on
January 22, 2004. Barring summary judgment dismissal or
settlement of the case, the trial is scheduled to begin
April 12, 2004.
On May 20, 2003, Jazz Photo filed a
Voluntary Petition for Relief under Chapter 11 of the
United States Bankruptcy Code. The Jazz Photo litigation with
the Company will proceed despite the bankruptcy. The largest
bankruptcy creditor Jazz Photo listed was Fuji Photo Film Co.,
Ltd. (Fuji). Fuji obtained a judgment against Jazz Photo
12
The St. Paul Fire and Marine Insurance Co.
(St. Paul) insured the Company under a primary commercial
general liability policy. St. Paul has, under a reservation
of rights, reimbursed the Company for its defense costs in the
Jazz Photo litigation up to the limit of $2 million under
one insuring agreement of the policy issued by St. Paul. In
2003, the Company recorded $1.3 million after-tax in
discontinued operations, primarily related to incurred
litigation costs associated with the Companys defense of
its ongoing legal dispute with Jazz Photo that have not been
reimbursed. The Company has asserted that it is entitled to
higher limits for defense and indemnity contained in other
insuring agreements of the St. Paul policy. The Company
also believes it has coverage for defense and/or indemnity under
policies issued by another primary carrier, Cigna and by its
excess carrier, AIG. The disputes regarding additional coverage
under both the primary and excess policies has been stayed
pending resolution of the Jazz Photo litigation.
Spanish Collecting Society
The Company was a defendant in a lawsuit filed in
Court of First Instance Num. 5 in Madrid by a Spanish
collecting society demanding copyright levies for recording
artists to be paid on all CDR-Data discs that have been sold
during 1998 and 1999. Prior to July 2003, there was an agreed
upon levy assessed on all CDR-Audio discs sold in Spain but no
agreement had been reached regarding an applicable levy for
CDR-Data discs. The Spanish collecting society filed a lawsuit
against the Company and at least three other companies alleging
that consumers are using CDR-Data discs to make copies of music
for private use and, therefore, the same levy that applies to
CDR-Audio disc sales should also apply to CDR-Data disc sales. A
judgement was rendered by a Court of First Instance in Madrid on
November 28, 2002 which required the Companys
affiliate, Imation Iberia S.A., to provide an accounting of
CDR-Data discs that were sold in 1998 and 1999 which may be
subject to CDR levies. The Company appealed this judgement. In
July 2003, an agreement for the payment of levies on CDR-Data
discs was reached in Spain between the collecting society and
the industry association (in which the Company is an active
member). The agreement anticipates that the member companies of
the industry association will enter into individual agreements
with the collecting society containing the terms agreed to
between the industry association and the collecting society.
Pursuant to terms of the agreement between the industry
association and the collecting society, the Company entered into
an agreement with the collecting society and began to pay levies
on CDR-Data discs sold in Spain on a going-forward basis as of
September 1, 2003. In accordance with this agreement, there
will be no payment of levies for sales of CDR-Data discs in
Spain prior to September 1, 2003. Based upon the agreement
between the parties, in October 2003, the appellate court
dismissed the appeals, with prejudice, filed by the collecting
society and the Company. In the second quarter of 2002, the
Company recorded a $1.0 million charge in the Litigation
line of its Consolidated Statement of Operations. This amount
was reversed in the third quarter of 2003.
Item 4.
Submission
of Matters to a Vote of Security Holders.
Not applicable.
PART II
Item 5.
Market
for Registrants Common Equity and Related Stockholder
Matters.
As of February 26, 2004, there were
35,340,555 shares of the Companys common stock, $0.01
par value (Common Stock), outstanding held by approximately
34,300 shareholders of record. The Companys Common
Stock is listed on the New York and Chicago Stock Exchanges
under the symbol of IMN. In May 2003, the Board of Directors
declared the Companys first dividend payable to holders of
Common Stock in the amount of $0.08 per share. The Board of
Directors also declared dividends of $0.08 per share of Common
Stock in August and November 2003. The Company paid a total of
$8.5 million in dividends to shareholders in 2003. On
February 4, 2004, the Board of Directors approved a
quarterly cash dividend of $0.08 per share, payable
March 30, 2004, to shareholders of record at the close
13
The following table sets forth, for the periods
indicated, the high and low sales prices of Common Stock as
reported on the New York Stock Exchange Composite Transactions.
14
Selected Consolidated Financial
Data*
15
The following discussion should be read in
conjunction with the Consolidated Financial Statements and the
related notes that appear elsewhere in this document.
Overview
Imation is a global technology company that
derives revenue and profits primarily from the sale of removable
data storage media products to both consumers and business.
These products range from floppy diskettes and recordable CDs
and DVDs to tape cartridges used in small-medium businesses to
high capacity tape cartridges used in large automated tape silos
in a data center environment. These products are sold in over
100 countries outside the U.S., and approximately
54 percent of the Companys total 2003 revenues came
from outside the U.S. The Company also has a specialty papers
business, representing less than five percent of revenue, which
manufactures and distributes carbonless paper for use in the
creation of multi-part business forms.
The core data storage market presents attractive
growth opportunities as well as challenges. The market is highly
competitive, characterized by continuing changes in technology,
pricing pressure on media products, diverse distribution
channels, and a large variety of formats for both tape and
optical products. The Company is challenged to deliver a broad
portfolio of products across diverse distribution channels and
geographies and maintain low overall costs. Success in this
market is dependent on being early to market with new formats,
having efficient manufacturing and supply chain operations,
working closely with leading OEMs (Original Equipment
Manufacturers) to develop enhancements to existing and new
formats, carrying a broad assortment of products across multiple
competing tape drive platforms, and having a broad geographic
and market coverage across a variety of distribution channels.
While the overall removable data storage media
industry is a growth industry, the highest revenue growth
opportunities over the next three to five years lie outside the
Companys historical core magnetic tape and diskette media
businesses. These higher growth markets include newer tape
formats in semi-proprietary or open systems environments,
recordable optical discs, which currently are more consumer
oriented products, and removable flash memory, which the Company
has not, to date, marketed. These higher revenue growth
opportunities described above provide revenue streams that are,
as a rule, at lower gross profit margins than the Companys
historical gross margins on the core magnetic media business. As
a result, the Companys strategy has been to consciously
position itself to profitably take advantage of these growth
opportunities by establishing strategic sourcing, brand
distribution and licensing arrangements which require relatively
low capital investments and by implementing a relatively flat
and efficient operating structure, which can support higher
revenue without the need to add substantial infrastructure or
overhead costs, thus delivering increased gross margin dollars
and operating profit growth on increased revenues. For example,
while the Company has intellectual property, patents and
know-how in optical media, it sources these products from third
party manufacturers. The resulting business model can be thought
of as a hybrid between a manufacturer and a brand distributor.
The growth opportunities in the removable data
storage media market are also generally higher in emerging
markets such as Asia and Latin America than in more established
markets in the U.S. and Western Europe. As a result, as the
Company pursues growth opportunities in emerging markets,
revenues are expected to increasingly be derived from sales
outside the U.S.
Results of Operations
On August 30, 2002, the Company consummated
the sale of its North America DSS business to DecisionOne
Corporation (DecisionOne). These operations are presented in the
Companys Consolidated Statements of Operations as
16
The following table sets forth the percentage
relationship to revenue of certain items in the Companys
Consolidated Statements of Operations for the years indicated.
Net revenues in 2003, 2002, and 2001 were
$1,163.5 million, $1,066.7 million, and
$1,119.3 million, respectively. Net revenues increased
9.1 percent in 2003 compared to a 4.7 percent decline
in 2002. DS&IM net revenues increased 10.6 percent in
2003. The revenue decline in 2002 was due to the sale of the
color proofing and color software business and the closing or
selling of all the DSS businesses, offset by a 14.6 percent
revenue increase in DS&IM. DS&IM was approximately
95 percent of net revenues for continuing operations in
2003 and 2002 (see discussion of DS&IM results in the
Performance by Segments section). Approximately 54 percent,
49 percent, and 48 percent of the Companys net
revenues in 2003, 2002, and 2001, respectively, were from sales
outside the U.S.
Gross profit for 2003, 2002, and 2001 was
$334.7 million or 28.8 percent of revenues,
$327.8 million or 30.7 percent of revenues, and
$335.4 million or 30.0 percent of revenues,
respectively. Gross profit dollars increased in 2003 by
$6.9 million from 2002 primarily due to revenue growth
while gross profit dollars decreased $7.6 million from 2001
to 2002 due primarily to the divestiture of the color proofing
and color software business. The 1.9 percentage point decrease
in gross profit margin as a percent of revenue for 2003 was due
to a higher mix of lower gross margin products as the Company
drove operating earnings growth through its strategic growth
initiatives, in line with the Companys strategy, as noted
in the Overview above. The 0.7 percentage point increase in
gross profit margin in 2002 was driven by strong volume growth,
especially in the business-to-business tape products, that
helped lower unit costs, and more than offset the negative
2.8 percentage point impact related to the divestiture of
the relatively higher gross margin color proofing and color
software business. The gross profit for 2001 includes special
charges related to inventory write-downs of $0.6 million.
In 2003, 2002, and 2001, SG&A expenses were
$166.3 million or 14.3 percent of revenues,
$176.9 million or 16.6 percent of revenues, and
$232.0 million or 20.7 percent of revenues,
respectively. The decrease in SG&A as a
17
Research and development expenses in 2003, 2002,
and 2001 were $57.0 million, $50.6 million, and
$62.1 million, respectively. The $6.4 million increase
in 2003 is related to investments in emerging new data storage
format areas. The $11.5 million decline in 2002 is due
primarily to the divestiture of the color proofing and color
software business.
In 2003, the Company recorded a $1.0 million
reversal of the reserve set up in 2002 for a litigation matter
related to optical disc royalties in Spain (see Note 16 to the
Consolidated Financial Statements). In 2002, the Company
recorded a $6.4 million net litigation benefit. This
consisted of a $7.4 million litigation benefit from Quantum
and Maxell legal settlements, net of associated legal expenses,
and a $1.0 million charge for the litigation matter related
to optical disc royalties in Spain.
In 2003, the Company recorded a $0.7 million
benefit for the reversal of previously recorded charges due to
lower than expected costs of restructuring (see Note 5 to
the Consolidated Financial Statements), This restructuring
adjustment, in accordance with applicable accounting standards,
was made as part of the Companys regular practice of
reviewing its recorded restructuring reserves quarterly and
making adjustments as necessary to reflect managements
best estimate of costs remaining for each restructuring program.
In 2002, the Company recorded a $4.0 million
net benefit in restructuring. Adjustments to previously recorded
restructuring reserves of $5.8 million were offset by a new
charge of $1.8 million. Part of the adjustment was related
to the Companys DSS businesses in Europe and was primarily
due to lower than estimated employee separation costs as well as
recognition of pension-related benefits that can only be
recorded under the applicable accounting standards when the
employees are separated. The new charge relates to the
realignment of the Storage Professional Services organization
within the Companys DS&IM business segment. The
charges include asset impairments, exit costs and $0.4 million
for employee separation programs related to headcount reduction
of approximately 15 employees.
In 2001, the Company recorded $48.0 million
of restructuring and other charges to reduce its administrative
structure, improve the profitability of the remaining, non-data
storage businesses and rationalize its data storage
manufacturing. The charges included $25.0 million for
employee separation programs related to a headcount reduction of
approximately 430 employees relating to continuing operations,
of which approximately 45 percent related to administrative
structure, 50 percent related to the non-data storage
businesses, and the remainder related to the data storage
business. The Company also recorded a $0.6 million special
charge reflecting inventory write-downs in cost of goods sold
(included in Gross Profit above).
18
The following tables represent the activity
related to the restructuring programs initiated in 2002 and
2001, respectively, adjusted to exclude those activities
specifically related to discontinued operations:
During 2003, the Company made cash payments of
$5.3 million related to all of its restructuring programs,
related primarily to lease payments of exited facilities and
headcount reductions. Headcount was reduced by approximately 15
employees in 2003. The Company expects to make payments of
$2.1 million related primarily to lease payments of exited
facilities and headcount reductions, with substantially all
being made in 2004, to complete its restructuring programs (see
Note 5 to the Consolidated Financial Statements). In 2002 and
2001, the Company made cash payments of $22.3 million and
$14.7 million, respectively, related to all of its
restructuring programs.
In 2003, the Company recorded an
$11.1 million gain primarily related to outstanding
transition services payments for the color proofing and color
software business sold in 2001 (see Note 3 to the
Consolidated Financial Statements). In 2001, the Company
recorded an $1.9 million gain on the sale of this business.
In 2003, the Company recorded a $4.6 million
impairment of a loan to offset substantially all of an
outstanding loan receivable from a contract manufacturer (see
Note 15 to the Consolidated Financial Statements).
Operating income (loss) for 2003, 2002, and
2001, was $119.6 million, $110.7 million, and $(4.8)
million, respectively. As a percent of revenues, operating
income for 2003, 2002, and 2001 was 10.3 percent,
10.4 percent, and (0.4) percent, respectively. Operating
income in each year was driven by the factors discussed above,
including the items in Litigation, Restructuring and Other, Gain
on Sale of Color Proofing and Color Software, and Loan
Impairment.
Non-operating income was $2.5 million and
$1.9 million in 2003 and 2002, respectively, as compared
with expense of $0.6 million in 2001. Interest income was
$5.9 million in 2003, $8.4 million in 2002, and
$12.4 million in 2001, down due to lower short-term
interest rates. Other non-operating expenses in 2002 included a
$3.0 million write-off of an equity investment and in 2001
included $5.4 million of write-offs related to certain
venture capital investments. The Company utilizes certain
financial instruments to manage risks associated with interest
rate and foreign currency risks (see Item 7A and
Note 8 to the Consolidated Financial Statements).
The Companys effective tax rate was
33 percent, 35 percent, and 85 percent for 2003, 2002,
and 2001 respectively, as discussed in Note 6 to the
Consolidated Financial Statements. The tax rate in 2001 was
significantly impacted by Restructuring and Other items, which
increased the reported tax rate from 24 percent to
85 percent. The
19
Income (Loss)
from Continuing Operations
Income from continuing operations in 2003 was
$81.8 million, or $2.25 per diluted share, and in 2002 was
$73.2 million, or $2.05 per diluted share. This compares to
a loss from continuing operations in 2001 of $0.8 million,
or $0.02 per diluted share. The increases in 2003 and 2002 are
due to increased operating income as discussed above.
Net Income
(Loss)
Net income in 2003 was $82.0 million, or
$2.26 per diluted share, and $75.1 million in 2002, or
$2.11 per diluted share. This compares to a the net loss in 2001
of $1.7 million, or $0.05 per diluted share. The increases
in 2003 and 2002 are due to increased operating income as
discussed above as well as small gains from discontinued
operations (see Note 3 to the Consolidated Financial Statements).
Performance By Geographic Area
Approximately 54 percent, 49 percent,
and 48 percent of the Companys net revenues in 2003,
2002, and 2001, respectively, were from sales outside the U.S.
U.S. revenues totaled $532.7 million, $546.7 million,
and $587.4 million in 2003, 2002, and 2001, respectively.
International revenues were $630.8 million, $520.0 million,
and $531.9 million in 2003, 2002, and 2001, respectively.
The shift in revenues from the U.S. to international was driven
by strong growth in Asia and Latin America as well as the launch
in 2003 of Global Data Media (GDM), the Companys joint
venture with Moser Baer India. Favorable currency rates also
benefited international revenues. See Performance by Segments
below for additional information as well as Note 11 to the
Consolidated Financial Statements.
Performance by Segments
The Companys businesses are organized,
managed and internally reported as segments differentiated
primarily by their products and services and the markets they
serve. These segments, whose results are discussed below, are
Data Storage and Information Management, Specialty Papers,
Digital Solutions and Services, and Color Technologies. In 2001,
Specialty Papers and Color Technologies were combined as a
single segment. Beginning in 2002, they were separated and the
prior period results were restated to conform to the new
presentation as a result of the sale of the color proofing and
color software business to KPG in 2001.
Data Storage
and Information Management (DS&IM)
DS&IM net revenues were
$1,110.6 million, $1,003.9 million, and
$875.9 million in 2003, 2002, and 2001, respectively. The
10.6 percent increase in 2003 was driven by a volume
increase of approximately 16 percent and foreign currency
benefits of approximately five percent, partially offset by
price declines of approximately 10 percent. In 2003, volume
growth was especially strong in the Companys existing
optical media business and optical media sales through its joint
venture, Global Data Media. Optical media growth was strong in
both CD and DVD related formats. The Company also experienced
growth in Ultrium and SDLT tape cartridges. The DS&IM
revenue increase of 14.6 percent in 2002 was driven by a
volume increase of approximately 24 percent, offset by
price declines of approximately 10 percent, and foreign
currency benefits of less than one percent. In 2002, significant
volume increases occurred in all major product categories and
across all geographic areas, while pricing pressures were less
than in 2001. For 2002, growth was especially strong in Ultrium
tape cartridges, optical products, and 9840 and 9940 cartridges.
The revenue increase in 2002 also was driven by the
Companys distribution program with IBM in which IBM
branded media products are sold through the Companys
distribution channels. The IBM branded business, which spans
across multiple product lines, began in the third quarter of
2001.
Operating income was $104.7 million,
$99.2 million, and $52.5 million in 2003, 2002, and
2001, respectively. The operating income improvement in 2003 was
driven by optical related products. Currency exchange rate
benefits also
20
Specialty
Papers
Specialty Papers net revenues were
$52.9 million, $53.1 million, and $51.0 million
in 2003, 2002, and 2001, respectively. Revenues from 2002 to
2003 were essentially unchanged. The increase in 2002 was driven
by an increase in private label sales and contract manufacturing
as well as improving market share in Imation branded business.
Operating income was $6.9 million,
$7.2 million, and $2.0 million in 2003, 2002, and
2001, respectively. Operating income from 2002 to 2003 was
relatively unchanged. The increase in 2002 operating income was
due primarily to increased revenues and the benefits from
restructuring in 2001.
The videodisc replication division of the
Specialty Papers segment was closed at the end of the first
quarter of 2002.
Digital
Solutions and Services (DSS)
Due to the presentation of the North America DSS
business as discontinued operations, the results of this segment
relate only to the DSS businesses outside of North America. DSS
net revenues were $9.5 million and $29.6 million in
2002 and 2001, respectively. The decline in 2002 was due to the
planned discontinuation of DSS businesses in regions outside
North America, all of which had been closed or sold by the end
of the third quarter of 2002, as part of the Companys 2001
restructuring program.
The 2002 operating loss of $4.0 million
compares to an operating loss of $7.5 million in 2001. The
loss in 2002 was lower than in previous years due to exiting the
operations partway through the year.
Color
Technologies
As previously discussed in Item 1
Business, on December 31, 2001, the Company
consummated the sale of its worldwide color proofing and color
software business to KPG. In 2001, Color Technologies net
revenues were $160.8 million and operating income was
$7.9 million.
Financial Position
As of December 31, 2003, the Companys
cash and equivalents balance was $411.4 million, a decrease
of $63.3 million compared to December 31, 2002, as a
result of planned investments in new growth initiatives. These
initiatives included $45 million for construction of a new
tape manufacturing facility in Weatherford, Oklahoma,
$20 million for a brand distribution agreement with
Exabyte, and $15 million for the planned purchase of
certain assets from EMTEC.
The accounts receivable days sales outstanding
was 46 days as of December 31, 2003, compared to a
record low 43 days as of December 31, 2002. This
increase was driven primarily by the establishment of and growth
in GDM. The Company had 71 days of inventory supply on hand
as of December 31, 2003 compared to 70 days as of
December 31, 2002. Other current assets decreased by
approximately $20 million as a result of the settlement of
outstanding issues with Kodak (see Note 3 to the
Consolidated Financial Statements). Other assets were
$107.9 million as of December 31, 2003 compared to
$96.2 million as of December 31, 2002. This change was
driven by an increase in intangible assets related to Exabyte of
$18.5 million as well as long term cash investments of
$13.3 million, offset by a decrease in deferred taxes of
$14.7 million. Other current liabilities decreased to
$126.7 million during the year, principally related to the
Kodak settlement. Other liabilities decreased by
$16.1 million during 2003, primarily due to increased
pension funding (see Liquidity and Capital Resources discussion
in this section).
In 2003, the Companys receivables allowance
balance declined $1.7 million from 2002 even though total
accounts receivables increased by $57.0 million, driven
primarily by optical growth. As noted in the Companys
Trade Accounts Receivable policy in Note 2 to the
Consolidated Financial Statements, the Company takes into
account many factors when determining the appropriate allowance
balance. The allowance is established primarily to represent
estimated
21
Liquidity and Capital Resources
Cash provided by operating activities was
$81.0 million in 2003. The major driver was net income as
adjusted for non-cash items of $132.4 million, offset by
other working capital usages of $37.0 million. Net income
as adjusted for significant non-cash items includes net income
of $82.0 million adjusted for depreciation and amortization
of $39.0 million and deferred income taxes of
$19.6 million, less restructuring, litigation, and other
special items of $8.2 million (see Note 5, 15 and 16 to the
Consolidated Financial Statements). The working capital changes
in 2003 were driven by payments for broad-based employee
incentive compensation plans related to full year 2002
performance of $13.5 million, a $13.2 million increase
in inventory primarily related to growth in the Companys
optical business, the Companys settlement with Kodak
resulting in a net $7.2 million usage of cash (see
Note 3 to the Consolidated Financial Statements) and
payments related to restructuring programs of $5.3 million.
The establishment and growth in the Companys joint venture
with Moser Baer India, GDM, whose financial statements are
consolidated into the Companys financial statements,
increased total accounts receivable by $22.1 million and
accounts payable by $30.7 million. GDM is the
Companys 51 percent owned joint venture with MBI
created to sell optical products. The overall increase in
accounts receivable of $47.7 million (including GDM) was
nearly offset by an increase in accounts payable of
$42.9 million (including GDM), both primarily driven by
optical growth.
Cash provided by operating activities was
$120.8 million in 2002. The major driver was net income as
adjusted for non-cash items of $141.6 million, offset by
other working capital usages of $26.0 million. Net income
as adjusted for significant non-cash items includes net income
of $75.1 million adjusted for depreciation and amortization
of $38.7 million and deferred income taxes of
$38.2 million, less restructuring, litigation, and other
special items of $10.4 million (see Notes 5 and 16 to
the Consolidated Financial Statements). The cash used in 2002
related to other working capital changes was due largely to
payments for restructuring programs of $23.3 million
relating to both continuing and discontinued operations, cash
paid for income taxes of $11.7 million, deferred revenue
decrease of $11.7 million (due primarily to the sale or
closing of all DSS businesses) and payments related to employee
incentive compensation of $13.8 million, offset by a cash
inflow of $20.5 million due to a decrease in accounts
receivable and a cash inflow of $12.0 million due to an
increase in accounts payable.
Cash provided by operating activities was
$128.2 million in 2001. The major drivers were net income
as adjusted for non-cash items of $75.5 million and other
working capital decreases of $38.1 million. Net income as
adjusted for significant non-cash items includes net loss of
$1.7 million adjusted for depreciation and amortization of
$54.1 million and restructuring and other special items of
$56.5 million (see Note 5 to the Consolidated
Financial Statements), offset by deferred income taxes of
$33.4 million. The amortization amount in 2001 includes
$5.7 million of accelerated amortization (see Note 15
to the Consolidated Financial Statements). Cash provided in 2001
related to total working capital decreases was
$38.1 million. Cash flows were positively impacted by
changes in other current assets and other current liabilities,
offset by a cash outflow due to an increase in inventory.
Cash used in investing activities was
$129.6 million in 2003, as compared to $43.5 million
in 2002 and $0.2 million in 2001. Capital spending totaled
$75.1 million, $42.6 million, and $47.0 million
in 2003, 2002, and 2001, respectively (capital expenditures by
business segment are shown in Note 11 to the Consolidated
Financial Statements). The large increase in capital spending in
2003 compared to prior years was related to the installation of
a new tape coating line at the Companys Weatherford,
Oklahoma, plant site. The new tape coating line is expected to
be in operation by the end of the second quarter of 2004.
Investing activities in 2003 also included usages of
$20.0 million associated with the Exabyte brand
distribution agreement, $13.3 million of cash invested in
high quality interest bearing securities with maturities greater
than one year (and classified as non-current assets), and
$15.0 million associated with the purchase of certain
assets of EMTEC Magnetics GmbH. Investing activities in 2002
also included the proceeds from the sale of the North America
DSS business of $5.0 million while investing activities in
2001 included the proceeds from the sale of the color proofing
and color software business of $50.0 million.
22
Cash used in financing activities was
$16.3 million in 2003, as compared to $1.2 million in
2002 and $2.7 million in 2001. Cash usages in 2003 were
driven by share repurchases of $20.0 million, dividend
payments of $8.5 million and repayment of short-term debt
of $4.5 million, offset by cash inflows of
$12.2 million related to the exercise of stock options.
Cash usages in 2002 were driven by share repurchases of
$9.9 million and repayment of short-term debt of
$8.5 million, offset by cash inflows of $13.4 million
related to the exercise of stock options. Cash usages in 2001
were primarily driven by repayment of short-term debt of
$9.9 million, offset by cash inflows of $2.3 million
related to the exercise of stock options.
The Company had a Loan and Security Agreement
(the Loan Agreement) with a group of banks that provided
borrowing availability not to exceed $100 million. The Loan
Agreement was terminated on December 16, 2003, in
connection with entering into a new Credit Agreement described
below. No borrowings were outstanding under the Loan Agreement
as of December 31, 2002.
In December 2003, the Company entered into a new
Credit Agreement with a group of banks that expires
December 15, 2006. The Credit Agreement provides for
revolving credit, including letters of credit, with borrowing
availability of $100 million. The Credit Agreement provides
for, at the option of the Company, borrowings at either a
floating interest rate based on a defined prime rate or a fixed
rate related to the Eurodollar rate, plus a margin based on the
Companys consolidated leverage ratio. The margins over a
defined prime rate and Eurodollar rate range from zero to
0.4 percent and 1.1 to 1.6 percent, respectively.
Letter of credit fees are equal to the Eurodollar margins. A
facility fee ranging from 0.2 percent to 0.4 percent
per annum based on the Companys consolidated leverage
ratio is payable on the line. A utilization fee ranging from
zero to 0.25 percent per annum based on the Companys
consolidated leverage ratio is payable on the line. In
conjunction with the Credit Agreement, the Company has pledged
65 percent of the stock of certain of the Companys
foreign subsidiaries. Covenants include maintenance of a minimum
consolidated tangible net worth, a required EBITDA, and a
maximum leverage ratio. The Company does not expect these
covenants to restrict materially its ability to borrow funds in
the future. No borrowings were outstanding under the Credit
Agreement as of December 31, 2003 and the Company was in
compliance with all covenants under the Credit Agreement.
In addition, certain international subsidiaries
have arranged borrowings locally outside of the Credit Agreement
discussed above. As of December 31, 2003, there were no
borrowings outstanding under such arrangements. As of
December 31, 2003, the Company had no debt, while
Companys ratio of debt to total capital was
0.6 percent as of December 31, 2002.
In 1999, the Companys Board of Directors
authorized the repurchase of up to 10 million shares of the
Companys common stock. During 2003 and 2002, the Company
repurchased approximately 0.6 million shares and
0.4 million shares, respectively. A minimal number of
shares was repurchased during 2001. As of December 31,
2003, the Company had repurchased 7.8 million shares under
this authorization and held, in total, 7.5 million shares
of treasury stock acquired at an average price of $22.62 per
share.
The Company contributed $28.3 million to its
defined benefit pension plans during 2003. Based on this higher
level of funding as well as improved overall market performance
on plan assets, the Company ended 2003 with an aggregate
unfunded status of these plans of $25.5 million, down from
the $47.6 million aggregate unfunded status at the end of
2002. Based on the relationship of the unfunded accumulated
benefit obligations to amounts accrued in the financial
statements, the applicable accounting rules require the Company
to record a minimum pension liability adjustment. As a result of
plan asset returns and contributions, the Company decreased its
minimum pension liability adjustment to $26.0 million at
the end of 2003. The decrease in minimum pension liability is
reflected as an increase in shareholders equity of
$3.7 million, net of tax. The Company expects pension
contributions to be in the range of $15 million to
$20 million in 2004, depending on asset performance and
interest rates. The Company estimates that it has no minimum
pension contribution required by statute for 2004.
The Companys liquidity needs in 2004
include: capital expenditures targeted to be approximately
$45 million; tax payments of approximately
$24 million; pension funding of approximately $15 to
$20 million; lease payments of approximately
$11 million (see Note 9 to the Consolidated Financial
Statements); cash payments related to restructuring of
approximately $2 million; and any amounts associated with
the repurchase of common stock under the authorization discussed
above or any dividends that may be paid upon approval of the
Board of Directors. The Company expects that
23
Off-Balance Sheet Arrangements
Other than the lease commitments discussed in
Note 9 to the Consolidated Financial Statements, the Company is
not using off-balance sheet arrangements, including special
purpose entities, nor does it have any contractual obligations
or commercial commitments with terms greater than one year, that
would significantly impact its liquidity.
Summary of Contractual Obligations
Critical Accounting Policies and
Estimates
The Companys discussion and analysis of its
financial condition and results of operations are based upon the
Companys consolidated financial statements, which have
been prepared in accordance with accounting principles generally
accepted in the United States of America. The preparation of
these financial statements requires the Company to make
estimates and judgements that affect the reported amounts of
assets, liabilities, revenues, and expenses, and related
disclosure of contingent assets and liabilities. On an on-going
basis, the Company evaluates its estimates to ensure they are
consistent with historical experience and the various
assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making
judgements about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or
conditions and could materially impact the Companys
results of operations.
The Company believes the following critical
accounting policies are affected by significant judgements and
estimates used in the preparation of its consolidated financial
statements:
Income Tax Accruals and Valuation
Allowances
Significant
management judgement is required in determining the provision
for income taxes, deferred tax assets and liabilities, and any
valuation allowance recorded against net deferred tax assets.
The Company operates in multiple tax jurisdictions both in the
U.S. and outside the U.S. Accordingly, the Company must
determine the appropriate allocation of income to each of these
jurisdictions. The determination requires the Company to make
several estimates and assumptions. Tax audits associated with
the allocation of this income, and other complex issues, may
require an extended period of time to resolve and could result
in adjustments to the Companys income tax balances that
are material to its consolidated financial position and results
of operations.
In conjunction with its financial reporting, the
Company assesses both tax reserves and recoverability of its
deferred tax assets, and provides reserves for potential tax
audit adjustments and valuation allowances to offset deferred
tax assets, as needed. Due to uncertainties related to the
Companys ability to utilize some portion of the deferred
tax assets, a valuation allowance of $18.2 million has been
recorded as of December 31, 2003, resulting in a net
deferred tax asset of $74.6 million. The future
recoverability of the Companys deferred tax assets is
primarily dependent upon the sufficient generation of future
taxable income. The Company believes that it will generate
future taxable income to recover the recorded net deferred tax
assets. In the event that actual results differ from these
estimates, the Company may need to adjust, upwards or downwards,
the valuation allowance.
24
Litigation
Managements current estimated
range of liability related to pending litigation is based on
claims for which the Company can estimate the amount or range of
loss. Based upon information presently available, management
believes that accruals for these claims are adequate. Due to
uncertainties related to both the amount and range of loss on
the remaining pending litigation, the Company is unable to make
a reasonable estimate of the liability that could result from an
unfavorable outcome. While these matters could materially affect
operating results in future periods depending on the final
resolution, it is managements opinion that after final
disposition, any monetary liability to the Company beyond that
provided in the Consolidated Balance Sheet as of
December 31, 2003 would not be material to the
Companys financial position. As additional information
becomes available, potential liability related to pending
litigation will be assessed and estimates will be revised as
necessary. The Companys most significant litigation matter
relates to Jazz Photo, which is described in Item 3 to this
Form 10-K and Note 16 to the Consolidated Financial
Statements.
Excess Inventory and Obsolescence
Accruals
The Company
writes down its inventory for estimated excess and obsolescence
to the estimated net realizable value based upon assumptions
about future demand and market conditions. If actual market
conditions are less favorable than those projected by
management, adjustments to these reserves may be required.
Rebates
The Company maintains an accrual for
customer rebates which totaled $37.6 million as of
December 31, 2003. This accrual requires a program by
program estimation of outcomes based on a variety of factors
including customer unit sell-through volumes and end user
redemption rates. In the event that actual volumes and
redemption rates differ from the estimates used in the accrual
calculation, adjustments to the accrual, upward or downward, may
be necessary.
Other Accrued Liabilities
The Company also maintains other
accrued liabilities, including uninsured claims and pensions.
These accruals are based on a variety of factors including past
experience and various actuarial assumptions and, in many cases,
require estimates of events not yet reported to the Company. If
future experience differs from these estimates, operating
results in future periods would be impacted.
