SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10/A
AMENDMENT NO. 2
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR (g) OF
THE SECURITIES EXCHANGE ACT OF 1934
IMATION CORP.
(Formerly known as 3M Information Processing, Inc.)
(Exact name of registrant as specified in its charter)
DELAWARE 41-1838504
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1 IMATION PLACE
OAKDALE, MINNESOTA 55128
(Address of principal executive offices) (Zip Code)
(612) 704-4000
(Registrant's telephone number, including area code)
Securities to be registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON
TO BE SO REGISTERED WHICH EACH CLASS IS TO BE REGISTERED
Common Stock, par value $.01 per share New York Stock Exchange, Inc.;
Chicago Stock Exchange, Incorporated
Preferred Stock Purchase Rights New York Stock Exchange, Inc.;
Chicago Stock Exchange, Incorporated
Securities to be registered pursuant to Section 12(g) of the Act:
None
IMATION CORP.
INFORMATION REQUIRED IN REGISTRATION STATEMENT
CROSS-REFERENCE SHEET BETWEEN INFORMATION STATEMENT
AND ITEMS OF FORM 10
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ITEM NO. CAPTION LOCATION IN INFORMATION STATEMENT
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Item 1. Business ....................... SUMMARY; INTRODUCTION; THE DISTRIBUTION; SPECIAL
FACTORS; MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS;
BUSINESS AND PROPERTIES OF THE COMPANY; HISTORICAL
FINANCIAL STATEMENTS
Item 2. Financial Information .......... SUMMARY; SPECIAL FACTORS; PRO FORMA CAPITALIZATION;
PRO FORMA FINANCIAL STATEMENTS; SELECTED HISTORICAL
FINANCIAL DATA; MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS;
HISTORICAL FINANCIAL STATEMENTS
Item 3. Properties ..................... BUSINESS AND PROPERTIES OF THE COMPANY
Item 4. Security Ownership of
Certain Beneficial Owners
and Management ................. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS;
BENEFICIAL OWNERSHIP OF MANAGEMENT
Item 5. Directors and Executive
Officers ....................... MANAGEMENT OF THE COMPANY; LIABILITY AND
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Item 6. Executive Compensation ......... MANAGEMENT OF THE COMPANY; SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS
Item 7. Certain Relationships and
Related Transactions ........... SUMMARY; THE DISTRIBUTION; RELATIONSHIP BETWEEN 3M
AND THE COMPANY AFTER THE DISTRIBUTION; MANAGEMENT
OF THE COMPANY; CERTAIN RELATIONSHIPS AND
TRANSACTIONS
Item 8. Legal Proceedings .............. BUSINESS AND PROPERTIES OF THE COMPANY
Item 9. Market Price of and Dividends on
the Registrant's Common Equity
and Related Stockholder
Matters ........................ SUMMARY; THE DISTRIBUTION; SPECIAL FACTORS;
MANAGEMENT OF THE COMPANY; SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS; BENEFICIAL OWNERSHIP OF
MANAGEMENT; DESCRIPTION OF COMPANY CAPITAL STOCK
Item 10. Recent Sales of Unregistered
Securities ..................... Not Applicable
Item 11. Description of Registrant's
Securities to be Registered .... DESCRIPTION OF COMPANY CAPITAL STOCK; PURPOSES AND
EFFECTS OF CERTAIN PROVISIONS OF THE CERTIFICATE OF
INCORPORATION AND BYLAWS
Item 12. Indemnification of Directors and
Officers ....................... LIABILITY AND INDEMNIFICATION OF DIRECTORS AND
OFFICERS
Item 13. Financial Statements and
Supplementary Data ............. SUMMARY; PRO FORMA FINANCIAL STATEMENTS; SELECTED
HISTORICAL FINANCIAL DATA; MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS; HISTORICAL FINANCIAL STATEMENTS
Item 14. Changes in and Disagreements ... Not Applicable
with Accountants on Accounting
and Financial Disclosure
</TABLE>
INFORMATION STATEMENT
IMATION CORP.
COMMON STOCK
PAR VALUE $.01 PER SHARE
This Information Statement is being furnished in connection with the
distribution (the "Distribution") by Minnesota Mining and Manufacturing Company
("3M") to holders of record of 3M common stock at the close of business on June
, 1996 (the "Record Date"), of one share of Common Stock, par value $.01 per
share (the "Common Stock"), of Imation Corp. (the "Company") for every ten
shares of 3M common stock owned on the Record Date. The Distribution will result
in 100% of the outstanding shares of Common Stock of the Company being
distributed to holders of 3M common stock on a pro rata basis. The Distribution
will be effective on July 1, 1996 (the "Distribution Date"). It is expected that
certificates representing shares of Common Stock will be mailed to 3M
stockholders on or about July 15, 1996.
The Company is a newly formed company which, as a result of transactions entered
into in connection with the Distribution, will own substantially all of the
businesses and assets of, and will be responsible for substantially all of the
liabilities associated with, 3M's global data storage and imaging systems
businesses, as more fully described herein (the "Transferred Businesses").
No consideration will be paid by 3M's stockholders for the shares of Common
Stock. There is no current public trading market for the shares of Common Stock,
although it is expected that a "when-issued" trading market will develop on or
about the Record Date. The shares of Common Stock have been approved for listing
on the New York Stock Exchange and the Chicago Stock Exchange, subject to
official notice of issuance, under the symbol "IMN".
The Distribution is conditioned on receipt by 3M of a private letter ruling from
the Internal Revenue Service, or receipt of an opinion from 3M's counsel,
regarding the federal income tax consequences of the Distribution. See "THE
DISTRIBUTION -- Certain Federal Income Tax Consequences."
IN REVIEWING THIS INFORMATION STATEMENT, YOU SHOULD CAREFULLY CONSIDER THE
MATTERS DESCRIBED UNDER THE CAPTION "SPECIAL FACTORS."
NO VOTE OF STOCKHOLDERS IS REQUIRED IN CONNECTION WITH THIS DISTRIBUTION. WE
ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED
NOT TO SEND US A PROXY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS INFORMATION STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Information Statement is ___, 1996.
TABLE OF CONTENTS
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PAGE
SUMMARY ................................................................... 1
THE COMPANY ............................................................... 3
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA ........................... 5
INTRODUCTION .............................................................. 7
THE DISTRIBUTION .......................................................... 8
Reasons for the Distribution ............................................ 8
Opinion of Financial Advisor ............................................ 8
Manner of Effecting the Distribution .................................... 10
Certain Federal Income Tax Consequences ................................. 11
Listing and Trading of the Common Stock ................................. 11
SPECIAL FACTORS ........................................................... 12
Absence of History as an Independent Company ............................ 12
Changing Industry Environment ........................................... 12
Transition to Independent Public Company ................................ 12
Absence of 3M Financial Support ......................................... 13
Competition ............................................................. 13
International Operations ................................................ 13
Absence of Prior Trading Market for the Common Stock .................... 13
Common Stock Dividend Policy ............................................ 14
Certain Anti-Takeover Effects ........................................... 14
RELATIONSHIP BETWEEN 3M AND THE COMPANY AFTER THE DISTRIBUTION ............ 15
Distribution Agreement .................................................. 15
Tax Sharing and Indemnification Agreement ............................... 16
Corporate Services Transition Agreement ................................. 16
Environmental Matters Agreement ......................................... 16
Intellectual Property Agreement ......................................... 17
Supply, Service, Contract Manufacturing and
Sales Agency Agreements ................................................ 18
Shared Facility and Lease Agreements .................................... 18
FINANCING ................................................................. 19
PRO FORMA CAPITALIZATION .................................................. 20
PRO FORMA FINANCIAL STATEMENTS ............................................ 21
NOTES TO PRO FORMA STATEMENT OF OPERATIONS ................................ 23
SELECTED HISTORICAL FINANCIAL DATA ........................................ 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ...................................... 27
General Overview ........................................................ 27
Strategic Reorganization ................................................ 27
Operating Results ....................................................... 28
Performance by Geographic Area .......................................... 31
Financial Position ...................................................... 32
Liquidity ............................................................... 32
Future Outlook .......................................................... 34
Forward Looking Statements .............................................. 34
BUSINESS AND PROPERTIES OF THE COMPANY .................................... 35
Overview ................................................................ 35
Industry Background ..................................................... 36
Business Strategy ....................................................... 37
Customer Applications ................................................... 39
Competition ............................................................. 41
Distributor Channels .................................................... 41
Raw Materials ........................................................... 41
Research and Patents .................................................... 41
Manufacturing ........................................................... 42
Properties .............................................................. 42
Employees ............................................................... 42
Legal Proceedings ....................................................... 43
Environmental Matters ................................................... 43
MANAGEMENT OF THE COMPANY ................................................. 44
Directors ............................................................... 44
Committees of the Board of Directors .................................... 44
Compensation of Directors ............................................... 45
Directors Stock Compensation Program .................................... 45
Executive Officers ...................................................... 47
Compensation of Executive Officers ...................................... 49
Stock Options Table ..................................................... 50
Option Exercises and Year-End Value Table ............................... 51
Long-Term Incentive Plan Awards ......................................... 51
Transactions With Management ............................................ 52
Employment Agreement .................................................... 52
Compensation Under Retirement Plans ..................................... 52
Company Pension Plan .................................................... 53
Plans Encouraging Employee Stock Ownership .............................. 54
Retirement Investment Plan .............................................. 54
1996 Employee Stock Incentive Program ................................... 54
Federal Tax Consequences ................................................ 56
New Plan Benefits ....................................................... 57
TREATMENT OF EMPLOYEE OPTIONS AND RESTRICTED STOCK IN
THE DISTRIBUTION ......................................................... 58
CERTAIN RELATIONSHIPS AND TRANSACTIONS .................................... 58
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS ........................... 58
BENEFICIAL OWNERSHIP OF MANAGEMENT ........................................ 59
DESCRIPTION OF COMPANY CAPITAL STOCK ...................................... 60
Authorized Capital Stock ................................................ 60
Common Stock ............................................................ 60
Preferred Stock ......................................................... 60
No Preemptive Rights .................................................... 60
Transfer Agent and Registrar ............................................ 60
PURPOSES AND EFFECTS OF CERTAIN PROVISIONS OF THE
CERTIFICATE OF INCORPORATION AND BY-LAWS ................................. 60
General ................................................................. 60
Classified Board of Directors ........................................... 60
Special Meetings of Stockholders; Action by Written
Consent; Advance Notice Provisions ..................................... 61
Stockholder Nominations ................................................. 61
Stockholder Proposals ................................................... 61
Preferred Stock ......................................................... 62
Supermajority Provision ................................................. 62
Rights Agreement ........................................................ 63
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS ................... 64
General ................................................................. 64
Elimination of Liability in Certain Circumstances ....................... 64
Indemnification and Insurance ........................................... 64
INDEPENDENT PUBLIC ACCOUNTANTS ............................................ 65
ADDITIONAL INFORMATION .................................................... 65
INDEX TO HISTORICAL FINANCIAL STATEMENTS .................................. F-1
ANNEX A
</TABLE>
SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN THIS
INFORMATION STATEMENT. REFERENCE IS MADE TO, AND THIS SUMMARY IS QUALIFIED BY,
THE MORE DETAILED INFORMATION SET FORTH IN THIS INFORMATION STATEMENT, WHICH
SHOULD BE READ IN ITS ENTIRETY. UNLESS THE CONTEXT OTHERWISE REQUIRES, (I)
REFERENCES IN THIS INFORMATION STATEMENT TO 3M AND THE COMPANY SHALL INCLUDE
3M'S AND THE COMPANY'S RESPECTIVE SUBSIDIARIES AND (II) REFERENCES IN THIS
INFORMATION STATEMENT TO THE COMPANY PRIOR TO THE DISTRIBUTION DATE SHALL REFER
TO THE TRANSFERRED BUSINESSES AS OPERATED BY 3M.
DISTRIBUTING CORPORATION ...... Minnesota Mining and Manufacturing Company, a
Delaware corporation ("3M").
DISTRIBUTED CORPORATION ....... Imation Corp., a newly formed Delaware
corporation (the "Company") which, as
of the Distribution Date, will have transferred
to it substantially all of the businesses and
assets of, and will be responsible for
substantially all of the liabilities associated
with, 3M's global data storage and imaging
systems businesses, as more fully described
herein (the "Transferred Businesses").
PRINCIPAL BUSINESSES TO BE
RETAINED BY 3M ............... 3M will retain its core businesses,
consisting of all of its current businesses
other than the Transferred Businesses (the
"Core Businesses"). 3M has announced that its
consumer audio and video tape business, which
is not part of the Transferred Businesses, will
be discontinued.
PRIMARY PURPOSE OF THE
DISTRIBUTION ................. To separate the Transferred Businesses from the
Core Businesses so that each can (i) adopt
strategies and pursue objectives appropriate to
its specific businesses and industries and
thereby achieve, among other things, potential
cost savings, (ii) implement more focused
incentive compensation arrangements that are
tied more directly to results of its operations
and (iii) be recognized by the financial
community as separate and distinct businesses.
SHARES TO BE DISTRIBUTED ...... Approximately 41,863,000
shares of Common Stock, based on the shares of
3M common stock outstanding on May 1, 1996. The
shares to be distributed will constitute 100%
of the outstanding shares of Common Stock of
the Company on the Distribution Date.
DISTRIBUTION RATIO ............ Each 3M stockholder will receive one
share of Common Stock of the Company for every
ten shares of 3M common stock held on the
Record Date.
FRACTIONAL SHARE INTERESTS .... Fractional share interests will
be sold by the Distribution Agent and the cash
proceeds distributed to those stockholders
entitled to a fractional interest. See "THE
DISTRIBUTION -- Manner of Effecting the
Distribution."
LISTING AND TRADING
MARKET ....................... The shares of Common Stock have been approved
for listing on the New York Stock Exchange and
the Chicago Stock Exchange, subject to official
notice of issuance, under the symbol "IMN."
RECORD DATE ................... Close of business on June , 1996.
DISTRIBUTION DATE ............. July 1, 1996. As of the Distribution Date,
the transfer of substantially all of the assets
and liabilities of the Transferred Businesses
from 3M to the Company will become effective
and the shares of Common Stock to be
distributed will be delivered to the
Distribution Agent for distribution to holders
of 3M common stock.
1
MAILING DATE .................. Certificates representing the shares of
Common Stock will be mailed to 3M stockholders
on or about July 15, 1996.
DISTRIBUTION AGENT ............ Norwest Bank Minnesota, N.A. (the "Distribution
Agent").
TAX CONSEQUENCES .............. The Distribution is expected to qualify as a
tax-free distribution under Section 355 of the
Internal Revenue Code of 1986, as amended (the
"Code"). See "THE DISTRIBUTION -- Certain
Federal Income Tax Consequences."
DIVIDEND POLICY ............... The payment and amount of cash dividends on the
Common Stock after the Distribution will be at
the discretion of the Company's Board of
Directors. The Company's dividend policy will
be reviewed by the Company's Board of Directors
at such future times as may be appropriate, and
payment of dividends will depend upon the
Company's financial position, capital
requirements and such other factors as the
Company's Board of Directors deems relevant.
RELATIONSHIP WITH 3M AFTER THE
DISTRIBUTION ................. Following the Distribution, 3M and the Company
will be operated as independent public
companies. 3M and the Company will, however,
continue to have a relationship as a result of
the agreements being entered into between 3M
and the Company in connection with the
Distribution, including the Distribution
Agreement, the Tax Sharing and Indemnification
Agreement, the Corporate Services Transition
Agreement, the Environmental Matters Agreement,
the Intellectual Property Agreement, the Supply
Agreements and other miscellaneous agreements.
Except as referred to above or as otherwise
described herein, 3M and the Company will cease
to have any material contractual or other
material relationships with each other. See
"RELATIONSHIP BETWEEN 3M AND THE COMPANY AFTER
THE DISTRIBUTION," "FINANCING," "PRO FORMA
CAPITALIZATION" and "MANAGEMENT OF THE COMPANY
-- Directors."
SPECIAL FACTORS ............... Stockholders should carefully consider
the matters discussed under the section
entitled "SPECIAL FACTORS" in this Information
Statement.
2
THE COMPANY
The Company is a leader in developing, manufacturing and marketing a wide
variety of products and services worldwide for data storage and imaging
applications within the information processing industry. The Company's products,
which number in excess of 10,000, are used to capture, process, store, reproduce
and distribute information and images in a wide range of information-intensive
markets, including enterprise computing, network servers, personal computing,
graphic arts, photographic imaging, medical imaging, and commercial and consumer
markets. See "BUSINESS AND PROPERTIES OF THE COMPANY."
The breadth of the Company's product lines, the Company's worldwide leadership
position in a number of product classes and its global distribution network
serve to differentiate the Company from its competitors. In 1995, the Company
had revenues of $2.2 billion, with approximately half of its revenues derived
internationally. The Company's major products, classified by customer
application, are shown below and are described in more detail under "BUSINESS
AND PROPERTIES OF THE COMPANY -- Customer Applications.".
<TABLE>
<CAPTION>
INFORMATION PROCESSING,
MANAGEMENT AND INFORMATION PRINTING MEDICAL AND PHOTO IMAGING
STORAGE APPLICATIONS APPLICATIONS APPLICATIONS
<S> <C> <C>
* Computer diskettes * Conventional color proofing * Laser imaging products
* Data cartridges and Travan(tm) * Digital color proofing * Laser imagers
cartridges
* Computer tapes * Printing plates * X-ray film
* Rewritable optical media * Image setting and graphic arts * "Dry" imaging products
products
* CD ROM replication services * Carbonless paper products * Film processors
* Photographic film products
</TABLE>
INFORMATION PROCESSOR SERVICE APPLICATIONS
* Technical field service support for equipment
* Customer service, documentation and training for equipment
* Engineering and office document systems
As part of 3M, the Transferred Businesses have developed leadership positions in
a number of markets serving the information processing industry, which the
Company believes can serve as platforms for future growth. For example, the
Company:
* is the world's largest supplier of branded removable magnetic and
optical media (see "BUSINESS AND PROPERTIES OF THE COMPANY -- Customer
Applications -- Information Processing, Management and Storage
Applications");
* is one of the world's largest suppliers of color proofing systems to
the graphic arts industry, with a number of its Matchprint(tm) and
Rainbow products serving as industry standards (see "BUSINESS AND
PROPERTIES OF THE COMPANY -- Customer Applications -- Information and
Printing Applications");
* was the first to develop the new, widely-used laser imager for medical
imaging applications, with an installed base of over 7000 imagers (see
"BUSINESS AND PROPERTIES OF THE COMPANY -- Customer Applications --
Medical and Photo Imaging Applications");
* is one of the world's largest suppliers of private label film for the
amateur photography market (see "BUSINESS AND PROPERTIES OF THE
COMPANY -- Customer Applications"); and
* introduced in 1995 and expects to introduce in 1996 several innovative
products with significant market potential, including the Travan(tm)
high capacity data storage tape cartridges, the new family of Rainbow
proofing systems, a new line of DryView(tm) imagers, medical imaging
delivery systems developed under an alliance with Cemax/Icon and
Hewlett-Packard, and a 120 MB 3.5 inch diskette, the LS-120 diskette,
which has been developed with Compaq Computer Corporation and
Matsushita-Kotobuki Electronics Industries, Ltd. ("MKE") (See
"BUSINESS AND PROPERTIES OF THE COMPANY -- Customer Applications").
3
STRATEGY
Following the Distribution, the Company intends to utilize its research and
development capabilities, its solid technology platforms, its well established
product lines, and its strong customer relationships to enhance its position as
a leader in the information processing industry, providing innovative,
cost-effective system solutions to its customers' information processing needs.
To achieve its objectives, the Company intends to focus on the following
elements:
* REFINING PRODUCT PORTFOLIO -- The Company will make adjustments to its
product portfolio when appropriate to ensure that all of its resources
are focused on the Company's objective of consistent, profitable
growth.
* STREAMLINING OPERATIONS AND REDUCING COSTS -- The Company is in the
process of reducing employment levels and consolidating manufacturing
operations. In addition, the Company intends to continue its efforts
to streamline its management structure, consolidate administrative
functions and facilitate communications among various parts of the
organization so as to enable the Company to respond quickly to the
rapidly changing needs of its customers.
* EXPANDING CUSTOMER FOCUS -- The Company will strive to provide more
timely solutions tailored to each of its potential and existing
customers' needs.
* IMPROVING CASH FLOWS -- The Company continues to take steps to improve
cash flows, including instilling in its employees a strong focus on
cash management and re-engineering business processes.
* EXPANDING INTERNATIONAL OPERATIONS -- The Company intends over the
next several years to take advantage of opportunities for growth by
expanding its international penetration in higher growth regions of
the world.
* CAPITALIZING ON PROPRIETARY TECHNOLOGIES TO PROVIDE CUSTOMER SOLUTIONS
-- The Company will continue to focus significant efforts on the
development of new products utilizing its core technologies so as to
improve profit margins and enhance the Company's position as a leading
supplier of products, services and systems to the information
processing industry.
* ENCOURAGING EMPLOYEE STOCK OWNERSHIP -- The Company intends to
encourage and increase employee stock ownership as an additional
incentive toward consistent, profitable growth.
In late 1995, in connection with its plan to distribute the Company to its
stockholders, 3M recognized a loss on disposal which included pre-tax charges of
$340 million related to the adoption of a reorganization plan to rationalize the
Company's manufacturing operations, streamline its organizational structure and
write off impaired assets.
The Company believes its continued leadership in developing new data storage
technologies, strong position in high quality color proofing for the printing
industry and strong history of leadership in medical imaging for the health care
industry, together with the benefits of its reorganization plan and business
strategy, should help position the Company to realize future growth and
profitability. See "BUSINESS AND PROPERTIES OF THE COMPANY -- Business
Strategy."
The Company's headquarters are located at 1 Imation Place, Oakdale, Minnesota
55128.
4
SUMMARY HISTORICAL AND PRO FORMA
FINANCIAL DATA
The following summary historical and pro forma financial data of the Company
should be read in conjunction with the Company's historical and pro forma
financial statements and the notes thereto included elsewhere in this
Information Statement. The following summary historical financial information
relates to the Transferred Businesses as they were operated as part of 3M and is
derived from the historical financial statements of the Company. They also
include an allocation of certain general corporate expenses of 3M which were not
directly related to these businesses.
The summary pro forma financial data make adjustments to the historical balance
sheet at March 31, 1996 and the historical statements of operations for the
three months ended March 31, 1996 and the year ended December 31, 1995 as if the
Distribution had occurred on March 31, 1996 for purposes of the pro forma
balance sheet and January 1, 1995 for purposes of the pro forma statements of
operations. The selected historical financial data that relate to the three
years in the period ended December 31, 1995 have been derived from the financial
statements audited by Coopers & Lybrand L.L.P., independent accountants. The
historical and pro forma financial statements of the Company may not reflect the
results of operations or financial position that would have been obtained had
the Company been a separate, independent company during such periods.
5
IMATION CORP.
SUMMARY HISTORICAL FINANCIAL DATA
(Dollars in millions)
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEARS ENDED
MARCH 31, DECEMBER 31,
1996* 1995 1995** 1994 1993
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Net revenues $ 576.1 $576.7 $2,245.6 $2,280.5 $2,307.8
Gross profit 202.3 212.5 724.7 838.5 886.2
Selling, general and administrative
expense 130.7 137.9 539.4 531.5 529.0
Research and development 47.9 56.4 222.4 211.2 216.7
Operating income (loss) 13.3 18.2 (148.9) 95.8 140.5
Income (loss) before taxes and minority
interest 10.1 13.0 (166.8) 81.3 127.4
Net income (loss) 6.1 7.5 (85.0) 54.3 75.3
BALANCE SHEET DATA (AS OF END OF PERIOD)
Total working capital 633.4 658.4 714.0
Property, plant and equipment -- net 503.9 513.2 654.9
Total assets 1,520.0 1,541.5 1,671.7
Total liabilities 398.3 392.8 371.1
Total equity 1,121.7 1,148.7 1,300.0
STATEMENT OF CASH FLOWS DATA
Net cash provided by operating activities 69.7 29.5 256.8 170.1 229.2
Net cash (used) in investing activities (40.1) (46.9) (187.5) (179.7) (210.2)
Net cash (paid to) received from 3M (27.0) 13.4 (72.9) 18.5 (13.1)
Depreciation 48.5 49.1 189.5 185.9 184.4
</TABLE>
SUMMARY PRO FORMA FINANCIAL DATA
(Dollars in millions except per share data)
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED
ENDED DECEMBER 31,
MARCH 31, 1996* 1995**
<S> <C> <C>
STATEMENT OF OPERATIONS DATA
Net revenues $ 576.1 $2,245.6
Gross profit 202.3 724.7
Selling, general and administrative expense 130.7 539.4
Research and development 47.9 222.4
Operating income (loss) 13.3 (148.9)
Income (loss) before taxes and minority
interest 9.7 (168.3)
Net income (loss) 5.6 (97.4)
Net income (loss) per share 0.13 (2.32)
BALANCE SHEET DATA (AS OF END OF PERIOD)
Total working capital 738.0
Property, plant and equipment -- net 503.9
Total assets 1,587.3
Total debt 280.0
Total liabilities 648.7
Total equity 938.6
</TABLE>
* Restructuring charges reduced results for the three months ended March 31,
1996 by $10.4 million before taxes and minority interest and $6.1 million
after taxes and minority interest. Net income for the three months ended March
31, 1996 excluding these charges would have been $12.2 million on a historical
basis and $11.7 million on a pro forma basis. These charges related to costs
for certain employee separation programs.
**Restructuring charges and asset write-offs reduced 1995 results by $166.3
million before taxes and minority interest and $88.3 million ($97.8 million on
a pro forma basis) after taxes and minority interest. 1995 net income
excluding these charges would have been $3.3 million on a historical basis and
$0.4 million on a pro forma basis. The majority of these charges related to
the write down of property, plant and equipment.
6
INTRODUCTION
On June __, 1996, the Board of Directors of 3M declared a dividend payable to
holders of record of 3M's common stock at the close of business on the Record
Date of one share of Common Stock of the Company for every ten shares of 3M
common stock held on the Record Date. The Distribution will be effective on July
1, 1996. Certificates representing shares of Common Stock of the Company will be
mailed to 3M stockholders on or about July 1, 1996. As a result of the
Distribution, 100% of the outstanding shares of Common Stock of the Company will
be distributed to 3M stockholders.
The Company was formed for the purpose of effecting the Distribution. On or
before the Distribution Date, 3M will transfer to the Company substantially all
of the assets and liabilities of the Transferred Businesses. Prior to the
Distribution, 3M operated the Transferred Businesses as part of its Information,
Imaging and Electronics Sector.
Stockholders of 3M with inquiries relating to the Distribution prior to the
Distribution Date should contact Investor Relations at Minnesota Mining and
Manufacturing Company, 3M Center, St. Paul, Minnesota 55144. 3M's telephone
number is (612) 733-8704. After the Distribution Date, stockholders of the
Company with inquiries relating to the Distribution or their investment in the
Company should contact Investor Relations at the Company, 1 Imation Place,
Oakdale, Minnesota 55128. The Company's telephone number is (612) 704-5818.
7
THE DISTRIBUTION
REASONS FOR THE DISTRIBUTION
3M's Board of Directors has determined that it is in the best interests of 3M
and the Company to undertake the Distribution, thereby separating the
Transferred Businesses from 3M, for the reasons described herein.
The Distribution is designed to establish the Transferred Businesses as a stand
alone independent company which can adopt strategies and pursue objectives
appropriate to its specific businesses. The industry in which the Transferred
Businesses operate is extremely competitive and is generally characterized by
rapid technological change and declining prices.
In this highly competitive industry, the Company must operate with a reduced
cost structure, broad distribution channels, a streamlined supply chain and fast
paced decision-making. As an independent company, the Company's management
should be better able to organize the Company in a manner more appropriate to
the markets in which it competes. As a result, the Distribution should enhance
the Company's position as an effective competitor, and the Company should be
better able to capitalize quickly on changes in the rapidly expanding
information processing industry.
The Distribution is also designed to allow the Company to establish its own
employee stock ownership plan and other equity-based compensation plans so that
there will be a more direct alignment between the performance of the Transferred
Businesses and the compensation of employees of the Transferred Businesses,
which, among other things, is intended to strengthen and support the Company's
ability to achieve cost savings, greater efficiencies and sales growth. Prior to
1996, management of the Transferred Businesses received 3M stock options and
until the Distribution Date, employees may participate in a company-wide
employee stock ownership plan holding 3M common stock. Following the
Distribution, employees of the Company will participate in an employee stock
ownership plan holding Common Stock of the Company and receive equity-based
incentives which will be more closely aligned with the financial results of the
Company, thereby linking each employee's financial success more directly to the
financial success of the Company. See "MANAGEMENT OF THE COMPANY -- Retirement
Investment Plan," and "-- 1996 Employee Stock Incentive Program."
3M believes that the separation of the information and imaging businesses from
its life sciences, industrial and consumer businesses will cause the two
entities to be recognized by the financial community as distinct businesses with
different investment risk and return profiles. As a result of the Distribution,
3M should develop its following in the financial community primarily as a global
manufacturer and marketer of products for the life sciences and industrial and
consumer markets while the Company should develop its following primarily as a
company serving the global information processing industry. In this regard,
investors will be better able to evaluate the merits and future prospects of the
businesses of 3M and the Company, enhancing the likelihood that each will
achieve appropriate market recognition for its performance and potential. In
addition, current stockholders and potential investors will be able to direct
their investments to their specific areas of interest. Also, the Distribution
will enable the Company, as and when appropriate, to engage in strategic
acquisitions using its own capital stock.
For the reasons stated above, the 3M Board of Directors believes that the
Distribution is in the best interest of 3M. In reaching its conclusions, the 3M
Board of Directors also considered the opinion of 3M's financial advisor, Morgan
Stanley & Co., Incorporated ("Morgan Stanley"), which is described below, to the
effect that the Distribution is fair, from a financial point of
view, to the holders of shares of 3M common stock.
OPINION OF FINANCIAL ADVISOR
3M retained Morgan Stanley to act as 3M's financial advisor in connection with
the Distribution and related matters based upon Morgan Stanley's experience and
expertise. Morgan Stanley rendered a written opinion to the Board of Directors
of 3M that, as of the date of this Information Statement and subject to the
considerations set forth in such opinion, the proposed Distribution is fair from
a financial point of view to the holders of shares of 3M common stock.
8
THE FULL TEXT OF MORGAN STANLEY'S WRITTEN OPINION DATED _________________, 1996,
WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE
REVIEW UNDERTAKEN, IS ATTACHED AS ANNEX A TO THIS INFORMATION STATEMENT AND IS
INCORPORATED HEREIN BY REFERENCE. STOCKHOLDERS ARE URGED TO, AND SHOULD, READ
THE MORGAN STANLEY OPINION CAREFULLY AND IN ITS ENTIRETY. THE MORGAN STANLEY
OPINION IS DIRECTED TO THE BOARD OF DIRECTORS OF 3M AND CONCERNS THE FAIRNESS OF
THE PROPOSED DISTRIBUTION FROM A FINANCIAL POINT OF VIEW TO THE HOLDERS OF
SHARES OF 3M COMMON STOCK, AND IT DOES NOT ADDRESS ANY OTHER ASPECT OF THE
DISTRIBUTION. THE SUMMARY OF THE MORGAN STANLEY OPINION SET FORTH IN THIS
INFORMATION STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF SUCH OPINION.
In arriving at its opinion, Morgan Stanley (i) analyzed certain publicly
available financial statements and other information relating to 3M and the
Company, including this Information Statement; (ii) analyzed certain internal
historical financial statements and other historical financial operating data
concerning 3M and the Company prepared by their respective managements; (iii)
analyzed certain financial projections prepared by the respective managements of
3M and the Company; (iv) compared the financial performance of the Company with
that of certain other companies with publicly traded securities which were
deemed to be comparable to the Company and its respective business units; (v)
compared the financial performance of 3M (both with and without the Transferred
Businesses) with that of certain other companies with publicly traded securities
which were deemed to be comparable to 3M (both with and without the Transferred
Businesses), respectively; (vi) discussed past and current operations and
financial condition and the prospects of 3M with senior executives of 3M and the
Company with senior executives of the Company; (vii) participated in discussions
among representatives of 3M and the Company and their legal advisors; and (viii)
performed such other analyses as were deemed appropriate.
In rendering its opinion, Morgan Stanley assumed and relied upon, without
independent verification, the accuracy and completeness of the information
reviewed by Morgan Stanley for the purposes of its opinion. With respect to the
financial budgets and forecasts, Morgan Stanley assumed that they have been
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the future financial performance of 3M and the Company. Morgan
Stanley did not make any independent valuation or appraisal of the assets or
liabilities, contingent or otherwise, of 3M or the Company, nor has Morgan
Stanley been furnished with any such appraisals.
Morgan Stanley further assumed that, prior to the Distribution, 3M will receive
a ruling from the Internal Revenue Service or an opinion of nationally
recognized counsel to the effect that the Distribution will not be a taxable
transaction to the shareholders of 3M under federal income tax laws (except to
the extent of any cash distributed in lieu of fractional shares of the Company).
Morgan Stanley further assumed the correctness of the conclusions set forth in
such opinion or ruling, as applicable. Morgan Stanley also assumed that the
Distribution will comply with all federal, state, local and foreign laws and
applicable regulations, except for any noncompliance with such applicable laws
and regulations that would not have a material adverse effect on 3M or the
Company. In rendering its opinion, Morgan Stanley, with 3M's consent, did not
consider the effect of any terms or arrangements relating to the Distribution,
including the terms of any distribution, tax or other agreement or arrangement,
or any amendment or modification to any existing such agreement or arrangement.
Morgan Stanley's opinion was rendered on the basis of securities markets,
economic and general business and financial conditions prevailing as of the date
of its opinion and the conditions and prospects, financial and otherwise, of 3M
and the Company as they were represented to Morgan Stanley as of the date of its
opinion or as they were reflected in the information and documents reviewed by
Morgan Stanley. Morgan Stanley's opinion assumes that the Distribution will be
completed substantially on the basis set out in the Information Statement and
that the shares of 3M and the Company will be fully and widely distributed among
investors and are subject only to normal trading activity. The estimation of
market trading prices of newly distributed securities is subject to
uncertainties and contingencies, all of which are difficult to predict and
beyond the control of the firm making such estimates.
In addition, Morgan Stanley noted that the market price of such securities will
fluctuate with changes in market conditions, the conditions and prospects,
financial and otherwise, of 3M and the
9
Company, and other factors which generally influence the prices of securities.
In rendering its opinion, Morgan Stanley did not opine as to the price at which
the common stock of 3M or the Company will trade after the Distribution is
effected.
As financial advisor to 3M in connection with the Distribution, Morgan Stanley
has been paid an advisory fee of approximately $300,000 which compensated Morgan
Stanley for the time and efforts expended in rendering advice in connection with
the Distribution and, upon consummation of the Distribution, Morgan Stanley will
be paid a transaction fee, against which all or a portion of any advisory fee
will be credited. The transaction fee, which shall not exceed $5,500,000, will
be determined based on a percentage of the market value of the equity of the
Company on the Distribution Date plus any debt assumed or incurred by the
Company (the "Aggregate Value"). For example, for an Aggregate Value of $500
million, Morgan Stanley's fee would be 0.7% or $3.5 million; for an Aggregate
Value of $1 billion, Morgan Stanley's fee would be 0.45% or $4.5 million; and
for an Aggregate Value in excess of approximately $1.25 billion, Morgan
Stanley's fee would be capped at $5.5 million. 3M has agreed to reimburse Morgan
Stanley for its out-of-pocket expenses incurred in connection with its services
as financial advisor. 3M has also agreed, in a separate letter agreement, to
indemnify Morgan Stanley and its affiliates, their respective directors,
officers, agents and employees and each person, if any, controlling Morgan
Stanley or any of its affiliates against certain liabilities, including
liabilities under the federal securities laws, and expenses related to Morgan
Stanley's engagement.
Morgan Stanley was selected by the 3M Board to act as 3M's financial advisor
based upon Morgan Stanley's qualifications, expertise and reputation. Morgan
Stanley is a nationally recognized investment banking firm and is regularly
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings and private placements.
Morgan Stanley and its affiliates may in the future act as underwriters for, or
participate as members of underwriting syndicates with respect to, offerings of
3M securities, and Morgan Stanley may effect securities transactions for 3M or
perform financial advisory services in connection with certain acquisitions and
dispositions by 3M. In the past, Morgan Stanley and its affiliates have provided
investment banking and financing services for 3M and have received fees for the
rendering of such services. In addition, in the ordinary course of its business,
Morgan Stanley actively trades the equity securities of 3M and may actively
trade the securities of the Company following the consummation of the
Distribution, for its own account and for the accounts of others. Accordingly,
Morgan Stanley may at any time hold a long or short position in the securities
of 3M or the Company.
MANNER OF EFFECTING THE DISTRIBUTION
The general terms and conditions relating to the Distribution are set forth in a
Transfer and Distribution Agreement, dated as of June __, 1996 (the
"Distribution Agreement"), between 3M and the Company.
3M will effect the Distribution on the Distribution Date by delivering all of
the outstanding shares of Common Stock of the Company to the Distribution Agent
for distribution to the holders of record of 3M common stock on the Record Date
(other than the holders of a limited number of shares of restricted common stock
of 3M, who, pursuant to the terms of the 3M Management Stock Ownership Program
as implemented by 3M's Compensation Committee, will receive additional shares of
restricted 3M Common Stock with a value equal to the value of the Common Stock
which would have been received by such holders in the Distribution). The
Distribution will be made on the basis of one share of Common Stock for every
ten shares of 3M common stock held on the Record Date. The actual total number
of shares of Common Stock to be distributed will depend on the number of shares
of 3M common stock outstanding on the Record Date (other than shares of
restricted stock). Based upon the shares of 3M common stock outstanding on May
1, 1996, approximately 41,863,000 shares of Common Stock would be distributed to
3M stockholders. The shares of Common Stock will be fully paid and nonassessable
and the holders thereof will not be entitled to preemptive rights. See
"DESCRIPTION OF COMPANY CAPITAL STOCK." Certificates representing shares of
Common Stock will be mailed to 3M stockholders on or about July 15, 1996.
No holder of 3M common stock will be required to pay any cash or other
consideration for the shares of Common Stock received in the Distribution or to
surrender or exchange shares of 3M common stock in order to receive shares of
Common Stock.
10
No certificates or scrip representing fractional shares of Common Stock will be
issued to 3M stockholders as part of the Distribution. The Distribution Agent
will aggregate fractional shares into whole shares and sell them in the open
market at then prevailing prices on behalf of holders who otherwise would be
entitled to receive fractional share interests, and such persons will receive
instead a cash payment in the amount of their pro rata shares of the total sale
proceeds (net of any commissions incurred in connection with such sales). Such
sales are expected to be made on, or as soon as practicable after, the
Distribution Date.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
3M has requested a private letter ruling (the "Private Letter Ruling") from the
Internal Revenue Service (the "Service") substantially to the effect that, among
other things, the Distribution will qualify as a tax-free spin-off to 3M and its
stockholders under Section 355 of the Code. 3M will not complete the
Distribution unless it receives the Private Letter Ruling or an opinion from its
counsel, Skadden, Arps, Slate, Meagher & Flom, based on certain representations
and assumptions, to the same effect. The following is a summary of the material
federal income tax consequences to 3M stockholders expected to result from the
Distribution:
1. A 3M stockholder will not recognize any income, gain or loss as a
result of the Distribution, except, as described below, in connection with
cash received in lieu of fractional shares of Common Stock.
2. A 3M stockholder will apportion his tax basis for his 3M common stock
on which Common Stock is distributed between his 3M common stock and the
Common Stock received in the Distribution (including any fractional shares
of Common Stock deemed received) in proportion to the relative fair market
values of such 3M common stock and Common Stock on the Distribution Date.
3. A 3M stockholder's holding period for the Common Stock received in the
Distribution will include the period during which such stockholder held the
3M common stock on which the Common Stock is distributed, provided that such
3M common stock is held as a capital asset by such stockholder as of the
Distribution Date.
4. A 3M stockholder who receives cash in lieu of a fractional share of
Common Stock as a result of the sale of such shares by the Distribution
Agent will be treated as if such fractional share had been received by the
stockholder as part of the Distribution and then sold by such stockholder.
Accordingly, such stockholder will recognize gain or loss equal to the
difference between the cash so received and the portion of the tax basis in
the Common Stock that is allocable to such fractional share. Such gain or
loss will be capital gain or loss, provided that such fractional share was
held by such stockholder as a capital asset at the time of the Distribution.
Current Treasury regulations require each 3M stockholder who receives Common
Stock pursuant to the Distribution to attach to his federal income tax return
for the year in which the Distribution occurs a detailed statement setting forth
such data as may be appropriate in order to show the applicability of Section
355 of the Code to the Distribution. 3M will convey the appropriate information
to each stockholder of record as of the Record Date.
The summary of federal income tax consequences set forth above is for general
information only and may not be applicable to stockholders who received their
shares of 3M common stock through the exercise of an employee stock option or
otherwise as compensation or who are not citizens or residents of the United
States or who are otherwise subject to special treatment under the Code. All
stockholders should consult their own tax advisors as to the particular tax
consequences of the Distribution to them, including the applicability and effect
of state, local and foreign tax laws.
LISTING AND TRADING OF THE COMMON STOCK
The shares of Common Stock have been approved for listing on the New York Stock
Exchange, Inc. ("NYSE") and the Chicago Stock Exchange, subject to official
notice of issuance, and will trade under the symbol "IMN." Initially the Company
is expected to have approximately 106,000 holders of record, based on the number
of stockholders of record of 3M on May 1, 1996.
11
A "when-issued" trading market is expected to develop on or about the Record
Date. The term "when-issued" means that shares can be traded prior to the time
certificates are actually available or issued. Prices at which the shares of
Common Stock may trade, on a "when-issued" basis or after the Distribution,
cannot be predicted. See "SPECIAL FACTORS -- Absence of Prior Trading Market for
the Common Stock."
The shares of Common Stock distributed to 3M stockholders will be freely
transferable, except for shares of Common Stock received by persons who may be
deemed to be "affiliates" of the Company under the Securities Act of 1933, as
amended (the "Securities Act"). Persons who may be deemed to be affiliates of
the Company after the Distribution generally include individuals or entities
that control, are controlled by, or are under common control with the Company
and may include the directors and principal executive officers of the Company as
well as any principal stockholder of the Company. Persons who are affiliates of
the Company will be permitted to sell their shares of Common Stock only pursuant
to an effective registration statement under the Securities Act or an exemption
from the registration requirements of the Securities Act, such as the exemptions
afforded by Section 4(2) of the Securities Act and Rule 144 thereunder.
SPECIAL FACTORS
ABSENCE OF HISTORY AS AN INDEPENDENT COMPANY
The Company was formed for the purpose of effecting the Distribution and does
not have an operating history as an independent company. Accordingly, the
financial statements included herein may not necessarily reflect the results of
operations, financial position and cash flows of the Transferred Businesses had
the Company been operated independently during the periods presented. In
addition, the financial information does not reflect many changes that will
occur in the operations of the Company as a result of the Company's strategic
reorganization (See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- Strategic Reorganization") and future business
strategies (See "BUSINESS AND PROPERTIES OF THE COMPANY -- Business Strategy").
The Company believes that these changes, when implemented, will have a
meaningful positive impact on the results of operations of the Company. However,
there can be no assurance as to the timing or amount of any positive impact
which may be realized.
CHANGING INDUSTRY ENVIRONMENT
The information processing industry involves the creation, capture,
manipulation, storage, production and distribution of information. As there is a
greatly expanding need to manage and store more complex information in less
time, with less resources and with greater accuracy, there is an increasing
emphasis in the marketplace on products using digital technology (See "BUSINESS
AND PROPERTIES OF THE COMPANY -- Industry Background").
While the Company has a number of successful digital products, the long-term
profitability of the Company will depend, in part, on the Company's ability to
anticipate the growing uses of digital technologies. The Company believes that
its leadership positions in a number of markets, its proprietary technologies
and its commitment to the development of innovative solution-based products are
factors which will contribute to the Company's ability to be successful. The
Company recognizes, however, that there are many factors beyond its control and
that no assurances can be given as to the Company's ability to anticipate and
satisfy the needs of this evolving marketplace.
TRANSITION TO INDEPENDENT PUBLIC COMPANY
Prior to the Distribution, the Transferred Businesses had the benefit of certain
3M trademarks and 3M's reputation in marketing their products. Pursuant to
agreements being entered into with 3M, the Company will continue to have the use
of certain 3M trademarks for an agreed upon period of time following the
Distribution. One of the challenges facing the Company will be to develop a name
and identity for itself independent of 3M. There can be no assurance that the
Company will be successful in this regard or that the loss of use of 3M
trademarks might not have an adverse effect on the business of the Company.
12
Prior to the Distribution, a number of services have been provided to the
Company by 3M. For a transition period following the Distribution, 3M will
continue to provide such services to the Company. See "RELATIONSHIP BETWEEN 3M
AND THE COMPANY AFTER THE DISTRIBUTION." However, during and after this
transitional period the Company will need to develop its own services and
support systems independent of 3M.
ABSENCE OF 3M FINANCIAL SUPPORT
Prior to the Distribution, the Transferred Businesses participated in 3M's
centralized funding and cash and foreign currency management. The capital
requirements of the Transferred Businesses in excess of their internally
generated funds were provided by 3M. 3M, and not the Transferred Businesses, was
responsible for obtaining any external financing required by the Transferred
Businesses. Although in the years 1993 and 1995, the Company provided cash to 3M
in excess of amounts required for capital expenditures and operating
requirements in the amounts of $13.1 million and $72.9 million respectively, in
1994, 3M provided financial support in the amount of $18.5 million to the
Company. See "HISTORICAL FINANCIAL STATEMENTS -- Historical Statements of Cash
Flows." This financial support will not be available to the Company following
the Distribution and the Company will be responsible for obtaining its own
financing and may experience a higher cost of capital. See "RELATIONSHIP BETWEEN
3M AND THE COMPANY AFTER THE DISTRIBUTION," "FINANCING" and "SPECIAL FACTORS --
Transition to Independent Public Company."
COMPETITION
The Company operates in a highly competitive environment. The Company's
competitors are both larger and smaller than the Company in terms of resources
and market shares. The marketplaces in which the Company operates are generally
characterized by strong unit growth, rapid technological change, evolution to
digital business solutions, and declining prices. In these highly competitive
markets, the Company must compete on the basis of understanding customer needs,
lower costs, introduction of new products and strong digital technology.
Although the Company believes that it can take the necessary steps to meet the
competitive challenges of these marketplaces, no assurance can be given with
regard to the Company's ability to take these steps, the actions of competitors,
some of which will have greater resources than the Company, or the pace of
technological changes. See "BUSINESS AND PROPERTIES OF THE COMPANY --
Competition."
INTERNATIONAL OPERATIONS
The Company does business in approximately 60 countries outside of the United
States, most significantly Italy, the United Kingdom, France and Germany.
International operations, which comprised approximately 50% of the Company's
revenues in 1995, may be subject to various risks which are not present in
domestic operations, including political instability, the possibility of
expropriation, restrictions on royalties, dividends and currency remittances,
volatility of exchange rates of foreign currencies, local government involvement
required for operational changes within the Company, requirements for
governmental approvals for new ventures and local participation in operations
such as local equity ownership and workers' councils.
ABSENCE OF PRIOR TRADING MARKET FOR THE COMMON STOCK
There has not been any established public market for the trading of the
Company's Common Stock, although it is expected that a "when-issued" trading
market will develop on or about the Record Date. The shares of Common Stock have
been approved for listing on the NYSE and the Chicago Stock Exchange, subject to
official notice of issuance. However, there can be no assurance as to the prices
at which the Common Stock will trade before or after the Distribution Date.
Until the Common Stock is fully distributed and an orderly market develops, the
prices at which shares trade may fluctuate significantly. Prices for shares of
Common Stock will be determined in the marketplace and may be influenced by many
factors, including the depth and liquidity of the market for the shares,
investor perception of the Company and the industry in which the Company
participates and general economic and market conditions.
13
COMMON STOCK DIVIDEND POLICY
The payment and amount of cash dividends on the Common Stock after the
Distribution will be subject to the discretion of the Company's Board of
Directors. The Company's dividend policy will be reviewed by the Company's Board
of Directors at such future times as may be appropriate, and payment of
dividends on the Company's Common Stock will depend upon the Company's financial
position, capital requirements, profitability and such other factors as the
Company's Board of Directors deems relevant.
CERTAIN ANTI-TAKEOVER EFFECTS
Certain provisions of the Company's Restated Certificate of Incorporation (the
"Certificate of Incorporation") and By-Laws (the "By-Laws"), including
provisions classifying the board of directors, prohibiting stockholder action by
written consent, governing business transactions with certain stockholders and
requiring advance notice for nomination of directors and stockholder proposals,
may inhibit changes in control of the Company not approved by the Company's
Board of Directors. In addition, preferred stock purchase rights which will
attach to the Common Stock would have similar effects. See "PURPOSES AND EFFECTS
OF CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BY-LAWS -- Rights
Agreement." Such Certificate of Incorporation and By-law provisions and
preferred stock purchase rights could diminish the opportunities for a
stockholder to participate in certain tender offers, including tender offers at
prices above the then-current market value of the Common Stock, and may also
inhibit fluctuations in the market price of the Common Stock that could result
from takeover attempts. See "PURPOSES AND EFFECTS OF CERTAIN PROVISIONS OF THE
CERTIFICATE OF INCORPORATION AND BY-LAWS." In addition, the Company's Board of
Directors, without further stockholder approval, may issue preferred stock that
could have the effect of delaying, deterring or preventing a change in control
of the Company. The issuance of preferred stock could also adversely affect the
voting power of the holders of the Common Stock, including the loss of voting
control to others. The Company has no present plans to issue any preferred
stock. See "DESCRIPTION OF COMPANY CAPITAL STOCK -- Preferred Stock." Certain
agreements pursuant to which 3M is transferring to the Company rights with
respect to certain patents, trademarks, know-how and other intellectual property
provide that 3M may terminate some or all of such rights in the event that
control of the Company is acquired by an entity which may result in
substantially enhanced competition to a significant business of 3M. As a result,
these provisions may inhibit a change in control of the Company. In addition,
there can be no assurance that the loss of such intellectual property rights
following a change of control would not have a material adverse effect on the
Company's business. Such agreements, the provisions of the Certificate of
Incorporation and By-laws and the preferred stock rights may have the effect of
discouraging or preventing an acquisition of the Company or a disposition of
certain of the Company's businesses.
14
RELATIONSHIP BETWEEN 3M AND THE COMPANY
AFTER THE DISTRIBUTION
For purposes of an orderly transfer on the Distribution Date of the Transferred
Businesses to the Company and an orderly transition to the status of two
separate independent companies, 3M and the Company have entered or will enter
into various agreements and relationships, including those described in this
section. These agreements are generally intended to be on an arms-length basis.
The forms of agreements summarized in this section are included as exhibits to
the Registration Statement of which this Information Statement forms a part, and
the following summaries are qualified in their entirety by reference to the
agreements as filed.
DISTRIBUTION AGREEMENT
3M and the Company have entered into the Distribution Agreement, which provides
for, among other things, the principal corporate transactions required to effect
the Distribution, the transfer to the Company of the Transferred Businesses, the
division between 3M and the Company of certain liabilities and certain other
agreements governing the relationship between 3M and the Company following the
Distribution.
The Distribution Agreement generally provides for the transfer by 3M to the
Company or Imation Enterprises Corp. ("Enterprises"), which will be a wholly
owned subsidiary of the Company immediately following the Distribution, of the
assets used in the Transferred Businesses on an "as is and where is" basis, and
for the assumption by the Company or Enterprises of substantially all of the
liabilities relating to the Transferred Businesses. In particular, approximately
one-half of the domestic manufacturing operations of the Transferred Businesses,
as well as research and development, administrative and corporate staff
functions and the capital stock of Enterprises and certain foreign subsidiaries
of 3M, will be transferred to the Company together with substantially all assets
and liabilities associated therewith. The remaining manufacturing operations and
all marketing, field logistical and service operations will be transferred to
Enterprises, together with primarily all assets and liabilities related to such
operations. Substantially all the assets of the Transferred Businesses will be
transferred to the Company as a contribution to capital, except for certain
assets related to non-U.S. operations which will be purchased by the Company.
