UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
March 31, 2011
or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
Commission File Number: 1-14310
IMATION CORP.
(Exact name of registrant as specified in its charter)
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Delaware
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41-1838504
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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1 Imation Way
Oakdale, Minnesota
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55128
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(Address of principal executive offices)
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(Zip Code)
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(651) 704-4000
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 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.
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Yes
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No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
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Yes
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No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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(Do not check if a smaller reporting company)
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Smaller reporting company
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
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Yes
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No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 38,661,933 shares of Common Stock, par value $0.01 per share, were outstanding May 1, 2011.
IMATION CORP.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1.
Financial Statements.
IMATION CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except for per share amounts)
(Unaudited)
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Three Months Ended
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March 31,
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2011
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2010
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Net revenue
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$
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316.5
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$
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365.8
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Cost of goods sold
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262.5
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304.1
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Gross profit
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54.0
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61.7
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Operating expenses:
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Selling, general and administrative
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50.2
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53.1
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Research and development
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4.7
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4.4
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Goodwill impairment
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1.6
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—
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Restructuring and other
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0.9
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4.0
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Total
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57.4
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61.5
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Operating (loss) income
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(3.4
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0.2
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Other (income) and expense:
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Interest income
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(0.2
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(0.2
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Interest expense
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0.9
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1.1
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Other, net
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1.4
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2.9
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Total
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2.1
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3.8
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Loss before income taxes
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(5.5
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(3.6
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Income tax provision (benefit)
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1.7
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(1.1
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Loss from continuing operations
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(7.2
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(2.5
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)
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Discontinued operations:
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Loss from discontinued operations, net of income taxes
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—
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(0.1
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Net loss
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$
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(7.2
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$
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(2.6
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)
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(Loss) earnings per common share — basic:
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Continuing operations
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$
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(0.19
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$
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(0.07
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Discontinued operations
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—
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—
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Net loss
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(0.19
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(0.07
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(Loss) earnings per common share — diluted:
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Continuing operations
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$
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(0.19
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$
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(0.07
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Discontinued operations
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—
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—
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Net loss
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(0.19
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(0.07
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Weighted average shares outstanding
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Basic
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38.0
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37.7
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Diluted
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38.0
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37.7
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The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
IMATION CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
(Unaudited)
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March 31,
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December 31,
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2011
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2010
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Assets
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Current assets
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Cash and cash equivalents
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$
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285.5
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$
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304.9
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Accounts receivable, net
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224.9
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258.8
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Inventories
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216.2
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203.3
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Other current assets
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66.5
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74.2
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Total current assets
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793.1
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841.2
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Property, plant and equipment, net
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66.6
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66.9
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Intangible assets, net
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315.3
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320.4
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Other assets
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23.4
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22.5
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Total assets
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$
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1,198.4
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$
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1,251.0
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Liabilities and Shareholders’ Equity
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Current liabilities
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Accounts payable
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$
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206.2
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$
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219.2
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Other current liabilities
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140.4
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172.3
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Total current liabilities
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346.6
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391.5
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Other liabilities
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71.4
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77.8
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Total liabilities
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418.0
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469.3
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Shareholders’ equity
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780.4
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781.7
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Total liabilities and shareholders’ equity
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$
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1,198.4
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$
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1,251.0
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The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
IMATION CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
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Three Months Ended
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March 31,
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2011
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2010
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Cash Flows from Operating Activities:
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Net loss
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$
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(7.2
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$
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(2.6
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)
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Adjustments to reconcile net income to net cash provided by operating activities:
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Depreciation
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2.9
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4.7
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Amortization
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6.0
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5.8
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Deferred income taxes, net of valuation allowance
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(0.2
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2.6
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Goodwill impairment
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1.6
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—
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Inventory write-offs
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1.2
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—
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Stock-based compensation
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1.8
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1.7
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Other
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1.6
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2.0
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Changes in operating assets and liabilities:
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Litigation settlement payment
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(2.6
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—
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Accounts receivable
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37.1
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60.1
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Inventories
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(11.9
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18.9
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Other assets
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(4.0
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(12.7
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Accounts payable
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(14.7
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(3.9
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Accrued payroll and other liabilities
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(41.7
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(11.0
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Restricted cash
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11.0
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2.8
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Net cash (used in) provided by operating activities
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(19.1
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68.4
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Cash Flows from Investing Activities:
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Capital expenditures
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(2.6
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(2.2
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Acquisition of Encryptx
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(1.0
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—
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License agreement payment
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—
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(5.0
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Other, net
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—
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0.1
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Net cash used in investing activities
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(3.6
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(7.1
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Cash Flows from Financing Activities:
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Purchase of treasury stock
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(2.2
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—
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Exercise of stock options
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0.5
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—
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Net cash used in financing activities
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(1.7
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—
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Effect of exchange rate changes on cash and cash equivalents
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5.0
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(0.5
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Net change in cash and cash equivalents
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(19.4
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60.8
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Cash and cash equivalents — beginning of period
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304.9
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163.4
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Cash and cash equivalents — end of period
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$
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285.5
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$
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224.2
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The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
IMATION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 — Basis of Presentation
The interim Condensed Consolidated Financial Statements of Imation Corp. (Imation, the Company, we, us or our) are unaudited but, in the opinion of management, reflect all adjustments necessary for a fair statement of financial position, results of operations and cash flows for the periods presented. Except as otherwise disclosed herein, these adjustments consist of normal, recurring items. The results of operations for any interim period are not necessarily indicative of full year results. The Condensed Consolidated Financial Statements and Notes are presented in accordance with the requirements for Quarterly Reports on Form 10-Q and do not contain certain information included in our annual Consolidated Financial Statements and Notes.
The preparation of the interim Condensed Consolidated 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 interim Condensed Consolidated Financial Statements and the reported amounts of revenue and expenses for the reporting periods. Despite our intention to establish accurate estimates and use reasonable assumptions, actual results may differ from our estimates.
The
December 31, 2010
Condensed Consolidated Balance Sheet data was derived from the audited Consolidated Financial Statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. This Form 10-Q should be read in conjunction with our Consolidated Financial Statements and Notes included in our Annual Report on Form 10-K for the year ended
December 31, 2010
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As a result of the wind down of our Global Data Media (GDM) business joint venture, these operations are presented in our historical Condensed Consolidated Financial Statements as discontinued operations for all periods presented.
Note 2 — Recently Adopted Accounting Pronouncements
In January 2010, the Financial Accounting Standards Board (FASB) issued additional disclosure requirements for assets and liabilities held at fair value. Specifically, the new guidance requires a gross presentation of activities within the Level 3 roll forward and adds a new requirement to disclose transfers in and out of Level 1 and 2 measurements. This guidance is applicable to all entities currently required to provide disclosures about recurring and nonrecurring fair value measurements. The effective date for these disclosures for Imation was January 1, 2010, except for the gross presentation of the Level 3 roll forward information, which was required for interim reporting periods beginning January 1, 2011. The disclosures did not have a material impact on our Condensed Consolidated Financial Statements.
In December 2010, the FASB issued additional guidance for entities with reporting units that have carrying amounts equal to zero or are negative. These entities are required to assess whether it is more likely than not that the reporting units' goodwill is impaired. If it is determined that it is more likely than not that the goodwill of one or more of its reporting units is impaired, then Step 2 of the goodwill impairment test for those reporting unit(s) should be performed. Any resulting goodwill impairment should be recorded as a cumulative-effect adjustment to beginning retained earnings in the period of adoption. Any goodwill impairments occurring after the initial adoption of the amendments should be included in earnings. The effective date for these disclosures for Imation was January 1, 2011. This guidance did not have a material impact on our Condensed Consolidated Financial Statements.
In December 2010, the FASB issued additional and amended disclosure requirements for supplementary pro forma information related to business combinations. The effective date for this guidance for Imation is prospective for business combinations in which the acquisition date is on or after January 1, 2011. Further, this guidance impacts only annual disclosures. We do not expect these disclosures to have a material impact on our Consolidated Financial Statements.
A variety of proposed potential accounting standards are currently under study by standard setting organizations and various regulatory agencies. Due to the tentative and preliminary nature of those proposed standards, management has not determined whether implementation of such proposed standards would be material to our Condensed Consolidated Financial Statements.
Note 3 — Earnings (Loss) per Common Share
Basic earnings per share is calculated using the weighted average number of shares outstanding for the period. Diluted earnings per share is computed on the basis of the weighted average basic shares outstanding plus the dilutive effect of our stock-based compensation plans using the “treasury stock” method. Unvested restricted stock and treasury shares are excluded from the calculation of weighted average number of common shares outstanding because they do not participate in dividends. Once restricted stock vests, it is included in our common shares outstanding.
The following table sets forth the computation of the weighted average basic and diluted income (loss) per share:
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Three Months Ended
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March 31,
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(In millions)
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2011
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2010
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Numerator:
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Loss from continuing operations
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$
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(7.2
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$
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(2.5
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)
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(Loss) income from discontinued operations
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—
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(0.1
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Net loss
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$
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(7.2
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)
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$
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(2.6
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Denominator:
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Weighted average number of common shares outstanding during the period
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38.0
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37.7
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Dilutive effect of stock-based compensation plans
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—
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—
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Weighted average number of diluted shares outstanding during the period
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38.0
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37.7
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Basic (loss) earnings per common share:
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Continuing operations
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$
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(0.19
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$
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(0.07
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Discontinued operations
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—
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—
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Net loss
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(0.19
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(0.07
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)
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Diluted (loss) earnings per common share:
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Continuing operations
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$
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(0.19
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$
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(0.07
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Discontinued operations
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—
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—
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Net loss
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(0.19
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(0.07
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Anti-dilutive options excluded from calculation
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4.1
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4.6
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Earnings per share amounts for continuing operations, discontinued operations and net loss, as presented on the Condensed Consolidated Statements of Operations, are calculated individually and may not sum due to rounding differences.
Note 4 — Acquisitions
BeCompliant Corporation (doing business as Encryptx)
On February 28, 2011, we acquired substantially all of the assets of BeCompliant Corporation (doing business as Encryptx), a technology leader in encryption and security solutions for removable storage devices and removable storage media. The purchase price was $2.3 million, consisting of a cash payment of $1.0 million and the estimated fair value of future contingent consideration of $1.3 million.
The purchase price allocation resulted in goodwill of $1.6 million relating to this acquisition, made up of expected synergies from combining operations and intangible assets that do not qualify for separate recognition. The goodwill was allocated to our existing Americas-Commercial reporting unit. Goodwill is considered impaired when its carrying amount exceeds its implied fair value. Since the carrying amount of all of our reporting units significantly exceeded their fair value, we immediately performed an impairment test. Based on the goodwill test performed, we determined that the carrying amount of the goodwill in the Americas-Commercial reporting unit, including the assets of Encryptx, exceeded the implied fair value and, therefore, the goodwill was fully impaired.
The effects of the acquisition did not materially impact our 2011 results of operations. Therefore, pro forma disclosures are not required and accordingly are not included.
Note 5 — Supplemental Balance Sheet Information
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March 31,
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December 31,
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(In millions)
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2011
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2010
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(Unaudited)
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Accounts Receivable
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Accounts receivable
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$
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244.2
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$
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279.4
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Less reserves and allowances*
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(19.3
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(20.6
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Accounts receivable, net
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$
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224.9
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$
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258.8
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Inventories
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Finished goods
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$
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183.3
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$
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175.0
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Work in process
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18.9
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10.6
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Raw materials and supplies
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14.0
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17.7
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Total inventories
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$
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216.2
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$
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203.3
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Other Current Assets
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Deferred income taxes
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$
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9.5
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$
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9.1
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Restricted cash
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6.9
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17.9
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Assets held for sale
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7.2
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7.2
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Taxes receivable
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5.6
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2.0
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Other
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37.3
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38.0
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Total other current assets
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$
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66.5
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$
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74.2
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Property, Plant and Equipment
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Property, plant and equipment
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$
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350.3
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$
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349.3
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Less accumulated depreciation
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(283.7
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(282.4
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Property, plant and equipment, net
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$
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66.6
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$
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66.9
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Other Assets
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Deferred income taxes
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$
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12.6
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$
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12.2
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Other
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10.8
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10.3
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Total other assets
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$
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23.4
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$
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22.5
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Other Current Liabilities
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Rebates
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$
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46.3
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$
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53.4
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Levies
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20.0
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23.6
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Accrued payroll
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9.9
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15.6
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Litigation settlement — current
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8.2
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10.6
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Employee separation costs
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8.7
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10.5
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Other
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47.3
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58.6
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Total other current liabilities
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$
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140.4
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$
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172.3
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Other Liabilities
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Pension
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$
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19.0
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$
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27.0
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Litigation settlement — long-term
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15.3
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15.1
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Deferred income taxes
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3.8
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3.4
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Other
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33.3
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32.3
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Total other liabilities
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$
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71.4
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$
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77.8
|
|
|
|
|
|
*
|
|
Accounts receivable reserves and allowances include estimated amounts for customer returns, terms discounts and the inability of certain customers to make the required payment.
|
Note 6 — Intangible Assets and Goodwill
Intangible Assets
The components of our amortizable intangible assets were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
Trade Names
|
|
Software
|
|
Customer Relationships
|
|
Other
|
|
Total
|
March 31, 2011
|
|
|
|
|
|
|
|
|
|
|
Gross carrying amount
|
|
$
|
333.1
|
|
|
$
|
53.8
|
|
|
$
|
59.3
|
|
|
$
|
8.3
|
|
|
$
|
454.5
|
|
Accumulated amortization
|
|
(47.7
|
)
|
|
(49.3
|
)
|
|
(38.7
|
)
|
|
(3.5
|
)
|
|
(139.2
|
)
|
Intangible assets, net
|
|
$
|
285.4
|
|
|
$
|
4.5
|
|
|
$
|
20.6
|
|
|
$
|
4.8
|
|
|
$
|
315.3
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
Gross carrying amount
|
|
$
|
332.4
|
|
|
$
|
54.2
|
|
|
$
|
58.8
|
|
|
$
|
8.3
|
|
|
$
|
453.7
|
|
Accumulated amortization
|
|
(44.9
|
)
|
|
(49.1
|
)
|
|
(36.2
|
)
|
|
(3.1
|
)
|
|
(133.3
|
)
|
Intangible assets, net
|
|
$
|
287.5
|
|
|
$
|
5.1
|
|
|
$
|
22.6
|
|
|
$
|
5.2
|
|
|
$
|
320.4
|
|
Amortization expense for intangible assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
(In millions)
|
|
2011
|
|
2010
|
Amortization expense
|
|
$
|
6.0
|
|
|
$
|
5.8
|
|
Goodwill
On February 28, 2011, we acquired substantially all of the assets of BeCompliant Corporation (doing business as Encryptx). The purchase price allocation resulted in goodwill of $1.6 million relating to this acquisition, made up of expected synergies from combining operations and intangible assets that do not qualify for separate recognition. The goodwill was allocated to our existing Americas-Commercial reporting unit. Goodwill is considered impaired when its carrying amount exceeds its implied fair value. Since the carrying amount of all of our reporting units significantly exceeded their fair value, we immediately performed an impairment test. Based on the goodwill test performed, we determined that the carrying amount of the goodwill in the Americas-Commercial reporting unit, including the assets of Encryptx, exceeded the implied fair value and, therefore, the goodwill was fully impaired. See Note 4 herein for additional information.
Goodwill consists of the following:
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
March 31,
|
|
December 31,
|
|
2011
|
|
2010
|
Goodwill
|
|
$
|
153.9
|
|
|
$
|
152.3
|
|
Accumulated impairment losses
|
|
(153.9
|
)
|
|
(152.3
|
)
|
Goodwill, net of accumulated impairment losses
|
|
$
|
—
|
|
|
$
|
—
|
|
Note 7 — Restructuring and Other Expense
The components of our restructuring and other expense included in the Condensed Consolidated Statement of Operations were as follows:
|
|
|
|
|
|
|
|
Three Months Ended
|
(In millions)
|
|
March 31, 2011
|
Restructuring
|
|
|
Severance and severance-related expense
|
|
$
|
0.6
|
|
Lease termination costs
|
|
0.2
|
|
Other
|
|
0.1
|
|
Total restructuring
|
|
$
|
0.9
|
|
2011 Manufacturing Redesign Restructuring Program
On January 13, 2011, the Board of Directors approved the 2011 manufacturing redesign restructuring program of up to $55
million to rationalize certain product lines and discontinue tape coating operations at our Weatherford, Oklahoma facility by April 2011 and subsequently close the facility. We signed a strategic agreement with TDK Corporation to jointly develop and manufacture magnetic tape technologies. Under the agreement, we will collaborate on the research and development of future tape formats in both companies' research centers in the United States and Japan, while consolidating tape coating operations to the TDK Yamanashi manufacturing facility. This program includes a total of approximately $50 million in restructuring and other charges, consisting of severance related costs of approximately $3 million, asset impairments of approximately $31 million primarily related to the Weatherford facility, inventory write-offs of approximately $14 million and other charges of approximately $2 million.
During the three months ended
March 31, 2011
, we recorded inventory write-offs of $1.0 million related to this program, which are included in cost of goods sold in our Condensed Consolidated Statements of Operations. Since the inception of this program, we have recorded a total of $15.2 million of inventory write-offs, $31.2 million of asset impairment charges and $3.2 million of severance and related expenses.
Changes in the 2011 manufacturing redesign restructuring program accruals were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
Severance and Related
|
|
Lease Termination Costs
|
|
Other
|
|
Total
|
Accrued balance at December 31, 2010
|
|
$
|
3.2
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3.2
|
|
Charges (1)
|
|
—
|
|
|
—
|
|
|
1.0
|
|
|
1.0
|
|
Usage (1)
|
|
(0.4
|
)
|
|
—
|
|
|
(1.0
|
)
|
|
(1.4
|
)
|
Currency impacts
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Accrued balance at March 31, 2011
|
|
$
|
2.8
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2.8
|
|
(1) Other includes inventory write-offs of $1.0 million.
We expect the majority of the severance and related portion of this liability to be paid out during 2011.
2011 Corporate Strategy Restructuring Program
On January 31, 2011, the Board of Directors approved the 2011 corporate strategy restructuring program to rationalize certain product lines, increase efficiency and gain greater focus in support of our go-forward strategy. Major components of the program include charges associated with certain benefit plans, improvements to our global sourcing and distribution network, costs associated with further rationalization of our product lines and evolution of our skill sets to align with the announced strategy. This program includes a total of approximately $35 million in restructuring and other charges, consisting of severance and related expenses of approximately $14 million, charges associated with certain benefit plans of approximately $11 million, lease termination expenses of approximately $5 million and other charges of approximately $5 million.
During the three months ended
March 31, 2011
, we recorded a restructuring charge of $0.9 million, which included $0.6 million for severance and severance related expenses, $0.2 million for lease termination costs and $0.1 million of other charges. These costs were included in restructuring and other on our Condensed Consolidated Statements of Operations. We also recorded inventory write-offs of $0.2 million related to the planned rationalization of certain product lines as part of this program, which are included in cost of goods sold in our Condensed Consolidated Statements of Operations. Since the inception of this program, we have recorded a total of $4.0 million of severance and related expenses, $0.3 million related to a pension curtailment charge, $0.2 million of inventory write-offs, $0.2 million of lease termination costs and $0.1 million of other charges.
Changes in the 2011 corporate strategy restructuring program accruals were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
Severance and Related
|
|
Lease Termination Costs
|
|
Other
|
|
Total
|
Accrued balance at December 31, 2010
|
|
$
|
3.4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3.4
|
|
Charges (1)
|
|
0.6
|
|
|
0.2
|
|
|
0.3
|
|
|
1.1
|
|
Usage (1)
|
|
(1.0
|
)
|
|
(0.2
|
)
|
|
(0.4
|
)
|
|
(1.6
|
)
|
Currency impacts
|
|
0.2
|
|
|
—
|
|
|
0.2
|
|
|
0.4
|
|
Accrued balance at March 31, 2011
|
|
$
|
3.2
|
|
|
$
|
—
|
|
|
$
|
0.1
|
|
|
$
|
3.3
|
|
(1) Other includes inventory write-offs of $0.2 million.
We expect the majority of the severance and related portion of this liability to be paid out during 2011.
Note 8 — Stock-Based Compensation
As of March 31, 2011, we had stock-based compensation awards outstanding under five plans (collectively, the Stock Plans) consisting of stock options, restricted stock and restricted stock units. As of
March 31, 2011
, there were 1,082,521 shares available for grant under our 2008 Stock Incentive Plan. No further shares were available for grant under any other Stock Plan.
Stock compensation expense consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
(In millions)
|
|
2011
|
|
2010
|
Stock compensation expense
|
|
$
|
1.8
|
|
|
$
|
1.7
|
|
Stock Options
The following table summarizes our stock option activity:
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
|
Weighted Average Exercise Price
|
Outstanding December 31, 2010
|
|
4,916,088
|
|
|
$
|
24.10
|
|
Granted
|
|
12,524
|
|
|
11.31
|
|
Exercised
|
|
(44,889
|
)
|
|
10.15
|
|
Cancelled
|
|
(79,342
|
)
|
|
33.26
|
|
Forfeited
|
|
(18,591
|
)
|
|
15.43
|
|
Outstanding March 31, 2011
|
|
4,785,790
|
|
|
$
|
24.08
|
|
Exercisable as of March 31, 2011
|
|
3,074,075
|
|
|
$
|
29.87
|
|
The outstanding options are non-qualified and normally have a term of ten years. For employees, the options generally become exercisable and vest 25 percent per year beginning on the first anniversary of the grant date, subject to the employee’s continuing service to the Company. For directors, the options generally become exercisable in full on the first anniversary of the grant date.
The weighted average grant date fair value of options that were granted for the three months ended
March 31, 2011
was $4.95.
The following table summarizes our weighted average assumptions used in the valuation of options:
|
|
|
|
|
2011
|
Volatility
|
44.6
|
%
|
Risk-free interest rate
|
2.4
|
%
|
Expected life (months)
|
66
|
|
Dividend yield
|
—
|
%
|
As of
March 31, 2011
, there was $5.1 million of total unrecognized compensation expense related to non-vested stock options granted under our Stock Plans. That expense is expected to be recognized over a weighted average period of 2.4 years.
Restricted Stock
The following table summarizes our restricted stock activity:
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock
|
|
Weighted Average Grant Date Fair Value Per Share
|
Nonvested as of December 31, 2010
|
|
739,196
|
|
|
$
|
11.34
|
|
Granted
|
|
6,871
|
|
|
11.31
|
|
Vested
|
|
(1,250
|
)
|
|
13.13
|
|
Forfeited
|
|
(8,008
|
)
|
|
13.83
|
|
Nonvested as of March 31, 2011
|
|
736,809
|
|
|
$
|
11.31
|
|
The cost of the awards is determined using the fair value of the Company’s common stock on the date of the grant and compensation is recognized on a straight-line basis over the requisite vesting period. For employees, the restricted shares generally vest 25 percent per year beginning on the first anniversary of the grant date, subject to the employee’s continuing service to the Company. For directors, the restricted shares generally vest in full on the first anniversary of the grant date.
As of
March 31, 2011
, there was $5.4 million of total unrecognized compensation expense related to non-vested restricted stock granted under our Stock Plans. That expense is expected to be recognized over a weighted average period of 2.7 years.
