SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE YEAR ENDED DECEMBER 31, 1996
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO________
COMMISSION FILE NUMBER: 1-14310
IMATION CORP.
(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 55128
OAKDALE, MINNESOTA (Zip Code)
(Address of principal executive offices)
(612) 704-4000
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of each exchange
Title of each class on which registered
- ------------------------------- ------------------------------------
Common Stock, $.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 REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or Section 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by Reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Aggregate market value of voting stock of Imation Corp. held by
nonaffiliates of the Registrant, based on the closing price of $26.625 as
reported on the New York Stock Exchange on February 28, 1997: $1,134 million.
The number of shares outstanding of the Registrant's common stock on
February 28, 1997 was 42,627,470.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's 1996 Annual Report to Shareholders are
incorporated by reference into Parts I, II and IV, and portions of
Registrant's Proxy Statement for Registrant's 1997 Annual Meeting are
incorporated by reference into Part III.
PART I
ITEM 1. BUSINESS.
INTRODUCTION
Imation Corp. (together with its subsidiaries, "Imation" or the
"Company") was incorporated as a Delaware corporation in March 1996. The
Company's principal executive offices are located at 1 Imation Place, Oakdale,
Minnesota 55128 (telephone number (612) 704-4000). Prior to July 1, 1996,
Minnesota Mining and Manufacturing Company ("3M") operated the Company's
business through various divisions and subsidiaries.
The Company was formed as a result of the decision by 3M to spin-off a
separate company comprised of substantially all of the businesses previously
operated within 3M's data storage and imaging systems groups (the "Transferred
Businesses"). To effectuate the transaction, on June 18, 1996, the Board of
Directors of 3M declared a dividend payable to the holders of record of 3M
common stock as of June 28, 1996, based upon a ratio of one share of the
Company's common stock, par value $0.01 per share (the "Common Stock") for every
ten shares of 3M common stock owned on the record date. Effective July 1, 1996
(the "Distribution Date"), all of the outstanding shares of Common Stock were
distributed to 3M stockholders (the "Distribution"). In connection with the
Distribution, 3M and the Company entered into various agreements to facilitate
the transition of the Company to an independent business enterprise. See
"Relationship Between 3M and the Company." As used herein, references to the
"Company" or "Imation" include the historical operating results and activities
of the business and operations which comprise the Company today.
BUSINESS DESCRIPTION
The Company develops, manufactures and markets a wide variety of
products and services worldwide for the information processing industry,
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, medical imaging, photographic imaging, and commercial and consumer
markets. Approximately 57% of the Company's revenues in 1996 were derived from
products and services utilizing digital technologies. In addition, a number of
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
today, the Company is expanding its opportunities to serve the growing needs of
its customers to create, process, manipulate, store, reproduce and distribute
increasing amounts of information and images through the use of digital
technologies. The Company intends to leverage its existing market positions to
increase the use of its products and services as well as to expand its
opportunities in the information processing industry by developing more complete
workflow solutions based on digital technologies.
The Company operates in a single 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>
1996 1995 1994
---- ---- ----
(MILLIONS)
REVENUE BY CLASSES OF SIMILAR PRODUCTS OR SERVICES
<S> <C> <C> <C>
Data Storage Products $ 923.0 $ 930.7 $ 935.4
Printing and Publishing Systems 529.9 542.2 566.0
Medical Imaging Systems and Photo Color Products 673.2 608.1 589.1
Other 152.1 164.6 190.0
-------- -------- --------
Total $ 2,278.2 $ 2,245.6 $ 2,280.5
-------- -------- --------
</TABLE>
The Company does business in more than 60 countries and nearly half of the
Company's revenues are derived internationally. Expectations are for this
percentage to grow over time. The Company reports its operating results in three
geographic areas--United States, Europe/Middle East/Africa, and Latin
America/Asia/Canada. Financial information by geographic area can be found in
Note 10 to the Company's Consolidated Financial Statements appearing on page 53
of the Company's 1996 Annual Report to Shareholders.
Data Storage Products
The Company is the world's largest supplier and developer of branded
removable data storage media, in both magnetic and optical formats. The Company
also is a supplier of CD-ROM and laser disc replication and software services
provided to software developers. The Company's products include:
* 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 do not need
to be retrieved on a frequent basis. Travan cartridges more
than double the storage capacity of the prior mini-cartridge.
Used primarily on desktop personal computer systems, local
area networks and workstation computer systems, the Travan
cartridges make up a family of innovative products that were
introduced in 1995 through the joint efforts of 3M, Hewlett
Packard Company and a group of drive manufacturers. The
Company maintains 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.
* 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 notebook personal computer
systems, and also in workstations, word processors and
computer control equipment. In April 1996, the Company
released the LS-120 diskette, a "next generation" 3.5-inch
diskette with a formatted capacity of 120 MB. The LS-120
diskette provides more than 80 times the storage capacity of a
standard diskette, and is read/write backward-compatible with
the installed base of more than 5 billion 1.44 MB and 720 KB
DOS-formatted diskettes. The LS-120 technology was originally
developed as part of the Laser Servo 120 MB program in which
the Company, Compaq Computer Corporation and MKE are
co-developers. In late 1996 and early 1997, drive
manufacturers MKE and Mitsubishi Electric Corp. announced that
their production facilities are capable of producing LS-120
drives in high volumes, and OR Technology announced a
strategic alliance with Kaifa Group, one of the largest
computer component manufacturers in China, to mass produce an
ultra slim-line LS-120 drive for notebook computers in 1997.
Several leading PC original equipment manufacturers, including
Compaq Computer Corporation and two European companies,
Siemens Nixdorf Information Systems AG and Fujitsu ICL
Computers, Ltd., have announced plans to integrate LS-120
drives into certain of their PC lines.
* Rewritable optical disks including magneto-optical (90mm and
130mm), phase change disks (PD) 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 multi-user/client server computer
installations.
* Laserdiscs, CD-ROM and DVD-ROM products produced on a
made-to-order basis and used for the distribution of data and
software to the personal computer and mid-range markets. The
Company recently announced it will begin offering full DVD-ROM
manufacturing, mastering, replication, packaging and
fulfillment services from the Company's Menomonie, Wisconsin
facility beginning in late 1997. DVD is a high-density, next
generation compact disc, identical in size and appearance to
current CDs.
Printing and Publishing Systems
The Company manufactures and markets products and provides service and
technical support for the printing, publishing and graphic arts markets.
Products include conventional color proofing systems, digital color proofing
systems and software, pre-press software (Luminous), laser films and image
setting materials, metal 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(TM) 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 offers a two-page digital
proofing system (the Rainbow(TM) model 2730 digital proofer) and will be
introducing later in 1997 a two-page digital proofer for professional
applications (the Rainbow(TM) model 2740 digital proofer). The Company has also
announced it will expand its line of Rainbow(TM) color proofers with a new
four-page (A2 size) ink jet digital proofing solution for users who require
large format, contract quality proofs. The new Rainbow(TM) model 4700 proofer is
expected to be available during the second quarter of 1997. In addition, in 1996
the Company announced the development of two new Viking(TM) metal laser plates
and a third infrared thermal plate, which were designed for computer-to-plate
printing technology. The Company began shipping the two new Viking(TM) laser
plates in December 1996 and expects to introduce the third plate in the third
quarter of 1997.
In October 1996, the Company acquired Luminous Corporation of Seattle,
Washington, a developer and marketer of desktop software for the prepress, print
production, printing and graphic arts industries. Luminous' portfolio of desktop
prepress software products strengthens the Company's existing digital
capabilities through its Rainbow(TM) digital color proofing systems and Color
Locking Software. As an increasing number of commercial printing operations are
moving their production processes to the desktop and are expanding their use of
color and networked computing, the need for integrated digital workflow
solutions is dramatically increasing. The acquisition of Luminous, combined with
the Company's expertise in digital proofing, color science and high-capacity
digital storage, expands the Company's leadership in prepress workflow software
to speed development of integrated digital prepress solutions.
In addition to expanding its offerings of digital workflow solutions,
the Company intends to continue to develop its conventional product lines. In
1996, the Company announced plans to leverage its proprietary dry film
technology in the medical imaging industry to develop a proprietary new dry
imagesetting film for the printing industry. The dry imagesetting film will be
used in a new family of dry film imagesetters being developed by systems
developers including Scitex Corporation Ltd., ECRM Incorporated and Ultre
Division of Linotype-Hell Company, and is expected to be available in mid-1997.
The Company also has announced it intends to introduce a new line of
high-quality, medium-run "no-process" printing plates in mid 1997. The
advantages to the user of both the dry imagesetting film and the "no-process"
plates include reduced operating costs, increased productivity and the
elimination of "wet chemistry" processing resulting in substantial benefits to
the environment. During 1996, the Company also expanded its line of films and
bases available for its conventional proofing systems by introducing new large
format Matchprint(TM) color proofing films and bases. In November 1996, the
Company announced its strategic decision to discontinue manufacturing 3M(TM)
Onyx(TM) polyester printing plates effective June 30, 1997. The decision to exit
the Onyx business was made to allow the Company to focus on strategic
conventional and digital platforms and to align the Company's product mix with
the Company's strategy of focusing on higher value-added products and services.
Medical Imaging Systems and Photo Color Products
The Company develops, manufactures and markets diagnostic imaging film,
film processors and imaging systems for both X-ray and electronic imaging
systems. The Company's customers include major hospital network buying groups as
well as individual hospitals and medical imaging centers. 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 10,000 laser imagers installed worldwide. In late 1995, the Company
began shipping its proprietary 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 laser imagers represent a significant technological
breakthrough and offer significant cost savings, productivity gains and
environmental benefits to the health care industry. In 1996, the Company
introduced a new desk-top version of the DryView laser imager, which
conveniently may be located in a variety of settings. As of December 31, 1996,
the Company had shipped more than 1,500 units of its DryView laser imaging
systems. Through an alliance with 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 products and
other medical imaging equipment and Cemax-Icon redistributes such products on an
integrated basis with its own software products.
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, which
represents approximately 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 also
manufactures single use cameras 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(TM) brand. The Company
continues to use certain 3M trademarks and tradenames including the Scotch brand
for a period of time following the Distribution. See "Relationship Between 3M
and the Company--Intellectual Property Agreement." These products and brands are
positioned as a high value, comparable quality alternative to global brands such
as Kodak and Fuji.
In 1996, the Company announced the development of a new product that
allows desktop computer users to print photo-quality images on color ink jet
printers. The new photographic paper for ink jet printers is believed to provide
superior image quality and color reproduction, and significantly faster drying
time than competitive products. The new product, which was designed for use with
a variety of color ink jet printers, is expected to be available during the
first half of 1997 through mass retail and photo stores.
Customer Service Technology
The Company's team of field service technicians provides technical
servicing and other post-sale technical support for equipment sold by the
Company and by 3M. The Company offers 24 hour information and customer support
telephone lines for the products it supports. Customers also benefit from
user-friendly product documentation and training programs in a variety of
languages. The Company intends to expand its technical service and support
capabilities to assist customers with the installation, service, support,
integration and optimization of equipment and systems offered for sale by the
Company and other manufacturers.
Document Imaging
The Company supplies office and engineering document archiving and
management systems and produces and distributes black-and-white dry photographic
papers and films for the industrial imaging market.
INDUSTRY BACKGROUND
The information processing industry in which the Company operates is
concerned with the creation, capture, manipulation, storage, production and
distribution of information. In data storage and imaging applications in which
the Company specializes, the industry has been profoundly impacted by
advancements in digital technologies. Digital technologies provide much needed
information processing solutions as users are required to use, manage and store
more complex information in less time and with fewer resources and greater
accuracy. The industry is also being profoundly impacted by the availability of
new methods of transporting and accessing data through software developments,
networking and the development of the World Wide Web.
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 a double digit rate 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 enhanced enabling software that increases the applications and usage
rates and the developing need by customers to manipulate, store and protect even
larger databases. 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. 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 users continue to use conventional materials for certain processes in
their workflows while utilizing the speed of digital processing.
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, Konica, KAO and Du Pont. The Company also
competes in certain product markets with smaller, more specialized firms such as
Polychrome, Scitex America, ADAC and Iomega. 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.
SALES, MARKETS AND DISTRIBUTION METHODS
The Company's products and services are sold directly to users through
the Company's field sales organizations and through numerous wholesalers,
retailers, jobbers, distributors and dealers in over 60 countries. No one
customer individually accounts for a material amount of the Company's total
sales.
RAW MATERIALS
The principal raw materials used by the Company are silver, polyester
film and aluminum. The Company makes significant purchases of these and other
materials and components used in the Company's manufacturing operations from
many domestic and foreign sources. The Company has been able to obtain
sufficient materials and components from sources around the world to meet its
needs. 3M continues to be a major supplier to the Company of certain raw
materials and intermediate products including film, specialty chemicals and
abrasives, and certain contract manufacturing services, primarily equipment
assembly services. See "Relationship Between 3M and the Company--Supply, Service
and Contract Manufacturing 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 research and development expenses were $183.1 million, $222.4 million,
and $211.2 million for 1996, 1995 and 1994, respectively. The Company expects
its research and development expenses, as a percent of total revenues, to remain
in the 7-8% range during the next several years.
In connection with the Distribution, the Company was granted rights, on
both exclusive and non-exclusive bases, from 3M and others which enable it to
continue to use the intellectual property previously utilized by the Company
when it was part of 3M. See "Relationship Between 3M and the
Company--Intellectual Property Agreement." The Company does not consider that
its business as a whole is materially 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.
MANUFACTURING
During 1996 the Company consolidated its manufacturing facilities by
centralizing such operations into the United States and Italy. This
consolidation was implemented in order 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 systems. In August
1996, the Company sold its offset printing plate production facility in Sulmona,
Italy, and in connection with the sale the Company entered into a contract with
the purchaser of the facility to supply the Company with Viking(TM) printing
plates for the European market. The Company has also announced it will close its
manufacturing facility in Rochester, New York by June 30, 1997. Costs associated
with this plant closing were recorded by the Company in its 1995 and 1996
consolidated financial statements.
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 and magnetic and optical recording,
give the Company a strong technological base to take advantage of the
opportunities in the evolving information processing industry.
EMPLOYEES
In connection with the Distribution, the Company achieved significant
cost reductions through changes in its corporate structure, including a more
than 20 percent reduction in head count from the levels prior to the
Distribution. As of December 31, 1996, the Company had approximately 9,400
employees, approximately 5,500 in the United States and 3,900 internationally.
As of December 31, 1995, the Company had approximately 12,300 employees, which
included both direct employees and indirect equivalent positions in staff
services functions at 3M which historically provided services to the Company's
businesses prior to the Distribution. Approximately 1,600 positions were reduced
prior to the Distribution Date through employee separation programs and as a
result of the consolidation of the Company's manufacturing operations. The
separation costs associated with these reductions were recorded by the Company
in its 1996 consolidated financial statements. Most of the cash requirements of
the separation programs were funded by 3M. In addition, approximately 1,100
staff services equivalent positions remained with 3M. The Company continues to
incur some of the costs related to the staff services support provided by these
employees through a services agreement with 3M. See "Relationship Between 3M and
the Company--Corporate Services Transition Agreement."
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. In connection with the Distribution, the
Company assumed and agreed to indemnify 3M from all liabilities relating to,
arising out of or resulting from (i) operations at the Company's facilities as
conducted prior to the Distribution Date; (ii) the disposal of hazardous
materials from the Company's facilities before the Distribution Date and at
disposal sites operated by third parties ("Superfund Sites"), where such
liabilities are discovered after the Distribution Date, or (iii) operations of
the Company's businesses on and after the Distribution Date. 3M agreed to retain
responsibility for environmental liabilities relating to former premises which
may have been associated with the Company's businesses prior to the Distribution
Date and known Superfund Sites associated with the Company's properties as of
the Distribution Date.
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 December 31, 1996, the Company had reserved approximately $6
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.
RELATIONSHIP BETWEEN 3M AND THE COMPANY
For purposes of governing certain of the relationships between 3M and
the Company following the Distribution, 3M and the Company entered into the
Transfer and Distribution Agreement and various ancillary agreements to which
they are parties, including those described below. Certain of these agreements
have been filed as exhibits to this Form 10-K, and the following summaries are
qualified in their entirety by reference to the agreements as filed.
Transfer and Distribution Agreement
3M and the Company have entered into the Transfer and 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.
Tax Sharing and Indemnification Agreement
3M and the Company 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 that the Company shall indemnify 3M for any income
taxes 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 certain actions taken by the
Company or any of its subsidiaries. Prior to the Distribution, 3M received a
ruling from the Internal Revenue Service that 3M shareholders who received
shares of the Company's common stock in connection with the Distribution would
not recognize income, gain or loss upon receipt of such shares, except in
connection with any cash received in lieu of fractional shares. 3M also
generally agreed to pay all other taxes (other than those which are imposed
solely on the Company) that are payable in connection with the Distribution and
the transactions related to it the liability for which arose on or before the
Distribution Date. 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 entered into a Corporate Services Transition
Agreement (the "Corporate Services Agreement") pursuant to which 3M 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 provided to the
Transferred Businesses prior to the Distribution Date. 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 costs associated with the services provided by 3M are either a
fixed dollar amount based on the estimated cost of the services provided, or an
amount 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 entered into corporate services agreements pursuant to which 3M agreed to
provide to such subsidiaries services similar to those being provided to the
Company pursuant to the Corporate Services Agreement. The cost of all such
services supplied by 3M to the Company during the last six months of 1996
totaled approximately $51 million.
Environmental Matters Agreement
3M and the Company 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 assumed and
agreed to indemnify 3M for all liabilities relating to, arising out of or
resulting from (i) operations at the Company's facilities as conducted before
the Distribution Date; (ii) the disposal of hazardous materials from the
Company's facilities before the Distribution Date and 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 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 properties of the Transferred Businesses on
or before the Distribution Date.
Intellectual Property Agreement
3M and the Company entered into an Intellectual Property Rights
Agreement (the "Intellectual Property Agreement") pursuant to which 3M granted
to the Company, effective as of the Distribution Date, 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 operated as of the Distribution Date and non-exclusively
in certain other fields. In addition, 3M transferred to the Company title to
certain intellectual property rights previously used by the Transferred
Businesses, subject to certain rights of 3M 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 is granted the right to use certain
3M trademarks under a royalty-bearing license. Trademarks used only by the
Transferred Businesses were assigned to the Company as of the Distribution Date.
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 are 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 licensed party's
enforcement of patents requires prior approval by the party owning the patent.
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 is required to pay a royalty, which the
Company believes is reasonable, through cash payments, commitments to purchase
product from 3M and/or engaging in certain other activities benefiting 3M.
The parties have agreed to 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 have entered into joint development agreements
pursuant to which the parties will assist each other in the development of new
products following the Distribution Date. The relationship between the parties
under the agreements varies from simple purchased research to shared product
development.