The assets relating to non-U.S. operations will generally be transferred to
subsidiaries of the Company around the world, either as a contribution to
capital or through a sale of assets at book value. Generally, such subsidiaries
will carry on the sales, service and marketing functions of the Transferred
Businesses outside the United States, except that manufacturing operations will
be conducted by the Company's subsidiaries in Italy and Argentina. In addition,
in most countries outside the U.S., trade accounts receivable and accounts
payable will be retained by 3M and 3M will pay to the Company following the
Distribution an amount corresponding to the amount by which such receivables
exceed such payables. See "PRO FORMA FINANCIAL STATEMENTS."
The Distribution Agreement provides that in the event that it is not feasible to
effect the transfers of non-U.S. operations on or prior to the Distribution Date
in any particular country, 3M and the Company will continue, following the
Distribution Date, their respective efforts to have such transfers and payments
effected as promptly as practicable following the Distribution Date or, if the
Company and 3M determine that such transfers are not capable of being effected
on a timely basis, enter into such other arrangements as are mutually agreed
upon which are intended to enable the Company to operate in such country on a
basis similar to that being conducted by 3M with respect to the Transferred
Businesses. Pending consummation of any such transfers, the Company and 3M shall
enter into such arrangements as may be necessary to enable 3M to continue to
conduct the Transferred Businesses. Following completion of each such transfer,
either 3M shall pay to the Company an amount equal to the net profits realized
after the Distribution Date with respect to these operations or the Company
shall pay to 3M an amount equal to any net losses incurred by 3M after the
Distribution Date with respect to these operations, as the case may be.
The Distribution Agreement also contains certain provisions relating to employee
compensation, benefits and labor matters and the treatment of options to
purchase and awards with respect to 3M common stock held by employees of 3M who
are becoming employees of the Company. Among other
15
things, these provisions apply to the discharge by the Company of liabilities
and obligations relating to employees of the Transferred Businesses.
The Distribution Agreement further provides that 3M and the Company shall each
be granted access to certain records and information in the possession of the
other, and requires the retention by each of 3M and the Company following the
Distribution Date of all such information in its possession in accordance with
existing document retention policies.
The Distribution Agreement provides that, except as otherwise set forth therein
or in any related agreement, 3M and the Company will pay their own costs and
expenses in connection with the Distribution.
TAX SHARING AND INDEMNIFICATION AGREEMENT
3M and the Company have entered into a Tax Sharing and Indemnification Agreement
(the "Tax Sharing Agreement"), providing for their respective obligations
concerning various tax liabilities. The Tax Sharing Agreement provides that 3M
shall pay, and indemnify the Company if necessary, with respect to all federal,
state, local and foreign income taxes relating to the Transferred Businesses for
any taxable period ending on or before the Distribution Date except those
incurred by any foreign subsidiary of the Company. 3M has also agreed to pay all
other taxes (other than those which are imposed solely on the Company) the
liability for which arises on or prior to the Distribution Date or are
attributable to periods up to the Distribution Date, except any tax liability
arising out of the failure of the Distribution or any of the transactions
related to it to qualify as tax free as a result of any action taken by the
Company or any of its subsidiaries. The Tax Sharing Agreement further provides
for cooperation with respect to certain tax matters, the exchange of information
and the retention of records which may affect the income tax liability of either
party.
CORPORATE SERVICES TRANSITION AGREEMENT
3M and the Company have entered into a Corporate Services Transition Agreement
(the "Corporate Services Agreement") pursuant to which 3M has agreed to provide
to the Company certain services, including engineering and environmental
services, logistics and information technology services, financial services,
human resources administration services and tax, insurance, treasury, and
employee benefits administration, which 3M historically has provided to the
Transferred Businesses. The length of time that 3M will provide such services
and the amount that the Company will pay for such services varies based on the
type of service. Generally, no services are expected to be provided beyond two
years following the Distribution Date, and after such time the Company expects
to provide such services on its own behalf. The Corporate Services Agreement is
terminable by each party upon 90 days notice, provided that 3M is not permitted
to terminate certain specified services, which the parties have determined will
require a longer period to replace. The cost associated with the services to be
provided by 3M will be either a fixed dollar amount based on the estimated cost
of the services to be provided, or an amount to be determined pursuant to a
formula based on the services actually provided. Any services required by the
Company beyond the first year will be based on costs incurred plus an 8%
mark-up.
Certain foreign subsidiaries of the Company and 3M have entered or will enter
into corporate services agreements pursuant to which 3M will provide to such
subsidiaries services similar to those to be provided to the Company pursuant to
the Corporate Services Agreement.
ENVIRONMENTAL MATTERS AGREEMENT
3M and the Company have entered into an Environmental Matters Agreement (the
"Environmental Matters Agreement") providing for their respective obligations
concerning environmental liabilities arising out of the operation of the
premises of the Transferred Businesses and other environmental matters.
Under the Environmental Matters Agreement, the Company will assume and indemnify
3M for all liabilities relating to, arising out of or resulting from (i)
operations at the Company's facilities as conducted before the Closing Date;
(ii) the disposal of hazardous materials, from the Company's
16
facilities, before the Distribution Date, at disposal sites operated by third
parties ("Superfund Sites"), where such liabilities are discovered after the
Distribution Date; or (iii) operations of the Transferred Businesses on and
after the Distribution Date. 3M has agreed to retain responsibility for
environmental liabilities relating to former premises which may have been
associated with the Transferred Businesses, and known Superfund sites associated
with the current properties of the Transferred Businesses. See "BUSINESS AND
PROPERTIES OF THE COMPANY -- Environmental Matters."
As of March 31, 1996 the Company had reserved approximately $6.5 million with
respect to environmental liabilities.
INTELLECTUAL PROPERTY AGREEMENT
3M and the Company have entered into an Intellectual Property Rights Agreement
(the "Intellectual Property Agreement") pursuant to which 3M will grant to the
Company rights to use certain intellectual property (such as patent rights,
copyrights, mask work rights and proprietary information) exclusively in the
fields of use in which the Transferred Businesses presently operate and
non-exclusively in certain other fields. In addition, 3M is transferring to the
Company title to certain intellectual property rights used by the Transferred
Businesses, subject to certain rights which 3M will have to continue to use such
intellectual property rights. The Intellectual Property Agreement further
provides for cross licensing of certain future intellectual property developed
during a transition period. In addition, for various transition periods
specified in the Intellectual Property Agreement, the Company will be granted
the right to use certain 3M trademarks under a royalty-bearing license.
Trademarks used only by the Transferred Businesses will be assigned to the
Company.
The Intellectual Property Agreement provides that the costs associated with the
procurement and maintenance of patents and trademarks licensed to either party
by the other under the Intellectual Property Agreement will be the
responsibility of the party owning the particular patent or trademark. However,
with respect to patents, either party may designate a patent or patent
application under which it is licensed by the other party to be of "common
interest." The licensed party is granted certain rights to participate in
decisions involving such common interest patents and patent applications, and
the costs thereof are shared by the parties. The costs of enforcing licensed
patents against an infringer will be borne by the party instituting the lawsuit
unless the parties agree otherwise. For jointly-owned patents, enforcement costs
are shared if both parties desire to participate. The Company's enforcement of
patents owned by 3M and licensed to the Company requires prior approval by 3M.
With the exception of licensed trademark rights, no royalties or fees are
payable by the Company to 3M for the assignment and license of intellectual
property to the Company under the Intellectual Property Agreement. With respect
to licensed trademarks, the Company will pay a reasonable royalty through cash
payments, commitments to purchase product from 3M and/or engaging in certain
other activities benefiting 3M.
The parties will cross-license each other under certain patents and proprietary
information developed by each party during the two year period following the
Distribution Date. The cross-licenses are royalty-free and generally of the same
scope (i.e., exclusive or non-exclusive in defined fields) as the licenses
granted to and retained by the Company and 3M, respectively, under the patents
and proprietary information existing at the time of the Distribution.
The Company and 3M will enter into joint development agreements pursuant to
which the parties will assist each other in the development of new products
after the Distribution Date. The relationship between the parties under the
agreements will vary from simple purchased research to shared product
development.
3M and the Company have agreed not to compete with each other in their
respective businesses for a period of five years following the Distribution
Date. 3M agrees that, except for ancillary activity involving an insubstantial
business, it will not compete directly or indirectly in the Company's Exclusive
Fields (which, as defined in the Intellectual Property Agreement are generally
the fields of business in which the Company is presently engaged). The Company
agrees that, except for ancillary activity involving an insubstantial business,
it will not compete, directly or indirectly in the 3M Business Fields (which, as
defined in the Intellectual Property Agreement, are generally the fields of
business in which
17
3M is presently engaged). However, this provision does not preclude the Company
from indirect activity, outside of the 3M Reserved Fields (which, as defined in
the Intellectual Property Agreement, are generally fields closely related to the
Company's Exclusive Fields where 3M has retained exclusive rights), involving
working with a third party on that party's imaging and electronic information
processing needs, internal or external, as long as the activity does not
benefit, in more than an ancillary way, a product or service of the third party
which competes with a product or service in the 3M Business Fields.
SUPPLY, SERVICE, CONTRACT MANUFACTURING AND SALES AGENCY AGREEMENTS
3M and the Company have entered into various product and service supply
agreements (the "Supply Agreements") providing for the supply by 3M to the
Company and by the Company to 3M, of certain products and services. Under the
Supply Agreements, 3M will supply to the Company certain raw material and
intermediate products including film, specialty chemicals and abrasives and will
provide to the Company certain contract manufacturing services, primarily
equipment assembly services. The cost of all such products and services supplied
by 3M to the Company during 1995 totaled approximately $103 million. Under the
Supply Agreements, the Company will supply to 3M certain semi-finished products
and components and will provide to 3M certain contract manufacturing and other
services, including converting, slitting and coating services and technical
field service. The cost of all such products and services supplied by the
Company to 3M during 1995 totaled approximately $41 million. The prices for
products supplied by either party under the Supply Agreements will be based on
the cost of supplying such product plus a 5% mark-up in 1996, a 10% mark-up in
1997 and a 15% mark-up in 1998 and thereafter. The prices paid for contract
manufacturing services provided by either party vary depending on the services
provided but generally will be based on costs incurred plus an 8% mark-up. 3M
and the Company have also entered into a sales agency agreement providing for
the appointment of 3M as a sales agent for certain finished products supplied by
the Company in return for the payment of a commission for orders taken for the
Company's products. The Company expects to pay commissions to 3M for sales
agency services of approximately $1.3 million during the last six months of
1996.
SHARED FACILITY AND LEASE AGREEMENTS
3M and the Company have entered into various lease agreements with respect to
certain facilities (the "Shared Facility Agreements") at which 3M and the
Company will continue to share space. With respect to each of these facilities,
the party that will be the owner (or primary tenant) of the facility will lease
to the other party a portion of the facility so as to enable the other party to
conduct operations at such facility.
The form of lease to be entered into by 3M and the Company provides for the
payment of rent in an amount approximating the standard recharge rate used by
the lessor with respect to internal uses of such facilities. The leases
generally provide for a two year term, in some cases with an option to extend
for an additional two years. It is expected that 3M will pay to the Company
approximately $455,000 and that the Company will pay approximately $11.4 million
to 3M in the first year following the Distribution with respect to Shared
Facility Agreements.
Each of 3M and the Company believes that the properties it will own or have a
leasehold interest in following the Distribution will be adequate for its
business following the Distribution. Over the next two years, the Company
anticipates building new facilities at the site of its corporate headquarters so
as to consolidate its headquarters operations.
18
FINANCING
The Company has obtained a commitment letter dated June , 1996, from Citibank,
N.A., to provide, or arrange for a group of lenders to provide, a $350 million
five-year, revolving credit facility (the "Revolving Credit Facility") to the
Company which will be used primarily to refinance certain existing debt, to
finance the Company's purchase of certain assets from 3M related to the
Company's non-U.S. operations, to fund certain accrued employee benefits plans
and certain loans to the Company's employee stock ownership plan and to fund
working capital and other general corporate needs of the Company and its
subsidiaries following the Distribution. A definitive credit agreement
containing the terms described below will be executed prior to the Distribution
Date.
Loans obtained under the Revolving Credit Facility are expected to bear
interest, at the election of the Company, at (i) a fluctuating rate equal to the
the highest of (a) Citibank N.A.'s publicly announced "base" rate, (b) the
latest three-week moving average of secondary market morning offering rates for
three-month certificates of deposit plus -1/2 of 1% and (c) the Federal funds
rate plus -1/2 of 1%, in each case plus an applicable margin or (ii) a periodic
fixed rate equal to the London Interbank Offered Rate plus an applicable margin,
in either case with the applicable margin varying based on a pricing grid tied
to the Company's financial performance or, if and when obtained, the ratings on
the Company's long-term senior unsecured indebtedness. The Company will also pay
a facility fee on the entire amount of the Revolving Credit Facility in effect
from time to time at a per annum rate that will vary depending on the same
criteria used to determine the applicable margin. The Revolving Credit Facility
is also expected to contain, among other terms, conditions precedent, covenants,
mandatory prepayment provisions and events of default customary for facilities
of this type. Such covenants may relate to limitations on the incurrence of
indebtedness, mergers and consolidations involving the Company, certain sales of
assets, the creation of liens and maintenance of financial ratios (including an
adjusted interest coverage ratio, a total capitalization ratio, and a minimum
consolidated tangible net worth). In addition to the facility fee described
above, the Company expects to pay certain other customary fees in connection
with the Revolving Credit Facility.
19
PRO FORMA CAPITALIZATION
The following table sets forth the unaudited pro forma capitalization of the
Company at March 31, 1996. This data should be read in conjunction with the pro
forma balance sheet and the introduction to the pro forma financial statements
appearing elsewhere in this Information Statement. The pro forma information may
not reflect the capitalization of the Company in the future or as it would have
been had the Company been a separate, independent company on March 31, 1996.
Assumptions regarding the number of shares of the Company's Common Stock may not
reflect the actual numbers at the Effective Date. See "PRO FORMA FINANCIAL
STATEMENTS."
IMATION CORP.
PRO FORMA CAPITALIZATION TABLE
as of March 31, 1996
(Dollars in millions)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Long-term debt $ 250.0 (a) $ 280.0
30.0 (b)
Equity
Net investment by 3M $1,121.7 (173.1)(c) --
40.0 (d)
(20.3)(e)
0.3 (f)
(968.6)(g)
Common stock 0.4 (g) 0.4
Additional paid in
capital 968.2 (g) 968.2
Unearned ESOP shares (30.0)(b) (30.0)
Total equity 1,121.7 (183.1) 938.6
Total capitalization $1,121.7 $ 96.9 $1,218.6
</TABLE>
NOTES TO PRO FORMA CAPITALIZATION TABLE
(ALL AMOUNTS ARE IN MILLIONS OF DOLLARS UNLESS OTHERWISE NOTED)
(a) Reflects an estimated $250 million of debt the Company expects to incur for
general corporate purposes on or shortly after the Distribution Date.
Approximately $173.1 million of the $250 million to be borrowed will be used at
the time of the Distribution to purchase from 3M certain assets located outside
the United States where spin-off transactions will not be consummated and to
repay intercompany indebtedness being assumed by the Company in connection with
the Distribution, and approximately $26.9 million will be used to pay certain
accrued employee benefits.
(b) Reflects funds borrowed by the Company and on-lent to the ESOP and the
adjustment to the Company's equity resulting from the purchase of outstanding
shares of Common Stock by the ESOP which have not been earned by ESOP
participants and allocated to their respective accounts.
(c) Reflects the net payment to 3M of an estimated $173.1 million to purchase
certain assets located outside the United States where spinoff transactions will
not be consummated and to repay intercompany indebtedness being assumed by the
Company in connection with the Distribution.
(d) Represents capital contribution by 3M in an amount equal to $40 million
(e) Represents a valuation allowance necessary to reflect deferred tax assets at
their estimated realizable value on a purely separate return basis.
(f) Reflects the net deferred tax assets to be realized by 3M upon the Company's
purchase of certain assets outside the United States (see footnote (c)).
20
(g) Reflects the issuance of an estimated 42 million shares of common stock, par
value $.01 per share, as of July 1, 1996. This is based on 3M's common stock
outstanding at March 31, 1996 of 418.6 million shares and an assumed
distribution of one share of the Company's common stock for every ten shares of
3M common stock outstanding. Additional paid in capital represents the excess of
the historical carrying values of the Company's net assets at the Distribution
Date over the amount reflected as Common Stock.
PRO FORMA FINANCIAL STATEMENTS
The Company was formed by 3M for the purpose of effecting the Distribution and
has no operating history as a separate, independent company. The historical
financial statements of the Company reflect periods during which the Company did
not operate as a separate, independent company, and certain assumptions were
made in preparing such financial statements. Therefore, such historical
financial statements may not reflect the results of operations or financial
position that would have existed had the Company been a separate, independent
company.
The following pro forma financial statements of the Company make adjustments to
the historical (unaudited) balance sheet at March 31, 1996 and the historical
statements of operations for the year ended December 31, 1995, and the three
months ended March 31, 1996 (unaudited) as if the Distribution had occurred on
March 31, 1996 for purposes of the pro forma balance sheet and January 1, 1995
for purposes of the pro forma statements of operations.
THE PRO FORMA FINANCIAL STATEMENTS OF THE COMPANY SHOULD BE READ IN CONJUNCTION
WITH THE HISTORICAL FINANCIAL STATEMENTS OF THE COMPANY AND THE NOTES THERETO
CONTAINED ELSEWHERE IN THIS INFORMATION STATEMENT. THE PRO FORMA FINANCIAL
INFORMATION IS PRESENTED FOR INFORMATIONAL PURPOSES ONLY AND MAY NOT REFLECT THE
FUTURE RESULTS OF OPERATIONS OR FINANCIAL POSITION OF THE COMPANY OR WHAT THE
RESULTS OF OPERATIONS OR FINANCIAL POSITION WOULD HAVE BEEN HAD THE COMPANY'S
BUSINESSES BEEN OPERATED AS A SEPARATE, INDEPENDENT COMPANY.
The pro forma financial statements assume the completion of the transactions
contemplated by the Distribution Agreement and the agreements to be entered into
pursuant to the Distribution Agreement, including the completion of all the
asset transfers and contract assignments contemplated thereby. Although it is
possible that certain asset transfers relating to the Company's operations
outside the United States may not be completed prior to the Distribution Date,
the Distribution Agreement provides that the economic benefits or costs relating
to such assets following the Distribution will be for the Company's account. See
"RELATIONSHIP BETWEEN 3M AND THE COMPANY AFTER THE DISTRIBUTION -- Distribution
Agreement." Assumptions regarding the number of shares of the Company's Common
Stock may not reflect the actual numbers at the Distribution Date.
21
IMATION CORP.
PRO FORMA STATEMENTS OF OPERATIONS
Three Months Ended March 31, 1996 and Year Ended December 31, 1995
(In Millions Except for Per Share Data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1996 YEAR ENDED DECEMBER 31, 1995
PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA
(UNAUDITED) (UNAUDITED) (UNAUDITED) HISTORICAL (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net revenues $576.1 $576.1 $2,245.6 $2,245.6
Cost of goods sold 373.8 373.8 1,520.9 1,520.9
Gross profit 202.3 -- 202.3 724.7 -- 724.7
Operating expenses:
Selling, general and
administrative 130.7 130.7 539.4 539.4
Research and development 47.9 47.9 222.4 222.4
Restructuring charge 10.4 10.4 111.8 111.8
Total 189.0 -- 189.0 873.6 -- 873.6
Operating income (loss) 13.3 -- 13.3 (148.9) -- (148.9)
Interest expense and other 3.2 0.4 (a) 3.6 17.9 1.5 (a) 19.4
Income (loss) before taxes and
minority interest 10.1 (0.4) 9.7 (166.8) (1.5) (168.3)
Income tax expense (benefit) 4.1 (0.2)(b) 4.5 (70.5) (0.6)(b) (48.1)
0.6 (c) 23.0 (c)
Minority interest (0.1) (0.3)(c)(f) (0.4) (11.3) (11.5)(c)(f) (22.8)
Net income (loss) $ 6.1 $(0.5) $ 5.6 (d) $ (85.0) $(12.4) $ (97.4)(d)
Net income (loss) per share $ 0.13(e) $ (2.32)(e)
</TABLE>
The accompanying notes are an integral part of this statement.
22
NOTES TO PRO FORMA STATEMENTS OF OPERATIONS
(ALL AMOUNTS ARE IN MILLIONS OF DOLLARS UNLESS OTHERWISE NOTED)
(a) Represents an adjustment of the allocation of 3M's interest expense to
reflect an estimate of the weighted average interest rate the Company would have
experienced during the periods presented. The interest rates used were 8.1% in
1995 and 7.3% in first quarter, 1996. These rates represent 3M's historical
weighted average rates during these periods as adjusted to reflect the higher
cost of borrowing the Company expects to incur on a stand-alone basis. The
interest calculation is based on the Company's estimated non-ESOP debt level
expected on or shortly after the Distribution of $250 million.
(b) Reflects the adjustment to income tax benefit associated with the change in
interest expense described in Note (a).
(c) Represents an adjustment to the income tax benefit to reflect a valuation
allowance for deferred tax assets on a purely separate return basis and the
resulting impact on minority interest.
(d) Restructuring charges reduced pro forma results for the three months ended
March 31, 1996 by $10.4 million before taxes and minority interest and $6.1
million after taxes and minority interest. Pro forma net income for the three
months ended March 31, 1996 would have been $11.7 million, or $.28 per share
excluding these charges. Restructuring charges and asset write-offs reduced 1995
pro forma results by $166.3 million before taxes and minority interest and $97.8
million after taxes and minority interest. 1995 pro forma net income excluding
these charges would have been $0.4 million, or $.01 per share.
(e) Represents the net income (loss) per share on an assumed approximately 42
million shares of the Company's common stock outstanding. This is based on 3M's
weighted average number of shares outstanding during first quarter, 1996 of
418.5 million shares and full year 1995 of 419.8 million shares and an assumed
distribution of one share of the Company's stock for every ten shares of 3M
common stock outstanding.
(f) The historical and pro forma statements of operations reflect minority
interests in Japan and Korea since the Company's operations in such countries
are presently conducted by 3M through joint ventures in which third parties have
minority interests. The Company has an agreement in principle with 3M's joint
venture partners in Japan providing for an aggregate minority interest following
the Distribution equal to 40%. Accordingly, the Company expects its future
statements of operations to continue to reflect minority interests in Japan. In
Korea, the Company presently does not expect to have a minority interest
partner, however the transfer of the Korean operations to the Company is subject
to the approval of 3M's joint venture partner. If this approval is not obtained,
3M and the Company will be required to enter into arrangements which enable the
Company to operate in Korea on a basis similar to that being conducted by 3M.
See "RELATIONSHIP BETWEEN 3M AND THE COMPANY AFTER THE DISTRIBUTION --
Distribution Agreement." The Company does not believe that the expected future
minority interest in Japan or a failure to effect the transfer in Korea would
have a material adverse effect on the financial position or results of the
Company.
23
IMATION CORP.
PRO FORMA BALANCE SHEET
As of March 31, 1996
(In Millions)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and equivalents $ 250.0 (a) $ 90.0
(26.9)(b)
(173.1)(c)
40.0 (d)
Accounts receivable -- net $ 472.2 -- (e) 472.2
Inventories 420.1 420.1
Other current assets 48.1 (1.5)(f) 44.2
(2.4)(g)
Total current assets 940.4 86.1 1,026.5
Property, Plant and Equipment -- net 503.9 503.9
Other Assets 75.7 (18.8)(f) 56.9
Total assets $1,520.0 $ 67.3 $1,587.3
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable $ 117.0 -- (e) $ 117.0
Accrued payroll 52.8 52.8
Other current liabilities 137.2 (17.2)(b) 118.7
(1.3)(g)
Total current liabilities 307.0 (18.5) 288.5
Other Liabilities 91.3 (9.7)(b) 80.2
(1.4)(g)
Long-Term Debt 250.0 (a) 280.0
30.0 (h)
Equity
Net investment by 3M 1,121.7 (173.1)(c) --
40.0 (d)
(20.3)(f)
0.3 (g)
(968.6)(i)
Common stock 0.4 (i) 0.4
Additional paid in capital 968.2 (i) 968.2
Unearned ESOP shares (30.0)(h) (30.0)
Total equity 1,121.7 (183.1)(j) 938.6
Total liabilities and equity $1,520.0 $ 67.3 $1,587.3
</TABLE>
The accompanying notes are an integral part of this statement.
24
NOTES TO PRO FORMA BALANCE SHEET
(ALL AMOUNTS ARE IN MILLIONS OF DOLLARS UNLESS OTHERWISE NOTED)
(a) Reflects an estimated $250 million of debt the Company expects to incur for
general corporate purposes on or shortly after the Distribution Date.
Approximately $173.1 million of the $250 million to be borrowed will be used at
the time of the Distribution to purchase from 3M certain assets located outside
the United States where spin-off transactions will not be consummated and to
repay intercompany indebtedness being assumed by the Company in connection with
the Distribution, and approximately $26.9 million will be used to pay certain
accrued employee benefits,
(b) Reflects the payment shortly after the Distribution Date of an estimated
$26.9 million to pay certain accrued employee benefits, including approximately
$17.2 million of current liabilities and approxiamtely $9.7 million of other
liabilities.
(c) Reflects the net payment to 3M of an estimated $173.1 million to purchase
certain assets located outside the United States where spin-off transactions
will not be consummated and to repay intercompany indebtedness being assumed by
the Company in connection with the Distribution.
(d) Represents capital contribution by 3M in an amount equal to $40 million.
(e) To provide a more accurate reflection of future financial statements, the
pro forma financial statements do not give effect to the retention by 3M of
certain trade receivables and payables outside the United States and the
agreement by 3M to pay to the Company following the Distribution an amount
corresponding to the amount by which such receivables exceed such payables. (See
"RELATIONSHIP BETWEEN 3M AND THE COMPANY AFTER THE DISTRIBUTION -- Distribution
Agreement.")
(f) Represents a valuation allowance necessary to reflect deferred tax assets at
their estimated realizable value on a purely separate return basis.
(g) Reflects the net deferred tax assets to be realized by 3M upon the Company's
purchase of certain assets outside the United States (see footnote (c)).
(h) Reflects funds borrowed by the Company and on-lent to the ESOP and the
adjustment to the Company's equity resulting from the purchase of outstanding
shares of Common Stock by the ESOP which have not been earned by ESOP
participants and allocated to their respective accounts.
(i) Reflects the issuance of an estimated 42 million shares of common stock, par
value $.01 per share, as of July 1, 1996. This is based on 3M's common stock
outstanding at March 31, 1996 of 418.6 million shares and an assumed
distribution of one share of the Company's common stock for every ten shares of
3M common stock outstanding. Additional paid in capital represents the excess of
the historical carrying values of the Company's net assets at the Distribution
Date over the amount reflected as Common Stock.
(j) No minority interest has been reflected in the historical or pro forma
balance sheets. While the Company's operations in Japan and Korea are presently
conducted by 3M through joint ventures in which the third parties own minority
interests, the Company does not expect to have any minority interest partners as
of the Distribution Date. The Company does, however, have an agreement in
principle with 3M's joint venture partners in Japan providing for an aggregate
minority interest following the Distribution equal to 40%. Accordingly, the
Company expects its future balance sheets to reflect minority interests in
Japan. In Korea, the transfer of the operations to the Company is subject to the
approval of 3M's joint venture partner. If this approval is not obtained, 3M and
the Company will be required to enter into arrangements which enable the Company
to operate in Korea on a basis similar to that being conducted by 3M. See
"RELATIONSHIP BETWEEN 3M AND THE COMPANY AFTER THE DISTRIBUTION -- Distribution
Agreement." The Company does not believe that the expected future minority
interest in Japan or a failure to effect the transfer in Korea would have a
material adverse effect on the financial position or results of the Company.
25
SELECTED HISTORICAL FINANCIAL DATA
The following selected historical financial data of the Company should be read
in conjunction with the historical financial statements and notes thereto
included elsewhere in this Information Statement. This selected historical
financial data relates to the Transferred Businesses as they were operated as
part of 3M. They also include an allocation of certain general corporate
expenses of 3M which were not directly related to these businesses. The
following selected historical financial data are derived from the historical
financial statements of the Company. The selected historical financial data that
relate to the three year period ended December 31, 1995 have been derived from
the financial statements audited by Coopers & Lybrand L.L.P., independent public
accountants. The selected historical financial data for the two year period
ended December 31, 1992 have been derived from unaudited historical financial
statements. In the opinion of management, the unaudited historical financial
statements reflect all adjustments, consisting of normal adjustments, necessary
to present fairly the financial position of the Company at December 31, 1992 and
1991 and the results of operations and cash flows for the years then ended. The
historical financial data of the Company may not reflect the results of
operations or financial position that would have been obtained had the Company
been a separate, independent company.
SELECTED HISTORICAL FINANCIAL DATA
(Dollars in millions)
<TABLE>
<CAPTION>
1995* 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
For the Year Ended December 31:
Net revenues $2,245.6 $2,280.5 $2,307.8 $2,350.0 $2,319.0
Gross profit 724.7 838.5 886.2 885.0 911.0
Selling, general and administrative expense 539.4 531.5 529.0 542.0 525.0
Research and development 222.4 211.2 216.7 181.0 174.0
Operating income (loss) (148.9) 95.8 140.5 162.0 212.0
Income (loss) before tax and minority
interest (166.8) 81.3 127.4 142.0 187.0
Net income (loss) (85.0) 54.3 75.3 94.0 119.0
At December 31:
Total working capital 658.4 714.0 618.4 608.1 606.7
Property, plant and equipment -- net 513.2 654.9 642.2 618.5 607.6
Total assets 1,541.5 1,671.7 1,545.6 1,533.9 1,514.7
Total liabilities 392.8 371.7 345.8 361.7 341.4
Total equity 1,148.7 1,300.0 1,199.8 1,172.2 1,173.3
</TABLE>
* Restructuring charges and asset write-offs reduced 1995 results by $166.3
million before taxes and minority interest and $88.3 million after taxes and
minority interest. 1995 net income excluding these charges would have been
$3.3 million. The majority of these charges related to the write-down of
property, plant and equipment.
26
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL OVERVIEW
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations is based upon the separate historical financial statements
of the Company, which present the Company's results of operations, financial
position and cash flows. These historical financial statements include the
assets, liabilities, income and expenses that were directly related to the
Transferred Businesses as they were operated within 3M. In the case of assets
and liabilities not specifically identifiable to any particular business of 3M,
only those assets and liabilities expected to be owned by the Company after the
Distribution were included in the Company's separate balance sheets. Regardless
of the allocation of these assets and liabilities, however, the Company's
statement of operations includes all of the related costs of doing business,
including charges for the use of facilities and for employee benefits, and
include an allocation of certain general corporate expenses of 3M which were not
directly related to these businesses including costs for corporate logistics,
corporate research and development, information technologies, finance, legal and
corporate executives. These allocations were based on a number of factors
including, for example, personnel, space, time and effort, and sales volume.
Management believes these allocations as well as the assumptions underlying the
development of the Company's separate financial statements to be reasonable.
The financial information included herein, however, may not necessarily reflect
the results of operations, financial position and cash flows of the Company as
it will operate in the future or what the results of operations, financial
position and cash flows would have been had the Company been a separate,
stand-alone entity during the periods presented. This is due, in part, to the
historical operation of the Company as an integral part of the larger 3M. The
historical financial information included herein also does not reflect the
changes that will occur in the operations of the Company following the
Distribution.
STRATEGIC REORGANIZATION
The Company historically has operated as part of 3M. Following the Distribution,
the Company will be a stand-alone entity with objectives and strategies separate
from those of 3M. The Company will focus on providing solution-based products
and systems to customers in the information processing industry. In late 1995,
the Company initiated a review of all of its operations, including its
organizational structure, manufacturing operations, products and markets, with
the goal of maximizing its cash flows and improving net income. In connection
with this review, the Company has adopted a reorganization plan to rationalize
its manufacturing operations, streamline its organizational structure and write
off impaired assets.
To reflect the direct and indirect costs associated with this reorganization
plan, 3M recognized a loss on disposal which included pre-tax charges of
approximately $340 million in the fourth quarter of 1995 as a part of its
discontinued operations charges. The Company will reflect the direct portion of
these charges, approximately $250 million, in its separate financial statements
partially in 1995 and partially in 1996 based upon the timing of recognition
criteria required for restructuring charges. The Company recorded $166 million
of these charges in its 1995 statement of operations primarily for the
write-down of assets associated with its manufacturing rationalization programs.
The Company expects to record the remainder in its 1996 financial statements.
These costs relate primarily to employee separations for direct employees of the
Company.
As a part of the reorganization, 3M announced an expected reduction of
approximately 5,000 positions. The Company's direct employee reductions are
expected to total more than 1,600 positions and will occur through already
announced voluntary and involuntary separation programs and through the
completion of the Company's manufacturing consolidation activities. As of May 1,
1996, approximately 850 United States employees have accepted voluntary
separation offers. The Company has also announced the closure of one
manufacturing facility in the United States, which will result in the reduction
of approximately 325 additional employees over the next 12 months. Outside the
United States, the Company expects employment reductions of approximately 290
positions through already
27
announced voluntary and involuntary separation programs. Additional future
employment reductions will result primarily from the completion of the Company's
manufacturing rationalization programs.
The separation costs related to these programs are recognizable in the Company's
financial statements when employees accept voluntary separation offers and upon
announcement for involuntary separation programs. The first quarter 1996
statement of operations includes $10.4 million of these restructuring charges.
The Company expects to record approximately $74 million of additional employee
separation costs, the majority of which will be recorded in the second quarter
of 1996. 3M will fund most of the cash requirements of announced separation
programs. See further discussion of these charges in "-- Operating Results."
As of March 31, 1996 the Company had approximately 12,000 direct and indirect
employees. This number included positions in factory locations to be transferred
to the Company, and in laboratory, engineering, selling, marketing and
administrative positions held by direct Company employees. It also included
indirect equivalent positions in staff services functions at 3M which have
historically provided services to the businesses of the Company. After the
Distribution, approximately 1,100 staff services equivalent positions will
remain with 3M. In the near term, the costs related to the staff services
support provided by these employees will continue to be incurred by the Company
through the Corporate Services Agreement. After the Distribution, it is expected
that the Company will have less than 10,000 direct employees as a result of the
above actions. The Company believes that this is an appropriate staffing level
for the near term.
The Company's overall financial goal is to improve the Company's economic profit
(which is measured as operating income after taxes in excess of the Company's
cost of capital) by $150 million by the end of 1998. This goal is based on
anticipated cost reductions, improved revenue growth and increased asset
utilization resulting from the implementation of the Company's business
strategy, including the steps outlined under "--Operating Results -- Comparison
of Years Ended December 31, 1995, 1994 and 1993." The Company anticipates total
cost savings (net of start-up expenses) during the three year period 1996-1998
of $90 million after taxes; or, on a pre-tax basis, $30 million in cost savings
in 1996, an additional $70 million in 1997 and an additional $50 million in
1998. The Company, however, does not expect the reorganization plan to have any
meaningful effect on cash flows until 1997, as start-up expenses are likely to
offset any cash generated from reduced costs in 1996. Although management
believes that this goal is appropriate for the Company, there can be no
assurance as to the Company's ability to achieve this goal. See "Forward Looking
Statements."
OPERATING RESULTS
COMPONENTS OF NET REVENUE CHANGES
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEARS END DECEMBER 31,
MARCH 31, 1996 1995 1994
U.S. INTL. WORLDWIDE U.S. INTL. WORLDWIDE U.S. INTL. WORLDWIDE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Volume 3% 9% 6% (1)% 6% 2% 5% 9% 7%
Price (4) (7) (5) (5) (7) (6) (9) (8) (9)
Translation -- (2) (1) -- 4 2 -- 1 1
Total (1)% --% --% (6)% 3% (2)% (4)% 2% (1)%
</TABLE>
28
The following table displays the components of the Company's historical
statements of operations as a percentage of total net revenues.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31 YEAR ENDED DECEMBER 31,
1996 1995 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Net revenues 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 64.9 63.2 67.7 63.2 61.6
Gross profit 35.1 36.8 32.3 36.8 38.4
Operating expenses:
Selling, general and administrative 22.7 23.8 24.0 23.3 22.9
Research and development 8.3 9.8 9.9 9.3 9.4
Restructuring charges 1.8 -- 5.0 -- --
Total operating expenses 32.8 33.6 38.9 32.6 32.3
Operating income (loss) 2.3 3.2 (6.6) 4.2 6.1
Interest expense and other 0.5 0.9 0.8 0.6 0.6
Income (loss) before tax and minority
interest 1.8 2.3 (7.4) 3.6 5.5
Effective income tax rate (% of pre-tax) 41.0 42.3 (42.3) 36.0 40.7
Net income (loss) 1.1% 1.3% (3.8)% 2.4% 3.3%
</TABLE>
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1996 AND 1995
Net revenues in the first three months of 1996 were essentially equal to the
level during the same period in 1995. Volume increases of 6 percent were
substantially offset by price declines of 5 percent. Net revenues in the United
States declined 1 percent with a volume increase of 3 percent being more than
offset by pricing declines. Outside the United States, volume increased 9
percent. Price declines of 7 percent and a 2 percent negative effect of changes
in currency exchange rates offset these volume increases.
Gross profit in the first quarter of 1996 was 35.1 percent of revenues, down 1.7
percentage points from first quarter 1995. This decline was primarily due to the
effect of lower selling prices, only partially offset by volume increases,
productivity benefits and other factors.
Selling, general and administrative expenses were 22.7 percent of revenues in
the first three months of 1996, down 1.1 percentage points from the same period
in 1995. The majority of this decline was in sales related costs which were down
approximately $5.0 million.
Research and development costs totaled $47.9 million or 8.3 percent of revenues
in the first three months of 1996, down $8.5 million and 1.5 percentage points
from the same period in 1995. The higher level of spending in 1995 reflects
investments made in a number of the Company's new products which came to market
during 1995 and early 1996.
The Company recorded restructuring charges of $10.4 million in the first quarter
of 1996 reflecting costs for certain voluntary separation programs which were
recognized based on the number of employee acceptances of separation offers
during the quarter ended March 31, 1996 in accordance with the applicable
accounting rules.
Operating income for the first three months of 1996 was $13.3 million but would
have totaled $23.7 million or 4.1 percent of revenues excluding restructuring
charges. This represents a $5.5 million increase from operating income in the
same period in 1995 which totaled $18.2 million or 3.2 percent of revenues.
Excluding restructuring charges, income before taxes and minority interest was
$20.5 million in 1996, improved by $7.5 million from the three month period
ended March 31, 1995. This resulted from a lower effective interest rate in
1996.
The Company's effective tax rate was 41.0 percent, down from 42.3 percent in the
first quarter of 1995. This decrease was due primarily to a shift in profits to
lower tax jurisdictions.
29
Net income in the first quarter of 1996 was $6.1 million, and would have totaled
$12.2 million or 2.1 percent of revenues excluding restructuring charges. This
represents an increase of $4.7 million and 0.8 percentage points from the same
period in 1995.
COMPARISON OF YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
Net revenues in 1995 and 1994 declined 1.5 percent and 1.2 percent,
respectively. These declines resulted primarily from the effects of downward
pricing pressures which exceeded the Company's volume growth in both 1995 and
1994, especially in the United States. See Note 8 to NOTES TO HISTORICAL
FINANCIAL STATEMENTS for the Company's revenues by classes of similar products
or services.
Approximately 50 percent of the Company's net revenues in 1995 were from sales
outside the United States, which is up from just over 47 percent in 1994 and 46
percent in 1993. This trend is expected to continue in future years. In the
Company's international operations, volume rose 6 percent in 1995 and 9 percent
in 1994. In both 1995 and 1994, these volume gains were substantially offset by
price declines. Changes in currency exchange rates positively impacted
international net revenues by 4 percent in 1995 and 1 percent in 1994.
United States net revenues declined 6 percent in 1995 and 4 percent in 1994,
driven by price declines in both years. Volume declined slightly in 1995, after
having grown 5 percent in 1994.
Gross profit in 1995 was 32.3 percent of revenues, representing a 4.5 percentage
point decrease from 1994. This decrease was primarily due to the effect of lower
selling prices and the portion of special charges included in cost of goods sold
noted below. In 1994, gross profit was 36.8 percent of revenues, representing a
1.6 percentage point decrease from 1993. In this period, the negative effects of
price declines were only partially offset by volume increases and other factors.
Selling, general and administrative expenses were 24.0 percent of revenues in
1995, as compared to 23.3 percent in 1994, and 22.9 percent in 1993. These
increases were primarily due to the decline in the revenue base. Spending in
dollars has been relatively flat during the past three years, reflecting cost
control and productivity improvements, and is expected to decline as a
percentage of revenues in the future.
Research and development expenses in 1995 were 9.9 percent of revenues, up from
9.3 percent and 9.4 percent in 1994 and 1993, respectively. In 1995, this
represented an $11.2 million increase over 1994 spending and reflects
investments in a number of the Company's promising new products including
Travan(tm) high-capacity data cartridges, LS-120 diskettes, the new family of
Rainbow proofing systems and DryView(tm) imagers. Management intends to continue
its strong focus on research and development, while controlling the related
costs through prioritized spending. Management expects expenditures for research
and development to decline as a percentage of revenues in the future.
The Company recorded special charges of $166.3 million ($88.3 million after
taxes and minority interest) in its 1995 financial statements. Of these charges,
$111.8 million relate to world-wide manufacturing rationalization programs to
exit less profitable manufacturing locations and to centralize manufacturing in
the United States and in Italy. The $111.8 million charge is included as a
separate restructuring charge in the statement of operations. The remaining
special charge of $54.5 million primarily relates to asset write-offs included
in cost of goods sold.
The operating loss for 1995 totaled $148.9 million. This loss was driven by the
special charges discussed above. Excluding these charges, operating income would
have been $17.4 million, representing a decline of $78.4 million from 1994
operating income which totaled $95.8 million. This decline primarily reflects
the factors affecting the lower gross profit as discussed above, and to a lesser
extent the increase in research and development spending. In 1994, operating
income declined $44.7 million as a result of the factors affecting gross profit
as discussed earlier and to a lesser extent by the lower overall revenue level.
Non-operating expense (primarily interest expense allocation from 3M) totaled
$17.9 million, $14.5 million and $13.1 million in 1995, 1994 and 1993,
respectively. The increases are due to 3M's rising
30
effective interest rates over the three year period. The allocation methodology
for interest expense is more fully discussed in Note 6 of the NOTES TO
HISTORICAL FINANCIAL STATEMENTS.
The Company's effective tax rate was 42.3, 36.0 and 40.7 percent of pre-tax
income for 1995, 1994 and 1993, respectively. The lower effective rate in 1994
was primarily the result of tax benefits recognized in the Company's Italian
operations. See Notes 2 and 5 of the NOTES TO HISTORICAL FINANCIAL STATEMENTS.
In 1995, minority interest (primarily in Japan) increased to $11.3 million
compared to $2.3 million in 1994. This change is primarily the result of the
portion of restructuring charges which related to the Company's operations in
Japan.
The 1995 net loss totaled $85.0 million or 3.8 percent of revenues. 1995 net
income excluding special charges would have totaled $3.3 million or 0.1 percent
of revenues, down from $54.3 million or 2.4 percent of revenues in 1994.
In order to reverse the historical decline in revenues and gross profits
described above, the Company intends to implement its business strategies (See
"BUSINESS AND PROPERTIES OF THE COMPANY"). Key factors in reversing this trend
are expected to be (i) anticipated increased sales for key new products
(including Travan(tm), DryView(tm) imagers, LS-120 diskettes and new models of
Rainbow color proofing systems) which were introduced commercially in late 1995
or early 1996, (ii) the Company's ability to sell a broader range of the
Company's products to existing customers, (iii) the Company's success in market
penetration in areas of the world where the Company has a limited market
position, (iv) the Company's ability to consolidate factories to increase
efficiencies and (v) the Company's success in refining product portfolios to
focus on more profitable business opportunities.
Generally, outside the United States, the Company will be relocating employees,
systems and inventory out of 3M facilities. By country, this will occur at
various times over the next year. Sales, marketing and administrative personnel
will be moving to leased facilities in all countries except the United Kingdom,
Italy and Canada, where most personnel will be located in Company-owned
facilities transferred from 3M. Initially 3M will provide systems support
services in all countries. It is anticipated that independent Imation supported
systems will gradually replace these 3M systems support services over the next
18 months. Inventory will generally be moved to third-party warehouse providers
by July 1, 1997.
It is the Company's intention to continue expanding market penetration globally.
Recently, sales of DryView(tm) and Travan(tm) products have commenced in Europe
and many other countries. These new products as well as existing products will
be supported by the Company personnel residing in these local markets. In some
countries, 3M will continue to provide selling assistance for Company products
through local sales agency agreements.
PERFORMANCE BY GEOGRAPHIC AREA
UNITED STATES
In 1995, United States net revenues totaled $1,128.8 million down 6 percent from
$1,199.9 million in 1994. Volume declined approximately 1 percent and selling
prices decreased approximately 5 percent, for a total revenue decline of
approximately 6 percent. Operating income in 1995 decreased by $170.5 million
from 1994. Adjusted for the special charges discussed above, operating income
decreased $70.7 million in 1995. United States results were adversely affected
by price declines, higher raw material costs, lack of volume growth and
adjustments in production to reduce inventory levels. Employment levels were
reduced by approximately 500 people at December 31, 1995 as compared with the
levels at December 31, 1994. Inventories were reduced by approximately $34
million in 1995 as compared to December 31, 1994.
EUROPE, MIDDLE EAST AND AFRICA
Net revenues totaled $803.8 million in 1995, up 5 percent from $764.1 million in
1994. Volume increased almost 5 percent, selling prices declined approximately 7
percent, and changes in currency exchange rates positively impacted revenues by
approximately 7 percent. Excluding special charges,
31
which reduced 1995 operating results by $20.4 million, profits would have
increased 4.5 percent to $76.2 million. The Company's manufacturing structure in
Europe is expected to be further reduced in 1996.
LATIN AMERICA, ASIA AND CANADA
Net revenues declined by approximately 1 percent in 1995 to $313 million,
entirely driven by changes in currency exchange rates. The devaluing rates of
exchange in Latin America more than offset the gains recognized in Asia Pacific.
Changes in volume and selling prices offset each other with local currency
revenues flat. Operating income declined by approximately $11 million, after
excluding $46.1 million in special charges. The majority of this income decline
occurred in Asia Pacific, where the results were adversely impacted by the
underutilization of a magnetic tape coater in Japan and the high costs of
producing products in that country. Sales and marketing programs were scaled
back to reduce volume growth given the high production costs. The Company
discontinued the use of this equipment in the first quarter of 1996 and changed
the source of supply to a facility in the United States with lower costs.
FINANCIAL POSITION
The Company had 3.4 months of inventory on hand at March 31, 1996 and at
December 31, 1995, a decline from 4.0 months at the end of 1994. The accounts
receivable days sales outstanding was 75 days at March 31, 1996, down from 78
days at December 31, 1995, which was up from 76 days at December 31, 1994.
The book value of property, plant and equipment at March 31, 1996 was $503.9
million, a slight decrease from $513.2 million at December 31, 1995. The balance
at December 31, 1995 reflected a decline of $141.7 million from year-end 1994.
The majority of this decline, $128 million, is attributable to the special
charges discussed above. The increase in other assets of $54.5 million was
driven by the increase in deferred income taxes of $57.4 million. This increase
in deferred tax assets resulted from the special charges, which for the most
part, were not yet deductible at December 31, 1995 for income tax purposes.
Management believes the Company, or in certain cases 3M prior to the
Distribution, will generate sufficient taxable income in future periods to fully
recover these deferred tax assets based on the Company's implementation of the
actions discussed under " -- Strategic Reorganization" and "BUSINESS AND
PROPERTIES OF THE COMPANY -- Business Strategy." Also see NOTES TO PRO FORMA
BALANCE SHEET, item (f) regarding establishing deferred tax valuation allowance
on a purely separate return basis.
LIQUIDITY
3M uses a centralized approach to cash management and the financing of its
operations. As a result, cash and equivalents and debt were not allocated to the
Company in the historical financial statements. The Company's historical
financing requirements are represented by cash transactions with 3M and are
reflected in "Net Amount (Paid to) Received From 3M," as described in Note 7 of
the NOTES TO HISTORICAL FINANCIAL STATEMENTS. This financial support will be
discontinued following the Distribution. See "SPECIAL FACTORS -- Absence of 3M
Financial Support."
Cash provided from operating activities was $256.8 million in 1995, $170.1
million in 1994, and $229.2 million in 1993. The major non-cash item is
depreciation, which ranged between $184.4 million and $189.5 million per year
during this period. Working capital and related cash requirements increased
$85.6 million in 1994 and $25.6 million in 1993, while in 1995 working capital
and related cash requirements decreased by $52.0 million.
The Company is developing, and expects to have in place by July 1, relationships
and systems and staffing for a corporate currency management program to monitor
and centrally manage currency exposures. In connection with this currency
management program a variety of financial instruments will be employed,
including but not limited to foreign exchange forward contacts, currency options
and futures.
Investing activities, mainly capital expenditures, utilized cash provided by
operations in the amounts of $187.5 million in 1995, $179.7 million in 1994 and
$210.2 million in 1993. These investments were made to help meet growing global
demand for the Company's products, to improve manufacturing efficiencies and to
establish manufacturing operations for key new products. Over the past two
years, $74.6 million
32
of these expenditures related to new products which were commercialized in late
1995 and early 1996, including DryView(tm) medical imagers, Travan(tm)
high-capacity data cartridges and LS-120 diskettes. Excluding one-time start up
costs, management intends to maintain annual capital expenditures in the range
of $140 to $170 million per year for the next several years.
The Company generated cash flows before financing activities with 3M of $72.9
million in 1995, and $13.1 million in 1993, while using $18.5 million in 1994, a
year in which the growth in inventory and accounts receivable more than offset
reductions in capital expenditures. In 1995, improvements in working capital
(primarily accounts receivable, inventories and accounts payable) generated
approximately $52.0 million in increased cash.
During the three months ended March 31, 1996 the Company generated cash flows
before financing activities with 3M of $27.0 million while using $13.4 million
for the same period in 1995. The improvement in the first quarter of 1996
reflects reduced levels of inventory coupled with somewhat lower capital
spending in 1996.
Following the Distribution, the Company expects its operations, exclusive of
contemplated borrowings, to generate sufficient funds to meet the Company's
operating needs for the 12 month period following the Distribution, including
capital expenditures. It is expected that additional progress in reducing
working capital needs will be achieved by re-engineering the Company's worldwide
supply chain and information technology systems. The components of the supply
chain include all operations of the Company from procurement of raw materials
through manufacturing and delivery of products to the Company's customers, and
the collection of accounts receivable.
Prior to the Distribution, the Company did not have any cash flows from
financing activities outside of 3M. Following the Distribution, the Company will
rely on internally generated funds and, to the extent necessary, the borrowing
of funds from third party sources. The Company anticipates that on or prior to
the Distribution Date, it will borrow approximately $280 million under the
Credit Facility to be negotiated with a syndicate of banks, which also will
allow the Company to borrow additional amounts for working capital purposes.
Approximately $173.1 million of the $280 million to be borrowed will be used at
the time of the Distribution to purchase from 3M certain assets located outside
the United States and to repay intercompany indebtedness being assumed by the
Company in connection with the Distribution, approximately $26.9 million will be
used to pay certain accrued employee benefits, approximately $30 million will be
on-lent to the ESOP as described in the next paragraph, and the remainder will
be retained for working capital purposes. The Company believes that the cash
available under the Credit Facility, together with cash generated from
operations, are sufficient to meet the Company's anticipated funding
requirements.