The 2011 Stock Incentive Plan was approved and adopted by our shareholders on May 4, 2011 and became effective immediately. The 2011 Stock Incentive Plan permits the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalents, performance awards, stock awards and other stock-based awards. The aggregate number of shares of our common stock that may be issued under all stock-based awards made under the 2011 Stock Incentive Plan will be 4.5 million and the maximum number of shares that may be awarded pursuant to grants of awards other than options and stock appreciation rights is 1.1 million. The number of shares available for awards, as well as the terms of outstanding awards, is subject to adjustments as provided in the 2011 Stock Incentive Plan for stock splits, stock dividends, recapitalization and other similar events. Awards may be granted under the 2011 Stock Incentive Plan until the earlier to occur of May 3, 2021 or the date on which all shares available for awards under the 2011 Stock Incentive Plan have been purchased or acquired; provided, however, that incentive stock options may not be granted after February 10, 2021. As a result of the approval and adoption of the 2011 Stock Incentive Plan, no further shares are available for grant under the 2008 Stock Incentive Plan.
Note 9 — Retirement Plans
Pension Plans
Effective January 1, 2010, the United States defined benefit pension plan was amended to exclude new hires and rehires from participating in the plan. In addition, we eliminated benefit accruals under the U.S. pension plan as of December 31, 2010, thus “freezing” the plan. Under the plan freeze, no pay credits will be made to a participant's account balance after December 31, 2010. However, interest credits will continue in accordance with the annual update process.
During the
three
months ended
March 31, 2011
, we contributed $9.3 million to our pension plans. We presently anticipate contributing approximately $3 million to $5 million to fund our pension plans during the remaining nine months of
2011
.
Components of net periodic pension cost included the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
International
|
|
|
Three Months Ended March 31,
|
(In millions)
|
|
2011
|
|
2010
|
|
2011
|
|
2010
|
Service cost
|
|
$
|
—
|
|
|
$
|
0.4
|
|
|
$
|
0.1
|
|
|
$
|
0.2
|
|
Interest cost
|
|
1.1
|
|
|
1.2
|
|
|
0.7
|
|
|
0.6
|
|
Expected return on plan assets
|
|
(1.5
|
)
|
|
(1.5
|
)
|
|
(0.8
|
)
|
|
(0.7
|
)
|
Amortization of net actuarial (gain) loss
|
|
0.1
|
|
|
—
|
|
|
0.1
|
|
|
—
|
|
Amortization of prior service cost (credit)
|
|
—
|
|
|
0.1
|
|
|
(0.1
|
)
|
|
—
|
|
Net periodic pension cost
|
|
$
|
(0.3
|
)
|
|
$
|
0.2
|
|
|
$
|
—
|
|
|
$
|
0.1
|
|
Settlement
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total pension costs
|
|
$
|
(0.3
|
)
|
|
$
|
0.2
|
|
|
$
|
—
|
|
|
$
|
0.1
|
|
Note 10 — Income Taxes
We are subject to income tax in numerous jurisdictions and the use of estimates is required in determining our provision
for income taxes. For the three months ended
March 31, 2011
, we recorded an income tax provision of $1.7 million. The income tax provision (benefit) is based on the estimated annual effective tax rate for the year applied to “ordinary” income (loss). Ordinary income (loss) is pre-tax income (loss) excluding unusual or infrequently occurring discrete items. The overall estimated annual effective tax rate calculation excludes jurisdictions reporting losses for which no tax benefit is expected to be recognized during the year. A separate estimated annual effective tax rate was calculated for the jurisdictions reporting losses for which no tax benefit can be recognized. The effective income tax rate for the three months ended
March 31, 2011
was (30.9) percent compared with
30.6
percent in the same period last year. The effective rate change was primarily due to the full valuation allowance on U.S. deferred tax assets and the mix of taxable income/loss by country.
The effective income tax rate for the three months ended
March 31, 2011
differs from the U.S. federal statutory rate of 35 percent primarily due to the full valuation allowance on U.S. deferred tax assets and the effects of foreign tax rate differential.
We record income taxes using the asset and liability approach. Under this approach, deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the book and tax basis of assets and liabilities. We measure deferred tax assets and liabilities using the enacted statutory tax rates that are expected to apply in the years in which the temporary differences are expected to be recovered or paid.
We regularly assess the likelihood that our deferred tax assets will be recovered in the future. A valuation allowance is recorded to the extent we conclude a deferred tax asset is not considered to be more-likely-than-not to be realized. We consider all positive and negative evidence related to the realization of the deferred tax assets in assessing the need for a valuation allowance.
Our accounting for deferred tax consequences represents our best estimate of future events. A valuation allowance established or revised as a result of our assessment is recorded through income tax provision (benefit) in our Condensed Consolidated Statements of Operations. Changes in our current estimates due to unanticipated events, or other factors, could have a material effect on our Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Operations.
We conduct business globally. As a result, we file income tax returns and are subject to examination by taxing authorities in various jurisdictions throughout the world. Our U.S. federal income tax returns for 2006 through 2009 remain subject to examination by the Internal Revenue Service (IRS). The IRS completed its field work for the 2006 through 2008 examination in the second quarter of 2010 and has proposed adjustments. The matter is currently in IRS appeals. Due to a valuation allowance against our U.S. deferred tax assets, if issues under appeals were lost, we expect the impact to our Consolidated Statement of Operations would only be interest in excess of the amounts already accrued. The years 2004 through 2009 remain subject to examination by foreign tax jurisdictions as well as state and city tax jurisdictions. In the event that we have determined not to file tax returns with a particular state or city, all years remain subject to examination by that tax jurisdiction.
We accrue for the effects of uncertain tax positions and the related potential penalties and interest. There were no material adjustments to our recorded unrecognized tax benefits during the
three
months ended
March 31, 2011
. Our liability related to uncertain tax positions was $17.5 million as of each March 31, 2011 and December 31, 2010. It is reasonably possible that the amount of the unrecognized tax benefit with respect to certain of our unrecognized tax positions will increase or decrease during the next twelve months.
Taxes collected from customers and remitted to governmental authorities that were included in revenue for the three month periods ended
March 31, 2011
and
2010
were $5.0 million and $9.7 million, respectively.
Note 11 — Fair Value Measurements
At
March 31, 2011
and
2010
, our financial instruments included cash and cash equivalents, accounts receivable, accounts payable and derivative contracts. The fair values of cash and cash equivalents, accounts receivable and accounts payable approximated carrying values due to the short-term nature of these instruments. In addition, certain derivative instruments are recorded at fair value as discussed below.
Fair value measurements are categorized into one of three levels based on the lowest level of significant input used: Level 1 (unadjusted quoted prices in active markets for identical assets); Level 2 (significant observable market inputs available at the measurement date, other than quoted prices included in Level 1); and Level 3 (unobservable inputs that cannot be corroborated by observable market data).
Assets and Liabilities that are Measured at Fair Value on a Recurring Basis:
The assets in our postretirement benefit plans are measured at fair value on a recurring basis (at least annually). See Note 9 herein for additional discussion concerning pension and postretirement benefit plans.
We maintain a foreign currency exposure management policy that allows the use of derivative instruments, principally foreign currency forward, option contracts and option combination strategies to manage risks associated with foreign exchange rate volatility. Generally, these contracts are entered into to fix the U.S. dollar amount of the eventual cash flows. The derivative instruments range in duration at inception from less than one to fifteen months. We do not hold or issue derivative financial instruments for speculative or trading purposes and we are not a party to leveraged derivatives.
We are exposed to the risk of nonperformance by our counter-parties, but we do not anticipate nonperformance by any of these counter-parties. We actively monitor our exposure to credit risk through the use of credit approvals and credit limits and by using major international banks and financial institutions as counter-parties.
As of
March 31, 2011
, we held derivative instruments that are required to be measured at fair value on a recurring basis. Our derivative instruments consist of currency forward, option contracts and option combination strategies. The fair value of our derivative instruments is determined based on inputs that are observable in the public market, but are other than publicly quoted prices (Level 2).
Hedge gains of $0.1 million and $0.1 million were reclassified into the Condensed Consolidated Statement of Operations during the three month periods ended
March 31, 2011
and
2010
, respectively. The amount of net deferred gains on foreign currency cash flow hedges included in accumulated other comprehensive income (loss) in shareholders’ equity as of
March 31, 2011
was $0.4 million, pre-tax, which, depending on market factors, is expected to reverse in the Condensed Consolidated Balance Sheet or be reclassified into operations during the next three to nine months.
Our financial assets and liabilities that are measured at fair value on a recurring basis were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011
|
|
December 31, 2010
|
(In millions)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Derivative assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency option contracts
|
|
$
|
—
|
|
|
$
|
1.9
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3.5
|
|
|
$
|
—
|
|
Foreign currency forward contracts
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Derivative liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency option contracts
|
|
—
|
|
|
(1.5
|
)
|
|
—
|
|
|
—
|
|
|
(2.3
|
)
|
|
—
|
|
Foreign currency forward contracts
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
|
$
|
—
|
|
|
$
|
0.4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1.2
|
|
|
$
|
—
|
|
Cash Flow Hedges
We attempt to mitigate the risk that forecasted cash flows denominated in foreign currencies may be adversely affected by changes in currency exchange rates through the use of option, forward and combination option contracts. The degree of our hedging can fluctuate based on management judgment and forecasted projections. We formally document all relationships between hedging instruments and hedged items, as well as our risk management objective and strategy for undertaking the hedge items. This process includes linking all derivatives to forecasted transactions.
We also formally assess, both at the hedge’s inception and on an ongoing basis, whether the derivatives used in hedging transactions are highly effective in offsetting changes in the cash flows of hedged items. Gains and losses related to cash flow hedges are deferred in accumulated other comprehensive income (loss) with a corresponding asset or liability. When the hedged transaction occurs, the gains and losses in accumulated other comprehensive income (loss) are reclassified into the Condensed Consolidated Statement of Operations in the same line as the item being hedged. If at any time it is determined that a derivative is not highly effective as a hedge, we discontinue hedge accounting prospectively, with deferred gains and losses being recognized in current period operations.
Other Hedges
We enter into foreign currency forward contracts, generally with durations of less than two months, to manage the foreign currency exposure related to our monetary assets and liabilities denominated in foreign currencies. We record the estimated fair value of these forwards within other current assets or other current liabilities in the Condensed Consolidated Balance Sheets, and all changes in their fair value are immediately recognized in the Condensed Consolidated Statement of Operations.
The notional amounts and fair values of our derivative instruments in the Condensed Consolidated Financial Statements were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011
|
|
December 31, 2010
|
|
|
|
|
Fair Value
|
|
|
|
Fair Value
|
(In millions)
|
|
Notional Amount
|
|
Other Current Assets
|
|
Other Current Liabilities
|
|
Notional Amount
|
|
Other Current Assets
|
|
Other Current Liabilities
|
Cash flow hedges designated as hedging instruments
|
|
$
|
184.5
|
|
|
$
|
1.9
|
|
|
$
|
(1.5
|
)
|
|
$
|
246.0
|
|
|
$
|
3.5
|
|
|
$
|
(2.3
|
)
|
Other hedges not receiving hedge accounting
|
|
53.2
|
|
|
—
|
|
|
—
|
|
|
47.1
|
|
|
—
|
|
|
—
|
|
Total
|
|
$
|
237.7
|
|
|
$
|
1.9
|
|
|
$
|
(1.5
|
)
|
|
$
|
293.1
|
|
|
$
|
3.5
|
|
|
$
|
(2.3
|
)
|
On
March 31, 2011
we entered into certain hedges not receiving hedge accounting treatment. In accordance with trade date accounting, these hedges and related exposures are recorded as of
March 31, 2011
, but do not have a value until the subsequent day.
The derivative gains and losses in the Condensed Consolidated Statement of Operations for the three months ended March 31, 2011 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
Pretax Gain (Loss) Recognized in Other Comprehensive Income on Effective Portion of Derivative
|
|
Pretax Gain (Loss) on Effective Portion of Derivative Reclassification from Accumulated Other Comprehensive Income to Cost of Goods Sold, net
|
|
Pretax Gain (Loss) Recognized in the Condensed Statement of Operations in Other Expenses, net
|
Cash flow hedges designated as hedging instruments
|
|
$
|
(0.8
|
)
|
|
$
|
0.1
|
|
|
$
|
—
|
|
Other hedges not receiving hedge accounting
|
|
—
|
|
|
—
|
|
|
0.2
|
|
Total
|
|
$
|
(0.8
|
)
|
|
$
|
0.1
|
|
|
$
|
0.2
|
|
The derivative gains and losses in the Condensed Consolidated Statement of Operations for the three months ended March 31, 2010 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
Pretax Gain (Loss) Recognized in Other Comprehensive Income on Effective Portion of Derivative
|
|
Pretax Gain (Loss) on Effective Portion of Derivative Reclassification from Accumulated Other Comprehensive Income to Cost of Goods Sold, net
|
|
Pretax Gain (Loss) Recognized in the Condensed Statement of Operations in Other Expenses, net
|
Cash flow hedges designated as hedging instruments
|
|
$
|
0.7
|
|
|
$
|
0.1
|
|
|
$
|
—
|
|
Other hedges not receiving hedge accounting
|
|
—
|
|
|
—
|
|
|
(0.9
|
)
|
Total
|
|
$
|
0.7
|
|
|
$
|
0.1
|
|
|
$
|
(0.9
|
)
|
Note 12 — Shareholders' Equity
Treasury Stock
Our Board of Directors has authorized the repurchase of a total of 3.0 million shares. As of March 31, 2011, we have repurchased 0.9 million shares of common stock and have remaining authorization to repurchase up to 2.1 million shares. As of March 31, 2011, we held, in total, 4.3 million shares of treasury stock acquired at an average price of $25.23 per share.
Following is a summary of treasury share activity:
|
|
|
|
|
|
|
Treasury Shares
|
Balance as of December 31, 2010
|
|
4,212,285
|
|
Purchases
|
|
191,716
|
|
Exercise of stock options
|
|
(44,889
|
)
|
Restricted stock grants and other
|
|
(330
|
)
|
401(k) matching contribution
|
|
(72,957
|
)
|
Balance as of March 31, 2011
|
|
4,285,825
|
|
Comprehensive Income (Loss)
Accumulated other comprehensive loss consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
(In millions)
|
|
2011
|
|
2010
|
Cumulative currency translation adjustment
|
|
$
|
(42.0
|
)
|
|
$
|
(47.4
|
)
|
Pension adjustments, net of income tax
|
|
(14.1
|
)
|
|
(14.2
|
)
|
Cash flow hedging and other, net of income tax
|
|
0.2
|
|
|
0.9
|
|
Total accumulated other comprehensive loss
|
|
$
|
(55.9
|
)
|
|
$
|
(60.7
|
)
|
Comprehensive loss consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
(In millions)
|
|
2011
|
|
2010
|
Net loss
|
|
$
|
(7.2
|
)
|
|
$
|
(2.6
|
)
|
Cumulative currency translation adjustment
|
|
5.6
|
|
|
(4.8
|
)
|
Pension adjustments, net of income taxes
|
|
0.1
|
|
|
0.1
|
|
Cash flow hedging and other, net of income tax
|
|
(0.7
|
)
|
|
0.2
|
|
Total comprehensive loss
|
|
$
|
(2.2
|
)
|
|
$
|
(7.1
|
)
|
Note 13 — Segment Information
Our business is organized, managed and internally and externally reported as segments differentiated by the regional markets we serve: Americas, Europe, North Asia and South Asia. Each of these geographic segments has responsibility for selling all of our product lines.
We evaluate segment performance based on revenue and operating income. Revenue for each segment is generally based on customer location where the product is shipped. The operating income reported in our segments excludes corporate and other unallocated amounts. Although such amounts are excluded from the business segment results, they are included in reported consolidated earnings. Corporate and unallocated amounts include litigation settlement expense, goodwill impairment expense, research and development expense, corporate expense, stock-based compensation expense, inventory write-offs and restructuring and other expenses which are not allocated to the segments.
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
(In millions)
|
|
2011
|
|
2010
|
Net Revenue
|
|
|
|
|
Americas
|
|
$
|
143.1
|
|
|
$
|
161.7
|
|
Europe
|
|
62.3
|
|
|
86.7
|
|
North Asia
|
|
74.2
|
|
|
81.3
|
|
South Asia
|
|
36.9
|
|
|
36.1
|
|
Total
|
|
$
|
316.5
|
|
|
$
|
365.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
(In millions)
|
|
2011
|
|
2010
|
Operating Income (Loss)
|
|
|
|
|
Americas
|
|
$
|
2.0
|
|
|
$
|
9.1
|
|
Europe
|
|
0.9
|
|
|
1.8
|
|
North Asia
|
|
3.3
|
|
|
3.1
|
|
South Asia
|
|
0.4
|
|
|
1.0
|
|
Corporate and unallocated
|
|
(10.0
|
)
|
|
(14.8
|
)
|
Total
|
|
$
|
(3.4
|
)
|
|
$
|
0.2
|
|
Corporate and unallocated amounts above include goodwill impairment, inventory write-offs related to our restructuring programs and restructuring and other expense of $
2.5
million and $
4.0
million for the three month periods ended
March 31, 2011
and
2010
, respectively.
We have three major product categories: traditional storage, emerging storage and electronics and accessories. Traditional storage products include optical products, magnetic products and other traditional storage media products. Optical products include primarily DVDs, CDs and Blu-ray disc recordable media. Magnetic products include primarily data storage tape media. Other traditional storage products include primarily optical drives and audio and video tape media. Emerging storage products include flash memory and hard disk drive products, including secure USB flash drives, external hard disk drives, removable hard disk drives and solid state drives. Electronics and accessories include CD players, alarm clocks, portable boom boxes, MP3 players, Apple iPad®, iPod® and iPhone® accessories, headphones, speakers and gaming accessories.
Net revenue by product category was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
(In millions)
|
|
2011
|
|
2010
|
Net Revenue
|
|
|
|
|
Traditional storage
|
|
|
|
|
Optical products
|
|
$
|
127.7
|
|
|
$
|
157.4
|
|
Magnetic products
|
|
82.5
|
|
|
90.0
|
|
Other traditional storage
|
|
12.6
|
|
|
16.1
|
|
Total traditional storage
|
|
222.8
|
|
|
263.5
|
|
Emerging storage
|
|
52.7
|
|
|
57.5
|
|
Electronics and accessories
|
|
41.0
|
|
|
44.8
|
|
Total
|
|
$
|
316.5
|
|
|
$
|
365.8
|
|
Note 14 — Litigation, Commitments and Contingencies
We are the subject of various pending or threatened legal actions in the ordinary course of our business. All such matters are subject to many uncertainties and outcomes that are not predictable with assurance. Additionally, our electronics and accessories business is subject to allegations of patent infringement by our competitors as well as by non-practicing entities (NPEs), sometimes referred to as “patent trolls,” who may seek monetary settlements from us, our competitors, suppliers and resellers. Consequently, as of March 31, 2011, we are unable to ascertain the ultimate aggregate amount of any monetary liability or financial impact that we may incur with respect to these matters. While these matters could materially affect operating results depending upon the final resolution in future periods, it is our opinion that after final disposition, any monetary liability beyond that provided in the Condensed Consolidated Balance Sheet as of March 31, 2011 would not be material to our Condensed Consolidated Financial Statements.
On June 19, 2009, Advanced Research Corp. (ARC) sued Imation in Ramsey County District court for breach of contract relating to a supply agreement under which we purchase our requirements for magnetic heads to write servo patterns on magnetic tape prior to sale of the finished cartridges, requesting the court to order that Imation pay damages and return the purchased heads to ARC. ARC is alleging that we misrepresented the volumes of heads that we would require, and that ARC invested in a new facility in reliance on our forecasts. ARC has claimed damages in excess of $27.2 million and we have filed counterclaims against ARC for its failure to comply with the supply agreement and other agreements, claiming damages in
excess of $8.5 million. In March 2010, both Imation and ARC filed motions for partial summary judgment, which motions were denied by the court on July 6, 2010. On July 27, 2010, the court granted ARC's motion to amend its complaint to add a claim for trade secret misappropriation. On March 29, 2011, Imation moved for summary judgment on the claim of trade secret misappropriation. A pre-trial settlement conference has been set for July 2011 and a trial date has been set for October 2011. Imation believes ARC's claims are without merit.
In some countries, primarily Europe and Canada, the sale of recordable optical media is subject to a private copying levy, which is an extra charge on purchases of these products. Imation collects the levies upon sale, and submits payment of the levies to copyright collective non-government agencies for distribution to content providers as “fair compensation” for the harm caused to them due to private copies made by natural persons of protected works. For several years the amount of the levy in Europe has been in question and the subject of various litigation and law making activities, to which we are not a party. We have continued to accrue the levies but are awaiting resolution before submitting some of the required payments. Depending on the final outcome of the various litigation and law making activities, if some amount less than what we have accrued does not need to be paid, this amount will be recorded as a reduction to our cost of goods sold in the period that the resolution is determined. During the first quarter of 2011, we reversed $2.1 million of the accrual because of court decisions which clarify the circumstances in which we are required to pay certain levies. The reversal was recorded as a benefit to cost of goods sold in the Condensed Consolidated Statement of Operations.
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Overview
Imation Corp., a Delaware corporation, is a leading global technology company dedicated to helping people and organizations store, protect and connect their digital world. Our portfolio of data storage and security products, electronics and accessories reaches customers in more than 100 countries through our global distribution network. Imation Corp.’s global brand portfolio includes the Imation, Memorex, XtremeMac and TDK Life on Record brands. As used herein, the terms “Imation,” “Company,” “ we,” “us” or “our” mean Imation Corp. and its subsidiaries unless the context indicates otherwise.
Executive Summary
Consolidated Results of Operations for the
Three
Months Ended
March 31, 2011
|
|
•
|
Net revenue from continuing operations of
$316.5
million for the
three
months ended
March 31, 2011
was down 13.5 percent compared with
$365.8
million in the same period last year.
|
|
|
•
|
Operating loss was
$3.4
million for the
three
months ended
March 31, 2011
, compared with operating income of
$0.2
million in the same period last year.
|
|
|
•
|
Diluted loss per share from continuing operations was
$0.19
for the
three
months ended
March 31, 2011
, compared with diluted loss per share from continuing operations of
$0.07
for the same period last year.
|
Cash Flow/Financial Condition for the
Three
Months Ended
March 31, 2011
|
|
•
|
Cash and cash equivalents totaled
$285.5
million as of
March 31, 2011
, compared with
$304.9
million at
December 31, 2010
.
|
|
|
•
|
Cash flow used in operating activities was
$19.1
million for the
three
months ended
March 31, 2011
, compared with cash provided by operating activities of
$68.4
million in the same period last year.
|
During the quarter, we transitioned our magnetic tape manufacturing from our Weatherford, Oklahoma site to TDK's Japan location.
On March 11, 2011, the northeast coast of Japan experienced a severe earthquake followed by a tsunami. These geological events have caused significant damage in the region, including severe damage to nuclear power plants, and have impacted Japan’s power and other infrastructure as well as its economy. While these events in Japan created temporary local business disruptions, the TDK tape manufacturing operations were not significantly affected and our tape supply remains as planned. Any ongoing instability in Japan is not expected to affect the manufacturing of our tape supply at the TDK facility. We expect no significant impact to our long-lived assets, inventory or the collectability of customer receivables in Japan.
We are, however, beginning to see significant raw material price increases for products sourced in Asia. This is especially affecting petroleum-based products such as optical media. Therefore, we expect increasing pressure on margins in our optical business.
Results of Operations
Net Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
Percent Change
|
(Dollars in millions)
|
|
2011
|
|
2010
|
|
Net revenue
|
|
$
|
316.5
|
|
|
$
|
365.8
|
|
|
(13.5
|
)%
|
Our worldwide revenue for the
three
months ended
March 31, 2011
was negatively impacted by overall price erosion of nine percent and overall volume declines of six percent, offset partially by a favorable foreign currency impact of two percent. From a product perspective, the revenue decrease was due to declines in traditional storage products of $40.7 million, including $29.7 million from optical products and $7.5 million from magnetic products, as well as $4.8 million from emerging storage products driven by planned rationalization of low margin products and $3.8 million from electronics and accessories driven by planned rationalization of our video products.
Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
Percent Change
|
(Dollars in millions)
|
|
2011
|
|
2010
|
|
Gross profit
|
|
$
|
54.0
|
|
|
$
|
61.7
|
|
|
(12.5
|
)%
|
Gross margin
|
|
17.1
|
%
|
|
16.9
|
%
|
|
|
Our gross margin as a percent of revenue remained relatively flat for the
three
months ended
March 31, 2011
, compared with the same period last year. Gross margin was improved over the same period last year due primarily to higher gross margins on emerging storage products as well as the reversal of $2.1 million of accrued levies, partially offset by lower gross margins on optical products and inventory write-offs of $1.2 million which were part of our restructuring plans.
Selling, General and Administrative (SG&A)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
Percent Change
|
(Dollars in millions)
|
|
2011
|
|
2010
|
|
Selling, general and administrative
|
|
$
|
50.2
|
|
|
$
|
53.1
|
|
|
(5.5
|
)%
|
As a percent of revenue
|
|
15.9
|
%
|
|
14.5
|
%
|
|
|
SG&A expense decreased for the
three
months ended
March 31, 2011
, compared with the same period last year, due to restructuring activities and cost control actions. SG&A expense as a percentage of revenue increased for the three months ended March 31, 2011, compared with the same period last year due mainly to lower revenue.
During the remainder of 2011 we plan to continue to invest in information technology decision making tools, expand sales and marketing coverage for the value added reseller and original equipment manufacturer (OEM) channels and expand our international operations particularly in China. These investments are expected to increase our SG&A expense compared to 2010.
Research and Development (R&D)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
Percent Change
|
(Dollars in millions)
|
|
2011
|
|
2010
|
|
Research and development
|
|
$
|
4.7
|
|
|
$
|
4.4
|
|
|
6.8
|
%
|
As a percent of revenue
|
|
1.5
|
%
|
|
1.2
|
%
|
|
|
R&D expense increased for the
three
months ended
March 31, 2011
, compared with the same period last year, due to concentrated focus on the development of our emerging storage products. R&D expense as a percent of revenue for the
three
months ended
March 31, 2011
remained relatively flat compared with the same period last year.
During the remainder of 2011 we plan to continue to invest in additional R&D activities in four core product technology areas: secure storage, scalable storage, wireless/connectivity and magnetic tape. These investments are expected to result in an increase of more than 30 percent in R&D compared to 2010.
Goodwill Impairment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
Percent Change
|
(Dollars in millions)
|
|
2011
|
|
2010
|
|
Goodwill impairment
|
|
$
|
1.6
|
|
|
$
|
—
|
|
|
NM
|
On February 28, 2011, we acquired substantially all of the assets of BeCompliant Corporation (doing business as Encryptx). The purchase price allocation resulted in goodwill of $1.6 million relating to this acquisition, made up of expected synergies from combining operations and intangible assets that do not qualify for separate recognition. The goodwill was allocated to our existing Americas-Commercial reporting unit. Goodwill is considered impaired when its carrying amount
exceeds its implied fair value. Since the carrying amount of all of our reporting units significantly exceeded their fair value, we immediately performed an impairment test. Based on the goodwill test performed, we determined that the carrying amount of the goodwill in the Americas-Commercial reporting unit, including the assets of Encryptx, exceeded the implied fair value and, therefore, the goodwill was fully impaired. See Note 4 to the Condensed Consolidated Financial Statements for further information regarding this acquisition.
Restructuring and Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
Percent Change
|
(Dollars in millions)
|
|
2011
|
|
2010
|
|
Restructuring and other
|
|
$
|
0.9
|
|
|
$
|
4.0
|
|
|
(77.5
|
)%
|
Restructuring and other expense for the
three
months ended
March 31, 2011
was related to our 2011 corporate strategy restructuring program and included severance related costs of $0.6 million, lease termination costs of $0.2 million and other charges of $0.1 million. During the remainder of 2011 we expect to incur restructuring charges of approximately $2 million related to the 2011 manufacturing redesign restructuring program and $31 million related to the 2011 corporate strategy restructuring program.
Restructuring expense for the three months ended March 31, 2010 was related to our 2008 corporate redesign restructuring program and included $1.6 million of severance and related costs and $0.2 million of lease termination costs. Other expenses included costs associated with the retirement of our former Vice Chairman and Chief Executive Officer, including a severance related charge of $1.4 million and a charge of $0.8 million related to the early vesting of his unvested options and restricted stock.
Operating (Loss) Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
Percent Change
|
(Dollars in millions)
|
|
2011
|
|
2010
|
|
Operating (loss) income
|
|
$
|
(3.4
|
)
|
|
$
|
0.2
|
|
|
NM
|
As a percent of revenue
|
|
(1.1
|
)%
|
|
0.1
|
%
|
|
|
Operating income decreased for the
three
months ended
March 31, 2011
, compared with the same period last year, driven by lower gross profit of $7.7 million primarily as a result of lower revenue, partially offset by lower operating expenses of $2.6 million and lower restructuring and other expenses of $3.1 million, each as discussed above.
Other (Income) and Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
Percent Change
|
(Dollars in millions)
|
|
2011
|
|
2010
|
|
Interest income
|
|
$
|
(0.2
|
)
|
|
$
|
(0.2
|
)
|
|
—
|
%
|
Interest expense
|
|
0.9
|
|
|
1.1
|
|
|
(18.2
|
)%
|
Other, net
|
|
1.4
|
|
|
2.9
|
|
|
(51.7
|
)%
|
Total
|
|
2.1
|
|
|
3.8
|
|
|
(44.7
|
)%
|
As a percent of revenue
|
|
0.7
|
%
|
|
1.0
|
%
|
|
|
Other expense decreased for the
three
months ended
March 31, 2011
, compared to the same period last year, due to decreases in foreign currency losses of $0.9 million and declines in other expenses of $0.6 million.
Income Tax Provision (Benefit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
Percent Change
|
(Dollars in millions)
|
|
2011
|
|
2010
|
|
Income tax provision (benefit)
|
|
$
|
1.7
|
|
|
$
|
(1.1
|
)
|
|
(254.5
|
)%
|
Effective tax rate
|
|
(30.9
|
)%
|
|
30.6
|
%
|
|
|
The change in the effective rate of income tax provision (benefit) for the
three
months ended
March 31, 2011
compared with the same period last year, was due primarily to a full valuation allowance on U.S. deferred tax assets and the mix of taxable income/loss by country. See Note 10 to the Condensed Consolidated Financial Statements for further information about the valuation allowance related to the U.S. deferred tax assets.
Segment Results
Our business is organized, managed and internally and externally reported as segments differentiated by the regional markets we serve: Americas, Europe, North Asia and South Asia. Each of these geographic segments has responsibility for selling all of our product lines.
We evaluate segment performance based on revenue and operating income. Revenue for each segment is generally based on customer location where the product is shipped. The operating income reported in our segments excludes corporate and other unallocated amounts. Although such amounts are excluded from the business segment results, they are included in reported consolidated earnings. Corporate and unallocated amounts include litigation settlement expense, goodwill impairment expense, research and development expense, corporate expense, inventory write-offs, stock-based compensation expense and restructuring and other expenses which are not allocated to the segments.
Information related to our segments is as follows:
Americas
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
Percent Change
|
(Dollars in millions)
|
|
2011
|
|
2010
|
|
Net revenue
|
|
$
|
143.1
|
|
|
$
|
161.7
|
|
|
(11.5
|
)%
|
Operating income
|
|
2.0
|
|
|
9.1
|
|
|
(78.0
|
)%
|
As a percent of revenue
|
|
1.4
|
%
|
|
5.6
|
%
|
|
|
The Americas segment is our largest segment comprising 45.2 percent of our revenue for the three months ended
March 31, 2011
. The Americas segment revenue decreased for the
three
months ended
March 31, 2011
, compared with the same period last year, due to price erosion of six percent and overall volume declines of six percent. From a product perspective, the decrease in revenue was driven primarily by lower revenue from optical products of $9.3 million, electronics and accessories of $6.1 million and magnetic products of $3.6 million.
Operating income decreased for the
three
months ended
March 31, 2011
, compared with the same period last year, driven mainly by lower revenue and lower gross margin percentages on optical and magnetic products, offset partially by lower SG&A costs.
Europe
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
Percent Change
|
(Dollars in millions)
|
|
2011
|
|
2010
|
|
Net revenue
|
|
$
|
62.3
|
|
|
$
|
86.7
|
|
|
(28.1
|
)%
|
Operating income
|
|
0.9
|
|
|
1.8
|
|
|
(50.0
|
)%
|
As a percent of revenue
|
|
1.4
|
%
|
|
2.1
|
%
|
|
|
The Europe segment comprised 19.7 percent of our revenue for the
three
months ended
March 31, 2011
. The Europe segment revenue decreased for the
three
months ended
March 31, 2011
, compared with the same period last year, due to price erosion of 2 percent, overall volume decreases of 25 percent and unfavorable foreign currency impacts of 1 percent. From a product perspective, the decrease in revenue was driven by lower revenue from traditional storage products, including optical
products of $15.8 million and magnetic products of $4.2 million, as well as lower revenue from emerging storage products of $2.6 million.
Operating income decreased for the
three
months ended
March 31, 2011
, compared with the same period last year, driven by the lower revenue and lower gross margin percentages on magnetic products, offset partially by lower SG&A costs.
North Asia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
Percent Change
|
(Dollars in millions)
|
|
2011
|
|
2010
|
|
Net revenue
|
|
$
|
74.2
|
|
|
$
|
81.3
|
|
|
(8.7
|
)%
|
Operating income
|
|
3.3
|
|
|
3.1
|
|
|
6.5
|
%
|
As a percent of revenue
|
|
4.4
|
%
|
|
3.8
|
%
|
|
|
The North Asia segment comprised 23.4 percent of our revenue for the
three
months ended
March 31, 2011
. The North Asia segment revenue decreased for the
three
months ended
March 31, 2011
, compared with the same period last year, due to price erosion of 21 percent, offset partially by overall volume increases of 4 percent and favorable foreign currency impacts of 8 percent. From a product perspective, the decrease in revenue was driven primarily by lower revenue from the planned rationalization of low margin emerging storage products of $3.7 million and from optical products of $3.1 million. Revenue was modestly lower due to the earthquake and related events in Japan.
Operating income was basically flat for the
three
months ended
March 31, 2011
, compared with the same period last year, driven by decreased revenue offset by higher gross margin percentages on emerging storage products. Operating income modestly decreased due to the earthquake and related events in Japan.
South Asia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
Percent Change
|
(Dollars in millions)
|
|
2011
|
|
2010
|
|
Net revenue
|
|
$
|
36.9
|
|
|
$
|
36.1
|
|
|
2.2
|
%
|
Operating income
|
|
0.4
|
|
|
1.0
|
|
|
(60.0
|
)%
|
As a percent of revenue
|
|
1.1
|
%
|
|
2.8
|
%
|
|
|
The South Asia segment comprised 11.7 percent of our revenue for the three months ended
March 31, 2011
. The South Asia segment revenue increased for the
three
months ended
March 31, 2011
, compared with the same period last year, due to overall volume increases of ten percent and favorable foreign currency impacts of five percent, offset partially by price erosion of twelve percent. From a product perspective, the increase in revenue was driven by higher revenue from electronics and accessories of $1.5 million and emerging storage products of $1.0 million, partially offset by lower revenue from traditional storage of $1.7 million.
Operating income decreased for the
three
months ended
March 31, 2011
, compared with the same period last year, driven by lower margins on traditional storage products and increased SG&A costs, partially offset by increased sales of higher gross margin emerging storage products.
Corporate and Unallocated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
Percent Change
|
(Dollars in millions)
|
|
2011
|
|
2010
|
|
Operating costs
|
|
$
|
(10.0
|
)
|
|
$
|
(14.8
|
)
|
|
(32.4
|
)%
|
The corporate and unallocated operating loss includes amounts which are not allocated to the business units in management’s evaluation of segment performance such as goodwill charges, R&D expense, corporate expense, stock-based compensation expense and restructuring and other expense. The corporate and unallocated operating loss decreased for the
three
months ended
March 31, 2011
, compared with the same period last year, driven primarily by benefits from the rationalization of our manufacturing facility in Weatherford, Oklahoma.
Impact of Changes in Foreign Currency Rates
We have a market presence in more than 100 countries and we sell products on a local currency basis through a variety of distribution channels. We source optical, flash and other finished goods from manufacturers located primarily in Asia, although much of this sourcing is on a U.S. dollar basis. Comparisons of revenue and gross profit from foreign countries are subject to various fluctuations due to the impact of translating results at differing exchange rates in different periods.
Changes in foreign currency translation rates for the
three
months ended
March 31, 2011
positively impacted worldwide revenue by two percent compared with three percent for the same period last year. The impact on profit is more difficult to determine due to the influence of other factors that we believe are also impacted by currency rate changes.
Our foreign currency hedging program attempts to manage some of the foreign currency risks over near term periods; however, these risk management activities cannot ensure that the program 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 (see Part 1, Item 3.
Quantitative and Qualitative Disclosures about Market Risk
in this Form 10-Q).
Financial Position
Our cash and cash equivalents balance as of
March 31, 2011
was $
285.5
million, a decrease of $19.4 million from $
304.9
million as of
December 31, 2010
. The decrease was primarily attributable to cash contributions to our pension plans, annual incentive payments, a litigation settlement payment and treasury stock purchases.
Our accounts receivable balance as of
March 31, 2011
was $224.9 million, a decrease of $33.9 million from $258.8 million as of
December 31, 2010
as a result of lower sales in the first part of the quarter. Days sales outstanding was 58 days as of
March 31, 2011
, up 1 day from
December 31, 2010
. Days sales outstanding is calculated using the count-back method, which calculates the number of days of most recent revenue that is reflected in the net accounts receivable balance.
Our inventory balance as of
March 31, 2011
was $216.2 million, an increase of $12.9 million from $203.3 million as of
December 31, 2010
. Days of inventory supply was 78 days as of
March 31, 2011
, up 9 days from
December 31, 2010
. These increases were a result of increased inventory production for certain magnetic products due to the closing of our manufacturing facility in Weatherford, Oklahoma as well as lower sales of optical products during the quarter. Days of inventory supply is calculated using the current period inventory balance divided by an estimate of the inventoriable portion of cost of goods sold expressed in days.
Our accounts payable balance as of
March 31, 2011
was $206.2 million, a decrease of $13.0 million from $219.2 million as of
December 31, 2010
. The decrease in accounts payable was primarily due to payments in the normal course of business coupled with reduced purchases compared to the previous quarter.
Our other current liabilities balance as of
March 31, 2011
was $140.4 million, a decrease of $31.9 million from $172.3 million as of
December 31, 2010
. The decrease was primarily due to the payment associated with the TDK value added tax liability for which management restricted cash in 2009, annual incentive payments to employees and the timing of annual payments in programs associated with rebate accruals.
In some countries, primarily Europe and Canada, the sale of recordable optical media is subject to a private copying levy, which is an extra charge on purchases of these products. Imation collects the levies upon sale, and submits payment of the levies to copyright collective non-government agencies for distribution to content providers as “fair compensation” for the harm caused to them due to private copies made by natural persons of protected works. For several years the amount of the levy in Europe has been in question and the subject of various litigation and law making activities, to which we are not a party. We have continued to accrue the levies but are awaiting resolution before submitting some of the required payments. Depending on the final outcome of the various litigation and law making activities, if some amount less than what we have accrued does not need to be paid, this amount will be recorded as a reduction to our cost of goods sold in the period that the resolution is determined. During the first quarter of 2011, we reversed $2.1 million of the accrual because of court decisions which clarify the circumstances in which we are required to pay certain levies. The reversal was recorded as a benefit to cost of goods sold in the Condensed Consolidated Statement of Operations.
Liquidity and Capital Resources
Cash Flows Provided by Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
(Dollars in millions)
|
|
2011
|
|
2010
|
Net loss
|
|
$
|
(7.2
|
)
|
|
$
|
(2.6
|
)
|
Adjustments to reconcile net income to net cash provided by operating activities
|
|
14.9
|
|
|
16.8
|
|
Changes in operating assets and liabilities
|
|
(26.8
|
)
|
|
54.2
|
|
Net cash (used in) provided by operating activities
|
|
$
|
(19.1
|
)
|
|
$
|
68.4
|
|
Cash flows from operating activities can fluctuate significantly from period to period as many items can significantly impact cash flows. Cash used in operating activities of $
19.1
million for the
three
months ended
March 31, 2011
. Cash payments included $9.3 million of pension funding, $7.1 million related to annual incentive payments, $2.6 million related to a litigation settlement payment and $2.5 million under our restructuring programs.
Cash provided by operating activities of $68.4 million for the
three
months ended
March 31, 2010
, was driven primarily by collection of our seasonally strong fourth quarter revenues as well as significant progress toward working capital improvement initiatives. Cash payments included $10.0 million related to our annual incentive payments, $2.5 million under our restructuring programs and $1.2 million of pension funding.
Cash Flows Used in Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
(Dollars in millions)
|
|
2011
|
|
2010
|
Capital expenditures
|
|
$
|
(2.6
|
)
|
|
$
|
(2.2
|
)
|
Acquisition of Encryptx
|
|
(1.0
|
)
|
|
—
|
|
License agreement payment
|
|
—
|
|
|
(5.0
|
)
|
Other, net
|
|
—
|
|
|
0.1
|
|
Net cash used in investing activities
|
|
$
|
(3.6
|
)
|
|
$
|
(7.1
|
)
|
Cash used in investing activities for the
three
months ended
March 31, 2011
, included $2.6 million of capital expenditures and $1.0 million to acquire Encryptx. See Note 4 to the Condensed Consolidated Financial Statements for further information regarding this acquisition. Cash used in investing activities for the
three
months ended
March 31, 2010
, included $2.2 million of capital expenditures and $5.0 million to extend our license agreement with ProStor Systems related to RDX removable hard disk systems.
Cash Flows Used in Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
(Dollars in millions)
|
|
2011
|
|
2010
|
Purchase of treasury stock
|
|
$
|
(2.2
|
)
|
|
$
|
—
|
|
Exercise of stock options
|
|
0.5
|
|
|
—
|
|
Net cash used in financing activities
|
|
$
|
(1.7
|
)
|
|
$
|
—
|
|
On January 28, 2008, the Board of Directors authorized a share repurchase program increasing the total outstanding authorization to 3.0 million shares of common stock, of which 2.1 million shares remain outstanding as of
March 31, 2011
. During the
three
months ended
March 31, 2011
we repurchased 0.2 million shares. We did not repurchase shares during
2010
.
On March 30, 2006, we entered into a credit agreement. The credit agreement was most recently amended on August 3, 2010 and expires March 29, 2013. The credit agreement includes a senior revolving credit facility amount of $200 million, including sublimits of $150 million in the United States and $50 million in Europe. Advances are limited to the lesser of the sublimit(s) and the borrowing base as defined by the agreement. As of March 31, 2011, our total availability under the credit facility was $111.4 million. The credit agreement is secured by our Oakdale headquarters and all of our personal property and the personal property of certain other subsidiaries.
Borrowings under the credit agreement bare a variable rate of interest which during the three months ending March 31, 2011 would have been approximately 5.0 percent. During the period we did not have borrowings under the credit agreement.
The credit agreement contains covenants which are customary for similar. credit arrangements, including covenants relating to financial reporting and notification; payment of indebtedness, taxes and other obligations; compliance with applicable laws; and limitations regarding additional liens, indebtedness, certain acquisitions, investments and dispositions of assets. We were in compliance with all covenants as of March 31, 2011. The credit agreement also contains a conditional financial covenant that requires us to have a Consolidated Fixed Charge Coverage Ratio (as defined in the Amended Credit Agreement) of not less than 1.20 to 1.00 during certain periods described in the Amended Credit Agreement. At March 31, 2011 the condition did not arise such that the Consolidated Fixed Charge Coverage Ratio was required as a covenant.
Our liquidity needs for the remaining nine months of
2011
include the following: restructuring payments of up to $37.5 million, approximately $11 million related to organic investment opportunities, capital expenditures of up to $8 million, a litigation settlement payment of $8.3 million, pension funding of approximately $3 million to $5 million, operating lease payments of approximately $7 million, any amounts associated with strategic acquisitions and any amounts associated with the repurchase of common stock under the authorization discussed above. We expect that cash and cash equivalents, together with cash flow from operations and availability of borrowings under our current sources of financing, will provide liquidity sufficient to meet these needs and for our operations.
Contractual Obligations
A table of our contractual obligations was provided in Item 7 in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2010
. There were no significant changes to our contractual obligations for the first
three
months of 2010.
Fair Value Measurements
See Note 11 to the Condensed Consolidated Financial Statements in Part I, Item 1 herein for further information.
Critical Accounting Policies and Estimates
A discussion of the Company’s critical accounting policies was provided in Item 7 in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2010
. There were no significant changes to these accounting policies for the first
three
months of
2011
.
Recent Accounting Pronouncements
See Note 2 to the Condensed Consolidated Financial Statements in Part I, Item 1 herein for further information.
Forward-Looking Statements and Risk Factors
We may from time to time make written or oral forward-looking statements with respect to our future goals, including statements contained in this Form 10-Q, in our other filings with the Securities and Exchange Commission and in our reports to shareholders.
Certain information which does not relate to historical financial information 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 that could cause our actual results in the future to differ materially from our historical results and those presently anticipated or projected. We wish to caution investors not to place undue reliance on any such forward-looking statements. Any forward-looking statements speak only as of the date on which such statements are made, and we undertake no obligation to update such statements to reflect events or circumstances arising after such date. Risk factors include our ability to successfully implement our strategy; our ability to grow our business in new products with profitable margins and the rate of revenue decline for certain existing products; the ready availability and price of energy and key raw materials or critical components; our ability to pass along price increases to our customers; our potential dependence on third parties for new product introductions or technologies in order to introduce our own new products; our ability to introduce new offerings in a timely manner either independently or in association with TDK, OEMs and other third parties and the market acceptance of newly introduced product and service offerings; continuing uncertainty in global and regional economic conditions; our ability to identify, integrate and realize the expected benefits from any acquisition which may occur in connection with our strategy; our ability to realize the benefits from our global sourcing and development strategy for magnetic data storage products and the related restructuring; the volatility of the markets in which we operate; foreign currency fluctuations; our ability to source and deliver products to our customers at acceptable quality, volume and cost levels; significant changes in discount rates and other assumptions used in the valuation of our pension plans; changes in tax laws, regulations and results of inspections by various tax authorities; our ability to meet our revenue growth, gross margin and earnings targets; our ability to secure adequate supply of certain high demand products at acceptable prices; our ability to efficiently source, warehouse and distribute our products globally; a material change in
customer relationships or in customer demand for products; the future financial and operating performance of major customers and industries served; our ability to successfully defend our intellectual property rights and the ability or willingness of our suppliers to provide adequate protection against third party intellectual property or product liability claims; the possibility that our long-lived assets for any goodwill that we acquire in the future may become impaired; the outcome of any pending or future litigation; and the volatility of our stock price due to our results or market trends, as well as various factors set forth in Item 1A of our Annual Report on Form 10-K for the fiscal year ended
December 31, 2010
and from time to time in our filings with the Securities and Exchange Commission.
Item 3.
Quantitative and Qualitative Disclosures about Market Risk.
Except for the paragraph noted below, there has been no material change since our Annual Report on Form 10-K for the year ended
December 31, 2010
. For further information, see Item 7A.