Recently Issued Accounting Standards
In 2003, the Financial Accounting Standards Board
(FASB) issued SFAS No. 132,
Employers Disclosures
about Pensions and Other Postretirement Benefits (revised
2003)
. This revised statement provides required disclosures
for pensions and other postretirement benefit plans. The Company
adopted the disclosure requirements of this statement as of
December 31, 2003.
In January 2003, the FASB issued Interpretation
No. (FIN) 46,
Consolidation of Variable Interest
Entities
. FIN 46 addresses the requirements for business
enterprises to consolidate related entities, for which they do
not have controlling interests through voting or other rights,
if they are determined to be the primary beneficiary as a result
of variable economic interests. FIN 46 provides guidance for
determining the primary beneficiary for entities with multiple
economic interests. FIN 46 is effective in 2003 for interests
obtained after January 31, 2003. Beginning in the first
quarter of fiscal year 2004, FIN 46, as amended, is applied to
interests in variable interest entities acquired prior to
February 1, 2003. The Company believes the adoption of FIN
46 will not have a material impact on the Companys
consolidated results of operations, financial position, or cash
flows.
Forward-Looking Statements
The Company and its representatives may from time
to time make written or oral forward-looking statements with
respect to future goals of the Company, including statements
contained in this report, the Companys other filings with
the Securities and Exchange Commission and in the Companys
reports to shareholders. The Company wishes to caution investors
not to place undue reliance on any such forward looking
statements, which speak only as of the date made.
Based on estimates from industry analysts, the
removable media industry is expected to grow between five and
ten percent over the next several years. However, in any given
period the rate of growth may fall outside that range
25
Certain information contained in this report
which does not relate to historical financial information,
including the 2004 targeted projections, may be deemed to
constitute forward-looking statements. The words or phrases
is targeting, will likely result,
are expected to, will continue, is
anticipated, estimate, project,
believe or similar expressions identify
forward looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Such
statements are subject to certain risks and uncertainties, which
could cause actual results to differ materially from historical
results, and those presently anticipated or projected.
Risk Factors
Due to significant risks and uncertainties which
exist even in the most stable economic environment, the Company
cannot predict, with certainty, the operating results for future
periods. Among the factors that could cause the Companys
actual results in the future to differ materially from any
opinions or statements expressed with respect to future periods
are the following:
Competitive Industry Conditions
The Company operates in a highly
competitive environment. The Companys competitors are both
larger and smaller than the Company in terms of resources and
market share. The marketplaces in which the Company operates are
generally characterized by rapid technological change, frequent
new product introductions, a variety of distribution channels,
relatively large and aggressive marketing efforts, and
aggressive pricing practices which result in consistent price
erosion.
In these highly competitive markets, the
Companys success will depend to a significant extent on
its ability to continue to develop and introduce differentiated
and innovative products, services and customer solutions cost
effectively and on a timely basis. The success of the
Companys offerings is dependent on several factors
including its ability to develop relationships with distributors
and OEMs, competitive technology capabilities, differentiation
from competitive offerings, the timing of new product
introductions, effectiveness of marketing programs, and low
manufacturing and supply chain costs. Although the Company
believes that it can take the necessary steps to meet the
competitive challenges of these marketplaces, no assurance can
be given with regard to the Companys ability to take these
steps, the actions of competitors, some of which will have
greater resources than the Company, or the pace of technological
changes.
New Products and Services
The Companys competitive
position and operating results are dependent upon its ability to
successfully develop, manufacture, and market innovative new
products and services. There can be no assurance that the
Company will be able to continue to introduce new products or
maintain competitive technology competencies, that the markets
will be receptive to its new products, that the Companys
marketing programs will be successful, or that the
Companys competitors will not introduce more advanced
products ahead of the Company. The Company is also dependent in
some cases upon various third parties, such as certain drive
manufacturers, for new product introductions, the timing of
which is out of the Companys control. In addition, there
can be no assurance that the Company will maintain existing or
create new OEM relationships, the lack of which could cause a
material adverse impact on its business and financial results.
Also, while the Company currently has access to significant
proprietary technologies through internal development and
licensing arrangements with third parties, there can be no
assurance that it will continue to have access to new
competitive technologies that may be required to introduce new
products. In
26
Manufacturing and Product Quality
The Companys success depends
upon the ability to manufacture and deliver products to our
customers at acceptable quality, volume and cost levels. The
manufacture of the Companys products involves complex and
precise processes requiring production in highly controlled and
clean environments. If not managed effectively, changes in the
Companys manufacturing processes could significantly hurt
the Companys ability to meet our customers product
volume and quality needs at acceptable costs. Even within a
cleanroom environment, minor equipment malfunctions in any one
of the many manufacturing process steps could halt production
and lead to additional costs. In some cases, existing
manufacturing techniques may not achieve the Companys
volume and cost targets. In these cases, new manufacturing
processes and techniques will need to be developed to achieve
the targets and lower manufacturing costs.
Availability and Pricing of Purchased
Products, Raw Materials and Energy
The Company makes significant
purchases of finished products, raw materials, and energy from
many domestic and foreign sources. While the Company is
presently able to obtain sufficient purchased products, raw
materials and energy to meet its needs, no assurances can be
given that such availability at acceptable pricing levels will
continue. Some critical raw materials have a limited number of
suppliers, as discussed in Raw Material and Other Purchased
Products in Item 1. If the Company is unable to continue to
obtain critical purchased products, raw materials, energy, the
Company may incur a material adverse impact on its business and
financial results.
Moser Baer Relationship
In 2003, the Company entered into a
series of agreements with Moser Baer India Ltd. (MBI) that
established MBI as a significant, non-exclusive source for
Imations optical media products and created a joint
venture marketing company for optical media products, Global
Data Media (GDM). Imation holds a 51 percent interest in
GDM and MBI holds a 49 percent interest. As the controlling
shareholder, Imation consolidates the results of the joint
venture in its financial statements. The Companys current
outlook is dependant, among other things, upon its ability to
achieve the expected benefits from the MBI relationships,
including the GDM joint venture.
International Operations and Foreign
Currency
The Company sells
products in more than 100 countries outside the United States.
International operations, which comprised approximately
54 percent of the Companys revenues in 2003, may be
subject to various risks which are not present in domestic
operations, including political instability, the possibility of
expropriation, restrictions on royalties, dividends and currency
remittances, requirements for governmental approvals for new
ventures, and local participation in operations such as local
equity ownership and workers councils. In addition, the
Companys business and financial results are affected by
fluctuations in world financial markets, including foreign
currency exchange rates. See Item 7A. Quantitative and
Qualitative Disclosures About Market Risk for additional
information on foreign currency.
Intellectual Property Rights
The Companys success depends in
part on its ability to obtain and protect its intellectual
property rights and to defend itself against intellectual
property infringement claims of others. If the Company is not
successful in defending itself against claims that may arise
from time-to-time alleging infringement of the intellectual
property rights of others, the Company could incur substantial
costs in implementing remediation actions, such as redesigning
its products or processes or acquiring license rights. Such
costs or the disruption to the Companys operations
occasioned by the need to take such actions could have a
material adverse effect on the Company. In addition, the Company
utilizes valuable non-patented technical know-how and trade
secrets in its product development and manufacturing operations.
Although the Company utilizes confidentiality agreements and
other measures to protect such proprietary information, there
can be no assurance that these agreements will not be breached
or that competitors of the Company will not acquire the
information as a result of such breaches or through independent
development. The Company has pursued a policy of enforcing its
intellectual property rights against others who may infringe
those rights. In connection with such enforcement actions, the
Company may incur significant costs for which the Company may or
may not be reimbursed by the alleged infringer.
Retention of Key Talent and
Employees
The Company
operates in a highly competitive market for key talent and
employees. While the Company is presently able to retain key
talent and employees, no assurances can be given that
27
Fluctuations in the Companys Stock
Price
The Companys
stock price may be subject to significant volatility. If revenue
or earnings in any quarter fail to meet the investment
communitys expectations, there could be an immediate
impact on the Companys stock price. The stock price may
also be affected by broader market trends and world events
unrelated to the Companys performance.
Litigation
The Company is the subject of various pending or threatened
legal actions in the ordinary course of its business. All such
matters are subject to many uncertainties and outcomes that are
not predictable with assurance. Consequently, as of
December 31, 2003, the Company is unable to ascertain the
ultimate aggregate amount of any monetary liability or financial
impact that may be incurred by the Company with respect to these
matters.
The Company is exposed to various market risks,
including volatility in foreign currency exchange rates
primarily related to the Euro and Japanese Yen, interest rates,
and credit risk. Foreign currency exposures primarily relate to
the sale of products to foreign customers, purchases from
foreign suppliers, and acquisition of raw materials from both
domestic and foreign suppliers.
The Company sells products in over 100 countries
outside the U.S. International operations, which comprised
approximately 54 percent of the Companys revenues in
2003, may be subject to various risks which are not present in
domestic operations, including political instability, the
possibility of expropriation, restrictions on royalties,
dividends and currency remittances, requirements for
governmental approvals for new ventures and local participation
in operations such as local equity ownership and workers
councils.
The Companys foreign currency hedging
policy attempts to manage some of the foreign currency risks
over near term periods; however, these risk management
activities cannot assure that these programs will offset more
than a portion of the adverse financial impact resulting from
unfavorable movements in foreign exchange rates or that medium
and longer term effects of exchange rates will not be
significant.
The Company may, from time to time, utilize
derivative financial instruments, including forward exchange
contracts, options and swap agreements to manage certain of
these exposures when it is considered practical to do so in
accordance with established policies and procedures. Factors
that could impact the effectiveness of the Companys
hedging include accuracy of revenue forecasts, volatility of the
currency markets, and availability of hedging instruments.
Although the Company attempts to utilize transaction hedging to
manage the impact of changes in currency exchange rates, when
the U.S. dollar sustains a strengthening position against
currencies in which the Company sells products or a weakening
exchange rate against currencies in which the Company incurs
costs, the Companys revenues or costs would be adversely
impacted. The Company does not hold or issue derivative
financial instruments for trading or speculative purposes and is
not a party to leveraged derivative transactions.
As of December 31, 2003, the Company had
$182.6 million notional amount of foreign currency forward
and option contracts of which $51.4 million hedged recorded
balance sheet exposures. This compares to $190.1 million
notional amount of foreign currency forward and option contracts
as of December 31, 2002, of which $79.2 million hedged
recorded balance sheet exposures. A hypothetical adverse change
of 10 percent in year-end foreign currency exchange rates
would reduce the fair value of foreign currency contracts
outstanding as of December 31, 2003 by $21.5 million.
The Company is also exposed to interest rate risk
as changes in interest rates affect interest income earned on
its cash investments. A hypothetical 10 percent adverse movement
in interest rates applied to cash investments would not have a
material adverse effect on the Companys financial
condition, results of operations, or cash flows.
The Company is exposed to credit risk associated
with cash investments and foreign currency derivatives. The
Company does not believe that its cash investments and foreign
currency derivatives present significant credit risks because
the counterparties to the instruments consist of major financial
institutions and the Company monitors and manages the notional
amount of contracts entered into with any one counterparty in
accordance with its internal policies.
28
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
Imation Corp.:
In our opinion, the accompanying consolidated
balance sheets and the related consolidated statements of
operations, shareholders equity and comprehensive income
and cash flows present fairly, in all material respects, the
financial position of Imation Corp. and its subsidiaries as of
December 31, 2003 and 2002, and the results of their
operations and their cash flows for each of the three years in
the period ended December 31, 2003, in conformity with
accounting principles generally accepted in the United States of
America. These financial statements are the responsibility of
the Companys management; our responsibility is to express
an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
Minneapolis, Minnesota
29
IMATION CORP.
CONSOLIDATED STATEMENTS OF
OPERATIONS
The accompanying notes to consolidated financial
statements are an integral part of these statements.
30
IMATION CORP.
CONSOLIDATED BALANCE SHEETS
The accompanying notes to consolidated financial
statements are an integral part of these statements.
31
IMATION CORP.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS
EQUITY AND COMPREHENSIVE INCOME
The accompanying notes to consolidated financial
statements are an integral part of these statements.
32
IMATION CORP.
CONSOLIDATED STATEMENTS OF CASH
FLOWS
The accompanying notes to consolidated financial
statements are an integral part of these statements.
33
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Note 1 Background and Basis
of Presentation
Imation Corp. (Imation or the Company), a
Delaware corporation, was formed in 1996 as a result of the
spin-off of substantially all of the businesses which comprised
the data storage and imaging systems groups of 3M Company (3M).
The Company develops, manufactures, sources and markets magnetic
and optical removable data storage products to information
technology systems users. Through divestitures over the past
five years, the Company has exited substantially all of the
non-data storage businesses from the spin-off (see Note 3) such
that the data storage business constitutes approximately 95
percent of the Companys net revenues for the year ended
December 31, 2003.
Until the sale of the color proofing and color
software business effective December 31, 2001 (see
Note 3), the Company was an active participant in the
graphic arts industry as a manufacturer and marketer of products
and services for the capture, enhancement, management, and
transmission of color images. The Company also sold its North
America Digital Solutions and Services (DSS) business on
August 30, 2002 and completed the exit of this business
outside of North America by the third quarter of 2002 (see
Note 3). This business provided call center, help desk
support, spare parts logistics, and field service to end-user
customers through the Companys relationships with Original
Equipment Manufacturers (OEMs) of wide-format color and imaging
equipment; provided repair service to large OEMs of wide-format
color and imaging equipment; and was a systems integrator for
customers with wide-format engineering document imaging systems
migrating from analog to digital formats.
On August 30, 2002, the Company closed on
the sale of its North America DSS business. These operations are
presented in the Companys Consolidated Statements of
Operations as discontinued operations for all periods presented.
Also in 2002, the Company completed its process to close or sell
all of its DSS businesses outside of North America. The results
of operations for the DSS businesses outside of North America
are included in continuing operations within the DSS business
segment for all periods presented.
On December 31, 2001, the Company closed on
the sale of its worldwide color proofing and color software
business. The results of operations for this business are
included in continuing operations within the Color Technologies
business segment for all periods presented. The balance sheet as
of December 31, 2001 excludes all assets and liabilities
which were included in the sale.
Unless otherwise noted, disclosures of revenues
and expenses in the Notes to Consolidated Financial Statements
refer to continuing operations only.
Note 2 Summary of Significant
Accounting Policies
Consolidation.
The
consolidated financial statements include the accounts of the
Company and its majority-owned subsidiaries. All significant
inter-company transactions have been eliminated. The Company has
a 51 percent ownership interest in its Global Data Media
subsidiary that was formed in 2003, as well as a 60 percent
ownership interest in its subsidiary in Japan. The minority
interest in the income of these subsidiaries is not material for
the periods presented.
Use of Estimates.
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimates.
Foreign Currency.
Local currencies are generally considered the functional
currencies outside the U.S., except for subsidiaries located in
highly inflationary economies, where the U.S. dollar is
considered the functional currency. Generally, income and
expense items are translated at average rates of exchange
prevailing during the year. For operations in local currency
environments, assets and liabilities are translated at year-end
exchange rates with cumulative translation adjustments included
as a component of shareholders equity. Foreign currency
transaction gains
34
and losses are included in the results of
operations. For operations in which the U.S. dollar is
considered the functional currency, certain financial statement
amounts are remeasured at historical exchange rates, with all
other assets and liabilities translated at year-end exchange
rates. These remeasured adjustments are reflected in the results
of operations. These net foreign currency exchange impacts
included in results of operations were not material in all
periods presented.
Concentrations of Credit
Risk.
The Company sells a wide range
of products and services to a diversified base of customers
around the world and performs ongoing credit evaluations of its
customers financial condition, and therefore believes
there is no material concentration of credit risk. The Company
had one customer that represented approximately 11 percent
of total net revenues in 2002, all of which were included in of
the Data Storage and Information Management segment. No single
customer represented more than 10 percent of total net
revenues in 2003 or 2001.
Cash Equivalents.
Cash equivalents consist of temporary investments purchased with
original maturities of three months or less.
Trade Accounts
Receivables.
Trade accounts
receivables are initially recorded at fair value upon the sale
of goods or services to customers. They are stated net of
allowances, which primarily represent estimated amounts for
expected customer returns, allowances and deductions for a
variety of claims such as discounts, quality and pricing, or the
inability of certain customers to make the required payments.
When determining the allowances, the Company takes several
factors into consideration, including prior history of accounts
receivable credit activity and write-offs, the overall
composition of accounts receivable aging, the types of
customers, and its day-to-day knowledge of specific customers.
Changes in the allowances are recorded as reductions of net
revenues or bad debt expense (included in selling, general and
administrative expense), as appropriate, in the Consolidated
Statements of Operations.
Inventories.
Inventories are stated at the lower of cost or market, with cost
generally determined on a first-in, first-out basis.
Investments.
The
Company invests in interest bearing securities with maturities
of greater than one year, which are accounted for in accordance
with Statement of Financial Accounting Standards
(SFAS) No. 115,
Accounting for Certain Investments
in Debt and Equity Securities
. The fair value of such
investments, $13.3 million as of December 31, 2003, is
included in other assets on the Consolidated Balance Sheets. The
Company also has other investments, which are accounted for on
the cost basis.
Derivative Financial
Instruments.
The Company follows
SFAS No. 133,
Accounting for Derivative Instruments
and Hedging Activities
. SFAS No. 133, as amended,
requires that all derivatives, including foreign currency
exchange contracts, be recognized on the balance sheet at fair
value. Derivatives that are not hedges must be recorded at fair
value through operations. If a derivative is a hedge, depending
on the nature of the hedge, changes in the fair value of the
derivative are either offset against the change in fair value of
the underlying assets or liabilities through operations or
recognized in accumulated other comprehensive income (loss) in
shareholders equity until the underlying hedged item is
recognized in operations. These gains and losses generally are
recognized as an adjustment to cost of goods sold for
inventory-related hedge transactions, or as adjustments to
foreign currency transaction gains/losses included in
non-operating expenses for foreign denominated payables- and
receivables-related hedge transactions. Cash flows attributable
to these financial instruments are included with cash flows of
the associated hedged items. The ineffective portion of a
derivatives change in fair value is to be immediately
recognized in operations.
Other Financial
Instruments.
The Companys other
financial instruments consist principally of cash and
equivalents, certain investments, and short-term receivables and
payables, for which their current carrying amounts approximate
fair market value.
Property, Plant and
Equipment.
Property, plant and
equipment are recorded at cost. Maintenance and repairs are
expensed as incurred. The cost and related accumulated
depreciation of assets sold or otherwise disposed of are removed
from the related accounts and resulting gains or losses are
reflected in the results of operations.
35
Plant and equipment are generally depreciated on
a straight-line basis over their estimated useful lives. The
estimated depreciable lives range from 15 to 40 years for
buildings and three to 15 years for machinery and
equipment. Leasehold improvements are amortized over the lesser
of the remaining life of the lease or the estimated useful life
of the improvement.
Intangible Assets.
Intangible assets consist primarily of capitalized software and
certain purchased distribution and intellectual property rights.
The Company capitalizes certain external and internal costs
related to the design and implementation of internally developed
software, along with related interest. Intangible assets are
amortized over their estimated useful lives, which generally
range from three to five years. The carrying amount of
intangible assets is periodically reviewed to assess the
remaining useful lives and the recoverability based on
undiscounted expected future cash flows.
Long-Lived Assets.
The Company periodically reviews its long-lived assets,
including property, plant and equipment and intangible assets,
in order to assess recoverability based on projected income and
related cash flows on an undiscounted basis. Should the sum of
the related expected future net cash flows be less than the
carrying value, an impairment loss would be recognized. An
impairment loss would be measured as the amount by which the
carrying value of the asset exceeds the fair value of the asset.
Recent Accounting
Pronouncements.
In 2003, the Financial
Accounting Standards Board (FASB) issued SFAS No. 132,
Employers Disclosures about Pensions and Other
Postretirement Benefits (revised 2003)
. This revised
statement provides required disclosures for pensions and other
postretirement benefit plans. The Company adopted the disclosure
requirements of this statement as of December 31, 2003.
In January 2003, the FASB issued Interpretation
No. (FIN) 46,
Consolidation of Variable Interest
Entities
. FIN 46 addresses the requirements for
business enterprises to consolidate related entities, for which
they do not have controlling interests through voting or other
rights, if they are determined to be the primary beneficiary as
a result of variable economic interests. FIN 46 provides
guidance for determining the primary beneficiary for entities
with multiple economic interests. FIN 46 is effective in
2003 for interests obtained after January 31, 2003.
Beginning in the first quarter of fiscal year 2004, FIN 46,
as amended, is applied to interests in variable interest
entities acquired prior to February 1, 2003. The Company
believes the adoption of FIN 46 will not have a material
impact on the Companys consolidated results of operations,
financial position, or cash flows.
Revenue Recognition.
Revenue from product sales is recognized when the risks and
rewards of ownership pass, which is primarily upon delivery of
goods to customers. Revenue from services is recognized upon
performance. Revenue from service contracts is deferred and
recognized over the life of the contracts as service is
performed.
Research and Development
Costs.
Research and development costs
are charged to expense as incurred.
Advertising Costs.
Advertising costs are charged to expense as incurred and totaled
approximately $24 million, $25 million, and
$28 million in 2003, 2002, and 2001, respectively.
Income Taxes.
The
Company accounts for income taxes under the provisions of SFAS
No. 109,
Accounting for Income Taxes.
Under the
asset and liability method prescribed in SFAS No. 109,
deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases.
Treasury Stock.
The
Companys repurchases of shares of common stock are
recorded as treasury stock and are presented as a reduction of
shareholders equity. When treasury shares are reissued,
the Company uses a last-in, first-out method and the excess of
repurchase cost over reissuance price is treated as an
adjustment to retained earnings (accumulated deficit).
Stock-Based
Compensation.
The Company accounts for
stock-based compensation using the intrinsic value approach
under Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees
. Accordingly,
compensation cost for employee stock options is measured as the
excess, if any, of the quoted market price of the Companys
common stock at the date of the grant over the amount an
employee must pay to acquire the stock.
36
The Company has adopted the disclosure only
provisions of SFAS No. 123,
Accounting for Stock-Based
Compensation
. Accordingly, no compensation expense has been
recognized for the stock option plans as all options granted in
2003, 2002, and 2001 had no intrinsic value at the time of
grant. The table below illustrates the effect on net income
(loss) and earnings (loss) per share if the fair value
of options granted had been recognized as compensation expense
on a straight-line basis over the vesting periods in accordance
with the provisions of SFAS No. 123. See Note 14 for
additional information regarding Employee Stock Plans.
Comprehensive
Income.
Comprehensive income
(loss) for the Company includes net income (loss), the
effects of currency translation, unrealized gains and losses on
available-for-sale securities, unrealized gains and losses on
cash flow hedges, and minimum pension liability adjustments.
Comprehensive income (loss) for all periods presented is
included in the Consolidated Statements of Shareholders
Equity and Comprehensive Income.
Earnings Per Share.
Basic earnings per share is calculated using the weighted
average number of shares outstanding during the period, adjusted
for Employee Stock Ownership Plan (ESOP) shares not
allocated to employee accounts. Under the applicable accounting
rules, unallocated shares held in the Companys ESOP trust,
which was established in 1996 as a way of funding certain
employee retirement savings benefits, are not considered
outstanding for purposes of calculating earnings per share.
Diluted earnings per share is computed on the basis of the
weighted average basic shares outstanding plus the dilutive
effect of outstanding stock options using the treasury
stock method. The following table sets forth the
computation of the weighted average basic and diluted shares
outstanding:
Options to purchase 0.1 million shares and
0.5 million shares of the Companys common stock were
outstanding as of December 31, 2003 and December 31,
2002, respectively, that were not considered in the computation
of potential common shares because the effect of the options
would be antidilutive. For 2001, options to purchase
4.6 million shares of the Companys common stock were
not considered in the calculation of diluted earnings per share
because the Company had a net loss and to do so would have been
antidilutive.
37
Note 3 Divestitures
North America DSS
Business:
On August 30, 2002, the
Company consummated the sale of its North America DSS business
to DecisionOne Corporation (DecisionOne). These operations are
presented in the Companys Consolidated Statements of
Operations as discontinued operations. Under the terms of the
agreement, DecisionOne paid the Company $5.0 million in
cash. This amount is shown as proceeds from sale of businesses
in the Consolidated Statement of Cash Flows for the year ended
December 31, 2002. In the third quarter of 2002, the
Company recognized a pre-tax gain of $2.6 million, or
$1.6 million after-tax, on the disposal of the discontinued
business. In addition, the terms of the sale include the
potential for additional future payments to the Company in 2004,
of up to $5.0 million, based upon revenue targets achieved
by DecisionOne associated with the DSS business. Any additional
proceeds will be recorded by the Company as a component of
income from discontinued operations when and if earned.
Medical Imaging and Photo Color Systems
Businesses:
In 1998, the Company sold
its worldwide Medical Imaging Systems business (the Medical
Imaging Sale) to Eastman Kodak Company (Kodak). As noted in the
Companys previously issued financial statements, excluded
from the Medical Imaging Sale was the Companys medical
imaging/photo color manufacturing facility in Ferrania, Italy
(the Ferrania Facility), at which certain x-ray and wet laser
medical imaging products and photographic film were
manufactured. In exchange for retaining the Ferrania Facility
and pursuant to certain conditions, Kodak agreed to pay the
Company up to $25.0 million at such time as it was sold.
In 1999, the Company sold its worldwide Photo
Color Systems business, together with the Ferrania Facility and
certain other associated assets and businesses, to Schroder
Ventures, through Schroder Ventures wholly owned
affiliate, Ferrania Lux, S.A.R.L.
Kodak had challenged the Companys claim for
the full $25.0 million as well as claims for other amounts
which the Company believed were due from Kodak in connection
with the Medical Imaging Sale. The Company had retained cash,
which it collected on behalf of Kodak, in an amount
approximately equal to these disputed items.
During the second quarter of 2003, the Company
resolved these disputed items with Kodak on terms more favorable
than anticipated, resulting in a pre-tax gain of
$1.8 million in discontinued operations, or
$1.1 million after-tax. The settlement resulted in a net
$7.2 million reduction in the Companys cash and
equivalents balance, reflecting a $17.2 million cash
payment to Kodak, $10.0 million of which was offset by
previously recorded restricted cash in other current assets. As
a result of the settlement, the Companys other current
assets were reduced by $32.0 million and other current
liabilities were reduced by $41.0 million. There were no
other impacts to the Companys financial statements
resulting from the settlement of the Kodak dispute.
Other Discontinued Operations
Activity:
In the fourth quarter of
2003, the Company recorded a gain of $0.4 million, net of
income taxes of $0.3 million, resulting from an adjustment
of estimated costs associated with discontinued operations
described above. In 2002, the Company recorded a charge of
$2.7 million, net of income taxes of $1.6 million,
resulting from the adjustment of estimated costs associated with
discontinued operations described above. In 2003, the Company
recorded expenses of $1.3 million, net of taxes of
$0.7 million, related to incurred litigation costs
associated with the Photo Color Systems business. These expenses
were primarily related to the Companys defense of its
ongoing legal dispute with Jazz Photo Corp. (see Note 16).
38
The results of discontinued operations for the
years ended December 31, 2003, 2002, and 2001 were as
follows:
DSS Business Outside of North
America:
In 2002, the Company
completed the process of closing or selling its DSS businesses
outside of North America as part of the Companys 2001
restructuring program. These activities outside of North America
did not have a material impact on cash flows or net income after
consideration of costs accrued for as part of the Companys
2001 restructuring program.
Color Proofing and Color Software Business:
On December 31, 2001, the Company
consummated the sale of its worldwide color proofing and color
software business to Kodak Polychrome Graphics LLC and Kodak
Polychrome Graphics Company LTD (collectively referred to as
KPG). KPG acquired substantially all the assets and assumed
substantially all the liabilities associated with this business.
Under the terms of the agreement, KPG paid the Company
$50 million in cash on December 31, 2001, which is
shown as proceeds from sale of businesses in the Consolidated
Statement of Cash Flows for the year ended December 31,
2001. In addition, KPG was required to pay the Company
approximately $20 million over a two year period for
transition services. The Company recorded a pre-tax gain of
$1.9 million ($1.3 million after taxes), net of
related costs, in restructuring and other in the Consolidated
Statement of Operations for the year ended December 31,
2001. During the fourth quarter of 2003, the Company settled all
claims with KPG, which consisted primarily of a dispute over the
amount of KPGs minimum transition services obligation owed
to the Company over and above the amount already reimbursed for
services provided. As a result of the settlement, the Company
recorded a pre-tax gain of $11.1 million in restructuring
and other in the Consolidated Statement of Operations for the
year ended December 31, 2003.
In connection with the sales of the Medical
Imaging Systems, Photo Color Systems, color proofing and color
software, and North America DSS businesses, the Company received
reimbursement for certain transition services and distribution
agreements that the Company had agreed to provide to the
respective purchasers of these businesses. Reimbursements for
transition services provided by the Company are presented as
reductions of general and administrative expenses in the
Consolidated Statements of Operations. These transition services
substantially ended in January 2003. Reimbursements for these
transition services were $0.8 million in 2003,
$8.4 million in 2002, and $1.6 million in 2001.
39
Note 4 Supplemental Balance
Sheet Information
40
Note 5 Restructuring and
Other
In the fourth quarter of 2003, the Company
recorded a $0.7 million benefit for restructuring,
reflecting adjustments to previously recorded restructuring
reserves of $0.2 million (related to the 2002 restructuring
program) and $0.5 million (related to the 2001
restructuring program). The adjustments were made, in accordance
with applicable accounting standards, as part of the
Companys regular practice of reviewing its recorded
restructuring reserves quarterly and making adjustments as
necessary to reflect managements best estimate of costs
remaining for each restructuring program. The adjustments were
made to reflect lower than expected severance costs, primarily
in Europe. Each of the restructuring programs is discussed in
more detail below.
In 2002, the Company recorded a $4.0 million
net benefit for restructuring. Adjustments to previously
recorded restructuring reserves of $4.1 million (related to
the 2001 restructuring program) and $1.7 million (related
to the 2000 restructuring program) were offset by a new charge
of $1.8 million. Part of the adjustment to the 2001
restructuring program was related to the Companys DSS
businesses in Europe and was primarily due to lower than
estimated employee separation costs as well as recognition of
pension-related benefits that can only be recorded under the
applicable accounting standards when the employees are separated.
The $1.8 million charge recorded in 2002
relates to the realignment of the Storage Professional Services
organization within the Companys Data Storage and
Information Management (DS&IM) business segment. The charges
included asset impairments, exit costs and $0.4 million for
employee separation programs related to headcount reduction of
approximately 15 employees. During 2003 and 2002, the Company
made cash payments of $0.5 million and $0.3 million,
respectively, related to this restructuring program and reduced
its headcount by a total of 15. This program was completed in
the fourth quarter of 2003.
In 2001, the Company recorded $48.0 million
of restructuring and other charges to reduce its administrative
structure, improve the profitability of the remaining, non-data
storage businesses, and rationalize its data storage
manufacturing. The charges include $25.0 million for
employee separation programs related to a headcount reduction of
approximately 430 employees related to continuing operations, of
which approximately 45 percent related to administrative
structure, 50 percent related to the non-data storage
businesses, and the remainder related to the data storage
businesses. The Company also recorded a $0.6 million
special charge reflecting inventory write-downs in cost of goods
sold. During 2003, 2002 and 2001, the Company made cash payments
of $4.8 million, $19.7 million and $1.7 million,
respectively, related to these restructuring activities. The
Company expects to make payments of $2.1 million related
primarily to lease payments of exited facilities and employee
severance, with substantially all payments being made in 2004,
to complete this restructuring program. Since the inception of
this restructuring program through December 31, 2003, the
Company has reduced its headcount related to continuing
operations by approximately 425, which includes both voluntary
and involuntary employee reductions.
The following tables represent the activity
related to the 2002 and 2001 restructuring programs, adjusted to
exclude those activities specifically related to discontinued
operations:
41
During 2002 and 2001, the Company made cash
payments of $2.3 million and $13.0 million,
respectively, related to the 2000, 1998, and 1997 restructuring
programs, all of which were completed in 2002 or 2001. Through
these restructuring programs, the Company reduced its headcount
related to continuing operations by approximately 2,500, which
included both voluntary and involuntary employee reductions.
Note 6 Income Taxes
The components of income (loss) from
continuing operations before income taxes are as follows:
The income tax provision (benefit) from
continuing operations is as follows:
42
The components of net deferred tax assets and
(liabilities) are as follows:
The valuation allowance was provided to account
for uncertainties regarding the recoverability of certain
foreign net operating loss carryforwards and state tax credit
carryforwards. Of the aggregate net operating loss
carryforwards, $23.6 million expire in 2004,
$2.2 million expire in 2006, $0.3 million expire in
2007, $0.2 million expire in 2008, and $15.3 million
may be carried forward indefinitely. Certain foreign net
operating loss carryforwards are subject to adjustment by
foreign tax authorities. The foreign tax credit carryforwards of
$0.6 million expire by 2005, the state tax credit
carryforwards of $7.4 million expire by 2017, and the
alternative minimum tax credits of $1.6 million may be
carried forward indefinitely.