The Company will establish an employee stock ownership plan (the "ESOP") which
will be leveraged by a loan from the Company and is expected to lead over time
to employee stock ownership (directly or beneficially) of approximately 4
percent of the Company's outstanding shares. At the time of the Distribution or
shortly thereafter, the Company will lend approximately $30 million to the ESOP
with which the ESOP will purchase shares of Common Stock. The Company intends
annually to contribute funds to the ESOP in order to repay the loans, and to
satisfy the Company's obligation to make matching contributions in respect of
employee salary deferrals and other performance based contributions.
On the Distribution Date, the Company is expected to begin independent
operations with a ratio of total debt to total capital of approximately 20
percent excluding the effects of the ESOP. The Company also expects to begin
operations with approximately $90 million in cash, $50 million of which will be
borrowed under the Company's Credit Facility, to satisfy the Company's initial
working capital requirements.
In connection with the Distribution, the Company and 3M will enter into a
transition agreement relating to the collection of accounts receivable and
payment of accounts payable. See "RELATIONSHIP BETWEEN 3M AND THE COMPANY AFTER
THE DISTRIBUTION -- Corporate Services Transition Agreement." The objective of
this approach is to minimize the impact of the transition on customers and
suppliers and it is not expected to have any material impact on the financial
position or cash flows of the Company.
33
FUTURE OUTLOOK
1996 will be a year of transition for the Company, both in business operations
and financial returns. The Company believes its continued worldwide leadership
in developing data storage technologies, strong position in high quality color
proofing for the printing industry and strong history of leadership in medical
imaging for the health care industry along with strong worldwide distribution
coverage will offer significant opportunities to help achieve its goals. The
Company will be implementing a comprehensive re-engineering of its operations.
Some components of this re-engineering will be completed in 1996 and others in
1997 and beyond.
Examples of the actions contemplated include (i) the consolidation and
rationalization of manufacturing organization by reducing the number of
facilities operated by the Company, by consolidating similar operations in one
facility, by consolidating purchasing to take advantage of volume purchasing, by
utilizing just-in-time purchasing and by managing the manufacturing process to
reduce inventories of finished goods by attempting to anticipate demand for
various products, (ii) encouraging cooperation between research and development
teams and the manufacturing units, thereby encouraging the development of
technologies and products which provide solutions to customers' problems, (iii)
aggressively cross-marketing the Company's existing products to customers of one
of the Company's products and (iv) motivating employees through the linkage of
compensation to the financial results of the Company (See "BUSINESS AND
PROPERTIES OF THE COMPANY -- Business Strategy"). The Company expects that these
actions will improve productivity and market share, reduce costs and facilitate
sustainable revenue growth, thereby improving the Company's financial
performance and results of operations.
At the same time, the Company will be faced with the challenges of establishing
operations as an independent public company. These activities are expected to
result in one-time cost increases which will occur during 1996 and 1997.
Management is currently developing its plans for the start-up, but at this time
expects that the most significant changes will occur in the areas of systems and
logistics. For a transitional period, it is expected that 3M will provide many
of these services and that stand-alone operations should be in place by the end
of 1997.
The Company intends to achieve its goals through the training and dedication of
its work force, extensive efforts to enhance its relationships with customers
and suppliers and the continued use of certain 3M trademarks during a transition
period. In addition, the Company's management team is experienced and familiar
with this industry and its opportunities and will be developing a strong new
identity tied to the Company's specific industry. This background combined with
their new roles should allow them to provide the Company with the necessary
leadership to meet these challenges.
The Company has established as a long-term goal achieving an annual earnings per
share growth rate of 15% per year. While the management of the Company believes
that this rate is an appropriate goal for the Company, there can be no assurance
as to the Company's ability to achieve this goal or as to the timing thereof.
See "Forward Looking Statements."
FORWARD LOOKING STATEMENTS
Certain information, other than the historical information, discussed in this
Information Statement (including in "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS"), may constitute forward looking
statements and as such may involve risks and uncertainties. Important factors
which may cause actual results to differ from the forward looking statements
contained herein or in other public statements by the Company are described in
the section entitled "SPECIAL FACTORS," including, in particular, the Company's
ability to implement successfully its reorganization plan and future business
strategy. See "SPECIAL FACTORS -- Absence of History as an Independent Company."
34
BUSINESS AND PROPERTIES OF THE COMPANY
OVERVIEW
The Company develops, manufactures and markets a wide variety of products and
services worldwide for information processing, specializing in data storage and
imaging applications. The Company's products, which number in excess of 10,000,
are used to capture, process, store, reproduce and distribute information and
images in a wide range of information-intensive markets, including enterprise
computing, network servers, personal computing, graphic arts, photographic
imaging, medical imaging, and commercial and consumer markets. The Company
offers solutions for both conventional/analog and proprietary digital work
processes for the information processing industry.
The breadth of the Company's product lines, the Company's worldwide leadership
position in a number of product classes and its global distribution network
serve to differentiate the Company from its competitors. The Company's focus is
global in nature, with nearly half of its revenues derived internationally and
expectations for this percentage to grow over time. The Company's major
products, classified by customer application are shown below.
<TABLE>
<CAPTION>
INFORMATION PROCESSING,
MANAGEMENT AND INFORMATION PRINTING MEDICAL AND PHOTO IMAGING
STORAGE APPLICATIONS APPLICATIONS APPLICATIONS
<S> <C> <C>
* Computer diskettes * Conventional color proofing * Laser imaging products
* Data cartridges and Travan(tm) * Digital color proofing * Laser imagers
cartridges
* Computer tapes * Printing plates * X-ray film
* Rewritable optical media * Image setting and graphic arts * "Dry" imaging products
products
* CD-ROM replication services * Carbonless paper products * Film processors
* Photographic film products
</TABLE>
INFORMATION PROCESSOR SERVICE APPLICATIONS
* Technical field service support for equipment
* Customer service, documentation and training for equipment
* Engineering and office document systems
As part of 3M, the Transferred Businesses have developed leadership positions in
a number of markets serving the information processing industry, which the
Company believes can serve as platforms for future growth. For example, the
Company:
* is the world's largest supplier of branded removable magnetic and
optical media;
* is one of the world's largest suppliers of color proofing systems to
the graphic arts industry, with a number of its Matchprint(tm) and
Rainbow products serving as industry standards;
* was the first to develop the new, widely-used laser imager for medical
imaging applications, with an installed base of over 7000 imagers;
* is one of the world's largest suppliers of private label film for the
amateur photography market; and
* introduced in 1995 and expects to introduce in 1996 several innovative
products with significant market potential, including the Travan(tm)
high capacity data storage tape cartridges, the new family of Rainbow
proofing systems, a new line of DryView(tm) imagers, medical imaging
delivery systems developed under an alliance with Cemax/Icon and
Hewlett-Packard, and a 120 MB 3.5 inch diskette, the LS-120 diskette,
which has been developed with Compaq Computer Corporation and MKE.
35
INDUSTRY BACKGROUND
The information processing industry is concerned with the creation, capture,
manipulation, storage, production and distribution of information. Information
may exist in the form of numbers, text, sound, graphics, photos, videos or other
images. Users may view and store this information in an analog format, such as
hard copies. Increasingly, however, information is converted to a digital format
for more efficient handling, processing, storage and distribution. Digital
technologies provide much needed information processing solutions as users are
required to use, manage and store more complex information in less time, with
less resources and with greater accuracy. Methods of transporting and accessing
data are dramatically increasing due to software developments, networking and
the development of the World Wide Web.
Data storage technologies provide users with solutions specific to the
particular users' needs in storing, managing and accessing digital information.
Removable data storage technologies, such as those offered by the Company,
provide a wide range of solutions that provide users with the benefits of
expandable storage capacity, data transportability, data management, data
security and the flexibility to enhance data utilization and which are not
confined to component status as is fixed rigid disk storage.
Removable data storage solutions, based on digital technologies, are used in
applications across all computing platforms -- enterprise systems, network
servers, desktop systems and mobile computing. International Data Corporation
("IDC") has estimated that there are over 150 million computer systems in use
worldwide that use removable data storage technologies. Removable data storage
technologies are used in a variety of applications including graphic imaging,
video imaging, medical diagnostics, communications systems and consumer
entertainment electronics. Overall, the data storage solution market is growing
at double digits annually, with Asia, Latin America and Eastern Europe leading
this growth, although there is significant price competition. Customer demand
for these solutions is multiplying at an ever increasing pace due to the
enhanced enabling software that increases the applications and usage rates and
the developing need by customers to manipulate, store and protect even larger
data bases. The need for convenient digital storage solutions is also
accelerating as people gain access to information of all types from many
sources, including the Internet and the World Wide Web. Increasingly, end users
want to download files and information for later use. As the number of Internet
users grow and the variety of information increases, the demand for portable,
cost-effective data storage and output media also will grow. This is true in
both commercial and consumer markets.
Imaging technologies also have been profoundly impacted by advancements in
digital technologies as many users begin to convert their conventional/analog
processes to proprietary digital processes to capture, create, manipulate,
process, transmit and store still and moving images. Conventional/analog
technologies rely upon chemical or electrical processes which capture
information onto paper, film or other media by reacting to external stimuli.
Digital technologies have significantly increased the amount of information that
can be used, managed and stored and have reduced the need for film and chemicals
in the imaging process. Many work processes in use today are hybrid systems in
which organizations continue to use conventional materials for certain processes
in their work flows utilizing the speed of digital processing.
Medical diagnostic imaging is an example in which proven X-ray films exist side
by side with high tech magnetic resonance imaging ("MRI") and computed
tomography ("CT") scanning systems. Today, an active mid-size hospital or
diagnostic imaging center may generate ten to twelve gigabytes of electronic
information daily from its scanning devices. More than 90% of this information
will be converted to film for viewing and storage in the diagnostic process.
Printing and publishing applications similarly have experienced a blending of
analog and digital work processes. Virtually all text and images used in graphic
arts processes today are converted to electronic or digital form early in the
work process and are later reconverted to film or lithographic plates for high
quality reproduction on traditional printing presses. Images and pages may be
captured photographically or electronically in a variety of formats including
removable data storage. Those that are captured in digital format allow for more
efficient processing and management. The information also may be used in the
production of high quality CD-ROMs for multi-media applications, distributed to
digital printers and copiers for reproduction, or used in the production of
images and pages for distribution over the Internet.
36
As discussed above, because digital processes are more efficient than
alternative technologies in the imaging and information processing industries,
the Company believes the use of digital technology is increasing. In 1994,
digital technologies accounted for approximately 54% of the Company's revenues.
The Company expects digital technologies to increase to approximately two-thirds
of revenues over the next two years. As the amount of information generated each
day increases, the need for efficient methods of data storage and manipulation
is increasing.
For example, in medical and photo imaging applications, the Company estimates
that a typical 400 bed hospital utilizing Computed Tomography, MRI, ultrasound
and nuclear medical technology will require between four and nine gigabytes of
new digital storage per day, along with associated recording, distribution and
imaging equipment. In information and printing applications, the Company expects
that the current mixture of digital and analog processes will continue to become
more reliant on digital technologies as such technologies become more efficient.
The Company believes that, starting from its base of products which are
currently used in these applications, it will be able to introduce new digital
products which will replace analog processes now used in these customer
applications. The Company believes that it has the technology, products and
strong customer relationships to take advantage of this opportunity.
Because the Company has existing technologies, products and customers in these
applications, the introduction of new digital technologies in these areas is not
expected to require major additional investments. The Company does anticipate,
however, entering into strategic alliances with other companies to complement
its existing technologies, as and when appropriate. The Company believes that
new digital applications and products for its existing customer base, along with
opportunities to enter into new markets not currently served by the Company,
will give the Company the benefit of additional revenues in both the short term
and the long term.
BUSINESS STRATEGY
The Company believes that the advancements in digital technology transforming
the information processing industry are creating opportunities for the Company.
The Company intends to utilize its research and development capabilities, its
solid technology platforms, its well established product lines and its strong
customer relationships to enhance its position as a leader in the information
processing industry, providing innovative, cost-effective system solutions to
its customers' information processing needs. To achieve its objectives, the
Company intends to focus on the following elements.
* REFINING PRODUCT PORTFOLIO -- Included in the Company's 1995 special
charges were costs associated with exiting lines of business which the
Company believes will not satisfy its goal of profitable growth and
generating cash flows. Following the Distribution, the Company will
continue to examine intensively its product portfolio and make
adjustments when necessary to insure that all of its resources are
focused on the Company's objective of consistent, profitable growth.
Resources freed from less profitable product lines will then be
available for new business growth opportunities.
* STREAMLINING OPERATIONS AND REDUCING COSTS -- The Company recently has
taken a number of steps to streamline its operating structure and
reduce operating costs, including reducing its employment levels by
offering various voluntary separation plans to its employees. In
addition, the Company has decided to consolidate various manufacturing
facilities and has commenced preparations to close or downsize certain
facilities and utilize efficient outsourcing. Following the
Distribution, the Company will continue its efforts to streamline its
management structure, consolidate administrative functions and
facilitate communications among various parts of the organization so
as to enable the Company to respond quickly to the rapidly changing
needs of its customers. In this regard, the Company intends to
intensively review the alternatives for further improving its
manufacturing, sales and distribution activities, both from a customer
responsiveness and a cost effectiveness point of view, with a goal of
reducing costs, improving profit margins and facilitating fast paced
decision making, so as to better enable the Company to respond quickly
to the rapidly changing needs of its customers.
* EXPANDING CUSTOMER FOCUS -- The Company will focus on understanding
the information processing challenges of both its existing and
potential customers. By utilizing its core competencies
37
in product development, as well as database marketing and electronic
interactive communications, the Company will strive to provide more
timely solutions tailored to each customer's needs, thereby enhancing
its opportunities for growth and its ability to satisfy its current
large customer base. The goal of the Company is to be perceived by its
customers as responsive and committed to their needs.
* IMPROVING CASH FLOWS -- An improved focus on cash flows is a critical
component of the Company's strategy for future growth and
diversification. To achieve this objective, the Company will instill
in its employees a strong focus on cash flow management and educate
them regarding how their actions and decisions impact the Company's
cash flows. In this regard, the Company has begun to take a number of
actions, including: (i) revising financial measurements to focus on
cash flows management, including adoption of the concept of "Economic
Profit" (the measurement of income from operations after tax and after
deducting interest and a return to shareholders), and using such
measurements as a factor in determining employee compensation, (ii)
adjusting the evaluation process for capital expenditures to focus on
the near term cash return, reflecting the short life cycle of the
Company's high technology products, and (iii) recognizing the cash
impact of reducing working capital by re-engineering the entire supply
chain process (the period of time from the procurement of raw
materials, through manufacturing and delivery of the Company's
products to its customers, and finally to the receipt of payment from
the customer), and establishing one organization within the Company to
focus on reducing this "cycle time." The Company is confident that
these and other steps to be taken in the future will result in
improved cash flow.
* EXPANDING INTERNATIONAL OPERATIONS -- The Company believes that there
are significant growth opportunities outside the United States.
Accordingly, the Company intends over the next several years to seek
to take advantage of these opportunities for growth by expanding its
international operations. A key strength of the Company lies in its
global distribution and sales network, and its long-standing
relationships with multi national customers which will facilitate this
expansion. The Company has streamlined management of its international
operations and has organized those operations into two key areas,
Europe/Middle East/Africa and Latin America/Asia/Canada. Global growth
strategies will be driven through these two focused organizations.
* CAPITALIZING ON PROPRIETARY TECHNOLOGIES TO PROVIDE CUSTOMER SOLUTIONS
-- The Company has significant proprietary technologies in information
processing. While part of 3M, the Company acquired hundreds of
patents, which are assigned or exclusively licensed to the Company by
3M in certain fields of use. See "RELATIONSHIP BETWEEN 3M AND THE
COMPANY AFTER THE DISTRIBUTION -- Intellectual Property Agreement."
Following the Distribution, the Company will continue to focus
significant efforts on the development of new products utilizing these
core technologies and systems. As described in the section entitled
"BUSINESS AND PROPERTIES OF THE COMPANY -- Customer Applications" the
Company has been successful in this regard in recent years with the
introduction of its DryView(tm) and Travan(tm) branded products. In
addition, the Company intends over time to increase the development of
new products designed to help position itself as a provider of
comprehensive, integrated solutions to the information processing
industry. As part of its strategy, the Company also intends to explore
the acquisition of new technologies through strategic alliances,
acquisitions or licensing.
* ENCOURAGING EMPLOYEE STOCK OWNERSHIP -- A key strategy and objective
of the Company is encouraging and increasing employee stock ownership
as an incentive toward consistent, profitable growth. The Company
believes that this will help drive cost reductions, quality
improvement and growth leading to achievement of Company objectives.
As described under "MANAGEMENT OF THE COMPANY -- Retirement Investment
Plan," an employee stock ownership plan will be implemented which is
expected to lead over time to employee stock ownership (directly or
beneficially) of approximately 4 percent of the Company's outstanding
shares.
38
CUSTOMER APPLICATIONS
The Company's products are market leaders in the conventional/analog processes
for recording, manipulation and storage of data and images. While these
established products generate a substantial portion of the Company's revenues,
the Company seeks to leverage its existing market positions and to continually
develop and market new products and solutions to serve the changing needs of its
customers. With the industry's evolution to information processing systems based
on digital technologies, the Company is focusing its efforts on developing
solution-based products utilizing proprietary digital technologies and providing
more complete solutions to its customers' information processing needs. Set
forth below is a description of the products and services presently offered by
the Company. See Note 8 to NOTES TO HISTORICAL FINANCIAL STATEMENTS for the
revenues derived from each class of products.
INFORMATION PROCESSING, MANAGEMENT AND STORAGE APPLICATIONS
The Company is the world's largest supplier and developer of branded removable
data storage media, in both magnetic and optical formats. It is recognized as
the worldwide preferred supplier, based on its reputation for reliability and
convenience. The Company also is a supplier of CD-ROM replication and software
services provided to software developers. The Company's products include:
* Diskettes (3.5 inch, 5.25 inch and 8 inch) used for personal file
storage, for backup and for exchange of data. Diskettes are used
primarily in desktop and mobile personal computer systems, and also in
workstations, word processors and computer control equipment. In
April, the Company began shipment of a 120 MB 3.5 inch diskette, the
LS-120 diskette, which provides 80 times the storage capacity of a
standard diskette. The LS-120 diskette has been developed as part of
the Laser Servo 120 MB program in which the Company, Compaq Computer
Corporation and MKE are co-development partners. Under the present
arrangement between the parties, Compaq markets computer systems which
incorporate LS-120 drives manufactured by MKE and which may include a
Company brand LS-120 pack-in diskette and a coupon towards the
purchase of additional LS-120 diskettes.
* Data cartridge and Travan(tm) cartridge products used for backup of
data from hard disk storage systems and for applications in which
large volumes of information that do not need to be retrieved on a
frequent basis. Travan(tm) cartridges more than double the storage
capacity of the prior mini-cartridge, which is the most popular tape
cartridge storage media today. Used primarily on desktop personal
computer systems, local area networks and workstation computer
systems, the Travan(tm) cartridges make up a family of innovative
products that were introduced in 1995 through the joint efforts of 3M,
Sony and a group of drive manufacturers. 3M has, and following the
Distribution the Company will continue to, maintain relationships with
these and other companies regarding the production and joint marketing
of compatible drives and cartridge storage media and the development
of future versions of the technology.
* Computer cartridge tapes used for near-line data storage and
retrieval, mass storage and archival storage of data. Large cartridge
tapes are used primarily on enterprise computer systems and in data
library systems that store very large volumes of data. The smaller 4
mm and 8 mm cartridges are used primarily in workstations and mid-size
computer systems and networks for backup and other data storage
applications.
* Rewritable optical disks including magneto-optical (90mm and 130mm),
phase change disks and CD recordable disks used for the storage of
data and images on personal computers, workstations and local area
networks. These disks are also used in library systems for mid-range
computer installations.
* CD-ROM products are produced on a made to order basis and are used for
the distribution of data and software to the personal computer and
mid-range markets.
INFORMATION AND PRINTING APPLICATIONS
The Company manufactures and markets products and provides service and technical
support for the printing, publishing and graphic arts markets. Its diverse
product line includes conventional color proofing systems, digital color
proofing systems and software, digital storage systems, laser films and
39
image setting materials, metal and polyester printing plates, graphic arts
films, photographic chemicals and miscellaneous supplies. The Company also
markets carbonless paper products, such as multi-part business forms. The
Company has strong leadership positions in certain product areas, including the
Matchprint(tm) color proofing system, an industry standard for more than 20
years. More recently, the Rainbow color proofing system, which provides color
proofs from digital data before a job is put on a printing press, also has
established a leadership role, winning both industry awards and acceptance as
the digital proofer of choice among many graphic arts professionals.
The Company's printing and publishing systems products are marketed globally,
with approximately 40 percent of its business derived from outside the United
States. This percentage is expected to grow in future years.
Products designed for printing and publishing applications are changing rapidly
in association with the digital/electronic communication revolution in the
information processing industry. This "digitization" of the image reproduction
process has greatly affected the work methods and work flow of many of the
Company's customers. Although short-run color print jobs are on the rise and
conventional lithographic printing will continue, in the Company's judgment, to
exist well into the next century, rapid changes are occurring in the pre-press
area of the graphic arts work processes. Desktop workstations, the acceptance of
digital proofing and the emergence and growth of "filmless" and chemical-free
(thus, environmentally attractive) printing processes all serve to streamline
the graphic arts process. The Company believes it is well-positioned to take
advantage of the industry transformation to digital systems. In addition to the
products mentioned above that carry leadership roles, the Company has the
technologies, color science expertise and industry relationships to aggressively
pursue emerging opportunities.
MEDICAL AND PHOTO IMAGING APPLICATIONS
The Company develops, manufactures and markets diagnostic imaging film, film
processors and imaging systems for both X-ray and electronic imaging systems.
The Company participates in the conventional X-ray film market and is the
world's leading supplier of high-quality laser imagers for producing medical
diagnostic images directly from MRI, CT, ultrasound, nuclear and other
electronic systems, with more than 7,000 laser imagers installed worldwide. In
December 1995, the Company announced a new line of DryView(tm) laser imagers
that produce high-quality film images without using standard wet chemistry
through a specially designed photothermographic process. Since no wet chemistry
is involved, the DryView(tm) laser imagers represent a significant technological
breakthrough and offer significant cost savings, productivity gains and
environmental benefits to the health care industry. Through a strategic alliance
among the Company, Hewlett-Packard and Cemax-Icon, hardware and software
solutions are provided to clients that help them manage, distribute and archive
their medical images. Under the alliance, the Company sells its DryView(tm)
product and other medical imaging equipment and Hewlett-Packard supplies its
computer hardware stations to Cemax-Icon which redistributes such products on an
integrated basis with its own software products. This is an example of linking
newly developed imaging solutions based on the Company's technology platforms
with the expanding requirements for digitization and information access.
The Company's customers include major hospital network buying groups as well as
individual hospitals and medical imaging centers. Hospital administrators and
materials managers, radiology administrators and radiologists represent the key
customer decision makers. Geographically, approximately 40% of the Company's
medical imaging business is in the United States. The major industrial countries
in Europe, Latin America and Japan account for the remainder of the business.
The Company is one of the world's leading suppliers of private label film for
the amateur photography retail market. The Company's primary geographic markets
for color photographic film are the United States and Europe, representing 70%
of the global demand for film. The Company manufactures a complete line of print
and slide films which fit in standard 35mm, 110, and 126 cameras used by
consumers globally. The Company has recently added single use cameras to its
product line which are sold preloaded with the Company's ISO 400 speed film.
Single use cameras represent a high growth segment of the consumer film market.
The Company's color print film can be found in more than 125 private label
brands, as well as 3M's Scotch brand. The Company will continue to use certain
3M trademarks and tradenames including the Scotch brand for a period of time
following the Distribution.
40
See "RELATIONSHIP BETWEEN 3M AND THE COMPANY AFTER THE DISTRIBUTION --
Intellectual Property Agreement." These products and brands are positioned as a
high value, comparable quality alternative to global brands such as Kodak and
Fuji.
INFORMATION PROCESSOR SERVICE APPLICATIONS
The Company's team of field service technicians provides technical servicing and
other post-sale technical support for equipment sold by the Company in the
information processing industry. The Company offers superior customer service
for its products by providing a 24 hour information and customer support
hotline. Customers also benefit from user-friendly product documentation and
training programs in a variety of languages. The Company also supplies systems
and user support services to meet engineering document management needs,
produces and distributes continuous and high-contrast black-and-white dry
photographic papers and films, and currently is developing a proprietary,
software-based scheduling system that will help other companies efficiently
schedule field service technicians. These services and support will be extended
aggressively to customers of all the Company's product line and into new markets
to generate additional profits and customer satisfaction.
COMPETITION
The Company operates in a highly competitive environment. The Company's
principal competitors include large, well capitalized technology companies based
in the United States, Europe and Japan. These competitors include Eastman Kodak,
Fuji Photo Film, Sony, Agfa, Polaroid Corp., Konica, KAO and Du Pont. The
Company also competes in certain product markets with smaller, more specialized
firms such as Polychrome Corp. and Scitex America Corp. Businesses in the
information processing industry compete on a variety of factors such as price,
value, product quality, customer service, breadth of product line and
availability of system solutions. In these highly competitive and rapidly
changing markets, the Company intends to compete by emphasizing its global
distribution network, streamlining its supply operations, reducing its costs and
building on its industry leadership positions by developing new products and
services to address the digital environment and the information processing needs
of its customers.
DISTRIBUTOR CHANNELS
The Company's products are sold directly to users and through numerous
wholesalers, retailers, jobbers, distributors and dealers in approximately 65
countries. The Company believes it has one of the strongest global distribution
networks serving the information processing industry. The Company also plans to
utilize 3M as a sales agent to cover selected channels of distribution on an
interim basis following the Distribution. See "RELATIONSHIP BETWEEN 3M AND THE
COMPANY AFTER THE DISTRIBUTION -- Supply, Service, Contract Manufacturing and
Sales Agency Agreements." However, it is the Company's intention to explore all
avenues of distribution and to put in place, following the Distribution, the
most cost-effective channels of distribution.
RAW MATERIALS
The Company experienced no significant or unusual problems in the purchase of
raw materials during 1995. 3M will continue to be a major supplier of certain
raw materials and services to the Company after the Distribution. See
"RELATIONSHIP BETWEEN 3M AND THE COMPANY AFTER THE DISTRIBUTION -- Supply,
Service, Contract Manufacturing and Sales Agency Agreements."
RESEARCH AND PATENTS
Research and product development have historically played an important role in
the Company's activities. The Company has research laboratories for the
improvement of its existing products and development of new products. The
Company's expenditures for research and development activities were $222
million, $211 million and $217 million for 1995, 1994 and 1993, respectively.
The Company has been granted rights, on both exclusive and non-exclusive bases,
from 3M and others which will enable it to continue to use the intellectual
property presently utilized by the Transferred Businesses. The Company does not
consider that its business as a whole is materially
41
dependent upon any one patent, license or trade secret or any group of related
patents, licenses or trade secrets, except with respect to those rights granted
from 3M. See "RELATIONSHIP BETWEEN 3M AND THE COMPANY AFTER THE DISTRIBUTION --
Intellectual Property Agreement."
MANUFACTURING
The Company operates 17 manufacturing, research and distribution facilities
throughout the world. The Company's plants are generally operated around the
clock at or near full capacity to minimize unit production costs and to fulfill
customer demands.
The Company is in the process of consolidating manufacturing by centralizing
such operations into the United States and Italy. This consolidation is intended
to reduce costs and improve quality by allowing the Company to adjust its
capacity to current needs and take advantage of the facilities with the most
advanced quality management system.
The core manufacturing competencies of the Company include coating, fine
chemical production for photographic film, state-of-the-art molding
capabilities, hardware prototyping and unit cost reduction. These competencies,
combined with the Company's research and development competencies of materials
science, color management, hardcopy imaging, magnetic and optical recording give
the Company a strong technological base to take advantage of the opportunities
in the evolving information processing industry.
PROPERTIES
The Company's headquarters are located in Oakdale, Minnesota. The Company's
major facilities (all of which are owned by the Company, except where noted),
and the products manufactured at such facilities are as follows:
FACILITY PRODUCTS
DOMESTIC
Camarillo, California Data tape
Fremont, California (leased) CD-ROM
Middleway, W. Virginia Printing plates
Nekoosa, Wisconsin Carbonless paper
Oakdale, Minnesota Headquarters
Pine City, Minnesota Micrographic cards
Rochester, New York Printing plates and graphic film
St. Paul, Minnesota (leased) Laboratory facilities
Tucson, Arizona Data tape
Vadnais Heights, Minnesota (leased) Optical
Wahpeton, North Dakota Diskettes/molding
Weatherford, Oklahoma Diskettes/photographic film
White City, Oregon Imagers/X-ray films
INTERNATIONAL
Bracknell, United Kingdom Administrative
Ferrania, Italy X-ray films/photographic film
Florida, Argentina X-ray films
Harlow, United Kingdom Research facility
London, Ontario Administrative
Sulmona, Italy Printing plates
EMPLOYEES
As of March 31, 1996, the Company had approximately 12,000 employees,
approximately 7,500 in the United States and 4,500 internationally. The Company
has begun the process of streamlining operations which will result in a
significant reduction in the number of employees required for operations. As a
first step, several voluntary separation plans recently have been offered to the
Company's employees. After the Distribution, it is expected that the Company
will have less than 10,000
42
direct employees as a result of the above actions. See "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
LEGAL PROCEEDINGS
The Company has assumed substantially all liabilities for legal proceedings
relating to the Transferred Businesses. As a result, although 3M is the named
defendant, the Company is the party in interest and is herein described as a
defendant.
The Company is a party to various legal proceedings and administrative actions,
all of which are of an ordinary or routine nature incidental to the operations
of the Company. In the opinion of the Company's management, such proceedings and
actions should not, individually or in the aggregate, have a material adverse
effect on the financial position of the Company.
ENVIRONMENTAL MATTERS
The Company's operations are subject to a wide range of environmental protection
laws. The Company has remedial and investigatory activities underway at some of
its current facilities. Under the Environmental Matters Agreement, the Company
will assume and indemnify 3M for all liabilities relating to, arising out of or
resulting from (i) operations at the Company's facilities as conducted before
the Closing Date; (ii) the disposal of hazardous materials, from the Company's
facilities, before the Distribution Date, at Superfund Sites, where such
liabilities are discovered after the Distribution Date; or (iii) operations of
the Transferred Businesses on and after the Distribution Date. 3M has agreed to
retain responsibility for environmental liabilities relating to former premises
which may have been associated with the Transferred Businesses and known
Superfund sites associated with the current properties of the Transferred
Businesses.
It is the Company's policy to accrue environmental remediation costs if it is
probable that a liability has been incurred and the amount of such liability is
reasonably estimable. As assessments and remediations proceed, these accruals
are reviewed periodically and adjusted, if necessary, as additional information
becomes available. The accruals for these liabilities can change due to such
factors as additional information on the nature or extent of contamination,
methods of remediation required, the allocated share of responsibility among
other parties, if applicable, and other actions by governmental agencies or
private parties. However, it is often difficult to estimate the future impact of
environmental matters, including potential liabilities.
As of March 31, 1996, the Company had reserved approximately $6.5 million with
respect to environmental liabilities. Although the Company believes that its
reserves are adequate, there can be no assurance that the amount of expenses
relating to remedial actions and compliance with applicable environmental laws
will not exceed the amounts reflected in the Company's reserves. The Company
believes that such additional charges, if any, will not have a material adverse
effect on the financial position of the Company. See "RELATIONSHIP BETWEEN 3M
AND THE COMPANY AFTER THE DISTRIBUTION -- Environmental Matters Agreement."
43
MANAGEMENT OF THE COMPANY
DIRECTORS
As of the Distribution Date, the Board of Directors of the Company consists of
three persons, each of whom has been elected for a term expiring at the annual
meeting of stockholders indicated below and until his successor shall have been
elected and qualified. The following table sets forth information concerning the
individuals who will serve as directors of the Company following the
Distribution.
<TABLE>
<CAPTION>
TERM EXPIRES AT
NAME AGE ANNUAL MEETING IN
<S> <C> <C>
William T. Monahan 49
Linda W. Hart 56
Daryl J. White 48
</TABLE>
The Board of Directors is presently being selected. The Board will consist of a
majority of outside directors who are familiar with the industry in which the
Company operates and with financial operations similar to the Company. The Board
is expected to be diverse, with a maximum of 16 directors.
WILLIAM T. MONAHAN will serve as Chairman of the Board, President and Chief
Executive Officer of the Company. Since June 1993 he has served as Group Vice
President responsible for the Electro and Communication Group of 3M and from
May 1992 to May 1993, he was Senior Managing Director of 3M Italy. From
September 1989 to May 1992, Mr. Monahan was Vice President of Data Storage
Products.
LINDA W. HART is Vice-Chairman of Hart Group, Inc., a diversified group of
companies primarily involved in insulation manufacturing and residential and
commercial services. Prior to joining Hart Group in 1990, Ms. Hart was a partner
of the law firm of Vinson & Elkins from July 1986 to January 1990. Ms. Hart is a
former director of both Conner Peripherals, Inc. and WordPerfect Corporation and
a current director of each of the Hart Group companies, Hart Group, Inc.
(management services and investments), Rmax, Inc. (insulation manufacturing) and
Axon, Inc. (residential and commercial services).
DARYL J. WHITE served as the Senior Vice President of Finance and Chief
Financial Officer of Compaq Computer Corporation, a computer equipment
manufacturer, from 1988 to May 1996. Prior to such time, he held the positions
of Corporate Controller and Director of Information Management at Compaq.
Mr.White is also currently the Chairman of the Board of Pinnacle Micro, Inc.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Company is expected to establish an Audit
Committee, a Compensation Committee and a Nominating and Governance Committee.
The Audit Committee will, among other things, recommend the appointment of
independent public accountants; review the scope of the annual audit, including
fees and staffing; review the independence of the independent accountants;
review nonaudit services provided by the independent accountants; review
findings and recommendations of independent accountants and management's
response; review the internal audit and control function; and review compliance
with the Company's ethical business practices policy.
The Compensation Committee will review management compensation programs, approve
compensation changes for senior executive officers, review compensation changes
for senior management, and administer stock option plans and other performance
based compensation plans.
The Nominating and Governance Committee will act to select and recommend
candidates to the Board of Directors to be submitted for election at the annual
meeting. The Committee will also review and make recommendations to the Board of
Directors concerning the composition and size of the Board and its Committees,
frequency of meetings, directors' fees, and similar subjects; review and make
recommendations concerning retirement and tenure policy for Board members;
recommend proxies for meetings at which directors are elected; approve programs
for senior management succession; evaluate performance of the Board as a whole;
and consider and approve corporate governance principles.
44
COMPENSATION OF DIRECTORS
The Company intends to pay to directors who are not employees of the Company
("Non-Employee Directors") an annual fee of $40,000, subject to the terms of the
1996 Directors Stock Compensation Program (the "Directors Program") described
below. The Company intends to pay Non-Employee Directors an additional $2,500
for each meeting they attend in excess of four meetings per year, and to
Non-Employee Directors who are Committee chairmen, an additional $5,000 per
year. In addition, the Company intends to match up to $15,000 of charitable
contributions made to a Code section 501(c)(3) organization by each Non-Employee
Director per year. Directors are reimbursed for all reasonable travel and other
expenses of attending meetings of the Board or a Committee thereof.
DIRECTORS STOCK COMPENSATION PROGRAM
The Company has adopted the Directors Program, which was approved by 3M, the
Company's sole stockholder as of the Distribution Date, and will become
effective as of the consummation of the Distribution (the "Effective Date"). The
Directors Program will provide nonemployee directors of the Company (each an
"Eligible Director") with automatic grants of stock options ("Options") and
units equivalent to shares of Common Stock ("Restricted Share Units").
The purpose of the Directors Program is to attract and retain well-qualified
persons for service as nonemployee directors of the Company and to promote
identity of interest between directors and stockholders of the Company. The
Directors Program is designed and intended to comply with Rule 16b-3,
promulgated under the Exchange Act ("Rule 16b-3"). The Directors Program will be
administered by the Compensation Committee of the Board of Directors.
Under the Program, a maximum of 800,000 shares of Common Stock, consisting of
authorized and unissued shares or of treasury shares, will be available for
issuance during the term of the Directors Program. These shares are subject to
adjustments in the event of any recapitalization, stock split, reverse stock
split, stock dividend, reorganization, merger, consolidation, spin-off,
combination, repurchase, or share exchange, or other similar corporate
transaction or event affecting the Common Stock.
Pursuant to the Program, Eligible Directors will generally be entitled to
options to purchase 10,000 shares of Common Stock for each year of service.
Specifically, on the Effective Date, each Eligible Director and, thereafter,
each new Eligible Director who has not previously been granted Options under the
Directors Program, will automatically be issued an Option pursuant to the
Program to purchase a number of shares of Common Stock equal to 30,000
multiplied by a fraction the numerator of which is the number of years of such
Eligible Director's term of office and the denominator of which is three. Each
reelected Eligible Director will automatically be issued an Option to purchase
30,000 shares of Common Stock as of the date such Eligible Director is
reelected. Options will be granted at an option price equal to the fair market
value of the Common Stock on the date of grant.
Each Option will vest and become exercisable as to 10,000 of the shares of
Common Stock underlying such Option on each anniversary of the date of grant,
provided that all outstanding and previously unvested Options of an Eligible
Director will immediately vest and become fully exercisable upon the Eligible
Director's death or disability, or upon a Change of Control (as defined in the
Program). If an Eligible Director otherwise terminates service as an Eligible
Director, any Options that have not become exercisable will be forfeited as of
the date of such termination of service.
On the Effective Date and each anniversary thereof during the term of the
Program, each Eligible Director will automatically be granted, in lieu of 25% of
his or her annual retainer fee for services as a director of the Company, a
number of Restricted Share Units calculated by dividing 25% of such director's
annual retainer fee by the fair market value of a share of Common Stock as of
the date of grant. The value of any fractional Restricted Share Units will be
paid in cash.
Dividend equivalents will be credited to each Eligible Director's Restricted
Share Units during his or her term of office, and will be converted into
additional Restricted Share Units. Upon ceasing to be a member of the Board, the
Restricted Share Units credited to each Eligible Director will be paid to him or
her in the form of a number of shares of Common Stock equal to the number of
Restricted Share Units so credited.
45
In the event of any recapitalization, stock split, reverse stock split, stock
dividend, reorganization, merger, consolidation, spin-off, combination,
repurchase, or share exchange, or other similar corporate transaction or event
affecting the Common Stock, the maximum number or class of shares available
under the Directors Program, the number of shares of Common Stock subject to
outstanding Options and the number of Restricted Share Units to be credited
pursuant to the terms of the Directors Program will be adjusted by the Committee
to reflect any such change in the number or class of shares of Common Stock.
The Directors Program may be amended or terminated by the Board, provided that
(a) no amendment that requires stockholder approval in order for the exemptions
available under Rule 16b-3 to be applicable to the Directors Program will be
effective without the approval of the stockholders of the Company, and (b) the
Directors Program will not be amended more than once every six months, other
than to conform with changes in the Code, the Employee Retirement Income
Security Act of 1974, as amended, or the rules thereunder.
FEDERAL TAX CONSEQUENCES. The grant of Options will create no tax consequences
to the Eligible Directors or to the Company. Upon exercise of an Option, the
difference between the option price and the fair market value at the time of
exercise is treated as ordinary income to the Eligible Director and the Company
is entitled to a deduction for the same amount. Gain or loss upon a subsequent
sale of any shares of Common Stock received upon the exercise of an Option is
taxed as capital gain or loss to the participant (long-term or short-term,
depending upon the holding period of the stock sold).
An Eligible Director will not realize taxable income and the Company will not be
entitled to a deduction upon the crediting of Restricted Share Units. When the
Restricted Share Units are paid to the Eligible Director in the form of shares
of Common Stock, the Eligible Director will realize ordinary taxable income in
an amount equal to the fair market value of the shares of Common Stock at the
time of payment, and the Company will be entitled to a deduction in the same
amount.
NEW PLAN BENEFITS
1996 DIRECTORS STOCK COMPENSATION PROGRAM
NUMBER OF
NAME AND POSITION OPTIONS
Non-Executive Director Group (2
persons) 30,000
No Options have been issued yet under the Director Plan. The number of options
listed above is the number of options that the Non-Employee Directors will
receive as of the Distribution Date.
The Directors Program has been included as an exhibit to the Registration
Statement of which this Information Statement forms a part. The preceding
description is subject in all respects to the provisions of the Directors
Program.
46
EXECUTIVE OFFICERS
The following table sets forth certain information concerning the persons who
will serve as executive officers of the Company following the Distribution. Each
such person has been elected to the indicated office with the Company on or
prior to the Distribution Date and serves at the pleasure of the Board of
Directors of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
<S> <C> <C>
William T. Monahan 49 Chairman of the Board, President and Chief
Executive Officer
Carolyn A. Bates 49 General Counsel and Secretary
Jill D. Burchill 41 Chief Financial Officer
Dr. Krzysztof K. Burhardt 54 Vice President -- Technology Development
Wilmer G. DeBoer 51 General Manager -- Customer Support Technology
and Document Imaging
Dennis A. Farmer 52 Vice President -- Corporate Marketing and Public
Affairs
David G. Mell 49 Vice President -- Corporate Business Processes
Richard W. Northrop 58 Vice President -- Europe
Charles D. Oesterlein 53 Vice President -- Operations
Clifford T. Pinder 49 Vice President -- Operations
Michael E. Sheridan 51 Vice President -- Operations
James R. Stewart 39 Corporate Controller
Deborah D. Weiss 40 Treasurer
David H. Wenck 52 Vice President, International
</TABLE>
Set forth below is a description of the position presently held with the Company
by each executive officer, as well as positions held with 3M prior to the
Distribution Date.
WILLIAM T. MONAHAN will serve as Chairman of the Board, President and Chief
Executive Officer. From June 1993 to the Distribution Date, he was Group Vice
President responsible for the Electro and Communications Group and from May 1992
to May 1993, he was Senior Managing Director of 3M Italy. From September 1989 to
May 1992, he was Vice President of Data Storage Products.
CAROLYN A. BATES will serve as General Counsel and Secretary. From 1991 to
the Distribution Date, she was Assistant Chief Intellectual Property Counsel.
JILL D. BURCHILL will serve as the Chief Financial Officer. From April 1995 to
the Distribution Date, she was Sector Controller for 3M's Information, Imaging
and Electronic Sector. From May 1993 to April 1995, she was Group Controller for
the Memory Technology Group and from July 1990 to May 1993, she was Financial
Manager for the Audio/Video Products Division.
DR. KRZYSZTOF K. BURHARDT will serve as Vice President, Technology
Development. From July 1991 to the Distribution Date, he was Research and
Development Vice President for 3M's Information, Imaging and Electronic
Sector.
WILMER G. DEBOER will serve as General Manager, Customer Support Technology
and Document Imaging. From July 1993 to the Distribution Date, he was Global
Field Service Director and Business Director of 3M's Document Systems
Department. From April 1990 to June 1993, he was Manufacturing Director for
3M's Engineering Document Systems Division.
DENNIS A. FARMER will serve as Vice President, Corporate Marketing and Public
Affairs. From March 1994 to the Distribution Date, he was Vice President of
Data Storage Markets and from May 1992 to February 1994, he was General
Manager of Data Storage Markets Division. From February 1991 to January 1992,
he was Sales Department Manager of Data Storage Products. From July 1988 to
January 1991, he was Group Director, Europe, for the Memory Technology Group.
DAVID G. MELL will serve as Vice President, Corporate Business Processes. He was
Vice President of Data Storage Tape Technology from May 1995 to the Distribution
Date, Vice President of Data Storage Diskette and Optical Technology from March
1994 to April 1995, and General Manager of Data Storage Diskette and Optical
Technology Division from May 1992 to February 1994. He was Department Manager of
3M's Computer Tape Technology Department Data Storage Products from September
1989 to April 1992.
47
RICHARD W. NORTHROP will serve as Vice President in charge of the Company's
European operations. He was a Managing Director of European operations for 3M's
Printing Systems, Hardgoods and Electronic Businesses from January 1994 through
the Distribution Date, a Managing Director of European operations for 3M's
Hardgood and Electronic Businesses from January 1992 through December 1993 and a
Director of 3M's Information and Imaging Divisions from January 1991 through
December 1992.
CHARLES D. OESTERLEIN will serve as Vice President, Operations. From 1994 to the
Distribution Date, he was Vice President of Printing and Publishing Systems and
from 1992 to 1994, he was General Manager of Audio and Video Technology. From
1989 to 1992, he was Department Manager of 3M's Data Storage Products Division.
CLIFFORD T. PINDER will serve as Vice President, Operations. From March 1994 to
the Distribution Date, he was Vice President of Medical Imaging Systems and from
July 1993 to March 1994, he was Vice President of Photo Color Systems. From
November 1991 to June 1993, he was General Manager of 3M's Photo Color Systems
and from 1986 to 1990, he was Managing Director of 3M Puerto Rico.
MICHAEL E. SHERIDAN will serve as Vice President, Operations. He was General
Manager of Data Storage Diskette Technology from May 1995 to the Distribution
Date, Director of Sumitomo/3M's MTG Technology and Special Projects from July
1993 to April 1995 and Group Director of 3M Europe's Memory Technologies Group
from May 1990 to July 1993.
JAMES R. STEWART will serve as Corporate Controller. From July 1995 to the
Distribution Date, he was Group Controller for 3M's Memory Technologies Group
and from March 1992 to July 1995, he was Medical Group Controller -- Europe.
From September 1989 to March 1992, he was the Financial Manager for the
Commercial Office Supply Division.
DEBORAH D. WEISS will serve as Treasurer. From 1988 to the Distribution Date,
she was Manager of 3M's Benefit Funds Investment.
DAVID H. WENCK will serve as Vice President in charge of the Company's
international operations. From May 1995 to the Distribution Date, he was General
Manager of 3M's Data Storage Optical Technology Division. From December 1994 to
April 1995, he was Department Manager of 3M's Software Media and CD-ROM Services
Department and from July 1986 to September 1994, he was Project Manager of 3M's
Optical Recording Project. From October 1981 to January 1986, he was Managing
Director of 3M's Singapore operations.
48
COMPENSATION OF EXECUTIVE OFFICERS
All of the information set forth in the following tables reflects compensation
earned based on services rendered to 3M by the Company's Chief Executive Officer
and the four other most highly paid executive officers. The services rendered to
3M were, in many cases, in capacities not equivalent to those to be provided to
the Company. Therefore, these tables may not reflect the compensation to be paid
executive officers of the Company.
The following table summarizes compensation paid to the Company's Chief
Executive Officer and the four other most highly paid executive officers based
on services rendered to 3M in 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION (1)
-----------------------------------------------------------
ANNUAL COMPENSATION (1) AWARDS PAYOUTS
-------------------------------------- -------------------------- -------------
PROFIT
SHARING
STOCK OPTIONS PERFORMANCE
PROFIT OTHER (RESTRICTED GRANTED UNIT PLAN
SHARING ANNUAL STOCK (NUMBER (LTIP) ALL OTHER
NAME AND PRINCIPAL POSITION SALARY (BONUS)(2) COMPENSATION AWARDS) OF SHARES)(3) PAYOUTS(4) COMPENSATION(5)
<S> <C> <C> <C> <C> <C> <C> <C>
W.T. Monahan, $236,025 $124,964 -- 0 11,948 $45,980 $14,455
Chief Executive Officer
K.K. Burhardt, $196,500 $ 90,607 -- 0 13,615 $45,980 $16,039
Vice President --
Research and Development
C.D. Oesterlein, $174,400 $ 35,014 -- 0 4,800 $37,620 $17,065
Vice President -- Operations
D.G. Mell, $164,870 $ 46,317 -- 0 4,800 $37,620 $13,479
Vice President --
Corporate Business Processes
D.A. Farmer, $161,315 $ 45,885 -- 0 4,800 $37,620 $17,936
Vice President --
Corporate Marketing
</TABLE>
(1) The amounts shown in the Summary Compensation Table do not include amounts
expensed for financial reporting purposes under 3M's pension plan. This plan
is a defined benefit plan. The amounts shown in the table do, however,
include those amounts voluntarily deferred by the named individuals under
3M's Deferred Compensation Plan. The Deferred Compensation Plan allows
management personnel to defer portions of current base salary, profit
sharing and performance unit compensation earned during the year.
(2) The amounts shown under the headings "Profit Sharing (Bonus)" are cash
payments received under 3M's Profit Sharing Plan. The term "(Bonus)" is
included to satisfy the requirements of the Securities and Exchange
Commission ("SEC"). These payments are based upon 3M's performance and are
variable in accordance with a predetermined formula. 3M's Profit Sharing
Plan provides for quarterly payments (in cash, or, as determined by 3M, in
3M common stock) based upon net income after deducting an allowance for a
predetermined 10 percent annual rate of return on stockholder equity and is
determined by multiplying the number of profit sharing units awarded to an
individual by this quarterly net income, after deduction, divided by the
number of the outstanding shares of 3M's Common Stock. Because of the
required minimum return on stockholder equity, profit sharing tends to rise
and fall relatively more sharply than changes in net income. The number of
profit sharing units awarded to the individuals named is determined by 3M
and is intended to reflect the level of responsibility of the respective
individual. Profit sharing payments are subject to limitations when
individual amounts exceed specified relationships to base salary.
(3) The number of stock options shown in this column includes both annual grants
of incentive and nonqualified stock options and Progressive Stock Options
("PSOs"), which are described more fully in footnote 1 of the table entitled
"Option Grants In Last Fiscal Year (1995)." Although these stock options are
forfeitable by these participants upon termination of employment with 3M,
the Compensation Committee of the 3M Board of Directors has decided to
continue these options for the benefit of the participants during the
continued employment of the participants by the Company, adjusted as set
forth in "TREATMENT OF EMPLOYEE OPTIONS AND RESTRICTED STOCK IN THE
DISTRIBUTION," pursuant to the terms of the original grants under 3M's
option plans.
(4) "LTIP Payouts" reflects the value of the total grant for each individual
under 3M's Performance Unit Plan after the three year performance period
(e.g., for 1995, the performance period is 1993-1995), but no amount
49
will be paid to these individuals under the grant for an additional three
years pursuant to the terms of the grant. The numbers shown represent
estimates based upon information available as of February 29, 1996. During
this additional three year period, interest will be paid at a rate
determined by 3M's "return on capital employed" performance. More specific
information about 3M's Performance Unit Plan is set forth in footnote
[001f](1) to the table entitled "Long-Term Incentive Plans Awards In Last
Fiscal Year (1995)." Although these rights are forfeitable by these
participants upon termination of employment with 3M, the Compensation
Committee of the 3M Board of Directors has decided to continue these rights
for the benefit of the participants during the continued employment of the
participants by the Company, pursuant to the terms of the original grants
under the operative 3M plan.
(5) "All Other Compensation" includes: (a) that amount of Performance Unit Plan
earnings allocated during the year to the base amounts determined after the
three year performance periods of each respective grant, to the extent that
such earnings are in excess of market interest rates (as determined by the
Securities and Exchange Commission); and (b) that amount deemed to be
compensation to the individuals under 3M's Senior Executive Split Dollar
Plan in accordance with rules developed by the SEC. The Senior Executive
Split Dollar Plan provides insurance to all of 3M's executive officers under
split dollar life insurance, which is partly term insurance and partly whole
life insurance with a cash value. Under this plan, 3M is reimbursed for the
premium costs of the non-term portion of coverage and a possible return when
the arrangement terminates either by insurance proceeds incident to the
death of the individual or by cash value after 15 years of participation in
the plan. During 1995, amounts deemed compensation under the plan to the
named executive officers in the Summary Compensation Table were $8,976 for
Mr. Monahan; $10,560 for Dr. Burhardt; $17,065 for Mr. Oesterlein; $13,479
for Mr. Mell; and $17,936 for Mr. Farmer. These amounts were determined by
treating the non-term portion of the coverage as an interest-free loan.