3M and the Company agreed not to compete with each other in their
respective businesses for a period of five years following the Distribution
Date. 3M agreed that, except for ancillary activity involving an insubstantial
business, it would 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 was engaged as of the Distribution
Date). The Company agreed that, except for ancillary activity involving an
insubstantial business, it would 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 3M was engaged as of the Distribution
Date). 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 and Contract Manufacturing Agreements
3M and the Company 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 supplies to the Company certain raw material and
intermediate products including film, specialty chemicals and abrasives and
provides to the Company certain contract manufacturing services, primarily
equipment assembly services. Under the Supply Agreements, the Company supplies
to 3M certain semi-finished products and components and provides to 3M certain
contract manufacturing and other services, including converting, slitting and
coating services and technical field service. The prices for products supplied
by either party under the Supply Agreements are 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
are based on costs incurred plus an 8% mark-up. The net cost to the Company of
all such transactions between 3M and the Company totaled approximately $60
million in 1996.
Shared Facility and Lease Agreements
3M and the Company entered into various lease agreements with respect
to certain facilities (the "Shared Facility Agreements") at which 3M and the
Company share space. With respect to each of these facilities, the party that is
the owner (or primary tenant) of the facility leases 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 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. The amount paid by 3M to the Company during the
last six months of 1996 with respect to Shared Facility Agreements totaled
approximately $400,000 and the amount paid by the Company to 3M during the same
period and for the same purpose totaled approximately $9 million.
The Company has commenced construction of an office building and
research and development facilities at its headquarters site in Oakdale in order
to consolidate its headquarters operations. The Company will continue to lease
certain laboratory and manufacturing space from 3M following the consolidation
of its headquarters operations. See "Item 2. Properties."
CAUTIONARY STATEMENT RELATING TO FORWARD-LOOKING INFORMATION FOR THE PURPOSE
OF "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
The Company and its representatives may from time to time make written
or oral forward-looking statements with respect to future goals of the Company,
including statements contained in this Form 10-K, the Company's other filings
with the Securities and Exchange Commission and in the Company's reports to
shareholders.
The words or phrases "will likely result," "are expected to," "will
continue," "is anticipated," "estimate," "project," "believe" or similar
expressions identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such statements are subject to
certain risks and uncertainties that could cause actual results to differ
materially from historical results and those presently anticipated or projected.
The Company wishes to caution readers not to place undue reliance on any such
forward looking statements, which speak only as of the date made. Among the
factors that could cause the Company's actual results in the future to differ
materially from any opinions or statements expressed with respect to future
periods are the following:
The Company's Ability to Establish a New Brand and Identity. 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 entered into with 3M, the Company continues to have the use of
certain 3M trademarks for an agreed upon period of time following the
Distribution. The Company has made and continues to make significant investments
in the development of the Company's identity and brand. However, 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.
Competitive Industry Conditions. 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 rapid technological
change, frequent new product introductions, evolution to digital business
solutions, and declining prices. In these highly competitive markets, the
Company's success will depend to a significant extent on its ability to continue
to develop and introduce differentiated and innovative products and customer
solutions successfully on a timely basis. The success of the Company's offerings
is dependent on several factors including understanding customer needs, strong
digital technology, differentiation from competitive offerings, market
acceptance and lower costs. Although the Company believes that it can take the
necessary steps to meet the competitive challenges of these marketplaces, no
assurance can be given with regard to the 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.
Changing Industry Environment. The information processing industry is
undergoing rapid technological change. 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
solutions using digital technologies. While the Company has a number of
successful digital products and significant proprietary technologies, the
Company's success will depend, in part, on the Company's ability to anticipate
the growing uses of digital technologies. In addition, new technological
innovations generally require a substantial investment before any assurance is
available as to their commercial viability.
The Company's Ability to Establish Independent Business Processes. The
Company is making significant investments in establishing the Company's
information technology infrastructure and in re-engineering the Company's
business processes. Prior to the Distribution, these and other corporate
services were provided to the Transferred Businesses by 3M. For a transition
period following the Distribution, 3M is continuing to provide such services to
the Company. However, during this transitional period the Company must establish
its own services and support systems independent of 3M.
International Operations and Foreign Currency. The Company does
business in more than 60 countries outside the United States. International
operations, which comprised approximately 49% of the Company's revenues in 1996,
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, 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. In addition, the Company's
business and financial results are affected by fluctuations in world financial
markets, including foreign currency exchange rates. The Company's foreign
currency hedging policy attempts to mitigate some of these risks; however, these
risk management activities are not comprehensive and there can be no assurance
that these programs will offset more than a portion of the adverse financial
impact resulting from unfavorable movements in foreign exchange rates.
Fluctuations in Operating Results. The Company began operations as an
independent public company on July 1, 1996 and therefore does not have a lengthy
operating history as an independent company. The Company's businesses, as
operated by 3M prior to the Distribution, experienced slight declines in total
annual revenues during the three year period ending December 31, 1995. The
Company's goal is to reverse this historical trend and achieve sustainable
revenue growth. The Company's strategy to achieve revenue growth is to expand
international penetration of current products and services in higher growth
regions of the world, to expand sales of the Company's products to its existing
customer base, and to develop new products and services for the information
processing industry based on proprietary technologies. While the Company's
revenues increased slightly in 1996 primarily as a result of sales of newly
introduced product platforms, there can be no assurance that the Company will be
successful in achieving sustainable revenue growth in the future. The Company's
stock price may be subject to significant volatility. If revenue or earnings in
any quarter fail to meet the investment community's expectations, there could be
an immediate impact on the Company's stock price. The stock price may also be
affected by broader market trends unrelated to the Company's performance.
Future Capital Requirements. 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. This financial
support is no longer available to the Company and the Company is now responsible
for obtaining its own financing. The Company believes that its credit
facilities, cash flow from operations and future long- and short-term debt
financings, will be sufficient to satisfy its foreseeable future working
capital, capital expenditures, research and development and debt service
requirements.
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company, together with their ages and
business experience, are set forth below.
WILLIAM T. MONAHAN, age 50, is Chairman of the Board, President and
Chief Executive Officer of the Company. From June 1993 to March 1996, he was
Group Vice President responsible for 3M's 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 3M's Data Storage Products
Division.
CAROLYN A. BATES, age 50, is the Company's General Counsel and
Secretary. From 1991 to July 1, 1996, she was Assistant Chief Intellectual
Property Counsel of 3M.
STEPHEN S. BROWN, age 47, joined the Company in August 1996 as the
Company's Chief Information Officer. From 1995 to August 1996 he was Vice
President of Corporate Technology for Genmar Holdings, Inc. (manufacturer of
recreational boats). From 1992 to 1995 he served as Executive Consultant for
Diversified Information Technologies, Inc. (information technology consulting).
From 1990 to 1992 Mr. Brown served as Director of Enterprise Integration &
Telecommunications for The Pillsbury Company (produces food products).
JILL D. BURCHILL, age 42, is the Company's Chief Financial Officer.
From April 1995 to July 1, 1996, she was Sector Controller for 3M's Information,
Imaging and Electronic Sector. From May 1993 to April 1995, she was Group
Controller for 3M's Memory Technology Group, and from July 1990 to May 1993, she
was Financial Manager for 3M's Audio/Video Products Division.
DR. KRZYSZTOF K. BURHARDT, age 54, is Vice President, Technology
Development for the Company. From July 1991 to July 1, 1996, he was Research and
Development Vice President for 3M's Information, Imaging and Electronic Sector.
WILMER G. DEBOER, age 52, is General Manager, Customer Support
Technology and Document Imaging for the Company. From July 1993 to July 1, 1996,
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, age 53, is Vice President, Talent Effectiveness and
Customer First Development for the Company. He previously served as Vice
President, Marketing and Public Affairs for the Company. On February 1, 1997 he
also became responsible for the Company's human resources. From March 1994 to
July 1, 1996, he was Vice President of 3M's Data Storage Markets Division, and
from May 1992 to February 1994, he was General Manager of that division. From
February 1991 to January 1992, he was Sales Department Manager of 3M's Data
Storage Products Division. From July 1988 to January 1991, he was Group
Director, Europe, for 3M's Memory Technology Group.
BARRY R. MELCHIOR, age 53, is Director, Corporate Engineering and
Manufacturing Services for the Company. From April 1995 to July 1, 1996, he was
Engineering Director of 3M's Information, Imaging and Electronic Sector. From
August 1993 to April 1995, he was Engineering Manager for 3M's Tape Group, and
from January 1991 to August 1993 he was Plant Manager for 3M's Traffic Control
Materials Division plant in Brownwood, Texas.
DAVID G. MELL, age 50, is Vice President, Corporate Business Processes
for the Company. He was Vice President of 3M's Data Storage Tape Technology
Division from May 1995 to July 1, 1996, Vice President of 3M's Data Storage
Diskette and Optical Technology Division from March 1994 to April 1995, and
General Manager of that division from May 1992 to February 1994. He was
Department Manager of 3M's Computer Tape Technology Department, Data Storage
Products Division, from September 1989 to April 1992.
RICHARD W. NORTHROP, age 58, is 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 July 1, 1996, 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, age 54, is Vice President, Operations--Printing
and Publishing Systems. From 1994 to July 1, 1996, he was Vice President of 3M's
Printing and Publishing Systems Division and from 1992 to 1994, he was General
Manager of 3M's Audio and Video Technology Division. From 1989 to 1992, he was
Department Manager of 3M's Data Storage Products Division.
CLIFFORD T. PINDER, age 50, is Vice President, Operations--Medical
Imaging Systems and Photo Products. From March 1994 to July 1, 1996, he was Vice
President of 3M's Medical Imaging Systems Division, and from July 1993 to March
1994, he was Vice President of 3M's Photo Color Systems Division. 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, age 52, is Vice President, Operations--Data
Storage Products. He was General Manager of Data Storage Diskette Technology
Division from May 1995 to July 1, 1996, 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, age 40, is Corporate Controller. From July 1995 to
July 1, 1996, he was Group Controller for 3M's Memory Technologies Group and
from March 1992 to July 1995, he was Group Controller for 3M Europe's Medical
Group. From September 1989 to March 1992, he was the Financial Manager for 3M's
Commercial Office Supply Division.
DEBORAH D. WEISS, age 41, is Treasurer of the Company. From 1988 to
July 1, 1996, she was Manager of 3M's Benefit Funds Investment.
DAVID H. WENCK, age 53, is Vice President in charge of the Company's
international operations. From May 1995 to July 1, 1996, 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.
ITEM 2. PROPERTIES
The Company's headquarters are located in Oakdale, Minnesota. The
Company is in the process of constructing an office building and research and
development facilities at its Oakdale site in order to consolidate its
headquarters operations. The costs of construction of these research and
development facilities will be financed through a synthetic lease financing
arrangement. Construction of these facilities will enable the Company to
re-locate approximately 1,100 employees currently located in facilities being
leased by the Company from 3M. The Company's major facilities (all of which are
owned by the Company, except where noted), and the products manufactured at such
facilities are listed below. The Company's facilities are in good operating
condition suitable for their respective uses and adequate for the Company's
current needs.
FACILITY PRODUCTS
Domestic
Camarillo, California Data tape
Fremont, California (leased) CD-ROM
Menomonie, Wisconsin (leased) Laserdisc, CD-ROM and DVD-ROM
Middleway, W. Virginia Printing plates
Nekoosa, Wisconsin Carbonless paper
Oakdale, Minnesota Headquarters
Pine City, Minnesota Micrographic cards
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
Breda, Netherlands (leased) CD-ROM services
Milan, Italy (leased) Administrative
Rotterdam, Netherlands (leased) Administrative
Ferrania, Italy X-ray films/photographic film
Florida, Argentina X-ray films
Harlow, United Kingdom Research facility
London, Ontario, Canada Administrative
ITEM 3. LEGAL PROCEEDINGS
In connection with the Distribution, the Company assumed substantially
all liabilities for legal proceedings relating to the Company's businesses as
conducted prior to the Distribution Date. See "Relationships Between 3M and the
Company--Transfer and Distribution Agreement." In addition, in the normal course
of business, the Company is subject to proceedings, lawsuits and other claims,
including proceedings under laws and regulations related to environmental and
other matters. All such matters are subject to many uncertainties and outcomes
that are not predictable with assurance. Consequently, the Company is unable to
ascertain the ultimate aggregate amount of monetary liability or financial
impact with respect to these matters as of December 31, 1996. While these
matters could materially affect operating results of any one quarter when
resolved in future periods, it is management's opinion that after final
disposition, any monetary liability or financial impact to the Company beyond
that provided in the consolidated balance sheet as of December 31, 1996 would
not be material to the Company's financial position or annual results of
operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
As of February 28, 1997, there were 42,627,470 shares of the Company's
common stock, $.01 par value ("Common Stock"), outstanding held by approximately
67,394 shareholders of record. The Company's Common Stock is listed on the New
York and Chicago Stock Exchanges. The Company did not pay any dividends during
1996. Future dividends will be determined by the Board of Directors.
In connection with the Company's acquisition of Luminous Corporation,
on October 11, 1996, the Company issued 922,845 shares of the Company's Common
Stock to the shareholders of Luminous Corporation in exchange for all of the
issued and outstanding shares of that company. The issuance of the shares of
Common Stock did not involve a public offering and was exempt from registration
pursuant to Section 4(2) of the Securities Act of 1933, as amended.
The following table sets forth, for the periods indicated, the high and
low sales prices of Common Stock as reported on the New York Stock Exchange
Composite Transactions. The Company's Common Stock commenced regular way trading
on the New York Stock Exchange on July 15, 1996.
PERIOD SALES PRICES
------ ------------
HIGH LOW
---- ---
Third Quarter 1996 $26.25 $20.38
Fourth Quarter 1996 $33.00 $22.75
ITEM 6. SELECTED FINANCIAL DATA.
The information for the years 1991 through 1996 contained on page 33 of
the Company's 1996 Annual Report to Shareholders is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The information set forth in the section entitled "Management's
Discussion and Analysis" on pages 34 through 40 of the Company's 1996 Annual
Report to Shareholders is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information on pages 41 through 58 of the Company's 1996 Annual
Report to Shareholders is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information contained in the sections entitled "Information
Concerning Directors" and "Section 16(a) Beneficial Ownership Reporting
Compliance" contained in the Company's Proxy Statement for its 1997 Annual
Shareholders Meeting is incorporated herein by reference. See also "Executive
Officers of the Company" in Part I above.
ITEM 11. EXECUTIVE COMPENSATION.
The sections entitled "Compensation of Executive Officers" and
"Compensation of Directors" contained in the Company's Proxy Statement for its
1997 Annual Shareholders Meeting is incorporated herein by reference. The
information appearing under the heading "Committee Report on Executive
Compensation" is not incorporated herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information contained in the sections entitled "Security Ownership
of Certain Beneficial Owners" and "Security Ownership of Management" contained
in the Company's Proxy Statement for its 1997 Annual Shareholders Meeting is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Not applicable.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS:
Report of Independent Accountants (incorporated herein by reference to
page 58 of the Company's 1996 Annual Report to Shareholders).
Consolidated Statements of Operations for the Years Ended December 31,
1996, 1995 and 1994 (incorporated herein by reference to page 41 of the
Company's 1996 Annual Report to Shareholders).
Consolidated Balance Sheets as of December 31, 1996 and 1995
(incorporated herein by reference to page 42 of the Company's 1996
Annual Report to Shareholders).
Consolidated Statements of Cash Flows for the Years Ended December 31,
1996, 1995 and 1994 (incorporated herein by reference to page 43 of the
Company's 1996 Annual Report to Shareholders).
Notes to Consolidated Financial Statements (incorporated herein by
reference to pages 44 through 57 of the Company's 1996 Annual Report to
Shareholders).
2. FINANCIAL STATEMENT SCHEDULES
All financial statement schedules are omitted because of the absence of
the conditions under which they are required or because the required information
is included in the Consolidated Financial Statements or the notes thereto.
3. EXHIBITS
3.1 Restated Certificate of Incorporation of the Registrant
(incorporated by reference to Exhibit 3.1 to Registration
Statement on Form 10, No. 1-14310)
3.2 Amended and Restated By-Laws of the Registrant
4.1 Rights Agreement, dated as of June 18, 1996 between the
Registrant and Norwest Bank Minnesota, N.A., as Rights Agent
(incorporated by reference to Exhibit 4.1 to Registration
Statement on Form 10, No. 1-14310)
4.2 Certificate of Designations, Preferences and Rights of Series
A Junior Participating Preferred Stock of the Registrant
(incorporated by reference to Exhibit 4.2 to Registration
Statement on Form 10, No. 1-14310)
10.1 Transfer and Distribution Agreement, dated as of July 1, 1996,
between Minnesota Mining and Manufacturing Company ("3M") and
the Registrant (incorporated by reference to Exhibit 2.1 to
Registration Statement on Form 10, No. 1-14310)
10.2 Tax Sharing and Indemnification Agreement, dated as of July 1,
1996 between 3M and the Registrant (incorporated by reference
to Exhibit 10.1 to Registration Statement on Form 10, No.
1-14310)
10.3. Corporate Services Transition Agreement, dated as of July 1,
1996 between 3M and the Registrant (incorporated by reference
to Exhibit 10.2 to Registration Statement on Form 10, No.
1-14310)
10.4 Environmental Matters Agreement dated as of July 1, 1996
between 3M and the Registrant (incorporated by reference to
Exhibit 10.3 to Registration Statement on Form 10, No.
1-14310)
10.5 Intellectual Property Rights Agreement, dated as of July 1,
1996 between 3M and the Registrant (incorporated by reference
to Exhibit 10.4 to Registration Statement on Form 10, No.
1-14310)
10.6 Supply Agreement, dated as of July 1, 1996, between 3M and the
Registrant (incorporated by reference to Exhibit 10.5 to
Registration Statement on Form 10, No. 1-14310)
10.7 Lease Agreement dated as of July 1, 1996 between 3M and the
Registrant (incorporated by reference to Exhibit 10.6 to
Registration Statement on Form 10, No. 1-14310)
10.8* Employment Agreement, dated as of July 1, 1996, between
William T. Monahan and the Registrant (incorporated by
reference to Exhibit 10.7 to Registration Statement on Form
10, No. 1-14310)
10.9* Imation 1996 Employee Stock Incentive Program (incorporated by
reference to Exhibit 10.8 to Registration Statement on Form
10, No. 1-14310)
10.10* Imation Excess Benefit Plan (incorporated by reference to
Exhibit 10.10 to Registration Statement on Form 10, No.
1-14310)
10.11* Imation 1996 Retirement Investment Plan (incorporated by
reference to Exhibit 10.11 to Registration Statement on Form
10, No. 1-14310)
10.12* Imation 1996 Directors Stock Compensation Program, as Amended
10.13* Form of Indemnity Agreement between the Company and each of
its directors
11 Computation of Common Shares and Common Share Equivalents
13 Portions of the Company's 1996 Annual Report to Shareholders
21 Subsidiaries of the Registrant
23 Consent of Coopers & Lybrand L.L.P.
24 Powers of Attorney
27 Financial Data Schedule
The Company undertakes to furnish to the Commission upon request a copy of the
Company's Credit Agreement dated July 1, 1996 among the Company, certain lenders
who are parties thereto, and Citicorp USA, Inc., as Administrative Agent.
*Items that are management contracts or compensatory plans or arrangements
required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.
(b) REPORTS ON FORM 8-K
Not applicable.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
IMATION CORP.