Quantitative and Qualitative Disclosures about Market Risk
included in our Annual Report on Form 10-K for the year ended
December 31, 2010
.
As of
March 31, 2011
, we had $237.7 million notional amount of foreign currency forward and option contracts of which $53.2 million hedged recorded balance sheet exposures. This compares to $293.1 million notional amount of foreign currency forward and option contracts as of
December 31, 2010
, of which $47.1 million hedged recorded balance sheet exposures. An immediate adverse change of 10 percent in quarter-end foreign currency exchange rates with all other variables (including interest rates) held constant would reduce the fair value of foreign currency contracts outstanding as of
March 31, 2011
by $5.8 million.
Item 4.
Controls and Procedures
.
Based on an evaluation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act)) as of
March 31, 2011
, the end of the period covered by this report, the President and Chief Executive Officer, Mark E. Lucas, and the Senior Vice President and Chief Financial Officer, Paul R. Zeller, have concluded that the disclosure controls and procedures were effective.
During the quarter ended
March 31, 2011
, there was no change in our 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, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1.
Legal Proceedings
.
In the normal course of business, we periodically enter into agreements that incorporate general indemnification language. Performance under these indemnities would generally be triggered by a breach of terms of the contract or by a third-party claim. There has historically been no material losses related to such indemnifications. In accordance with accounting principles generally accepted in the United States of America, we record a liability in our Condensed Consolidated Financial Statements for these actions when a loss is known or considered probable and the amount can be reasonably estimated.
We are the subject of various pending or threatened legal actions in the ordinary course of our business. All such matters are subject to many uncertainties and outcomes that are not predictable with assurance. Additionally, our electronics and accessories business is subject to allegations of patent infringement by our competitors as well as by non-practicing entities (NPEs), sometimes referred to as “patent trolls,” who may seek monetary settlements from us, our competitors, suppliers and resellers. Consequently, as of
March 31, 2011
, we are unable to ascertain the ultimate aggregate amount of any monetary liability or financial impact that we may incur with respect to these matters. While these matters could materially affect operating results depending upon the final resolution in future periods, it is our opinion that after final disposition, any monetary liability beyond that provided in the Condensed Consolidated Balance Sheet as of
March 31, 2011
would not be material to our Condensed Consolidated Financial Statements.
On June 19, 2009, Advanced Research Corp. (ARC) sued Imation in Ramsey County District court for breach of contract relating to a supply agreement under which we purchase our requirements for magnetic heads to write servo patterns on magnetic tape prior to sale of the finished cartridges, requesting the court to order that Imation pay damages and return the purchased heads to ARC. ARC is alleging that we misrepresented the volumes of heads that we would require, and that ARC invested in a new facility in reliance on our forecasts. ARC has claimed damages in excess of $27.2 million and we have filed counterclaims against ARC for its failure to comply with the supply agreement and other agreements, claiming damages in excess of $8.5 million. In March 2010, both Imation and ARC filed motions for partial summary judgment, which motions were denied by the court on July 6, 2010. On July 27, 2010, the court granted ARC's motion to amend its complaint to add a claim for trade secret misappropriation. On March 29, 2011, Imation moved for summary judgment on the claim of trade secret misappropriation. A pre-trial settlement conference has been set for July 2011 and a trial date has been set for October 2011. Imation believes ARC's claims are without merit.
Item 1A.
Risk Factors
.
There has been no material change in the risk factors set forth in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2010
. For further information, see Item 1A. “Risk Factors” included in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2010
.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
(a) - (b)
Not applicable
(c) Issuer Purchases of Equity Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c)
|
|
|
|
|
|
|
Total Number of
|
|
Maximum Number
|
|
|
(a)
|
|
(b)
|
|
Shares Purchased
|
|
of Shares that May
|
|
|
Total Number
|
|
Average
|
|
as Part of Publicly
|
|
Yet Be Purchased
|
|
|
of Shares
|
|
Price Paid
|
|
Announced Plans
|
|
Under the Plan or
|
Period
|
|
Purchased
|
|
per Share
|
|
or Programs
|
|
Programs
|
January 1, 2011 - January 31, 2011
|
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
2,315,900
|
|
February 1, 2011 - February 28, 2011
|
|
463
|
|
|
11.70
|
|
|
—
|
|
|
2,315,900
|
|
March 1, 2011 - March 31, 2011
|
|
191,716
|
|
|
11.25
|
|
|
191,716
|
|
|
2,124,184
|
|
Total
|
|
192,179
|
|
|
$
|
11.25
|
|
|
191,716
|
|
|
2,124,184
|
|
(a) The purchases in this column include shares repurchased as part of our publicly announced programs and include 463 shares that were surrendered to Imation by participants in our stock-based compensation plans (the Plans) to satisfy the tax obligations related to the vesting of restricted stock awards.
(b) The average price paid in this column includes shares repurchased as part of our publicly announced programs and shares that were surrendered to Imation by participants in the Plans to satisfy the tax obligations related to the vesting of restricted stock awards.
(c) Our Board of Directors has authorized the repurchase of a total of 3.0 million shares of which we have repurchased 0.9 million shares of common stock and have remaining authorization to repurchase up to 2.1 million shares. The authorization has no expiration date.
Item 3.
Defaults Upon Senior Securities
.
Not Applicable
Item 4.
(Removed and Reserved)
Item 5.
Other Information.
Not Applicable
Item 6.
Exhibits.
The following documents are filed as part of this report:
|
|
|
|
Exhibit Number
|
|
Description of Exhibit
|
|
|
|
10.1
|
|
Form of Stock Option Agreement for Executives Officers under the 2011 Stock Incentive Plan
|
10.2
|
|
Form of Restricted Stock Award Agreement for Executive Officers under the 2011 Stock Incentive Plan
|
10.3
|
|
Form of Performance Award Agreement for Executive Officers under the 2011 Stock Incentive Plan
|
10.4
|
|
Form of Stock Option Agreement for Directors under the 2011 Stock Incentive Plan
|
10.5
|
|
Form of Restricted Stock Award Agreement for Directors under the 2011 Stock Incentive Plan
|
10.6
|
|
Form of Stock Option Agreement for Executive Officers under the 2008 Stock Incentive Plan (3 yr vest)
|
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
|
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
|
SIGNATURE
Pursuant to the requirements 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.
|
|
|
|
|
|
|
|
Imation Corp.
|
Date:
|
May 5, 2011
|
|
/s/ Paul R. Zeller
|
|
|
|
Paul R. Zeller
|
|
|
|
Senior Vice President and Chief Financial Officer
(duly authorized office and principal financial officer)
|
EXHIBIT INDEX
The following exhibits are filed as part of this report:
|
|
|
|
|
|
|
|
|
|
Exhibit Number
|
|
Description of Exhibit
|
|
|
|
10.1
|
|
Form of Stock Option Agreement for Executives Officers under the 2011 Stock Incentive Plan
|
10.2
|
|
Form of Restricted Stock Award Agreement for Executive Officers under the 2011 Stock Incentive Plan
|
10.3
|
|
Form of Performance Award Agreement for Executive Officers under the 2011 Stock Incentive Plan
|
10.4
|
|
Form of Stock Option Agreement for Directors under the 2011 Stock Incentive Plan
|
10.5
|
|
Form of Restricted Stock Award Agreement for Directors under the 2011 Stock Incentive Plan
|
10.6
|
|
Form of Stock Option Agreement for Executive Officers under the 2008 Stock Incentive Plan (3 yr vest)
|
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
|
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
|
Exhibit 10.1
Imation Corp. 2011 Stock Incentive Plan
Stock Option Agreement
This STOCK OPTION AGREEMENT (the “Agreement”) effective as of «GrantDt» is between Imation Corp., a Delaware corporation (the “Company”), and «Name», an employee of the Company or one of its Affiliates (the “Participant”), pursuant to and subject to the terms and conditions of the Imation Corp. 2011 Stock Incentive Plan (the “Plan”).
The Company desires to provide the Participant with an opportunity to purchase shares of the Company's common stock, par value $.01 per share (the “Common Stock”), as provided in this Agreement in order to carry out the purpose of the Plan. The purpose of this Agreement is to evidence the terms and conditions of a Non-qualified Stock Option granted to the Participant under the Plan.
Accordingly, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Company and the Participant hereby agree as follows:
Section 1.
Grant of Non-qualified Stock Option
. Effective «
GrantDt
» (the “Effective Date”), the Company granted to the Participant the right and option to purchase all or any part of an aggregate of «
Shares
» («
NbrShares
») shares of Common Stock on the terms and conditions set forth in this Agreement and in accordance with the terms of the Plan (the “Option”). The Option is not intended to be an incentive stock option within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”).
Section 2.
Purchase Price
. The purchase price of the shares of Common Stock subject to the Option shall be «Price» per share.
Section 3.
Term of the Option
. The term of the Option (the “Option Period”) shall be for a period of ten (10) years from the Effective Date, terminating at the close of business on the tenth anniversary of the Effective Date (the “Expiration Date”) or such shorter period as provided in Section 6 hereof.
Section 4.
Vesting of the Option
. Subject to Section 6 hereof, the Option may be exercised at any time or from time to time during the Option Period, as to any part or all of the shares covered thereby in accordance with the vesting schedule set forth on Exhibit A.
Section 5.
Transferability
. The Option may not be assigned, transferred (other than by will or the laws of descent and distribution), pledged, hypothecated (whether by operation of law or otherwise) or otherwise conveyed or encumbered, and shall not be subject to execution, attachment or similar process. Any attempted assignment, transfer, pledge, hypothecation or other disposition of the Option contrary to the provisions of the Plan or this Agreement, or the levy of any execution, attachment or similar process upon the Option, shall be void and unenforceable against the Company and shall constitute an immediate cancellation of the Option.
Section 6.
Effect of Termination of Employment
.
(a)
In the event the Participant shall cease to be employed by the Company and all Affiliates of the Company for any reason other than (i) Termination for Cause, (ii) Retirement, (iii) death or Disability or (iv) termination by the Company or an Affiliate of the Participant's employment with the Company and its Affiliates within two (2) years following a Change in Control, the Participant may exercise the Option to the extent of (but only to the extent of) the number of vested shares the Participant was entitled to purchase under the Option on the date of such termination of employment, and the exercise of the Option to that limited extent may be effected at any time within thirty (30) days after the date of such termination of employment but not thereafter; provided, however, that the Option may not be
exercised after the Expiration Date.
(b)
In the event the Participant shall cease to be employed by the Company and its Affiliates upon Termination for Cause, the Option shall be terminated as of the date of such termination.
(c)
Except as otherwise provided in Sections 6(b), 6(d) and 6(e), in the event the Participant shall cease to be employed by the Company and all Affiliates of the Company because of Retirement, the Option, to the extent not previously exercised or forfeited, shall be exercisable to the extent of (but only to the extent of) the number of vested shares the Participant was entitled to purchase under the Option on the date of the Participant's Retirement, and the exercise of the Option to that limited extent may be effected at any time within three (3) years after the date of the Participant's Retirement but not thereafter; provided, however, that the Option may not be exercised after the Expiration Date. If a Participant who has thus retired dies within three (3) years after the date of the Participant's Retirement and prior to the Expiration Date, the exercise of the Option to the limited extent provided for in the first sentence of this Section 6(c) may be effected by the Participant's estate or by any Person or Persons to whom the Option has been transferred by will or the applicable laws of descent and distribution at any time within two (2) years after the date of the Participant's death, but not after the Expiration Date.
(d)
In the event the Participant dies or is deemed to suffer a Disability while employed by the Company or an Affiliate, the Option, to the extent not previously exercised or forfeited, shall be exercisable to the extent of (but only to the extent of) the number of vested shares the Participant was entitled to purchase under the Option on the date of the Participant's death or Disability. In the event of Participant's death, the exercise of the Option to the limited extent provided for in the first sentence of this Section 6(d) may be effected by the Participant's estate or by any Person or Persons to whom the Option has been transferred by will or the applicable laws of descent and distribution at any time within two (2) years after the date of the Participant's death, but not after the Expiration Date. In the event of the Participant's Disability, the exercise of the Option to the limited extent provided for in the first sentence of this Section 6(d) may be effected by the Participant at any time within two (2) years after the date of the Participant's Disability, but not after the Expiration Date.
(e)
In the event the Company or an Affiliate terminates the Participant's employment with the Company and all Affiliates of the Company for any reason other than death, Disability or Termination for Cause within two (2) years following a Change in Control, then the Option shall become immediately exercisable in full on the date of such termination of employment, and the exercise of the Option may be effected at any time within six (6) months after the date of the Participant's termination of employment, but not after the Expiration Date. In the event that the provisions of this Section 6(e) result in “payments” that are finally and conclusively determined by a court or Internal Revenue Service proceeding to be subject to the excise tax imposed by Section 4999 of the Code, and the Participant has not received any additional cash payment from the Company relating thereto under the provisions of Section 6 of the Severance Agreement between the Company and the Participant (the “Severance Agreement”), the Company shall pay to the Participant an additional amount such that the net amount retained by the Participant following realization of all compensation under the Plan that resulted in such “payments,” after allowing for the amount of such excise tax and any additional federal, state and local income and employment taxes paid on the additional amount, shall be equal to the net amount that would otherwise have been retained by the Participant if there were no excise tax imposed by Section 4999 of the Code. Any tax gross-up payment under this Section 6(e) shall comply with the requirements of Treas. Reg. Sec. 1.409A-3(i)(1)(v). If the Participant receives any additional cash payment from the Company under Section 6 of the Severance Agreement, the foregoing sentence shall be of no force or effect and the provisions of the Severance Agreement shall be deemed to supersede the foregoing sentence in its entirety.
Section 7.
Anti-Dilution and Fundamental Change Adjustments
.
(a)
In the event that any dividend or other distribution (whether in the form of cash,
shares of Common Stock, 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 of Common Stock or other securities of the Company or other similar corporate transaction or event affects the shares of Common Stock covered by the Option such that an adjustment is necessary in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under this Agreement, then the Committee shall, in such manner as it may deem equitable, adjust any or all of the number and type of the shares covered by the Option and the exercise price of the Option.
(b)
In the event of a proposed Fundamental Change, the Committee may, but shall not be obligated to:
(i)
with respect to a Fundamental Change that involves a merger or consolidation, make appropriate provision for the protection of the Option by the substitution of options and appropriate voting common stock of the corporation surviving any such merger or consolidation or, if appropriate, the “parent corporation” (as defined in Section 424(e) of the Code, or any successor provision) of the Company or such surviving corporation, in lieu of the Option and shares of Common Stock of the Company, or
(ii)
with respect to any Fundamental Change, including, without limitation, a merger or consolidation, declare, prior to the occurrence of the Fundamental Change, and provide written notice to the holder of the Option of the declaration, that the Option, whether or not then exercisable, shall be canceled at the time of, or immediately prior to the occurrence of, the Fundamental Change in exchange for payment to the holder of the Option, within 20 days after the Fundamental Change, of cash (or, if the Committee so elects in lieu of solely cash, of such form(s) of consideration, including cash and/or property, singly or in such combination as the Committee shall determine, that the holder of the Option would have received as a result of the Fundamental Change if the holder of the Option had exercised the Option immediately prior to the Fundamental Change) equal to, for each share of Common Stock covered by the canceled Option, the amount, if any, by which the Fair Market Value (as defined in this Section 7(b)) per share of Common Stock exceeds the exercise price per share of Common Stock covered by the Option. At the time of the declaration provided for in the immediately preceding sentence, the Option shall immediately become exercisable in full and the holder of the Option shall have the right, during the period preceding the time of cancellation of the Option, to exercise the Option as to all or any part of the shares of Common Stock covered thereby in whole or in part, as the case may be. In the event of a declaration pursuant to this Section 7(b), the Option, to the extent that it shall not have been exercised prior to the Fundamental Change, shall be canceled at the time of, or immediately prior to, the Fundamental Change, as provided in the declaration. Notwithstanding the foregoing, the holder of the Option shall not be entitled to the payment provided for in this Section 7(b) if such Option shall have expired or been forfeited. For purposes of this Section 7(b) only, “Fair Market Value” per share of Common Stock means the fair market value, as determined in good faith by the Committee, of the consideration to be received per share of Common Stock by the shareholders of the Company upon the occurrence of the Fundamental Change, notwithstanding anything to the contrary provided in this Agreement.
Section 8.
Forfeiture
. In the event that after the grant of the Option but prior to a Change in Control (1) the Company issues a material restatement of an initial financial statement, and (2) the Participant engaged in intentional misconduct that caused or contributed to the need for such a restatement because of material noncompliance by the Company with applicable financial reporting requirements (a
“Forfeiture Event”), the Participant, at the request of the Committee made within 90 days after the restatement, shall forfeit (and shall not be entitled to exercise) the portion of the Option, if any, which has not been exercised prior to the Committee's request. If all or any portion of the Option shall have been exercised prior to the Committee's request, the Participant, at the request of the Committee made within 90 days after the restatement, shall forfeit those Shares, if any, purchased by the Participant upon the exercise of the Options that are owned by the Participant at the time of the initial financial statement that is subsequently restated (the “Forfeitable Shares”) and promptly remit to the Company cash equal to the Net Dividends (as hereinafter defined) received by the Participant at any time on the Forfeitable Shares. If the Forfeitable Shares are not owned by the Participant at the time of the Committee's request, the Participant shall promptly remit to the Company the “Net Proceeds” (as hereinafter defined) from any sale, after the issuance of an initial financial statement that is subsequently restated, of Forfeitable Shares in lieu of the Forfeitable Shares. “Net Dividends” or “Net Proceeds” shall mean dividends or proceeds, as the case may be net of taxes paid or payable by the Participant as a result of the receipt of such dividends and the sale of such Shares in an amount reasonably determined by the Committee but including interest on the amount of cash repaid from the date of the receipt by Participant of such dividends or sale proceeds to the date of payment of such amount to the Company at a rate reasonably determined by the Committee. The Committee may, but shall not be required by Participant to, reduce the forfeiture, return and/or payment obligations hereunder to the extent that the Committee, in its sole and absolute discretion, shall deem appropriate. Nothing herein shall limit any other rights the Company shall have by law for misconduct of the Participant that caused or contributed to the need for such restatement.
Section 9.
Manner of Exercise
. Subject to the terms and conditions of this Agreement, the Option may be exercised by delivering written notice to the Stock Plan Administrator pursuant to procedures prescribed by the Company from time to time. Such notice shall state the election to exercise the Option and the number of shares in respect of which it is being exercised and shall be signed by the Participant or such other Person entitled to exercise the Option. Such notice shall be accompanied by payment of the full purchase price of such shares and applicable federal, state, local and foreign withholding taxes, if any. The Participant shall deliver to the Company consideration with a value equal to such purchase price and applicable withholding taxes, if any, payable in whole or in part as follows: (a) cash, check, bank draft, money order or wire transfer payable to the order of the Company, (b) shares of Common Stock owned by the Participant at the time of exercise and/or (c) in any other form of valid consideration that is acceptable to the Committee in its sole discretion. The value of any share of Common Stock delivered in payment of all or part of the purchase price or applicable withholding taxes upon the exercise of the Option shall be the closing sale price of a share of Common Stock on the New York Stock Exchange as reported on the consolidated transaction reporting system on the date the Option shall be exercised or, if such Exchange is not open for trading on such date, on the most recent preceding date on which such Exchange is open for trading. In the event that the Option shall be exercised pursuant to Section 6(c) or 6(d) hereof by any Person or Persons other than the Participant, such notice shall be accompanied by appropriate proof of the right of such Person or Persons to exercise the Option. If the Participant fails to pay the full purchase price of such shares or applicable withholding taxes, then the Option, and right to purchase such shares, may be forfeited by the Participant, in the sole discretion of the Committee. The Option may be exercised in whole or in part to the extent the Option is exercisable in accordance with the terms of this Agreement, but only with respect to full shares of Common Stock. No fractional shares of Common Stock shall be issued upon exercise of the Option, but the Company will pay, in lieu thereof, the Fair Market Value of such fractional share.
Section 10.
Issuance of Shares
.
Upon exercise of all or any portion of the Option, the Company will cause to be issued to the Participant the shares of Common Stock purchased. Notwithstanding anything to the contrary in this Agreement, the Company's obligation to issue shares of Common Stock shall be subject to (i) all applicable laws, rules and regulations and such approvals by any governmental
agencies as may be required, including, without limitation, the effectiveness of a registration statement under the Securities Act of 1933, as amended, and (ii) the condition that such shares shall have been duly listed on the New York Stock Exchange. The Participant shall not have any of the rights and privileges of a shareholder of the Company with respect to the shares of Common Stock subject to this Option unless and until such shares are issued to the Participant upon due exercise of the Option.
Section 11.
Taxes
.
The Participant acknowledges that the Participant will consult with the Participant's personal tax adviser regarding the income tax consequences of exercising the Option or any other matters related to this Agreement. In order to comply with all applicable federal, state, local or foreign income tax laws or regulations, the Company may take such action as it deems appropriate to ensure that all applicable federal, state, local or foreign payroll, withholding, income or other taxes, which are the Participant's sole and absolute responsibility, are withheld or collected from the Participant.
Section 12.
Definitions
.
Terms not defined in this Agreement shall have the meanings given to them in the Plan, and the following terms shall have the following meanings when used in this Agreement:
(a)
“Change in Control” means any one of the following events:
(i)
the consummation of a transaction or series of related transactions in which a person, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), other than the Company or an Affiliate of the Company, or any employee benefit plan of the Company or an Affiliate of the Company, acquires beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 35% or more of the Company's then outstanding shares of Common Stock or the combined voting power of the Company's then outstanding voting securities (other than in connection with a Business Combination in which clauses (1), (2) and (3) of paragraph (a)(iii) apply); or
(ii)
individuals who, as of the Effective Date hereof, constitute the Board of Directors of the Company (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board of Directors of the Company; provided, however, that any individual becoming a director subsequent to the Effective Date hereof whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board (other than a nomination of an individual whose initial assumption of office is in connection with a solicitation with respect to the election or removal of directors of the Company in opposition to the solicitation by the Board of Directors of the Company) shall be deemed to be a member of the Incumbent Board; or
(iii)
the consummation of a reorganization, merger, statutory share exchange, consolidation or similar transaction involving the Company, a sale or other disposition in a transaction or series of related transactions of all or substantially all of the Company's assets or the issuance by the Company of its stock in connection with the acquisition of assets or stock of another entity (each, a “Business Combination”) in each case unless, following such Business Combination, (1) all or substantially all of the individuals and entities that were the beneficial owners of the Company's outstanding Common Stock and the Company's outstanding voting securities immediately prior to such Business Combination beneficially own immediately after the transaction or transactions, directly or indirectly, more than 50% of the then outstanding shares of common stock and more than 50% of the combined voting power of the then outstanding voting securities (or comparable equity interests) of the entity resulting from such Business Combination (including an
entity that, as a result of such transaction, owns the Company or all or substantially all of the Company's assets either directly or through one of more Affiliates) in substantially the same proportions as their ownership of the Company's Common Stock and voting securities immediately prior to such Business Combination, (2) no person, entity or group (other than a direct or indirect parent entity of the Company that, after giving effect to the Business Combination, beneficially owns 100% of the outstanding voting securities (or comparable equity interests) of the entity resulting from the Business Combination) beneficially owns, directly or indirectly, 35% or more of the outstanding shares of common stock or the combined voting power of the then outstanding voting securities (or comparable equity interests) of the entity resulting from such Business Combination and (3) at least a majority of the members of the board of directors (or similar governing body) of the entity resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement or of the action of the Board of Directors of the Company providing for such Business Combination; or
(iv)
approval by the stockholders of the dissolution of the Company.