STOCK OPTIONS TABLE
The following table shows for each person named in the Summary Compensation
Table the specified information with respect to 3M stock option grants during
1995. Since this compensation was received by the named individuals for services
rendered to 3M which are not equivalent, in many cases, to those to be provided
the Company, this table may not reflect the compensation to be paid executive
officers of the Company.
OPTION GRANTS IN LAST FISCAL YEAR (1995)
<TABLE>
<CAPTION>
INDIVIDUAL
GRANTS % OF
TOTAL
OPTIONS GRANTED DATE VALUE
GRANTED TO EXERCISE OR GRANTED DATE
OPTIONS EMPLOYEES BASE PRICE EXPIRATION PRESENT
NAME GRANTED(#) (1) IN FISCAL YEAR ($/SH.) (2) DATE VALUE (3)
<S> <C> <C> <C> <C> <C>
W.T. Monahan 9,600 0.223% $59.60 5-09-2005 $131,424
1,436 0.033% $57.10 5-05-2000 $ 13,556
912 0.021% $57.10 5-11-2001 $ 8,609
K.K. Burhardt 4,800 0.112% $59.60 5-09-2005 $ 65,712
141 0.003% $61.40 5-12-1997 $ 1,771
882 0.021% $61.40 5-10-1998 $ 11,078
1,302 0.030% $61.40 5-05-2000 $ 16,353
2,086 0.049% $61.40 5-11-2001 $ 26,200
1,914 0.045% $61.40 5-10-2002 $ 24,040
2,490 0.058% $61.40 5-07-2004 $ 31,274
C.D. Oesterlein 4,800 0.112% $59.60 5-09-2005 $ 65,712
D.G. Mell 4,800 0.112% $59.60 5-09-2005 $ 65,712
D.A. Farmer 4,800 0.112% $59.60 5-09-2005 $ 65,712
</TABLE>
(1) In connection with the Distribution, all outstanding and unexercised 3M
options, will be appropriately adjusted to reflect the Distribution. See
"TREATMENT OF EMPLOYEE OPTIONS AND RESTRICTED STOCK IN THE DISTRIBUTION."
3M does not grant any stock appreciation rights ("SARs"). The options shown
for each individual include both annual grants of Incentive Stock Options
and nonqualified stock options and grants of PSO's. Nonqualified
50
options are subject to a reload feature when exercised with the payment of
the option price in the form of previously owned shares of 3M's common
stock. Such an exercise results in further grants of PSO's. The first grant
shown for each individual is the annual grant. The remaining lines are
PSO's. The PSO grants for each individual were made on a single date, but
are, pursuant to SEC rules, shown in multiple lines because of different
expiration dates.
PSO grants were made to participants who exercised nonqualified stock
options and who paid the purchase price using shares of previously owned 3M
common stock. The PSO grant is for the number of shares equal to the shares
utilized in payment of the purchase price and tax withholding, if any. The
option price for the PSO is equal to 100 percent of the market value of 3M's
common stock on the date of the exercise of the primary option or,
alternatively, on the date of the PSO grant to the five named individuals in
the Table, all of whom are subject to the requirements of Section 162(m) of
the Code. The option period is equal to the remaining period of the options
exercised.
Although these tables reflect the grants of PSO's for those participants
eligible for such while employed by 3M during 1995, the 3M Compensation
Committee has decided that the named participants will no longer be eligible
for subsequent PSO grants after the Distribution Date. All nonqualified
options at the Distribution Date may be exercised once thereafter, but 3M
will not grant any new or additional options, by way of PSO's or otherwise.
All other operative terms of the options listed above will continue past the
Distribution Date, so that the options granted under 3M's plans will be
exercisable during the continued employment of the participants by the
Company, notwithstanding termination of employment with 3M at the
Distribution Date, per the original terms of the grants by 3M.
(2) All options granted during the period were granted at the market value on
the date of grant of initial grants, or at the fair market values discussed
in footnote 1 above in the case of PSO's, as calculated from the average of
the high and low prices reported on the New York Stock Exchange Composite
Index.
(3) Pursuant to the rules of the SEC, 3M has elected to provide a grant date
present value for these option grants determined by a modified Black-Scholes
pricing model. Among key assumptions utilized in this pricing model were:
(i) that the time of exercise of Incentive Stock Options would be four
years, and of PSOs would be two years, into the term of the option, which
could be for terms as long as ten years, in recognition of the historical
exercise patterns at 3M for these types of options; (ii) expected volatility
of 21.7 percent; (iii) risk-free rate of return of 6.26 percent for two
years, and 6.86 percent for four years; and (iv) dividend growth rate of
6.34 percent. No adjustments for non-transferability or risk of forfeiture
have been made. 3M voices no opinion that the present value will, in fact,
be realized and expressly disclaims any representation to that effect.
OPTION EXERCISES AND YEAR-END VALUE TABLE
The following table shows for each person named in the Summary Compensation
Table the specified information with respect to 3M option exercises during 1995
and the value of unexercised 3M options at the end of 1995.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR (1995)
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD AT IN-THE-MONEY OPTIONS AT
SHARES FISCAL YEAR-END (#)(2) FISCAL YEAR-END (1)
ACQUIRED VALUE EXERCISABLE
NAME ON EXERCISE REALIZED (1) EXERCISABLE UNEXERCISABLE (1) UNEXERCISABLE
<S> <C> <C> <C> <C> <C> <C>
W.T. Monahan 3,121 $ 51,455 36,348 11,948 $769,168 $86,818
K.K. Burhardt 10,895 116,251 27,056 13,615 608,935 76,375
C.D. Oesterlein 2,400 38,220 14,400 4,800 222,000 32,520
D.G. Mell 1,600 31,720 16,800 4,800 284,820 32,520
D.A. Farmer 100 3,256 21,548 4,800 443,467 32,520
</TABLE>
(1) The "Value Realized" or the unrealized "Value of Unexercised In-the-Money
Options at FY-End" represents the aggregate difference between the market
value on the date of exercise or at December 31, 1995, in the case of the
unrealized values, and the applicable exercise prices. These differences
accumulate over what may be, in many cases, several years. These stock
options all have option periods of ten years when first granted, and PSOs
have option periods equal to the remaining option period of the initial
nonqualified options resulting in PSOs.
(2) See "TREATMENT OF EMPLOYEE OPTIONS AND RESTRICTED STOCK IN THE
DISTRIBUTION."
LONG-TERM INCENTIVE PLAN AWARDS
The following table shows for each person in the Summary Compensation Table the
specified information with respect to awards during 1995 under 3M's Performance
Unit Plan. Since this
51
compensation was received by the named individuals for services rendered to 3M
which are not equivalent, in many cases, to those to be provided to the Company,
this table may not reflect the compensation to be paid executive officers of the
Company.
LONG-TERM INCENTIVE PLANS -- AWARDS
IN LAST FISCAL YEAR (1995)
<TABLE>
<CAPTION>
PERFORMANCE OR
NUMBER OF OTHER PERIOD ESTIMATED FUTURE PAYOUT
SHARES, UNITS UNTIL UNDER NON-STOCK PRICE-BASED PLANS
OR OTHER MATURATION (3)
NAME RIGHTS (1) OR PAYOUT (2) THRESHOLD TARGET MAXIMUM
<S> <C> <C> <C> <C> <C>
W.T. Monahan 950 6 years $0 $95,000 $190,000
K.K. Burhardt 550 6 years $0 $55,000 $110,000
C.D. Oesterlein 550 6 years $0 $55,000 $110,000
D.G. Mell 550 6 years $0 $55,000 $110,000
D.A. Farmer 550 6 years $0 $55,000 $110,000
</TABLE>
(1) To date, the 3M Compensation Committee has established the performance
goals based on criteria of return on capital employed and sales growth.
Performance units awarded to date have been assigned a face value of $100
each. However, the actual amount of the payments is based upon 3M's
attainment of the performance goals. If the targets established by the
Committee are attained during the performance periods, the performance unit
will have a value of $100 at the end of the performance period. If the
targets are not attained, the value will be less than $100 and, if exceeded,
will be more than $100. The ultimate value of the performance unit can vary
from no value to $200, depending upon actual performance.
Payment is contingent upon continued employment to the payment date or
earlier retirement under 3M's pension plan. The Compensation Committee of
the 3M Board of Directors has decided to extend the rights of these
participants going to the Company beyond the Distribution Date during the
continued employment of the participants by the Company, pursuant to the
terms of the original grants under 3M's Performance Unit Plan.
(2) The value of awards granted for 1995 will be determined by 3M's attainment
of return on capital employed and sales growth criteria during a three-year
performance period of 1995, 1996 and 1997. However, there will be an
additional three-year involuntary holding period thereafter during which the
base amounts determined during the performance period will earn interest and
remain subject to forfeiture if the participant discontinues employment for
any reason other than death, disability or retirement.
(3) The estimated future payouts do not include any interest factor that would
be earned annually during the three-year involuntary holding period
following the performance period. Interest during the involuntary holding
period would accrue annually at a rate equal to 50 percent of the return on
capital employed by 3M during the three years and would be payable, together
with the base award, in 2001.
TRANSACTIONS WITH MANAGEMENT
During 1995, three executive officers and directors had loans outstanding with
the Eastern Heights State Bank of St. Paul, a subsidiary of 3M. These loans were
made in the ordinary course of business on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other persons of comparable circumstances and did
not involve more than normal risk of collectibility or present other unfavorable
features.
EMPLOYMENT AGREEMENT
The Company expects to enter into an employment agreement with Mr. Monahan,
which commences as of the Distribution Date for an initial four year term, with
automatic one-year renewals commencing as of the second anniversary of the
Distribution Date, unless notice not to renew is given by either party. Pursuant
to the agreement, Mr. Monahan will serve as the Chief Executive Officer of the
Company, and the Company will use its best efforts to have Mr. Monahan elected
to the Board. Mr. Monahan will receive an annual base salary at a rate no less
than his current rate and an annual incentive bonus which, for the first year,
will not be less than a minimum amount to be specified in the agreement. The
agreement will also provide for Mr. Monahan's participation in the Company's
employee benefit, welfare, retirement and incentive compensation plans and
programs in which other senior executive officers of the Company participate.
52
The agreement is expected to provide that if Mr. Monahan's employment is
terminated by the Company without cause or by Mr. Monahan for good reason, he
will be entitled to receive, for the remainder of the term of the agreement (a)
base salary, (b) annual incentive compensation (with a pro rata portion for a
partial year) equal to the average annual incentive awards for the three
completed years immediately preceding the date of employment termination
(including, if applicable annual incentive awards received from 3M for any year
within the applicable three-year period), plus a pro rata annual incentive award
for the year in which termination of employment occurs, (c) continued accrual of
credited service for purposes of any defined benefit pension benefits and (d)
continued participation in all welfare benefit plans, subject to an offset to
the extent similar benefits are made available to Mr. Monahan without cost under
welfare benefit plans of a subsequent employer. In addition, Mr. Monahan's
equity-based awards will become fully vested and, with respect to his stock
options, fully exercisable, as of his date of termination.
Also, if Mr. Monahan's employment is terminated by reason of death, his estate
or designated beneficiary will be entitled to receive his base salary for a
period of one year and a prorated annual incentive compensation award. If his
employment is terminated by reason of disability, he will be entitled to receive
a prorated annual incentive compensation award.
If Mr. Monahan receives payments under his agreement that would subject him to
any federal excise tax due under section 280G of the Code, then he will also
receive a cash "gross-up" payment so that he will be in the same net after-tax
position that he would have been in had such excise tax not been applied.
During (a) the term of the agreement, (b) any period during which Mr. Monahan
continues to receive salary pursuant to the terms of the agreement, and (c) the
one-year period following termination of Mr. Monahan's employment by the Company
for cause or by Mr. Monahan other than for good reason, Mr. Monahan is required
to comply with appropriate provisions regarding noncompetition, nonsolicitation
of employees, nondisparagement of the Company, return of work papers and
compliance with policies regarding confidentiality of information.
COMPENSATION UNDER RETIREMENT PLANS
Substantially all domestic employees of the Company will be eligible to
participate in the qualified pension and defined contribution plans that the
Company intends to establish. In addition, the executive officers of the Company
will be eligible to participate in certain nonqualified pension or deferred
compensation plans to be established by the Company's Board of Directors.
COMPANY PENSION PLAN
The Company expects to adopt a cash balance pension plan, and it intends that
this plan will be qualified under the applicable provisions of the Code. The
plan will become effective July 1, 1996, and will cover substantially all
domestic employees of the Company. Under this plan, benefits will be determined
by the amount of annual pay credits to each employee's account (expected to be
6% of each employee's annual earnings) and annual interest credits (equal to the
return on the 30-year U.S. Treasury bond yield) to such accounts. All former 3M
employees will retain their right to receive their benefits accrued as of the
Distribution Date under 3M's pension plan. Those former 3M employees whose age
and years of 3M service as of the Distribution Date equal or exceed 50 (with a
minimum of 10 years of 3M service) will continue to be credited with service for
purposes of early retirement subsidies under 3M's pension plan based on their
combined service with the Company and 3M, and will have their 3M accrued
benefits as of the Distribution Date increased following the Distribution by 4%
per year of employment with the Company.
53
The following table shows the estimated aggregate annual benefits payable from
the Company's qualified and nonqualified retirement plans to its executive
officers and other participating employees at normal retirement, assuming that
the Company adopts nonqualified pension plans similar to 3M's:
PENSION PLAN TABLE -- COMPANY PLAN
<TABLE>
<CAPTION>
EMPLOYEES ANNUAL EARNINGS YEARS WITH COMPANY (EXCLUDING SERVICE WITH 3M)
USED FOR COMPUTATION OF BENEFITS 5 YEARS 10 YEARS 15 YEARS 20 YEARS 25 YEARS
<S> <C> <C> <C> <C> <C>
$150,000 $ 5,845 $13,668 $24,136 $ 38,145 $ 56,892
200,000 7,794 18,224 32,182 50,860 75,856
250,000 9,742 22,780 40,227 63,575 94,820
300,000 11,691 27,336 48,272 76,290 113,784
350,000 13,639 31,892 56,318 89,005 132,748
400,000 15,588 36,448 64,363 101,720 151,712
450,000 17,536 41,004 72,409 114,435 170,676
500,000 19,485 45,560 80,454 127,150 189,640
</TABLE>
Under this table the normal form of benefit payment under the plan to married
employees would require a reduction in the amounts shown in the table pursuant
to an actuarially based formula to provide a benefit to a surviving spouse upon
the employee's death following retirement equal to 50% of the reduced benefit.
These amounts do not include the 4% per year additional benefit described above
which will be provided by the Company's plan.
In addition to their benefits under the Company's plan, it is estimated that
the named executive officers in the Summary Compensation Table will be
entitled to the following aggregate annual benefits payable under 3M's
qualified and nonqualified pension plans at normal retirement, based on their
service with 3M as of the Distribution Date and assuming that they remain
employed by the Company until their normal retirement date: $109,176 for Mr.
Monahan; $98,256 for Dr. Burhardt; $96,000 for Mr. Oesterlein; $78,768 for
Mr. Mell; and $88,464 for Mr. Farmer.
PLANS ENCOURAGING EMPLOYEE STOCK OWNERSHIP
The following two plans are intended to help the Company accomplish its
objective of encouraging and increasing employee stock ownership. As a result of
these plans, the Company expects employees to eventually own (directly or
beneficially) in excess of 5% of its outstanding shares.
RETIREMENT INVESTMENT PLAN
The Company expects to adopt a defined contribution plan including a cash or
deferred arrangement, and it intends that this plan will be qualified under the
applicable provisions of the Code. The plan will become effective July 1, 1996,
and will cover substantially all domestic employees of the Company. Under this
plan, employees may generally elect to defer up to 15% of their pay on a
before-tax basis and have it contributed to their individual accounts, subject
to Code and Internal Revenue Service limits. The Company will make matching
contributions to the employees' accounts equal to 100 percent of the first 3% of
pay deferred during each pay period and 25% of the next 3% of pay deferred
during each pay period. All of the Company's matching contributions will be
invested in Common Stock of the Company through an employee stock ownership
plan. Individuals currently employed by 3M who join the Company on the
Distribution Date will have their account balances under the 3M Voluntary
Investment Plan and Employee Stock Ownership Plan transferred to the Company's
plan on or prior to the Distribution Date. In addition to matching
contributions, the Company may also make annual contributions to the accounts of
all eligible employees based on its financial performance. These additional
contributions will also be invested in Common Stock of the Company through the
employee stock ownership plan.
1996 EMPLOYEE STOCK INCENTIVE PROGRAM
The Company has adopted the 1996 Employee Stock Incentive Program (the "Stock
Option Plan"), which was approved by 3M as the sole stockholder of the Company
prior to the Distribution, and will become effective upon, and only in the event
of the consummation of, the Distribution.
54
The Stock Option Plan is designed to provide incentives to employees to become
stockholders of the Company through the granting of incentive and nonqualified
stock options, restricted stock grants and stock appreciation rights. Further,
the Stock Option Plan is designed to ensure that compensation payable with
respect to the exercise of certain options thereunder will qualify as
performance based compensation within the meaning of section 162(m) of the Code
and thereby be fully tax-deductible by the Company.
The total number of shares of Company Common Stock (which includes treasury or
authorized but unissued shares) that may be issued or awarded under the Stock
Option Plan may not exceed 6,000,000, subject to equitable adjustment in the
event of a stock split, stock dividend, reduction or combination of shares,
merger, consolidation, recapitalization or other similar transactions). All
shares subject to awards under the Stock Option Plan that are forfeited or
terminated, will be available again for issuance pursuant to awards under the
Stock Option Plan. The maximum number of shares of the Company's Common Stock
that may be granted to any one participant under the Stock Option Plan by way of
options and stock appreciation rights, during the term of the plan shall not
exceed 1,000,000 (including Progressive Stock Options (as defined below) granted
to such participant.)
The Stock Option Plan will be administered by the Compensation Committee (the
"Committee") of the Board of Directors, consisting of two or more persons who
are "disinterested persons" within the meaning of Rule 16b-3 ("Rule 16b-3")
under the Securities Exchange Act of 1934, as amended and "outside directors"
within the meaning of section 162(m) of the Code. Eligibility criteria, the
number of participants, and the number of shares subject to option, restricted
stock or other awards will be determined by the Committee.
The option price of (a) incentive stock options within the meaning of section
422 of the Code ("Incentive Stock Options") will equal 100 percent of the fair
market value of the Company's Common Stock on the date the options are granted,
and (b) options other than Incentive Stock Options ("Nonqualified Stock
Options") may be equal to, less than or more than 100 percent of the fair market
value of the Company's Common Stock on the date the options are granted. Full
payment for the shares (which may be made in whole or in part, in shares of the
Company's Common Stock valued at the fair market value on the date the option is
exercised) must be made at the time the option is exercised.
Generally, options will be for a ten-year period (or shorter in the case of
Progressive Stock Options), and become exercisable commencing one year from the
date of grant (no sooner than six months from date of grant with respect to
Progressive Stock Options), unless otherwise determined by the Committee. Option
rights are forfeited by a participant in the event of termination of employment
for any cause other than retirement, death, or disability, and abbreviated
exercise periods are provided in the event of death or disability. Progressive
Stock Options are Nonqualified Stock Options equal to the number of shares of
previously owned stock delivered in payment of the option price of outstanding
Nonqualified Stock Options granted under the Stock Option Plan or in payment of
any applicable federal, state, local and employment withholding taxes.
Progressive Stock Options have as their term the remaining term of the primary
option being exercised and are granted at the fair market value of the stock on
the date of the primary option exercise.
Incentive Stock Options are not transferable other than by will or the laws of
descent and distribution. All options are nontransferable to the extent
necessary to comply with the applicable provisions of Rule 16b-3.
The Committee may also grant restricted stock subject to conditions and
restrictions as may be specified by the Committee. The participant shall
generally have the rights and privileges of a stockholder as to the shares of
restricted stock, including the right to vote, except that the restricted stock
shall remain in the custody of the Company until all restrictions have lapsed.
None of the shares representing the restricted stock may be sold, transferred,
assigned, pledged, or otherwise encumbered or disposed of during the period of
restrictions determined by the Committee. At the discretion of the Committee,
cash and stock dividends with respect to restricted stock awards may be either
currently paid or withheld by the Company for the participant's account, and
interest may be paid on the amount of cash dividends withheld at a rate and
subject to such terms as determined by the Committee. Cash or stock dividends so
withheld by the Committee shall not be subject to forfeiture.
55
Upon the satisfaction of the conditions and the lapsing of restrictions
applicable to restricted stock awards, the Company shall deliver to the
participant or the participant's beneficiary or estate, a stock certificate for
the number of shares of restricted stock granted, free of all such restrictions,
except any that may be imposed by applicable law. The Committee may also award
shares of the Company's Common Stock under the Stock Option Plan other than
restricted stock.
Under the Stock Option Plan, the Committee may grant stock appreciation rights
that entitle the recipient to receive an amount of cash or a number of shares of
the Company's Common Stock measured by the appreciation of the fair market value
of the Common Stock at the date of exercise above the fair market value of the
Common Stock at the date of the initial grant. Stock appreciation rights will be
exercisable during a period determined by the Committee, but which will commence
no sooner than six months from the date of grant and will expire no later than
ten years from the date of grant. Stock appreciation rights are forfeited by a
participant in the event of termination of employment for any cause other than
retirement, death, or disability, and abbreviated exercise periods are provided
in the event of death or disability.
The Stock Option Plan provides that all outstanding options under the Stock
Option Plan would become immediately exercisable in full for the remainder of
the respective option period and remain exercisable in full for a minimum period
of six months following a change in control of the Company (as defined in the
Stock Option Plan), and all restrictions imposed by the Committee on outstanding
grants of restricted stock or other stock awards would automatically be
terminated.
Further, in the event that the exercise of options granted under the Stock
Option Plan or the receipt of the Company's common stock as a result of a
restricted stock grant or other stock award, after an event of acceleration
(i.e., a change of control), shall be determined to be subject to the excise tax
of section 4999 of the Code, the Company will pay affected participants such
additional amounts of cash so that the net amount, after allowance for the
excise tax, any additional federal, state and local income tax and any
additional employment tax paid on the additional amount, shall be equal to the
net amount that would be retained by the participant if there were no excise tax
imposed by section 4999. Similarly, in the event that a participant should be
required to take legal action to obtain or enforce rights under the Stock Option
Plan after an event of acceleration, the Company shall pay all reasonable legal
and accounting fees and expenses incurred, unless a lawsuit is subsequently
determined to have been spurious or frivolous.
The Stock Option Plan may be amended or terminated by the Board, except that no
amendment will be made without prior approval of the Company's stockholders if
such approval is required for purposes of Rule 16b-3, or, to the extent
applicable, Section 162(m) of the Code.
The Stock Option Plan will terminate five years after its effective date.
FEDERAL TAX CONSEQUENCES
The grant of stock options will create no tax consequences to the participant or
to the Company. The participant will not recognize any taxable income with
respect to the exercise of an Incentive Stock Option (except that the
alternative minimum tax may apply), and the Company will not be entitled to a
deduction when such stock option is exercised, to the extent the individual
$100,000 limit on Incentive Stock Options that first become exercisable in any
calendar year is not exceeded, and to the extent that the shares acquired upon
exercise are disposed of no earlier than two years after the date of grant of
the option and one year after the date of exercise of the option. The tax
payable by the participant upon disposition of the shares acquired upon exercise
of Incentive Stock Options will be at the long-term capital gain rate. Options
that do not satisfy the Code requirements for Incentive Stock Options will be
taxed as Nonqualified Stock Options.
Upon exercise of a Nonqualified Stock Option, the difference between the option
price and the fair market value at the time of exercise is treated as ordinary
income to the participant and the Company is entitled to a deduction for the
same amount, subject to the application of section 162(m) of the Code. Gain or
loss upon a subsequent sale of any shares of Common Stock received upon the
exercise of a Nonqualified Stock Option is taxed as capital gain or loss to the
participant (long-term or short-term, depending upon the holding period of the
stock sold).
56
A participant generally will not realize taxable income and the Company will not
be entitled to a deduction upon the grant of restricted shares. When the shares
are no longer subject to a substantial risk of forfeiture, the participant will
realize taxable ordinary income in an amount equal to the fair market value of
the stock at the time, and the Company will be entitled to a deduction in the
same amount, subject to the provisions of section 162(m) of the Code. However, a
participant may elect to realize taxable ordinary income in the year the
restricted shares are granted in an amount equal to their fair market value at
the time, determined without regard to the restrictions. In that event, subject
to section 162(m) of the Code, the Company will be entitled to a deduction in
such year in the same amount, and any gain or loss realized by the participant
upon the subsequent disposition of the stock will be taxable at short or long
term capital gain rates but will not result in any further deduction to the
Company.
NEW PLAN BENEFITS
Prior to the Distribution, certain employees of the Company participated in 3M's
Management Stock Ownership Program covering management employees of 3M. In lieu
of a 1996 annual grant under 3M's Program, the Company intends to grant to its
employees who would otherwise have been eligible to receive a 1996 grant under
3M's Program options to purchase shares of Common Stock under the Stock Option
Plan. The number of options to be granted to each employee will be the number of
options such employee would have received under the 3M Program, multiplied by
the exercise price of 3M options issued in the 1996 grant and then divided by
the fair market value of the Common Stock at the time of the grant. The exercise
price of these options will be the fair market value of the Common Stock at the
time of the grant. As a result, shortly after the Distribution the Company
expects to grant to such employees options to purchase approximately 800,000
shares of Common Stock.
The following table sets forth the options which would have been received in
1996 by certain employees under 3M's Management Stock Ownership Program.
NEW PLAN BENEFITS
EMPLOYEE STOCK INCENTIVE PROGRAM
<TABLE>
<CAPTION>
NAME AND POSITION NUMBER OF OPTIONS
<S> <C>
W.T. Monahan 36,100
K.K. Burhardt 4,800
C.D. Oesterlein 4,800
D.G. Mell 4,800
D.A. Farmer 4,800
Executive Group 100,340
Non-Executive Director Group 0
Non-Executive Officer Employee Group (1)
</TABLE>
(1) Not determinable as of May 31, 1996.
It cannot be determined at this time the number of options that, will be
granted to the above-named individuals in 1996 under the Stock Option Plan. For
options to purchase shares of common stock of 3M that were granted to the five
named executive officers of the Company in the previous fiscal year under the 3M
Stock Option Plan, see "-- Option Grants in Last Fiscal Year".
The Stock Option Plan has been included as an exhibit to the Registration
Statement of which this Information Statement forms a part. The preceding
description is subject in all respects to the provisions of the Stock Option
Plan.
57
TREATMENT OF EMPLOYEE OPTIONS AND RESTRICTED STOCK
IN THE DISTRIBUTION
Certain employees of 3M (including certain employees who, as a result of the
Distribution, will become employees of the Company) currently hold options to
purchase 3M common stock (the "3M Options") pursuant to the 3M Stock Plans.
In connection with the Distribution, and pursuant to the 3M Stock Plans and the
related option agreements, the number of shares subject to each 3M Option and
the exercise prices thereof will be equitably adjusted to reflect the
Distribution. 3M will remain solely responsible for satisfying all exercises of
3M Options.
Pursuant to the terms of the 3M Management Stock Ownership Program, and pursuant
to a determination of 3M's Compensation Committee, holders of 3M restricted
common stock will not receive shares of Common Stock in the Distribution. In
lieu of such Common Stock, the holders of 3M restricted common stock will
receive additional shares of restricted common stock of 3M with a value equal to
the value of the Common Stock which would have been received by such holders in
the Distribution with respect to such restricted common stock.
CERTAIN RELATIONSHIPS AND TRANSACTIONS
The businesses to be conducted by the Company have in the past engaged in
transactions with 3M and its businesses. Such transactions have included, among
other things, various types of financial support by 3M. Following the
Distribution, 3M will continue to have a relationship with the Company as a
result of the agreements being entered into between 3M and the Company in
connection with the Distribution. Except as referred to above or as otherwise
described in this Information Statement, 3M and the Company will cease to have
any material contractual or other material relationships with each other. See
"RELATIONSHIP BETWEEN 3M AND THE COMPANY AFTER THE DISTRIBUTION."
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Based on information which has been obtained from 3M's records and a review of
statements filed with the Securities and Exchange Commission pursuant to
Sections 13(d) and 13(g) of the Exchange Act with respect to 3M common stock and
received by 3M prior to March 1, 1996, no person known to the Company will be
the beneficial owner of more than 5% of the outstanding voting securities of any
class of the Company upon completion of the Distribution.
58
BENEFICIAL OWNERSHIP OF MANAGEMENT
The following table sets forth information with respect to the shares of Common
Stock which are expected to be beneficially owned by each director and the named
executive officers of the Company and by all directors and officers of the
Company as a group as of the Distribution Date based upon their respective
holdings of 3M common stock as of May 1, 1996. The table does not include as a
basis for calculation options to purchase shares of 3M common stock exercisable
at or within 60 days of May 1, 1996 as such options will not be converted in the
Distribution to options to purchase shares of Common Stock. See "TREATMENT OF
EMPLOYEE OPTIONS AND RESTRICTED STOCK IN THE DISTRIBUTION." In addition, the
table does not include any options which may be granted as part of the Company's
employee benefit programs following the Distribution. Based upon such data, no
director or officer will own beneficially, as of the Distribution Date, more
than 1% of the shares of Common Stock outstanding at such date and all directors
and officers as a group will beneficially own less than five-tenths of one
percent (0.5%) of the common stock outstanding at such date.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME BENEFICIAL OWNERSHIP
<S> <C>
William T. Monahan 587
Linda W. Hart 0
Daryl J. White 0
Carolyn A. Bates 119
Jill D. Burchill 66
Dr. Krzysztof K. Burhardt 1,715
Wilmer G. DeBoer 76
Dennis A. Farmer 426
David G. Mell 203
Richard W. Northrop 11
Charles D. Oesterlein 105
Clifford T. Pinder 427
Michael E. Sheridan 360
James R. Stewart 84
Deborah D. Weiss 266
David H. Wenck 467
All directors and officers of the
Company
as a group (16 persons) 4,912
</TABLE>
59
DESCRIPTION OF COMPANY CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
Under the Certificate of Incorporation, the total number of shares of all
classes of stock that the Company has authority to issue is 125 million, of
which 25 million are shares of preferred stock, and 100 million are shares of
Common Stock. Based on the number of shares of 3M common stock outstanding at
May 1, 1996, approximately 41,863,000 shares of Common Stock will be issued to
shareholders of 3M.
COMMON STOCK
The holders of Common Stock will be entitled to one vote for each share on all
matters voted on by stockholders, and the holders of such shares will possess
all voting power, except as otherwise required by law or provided in any
resolution adopted by the Board of Directors of the Company with respect to any
series of preferred stock. Subject to any preferential or other rights of any
outstanding series of Company preferred stock that may be designated by the
Board of Directors of the Company, the holders of Common Stock will be entitled
to such dividends as may be declared from time to time by the Board of Directors
of the Company from funds available therefor, and upon liquidation will be
entitled to receive pro rata all assets of the Company available for
distribution to such holders. See "SPECIAL FACTORS -- Common Stock Dividend
Policy."
PREFERRED STOCK
The Board of Directors of the Company will be authorized to provide for the
issuance of shares of preferred stock, in one or more series, and to fix for
each such series such voting powers, designations, preferences and relative,
participating, optional and other special rights, and such qualifications,
limitations or restrictions, as are stated in the resolution adopted by the
Board of Directors of the Company providing for the issuance of such series as
are permitted by the Delaware General Corporation Law (the "Delaware GCL"). See
"PURPOSES AND EFFECTS OF CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION
AND BY-LAWS -- Preferred Stock."
NO PREEMPTIVE RIGHTS
No holder of any stock of the Company of any class authorized at the
Distribution Date will then have any preemptive right to subscribe to any
securities of the Company of any kind or class.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is Norwest Bank
Minnesota, N.A.
PURPOSES AND EFFECTS OF CERTAIN PROVISIONS OF THE
CERTIFICATE OF INCORPORATION AND BY-LAWS
GENERAL
The Certificate of Incorporation and By-laws contain certain provisions that
could make more difficult the acquisition of control of the Company by means of
a tender offer, open market purchases, a proxy contest or otherwise. Set forth
below is a description of such provisions contained in the Certificate of
Incorporation and By-laws. Such description is intended as a summary only and is
qualified in its entirety by reference to the Certificate of Incorporation and
By-laws, the forms of which are included as exhibits to the Registration
Statement of which this Information Statement forms a part.
CLASSIFIED BOARD OF DIRECTORS
The Certificate of Incorporation provides that the number of directors shall be
fixed from time to time by the Board of Directors of the Company. The directors
shall be divided into three classes, as nearly equal in number as is reasonably
possible, serving staggered terms so that directors' initial terms will expire
either at the 1997, 1998 or 1999 annual meeting of the Company's stockholders.
Starting with
60
the 1997 annual meeting of the Company's stockholders, one class of directors
will be elected each year for a three-year term. See "MANAGEMENT OF THE COMPANY
- -- Directors."
The Company believes that a classified Board of Directors will help to assure
the continuity and stability of the Company's Board of Directors and the
Company's business strategies and policies as determined by the Board of
Directors of the Company, since a majority of the directors at any given time
will have had prior experience as directors of the Company. The Company believes
that this, in turn, will permit the board to more effectively represent the
interests of stockholders.
With a classified Board of Directors, at least two annual meetings of
stockholders, instead of one, will generally be required to effect a change in a
majority of the Board of Directors. As a result, a classified Board of Directors
of the Company may discourage proxy contests for the election of directors or
purchases of a substantial block of the Common Stock because its provisions
could operate to prevent obtaining control of the Board of Directors of the
Company in a relatively short period of time. The classification provisions
could also have the effect of discouraging a third party from making a tender
offer or otherwise attempting to obtain control of the Company. In addition,
because under Delaware law a director serving on a classified Board of Directors
may be removed only for cause, a classified Board of Directors would delay
stockholders who do not agree with the policies of the Board of Directors from
replacing a majority of the Board of Directors for two years unless they can
demonstrate that the directors should be removed for cause and can obtain the
requisite vote. Such a delay may help ensure that the Board of Directors of the
Company, if confronted by a holder conducting a proxy contest or an
extraordinary corporate transaction, will have sufficient time to review the
proposal and appropriate alternatives to the proposal and to act in what it
believes are the best interests of the Company's stockholders.
SPECIAL MEETINGS OF STOCKHOLDERS; ACTION BY WRITTEN CONSENT; ADVANCE NOTICE
PROVISIONS
The By-laws provide that special meetings of stockholders of the Company may be
called by the Board of Directors of the Company or the Chairman of the Board.
The Certificate of Incorporation also requires that stockholder action be taken
at a meeting of stockholders and prohibits action by written consent.
STOCKHOLDER NOMINATIONS
The By-laws establish procedures that must be followed for a stockholder to
nominate individuals for election to the Company's Board of Directors.
Nominations of persons for election to the Board will be required to be made by
delivering written notice to the Secretary of the Company not less than 60 days
and not more than 90 days prior to the anniversary date of the immediately
preceding annual meeting of stockholders; PROVIDED HOWEVER, that in the event
that the annual meeting is called for a date that is not within 10 days before
or after such anniversary date, notice by the stockholder to be timely will be
required to be so received before the later of the close of business on the 10th
day following the day on which such notice of the date of the meeting was mailed
or public disclosure made of the date of the annual meeting was made, whichever
first occurs and the close of business on the day which is 60 days prior to the
date of the annual meeting. The nomination notice will be required to set forth
certain background information about the persons to be nominated, including the
nominees' principal occupation or employment and the class and number of shares
of capital stock of the Company that are beneficially owned by such person. If
the presiding officer at the annual meeting determines that a nomination was not
made in accordance with these procedures, he may so declare at the meeting and
the nomination may be disregarded.
STOCKHOLDER PROPOSALS
The By-laws establish procedures that must be followed for a stockholder to
submit a proposal at an annual meeting of the stockholders of the Company. Under
these procedures, no proposal for a stockholder vote will be able to be
submitted to the stockholders unless the submitting stockholder has timely filed
with the Secretary of the Company a written statement setting forth specified
information, including the names and addresses of the persons making the
proposal, the class and number of shares of capital stock of the Company
beneficially owned by such persons, a description of the proposal and
61
the reasons for bringing such business before the annual meeting and any
material interest of the stockholder in such business. The statement will be
required to be filed no later than the latest date for filing a nomination
notice as described above under "--Stockholder Nominations." If the presiding
officer at any stockholder meeting determines that any such proposal was not
made in accordance with these procedures or is otherwise not in accordance with
applicable law, he may so declare at the meeting and such defective proposal may
be disregarded.
PREFERRED STOCK
The Certificate of Incorporation authorizes the Board of Directors to establish
a series of preferred stock and to determine, with respect to any series of
preferred stock, the terms and rights of such series, including the following:
(i) the designation of such series; (ii) the rate and time of, and conditions
and preferences with respect to, dividends, and whether such dividends are
cumulative; (iii) the voting rights, if any, of shares of such series; (iv) the
price, timing and conditions regarding the redemption of shares of such series
and whether a sinking fund should be established for such series; (v) the rights
and preferences of shares of such series in the event of voluntary or
involuntary dissolution, liquidation or winding up of the affairs of the
Company; and (vi) the right, if any, to convert or exchange shares of such
series into or for stock or securities of any other series or class.
The Company believes that the availability of the preferred stock will provide
the Company with increased flexibility in structuring possible future financing
and acquisitions, and in meeting other corporate needs which might arise. Having
such authorized shares available for issuance will allow the Company to issue
shares of preferred stock without the expense and delay of a special
stockholders' meeting. The authorized shares of preferred stock, as well as
shares of Common Stock, will be available for issuance without further action by
the Company's stockholders, unless action is required by applicable law or the
rules of any stock exchange on which the Company's securities may be listed or
unless the Company is restricted by the terms of previously issued preferred
stock or by the Company's bank credit facility.
SUPERMAJORITY PROVISION
The Certificate of Incorporation generally provides that, whether or not a vote
of the stockholders is otherwise required, the affirmative vote of the holders
of not less than eighty percent (80%) of the outstanding shares of Common Stock
shall be required for the approval or authorization of any Business Transaction
with a related Person, or any Business Transaction in which a Related Person has
an interest; provided, however, that the eighty percent (80%) voting requirement
shall not be applicable if (1) the Business Transaction is approved by the
Continuing Directors, or (2) all of the following conditions are satisfied:
(a) the Business Transaction is a merger or consolidation or sale of
substantially all of the assets of the Company, and the aggregate amount of cash
to be received per share by holders of Common Stock in connection with such
Business Transaction is at least equal in value to the highest amount of
consideration paid by such related person for a share of Common Stock in the
transaction in which such person became a Related Person, or within one year
prior to the date such related Person became a Related Person, whichever is
higher; and
(b) after such Related Person has become the beneficial owner of not less than
ten percent (10%) of the voting power of the stock of the Company entitled to
vote generally in the election of directors, and prior to the consummation of
such Business Transaction, such Related Person shall not have become the
Beneficial Owner of any additional shares of voting stock or securities
convertible into voting stock, except (i) as a part of the transaction which
resulted in such Related Person becoming the beneficial owner of not less than
ten percent (10%) of the voting power of the voting stock or (ii) as a result of
a pro rata stock dividend or stock split; and
(c) prior to the consummation of such Business Transaction, such Related Person
shall not have, directly or indirectly, (i) received the benefit (other than
only a proportionate benefit as a stockholder of the Company) of any loans,
advances, guarantees, pledges, or other financial assistance or tax credits
provided by the Company or any of its subsidiaries, (ii) caused any material
change in the Company's business or equity capital structure, including, without
limitation, the issuance of shares of capital stock
62
of the Company, or (iii) except as approved by the Continuing Directors, caused
the Company to fail to declare and pay (y) at the regular date therefor any full
quarterly dividends on any out-standing preferred stock or (z) quarterly cash
dividends on the outstanding Common Stock on a per share basis at least equal to
the cash dividends being paid thereon by the corporation immediately prior to
the date on which the Related Person became a Related Person.
The term "Business Transaction" is generally defined as (a) any merger or
consolidation involving the Company or a subsidiary of the Company, (b) any
sale, lease, exchange, transfer, or other disposition (in one transaction or a
series of related transactions), including, without limitation, a mortgage or
any other security device, of all or any substantial part of the assets either
of the Company or of a subsidiary of the Company (c) any sale, lease, exchange,
transfer, or other disposition (in one transaction or a series of related
transactions) of all or any substantial part of the assets of an entity to the
Company, (d) the issuance, sale, exchange, transfer, or other disposition (in
one transaction or a series of related transactions) by the Company or a
subsidiary of the Company of any securities of the Company or any subsidiary of
the Company, (e) any recapitalization or reclassification of the securities of
the Company or other transaction that would have the effect of increasing the
voting power of a Related Person or reducing the number of shares of each class
of voting stock outstanding, (f) any liquidation, spin-off, split-off, split-up,
or dissolution of the Company, and (g) any agreement, contract, or other
arrangement providing for any of the transactions described in this definition
of Business Transaction. "Continuing Director" is generally defined as a member
of the Board of Directors on the Distribution Date and any member of the Board
of Directors whose election was approved by the Continuing Directors. "Related
Person" generally is defined as any individual or entity which, together with
its affiliates and associates owns not less than 10% of the voting power of the
voting stock of the Company.
RIGHTS AGREEMENT
The Board of Directors of the Company has declared a dividend distribution of
one right (a "Right") to purchase one one-hundredth of a share of Series A
Junior Participating Preferred Stock for each outstanding share of Common Stock
to stockholders of record of the Company on the Record Date. The description and
terms of the Rights are set forth in a Rights Agreement, dated as of June ,
1996, between the Company and Norwest Bank Minnesota, N.A. (the "Rights
Agreement").
The Rights remain non-exercisable, nontransferable and non-separable from the
Company's Common Stock until the earlier of (i) 10 days after a public
announcement that a person or group of affiliated or associated persons (an
"Acquiring Person") has acquired, or obtained the right to acquire, beneficial
ownership of 15% or more of the outstanding shares of the Company's Common Stock
(the "Stock Acquisition Date") or (ii) 10 business days (or such later date as
may be determined by the Board of Directors) after the commencement of a tender
offer or exchange offer for 15% or more of the Common Stock.
In the event that a person becomes the beneficial owner of 15% or more of the
then outstanding shares of the Common Stock (except pursuant to an offer for all
outstanding shares of Common Stock that the independent directors of the Company
determine to be fair to and otherwise in the best interests of the Company and
its stockholders (an "Approved Offer"), each holder of a Right will thereafter
have the right to receive, upon exercise, shares of Common Stock (or, in certain
circumstances, cash, property or other securities of the Company) having a value
equal to two times the exercise price of the Rights. Each Right, when
exercisable, currently entitles the registered holder to purchase from the
Company one one-hundredth of a share of Series A Junior Participating Preferred
Stock at a price of $125, subject to adjustment. In the event that, at any time
following the Stock Acquisition Date, (i) the Company is acquired in a merger or
other business combination transaction in which the Company is not the surviving
corporation (other than a merger that follows an Approved Offer and meets
certain other requirements) or (ii) more than 50% of the Company's assets, cash
flows or earning power is sold or transferred, each holder of a Right shall
thereafter have the right to receive, upon exercise, common stock of the
acquiring company having a value equal to two times the exercise price of the
Right.
In general, at any time prior to their expiration on July 1, 2006 or until 10
days following the Stock Acquisition Date, the Board of Directors in its
discretion may redeem the Rights in whole, but not in part, at a price of $.01
per Right.
63
Each share of Series A Junior Participating Preferred Stock, when issued, will
be nonredeemable and entitled to cumulative dividends and will rank junior to
any series of Preferred Stock senior to it. Dividends are payable on the Series
A Junior Participating Preferred Stock in an amount equal to the greater of (i)
$1.00 per share or (ii) 100 times the aggregate per share amount of all cash and
noncash dividends (other than dividends payable in Common Stock) declared on the
Common Stock since the last quarterly dividend payment date or, with respect to
the first such date, since the first issuance of the Series A Junior
Participating Preferred Stock. Each share of Series A Junior Participating
Preferred Stock will entitle the holder (subject to adjustment) to 100 votes on
all matters submitted to a vote of the stockholders of the Company. The number
of shares constituting the series of Series A Junior Participating Preferred
Stock is 1,000,000.
The Rights may have certain anti-takeover effects, including deterring someone
from acquiring control of the Company in a manner or on terms not approved by
the Board of Directors. The Rights should not interfere with any merger or other
business combination approved by the Board of Directors, since the Rights may be
redeemed generally at any time by the Company as set forth above.
LIABILITY AND INDEMNIFICATION OF
DIRECTORS AND OFFICERS
GENERAL
Officers and directors of the Company are covered by certain provisions of the
Delaware GCL, the Certificate of Incorporation, the By-laws and insurance
policies which serve to limit, and, in certain instances, to indemnify them
against, certain liabilities which they may incur in such capacities. None of
such provisions would have retroactive effect for periods prior to the
Distribution Date, and the Company is not aware of any claim or proceeding in
the last three years, or any threatened claim, which would have been or would be
covered by these provisions. These various provisions are described below.
ELIMINATION OF LIABILITY IN CERTAIN CIRCUMSTANCES
In June 1986, Delaware enacted legislation which authorizes corporations to
limit or eliminate the personal liability of directors to corporations and their
stockholders for monetary damages for breach of directors' fiduciary duty of
care. The duty of care requires that, when acting on behalf of the corporation,
directors must exercise an informed business judgment based on all material
information reasonably available to them. Absent the limitations now authorized
by such legislation, directors are accountable to corporations and their
stockholders for monetary damages for conduct constituting negligence or gross
negligence in the exercise of their duty of care. Although the statute does not
change directors' duty of care, it enables corporations to limit available
relief to equitable remedies such as injunction or rescission. The Certificate
of Incorporation limits the liability of directors to the Company or its
stockholders (in their capacity as directors but not in their capacity as
officers) to the fullest extent permitted by such legislation. Specifically, the
directors of the Company will not be personally liable for monetary damages for
breach of a director's fiduciary duty as director, except for liability (i) for
any breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) for unlawful payments of
dividends or unlawful stock repurchases or redemptions as provided in Section
174 of the Delaware GCL, or (iv) for any transaction from which the director
derived an improper personal benefit.
INDEMNIFICATION AND INSURANCE
As a Delaware corporation, the Company has the power, under specified
circumstances generally requiring the director or officer to act in good faith
and in a manner he reasonably believes to be in or not opposed to the Company's
best interests, to indemnify its directors and officers in connection with
actions, suits or proceedings brought against them by a third party or in the
name of the Company, by reason of the fact that they were or are such directors
or officers, against expenses, judgments, fines and amounts paid in settlement
in connection with any such action, suit or proceeding. The By-laws generally
provide for mandatory indemnification of the Company's directors and officers to
the full extent provided by Delaware corporate law.
64
The Company intends to purchase and maintain insurance on behalf of any person
who is or was a director or officer of the Company, or is or was a director or
officer of the Company serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise against any liability asserted
against him and incurred by him in any such capacity, or arising out of his
status as such, whether or not the Company would have the power or obligation to
indemnify him against such liability under the provisions of the By-laws.
INDEPENDENT PUBLIC ACCOUNTANTS
The Company has appointed Coopers & Lybrand L.L.P. as the Company's independent
public accountants to audit the Company's financial statements as of and for the
year ending December 31, 1996. Coopers & Lybrand L.L.P. has audited the
Company's historical financial statements as of December 31, 1995 and 1994 and
for each of the three years in the period ended December 31, 1995.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form 10
(the "Registration Statement", which term shall include any amendments or
supplements thereto) under the Exchange Act with respect to the shares of Common
Stock being received by 3M stockholders in the Distribution. This Information
Statement does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules thereto, to which reference is hereby
made. Statements made in this Information Statement as to the contents of any
contract, agreement or other document referred to herein are not necessarily
complete. With respect to each such contract, agreement or other document filed
as an exhibit to the Registration Statement, reference is made to such exhibit
for a more complete description of the matter involved, and each such statement
shall be deemed qualified in its entirety by such reference.
The Registration Statement and the exhibits thereto filed by the Company with
the Commission may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, as well as at the Regional Offices of the Commission at Northwest
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and
7 World Trade Center, Suite 1300, 13th Floor, New York, New York 10048. Copies
of such information can be obtained by mail from the Public Reference Branch of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates.
65
INDEX TO HISTORICAL FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Page
Report of Independent Accountants F-2
Historical Statements of Operations for the three month periods ended March 31,
1996 and 1995 (unaudited) and for each of the three years in the period ended
December 31, 1995 F-3
Historical Balance Sheets as of March 31, 1996 (unaudited) and as of December 31,
1995 and 1994 F-4
Historical Statements of Cash Flows for the three month periods ended March 31,
1996 and 1995 (unaudited) and for each of the three years in the period ended
December 31, 1995 F-5
Notes to Historical Financial Statements F-6
</TABLE>
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of Minnesota Mining
and Manufacturing Company:
We have audited the historical financial statements of the businesses to
comprise Imation Corp. (as described in Note 1 to the historical financial
statements) listed on page F-1 of this Information Statement. These historical
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these historical financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the historical financial statements referred to above present
fairly, in all material respects, the financial position of Imation Corp. as of
December 31, 1995 and 1994, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1995 in conformity
with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Minneapolis, Minnesota
March 29, 1996
F-2
IMATION CORP.
HISTORICAL STATEMENTS OF OPERATIONS
(IN MILLIONS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEARS ENDED
MARCH 31, DECEMBER 31,
1996 1995 1995 1994 1993
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues $576.1 $576.7 $2,245.6 $2,280.5 $2,307.8
Cost of goods sold 373.8 364.2 1,520.9 1,442.0 1,421.6
Gross profit 202.3 212.5 724.7 838.5 886.2
Operating expenses:
Selling, general and
administrative 130.7 137.9 539.4 531.5 529.0
Research and development 47.9 56.4 222.4 211.2 216.7
Restructuring charge 10.4 -- 111.8 -- --
Total 189.0 194.3 873.6 742.7 745.7
Operating income (loss) 13.3 18.2 (148.9) 95.8 140.5
Interest expense and other 3.2 5.2 17.9 14.5 13.1
Income (loss) before tax and
minority interest 10.1 13.0 (166.8) 81.3 127.4
Income tax provision
(benefit) 4.1 5.5 (70.5) 29.3 51.8
Minority interest (0.1) -- (11.3) (2.3) 0.3
Net income (loss) $ 6.1 $ 7.5 $ (85.0) $ 54.3 $ 75.3
</TABLE>
THE ACCOMPANYING NOTES TO HISTORICAL FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.
F-3
IMATION CORP.
HISTORICAL BALANCE SHEETS
(IN MILLIONS)
<TABLE>
<CAPTION>
AS OF MARCH 31, AS OF DECEMBER 31,
1996 1995 1994
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets
Accounts receivable, net $ 472.2 $ 479.5 $ 476.5
Inventories:
Finished goods 240.1 244.0 290.5
Work in process 77.6 81.2 75.2
Raw materials and supplies 102.4 101.1 107.8
Total inventories 420.1 426.3 473.5
Other current assets 48.1 48.8 47.6
Total current assets 940.4 954.6 997.6
Property, Plant and Equipment, Net 503.9 513.2 654.9
Other Assets 75.7 73.7 19.2
Total Assets $1,520.0 $1,541.5 $1,671.7
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable $ 117.0 $ 125.9 $ 129.0
Accrued payroll 52.8 44.4 42.4
Other current liabilities 137.2 125.9 112.2
Total current liabilities 307.0 296.2 283.6
Other Liabilities 91.3 96.6 88.1
Commitments and Contingencies
Equity 1,121.7 1,148.7 1,300.0
Total Liabilities and Equity $1,520.0 $1,541.5 $1,671.7
</TABLE>
THE ACCOMPANYING NOTES TO HISTORICAL FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.
F-4
IMATION CORP.