By: /s/ William T. Monahan
-----------------------
William T. Monahan
CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
Date: March 31, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
NAME TITLE DATE
---- ----- ----
/s/ William T. Monahan Chairman, President, Chief March 31, 1997
- ------------------------------- Executive Officer and Director
William T. Monahan (principal executive officer)
/s/ Jill D. Burchill Chief Financial Officer March 31, 1997
- --------------------------------- (principal financial officer)
Jill D. Burchill
/s/ James R. Stewart Corporate Controller March 31, 1997
- --------------------------------- (principal accounting officer)
James R. Stewart
* Director March 31, 1997
- ---------------------------------
Lawrence E. Eaton
* Director March 31, 1997
- ---------------------------------
Linda W. Hart
* Director March 31, 1997
- ---------------------------------
William W. George
* Director March 31, 1997
- ---------------------------------
Ronald T. LeMay
* Director March 31, 1997
- ---------------------------------
Marvin L. Mann
* Director March 31, 1997
- ---------------------------------
Mark A. Pulido
* Director March 31, 1997
- ---------------------------------
Daryl J. White
By: /s/ Carolyn A. Bates
- ---------------------------------
Carolyn A. Bates
Attorney-in-fact
</TABLE>
EXHIBIT 3.2
IMATION CORP.
BYLAWS
As Amended October 24, 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, witness or participant in or 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 or as a witness or participant 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.
EXHIBIT 10.12
IMATION CORP.
1996 DIRECTORS STOCK COMPENSATION PROGRAM
(AS AMENDED - JANUARY 24, 1997)
SECTION 1. PURPOSE
The purpose of the 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. It is
intended that the 1996 Directors Stock Compensation Program will provide for the
granting to participants of stock options, restricted stock, restricted stock
units, common stock and/or other stock-based awards.
The Program is designed and intended to comply with Rule 16b-3 under
the Securities Exchange Act of 1934, as amended, as such Rule may be amended
from time to time, and shall be interpreted in a manner consistent with the
requirements thereof, as now or hereafter construed, interpreted and applied by
regulations, rulings and cases.
SECTION 2. DEFINITIONS
(a) "Accounting Date" shall mean the first business day following the
annual meeting of stockholders of the Company; provided, that for the Plan Year
that begins on the Effective Date, Accounting Date shall mean the Effective
Date.
(b) "Basic Fee" shall mean the annual retainer payable to an Eligible
Director with respect to each Plan Year (at the annual rate in effect on the
Accounting Date of such Plan Year) for such Eligible Director's services on the
Board and as the chairperson of any committee of the Board (exclusive of any
Meeting Fees).
(c) "Board" shall mean the Board of Directors of the Company.
(d) "Change in Control Price" of the Common Stock shall equal the
higher of (i) if applicable, the price paid for the Common Stock in the
transaction constituting a Change in Control (as defined in Section 10) and (ii)
the Fair Market Value of the Common Stock as of the last trading day preceding
the date of the Change in Control.
(e) "Committee" shall mean the Compensation Committee of the Board.
(f) "Common Stock" shall mean the common stock, par value $.01 per
share, of the Company.
(g) "Company" shall mean Imation Corp.
(h) "Distribution" shall mean the distribution by Minnesota Mining and
Manufacturing Company to its stockholders of shares of Common Stock of the
Company.
(i) "Dividend Equivalent Right" shall mean a right, described in
Section 7(b) hereof, of a holder of Restricted Stock Units with respect to
certain dividends paid on outstanding shares of Common Stock.
(j) "Effective Date" shall mean the effective date of the Distribution.
(k) "Election Form" shall mean the Election Form attached as Exhibit A
hereto or such other form as may be deemed acceptable by the Secretary of the
Company from time to time.
(l) "Eligible Director" shall mean each member of the Board who is not
at the time of reference an employee of the Company or any of its subsidiaries.
(m) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(n) "Fair Market Value" as of any date shall mean the average of the
high and low prices for Common Stock on such date, as reported on the New York
Stock Exchange Composite Transactions, rounded upwards to the nearest $0.05;
provided, however that the Fair Market Value as of the Effective Date shall mean
the average of the daily averages of the high and low prices for Common Stock,
as reported on the New York Stock Exchange Composite Transactions, on each day
during the five consecutive trading days commencing on the Effective Date,
rounded upwards to the nearest $0.05.
(o) "Meeting Fees" shall mean the amounts payable to an Eligible
Director in arrears on any Quarterly Payment Date with respect to attendance at
meetings of the Board or any committee of the Board (exclusive of any Basic
Fee).
(p) "Options" shall mean the stock options issued pursuant to Section 5
or 8 hereof.
(q) "Plan Year" shall mean the twelve-month period commencing on the
Accounting Date; provided, that the first Plan Year of the Program shall
commence on the Effective Date and end on the date of the first annual meeting
of stockholders of the Company.
(r) "Program" shall mean the Company's 1996 Directors Stock
Compensation Program, as amended from time to time.
(s) "Proration Fraction" shall mean a fraction, the numerator of which
is the number of days from the date an Eligible Director first becomes an
Eligible Director to the date of the next succeeding annual meeting of
stockholders and the denominator of which is 365.
(t) "Quarterly Payment Date" shall mean the date established by the
Company from time to time for payment, in arrears, of all Meeting Fees earned by
Eligible Directors during the preceding three-month period.
(u) "Restricted Stock Unit" shall mean a right to receive payment of
the Fair Market Value of one share of Common Stock in accordance with the
conditions set forth in Section 7 hereof or conditions established by the
Committee pursuant to Section 8 hereof.
(v) "Restricted Stock" shall mean Common Stock subject to the
restrictions set forth in Section 6 hereof or restrictions established by the
Committee pursuant to Section 8 hereof.
(w) "Rule 16b-3" shall mean Rule 16b-3 under the Exchange Act, as such
Rule may be amended from time to time.
SECTION 3. ADMINISTRATION
The Program shall be administered by the Committee. In administering
the Program, it will be necessary to follow various laws and regulations. It may
be necessary from time to time to change or waive requirements of the Program to
conform with the law, to meet special circumstances not anticipated or covered
in the Program, or to carry on successful operation of the Program, and in
connection therewith, the Committee shall have the full power and authority to:
(a) Prescribe, amend, and rescind rules and regulations relating to the
Program, establish procedures deemed appropriate for its administration, and
make any and all other determinations not herein specifically authorized which
may be necessary or advisable for its effective administration;
(b) Make any amendments to or modifications of the Program which may be
required or necessary to make the Program set forth herein comply with the
provisions of any laws, federal or state, or any regulations issued thereunder,
and to cause the Company at its expense to take any action related to the
Program which may be required under such laws or regulations;
(c) Contest on behalf of the Eligible Directors or the Company, at the
sole discretion of the Committee and at the expense of the Company, any ruling
or decision on any issue related to the Program, and conduct any such contest
and any resulting litigation to a final determination, ruling, or decision; and
(d) Grant other stock-based awards under the Program, as provided in
Section 8 hereof.
SECTION 4. SHARES SUBJECT TO THE PROGRAM
(a) No more than 800,000 shares of Common Stock, subject to adjustment
pursuant to Section 9 hereof, shall be available for issuance under the Program.
(b) Shares of Common Stock issued under the Program may consist in
whole or in part of authorized and unissued shares or of treasury shares, and no
fractional shares shall be issued under the Program. Cash shall be paid in lieu
of any fractional shares issuable under the Program.
SECTION 5. ANNUAL GRANT OF OPTIONS
(a) Annual Grant.
(i) As of the Effective Date, each Eligible Director
shall automatically be granted an Option pursuant to the
Program to purchase 10,000 shares of Common Stock.
(ii) Following the Effective Date, each new Eligible
Director (one who has not previously been granted Options
under this Section 5) shall automatically be granted an Option
pursuant to this Section 5 to purchase the number of whole
shares of Common Stock equal to 10,000 multiplied by the
Proration Fraction, as of the date such Eligible Director
first becomes an Eligible Director.
(iii) Following the Effective Date, each Eligible
Director who continues to serve on the Board immediately
following an annual meeting of stockholders shall be granted
an Option to purchase 10,000 shares of Common Stock as of the
date of such meeting.
(iv) All Options granted under this Section 5 shall
be granted at an option price equal to the Fair Market Value
of the Common Stock on the date of grant.
(b) Terms and Conditions of Options.
(i) Subject to paragraph (ii) below, each Option
granted under this Section 5 shall vest and become exercisable
as to all shares of Common Stock underlying such Option on the
date of the annual meeting of stockholders next succeeding the
date of grant.
(ii) Notwithstanding paragraph (i) above, all
outstanding and previously unvested Options of an Eligible
Director granted under this Section 5 shall immediately vest
and become fully exercisable upon the Eligible Director's
death or disability or upon a Change of Control (as defined in
Section 10). If an Eligible Director otherwise terminates
service as an Eligible Director, any Options granted under
this Section 5 that have not become exercisable shall be
forfeited as of the date of such termination of service.
Subject to the foregoing, each Option shall expire on the date
that is ten years following the date of grant (the "Expiration
Date").
(iii) Options shall be exercised by written notice to
the Secretary of the Company in such form as is from time to
time prescribed by the Committee and by the payment in full,
in cash or previously owned shares of Common Stock, of the
aggregate option price of the shares of Common Stock for which
the Option is being exercised. To the extent that an Option is
not exercised by an optionee when it becomes initially
exercisable, it shall not expire but shall be carried forward
and shall be exercisable until the Expiration Date. Partial
exercise shall be permitted from time to time, provided that
partial exercises shall be in multiples of one hundred shares
of Common Stock.
(iv) If for any reason during the term of a vested,
unexercised and unexpired Option, the Eligible Director shall
cease to be a member of the Board, such Option may be
exercised, to the extent exercisable at the time of such
termination of service, by the Eligible Director (or, in the
event of such Eligible Director's death, such Eligible
Director's estate) until the earlier of (A) the second
anniversary of the date that the Eligible Director ceases to
be a member of the Board and (B) the Expiration Date.
SECTION 6. ANNUAL GRANT OF RESTRICTED STOCK
(a) Annual Grant.
(i) As of each Accounting Date commencing with the
Effective Date, each Eligible Director shall automatically be
granted a number of shares of Restricted Stock (excluding
fractional shares, which shall be paid in cash), the number of
which shall be calculated by dividing 25% of his or her Basic
Fee payable with respect to the Plan Year that commences on
such Accounting Date by the Fair Market Value of one share of
Common Stock on such Accounting Date.
(ii) Each new Eligible Director who is first elected
to the Board between annual meetings of stockholders shall
automatically be granted a number of shares of Restricted
Stock (excluding fractional shares, which shall be paid in
cash), the number of which shall be calculated by (A)
multiplying 25% of his or her Basic Fee payable with respect
to the Plan Year in which the Eligible Director is first
elected to the Board by the Proration Fraction and (B)
dividing the product resulting from clause (A) by the Fair
Market Value of one share of Common Stock on the date that the
Eligible Director is first elected to the Board.
(b) Terms and Conditions of Restricted Stock.
(i) Vesting. Each share of Restricted Stock granted
under this Section 6 shall vest in full on the third
anniversary of the date of grant; provided, however, that all
outstanding and previously unvested shares of Restricted Stock
of an Eligible Director granted under this Section 6 shall
immediately vest in full upon the Eligible Director's death or
disability or upon a Change of Control (as defined in Section
10).
(ii) Restrictions on Transfer. Until shares of
Restricted Stock vest in accordance with paragraph (b)(i) of
this Section 6, such shares may not be sold, assigned,
transferred, pledged, hypothecated or otherwise disposed of or
encumbered, and no attempt to transfer such shares, whether
voluntary or involuntary, by operation of law or otherwise,
shall vest the transferee with any interest or right in or
with respect to such shares.
(iii) Issuance and Custody of Certificate. The
Company shall cause to be issued one or more stock
certificates, registered in the name of the Eligible Director,
evidencing the shares of Restricted Stock. Each such
certificate shall bear the following legend:
"The transferability of this certificate and the shares of
Common Stock represented hereby are subject to the restrictions, terms
and conditions (including restrictions against transfer) contained in
the Imation Corp. 1996 Directors Stock Compensation Program. Copies of
such Program are on file with the Secretary of Imation Corp. at the
principal executive offices of Imation Corp."
Each certificate issued pursuant to this Section 6 shall be
deposited by the Company with the Secretary of the Company or a
custodian designated by the Secretary. Upon request, the Secretary or
such custodian shall issue a receipt to the Eligible Director
evidencing the certificate or certificates held which are registered in
the name of the Eligible Director. After any shares of Restricted Stock
vest in accordance with paragraph (b)(i) of this Section 6, the Company
shall promptly cause to be issued a certificate or certificates
evidencing such vested shares, free of the legend provided above and
shall cause such certificate or certificates and any additional shares
of Common Stock, any securities and any other property held in custody
with respect to such vested shares pursuant to paragraph (b)(iv) of
this Section 6 to be delivered to the Eligible Director or the Eligible
Director's legal representatives, beneficiaries or heirs.
(iv) Distributions and Adjustments. If all or any portion of
the shares of Restricted Stock vest in the Eligible Director subsequent
to any change in the number or character of the shares of Common Stock
(through merger, consolidation, reorganization, recapitalization, stock
dividend or otherwise), the Eligible Director shall then receive upon
such vesting the number and type of securities or other consideration
which the Eligible Director would have received if such shares had
vested prior to the event changing the number or character of
outstanding shares of Common Stock. Any additional shares of Common
Stock, any other securities of the Company and any other property
(except for cash dividends or other cash distributions) distributed
with respect to the shares of Restricted Stock prior to the date the
shares of Restricted Stock vest shall be subject to the same
restrictions, terms and conditions as the shares of Restricted Stock.
Any cash dividends or other cash distributions payable with respect to
the shares of Restricted Stock shall be distributed to the Eligible
Director at the same time cash dividends or other cash distributions
are distributed to stockholders of the Company generally. Any
additional shares of Common Stock, any securities and any other
property (except for cash dividends or other cash distributions)
distributed with respect to the shares of Restricted Stock prior to the
date such shares vest shall be promptly deposited with the Secretary or
the custodian designated by the Secretary to be held in custody in
accordance with paragraph (b)(iii) of this Section 6.
(v) Rights of Holder. Eligible Directors shall have none of
the rights of a shareholder with respect to shares of Restricted Stock
until such shares shall have vested in the Eligible Director as
provided herein, except the rights to receive all cash dividends or
other cash distributions and the right to vote.
SECTION 7. ELECTIONS TO RECEIVE
COMMON STOCK OR RESTRICTED STOCK UNITS
(a) Elections.
(i) For the Plan Year commencing with the Effective Date, each
Eligible Director shall have the option, at his or her election, to
receive as of November 14, 1996, in lieu of cash payment therefor, a
number of shares of Common Stock (excluding fractional shares, which
shall be paid in cash) and/or Restricted Stock Units (including
fractional Restricted Stock Units), up to the number which is
calculated by dividing 50% of his or her Basic Fee payable with respect
to such Plan Year by the Fair Market Value of one share of Common Stock
on November 14, 1996. To be effective, any such election shall be made
by submitting a completed and executed Election Form to the Secretary
of the Company prior to November 14, 1996.
(ii) As of each Accounting Date following the Effective Date,
each Eligible Director shall have the option, at his or her election,
to receive, in lieu of cash payment therefor, a number of shares of
Common Stock (excluding fractional shares, which shall be paid in cash)
and/or Restricted Stock Units (including fractional Restricted Stock
Units) up to the number which is calculated by dividing 75% of his or
her Basic Fee payable with respect to the Plan Year that commences on
such Accounting Date by the Fair Market Value of one share of Common
Stock on such Accounting Date. To be effective, any such election shall
be made by submitting a completed and executed Election Form to the
Secretary of the Company prior to such Accounting Date.
(iii) Each new Eligible Director who is first elected to the
Board between annual meetings of stockholders shall have the option, at
his or her election, to receive, in lieu of cash payment therefor, a
number of shares of Common Stock (excluding fractional shares, which
shall be paid in cash) and/or Restricted Stock Units (including
fractional Restricted Stock Units) up to the number owhich is
calculated by (A) multiplying 75% of his or her Basic Fee payable with
respect to the Plan Year in which the Eligible Director is first
elected to the Board by the Proration Fraction and (B) dividing the
product resulting from clause (A) by the Fair Market Value of one share
of Common Stock on the date that the Eligible Director is first elected
to the Board. To be effective, any such election shall be made by
submitting a completed and executed Election Form to the Secretary of
the Company prior to the date that the Eligible Director is first
elected to the Board.
(iv) As of each Quarterly Payment Date following November 14,
1996, each Eligible Director shall have the option, at his or her
election, to receive, in lieu of cash payment therefor, a number of
shares of Common Stock (excluding fractional shares, which shall be
paid in cash) and/or Restricted Stock Units (including fractional
Restricted Stock Units) up to the number which is calculated by
dividing the amount of his or her Meeting Fees payable on such
Quarterly Payment Date by the Fair Market Value of one share of Common
Stock on such Quarterly Payment Date. To be effective, any such
election shall be made by submitting a completed and executed Election
Form to the Secretary of the Company prior to the immediately preceding
Quarterly Payment Date or, in the case of the first Quarterly Payment
Date following November 14, 1996, prior to November 14, 1996.
(b) Terms and Conditions of Restricted Stock Units.
(i) Restricted Stock Unit Account. Upon the grant of
Restricted Stock Units to an Eligible Director, such units shall be
credited to an account established for such Eligible Director. Each
Eligible Director shall receive an annual statement showing the number
of Restricted Stock Units that have been credited to the Eligible
Director's account under the Program.
(ii) Dividend Equivalent Rights. Outstanding Restricted Stock
Units shall be credited with Dividend Equivalent Rights based upon
dividends paid on outstanding shares of Common Stock from the date such
Restricted Stock Units are granted to the date of payment in respect of
such Restricted Stock Units. Such Dividend Equivalent Rights, once
credited, shall be converted into an equivalent number of Restricted
Stock Units (including fractional Restricted Stock Units). If a
dividend is paid in cash, each Eligible Director shall be credited, as
of each applicable dividend payment date, in accordance with the
following formula:
(A x B) / C
in which "A" equals the number of Restricted Stock Units held by the
Eligible Director on the dividend payment date, "B" equals the cash
dividend per share and "C" equals the Fair Market Value per share of
Common Stock on the dividend payment date. If a dividend is paid in
property other than cash, Dividend Equivalent Rights shall be credited,
as of the applicable dividend payment date, in accordance with the
formula set forth above, except that "B" shall equal the fair market
value per share of the property that the Eligible Director would have
received in respect of the number of shares of Common Stock equal to
the number of Restricted Stock Units held by the Eligible Director as
of the dividend payment date, had such shares been owned as of the
record date for such dividend.
(iii) Time of Payment. All payments in respect of an Eligible
Director's Restricted Stock Units shall be made as soon as practicable
following the earlier of (A) the date the Eligible Director has elected
to receive payment pursuant to the applicable Election Form and (B) the
occurrence of a Change in Control.
(iv) Form of Payment. Payment in respect of Restricted Stock
Units shall be made in one lump sum payment in the form of shares of
Common Stock. For purposes of the preceding sentence, any payment made
upon the occurrence of a Change in Control in full or partial payment
of Restricted Stock Units shall equal the Change in Control Price
multiplied by the number of shares (including fractional shares) of
Common Stock relating to the Restricted Stock Units with respect to
which such cash payment is being made.