(b)
“Fundamental Change” means a dissolution or liquidation of the Company, a sale of substantially all of the assets of the Company, or a merger or consolidation of the Company with or into any other corporation, regardless of whether the Company is the surviving corporation.
(c)
“Disability” shall be as defined under the Imation Corp. Long Term Disability Income Protection Plan.
(d)
“Retirement” means retirement as defined under the Imation Corp. Cash Balance Pension Plan.
(e)
“Stock Plan Administrator” means the Committee or any Director, officer or agent of the Company designated by the Committee from time to time.
(f)
“Termination for Cause” means termination of Participant's employment with the Company or an Affiliate for the following acts: (i) the Participant's gross incompetence or substantial failure to perform his or her duties, (ii) misconduct by the Participant that causes or is likely to cause harm to the Company or that causes or is likely to cause harm to the Company's reputation, as determined by the Company's Board of Directors in its sole and absolute discretion (such misconduct may include, without limitation, insobriety at the workplace during working hours or the use of illegal drugs), (iii) failure to follow directions of the Company's Board of Directors that are consistent with the Participant's duties, (iv) the Participant's conviction of, or entry of a pleading of guilty or nolo contendre to, any crime involving moral turpitude, or the entry of an order duly issued by any federal or state regulatory agency having jurisdiction in the matter permanently prohibiting the Participant from participating in the conduct of the affairs of the Company or (v) any breach of this Agreement that is not remedied within thirty (30) days after receipt of written notice from the Company specifying such breach in reasonable detail.
Section 13.
Governing Law
.
The internal law, and not the law of conflicts, of the State of Delaware will govern all questions concerning the validity, construction and effect of this Agreement.
Section 14.
Plan Provisions
.
This Agreement is made under and subject to the provisions of the Plan, and all of the provisions of the Plan are also provisions of this Agreement. If there is a difference or conflict between the provisions of this Agreement and the provisions of the Plan, the provisions of the Plan will govern. By accepting this Option, the Participant confirms that the Participant has received a copy of the Plan and represents that the Participant is familiar with the terms and provisions thereof, and hereby accepts this Option subject to all the terms and provisions of the Plan.
Section 15.
No Right to Continue Service or Employment
. Nothing herein shall be construed as
giving the Participant the right to continue in the employ or to provide services to the Company or any Affiliate, whether as an employee or as a consultant or otherwise, or interfere with or restrict in any way the right of the Company or any Affiliate to discharge the Participant, whether as an employee or consultant or otherwise, at any time, with or without cause. In addition, the Company or any Affiliate may discharge the Participant free from any liability or claim under this Agreement, unless otherwise expressly provide herein.
Section 16.
Entire Agreement
. Except as specifically provided herein with regard to the Severance Agreement, (i) this Agreement together with the Plan supersede any and all other prior understandings and agreements, either oral or in writing, between the parties with respect to the subject matter hereof and constitute the sole and only agreements between the parties with respect to said subject matter; (ii) all prior negotiations and agreements between the parties with respect to the subject matter hereof are merged into this Agreement; and (iii) each party to this Agreement acknowledges that no representations, inducements, promises or agreements, orally or otherwise, have been made by any party or by anyone acting on behalf of any party, which are not embodied in this Agreement or the Plan and that any agreement, statement or promise that is not contained in this Agreement or the Plan shall not be valid or binding or of any force or effect.
Section 17.
Modification
. No change or modification of this Agreement shall be valid or binding upon the parties unless the change or modification is in writing and signed by the parties. Notwithstanding the preceding sentence, the Plan, this Agreement and the Option may be amended, altered, suspended, discontinued or terminated to the extent permitted by the Plan.
Section 18.
Shares Subject to Agreement
. The shares covered by the Option shall be subject to the terms and conditions of this Agreement. Except as otherwise provided in Section 7, no adjustment shall be made for dividends or other rights for which the record date is prior to the issuance of such shares. The Company shall at all times during the Option Period reserve and keep available such number of shares of Common Stock as will be sufficient to satisfy the requirements of this Agreement.
Section 19.
Severability
. In the event that any provision that is contained in the Plan or this Agreement is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction or would disqualify the Plan or this Agreement for any reason and under any law as deemed applicable by the Committee, the invalid, illegal or unenforceable 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 this Agreement, such provision shall be stricken as to such jurisdiction or Option, and the remainder of the Plan or this Agreement shall remain in full force and effect.
Section 20.
Headings
. Headings are given to the sections and subsections of this Agreement 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 this Agreement or any provision hereof.
Section 21.
Participant's Acknowledgments
. The Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Committee or the Board of Directors of the Company, as appropriate, upon any questions arising under the Plan or this Agreement. Notwithstanding any of the provisions hereof, the Participant hereby agrees that the Participant will not exercise the Option granted hereby, and that the Company will not be obligated to issue any shares to the Participant hereunder, if the exercise thereof or the issuance of such shares shall constitute a violation by the Participant or the Company of any provision of any law or regulation of any governmental authority. Any determination in this connection by the Company, including the Board of Directors of the Company or the Committee, shall be final, binding and conclusive. The obligations of the Company and the rights of the Participant are subject to all applicable laws, rules and regulations.
Section 22.
Parties Bound
. The terms, provisions, and agreements that are contained in this
Agreement shall apply to, be binding upon, and inure to the benefit of the parties and their respective heirs, executors, administrators, legal representatives and permitted successors and assigns, subject to the limitation on assignment expressly set forth herein. This Agreement shall have no force or effect unless it is duly executed and delivered by the Company and the Participant or until such Agreement is delivered and accepted through any electronic medium in accordance with procedures established by the Company.
The Company has caused this Agreement to be signed (which may be by electronic signature) and delivered and the Participant has caused this Agreement to be accepted (which may be by electronic acceptance) as of the date set forth above.
IMATION CORP.
By:
Name:
Title:
Participant
Exhibit A
Vesting Schedule
Exhibit 10.2
Imation Corp. 2011 Stock Incentive Plan
Restricted Stock Award Agreement
This RESTRICTED STOCK AWARD AGREEMENT (the “Agreement”) effective as of
«GrantDt»
is between Imation Corp., a Delaware corporation (the “Company”), and ,
«Name»
an employee of the Company or one of its Affiliates (the “Participant”), pursuant to and subject to the terms and conditions of the Imation Corp. 2011 Stock Incentive Plan (the “Plan”).
The Company desires to award to the Participant a number of shares of the Company's common stock, par value $.01 per share (the “Common Stock”), subject to certain restrictions as provided in this Agreement, in order to carry out the purpose of the Plan. The purpose of this Agreement is to evidence the terms and conditions of an award of restricted stock granted to the Participant under the Plan.
Accordingly, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Company and the Participant hereby agree as follows:
Section 1.
Award of Restricted Stock
. Effective
«GrantDt»
(the “Effective Date”), the Company granted to the Participant a restricted stock award of
«GrantDt»(«GrantDt»)
shares of Common Stock (the “Shares”), subject to the terms and conditions set forth in this Agreement and in accordance with the terms of the Plan (the “Restricted Stock Award”).
Section 2.
Rights with Respect to the Shares
.
(a)
Stockholder Rights
. With respect to the Shares, the Participant shall be entitled at all times on and after the date of issuance of the Shares to exercise the rights of a stockholder of Common Stock of the Company, including the right to vote the Shares and the right to receive dividends on the Shares as provided in Section 2(b) hereof, unless and until the Shares are forfeited pursuant to Section 3 hereof. However, the Shares shall be nontransferable and subject to a risk of forfeiture to the Company at all times prior to the dates on which such Shares become vested, and the restrictions with respect to the Shares lapse, in accordance with Section 3 of this Agreement.
(b)
Dividends
. As a condition to receiving the Shares under the Plan, the Participant hereby agrees to defer the receipt of dividends paid on the Shares. Cash dividends or other cash distributions paid with respect to the Shares prior to the date or dates the Shares vest shall be subject to the same restrictions, terms and conditions as the Shares to which they relate, shall be promptly deposited with the Secretary of the Company or a custodian designated by the Secretary, and shall be forfeited in the event that the Shares with respect to which the dividends were paid are forfeited.
(c)
Issuance of Shares
. The Company shall cause the Shares to be issued in the Participant's name or in a nominee name on the Participant's behalf, either by book-entry registration or issuance of a stock certificate or certificates evidencing the Shares, which certificate or certificates shall be held by the Secretary of the Company or the stock transfer agent or brokerage service selected by the Secretary of the Company to provide such services for the Plan. The Shares shall be restricted from transfer and shall be subject to an appropriate stop-transfer order. If any certificate is issued, the certificate shall bear an appropriate legend referring to the restrictions applicable to the Shares. The Participant hereby agrees to the retention by the Company of the Shares and, if a stock certificate is issued, the Participant agrees to execute and deliver to the Company a blank stock power with respect to the Shares as a condition to the receipt of this Restricted Stock Award. After any Shares vest pursuant to Section 3 hereof, and following payment of the applicable withholding taxes pursuant to Section 6 of this Agreement, the Company shall promptly cause to be issued a certificate or certificates, registered in the Participant's name, evidencing such vested whole Shares (less any Shares withheld to pay withholding taxes) and shall cause such certificate or certificates to be delivered to the Participant free of the legend and the stop-transfer order referenced above. The Company will not deliver any fractional Share but will
pay, in lieu thereof, the Fair Market Value of such fractional Share at the time certificates evidencing the Shares are delivered to the Participant.
Section 3.
Vesting; Forfeiture
.
(a)
Vesting
. Subject to the terms and conditions of this Agreement, and except as otherwise provided in Section 3(c) hereof, the Shares shall vest, and the restrictions with respect to the Shares shall lapse, in accordance with the vesting schedule set forth on Exhibit A, if the Participant remains continuously employed by the Company or an Affiliate of the Company until such respective vesting dates.
(b)
Forfeiture
. Except as otherwise provided in Section 3(c) hereof, if the Participant ceases to be employed by the Company and all Affiliates of the Company for any reason prior to the vesting of the Shares pursuant to Section 3(a) hereof, Participant's rights to all of the unvested Shares shall be immediately and irrevocably forfeited, including the right to vote such Shares and the right to receive dividends on such Shares.
(c)
Change in Control
. Notwithstanding the vesting and forfeiture provisions contained in Sections 3(a) and 3(b) hereof, but subject to the other terms and conditions set forth in this Agreement, in the event the Company or an Affiliate terminates the Participant's employment with the Company and all Affiliates of the Company for any reason other than death, Disability or Termination for Cause within two (2) years following a Change in Control, then the Participant shall become immediately vested in all of the Shares, and the restrictions with respect to the Shares shall lapse, as of the date of such termination of employment. In the event that the provisions of this Section 3(c) result in “payments” that are finally and conclusively determined by a court or Internal Revenue Service proceeding to be subject to the excise tax imposed by Section 4999 of the Code, and the Participant has not received any additional cash payment from the Company relating thereto under the provisions of Section 6 of the Severance Agreement between the Company and the Participant (the “Severance Agreement”), the Company shall pay to the Participant an additional amount such that the net amount retained by the Participant following realization of all compensation under the Plan that resulted in such “payments,” after allowing for the amount of such excise tax and any additional federal, state and local income and employment taxes paid on the additional amount, shall be equal to the net amount that would otherwise have been retained by the Participant if there were no excise tax imposed by Section 4999 of the Code. Any tax gross-up payment under this Section 3(c) shall comply with the requirements of Treas. Reg. Sec. 1.409A-3(i)(1)(v). If the Participant receives any additional cash payment from the Company under Section 6 of the Severance Agreement, the foregoing sentence shall be of no force or effect and the provisions of the Severance Agreement shall be deemed to supersede the foregoing sentence in its entirety.
(d)
Early Vesting
. Except as provided in Section 3(c) hereof or unless otherwise determined by the Committee in its sole discretion, and notwithstanding any provisions contained in the Severance Agreement, in no event will any of the Shares vest prior to their respective vesting dates set forth in Section 3(a) hereof.
(e)
Clawback
. In the event that after the grant of the Restricted Stock Award but prior to a Change in Control (1) the Company issues a material restatement of an initial financial statement, and (2) the Participant engaged in intentional misconduct that caused or contributed to the need for such a restatement because of material noncompliance by the Company with applicable financial reporting requirements (a “Forfeiture Event”), the Participant, at the request of the Committee made within 90 days after the restatement, shall forfeit those Shares, if any, owned by the Participant at the time of the initial financial statement that is subsequently restated, regardless of whether those Shares are subject to restrictions at such time or whether the restrictions on such Shares shall have lapsed (the “Forfeitable Shares”). In addition, if a Forfeiture Event occurs, the Participant, at the Committee's request (which
request must be made within 90 days after the restatement), shall forfeit all dividends deferred pursuant to Section 2(b) with respect to the Forfeitable Shares that then remain subject to restrictions prior to the Committee's request and promptly remit to the Company cash equal to the Net Dividends (as hereinafter defined) received by the Participant at any time on the Forfeitable Shares. If the Forfeitable Shares are not owned by the Participant at the time of the Committee's request, the Participant shall promptly remit to the Company the “Net Proceeds” (as hereinafter defined) from any sale, after the issuance of an initial financial statement that is subsequently restated, of Forfeitable Shares in lieu of the Forfeitable Shares. “Net Dividends” or “Net Proceeds” shall mean dividends or proceeds, as the case may be net of taxes paid or payable by the Participant as a result of the receipt of such dividends and the sale of such Shares in an amount reasonably determined by the Committee but including interest on the amount of cash repaid from the date of the receipt by Participant of such dividends or sale proceeds to the date of payment of such amount to the Company at a rate reasonably determined by the Committee. The Committee may, but shall not be required by Participant to, reduce the forfeiture, return and/or payment obligations hereunder to the extent that the Committee, in its sole and absolute discretion, shall deem appropriate. Nothing herein shall limit any other rights the Company shall have by law for misconduct of the Participant that caused or contributed to the need for such restatement.
Section 4.
Restrictions on Transfer
. Until the Shares vest pursuant to Section 3 hereof, neither the Shares, nor any right with respect to the Shares under this Agreement, may be sold, assigned, transferred, pledged, hypothecated (by operation of law or otherwise) or otherwise conveyed or encumbered and shall not be subject to execution, attachment or similar process. Any attempted sale, assignment, transfer, pledge, hypothecation or other conveyance or encumbrance shall be void and unenforceable against the Company or any Affiliate of the Company.
Section 5.
Distributions and Adjustments
.
(a)
If any Shares vest subsequent to any change in the number or character of the Common Stock of the Company through any stock dividend or other distribution, 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 of Common Stock or other securities of the Company or other similar corporate transaction or event such that an adjustment is necessary in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under this Agreement, then the Committee shall, in such manner as it may deem equitable, adjust any or all of the number and type of such Shares.
(b)
Any additional shares of Common Stock of the Company, any other securities of the Company and any other property distributed with respect to the Shares prior to the date or dates the Shares vest shall be subject to the same restrictions, terms and conditions as the Shares to which they relate and shall be promptly deposited with the Secretary of the Company or a custodian designated by the Secretary.
Section 6.
Taxes
.
(a)
The Participant acknowledges that the Participant will consult with the Participant's personal tax adviser regarding the income tax consequences of the grant of the Shares, payment of dividends on the Shares, the vesting of the Shares and any other matters related to this Agreement. In order to comply with all applicable federal, state, local or foreign income tax laws or regulations, the Company may take such action as it deems appropriate to ensure that all applicable federal, state, local or foreign payroll, withholding, income or other taxes, which are the Participant's sole and absolute responsibility, are withheld or collected from the Participant.
(b)
In accordance with the terms of the Plan, and such rules as may be adopted by the Committee administering the Plan, the Participant may elect to satisfy tax withholding obligations arising
from the receipt of, or the lapse of restrictions relating to, the Shares by (i) delivering cash, check, bank draft, money order or wire transfer payable to the order of the Company, (ii) having the Company withhold a portion of the Shares otherwise to be delivered having a Fair Market Value equal to the amount of such taxes, or (iii) delivering to the Company shares of Common Stock having a Fair Market Value equal to the amount of such taxes. The Company will not deliver any fractional Share but will pay, in lieu thereof, the Fair Market Value of such fractional Share. The Participant's election must be made on or before the date that the amount of tax to be withheld is determined. If the Participant does not make an election, the Company will withhold a portion of the Shares otherwise to be delivered having a Fair Market Value equal to the amount of such taxes.
Section 7.
Definitions
. Terms not defined in this Agreement shall have the meanings given to them in the Plan, and the following terms shall have the following meanings when used in this Agreement:
(a)
“Change in Control” means any one of the following events:
(i)
the consummation of a transaction or series of related transactions in which a person, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), other than the Company or an Affiliate of the Company, or any employee benefit plan of the Company or an Affiliate of the Company, acquires beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 35% or more of the Company's then outstanding shares of Common Stock or the combined voting power of the Company's then outstanding voting securities (other than in connection with a Business Combination in which clauses (1), (2) and (3) of paragraph (a)(iii) apply); or
(ii)
individuals who, as of the Effective Date hereof, constitute the Board of Directors of the Company (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board of Directors of the Company; provided, however, that any individual becoming a director subsequent to the Effective Date hereof whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board (other than a nomination of an individual whose initial assumption of office is in connection with a solicitation with respect to the election or removal of directors of the Company in opposition to the solicitation by the Board of Directors of the Company) shall be deemed to be a member of the Incumbent Board; or
(iii)
the consummation of a reorganization, merger, statutory share exchange, consolidation or similar transaction involving the Company, a sale or other disposition in a transaction or series of related transactions of all or substantially all of the Company's assets or the issuance by the Company of its stock in connection with the acquisition of assets or stock of another entity (each, a “Business Combination”) in each case unless, following such Business Combination, (1) all or substantially all of the individuals and entities that were the beneficial owners of the Company's outstanding Common Stock and the Company's outstanding voting securities immediately prior to such Business Combination beneficially own immediately after the transaction or transactions, directly or indirectly, more than 50% of the then outstanding shares of common stock and more than 50% of the combined voting power of the then outstanding voting securities (or comparable equity interests) of the entity resulting from such Business Combination (including an entity that, as a result of such transaction, owns the Company or all or substantially all of the Company's assets either directly or through one of more Affiliates) in substantially the same proportions as their ownership of the Company's Common Stock
and voting securities immediately prior to such Business Combination, (2) no person, entity or group (other than a direct or indirect parent entity of the Company that, after giving effect to the Business Combination, beneficially owns 100% of the outstanding voting securities (or comparable equity interests) of the entity resulting from the Business Combination) beneficially owns, directly or indirectly, 35% or more of the outstanding shares of common stock or the combined voting power of the then outstanding voting securities (or comparable equity interests) of the entity resulting from such Business Combination and (3) at least a majority of the members of the board of directors (or similar governing body) of the entity resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement or of the action of the Board of Directors of the Company providing for such Business Combination; or
(iv)
approval by the stockholders of the dissolution of the Company.
(b)
“Disability” shall be as defined under the Imation Corp. Long Term Disability Income Protection Plan.
(c)
“Termination for Cause” means termination of Participant's employment with the Company or an Affiliate for the following acts: (i) the Participant's gross incompetence or substantial failure to perform his or her duties, (ii) misconduct by the Participant that causes or is likely to cause harm to the Company or that causes or is likely to cause harm to the Company's reputation, as determined by the Company's Board of Directors in its sole and absolute discretion (such misconduct may include, without limitation, insobriety at the workplace during working hours or the use of illegal drugs), (iii) failure to follow directions of the Company's Board of Directors that are consistent with the Participant's duties, (iv) the Participant's conviction of, or entry of a pleading of guilty or nolo contendre to, any crime involving moral turpitude, or the entry of an order duly issued by any federal or state regulatory agency having jurisdiction in the matter permanently prohibiting the Participant from participating in the conduct of the affairs of the Company or (v) any breach of this Agreement that is not remedied within thirty (30) days after receipt of written notice from the Company specifying such breach in reasonable detail.
Section 8.
Governing Law
. The internal law, and not the law of conflicts, of the State of Delaware will govern all questions concerning the validity, construction and effect of this Agreement.
Section 9.
Plan Provisions
. This Agreement is made under and subject to the provisions of the Plan, and all of the provisions of the Plan are also provisions of this Agreement. If there is a difference or conflict between the provisions of this Agreement and the provisions of the Plan, the provisions of the Plan will govern. By signing this Agreement, the Participant confirms that the Participant has received a copy of the Plan and represents that the Participant is familiar with the terms and provisions thereof, and hereby accepts this Restricted Stock Award subject to all the terms and provisions of the Plan.
Section 10.
No Rights to Continue Service or Employment
. Nothing herein shall be construed as giving the Participant the right to continue in the employ or to provide services to the Company or any Affiliate, whether as an employee or as a consultant or otherwise, or interfere with or restrict in any way the right of the Company or any Affiliate to discharge the Participant, whether as an employee or consultant or otherwise, at any time, with or without cause. In addition, the Company or any Affiliate may discharge the Participant free from any liability or claim under this Agreement, unless otherwise expressly provided herein.
Section 11.
Entire Agreement
. Except as specifically provided herein with regard to the Severance Agreement, (i) this Agreement together with the Plan supersede any and all other prior understandings and agreements, either oral or in writing, between the parties with respect to the subject matter hereof and constitute the sole and only agreements between the parties with respect to said subject
matter; (ii) all prior negotiations and agreements between the parties with respect to the subject matter hereof are merged into this Agreement; and (iii) each party to this Agreement acknowledges that no representations, inducements, promises or agreements, orally or otherwise, have been made by any party or by anyone acting on behalf of any party, which are not embodied in this Agreement or the Plan and that any agreement, statement or promise that is not contained in this Agreement or the Plan shall not be valid or binding or of any force or effect.
Section 12.
Modification
.
No change or modification of this Agreement shall be valid or binding upon the parties unless the change or modification is in writing and signed by the parties. Notwithstanding the preceding sentence, the Plan, this Agreement and the Restricted Stock Award may be amended, altered, suspended, discontinued or terminated to the extent permitted by the Plan.
Section 13.
Shares Subject to Agreement
. The Shares shall be subject to the terms and conditions of this Agreement. Except as otherwise provided in Section 5, no adjustment shall be made for dividends or other rights for which the record date is prior to the issuance of the Shares. The Company shall not be required to deliver any Shares until the requirements of any federal or state securities or other laws, rules or regulations (including the rules of any securities exchange) as may be determined by the Committee to be applicable are satisfied.
Section 14.
Severability
. In the event that any provision that is contained in the Plan or this Agreement is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction or would disqualify the Plan or this Agreement for any reason and under any law as deemed applicable by the Committee, the invalid, illegal or unenforceable 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 this Agreement, such provision shall be stricken as to such jurisdiction or Shares, and the remainder of the Plan or this Agreement shall remain in full force and effect.
Section 15.
Headings
. Headings are given to the sections and subsections of this Agreement 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 this Agreement or any provision hereof.
Section 16.
Participant's Acknowledgments
. The Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Committee or the Board of Directors of the Company, as appropriate, upon any questions arising under the Plan or this Agreement. Any determination in this connection by the Company, including the Board of Directors of the Company or the Committee, shall be final, binding and conclusive. The obligations of the Company and the rights of the Participant are subject to all applicable laws, rules and regulations.
Section 17.
Parties Bound
. The terms, provisions and agreements that are contained in this Agreement shall apply to, be binding upon, and inure to the benefit of the parties and their respective heirs, executors, administrators, legal representatives and permitted successors and assigns, subject to the limitation on assignment expressly set forth herein. This Agreement shall have no force or effect unless it is duly executed and delivered by the Company and the Participant or until such Agreement is delivered and accepted through any electronic medium in accordance with procedures established by the Company.