HISTORICAL STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEARS ENDED
MARCH 31, DECEMBER 31,
1996 1995 1995 1994 1993
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 6.1 $ 7.5 $ (85.0) $ 54.3 $ 75.3
Non-cash items included in net income (loss):
Depreciation 48.5 49.1 189.5 185.9 184.4
Deferred income taxes 6.1 0.6 (68.1) 14.0 (10.0)
Restructuring charge and asset write-offs 9.8 -- 166.3 -- --
Other (0.2) 1.6 2.1 1.5 5.1
Changes in operating assets and liabilities:
Accounts receivable 5.1 3.1 (0.6) (16.8) (53.6)
Inventories 4.6 (26.3) 25.4 (87.8) 8.7
Other (10.3) (6.1) 27.2 19.0 19.3
Net cash provided by operating activities 69.7 29.5 256.8 170.1 229.2
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (40.7) (46.0) (180.2) (182.7) (211.4)
Other 0.6 (0.9) (7.3) 3.0 1.2
Net cash used in investing activities (40.1) (46.9) (187.5) (179.7) (210.2)
CASH FLOWS FROM FINANCING ACTIVITIES
Net cash (paid to) received from 3M (27.0) 13.4 (72.9) 18.5 (13.1)
Effect of exchange rate changes on cash (2.6) 4.0 3.6 (8.9) (5.9)
Net change in cash and equivalents $ -- $ -- $ -- $ -- $ --
</TABLE>
THE ACCOMPANYING NOTES TO HISTORICAL FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.
F-5
IMATION CORP.
NOTES TO HISTORICAL FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS UNLESS OTHERWISE NOTED)
NOTE 1 -- BACKGROUND AND BASIS OF PRESENTATION
BACKGROUND
Imation Corp. (the "Company") is a newly formed Delaware corporation which
initially will be a wholly-owned subsidiary of Minnesota Mining and
Manufacturing Company ("3M"). On November 13, 1995, 3M announced its intention
to launch its data storage and imaging systems businesses as an independent,
publicly owned company. This transaction is expected to be effected through the
distribution of shares of the Company to 3M shareholders effective on or about
July 1, 1996 ("the Distribution"). Prior to the Distribution, 3M plans to
transfer to the Company substantially all of the assets and liabilities
associated with 3M's global data storage and imaging systems businesses. 3M and
the Company will enter into a number of agreements to facilitate the
Distribution and the transition of the Company to an independent business
enterprise.
BASIS OF PRESENTATION
The historical financial statements reflect the assets, liabilities, revenues
and expenses that were directly related to the Company as they were operated
within 3M. In cases involving assets and liabilities not specifically
identifiable to any particular business of 3M, only those assets and liabilities
expected to be transferred to the Company prior to the Distribution were
included in the Company's separate historical balance sheets. Regardless of the
allocation of these assets and liabilities, however, the Company's Statements of
Operations include all of the related costs of doing business including an
allocation of certain general corporate expenses of 3M which were not directly
related to these businesses including costs for corporate logistics, corporate
research and development, information technologies, finance, legal and corporate
executives. These allocations were based on a variety of factors including, for
example, personnel, space, time and effort, and sales volume. Management
believes these allocations were made on a reasonable basis. All material
inter-company transactions and balances between the Company's businesses have
been eliminated.
3M uses a centralized approach to cash management and the financing of its
operations. As a result, cash and equivalents, and debt were not allocated to
the Company in the financial statements. The historical statements of operations
include an allocation of 3M's interest expense (see Note 6). The Company's
financing requirements are represented by cash transactions with 3M and are
reflected in the "Net Investment by 3M" account (see Note 7). Certain assets and
liabilities of 3M such as certain employee benefit and income tax-related
balances have not been allocated to the Company and are included in the Net
Investment by 3M account. Activity in the Net Investment by 3M equity account
relates to net cash flows of the Company as well as changes in the assets and
liabilities not allocated to the Company.
The Company also participated in 3M's centralized foreign currency and interest
rate risk management functions. As part of these activities, derivative
financial instruments are utilized to manage risks generally associated with
foreign exchange rate and interest rate market volatility. 3M does not hold or
issue derivative financial instruments for trading purposes.
3M is not a party to leveraged derivatives.
The historical balance sheets do not reflect any of the associated asset or
liability positions resulting from these activities. The historical statements
of operations and statements of cash flows, however, do reflect an allocation of
the related benefits and costs from these functions. Realized and unrealized
gains and losses are deferred until the underlying transactions are realized.
These gains and losses are recognized either as interest expense over the
borrowing period for interest rate and currency swaps or as an adjustment to
cost of goods sold for inventory-related hedge transactions. Cash flows
attributable to these financial instruments are included with the cash flows
from the associated hedged items.
The minority interest within the historical statements of operations gives
recognition to the Company's share of net income (loss) of certain majority
owned subsidiaries of 3M. The minority
F-6
shareholders' proportionate interests in the net assets of majority owned
subsidiaries have not been presented in the historical balance sheets based on
the assumption that the Company will obtain 100 percent ownership of the assets
and liabilities of these subsidiaries in connection with the Distribution. See
Note (j) to Pro Forma Balance Sheet.
The financial information included herein may not necessarily be indicative of
the financial position, results of operations or cash flows of the Company in
the future or what the financial position, results of operations or cash flows
would have been if the Company had been a separate, independent company during
the periods presented.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INTERIM FINANCIAL DATA (UNAUDITED)
The financial information presented as of March 31, 1996 and for each of the
three month periods ended March 31, 1996 and 1995 is unaudited. In the opinion
of management, this financial information reflects all adjustments necessary for
a fair presentation of the financial information for such periods. These
adjustments, except for the restructuring charge recorded in the three months
ended March 31, 1996, consist of normal, recurring items. The results of
operations for the three month period ended March 31, 1996 should not
necessarily be taken as indicative of the results of operations that may be
expected for the entire year 1996.
FOREIGN CURRENCY TRANSLATION
Local currencies are generally considered the functional currencies outside the
United States. Assets and liabilities are translated at year-end exchange rates
with cumulative translation adjustments included as a component of equity.
Income and expense items are translated at average rates of exchange prevailing
during the year.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Principal areas requiring the
use of estimates include: the allocation of financial statement amounts between
the Company and 3M, determination of allowances for uncollectible accounts
receivable and obsolete/excess inventories, and assessments of the
recoverability of deferred tax assets and certain long-lived assets.
INVENTORIES
Inventories are stated at the lower of cost or market, with cost generally
determined on a first-in first-out basis.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Plant and equipment are
depreciated on a straight-line basis over their estimated useful lives.
Maintenance and repairs are expensed as incurred. Periodic reviews for
impairment of the carrying value of property, plant and equipment are made based
on undiscounted future cash flows.
EMPLOYEE SEVERANCE INDEMNITIES
Employee severance indemnities consist of termination indemnities and are
accrued for each employee in accordance with labor legislation in each
applicable country.
REVENUE RECOGNITION
Revenue is recognized upon shipment of goods to customers or upon performance of
services. Revenues from service contracts are deferred and recognized over the
life of the contracts as service is performed.
F-7
CONCENTRATIONS OF CREDIT RISK
The Company sells a wide range of products and services to a diversified base of
customers around the world and performs ongoing credit evaluations of its
customers' financial condition, and therefore believes there is no material
concentration of credit risk.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to expense as incurred.
ADVERTISING COSTS
Advertising costs are charged to expense as incurred and totaled $52 million,
$52 million and $45 million in 1995, 1994 and 1993 respectively.
INCOME TAXES
As an operating unit within 3M, the Company does not file separate tax returns
but rather is included in the income tax returns filed by 3M and its
subsidiaries in various domestic and foreign jurisdictions. The Company's
allocated share of 3M's income tax provision was based on the "separate return"
method, except that the tax benefit of the Company's tax losses in certain
jurisdictions was allocated to the Company on a current basis if such losses
could be utilized by 3M in its tax returns and an assessment of realizability of
certain deferred tax assets was made assuming the availability of future 3M
taxable income. The balance of accrued current income taxes for the Company's
operations is included in the Net Investment by 3M equity account because 3M
pays all taxes and receives all tax refunds on the Company's behalf.
F-8
NOTE 3 -- SUPPLEMENTAL BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
1995 1994
(MILLIONS)
<S> <C> <C>
ACCOUNTS RECEIVABLE
Accounts receivable $ 497.0 $ 495.2
Less allowances 17.5 18.7
Accounts receivable, net $ 479.5 $ 476.5
OTHER CURRENT ASSETS
Deferred taxes $ 23.4 $ 21.9
Other 25.4 25.7
Total other current assets $ 48.8 $ 47.6
PROPERTY, PLANT AND EQUIPMENT
Land $ 7.7 $ 7.6
Buildings and leasehold improvements 180.9 170.5
Machinery and equipment 1,616.2 1,489.3
Construction in progress 63.5 98.3
1,868.3 1,765.7
Less accumulated depreciation 1,355.1 1,110.8
Property, plant and equipment, net $ 513.2 $ 654.9
OTHER ASSETS
Deferred taxes $ 60.6 $ 3.2
Other 13.1 16.0
Total other assets $ 73.7 $ 19.2
OTHER CURRENT LIABILITIES
Accrued rebates $ 44.6 $ 30.6
Deferred income 35.8 38.8
Other 45.5 42.8
Total other current liabilities $ 125.9 $ 112.2
OTHER LIABILITIES
Employee severance indemnities $ 59.2 $ 49.4
Other 37.4 38.7
Total other liabilities $ 96.6 $ 88.1
</TABLE>
F-9
NOTE 4 -- RESTRUCTURING CHARGE AND ASSET WRITE-OFFS
In late 1995, the Company initiated a review of all of its operations, including
its organizational structure, manufacturing operations, products and markets. In
connection with this review, the Company has adopted a reorganization plan to
rationalize its manufacturing operations, streamline its organizational
structure and write-off impaired assets.
To reflect the direct and indirect costs associated with this reorganization
plan, 3M recognized a loss on disposal which included pre-tax charges of
approximately $340 million in the fourth quarter of 1995 as a part of its
discontinued operations. The Company will reflect the direct portion of these
charges, approximately $250 million, in its separate financial statements
partially in 1995 and partially in 1996 based upon the timing recognition
criteria required for restructuring charges. The Company recorded $166.3 million
of these charges ($88.3 million after taxes and minority interest) in its 1995
historical financial statements and an additional $10.4 million ($6.1 million
after taxes and minority interest) in the first quarter of 1996. The balance of
the $250 million relates primarily to employee severance costs and is expected
to be reflected in the Company's financial statements during the remaining
quarters of 1996.
The 1995 special charge of $166.3 million includes $111.8 million related to
world-wide manufacturing rationalization programs to exit less profitable
manufacturing locations and to centralize manufacturing in the United States and
in Italy, and consists principally of write-offs of property, plant and
equipment. This $111.8 million charge is included as a separate restructuring
charge in the statement of operations. The remaining 1995 special charge of
$54.5 million relates primarily to asset write-offs included in cost of goods
sold.
The first quarter 1996 restructuring charge reflects costs for certain voluntary
separation programs.
F-10
NOTE 5 -- INCOME TAXES
<TABLE>
<CAPTION>
1995 1994 1993
(MILLIONS)
<S> <C> <C> <C>
INCOME (LOSS) BEFORE TAX AND MINORITY
INTEREST
U.S. $(136.1) $63.2 $ 74.8
International (30.7) 18.1 52.6
Total $(166.8) $81.3 $127.4
INCOME TAX PROVISION (BENEFIT)
Currently payable (refundable)
Federal $ (14.0) $ 8.3 $ 24.0
State (4.3) 1.7 3.5
International 15.6 4.6 34.4
Deferred
Federal (34.9) 9.4 (5.6)
State (3.1) 0.8 (0.4)
International (29.8) 4.5 (4.1)
Total $ (70.5) $29.3 $ 51.8
</TABLE>
<TABLE>
<CAPTION>
1995 1994
(MILLIONS)
<S> <C> <C>
COMPONENTS OF NET DEFERRED TAX ASSETS AND
LIABILITIES
Receivables $ 4.0 $ 5.3
Inventories 5.9 5.8
Property, plant and equipment 44.5 (16.9)
Payroll 19.2 16.9
Other, net 9.5 4.2
Net Deferred Tax Assets and Liabilities $83.1 $ 15.3
</TABLE>
Management believes the Company, or in certain cases 3M prior to the
Distribution, will generate sufficient taxable income in future periods to
recover fully the Company's deferred tax assets.
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
RECONCILIATION OF EFFECTIVE INCOME TAX RATE
Statutory U.S. tax rate (35.0)% 35.0% 35.0%
State income taxes, net of federal benefit (6.3) 3.1 2.4
International taxes in excess of statutory rate (0.3) 3.4 9.3
All other, primarily foreign tax credits (0.7) (5.5) (6.0)
Effective Worldwide Tax Rate (42.3)% 36.0% 40.7%
</TABLE>
F-11
NOTE 6 -- INTEREST EXPENSE
The Company's financial statements include allocations of 3M's interest expense
totaling $18.8 million, $16.3 million and $13.3 million in 1995, 1994 and 1993,
respectively. These allocations are based on a targeted non-ESOP debt
anticipated at the Distribution Date of $250 million. The interest rates used
were 7.5%, 6.5% and 5.3% in 1995, 1994 and 1993, respectively, which reflect
3M's weighted average effective interest rates on non-ESOP debt during these
periods. The historical balance sheets of the Company do not include this debt
as the total capitalization of the Company is reflected in its equity.
NOTE 7 -- EQUITY
Changes in equity during each of the years ended December 31 were as follows:
<TABLE>
<CAPTION>
NET CUMULATIVE
INVESTMENT TRANSLATION TOTAL
BY 3M ADJUSTMENT EQUITY
(MILLIONS)
<S> <C> <C> <C>
Balance at December 31, 1992 $1,210.7 $(38.5) $1,172.2
Net income 75.3 75.3
Net amount paid to 3M (13.1) (13.1)
Net change in cumulative
translation (34.6) (34.6)
Balance at December 31, 1993 1,272.9 (73.1) 1,199.8
Net income 54.3 54.3
Net amount received from 3M 18.5 18.5
Net change in cumulative
translation 27.4 27.4
Balance at December 31, 1994 1,345.7 (45.7) 1,300.0
Net loss (85.0) (85.0)
Net amount paid to 3M (72.9) (72.9)
Net change in cumulative
translation 6.6 6.6
Balance at December 31, 1995 $1,187.8 $(39.1) $1,148.7
</TABLE>
NOTE 8 -- REVENUES BY CLASS OF SIMILAR PRODUCTS OR SERVICES (UNAUDITED)
The Company operates in one industry segment, the information processing
industry, supplying products and services to meet the information processing
needs for a variety of customer applications. Below are the product and service
revenues by class of similar products or services for each of the years ended
December 31.
<TABLE>
<CAPTION>
1995 1994 1993
(MILLIONS)
<S> <C> <C> <C>
REVENUE BY CLASSES OF SIMILAR PRODUCTS OR
SERVICES
Information processing, management and storage $ 930.7 $ 935.4 $ 947.3
Information printing 542.2 566.0 567.0
Medical and photo imaging 608.1 589.1 564.4
Other 164.6 190.0 229.1
Total $2,245.6 $2,280.5 $2,307.8
</TABLE>
F-12
NOTE 9 -- GEOGRAPHIC AREAS
Information in the table below is presented on the same basis utilized by the
Company to manage its business. Export sales and certain income and expense
items are reported in the geographic area where the final sale to customers is
made, rather than where the transaction originates.
<TABLE>
<CAPTION>
EUROPE OTHER
UNITED AND INTERNATIONAL ELIMINATIONS TOTAL
STATES MIDDLE EAST AREAS* AND OTHER COMPANY
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Net Revenues 1995 $1,128.8 $803.8 $313.0 $2,245.6
to Customers 1994 1,199.9 764.1 316.5 2,280.5
1993 1,247.8 763.2 296.8 2,307.8
Transfers Between 1995 $ 290.9 $ 76.2 $ 4.0 $(371.1)
Geographic Areas 1994 341.2 89.4 0.1 (430.7)
1993 310.9 86.5 0.1 (397.5)
Operating ** 1995 $ (169.0) $ 55.8 $(35.7) $ (148.9)
Income 1994 1.5 72.9 21.4 95.8
1993 6.0 97.8 36.7 140.5
Identifiable
Assets 1995 $ 816.4 $575.7 $149.7 $ (0.3) $1,541.5
1994 894.9 582.9 194.7 (0.8) 1,671.7
1993 857.4 517.8 176.2 (5.8) 1,545.6
</TABLE>
* Includes Latin America, Asia and Canada.
** Includes special charges of $99.8 million in the United States, $20.4
million in Europe and Middle East and $46.1 million in Other International
Areas.
NOTE 10 -- RETIREMENT PLANS
Prior to the Distribution, employees of the Company participated in various
3M-sponsored retirement plans covering substantially all 3M United States
employees and many employees outside the United States. The following
information is provided for historical purposes only, since the Company intends
to adopt different retirement plans.
3M's pension benefits are based principally on an employee's years of service
and compensation near retirement. Plan assets are invested in common stocks,
fixed-income securities, real estate and other investments.
3M's funding policy is to deposit with an independent trustee amounts at least
equal to those required by law. A trust fund is maintained to provide pension
benefits to United States plan participants and their beneficiaries. In
addition, a number of plans are maintained by deposits with insurance companies.
The Company's allocated portion of pension costs were $24 million, $25 million
and $28 million in 1995, 1994 and 1993, respectively.
Net pension cost and the funded status of pension plans as shown below includes
all employees covered by 3M plans including those associated with the Company.
3M has decided to retain the accrued liabilities (and the assets attributable to
such liabilities) under its United States pension plan pertaining to employees
of the Company. The Company intends to adopt a separate cash balance pension
plan to be effective July 1, 1996 which will cover substantially all United
States employees of the Company. All employees of the Company who are previous
employees of 3M will retain their rights to receive their accrued benefits under
3M's United States pension plan.
F-13
<TABLE>
<CAPTION>
U.S. PLAN INTERNATIONAL PLANS
1995 1994 1993 1995 1994 1993
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
NET PENSION COST
Service cost $ 96 $ 117 $ 110 $ 86 $ 85 $ 86
Interest cost 304 280 276 92 89 80
Return on plan assets --
actual (846) 70 (430) (124) (2) (185)
Net amortization and deferral 532 (377) 154 39 (79) 112
Net pension cost $ 86 $ 90 $ 110 $ 93 $ 93 $ 93
</TABLE>
<TABLE>
<CAPTION>
U.S. PLAN INTERNATIONAL PLANS
1995 1994 1995 1994
(MILLIONS)
<S> <C> <C> <C> <C> <C>
FUNDED STATUS OF PENSION PLANS
Plan assets at fair value $4,134 $3,343 $1,293 $1,333
Accrued pension cost 97 161 110 97
Amount provided for future benefits $4,231 $3,504 $1,403 $1,430
Actuarial present value of:
Vested benefit obligation 3,666 2,889 1,051 1,022
Non-vested benefit obligation 521 423 108 100
Accumulated benefit obligation $4,187 $3,312 $1,159 $1,122
Amount provided for future benefits less
accumulated benefit obligation 44 192 244 308
Projected benefit obligation 4,696 3,721 1,482 1,514
Plan assets at fair value less projected benefit
obligation $ (562) $ (378) $ (189) $ (181)
Unrecognized net transition (asset) obligation (149) (187) 22 22
Other unrecognized items 614 404 57 62
Accrued pension cost $ (97) $ (161) $ (110) $ (97)
</TABLE>
<TABLE>
<CAPTION>
U.S. PLAN INTERNATIONAL PLANS
1995 1994 1993 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
ASSUMPTIONS AT YEAR-END
Discount rate 7.00% 8.25% 7.25% 7.10% 7.45% 7.26%
Compensation rate increase 5.00% 5.00% 5.00% 5.38% 5.71% 5.31%
Long-term rate of return on assets 9.00% 9.00% 9.00% 7.59% 7.65% 7.64%
</TABLE>
Net pension cost is determined using assumptions at the beginning of the year.
Funded status is determined using assumptions at year-end.
Prior to the Distribution, U.S. employees of the Company also participated in a
3M-sponsored employee savings plan under Section 401(k) of the Code. Under this
plan, 3M matches employee contributions of up to 6 percent of compensation at
rates ranging from 35 to 85 percent depending upon financial performance. 3M's
matching contributions to the employee savings plan are funded through an
employee stock ownership plan. The Company's allocation of the expense related
to the employee savings plan was $4.5 million, $4.6 million and $4.7 million in
1995, 1994 and 1993, respectively.
The Company expects to adopt its own employee savings plan under Section 401(k)
of the Code pursuant to which it will make matching contributions through an
employee stock ownership plan.
F-14
NOTE 11 -- OTHER POSTRETIREMENT BENEFITS
Prior to the Distribution, employees of the Company who were eligible to retire
from 3M were eligible to participate in various 3M health care and life
insurance benefit plans available to substantially all of 3M's United States
employees. The following information is provided for historical purposes only,
since the Company does not intend to adopt similar postretirement benefit plans.
3M has set aside funds with an independent trustee for these postretirement
benefits and makes periodic contributions to the plans. The assets held by the
trustee are invested in common stocks and fixed-income securities. Employees
outside the United States are covered principally by government-sponsored plans.
The cost of 3M-provided plans for these employees is not material. The Company's
allocation of the net charges to income for plans covering United States
employees was $9 million, $8 million and $8 million in 1995, 1994 and 1993,
respectively.
The table below sets forth the historical components of the net periodic
postretirement benefit cost and a reconciliation of the funded status of the
postretirement benefit plans for all 3M United States employees including those
associated with the Company.
<TABLE>
<CAPTION>
1995 1994 1993
(MILLIONS)
<S> <C> <C> <C>
NET PERIODIC POSTRETIREMENT BENEFIT
COST
Service cost $ 26 $ 28 $ 23
Interest cost 63 55 53
Return on plan assets -- actual (76) 16 (23)
Net amortization and deferral 51 (40) 1
Total $ 64 $ 59 $ 54
</TABLE>
<TABLE>
<CAPTION>
1995 1994
(MILLIONS)
<S> <C> <C> <C>
FUNDED STATUS OF POSTRETIREMENT BENEFIT PLANS
Fair value of plan assets $ 398 $ 319
Accumulated postretirement benefit
obligation:
Retirees $ 286 $ 256
Fully eligible active plan participants 201 167
Other active plan participants 468 367
Benefit obligation $ 955 $ 790
Plan assets less benefit obligation $(557) $(471)
Adjustments and unrecognized items 134 67
Accrued postretirement cost $(423) $(404)
</TABLE>
The accumulated postretirement benefit obligation and related benefit cost are
determined through the application of relevant actuarial assumptions. 3M
anticipates its health care cost trend rate to slow from 6.9 percent in 1996 to
5.0 percent in 2003, after which the trend rate is expected to stabilize. The
effect of a one percentage point increase in the assumed health care cost trend
rate for each future year would increase the benefit obligation by $78 million
and the current year benefit expense by $9 million. Other actuarial assumptions
include an expected long-term rate of return on plan assets of 9.0 percent
(before taxes applicable to a portion of the return on plan assets), and a
discount rate of 7.0 percent.
F-15
NOTE 12 -- EMPLOYEE STOCK PLANS
Prior to the Distribution certain employees of the Company participated in 3M's
Management Stock Ownership Program covering management employees of 3M. In lieu
of a 1996 annual grant under 3M's program, the Company intends to grant to its
employees who would otherwise have been eligible to receive a 1996 grant under
such Program, options to purchase shares of Common Stock under the new stock
option plan of the Company which was approved by 3M, as the sole stockholder of
the Company, prior to Distribution.
As a result, shortly after the Distribution the Company expects to grant to such
employees options to purchase approximately 800,000 shares of Common Stock.
NOTE 13 -- COMMITMENTS AND CONTINGENCIES
The Company is a party to various claims and litigation arising from the normal
course of business, including product liability and environmental claims. While
there can be no certainty that the Company may not ultimately incur charges in
excess of presently established accruals, management believes that such
additional charges, if any, will not have a material adverse effect on the
Company's financial position.
On or immediately after the Distribution, the Company expects to enter into a
debt facility agreement to borrow approximately $280 million. Of this amount,
the Company will lend $30 million to the employee stock ownership plan it will
establish. The terms of these borrowings are expected to contain customary
covenants including financial covenants. In addition, in connection with the
Distribution the Company intends to enter into a number of agreements with 3M to
facilitate the Distribution and the transition of the Company to an independent
business enterprise. Such agreements are expected to relate to tax sharing
matters, corporate services to be provided by 3M, environmental liabilities,
intellectual property, supply, service, contract manufacturing and sales agency
matters, and shared facilities.
NOTE 14 -- NEW ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." This statement requires that long-lived assets be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. If the sum of the
undiscounted expected future cash flows is less than the carrying amount of the
asset, an impairment loss is recognized. The impact of this statement on the
Company is immaterial.
In October 1995, the Financial Accounting Standards Board issued Statement No.
123, "Accounting for Stock-Based Compensation." This statement establishes
financial accounting and reporting standards for stock-based employee
compensation plans. The Company intends to follow the option that permits
entities to continue to apply current accounting standards to stock-based
employee compensation arrangements. Effective with year-end 1996 reporting, the
Company will disclose pro forma net income and earnings per share amounts as if
Statement No. 123 accounting were applied to the Company's stock compensation
programs that may exist once the Company is established as a separate entity
from 3M.
F-16
PART II
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements -- Index to Historical Financial Statements
(b) Exhibits:
EXHIBIT
NUMBER DESCRIPTION
2.1 Transfer and Distribution Agreement, dated as of June __, 1996, between
Minnesota Mining and Manufacturing Company ("3M") and the Registrant.*
3.1 Restated Certificate of Incorporation of the Registrant.
3.2 Amended and Restated By-Laws of the Registrant.
4.1 Rights Agreement, dated as of June __, 1996 between the Registrant and
Norwest Bank Minnesota, N.A., as Rights Agent.
4.2 Form of Certificate of Designations, Preferences and Rights of Series A
Junior Participating Preferred Stock of the Registrant.
10.1 Form of Tax Sharing and Indemnification Agreement, to be dated as of
July 1, 1996 between 3M and the Registrant.*
10.2 Form of Corporate Services Transition Agreement, to be dated as of July
1, 1996 between 3M and the Registrant.*
10.3 Form of Environmental Matters Agreement to be dated as of July 1, 1996
between 3M and the Registrant.*
10.4 Form of Intellectual Property Rights Agreement, to be dated as of July
1, 1996 between 3M and the Registrant.*
10.5 Forms of Supply Agreement, to be dated as of July 1, 1996, between 3M
and the Registrant.*
10.6 Form of Lease Agreement to be dated as of July 1, 1996 between 3M and
the Registrant.*
10.7 Form of Employment Agreement, to be dated as of July 1, 1996, between
William T. Monahan and the Registrant.*
10.8 Form of Imation 1996 Employee Stock Incentive Program.*
10.9 Form of Imation Cash Balance Pension Plan.*
10.10 Form of Imation Excess Benefit Plan.*
10.11 Form of Imation 1996 Retirement Investment Plan.*
10.12 Form of Imation 1996 Director Stock Compensation Program.*
10.13 Commitment Letter, dated as of June __, 1996, among 3M, the Registrant,
Citibank, N.A. and Citibank Securities, Inc.*
21.1 Subsidiaries of the Registrant.*
* To be filed by amendment.
II-1
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized.
IMATION CORP.
By /s/ W.T. MONAHAN
Name: W.T. Monahan
Title: Chief Executive Officer
Date: June 7, 1996
II-2
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION PAGE
2.1 Transfer and Distribution Agreement, dated as of June ,
1996, between Minnesota Mining and Manufacturing Company
("3M") and the Registrant.*
3.1 Restated Certificate of Incorporation of the Registrant.
3.2 Amended and Restated By-Laws of the Registrant.
4.1 Rights Agreement, dated as of June , 1996 between the
Company and Norwest Bank Minnesota, N.A., as Rights
Agent.
4.2 Form of Certificate of Designations, Preferences and
Rights of Series A Junior Participating Preferred Stock
of the Registrant.
10.1 Form of Tax Sharing and Indemnification Agreement, to be
dated as of July 1, 1996 between 3M and the Registrant.*
10.2 Form of Corporate Services Transition Agreement, to be
dated as of July 1, 1996 between 3M and the Registrant.*
10.3 Form of Environmental Matters Agreement to be dated as
of July 1, 1996 between 3M and the Registrant.*
10.4 Form of Intellectual Property Rights Agreement, to be
dated as of July 1, 1996 between 3M and the Registrant.*
10.5 Forms of Supply Agreement, to be dated as of July 1,
1996 between 3M and the Registrant.*
10.6 Form of Lease Agreement to be dated as of July 1, 1996
between 3M and the Registrant.*
10.7 Form of Employment Agreement, to be dated as of July 1,
1996, between William T. Monahan and the Registrant.*
10.8 Form of Imation 1996 Employee Stock Incentive Program.*
10.9 Form of Imation Cash Balance Pension Plan.*
10.10 Form of Imation Excess Benefit Plan.*
10.11 Form of Imation 1996 Retirement Investment Plan.*
10.12 Form of Imation 1996 Director Stock Compensation
Program.*
10.13 Commitment Letter, dated as of June , 1996, among 3M,
the Registrant, Citibank, N.A. and Citibank Securities, Inc.*
21.1 Subsidiaries of the Registrant.*
*To be filed by amendment.
RESTATED CERTIFICATE OF INCORPORATION OF IMATION CORP.
The undersigned, W. T. Monahan and C. A. Bates certify that
they are the Chief Executive Officer and Secretary, respectively, of Imation
Corp., a corporation organized and existing under the laws of the State of
Delaware (the "Corporation"), and do hereby further certify as follows:
(1) The name of the Corporation is Imation Corp.
(2) The name under which the Corporation was originally
incorporated was "3M Information Processing, Inc." and the original
Certificate of Incorporation of the Corporation was filed with the
Secretary of State of the State of
Delaware on March 26, 1996.
(3) This Restated Certificate of Incorporation was duly
adopted by written consent of the sole voting stockholder of the
Corporation entitled to vote thereon, all in accordance with the
provisions of Sections 228, 242 and 245 of the General Corporation Law
of the State of Delaware.
(4) The text of the Restated Certificate of Incorporation of
the Corporation as amended hereby is restated to read in its entirety,
as follows:
FIRST: The name of the Corporation is Imation Corp.
SECOND: The address of its registered office in the State of
Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle.
The name of its registered agent at such address is The Corporation Trust
Company.
THIRD: The nature of the business or purposes to be conducted
or promoted is: to engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of Delaware.
FOURTH: A. The total number of shares of all classes of stock
which this Corporation shall have authority to issue is 125,000,000,
consisting of 25,000,000 shares of preferred stock, par value $.01 per share,
and 100,000,000 shares of common stock, par value $.01 per share.
B. The designations, powers, preferences, and rights, and the
qualifications, limitations or restrictions of the preferred stock and the
common stock of the Corporation are as follows:
1. The preferred stock may be issued from time to time as
shares of one or more series in any amount, not exceeding in the aggregate,
including all shares of any and all series previously issued, the total number
of shares of preferred stock hereinabove authorized. All shares of any one
series of preferred stock shall rank equally and be identical, except as to the
times from which cumulative dividends, if any, thereon shall be cumulative.
2. The Board of Directors of the Corporation is hereby
expressly authorized from time to time to issue preferred stock as preferred
stock of any series, and in connection with the creation of each such series to
fix by the resolution or resolutions providing for the issue of shares thereof,
the designations, preferences and relative, participating, optional,
conditional, or other special rights, and qualifications, limitations, or
restrictions thereof, of such series, to the full extent now or hereafter
permitted by laws of the State of Delaware, including, without limitation, the
following matters:
(a) The designation of such series;
(b) The rate or amount and times at which, and the
preferences and conditions under which, dividends shall be payable on
shares of such series, the status of such dividends as cumulative or
noncumulative, the date or dates from which dividends, if cumulative,
shall accumulate, and the status of such series as participating or
nonparticipating after the payment of dividends on shares which are
entitled to any preference;
(c) The voting rights, if any, of shares of such
series in addition to those required by law, which may be full,
limited, multiple, fractional, or none, including any right to vote as
a class either generally or in connection with any specified matter or
matters;
(d) The amount, times, terms, and conditions, if
any, upon which shares of such series shall be subject to redemption;
(e) The rights and preferences, if any, of the
holders of shares of such series in the event of any liquidation,
dissolution, or winding up of the Corporation;
(f) Whether the shares of such series shall be
entitled to the benefit of a sinking fund to be applied to the purchase
or redemption of such series, and if so entitled, the amount of such
fund and the manner of its application; and
(g) Whether the shares of such series shall be
convertible into, or exchangeable for, shares of any other class or
classes or of any other series of the same or any other class or
classes of stock of the Corporation, and if made so convertible or
exchangeable, the conversion price or prices, or the rates of exchange,
and the adjustments, if any, at which such conversion or exchange may
be made.
C. Except for and subject to those rights expressly granted to
the holders of preferred stock, or any series thereof, by the Board of
Directors, pursuant to the authority hereby vested in the Board or as provided
by the laws of the State of Delaware, the holders of the Corporation's common
stock shall have exclusively all rights of shareholders and shall possess
exclusively all voting power. Each holder of common stock of the Corporation
shall be entitled to one vote for each share of such stock standing in such
holder's name on the books of the Corporation.
FIFTH: The Corporation is to have perpetual existence.
SIXTH: In furtherance, and not in limitation of the powers
conferred by statute, the Board of Directors is expressly authorized:
To make, alter, or repeal the Bylaws of the Corporation.
To authorize and cause to be executed mortgages and liens upon
the real and personal property of the Corporation.
To set apart out of any funds of the Corporation available for
dividends a reserve or reserves for any proper purpose and to abolish any such
reserve in the manner in which it was created.
By a majority of the whole Board, to designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation. The Board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. The Bylaws may provide that in the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether the member or
members constitute a quorum, may unanimously appoint another member of the Board
of Directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided in the
resolution of the Board of Directors, or in the Bylaws of the Corporation, shall
have and may exercise all the powers and authority of the Board of Directors in
the management of the business and affairs of the Corporation, and may authorize
the seal of the Corporation to be affixed to all papers which may require it;
but no such committee shall have the power or authority in reference to amending
the Certificate of Incorporation, adopting an agreement of merger or
consolidation, recommending to the stockholders the sale, lease, or exchange of
all or substantially all of the Corporation's property and assets, recommending
to the stockholders a dissolution of the Corporation or a revocation of a
dissolution, or amending the Bylaws of the Corporation; and, unless the
resolution or Bylaws expressly so provide, no such committee shall have the
power or authority to declare a dividend or to authorize the issuance of stock.
When and as authorized by the stockholders in accordance with
statute, to sell, lease, or exchange all or substantially all of the property
and assets of the Corporation, including its goodwill and its corporate
franchises, upon such terms and conditions and for such consideration, which may
consist in whole or in part of money or property, including shares of stock in,
and/or other securities of, any other corporation or corporations, as its Board
of Directors shall deem expedient and for the best interest of the Corporation.
SEVENTH: Meetings of stockholders may be held within or
without the State of Delaware, as the Bylaws may provide. The books of the
Corporation may be kept (subject to any provision contained in the statutes)
outside the State of Delaware at such place or places as may be designated from
time to time by the Board of Directors or in the Bylaws of the Corporation.
EIGHTH: This Corporation reserves the right to amend, alter,
change, or repeal any provision contained in this Certificate of Incorporation,
in the manner now or hereafter prescribed by statute, and all rights conferred
upon stockholders herein are granted subject to this reservation.
NINTH: Whenever a compromise or arrangement is proposed
between this Corporation and its creditors or any class of them and/or between
this Corporation and its stockholders or any class of them, any court of
equitable jurisdiction within the State of Delaware may, on the application in a
summary way of this Corporation or of any creditor or stockholder thereof or on
the application of any receiver or receivers appointed for this Corporation
under the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code, order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If the majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation as the case may be,
and also on this Corporation.
TENTH: A. The business and affairs of the Corporation shall be
managed by or under the Board of Directors consisting of not less than three
directors nor more than sixteen directors, the exact number of directors to be
determined from time to time by resolution adopted by the Board of Directors.
The directors shall be divided, with respect to the terms for which they
severally hold office, into three classes, as nearly equal in number of
directors as possible, as determined by the Board of Directors, with the term of
office of the first class to expire at the Annual Meeting of Stockholders to be
held in 1997, the term of office of the second class to expire at the Annual
Meeting of Stockholders to be held in 1998, and the term of office of the third
class to expire at the Annual Meeting of Stockholders to be held in 1999 with
each class of directors to hold office until their successors are duly elected
and have qualified. At each Annual Meeting of Stockholders following such
initial classification and election, directors elected to succeed those
directors whose terms expire at such annual meeting, other than those directors
elected under particular circumstances by a separate class vote of the holders
of any class or series of stock of the Corporation having a preference over the
common stock of the Corporation as to dividends or upon liquidation of the
Corporation, shall be elected to hold office for a term expiring at the Annual
Meeting of Stockholders in the third year following the year of their election
and until their successors are duly elected and have qualified. When the number
of directors is changed, any newly created directorships or any decrease in
directorships shall be so apportioned among the classes as to make all classes
as nearly equal in number of directors as possible, as determined by the Board
of Directors. No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director. The provisions of
this Paragraph are subject to the provisions of Paragraph D of this Article.
B. Except as may be provided in the terms of any class or
series of stock of the Corporation having a preference over the common stock of
the Corporation as to dividends or upon liquidation of the Corporation relating
to the rights of the holders of such class or series to elect, by separate class
vote, additional directors, no member of the Board of Directors may be removed
from office except for cause.
C. Subject to the provisions of Paragraph D of this Article
TENTH, newly created directorships resulting from an increase in the number of
directors of the Corporation and vacancies occurring in the Board of Directors
resulting from death, resignation, retirement, removal, or any other reason
shall be filled by the affirmative vote of a majority of the directors, although
less than a quorum, then remaining in office and elected by the holders of the
capital stock of the Corporation entitled to vote generally in the election of
directors or, in the event that there is only one such director, by such sole
remaining director. Any director elected in accordance with the preceding
sentence shall hold office for the full term of the class of directors in which
the new directorship was created or the vacancy occurred and until such
director's successor shall have been duly elected and qualified.
D. In the event that the holders of any class or series of
stock of the Corporation having a preference over the common stock as to
dividends or upon liquidation of the Corporation are entitled, by a separate
class vote, to elect directors pursuant to the terms of such class or series,
then the provisions of such class or series with respect to such rights of
election shall apply to the election of such directors. The number of directors
that may be elected by holders of any such class or series of stock shall be in
addition to the number fixed by the Board of Directors pursuant to this Article
TENTH. Except as otherwise expressly provided in the terms of such class or
series, the number of directors that may be so elected by the holders of any
such class or series of stock shall be elected for terms expiring at the next
Annual Meeting of Stockholders and without regard to the classification of the
remaining members of the Board of Directors, and vacancies among directors so
elected by the separate class vote of any such class or series of stock shall be
filled by the affirmative vote of a majority of the remaining directors elected
by such class or series, or, if there are no such remaining directors, by the
holders of such class or series in the same manner in which such class or series
initially elected a director.
If at any meeting for the election of directors, more than one
class of stock, voting separately as classes, shall be entitled to elect one or
more directors and there shall be a quorum of only one such class of stock, that
class of stock shall be entitled to elect its quota of directors notwithstanding
absence of a quorum of the other class or classes of stock.
E. Notwithstanding any other provisions of this Certificate of
Incorporation or the Bylaws of the Corporation (and notwithstanding that a
lesser percentage may be specified by law), the provisions of this Article TENTH
may not be amended or repealed unless such action is approved by the affirmative
vote of the holders of not less than eighty percent (80%) of the voting power of
all of the outstanding shares of capital stock of the Corporation entitled to
vote generally in the election of directors, considered for purposes of this
Article as a single class.
ELEVENTH: Subject to any limitations imposed by this
Certificate of Incorporation, the Board of Directors shall have power to adopt,
amend, or repeal the Bylaws of the Corporation. Any Bylaws made by the directors
under the powers conferred hereby may be amended or repealed by the directors or
by the stockholders. Notwithstanding the foregoing and any other provisions of
this Certificate of Incorporation or the Bylaws of this Corporation (and
notwithstanding that a lesser percentage may be specified by law), no provisions
of the Bylaws shall be adopted, amended or repealed by the stockholders without
an affirmative vote of the holders of not less than eighty percent (80%) of the
voting power of all of the outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors, considered
for the purposes of this Article as a single class.
Notwithstanding the foregoing and any other provisions of this
Certificate of Incorporation or the Bylaws of the Corporation (and
notwithstanding that a lesser percentage may be specified by law), the
provisions of this Article ELEVENTH may not be amended or repealed unless such
action is approved by the affirmative vote of the holders of not less than
eighty percent (80%) of the voting power of all of the outstanding shares of
capital stock of the Corporation entitled to vote generally in the election of
directors, considered for purposes of this Article as a single class.
TWELFTH: No action required to be taken or which may be taken
at any annual or special meeting of stockholders of the Corporation may be taken
without a meeting, and the power of stockholders to consent in writing, without
a meeting, to the taking of an action is specifically denied.
THIRTEENTH: A. In addition to the requirements of the
provisions of any series of preferred stock which may be outstanding, and
whether or not a vote of the stockholders is otherwise required, the affirmative
vote of the holders of not less than eighty percent (80%) of the outstanding
shares of the common stock shall be required for the approval or authorization
of any Business Transaction with a Related Person, or any Business Transaction
in which a Related Person has an interest (other than only a proportionate
interest as a stockholder of the Corporation); provided, however, that the
eighty percent (80%) voting requirement shall not be applicable if (1) the
Business Transaction is Duly Approved by the Continuing Directors, or (2) all
of the following conditions are satisfied:
(a) the Business Transaction is a merger or consolidation or
sale of substantially all of the assets of the Corporation, and the
aggregate amount of cash to be received per share (on the date of
effectiveness of such merger or consolidation or on the date of
distribution to stockholders of the Corporation of the proceeds from
such sale of assets) by holders of common Stock of the Corporation
(other than such Related Person) in connection with such Business
Transaction is at least equal in value to such Related Person's Highest
Common Stock Purchase Price; and
(b) after such Related Person has become the Beneficial Owner
of not less than ten percent (10%) of the voting power of the Voting
Stock and prior to the consummation of such Business Transaction, such
Related Person shall not have become the Beneficial Owner of any
additional shares of Voting Stock or securities convertible into Voting
Stock, except (i) as a part of the transaction which resulted in such
Related Person becoming the Beneficial Owner of not less than ten
percent (10%) of the voting power of the Voting Stock or (ii) as a
result of a pro rata stock dividend or stock split; and
(c) prior to the consummation of such Business Transaction,
such Related Person shall not have, directly or indirectly, (i)
received the benefit (other than only a proportionate benefit as a
stockholder of the Corporation) of any loans, advances, guarantees,
pledges, or other financial assistance or tax credits provided by the
Corporation or any of its subsidiaries, (ii) caused any material change
in the Corporation's business or equity capital structure, including,
without limitation, the issuance of shares of capital stock of the
Corporation, or (iii) except as Duly Approved by the Continuing
Directors, caused the Corporation to fail to declare and pay (y) at the
regular date therefor any full quarterly dividends on any outstanding
preferred stock or (z) quarterly cash dividends on the outstanding
common stock on a per share basis at least equal to the cash dividends
being paid thereon by the Corporation immediately prior to the date on
which the Related Person became a Related Person.
B. For the purpose of this Article THIRTEENTH:
1. The term "Business Transaction" shall mean (a) any merger
or consolidation involving the Corporation or a subsidiary of the Corporation,
(b) any sale, lease, exchange, transfer, or other disposition (in one
transaction or a series of related transactions), including, without limitation,
a mortgage or any other security device, of all or any Substantial Part of the
assets either of the Corporation or of a subsidiary of the Corporation, (c) any
sale, lease, exchange, transfer, or other disposition (in one transaction or a
series of related transactions) of all or any Substantial Part of the assets of
an entity to the Corporation or a subsidiary of the Corporation, (d) the
issuance, sale, exchange, transfer, or other disposition (in one transaction or
a series of related transactions) by the Corporation or a subsidiary of the
Corporation of any securities of the Corporation or any subsidiary of the
Corporation, (e) any recapitalization or reclassification of the securities of
the Corporation (including, without limitation, any reverse stock split) or
other transaction that would have the effect of increasing the voting power of a
Related Person or reducing the number of shares of each class of Voting Stock
outstanding, (f) any liquidation, spinoff, splitoff, splitup, or dissolution of
the Corporation, and (g) any agreement, contract, or other arrangement providing
for any of the transactions described in this definition of Business
Transaction.
2. The term "Related Person" shall mean and include (a) any
individual, corporation, partnership, group, association, or other person or
entity which, together with its Affiliates and Associates, is the Beneficial
Owner of not less than ten percent (10%) of the voting power of the Voting Stock
or was the Beneficial Owner of not less than ten percent (10%) of the voting
power of the Voting Stock (i) at the time the definitive agreement providing for
the Business Transaction (including any amendment thereof) was entered into,
(ii) at the time a resolution approving the Business Transaction was adopted by
the Board of Directors of the Corporation, or (iii) as of the record date for
the determination of stockholders entitled to notice of and to vote on, or
consent to, the Business Transaction, and (b) any Affiliate or Associate of any
such individual, corporation, partnership, group, association, or other person
or entity; provided, however, and notwithstanding anything in the foregoing to
the contrary, the term "Related Person" shall not include the Corporation, a
wholly owned subsidiary of the Corporation, any employee stock ownership or
other employee benefit plan of the Corporation or any wholly owned subsidiary of
the Corporation, or any trustee of, or fiduciary with respect to, any such plan
when acting in such capacity, and shall not include Minnesota Mining and
Manufacturing Company unless it satisfies the criteria to be a related person at
any time after July 10, 1996.
3. The term "Beneficial Owner" shall be defined by reference
to Rule 13d-3 under the Securities Exchange Act of 1934, as amended, as in
effect on July 1, 1996; provided, however, that any individual, corporation,
partnership, group, association, or other person or entity which has the right
to acquire any Voting Stock at any time in the future, whether such right is
contingent or absolute, pursuant to any agreement, arrangement, or understanding
or upon exercise of conversion rights, warrants or options, or otherwise, shall
be deemed the Beneficial Owner of such Voting Stock.
4. The term "Highest Common Stock Purchase Price" shall mean
the highest amount of consideration paid by such Related Person for a share of
common stock of the Corporation (including any brokerage commissions, transfer
taxes, and soliciting dealers' fees) in the transaction which resulted in such
Related Person becoming a Related Person or within one year prior to the date
such Related Person became a Related Person, whichever is higher; provided,
however, that the Highest Common Stock Purchase Price shall be appropriately
adjusted to reflect the occurrence of any reclassification, recapitalization,
stock split, reverse stock split, or other similar corporate readjustment in the
number of outstanding shares of common stock of the Corporation between the last
date upon which such Related Person paid the Highest Common Stock Purchase Price
to the effective date of the merger or consolidation or the date of distribution
to stockholders of the Corporation of the proceeds from the sale of
substantially all of the assets of the Corporation referred to in subparagraph
(2)(a) of Section A. of this Article THIRTEENTH.
5. The term "Substantial Part" shall mean more than five
percent (5%) of the fair market value of the total assets of the entity in
question, as reflected on the most recent consolidated balance sheet of such
entity existing at the time the stockholders of the Corporation would be
required to approve or authorize the Business Transaction involving the assets
constituting any such Substantial Part.
6. The term "Voting Stock" shall mean all outstanding shares
of capital stock of the Corporation entitled to vote generally in the election
of directors, considered for the purpose of this Article THIRTEENTH as one
class.
7. The term "Continuing Director" shall mean a director who
either was a member of the Board of Directors of the Corporation on July 1, 1996
or who became a director of the Corporation subsequent to such date and whose
election, or nomination for election by the Corporation's stockholders, was Duly
Approved by the Continuing Directors on the Board at the time of such nomination
or election, either by a specific vote or by approval of the proxy statement
issued by the Corporation on behalf of the Board of Directors in which such
person is named as nominee for director, without due objection to such
nomination; provided, however, that in no event shall a director be considered a
"Continuing Director" if such director is a Related Person and the Business
Transaction to be voted upon is with such Related Person or is one in which such
Related Person has an interest (other than only a proportionate interest as a
stockholder of the Corporation).
8. The term "Duly Approved by the Continuing Directors" shall
mean an action approved by the vote of at least a majority of the Continuing
Directors then on the Board, except, if the votes of such Continuing Directors
in favor of such action would be insufficient to constitute an act of the Board
of Directors if a vote by all of its members were to have been taken, then such
term shall mean an action approved by the unanimous vote of the Continuing
Directors then on the Board so long as there are at least three Continuing
Directors on the Board at the time of such unanimous vote.
9. The term "Affiliate," used to indicate a relationship to a
specified person, shall mean a person that directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, such specified person.
10. The term "Associate," used to indicate a relationship with
a specified person, shall mean (a) any corporation, partnership, or other
organization of which such specified person is an officer or partner, (b) any
trust or other estate in which such specified person has a substantial
beneficial interest or as to which such specified person serves as trustee or in
a similar fiduciary capacity, (c) any relative or spouse of such specified
person, or any relative of such spouse who has the same home as such specified
person, or who is a director or officer of the Corporation or any of its parents
or subsidiaries, and (d) any person who is a director, officer, or partner of
such specified person or of any corporation (other than the Corporation or any
wholly owned subsidiary of the Corporation), partnership or other entity which
is an Affiliate of such specified person.
C. For the purpose of this Article THIRTEENTH, so long as
Continuing Directors constitute at least a majority of the entire Board of
Directors, the Board of Directors shall have the power to make a good faith
determination, on the basis of information known to them, of: (1) the number of
shares of Voting Stock of which any person is the Beneficial Owner, (2) whether
a person is a Related Person or is an Affiliate or Associate of another, (3)
whether a person has an agreement, arrangement, or understanding with another as
to the matters referred to in the definition of Beneficial Owner herein, (4)
whether the assets subject to any Business Transaction constitute a Substantial
Part, (5) whether any Business Transaction is with a Related Person or is one in
which a Related Person has an interest (other than only a proportionate interest
as a stockholder of the Corporation), (6) whether a Related Person, has,
directly or indirectly, received any benefits or caused any of the changes or
caused the Corporation to fail to declare and pay any of the dividends referred
to in subparagraph (2)(c) of Section A of this Article THIRTEENTH, and (7) such
other matters with respect to which a determination is required under this
Article THIRTEENTH; and such determination by the Board of Directors shall be
conclusive and binding for all purposes of this Article THIRTEENTH.
D. Nothing contained in this Article THIRTEENTH shall be
construed to relieve any Related Person of any fiduciary obligation imposed by
law.
E. The fact that any Business Transaction complies with the
provisions of Section A. of this Article THIRTEENTH shall not be construed to
impose any fiduciary duty, obligation, or responsibility on the Board of
Directors, or any member thereof, to approve such Business Transaction or
recommend its adoption or approval to the stockholders of the Corporation.
F. Notwithstanding any other provisions of this Certificate of
Incorporation or the Bylaws of the Corporation (and notwithstanding that a
lesser percentage may be specified by law), the provisions of this Article
THIRTEENTH may not be repealed or amended in any respect, unless such action is
approved by the affirmative vote of the holders of not less than eighty percent
(80%) of the outstanding shares of the common stock.
FOURTEENTH: The liability of the Corporation's directors to
the Corporation or any of its stockholders for monetary damages for breach of
fiduciary duty as a director shall be eliminated to the fullest extent permitted
under the Delaware General Corporation Law. Any repeal or modification of this
Article FOURTEENTH by the stockholders of the Corporation shall not adversely
affect any right or protection of a director of the Corporation existing at the
time of such repeal or modification with respect to acts or omissions occurring
prior to such repeal or modification.