SECTION 8. OTHER STOCK-BASED AWARDS
The Committee is hereby authorized to grant Eligible Directors such
other awards under the Program that are denominated or payable in, valued in
whole or in part by reference to, or otherwise based on or related to, shares of
Common Stock, as are deemed by the Committee to be consistent with the purpose
of the Program (including, without limitation, Options, Restricted Stock or
Restricted Stock Units in lieu of or in addition to those granted pursuant to
Sections 5, 6 and 7 hereof, respectively); provided, however, that such grants
must comply with Rule 16b-3 and applicable law. Subject to the terms of the
Program and any applicable award agreement, the Committee shall determine the
terms and conditions of any such awards.
SECTION 9. EFFECTS OF CERTAIN CHANGES IN CAPITALIZATION
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 Program, the number or class of shares, and exercise price, of Common
Stock subject to outstanding Options, the number or class of shares of Common
Stock to be subject to Options automatically granted to Eligible Directors, the
number or class of shares of Restricted Stock or Restricted Stock Units to be
granted, delivered or credited hereunder, and the number or class of shares and
the terms of any other outstanding stock-based awards granted hereunder, as the
case may be, shall be adjusted by the Committee to reflect any such event.
SECTION 10. CHANGE IN CONTROL
(a) For purposes of this Section 10, the following words and
phrases shall have the meanings indicated below, unless the context clearly
indicates otherwise:
(i) "Person" shall have the meaning associated with
that term as it is used in Sections 13(d) and 14(d) of the
Act.
(ii) "Affiliates and Associates" shall have the
meanings assigned to such terms in Rule 12b-2 promulgated
under Section 12 of the Act.
(iii) "Act" shall mean the Securities Exchange Act of
1934.
(iv) "Continuing Directors" shall have the meaning
assigned to such term in Article Thirteenth of the Company's
Restated Certificate of Incorporation.
(v) "Code" shall mean the Internal Revenue Code of
1986, as amended.
(b) For purposes of the Program, a Change in Control of the Company
shall be deemed to have occurred if:
(i) any Person (together with its Affiliates and
Associates), other than a trustee or other fiduciary holding
securities under an employee benefit plan of the Company, is
or becomes the "beneficial owner" (as that term is defined in
Rule 13d-3 promulgated under the Act), directly or indirectly,
of securities of the Company representing thirty percent (30%)
or more of the combined voting power of the Company's then
outstanding securities, unless a majority of the Continuing
Directors of the Company's Board of Directors prior to that
time have determined in their sole discretion that, for
purposes of this Program, a Change in Control of the Company
has not occurred; or
(ii) the Continuing Directors of the Company's Board
of Directors shall at any time fail to constitute a majority
of the members of such Board of Directors.
SECTION 11. TERM OF PROGRAM
The Program was approved by Minnesota Mining and Manufacturing Company,
as sole stockholder of the Company, and shall become effective as of the
Effective Date. This Program shall remain in effect until all authorized shares
have been issued, unless sooner terminated by the Board.
SECTION 12. AMENDMENT; TERMINATION
The Board may at any time and from time to time alter, amend, suspend,
or terminate the Program in whole or in part; provided, however, that no
amendment which requires stockholder approval in order for the exemptions
available under Rule 16b-3 to be applicable to the Program and the Eligible
Directors shall be effective unless the same shall be approved by the
stockholders of the Company entitled to vote thereon.
SECTION 13. RIGHTS OF ELIGIBLE DIRECTORS
Nothing contained in the Program or with respect to any grant shall
interfere with or limit in any way the right of the stockholders of the Company
to remove any Eligible Director from the Board pursuant to the bylaws of the
Company, nor confer upon any Eligible Director any right to continue in the
service of the Company as a director.
SECTION 14. GENERAL RESTRICTIONS
(a) Investment Representations. The Company may require any Eligible
Director to whom Common Stock is issued, as a condition of receiving such Common
Stock, to give written assurances in substance and form satisfactory to the
Company and its counsel to the effect that such person is acquiring the Common
Stock for his or her own account for investment and not with any present
intention of selling or otherwise distributing the same, and to such other
effects as the Company deems necessary or appropriate in order to comply with
federal and applicable state securities laws.
(b) Compliance with Securities Laws. Each issuance shall be subject to
the requirement that, if at any time counsel to the Company shall determine that
the listing, registration or qualification of the shares upon any securities
exchange or under any state or federal law, or the consent or approval of any
governmental or regulatory body, is necessary as a condition of, or in
connection with, the issuance of shares thereunder, such issuance may not be
accepted or exercised in whole or in part unless such listing, registration,
qualification, consent or approval shall have been effected or obtained on
conditions acceptable to the Committee. Nothing herein shall be deemed to
require the Company to apply for or to obtain such listing, registration or
qualification.
(c) Nontransferability. Unless otherwise determined by the Committee,
awards under this Program shall not be transferable by an Eligible Director
other than by the laws of descent and distribution or pursuant to a qualified
domestic relations order as defined in the Code, or Title I of ERISA, or the
rules thereunder.
SECTION 15. WITHHOLDING
The Company may defer making payments or delivering shares of Common
Stock under the Program until satisfactory arrangements have been made for the
payment of any federal, state or local income or employment taxes required to be
withheld with respect to such payment or delivery.
SECTION 16. GOVERNING LAW
The Program and all rights hereunder shall be construed in accordance
with and governed by the laws of the State of Minnesota.
SECTION 17. UNFUNDED PROGRAM
Unless otherwise determined by the Committee, the Program shall be
unfunded and shall not create (or be construed to create) a trust or a separate
fund or funds. The Program shall not establish any fiduciary relationship
between the Company and any Eligible Director or other person. To the extent any
person holds any rights by virtue of a grant under the Program, such right shall
be no greater than the right of an unsecured general creditor of the Company.
SECTION 18. HEADINGS
The headings of sections and subsections herein are included solely for
convenience of reference and shall not affect the meaning of any of the
provisions of the Program.
EXHIBIT A
IMATION CORP.
1996 DIRECTORS STOCK COMPENSATION PROGRAM
(As Amended - January 24, 1997)
ELECTION TO RECEIVE COMMON STOCK OR RESTRICTED STOCK UNITS
THIS ELECTION is made by ___________________ (the "Eligible Director"),
as of the ____ day of _________, 19___.
WHEREAS, Imation Corp., a Delaware corporation (the "Company") has
adopted the Imation Corp. 1996 Directors Stock Compensation Program (As Amended)
(the "Program");
WHEREAS, the Eligible Director has the option under the Program to
receive Common Stock and/or Restricted Stock Units (as defined in the Program)
in lieu of payment of certain cash compensation for service as a director of the
Company;
NOW, THEREFORE, in accordance with the terms and conditions of the
Program, the Eligible Director hereby agrees as follows:
1. The Program
This Election is entered into pursuant to the Program, which is
incorporated herein by reference and made a part hereof. The Eligible Director
hereby acknowledges receipt of a copy of the Program. All capitalized terms used
herein and not otherwise defined shall have the meanings ascribed to them in the
Program.
2. Election to Receive Common Stock
Subject to the terms and conditions of the Program, the Eligible
Director hereby elects to receive shares of Common Stock in lieu of certain cash
compensation payable for service as a director of the Company as follows:
____% of the prorated Basic Fee (excluding the
portion of the prorated Basic Fee automatically granted in the
form of Restricted Stock) payable on the date first elected to
the Board of Directors (if other than at an annual meeting of
stockholders)
____% of the Basic Fee (excluding the portion of the
Basic Fee automatically granted in the form of Restricted
Stock) payable on each Accounting Date after the date hereof
____% of Meeting Fees payable on each Quarterly
Payment Date after the date hereof
3. Election to Receive Restricted Stock Units
Subject to the terms and conditions of the Program, the Eligible
Director hereby elects to receive Restricted Stock Units in lieu of certain cash
compensation payable for service as a director of the Company as follows:
____% of the prorated Basic Fee (excluding the
portion of the prorated Basic Fee automatically granted in the
form of Restricted Stock) payable on the date first elected to
the Board of Directors (if other than at an annual meeting of
stockholders)
____% of the Basic Fee (excluding the portion of the
Basic Fee automatically granted in the form of Restricted
Stock Units) payable on each Accounting Date after the date
hereof
____% of Meeting Fees payable on each Quarterly
Payment Date after the date hereof
Such Restricted Stock Units shall be payable as set
forth in the Program on the earlier to occur of a Change in
Control or the following date:
____ _______ anniversary of the grant date (please
specify)
____ the date the Eligible Director's service on the
Board terminates for any reason
____ other (please
specify):_____________________________
4. Term of Election
This Election will remain in effect until terminated or changed by the
Eligible Director pursuant to written notice to the Secretary of the Company or
filing of a new Election Form.
IN WITNESS WHEREOF, the Eligible Director has entered into this
Election on the day and year first above written, and the Company has accepted
this Election as of such day and year.
ELIGIBLE DIRECTOR
_____________________________
Signature
Accepted and Agreed to by IMATION CORP.
By: _________________________
Title: ________________________
EXHIBIT 10.13
INDEMNITY AGREEMENT
This Indemnity Agreement, dated as of July 1, 1996, by and between
Imation Corp., a Delaware corporation (the "Company") and ______________, a
director of the Company (the "Indemnitee").
RECITALS
A. The Company is aware that competent and experienced persons are
increasingly reluctant to serve as directors of corporations unless they are
protected by comprehensive liability insurance or indemnification, due to
increased exposure to litigation costs and risks resulting from their service to
such corporations, and due to the fact that the exposure frequently bears no
reasonable relationship to the compensation of such directors;
B. The statutes and judicial decisions regarding the duties of
directors are often difficult to apply, ambiguous, or conflicting, and therefore
fail to provide such directors with adequate, reliable knowledge of legal risks
to which they are exposed or information regarding the proper course of action
to take;
C. Plaintiffs often seek damages in such large amounts and the costs of
litigation may be so enormous (whether or not the case is meritorious), that the
defense and/or settlement of such litigation is often beyond the personal
resources of directors;
D. The Company believes that it is unfair for its directors to assume
the risk of huge judgments and other expenses which may occur in cases in which
the director received no personal profit and in cases where the director was not
culpable;
E. Based upon their experience, the Board of Directors of the Company
(the "Board") has concluded that, to retain and attract talented and experienced
individuals to serve as directors of the Company and to encourage such
individuals to take the business risks necessary for the success of the Company
and its subsidiaries, it is necessary for the Company to contractually indemnify
its directors, and to assume for itself maximum liability for expenses and
damages in connection with claims against such directors in connection with
their service to the Company, and has further concluded that the failure to
provide such contractual indemnification could result in harm to the Company and
its shareholders;
F. The Delaware General Corporation Law under which the Company is
organized empowers the Company to indemnify its officers, directors, employees
and agents by agreement and to indemnify persons who serve, at THE request of
the Company, as the directors, officers, employees or agents of other
corporations or enterprises, and expressly provides that the indemnification
provided by Section 145 is not exclusive;
G. As a result of circumstances that may have no relation to, or that
may be beyond the control of, the Company or the Indemnitee, there can be no
assurance of the adequacy of, or continuation or renewal of current liability
insurance coverage for its directors. The Company believes, therefore, that the
interests of the Company's shareholders would best be served by a combination of
such insurance and the indemnification by the Company of the directors of the
Company;
H. The Company desires and has requested the Indemnitee to serve or
continue to serve as a director of the Company free from undue concern for
claims for damages arising out of or related to such services to the Company;
and
I. The Indemnitee is willing to serve, or to continue to serve, the
Company, provided that he or she is furnished the Indemnity provided for herein.
AGREEMENT
NOW, THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. Definitions.
(a) Agent. For the purposes of this Agreement, "agent" of the
Company means any person who is or was a director, officer, employee or other
agent of the Company or a subsidiary of the Company; or is or was serving at the
request of, for the convenience of, or to represent the interests of the Company
or a subsidiary of the Company as a director, officer, employee or agent of
another foreign or domestic corporation, partnership, joint venture, trust or
other enterprise; or was a director, officer, employee or agent of a foreign or
domestic corporation which was a predecessor corporation of the Company or a
subsidiary of the Company, or was a director, officer, employee or agent of
another enterprise at the request of, for the convenience of, or to represent
the interests of such predecessor corporation.
(b) Expenses. For purposes of this Agreement, "expenses"
includes all direct and indirect costs of any type or nature whatsoever
(including, without limitation, all attorneys' fees and related disbursements
and other out-of-pocket costs) actually and reasonably incurred by the
Indemnitee in connection with either the investigation, defense or appeal of a
proceeding or establishing or enforcing a right to indemnification under this
Agreement, Section 145, or otherwise; provided, however, that expenses shall not
include amounts for which the Company is prohibited by law from providing
indemnification.
(c) Proceeding. For the purpose of this Agreement,
"proceeding" means any threatened, pending, or completed action, suit or other
proceeding, whether civil, criminal, administrative, investigative or any other
type whatsoever.
(d) Subsidiary. For purposes of this Agreement, "subsidiary"
means any corporation of which more than 50% of the outstanding voting
securities is owned directly or indirectly by the Company, by the Company and
one or more subsidiaries, or by one or more subsidiaries.
2. Agreement to Serve. The Indemnitee agrees to serve and/or continue
to serve as a director of the Company, so long as the Indemnitee is duly
appointed or elected and qualified in accordance with the applicable provisions
of the by-laws of the Company or until such time as the Indemnitee tenders his
or her resignation in writing, provided, however, that nothing contained in this
Agreement is intended to create any right to continued employment or Board
membership by Indemnitee.
3. Maintenance of Liability Insurance.
(a) The Company hereby covenants and agrees that, so long as
the Indemnitee shall continue to serve as an agent of the Company and thereafter
so long as the Indemnitee shall be subject to any possible proceeding by reason
of the fact that the Indemnitee was an agent of the Company, the Company,
subject to Section 3(c), shall promptly obtain and maintain in full force and
effect directors' and officers' liability insurance ("D&O Insurance") in
reasonable amounts from established and reputable insurers.
(b) In all policies of D&O Insurance, the Indemnitee shall be
named as an insured in such a manner as to provide the Indemnitee the same
rights and benefits as are accorded to the most favorably insured of the
Company's directors.
(c) Notwithstanding the foregoing, the Company shall have no
obligation to obtain or maintain D&O Insurance if the Company determines in good
faith that such insurance is not reasonably available, the premium costs for
such insurance are disproportionate to the amount of coverage provided, the
coverage provided by such insurance is limited by exclusions so as to provide an
insufficient benefit, or the Indemnitee is covered by similar insurance
maintained by a subsidiary of the Company.
4. Mandatory Indemnification. The Company shall indemnify the
Indemnitee:
(a) Third Party Actions. If the Indemnitee is a person who was
or is a party or is threatened to be made a party to any proceeding (other than
an action by or in the right of the Company) by reason of the fact that the
Indemnitee is or was an agent of the Company, or by reason of anything done or
not done by him or her in any such capacity, against any and all expenses and
liabilities of any type whatsoever (including, but not limited to, judgments,
fines, ERISA excise taxes or penalties, and amounts paid in settlement) actually
and reasonably incurred by him or her in connection with the investigation,
defense, settlement or appeal of such proceeding if the Indemnitee acted in good
faith and in a manner the Indemnitee reasonably believed to be in the best
interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful;
and
(b) Derivative Actions. If the Indemnitee is a person who was
or is a party or is threatened to be made a party to any proceeding by or in the
right of the Company to procure a judgment in its favor by reason of the fact
that the Indemnitee is or was an agent of the Company, or by reason of anything
done or not done by the Indemnitee in any such capacity, against any and all
expenses actually and reasonably incurred by the Indemnitee in connection with
the investigation, defense, settlement, or appeal of such proceeding if the
Indemnitee acted in good faith and in a manner the Indemnitee reasonably
believed to be in the best interests of the Company; such indemnification shall
also be granted if the Court of Chancery or the court in which such proceeding
was brought shall determine upon application, that, in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such amounts which the Court of Chancery or such other court shall
deem proper; and
(c) Actions where Indemnitee is Deceased. If the Indemnitee
dies before his or her right to indemnification is determined or, after
determination, but before indemnification is paid, the Indemnitee's right to
indemnification shall survive and shall be determined and paid as if the
Indemnitee had survived.
5. Partial Indemnification. If the Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of any expenses or liabilities of any type whatsoever (including, but
not limited to, judgments, fines, ERISA excise taxes or penalties, and amounts
paid in settlement) incurred by the Indemnitee in the investigation, defense,
settlement or appeal of a proceeding but not entitled, however, to
indemnification for all of the total amount thereof, the Company shall
nevertheless indemnify the Indemnitee for such total amount except as to the
portion thereof to which the Indemnitee is not entitled.
6. Mandatory Advancement of Expenses. Subject to Section 8(a) below,
the Company shall advance all reasonable expenses incurred by the Indemnitee in
connection with the investigation, defense, settlement or appeal of any
proceeding to which the Indemnitee is a party or is threatened to be made a
party by reason of the fact that the Indemnitee is or was an agent of the
Company. Indemnitee hereby undertakes to repay such amounts advanced only if,
and to the extent that, it shall ultimately be determined pursuant to Section 8
hereof that the Indemnitee is not entitled to be indemnified by the Company as
authorized hereby. The advances to be made hereunder shall be paid by the
Company to the Indemnitee within twenty (20) days following delivery of a
written request therefor by the Indemnitee to the Company. Any such request
shall reasonably evidence the expenses and costs incurred or to be incurred by
Indemnitee hereunder. Any dispute concerning the advancement of expenses may, at
the election of Indemnitee, be resolved by binding arbitration before one
neutral arbitrator in accordance with the Center for Public Resources, New York,
New York ("CPR") Rules for Non-Administered Arbitration of Business Disputes. If
the Company and the Indemnitee encounter difficulty in agreeing on an arbiter,
they will seek the assistance of CPR in the selection process. In any dispute
concerning Indemnitee's right to the advancement of expenses, Indemnitee shall
be presumed to be entitled to such advancement and the Company shall bear the
burden to prove by clear and convincing evidence that Indemnitee is not so
entitled.
7. Notice and Other Indemnification Procedures.
(a) Promptly after receipt by the Indemnitee of notice of the
commencement of or the threat of commencement of any proceeding, the Indemnitee
shall, if the Indemnitee believes that indemnification with respect thereto may
be sought from the Company under this Agreement, notify the Company of the
commencement or threat of commencement thereof. Indemnitee will be presumed to
have met the standard of conduct entitling him or her to indemnification; the
Company shall be entitled to attempt to rebut the presumption in accordance with
the procedures set forth in Section 8 below.
(b) If, at the time of the receipt of a notice of the
commencement of a proceeding pursuant to Section 7(a) hereof, the Company has
D&O Insurance in effect, the Company shall give prompt notice of the
commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of the Indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such policies.
(c) If the Company shall be obligated to pay the expenses of
any proceeding against the Indemnitee, the Company, if appropriate, shall be
entitled to assume the defense of such proceeding, with counsel reasonably
approved by the Indemnitee, upon the delivery to the Indemnitee of written
notice of its election so to do. After delivery of such notice, approval of such
counsel by the Indemnitee and the retention of such counsel by the Indemnitee
and the retention of such counsel by the Company, the Company will not be liable
to the Indemnitee under this Agreement for any fees of counsel subsequently
incurred by the Indemnitee with respect to the same proceeding, provided that
(i) the Indemnitee shall have the right to employ counsel in any such proceeding
at the Indemnitee's expense; and (ii) if (A) the employment of counsel by the
Indemnitee has been previously authorized by the Company, (B) the Indemnitee or
counsel selected by the Company shall have concluded that there may be a
conflict of interest between the Company and the Indemnitee or among Indemnitees
jointly represented in the conduct of any such defense or (C) the Company shall
not, in fact, have employed counsel to assume the defense of such proceeding,
then fees and expenses of Indemnitee's counsel shall be at the expense of the
Company.