The Company has caused this Agreement to be signed (which may be by electronic signature) and delivered and the Participant has caused this Agreement to be accepted (which may be by electronic acceptance) as of the date set forth above.
IMATION CORP.
By:
Name:
Title:
Participant
Exhibit A
Vesting Schedule
Exhibit 10.3
Imation Corp. 2011 Stock Incentive Plan
Performance Award Agreement
This PERFORMANCE AWARD AGREEMENT (the “Agreement”) effective as of
«GrantDt»
is between Imation Corp., a Delaware corporation (the “Company”), and
«Name»
, an employee of the Company or one of its Affiliates (the “Participant”), pursuant to and subject to the terms and conditions of the Imation Corp. 2011 Stock Incentive Plan (the “Plan”).
For good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Company and the Participant hereby agree as follows:
Section 1.
Performance Award
. Effective
«GrantDt»
(the “Effective Date”), the Company granted to the Participant a performance award with the specific terms set forth on Exhibit A hereto and subject to the terms and conditions set forth in this Agreement and the Plan (the “Performance Award”).
Section 2.
Payment; Forfeiture
.
(a)
Payment
. Subject to the terms and conditions of this Agreement, and except as otherwise provided in Section 2(c) hereof, the amount to be paid to the Participant pursuant to this Performance Award, if any, shall be determined as set forth on Exhibit A if the Participant remains continuously employed by the Company or an Affiliate of the Company from the Effective Date until the end of the performance period set forth on Exhibit A (the “Performance Period”). The Committee shall validate whether the performance criteria described in Exhibit A were achieved. Such validation shall be made at a meeting of the Committee next following the end of the Performance Period, shall be based on the Company's audited financial statements and shall be final and conclusive with respect to the achievement of the performance criteria. Any payment of this Performance Award shall be made within a reasonable time following the validation of the payout by the Committee, but in no event later than seventy-four (74) calendar days following the end of the Performance Period, subject to the payment of applicable withholding taxes pursuant to Section 5 hereof.
(b)
Forfeiture
. Except as otherwise provided in Section 2(c) hereof, if the Participant ceases to be employed by the Company and all Affiliates of the Company for any reason prior to the end of the Performance Period, this Performance Award shall be immediately and irrevocably forfeited.
(c)
Change in Control
. Notwithstanding the payment and forfeiture provisions contained in Sections 2(a) and 2(b) hereof, but subject to the other terms and conditions set forth in this Agreement, in the event the Company or an Affiliate terminates the Participant's employment with the Company and all Affiliates of the Company for any reason other than death, Disability or Termination for Cause within two (2) years following a Change in Control and prior to the end of the Performance Period, then the Participant shall be entitled to receive a payment of this Performance Award based on, and assuming that the performance goal would be achieved at the target (100%) level, as set forth in Exhibit A. Such payment shall be made promptly after the date of such termination, but in no event later than thirty (30) calendar days following such termination. In the event that the provisions of this Section 2(c) result in “payments” that are finally and conclusively determined by a court or Internal Revenue Service proceeding to be subject to the excise tax imposed by Section 4999 of the Code, and the Participant has not received any additional cash payment from the Company relating thereto under the provisions of Section 6 of the Severance Agreement between the Company and the Participant (the “Severance Agreement”), the Company shall pay to the Participant an additional amount such that the net amount retained by the Participant following realization of all compensation under the Plan that resulted in such “payments,” after allowing for the amount of such excise tax and any additional federal, state and local
income and employment taxes paid on the additional amount, shall be equal to the net amount that would otherwise have been retained by the Participant if there were no excise tax imposed by Section 4999 of the Code. Any tax gross-up payment under this Section 2(c) shall comply with the requirements of Treas. Reg. Sec. 1.409A-3(i)(1)(v). If the Participant receives any additional cash payment from the Company under Section 6 of the Severance Agreement, the foregoing sentence shall be of no force or effect and the provisions of the Severance Agreement shall be deemed to supersede the foregoing sentence in its entirety.
(d)
No Early Payment
. Except as otherwise provided in Section 2(c) hereof, in no event will the Performance Award be paid out prior to the end of the Performance Period unless otherwise determined by the Committee in its sole discretion, and any such payment shall be made within thirty (30) calendar days following such determination.
(e)
Clawback
. In the event that after the grant of the Performance Award but prior to a Change in Control (1) the Company issues a material restatement of an initial financial statement, and (2) the Participant engaged in intentional misconduct that caused or contributed to the need for such a restatement because of material noncompliance by the Company with applicable financial reporting requirements (a “Forfeiture Event”), the Participant, at the request of the Committee made within 90 days after the restatement, shall forfeit this Performance Award if the restatement relates to a period covered by the Performance Period, regardless of whether this Performance Award has been paid out ( “Forfeitable Performance Award”). If the Forfeitable Performance Award has been paid out at the time of the Committee's request, the Participant shall promptly remit to the Company the “Net Proceeds” (as hereinafter defined) of the Forfeitable Performance Award in lieu of the Forfeitable Performance Award. “Net Proceeds” shall mean proceeds, net of taxes paid or payable by the Participant, from the receipt of any payment made pursuant to Section 2(a) hereof in an amount reasonably determined by the Committee but including interest on the amount of cash repaid from the date of the receipt by Participant of such payment made pursuant to Section 2(a) hereof to the date of payment of such amount to the Company at a rate reasonably determined by the Committee. The Committee may, but shall not be required by Participant to, reduce the forfeiture, return and/or payment obligations hereunder to the extent that the Committee, in its sole and absolute discretion, shall deem appropriate. Nothing herein shall limit any other rights the Company shall have by law for misconduct of the Participant that caused or contributed to the need for such restatement.
Section 3.
Restrictions on Transfer
. Neither this Performance Award, nor any right with respect to the Performance Award under this Agreement, may be sold, assigned, transferred, pledged, hypothecated (by operation of law or otherwise) or otherwise conveyed or encumbered and shall not be subject to execution, attachment or similar process. Any attempted sale, assignment, transfer, pledge, hypothecation or other conveyance or encumbrance shall be void and unenforceable against the Company or any Affiliate of the Company.
Section 4.
Adjustments
. To the extent consistent with Section 162(m), the Committee may appropriately adjust any evaluation of performance under this Performance Award to exclude the effect of certain events, including, but not limited to, any of the following events: asset write-downs; litigation or claim judgments or settlements; changes in tax law, accounting principles or other such laws or provisions affecting reported results; severance, contract termination and other costs related to exiting certain business activities; acquisitions; and gains or losses from the disposition of businesses or assets or from the early extinguishment of debt.
Section 5.
Taxes
. The Participant acknowledges that the Participant will consult with the Participant's personal tax adviser regarding the income tax consequences of the grant or payment of this Performance Award and other matters related to this Agreement. In order to comply with all applicable federal, state, local or foreign income tax laws or regulations, the Company may take such action as it deems appropriate to ensure that all applicable federal, state, local or foreign payroll, withholding, income
or other taxes, which are the Participant's sole and absolute responsibility, are withheld or collected from the Participant. In accordance with the terms of the Plan, and such rules as may be adopted by the Committee, the Company will satisfy any applicable tax withholding obligations arising from any payment of this Performance Award by withholding a portion of the cash otherwise to be delivered equal to the amount of such taxes.
Section 6.
Definitions
. Terms not defined in this Agreement shall have the meanings given to them in the Plan, and the following terms shall have the following meanings when used in this Agreement:
(a)
“Change in Control” means any one of the following events:
(i)
the consummation of a transaction or series of related transactions in which a person, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), other than the Company or an Affiliate of the Company, or any employee benefit plan of the Company or an Affiliate of the Company, acquires beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 35% or more of the Company's then outstanding shares of Common Stock or the combined voting power of the Company's then outstanding voting securities (other than in connection with a Business Combination in which clauses (1), (2) and (3) of paragraph (a)(iii) apply); or
(ii)
individuals who, as of the Effective Date hereof, constitute the Board of Directors of the Company (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board of Directors of the Company; provided, however, that any individual becoming a director subsequent to the Effective Date hereof whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board (other than a nomination of an individual whose initial assumption of office is in connection with a solicitation with respect to the election or removal of directors of the Company in opposition to the solicitation by the Board of Directors of the Company) shall be deemed to be a member of the Incumbent Board; or
(iii)
the consummation of a reorganization, merger, statutory share exchange, consolidation or similar transaction involving the Company, a sale or other disposition in a transaction or series of related transactions of all or substantially all of the Company's assets or the issuance by the Company of its stock in connection with the acquisition of assets or stock of another entity (each, a “Business Combination”) in each case unless, following such Business Combination, (1) all or substantially all of the individuals and entities that were the beneficial owners of the Company's outstanding Common Stock and the Company's outstanding voting securities immediately prior to such Business Combination beneficially own immediately after the transaction or transactions, directly or indirectly, more than 50% of the then outstanding shares of common stock and more than 50% of the combined voting power of the then outstanding voting securities (or comparable equity interests) of the entity resulting from such Business Combination (including an entity that, as a result of such transaction, owns the Company or all or substantially all of the Company's assets either directly or through one of more Affiliates) in substantially the same proportions as their ownership of the Company's Common Stock and voting securities immediately prior to such Business Combination, (2) no person, entity or group (other than a direct or indirect parent entity of the Company that, after giving effect to the Business Combination, beneficially owns 100% of the outstanding voting securities (or comparable equity interests) of the entity resulting from the Business
Combination) beneficially owns, directly or indirectly, 35% or more of the outstanding shares of common stock or the combined voting power of the then outstanding voting securities (or comparable equity interests) of the entity resulting from such Business Combination and (3) at least a majority of the members of the board of directors (or similar governing body) of the entity resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement or of the action of the Board of Directors of the Company providing for such Business Combination; or
(iv)
approval by the stockholders of the dissolution of the Company.
(b)
“Disability” shall be as defined under the Imation Corp. Long Term Disability Income Protection Plan.
(c)
“Termination for Cause” means termination of Participant's employment with the Company or an Affiliate for the following acts: (i) the Participant's gross incompetence or substantial failure to perform his or her duties, (ii) misconduct by the Participant that causes or is likely to cause harm to the Company or that causes or is likely to cause harm to the Company's reputation, as determined by the Company's Board of Directors in its sole and absolute discretion (such misconduct may include, without limitation, insobriety at the workplace during working hours or the use of illegal drugs), (iii) failure to follow directions of the Company's Board of Directors that are consistent with the Participant's duties, (iv) the Participant's conviction of, or entry of a pleading of guilty or nolo contendre to, any crime involving moral turpitude, or the entry of an order duly issued by any federal or state regulatory agency having jurisdiction in the matter permanently prohibiting the Participant from participating in the conduct of the affairs of the Company or (v) any breach of this Agreement that is not remedied within thirty (30) days after receipt of written notice from the Company specifying such breach in reasonable detail.
Section 7.
Governing Law
. The internal law, and not the law of conflicts, of the State of Delaware will govern all questions concerning the validity, construction and effect of this Agreement.
Section 8.
Plan Provisions
. This Agreement is made under and subject to the provisions of the Plan, and all of the provisions of the Plan are also provisions of this Agreement. If there is a difference or conflict between the provisions of this Agreement and the provisions of the Plan, the provisions of the Plan will govern. By accepting this Agreement, the Participant confirms that the Participant has received a copy of the Plan and represents that the Participant is familiar with the terms and provisions thereof, and hereby accepts this Performance Award subject to all the terms and provisions of the Plan.
Section 9.
No Rights to Continue Service or Employment
. Nothing herein shall be construed as giving the Participant the right to continue in the employ or to provide services to the Company or any Affiliate, whether as an employee or as a consultant or otherwise, or interfere with or restrict in any way the right of the Company or any Affiliate to discharge the Participant, whether as an employee or consultant or otherwise, at any time, with or without cause. In addition, the Company or any Affiliate may discharge the Participant free from any liability or claim under this Agreement, unless otherwise expressly provided herein.
Section 10.
Entire Agreement
. Except as specifically provided herein with regard to the Severance Agreement, (i) this Agreement together with the Plan supersede any and all other prior understandings and agreements, either oral or in writing, between the parties with respect to the subject matter hereof and constitute the sole and only agreements between the parties with respect to said subject matter; (ii) all prior negotiations and agreements between the parties with respect to the subject matter hereof are merged into this Agreement; and (iii) each party to this Agreement acknowledges that no representations, inducements, promises or agreements, orally or otherwise, have been made by any party or by anyone acting on behalf of any party, which are not embodied in this Agreement or the Plan and that
any agreement, statement or promise that is not contained in this Agreement or the Plan shall not be valid or binding or of any force or effect.
Section 11.
Modification
.
No change or modification of this Agreement shall be valid or binding upon the parties unless the change or modification is in writing and signed by the parties. Notwithstanding the preceding sentence, the Plan, this Agreement and the Performance Award may be amended, altered, suspended, discontinued or terminated to the extent permitted by the Plan.
Section 12.
Severability
. In the event that any provision that is contained in the Plan or this Agreement is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction or would disqualify the Plan or this Agreement for any reason and under any law as deemed applicable by the Committee, the invalid, illegal or unenforceable 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 this Agreement, such provision shall be stricken as to such jurisdiction or Performance Award, and the remainder of the Plan or this Agreement shall remain in full force and effect.
Section 13.
Headings
. Headings are given to the sections and subsections of this Agreement 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 this Agreement or any provision hereof.
Section 14.
Participant's Acknowledgments
. The Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Committee or the Board of Directors of the Company, as appropriate, upon any questions arising under the Plan or this Agreement. Any determination in this connection by the Company, including the Board of Directors of the Company or the Committee, shall be final, binding and conclusive. The obligations of the Company and the rights of the Participant are subject to all applicable laws, rules and regulations.
Section 15.
Parties Bound
. The terms, provisions and agreements that are contained in this Agreement shall apply to, be binding upon, and inure to the benefit of the parties and their respective heirs, executors, administrators, legal representatives and permitted successors and assigns, subject to the limitation on assignment expressly set forth herein. This Agreement shall have no force or effect unless it is duly executed and delivered by the Company and the Participant or until such Agreement is delivered and accepted through any electronic medium in accordance with procedures established by the Company.
The Company has caused this Agreement to be signed (which may be by electronic signature) and delivered and the Participant has caused this Agreement to be accepted (which may be by electronic acceptance) as of the date set forth above.
IMATION CORP.
By:
Name:
Title:
Participant
Exhibit A
[Description of performance criteria]
Exhibit 10.4
Imation Corp. 2011 Stock Incentive Plan
Stock Option Agreement
This STOCK OPTION AGREEMENT (the “Agreement”) effective as of «
GrantDt
» is between Imation Corp., a Delaware corporation (the “Company”), and , «
Name
» a non-employee Director of the Company (the “Participant”), pursuant to and subject to the terms and conditions of the Imation Corp. 2011 Stock Incentive Plan (the “Plan”).
The Company desires to provide the Participant with an opportunity to purchase shares of the Company's common stock, par value $.01 per share (the “Common Stock”), as provided in this Agreement in order to carry out the purpose of the Plan. The purpose of this Agreement is to evidence the terms and conditions of a Non-Qualified Stock Option granted to the Participant under the Plan.
Accordingly, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Company and the Participant hereby agree as follows:
Section 1.
Grant of Non-qualified Stock Option
. Effective «
GrantDt
» (the “Effective Date”), the Company granted to the Participant the right and option to purchase all or any part of an aggregate of «
Shares
» («
NbrShares
») shares of Common Stock on the terms and conditions set forth in this Agreement and in accordance with the terms of the Plan (the “Option”). The Option is not intended to be an incentive stock option within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”).
Section 2.
Purchase Price
. The purchase price of the shares of Common Stock subject to the Option shall be «Price» per share.
Section 3.
Term of the Option
. The term of the Option (the “Option Period”) shall be for a period of ten (10) years from the Effective Date, terminating at the close of business on the tenth anniversary of the Effective Date (the “Expiration Date”) or such shorter period as provided in Section 6 hereof.
Section 4.
Vesting of the Option
. Subject to Section 6 hereof, the Option may be exercised at any time or from time to time beginning on the first anniversary of the Effective Date and continuing throughout the remainder of the Option Period, as to any part or all of the shares covered thereby.
Section 5.
Transferability
. The Option may not be assigned, transferred (other than by will or the laws of descent and distribution), pledged, hypothecated (whether by operation of law or otherwise) or otherwise conveyed or encumbered, and shall not be subject to execution, attachment or similar process. Any attempted assignment, transfer, pledge, hypothecation or other disposition of the Option contrary to the provisions of the Plan or this Agreement, or the levy of any execution, attachment or similar process upon the Option, shall be void and unenforceable against the Company and shall constitute an immediate cancellation of the Option.
Section 6.
Effect of Termination of Board Service; Change in Control
.
(a)
Except as otherwise provided in Section 6(e) hereof, in the event the Participant shall cease to serve on the Board of Directors of the Company for any reason other than removal for cause, Retirement, death or Disability, the Participant may exercise the Option to the extent of (but only to
the extent of) the vested shares the Participant was entitled to purchase under the Option on the last day of Board service, and the exercise of the Option to that extent may be effected at any time within thirty (30) days after the last day of Board service but not thereafter; provided, however, that the Option may not be exercised after the Expiration Date.
(b)
In the event the Participant shall cease to serve on the Board of Directors of the Company upon removal for cause by the Company's shareholders, the Option shall be terminated as of the date of such removal.
(c)
Except as otherwise provided in Sections 6(b) and 6(e), in the event the Participant shall cease to serve on the Board of Directors of the Company because of Retirement, the Option, shall become immediately exercisable in full as of the date of the Participant's Retirement, and the exercise of the Option may be effected at any time within three (3) years after the date of the Participant's Retirement but not thereafter;
provided
,
however
, that the Option may not be exercised after the Expiration Date. If a Participant who has thus retired dies within three (3) years after the date of the Participant's Retirement and prior to the Expiration Date, the exercise of the Option may be effected by the Participant's estate or by any Person or Persons to whom the Option has been transferred by will or the applicable laws of descent and distribution at any time within two (2) years after the date of the Participant's death, but not after the Expiration Date.
(d)
Except as otherwise provided in Section 6(b) and 6(e), in the event the Participant dies or is deemed to suffer a Disability while serving on the Board of Directors of the Company, the Option shall become immediately exercisable in full as of the date of the Participant's death or Disability. In the event of Participant's death, the exercise of the Option may be effected by the Participant's estate or by any Person or Persons to whom the Option has been transferred by will or the applicable laws of descent and distribution at any time within two (2) years after the date of the Participant's death, but not after the Expiration Date. In the event of the Participant's Disability, the exercise of the Option may be effected by the Participant at any time within two (2) years after the date of the Participant's Disability, but not after the Expiration Date.
(e)
Notwithstanding the provisions of Sections 4, 6(a), 6(c) and 6(d) hereof, in the event of a Change in Control, the Option shall become immediately exercisable in full as of the date of the Change in Control, and the exercise of the Option may be effected at any time thereafter and within six (6) months after the director ceases to serve on the Board of Directors following the Change in Control, but not after the Expiration Date. In the event that the provisions of this Section 6(e) result in “payments” that are finally and conclusively determined by a court or Internal Revenue Service proceeding to be subject to the excise tax imposed by Section 4999 of the Code, the Company shall pay to the Participant an additional amount such that the net amount retained by the Participant following realization of all compensation under the Plan that resulted in such “payments,” after allowing for the amount of such excise tax and any additional federal, state and local income and employment taxes paid on the additional amount, shall be equal to the net amount that would otherwise have been retained by the Participant if there were no excise tax imposed by Section 4999 of the Code. Any tax gross-up payment under this Section 6(e) shall comply with the requirements of Treas. Reg. Sec. 1.409A-3(i)(1)(v).
Section 7.
Anti-Dilution and Fundamental Change Adjustments
.
(a)
In the event that any dividend or other distribution (whether in the form of cash, shares of Common Stock, 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 of Common Stock or other securities of the Company or other similar corporate transaction or event affects
the shares of Common Stock covered by the Option such that an adjustment is necessary in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under this Agreement, then the Committee shall, in such manner as it may deem equitable, adjust any or all of the number and type of the shares covered by the Option and the exercise price of the Option.
(b)
In the event of a proposed Fundamental Change, the Committee may, but shall not be obligated to:
(i)
with respect to a Fundamental Change that involves a merger or consolidation, make appropriate provision for the protection of the Option by the substitution of options and appropriate voting common stock of the corporation surviving any such merger or consolidation or, if appropriate, the “parent corporation” (as defined in Section 424(e) of the Code, or any successor provision) of the Company or such surviving corporation, in lieu of the Option and shares of Common Stock of the Company, or
(ii)
with respect to any Fundamental Change, including, without limitation, a merger or consolidation, declare, prior to the occurrence of the Fundamental Change, and provide written notice to the holder of the Option of the declaration, that the Option, whether or not then exercisable, shall be canceled at the time of, or immediately prior to the occurrence of, the Fundamental Change in exchange for payment to the holder of the Option, within 20 days after the Fundamental Change, of cash (or, if the Committee so elects in lieu of solely cash, of such form(s) of consideration, including cash and/or property, singly or in such combination as the Committee shall determine, that the holder of the Option would have received as a result of the Fundamental Change if the holder of the Option had exercised the Option immediately prior to the Fundamental Change) equal to, for each share of Common Stock covered by the canceled Option, the amount, if any, by which the Fair Market Value (as defined in this Section 7(b)) per share of Common Stock exceeds the exercise price per share of Common Stock covered by the Option. At the time of the declaration provided for in the immediately preceding sentence, the Option shall immediately become exercisable in full and the holder of the Option shall have the right, during the period preceding the time of cancellation of the Option, to exercise the Option as to all or any part of the shares of Common Stock covered thereby in whole or in part, as the case may be. In the event of a declaration pursuant to this Section 7(b), the Option, to the extent that it shall not have been exercised prior to the Fundamental Change, shall be canceled at the time of, or immediately prior to, the Fundamental Change, as provided in the declaration. Notwithstanding the foregoing, the holder of the Option shall not be entitled to the payment provided for in this Section 7(b) if such Option shall have expired or been forfeited. For purposes of this Section 7(b) only, “Fair Market Value” per share of Common Stock means the fair market value, as determined in good faith by the Committee, of the consideration to be received per share of Common Stock by the shareholders of the Company upon the occurrence of the Fundamental Change, notwithstanding anything to the contrary provided in this Agreement.
Section 8.
Manner of Exercise
. Subject to the terms and conditions of this Agreement, the Option may be exercised by delivering written notice to the Stock Plan Administrator pursuant to procedures prescribed by the Company from time to time. Such notice shall state the election to exercise the Option and the number of shares in respect of which it is being exercised and shall be signed by the Participant or such other Person entitled to exercise the Option. Such notice shall be accompanied by payment of the full purchase price of such shares and applicable federal, state, local and foreign withholding taxes, if any. The Participant shall deliver to the Company consideration with a value equal to
such purchase price and applicable withholding taxes, if any, payable in whole or in part as follows: (a) cash, check, bank draft, money order or wire transfer payable to the order of the Company, (b) shares of Common Stock owned by the Participant at the time of exercise and/or (c) in any other form of valid consideration that is acceptable to the Committee in its sole discretion. The value of any share of Common Stock delivered in payment of all or part of the purchase price or applicable withholding taxes upon the exercise of the Option shall be the closing sale price of a share of Common Stock on the New York Stock Exchange as reported on the consolidated transaction reporting system on the date the Option shall be exercised or, if such Exchange is not open for trading on such date, on the most recent preceding date on which such Exchange is open for trading. In the event that the Option shall be exercised pursuant to Section 6(c) or 6(d) hereof by any Person or Persons other than the Participant, such notice shall be accompanied by appropriate proof of the right of such Person or Persons to exercise the Option. If the Participant fails to pay the full purchase price of such shares or applicable withholding taxes, then the Option, and right to purchase such shares, may be forfeited by the Participant, in the sole discretion of the Committee. The Option may be exercised in whole or in part to the extent the Option is exercisable in accordance with the terms of this Agreement, but only with respect to full shares of Common Stock. No fractional shares of Common Stock shall be issued upon exercise of the Option, but the Company will pay, in lieu thereof, the Fair Market Value of such fractional share.