Substantially all of the Companys net
deferred tax assets as of December 31, 2003, relate to the U.S.
tax jurisdiction and future recoverability is primarily
dependent upon the generation of future taxable income in the
U.S. The Company believes that it will generate sufficient
future taxable income in the U.S. to recover the Companys
recorded net deferred tax assets.
The income tax provision (benefit) from
continuing operations differs from the amount computed by
applying the statutory U.S. income tax rate (35 percent)
because of the following items:
As of December 31, 2003, approximately
$176 million of earnings attributable to international
subsidiaries were considered to be permanently invested. No
provision has been made for taxes that might be payable if these
earnings were remitted to the U.S. It is not practicable to
determine the amount of incremental tax that might arise if
these earnings were to be remitted.
In 2003 and 2002, cash paid for income taxes,
relating to both continuing and discontinued operations, was
$14.9 million and $11.7 million, respectively. In
2001, as a result of income tax refunds, net cash received for
income taxes, relating to both continuing and discontinued
operations, was $12.2 million.
43
Note 7 Debt
The Company had no outstanding long-term debt as
of December 31, 2003 or 2002.
The Company had a Loan and Security Agreement
(the Loan Agreement) with a group of banks that provided
borrowing availability not to exceed $100 million. The Loan
Agreement was terminated on December 16, 2003, in
connection with entering into a new Credit Agreement described
below. No borrowings were outstanding under the Loan Agreement
as of December 31, 2002.
In December 2003, the Company entered into a new
Credit Agreement with a group of banks that expires
December 15, 2006. The Credit Agreement provides for
revolving credit, including letters of credit, with borrowing
availability of $100 million. The Credit Agreement provides
for, at the option of the Company, borrowings at either a
floating interest rate based on a defined prime rate or a fixed
rate related to the Eurodollar rate, plus a margin based on the
Companys consolidated leverage ratio. The margins over a
defined prime rate and Eurodollar rate range from zero to
0.4 percent and 1.1 to 1.6 percent, respectively.
Letter of credit fees are equal to the Eurodollar margins. A
facility fee ranging from 0.2 percent to 0.4 percent
per annum based on the Companys consolidated leverage
ratio is payable on the line. A utilization fee ranging from
zero to 0.25 percent per annum based on the Companys
consolidated leverage ratio is payable on the line. In
conjunction with the Credit Agreement, the Company has pledged
65 percent of the stock of certain of the Companys
foreign subsidiaries. Covenants include maintenance of a minimum
consolidated tangible net worth, a required EBITDA, and a
maximum leverage ratio. The Company does not expect these
covenants to restrict materially its ability to borrow funds in
the future. No borrowings were outstanding under the Credit
Agreement as of December 31, 2003 and the Company was in
compliance with all covenants under the Credit Agreement.
As of December 31, 2003 and 2002, the
Company had outstanding letters of credit of $9.0 million
and $13.4 million, respectively.
The Company had no short-term debt as of
December 31, 2003. Short-term debt as of December 31,
2002 was $4.5 million, which consisted primarily of local
borrowings by international subsidiaries. These borrowings had
original maturities of one year or less and had a weighted
average interest rate of 1.9 percent. As of December 31,
2003, the Company had $10.0 million available under credit
facilities held by various subsidiaries outside the U.S.
The Company estimated that the fair value of its
short-term debt approximated the carrying amount as of
December 31, 2002.
The Companys interest expense, which
includes letter of credit fees and commitment fees under the
Loan Agreement, for 2003, 2002, and 2001 was $1.3 million,
$1.1 million, and $1.4 million, respectively. Cash
paid for interest in these periods, relating to both continuing
and discontinued operations, was $1.2 million,
$1.2 million, and $1.7 million, respectively.
Note 8 Derivatives and
Hedging Activities
The Company maintains a foreign currency exposure
management policy that allows for the use of derivative
instruments, principally foreign currency forward and option
contracts, to manage risks associated with exchange rate
volatility. Generally, these contracts are entered into to fix
the U.S. dollar amount of the eventual cash flows resulting
from such transactions. The Company does not hold or issue
derivative financial instruments for speculative or trading
purposes and is not a party to leveraged derivatives.
The Company is exposed to credit loss in the
event of nonperformance by counter-parties in foreign currency
forward and option contracts, but does not anticipate
nonperformance by any of these counter-parties. The Company
actively monitors its exposure to credit risk through the use of
credit approvals and credit limits, and by selecting major
international banks and financial institutions as
counter-parties.
44
The Company attempts to mitigate the risk that
forecasted cash flows associated with operating income
denominated in foreign currencies may be adversely affected by
changes in foreign currency exchange rates through a combination
of foreign currency option and forward contracts. The Company
formally documents all relationships between hedging instruments
and hedged items, as well as its risk management objective and
strategy for undertaking various hedge items. This process
includes linking all derivatives to forecasted transactions. The
Company also formally assesses, both at the hedges
inception and on an ongoing basis, whether the derivatives that
are used in hedging transactions are highly effective in
offsetting changes in cash flows of hedged items. When it is
determined that a derivative is not highly effective as a hedge
or that it has ceased to be highly effective as a hedge, the
Company discontinues hedge accounting prospectively, with gains
and losses that were accumulated in other comprehensive income
(loss) recognized in current period operations. As of
December 31, 2003 and 2002, cash flow hedges ranged in
duration from one to twelve months and had a total notional
amount of $131.2 million and $110.9 million,
respectively. Hedge costs, representing the premiums paid on
expired options net of hedge gains, of $2.1 million,
$1.8 million and $2.3 million were reclassified into
operations in 2003, 2002 and 2001, respectively. The amount of
net deferred losses on foreign currency cash flow hedges
included in accumulated other comprehensive income
(loss) in shareholders equity as of December 31,
2003 was $8.3 million, pre-tax, all of which is expected to
reverse in 2004.
The Company enters into foreign currency forward
contracts, generally with durations of less than two months, to
manage the foreign currency exposure of its monetary assets and
liabilities denominated in foreign currencies. The Company
records the estimated fair value of these forwards within other
current assets or other current liabilities in the Consolidated
Balance Sheets, and changes in their fair value are immediately
recognized in earnings. As of December 31, 2003 and 2002,
the Company had a notional amount of forward contracts of
$51.4 million and $79.2 million, respectively, to
hedge the Companys recorded balance sheet exposures.
As of December 31, 2003 and 2002, the
negative fair value of the Companys foreign currency
forward and option contracts outstanding was $7.3 million
and $0.2 million, respectively. The estimated fair market
values were determined using available market information or
other appropriate valuation methodologies.
Note 9 Leases
Rent expense under operating leases, which
primarily relate to equipment and office space, amounted to
$10.4 million, $12.4 million, and $11.3 million
in 2003, 2002 and 2001, respectively. The following table sets
forth the minimum rental payments under operating leases with
non-cancelable terms in excess of one year as of
December 31, 2003:
In 2002, the Company executed a sale-leaseback
transaction related to an additional manufacturing facility that
it had constructed in Wahpeton, North Dakota. The terms of this
agreement include monthly payments by the Company to the
buyer/lessor, and an obligation by the Company to purchase the
facility at the end of the agreement term. In 2003, the Company
executed another sale-leaseback transaction related to a portion
of its manufacturing facility in Camarillo, California. The
Company accepted a note from the buyer/lessor for a portion of
the sale price, and is required, under the lease agreement, to
make monthly payments to the buyer/lessor. As a result of the
Companys continuing
45
involvement with each of the facilities, the
agreements have been accounted for as financings. As of
December 31, 2003, net assets totaling $11.3 million
are included in property, plant and equipment related to these
facilities. The following table sets forth the future minimum
payments related to these obligations as of December 31,
2003:
Note 10 Shareholders
Equity
The Company maintains a shareholder rights plan
(Rights Plan) under which the Company has issued one preferred
share purchase right (Right) for each common share of the
Company. If they become exercisable, each Right will entitle its
holder to purchase one one-hundredth of a share of Series A
Junior Participating Preferred Stock at an exercise price of
$125, subject to adjustment. The Rights are exercisable only if
a person or group (Acquiring Person) acquires beneficial
ownership of 15 percent or more of the Companys
outstanding common stock, except that the Rights Plan excludes
acquisitions by any Acquiring Person who becomes the beneficial
owner of 15 percent or more of the shares of common stock
then outstanding as a result of a reduction in the number of
shares of common stock outstanding due to the repurchase of
common stock by the Company unless and until such person, after
becoming aware of such, acquires beneficial ownership of any
additional shares of common stock. The Rights expire on
July 1, 2006 and may be redeemed earlier by the Board of
Directors for $0.01 per Right.
The Companys Board of Directors has
authorized the repurchase of up to 10 million shares of the
Companys common stock. As of December 31, 2003,
2.2 million shares remained under this authorization.
During 2003 and 2002, the Company repurchased approximately
0.6 million and 0.4 million shares, respectively. A
minimal number of shares was repurchased during 2001. As of
December 31, 2003, the Company held 7.5 million shares
of treasury stock acquired at an average price of $22.62 per
share.
Note 11 Business Segment
Information
The Companys businesses are organized,
managed and internally reported as segments differentiated
primarily by their products and services and the markets they
serve. These segments, whose results are shown below, are Data
Storage and Information Management, providing removable data
storage media for use in the personal storage, network and
enterprise data center markets; Specialty Papers, which includes
carbonless paper, such as multi-part business forms, and
videodisc replication (videodisc replication was closed at the
end of the first quarter of 2002); Digital Solutions and
Services, which provided technical service and support for
equipment sold by the Company as well as by other third party
equipment vendors, and document imaging products for large
format engineering documentation (all businesses within the DSS
segment were sold or closed prior to September 30,
2002 see footnote 1 to the table below); and
Color Technologies, whose principal products included printing
and color proofing systems, printing films and plates for the
graphic arts marketplace, was sold to KPG on December 31,
2001. In 2001, Specialty Papers and Color Technologies were
combined and presented as a single segment. Beginning in 2002,
they were separated and the prior periods presentation was
restated to conform to the new presentation as a result of the
sale of the color proofing and color software business to KPG.
46
Intersegment revenues were not material.
The following table presents information about
the Company by geographic area.
47
Note 12 Retirement
Plans
The Company has various non-contributory defined
benefit employee pension plans covering substantially all
U.S. employees and certain employees outside the
U.S. Total pension expense was $11.1 million,
$8.8 million and $15.7 million in 2003, 2002, and
2001, respectively. Net pension cost is reported on a continuing
operations basis, whereas the funded status of the pension plans
includes both continuing and discontinued operations. The
Company uses December 31 as the measurement date for all of
its pension plans. The Company expects to contribute
$15 million to $20 million to its pension plans in
2004.
The following provides reconciliations of benefit
obligations, plan assets and funded status of the plans.
U.S. Plan
The accumulated benefit obligation for the plan
was $122.8 million and $104.5 million at
December 31, 2003 and 2002, respectively.
48
Net periodic pension cost includes the following
components:
The following assumptions were used to determine
the plans benefit obligations as of the end of the plan
year:
The following assumptions were used to determine
the plans net periodic pension cost:
The expected long-term rate of return on plan
assets is chosen from the range of likely results of compound
average annual returns over a 10-year time horizon based on the
plans current investment policy. The expected return and
volatility for each asset class is based on historical equity,
bond and cash market returns. While this approach gives
appropriate consideration to recent fund performance and
historical returns, the assumption is primarily a long-term,
prospective rate.
The plans asset allocation as of
December 31, 2003 and 2002 by asset category is as follows:
The Company maintains target allocation
percentages among various asset classes based on an investment
policy established for the plan which is designed to achieve
long term objectives of return, while mitigating against
downside risk and considering expected cash flows. The current
target asset allocation includes equity securities at 65 to
80 percent, debt securities at 20 to 30 percent, and
other investments at zero to five percent. The Companys
investment policy for the plan is reviewed at least annually by
management.
49
International Plans
50
Net periodic pension cost includes the following
components:
The projected benefit obligation, accumulated
benefit obligation, and plan assets at fair value for the
pension plans with accumulated benefit obligations in excess of
plan assets resulting in minimum pension liability adjustments
are as follows:
Note 13 Employee Savings and Stock
Ownership Plans
The Company sponsors a 401(k) retirement savings
plan under which eligible U.S. employees may choose to save
up to 15 percent of eligible compensation on a pre-tax
basis, subject to certain IRS limitations. The Company matches
100 percent of employee contributions on the first three
percent of eligible compensation and 25 percent on the next
three percent of eligible compensation, in company stock. The
Company also sponsors a variable compensation program, in which
the Company may, at its option, contribute up to three percent
of eligible employee compensation to employees 401(k)
retirement accounts, depending upon Company performance.
The Company established an ESOP during 1996 as a
cost-effective way of funding the employee retirement savings
benefits noted above. The ESOP borrowed $50.0 million from
the Company in 1996 and used the proceeds to purchase
approximately 2.2 million shares of the Companys
common stock, with the ESOP shares pledged as collateral for the
debt. The Company makes monthly contributions to the ESOP to
cover the debt service plus an additional amount so that the
total contribution releases shares to satisfy the Companys
matching requirements. As the debt is repaid, shares are
released from collateral, and these shares are allocated to
employee accounts as they are earned. The shares not yet
allocated to employee accounts are reported as unearned ESOP
shares in the Consolidated Balance Sheets. The Company reports
compensation expense equal to the current market price of the
shares allocated to employee accounts, and all such shares are
considered outstanding for the computation of earnings per share.
The ESOP will be terminated in the first quarter
of 2004, and the Company plans to use shares of treasury stock
to match future employee 401(k) contributions.
51
The ESOP shares as of December 31, 2003 and
2002 are as follows:
Total expense related to the ESOP was
$4.3 million, $4.3 million and $5.2 million in 2003,
2002 and 2001, respectively.
The Company also sponsors a defined contribution
plan in Japan, which began in 2003. Total expense in 2003
related to the new plan was $1.0 million.
Note 14 Employee Stock
Plans
The Company currently has stock options
outstanding under the Imation 1996 Employee Stock Incentive
Program (the Employee Plan), the Imation 1996 Directors Stock
Compensation Program (the Directors Plan), and the Imation 2000
Stock Incentive Plan (the Incentive Plan).
The Employee Plan was approved and adopted by 3M
on June 18, 1996, as the sole shareholder of the Company,
and became effective on July 1, 1996. The total number of
shares of common stock could have been issued or awarded under
the Employee Plan could not exceed 6 million. All shares
subject to awards under the Employee Plan that were canceled or
terminated were made available again for issuance pursuant to
awards under the Employee Plan. Grant prices were generally
equal to the fair market value of the Companys common
stock at date of grant. The options normally have a term of ten
years and generally become exercisable from one to five years
after grant date. As a result of the approval and adoption of
the Incentive Plan, no further shares are available for grant
under the Employee Plan.
The Directors Plan was also approved and adopted
by 3M, as the sole shareholder of the Company, and became
effective on July 1, 1996. The total number of shares of
common stock that may be issued or awarded under the Directors
Plan may not exceed 800,000. The outstanding options are
non-qualified options with a term of ten years and generally
become exercisable one year after grant date. Grant prices are
generally equal to the fair market value of the Companys
common stock at the date of grant. As of December 31, 2003
and 2002, there were 145,441 and 259,917 shares available for
grant under the Directors Plan, respectively.
The Incentive Plan was approved and adopted by
Imations shareholders on May 16, 2000, and became
effective immediately. The total number of shares of common
stock that may be issued or awarded under the Incentive Plan may
not exceed 4 million. All shares under the plan that are
canceled or terminated will be available again for issuance
pursuant to awards under the Incentive Plan. Grant prices are
generally equal to the fair market value of the Companys
common stock at date of grant. The options normally have a term
of ten years and generally become exercisable from one to four
years after grant date. As of December 31, 2003 and 2002,
there were 1,333,420 and 2,247,632 shares available for
grant under the Incentive Plan, respectively.
52
The following table summarizes stock option
activity for 2003, 2002, and 2001:
The following table summarizes information about
stock options outstanding as of December 31, 2003:
The weighted average fair values at date of grant
for options granted by the Company, all of which had exercise
prices equal to the market price on the grant date, were $18.05,
$11.34 and $9.18, in 2003, 2002 and 2001, respectively.
The fair values at date of grant were estimated
using the Black-Scholes option pricing model with the following
weighted average assumptions:
Note 15 Miscellaneous
Charges
Loan Impairment
In order to improve the overall profitability
associated with mid-range tape products, the Company has
re-evaluated its manufacturing strategy for certain products and
plans to leverage its metal particulate manufacturing
capabilities and selective outsourcing to a greater degree in
place of existing contract manufacturing. As a result, the
Company recorded a $4.6 million provision to offset
substantially all of an outstanding loan receivable from a
contract manufacturer. This charge was recorded on a separate
line in the Consolidated Statement of Operations in 2003.
Capitalized Software Amortization
During the last half of 2000, the Company
abandoned certain components of its computer software system at
various dates through the end of first quarter 2001.
Accordingly, the Company shortened the estimated useful life of
the majority of its capitalized software and recorded the final
pre-tax charge of $5.7 million in selling, general and
administrative expenses in the first quarter of 2001 related to
the amortization of this software being abandoned.
53
Note 16 Commitments and
Contingencies
In 2002, the Company recorded a $6.4 million
net litigation benefit consisting of a $7.4 million
litigation benefit from Quantum Corporation (Quantum) and
Hitachi Maxell, Ltd. (Maxell) legal settlements, net of
associated legal expenses, and a $1.0 million charge for an
unrelated litigation matter related to optical disk royalties in
Spain. In 2003, the Company reversed the reserve related to the
Spain litigation due to a favorable settlement. Each of these
matters is discussed in more detail below.
The Company is the subject of various pending or
threatened legal actions in the ordinary course of its business.
All such matters are subject to many uncertainties and outcomes
that are not predictable with assurance. Consequently, as of
December 31, 2003, the Company is unable to ascertain the
ultimate aggregate amount of any monetary liability or financial
impact that may be incurred by the Company with respect to these
matters. While these matters, certain of which are described
below, could materially affect operating results depending upon
the final resolution in future periods, it is managements
opinion that after final disposition, any monetary liability to
the Company beyond that provided in the Consolidated Balance
Sheet as of December 31, 2003 would not be material to the
Companys financial position.
Jazz Photo Corp.
On May 10, 1999, Jazz Photo Corp. (Jazz
Photo) served the Company and its affiliate, Imation S.p.A.,
with a civil complaint filed in New Jersey Superior Court. The
complaint charges breach of contract, breach of warranty, fraud,
and racketeering activity in connection with the Companys
sale of allegedly defective film to Jazz Photo by its Photo
Color Systems business which was sold in 1999 (see Note 3).
In the complaint, Jazz Photo seeks unspecified compensatory
damages, treble damages, punitive damages, and equitable relief
for both initial purchases and subsequent additional purchases
of film. In 2002, the parties continued to litigate the scope of
document production and discovery, and depositions began in the
third quarter of 2002.
On February 24, 2003, the Company was served
with the reports of Jazz Photos testifying expert
witnesses in the case (the Jazz Photo Reports). In the opinion
of Jazz Photos experts as set forth in the Jazz Photo
Reports, the alleged damages to Jazz Photo were caused by a
combination of heat, moisture, and fumes from packaging
materials supplied by Jazz Photo. The Jazz Photo Reports do not
contain any opinions that the alleged damages to Jazz Photo were
caused by any error by the Company in the manufacture of the
film or by damage to the film during shipment to Jazz Photo. The
primary opinion set forth in the Jazz Photo Reports is that the
film was not fit for Jazz Photos particular use or purpose
(use in reloaded single use cameras) because the film design
made it more vulnerable to a combination of heat, moisture, and
chemical fumes than other film products. The Jazz Photo Reports
further conclude that the Company should have known that use in
reloaded cameras would expose the film to the damaging
combination of heat, moisture, and chemical fumes. The Company
vigorously disputes this theory of liability and believes that
it has meritorious defenses. The Jazz Photo Reports claim
alleged out-of-pocket damages of approximately $13 million,
lost profits through 2002 of approximately $41 million, and
lost future profits of approximately $32 million. The
Company vigorously disputes the amount of the out-of-pocket
damages claim and vigorously disputes that Jazz Photo has
suffered any lost profits as a result of any action by the
Company. Any claim for treble damages by Jazz Photo would have
to be based on a violation of the New Jersey Racketeer
Influenced and Corrupt Organizations Act or the New Jersey
Consumer Fraud Act. Even though Jazz Photo has asserted claims
under these acts, the Jazz Photo Reports contain no allegation
of damages related to the additional purchases of film by Jazz
Photo in 1999.
The Company is vigorously defending the action.
Factual discovery is now complete. On May 6, 2003, the
Company served reports of testifying expert witnesses, who
conclude that the Companys film was appropriately designed
and manufactured and was fit for use in single use cameras,
including reloaded single use cameras. The Companys
experts agree that the damage to the film was caused by a
combination of chemical fumes, excess moisture, and excess heat
occurring after the film was delivered to Jazz Photo. They
conclude that Jazz Photo was responsible for the damage because
it failed to put in place a quality control system consistent
with industry norms and failed to comply with manufacturer
instructions and industry standards concerning protecting film
from heat, humidity, and chemical fumes. Also on May 6,
2003, the Company served the report of a financial expert who
concludes that the
54
plaintiffs financial analysis is
fundamentally flawed. Both sides filed rebuttal expert reports
and have taken expert depositions.
On October 2, 2003, the Company filed a
summary judgment motion for dismissal of the entire case against
it. On the same date, Jazz Photo filed a motion for partial
summary judgment in its favor on its New Jersey racketeering and
consumer fraud claims. Decisions by the Court on these motions
are pending. The final pre-trial conference was held on
October 30, 2003. A settlement conference and hearing on
the parties summary judgment motions took place on
January 22, 2004. Barring summary judgment dismissal or
settlement of the case, the trial is scheduled to begin
April 12, 2004.
On May 20, 2003, Jazz Photo filed a
Voluntary Petition for Relief under Chapter 11 of the
United States Bankruptcy Code. The Jazz Photo litigation with
the Company will proceed despite the bankruptcy. The largest
bankruptcy creditor Jazz Photo listed was Fuji Photo Film Co.,
Ltd. (Fuji). Fuji obtained a judgment against Jazz Photo in the
amount of approximately $30 million after a patent
infringement trial in the United States District Court for the
District of New Jersey. Fuji has brought a motion seeking an
order for the appointment of a Chapter 11 trustee pursuant
to 11 USC § 1104, on grounds of fraud, dishonesty
or, in the alternative, incompetence and gross mismanagement by
those currently controlling Jazz Photo. A decision in that
motion is pending.
The St. Paul Fire and Marine Insurance Co.
(St. Paul) insured the Company under a primary commercial
general liability policy. St. Paul has, under a reservation
of rights, reimbursed the Company for its defense costs in the
Jazz Photo litigation up to the limit of $2 million under
one insuring agreement of the policy issued by St. Paul. In
2003, the Company recorded $1.3 million after-tax in
discontinued operations, primarily related to incurred
litigation costs associated with the Companys defense of
its ongoing legal dispute with Jazz Photo that have not been
reimbursed. The Company has asserted that it is entitled to
higher limits for defense and indemnity contained in other
insuring agreements of the St. Paul policy. The Company
also believes it has coverage for defense and/or indemnity under
policies issued by another primary carrier, Cigna and by its
excess carrier, AIG. The disputes regarding additional coverage
under both the primary and excess policies has been stayed
pending resolution of the Jazz Photo litigation.
Quantum and Maxell
On October 1, 2001, the Company filed a
lawsuit in the Federal District Court in St. Paul,
Minnesota, charging Quantum with violations of Sections 1
and 2 of the Sherman Antitrust Act, including price fixing and
conspiracy to monopolize the production and sale of data storage
tape compatible with Quantums digital linear tape (DLT)
tape drives. The Company amended the complaint to include Maxell
as an additional defendant and to add Quantums attempt to
monopolize the production and sale of data storage tape
compatible with Quantums S-DLT tape drives. The lawsuit
specifically charged that Quantum had fixed prices on
DLT-compatible tape, invited Imation to join an illegal tape
cartel, inappropriately extended patents on licensed DLT tape
drives to tape media as a way to enforce its monopoly hold on
the tape market, and misrepresented DLT-compatible tape as an
open standard with competitive pricing. The complaint sought an
injunction barring Quantum from further violations of antitrust
law in this market and recovery of damages of at least
$150 million.
On October 3, 2001, Quantum Corporation
filed a lawsuit in the Superior State Court in California in
Santa Clara County seeking to prohibit Imation from selling its
digital linear tape for use on Quantum DLT tape drives. The
lawsuit accused Imation of misappropriation of trade secrets,
deceptive and misleading advertising, and unfair business
practices. Quantum also filed a motion for a preliminary
injunction to block Imation from selling Black
Watch
TM
Digital Linear Tape IV cartridges. The court
issued a preliminary injunction that allowed the Company to sell
its Black Watch Digital Linear Tape IV cartridges but required
that the Company pay Quantum a 30 percent royalty on those
revenues (as set forth in the license agreement between the
parties) during the interim until the claims were resolved.
On May 29, 2002, the Company, Quantum, and
Maxell settled all legal claims between the companies over the
qualification, production, and sale of DLT tape media products.
Quantum and the Company also committed to completing the
qualification process of the Company as a manufacturer of DLT
tape media, which was completed in August 2002. The antitrust
lawsuit and all counterclaims have been withdrawn.
55
Spanish Collecting Society
The Company was a defendant in a lawsuit filed in
Court of First Instance Num. 5 in Madrid by a Spanish
collecting society demanding copyright levies for recording
artists to be paid on all CDR-Data discs that have been sold
during 1998 and 1999. Prior to July 2003, there was an agreed
upon levy assessed on all CDR-Audio discs sold in Spain but no
agreement had been reached regarding an applicable levy for
CDR-Data discs. The Spanish collecting society filed a lawsuit
against the Company and at least three other companies alleging
that consumers are using CDR-Data discs to make copies of music
for private use and, therefore, the same levy that applies to
CDR-Audio disc sales should also apply to CDR-Data disc sales. A
judgement was rendered by a Court of First Instance in Madrid on
November 28, 2002 which required the Companys
affiliate, Imation Iberia S.A., to provide an accounting of
CDR-Data discs that were sold in 1998 and 1999 which may be
subject to CDR levies. The Company appealed this judgement.
In July 2003, an agreement for the payment of
levies on CDR-Data discs was reached in Spain between the
collecting society and the industry association (in which the
Company is an active member). The agreement anticipates that the
member companies of the industry association will enter into
individual agreements with the collecting society containing the
terms agreed to between the industry association and the
collecting society. Pursuant to terms of the agreement between
the industry association and the collecting society, the Company
entered into an agreement with the collecting society and began
to pay levies on CDR-Data discs sold in Spain on a going-forward
basis as of September 1, 2003. In accordance with this
agreement, there will be no payment of levies for sales of
CDR-Data discs in Spain prior to September 1, 2003. Based
upon the agreement between the parties, in October 2003, the
appellate court dismissed the appeals, with prejudice, filed by
the collecting society and the Company.
Note 17 Agreement with EMTEC
Magnetics GMBH
The Company entered into an agreement on
June 30, 2003, to purchase certain assets and intellectual
property relating to the removable data storage tape media
operations from EMTEC Magnetics GmbH, a German-based
manufacturing subsidiary of EMTEC International Holding GmbH.
This agreement required the Company to escrow approximately
$15 million in the third quarter of 2003 pending the
satisfaction of certain terms of the agreement. In October 2003,
the Company received regulatory approval in Germany to continue
with the transaction. Payment out of escrow is subject to
contractual milestones as the transaction moves toward closure
in 2004. Approximately $7.8 million was released from
escrow in the fourth quarter of 2003 and is reflected as a down
payment in other current assets on the Consolidated Balance
Sheet as of December 31, 2003. The remaining amount held in
escrow, along with the currency impact, is reflected as part of
restricted cash in other current assets on the Consolidated
Balance Sheet and is expected to be released from escrow in 2004.
Note 18 Quarterly Data
(Unaudited)
56
57
Not applicable.
Based on an evaluation of the Companys
disclosure controls and procedures (as defined in
Rule 13a-15(e) under the Exchange Act) as of
December 31, 2003, the end of the period covered by this
report, the Chairman of the Board and Chief Executive Officer,
William T. Monahan, and the Vice President, Corporate
Controller*, Paul R. Zeller, have concluded that the disclosure
controls and procedures were effective.
During the fiscal quarter ended December 31,
2003, there was no change in the Companys internal control
over financial reporting (as defined in Rule 13a-15(f)
under the Exchange Act) that has materially affected, or is
reasonably likely to materially affect, the Companys
internal control over financial reporting.
PART III
Except where otherwise noted, the information
required by Items 10 through 14 is incorporated by
reference from the Companys definitive Proxy Statement
pursuant to general instruction G(3), with the exception of
the executive officers section of Item 10, which is
included in Item 1 of this Form 10-K. The Company will
file its definitive Proxy Statement pursuant to
Regulation 14A by April 30, 2004.
Board of Directors of the Company
Michael S. Fields, Chairman and CEO, The
Fields Group (a management consulting firm)
Linda W. Hart, Vice Chairman and Chief
Executive Officer, Hart Group, Inc. (a diversified group of
companies primarily involved in residential and commercial
building materials)
Ronald T. LeMay, Representative Executive
Officer of Japan Telecom (a telecommunications company), and an
Industrial Partner of Ripplewood Holdings
Marvin L. Mann, Chairman Emeritus, Lexmark
International (a supplier of network and personal printers and
information processing supplies)
L. White Matthews, III, Retired
Executive Vice President and Chief Financial Officer, Ecolab,
Inc. (developer and marketer of cleaning and sanitizing products
and services), and Former Chief Financial Officer and Executive
Vice President of Union Pacific Corporation (a company involved
primarily in rail transportation and trucking)
William T. Monahan, Chairman, President and
Chief Executive Officer, Imation Corp.
Glen A. Taylor, Chairman, Taylor Corporation
(a holding company in the specialty printing and marketing areas)
Daryl J. White, Former President and Chief
Financial Officer, Legerity, Inc. (a supplier of data and voice
communications integrated circuitry), and Former Senior Vice
President of Finance and Chief Financial Officer, Compaq
Computer Corporation (a computer equipment manufacturer).
See Part I of this Form 10-K,
Executive Officers of the Company. The Section of
the Proxy Statement entitled Board of Directors-Director
Independence and Audit Committee Financial Expert
Determination, Board of Directors-Committees of the
Board, Section 16(a) Beneficial Ownership
Reporting Compliance and Item 1-Election of
Directors is incorporated by reference into this
Form 10-K.
The Company has adopted a code of ethics that
applies to its principal executive officer, principal financial
officer, principal accounting officer/ controller or persons
performing similar functions and all other Company employees.
This
58
The Section of the Proxy Statement entitled
Compensation of Executive Officers is incorporated
by reference into this Form 10-K.
The Section of the Proxy Statement entitled
Security Ownership of Certain Beneficial Owners and
Security Ownership by Management are incorporated by
reference into this Form 10-K.
Equity Compensation Plan Information
The following table gives information about the
Companys common stock that may be issued upon the exercise
of options under all of the Companys existing equity
compensation plans as of December 31, 2003, including the
2000 Stock Incentive Plan, the 1996 Employee Stock Incentive
Program, as amended, and the 1996 Director Stock Compensation
Program. As of December 31, 2003, options are the only form
of compensation that has been granted under the 1996 Employee
Stock Incentive Program and the 2000 Stock Incentive Plan.
Options, restricted stock and restricted stock units have been
granted to directors under the 1996 Director Stock Compensation
Program. All of the compensation plans listed below have been
approved by the Companys shareholders.
59
Not applicable.
The Section of the Proxy Statement entitled
Audit and Other Fees and Audit and Finance Committee
Pre-Approval Policies is incorporated by reference into
this Form 10-K.
PART IV
(a)
List
of Documents filed as Part of this Report
The following Report of Independent Auditors and
consolidated financial statements of the Company are contained
in Part II of this Report:
All financial statement schedules are omitted
because of the absence of the conditions under which they are
required or because the required information is included in the
Consolidated Financial Statements or the notes thereto.
Pursuant to Item 601(b)(4)(iii) of
Regulation S-K, copies of certain instruments defining the
rights of holders of certain long-term debt of the Company are
not filed, and in lieu thereof, the Company agrees to furnish
copies thereof to the Securities and Exchange Commission upon
request.
60
The following Exhibits are filed as part of, or
incorporated by reference into, this Report:
61
A Form 8-K Current Report dated
October 23, 2003 was furnished relating to the
Companys third quarter earnings release.