8. Determination of Right to Indemnification.
(a) To the extent the Indemnitee has been successful on the
merits or otherwise in defense of any proceeding referred to in subsections
4(a), 4(b) or 4(c) of this Agreement or in the defense of any claim, issue or
matter described therein, the Company shall indemnify the Indemnitee against
expenses actually and reasonably incurred by the Indemnitee in connection with
the investigation, defense, or appeal of such proceeding.
(b) To determine Indemnitee's right to indemnification other
than as provided in subsection 8(a), Indemnitee shall be presumed to have met
the standard of care entitling him or her to indemnification. The Company shall
bear the burden to prove that Indemnitee is not entitled to indemnification.
Such determination shall be made by:
(1) A majority vote of a quorum of the Board
consisting of directors who are not parties to the proceeding
for which indemnification is being sought;
(2) Legal counsel selected by the Board, and
reasonably approved by the Indemnitee, which counsel shall
make such determination in a written opinion; or
(3) One neutral arbitrator who shall be a
litigation or corporate attorney with experience in the area
of director or officer indemnification. The arbitrator shall
be selected within 30 days of the demand for arbitration and
shall render his or her decision within 60 days after the
Company and the Indemnitee have completed the submission of
their respective cases, unless good cause be shown as to why a
longer time for decision is necessary. The arbitration shall
be conducted in accordance with the CPR Rules for
Non-Administered Arbitration or Business Disputes. If the
Company and the Indemnitee encounter difficulty in agreeing on
an arbiter, they will seek assistance of CPR in the selection
process.
(c) As soon as practicable, and in no event later than 60 days
after written notice of the Indemnitee's choice of forum pursuant to Section
8(b) above, the Company shall, at its own expense, submit to the selected forum
in such manner as the indemnitee or the Indemnitee's counsel may reasonably
request, its claim that the Indemnitee is not entitled to indemnification, and
the Company shall act in good faith to assure the Indemnitee a complete
opportunity to defend such claim.
(d) Notwithstanding any other provision in this Agreement to
the contrary, the Company shall indemnify the Indemnitee against all expenses
incurred by the Indemnitee in connection with any hearing or proceeding under
this Section 8 involving the Indemnitee and against all expenses incurred by the
Indemnitee in connection with any other proceeding between the Company and the
Indemnitee involving the interpretation or enforcement of the rights of the
Indemnitee under this Agreement unless a court of competent jurisdiction finds
that each of the claims and/or defenses of the Indemnitee in any such proceeding
was frivolous or made in bad faith, in which case Indemnitee will repay the
amounts previously paid, and will do so within 20 days following written demand.
The indemnification provided to Indemnitee in this section shall be paid by
Company on a current basis (i.e., no later than 20 days following written
demand).
9. Exceptions. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement;
(a) Claims Initiated by Indemnitee. To indemnify or advance
expenses to the Indemnitee with respect to proceedings or claims initiated or
brought voluntarily by the Indemnitee and not by way of defense ("defense"
includes contribution or indemnification or proceedings to enforce proportionate
fault rules where applicable), except with respect to proceedings brought to
establish or enforce a right to indemnification under this Agreement or any
other statute or law or otherwise, but such indemnification or advancement of
expenses may be provided by the Company in specific cases if the Board of
Directors finds it to be appropriate; or
(b) Lack of Good Faith. To indemnify the Indemnitee for any
expenses incurred by the Indemnitee with respect to any proceeding instituted by
the Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
Indemnitee in such proceeding was not made in good faith or was frivolous; or
(c) Unauthorized Settlements. To indemnify the Indemnitee
under this Agreement for any amounts paid in settlement of a proceeding unless
the Company consents to such settlement, which consent shall not be unreasonably
withheld.
10. Non-exclusivity. The provisions for indemnification and advancement
of expenses set forth in this Agreement shall not be deemed exclusive of any
other rights which the Indemnitee may have under any provision of law, the
Company's certificate of incorporation or bylaws, the vote of the Company's
shareholders or disinterested directors, other agreements, or otherwise, both as
to action in the Indemnitee's official capacity and to action in another
capacity while occupying his or her position as an agent of the Company, and the
Indemnitee's rights hereunder shall continue after the Indemnitee has ceased
acting as an agent of the Company and shall inure to the benefit of the heirs,
executors and administrators of the Indemnitee.
11. Interpretation of Agreement. It is understood that the parties
hereto intend this Agreement to be interpreted and enforced so as to provide
indemnification to the Indemnitee to the fullest extent now or hereafter
permitted by law.
12. Severability. If any provision or provisions of this Agreement
shall be held to be invalid, illegal or unenforceable for any reason whatsoever,
(i) the validity, legality and enforceability of the remaining provisions of the
Agreement (including without limitation, all portions of any paragraphs of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or unenforceable) shall
not in any way be affected or impaired thereby, and (ii) to the fullest extent
possible, the provisions of this Agreement (including, without limitation, all
portions of any paragraph of this Agreement containing any such provision held
to be invalid, illegal or unenforceable, that are not themselves invalid,
illegal or unenforceable) shall be construed so as to give effect to the intent
manifested by the provision held invalid, illegal or unenforceable and to give
effect to Section 12 hereof.
13. Modification and Waiver. No supplement, modification or amendment
of this Agreement shall be binding unless executed in writing by both of the
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provisions hereof (whether or
not similar) nor shall such waiver constitute a continuing waiver.
14. Successors and Assigns. The terms of this Agreement shall bind, and
shall inure to the benefit of, the successors and assigns of the parties hereto.
15. Notice. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the party addressee or (ii) if mailed by
certified or registered mail with postage prepaid, on the third business day
after the mailing date. Addresses for notice to either party are as shown on the
signature page of this Agreement, or as subsequently modified by written notice.
16. Governing Law. This Agreement shall be governed exclusively by and
construed according to the laws of the State of Delaware, as applied to
contracts between Delaware residents entered into and to be performed entirely
within Delaware.
17. Consent to Jurisdiction. The Company and the Indemnitee each hereto
irrevocably consent to the jurisdiction of the courts of the State of Minnesota
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be brought only in the state courts of the State of Minnesota,
or in arbitration as set forth herein.
The parties hereto have entered into this Indemnity Agreement effective
as of date first above written.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
and delivered as of the day and year first above written.
INDEMNITEE
________________________ Address:
IMATION CORP.
By _____________________ Address:
William T. Monahan
Chairman, President 1 Imation Place
and Chief Executive Oakdale, MN 55128
Officer
EXHIBIT 11
IMATION CORP. AND SUBSIDIARIES
COMPUTATION OF COMMON SHARES AND COMMON SHARE EQUIVALENTS
(IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
Year ended December 31, 1996 1995 1994
- ------------------------ ---- ---- ----
<S> <C> <C> <C>
Weighted average number of shares outstanding during the period (a) ............... 42.1 42.0 42.3
Weighted average number of shares held by the ESOP not committed to be released ... (0.8) -- --
Common share equivalents resulting from the assumed exercise of stock options (b).. 0.2 -- --
---- ---- ----
Total common shares and common share equivalents .................................. 41.5(c) 42.0 42.3
</TABLE>
Notes to Exhibit:
(a) Prior to July 1, 1996, the Company was not a separate, independent company,
but rather was comprised of the businesses operated within 3M's data
storage and imaging groups. As such, the number of shares used to compute
earnings per share for the periods prior to July 1, 1996 are based on
one-tenth of the average 3M shares outstanding based on the distribution
ratio of one share of the Company's common stock for every ten shares of 3M
common stock held on the record date.
(b) Common share equivalents for the year ended December 31, 1996 are computed
by the "treasury stock" method. This method first determines the number of
shares issuable under stock options that have an option price below the
average market price for the period, and then deducts the number of shares
that could have been repurchased with the proceeds of options exercised.
Common share equivalents for primary and fully diluted earnings per share
were essentially equivalent.
(c) Common share equivalents for the year ended December 31, 1996 are not
material. As a result, earnings per share have been computed using the
weighted average number of shares outstanding less the weighted average
number of shares held by the ESOP not committed to be released.
<TABLE>
<CAPTION>
Selected Consolidated Financial Data
1996 1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------
(In Millions, Except per Share Data)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net revenues $2,278.2 $2,245.6 $2,280.5 $2,307.8 $2,350.0 $2,319.0
Gross profit 795.4 724.7 838.5 886.2 885.0 911.0
Selling, general and administrative 563.0 539.4 531.5 529.0 542.0 525.0
Research and development 183.1 222.4 211.2 216.7 181.0 174.0
Operating income (loss) (4.6) (148.9) 95.8 140.5 162.0 212.0
Income (loss) before tax and
minority interest (15.0) (166.8) 81.3 127.4 142.0 187.0
Net income (loss) (20.5) (85.0) 54.3 75.3 94.0 119.0
Earnings (loss) per common share (0.49) (2.02) 1.28 n/a n/a n/a
Balance Sheet Data:
Total working capital $ 607.3 $ 658.4 $ 714.0 $ 618.4 $ 608.1 $ 606.7
Property, plant and equipment, net 480.1 513.2 654.9 642.2 618.5 607.6
Total assets 1,561.3 1,541.5 1,671.7 1,545.6 1,533.9 1,514.7
Long-term debt 123.1 -- -- -- -- --
Total liabilities 631.0 392.8 371.7 345.8 361.7 341.4
Total shareholders' equity 930.3 1,148.7 1,300.0 1,199.8 1,172.2 1,173.3
Other Information:
Net income excluding
one-time charges(1) $ 40.1 $ 3.3 $ 54.3 $ 75.3 $ 94.0 $ 119.0
Current ratio 2.5 3.2 3.5 3.4 3.3 3.4
Days sales outstanding 74.9 77.9 76.3 70.2 65.4 65.3
Months in inventory 3.2 3.4 4.0 3.2 3.4 3.4
Assets/equity 1.7 1.3 1.3 1.3 1.3 1.3
Return on assets(2) 2.6% 0.2% 3.4% 4.9% 6.2% 7.9%
Return on equity(2) 3.9% 0.3% 4.3% 6.3% 8.0% 10.2%
Capital expenditures $ 167.4 $ 180.2 $ 182.7 $ 211.4 n/a n/a
Number of employees 9,400 12,300 13,000 13,500 13,900 14,000
</TABLE>
(1) Excludes restructuring and other one-time charges in 1996 and 1995 (see
Note 5 of Notes to Consolidated Financial Statements).
(2) Return percentages are calculated using net income excluding one-time
charges noted in (1) above for 1996 and 1995.
PAGE 1
MANAGEMENT'S DISCUSSION AND ANALYSIS
GENERAL OVERVIEW
On June 18, 1996, the Board of Directors of Minnesota Mining and Manufacturing
Company ("3M") approved the Distribution of Imation Corp., a Delaware
corporation (the "Company"), which is comprised of substantially all of the
businesses previously operated within 3M's data storage and imaging systems
groups. To effectuate the transaction, the Board of Directors of 3M declared a
dividend payable to the holders of record of 3M common stock as of June 28,
1996, based upon a ratio of one share of the Company's common stock, par value
$0.01 per share (the "Common Stock") for every ten shares of 3M common stock
owned on the record date. Effective July 1, 1996, all of the outstanding shares
of Common Stock were distributed to 3M stockholders (the "Distribution").
Following the Distribution, the Company began operations as an independent,
publicly held company. Prior to July 1, 1996, the financial statements reflect
the results of operations, financial position and cash flows of the businesses
transferred to the Company from 3M as they operated within 3M. As a result, the
financial statements of the Company prior to July 1, 1996 have been carved out
from the financial statements of 3M using the historical results of operations
and historical basis of the assets and liabilities of such businesses. The
Company's statements of operations prior to July 1, 1996 include 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. Management believes these
allocations were made on a reasonable basis. The financial information for
periods prior to July 1, 1996 included herein, however, may not necessarily be
indicative of the results of operations, financial position and cash flows of
the Company in the future or what the results of operations, financial position
and cash flows would have been had the Company been a separate, independent
company during the periods presented.
In late 1995, the Company developed a reorganization plan to rationalize its
manufacturing operations, streamline its organizational structure and write off
impaired assets. The Company has made significant progress in implementing this
plan, including the closure or consolidation of five factory locations and the
consolidation of the Company's laboratories from fourteen to seven. As part of
the reorganization, the number of reported employees of the Company was reduced
from approximately 12,300 at December 31, 1995 to 9,400 at December 31, 1996
through voluntary and involuntary separation programs offered to employees of
the Company prior to the Distribution, as well as the retention by 3M of staff
services positions which had been allocated to the Company as part of 3M. The
Company continues, however, to obtain certain staff services functions from 3M
pursuant to an agreement entered into between 3M and the Company in connection
with the Distribution.
During 1995 and 1996, the Company recorded one-time pre-tax charges of $254.7
million based upon the timing criteria required for the recognition of such
charges. The Company recorded $166.3 million of these charges in its 1995
statement of operations, primarily for the write-down of assets associated with
its manufacturing rationalization programs and $76.4 million in the first six
months of 1996, primarily related to employee separations for direct employees
of the Company and one-time charges associated with start-up activities. In
addition, in the fourth quarter of 1996, the Company recognized a non-deductible
write-off of $12.0 million for the in-process research and development related
to its acquisition of Luminous Corporation (see Note 3 to Consolidated Financial
Statements).
At the time of the Distribution, the Company established an overall financial
goal of improving the Company's economic profit (measured as operating income
after taxes in excess of a charge for the use of capital) by $150 million by the
end of 1998. This goal is based on anticipated cost reductions and the Company's
objectives for improved revenue growth and increased asset utilization.
PAGE 2
During 1996, the Company's economic profit improved by $65 million over 1995,
with all three components contributing to the improvement. Cost reductions
contributed $30 million to the increased economic profit, revenue growth
contributed $5 million and improved asset management contributed $30 million.
The improvement in economic profit due to cost reductions was driven by the
Company's lower cost structure following the Distribution, including more than a
20 percent reduction in headcount from the levels prior to the Distribution. In
addition, improved factory performance and lower material costs contributed to
the cost improvement. These cost reductions were partially offset by recurring
start-up costs for establishing the Imation brand and identity, and activities
to design and implement more efficient business processes. The improvement in
economic profit from revenue growth was driven by sales of the Company's newly
introduced product platforms, primarily Travan data cartridges and DryView laser
imagers. The economic profit improvement from better asset utilization was
driven by working capital reductions in accounts receivable and inventory and
lower levels of fixed assets due to the asset write-offs at the end of 1995.
OPERATING RESULTS
The following table sets forth the components of net revenue changes for 1996
and 1995.
<TABLE>
<CAPTION>
1996 1995
U.S. INTL. WORLDWIDE U.S. INTL. WORLDWIDE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Volume 5.6% 10.1% 7.9% (0.5)% 6.3% 2.7%
Price (2.9) (7.0) (4.9) (5.4) (7.3) (6.3)
Translation -- (2.9) (1.5) -- 4.3 2.0
-----------------------------------------------------------------------------
Total 2.7% 0.2% 1.5% (5.9)% 3.3% (1.6)%
</TABLE>
The following table sets forth the Company's consolidated statements of
operations, restructuring and other one-time charges and resulting adjusted
balances for the years ending December 31, 1996 and 1995. The adjusted balances
are also presented as a percentage of net revenues.
<TABLE>
<CAPTION>
Year ended December 31, 1996 Year ended December 31, 1995
------------------------------------------------ ----------------------------------------------
One-Time Percent of One-Time Percent of
Reported Charges Adjusted Revenues Reported Charges Adjusted Revenues
------------------------------------------------ ----------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues $ 2,278.2 $ -- $ 2,278.2 100.0% $ 2,245.6 $ -- $ 2,245.6 100.0%
Cost of goods sold 1,482.8 (7.9) 1,474.9 64.7 1,520.9 (50.2) 1,470.7 65.5
------------------------------------------------ ---------------------------------------------
Gross profit 795.4 7.9 803.3 35.3 724.7 50.2 774.9 34.5
Operating expenses:
Selling, general and
administrative 563.0 (14.6) 548.4 24.1 539.4 -- 539.4 24.0
Research and development 183.1 (12.0) 171.1 7.5 222.4 (4.3) 218.1 9.7
Restructuring charges 53.9 (53.9) -- -- 111.8 (111.8) -- --
------------------------------------------------ ---------------------------------------------
Total operating expenses 800.0 (80.5) 719.5 31.6 873.6 (116.1) 757.5 33.7
Operating income (loss) (4.6) 88.4 83.8 3.7 (148.9) 166.3 17.4 0.8
Interest expense and other 10.4 -- 10.4 0.5 17.9 -- 17.9 0.8
------------------------------------------------ ---------------------------------------------
Income (loss) before tax
and minority interest (15.0) 88.4 73.4 3.2 (166.8) 166.3 (0.5) 0.0
Income tax provision (benefit) 5.9 27.8 33.7 1.4 (70.5) 70.3 (0.2) 0.0
Minority interest (0.4) -- (0.4) 0.0 (11.3) 7.7 (3.6) (0.1)
------------------------------------------------ ---------------------------------------------
Net income (loss) $ (20.5) $ 60.6 $ 40.1 1.8% $ (85.0) $ 88.3 $ 3.3 0.1%
Earnings (loss) per share $ (0.49) $ 1.46 $ 0.97 $ (2.02) $ 2.10 $ 0.08
</TABLE>
PAGE 3
COMPARISON OF YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Net revenues increased 1.5 percent in 1996 compared to a decline of 1.6 percent
in 1995. Volume growth was 7.9 percent in 1996 compared to 2.7 percent in 1995.
Volume growth in 1996 was driven by increased sales of newly introduced product
platforms (principally Travan data cartridges and DryView laser imagers) and
greater international market penetration. Price declines were 4.9 percent in
1996 compared to 6.3 percent in 1995. Price erosion lessened in 1996 compared to
1995 due to product mix and greater pricing discipline. Changes in currency
exchange rates negatively impacted net revenues 1.5 percent in 1996 while
positively impacting net revenues 2.0 percent in 1995. The 1.6 percent decline
in net revenues in 1995 as compared to 1994 was primarily due to the effects of
downward pricing pressures which exceeded the Company's volume growth. The
Company's planning assumption is for price erosion to continue in the same
general range in the near term.
Approximately 49 percent of the Company's net revenues in 1996 were from sales
outside the United States compared to 50 percent in 1995, with this decrease due
to the impact of currency exchange rates. In 1994, 47 percent of the Company's
net revenues were from outside the United States. In the Company's international
operations, volume rose 10.1 percent in 1996 and 6.3 percent in 1995. The
increase in volume growth in 1996 was due to greater market penetration. Price
declines of 7.0 percent and 7.3 percent occurred in 1996 and 1995, respectively.
The net result of the volume and price changes was a 3.1 percent growth in local
currencies in 1996 while local currency revenue decreased 1.0 percent in 1995.