Section 9.
Issuance of Shares
. Upon exercise of all or any portion of the Option, the Company will cause to be issued to the Participant the shares of Common Stock purchased. Notwithstanding anything to the contrary in this Agreement, the Company's obligation to issue shares of Common Stock shall be subject to (i) all applicable laws, rules and regulations and such approvals by any governmental agencies as may be required, including, without limitation, the effectiveness of a registration statement under the Securities Act of 1933, as amended, and (ii) the condition that such shares shall have been duly listed on the New York Stock Exchange. The Participant shall not have any of the rights and privileges of a shareholder of the Company with respect to the shares of Common Stock subject to this Option unless and until such shares are issued to the Participant upon due exercise of the Option.
Section 10.
Taxes
. The Participant acknowledges that the Participant will consult with the Participant's personal tax adviser regarding the income tax consequences of exercising the Option or any other matters related to this Agreement. In order to comply with all applicable federal, state, local or foreign income tax laws or regulations, the Company may take such action as it deems appropriate to ensure that all applicable federal, state, local or foreign payroll, withholding, income or other taxes, which are the Participant's sole and absolute responsibility, are withheld or collected from the Participant.
Section 11.
Definitions
.
Terms not defined in this Agreement shall have the meanings given to them in the Plan, and the following terms shall have the following meanings when used in this Agreement:
(a)
“Change in Control” means any one of the following events:
(i)
the consummation of a transaction or series of related transactions in which a person, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), other than the Company or an Affiliate of the Company, or any employee benefit plan of the Company or an Affiliate of the Company, acquires beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 35% or more of the Company's then outstanding shares of Common Stock or the combined voting power of the Company's then outstanding voting securities (other than in connection with a Business Combination in which clauses (1), (2) and (3) of paragraph (a)(iii) apply); or
(ii)
individuals who, as of the Effective Date hereof, constitute the Board of
Directors of the Company (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board of Directors of the Company; provided, however, that any individual becoming a director subsequent to the Effective Date hereof whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board (other than a nomination of an individual whose initial assumption of office is in connection with a solicitation with respect to the election or removal of directors of the Company in opposition to the solicitation by the Board of Directors of the Company) shall be deemed to be a member of the Incumbent Board; or
(iii)
the consummation of a reorganization, merger, statutory share exchange, consolidation or similar transaction involving the Company, a sale or other disposition in a transaction or series of related transactions of all or substantially all of the Company's assets or the issuance by the Company of its stock in connection with the acquisition of assets or stock of another entity (each, a “Business Combination”) in each case unless, following such Business Combination, (1) all or substantially all of the individuals and entities that were the beneficial owners of the Company's outstanding Common Stock and the Company's outstanding voting securities immediately prior to such Business Combination beneficially own immediately after the transaction or transactions, directly or indirectly, more than 50% of the then outstanding shares of common stock and more than 50% of the combined voting power of the then outstanding voting securities (or comparable equity interests) of the entity resulting from such Business Combination (including an entity that, as a result of such transaction, owns the Company or all or substantially all of the Company's assets either directly or through one of more Affiliates) in substantially the same proportions as their ownership of the Company's Common Stock and voting securities immediately prior to such Business Combination, (2) no person, entity or group (other than a direct or indirect parent entity of the Company that, after giving effect to the Business Combination, beneficially owns 100% of the outstanding voting securities (or comparable equity interests) of the entity resulting from the Business Combination) beneficially owns, directly or indirectly, 35% or more of the outstanding shares of common stock or the combined voting power of the then outstanding voting securities (or comparable equity interests) of the entity resulting from such Business Combination and (3) at least a majority of the members of the board of directors (or similar governing body) of the entity resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement or of the action of the Board of Directors of the Company providing for such Business Combination; or
(iv)
approval by the stockholders of the dissolution of the Company.
(b)
“Fundamental Change” means a dissolution or liquidation of the Company, a sale of substantially all of the assets of the Company, or a merger or consolidation of the Company with or into any other corporation, regardless of whether the Company is the surviving corporation.
(c)
“Disability” shall be as defined under the Imation Corp. Long Term Disability Income Protection Plan as if covered by such plan.
(d)
“Retirement” means retirement under the Imation Corp. Board Retirement Policy or under such other circumstances determined to be retirement by the Committee in its sole discretion.
(e)
“Stock Plan Administrator” means the Committee or any Director, officer or agent of the Company designated by the Committee from time to time.
Section 12.
Governing Law
. The internal law, and not the law of conflicts, of the State of Delaware will govern all questions concerning the validity, construction and effect of this Agreement.
Section 13.
Plan Provisions
. This Agreement is made under and subject to the provisions of the Plan, and all of the provisions of the Plan are also provisions of this Agreement. If there is a difference or conflict between the provisions of this Agreement and the provisions of the Plan, the provisions of the Plan will govern. By accepting this Option, the Participant confirms that the Participant has received a copy of the Plan and represents that the Participant is familiar with the terms and provisions thereof, and hereby accepts this Option subject to all the terms and provisions of the Plan.
Section 14.
No Right to Continue Board Service
. Nothing herein shall be construed as giving the Participant the right to continue to serve on the Board of Directors of the Company.
Section 15.
Entire Agreement
. This Agreement together with the Plan supersede any and all other prior understandings and agreements, either oral or in writing, between the parties with respect to the subject matter hereof and constitute the sole and only agreements between the parties with respect to said subject matter. All prior negotiations and agreements between the parties with respect to the subject matter hereof are merged into this Agreement. Each party to this Agreement acknowledges that no representations, inducements, promises or agreements, orally or otherwise, have been made by any party or by anyone acting on behalf of any party, which are not embodied in this Agreement or the Plan and that any agreement, statement or promise that is not contained in this Agreement or the Plan shall not be valid or binding or of any force or effect.
Section 16.
Modification
. No change or modification of this Agreement shall be valid or binding upon the parties unless the change or modification is in writing and signed by the parties. Notwithstanding the preceding sentence, the Plan, this Agreement and the Option may be amended, altered, suspended, discontinued or terminated to the extent permitted by the Plan.
Section 17.
Shares Subject to Agreement
. The shares covered by the Option shall be subject to the terms and conditions of this Agreement. Except as otherwise provided in Section 7, no adjustment shall be made for dividends or other rights for which the record date is prior to the issuance of such shares. The Company shall at all times during the Option Period reserve and keep available such number of shares of Common Stock as will be sufficient to satisfy the requirements of this Agreement.
Section 18.
Severability
. In the event that any provision that is contained in the Plan or this Agreement is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction or would disqualify the Plan or this Agreement for any reason and under any law as deemed applicable by the Committee, the invalid, illegal or unenforceable 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 this Agreement, such provision shall be stricken as to such jurisdiction or Option, and the remainder of the Plan or this Agreement shall remain in full force and effect.
Section 19.
Headings
. Headings are given to the sections and subsections of this Agreement 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 this Agreement or any provision hereof.
Section 20.
Participant's Acknowledgments
. The Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Committee or the Board of Directors of the
Company, as appropriate, upon any questions arising under the Plan or this Agreement. Notwithstanding any of the provisions hereof, the Participant hereby agrees that the Participant will not exercise the Option granted hereby, and that the Company will not be obligated to issue any shares to the Participant hereunder, if the exercise thereof or the issuance of such shares shall constitute a violation by the Participant or the Company of any provision of any law or regulation of any governmental authority. Any determination in this connection by the Company, including the Board of Directors of the Company or the Committee, shall be final, binding and conclusive. The obligations of the Company and the rights of the Participant are subject to all applicable laws, rules and regulations.
Section 21.
Parties Bound
. The terms, provisions, and agreements that are contained in this Agreement shall apply to, be binding upon, and inure to the benefit of the parties and their respective heirs, executors, administrators, legal representatives and permitted successors and assigns, subject to the limitation on assignment expressly set forth herein. This Agreement shall have no force or effect unless it is duly executed and delivered by the Company and the Participant or until such Agreement is delivered and accepted through any electronic medium in accordance with procedures established by the Company.
The Company has caused this Agreement to be signed (which may be by electronic signature) and delivered and the Participant has caused this Agreement to be accepted (which may be by electronic acceptance) as of the date set forth above.
IMATION CORP.
By:
Name:
Title:
Participant
Exhibit 10.5
Imation Corp. 2011 Stock Incentive Plan
Restricted Stock Award Agreement
This RESTRICTED STOCK AWARD AGREEMENT (the “Agreement”) effective as of «
GrantDt
» is between Imation Corp., a Delaware corporation (the “Company”), and «
Name
», a non-employee Director of the Company (the “Participant”), pursuant to and subject to the terms and conditions of the Imation Corp. 2011 Stock Incentive Plan (the “Plan”).
The Company desires to award to the Participant a number of shares of the Company's common stock, par value $.01 per share (the “Common Stock”), subject to certain restrictions as provided in this Agreement, in order to carry out the purpose of the Plan. The purpose of this Agreement is to evidence the terms and conditions of an award of restricted stock granted to the Participant under the Plan.
Accordingly, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Company and the Participant hereby agree as follows:
Section 1.
Award of Restricted Stock
.
Effective «
GrantDt
» (the “Effective Date”), the Company granted to the Participant a restricted stock award of «
GrantDt
»(«
GrantDt
») shares of Common Stock (the “Shares”), subject to the terms and conditions set forth in this Agreement and in accordance with the terms of the Plan (the “Restricted Stock Award”).
Section 2.
Rights with Respect to the Shares
.
(a)
Stockholder Rights
. With respect to the Shares, the Participant shall be entitled at all times on and after the date of issuance of the Shares to exercise the rights of a stockholder of Common Stock of the Company, including the right to vote the Shares and the right to receive dividends on the Shares as provided in Section 2(b) hereof, unless and until the Shares are forfeited pursuant to Section 3 hereof. However, the Shares shall be nontransferable and subject to a risk of forfeiture to the Company at all times prior to the dates on which such Shares become vested, and the restrictions with respect to the Shares lapse, in accordance with Section 3 of this Agreement.
(b)
Dividends
. As a condition to receiving the Shares under the Plan, the Participant hereby agrees to defer the receipt of dividends paid on the Shares. Cash dividends or other cash distributions paid with respect to the Shares prior to the date or dates the Shares vest shall be subject to the same restrictions, terms and conditions as the Shares to which they relate, shall be promptly deposited with the Secretary of the Company or a custodian designated by the Secretary, and shall be forfeited in the event that the Shares with respect to which the dividends were paid are forfeited.
(c)
Issuance of Shares
. The Company shall cause the Shares to be issued in the Participant's name or in a nominee name on the Participant's behalf, either by book-entry registration or issuance of a stock certificate or certificates evidencing the Shares, which certificate or certificates shall be held by the Secretary of the Company or the stock transfer agent or brokerage service selected by the Secretary of the Company to provide such services for the Plan. The Shares shall be restricted from transfer and shall be subject to an appropriate stop-transfer order. If any certificate is issued, the certificate shall bear an appropriate legend referring to the restrictions applicable to the Shares. The Participant hereby agrees to the retention by the Company of the Shares and, if a stock certificate is issued, the
Participant agrees to execute and deliver to the Company a blank stock power with respect to the Shares as a condition to the receipt of this Restricted Stock Award. After any Shares vest pursuant to Section 3 hereof, and following payment of the applicable withholding taxes pursuant to Section 6 of this Agreement, the Company shall promptly cause to be issued a certificate or certificates, registered in the Participant's name, evidencing such vested whole Shares (less any Shares withheld to pay withholding taxes) and shall cause such certificate or certificates to be delivered to the Participant free of the legend and the stop-transfer order referenced above. The Company will not deliver any fractional Share but will pay, in lieu thereof, the Fair Market Value of such fractional Share at the time certificates evidencing the Shares are delivered to the Participant.
Section 3.
Vesting; Forfeiture
.
(a)
Vesting
. Subject to the terms and conditions of this Agreement, and except as otherwise provided in Sections 3(c) and 3(d) hereof, the Shares shall vest, and the restrictions with respect to the Shares shall lapse, on the first anniversary of the Effective Date if the Participant serves continuously on the Board of Directors of the Company until such vesting date.
(b)
Forfeiture
. Except as otherwise provided in Sections 3(c) and 3(d) hereof, if the Participant ceases to serve on the Board of Directors of the Company for any reason prior to the vesting of the Shares pursuant to Section 3(a) hereof, Participant's rights to all of the unvested Shares shall be immediately and irrevocably forfeited, including the right to vote such Shares and the right to receive dividends on such Shares.
(c)
Change in Control
. Notwithstanding the vesting and forfeiture provisions contained in Sections 3(a) and 3(b) hereof, but subject to the other terms and conditions set forth in this Agreement, in the event of a Change in Control, the Participant shall become immediately vested in all of the Shares, and the restrictions with respect to the Shares shall lapse, as of the date of the Change in Control. In the event that the provisions of this Section 3(c) result in “payments” that are finally and conclusively determined by a court or Internal Revenue Service proceeding to be subject to the excise tax imposed by Section 4999 of the Code, the Company shall pay to the Participant an additional amount such that the net amount retained by the Participant following realization of all compensation under the Plan that resulted in such “payments,” after allowing for the amount of such excise tax and any additional federal, state and local income and employment taxes paid on the additional amount, shall be equal to the net amount that would otherwise have been retained by the Participant if there were no excise tax imposed by Section 4999 of the Code. Any tax gross-up payment under this Section 3(c) shall comply with the requirements of Treas. Reg. Sec. 1.409A-3(i)(1)(v).
(d)
Early Vesting
. Notwithstanding the vesting and forfeiture provisions contained in Sections 3(a) and 3(b) hereof, the participant shall become immediately vested in all of the Shares, and the restrictions with respect to the Shares shall lapse, upon the Participant's death, Disability or Retirement.
Section 4.
Restrictions on Transfer
. Until the Shares vest pursuant to Section 3 hereof, neither the Shares, nor any right with respect to the Shares under this Agreement, may be sold, assigned, transferred, pledged, hypothecated (by operation of law or otherwise) or otherwise conveyed or encumbered and shall not be subject to execution, attachment or similar process. Any attempted sale, assignment, transfer, pledge, hypothecation or other conveyance or encumbrance shall be void and unenforceable against the Company or any Affiliate of the Company.
Section 5.
Distributions and Adjustments
.
(a)
If any Shares vest subsequent to any change in the number or character of the Common Stock of the Company through any stock dividend or other distribution, 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 of Common Stock or other securities of the Company or other similar corporate transaction or event such that an adjustment is necessary in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under this Agreement, then the Committee shall, in such manner as it may deem equitable, adjust any or all of the number and type of such Shares.
(b)
Any additional shares of Common Stock of the Company, any other securities of the Company and any other property distributed with respect to the Shares prior to the date or dates the Shares vest shall be subject to the same restrictions, terms and conditions as the Shares to which they relate and shall be promptly deposited with the Secretary of the Company or a custodian designated by the Secretary.
Section 6.
Taxes
.
(a)
The Participant acknowledges that the Participant will consult with the Participant's personal tax adviser regarding the income tax consequences of the grant of the Shares, payment of dividends on the Shares, the vesting of the Shares and any other matters related to this Agreement. In order to comply with all applicable federal, state, local or foreign income tax laws or regulations, the Company may take such action as it deems appropriate to ensure that all applicable federal, state, local or foreign payroll, withholding, income or other taxes, which are the Participant's sole and absolute responsibility, are withheld or collected from the Participant.
(b)
In accordance with the terms of the Plan, and such rules as may be adopted by the Committee administering the Plan, the Participant may elect to satisfy tax withholding obligations, if any, arising from the receipt of, or the lapse of restrictions relating to, the Shares by (i) delivering cash, check, bank draft, money order or wire transfer payable to the order of the Company, (ii) having the Company withhold a portion of the Shares otherwise to be delivered having a Fair Market Value equal to the amount of such taxes, or (iii) delivering to the Company shares of Common Stock having a Fair Market Value equal to the amount of such taxes. The Company will not deliver any fractional Share but will pay, in lieu thereof, the Fair Market Value of such fractional Share. The Participant's election must be made on or before the date that the amount of tax to be withheld is determined. If the Participant does not make an election, the Company will withhold a portion of the Shares otherwise to be delivered having a Fair Market Value equal to the amount of such taxes.
Section 7.
Definitions
. Terms not defined in this Agreement shall have the meanings given to them in the Plan, and the following terms shall have the following meanings when used in this Agreement:
(a)
“Change in Control” means any one of the following events:
(i)
the consummation of a transaction or series of related transactions in which a person, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), other than the Company or an Affiliate of the Company, or any employee benefit plan of the Company or an Affiliate of the Company, acquires beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 35% or more of the Company's then outstanding shares of Common Stock or the combined voting power of the Company's then outstanding voting securities (other than in connection with a Business Combination in
which clauses (1), (2) and (3) of paragraph (a)(iii) apply); or
(ii)
individuals who, as of the Effective Date hereof, constitute the Board of Directors of the Company (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board of Directors of the Company; provided, however, that any individual becoming a director subsequent to the Effective Date hereof whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board (other than a nomination of an individual whose initial assumption of office is in connection with a solicitation with respect to the election or removal of directors of the Company in opposition to the solicitation by the Board of Directors of the Company) shall be deemed to be a member of the Incumbent Board; or
(iii)
the consummation of a reorganization, merger, statutory share exchange, consolidation or similar transaction involving the Company, a sale or other disposition in a transaction or series of related transactions of all or substantially all of the Company's assets or the issuance by the Company of its stock in connection with the acquisition of assets or stock of another entity (each, a “Business Combination”) in each case unless, following such Business Combination, (1) all or substantially all of the individuals and entities that were the beneficial owners of the Company's outstanding Common Stock and the Company's outstanding voting securities immediately prior to such Business Combination beneficially own immediately after the transaction or transactions, directly or indirectly, more than 50% of the then outstanding shares of common stock and more than 50% of the combined voting power of the then outstanding voting securities (or comparable equity interests) of the entity resulting from such Business Combination (including an entity that, as a result of such transaction, owns the Company or all or substantially all of the Company's assets either directly or through one of more Affiliates) in substantially the same proportions as their ownership of the Company's Common Stock and voting securities immediately prior to such Business Combination, (2) no person, entity or group (other than a direct or indirect parent entity of the Company that, after giving effect to the Business Combination, beneficially owns 100% of the outstanding voting securities (or comparable equity interests) of the entity resulting from the Business Combination) beneficially owns, directly or indirectly, 35% or more of the outstanding shares of common stock or the combined voting power of the then outstanding voting securities (or comparable equity interests) of the entity resulting from such Business Combination and (3) at least a majority of the members of the board of directors (or similar governing body) of the entity resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement or of the action of the Board of Directors of the Company providing for such Business Combination; or
(iv)
approval by the stockholders of the dissolution of the Company.
(b)
“Disability” shall be as defined under the Imation Corp. Long Term Disability Income Protection Plan.
(c)
“Retirement” means retirement under the Imation Corp. Board Retirement Policy or under such other circumstances determined to be retirement by the Committee in its sole discretion.
Section 8.
Governing Law
. The internal law, and not the law of conflicts, of the State of Delaware will govern all questions concerning the validity, construction and effect of this Agreement.
Section 9.
Plan Provisions
. This Agreement is made under and subject to the provisions of the Plan, and all of the provisions of the Plan are also provisions of this Agreement. If there is a difference or conflict between the provisions of this Agreement and the provisions of the Plan, the provisions of the Plan will govern. By signing this Agreement, the Participant confirms that the Participant has received a copy of the Plan and represents that the Participant is familiar with the terms and provisions thereof, and hereby accepts this Restricted Stock Award subject to all the terms and provisions of the Plan.
Section 10.
No Rights to Continue Board Service
. Nothing herein shall be construed as giving the Participant the right to continue to serve on the Board of Directors of the Company.
Section 11.
Entire Agreement
. This Agreement together with the Plan supersede any and all other prior understandings and agreements, either oral or in writing, between the parties with respect to the subject matter hereof and constitute the sole and only agreements between the parties with respect to said subject matter. All prior negotiations and agreements between the parties with respect to the subject matter hereof are merged into this Agreement. Each party to this Agreement acknowledges that no representations, inducements, promises or agreements, orally or otherwise, have been made by any party or by anyone acting on behalf of any party, which are not embodied in this Agreement or the Plan and that any agreement, statement or promise that is not contained in this Agreement or the Plan shall not be valid or binding or of any force or effect.
Section 12.
Modification
.
No change or modification of this Agreement shall be valid or binding upon the parties unless the change or modification is in writing and signed by the parties. Notwithstanding the preceding sentence, the Plan, this Agreement and the Restricted Stock Award may be amended, altered, suspended, discontinued or terminated to the extent permitted by the Plan.
Section 13.
Shares Subject to Agreement
. The Shares shall be subject to the terms and conditions of this Agreement. Except as otherwise provided in Section 5, no adjustment shall be made for dividends or other rights for which the record date is prior to the issuance of the Shares. The Company shall not be required to deliver any Shares until the requirements of any federal or state securities or other laws, rules or regulations (including the rules of any securities exchange) as may be determined by the Committee to be applicable are satisfied.
Section 14.
Severability
. In the event that any provision that is contained in the Plan or this Agreement is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction or would disqualify the Plan or this Agreement for any reason and under any law as deemed applicable by the Committee, the invalid, illegal or unenforceable 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 this Agreement, such provision shall be stricken as to such jurisdiction or Shares, and the remainder of the Plan or this Agreement shall remain in full force and effect.
Section 15.
Headings
. Headings are given to the sections and subsections of this Agreement 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 this Agreement or any provision hereof.
Section 16.
Participant's Acknowledgments
. The Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Committee or the Board of Directors of the Company, as appropriate, upon any questions arising under the Plan or this Agreement. Any determination in this connection by the Company, including the Board of Directors of the Company or the
Committee, shall be final, binding and conclusive. The obligations of the Company and the rights of the Participant are subject to all applicable laws, rules and regulations.
Section 17.
Parties Bound
. The terms, provisions and agreements that are contained in this Agreement shall apply to, be binding upon, and inure to the benefit of the parties and their respective heirs, executors, administrators, legal representatives and permitted successors and assigns, subject to the limitation on assignment expressly set forth herein. This Agreement shall have no force or effect unless it is duly executed and delivered by the Company and the Participant or until such Agreement is delivered and accepted through any electronic medium in accordance with procedures established by the Company.
The Company has caused this Agreement to be signed (which may be by electronic signature) and delivered and the Participant has caused this Agreement to be accepted (which may be by electronic acceptance) as of the date set forth above.
IMATION CORP.
By:
Name:
Title:
Participant
Exhibit 10.6
Imation Corp. 2008 Stock Incentive Plan
Stock Option Agreement
This STOCK OPTION AGREEMENT (the “Agreement”) effective as of «GrantDt» is between Imation Corp., a Delaware corporation (the “Company”), and «Name», an employee of the Company or one of its Affiliates (the “Participant”), pursuant to and subject to the terms and conditions of the Imation Corp. 2008 Stock Incentive Plan (the “Plan”).