A Form 8-K Current Report dated
November 17, 2003 was furnished relating to the
Companys CEOs announced intent to retire prior to
the end of 2004.
62
Item 1.
Business.
Strengthen and grow the core removable data
storage media business;
Offer a broad and comprehensive portfolio of
products across different customer applications of the market
where it competes;
Leverage existing infrastructure to support
growth initiatives;
Expand into business areas that are closely
adjacent to the core removable data storage media business;
Develop and enhance manufacturing, supply chain
and sourcing capabilities to provide optimum total delivered
cost and product quality;
Leverage broad and successful relationships with
leading OEMs, customers, and distribution channels;
Increase market penetration for U.S. government
sales;
Increase market penetration for U.S. and
international commercial and consumer sales; and
Maintain and extend technology capabilities in
key areas, including precision tape coating, cartridge design
and manufacturing, servo-writing, and advanced optical storage
technologies.
*
Other includes previously divested businesses
that are still included in continuing operations.
Data Storage and Information Management
(DS&IM)
Industry Background
Application Areas and Products
Customers
Competition
Joint Ventures, Alliances and
Acquisitions
A series of agreements with Moser Baer India Ltd.
(MBI) that established MBI as a significant, non-exclusive
source for Imations optical media products and created a
joint venture marketing company for optical media products,
Global Data Media (GDM). Imation holds a 51 percent interest in
GDM and MBI holds a 49 percent interest. As the controlling
shareholder, Imation consolidates the results of the joint
venture in its financial statements (see the Companys
Consolidation policy in Note 2 to the Consolidated
Financial Statements). MBI brings its optical manufacturing
capacity and product development capability to this series of
agreements. Imation brings intellectual property and licensing
rights in optical products, process technology know-how and
global distribution capability.
A joint development agreement with StorageTek to
develop and manufacture enterprise-class tape storage media to
support StorageTeks next generation tape drives.
A distribution agreement with Exabyte that
establishes Imation as the exclusive worldwide distributor of
Exabyte brand media products.
A license agreement with Roxio Corp., parent
company to Napster, that establishes Imation as the exclusive
distributor of Napster-branded optical media products in North
America. In addition to the exclusive distribution agreement,
Imation will also provide sales, marketing and distribution
services for Napster-branded blank CD and DVD products.
A five year extension of an existing agreement
with IBM to manage and deliver after-market data storage media
distribution services for IBM worldwide that establishes Imation
as a key distributor of IBM brand media products, providing
sales, marketing, distribution, and management services.
An agreement with HP on the sourcing, sales,
marketing, logistics support and product distribution of HP
brand CD-R, CD-RW, DVD+R and DVD+RW optical media products
marketed in Europe, the Middle East and Africa.
An agreement, expected to close in 2004, to
purchase certain assets and intellectual property relating to
half-inch legacy tape products, such as 3480, 3490E and 9490EE
tape cartridges, from EMTEC Magnetics GmbH, an insolvent
German-based manufacturing subsidiary of EMTEC International
Holding GmbH.
a four-year, $11.9 million grant jointly
awarded to Imation and several other organizations from the
National Institute of Standards and Technology
Advanced Technology Program (NIST-ATP) for development of
technologies needed to increase data density of current magnetic
tape data systems, and lay the foundation for even greater
densities in future tape systems;
an investment of up to $3 million for up to
a 6.5 percent equity stake in O-Mass, a subsidiary of drive
manufacturer Tandberg focused on developing the worlds
fastest performing, highest capacity tape drive based on a
combination of magnetic and optical technologies;
a joint development agreement with InPhase
Technologies, to develop proprietary, holographic data storage
technology.
Item 2.
Properties.
Facility
Products
Data tape manufacturing
Sales/Administrative
Carbonless paper manufacturing
Headquarters/laboratory facility
Data tape manufacturing
Diskette/molding/CD-Rewritable discs/data tape
manufacturing
Diskette manufacturing and data tape
manufacturing**
Sales/Administrative
Sales/Administrative
Sales/Administrative
Sales/Administrative
Sales/Administrative
Sales/Administrative
Sales/Administrative
Sales/Administrative
Sales/Administrative
Sales/Administrative
Sales/Administrative
Sales/Administrative
Sales/Administrative
Sales/Administrative
Sales/Administrative
Sales/Administrative
Sales/Administrative
Sales/Administrative
Sales/Administrative
Item 3.
Legal Proceedings.
2003 Sales Prices
2002 Sales Prices
High
Low
High
Low
$
39.58
$
34.21
$
26.53
$
21.07
$
38.41
$
32.25
$
31.00
$
26.26
$
40.80
$
32.65
$
33.84
$
25.51
$
35.78
$
32.95
$
42.25
$
27.64
Item 6.
Selected Financial Data.
2003
2002
2001
2000
1999
(In millions, except per share data)
$
1,163.5
$
1,066.7
$
1,119.3
$
1,171.3
$
1,337.2
334.7
327.8
335.4
339.0
408.3
166.3
176.9
232.0
312.7
280.0
57.0
50.6
62.1
64.1
72.5
(1.0
)
(6.4
)
(0.7
)
(4.0
)
48.0
21.8
(11.1
)
(1.9
)
4.6
119.6
110.7
(4.8
)
(59.6
)
55.8
81.8
73.2
(0.8
)
(8.7
)
37.6
(3.4
)
82.0
75.1
(1.7
)
(4.4
)
43.9
2.30
2.09
(0.02
)
(0.25
)
1.01
2.25
2.05
(0.02
)
(0.25
)
1.00
2.31
2.15
(0.05
)
(0.13
)
1.18
2.26
2.11
(0.05
)
(0.13
)
1.17
$
541.2
$
532.2
$
409.7
$
395.1
$
414.2
226.5
181.5
171.2
200.7
212.8
1,172.8
1,119.9
1,053.7
987.6
1,127.6
1.1
352.5
381.4
398.0
325.4
402.3
820.3
738.5
655.7
662.5
725.3
2.8
2.7
2.2
2.4
2.2
46
43
48
48
59
71
70
67
63
76
7.1
%
6.7
%
(0.1
)%
(0.8
)%
3.1
%
10.5
%
10.5
%
(0.1
)%
(1.3
)%
5.1
%
$
0.24
$
$
$
$
75.1
42.6
47.0
50.5
64.1
2,800
2,800
3,400
4,300
4,850
*
See Item 7 Managements
Discussion and Analysis of Financial Condition and Results of
Operations Results of Operations for a
description of the basis of presentation of the financial
information presented in this table.
(1)
1999 excludes the impact of the photo color
business, which was sold on August 2, 1999. 2001 excludes
the impact of the color proofing and color software business,
which was sold on December 31, 2001. 2002 excludes the
impact of the North American digital solutions and services
business, which was sold on August 30, 2002.
(2)
Return percentages are calculated using income
(loss) from continuing operations before cumulative effect of
accounting change.
(3)
Years prior to 2002 include employees of
subsequently discontinued operations.
Item 7.
Managements Discussion and Analysis
of Financial Condition and Results of Operations.
Percentage of dollar increase
Percentage of revenue
(decrease)
2003
2002
2001
2003 vs 2002
2002 vs 2001
100.0
%
100.0
%
100.0
%
9.1
%
(4.7
)%
28.8
30.7
30.0
2.1
(2.3
)
14.3
16.6
20.7
(6.0
)
(23.8
)
4.9
4.7
5.5
12.6
(18.5
)
(0.1
)
(0.6
)
n/m
n/m
(0.1
)
(0.4
)
4.3
n/m
n/m
(0.9
)
(0.1
)
n/m
n/m
0.4
n/m
n/m
10.3
10.4
(0.4
)
8.0
n/m
(0.2
)
(0.2
)
0.1
n/m
n/m
3.5
3.7
(0.4
)
2.3
n/m
7.0
6.9
(0.1
)
11.7
n/m
n/m: not meaningful
Net Revenues
Gross Profit
Selling, General and Administrative
Expenses (SG&A)
Research and Development
Expenses
Litigation
Restructuring and Other
Liability as of
Program
Cumulative
Net
December 31,
Amounts
Usage
Adjustments
2003
(In millions)
$
25.4
$
(19.9
)
$
(4.6
)
$
0.9
18.3
(18.3
)
6.1
(4.7
)
$
(0.2
)
1.2
$
49.8
$
(42.9
)
$
(4.8
)
$
2.1
Cumulative
Balance as of
Program
Reductions and
December 31,
(Approximate Headcount)
Amounts
Adjustments
2003
445
440
5
Gain on Sale of Color Proofing and Color
Software Business
Loan Impairment
Operating Income (Loss)
Non-Operating Income/ Expense
Income Tax
Payments Due by Period
Less Than
More Than
Contractual Obligations
Total
1 Year
1-3 Years
3-5 Years
5 Years
(In millions)
$
$
$
$
$
34.3
10.9
19.4
4.0
36.0
31.2
4.8
55.3
2.7
2.2
4.6
*
Aside from the sale-leaseback payments recorded
in long-term liabilities, timing of payments for the vast
majority of the remaining long-term liabilities, primarily
consisting of pension and other post retirement benefit
liabilities, cannot be reasonably determined.
Total company revenue growth for the full year
2004 is targeted to range between ten and 15 percent or
between a range of $1.28 billion and $1.34 billion.
Full year 2004 operating income is targeted to
range between $120 million and $123 million. Due to
very strong operating income recorded in the first quarter of
2003, the Company anticipates that year-over-year operating
income growth will be strongest in the second half of the year.
Tax rate is targeted to be in the range of 35 to
36 percent. The Company would see a lower tax rate in 2004
if certain tax benefits are recognized, but is unable to project
with certainty those benefits at this time.
Capital spending is targeted to be approximately
$45 million.
Depreciation and amortization is targeted to be
in the range of $45 to $50 million.
Item 7A.
Quantitative and Qualitative Disclosures
About Market Risk
Item 8.
Financial Statements and Supplementary
Data.
/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
Years Ended December 31,
2003
2002
2001
(In millions, except per share amounts)
$
1,163.5
$
1,066.7
$
1,119.3
828.8
738.9
783.9
334.7
327.8
335.4
166.3
176.9
232.0
57.0
50.6
62.1
(1.0
)
(6.4
)
(0.7
)
(4.0
)
48.0
(11.1
)
(1.9
)
4.6
215.1
217.1
340.2
119.6
110.7
(4.8
)
1.3
1.1
1.4
(5.9
)
(8.4
)
(12.4
)
2.1
5.4
11.6
122.1
112.6
(5.4
)
40.3
39.4
(4.6
)
81.8
73.2
(0.8
)
3.0
(0.9
)
0.2
(1.1
)
0.2
1.9
(0.9
)
$
82.0
$
75.1
$
(1.7
)
$
2.30
$
2.09
$
(0.02
)
0.01
0.06
(0.03
)
$
2.31
$
2.15
$
(0.05
)
$
2.25
$
2.05
$
(0.02
)
0.01
0.06
(0.03
)
$
2.26
$
2.11
$
(0.05
)
35.5
35.0
34.8
36.3
35.6
34.8
Retained
Accumulated
Unearned
Additional
Earnings
Other
ESOP Shares
Total
Common
Paid-In
(Accumulated
Comprehensive
and Other
Treasury
Shareholders
Stock
Capital
Deficit)
Loss
Compensation
Stock
Equity
(In millions, except share and per share amounts)
$
0.4
$
1,030.6
$
(90.8
)
$
(91.1
)
$
(13.1
)
$
(173.5
)
$
662.5
(0.2
)
5.9
5.7
(1.0
)
(1.0
)
(0.7
)
3.0
2.3
0.6
0.6
(0.8
)
(0.2
)
0.8
(0.2
)
0.7
0.7
(1.7
)
(1.7
)
(9.1
)
(9.1
)
(6.3
)
(6.3
)
0.5
0.5
1.7
1.7
(14.9
)
0.4
1,030.3
(93.4
)
(104.3
)
(6.6
)
(170.7
)
655.7
0.9
3.8
4.7
(9.9
)
(9.9
)
(1.0
)
14.4
13.4
2.1
2.1
75.1
75.1
11.5
11.5
(13.0
)
(13.0
)
(1.1
)
(1.1
)
72.5
0.4
1,033.3
(19.3
)
(106.9
)
(2.8
)
(166.2
)
738.5
1.5
2.8
4.3
(20.0
)
(20.0
)
(4.8
)
17.0
12.2
2.5
2.5
(8.5
)
(8.5
)
82.0
82.0
10.7
10.7
3.7
3.7
(5.1
)
(5.1
)
91.3
$
0.4
$
1,037.3
$
49.4
$
(97.6
)
$
$
(169.2
)
$
820.3
Years Ended December 31,
2003
2002
2001
(In millions)
$
82.0
$
75.1
$
(1.7
)
33.3
33.2
42.8
5.7
5.5
11.3
19.6
38.2
(33.4
)
(8.2
)
(10.4
)
56.5
(14.4
)
5.2
14.6
(47.7
)
20.5
(4.2
)
(13.2
)
(7.5
)
(10.5
)
37.5
(4.1
)
16.5
42.9
12.0
6.7
(56.5
)
(46.9
)
29.6
(37.0
)
(26.0
)
38.1
81.0
120.8
128.2
(75.1
)
(42.6
)
(47.0
)
(20.5
)
(4.0
)
(15.1
)
(15.0
)
(4.3
)
5.0
50.0
(3.9
)
(1.9
)
1.1
(129.6
)
(43.5
)
(0.2
)
(4.5
)
(8.5
)
(9.9
)
(20.0
)
(9.9
)
(1.0
)
12.2
13.4
2.3
(8.5
)
1.7
2.8
3.8
5.9
(16.3
)
(1.2
)
(2.7
)
1.6
8.8
(5.2
)
(63.3
)
84.9
120.1
474.7
389.8
269.7
$
411.4
$
474.7
$
389.8
$
5.0
$
$
Background
Basis of Presentation
Years Ended December 31,
2003
2002
2001
(In millions,
except per share amounts)
$
82.0
$
75.1
$
(1.7
)
(5.5
)
(6.2
)
(5.4
)
$
76.5
$
68.9
$
(7.1
)
$
2.31
$
2.15
$
(0.05
)
$
2.15
$
1.97
$
(0.20
)
$
2.26
$
2.11
$
(0.05
)
$
2.11
$
1.94
$
(0.20
)
Years Ended
December 31,
2003
2002
2001
(In millions)
35.6
35.2
35.2
(0.1
)
(0.2
)
(0.4
)
35.5
35.0
34.8
0.8
0.6
36.3
35.6
34.8
Divestitures presented as discontinued
operations
2003
2002
2001
(In millions)
$
$
34.9
$
57.2
4.9
(1.4
)
1.9
(0.5
)
3.0
(0.9
)
1.6
0.2
(2.7
)
0.2
(1.1
)
$
0.2
$
1.9
$
(0.9
)
Divestitures presented as part of
continuing operations
Divestitures Transition
Services
2003
2002
(In millions)
$
211.5
$
154.5
(14.7
)
(16.4
)
$
196.8
$
138.1
$
117.9
$
91.5
15.0
18.9
26.5
28.6
$
159.4
$
139.0
$
24.5
$
27.9
8.3
11.1
38.0
51.4
$
70.8
$
90.4
$
3.0
$
3.0
150.0
137.0
528.9
551.7
66.3
25.6
$
748.2
$
717.3
(521.7
)
(535.8
)
$
226.5
$
181.5
$
50.1
$
64.8
29.8
13.9
28.0
17.5
$
107.9
$
96.2
$
0.9
$
5.1
37.6
35.8
27.4
26.5
60.8
113.9
$
126.7
$
181.3
$
25.4
$
46.2
29.9
25.2
$
55.3
$
71.4
$
(76.6
)
$
(87.3
)
(15.6
)
(19.3
)
(5.4
)
(0.3
)
$
(97.6
)
$
(106.9
)
2002 and 2001 Restructuring
Programs
Liability as of
Program
Cumulative
Net
December 31,
Amounts
Usage
Adjustments
2003
(In millions)
$
25.4
$
(19.9
)
$
(4.6
)
$
0.9
18.3
(18.3
)
6.1
(4.7
)
(0.2
)
1.2
$
49.8
$
(42.9
)
$
(4.8
)
$
2.1
Cumulative
Balance as of
Program
Reductions and
December 31,
Amounts
Adjustments
2003
(Approximate Headcount)
445
440
5
2000, 1998 and 1997 Restructuring
Programs
2003
2002
2001
(In millions)
$
91.2
$
74.1
$
(18.7
)
30.9
38.5
13.3
$
122.1
$
112.6
$
(5.4
)
2003
2002
2001
(In millions)
$
14.3
$
(8.3
)
$
23.4
1.4
(0.8
)
2.2
7.6
7.7
3.2
14.4
35.4
(29.8
)
1.3
3.3
(2.8
)
1.3
2.1
(0.8
)
$
40.3
$
39.4
$
(4.6
)
2003
2002
(In millions)
$
2.2
$
3.1
7.8
8.5
(6.0
)
(6.3
)
13.0
19.1
9.6
9.2
14.2
14.9
7.1
14.6
41.1
49.0
3.8
1.4
(18.2
)
(20.8
)
$
74.6
$
92.7
2003
2002
2001
(In millions)
$
42.7
$
39.4
$
(1.9
)
2.2
3.1
(0.3
)
(6.4
)
(4.0
)
(3.9
)
1.8
0.9
1.5
$
40.3
$
39.4
$
(4.6
)
Cash Flow Hedges
Other Hedges
Fair Value Disclosure
Operating Leases
2004
2005
2006
2007
2008
Thereafter
Total
(In millions)
$
10.9
$
8.9
$
6.4
$
4.1
$
3.7
$
0.3
$
34.3
Sale-Leaseback Transactions
2004
2005
2006
2007
2008
Thereafter
Total
(In millions)
$
0.9
$
0.9
$
0.9
$
0.9
$
0.8
$
5.1
$
9.5
Business Segment Information
Data
Digital
Storage and
Solutions
Corporate,
Information
Specialty
and
Color
Other and
Management
Papers
Services(1)
Technologies
Unallocated
Total
(In millions)
2003
$
1,110.6
$
52.9
$
$
$
$
1,163.5
2002
1,003.9
53.1
9.5
0.2
1,066.7
2001
875.9
51.0
29.6
160.8
2.0
1,119.3
2003
$
104.7
$
6.9
$
$
$
8.0
$
119.6
2002
99.2
7.2
(4.0
)
8.3
110.7
2001
52.5
2.0
(7.5
)
7.9
(59.7
)
(4.8
)
2003
$
569.1
$
14.4
$
$
$
589.3
$
1,172.8
2002
438.8
13.5
667.6
1,119.9
2001
406.4
18.1
16.1
613.1
1,053.7
2003
$
38.3
$
0.7
$
$
$
$
39.0
2002
36.8
0.6
0.6
0.7
38.7
2001
33.0
0.6
1.2
12.6
6.7
54.1
2003
$
74.7
$
0.4
$
$
$
$
75.1
2002
42.1
0.5
42.6
2001
39.3
0.5
0.3
6.5
0.4
47.0
(1)
In the third quarter of 2002, the Company sold
its North America DSS business and reclassified it to
discontinued operations, as discussed in Note 3. Also in
the third quarter of 2002, the Company completed the process of
closing its DSS businesses outside of North America as part of
the Companys 2001 restructuring program. The DSS portion
of this table includes amounts related to the DSS businesses
outside of North America which have not been reclassified as
discontinued operations.
(2)
The Corporate, Other and Unallocated amounts for
net revenues and operating income (loss) primarily include
the results for certain businesses not included in the
Companys disclosable business segments, general overhead
which was previously allocated to the North America DSS
business, the loan impairment charge and accelerated software
amortization discussed in Note 15, restructuring and other
special charges and credits discussed in Note 5, litigation
charges and credits discussed in Note 16, and all
divestiture-related charges and credits discussed in Note 3.
(3)
Segment assets primarily include accounts
receivable, inventory, and net property, plant and equipment
associated with the Companys disclosable business
segments. Assets included in Corporate, Other and Unallocated
are cash and equivalents, deferred income taxes, certain
unallocated net property, plant and equipment, intangible
assets, assets of divested and discontinued businesses, and
other miscellaneous assets. Depreciation and amortization and
capital expenditure amounts include amounts associated with
these assets, as well as the accelerated software amortization
discussed in Note 15.
United
Total
States
International
Company
(In millions)
2003
$
532.7
$
630.8
$
1,163.5
2002
546.7
520.0
1,066.7
2001
587.4
531.9
1,119.3
2003
$
247.4
$
9.1
$
256.5
2002
188.4
7.0
195.4
2001
181.1
15.2
196.3
(1)
Net revenues are classified into geographic areas
primarily based on destination.
(2)
Includes net property, plant and equipment and
intangibles excluding deferred income taxes and certain
investments.
2003
2002
(In millions)
$
104.7
$
104.6
9.9
9.3
6.9
7.0
9.3
0.1
(9.3
)
(16.9
)
2.3
0.6
$
123.8
$
104.7
$
73.6
$
76.4
20.2
(5.9
)
27.0
20.0
(9.3
)
(16.9
)
$
111.5
$
73.6
$
(12.3
)
$
(31.1
)
2.1
16.4
20.0
$
6.2
$
(11.1
)
$
(11.3
)
$
(30.9
)
2.1
15.4
19.8
$
6.2
$
(11.1
)
2003
2002
2001
(In millions)
$
9.9
$
9.3
$
13.0
6.9
7.0
6.1
(7.3
)
(7.0
)
(7.0
)
0.2
2.4
4.9
(3.2
)
(2.1
)
$
9.7
$
8.5
$
14.9
(1)
In 2002, $2.4 million was recognized for
curtailment and other benefits for employees transferred to
DecisionOne as part of the sale of the North America DSS
business (see Note 3), including $1.7 million of
recognized net actuarial loss. In 2001, $2.6 million was
recognized for curtailment and other benefits for employees
transferred to KPG as part of the sale of the color proofing and
color software business (see Note 3), including
$1.6 million of recognized net actuarial loss. In addition,
$2.3 million was recognized for restructuring charges, of
which $ 0.8 million was related to discontinued operations.
2003
2002
6.25%
6.75%
4.75%
4.75%
2003
2002
2001
6.75%
7.25%
7.50%
8.00%
9.00%
9.00%
4.75%
4.75%
4.75%
2003
2002
74%
71%
23%
27%
3%
2%
100%
100%
2003
2002
(In millions)
$
57.4
$
50.1
0.6
0.8
2.8
2.7
8.2
5.7
(4.5
)
(2.3
)
0.7
2.3
(2.7
)
(0.9
)
(1.0
)
$
62.5
$
57.4
$
40.8
$
39.6
3.5
(2.1
)
6.4
4.4
1.3
0.8
(2.7
)
(0.9
)
(1.0
)
$
49.3
$
40.8
$
(13.2
)
$
(16.6
)
10.7
15.0
$
(2.5
)
$
(1.6
)
$
0.7
$
0.5
(14.1
)
(15.3
)
0.3
3.0
10.6
10.2
$
(2.5
)
$
(1.6
)
Weighted-average assumptions, end of year
2003
2002
2001
4.90
%
4.70
%
5.20
%
5.60
%
5.90
%
6.60
%
3.20
%
3.30
%
3.50
%
2003
2002
2001
(In millions)
$
0.6
$
0.8
$
0.9
2.8
2.7
2.7
(2.4
)
(2.6
)
(3.0
)
0.7
0.5
0.3
(0.7
)
(0.3
)
(0.4
)
(0.1
)
$
1.4
$
0.3
$
0.8
2003
2002
(In millions)
$
40.9
$
44.8
40.5
42.5
29.2
28.4
(2)
2002 includes certain benefit obligations and
related plan assets transferred as a result of the sales of
certain DSS businesses in Europe.
(3)
In 2002, a $1.2 million curtailment benefit
was recognized following the separation of certain employees of
the Companys DSS businesses in Europe. In addition, a
$0.3 million curtailment charge was recognized for
employees transferred to DecisionOne as part of the sale of the
North America DSS business (see Note 3). An additional
curtailment charge of $0.2 million was also recognized
during 2002.
2003
2002
2,175,126
2,051,824
761
124,063
2,175,887
2,175,887
$
26,749
$
4,352,130
Year Ended December 31,
Year Ended December 31,
Year Ended December 31,
2003
2002
2001
Stock
Weighted Average
Stock
Weighted Average
Stock
Weighted Average
Options
Exercise Price
Options
Exercise Price
Options
Exercise Price
4,766,080
$
24.12
4,620,517
$
23.80
5,358,763
$
24.13
1,168,223
34.08
1,320,050
24.59
242,350
22.03
(551,435
)
21.97
(592,401
)
22.10
(135,846
)
17.35
(361,030
)
27.40
(582,086
)
24.74
(844,750
)
26.44
5,021,838
26.44
4,766,080
24.12
4,620,517
23.80
2,726,723
23.52
2,575,977
23.04
2,874,584
23.07
Options
Options
Outstanding-
Exercisable-
Weighted Average
Weighted
Weighted
Options
Remaining
Average Exercise
Options
Average Exercise
Range of Exercise Prices
Outstanding
Contractual Life
Price
Exercisable
Price
433
2.9
$
10.39
433
$
10.39
642,818
5.1
17.44
630,565
17.48
1,562,248
6.0
22.91
877,364
22.84
616,469
3.6
24.93
597,718
24.92
2,199,870
8.0
32.00
620,643
29.29
5,021,838
6.5
26.44
2,726,723
23.52
2003
2002
2001
45
%
48
%
45
%
2.60
%
3.82
%
4.69
%
59
59
51
0.9
%
Zero
Zero
First
Second
Third
Fourth
Total(1)
(In millions, except per share amounts)
$
273.3
$
268.0
$
287.8
$
334.4
$
1,163.5
87.1
81.5
77.7
88.4
334.7
32.8
26.8
22.7
37.3
119.6
21.5
18.9
16.7
24.7
81.8
0.5
(0.3
)
0.2
21.5
19.4
16.4
24.7
82.0
$
0.61
$
0.54
$
0.47
$
0.69
$
2.30
0.59
0.52
0.46
0.68
2.25
$
$
0.01
$
(0.01
)
$
$
0.01
0.01
(0.01
)
0.01
First
Second
Third
Fourth
Total(1)
(In millions, except per share amounts)
$
0.61
$
0.55
$
0.46
$
0.69
$
2.31
0.59
0.53
0.45
0.68
2.26
$
270.6
$
261.4
$
263.8
$
270.9
$
1,066.7
78.5
78.6
85.2
85.5
327.8
22.5
30.3
27.5
30.4
110.7
15.7
20.1
16.4
21.0
73.2
1.1
1.4
2.1
(2.7
)
1.9
16.8
21.5
18.5
18.3
75.1
$
0.45
$
0.58
$
0.47
$
0.60
$
2.09
0.45
0.57
0.46
0.58
2.05
$
0.03
$
0.04
$
0.06
$
(0.08
)
$
0.06
0.03
0.04
0.06
(0.07
)
0.06
$
0.48
$
0.62
$
0.53
$
0.52
$
2.15
0.48
0.61
0.52
0.51
2.11
(1)
The sum of the quarterly earnings per share does
not equal the annual earnings per share due to changes in
average shares outstanding.
Item 9.
Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure.
Item 9A.
Controls and Procedures
*
Pursuant to a Board of Directors resolution
adopted on August 6, 2003, Mr. Zeller has assumed the
Chief Financial Officer function with respect to preparation of
financial statements and SEC filings.
Item 10.
Directors and Executive Officers of the
Registrant.
Item 11.
Executive Compensation.
Item 12.
Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder
Matters.
Number of
Securities Remaining
Number of
Available for Future
Securities to be
Issuance Under the
Issued Upon Exercise
Weighted-average
Equity Compensation
of Outstanding
Exercise Price of
Plans (Excluding
Options, Warrants
Outstanding Options,
Securities Reflected
Equity compensation plans approved by shareholders
and Rights
Warrants and Rights
in the First Column)
2,511,077
$
28.96
1,333,420
(1)
2,047,697
$
23.37
0
(2)
462,631
(3)
$
26.34
145,441
(4)
5,021,405
(5)
$
26.44
1,478,861
(1)
Under the 2000 Stock Incentive Plan, the
Compensation Committee may issue restricted stock, performance
awards and other stock-based awards in addition to options.
(2)
No additional awards may be granted under the
Companys 1996 Employee Stock Incentive Plan.
(3)
This number does not include 10,698 shares of
restricted stock.
(4)
Under the 1996 Director Stock Compensation
Program, the Compensation Committee may issue restricted stock
in addition to options and restricted stock units.
(5)
This number does not include outstanding options
for 433 shares of common stock at a weighted average
exercise price of $10.39 per share that were assumed in
connection with an acquisition. No subsequent grants of any kind
will be made pursuant to this compensation plan.
Item 13.
Certain Relationships and Related
Transactions.
Item 14.
Principal Accountant Fees and
Services
Item 15.
Exhibits, Financial Statement Schedules and
Reports on Form 8-K.
1.
Financial Statements
Page
29
30
31
32
33
34
2.
Financial Statement Schedules
3.
Exhibits
Exhibit
Number
Description of Exhibit
3.1
Restated Certificate of Incorporation of the
Company (incorporated by reference to Exhibit 3.1 to
Registration Statement on Form 10, No. 1-14310)
3.2
Amended and Restated Bylaws of the Company
(incorporated by reference to Exhibit 3.2 of the
Companys Form 10-Q for the quarter ended
September 30, 2003)
4.1
Rights Agreement, dated as of June 18, 1996
between the Company and Norwest Bank Minnesota, N.A., as Rights
Agent (incorporated by reference to Exhibit 4.1 to
Registration Statement on Form 10, No. 1-14310)
4.2
Amendment No. 1 to the Rights Agreement
dated as of January 12, 1999 between the Company and
Norwest Bank Minnesota, N.A., as Rights Agent (incorporated by
reference to Exhibit 4.2 to the Companys
Form 8-K Current Report dated February 8, 1999)
4.3
Amendment No.2 to the Rights Agreement
(incorporated by reference to Exhibit 4.1 of the
Companys Form 10-Q for the quarter ended
June 30, 2003)
4.4
Amendment No. 3 to the Rights Agreement
(incorporated by reference to Exhibit 4.2 of the
Companys Form 10-Q for the quarter ended
June 30, 2003)
4.5
Certificate of Designations, Preferences and
Rights of Series A Junior Participating Preferred Stock of
the Company (incorporated by reference to Exhibit 4.2 to
Registration Statement on Form 10, No. 1-14310)
10.1*
Imation 1996 Employee Stock Incentive Program
(incorporated by reference to Exhibit 10.8 to Registration
Statement on Form 10, No. 1-14310)
10.2*
Imation Excess Benefit Plan (incorporated by
reference to Exhibit 10.10 to Registration Statement on
Form 10, No. 1-14310)
10.3*
Form of Indemnity Agreement between the Company
and each of its directors (incorporated by reference to
Exhibit 10.13 to Annual Report on Form 10-K for the
year ended December 31, 1996)
10.4*
Employment Agreement dated as of April 1,
1998, between Robert L. Edwards and the Company
(incorporated by reference to Exhibit 10.1 of the
Companys Form 10-Q for the quarter ended
March 31, 1998).
10.5*
Form of amended severance agreement between the
Company and its executive officers other than William T.
Monahan (incorporated by reference to Exhibit 10.1 of the
Companys Form 10-Q for the quarter ended
March 31, 2001)
10.6*
Summary of transaction bonus agreements between
the Company and certain executive officers (incorporated by
reference to Exhibit 10.2 of the Companys
Form 10-Q for the quarter ended March 31, 2001)
10.7*
Imation 2000 Stock Incentive Plan, as amended.
10.8*
1996 Directors Stock Compensation Program, as
amended May 8, 2002. (incorporated by reference to
Exhibit 10.1 of the Companys 10-Q for the quarter
ended June 30, 2002)
10.9*
Severance Agreement dated August 7, 2002
between the Company and William T. Monahan, replacing the
Employment Agreement dated as of July 1, 1996 which was
included as exhibit 10.7 in the Companys Registration
Statement on Form 10 (No. 1-14310) (incorporated by
reference to Exhibit 10.1 of the Companys 10-Q for
the quarter ended September 30, 2002)
10.10*
Retirement Agreement dated November 7, 2002
between the Company and David H. Wenck (incorporated by
reference to exhibit 10.12 of the Companys 10-K for
the fiscal year ended December 31, 2002)
10.11
Shareholders Agreement in relation to Global Data
Media FZ-LLC.
21.1
Subsidiaries of Imation Corp.
23.1
Consent of Independent Auditors
24.1
Power of Attorney
31.1
Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
31.2
Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
Exhibit
Number
Description of Exhibit
32.1
Certification Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
32.2
Certification Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
*
Items that are management contracts or
compensatory plans or arrangements required to be filed as an
exhibit pursuant to Item 14(c) of Form 10-K.