Changes in currency exchange rates negatively impacted international net
revenues by 2.9 percent in 1996 and positively impacted international net
revenues by 4.3 percent in 1995. Based on the strengthening of the U.S. dollar
during the first part of 1997, changes in currency exchange rates are likely to
negatively impact 1997 revenues and earnings.
United States net revenues increased by 2.7 percent in 1996 compared to a
decline of 5.9 percent in 1995. The increase in 1996 was driven by sales of the
newly introduced product platforms mentioned above. Volume growth was 5.6
percent in 1996 while volume declined slightly in 1995. Price declines were 2.9
percent in 1996 compared to 5.4 percent in 1995, with price erosion lessening
due to product mix and greater pricing discipline.
Gross profit for 1996 was $795.4 million, which includes the impact of $7.9
million in one-time charges primarily related to the write-off of certain
packaging materials in connection with the Distribution. Gross profit in 1995
was $724.7 million, which includes the impact of $50.2 million in one-time
charges primarily related to asset write-offs. Excluding the impact of one-time
charges, gross profit in 1996 would have been $803.3 million or 35.3 percent of
revenues compared to $774.9 million or 34.5 percent of revenues in 1995. This
margin improvement was primarily due to volume increases, productivity
improvements, and lower raw material costs, partially offset by lower selling
prices. In 1994, gross profit was 36.8 percent of revenues. The decrease from
1994 to 1995 was primarily due to the effect of lower selling prices.
In 1996, selling, general and administrative expenses were $563.0 million.
Excluding special one-time charges of $14.6 million related to activities in
connection with the Distribution, selling, general and administrative expenses
would have been $548.4 million, or 24.1 percent of revenues. This is essentially
unchanged from 1995, when selling, general and administrative expenses were 24.0
percent of revenues. The full year 1996 selling, general and administrative
expenses include $41.8 million of start-up costs related to designing and
implementing more efficient business processes and developing the Company's
brand identity, offset by reduced sales related costs. It is expected that these
start-up costs will continue in 1997. In 1994, selling, general and
administrative expenses were 23.3 percent of revenues. The increase in selling,
general and administrative expenses as a percentage of revenues in 1995 over
1994 was primarily due to the decline in the revenue base. The Company's goal is
to lower the level of selling, general and administrative expenses as a
percentage of revenues as a part of achieving its economic profit goal discussed
in "General Overview".
PAGE 4
Research and development expenses in 1996 were $183.1 million, which includes a
non-deductible charge of $12.0 million for the acquired in-process research and
development related to the Company's acquisition of Luminous Corporation.
Research and development expenses in 1995 were $222.4 million, which includes
$4.3 million in one-time charges related to asset write-offs. Excluding the
impact of one-time charges, research and development expenses in 1996 would have
been $171.1 million or 7.5 percent of revenues compared to $218.1 million or 9.7
percent of revenues in 1995. This decrease is due to a consolidation of
laboratories from fourteen to seven, the implementation of a more efficient
research and development cost structure and higher than normal spending in 1995
reflecting investments made in a number of the Company's new products which came
to market during 1995 and early 1996. In 1997, the Company will continue to gain
the benefits of this restructuring. In 1994, research and development expenses
were 9.3 percent of revenues. The increase in 1995 over 1994 was due to higher
than normal spending in 1995 on new products as noted above.
The Company recorded restructuring charges of $53.9 million in 1996. These
charges primarily relate to employee separation programs. In 1995, the Company
recorded restructuring charges of $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.
The operating loss for 1996 totaled $4.6 million while the operating loss for
1995 was $148.9 million. Losses in both years were the result of the
restructuring and other one-time charges discussed above. Excluding these
charges, operating income would have been $83.8 million in 1996 and $17.4
million in 1995, an improvement of $66.4 million. This improvement is primarily
a result of higher gross profit, lower research and development spending and
sales growth as discussed above. Operating income in 1995, excluding special
charges, would have been $17.4 million, or $78.4 million lower than 1994
operating income of $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.
Non-operating expense (primarily interest expense) for 1996 totaled $10.4
million, down $7.5 million from 1995. This decrease is due to an increase in
other income of $2.9 million, primarily related to investment gains prior to the
Distribution, and to lower interest expense due to lower outstanding debt levels
and a lower effective interest rate. Interest expense prior to the Distribution
was based on an assumed $250 million in outstanding debt and 3M's effective
interest rate during the period. The allocation of interest prior to the
Distribution is more fully discussed in Note 7 to the Consolidated Financial
Statements. Non-operating expense in 1995 was $17.9 million, up from $14.5
million in 1994. This increase is due to 3M's rising effective interest rate in
1995 over 1994.
Excluding restructuring and one-time charges, the Company's effective tax rate
was 45.9, 42.3 and 36.0 percent of pre-tax income for 1996, 1995 and 1994,
respectively. Although a new, tax effective structure was implemented in 1996,
the Company continues to earn profits in high tax jurisdictions. Benefits from
the new structure will be realized over time, with an expected decrease in
future rates. Management believes the Company will generate sufficient income in
future periods to fully recover the Company's deferred tax assets.
Minority interest was $0.4 million, $11.3 million and $2.3 million in 1996, 1995
and 1994, respectively. The 1995 minority interest includes $7.7 million of
restructuring charges related to the Company's operations in Japan.
The net loss for 1996 totaled $20.5 million compared to a net loss of $85.0
million in 1995. Excluding restructuring and one-time charges, net income would
have been $40.1 million ($0.97 per share) in 1996 and $3.3 million ($0.08 per
share) in 1995, an improvement of $36.8 million or $0.89 per share. Net income
in 1994 was $54.3 million or $1.28 per share. All per share amounts prior to the
Distribution are based on an average number of shares outstanding equal to
one-tenth the weighted average number of 3M shares outstanding based on the
distribution ratio of one share of the Company's stock for ten shares of 3M
stock.
PAGE 5
PERFORMANCE BY GEOGRAPHIC AREA
UNITED STATES In 1996, United States net revenues totaled $1,159.5 million, up
2.7 percent from $1,128.8 million in 1995. Volume increased 5.6 percent while
selling prices decreased 2.9 percent. Operating loss was $95.3 million in 1996
compared to $169.0 in 1995. Excluding restructuring and one-time charges of
$77.1 million in 1996 and $99.8 million in 1995, the operating loss would have
been $18.2 million in 1996 and $69.2 million in 1995, an improvement of $51.0
million. The improvement in the United States results was primarily due to
increased volume growth, reduced spending and the lessening of price erosion.
EUROPE, MIDDLE EAST AND AFRICA Net revenues totaled $816.2 million in 1996, up
1.0 percent from $808.4 million in 1995. Excluding restructuring and one-time
charges in Europe of $9.8 million in 1996 and $20.4 million in 1995, operating
income would have been $88.6 million in 1996 and $76.2 million in 1995, an
increase of $12.4 million. In 1996, volume increased 7.6 percent, selling prices
declined 5.3 percent, and changes in currency exchange rates negatively impacted
revenues by 1.3 percent.
LATIN AMERICA, ASIA AND CANADA Net revenues declined by 1.9 percent in 1996 to
$302.5 million. Changes in currency exchange rates caused revenues to decrease
by 7.1 percent. In local currencies, revenues were up 5.2 percent due to volume
increases of 16.7 percent offset by selling price declines of 11.5 percent.
Operating income increased by $3.0 million, after excluding special charges of
$1.5 million in 1996 and $46.1 million in 1995.
FINANCIAL POSITION
The Company had 3.2 months of inventory on hand at December 31, 1996, compared
to 3.4 months at December 31, 1995. The accounts receivable days sales
outstanding was 75 days at December 31, 1996, down from 78 days at December 31,
1995. Improved asset management related to the Company's focus on supply chain
management contributed to these decreases. Other current assets were $94.5
million at December 31, 1996, an increase of $45.7 million over the 1995
balance. This increase is primarily due to an increase in current deferred tax
assets of $14.9 million, an increase in prepaid value added taxes in Europe of
$11.9 million and an increase in other prepaid expenses of $5.8 million.
The net book value of property, plant and equipment at December 31, 1996 was
$480.1 million, a decrease of $33.1 million from $513.2 million at December 31,
1995. This decrease is due to capital spending being lower than depreciation and
the sale of the Company's Sulmona, Italy facility. The decrease in machinery and
equipment cost of $143.6 million is primarily due to the disposal in 1996 of
machinery and equipment that was fully reserved for in 1995 as part of the
restructuring and other one-time charges.
Accounts payable at December 31, 1996 increased $56.2 million from December 31,
1995. This increase is primarily due to establishing the normal third party
payables to 3M for products and transitional services that were previously
eliminated as intercompany balances. The balance in other current liabilities at
December 31, 1996 was $151.2 million, an increase of $25.3 million over 1995.
This increase is primarily due to an increase in the accrual for value added
taxes in Europe and an increase in self insurance reserves.
LIQUIDITY
Prior to July 1, 1996, cash and equivalents and debt were not allocated to the
Company from 3M since 3M uses a centralized approach to cash management and the
financing of its operations. The Company's financing requirements prior to July
1, 1996 are represented by cash transactions with 3M and are reflected in "Net
cash (paid to) received from 3M" in the consolidated statements of cash flows.
This financial support was discontinued following the Distribution.
PAGE 6
Cash provided by operating activities was $306.0 million in 1996, $256.8 million
in 1995 and $170.1 million in 1994. The adjustments to net income include
depreciation, which ranged from $181.1 million to $189.5 million per year during
these periods, and restructuring and other one-time charges which were $88.4
million in 1996 and $166.3 million in 1995. Working capital and related cash
requirements decreased $40.3 million in 1996 and $30.7 million in 1995, while in
1994 working capital and related cash requirements increased $91.8 million.
Investing activities, mainly capital expenditures, utilized cash of $184.6
million in 1996, $187.5 million in 1995 and $179.7 million in 1994. It is
expected that capital expenditures in 1997 will be similar to the expenditures
made in 1996 of $167.4 million. In addition to capital expenditures in 1996, the
Company capitalized $13.5 million of software expenditures related to the
development and implementation of independent Imation-supported systems to
replace those provided by 3M through service contracts.
During 1996, the Company established a $350 million credit facility with a
syndicate of banks. At the time of the Distribution, the Company borrowed
approximately $155.0 million to purchase from 3M certain assets located outside
the United States and to repay intercompany indebtedness assumed by the Company
in connection with the Distribution. During the third quarter, the Company
borrowed an additional $50 million to loan to the ESOP for the purchase of the
Company's common stock to satisfy the Company's obligation to make matching
contributions with respect to employee salary deferrals and other performance
based contributions. Additional funds were borrowed and repaid from time to time
for funding working capital needs. At year-end, the Company had borrowed $120.0
million under the credit facility. In addition, certain international
subsidiaries have arranged borrowings locally outside the credit facility. As of
year end, $29.6 million of borrowings were outstanding, primarily short term,
under these arangements. As of December 31, 1996, the Company had a ratio of
total debt to total capital of approximately 13.9 percent. The Company believes
this ratio will increase over time due to the cash requirements for funding
future growth oportunities. The Company believes it has the financial resources
needed to meet its business requirements in the foreseeable future.
In connection with the Company's acquisition of Luminous Corporation in October
1996, the Company issued 922,845 shares of common stock.
On February 4, 1997, the Company announced a stock repurchase plan, authorizing
the Company to repurchase up to two million shares of the Company's common
stock. On March 13, 1997, the Company's Board of Directors increased the stock
repurchase authorization to a total of six million shares of the Company's
common stock.
FORWARD LOOKING STATEMENTS
Certain information contained in this Report which does not relate to historical
financial information may be deemed to constitute forward looking statements.
The words or phrases "will likely result", "are expected to", "will continue",
"is anticipated", "estimate", "project", "believe" or similar expressions
identify "forward looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such statements are subject to certain
risks and uncertainties that could cause actual results to differ materially
from historical results and those presently anticipated or projected. The
Company wishes to caution readers not to place undue reliance on any such
forward looking statements, which speak only as of the date made. Among the
factors that could cause the Company's actual results in the future to differ
materially from any opinions or statements expressed with respect to future
periods are market acceptance of newly introduced products, competitive industry
conditions including historical price erosion in certain product categories,
technological developments in the markets served by the Company, foreign
currency fluctuations, the Company's ability to establish its operations as an
independent company, as well as various factors set forth in the Company's 1996
Annual Report on Form 10-K and other interim reports filed with the Securities
and Exchange Commission.
PAGE 7
<TABLE>
<CAPTION>
IMATION CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 1996 1995 1994
- ---------------------------------------------------------------------------------------
(In Millions, Except Per Share Amounts)
<S> <C> <C> <C>
Net revenues $ 2,278.2 $ 2,245.6 $ 2,280.5
Cost of goods sold 1,482.8 1,520.9 1,442.0
----------------------------------------------
Gross profit 795.4 724.7 838.5
Operating expenses:
Selling, general and administrative 563.0 539.4 531.5
Research and development 183.1 222.4 211.2
Restructuring charges 53.9 111.8 --
----------------------------------------------
Total operating expenses 800.0 873.6 742.7
Operating income (loss) (4.6) (148.9) 95.8
Interest expense and other 10.4 17.9 14.5
----------------------------------------------
Income (loss) before tax
and minority interest (15.0) (166.8) 81.3
Income tax provision (benefit) 5.9 (70.5) 29.3
Minority interest (0.4) (11.3) (2.3)
----------------------------------------------
Net income (loss) $ (20.5) $ (85.0) $ 54.3
----------------------------------------------
Earnings (loss) per common share $ (0.49) $ (2.02) $ 1.28
----------------------------------------------
Average shares outstanding 41.3 42.0 42.3
----------------------------------------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
PAGE 8
<TABLE>
<CAPTION>
IMATION CORP.
CONSOLIDATED BALANCE SHEETS
As of December 31, 1996 1995
- ----------------------------------------------------------------------------------------------
(In Millions, Except Share Amounts)
<S> <C> <C>
ASSETS
Current Assets
Cash and equivalents $ 61.7 $ --
Accounts receivable, net 467.6 479.5
Inventories 392.8 426.3
Other current assets 94.5 48.8
--------------------------------------
Total current assets 1,016.6 954.6
Property, Plant and Equipment, Net 480.1 513.2
Other Assets 64.6 73.7
--------------------------------------
Total Assets $ 1,561.3 $ 1,541.5
--------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 182.1 $ 125.9
Accrued payroll 41.9 44.4
Income taxes payable 7.6 --
Short-term debt 26.5 --
Other current liabilities 151.2 125.9
--------------------------------------
Total current liabilities 409.3 296.2
Other Liabilities 98.6 96.6
Long-term Debt 123.1 --
Commitments and Contingencies
Shareholders' Equity
Preferred stock, $.01 par value, authorized 25,000,000 shares,
none issued and outstanding -- --
Common stock, $.01 par value, authorized 100,000,000 shares,
issued and outstanding 42,879,880 as of December 31, 1996 .4 --
Additional paid-in capital 1,011.5 --
Retained earnings 11.2 --
Unearned ESOP shares (46.6) --
Cumulative translation adjustment (46.2) (39.1)
Net investment by 3M -- 1,187.8
--------------------------------------
Total shareholders' equity 930.3 1,148.7
--------------------------------------
Total Liabilities and Shareholders' Equity $ 1,561.3 $ 1,541.5
--------------------------------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
PAGE 9
<TABLE>
<CAPTION>
IMATION CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1996 1995 1994
- ----------------------------------------------------------------------------------------
(In Millions)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (20.5) $ (85.0) $ 54.3
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation 181.1 189.5 185.9
Deferred income taxes 12.6 (68.1) 14.0
Restructuring and other one-time charges 88.4 166.3 --
Accounts receivable 12.0 (0.6) (16.8)
Inventories 22.3 25.4 (87.8)
Other current assets (29.8) 1.1 (1.1)
Accounts payable 73.7 (4.5) 11.7
Accrued payroll and other current liabilities (37.9) 9.3 2.2
Other 4.1 23.4 7.7
--------------------------------
Net cash provided by operating activities 306.0 256.8 170.1
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (167.4) (180.2) (182.7)
Capitalized software (13.5) -- --
Other (3.7) (7.3) 3.0
--------------------------------
Net cash used in investing activities (184.6) (187.5) (179.7)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in short-term debt 25.4 -- --
Borrowings on long-term debt 270.3 -- --
Repayment of long-term debt (146.3) -- --
Loan to ESOP (50.0) -- --
Decrease in unearned ESOP shares 3.4 -- --
Net cash (paid to) received from 3M (155.9) (72.9) 18.5
--------------------------------
Net cash (used in) provided by
financing activities (53.1) (72.9) 18.5
Effect of exchange rate changes on cash (6.6) 3.6 (8.9)
--------------------------------
Change in cash and equivalents 61.7 -- --
Cash and equivalents - beginning of year -- -- --
Cash and equivalents - end of year $ 61.7 $ -- $ --
--------------------------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
PAGE 10
IMATION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- BACKGROUND AND BASIS OF PRESENTATION
BACKGROUND
Imation Corp. (the "Company") became an independent, publicly held company as of
July 1, 1996 (the "Distribution Date"), when Minnesota Mining and Manufacturing
Company ("3M") spun off its data storage and imaging systems businesses as an
independent, publicly owned company ("the Distribution"). One share of the
Company's common stock was issued for every ten shares of 3M stock outstanding
to stockholders of record on June 18, 1996.
BASIS OF PRESENTATION
SUBSEQUENT TO THE DISTRIBUTION The consolidated financial statements include the
accounts and operations of the Company on a stand-alone basis. 3M and the
Company have entered into a number of agreements to facilitate the transition of
the Company to an independent business enterprise.
PRIOR TO THE DISTRIBUTION The consolidated financial statements reflect the
assets, liabilities, revenues and expenses that were directly related to the
Company as they were operated within 3M. Where assets and liabilities were not
specifically identifiable to any particular business of 3M, only those assets
and liabilities transferred to the Company are included in the Company's
consolidated balance sheets. Regardless of the allocation of these assets and
liabilities, however, the Company's consolidated 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 the
Company 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
Cash and equivalents and debt were not allocated to the Company in the financial
statements as 3M uses a centralized approach to cash management and the
financing of its operations. The consolidated statements of operations include
an allocation of 3M's interest expense (see Note 7). The Company's financing
requirements are represented by cash transactions with 3M and are reflected in
the "Net Investment by 3M" account (see Note 9). 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 interest rate risk management
function. As part of this activity, derivative financial instruments were
utilized to manage risks generally associated with interest rate market
volatility. 3M did not hold or issue derivative financial instruments for
trading purposes. 3M was not a party to leveraged derivatives. The consolidated
balance sheets of the Company do not reflect any of the associated asset or
liability positions resulting from this activity because the Company did not
assume any of 3M's derivative financial instruments in connection with the
Distribution. The consolidated statements of operations and statements of cash
flows, however, do reflect an allocation of the related gains and losses. Such
gains and losses were recognized by 3M as interest expense over the borrowing
period and, as a result, are reflected in the effective interest rates utilized
by the Company in deriving its interest expense.
The minority interest within the consolidated statements of operations gives
recognition to the Company's share of net income (loss) of certain majority
owned subsidiaries of 3M. The minority shareholders' proportionate interests in
the Company's net assets of majority owned subsidiaries have not been presented
in the consolidated balance sheets as the Company obtained 100 percent ownership
of the assets and liabilities of these subsidiaries in connection with the
Distribution.