IN WITNESS WHEREOF, said IMATION CORP. has caused this
certificate to be signed by W. T. Monahan, its Chief Executive Officer, and
attested by C. A. Bates, its Secretary, this [__] day of [________], 1996.
IMATION CORP.
By___________________________
W. T. Monahan
Chief Executive Officer
ATTEST:
By_____________________________
C. Bates
Secretary
IMATION CORP.
BYLAWS
As Amended June ____, 1996
- - -
ARTICLE I
SEAL
Section 1. The corporate seal shall have inscribed thereon the name of
the Corporation, the year of its organization, and shall be in such form as may
be approved from time to time by the Board of Directors. Said seal may be used
by causing it or a facsimile thereof to be impressed or affixed or otherwise
reproduced.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders shall be held at such date,
time, and place either within or without the State of Delaware as may be
designated by the Board of Directors from time to time in the notice of the
meeting. An annual meeting shall be held for the election of directors, and any
other proper business may be transacted thereat.
Section 2. The holders of a majority of each class of stock issued and
outstanding, and entitled to vote thereat, present in person, or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by law, by the Restated
Certificate of Incorporation, or by these Bylaws. For purposes of the foregoing,
two or more classes or series of stock shall be considered a single class if the
holders thereof are entitled to vote together as a single class at the meeting.
In the absence of a quorum the stockholders so present may, by majority vote,
adjourn the meeting from time to time in the manner provided by Section 3 of
Article II of these Bylaws until a quorum shall attend.
Section 3. Any meeting of stockholders, annual or special, may adjourn
from time to time and reconvene at the same or some other place, and notice need
not be given of any such adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken. At the adjourned
meeting the Corporation may transact any business which might have been
transacted at the original meeting. If the adjournment is for more than thirty
(30) days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 4. At any meeting of the stockholders every stockholder having
the right to vote shall be entitled to vote in person, or by proxy appointed by
an instrument in writing subscribed by such stockholder and bearing a date not
more than three (3) years prior to said meeting, unless said instrument provides
for a longer period. Unless otherwise provided in the Restated Certificate of
Incorporation or as otherwise determined by the Board of Directors pursuant to
the powers conferred by the Restated Certificate of Incorporation, each
stockholder shall have one vote for each share of stock having voting power
registered in his or her name on the books of the Corporation.
Section 5. Written notice of the annual meeting which shall state the
place, date, and hour of the meeting shall be mailed to each stockholder
entitled to vote thereat at such address as appears on the stock book of the
Corporation, at least ten (10) days prior to the meeting and not more than sixty
(60) days prior to the meeting.
Section 6. No business may be transacted at an annual meeting of
stockholders, other than business that is either (a) specified in the notice of
meeting (or any supplement thereto) given by or at the direction of the Board of
Directors (or any duly authorized committee thereof), (b) otherwise properly
brought before the annual meeting by or at the direction of the Board of
Directors (or any duly authorized committee thereof) or (c) otherwise properly
brought before the annual meeting by any stockholder of the Corporation (i) who
is a stockholder of record on the date of the giving of the notice provided for
in this Section and on the record date for the determination of stockholders
entitled to vote at such annual meeting and (ii) who complies with the notice
procedures set forth in this Section.
In addition to any other applicable requirements, for business to be
properly brought before an annual meeting by a stockholder, such stockholder
must have given timely notice thereof in proper written form to the Secretary of
the Corporation.
To be timely, a stockholder's notice to the Secretary must be delivered
to or mailed and received at the principal executive offices of the Corporation
not less than sixty (60) days nor more than ninety (90) days prior to the
anniversary date of the immediately preceding annual meeting of stockholders;
provided, however, that in the event that the annual meeting is called for a
date that is not within ten (10) days before or after such anniversary date,
notice by the stockholder in order to be timely must be so received before the
later of the close of business on the tenth (10th) day following the day on
which such notice of the date of the annual meeting was mailed or the day on
which public disclosure of the date of the annual meeting was made, whichever
first occurs and the close of business on the day which is sixty (60) days prior
to the date of the annual meeting.
To be in proper written form, a stockholder's notice to the Secretary
must set forth as to each matter such stockholder proposes to bring before the
annual meeting (i) a brief description of the business desired to be brought
before the annual meeting and the reasons for conducting such business at the
annual meeting, (ii) the name and record address of such stockholder, (iii) the
class or series and number of shares of capital stock of the Corporation which
are owned beneficially or of record by such stockholder, (iv) a description of
all arrangements or understandings between such stockholder and any other person
or persons (including their names) in connection with the proposal of such
business by such stockholder and any material interest of such stockholder in
such business and (v) a representation that such stockholder intends to appear
in person or by proxy at the annual meeting to bring such business before the
meeting.
No business shall be conducted at the annual meeting of stockholders
except business brought before the annual meeting in accordance with the
procedures set forth in this Section, provided, however, that, once business has
been properly brought before the annual meeting in accordance with such
procedures, nothing in this Section shall be deemed to preclude discussion by
any stockholder of any such business. If the Chairman of an annual meeting
determines that business was not properly brought before the annual meeting in
accordance with the foregoing procedures, the Chairman shall declare to the
meeting that the business was not properly brought before the meeting and such
business shall not be transacted.
Section 7. A complete list of the stockholders entitled to vote at each
meeting of stockholders, arranged in alphabetical order, with the record address
of each, and the number of voting shares held by each, shall be prepared by the
Secretary and made available for examination by any stockholder either at a
place within the city where the meeting is to be held, which place shall be so
specified in the notice of the meeting or, if not specified, at the place where
the meeting is to be held, at least ten (10) days before every meeting, and
shall at all times during said meeting continue to be open to the examination of
any stockholder.
Section 8. Special meetings of the stockholders may be called for any
purpose or purposes by the Chairman of the Board, and shall be called by the
Secretary at the request in writing of the Chairman of the Board or of a
majority of the Board of Directors. Business transacted at all special meetings
shall be confined to the objects stated in the notice of the meeting.
Section 9. Written notice of a special meeting of stockholders, stating
the time and place and object thereof, shall be mailed postage prepaid, at least
ten (10) days before such meeting, to each stockholder entitled to vote thereat
at such address as appears on the books of the Corporation.
Section 10. The Board of Directors shall appoint two persons as
inspectors of election, to serve for one year or until their successors are
chosen. The inspectors shall act at meetings of stockholders on elections of
Directors and on all other matters voted upon by ballot.
If at the time of any meeting inspectors have not been appointed or if
none, or only one, of the inspectors is present and willing to act, the Chairman
of the Board shall appoint the required number of inspectors so that two
inspectors shall be present and acting.
ARTICLE III
DIRECTORS
Section 1. The business and affairs of the Corporation shall be managed
by or under the direction of the Board of Directors, except as may be otherwise
provided by law or in the Restated Certificate of Incorporation.
Section 2. Except as otherwise fixed by or pursuant to the provisions
of Article FOURTH of the Restated Certificate of Incorporation (as it may be
duly amended from time to time) relating to the rights of the holders of any
class or series of stock having a preference over the common stock as to
dividends or upon liquidation to elect, by separate class vote, additional
directors, the number of directors of the Corporation shall be the number fixed
from time to time by the affirmative vote of a majority of the total number of
directors which the Corporation would have, prior to any increase or decrease,
if there were no vacancies. The persons receiving the votes of a plurality in
amount of holders of the shares of capital stock of the Corporation, considered
as a single class, entitled to vote generally in the election of directors
present at the meeting in person or by proxy shall be directors for the term
prescribed by Article TENTH of the Restated Certificate of Incorporation or
until their successors shall be elected and qualified.
Section 3. Newly created directorships resulting from an increase in
the number of directors of the Corporation and vacancies occurring in the Board
of Directors resulting from death, resignation, retirement, removal, or any
other reason shall be filled by the affirmative vote of a majority of the
directors, although less than a quorum, then remaining in office and elected by
the holders of the capital stock of the Corporation entitled to vote generally
in the election of directors or, in the event that there is only one such
director, by such sole remaining director. Any director elected in accordance
with the preceding sentence shall hold office for the full term of the class of
directors in which the new directorship was created or the vacancy occurred and
until such director's successor shall have been elected and qualified.
Section 4. Only persons who are nominated in accordance with the
following procedures shall be eligible for election as directors of the
Corporation, except as may be otherwise provided in the Restated Certificate of
Incorporation of the Corporation with respect to the right of holders of
preferred stock of the Corporation to nominate and elect a specified number of
directors in certain circumstances. Nominations of persons for election to the
Board of Directors may be made at any annual meeting of stockholders (a) by or
at the direction of the Board of Directors (or any duly authorized committee
thereof) or (b) by any stockholder of the Corporation (i) who is a stockholder
of record on the date of the giving of the notice provided for in this Section
and on the record date for the determination of stockholders entitled to vote at
such annual meeting and (ii) who complies with the notice procedures set forth
in this Section.
In addition to any other applicable requirements, for a nomination to
be made by a stockholder, such stockholder must have given timely notice thereof
in proper written form to the Secretary of the Corporation.
To be timely, a stockholder's notice to the Secretary must be delivered
to or mailed and received at the principal executive offices of the Corporation
not less than sixty (60) days nor more than ninety (90) days prior to the
anniversary date of the immediately preceding annual meeting of stockholders;
provided, however, that in the event that the annual meeting is called for a
date that is not within ten (10) days before or after such anniversary date,
notice by the stockholder in order to be timely must be so received before the
later of the close of business on the tenth (10th) day following the day on
which such notice of the date of the annual meeting was mailed or the day on
which public disclosure of the date of the annual meeting was made, whichever
first occurs and the close of business on the day which is sixty (60) days prior
to the date of the annual meeting.
To be in proper written form, a stockholder's notice to the Secretary
must set forth (a) as to each person whom the stockholder proposes to nominate
for election as a director (i) the name, age, business address and residence
address of the person, (ii) the principal occupation or employment of the
person, (iii) the class or series and number of shares of capital stock of the
Corporation which are owned beneficially or of record by the person and (iv) any
other information relating to the person that would be required to be disclosed
in a proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules
and regulations promulgated thereunder; and (b) as to the stockholder giving the
notice (i) the name and record address of such stockholder, (ii) the class or
series and number of shares of capital stock of the Corporation which are owned
beneficially or of record by such stockholder, (iii) a description of all
arrangements or understandings between such stockholder and each proposed
nominee and any other person or persons (including their names) pursuant to
which the nomination(s) are to be made by such stockholder, (iv) a
representation that such stockholder intends to appear in person or by proxy at
the annual meeting to nominate the persons named in its notice and (v) any other
information relating to such stockholder that would be required to be disclosed
in a proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of the
Exchange Act and the rules and regulations promulgated thereunder. Such notice
must be accompanied by a written consent of each proposed nominee to being named
as a nominee and to serve as a director if elected.
No person shall be eligible for election as a director of the
Corporation unless nominated in accordance with the procedures set forth in this
Section. If the Chairman of the annual meeting determines that a nomination was
not made in accordance with the foregoing procedures, the Chairman shall declare
to the meeting that the nomination was defective and such defective nomination
shall be disregarded.
Section 5. In addition to the powers and authorities by these Bylaws
expressly conferred upon them, the Board of Directors may exercise all such
powers of the Corporation and do all such lawful acts and things as are not by
statute or by the Restated Certificate of Incorporation or by these Bylaws
directed or required to be exercised or done by the stockholders.
ARTICLE IV
COMMITTEES OF DIRECTORS
Section 1. The Board of Directors may by resolution or resolutions
passed by a majority of the whole Board, designate an Executive Committee and
one or more committees, each committee to consist of one (1) or more Directors
of the Corporation, which, to the extent provided in said resolution or
resolutions or in these Bylaws, or unless otherwise prescribed by statute, shall
have and may exercise the powers of the Board of Directors in the management of
the business and affairs of the Corporation, and may have power to authorize the
seal of the Corporation to be affixed to all papers which may require it. Such
committee or committees shall have such name or names as may be stated in these
Bylaws or as may be determined from time to time by resolution adopted by the
Board.
Section 2. The committees of the Board of Directors shall keep regular
minutes of their proceedings and report the same to the Board when required. In
the absence or disqualification of a member of a committee, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not such member or members constitute a quorum, may unanimously appoint
another member of the Board to act at the meeting in place of any absent or
disqualified member.
ARTICLE V
COMPENSATION OF DIRECTORS
Section 1. The compensation of the Directors of the Corporation shall
be fixed by resolution of the Board of Directors.
ARTICLE VI
MEETINGS OF THE BOARD
Section 1. Regular meetings of the Board of Directors may be held at
such places within or without the State of Delaware and at such times as the
Board may from time to time determine, and if so determined notice thereof need
not be given.
Section 2. Special meetings of the Board may be held at any time or
place within or without the State of Delaware whenever called by the Chairman of
the Board, if any, or by any two directors. Reasonable notice thereof shall be
given by the persons or persons calling the meeting.
Section 3. Unless otherwise restricted by the Restated Certificate of
Incorporation or these Bylaws, members of the Board of Directors, or any
committee designated by the Board, may participate in a meeting of the Board or
of such committee, as the case may be, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and participation in a meeting pursuant to this
Section shall constitute presence in person at such meeting.
Section 4. Meetings of the Board of Directors shall be presided over by
the Chairman of the Board, if any, or in the absence of the Chairman of the
Board, by a chairman chosen at the meeting. The Secretary, or in the absence of
the Secretary an Assistant Secretary, shall act as secretary of the meeting, but
in the absence of the Secretary and any Assistant Secretary, the chairman of the
meeting may appoint any person to act as secretary of the meeting.
Section 5. Unless otherwise restricted by the Restated Certificate of
Incorporation or these Bylaws, any action required or permitted to be taken at
any meeting of the Board of Directors, or of any committee thereof, may be taken
without a meeting if all members of the Board or of such committee, as the case
may be, consent thereto in writing, and the writing or writings are filed with
the minutes of proceedings of the Board or committee.
Section 6. At all meetings of the Board of Directors, a majority of the
Directors shall constitute a quorum for the transaction of business, and the
vote of a majority of the Directors present at any meeting at which there is a
quorum, shall be the act of the Board, except as may be otherwise specifically
provided by statute or by the Restated Certificate of Incorporation or by these
Bylaws. In case at any meeting of the Board a quorum shall not be present, the
members of the Board present may adjourn the meeting from time to time until a
quorum shall attend.
ARTICLE VII
OFFICERS
Section 1. The officers of the Corporation shall be elected by the
Board of Directors at its annual meeting, or if the case requires, at any other
regular or special meeting; and shall be a Chairman of the Board of Directors, a
President and a Secretary, and, if it so determines, one or more vice
presidents, a Treasurer, one or more assistant secretaries, one or more
assistant treasurers, and such other officers as the Board shall deem desirable.
The same person may hold any two offices at the same time.
Section 2. The Board of Directors may appoint such other officers and
agents as it shall deem desirable with such further designations and titles as
it considers desirable, who shall hold their offices for such terms and shall
exercise such powers and perform such duties as shall be determined from time to
time by the Board.
Section 3. The compensation of the officers of the Corporation shall be
fixed by or under the direction of the Board of Directors.
Section 4. Except as otherwise provided in the resolution of the Board
of Directors electing any officer, each officer shall hold office until the
first meeting of the Board after the annual meeting of stockholders next
succeeding his or her election, and until his or her successor is elected and
qualified or until his or her earlier resignation or removal. Any officer may
resign at any time upon written notice to the Board or to the Chairman or the
Secretary of the Corporation. Such resignation shall take effect at the time
specified therein, and unless otherwise specified therein, no acceptance of such
resignation shall be necessary to make it effective. The Board may remove any
officer with or without cause at any time. Any such removal shall be without
prejudice to the contractual rights of such officer, if any, with the
Corporation, but the election of an officer shall not of itself create
contractual rights. Any vacancy occurring in any office of the Corporation by
death, resignation, removal, or otherwise may be filled for the unexpired
portion of the term by the Board at any regular or special meeting.
Section 5. The officers of the Corporation shall have such powers and
duties in the management of the Corporation as shall be stated in these Bylaws
or in a resolution of the Board of Directors which is not inconsistent with
these Bylaws, and, to the extent so stated, as generally pertain to their
respective offices, subject to the control of the Board. The Board may require
any officer, agent, or employee to give security for the faithful performance of
his or her duties.
ARTICLE VIII
CERTIFICATES OF STOCK
Section 1. The certificates of stock of the Corporation shall be
numbered and shall be entered in the books of the Corporation as they are
issued. They shall exhibit the holder's name and number of shares and shall be
signed by the Chairman of the Board, or a vice president, and the Treasurer or
an assistant treasurer, or the Secretary or an assistant secretary. The Board of
Directors may adopt the facsimile signature of any such officer as his or her
signature and give to such facsimile the same force and effect as though it were
written on the certificates of stock by such officer, and upon appointment of a
Transfer Agent and Registrar any certificate bearing such facsimile signature
when certified and registered by such Transfer Agent and Registrar shall be
deemed duly signed, and unless and until changed by the Board, certificates in
the form so adopted may be issued and delivered whether the said officer so
signing and to be taken as so signing the same continue to be such officers or
whether because of death, resignation, or otherwise they, or either of them,
cease to be such officers.
ARTICLE IX
LOST, STOLEN, OR DESTROYED STOCK CERTIFICATE
Section 1. The Corporation may issue a new certificate of stock in the
place of any certificate theretofore issued by it, alleged to have been lost,
stolen, or destroyed, and the Corporation may require the owner of the lost,
stolen, or destroyed certificate, or such owner's legal representative, to give
the Corporation a bond sufficient to indemnify it against any claim that may be
made against it on account of the alleged loss, theft, or destruction of any
such certificate or the issuance of such new certificate.
ARTICLE X
FISCAL YEAR
Section 1. The fiscal year shall begin on the first day of January in
each year.
ARTICLE XI
NOTICES
Section 1. Whenever under the provisions of these Bylaws notice is
required to be given to any Director, officer, or stockholder, it shall not be
construed to mean personal notice, but such notice may be given by any means or
instrumentality reasonably designed for such purpose and permitted by law.
Section 2. Whenever notice is required to be given by law or under any
provision of the Restated Certificate of Incorporation or these Bylaws, a
written waiver thereof, signed by the person entitled to notice, whether before
or after the time stated therein, shall be deemed equivalent to notice.
Attendance of a person at a meeting shall constitute a waiver of notice of such
meeting, except when the person attends a meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. Neither the business to
be transacted at, nor the purpose of, any regular or special meeting of the
stockholders, directors, or members of a committee of directors need be
specified in any written waiver of notice unless so required by the Restated
Certificate of Incorporation or these Bylaws.
ARTICLE XII
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 1. The Corporation shall indemnify, to the full extent
authorized or permitted by law, any person made or threatened to be made a party
to any action, suit, or proceeding, whether criminal, civil, administrative, or
investigative, by reason of the fact that such person or such person's testator
or intestate is or was a Director, officer, or employee of the Corporation or
serves or served at the request of the Corporation any other enterprise as a
director, officer, or employee.
Expenses incurred by any such person in defending any such action,
suit, or proceeding shall be paid or reimbursed by the Corporation promptly upon
receipt by it of an undertaking of such person to repay such expenses if it
shall ultimately be determined that such person is not entitled to be
indemnified by the Corporation. The rights provided to any person by this
Section shall be enforceable against the Corporation by such person who shall be
presumed to have relied upon it in serving or continuing to serve as a Director,
officer, or employee. No amendment of this Section shall impair the rights of
any person arising at any time with respect to events occurring prior to such
amendment.
For purposes of this Section, the term "Corporation" shall include any
predecessor of the Corporation and any constituent corporation (including any
constituent of a constituent) absorbed by the Corporation in a consolidation or
merger; the term "other enterprise" shall include any corporation, partnership,
joint venture, trust, or employee benefit plan; service "at the request of the
Corporation" shall include service as a Director, officer, or employee of the
Corporation which imposes duties on, or involves services by, such Director,
officer, or employee with respect to an employee benefit plan, its participant
or beneficiaries; any excise taxes assessed on a person with respect to an
employee benefit plan shall be deemed to be indemnifiable expenses; and action
by a person with respect to an employee benefit plan which such person
reasonably believes to be in the interest of the participants and beneficiaries
of such plan shall be deemed to be action not opposed to the best interest of
the Corporation.
Section 2. The indemnification provided by these Bylaws shall not be
deemed exclusive of any other rights to which those indemnified may be entitled
by any Bylaw, agreement, vote of stockholders or disinterested Directors or
otherwise, both as to action in his or her official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a Director, officer, or employee and shall inure to the
benefit of the heirs, executors, and administrators of such a person.
Section 3. The Corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a Director, officer, employee,
or agent of the Corporation, or is or was serving at the request of the
Corporation as a Director, officer, employee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise against any liability
asserted against him or her and incurred by him or her in any such capacity or
arising out of his or her status as such, whether or not the Corporation would
have the power to indemnify him or her against such liability under the
provisions of these Bylaws.
ARTICLE XIII
INTERESTED DIRECTORS
Section 1. No contract or transaction between the Corporation and one
or more of its Directors or officers, or between the Corporation and any other
corporation, partnership, association, or other organization in which one or
more of its Directors or officers are directors or officers, or have a financial
interest, shall be void or voidable solely for this reason, or solely because
the Director or officer is present at or participates in the meeting of the
Board of Directors or committee thereof which authorizes the contract or
transaction, or solely because his or her or their votes are counted for such
purpose, if: (i) the material facts as to his or her relationship or interest
and as to the contract or transaction are disclosed or are known to the Board or
the committee, and the Board or committee in good faith authorizes the contract
or transaction by the affirmative votes of a majority of the disinterested
Directors, even though the disinterested Directors be less than a quorum; or
(ii) the material facts as to his or her relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders entitled
to vote thereon, and the contract or transaction is specifically approved in
good faith by vote of the stockholders; or (iii) the contract or transaction is
fair as to the Corporation as of the time it is authorized, approved, or
ratified by the Board, a committee thereof, or the stockholders. Common or
interested Directors may be counted in determining the presence of a quorum at a
meeting of the Board or of a committee which authorizes the contract or
transaction.
ARTICLE XIV
FORM OF RECORDS
Section 1. Any records maintained by the Corporation in the regular
course of its business, including its stock ledger, books of account, and minute
books, may be kept on, or be in the form of, punch cards, magnetic tape,
photographs, microphotographs, or any other information storage device, provided
that the records so kept can be converted into clearly legible form within a
reasonable time. The Corporation shall so convert any records so kept upon the
request of any person entitled to inspect the same.
ARTICLE XV
AMENDMENTS
Section 1. Subject to any limitations imposed by the Restated
Certificate of Incorporation, the Board of Directors shall have power to adopt,
amend, or repeal these Bylaws. Any Bylaws made by the directors under the powers
conferred by the Restated Certificate of Incorporation may be amended or
repealed by the directors or by the stockholders. Notwithstanding the foregoing
and any other provisions of the Restated Certificate of Incorporation or these
Bylaws (and notwithstanding that a lesser percentage may be specified by law),
no provisions of these Bylaws shall be adopted, amended or repealed by the
stockholders without an affirmative vote of the holders of not less than eighty
percent (80%) of the voting power of all of the outstanding shares of capital
stock of the Corporation entitled to vote generally in the election of
directors, considered for the purposes of this Section as a single class.
IMATION CORP.
and
NORWEST BANK MINNESOTA, N.A.,
as Rights Agent
Rights Agreement
Dated as of June __, 1996
Table of Contents
Section Page
1. Certain Definitions.............................................. 1
2. Appointment of Rights Agent...................................... 5
3. Issue of Rights Certificates..................................... 5
4. Form of Rights Certificates...................................... 7
5. Countersignature and Registration................................ 8
6. Transfer, Split Up, Combination and Ex-
change of Rights Certificates; Mutilated,
Destroyed, Lost or Stolen Rights Certifcates..................... 9
7. Exercise of Rights; Purchase Price; Expiration Date of Rights.... 10
8. Cancellation and Destruction of Rights
Certificates..................................................... 13
9. Reservation and Availability of Capital Stock.................... 14
10. Preferred Stock Record Date...................................... 16
11. Adjustment of Purchase Price, Number and
Kind of Shares or Number of Rights............................... 17
12. Certificate of Adjusted Purchase Price or
Number of Shares................................................. 28
13. Consolidation, Merger or Sale or Transfer
of Assets or Earning Power....................................... 29
14. Fractional Rights and Fractional Shares.......................... 32
15. Rights of Action................................................. 34
16. Agreement of Rights Holders...................................... 35
17. Rights Certificate Holder Not Deemed a
Stockholder...................................................... 36
18. Concerning the Rights Agent...................................... 36
19. Merger or Consolidation or Change of Name
of Rights Agent.................................................. 37
20. Duties of Rights Agent........................................... 38
21. Change of Rights Agent........................................... 40
22. Issuance of New Rights Certificates.............................. 41
23. Redemption and Termination....................................... 42
24. Notice of Certain Events......................................... 43
25. Notices.......................................................... 44
26. Supplements and Amendments....................................... 45
27. Successors....................................................... 46
28. Determinations and Actions by the Board of
Directors, etc................................................... 46
29. Benefits of this Agreement....................................... 46
30. Severability..................................................... 47
31. Governing Law.................................................... 47
32. Counterparts..................................................... 47
33. Descriptive Headings............................................. 47
Exhibit A -- Certificate of Designation, Preferences and Rights
Exhibit B -- Form of Rights Certificate
Exhibit C -- Form of Summary of Rights
RIGHTS AGREEMENT
RIGHTS AGREEMENT, dated as of June __, 1996 (the "Agreement"),
between Imation Corp., a Delaware corporation (the "Company"), and Norwest Bank
Minnesota, N.A., a national banking association (the "Rights Agent").
W I T N E S S E T H
WHEREAS, on June __, 1996 (the "Rights Dividend Declaration
Date"), the Board of Directors of the Company authorized and declared a dividend
distribution of one Right for each share of common stock, par value $.01 per
share, of the Company (the "Common Stock") outstanding at the close of business
on June 28, 1996, which is the record date for the distribution of shares of
Common Stock to shareholders of Minnesota Mining and Manufacturing Company
("3M") (the "Record Date"), and has authorized the issuance of one Right (as
such number may hereinafter be adjusted pursuant to the provisions of Section
11(p) hereof) for each share of Common Stock of the Company issued between the
Record Date (whether originally issued or delivered from the Company's treasury)
and the Distribution Date (as such term is defined in Section 3 hereof) each
Right initially representing the right to purchase one one-hundredth of a share
of Series A Junior Participating Preferred Stock (the "Preferred Stock") of the
Company having the rights, powers and preferences set forth in the form of
Certificate of Designation, Preferences and Rights attached hereto as Exhibit A,
upon the terms and subject to the conditions hereinafter set forth (the
"Rights");
NOW, THEREFORE, in consideration of the premises and the
mutual agreements herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this
Agreement, the following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person who or
which, together with all Affiliates and Associates of such Person, shall be the
Beneficial Owner of 15% or more of the shares of Common Stock then outstanding,
but shall not include the Company, 3M, any Subsidiary of the Company or 3M, any
employee benefit plan of the Company or of any Subsidiary of the Company, any
Person or entity organized, appointed or established by the Company for or
pursuant to the terms of any such plan or Norwest Bank Minnesota, N.A., as Agent
under the Distribution Agreement entered into between 3M and the Company on June
18, 1996.
(b) "Affiliate" and "Associate" shall have the
respective meanings ascribed to such terms in Rule 12b-2 of the General Rules
and Regulations under the Securities Exchange Act of 1934, as amended and in
effect on the date of this Agreement, (the "Exchange Act").
(c) A Person shall be deemed the "Beneficial Owner"
of, and shall be deemed to "beneficially own," any securities:
(i) which such Person or any of such
Person's Affiliates or Associates, directly or indirectly, has the
right to acquire (whether such right is exercisable immediately or only
after the passage of time) pursuant to any agreement, arrangement or
understanding (whether or not in writing) or upon the exercise of
conversion rights, exchange rights, rights, warrants or options, or
otherwise; provided, however, that a Person shall not be deemed the
"Beneficial Owner" of, or to "beneficially own," (A) securities
tendered pursuant to a tender or exchange offer made by such Person or
any of such Person's Affiliates or Associates until such tendered
securities are accepted for purchase or exchange, or (B) securities
issuable upon exercise of Rights at any time prior to the occurrence of
a Triggering Event, or (C) securities issuable upon exercise of Rights
from and after the occurrence of a Triggering Event which Rights were
acquired by such Person or any of such Person's Affiliates or
Associates prior to the Distribution Date or pursuant to Section 3(a)
or Section 22 hereof (the "Original Rights") or pursuant to Section
11(i) hereof in connection with an adjustment made with respect to any
Original Rights;
(ii) which such Person or any of such
Person's Affiliates or Associates, directly or indirectly, has the
right to vote or dispose of or has "beneficial ownership" of (as deter-
mined pursuant to Rule 13d-3 of the General Rules and Regulations under
the Exchange Act), including pursuant to any agreement, arrangement or
understanding, whether or not in writing; provided, however, that a
Person shall not be deemed the "Beneficial Owner" of, or to
"beneficially own," any security under this subparagraph (ii) as a
result of an agreement, arrangement or understanding to vote such
security if such agreement, arrangement or understanding: (A) arises
solely from a revocable proxy given in response to a public proxy or
consent solicitation made pursuant to, and in accordance with, the
applicable provisions of the General Rules and Regulations under the
Exchange Act, and (B) is not also then reportable by such Person on
Schedule 13D under the Exchange Act (or any comparable or successor
report); or
(iii) which are beneficially owned, directly
or indirectly, by any other Person (or any Affiliate or Associate
thereof) with which such Person (or any of such Person's Affiliates or
Associates) has any agreement, arrangement or understanding (whether or
not in writing), for the purpose of acquiring, holding, voting (except
pursuant to a revocable proxy as described in the proviso to
subparagraph (ii) of this paragraph (c)) or disposing of any voting
securities of the Company; provided, however, that nothing in this
paragraph (c) shall cause a person engaged in business as an
underwriter of securities to be the "Beneficial Owner" of, or to
"beneficially own," any securities acquired through such person's
participation in good faith in a firm commitment underwriting until the
expiration of 40 days after the date of such acquisition.
(d) "Business Day" shall mean any day other than a
Saturday, Sunday or a day on which banking institutions in the States of
Minnesota or New York are authorized or obligated by law or executive order to
close.
(e) "Close of business" on any given date shall mean
5:00 P.M., Minneapolis time, on such date; provided, however, that if such date
is not a Business Day it shall mean 5:00 P.M., Minneapolis time, on the next
succeeding Business Day.
(f) "Common Stock" shall mean the common
stock, par value $.01 per share, of the Company, except that "Common Stock" when
used with reference to any Person other than the Company shall mean the capital
stock of such Person with the greatest voting power, or the equity securities or
other equity interest having power to control or direct the management, of such
Person.
(g) "Person" shall mean any individual, firm,
corporation, partnership or other entity.
(h) "Section 11(a)(ii) Event" shall mean any event
described in Section 11(a)(ii) hereof.
(i) "Section 13 Event" shall mean any event described
in clauses (x), (y) or (z) of Section 13(a) hereof.
(j) "Preferred Stock" shall mean shares of Series A
Junior Participating Preferred Stock, par value $.01 per share, of the Company,
and, to the extent that there are not a sufficient number of shares of Series A
Junior Participating Preferred Stock authorized to permit the full exercise of
the Rights, any other series of Preferred Stock, par value $.01 per share, of
the Company designated for such purpose containing terms substantially similar
to the terms of the Series A Junior Participating Preferred Stock.
(k) "Stock Acquisition Date" shall mean the first
date of public announcement (which, for purposes of this definition, shall
include, without limitation, a report filed pursuant to Section 13(d) under the
Exchange Act) by the Company or an Acquiring Person that an Acquiring Person has
become such.
(l) "Subsidiary" shall mean, with reference to any
Person, any corporation of which an amount of voting securities sufficient to
elect at least a majority of the directors of such corporation is beneficially
owned, directly or indirectly, by such Person, or otherwise controlled by such
Person.
(m) "Triggering Event" shall mean any Section
11(a)(ii) Event or any Section 13 Event.
Section 2. Appointment of Rights Agent. The Company hereby
appoints the Rights Agent to act as agent for the Company and the holders of the
Rights (who, in accordance with Section 3 hereof, shall, prior to the
Distribution Date, also be the holders of the Common Stock) in accordance with
the terms and conditions hereof, and the Rights Agent hereby accepts such
appointment. The Company may from time to time appoint such Co-Rights Agents as
it may deem necessary or desirable.
Section 3. Issue of Rights Certificates.
(a) Until the earlier of (i) the close of business on
the tenth day after the Stock Acquisition Date (or, if the tenth day after the
Stock Acquisition Date occurs before the Record Date, the close of business on
the Record Date), or (ii) the close of business on the tenth business day (or
such later date as the Board shall determine) after the date that a tender or
exchange offer by any Person (other than the Company, any Subsidiary of the
Company, any employee benefit plan of the Company or of any Subsidiary of the
Company, or any Person or entity organized, appointed or established by the
Company for or pursuant to the terms of any such plan) is first published or
sent or given within the meaning of Rule 14d-2(a) of the General Rules and
Regulations under the Exchange Act, if upon consummation thereof, such Person
would be the Beneficial Owner of 15% or more of the shares of Common Stock then
outstanding (the earlier of (i) and (ii) being herein referred to as the
"Distribution Date"), (x) the Rights will be evidenced (subject to the
provisions of paragraph (b) of this Section 3) by the certificates for the
Common Stock registered in the names of the holders of the Common Stock (which
certificates for Common Stock shall be deemed also to be certificates for
Rights) and not by separate certificates, and (y) the Rights will be
transferable only in connection with the transfer of the underlying shares of
Common Stock (including a transfer to the Company). As soon as practicable after
the Distribution Date, the Rights Agent will send by first-class, insured,
postage prepaid mail, to each record holder of the Common Stock as of the close
of business on the Distribution Date, at the address of such holder shown on the
records of the Company, one or more rights certificates, in substantially the
form of Exhibit B hereto (the "Rights Certificates"), evidencing one Right for
each share of Common Stock so held, subject to adjustment as provided herein. In
the event that an adjustment in the number of Rights per share of Common Stock
has been made pursuant to Section 11(p) hereof, at the time of distribution of
the Rights Certificates, the Company shall make the necessary and appropriate
rounding adjustments (in accordance with Section 14(a) hereof) so that Rights
Certificates representing only whole numbers of Rights are distributed and cash
is paid in lieu of any fractional Rights. As of and after the Distribution Date,
the Rights will be evidenced solely by such Rights Certificates.
(b) Following the Record Date, the Company will make
available a copy of a Summary of Rights, in substantially the form attached
hereto as Exhibit C (the "Summary of Rights"), to each holder of the Common
Stock which so requests a copy. With respect to certificates for the Common
Stock outstanding as of the Record Date, until the Distribution Date, the Rights
will be evidenced by such certificates for the Common Stock and the registered
holders of the Common Stock shall also be the registered holders of the
associated Rights. Until the earlier of the Distribution Date or the Expiration
Date (as such term is defined in Section 7 hereof), the transfer of any
certificates representing shares of Common Stock in respect of which Rights have
been issued shall also constitute the transfer of the Rights associated with
such shares of Common Stock.
(c) Rights shall be issued in respect of all shares
of Common Stock which are issued (whether originally issued or from the
Company's treasury) after the Record Date but prior to the earlier of the
Distribution Date or the Expiration Date. Certificates representing such shares
of Common Stock shall also be deemed to be certificates for Rights, and shall
bear the following legend:
This certificate also evidences and entitles the holder hereof
to certain Rights as set forth in the Rights Agreement between Imation
Corp. (the "Company") and the Rights Agent thereunder (the "Rights
Agreement"), the terms of which are hereby incorporated herein by
reference and a copy of which is on file at the principal offices of
Imation Corp. Under certain circumstances, as set forth in the Rights
Agreement, such Rights will be evidenced by separate certificates and
will no longer be evidenced by this certificate. Imation Corp. will
mail to the holder of this certificate a copy of the Rights Agreement,
as in effect on the date of mailing, without charge promptly after
receipt of a written request therefor. Under certain circumstances set
forth in the Rights Agreement, Rights issued to, or held by, any Person
who is, was or becomes an Acquiring Person or any Affiliate or
Associate thereof (as such terms are defined in the Rights Agreement),
whether currently held by or on behalf of such Person or by any
subsequent holder, may become null and void.
With respect to such certificates containing the foregoing legend, until the
earlier of (i) the Distribution Date or (ii) the Expiration Date, the Rights
associated with the Common Stock represented by such certificates shall be
evidenced by such certificates alone and registered holders of Common Stock
shall also be the registered holders of the associated Rights, and the transfer
of any of such certificates shall also constitute the transfer of the Rights
associated with the Common Stock represented by such certificates.
Section 4. Form of Rights Certificates.
(a) The Rights Certificates (and the forms of
election to purchase and of assignment to be printed on the reverse thereof)
shall each be substantially in the form set forth in Exhibit B hereto and may
have such marks of identification or designation and such legends, summaries or
endorsements printed thereon as the Company may deem appropriate and as are not
inconsistent with the provisions of this Agreement, or as may be required to
comply with any applicable law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange on which the Rights
may from time to time be listed, or to conform to usage. Subject to the
provisions of Section 11 and Section 22 hereof, the Rights Certificates,
whenever distributed, shall be dated as of the Record Date and on their face
shall entitle the holders thereof to purchase such number of one one-hundredths
of a share of Preferred Stock as shall be set forth therein at the price set
forth therein (such exercise price per one one-hundredth of a share, the
"Purchase Price"), but the amount and type of securities purchasable upon the
exercise of each Right and the Purchase Price thereof shall be subject to
adjustment as provided herein.
(b) Any Rights Certificate issued pursuant to Section
3(a) or Section 22 hereof that represents Rights beneficially owned by: (i) an
Acquiring Person or any Associate or Affiliate of an Acquiring Person, (ii) a
transferee of an Acquiring Person (or of any such Associate or Affiliate) who
becomes a transferee after the Acquiring Person becomes such, or (iii) a
transferee of an Acquiring Person (or of any such Associate or Affiliate) who
becomes a transferee prior to or concurrently with the Acquiring Person becoming
such and receives such Rights pursuant to either (A) a transfer (whether or not
for consideration) from the Acquiring Person to holders of equity interests in
such Acquiring Person or to any Person with whom such Acquiring Person has any
continuing agreement, arrangement or understanding regarding the transferred
Rights or (B) a transfer which the Board of Directors of the Company has
determined is part of a plan, arrangement or understanding which has as a
primary purpose or effect avoidance of Section 7(e) hereof, and any Rights
Certificate issued pursuant to Section 6 or Section 11 hereof upon transfer,
exchange, replacement or adjustment of any other Rights Certificate referred to
in this sentence, shall contain (to the extent feasible) the following legend:
The Rights represented by this Rights Certificate are or were
beneficially owned by a Person who was or became an Acquiring Person or
an Affiliate or Associate of an Acquiring Person (as such terms are
defined in the Rights Agreement). Accordingly, this Rights Certificate
and the Rights represented hereby may become null and void in the
circumstances specified in Section 7(e) of such Agreement.
Section 5. Countersignature and Registration.
(a) The Rights Certificates shall be executed on
behalf of the Company by its Chairman of the Board, its Chief Executive Officer,
its President or any Vice President, either manually or by facsimile signature,
and shall have affixed thereto the Company's seal or a facsimile thereof which
shall be attested by the Secretary or an Assistant Secretary of the Company,
either manually or by facsimile signature. The Rights Certificates shall be
countersigned by the Rights Agent, either manually or by facsimile signature and
shall not be valid for any purpose unless so countersigned. In case any officer
of the Company who shall have signed any of the Rights Certificates shall cease
to be such officer of the Company before countersignature by the Rights Agent
and issuance and delivery by the Company, such Rights Certificates,
nevertheless, may be countersigned by the Rights Agent and issued and delivered
by the Company with the same force and effect as though the person who signed
such Rights Certificates had not ceased to be such officer of the Company; and
any Rights Certificates may be signed on behalf of the Company by any person
who, at the actual date of the execution of such Rights Certificate, shall be a
proper officer of the Company to sign such Rights Certificate, although at the
date of the execution of this Rights Agreement any such person was not such an
officer.
(b) Following the Distribution Date, the Rights Agent
will keep or cause to be kept, at its principal office or offices designated as
the appropriate place for surrender of Rights Certificates upon exercise or
transfer, books for registration and transfer of the Rights Certificates issued
hereunder. Such books shall show the names and addresses of the respective
holders of the Rights Certificates, the number of Rights evidenced on its face
by each of the Rights Certificates and the date of each of the Rights
Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of
Rights Certificates; Mutilated, Destroyed, Lost or Stolen Rights Certificates.
(a) Subject to the provisions of Section 4(b),
Section 7(e) and Section 14 hereof, at any time after the close of business on
the Distribution Date, and at or prior to the close of business on the
Expiration Date, any Rights Certificate or Certificates may be transferred,
split up, combined or exchanged for another Rights Certificate or Certificates,
entitling the registered holder to purchase a like number of one one-hundredths
of a share of Preferred Stock (or, following a Triggering Event, Common Stock,
other securities, cash or other assets, as the case may be) as the Rights
Certificate or Certificates surrendered then entitled such holder (or former
holder in the case of a transfer) to purchase. Any registered holder desiring to
transfer, split up, combine or exchange any Rights Certificate or Certificates
shall make such request in writing delivered to the Rights Agent, and shall
surrender the Rights Certificate or Certificates to be transferred, split up,
combined or exchanged at the principal office or offices of the Rights Agent
designated for such purpose. Neither the Rights Agent nor the Company shall be
obligated to take any action whatsoever with respect to the transfer of any such
surrendered Rights Certificate until the registered holder shall have completed
and signed the certificate contained in the form of assignment on the reverse
side of such Rights Certificate and shall have provided such additional evidence
of the identity of the Beneficial Owner (or former Beneficial Owner) or
Affiliates or Associates thereof as the Company shall reasonably request.
Thereupon the Rights Agent shall, subject to Section 4(b), Section 7(e) and
Section 14 hereof, countersign and deliver to the Person entitled thereto a
Rights Certificate or Rights Certificates, as the case may be, as so requested.
The Company may require payment of a sum sufficient to cover any tax or
governmental charge that may be imposed in connection with any transfer, split
up, combination or exchange of Rights Certificates.
(b) Upon receipt by the Company and the Rights Agent
of evidence reasonably satisfactory to them of the loss, theft, destruction or
mutilation of a Rights Certificate, and, in case of loss, theft or destruction,
of indemnity or security reasonably satisfactory to them, and reimbursement to
the Company and the Rights Agent of all reasonable expenses incidental thereto,
and upon surrender to the Rights Agent and cancellation of the Rights
Certificate if mutilated, the Company will execute and deliver a new Rights
Certificate of like tenor to the Rights Agent for countersignature and delivery
to the registered owner in lieu of the Rights Certificate so lost, stolen,
destroyed or mutilated.
Section 7. Exercise of Rights; Purchase Price; Expiration Date
of Rights.
(a) Subject to Section 7(e) hereof, the registered
holder of any Rights Certificate may exercise the Rights evidenced thereby
(except as otherwise provided herein including, without limitation, the
restrictions on exercisability set forth in Section 9(c), Section 11(a)(iii) and
Section 23(a) hereof) in whole or in part at any time after the Distribution
Date upon surrender of the Rights Certificate, with the form of election to
purchase and the certificate on the reverse side thereof duly executed, to the
Rights Agent at the principal office or offices of the Rights Agent designated
for such purpose, together with payment of the aggregate Purchase Price with
respect to the total number of one one-hundredths of a share (or other
securities, cash or other assets, as the case may be) as to which such
surrendered Rights are then exercisable, at or prior to the earlier of (i) the
close of business on July 1, 2006, (the "Final Expiration Date"), or (ii) the
time at which the Rights are redeemed as provided in Section 23 hereof (the
earlier of (i) and (ii) being herein referred to as the "Expiration Date").
(b) The Purchase Price for each one one-hundredth of
a share of Preferred Stock pursuant to the exercise of a Right shall initially
be $125, and shall be subject to adjustment from time to time as provided in
Sections 11 and 13(a) hereof and shall be payable in accordance with paragraph
(c) below.
(c) Upon receipt of a Rights Certificate representing
exercisable Rights, with the form of election to purchase and the certificate
duly executed, accompanied by payment, with respect to each Right so exercised,
of the Purchase Price per one one-hundredth of a share of Preferred Stock (or
other shares, securities, cash or other assets, as the case may be) to be
purchased as set forth below and an amount equal to any applicable transfer tax,
the Rights Agent shall, subject to Section 20(k) hereof, thereupon promptly (i)
(A) requisition from any transfer agent of the shares of Preferred Stock (or
make available, if the Rights Agent is the transfer agent for such shares)
certificates for the total number of one one-hundredths of a share of Preferred
Stock to be purchased and the Company hereby irrevocably authorizes its transfer
agent to comply with all such requests, or (B) if the Company shall have elected
to deposit the total number of shares of Preferred Stock issuable upon exercise
of the Rights hereunder with a depositary agent, requisition from the depositary
agent depositary receipts representing such number of one one-hundredths of a
share of Preferred Stock as are to be purchased (in which case certificates for
the shares of Preferred Stock represented by such receipts shall be deposited by
the transfer agent with the depositary agent) and the Company will direct the
depositary agent to comply with such request, (ii) requisition from the Company
the amount of cash, if any, to be paid in lieu of fractional shares in
accordance with Section 14 hereof, (iii) after receipt of such certificates or
depositary receipts, cause the same to be delivered to or upon the order of the
registered holder of such Rights Certificate, registered in such name or names
as may be designated by such holder, and (iv) after receipt thereof, deliver
such cash, if any, to or upon the order of the registered holder of such Rights
Certificate. The payment of the Purchase Price (as such amount may be reduced
pursuant to Section 11(a)(iii) hereof) shall be made in cash or by certified
bank check or bank draft payable to the order of the Company. In the event that
the Company is obligated to issue other securities (including Common Stock) of
the Company, pay cash and/or distribute other property pursuant to Section 11(a)
hereof, the Company will make all arrangements necessary so that such other
securities, cash and/or other property are available for distribution by the
Rights Agent, if and when appropriate. The Company reserves the right to require
prior to the occurrence of a Triggering Event that, upon any exercise of Rights,
a number of Rights be exercised so that only whole shares of Preferred Stock
would be issued.
(d) In case the registered holder of any Rights
Certificate shall exercise less than all the Rights evidenced thereby, a new
Rights Certificate evidencing Rights equivalent to the Rights remaining
unexercised shall be issued by the Rights Agent and delivered to, or upon the
order of, the registered holder of such Rights Certificate, registered in such
name or names as may be designated by such holder, subject to the provisions of
Section 14 hereof.
(e) Notwithstanding anything in this Agreement to the
contrary, from and after the first occurrence of a Section 11(a)(ii) Event, any
Rights beneficially owned by (i) an Acquiring Person or an Associate or
Affiliate of an Acquiring Person, (ii) a transferee of an Acquiring Person (or
of any such Associate or Affiliate) who becomes a transferee after the Acquiring
Person becomes such, or (iii) a transferee of an Acquiring Person (or of any
such Associate or Affiliate) who becomes a transferee prior to or concurrently
with the Acquiring Person becoming such and receives such Rights pursuant to
either (A) a transfer (whether or not for consideration) from the Acquiring
Person to holders of equity interests in such Acquiring Person or to any Person
with whom the Acquiring Person has any continuing agreement, arrangement or
understanding regarding the transferred Rights or (B) a transfer which the Board
of Directors of the Company has determined is part of a plan, arrangement or
understanding which has as a primary purpose or effect the avoidance of this
Section 7(e), shall become null and void without any further action and no
holder of such Rights shall have any rights whatsoever with respect to such
Rights, whether under any provision of this Agreement or otherwise. The Company
shall use all reasonable efforts to insure that the provisions of this Section
7(e) and Section 4(b) hereof are complied with, but shall have no liability to
any holder of Rights Certificates or other Person as a result of its failure to
make any determinations with respect to an Acquiring Person or its Affiliates,
Associates or transferees hereunder.
(f) Notwithstanding anything in this Agreement to the
contrary, neither the Rights Agent nor the Company shall be obligated to
undertake any action with respect to a registered holder upon the occurrence of
any purported exercise as set forth in this Section 7 unless such registered
holder shall have (i) completed and signed the certificate contained in the form
of election to purchase set forth on the reverse side of the Rights Certificate
surrendered for such exercise, and (ii) provided such additional evidence of the
identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or
Associates thereof as the Company shall reasonably request.
Section 8. Cancellation and Destruction of Rights
Certificates. All Rights Certificates surrendered for the purpose of exercise,
transfer, split up, combination or exchange shall, if surrendered to the Company
or any of its agents, be delivered to the Rights Agent for cancellation or in
cancelled form, or, if surrendered to the Rights Agent, shall be cancelled by
it, and no Rights Certificates shall be issued in lieu thereof except as
expressly permitted by any of the provisions of this Agreement. The Company
shall deliver to the Rights Agent for cancellation and retirement, and the
Rights Agent shall so cancel and retire, any other Rights Certificate purchased
or acquired by the Company otherwise than upon the exercise thereof. The Rights
Agent shall deliver all cancelled Rights Certificates to the Company.
Section 9. Reservation and Availability of Capital Stock.
(a) The Company covenants and agrees that it will
cause to be reserved and kept available out of its authorized and unissued
shares of Preferred Stock (and, following the occurrence of a Triggering Event,
out of its authorized and unissued shares of Common Stock and/or other
securities or out of its authorized and issued shares held in its treasury), the
number of shares of Preferred Stock (and, following the occurrence of a
Triggering Event, Common Stock and/or other securities) that, as provided in
this Agreement including Section 11(a)(iii) hereof, will be sufficient to permit
the exercise in full of all outstanding Rights.
(b) So long as the shares of Preferred Stock (and,
following the occurrence of a Triggering Event, Common Stock and/or other
securities) issuable and deliverable upon the exercise of the Rights may be
listed on any national securities exchange, the Company shall use its best
efforts to cause, from and after such time as the Rights become exercisable, all
shares reserved for such issuance to be listed on such exchange upon official
notice of issuance upon such exercise.
(c) The Company shall use its best efforts to (i)
file, as soon as practicable following the earliest date after the first
occurrence of a Section 11(a)(ii) Event on which the consideration to be
delivered by the Company upon exercise of the Rights has been determined in
accordance with Section 11(a)(iii) hereof, a registration statement under the
Securities Act of 1933 (the "Act"), with respect to the securities purchasable
upon exercise of the Rights on an appropriate form, (ii) cause such registration
statement to become effective as soon as practicable after such filing, and
(iii) cause such registration statement to remain effective (with a prospectus
at all times meeting the requirements of the Act) until the earlier of (A) the
date as of which the Rights are no longer exercisable for such securities, and
(B) the date of the expiration of the Rights. The Company will also take such
action as may be appropriate under, or to ensure compliance with, the securities
or "blue sky" laws of the various states in connection with the exercisability
of the Rights. The Company may temporarily suspend, for a period of time not to
exceed ninety (90) days after the date set forth in clause (i) of the first
sentence of this Section 9(c), the exercisability of the Rights in order to
prepare and file such registration statement and permit it to become effective.
Upon any such suspension, the Company shall issue a public announcement stating
that the exercisability of the Rights has been temporarily suspended, as well as
a public announcement at such time as the suspension is no longer in effect. In
addition, if the Company shall determine that a registration statement is
required following the Distribution Date, the Company may temporarily suspend
the exercisability of the Rights until such time as a registration statement has
been declared effective. Notwithstanding any provision of this Agreement to the
contrary, the Rights shall not be exercisable in any jurisdiction if the
requisite qualification in such jurisdiction shall not have been obtained, the
exercise thereof shall not be permitted under applicable law or a registration
statement shall not have been declared effective.