(b)
Reports on Form 8-K
SIGNATURES
Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: March 1, 2004
63
Pursuant to the requirements of the Securities
Exchange Act of 1934, this Report has been signed below by the
following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
** Pursuant to a Board of Directors
resolution adopted on August 6, 2003, Mr. Zeller has
assumed the Chief Financial Officer function with respect to
preparation of financial statements and SEC filings.
IMATION CORP.
By:
/s/ WILLIAM T. MONAHAN
William T. Monahan
Chairman, President and
Chief Executive Officer
Signature
Title
Date
/s/ WILLIAM T. MONAHAN
William T. Monahan
Chairman, President, Chief Executive Officer and
Director (principal executive officer)
March 1, 2004
/s/ PAUL R. ZELLER
Paul R. Zeller
Vice President, Corporate Controller (principal
financial officer and controller)**
March 1, 2004
*
Michael S. Fields
Director
March 1, 2004
*
Linda W. Hart
Director
March 1, 2004
*
Ronald T. LeMay
Director
March 1, 2004
*
Marvin L. Mann
Director
March 1, 2004
*
L. White Matthews, III
Director
March 1, 2004
*
Glen A. Taylor
Director
March 1, 2004
*
Daryl J. White
Director
March 1, 2004
*By:
/s/ JOHN L. SULLIVAN
John L. Sullivan
Attorney-in-fact
64
Exhibit 10.7
IMATION CORP.
2000 STOCK INCENTIVE PLAN
AS AMENDED FEBRUARY 6, 2003
Section 1. Purpose; Effect on Prior Plans .
(a) Purpose . The purpose of the Imation 2000 Stock Incentive Plan (the Plan) is to promote the interests of Imation Corp. (the Company) and its shareholders by aiding the Company in attracting and retaining employees, officers, consultants and independent contractors capable of assuring the future success of the Company, to provide such persons with opportunities for stock ownership in the Company and to offer such persons other incentives to put forth maximum efforts for the success of the Companys business.
(b) Effect on Prior Plans . From and after the date of shareholder approval of the Plan, no awards shall be granted under the Companys 1996 Employee Stock Incentive Plan, but all outstanding awards previously granted under the 1996 Employee Stock Incentive Plan shall remain outstanding in accordance with the terms thereof.
Section 2. Definitions .
As used in the Plan, the following terms shall have the meanings set forth below:
(a) Affiliate shall mean (i) any entity that, directly or indirectly through one or more intermediaries, is controlled by the Company and (ii) any entity in which the Company has a significant equity interest, in each case as determined by the Committee.
(b) Award shall mean any Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit, Performance Award, Dividend Equivalent or Other Stock-Based Award granted under the Plan.
(c) Award Agreement shall mean any written agreement, contract or other instrument or document evidencing an Award granted under the Plan. Each Award Agreement shall be subject to the applicable terms and conditions of the Plan and any other terms and conditions (not inconsistent with the Plan) determined by the Committee.
(d) Board shall mean the Board of Directors of the Company.
(e) Code shall mean the Internal Revenue Code of 1986, as amended from time to time, and any regulations promulgated thereunder.
(f) Committee shall mean the Compensation Committee or such other committee of Directors designated by the Board to administer the Plan. The Committee shall be comprised of not less than such number of Directors as shall be required to permit Awards granted under the Plan to qualify under Rule 16b-3, and each member of the Committee shall be a Non-Employee Director within the meaning of Rule 16b-3 and an outside director within the meaning of Section 162(m) of the Code.
-1-
The Company expects to have the Plan administered in accordance with the requirements for the award of qualified performance-based compensation within the meaning of Section 162(m) of the Code.
(g) Company shall mean Imation Corp., a Delaware corporation, and any successor corporation.
(h) Director shall mean a member of the Board.
(i) Dividend Equivalent shall mean any right granted under Section 6(e) of the Plan.
(j) Eligible Person shall mean any employee, officer, consultant or independent contractor providing services to the Company or any Affiliate whom the Committee determines to be an Eligible Person, but shall not include any non-employee Director.
(k) Fair Market Value shall mean, with respect to any property (including, without limitation, any Shares or other securities), the fair market value of such property determined by such methods or procedures as shall be established from time to time by the Committee. Notwithstanding the foregoing, the Fair Market Value of Shares as of a given date shall be the last sale price of the Shares as reported on the New York Stock Exchange Composite Transactions on such date.
(l) Incentive Stock Option shall mean an option granted under Section 6(a) of the Plan that is intended to meet the requirements of Section 422 of the Code or any successor provision.
(m) Non-Qualified Stock Option shall mean an option granted under Section 6(a) of the Plan that is not intended to be an Incentive Stock Option.
(n) Option shall mean an Incentive Stock Option or a Non-Qualified Stock Option.
(o) Other Stock-Based Award shall mean any right granted under Section 6(f) of the Plan.
(p) Participant shall mean an Eligible Person designated to be granted an Award under the Plan.
(q) Performance Award shall mean any right granted under Section 6(d) of the Plan.
(r) Person shall mean any individual, corporation, partnership, association or trust.
-2-
(s) Plan shall mean the Imation Corp. 2000 Stock Incentive Plan, as amended from time to time, the provisions of which are set forth herein.
(t) Restricted Stock shall mean any Shares granted under Section 6(c) of the Plan.
(u) Restricted Stock Unit shall mean any unit granted under Section 6(c) of the Plan evidencing the right to receive a Share (or a cash payment equal to the Fair Market Value of a Share) at some future date.
(v) Rule 16b-3 shall mean Rule 16b-3 promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, or any successor rule or regulation.
(w) Shares shall mean shares of Common Stock, par value $.01 per share, of the Company or such other securities or property as may become subject to Awards pursuant to an adjustment made under Section 4(c) of the Plan.
(x) Stock Appreciation Right shall mean any right granted under Section 6(b) of the Plan.
Section 3. Administration .
(a) Power and Authority of the Committee . The Plan shall be administered by the Committee. Subject to the express provisions of the Plan and to applicable law, the Committee shall have full power and authority to: (i) designate Participants; (ii) determine the type or types of Awards to be granted to each Participant under the Plan; (iii) determine the number of Shares to be covered by (or the method by which payments or other rights are to be calculated in connection with) each Award; (iv) determine the terms and conditions of any Award or Award Agreement; (v) amend the terms and conditions of any Award or Award Agreement; (vi) accelerate the exercisability of any Award or the lapse of restrictions relating to any Award; (vii) determine whether, to what extent and under what circumstances Awards may be exercised in cash, Shares, other securities, other Awards or other property, or canceled, forfeited or suspended; (viii) determine whether, to what extent and under what circumstances cash, Shares, promissory notes, other securities, other Awards, other property and other amounts payable with respect to an Award under the Plan shall be deferred either automatically or at the election of the holder thereof or the Committee; (ix) interpret and administer the Plan and any instrument or agreement, including an Award Agreement, relating to the Plan; (x) establish, amend, suspend or waive such rules and regulations and appoint such agents as it shall deem appropriate for the proper administration of the Plan; and (xi) make any other determination and take any other action that the Committee deems necessary or desirable for the administration of the Plan. Unless otherwise expressly provided in the Plan, all designations, determinations, interpretations and other decisions under or with respect to the Plan or any Award shall be within the sole discretion of the Committee, may be made at any time and shall be final, conclusive and binding upon any Participant, any holder or beneficiary of any Award and any employee of the Company or any Affiliate.
-3-
(b) Delegation . The Committee may delegate its powers and duties under the Plan to one or more Directors or a committee of Directors, subject to such terms, conditions and limitations as the Committee may establish in its sole discretion.
(c) Power and Authority of the Board of Directors . Notwithstanding anything to the contrary contained herein, the Board may, at any time and from time to time, without any further action of the Committee, exercise the powers and duties of the Committee under the Plan.
Section 4. Shares Available for Awards .
(a) Shares Available . Subject to adjustment as provided in Section 4(c) of the Plan, the aggregate number of Shares that may be issued under all Awards under the Plan shall be 4,000,000. Shares to be issued under the Plan may be either authorized but unissued Shares, treasury Shares or Shares acquired in the open market or otherwise. Any Shares that are used by a Participant as full or partial payment to the Company of the purchase price relating to an Award, or in connection with the satisfaction of tax obligations relating to an Award, shall again be available for granting Awards (other than Incentive Stock Options) under the Plan. In addition, if any Shares covered by an Award or to which an Award relates are not purchased or are forfeited, or if an Award otherwise terminates without delivery of any Shares, then the number of Shares counted against the aggregate number of Shares available under the Plan with respect to such Award, to the extent of any such forfeiture or termination, shall again be available for granting Awards under the Plan.
(b) Accounting for Awards . For purposes of this Section 4, if an Award entitles the holder thereof to receive or purchase Shares, the number of Shares covered by such Award or to which such Award relates shall be counted on the date of grant of such Award against the aggregate number of Shares available for granting Awards under the Plan.
(c) Award Limitations Under the Plan . No Eligible Person may be granted any Award or Awards under the Plan, the value of which Award or Awards is based solely on an increase in the value of the Shares after the date of grant of such Award or Awards, for more than 500,000 Shares (subject to adjustment as provided for in Section 4(d) of the Plan), in the aggregate in any calendar year. The foregoing annual limitation specifically includes the grant of any Award or Awards representing qualified performance-based compensation within the meaning of Section 162(m) of the Code.
(d) Adjustments . In the event that the Committee shall determine that any dividend or other distribution (whether in the form of cash, Shares, other securities or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of Shares or other securities of the Company, issuance of warrants or other rights to purchase Shares
-4-
or other securities of the Company or other similar corporate transaction or event affects the Shares such that an adjustment is determined by the Committee to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, then the Committee shall, in such manner as it may deem equitable, adjust any or all of (i) the number and type of Shares (or other securities or other property) that thereafter may be made the subject of Awards, (ii) the number and type of Shares (or other securities or other property) subject to outstanding Awards and (iii) the purchase or exercise price with respect to any Award; provided, however, that the number of Shares covered by any Award or to which such Award relates shall always be a whole number.
Section 5. Eligibility .
Any Eligible Person shall be eligible to be designated a Participant. In determining which Eligible Persons shall receive an Award and the terms of any Award, the Committee may take into account the nature of the services rendered by the respective Eligible Persons, their present and potential contributions to the success of the Company or such other factors as the Committee, in its discretion, shall deem relevant. Notwithstanding the foregoing, an Incentive Stock Option may only be granted to full-time or part-time employees (which term as used herein includes, without limitation, officers and Directors who are also employees), and an Incentive Stock Option shall not be granted to an employee of an Affiliate unless such Affiliate is also a subsidiary corporation of the Company within the meaning of Section 424(f) of the Code or any successor provision.
Section 6. Awards .
(a) Options . The Committee is hereby authorized to grant Options to Eligible Persons with the following terms and conditions and with such additional terms and conditions not inconsistent with the provisions of the Plan as the Committee shall determine:
(i) Exercise Price . The purchase price per Share purchasable under an Incentive Stock Option shall be equal to 100% of the Fair Market Value of a Share on the date of grant of such Option. Non-Qualified Stock Options may have a purchase price equal to or more or less than 100% of Fair Market Value, as determined by and at the sole discretion of the Committee.
(ii) Option Term . The term of each Option shall be fixed by the Committee.
(iii) Time and Method of Exercise . The Committee shall determine the time or times at which an Option may be exercised in whole or in part and the method or methods by which, and the form or forms (including, without limitation, cash, Shares, promissory notes, other securities, other Awards or other property, or any combination thereof, having a Fair Market Value on the exercise date equal to the applicable exercise price) in which, payment of the exercise price with respect thereto may be made or deemed to have been made.
-5-
(b) Stock Appreciation Rights . The Committee is hereby authorized to grant Stock Appreciation Rights to Eligible Persons subject to the terms of the Plan and any applicable Award Agreement. A Stock Appreciation Right granted under the Plan shall confer on the holder thereof a right to receive upon exercise thereof the excess of (i) the Fair Market Value of one Share on the date of exercise (or, if the Committee shall so determine, at any time during a specified period before or after the date of exercise) over (ii) the grant price of the Stock Appreciation Right as specified by the Committee, which price shall not be less than 100% of the Fair Market Value of one Share on the date of grant of the Stock Appreciation Right. Subject to the terms of the Plan and any applicable Award Agreement, the grant price, term, methods of exercise, dates of exercise, methods of settlement and any other terms and conditions of any Stock Appreciation Right shall be as determined by the Committee. The Committee may impose such conditions or restrictions on the exercise of any Stock Appreciation Right as it may deem appropriate.
(c) Restricted Stock and Restricted Stock Units . The Committee is hereby authorized to grant Restricted Stock and Restricted Stock Units to Eligible Persons with the following terms and conditions and with such additional terms and conditions not inconsistent with the provisions of the Plan as the Committee shall determine:
(i) Restrictions . Shares of Restricted Stock and Restricted Stock Units shall be subject to such restrictions as the Committee may impose (including, without limitation, a waiver by the Participant of the right to vote or to receive any dividend or other right or property with respect thereto), which restrictions may lapse separately or in combination at such time or times, in such installments or otherwise as the Committee may deem appropriate.
(ii) Stock Certificates; Delivery of Shares . Any Restricted Stock granted under the Plan shall be issued and held by the Company or held in nominee name by the stock transfer agent or brokerage service selected by the Company to provide such services for the Plan. No stock certificates evidencing such Restricted Stock shall be issued to the Participant prior to the lapse or waiver of restrictions applicable to such Restricted Stock. Stock certificates registered in the name of the Participant shall be delivered to the Participant promptly after the applicable restrictions lapse or are waived. In the case of Restricted Stock Units, no Shares shall be issued at the time such Awards are granted. Upon the lapse or waiver of restrictions and the restricted period relating to Restricted Stock Units evidencing the right to receive Shares, such Shares shall be issued and delivered to the holder of the Restricted Stock Units.
(iii) Forfeiture . Except as otherwise determined by the Committee, upon a Participants termination of employment (as determined under criteria established by the Committee) during the applicable restriction period, all Shares of Restricted Stock and all Restricted Stock Units held by the Participant at such time shall be forfeited and reacquired by the Company; provided, however, that the Committee may, when it finds that a waiver would be in the best interest of the Company, waive in whole or in part any or all remaining restrictions with respect to Shares of Restricted Stock or Restricted Stock Units.
-6-
(d) Performance Awards . The Committee is hereby authorized to grant Performance Awards to Eligible Persons subject to the terms of the Plan and any applicable Award Agreement. A Performance Award granted under the Plan (i) may be denominated or payable in cash, Shares (including, without limitation, Restricted Stock and Restricted Stock Units), other securities, other Awards or other property and (ii) shall confer on the holder thereof the right to receive payments, in whole or in part, upon the achievement of such performance goals during such performance periods as the Committee shall establish. Subject to the terms of the Plan and any applicable Award Agreement, the performance goals to be achieved during any performance period, the length of any performance period, the amount of any Performance Award granted, the amount of any payment or transfer to be made pursuant to any Performance Award and any other terms and conditions of any Performance Award shall be determined by the Committee.
(e) Dividend Equivalents . The Committee is hereby authorized to grant to Eligible Persons Dividend Equivalents under which the Participant shall be entitled to receive payments (in cash, Shares, other securities, other Awards or other property as determined in the discretion of the Committee) equivalent to the amount of cash dividends paid by the Company to holders of Shares with respect to a number of Shares determined by the Committee. Subject to the terms of the Plan and any applicable Award Agreement, such Dividend Equivalents may have such terms and conditions as the Committee shall determine.
(f) Other Stock-Based Awards . The Committee is hereby authorized to grant to Eligible Persons, subject to the terms of the Plan and any applicable Award Agreement, such other Awards that are denominated or payable in, valued in whole or in part by reference to, or otherwise based on or related to, Shares (including, without limitation, securities convertible into Shares), as are deemed by the Committee to be consistent with the purpose of the Plan. Shares or other securities delivered pursuant to a purchase right granted under this Section 6(f) shall be purchased for such consideration, which may be paid by such method or methods and in such form or forms (including, without limitation, cash, Shares, promissory notes, other securities, other Awards or other property, or any combination thereof), as the Committee shall determine, the value of which consideration, as established by the Committee, shall not be less than 100% of the Fair Market Value of such Shares or other securities as of the date such purchase right is granted.
(g) General .
(i) No Cash Consideration for Awards . Awards shall be granted for no cash consideration or for such minimal cash consideration as may be required by applicable law.
(ii) Awards May Be Granted Separately or Together . Awards may, in the discretion of the Committee, be granted either alone or in addition to, in tandem with or in substitution for any other Award or any award granted under any plan of the Company or any Affiliate other than the Plan. Awards granted in addition to or in tandem with other Awards or in addition to or in tandem with awards granted under any such other plan of the Company or any Affiliate may be granted either at the same time as or at a different time from the grant of such other Awards or awards.
-7-
(iii) Forms of Payment under Awards . Subject to the terms of the Plan and any applicable Award Agreement, payments or transfers to be made by the Company or an Affiliate upon the grant, exercise or payment of an Award may be made in such form or forms as the Committee shall determine (including, without limitation, cash, Shares, promissory notes, other securities, other Awards or other property, or any combination thereof) and may be made in a single payment or transfer, in installments or on a deferred basis, in each case in accordance with rules and procedures established by the Committee. Such rules and procedures may include, without limitation, provisions for the payment or crediting of reasonable interest on installment or deferred payments or the grant or crediting of Dividend Equivalents with respect to installment or deferred payments.
(iv) Limits on Transfer of Awards . No Award and no right under any such Award shall be transferable by a Participant other than by will or by the laws of descent and distribution; provided, however, that, if so determined by the Committee, a Participant may, in the manner established by the Committee, transfer Options (other than Incentive Stock Options) or designate a beneficiary or beneficiaries to exercise the rights of the Participant and receive any property distributable with respect to any Award upon the death of the Participant. Each Award or right under any Award shall be exercisable during the Participants lifetime only by the Participant (except as otherwise provided in an Award Agreement or amendment thereto relating to a Non-Qualified Stock Option pursuant to terms determined by the Committee) or, if permissible under applicable law, by the Participants guardian or legal representative. No Award or right under any such Award may be pledged, alienated, attached or otherwise encumbered, and any purported pledge, alienation, attachment or encumbrance thereof shall be void and unenforceable against the Company or any Affiliate.
(v) Term of Awards . The term of each Award shall be for such period as may be determined by the Committee.
(vi) Restrictions; Securities Exchange Listing . All Shares or other securities delivered under the Plan pursuant to any Award or the exercise thereof shall be subject to such restrictions as the Committee may deem advisable under the Plan, applicable federal or state securities laws and regulatory requirements, and the Committee may cause appropriate entries to be made or legends to be placed on the certificates for such Shares or other securities to reflect such restrictions. If the Shares or other securities of the Company are traded on a securities exchange, the Company shall not be required to deliver any Shares or other securities covered by an Award unless and until such Shares or other securities have been admitted for trading on such securities exchange.
Section 7. Amendment and Termination; Adjustments .
(a) Amendments to the Plan . The Board of Directors of the Company may amend, alter, suspend, discontinue or terminate the Plan; provided, however, that, notwithstanding any other provision of the Plan or any Award Agreement, prior approval of the stockholders of the Company shall be required for any amendment to the Plan that requires stockholder approval under the rules or regulations of New York Stock Exchange, or to comply with section 16(b) of the Securities Exchange Act of 1934, as amended.
-8-
(b) Amendments to Awards . Subject to the provisions of the Plan, the Committee may waive any conditions of or rights of the Company under any outstanding Award, prospectively or retroactively. Except as otherwise provided herein or in an Award Agreement, the Committee may not amend, alter, suspend, discontinue or terminate any outstanding Award, prospectively or retroactively, if such action would adversely affect the rights of the holder of such Award, without the consent of the Participant or holder or beneficiary thereof.
(c) Correction of Defects, Omissions and Inconsistencies . The Committee may correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Award in the manner and to the extent it shall deem desirable to carry the Plan into effect.
Section 8. Income Tax Withholding .
In order to comply with all applicable federal, state or local income tax laws or regulations, the Company may take such action as it deems appropriate to ensure that all applicable federal, state or local payroll, withholding, income or other taxes, which are the sole and absolute responsibility of a Participant, are withheld or collected from such Participant. In order to assist a Participant in paying all or a portion of the federal and state taxes to be withheld or collected upon exercise or receipt of (or the lapse of restrictions relating to) an Award, the Committee, in its discretion and subject to such additional terms and conditions as it may adopt, may permit the Participant to satisfy such tax obligation by (a) electing to have the Company withhold a portion of the Shares otherwise to be delivered upon exercise or receipt of (or the lapse of restrictions relating to) such Award with a Fair Market Value equal to the amount of such taxes or (b) delivering to the Company Shares other than Shares issuable upon exercise or receipt of (or the lapse of restrictions relating to) such Award with a Fair Market Value equal to the amount of such taxes. The election, if any, must be made on or before the date that the amount of tax to be withheld is determined.
Section 9. General Provisions .
(a) No Rights to Awards . No Eligible Person, Participant or other Person shall have any claim to be granted any Award under the Plan, and there is no obligation for uniformity of treatment of Eligible Persons, Participants or holders or beneficiaries of Awards under the Plan. The terms and conditions of Awards need not be the same with respect to any Participant or with respect to different Participants.
(b) Award Agreements . No Participant shall have rights under an Award granted to such Participant unless and until an Award Agreement shall have been duly executed on behalf of the Company and, if requested by the Company, signed by the Participant.
-9-
(c) No Rights of Shareholders . Except with respect to Restricted Stock, neither a Participant nor the Participants legal representative shall be, or have any of the rights and privileges of, a shareholder of the Company in respect of any Shares issuable upon the exercise or payment of any Award, in whole or in part, unless and until the Shares have been issued.
(d) No Limit on Other Compensation Plans or Arrangements . Nothing contained in the Plan shall prevent the Company or any Affiliate from adopting or continuing in effect other or additional compensation plans or arrangements, and such plans or arrangements may be either generally applicable or applicable only in specific cases.
(e) No Right to Employment . The grant of an Award shall not be construed as giving a Participant the right to be retained in the employ of the Company or any Affiliate, nor will it affect in any way the right of the Company or an Affiliate to terminate such employment at any time, with or without cause. In addition, the Company or an Affiliate may at any time dismiss a Participant from employment free from any liability or any claim under the Plan or any Award, unless otherwise expressly provided in the Plan or in any Award Agreement.
(f) Governing Law . The internal law, and not the law of conflicts, of the State of Delaware shall govern all questions concerning the validity, construction and effect of the Plan and any rules and regulations relating to the Plan or any Award.
(g) Severability . If any provision of the Plan or any Award is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to applicable laws, or if it cannot be so construed or deemed amended without, in the determination of the Committee, materially altering the purpose or intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction or Award, and the remainder of the Plan or any such Award shall remain in full force and effect.
(h) No Trust or Fund Created . Neither the Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any Affiliate and a Participant or any other Person. To the extent that any Person acquires a right to receive payments from the Company or any Affiliate pursuant to an Award, such right shall be no greater than the right of any unsecured general creditor of the Company or any Affiliate.
(i) No Fractional Shares . No fractional Shares shall be issued or delivered pursuant to the Plan or any Award, and the Committee shall determine whether cash shall be paid in lieu of any fractional Share or whether such fractional Share and any rights thereto shall be canceled, terminated or otherwise eliminated.
(j) Headings . Headings are given to the Sections and subsections of the Plan solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Plan or any provision thereof.
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Section 10. Term of the Plan .
The Plan shall terminate ten (10) years after the date of the initial grants or awards under the Plan. However, unless otherwise expressly provided in the Plan or in an applicable Award Agreement, any Award theretofore granted may extend beyond such date, and the authority of the Committee provided for hereunder with respect to the Plan and any Awards, and the authority of the Board of Directors of the Company to amend the Plan, shall extend beyond that date.
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Exhibit 10.11
Shareholders Agreement in relation
to Global Data
Media
FZ-LLC
Dated 25 February 2003
Imation Corp.
(Imation)
Moser Baer India Ltd.
(MBI)
Global Data Media FZ-LLC
(the Company) and
MBI International FZ-LLC
(International)
Denton Wilde Sapte
PO Box 1756
Dubai
United Arab Emirates
Tel:00 971 4 331 0220
Fax:00 791 4 331 0201
www.dentonwildesapte.com
Contents
Contents (i)
Definitions and Interpretation
2
Definitions
2
Interpretation
4
Purpose and Business of the Group
4
Definition of Business
4
Objectives of the Parties
5
Business Plan
5
House Brand
6
Constitutive Documents
6
Non-competition
6
Closing
7
Initial capitalisation
7
Time and place of Closing
7
Obligations at Closing
7
Provision of Finance
8
Financing the Group
8
Further funding
8
Default in funding obligation
8
Terms of Shareholders Loans
8
Dividend
9
The Board and Management
9
Nominated Directors
9
Chairman
10
Board meetings
10
Quorum
10
Alternate Directors
10
Voting at Board meetings
10
Majority voting
11
Written resolutions of the Board
11
Recording of Minutes of the Board Meetings
11
Shareholders to ensure Nominated Director's resignation
11
Auditors of the Company
11
Directors of other Group Companies
12
Operation of the
Companys Business
12
Managing Director
12
Appointment and removal of Managing Director
13
Director of Sales
13
Customer support team
13
Employee liability
14
Business housekeeping
14
Subsidiaries and Branches
14
Limitations on Disclosure
15
Sales to Customers
15
Transfer of employees to MBI
15
Shareholder Meetings
16
Notice of Shareholder meetings
16
Quorum for Shareholder meetings
16
Chairman of Shareholder meetings
16
Contents (ii)
Voting at General Meetings
16
General Meeting of Subsidiaries
16
Information
16
Preparation and currency of financial information
16
Financial information
17
Audit rights
17
Exercise of audit rights
17
Restriction on disclosure of information
18
Access and verification of Company information
18
Minority Shareholder Protections
19
List of minority Shareholder protections
19
Deadlock resolution
20
Related Party Agreements
20
Application of restrictions to Subsidiaries
20
Confidentiality and Announcements
21
Definitions in this Clause
21
Duty of confidentiality
21
Permitted disclosures
21
Consultation
21
Restrictions on announcements
22
Permitted announcements
22
Prior consultation on announcements
22
Continuance of obligations
22
Transfer of Shares
22
General prohibition on Share transfers
22
Permitted transfers
23
Duration and termination
23
Duration
23
Termination without cause
23
Termination with cause by Imation
23
Termination with cause by MBI
24
Termination with cause - termination fee
24
Consequences of termination - liquidation of the Company and its Subsidiaries
24
Consequences of termination - Imation as Defaulting Party
24
Consequences of termination - MBI as Defaulting Party
25
Consequences of termination - Non solicitation
25
Termination for disagreement on a Major Decision
25
List of Major Decisions
25
Representations, Warranties and Indemnities
26
Warranties by Imation
26
Warranties by MBI
26
Compliance with laws
26
Consent to certain matters
27
US Foreign Corrupt Practices Act
27
Indemnity
27
Limitation of Liability
28
General
28
Parties general obligation
28
Conflict with the Regulations
28
No partnership
28
Costs
28
Contents (iii)
No Assignment
28
Execution in Counterparts
28
Notices
29
Method and delivery
29
Addresses
29
Receipt
29
English law
30
Arbitration
30
Submission to arbitration
30
Language of proceedings
30
Imation Guarantee
30
Guaranteed obligations
30
No release etc
31
No avoidance of release, settlement etc
31
Survival
31
Schedule 1 - Representations and Warranties
32
Schedule 2 - Closing obligations
34
Schedule 3 - Confidentiality Agreement (Clause 6.8)
37
Schedule 4 - Management Roles and Responsibilities (Clause 6.6(d))
40
Shareholders Agreement (hereinafter the Agreement)
Dated 25 February 2003
Between
(1) | Imation Corp. (Imation) a company incorporated in the State of Delaware, USA having its principal office at Imation Place, Oakdale, Minnesota, USA; | |
(2) | Moser Baer India Ltd . ( MBI ) a company incorporated in India with registered number 15431 having its registered office at 63, Ring Road, Lajpat Nagar III, New Delhi - 110024, India; | |
(3) | Global Data Media FZ-LLC (the Company ) a free zone limited liability company incorporated in the Dubai Internet City under licence number 19599 and having its registered office at Office No. 119/120, Building 14, First Floor, Dubai Internet City, Dubai, United Arab Emirates; and | |
(4) | MBI International FZ-LLC ( International ) a free zone limited liability company incorporated in the Dubai Internet City under licence number 19612 and having its registered office at Office No. 119/120, Building 14, First Floor, Dubai Internet City, Dubai, United Arab Emirates. |
Recitals
A | Imation is a multi-national company involved in the development and marketing of magnetic and optical removable data storage products. | |
B | MBI is a multi-national company involved in the manufacture and supply of magnetic and optical removable data storage products. | |
C | The Company proposes to market and sell optical removable data storage products to customers worldwide (excluding in India) through its wholly owned Subsidiaries in order to maximise the sales opportunities created by synergies between Imation and MBI which could not fully be exploited by either of them acting alone. | |
D | Imation and MBI have agreed to promote the Company being a Dubai registered technology, electronic commerce and media free zone limited liability company in the Dubai Internet City in Dubai, United Arab Emirates, together with its Subsidiaries for the purpose of conducting the Business as described in Clause 2.1 with the objectives described in Clause 2.2. | |
E | Imation and MBI are entering into this Agreement to regulate their relationship as shareholders in and the management of the Company and its Subsidiaries. | |
F | The Company and International are entering into this Agreement to obtain the benefit of certain rights and to enter into certain obligations. |
In consideration of and in reliance upon the mutual covenants and agreements of the Parties set out in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by each Party, the Parties agree as follows:
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1 | Definitions and Interpretation |
1.1 | Definitions | |
In this Agreement and its Recitals the following definitions shall apply. | ||
AED means United Arab Emirates Dirhams. | ||
Annual Budget means a budget including income statements (incorporating operating expenditure), working capital, capital expenditure and cash flow statements for a financial year of the Group. | ||
Applicable Laws means the Dubai Technology, Electronic Commerce & Media Free Zone Law comprising law no.1 of 2000 of the Emirate of Dubai, together with all relevant laws and regulations issued by the government of Dubai and the Authority and all laws and regulations of the United Arab Emirates and the Emirate of Dubai applicable to the Company as an FZ-LLC incorporated within the Dubai Internet City. | ||
Articles means the articles of association of the Company in the agreed form or as they may subsequently be amended from time to time pursuant to Clause 9.1. | ||
Associate means, with respect to any Party (excluding any Group Company), any person (excluding any Group Company) that from time to time directly or indirectly through one or more intermediaries, owns or controls, or is owned or controlled by, or is under common ownership or control with the Party or person specified, where own means ownership of more than 50% of the equity interests or rights to distributions on account of equity of the Party or person and control means the power to direct the management or policies of the Party or person specified. | ||
Authority means the Dubai Technology, Electronic Commerce & Media Free Zone Authority constituted in accordance with the Dubai Technology, Electronic Commerce & Media Free Zone Law comprising law no.1 of 2000 of the Emirate of Dubai. | ||
Board means the board of directors of the Company. | ||
Business has the meaning set out in Clause 2.1. | ||
Business Plan means the business plan of the Group as mutually agreed between the Parties and as amended from time to time in accordance with this Agreement. | ||
Chairman means the Chairman from time to time of the Board. | ||
Closing means the closing of the transaction contemplated by this Agreement in accordance with Clause 3 and Schedule 2. | ||
Customers means persons requiring branded, private label and/or bulk Products. | ||
Director means a director of the Company and A Directors and B Directors shall have the meanings in Clause 5.1. | ||
Director of Sales means the individual appointed from time to time as the director of sales of the Group pursuant to Clause 6.3. | ||
Glyphics Agreement means the agreement of even date between (1) MBI and (2) the Company for the purchase by the Company of the entire issued and outstanding stock of Glyphics Media, Inc. ( Glyphics ). |
2
Group or Group Companies means the Company and its Subsidiaries and Group Company means any of them. | ||
House Brand means a brand of Products in which a Group Company owns the brand intellectual property rights. | ||
Imation Purchaser means Imation and each of its Associates. | ||
LIBOR means the interest rate for Dollar deposits for a 30 day period which appears on the screen display designated as Page 3750 on the Telerate Service (or such other screen display or service as may replace it for the purpose of displaying British Bankers Association LIBOR Rates for Dollar deposits in the London interbank market) at or about 11.00 a.m. on the due date for receipt by the Company of Shareholder Loans and every 30 days thereafter. | ||
Managing Director or MD means the individual appointed from time to time as the managing director of the Group pursuant to Clause 6.2. | ||
Nominated Directors means the A Directors and the B Directors. | ||
Other Goods shall mean media and other related products (other than Products) that may be manufactured/supplied by MBI for distribution to customers in the Territory. | ||
Party means Imation, MBI, International or the Company and Parties means all or any of them as the context may require. | ||
Permitted Transferee has the meaning in Clause 11.2. | ||
Products means optical data storage media in the CD and DVD recordable and re-writeable formats, whether packaged or unpackaged. | ||
PSS Division means the business division within Imation and/or its Associates which produces and/or sells personal computer storage applications comprising of optical media products (such as the Products) and/or magnetic disc products (such as diskettes), including the relevant part of another division within Imation and/or its Associates into which such business division may be reorganised in whole or in part from time to time. | ||
Related Party means, with respect to any Party (excluding any Group Company), any person (excluding any Group Company) that from time to time directly or indirectly through one or more intermediaries, owns or controls, or is owned or controlled by, or is under common ownership or control with the Party or person specified or the key officers of the Party or person specified, where own means ownership of more than 26% of the equity interests or rights to distributions on account of equity of the Party or person and control means the power to direct the management or policies of the Party or person specified. | ||
Related Party Agreement means an agreement, contract or understanding (whether or not in writing) between any Group Company and a Party (excluding any Group Company) or a Related Party. | ||
Supply Services Agreement means an agreement of even date entered into between (1) the Company and (2) MBI and Imation for the provision of services by MBI and Imation to the Company. | ||
Shareholder means Imation or MBI and Shareholders means both of them. |
3
Shareholder Loans means loans made by the Shareholders or any Associate of either Shareholder to any Group Company pursuant to Clause 4.2, to be repaid on the terms set out in Clause 4.4. | ||
Shares means shares with a nominal value of AED 1,000 each in the capital of the Company. | ||
Subsidiaries means the direct and indirect subsidiaries of the Company from time to time, including the companies to be formed in accordance with Clause 6.7. | ||
Territory means all countries excluding the Republic of India. US$ means United States Dollars. |
1.2 | Interpretation | |
In this Agreement, unless otherwise specified: |
(a) | reference to any law, bye-law, regulation, rule, delegated legislation or order is to any law, bye-law, regulation, rule, delegated legislation or order as amended, modified or replaced from time to time and to any law, bye-law, regulation, rule, delegated legislation or order replacing or made under any of them; | ||
(b) | references to any Clause, paragraph or Schedule are to those contained in this Agreement and all Schedules to this Agreement are an integral part of this Agreement; | ||
(c) | headings are for ease of reference only and shall not be taken into account in construing this Agreement; | ||
(d) | person includes any individual, firm, partnership, company or other incorporated or unincorporated body; | ||
(e) | in writing includes any communication made by email (provided it has been subsequently confirmed by letter or fax), letter or fax; | ||
(f) | a document is in the agreed form if it is in the form of a draft agreed between and initialled by or on behalf of the Parties on or before the date of this Agreement; | ||
(g) | references to any month, year or date shall be construed by reference to the Gregorian Calendar; and | ||
(h) | the words include, including and in particular shall be construed as being by way of illustration or emphasis only and shall not be construed as, nor shall they take effect as, limiting the generality of any preceding words. |
2 | Purpose and Business of the Group |
2.1 | Definition of Business | |
The business of the Group (the Business ) shall only be: |
(a) | to act as non-exclusive purchaser of Products manufactured/supplied by MBI under the have made rights of Imation, the Company and/or the Subsidiaries and their sale to Customers in accordance with the provisions of Clause 2.2 below; |
4
(b) | to act as non-exclusive purchaser of Products manufactured/supplied by MBI, for which the have made rights of Imation, the Company and/or the Subsidiaries are not then applicable and their sale to Customers in accordance with the provisions of Clause 2.2 below; | ||
(c) | to act as non-exclusive distributor for MBI in respect of Other Goods manufactured/supplied by MBI; | ||
(d) | to purchase and sell media formats other than the Products only if agreed and to the extent agreed to by Imation, MBI and the Company at a later date; and | ||
(e) | to purchase Other Goods from third parties for sale to customers, only if agreed and to the extent agreed upon by Imation, MBI and the Company from time to time. |
2.2 | Objectives of the Parties | |
The purpose of the Company is to combine the manufacturing expertise of MBI and the marketing and sales expertise of Imation, to the fullest extent possible, in a joint venture company that can focus on new marketing and sales opportunities that neither MBI or Imation can fully exploit acting alone and that can provide enhanced customer support to their Customers. In addition, through the Group, Imation will have an avenue to more fully utilize and exploit its existing and future intellectual property portfolio in the Products (including its have made rights relating to the Products) to the benefit of Imation, MBI and the Group. The Parties agree to the following principles and objectives for entering into this Agreement: |
(a) | the Company shall purchase the Products under its have made rights exclusively from MBI. Any Product for which the have made rights are not then available shall also be purchased exclusively by the Company from MBI; | ||
(b) | the Company shall sell the Products exclusively to International and Glyphics Media, Inc. (after it becomes a direct wholly-owned Subsidiary of the Company and executes a deed of adherence in the agreed form) and International and Glyphics Media, Inc. (after it becomes a direct wholly-owned Subsidiary of the Company and executes a deed of adherence in the agreed form) shall purchase the Products exclusively from the Company; | ||
(c) | International and Glyphics Media, Inc. (after it becomes a direct wholly-owned Subsidiary of the Company and executes a deed of adherence in the agreed form) shall sell the Products to Customers directly; | ||
(d) | Imation shall cause Glyphics Media, Inc., MBI International Services Private Limited and any other future Subsidiaries of the Company to execute a deed of adherence in the agreed form within 30 days of it becoming a Subsidiary, thereby agreeing to confirm and abide by the terms and conditions of this Agreement; | ||
(e) | all rights of Imation and MBI as shareholders of the Company shall be applicable to them with respect to International and all other Subsidiaries as if they are also the shareholders of each such Subsidiary. |
2.3 | Business Plan | |
The Business shall be carried on in accordance with the Business Plan. Any modifications or amendments to the Business Plan or any new/subsequent Business Plan shall require the prior approval of the Board. |
5
2.4
House Brand
No Group Company shall develop or acquire a House Brand and shall not
market or sell any brand of Products in which any of the Shareholders or
their Associates own the brand intellectual property rights.