The financial information included herein for periods prior to the Distribution
may not necessarily be indicative of the financial position, results of
operations or cash flows of Company if it had been a separate, independent
company during the periods prior to the Distribution.
PAGE 11
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION Commencing with the Distribution, the consolidated financial
statements include the accounts of the Company and its wholly-owned
subsidiaries. Prior to the Distribution, the consolidated financial statements
include the accounts of the Company as described in Note 1. All significant
intercompany transactions and balances have been eliminated.
FOREIGN CURRENCY Local currencies are considered the functional currencies
outside the U.S. except for Imation Europe B.V., the Company's European holding
company, and subsidiaries located in highly inflationary economies. For
operations in local currency environments, assets and liabilities are translated
at year-end exchange rates with cumulative translation adjustments included as a
component of shareholders' equity. Income and expense items are translated at
average rates of exchange prevailing during the year. For operations in which
the U.S. dollar is considered the functional currency, certain financial
statement amounts are translated at historical exchange rates, with all other
assets and liabilities translated at year-end exchange rates. These translation
adjustments are reflected in the results of operations.
The Company enters into foreign currency forward exchange and derivative
contracts to hedge foreign currency transaction exposures. Gains and losses
arising from foreign currency contracts offset gains and losses resulting from
the underlying hedged transactions. The Company's policy is to selectively hedge
anticipated transaction exposures. Aggregated transaction gains and losses
included in the determination of net income (loss) are not material for any
period presented. As of December 31, 1996, the notional amount of outstanding
forward contracts was not material.
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 for periods prior to the
Distribution, 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.
CASH EQUIVALENTS Cash equivalents consist of temporary investments purchased
with original maturities of three months or less.
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 generally 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 expected future cash flows.
OTHER ASSETS Other assets consist primarily of deferred taxes, goodwill,
capitalized software and investments. Intangible assets are amortized over their
useful lives, which currently range from five to seven years. The carrying value
of intangible assets are periodically reviewed to assess recoverability based on
undiscounted expected 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.
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.
PAGE 12
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 $73 million, $52 million and $52 million in 1996, 1995 and 1994
respectively. Advertising costs in 1996 include $22 million related to start-up
costs for identity development.
INCOME TAXES Upon the Distribution, the Company became responsible for its
income taxes and will file its own income tax returns. Prior to the
Distribution, the Company did not file separate tax returns but rather was
included in the income tax returns filed by 3M and its subsidiaries in various
domestic and foreign jurisdictions. For purposes of the Company's consolidated
financial statements prior to the Distribution, 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. Had the
Company's 1996 provision for income taxes been calculated on a purely "separate
return" method, the impact on the Company's 1996 results of operations would not
have been material. Prior to the Distribution, the balance of accrued current
income taxes for the Company's operations is included in the Net Investment by
3M equity account because 3M paid all taxes and received all tax refunds on the
Company's behalf.
STOCK-BASED COMPENSATION The Company adopted Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation", in 1996. This
standard gives entities the choice of recognizing stock-based compensation by
adopting the new fair value method or to continue to measure compensation
expense using the intrinsic value approach under Accounting Principles Board
Opinion (APB) No. 25, "Accounting for Stock Issued to Employees". The Company
has chosen to account for stock-based compensation under APB No. 25.
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the quoted market price of the Company's common stock at the date of the
grant over the amount an employee must pay to acquire the stock.
EARNINGS PER SHARE For periods after the Distribution, earnings per share are
computed using the weighted average shares outstanding during the period, net of
unallocated shares held by the Company's ESOP. Common share equivalents were not
material. For periods prior to the Distribution, the number of weighted average
shares outstanding used in the earnings per share calculation is one-tenth of
the weighted average number of 3M shares outstanding based on the distribution
of one share of the Company for ten shares of 3M pursuant to the Distribution.
NOTE 3 -- ACQUISITION
In October 1996, the Company acquired all of the outstanding common and
preferred shares of Luminous Corporation (Luminous) for cash, 922,845 shares of
the Company's common stock and assumption of Luminous' obligations under
outstanding employee stock options, which, after conversion to options to
purchase the Company's common stock, represent options to purchase 317,062
shares of the Company's common stock. Luminous is a developer and marketer of
desktop software to the prepress, print production, printing and graphic arts
industries. The acquisition was accounted for using the purchase method of
accounting. The Company allocated a portion of the purchase price to in-process
research and development projects that had not yet reached technological
feasibility and had no probable alternative future uses, which resulted in a
one-time non-deductible charge of $12.0 million. The Company has allocated the
remaining excess purchase price over net assets acquired to goodwill which is
being amortized over seven years. Operating results for Luminous are included in
results of operations since the date of acquisition. The pro forma effect on
prior periods' results of operations is not material.
PAGE 13
NOTE 4 -- SUPPLEMENTAL BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
(In Millions) 1996 1995
- ---------------------------------------------------------------------------------------
<S> <C> <C>
ACCOUNTS RECEIVABLE
Accounts receivable $ 490.9 $ 497.0
Less allowances (23.3) (17.5)
----------------------------
Accounts receivable, net $ 467.6 $ 479.5
INVENTORIES
Finished goods $ 248.1 $ 244.0
Work in process 57.3 81.2
Raw materials and supplies 87.4 101.1
----------------------------
Total inventories $ 392.8 $ 426.3
OTHER CURRENT ASSETS
Deferred taxes $ 38.3 $ 23.4
Other 56.2 25.4
----------------------------
Total other current assets $ 94.5 $ 48.8
PROPERTY, PLANT AND EQUIPMENT
Land $ 8.3 $ 7.7
Buildings and leasehold improvements 185.0 180.9
Machinery and equipment 1,472.6 1,616.2
Construction in progress 44.0 63.5
----------------------------
Total 1,709.9 1,868.3
Less accumulated depreciation 1,229.8 1,355.1
----------------------------
Property, plant and equipment, net $ 480.1 $ 513.2
OTHER ASSETS
Deferred taxes $ 8.1 $ 60.6
Other 56.5 13.1
----------------------------
Total other assets $ 64.6 $ 73.7
OTHER CURRENT LIABILITIES
Accrued rebates $ 42.9 $ 44.6
Deferred income 26.1 35.8
Taxes other than income taxes 23.2 11.7
Other 59.0 33.8
----------------------------
Total other current liabilities $ 151.2 $ 125.9
OTHER LIABILITIES
Employee severance indemnities $ 49.3 $ 59.2
Other 49.3 37.4
----------------------------
Total other liabilities $ 98.6 $ 96.6
</TABLE>
NOTE 5 -- RESTRUCTURING CHARGES AND OTHER ONE-TIME COSTS
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 adopted a reorganization plan to
rationalize its manufacturing operations, streamline its organizational
structure and write-off impaired assets.
PAGE 14
The Company has reflected restructuring and other one-time charges of $254.7
million in its financial statements, partially in 1995 and partially in 1996
based upon the timing recognition criteria required for the restructuring
charges. The Company recorded $166.3 million of these charges ($88.3 million
after taxes and minority interest) in its 1995 financial statements and an
additional $88.4 million ($60.6 million after taxes) in 1996.
The 1995 special charges 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 U.S. 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 charges of $54.5 million
relates primarily to asset write-offs included in cost of goods sold.
In 1996, special charges of $88.4 million were recorded. These charges include
$53.9 million in restructuring charges primarily for employee separation
programs resulting in the reduction of approximately 1,600 employees and $22.5
million of one-time charges associated with start-up activities which are
included in costs of goods sold and selling, general and administrative
expenses. The unpaid restructuring charges for the employee separation programs
as of June 30, 1996, were retained by 3M pursuant to the Distribution. In
addition to the above charges, the Company also recognized a non-deductible
write-off of $12.0 million for the in-process research and development related
to the Luminous acquisition (see Note 3).
NOTE 6 -- INCOME TAXES
<TABLE>
<CAPTION>
The components of income (loss) before tax and minority interest are as follows:
(In Millions) 1996 1995 1994
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. $ (16.9) $ (136.1) $ 63.2
International 1.9 (30.7) 18.1
-------------------------------------------
Total $ (15.0) $ (166.8) $ 81.3
</TABLE>
The income tax provision (benefit) is as follows:
<TABLE>
<CAPTION>
(In Millions) 1996 1995 1994
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Currently payable (refundable)
Federal $ (9.9) $ (14.0) $ 8.3
State (0.4) (4.3) 1.7
International 3.9 15.6 4.6
Deferred
Federal 3.3 (34.9) 9.4
State (0.4) (3.1) 0.8
International 9.4 (29.8) 4.5
-------------------------------------------
Total $ 5.9 $ (70.5) $ 29.3
</TABLE>
PAGE 15
The components of net deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
(In Millions) 1996 1995
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Receivables $ 7.8 $ 4.0
Inventories 15.4 5.9
Property, plant and equipment (0.4) 44.5
Payroll 3.2 19.2
Other, net 17.9 9.5
----------------------------
Net deferred tax assets and liabilities $ 43.9 $ 83.1
</TABLE>
Management believes the Company, or in certain cases 3M prior to the
Distribution, will generate sufficient taxable income in future periods to fully
recover the Company's deferred tax assets.
The provision (benefit) for income taxes differs from the amount computed by
applying the statutory U.S. income tax rate (35%) because of the following
items:
<TABLE>
<CAPTION>
(In Millions) 1996 1995 1994
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax at statutory U.S. tax rate $ (5.3) $ (58.4) $ 28.5
State income taxes, net of federal benefit (1.2) (5.4) 2.9
International taxes in excess of
statutory U.S. tax rate 7.1 (7.7) (3.0)
Non-deductible expense related to acquisition 4.9 -- --
Other 0.4 1.0 0.9
---------------------------------
Income tax provision (benefit) $ 5.9 $ (70.5) $ 29.3
</TABLE>
As of December 31, 1996, approximately $151 million of earnings attributable to
international subsidiaries (inclusive of earnings prior to the Distribution for
certain international subsidiaries) were considered to be permanently invested.
No provision has been made for taxes that might be payable if these earnings
were remitted to the U.S. It is not practical to determine the amount of
incremental tax that might arise if these earnings were to be remitted.
Cash paid for income taxes in the period from July 1, 1996 to December 31, 1996
was not material. Prior to July 1, 1996, 3M paid all taxes and received all tax
refunds on the Company's behalf.
NOTE 7 -- DEBT
The components of long-term debt as of December 31, 1996, are as follows:
<TABLE>
<CAPTION>
(In Millions)
- ----------------------------------------------------------
<S> <C>
Revolving credit facility $ 120.0
Other 4.0
---------
124.0
Less current portion (0.9)
---------
Total long-term debt $ 123.1
</TABLE>
The Company maintains a $350 million revolving credit facility with a syndicate
of banks which expires on June 30, 2001. The commitment fee for the credit
facility is based on the Company's interest coverage ratio, and as of December
31, 1996, was .15 of one percent on the total amount of the credit facility.
Borrowings under the credit facility bear interest based on the London interbank
offered rate (LIBOR) or the administrative agent bank's base rate, plus an
applicable margin based on the Company's interest coverage ratio. As of December
31, 1996, $120 million in borrowings under this credit facility were outstanding
at interest rates ranging from 5.80% to 5.86%. The agreement contains financial
covenants that include a maximum debt to capital ratio, a minimum interest
coverage ratio, and a minimum tangible net worth. As of December 31, 1996, the
Company was in compliance with these covenants.
PAGE 16
Long-term debt maturities are as follows:
(In Millions) 1997 1998 1999 2000 2001
- -----------------------------------------------------------------------------
Long-term debt maturities $ 0.9 $1.0 $1.0 $ 1.1 $120.0
Short-term debt as of December 31, 1996, consisted of $25.6 million of
uncollateralized borrowings primarily held by international subsidiaries. These
borrowings have original maturities of one year or less and have a weighted
average interest rate of 2.9% as of December 31, 1996. As of December 31, 1996,
the Company had an additional $53 million available under credit facilities held
by various subsidiaries outside the U.S.
The Company estimates that the fair value of short-term and long-term debt
approximates the carrying amount of debt.
The Company's interest expense for the period from July 1, 1996 through December
31, 1996 was $6.8 million and cash paid for interest was $6.2 million. Prior to
the Distribution, the Company's financial statements include allocations of 3M's
interest expense totaling $7.4 million for the period from January 1, 1996 to
June 30, 1996, $18.8 million for 1995 and $16.3 million for 1994. Total 1996
interest expense was $14.2 million. Allocations prior to the Distribution were
based on an assumed non-ESOP debt level of $250 million. The interest rates used
were 6.4%, 7.5% and 6.5% in 1996, 1995 and 1994, respectively, which reflect
3M's weighted average effective interest rates on non-ESOP debt during these
periods. The consolidated balance sheet of the Company prior to the Distribution
does not include this debt as the total capitalization of the Company was
reflected in Net Investment by 3M.
NOTE 8 -- LEASES
Rent expense under operating leases, which primarily relate to equipment and
office space, amounted to $15.1 million, $9.0 million and $9.0 million in 1996,
1995 and 1994, respectively. The following table sets forth the minimum rental
payments under operating leases with non-cancelable terms in excess of one year
as of December 31, 1996:
After
(In Millions) 1997 1998 1999 2000 2001 2001 Total
- -----------------------------------------------------------------------------
Minimum Lease Payments $ 9.5 $6.5 $3.5 $ 2.1 $0.9 $0.2 $22.7
PAGE 17
NOTE 9 -- SHAREHOLDERS' EQUITY
The Company's authorized stock consists of 100,000,000 shares of common stock,
par value $0.01, and 25,000,000 shares of preferred stock, par value $0.01.
Common shares issued as of December 31, 1996 were 42,879,880 shares. There were
no preferred shares issued as of December 31, 1996.
The Company maintains a stockholder rights plan under which the Company has
issued one preferred share purchase right (Right) for each common share of the
Company. Each Right will entitle its holder to purchase one one-hundredth of a
share of Series A Junior Participating Preferred Stock at an exercise price of
$125, subject to adjustment. The Rights are exercisable only if a person or
group acquires beneficial ownership of 15 percent or more of the Company's
outstanding common stock. The Rights expire on July 1, 2006 and may be redeemed
earlier by the Board of Directors for $0.01 per Right.
The following table summarizes the changes in the components of shareholders'
equity:
<TABLE>
<CAPTION>
Additional Unearned Cumulative Net Total
Common Paid-In Retained ESOP Translation Investment Shareholders'
(In Millions) Stock Capital Earnings Shares Adjustment by 3M Equity
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 $(73.1) $1,272.9 $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 -- -- -- -- (45.7) 1,345.7 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 -- -- -- -- (39.1) 1,187.8 1,148.7
Net equity
transactions with 3M (164.0) (164.0)
Issuance of common
stock to 3M shareholders
(41,930,187 shares) $0.4 $ 991.7 (992.1) --
Loan to ESOP $(50.0) (50.0)
Amortization of
unearned ESOP shares -- 0.4 3.4 3.8
Issuance of common
stock (922,845 shares)
in connection
with acquisition -- 14.6 14.6
Value of stock options
issued in connection
with acquisition -- 4.8 4.8
Exercise of stock
options (26,848 shares) -- -- --
Net income (loss) $11.2 (31.7) (20.5)
Net change in
cumulative translation (7.1) (7.1)
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $0.4 $1,011.5 $11.2 $(46.6) (46.2) -- $930.3
</TABLE>
PAGE 18
NOTE 10 -- SEGMENT INFORMATION
The Company operates in one industry segment, the imaging and information
industry, supplying products and services to meet the information processing
needs for a variety of customer applications. Geographic 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>
OTHER
UNITED INTERNATIONAL ELIMINATIONS TOTAL
(In Millions) STATES EUROPE(1) AREAS(2) AND OTHER COMPANY
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues 1996 $ 1,159.5 $ 816.2 $ 302.5 $ 2,278.2
to customers 1995 1,128.8 808.4 308.4 2,245.6
1994 1,199.9 764.1 316.5 2,280.5
Transfers between 1996 $ 351.1 $ 92.5 $ 6.8 $ (450.4)
geographic areas 1995 290.9 76.2 4.0 (371.1)
1994 341.2 89.4 0.1 (430.7)
Operating 1996(3) $ (95.3) $ 78.8 $ 11.9 $ (4.6)
income (loss) 1995(4) (169.0) 55.8 (35.7) (148.9)
1994 1.5 72.9 21.4 95.8
Identifiable 1996 $ 777.1 $ 618.1 $ 166.1 -- $ 1,561.3
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
</TABLE>
(1) Includes operations in the Middle East and Africa since such regions are
managed together with Europe. These operations are not material to the overall
financial results of the Company.
(2) Includes Latin America, Asia and Canada.
(3) Includes restructuring and one-time charges of $77.1 million in the United
States, $9.8 million in Europe and $1.5 million in Other International Areas.
(4) Includes restructuring and one-time charges of $99.8 million in the United
States, $20.4 million in Europe and $46.1 million in Other International Areas.
NOTE 11 -- RETIREMENT PLANS
The Company has various non-contributory defined benefit employee pension plans
covering substantially all U.S. employees and certain employees outside the U.S.
For the U.S. plan, employees are eligible to participate at date of hire and are
fully vested after five years of service, including pension service time while
employed by 3M. Benefits are based primarily on employees' annual salary and
annual interest credits. For plans outside the U.S., benefits are based
principally on years of service and compensation near retirement. The Company's
funding policy is to deposit with a Trustee amounts at least equal to those
required by law. Pension investments consist primarily of common stocks and
fixed-income securities. The Company has not made any contributions to the U.S.
plan as of December 31, 1996, as such funding is not required until 1997.
Prior to the Distribution, employees of the Company participated in various
3M-sponsored retirement plans. For U.S. employees, 3M has retained
responsibility for the benefits earned under the plan. For plans outside the
U.S., the Company generally has assumed the assets and related liabilities. For
periods prior to the Distribution, pension expense was allocated to the Company
as part of 3M. Allocated pension expense was $12 million in the period January
1, 1996 to June 30, 1996, $24 million in 1995 and $25 million in 1994. Total
pension expense in 1996 was $21.3 million.
PAGE 19
The following table details net pension cost for period July 1, 1996 to December
31, 1996:
<TABLE>
<CAPTION>
INTERNATIONAL
(Millions) U.S. PLAN PLANS
- --------------------------------------------------------------------------------------
<S> <C> <C>
Service cost $ 7.5 $ 1.5
Interest cost -- 2.0
Return on plan assets--actual -- (2.0)
Net amortization and deferral -- 0.3
------------------------------
Net pension cost $ 7.5 $ 1.8
</TABLE>
The following table details the funded status of the pension plans as of
December 31, 1996:
<TABLE>
<CAPTION>
INTERNATIONAL
(Millions) U.S. PLAN PLANS
- --------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of:
Vested benefit obligation $ 6.9 $ 36.2
Non-vested benefit obligation 0.6 5.6
------------------------------
Accumulated benefit obligation $ 7.5 $ 41.8
Projected benefit obligation $ 7.5 $ 60.3
Plan assets at fair value -- $ 52.5
Plan assets less than the projected benefit obligation $ (7.5) $ (7.8)
Unrecognized net transition obligation -- 0.9
Other unrecognized items -- 5.6
------------------------------
Accrued pension cost $ (7.5) $ (1.3)
</TABLE>
The assumptions at year end are as follows:
<TABLE>
<CAPTION>
INTERNATIONAL
U.S. PLAN PLANS
- --------------------------------------------------------------------------------------
<S> <C> <C>
Discount rate 8.00% 8.00%
Compensation rate increase 4.75% 6.20%
Long-term rate of return on assets 9.00% 8.30%
</TABLE>
Net pension cost was determined using assumptions as of July 1, 1996
(Distribution Date), which were the same as the December 31, 1996 assumptions
used to determine the funded status.