(d) The Company covenants and agrees that it will
take all such action as may be necessary to ensure that all one one-hundredths
of a share of Preferred Stock (and, following the occurrence of a Triggering
Event, Common Stock and/or other securities) delivered upon exercise of Rights
shall, at the time of delivery of the certificates for such shares (subject to
payment of the Purchase Price), be duly and validly authorized and issued and
fully paid and nonassessable.
(e) The Company further covenants and agrees that it
will pay when due and payable any and all federal and state transfer taxes and
charges which may be payable in respect of the issuance or delivery of the
Rights Certificates and of any certificates for a number of one one-hundredths
of a share of Preferred Stock (or Common Stock and/or other securities, as the
case may be) upon the exercise of Rights. The Company shall not, however, be
required to pay any transfer tax which may be payable in respect of any transfer
or delivery of Rights Certificates to a Person other than, or the issuance or
delivery of a number of one one-hundredths of a share of Preferred Stock (or
Common Stock and/or other securities, as the case may be) in respect of a name
other than that of, the registered holder of the Rights Certificates evidencing
Rights surrendered for exercise or to issue or deliver any certificates for a
number of one one-hundredths of a share of Preferred Stock (or Common Stock
and/or other securities, as the case may be) in a name other than that of the
registered holder upon the exercise of any Rights until such tax shall have been
paid (any such tax being payable by the holder of such Rights Certificate at the
time of surrender) or until it has been established to the Company's
satisfaction that no such tax is due.
Section 10. Preferred Stock Record Date. Each person in whose
name any certificate for a number of one one-hundredths of a share of Preferred
Stock (or Common Stock and/or other securities, as the case may be) is issued
upon the exercise of Rights shall for all purposes be deemed to have become the
holder of record of such fractional shares of Preferred Stock (or Common Stock
and/or other securities, as the case may be) represented thereby on, and such
certificate shall be dated, the date upon which the Rights Certificate
evidencing such Rights was duly surrendered and payment of the Purchase Price
(and all applicable transfer taxes) was made; provided, however, that if the
date of such surrender and payment is a date upon which the Preferred Stock (or
Common Stock and/or other securities, as the case may be) transfer books of the
Company are closed, such Person shall be deemed to have become the record holder
of such shares (fractional or otherwise) on, and such certificate shall be
dated, the next succeeding Business Day on which the Preferred Stock (or Common
Stock and/or other securities, as the case may be) transfer books of the Company
are open. Prior to the exercise of the Rights evidenced thereby, the holder of a
Rights Certificate shall not be entitled to any rights of a stockholder of the
Company with respect to shares for which the Rights shall be exercisable,
including, without limitation, the right to vote, to receive dividends or other
distributions or to exercise any preemptive rights, and shall not be entitled to
receive any notice of any proceedings of the Company, except as provided herein.
Section 11. Adjustment of Purchase Price, Number and Kind of
Shares or Number of Rights. The Purchase Price, the number and kind of shares
covered by each Right and the number of Rights outstanding are subject to
adjustment from time to time as provided in this Section 11.
(a)(i) In the event the Company shall at any
time after the date of this Agreement (A) declare a dividend on the
Preferred Stock payable in shares of Preferred Stock, (B) subdivide the
outstanding Preferred Stock, (C) combine the outstanding Preferred
Stock into a smaller number of shares, or (D) issue any shares of its
capital stock in a reclassification of the Preferred Stock (including
any such reclassification in connection with a consolidation or merger
in which the Company is the continuing or surviving corporation),
except as otherwise provided in this Section 11(a) and Section 7(e)
hereof, the Purchase Price in effect at the time of the record date for
such dividend or of the effective date of such subdivision, combination
or reclassification, and the number and kind of shares of Preferred
Stock or capital stock, as the case may be, issuable on such date,
shall be proportionately adjusted so that the holder of any Right
exercised after such time shall be entitled to receive, upon payment of
the Purchase Price then in effect, the aggregate number and kind of
shares of Preferred Stock or capital stock, as the case may be, which,
if such Right had been exercised immediately prior to such date and at
a time when the Preferred Stock transfer books of the Company were
open, he or she would have owned upon such exercise and been entitled
to receive by virtue of such dividend, subdivision, combination or
reclassification. If an event occurs which would require an adjustment
under both this Section 11(a)(i) and Section 11(a)(ii) hereof, the
adjustment provided for in this Section 11(a)(i) shall be in addition
to, and shall be made prior to, any adjustment required pursuant to
Section 11(a)(ii) hereof.
(ii) In the event that any Person shall, at any time
after the Rights Dividend Declaration Date, become an Acquiring Person,
unless the event causing such Person to become an Acquiring Person is a
transaction set forth in Section 13(a) hereof, or is an acquisition of
shares of Common Stock pursuant to a tender offer or an exchange offer
for all outstanding shares of Common Stock at a price and on terms
determined by at least a majority of the members of the Board of
Directors who are not officers of the Company and who are not
representatives, nominees, Affiliates or Associates of an Acquiring
Person, after receiving advice from one or more investment banking
firms, to be (a) at a price which is fair to stockholders (taking into
account all factors which such members of the Board deem relevant
including, without limitation, prices which could reasonably be
achieved if the Company or its assets were sold on an orderly basis
designed to realize maximum value) and (b) otherwise in the best
interests of the Company and its stockholders (hereinafter, an
"Approved Offer"), then, promptly following the occurrence of any such
event, proper provision shall be made so that each holder of a Right
(except as provided below and in Section 7(e) hereof) shall thereafter
have the right to receive, upon exercise thereof at the then current
Purchase Price in accordance with the terms of this Agreement, in lieu
of a number of one one-hundredths of a share of Preferred Stock, such
number of shares of Common Stock of the Company as shall equal the
result obtained by (x) multiplying the then current Purchase Price by
the then number of one one-hundredths of a share of Preferred Stock for
which a Right was exercisable immediately prior to the first occurrence
of a Section 11(a)(ii) Event, and (y) dividing that product (which,
following such first occurrence, shall thereafter be referred to as the
"Purchase Price" for each Right and for all purposes of this Agreement)
by 50% of the current market price (determined pursuant to Section
11(d) hereof) per share of Common Stock on the date of such first
occurrence (such number of shares, the "Adjustment Shares").
(iii) In the event that the number of shares of
Common Stock which are authorized by the Company's Certificate of
Incorporation, as amended and/or restated, but not outstanding or
reserved for issuance for purposes other than upon exercise of the
Rights are not sufficient to permit the exercise in full of the Rights
in accordance with the foregoing subparagraph (ii) of this Section
11(a), the Company shall (A) determine the value of the Adjustment
Shares issuable upon the exercise of a Right (the "Current Value"), and
(B) with respect to each Right (subject to Section 7(e) hereof), make
adequate provision to substitute for the Adjustment Shares, upon the
exercise of a Right and payment of the applicable Purchase Price, (1)
cash, (2) a reduction in the Purchase Price, (3) Common Stock or other
equity securities of the Company (including, without limitation,
shares, or units of shares, of preferred stock, such as the Preferred
Stock, which the Board has deemed to have essentially the same value or
economic rights as shares of Common Stock (such shares of preferred
stock being referred to as "Common Stock Equivalents")), (4) debt
securities of the Company, (5) other assets, or (6) any combination of
the foregoing, having an aggregate value equal to the Current Value
(less the amount of any reduction in the Purchase Price), where such
aggregate value has been determined by the Board based upon the advice
of a nationally recognized investment banking firm selected by the
Board; provided, however, that if the Company shall not have made
adequate provision to deliver value pursuant to clause (B) above within
thirty (30) days following the later of (x) the first occurrence of a
Section 11(a)(ii) Event and (y) the date on which the Company's right
of redemption pursuant to Section 23(a) expires (the later of (x) and
(y) being referred to herein as the "Section 11(a)(ii) Trigger Date"),
then the Company shall be obligated to deliver, upon the surrender for
exercise of a Right and without requiring payment of the Purchase
Price, shares of Common Stock (to the extent available) and then, if
necessary, cash, which shares and/or cash have an aggregate value equal
to the Spread. For purposes of the preceding sentence, the term
"Spread" shall mean the excess of (i) the Current Value over (ii) the
Purchase Price. If the Board determines in good faith that it is likely
that sufficient additional shares of Common Stock could be authorized
for issuance upon exercise in full of the Rights, the thirty (30) day
period set forth above may be extended to the extent necessary, but not
more than ninety (90) days after the Section 11(a)(ii) Trigger Date, in
order that the Company may seek shareholder approval for the
authorization of such additional shares (such thirty (30) day period,
as it may be extended, is herein called the "Substitution Period"). To
the extent that action is to be taken pursuant to the first and/or
third sentences of this Section 11(a)(iii), the Company (1) shall
provide, subject to Section 7(e) hereof, that such action shall apply
uniformly to all outstanding Rights, and (2) may suspend the
exercisability of the Rights until the expiration of the Substitution
Period in order to seek such shareholder approval for such
authorization of additional shares and/or to decide the appropriate
form of distribution to be made pursuant to such first sentence and to
determine the value thereof. In the event of any such suspension, the
Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended, as well as
a public announcement at such time as the suspension is no longer in
effect. For purposes of this Section 11(a)(iii), the value of each
Adjustment Share shall be the Current Market Price per share of the
Common Stock on the Section 11(a)(ii) Trigger Date and the per share or
per unit value of any Common Stock Equivalent shall be deemed to equal
the Current Market Price per share of the Common Stock on such date.
(b) In case the Company shall fix a record date for
the issuance of rights, options or warrants to all holders of Preferred Stock
entitling them to subscribe for or purchase (for a period expiring within
forty-five (45) calendar days after such record date) Preferred Stock (or shares
having the same rights, privileges and preferences as the shares of Preferred
Stock ("equivalent preferred stock")) or securities convertible into Preferred
Stock or equivalent preferred stock at a price per share of Preferred Stock or
per share of equivalent preferred stock (or having a conversion price per share,
if a security convertible into Preferred Stock or equivalent preferred stock)
less than the current market price (as determined pursuant to Section 11(d)
hereof) per share of Preferred Stock on such record date, the Purchase Price to
be in effect after such record date shall be determined by multiplying the
Purchase Price in effect immediately prior to such record date by a fraction,
the numerator of which shall be the number of shares of Preferred Stock
outstanding on such record date, plus the number of shares of Preferred Stock
which the aggregate offering price of the total number of shares of Preferred
Stock and/or equivalent preferred stock so to be offered (and/or the aggregate
initial conversion price of the convertible securities so to be offered) would
purchase at such current market price, and the denominator of which shall be the
number of shares of Preferred Stock outstanding on such record date, plus the
number of additional shares of Preferred Stock and/or equivalent preferred stock
to be offered for subscription or purchase (or into which the convertible
securities so to be offered are initially convertible). In case such
subscription price may be paid by delivery of consideration part or all of which
may be in a form other than cash, the value of such consideration shall be as
determined in good faith by the Board of Directors of the Company, whose
determination shall be described in a statement filed with the Rights Agent and
shall be binding on the Rights Agent and the holders of the Rights. Shares of
Preferred Stock owned by or held for the account of the Company shall not be
deemed outstanding for the purpose of any such computation. Such adjustment
shall be made successively whenever such a record date is fixed, and in the
event that such rights or warrants are not so issued, the Purchase Price shall
be adjusted to be the Purchase Price which would then be in effect if such
record date had not been fixed.
(c) In case the Company shall fix a record date for a
distribution to all holders of Preferred Stock (including any such distribution
made in connection with a consolidation or merger in which the Company is the
continuing corporation) of evidences of indebtedness, cash (other than a regular
quarterly cash dividend out of the earnings or retained earnings of the
Company), assets (other than a dividend payable in Preferred Stock, but
including any dividend payable in stock other than Preferred Stock) or
subscription rights or warrants (excluding those referred to in Section 11(b)
hereof), the Purchase Price to be in effect after such record date shall be
determined by multiplying the Purchase Price in effect immediately prior to such
record date by a fraction, the numerator of which shall be the current market
price (as determined pursuant to Section 11(d) hereof) per share of Preferred
Stock on such record date, less the fair market value (as determined in good
faith by the Board of Directors of the Company, whose determination shall be
described in a statement filed with the Rights Agent) of the portion of the
cash, assets or evidences of indebtedness so to be distributed or of such
subscription rights or warrants applicable to a share of Preferred Stock and the
denominator of which shall be such current market price (as determined pursuant
to Section 11(d) hereof) per share of Preferred Stock. Such adjustments shall be
made successively whenever such a record date is fixed, and in the event that
such distribution is not so made, the Purchase Price shall be adjusted to be the
Purchase Price which would have been in effect if such record date had not been
fixed.
(d) (i) For the purpose of any computation hereunder,
other than computations made pursuant to Section 11(a)(iii) hereof, the Current
Market Price per share of Common Stock on any date shall be deemed to be the
average of the daily closing prices per share of such Common Stock for the
thirty (30) consecutive Trading Days immediately prior to such date, and for
purposes of computations made pursuant to Section 11(a)(iii) hereof, the Current
Market Price per share of Common Stock on any date shall be deemed to be the
average of the daily closing prices per share of such Common Stock for the ten
(10) consecutive Trading Days immediately following such date; provided,
however, that in the event that the Current Market Price per share of the Common
Stock is determined during a period following the announcement by the issuer of
such Common Stock of (A) a dividend or distribution on such Common Stock payable
in shares of such Common Stock or securities convertible into shares of such
Common Stock (other than the Rights), or (B) any subdivision, combination or
reclassification of such Common Stock, and the ex-dividend date for such
dividend or distribution, or the record date for such subdivision, combination
or reclassification shall not have occurred prior to the commencement of the
requisite thirty (30) Trading Day or ten (10) Trading Day period, as set forth
above, then, and in each such case, the Current Market Price shall be properly
adjusted to take into account ex-dividend trading. The closing price for each
day shall be the last sale price, regular way, or, in case no such sale takes
place on such day, the average of the closing bid and asked prices, regular way,
in either case as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on the New York
Stock Exchange or, if the shares of Common Stock are not listed or admitted to
trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which the shares of Common Stock
are listed or admitted to trading or, if the shares of Common Stock are not
listed or admitted to trading on any national securities exchange, the last
quoted price or, if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by the National Association
of Securities Dealers, Inc. Automated Quotation System ("NASDAQ") or such other
system then in use, or, if on any such date the shares of Common Stock are not
quoted by any such organization, the average of the closing bid and asked prices
as furnished by a professional market maker making a market in the Common Stock
selected by the Board. If on any such date no market maker is making a market in
the Common Stock, the fair value of such shares on such date as determined in
good faith by the Board shall be used. The term "Trading Day" shall mean a day
on which the principal national securities exchange on which the shares of
Common Stock are listed or admitted to trading is open for the transaction of
business or, if the shares of Common Stock are not listed or admitted to trading
on any national securities exchange, a Business Day. If the Common Stock is not
publicly held or not so listed or traded, Current Market Price per share shall
mean the fair value per share as determined in good faith by the Board, whose
determination shall be described in a statement filed with the Rights Agent and
shall be conclusive for all purposes.
(ii) For the purpose of any computation hereunder,
the Current Market Price per share of Preferred Stock shall be determined in the
same manner as set forth above for the Common Stock in clause (i) of this
Section 11(d) (other than the last sentence thereof). If the Current Market
Price per share of Preferred Stock cannot be determined in the manner provided
above or if the Preferred Stock is not publicly held or listed or traded in a
manner described in clause (i) of this Section 11(d), the Current Market Price
per share of Preferred Stock shall be conclusively deemed to be an amount equal
to 100 (as such number may be appropriately adjusted for such events as stock
splits, stock dividends and recapitalizations with respect to the Common Stock
occurring after the date of this Agreement) multiplied by the Current Market
Price per share of the Common Stock. If neither the Common Stock nor the
Preferred Stock is publicly held or so listed or traded, Current Market Price
per share of the Preferred Stock shall mean the fair value per share as
determined in good faith by the Board, whose determination shall be described in
a statement filed with the Rights Agent and shall be conclusive for all
purposes. For all purposes of this Agreement, the Current Market Price of a Unit
shall be equal to the Current Market Price of one share of Preferred Stock
divided by 100.
(e) Anything herein to the contrary notwithstanding,
no adjustment in the Purchase Price shall be required unless such adjustment
would require an increase or decrease of at least one percent (1%) in the
Purchase Price; provided, however, that any adjustments which by reason of this
Section 11(e) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment. All calculations under this Section
11 shall be made to the nearest cent or to the nearest ten-thousandth of a share
of Common Stock or other share or one-millionth of a share of Preferred Stock,
as the case may be. Notwithstanding the first sentence of this Section 11(e),
any adjustment required by this Section 11 shall be made no later than the
earlier of (i) three (3) years from the date of the transaction which mandates
such adjustment, or (ii) the Expiration Date.
(f) If as a result of an adjustment made pursuant to
Section 11(a)(ii) or Section 13(a) hereof, the holder of any Right thereafter
exercised shall become entitled to receive any shares of capital stock other
than Preferred Stock, thereafter the number of such other shares so receivable
upon exercise of any Right and the Purchase Price thereof shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Preferred Stock contained in
Sections 11(a), (b), (c), (e), (g), (h), (i), (j), (k) and (m), and the
provisions of Sections 7, 9, 10, 13 and 14 hereof with respect to the Preferred
Stock shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company
subsequent to any adjustment made to the Purchase Price hereunder shall evidence
the right to purchase, at the adjusted Purchase Price, the number of one
one-hundredths of a share of Preferred Stock purchasable from time to time
hereunder upon exercise of the Rights, all subject to further adjustment as
provided herein.
(h) Unless the Company shall have exercised its
election as provided in Section 11(i), upon each adjustment of the Purchase
Price as a result of the calculations made in Sections 11(b) and (c), each Right
outstanding immediately prior to the making of such adjustment shall thereafter
evidence the right to purchase, at the adjusted Purchase Price, that number of
one one-hundredths of a share of Preferred Stock (calculated to the nearest
one-millionth) obtained by (i) multiplying (x) the number of one one-hundredths
of a share covered by a Right immediately prior to this adjustment, by (y) the
Purchase Price in effect immediately prior to such adjustment of the Purchase
Price, and (ii) dividing the product so obtained by the Purchase Price in effect
immediately after such adjustment of the Purchase Price.
(i) The Company may elect on or after the date of any
adjustment of the Purchase Price to adjust the number of Rights, in lieu of any
adjustment in the number of one one-hundredths of a share of Preferred Stock
purchasable upon the exercise of a Right. Each of the Rights outstanding after
the adjustment in the number of Rights shall be exercisable for the number of
one one-hundredths of a share of Preferred Stock for which a Right was
exercisable immediately prior to such adjustment. Each Right held of record
prior to such adjustment of the number of Rights shall become that number of
Rights (calculated to the nearest one-ten-thousandth) obtained by dividing the
Purchase Price in effect immediately prior to adjustment of the Purchase Price
by the Purchase Price in effect immediately after adjustment of the Purchase
Price. The Company shall make a public announcement of its election to adjust
the number of Rights, indicating the record date for the adjustment, and, if
known at the time, the amount of the adjustment to be made. This record date may
be the date on which the Purchase Price is adjusted or any day thereafter, but,
if the Rights Certificates have been issued, shall be at least ten (10) days
later than the date of the public announcement. If Rights Certificates have been
issued, upon each adjustment of the number of Rights pursuant to this Section
11(i), the Company shall, as promptly as practicable, cause to be distributed to
holders of record of Rights Certificates on such record date Rights Certificates
evidencing, subject to Section 14 hereof, the additional Rights to which such
holders shall be entitled as a result of such adjustment, or, at the option of
the Company, shall cause to be distributed to such holders of record in
substitution and replacement for the Rights Certificates held by such holders
prior to the date of adjustment, and upon surrender thereof, if required by the
Company, new Rights Certificates evidencing all the Rights to which such holders
shall be entitled after such adjustment. Rights Certificates so to be
distributed shall be issued, executed and countersigned in the manner provided
for herein (and may bear, at the option of the Company, the adjusted Purchase
Price) and shall be registered in the names of the holders of record of Rights
Certificates on the record date specified in the public announcement.
(j) Irrespective of any adjustment or change in the
Purchase Price or the number of one one-hundredths of a share of Preferred Stock
issuable upon the exercise of the Rights, the Rights Certificates theretofore
and thereafter issued may continue to express the Purchase Price per one
one-hundredth of a share and the number of one one-hundredth of a share which
were expressed in the initial Rights Certificates issued hereunder.
(k) Before taking any action that would cause an
adjustment reducing the Purchase Price below the then stated value, if any, of
the number of one one-hundredths of a share of Preferred Stock issuable upon
exercise of the Rights, the Company shall take any corporate action which may,
in the opinion of its counsel, be necessary in order that the Company may
validly and legally issue fully paid and nonassessable such number of one
one-hundredths of a share of Preferred Stock at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall
require that an adjustment in the Purchase Price be made effective as of a
record date for a specified event, the Company may elect to defer until the
occurrence of such event the issuance to the holder of any Right exercised after
such record date the number of one one-hundredths of a share of Preferred Stock
and other capital stock or securities of the Company, if any, issuable upon such
exercise over and above the number of one one-hundredths of a share of Preferred
Stock and other capital stock or securities of the Company, if any, issuable
upon such exercise on the basis of the Purchase Price in effect prior to such
adjustment; provided, however, that the Company shall deliver to such holder a
due bill or other appropriate instrument evidencing such holder's right to
receive such additional shares (fractional or otherwise) or securities upon the
occurrence of the event requiring such adjustment.
(m) Anything in this Section 11 to the contrary
notwithstanding, the Company shall be entitled to make such reductions in the
Purchase Price, in addition to those adjustments expressly required by this
Section 11, as and to the extent that in their good faith judgment the Board of
Directors of the Company shall determine to be advisable in order that any (i)
consolidation or subdivision of the Preferred Stock, (ii) issuance wholly for
cash of any shares of Preferred Stock at less than the current market price,
(iii) issuance wholly for cash of shares of Preferred Stock or securities which
by their terms are convertible into or exchangeable for shares of Preferred
Stock, (iv) stock dividends or (v) issuance of rights, options or warrants
referred to in this Section 11, hereafter made by the Company to holders of its
Preferred Stock shall not be taxable to such stockholders.
(n) The Company covenants and agrees that it shall
not, at any time after the Distribution Date, (i) consolidate with any other
Person (other than a Subsidiary of the Company in a transaction which complies
with Section 11(o) hereof), (ii) merge with or into any other Person (other than
a Subsidiary of the Company in a transaction which complies with Section 11(o)
hereof), or (iii) sell or transfer (or permit any Subsidiary to sell or
transfer), in one transaction, or a series of related transactions, assets or
earning power aggregating more than 50% of the assets or earning power of the
Company and its Subsidiaries (taken as a whole) to any other Person or Persons
(other than the Company and/or any of its Subsidiaries in one or more
transactions each of which complies with Section 11(o) hereof), if (x) at the
time of or immediately after such consolidation, merger or sale there are any
rights, warrants or other instruments or securities outstanding or agreements in
effect which would substantially diminish or otherwise eliminate the benefits
intended to be afforded by the Rights or (y) prior to, simultaneously with or
immediately after such consolidation, merger or sale, the shareholders of the
Person who constitutes, or would constitute, the "Principal Party" for purposes
of Section 13(a) hereof shall have received a distribution of Rights previously
owned by such Person or any of its Affiliates and Associates.
(o) The Company covenants and agrees that, after the
Distribution Date, it will not, except as permitted by Section 23 or Section 26
hereof, take (or permit any Subsidiary to take) any action if at the time such
action is taken it is reasonably foreseeable that such action will diminish
substantially or otherwise eliminate the benefits intended to be afforded by the
Rights.
(p) Anything in this Agreement to the contrary
notwithstanding, in the event that the Company shall at any time after the
Rights Dividend Declaration Date and prior to the Distribution Date (i) declare
a dividend on the outstanding shares of Common Stock payable in shares of Common
Stock, (ii) subdivide the outstanding shares of Common Stock, or (iii) combine
the outstanding shares of Common Stock into a smaller number of shares, the
number of Rights associated with each share of Common Stock then outstanding, or
issued or delivered thereafter but prior to the Distribution Date, shall be
proportionately adjusted so that the number of Rights thereafter associated with
each share of Common Stock following any such event shall equal the result
obtained by multiplying the number of Rights associated with each share of
Common Stock immediately prior to such event by a fraction the numerator which
shall be the total number of shares of Common Stock outstanding immediately
prior to the occurrence of the event and the denominator of which shall be the
total number of shares of Common Stock outstanding immediately following the
occurrence of such event.
Section 12. Certificate of Adjusted Purchase Price or Number
of Shares. Whenever an adjustment is made as provided in Section 11 and Section
13 hereof, the Company shall (a) promptly prepare a certificate setting forth
such adjustment and a brief statement of the facts accounting for such
adjustment, (b) promptly file with the Rights Agent, and with each transfer
agent for the Preferred Stock and the Common Stock, a copy of such certificate,
and (c) mail a brief summary thereof to each holder of a Rights Certificate (or,
if prior to the Distribution Date, to each holder of a certificate representing
shares of Common Stock) in accordance with Section 25 hereof. The Rights Agent
shall be fully protected in relying on any such certificate and on any
adjustment therein contained.
Section 13. Consolidation, Merger or Sale or Transfer of
Assets or Earning Power.
(a) In the event that, following the Stock
Acquisition Date, directly or indirectly, (x) the Company shall consolidate
with, or merge with and into, any other Person (other than a Subsidiary of the
Company in a transaction which complies with Section 11(o) hereof), and the
Company shall not be the continuing or surviving corporation of such
consolidation or merger, (y) any Person (other than a Subsidiary of the Company
in a transaction which complies with Section 11(o) hereof) shall consolidate
with, or merge with or into, the Company, and the Company shall be the
continuing or surviving corporation of such consolidation or merger and, in
connection with such consolidation or merger, all or part of the outstanding
shares of Common Stock shall be changed into or exchanged for stock or other
securities of any other Person or cash or any other property, or (z) the Company
shall sell or otherwise transfer (or one or more of its Subsidiaries shall sell
or otherwise transfer), in one transaction or a series of related transactions,
assets or earning power aggregating more than 50% of the assets or earning power
of the Company and its Subsidiaries (taken as a whole) to any Person or Persons
(other than the Company or any Subsidiary of the Company in one or more
transactions each of which complies with Section 11(o) hereof), then, and in
each such case (except as may be contemplated by Section 13(d) hereof), proper
provision shall be made so that: (i) each holder of a Right, except as provided
in Section 7(e) hereof, shall thereafter have the right to receive, upon the
exercise thereof at the then current Purchase Price in accordance with the terms
of this Agreement, such number of validly authorized and issued, fully paid,
non-assessable and freely tradeable shares of Common Stock of the Principal
Party (as such term is hereinafter defined), not subject to any liens,
encumbrances, rights of first refusal or other adverse claims, as shall be equal
to the result obtained by (1) multiplying the then current Purchase Price by the
number of one one-hundredths of a share of Preferred Stock for which a Right is
exercisable immediately prior to the first occurrence of a Section 13 Event (or,
if a Section 11(a)(ii) Event has occurred prior to the first occurrence of a
Section 13 Event, multiplying the number of such one one-hundredths of a share
for which a Right was exercisable immediately prior to the first occurrence of a
Section 11(a)(ii) Event by the Purchase Price in effect immediately prior to
such first occurrence), and dividing that product (which, following the first
occurrence of a Section 13 Event, shall be referred to as the "Purchase Price"
for each Right and for all purposes of this Agreement) by (2) 50% of the current
market price (determined pursuant to Section 11(d)(i) hereof) per share of the
Common Stock of such Principal Party on the date of consummation of such Section
13 Event; (ii) such Principal Party shall thereafter be liable for, and shall
assume, by virtue of such Section 13 Event, all the obligations and duties of
the Company pursuant to this Agreement; (iii) the term "Company" shall
thereafter be deemed to refer to such Principal Party, it being specifically
intended that the provisions of Section 11 hereof shall apply only to such
Principal Party following the first occurrence of a Section 13 Event; (iv) such
Principal Party shall take such steps (including, but not limited to, the
reservation of a sufficient number of shares of its Common Stock) in connection
with the consummation of any such transaction as may be necessary to assure that
the provisions hereof shall thereafter be applicable, as nearly as reasonably
may be, in relation to its shares of Common Stock thereafter deliverable upon
the exercise of the Rights; and (v) the provisions of Section 11(a)(ii) hereof
shall be of no effect following the first occurrence of any Section 13 Event.
(b) "Principal Party" shall mean
(i) in the case of any transaction described
in clause (x) or (y) of the first sentence of Section 13(a), the Person
that is the issuer of any securities into which shares of Common Stock
of the Company are converted in such merger or consolidation, and if no
securities are so issued, the Person that is the other party to such
merger or consolidation; and
(ii) in the case of any transaction
described in clause (z) of the first sentence of Section 13(a), the
Person that is the party receiving the greatest portion of the assets
or earning power transferred pursuant to such transaction or
transactions;
provided, however, that in any such case, (1) if the Common Stock of such Person
is not at such time and has not been continuously over the preceding twelve (12)
month period registered under Section 12 of the Exchange Act, and such Person is
a direct or indirect Subsidiary of another Person the Common Stock of which is
and has been so registered, "Principal Party" shall refer to such other Person;
and (2) in case such Person is a Subsidiary, directly or indirectly, of more
than one Person, the Common Stocks of two or more of which are and have been so
registered, "Principal Party" shall refer to whichever of such Persons is the
issuer of the Common Stock having the greatest aggregate market value.
(c) The Company shall not consummate any such
consolidation, merger, sale or transfer unless the Principal Party shall have a
sufficient number of authorized shares of its Common Stock which have not been
issued or reserved for issuance to permit the exercise in full of the Rights in
accordance with this Section 13 and unless prior thereto the Company and such
Principal Party shall have executed and delivered to the Rights Agent a
supplemental agreement providing for the terms set forth in paragraphs (a) and
(b) of this Section 13 and further providing that, as soon as practicable after
the date of any consolidation, merger or sale of assets mentioned in paragraph
(a) of this Section 13, the Principal Party will
(i) prepare and file a registration
statement under the Act, with respect to the Rights and the securities
purchasable upon exercise of the Rights on an appropriate form, and
will use its best efforts to cause such registration statement to (A)
become effective as soon as practicable after such filing and (B)
remain effective (with a prospectus at all times meeting the
requirements of the Act) until the Expiration Date; and
(ii) will deliver to holders of the Rights
historical financial statements for the Principal Party and each of its
Affiliates which comply in all respects with the requirements for
registration on Form 10 under the Exchange Act.
The provisions of this Section 13 shall similarly apply to successive mergers or
consolidations or sales or other transfers. In the event that a Section 13 Event
shall occur at any time after the occurrence of a Section 11(a)(ii) Event, the
Rights which have not theretofore been exercised shall thereafter become
exercisable in the manner described in Section 13(a).
(d) Notwithstanding anything in this Agreement to the
contrary, Section 13 shall not be applicable to a transaction described in
subparagraphs (x) and (y) of Section 13(a) if (i) such transaction is
consummated with a Person or Persons who acquired shares of Common Stock
pursuant to an Approved Offer (or a wholly owned subsidiary of any such Person
or Persons), (ii) the price per share of Common Stock offered in such
transaction is not less than the price per share of Common Stock paid to all
holders of shares of Common Stock whose shares were purchased pursuant to such
tender offer or exchange offer and (iii) the form of consideration being offered
to the remaining holders of shares of Common Stock pursuant to such transaction
is the same as the form of consideration paid pursuant to such tender offer or
exchange offer. Upon consummation of any such transaction contemplated by this
Section 13(d), all Rights hereunder shall expire.
Section 14. Fractional Rights and Fractional Shares.
(a) The Company shall not be required to issue
fractions of Rights, except prior to the Distribution Date as provided in
Section 11(p) hereof, or to distribute Rights Certificates which evidence
fractional Rights. In lieu of such fractional Rights, there shall be paid to the
registered holders of the Rights Certificates with regard to which such
fractional Rights would otherwise be issuable, an amount in cash equal to the
same fraction of the current market value of a whole Right. For purposes of this
Section 14(a), the current market value of a whole Right shall be the closing
price of the Rights for the Trading Day immediately prior to the date on which
such fractional Rights would have been otherwise issuable. The closing price of
the Rights for any day shall be the last sale price, regular way, or, in case no
such sale takes place on such day, the average of the closing bid and asked
prices, regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the New York Stock Exchange or, if the Rights are not listed or
admitted to trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which the Rights are listed or
admitted to trading, or if the Rights are not listed or admitted to trading on
any national securities exchange, the last quoted price or, if not so quoted,
the average of the high bid and low asked prices in the over-the-counter market,
as reported by NASDAQ or such other system then in use or, if on any such date
the Rights are not quoted by any such organization, the average of the closing
bid and asked prices as furnished by a professional market maker making a market
in the Rights selected by the Board of Directors of the Company. If on any such
date no such market maker is making a market in the Rights the fair value of the
Rights on such date as determined in good faith by the Board of Directors of the
Company shall be used.
(b) The Company shall not be required to issue
fractions of shares of Preferred Stock (other than fractions which are integral
multiples of one one-hundredth of a share of Preferred Stock) upon exercise of
the Rights or to distribute certificates which evidence fractional shares of
Preferred Stock (other than fractions which are integral multiples of one
one-hundredth of a share of Preferred Stock). In lieu of fractional shares of
Preferred Stock that are not integral multiples of one one-hundredth of a share
of Preferred Stock, the Company may pay to the registered holders of Rights
Certificates at the time such Rights are exercised as herein provided an amount
in cash equal to the same fraction of the current market value of one
one-hundredth of a share of Preferred Stock. For purposes of this Section 14(b),
the current market value of one one-hundredth of a share of Preferred Stock
shall be one one-hundredth of the closing price of a share of Preferred Stock
(as determined pursuant to Section 11(d)(ii) hereof) for the Trading Day
immediately prior to the date of such exercise.
(c) Following the occurrence of a Triggering Event,
the Company shall not be required to issue fractions of shares of Common Stock
upon exercise of the Rights or to distribute certificates which evidence
fractional shares of Common Stock. In lieu of fractional shares of Common Stock,
the Company may pay to the registered holders of Rights Certificates at the time
such Rights are exercised as herein provided an amount in cash equal to the same
fraction of the current market value of one (1) share of Common Stock. For
purposes of this Section 14(c), the current market value of one share of Common
Stock shall be the closing price of one share of Common Stock (as determined
pursuant to Section 11(d)(i) hereof) for the Trading Day immediately prior to
the date of such exercise.
(d) The holder of a Right by the acceptance of the
Rights expressly waives his or her right to receive any fractional Rights or any
fractional shares upon exercise of a Right, except as permitted by this Section
14.
Section 15. Rights of Action. All rights of action in
respect of this Agreement are vested in the respective registered holders of the
Rights Certificates (and, prior to the Distribution Date, the registered holders
of the Common Stock); and any registered holder of any Rights Certificate (or,
prior to the Distribution Date, of the Common Stock), without the consent of the
Rights Agent or of the holder of any other Rights Certificate (or, prior to the
Distribution Date, of the Common Stock), may, in his or her own behalf and for
his or her own benefit, enforce, and may institute and maintain any suit, action
or proceeding against the Company to enforce, or otherwise act in respect of,
his or her right to exercise the Rights evidenced by such Rights Certificate in
the manner provided in such Rights Certificate and in this Agreement. Without
limiting the foregoing or any remedies available to the holders of Rights, it is
specifically acknowledged that the holders of Rights would not have an adequate
remedy at law for any breach of this Agreement and shall be entitled to specific
performance of the obligations hereunder and injunctive relief against actual or
threatened violations of the obligations hereunder of any Person subject to this
Agreement.
Section 16. Agreement of Rights Holders. Every holder of a
Right by accepting the same consents and agrees with the Company and the Rights
Agent and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will
be transferable only in connection with the transfer of Common Stock;
(b) after the Distribution Date, the Rights
Certificates are transferable only on the registry books of the Rights Agent if
surrendered at the principal office or offices of the Rights Agent designated
for such purposes, duly endorsed or accompanied by a proper instrument of
transfer and with the appropriate forms and certificates fully executed;
(c) subject to Section 6(a) and Section
7(f) hereof, the Company and the Rights Agent may deem and treat the person in
whose name a Rights Certificate (or, prior to the Distribution Date, the
associated Common Stock certificate) is registered as the absolute owner thereof
and of the Rights evidenced thereby (notwithstanding any notations of ownership
or writing on the Rights Certificates or the associated Common Stock certificate
made by anyone other than the Company or the Rights Agent) for all purposes
whatsoever, and neither the Company nor the Rights Agent, subject to the last
sentence of Section 7(e) hereof, shall be required to be affected by any notice
to the contrary; and
(d) notwithstanding anything in this Agreement to the
contrary, neither the Company nor the Rights Agent shall have any liability to
any holder of a Right or other Person as a result of its inability to perform
any of its obligations under this Agreement by reason of any preliminary or
permanent injunction or other order, decree or ruling issued by a court of
competent jurisdiction or by a governmental, regulatory or administrative agency
or commission, or any statute, rule, regulation or executive order promulgated
or enacted by any governmental authority, prohibiting or otherwise restraining
performance of such obligation; provided, however, the Company must use its best
efforts to have any such order, decree or ruling lifted or otherwise overturned
as soon as possible.
Section 17. Rights Certificate Holder Not Deemed a
Stockholder. No holder, as such, of any Rights Certificate shall be entitled to
vote, receive dividends or be deemed for any purpose the holder of the number of
one one-hundredths of a share of Preferred Stock or any other securities of the
Company which may at any time be issuable on the exercise of the Rights
represented thereby, nor shall anything contained herein or in any Rights
Certificate be construed to confer upon the holder of any Rights Certificate, as
such, any of the rights of a stockholder of the Company or any right to vote for
the election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
provided in Section 24 hereof), or to receive dividends or subscription rights,
or otherwise, until the Right or Rights evidenced by such Rights Certificate
shall have been exercised in accordance with the provisions hereof.
Section 18. Concerning the Rights Agent.
(a) The Company agrees to pay to the Rights Agent
reasonable compensation for all services rendered by it hereunder and, from time
to time, on demand of the Rights Agent, its reasonable expenses and counsel fees
and disbursements and other disbursements incurred in the administration and
execution of this Agreement and the exercise and performance of its duties
hereunder. The Company also agrees to indemnify the Rights Agent for, and to
hold it harmless against, any loss, liability, or expense, incurred without
negligence, bad faith or willful misconduct on the part of the Rights Agent, for
anything done or omitted by the Rights Agent in connection with the acceptance
and administration of this Agreement, including the costs and expenses of
defending against any claim of liability in the premises.
(b) The Rights Agent shall be protected and shall
incur no liability for or in respect of any action taken, suffered or omitted by
it in connection with its administration of this Agreement in reliance upon any
Rights Certificate or certificate for Common Stock or for other securities of
the Company, instrument of assignment or transfer, power of attorney,
endorsement, affidavit, letter, notice, direction, consent, certificate,
statement, or other paper or document believed by it to be genuine and to be
signed, executed and, where necessary, verified or acknowledged, by the proper
Person or Persons.
Section 19. Merger or Consolidation or Change of Name of
Rights Agent.
(a) Any corporation into which the Rights Agent or
any successor Rights Agent may be merged or with which it may be consolidated,
or any corporation resulting from any merger or consolidation to which the
Rights Agent or any successor Rights Agent shall be a party, or any corporation
succeeding to the corporate trust or shareholder services business of the Rights
Agent or any successor Rights Agent, shall be the successor to the Rights Agent
under this Agreement without the execution or filing of any paper or any further
act on the part of any of the parties hereto; provided, however, that such
corporation would be eligible for appointment as a successor Rights Agent under
the provisions of Section 21 hereof. In case at the time such successor Rights
Agent shall succeed to the agency created by this Agreement, any of the Rights
Certificates shall have been countersigned but not delivered, any such successor
Rights Agent may adopt the countersignature of a predecessor Rights Agent and
deliver such Rights Certificates so countersigned; and in case at that time any
of the Rights Certificates shall not have been countersigned, any successor
Rights Agent may countersign such Rights Certificates either in the name of the
predecessor or in the name of the successor Rights Agent; and in all such cases
such Rights Certificates shall have the full force provided in the Rights
Certificates and in this Agreement.
(b) In case at any time the name of the Rights Agent
shall be changed and at such time any of the Rights Certificates shall have been
countersigned but not delivered, the Rights Agent may adopt the countersignature
under its prior name and deliver Rights Certificates so countersigned; and in
case at that time any of the Rights Certificates shall not have been
countersigned, the Rights Agent may countersign such Rights Certificates either
in its prior name or in its changed name; and in all such cases such Rights
Certificates shall have the full force provided in the Rights Certificates and
in this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent
undertakes the duties and obligations imposed by this Agreement upon the
following terms and conditions, by all of which the Company and the holders of
Rights Certificates, by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel
(who may be legal counsel for the Company), and the opinion of such counsel
shall be full and complete authorization and protection to the Rights Agent as
to any action taken or omitted by it in good faith and in accordance with such
opinion.
(b) Whenever in the performance of its duties under
this Agreement the Rights Agent shall deem it necessary or desirable that any
fact or matter (including, without limitation, the identity of any Acquiring
Person and the determination of "current market price") be proved or established
by the Company prior to taking or suffering any action hereunder, such fact or
matter (unless other evidence in respect thereof be herein specifically
prescribed) may be deemed to be conclusively proved and established by a
certificate signed by the Chairman of the Board, the President, any Vice
President, the Treasurer, any Assistant Treasurer, the Secretary or any
Assistant Secretary of the Company and delivered to the Rights Agent; and such
certificate shall be full authorization to the Rights Agent for any action taken
or suffered in good faith by it under the provisions of this Agreement in
reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder only
for its own negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by
reason of any of the statements of fact or recitals contained in this Agreement
or in the Rights Certificates or be required to verify the same (except as to
its countersignature on such Rights Certificates), but all such statements and
recitals are and shall be deemed to have been made by the Company only.
(e) The Rights Agent shall not be under any
responsibility in respect of the validity of this Agreement or the execution and
delivery hereof (except the due execution hereof by the Rights Agent) or in
respect of the validity or execution of any Rights Certificate (except its
countersignature thereof); nor shall it be responsible for any breach by the
Company of any covenant or condition contained in this Agreement or in any
Rights Certificate; nor shall it be responsible for any adjustment required
under the provisions of Section 11 or Section 13 hereof or responsible for the
manner, method or amount of any such adjustment or the ascertaining of the
existence of facts that would require any such adjustment (except with respect
to the exercise of Rights evidenced by Rights Certificates after actual notice
of any such adjustment); nor shall it by any act hereunder be deemed to make any
representation or warranty as to the authorization or reservation of any shares
of Common Stock or Preferred Stock to be issued pursuant to this Agreement or
any Rights Certificate or as to whether any shares of Common Stock or Preferred
Stock will, when so issued, be validly authorized and issued, fully paid and
nonassessable.
(f) The Company agrees that it will perform, execute,
acknowledge and deliver or cause to be performed, executed, acknowledged and
delivered all such further and other acts, instruments and assurances as may
reasonably be required by the Rights Agent for the carrying out or performing by
the Rights Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and
directed to accept instructions with respect to the performance of its duties
hereunder from the Chairman of the Board, the President, any Vice President, the
Secretary, any Assistant Secretary, the Treasurer or any Assistant Treasurer of
the Company, and to apply to such officers for advice or instructions in
connection with its duties, and it shall not be liable for any action taken or
suffered to be taken by it in good faith in accordance with instructions of any
such officer.
(h) The Rights Agent and any stockholder, director,
officer or employee of the Rights Agent may buy, sell or deal in any of the
Rights or other securities of the Company or become pecuniarily interested in
any transaction in which the Company may be interested, or contract with or lend
money to the Company or otherwise act as fully and freely as though it were not
Rights Agent under this Agreement. Nothing herein shall preclude the Rights
Agent from acting in any other capacity for the Company or for any other legal
entity.
(i) The Rights Agent may execute and exercise any of
the rights or powers hereby vested in it or perform any duty hereunder either
itself or by or through its attorneys or agents, and the Rights Agent shall not
be answerable or accountable for any act, default, neglect or misconduct of any
such attorneys or agents or for any loss to the Company resulting from any such
act, default, neglect or misconduct; provided, however, reasonable care was
exercised in the selection and continued employment thereof.
(j) No provision of this Agreement shall require the
Rights Agent to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder or in the exercise
of its rights if there shall be reasonable grounds for believing that repayment
of such funds or adequate indemnification against such risk or liability is not
reasonably assured to it.
(k) If, with respect to any Right Certificate
surrendered to the Rights Agent for exercise or transfer, the certificate
attached to the form of assignment or form of election to purchase, as the case
may be, has either not been completed or indicates an affirmative response to
clause 1 and/or 2 thereof, the Rights Agent shall not take any further action
with respect to such requested exercise of transfer without first consulting
with the Company.
Section 21. Change of Rights Agent. The Rights Agent or any
successor Rights Agent may resign and be discharged from its duties under this
Agreement upon thirty (30) days' notice in writing mailed to the Company, and to
each transfer agent of the Common Stock and Preferred Stock, by registered or
certified mail, and to the holders of the Rights Certificates by first-class
mail. The Company may remove the Rights Agent or any successor Rights Agent upon
thirty (30) days' notice in writing, mailed to the Rights Agent or successor
Rights Agent, as the case may be, and to each transfer agent of the Common Stock
and Preferred Stock, by registered or certified mail, and to the holders of the
Rights Certificates by first-class mail. If the Rights Agent shall resign or be
removed or shall otherwise become incapable of acting, the Company shall appoint
a successor to the Rights Agent. If the Company shall fail to make such
appointment within a period of thirty (30) days after giving notice of such
removal or after it has been notified in writing of such resignation or
incapacity by the resigning or incapacitated Rights Agent or by the holder of a
Rights Certificate (who shall, with such notice, submit his Rights Certificate
for inspection by the Company), then any registered holder of any Rights
Certificate may apply to any court of competent jurisdiction for the appointment
of a new Rights Agent. Any successor Rights Agent, whether appointed by the
Company or by such a court, shall be an entity organized and doing business
under the laws of the United States or of the State of New York or Minnesota (or
of any other state of the United States so long as such entity is authorized to
do business as a stock transfer agent or registrar), in good standing, which is
authorized under such laws to exercise corporate trust and/or stock transfer
powers and which, either alone or together with its Affiliates, has at the time
of its appointment as Rights Agent a combined capital and surplus of at least
$50,000,000. After appointment, the successor Rights Agent shall be vested with
the same powers, rights, duties and responsibilities as if it had been
originally named as Rights Agent without further act or deed; but the
predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Not later
than the effective date of any such appointment, the Company shall file notice
thereof in writing with the predecessor Rights Agent and each transfer agent of
the Common Stock and the Preferred Stock, and mail a notice thereof in writing
to the registered holders of the Rights Certificates. Failure to give any notice
provided for in this Section 21, however, or any defect therein, shall not
affect the legality or validity of the resignation or removal of the Rights
Agent or the appointment of the successor Rights Agent, as the case may be.
Section 22. Issuance of New Rights Certificates.
Notwithstanding any of the provisions of this Agreement or of the Rights to the
contrary, the Company may, at its option, issue new Rights Certificates
evidencing Rights in such form as may be approved by its Board of Directors to
reflect any adjustment or change in the Purchase Price and the number or kind or
class of shares or other securities or property purchasable under the Rights
Certificates made in accordance with the provisions of this Agreement. In
addition, in connection with the issuance or sale of shares of Common Stock
following the Distribution Date and prior to the redemption or expiration of the
Rights, the Company (a) shall, with respect to shares of Common Stock so issued
or sold pursuant to the exercise of stock options or under any employee plan or
arrangement, granted or awarded as of the Distribution Date, or upon the
exercise, conversion or exchange of securities hereinafter issued by the
Company, and (b) may, in any other case, if deemed necessary or appropriate by
the Board of Directors of the Company, issue Rights Certificates representing
the appropriate number of Rights in connection with such issuance or sale;
provided, however, that (i) no such Rights Certificate shall be issued if, and
to the extent that, the Company shall be advised by counsel that such issuance
would create a significant risk of material adverse tax consequences to the
Company or the Person to whom such Rights Certificate would be issued, and (ii)
no such Rights Certificate shall be issued if, and to the extent that,
appropriate adjustment shall otherwise have been made in lieu of the issuance
thereof.
Section 23. Redemption and Termination.
(a) The Board of Directors of the Company may, at its
option, at any time prior to the earlier of (i) the close of business on the
tenth day following the Stock Acquisition Date (or, if the Stock Acquisition
Date shall have occurred prior to the Record Date, the close of business on the
tenth day following the Record Date), or (ii) the Final Expiration Date, redeem
all but not less than all the then outstanding Rights at a redemption price of
$0.01 per Right, as such amount may be appropriately adjusted to reflect any
stock split, stock dividend or similar transaction occurring after the date
hereof (such redemption price being hereinafter referred to as the "Redemption
Price"). Notwithstanding anything contained in this Agreement to the contrary,
the Rights shall not be exercisable after the first occurrence of a Section
11(a)(ii) Event until such time as the Company's right of redemption hereunder
has expired. The Company may, at its option, pay the Redemption Price in cash,
shares of Common Stock (based on the "current market price", as defined in
Section 11(d)(i) hereof, of the Common Stock at the time of redemption) or any
other form of consideration deemed appropriate by the Board of Directors.
(b) Immediately upon the action of the Board of
Directors of the Company ordering the redemption of the Rights, evidence of
which shall have been filed with the Rights Agent and without any further action
and without any notice, the right to exercise the Rights will terminate and the
only right thereafter of the holders of Rights shall be to receive the
Redemption Price for each Right so held. Promptly after the action of the Board
of Directors ordering the redemption of the Rights, the Company shall give
notice of such redemption to the Rights Agent and the holders of the then
outstanding Rights by mailing such notice to all such holders at each holder's
last address as it appears upon the registry books of the Rights Agent or, prior
to the Distribution Date, on the registry books of the transfer agent for the
Common Stock. Any notice which is mailed in the manner herein provided shall be
deemed given, whether or not the holder receives the notice. Each such notice of
redemption will state the method by which the payment of the Redemption Price
will be made.
Section 24. Notice of Certain Events.
(a) In case the Company shall propose, at any time
after the Distribution Date, (i) to pay any dividend payable in stock of any
class to the holders of Preferred Stock or to make any other distribution to the
holders of Preferred Stock (other than a regular quarterly cash dividend out of
earnings or retained earnings of the Company), or (ii) to offer to the holders
of Preferred Stock rights or warrants to subscribe for or to purchase any
additional shares of Preferred Stock or shares of stock of any class or any
other securities, rights or options, or (iii) to effect any reclassification of
its Preferred Stock (other than a reclassification involving only the
subdivision of outstanding shares of Preferred Stock), or (iv) to effect any
consolidation or merger into or with any other Person (other than a Subsidiary
of the Company in a transaction which complies with Section 11(o) hereof), or to
effect any sale or other transfer (or to permit one or more of its Subsidiaries
to effect any sale or other transfer), in one transaction or a series of related
transactions, of more than 50% of the assets or earning power of the Company and
its Subsidiaries (taken as a whole) to any other Person or Persons (other than
the Company and/or any of its Subsidiaries in one or more transactions each of
which complies with Section 11(o) hereof), or (v) to effect the liquidation,
dissolution or winding up of the Company, then, in each such case, the Company
shall give to each holder of a Rights Certificate, to the extent feasible and in
accordance with Section 25 hereof, a notice of such proposed action, which shall
specify the record date for the purposes of such stock dividend, distribution of
rights or warrants, or the date on which such reclassification, consolidation,
merger, sale, transfer, liquidation, dissolution, or winding up is to take place
and the date of participation therein by the holders of the shares of Preferred
Stock, if any such date is to be fixed, and such notice shall be so given in the
case of any action covered by clause (i) or (ii) above at least twenty (20) days
prior to the record date for determining holders of the shares of Preferred
Stock for purposes of such action, and in the case of any such other action, at
least twenty (20) days prior to the date of the taking of such proposed action
or the date of participation therein by the holders of the shares of Preferred
Stock whichever shall be the earlier.