2.5
Constitutive Documents
The Parties agree that the memorandum of association and articles of
association of each Group Company shall to the extent permissible under
Applicable Law, reflect the terms of this Agreement. To this end the
Parties shall, to the extent permissible under Applicable Law, cause the
articles of association of each Group Company to be amended to reflect
the understanding set out in this Agreement. Any inconsistency between
the provisions of this Agreement and the memorandum of association and
articles of association of any Group Company shall be interpreted in such
a manner as to give effect to all such documents; provided, however, that
in the event of an inconsistency between this Agreement and the
memorandum of association and articles of association of any Group
Company, the provisions of this Agreement shall prevail as between the
Parties and shall govern their contractual relationship.
2.6
Non-competition
2.6.1
In this Clause 2.6:
Existing Customer of Imation
means an existing Customer from time to time
of an Imation Purchaser;
Existing MBI Customer
means a Customer of MBI as at the date of this
Agreement and/or an existing Customer from time to time of MBI and/or a
Customer of Glyphics as at the date of this Agreement; and
Existing Customer of the Group
means a Customer which from time to time
during the term of this Agreement becomes a Customer of the Group,
subject to Clause 2.6.4.
2.6.2
During the subsistence of this Agreement, Imation undertakes to the
Company and to MBI that it shall not, and shall ensure that the other
Imation Purchasers shall not, sell any Products to any Existing MBI
Customer or any Existing Customer of the Group provided that the
restriction in this Clause 2.6.2 shall not apply to the sale of Products
to an Existing Customer of Imation (unless such Customer became an
Existing Customer of Imation in breach of this Clause 2.6.2).
2.6.3
During the subsistence of this Agreement, the Company undertakes to MBI
that it shall not, and shall ensure that the other Group Companies shall
not, sell any Products to any Existing MBI Customer provided that, subject
to Clause 2.6.4, the restriction in this Section 2.6.3 shall not apply to
the sale of Products to a Customer which is an Existing Customer of the
Group (unless such Customer became an Existing Customer of the Group in
breach of this Clause 2.6.3).
2.6.4
Notwithstanding anything to the contrary in Clause 2.6.3, MBI shall have
the right to refer the Existing MBI Customers to the Group and in such
case the Subsidiaries shall have the right to sell the Products to such
Existing MBI Customers, provided the Subsidiaries right to sell the
Products to such Customers shall only be to the extent and until such time
MBI deems fit and proper in its sole and absolute discretion and any such
Customer shall not be treated as an Existing Customer of the Group.
6
2.6.5
If MBI has reason to believe that an Imation Purchaser is selling
Products to an Existing MBI Customer in breach of Clause 2.6.2, MBI may
serve notice on Imation, following receipt of which Imation shall ensure
that the relevant Imation Purchaser stops selling Products to such
Existing MBI Customer (subject to the completion of any outstanding
committed orders).
3 | Closing |
3.1 | Initial capitalisation | |
Imation represents and warrants to MBI that each of the statements set out below is true and accurate and not misleading as of the date of execution of this Agreement and each such representation and warranty shall be repeated at Closing: |
(a) | the Company has been incorporated as an FZ-LLC in the Dubai Internet City in accordance with the Applicable Laws and is validly subsisting and is in good standing under the Applicable Laws and with an initial capital of AED500,000 divided into 500 Shares, all of which have been fully paid-up; | ||
(b) | the current sole holder of the Shares is Imation Europe B.V., which is a wholly-owned subsidiary of Imation; | ||
(c) | International has been incorporated as an FZ-LLC in the Dubai Internet City in accordance with the Applicable Laws and is validly subsisting and is in good standing under the Applicable Laws and with an initial capital of AED500,000, divided into 500 shares of AED1,000 each, all of which have been fully paid-up; | ||
(d) | the current sole holder of the issued shares in International is the Company; | ||
(e) | 245 Shares which are to be transferred by Imation Europe B.V. to MBI on Closing are validly issued, fully paid-up and non-assessable and will be transferred to MBI free from any liens or other encumbrances whatsoever; | ||
(f) | the Company and International have all the necessary corporate power, authority and capacity to enter into this Agreement and to carry out their obligations under this Agreement; and | ||
(g) | the Company and International have proper licenses and permits from all governmental and statutory authorities to conduct their business as contemplated by the Parties from and after the Closing. |
3.2 | Time and place of Closing | |
Closing shall take place on or before 7 March 2003 at the offices of Denton Wilde Sapte at 26th Floor, API World Tower, Sheikh Zayed Road, Dubai. |
3.3 | Obligations at Closing | |
At Closing, the Parties shall comply with their respective obligations set out in Schedule 2. The Shares to be issued to MBI and Imation on Closing shall be validly issued, fully paid-up and non-assessable and shall be free from any liens or other encumbrances whatsoever. Following the Closing, Imation shall hold 7,487 Shares, representing 51% of the issued Shares, and MBI shall hold 7,194 Shares, representing 49% of the issued Shares. |
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4 | Provision of Finance |
4.1 | Financing the Group | |
The Group shall be financed initially out of the proceeds of the initial capitalisation of the Shares referred to in Clause 3.1, out of the subscriptions of further Shares made on Closing pursuant to Clause 3.3 and Schedule 2 and thereafter, including but not limited to, out of the cashflows and working capital of the Group. |
4.2 | Further funding | |
If the initial financing referred to in Clause 4.1 and the cashflows and working capital of the Group are insufficient to meet the Groups working capital, capital expenditure and other funding requirements as set out in the Annual Budget, the Shareholders shall provide the shortfall by way of Shareholder Loans to the Company pro rata to their respective shareholdings in the Company. The obligations of the Shareholders to provide Shareholder Loans shall require the prior written agreement of both Shareholders to the extent that the aggregate amount of Shareholder Loans made by both Shareholders following Closing would exceed US$4,000,000. The Shareholders shall, subject to their prior written agreement as aforesaid and to necessary regulatory approvals, if any, which regulatory approvals the relevant Shareholder shall use reasonable endeavours to obtain as soon as practicable, make such Shareholder Loans in cash in immediately available cleared funds no later than 60 days (the Funding Period ) following the receipt by the Shareholders of a notice in writing (a Funding Notice ) from the Managing Director setting out: |
(a) | the amount required from each Shareholder; and | ||
(b) | the repayment date. |
4.3 | Default in funding obligation | |
If a Shareholder (the Defaulting Shareholder ) fails to provide within the Funding Period funding which it has agreed to provide pursuant to Clause 4.2, the other Shareholder (the Non-Defaulting Shareholder ) may (at its election and within a further 30 days following notice from the Managing Director that a Defaulting Shareholder has failed to provide funding) provide the funding to meet the shortfall. Such payment shall be without prejudice to any other rights or claims which the Non-Defaulting Shareholder may have under this Agreement in respect of the Defaulting Shareholders default. |
4.4 | Terms of Shareholders Loans | |
The terms of the Shareholder Loans made by the Shareholders to the Company pursuant to this Agreement shall be as follows: |
(a) | they shall be denominated for all purposes in US$; | ||
(b) | they shall bear interest at the rate of LIBOR plus 50 basis points; | ||
(c) | such interest shall accrue and be payable at the same time as repayment of the principal amount of the relevant Shareholder Loans; | ||
(d) | they shall be repayable on their respective terms or upon written demand signed by both Shareholders (other than in the event of the Companys liquidation, in which case they shall be repayable in full); |
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(e) | the Company may prepay all or any part of the Shareholder Loans at any time in accordance with sub-clause (f) below; | ||
(f) | they shall be repayable to the Shareholders pro rata to their respective shareholdings in the Company provided that any Shareholder Loans made by a Non-Defaulting Shareholder pursuant to Clause 4.3 shall, to the extent of the Shareholder Loans made pursuant to Clause 4.3, be repaid first in priority to any other Shareholder Loans; and | ||
(g) | in the event of the insolvent winding-up or liquidation of the Company, the obligation of the Company to repay the Shareholder Loans (and any interest due thereon) shall be subordinated to the payment in full of all preferred and ordinary creditors of the Company. |
Provided however, that the repayment or prepayment of any Shareholder Loans or interest accrued thereon shall be made only after payment of all outstanding dues of the Group on account of any purchase orders, whether fulfilled or otherwise, placed with any of the Groups suppliers, payment of amounts payable by the Company under the Supply Services Agreement, ensuring adequate working capital requirements and/or making adequate provision in respect thereof. It is clearly agreed upon by the Parties that the Shareholder Loans shall be unsecured loans and shall always be payable after clearing the supplier outstandings, the amounts payable by the Company under the Supply Services Agreement, ensuring adequate working capital requirements and/or making adequate provision for payment in respect thereof. Payments due to the suppliers (including payments to MBI for the supply of Products and Other Goods and payments under the Supply Services Agreement) shall always have a priority in payment over the repayment of Shareholder Loans and/or payment of any interest due thereon. |
4.5 | Dividend | |
The maximum amount of the profit of the Company available for distribution by way of dividend shall be distributed to the Shareholders on a quarterly basis, subject to the following: |
(a) | payment of all supplier outstandings including those payable to MBI for supply of Products/Other Goods, payment of amounts payable by the Company under the Supply Services Agreement and/or making adequate provision for payments in respect thereof; | ||
(b) | repayment of outstanding Shareholder Loans or third party loans and interest due thereon which are then due and payable; and | ||
(c) | the Group having, in the opinion of the Board, sufficient financial resources to meet its normal and foreseeable requirements including working capital requirements, payments to statutory authorities and compliance with the Applicable Laws in this regard. |
5 | The Board and Management |
5.1 | Nominated Directors | |
The Board shall comprise five Directors. Imation shall have the exclusive right to appoint, remove and replace three Directors and MBI shall have the exclusive right to appoint, remove and replace two Directors. Such rights shall be exercisable by notice to the Company, a copy of which shall be given to the other Shareholder. The Directors appointed by Imation shall be known as A Directors and the Directors appointed by MBI shall be known as B Directors. |
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Imation undertakes that it shall not, other than with the prior written consent of MBI, appoint any person as an A Director who is working, or who has worked at any time in the period of 18 months prior to his appointment, in the PSS Division. |
5.2 | Chairman | |
The Chairman of the Company shall be an A Director designated as such by Imation. The Chairman shall not have a second or casting vote. |
5.3 | Board meetings | |
Board meetings shall be held at the registered office of the Company or at such other place as agreed by a quorum of the Board. Directors may participate in any meeting of the Board by means of such telephone, electronic or other communication facilities which permit all persons participating in the meeting to communicate with each other simultaneously and instantaneously, and participation in such a meeting shall constitute presence in person at such meeting. Board meetings may be convened by any Director by not less than 30 days prior written notice other than in the event of an emergency or other unusual circumstances, provided that the shorter notice period is consented to in writing by at least one A Director and one B Director. The notice shall be given in accordance with Clause 15 to all the Directors (including, for the avoidance of doubt, by email) at their address available with the Company and shall be accompanied by an agenda and supporting papers setting out in reasonable detail the business proposed to be transacted at such meeting. The Board meeting shall only deal with business which is set out in such agenda unless agreed otherwise at such meeting by a quorum of the Board. The Company shall reimburse each Director for all reasonable travel, hotel and other expenses incurred by a Director in attending Board meetings. |
5.4 | Quorum | |
Subject to Clause 9.3, the quorum for a Board meeting shall be one A Director and one B Director present in person. If within 30 minutes of the time appointed for a Board meeting there is no quorum, the Director(s) present shall adjourn the meeting (and shall forthwith give notice to all Directors by the quickest means then practicable) to a place and time not less than 10 days later, provided that at such adjourned meeting the requirement that such Director(s) shall be present shall not apply and the Director(s) present may, subject to the provisions of Clause 9.1, conduct the business of the meeting. |
5.5 | Alternate Directors | |
Each Director may at any time by notice in writing to the Company appoint any other Director to act as his alternate and to remove such person. Any Director acting as an alternate shall have an additional vote for every Director for whom he acts as alternate in addition to his own vote as a Director. |
5.6 | Voting at Board meetings | |
Subject to Clause 9.3, at any meeting of the Board each A Director and each B Director shall be entitled to cast one vote on each issue put to the vote PROVIDED THAT if any A Director or B Director shall not be present at any meeting of the Board and shall not have appointed an alternate to attend such meeting and vote in his place, the other Director(s) present at such meeting and appointed by the same Party as the absent Director(s) shall be entitled to cast the vote(s) of such absent Director(s). Prior to calling of votes on any resolution, the Chairman shall ensure that the requisite quorum, as required for convening a Board meeting (including any adjourned meeting), is present. MBI and Imation agree to cause the Company to comply with the terms and conditions of this Agreement and agree to act, through their respective voting rights as shareholders in the Company and through their respective Nominated Directors at meetings of the Board, so as to ensure the proper implementation of the terms and conditions set out in this Agreement. |
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5.7 | Majority voting | |
The Board shall act by majority vote, except in relation to resolutions concerning matters set out in Clause 9.1 on which no decisions or actions shall be taken unless previously approved in accordance with that Clause or except in relation to resolutions concerning matters set out in Clause 9.3. |
5.8 | Written resolutions of the Board | |
A resolution in writing signed by all the Directors (or their alternates) shall be as valid and effective as if it had been passed at a duly convened and held meeting of the Board. Any such resolution may consist of several documents in the same form, each signed by one or more of the Directors. |
5.9 | Recording of Minutes of the Board Meetings | |
All proceedings of the Board and all minutes of the Board meetings of the Company shall be in English. The minutes of the Board meetings of the Company shall be prepared in draft and circulated to all the Directors for the approval by the Directors who were present at such meeting. Upon receipt of such approval, in writing (including, for the avoidance of doubt, by email), from all such Directors, the minutes shall be signed by the Chairman and maintained by the Company in accordance with law. Any objection to the minutes received from a Director who was present at such meeting shall itself be recorded in the minutes. Each resolution passed at a meeting of the Board (other than a resolution passed in contravention of Clause 9) shall come into force at the earlier of: |
(a) | 48 hours after the circulation of the minutes of the meeting to all Directors; and | ||
(b) | the receipt by the Company of the approval of the minutes by the Directors who were present at such meeting. |
5.10
Shareholders to ensure Nominated Directors resignation
Each Shareholder shall ensure that every Director appointed by it under
this Clause shall (unless he is also employed by the Company in an
executive capacity), when that Shareholder ceases to be a shareholder in
the Company or when such Director is removed by that Shareholder, resign
without cost to the Company and such Shareholder shall indemnify the
Company and the other Parties from and against all claims, demands and
rights which any such Director may have against the Company in respect of
dismissal, redundancy or otherwise.
5.11
Auditors of the Company
The external auditors of the Company shall be appointed by the Board,
with the first such auditors being PricewaterhouseCoopers and any
subsequent auditors being an internationally recognised firm of similar
repute and standing. On at least a semi-annual basis, the Board meeting
agenda shall include reviews of any audit reports and management letters
prepared by the Companys external auditors or the internal auditors of
Imation or MBI. This review shall also include managements response to
those reports and the status of corrective action, if necessary. The
external audit partner assigned to the Companys audit should attend the
audit related portion of the agenda in person on at least an annual basis,
which should include time in executive session with the Board. The Board
shall act to ensure that:
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(a) | the Companys internal control process provides assurance that its assets are being safeguarded; | ||
(b) | the financial statements are being prepared in accordance with US GAAP and that appropriate statutory reporting has occurred; | ||
(c) | employees are acting in compliance with the Companys Business Conduct Policy established pursuant to Clause 6.1(j) and that the Company is in compliance with applicable laws and regulations; | ||
(d) | the Companys IT systems are operating as intended; and | ||
(e) | appropriate training opportunities exist. |
5.12
Directors of other Group Companies
Clauses 5.1 to 5.11 shall apply mutatis mutandis to International and
each other Group Company except as otherwise mutually agreed in writing
between the Shareholders, so that the reference to the term
Company
shall
refer to each Subsidiary and the reference to other defined terms in
relation to the Company shall have the correlative meaning in relation to
each Subsidiary.
6 | Operation of the Companys Business |
6.1 | Managing Director | |
The day to day management of the operations of the Group shall be carried out by the Managing Director who shall have full power and authority, subject to Clauses 9.1, 9.3 and 12.11 and any specific resolution of the Board to the contrary, to decide all matters in the ordinary course of the Business. Such matters shall only relate to the following: |
(a) | subject to Clause 6.9, representing each Group Company in respect of all dealings with third parties; | ||
(b) | conducting all ordinary business of the Group Company; | ||
(c) | receiving and making payments due to and from each Group Company; | ||
(d) | appointing and dismissing all employees and setting their remuneration and other benefits (subject to Clauses 6.3 and 6.4 and with the exception of the appointment, dismissal and the setting of the remuneration and other benefits of the MD and the Director of Sales which shall be the responsibility of the Board); | ||
(e) | preparing the Annual Budget and an update of the Business Plan for the approval by the Board; | ||
(f) | opening, closing and operating the bank accounts of each Group Company and entering into banking and financial transactions on behalf of each Group Company; | ||
(g) | taking on lease and renting out fixed and moveable assets; |
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(h) | appointing lawyers and attorneys to appear before all courts, arbitration panels and similar tribunals including, without limitation, the Federal Supreme Court, and all courts of cassation, courts of appeal, courts of first instance and execution courts anywhere within or outside the United Arab Emirates; | ||
(i) | subject to Clause 6.9, approving and signing all contracts and orders in relation to the Groups operations including all decisions (including pricing) concerning the Group Companys sales and purchasing of goods and services; | ||
(j) | establishing and enforcing a Business Conduct Policy for the Group on terms similar to Imations Business Conduct Policy; | ||
(k) | purchasing and selling assets, whether fixed or moveable in the ordinary course of any business carried on by the Group; | ||
(l) | with the prior approval of the Board, establishing any branch or representative office; and | ||
(m) | taking all other action required in connection with the day to day running of the Business |
PROVIDED THAT under all circumstances, the power of the MD to incur expenditure or enter into commitments on behalf of the Group shall be limited to such sum (with an excess of 20% for any line item) as set out in the Annual Budget as approved from time to time by the Board and further that the taking of any action by any Group Company in which the MD is directly or indirectly interested shall require the prior approval of the Board. |
6.2 | Appointment and removal of Managing Director | |
The Group shall have a Managing Director, who shall be a full-time employee of the Company. The MD shall be appointed by the Board from a list of candidates selected by Imation and may be removed by the Board. The first MD shall be Thomas W. Foyer. The MD shall not serve as a Director on the Board but shall attend and have the right to speak at all meetings of the Board. Until the business of the Company requires the services of a full-time Chief Financial Officer, the MD shall also act as Chief Financial Officer. |
6.3 | Director of Sales | |
The Group shall have a Director of Sales, who shall be a full-time employee of the Company and shall be located in Dubai. The Director of Sales shall be appointed by the Board only from a list of a minimum of two candidates selected by MBI. The first Director of Sales shall be Sanat Kumar. The Director of Sales shall not serve as a Director on the Board but shall attend and have the right to speak at all meetings of the Board. The roles and responsibilities of the Director of Sales shall include the matters set forth in Schedule 4. Any person appointed in a sales and marketing capacity by the Group shall be appointed by the MD only from a list of candidates selected by the Director of Sales. In the normal course of operations, the persons appointed in a sales and marketing capacity of the Group shall report to the Director of Sales. The sales and marketing function of the Group shall, subject to Clause 6.9, be performed exclusively by the Director of Sales and the persons appointed pursuant to this Clause 6.3. |
6.4 | Customer support team | |
Subject to compliance with all applicable legal requirements and the agreement by the relevant employees to the transfer of their employment, the employees listed in the agreed form list who are currently employed by MBI, shall become employees of MBI International Services Private Limited, the wholly-owned subsidiary of International and shall be members of the Groups customer support team. Any subsequent appointment to the customer support team shall be made by the MD only from a list of candidates selected by the Director of Sales. In the normal course of operations, the customer support team shall report to the Director of Sales. |
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6.5 | Employee liability | |
Each Shareholder agrees to indemnify the other Shareholder, its Associates and the relevant Group Company against all losses, damages or expenses which the other Shareholder, its Associates or the relevant Group Company (as the case may be) may suffer or incur as a result of any claim made against them by an employee of the first mentioned Shareholder (or its Associates) who is transferred to a Group Company by that Shareholder in so far as such claim relates to the period prior to such employee becoming an employee of the relevant Group Company. |
6.6 | Business housekeeping | |
The Parties shall ensure that the Group shall: |
(a) | carry on and conduct its business in a proper lawful manner; | ||
(b) | comply with all Applicable Laws and obtain and maintain all necessary licences and approvals required in order to carry on the Business; | ||
(c) | observe and perform its obligations under this Agreement; and | ||
(d) | exercise legal (de jure) and actual (de facto) control of the Business from its office within the Dubai Internet City pursuant to the roles and responsibilities defined and set out in Schedule 4. |
6.7
Subsidiaries and Branches
6.7.1
Prior to or as soon as practicable following Closing, the Company shall
form:
(a)
a wholly-owned subsidiary of International in New Delhi,
India to be called MBI International Services Private Limited for
the purposes of carrying out back-end customer relationship support
and other business support services on the terms of a service level
agreement to be entered into between International and such
Subsidiary. In particular, the employees of such Subsidiary shall
work under the close supervision and direction of International,
will have limited authority to communicate with Customers, entertain
Customer enquiries, discuss pricing for Products and other
commercial aspects of transactions, offer price discounts within a
range specified by the Managing Director and act as a communication
channel between Customers and other Group Companies. Such
Subsidiary and its employees shall not be entitled to bind any other
Group Company to any contract with a Customer or sign any contract
on behalf of any other Group Company; and
(b)
a branch office of International in Rotterdam, the
Netherlands for the purposes of a sales and marketing office.
6.7.2
On or prior to Closing, the Glyphics Agreement shall be executed,
pursuant to which the Company shall acquire the entire issued and
outstanding stock of Glyphics, thereby making Glyphics a wholly owned
Subsidiary of the Company.
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6.7.3
Save and except as provided in this Clause 6.7, notwithstanding anything
to the contrary contained in this Agreement, the Company shall not set up,
create, form or establish a Subsidiary, without the express prior written
consent of each of Imation and MBI. In case another Subsidiary is formed
or created with the prior written approval of each of Imation and MBI,
then the Parties shall ensure that such Subsidiary executes a deed of
adherence in the agreed form, thereby agreeing to abide by and confirm to
the terms and conditions of this Agreement. All the rights and obligations
of the Shareholders with respect to such Subsidiary would be the same as
the Shareholders enjoy with respect to the Company.
6.8
Limitations on Disclosure
6.8.1
The Directors, MD, Director of Sales and the employees shall be required
to execute a confidentiality agreement with the Group, in the form as
annexed as Schedule 3, undertaking not to disclose any Confidential
Information (as defined in Clause 10.1), including the information
referred to in Clause 8.5. The Company shall ensure that the lawyers,
auditors and other relevant consultants appointed by each Group Company
execute a confidentiality agreement substantially in the form annexed as
Schedule 3 or which covers substantially similar terms. Notwithstanding
anything to the contrary contained herein, in case of breach of any of the
aforesaid confidentiality agreements by the relevant person executing such
confidentiality agreement with the Group, the relevant Group Company shall
take appropriate action, including termination of employment/appointment
of such person.
6.8.2
Imation shall ensure that the employees, lawyers, internal and external
auditors and other relevant consultants appointed by any Imation Purchaser
and to whom Restricted Information is disclosed as permitted under Clause
8.5 execute a confidentiality agreement substantially in the form annexed
as Schedule 3 or which covers substantially similar terms.
Notwithstanding anything to the contrary contained herein, in case of
breach of any of the aforesaid confidentiality agreements by the relevant
person executing such confidentiality agreement with the Group, the
relevant Group Company and Imation shall take, and Imation shall ensure
that the relevant Imation Purchaser shall take, appropriate action,
including termination of employment/appointment of such person.
6.9
Sales to Customers
Notwithstanding anything to the contrary in this Agreement, all decisions
(including pricing) concerning the sale of Products by a Group Company to
Customers shall be taken by the MD on the basis of the recommendations of
the Director of Sales. If the MD does not agree with the recommendations
of the Director of Sales, then no decision shall be taken on such matter,
the MD or the Director of Sales may refer such matter to the Board for
determination by the Board and the relevant Group Company shall not take
any action on such matter until it has been determined by the Board. The
Parties undertake to procure the holding of a Board meeting to resolve
such matter as soon as practicable in the circumstances.
6.10
Transfer of employees to MBI
At the request and cost of MBI from time to time, the Company shall, and
shall ensure that the relevant employing Group Company shall, transfer as
soon as reasonably practicable to MBIs employment any person who has
become an employee of a Group Company pursuant to Clause 6.3 or Clause
6.4. The Company shall, and shall ensure that the relevant employing
Group Company shall, include in the employment contracts with each such
employee a clause providing for such transfer.