The Company desires to provide the Participant with an opportunity to purchase shares of the Company's common stock, par value $.01 per share (the “Common Stock”), as provided in this Agreement in order to carry out the purpose of the Plan. The purpose of this Agreement is to evidence the terms and conditions of a Non-Qualified Stock Option granted to the Participant under the Plan.
Accordingly, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Company and the Participant hereby agree as follows:
Section 1.
Grant of Non-qualified Stock Option
. Effective «GrantDt» (the “Effective Date”), the Company granted to the Participant the right and option to purchase all or any part of an aggregate of «NbrShares» shares of Common Stock on the terms and conditions set forth in this Agreement and in accordance with the terms of the Plan (the “Option”). The Option is not intended to be an incentive stock option within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”).
Section 2.
Purchase Price
. The purchase price of the shares of Common Stock subject to the Option shall be «Price» per share.
Section 3.
Term of the Option
. The term of the Option (the “Option Period”) shall be for a period of ten (10) years from the Effective Date, terminating at the close of business on the tenth anniversary of the Effective Date (the “Expiration Date”) or such shorter period as provided in Section 6 hereof.
Section 4.
Vesting of the Option
. Subject to Section 6 hereof, the Option may be exercised at any time or from time to time during the Option Period, as to any part or all of the shares covered thereby in accordance with the following vesting schedule:
(a)
one third 1/3 of the Option may be exercised at any time on or after the first anniversary of the Effective Date;
(b)
two thirds 2/3 of the Option may be exercised at any time on or after the second anniversary of the Effective Date;
(c)
all of the Option may be exercised at any time on or after the third anniversary of the Effective Date.
Section 5.
Transferability
. The Option may not be assigned, transferred (other than by will or the laws of descent and distribution), pledged, hypothecated (whether by operation of law or otherwise) or otherwise conveyed or encumbered, and shall not be subject to execution, attachment or similar process. Any attempted assignment, transfer, pledge, hypothecation or other disposition of the Option contrary to the provisions of the Plan or this Agreement, or the levy of any execution, attachment or similar process upon the Option, shall be void and unenforceable against the Company and shall constitute an immediate cancellation of the Option.
Section 6.
Effect of Termination of Employment
.
(a)
In the event the Participant shall cease to be employed by the Company and all
subsidiaries of the Company for any reason other than (i) Termination for Cause, (ii) Retirement, (iii) death or Disability or (iv) termination by the Company or a subsidiary of the Participant's employment with the Company and its subsidiaries within two (2) years following a Change in Control, the Participant may exercise the Option to the extent of (but only to the extent of) the number of vested shares the Participant was entitled to purchase under the Option on the date of such termination of employment, and the exercise of the Option to that limited extent may be effected at any time within thirty (30) days after the date of such termination of employment but not thereafter; provided, however, that the Option may not be exercised after the Expiration Date.
(b)
In the event the Participant shall cease to be employed by the Company and its subsidiaries upon Termination for Cause, the Option shall be terminated as of the date of such termination.
(c)
Except as otherwise provided in Sections 6(b), 6(d) and 6(e), in the event the Participant shall cease to be employed by the Company and all subsidiaries of the Company because of Retirement, the Option, to the extent not previously exercised or forfeited, shall be exercisable to the extent of (but only to the extent of) the number of vested shares the Participant was entitled to purchase under the Option on the date of the Participant's Retirement, and the exercise of the Option to that limited extent may be effected at any time within three (3) years after the date of the Participant's Retirement but not thereafter; provided, however, that the Option may not be exercised after the Expiration Date. If a Participant who has thus retired dies within three (3) years after the date of the Participant's Retirement and prior to the Expiration Date, the exercise of the Option to the limited extent provided for in the first sentence of this Section 6(c) may be effected by the Participant's estate or by any Person or Persons to whom the Option has been transferred by will or the applicable laws of descent and distribution at any time within two (2) years after the date of the Participant's death, but not after the Expiration Date.
(d)
In the event the Participant dies or is deemed to suffer a Disability while employed by the Company or a subsidiary, the Option, to the extent not previously exercised or forfeited, shall be exercisable to the extent of (but only to the extent of) the number of vested shares the Participant was entitled to purchase under the Option on the date of the Participant's death or Disability. In the event of Participant's death, the exercise of the Option to the limited extent provided for in the first sentence of this Section 6(d) may be effected by the Participant's estate or by any Person or Persons to whom the Option has been transferred by will or the applicable laws of descent and distribution at any time within two (2) years after the date of the Participant's death, but not after the Expiration Date. In the event of the Participant's Disability, the exercise of the Option to the limited extent provided for in the first sentence of this Section 6(d) may be effected by the Participant at any time within two (2) years after the date of the Participant's Disability, but not after the Expiration Date.
(e)
In the event the Company or a subsidiary terminates the Participant's employment with the Company and all subsidiaries of the Company for any reason other than death, Disability or Termination for Cause within two (2) years following a Change in Control, the Option shall become immediately exercisable in full on the date of such termination of employment, and the exercise of the Option may be effected at any time within six (6) months after the date of the Participant's termination of employment, but not after the Expiration Date. In the event that the provisions of this Section 6(e) result in “payments” that are finally and conclusively determined by a court or Internal Revenue Service proceeding to be subject to the excise tax imposed by Section 4999 of the Code, and the Participant has not received any additional cash payment from the Company relating thereto under the provisions of Section 6 of the Severance Agreement between the Company and the Participant (the “Severance Agreement”), the Company shall pay to the Participant an additional amount such that the net amount retained by the Participant following realization of all compensation under the Plan that resulted in such “payments,” after allowing for the amount of such excise tax and any additional federal, state and local income and employment taxes paid on the additional amount, shall be equal to the net amount that would
otherwise have been retained by the Participant if there were no excise tax imposed by Section 4999 of the Code. If the Participant receives any additional cash payment from the Company under Section 6 of the Severance Agreement, the foregoing sentence shall be of no force or effect and the provisions of the Severance Agreement shall be deemed to supersede the foregoing sentence in its entirety.
Section 7.
Anti-Dilution and Fundamental Change Adjustments
.
(a)
In the event that any dividend or other distribution (whether in the form of cash, shares of Common Stock, 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 of Common Stock or other securities of the Company or other similar corporate transaction or event affects the shares of Common Stock covered by the Option such that an adjustment is necessary in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under this Agreement, then the Committee shall, in such manner as it may deem equitable, adjust any or all of the number and type of the shares covered by the Option and the exercise price of the Option.
(b)
In the event of a proposed Fundamental Change, the Committee may, but shall not be obligated to:
(i)
with respect to a Fundamental Change that involves a merger or consolidation, make appropriate provision for the protection of the Option by the substitution of options and appropriate voting common stock of the corporation surviving any such merger or consolidation or, if appropriate, the “parent corporation” (as defined in Section 424(e) of the Code, or any successor provision) of the Company or such surviving corporation, in lieu of the Option and shares of Common Stock of the Company, or
(ii)
with respect to any Fundamental Change, including, without limitation, a merger or consolidation, declare, prior to the occurrence of the Fundamental Change, and provide written notice to the holder of the Option of the declaration, that the Option, whether or not then exercisable, shall be canceled at the time of, or immediately prior to the occurrence of, the Fundamental Change in exchange for payment to the holder of the Option, within 20 days after the Fundamental Change, of cash (or, if the Committee so elects in lieu of solely cash, of such form(s) of consideration, including cash and/or property, singly or in such combination as the Committee shall determine, that the holder of the Option would have received as a result of the Fundamental Change if the holder of the Option had exercised the Option immediately prior to the Fundamental Change) equal to, for each share of Common Stock covered by the canceled Option, the amount, if any, by which the Fair Market Value (as defined in this Section 7(b)) per share of Common Stock exceeds the exercise price per share of Common Stock covered by the Option. At the time of the declaration provided for in the immediately preceding sentence, the Option shall immediately become exercisable in full and the holder of the Option shall have the right, during the period preceding the time of cancellation of the Option, to exercise the Option as to all or any part of the shares of Common Stock covered thereby in whole or in part, as the case may be. In the event of a declaration pursuant to this Section 7(b), the Option, to the extent that it shall not have been exercised prior to the Fundamental Change, shall be canceled at the time of, or immediately prior to, the Fundamental Change, as provided in the declaration. Notwithstanding the foregoing, the holder of the Option shall not be entitled to the payment provided for in this Section 7(b) if such Option shall have expired or been forfeited. For purposes of this Section 7(b) only, “Fair Market Value” per share of Common Stock means the fair market value, as determined in good faith by the Committee, of the consideration to be received per share of Common Stock by the shareholders of the
Company upon the occurrence of the Fundamental Change, notwithstanding anything to the contrary provided in this Agreement.
Section 8.
Forfeiture
. In the event that after the grant of the Option but prior to a Change in Control (1) the Company issues a material restatement of an initial financial statement, and (2) the Participant engaged in intentional misconduct that caused or contributed to the need for such a restatement because of material noncompliance by the Company with applicable financial reporting requirements (a “Forfeiture Event”), the Participant, at the request of the Committee made within 90 days after the restatement, shall forfeit (and shall not be entitled to exercise) the portion of the Option, if any, which has not been exercised prior to the Committee's request. If all or any portion of the Option shall have been exercised prior to the Committee's request, the Participant, at the request of the Committee made within 90 days after the restatement, shall forfeit those Shares, if any, purchased by the Participant upon the exercise of the Options that are owned by the Participant at the time of the initial financial statement that is subsequently restated (the “Forfeitable Shares”) and promptly remit to the Company cash equal to the Net Dividends (as hereinafter defined) received by the Participant at any time on the Forfeitable Shares. If the Forfeitable Shares are not owned by the Participant at the time of the Committee's request, the Participant shall promptly remit to the Company the “Net Proceeds” (as hereinafter defined) from any sale, after the issuance of an initial financial statement that is subsequently restated, of Forfeitable Shares in lieu of the Forfeitable Shares. “Net Dividends” or “Net Proceeds” shall mean dividends or proceeds, as the case may be net of taxes paid or payable by the Participant as a result of the receipt of such dividends and the sale of such Shares in an amount reasonably determined by the Committee but including interest on the amount of cash repaid from the date of the receipt by Participant of such dividends or sale proceeds to the date of payment of such amount to the Company at a rate reasonably determined by the Committee. The Committee may, but shall not be required by Participant to, reduce the forfeiture, return and/or payment obligations hereunder to the extent that the Committee, in its sole and absolute discretion, shall deem appropriate. Nothing herein shall limit any other rights the Company shall have by law for misconduct of the Participant that caused or contributed to the need for such restatement.
Section 9.
Manner of Exercise
. Subject to the terms and conditions of this Agreement, the Option may be exercised by delivering written notice to the Stock Plan Administrator pursuant to procedures prescribed by the Company from time to time. Such notice shall state the election to exercise the Option and the number of shares in respect of which it is being exercised and shall be signed by the Participant or such other Person entitled to exercise the Option. Such notice shall be accompanied by payment of the full purchase price of such shares and applicable federal, state, local and foreign withholding taxes, if any. The Participant shall deliver to the Company consideration with a value equal to such purchase price and applicable withholding taxes, if any, payable in whole or in part as follows: (a) cash, check, bank draft, money order or wire transfer payable to the order of the Company, (b) shares of Common Stock owned by the Participant at the time of exercise and/or (c) in any other form of valid consideration that is acceptable to the Committee in its sole discretion. The value of any share of Common Stock delivered in payment of all or part of the purchase price or applicable withholding taxes upon the exercise of the Option shall be the closing sale price of a share of Common Stock on the New York Stock Exchange as reported on the consolidated transaction reporting system on the date the Option shall be exercised or, if such Exchange is not open for trading on such date, on the most recent preceding date on which such Exchange is open for trading. In the event that the Option shall be exercised pursuant to Section 6(c) or 6(d) hereof by any Person or Persons other than the Participant, such notice shall be accompanied by appropriate proof of the right of such Person or Persons to exercise the Option. If the Participant fails to pay the full purchase price of such shares or applicable withholding taxes, then the Option, and right to purchase such shares, may be forfeited by the Participant, in the sole discretion of the Committee. The Option may be exercised in whole or in part to the extent the Option is exercisable in accordance with the terms of this Agreement, but only with respect to full shares of Common Stock. No
fractional shares of Common Stock shall be issued upon exercise of the Option, but the Company will pay, in lieu thereof, the Fair Market Value of such fractional share.
Section 10.
Issuance of Shares
.
Upon exercise of all or any portion of the Option, the Company will cause to be issued to the Participant the shares of Common Stock purchased. Notwithstanding anything to the contrary in this Agreement, the Company's obligation to issue shares of Common Stock shall be subject to (i) all applicable laws, rules and regulations and such approvals by any governmental agencies as may be required, including, without limitation, the effectiveness of a registration statement under the Securities Act of 1933, as amended, and (ii) the condition that such shares shall have been duly listed on the New York Stock Exchange. The Participant shall not have any of the rights and privileges of a shareholder of the Company with respect to the shares of Common Stock subject to this Option unless and until such shares are issued to the Participant upon due exercise of the Option.
Section 11.
Taxes
.
The Participant acknowledges that the Participant will consult with the Participant's personal tax adviser regarding the income tax consequences of exercising the Option or any other matters related to this Agreement. In order to comply with all applicable federal, state, local or foreign income tax laws or regulations, the Company may take such action as it deems appropriate to ensure that all applicable federal, state, local or foreign payroll, withholding, income or other taxes, which are the Participant's sole and absolute responsibility, are withheld or collected from the Participant.
Section 12.
Definitions
.
Terms not defined in this Agreement shall have the meanings given to them in the Plan, and the following terms shall have the following meanings when used in this Agreement:
(a)
“Change in Control” means any one of the following events:
(i)
the consummation of a transaction or series of related transactions in which a person, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), other than the Company or a subsidiary of the Company, or any employee benefit plan of the Company or a subsidiary of the Company, acquires beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 35% or more of the Company's then outstanding shares of Common Stock or the combined voting power of the Company's then outstanding voting securities (other than in connection with a Business Combination in which clauses (1), (2) and (3) of paragraph (a)(iii) apply); or
(ii)
individuals who, as of the Effective Date hereof, constitute the Board of Directors of the Company (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board of Directors of the Company; provided, however, that any individual becoming a director subsequent to the Effective Date hereof whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board (other than a nomination of an individual whose initial assumption of office is in connection with a solicitation with respect to the election or removal of directors of the Company in opposition to the solicitation by the Board of Directors of the Company) shall be deemed to be a member of the Incumbent Board; or
(iii)
the consummation of a reorganization, merger, statutory share exchange, consolidation or similar transaction involving the Company, a sale or other disposition in a transaction or series of related transactions of all or substantially all of the Company's assets or the issuance by the Company of its stock in connection with the acquisition of assets or stock of another entity (each, a “Business Combination”) in each case unless, following such Business Combination, (1) all or substantially all of the individuals and
entities that were the beneficial owners of the Company's outstanding Common Stock and the Company's outstanding voting securities immediately prior to such Business Combination beneficially own immediately after the transaction or transactions, directly or indirectly, more than 50% of the then outstanding shares of common stock and more than 50% of the combined voting power of the then outstanding voting securities (or comparable equity interests) of the entity resulting from such Business Combination (including an entity that, as a result of such transaction, owns the Company or all or substantially all of the Company's assets either directly or through one of more subsidiaries) in substantially the same proportions as their ownership of the Company's Common Stock and voting securities immediately prior to such Business Combination, (2) no person, entity or group (other than a direct or indirect parent entity of the Company that, after giving effect to the Business Combination, beneficially owns 100% of the outstanding voting securities (or comparable equity interests) of the entity resulting from the Business Combination) beneficially owns, directly or indirectly, 35% or more of the outstanding shares of common stock or the combined voting power of the then outstanding voting securities (or comparable equity interests) of the entity resulting from such Business Combination and (3) at least a majority of the members of the board of directors (or similar governing body) of the entity resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement or of the action of the Board of Directors of the Company providing for such Business Combination; or
(iv)
approval by the stockholders of the dissolution of the Company.
(b)
“Fundamental Change” means a dissolution or liquidation of the Company, a sale of substantially all of the assets of the Company, or a merger or consolidation of the Company with or into any other corporation, regardless of whether the Company is the surviving corporation.
(c)
“Disability” shall be as defined under the Imation Corp. Long Term Disability Income Protection Plan.
(d)
“Retirement” means retirement as defined under the Imation Corp. Cash Balance Pension Plan.
(e)
“Stock Plan Administrator” means the Committee or any Director, officer or agent of the Company designated by the Committee from time to time.
(f)
“Termination for Cause” means termination of Participant's employment with the Company or an Affiliate for the following acts: (i) the Participant's gross incompetence or substantial failure to perform his or her duties, (ii) misconduct by the Participant that causes or is likely to cause harm to the Company or that causes or is likely to cause harm to the Company's reputation, as determined by the Company's Board of Directors in its sole and absolute discretion (such misconduct may include, without limitation, insobriety at the workplace during working hours or the use of illegal drugs), (iii) failure to follow directions of the Company's Board of Directors that are consistent with the Participant's duties, (iv) the Participant's conviction of, or entry of a pleading of guilty or nolo contendre to, any crime involving moral turpitude, or the entry of an order duly issued by any federal or state regulatory agency having jurisdiction in the matter permanently prohibiting the Participant from participating in the conduct of the affairs of the Company or (v) any breach of this Agreement that is not remedied within thirty (30) days after receipt of written notice from the Company specifying such breach in reasonable detail.
Section 13.
Governing Law
.
The internal law, and not the law of conflicts, of the State of Delaware will govern all questions concerning the validity, construction and effect of this Agreement.
Section 14.
Plan Provisions
.
This Agreement is made under and subject to the provisions of the
Plan, and all of the provisions of the Plan are also provisions of this Agreement. If there is a difference or conflict between the provisions of this Agreement and the provisions of the Plan, the provisions of the Plan will govern. By accepting this Option, the Participant confirms that the Participant has received a copy of the Plan and represents that the Participant is familiar with the terms and provisions thereof, and hereby accepts this Option subject to all the terms and provisions of the Plan.
Section 15.
No Right to Continue Service or Employment
. Nothing herein shall be construed as giving the Participant the right to continue in the employ or to provide services to the Company or any Affiliate, whether as an employee or as a consultant or otherwise, or interfere with or restrict in any way the right of the Company or any Affiliate to discharge the Participant, whether as an employee or consultant or otherwise, at any time, with or without cause. In addition, the Company or any Affiliate may discharge the Participant free from any liability or claim under this Agreement, unless otherwise expressly provide herein.
Section 16.
Entire Agreement
. Except as specifically provided herein with regard to the Severance Agreement, (i) this Agreement together with the Plan supersede any and all other prior understandings and agreements, either oral or in writing, between the parties with respect to the subject matter hereof and constitute the sole and only agreements between the parties with respect to said subject matter; (ii) all prior negotiations and agreements between the parties with respect to the subject matter hereof are merged into this Agreement; and (iii) each party to this Agreement acknowledges that no representations, inducements, promises or agreements, orally or otherwise, have been made by any party or by anyone acting on behalf of any party, which are not embodied in this Agreement or the Plan and that any agreement, statement or promise that is not contained in this Agreement or the Plan shall not be valid or binding or of any force or effect.
Section 17.
Modification
. No change or modification of this Agreement shall be valid or binding upon the parties unless the change or modification is in writing and signed by the parties. Notwithstanding the preceding sentence, the Plan, this Agreement and the Option may be amended, altered, suspended, discontinued or terminated to the extent permitted by the Plan.
Section 18.
Shares Subject to Agreement
. The shares covered by the Option shall be subject to the terms and conditions of this Agreement. Except as otherwise provided in Section 7, no adjustment shall be made for dividends or other rights for which the record date is prior to the issuance of such shares. The Company shall at all times during the Option Period reserve and keep available such number of shares of Common Stock as will be sufficient to satisfy the requirements of this Agreement.
Section 19.
Severability
. In the event that any provision that is contained in the Plan or this Agreement is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction or would disqualify the Plan or this Agreement for any reason and under any law as deemed applicable by the Committee, the invalid, illegal or unenforceable 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 this Agreement, such provision shall be stricken as to such jurisdiction or Option, and the remainder of the Plan or this Agreement shall remain in full force and effect.
Section 20.
Headings
. Headings are given to the sections and subsections of this Agreement 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 this Agreement or any provision hereof.
Section 21.
Participant's Acknowledgments
. The Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Committee or the Board of Directors of the Company, as appropriate, upon any questions arising under the Plan or this Agreement. Notwithstanding any of the provisions hereof, the Participant hereby agrees that the Participant will not exercise the Option
granted hereby, and that the Company will not be obligated to issue any shares to the Participant hereunder, if the exercise thereof or the issuance of such shares shall constitute a violation by the Participant or the Company of any provision of any law or regulation of any governmental authority. Any determination in this connection by the Company, including the Board of Directors of the Company or the Committee, shall be final, binding and conclusive. The obligations of the Company and the rights of the Participant are subject to all applicable laws, rules and regulations.
Section 22.
Parties Bound
. The terms, provisions, and agreements that are contained in this Agreement shall apply to, be binding upon, and inure to the benefit of the parties and their respective heirs, executors, administrators, legal representatives and permitted successors and assigns, subject to the limitation on assignment expressly set forth herein. This Agreement shall have no force or effect unless it is duly executed and delivered by the Company.
The Company has caused this Agreement to be signed and delivered as of the date set forth above.
IMATION CORP.
Mark Lucas
President and CEO
Exhibit 31.1
Certification Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
I, Mark E. Lucas, certify that:
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1.
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I have reviewed this quarterly report on Form 10-Q of Imation Corp.;
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2.
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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;
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3.
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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;
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4.
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The registrant's 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a -15(f) and 15d -15(f)) for the registrant and have:
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(a)
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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;
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(b)
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Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
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(c)
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Evaluated the effectiveness of the registrant's 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
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(d)
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Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
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5.
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The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
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(a)
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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 registrant's ability to record, process, summarize and report financial information; and
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(b)
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Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
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May 5, 2011
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By:
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/s/ MARK E. LUCAS
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Mark E. Lucas,
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President and Chief Executive Officer
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Exhibit 31.2
Certification Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
I, Paul R. Zeller, certify that:
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1.
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I have reviewed this quarterly report on Form 10-Q of Imation Corp.;
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2.
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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;
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3.
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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;
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4.
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The registrant's 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a -15(f) and 15d -15(f)) for the registrant and have:
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(a)
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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;
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(b)
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Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
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(c)
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Evaluated the effectiveness of the registrant's 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
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(d)
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Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
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5.
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The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
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(a)
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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 registrant's ability to record, process, summarize and report financial information; and
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(b)
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Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
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May 5, 2011
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By:
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/s/ PAUL R. ZELLER
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Paul R. Zeller,
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Senior Vice President and Chief Financial Officer
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Exhibit 32.1
Certification Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of Imation Corp. (the “Company”) on Form 10-Q for the period ended March 31, 2011, as filed with the Securities and Exchange Commission (the “Report”), I, Mark E. Lucas, President 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:
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(1)
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The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
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(2)
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The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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May 5, 2011
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/s/ MARK E. LUCAS
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Mark E. Lucas,
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President and Chief Executive Officer
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Exhibit 32.2
Certification Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of Imation Corp. (the “Company”) on Form 10-Q for the period ended March 31, 2011, as filed with the Securities and Exchange Commission (the “Report”), I, Paul R. Zeller, Senior Vice President and Chief Financial 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:
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(1)
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The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
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(2)
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The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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May 5, 2011
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/s/ PAUL R. ZELLER
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Paul R. Zeller,
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Senior Vice President and Chief Financial Officer
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