In addition to the above, the Company's Italian subsidiary sponsors an employee
severance indemnity as required by law. The accrued liability for this severance
indemnity is included in other liabilities and was $49.3 million and $59.2
million as of December 31, 1996 and 1995, respectively. The Company measures the
vested benefit obligation as the amount that would be payable if the employees
under the plan would separate currently. Expense for this plan was $5.0 million,
$7.8 million and $6.3 million in 1996, 1995 and 1994, respectively.
NOTE 12 -- EMPLOYEE SAVINGS AND STOCK OWNERSHIP PLANS
The Company sponsors a 401(k) retirement savings plan under which eligible U.S.
employees may choose to save up to 15% of eligible compensation on a pre-tax
basis, subject to certain IRS limitations. The Company matches employee
contributions 100% on the first three percent of eligible compensation and 25%
on the next three percent of eligible compensation. The Company also sponsors a
variable compensation program, in which the Company will contribute up to three
percent of eligible employee compensation to employees' 401(k) retirement
accounts, depending upon Company performance.
PAGE 20
The Company established an Employee Stock Ownership Plan (ESOP) during 1996 as a
cost-effective way of funding the employee retirement savings benefits noted
above. The ESOP borrowed $50.0 million from the Company and used the proceeds to
purchase approximately 2.2 million shares of the Company's common stock, with
the ESOP shares pledged as collateral for the debt. The Company makes monthly
contributions to the ESOP equal to the debt service plus an applicable amount so
that the total contribution releases a number of shares equal to that required
to satisfy the Company's matching requirements. As the debt is repaid, shares
are released from collateral and allocated to employee accounts. The shares
pledged as collateral are reported as unearned ESOP shares in the consolidated
balance sheets. The Company reports compensation expense equal to the current
market price of the shares released, and released shares are considered
outstanding for the computation of earnings per share. Compensation expense
related to the ESOP was $3.8 million in the period from July 1, 1996 to December
31, 1996.
The ESOP shares as of December 31, 1996 are as follows:
Released and allocated shares 146,149
Unreleased shares 2,029,738
Total ESOP shares 2,175,887
------------
Fair value of unreleased shares as of December 31, 1996 $57,086,000
Prior to the July 1, 1996, U.S. employees of the Company participated in a
3M-sponsored employee savings plan under Section 401(k) of the Internal Revenue
Code. 3M matched employee contributions of up to six percent of compensation at
rates ranging from 35 to 85 percent depending upon financial performance. The
Company's allocation of the expense related to the 3M employee savings plan was
$2.3 million in the period from January 1, 1996 to June 30, 1996, $4.5 million
in 1995 and $4.6 million in 1994. Total expense for 1996 was $6.1 million.
NOTE 13 -- EMPLOYEE STOCK PLANS
The Company currently has stock options outstanding under the Imation 1996
Employee Stock Incentive Program (the "Employee Plan"), the Imation 1996
Directors Stock Compensation Program (the "Directors Plan") and the Imation
Stock Option Plan for Employees of Luminous Technology Corporation (the
"Luminous Plan").
The Employee Plan was approved and adopted by 3M on June 18, 1996, as the sole
stockholder of the Company, and became effective on July 1, 1996, the
Distribution Date. The total number of shares of common stock that may be issued
or awarded under the Employee Plan may not exceed 6,000,000. All shares subject
to awards under the Employee Plan that are forfeited or terminated will be
available again for issuance pursuant to awards under the Employee Plan.
Generally, grant prices are equal to the fair market value of the Company's
common stock at date of grant. The options normally have a term of ten years and
become exercisable from one to five years after grant date. At December 31,
1996, there were 3,677,532 shares available for grant under the Employee Plan.
The Directors Plan was also approved and adopted by 3M prior to the Distribution
Date, as the sole shareholder of the Company, and became effective on July 1,
1996. The total number of shares of common stock that may be issued or awarded
under the Directors Plan may not exceed 800,000. The outstanding options are
non-qualified options with a term of ten years and generally become exercisable
one year after grant. Grant prices are equal to the fair market value of the
Company's common stock at date of grant. As of December 31, 1996, there were
740,000 shares available for grant under the Directors Plan.
The Luminous Plan was approved and adopted by the shareholders of Luminous
Corporation (Luminous) prior to the acquisition of Luminous by the Company (see
Note 3). In connection with the acquisition, the Company assumed certain
outstanding stock options held by Luminous employees and agreed to convert such
options into 317,062 options to purchase the Company's common stock. The
outstanding options were amended to accelerate the dates on which the options
become exercisable. No additional grants may be made pursuant to the Luminous
Plan.
PAGE 21
The following table summarizes stock option activity for 1996:
Stock Weighted Average
Options Exercise Price
- ------------------------------------------------------------------------
Granted 2,699,530 $ 21.14
Exercised 26,848 2.16
Forfeited 24,525 22.54
-----------------------------------
Outstanding, End of Year 2,648,157 $ 21.31
Exercisable, End of Year 131,857 $ 10.58
The following table summarizes information about stock options outstanding as of
December 31, 1996:
<TABLE>
<CAPTION>
Weighted Average Options Outstanding- Options Exercisable-
Range of Options Remaining Weighted Average Options Weighted Average
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 0.31 171,754 9 years $ 0.31 74,219 $ 0.31
22.38 to 26.80 2,476,403 9 years 22.76 57,638 23.81
--------- ------
$ 0.31 to $26.80 2,648,157 131,857
</TABLE>
The Company has adopted the disclosure only provisions of Statement of Financial
Accounting Standard No. 123 (SFAS 123), "Accounting for Stock-Based
Compensation". Accordingly, no compensation expense has been recognized for the
stock option plans. If the fair value of options granted had been recognized as
compensation expense on a straight-line basis over the vesting periods in
accordance with the provisions of SFAS 123, pro forma pretax loss would have
been $9.4 million higher ($5.1 million after tax or $0.12 per share) in 1996 and
$3.4 million higher ($1.9 million after tax or $0.05 per share) in 1995. The pro
forma effects on net income (loss) for 1996 and 1995 are not representative of
the pro forma effects on net income (loss) in future years due to differences
between the Company's and 3M's option plans, including vesting periods, and the
exclusion of compensation expense related to the vesting of grants made prior to
1995.
The weighted average fair value at date of grant for options granted in 1996 was
as follows:
Exercise price equals market price on grant date: $ 8.96
Exercise price less than market price on grant date: $ 21.97
As part of 3M, certain employees of the Company were granted stock options prior
to the Distribution to purchase 3M stock. Options granted to the Company's
employees under 3M's General Employees' Stock Purchase Plan (GESPP) were 72,522
from January 1, 1996 to June 30, 1996 and 144,366 in 1995. The weighted average
fair value per option granted under the GESPP was $10.37 in 1996 and $8.60 in
1995. Options granted to the Company's employees under 3M's Management Stock
Option Plan (MSOP) were 271,200 in 1995 with a weighted average fair value of
$12.48 per option. No options were issued to the Company's employees under the
MSOP in 1996. Pursuant to the Distribution, options granted to the Company's
employees while part of 3M have not been converted into options to purchase
shares of the Company's stock.
The fair values at date of grant were estimated using the Black-Scholes option
pricing model with the following weighted average assumptions (1995 grants
reflect 3M assumptions):
1996 1995
- -------------------------------------------------------------------------
Volatility 40.0% 14.4%
Risk free interest rate 6.38% 5.90%
Expected life (months) 49 66
Dividend growth Zero 5.2%
PAGE 22
NOTE 14 -- SUPPLEMENTAL NON-CASH ITEMS
Pursuant to the Distribution on July 1, 1996, certain assets and liabilities
with a net value of $8.1 million were retained by 3M, primarily comprised of
certain deferred tax assets of $26.9 million and severance obligations of $23.9
million. Pursuant to the acquisition of Luminous (see Note 3), the Company
issued $14.6 million of common stock and $4.8 million of stock options.
NOTE 15 -- COMMITMENTS AND CONTINGENCIES
In connection with the Distribution, the Company assumed substantially all
liabilities for legal proceedings relating to the Company's businesses as
conducted prior to the Distribution.
In addition, in the normal course of business, the Company is subject to
proceedings, lawsuits and other claims, including proceedings under laws and
regulations related to environmental and other matters. All such matters are
subject to many uncertainties and outcomes that are not predictable with
assurance. Consequently, the Company is unable to ascertain the ultimate
aggregate amount of monetary liability or financial impact with respect to these
matters at December 31, 1996. While these matters could materially affect
operating results of any one quarter when resolved in future periods, it is
management's opinion that after final disposition, any monetary liability or
financial impact to the Company beyond that provided in the consolidated balance
sheet as of December 31, 1996 would not be material to the Company's financial
position, or annual results of operations or cash flows.
<TABLE>
<CAPTION>
NOTE 16 -- QUARTERLY DATA (UNAUDITED)
(In Millions,
except per share amounts) First Second Third Fourth Total
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996
Net revenues $ 576.1 $ 561.2 $ 559.3 $ 581.6 $ 2,278.2
Gross profit 202.3 192.7 196.6 203.8 795.4
Operating income (loss) 13.3 (55.6) 24.5 13.2 (4.6)
Net income (loss) 6.1 (37.8) 11.8 (0.6) (20.5)
Earnings (loss) per common share 0.14 (0.90) 0.29 (0.02) (0.49)
1995
Net revenues $ 576.7 $ 565.0 $ 546.2 $ 557.7 $ 2,245.6
Gross profit 212.5 194.6 181.7 135.9 724.7
Operating income 18.2 (1.9) (1.3) (163.9) (148.9)
Net income (loss) 7.5 (3.2) (1.8) (87.5) (85.0)
Earnings (loss) per common share 0.18 (0.08) (0.04) (2.08) (2.02)
</TABLE>
PAGE 23
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
Management is responsible for the integrity and objectivity of the financial
information included in this report. The financial statements have been prepared
in accordance with generally accepted accounting principles. Where necessary,
they reflect estimates based on management judgement.
Established accounting procedures and related systems of internal control
provide reasonable assurance that assets are safeguarded, that the books and
records properly reflect all transactions, and that policies and procedures are
implemented by qualified personnel. Internal auditors review the accounting and
control systems.
The Audit Committee, comprised of four members of the Board of Directors who are
not employees of the Company, meets regularly with representatives of
management, the independent accountants and the Company's internal auditors to
monitor the functioning of the accounting control systems and to review the
results of the auditing activities. The Audit Committee recommends independent
accountants for appointment by the Board, subject to shareholder ratification.
The independent accountants and the internal auditors have full and free access
to the Audit Committee.
The independent accountants conduct an objective, independent audit of the
financial statements. Their report follows.
/s/ William T. Monahan /s/ Jill D. Burchill
William T. Monahan Jill D. Burchill
Chairman and Chief Executive Officer Chief Financial Officer
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS, IMATION CORP.:
We have audited the accompanying consolidated balance sheets of Imation Corp.
and subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of operations and cash flows for each of the three years in the
period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Imation Corp. and
subsidiaries as of December 31, 1996 and 1995, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
/s/ Coopers & Lybrand L.L.P.
Minneapolis, Minnesota
February 14, 1997
PAGE 25
EXHIBIT 21
SUBSIDIARIES OF IMATION CORP.
Country or State In Percentage
Which Subsidiary Was of Voting
Organized Securities
Owned (Note 1)
-------------- --------------
Imation Enterprises Corp. Delaware 100
- ---------------------------------------- ---------------------------------------
Imation Funding Corp. Delaware 100
- ---------------------------------------- ---------------------------------------
Luminous Technology Corporation Delaware 100
- ---------------------------------------- ---------------------------------------
Imation Argentina S.A. Argentina 100
- ---------------------------------------- ---------------------------------------
Imation do Brasil Ltd. Brazil 100
- ---------------------------------------- ---------------------------------------
Imation Chile S.A. Chile 100
- ---------------------------------------- ---------------------------------------
Imation Colombia S.A. Colombia 100
- ---------------------------------------- ---------------------------------------
Imation de Costa Rica S.A. Costa Rica 100
- ---------------------------------------- ---------------------------------------
Imation de El Salvador de C.V. El Salvador 100
- ---------------------------------------- ---------------------------------------
Imation Ecuador S.A. Ecuador 100
- ---------------------------------------- ---------------------------------------
Imation de Guatemala S.A. Guatemala 100
- ---------------------------------------- ---------------------------------------
Imation Mexico S.A. de C.V. Mexico 100
- ---------------------------------------- ---------------------------------------
Imation Panama, S.A. Panama 100
- ---------------------------------------- ---------------------------------------
Imation Peru S.A. Peru 100
- ---------------------------------------- ---------------------------------------
Imation Caribbean Inc. Puerto Rico 100
- ---------------------------------------- ---------------------------------------
Imation Venezuela, S.A. Venezuela 100
- ---------------------------------------- ---------------------------------------
Imation Canada Inc. Canada 100
- ---------------------------------------- ---------------------------------------
Imation (Barbados) Corp. Barbados 100
- ---------------------------------------- ---------------------------------------
Imation Taiwan Ltd. Taiwan 100
- ---------------------------------------- ---------------------------------------
Imation (Thailand) Ltd. Thailand 100
- ---------------------------------------- ---------------------------------------
Imation Asia Pacific Pte. Ltd. Singapore 100
- ---------------------------------------- ---------------------------------------
Imation ANZ Pte. Ltd. Australia 100
- ---------------------------------------- ---------------------------------------
Imation (Shanghai) Co. Ltd. China 100
- ---------------------------------------- ---------------------------------------
Imation Hong Kong Limited Hong Kong 100
- ---------------------------------------- ---------------------------------------
Imation Corporation Japan (Note 2) Japan 100
- ---------------------------------------- ---------------------------------------
Imation Korea, Inc. Korea 100
- ---------------------------------------- ---------------------------------------
Imation Singapore Pte. Ltd. Singapore 100
- ---------------------------------------- ---------------------------------------
Imation Europe B.V. Netherlands 100
- ---------------------------------------- ---------------------------------------
Imation Imaging and Information Austria 100
Systems GmbH
- ---------------------------------------- ---------------------------------------
Imation Belgium NV Belgium 100
- ---------------------------------------- ---------------------------------------
Imation Spol. Sr.o. Czech Republic 100
- ---------------------------------------- ---------------------------------------
Imation A/S Denmark 100
- ---------------------------------------- ---------------------------------------
Imation Finland Oy Finland 100
- ---------------------------------------- ---------------------------------------
Imation France S.A. France 100
- ---------------------------------------- ---------------------------------------
Imation Deutschland GmbH Germany 100
- ---------------------------------------- ---------------------------------------
Imation Greece S.A. Greece 100
- ---------------------------------------- ---------------------------------------
Imation Hungary "Kft." Ltd. Hungary 100
- ---------------------------------------- ---------------------------------------
Imation Finanziaria S.p.A. Italy 100
- ---------------------------------------- ---------------------------------------
Imation Ricerche S.p.A. Italy 100
- ---------------------------------------- ---------------------------------------
Imation S.p.A. Italy 100
- ---------------------------------------- ---------------------------------------
Imation International B.V. Netherlands 100
- ---------------------------------------- ---------------------------------------
Imation Norge A/S Norway 100
- ---------------------------------------- ---------------------------------------
Imation Poland Sp.zo.o. Poland 100
- ---------------------------------------- ---------------------------------------
Imation South Africa South Africa 100
(Proprietary) Ltd.
- ---------------------------------------- ---------------------------------------
Imation Iberia, S.A. Spain 100
- ---------------------------------------- ---------------------------------------
Imation Sweden AB Sweden 100
- ---------------------------------------- ---------------------------------------
Imation (Schweiz) AG Switzerland 100
- ---------------------------------------- ---------------------------------------
Imation U.K. Limited United Kingdom 100
- ---------------------------------------- ---------------------------------------
Imation Research Ltd. United Kingdom 100
- ---------------------------------------- ---------------------------------------
Notes to List of Subsidiaries:
Note 1 - The percentage of ownership refers to the total ownership by the
indicated parent corporation.
Note 2 - Imation Corporation Japan also owns a 60% ownership interest in a joint
venture organized under the laws of Japan.
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in Registration Statements of
Imation Corp. on Form S-8 (Registration Nos. 333-15273, 333-15275 and 333-15277)
of our report dated February 14, 1997, on our audits of the consolidated
financial statements of Imation Corp. and subsidiaries as of December 31, 1996
and 1995, and for each of the three years in the period ended December 31, 1996,
which report is incorporated by reference in this Annual Report on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
Minneapolis, Minnesota
March 31, 1997
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints William T. Monahan, Jill D.
Burchill and Carolyn A. Bates, and each of them, his or her true and lawful
attorneys-in-fact and agents, each acting alone, with full power of substitution
and resubstitution, for him or her and in his or her name, place and stead, in
any and all capacities, to sign the 1996 Annual Report on Form 10-K of Imation
Corp., and any and all amendments thereto, and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, each acting alone, full power and authority to do and perform to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, each acting alone, or
the substitutes for such attorneys-in-fact and agents, may lawfully do or cause
to be done by virtue hereof.
NAME TITLE DATE
---- ----- ----
/s/ William T. Monahan Chairman, President, Chief March 13, 1997
- -------------------------- Executive Officer and Director
William T. Monahan (principal executive officer)
/s/ Jill D. Burchill Chief Financial Officer March 13, 1997
- -------------------------- (principal financial officer)
Jill D. Burchill
/s/ James R. Stewart Corporate Controller March 13, 1997
- -------------------------- (principal accounting officer)
James R. Stewart
/s/ Lawrence E. Eaton Director March 13, 1997
- --------------------------
Lawrence E. Eaton
/s/ Linda W. Hart Director March 13, 1997
- --------------------------
Linda W. Hart
/s/ William W. George Director March 13, 1997
- --------------------------
William W. George
/s/ Ronald T. LeMay Director March 13, 1997
- --------------------------
Ronald T. LeMay
/s/ Marvin L. Mann Director March 13, 1997
- --------------------------
Marvin L. Mann
/s/ Mark A. Pulido Director March 13, 1997
- --------------------------
Mark A. Pulido
/s/ Daryl J. White Director March 13, 1997
- --------------------------
Daryl J. White
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH CONSOLIDATED FINANCIAL STATEMENTS AND NOTES.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
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<RECEIVABLES> 490,900
<ALLOWANCES> (23,300)
<INVENTORY> 392,800
<CURRENT-ASSETS> 1,016,600
<PP&E> 1,709,900
<DEPRECIATION> (1,229,800)
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0
0
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<INTEREST-EXPENSE> 10,400
<INCOME-PRETAX> (15,000)
<INCOME-TAX> 5,900
<INCOME-CONTINUING> (20,500)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (20,500)
<EPS-PRIMARY> (0.49)
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