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7 | Shareholder Meetings |
7.1 | Notice of Shareholder meetings | |
All Shareholders shall be entitled to at least 30 days (or such shorter period of notice as the Shareholders may consent to in accordance with the articles of association of the relevant Group Company) prior written notice of any shareholders meeting of any Group Company given to them at the address set out in Clause 15. |
7.2 | Quorum for Shareholder meetings | |
The quorum for shareholders meeting of any Group Company shall be Shareholder(s) present in person or by proxy holding not less than 75% of the total number of Shares issued from time to time. If there shall be no quorum within 30 minutes of the time appointed for a shareholders meeting the meeting shall be adjourned to a specified time and place (which shall not be earlier than 10 days after the date originally fixed for the meeting). If at any adjourned meeting a quorum is not present within 30 minutes from the time appointed for the adjourned meeting or such longer interval as the chairman of the meeting may think fit to allow, the Shareholder(s) then present in person or by proxy, provided that they represent at least 49% of the total number of Shares issued from time to time, and further provided that such shareholder(s) were present at the original meeting, shall form the quorum and may (subject to Clause 9.1) transact all the business of the meeting. |
7.3 | Chairman of Shareholder meetings | |
The chairman of any general meeting of any Group Company shall not be entitled to a second or casting vote. |
7.4 | Voting at General Meetings | |
All decisions at the general meeting of any Group Company shall be taken by majority vote (save where a higher majority is required by Applicable Law), except in relation to resolutions concerning matters set out in Clause 9.1 on which no decisions or actions shall be taken unless previously approved in accordance with that Clause or except in relation to resolutions concerning matters set out in Clause 9.3. |
7.5 | General Meeting of Subsidiaries | |
With respect to all Subsidiaries of the Company, MBI and Imation shall be deemed to be the shareholders of such Subsidiaries and whenever a decision is to be taken at a general meeting of any of the Subsidiaries, which if taken at the general meeting of the Company would, as per this Agreement or the Applicable Laws, require the prior approval of MBI, then such decision shall require the prior approval of MBI. Each Shareholder shall have the same voting rights with respect to all matters in a general meeting of a Subsidiary as such Shareholder has in relation to such matter in a general meeting of the Company. |
8 | Information |
8.1 | Preparation and currency of financial information | |
The Parties shall ensure that the financial and accounting books and records of the Company and the Subsidiaries: |
(a) | shall be prepared in US Dollars; and |
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(b) | shall be prepared in accordance with US GAAP consistently applied. |
8.2 | Financial information | |
The Parties shall ensure that the Company shall provide to each Shareholder the following, provided that the same does not amount to breach of Clause 8.5: |
(a) | unaudited management accounts of each Group Company and consolidated results of the Group within 30 days from the end of each month; | ||
(b) | quarterly unaudited accounts (comprising an income statement and balance sheet) of each Group Company and consolidated results of the Group within 10 days following the end of each quarter; | ||
(c) | audited statutory accounts of each Group Company as per US GAAP within 60 days from the end of the financial year; | ||
(d) | the Annual Budget and annual revised Business Plan (including estimated major items of income and capital expenditure and monthly cash flow) not later than 90 days before the start of each financial year; and | ||
(e) | such other information relating to the Group or any Group Company as any Shareholder may reasonably request from time to time. |
It is clarified that any information provided, whether at the request of one Shareholder or the other, shall be provided to both Shareholders simultaneously. Further, any request for information by a Shareholder shall be forwarded by the Company to the other Shareholder and the other Shareholder shall have the right to object if, in its reasonable judgement, the provision of such information would result in the breach of the confidentiality obligations provided in this Agreement. The Company shall not and shall cause each Group Company not to disclose any information the disclosure of which has been reasonably objected by a Shareholder as would result in the breach of the confidentiality obligations provided in this Agreement. |
8.3 | Audit rights | |
The Party that commissions an audit shall be responsible for the costs related to such audit unless specified otherwise in this Agreement. The Parties shall ensure that Imation and MBI shall each have the right, at any time with written notice to MBI or Imation (as the case may be), to appoint either its own internal auditors or the external auditors of the Company to inspect and audit all relevant books, records and practices and interview the relevant personnel of the Company and the Subsidiaries only for the purpose of determining: (i) whether the financial reporting of the Company and of the Subsidiaries and their underlying practices is being carried out in accordance with US GAAP on a consistent basis; and/or (ii) whether the business practices of the Company and the Subsidiaries are being carried out in accordance with the Groups Business Conduct Policy and other company policies. |
8.4 | Exercise of audit rights | |
In connection with the exercise by any Party of the audit rights in Clause 8.3: |
(a) | such rights shall be exercised in such a manner as not to disrupt or otherwise adversely affect the business and operations of the person who is the subject of the audit; |
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(b) | the relevant Group Company who is the subject of the audit shall take all necessary action, make all necessary facilities available and otherwise to reasonably co-operate with the audit being undertaken; and | ||
(c) | the Party exercising such rights shall ensure the relevant auditors include in their mandate letter a confidentiality undertaking in a customary form restricting the disclosure of Confidential Information (as defined in Clause 10.1), including the restriction on the disclosure of Restricted Information (as defined in Clause 8.5.1) by the auditors subject to the same limitations as applicable to Imation Purchasers and the Company under Clause 8.5. |
8.5
Restriction on disclosure of information
8.5.1
In addition to the generality of the obligations contained in Clause 10,
the Parties acknowledge that information of any Group Company relating to
Customer lists or information on an individual Customer or a potential
customer or order basis regarding the Customer sales volume, Product mix,
Product pricing or other similar information (
Restricted Information
) is
very sensitive and competitive in nature and should not be disclosed
except in the manner and to the extent provided under this Agreement.
Notwithstanding anything to the contrary in this Agreement, the Company,
International and Imation each undertakes to MBI that it shall ensure that
the Group Companies shall not, and that the officers and employees of the
Group Companies shall not, disclose any Restricted Information to any
Imation Purchaser, provided that the Group Companies may disclose the
Restricted Information to any Imation Purchaser (excluding any person
working in the PSS Division (other than its financial controller))
strictly on a need to know basis and provided that any Restricted
Information so disclosed shall be copied simultaneously by the relevant
Group Company to MBI.
8.5.2
Imation further undertakes to the Company, International and to MBI that
each Imation Purchaser (including the financial controller of the PSS
Division) to whom the Restricted Information has been disclosed pursuant
to Clause 8.5.1 and any recipient of such Restricted Information pursuant
to this Clause 8.5.2 shall keep confidential such Restricted Information,
shall not use any Restricted Information for any purpose in competition
with the activities of the Group and/or MBI and shall not disclose
Restricted Information to any person:
(a)
who is working in the PSS Division (excluding its financial
controller); and
(b)
other than strictly on a need to know basis.
This Clause 8.5 shall not prohibit the disclosure of information, with the prior written approval of MBI, Imation and the Company, related to the sale of Products by any Group Company to any Customer which is an actual or potential Customer of both a Group Company and any Imation Purchaser. |
8.6 | Access and verification of Company information | |
Every invoice which a Group Company raises on its Customer shall be copied to MBIs financial controller providing details of the Customer, Product mix, volume of sales and pricing of Products. MBIs financial controller shall also be given online access to the Groups information system on a read-only basis. MBI undertakes to Imation and the Company that its financial controller shall keep such information strictly confidential and shall not disclose such information to any person other than strictly on a need to know basis, provided that MBI may disclose such information to its officers, employees, legal or other professional advisers, to the extent necessary to enable it or them to perform or cause to be performed or to enforce any of its rights or obligations under this Agreement. |
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9 | Minority Shareholder Protections |
9.1 | List of minority Shareholder protections | |
Notwithstanding any other provision of this Agreement, no obligation of the Company or any of its Subsidiaries shall be entered into, no decision shall be made and no action shall be taken by or with respect to the Company or any of its Subsidiaries in relation to the following matters unless such obligation, decision or action as the case may be, is approved, if at any meeting of the Shareholders, duly called for the purpose of considering such obligation, decision or action, by an affirmative vote of MBI, and if at the meeting of the Board by an affirmative vote of, at least one nominee Director of MBI, and Imation shall ensure that the Company shall always act as stated above in respect of the following matters: |
(a) | have any resolution passed or petition presented for its liquidation, winding up or de-registration or otherwise enter into any insolvency, bankruptcy or receivership proceeding; | ||
(b) | increase or reduce the share capital of the Company or issue or allot or create any option or right to subscribe or acquire any shares, stock, debentures or debenture stock or convert loans or debentures into shares; | ||
(c) | amend the Memorandum of Association or Articles of the Company; | ||
(d) | enter into or vary or alter the terms of any Related Party Agreement or make loans, advances, investments or provide guarantees or security to Related Parties. For the avoidance of doubt, the making of purchase orders and sales orders by the Company for the purchase of Products from MBI and for the sale of Products to Imation Purchasers shall not require approval under this Clause 9.1; | ||
(e) | change, discontinue or suspend the Business or carry on any business other than the Business; | ||
(f) | incur any borrowings by the Group in any financial year which exceeds the lower of AED100,000 and 20% of the average borrowings of the Group during the previous financial year; | ||
(g) | if closely related to the Business, create any mortgage, charge, pledge or any other encumbrance by the Group upon or in respect of the whole or more than 20% of the Business or the whole or more than 20% of the Groups total assets; | ||
(h) | if not closely related to the Business, create any mortgage, charge, pledge or other encumbrance upon or in respect of any of the Business or the Groups assets; | ||
(i) | acquire or dispose of any material interest in any business or company, participate in any partnership or joint venture or enter into any scheme of arrangement or merger; | ||
(j) | enter into any one or a series of transactions by the Group in any financial year which causes the acquisition or disposal of any asset with a value of more than 20% of the fair market value of the Groups total assets as existing on the beginning of each financial year; | ||
(k) | create any capital reserve (save as required by the Applicable Laws); | ||
(l) | incur any capital expenditure for any amount unrelated to the Business; |
19
(m) | the declaration or payment of any dividend or the declaration or making of any other distribution to Shareholders or the passing of any resolution to allocate profits to Shareholders; | ||
(n) | formation of any Subsidiary (other than pursuant to Clause 6.7); | ||
(o) | providing any guaranty or the extension of guarantees in respect of the obligations of any third party (other than another Group Company); | ||
(p) | any merger, consolidation, reconstitution, recapitalization, reorganization, amalgamation or other business combination involving any Group Company or any combination of the above; | ||
(q) | the initiation or settlement in any jurisdiction of legal or arbitration proceedings, other than routine debt collection, which involves an amount (including related costs for the Group) in excess of US$500,000; or | ||
(r) | delegate to any person any power on any of the above or any commitment or agreement to do any of the foregoing. |
9.2 | Deadlock resolution | |
If the Shareholders are unable to agree on a matter referred to in Clause 9.1 (a Disputed Matter ), the Disputed Matter may be referred to a committee (the Executive Committee ) comprising the chief executive officer of Imation and the managing director of MBI. Any Nominated Director may make such a reference if the Disputed Matter has not been resolved within 30 days of (a) its first being considered by the Board or (b) the dissolution of a meeting which was convened to consider such matter. The reference to the Executive Committee shall contain a statement setting out the facts relevant to the Disputed Matter and the Executive Committee shall be supplied by the Company or the Shareholders with all such other information as it may require in order to reach a determination of the Disputed Matter. The Executive Committee shall meet within 30 days (or such longer period as the Executive Committee shall agree in writing) of the reference being made and shall attempt in good faith to resolve the Disputed Matter. The decision of the Executive Committee shall be final and binding on the Shareholders and shall be adopted as a decision of the Shareholders and the Board. If the Executive Committee fails to arrive at a unanimous decision on any such matter, no decision shall be taken by the Company or the Board to implement such proposal. |
9.3 | Related Party Agreements | |
Notwithstanding anything to the contrary in this Agreement, any decision by a Group Company in connection with the termination or enforcement of any Related Party Agreement in accordance with the terms thereof shall be made solely by the Nominated Directors of the Shareholder (the Non-Related Shareholder ) which is not the person, or whose Related Party is not the person, against which the Related Party Agreement is being enforced or terminated in accordance with the terms thereof. The other Shareholder shall, and shall ensure that, its respective Nominated Directors shall, not take or seek to take, or be involved in any meeting (or the relevant part of any meeting) of the Board or the shareholders or other discussions in relation to, a decision concerning such termination or enforcement and, in particular, the Nominated Directors of the other Shareholder shall not have a right to vote on such decision. |
9.4 | Application of restrictions to Subsidiaries | |
Clauses 9.1- to 9.3 shall apply to each Subsidiary mutatis mutandis, so that the reference to the term Company shall refer to such Subsidiary and the reference to Memorandum of Association or Articles of the Company shall refer to the memorandum of association or the articles of association of such Subsidiary and the reference to other defined terms in relation to the Company shall have the correlative meaning in relation to each Subsidiary. |
20
10 | Confidentiality and Announcements |
10.1
Definitions in this Clause
In this Clause
Confidential Information
means all information and
documents of confidential nature including, without limitation,
confidential or secret information relating to the Business, trade ideas,
trade secrets, patents, business methods, processes, know-how, finances,
customer pricing, customer lists, customer volumes, Product mix, business
plans, sales targets, sales statistics, customer relationships, database
in computer systems, relating to any Group Company or MBI or Imation and
any and all information received or obtained by a Party as a result of
entering into or performing this Agreement.
10.2
Duty of confidentiality
Except as provided in Clause 10.3, each Party shall, and shall ensure
that its and its Associates officers, employees, consultants,
representatives, auditor and agents shall, keep confidential and not
disclose to any person any Confidential Information. Notwithstanding
anything to the contrary in this Agreement, no Party shall use any
Confidential Information to further its own interest to the detriment of
any other Party.
10.3
Permitted disclosures
A Party may disclose or permit the disclosure of Confidential
Information:
(a)
to its officers, employees, legal or other professional
advisers, to the extent necessary to enable it or them to perform or
cause to be performed or to enforce any of its rights or obligations
under this Agreement, provided however, that under no circumstances
shall Imation and/or any Group Company disclose any information in
breach of Clause 8.5;
(b)
when required to do so by law or by or pursuant to the rules
or any order of any court, tribunal or agency of competent
jurisdiction;
(c)
to the extent that the Confidential Information has become
publicly available or generally known to the public at the time of
such disclosure otherwise than as a result of a breach of this
Agreement; or
(d)
when required by any securities exchange, accounting,
regulatory or governmental body having jurisdiction over the Party
seeking to make disclosure (whether or not the requirement for
disclosure has the force of law).
10.4
Consultation
If a Party is required to disclose Confidential Information in a manner
permitted by Clause 10.3(b) or (d) that Party shall to the extent such
consultation is practicable and permitted by the relevant law, rule,
order, exchange or body:
(a)
provide the other Parties with advance notice of the
requirement and a copy of the information to be disclosed;
(b)
take into account any representations made by any other Party
in relation to it; and
21
(c) | at the expense of and subject to being indemnified to its satisfaction by the other Party give the other Parties a reasonable opportunity to seek an appropriate remedy to prevent such disclosure and co-operate fully (including if necessary joining in legal proceedings) with the other Parties. |
10.5
Restrictions on announcements
Except as provided in Clause 10.6, a Party shall not make (and shall
ensure that its officers, employees and Associates shall not make) any
public announcement concerning the subject matter of this Agreement
without the prior written approval of the other Parties.
10.6
Permitted announcements
A Party may make a public announcement concerning the subject matter of
this Agreement if required by:
(a)
law or by or pursuant to the rules or any order of any court,
tribunal or agency of competent jurisdiction; or
(b)
any securities exchange, accounting, regulatory or
governmental body having jurisdiction over it, whether or not such
requirement for announcement has the force of law.
10.7
Prior consultation on announcements
If a Party is required to make a public announcement in a manner
permitted by Clause 10.6 that Party shall to the extent practicable and
permitted by the relevant law, rule, order, exchange or body:
(a)
provide the other Parties with advance notice of the
requirement and a copy of the announcement to be made;
(b)
take into account any representations made by any other Party
in relation to it; and
(c)
at the expense of and subject to being indemnified to its
satisfaction by the other Party give the other Parties a reasonable
opportunity to seek an appropriate remedy to prevent such
announcement and co-operate fully (including if necessary joining in
legal proceedings) with the other Parties.
10.8
Continuance of obligations
The obligations in this Clause 10 shall continue to apply after
termination of this Agreement without limit in time.
11
Transfer of Shares
11.1
General prohibition on Share transfers
No Shareholder shall assign, transfer, exchange, pledge, mortgage, charge
or otherwise encumber or dispose of any of the Shares held by it or any
interest in them except pursuant to Clause 11.2 and in any event without
having first obtained the approval of the Authority in accordance with
the Applicable Laws.
22
11.2 | Permitted transfers | |
A Shareholder may transfer all (but not part only) of its Shares to its wholly owned subsidiary company (either directly or indirectly) (a Permitted Transferee ) subject to: |
(a) | the Permitted Transferee agreeing forthwith to transfer all of its Shares to the transferor or to another Permitted Transferee of the original transferor forthwith upon the Permitted Transferee ceasing to be a Permitted Transferee of the transferor; and | ||
(b) | the Permitted Transferee and, if required by another Party a guarantor acceptable to such Party in respect of the Permitted Transferees obligations under this Agreement, entering into a deed agreeing to become party to and be bound by the terms of this Agreement in the form acceptable to the other Party (acting reasonably). |
12 | Duration and termination |
12.1
Duration
This Agreement shall continue unless and until terminated:
(a)
by the written agreement of the Parties; or
(b)
in accordance with Clause 12.2, 12.3 or 12.4.
12.2
Termination without cause
This Agreement shall terminate without cause:
(a)
by either Imation or MBI giving to the other at least 12
months notice, such notice to be given not earlier than the third
anniversary of the date of Closing; or
(b)
by MBI giving notice to Imation in the circumstances set out
in Clause 12.10.
12.3
Termination with cause by Imation
This Agreement shall be terminated with cause by Imation forthwith by
Imation (the
Non-Defaulting Party
) giving to MBI (the
Defaulting Party
)
written notice following the occurrence of any of the following events:
(a)
MBI fails to remedy any material breach of any representation
and warranty or any covenants, agreements or obligations on its part
of this Agreement within 30 days from the service of a written
notice by Imation specifying such breach; or
(b)
the making of a voluntary or, unless it has been set aside
within 90 days, involuntary bankruptcy filing in respect of MBI, the
liquidation or dissolution of MBI, the making of any order or the
passing of any resolution for the appointment of an administrator or
for the winding-up of MBI (or any analogous proceedings); or
(c)
an encumbrancer lawfully takes possession or a receiver is
validly appointed over the whole or any part of the undertaking,
property or assets of MBI.
23
12.4
Termination with cause by MBI
This Agreement shall be terminated with cause by MBI forthwith by MBI
(the
Non-Defaulting Party
) giving to Imation (the
Defaulting Party
)
written notice following the occurrence of any of the following events:
(a)
Imation fails to remedy any material breach of any
representation and warranty or any covenants, agreements or
obligations on its part of this Agreement within 30 days from the
service of a written notice by MBI specifying such breach; or
(b)
the making of a voluntary or, unless it has been set aside
within 90 days, involuntary bankruptcy filing in respect of Imation,
the liquidation or dissolution of Imation, the making of any order
or the passing of any resolution for the appointment of an
administrator or for the winding-up of Imation (or any analogous
proceedings); or
(c)
an encumbrancer lawfully takes possession or a receiver is
validly appointed over the whole or any part of the undertaking,
property or assets of Imation.
12.5
Termination with cause - termination fee
In the case of termination pursuant to either Clause 12.3(a) or Clause
12.4(a), within 14 days following either:
(a)
the written agreement of the Shareholders that the Agreement
has been terminated in accordance with the relevant Clause; or
(b)
an arbitration award made pursuant to Clause 17 to the effect
that the Agreement has been terminated in accordance with Clause
12.3(a) or 12.4(a) (as the case may be),
without prejudice to any other rights which the Non-Defaulting Party may have against the Defaulting Party under this Agreement, the Defaulting Party will pay to the Non-Defaulting Party the sum of US$ 2,000,000. The aforesaid sum of US$2,000,000 has been agreed to by the Parties as the compensation for the damage which the Non-Defaulting Party is likely to suffer as a result of termination of this Agreement. |
12.6
Consequences of termination - liquidation of the Company and its
Subsidiaries
On any termination of this Agreement, the Parties shall ensure the
solvent winding-up of each Group Companys affairs in accordance with the
Applicable Laws. Any surplus assets following the winding-up shall be
distributed amongst the Shareholders as they may agree in writing or, in
the absence of such agreement, pro rata to their holdings of Shares
immediately prior to the winding-up of the Company. Upon liquidation of
the Company, Imation shall not have the right to use any name comprising
of the words MBI or any similar or deceptive words in any manner
whatsoever and neither Imation nor MBI shall have the right to use any
name comprising of the words Global Data Media or any similar or
deceptive words in any manner whatsoever.
12.7
Consequences of termination - Imation as Defaulting Party
If the Agreement is terminated pursuant to Clause 12.4 as a result of
Imation being the Defaulting Party, Imation shall not, and shall ensure
that its Associates shall not, for a period of 12 months from the date of
termination save with the prior written consent of MBI enter into a
similar joint venture with respect to the Products with any third party
including but not limited to CMC, Ritek, Prodisc and Taiyo Yuden. For
the avoidance of doubt, this restriction shall not operate to prevent
Imation or any of its Associates purchasing its requirements for the
Products from a third party manufacturer on arms length terms.
24
12.8
Consequences of termination - MBI as Defaulting Party
If the Agreement is terminated pursuant to Clause 12.3 as a result of MBI
being the Defaulting Party, MBI shall not, and shall ensure that its
Associates shall not, for a period of 12 months from the date of
termination save with the prior written consent of Imation enter into a
similar joint venture with respect to the Products. For the avoidance of
doubt, this restriction shall not operate to prevent MBI or any of its
Associates entering into agreements with customers for the sale of the
Products on arms length terms.
12.9
Consequences of termination - Non solicitation
For a period of 12 months following the termination of this Agreement for
whatever reason:
(a)
each Party undertakes with the other Parties that it shall
not, and shall ensure that its Associates shall not, directly or
indirectly solicit or employ any person who, in the period of 12
months prior to such termination, was an employee of any Group
Company and who had also either previously been an employee of that
other Party or one of its Associates or had been nominated as an
employee of a Group Company by that other Party pursuant to this
Agreement. For the avoidance of doubt it is clarified that any
person appointed by the Managing Director from the list of
candidates selected by the Sales Director in terms of Clause 6.3 and
Clause 6.4 shall be deemed to have been an employee of MBI for the
purpose of this Clause 12.9(a);
(b)
save with the prior consent of MBI, Imation undertakes with
MBI that it shall not, and shall ensure that no Imation Purchaser
shall, directly or indirectly solicit or employ any employee of MBI
or one of its Associates; and
(c)
save with the prior consent of Imation, MBI undertakes with
Imation that it shall not, and shall ensure that its Associates
shall not, directly or indirectly solicit or employ any employee of
an Imation Purchaser.
12.10
Termination for disagreement on a Major Decision
This Clause 12.10 sets out the circumstances referred to in Clause
12.2(b). No earlier than 10 days and no later than 40 days following the
taking of a decision by the Board or (as appropriate) the Managing
Director on any matter listed in Clause 12.11 and provided that no B
Director voted in favour of such matter, MBI shall be entitled to
terminate this Agreement on giving 12 months plus one days written
notice of such termination to the Company and to Imation. For the
avoidance of doubt, the giving of such notice shall not prohibit the
relevant Group Company from acting upon any such decision.
12.11
List of Major Decisions
The list of decisions referred to in Clause 12.10 which shall only be
taken at a meeting of the board of directors or at a general meeting of
the relevant Group Company, is as follows:
(a)
the appointment, removal or the determination of the material
terms of employment of any of the following management positions
within the Group:
(i)
the MD; and
(ii)
the Director of Sales;
(b)
change in the external auditors of the Company or any of its
Subsidiaries;
25
(c) | the entering into by the Company or its Subsidiaries with any party (excluding a Group Company) of any contract, agreement or other commitment (or a series of contracts, agreements or other commitments with the same party) for the sale or purchase of Products and/or Other Goods (other than the purchase of Products and/or Other Goods from MBI) at a consideration which exceeds in aggregate the sum of US$ 5 million; | ||
(d) | any disbursement of funds by the Group in excess of the amounts approved in the Annual Budget plus a margin of 20%; | ||
(e) | the Company or its Subsidiaries entering into any agreement with directors, officers or employees of the Company other than an employment agreement or the like; | ||
(f) | the issuance of duplicate share certificates or consolidation, sub-division, cancellation, forfeiture, reduction, redemption, purchase, buy-back of any shares in the Company or its Subsidiaries; | ||
(g) | the determination of the Annual Budget and the Business Plan and any amendments thereto; and | ||
(h) | (unless such matter is specifically provided for in the Annual Budget) the incurring of any expenditure by any Group Company (other than for the purchase of Products) in excess of US$250,000 per item or a series of transactions for the same subject matter the aggregate amount of which exceeds US$250,000. |
13 | Representations, Warranties and Indemnities |
13.1
Warranties by Imation
Imation represents and warrants to MBI that each of the statements in
Part 1 of Schedule 1 is true and accurate and not misleading as of the
date of execution of this Agreement and each such representation and
warranty shall be repeated at Closing. Further, Imation represents and
warrants that each of the statements in Part 1 of Schedule 1 shall also
be true and accurate and not misleading throughout the subsistence of
this Agreement.
13.2
Warranties by MBI
MBI represents and warrants to Imation that each of the statements in
Part 2 of Schedule 1 is true and accurate and not misleading as of the
date of execution of this Agreement and each such representation and
warranty shall be repeated at Closing. Further, MBI represents and
warrants that each of the statements in Part 2 of Schedule 1 shall also
be true and accurate and not misleading throughout the subsistence of
this Agreement.
13.3
Compliance with laws
13.3.1
Each Party represents to the other Parties that it will, in acting under
this Agreement, comply at all times with all applicable laws, rules and
regulations and in particular, but without limitation, those relating to
the prevention of money-laundering, the protection of the environment,
health and safety of employees and contractors and employment practices.
13.3.2
The performance by Imation and each Group Company of its obligations
under this Agreement shall be subject to the applicable laws of the United
States of America, including, without limitation, US Department of State,
Treasury or Commerce Export Control or other US Government regulations
relating to the export, re-export, transfer or disclosure, directly or
indirectly, of products and/or technical data supplied under or in
accordance with this Agreement. Accordingly, the non-performance by
Imation and/or any Group Company in whole or in part because of such US
laws or regulations shall not be construed as and shall not constitute a
default by Imation and/or the relevant Group Company of any obligation
applicable to them and such non-performance shall not subject any of them
to any liability for damages or convey any right to any other person to
terminate this Agreement.
26
13.3.3 | The performance by MBI of its obligations under this Agreement shall be subject to the applicable laws of the Republic of India, including, without limitation, the Reserve Bank of India and other regulatory and statutory authorities relating to the export, re-export, transfer or disclosure, directly or indirectly, of products (including Products and Other Goods) and/or technical data supplied under or in accordance with this Agreement. Accordingly, the non-performance by MBI in whole or in part because of such Indian laws or regulations shall not be construed as and shall not constitute a default by MBI of any obligation applicable to it and such non-performance shall not subject any of them to any liability for damages or convey any right to any other person to terminate this Agreement. |
13.4 | Consent to certain matters | |
The Parties acknowledge that neither Imation has nor has any Group Company, authority to, and nor any Group Company shall, without the prior written consent of Imation, export, re-export, transfer or disclose any product or technical data supplied under or in accordance with this Agreement directly or indirectly to such countries as may from time to time be specified by the US Department of State, Treasury or Commerce Export Control or to anyone in any such country or any national thereof. It is understood that Imations power to give consent to such supply or the transfer or disclosure of technical data is limited by the US government and that in some cases Imation may be forbidden to give such consent, and in case it is so forbidden then Imations failure to give such consent shall not be ground for a claim, right or cause of action on the part of any person under this Agreement. |
13.5 | US Foreign Corrupt Practices Act | |
MBI represents and warrants to Imation that it is familiar with the terms of the US Foreign Corrupt Practices Act (FCPA) as attached to this Agreement and that, to the best of its knowledge, it has no knowledge of any act that has been taken or is contemplated that would violate the FCPA in connection with performance of this Agreement. |
13.6 | Indemnity | |
Each Party (the Indemnifying Party ) agrees to indemnify and keep indemnified each other Party (the Indemnified Party ) from and against any and all actions, claims, liabilities, losses, costs and expenses (including, but not limited to, court costs and reasonable professional fees) that are incurred by the Indemnified Party arising from any breach by the Indemnifying Party of its obligations or undertakings in this Agreement or any breach or inaccuracy of any representation or warranty on its part contained in this Agreement. Further, Imation also agrees to indemnify and keep indemnified MBI from and against any and all actions, claims, liabilities, losses, costs and expenses (including, but not limited to, court costs and reasonable professional fees) that are incurred by MBI arising from any claim brought by a third party against the Company and/or International from and after the date of Closing other than for any action taken by the Company and International prior to the date of Closing in the ordinary course of establishing the Company and/or International. |
27
13.7
Limitation of Liability
In no event shall any Party be liable to the other under this Agreement
for consequential, special, or indirect damages of any kind whatsoever.
14
General
14.1
Parties general obligation
Each Party undertakes to act in good faith and do all such things as may
be within its power, including but without limitation:
(a) | passing or ensuring the passing of all resolutions at meetings of the Board and of the members of the Company; and | ||
(b) | exercising all rights, powers and privileges, whether granted pursuant to this Agreement or the Applicable Laws, |
in order to put in effect, or preserve the effect of, the terms of this Agreement. |
14.2
Conflict with the Regulations
To the extent permitted by the Applicable Laws, the Parties intend that
the provisions of this Agreement shall prevail over the Articles in the
event of conflict and, accordingly, the Parties shall, if necessary,
exercise all voting and other rights and powers available to them as
shareholders or under this Agreement to ensure, to the extent permitted
by the Applicable Laws, that the terms of this Agreement shall prevail in
such circumstances.
14.3
No partnership
Nothing in this Agreement shall constitute or be deemed to constitute a
partnership between the Parties.
14.4
Costs
Each Party shall pay its legal and other fees incurred in putting into
effect the provisions of this Agreement.
14.5
No Assignment
No Party may assign its rights and obligations under this Agreement
without the prior written consent of the other Parties, other than to the
Permitted Transferee of a Shareholder to which it has transferred its
Shares in accordance with Clause 11.2.
14.6
Execution in Counterparts
This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original as against any Party whose
signature appears thereon, and all of such shall together constitute one
and the same instrument.
28
15 | Notices |
15.1
Method and delivery
Any notice or other communication to be given under this Agreement shall
be in writing in English and, unless otherwise provided, shall be sent
first by email and then confirmed either by being delivered by hand, sent
by prepaid recorded delivery or registered post, or sent by facsimile to
the email address, address or facsimile transmission number given in
Clause 15.2 (or such other email address, address or facsimile
transmission number as the receiving Party has specified to the sending
Party on at least 10 days notice).
15.2
Addresses
The addresses and numbers of the Parties for the purposes of Clause 15.1
are:
(a) | Imation: |
Address: | 1 Imation Place, Oakdale MN 55128-3414, USA | |
Attention: | Robert Edwards | |
Email: | rledwards@imation.com | |
Fax number: | 001 651 704 7967 | |
Copy to: | John L. Sullivan, General Counsel | |
Email: | jlsullivan@imation.com | |
Fax: | 001 651 704 4412 |
(b) | MBI: |
Address: | 63, Ring Road, Lajpat Nagar III, New Delhi-110024, India | |
Attention: | Ratul Puri | |
Email: | ratul.puri@moserbaer.net | |
Fax number: | 00 91 11 26218429 | |
Copy to: | Rakesh Govil | |
Email: | rakesh.govil@moserbaer.net | |
Fax: | 00 91 11 26224066 |
(c) | the Company: |
Address: | Office No. 199/120, Building 14, First Floor, Dubai Internet City, Dubai, UAE | |
Attention: | Thomas W. Foyer | |
Email: | tfoyer@mbi-intl.com | |
Fax number: | 00 971 4 3908718 |
(d) | International: |
Address: | Office No. 199/120, Building 14, First Floor, Dubai Internet City, Dubai, UAE | |
Attention: | Thomas W. Foyer | |
Email: | tfoyer@mbi-intl.com | |
Fax number: | 00 971 4 3908718 |
15.3 | Receipt | |
Any notice or other communication given or made under this Agreement shall, in the absence of earlier receipt, be deemed to have been received as follows: |
29
(a) | if sent by email, 24 hours from the time of transmission provided that the sender has received a message from the recipient confirming that the message has been delivered and accessed; | ||
(b) | if delivered by hand, at the time of actual delivery; | ||
(c) | if posted, on the fifth day following the day on which it was despatched by pre-paid post; or | ||
(d) | if sent by facsimile transmission, with a confirmed receipt of transmission from the receiving machine |
provided that if any day on which a notice would otherwise be deemed to have been received under this Clause 15.3 is not a working day in the place of receipt, such notice shall be deemed to have been received on the next working day in the place of receipt. |
16 | English law | |
This Agreement shall be governed by and construed in accordance with the laws of England. |
17 | Arbitration |
17.1
Submission to arbitration
Any dispute or difference of any kind whatsoever arising between the
Parties out of, under, or in connection with this Agreement (including,
without limitation, any question regarding its existence, interpretation,
validity or termination) which cannot be resolved by consultation between
the chief executive officer of Imation and the managing director of MBI
within 30 days of the matter being referred to them by either Party (a
Dispute
) shall be referred to and finally resolved by arbitration in
Paris, France before three arbitrators appointed in accordance with, and
shall be decided pursuant to, the Rules of Conciliation and Arbitration
of the International Chamber of Commerce from time to time. MBI shall
appoint one arbitrator and Imation, International and the Company shall
together appoint one arbitrator. The third arbitrator shall be appointed
by those two arbitrators and shall act as chairman of the arbitration
tribunal.
17.2
Language of proceedings
The proceedings shall be conducted in the English language.
18
Imation Guarantee
18.1
Guaranteed obligations
Imation hereby irrevocably and unconditionally guarantees as a continuing
guarantee the payment when demanded by MBI of all undisputed sums due
owing or outstanding from either the Company or any other Group Company
under this Agreement and the due performance by the Company and each
other Group Company of all and several of its obligations under this
Agreement and agrees to indemnify MBI from and against all loss, damage,
costs and expenses which it may suffer through or arising from any
failure by either the Company or any other Group Company to perform any
of its said obligations or any
failure by either the Company or any other Group Company duly, fully and
punctually to pay any sum required to be paid by it or otherwise to
perform its said obligations.