(b) In case any of the events set forth in Section
11(a)(ii) hereof shall occur, then, in any such case, (i) the Company shall as
soon as practicable thereafter give to each holder of a Rights Certificate, to
the extent feasible and in accordance with Section 25 hereof, a notice of the
occurrence of such event, which shall specify the event and the consequences of
the event to holders of Rights under Section 11(a)(ii) hereof, and (ii) all
references in the preceding paragraph to Preferred Stock shall be deemed
thereafter to refer to Common Stock and/or, if appropriate, other securities.
Section 25. Notices. Notices or demands authorized by this
Agreement to be given or made by the Rights Agent or by the holder of any Rights
Certificate to or on the Company shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed (until another address is filed in
writing with the Rights Agent) as follows:
Imation Corp.
1 Imation Place
Oakdale, Minnesota 55128
Attention: Corporate Secretary
Subject to the provisions of Section 21, any notice or demand authorized by this
Agreement to be given or made by the Company or by the holder of any Rights
Certificate to or on the Rights Agent shall be sufficiently given or made if
sent by first-class mail, postage prepaid, addressed (until another address is
filed in writing with the Company) as follows:
Norwest Bank Minnesota, N.A.
161 North Concord Exchange
South St. Paul, Minnesota 55075
Attention: Account Manager
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Rights Certificate (or, if
prior to the Distribution Date, to the holder of certificates representing
shares of Common Stock) shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed to such holder at the address of
such holder as shown on the registry books of the Company.
Section 26. Supplements and Amendments. Prior to the
Distribution Date, the Company and the Rights Agent shall, if the Company so
directs, supplement or amend any provision of this Agreement without the ap-
proval of any holders of certificates representing shares of Common Stock. From
and after the Distribution Date, the Company and the Rights Agent shall, if the
Company so directs, supplement or amend this Agreement without the approval of
any holders of Rights Certificates in order (i) to cure any ambiguity, (ii) to
correct or supplement any provision contained herein which may be defective or
inconsistent with any other provisions herein, (iii) to shorten or lengthen any
time period hereunder, or (iv) to change or supplement the provisions hereunder
in any manner which the Company may deem necessary or desirable and which shall
not adversely affect the interests of the holders of Rights Certificates (other
than an Acquiring Person or an Affiliate or Associate of an Acquiring Person);
provided, this Agreement may not be supplemented or amended to lengthen,
pursuant to clause (iii) of this sentence, (A) a time period relating to when
the Rights may be redeemed at such time as the Rights are not then redeemable,
or (B) any other time period unless such lengthening is for the purpose of
protecting, enhancing or clarifying the rights of, and/or the benefits to, the
holders of Rights. Upon the delivery of a certificate from an appropriate
officer of the Company which states that the proposed supplement or amendment is
in compliance with the terms of this Section 26, the Rights Agent shall execute
such supplement or amendment. Prior to the Distribution Date, the interests of
the holders of Rights shall be deemed coincident with the interests of the
holders of Common Stock.
Section 27. Successors. All the covenants and provisions of
this Agreement by or for the benefit of the Company or the Rights Agent shall
bind and inure to the benefit of their respective successors and assigns
hereunder.
Section 28. Determinations and Actions by the Board of
Directors, etc. For all purposes of this Agreement, any calculation of the
number of shares of Common Stock outstanding at any particular time, including
for purposes of determining the particular percentage of such outstanding shares
of Common Stock of which any Person is the Beneficial Owner, shall be made in
accordance with the last sentence of Rule 13d-3(d)(1)(i) of the General Rules
and Regulations under the Exchange Act. The Board of Directors of the Company
shall have the exclusive power and authority to administer this Agreement and to
exercise all rights and powers specifically granted to the Board or to the
Company, or as may be necessary or advisable in the administration of this
Agreement, including, without limitation, the right and power to (i) interpret
the provisions of this Agreement, and (ii) make all determinations deemed
necessary or advisable for the administration of this Agreement (including a
determination to redeem or not redeem the Rights or to amend the Agreement). All
such actions, calculations, interpretations and determinations (including, for
purposes of clause (y) below, all omissions with respect to the foregoing) which
are done or made by the Board in good faith, shall (x) be final, conclusive and
binding on the Company, the Rights Agent, the holders of the Rights and all
other parties, and (y) not subject the Board to any liability to the holders of
the Rights.
Section 29. Benefits of this Agreement. Nothing in this
Agreement shall be construed to give to any Person other than the Company, the
Rights Agent and the registered holders of the Rights Certificates (and, prior
to the Distribution Date, registered holders of the Common Stock) any legal or
equitable right, remedy or claim under this Agreement; but this Agreement shall
be for the sole and exclusive benefit of the Company, the Rights Agent and the
registered holders of the Rights Certificates (and, prior to the Distribution
Date, registered holders of the Common Stock).
Section 30. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated;
provided, however, that notwithstanding anything in this Agreement to the
contrary, if any such term, provision, covenant or restriction is held by such
court or authority to be invalid, void or unenforceable and the Board of
Directors of the Company determines in its good faith judgment that severing the
invalid language from this Agreement would adversely affect the purpose or
effect of this Agreement, the right of redemption set forth in Section 23 hereof
shall be reinstated and shall not expire until the close of business on the
tenth day following the date of such determination by the Board of Directors.
Section 31. Governing Law. This Agreement, each Right and each
Rights Certificate issued hereunder shall be deemed to be a contract made under
the laws of the State of Delaware and for all purposes shall be governed by and
construed in accordance with the laws of such State applicable to contracts made
and to be performed entirely within such State.
Section 32. Counterparts. This Agreement may be executed in
any number of counterparts and each of such counterparts shall for all purposes
be deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
Section 33. Descriptive Headings. Descriptive headings of the
several Sections of this Agreement are inserted for convenience only and shall
not control or affect the meaning or construction of any of the provisions
hereof.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and their respective corporate seals to be
hereunto affixed and attested, all as of the day and year first above written.
Attest: IMATION CORP.
By ____________________________ By ____________________________
Name: Name:
Title: Title:
Attest: NORWEST BANK MINNESOTA, N.A.
By ____________________________ By ____________________________
Name: Name:
Title: Title:
Exhibit A
FORM OF
CERTIFICATE OF DESIGNATION, PREFERENCES
AND RIGHTS OF SERIES A JUNIOR
PARTICIPATING PREFERRED STOCK
of
Imation Corp.
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
The undersigned officers of Imation Corp., a corporation
organized and existing under the General Corporation Law of the State of
Delaware, in accordance with the provisions of Section 103 thereof, DO HEREBY
CERTIFY:
That pursuant to the authority conferred upon the Board of
Directors by the Certificate of Incorporation of the said Corporation, the said
Board of Directors on June __, 1996 adopted the following resolution creating a
series of 1,000,000 shares of Preferred Stock designated as Series A Junior
Participating Preferred Stock:
RESOLVED, that pursuant to the authority vested in the Board
of Directors of this Corporation in accordance with the provisions of its
Certificate of Incorporation, a series of Preferred Stock of the Corporation be
and it hereby is created, and that the designation and amount thereof and the
voting powers, preferences and relative, participating, optional and other
special rights of the shares of such series, and the qualifications, limitations
or restrictions thereof are as follows:
Section 1. Designation and Amount. The shares of such series
shall be designated as "Series A Junior Participating Preferred Stock" and the
number of shares constituting such series shall be 1,000,000.
Section 2. Dividends and Distributions.
(A) The holders of shares of Series A Junior Participating
Preferred Stock shall be entitled to receive, when, as and if declared by the
Board of Directors out of funds legally available for the purpose, quarterly
dividends payable in cash on the last day of March, June, September and December
in each year (each such date being referred to herein as a "Quarterly Dividend
Payment Date"), commencing on the first Quarterly Dividend Payment Date after
the first issuance of a share or fraction of a share of Series A Junior
Participating Preferred Stock, in an amount per share (rounded to the nearest
cent) equal to the greater of (a) $1.00 or (b) subject to the provision for
adjustment hereinafter set forth, 100 times the aggregate per share amount of
all cash dividends, and 100 times the aggregate per share amount (payable in
kind) of all non-cash dividends or other distributions other than a dividend
payable in shares of Common Stock or a subdivision of the outstanding shares of
Common Stock (by reclassification or otherwise), declared on the Common Stock,
par value $.01 per share, of the Corporation (the "Common Stock") since the
immediately preceding Quarterly Dividend Payment Date, or, with respect to the
first Quarterly Dividend Payment Date, since the first issuance of any share or
fraction of a share of Series A Junior Participating Preferred Stock. In the
event the Corporation shall at any time after June __, 1996 (the "Rights
Declaration Date") (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares (in each instance,
other than any issuance or distribution of shares of Common Stock contemplated
by the Transfer and Distribution Agreement being entered into between the
Corporation and Minnesota Mining & Manufacturing Company (the "Distribution
Agreement")), then in each such case the amount to which holders of shares of
Series A Junior Participating Preferred Stock were entitled immediately prior to
such event under clause (b) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution
on the Series A Junior Participating Preferred Stock as provided in Paragraph
(A) above immediately after it declares a dividend or distribution on the Common
Stock (other than a dividend payable in shares of Common Stock); provided that,
in the event no dividend or distribution shall have been declared on the Common
Stock during the period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $1.00 per share on the
Series A Junior Participating Preferred Stock shall nevertheless be payable on
such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Junior Participating Preferred Stock from the
Quarterly Dividend Payment Date next preceding the date of issue of such shares
of Series A Junior Participating Preferred Stock, unless the date of issue of
such shares is prior to the record date for the first Quarterly Dividend Payment
Date, in which case dividends on such shares shall begin to accrue from the date
of issue of such shares, or unless the date of issue is a Quarterly Dividend
Payment Date or is a date after the record date for the determination of holders
of shares of Series A Junior Participating Preferred Stock entitled to receive a
quarterly dividend and before such Quarterly Dividend Payment Date, in either of
which events such dividends shall begin to accrue and be cumulative from such
Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear
interest. Dividends paid on the shares of Series A Junior Participating
Preferred Stock in an amount less than the total amount of such dividends at the
time accrued and payable on such shares shall be allocated pro rata on a
share-by-share basis among all such shares at the time outstanding. The Board of
Directors may fix a record date for the determination of holders of shares of
Series A Junior Participating Preferred Stock entitled to receive payment of a
dividend or distribution declared thereon, which record date shall be no more
than 30 days prior to the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series A
Junior Participating Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set
forth, each share of Series A Junior Participating Preferred Stock shall entitle
the holder thereof to 100 votes on all matters submitted to a vote of the
stockholders of the Corporation. In the event the Corporation shall at any time
after the Rights Declaration Date (i) declare any dividend on Common Stock
payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock,
or (iii) combine the outstanding Common Stock into a smaller number of shares
(in each instance, other than any issuance or distribution of shares of Common
Stock contemplated by the Distribution Agreement), then in each such case the
number of votes per share to which holders of shares of Series A Junior
Participating Preferred Stock were entitled immediately prior to such event
shall be adjusted by multiplying such number by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
(B) Except as otherwise provided herein or by law, the holders
of shares of Series A Junior Participating Preferred Stock and the holders of
shares of Common Stock shall vote together as one class on all matters submitted
to a vote of stockholders of the Corporation.
(C) (i) If at any time dividends on any Series A Junior
Participating Preferred Stock shall be in arrears in an amount equal to six (6)
quarterly dividends thereon, the occurrence of such contingency shall mark the
beginning of a period (herein called a "default period") which shall extend
until such time when all accrued and unpaid dividends for all previous quarterly
dividend periods and for the current quarterly dividend period on all shares of
Series A Junior Participating Preferred Stock then outstanding shall have been
declared and paid or set apart for payment. During each default period, all
holders of Preferred Stock (including holders of the Series A Junior
Participating Preferred Stock) with dividends in arrears in an amount equal to
six (6) quarterly dividends thereon, voting as a class, irrespective of series,
shall have the right to elect two (2) Directors.
(ii) During any default period, such voting right of
the holders of Series A Junior Participating Preferred Stock may be
exercised initially at a special meeting called pursuant to
subparagraph (iii) of this Section 3(C) or at any annual meeting of
stockholders, and thereafter at annual meetings of stockholders,
provided that such voting right shall not be exercised unless the
holders of ten percent (10%) in number of shares of Preferred Stock
outstanding shall be present in person or by proxy. The absence of a
quorum of the holders of Common Stock shall not affect the exercise by
the holders of Preferred Stock of such voting right. At any meeting at
which the holders of Preferred Stock shall exercise such voting right
initially during an existing default period, they shall have the right,
voting as a class, to elect Directors to fill such vacancies, if any,
in the Board of Directors as may then exist up to two (2) Directors or,
if such right is exercised at an annual meeting, to elect two (2)
Directors. If the number which may be so elected at any special meeting
does not amount to the required number, the holders of the Preferred
Stock shall have the right to make such increase in the number of
Directors as shall be necessary to permit the election by them of the
required number. After the holders of the Preferred Stock shall have
exercised their right to elect Directors in any default period and
during the continuance of such period, the number of Directors shall
not be increased or decreased except by vote of the holders of
Preferred Stock as herein provided or pursuant to the rights of any
equity securities ranking senior to or pari passu with the Series A
Junior Participating Preferred Stock.
(iii) Unless the holders of Preferred Stock shall,
during an existing default period, have previously exercised their
right to elect Directors, the Board of Directors may order, or any
stockholder or stockholders owning in the aggregate not less than ten
percent (10%) of the total number of shares of Preferred Stock
outstanding, irrespective of series, may request, the calling of
special meeting of the holders of Preferred Stock, which meeting shall
thereupon be called by the President, a Vice-President or the Secretary
of the Corporation. Notice of such meeting and of any annual meeting at
which holders of Preferred Stock are entitled to vote pursuant to this
Paragraph (C)(iii) shall be given to each holder of record of Preferred
Stock by mailing a copy of such notice to him or her at his or her last
address as the same appears on the books of the Corporation. Such
meeting shall be called for a time not earlier than 20 days and not
later than 60 days after such order or request or in default of the
calling of such meeting within 60 days after such order or request,
such meeting may be called on similar notice by any stockholder or
stockholders owning in the aggregate not less than ten percent (10%) of
the total number of shares of Preferred Stock outstanding.
Notwithstanding the provisions of this Paragraph (C)(iii), no such
special meeting shall be called during the period within 60 days
immediately preceding the date fixed for the next annual meeting of the
stockholders.
(iv) In any default period, the holders of Common
Stock, and other classes of stock of the Corporation if applicable,
shall continue to be entitled to elect the whole number of Directors
until the holders of Preferred Stock shall have exercised their right
to elect two (2) Directors voting as a class, after the exercise of
which right (x) the Directors so elected by the holders of Preferred
Stock shall continue in office until their successors shall have been
elected by such holders or until the expiration of the default period,
and (y) any vacancy in the Board of Directors may (except as provided
in Paragraph (C)(ii) of this Section 3) be filled by vote of a majority
of the remaining Directors theretofore elected by the holders of the
class of stock which elected the Director whose office shall have
become vacant. References in this Paragraph (C) to Directors elected by
the holders of a particular class of stock shall include Directors
elected by such Directors to fill vacancies as provided in clause (y)
of the foregoing sentence.
(v) Immediately upon the expiration of a default
period, (x) the right of the holders of Preferred Stock as a class to
elect Directors shall cease, (y) the term of any Directors elected by
the holders of Preferred Stock as a class shall terminate, and (z) the
number of Directors shall be such number as may be provided for in the
certificate of incorporation or by-laws irrespective of any increase
made pursuant to the provisions of Paragraph (C)(ii) of this Section 3
(such number being subject, however, to change thereafter in any manner
provided by law or in the certificate of incorporation or by-laws). Any
vacancies in the Board of Directors effected by the provisions of
clauses (y) and (z) in the preceding sentence may be filled by a
majority of the remaining Directors.
(D) Except as set forth herein, holders of Series A Junior
Participating Preferred Stock shall have no special voting rights and their
consent shall not be required (except to the extent they are entitled to vote
with holders of Common Stock as set forth herein) for
taking any corporate action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Junior Participating Preferred Stock as
provided in Section 2 are in arrears, thereafter and until all accrued and
unpaid dividends and distributions, whether or not declared, on shares of Series
A Junior Participating Preferred Stock outstanding shall have been paid in full,
the Corporation shall not
(i) declare or pay dividends on, make any
other distributions on, or redeem or purchase or otherwise acquire for
consideration any shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series
A Junior Participating Preferred Stock;
(ii) declare or pay dividends on or make any
other distributions on any shares of stock ranking on a parity (either
as to dividends or upon liquidation, dissolution or winding up) with
the Series A Junior Participating Preferred Stock, except dividends
paid ratably on the Series A Junior Participating Preferred Stock and
all such parity stock on which dividends are payable or in arrears in
proportion to the total amounts to which the holders of all such shares
are then entitled;
(iii) redeem or purchase or otherwise
acquire for consideration shares of any stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or winding up)
with the Series A Junior Participating Preferred Stock, provided that
the Corporation may at any time redeem, purchase or otherwise acquire
shares of any such parity stock in exchange for shares of any stock of
the Corporation ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series A Junior
Participating Preferred Stock; or
(iv) purchase or otherwise acquire for
consideration any shares of Series A Junior Participating Preferred
Stock, or any shares of stock ranking on a parity with the Series A
Junior Participating Preferred Stock, except in accordance with a
purchase offer made in writing or by publication (as determined by the
Board of Directors) to all holders of such shares upon such terms as
the Board of Directors, after consideration of the respective annual
dividend rates and other relative rights and preferences of the
respective series and classes, shall determine in good faith will
result in fair and equitable treatment among the respective series or
classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under Paragraph (A) of
this Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
Section 5. Reacquired Shares. Any shares of Series A Junior
Participating Preferred Stock purchased or otherwise acquired by the Corporation
in any manner whatsoever shall be retired and cancelled promptly after the
acquisition thereof. All such shares shall upon their cancellation become
authorized but unissued shares of Preferred Stock and may be reissued as part of
a new series of Preferred Stock to be created by resolution or resolutions of
the Board of Directors, subject to the conditions and restrictions on issuance
set forth herein.
Section 6. Liquidation, Dissolution or Winding Up. (A) Upon
any liquidation (voluntary or otherwise), dissolution or winding up of the
Corporation, no distribution shall be made to the holders of shares of stock
ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Junior Participating Preferred Stock unless, prior
thereto, the holders of shares of Series A Junior Participating Preferred Stock
shall have received an amount equal to 100 times the Exercise Price, plus an
amount equal to accrued and unpaid dividends and distributions thereon, whether
or not declared, to the date of such payment (the "Series A Liquidation
Preference"). Following the payment of the full amount of the Series A
Liquidation Preference, no additional distributions shall be made to the holders
of shares of Series A Junior Participating Preferred Stock unless, prior
thereto, the holders of shares of Common Stock shall have received an amount per
share (the "Common Adjustment") equal to the quotient obtained by dividing (i)
the Series A Liquidation Preference by (ii) 100 (as appropriately adjusted as
set forth in subparagraph (C) below to reflect such events as stock splits,
stock dividends and recapitalizations with respect to the Common Stock) (such
number in clause (ii), the "Adjustment Number"). Following the payment of the
full amount of the Series A Liquidation Preference and the Common Adjustment in
respect of all outstanding shares of Series A Junior Participating Preferred
Stock and Common Stock, respectively, holders of Series A Junior Participating
Preferred Stock and holders of shares of Common Stock shall receive their
ratable and proportionate share of the remaining assets to be distributed in the
ratio of the Adjustment Number to 1 with respect to such Preferred Stock and
Common Stock, on a per share basis, respectively.
(B) In the event, however, that there are not sufficient
assets available to permit payment in full of the Series A Liquidation
Preference and the liquidation preferences of all other series of preferred
stock, if any, which rank on a parity with the Series A Junior Participating
Preferred Stock, then such remaining assets shall be distributed ratably to the
holders of such parity shares in proportion to their respective liquidation
preferences. In the event, however, that there are not sufficient assets
available to permit payment in full of the Common Adjustment, then such
remaining assets shall be distributed ratably to the holders of Common Stock.
(C) In the event the Corporation shall at any time after the
Rights Declaration Date (i) declare any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii)
combine the outstanding Common Stock into a smaller number of shares, then in
each such case the Adjustment Number in effect immediately prior to such event
shall be adjusted by multiplying such Adjustment Number by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the Corporation
shall enter into any consolidation, merger, combination or other transaction in
which the shares of Common Stock are exchanged for or changed into other stock
or securities, cash and/or any other property, then in any such case the
shares of Series A Junior Participating Preferred Stock shall at the same time
be similarly exchanged or changed in an amount per share (subject to the
provision for adjustment hereinafter set forth) equal to 100 times the aggregate
amount of stock, securities, cash and/or any other property (payable in kind),
as the case may be, into which or for which each share of Common Stock is
changed or exchanged. In the event the Corporation shall at any time after the
Rights Declaration Date (i) declare any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii)
combine the outstanding Common Stock into a smaller number of shares (in each
instance, other than any issuance or distribution of shares of Common Stock
contemplated by the Distribution Agreement), then in each such case the amount
set forth in the preceding sentence with respect to the exchange or change of
shares of Series A Junior Participating Preferred Stock shall be adjusted by
multiplying such amount by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 8. No Redemption. The shares of Series A Junior
Participating Preferred Stock shall not be redeemable.
Section 9. Amendment. The Certificate of Incorporation of the
Corporation shall not be further amended in any manner which would materially
alter or change the powers, preferences or special rights of the Series A Junior
Participating Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of a majority or more of the outstanding shares
of Series A Junior Participating Preferred Stock, voting separately as a class.
Section 10. Fractional Shares. Series A Junior Participating
Preferred Stock may be issued in fractions of a share which shall entitle the
holder, in proportion to such holders fractional shares, to exercise voting
rights, receive dividends, participate in distributions and to have the benefit
of all other rights of holders of Series A Junior Participating Preferred Stock.
IN WITNESS WHEREOF, we have executed and subscribed this
Certificate and do affirm the foregoing as true under the penalties of perjury
this __th day of , 1996.
Imation Corp.
____________________________
Name:
Title:
Attest:
____________________________
Secretary
Exhibit B
[Form of Rights Certificate]
Certificate No. R- ________ Rights
NOT EXERCISABLE AFTER JULY 1, 2006 OR EARLIER IF REDEEMED BY THE COMPANY. THE
RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE COMPANY, AT $0.01 PER
RIGHT ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN
CIRCUMSTANCES, RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON (AS SUCH TERM IS
DEFINED IN THE RIGHTS AGREEMENT) AND ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY
BECOME NULL AND VOID. [THE RIGHTS REPRESENTED BY THIS RIGHTS CERTIFICATE ARE OR
WERE BENEFICIALLY OWNED BY A PERSON WHO WAS OR BECAME AN ACQUIRING PERSON OR AN
AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE
RIGHTS AGREEMENT). ACCORDINGLY, THIS RIGHTS CERTIFICATE AND THE RIGHTS
REPRESENTED HEREBY MAY BECOME NULL AND VOID IN THE CIRCUMSTANCES SPECIFIED IN
SECTION 7(e) OF SUCH AGREEMENT.](1)
- ----------
1 The portion of the legend in brackets shall be inserted only if
applicable and shall replace the preceding sentence.
Rights Certificate
Imation Corp.
This certifies that ______________, or registered assigns, is
the registered owner of the number of Rights set forth above, each of which
entitles the owner thereof, subject to the terms, provisions and conditions of
the Rights Agreement, dated as of June __, 1996 (the "Rights Agreement"),
between Imation Corp., a Delaware corporation (the "Company"), and Norwest Bank
Minnesota, N.A., a national banking association (the "Rights Agent"), to
purchase from the Company at any time prior to 5:00 P.M. (Minneapolis time) on
July 1, 2006 at the office or offices of the Rights Agent designated for such
purpose, or its successors as Rights Agent, one one-hundredth of a fully paid,
non-assessable share of Series A Junior Participating Preferred Stock (the
"Preferred Stock") of the Company, at a purchase price of $125 per one
one-hundredth of a share (the "Purchase Price"), upon presentation and surrender
of this Rights Certificate with the Form of Election to Purchase and related
Certificate duly executed. The number of Rights evidenced by this Rights
Certificate (and the number of shares which may be purchased upon exercise
thereof) set forth above, and the Purchase Price per share set forth above, are
the number and Purchase Price as of June 28, 1996 based on the Preferred Stock
as constituted at such date. The Company reserves the right to require prior to
the occurrence of a Triggering Event (as such term is defined in the Rights
Agreement) that a number of Rights be exercised so that only whole shares of
Preferred Stock will be issued.
Upon the occurrence of a Section 11(a)(ii) Event (as such term
is defined in the Rights Agreement), if the Rights evidenced by this Rights
Certificate are beneficially owned by (i) an Acquiring Person or an Affiliate or
Associate of any such Acquiring Person (as such terms are defined in the Rights
Agreement), (ii) a transferee of any such Acquiring Person, Associate or
Affiliate, or (iii) under certain circumstances specified in the Rights
Agreement, a transferee of a person who, after such transfer, became an
Acquiring Person, or an Affiliate or Associate of an Acquiring Person, such
Rights shall become null and void and no holder hereof shall have any right with
respect to such Rights from and after the occurrence of such Section 11(a)(ii)
Event.
As provided in the Rights Agreement, the Purchase Price and
the number and kind of shares of Preferred Stock or other securities, which may
be purchased upon the exercise of the Rights evidenced by this Rights
Certificate are subject to modification and adjustment upon the happening of
certain events, including Triggering Events.
This Rights Certificate is subject to all of the terms,
provisions and conditions of the Rights Agreement, which terms, provisions and
conditions are hereby incorporated herein by reference and made a part hereof
and to which Rights Agreement reference is hereby made for a full description of
the rights, limitations of rights, obligations, duties and immunities hereunder
of the Rights Agent, the Company and the holders of the Rights Certificates,
which limitations of rights include the temporary suspension of the
exercisability of such Rights under the specific circumstances set forth in the
Rights Agreement. Copies of the Rights Agreement are on file at the
above-mentioned office of the Rights Agent and are also available upon written
request to the Rights Agent.
This Rights Certificate, with or without other Rights
Certificates, upon surrender at the principal office or offices of the Rights
Agent designated for such purpose, may be exchanged for another Rights
Certificate or Rights Certificates of like tenor and date evidencing Rights
entitling the holder to purchase a like aggregate number of one one-hundredths
of a share of Preferred Stock as the Rights evidenced by the Rights Certificate
or Rights Certificates surrendered shall have entitled such holder to purchase.
If this Rights Certificate shall be exercised in part, the holder shall be
entitled to receive upon surrender hereof another Rights Certificate or Rights
Certificates for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Certificate may be redeemed by the Company at its option at a
redemption price of $0.01 per Right at any time prior to the earlier of the
close of business on (i) the tenth day following the Stock Acquisition Date (as
such time period may be extended pursuant to the Rights Agreement), and (ii) the
Final Expiration Date.
No fractional shares of Preferred Stock will be issued upon
the exercise of any Right or Rights evidenced hereby (other than fractions which
are integral multiples of one one-hundredth of a share of Preferred Stock, which
may, at the election of the Company, be evidenced by depositary receipts), but
in lieu thereof a cash payment will be made, as provided in the Rights
Agreement.
No holder of this Rights Certificate shall be entitled to vote
or receive dividends or be deemed for any purpose the holder of shares of
Preferred Stock or of any other securities of the Company which may at any time
be issuable on the exercise hereof, nor shall anything contained in the Rights
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or, to
receive notice of meetings or other actions affecting stockholders (except as
provided in the Rights Agreement), or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by this Rights
Certificate shall have been exercised as provided in the Rights Agreement.
This Rights Certificate shall not be valid or obligatory for
any purpose until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the
Company and its corporate seal.
Dated as of ,
ATTEST: Imation Corp.
____________________ By_______________________
Secretary Title:
Countersigned:
Norwest Bank Minnesota, N.A.
By______________________
Authorized Signature
[Form of Reverse Side of Rights Certificate]
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Rights Certificate.)
FOR VALUE RECEIVED
hereby sells, assigns and transfer unto
________________________________________________________________________________
(Please print name and address of transferee)
this Rights Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint _________________ Attorney,
to transfer the within Rights Certificate on the books of the within-named
Company, with full power of substitution.
Dated: ___________________, 19__
__________________________________________
Signature
Signature Guaranteed:
___________________________________________
Certificate
The undersigned hereby certifies by checking the appropriate
boxes that:
(1) this Rights Certificate [ ] is [ ] is not being sold,
assigned and transferred by or on behalf of a Person who is or was an Acquiring
Person or an Affiliate or Associate of any such Acquiring Person (as such terms
are defined pursuant to the Rights Agreement);
(2) after due inquiry and to the best knowledge of the
undersigned, it [ ] did [ ] did not acquire the Rights evidenced by this Rights
Certificate from any Person who is, was or subsequently became an Acquiring
Person or an Affiliate or Associate of an Acquiring Person.
Dated: __________________, 19__ ______________________________________
Signature
Signature Guaranteed:
NOTICE
The signature to the foregoing Assignment and Certificate must
correspond to the name as written upon the face of this Rights Certificate in
every particular, without alteration or enlargement or any change whatsoever.
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to
exercise Rights represented by the
Rights Certificate.)
To: Imation Corp.:
The undersigned hereby irrevocably elects to exercise
__________ Rights represented by this Rights Certificate to purchase the shares
of Preferred Stock issuable upon the exercise of the Rights (or such other
securities of the Company or of any other person which may be issuable upon the
exercise of the Rights) and requests that certificates for such shares be issued
in the name of and delivered to:
Please insert social security
or other identifying number
_____________________________
(Please print name and address)
________________________________________________________________________________
________________________________________________________________________________
If such number of Rights shall not be all the Rights evidenced
by this Rights Certificate, a new Rights Certificate for the balance of such
Rights shall be registered in the name of and delivered to:
Please insert social security
or other identifying number
_____________________________
(Please print name and address)
________________________________________________________________________________
________________________________________________________________________________
Dated: _______________, 19__
_________________________________
Signature
Signature Guaranteed:
_____________________________
Certificate
The undersigned hereby certifies by checking the appropriate
boxes that:
(1) the Rights evidenced by this Rights Certificate [ ] are [
] are not being exercised by or on behalf of a Person who is or was an Acquiring
Person or an Affiliate or Associate of any such Acquiring Person (as such terms
are defined pursuant to the Rights Agreement);
(2) after due inquiry and to the best knowledge of the
undersigned, it [ ] did [ ] did not acquire the Rights evidenced by this Rights
Certificate from any Person who is, was or became an Acquiring Person or an
Affiliate or Associate of an Acquiring Person.
Dated: ___________, 19__ ________________________________
Signature
Signature Guaranteed:
________________________
NOTICE
The signature to the foregoing Election to Purchase and
Certificate must correspond to the name as written upon the face of this Rights
Certificate in every particular, without alteration or enlargement or any change
whatsoever.
Exhibit C
DETAILED SUMMARY OF RIGHTS TO PURCHASE
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
On June __, 1996, the Board of Directors of Imation Corp. (the
"Company") adopted a Shareholder Rights Plan, providing that one Right shall be
attached to each share of Common Stock of the Company. Each Right entitles the
registered holder to purchase from the Company a unit (a "Unit") consisting of
one one-hundredth of a share of Series A Junior Participating Preferred Stock,
par value $.01 per share (the "Preferred Stock"), at a Purchase Price of $125
per Unit (the "Purchase Price"), subject to adjustment. The description and
terms of the Rights are set forth in the Rights Agreement (the "Rights
Agreement"), dated as of June __, 1996, between the Company and Norwest Bank
Minnesota, N.A., as Rights Agent (the "Rights Agent").
Initially, the Rights will be attached to all Common Stock
certificates representing shares then outstanding, and no separate Rights
Certificate will be distributed. The Rights will separate from the Common Stock
and a Distribution Date will occur upon the earlier of (i) 10 days following a
public announcement that a person or group of affiliated or associated persons
(an "Acquiring Person") has acquired, or obtained the right to acquire,
beneficial ownership of 15% or more of the outstanding shares of Common Stock
(the "Stock Acquisition Date") or (ii) 10 business days (or such later date as
may be determined by the Board of Directors) following the commencement of a
tender offer or exchange offer that would result in a person or group
beneficially owning 15% or more of such outstanding shares of Common Stock.
Until the Distribution Date, (i) the Rights will be evidenced by the Common
Stock certificates and will be transferred with and only with such Common Stock
certificates, (ii) new Common Stock certificates will contain a notation
incorporating the Rights Agreement by reference and (iii) the surrender for
transfer of any certificates for Common Stock outstanding will also constitute
the transfer of the Rights associated with the Common Stock represented by such
certificate.
The Rights are not exercisable until the Distribution Date and
will expire at the close of business on July 1, 2006 unless earlier redeemed or
extended by the Company as described below.
As soon as practicable after the Distribution Date, Rights
Certificates will be mailed to holders of record of the Common Stock as of the
close of business on the Distribution Date and, thereafter, the separate Rights
Certificates alone will represent the Rights.
In the event that a person becomes an Acquiring Person (except
pursuant to a tender or exchange offer for all outstanding shares of the
Company, at a price determined by a majority of the independent Directors of the
Company who are not representatives, nominees, Affiliates or Associates of an
Acquiring Person to be fair and otherwise in the best interest of the Company
and its stockholders after receiving advice from one or more investment banking
firms (an "Approved Offer")), each holder of a Right will thereafter have the
right to receive, upon exercise, Common Stock (or, in certain circumstances,
cash, property or other securities of the Company), having a value equal to two
times the Purchase Price. Notwithstanding any of the foregoing, following the
occurrence of any of the events set forth in this paragraph (the "Flip-In
Events"), all Rights that are, or (under certain circumstances specified in the
Rights Agreement) were, beneficially owned by any Acquiring Person will be null
and void. However, Rights are not exercisable following the occurrence of any of
the Flip-In Events set forth above until such time as the Rights are no longer
redeemable by the Company as set forth below.
In the event that following the Stock Acquisition Date, (i)
the Company engages in a merger or business combination transaction in which the
Company is not the surviving corporation (other than a merger consummated
pursuant to an Approved Offer); (ii) the Company engages in a merger or business
combination transaction in which the Company is the surviving corporation and
the Common Stock of the Company is changed or exchanged; or (iii) 50% or more of
the Company's assets or earning power is sold or transferred, each holder of a
Right (except Rights which have previously been voided as set forth above) shall
thereafter have the right to receive, upon exercise of the Right, Common Stock
of the acquiring company having a value equal to two times the Purchase Price of
the Right.
At any time until 10 days following the Stock Acquisition
Date, the Company may redeem the Rights in whole, but not in part, at a price of
$0.01 per Right. Immediately upon the action of the Board of Directors ordering
redemption of the Rights, the Rights will terminate and the only right of the
holders of Rights will be to receive the $0.01 redemption price.
Until a Right is exercised, the holder thereof, as such, will
have no rights as a stockholder of the Company, including, without limitation,
the right to vote or to receive dividends. While the distribution of the Rights
will not be taxable to stockholders or to the Company, stockholders may,
depending upon the circumstances, recognize taxable income in the event that the
Rights become exercisable for Common Stock (or other consideration) of the
Company as set forth above.
Any of the provisions of the Rights Agreement may be amended
by the Board of Directors of the Company prior to the Distribution Date. After
the Distribution Date, the provisions of the Rights Agreement may be amended by
the Board in order to cure any ambiguity, to make changes which do not adversely
affect the interests of holders of Rights (excluding the interest of any
Acquiring Person), or to shorten or lengthen any time period under the Rights
Agreement; provided, however, that no amendment to adjust the time period
governing redemption shall be made at such time as the Rights are not
redeemable.
A copy of the Rights Agreement is being filed with the
Securities and Exchange Commission as an Exhibit to a Registration Statement on
Form 10 filed by the Company. A copy of the Rights Agreement is available free
of charge from the Company. This Summary Description of the Rights does not
purport to be complete and is qualified in its entirety by reference to the
Rights Agreement, which is incorporated herein by reference.
FORM OF
CERTIFICATE OF DESIGNATION, PREFERENCES
AND RIGHTS OF SERIES A JUNIOR
PARTICIPATING PREFERRED STOCK
of
Imation Corp.
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
The undersigned officers of Imation Corp., a corporation
organized and existing under the General Corporation Law of the State of
Delaware, in accordance with the provisions of Section 103 thereof, DO HEREBY
CERTIFY:
That pursuant to the authority conferred upon the Board of
Directors by the Certificate of Incorporation of the said Corporation, the said
Board of Directors on June __, 1996 adopted the following resolution creating a
series of 1,000,000 shares of Preferred Stock designated as Series A Junior
Participating Preferred Stock:
RESOLVED, that pursuant to the authority vested in the Board
of Directors of this Corporation in accordance with the provisions of its
Certificate of Incorporation, a series of Preferred Stock of the Corporation be
and it hereby is created, and that the designation and amount thereof and the
voting powers, preferences and relative, participating, optional and other
special rights of the shares of such series, and the qualifications, limitations
or restrictions thereof are as follows:
Section 1. Designation and Amount. The shares of such series
shall be designated as "Series A Junior Participating Preferred Stock" and the
number of shares constituting such series shall be 1,000,000.
Section 2. Dividends and Distributions.
(A) The holders of shares of Series A Junior Participating
Preferred Stock shall be entitled to receive, when, as and if declared by the
Board of Directors out of funds legally available for the purpose, quarterly
dividends payable in cash on the last day of March, June, September and December
in each year (each such date being referred to herein as a "Quarterly Dividend
Payment Date"), commencing on the first Quarterly Dividend Payment Date after
the first issuance of a share or fraction of a share of Series A Junior
Participating Preferred Stock, in an amount per share (rounded to the nearest
cent) equal to the greater of (a) $1.00 or (b) subject to the provision for
adjustment hereinafter set forth, 100 times the aggregate per share amount of
all cash dividends, and 100 times the aggregate per share amount (payable in
kind) of all non-cash dividends or other distributions other than a dividend
payable in shares of Common Stock or a subdivision of the outstanding shares of
Common Stock (by reclassification or otherwise), declared on the Common Stock,
par value $.01 per share, of the Corporation (the "Common Stock") since the
immediately preceding Quarterly Dividend Payment Date, or, with respect to the
first Quarterly Dividend Payment Date, since the first issuance of any share or
fraction of a share of Series A Junior Participating Preferred Stock. In the
event the Corporation shall at any time after June __, 1996 (the "Rights
Declaration Date") (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares (in each instance,
other than any issuance or distribution of shares of Common Stock contemplated
by the Transfer and Distribution Agreement being entered into between the
Corporation and Minnesota Mining & Manufacturing Company (the "Distribution
Agreement")), then in each such case the amount to which holders of shares of
Series A Junior Participating Preferred Stock were entitled immediately prior to
such event under clause (b) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution
on the Series A Junior Participating Preferred Stock as provided in Paragraph
(A) above immediately after it declares a dividend or distribution on the Common
Stock (other than a dividend payable in shares of Common Stock); provided that,
in the event no dividend or distribution shall have been declared on the Common
Stock during the period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $1.00 per share on the
Series A Junior Participating Preferred Stock shall nevertheless be payable on
such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Junior Participating Preferred Stock from the
Quarterly Dividend Payment Date next preceding the date of issue of such shares
of Series A Junior Participating Preferred Stock, unless the date of issue of
such shares is prior to the record date for the first Quarterly Dividend Payment
Date, in which case dividends on such shares shall begin to accrue from the date
of issue of such shares, or unless the date of issue is a Quarterly Dividend
Payment Date or is a date after the record date for the determination of holders
of shares of Series A Junior Participating Preferred Stock entitled to receive a
quarterly dividend and before such Quarterly Dividend Payment Date, in either of
which events such dividends shall begin to accrue and be cumulative from such
Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear
interest. Dividends paid on the shares of Series A Junior Participating
Preferred Stock in an amount less than the total amount of such dividends at the
time accrued and payable on such shares shall be allocated pro rata on a
share-by-share basis among all such shares at the time outstanding. The Board of
Directors may fix a record date for the determination of holders of shares of
Series A Junior Participating Preferred Stock entitled to receive payment of a
dividend or distribution declared thereon, which record date shall be no more
than 30 days prior to the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series A
Junior Participating Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set
forth, each share of Series A Junior Participating Preferred Stock shall entitle
the holder thereof to 100 votes on all matters submitted to a vote of the
stockholders of the Corporation. In the event the Corporation shall at any time
after the Rights Declaration Date (i) declare any dividend on Common Stock
payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock,
or (iii) combine the outstanding Common Stock into a smaller number of shares
(in each instance, other than any issuance or distribution of shares of Common
Stock contemplated by the Distribution Agreement), then in each such case the
number of votes per share to which holders of shares of Series A Junior
Participating Preferred Stock were entitled immediately prior to such event
shall be adjusted by multiplying such number by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
(B) Except as otherwise provided herein or by law, the holders
of shares of Series A Junior Participating Preferred Stock and the holders of
shares of Common Stock shall vote together as one class on all matters submitted
to a vote of stockholders of the Corporation.
(C) (i) If at any time dividends on any Series A Junior
Participating Preferred Stock shall be in arrears in an amount equal to six (6)
quarterly dividends thereon, the occurrence of such contingency shall mark the
beginning of a period (herein called a "default period") which shall extend
until such time when all accrued and unpaid dividends for all previous quarterly
dividend periods and for the current quarterly dividend period on all shares of
Series A Junior Participating Preferred Stock then outstanding shall have been
declared and paid or set apart for payment. During each default period, all
holders of Preferred Stock (including holders of the Series A Junior
Participating Preferred Stock) with dividends in arrears in an amount equal to
six (6) quarterly dividends thereon, voting as a class, irrespective of series,
shall have the right to elect two (2) Directors.
(ii) During any default period, such voting right of
the holders of Series A Junior Participating Preferred Stock may be
exercised initially at a special meeting called pursuant to
subparagraph (iii) of this Section 3(C) or at any annual meeting of
stockholders, and thereafter at annual meetings of stockholders,
provided that such voting right shall not be exercised unless the
holders of ten percent (10%) in number of shares of Preferred Stock
outstanding shall be present in person or by proxy. The absence of a
quorum of the holders of Common Stock shall not affect the exercise by
the holders of Preferred Stock of such voting right. At any meeting at
which the holders of Preferred Stock shall exercise such voting right
initially during an existing default period, they shall have the right,
voting as a class, to elect Directors to fill such vacancies, if any,
in the Board of Directors as may then exist up to two (2) Directors or,
if such right is exercised at an annual meeting, to elect two (2)
Directors. If the number which may be so elected at any special meeting
does not amount to the required number, the holders of the Preferred
Stock shall have the right to make such increase in the number of
Directors as shall be necessary to permit the election by them of the
required number. After the holders of the Preferred Stock shall have
exercised their right to elect Directors in any default period and
during the continuance of such period, the number of Directors shall
not be increased or decreased except by vote of the holders of
Preferred Stock as herein provided or pursuant to the rights of any
equity securities ranking senior to or pari passu with the Series A
Junior Participating Preferred Stock.
(iii) Unless the holders of Preferred Stock shall,
during an existing default period, have previously exercised their
right to elect Directors, the Board of Directors may order, or any
stockholder or stockholders owning in the aggregate not less than ten
percent (10%) of the total number of shares of Preferred Stock
outstanding, irrespective of series, may request, the calling of
special meeting of the holders of Preferred Stock, which meeting shall
thereupon be called by the President, a Vice-President or the Secretary
of the Corporation. Notice of such meeting and of any annual meeting at
which holders of Preferred Stock are entitled to vote pursuant to this
Paragraph (C)(iii) shall be given to each holder of record of Preferred
Stock by mailing a copy of such notice to him or her at his or her last
address as the same appears on the books of the Corporation. Such
meeting shall be called for a time not earlier than 20 days and not
later than 60 days after such order or request or in default of the
calling of such meeting within 60 days after such order or request,
such meeting may be called on similar notice by any stockholder or
stockholders owning in the aggregate not less than ten percent (10%) of
the total number of shares of Preferred Stock outstanding.
Notwithstanding the provisions of this Paragraph (C)(iii), no such
special meeting shall be called during the period within 60 days
immediately preceding the date fixed for the next annual meeting of the
stockholders.
(iv) In any default period, the holders of Common
Stock, and other classes of stock of the Corporation if applicable,
shall continue to be entitled to elect the whole number of Directors
until the holders of Preferred Stock shall have exercised their right
to elect two (2) Directors voting as a class, after the exercise of
which right (x) the Directors so elected by the holders of Preferred
Stock shall continue in office until their successors shall have been
elected by such holders or until the expiration of the default period,
and (y) any vacancy in the Board of Directors may (except as provided
in Paragraph (C)(ii) of this Section 3) be filled by vote of a majority
of the remaining Directors theretofore elected by the holders of the
class of stock which elected the Director whose office shall have
become vacant. References in this Paragraph (C) to Directors elected by
the holders of a particular class of stock shall include Directors
elected by such Directors to fill vacancies as provided in clause (y)
of the foregoing sentence.
(v) Immediately upon the expiration of a default
period, (x) the right of the holders of Preferred Stock as a class to
elect Directors shall cease, (y) the term of any Directors elected by
the holders of Preferred Stock as a class shall terminate, and (z) the
number of Directors shall be such number as may be provided for in the
certificate of incorporation or by-laws irrespective of any increase
made pursuant to the provisions of Paragraph (C)(ii) of this Section 3
(such number being subject, however, to change thereafter in any manner
provided by law or in the certificate of incorporation or by-laws). Any
vacancies in the Board of Directors effected by the provisions of
clauses (y) and (z) in the preceding sentence may be filled by a
majority of the remaining Directors.
(D) Except as set forth herein, holders of Series A Junior
Participating Preferred Stock shall have no special voting rights and their
consent shall not be required (except to the extent they are entitled to vote
with holders of Common Stock as set forth herein) for
taking any corporate action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Junior Participating Preferred Stock as
provided in Section 2 are in arrears, thereafter and until all accrued and
unpaid dividends and distributions, whether or not declared, on shares of Series
A Junior Participating Preferred Stock outstanding shall have been paid in full,
the Corporation shall not
(i) declare or pay dividends on, make any
other distributions on, or redeem or purchase or otherwise acquire for
consideration any shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series
A Junior Participating Preferred Stock;
(ii) declare or pay dividends on or make any
other distributions on any shares of stock ranking on a parity (either
as to dividends or upon liquidation, dissolution or winding up) with
the Series A Junior Participating Preferred Stock, except dividends
paid ratably on the Series A Junior Participating Preferred Stock and
all such parity stock on which dividends are payable or in arrears in
proportion to the total amounts to which the holders of all such shares
are then entitled;
(iii) redeem or purchase or otherwise
acquire for consideration shares of any stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or winding up)
with the Series A Junior Participating Preferred Stock, provided that
the Corporation may at any time redeem, purchase or otherwise acquire
shares of any such parity stock in exchange for shares of any stock of
the Corporation ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series A Junior
Participating Preferred Stock; or
(iv) purchase or otherwise acquire for
consideration any shares of Series A Junior Participating Preferred
Stock, or any shares of stock ranking on a parity with the Series A
Junior Participating Preferred Stock, except in accordance with a
purchase offer made in writing or by publication (as determined by the
Board of Directors) to all holders of such shares upon such terms as
the Board of Directors, after consideration of the respective annual
dividend rates and other relative rights and preferences of the
respective series and classes, shall determine in good faith will
result in fair and equitable treatment among the respective series or
classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under Paragraph (A) of
this Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
Section 5. Reacquired Shares. Any shares of Series A Junior
Participating Preferred Stock purchased or otherwise acquired by the Corporation
in any manner whatsoever shall be retired and cancelled promptly after the
acquisition thereof. All such shares shall upon their cancellation become
authorized but unissued shares of Preferred Stock and may be reissued as part of
a new series of Preferred Stock to be created by resolution or resolutions of
the Board of Directors, subject to the conditions and restrictions on issuance
set forth herein.
Section 6. Liquidation, Dissolution or Winding Up. (A) Upon
any liquidation (voluntary or otherwise), dissolution or winding up of the
Corporation, no distribution shall be made to the holders of shares of stock
ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Junior Participating Preferred Stock unless, prior
thereto, the holders of shares of Series A Junior Participating Preferred Stock
shall have received an amount equal to 100 times the Exercise Price, plus an
amount equal to accrued and unpaid dividends and distributions thereon, whether
or not declared, to the date of such payment (the "Series A Liquidation
Preference"). Following the payment of the full amount of the Series A
Liquidation Preference, no additional distributions shall be made to the holders
of shares of Series A Junior Participating Preferred Stock unless, prior
thereto, the holders of shares of Common Stock shall have received an amount per
share (the "Common Adjustment") equal to the quotient obtained by dividing (i)
the Series A Liquidation Preference by (ii) 100 (as appropriately adjusted as
set forth in subparagraph (C) below to reflect such events as stock splits,
stock dividends and recapitalizations with respect to the Common Stock) (such
number in clause (ii), the "Adjustment Number"). Following the payment of the
full amount of the Series A Liquidation Preference and the Common Adjustment in
respect of all outstanding shares of Series A Junior Participating Preferred
Stock and Common Stock, respectively, holders of Series A Junior Participating
Preferred Stock and holders of shares of Common Stock shall receive their
ratable and proportionate share of the remaining assets to be distributed in the
ratio of the Adjustment Number to 1 with respect to such Preferred Stock and
Common Stock, on a per share basis, respectively.
(B) In the event, however, that there are not sufficient
assets available to permit payment in full of the Series A Liquidation
Preference and the liquidation preferences of all other series of preferred
stock, if any, which rank on a parity with the Series A Junior Participating
Preferred Stock, then such remaining assets shall be distributed ratably to the
holders of such parity shares in proportion to their respective liquidation
preferences. In the event, however, that there are not sufficient assets
available to permit payment in full of the Common Adjustment, then such
remaining assets shall be distributed ratably to the holders of Common Stock.
(C) In the event the Corporation shall at any time after the
Rights Declaration Date (i) declare any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii)
combine the outstanding Common Stock into a smaller number of shares, then in
each such case the Adjustment Number in effect immediately prior to such event
shall be adjusted by multiplying such Adjustment Number by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the Corporation
shall enter into any consolidation, merger, combination or other transaction in
which the shares of Common Stock are exchanged for or changed into other stock
or securities, cash and/or any other property, then in any such case the
shares of Series A Junior Participating Preferred Stock shall at the same time
be similarly exchanged or changed in an amount per share (subject to the
provision for adjustment hereinafter set forth) equal to 100 times the aggregate
amount of stock, securities, cash and/or any other property (payable in kind),
as the case may be, into which or for which each share of Common Stock is
changed or exchanged. In the event the Corporation shall at any time after the
Rights Declaration Date (i) declare any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii)
combine the outstanding Common Stock into a smaller number of shares (in each
instance, other than any issuance or distribution of shares of Common Stock
contemplated by the Distribution Agreement), then in each such case the amount
set forth in the preceding sentence with respect to the exchange or change of
shares of Series A Junior Participating Preferred Stock shall be adjusted by
multiplying such amount by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 8. No Redemption. The shares of Series A Junior
Participating Preferred Stock shall not be redeemable.
Section 9. Amendment. The Certificate of Incorporation of the
Corporation shall not be further amended in any manner which would materially
alter or change the powers, preferences or special rights of the Series A Junior
Participating Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of a majority or more of the outstanding shares
of Series A Junior Participating Preferred Stock, voting separately as a class.
Section 10. Fractional Shares. Series A Junior Participating
Preferred Stock may be issued in fractions of a share which shall entitle the
holder, in proportion to such holders fractional shares, to exercise voting
rights, receive dividends, participate in distributions and to have the benefit
of all other rights of holders of Series A Junior Participating Preferred Stock.
IN WITNESS WHEREOF, we have executed and subscribed this
Certificate and do affirm the foregoing as true under the penalties of perjury
this __th day of _______________, 1996.
Imation Corp.
_________________________________
Name:
Title:
Attest:
_______________________________
Secretary