30
18.2
No release etc
Without prejudice to MBIs rights against the Company and each Group
Company, as between MBI and Imation, Imation shall be liable under this
Clause 18 as if it were the sole principal debtor and not merely a
surety, and its liability under this Clause 18 shall not be released,
discharged or diminished by:
(a)
any legal limitation lack of capacity or authorisation or
defect in the actions of either the Company or any other Group
Company in relation to, any invalidity or unenforceability of, or
any variation (whether or not agreed by Imation) of any of the terms
of this Agreement, the bankruptcy, liquidation, insolvency, or
dissolution of either the Company or any other Group Company or any
change in either the Company or any other Group Companys identity,
constitution, status or control; or
(b)
any forbearance, neglect or delay in seeking performance of
the obligations of either the Company or any other Group Company,
any granting of time indulgence or other relief to either the
Company or any other Group Company in relation to such performance,
or any composition with, discharge, waiver or release of either the
Company or any other Group Company; or
(c)
any other act, omission, fact or circumstance which might
otherwise release, discharge or diminish the liability of a
guarantor.
18.3
No avoidance of release, settlement etc
Any release, settlement or discharge between MBI and either the Company
or any other Group Company shall be conditional upon no security or
payment made or given to MBI being avoided, reduced, set aside or
rendered unenforceable by virtue of any provision or enactment now or
hereafter in force relating to bankruptcy, insolvency or liquidation and
if any such security or payment shall be avoided, reduced, set aside or
rendered unenforceable, MBI shall be entitled to recover the full amount
or value of any such security or payment from Imation and otherwise to
enforce this Clause 18 as if such release, settlement or discharge had
not taken place.
19
Survival
Notwithstanding any other provision in this Agreement to contrary, Clause
8.5 (Restriction on disclosure of Information), Clause 10
(Confidentiality and Announcements), Clause 12.5 to Clause 12.11, Clause
13.6 (Indemnity), Clause 13.7 (Limitation of Liability), Clause 14.4
(Costs), Clause 15 (Notices), Clause 16 (Governing Law), Clause 17
(Arbitration), Clause 18 (Imation Guarantee) and this Clause 19
(Survival) shall survive any termination of this Agreement.
Signed by the Parties or their duly authorised representatives the day and year first before written
31
Schedule 1 - Representations and Warranties
Part 1
1. | Due Incorporation of Imation | |
Imation is duly incorporated with limited liability as a corporation in the State of Delaware, USA. | ||
2. | Due Authority of Imation | |
The signature, execution and performance of this Agreement and all ancillary documents by Imation have been duly authorised and are within the corporate power of Imation, constitute binding obligations of Imation in accordance with their terms and will not give rise to any breach of any instrument, debenture, mortgage, agreement, law, order, judgment or decree by which Imation is bound, including all the contracts to supply Products including the contracts between Imation and CMC Magnetics Corporation and more particularly their agreement dated 22 January 1999 (as amended). | ||
3. | Consents Obtained | |
All consents, licences or approvals required by law or regulation in order for Imation to enter into this Agreement and all ancillary documents have been obtained without conditions or limitations which would limit Imations performance of this Agreement and all ancillary documents. | ||
4. | Investigations | |
Complete and accurate copies of all material documents relating to any actual, pending or threatened investigation or inquiry by any governmental, judicial or other analoguous body into the business and affairs of Imation and which could have a material effect on Imations ability to perform its obligations in relation to the transaction contemplated by this Agreement have been disclosed in writing to MBI prior to the date of this Agreement. |
Part 2
1. | Due Incorporation of MBI | |
MBI is duly incorporated with limited liability as a public limited company in India. | ||
2. | Due Authority of MBI | |
The signature, execution and performance of this Agreement and all ancillary documents by MBI have been duly authorised and are within its corporate power, constitute binding obligations of MBI in accordance with their terms and will not give rise to any breach of any instrument, debenture, mortgage, agreement, law, order, judgment or decree by which MBI is bound. | ||
3. | Consents Obtained | |
All consents, licences or approvals required by law or regulation in order for MBI to enter into this Agreement and all ancillary documents have been obtained without conditions or limitations which would limit MBIs performance of this Agreement and all ancillary documents. |
32
4. | Employees | |
Complete and accurate details of the terms of employment of and the current remuneration and other benefits to which such employees of MBI who are listed in the agreed form list referred to in Clause 6.4 are entitled have been provided to Imation in writing prior to the date of this Agreement. | ||
5. | Investigations | |
Other than with respect to the ongoing anti-dumping and anti-subsidy investigations into CD-R and CD-RW Products sold by MBI in Europe, complete and accurate copies of all material documents relating to any actual, pending or threatened investigation or inquiry by any governmental, judicial or other analoguous body into the business and affairs of MBI which could have a material effect on MBIs ability to perform its obligations in relation to the transaction contemplated by this Agreement have been disclosed in writing to Imation prior to the date of this Agreement. |
33
Schedule 2 - Closing obligations
1. | Obligations of Imation | |
Imation shall: |
(a) | against payment of the sum referred to in paragraph 2(a), ensure the signature, notarisation and delivery to the Company for registration of a share transfer deed, duly executed by Imation Europe B.V., for the transfer of 245 Shares in favour of MBI; | ||
(b) | ensure the signature, notarisation and delivery to the Company for registration of a share transfer deed, duly executed by Imation Europe B.V., for the transfer of 255 Shares in favour of Imation; | ||
(c) | deliver to the Company the following documents, in each case notarised and attested to the level of the United Arab Emirates Embassy in the USA: |
(i) | copy certificate of registration or original certificate of good standing of Imation; | ||
(ii) | copy memorandum of association and by-laws of Imation; | ||
(iii) | board resolution of Imation approving the holding of a 51.0% interest in the Company by Imation; | ||
(iv) | any other documents relating to Imation which may be required in order for Imation to become the holder of Shares in the Company; |
(d) | pay to the Company for subscribing to 7,232 additional Shares the sum of AED 7,232,000 in immediately available cleared funds; and | ||
(e) | deliver to MBI a signed legal opinion in the agreed form in respect of Imation and the Company from, respectively, Dorsey & Whitney and Denton Wilde Sapte, Dubai. |
2. | Obligations of MBI | |
MBI shall: |
(a) | pay to Imation Europe B.V. the sum of AED 245,000 in consideration for the transfer of Shares referred to in paragraph 1(a) in immediately available cleared funds; | ||
(b) | deliver to the Company the following documents, in each case notarised and attested to the level of the United Arab Emirates Embassy in India: |
(i) | copy certificate of registration or original certificate of good standing of MBI; | ||
(ii) | copy memorandum and articles of association of MBI; | ||
(iii) | board resolution of MBI approving the holding of a 49.0% interest in the Company by MBI; | ||
(iv) | any other documents relating to MBI which may be required in order for MBI to become the holder of Shares in the Company; |
(c) | pay to the Company for subscribing to 6,949 additional Shares the sum of AED 6,949,000 in immediately available cleared funds; and |
34
(d) | deliver to Imation a signed legal opinion in the agreed form in respect of MBI from Luthra & Luthra. |
3. | Joint Obligations |
(1) | The Parties shall ensure that a meeting of the Board shall be held at which the following matters shall be approved: | ||
(a) | the entry of the names of the Shareholders in the shareholder register of the Company as the holders of the Shares transferred to them pursuant to paragraph 1 (a) and (b) and the issue to each Shareholder of a share certificate in respect of such Shares; | ||
(b) | the appointment of the persons listed below as the first Directors; |
Joseph V. Gote as an A Director
Paul R. Zeller as an A Director Brian J. Plummer as an A Director Ramesh Sanka as a B Director Rakesh Govil as a B Director |
(c) | the appointment of Thomas W. Foyer as the secretary of the Company; | ||
(d) | the appointment of Thomas W. Foyer as the first Managing Director; | ||
(e) | the appointment of Sanat Kumar as the first Director of Sales; | ||
(f) | the financial year of the Company shall end on 31 December, with the first financial year ending on 31 December 2003; and | ||
(g) | the appointment of PricewaterhouseCoopers as auditors of the Company. | ||
(2) | The Parties shall ensure that a meeting of the board of International shall be held at which the following matters shall be approved: | ||
(a) | the appointment of the persons listed below as the first directors: |
Joseph V. Gote as a director nominated by Imation
Paul R. Zeller as a director nominated by Imation Brian J. Plummer as a director nominated by Imation Ramesh Sanka as a director nominated by MBI Rakesh Govil as a director nominated by MBI |
(b) | the appointment of Thomas W. Foyer as the secretary of International; | ||
(c) | the appointment of Thomas W. Foyer as the first Managing Director; | ||
(d) | the appointment of Sanat Kumar as the first Director of Sales; | ||
(e) | the financial year of International shall end on 31 December, with the first financial year ending on 31 December 2003; and | ||
(f) | the appointment of PricewaterhouseCoopers as auditors of International. |
The Parties shall co-operate with each other and take all necessary steps to ensure that the transfers of the Shares referred to in paragraphs 1(a) and (b) above shall be approved by the |
35
Authority and registered in the register of shareholders of the Company as soon as practicable following Closing. |
36
Schedule 3 - Confidentiality Agreement (Clause 6.8)
Date:
To: Global Data Media FZ-LLC (GDM) and its direct and indirect subsidiaries (GDM and such subsidiaries are referred to individually as Group Company and collectively as Group)
Confidentiality Undertaking
Dear Sirs,
I, [ insert the name of employee/director] have been appointed/nominated by [ insert the name of the relevant Group Company/Imation Corp./Moser Baer India Limited ] as [ (incase of an employee, insert the designation of such employee) / their nominee director on the board of directors] of [ insert the name of relevant Group Company ].
I understand that during the tenure of my (employment/appointment on the board of directors of [ insert the name of relevant Group Company ]), I may receive or become aware of Confidential Information including any Restricted Information (as defined hereafter), and I acknowledge and accept that any unauthorized disclosure of such information by me would constitute a breach of this Undertaking.
Confidential Information shall mean and include all information, data, studies, consultants reports, computer models and programs, contracts and documents of a confidential nature including, without limitation, those relating to the business, trade ideas, trade secrets, patents, business methods, processes, know-how, finances, customer pricing, customer lists, customer volumes, product mix, business plans, sales targets, sales statistics, customer relationships and database in computer systems relative to GDM or any Group Company or Moser Baer India Limited (an Indian company having its registered office at 63, Ring Road, Lajpat Nagar III, New Delhi, India and herein referred to as Moser Baer) or Imation Corp. (a Delaware corporation having its principal office at Imation Place, Oakdale, Minnesota, USA, and herein referred to as Imation) or of the any subsidiaries and group companies of Moser Baer or Imation.
I recognize and acknowledge the competitive value and confidential nature of the Confidential Information (including any Restricted Information) and the resultant damage to the concerned person if the Confidential Information (including any Restricted Information) is disclosed or is allowed to be disclosed to any unauthorized person. I acknowledge and agree that it is imperative that all Confidential Information (including any Restricted Information) remains strictly confidential.
I understand that GDM is a joint venture company between Imation and Moser Baer and that each of GDM, Moser Baer and Imation are involved in similar and competing businesses pertaining to magnetic and optical data storage products. Further, since the Group would be purchasing products from Moser Baer, any Restricted Information (as defined hereinafter) would contain information which is confidential and proprietary to the Group and/or Moser Baer and should not be disclosed except in the manner and to the extent provided herein and any unauthorised disclosure of the same to Imation or any of their employees or consultants, agents or representatives would cause irreparable
37
harm and injury to the Group and/or Moser Baer. In order to ensure that Imation and the Group work on an arms length basis and that their interests are not compromised or conflicted, I agree to the restrictions on disclosure of any portion of the Confidential Information (including any Restricted Information) imposed on me.
I agree and undertake as follows:
1. | that I shall use the Confidential Information received by me only for the purpose of performing my duties towards GDM and/or the relevant Group Company and shall not in any manner disclose any portion of the Confidential Information to any person except, subject to paragraph 3 below, strictly on a need to know basis and shall ensure that such person to whom the Confidential Information is disclosed shall keep such information strictly confidential. | |
2. | that I shall promptly advise GDM in writing if I learn of any unauthorized use or disclosure of Confidential Information. | |
3. | that notwithstanding anything to the contrary contained in this Undertaking, I shall not disclose any information of GDM or any Group Company relating to customer lists or information on an individual customer or a potential customer or order basis regarding the customer sales volume, product mix, product pricing or other similar information (Restricted Information) to any person except strictly on a need to know basis and only to such persons who have also executed undertakings in the form and content similar to this Undertaking, provided further, that under no circumstances shall I disclose the Restricted Information to any person who is working in or who has, in the past eighteen months, worked in the PSS Division (as defined hereinafter and excluding the financial controller of the PSS Division). I understand that the Restricted Information is very sensitive and competitive in nature and any unauthorized disclosure may cause irreparable harm and injury to Moser Baer and/or the Group. I further agree that if any disclosure of Restricted Information is required to be made to Imation or its employees, agents, representatives etc. (other than to persons who are presently working in or have in the past worked in the PSS Division as mentioned above, to whom disclosure is prohibited), then such disclosure shall only be made strictly on a need to know basis and only to such persons who have also executed undertakings in the form and content similar to this Undertaking. PSS Division means the business division within Imation and/or its associated / group companies which produces and/or sells personal computer storage applications comprising of optical media products (such as the optical data storage media in the CD and DVD recordable and re-writeable formats, whether packaged or unpackaged) and/or magnetic disc products (such as diskettes), including the relevant part of another division within Imation and/or its associated /group companies into which such business division may be reorganized in whole or in part from time to time | |
4. | that the restrictions in this Undertaking shall not apply to: |
(a) | Confidential Information which both GDM and Moser Baer authorizes the disclosure in writing; | ||
(b) | Confidential Information which is or becomes generally available to the public other than as a result of disclosure by me in violation of this Undertaking; | ||
(c) | Confidential Information which is received by me from a source other than GDM, another Group Company, Moser Baer, Imation or any employees, consultants, representatives, agents of any of the foregoing entities, provided that such source, to the best of my knowledge, is not bound by a confidentiality agreement/undertaking with any person; |
38
(d) | Confidential Information which is required to be disclosed by law or legal process or by any securities, exchanges, accounting, regulatory or governmental body (whether or not the requirement for disclosure has the force of law), after prior written notice has been given to GDM. |
5. | that I acknowledge that the use or disclosure of the Confidential Information (including any Restricted Information) in a manner inconsistent with this Undertaking may cause GDM and/or the relevant Group Company and/or Moser Baer and/or Imation irreparable damage, and that the Group shall have the right to seek equitable relief including injunction to prevent the unauthorized use or disclosure. I agree not to oppose the granting of such relief to the maximum extent permissible under applicable law. Nothing shall be construed as prohibiting the Group from pursuing any other available remedies for such unauthorized use or disclosure, including the recovery of damages from me. | |
6. | that on my ceasing to be an employee/director of [ insert the name of relevant Group Company ], I shall promptly return to [insert the name of the relevant Group Company] all documents or other materials (including any notes, copies, any reproductions, any extracts and summaries and any such information stored electronically on tapes, computer disks, or in any other manner) pertaining to the Confidential Information (including any Restricted Information) received by me during my tenure with GDM or any Group Company; | |
7. | that if any provision of this Undertaking shall be determined to be invalid or otherwise unenforceable by any court of competent jurisdiction, I consent and agree that the validity and enforceability of the other provisions of this Undertaking shall not be affected thereby, that this Undertaking shall be enforced to the maximum extent permitted by law, and that any provision found invalid or otherwise unenforceable may be appropriately amended by that court so as to be valid and enforceable. | |
8. | that the failure by any Group Company to insist upon strict compliance with any of the terms, covenants, or conditions hereof shall not be deemed a waiver of such terms, covenants and conditions. | |
9. | that this Undertaking shall be interpreted, governed and construed under the laws of England, as if executed and to be performed wholly within the territory of England. | |
10. | that I shall continue to abide by the terms hereof even after ceasing to be an employee/director of [ insert the name of relevant Group Company ]. |
Name:
Designation:
39
Schedule 4 - Management Roles and Responsibilities (Clause 6.6(d))
40
Global Data Media - MBI
International - Glyphics Media, Inc.
Global Data Media
Roles and Responsibilities
Summary
Glyphics Media, Inc. (USA)
GDM + MBI International (Dubai)
MBI International (India)
Imation Corp
Moser Baer India Ltd.
- Local Company Mgmt
- Day to day operations such as
operating &
- Procurement from MBI
- Strategic Direction
- Strategic Direction
capital budgets, purchasing, pricing & employment
-Customer Relations/Account
- Front-line sales
- Company strategy
Mgmt
- Market Intelligence
- Market Intelligence
- Capital contribution
- OEM Account Management
- Business Development
- Planning and Forecasting
- GDM-MBII Board of Directors Interface
- Marcom (Adv, tradeshows)
- Website/Internet presence
and loans
- IT systems support
(Oracle + WAN)
- Capital Contribution and loans
- Product Roadmap
- Local Marketing
- Company Identity/Company Marcom
- Market Intelligence
- Technical Assistance
- Production commitments by SKU
- Order Fulfillment/Physical
- Product delivery and quality
- Local Market Intelligence
- Imation customer invoicing and
collections
Logistics
- Tech Service
performance
- Product Allocation
implementation
- Board Representation
- Technical Assistance
- Order management
- Customer invoicing and collections
- Interface to MBI production
scheduling
- IT Systems support (EMIS)
- - Credit note approvals
- WW Sales Management (Sales
Director)
- Product Road Map
- Logistics support
- - Expediting, air freight
- Pricing Management
- Board Representation
- Local Acctg, AP, HR. IT & Admin
- - Floor price management
- Local AR/Credit Mgmt.
- - Margin maximization
- Local Legal and Statutory
Compliance
- Product Allocation
direction/approvals
41
Glyphics Media, Inc. (USA)
GDM + MBI International (Dubai)
MBI International (India)
Imation Corp
Moser Baer India Ltd.
- Conflict Management
- Imation vs. OEM customer
requirements
- Middle East and North Africa Sales
- Rolling forecasted demand to MBI
- Finance, Consolidations, Treasury
internal/external auditing, taxation
- Selecting /terminating or setting
compsenation
of key management and other employees
Key Metrics:
Key Metrics:
Key Metrics:
- Net Sales vs. Target in $USD
- Net Sales vs. Target in $USD
- Net Sales vs.
Target - USD
- Gross Margins vs. target
- Gross Margins vs. target
- Gross Margins vs. target
- Local SG&A vs. target
- Company SG&A vs. target
- Logistics costs vs. target
- DSO and DOS vs. target
- Forecast accuracy vs. rolling
estimate
- DSO and DOS vs target
- Net Income and Cash flow
- Supply Chain performance vs
target
- New product intro timeliness
42
Global Data Media - MBI
International - Glyphics Media, Inc.
Roles and Responsibilities by Area - Page 1
GDM-MBII | GDM-MBII | Imation | Moser Baer | |||||||||||||||
Description | Glyphics (USA) | MBII NL | MBII India | Dubai | BOD | Corp | India Ltd. | |||||||||||
|
|
|
|
|
|
|
|
|||||||||||
1.0 | General Management | |||||||||||||||||
1.1 | Day to day operations | MD | GM | MD India Office | MD | NA | NA | |||||||||||
1.2 | Front-line sales | Sales Director | GM | NA | Sales Director | |||||||||||||
1.3 | Customer Account Mgmt | Sales Director | GM | Cust. Relations Mgr. | Sales Director | |||||||||||||
1.4 | Business Development | Sales Director | GM | Cust. Relations Mgr. | Sales Director | |||||||||||||
1.5 | Regional Marketing | Sales Director | NA | Cust. Relations Mgr. | Sales Director | |||||||||||||
1.6 | Regional Market intelligence | Sales Director | GM | Cust. Relations Mgr. | Sales Director | |||||||||||||
2.0 | Forecasting | |||||||||||||||||
2.0 | Regional rolling forecast | Sales Director | NA | Cust. Relations Mgr. | Sales Director | |||||||||||||
2.0 | MBII Consol. rolling forecast | SC Manager | ||||||||||||||||
2.0 | MBII Consol forecast to MBI | SC Manager | ||||||||||||||||
2.0 | MBI Manufacturing plan response | MBI production mgr. | ||||||||||||||||
2.0 | MBII review and acceptance of Man. Plan | MD | SC Manager | MD | ||||||||||||||
3.0 | Order Management | |||||||||||||||||
3.1 | New Customer approval | Sales Dir/MD | NA | Sales Dir/MD |
43
GDM-MBII
GDM-MBII
Imation
Moser Baer
Description
Glyphics (USA)
MBII NL
MBII India
Dubai
BOD
Corp
India Ltd.
3.2
Customer order acceptance by Newco
Sales Dir/MD
Sales Dir/MD
3.3
MBII customer order acceptance by
MBI
Exec. Director
3.4
Credit limit check
SC Specialist
NA
SC Specialist
3.5
Credit Limit override approval
Fin Manager
Fin Manager
3.6
Customer Orders into EMIS
SC Specialist
SC Specialist
3.7
Confirmation of customer ship date
SC Specialist
4.0
Customer Invoicing
4.1
Create and send MBI invoices to MBII
SC Specialist
4.2
Create BOL, pack list and send with
product
Export Assistant
4.3
Create and send banking docs to MBII
Export Assistant
4.4
Create and send MBII invoice to
customer
SC Specialist
4.5
Create and send MBII invoice to
Imation AP Depts
SC Specialist
SC Specialist
44
Global Data Media - MBI
International - Glyphics Media, Inc.
Roles and Responsibilities by Area - Page 2
GDM-MBII | Moser Baer | |||||||||||||||||||
Description | Glyphics (USA) | MBII NL | MBII India | GDM-MBII Dubai | BOD | Imation Corp | India Ltd. | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
5.0 | Customer Credit Notes | |||||||||||||||||||
5.x | Approve Customer CN requests (Auth. Matrix) | Sales Dir or MD | GM | Cust. Relations Mgr. | Sales Dir or MD | |||||||||||||||
5.x | Create and send CN to Customer | NA | Export Assistant | |||||||||||||||||
6.0 | Price Management | |||||||||||||||||||
6.1 | Maintain Customer price list | Sales Dir/MD | Order Mgmt. Mgr | Sales Dir/MD | ||||||||||||||||
6.2 | Prepare one-off price recommendation | Sales Dir/MD | Cust. Relations Mgr. | Sales Dir/MD | ||||||||||||||||
6.3 | Transmit One-off price recomm to MD | Sales Dir/MD | Order Mgmt. Mgr | Sales Dir/MD | ||||||||||||||||
6.4 | Approve one-off price change | Sales Dir/MD | Sales Dir/MD | |||||||||||||||||
6.5 | Prepare permanent price change recomm. | Sales Dir/MD | Cust. Relations Mgr. | Sales Dir/MD | ||||||||||||||||
6.6 | Forward price change recomm to MD and MBI | Sales Dir/MD | Order Mgmt. Mgr | Sales Dir/MD | ||||||||||||||||
6.7 | Approve permanent price change | Sales Dir/MD | Sales Dir/MD | |||||||||||||||||
7.0 | Annual Business Plan | |||||||||||||||||||
7.1 | Set annual business plan timetable | Fin Manager | ||||||||||||||||||
7.2 | Prepare business plan revenue and margin inputs | Sales Director |
45
GDM-MBII
Moser Baer
Description
Glyphics (USA)
MBII NL
MBII India
GDM-MBII Dubai
BOD
Imation Corp
India Ltd.
7.3
Prepare operating & capital budgets,
headcount levels
Fin Manager
7.4
Prepare final revenue, margin, operating &
capital budgets
MD
7.5
Prepare final quarterly headcount plans
Circulate final draft business plan to the BOD
MD
MD
7.6
Approve annual Business Plan
BOD
8.0
Purchasing
8.1
Define purchasing process
MD/Fin Manager
8.2
Approve authorized signers list (external
documents)
MD
8.3
Approve authorized approvers list and US$
limits
MD
8.5
Approve purchase requisitions (Auth. matrix)
Sales Dir, Fin Mgr
and MD
GM
MD India Office
Sales Dir, Fin Mgr
and MD
8.6
Approve purchase orders (Auth. matrix)
Sales Dir, Fin Mgr
and MD
GM
MD India Office
Sales Dir, Fin Mgr
and MD
8.7
Approve vendors (Auth. matrix)
MD/Fin Manager
GM
MD India Office
MD/Fin Manager
8.8
Approve vendor invoices for payment (Auth.
Matrix)
Sales Dir, Fin Mgr
and MD
GM
MD India Office
Sales Dir, Fin Mgr
and MD
46
Global Data Media - MBI
International -
Glyphics Media, Inc.
Roles and Responsibilities by Area Page 3
GDM-MBII
Imation
Moser Baer
Description
Glyphics (USA)
MBII NL
MBII India
GDM-MBII Dubai
BOD
Corp
India Ltd.
9.0
Employment Matters
9.1
Prepare headcount requisitions
and promotion proposals
Sales Dir, Fin Mgr
and MD
NA
MD India Office
Sales Dir, Fin Mgr and MD
9.2
Prepare salary change proposals
(annual and interim)
Sales Dir, Fin Mgr
and MD
GM
MD India Office
Sales Dir, Fin Mgr and MD
9.3
Approve headcount, promotions,
salary changes
MD
9.4
Approve changes to MD
compensation & other MD issues
BOD
9.5
Approve changes to Sales
Director compensation
BOD
9.6
Hiring and dismissal of the
Sales Director
BOD
9.7
Approve employee dismissal
requests & related Comp.
MD
9.8
Establish employee compensation
and benefits policy
MD
10.0
Capital Contributions
10.1
Set capital contributions limits
Via contract
Via contract
10.2
Approve additional capital
contributions
Via contract
Via contract
10.3
Approve payment of dividends
BOD
47
Signed by | ) | |||||
duly authorised for and | ) | |||||
on behalf of | ) | /s/ Robert L. Edwards | ||||
Imation | ) |
|
||||
Signed by | ) | |||||
duly authorised for and | ) | |||||
on behalf of | ) | /s/ Deepak Puri | ||||
MBI | ) |
|
||||
Signed by | ) | |||||
duly authorised for and | ) | |||||
on behalf of | ) | /s/ Joseph V. Gote | ||||
The Company | ) |
|
||||
Signed by | ) | |||||
duly authorised for and | ) | |||||
on behalf of | ) | /s/ Joseph V. Gote | ||||
International | ) |
|
48
Exhibit 21.1
SUBSIDIARIES OF IMATION CORP.
Country or State In
Percentage of
Which Subsidiary
Ownership
Was Organized
(Note 1)
Delaware
100
Delaware
100
Bermuda
100
Delaware
100
Brazil
100
Chile
100
Mexico
100
Uruguay
100
Argentina
100
Colombia
100
Guatemala
100
Panama
100
Peru
100
Puerto Rico
100
Venezuela
100
Canada
100
Barbados
100
Thailand
100
Singapore
100
Singapore
100
Australia
100
China
100
China
100
China
100
China
100
Hong Kong
100
India
100
Japan
60
*
Korea
100
Malaysia
100
Singapore
100
Taiwan
100
Netherlands
100
France
100
Germany
100
Italy
100
Italy
100
Netherlands
100
South Africa
100
Spain
100
U.A.E.
100
United Kingdom
100
United Kingdom
100
U.A.E.
51
*
U.A.E.
51
*
New York
51
*
U.A.E.
51
*
Note 1 Except where noted, the percentage of ownership refers to the total ownership by the indicated parent corporation.
* Japan and Global Data Media FZ-LLC and its subsidiaries are Joint Ventures
Exhibit 23.1
Consent of Independent Auditors
We hereby consent to the incorporation by
reference in the Registration Statements of Imation Corp. on
Form S-8 (Registration Nos. 333-15273, 333-15275,
333-15277, 333-35591, 333-38196, and 333-66030), of our report
dated January 27, 2004, on our audits of the consolidated
financial statements of Imation Corp. and subsidiaries as of
December 31, 2003 and 2002, and for each of the three years
in the period ended December 31, 2003, which report is
included in this Annual Report on Form 10-K.
Minneapolis, Minnesota
/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each
person whose signature appears below hereby constitutes and
appoints William T. Monahan and John L. Sullivan, and each of
them, his or her true and lawful attorneys-in-fact and agents,
each acting alone, with full power of substitution and
resubstitution, for him or her and in his or her name, place and
stead, in any and all capacities, to sign the 2003 Annual Report
on Form 10-K of Imation Corp., and any and all amendments
thereto, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and
agents, each acting alone, full power and authority to do and
perform to all intents and purposes as he or she might or could
do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, each acting alone, or the
substitutes for such attorneys-in-fact and agents, may lawfully
do or cause to be done by virtue hereof.
Name
Title
Date
/s/ PAUL R. ZELLER
Paul R. Zeller
Vice President, Corporate Controller
February 6, 2004
/s/ MICHAEL S. FIELDS
Michael S. Fields
Director
February 4, 2004
/s/ LINDA W. HART
Linda W. Hart
Director
February 4, 2004
/s/ RONALD T. LEMAY
Ronald T. LeMay
Director
February 4, 2004
/s/ MARVIN L. MANN
Marvin L. Mann
Director
February 4, 2004
/s/ L. WHITE MATTHEWS, III
L. White Matthews, III
Director
February 4, 2004
/s/ GLEN A. TAYLOR
Glen A. Taylor
Director
February 4, 2004
/s/ DARYL J. WHITE
Daryl J. White
Director
February 4, 2004
Exhibit 31.1
Certification Pursuant to
Section 302
I, William T. Monahan, certify that:
1. I have reviewed this annual report on
Form 10-K of Imation Corp.;
2. Based on my knowledge, this report does
not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial
statements, and other financial information included in this
report, fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The registrants other certifying
officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
5. The registrants other certifying
officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the
registrants auditors and the audit committee of the
registrants board of directors (or persons performing the
equivalent functions):
Date: March 1, 2004
(a) Designed such disclosure controls and
procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material
information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
report is being prepared;
(b) Evaluated the effectiveness of the
registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in
the registrants internal control over financial reporting
that occurred during the registrants most recent fiscal
quarter (the registrants fourth fiscal quarter in the case
of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrants
internal control over financial reporting; and
(a) All significant deficiencies and
material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to
adversely affect the registrants ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that
involves management or other employees who have a significant
role in the registrants internal control over financial
reporting.
By:
/s/ WILLIAM T. MONAHAN
Exhibit 31.2
Certification Pursuant to
Section 302
I, Paul R. Zeller, certify that:
1. I have reviewed this annual report on
Form 10-K of Imation Corp.;
2. Based on my knowledge, this report does
not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial
statements, and other financial information included in this
report, fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The registrants other certifying
officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
5. The registrants other certifying
officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the
registrants auditors and the audit committee of the
registrants board of directors (or persons performing the
equivalent functions):
Date: March 1, 2004
(a) Designed such disclosure controls and
procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material
information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
report is being prepared;
(b) Evaluated the effectiveness of the
registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in
the registrants internal control over financial reporting
that occurred during the registrants most recent fiscal
quarter (the registrants fourth fiscal quarter in the case
of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrants
internal control over financial reporting; and
(a) All significant deficiencies and
material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to
adversely affect the registrants ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that
involves management or other employees who have a significant
role in the registrants internal control over financial
reporting.
By:
/s/ PAUL R. ZELLER
*
Pursuant to a Board of Directors resolution
adopted on August 6, 2003, Mr. Zeller has assumed the
Chief Financial Officer function with respect to preparation of
financial statements and SEC filings.
Exhibit 32.1
Certification Pursuant to
In connection with the Annual Report of Imation
Corp. (the Company) on Form 10-K for the period
ended December 31, 2003, as filed with the Securities and
Exchange Commission on the date hereof (the Report),
I, William T. Monahan, Chairman and Chief Executive Officer
of the Company, certify, pursuant to 18 U.S.C.
section 1350, as adopted pursuant to section 906 of
the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the
requirements of section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
(2) The information contained in the Report
fairly presents, in all material respects, the financial
condition and results of operations of the Company.
/s/ WILLIAM T. MONAHAN
William T. Monahan
March 1, 2004
Exhibit 32.2
Certification Pursuant to
In connection with the Annual Report of Imation
Corp. (the Company) on Form 10-K for the period
ended December 31, 2003, as filed with the Securities and
Exchange Commission on the date hereof (the Report),
I, Paul R. Zeller, Vice President, Corporate Controller* of
the Company, certify, pursuant to 18 U.S.C. section 1350,
as adopted pursuant to section 906 of the Sarbanes-Oxley
Act of 2002, that:
(1) The Report fully complies with the
requirements of section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
(2) The information contained in the Report
fairly presents, in all material respects, the financial
condition and results of operations of the Company.
/s/ PAUL R. ZELLER
March 1, 2004
* Pursuant to a Board of Directors
resolution adopted on August 6, 2003, Mr. Zeller has
assumed the Chief Financial Officer function with respect to
preparation of financial statements and SEC filings.
Paul R. Zeller